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Lions Gate, HSBC, Madoff, Goldman, BA in Court News

Carl Icahn’s hostile bid for Lions Gate Entertainment Corp. was set back by a New York judge’s decision to let a board member vote shares acquired in a deal that diluted the billionaire investor’s stake in the company.

Icahn asked the court to block director Mark Rachesky from voting the shares he acquired on July 20 at the independent film studio’s Dec. 14 annual meeting as he sought the election of five directors he nominated. New York state Supreme Court Justice James Yates yesterday denied Icahn’s request for a preliminary injunction.

Icahn, 74, who is attempting to buy the studio for $7.50 a share, sued Vancouver-based Lions Gate in Canada and New York in July to reverse an equity-for-debt swap that increased Rachesky’s stake to almost 29 percent. Icahn argued that management conspired with large shareholders to thwart his bid. He owns about 33.5 percent.

The denial of the motion will permit existing shareholders to vote on Dec. 14 “while giving Icahn, if he loses the proxy fight on that day, and should he prevail in the ensuing litigation, an opportunity for a new election” with the votes to be counted in less than 10 months as sought, Yates wrote in his ruling.

The judge said an important factor in his determination was that Lions Gate’s lawyers told him another shareholder’s meeting would be held in September 2011.

Icahn said in a Dec. 6 interview that he needed a favorable ruling to prevail at next week’s shareholders’ meeting.

“We need the court’s ruling,” Icahn said. “If we get that, Rachesky will go down from 29 percent to 20 percent.”

An attorney for Icahn, Joseph DiBenedetto, declined to comment immediately after the decision was released.

Lions Gate said in a statement it was pleased with the ruling and believes “the transaction, which resulted in the reduction of Lionsgate debt by approximately $100 million, supported the best interests of the company.”

Attorney Andrew Rossman, who represents Rachesky, said in a telephone interview, “We look forward to the annual meeting.”

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

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New Suits

Three Ex-UBS Executives Indicted in Muni Bid Probe

The former co-head of UBS AG’s municipal derivatives group and two colleagues were indicted in the U.S. government’s multiyear investigation of bid-rigging on investment contracts.

Peter Ghavami, Gary Heinz and Michael Welty were charged with six counts in U.S. District Court in New York, the Justice Department said in a news release.

“The individuals charged today allegedly participated in complex fraud schemes and conspiracies that subverted competition in the market for municipal finance contracts and deprived municipal bond issuers of the benefits of their investments,” said Christine Varney, the department’s antitrust chief.

The Justice Department’s antitrust division has ramped up its more than four-year criminal investigation of the $2.8 trillion municipal bond market in the past few weeks. On Dec. 7, Bank of America Corp. agreed to pay $137 million in restitution for its involvement in the bid-rigging conspiracy.

Ghavami, a Belgian citizen living in Moscow, was arrested Dec. 1 after arriving at John F. Kennedy International Airport in New York. A former JPMorgan Chase & Co. banker, James Hertz, pleaded guilty Nov. 30.

“Peter Ghavami will plead not guilty and fight this case,” said James Mitchell, his lawyer, in a telephone interview.

Heinz couldn’t be reached for comment, and Welty hung up on a reporter. Kelly Smith, a UBS spokeswoman in New York, declined to comment.

The Justice Department didn’t identify which company employed Ghavami, Heinz and Welty. Records filed with the Financial Industry Regulatory Authority show they worked for UBS.

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Bank of America Wins Order, Ex-Workers Can’t Take Data

Bank of America Corp. won a court order blocking four former employees from using and sharing the bank’s client records at their new employer, New York-based Dynasty Financial Partners.

Bank of America alleged Dec. 8 in a complaint in New York state court that taking the records from the bank’s U.S. Trust unit to Dynasty Financial amounted to trade-secret theft. The employees claimed in their resignation letters that they were allowed to take the records under a voluntary recruiting agreement among brokers, according to the complaint.

Michael C. Brown, formerly a Bank of America financial adviser with $5.9 billion in client assets, and the other three defendants are temporarily blocked from “using or disclosing in any manner the customer lists and any other property or trade secret information taken at the time” of their resignation from U.S. Trust, according to a copy of the order signed by Justice Melvin L. Schweitzer and provided yesterday by Bill Halldin, a Bank of America spokesman.

Steven Goldberg, a spokesman for Dynasty Financial, said in an e-mailed statement that Schweitzer denied “the majority of Bank of America’s claims,” including a request to prevent Brown and his team from continuing to work with some clients.

The suit is unnecessary and “a blatant legal tactic in an attempt to portray Mr. Brown and his team in a negative light,” Goldberg said in the statement.

The order directs the former employees to return customer lists and any other property to U.S. Trust. It also blocks them from “soliciting, inviting, encouraging, requesting” customer accounts that may have been “wrongfully solicited,” according to the filing.

Halldin declined to comment.

The suit names as defendants Dynasty Financial, Brown, Charles F. Britton, Marcus Wilson and Amanda Kerley.

The case is Bank of America v. Michael C. Brown, 030283, New York Supreme Court, New York County (Manhattan).

HSBC Sued By German Investors Over Madoff Fund Losses

HSBC Holdings Plc, Europe’s biggest lender, was sued by a group of 650 German investors in Luxembourg seeking compensation for losses they suffered through a fund that placed assets with convicted conman Bernard Madoff.

The group of mainly private investors is seeking about 25 million euros ($33 million) in damages, alleging the London- based bank is liable for losses through Herald (Lux) US Absolute Return Fund, said Edouard Fremault, a senior analyst at Deminor International, which filed the lawsuit on behalf of investors.

“HSBC was responsible for the safekeeping of the assets of Herald (Lux) and, despite very clear regulation to the contrary in Luxembourg, HSBC fully delegated custodial functions to Madoff,” Fremault said by telephone yesterday. “HSBC was aware there was risk associated with Madoff because it had received a report from KPMG showing this.”

The Dec. 6 Luxembourg lawsuit was filed a day after Irving Picard, the U.S. trustee liquidating Madoff’s firm, sued HSBC in New York for $9 billion, alleging the bank enabled Madoff’s fraud. HSBC also faces separate Madoff-related lawsuits in Ireland and Luxembourg.

“HSBC is party to a number of proceedings in various jurisdictions” and “believes it has good defenses and shall defend itself vigorously,” a spokesman for the lender said by telephone.

HSBC’s Luxembourg unit was custodian for the Herald (Lux) fund, which had assets of $225.7 million as of Oct. 31, 2008, according to Bloomberg data. The fund was forced to dissolve because of Madoff-related losses.

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Lawsuits/Pretrial

Fabrice Tourre Seeks to Dismiss Amended SEC Lawsuit

Fabrice Tourre, the Goldman Sachs Group Inc. trader accused of misleading investors in a product linked to subprime mortgages, asked to have the Securities and Exchange Commission’s revised lawsuit against him dismissed.

The amended complaint fails “utterly to remedy the fatal defects in the original complaint,” Tourre said in his motion filed yesterday in federal court in Manhattan. Because the transactions involving the collateralized debt obligations called Abacus 2007-AC1 occurred outside the U.S., Tourre can’t be held liable under U.S. securities law, he said.

“The SEC adds an allegation that a closing for Abacus 2007-AC1 took place in New York on April 26, 2007,” Tourre said in his filing. “As to the closing, the SEC pleads no facts supporting a plausible inference that the ‘closing’ was anything more than a ministerial lawyer-driven documentation exercise.”

The SEC, which reached a $550 million settlement with Goldman Sachs in July, included new claims against Tourre in an amended complaint filed Nov. 22. U.S. regulators accuse the London-based trader of defrauding investors by not disclosing that hedge fund Paulson & Co. helped pick the underlying securities for the collateralized debt obligation and planned to bet against them.

The case is SEC v. Tourre, 10-03229, U.S. District Court, Southern District of New York (Manhattan.)

Venezuelan Corruption Cases in U.S. Spotlight Chavez Officials

Venezuelan corruption cases are surfacing in U.S. courts with civil and criminal allegations involving judges, financial regulators and senior military officers in President Hugo Chavez’s government, Bloomberg News’ David Glovin and Charlie Devereux report.

Since October, U.S. prosecutors have brought an extortion case against an official of Venezuela’s securities regulator, an arms trafficking case tied to engine shipments for Venezuela’s air force and a cocaine smuggling case against an accused drug kingpin who implicated Venezuelan military figures. A civil suit alleging money laundering by seven top Venezuelan officials is on appeal after a trial judge dismissed it in August.

“There’s so much corruption that has washed ashore from Venezuela,” said Joel Hirst, an international affairs fellow at the Council on Foreign Relations in Washington. “More and more criminal activity is having its source in Venezuela. It’s spilling into the public and into the U.S. courts because a lot of Venezuelans have fled to the U.S.”

Venezuelan officials say corrupt businessmen are using U.S. antagonism toward Venezuela to protect themselves and tarnish the international reputation of Chavez’s self-described revolutionary, socialist government.

“Those speculating businessmen should show their faces in Venezuela and stop running away and accusing our officials in the United States,” Finance Minister Jorge Giordani told reporters in Caracas on Nov. 3, referring to charges brought against a securities regulator official, Rafael Ramos de la Rosa. Ramos was indicted last month for conspiracy to commit extortion and launder money as the government-appointed receiver of Caracas brokerage Uno Valores Casa de Bolsa CA. He pleaded not guilty in federal court in Miami on Dec. 3.

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Trials/Appeals

Ex-Goldman Sachs Programmer Was ‘Thief,’ Prosecutor Tells Jury

Former Goldman Sachs Group Inc. programmer Sergey Aleynikov is a “thief” who on his last day of work took some of the company’s proprietary trading code to use at his new firm, a prosecutor told jurors.

Assistant U.S. Attorney Rebecca Rohr said in closing arguments yesterday that Aleynikov uploaded hundreds of thousands of lines of source code from Goldman’s trading system on June 5, 2009.

He circumvented Goldman’s security system, sent the code to an outside server in Germany, and later compressed and encrypted the code, Rohr told jurors in federal court in Manhattan. Aleynikov took the code with him to a meeting with his new employers in Chicago in July, she said.

“He had a cheat sheet -- the codes from Goldman Sachs that he needed to get started with for a trading system” at his new employer, Rohr said. “He wanted to make it seem like he’d written the code himself. He was a programmer who stole the answers to the test.”

Aleynikov’s attorney, Kevin Marino, argued that his client may have broken a confidentiality rule of New York-based Goldman and didn’t commit a crime. Jurors began deliberations yesterday.

Aleynikov is charged with violating the Economic Espionage Act and the Interstate Transportation of Stolen Property Act. If convicted, he faces as long as 15 years in prison.

The case is U.S. v. Aleynikov, 1:10-cr-00096, U.S. District Court, Southern District of New York (Manhattan).

British Airways Says Hong Kong Staff Can’t Bring U.K. Lawsuit

British Airways Plc told a London court that a group of 16 Hong Kong-based former cabin crew shouldn’t be allowed to sue the airline in the U.K. for age discrimination.

British Airways had the right to make the workers retire at the age of 45 because U.K. discrimination law doesn’t apply to them, Thomas Linden, a lawyer for the carrier, told a panel of judges at the Court of Appeal yesterday.

“Parliament did not legislate to protect employees across the world,” he said. “It protects employees who are employed at an establishment in Great Britain.”

Two lower courts have already ruled against British Airways and allowed the former Hong Kong-based employees to bring a claim. Linden said the lower courts erred.

During their employment with the airline, the flight attendants flew into the U.K. around 28 times a year spending up to three days in the country on each occasion.

Melanie Tether, lawyer for the Hong Kong crew, said that the earlier rulings were correct and that all employees on U.K. aircraft operated by a British business are entitled to protection under the age discrimination laws.

The case is British Airways Plc v. Mak and Ors, Appeal of Appellant from the order of The Employment Appeal Tribunal.

EBay May Be Liable for L’Oreal Trademark Breaches

EBay Inc. can be held liable for trademark breaches on its auction site if it has been notified of continuing infringement, a European Union court aide said in a dispute involving L’Oreal SA.

While EBay isn’t liable for potentially infringing information posted by users on its site in general, the owner of the second most-visited U.S. e-commerce site can be held liable for any infringements from the moment it’s notified of a trademark breach and also for content it transfers to search engines, such as Google and Yahoo. EBay uses L’Oreal trademarks as sponsored links to lead users to infringing perfumes and other cosmetics, L’Oreal has said.

“Whilst EBay is generally exempted from liability for information stored by its clients on its website, it still remains liable for the content of data it communicates as an advertiser to a search engine,” Advocate General Niilo Jaeaeskinen of the EU’s Court of Justice said yesterday in a non-binding opinion. No exemption applies either “if EBay has been notified of the infringing use of a trademark.”

L’Oreal has argued EBay is liable for trademark breaches due to its active involvement in the pre-sale, sale and after- sale processes on its online platform. The case was referred from the U.K. to the EU’s top court in Luxembourg for guidance.

A ruling by the EU court, which in most cases follows its advisers’ opinions, may help settle pending trademark disputes between the two companies in France, Belgium and Spain.

“The Advocate General retained the possibility of prohibiting the sale of testers and unpackaged products,” Paris-based L’Oreal said in an e-mail. “This balanced opinion is overall consistent with the stance that L’Oréal has held for several years.”

The case is C-324/09, L’Oreal SA, Lancome parfums et beaute & Cie SNC, Laboratoire Garnier & Cie, L’Oreal (UK) Ltd. v. EBay International AG, EBay Europe SARL, EBay (UK) Ltd.

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Verdicts/Settlement

Ex-Afghanistan Contractor Gets 41 Months for Bribery

A former KBR Inc. employee in Afghanistan was sentenced to 41 months in prison for accepting bribes for steering work to companies doing business with the U.S. military.

Daniel Freeman of Hempstead, New York, pleaded guilty to taking $200,000 while working in Afghanistan from 2007 to 2009. He also admitted he laundered the money by sending cash back to the U.S. in concealed transactions.

“I just made a horrible decision, your honor,” Freeman told U.S. District Judge Colleen McMahon yesterday in New York.

McMahon rejected pleas from Freeman’s lawyer to impose a sentence of less than the 41 to 51 months called for in nonbinding federal sentencing guidelines.

“It is very necessary to send a message loud and clear that this type of behavior will not be tolerated,” McMahon said.

The judge called Afghanistan a “murky part of the world” where representatives of the U.S. have to operate “completely and totally on the up and up.”

The case is U.S. v. Freeman, 10-cr-00766, U.S. District Court, Southern District of New York (Manhattan).

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Litigation Departments

Bank of America Swaps Lawyers After $590 Million Lehman Ruling

Bank of America Corp., ordered by a bankruptcy judge to pay Lehman Brothers Holdings Inc. $590 million after taking its deposits, substituted law firm Bingham McCutchen LLP for Shearman & Sterling LLP as its representative in the continuing case, according to a Dec. 6 filing in U.S. Bankruptcy Court in Manhattan.

Cuomo Reaches Pension Probe Deal With His Father’s Former Aide

Andrew Cuomo, New York’s attorney general, reached an agreement in his pension-fund probe with a one-time aide to his father and the state’s former three-term governor, Mario M. Cuomo.

The agreement with Albany, New York, attorney and lobbyist Gerald A. “Jerry” Weiss was disclosed yesterday on the attorney general’s official state website and in an e-mail. Weiss, who had no securities license and wasn’t affiliated with a broker-dealer, got $52,000 for introducing an investment firm to the New York City Comptroller’s Office, according to the agreement.

Andrew Cuomo, a Democrat who was elected New York’s governor last month, also announced yesterday that he had recouped $1.5 million for the state and its Common Retirement Fund from a Dallas investment firm and from a lobbying firm led by a Weiss partner, Patricia Lynch.

“Gifts, favors and campaign contributions are not a legitimate basis for government contracts or special treatment,” the attorney general said in a statement announcing the accords with Patricia Lynch Associates Inc. and the Dallas firm, Aldus Equity.

Weiss and Lynch are partners in another Albany lobbying firm, LW Strategies LLC, according to an online New York City directory of registered lobbyists.

Weiss is also a partner in the Syracuse, New York-based law firm Hiscock & Barclay LLP, which in July contributed $45,900 to Andrew Cuomo’s gubernatorial campaign, according to New York State Board of Elections on-line data. The firm donated $10,000 to the campaign in January 2008.

Gabriel Nugent, a partner in the Hiscock & Barclay firm who is identified in the settlement papers as counsel for Weiss, declined to comment on the agreement or discuss the contributions made to the Cuomo campaign.

“We’re pleased to put this matter behind us,” Darren Dopp, a Lynch firm partner and spokesman, said in a phone interview.

Weiss didn’t admit any wrongdoing in his agreement with Cuomo. According to the agreement, he and his lobbying firm divided $104,000 in fees received from an investment firm which got pension business from the New York City Police and Fire pension funds.

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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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