Three former bankers with a General Electric Co. unit that sold investment contracts to state and local governments were indicted for conspiring to profit at taxpayers’ expense by rigging bids, showing the broadening scope of a Justice Department investigation of municipal finance.
Dominick Carollo, Steven Goldberg and Peter Grimm, all of whom once worked for finance units of General Electric, were charged with fraud and conspiracy, the Justice Department said. They allegedly paid kickbacks to local government brokers, who were hired to solicit competitive bids for investment deals, to win the bidding and increase their profits.
The charges are a result of an antitrust investigation, begun more than three years ago, into the $2.8 trillion municipal bond market. The probe has drawn in more than a dozen banks and financial services companies, including JPMorgan Chase & Co., Bank of America Corp. and UBS AG, according to court records and regulatory filings.
The case centers on guaranteed investment contracts, known as GICs, that municipalities purchase with money raised by selling bonds, allowing them to earn a return until the funds are needed for schools, roads and other public works.
Russell Wilkerson, a spokesman for GE Capital, said the company is assisting in the investigation.
Grimm, 46, didn’t return messages left at his home or most- recent employer, Lamont Financial Services Corp. John Siffert, an attorney for Goldberg, 47, declined to comment, and Goldberg didn’t return a call to his home seeking comment. Carollo, 56, didn’t return a message left at his home.
The case is United States of America v. Carollo, 10-cr- 00654, U.S. District Court, Southern District of New York.
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BP, Vivendi Among Companies That May Save Billions From Ruling
A U.S. Supreme Court ruling last month may translate into billions of dollars in litigation savings for foreign-based companies including Vivendi SA, Infineon Technologies AG, Societe Generale and BP Plc, Bloomberg News’ Greg Stohr reports.
The June 24 decision, overshadowed by rulings the same day in the corporate corruption cases of Jeffrey Skilling and Conrad Black, said U.S. securities laws don’t apply overseas. The justices unanimously threw out a fraud lawsuit by three Australian shareholders against Melbourne-based National Australia Bank Ltd.
Companies are already benefiting. Lawyers suing Societe Generale and Infineon agreed to scale back their lawsuits. A federal judge in New York trimmed July 26 a suit against Credit Suisse Group AG. And a judge this week heard Vivendi’s bid to throw out most of a jury verdict in an investor suit that seeks $9 billion.
“It’s hard to imagine a case that will have as much direct and immediate impact on large existing litigations,” said George Conway, a lawyer at Wachtell Lipton Rosen & Katz who represented National Australia at the high court. “It wipes out an entire species of class-action litigation.”
The ruling, Morrison v. National Australia Bank, said federal securities laws don’t let non-Americans sue in U.S. courts over shares of a foreign company that are listed only on an overseas exchange.
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FSA Can Prosecute Money Laundering, Top Court Rules
The Financial Services Authority, the U.K.’s market regulator, has the power to prosecute money-laundering offenses, the Supreme Court ruled.
It would be “perverse” to limit the FSA’s power to prosecute white-collar criminals, the U.K.’s highest court said in a judgment yesterday.
The agency’s roles include “the reduction of financial crime,” the court said. “One of the ways that the FSA might reasonably consider that this objective can be met is by prosecuting those who commit offenses of a financial nature.”
Chancellor of the Exchequer George Osborne plans to abolish the FSA and give most of its power to the Bank of England. The FSA’s prosecutorial powers may be combined with those of the Serious Fraud Office and the Office of Fair Trading to create a proposed economic crime agency.
The case was brought by Neil Rollins, accused by the FSA of insider dealing and money laundering. Steve Milner, an attorney at the law firm representing Rollins, declined to comment. Rollins is scheduled to stand trial in November.
Health-Fraud Whistleblower Cases May Surge Because of Overhaul
Federal fraud cases begun by private citizens against drugmakers, insurers and hospitals will probably surge past last year’s record numbers, driven by incentives in the new health law, Bloomberg News’ Frank Bass reports.
Last year, federal officials began investigations of 280 cases as a result of whistleblower allegations, contributing to a record $1.4 billion in judgments, according to the U.S. Justice Department. The overhaul, along with revisions to the whistleblower laws made in May 2009, adds new layers of risk for companies, said Christopher A. Myers, a health-care attorney with Holland & Knight LLP in McLean, Virginia.
The health overhaul makes it easier for citizens to be rewarded for uncovering swindles, cuts the time before medical providers can be accused of withholding overpayments from Medicare and Medicaid, and includes pages of complicated new rules that can be broken.
Since 1999, the amount recovered as the result of health- care cases has more than tripled from $407 million, and 24 of the 25 largest judgments overall are linked to the industry, according to figures from Taxpayers Against Fraud, a Washington group funded by whistleblowers and plaintiffs’ lawyers.
These represent instances where the U.S. joined cases under the False Claims Act, the Civil War-era statute that arose from the sale of sick mules, spoiled food and defective weapons to the Union Army.
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Highland Capital Sues Lyondell, UBS Over Loan Dispute
Highland Capital Management LP sued LyondellBasell Industries NV and the securities unit of UBS AG for breaching a contract involving a $150 million loan to Lyondell.
In the suit, filed yesterday in Manhattan state Supreme Court, Highland claims it agreed to fund $150 million of a $1 billion term loan as part of Lyondell’s bankruptcy reorganization. Lyondell accepted the offer, according to the suit. UBS Securities LLC, Lyondell’s New York agent arranging the term loan facility, interfered to punish Highland over an unrelated dispute, the suit says.
“UBS, to further its own personal unrelated dispute with Highland, refused to allocate any of the term loan to Highland, and caused Lyondell to breach its contract with Highland,” the suit says. “Such raw abuses of power disrupt the commercial workings of the market and should be stopped and punished.”
David Harpole, a spokesman for Lyondell, did not return a call for comment.
Kelly Smith, a spokeswoman for UBS, Switzerland’s biggest lender, declined comment.
The case is Highland Capital v. LyondellBasell, 651112/2010, New York state Supreme Court (Manhattan).
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Google Sued Over Claims Street View Invades Privacy
Google Inc. was sued over claims its collection of data via Wi-Fi networks for the company’s Street View program violates federal wiretapping and California privacy laws.
The lawsuit was filed July 26 in San Jose, California, on behalf of Rick Benitti, who argues that Google intercepted business and personal information from his home wireless network when he lived in San Francisco from 2005 to this year.
Google said in May it mistakenly gathered information from open wireless networks while it was capturing images of roadways and houses for its Street View service, a product that lets users view photographs of an area online.
A Google representative didn’t return a phone call and e- mail message seeking comment.
The case is Benitti v. Google, 10-3297, U.S. District Court, Northern District of California (San Jose). The Oregon case is Vicki Van Valin v. Google, 10-00557, U.S. District Court, District of Oregon (Portland).
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Enron’s Skilling Seeks Bail, New Trial, Lawyer Says
Former Enron Corp. Chief Executive Officer Jeffrey Skilling seeks to be released from prison on bail while an appeals court reconsiders convictions questioned by the U.S. Supreme Court.
Skilling, 56, is serving a 24-year sentence after a Houston jury convicted him for leading what prosecutors said was a widespread accounting fraud that deceived investors about Enron’s true financial condition. In June, the high court ruled in Skilling’s favor, saying he was prosecuted under a law barring honest services fraud that doesn’t apply to his case.
“Jeffrey Skilling should immediately be released on bail pending this court’s ruling on his case on remand,” Daniel Petrocelli, Skilling’s lawyer, said in a bail request filed yesterday with the U.S. Court of Appeals in New Orleans.
Skilling also asked that his convictions be reversed and he be retried by a lower-court jury that isn’t allowed to consider honest-services fraud in weighing his guilt or innocence.
“Because it is impossible to know whether the jury convicted Skilling on any of the 19 counts without relying on the honest-services theory, all 19 counts must be reversed, and Skilling must be retried before a jury that is not permitted to rest any count of conviction on a legally invalid fraud theory,” Petrocelli wrote to the appellate court.
Tracy Schmaler, a spokeswoman for the Justice Department, said after the Supreme Court ruling that the government “will vigorously defend” the Skilling case when it returns to the New Orleans appeals court.
The case is U.S. v. Skilling, 06-20885, U.S. Court of Appeals for the Fifth Circuit (New Orleans).
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Ex-National Century Executives Must Be Resentenced
Two ex-National Century Financial Enterprises Inc. executives won reversals of money-laundering convictions and must be resentenced, an appeals court said, while upholding convictions for fraud.
Donald Ayers, former chief operating officer, and Roger Faulkenberry, former director of securitizations for National Century, were accused of plotting to defraud investors before the collapse of the health-care finance company. They were convicted on all counts in March 2008.
Ayers was sentenced to 15 years for money laundering and five years for each fraud count including wire and securities fraud and conspiracy. Faulkenberry was sentenced to 10 years for money laundering and five years for each other count. All the sentences were to run concurrently. Both men appealed.
“We conclude there was ample evidence to vindicate the jury’s finding of guilt as to the fraud counts,” U.S. Circuit Judge Ray Kethledge in Cincinnati wrote in a 22-page decision on Faulkenberry’s appeal. “But money laundering is a different animal than fraud and we conclude that the government did not prove money laundering here.”
The court yesterday issued a separate decision on Ayers’ appeal, also upholding the fraud convictions, reversing the money laundering one and returning the case to the trial court for resentencing.
“We’re definitely pleased with the reversal on the money laundering count,” Brian Dickerson, Ayers’ lawyer, said. “We are going to wait to see if the government asks for an en banc review,” -- a hearing by the full appellate court -- before determining Ayers’ next options, he said.
Martin Weinberg, who represents Faulkenberry, said the decision will put limits on federal prosecutors’ use of money laundering charges to enhance sentences. His client hasn’t yet decided whether to appeal the court’s decision upholding the fraud conviction, he said in a phone interview yesterday.
U.S. prosecutors said that company executives falsified financial reports, lied to auditors and advanced funds to providers owned by Ayers and National Century Chief Executive Officer Lance Poulsen. Ten executives were convicted at trial or pleaded guilty. Poulsen was sentenced last year to 30 years in prison. An appeal of his conviction and sentence is pending.
The cases are U.S. v. Faulkenberry, 08-4233/4404, and U.S. v. Ayers, 08-4166, U.S. Court of Appeals for the Sixth Circuit (Cincinnati).
Fund Manager Pressuring Mining Magnate Kebble to Quit Was Shot
Stephen Mildenhall, a fund manager who pressured Brett Kebble to quit as chief executive officer of three mining companies, said he was shot at his home, corroborating a confession July 26 that the attack had been ordered by the mining magnate.
Mildenhall, the former chief investment officer of Cape Town’s Allan Gray Ltd., said he was shot at his home in the city on Aug. 31, 2005. July 26, former nightclub doorman Nigel McGurk, told the South Gauteng High Court, that he had hired two Cape Town residents to attack the money manager, executing orders that came from contacts of Kebble.
“I was shot twice in my left shoulder and once in my right shoulder,” Mildenhall said, recounting how two men forced their way into his carport. “I lay on the ground and waited for their car to drive away.”
The testimony was made at the court on the third day of the murder trial of Glenn Agliotti, a convicted drug dealer, who says Kebble asked him to organize his killing in an “assisted suicide.” Kebble was shot in his car in Johannesburg a month after he quit the companies following the disappearance of hundreds of millions of dollars of assets.
Allan Gray, which today has the equivalent of $38 billion under management, in 2005 held about 25 percent stakes in the three companies headed by Kebble -- Randgold & Exploration Ltd., JCI Ltd. and Western Areas Ltd. -- and had been working with Investec Ltd. to oust him. Mildenhall said he had hired investigators to probe the companies.
The case is: State versus Agliotti, Norbert Glenn, JPV 2008/264, SS154/2009.
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Fund Manager Paul Greenwood Pleads Guilty to Fraud
Hedge fund manager Paul Greenwood, the general partner of WG Trading Co., pleaded guilty to six charges including conspiracy and securities fraud and is cooperating with the U.S. against co-defendant Steven Walsh.
Greenwood and Walsh, his fellow manager of WG Trading and WG Investors, were indicted last July on charges that they conspired to defraud investors of $554 million. The U.S. said the scheme stretched from 1996 until their arrest in February 2009. A prosecutor said yesterday that Greenwood will testify against Walsh at trial.
Greenwood said yesterday he entered into the conspiracy with Walsh and that the two claimed they had an “index arbitrage fund” which promised institutional investors high returns. Greenwood said he and Walsh took out money for their own personal use, which a federal prosecutor said cost investors between $800 million and $900 million.
“You treated these investments as your own personal bank accounts?” U.S. District Judge Miriam Cedarbaum in Manhattan asked Greenwood yesterday during his plea hearing.
“Correct,” said Greenwood, who said he and Walsh often paid investors back using funds from other investors.
“So this was a Ponzi scheme?” Cedarbaum asked.
“Sort of,” said Greenwood who told the judge that he took out “in excess of $75 million,” spending the money on “a house, a horse farm and antiques.”
Walsh has pleaded not guilty to the charges. Cedarbaum has scheduled a hearing in the case for July 30. No trial date has been set.
“Steven Walsh looks forward to his day in court,” his lawyer, Glenn Colton, said yesterday in a telephone interview after Greenwood’s plea.
The case is U.S. v. Greenwood, 09-cr-722, U.S. District Court, Southern District of New York (Manhattan).
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American Airlines to Pay $5 Million in Cartel Case
AMR Corp.’s American Airlines agreed to give evidence against other carriers and pay $5 million to a group of freight shippers to settle a New York class-action lawsuit over its role in a global price-fixing cartel.
Under the deal, American will provide witnesses, documents and electronic data to help shippers in similar cases in Canada, Australia, South Korea and other countries, the group’s lawyer, Michael Hausfeld of Hausfeld & Co. LLP, said in a statement in London yesterday. The agreement, filed July 26 in federal court in Brooklyn, New York, is the first by an airline to help prosecute the cartel claims outside the U.S., he said.
“It is an important step forward for shippers in Europe and around the world and demonstrates that companies can act responsibly to resolve competition disputes without resorting to excessive or protracted litigation,” Hausfeld, who is co-lead counsel in the case, said in the statement.
The industry’s freight services have been probed by the U.S. and the European Union since 2006, leading to settlements, fines and plea deals by airlines and executives.
American, based in Fort Worth, Texas, didn’t admit fault or liability and was only added as a defendant in the case in order to seek court approval of the proposed deal, spokesman Tim Wagner said yesterday in an e-mail.
The case is In re Air Cargo Shipping Services Antitrust Litigation, 1:06-md-01775, Eastern District of New York (Brooklyn).
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