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Kagan, Oracle, Barclays, Google, Gome, Madoff, Roche, Rio in Court News

The Senate confirmed Elena Kagan to the U.S. Supreme Court, giving President Barack Obama his second appointment to the high court in two years while leaving its ideological balance unchanged.

The vote of 63-37 yesterday was largely along party lines, with five Republicans supporting the nominee and one Democrat, Ben Nelson of Nebraska, opposing her.

Kagan, 50, a former Harvard Law School dean, will be the nation’s 112th justice, fourth woman and just the sixth member of the court who isn’t a white male. For the first time, the nine-member court will have three women as she joins Justices Sonia Sotomayor, Obama’s first appointee, and Ruth Bader Ginsburg.

Kagan will be sworn in at a private ceremony two days from now at the Supreme Court by Chief Justice John Roberts, the court announced in a statement.

Kagan’s nomination in May sparked a summer of partisan debate over the role of judges and the sharply divided high court led by Roberts.

In succeeding Justice John Paul Stevens, who retired after 35 years, Kagan is likely to take his place in the court’s liberal wing. That would leave intact the court’s 5-4 conservative majority on such issues as abortion, gun rights and campaign finance.

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Lawsuits

JPMorgan Bankers Lose Bid to Dismiss SEC Suit on Alabama Swaps

A federal judge denied a motion by two former JPMorgan Chase & Co. bankers to dismiss a Securities and Exchange Commission suit alleging a pay-to-play scheme in Jefferson County, Alabama, that allowed the bank to win almost $5 billion in bond and interest-rate swap business.

U.S. District Judge Abdul Kallon in Birmingham rejected arguments by Douglas MacFaddin, the former head of JPMorgan’s municipal derivatives desk, and investment banker Charles LeCroy that the SEC doesn’t have jurisdiction over interest-rate swaps. The unregulated derivatives were used by the county to lower borrowing costs on debt issued to rebuild its sewer system.

Kallon said it was too early in the case to resolve the question of whether the swaps were “security-based” and therefore subject to SEC oversight.

MacFaddin’s and LeCroy’s challenge to the SEC’s jurisdiction failed because they relied on a disputed fact, that the swaps were based on an interest-rate index, rather than an index of securities, Kallon wrote in a 22-page opinion.

The SEC sued the pair last year, alleging the New York-based bank made more than $8 million in undisclosed payments to friends of county commissioners. The associates owned or worked at local broker-dealer firms that didn’t do any work on the deals, which have nearly bankrupted the county, the state’s most populous.

The case is Securities and Exchange Commission v. Charles E. LeCroy and Douglas W. MacFaddin., 09-CV-02238, U.S. District Court, Northern District of Alabama (Birmingham).

Goldman Sachs’s Bayou Suit Backed by Industry Group

Goldman Sachs Group Inc., suing to overturn a $20.5 million arbitration award to creditors of the failed hedge-fund firm Bayou Group LLC, got support from the Securities Industry and Financial Markets Association.

The association, which says it represents the interests of “hundreds of securities firms, banks and asset managers,” filed a brief in federal court in New York yesterday in support of Goldman Sachs, claiming the case “has potentially industry- wide implications, especially for clearing brokers.”

The creditors claim Goldman Sachs facilitated the $400 million fraud committed by Bayou co-founder Samuel Israel, who is now serving 22 years in prison. Stamford, Connecticut-based Bayou filed for bankruptcy protection in May 2006.

The Financial Industry Regulatory Authority, the independent regulatory group for the securities industry, on June 24 issued a decision in favor of Bayou’s creditors in an arbitration targeting Goldman Sachs Execution & Clearing LP for its role as the prime broker and clearing broker for Bayou’s hedge funds. Goldman sued last month to overturn the decision.

“In imposing liability on Goldman, the arbitrators disregarded the long-recognized principle that a clearing firm cannot be liable for merely processing transactions received from an authorized source,” the trade association argued.

John Rich of New York’s Rich & Intelisano LLP, a lawyer for Bayou’s unsecured creditors, defended Finra’s finding.

“This was an experienced and well-seasoned arbitration panel’s decision after an 18-day trial and lengthy closing arguments on the law and facts,” he said in an e-mail yesterday.

The case is Goldman Sachs Execution & Clearing LP v. Official Unsecured Creditors’ Committee of Bayou Group LLC, 10- CV-5622, U.S. District Court, Southern District of New York (Manhattan).

Oracle Damages in Claims Case May Reach $1 Billion

Oracle Corp., the world’s second-biggest software maker, may face total damages of $1 billion in a U.S. Justice Department lawsuit claiming it overcharged the government, Bloomberg News’ David Voreacos reports.

Oracle induced the General Services Administration to buy $1.08 billion in software from 1998 to 2006 by falsely promising the same discounts offered to favored commercial customers, the U.S. claimed in a complaint filed July 29 in federal court in Alexandra, Virginia. Oracle instead gave companies discounts of as much as 92 percent, while the government’s cuts ranged from 25 to 40 percent, the U.S. said.

“It looks to me like this could be a $1 billion verdict after trebling,” Frederick M. Morgan Jr., an attorney at Morgan Verkamp LLC in Cincinnati who isn’t involved in the case, said in an interview. Morgan specializes in lawsuits involving the federal False Claims Act.

The U.S. intervened in a 2007 lawsuit filed under the act by Paul Frascella, a former Oracle employee. The law lets citizens sue on behalf of the government and share in any recovery. The U.S. can triple any damages won at trial and collect as much as $11,000 for each false billing.

“You could easily have $1 billion worth of fines come out of this,” said Patrick Burns, a spokesman for Taxpayers Against Fraud, a Washington-based advocacy group. “That’s assuming that Oracle overcharged by 35 percent or more, which is well within what it appears to be in the complaint.”

Deborah Hellinger, a spokeswoman for Redwood City, California-based Oracle, didn’t return a phone call and e-mail seeking comment.

The case will probably end through negotiation, not trial, since about 98 percent of False Claims cases in which the U.S. intervenes are settled, said attorney John T. Boese of Fried, Frank, Harris, Shriver & Jacobson LLP in Washington. Boese isn’t involved in the Oracle case.

The case is U.S. v. Oracle Corp., 1:07-cv-00529, U.S. District Court, Eastern District of Virginia (Alexandria).

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Barclays Said to Settle U.S. Probe in Next Two Weeks

Barclays Plc, Britain’s third-largest bank, may settle with U.S. investigators within the next two weeks over how it handled money from countries subject to U.S. economic sanctions, according to a person close to the investigation.

Barclays has set aside 194 million pounds ($307 million) for the settlement, the bank said yesterday in a statement. The British lender has been conducting an internal review and reporting the results to authorities including the U.S. Justice Department, the Manhattan District Attorney’s Office and the U.S. Treasury Department’s Office of Foreign Assets Control “in relation to the possible resolution of this matter,” the bank said.

The bank is “in advanced discussions with these and other authorities” to end the probes, it said. Alistair Smith, a spokesman for the London-based bank, declined to comment.

Barclays said in February it is also being investigated by the U.K. Financial Services Authority over payments involving people or countries under U.K. Treasury sanctions. The bank disclosed the Justice Department probe in 2007.

Erin Duggan, a spokeswoman for Manhattan District Attorney Cyrus Vance Jr., and Justice Department spokeswoman Alisa Finelli declined to comment on any possible Barclays settlement. Marti Adams, a spokeswoman for the Treasury Department, also declined to comment.

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San Francisco’s Phone-Radiation Law Sparks Similar Proposals

A handful of U.S. cities may follow San Francisco’s example in trying to make information on mobile-phone radiation levels readily available to consumers, setting the stage for a broader showdown with the wireless industry.

San Francisco aims to become the first city in the country to require large wireless retailers to prominently display a device’s specific absorption rate, which measures how much energy emitted by a phone is absorbed by the body. The ordinance goes into effect on Feb. 1, unless it’s stopped in the courts.

Lawmakers in Oregon and the California cities of Burlingame and Arcata have expressed interest in similar ordinances. The possible regulations underscore growing speculation that long- term use of mobile phones increases the risk of certain types of cancer, even though the Federal Communication Commission declares the devices it approves to be safe.

The CTIA wireless association, which represents carriers, phone makers and suppliers, filed a lawsuit July 23 in federal court in San Francisco, seeking to scrap the law, saying the city is “unlawfully interfering” with the FCC’s authority.

The ordinance, “by conveying a misleading impression about the relative safety of wireless phones, will hinder -- rather than assist -- consumers in making their choices,” CTIA said in announcing the lawsuit.

The U.S. District Court will likely hear the case by next summer, Jonathan Kramer, principal attorney at Kramer Telecom Law Firm in Los Angeles, said in an interview. A federal appeal, if it follows, could add another six months, he said.

The CTIA may seek to delay the ordinance’s implementation until trial, Kramer said. If the wireless association succeeds in blocking the law, it may set a precedent for makers of other products -- from computers to semiconductors -- to withhold public information from labels and stores, Kramer said.

If the association’s lawsuit fails, “some other cities will probably adopt similar ordinances,” he said.

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Google Must Face Age-Bias Lawsuit by Fired Employee

Google Inc., owner of the world’s most popular search engine, must face a California age-discrimination lawsuit filed by a creator of the first Internet firewall.

The California Supreme Court yesterday affirmed a state appeals court decision in 2007 that had overturned a trial’s court dismissal of the complaint. The Supreme Court said the appellate court correctly refused to exclude so-called stray remarks made by supervisors and coworkers of the fired employee that were allegedly discriminatory.

Brian Reid, a former director of operations and engineering at Mountain View, California-based Google, claimed in his 2004 suit that he was fired after a supervisor said he was “too old to matter.” Reid created the first firewall, a security system for computer networks, and the Internet search engine Alta Vista, according to his lawyer.

Reid also claimed in the suit that Google Chief Executive Officer Eric Schmidt sent an e-mail directing a vice president to put together a “proposal for getting Reid out,” according to court documents. Reid, who was 54 when he sued, claimed other Google colleagues called him an “old man” and “old fuddy- duddy,” though he had received a favorable performance review showing he “consistently met expectations.”

Andrew Pederson, a spokesman for Google, had no immediate comment on the ruling.

The case is Reid v. Google, S158965, California Supreme Court (San Francisco).

Stuyvesant Town Suit Against MetLife May Proceed

Tenants of Stuyvesant Town and Peter Cooper Village, Manhattan’s largest apartment complex, can proceed with a class- action lawsuit against MetLife Inc. seeking $215 million for improper rent overcharges, a judge ruled.

In a decision made public yesterday, Manhattan state Supreme Court Justice Richard Lowe III ruled against a motion to dismiss the case against MetLife, the complex’s former owner.

MetLife argued that a 2009 New York Court of Appeals decision in the case, that apartments couldn’t be luxury decontrolled while they received certain tax benefits, shouldn’t be applied retroactively, according to court papers.

MetLife sold the property in 2006 to PCV ST Owner LP, another defendant. Tishman Speyer Properties LP, which bought the development, also is a defendant.

“We’re very pleased with the ruling. It does a tremendous justice for the tenants,” said Alex Schmidt, attorney for the tenants. “Now they’ll have the right to try to recover the $200 million in overcharges.”

Mitchell Posilkin, general counsel for the Rent Stabilization Association, which represents New York property owners, called the decision potentially “devastating” for many owners.

“In its narrowest form, this decision keeps MetLife as the prior owner of Stuyvesant Town-Peter Cooper in the case,” Posilkin said. “What it means for other owners in J-51 buildings where units were de-regulated is that there are now potentially significant claims against their properties.”

Christopher Breslin, a MetLife spokesman, said in an e-mail that “we are studying the opinion in order to determine our next steps.”

The case is Amy L. Roberts v. Tishman Speyer Properties, 100956/2007, New York State Supreme Court (Manhattan).

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New Suits

Vietnam Arrests Ex-Vinashin Head Amid Finance Probe

Vietnam arrested Pham Thanh Binh, the former chairman of Vietnam Shipbuilding Industry Group, as the government probes financial difficulties at the state-owned shipyard.

Binh was accused of “intentional violations of state regulations on economic management that have resulted in serious consequences,” according to a statement posted on the government’s website Aug. 4. He was held by an investigation agency under the Ministry of Public Security.

Binh was suspended from his post last month after the shipyard almost collapsed under 86 trillion dong ($4.5 billion) of debts following the global recession and expansion in new businesses. The government plans to restructure the company, which has already fired about 5,000 workers to cut costs.

Calls to Vinashin Chief Executive Officer Tran Quang Vu’s mobile phone went unanswered yesterday. Binh’s wife declined to comment when visited by Bloomberg News yesterday in Hanoi.

Gome to Start Legal Proceedings Against Founder Huang Guangyu

Gome Electrical Appliances Holdings Ltd., China’s second- biggest electronics retailer by market value, said it will begin legal proceedings against founder and largest shareholder Huang Guangyu over share repurchases.

Gome filed a writ of summons in the High Court of Hong Kong against Huang for a claim for damages, the company said in a statement to Hong Kong’s stock exchange yesterday.

Huang, also known as Wong Kwong Yu, was in May sentenced by a Beijing court to 14 years in prison after being found guilty of bribery and insider trading. The SFC accused Huang and his wife of stock-market fraud in August last year.

The arrest and conviction “caused a great deal of uncertainty for the company,” Gome said. This “has had, and to some extent continues to have, a significant adverse effect on activities, and in particular the ability to access capital.”

Huang, once China’s richest man, and wife Lisa Du Juan, are being investigated by Hong Kong’s Securities and Futures Commission for allegedly having Gome buy back shares in 2008 to help them repay a HK$2.4 billion ($309 million) personal loan. Huang still owns 34 percent of Gome, according to data compiled by Bloomberg.

The company said it received a letter from Shinning Crown, a company owned by Huang, after the writ was filed demanding a special general meeting. Repeated calls to Du Juan went unanswered yesterday.

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Trials/Appeals

Roche Wins Reversal of $10.5 Million Accutane Verdict

Roche Holding AG won reversal of a $10.5 million verdict over its Accutane acne drug because a judge improperly barred the company from using evidence about the medication’s use, an appeals court ruled.

Roche’s lawyers should have been able to use data about how many acne sufferers had used Accutane over the years throughout Kamie Kendall’s 2008 trial of her lawsuit over the drug, the New Jersey Superior Court Appellate Division ruled yesterday. The decision prompted a judge in Atlantic City, New Jersey, to delay the trial of an actor’s suit alleging the medication causes inflammatory bowel disease.

“Roche was unduly impeded at this trial from adducing and advocating numerical proofs that could have potentially and reasonably led a jury to reach a different verdict,” the appeals court said in an 89-page unpublished decision.

The New Jersey court sent the Kendall case back for retrial “because the original verdict followed from an unfair trial,” Christopher Vancheri, a U.S.-based spokesman for the drugmaker, said in an e-mailed statement. Mike Hook, Kendall’s lawyer, declined to comment.

Hook said the appeals court decision prompted Higbee yesterday to delay jury selection in the case of James Marshall, a Hollywood actor who alleges he lost his colon after taking Accutane.

The Kendall case is Kendall v. Hoffmann LaRoche Inc., ATL- L-8213-05, New Jersey Superior Court, Atlantic County (Atlantic City). The Marshall case is Greenblatt v. Hoffman-La Roche Inc., ATL-l-1246-06, New Jersey Superior Court, Atlantic County (Atlantic City).

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Kebble Murder Accused Asks That Charges Be Dropped

Glenn Agliotti, on trial for the 2005 murder of South African gold magnate Brett Kebble, asked a Johannesburg court to interrupt proceedings to allow him to ask state prosecutors to have his charges dropped.

Judge Frans Kgomo said he will rule today on whether to grant the convicted drug-dealer time to request that the National Director of Public Prosecutions scrap the case. Contradictory evidence by witnesses means the case is “unsustainable,” Agliotti’s lawyer, Laurence Hodes, told the South Gauteng High Court yesterday.

“The star witness on whose evidence everything hinges has shot himself in the foot on each key issue so far,” Hodes said after four witnesses who have admitted being involved in Kebble’s killing finished testifying. “The wrong man is standing in the wrong box. The plans do not coincide, the arrangements do not coincide. They do not sustain the charge.”

The state attorney opposed the postponement, saying it was “a waste of time” as the state had a strong case.

Kebble wanted to die rather than take the risk of going to prison on fraud charges stemming from the disappearance of millions of dollars of assets from gold miner Randgold & Exploration Ltd., said Clinton Nassif, Agliotti’s security manager, who told the court during six days of testimony that Kebble asked him and Agliotti to arrange the killing.

Kebble helped create two of South Africa’s four biggest gold miners, Harmony Gold Mining Co. and DRDGold Ltd. in the 11 years before his death at the age of 41. Investec Ltd., a bank, and Allan Gray Ltd. pressed for his departure from JCI Ltd., Western Areas Ltd. and Randgold after the assets went missing.

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

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Verdicts/Settlements

Madoff Trustee Wins $180 Million Vizcaya Judgment

The trustee for Bernard Madoff’s investment-advisory business won a $180 million default judgment against Vizcaya Partners Ltd. over claims the hedge fund profited from the conman’s fraud.

Vizcaya, based in the British Virgin Islands, failed to plead its case “or otherwise defend itself” against trustee Irving Picard’s allegations, according to an Aug. 3 ruling by U.S. Bankruptcy Judge Burton Lifland in Manhattan.

Vizcaya, which opened an account with Madoff in 2001, missed a deadline to respond to the April 2009 lawsuit accusing it of taking fake profit from the fraud. The default applies to Vizcaya and its affiliates, Zeus, Siam and Asphalia.

Picard has recovered more than $1.5 billion for Madoff victims. His lawsuits seek another $15 billion from funds that funneled money to the fraud, as well as Madoff’s friends and family. Madoff, 72, pleaded guilty last year and is serving a 150-year sentence for running the largest Ponzi scheme in U.S. history.

Recovery of Vizcaya’s damages may hinge on a ruling by the Supreme Court of Gibraltar, which is holding about $74 million on behalf of the hedge fund’s bank, Banque Jacob Safra (Gibraltar) Ltd. The default doesn’t apply to the bank, which was also sued by Picard and is challenging the claims.

Vizcaya’s lawyer, Anthony Paccione of Katten Muchin Rosenman LLP in New York, didn’t return a call for comment.

The case is Picard v. Vizcaya Partners Ltd., 09-01154, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

China Jails Two Steel Executives for Rio Leaks, Reuters Says

The Shanghai No. 1 Intermediate People’s Court jailed two Chinese steel executives for leaking commercial secrets to employees of Rio Tinto Group, Reuters reported, citing an unidentified court official.

Tan Yixin of Shougang Corp. was sentenced to 3 1/2 years in jail and fined 300,000 yuan ($44,300) in a closed-door trial, Reuters said, citing the official. Wang Hongjiu, a shipping manager at Laiwu Steel, was jailed for four years and fined 400,000 yuan, it said.

China in March sentenced four executives, including Australian Stern Hu, at Rio Tinto’s China iron ore unit to between 7 and 14 years of jail after finding them guilty of taking bribes and infringing commercial secrets. The case frayed relations between Australia and China coming after Rio last year rejected a $19.5 billion investment from Chinalco, its Chinese shareholder.

Judge Ren Suxian, presiding over Tan and Wang’s cases, couldn’t be reached for comments.

The four Rio workers, who were later fired, pleaded guilty to receiving 92.2 million yuan between them in bribes, China’s state news agency Xinhua reported on March 23, citing court documents.

Rio has worked on repairing relations with China, and last week agreed to a $1.35 billion investment from Aluminum Corp. of China Ltd. in its Simandou iron ore project in Guinea. The Chinese company is a unit of Chinalco, Rio Tinto’s largest shareholder.

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

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