Citigroup, Goldman, BA, Glaxo, BGC, in Court News

Citigroup Inc. won dismissal of most claims in a shareholder lawsuit alleging that the bank lied about its exposure to collateralized debt obligations and other toxic assets.

U.S. District Judge Sidney H. Stein dismissed an array of claims in the 536-page complaint against Citigroup, finding in most cases that the plaintiffs failed to allege facts showing the bank and its officials knew they were misleading investors.

“The court finds that plaintiffs have stated a claim to relief only with respect to alleged misstatements and omissions occurring between February 2007 and April 2008 concerning Citigroup’s collateralized debt obligation holdings,” Stein said in yesterday’s ruling in federal court in Manhattan.

The plaintiffs, who sued in 2007, seek to represent all investors who bought Citigroup stock from Jan. 1, 2004, to Jan. 15, 2009. They claim they lost money when the extent of Citigroup’s losses on the investments became public.

Stein ruled that the shareholders failed to allege that the bank and its officials knew they were acting fraudulently when they made statements about a series of financial instruments held by Citigroup, including residential-mortgage-backed securities, subprime mortgages, structured investment vehicles, collateralized loan obligations and auction-rate securities.

“We are pleased the court has dismissed the great majority of plaintiffs’ claims and substantially reduced the class period at stake,” Danielle Romero-Apsilos, a Citigroup spokeswoman, said in an e-mailed statement. She said the bank has strong defenses to the remaining claims related to CDOs.

Ira M. Press, a lawyer for the investors, said he is pleased Stein declined to dismiss claims related to Citigroup’s CDO disclosures. The CDO claims form “the lion’s share” of the allegations in the complaint, Press said.

Stein dismissed claims against seven of 14 current and former Citigroup officials named in the suit. The remaining seven, including former Chief Executive Officer Charles Prince, attended meetings in the summer of 2007 to discuss Citigroup’s CDO exposure, according to the complaint.

“That defendants engaged in meetings concerning Citigroup’s CDO risks is inconsistent with the company’s public statements downplaying or concealing that risk,” Stein wrote in the opinion.

The case is In Re Citigroup Inc. Securities Litigation, 07- cv-09901, U.S. District Court, Southern District of New York (Manhattan).

Icahn Seeks to Stop Lions Gate Director Voting Shares

Carl Icahn, who has made a hostile bid for Lions Gate Entertainment Corp., told a judge through his lawyer he will seek to block board member Mark Rachesky from voting his shares at the studio’s Dec. 14 annual meeting.

Icahn, the billionaire chairman of New York-based Icahn Enterprises LP, will file the motion to suspend Rachesky’s voting power in New York state Supreme Court Nov. 15, attorney Joseph DiBenedetto told Justice James Yates yesterday.

Icahn, 74, who is attempting to buy the independent film and TV studio for $7.50 a share, sued Vancouver-based Lions Gate in both Canada and New York in July to reverse an equity-for- debt swap that increased Rachesky’s stake to almost 29 percent. Icahn argues that management conspired with large shareholders to thwart his bid.

The Supreme Court of British Columbia on Nov. 1 dismissed the Canadian suit by Icahn to undo the deal. Icahn has appealed. An appeals judge on Nov. 5 denied his request for an expedited hearing. Lions Gate told the New York judge yesterday the Canadian ruling supports its motion to dismiss the New York case and said there is no reasonable basis for a court order against Rachesky.

“This court cannot rule in the Icahn Group’s favor without holding that the British Columbia court got it wrong,” Lions Gate attorney William Savitt wrote in a letter yesterday to Yates. “This is precisely the situation that this court wished to avoid when it noted at the September 17 conference that it ‘would drop this case like a hot potato’ in the event the British Columbia court issued a clear ruling.”

The case is Icahn v. Lions Gate, 651076/2010, New York state Supreme Court, New York County (Manhattan).

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Toyota Lawyers Agree to Share Throttle Source Code

Toyota Motor Corp. agreed in court to turn over access to technical data about its electronic throttle-control system that is alleged to be the cause of some of the automaker’s sudden- acceleration problems.

Lawyers for Toyota told a judge yesterday in federal court in Santa Ana, California, that they will provide attorneys for Toyota vehicle owners access to the “source codes” for the system if the judge issues a confidentiality order covering the company’s product and trade secrets. The source codes have been at the center of disputes between the two sides during the process of pre-trial evidence gathering.

“We have no problem in turning this over providing we have the proper protections in place,” Toyota attorney Vincent Galvin told U.S. District judge James V. Selna.

Galvin said the information already had been turned over to the government before Congress held hearings over Toyota’s problems earlier this year. He said it hadn’t been turned over the plaintiffs yet because pre-trial discovery hadn’t reached the stage in which Toyota was required to do so.

Mark Robinson, one of the lead plaintiffs’ lawyers, told the judge the codes are vital in the case because they will allow experts to analyze the throttle system and come up with their own determination over whether flaws may have been a factor in episodes of inadvertent acceleration.

“We’ve been like someone standing outside a house with a camera taking pictures of the house and knowing what it looks like without knowing what it’s made up of inside,” Robinson told the judge. “We need to analyze this data and see how it related or didn’t relate to the recalls.”

Toyota is facing about 400 lawsuits in which plaintiffs claim they are due damages for injuries, death or loss of vehicle value from sudden acceleration in several models of cars made by Toyota.

The automaker is seeking dismissal of the suits at a hearing scheduled for Nov. 19.

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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Verdicts/Settlements

Goldman, Natixis Settle Credit Default Swaps Lawsuit

Goldman Sachs Group Inc. and Natixis SA settled a London lawsuit over terminated credit-default swaps that might have been worth as much as $530 million after a delay in the trial that was to begin yesterday.

“Goldman Sachs and Natixis are pleased they’ve reached a commercial settlement,” Goldman’s lawyer, Anthony Grabiner, said in court. The terms are confidential and Grabiner said neither side would make any further public statements on the agreement.

The U.S. bank’s London unit, Goldman Sachs International, sued Natixis in July to stop the termination of three credit- default swaps. Natixis, a unit of BPCE SA, France’s second- largest lender by branches, said in July it would terminate the swaps because Goldman didn’t comply with the contract.

The French investment bank countersued in September, seeking a ruling that it ended the deal lawfully, as well as breach of contract damages. Natixis said it was “ready, willing and able” to pay Goldman $198.4 million on the “lawfully and validly terminated” credit-default swaps.

Goldman, the most profitable firm in Wall Street history, disputed Natixis’s calculation in court papers.

The case is Goldman Sachs International v. Natixis, 10-880, High Court of Justice, Queen’s Bench Division (London).

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Air France, BA, Carriers Get $1.1 Billion EU Cartel Fines

Air France-KLM Group, British Airways Plc and SAS Group AB were among 11 carriers fined a total of 799.4 million euros ($1.1 billion) by European Union regulators for fixing cargo fees.

Air France and its units got the biggest fine of 339.6 million euros. British Airways was fined 104 million euros and SAS Group AB got a 70.2 million-euro penalty, the European Commission said. Cargolux Airlines International SA, Europe’s third-biggest air-freight carrier, was fined 79.9 million euros.

“It is deplorable that so many major airlines coordinated their pricing to the detriment of European businesses and European consumers,” EU Competition Commissioner Joaquin Almunia said in an e-mailed statement.

The EU fines come three years after regulators sent complaints to 26 airlines, following coordinated antitrust raids across the world that led to jail terms for some executives, fines and settlements. U.S. authorities have already fined 18 airlines at least $1.6 billion and filed criminal charges against 14 executives for price-fixing.

Air France’s fine exceeds the company’s total provisions for the case, spokeswoman Brigitte Barrand said. From 530 million euros set aside as a provision in 2008, Air France-KLM had already paid out almost 330 million euros in fines and class-action awards in the U.S., Canada and Australia, she said in a telephone interview.

British Airways said in an e-mailed statement its fine was “within the provision made by the company in its 2006/7 report and accounts.”

SAS, owner of Scandinavia’s biggest airline, said that it will appeal its fine.

“SAS believes that it has not been involved in a global cartel and that therefore, the fines are disproportionate,” it said in a statement to the Stockholm stock exchange.

Deutsche Lufthansa AG, Europe’s second-largest airline, wasn’t fined because it was the first to inform on the cartel, the EU’s antitrust agency said.

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New Suits

Massachusetts Sues Viel & Cie. Unit for Bid-Rigging

Massachusetts Attorney General Martha Coakley sued a New York-based broker for rigging bids of municipal-bond investment contracts, allowing banks to profit at taxpayer expense.

Tradition (North America) Inc., a unit of Paris-based broker Viel & Cie., worked for the state between 2000 and 2004 and was supposed to get the highest interest rates from banks on investments of municipal-bond proceeds, Coakley said yesterday in a statement. Instead, Tradition ran sham auctions, allowing favored bidders to win deals at below-market rates, she said.

“Tradition’s conduct here is very troubling,” Coakley said. By fixing the bids, Tradition ensured that favored providers would get business from the state while also short- changing Massachusetts, the state said. The lawsuit parallels a probe by federal investigators into how such investment contracts were obtained by banks nationwide.

Massachusetts’s college-building authority and development finance agency are among 160 state and local government bond issuers that the U.S. Justice Department’s antitrust division has said were victims of bid-rigging by 16 banks, according to documents filed in a criminal case.

A former Tradition agent has pleaded guilty in the Justice Department probe. The U.S. inquiry centers on guaranteed investment contracts, known as GICs, which municipalities buy with money raised by selling bonds. The investments let them earn a return on the cash until the funds are needed for schools, roads and other public works.

“Tradition has acted in accordance with the law,” said Dan Webb, a lawyer for Tradition with Winston & Strawn LLP in Chicago. “The charges against Tradition are unfounded and will be contested vigorously.”

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Ex-Glaxo Lawyer Charged With Making False Statements

A former in-house attorney for GlaxoSmithKline Plc was charged with obstruction and making false statements during a U.S. investigation into unapproved uses of its antidepressant drug Wellbutrin SR.

Lauren Stevens, of Durham, North Carolina, was accused yesterday in an indictment of impeding an inquiry in 2002 and 2003 by the U.S. Food and Drug Administration into the marketing of the drug for uses not approved by the FDA. Stevens was a vice president and associate general counsel for London-based Glaxo.

Stevens signed letters to the FDA making false statements and hid the extent of the company’s promotion of the drug for unapproved uses, including weight loss, according to the indictment. She withheld that the company paid a Vermont physician to speak at 511 promotional events in 2001 and 2002 to discuss off-label uses and also paid Michigan doctor to give 488 talks, prosecutors said.

“There is a difference between legal advocacy based on the facts and distorting the facts to cover up the truth,” Carmen Ortiz, U.S. attorney for Massachusetts, said yesterday in a statement. “Federal agencies such as the FDA cannot protect the public health if entities and individuals they regulate provide false information.”

The indictment doesn’t identify the company or the drug by name. Glaxo spokeswoman Mary Anne Rhyne confirmed in an e-mail that Stevens worked in the legal department and is now retired, and the drug was Wellbutrin SR.

“Lauren Stevens is an utterly decent and honorable woman,” her lawyer, Brien T. O’Connor of Ropes & Gray LLP, said in an e-mailed statement. “She is not guilty of obstruction or of making false statements. Everything she did in this case was consistent with ethical lawyering and the advice provided her by a nationally prominent law firm retained by her employer specifically because of its experience in working with FDA.”

Stevens told the FDA she would collect materials about Glaxo’s promotion of the drug, which was approved only for a single use, “the treatment of a major depressive disorder in patients age 18 or older,” according to the indictment.

The case is U.S. v. Stevens, 10-cr-694, U.S. District Court, District of Maryland (Greenbelt).

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BGC Capital Markets Sues Tullett for Misuse of Data

BGC Capital Markets LP sued Tullett Prebon Americas Corp. over claims it misused proprietary U.S. Treasury data that earned it profits of “at least hundreds of millions of dollars.”

BGC Capital, based in New York, and Tullett Americas operate in the competitive interdealer broker industry. BGC accuses Tullett and its affiliates of misappropriating price data derived from the electronic brokering eSpeed system to generate profits in the market for historically unregulated financial instruments, such as swaps, according to the lawsuit.

More than $400 billion is traded daily on the eSpeed system, which is operated by BGC affiliates, according to the complaint filed yesterday in New York State Supreme Court in Manhattan. Under contract, the U.S. Treasury data has been provided to a Tullett Americas affiliate. That contract prohibits the use of the real-time data by their brokers, who unfairly use it to compete against BGC, according to the suit.

“Because defendant’s brokers compete directly with plaintiff’s brokers, profits earned by defendant by brokering based on misappropriated data were earned improperly and at plaintiff’s expense,” BGC said in its complaint.

Stephanie Kuffner, an outside spokeswoman for Tullett, didn’t immediately return a call seeking comment.

The case is BGC Capital Markets LP v. Tullett Prebon Americas Corp., 651954/2010, New York State Supreme Court (Manhattan).

Morgan Stanley Sues Peak Ridge Fund Over $40.3 Million Loss

Morgan Stanley sued a Peak Ridge Capital Group LLC fund for $40.3 million in losses this year tied to natural gas futures trades.

The lawsuit, filed Nov. 8 in the Manhattan federal court, seeks damages as well as legal and other fees stemming from Morgan Stanley’s role as the futures broker for Boston-based Peak Ridge.

The Peak Ridge account lost $9.8 million in natural gas trades on June 4, according to the lawsuit, after which Morgan Stanley increased the amount of cash it required the firm to post to back its trades, known as margin. The bank declared the fund in default later in June after Peak Ridge failed to meet its new margin requirements. During the next two weeks, Morgan Stanley sold off the positions and “incurred substantial losses,” the lawsuit said.

Peak Ridge was previously advised by Brian Hunter, the former Amaranth Advisors LLC natural-gas trader who lost $6.6 billion in 2006. Hunter “does not work at Peak Ridge,” said Shauna MacDonald, a spokeswoman for Hunter. She declined to comment further on his employment at the company. Calls to Michael McNally, Peak Ridge’s chief executive officer, and Laura Small, a spokeswoman, weren’t returned.

Peak Ridge used Hunter to devise trading models and strategies. The Peak Ridge Commodity Volatility Fund, for example, seeks to profit from price differences in the natural- gas market. The company also bought the assets of Solengo Capital Advisors, a hedge-fund firm that Hunter tried to start six months after Amaranth’s collapse in September 2006.

In 2006, Hunter had bet that the difference between the price of natural gas for 2007 March and April contracts would widen. Instead, the spread narrowed, creating losses for Amaranth.

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Trials/Appeals

Ex-Societe Generale Employee Stole Code, Jury Told

A former Societe Generale SA trader stole computer code for high-frequency trading from the company, a U.S. federal prosecutor said in opening statements at the start of a trial in New York.

“The defendant, Samarth Agrawal, stole valuable, closely guarded trading code from his employer, Societe Generale,” Assistant U.S. Attorney Thomas Brown told the jury.

Agrawal was charged in April with theft of trade secrets. The government said he made copies of part of the code he had access to and more code that he wasn’t supposed to have. He faces as much as 10 years in prison if convicted.

U.S. District Judge Jed S. Rakoff is presiding over the trial.

Agrawal was hired in 2007 in New York by the Paris-based bank to be a quantitative analyst in the high-frequency trading group, the government said.

The case is U.S. v. Agrawal, 10-cr-417, U.S. District Court, Southern District of New York (Manhattan).

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Glaxo Failed to Warn About Paxil’s Risks, Lawyer Says

GlaxoSmithKline Plc, the U.K.’s largest drugmaker, failed to properly warn consumers that its antidepressant drug Paxil could cause birth defects, a lawyer for the family of an injured teenager told jurors.

Glaxo officials had research from the 1980s showing Paxil caused deaths among the offspring of animal test subjects and didn’t provide clear warnings about those deaths, Kimberly Baden, a lawyer for Anna Blyth and her family, told a Philadelphia jury. Baden said the drug caused a narrowing of the aorta leading from the heart of Anna, now 14 years old.

“We believe the evidence will show Paxil caused Anna’s birth defects,” Baden said in opening statements in the trial. “We believe the warnings and instructions put out in 1995 weren’t appropriate and reasonable.”

The Blyth family’s case is the first over Paxil’s birth- defect risks to go to trial since the company agreed in July to pay more than $1 billion to settle 800 cases alleging the company failed to adequately warn consumers and their doctors about the drug’s hazards. The Blyth case wasn’t part of the settlement.

Glaxo officials contend Paxil played no role in Anna’s heart defects. They were most likely caused by genetics or the fact that her mother became pregnant late in life, Chilton Varner, a lawyer for the drugmaker, told jurors in her opening statement.

Sarah Alspach, a Glaxo spokeswoman, didn’t return a call for comment on how many Paxil birth-defect cases remain outstanding.

The case is Blyth v. GlaxoSmithKline, 07-3305, Court of Common Pleas, Philadelphia County, Pennsylvania (Philadelphia).

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Consumer Arbitration Case Divides U.S. Supreme Court

U.S. Supreme Court justices, wrestling with an arbitration case involving an AT&T Inc. unit, debated how much ability companies should have to prevent customers from banding together to press legal claims.

In an hour-long hearing in Washington yesterday, the justices signaled that they are likely to divide in the case, which stems from $30.22 in sales taxes charged to two California consumers.

Business groups say states are undermining the cost savings arbitration offers by requiring that customers be allowed to press claims as a class. In the case before the justices, a federal appeals court invalidated the class-action ban in AT&T Mobility LLC’s customer contracts, saying the provision was “unconscionable” under California law.

Several members of the court yesterday indicated they were hesitant to second-guess California’s rules designed to protect consumers from one-sided contracts. “Who are we to say that the state is wrong about that?” Justice Elena Kagan asked.

Other justices suggested that California might be violating a federal law that requires states to treat arbitration agreements the same as any other contract. Chief Justice John Roberts said the state was evaluating the fairness of arbitration accords using “a different mode of analysis than I’m familiar with under basic contract law.”

The case could affect tens of millions of arbitration agreements in California alone, according to AT&T. Amazon.com Inc., Earthlink Inc., DirecTV Inc., Comcast Corp., Dell Inc. and the U.S. Chamber of Commerce all filed briefs supporting AT&T in the case.

The case is AT&T Mobility v. Concepcion, 09-893, U.S. Supreme Court (Washington).

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Money Manager Barry Ran Ponzi Scheme, Jury Is Told

A money manager from Brooklyn, New York, ran a 30-year Ponzi scheme that defrauded hundreds of investors, a federal prosecutor told jurors at the start of his securities-fraud trial.

Philip Barry, 53, a resident of the Bay Ridge section of Brooklyn, began accepting money in 1978 from investors, guaranteeing fictional annual profits, according to prosecutors in the office of U.S. Attorney Loretta Lynch in Brooklyn. Instead, he used new investors’ money to pay earlier ones, prosecutors said.

“This is a case about a con man,” Assistant U.S. Attorney Jeffrey A. Goldberg told jurors in his opening statement. “The Ponzi schemer simply takes money out of one investor’s pocket and puts it into another investor’s pocket.”

Michael Weil, a lawyer for Barry, told jurors in his opening statement, “‘Your house will always go up in value.’ Philip Barry bought into that same myth, that you can’t lose money in real estate.”

Goldberg told the jury that Barry’s business “was a fake but his victims were very real.” He said victims were scheduled to testify.

In a separate action, the U.S. Securities and Exchange Commission said Barry diverted some of the investor money to a mail-order pornography business. On Sept. 7, Barry sued the SEC for libel over the accusation. He has run Barry Publications for 30 years, selling “vinyl LP records, music cassette tapes, compact discs and DVDs,” he said.

The criminal case is U.S. v. Barry, 09-cr-0833, the SEC case is Securities and Exchange Commission v. Barry, 09-cv-3860, and Barry’s suit against the SEC is Barry v. United States Securities and Exchange Commission, 10-cv-4071, U.S. District Court, Eastern District of New York (Brooklyn).

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Court News

Singapore Seeks 12-Week Jail Term for U.K. Author

A Singapore prosecutor urged a judge to jail British author Alan Shadrake for at least 12 weeks for disparaging the city- state’s judiciary in a book.

Prosecutor Hema Subramaniam said at a sentencing hearing yesterday that Shadrake was “insincere” in his “half-hearted attempt at an apology” and deserved to be jailed for contempt of court.

Shadrake, 76, challenged the impartiality of Singapore’s judiciary in the book “Once a Jolly Hangman: Singapore’s Justice in the Dock,” accusing courts of bowing to political and economic pressures and dispensing justice unequally to the rich and the poor.

Shadrake alleged “grave misconduct” by the city state’s courts, High Court Judge Quentin Loh said in his Nov. 3 decision to convict the author for contempt. The book contained “half- truths and selective facts; sometimes even outright falsehoods,” Loh said then.

The judge said he would give Shadrake “a final opportunity to make amends” when he convicted the author. Loh yesterday reserved his decision on a sentence until Nov. 16.

The writer, dressed in a beige linen suit, showed “continued defiance” of the Singapore judiciary, Subramaniam said. She cited the writer’s comments to media that he wouldn’t apologize and would continue fighting for freedom and democracy.

Shadrake declined to comment after the hearing.

The case is Attorney-General v. Alan Shadrake OS720/2010 in the Singapore High Court.

On The Docket

Oil-Industry Suit on U.S. Drilling Rules Set for Trial

A New Orleans judge will conduct a two-day bench trial next year in an oil industry lawsuit claiming U.S. regulators continue to stall deep-water drilling in the Gulf of Mexico.

U.S. District Judge Martin Feldman, after a closed-door meeting yesterday with lawyers in three lawsuits challenging the Obama administration’s offshore drilling policy, said he would try two of the cases next year in New Orleans federal court.

“Trial will commence on Monday, July 25, 2011, at 9:00 a.m. without a jury,” Feldman said in an order handed down yesterday in a suit by Ensco Offshore Co. against the administration’s second drilling ban.

Feldman also said he would conduct a separate two-day bench trial Oct. 11 on remaining claims in a separate industry lawsuit against the first U.S. drilling ban, which President Barack Obama imposed in May after the BP Plc oil spill in the Gulf of Mexico.

That lawsuit, by Hornbeck Offshore Services LLC., was joined by the state of Louisiana and more than 200 regional business and trade groups who claimed U.S. Interior Secretary Kenneth Salazar improperly restricted exploration in waters deeper than 500 feet. Feldman struck down the initial ban in late June, calling it overly broad and punitive to the Gulf Coast economy.

Interior Department spokeswoman Melissa Schwartz and Ken Dennard, one of Hornbeck’s attorneys, declined in e-mails to comment on the judge’s order. Ensco Vice President Sean O’Neill didn’t respond to a call seeking comment.

The cases are Ensco Offshore Co. v. Salazar, 2:10-cv-1941, and Hornbeck Offshore Services LLC v. Salazar, 2:10-cv-01663, both in U.S. District Court, Eastern District of Louisiana (New Orleans).

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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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