Potash, IBM, Baxter, Jefferies Group in Court News

Potash Corp. of Saskatchewan Inc. sued BHP Billiton Ltd., the world’s largest mining company, in Chicago federal court to prevent it from acquiring the fertilizer maker with a $40 billion hostile offer.

BHP sought to improve its chances of acquiring Saskatoon- based Potash Corp. “on the cheap” by seeking to “drive down” its share price prior to the Aug. 17 offer, Potash Corp. said yesterday in the complaint.

Potash Corp., the world’s largest producer of its namesake crop nutrient, rejected Melbourne-based BHP’s $130-a-share offer as too low. Potash Corp. shares have advanced 31 percent since Aug. 16, the last trading day before BHP made its proposal, and are trading above the bid price, indicating investors expect a higher offer.

“The suit is a defensive mechanism, but also an offensive tool because it attempts to point out why the stock is relatively inexpensive on a stand-alone, no-transaction basis,” Louis Meyer, an analyst at Oscar Gruss & Son Inc. in New York, said in a telephone interview. “The rationale is that the best defense is a good offense.”

BHP said the lawsuit is “without merit” and will be contested “vigorously,” in an e-mailed statement. “We do not believe this lawsuit will interfere with or delay our offer” for Potash Corp.”

Potash Corp. alleges BHP made “false and misleading” statements about its offer. BHP allegedly sought to depress the value of Potash shares to make an acquisition possible by pledging to develop its Jansen project in Saskatchewan and to “run its new mine flat out, flooding the market with potash,” Potash Corp. said in the court filing.

The case is Potash Corp. of Saskatchewan v. BHP Billiton, 10-06024, U.S. District Court for the Northern District of Illinois (Chicago).

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IBM, Netezza Sued by Shareholder Over Buyout Offer

Netezza Corp., a computer-data warehousing company, was sued by a shareholder who contends his stock is undervalued in a $1.7 billion buyout offer from International Business Machines Corp.

Officials of Marlborough, Massachusetts-based Netezza and IBM structured the $27-a-share offer to unfairly scare off other bidders interested in the company, Netezza investor Anthony Kolton contends in his Delaware Chancery Court lawsuit.

“Netezza’s directors have not acted in a manner designed to obtain the highest price reasonably available to shareholders,” lawyers for Kolton said in the complaint, filed yesterday in Wilmington.

Netezza, whose clients include NYSE Euronext and Estee Lauder Cos., integrates hardware with programs that store and analyze data. It’s one of the few data-warehousing companies that has gained customers, making it an attractive buy for large technology corporations looking to increase sales, Keith Bachman, an analyst at BMO Capital Markets, said Sept. 20.

IBM Chief Executive Officer Sam Palmisano said in May he’s planning to spend about $20 billion on acquisitions in the next five years. Armonk, New York-based IBM is the world’s biggest computer-services company.

Neither Glenn Zimmerman, a Netezza spokesman, nor Emily Horn, an IBM spokeswoman, immediately returned a call and e-mail seeking comment on Kolton’s suit.

The case is Anthony Kolton v. Netezza Corp., 5836, Delaware Chancery Court (Wilmington).

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Baxter International Faces Lawsuit Over Disclosures

Baxter International Inc., a maker of intravenous drugs, was sued by a pension fund over allegedly misleading public statements made about the company’s business prospects.

Deerfield, Illinois-based Baxter falsely said its plasma- derivative business would grow, the city of Lakeland, Florida’s employee pension plan claims in a complaint filed Sept. 21 in federal court in Chicago. The plaintiffs seek class-action, or group, status to represent people who bought the shares from September 2009 to May 2010.

Baxter also failed to disclose to investors that it wasn’t complying with a 2006 agreement with the U.S. Food and Drug Administration covering changes made to its Colleague infusion pump, according to a statement by lawyers for the pension plan that was distributed by Business Wire.

As a result of the misleading statements and omission, Baxter stock was artificially inflated, according to the statement. After Baxter disclosed on April 22 the pressures it faced in its plasma-derivative products business, its shares fell more than 13 percent to $51.13, according to the statement.

Deborah Spak, a Baxter spokeswoman, didn’t return a call seeking comment after regular business hours Sept. 21.

The case is City of Lakeland Employees Pension Plan v. Baxter International Inc., 10-06016, U.S. District Court, Northern District of Illinois (Chicago).

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Mark Cuban Wins Access to Documents in Feud With SEC

Mark Cuban, who lost a bid to get tossed insider-trading allegations by the U.S. Securities and Exchange Commission, won access to documents in his ongoing feud with the agency.

U.S. District Judge Reggie B. Walton in Washington yesterday ruled that the SEC improperly withheld documents the billionaire owner of the Dallas Mavericks requested through the Freedom of Information Act, that its reasons for withholding other documents weren’t detailed enough and that it can’t take three years to complete his request for still more.

“To the extent that the court has found that the defendant cannot rely on an exemption to withhold a record in its entirety, the defendant is obligated by the FOIA to produce a complete or redacted version of the record to the plaintiff, and must do so forthwith,” Walton wrote.

The federal appeals court in New Orleans reinstated Sept. 21 the SEC’s insider-trading case against Cuban, filed in federal court in Dallas. The lower-court judge tossed the case last year. The SEC accuses 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.

“We are reviewing the decision,” John Nester, an SEC spokesman, said yesterday.

Walton found the agency’s document search into certain areas to be inadequate, including Cuban’s request for “any trading history by SEC personnel in Mamma.com Inc. securities.” He also asked for documents on several SEC lawyers and on any investigation into his companies.

The agency asked for three years to sift through 107 boxes on the Momma.com probe, which Walton denied. He said he’d hold a hearing on how long the agency should be given.

“The most significant thing out of this decision is the quite-correct skepticism about the three years,” said Lyle Roberts, a lawyer for Cuban at Dewey & LeBoeuf LLP in Washington.

Mamma.com is now known as Copernic Inc., based in Montreal.

The case is Cuban v. SEC, 09-cv-996, U.S. District Court, District of Columbia (Washington). The insider-trading case is SEC v. Cuban, 09-10996, 5th U.S. Circuit Court of Appeals (New Orleans) and SEC v. Cuban, 08-cv-2050, U.S. District Court, Northern District of Texas (Dallas).

Apple Manager Devine Wins Bail Using Mother’s Home

Paul Devine, the Apple Inc. manager accused of taking kickbacks in exchange for company secrets, won a judge’s permission to be released from prison once a $440,000 lien against his mother’s home is posted with the court.

After a hearing yesterday before U.S. Magistrate Judge Howard Lloyd in San Jose, California, Devine’s lawyer, Raphael Goldman, told Devine’s mother that it could take a few days for the lien against her Maryland home to be processed as collateral supporting a bail bond.

Devine also posted a bond of $612,407 from his and his wife’s foreign bank accounts plus the equity in his home near San Francisco, while his brother also posted $50,000. Lloyd told Devine he must “continue to cooperate with the government to identify all accounts” and transfer to the U.S. and pledge as bail another $313,000 remaining in Korean bank accounts.

“If you feel he is not doing that, then you come back and we will talk about it,” Lloyd told Assistant U.S. Attorney Michelle Kane, who objected to Devine’s release until he accounted for all potential accounts abroad.

Kane declined to comment after yesterday’s hearing.

Devine, 37, a global-supply manager, was accused of money laundering and wire fraud in a 23-count indictment unsealed Aug. 13. He has pleaded not guilty to charges that he took at least $1 million in kickbacks from Asian suppliers.

The case is U.S. v. Devine, 10-cr-00603, U.S. District Court, Northern District of California (San Jose).

SEC Moves Will Prevent Repeat of Stanford Missteps, Khuzami Says

The U.S. Securities and Exchange Commission, responding to a watchdog’s criticism that it bungled fraud claims against R. Allen Stanford, has strengthened its investigations and is pursuing several people linked to the Texas-based executive, agency officials told lawmakers.

The SEC has added investigators and improved handling of tips after Inspector General H. David Kotz faulted the agency’s probe of Stanford, who is facing trial for an alleged $7 billion fraud, Enforcement Director Robert Khuzami said yesterday in remarks prepared for a Senate Banking Committee hearing. The agency is “also vigorously pursuing its case against Stanford and the others charged in this massive Ponzi scheme,” Khuzami said.

“The scope and egregiousness of Stanford’s conduct and the resulting injury to investors underscores that it is essential for us to push forward with our efforts to hold the wrongdoers accountable and seek maximum investor recovery,” Khuzami said.

Khuzami, Carlo di Florio, head of the SEC’s Office of Compliance Inspections and Examinations, and Rose Romero, director of the agency’s regional office in Fort Worth, Texas, were called to testify on progress in implementing changes Kotz proposed in an April report on the Stanford case. Kotz said the SEC failed to conduct a meaningful probe of Houston-based Stanford Financial Group Co. until 2005 even though examiners suspected he was running a Ponzi scheme eight years earlier.

The SEC sued Stanford, 60, in February 2009, claiming his Antigua-based firm, Stanford International Bank Ltd, defrauded investors by selling billions of dollars in bogus certificates of deposit. He is jailed in Houston while awaiting trial on related criminal charges, and at least three of his top executives are facing related claims.

U.K. Prosecutors Charge Five Men in Engineering-Contract Fraud

U.K. prosecutors charged five men for their alleged involvement in a ring that used inside information to bid on 66 million pounds ($103 million) worth of contracts in engineering projects in the energy industry.

The five men, who ranged in age from 54 to 70, were charged at a London court yesterday with conspiracy to corrupt following a two-year investigation, the Serious Fraud Office said in a statement.

“Some of the defendants were employed by the companies responsible for the procurement of these projects and are alleged to have passed confidential information to others who then offered to provide it to companies bidding for the contracts in return for a percentage of the contract value,” according to the SFO, which investigated the case with the City of London Police. The names of the companies were not made public.

The defendants were released on bail and are scheduled to appear in court in November. The suspected crimes were committed between January 2001 and August 2009. The SFO prosecutes complex fraud, bribery and white collar crime in the U.K.

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William Foster Gets Three Years for Real Estate Fraud

William Foster, convicted for his part in a $22 million real estate investment fraud, was sentenced to three years in prison.

Foster, 70, was one of three men convicted of cheating investors in a network of companies named Cobalt, which claimed to have interests in residential real estate developments throughout the U.S. The sentence came less than three months after one of Foster’s codefendants was sentenced to 85 years.

U.S. District Judge Kimba Wood in New York, who sentenced both men, said she rejected guidelines that called for a life sentence for Foster because of his poor health and his lower level of criminal responsibility compared with the other defendants.

“Mr. Foster, everyone agrees, had a much lesser role than his two co-conspirators,” Wood said.

Foster, Irving Stitsky and Mark Shapiro were convicted by a jury after a three-week trial that ended in November. Each was found guilty of two counts of securities fraud, one of mail fraud, one of wire fraud and one of conspiracy.

According to the government, the men defrauded more than 250 investors by inventing a false history for Cobalt; failing to disclose that the company was owned and controlled by Stitsky and Shapiro, who were convicted felons; and misstating Cobalt’s property interests.

The case is U.S. v. Shapiro, 06-cr-357, U.S. District Court, Southern District of New York (Manhattan).

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Disney Earnings Leaker Hoxie Admits to Scheme With Boyfriend

Bonnie Hoxie, a former assistant to Walt Disney Co. corporate communications chief Zenia Mucha, admitted in court that she tried to sell confidential earnings information in a scheme with her boyfriend.

Hoxie pleaded guilty Sept. 21 to one count of conspiracy to commit securities fraud and wire fraud, and one count of wire fraud before U.S. Magistrate Judge Michael Dolinger, according to Yusill Scribner, a spokeswoman for the U.S. Attorney’s office in Manhattan.

As part of a plea agreement, Hoxie and prosecutors agreed that federal sentencing guidelines, which are advisory, call for her to get four to 10 months when she is sentenced by U.S. District Judge Alvin Hellerstein on Dec. 21.

Robert Baum, Hoxie’s lawyer, said in an interview that she remains free on a $50,000 bond and has returned to her home in Los Angeles.

Hoxie, who was employed as Mucha’s secretary from March through May 25, admitted to passing information about Disney’s quarterly earnings to her boyfriend, Yonni Sebbag, who planned to sell the information to investors.

In August, Sebbag pleaded guilty to wire fraud and conspiracy to commit wire fraud and securities fraud. Sentencing guidelines call for Sebbag to get 27 to 33 months in prison, U.S. Magistrate Judge James Cott said in August.

The case is U.S. v. Hoxie, 10-mag-01113, U.S. District Court, Southern District of New York (Manhattan).

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Litigation Departments

Jefferies Group Hires Michael Sharp to Be General Counsel

Jefferies Group Inc., the New York-based securities firm that added 20 percent more staff in one year, hired Michael J. Sharp as general counsel.

Sharp, 55, a former Citigroup Inc. lawyer who is leaving the law firm of WilmerHale, was also named executive vice president and secretary. He replaces Lloyd H. Feller, who will retire at the end of the year, Jefferies said Sept. 21 in a statement. Feller, 68, had been general counsel for eight years.

Jefferies has increased its staff in a drive to pick up capacity from failed investment banks including Lehman Brothers Holdings Inc. and Bear Stearns Cos. and profit from a recovery in the financial-services industry.

Sharp had been a partner at WilmerHale since March 2009 and focused on litigation and enforcement issues for Wall Street clients. Before that he spent 12 years at Citigroup, where he was general counsel for global wealth management, consumer banking and global cards, according to the statement.

FSA Fines U.K. Law Firm Over Lehman-Backed Products

The U.K.’s financial regulator fined a law firm and two men for giving misleading advice to clients when marketing structured products backed by Lehman Brothers Holdings Inc.

The Financial Services Authority fined Dundee, Scotland- based Thorntons Law LLP 35,000 pounds ($55,000) and Michael Royden, a partner at the firm, 10,500 pounds, the regulator said in a statement yesterday on its website. The FSA also fined Robert Peter Yarr, a financial adviser at McClelland Yarr Financial Services Ltd. in Belfast, 28,000 pounds for not warning customers about the risks of the products.

The FSA said in October that three firms were facing fines after it probed sales literature in the 107 million-pound structured-products market. Lehman’s September 2008 collapse and bankruptcy prompted lawsuits by former clients whose assets were frozen in insolvency proceedings around the world.

“Firms and individuals giving investment advice must properly assess their clients’ needs and make suitable recommendations,” FSA head of enforcement Margaret Cole said in the statement. “They must also have the necessary systems and controls in place to ensure that this happens.”

Royden was in charge of compliance at Thorntons’ Investment Services at the time the firm was offering the products from November 2007 and August 2008. Structured products were typically marketed as guaranteeing the principal amount of money invested, even if no returns were possible. After Lehman’s collapse, the investors’ original contributions weren’t repaid.

Thorntons “commissioned an independent review of systems, following which, a number of improvements have been implemented,” the firm said in an e-mailed statement. “We are in the process of reviewing each case to ensure that our obligations regarding redress are met and a number of clients affected by the FSA findings have already received payment.”

Royden and Yarr didn’t immediately respond to requests for comment. All three received the FSA’s standard 30 percent discount for cooperating with the probe.

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To contact the reporter on this story: Elizabeth Amon in Brooklyn, New York, at eamon2@bloomberg.net.

To contact the editor responsible for this story: David E. Rovella at drovella@bloomberg.net.

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