Lehman, JPMorgan, Bank of America, HP in Court News

U.S. Bankruptcy Judge James Peck said he never approved the final details of how billions of dollars of assets were to be distributed in bankrupt Lehman Brothers Holdings Inc.’s sale of its brokerage to Barclays Plc.

“Let me be clear about one thing, Mr. Boies,” Peck told Barclays’ lawyer David Boies. “I never approved the clarification letter,” one of about 12,000 documents filed in the bankruptcy.

Peck had interrupted Boies as he began closing arguments in the $11 billion trial. The lawyer said the judge had no legal basis for reopening his own sale order because all details of the deal were known at the time. That included a so-called clarification letter allocating extra assets to Barclays. Lehman rose as much as 76 percent.

“No hearings took place in this court to approve the clarification letter,” said Peck, who didn’t indicate what effect his statement would have on the details of the brokerage sale. Peck may make a final ruling in January or February, lawyers in the case have said.

Lehman, which accuses Barclays of making an $11 billion “windfall” when it bought the brokerage in the 2008 financial crisis, is trying to convince Peck that he has grounds for overturning his own order approving the sale.

Kimberly Macleod, a Lehman spokeswoman, and Michael O’Looney, a Barclays spokesman, declined to comment.

Peck may require Barclays to return to Lehman any assets that were included in the deal as part of the clarification letter because the letter wasn’t approved by the court, said Chip Bowles, a bankruptcy lawyer at Greenebaum Doll & McDonald PLLC in Louisville, Kentucky. Barclays also may lose its bid to get additional assets, he said.

Peck could rule “the clarification has no effect whatsoever,” Bowles said. “That what’s he signaling -- that this is not sacrosanct, this is not a final order of the court.”

The case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

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Terra Firma Employees Back Hands’s Testimony on Calls

Two Terra Firma Capital Partners Ltd. employees supported the testimony of their boss, firm founder Guy Hands, that Citigroup Inc. banker David Wormsley misled him about the 2007 auction for EMI Group Ltd.

Hands, whose firm is suing Citigroup for fraud in an $8.3 billion suit on trial in Manhattan federal court, claims Wormsley falsely told him in three phone calls the weekend before the auction that Cerberus Capital Management LP planned to submit a competing bid of 2.62 pounds per share for EMI.

“Guy called me up over the weekend and he said, ‘I’ve just had a conversation with David Wormsley and he tells me that Cerberus is in. They will be bidding tomorrow, and they will be bidding a price of 262,’” the witness, Riaz Punja, told jurors yesterday.

Terra Firma claims that if it had known Cerberus had dropped out of the bidding before the May 21, 2007, auction, it wouldn’t have submitted its own bid of 2.65 pounds for EMI, the 113-year-old music publishing and recording company based in London. Instead, the firm claims, it would have taken more time to study the transaction and negotiated a lower price.

Punja’s testimony comes after Hands said Oct. 20 on cross- examination that he has no documents that prove Wormsley lied to him on the weekend leading up to the Monday-morning auction.

Hands is scheduled to resume his testimony today.

The case is Terra Firma v. Citigroup, 09-cv-10459, U.S. District Court, Southern District of New York (Manhattan).

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Lawsuits/Pretrial

JPMorgan May Lose Business, Face Suit on Wintek Report

JPMorgan Chase & Co. may have lost a client’s business and face a lawsuit after Taiwan’s Wintek Corp. objected to an analyst’s report that said investors should sell the company’s shares as it was poised to lose market share.

Wintek will “end global depositary receipt cooperation with JPMorgan” because of an Oct. 19 research report by Taipei- based analyst Narci Chang, the company said in a filing to the Taiwan Stock Exchange Oct. 20. The company, which makes components for Apple Inc.’s iPad and iPhone, may take legal action against Chang, the statement said.

Display makers AU Optronics Corp. and Chimei Innolux Corp. are a “serious threat” to Wintek because they’re eroding orders from Apple, Chang said.

“The analyst report said new players will grab market share, but this assumption couldn’t be accompanied by any evidence,” Jay Huang, a spokesman for Taichung, Taiwan-based Wintek, said in a phone interview Oct. 20. “Without this event, I think we still would have cooperated with them to conduct the GDR offering.”

Marie Cheung, a Hong Kong-based spokeswoman for JPMorgan, declined to comment.

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Bank of America Must Face Employees’ Overtime Suit

Bank of America Corp. must face a lawsuit claiming it fails to pay overtime to retail branch and call center employees, a federal judge ruled.

Judge John W. Lungstrum in Kansas City, Kansas, denied Oct. 20 Bank of America’s request to dismiss the case, which consolidated separate employee lawsuits filed against the biggest U.S. bank by assets in California, Florida, Texas, Washington and Kansas.

Current and former hourly workers who were employed by the bank within the past three years argue the lender violated either the federal Fair Labor Standards Act or state wage and hour laws. Bank of America, based in Charlotte, North Carolina, asked Lungstrum to dismiss the case on grounds the employees failed to prove that they are entitled under federal law to the back pay they seek.

“The complaint here details numerous alleged ways in which the bank routinely denied overtime compensation to its retail branch and call center employees and details the nature of the work that employees were allegedly required to perform off-the- clock,” Lungstrum wrote in yesterday’s ruling.

The case is In re Bank of America Wage and Hour Employment Litigation, 10MD2138, U.S. District Court, District of Kansas (Kansas City).

U.S. Should Better Explain Bribery Settlements, Group Says

The U.S., while it still leads the world in battling corruption, should better explain why cases against corporations are settled, said an international group that combats transnational bribery.

The Paris-based Organization for Economic Cooperation and Development praised the U.S. for its commitment “at the highest echelon of the government” to fighting bribery in overseas business transactions. No country has investigated or brought more criminal cases among parties to the OECD’s international anti-bribery treaty, the group’s 38-country Working Group on Bribery said in a report made public yesterday.

At the same time, the report said, the U.S. Justice Department needs to do a better job of explaining why and how cases against corporations are resolved.

“Publishing more detailed reasons” for the resolution of cases “would give more insight into the DOJ’s choice of settlement agreements and thus enhance accountability and transparency of the process,” according to the 68-page report.

Most corporate cases in the U.S. are settled through agreements to defer or forego prosecution of companies, the group said. The U.S. government has reaped billions of dollars in fines and penalties through such agreements.

U.S. officials welcomed the report, which praised the government for creating specialized anti-bribery units in the Justice Department, the Securities and Exchange Commission, and the Federal Bureau of Investigation.

“The United States has risen to the forefront of enhanced global efforts to combat foreign bribery,” Assistant Attorney General Lanny Breuer said Oct. 20 in a statement.

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New Suits

Labor Department Sues Over Plans’ Madoff Investments

The U.S. Labor Department sued four investment firms for allegedly failing to examine swindler Bernard Madoff’s business practices before entrusting him with hundreds of millions of dollars in pension funds.

Ivy Asset Management LLC, Beacon Associates Management Corp., J.P. Jeanneret Associates Inc., Andover Associates Management Corp. and their principals were named as defendants in a complaint filed yesterday in federal court in Manhattan.

The lawsuit was brought under the Employee Retirement Income Security Act on behalf of union-sponsored and single- employer benefit plans, according to the complaint. The Labor Department asked the court to order the defendants to “restore to the plans all losses suffered” as a result of fiduciary breaches by the defendants related to Madoff investments.

“These defendants chose their own financial interests over those of the plans whose assets they were duty bound to manage prudently,” Labor Secretary Hilda Solis said in a statement.

Madoff, 72, is serving a 150 years in prison after admitting to orchestrating the biggest Ponzi scheme in history. When he was arrested in December 2008, account statements reflected 4,900 accounts with $65 billion in nonexistent investments, according to Irving Picard, the trustee overseeing the Madoff bankruptcy.

Ivy is a unit of New York-based Bank of New York Mellon Corp. Craig Brown, a spokesman for Jericho, New York-based Ivy, said he couldn’t immediately comment.

Steven Kaplan and Tab Rosenfeld, Manhattan attorneys who represent White Plains, New York-based Beacon and principals Joel Danziger and Harris Markhoff in other Madoff-related litigation, didn’t immediately return a call to their law firm seeking comment. Kaplan is listed as counsel to Andover in another case, according to court records.

Brian Whiteley, a Boston-based lawyer who represents Syracuse, New York-based J.P. Jeanneret and its principals, John Jeanneret and Paul Perry, also didn’t return a call seeking comment.

The case is Solis v. Beacon Associates Management Corp., 10-cv-8000, U.S. District Court, Southern District of New York (Manhattan).

HP Sued by Shareholders Over Kickback, Foreign Bribery Claims

Directors at Hewlett-Packard Co., the world’s largest computer maker, were sued by shareholders over claims they permitted or encouraged violations of federal kickback and foreign bribery laws.

From 2007 to 2009, HP violated the federal anti-kickback law by paying government vendors “influencer fees” to win contracts to design information technology systems, according to the complaint filed in federal court in San Jose, California. The company is also under investigation for possible violations of the U.S. Foreign Corrupt Practices Act.

Current and former directors at HP “consciously condoned HP’s illegal and unethical marketing practices,” according to the Oct. 19 complaint. The misconduct has “put the company at risk of having its U.S. government contracts rescinded,” the shareholders claim, adding that HP sales to U.S. agencies from 2007 to 2009 totaled more than $880 million.

The case relies in part on HP’s announcement in August that it agreed to pay $55 million to settle a Justice Department probe of whether the company overcharged taxpayers through a General Services Administration contract. That settlement also resolved a False Claims Act lawsuit, first filed by a whistleblower and joined by the government, alleging that the company paid kickbacks.

HP spokeswoman Mylene Mangalindan didn’t immediately return a call seeking comment. John McCool, an outside spokesman for the company, said HP is reviewing the complaint.

The case is Saginaw Police and Fire Pension Fund v. Andreessen, 10-4720, U.S. District Court, Northern District of California (San Jose).

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Verdicts/Settlement

Florida Money Manager Nadel Gets 14 Years for Fraud

Arthur Nadel, the Florida money manager accused of defrauding investors of $168 million, was sentenced yesterday to 14 years in prison.

Nadel, the 77-year-old founder of Scoop Management Inc. in Sarasota, Florida, pleaded guilty in February to a 15-count indictment filed by U.S. prosecutors in New York. The charges included securities fraud, wire fraud and mail fraud.

“This was a massive fraud perpetrated on vulnerable victims who rightly deserve the protection of the law,” U.S. District Judge John Koeltl said before imposing the sentence.

Koeltl rejected a defense request for a five-year sentence as too low. He cited Nadel’s age and fragile health in sentencing him to less than the 19 1/2 years sought by prosecutors.

In addition to the prison sentence, Koeltl imposed three years of supervised release and ordered Nadel to forfeit $162 million in proceeds from the crime. Koeltl said he will determine later how much to order Nadel to pay in restitution to his victims.

Nadel said yesterday he has spent his time in jail thinking about the harm he caused his victims and read the letters they sent to the court.

The case is U.S. v. Nadel, 1:09-cr-00433, U.S. District Court, Southern District of New York (Manhattan).

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Mattel Loses Bid for Review of Bratz Case Ruling

Mattel Inc. lost a bid for review of a federal appeals court ruling that the company must retry its claims to MGA Entertainment Inc.’s Bratz dolls.

The U.S. Court of Appeals in San Francisco denied Mattel’s petition for rehearing and review by a larger panel of judges, according to a filing yesterday.

In July, a three-member appeals panel overturned a December 2008 order that gave Mattel rights to most of MGA’s Bratz products. A jury in the case found that the designer who created the dolls was working at Mattel when he conceived of the idea and the name and made the initial drawings for the pouty and multiethnic dolls.

The case is MGA Entertainment Inc. v. Mattel Inc., 09- 55673, 9th U.S. Circuit Court of Appeals (San Francisco). The district court case is Bryant v. Mattel, 04-09049, U.S. District Court, Central District of California (Riverside).

Hewlett-Packard Says EU Court Ruling May Stop Levies

Hewlett-Packard Co. and other office electronics companies said levies on printers and fax machines to compensate copyright holders for copying may be ended across the European Union after a court judgment on Spanish rules.

Spain’s “indiscriminate application of the private copying levy” is illegal and shouldn’t be applied to digital equipment used by businesses, the European Court of Justice in Luxembourg said yesterday.

Irena Bednarich, HP’s European government affairs manager, said the judgment would lead to the removal of levies paid in Spain and other nations on office devices, allowing products to “freely circulate in the European Union.”

Hewlett-Packard, Canon Inc. and Seiko Epson Corp. are among printer makers that have criticized national levies, saying they distort the price of their products across the 27-nation EU. The court yesterday set limits on the levies, intended to compensate artists and composers for legal extra copies of their work made by private users. It said charges on equipment used by private individuals to make copies are in line with EU rules.

“What is very positive is that the court clearly gave support to the compensation schemes that exist in most member states,” said Veronique Desbrosses, secretary general of the European Grouping of Societies of Authors and Composers.

In yesterday’s case, a Spanish maker of CDs and DVDs, challenged the national system by not paying. The disc maker was taken to court by Spain’s Sociedad General de Autores y Editores, or SGAE, which manages authors’ intellectual property rights.

The ruling “requires a radical adaptation of the old- fashioned copyright levies systems,” said Bridget Cosgrave, director general of Digital Europe, a Brussels-based electronics industry group.

Spain’s Culture Minister Angeles Gonzalez-Sinde told the state-owned television channel that the country would now “seek an alternative” along “with other European countries that will be affected.”

The case is C-467/08 Sociedad General de Autores y Editores de Espana (SGAE) v. Padawan, S.L. and Entidad de Gestion de Derechos de los Productores Audiovisuales (EGEDA).

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Litigation Departments

Chevron Wins Bid to Subpoena Lawyer for Ecuadoreans

Chevron Corp., the second-largest U.S. energy company, can subpoena an American attorney working for Ecuadorean villagers suing the company in a multibillion dollar environmental pollution case, a federal judge ruled.

U.S. District Judge Lewis Kaplan in Manhattan denied a request Oct. 20 by New York attorney Steven Donziger and plaintiffs in the lawsuit in Ecuador to block a subpoena by company lawyers seeking testimony and documents.

The case is In re Application of Chevron Corp., 10-00002, 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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