The U.S. Securities and Exchange Commission may seek sanctions against two former State Street Corp. (STT) executives accused of misleading investors in a bond fund involved in a $313 million settlement with the agency.
John Flannery and James Hopkins “played an instrumental role” in letters touting as safe a fund that was almost entirely invested in securities and derivatives backed by the subprime mortgages, the SEC said yesterday. State Street, the second-largest money manager for institutions, resolved related claims in February without admitting or denying the allegations.
Lawmakers and investors have faulted the SEC for suing companies in cases stemming from subprime-mortgage crisis without holding individuals responsible. An SEC administrative judge will determine whether to impose penalties or other sanctions against Flannery, State Street’s chief investment officer of the Americas until November 2007, and Hopkins, a former product engineer, the agency said.
“It is unfair and unjust that the SEC has chosen to bring claims against Mr. Flannery when he believed that the letters were accurate and he followed the advice” of State Street’s lawyers, said Mark Pearlstein, his attorney at McDermott Will & Emery. “He fully cooperated with the SEC’s investigation, and the evidence demonstrates that Mr. Flannery acted in complete good faith.”
Hopkins is “disappointed” by the SEC’s allegations and “fully expects to be exonerated once the true facts are presented,” John Sylvia, his attorney at Mintz Levin Cohn Ferris Glovsky & Popeo PC, said in a statement.
The SEC’s claims were related to State Street’s Limited Duration Bond Fund, which was marketed as an alternative to a money-market fund. The Boston-based firm failed to disclose to some investors the extent of the fund’s investments in bonds backed by subprime home loans, the SEC said.
“State Street has resolved this matter both in terms of addressing client concern as well as settling with the SEC,” said spokeswoman Arlene Roberts, declining to comment on the case against Flannery and Hopkins.
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J&J Wins Appeal Over ‘Invalid’ Novartis Lens Patent
The judgment against Novartis and its Ciba Vision unit came yesterday at the Court of Appeal in London. Novartis, Switzerland’s largest drugmaker, appealed after a lower court in July 2009 ruled its patent was “insufficient.”
The lower court “was entirely right to decide the patent was insufficient,” U.K. Court of Appeal Justice Robin Jacob wrote in the ruling. The patent is “nothing but a hazard to those conducting research into extended-wear contact lenses.”
Novartis, based in Basel, Switzerland, sued in May 2007 over claims that J&J’s Acuvue Oasys lenses violate the patent by using similar chemicals. J&J, the world’s biggest health-products company, began selling Oasys in February 2005 through its Vision Care unit. Lawsuits over the same lenses have also been filed in the U.S.
Novartis argued that the lower court’s judgment was “out on a limb” because Dutch and French courts had considered the same patent and arrived at different conclusions. A three-judge panel at the appeals court yesterday disagreed.
“Johnson & Johnson Vision Care is very pleased” that the court ruled that the patent “is completely invalid” in the U.K., spokesman Gary Esterow said in an interview.
J&J, based in New Brunswick, New Jersey, argued in the U.K. appeal that Novartis’s patent covered too much technology.
An e-mail to Ciba Vision’s U.K. press office wasn’t immediately returned.
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WaMu Loses Bid for Mortgage-Securities Suit Dismissal
Washington Mutual Inc. (WM), the ex-owner of the biggest U.S. bank to fail, must face claims in a lawsuit over $10.8 billion in mortgage-backed securities it sold, a federal judge ruled.
U.S. District Judge Marsha Pechman in Seattle said allegations that WaMu mislead investors can proceed, according to a court order dated Sept. 28. She dismissed other claims against the company.
“In essence, plaintiffs allege the underwriting guidelines ceased to exist,” the judge wrote, refusing to dismiss the entire case. “If proven true, the absence of underwriting standards could make the identified statements misleading.”
Lead plaintiffs Policemen’s Annuity and Benefit Fund of the City of Chicago, Boilermakers National Annuity Trust and Doral Bank Puerto Rico sued Units of WaMu. They and other buyers purchased $47.3 billion of mortgage-backed certificates, according to court documents. The buyers said in a statement yesterday that the ruling allows claims to proceed with respect to seven offerings totaling $10.8 billion.
David Balabanian, who was listed as a lawyer for WaMu, couldn’t immediately be reached for comment.
The case is Boilermakers National Annuity Trust Fund v. WaMu Mortgage Pass Through Certificates, 2:09-cv-00037, U.S. District Court, Western District of Washington (Seattle).
Vivendi, Time Warner Seek to End ‘Ellen’ Music Suit
Vivendi SA’s (VIV) music labels and Time Warner Inc. asked a court to dismiss a lawsuit the labels brought against Time Warner, the producer of Ellen DeGeneres’s television talk show, for allegedly playing their songs without authorization.
The adversaries filed a joint request yesterday in federal court in Los Angeles to end the copyright infringement case, which was filed in March.
Interscope Records, Motown Record Co. and UMG Recordings said in the suit that the “Ellen DeGeneres Show” played hundreds of their sound recordings without obtaining permission or paying for licenses. The songs included “Superfreak” by Rick James and “My Humps” by the Black Eyed Peas, according to the labels, part of Paris-based Vivendi’s Universal Music Group, the world’s largest record company.
The producers, including New York-based Time Warner’s (TWX) Warner Bros. Television, said they had an “implied” license because the labels took no action for almost six years.
Jeffrey Goldman, a lawyer for Interscope, and Aton Arbisser, a lawyer for Time Warner, weren’t immediately available for comment. Nor was Scott Rowe, a spokesman for Warner Bros. Television.
U.S. District Judge Stephen Wilson on Aug. 30 denied a request by both sides to halt the case for arbitration and said it would proceed to trial on Nov. 30.
The case is Interscope Records v. Time Warner Inc., 10-1662, U.S. District Court, Central District of California (Los Angeles).
BP Asks Judges to Send Workers’ Savings Cases to Texas
Lawsuits by workers claiming BP Plc (BP/)’s North American unit mismanaged their retirement savings plan should be sent to the Texas court handling investor claims prompted by the Gulf of Mexico oil spill, company lawyers told a panel of judges.
The employees previously asked that the suits be combined in Chicago, where the retirement plan is administered. BP yesterday told a panel of federal judges meeting in Nashville, Tennessee, that the cases belong in Houston because the claims are similar to those in other investor suits.
“The important thing to focus on here is the vast overlap in discovery,” or evidence-gathering, Daryl Libow, BP’s attorney, told the judges. “Five of the seven members of the employee plan oversight committee are in Houston.”
In the suits, filed as class actions on behalf of all U.S. employees participating in the company’s retirement savings plan, workers claim losses of more than $1 billion from the stock plunge after the April 20 spill. BP’s pre-spill safety record made the company a risky investment, the employees say.
The actions should stay in Chicago, where seven of the eight suits were filed, lawyers for the workers said in court papers. The cases were brought under the federal Employee Retirement Income Security Act, or ERISA.
The panel, meeting yesterday at the Vanderbilt University Law School, in August consolidated lawsuits over claims that the company misled investors before and after the spill.
The lawsuits are In Re BP Plc Securities Litigation, MDL 2185, U.S. District Court, Southern District of Texas (Houston), and In Re BP Securities, Derivative and Employment Retirement Income Security (ERISA) Litigation.
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Societe Generale Wins Dismissal of U.S. Suit Over Kerviel Loss
Societe Generale SA (GLE) won dismissal of a U.S. investor lawsuit over Jerome Kerviel’s 4.9 billion-euro ($6.7 billion) trading loss and a 1.1 billion-euro writedown related to the subprime mortgage market.
A U.S. Supreme Court ruling from June that limits the rights of investors who bought shares in foreign companies on foreign exchanges to sue in American courts extends to U.S. investors, U.S. District Judge Richard Berman in New York said in a ruling Sept. 29.
The Supreme Court decision “compels dismissal of all three plaintiffs,” Berman wrote. “As here, domestic plaintiffs purchased shares of a foreign bank traded on a foreign exchange,” Berman said, making arguments the Supreme Court decision applied only to foreign investors “inapplicable.”
A Paris court rules this week on whether Kerviel is criminally responsible for the January 2008 trading loss, which occurred when France’s second-largest bank unwound 50 billion euros in unauthorized bets. French engineering group Alstom SA (ALO) on Sept. 13 also won dismissal of a U.S. lawsuit filed by investors who bought shares on foreign exchanges, based on the Supreme Court ruling.
The case is 1:08-cv-02495-RMB, U.S. District Court, Southern District of New York.
Fannie Mae Investors Barred From Suing Over Some Fraud Claims
Investors can’t pursue some of their securities-fraud claims against Fannie Mae (FNMA) in a lawsuit accusing the government-controlled mortgage financier of recklessly disregarding the deterioration of the U.S. housing market.
U.S. District Judge Paul A. Crotty in New York yesterday granted Fannie Mae’s request to dismiss claims that it misrepresented its exposure to subprime and Alt-A mortgages, two types of home loans that contributed to more than $1.8 trillion in worldwide financial losses and asset writedowns. Shareholders are allowed to proceed with allegations that Fannie Mae misled them about its internal controls and risk management practices.
“E-mails suggest that Fannie was conscious of its internal inability to manage the risks associated with subprime loans,” the judge said.
Shareholders sued Fannie Mae and its former executives in 2008 after the U.S. government took control of the company. Fannie Mae fell 3 percent to 27 cents in over-the-counter trading yesterday, compared with $69.49 on June 18, 2007.
The plaintiffs, including common and preferred stock investors who bought shares from Nov. 8, 2006, to Sept. 5, 2008, claim the company and its executives continued to invest in risky mortgages without regard for the housing market’s growing volatility.
Janis Smith, a spokeswoman for Fannie Mae in Washington, declined to comment on the ruling. Donald Hall and Glen DeValerio, lawyers for the investors in the case, didn’t immediately return calls seeking comment yesterday.
The case is In re Fannie Mae 2008 Securities Litigation, 08-7831, U.S. District Court, Southern District of New York.
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BP to Pay $15 Million in Record Air Pollution Penalty
A BP Plc unit will pay $15 million, the largest ever single-facility Clean Air Act penalty, to resolve claims stemming from two fires and a leak at a Texas refinery that killed 15 people, the Justice Department said.
Residents near the refinery in Texas City, Texas, were ordered to shelter as a result of the incidents at the BP Products North America Inc. facility in 2004 and 2005, the government said yesterday in a statement. The accidents released thousands of pounds of flammable and toxic pollutants, it said.
The settlement resolves allegations that London-based BP failed to identify all regulated hazardous air pollutants used at the refinery in plans submitted to environmental regulators, according to the statement.
Daren Beaudo, a BP spokesman, didn’t immediately return a voice-mail message seeking comment.
Panasonic, Whirlpool Unit Settle Price-Fixing Case
The $91.8 million fine of Suwanee, Georgia-based Embraco North America Inc., the Whirlpool unit, resulted in Whirlpool lowering its earnings estimate to $7.80 to $8.30 a share for 2010. The company had predicted earnings of $9 to $9.50 a share, according to a company statement.
In a statement, Osaka, Japan-based Panasonic said its $49.1 million fine wouldn’t have a “material effect” on the fiscal year that ends March 31.
Panasonic and Embraco conspired to fix prices for refrigerant compressors in the U.S. and elsewhere, the Justice Department said yesterday in a press release. The compressors pump high-pressure vapor that cools refrigerators and freezers.
Christine Varney, who heads the department’s antitrust division, said the plea agreement resolves the first charges brought in a broader investigation into the refrigerant compressors market.
“The DOJ recognized Embraco’s substantial assistance in the investigation and agreed not to bring further charges against Embraco or any related entities for any conspiracy involving compressor pricing,” Whirlpool said in a regulatory filing.
Novartis to Pay $422.5 Million to End Trileptal Probes
A U.S. unit of Novartis AG, the Swiss drugmaker, agreed to pay $422.5 million to resolve criminal and civil investigations into the marketing of its epilepsy drug Trileptal.
Novartis agreed to plead guilty to a misdemeanor and pay a $185 million fine, the U.S. Attorney’s Office in Philadelphia said yesterday in a statement. The company also agreed to pay $237.5 million to resolve civil allegations over the promotion of Trileptal for uses not approved by the U.S. Food and Drug Administration, the federal prosecutor’s office said.
The civil settlement resolves lawsuits filed by several whistleblowers under the False Claims Act. The law lets private citizens sue on behalf of the government and share in any recovery.
On Sept. 15, a Forest Laboratories unit agreed to plead guilty and pay $313 million for distributing its Levothroid thyroid drug before approval by the FDA. On Sept. 1, Allergan Inc. (AGN) agreed to plead guilty and pay $600 million to resolve civil and criminal probes over marketing of the wrinkle smoother Botox.
Georgia-Pacific Loses Toilet-Paper Trademark Claim
A Georgia-Pacific LLC unit lost a trademark-infringement case filed against rival Kimberly-Clark Corp. (KMB) over the design for a line of toilet paper.
U.S. District Judge Virginia Kendall in Chicago ruled yesterday that Georgia Pacific Consumer Products LP’s quilted-diamond design was a functional element of the product and couldn’t be trademarked.
The diamond pattern appears on Georgia-Pacific’s Quilted Northern toilet paper, and on three competing Kimberly-Clark products, Cottonelle Ultra, Scott Extra Soft and Scott Kimberly-Clark Professional, the judge said.
“The degree to which Georgia Pacific emphasized the utilitarian benefits of the quilted diamond design in its advertising provides additional support” for finding that it’s functional and not merely an aesthetic choice, Kendall said.
Kendall also granted Kimberly-Clark’s counterclaims seeking cancellation of four Georgia-Pacific trademarks implicated by her ruling.
Georgia-Pacific, based in Atlanta, is a unit of Wichita, Kansas-based Koch Industries Inc. It sued Dallas-based Kimberly-Clark in April 2009.
“We haven’t had any time to review the decision,” James Malone, a spokesman for Georgia Pacific said in a phone interview yesterday. He said that, while no determination has been made as to an appeal, the company “strongly believes in protecting its valuable intellectual property,” including the embossed patterns at issue in the case.
The case is Georgia-Pacific Consumer Products LP v. Kimberly-Clark Corp., 09cv2263, U.S. District Court, Northern District of Illinois (Chicago).
Merck Loses $4.6 Million Verdict in Price-Fixing Trial
Merck & Co. (MRK) units were ordered to pay $4.6 million over a lawsuit brought by Massachusetts that claimed they inflated wholesale prices of Proventil generics.
A federal-court jury in Boston yesterday found in favor of the state over Schering Corp. and Warrick Pharmaceuticals, units of Whitehouse Station, New Jersey-based Merck. The judge has the discretion to triple the award.
Massachusetts claimed the companies reported inflated wholesale acquisition-cost prices for the generics, and that MassHealth, the state component of the Medicaid program, would rely on those prices for reimbursements.
“The company intends to vigorously pursue a reversal of the verdict in the trial court and on appeal if necessary,” said Bruce Kuhlik, Merck’s general counsel. “We strongly believe the evidence showed that the Commonwealth made informed choices about the amounts it paid to Massachusetts pharmacists and that Warrick was in no way responsible for these choices.”
Representatives of the state didn’t immediately return messages seeking comment.
The case is Massachusetts v. Mylan Laboratories, 03-cv-11865, U.S. District Court for Massachusetts (Boston).
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Air France-KLM, Martinair Sued Over Cargo Cartel
Air France-KLM (AF) Group and its Dutch Martinair unit were sued in a lawsuit seeking as much as 500 million euros ($680 million) over claims the carriers fixed prices on air-shipping services.
Royal Philips Electronics NV and Ericsson AB are among freight customers joining a case to seek the damages in Dutch courts for paying too much to freight goods in Europe from 2000 to 2006, according to Claims Funding International Plc, a Dublin-based company organizing the case.
The lawsuit, filed in the Netherlands, would hold Air France-KLM and Martinair “jointly and severally liable” for harm that members of a global cartel caused customers in Europe, said Martijn van Maanen, a partner at BarentsKrans, the Hague-based law firm representing CFI.
Air France in July paid $87 million to hundreds of freight shippers to settle class-action lawsuits in the U.S. It also paid a $350 million criminal fine and pleaded guilty to U.S. antitrust charges in 2008. It didn’t reach a settlement with end-customers in Europe.
European Union regulators are still investigating dozens of carriers for alleged price-fixing, almost three years after they sent formal complaints to 26 airlines.
Cedric Leurquin, a spokesman for Air France in Paris, declined to comment on the lawsuit.
Joon Knapen, a spokesman for Amsterdam-based Philips, and Fredrik Hallstan, a spokesman for Ericsson in Stockholm, said the companies had joined the case.
To contact the editor responsible for this story: David E. Rovella at firstname.lastname@example.org.