Goldman, BP, Citigroup, JPMorgan, Campbell, AstraZeneca in Court News

Merrill Lynch & Co., the brokerage unit of Bank of America Corp., won a U.S. judge’s ruling denying a bid by 17 black financial advisers for group status in their five-year-old discrimination lawsuit.

Broker George McReynolds of Nashville, Tennessee, sued in 2005, alleging Merrill Lynch’s practices and procedures favored white financial advisers over their black counterparts, impairing their ability to make comparable incomes.

U.S. District Judge Robert W. Gettleman in Chicago on Aug. 5 rejected the bid by McReynolds and 16 other advisers for certification of the case as a class action, or group, lawsuit.

“Plaintiffs’ statistical evidence alone is insufficient to establish companywide discrimination” affecting each member of the proposed class the same way, the judge said. Each individual group member’s claim must be tried before a jury, Gettleman said.

McReynolds, along with the plaintiffs who joined the case after he filed it, sought to represent about 700 advisers and trainees who had worked in the firm’s Global Private Client unit from January 2001 until now, according Gettleman’s decision.

Charlotte, North Carolina-based Bank of America, the largest U.S. bank by assets, acquired New York-based Merrill Lynch last year for about $33 billion in stock.

Linda Friedman, a lawyer for the advisers, said she would ask a federal appeals court for permission to seek review of the ruling.

“I continue to believe that a class action is the only way to rid Wall Street of this horrific discrimination,” said Friedman, a partner at Stowell & Friedman Ltd. in Chicago. “However, the individuals who brought this lawsuit have no intention of dropping it.”

If Gettleman’s ruling stands, there could be as many as 200 trials, Friedman said.

“We’re pleased with the court’s ruling,” Bank of America spokesman William Halldin said in a phone interview. He declined to comment further.

The case is McReynolds v. Merrill Lynch Pierce Fenner & Smith Inc., 05-cv-06583, U.S. District Court, Northern District of Illinois (Chicago).

Lehman, HSBC May Be Sued Over Worthless ‘Minibonds’

Lehman Brothers Holdings Inc. and HSBC Holdings Plc may be sued over $1.6 billion in worthless securities sold to retail investors, primarily in Hong Kong, a judge in New York ruled.

U.S. District Judge William H. Pauley III yesterday reversed part of a decision by Lehman’s bankruptcy judge, who threw out a suit by seven holders of structured financial notes called minibonds. The plaintiffs seek to represent a class of investors in the notes from June 16, 2003, to Sept. 15, 2008, Pauley said in his decision.

Pacific International Finance Ltd. issued the minibonds and marketed them as linked to the credit of financially sound companies and backed by AAA-rated collateral, Pauley said. The minibonds became worthless as a result of the collapse of Lehman Brothers, which filed the biggest bankruptcy in U.S. history in September 2008.

A Hong Kong regulatory authority investigation disclosed that Lehman designed the minibonds program and used Pacific Finance to issue them, Pauley said. Lehman selected HSBC Bank USA as trustee of the collateral securing the notes, Pauley said, citing testimony in the Hong Kong proceeding.

In two orders, issued in November and December, U.S. Bankruptcy Judge James Peck ruled that the plaintiffs lacked standing to sue and that any attempt to revise their complaint would be futile.

In yesterday’s ruling, Pauley reversed the dismissal of one count against HSBC and Lehman and permitted the plaintiffs to amend two dismissed counts.

Neil Brazil, an HSBC spokesman, said the firm had no immediate comment on the ruling. Kimberly Macleod, a Lehman spokeswoman, didn’t return a voice-mail message seeking comment.

The case is Wong v. HSBC USA Inc., 10-cv-00017, U.S. District Court, Southern District of New York (Manhattan).

Madoff Judge Erred in Fake Profit Ruling, Court Told

Customers defrauded by Bernard Madoff’s Ponzi scheme deserve repayment of as much as $500,000 each, even if they took out more than they put into his investment business, a lawyer argued yesterday to an appeals court.

U.S. Bankruptcy Judge Burton Lifland erred when he ruled in March that the Securities Investor Protection Corp. doesn’t offer insurance to investors, and that Madoff customers can only collect from SIPC if they put in more cash than they took out from his business, attorney Helen Chaitman argued in a brief.

Chaitman, who represents 700 investors, asked the U.S. Court of Appeals in New York to reverse Lifland and rule that SIPC trustee Irving Picard should review claims based on final account statements in December 2008 that included fake profit from the fraud. Those investors say they had no knowledge of the fraud at New York-based Bernard L. Madoff Investment Securities LLC.

“Appellants are, typically, people in their 70s, 80s or 90s, whose assets, other than their homes, were invested in BLMIS” and face “serious medical issues,” Chaitman wrote in yesterday’s filing. “They live in constant fear that the trustee will sue them for the amount they withdrew from BLMIS in excess of their investments.”

Those investors are among more than 2,500 Madoff customers who couldn’t collect any SIPC money under Lifland’s ruling, which Picard sought. Picard, who is overseeing the liquidation of Madoff’s business, has allowed more than 2,100 claims to proceed. Madoff, 72, who pleaded guilty last year, is serving a 150-year sentence for running the largest Ponzi scheme in U.S. history. Prosecutors said that Madoff falsely told investors that they profited from stock trades that never took place.

Picard, hired by SIPC to repay victims of the fraud, has said that using account statements to set claims would let Madoff decide who gets what, and include profit from trades that didn’t really happen.

Victims wanted their final account statements from Madoff’s firm to determine the size of their claims. They had argued to Lifland that SIPC was required to base claims on customers’ legitimate expectations. Lifland disagreed, ruling the account statements were “entirely fictitious.”

The case is Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities LLC, 08-01789, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

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SEC, Goldman’s Tourre Had Preliminary Talks, Agency Lawyer Says

Goldman Sachs Group Inc. executive director Fabrice Tourre had “very preliminary” talks with the U.S. Securities and Exchange Commission to settle the agency’s civil fraud claims against him, an SEC lawyer said.

“I would characterize us as having very preliminary discussions along those lines a while back, and that’s all,” SEC lawyer Lorin Reisner said in a hearing yesterday in U.S. District Court in Manhattan.

The SEC sued Goldman Sachs and Tourre in April, over claims the firm misled investors in collateralized debt obligations linked to subprime mortgages. Tourre, the only Goldman Sachs executive sued individually, remains in the case after the firm agreed to a $550 million settlement last month.

The settlement includes a $300 million fine and $250 million in restitution for investors. The penalty is the largest ever levied by the Securities and Exchange Commission against a Wall Street firm, the SEC said. Goldman Sachs acknowledged it made a “mistake” and that marketing materials for the instruments had “incomplete information,” the agency said.

U.S. District Judge Barbara Jones in Manhattan granted final approval to the settlement on July 20.

Jones’s approval of the accord came a day after Tourre filed court papers asking her to dismiss the lawsuit against him. Tourre denied making any materially misleading statements or omissions related to the sale of Abacus 2007-AC1 CDOs linked to subprime mortgages.

In the hearing yesterday, before U.S. Magistrate Judge Michael Dolinger, the parties discussed possible outlines for pretrial discovery in the case. Reisner said the SEC is turning over 9 million pages of investigative documents to Tourre’s lawyers. He said the agency may seek to take pretrial testimony from 25 witnesses.

Pamela Chepiga, one of Tourre’s lawyers, said Tourre may seek to take testimony from as many as 50 witnesses. Chepiga said the parties may also need to pursue evidence in the U.K. and Germany in addition to the U.S.

Dolinger set an Oct. 4 hearing to discuss the progress of discovery in the case.

The case is SEC v. Goldman Sachs, 10-CV-3229, U.S. District Court, Southern District of New York (Manhattan).

BP and U.S. Agree on Oil Spill Compensation Fund

The U.S. completed negotiations with BP Plc over the company’s agreement to establish a $20 billion fund to compensate victims of the oil spill in the Gulf of Mexico, according to the Justice Department.

The negotiations followed an agreement made between the London-based company and President Barack Obama on June 16.

“We are pleased that BP made an initial contribution and has taken an important step toward honoring its commitment to the president and the residents and business owners in the gulf region,” said Associate Attorney General Tom Perrelli in a statement yesterday.

The fund, administered by lawyer Kenneth Feinberg, doesn’t cap BP’s liability for cleanup costs and economic damage, Obama said in June, and it doesn’t supersede the rights of individuals or states to sue the company.

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New Suits

Goldman Sachs Is Sued by Technicians for Overtime

Goldman Sachs Group Inc. was sued by five computer-network technicians who claim the bank denied them overtime pay for their work as contractors.

The lawsuit seeks class-action status and unspecified damages, Goldman Sachs said yesterday in a filing with the U.S. Securities and Exchange Commission. The plaintiffs contend they deserve overtime pay for working more than 40 hours a week.

Goldman Sachs’s conduct was “willful and in bad faith,” according to the technicians, who say the bank never paid them overtime for work weeks that topped 70 hours. More than 100 employees in New York and New Jersey were underpaid as a result, according to the lawsuit filed in May.

Goldman Sachs, based in New York, disputed the allegations in a July 16 filing, saying the technicians weren’t “employees” as defined by the states’ labor laws. About 25 percent of Goldman Sachs’s staff works on technology, Chief Financial Officer David Viniar said earlier this year.

The case is Bardouille v. Goldman, Sachs & Co., 10cv4285, U.S. District Court, Southern District of New York (Manhattan).

BP Accused of Air Pollution at Texas City Refinery

A BP Plc unit allowed the emission of about 500,000 pounds of air pollutants in violation of Texas environmental laws, state Attorney General Greg Abbott alleged in a lawsuit.

BP “admitted to the release of air contaminants to the atmosphere” at its Texas City refinery after an April 6 fire on part of a ultracracking unit, according to the complaint filed yesterday in Austin, Texas. BP restarted the ultracracker and another unit before repairing a compressor, sending benzene and other pollutants into the air for about a month, the state said.

“BP decided to continue those units so as not to reduce productivity,” the state said in the complaint. “BP made very little attempt to minimize the emission of air contaminants caused by its actions, once again prioritizing profits over environmental compliance.”

The state also has a pending action over a release of contaminants related to a 2005 explosion at the Texas City refinery, Abbott said in a statement yesterday. That blast killed 15 workers and led to a $50 million fine by the U.S. for a violation of the federal Clean Water Act.

BP “will continue to cooperate with the attorney general’s office” and the Texas environmental quality agency “to resolve their concerns,” Scott Dean, a BP spokesman, said in an e- mailed statement. The company declined further comment on the litigation, he said.

The Texas lawsuit is State of Texas v. BP Products North America Inc., District Court, Travis County, Texas. The class action is Fontenot v. BP Products North America Inc., 3:10-cv- 295, U.S. District Court, Southern District of Texas (Galveston).

BP Sued Over Gulf Oil Cleanup Chemicals, Sunday Telegraph Says

BP Plc has been sued for the first time over alleged environmental and health problems caused by chemicals used in the Gulf of Mexico cleanup, the Sunday Telegraph reported.

BP, based in London, sprayed 1.8 million gallons of Corexit dispersant into the sea to break up the oil from the spill, the newspaper reported Aug. 8. Two Gulf Coast residents, Glynis Wright and Janille Turner, have filed a class action in Alabama, alleging that the chemical is “four times more toxic than sweet crude oil,” the newspaper said.

The suit is also against Nalco Holding Co., Corexit’s manufacturer, the Telegraph said.

Robert Wine, a BP spokesman, declined to comment on the lawsuit when reached by e-mail. He said the type of dispersants used and the method employed were approved by the U.S. Environmental Protection Agency.

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Legal Reviews

Cuomo Subpoenas Citigroup, JPMorgan in Health Probe

New York Attorney General Andrew Cuomo expanded his health- care credit card probe, which has included subpoenas to JPMorgan Chase & Co.’s Chase Health Advance, Citigroup Inc.’s Citi Health and CareCredit, a division of General Electric Co’s GE consumer finance unit.

Last week, Cuomo announced an investigation into what he called “predatory health care lending” where consumers were allegedly misled about financing terms for health-care credit cards.

“Our ongoing investigation has uncovered conflicts of interest and predatory practices in the health care industry that are hurting New Yorkers and patients across the country,” Cuomo said yesterday in a statement. “Patients are being misled into paying for services they never received by the people they should be able to trust the most -- their doctors.”

Cuomo said he has issued subpoenas to 14 dental and health care clinics. The subpoenas seek marketing materials, applications, terms of credit, and contracts. He claimed some providers pressure consumers into using the card and are rewarded with “kickbacks” in the form of rebates.

Citigroup spokesman Samuel Wang said in an e-mailed statement that the bank will cooperate with Cuomo’s investigation. Joe Evangelisti, a spokesman for New York-based JPMorgan, declined to comment.

Last week, GE spokesman Stephen White said the company was looking forward to working with Cuomo’s office.

Trials/Appeals

Farrow Says Campbell Got ‘Huge Diamond’ From Taylor

Actress Mia Farrow said Naomi Campbell told her she received a “huge diamond” from men sent by former Liberian President Charles Taylor, contradicting the supermodel’s testimony at a war-crimes tribunal last week.

Campbell “said that in the night she had been awakened, some men were knocking at the door and they had been sent by Charles Taylor and had given her a huge diamond,” Farrow, 65, said yesterday during the war-crimes trial of Taylor at the Special Court for Sierra Leone in Leidschendam, the Netherlands.

Campbell told the court last week that two strangers handed her some “dirty looking stones” after a dinner at Nelson Mandela’s home in South Africa in 1997. Campbell said she at first didn’t know the stones were diamonds or who had given them to her. Farrow said she hadn’t been shown any stones.

Taylor, who is on trial for crimes against humanity during the Sierra Leone civil war, has been accused by Chief Prosecutor Brenda Hollis of giving the British model a diamond after the Mandela dinner. Conflict diamonds, also known as blood diamonds, have been used to fund wars throughout Africa.

Taylor last year denied providing weapons to fighters in the Revolutionary United Front, a Sierra Leone rebel movement, in exchange for diamonds. The testimonies of Farrow and Carole White, Campbell’s former agent, on the gift to the supermodel may refute Taylor’s claim he never possessed rough diamonds.

Ken Macdonald, a lawyer for Campbell, didn’t immediately respond to e-mails seeking comment on yesterday’s testimonies.

Taylor has pleaded innocent to 11 counts including enlisting child soldiers, murder and sexual slavery during the 1991-2002 civil war in Sierra Leone. As many as 250,000 people were killed in the conflict.

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Dutch Prosecution Says Trafigura Fine Is Too Low

The Dutch public prosecutor’s service appealed a ruling by an Amsterdam district court against Trafigura Beheer BV for shipping harmful waste to Ivory Coast, saying the fine of 1 million euros ($1.3 million) was too low.

The prosecution can also prove that the closely held commodities trader committed fraud, Esther Schreur, spokeswoman for the Dutch National Fraud Prosecutor said, confirming an earlier report by the newspaper De Volkskrant.

“We vigorously deny all charges,” including fraud, said Margaret van Kempen, an outside spokeswoman for Trafigura. Trafigura has also appealed the ruling, she said. Ron van Leeuwen, spokesman for the Amsterdam Appeals Court, said he couldn’t yet confirm or deny the appeals.

Waste from a ship hired by Trafigura four years ago was given to a local company, Compagnie Tommy, and was dumped near Ivory Coast’s commercial capital, Abidjan. Residents claimed the pollution caused deaths and widespread illness.

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Verdicts/Settlements

AstraZeneca Settles Two-Thirds of Seroquel Lawsuits

AstraZeneca Plc will pay about $198 million to settle 17,500 lawsuits, or about two-thirds of the total cases alleging its antipsychotic drug Seroquel causes diabetes in some users.

The settlements resulted from court-ordered mediation, the London-based drugmaker said in a statement yesterday. AstraZeneca previously agreed to pay at least $55 million to resolve more than 5,500 cases alleging the company knew Seroquel could cause diabetes and failed to adequately warn patients, people familiar with those settlements said. These earlier agreements are part of the 17,500 settlements, the company said.

AstraZeneca, the U.K.’s second-biggest drugmaker, is closer to wiping out the 26,000 total Seroquel cases and at a lower cost than expected, analysts said. Average payments are $10,000 to $11,000 for former Seroquel users, according to previous announcements and people familiar with earlier accords. The settlements are “probably lower than the worse-case estimate,” according to Jeremy Batstone-Carr, an analyst at Charles Stanley & Co Ltd.

“While the terms remain confidential and are subject to non-monetary agreements, we believe it was in the best interest of the company to explore resolving these cases through the mediation process,” Tony Jewell, AstraZeneca’s spokesman, said in an e-mailed statement. “We remain committed to a strong defense effort, but will also continue to participate in good faith in court-ordered mediation.”

Lawyers for the company and former Seroquel users met last week with Stephen Saltzburg, a George Washington University Law School professor who is the mediator in the case, the people familiar said. Saltzburg said in a February court filing that AstraZeneca faces as many as 26,000 suits over Seroquel and a global settlement wasn’t likely.

Company officials said earlier this month that lawyers for other former Seroquel users are scheduled to meet Saltzburg to see if their claims can be resolved.

Ken Bailey, a Houston-based lawyer representing former Seroquel users who hasn’t settled his cases, said he was encouraged that AstraZeneca was willing to talk about resolving patients’ claims.

Former Seroquel users contend research has shown patients have developed diabetes while on the drug and AstraZeneca’s own researchers acknowledged the link in internal documents.

The consolidated Seroquel case is In re Seroquel Products Litigation, 06-MD-01769, U.S. District Court, Middle District of Florida (Orlando).

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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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