Citigroup, Galleon, BP, Visa, New Star, AB InBev, WestLB in Court News

Citigroup Inc. will pay $75 million to settle U.S. regulatory claims that it misled investors by failing to disclose billions of dollars in holdings tied to subprime mortgages while the housing crisis unfolded.

The company made misstatements on earnings calls and in financial filings in 2007 about assets tied to subprime loans, the Securities and Exchange Commission said in a federal lawsuit yesterday in Washington. Some disclosures omitted more than $40 billion in investments, it said. Citigroup’s former chief financial officer and head of investor relations agreed to pay a total of $180,000 for failing to disclose the risk.

“Even in late 2007, as the mortgage market was rapidly deteriorating, Citigroup boasted of superior risk-management skills in reducing its subprime exposure,” SEC Enforcement Director Robert Khuzami said in a statement. “The rules of financial disclosure are simple. If you choose to speak, speak in full and not half truths.”

Citigroup executives publicly stated four times in 2007 that the New York-based bank had reduced its exposure to subprime mortgage securities by 45 percent to $13 billion, as investors and analysts clamored for information about the deteriorating market. Regulators may investigate other firms that revised statements about potential exposures and loss estimates, said Elizabeth Nowicki, a former SEC attorney.

“We are getting a flavor of what they might go after: overly optimistic disclosures” said Nowicki, who’s now a law professor at Tulane University.

Former CFO Gary Crittenden, who left Citigroup last year, agreed to pay $100,000 to settle claims he didn’t disclose the risk after getting internal briefings. Arthur Tildesley, Citigroup’s former head of investor relations, will pay $80,000 to settle claims that he helped draft disclosures that misled investors, the SEC said. Tildesley now heads cross-marketing at Citigroup, according to the agency.

Citigroup, Crittenden and Tildesley agreed to settle the case without admitting or denying the SEC’s allegations.

“Mr. Crittenden is pleased to have resolved this matter,” said John Carroll, an attorney for Crittenden at law firm Skadden, Arps, Slate, Meagher & Flom LLP in New York. “The settlement does not establish liability for purposes of any other proceeding.”

Citigroup is pleased to “put this matter concerning certain 2007 disclosures behind us,” the company said in a statement that noted it and the executives weren’t accused of intentional or reckless misconduct. “Mr. Tildesley is a highly valued employee of Citi and is making significant contributions to the company.”

Tildesley’s attorney, Mark Stein at Simpson Thacher & Bartlett LLP in New York, declined to comment.

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Galleon Prosecutors Held Talks to Resolve Cases

Federal prosecutors told a judge they’ve had “conversations” to resolve criminal cases against defendants charged in an alleged insider-trading ring led by former Galleon Group LLC trader Zvi Goffer.

In a declaration filed in federal court in Manhattan this month, Assistant U.S. Attorney Reed Brodsky cited his office’s “conversations with counsel, including cooperating witnesses and defendants, regarding dispositions in connection with the Goffer criminal investigation.”

The three-page declaration was filed by Brodsky as part of an effort to convince a judge that the government’s criminal prosecution has been distinct from a civil case brought by the U.S. Securities and Exchange Commission. Brodsky wrote that prosecutors’ talks have been “separate and apart from any conversations between the staff of the SEC and these individuals.”

Goffer is among seven people arrested Nov. 5 for trading on inside tips obtained from lawyers at Ropes & Gray LLP and elsewhere. One of the seven, David Plate, pleaded guilty on July 16 and agreed to cooperate with prosecutors.

Citing Brodsky’s declaration, U.S. District Judge Richard Sullivan in Manhattan yesterday denied a request by the criminal defendants in the Goffer case to obtain documents held by the SEC.

The case is U.S. v. Goffer, 10-cr-56, U.S. District Court, Southern District of New York (Manhattan).

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BP Fights U.S., Spill Victims Over Venue for Lawsuits

BP Plc, the U.S. and plaintiffs who filed hundreds of lawsuits seeking billions of dollars for damages stemming from the largest oil spill in U.S. history are fighting over where the cases should be heard first.

A panel of federal judges in Boise, Idaho, heard arguments yesterday on which city will host spill suits, including wrongful-death claims by families of workers killed in the April explosion of the Deepwater Horizon rig. Claims include losses of revenue by Gulf Coast businesses and securities claims by holders of U.S. shares in the London-based energy company.

The government wants the cases consolidated in New Orleans, in the state where many of those damaged by the oil spill live. BP prefers Houston, where BP has its U.S. headquarters.

New Orleans “is the best avenue for justice” for thousands of spill victims thrown out of work, Russ Herman, a lawyer pushing to have the cases consolidated in that city, told the panel. “The place that has suffered the most impact deserves to have the scales balanced.”

The judge tapped to preside over the BP cases will make crucial rulings on what evidence can be used and which laws applied. Oil analyst Fadel Gheit, at Oppenheimer & Co., estimated yesterday that the damage from the disaster may be as much as $49 billion.

BP faces at least 300 suits over the spill as it works to permanently plug the Macondo well 40 miles off the coast. Oil has fouled beaches and marshes in Louisiana, Mississippi, Alabama, Texas and Florida.

The seven-judge Judicial Panel on Multi-District Litigation, created in 1968, must decide whether lawsuits in different federal districts have common factual questions that can be decided once and apply to all cases.

The process is designed to streamline the exchange of evidence and avoid duplication. Once pretrial proceedings are completed, the individual cases are sent back for trial in the courts where they were first filed.

The main MDL case is In Re Oil Spill by the Oil Rig “Deepwater Horizon” in the Gulf of Mexico on April 20, 2010, MDL Docket No. 2179.

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Intel Says It May Avoid Class-Action Antitrust Suit

Intel Corp., the world’s biggest chipmaker, said a special master appointed to review an antitrust lawsuit brought by computer users recommended rejecting their request for class- action status.

The recommendation will become the court’s ruling unless the plaintiffs object within 21 days, Intel spokesman Chuck Mulloy said yesterday in an e-mailed statement.

The purchasers of computers with Intel microprocessors “have not established that they will be able to demonstrate an antitrust violation through common proof,” Special Master Vincent J. Poppiti wrote in a report to U.S. District Court in Wilmington, Delaware.

The consolidated lawsuit “generally accuses Intel of wrongfully offering discounts to computer manufacturers,” allegedly inflating prices, according to Mulloy.

The lead case is Paul v. Intel Corp., 05CV485, U.S. District Court, District of Delaware (Wilmington).

Visa Says Justice Department Weighing Antitrust Suit

Visa Inc., the world’s biggest payments network, fell as much as 5 percent after saying the U.S. Justice Department may sue the company over a policy that bars merchants from charging extra to customers who pay with credit cards.

“The department has indicated that it is considering filing a civil lawsuit,” Chief Executive Officer Joseph W. Saunders said July 28 in a conference call with analysts after San Francisco-based Visa reported fiscal third-quarter results. “We are currently engaged in constructive negotiations with the department to resolve its concerns as it relates to Visa without litigation or payment of monetary damages.”

Visa, American Express Co. and Purchase, New York-based MasterCard Inc. disclosed in 2008 that the Justice Department was investigating the companies over so-called anti-surcharging policies and rules prohibiting merchants from “steering” customers to other forms of payment.

The Justice Department’s antitrust division is “investigating whether certain credit-card network rules regarding merchants’ treatment of various payment forms, including credit cards, are anticompetitive,” spokeswoman Gina Talamona said in an e-mail. She declined to discuss specific companies.

Joanna Lambert of New York-based American Express declined to comment.

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Ex-New Star Fund Manager Can Sue Over ‘Bullying’

Patrick Evershed, a former New Star Asset Management Holdings Inc. fund manager, can proceed with a lawsuit over claims he was bullied by company founder John Duffield, a London court said.

Evershed, 69, can pursue whistleblowing and unfair dismissal claims against the fund, a London appeals court ruled yesterday. New Star had sought to dismiss the whistleblowing claim, which allows Evershed to seek unlimited damages. Most U.K. unfair dismissal claims are capped at about 65,000 pounds ($101,000).

Evershed wrote a letter to New Star’s human resources department complaining of Duffield’s conduct in 2008. Evershed was suspended by the fund’s chief executive officer, Howard Covington, shortly after, he said, according to the judgment.

New Star has denied the allegations and said that Evershed resigned, according to the judgment.

The case is New Star v. Evershed, No. A2/2009/1841, Court of Appeal (Civil Division), on appeal from the Employment Appeal Tribunal (London).

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Ex-Hevesi Aide to Face Trial on Most Pension Counts

Henry “Hank” Morris, the former chief political adviser to New York’s ex-comptroller, must go to trial on most of the 90 charges against him stemming from a probe of the state’s pension fund, a judge ruled.

Morris, who advised former comptroller Alan Hevesi, is accused of corrupting the investment process at the pension fund to favor deals that would benefit himself, his associates and contributors to Hevesi’s campaign. Hevesi hasn’t been accused of wrongdoing in the case.

State Supreme Court Justice Lewis Bart Stone in Manhattan yesterday threw out 13 counts, including grand larceny and falsifying documents. Morris still faces an enterprise corruption charge that carries a prison term of as long as 25 years.

The grand jury heard “sufficient evidence” to sustain most of the charges, Stone wrote in his decision. The grand jury heard that Morris created a corrupt operation in which decisions about which funds to invest in were based on whether the fund “agreed to pay placement fees or share management fees with Morris rather than solely on the prudent investor rule,” the judge said.

William Schwartz, an attorney for Morris, declined to comment as he left the courtroom.

The Morris case is at the center of New York Attorney General Andrew Cuomo’s investigation of corruption at the state retirement fund. Six people have pleaded guilty to criminal charges in the probe, including David Loglisci, former chief investment officer at the pension fund.

Fifteen firms have settled and agreed to a code of conduct drafted by Cuomo that bans so-called placement agents from obtaining investments from public pension funds and limits campaign contributions to those with the power to assign investment business.

The case is People v. Morris, 0025/2009, New York State Supreme Court, New York County (Manhattan).

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New Suits

Prudential Insurance Sued Over Veterans’ Benefits

Prudential Insurance Co. of America was sued over claims it earns interest of more than 5.69 percent on veterans’ life- insurance policies and pays beneficiaries only 1 percent.

The insurer, a unit of Prudential Financial Inc. “paid to beneficiaries on the accrued claims only one percent interest on the accrued monies as of the day of death or traumatic injury of the insured,” according to the lawsuit, filed yesterday in federal court in Springfield, Massachusetts.

The suit seeks class-action, or group, status. It was brought by Kevin and Joyce Lucey, the beneficiaries of a $250,000 life insurance policy for their son, Jeffrey Lucey, a former member of the armed forces who died in 2004, according to the suit.

The U.S. Department of Veterans Affairs said July 28 it is investigating life insurance companies’ practice of putting veterans’ death benefits in corporate accounts and keeping most of the investment profits instead of paying the survivors.

The Luceys were paid $53,000 in 2004, and the balance of the policy, or $197,000, in 2009, and an added one percent annual interest rate when the funds were distributed, according to the complaint.

The interest accrued during the delay “is money that doesn’t belong to Prudential,” Cristobal Bonifaz, a lawyer representing plaintiffs, said in a phone interview. “If you delay the payment, you better turn that money over.”

Bob DeFillippo, a spokesman for Newark, New Jersey-based Prudential Insurance, the second-largest U.S. life insurer, said the company hasn’t seen the lawsuit and declined to comment.

The case is Lucey v. Prudential Insurance Co. of America, 10-30163, U.S. District Court, District of Massachusetts (Springfield).

Madoff Family Members’ Companies Sued by Bankruptcy Trustee

Companies owned by members of Bernard Madoff’s family should pay tens of millions of dollars to help victims of his Ponzi scheme, the trustee recovering funds for investors said in three lawsuits.

Madoff’s family members used the money to fund their personal business ventures, trustee Irving H. Picard said in the complaints filed yesterday in U.S. Bankruptcy Court in New York. The companies include a hedge fund, a biotechnology company, energy companies, and Primex Holdings LLC, a company designed to replicate an auction process, according to the filings.

“Foremost among the recipients of Madoff’s gifts of customer funds were his closest family members, including his wife Ruth Madoff, his brother Peter, his two sons Andrew and Mark, and his niece Shana,” Picard said in one of the complaints.

In addition to using almost $250 million of customer funds from the fraud at Bernard L. Madoff Investment Securities LLC to fund their lavish lifestyles, Picard said in the filings that he seeks to recover millions funneled from BLMIS to finance the family members’ personal business ventures.

Madoff, 72, is serving a 150-year term in federal prison in Butner, North Carolina, after pleading guilty to orchestrating history’s biggest Ponzi scheme. When Madoff was arrested in December 2008, account statements showed $65 billion in nonexistent client investments in 4,900 accounts, according to Picard. Investors lost about $20 billion in principal.

Picard, who has so far recovered $1.5 billion for Madoff’s victims and other creditors, didn’t return a call seeking comment after regular business hours.

Martin Flumenbaum, an attorney who has represented Madoff’s sons in earlier cases, and Peter Chavkin, a lawyer for Ruth Madoff, didn’t return calls after business hours yesterday. Charles Spada, a lawyer for Peter Madoff, also didn’t return a call.

One of the adversary cases is Irving H. Picard v. Madoff Family LLC, 10-03485, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The Madoff bankruptcy case is In re Bernard L. Madoff Investment Securities LLC, 09-11893, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

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Kebble Chose Being Shot Over Poison to Avoid Jail, Court Hears

Murdered South African mining magnate Brett Kebble considered poisoning himself before opting to be gunned down to avoid jail, a Johannesburg court heard.

When three men were commissioned to shoot him five years ago, Kebble, who had been forced to resign as chief executive officer of three mining companies, faced a probe after assets worth hundreds of millions of dollars went missing from Randgold & Exploration Ltd. At the time, he also led JCI Ltd. and Western Areas Ltd.

In an 11-year career in South Africa’s gold mining industry, Kebble, who died at the age of 41, helped set up two of the country’s four biggest gold companies, Harmony Gold Mining Co. and DRDGold Ltd. Investec Ltd., a bank, and fund manager Allan Gray Ltd., a shareholder in Kebble’s companies, pressed for his departure after the assets went missing.

“Brett pleaded with me,” Clinton Nassif, who yesterday told the South Gauteng High court that he arranged Kebble’s killing. “He was at his wit’s end with all the trouble.”

John Stratton, a former JCI director, helped Kebble look for a lethal pill “that wouldn’t show up in an autopsy,” said Nassif, who worked as a security manager for convicted drug dealer Glenn Agliotti. Agliotti has pleaded not guilty to ordering Nassif to have Kebble’s murder carried out at the mining magnate’s request, describing it as an “assisted suicide.”

Robert Kanarek, a lawyer for Agliotti, declined to comment yesterday. Agliotti faces charges of murder and conspiracy to murder.

The case is State versus Agliotti, Norbert Glenn, JPV 2008/264, SS154/2009.

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Hays, CDI Seek Reversal of 38 Million Pounds in Fines

Hays Plc, Britain’s largest recruitment company, and U.S. competitor CDI Corp. asked a U.K. appeals court to overturn a total of 38 million pounds ($59.4 million) in price-fixing fines related to their work in the construction industry.

The fines, levied last year by the Office of Fair Trading, were excessive and based on miscalculations of revenue generated by the scheme, a lawyer for Hays said at the Competition Appeal Tribunal in London yesterday.

Hays’s fine was based on “a fundamental misunderstanding” of how the company conducts business and the type of contract it uses to match clients with workers, Mark Brealey, Hays’s lawyer with the firm Brick Court Chambers, said at the hearing.

Hays, based in London, was fined 30.4 million pounds, while Philadelphia-based CDI was fined 7.6 million pounds for fixing fees with other companies in the cartel and agreeing to boycott another competitor from 2004 to 2006. The fines include discounts of as much as 35 percent because the companies admitted to joining the scheme and cooperated with the OFT.

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AB InBev Loses EU Bid to Expand Budweiser Trademark Right

Anheuser-Busch InBev NV, the world’s largest brewer, lost a last court bid to extend its trademark rights to the name Budweiser for beer across the European Union in a century-old dispute with Budejovicky Budvar NP.

The European Court of Justice rejected AB InBev’s bid to get a region-wide trademark and the exclusive right to use Budweiser for beer and some other drinks, because of Budvar’s existing rights to the name in Austria and Germany.

Czech competitor Budvar’s challenge to AB InBev’s trademark application was valid, a five-judge panel said, rejecting a claim that Budvar had failed to bring enough proof of its earlier right in some EU countries. The Luxembourg-based EU tribunal’s decision is final and can’t be appealed.

The case is part of a fight between the two breweries going back to the early 1900s over the rights to use the names Bud and Budweiser for beer, merchandising and other products. AB InBev, which owns the trademark rights for Bud or Budweiser in 23 of the 27 EU countries, applied 14 years ago to expand its rights to the Budweiser name across the entire region.

“This judgment has no effect on Anheuser-Busch InBev’s business in Europe or our existing Bud and Budweiser rights, which remain strong and intact,” Marianne Amssoms, the Leuven, Belgium-based company’s spokeswoman, said in an e-mail. “Filing this application was an effort to further expand our extensive trademark rights and gain additional protections that we continue to believe are rightfully ours.”

Budvar says it owns the rights because its beer comes from the Czech town Ceske Budejovice, or Budweis in German. Anheuser- Busch, which first applied for the EU-wide trademark for Budweiser in 1996, took its fight to the EU’s top court after losing at a lower EU court last year and at the EU trademark agency in 2007.

The case is C-214/09 P Anheuser-Busch v Office for Harmonisation in the Internal Market, Budejovicky Budvar.

WestLB Board Members Will Pay 445,000 Euros to Settle Probe

Current and former WestLB AG managers agreed to pay 445,000 euros ($582,238) to settle a criminal probe over trading losses the lender incurred in 2007.

The settlement resolves a probe into 600 million euros in losses WestLB had from speculative proprietary trading, Johannes Mocken, a spokesman for Dusseldorf, Germany, prosecutors, said in an interview yesterday. A court approved the agreement, he said.

The losses stem from transactions in which WestLB’s traders were betting the gap between common and preferred shares of companies such as Volkswagen AG would narrow. Prosecutors were investigating the managers for failing to inform the supervisory board about the trading risks.

Former Chief Executive Officer Thomas Fischer, who was fired over the issue, will have to pay 150,000 euros under the accord, Mocken said. Werner Taiber and Hans-Juergen Niehaus, who are both still on WestLB’s management board, agreed to pay 150,000 and 75,000 euros, respectively.

“There was absolutely no wrongdoing here at all and I would have loved to litigate the case,” said Eckhard Hild, Fischer’s lawyer. “But because this was the shorter way to end it, my client chose it.”

Taiber and Niehaus didn’t reply to a request for comment left at their office. WestLB’s press office didn’t return a call requesting comment.

Probes against two traders who engaged in the transactions are still pending, Mocken said. He didn’t identify the traders.

The case is LG Duesseldorf, 10 KLS / 130 Js 30/10-8/10.

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

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