MBIA, Primary Global, Facebook, Schwab in Court News

MBIA Inc. won dismissal of a lawsuit by banks including UBS AG and Bank of America Corp. claiming the bond insurer’s restructuring was tantamount to a “fraudulent conveyance.”

A New York state appeals court threw out the complaint challenging the 2009 split of the Armonk, New York-based company. The decision may be appealed to the New York Court of Appeals in Albany.

“The company still is facing a significant amount of litigation and event risk, but this is one of the pieces being taken off the table,” said Robert Haines, an analyst at CreditSights Inc. in New York. The lawsuit is one of two bank lawsuits filed to challenge the split. The second, brought under New York state’s Article 78 statute, has yet to be resolved.

Financial institutions that hold MBIA Insurance policies sued MBIA over the restructuring, approved by New York’s insurance department in 2009, claiming it was a fraudulent conveyance that left MBIA Insurance undercapitalized and possibly unable to pay out future claims. A lower court denied MBIA’s motion to dismiss, and the appellate division reversed. Two judges on the five-judge panel dissented.

The banks claimed the restructuring transferred $5 billion in cash and securities out of MBIA’s primary operating unit, MBIA Insurance, to a different entity, according to the complaint. The move meant MBIA Insurance couldn’t pay holders of financial-guarantee insurance policies, the plaintiffs said.

Royal Bank of Canada joined JPMorgan Chase & Co. and Barclays Plc in withdrawing from the case in late December. Other banks that remained in the lawsuit include Royal Bank of Scotland Group Plc, HSBC Holdings Plc, UBS and Bank of America, according to the Royal Bank of Canada filing.

Kevin Brown, a spokesman for MBIA, didn’t immediately comment.

The case is ABN Amro Bank NV v. MBIA Inc., 601475-2009, New York State Supreme Court, Appellate Division, First Department Manhattan).

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Chiesi’s Alleged Akamai Source Was Marketing Director

The family friend of Danielle Chiesi who allegedly supplied her with inside information about Akamai Technologies Inc. was identified in court papers as the company’s former senior marketing director, Kieran Taylor.

Taylor is the unidentified “Akamai source” in a U.S. Securities and Exchange Commission complaint filed against New York-based Galleon Group in the biggest hedge-fund insider trading investigation in history, according to court papers filed by the agency last week.

Taylor, who hasn’t been sued by the SEC or charged criminally, gave profitable, advance information to Chiesi about Akamai’s lower-than-expected earnings for the second quarter of 2008, the SEC said. Chiesi traded on the tips and passed them to others in the case, including Galleon co-founder and Chief Executive Officer Raj Rajaratnam, according to the SEC.

Chiesi, according to the SEC complaint, used Taylor’s information to make about $2.4 million through short sales of the company’s stock for New Castle Funds LLC, where she was employed as a consultant. Akamai’s share price declined almost 20 percent after the earnings were made public.

Taylor didn’t return a voice-mail message seeking comment yesterday.

“He’s no longer an employee with Akamai,” said Jeff Young, a company spokesman.

Chiesi, in addition to trading on the Taylor tips for New Castle, passed the information to Rajaratnam and to Steven Fortuna, cofounder of S2 Capital Management LP, who is cooperating with prosecutors, according to the SEC complaint. Rajaratnam made more than $3.2 million trading on the information for Galleon, the SEC said. Fortuna made about $2.4 million for S2 Capital Management, the SEC said.

Rajaratnam and Chiesi have pleaded not guilty to criminal insider trading charges.

The SEC identified Taylor in answers to questions submitted in its civil case by the defendants.

The criminal case is U.S. v. Rajaratnam, 1:09-cr-1184; the civil case is SEC v. Galleon Management LP, 09-cv-08811, U.S. District Court, Southern District of New York (Manhattan).

Trading Suspect Jiau to Plead Not Guilty, Lawyer Says

Winifred Jiau, one of the former Primary Global Research LLC consultants charged in a U.S. Justice Department insider- trading probe, intends to plead not guilty, her lawyer Mark Goldrosen said yesterday at a hearing concerning her transfer to New York.

Jiau, who is in custody in Dublin, California, after a judge said she was a flight risk, was arrested Dec. 28 and accused of selling information about Nvidia Corp. and Marvell Technology Group Ltd. to portfolio managers at three unidentified hedge funds through Primary Global, according to a Dec. 29 filing in federal court in Manhattan.

The judge continued the hearing on her transfer to New York to today, when Jiau is expected in court.

Magistrate Judge Bernard Zimmerman on Jan. 3 refused to release Jiau on bail, saying she didn’t have strong ties in the U.S. Jiau has lived in the U.S. for 18 years and holds U.S. and Taiwanese passports, Goldrosen has said.

The case is U.S. v. Jiau, 10-71093, U.S. District Court, Northern District of California San Francisco).

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Assange to Argue Extradition May Result in U.S. Custody

Lawyers for WikiLeaks founder Julian Assange will argue extraditing him to Sweden to face questions over rape claims would breach legal due process and may result in his being sent to the U.S., where he could be executed.

Assange’s lawyers say the Swedish prosecutor seeking his extradition from the U.K. in the rape probe doesn’t have the power to make the request, according to an outline of arguments published yesterday on his lawyer’s website. The arguments will be used at a Feb. 7 hearing on the extradition request.

If Assange is extradited to Sweden, there is a “real risk” the U.S. will then seek his extradition from there or attempt an “illegal rendition,” according to the document. The lawyers wrote he could wind up at the military prison in Guantanamo Bay.

“It is well-known that prominent figures have implied, if not stated, that Mr. Assange should be executed,” according to the arguments outlined in the document.

Former Arkansas Governor Mike Huckabee has said those responsible for leaking the U.S. Embassy cables should be put to death, and former vice-presidential candidate Sarah Palin has said Assange should be “hunted down just like al-Qaeda,” according to the document, which cited newspaper articles.

Lawyers for Assange have said the accusations in Sweden are politically motivated and tied to the actions of WikiLeaks, an organization that has published secret U.S. military documents on its website. Assange faces allegations, by two Swedish women, of sexual molestation and rape. District Judge Nicholas Evans in London renewed Assange’s bail yesterday while he awaits the extradition hearing.

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Abramovich Seeks to Block Trial Over Sibneft Shares

Roman Abramovich, the Russian billionaire who owns Chelsea Football Club, asked a U.K. appeals court to reverse a ruling that allowed a $3.9 billion lawsuit against him, filed by former business partner Boris Berezovsky, to go to trial.

Abramovich’s request to dismiss the case before trial was wrongfully denied by a lower court in March 2010, his lawyers argued yesterday at the Court of Appeal in London. The judge erred in allowing Berezovsky to amend the claims after a limitation period had expired, his lawyers said.

“Berezovsky’s claims would clearly have no prospect of success” if they hadn’t been amended, Abramovich’s lawyer, Michael Brindle of Fountain Court in London, said in papers prepared for the hearing. The trial is scheduled to start in October.

Berezovsky sued in 2007 over claims that Abramovich used threats and intimidation to force him to sell shares of the Russian oil company OAO Sibneft and OAO Russian Aluminium at a fraction of their value between 2001 and 2003.

Abramovich allegedly told Berezovsky the Russian government would expropriate the shares if he didn’t agree to sell them, and that one of his friends would be forced to languish in prison.

“Abramovich knows he must avoid a trial at all costs, as the bedrock of his defense is wholly implausible,” Berezovsky’s lawyer, Laurence Rabinowitz of One Essex Court in London, said in court papers. “The issues between Mr. Berezovsky and Mr. Abramovich cry out for a trial.”

Berezovsky argues that his interest in Sibneft was obtained as part of a spoken partnership agreement in 1995 between him, Abramovich and Berezovsky’s Georgian business partner Badri Patarkatsishvili, who died in 2008.

Berezovsky’s lawyers claim Abramovich proved that Berezovsky owned shares by paying him $1.3 billion for his interest in the company. In 2005, Abramovich sold Sibneft to state-run OAO Gazprom for $13.1 billion. Abramovich also allegedly sold shares of the aluminum company without permission, forcing the other two men to sell their shares at a “significant loss,” according to court documents.

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New Suits

Ex-Primary Global Analyst Pleads Guilty in U.S. Probe

Bob Nguyen, a former analyst for expert-networking firm Primary Global Research LLC, pleaded guilty yesterday in Manhattan federal court in the latest case brought as part of a nationwide U.S. insider trading probe.

Nguyen appeared in court for a felony guilty plea. He waived indictment and pleaded guilty to conspiracy and fraud. He faces as long as 20 years in prison on the most serious charge.

“I did have an agreement with other PGR employees to pass material, non-public information” from experts recruited by the firm to its hedge-fund clients, “many of which were located in New York,” Nguyen told U.S. Magistrate Judge Debra Freeman.

Nguyen, whose cooperation may help prosecutors convict other defendants in the probe, said he often participated in calls between experts who worked at publicly traded companies as they talked to Primary Global clients.

Freeman said Nguyen signed his plea agreement on Dec. 8. Nguyen said he’s cooperating with the government.

Expert-networking companies such as Mountain View, California-based Primary Global match investors with specialists who provide insight into specific markets. A criminal complaint unsealed last month described the links among Primary Global, the technology experts it employed and unidentified hedge funds willing to pay for inside information.

The insider-trading probe became public in 2009 with the arrest of Galleon Group LLC hedge fund co-founder Raj Rajaratnam, who denies the charges against him and is scheduled to go on trial in Manhattan on Feb. 28.

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Trials/Appeals

Facebook-Winklevoss Settlement Should Be Undone, Lawyer Says

A settlement Facebook Inc. agreed to, resolving claims that its founder Mark Zuckerberg stole the idea for the social- networking company, should be undone, former college classmates of Zuckerberg told an appeals court yesterday.

The ex-Harvard University classmates, twins Cameron and Tyler Winklevoss, asked a three-judge panel of the U.S. Court of Appeals in San Francisco to void the 2008 agreement based on claims that closely held Facebook didn’t disclose an accurate valuation of its shares before agreeing to pay them $65 million in stock and cash. In the same year, a lower court ruled the accord was binding.

Jerome Falk, a lawyer representing the ConnectU founders, told the court yesterday that Facebook committed securities fraud because an accurate share price “was not disclosed to the founders until after they signed the term sheet” outlining the conditions of the accord. Forcing the Winklevosses to accept the settlement would be “immunizing fraud in mediation,” he said.

Joshua Rosenkranz, Facebook’s lawyer, countered that the Winklevosses and Narendra were “sophisticated parties surrounded by a platoon of lawyers” whose main objective in the negotiations was to own 0.3 percent of Facebook. They reached a binding settlement that’s making them “richer by the day,” Rosenkranz said. “At some point it’s time to move on.”

The case is The Facebook Inc. v. ConnectU Inc., 08-16745, U.S. Court of Appeals for the Ninth Circuit (San Francisco).

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Siga Chief Scientist Criticizes PharmAthene Management

Siga Technologies Inc.’s chief scientist criticized PharmAthene Inc.’s management and research capabilities at a Delaware trial over the licensing rights for a potential billion-dollar smallpox treatment.

After a merger between the two biotechnology companies failed, PharmAthene sued Siga to enforce a purported license to the experimental drug, ST-246, designed to combat a bio- terrorist attack. PharmAthene claims it lost $1.07 billion in potential profit. Siga contends there is no license.

In its 2006 complaint, PharmAthene said it lent Siga $3 million to help develop ST-246, which it wouldn’t have done “if it had not been assured of receiving a license agreement” in lieu of a merger. PharmAthene provided “technical know-how, which Siga accepted and used” to develop the drug, according to the complaint.

The PharmAthene management style “was not to my liking,” Dennis E. Hruby of Siga testified yesterday at a non-jury trial in Wilmington. “I was less than enthused” about a partnership, he told Judge Donald Parsons Jr. Hruby, also a professor of microbiology at Oregon State University, said PharmAthene had little to no expertise in pox biology and the company seemed to have more executives than staff.

The case is PharmAthene Inc. v. Siga Technologies Inc., CA2627, Delaware Chancery Court (Wilmington).

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Kissel Hid Evidence After Drugging, Killing Husband

Nancy Kissel, who denies murdering her Merrill Lynch & Co. banker husband in 2003, schemed to hide evidence linking her to his killing, prosecution lawyer David Perry told a Hong Kong court today.

Kissel bought new bedding, cleaned blood stains, and ordered boxes from a moving company to pack up the evidence after she smashed her husband’s skull on the night of Nov. 2, 2003, Perry said.

“Did she behave in a way that shows great coolness and presence of mind?” he asked the jury. “That is something for your consideration.”

Kissel, 46, pleaded guilty to manslaughter and not guilty to murder yesterday at the start of her second trial for the murder of Robert Kissel, the head of Merrill’s distressed debt business at the time of his death. A previous murder conviction was ruled unfair by Hong Kong’s highest court last February and a retrial ordered.

Perry presented to jurors dozens of photographs showing the layout of the Kissels’ apartment at the Parkview residential estate in Hong Kong. The defendant sobbed quietly in the dock as Perry described photographs of the bedrooms and of the playroom of her three children, Elaine, June and Reis.

Kissel “went to great physical lengths” to move a rolled- up carpet containing her husband’s body down a hallway from the bedroom to the living room, Perry said. Robert Kissel was 5 foot, 10 inches tall and weighed about 180 pounds (82 kilograms) around the time of his death, the lawyer said.

Defense lawyer Edward Fitzgerald said yesterday the killing was an act of manslaughter on the grounds of provocation and diminished responsibility.

A new jury of seven women and two men was empaneled today after two jurors selected yesterday applied to Judge Andrew Macrae to be discharged. Macrae also ruled a new jury was needed because procedures surrounding the replacement of another juror yesterday could be questioned, threatening to invalidate the current trial.

Perry continues with his opening statement tomorrow.

The case is HCCC55/2010 in the Hong Kong Court of First Instance.

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Verdicts/Settlement

Schwab Agrees to Pay $119 Million to Settle SEC Claims

Charles Schwab Corp. will pay $119 million to settle U.S. regulatory claims that the San Francisco-based brokerage misled investors in its YieldPlus Fund and changed investment strategy without shareholder approval.

The YieldPlus Fund fell to $1.8 billion in assets in 2008 from a peak of $13.5 billion in 2007 after deviating from its stated policy by investing more than 25 percent of fund assets in private-issuer, mortgage-backed securities, the Securities and Exchange Commission said yesterday in a complaint filed at federal court in San Francisco. Schwab executives Kimon Daifotis and Randall Merk committed fraud in offering, selling and managing the fund, the SEC said.

“Schwab marketed the fund as a cash alternative with only slightly more risk than a money-market fund even though, at one point, half of the fund’s assets were invested in private- issuer, mortgage-backed and other securities,” Antonia Chion, an associate director in the SEC’s enforcement division said in a statement.

Schwab, the largest independent brokerage by client assets, settled the regulator’s claims without admitting or denying wrongdoing. The case against Daifotis and Merk is continuing, said the SEC, which is seeking unspecified fines and disgorgement of any ill-gotten profits from the two men.

Daifotis’s attorney David Bayless said his client plans to contest the SEC’s allegations in court. Daifotis invested a significant amount of his own money in the fund, Bayless said.

Merk also plans to fight the SEC’s claims, his attorney Susan Brune said in a statement. “The SEC’s claims are infected by hindsight bias and are not supported by the actual evidence,” Brune said.

“Schwab has worked closely with these parties to bring this matter to a constructive conclusion, and believes that resolving it in this way is in the best interests of the company, its stockholders, and clients who experienced losses in the YieldPlus Fund as a result of the global financial crisis,” the company said in a statement.

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Litigation Departments

Russia Lawyer Risks Jail in Campaign Against Transneft

Alexey Navalny says he’s trying to do to executives in Russia what WikiLeaks founder Julian Assange is doing to politicians worldwide, Bloomberg News’s Henry Meyer and Jason Corcoran report.

“He’s fighting non-transparent governments and I’m fighting non-transparent companies, as well as the non- transparent activities of Russian officials,” said Navalny, 34, a Moscow-based lawyer and shareholder in 20 Russian companies, including OAO Gazprom and OAO Rosneft, the world’s largest gas producer and Russia’s biggest oil company.

Russia, ranked by Transparency International as the world’s most corrupt major economy, is spawning its own brand of online whistle-blowing to expose graft.

Prime Minister Vladimir Putin called Dec. 30 for an investigation into allegations of a $4 billion fraud during construction of an oil pipeline across eastern Siberia involving OAO Transneft. The claims were published by Navalny, who also owns stock in the monopoly pipeline operator, on a website he set up to expose Russian government contracts.

“Investors are definitely behind Navalny in his effort to shine some transparency on state-run companies,” said Michael Kart, a managing partner at Moscow-based Marshall Spectrum Ltd., which oversees about $100 million. “He has very good sources of information who bring things to light.”

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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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