Kenneth Ira Starr, the New York investment adviser who represented actors Sylvester Stallone and Wesley Snipes, was indicted for stealing at least $59 million from clients, almost double the amount previously thought.
Starr, 66, of Manhattan, was charged in the indictment by a federal grand jury in New York with 20 counts of wire fraud and one count each of securities fraud, money laundering and fraud by an investment adviser.
Yesterday’s indictment replaces a May 27 criminal complaint filed by federal prosecutors in the office of U.S. Attorney Preet Bharara. That complaint alleged Starr stole at least $30 million from seven clients. Yesterday’s indictment expands the number of victims to 11.
“In the less than two weeks since Kenneth Starr’s arrest, this investigation has maintained its velocity,” Bharara said in a statement. “The scope of the alleged fraud has doubled and is now up to $59 million and counting.”
If convicted of wire fraud, Starr faces as long as 20 years in prison.
Abbe Lowell, a lawyer representing Starr in a civil lawsuit brought by the U.S. Securities and Exchange Commission, couldn’t be reached for comment. Peggy Cross, a public defender appointed to represent Starr, didn’t return a voice-mail message left at her office after regular business hours.
Starr was arrested May 27 and accused of defrauding clients, including heiress Rachel “Bunny” Mellon, in a scheme to buy a $7.5 million Manhattan apartment. He has been held in jail since his arrest.
Starr used his access to famous and powerful clients “to burnish an image of trustworthiness, leading his clients to entrust him with management and control of their financial affairs,” sometimes assuming “total control” over their financial lives, the indictment charges, repeating an earlier allegation by prosecutors.
Starr, who hasn’t entered a plea in the case, may again ask for bail, which was denied earlier when the government argued he was a flight risk. His bank accounts have been frozen, and the former manager of more than $700 million was being represented by a public defender because he couldn’t afford a lawyer.
The criminal case is U.S. v. Starr, 1:10-mj-01135, U.S. District Court, Southern District of New York (Manhattan). The SEC civil lawsuit is SEC v. Starr, 1:10-cv-04270, U.S. District Court, Southern District of New York (Manhattan). The Stanton Suit is Stanton v. Starr, 08601122, New York State Supreme Court, New York County (Manhattan).
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Ex-CSK Chief Fails to Get Clawback Suit Thrown Out
CSK Auto Corp.’s former chief executive officer lost a bid for dismissal of a U.S. Securities and Exchange Commission lawsuit seeking to recover $4.1 million he received during an accounting fraud he didn’t orchestrate.
U.S. District Judge Murray Snow in Phoenix rebuffed Maynard Jenkins’s argument that the SEC couldn’t properly use the Sarbanes-Oxley law to recoup bonuses and stock-sale profits he received after other CSK executives allegedly inflated the auto- parts maker’s earnings. It’s the first time the agency invoked a so-called clawback law against an executive it isn’t accusing of wrongdoing.
A review of the law shows executives can be forced to “reimburse additional compensation received during periods of corporate non-compliance regardless of whether or not they were aware of the misconduct giving rise to the misstated financials,” Snow said June 9 in his 15-page decision.
The SEC sued after CSK was forced to restate financial results from fiscal year 2001 through 2005. Company officials said as much as $89 million in inventory and vendor allowances were overstated.
John Spiegel, Jenkins’s Los Angeles-based lawyer, didn’t return a phone call for comment on Snow’s decision to allow the clawback suit to proceed.
Martin G. Fraser, CSK’s former president and chief operating officer, and Don Watson, its former chief financial officer, were indicted on securities-fraud and conspiracy charges over their alleged use of improper accounting methods to artificially inflate the company’s revenue.
Fraser died in January and Watson faces a June 2011 trial, according to court records.
Edward W. O’Brien III, CSK’s former controller, pleaded guilty to attempting to obstruct a probe of the company’s accounting practices and is cooperating with prosecutors.
The case is SEC v. Jenkins, 09-cv-1510, U.S. District Court, District of Arizona (Phoenix).
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Au Optronics Indicted in U.S. Price-Fixing Probe
Au Optronics Corp. and six of its executives were indicted for allegedly conspiring to fix prices of flat-panel screens sold worldwide, part of a U.S. probe that has ensnared at least six companies that have paid $860 million in fines, the U.S. Justice Department said.
The company, Taiwan’s second-largest flat-panel maker, and its executives, including President Hsuan Bin Chen, carried out the conspiracy from 2001 to 2006, the Justice Department said yesterday in a statement. Apple Inc., Dell Inc. and Hewlett- Packard Co. are among companies directly affected by the alleged conspiracy, the agency said.
Flat-panel screens are used in televisions, computers and mobile phones. The worldwide market for the panels was valued at $70 billion in 2006, the year the conspiracy ended, the agency said.
Elena Wu, an office manager at Au Optronics’ U.S. unit in Houston, declined to comment and referred questions to the company’s parent in Taiwan. There was no answer before regular business hours at the office of Freda Lee, an Au Optronics spokeswoman in Taiwan. Michael Attanasio, a spokesman for Hsuan Bin Chen, didn’t return a voice-mail message.
A federal grand jury in San Francisco returned an indictment against the company and executives on June 9, according to the statement. The indictment was filed yesterday in federal court, prosecutors said. It replaced an earlier indictment against former executives at Chunghwa Picture Tubes and LG Display Co. who are co-conspirators, the Justice Department said.
The executives agreed to fix prices during meetings and issued quotes to buyers based on the agreed-upon prices, prosecutors said. Executives from AU Optronics and its American subsidiary also exchanged information on sales of thin-film transfer liquid-crystal display panels to monitor and enforce adherence to the agreed-upon prices, they said.
The case is U.S. v Au Optronics, 09-110, U.S. District Court, Northern District of California (San Francisco).
CIT Ex-Officers Lose Bid to Dismiss Investors’ Suit
CIT Group Inc. current and former officers and directors lost a bid to dismiss a lawsuit claiming the company misled investors about known risks of its subprime home-lending and private student-loan businesses.
Officers and directors including ex-Chief Executive Officer Jeffrey Peek asked U.S. District Judge Barbara Jones in Manhattan to throw out a suit brought by Pensioenfonds Horeca & Catering, a Dutch pension fund, and other investors. In a ruling issued yesterday, Jones denied that request, saying the plaintiffs “adequately pleaded” claims.
The plaintiffs alleged that some defendants made misstatements regarding the performance of CIT’s student loan portfolio, while other defendants made false statements about its conservative composition and stability, including a comment that there was “absolutely no risk in the student loan business.” The plaintiffs also alleged the defendants had a “duty to monitor the performance of the student lending portfolio,” Jones said.
CIT filed for bankruptcy protection on Nov. 1.
Neither Peek, nor a spokesman for CIT, could be immediately reached for comment.
The case is In re CIT Group Inc. Securities Litigation, 08- 6613, U.S. District Court, Southern District of New York (Manhattan).
German Court Rejects Euro Rescue-Fund Emergency Bid
Germany’s highest constitutional court rejected an attempt by a lawmaker who sought an emergency order blocking the nation from participating in the euro-area rescue fund.
The emergency bid, aimed at blocking the finance minster from granting loan guarantees while the case is being reviewed, was rejected by the Federal Constitutional Court. The court said that in emergency proceedings it is allowed to base its decision on the government’s assessment of the case.
“Even a temporary retreat of Germany from the rescue plan could, in the government’s view, jeopardizes the rescue fund, at least in the eyes of the financial markets,” the court said in an e-mailed statement yesterday.
After the German parliament approved their country’s participation in the 750 billion euro ($907 billion) package on May 21, Peter Gauweiler, a lawmaker from the Bavarian wing of Chancellor Angela Merkel’s Christian Democrats, filed the suit. Gauweiler argues the bailout changes an EU treaty without proper authorization.
The court will continue to review the case.
Yesterday’s case is BVerfG, 2 BvR 1099/10.
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Lowell Urges SEC Not to Be Heartless to Client Starr
Lawyer Abbe Lowell appeared in court to at least temporarily represent jailed money manager Kenneth Starr and his wife and urged the U.S. Securities and Exchange Commission not to be “heartless.”
Lowell and Starr’s wife, former stripper Diane Passage, attended a hearing yesterday in Manhattan federal court in a civil suit against Starr and Passage brought by the SEC. At issue was whether the judge would maintain a freeze on the Starrs’ assets.
Starr, 66, was arrested and charged May 27 with orchestrating a fraud scheme that prosecutors said may exceed $30 million as more victims come forward. The SEC filed its civil lawsuit the same day against Starr, Passage and New York- based Starr Investment Advisors and Starr & Co.
Lowell, who served as congressional counsel during the impeachment proceedings against then-President Bill Clinton, agreed to a four-week extension of the freeze while he prepares legal papers seeking to lift at least a portion of it. After the hearing, Lowell shared an elevator with Aurora Cassirer, the receiver for Starr’s firms, and said the SEC shouldn’t be so “heartless” as to deny Passage any funds.
“I don’t think it’s being heartless,” Cassirer responded. The agency has an obligation to recover the money people invested with Starr, he said.
“I don’t think the SEC wants Ms. Passage and her son to starve,” Lowell replied as the elevator descended to the courthouse cafeteria, where the parties conferred. Passage had no comment.
Lowell, 58, is a partner at McDermott Will & Emery. He said in an interview that his continued representation of the Starrs may depend on whether the judge releases assets to pay legal fees. He said he also wants to represent Kenneth Starr, who has been jailed since his arrest, in his criminal case.
The civil suit is SEC v. Starr, 1:10-cv-04270, U.S. District Court, Southern District of New York (Manhattan).
Hypo Real Squeeze-Out May Not Violate Law, German Judge Says
Former Hypo Real Estate Holding AG minority investors, including U.S. investment firm J.C. Flowers & Co., may not be successful in arguing the German bank-rescue fund’s move to force them to sell their stock in a squeeze-out was unconstitutional, a judge said.
“The squeeze-out has helped to simplify refinancing and restructuring, therefore we tend to regard the measure as proportional,” Munich Regional Court Presiding Judge Helmut Krenek said at a hearing yesterday. The court’s assessment is preliminary and the case could still be sent to the European Union’s top court, he said.
The 38 plaintiffs in the case are seeking to invalidate a decision at Munich-based Hypo Real Estate’s Oct. 5, 2009, shareholder meeting that paved the way for Germany’s first bank nationalization since the 1930s. The vote allowed a government bank-rescue fund, known as Soffin, to force the lender’s minority owners including Flowers to sell their shares.
The German government and financial institutions had to rescue Hypo Real Estate in 2009 after the lender’s Dublin-based Depfa Bank Plc unit couldn’t raise financing when the bankruptcy of Lehman Brothers Holdings Inc. froze credit markets.
Flowers’ lawyers Sebastian Zeeck and Alexander Honrath argued the squeeze-out illegally seized shareholders’ property. Daniela Bergdolt, a lawyer for other plaintiffs, said that an alternative would have been to exclude voting rights of Hypo Real Estate’s minority owners for a limited time.
Hypo Real Estate’s lawyers said that full ownership was necessary to guarantee the success of the lender’s bailout.
“It can’t be fully ruled out that the squeeze-out violated European Union government aid regulations,” Krenek said yesterday. “Therefore a submission of the case to the EU’s Court of Justice might be a possibility.”
The case is LG Muenchen, 5HK O 18800/09.
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Goldman Sachs Hudson CDO Said to Be Target of Second SEC Probe
Goldman Sachs Group Inc.’s $2 billion Hudson Mezzanine collateralized debt obligation, sold in 2006, is the target of a probe by the Securities and Exchange Commission, according to a person with knowledge of the matter.
The inquiry into the CDO may not lead to any additional actions against the New York-based securities firm, said the person, who declined to be identified because the investigation isn’t public. Michael DuVally, a spokesman for Goldman Sachs, declined to comment, as did SEC spokesman John Nester.
The Hudson Mezzanine 2006-1 CDO contained credit default swaps that referenced $2 billion in subprime, BBB-rated residential mortgage-backed securities. While Goldman Sachs selected the assets in the deal, the firm was also the only investor buying credit protection on the entire transaction, documents released by Michigan Senator Carl Levin’s committee show.
Goldman Sachs created and sold the Hudson CDO in late 2006, near the time, committee documents show, senior executives wanted to reduce the firm’s exposure to subprime mortgages.
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UBS Probed in Luxembourg for Forgery Over Madoff-Linked Funds
UBS AG’s Luxembourg unit is being probed by prosecutors over allegations of forgery when it oversaw two funds linked to Bernard Madoff.
“A preliminary investigation by the prosecutor’s office is under way,” Henri Eippers, a spokesman for the Luxembourg Court of Justice said by telephone yesterday. “The police already submitted a first report.”
Access International Advisors LLC’s LuxAlpha Sicav-American Selection Fund and Luxembourg Investment Fund were among Luxembourg funds forced to suspend customer redemptions after Madoff’s December 2008 arrest. As custodian of the funds, UBS’s Luxembourg unit was charged with overseeing the funds and managing deposits and payments to investors.
UBS and its local units have been sued for damages and compensation in more than 100 Luxembourg cases by investors who lost millions of dollars through the funds. LuxAlpha, which lost 95 percent of its approximately $1.4 billion in assets, was dissolved four months after Madoff’s arrest in December 2008.
“Neither UBS (Luxembourg) SA nor its employees are subject to any Luxembourg criminal investigation over funds with Madoff- positions,” Dominique Gerster, a spokesman for Zurich-based UBS, said in an e-mailed statement. The bank is aware that people “including current UBS employees” will be invited to testify as part of a preliminary investigation over the funds.
The prosecutor’s office is in the process of gathering more information and will, based on the evidence, decide whether to file a lawsuit against UBS, said Eippers. He declined to provide details on the forgeries.
The liquidators for LuxAlpha and Luxembourg Investment Funds have sued UBS and Ernst & Young LLP, the fund’s auditor, seeking the return of the lost assets.
“UBS and E&Y knowingly made false statement to the Luxembourg Supervisory Authority and to the investor community in general about the internal functioning of the Luxalpha fund, more particularly on the existence of the contractual relationship between UBS and Madoff,” said Edouard Fremault, a senior analyst at Deminor International, which advises about 1,200 investors with losses through Madoff.
Bernard Madoff, 72, pleaded guilty in March 2009 to orchestrating the biggest Ponzi scheme in history. He was sentenced to 150 years in a federal prison in North Carolina.
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Messier Defends Vivendi 2001 Share Buyback at Paris Trial
Jean-Marie Messier, former chief executive officer of Vivendi SA, defended his decision to order a share buyback after the Sept. 11, 2001, terrorist attacks, denying it constituted share manipulation.
Messier told a Paris court the decision to try to boost Vivendi’s share price by ordering 21 million shares be repurchased between Sept. 18, 2001, and Oct. 2, 2001, was made “under exceptional circumstances.” That was recognized by France’s market regulator, which took no action, he said.
“I think that it was a good decision,” Messier told the Paris criminal court yesterday. The buyback was “utterly consistent with, utterly coherent with, the desire to protect investors” from a plunge in the share price after the attacks.
Messier is one of seven men on trial this month on charges related to the era before to his 2002 ouster, when he sought to transform the water company into a global media giant through a $77 billion acquisition spree. A criminal probe began after a complaint filed by small shareholders who said they were duped into buying or holding shares by overly rosy financial reports.
In 2004, the investigating judges raided the French regulator, the Autorite des Marches Financiers, in search of information gathered during its review of the share buyback. The buyback program “respected entirely the French regulations that were in place at the time,” Messier said to the court.
Messier denies any wrongdoing. The Paris prosecutors’ office advised against prosecuting any of the men. The trial is scheduled to end June 25.
Santander Seeks Reduction of Largest-Ever U.K. Race Bias Award
Banco Santander SA, Spain’s largest bank, asked a London court to reduce a 2.8 million-pound ($4.1 million) judgment for racial discrimination, the largest ever in the U.K.
Balbinder Chagger, 44, a former trading-risk controller at the bank’s Abbey National Plc unit, was fired in 2006. A London employment tribunal found he was discriminated against and unfairly dismissed based on his Indian origin.
“A non-discriminatory process would have led to his redundancy,” Christopher Jeans, a lawyer for Abbey, said at a hearing yesterday. “That follows as night follows day.”
Chagger’s case had been appealed twice and sent back to the tribunal for further argument on whether he would have been dismissed regardless of discrimination and whether the award should be reduced.
David von Hagen, a lawyer for Chagger, said the award would be the highest-ever discrimination award in the U.K.
“They have made no apology or any statement of regret for the way Mr. Chagger has been treated,” Chagger’s lawyer, John Bowers, told the tribunal. “This is an employer who has come before you, having been found to have discriminated, asking you to reduce the award. We ask you to bear in mind the way in which this has developed.”
Chagger could have received the same score as a co-worker in a process the bank used in choosing whom to fire and he still would have lost his job when the “tie-break” criteria were taken into account, Jeans said.
The case is Chagger v. Abbey National Plc, Central London Employment Tribunal, case no. 2201763/2006.
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Canada Publication Ban on Pretrial Evidence Upheld
A Canadian law barring publication of evidence from pretrial hearings was upheld by the country’s highest court as the judges ruled disclosure could improperly influence potential jurors.
The Supreme Court of Canada, ruling on two cases in which publications were barred from reporting on evidence from bail hearings, ruled 8 to 1 yesterday the limits on expression to ensure an accused’s right to a speedy and fair trial are justified.
“The ban may make journalists’ work more difficult, but it does not prevent them from conveying and commenting on basic, relevant information,” Judge Marie Deschamps said on behalf of the court in the ruling issued in Ottawa. “While not a perfect situation, the mandatory ban represents a reasonable compromise.”
The law at issue, Section 517 of the Canadian Criminal Code, bars the media from publicizing evidence taken at a bail hearing or a preliminary hearing at the request of the accused. Preliminary hearings are held to determine if there’s enough evidence to take the case to trial.
The challenges to the law, by Torstar Corp.’s Toronto Star, Canada’s most widely read newspaper, and other media outlets stem from the publication ban imposed at the bail hearings of 18 people accused of plotting a terror campaign that included the storming of parliament and beheading the prime minister.
The cases are Between Toronto Star Newspapers Ltd. and Her Majesty the Queen in Right of Canada, 33085 and Canadian Broadcasting Corp. v. Her Majesty the Queen in Right of Canada, 32865, Supreme Court of Canada (Ottawa).
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