ICP Asset Management LLC and its founder were sued by U.S. regulators for their role in overseeing mortgage-linked investments insured by American International Group Inc. as the housing market declined.
Thomas Priore, 41, and New York-based ICP directed more than $1 billion of trades at artificially high prices on behalf of collateralized debt obligations they managed, the Securities and Exchange Commission said yesterday in a lawsuit filed at federal court in New York. Priore denied wrongdoing and said he would fight the allegations.
The suit, the SEC’s first aimed at a so-called collateral manager, may open a new front for the agency in its examination of firms that dealt with mortgage assets before the U.S. housing market collapsed in 2007. ICP violated its duty to clients by making investments that broke rules limiting risk, and failing to get required approvals for trades from AIG and bond insurer FGIC Corp., another victim, the SEC said.
“The CDOs were complex but the lesson is simple: collateral managers bear the same responsibilities to their clients as every other investment adviser,” George Canellos, director of the SEC’s New York regional office, said in a statement. “When they violate their clients’ trust, we will hold them accountable.”
The CDOs, known as Triaxx, invested primarily in mortgage- backed securities. ICP favored itself and certain clients in its trading, for example, by having one CDO sell assets to another at inflated prices, the SEC said. The firm used the dealings to cover other clients’ losses and to generate higher fees for itself, according to the lawsuit.
“We at all times acted in the best interest of our clients and intend to vigorously defend ourselves against these allegations,” Priore said yesterday in an e-mail statement.
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Kerviel, Once ‘Relied On,’ Now ‘Pathetic’ to Ex-SocGen Bosses
Jerome Kerviel’s last boss at Societe Generale SA said he now finds it “hard” to look into the face of a trader who was seen as a reliable employee before the bank’s 4.9 billion-euro ($6 billion)trading loss.
Kerviel’s excuses for building up 50 billion euros worth of bets are “pathetic,” Eric Cordelle, the former trader’s last manager on the Delta One trading desk before his activities were discovered in January 2008, told a Paris court yesterday.
“It’s hard for me to look at his face,” said Cordelle, who testified that he is still looking for work after being fired following the discovery of the unauthorized trades. “No one else is allowed to make bets, but he thinks it doesn’t work that way for him.”
Kerviel, 33, is accused of abuse of trust, faking documents and hacking the bank’s computers, hiding positions that exceeded his mandate with faked hedges. The bank announced the loss in January 2008, with former Chief Executive Officer Daniel Bouton calling the former trader a “terrorist.” Kerviel has argued that his superiors were aware of his actions and condoned the bets.
Cordelle and his then boss Martial Rouyere denied they knew anything of Kerviel actions.
Rouyere said there were three traders he “relied on” on the Delta One desk and counted Kerviel among them. He said he had thought Kerviel could help train Cordelle, who said he had no trading experience when he arrived on the desk in April 2007.
“I had faith in Jerome,” said Rouyere, who left the bank in August 2008. “He was someone serious, professional.”
When the bank began to uncover Kerviel’s bets and faked hedges, Rouyere said the team looking into his transactions didn’t immediately understand what he had done.
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Monsanto Wins as Court Backs Alfalfa Seed Planting
The 7-1 ruling shifts the focus of the environmental dispute to the Agriculture Department, which under yesterday’s ruling now can consider allowing limited planting. That would be an interim measure while the USDA finishes an environmental impact statement that ultimately might clear the way for unrestricted planting.
The justices said a federal judge in San Francisco went too far when he placed a nationwide ban on so-called Roundup-ready alfalfa seeds because of the possibility they would contaminate other plants.
“An injunction is a drastic and extraordinary remedy, which should not be granted as a matter of course,” Justice Samuel Alito wrote for the majority. Justice John Paul Stevens was the lone dissenter.
The case is Monsanto v. Geertson Seed Farms, 09-475, U.S. Supreme Court (Washington).
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Pfizer Rejected by High Court in Menopause Drug Case
The U.S. Supreme Court rejected Pfizer Inc.’s appeal of a verdict for an Arkansas woman who blamed the company’s menopause drugs for her breast cancer, leaving intact a $2.7 million award that may grow with punitive damages.
The justices yesterday let stand a lower court decision upholding that award, which marked the first federal verdict against Pfizer’s Wyeth unit over its Prempro hormone-replacement treatment.
The appeal by Wyeth and Pfizer’s Upjohn unit sought to leverage a different part of the appeals court ruling ordering a new trial on punitive damages, which a jury had set at $27 million. Pfizer argued that the new trial should cover all aspects of the case, including the jury’s finding that the drugs helped cause Donna Scroggin’s cancer.
“While we are disappointed with the court’s decision, it does not change the prior ruling by the appeals court, which affirmed the dismissal of punitive damages as to Upjohn and ordered a new trial on punitive damages for Wyeth,” Pfizer said in a statement.
Scroggin was among 6 million women who took the pills to treat menopause symptoms including hot flashes, night sweats and mood swings. Wyeth faces more than 8,000 lawsuits over the medicines, which are still on the market.
Scroggin and other women contend company executives ignored studies raising questions about the link between hormone- replacement drugs and breast cancer to pump up sales of their drugs.
The Supreme Court action “validates our evidence that shows Wyeth hid the health risks of this drug and the drugs caused breast cancer in thousands of women,” Jim Morris, Scroggin’s lawyer, said in a telephone interview yesterday. “We are looking forward to asking another jury to decide the extent of Wyeth’s wrongful conduct.”
The case is Wyeth v. Scroggin, 09-1123, U.S. Supreme Court (Washington).
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Anadarko Asks Court to Cancel Drill Rig Contract Over U.S. Ban
Anadarko Petroleum Corp. asked a court to cancel its contract leasing an offshore oil rig from Noble Corp., claiming a U.S. six-month ban on deepwater drilling triggered a “force majeure” provision.
The U.S. moratorium, announced May 27, followed the April explosion and sinking of the Deepwater Horizon rig in the Gulf of Mexico and subsequent oil spill. As a result of the ban, the U.S. ordered Anadarko to stop using the drilling vessel, the Noble Amos Runner, in the Gulf of Mexico, the company said in court filings June 18.
Anadarko, based in The Woodlands, Texas, sued Noble in federal court in Houston on June 18, asking for a declaratory judgment, after the rig-leasing company said the ban didn’t block Anadarko from redeploying the vessel elsewhere.
A provision in the contract would require Anadarko to pay a force majeure rate for up to a maximum of 15 consecutive days, after which no day rate was payable, Anadarko said.
Noble doesn’t view the ban as a force majeure, the company said in a June 4 statement. “Anadarko is not prevented from using the unit on a variety of activities permissible under the contract,” Noble said.
John Breed, a spokesman for Noble, didn’t return a call seeking comment made after regular business hours.
“The contract with Noble is specifically for the Gulf of Mexico, and in adherence with the government’s deep-water drilling moratorium we are managing our business appropriately during this force majeure event,” John Christiansen, an Anadarko spokesman, said in an e-mail.
The lawsuit is Anadarko Petroleum Corp. v. Noble Drilling (U.S.) LLC, 4:10-cv-012185, U.S. District Court, Southern District of Texas (Houston).
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Credit Agricole Sued Over Creation of Millstone CDO
Credit Agricole SA was sued for at least $100 million over the creation and sale of a collateralized debt obligation, according to papers filed June 18 in state court in New York.
Buyers of notes issued by the CDO, named Millstone IV CDO Ltd., accused two units of Credit Agricole of fraud and unjust enrichment, according to a summons filed with the court. CDOs are pools of debt securities sliced into various tranches.
The plaintiffs -- Loreley Financing (Jersey) No. 31 Ltd. and Loreley Financing (Jersey) No. 32 Ltd. -- are seeking the return of the $50 million purchase price for the notes and damages of no less than $50 million, according to court papers.
A spokesman for Credit Agricole couldn’t be reached for comment.
Alpha Beta Sues Pursuit for $40 Million, Claims Fraud
Alpha Beta Capital Partners LP sued Pursuit Investment Management LLC to recover $40 million in losses as a result of what it calls a fraud in connection with its investment in two Pursuit hedge funds.
Pursuit Investment, based in Stamford, Connecticut, inflated the net asset values of Pursuit Capital Management Fund I LP, and Pursuit Opportunity Fund I LP, to obtain millions in management and incentive fees, Alpha Beta said yesterday in New York state court complaint. False monthly statements kept Alpha Beta invested in the funds, the New York-based company said.
“By pricing the Pursuit Funds’ assets essentially arbitrarily to make their performance look good,” the company made it “appear as though the value of the Pursuit Funds’ portfolios were continually rising, even in a market that was declining precipitously, when in fact their value was not,” Alpha Beta said in court papers.
Pursuit and its principals Anthony P. Schepis and Frank Canelas Jr., who also were sued, didn’t return a call for comment.
The case is Alpha Beta Capital Partners v. Pursuit Investment Management, 650674/2010, New York State Supreme Court, New York County (Manhattan).
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Goldman Sachs, SEC, Agree to Extend Goldman’s Reply
A judge yesterday in New York signed an order granting Goldman Sachs Group Inc. more time to respond to a April 16 lawsuit accusing the firm of defrauding investors while selling mortgage-linked securities, records say.
U.S. District Judge Barbara Jones signed a request granting Goldman an extension until July 19, according to court records. The original deadline was June 21, court documents show. The SEC, in the joint filing submitted to the court with Goldman, consented to the firm’s extension of time.
The SEC said New York-based Goldman Sachs and one of its employees, Fabrice Tourre, didn’t disclose to investors the role played by hedge fund Paulson & Co. in devising and betting against the securities.
Tourre also has until July 19 to respond, according to court documents signed by Lorin Reisner, the SEC’s deputy director of enforcement and Richard Klapper, a lawyer for Goldman Sachs.
The SEC alleged the firm wasn’t forthcoming about the role that a hedge fund, Paulson & Co., played in selecting and betting against the instrument.
Goldman Sachs, the most profitable firm in Wall Street history, has denied the SEC’s allegations and said it will fight the case. Company spokesman Michael DuVally said he couldn’t comment.
According to the complaint, Goldman created and sold collateralized debt obligations linked to subprime mortgages in early 2007, as the U.S. housing market faltered, without disclosing that Paulson helped pick the underlying securities and bet against the vehicles.
The case is Securities and Exchange Commission v. Goldman Sachs, 10-cv-03229, U.S. District Court, Southern District of New York (Manhattan).
Louisiana Governor Asks Judge to Lift Deepwater Drilling Ban
Louisiana Governor Bobby Jindal and state Attorney General Buddy Caldwell asked a U.S. judge to lift a six-month moratorium on deepwater drilling in the Gulf of Mexico within 30 days to avoid “turning an environmental disaster into an economic catastrophe.”
The drilling ban may cost Louisiana’s economy, “which was already weakened by Katrina and is now crippled by the Deepwater Horizon disaster,” almost 11,000 direct and indirect jobs in five months, Caldwell said in papers filed June 20 in federal court in New Orleans.
“Even after the catastrophic events of Sept. 11, the government only shut down the airlines for three days,” Caldwell said in support of Hornbeck Offshore Services LLC’s lawsuit seeking to end the moratorium.
U.S. President Barack Obama temporarily halted all drilling in water deeper than 500 feet on May 27 in response to the worst oil spill in U.S. history, caused by the April sinking of the Deepwater Horizon drilling rig off the Louisiana coast. The ban, implemented at the recommendation of Interior Secretary Kenneth Salazar, gives a presidential commission six months to study ways to improve the safety of deepwater drilling.
In court papers last week, lawyers for U.S. regulatory agencies said the ban is necessary to “ensure more lives are not lost and that new blowouts and spills do not occur.
The case is Hornbeck Offshore Services LLC v. Salazar, 2:10-cv-01663, U.S. District Court, Eastern District of Louisiana (New Orleans).
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Starr Said ‘Not That Much’ to Theft-Size Accusation
Kenneth I. Starr replied “not that much” to an investigator who accused him of stealing $30 million, a prosecutor said in court -- a statement the government said it may try to use against the accused investment adviser.
Assistant U.S. Attorney William Harrington yesterday told District Judge Shira Scheindlin in New York that prosecutors are deciding whether to use the statement Starr made May 27 after he was found hiding in a closet in his home.
“At the time he was handcuffed, the agent made some comment about, ‘This is your time to get things straight. You’re at the crossroads. You stole $30 million,’” Harrington said. “The defendant responded, saying, ‘Not that much.’ This occurred after he was in custody, after being handcuffed.”
Starr, 66, was indicted June 11 for 20 counts of wire fraud and one each of securities fraud, money laundering and fraud by an investment adviser. He stole at least $59 million, almost twice the first estimate, according to the indictment. He is being held without bail.
Scheindlin asked Harrington if the government was certain of Starr’s exact words and whether the alleged comment made was made after he’d been advised of his constitutional right not to incriminate himself.
Harrington said that the government would put together a report from the agent’s notes to determine the exact timing of the comment and if the U.S. would seek to use them against him at a trial.
Starr, who pleaded not guilty, faces as long as 20 years in prison if convicted of wire fraud, prosecutors in the Manhattan office of U.S. Attorney Preet Bharara said. evidence in the case from Starr’s computer and his company.
Peggy Cross, a public defender appointed by the court to represent Starr, told Scheindlin she is determining whether her client can obtain funds to pay a private lawyer. As part of the government’s case, the U.S. Securities and Exchange Commission froze his bank accounts.
Scheindlin granted Cross’s request for a two-week adjournment delay. The next hearing is set for July 7.
The civil suit is SEC v. Starr, 1:10-cv-04270, and the criminal case is U.S. v. Starr, 1:10-mj-01135, U.S. District Court, Southern District of New York (Manhattan).
Agility Is ‘Fugitive’ in Overbilling Case, U.S. Says
Agility, the Middle East’s largest storage and logistics company, is a “fugitive from American justice” that is trying to evade trial on charges of overbilling on military supplies, U.S. prosecutors said.
Agility, formerly known as Public Warehousing Co., was indicted in November on allegations it overcharged the U.S. government on a multibillion dollar contract to supply food for troops in Kuwait and Iraq. The Kuwait-based company said April 28 it was negotiating with the U.S. Justice Department on a possible settlement of the case.
Prosecutors said in a filing yesterday in Atlanta federal court that Agility has “retreated to the safe haven of Kuwait” and contends it isn’t subject to U.S. laws or courts. They urged the judge not to even consider Agility’s motion to nullify the indictment on the grounds that it wasn’t properly served.
Agility “boasts repeatedly in the media that it wishes to vindicate its reputation in this court by fully litigating this case, yet it remains a fugitive, trying to litigate its claims in the court of public opinion, while attempting to evade this court of law,” prosecutors wrote.
Agility adopted a company procedure that only one person could accept service of the indictment and that person was located outside the U.S., the government said in Monday’s filing.
Harry Frazier, a spokesman for the company, said it welcomes the court’s review and an eventual ruling on the matter.
“The question currently before the federal court in Atlanta is whether the Justice Department complied with U.S. law,” Frazier said in an e-mailed statement. “The Department’s filing today substitutes rhetoric for legal analysis and provides no justification for its decision to ignore longstanding U.S. law on proper service of process.”
Patrick Crosby, spokesman for the U.S. Attorney’s Office in Atlanta, declined to comment.
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Business Groups Win U.S. High Court Arbitration Case
The U.S. Supreme Court gave a new endorsement to the use of arbitration to resolve employment and consumer disputes, ruling in favor of business groups in a fight over the extent of an arbitrator’s authority.
The justices, in a 5-4 ruling yesterday, said that arbitrators in many cases can decide whether an arbitration agreement is so one-sided that it shouldn’t be enforced, rejecting contentions that judges should always be the ones to make that determination.
The ruling, which overturned a lower court decision, is a victory for a unit of Rent-A-Center Inc. in a fight with a black employee who says he was the victim of racial discrimination.
Rent-A-Center’s arbitration agreement, which Antonio Jackson signed when he was hired, says that an arbitrator should resolve any issue involving the enforceability of the accord. The rent-to-own company, based in Plano, Texas, argued that a federal arbitration law requires such agreements to be enforced as written.
Jackson argued that the federal law gives federal judges the responsibility to determine whether a valid arbitration agreement exists.
The case is Rent-A-Center West v. Jackson, 09-497, U.S. Supreme Court (Washington).
Berezovsky Wins $52.6 Million Ruling Over Loan to Ex-Employee
Boris Berezovsky, the Russian billionaire with U.K. political asylum, won a $52.6 million judgment against a former employee who defaulted on a loan for an oil-trading business.
Ruslan Fomichev, his business partner Vasily Peganov, and their trading company Anstead Holdings Inc. must repay $47 million plus interest on a 2003 loan from North Shore Inc., an offshore entity set up by Berezovsky, Judge Guy Newey ruled yesterday in London’s High Court.
The dispute arose after almost half of the loaned money was frozen by Swiss authorities as part of a probe into embezzlement claims against Berezovsky related to the Russian carrier OAO Aeroflot, according to court documents. Fomichev claimed the contract could be avoided because Berezovsky failed to warn him that the money could be frozen if it were deposited in Switzerland. Newey disagreed.
“A contract cannot be rescinded for misrepresentation” unless the borrower “was induced to enter into the contract by the misrepresentation,” Newey said in the 86-page judgment. “North Shore’s claims against Mr. Fomichev and Mr. Peganov succeed.”
Michael Swainston, a lawyer for Fomichev and Peganov with the firm Brick Court Chambers in London, didn’t return a call for comment.
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Knauf Settles Two U.S. Chinese-Drywall Suits, Trial Dismissed
Knauf Plasterboard Tianjin Co., a Chinese drywall maker, settled with two U.S. property owners, resulting in the dismissal of a trial intended to help determine issues in related lawsuits nationwide.
Terms of the agreements weren’t filed following a settlement conference June 18 in the New Orleans chambers of U.S. District Judge Eldon Fallon, who oversees Chinese drywall cases in federal courts. Knauf is among about 1,000 defendants that may face claims, Fallon said last month.
Fallon ordered the dismissal of the two suits brought against Knauf by Paul Clement and Celeste Schexnaydre and by John Campbell, who own real estate near New Orleans and in Gulf Shores, Alabama, that they claimed had been tainted by contaminated drywall that can cause health problems.
The Clement and Campbell cases had been selected by the manufacturers to be heard together in a jury trial overseen by Fallon and used as a benchmark for property damage in other cases.
The case is In re Chinese-Manufactured Drywall Products Liability Litigation, 2:09-md-02047, U.S. District Court, Eastern District of Louisiana (New Orleans).
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