The U.S. government rested its case yesterday in a prosecution that may provide a preview of next year’s trial of Galleon Group LLC co-founder Raj Rajaratnam, accused of helping direct the largest-ever hedge fund insider trading scam, Bloomberg News’ David Glovin reports.
The week-long trial of Joseph Contorinis, 46, a former general partner of the Jefferies Paragon Fund, has yielded testimony by an ex-UBS AG investment banker that he was fed secret tips by a former managing director at Blackstone Group LP, and that he leaked information on mergers to an analyst at SAC Capital Advisors LP.
The trial, though unrelated to the Galleon case, may show how Rajaratnam’s defense, that he traded based on public information and press reports, will resonate with a federal jury in Manhattan. Contorinis has made a similar argument in pleading not guilty in his case, which is being prosecuted by Assistant U.S. Attorneys Andrew Fish and Reed Brodsky -- both also involved in Galleon case.
“It’s an opportunity for the defendants in Rajaratnam to see how the defense plays before a jury,” Jacob Frenkel, a former Securities and Exchange Commission attorney, said in an interview. Frenkel, a partner at Shulman Rogers Gandal Pordy & Ecker PA in Potomac, Maryland, isn’t involved in either case.
Contorinis, who lives in Brooklyn, is accused of earning more than $7 million and avoiding losses of millions more by trading on tips from the government’s chief witness, Nicos Stephanou. An associate director of mergers and acquisitions at Zurich-based UBS, Stephanou told him about transactions from 2004 to 2006, prosecutors said. The trial began Sept. 20.
Jim McCarthy, a spokesman for Rajaratnam, declined to comment.
The case is U.S. v. Contorinis, 09-cr-1083, U.S. District Court, Southern District of New York (Manhattan).
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Deep-Water Drilling Ban May End ‘Soon,’ U.S. Says
U.S. Interior Secretary Kenneth Salazar may lift the federal ban on deep-water oil drilling “soon,” now that the measure has met some of its goals, the government said in court papers.
Salazar imposed new rules on offshore drilling in waters deeper than 500 feet on July 12, after a New Orleans judge found an earlier moratorium too broad. The rules set multiple milestones to be reached before drilling may resume, said attorney Ignacia S. Moreno, in a court filing last night.
“Several of these milestones have been met or are likely to be reached in the coming days,” Moreno said in a request to delay a hearing in a lawsuit challenging the ban. “The secretary is likely to take action soon on whether and how he will lift the current deepwater drilling suspension.”
President Barack Obama imposed the first six-month moratorium on deep-water drilling on May 28 in reaction to the BP Plc Gulf of Mexico oil spill, the worst in U.S. history. U.S. District Judge Martin Feldman overturned that ban and is considering a lawsuit challenging a second imposed in July.
The U.S. asked Feldman to postpone a hearing scheduled for today over this second challenge, while allowing the government to file a status report on regulators’ activities. The milestones that have been met include containment and killing of the BP well and completion of public hearings on the spill, Moreno said.
Sean O’Neill, a spokesman for drilling contractor Ensco Offshore Co., which sued to stop the second ban, didn’t return a call yesterday seeking comment on the government’s request.
Additionally, a U.S. Justice Department official said that no talks are under way with BP on settling criminal or civil charges stemming from the oil spill.
The official, who spoke on condition of anonymity because of the department’s continuing inquiry into the spill, commented after an Associated Press report cited Representative Steve Scalise, a Louisiana Republican, as saying a possible settlement was under discussion.
Scott Dean, a spokesman for London-based BP, declined to comment. Stephen Bell, a spokesman for Scalise, said the congressman was referring to the likely process of trying to reach a settlement to avoid litigation, not actual talks.
“Any assumption that Congressman Scalise, or his staff, has specific or detailed knowledge of negotiations between BP and the Department of Justice is inaccurate,” Bell said in an e-mailed statement.
The drilling ban case is Ensco Offshore Co. v. Salazar, 2:10-cv-01941, U.S. District Court, Eastern District of Louisiana (New Orleans).
United, Continental Defeat Effort to Block Merger
U.S. District Judge Richard Seeborg in San Francisco said Sept. 27 that the plaintiffs failed to argue adequately the acquisition will substantially reduce competition in the airline industry, and declined to enjoin the pact.
The plaintiffs’ “failure to establish a viable relevant market dooms any effort to show this merger will substantially lessen competition, thereby negating their ability to raise even serious questions, let alone a likelihood of success on the merits,” which is required for granting a preliminary injunction, Seeborg wrote.
Shareholders of Houston-based Continental and Chicago-based UAL on Sept. 17 approved the $3.22 billion all-stock merger that was announced in May. The airlines received regulatory approval from the Justice Department in July to merge, creating an airline company surpassing Delta Air Lines Inc. as the world’s biggest. The merger is expected to be completed by Oct. 1.
“Unfortunately and disappointingly, the court did not take into account the Supreme Court decisions that would have prevented and stopped the merger,” Joseph Alioto, an attorney who filed the suit in June on behalf of consumers, said in a phone interview yesterday.
The consumers claim the merger will increase fares, reduce flights and eliminate jobs. The challenge “at least deserves a trial on the merits,” Alioto, of San Francisco, said in a Sept. 17 court argument.
Alioto said yesterday he will appeal Seeborg’s ruling.
“We are gratified by the court’s decision to deny the plaintiff’s motion,” Julie King, a spokeswoman for Continental, said yesterday in an e-mail.
“We are pleased with the court’s decision, which is in keeping with the review by the Department of Justice,” Jean Medina, a spokeswoman for United, said yesterday by e-mail.
They said they expect the merger to close Oct. 1.
The case is Malaney v. UAL Corp., 10-02858, U.S. District Court, Northern District of California (San Francisco).
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Racketeering Suit Against Blavatnik Fails on Appeal
Norex Petroleum Ltd. can’t use U.S. racketeering law to sue billionaire Leonard Blavatnik and his Access Industries Holdings LLC over the acquisition of an interest in a Russian oil venture, a U.S. appeals court ruled.
Norex, a Cypriot company with an office in Calgary, claimed that New York-based Access and other defendants deprived it of a majority interest in Yugraneft Corp., a unit of BP Plc’s Russian venture, through illegal means including the bribery of Russian officials and corrupt Russian bankruptcy proceedings.
A lower court dismissed the case. A U.S. appeals court in Manhattan yesterday upheld the dismissal, citing a June ruling by the Supreme Court that limits the reach of civil claims for acts occurring outside the country.
The “slim contacts” of the racketeering activity alleged by Norex were “insufficient to support extraterritorial application” of the law, the appeals panel wrote.
Norex, controlled by businessman Alex Rotzang, said in its 2002 suit that Access and other defendants sought to seize control of the Russian oil producer. Other defendants included London-based BP, Europe’s second-largest oil company.
The case is Norex Petroleum v. Access Industries, 02-cv- 1499, U.S. District Court, Southern District of New York (Manhattan).
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UBS Client Wins Court Appeal Against Transfer of Data to U.S.
Switzerland’s administrative court ruled that a client of UBS AG, the country’s biggest bank, has the right to fight a decision to hand over his account details to U.S. tax authorities.
The unidentified UBS client must be allowed to make his case to Swiss tax authorities, the Bern, Switzerland-based court said in a Sept. 21 ruling, which was published yesterday.
The ruling affects only a “single case” where the client should have been allowed to see the evidence and be heard before the authorities decided whether to share his data with the U.S. Internal Revenue Service, court spokesman Andrea Arcidiacono said by telephone.
Switzerland 13 months ago agreed to examine and make decisions on the handover to the IRS of data on as many as 4,450 UBS clients suspected of tax evasion. “Around half” the data was transferred by the end of last month, according to Swiss tax authorities, which expect to deliver most of the accounts by the autumn. That prompted the IRS to say it will drop a lawsuit against the bank within months.
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Amaranth Suit Certified as Class Action by U.S. Judge
Amaranth Advisors LLC, the hedge fund that collapsed in 2006 after losing $6.6 billion on energy trades, must face a class-action lawsuit in which it’s accused of market manipulation, a judge in New York ruled.
U.S. District Judge Shira A. Scheindlin said in a decision made public yesterday that futures traders who bought, sold or held gas futures or options on futures contracts from Feb. 16 to Sept. 28 in 2006 can sue as a group.
“This case is best suited to proceed as a class action,” Scheindlin said in the opinion. “It involves more than 1,000 potential claimants who are asserting claims based on common issues.”
Amaranth failed after losing two-thirds of its assets on natural-gas bets. According to the traders, Amaranth used its market power to manipulate the prices of natural gas futures contracts.
The hedge fund controlled more than half of the U.S. natural gas market before it collapsed, according to a 2007 U.S. Senate report.
“Judge Scheindlin made no decision on the merits of the claims against Amaranth and we are confident that if, and when, those merits are heard, the claims against Amaranth will be rejected,” Steven M. Schwartz, a lawyer for Amaranth, said in an e-mailed statement.
Schwartz said the chief economist of the Commodity Futures Trading Commission determined that Amaranth didn’t cause the changes in natural gas futures pricing in 2006. Amaranth is considering an appeal of Scheindlin’s ruling, he said.
The case is In Re Amaranth Natural Gas Commodities Litigation, 07-cv-06377, U.S. District Court, Southern District of New York (Manhattan).
Qwest, KPN Sued Over 2002 Bankruptcy of KPNQwest, Unpaid Debts
Qwest Communications International Inc., Royal KPN NV and 12 executives were sued by KPNQwest NV’s administrators over the company’s 2002 bankruptcy and 4.2 billion euros ($5.7 billion) of unpaid debt.
The defendants must appear Jan. 19 in a district court in the Dutch city of Haarlem, KPNQwest’s court appointed administrators at law firm Houthoff Buruma said today in an e- mailed statement. The administrators hold the companies and executives responsible for the bankruptcy, they said.
“An investigation by the administrators shows that the bankruptcy was caused by mismanagement and inadequate supervision,” the administrators said.
KPNQwest, a joint venture of KPN and Qwest, was declared bankrupt in 2002 after building a 60-city phone and Internet network just before prices for telecommunications services collapsed. The company, which served customers including AOL Inc., Deutsche Telekom AG and Dell Inc. through Europe’s largest fiber-optic network, had to sell the 25,000-kilometer system off in pieces after failing to find a buyer for the whole business.
The company didn’t change strategy and tripled its investments in the network, even though market prices had fallen by as much as 80 percent by 1999, the year KPNQwest was founded, the administrators said. Hoofddorp, Netherlands-based KPNQwest sold shares to the public that year.
The Hague-based KPN, the largest Dutch phone company, is reviewing the subpoena, said Stefan Simons, a spokesman for the company, who declined to comment further. Calls before business hours to Denver-based Qwest, the phone company being acquired by Louisiana-based CenturyTel Inc., and to the court’s press office weren’t immediately answered.
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Scientists Can Get Stem-Cell Funding During Appeal, Court Says
Scientists who use embryonic stem cells for research can continue to receive U.S. taxpayer funding while the government challenges a lower-court order that barred federal support, an appeals court said.
The ruling by the U.S. Court of Appeals in Washington yesterday puts on hold an order cutting off funding by U.S. District Judge Royce Lamberth. The government argued the ban would cause irreparable harm to researchers, taxpayers, and scientific progress while the case is appealed.
The government’s lawyers “have satisfied the standards required for a stay pending appeal,” the judges wrote in a one- page order that said the appeal will be expedited and that the schedule for briefing and oral arguments will come out later.
Lifting the ban allows the government to temporarily continue funding tens of millions of dollars to scientists seeking cures for diseases such as Parkinson’s, spinal cord injuries, and genetic conditions. Embryonic stem cells can grow into any kind of tissue and may have the potential to accelerate a range of research.
The decision, coming after oral arguments two days ago, was made by Judith Rogers, appointed by former President Bill Clinton, and Thomas Griffith and Brett Kavanaugh, both appointed by former President George W. Bush.
Lamberth on Aug. 23 issued an order temporarily stopping the Health and Human Services Department and the National Institutes of Health from funding or conducting the studies. On Sept. 7, Lamberth denied a U.S. request to reconsider his ruling. The court of appeals then allowed funding to resume pending yesterday’s decision.
The case is Sherley v. Sebelius, 10-5287, U.S. Court of Appeals for the District of Columbia (Washington).
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Boeing, General Dynamics Get Hearing in A-12 Case
The U.S. Supreme Court, accepting a case that will affect government secrecy claims, agreed to review a ruling that could force Boeing Co. and General Dynamics Corp to pay $3 billion in a dispute over a canceled Navy aircraft contract.
The justices yesterday said they will intervene in a 19- year-old legal dispute over the Pentagon’s 1991 termination of the A-12 Avenger stealth fighter aircraft program. A federal appeals court said the government was justified in canceling the contract because the companies weren’t living up to their obligations.
A victory for the companies could wipe out the government’s demand for the return of $1.35 billion in payments, plus the interest that has accrued over two decades. More broadly, the case could affect the government’s use of the so-called state secrets privilege, which Boeing and General Dynamics say unfairly prevented them from mounting a defense in their case.
“By invoking the state-secrets privilege, the government has not simply taken some evidence out of this case,” General Dynamics argued in its appeal. “Rather, it has entirely prevented the contractors from raising a critical defense.”
The cases are General Dynamics v. United States, 09-1298, and Boeing v. United States, 09-1302.
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Drugmakers Win U.S. High Court Hearing in Bid to Stop Suits
The U.S. Supreme Court agreed to hear an appeal by drugmakers seeking to block thousands of public hospitals and community health clinics from suing for violations of a federal program that lets them buy medicines at a discount.
The justices yesterday granted review to an appeal by companies including units of Pfizer Inc., Merck & Co. and Sanofi-Aventis SA. The companies are challenging a lower court ruling permitting a suit against the drugmakers filed by the California county of Santa Clara.
The dispute centers on the rights of 14,500 health providers that collectively spend about $4 billion a year on outpatient drugs. A 2006 government report found that those providers overpaid by $3.9 million during one month.
A San Francisco-based federal appeals court said the providers can sue to enforce a contract between the drugmakers and the federal government. The companies said the federal law governing the discount program doesn’t authorize private suits.
The case is Astra USA v. County of Santa Clara, 09-1273, U.S. Supreme Court (Washington).
Suits Against Foreign Companies Draw U.S. Supreme Court Review
The U.S. Supreme Court agreed to use a case involving three overseas units of Goodyear Tire & Rubber Co. to consider giving foreign companies a stronger shield against legal claims filed in American courts.
The justices yesterday said they will review a ruling that required the Goodyear units to face a lawsuit filed by the families of two North Carolina boys killed in a 2004 bus wreck in France.
A North Carolina state appeals court said the units had enough of a connection to the state to put them within the jurisdiction of the courts there, even though the accident took place elsewhere.
The case is Goodyear Luxembourg Tires v. Brown, 10-76, U.S. Supreme Court (Washington).
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Ex-TFS Broker Fined, Banned in U.K. for AKO Kickbacks
A former TFS Derivatives Ltd. broker was banned from working in the U.K. finance industry for paying kickbacks to a former trader at hedge fund AKO Capital LLP who pleaded guilty in June to insider-trading charges.
In addition to the ban, Fabio Massimo De Biase, the broker, was also fined 252,239 pounds ($400,750) by the U.K. Financial Services Authority for paying 131,000 pounds to Anjam Ahmad at AKO in exchange for brokerage business between January 2008 and September 2009, the regulator said yesterday in a statement. The men overcharged the hedge fund by $739,000 on commissions to increase the amount of money they split, the FSA said.
“De Biase exploited the trust of his employer and his client,” FSA head of enforcement Margaret Cole said. “This substantial fine and the ban from working in the financial services industry are significant penalties and should serve as a reminder that such behavior is woefully short of that expected of approved persons and will not be tolerated.”
Mark Duffell, a spokesman for De Biase’s lawyers at Irwin Mitchell, wasn’t available to comment. De Biase received a reduction to his fine for agreeing to settle the case.
Ahmad was fined 287,000 pounds in June, 131,000 pounds of which was for pushing trades to De Biase. In the insider dealing case, Ahmad admitted to passing information on AKO’s block trades to a co-conspirator who placed spread bets before the hedge fund’s trades. AKO, where Ahmad worked until September 2009, hasn’t been accused of wrongdoing.
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India’s Bar Council Decides Not to Permit Overseas Law Firms
The Bar Council of India decided not to permit foreign lawyers to practice in the country, the Ministry of Law & Justice said in a statement on the Press Information Bureau website yesterday.
“The decision is being subject to a more detailed and rational scrutiny in the light of the opinions and points of view of different stakeholders,” the statement said.
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To contact the editor responsible for this story: David E. Rovella at firstname.lastname@example.org.