Starr, UBS, Northern Rock, Credit Suisse, Morgan Crucible in Court News
Money manager Kenneth I. Starr, facing a criminal trial on charges he defrauded his celebrity clients of at least $59 million, was conditionally granted $10 million bail two months after his arrest.
U.S. District Judge Shira Scheindlin in Manhattan said yesterday that to secure the bond, Starr must post as collateral the homes belonging to his two brothers, a Florida condo, $250,000 in cash and a rare book collection owned by one of the brothers. His wife, Diane Passage, and his brothers must sign the bond, as must a family friend who owns a charter jet business.
Starr, 66, is charged with 20 counts of wire fraud and one each of securities fraud, money laundering and fraud by an investment adviser. He 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. Starr, who also represented actors Sylvester Stallone and Wesley Snipes, has pleaded not guilty and faces a Nov. 1 trial date.
“This case warrants a high bail,” Scheindlin told Starr’s lawyer, Flora Edwards, who proposed the brother’s rare book collection and a Florida condo as security for a $2 million bond.
“People must be willing to risk everything and their entire bank life,” Scheindlin said. “I don’t believe in doing this half-way bargain. Either they’re willing to go to the mat for him or they’re not.”
The judge set the next court date for Aug. 12.
Assistant Manhattan U.S. Attorney Michael Bosworth declined to comment after court.
“We’re going to try to make this bail package,” Edwards said after court. “This is a very significant package and Mr. Starr will do everything he can to meet these terms and win his release on bail.”
The case is U.S. v. Starr, 1:10-cr-00520, U.S. District Court, Southern District of New York (Manhattan).
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Ex-UBS Client Zabczuk Avoids Prison for Tax Crime
Former UBS AG client Paul Zabczuk, a Texas businessman, avoided prison after admitting he hid assets from the U.S. Internal Revenue Service and helping U.S. prosecutors probe offshore tax evasion.
Zabczuk, 55, was sentenced to one year of house arrest and fined $2,000 yesterday by U.S. District Judge William Dimitrouleas in Miami. He faced as long as three years in prison. The judge granted leniency to Zabczuk, who implicated a Swiss banker, Switzerland’s Banque Cantonale Vaudoise and other U.S. taxpayers when he pleaded guilty April 13.
Zabczuk said he filed a false tax return in 2004 that didn’t report his account at UBS, the largest Swiss bank. Zurich-based UBS avoided U.S. prosecution in February 2009 by paying $780 million, turning over the names of U.S. account holders and saying it helped Americans hide assets from the IRS.
BCV spokesman Christian Jacot-Descombes said in an e-mailed statement that the bank didn’t help U.S. clients hide assets from the IRS and that it hadn’t been contacted by the agency or the Justice Department. He declined to comment further.
The case is USA v. Zabczuk, 10-cr-60112, U.S. District Court, Southern District of Florida (Miami).
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Merck Paid 3,468 Death Claims to Resolve Vioxx Suits
Merck & Co. paid claims to the families of 3,468 users of its Vioxx painkiller who died of heart attacks or strokes, a court-appointed administrator told a judge yesterday.
A $4.85 billion settlement fund made payments to the families of 2,878 Vioxx users who died of heart attacks and 590 who died of strokes, according to Lynn Greer of BrownGreer LLP, a law firm in Richmond, Virginia, that analyzed 59,365 claims.
Merck pulled Vioxx from the market in 2004 after a study showed it doubled the risk of heart attacks and strokes. Merck set up the fund, which covers claims of death and lesser injuries, in 2007 after reserving $1.9 billion to fight 26,600 Vioxx suits. U.S. District Judge Eldon Fallon in New Orleans has overseen Vioxx lawsuits since February 2005 through a process known as multidistrict litigation.
“It’s a remarkable achievement,” Fallon said at a hearing, describing the MDL as the biggest in U.S. history. “We have really finished the large portion of this litigation.”
Merck won 11 of 16 Vioxx suits at trial before agreeing in 2007 to settle all claims. Merck didn’t admit that Vioxx caused injuries under an accord that set out how BrownGreer was to analyze each claim, weighing such factors as a user’s age, their length of use, and their health risks such as obesity or hypertension.
Of the 59,365 original claims, 1,343 were deemed ineligible, leaving 58,022 potentially eligible claims, said Orran Brown, chairman of BrownGreer. Almost 25,000 claims resulted in no payment, he said. He said yesterday that 99.9 percent of claims were resolved under the settlement program.
The case is Vioxx Products Liability Litigation, MDL-1657, U.S. District Court, Eastern District of Louisiana (New Orleans).
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Ex-Northern Rock CFO Fined, Banned by U.K. Regulator
Former Northern Rock Plc Chief Financial Officer David Jones became the third executive of the bank banned from working in the industry in the wake of the mortgage lender’s near collapse during the credit crisis.
Jones was fined 320,000 pounds ($494,000) for allowing false mortgage data to appear in the bank’s 2006 accounts, the Financial Services Authority said yesterday in a statement. The correct figures would have increased the number of late payments by customers by more than 50 percent or quadrupled the amount of repossessions, according to the regulator.
“Jones had a duty to reveal the true position to the public and to important internal committees,” FSA Enforcement Director Margaret Cole said. “He had numerous opportunities to put things right, but failed to do so.”
Former Northern Rock Deputy Chief Executive Officer David Baker and former managing credit director Richard Barclay were banned and fined by the FSA on April 13 for hiding the number of impaired mortgages from the bank’s board and the wider market. Northern Rock was the first British casualty of the U.S. subprime market’s collapse and was taken over by the British government in February 2008.
“I accept that I did not ensure that information on residential arrears prepared and presented by others was corrected to include certain accounts known as ‘pending possession cases,’” Jones said in a statement. “However, I consider that the FSA’s conclusions and imposed penalty are both unfair and disproportionate.”
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Cantor Settles Suit With Ex-Carbon Brokerage Boss
Cantor Fitzgerald LP said Stephen Drummond, the former head of its carbon-credits brokerage, will repay a $2 million loan and drop an unfair-dismissal claim as part of a settlement of a U.K. lawsuit.
Both sides reached a confidential agreement to end a week- old trial, Cantor lawyer Paul Nicholls told judge Michael Burton at a hearing yesterday in London. Drummond will repay the loan, Cantor said in a statement.
Cantor sued Drummond, a former executive at CantorCO2e, in London for the return of the money it says it loaned him while he was running the unit. Drummond countersued, claiming he was wrongfully dismissed in 2009 for failing to tell the company he was in talks with a competitor about a job.
Nicholls told the judge that Drummond’s employment claim had been dropped and an agreement was reached on the loan.
“Drummond has agreed to repay the loan from Cantor and pay Cantor’s costs in this action, withdrawn his claims against Cantor, and apologized to Cantor,” Cantor spokesman Robert Hubbell said in an e-mailed statement.
Drummond, who was at court, declined to comment after the hearing.
The cases are Cantor Fitzgerald LP v. Stephen Drummond and Stephen Drummond v. CantorCO2e Ltd.
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Former Morgan Crucible Chief Found Guilty by Jury
Morgan Crucible Co. former Chief Executive Officer Ian Norris was found guilty yesterday by a federal jury in Philadelphia of conspiring to obstruct justice in connection with a price-fixing scheme.
Norris, 67, was acquitted of allegedly trying to influence others in their grand jury testimony and of intent to induce others to destroy records, following about 18 hours of deliberations where, at one point, jurors declared an impasse.
Norris will be sentenced on Nov. 2, and could be released on bail in the interim. He was indicted in 2003 and extradited from England seven years later.
In a trial that began July 12, defense lawyer Christopher Curran told the jury Norris didn’t thwart the investigation and never illegally ordered document-shredding.
Prosecutor Lucy McClain told jurors Norris was part of a “long-term scheme” to stifle the probe.
Morgan Crucible, founded in 1856 and based in Windsor, England, makes body armor, carbon items, ceramics, bearings and other products for the medical, automotive, aerospace and telecommunications industries. The company reported sales last year of 942.6 million pounds ($1.47 billion).
The case is U.S. v. Ian Norris, 03-CR-632, U.S. District Court, Eastern District of Pennsylvania (Philadelphia.)
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Saad Group Must Pay Abu Dhabi $33.1 Million, U.K. Judge Rules
Saad Group, the business owned by Saudi billionaire Maan al-Sanea, was ordered by a U.K. judge to pay $33.1 million to Abu Dhabi Commercial Bank PJSC for defaulting on a foreign- currency swap agreement.
Saad Trading Contracting & Financial Services Co.’s defenses that Abu Dhabi didn’t terminate the swap agreement on time or specify a bank account for payment were “hopeless,” Judge Michael Brindle ruled yesterday in the High Court in London.
Saad defaulted when its credit rating was withdrawn in June 2009, Brindle said. The company, based in al-Khobar, Saudi Arabia, argued the default applied to other deals between the companies and not to the 2008 swap created for Saad to hedge against future currency fluctuations.
Saad Group’s press office in London didn’t return a call for comment.
Ex-Freenet CEO Spoerr and CFO Krieger’s Fines Cut
Former Freenet AG Chief Executive Officer Eckhard Spoerr and Chief Financial Officer Axel Krieger won reductions in fines and asset seizures against them for criminal insider trading.
After rehearing the case, the Hamburg Regional Court yesterday sentenced Spoerr to pay a fine of 75,000 euros ($97,500) and ordered him to give up 327,000 euros in profits made in the transactions. Krieger was fined 120,000 euros and the judges seized 324,000 euros in profits he made, court spokesman Janko Buesser said in an e-mailed statement.
When they were originally convicted on the charges of using insider information to sell shares in the German Internet and mobile-phone company last year, Spoerr was fined 300,000 euros and Krieger received a 150,000-euro fine. Both men have denied wrongdoing. While the Federal Court of Justice earlier this year upheld the conviction on appeal, it ordered the Hamburg court to re-sentence the men.
“The chamber seized the complete advantage the two defendants got from the illicit transactions,” said Buesser. “They didn’t have losses which other shareholders had.”
Marc Langrock and Otmar Kury, the men’s lawyers, said they would appeal yesterday’s sentence as well.
“Today’s verdict, even though it reduced the sanctions by more that 50 percent, doesn’t comply with the requirements the Federal Court of Justice forcefully ordered,” the lawyers said in an e-mailed statement.
The trial judges wrongfully seized about 700,000 euros from each man, the equivalent of the sale price of the shares, the appeals court had ruled. It ordered the trial judges to recalculate the amount and to seize only that part of the sales price increased by selling early using inside knowledge.
Spoerr and Krieger each sold about 62,000 shares in several transactions for 1.2 million euros in July 2004, while knowing about the drop in sales in the second quarter that year, according to the trial court’s findings. The stock slumped 25 percent on Aug. 9, 2004, when Freenet reported its results.
Both men have said they had already decided in 2003 to sell the shares they were to receive under a stock option program as soon as they became available. The earliest possible date to sell those shares was July 2004.
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Volvo Sues Nippon Unit in U.K. Over Price Fixing of Car Glass
Volvo Car Corp. sued a Nippon Sheet Glass Co. unit in London over its involvement in a car-glass price-fixing cartel that ended two years ago with European Union fines of 1.4 billion euros ($1.82 billion.)
The carmaker is seeking “substantial” damages from Nippon’s Pilkington Group Ltd. unit for charging too much for windshields and other car glass from 1998 to 2003, Volvo’s law firm Hausfeld & Co. said yesterday in a statement. The lawsuit was filed July 2 in the High Court in London, records show.
“The car-glass cartel was fined at record levels” by the European Commission “and caused substantial damage to Volvo and others in the struggling car industry,” Anthony Maton, a lawyer with Hausfeld in London, said in the statement.
The commission in November 2008 fined Pilkington, Asahi Glass Co., Cie. de Saint-Gobain SA and Soliver for conspiring to fix prices and allocate markets. The companies at the time controlled about 90 percent of the market for car glass used in the EU region in new cars and branded replacement glass for cars, Volvo said in its statement. Pilkington was fined 370 million euros for its role in the cartel.
David Roycroft, a spokesman for St. Helens, England-based Pilkington, didn’t return a call for comment.
The case is Volvo Car Corporation v. Pilkington Group Limited, HC10C02207, High Court of Justice Chancery Division (London).
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Rajaratnam Says Prosecutors Misled Judge on Wiretaps
Galleon Group LLC co-founder Raj Rajaratnam’s attorney said prosecutors misled the judges who authorized secret wiretaps that form the basis of a federal insider-trading probe.
Before arresting Rajaratnam last year, prosecutors secretly recorded roughly 2,400 conversations that the hedge fund executive had with more than 130 friends, business associates and alleged accomplices. Prosecutors have said their evidence against Rajaratnam will include testimony from government witnesses who were heard swapping illegal stock tips with Rajaratnam as well as the recordings themselves.
In Manhattan federal court yesterday, Rajaratnam’s attorney John Dowd argued that prosecutors violated federal law by misleading judges who allowed the secret wiretaps about the background of Roomy Khan, the ex-Intel Corp. executive whose disclosures prompted the investigation. He said an FBI agent omitted or distorted important evidence in order to win permission to tap Rajaratnam’s phone.
“These are facts that any judge would want to know,” Dowd told U.S. District Judge Richard Holwell, who is presiding over the case.
Rajaratnam, 53, is accused of using secret information from insiders to make millions of dollars on illegal stock trades. Danielle Chiesi, a former consultant at New Castle Funds LLC who was arrested with Rajaratnam, is also seeking to exclude the wiretaps. Both have denied wrongdoing.
The case has led to charges against 21 people. Twelve pleaded guilty, and several agreed to testify against Rajaratnam. He faces more than 20 years in prison if convicted of securities fraud and other crimes.
Dowd said in court that prosecutors and a Federal Bureau of Investigation agent concealed Khan’s criminal record, her seven- year history of cooperating with the government, her “flip- flopping” during interviews and her efforts to escape punishment. Had prosecutors made those disclosures, the wiretaps wouldn’t have been approved, he argued in court.
“There’s some force to defendant’s arguments,” Holwell said, while adding that he need not exclude the recordings at the trial even if he finds that the government should have been more forthcoming in its wiretap applications.
Assistant U.S. Attorney Reed Brodsky told Holwell that the legal threshold for prosecutors to obtain a wiretap is a “relaxed” one. He said the judges who weighed the wiretap requests were dealing “in probabilities,” not “certainties,” that Rajaratnam had broken the law.
The case is U.S. v. Rajaratnam, 09-cr-01184, U.S. District Court, Southern District of New York (Manhattan).
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Credit Suisse Wins Dismissal of Claims by Pension Fund
Credit Suisse Group AG won dismissal of damage claims by a U.S. pension fund that bought Credit Suisse Global shares on the Swiss Stock Exchange.
U.S. District Judge Victor Marrero in Manhattan, applying the U.S. Supreme Court’s recent “Morrison” decision, said U.S. buyers of a foreign stock on a foreign exchange can’t sue for securities fraud under U.S. law.
In the Morrison case, the Supreme Court ruled on June 24 that U.S. securities laws don’t apply to claims of foreign buyers of non-U.S. company shares on foreign exchanges, so- called “foreign cubed” cases.
Marrero ruled yesterday that the Supreme Court would also bar claims involving “foreign securities trades executed on foreign exchanges even if purchased or sold by American investors, and even if some aspects of the transaction occurred in the United States.”
In his decision, Marrero threw out claims by the Louisiana Municipal Employees Retirement System against Credit Suisse. The pension plan had claimed damages on behalf of itself and other investors who purchased Credit Suisse Global stocks on the Swiss exchange from February 15, 2007, to April 14, 2008.
Marrero left in place claims by investors based on purchases of American depositary shares on the New York Stock Exchange.
The Morrison decision turned an earlier appeals court test for applying securities fraud laws to foreign transactions into a “dead letter,” Marrero said in the ruling.
Louisiana Municipal Employees Retirement System Director Robert Rust didn’t return a voice-mail message seeking comment on yesterday’s ruling.
The case is Cornwell v. Credit Suisse Group, 08-cv-3758, U.S. District Court, Southern District of New York (Manhattan).
Smith & Wollensky Pay Suit Gets Class-Action Status
The Smith & Wollensky steakhouse chain must face a class- action lawsuit over hourly wages, a judge ruled.
Smith & Wollensky, a unit of closely held Patina Restaurant Group, allegedly failed to pay the minimum wage to employees who earn tips. The suit will include all workers earning sub- minimum, tip-credit wages from March 25, 2006, until now, U.S. District Judge Ruben Castillo in Chicago said July 26 in an order certifying the suit as a class action.
Also included are workers who worked more than 40 hours a week and were paid less than a time-and-a-half.
The New York-based chain violated a federal law allowing pay to tipped employees of less than the minimum wage -- a “tip credit” -- if the tips plus wages equal the minimum wage, according to a worker’s complaint.
The employee, Gerald Schmidt, claimed the restaurant required servers to perform duties outside their tipped positions and to share tips with non-tipped employees.
Smith & Wollensky didn’t return a message seeking comment.
The company argued the lawsuit was filled with “highly individualized” inquiries and shouldn’t be a class-action case, according to Castillo’s order.
The case is Schmidt v. Smith & Wollensky LLC, 09-cv-2752, U.S. District Court, Northern District of Illinois (Chicago).
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Kebble Paid $273,000 to Order His Own Murder, Court Hears
South African mining magnate Brett Kebble paid Glenn Agliotti 2 million rand ($273,000) to have his own murder arranged five years ago, one of the men who said he was hired to perform the assassination told a Johannesburg court.
Nigel McGurk, a nightclub doorman, yesterday told the South Gauteng High Court that he was one of three men who followed Kebble through northern Johannesburg in a black Volkswagen Golf on the night of Sept. 27, 2005. Boxer Michael Schultz shot Kebble seven times on his third attempt at the killing that night after the murder weapon twice jammed, McGurk said. Agliotti has been charged with Kebble’s murder.
Agliotti was a friend of Kebble’s and was paid to arrange the killing, McGurk said, citing a conversation he says he had with Clinton Nassif, who recruited McGurk, Schultz and a driver, Faizel Smith. The four men have turned state witness to avoid prosecution.
In an 11=year career in South Africa’s gold mining industry, Kebble helped set up two of the country’s four biggest gold companies, Harmony Gold Mining Co. and DRDGold Ltd., and became chief executive officer of Randgold & Exploration Ltd., JCI Ltd. and Western Areas Ltd. He stepped down from the posts a month before his death at the insistence of creditors after assets belonging to Randgold & Exploration went missing.
Agliotti has pleaded not guilty to charges of murder, conspiracy to murder and attempted murder. He has said that the death of 41-year-old Kebble was an “assisted suicide” and had been requested by the mining executive.
The case is State v. Agliotti, Norbert Glenn, JPV 2008/264, SS154/2009.
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Mallesons Hires Clifford Chance Partner for Hong Kong
Mallesons Stephen Jaques hired commercial litigator Denis Brock from Clifford Chance LLP to be a Hong Kong-based partner as the firm boosts its disputes resolution and regulatory practices to meet client demand.
Brock, 48, said he will return to Hong Kong from London, where he moved in 2006. He will join Mallesons’ 17-lawyer, Hong Kong-based disputes and regulatory practice in October, Tony O’Malley, a Sydney-based managing partner, said in a phone interview.
Mallesons, based in Sydney, has more than 1,000 lawyers in Australia and Asia, including 16 partners based in Hong Kong. The firm advised Bank of China during an investigation by Hong Kong regulators into the sale of minibonds, products linked to the collapsed Lehman Brothers Holdings Inc. Minibonds were custom-made securities linked to the creditworthiness of companies and backed by collateralized-debt obligations.
Brock, who is leaving Clifford Chance after 24 years with the firm, acted for the Hong Kong government in litigation over the proposed listing of the real estate investment trust, Link REIT. The Court of Final Appeal ruled in 2005 that the initial public offering could proceed.
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