Mark Cuban, the billionaire owner of the Dallas Mavericks, must face insider-trading allegations that were dismissed last year by a lower-court judge, an appeals court ruled.
The federal appeals panel in New Orleans overturned the lower-court ruling in a decision yesterday. In a 2008 lawsuit, the U.S. Securities and Exchange Commission accused Cuban of trading on confidential information when he sold his stake in Mamma.com Inc., a Canadian internet search company, just before it announced a private placement of shares.
Cuban argued he had no legal obligation not to sell the stock after Guy Faure, then Mamma.com’s chief executive officer, told him of the impending private offering of below-market shares in a 2004 telephone call. Cuban sold ahead of the deal, which diluted the company’s shares by 8.5 percent.
“The allegations, taken in their entirety, provide more than a plausible basis to find that the understanding between the CEO and Cuban was that he was not to trade, that it was more than a simple confidentiality agreement,” the panel of judges said.
The agency claimed Cuban agreed with Faure at the beginning of their call to keep the information confidential and told Faure after learning details of the plan, “Well, now I’m screwed. I can’t sell.”
Stephen Best, one of Cuban’s attorneys at Dewey & LeBoeuf LLP, said it appears the appeals court accepted the argument that a confidentiality agreement alone isn’t proof of wrongdoing.
“The uncontradicted record in this case is devoid of any information suggesting any agreement imposing a fiduciary-like responsibility on Cuban,” he said. The SEC is “pleased” with the decision, spokesman John Nester said in a statement.
The case is SEC v. Cuban, 09-10996, 5th U.S. Circuit Court of Appeals (New Orleans).
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Monster Backdating Case May Spur Ruling on Reporters’ Rights
A former Monster Worldwide Inc. executive’s appeal of a fraud conviction for backdating stock options may wind up generating a decision on when reporters can be forced to testify at criminal trials.
James Treacy’s lawyers argued in the U.S. Court of Appeals in New York yesterday that he was denied his right to a fair trial when the judge hearing his case limited the cross- examination of Charles Forelle, a reporter for the Wall Street Journal. Forelle, forced to testify by the government, told jurors about comments Treacy made to him in an interview. The Journal’s stories helped trigger a national stock option backdating probe.
News Corp.’s Dow Jones unit, owner of the Journal, is using the case to obtain a ruling that protects reporters from government subpoenas. In a “friend of the court” brief, the publisher said the First Amendment is threatened when journalists are compelled to testify about their reporting. The company wants the appeals court to spell out strict guidelines for when federal prosecutors may call reporters as witnesses.
Treacy, who was Monster’s chief operating officer, was convicted of conspiracy and securities fraud for backdating employee stock options to days when the share price was at or near a periodic low, and not disclosing it in public filings.
The trial court case is U.S. v. Treacy, 1:08-cr-00366, U.S. District Court, Southern District of New York (Manhattan). The appeal is U.S. v. Treacy, 09-3939-cr, U.S. Court of Appeals for the Second Circuit (Manhattan).
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EU Court Says Access to Legal Documents Limited Until Judgment
European Union agencies can restrict public access to documents they file in lawsuits until after cases are decided, the EU’s highest court ruled.
The European Commission and other EU agencies pleading cases at the European Court of Justice can withhold their filings until a final judgment is issued, the Luxembourg-based court ruled yesterday.
The commission, the EU’s executive agency can “refuse an application for access to documents, without being under an obligation to undertake a specific examination,” an 11-judge panel said.
Lawyers for the International Press Association, which represents foreign reporters in Belgium, initiated the case arguing that access to such documents is in the public interest. The group rejected as “purely hypothetical” the commission’s concerns that release of the documents may “adversely affect” judicial proceedings. In 2007, a lower EU court clarified that the document restrictions may be lifted once a ruling is given.
The court rejected the lower court’s position that the commission and other EU bodies may be under an obligation to give access to their filings after a hearing and before a final ruling, saying that could undermine pending cases.
“Disclosure of the pleadings in question would have the effect of exposing judicial activities to external pressure, albeit only in the perception of the public, and would disturb the serenity of the proceedings,” the court said.
The cases are C-514/07 P Sweden v. API and Commission, C- 528/07 P API v. Commission, C-532/07 P Commission v. API.
Lernout to Appeal Conviction for Accounting Fraud, Lawyer Says
Jo Lernout, the co-founder of Lernout & Hauspie Speech Products NV sentenced Sept. 20 to five years in prison for accounting fraud, will appeal his conviction before Belgium’s highest appeals court, his lawyer said.
Lernout’s rights of defense were “violated,” because he was denied a lower-court trial, Luc Gheysens, his lawyer, said in a telephone interview yesterday.
The 21 defendants in the LHSP trial had to appear before an appeals court directly because Dirk Cauwelier, a member of LHSP’s audit committee, was also a part-time judge at the commercial court. An appeal at Belgium’s Cour de Cassation automatically suspends the execution of Lernout’s prison sentence. Cauwelier was initially a defendant in the case before the court ruled that he was indicted too late to be prosecuted.
Lernout’s five-year jail sentence includes two years of probation.
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Citigroup’s Student Loan Unit Sued Over Discover Offer
Student Loan, based in Stamford, Connecticut, said Sept. 17 that it would be bought by Discover for $30 a share, a 40 percent premium over the previous day’s close.
The bank, which owns 80 percent of Student Loan, “is in desperate need to raise cash and divest non-core banking assets in the short term,” and the deal is “underpriced,” Alan R. Kahn said in a complaint filed yesterday in Delaware Chancery Court in Wilmington.
More than a score of Citigroup businesses were identified for sale following the New York-based bank’s $45 billion bailout in 2008.
“We believe this lawsuit is without merit, and we intend to vigorously defend our position,” Mark Rodgers, a Citigroup spokesman, said in an e-mailed message.
The case is Kahn v. The Student Loan Corp., CA5832, Delaware Chancery Court (Wilmington).
ANZ Sued by Customers Over Credit Card, Late Fees
Australia & New Zealand Banking Group Ltd., Australia’s third biggest lender by market value, was sued by customers seeking to recoup about A$50 million ($48 million) of bank charges.
IMF Australia Ltd., the country’s biggest litigation funder, said yesterday the class action, or group lawsuit, was filed in federal court in Melbourne on behalf of 27,000 of the bank’s customers. Maurice Blackburn Lawyers will ask the court to place the lawsuit on its “fast track” list, IMF said.
IMF is seeking to recoup all the fees, plus interest, that Australian bank customers paid in the past six years. The total may be as high as A$5 billion, James Middleweek, managing director at IMF’s Financial Redress Pty unit, said in May. So far, customers holding 213,000 accounts with claims exceeding A$250 million against 12 banks have joined the lawsuits, IMF said.
Paul Edwards, a spokesman for ANZ, didn’t respond to an e- mail requesting a comment.
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Executives to Face Court Reckoning as SEC Flexes New Power
Corporate executives are more likely to end up in court for their employees’ misconduct now that Congress has handed broader powers and more money to the U.S. Securities and Exchange Commission, Bloomberg News’ Joshua Gallu reports, citing former agency officials.
Since the start of the financial crisis, lawmakers, investors and judges have criticized the agency for giving bosses a pass while accusing companies of wrongdoing, as in recent cases involving Citigroup Inc. and Bank of America Corp. The Dodd-Frank regulatory act lowers the bar for filing fraud lawsuits against individuals and authorizes the SEC to double its spending within five years.
“The SEC is going to cast a much broader net to include people on the edge of a fraud,” said Steve Crimmins, a former trial attorney at the agency who is now at law firm K&L Gates LLP in Washington. “There will be legions more SEC cops on the beat and that will mean a lot more activity.”
Under Dodd-Frank, which was signed into law in July, the SEC can sue an individual who “recklessly” aids a fraud even if the person isn’t aware of the wrongdoing. Previously, lawyers had to show the person knowingly assisted the misconduct. The law also allows the agency to sue senior officers, directors or other people directly or indirectly accountable for the fraud.
While Dodd-Frank may make that easier, it may be too late for financial crisis cases, Crimmins said. “Had these standards been in place two or three years ago, we probably would have seen more individuals named in cases they’ve brought involving the financial crisis,” he said.
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SEC Insider Trading Case Against Nelson Obus Thrown Out
Hedge fund manager Nelson Obus won dismissal of case by the U.S. Securities and Exchange Commission claiming he made $1.34 million from an illegal tip about a 2001 merger.
U.S. District Judge George Daniels threw out the case against Obus, president of Wynnefield Capital Inc., and two other defendants, Thomas Strickland and Peter Black, on Sept. 20.
The SEC suit alleged that in May 2001, Strickland, a General Electric Capital Corp. employee, tipped his friend Black, a Wynnefield analyst, that SunSource Inc. was to be acquired by Allied Capital Corp.
Black passed the tip on to Obus, who used the information in his decision to buy SunSource stock for three hedge funds that he controlled, the SEC said.
“The SEC has not produced facts sufficient to prove that Strickland breached a duty to his employer, nor has it demonstrated the requisite degree of deceptive conduct on the part of any defendant,” Daniels said in a written opinion.
SEC spokesman John Heine had no immediate comment on the ruling.
The case is Securities and Exchange Commission v. Obus, 06- CV-3150, U.S. District Court, Southern District of New York (Manhattan).
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U.S. Seeks to Join Pfizer Whistleblower Lawsuit over Rapamune
The U.S. Justice Department is seeking to join a whistleblower lawsuit over Pfizer Inc.’s organ transplant drug Rapamune alleging the medicine was illegally marketed, according to court papers.
The government’s lawyers are asking a federal judge in Philadelphia to allow them to take over litigating claims that officials of Pfizer’s Wyeth unit pushed the drug for unapproved uses and specifically targeted black patients.
“This means the government had determined that some or all of the allegations in our complaint are merit worthy,” Reuben Guttman, a Washington-based lawyer representing two former Wyeth employees who filed suit over the practices, said in a telephone interview yesterday.
Rapamune is approved to help prevent the rejection of kidney transplants. The U.S. Food and Drug Administration last year found the drug may increase the risk of death and organ rejection if given during a liver transplant.
Pfizer officials said yesterday Rapamune’s warning label included “appropriate caveats” about how the drug could be used safely in connection with transplants.
“Pfizer has previously disclosed that the company is cooperating with the U.S. government regarding its review of Wyeth’s promotional practices involving Rapamune,” Raymond Kerins, a Pfizer spokesman, said in an e-mailed statement.
After investigating the whistleblowers’ claims about Wyeth’s Rapamune marketing tactics, Justice Department lawyers concluded they had “good cause to intervene” in the case, according to a court filing. U.S. District Judge John R. Padova in Philadelphia still must approve the government’s request to join the 2005 suit.
The complaint was filed by Marlene Sandler and Scott Paris, two former Wyeth sales reps, who claim the drugmaker “directed their entire Rapamune sales force” to promote the drug among physicians involved in heart, lung, liver and pancreas transplants. The drug hasn’t been approved for use in any of those transplants, according to the complaint.
The case is U.S. v. Wyeth Pharmaceuticals Inc, CA 05-6609, U.S. District Court, Eastern District of Pennsylvania (Philadelphia).
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Standard Chartered Wins Singapore Investment Suit Dismissal
Standard Chartered Plc won dismissal of a Singapore lawsuit by four persons claiming the bank misled them into buying certain investment products after a judge ruled there was a risk the trial may not be fair.
Singapore High Court Judge Tay Yong Kwang took the “draconian measure” of throwing out the complaint by Lee Chang Rung and three of his relatives, according to the Sept. 17 ruling made public yesterday. Lee, his brother, sister and brother-in-law concealed certain documents including not fully disclosing their previous investments in structured products to gain an “unfair tactical advantage,” Tay said.
The group claimed they were conservative investors who placed most of their money with American Express Bank Ltd. in fixed deposits. Lee and the others claimed that American Express, which has since been acquired by Standard Chartered, misrepresented that the investments they bought were safe and had guaranteed returns.
Lee and the other three complainants are appealing the decision, Tay said in his ruling.
“There is a serious risk that a fair trial may not be possible in the light of the hide and seek strategy adopted,” Tay said, adding there was no indication the claim against the bank will be pursued “honestly and fairly.”
Leonard Loo appeared for the group and Hri Kumar from Drew & Napier LLC represented Standard Chartered.
The case is Lee Chang Rung v. Standard Chartered Bank S212/2009 in the Singapore High Court.
Lehman Seeks Court Approval of $445 Million Accord with SocGen
The accord relates to swap transactions with two special- purpose entities, according to papers filed Sept. 20 in federal court in Manhattan.
“The settlement agreement avoids the inherent risk for the debtors in the current litigation against SG,” New York-based Lehman said in the filing. The creditors’ committee supports the accord, court papers show.
If the deal is approved, Lehman could potentially recover about $72 million more. The agreement would allow Lehman to pursue the remaining assets in Libra CDO Ltd. and MKP Vela CBO Ltd. against other parties to the swap transactions.
The case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
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Ex-UBS Client Gets Year’s Probation for False Returns
Jules Robbins, a former UBS AG client who pleaded guilty to five counts of filing false tax returns, was sentenced to one year of probation.
Robbins, an 84-year-old retired watch distributor from Jericho, New York, admitted in April that he failed to disclose almost $42 million held in an offshore UBS account.
“I want to convey to you my most sincere apology for not filing accurate federal tax returns,” Robbins said to U.S. District Judge Richard Holwell at a hearing yesterday in Manhattan. “I should have disclosed my UBS account in those federal tax returns.”
As part of an agreement with prosecutors, Robbins agreed to pay a $20.8 million civil penalty for failing to file foreign bank account report forms. The amount is 80 percent of Robbins’s net worth, his lawyer, Martin Perschetz, told Holwell. Holwell imposed an additional $2,000 criminal fine.
Perschetz, who said that Robbins is in fragile health and has already suffered punishment for the crime, asked Holwell for a sentence that didn’t include prison. Robbins asked the judge for mercy, breaking down several times as he told Holwell of the “shame, aggravation and sleepless nights during the past many months.”
The case is U.S. v. Robbins, 10-CR-333, U.S. District Court, Southern District of New York (Manhattan).
Sportingbet Rises After Reaching Agreement With U.S. Officials
Sportingbet Plc rose 10 percent in London trading after the U.K.-listed online betting company reached a non-prosecution agreement with U.S. authorities that would have it forfeit $33 million for its American Internet gambling operations between 1998 and 2006.
Chief Executive Officer Andrew McIver said the step should make it easier for the Guernsey-based company to raise funds, make acquisitions, and resume operations in the U.S. if it legalizes Web gambling.
Sportingbet and PartyGaming Plc are the only European online gambling companies to have signed agreements to avoid prosecution by the U.S. Sportingbet agreed to cooperate with the Federal Bureau of Investigation and a continuing probe by the Manhattan U.S. Attorney’s office, according to the agreement.
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Pioneer Food’s Antitrust Settlement May Exceed Provisions
Pioneer Foods Ltd., the South African maker of Sasko bread and Weet-Bix cereal, said a financial settlement with the country’s antitrust authorities over bread prices may surpass provisions it made for the accord.
“Indications are that the settlement amount will exceed the provision previously made by Pioneer Foods,” the Paarl, Western Cape-based company said yesterday in a statement. The Competition Tribunal on Feb. 3 imposed a fine of 195.7 million rand ($27.6 million) on Pioneer for its role in a bread cartel.
Pioneer was the only bread maker out of four that didn’t admit to price-fixing following a complaint from Western Cape distributors in 2006 that bakeries had increased prices a week before Christmas. Premier Foods Ltd., based at Isando near Johannesburg, was exempted from prosecution after helping the Competition Commission with its investigation. Tiger Brands Ltd., the country’s biggest food company, was fined 99 million rand in 2007, while Foodcorp Ltd. paid 45.4 million rand.
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