Charles O. “Chuck” Prince and Robert Rubin were among Citigroup Inc. officials who knew 2007 losses were mounting on mortgage assets that U.S. regulators have faulted the bank for not disclosing, a court filing shows.
Prince, the bank’s chief executive officer at the time, and Rubin, then-chairman, knew the highest-rated segments of subprime mortgage-backed securities were the source of about $200 million in new losses in October 2007, the Securities and Exchange Commission said yesterday in a filing at federal court in Washington. In July, the agency accused the bank and two other executives of failing to disclose $40 billion in subprime assets before losses surged. It didn’t target Prince and Rubin.
U.S. District Judge Ellen Huvelle asked the agency last month to explain what senior executives knew as she considers approving Citigroup’s $75 million settlement with the regulator. The agency’s identification of Prince and Rubin may trigger questions from the judge about why the agency didn’t bring claims against more people, said Peter Henning, a professor at Wayne State University Law School in Detroit.
“How aware were they is always an open question in these kinds of cases,” said Henning, a former SEC lawyer. “The SEC should have provided investors a little more assurance that senior management will be held accountable in these cases.”
In a filing, the SEC said two executives it targeted -- former Chief Financial Officer Gary Crittenden, 57, and former investor relations chief Arthur Tildesley -- were “more closely” tied to misleading disclosures than anyone else.
SEC spokesman John Nester and Citigroup spokeswoman Shannon Bell declined to comment. Adam Miller, a spokesman for Rubin, 72, didn’t return messages. Prince, 60, didn’t respond to emails and a message at his office after business hours.
Former Chief Risk Officer David Bushnell, 56, and General Counsel Michael Helfer, 65, were among other executives who knew the source of the mounting losses, according to the agency’s filing. Bushnell couldn’t be reached by phone at home.
Judge Huvelle gave Citigroup until Sept. 13 to submit a filing, and scheduled a Sept. 24 hearing.
The case is Securities and Exchange Commission v. Citigroup Inc., 10-cv-01277, U.S. District Court, District of Columbia (Washington).
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Goldman Fined $27 Million for U.K. Reporting Lapses
Goldman Sachs Group Inc.’s London unit was fined 17.5 million pounds ($27 million) for failing to notify the U.K.’s financial regulator about a U.S. Securities and Exchange Commission investigation.
Goldman Sachs agreed to pay $550 million in July to settle the SEC’s fraud lawsuit over how it marketed a collateralized debt obligation. The Financial Services Authority fined the New York-based bank today for failing to report to U.K. regulators the U.S. investigation that led to the suit, according to an FSA statement. The firm qualified for the agency’s standard 30 percent discount for cooperating.
“GSI did not set out to hide anything, but its defective systems and controls meant that the level and quality of its communications with the FSA fell far below what we expect,” FSA enforcement chief Margaret Cole said in the statement.
The SEC sued Goldman Sachs and employee Fabrice Tourre in April over claims the firm misled investors in a collateralized debt obligation linked to subprime mortgages, known as the Abacus transaction. The FSA said in April it would investigate Goldman Sachs International in London after the SEC filed its lawsuit. Gordon Brown, the prime minister at the time who was facing a May election, called on the FSA to investigate.
Goldman Sachs created and sold the CDOs in 2007, as the U.S. housing market faltered, without disclosing that hedge fund Paulson & Co. helped pick the underlying securities and bet against the investment vehicles, the SEC said in the April 16 lawsuit. CDOs are pools of assets such as mortgage bonds packaged into new securities.
“We’re pleased the matter is resolved,” Goldman Sachs spokeswoman Fiona Laffan said following the FSA announcement. Tourre “remains an employee on paid leave,” she said.
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Ex-Citigroup Broker Is Fined $500 in Squawk-Box Case
Former Citigroup Inc. stockbroker Ralph Casbarro was fined $500 and received no prison sentence or probation for his involvement in a scheme to let day traders eavesdrop on internal conversations over brokers’ “squawk boxes.”
Casbarro, 48, was fined yesterday by U.S. District Judge I. Leo Glasser in Brooklyn, New York. Casbarro pleaded guilty in 2005 to one count of conspiracy to commit securities fraud. He was fired by Citigroup before being indicted.
“I know what I did was wrong without a shadow of a doubt and I’m sorry for it,” Casbarro told the judge.
Kenneth Mahaffy Jr., a former broker at Merrill Lynch & Co. and Citigroup, and five co-defendants were found guilty in the case in April 2009. Mahaffy was sentenced to two years in prison in December. In July, the men lost a bid to have their convictions tossed, after claiming that prosecutors hid evidence of their innocence.
Glasser criticized the government for putting off Casbarro’s sentencing for so long.
“This has been five years since Mr. Casbarro pleaded guilty,” the judge said. “Is that really part of the sentence that has already been imposed?”
Assistant U.S. Attorney Jonathan Green said Casbarro agreed to the delays as part of his cooperation accord with prosecutors. Casbarro gave important assistance to the government, prosecutors said, though they didn’t call him to testify against his co-defendants.
The case is U.S. v. Mahaffy, 05-cr-00613, U.S. District Court, Eastern District of New York (Brooklyn).
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Coca-Cola Enterprises Settles Suits Over Buyout
The Atlanta-based companies will release more information about the transaction, reduce a possible termination fee to $180 million from $200 million and pay as much as $7.5 million in legal fees, according to papers made public yesterday in Delaware Chancery Court in Wilmington.
Defendants “have denied and continue to deny that they have committed or aided and abetted in the commission of any violation of the law” or any wrongful acts, lawyers said in settlement papers.
Coca-Cola Co., the world’s biggest soda maker, said Feb. 25 it would buy the North American operations of bottler Coca-Cola Enterprises for $10 and 1 share of a new bottling company for each Coca-Cola Enterprises share.
Coca-Cola Enterprises shareholders filed lawsuits in Fulton County, Georgia, and the Delaware court challenging the buyout price. The parties agreed to settle the cases in part because of the “time and expense” of pursuing the claims and “the uncertainties inherent in such litigation,” lawyers said in a Memorandum of Understanding.
Laura Brightwell, a spokeswoman for Coca-Cola Enterprises, wasn’t available to respond to a phone call seeking comment on the settlement, which must be approved by a judge.
“We are pleased with the settlement,” Kenth Kaerhoeg, a director of corporate media relations at Coca-Cola Co. said in an e-mail. “We continue to expect a fourth-quarter close, on track and on plan with our original timeline.”
The Delaware case is In re Coca-Cola Enterprises Inc. Shareholder Litigation, CA5291, Delaware Chancery Court (Wilmington). The Georgia case is In re Coca-Cola Co. Shareholder Litigation, CA 2010CV182035, Superior Court of Fulton County, State of Georgia (Atlanta).
Indian Court Dismisses Vodafone’s Tax Claim Challenge
The Bombay High Court dismissed Vodafone Group Plc’s challenge of a tax claim exceeding $2 billion after the court ruled Indian authorities have the right to pursue the case.
Indian tax authorities have the jurisdiction to seek taxes from Vodafone International Holdings BV on its 2007 purchase of Hutchison Whampoa Ltd.’s wireless operations in the country, Judges D.Y. Chandrachud and J.P. Devadhar said. India’s tax department had argued the world’s biggest mobile-phone company failed to withhold taxes on its acquisition of Hutchison’s stake in Hutchison Essar Ltd., or HEL.
The ruling is a setback for Vodafone in a case seen by investors as a test of India’s tolerance toward the use of tax havens for acquisitions, according to Akil Hirani, a managing partner at Mumbai-based law firm Majmudar & Co. Britain’s Prime Minister at the time Gordon Brown wrote in December to his Indian counterpart Manmohan Singh that taxing cross-border deals such as Vodafone’s could create uncertainty for foreign investors and affect the country’s investment climate.
The court directed tax authorities to not issue a final order on its claim for a period of eight weeks and allowed Vodafone 12 weeks to appeal the ruling.
Vodafone is reviewing the judgment and is likely to appeal the ruling, spokesman Ben Padovan said by telephone.
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German Gambling Monopoly Is Unjustified, EU’s Top Court Rules
Germany’s state monopoly on sports-betting and lotteries risks being struck down after the European Union’s highest court said the country’s current rules are incompatible with EU law.
Germany can’t block betting companies such as Bwin Interactive Entertainment AG from providing betting services while allowing public monopolies to “carry out intensive advertising campaigns” to maximize lottery profits, the European Court of Justice in Luxembourg said yesterday. Shares in Bwin rose the most in more than a month after yesterday’s rulings.
“We are delighted with today’s rulings,” Katharina Riedl, a spokeswoman for Vienna-based Bwin, said in a telephone interview, calling the decisions “trend setting.” “This is a historic opportunity to change German gambling regulation,” following the examples of the U.K., France and Italy, she said.
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Former GE Unit Executive Sues Company for $10 Million
General Electric Capital Services was sued by a former executive who claims he was forced out for questioning the company’s treatment of an asset.
Edward Gormbley, who worked for GE Capital from 2000 until he quit in September 2009, filed his suit yesterday in state court in Stamford, Connecticut. The complaint also names parent General Electric Co. and its chief executive officer, Jeffrey Immelt.
Gormbley said he was punished for challenging the valuation of silicon-maker Momentive Performance Materials, an investment asset. GE Capital overstated Momentive’s value in December 2008 to improve its own balance sheet, he said. Valuing the asset correctly would have reduced “GE Capital’s earnings 100 percent,” in the fourth quarter that year, according to the complaint.
“Mr. Gormbley refused to play GE’s game and just ‘get along,” according to the filing. “GE and GE Capital’s response was direct, unmistakable and as subtle as a hangman’s noose.”
Gormbley said he was shorn of responsibilities, was downgraded in employee evaluations and had his annual bonus slashed, effectively forcing him out of the company. He resigned in September 2009 and is seeking $10 million in damages.
“The allegations in Mr. Gormbley’s complaint are meritless,” Russell Wilkerson, a spokesman for Fairfield, Connecticut-based GE, said in an e-mailed statement. “The company will vigorously defend itself against these baseless assertions.”
The case is Gormbley v. General Electric Co., FST-CV10- 6006588-S, Connecticut Superior Court (Stamford).
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UnitedHealth Faces as Much as $9.9 Billion in Fines
UnitedHealth Group Inc., the biggest U.S. health insurer, faces as much as $9.9 billion in fines in California over allegations its PacifiCare Life and Health Insurance unit failed to properly handle claims.
The California Department of Insurance, which first brought the enforcement case in 2008, now claims 993,000 violations, including 443,000 instances in which the insurer failed to inform providers they could seek review of denied claims, according to court filings. PacifiCare faces a fine of as much as $10,000 per violation if it is found to be willful.
The case is pending before an administrative law judge in Oakland, California, Ioannis Kazanis, a spokesman for the insurance department, said yesterday in a telephone interview.
“The California Department of Insurance’s allegations concerning claims processing by PacifiCare are simply not true,” Cheryl Randolph, a spokesman for Cypress, California- based PacifiCare, said in a statement. “By all objective measures, PacifiCare pays its claims timely and accurately.”
More than 90 percent of the alleged violations are administrative in nature, Randolph said. The vast majority pertains to failure to include “certain language” in standard claims correspondence during a four-month period in 2007, she said.
California regulators said they had found 130,000 violations when they first brought the action against PacifiCare, which UnitedHealth acquired in 2005. The state alleges PacifiCare wrongfully denied claims, made incorrect payments, was too slow to acknowledge receipt of claims, and took too long to address appeals and disputes, among other alleged violations.
The case is In the matter of PacifiCare Life and Health Insurance Co., UPA 2007-00004, Before the Insurance Commissioner of the State of California.
Roger Clemens Argues McNamee’s Suit Should Be Tossed
A lawyer for Roger Clemens urged a judge to throw out a lawsuit in which the former Major League Baseball pitcher is accused of defamation by his onetime trainer, Brian McNamee.
McNamee’s complaint fails to state claims he can sue over, and Clemens didn’t defame him, Rusty Hardin argued at a hearing yesterday before U.S. District Judge Sterling Johnson Jr. in Brooklyn, New York.
“Mr. McNamee is suing Mr. Clemens because Mr. Clemens has consistently denied that Mr. McNamee committed a crime” by injecting him with illegal drugs, the lawyer said.
Clemens, 48, defamed McNamee by alleging that McNamee lied when he told investigators the former New York Yankees pitcher used steroids, the trainer said in the suit, filed last year.
The ballplayer was indicted last month by a federal grand jury in Washington on charges that he lied to the U.S. Congress in denying he used steroids and human growth hormone to boost his performance. He pleaded not guilty on Aug. 30 and a trial was set for April.
Clemens wasn’t in the courtroom for yesterday’s hearing.
Johnson said he’d rule on the dismissal request at a later date. Hardin, of Houston, told the judge that if his motion is denied, he’ll ask to freeze the suit until the criminal case is resolved. Richard D. Emery, a lawyer for McNamee, said he probably wouldn’t oppose that request.
The defamation case is McNamee v. Clemens, 09-1647, U.S. District Court, Eastern District of New York (Brooklyn). The criminal case is U.S. v. Clemens, 10-cr-00223, U.S. District Court, District of Columbia (Washington).
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Pfizer Unit Denied Permission to Exit Bankruptcy
Pfizer Inc.’s Quigley unit, a former asbestos maker, was denied permission to exit bankruptcy by a judge who found the world’s largest drug company manipulated the bankruptcy process to benefit itself.
U.S. Bankruptcy Judge Stuart M. Bernstein in New York yesterday rejected Quigley’s fourth reorganization plan and said parties should discuss dismissal of the case. He said the plan was filed in “bad faith” by Pfizer and cited testimony that asbestos claims directed at Quigley could total $4.45 billion over the next 42 years.
“In a nutshell, Pfizer bought enough votes to assure that any plan would be accepted,” Bernstein wrote.
In a 90-page ruling that covers Pfizer’s failed attempts to deal with its growing asbestos liabilities since June 1985, Bernstein noted that a lawyer who represented both Quigley and Pfizer settled claims against Quigley and got releases for Pfizer at no additional cost.
Settling claimants were then given a financial incentive to vote in favor of Quigley’s bankruptcy plan through a series of legal moves before and after the bankruptcy filing, the judge wrote.
“We are disappointed in the court’s ruling as we continue to believe that Pfizer has no liability for Quigley’s conduct,” a Pfizer spokesman, Chris Loder, said in a telephone interview.
The case is In re Quigley Co., 04-15739, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
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Boeing Unit Wins Dismissal of Torture Flights Case
A lawsuit alleging a Boeing Co. unit disguised the delivery of suspected terrorists to secret prisons where they were tortured was dismissed by a U.S. appeals court.
An 11-judge panel of a San Francisco-based appeals court overruled a finding by a three-judge panel that a lower-court judge was wrong to dismiss the case based on government claims that the litigation might reveal state secrets.
Douglas Letter, a Justice Department lawyer, argued in December to the 11-judge panel that classified information confirming or denying the Boeing unit’s relationship with the Central Intelligence Agency may be revealed if the case proceeds.
Ben Wizner, a lawyer at the American Civil Liberties Union, which filed the case, claimed the government inappropriately relied on a classified statement by General Michael Hayden, the former Central Intelligence Agency director, to get the case dismissed prematurely.
The case is Mohamed v. Jeppesen, 08-15693, U.S. Circuit Court of Appeals for the Ninth Circuit (San Francisco).
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