Drilling Ban, ICP, DiPascali, Kerviel, Barclays, EBay, AKO in Court News

A New Orleans federal judge lifted the six-month moratorium on deepwater drilling imposed by President Barack Obama following the largest oil spill in U.S. history. Drilling services shares jumped on the news.

Obama temporarily halted all drilling in waters deeper than 500 feet on May 27 to give a presidential commission time to study improvements in the safety of offshore operations. More than a dozen Louisiana offshore service and supply companies sued U.S. regulators to lift the ban. The U.S. said it will appeal the decision.

U.S. District Judge Martin Feldman yesterday granted a preliminary injunction, halting the moratorium. He also “immediately prohibited” the U.S. from enforcing the ban. Government lawyers told Feldman the ban was based on findings in a U.S. report following the sinking of the Deepwater Horizon rig off the Louisiana coast in April.

“The court is unable to divine or fathom a relationship between the findings and the immense scope of the moratorium,” Feldman said in his 22-page decision. “The blanket moratorium, with no parameters, seems to assume that because one rig failed and although no one yet fully knows why, all companies and rigs drilling new wells over 500 feet also universally present an imminent danger.”

“The court cannot substitute its judgment for that of the agency, but the agency must ‘cogently explain why it has exercised its discretion in a given manner,’” Feldman said, citing a previous ruling. “It has not done so.”

Feldman in a separate order yesterday “immediately prohibited” the U.S. from enforcing the drilling moratorium, finding the offshore companies would otherwise incur “irreparable harm.”

Interior Secretary Kenneth Salazar said in a statement that he will issue a new order on deepwater offshore oil drilling.

“We see clear evidence every day, as oil spills from BP’s well, of the need for a pause on deepwater drilling,” Salazar said. “Based on this ever-growing evidence, I will issue a new order in the coming days that eliminates any doubt that a moratorium is needed, appropriate, and within our authorities.”

White House press secretary Robert Gibbs told reporters that “continuing to drill at these depths without knowing what happened does not make any sense.”

The U.S. will ask Feldman to stay his ruling pending an appeal, Justice Department attorney Michael Thorp said yesterday at a court hearing in a separate lawsuit challenging the ban.

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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Harvard’s Former Quarterback Priore Now Faces SEC Fraud Suit

Thomas Priore was about to play the biggest football game of his life. The Harvard University quarterback, who’d lost his starting job earlier in the season, was given a second chance and would take the field against rival Yale University, Bloomberg News’ James Sterngold, Pierre Paulden and Christine Richard report.

“I knew when I got my opportunity again, I wasn’t going to waste it,” he told the Boston Globe the day before kickoff in November 1990. “I was going to make everything I could out of it. I always knew my time would come.”

Harvard lost, 34-19, as Priore fumbled twice.

Priore, 41, went on to earn an MBA from Columbia Business School, and four years ago, he got another big chance. He and colleagues acquired a controlling stake in ICP Capital, the investment company they had started as an affiliate of Bank of New York. They turned it into a leader in the market for collateralized debt obligations, or CDOs, which package pools of assets such as mortgage bonds into new securities.

Now, federal regulators allege that Priore and his firm have defrauded investors since 2007. The U.S. Securities and Exchange Commission said in a lawsuit filed Monday that Priore and New York-based ICP “improperly obtained tens of millions of dollars in fees and undisclosed profits at the expense of clients and investors” by inflating bond prices, making unauthorized trades and self-dealing.

In an e-mailed statement, Priore denied the charges and said he would fight.

“We at all times acted in the best interest of our clients and intend to vigorously defend ourselves against these allegations,” said Priore, who lives in the New York suburb of Chappaqua. He owns 76 percent of ICP’s holding company, according to the SEC.

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DiPascali, Admitted Madoff Accomplice, Free on Bail

Frank DiPascali Jr., who pleaded guilty to helping Bernard L. Madoff carry out history’s biggest Ponzi scheme, was released on bail.

DiPascali, 53, had been in federal custody since pleading guilty last summer. He has cooperated with prosecutors in a bid for leniency when he is sentenced.

The former chief financial officer for Madoff’s company left the federal courthouse in Lower Manhattan with his lawyer, Marc Mukasey. Both declined to comment.

Among conditions set by U.S. District Judge Richard Sullivan in February were posting $10 million in cash or property, including $600,000 in equity in three New Jersey homes; 24-hour house arrest except under escort; and wearing an electronic monitoring device.

DiPascali pleaded guilty to 10 counts, including conspiracy, fraud and money laundering. He admitted misleading thousands of clients at Bernard L. Madoff Investment Securities LLC, saying no securities trades took place in their accounts. Investors lost billions of dollars.

Madoff, 72, pleaded guilty on March 12, 2009, and is serving a 150-year prison term.

The case is U.S. v. DiPascali, 09-cr-764, U.S. District Court, Southern District of New York (Manhattan).

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Trials/Appeals

Kerviel Says He Was ‘Moronic,’ Ex-CEO Calls Him ‘Catastrophe’

Jerome Kerviel’s 50 billion euros ($61 billion) in unauthorized trades were a “catastrophe” for Societe Generale SA, former chief executive officer Daniel Bouton told a Paris court yesterday. The trader said he’d made “moronic” mistakes that weren’t crimes.

France’s second-largest bank by market value lost 4.9 billion euros in the process of liquidating Kerviel’s accounts over three days in January 2008 as markets fell worldwide.

“Fifty billion euros is monstrous,” Bouton said, standing before the court, two chairs from where Kerviel sat. “It was a catastrophe.” Kerviel’s actions were “genius, evil perhaps,” Bouton said as testimony drew to a close at the three-week trial. “He created a fraudulent enterprise inside the bank.”

Kerviel, 33, is accused of abuse of trust, faking documents and hacking the bank’s computers to hide positions that exceeded his mandate with faked hedges. Kerviel has argued his superiors were aware of and condoned his bets. Bouton resigned as chief executive officer in April 2008 after a 5.5 billion-euro capital raising campaign, and stepped down as chairman in 2009.

Societe Generale’s risk controls weren’t adequately attuned to looking for dangers within the bank, Bouton said. “We did not look enough at operational risks,” he said. When examining Kerviel’s activities, “we had a tendency to believe him.”

Still, there was no sign the bank “facilitated him, applauded him,” Bouton said. Kerviel’s ability to continue operating after reprimands in 2005 and scrutiny by controllers was a “failure of control,” not a sign the bank let him carry on.

After Bouton left, Judge Dominique Pauthe repeated the first question he asked Kerviel when the trial began on June 8, saying: “Who are you?”

“I am someone who tried to do his job as well as possible, to make money for the bank,” Kerviel responded, repeating his position since the beginning of the investigation two and a half years ago. “I never wanted to do something bad.”

“Now I see it was moronic, completely,” Kerviel said. Told this was his last opportunity during the trial to explain himself to the three judges, he said: “That’s it.”

The trial ends June 25. Kerviel risks as many as five years in prison if convicted and a 375,000-euro fine.

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JPMorgan Said Barclays Misled Judge in Lehman Deal

JPMorgan Chase & Co. accused Barclays Plc of misleading a federal judge when it bought Lehman Brothers Holdings Inc.’s defunct brokerage in the falling markets of September 2008, said a Lehman lawyer, citing a letter from JPMorgan Chairman Jamie Dimon.

Barclays Group Chief Executive John Varley was asked by Lehman lawyer Robert Gaffey in federal court in Manhattan yesterday about what he characterized as “two big-time bankers in a very big dispute.”

Gaffey said Dimon wrote to Varley and Barclays President Robert Diamond, saying the court was misinformed about the Barclays deal. JPMorgan had asked Barclays to participate in an accounting of the transaction and they declined, Dimon said in the letter, according to Gaffey.

“I could refute him point by point but he’s not here,” Varley said. “I inwardly groaned when I read it because I knew that there were a number of points on which Jamie Dimon and I would disagree.”

Varley was the second witness yesterday in a U.S. Bankruptcy Court trial over Lehman’s claim that the U.K.’s third-biggest bank should pay it as much as $11 billion for an allegedly undisclosed “windfall” on the deal for the brokerage. The purchase was approved by Judge James Peck and closed a week after Lehman’s Sept. 15, 2008, bankruptcy, the biggest in U.S. history.

Joe Evangelisti, a JPMorgan spokesman, declined to comment on the dispute, which was later settled.

Lehman lawyer Gaffey has tried to prove that Barclays made a safe, or “derisked” acquisition, and took more assets out of the defunct firm than it should have without telling the court.

Lehman’s lawyers are beginning to wrap up their case after more than two weeks of testimony by former Lehman executives, advisers and Barclays officials.

The U.K. bank’s lawyers have tried to show when questioning Lehman’s witnesses that all the key facts of the deal were known by the main players. They are scheduled to present Barclays’s side of the story starting Aug. 23. Barclays, which announced a gain on its purchase on Sept. 17, 2008, has said it owes Lehman nothing and wants $3 billion that is being withheld by the trustee.

The cases are In re Lehman Brothers Holdings Inc., 08- 13555, and Giddens v. Barclays Capital Inc., 09-01732, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

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Verdicts/Settlements

EBay Liable for Leading Users to Fake Perfume, L’Oreal Says

EBay Inc. is actively involved in the process of selling fake L’Oreal SA cosmetics on its auction site, the Paris-based company told European Union’s highest court.

EBay, the most-visited U.S. e-commerce site, is liable for trademark breaches due to its active involvement in the pre- sale, sale and after-sale processes on its online platform, lawyers for L’Oreal told the European Court of Justice yesterday. EBay uses L’Oreal trademarks as sponsored links to lead users to infringing perfumes and other cosmetics, according to L’Oreal.

“In no way can EBay’s role be described as either passive or neutral,” L’Oreal’s lawyer Henry Carr said to a 13-judge panel of the Luxembourg-based EU court. “EBay is just like a large car-boot sale on the Internet and should face the same sanctions if fake products are sold there.”

A ruling by the EU court may help settle pending trademark disputes between the two companies in France, Belgium and Spain. The EU court ruled earlier this year, in a dispute between Google Inc. and LVMH, that Internet hosts may benefit from an exemption under the EU’s e-commerce law only if their role in processing potentially infringing data is neutral.

Courts in France and Belgium so far have sided with EBay in the lawsuits brought by L’Oreal, Europe’s largest cosmetics company.

Yesterday’s case stems from a dispute in the U.K., where the High Court in London last year decided EBay could do more to reduce the sale of copies on its site by installing filters, imposing restrictions on sellers or applying its policies more consistently. Before giving its final decision, the court referred a number of questions to the EU tribunal for guidance.

“Even if EBay itself is not liable for trademark infringement, L’Oreal must have the possibility to require an injunction against EBay because the company has the knowledge that’s tied to the infringement on its site,” said Carr.

EBay’s lawyer Thierry Van Innis yesterday said an injunction was a “disproportionate sanction” that would impede the functioning of e-commerce. He also rejected the idea of installing control mechanisms, such as a filters to help early detection of counterfeits sellers “because these clearly don’t have the capacity to block what’s illegal and ensure that everything offered is legal.”

The case is C-324/09, L’Oreal SA, Lancome parfums et beaute & Cie SNC, Laboratoire Garnier & Cie, L’Oreal (UK) Ltd. v. EBay International AG, EBay Europe SARL, EBay (UK) Ltd.

Ex-AKO Trader Must Pay $421,000 After Guilty Plea

A former trader at AKO Capital LLP, a London hedge fund, must pay about 287,000 pounds ($421,000) in fines and restitution after being the first person to plead guilty to U.K. insider-trading charges.

Anjam Ahmad, 39, was sentenced at a London court yesterday for conspiracy to commit insider dealing related to as many as 22 different companies in 2009, in a case brought by the U.K. Financial Services Authority. Judge Geoffrey Rivlin suspended his sentence and Ahmad will serve no jail time.

“You cooperated immediately with the authorities and were very frank about the part you played in all this,” Rivlin said at the sentencing hearing.

Ahmad admitted to passing information on AKO’s block trades to a co-conspirator who placed spread bets before the hedge fund’s trades, FSA prosecutor Sarah Clarke said.

Ahmad approached the FSA in February, seven days after his arrest, to cooperate, the prosecutor said.

Ahmad was ordered to pay back the 106,000 pounds he made from the scheme and a 50,000 fine. The FSA fined him 131,000 pounds separately for pushing trades to an equity broker and receiving commission in return while he was at AKO.

In the insider-trading case, Ahmad was told he would receive 40 percent of the profit from his accomplice, who he communicated with using unregistered mobile phone SIM cards, Clarke said. Ahmad believed the total profit of the scheme was 265,700 pounds, when the actual profit was 590,000, the FSA said.

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Court News

Kagan Gets Bipartisan Support From Former Solicitors General

Elena Kagan was endorsed by eight former solicitors general, including four Republicans who added bipartisan support before next week’s Senate hearings on her U.S. Supreme Court nomination.

Kagan, the first woman solicitor general, is President Barack Obama’s second Supreme Court nominee. As solicitor general, she represents the government in cases before the high court.

“Elena Kagan would bring to the Supreme Court a breadth of experience and a history of great accomplishment in the law,” the former solicitors general said in a statement. They said she has “served the government well” in her current post and the experience will be good training for the high court.

The former solicitors general served four presidents, beginning with Republican Ronald Reagan. They included Theodore Olson and Paul Clement, who held the job during Republican George W. Bush’s two terms.

Obama nominated Kagan, 50, on May 10 to replace retiring Justice John Paul Stevens on the nine-member high court. She is a former dean of Harvard Law School, served for four years as an aide to President Bill Clinton and was a clerk to Supreme Court Justice Thurgood Marshall.

The Senate Judiciary Committee will begin its hearings at 12:30 p.m. Washington time on June 28 with opening remarks from panel members followed by Kagan’s opening statement.

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

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