FrontPoint, Prudential, Citigroup, SAP in Court News

Hedge fund FrontPoint Partners LLC employees were allegedly tipped by a French doctor working as a consultant for Human Genome Sciences Inc. on the results of trials for the hepatitis-C drug Albuferon, a person familiar with the matter said.

Dr. Yves Benhamou, 50, was charged yesterday by federal prosecutors with insider-trading. Benhamou, whose expertise is hepatitis and liver diseases, was arrested in Boston on two charges filed in Manhattan federal court.

FrontPoint, which is being spun out of Morgan Stanley, said in an e-mailed statement that it’s “cooperating fully.” Dr. Chip Skowron, a co-portfolio manager of the Greenwich, Connecticut-based firm’s health care funds, was placed on leave pending the outcome of the probe, the firm said.

Benhamou held dual roles, acting as a paid consultant to at least six hedge funds while working as an adviser to Human Genome, a developer of gene-based drugs, and serving on its steering committee for Albuferon trials, the U.S. Securities and Exchange Commission alleged in a parallel lawsuit also filed yesterday. Benhamou is no longer a Human Genome consultant and the company has “cooperated fully” with the SEC, Jerry Parrot, a company spokesman, said.

“By profiting from his sensitive position and providing the hedge fund an unfair advantage, Benhamou undermined the integrity of the securities market and sold out his employer,” Manhattan U.S. Attorney Preet Bharara said in a statement.

Messages left by Bloomberg News for Skowron weren’t returned.

The case is U.S. v. Benhamou, 10-MAG-2424, U.S. District Court, Southern District of New York (Manhattan). The SEC case is SEC v. Benhamou, 10-CV-8266, U.S. District Court, Southern District of New York (Manhattan).

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Lawsuits/Pretrial

Prudential Veteran Accounts ‘Dishonest,’ American Legion Says

Prudential Financial Inc.’s practice of collecting interest on unpaid veterans’ life-insurance benefits is “unlawful and dishonest,” the American Legion told a judge.

The American Legion, the largest U.S. veterans’ service organization with 2.5 million members in almost 14,000 posts worldwide, asked permission to file a legal brief supporting a pending case in Springfield, Massachusetts, against Prudential Insurance Co. of America, a unit of Newark, New Jersey-based Prudential Financial.

The pending lawsuit by the families of deceased veterans accuses the insurer of failing to pay beneficiaries in a lump sum as required by U.S. law and the language of the policies. Instead, the lawsuit says that Prudential strongly encourages beneficiaries to keep the money in accounts with the company, which pays them a small amount of interest.

The “practice is unlawful and dishonest,” the American Legion said in a Nov. 1 court filing. “It is especially objectionable because sophisticated money managers are making an unwarranted and unlawful profit from the deaths of those who have given the most to preserve our nation’s way of life.”

Bob DeFillippo, a spokesman for Prudential Financial, declined to comment on the filing. He has previously said that the company informs beneficiaries of their payment options and that they may immediately withdraw the money from their Prudential Alliance Accounts and invest it wherever they choose.

Prudential has asked the judge to dismiss the case, saying the insurer’s delivery of a “checkbook” to beneficiaries complies with its legal obligation. Lawyers for beneficiaries who brought the case yesterday filed a separate brief opposing Prudential’s request.

The case is Lucey v. Prudential Insurance Co. of America, 10-30163, U.S. District Court, District of Massachusetts (Springfield).

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Icahn Opposes Lions Gate Demand to Reveal MGM Plans

Carl Icahn, saying he publicly disclosed his interest in Metro-Goldwyn-Mayer Inc., denied claims by Lions Gate Entertainment Corp. that he was trying to discourage a merger while improving his position.

Attorneys for Icahn disputed Lions Gate’s claims in a filing yesterday in federal court in Manhattan. Lions Gate accused the billionaire, its biggest shareholder, in a lawsuit filed Oct. 28 of secretly acquiring MGM debt at the same time he was telling Lions Gate shareholders that the studio’s pursuit of MGM was a “misguided strategy.”

Lions Gate lawyers asked U.S. District Judge Harold Baer on Nov. 1 to order expedited legal disclosures by Icahn while it seeks a court order barring Icahn from increasing his stake in the Vancouver-based film and television studio.

“Lions Gate management has given new meaning to the word ‘entrenched’ by digging themselves in and engaging in a successive volley of poison pills, dilutive stock issuances and legal proceedings” to avoid accountability, according to Icahn’s filing.

Icahn, Lions Gate has alleged, undermined the prospective acquisition of MGM by calling it a “financial debacle.”

Icahn acquired a sufficiently large position in both companies “at depressed prices to ensure that he maximized his own profits,” Lions Gate said in court filings.

He was aided by Mark Cuban, who sold his 5.4 percent stake in the company to Icahn in June for $7 a share, after Lions Gate told Cuban another buyer was willing to pay more, according to the complaint.

Icahn yesterday denied having any “side deals” with Cuban. He said Lions Gate’s claims based on information from unidentified sources are “insufficient to warrant further inquiry.”

Cuban, the billionaire co-founder of the TV network HDNet and owner of the Dallas Mavericks basketball team, isn’t named as a defendant in the Lions Gate lawsuit. Cuban has said he didn’t have any side deals with Icahn.

The defendants in the case include Icahn, his Icahn Partners LP and his son Brett Icahn.

The case is Lions Gate Entertainment Corp. v. Carl Icahn, 10-cv-08169, U.S. District Court, Southern District of New York (Manhattan).

Toyota Says Acceleration Suits Don’t Identify Defect

Lawsuits against Toyota Motor Corp. claiming sudden- acceleration recalls caused economic damages fail to identify an “actual defect” and should be dismissed, the company said in court papers.

Toyota faces about 400 suits alleging lost vehicle value or injury or death from sudden acceleration. The economic loss lawsuits, brought as class, or group, actions claim a defect in Toyota’s electronic throttle control system can trigger episodes of inadvertent acceleration.

The plaintiffs haven’t defined a technical problem with the electronic throttle control system in Toyota vehicles, the company said in a court filing Nov. 1. Few of the vehicles in question experienced any sign of sudden, unintended acceleration and few owners sustained any loss, Toyota said.

“The most interesting point may be plaintiffs’ continued inability to point to an actual defect in the automobiles at issue,” the company said. “The suggestion that at some undisclosed time in the future, when these plaintiffs might attempt to sell their vehicles, they will suffer some loss legally traceable to a defect that they have never experienced, is sheer speculation.”

The economic loss lawsuits, combined for pretrial filings and rulings in federal court in Santa Ana, California, claim Toyota drove down the value of vehicles by failing to fix or disclose defects that triggered unintended acceleration. Federal lawsuits claiming death or injury caused by such episodes are also combined in the Santa Ana court.

“We believe the evidence clearly shows that Toyota recognized -- and could replicate -- sudden, unintended accelerations with their vehicles for nearly a decade,” plaintiffs’ attorney Steve Berman, of Seattle-based Hagens Berman Sobol Shapiro LLP, said yesterday in an e-mail. “We also believe Toyota knew how to fix the problem using a brake- override system -- standard equipment with other carmakers.”

The cases are combined as In re Toyota Motor Corp. Unintended Acceleration Marketing, Sales Practices and Products Liability Litigation, 8:10-ml-02151, U.S. District Court, Central District of California (Santa Ana).

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New Suits

FSA Arrests Two in London in Insider-Trading Probe

The U.K.’s financial regulator and police searched buildings in London and Germany and arrested a “city professional” as part of an insider-trading investigation.

The Financial Services Authority arrested a 37-year-old man and a 28-year-old woman in London, the regulator said in a statement yesterday. City of London Police and the FSA also searched two addresses in London and worked with police and prosecutors in Hesse, Germany, to conduct a search there.

Frankfurt prosecutors assisted the FSA in the probe, Doris Moeller-Scheu, spokeswoman for the Frankfurt prosecutors’ office, said in an interview yesterday. She declined to comment further.

The case isn’t related to any ongoing insider-trading investigations, the regulator said. The FSA is currently prosecuting 11 people for trading with insider information and has convicted six men for the crime since March 2009. The agency never prosecuted a criminal insider-trading case before 2008.

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Trials/Appeals

Juror Thrown Off Terra Firma Case Against Citigroup

A juror was thrown off Terra Firma Capital Partners Ltd.’s lawsuit against Citigroup Inc. yesterday after Citigroup lawyers tried to have her dismissed because of her connection to a Michael Moore film.

U.S. District Judge Jed Rakoff did excuse the woman, a New York dancer and performer who was Juror No. 6, determining that she lied about an unrelated conversation on a courthouse elevator during a break, according to a court transcript.

“It seems to me, that given that we have a juror who has lied to the court about an important matter, that we need to excuse her,” Rakoff told lawyers in the case.

The dismissal leaves eight jurors to begin deliberations today on Terra Firma’s $2.2 billion claim against Citigroup over the 2007 sale of EMI Group Ltd.

Ted Wells, the lead lawyer for Citigroup, told Rakoff yesterday morning that the juror and her husband were among dozens of people thanked in the credits of “Capitalism: A Love Story.”

Rakoff, who said he hadn’t seen the film, said it appeared to be “an extremely one-sided, scurrilous appeal to anti-bank prejudice.” The 2009 film explores “the disastrous impact of corporate dominance on the everyday lives of Americans,” according to Moore’s website, michaelmoore.com.

Wells argued that Juror No. 6, on the basis of her connection to the film, should be thrown off the Manhattan federal jury.

Wells said his side searched the juror’s name on Google.com yesterday and discovered her connection to the film.

Moore said he had never met the juror but that she may have been someone hired for a scene not included in “Capitalism: A Love Story,” in which he led a group that went to the headquarters of American International Group Inc. with balloons, teddy bears, and an oversized card, as if for a sick patient.

“I think he’s amazingly perceptive,” Moore said about Rakoff’s opinion of his work. “It’s kind of like if I were making a documentary about slavery, it would be kind of one- sided in favor of the slaves and against slave-holders.”

“You’ve got to feel sorry for Citigroup,” Moore said. “They’re paying all this money to their attorneys and they didn’t bother to Google her till last night.”

After Citigroup raised questions about the juror, a court reporter told Rakoff that she shared an elevator with four jurors, including Juror No. 6, at the lunch break.

“The juror in question said, ‘What could they possibly have this afternoon?’” said the court reporter, Rebecca Forman, according to a transcript. “‘It seems they’re just carrying on. The problem with too much information is you don’t know what to focus on.’”

When Rakoff questioned the juror about the elevator incident, she denied making the remarks.

The case is Terra Firma Investments (GP) 2 Ltd. v. Citigroup, 09-cv-10459, U.S. District Court, Southern District of New York (Manhattan).

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SAP Board Knew of Copying, Oracle Says as Trial Opens

Oracle Corp. told a federal jury that SAP AG’s board of directors knew as far back as 2005 that a software maintenance unit was illegally downloading Oracle software and infringing on its copyrights.

Instead of competing fairly after Oracle threatened SAP’s dominance in the business software market through acquisitions, Germany-based SAP purchased a U.S. company in 2005 that was improperly accessing Oracle’s intellectual property, Geoffrey Howard, the company’s attorney, said yesterday.

“It chose to buy TomorrowNow, a company that the board of directors of SAP knew was infringing Oracle’s software,” Howard said in opening arguments at a trial in Oakland, California. “They chose to take that risk because they expected to make enormous amounts of money.”

Leo Apotheker, SAP’s former chief executive officer who is now head of Oracle rival Hewlett-Packard Co., was “very involved” in the purchase of TomorrowNow “and very involved in TomorrowNow after that,” Howard said. He showed a photo of Apotheker on a screen with a quote attributed to the executive that said, “The entire software industry was founded on IP rights.”

Oracle sued in 2007 and seeks at least $2.3 billion in damages for what its German rival acknowledges were TomorrowNow’s “inappropriate” downloads of Oracle materials.

Howard told jurors they would hear testimony from Apotheker and other SAP executives, as well as Oracle CEO Larry Ellison and former Oracle president Charles Phillips.

SAP, the world’s biggest maker of business-management software, says its executives were unaware of the downloading at TomorrowNow, which was closed in 2008. Oracle’s damage estimates are “grossly exaggerated” and the lawsuit is aimed at harassing competitors, SAP’s lawyers said in court filings.

“The whole goal here is humiliation,” said Joshua Greenbaum, a software industry analyst at Enterprise Applications Consulting. In saying it might call Apotheker as a witness, Oracle “has now extended that to Hewlett-Packard,” Greenbaum said.

The case is Oracle Corp. v. SAP AG, 07-01658, U.S. District Court, Northern District of California (Oakland).

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Verdicts/Settlement

Toll Brothers to Pay $25 Million to End Lawsuit

Toll Brothers Inc., the largest U.S. luxury-home builder, agreed to pay $25 million to settle a lawsuit that alleged the company misled investors about its ability to weather the slump in the housing market.

The City of Hialeah Employees’ Retirement System in Florida sued in April 2007, claiming directors misrepresented demand for Toll’s new homes in fiscal year 2005 and growth projections for 2006. The Laborers Pension Trust Fund for Northern California joined as co-plaintiff seeking to represent investors who bought shares from Dec. 9, 2004, to Nov. 8, 2005. Toll denies any wrongdoing.

Toll and its board “wish to eliminate the uncertainty, risk, burden and expense of further litigation, and to permit the operation of the company’s business without further distraction,” according to settlement papers filed Oct. 28 in U.S. District Court in Philadelphia.

Martin Connor, Toll’s chief financial officer, declined to comment on the settlement.

The case is City of Hialeah Employees’ Retirement System v. Toll Brothers Inc, 07-cv-1513, U.S. District Court, Eastern District of Pennsylvania (Philadelphia).

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Litigation Departments

Fannie Mae, Freddie Mac Drop Law Firm Faulted for Foreclosures

Freddie Mac and Fannie Mae, the mortgage-finance companies operating under U.S. conservatorship, said they cut ties with a Florida law practice whose filings in foreclosure cases have been questioned.

The government-sponsored companies, which own or guarantee more than half of the U.S. mortgage market, suspended dealings with David J. Stern PA after the firm came under scrutiny from the Florida attorney general’s office amid claims that documents used in home seizures were fraudulent or improperly prepared.

“We’ve terminated Stern as one of our designated counsel,” Freddie Mac spokesman Brad German said yesterday in a telephone interview. “We’ve also started taking possession of all files of Freddie Mac-owned mortgages from Stern’s offices.”

Freddie Mac, based in McLean, Virginia, will review the files before transferring them to new law firms for processing, German said. Fannie Mae, based in Washington, will retrieve its documents this week and find new law firms to process them, company spokeswoman Amy Bonitatibus said yesterday in an e-mail.

Jeffrey Tew, an attorney for Plantation, Florida-based Stern, didn’t immediately return a phone call seeking comment.

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On The Docket

Mazda Seatbelt Case Prompts Automaker Appeal for Claims Shield

The automobile industry, in a case involving Mazda Motor Corp., is seeking the U.S. Supreme Court’s help in limiting lawsuits that accuse carmakers of failing to install the best safety equipment.

Toyota Motor Corp., facing more than 300 lawsuits over alleged unintended acceleration, could have a big stake in the outcome of the dispute. The high court will hear arguments today.

“This case raises issues of enormous importance to auto manufacturers,” said Charles Territo, a spokesman for the Alliance of Automobile Manufacturers. The fear, he said, is that federal regulations will be “superseded” by a patchwork of state laws on personal injury claims.

The auto industry and its allies are asking the court to reinforce a 2000 decision that said federal law shields automakers from state law claims over how quickly manufacturers installed air bags, now required in vehicles sold in the U.S.

The case is Williamson v. Mazda Motor of America, 08-1314, U.S. Supreme Court (Washington.)

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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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