Citigroup, Massey, David Jones, Kagan, Enron, Goldman 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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Lawsuits/Pretrial

Massey Managers Ask Judge to Block Subpoenas Probing Mine 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.”

Leslie Fitzwater, spokeswoman for the West Virginia Office of Miners’ Health, Safety & Training didn’t immediately return a call for comment. 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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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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