Switzerland said it expects to deliver account data on almost 4,450 UBS AG clients suspected by the U.S. of tax evasion, prompting the Internal Revenue Service to say it will drop a lawsuit against the bank within months.
The dispute stems from a U.S. crackdown on offshore tax evasion, marked by an IRS lawsuit in February 2009 that sought data on as many as 52,000 UBS accounts. The bank settled the so- called John Doe summons case in August 2009 by agreeing to hand over data on 4,450 accounts. The Swiss Federal Tax Administration said yesterday it surrendered about half of the accounts.
“Based on information received to date and assurances by the Swiss Government, we anticipate being in a position to withdraw the John Doe summons this fall,” the IRS said yesterday in a statement.
UBS, Switzerland’s biggest bank, avoided U.S. prosecution in February 2009 by paying $780 million, admitting it helped wealthy Americans evade U.S. taxes from 2000 to 2007, and handing over account data on more than 250 U.S. clients. The next day, the U.S. sued UBS in Miami, seeking data on 52,000 accounts.
“UBS can close the chapter on the suspected tax evaders now,” said Franco Taisch, a professor of business law at the University of Lucerne. “The bank has overcome that burden and can focus on its future business.”
Since February 2009, the U.S. Justice Department has filed criminal tax charges against 17 UBS clients in the U.S., two UBS bankers and three others accused of aiding tax evasion.
Clemens Steroid Perjury Arraignment Set for Aug. 30
Roger Clemens, the Cy Young Award-winning pitcher accused of lying to Congress about his alleged steroid use, will be arraigned Aug. 30 in U.S. District Court in Washington, according to the case docket.
Clemens, 48, was indicted Aug. 19 by a federal grand jury on six counts, including obstruction of Congress, making false statements and perjury. Each charge carries as much as five years in prison. He is due to appear before U.S. District Judge Reggie Walton at 2 p.m. local time, the docket says.
The charges against the right-handed former Major League Baseball All-Star, known as “the Rocket,” came more than two years after he told a U.S. congressional committee that he had never used banned substances.
Those denials were contradicted by the testimony of his former trainer Brian McNamee and ex-teammate Andy Pettitte, lawmakers have said. McNamee testified that he injected Clemens 20 times with steroids and human growth hormone. Pettitte, who pitches for the New York Yankees, told the committee that Clemens admitted in 1999 or 2000 that he used HGH.
Walton issued a gag order on Aug. 23 prohibiting the parties and possible witnesses from public comments on the case to prevent tainting the jury pool.
The case is U.S. v. Clemens, 10-cr-00223, U.S. District Court, District of Columbia (Washington).
Sanofi’s Bid to Block Lovenox Copy Denied by Judge
U.S. District Judge Emmet Sullivan in Washington denied the request, which would have forced the regulator to suspend its approval of the lower-cost copy produced by Novartis AG’s Sandoz unit with Momenta Pharmaceuticals Inc.’s technology. The court didn’t rule on the merits of Sanofi’s case, the Paris-based drugmaker said yesterday in a statement.
Lovenox, an injection that helps prevent blood clots, was Sanofi’s second-biggest product last year, accounting for about 10 percent of revenue. Sanofi said on July 26 that profit may fall this year after the FDA approved the generic version of Lovenox, which is given by injection to prevent clots in the legs or in vessels deep in the body.
“The company’s case against the FDA will continue to move forward,” Sanofi said in the statement. “Sanofi-Aventis believes that this case poses a number of significant questions regarding the FDA review process for complex pharmaceutical products which are important to pursue.”
Novartis, based in Basel, Switzerland, and Momenta, a biotechnology company in Cambridge, Massachusetts, won U.S. approval in July for a copy of Lovenox, ending a five-year wait to challenge the $3.9 billion-a-year product.
The case is Sanofi-Aventis U.S. LLC v. Food and Drug Administration, 10cv1255, U.S. District Court for the District of Columbia (Washington).
AIG’s Greenberg Agrees to $90 Million Settlement
American International Group Inc.’s former top executive Maurice “Hank” Greenberg agreed to a $90 million settlement of lawsuits alleging he deceived investors while running the insurer, according to a court filing.
The insurers that cover AIG’s executives agreed to pay the money to resolve claims that Greenberg, the former chief executive officer, and other officials used accounting tricks and fraudulent schemes to disguise problems, according to the filing yesterday in Delaware Chancery Court. The money is being paid to AIG and not individual investors as part of the agreement.
The settlement in the case, a so-called derivative suit filed by investors against executives and directors on behalf of the company, comes a month after AIG agreed separately to pay $725 million to investors who lost money amid the company’s share decline. In 2008, AIG accepted a U.S. government bailout that has swelled to $182.3 billion.
“We are pleased this matter has been satisfactorily resolved,” Mark Herr, an AIG spokesman, said in an e-mail.
AIG said in November that it settled all legal disputes with Greenberg and would reimburse as much as $150 million in fees. Greenberg and the insurer agreed not to make disparaging statements about each other.
Lee Wolosky, a lawyer for Greenberg, didn’t immediately return call and e-mail seeking comment.
The Delaware case is American International Group Inc. Consolidated Derivative Litigation, CA769-VCS, Delaware Chancery Court (Wilmington).
SEC Wins $20 Million Judgment Against FTC Capital
The U.S. Securities and Exchange Commission won a judgment of more than $20 million against FTC Capital Markets Inc., a broker-dealer that allegedly defrauded Citgo Petroleum Corp. and its parent PDV Holdings Inc.
U.S. District Judge Paul Gardephe yesterday found FTC and its Chairman Guillermo Clamens jointly liable for a $20,931,533 judgment. FTC didn’t admit or deny the allegations of the SEC complaint in consenting to the judgment.
Clamens, who was also charged criminally by federal prosecutors in the office of Manhattan U.S. Attorney Preet Bharara, was ordered as well to pay $1.7 million in interest and penalties, the judge said.
At the time the indictment was announced last year, U.S. prosecutors said Clamens was a fugitive. A person with familiarity of the case said he remains at large.
The SEC alleged in its civil suit filed last year that though FTC Capital and its FTC Emerging Markets affiliate, Clamens defrauded Citgo and PDV “to conceal their prior fraudulent sale of $50 million in non-existent notes to a Venezuelan bank.” Both companies are owned by the Venezuelan government.
Prosecutors charged in their criminal case that Clamens operated a $22 million investment fraud. Prosecutors said he solicited $1.5 billion from two institutional investors and promised to place their money in safe, liquid short-term investments, according to the indictment.
Instead, he used the money to buy high-risk securities, including bonds issued by an affiliate of his firm, the indictment says.
William Brodsky, a lawyer at New York’s Fox Horan & Camerini who represents FTC, didn’t immediately return a voice- mail message left at his office seeking comment.
The case is SEC v. FTC Capital, 09-cv-4755, U.S. District Court, Southern District of New York (Manhattan).
Afghanistan Contractor Ex-Worker Says He Took Bribes
A former employee of a U.S. contractor in Afghanistan pleaded guilty to accepting $200,000 in bribes in return for steering work to companies doing business with the U.S. military.
Daniel Freeman, 38, of Hempstead, New York, told a U.S. magistrate judge in Manhattan that from 2007 to 2009, he accepted the gratuities while working in Afghanistan for a U.S. military contractor later identified as KBR Inc. He also said he laundered the money he received by sending the cash back to the U.S. in concealed transactions.
“I accepted illegal cash payments from Afghan-owned subcontractors for awarding contracts,” Freeman told U.S. Magistrate James Cott in Manhattan. “I instructed and directed other people to bring the money back into the United States. They had no knowledge of how I obtained the money. I did it to conceal the way I received the money.”
Cott said Freeman could have faced as long as 25 years in prison if convicted after trial of two charges of money laundering and accepting an illegal gratuity. The magistrate said that according to a plea agreement between the defendant and the government, Freeman faces 51 to 63 months in prison when he is sentenced by U.S. District Judge Colleen McMahon, who is presiding over the case.
“He’s accepted responsibility and he plans to live a law- abiding life,” John Meringolo, Freeman’s lawyer, said after yesterday’s hearing. “He’s very sorry for what he’s done.”
Freeman was allowed to remain free on a $150,000 personal- recognizance bond. Cott told him to return to court Nov. 18. No sentencing date was set.
While Freeman’s employer wasn’t named in court or in court papers, KBR Inc., the U.S. military contractor, later said the defendant was a former employee.
“KBR fully cooperated with the Department of Justice on this matter,” spokeswoman Heather Browne said in a statement.
Houston-based KBR, the U.S. Army’s largest contractor in Iraq, provides services such as housing, meals, laundry, showers, water purification and bathroom cleaning.
The U.S. said in court papers that as a contractor employee Freeman worked under the Army’s “Logistics Civil Augmentation Program, or LOGCAP” which provided meals, delivered mail and transported supplies and equipment for the military. Freeman’s employers hired subcontractors to assist with its contracts in foreign countries, the U.S. said.
Freeman worked in Afghanistan from September 2004 through May 2009 where it was his job to evaluate bids for sub- contracts, award bids and oversee the administration of the contracts, the U.S. said in court papers.
The case is U.S. v. Freeman, 10-CR-00766, U.S. District Court, Southern District of New York (Manhattan).
Ex-BDO Seidman Partner Favato Convicted of Tax Crimes
Stephen A. Favato, a former partner at New York-based auditor BDO Seidman LLP, was convicted by a federal jury in Newark, New Jersey, of two U.S. tax crimes for helping a client falsify his returns.
He was found guilty yesterday of one count of obstructing the administration of Internal Revenue Service laws and one count of aiding the preparation of a false tax return. He faces as many as three years in prison on each count. He was acquitted on one count of tax evasion at a trial that began Aug. 17.
Prosecutors showed jurors that Favato, 36, formerly a partner in BDO Seidman’s office in Woodbridge, New Jersey, advised client Daniel Funsch to include false items on joint tax returns in 2002, 2003 and 2004, according to a Justice Department statement. Favato gave advice that “enabled Funsch fraudulently to deduct his personal yacht expenses as business expenses,” according to the statement.
Funsch, chief executive officer of Intarome Fragrance & Flavor Corp. in Norwood, New Jersey, pleaded guilty in 2006 to conspiracy and tax evasion, court records show. Funsch, who has not been sentenced, testified as a prosecution witness against Favato, according to his attorney, Robert Mintz of McCarter & English LLP in Newark.
“I was very disappointed in the verdict,” said Favato attorney Alan Zegas. He said he will ask the judge for a new trial and said he will appeal if the request is denied.
After Favato’s indictment in April 2009, he was placed on a leave of absence, BDO Seidman spokesman Jerry Walsh said in an e-mailed statement. A month later, his partnership interest was terminated, Walsh said.
“BDO cooperated fully with the investigation of this matter, which involved the preparation of income tax returns containing false deductions primarily relating to a yacht which the taxpayer maintained for personal use,” Walsh said.
U.S. District Judge Stanley Chesler set sentencing for Dec. 15, court records show.
The case is U.S. v. Favato, 09cr237, U.S. District Court, District of New Jersey (Newark).
Stryker to Pay $1.35 Million to Settle Coakley Claims
Stryker Corp., a maker of artificial hips and knees, will pay $1.35 million to settle claims it marketed items without regulatory approval and misled health care providers about the use of its products, the Massachusetts attorney general said.
Stryker’s biotech unit engaged in unfair and deceptive trade practices that boosted sales of products used to strengthen and promote growth of bones, Massachusetts said in a filing in state court in Boston.
“Stryker Biotech subverted review procedures designed to safeguard patients and promoted uses of its products that were not shown to be safe or effective,” Martha Coakley, the attorney general, said yesterday in a statement.
In October 2009, the biotech unit and former president Mark Philip were indicted by a federal grand jury for misleading the U.S. Food and Drug Administration about the use of the products. Philip, who was president from 2004 to 2008, was accused along with three sales managers of promoting therapeutics in a manner contrary to their FDA-approved use. They pleaded not guilty, according to the case docket.
As part of the Massachusetts settlement, Kalamazoo, Michigan-based Stryker didn’t admit any liability, the company said in an e-mailed statement.
Under the agreement, Stryker will pay $325,000 in civil penalties, $875,000 to fund efforts to combat unlawful marketing and other programs to benefit health-care consumers, and $150,000 to cover attorney fees and investigative costs. The company reported 2009 revenue of $6.72 billion.
The case is Commonwealth of Massachusetts v. Stryker Biotech LLC, 10-3365, Massachusetts Superior Court, Suffolk County (Boston).
Undisclosed Stanford Loans Prove Fraud, Examiner Says
Stanford International Bank Ltd.’s $1.7 billion in undisclosed loans to indicted financier R. Allen Stanford are proof the bank was involved in fraud, a examiner testified in a U.S. court trial in Houston.
“There’s a complete disconnect between what the bank is saying, that it has fully liquid, short-term, fully monetized assets, and the fact a third of these assets are loans to the shareholder,” fraud accountant Mark Berenblut said yesterday.
Berenblut made the statement in his second day of testimony in a civil trial over whether directors’ and officers’ insurance sold to Stanford’s businesses by Lloyd’s of London is voided by alleged criminal conduct.
Investors bought more than $7 billion in certificates of deposit from the Antiguan bank, which Stanford controlled as sole shareholder until the U.S. Securities and Exchange Commission sued the financier in February 2009, and seized his businesses.
Stanford and three other company executives in June 2009 were indicted by a federal grand jury in Houston on charges they’d run a $7 billion fraud scheme centered on the sale of certificates of deposit by the Stanford bank.
Lloyd’s last year rejected the executives’ pleas for coverage under the $100 million worth of insurance bought by the business after Stanford Group Cos. Chief Financial Officer James M. Davis pleaded guilty to charges he aided in the scheme.
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).
Lehman, GLG Fund Denied Appeal in U.K. Client-Money Dispute
Lehman Brothers Holdings Inc. and a GLG Partners Inc. fund were denied permission to appeal a ruling over access to billions of dollars deposited with the collapsed bank’s U.K. unit that wasn’t properly protected in separate accounts.
The U.K. Court of Appeal ruled earlier this month that the unit’s administrator, PricewaterhouseCoopers LLP, must identify all client money that wasn’t properly segregated from the bank’s other funds and pool it with accounts that were kept separate. Clients can claim from the pool, whether their money was separated or not, according to the judgment.
LBHI, Lehman Brothers Inc., GLG Investments Plc Sub-Fund: European Equity Fund and the bank’s U.K. unit, Lehman Brothers Europe International, had sought to have that decision overturned, LBIE’s administrators at PricewaterhouseCoopers LLP said on Aug. 2. The parties can still ask the U.K. Supreme Court to hear an appeal on the interpretation of the Financial Services Authority’s rules, the appeals court ruled yesterday.
“The questions are undoubtedly of great importance to the parties to these proceedings and could have wide implications,” the appeals court judgment said. “However, we consider that the Supreme Court is best placed to consider the public importance of these issues. We therefore refuse permission, but we would respectfully add for the assistance of the Supreme Court that we consider that the applications are worthy of serious consideration.”
PwC spokeswoman Stephanie Howel declined immediately to comment. CRC Credit Fund Ltd., a fund of New York and London- based Christofferson Robb & Co. that acted on behalf of clients whose money wasn’t segregated, said in an e-mailed statement it doesn’t believe there are realistic chances of an appeal succeeding.
The case is Lehman Brothers International (Europe) (In Administration) v. CRC Credit Fund Ltd. & ors, case no. A2/2010/0113, 0114, 0119, 0121, High Court of Justice Court of Appeal.
Rod Blagojevich May Face January Retrial in Chicago
Rod Blagojevich, the former Illinois governor whose criminal corruption trial ended with his conviction on one count and a hung jury on 23 others, may face a retrial in January.
U.S. District Judge James Zagel in Chicago said in court yesterday that he hopes a retrial will begin the first week of January. The hearing was the first after the twice-elected Democrat was found guilty Aug. 17 of lying to Federal Bureau of Investigation agents about his knowledge of fundraising done by his campaign committee.
Blagojevich, 53, is accused by U.S. prosecutors of linking official acts, including the selection of a U.S. Senator to replace President Barack Obama, to political donations and personal favors. He has denied the allegations.
Assistant U.S. Attorney Reid Schar told Zagel that the government would exercise its prosecutorial discretion, and not retry Blagojevich’s brother, who was accused of conspiring with the ex-governor. Jurors failed to reach a verdict on any of the four counts against him.
Robert Blagojevich’s attorney, Michael Ettinger of Palos Hills, Illinois, left the courtroom immediately after that announcement. He didn’t return a phone message seeking comment on the dismissal.
A jury of six men and six women on Aug. 17 found Blagojevich had lied to the federal agents. They couldn’t reach a unanimous decision on the remaining 23 counts, which included racketeering, attempted extortion and wire fraud. Zagel declared a mistrial on those counts. Prosecutors immediately said they would seek to retry him.
Blagojevich, who is free on bail, faces as much as five years imprisonment on the one conviction. The prior trial started June 3. The jury deliberated for 14 days before declaring itself deadlocked.
The case is U.S. v. Blagojevich, 08-cr-00888, U.S. District Court, Northern District of Illinois (Chicago).
Ernst & Young Sued by Investors in Parkcentral Funds
Investors in Parkcentral Capital Management LP hedge funds, whose investments were wiped out in 2008, sued Ernst & Young LLP, accusing the accounting firm of fraud in its role as the funds’ auditor.
Ernst & Young concealed information and “facilitated, assisted in and participated in” securities fraud by the managers of the funds, the investors claimed in a complaint filed August 25 in state court in Houston.
“E&Y was supposed to be auditing Parkcentral, but the audited financial statements never once warned Parkcentral’s investors of their impending doom,” Demetrios Anaipakos, an attorney for the investors, said in a statement yesterday.
Parkcentral, based in Plano, Texas, marketed its funds by saying its money managers had invested for billionaire and former presidential candidate Ross Perot and his family, according to the lawsuit. The Parkcentral Global Hub Ltd. fund lost more than $2.6 billion due to a “catastrophic and concentrated risk in a single investment strategy,” according to the complaint.
Charles Perkins, a spokesman for New York-based Ernst & Young, declined to comment.
The investors suing the company are Brown Investment Management LP, MBB Ventures LLC, SBS Ventures LLC, Thomas R. Brown Family Private Foundation and Gus Comiskey. They lost a total of $17 million invested in two Parkcentral funds that went into liquidation, according to the complaint, and seek actual and punitive damages.
The case is Brown Investment Management LP v. Ernst & Young LLP, 10-53393, Harris County District Court (Houston).
Sutter Health Accused of Plundering $120 Million From Hospital
Sutter Health Co., the 24-hospital system that is Northern California’s largest, was sued over claims it plundered more than $120 million from Marin General Hospital before the facility returned to public control in June.
Sutter managed the 235-bed Marin General under contract with Marin County’s health-care district starting in 1996 and agreed in 2006 to transfer it back to the district in 2010. After the agreement, nonprofit Sutter swept funds from the hospital’s accounts in periodic withdrawals, according to the complaint, filed yesterday in state court in San Rafael.
Marin General is alleging that those cash transfers, and Sutter’s mismanagement of the hospital over the last four years, violated Sutter’s fiduciary and charitable trust duties and imperiled the Greenbrae, California, facility’s competitiveness and “financial future.”
“Sutter asked Marin General for a ‘divorce,’ and then decided they’d clean out the bank account before the divorce became final,” the hospital’s lawyer, James J. Brosnahan of Morrison & Foerster, said in an e-mailed statement.
Kathie Graham, a spokeswoman for Sacramento, California- based Sutter, said there is no basis for Marin General’s claims and that Sutter “complied in all respects” with its legal obligations.
“Sutter Health will now vigorously defend itself and will likewise vigorously pursue all claims against the Marin Healthcare District,” Graham said in an e-mail.
Sutter, with 48,000 employees, was among the most profitable hospital groups in the U.S. in 2009, with income of $697 million, up more than three-fold from 2008 due to large investment gains, on revenue that grew 6 percent to $8.8 billion.
The case is Marin General Hospital Corp. v. Sutter Health, 1004539, Superior Court of California, Marin County (San Rafael).
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Weinstein Gets Bail in $200 Million Ponzi Scheme
Eliyahu Weinstein, a New Jersey man charged with leading a $200 million Ponzi scheme that targeted fellow Orthodox Jews, was granted $10 million bail yesterday by a U.S. judge.
Weinstein, 35, was accused Aug. 12 of running a real-estate investment fraud that duped victims in New Jersey, New York, Florida, California and abroad.
Weinstein, who faces as many as 50 years in prison, has been in custody since his arrest. A prosecutor opposed bail for Weinstein, saying he poses a “profound” risk of fleeing if released before trial.
The bond must be secured by four properties with $4.2 million in equity. Weinstein must live under 24-hour house arrest in Lakewood, New Jersey, and undergo electronic monitoring with a global positioning system, said U.S. Magistrate Judge Mark Falk. Weinstein also can’t go near any airports.
“There’s no question that given the circumstances here, there is a risk of flight,” Falk said in federal court in Newark, New Jersey. “While none of this is foolproof, it certainly is the best that is available and would impose a serious obstacle to someone trying to fly out of the country.”
Weinstein was charged with committing bank fraud and wire fraud from 2005 to this month. Vladimir Siforov, 43, who was charged with wire fraud, remains at large.
New victims come forward daily, and the fraud caused “at least a $200 million loss,” Assistant U.S. Attorney Zach Intrater said yesterday at the bail hearing. “The vast bulk of this money is missing, and the number keeps climbing.”
The case is United States of America v. Weinstein, 10-mj- 7115, U.S. District Court, District of New Jersey (Newark).
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