BP, Lehman, S&P, Transocean, Galleon, Vivendi, Trafigura in Court News

The U.S. Justice Department opened criminal and civil investigations into the BP Plc oil spill in the Gulf of Mexico, the worst in U.S. history.

“We will prosecute to the fullest extent of the law anyone who has violated the law,” Attorney General Eric Holder said yesterday. “This disaster is nothing less than a tragedy.”

The spill began after an April 20 explosion aboard the Deepwater Horizon rig, which London-based BP leased from Transocean Ltd. in Switzerland. Houston-based Halliburton Co. provided oilfield services on the well.

Holder, who said the probe “began some weeks ago,” declined to specify which companies are under investigation.

The Justice Department will ensure that taxpayer money will be repaid and that damage to the environment and wildlife will be reimbursed, Holder said. The government already has told “all relevant parties” to preserve documents that may “shed light on the facts surrounding this disaster,” Holder said.

BP will cooperate with the Justice Department, said Jon Pack, a company spokesman, in an interview. Transocean said in a statement that it will cooperate with authorities, adding, “We will not speculate on actions the Justice Department may or may not take.” Teresa Wong, a Halliburton spokeswoman, declined to comment.

The government is reviewing whether there were violations of the Clean Water Act, which carries civil and criminal penalties, and the Oil Pollution Act of 1990, which can be used to hold companies liable for cleanup costs, Holder said. Also under review is whether there were violations of the Migratory Bird Treaty Act and Endangered Species Act, which provide penalties for injuries to wildlife, and other criminal laws.

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New Suits

Lehman Real Estate Investors Sue Funds, Fuld, Citing Examiner

Investors in Lehman Brothers Holdings Inc. real estate funds brought a lawsuit for securities fraud against the funds, former Chief Executive Officer Richard Fuld and real estate executive Mark Walsh, citing a report by a bankruptcy examiner.

Plaintiffs said they were joining an earlier suit against Lehman and were part of a group that committed to invest almost $53.8 million in real estate partnerships, according to a May 28 filing. They seek unspecified damages and disgorgement of fees.

Lehman spokeswoman Kimberly Macleod said she couldn’t immediately comment. Patricia Hynes, a lawyer for Fuld, and Richard Rosen, a lawyer for Walsh, didn’t immediately return calls seeking comment.

The bankruptcy case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The investors’ lawsuit is De Slaberry v. Lehman Brothers Real Estate Associates III LP, 10-cv-4299, U.S. District Court, Southern District of New York (Manhattan).

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U.S. Asks Court to Reject Transocean $27 Million Liability Cap

The U.S. government asked a federal judge to reject Transocean Ltd.’s bid to use a 159-year-old law to cap its liability at $27 million for environmental claims tied to the Deepwater Horizon oil spill.

The U.S. filed the motion yesterday in Houston federal court to “make clear” it’s entitled to pursue claims “for pollution response costs, environmental damages and other injuries stemming from the oil spill,” Assistant U.S. Attorney General Tony West wrote.

“It is simply unconscionable, in the circumstances of this case, that Transocean is attempting to use this” law to avoid paying states or the U.S. for damages caused by the rig explosion, West said in a May 24 letter to Transocean’s lawyers.

The spill began after an April 20 fire aboard the Deepwater Horizon rig, which London-based BP leased from Switzerland-based Transocean to drill its Macondo well in the Gulf.

The law cited by Transocean, the Limitation of Liability Act of 1851, is pre-empted by the Oil Pollution Act of 1990, the U.S. said. The claims of state governments also are “not subject to the limitation act,” West wrote.

Mike Geczi, a spokesman for Transocean, declined to comment on the U.S. motion. Transocean said in an earlier statement that it will cooperate with authorities in their investigation.

BP will cooperate with the Justice Department, said Jon Pack, a company spokesman, in an interview.

The case is In Re the Complaint and Petition of Triton Asset Leasing GmbH, Transocean Holdings LLC, 10-01721, U.S. District Court for the Southern District of Texas (Houston).

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S&P, Moody’s Found by Judge Not to Be Underwriters

McGraw-Hill Cos.’ Standard & Poor’s and Moody’s Corp. can’t be viewed as “underwriters” of securities offerings that needed their credit ratings, a federal judge said in explaining why he dismissed a lawsuit.

U.S. District Judge Jed Rakoff in Manhattan said there was no legal basis for holding the ratings firms liable for losses, as the Public Employees’ Retirement Systems of Mississippi’s 2008 lawsuit sought to do. The plaintiffs in the consolidated fraud case claimed they relied on credit ratings to buy $63 billion of investment-grade mortgage-backed securities.

Rakoff, who dismissed the lawsuit on March 31, explained his reasoning in a written opinion issued yesterday. The plaintiffs’ argument that the ratings companies effectively “functioned as underwriters” was an “extremely broad view of what constitutes an underwriter,” he wrote.

“There is nothing in the complaint to suggest that the ratings agencies participated in the relevant ‘undertaking’ -- that of purchasing the securities here at issue,” he said.

The plaintiffs hadn’t made any other legal claims, he said.

Samuel Rudman, a lawyer for the pension fund, didn’t return a voice-mail message left at his office seeking comment.

Investors in the case before Rakoff claimed that S&P and Moody’s misled them by disregarding the companies’ own rating guidelines, and serving conflicted roles in evaluating and structuring the bonds.

The case is Iron Workers Local No. 25 Pension Fund v. Credit-Based Asset Servicing & Securitization LLC, 08-cv-10841, U.S. District Court, Southern District of New York (Manhattan).

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Goffer Defendants Outline Defense in Court Submission

Former Galleon Group LLC employee Zvi Goffer and six others accused of conspiring with him in an insider trading case said in a court filing that the supposed secret tips were public before they traded on them.

In a joint court submission in May 28, lawyers for the seven defendants in the case outlined the defense and also asked a judge to order prosecutors to provide additional information to them.

Goffer faces federal charges that he got leaks originating from lawyers at the Ropes & Gray LLP law firm in New York and others and passed the information along to fellow defendants in the case.

The case is U.S. v. Goffer, 10-cr-56, U.S. District Court, Southern District of New York (Manhattan).

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Wells Fargo Denies Selling Risky Investments in Trial

Wells Fargo & Co.’s securities lending program wasn’t risky and nor did the bank block four Minnesota nonprofits from getting out of the investments as their value eroded, a lawyer for the bank said at trial yesterday.

The Minnesota Workers’ Compensation Reinsurance Association and three charitable foundations sued in St. Paul, Minnesota, in 2008, claiming the bank failed to disclose the deteriorating condition of the investments until it was too late. The nonprofits are seeking more than $400 million in damages.

Wells Fargo lawyer Robert Weinstine said in closing arguments in the trial yesterday that the bank in no way misrepresented the lending program, and the losses sustained by the plaintiffs were caused by the financial crisis. The plaintiffs weren’t prevented from exiting the investments, he said.

“Wells Fargo wants you to believe it was the recession or the liquidity crunch that caused the problem, but that’s just not so,” attorney Michael Ciresi said in his closing argument yesterday.

The case is Workers Compensation Reinsurance Association v. Wells Fargo Bank, 62-cv-08-10825, District Court, Ramsey County, Minnesota (St. Paul).

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Vivendi Pitted Against Messier in Paris Trial After U.S. Loss

Vivendi SA will face off against Jean-Marie Messier in Paris this month over criminal charges the former chief executive officer misled investors about the company’s financial health and misused corporate funds.

The trial starting today will be a role reversal for Vivendi, which is allied with the Paris prosecution after having shared the role of defendant with Messier earlier this year in a New York investor class-action. There, the jury cleared Messier, placing responsibility on Vivendi.

While investor lawyers including Milberg LLP’s Matthew Gluck estimate the U.S. verdict could cost the company as much as $9 billion, Vivendi will attempt to restore its image at the Paris trial by establishing itself as a victim of former executives in the minds of investors and the general public.

Messier is a defendant with five former Vivendi officials and Deutsche Bank AG’s former head of French equities at the Paris trial. Of them, only former Vivendi finance chief Guillaume Hannezo was also involved in the U.S. class action. He too was cleared by the New York jury.

Vivendi spokesman Antoine Lefort declined to comment. Messier and his lawyers in Paris and New York didn’t return calls and e-mails seeking comment. There is “not a single reason” for Hannezo to be tried, Hannezo’s lawyer Jean Veil said in a telephone interview.

Former IKB Chief Wasn’t Aware of Default Risk, Lawyer Says

Former IKB Deutsche Industriebank AG Chief Executive Officer Stefan Ortseifen wasn’t aware of risks in investments that led the bank to the brink of collapse because credit-rating firms didn’t signal any problems, his lawyer said.

Ortseifen, 59, is on trial in Dusseldorf, Germany, for misleading investors by downplaying the effect of the real estate crisis in a press release on July 20, 2007.

Rainer Hamm, Ortseifen’s lawyer, said he wants the court to call Moody’s Corp. analyst Marie-Jeanne Kerschkamp as a witness.

IKB was bailed out in 2007 by KfW Group and banking associations and has received guarantees of as much as 12 billion euros ($14.6 billion) from the Soffin bank-rescue fund.

The German case is LG Dusseldorf, 14 KLs 6/09.

Trafigura, Amsterdam Broke Environmental Laws, Prosecutor Says

Prosecutors told an Amsterdam court that Trafigura Beheer BV, the city of Amsterdam and a waste-disposal company broke Dutch environmental laws that led to a pollution incident in the Ivory Coast.

The city is charged with allowing a ship hired by Trafigura, the Probo Koala, to leave after Amsterdam Port Services rejected the ship’s waste in 2006. Closely held Trafigura is accused of concealing the waste’s composition to the disposal company and illegally exporting it to the Ivory Coast after it was rejected.

A local company dumped the waste near the Ivory Coast commercial capital, Abidjan. Residents claimed the pollution caused deaths and widespread illness.

Margaret van Kempen, a Trafigura spokeswoman, said she expect a number of charges will be dropped after the closing of the preliminary inquiry, and the company “will defend itself” on remaining charges.

An Ivory Coast appeals court in 2008 dropped criminal charges against Amsterdam-based Trafigura, which settled personal injury claims brought by residents. Trafigura has denied responsibility for the dumping.

Silence Right Must Be Invoked Explicitly, Court Says

Criminal suspects must explicitly invoke their right to remain silent to force police to stop questioning, a divided U.S. Supreme Court ruled.

The 5-4 decision upholds the Michigan murder conviction of a man who sat silent throughout most of a three-hour interrogation by police. The ruling blunts the force of the landmark 1966 Miranda v. Arizona decision, which required police to inform suspects of their rights.

The ruling divided the court along what have become familiar lines, with Chief Justice John Roberts and Justices Antonin Scalia, Clarence Thomas and Samuel Alito joining Justice Anthony Kennedy in the majority.

The decision “turns Miranda upside down,” Justice Sonia Sotomayor wrote in dissent. Justices Stephen Breyer, John Paul Stevens and Ruth Bader Ginsburg joined Sotomayor in dissent.

The case is Berghuis v. Thompkins, 08-1470.

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Swiss Court Says 37 New Appeals Filed in UBS Tax Case

Switzerland’s Federal Administrative Tribunal said another 37 appeals against the disclosure of UBS AG client data to the U.S. have been filed. One will be selected as a pilot case, it said yesterday in an e-mailed statement.

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Litigation Departments

Stanford’s Judge Rejects Another Attorney’s Bid to Quit Case

Indicted financier R. Allen Stanford, who clashed with two of his former defense lawyers, will have to work with a third after the attorney’s bid to withdraw from the case was rejected by a federal judge.

Michael Essmyer, a Houston attorney who joined the Stanford defense team in April with co-counsel Robert Bennett, may not leave the case, U.S. District Judge David Hittner ruled yesterday. While Essmyer was asking to get out of the case, Stanford, through Bennett, said last month he had fired him.

“Having considered the motion, the arguments of counsel and the applicable law, the court determines that the motion should be denied,” Hittner said in a one-page ruling on Essmyer’s request. “However, Robert S. Bennett will hereafter be noted as lead counsel for defendant Robert Allen Stanford.”

Stanford, 60, faces a 21-count criminal indictment that accuses him of masterminding a $7 billion investment fraud scheme centered on the sale of certificates of deposit by his Antigua-based Stanford International Bank, Ltd.

He has maintained he is innocent of those charges and parallel allegations made in a civil complaint filed by the U.S. Securities and Exchange Commission.

The criminal case is U.S. v. Stanford, 09cr342, U.S. District Court, Southern District of Texas (Houston). The SEC case is Securities and Exchange Commission v. Stanford International Bank Ltd., 09cv298, U.S. District Court, Northern District of Texas (Dallas).

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Billion-Dollar Lawyer Desmarais Trolls for Patents

John Desmarais, a former top earner at the 1,500-lawyer firm Kirkland & Ellis, spent more than 15 years representing some of the world’s largest patent owners. Now he’s one of them.

Desmarais, 46, in December bought a portfolio of 4,500 patents from Micron Technology Inc., the biggest U.S. maker of computer-memory chips. Yesterday, he opened the doors of a new law firm, New York-based Desmarais LLP, which will look for potential infringers of the patents owned by Round Rock Research LLC, his new patent-holding company.

Mount Kisco, New York-based Round Rock is the second- largest owner of patents among so-called nonpracticing entities, or companies that don’t sell the technology or services for which they hold patents, according to PatentFreedom, a group that keeps a database of patent holdings.

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Judges Quit BP Gulf Oil-Spill Suits Over Conflicts of Interest

BP Plc and Transocean Ltd. oil-spill lawsuits may be combined before a judge from outside the Gulf Coast states, because judges in the region are withdrawing from more than 150 cases, citing conflicts of interest. The judges found conflicts tied to oil investments or personal relationships with lawyers or companies involved.

The lawsuits are almost all class-action, or group, suits against BP, owner of the offshore lease where the damaged well is located, and Transocean, which owned the Deepwater Horizon rig that exploded and sank in April.

Federal judges in southern Alabama also have stepped aside from handling spill-damage cases, a court official there said.

The case is In re Oil Spill by the Oil Rig “Deepwater Horizon” in the Gulf of Mexico on April 20, U.S. Judicial Panel on Multidistrict Litigation, MDL-2179, Washington.

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South China Court Shooting Leaves 4 Dead, 3 Hurt

A man armed with a submachine gun and two pistols shot three judges dead and then killed himself at a courthouse in southern China’s Hunan province, Xinhua news agency said, citing unidentified local-authority officials.

The man, identified as 46-year-old Zhu Jun, entered an office on the fourth floor of the Lingling District People’s Court in Yongzhou city at about 10 a.m. local time and shot six judges, Xinhua said. Three of the judges were killed and three were injured, according to the official news agency.

Legal Reviews

Vatican Bank Target of Money Laundering Probe, Repubblica Says

The Vatican Bank and 10 other lenders are being investigated by Italian magistrates for alleged fraud, la Repubblica reported, citing unidentified judicial officials.

Rome magistrates suspect that individuals residing in Italy used the Institute for Religious Works, or IOR, as the Vatican Bank is known, to evade taxes, launder money and carry out other frauds, the newspaper reported yesterday. The Vatican had no comment on the report, said a spokeswoman, who declined to be identified, citing policy.

Investigators led by magistrates Nello Rossi and Stefano Rocco Fava discovered that 180 million euros ($219 million) passed through an Italian bank account held by the IOR over two years, Repubblica said. The beneficiaries of many transfers were anonymous, in violation of an Italian anti-money laundering law, the daily said.

To contact the reporter on this story: Carla Main in Jersey City, New Jersey, at cmain2@bloomberg.net.

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