Dollar, Wal-Mart, Rite-Aid, Hertz, American Express, EPA in Court News

Dollar Thrifty Automotive Group Inc. investors asked a judge to stop a shareholder vote on Hertz Global Holdings Inc.’s $1.1 billion acquisition of the U.S.’s fourth-largest rental car company.

Dollar Thrifty’s board isn’t giving enough credence to a $1.3 billion competing offer from Avis Budget Group Inc. and acceded to Hertz’s demands that it not seek other bids, lawyers for disgruntled Dollar Thrifty shareholders told Delaware Chancery Court Judge Leo Strine at a hearing yesterday in Wilmington. The judge said he’d rule later on whether a Sept. 16 shareholder vote over the buyout can proceed.

Hertz’s offer amounts to a “terrible price” for Dollar Thrifty’s shares, Stephen Grygiel, a lawyer from Wilmington’s Grant & Eisenhofer who represents the shareholders, said at the hearing.

Pension funds in California and Florida who invested in Dollar Thrifty shares sued the firm’s directors in May seeking more in the cash-and-stock deal, initially valued at $1.1 billion, or about $41 a share.

Hertz, based in Park Ridge, New Jersey, said April 26 it would buy Tulsa, Oklahoma-based Dollar Thrifty. Hertz is the second-largest U.S. rental car company behind closely held Enterprise Holdings Inc.

Officials of Parsippany, New Jersey-based Avis, the third- largest U.S. rental car company, said last month they would pay $46.50 a share in cash and stock for Dollar Thrifty.

Unlike Avis’s bid, Hertz’s offer doesn’t have any financing problems and was the result of a contentious round of negotiations, Mitchell Lowenthal, a New York-based lawyer representing Dollar Thrifty’s board, told Strine. Lowenthal is a partner at Cleary Gottlieb Steen & Hamilton.

The negotiations were “the antithesis of some kind of sweetheart arrangement,” Lowenthal said.

If Dollar Thrifty accepts Avis’s offer, it could have to pay Hertz as much as $49.6 million for terminating the deal, according to court filings. That includes a so-called breakup fee of $44.6 million and as much as $5 million in expenses.

Strine, who said investors wanted him to “second guess” Dollar Thrifty director’s decision to back Hertz’s offer, said he’d rule on the case before shareholders are asked to vote on it.

The case is In re Dollar Thrifty Shareholder Litigation, consolidated CA5458, Delaware Chancery Court (Wilmington).

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Stanford Drew on Investor Money, Trial Witness Says

The $1.6 billion that indicted financier R. Allen Stanford allegedly skimmed from investors was borrowed from his Antiguan bank as loans to startup entities and other businesses he controlled, a fraud examiner testified.

Forensic accountant Alan Westheimer testified before a U.S. judge in Houston yesterday that Stanford Financial Group Cos. Chief accountant Gilbert Lopez and comptroller Mark Kuhrt, who hired him after they were indicted in June 2009, told him this year they thought the borrowing should have been publicly disclosed.

“The funds were being passed through as inter-company loans to the entities that were the recipients of the shareholder loans” Westheimer said. “Within a short period, usually six months, Mr. Stanford would assume those loans and the recipient companies transferred those balances to their underlying capital.”

Westheimer’s testimony came on the second day of a civil trial over whether Stanford can force his insurers to pay his defense costs in his criminal case. Stanford and three of his co-defendants sued Lloyd’s of London underwriters that have refused to cover his legal fees, saying that reported crimes at the company voids the $100 million in officers and directors insurance they sold to Stanford’s businesses.

Westheimer and a second forensic accountant who testified, Mark Berenblut, were witnesses for Lloyd’s.

Stanford is accused by the U.S. in parallel criminal and civil cases of leading a $7 billion investment fraud scheme centered on the sale of certificates of deposit through Stanford International Bank Ltd. in Antigua. He denies the allegations, which include claims he siphoned the money to fund a lavish lifestyle.

The case is Laura Pendergest-Holt v. Certain Underwriters at Lloyd’s of London, 4:09-cv-03712, U.S. District Court, Southern District of Texas (Houston).

The criminal case is U.S. v. Stanford, 09-cr-00342, U.S. District Court, Southern District of Texas (Houston). The SEC case is Securities and Exchange Commission v. Stanford International Bank, 09-cv-00298, U.S. District Court, Northern District of Texas (Dallas).

Barclays Lent Lehman $45 Billion Unaware of Risks

Barclays Plc didn’t know its risk when it bought Lehman Brothers Holdings Inc.’s brokerage and was told by the U.S. Federal Reserve to lend the defunct firm $45 billion, a former Barclays trading executive testified.

Stephen King, who was assigned by Barclays managers to value the loan collateral in the 2008 financial crisis, said people kept telephoning to ask if the loan was safe.

“We don’t even know what we’ve got, guys, so I can’t tell you that you’re collateralized,” King said he told Barclays executives. The brokerage sale closed a week after Lehman’s Sept. 15, 2008, bankruptcy, the biggest in U.S. history.

King, who now runs New York hedge fund C12 Capital Management LP, was a witness in U.S. Bankruptcy Court in Manhattan as London-based Barclays defended itself against Lehman’s claim that it should pay as much as $11 billion for an allegedly undisclosed “windfall” on its purchase of the defunct brokerage, including $5 billion on the Fed collateral.

As Barclays negotiated the purchase, the Fed told the U.K. bank that it had to take over a $45 billion loan the Fed had made to Lehman, witnesses have testified. In exchange, Barclays was promised collateral valued at about $49 billion.

About $7 billion of the collateral didn’t arrive, and was replaced by cash, King told U.S. Bankruptcy Judge James Peck. Some $10 billion of what was delivered were securities not on a list Barclays had received, which “theoretically could have been worthless.”

Lehman has said Barclays deliberately undervalued the collateral to give itself a quick gain on the deal. King told Lehman’s lawyer that his hedge fund runs $12 billion of assets bought from Barclays with a loan from the U.K. bank. He didn’t participate in setting the price of the securities bought from Barclays, he said.

Peck said when he approved the deal that it would help stabilize the credit markets during the subprime lending crisis. Lehman, its creditors and the brokerage trustee, James Giddens, sued Barclays last November as markets rebounded.

The cases are In re Lehman Brothers Holdings Inc., 08- 13555, and Giddens v. Barclays Capital Inc., 09-01732, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

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Rite Aid Subpoenaed Over Connecticut Drug Pricing

Rite Aid Corp., the third-biggest U.S. drugstore chain, was subpoenaed by the Connecticut attorney general, who is seeking information about drug price increases that he said the company falsely blamed on a new state law.

The Connecticut law requires pharmacies to provide Medicaid and other government programs the same prescription-drug discounts they do other consumers, Attorney General Richard Blumenthal said yesterday in a statement.

Rite Aid increased the cost of a 30-day supply of selected generic drugs by $2 in its Rx Savings program and eliminated a $15.99 90-day-supply option for some generic drugs, Blumenthal said. The chain also scrapped discounts for oral contraceptives, brand medications and medical supplies including diabetic strips, he said. Rite Aid posted signs saying higher prices and program changes were because of the new law, he said.

Similar changes weren’t made for consumers outside Connecticut, Blumenthal said. The company must provide the requested information demanded by Sept. 8, he said.

Ashley Flower, a spokeswoman for Camp Hill, Pennsylvania- based Rite Aid, didn’t immediately return a call for comment.

In June, Blumenthal began a probe of CVS Caremark Corp.’s threat to scrap its Health Savings Pass discount drug program because of the new law. Blumenthal said CVS dropped its plan after he started the investigation.

Ex-Societe Generale Trader Agrawal Wins Trial Delay

Former Societe Generale trader Samarth Agrawal, accused of stealing the company’s computer code for high-frequency trading, was granted a delay of his trial after his lawyer said he has evidence which could exonerate him.

Agrawal, arrested in April, was charged by federal prosecutors in with theft of trade secrets. The government said Agrawal made copies of one part of the code he’d been given access to and another part he wasn’t allowed have.

Agrawal’s lawyer, Ivan Fisher, told U.S. District Judge John Koeltl in Manhattan yesterday that he needed a delay in the trial so he could show prosecutors evidence that he said would clear his client. Koeltl agreed to reschedule the trial, now set for Oct. 4, to Nov. 8.

Fisher told Koeltl the evidence includes polygraph tests of Agrawal, and transcripts of taped conversations his client had with another firm where he had hoped to work before his arrest. Fisher said his client also would meet for a proffer session with prosecutors to tell them what he knew about the events.

Agrawal was hired by Societe Generale in New York in March 2007 to work as a quantitative analyst in the high-frequency trading group, and promoted to trader in April 2009, according to the complaint against him. Before he resigned in November, he deleted a computer folder on his personal network drive that contained the code, prosecutors said.

The case is U.S. v. Agrawal, 10-CR-417, U.S. District Court, Southern District of New York (Manhattan).

Verdicts

Travelers Unit Awarded $262 Million in Asbestos-Insurance Suit

A unit of Travelers Cos., the insurer added to the Dow Jones Industrial Average last year, was awarded $262.3 million plus interest by a New York judge in a reinsurance dispute tied to asbestos-injury claims from the 1970s.

Justice Richard Lowe of the New York state Supreme Court awarded the judgment against a group of insurance companies, including a unit of Munich Re AG, the world’s biggest insurer, according to a decision dated Aug. 20.

United States Fidelity & Guaranty Co., part of Travelers, sued American Re-Insurance Co., part of Munich Re, and members of an insurance association over reinsurance contracts. Fidelity & Guaranty had reached a settlement in 2002 to pay asbestos- injury claims filed against Western MacArthur Co. and was seeking to recover its losses, according to Lowe’s decision.

The Munich Re unit was ordered to pay the most among the defendants -- $202.5 million plus interest.

“We are currently evaluating the ruling to assess all of the issues, which will form the substance of an appeal,” Terese Rosenthal, a spokeswoman for Munich Re, said yesterday.

Shane Boyd, a spokesman for New York-based Travelers, said the company was “very pleased” with Lowe’s decision.

The case is United Sates Fidelity & Guaranty Co. v. American Re-insurance Co., 604517-2002, State Supreme Court of New York (Manhattan).

Appeals

Federal Reserve Seeks Stay of Appeals Court Disclosure Ruling

The Federal Reserve Board asked a U.S. appeals court to delay implementation of a ruling that compels the central bank to release documents identifying banks that might have failed without the U.S. government bailout.

The request for a stay follows an Aug. 20 decision by the U.S. Court of Appeals in New York to deny the Fed’s request that the court reconsider its decision requiring the agency to release records of the $2 trillion U.S. bank loan program.

If the stay is granted, the central bank and the Clearing House Association LLC, an organization of 20 commercial banks that joined the Fed in defense of the lawsuit, will have 90 days to petition the Supreme Court to consider an appeal. The Clearing House has already said it will ask the high court to rule on the case.

Fed spokesman David Skidmore didn’t immediately say whether the central bank would appeal to the Supreme Court. The request says a stay until Nov. 18 would “permit the government sufficient time to determine whether to file a petition” with the high court.

At issue are 231 “term sheets” documenting Fed loans to financial firms during 2008. The records, which include the banks’ names and the amounts borrowed, were originally requested by late Bloomberg News reporter Mark Pittman through the Freedom of Information Act, which allows citizens access to government papers.

The appeals court upheld a decision of a lower-court judge who in August 2009 ordered that the information be released.

The Fed argued in the case, which was brought by Bloomberg LP, the parent of Bloomberg News, that disclosure of the documents threatens to stigmatize borrowers and cause them “severe and irreparable competitive injury,” discouraging banks in distress from seeking help.

The case is Bloomberg LP v. Board of Governors of the Federal Reserve System, 09-04083, U.S. Court of Appeals for the Second Circuit (New York).

Wal-Mart Appeals to U.S. Supreme Court in Bias Case

Wal-Mart Stores Inc. asked the U.S. Supreme Court to block female employees from suing on behalf of as many as 1.5 million women in what would be the largest gender-bias suit against a private employer in U.S. history.

The world’s largest retailer yesterday appealed a 6-5 lower court decision allowing women who have worked at Wal-Mart since 2001 to be part of a single class-action lawsuit. The justices likely will say later this year whether they will hear the case.

Saying the workers are seeking billions of dollars in back pay, Wal-Mart in filing what’s known as a petition for certioriari, told the justices that the claims of workers around the country were too diverse to proceed as a single case under the rules that govern federal lawsuits.

“The class is larger than the active-duty personnel in the Army, Navy, Air Force, Marines and Coast Guard combined --making it the largest employment class action in history by several orders of magnitude,” argued the Bentonville, Arkansas-based company, the largest U.S. private employer.

Wal-Mart is accused of paying women less than men for the same jobs and giving female workers fewer promotions. The lawsuit was filed in 2001 by six women, including Betty Dukes, a Wal-Mart greeter in Pittsburg, California.

“The ruling upholding the class in this case is well within the mainstream that courts at all levels have recognized for decades,” said Brad Seligman, an attorney for the workers, in an e-mailed statement. “Only the size of the case is unusual, and that is a product of Wal-Mart’s size and the breadth of the discrimination we documented.”

The company says that no pay disparity exists between men and women at most of its stores and that managers make subjective salary and promotion decisions at the store level.

The company agreed in 2008 to pay as much as $640 million to settle 63 federal and state class actions claiming the company cheated hourly workers and forced them to work through breaks.

New Suits

Environmental Groups Sue EPA Over Cape Cod Pollution

The Conservation Law Foundation and The Coalition for Buzzards Bay sued the U.S. Environmental Protection Agency alleging that the agency was not sufficiently preventing nitrogen pollution in the waterways of Cape Cod, Massachusetts.

In a suit filed Aug. 24 in federal court in Boston, the groups allege that the agency had not moved to reduce the amount of nitrogen emanating from the septic systems in widespread use on Cape Cod and also had not regulated the amount of nitrogen flowing from sewage treatment systems.

Mark Rasmussen, the president of The Coalition for Buzzards Bay, said yesterday that nitrogen pollution is “invisible but it’s Cape Cod’s oil spill. It is slowly destroying Cape Cod’s harbors and coves.” He claimed that the EPA does not regulate septic systems as strictly as sewer systems, resulting in increased nitrogen levels.

Dave Deegan, a spokesman in the EPA’s Boston office declined by e-mail to discuss whether septic systems are regulated differently from sewers, saying that was an issue for the court. He also said that the agency “has not yet had an opportunity to review the CLF lawsuit, so cannot comment on it. Cape Cod is an environmental treasure and must be protected. Reducing nitrogen is a complicated problem, and all levels of government - local, state, and federal - have a role to play. EPA is committed to do our part, and to work closely with others to ensure that all appropriate steps are taken.”

Many of the towns on Cape Cod already are evaluating their options to reduce nitrogen pollution, according to Rasmussen.

The case is Conservation Law Foundation Inc. v. United States Environmental Protection Agency, 1:10-cv-11455 District Court of Massachusetts (Boston).

Indicted Money Manager Kenneth Starr Sued by American Express

Kenneth Starr, the New York investment adviser accused of stealing at least $59 million from clients, and his company were sued by two units of American Express Co. for not paying about $350,000 in card charges.

American Express Bank FSB and American Express Centurion Bank brought the suit yesterday in New York state Supreme Court in Manhattan. Starr owes $343,431 on his American Express Platinum Card and he and Starr & Company owe $7,365 on their American Express Business Gold Rewards Card.

Starr was arrested in May and charged with 20 counts of wire fraud and one count each of securities fraud, money laundering and fraud by an investment adviser. He is accused of defrauding celebrity clients including heiress Rachel “Bunny” Mellon. He also has represented actors Sylvester Stallone and Wesley Snipes.

Starr has pleaded not guilty and is scheduled for trial on Nov. 1. Last month, he was conditionally granted $10 million bail.

Flora Edwards, a lawyer for Starr, did not immediately respond to a call for comment.

California Charges Movie Producer With Ponzi Scheme

The producer of movies including “Confessions of a Pit Fighter” and “Hotel California” was charged with orchestrating a $9 million Ponzi scheme.

Mahmoud Karkehabadi, based in Laguna Niguel, California, promised investors returns of as much as 35 percent for making loans to his B-movie production company, California Attorney General Jerry Brown said yesterday in an e-mailed statement.

Karkehabadi, 53, owner of Alliance Group Entertainment, was charged in state court in Santa Ana, California, with 89 counts including securities fraud and grand theft and faces more than 25 years in prison if convicted, Brown said.

“More than 150 individuals from across the country made ‘movie production loans’ to Alliance Group Entertainment, which has produced four B-movie flops since 2005,” according to Brown’s statement. “Confessions of a Pit Fighter” in 2005 starred rapper Flavor Flav. “Hotel California” was released in 2008.

Richard Steingard, Karkehabadi’s lawyer, declined to comment, saying he’ll respond to the charges in court. The next court date is a Sept. 3 pretrial hearing, he said.

Karkehabadi, who was arraigned Aug. 24, is seeking a bail reduction, according to Brown’s statement.

The case is California v. Karkehabadi, 10CF2204, California Superior Court in Orange County (Santa Ana).

To contact the reporter on this story: Ellen Rosen in New York at erosen14@bloomberg.net.

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