An unidentified Morgan Stanley (MS) banker was placed on leave related to allegations the employee provided inside information on Advanced Micro Devices Inc. (AMD)’s purchase of ATI Technologies Inc. that was passed on to Galleon Group founder Raj Rajaratnam.
The banker was referred to in a letter written by U.S. prosecutors and filed in Rajaratnam’s criminal case Jan. 21. The public copy of the letter contains redactions obscuring the identities of the Morgan Stanley banker and the person who allegedly passed the tip to Rajaratnam, who is scheduled to go on trial next month for securities fraud.
“In or about May 2006, [redacted], a banker with Morgan Stanley, provided [redacted] with information regarding AMD’s acquisition of ATI,” said the letter, signed by Assistant U.S. Attorney Jonathan Streeter. “[Redacted] provided this information to Rajaratnam.”
Bloomberg data shows that Morgan Stanley acted as an adviser to AMD on the ATI acquisition. The bank also provided a $2.5 billion loan to finance the deal.
“We have placed the banker on leave and are fully cooperating with the government’s investigation,” said Pen Pendleton, a spokesman for New York-based Morgan Stanley. Pendleton declined to identify the banker or say when he was put on leave. He had no immediate comment on the bank’s connection to the AMD acquisition of ATI.
“We believe we are the victim of an insider trading scheme,” Mike Silverman, an AMD spokesman, said Jan. 21 in an e-mail. “We have been cooperating with the U.S. attorney’s office and will continue to do so. Beyond that, we have no comment.”
Prosecutors filed a superseding indictment dated Jan. 20 against Rajaratnam that added a new securities-fraud count and provided additional details about stocks he is alleged to have traded illegally.
Rajaratnam is charged with five counts of conspiracy to commit securities fraud and nine counts of securities fraud. He’s the central figure in an insider-trading probe in which more than 20 people have been criminally charged. Rajaratnam has pleaded not guilty and is scheduled to go to trial Feb. 28.
The case is U.S. v. Rajaratnam, 1:09-cr-1184, U.S. District Court, Southern District of New York (Manhattan).
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Galleon Insider Case Detailed in U.S. Wiretap Logs
Summaries of U.S. wiretaps of ex-Wall Street traders that their lawyers had fought to keep secret were made public in a court filing as part of the Galleon Group LLC insider trading case.
Hundreds of pages of documents were placed into the court record Jan. 21 in a filing in Manhattan federal court, where former Galleon trader Zvi Goffer and three others are accused of trading stocks on inside information.
U.S. District Judge Richard Sullivan in Manhattan, who is presiding over the case, previously ordered the government to file the documents Jan. 21. He has also ruled that the wiretaps may be used by prosecutors at Goffer’s trial on May 9.
“Goffer said that he had already given Galleon a couple of ‘big calls’ (i.e., stock tips),” an agent with the Federal Bureau of Investigation’s New York office wrote in one of the documents in a summary of a conversation the government secretly recorded.
Prosecutors have previously said that Goffer and others spoke in code with one another and tried to hide their trades. The documents, which the government previously submitted to judges who authorized wiretaps in the case, shed added light on how Goffer and his co-defendants traded stocks.
Also charged in the case are traders Craig Drimal, Zvi’s brother Emanuel Goffer, Michael Kimelman and Goldfarb.
The case is U.S. v. Goffer, 10-cr-00056, U.S. District Court, Southern District of New York (Manhattan).
Italian Swap Cases Rise as Merrill Lynch, UBS Sue in London
JPMorgan Chase & Co. (JPM), UBS AG (UBSN) and Bank of America Corp. are among banks bringing more than a half dozen Italian municipalities to London’s courts over swaps that are turning sour for both sides.
The banks are suing towns and regions across Italy, from Florence, a city of about 370,000 people, to Piedmont, the northern region with a population of 4.5 million, as some local governments threaten to stop making payments on contracts and others seek to recover fees they allege were hidden.
Italian municipalities, emboldened by Milan’s criminal trial of Deutsche Bank AG (DBK), Depfa Bank Plc, JPMorgan and UBS over allegedly fraudulent selling practices on swaps, are increasingly filing complaints at home to avoid losses on derivatives contracts. The banks are turning to U.K. courts, where they expect to get swifter and fairer judgments.
“Banks have sensed that the wind has turned against them and think they can get a better settlement in a U.K. court,” said Piero Burragato, a former derivatives banker and founder of Concordia Advisory Solutions Srl who isn’t involved in the cases. “The U.K. suits are a sign of concern among the banks.”
The pace of the U.K. lawsuits increased in the past month. Deutsche Bank, UBS and Bank of America’s Merrill Lynch unit in London are suing Lazio, a central Italian region made up of five provinces including Rome. Deutsche Bank and Merrill have also filed suits against Tuscany, and Merrill is suing Piedmont. At least four more suits were filed in London in December against other Italian regions over swap agreements.
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Ex-Lehman Chief Fuld Seeks to Dismiss Repo 105 Suit
Richard Fuld and other former directors of Lehman Brothers Holdings Inc. said a lawsuit by the defunct firm’s retirement plan should be dismissed because the directors had no duty to share nonpublic information about Lehman’s “outlook” with the plan’s participants, according to a court filing.
The retirement plan and its participants sued Fuld, a former chief executive officer, for failing to disclose Lehman’s worsening liquidity and Repo 105, a financing method allegedly used to conceal billions of dollars of debt. The savings plan wound up with worthless Lehman stock, according to the September lawsuit unsealed by a judge on Nov. 30.
“Lehman in fact disclosed much of the allegedly withheld information,” the directors said Jan. 20 in the filing in U.S. District Court in Manhattan. “With regard to Repo 105, plaintiffs cite no facts demonstrating that the independent directors were aware of its use.”
The lawsuit is one of several against Fuld that was amended after a 2,200-page report on Lehman’s 2008 bankruptcy by examiner Anton Valukas in March 2010. Fuld was “at least grossly negligent” for letting Lehman file misleading financial reports, Valukas wrote.
Patricia Hynes, a lawyer for Fuld, has said that Fuld wasn’t aware of Repo 105.
The case is In re Lehman Brothers ERISA Litigation, 08-cv-05598, U.S. District Court, Southern District of New York (Manhattan).
Banks Appeal Dismissal of MBIA Restructuring Lawsuit
UBS AG, Bank of America Corp. and more than a dozen other banks asked New York’s highest court to reverse a lower court ruling that threw out their lawsuit against MBIA Inc. (MBI) that challenged its restructuring.
MBIA won dismissal Jan. 11 of a lawsuit by banks including Citibank NA and Royal Bank of Scotland Plc that claimed the bond insurer’s split into two units was intended to defraud policyholders. MBIA climbed to its highest level since September 2008 on news of the dismissal by the state’s Appellate Division.
The banks said in their notice of appeal, filed Jan. 20 in state trial court, that they are challenging “each and every part of the order” by the Appellate Division.
The banks claimed the restructuring, approved by New York’s insurance department in 2009, transferred $5 billion in cash and securities out of MBIA’s primary operating unit, MBIA Insurance, to another entity now known as National Public Finance Guarantee Corp., according to the complaint.
The move meant MBIA Insurance Corp. wouldn’t be able meet future obligations to holders of financial-guarantee insurance policies, the banks said.
A five-judge appellate panel dismissed the suit in a 3-2 decision.
Marc Kasowitz, an attorney for MBIA, didn’t return a call seeking comment. On Jan. 11, he said he was confident the restructuring would be upheld. New York law gives decisions by state agencies such as the insurance department “great deference and great weight,” Kasowitz said in an interview on Bloomberg Television.
The case is ABN Amro Bank NV v. MBIA Inc., 601475-2009, New York State Supreme Court (Manhattan).
TCW Can’t Force Temporary Shutdown of DoubleLine Funds Trust
TCW Group Inc. can’t seek a court order temporarily closing a mutual-fund trust created by Jeffrey Gundlach’s DoubleLine Capital LP or forcing it to give back gains, a California judge ruled, while allowing TCW to refile portions of its complaint.
Los Angeles Superior Court Judge Carl West struck down two of the claims against the DoubleLine Funds Trust, according to a copy of the Jan. 20 order provided by DoubleLine. Los Angeles-based TCW on Dec. 1 sued the trust and its trustees, accusing them of misappropriating trade secrets and of unfair competition, and sought unspecified damages along with an order to close the trust for six months.
TCW last January accused Gundlach and several former employees who joined DoubleLine of breach of fiduciary duty, unfair competition and misappropriation of confidential information and demanded more than $200 million in damages. That original case is still being fought. Gundlach, the former chief investment officer of TCW, formed DoubleLine Capital in December 2009 after he was fired by TCW, a unit of Paris-based Societe Generale SA. (GLE)
Gundlach went on to open four mutual funds, including the $4.1 billion DoubleLine Total Return. TCW, in the second suit, seeks to force DoubleLine Funds Trust and its trustees to give up their gains.
“While there is not a dispute that mutual funds generally can be sued, the issue is whether a constructive trust or disgorgement can be ordered as to the gains of the trust’s investors,” West wrote in the Jan. 20 ruling.
According to the ruling, TCW can amend certain parts of its lawsuit against the trust within 30 days. It can’t go after the returns generated by the mutual funds or seek to close the funds for at least six months, the judge said.
“Today’s ruling means that TCW’s case against the DoubleLine mutual funds is going forward,” said Steve Madison, an attorney at Quinn, Emanuel, Urquhart & Sullivan LLP representing TCW. “After months of discovery we believe the evidence against all of the defendants is overwhelming, and we look forward to proving our claims in court.”
“The court struck down TCW’s unprecedented attempt to claim the returns of mutual-fund investors,” Ron Redell, the president of DoubleLine Funds Trust, said in an interview. “This ruling duly protects investors regardless of what TCW does in the future.”
The case is Trust Company of the West v. DoubleLine Funds Trust, BC450413, Los Angeles County Superior Court.
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Faulty Foreclosure May Mean Massachusetts Buyer Isn’t Owner
Massachusetts’s highest court will consider whether a home buyer can rightfully own a property if the bank that sold it to him didn’t have the right to foreclose on the original owner.
The state’s Supreme Judicial Court, which agreed last month to take the appeal, already ruled Jan. 7 that banks can’t foreclose on a house if they don’t own the mortgage. The lower-court decision now under review said the buyer of residential property in Haverhill, Massachusetts, never really owned it because U.S. Bancorp foreclosed before it got the mortgage.
“It appears to be the next step in the conversation,” Paul R. Collier III, who represented the borrower in the earlier case, U.S. Bank v. Ibanez, said in a phone interview.
Like the Ibanez case, the court’s decision may resonate with other states as they grapple with the rights of new homebuyers who may be hesitant to complete a purchase for fear of uncertain title, and with how such a trend may hobble the broader housing market.
Claims of wrongdoing by banks and loan servicers triggered a 50-state investigation last year into whether thousands of U.S. foreclosures were properly documented during the housing collapse. Last year, completed foreclosures in Massachusetts rose 32 percent to 12,233 from 9,269 in 2009, according to Boston-based Warren Group, which tracks local real estate.
The latest case, Bevilacqua v. Rodriguez, could affect trusts that bundled mortgages and sold securities to investors. Questions about lending practices, including alleged overstatements of borrowers’ income and inflated appraisals, have pitted mortgage-bond investors against banks. Also, loan originators or trust sponsors may be forced to buy back mortgages wrongly transferred into loan pools.
The case is Bevilacqua v. Rodriguez, 10880, Supreme Judicial Court of Massachusetts (Boston).
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RBS Returns to Court to Prevent Former Liverpool Owners’ Claim
Royal Bank of Scotland Group Plc is seeking to permanently block former Liverpool owners Tom Hicks and George Gillett from suing for damages over the 300 million pound ($478.5 million) forced sale of the English football team.
Justice Christopher Floyd, who allowed the sale to proceed in October, will hear the case in London’s High Court between Feb. 9 and 11. His injunction ordered Hicks and Gillett to drop a case in Texas and allowed the sale of the 18-time English champion to the owners of the Boston Red Sox to proceed.
Hicks and Gillett, who described the sale as an “epic swindle,” could sue in the U.S. if RBS fails to win a permanent injunction. New England Sports Ventures bought the club after repaying a 237 million-pound loan Hicks and Gillett had with RBS and Wells Fargo & Co. (WFC) The ex-owners lost 140 million pounds in the sale and said they were blocked from repaying their debts.
RBS spokesman Michael Strachan, Liverpool spokesman Ian Cotton and Mark Semer, a New York-based spokesman for Hicks, all declined to comment.
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Ex-Banker Elmer Appeals as Swiss Probe WikiLeaks Data
Rudolf Elmer, who handed bank client data to WikiLeaks’ Julian Assange this week, appealed the verdict of a Swiss court that found him guilty of breaking banking secrecy laws and making a death threat.
Judge Sebastian Aeppli on Jan. 19 imposed a fine of 7,200 Swiss francs ($7,500) that was suspended for two years and ordered Elmer to pay 75 percent of the court costs. The verdict has been appealed, according to Tethong Blattner, the law firm representing Elmer.
Elmer, who worked for a Julius Baer Group Ltd. (BAER) bank unit in the Cayman Islands until December 2002, says he wants to expose tax evasion through the use of offshore bank accounts. He was detained after the court ruling in a separate matter relating to his handover of two compact discs with data on about 2,000 cross-border bank accounts to WikiLeaks on Jan. 17. Elmer said he collected some of the data through his website after leaving the bank.
If the data given to WikiLeaks include Swiss clients, then the second case would fall under Swiss law, according to Zurich public prosecutor Peter Pellegrini. Zurich police searched Elmer’s home.
“The question is, is this Swiss data, yes or no?” Elmer’s lawyer Ganden Tethong Blattner said Jan. 21 by telephone, adding that client secrecy only applies to Swiss domiciled or branches of foreign banks in Switzerland. “If there’s no data from Zurich, then there’s no case to be answered here, and at the moment we just don’t know.”
Julius Baer Bank & Trust Co. is registered under Cayman law, which means it isn’t subject to Swiss secrecy laws, she said. Those laws threaten banking employees with as much as five years in prison for passing information to a third party without permission.
Prosecutors in Zurich filed a request for the further detention of Elmer, the city’s police said Jan. 21 in a statement. A decision will be published on Jan. 24, according to the statement, which didn’t provide further details.
U.S. FTC to Model Antitrust Cases on Intel Fight
The U.S. Federal Trade Commission is seeking to expand its power to fight anti-competitive business practices by initiating court cases based on a provision it used to reach a settlement last year with Intel Corp. (INTC), FTC Chairman Jon Leibowitz said.
Leibowitz said Jan. 21 he wants the courts to validate his view that a key part of the law that created the FTC gives it authority to go after companies that engage in a broad range of antitrust violations.
“We would like to see it tested by appellate courts because we think the legislation, the plain language of the legislation, makes it crystal clear that our jurisdiction goes beyond the antitrust laws,” he said in an interview with Bloomberg News.
The FTC set up a legal showdown when it sued Intel, claiming the world’s largest chipmaker used threats and retaliation to block customers from buying competitors’ products. While Intel and some business groups and antitrust lawyers said the FTC was overstepping its bounds, the settlement avoided a court-approved precedent.
Chris Braddock, head of procurement policy at the U.S. Chamber of Commerce in Washington, said Jan. 21 group has “significant concerns” that the FTC may use the Intel litigation as a model.
“There may be narrow times where an invitation to collude might warrant use of this section,” he said in an interview. “But we have strong reservations on its use beyond that. If the antitrust laws don’t get to the violations, maybe they’re not violations.”
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Kraft Says Starbucks Breach Claims Are ‘Frivolous’
Kraft Inc. asked a federal judge to block Starbucks (SBUX) Corp. from ending a distribution agreement, saying the coffee company’s claims that Kraft breached their accord are “frivolous.”
Kraft, the world’s second-largest food company, said its performance in the agreement to distribute Starbucks products to grocery stores has been “excellent” and it met sales targets, according to a filing Jan. 21 in federal court in Manhattan.
In December, Kraft sued to prevent Starbucks from terminating the agreement before the companies resolved their dispute. Seattle-based Starbucks, the world’s largest coffee-shop operator, plans to buy companies to build up its grocery business, Chief Executive Officer Howard Schultz said Dec. 1.
Kraft, based in Northfield, Illinois, denied Starbucks’s claim that it lost market share under the distribution agreement, the filing said. While market share isn’t a performance measure under the accord, Kraft increased Starbucks share of total coffee sales by more than 10-fold from 0.9 percent in 1998 to 10.6 percent in 2010, the filing said.
The case is Kraft Foods Global Inc. v. Starbucks Corp., 10-cv-09085, U.S. District Court, Southern District of New York (White Plains).
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Messier, Bronfman Convicted by Court in Vivendi Case
Jean-Marie Messier and Edgar Bronfman Jr. were found guilty by a Paris court of criminal charges related to Vivendi (VIV) SA’s near-bankruptcy after a $77 billion acquisition spree while they led the company.
Messier was fined 150,000 euros ($200,000) and Bronfman 5 million euros by a three-judge panel Jan. 21. Neither was sentenced to jail time. Messier, 54, was found guilty of misleading investors during his tenure as Vivendi’s chief executive officer. Bronfman, also 54, was found to have traded on inside information while vice chairman.
“On the points that were important to the rise in the Vivendi Universal shares,” Messier made “statements of a nature to mislead investors,” the judges wrote in their decision. Messier also “had awarded to himself, while the company was in grave difficulty, very large amounts, of a type to exacerbate its financial problems.”
“This condemnation is profoundly unjust; for this reason I have decided to appeal,” Messier said in an e-mailed statement. He defended his strategic vision for Vivendi and said he “always led this company with integrity.”
Messier received a three-year suspended sentence and Bronfman a 15-month suspended sentence at the hearing. Hannezo, who was also a defendant, was fined 850,000 euros and received a 15-month suspended sentence for misleading investors and insider trading. Hannezo’s lawyer Jean Veil said his client hadn’t decided on an appeal.
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Ex-PM Group Manager Gets 27 Months for Insider Trades
A former PM Group Plc manager convicted for trading on inside information and laundering the profits was sentenced to 27 months in prison, the longest term in a case brought by the U.K. financial regulator involving insider trading.
Neil Rollins was sentenced by Judge James Wadsworth at a hearing in London Jan. 21. Rollins was convicted in November of five counts of insider trading and four counts of money laundering brought by the U.K.’s Financial Services Authority.
“Every pound you saved, or avoided losing, was a pound that somebody else spent,” Wadsworth said, noting honest buyers suffered as a result of Rollins’s actions. By selling he avoided losses of between 50,000 pounds ($80,000) and 60,000 pounds, Wadsworth said. Rollins had “never shown the slightest remorse,” the judge said.
Rollins is the seventh person to be sentenced to jail for insider trading after prosecution by the FSA. Three more people -- including a former investment banker and his wife -- are scheduled for sentencing next month.
Rollins’s lawyer, Rob Rode, declined to comment. Rollins will have 197,000 pounds confiscated, based on the 173,000 pounds worth of shares he sold, plus inflation, the court said.
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Judge Questions Siga Negotiations in PharmAthene Case
Siga Technologies Inc. (SIGA), the biotechnology company defending a lawsuit over its smallpox treatment, may not have negotiated in good faith with PharmAthene Inc. (PIP) over the drug’s manufacturing rights, a judge said Jan. 21.
Delaware Chancery Court Judge Donald Parsons Jr. criticized lawyers for both companies at the end of a two-week trial over PharmAthene’s allegations that Siga reneged on a promise to license ST-246, an antiviral drug for use in case of terrorist attack. Parsons said he wouldn’t rule until at least April.
“It won’t be a stretch for me to conclude that Siga acted in bad faith in the way they negotiated these agreements,” Parsons said. He also said Annapolis, Maryland-based PharmAthene’s lawyers did little to protect the company’s purported rights to the drug.
PharmAthene, which sued New York-based Siga in 2006, claims it lost $1.07 billion in potential profit when Siga reneged on the license agreement for a treatment that has gotten the attention of U.S. officials seeking ways to counter biological terror attacks. Siga said talks over the license were never completed and documents outlining proposed terms were marked “non-binding.”
PharmAthene lawyers argued during the trial that Siga was running out of money to develop ST-246 in late 2005 and so approached PharmAthene to consider a merger or a license agreement. PharmAthene ultimately loaned Siga $3 million to help fund the drug’s development while the two companies were in negotiations.
The case is PharmAthene Inc. v. Siga Technologies Inc., CA2627, Delaware Chancery Court (Wilmington).
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