Citigroup, Galleon, Wal-Mart, Altria in Court News

Norges Bank, Norway’s central bank, sued Citigroup Inc. along with Chief Executive Officer Vikram Pandit and Chairman Richard Parsons over $835 million in losses in Citigroup stock and bonds.

Citigroup misrepresented its financial condition and failed to disclose material information, leading the Norway bank to buy the New York-based bank’s stock and bonds at inflated prices during the period between January 2007 and January 2009, Norges Bank said in the Sept. 17 lawsuit filed in U.S. District Court in Manhattan.

“Citi’s near-demise had its genesis in the company’s increasing willingness to take on risk for the sake of profit, without regard for -- and without disclosing -- the magnitude of the downside exposure it faced if those risks materialized,” the bank said in the complaint.

The lawsuit names 20 current and former directors and executives including former CEO Charles “Chuck” Prince.

Norges Bank, through its investment arm, is responsible for investing the assets of the Norwegian Government Pension Fund Global, the world’s second-biggest sovereign wealth fund. The fund invests outside Norway to avoid stoking domestic inflation.

“We believe the suit has no merit and will defend ourselves vigorously,” Citigroup spokeswoman Danielle Romero- Apsilos said in a statement.

“Norges Bank’s complaint tracks, in large part, the complaint filed in the securities class action lawsuit currently pending against Citigroup, but Norges Bank believes it will be better served by pursuing its own direct action,” Bunny Nooryani, a spokeswoman for the central bank in Oslo, said in a telephone interview. The central bank is also a plaintiff in the class-action lawsuit, she said.

The case is Norges Bank v. Citigroup, 10-cv-07202, U.S. District Court, Southern District of New York (Manhattan).

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Litwin Foundation Sues SEC for ‘Negligence’ Over Madoff Losses

The Litwin Foundation, a victim of convicted con man Bernard Madoff, sued the U.S. Securities Exchange Commission for “negligence” in failing to uncover the $65 billion Ponzi scheme.

The New Hyde Park, New York-based foundation seeks to recover at least $19 million and other unspecified damages against the agency for failing to prevent losses at Madoff’s investment firm.

The government’s “sovereign immunity” from lawsuits should be waived under a law that allows cases to be brought against the U.S. if its workers were negligent, the foundation said in the complaint. The organization was established in 1989 and contributes to nonprofits that include Lincoln Center for the Performing Arts and the Brooklyn Botanical Garden.

The SEC “had countless opportunities to stop the Ponzi scheme Madoff operated over 16 years and botched all of them,” the foundation said in the complaint.

John Heine, a spokesman for the SEC, declined comment on the lawsuit.

Last year a related lawsuit was filed by Phyllis Molchatsky, a disabled retiree and single mother who lost $1.7 million, and Steven Schneider, a doctor who lost almost $753,000.

Madoff, 72, is serving a 150-year sentence for running the fraud. His family members and his biggest investors have been sued for as much as $15 billion by the bankruptcy liquidator.

The case is The Litwin Foundation v. United States of America, 10-CV-7367, U.S. District Court, Southern District of New York (Manhattan).

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Lawsuits/Pretrial

Chiesi Granted Hearing on FBI Statement Suppression

Danielle Chiesi, accused with Raj Rajaratnam in the largest insider-trading case against a hedge fund, will get a hearing on whether statements she allegedly made to investigators can be used as evidence against her.

U.S. District Judge Richard Holwell in New York set an Oct. 28 hearing for the New Castle Funds LLC consultant indicted with Rajaratnam, Galleon Group LLC’s co-founder. Chiesi’s lawyers are trying to bar statements she made to Federal Bureau of Investigation agents on Oct. 16, 2009, when she was arrested.

Agents knocked on her apartment door about 6 a.m., Chiesi’s attorneys said in court papers. They questioned her for about 90 minutes without advising her of her right to remain silent and speak to a lawyer, creating legal ground for suppressing what she said, according to the defense attorneys.

“The statements elicited from Danielle Chiesi by the agents must be suppressed because they were made in a custodial setting without having been preceded by the advice of rights,” her lawyers Alan R. Kaufman and James M. Keneally, both of the law firm Kelley Drye & Warren LLP, said in court papers.

“They informed the defendant that Raj Rajaratnam was already in custody, that she had the opportunity to help herself by cooperating, but either way she was going to be arrested then and there or later in the day if she agreed to cooperate,” the defense lawyers said.

Prosecutors said the statements shouldn’t be suppressed.

“The government is prepared to call agents who will testify that Chiesi was read her Miranda rights and agreed to speak with the agents before she made those statements in her apartment,” Assistant U.S. Attorneys Jonathan Streeter and Reed Brodsky said in court papers.

Rajaratnam and Chiesi are charged with illegally using tips from company executives, hedge fund officials and other insiders to earn millions of dollars. Both deny wrongdoing.

The case is U.S. v. Rajaratnam, 1:09-cr-1184, U.S. District Court, Southern District of New York (Manhattan).

Sallie Mae Suit to Proceed on Some Claims, Judge Says

A lawsuit alleging student-loan maker SLM Corp. hid its lack of reserves and made misleading statements about earnings may proceed, a judge ruled.

U.S. District Judge William Pauley in Manhattan said the investor plaintiffs presented enough evidence to continue their case against Reston, Virginia-based SLM, known as Sallie Mae, and its executives. The 2008 suit claims the lender was misleading about its underwriting guidelines, loan forbearance, and financial performance in a bid to inflate its stock price.

The lead plaintiff is SLM Venture, a joint venture established by families to invest in Sallie Mae stock. The suit seeks class-action status for investors who relied on statements made by the company from January through November 2007 to buy common stock. Sallie Mae dropped 57 percent during the period, according to data compiled by Bloomberg.

Pauley dismissed a related suit brought by plaintiffs who sought to represent participants in SLM’s employee savings and retirement plans, which invested in SLM stock. The plaintiffs, Jitandra Patel and Alex Cordero, claimed SLM breached its fiduciary duty by masking the “precariousness” of its loan portfolio and hid losses from investors.

“Patel and Cordero have neither participated in nor been beneficiaries of the retirement plan,” Pauley said.

He also dismissed related claims filed against the company’s former president and chief executive officer, C.E. Andrews, saying the plaintiff “failed to adequately allege motive and opportunity.”

Edward Ciolko, a lawyer who represents Cordero and Patel, and Jamie Kohen, a lawyer for SLM, didn’t return voice-mail messages left at their offices after business hours.

The cases are In re SLM Securities Corporation Securities Litigation, 08-CV-1029, U.S. District Court, Southern District of New York (Manhattan).

Massey Managers Ask Judge to Block Subpoenas Probing Blast

Lawyers for six Massey Energy Co. managers asked a West Virginia judge to quash subpoenas from the state’s mine safety director requiring them to answer questions about the April explosion that killed 29 people.

The state agency is being used by the federal Mine Safety and Health Administration to force these managers to testify in an abuse of process, the lawyers said in a Sept. 21 filing in state court in West Virginia. The state can compel testimony while the federal agency can’t under limits imposed by Congress, the lawyers said.

The April 5 explosion at Massey’s Performance Coal operation in Montcoal, West Virginia, the worst U.S. mine disaster in 40 years, set off federal and state investigations into its cause. The West Virginia agency this month issued the subpoenas, including one to Elizabeth Chamberlin, Massey’s vice president of safety and health, after the federal probe stalled, the managers’ lawyers said.

“In August 2010, MSHA grew restless with the pace and consistency of appearances by witnesses it invited for voluntary interviews,” they said in the filing. As a result the federal agency “importuned” the state “to issue subpoenas compelling the attendance and testimony of those persons.”

The federal mine safety agency has made “inflammatory public statements” about Massey’s Performance Coal operation “from the outset of its investigation,” implying that the accident occurred because of safety violations, the lawyers said. “MSHA has a substantial and immediate interest in making such allegations in order to deflect its own potential responsibility for the tragedy.”

The West Virginia Office of Miners’ Health, Safety and Training “is not commenting at this time on the status of any subpoenas issued pursuant to the official investigation into the Upper Big Branch Mine or on any ongoing litigation,” Leslie Fitzwater, spokeswoman for the agency, said in an e-mail.

Amy Louviere, at MSHA, said, “We don’t comment on ongoing cases. This is a West Virginia matter. We aren’t even a party to this matter.”

The case is In the Matter of Administrative Subpoenas issued by the West Virginia Office of Miners’ Health, Safety & Training, 10-P-22-H, Circuit Court, Raleigh County, West Virginia.

David Jones Ex-CEO Denies Sexual Harassment Charges

David Jones Ltd.’s former Chief Executive Officer Mark McInnes denied that he sexually harassed publicist Kristy Fraser-Kirk and said he tried to kiss her at a party after she made comments of a sexual nature.

McInnes and the company filed their statements of defense Sept. 24 in Sydney Federal Court in response to allegations of sexual harassment from Fraser-Kirk, who is seeking A$37 million ($35 million) in punitive damages.

Fraser-Kirk, 27, sued last month claiming McInnes, 45, made unwelcome sexual advances at two company functions, including putting his hand under her clothing and trying to kiss her. McInnes also repeatedly invited Fraser-Kirk to Bondi, where he owns an apartment, with the implication that it would be for sexual intercourse, Fraser-Kirk said in her complaint.

Fraser-Kirk “made comments of a sexual nature” at a June 7 function, according to court papers filed on McInnes’s behalf, “in response to which he attempted to kiss her.”

David Jones also denied any wrongdoing in its statement of defense. After the first function on May 23, Fraser-Kirk told her supervisors “in a lighthearted and jovial tone and without complaining” that McInnes had asked her out for a drink, the company said. She didn’t complain until June 9, it added.

McInnes said he invited Fraser-Kirk for a drink to North Bondi Italian, a restaurant in the beach-front suburb, and denied there was any implication of sexual intercourse.

Anthony McClellan, a spokesman for Fraser-Kirk, said she wouldn’t comment on the defense documents filed Sept. 24.

McInnes resigned in June, following Fraser-Kirk’s complaints.

The case is between Kristy Anne Fraser-Kirk and David Jones Ltd. 964-2010. Federal Court of Australia (Sydney).

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Trials/Appeals

Wal-Mart Gets Backing From 19 Companies at U.S. Supreme Court

Intel Corp., Altria Group Inc., Bank of America Corp. and 16 other companies called on the U.S. Supreme Court to hear a Wal-Mart Stores Inc. appeal that seeks to limit class-action lawsuits by workers.

Wal-Mart, the world’s largest retailer, last month asked the high court to block female employees from suing on behalf of as many as 1.5 million women. The case would be the largest gender-bias suit against a private employer in U.S. history.

Should the court agree to hear the case, it would likely become the most significant business dispute before the justices. Robin Conrad, who heads the U.S. Chamber of Commerce’s litigation arm, this week called the dispute the “800-pound gorilla” of the court’s 2010-11 docket. The court is likely to say later this year whether it will hear arguments.

The companies, which also include Microsoft Corp. and General Electric Co., argued that judicial approval of a class action puts enormous pressure on defendants to settle, even if the claim is frivolous.

“Because the specter of potentially enormous class-wide liability compels defendants to settle even meritless claims, class certification decisions are often tantamount to a decision on the merits,” 18 of the companies argued. Intel filed a separate brief, making similar arguments.

Wal-Mart is accused in the 2001 suit of paying women less than men for the same jobs and giving female workers fewer promotions. In April, a federal appeals court ruled 6-5 that the case could proceed as a class action on behalf of women who worked at Wal-Mart since 2001.

Wal-Mart contends the claims of workers around the country are too diverse to proceed as a single case under the rules that govern federal lawsuits.

Brad Seligman, an attorney for the workers, said last month that “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 case is Wal-Mart Stores v. Dukes, 10-277, U.S. Supreme Court (Washington.)

Cigarette Makers Get Stay by Top Court on $270 Million Award

U.S. Supreme Court Justice Antonin Scalia temporarily blocked a court order that would force the nation’s tobacco companies to spend more than $270 million on a Louisiana smoking cessation program.

Scalia issued a stay Sept. 24 of a Louisiana state court judgment while the Supreme Court decides whether to hear an appeal from companies including Altria Group Inc.’s Philip Morris USA and Reynolds American Inc.’s R.J. Reynolds. It extends a Sept. 14 stay that was also issued by Scalia.

The cigarette makers contend that the Louisiana courts improperly let the case go forward as a class action on behalf of all Louisiana smokers who want to participate in a cessation or medical monitoring program.

A 2004 jury verdict in the case was the first to require cigarette makers to pay to help smokers quit. The original award, $591 million, was reduced on appeal.

The judgment halted by the Supreme Court requires the companies to pay $242 million, plus $29 million in interest. The Louisiana Supreme Court refused to stay the award on Sept. 10.

The case is Philip Morris v. Scott, 10A273, U.S. Supreme Court (Washington).

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Verdicts/Settlements

Citigroup $75 Million SEC Settlement Approved

Citigroup Inc.’s $75 million settlement with U.S. Securities and Exchange Commission won approval from a federal judge, resolving claims the bank failed to disclose $40 billion in subprime-related holdings.

U.S. District Judge Ellen Huvelle in Washington had said last month she was dissatisfied with the proposal and would hold off approving it until she had more information. Both the bank and the SEC filed additional papers with the court urging acceptance of the accord.

Huvelle said at a hearing Sept. 24 that she would sign the settlement after the parties agreed to further mandatory disclosure to ensure future oversight. Attorneys are required to submit the new language within two weeks for her signature.

The company made misstatements on earnings calls and in financial filings about assets tied to subprime loans as the housing crisis unfolded in 2007, the SEC said in its July 29 complaint. Some disclosures omitted more than $40 billion in investments, regulators said.

The penalty “takes into account the seriousness of the misconduct,” the SEC wrote in a Sept. 8 filing. “It is sufficiently substantial to send a clear message that misleading statements by a corporation on issues of importance to investors cannot go unaddressed.”

Responding to Huvelle’s request, the SEC identified Citigroup officials -- including former Chief Executive Officer Charles O. “Chuck” Prince and former Chairman Robert Rubin -- who were aware that losses were mounting in October 2007 on the highest-rated segments of mortgage-based assets, which the agency claims hadn’t been fully disclosed. The SEC didn’t accuse those officials of wrongdoing.

The fact that so many executives were aware of the disclosure and valuation process and “nonetheless did not note the central issue identified by the commission in its complaint, only underscores the weakness of any possible case against additional parties,” Citigroup wrote in a Sept. 13 filing.

Citigroup was under “no obligation to say anything about its ‘subprime exposure’” in the second and third quarters of 2007, the bank wrote. It voluntarily decided shareholders would benefit from “a more concrete understanding” and made some statements, it said.

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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Hacker Gets 10 Years for $1.4 Million Internet Theft

Edwin Pena, a convicted computer hacker, was sentenced to 10 years in prison for stealing Internet telephone service valued at $1.4 million and reselling it to unwitting companies such as IDT Corp.

Pena, 27, was sentenced Sept. 24 in federal court in Newark, New Jersey, where he pleaded guilty in February 2009, almost three years after fleeing the U.S. while on bail. The Miami resident went to his native Venezuela and Colombia before living in Mexico, where a girlfriend turned him in to authorities.

U.S. District Judge Susan Wigenton imposed nearly the maximum term under advisory guidelines, rejecting a request for leniency from Pena and his lawyer. While committing the first fraud of its type in the U.S., Pena bought a new house and luxury cars and gambled in Atlantic City and Las Vegas, prosecutors said.

“I would like to apologize to the people of the United States, to my family, and especially to my daughter,” Pena said Sept. 24. “I know I’m a changed person now. I’ve grown up. I know I’ll be good from now on.”

The judge rejected those arguments, saying, “I don’t find he has any credibility when he says he’s a changed person.”

The case is U.S. v. Pena, 09-cr-103, U.S. District Court, District of New Jersey (Newark).

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Court News

Kagan Presence to Be Felt by Her Absence in First Court Term

Elena Kagan may make her mark in her first U.S. Supreme Court term less by her presence than by her absence, Bloomberg News’ Greg Stohr reports.

Kagan has disqualified herself in 20 of the 38 cases on the court’s calendar because she took part in the litigation as U.S. solicitor general. The 20 include some top business cases: a fight over sanctions on employers for hiring illegal aliens, a clash between manufacturers and discount stores over the multibillion-dollar “gray market” in imports and disputes over consumer suits against automakers and drug companies.

In each case, Kagan’s absence creates the prospect of an evenly divided court, an outcome that would leave the lower court ruling intact without setting a nationwide precedent, Bloomberg Businessweek reports in its Sept. 27 issue. The term starts Oct. 4.

“It’s potentially a big deal” in those cases, said Roy Englert, a Washington appellate lawyer who will argue in the import case on behalf of Costco Wholesale Corp., the largest U.S. warehouse club. “You could have a 4-4 affirmance that will be satisfying to no one.”

Kagan’s recusals will be important for consumer advocates because her predecessor, retired Justice John Paul Stevens, tended to welcome those types of claims, rejecting arguments that they were preempted by federal law.

“The plaintiff’s tort bar must be entering the term with some trepidation,” Maureen Mahoney, a Washington appellate lawyer who represents Mazda, said at a briefing this week sponsored by the Chamber of Commerce. “They’ve really lost their champion.”

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On the Docket

Enron’s Skilling Gets Nov. 1 Hearing on Retrial Bid

Former Enron Corp. Chief Executive Officer Jeffrey Skilling’s bid for a new trial is scheduled for a Nov. 1 hearing before a federal appeals court in Houston, his lawyer said.

In June, the U.S. Supreme Court questioned whether Skilling was properly convicted on 19 counts for leading a conspiracy that caused the collapse of the world’s largest energy trader. The high court ordered a review of his case by the U.S. Court of Appeals in New Orleans.

The New Orleans court agreed to hear oral arguments on Skilling’s request at a session in Houston, Daniel Petrocelli, his lead attorney, said Sept. 23.

“We are very pleased to have an opportunity to argue Jeff’s case and hopeful that his long nightmare is coming to an end,” Petrocelli said in a telephone interview.

All of Skilling’s verdicts were tainted by an invalid legal theory and should be retried without prosecutors’ reliance on so-called honest services theft, Petrocelli said in court papers. Prosecutors are urging the appeals court to reject Skilling’s request for a new trial and uphold his convictions. In court filings they insist jurors at Skilling’s 2006 trial didn’t rely on the invalid theory in finding Skilling and Enron’s Chairman Kenneth Lay guilty. Lay’s verdicts were erased because he died before he had the chance to appeal. Laura Sweeney, a Justice Department spokeswoman, declined to comment Sept. 23.

Skilling, 56, is serving a 24-year sentence in federal prison in Englewood, Colorado. He was denied bail while his case is under review.

More than 5,000 jobs and $1 billion in employee retirement funds were wiped out when Enron collapsed into bankruptcy in December 2001, after revelations of widespread accounting fraud. Investors sued to recover more than $60 billion in market losses. The case is U.S. v. Skilling, 06-20885, U.S. Court of Appeals for the Fifth Circuit (New Orleans).

Court Filings

Goldman Suit Alleging Gender Discrimination Most Popular

A lawsuit against Goldman Sachs Group Inc. brought by three former female employees who claim they faced discrimination in pay and fewer opportunities for promotion than men at the firm, was the most-read litigation docket on the Bloomberg Law system last week.

“The violations of its female employees’ rights are systemic, are based upon companywide policies and practices, and are the result of unchecked gender bias that pervades Goldman Sachs’s corporate culture,” the women said Sept. 15 in a complaint in federal court in Manhattan.

The plaintiffs, H. Cristina Chen-Oster, 39, a former vice president; Lisa Parisi, 48, a former managing director; and Shanna Orlich, 30, a former associate, seek class-action status to represent all female Goldman Sachs employees with those job titles.

“We believe this suit is without merit,” said Lucas van Praag, a Goldman spokesman. “People are critical to our business, and we make extraordinary efforts to recruit, develop and retain outstanding women professionals.”

The case is Chen-Oster v. Goldman, Sachs & Co., 10-cv-6950, U.S. District Court, Southern District of New York (Manhattan).

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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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