New York Attorney General Andrew Cuomo asked a judge to rule without trial that Ezra Merkin and his Gabriel Capital Corp. engaged in fraud by secretly placing client funds with swindler Bernard Madoff.
Cuomo, who sued Merkin in 2009 for steering $2.4 billion to Madoff in exchange for millions of dollars in fees, filed a motion for summary judgment Oct. 18 in New York state Supreme Court in Manhattan. Madoff is serving 150 years in prison after pleading guilty in 2009 to running the biggest Ponzi scheme ever.
The “undisputed evidence” establishes that Merkin and Gabriel induced hundreds of people to invest in funds he controlled by not disclosing that the funds were managed by Madoff, according to the filing. There was misrepresentation and concealment in offering memos, quarterly investor letters and personal meetings, the filing said.
“The attorney general has established that defendants engaged in ‘deceitful practices’ in violation of the Martin Act and Executive Law,” the motion says, citing the state securities fraud statute and the law governing persistent fraud or illegality.
Andrew Levander, an attorney who represents Merkin, said in an e-mailed statement that Cuomo’s motion for summary judgment was “entirely unfounded” and should be denied. He also reiterated yesterday that the case was without merit.
“Indeed, discovery has shown that investors in the Ascot, Gabriel and Ariel funds were not misled in connection with their investments,” Levander said, referring to Merkin’s funds Ascot Fund Ltd., Ascot Partners, Ariel Fund Ltd., and Gabriel Capital LP.
Merkin, 57, and Gabriel also breached their fiduciary duties to investors by not disclosing and investigating signs that something was amiss with Madoff’s fund, according to Cuomo’s filing.
The attorney general is seeking $729 million in restitution of fees, unspecified restitution for investor losses as a result of Madoff’s fraud, and an order prohibiting Merkin from acting as an investment adviser or money manager in the future.
The Cuomo case is New York v. Merkin, 450879/2009, New York state Supreme Court (Manhattan.) The other cases are Noel M. Wiederhorn, MD v. Merkin,601265/2010, and Sandalwood Debt Fund v. Merkin, 651441/2010, New York state Supreme Court.
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Och-Ziff Wins Lawsuit Against London Firm Over Name
Och-Ziff Capital Management Group, the hedge-fund firm run by Daniel Och, won a lawsuit against a London investment adviser and its founder to block the use of the Och name.
OCH Capital LLP and its founder, Thomas Ochocki, infringed the Och-Ziff trademark, Judge Richard Arnold in London ruled yesterday. Och-Ziff’s European unit sued the London firm last year and asked the court to stop the firm from using the first portion of its name. Och-Ziff has more than $26 billion in assets under management.
OCH Capital began operating in September 2009, according to the judgment. Och-Ziff learned of the firm when an interior designer who works for the hedge fund saw the OCH Capital sign on a building in the Mayfair neighborhood of London and assumed it was Och-Ziff.
“OCH is strongly distinctive for financial services,” Arnold said in the judgment. “There is a manifest likelihood of confusion on the part of both types of consumer.”
Jonathan Gasthalter, a spokesman for New York-based Och- Ziff, declined to comment.
Damages in the case will be set at a later hearing.
A lawyer for OCH Capital, Alistair Wilson, said during a three-day trial two weeks ago that the London-based firm pronounces its name as initials, and offered to Och-Ziff to clarify that late last year by changing its name to O.C.H. Capital. The name was never changed, Arnold said in the judgment.
The case is Och-Ziff Management Europe v. OCH Capital LLP, 112/10, High Court of Justice, Chancery Division (London).
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Deutsche Bank Wins Appeals Case Over 2007 Boersig Appointment
Deutsche Bank AG, Germany’s biggest lender, won “most parts” of an appeals case over decisions at its 2007 shareholder meeting, the Frankfurt Higher Regional Court said in an e-mailed statement yesterday.
The court upheld the meeting’s decision to confirm the election of Clemens Boersig to the bank’s supervisory board as well the 2006 annual financial statement. The court struck down the meeting’s vote to discharge the management and supervisory boards from liability for the year.
The suit is one of about a dozen filed by Leo Kirch, the German businessman who blames Deutsche Bank for the collapse of his media empire. In June, Deutsche Bank lost an appeals court ruling by a different chamber of the same court over votes at its 2008 shareholder meeting, including the re-election of Boersig to its supervisory board.
A spokesman for Kirch, who declined to be identified, said he couldn’t comment because he hadn’t received the written judgment. Deutsche Bank also declined to comment.
Kirch started a legal battle against the lender after the bank’s former chief executive officer Rolf Breuer commented about the creditworthiness of Kirch’s former media group on Bloomberg TV in February 2002. Kirch has sued the bank over each annual shareholder meeting at Deutsche Bank since 2003.
“Like several rulings of other chambers of this court, the judges held there was no need to make provisions for a damage claim by Kirch Group based on an interview of Deutsche Bank’s former chief executive,” the court said.
Yesterday’s case is OLG Frankfurt, 23 U 121/08.
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Fannie Mae Sues Insurers Over Mortgage Loan Losses
Fannie Mae sued insurance companies, including Great American Financial Resources Inc. and The Travelers Cos., claiming they are responsible for losses on the $131 million Fannie Mae paid for fraudulent mortgage loans.
In the lawsuit filed yesterday in federal court in Washington, Fannie Mae said that under Financial Institution Bonds sold by the insurers, they are responsible for the losses. The company currently faces $108 million in exposure, it claims.
In June 2009, Michael J. McGrath Jr., the former president of U.S. Mortgage Corp., pleaded guilty to two criminal counts in a conspiracy that prosecutors said defrauded Washington-based Fannie Mae.
McGrath said that from 2004 until January 2009 he fraudulently sold credit-union loans and used the proceeds to finance U.S. Mortgage’s operations and investments.
Other defendants in yesterday’s lawsuit include Chubb Group of Insurance Cos., Lloyd’s of London, CNA Insurance Co., HCC Insurance Holdings Inc.’s Professional Indemnity Agency, Zurich North America, Liberty Mutual Group, and Fidelity & Deposit Co. of Maryland.
The case is Federal National Mortgage Association v. Certain Underwriters at Lloyd’s, London, 10cv1775, U.S. District Court for the District of Columbia (Washington).
HealthMarkets Accused by Los Angeles of Defrauding Customers
HealthMarkets Inc., an insurance company controlled by Goldman Sachs Group Inc. and Blackstone Group LP, was accused of defrauding customers in a lawsuit brought by Los Angeles.
The health insurer and two of its subsidiaries sold “junk insurance” that was marketed as comprehensive but had hidden or obscure exclusions that left policyholders without coverage when they needed it, Los Angeles City Attorney Carmen Trutanich said in a complaint filed yesterday in California state court.
Blackstone and Goldman Sachs, which bought HealthMarkets in 2006, must have, or should have known that the company was engaged in a fraudulent scheme to sell ineffective insurance, according to the complaint.
“The investor defendants have participated in, encouraged and facilitated the continuance of the scheme through their control of the board directors of defendant HealthMarkets and key board committees, including the compliance and governance committee,” the city attorney said.
The lawsuit accuses the insurer of unfair competition and false advertising and seeks a court order requiring HealthMarkets and its subsidiaries to provide coverage in keeping with its promises, statutory damages of $2,500 per violation and restitution.
Donna Ledbetter, a spokeswoman for North Richland Hills, Texas-based HealthMarkets, had no immediate comment on the lawsuit. Goldman Sachs spokesman Lucas van Praag and Blackstone spokeswoman Heather Lucania, didn’t immediately return calls for comment after regular business hours.
The case is People v. HealthMarkets, BC447886, Los Angeles County Superior Court.
BP Sued by Groups Seeking Cleanup of Wildlife Habitats
BP Plc should pay damages and create a fund to restore wildlife and habitats harmed by the Gulf of Mexico oil spill, environmental groups said in a lawsuit.
The complaint filed yesterday in federal court in New Orleans by Defenders of Wildlife, Gulf Restoration Network Inc. and Save the Manatee Club Inc. alleges that at least 27 federally protected species inhabiting the Gulf region were harmed by the worst marine oil spill in U.S. history.
The endangered animals include five types of sea turtle, four species of whales and Florida’s manatees, which the environmentalists claim are being harmed, harassed and “taken” in violation of the U.S. Endangered Species Act because of the oil spill.
Scott Dean, a Houston-based spokesman for BP, declined to comment.
BP, which is based in London, is still trying to clean up more than 4.1 million barrels of crude oil spewed into the Gulf by a damaged subsea well off the Louisiana coast. The spill was caused by the explosion and sinking of the Deepwater Horizon drilling rig, under contract to BP, which occurred six months ago yesterday.
The case is Defenders of Wildlife v. BP Plc, 2:10-cv-03879, U.S. District Court, Eastern District of Louisiana (New Orleans).
Eurostar Sued by Alstom Over Order for Siemens Trains
Eurostar Group Ltd., which runs rail services through the Channel Tunnel, is being sued by French trainmaker Alstom SA over its decision to buy expresses for 600 million euros ($830 million) from Siemens AG of Germany.
Alstom filed a complaint at the High Court in London yesterday saying that the tender can’t be concluded because the Siemens units don’t meet safety regulations that apply in the tunnel, spokesman Stephane Farhi said yesterday in an e-mail.
Eurostar said on Oct. 7 it would purchase 10 Siemens trains to add routes and fend off competition from Germany’s Deutsche Bahn AG, which plans services via the tunnel from 2013. Alstom’s complaint centers on the choice of units with multiple engines, which would require an amendment to safety rules, even though its own proposal featured similar technology, Eurostar said.
“Eurostar firmly believes that the arguments raised by Alstom in support of its challenge are without foundation,” the Anglo-French company, which is controlled by French state rail operator SNCF, said in an e-mail. “Siemens submitted a bid that was significantly better than that of Alstom on key aspects.”
The tender process was “robust,” with all bids received “fairly and objectively evaluated,” Eurostar said.
Munich-based Siemens said the Alstom lawsuit isn’t directed against it while expressing confidence that the court will find that correct procedures were followed.
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Lehman Can Halt Lawsuits Filed to Recover Payments
Lehman Brothers Holdings Inc., the investment bank in bankruptcy, can halt dozens of lawsuits it filed against banks and investors to recover payments as part of its effort to recover money for creditors.
Judge James Peck of the U.S. Bankruptcy Court in Manhattan approved Lehman’s request to stay the lawsuits while it negotiates with defendants, a group includes Bank of America Corp. and Deutsche Bank AG as trustees for investors.
“I am satisfied that a stay is absolutely desirable here and in the best interest of all parties,” he said.
Lehman filed about 50 lawsuits, known as avoidance actions, to meet a statute of limitations for bringing the complaints and preserve its claims, according to court papers. It has agreements that could lead to lawsuits against additional defendants. More than 1,000 parties are potentially involved, Harvey Miller, Lehman’s bankruptcy attorney told Peck at yesterday’s hearing.
Lehman won approval to halt the lawsuits so it can avoid the costs of litigation. The stay applies to cases that have been filed and future cases, according to court papers. Several of the defendants named in the lawsuits filed objections, and Peck imposed a nine-month period for the stay.
The case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
GM Estate Seeks Approval of Environmental Agreement
General Motors Corp.’s bankruptcy estate seeks public and court approval of a settlement that sets aside $773 million to resolve environmental liabilities.
The mix of cash and assets, to be put into trusts, will clean up and administer 89 properties, 59 of which are known to be contaminated, according to a statement by Gary Grinder, acting deputy U.S. attorney general. A 30-day period to gather public comment will precede a request for bankruptcy court approval.
“More than half of the cleanup funds to be paid to the environmental response trust will be provided for the environmental remediation of sites in New York and Michigan,” Grinder said in the statement.
The resolution of environmental issues paves the way for the old GM estate to end bankruptcy, after U.S. Bankruptcy Judge Robert Gerber in New York in May gave the company a four-month extension of its time in Chapter 11 to resolve environmental liabilities.
The case is In re Motors Liquidation Co., 09-50026, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
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New York Courts Mandate Lawyers Certify Foreclosures
New York state courts will require lawyers in residential foreclosure actions to certify they have taken “reasonable” steps to verify the accuracy of documents submitted to the court.
The new rule, released in a statement by the New York state Unified Court System, is effective immediately.
Chief Judge Jonathan Lippman introduced the requirement in response to disclosures of deficiencies in residential foreclosure filings nationwide, including notarization and “robo-signing” and affidavits that falsely state the signer has knowledge of the facts, the statement said.
“We cannot allow the courts in New York State to stand by idly and be party to what we now know is a deeply flawed process, especially when that process involves basic human needs -- such as a family home -- during this period of economic crisis,” Lippman said in the statement.
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Hands Says He Has No Record of Crucial EMI Deal Calls
Guy Hands, the founder of Terra Firma Capital Partners Ltd., testified that he has no records to back up his claim that Citigroup Inc. banker David Wormsley misled him in three crucial telephone conversations about the 2007 auction for EMI Group Ltd.
Hands, who was cross-examined in his $8.3 billion fraud suit against Citigroup, said yesterday he is unaware of any notes or documents showing that Wormsley falsely told him, during the weekend before the auction, that Cerberus Capital Management LP planned to submit a competing bid for EMI.
“You cannot identify one single piece of paper in the corporate records that reflects that you had a conversation with David Wormsley about his representation that Cerberus was going to bid 262 on Monday, May 21?” Citigroup attorney Ted Wells, referring to the purported 2.62 pounds-a-share bid, asked Hands in the Manhattan federal court trial.
“I’m not personally aware of any, no,” Hands answered.
The phone conversations are central to Hands’s claim that Wormsley misled Terra Firma into overpaying for EMI, the 113- year-old music company, which has lost money since the acquisition. Hands testified yesterday that the firm wouldn’t have participated in the auction had he known there were no other bidders.
Hands claims that on the final weekend before the auction, Wormsley, whom he described in testimony as his friend and business associate, told him in three separate phone calls that Cerberus remained in the auction and was submitting a bid for 2.62 pounds ($4.15) a share.
The case is Terra Firma v. Citigroup, 09-cv-10459, U.S. District Court, Southern District of New York (Manhattan).
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Ex-Cazenove Partner Calvert Drops Conviction Appeal, FSA Says
Malcolm Calvert, the ex-partner at JPMorgan Chase & Co.’s Cazenove unit who served a third of his 21-month sentence for insider trading, dropped his appeal of the conviction and a 524,000-pound ($827,000) penalty.
Calvert, who was released from prison about two weeks ago, has since ended his challenge at the Court of Appeal, Financial Services Authority spokesman Christopher Hamilton said yesterday. The early release was the decision of the U.K. prison service, he said.
Judge Peter Testar in May ordered Calvert to forfeit 474,000 pounds and pay another 50,000 pounds to cover the FSA’s prosecution costs. At an earlier hearing, the FSA had asked for almost 500,000 pounds in costs.
Calvert was convicted in March.
Harvey Dyson, Calvert’s lawyer, didn’t return an e-mail seeking comment.
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Fannie Mae Suspends Use of Stern Law Firm in Foreclosures
Fannie Mae, the largest provider of mortgage financing in the U.S., said it halted referrals to a Florida foreclosure- processing law firm that’s being investigated by the state attorney general.
The Law Offices of David J. Stern PA have drawn scrutiny in Attorney General Bill McCollum’s investigation into the foreclosure of homes based on possibly fraudulent or improperly prepared documents. Citigroup Inc. said last week that it had suspended referrals to Stern’s Plantation, Florida-based firm.
“Given the increasing questions related to the Stern law firm, we decided it was appropriate and responsible to suspend new referrals to the firm,” Amy Bonitatibus, a spokeswoman for Washington-based Fannie, said yesterday.
The suspension began Oct. 11, she said. Fannie Mae, which has a $3.3 trillion book of business, has hired law firm Bradley Arant Boult Cummings LLP to review Stern’s processes and operations.
Jeffrey Tew, David Stern’s attorney, said that his client was “cooperating fully” with the Fannie Mae inquiry and that the mortgage giant “is doing their due diligence in light of some things that have been published.”
“The firm is fine with that and we’re happy to let them do their review,” Tew said.
Freddie Mac, the nation’s second-largest provider of mortgage financing, has also suspended referrals to Stern’s firm pending a review, Brad German, a spokesman, said in an e-mail.
The company is “deeply concerned about recent reports that some law firms handling foreclosure cases may have failed to follow appropriate legal standards in preparing or filing documents used in the prosecution of foreclosure cases,” German said. McLean, Virginia-based Freddie has a $2.2 trillion book of business.
Merck Vioxx Accord Lead Lawyers to Get $315 Million
A lead group of lawyers will get $315.3 million for doing most of the work on lawsuits against Merck & Co. over its Vioxx painkiller while other attorneys who filed suits will share $1.24 billion, a judge ruled.
Lawyers who worked for the so-called common benefit of the plaintiffs in thousands of lawsuits against Merck deserve 6.5 percent of the $4.85 billion settlement, less than the 8 percent they initially sought, said U.S. District Judge Eldon Fallon in New Orleans.
Fallon said in August 2008 that lawyers who sued could collect as much as 32 percent of the settlement. The judge ruled yesterday that the $315.3 million in common-benefit fees will come from the total legal fees, leaving $1.24 billion for other lawyers who sued Merck.
“The tension in this case is between the attorneys who have done common benefit work and the primary attorneys who have not,” Fallon ruled. “The undeniable fact remains that the great bulk of the work as well as the expense was borne by the attorneys who performed common benefit work.”
The lawyers outside the common-benefit group include those who filed suits on behalf of individual clients.
The settlement, announced in November 2007, resolved almost 50,000 claims of Vioxx users who blamed the drug for heart attacks, strokes and lesser injuries.
The company reserved $1.9 billion for legal fees.
The case is Vioxx Products Liability Litigation, MDL-1657, U.S. District Court, Eastern District of Louisiana (New Orleans).
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Chicago Lawyer Pleads Guilty in Tax-Shelter Fraud
A Chicago attorney pleaded guilty to conspiracy and tax evasion charges for his role in a billion-dollar phony tax- shelter scheme that brought down his law firm in 2007.
Erwin Mayer, 47, a former attorney at the defunct law firm Jenkens & Gilchrist, faces as long as 10 years in prison at his sentencing, scheduled for Feb. 10 before U.S. District Judge William H. Pauley in Manhattan.
“I am filled with shame and remorse for what I did,” Mayer said Oct. 19 in court.
Mayer was one of seven people indicted in June 2009 on charges of conspiracy and tax evasion for their roles in marketing the phony shelters from 1994 to 2005. Prosecutors said the defendants used the shelters to generate more than $7.32 billion in fraudulent tax losses for at least 931 wealthy individuals.
Jenkins & Gilchrist in 2005 agreed to pay $81.6 million to clients who sued over its tax-shelter advice. In March 2007, the firm avoided prosecution by admitting it developed and marketed tax shelters that generated more than $1 billion in phony losses, and then shut down.
The case is U.S. v. Daugerdas, 1:09-cr-00581, U.S. District Court, Southern District of New York (Manhattan).
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To contact the editor responsible for this story: David E. Rovella at email@example.com.