Stanford, Madoff, BofA, MBIA, Goldman in Court News
R. Allen Stanford’s criminal trial on charges he led a $7 billion investment fraud was postponed indefinitely by a U.S. judge while the Texas financier receives care for a prescription-drug addiction.
“Nothing can be done until the medical aspect is cleared up,” U.S. District Judge David Hittner in Houston told defense lawyers and federal prosecutors yesterday after an almost eight- hour hearing on Stanford’s mental competency.
Three psychiatrists, one working for the government and two working for the defense, testified yesterday that Stanford’s dependency on prescription anti-anxiety medication and the after-effects of a head injury he sustained in a jailhouse beating left him unfit for the trial scheduled to start Jan. 24.
Stanford, 60, is accused of leading a scheme centered on the sale of certificates of deposit by Antigua-based Stanford International Bank Ltd. Stanford, indicted on 21 criminal counts in June 2009, has denied wrongdoing.
While the doctors who testified agreed that Stanford needs hospitalization, lawyers disagree on where that treatment should be provided.
Defense lawyers told Hittner they want him placed in a private Houston-area facility where he would wear an electronic monitor around his ankle and be watched by guards paid for by his family.
Prosecutors said that treatment can be provided at a federal prison, preferably one in Houston.
“It’s the government that caused this,” defense attorney Ali Fazel responded, noting Stanford’s head injury was sustained in prison, as was the overmedicating. “Why entrust them to now take care of him?”
Hittner set a Jan. 12 deadline for submission of each side’s detailed proposal. A new trial date won’t be set until Stanford is fit, the judge said.
Because of a court-imposed gag order, Stanford’s lawyers and prosecutors didn’t comment after the hearing.
The criminal case is U.S. v. Stanford, 09-cr-00342, U.S. District Court, Southern District of Texas (Houston). The SEC case is Securities and Exchange Commission v. Stanford International Bank Ltd., 09-cv-00298, U.S. District Court, Northern District of Texas (Dallas).
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Madoff Investors Object to Picower Accord With Trustee
Victims of Bernard L. Madoff’s Ponzi scheme objected to a settlement in which the estate of billionaire Jeffry Picower, who also invested, agreed to forfeit $7.2 billion.
The investors filed their objection yesterday in U.S. Bankruptcy Court in New York. They said the Picower settlement may interfere with their own efforts to get money from the estate. Irving Picard, the trustee liquidating Bernard L. Madoff Investment Securities LLC, doesn’t represent them because they didn’t lose principal in the fraud and they also have tax claims.
“By the trustee’s settlement, the Picower entities are paying Picard more than twice what he could recover if he won completely on his pending complaint,” Helen Davis Chaitman, a lawyer for the investors, said in an e-mail.
Picard sued Picower in May 2009, claiming he withdrew $7.2 billion more than he invested. Picower died in October 2009 at age 67.
Picard and U.S. Attorney Preet Bharara, who is probing the Madoff fraud, on Dec. 17 announced the settlement with Picower’s widow, Barbara. The settlement brought the amount collected by authorities over the Madoff fraud to $9.8 billion.
Amanda Remus, a spokeswoman for Picard’s law firm, Baker & Hostetler LLP in New York, didn’t have an immediate comment.
The case is Picard v. Picower, 09-1197, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
BofA Urges New Jersey Court Not to Halt Foreclosures
Bank of America Corp., JPMorgan Chase & Co. and other U.S. banks told a New Jersey court that defects in their processes for seizing homes in the state can be remedied without halting foreclosures.
The banks have taken steps to improve their procedures, making a suspension unnecessary, they said in documents filed Jan. 5 in state court in Trenton, New Jersey, and made public yesterday. The filings came in response to a proposal to freeze foreclosures in the state by six U.S. banks while their procedures are reviewed.
The banks’ practices came under scrutiny after bank employees signed court documents in foreclosure cases without reviewing their accuracy, according to court papers.
“Bank of America fully appreciates the court’s concerns and looks forward to working with the court to address them,” the Charlotte, North Carolina-based company said. “The court should not take the steps outlined in the order because they are unnecessary and will cause a wholesale delay in administering foreclosure cases that is not in the public interest.”
Judge Mary Jacobson scheduled a Jan. 19 hearing to consider suspending uncontested foreclosure cases and foreclosure sales by the banks: Ally Financial Inc., Bank of America, JP Morgan, Wells Fargo & Co., Citigroup Inc. and OneWest Bank, according to a Dec. 20 order.
Jacobson said in the order that the move “is necessary to protect the integrity of the judicial foreclosure process in New Jersey and to assure the public that the process going forward will be reliable.”
The case is In the Matter of Residential Mortgage Foreclosure Pleading and Document Irregularities Superior Court of New Jersey, Chancery Division-General Equity Part, No. F-59553-10, Mercer County (Trenton).
MBIA Agrees to Drop Subprime CDO Lawsuit Against RBC
MBIA Inc. agreed to drop a lawsuit against Royal Bank of Canada that claimed the bank fraudulently induced the insurer to sell it credit-default swaps protecting against losses on securities linked to subprime mortgages.
Attorneys for MBIA Insurance Corp. and MBIA’s LaCrosse Financial Products LLC signed an agreement of voluntary discontinuance in the case along with attorneys for the Toronto- based bank and two of its units, according to a copy of the stipulation stamped as filed Jan. 4 in New York state Supreme Court in Westchester County and posted on MBIA’s website.
The agreement was filed four days after RBC withdrew from a suit that is challenging the insurer’s restructuring in 2009. MBIA has been shut out of the bond insurance business since losing its top rankings in 2008 over losses on subprime mortgage debt it guaranteed. Other banks including UBS AG, Bank of America Corp., Royal Bank of Scotland Group Plc and HSBC Holdings Plc are still challenging MBIA’s restructuring, according to court filings.
Kevin Brown, a spokesman for Armonk, New York-based MBIA, declined to comment on MBIA’s reason for dropping the case. Scott Balber, an attorney for Royal Bank of Canada in the case, also declined to comment, and Kevin Foster, a spokesman for RBC’s New York-based brokerage arm, didn’t immediately return a phone call.
MBIA had sued RBC in January 2010 over $4.4 billion of credit-default swaps the insurer sold the bank to protect against losses on three collateralized debt obligations created and marketed by RBC, according to a copy of the complaint on MBIA’s website.
The case is MBIA Insurance Corp. v. Royal Bank of Canada, 12238/2009, New York state Supreme Court (Westchester).
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ACA Financial Guaranty Sues Goldman Sachs for Fraud
ACA Financial Guaranty Corp. sued Goldman Sachs Group Inc. for at least $120 million, alleging fraud and unjust enrichment in connection with a mortgage-linked investment that last year led to a $550 million settlement between the bank and U.S. Securities and Exchange Commission.
Goldman Sachs developed and sold the collateralized debt obligation known as Abacus for hedge-fund client Paulson & Co. in 2007, according to the complaint filed yesterday by ACA in New York state court in Manhattan.
Abacus was “worthless” when Goldman Sachs marketed it to ACA, a bond insurance company, the suit alleges. ACA, which says it now guarantees more than $7 billion in municipal bonds, is seeking at least $30 million in compensatory damages and at least $90 million in punitive damages.
Goldman Sachs agreed to the SEC settlement in July over claims the bank misled investors in CDOs linked to subprime mortgages. The New York-based bank didn’t admit or deny wrongdoing as part of the settlement.
The SEC lawsuit, filed in April, claimed Goldman failed to disclose that Paulson helped pick the underlying securities and bet against the investment vehicles. As part of the settlement, Goldman acknowledged it was a “mistake” for its marketing materials to state that the portfolio was “selected by” ACA Management LLC without disclosing the role of Paulson in the selection process.
Michael Duvally, a Goldman Sachs spokesman, didn’t return a call seeking comment.
The case is ACA Financial v. Goldman Sachs & Co., 650027/2011, New York state Supreme Court (Manhattan).
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Merrill Lynch Sues Italian Region Over Swap Deal
Bank of America Corp.’s Merrill Lynch International Bank Ltd. unit sued Italy’s Lazio region for refusing to honor obligations under a 2001 swap deal.
The lawsuit, filed Jan. 5 in New York state Supreme Court, seeks a Feb. 1 payment, enforcement of the agreement, and damages. Lazio entered the transaction to hedge interest rate and foreign-exchange rate risk related to two bonds it had issued, Dublin-based Merrill Lynch said in the complaint.
Lazio is among local Italian authorities that have sued Merrill and other banks in Rome to recover allegedly hidden fees on swaps. Lazio says it was misled by Merrill into agreeing to the transaction and may seek damages while refusing to live up to the deal, according to the bank, which also has sued the region in London.
An official for Lazio didn’t immediately return a call for comment. The central Italian region is made up of five provinces that include Rome.
The case is Merrill Lynch International Bank Ltd. v. Region of Lazio, 650024/2011, New York state Supreme Court (Manhattan).
Atheros Sued by Shareholder Over Qualcomm Acquisition
The $45-a-share deal is “inadequate” given Atheros’s recent results and promising new networking products, the Southeastern Pennsylvania Transportation Authority said in a lawsuit filed yesterday in Delaware Chancery Court in Wilmington.
Atheros brings expertise in home networking and products that help computers and other electronics link up without wires. San Diego-based Qualcomm is the world’s largest maker of mobile- phone chips. The acquisition, its biggest since it went public in 1991, helps broaden its lineup of Wi-Fi technology.
The offer, announced Jan. 5, represents a 21.6 percent premium over Santa Clara, California-based Atheros’s closing price on Jan. 3, less than the average premium of 48 percent for similar deals in the industry during the past year, SEPTA officials said the complaint.
“The two companies have a long-standing integration relationship,” SEPTA said. “This long-standing relationship likely put Qualcomm at an advantage in securing a lower price for the company.”
Molly Mulloy, a spokeswoman for Atheros, didn’t return a phone call seeking comment.
The case is SEPTA v. Barratt, CA6115, Delaware Chancery Court (Wilmington).
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Foreclosures May Be Undone by Ruling on Mortgage Transfer
Massachusetts’s highest court is poised to rule on whether foreclosures in the state should be undone because securitization-industry practices violate real-estate law governing how mortgages may be transferred, Bloomberg News’ Thom Weidlich reports.
The fight between homeowners and banks before the Supreme Judicial Court in Boston turns on whether a mortgage can be transferred without naming the recipient, a common securitization practice. Also at issue is whether the right to a mortgage follows the promissory note it secures when the note is sold, as the industry argues.
A victory for the homeowners may invalidate some foreclosures and force loan originators to buy back mortgages wrongly transferred into loan pools. Such a ruling may also be cited in other state courts handling litigation related to the foreclosure crisis.
“This is the first time the securitization paradigm is squarely before a high court,” said Marie McDonnell, a mortgage-fraud analyst in Orleans, Massachusetts, who wrote a friend-of-the-court brief in favor of borrowers. The state court, under its practices, is likely to rule by next month.
Claims of wrongdoing by banks and loan servicers triggered a 50-state investigation last year into whether hundreds of thousands of foreclosures were properly documented as the housing market collapsed. The probe came after JPMorgan Chase & Co. and Ally Financial Inc. said they would stop repossessions in 23 states where courts supervise home seizures and Bank of America Corp. froze U.S. foreclosures. Massachusetts is one of 27 states where court supervision of foreclosures generally isn’t required.
The Massachusetts homeowners argued that the banks that took their homes didn’t follow their own rules for transferring mortgages into mortgage-backed trusts that issued bonds. The banks and the mortgage-bundling industry counter that the securitization documents themselves assign the mortgages.
The case is U.S. Bank v. Ibanez, 10694, Supreme Judicial Court of Massachusetts (Boston). The lower-court cases are U.S. Bank National Association v. Ibanez, 08-Misc-384283, and Wells Fargo Bank NA v. LaRace, 08-Misc-386755, Commonwealth of Massachusetts, Trial Court, Land Court Department (Boston).
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Ex-Arcandor CEO Says He Never Misled Investors on Refinancing
Former Arcandor AG Chief Executive Officer Thomas Middelhoff rejected claims he misinformed investors in 2008 about the company’s efforts to refinance debt.
Middelhoff testified at a court in Essen, Germany, yesterday that he wasn’t wrong when he told a reporter on Sept. 16, 2008, that Arcandor had ruled out a capital increase for a refinancing due at the end of that month. He also didn’t instruct his spokesman to deny that Arcandor was considering selling its stake in Thomas Cook Group Plc.
“At the time of the interview I was totally convinced that we would be able to finalize the refinancing without a capital increase and also without selling the Thomas Cook stake,” Middelhoff said.
Arcandor, the former parent of German department-store chain Karstadt, filed for insolvency in June 2009. Middelhoff’s home and office were searched in October as part of a probe into the company’s demise and whether there was any related misconduct.
The plaintiff in yesterday’s case, Jan-Eric Peters, the editor in chief of Die Welt, claims he lost more than 50,000 euros ($65,000) because he bought Arcandor shares relying on the information. On Sept. 24, 2009, Arcandor said it had to “clarify” an earlier statement by a spokesman that it wouldn’t give away part of its majority stake in Thomas Cook to guarantee loans. The shares fell 30 percent the next day.
After several refinancing efforts faltered, Arcandor announced a few days later that it would sell 23 million new shares to Bank Sal Oppenheim Jr. & Cie.
Yesterday’s case is LG Essen, 4 O 244/09.
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SGC Director Fined, Banned by Regulator for Insurance Fraud
A former director at Surety Guarantee Consultants Ltd. was banned from working in the financial industry by a U.K. regulator for his part in a scheme that defrauded London insurers of more than 2 million pounds ($3 million).
Barry Williams, 61, was also fined 25,000 pounds for participating in the scheme to defraud Markel International Insurance Co., QBE Insurance Europe) Ltd. and Amalfi Underwriting Ltd., the U.K. Financial Services Authority said in a statement yesterday. While Williams didn’t profit from the scheme, he “turned a blind eye” and lied to insurers about it, the regulator said.
“He recklessly abused the trust and confidence placed in him by leading London market insurers and by doing so enabled secret profits to be made from the fraud by his colleagues,” FSA enforcement chief Margaret Cole said in the statement. “This sort of breach of fiduciary duty and lack of integrity amounts to very serious misconduct.”
SGC, an insurance company that sold surety bonds, exposed the other insurers to greater liabilities than they had agreed to take on by exceeding their authorized limits and withholding money that was owed to the clients, the FSA said. The company also provided false documents to its auditors, according to the agency.
The FSA’s registry didn’t provide contact information for Williams.
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