BofA Bonus Appeal, Disney, Vivendi, Lehman, Goldman, Starr in Court News

A former Goldman Sachs Group Inc. analyst who fled while on probation for leading a $6.7 million insider-trading scheme was ordered to pay a $27.7 million judgment in a lawsuit filed by federal regulators.

U.S. District Judge Kimba Wood in Manhattan said David Pajcin is in default because he failed to respond to three amended civil complaints filed by the U.S. Securities and Exchange Commission.

Wood ruled that Pajcin, one of six men convicted in the case, should pay $7.7 million in a default judgment and $20 million in civil penalties. She also granted the SEC’s request to ban him from the securities industry. A warrant for Pajcin’s arrest was issued when he disappeared in 2008 after helping prosecutors convict his accomplices and serving about two years in prison.

Pajcin, of Clifton, New Jersey, traded on leaks from a Merrill Lynch & Co. analyst and workers at a factory printing BusinessWeek magazine, the U.S. said. He cooperated with prosecutors soon after the U.S. opened a probe in 2005 and pleaded guilty in 2006, according to court records.

He was sentenced in January 2008 to about two years in prison -- time he’d already served -- in light of his cooperation. He stopped reporting to his probation officer and the arrest warrant was issued in November 2008.

His lawyer, Jesse Siegel, couldn’t be reached for comment.

The case is Securities and Exchange Commission v. Pajcin, 05-CV-6991, U.S. District Court, Southern District of New York (Manhattan).

Wells Fargo Loses Minnesota Trial for Nonprofit Investor Losses

Wells Fargo & Co. must pay $30.1 million to four Minnesota nonprofits that claimed the bank marketed a risky securities- lending program as safe and blocked them from getting out of the investments, a jury said.

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 value of the investments until it was too late. The nonprofits sought more than $400 million in damages.

A St. Paul state court jury yesterday awarded $30.1 million in compensatory damages, finding Wells Fargo liable for breach of fiduciary duty and violations of the Minnesota consumer fraud act. The jury will consider punitive damages in a second phase set to begin tomorrow.

The suit is one of multiple complaints alleging U.S. banks purchased illiquid securities for clients. The U.S. Securities and Exchange Commission said in September it is examining whether banks that engage in securities lending make adequate disclosures to pension-fund clients. Wells Fargo denied it made any misrepresentations or pushed risky investments, blaming any losses on the financial crisis.

Michael Ciresi, the nonprofits’ lawyer, said he couldn’t comment because the trial isn’t over.

Ciresi asked the jury yesterday in closing arguments for $374 million to cover the value of the securities at the time the plaintiffs demanded their return, and about $30 million additional damages.

The jury rejected the plaintiffs’ claim that Wells Fargo deprived them of their property, an allegation called conversion, which could have triggered an award equal to the worth of the securities. The jury awarded a total of $14.1 million for breach of fiduciary duty and $4 million to each plaintiff on the consumer fraud claim.

“We are pleased that the jury denied the plaintiffs the amount of damages they were seeking, which was radically above the investment losses incurred, and validated that there was no breach of contract or conversion by Wells Fargo Securities Lending,” said Laura Fay, Wells Fargo spokeswoman, in an e- mailed message.

“The investments made by Wells Fargo on behalf of our clients in the securities lending program were in accordance with investment guidelines and were prudent and suitable at the time of purchase,” she said.

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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Dow Chemical, Arkema Settle Methacrylate Dispute

Dow Chemical Co., the world’s largest producer of acrylic paint ingredients, said it settled a lawsuit filed by a unit of French business partner Arkema SA over supplies of methyl methacrylate.

Arkema Inc. sued Dow Chemical May 10 in Delaware Chancery Court saying it broke a contract to provide the chemical, used to make Plexiglas and vehicle tail lights. Dow Chemical blamed the delivery slowdown on problems at a Deer Park, Texas, plant.

“The matter has been resolved between the parties on confidential terms and the lawsuit was dismissed,” Karen Leinberger, a Dow Chemical spokeswoman, said yesterday in an e- mailed statement.

Judge Donald Parsons Jr. issued a temporary order last month to make Dow Chemical continue the supply to Arkema and had planned further hearings.

“Tight supply of methyl methacrylate continues to be an industry wide issue,” Leinberger said. The Texas plant was fixed and has “been running at full production rates for more than a week,” she said.

The case is Arkema Inc. v. The Dow Chemical Co., CA5479, Delaware Chancery Court (Wilmington).

Pepsi Bottlers Win Judge’s Approval to Settle Lawsuit

Pepsi Bottling Group Inc. and PepsiAmericas Inc. won a judge’s permission to settle a class-action lawsuit filed by investors challenging a buyout bid by PepsiCo Inc., the world’s largest snack maker.

Purchase, New York-based PepsiCo offered to buy the remaining shares of its two largest bottlers in April 2009. Six pension funds sued, seeking more money in the $7.8 billion deal and agreed to settle for $7.75 million in legal fees.

“The settlement is found to be fair, reasonable and adequate,” Delaware Chancery Court Judge Leo Strine Jr. wrote in an order June 1. The acquisition was completed in March.

Jeff Dahncke, a PepsiCo spokesman, didn’t return voice and e-mail messages seeking comment on the settlement.

The consolidated cases are In re Pepsi Bottling Group Inc. Shareholders Litigation, CA4526, and In re PepsiAmericas Inc. Shareholders litigation, CA 4530, Delaware Chancery Court (Wilmington.)

Former Sequenom Official Lied to Investors, U.S. Says

Elizabeth A. Dragon, former senior vice president of research and development at Sequenom Inc., pleaded guilty yesterday in federal court to conspiracy to commit securities fraud for lying to investors about the company’s prenatal test for Down syndrome, U.S. officials said.

Dragon admitted to making false claims to investors and analysts about the effectiveness of the San Diego-based company’s test as well as attempting to “inflate and sustain” the price of Sequenom’s shares, said Laura E. Duffy, the U.S. Attorney for the Southern District of California in San Diego, in a statement. Dragon said in a court appearance before U.S. Magistrate Judge Barbara Major that she and others manipulated data to make the Down syndrome test appear more accurate than it was, Duffy said.

Dragon also was accused of lying to investors in a civil complaint filed yesterday in San Diego by the U.S. Securities and Exchange Commission. Dragon settled the claims without admitting or denying wrongdoing and agreed to be barred from serving as an officer or director of a public company, according to the agency’s statement.

The SEC said a judge will decide a financial penalty for Dragon. She will be sentenced on the criminal plea on Aug. 30, according to the U.S. Attorney’s Office.

Roman E. Darmer, Dragon’s attorney, did not return a telephone message left at his office.

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Former Sucden Financial Broker Fined $146,000 for Market Abuse

A former commodities broker at Sucden Financial Ltd., a London-based brokerage, was banned and fined by the U.K. financial regulator for manipulating the coffee futures market.

Andrew Charles Kerr artificially inflated the price of coffee futures on the London International Futures and Options Exchange in 2007, the Financial Services Authority said in a statement yesterday. The FSA fined Kerr 100,000 pounds ($146,000) and banned him from holding another job at a financial firm.

“Kerr breached the standards expected of approved persons and has paid the price,” Alexander Justham, the FSA’s director of markets, said in yesterday’s statement. “Participants in the futures and options markets should be in no doubt about how seriously the FSA views manipulation which disrupts proper pricing mechanisms and risks a false market.”

Kerr cooperated with the FSA and qualified for a discount on a fine that would have been 125,000 pounds, the FSA said. Sucden wasn’t accused of wrongdoing, according to the regulator. Kerr stopped working at Sucden in June 2008, according to the FSA’s register.

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Trials/Appeals

Hong Kong Trial Ordered for Ex-BofA Trader’s Claim

Hong Kong’s Court of Appeal ordered a trial for former Bank of America Corp. distressed debt trader Sunny Tadjudin’s claim for HK$10.9 million ($1.4 million) in damages over her 2007 firing.

A lower court’s decision to strike out her claim that she was fired by the bank to avoid paying her performance bonus “cannot be dismissed offhand,” Court of Appeal judges Maria Yuen, William Stone and Azizul Suffiad said yesterday. No trial date was set.

Tadjudin sued Bank of America in 2008, alleging she was fired on Aug. 28, 2007, so that her then-manager could avoid awarding her an annual discretionary bonus and “thus achieving a higher bonus for himself,” according to court documents. The Court of First Instance in July dismissed her claim and said the bank wasn’t bound to pay the bonus under Hong Kong law and the terms of her contract.

Tadjudin, who worked for the bank’s distressed debt trading group from June 2000 to August 2007, declined to comment on the case through her lawyer, William Leung.

She had argued that the bank had an implied duty to pay bonuses in a manner that wasn’t “irrational, perverse or arbitrary.”

“We are very confident that the claim against us will be held to be without merit,” said Mark Tsang, a Hong Kong-based spokesman for Charlotte, North Carolina-based Bank of America.

The case is CACV173/2009 in Hong Kong’s Court of Appeal.

Disney Goes to Trial Over ‘Millionaire’ Show Profit

Walt Disney Co., the world’s largest media company, went on trial over claims it cheated the U.K. creator of the “Who Wants to Be a Millionaire” game show through self-dealing.

The trial began yesterday in federal court in Riverside, California. Celador International Ltd. sued Disney six years ago, alleging Disney’s Buena Vista Television unit failed to negotiate a higher license fee with Disney’s ABC television network after the show proved to be a hit, thereby reducing the profit it was to share with the creators.

The quiz show came on the air in the U.S. in 1999 and helped boost ABC to first place from third in audience ratings in 2000, prompting the network to run the program four times a week. “Millionaire” was first broadcast in the U.K. in 1998 and has been carried in 106 countries, including the U.S., Australia, India, Japan, Germany and Russia, Celador said.

Closely held Celador entered into an agreement with Buena Vista and ABC in 1998 that entitled the creators to a share of the profit from the show in North America, according to a 2006 amended complaint.

The creators said ABC paid below market value for “Millionaire” because Buena Vista, at Disney’s behest, didn’t seek a higher fee after the show became a success. Celador would have received a share of the higher fee, it said. The creators also claim Disney, using an affiliated production company, inflated production costs.

“In essence, Disney sits on both sides of the bargaining table in any negotiation for the production and distribution rights to the series, thereby enabling it to manipulate negotiations in any way that serves its corporate interest,” Celador said in its amended complaint.

Jonathan Friedland, a spokesman for Burbank, California- based Disney, declined to comment before the start of the trial.

The case is Celador International Ltd. v. Walt Disney Co., 04-3541, U.S. District Court, Central District of California (Riverside.)

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Messier, Ex-Vivendi CEO, Admits ‘Mistakes’ at Trial

Jean-Marie Messier admitted making mistakes while serving as chief executive officer of Vivendi SA, the water company he transformed into a global media giant, at the opening of a trial on charges he misled investors.

“Did we make mistakes? Yes, and as president I take responsibility for them,” Messier said yesterday in Paris, testifying about his rationale for acquiring companies like Universal Studios’ owner Seagram Co. for $34 billion in 2000.

Messier is one of seven defendants at the trial, which focuses on the $77 billion acquisition spree that almost bankrupted the 157-year-old company. Messier was ousted by Vivendi’s directors in 2002.

The criminal probe began after a shareholder group filed a complaint claiming they were duped into buying or retaining shares based on overly sanguine financial projections. Messier faces as much as five years in prison and a fine if found guilty of disseminating misleading information, misuse of corporate funds, and share manipulation. He denies the charges.

Messier pointed to the success of Apple Inc.’s iPhone and Research In Motion Ltd.’s Blackberry to show he had sound reasoning for his strategy of uniting content and delivery.

“Seagram grew terrifically strongly in the content sector, it seemed to be an ideal partner,” Messier said. “Was this vision justified? Today, I still don’t know.”

At yesterday’s opening hearing, Judge Noel Miniconi reviewed the charges and heard from civil parties including Vivendi, shareholder lawyers, and defendants.

Lawyers for former Vivendi Vice Chairman Edgar Bronfman Jr. and Guillaume Hannezo, former Vivendi chief financial officer, asked Miniconi to drop insider-trading charges, saying the evidence didn’t support the allegations.

About 200 investors have joined the complaint and another 100 will be added as part of a second list submitted yesterday, shareholder lawyer Frederik-Karel Canoy said.

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New Suits

Diebold Executives Accused by SEC of Accounting Fraud

Three former senior executives of Diebold Inc. used fraudulent accounting practices to inflate earnings from at least 2002 to 2007, the U.S. Securities and Exchange Commission alleged in a lawsuit.

The SEC also named the company, a maker of bank teller- machines, in its complaint even as it reached a $25 million settlement with Diebold, according to an SEC statement. Diebold said in May 2009 that it had an “agreement in principle” to settle with the SEC, which was completed yesterday.

Diebold’s financial management received reports comparing its actual earnings to analyst earnings forecasts and would then create lists of ways to close the gaps, the SEC said. The company would improperly recognize revenue or otherwise inflate Diebold’s financial performance, the SEC said.

Diebold “regularly manipulated earnings to meet forecasts,” the SEC said in the complaint filed yesterday in federal court in Washington.

The SEC also filed suit in federal court in Ohio against Gregory Geswein, the company’s former chief financial officer; Sandra Miller, the former director of corporate accounting; and Kevin Krakora, the former controller and later CFO. Only Krakora is still with the company, said spokesman Michael Jacobsen. The case against the individuals is continuing, the SEC said.

“We are deeply disappointed that almost five years after Mr. Geswein voluntarily left Diebold on his own initiative, the SEC has made these stale allegations,” Stephen Scholes, his attorney, said in a statement. “Mr. Geswein strongly disputes the SEC’s charges.”

John Carney, Krakora’s attorney at Baker Hostetler LLP in New York, said Krakora is “an honest and well-respected financial professional with an unblemished record for integrity.” He disagrees with the SEC’s allegations, he said in an e-mail.

Virginia Davidson, Miller’s attorney, said her client “did nothing wrong.”

“The SEC never should have dragged her into this case,” said Davidson. “We’re confident the courts will agree.”

The company hasn’t admitted or denied any wrongdoing under its accord, the company said in a statement.

“We are pleased that the settlement with the SEC is final,” said Thomas W. Swidarski, Diebold’s president and chief executive officer.

Walden O’Dell, Diebold’s former CEO, agreed to reimburse the company more than $470,000 in cash bonuses, 30,000 shares of Diebold stock and 85,000 stock options even though he wasn’t accused of misconduct, the SEC said.

The case is U.S. Securities and Exchange Commission v. Diebold Inc., 10cv908, U.S. District Court, District of Columbia (Washington).

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Pamrapo Bank’s Campbell Charged With $681,000 Theft

Brian Campbell, a former managing director of the investment company of New Jersey-based Pamrapo Savings Bank SLA, was charged with embezzling more than $681,000.

Campbell, 41, was arrested yesterday and charged with 47 counts of mail fraud and seven counts of money laundering. Campbell worked for now-defunct Pamrapo Service Corp., a unit that provided investment services and cleared transactions through broker-dealers, prosecutors said. He appeared yesterday in federal court in Newark, New Jersey, where his bail was set at $250,000.

Campbell offered insurance products and annuities on behalf of outside companies when he got a “significant pay cut” in August 2006, according to the indictment. In early 2007, he began to divert fees and commissions to himself that were owed to Service Corp., according to the indictment.

Campbell made “materially false and fraudulent statements and concealed material facts from the bank, its chief financial officer, the board, the Service Corporation, and others, to cover up and conceal his scheme,” according to the indictment.

The Campbell indictment accuses him of laundering $90,200 to pay American Express bills. Campbell faces as many as 20 years in prison on each mail fraud count and up to 10 years on the money laundering charges.

His attorney, Michael J. Rogers, declined comment outside of the courtroom.

The case is U.S. v. Campbell, U.S. District Court, District of New Jersey (Newark).

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Lawsuits/Pretrial

Lehman Examiner Asks Judge to Discharge, Protect Him

Lehman Brothers Holdings Inc. examiner Anton R. Valukas asked a judge to discharge him from further duties and protect him from lawsuits that might arise from his 2,200-page report on the biggest bankruptcy in U.S. history.

The ex-federal prosecutor, who was paid $53.5 million for more than a year’s work investigating Lehman’s downfall, also asked yesterday in a U.S. Bankruptcy Court filing in New York to be allowed to provide further assistance to Lehman if asked.

Valukas’s March 11 report spurred lawsuits against Lehman executives and bankers, just as earlier examiners in bankruptcies such as Enron Corp. provided ammunition to litigants.

Former Chief Executive Officer Richard Fuld was sued at least three times after Valukas said he and other Lehman executives negligently approved misleading financial statements. Lehman sued JPMorgan Chase & Co. after Valukas said the bank helped to make the company illiquid by demanding more collateral.

Both Fuld and JPMorgan have denied wrongdoing.

Valukas is chairman of the law firm Jenner & Block LLP, where his clients included David Radler, Hollinger International Inc.’s former president. As U.S. attorney in Chicago from 1985 to 1989, he was dubbed the Midwest’s Rudolph Giuliani for his hard line on white-collar crime, according to a 1989 New York Times profile.

Lehman filed for bankruptcy in September 2008 listing $639 billion in assets.

The case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Ex-MAN Turbo Chief Must Stand Trial for Bribery, Court Rules

The former top executive at a MAN SE unit must stand trial on allegations he paid Kazakh officials more than 9 million euros ($11 million) in bribes to win orders tied to a gas pipeline, a Munich court ruled.

The former chief executive officer of MAN Turbo AG, identified only as Heinz Juergen M., 66, paid the money to get access to the Kazakhstan market, according to the indictment. The bribes were paid in installments between October 2005 and May 2008. The trial is scheduled to start June 23, the Munich Regional Court said in an e-mailed statement yesterday.

MAN SE, Europe’s third-largest truckmaker, last year agreed to pay 150.6 million euros in fines to resolve an investigation into alleged bribes paid by its truck and turbo units. The company is 29.9 percent-owned by Volkswagen AG.

Heinz Juergen M.’s attorneys Thomas Elsner and Sven Thomas didn’t return a call seeking comment.

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Litigation Departments

SEC Adds Attorney From AOL Case to Goldman Sachs Subprime Suit

U.S. Securities and Exchange Commission attorney David J. Gottesman, who represented the agency in a 2005 fraud case against two former America Online Inc. executives, may join the regulator’s lawsuit claiming Goldman Sachs Group Inc. misled investors in mortgage-linked securities.

The SEC asked U.S. District Judge Barbara Jones in Manhattan June 1 to admit Gottesman to the case, court documents show.

Gottesman was the SEC’s trial attorney in a case against two former executives at AOL, the Internet advertising company spun off from Time Warner Inc., and three former executives of PurchasePro Inc. The SEC accused them of improperly inflating PurchasePro’s revenue through fictitious contracts with AOL, according to SEC documents.

Goldman Sachs, which reported record earnings last year, and a company executive director, Fabrice Tourre, were sued in April by the SEC, which alleged that the firm wasn’t forthcoming about the role that a hedge fund, Paulson & Co., played in selecting and betting on the mortgage-linked securities.

The case is Securities and Exchange Commission v. Goldman Sachs, 10-cv-03229, U.S. District Court, Southern District of New York (Manhattan).

Starr Gets Public Defender as Conflicted Lawyer Quits

Investment adviser Kenneth Starr, charged in connection with a $30 million fraud scheme, was given a public defender after his private attorney, Joshua Klein, withdrew over a conflict of interest.

U.S. Magistrate Theodore Katz assigned Peggy Cross to the case at a hearing yesterday in New York. The magistrate gave Starr until June 4 to decide if he will hire a new attorney.

“The question is if Mr. Starr has the resources to retain counsel or get one appointed,” Katz said. “He can’t drag this matter out.”

Starr, 66, the manager of more than $700 million, was arrested May 27. The adviser, who has represented actors including Sylvester Stallone and Wesley Snipes, “systematically defrauded his clients,” Robert Beranger, an agent with the Internal Revenue Service, said in a criminal complaint.

The U.S. Securities and Exchange Commission obtained a court order freezing 23 Starr-related bank accounts, according to Manhattan U.S. Attorney Preet Bharara.

Klein, who said he was retained to represent Starr in the criminal case, told Katz that he and his client determined May 28 that his firm, Petrillo Klein LLP, had a conflict.

“My client is in the process of seeking to retain counsel- slash-assessing his ability to do so,” Klein said.

After the hearing, Klein declined to comment on the conflict. Cross wouldn’t comment on the case.

Klein asked that the public defender be appointed to help Starr determine if he qualifies for free court-appointed counsel, typically used to represent the indigent.

Starr lied to court officials about his net worth after his arrest, Assistant U.S. Attorney William Harrington told a judge at a detention hearing. Starr said he only had $350 in cash and a car worth $1,000, according to Harrington. A condominium triplex in Manhattan Starr purchased for $7.5 million “was bought with other people’s money,” Harrington said.

The criminal case is U.S. v. Starr, 10-MJ-1135, U.S. District Court, Southern District of New York (Manhattan).

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To contact the reporter on this story: Elizabeth Amon in Brooklyn, New York, at eamon2@bloomberg.net.

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