Lehman Brothers Holdings Inc. was accused in a lawsuit of making “false and misleading representations” that loans from JPMorgan Chase & Co. would be fully repaid after Barclays Plc bought Lehman’s brokerage unit.
JPMorgan lent more than $70 billion to Lehman’s brokerage after its parent failed, the New York-based bank said in a filing yesterday in U.S. Bankruptcy Court in Manhattan. The filing was in response to bankrupt Lehman’s lawsuit in May demanding $8.6 billion plus damages from JPMorgan.
After Barclays bought the brokerage in September 2008, JPMorgan was stuck with much of its loan “secured by many of Lehman’s most toxic securities,” according to yesterday’s filing. “With Lehman’s help, Barclays cherry picked the securities that it wanted, took JPMorgan’s $5 billion of margin, and left billions of dollars of LBI’s worst securities behind.”
JPMorgan asked a judge to award unspecified damages plus the costs of the lawsuit.
The bank said it later sold some of the “toxic” securities. It applied against the rest of its loan the $8.6 billion in collateral Lehman had pledged to it, paying down the loan. If it was forced to give back the collateral, JPMorgan would again be owed money by Lehman, it said.
“In that event, or if JPMorgan is otherwise required to pay damages to the LBHI estate, JPMorgan will have suffered direct and proximate harm from LBHI’s tortious misconduct,” it said.
Kimberly Macleod, a Lehman spokeswoman, said yesterday she couldn’t immediately comment on JPMorgan’s filing.
Michael O’Looney, a Barclays spokesman, said he couldn’t comment because he hadn’t seen the filing.
The bankruptcy case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The adversary case is Lehman Brothers Holdings Inc. v. JPMorgan Chase Bank NA, 10-03266, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
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Insider-Trading Case Middleman Mined Taiwan for Tips
Chu spent years building technology contacts in his native Taiwan before a hedge fund manager with a history of insider trading secretly recorded him at the behest of the U.S. Federal Bureau of Investigation, Bloomberg News’s David Voreacos, David Glovin and Tim Culpan report.
Chu, 56, a onetime employee at AT&T’s Bell Laboratories, worked for Taiwanese firms including CyberTan Technology Inc. and Z-Com Inc. before joining Primary Global Research LLC. PGR connects investors with industry experts who provide insight into a specific market. One client was Spherix Capital LLC, a hedge fund where Richard Choo-Beng Lee used secret tips to trade stocks, according to Lee’s guilty plea last year.
Lee helped the FBI tape Chu in a probe of insider trading by hedge funds including Galleon Group LLC, the first such case where wiretaps were used. Raj Rajaratnam, Galleon’s co-founder, is the central figure in an investigation that has led to 14 guilty pleas, including Lee’s. The tapes that Lee made, and other evidence, led to Chu’s arrest Nov. 24 on charges he helped pass along inside data such as earnings estimates.
Chu, a naturalized U.S. citizen since 1987, helped employees of U.S. companies Broadcom Corp. and Sierra Wireless Inc. pass inside financial data in Taiwan to PGR clients and also helped Atheros Communications Inc. workers leak confidential information, according to an FBI complaint. He worked at PGR for seven years and was its “bridge to Asia experts and data sources,” according to the company. PGR fired him after his arrest. He had been set to fly Nov. 28 to Taiwan.
Dan Charnas, a spokesman for Mountain View, California- based PGR, and Chu’s attorney James DeVita declined to comment.
Chu is charged with one count of conspiracy to commit securities fraud and one count of conspiracy to commit wire fraud. He faces as long as 25 years in prison if convicted of wire-fraud conspiracy. He was released on a $1 million personal recognizance bond and ordered to surrender his passport.
The case is U.S. v. Chu, 10-Mag-2625, U.S. District Court, Southern District of New York (Manhattan).
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Citigroup’s Student Loan Wins Ruling Over Buyout
A judge declined to block Citigroup Inc.’s planned $30-a-share sale of its Student Loan Corp. to Discover Financial Services and scheduled a trial for June on claims by dissident investors that the shares are undervalued.
Student Loan, based in Stamford, Connecticut, was sued in September in Delaware Chancery Court over the $600 million offer, representing a 40 percent premium at the time. Citigroup owns 80 percent of the stock, according to Bloomberg data.
While declining to issue a preliminary injunction blocking the sale, Judge J. Travis Laster said there may be disputed issues that should be tried. He said damages may be sufficient remedy for any harm shareholders may suffer.
“Both sides have strong points, both sides have weak points,” Laster said yesterday at a hearing in Wilmington, citing possible “serious credibility conflicts” involving decisions on the sale price. He set the trial for June 6, 7 and 8.
More than a score of Citigroup businesses were identified for sale following the New York-based bank’s $45 billion bailout in 2008. In the buyout, Riverwoods, Illinois-based Discover would become the third-largest U.S. provider of private student loans, behind leader SLM Corp. and Wells Fargo & Co.
“The premium to market is a sham,” shareholders’ lawyer Ethan Wohl told Laster during the hearing. He said the company is worth $50 a share.
“Without funding from Citigroup, this company has no value” and would be headed for bankruptcy, said lawyer Kenneth Nachbar, representing Student Loan. “They should be celebrating, not suing.”
“We are pleased with the ruling,” said Student Loan spokesman Mark Rodgers in an e-mailed statement.
The main case is Kahn v. The Student Loan Corp., CA5832, Delaware Chancery Court (Wilmington).
Nigeria Will File Charges Against Cheney Over Alleged Bribery
Nigeria will file charges against former U.S. Vice President Dick Cheney and officials from five foreign companies including Halliburton Co. over a $180 million bribery scandal, a prosecutor at the anti-graft agency said.
Indictments will be lodged in a Nigerian court “in the next three days,” Godwin Obla, prosecuting counsel at the Economic and Financial Crimes Commission, said in an interview yesterday at his office in Abuja, the capital. An arrest warrant for Cheney “will be issued and transmitted through Interpol” for enforcement, he said.
Peter Long, Cheney’s spokesman, said he couldn’t immediately comment when contacted yesterday.
Obla said charges will be filed against current and former chief executive officers of Halliburton and its former unit KBR Inc., based in Houston; Technip SA, Europe’s second-largest oilfield-services provider; ENI SpA, Italy’s biggest oil company; and Saipem Construction Co., a unit of Eni. He didn’t identify the former officials whom he said held office when the alleged bribes were paid.
“Eni confirms its availability to cooperate with the local authorities in the ongoing investigations, as it has done in the past with Italian and U.S. authorities,” Gianni Di Giovanni, spokesman for the company, said in an e-mailed statement today.
Eni has no comment on the matter, a spokesman, who can’t be identified in line with company policy, said in an e-mailed response to questions. Christophe Belorgeot, who is listed on Technip’s website as a spokesman for the company, didn’t answer his phone when called yesterday. No one answered the phone at Halliburton’s Nigerian office when called for comment. Heather Browne, a spokeswoman for KBR, said by e-mail the company has no comment.
Cheney, 69, was CEO of Halliburton from 1995 until 2000, when he left the company to become U.S. President George W. Bush’s running mate and then vice president. He formed the company’s KBR Inc. unit after acquiring Dresser Industries Inc. in 1998.
KBR and Halliburton agreed to pay $579 million in February 2009 for bribery payments in Nigeria that stretched from 1994 to 2004.
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Del Monte Foods Is Sued by Shareholder Over KKR Buyout
Del Monte Foods Co. should be barred from completing its proposed $5.3 billion sale to a group led by KKR & Co. because the price is too low, a shareholder claimed in a lawsuit.
Del Monte’s directors agreed to “onerous and preclusive” deal-protection provisions that ensure no competing offers will emerge, shareholder Vivian Golombusky said in the complaint filed Nov. 30 in Delaware Chancery Court in Wilmington.
KKR, Vestar Capital Partners and Centerview Partners seek to purchase the San Francisco-based maker of canned fruit and pet food “on the cheap,” Golombusky said. Del Monte said Nov. 25 that the firms will pay $19 a share in cash and assume about $1.3 billion in debt. The deal is expected to be completed in March unless Del Monte finds a better offer before Jan. 9, the companies said in a joint statement.
The agreement contains a “no shop” provision that prohibits Del Monte from soliciting alternative buyout offers, lawyers for Golombusky said in the complaint. The deal also includes a “standstill” provision that bars Del Monte from “engaging in discussions or negotiations relating to proposals regarding alternative business combinations,” according to the complaint.
Robin Weinberg, an outside spokeswoman for Del Monte, didn’t immediately return a phone call seeking comment.
Golombusky seeks to represent all Del Monte shareholders and recoup unspecified damages.
The case is Golombusky v. Del Monte Foods Co., CA6027, Delaware Chancery Court (Wilmington).
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Goldman Fails to Vacate $20.1 Million Bayou Award
Goldman Sachs Group Inc. failed to vacate a $20.1 million award an arbitration panel had granted Bayou Group LLC creditors who sued Goldman for failing to detect that Bayou funds for which it did transfers were a fraud.
U.S. District Judge Jed Rakoff in Manhattan said in a ruling Nov. 30 that Goldman failed to show that the arbitration panel “manifestly disregarded the law” in granting the award.
The creditors group sued Goldman in 2008 after Bayou Group executives pleaded guilty to running a Ponzi scheme and the company’s hedge funds went into bankruptcy. The creditors alleged Goldman failed to diligently investigate the funds and was liable for fraudulent transfers. The arbitration panel awarded the creditors the full $20.1 million they sought.
Ed Canaday, a Goldman spokesman, declined to comment on Rakoff’s ruling.
The case is Goldman Sachs Execution & Clearing LP v. the Official Unsecured Creditors Committee of Bayou Group, 10-05622, U.S. District Court, Southern District of New York (Manhattan.)
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Litigation Departments & Lawyers
Merck New CEO Frazier Vows Innovation, Wider Markets Merck & Co.’s Kenneth C. Frazier was named Nov. 30 as chief executive officer of the second-biggest U.S. drugmaker. Frazier has been president of Whitehouse Station, New Jersey-based Merck since April after joining the company in 1992 as general counsel.
Frazier takes over a company in transition. Merck is eliminating 15,000 jobs and closing facilities following last year’s $49 billion acquisition of Schering-Plough Corp. It’s also focusing efforts on costly research that may pay off later as breakthrough treatments for heart disease and cancer and on a strategy to sell its newest drugs in developing countries, said Christopher Bowe, a New York-based analyst for London research firm Informa Plc.
“The pillar of our strategy will remain innovation,” Frazier, 55, said in a telephone interview Nov. 30 after the company announced he will replace Richard Clark, 64, as CEO. “Emerging markets is a subset of that innovation strategy.”
Frazier made his name at Merck leading the company’s legal defense against thousands of claims that its Vioxx painkiller drug caused heart attacks and strokes.
As Merck’s CEO, Frazier is eligible for 2011 compensation of as much as $11.25 million in cash and stock, which includes a base salary of $1.5 million, a bonus of as much as $2.25 million, and an incentive equity package of $7.5 million, the company said Nov. 30 in a regulatory filing.
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On the Docket
Ex-Glaxo Lawyer Faces Feb. 1 Trial in Obstruction Case
A former in-house attorney for GlaxoSmithKline Plc charged with obstructing justice and making false statements is scheduled for trial on Feb. 1, a judge said in a court filing.
Lauren Stevens, 60, was arraigned Nov. 29 in federal court in Greenbelt, Maryland, where she pleaded not guilty and was released without having to post bail. U.S. District Judge Roger W. Titus said in a memorandum signed yesterday and released yesterday that the trial is expected to last three weeks.
Stevens was charged Nov. 8 in a six-count indictment with obstructing a U.S. investigation into unapproved uses of Glaxo’s antidepressant drug Wellbutrin SR. Prosecutors said she impeded 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.
William Hassler, a lawyer for Stevens, declined to comment.
Brien O’Connor, another of her attorneys, said in a statement on the day Stevens was indicted that she wasn’t guilty.
Stevens is charged with one count of obstructing an official proceeding, one count of falsifying and concealing documents and four counts of making false statements. The first two charges carry maximum prison terms of 20 years. The others carry five-year terms.
The case is U.S. v. Stevens, 10-cr-00694, U.S. District Court, District of Maryland (Greenbelt).
To contact the editor responsible for this story: David E. Rovella at email@example.com.