Merrill, Starr, SocGen, RBS, Kissel, Diebold, Sybase, Chen in Court News

Damian Chunilal, the former Asia- Pacific head of investment banking at Merrill Lynch & Co., is suing the bank over a reduced bonus payment in his last year with the firm.

Chunilal, who left Merrill in November 2008 less than two months after the bank agreed to be taken over by Bank of America Corp., is suing in a London court over breach of contract. He was paid a $2.3 million bonus for his last year, one-fifth of his bonus the previous year, his lawyer, Robin Knowles, said at a hearing June 11.

“They looked back at last year and took 20 percent,” Knowles said. “It doesn’t matter how well you’ve done, however hard you’ve worked, that’s what you get.”

Merrill asked the court to throw out Chunilal’s claim, arguing the dispute should be decided in Hong Kong, where Chunilal was based, the firm’s lawyer, Christopher Harrison, said. Chunilal must show that the relevant breach of contract occurred in London for it to be heard by a U.K. court, he said.

The case is Damian Chunilal v. Merrill Lynch International Inc., 2009-1354, High Court of Justice (London).

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New York Money Manager Chimay Charged With Larceny, Forgery

New York money manager Guy Albert de Chimay was indicted in New York on grand larceny and forgery charges, according to the Manhattan District Attorney’s office.

Chimay, 47, chairman and chief investment officer of Chimay Capital Management Inc., was arrested June 11 in Wrightsville Beach, North Carolina, on a New York state warrant, said Adam Kaufmann, chief of the investigation division of the Manhattan District Attorney’s office.

The U.S. Securities and Exchange Commission sued Chimay on June 11, accusing him and his firm of fraud for touting investments he claimed were tied to the Chimay royal family of Belgium, and then stealing millions of dollars to pay his divorce lawyers and the mortgage on his house in the Hamptons on Long Island east of New York City.

“He lied to investors, took their money and used it to support his lifestyle,” Kaufmann said in a phone interview.

The SEC obtained an emergency court order to freeze the assets of Chimay and his firm.

Chimay Capital claimed to be the U.S. investment arm of the royal family based in the Chimay region of Belgium and dating to the 14th century, according to the SEC.

“Chimay used the trappings of royalty to perpetrate the most common of frauds,” said George Canellos, director of the SEC’s New York regional office. “Chimay blatantly lied to investors about non-existent investments and then used their money to bankroll his exorbitant personal and business debts.”

Phone numbers listed for Chimay and Chimay Capital weren’t in service on June 11. He and the firm, which are facing at least three investor lawsuits, have no known defense counsel, the SEC said.

The SEC case is Securities and Exchange Commission v. Chimay Capital Management Inc., 10-cv-04582, U.S. District Court, Southern District of New York (Manhattan).

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Sybase Investor Sues to Block $5.8 Billion SAP Buyout

Sybase Inc. executives violated shareholders’ rights by agreeing to sell the software company to SAP AG for $5.8 billion, an investor contends in a lawsuit.

SAP and Sybase officials structured the $65-a-share buyout in a way that may “substantially reduce the fair value of stockholders’ shares,” investor Donald Carlson said in the Delaware Chancery Court suit filed June 11.

SAP, the world’s biggest maker of business-management software, said it would acquire Dublin, California-based Sybase May 12 to help it fend off competition from Oracle Corp. Sybase makes software that helps financial institutions analyze information.

Christoph Liedtke, a SAP spokesman, said the company had no immediate comment on the lawsuit. Mark Wilson, a Sybase spokesman, didn’t return voice and e-mail messages seeking comment on the suit.

Sybase and SAP officials have structured the acquisition as a merger that unfairly allows a SAP unit to acquire 100 million Sybase shares to make the buyout possible, Carlson said in the suit.

The Delaware case is Donald Carlson v. Sybase Inc., 5557, Delaware Chancery Court (Wilmington).

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Louisiana Judge Grants State’s Petition Over BP Spill

Louisiana Attorney General Buddy Caldwell’s petition “for discovery and investigation” against BP Plc was granted by a state judge, giving him authorization to gather information as part of the state’s investigation into the causes of the oil spill in the Gulf of Mexico.

“The petition alleges that BP has failed to cooperate and share important information with the state,” the Louisiana Department of Justice said in an e-mailed statement yesterday.

The petition was granted on June 10 by Judge Joy C. Lobrano in the 25th Judicial District Court, Plaquemines Parish.

BP has 10 days to object, after which Caldwell’s office can begin its discovery and investigation, according to the statement.

Financial Adviser Starr Denies U.S. Fraud Charges

Kenneth Ira Starr, the New York investment adviser who faces federal charges that he defrauded his celebrity and socialite clients, denied wrongdoing June 11 in a brief court appearance.

Starr, 66, was indicted June 11 following his May 27 arrest for swindling clients. He pleaded not guilty June 11 in Manhattan federal court, where a judge jailed him last month after prosecutors argued that he might flee.

The indictment accuses Starr of stealing at least $59 million from 11 clients, including an actress, a former executive of a talent agency, the stepson of a deceased heir to a business fortune, a 99-year-old heiress, and a film producer.

“Mr. Starr wishes to plead not guilty,” his court appointed lawyer, Sabrina Shroff, said in court. Starr didn’t speak and will next appear in court on June 21.

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.

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Kerviel Co-Worker Says SocGen Alerted About Trades

Jerome Kerviel’s superiors at Societe Generale SA should have been informed about unauthorized trades by a system of alerts and limits, a former colleague told a Paris court June 11.

Benoit Taillieu, who supervised the bank’s Delta One trading desk before Kerviel worked on it, is the first witness at the trial to support assertions that Societe Generale knew what Kerviel was doing.

“They could not have been totally unaware,” said Taillieu, who left the bank in March 2006. Kerviel may “be guilty, but not alone.”

Kerviel, 33, is charged with abuse of trust, faking documents and computer hacking in relation to a 4.9 billion-euro ($5.9 billion) trading loss in January 2008 that prosecutors say was caused by the liquidation of unauthorized positions of 50 billion euros. On June 10, another colleague at France’s second- largest bank by market value testified that traders rarely exceeded limits.

In testimony later in the day, Taillieu, who didn’t work with Kerviel or know him personally, said in response to questioning from Societe Generale lawyer Jean Veil that he doubted Kerviel’s superiors knew the full extent of the trades before January 2008.

“I never said that his supervisors were aware of the amount, 50 billion euros,” Taillieu said. “Fifty billion is unimaginable.””

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Mercer Will Pay $500 Million to Settle Alaska Pension Lawsuit

Marsh & McLennan Cos.’ Mercer consulting unit agreed to pay $500 million to settle a lawsuit brought by the Alaska Retirement Management Board that blamed the firm for billions of dollars in unfunded liabilities.

The settlement was in the company’s best interest because of the uncertainty of the outcome of a jury trial in Juneau, Alaska, where many plan participants live, and because the plaintiffs were seeking at least $2.8 billion in damages, Mercer said June 11 in a statement. Spokesman Charles Salmans declined to comment further.

Alaska Attorney General Dan Sullivan said in a separate statement that the unfunded liabilities were caused by stock market declines, increases in health-care costs and Mercer’s negligence. The Alaska board accused Mercer of malpractice, breach of contract and unfair trade practices in advising the state on management of two retirement funds.

“This is a significant settlement that will benefit the state and our citizens,” Sullivan said in the statement. “We have been informed that by a large margin it is the largest such settlement in history for this kind of claim.”

Mercer denied liability, it said in its statement. Insurance will cover $100 million of the settlement, the company said.

The case is Alaska Retirement Management Board v. Mercer, 1JU-07-0974, Alaska Superior Court (Juneau.)

Santander Wins Reduction of Largest-Ever U.K. Race-Bias Award

Banco Santander SA, Spain’s largest bank, won a court ruling reducing a 2.8 million-pound ($4.1 million) judgment for racial discrimination, what would have been the largest-ever in the U.K., to 200,000 pounds.

Balbinder Chagger, 44, a former trading-risk controller at the bank’s Abbey National Plc unit, was fired in 2006. A London employment tribunal ruled that he would have been fired regardless of whether he was discriminated against.

The tribunal originally found in 2007 that Chagger was discriminated against and unfairly dismissed based on his Indian origin. The case was 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.

“This outcome supports the consistent approach that Santander U.K. has taken to the issue of compensation as we considered the previous decision to be disproportionate,” Santander said in an e-mailed statement.

David von Hagen, a lawyer for Chagger, declined to comment on the verdict.

The case is Chagger v. Abbey National Plc, Central London Employment Tribunal, 2201763/2006.

RBS Cleared in Raiffeisen Lawsuit Over Enron Loan

Royal Bank of Scotland Group Plc didn’t mislead Raiffeisen Zentralbank Oesterreich AG in seeking the Austrian bank’s participation in a 138.5 million-pound ($203 million) loan to Enron Corp., a U.K. judge ruled.

Neither RBS nor two employees accused of fraud in the case behaved dishonestly or hid problems with Enron’s accounting from banks joining RBS’s syndicated loan, Judge Christopher Clarke said in a ruling June 11 in a London court.

“Banks were falling over themselves to lend to it,” Clarke said of Enron in a 113-page ruling. “None of that was a guarantee of integrity” as “subsequent events showed,” Clarke said. “But the nature and extent of Enron’s business was not such as to excite suspicion of impropriety.”

Raiffeisen, based in Vienna, sought to recoup 5.25 million pounds it lost on a 10 million-pound contribution to the syndicated loan in 2000, arguing in the trial that the case was a matter of “banking ethics.” Enron was the world’s largest energy trader, with a market value of as much as $68 billion, before it collapsed amid accounting frauds in 2001.

Raiffeisen’s lawyer, Harvey Rands with the firm Memery Crystal in London, didn’t return a call for comment.

“RBS welcomes this judgment and now looks forward to re- establishing closer business links with RZB,” Michael Strachan, a spokesman for Royal Bank of Scotland, said in an e-mail.

The loan was used to create a special-purpose vehicle, a legal entity owned by RBS, to temporarily hold an Enron power plant and place it back on Enron’s books later and record its increased value.

RBS loaned the full amount to the SPV, paid about 5 million pounds in equity and syndicated the loan. Without disclosing it to the Austrian bank, RBS obtained an oral commitment from Enron to repay the equity plus a return of 13.5 percent a year, Raiffeisen said at the trial in January

RBS didn’t document the agreement since it violated the accounting requirements of the vehicle, Raiffeisen argued at trial.

RBS said at the trial it investigated the claims and determined its employees had acted honestly.

The case is Raiffeisen Zentralbank Oesterreich AG v. the Royal Bank of Scotland, 2006/1202, High Court of Justice (London), Queen’s Bench Division.

Taiwan’s Ex-President Chen Wins Cut in Life Sentence

Taiwan’s former President Chen Shui-bian, whose pro- independence stance riled China and roiled domestic politics, won a reduction in his life sentence for graft to 20 years in an appeal hearing in Taipei High Court.

Chen also had the NT$200 million ($6.2 million) fine handed down by a Taipei district court reduced to NT$170 million, according to the ruling June 11. Chen will appeal against the judgment, Chen’s son Chen Chih-chung said in comments broadcast live on Taiwan’s TVBS television following the ruling June 11.

Prosecutors accused Chen, 59, and his wife of accepting bribes to facilitate two property deals and laundering the funds overseas. Chen’s 2000 election ended more than half a century of rule by the Kuomintang, who subsequently regained power as the opposition Democratic Progressive Party was tarnished by the corruption allegations.

Prosecutors said in 2008 their investigation showed that more than $30 million was remitted to accounts in Singapore and the Cayman Islands and then moved to Swiss bank accounts.

The former president’s wife, Wu Shu-chen, who was also jailed for life, had her sentence reduced to 20 years as well. She was separately jailed for a year in September for perjury. Chen’s son was sentenced to one year and two months and a fine of NT$30 million. The son’s wife, Huang Jui-ching, was sentenced to one year and a fine of NT$20 million, according to the June 11 ruling. Huang’s jail term is graced with a 4-year suspension, Presiding Judge Deng Zhen-qiu said in the court June 11.

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Litigation Departments

Kissel Fails to Win All Legal Costs From Hong Kong

Nancy Kissel, who will be retried for the murder of her Merrill Lynch & Co. banker husband, recovered partial legal costs for her original trial and appeals even though successful appellants are usually paid in full.

Kissel recovered half the cost of her trial and some of the costs of her two appeals from the Hong Kong government, according to a ruling delivered by Justice Kemal Bokhary June 11.

Michigan-born Kissel, 46, admitted killing her husband Robert Kissel, then the head of Merrill’s distressed assets business in Asia, on Nov. 2, 2003. Prosecutors alleged she first drugged him with a sedative-laced milkshake before bludgeoning him in their bedroom with an eight-pound statuette. The mother- of-three testified that she had acted in self-defense.

In the judgment, Justice Bokhary and Justice Patrick Chan noted that an accused who wins an appeal is normally awarded costs.

“There is, however, a judicial discretion to deprive such a person of some or all of his or her costs,” the judges said, without giving a reason for withholding some of Kissel’s expenses.

The two-page judgment didn’t specify the amount due to Kissel. Simon Clarke, who led her defense team between 2003 and 2010, earlier estimated the costs to be about HK$45 million ($5.8 million). He declined to comment on the order. Defense lawyer Colin Cohen, hired for the retrial, also declined to comment.

Deputy Director of Public Prosecutions Kevin Zervos declined to comment on the costs order in light of the pending retrial.

The case is Nancy Ann Kissel and HKSAR, FACC2/2009, Hong Kong Court of Final Appeal.

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Litigation Departments

Goldman Sachs Said to Hire Boies, Schiller for Timberwolf Case

Goldman Sachs Group Inc. hired law firm Boies, Schiller & Flexner LLP to defend the company against a $1 billion lawsuit filed by Australian hedge fund Basis Capital this week, said a person briefed on the matter.

The law firm, founded by David Boies and Jonathan Schiller in 1997, has handled Wall Street litigation including the Lehman Brothers Holdings Inc. bankruptcy case. The person declined to be identified because the hiring hasn’t been made public.

Michael DuVally, a spokesman for New York-based Goldman Sachs, and Dawn Schneider at Boies, Schiller said they couldn’t comment.

The June 9 lawsuit by Basis Capital’s Basis Yield Alpha Fund focuses on Goldman Sachs’s sale of the “now notorious Timberwolf collateralized debt obligation,” Basis said in a statement. The suit filed in Manhattan federal court says the fund was forced into insolvency after buying mortgage-linked securities created by Goldman Sachs, in what one of its own executives described internally as a “shi**y deal.”

Boies, Schiller joins a growing list of firms providing legal and regulatory advice to Goldman Sachs, the most profitable firm in Wall Street history, which was sued by the Securities and Exchange Commission in April over its marketing of another CDO known as Abacus.

In a June 9 statement about the Timberwolf lawsuit, Goldman Sachs called it “a misguided attempt by Basis, a hedge fund that was one of the world’s most experienced CDO investors, to shift its investment losses to Goldman Sachs.”

The case is Basis Yield v. Goldman Sachs, 1:10-cv-04537, U.S. District Court, Southern District of New York (Manhattan).

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Court Filings

SEC Lawsuit Against Diebold for Accounting Fraud Tops Chart

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 that was the most- read litigation docket on the Bloomberg Law system last week.

The SEC named the 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 June 2. The company hasn’t admitted or denied any wrongdoing under its accord, the company said in a statement.

In a related federal suit filed in Ohio, the SEC also accused three former senior Diebold executives of manipulating earnings to meet forecasts. The three are: 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. Lawyers for the three executives denied wrongdoing in interviews with Bloomberg News last week.

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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To contact the reporter on this story: Elizabeth Amon in Brooklyn, New York, at

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