Health-Care Law, Galleon, Dresdner in Court News

U.S. President Barack Obama lost the second of four court challenges to his health-care law as a federal judge in Florida ruled that the measure went beyond the power of Congress to regulate commerce.

U.S. District Judge Roger Vinson in Pensacola declared the entire law invalid yesterday in a 78-page opinion in a suit brought by 26 states. He said a provision requiring Americans over 18 to obtain insurance coverage violated the U.S Constitution. The U.S. Justice Department said it will appeal.

Florida sued on behalf of 13 states on March 23, the day Obama signed into law the Patient Protection and Affordable Care Act, legislation intended to provide the U.S. with almost universal health-care coverage. Seven states joined the suit last year, and six this year. Virginia sued separately on March 23 and Oklahoma filed its own suit on Jan. 21.

“Regardless of how laudable its attempts may have been to accomplish these goals in passing the act, Congress must operate within the bounds established by the Constitution,” Vinson, 70, wrote. “This case is not about whether the act is wise or unwise legislation. It is about the constitutional role of the federal government.” He declined to issue an order blocking enforcement of the law.

The ruling by Vinson, who was named to the federal bench in 1983 by President Ronald Reagan, a Republican, would be appealed to the U.S. Court of Appeals in Atlanta. An appeals court in Richmond, Virginia, is already slated in May to hear challenges to two conflicting lower-court rulings in that state, one upholding the legislation, the other invalidating part of it.

“We strongly disagree with the court’s ruling today and continue to believe -- as other federal courts have found --that the Affordable Care Act is constitutional,” Tracy Schmaler, U.S. Justice Department spokeswoman, said in an e-mailed statement. “There is clear and well-established legal precedent that Congress acted within its constitutional authority in passing this law.”

The 955-page law bars insurers from denying coverage to people who are sick and from imposing lifetime limits on costs. It also includes pilot projects to test ideas like incentives for better results and bundled payments to medical teams for patient care.

The case is State of Florida v. U.S. Department of Health and Human Services, 10-cv-00091, U.S. District Court, Northern District of Florida (Pensacola).

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Lawsuits/Pretrial

Rajaratnam Seeks McKinsey File on Ex-Goldman Director

Galleon Group LLC co-founder Raj Rajaratnam wants McKinsey & Co. to give him “all documents” on “any investigation” of alleged leaks of inside information by Rajat Gupta, a former Goldman Sachs Group Inc. director and a senior partner at the consulting firm until January 2008.

Rajaratnam, who faces trial this month for insider trading tied to his hedge fund, served a subpoena on McKinsey seeking the files, according to court papers. The subpoena was disclosed Jan. 28 by McKinsey in Manhattan federal court in a motion seeking to block the request.

The hedge-fund manager wants “documents concerning any investigation conducted by McKinsey into the disclosure of non- public information by Anil Kumar and/or Rajat Gupta” regarding several transactions, according to the subpoena. Kumar, an ex- McKinsey director, pleaded guilty and is cooperating with the government.

Rajaratnam’s lawyers may be seeking information to “impeach” Gupta’s testimony should he be called as a government witness, said Jacob Frenkel, a lawyer at Shulman Rogers Gandal Pordy & Eckerin in Potomac, Maryland, who isn’t involved in the Rajaratnam case. Or they may have another purpose entirely.

“Rajaratnam knows what information he’s looking for to aid his defense but he doesn’t want to be too specific and telegraph what it is,” Frenkel, a former lawyer with the Securities and Exchange Commission, said in a telephone interview yesterday.

Gupta was under scrutiny as of April in the U.S. government’s probe of Galleon, according to a person familiar with the matter who declined to be identified because the matter wasn’t public. Gupta, who is no longer on the board of New York- based Goldman, has denied wrongdoing.

His lawyer, Gary Naftalis, declined to comment yesterday. Naftalis has previously said that Gupta’s record of ethical conduct is “beyond reproach.” A McKinsey legal brief accompanying its Jan. 28 court filing notes that no charges have been filed again Gupta.

Rajaratnam’s spokesman, Jim McCarthy, declined to immediately comment yesterday. He previously called the Goldman Sachs allegation “false.”

Rajaratnam goes on trial Feb. 28 for allegedly leading an insider-trading conspiracy that earned his fund about $45 million. The probe of New York-based Galleon has expanded to other hedge funds, banks, technology companies and consulting firms.

The case is U.S. v. Rajaratnam, 1:09-cr-01184, U.S. District Court, Southern District of New York (Manhattan).

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Barai Founder Said to Be Co-Conspirator in Insider Case

Samir Barai, founder of Barai Capital Management LP, is a coconspirator named in a U.S. probe of insider trading at hedge funds, technology companies and consulting firms, according to a person familiar with the case.

Barai is co-conspirator 1, or “CC1,” in a complaint filed in December against Winifred Jiau, an ex-consultant for so- called expert-networking firm Primary Global LLC, according to the person, who declined to be identified because the matter isn’t public. In a Dec. 29 filing, the U.S. described two unidentified hedge fund portfolio managers at different firms who allegedly conspired with Jiau. The case is part of three overlapping probes stemming from the insider trading investigation of New York-based hedge fund Galleon Group LLC.

The government alleged that Jiau, 43, had conversations in May 2008 with the fund managers and provided them with non- public material information about Marvel Technology Group Ltd. and Nvidia Corp. Jiau provided information about Marvell’s earnings, gross margins and public earnings announcements for the first and second quarters of 2008, according to prosecutors.

Barai, 39, who worked at Citigroup Inc. before starting his own firm, hasn’t been charged with any wrongdoing. He didn’t return calls or e-mails seeking comment. Jiau, of Fremont, California, has said she intends to plead not guilty.

Her attorney, Fred Hafetz, didn’t return a call seeking comment.

The case is U.S. v. Jiau, 10-2900, U.S. District Court, Southern District of New York (Manhattan).

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SEC Drops Galleon-Linked Case Against New Castle Funds

The U.S. Securities and Exchange Commission dropped its claims against defunct New Castle Funds LLC filed as part of its insider-trading lawsuit against Galleon Group LLC.

New Castle Funds, which has wound down its business and is no longer operating as an investment adviser, agreed to cooperate with the SEC, according to an order filed yesterday in federal court in Manhattan dismissing the commission’s claims. Douglas Kraus, a lawyer representing New Castle Funds, didn’t immediately return a call seeking comment.

Mark Kurland, the hedge fund’s founder, agreed to pay $4.4 million in disgorgement, including interest, to resolve the SEC’s claims against him, according to a separate filing yesterday. Kurland’s lawyer, Theodore Altman, didn’t immediately return a call seeking comment.

Danielle Chiesi, a former New Castle Funds consultant, pleaded guilty Jan. 19 to securities fraud related to charges she passed inside information to Galleon Group founder Raj Rajaratnam and others.

She was arrested and charged with Rajaratnam in October 2009 in the biggest U.S. crackdown on insider trading by hedge funds. Rajaratnam, the billionaire founder of Galleon, is the central figure in a three-year probe in which more than 20 people have been criminally charged.

Kurland was sentenced in May to 27 months in prison after he pleaded guilty in the insider-trading case.

The case is SEC v. Galleon Management, 09-08811, U.S. District Court, Southern District of New York (Manhattan).

Tourre Can’t Delay SEC Depositions, Judge Rules

Goldman Sachs Group Inc. trader Fabrice Tourre lost his bid to delay government depositions in a U.S. Securities and Exchange Commission lawsuit.

U.S. District Judge Barbara Jones in New York upheld a Jan. 26 ruling by U.S. Magistrate Judge Michael Dolinger, who is presiding over some pretrial matters in the case.

Tourre, accused of misleading investors in a product linked to subprime mortgages, challenged Dolinger’s order denying his request to delay government depositions in the SEC’s lawsuit.

The SEC sued New York-based Goldman Sachs and Tourre on April 16, accusing them of failing to tell investors that hedge fund Paulson & Co. helped pick underlying securities for a collateralized debt obligation and planned to bet against them.

The SEC reached a $550 million settlement with Goldman Sachs in July. Tourre has denied wrongdoing.

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

Russian Billionaire Owners to Block TNK-BP Dividend

BP Plc’s billionaire partners in the TNK-BP oil venture plan to stop a $1.8 billion dividend payment as a dispute about the U.K. explorer’s alliance with Russia’s biggest oil company worsens.

“The decision for now is not to approve the dividend” that was planned to be paid this quarter, said Stan Polovets, the chief executive officer of AAR, which represents the Russian partners in TNK-BP, yesterday by phone from London. TNK-BP’s board is scheduled to meet Feb. 18, he said.

The partners last week asked a London court to halt a share swap and Arctic exploration agreement between BP and state-owned OAO Rosneft, saying it violates the exclusivity provisions of TNK-BP’s shareholder agreement and may erode the competitive advantage and value of the venture.

The dispute threatens a second breakdown in relations between TNK-BP’s shareholders. In 2008, current BP Chief Executive Officer Robert Dudley was ousted as head of TNK-BP as the billionaires and BP argued over strategy. The 50 percent holding in TNK accounts for about a quarter of BP’s output and a fifth of reserves.

Robert Wine, a spokesman for London-based BP, said yesterday that dividend payments were a matter for the TNK-BP board and not just the Russian shareholders. TNK-BP spokesman Dmitry Sergeev declined to comment on dividends, saying it’s a matter for shareholders.

London’s High Court will consider AAR’s application for an injunction today.

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Malaysia Court Rules EON Capital Takeover Vote Valid

A Malaysian court ruled that a vote by EON Capital Bhd.’s shareholders in favor of Hong Leong Bank Bhd.’s proposed 5.06 billion ringgit ($1.7 billion) takeover was valid, thwarting a bid by its biggest shareholder to block the sale.

Primus Pacific Partners Ltd., which owns 20.2 percent of EON’s shares, had applied to annul the results of the extraordinary general meeting held on Sept. 27. Its representative had walked out of that meeting before the vote after failing to adjourn the meeting because a separate lawsuit filed by Primus was still in mid-trial.

“A failure to put a motion for adjournment is only a procedural breach,” Judge Anantham Kasinather ruled at a High Court in Kuala Lumpur yesterday. In this case, “the rights of the members were not compromised” as the representatives of Primus opted to leave the meeting when the chairman refused to put their motions to the vote.

Primus, the Hong Kong-based investment fund, opposes the deal having paid 9.55 ringgit a share for its 20 percent stake in 2008. That’s 31 percent more than Hong Leong’s all-cash offer of 7.30 ringgit per share, or a total difference of 315 million ringgit, based on Bloomberg calculations.

An EON takeover would help billionaire Quek Leng Chan’s Hong Leong create the Southeast Asian nation’s fourth-biggest banking group with combined assets of about 121 billion ringgit.

It filed the suit through its local unit Primus (Malaysia) Sdn.

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New Suits

Toshiba Units Face Discrimination Suit in U.S. Court

Two Toshiba Corp. units face a class-action discrimination lawsuit in Manhattan federal court that seeks damages for current and former female employees of the company working in the U.S.

Elaine Cyphers, who says she was the highest-ranking U.S. human resources employee at Toshiba America Nuclear Energy Corp., filed a proposed class-action, or group suit against that unit and Toshiba America Inc., on behalf of all current and former female employees in the U.S.

Cyphers, of Charlotte, North Carolina, said she was hired at Toshiba America Nuclear Energy in 2008 and has been is on medical leave from the company since June 2010. She said that there is still a lack of women in leadership positions since the company created a “Gender Equality Office” six years ago.

“The absence of women from leadership positions throughout Toshiba is both a symptom and a cause of ongoing and pervasive discrimination by Toshiba against female employees,” Cyphers said.

Deborah Chalmers, a spokeswoman for Toshiba, the world’s second-biggest maker of flash memory, didn’t immediately return a voice-mail message seeking comment on the suit.

Cyphers’s suit includes claims of gender-based discrimination, discriminatory denial of pay, violations of the Equal Pay Act and a claim of emotional distress. She seeks a permanent court order against Toshiba from engaging in unlawful practices and back pay for the class.

The case is Elaine Cyphers v. Toshiba America Inc., 11-cv- 00642, Southern District of New York (Manhattan).

Jackson Hewitt Asks Judge to Bar ‘False’ H&R Block Ads

Jackson Hewitt Tax Service Inc., the second-largest U.S. tax preparer, asked a federal judge to bar H&R Block Inc. from making “false and misleading” claims about errors in returns prepared by Jackson Hewitt.

“H&R Block is making the highly material and false and disparaging advertising claim that it has ‘found errors in 2 out of 3 Jackson Hewitt tax returns,’” Jackson Hewitt said in a complaint filed yesterday in federal court in Manhattan. “This claim necessarily implies the false message that two out of three Jackson Hewitt customers who are entitled to refunds have been short-changed due to Jackson Hewitt errors or incompetence.”

The claims were made in connection with the “Second Look Review” service of H&R Block, the biggest U.S. tax preparer, which reviews customers’ past tax returns prepared by other companies, according to the complaint.

The suit seeks an order barring H&R Block from making the allegedly false claims plus unspecified damages.

Melissa Connerton, a spokeswoman for Jackson Hewitt, and Kate O’Neill Rauber, a spokeswoman for H&R Block, didn’t immediately return e-mail messages seeking comment on the suit.

The case is Jackson Hewitt Inc. v. H&R Block Tax Services LLC, 11-cv-641, U.S. District Court, Southern District of New York (Manhattan).

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Trials/Appeals

Ex-Dresdner Banker Says He Didn’t Know Extent of Wife’s Trades

A former Dresdner Kleinwort investment banker, who pleaded guilty to insider trading, didn’t know the extent to which his wife used information he gave her to sell shares ahead of proposed takeovers, his lawyer said.

Christian Littlewood, the former investment banker at Commerzbank AG’s Dresdner Kleinwort and Shore Capital Group Plc, told his wife, Angie, to limit her trades to 20,000 pounds ($32,000), his lawyer, Ken MacDonald, said at a sentencing hearing yesterday in London. Instead, she and Helmy Omar Sa’aid invested as much as 2.15 million pounds, prosecutors said.

The trio has pleaded guilty to eight charges of insider trading, which carries a maximum sentence of seven years in prison. Christian Littlewood, 37, was the “ringleader” of the group and the other two were “enthusiastic participants,” said Nicholas Dean, a lawyer for the Financial Services Authority.

MacDonald said his client didn’t know that his wife and Sa’aid were trading hundreds of thousands of pounds on information from proposed deals he was advising on at Dresdner Kleinwort.

“Trading of this scale would have been traced back to Helmy and Angie, and therefore himself,” MacDonald said. “The overwhelming likelihood would be discovery, exposure, prosecution, imprisonment, disgrace and the loss of his career.”

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Verdicts/Settlement

J. Crew Settlement of TPG Buyout Suits Falls Apart

J. Crew Group Inc.’s $10 million settlement of a lawsuit over its proposed takeover by private-equity firms TPG Capital and Leonard Green & Partners LP has fallen apart, a lawyer for J. Crew investors said.

J. Crew officials undermined a deal in which the clothier agreed to extend the period to solicit competing offers to the $3 billion buyout bid, Stuart Grant, a lawyer for J. Crew shareholders objecting to the buyout, said in a court filing. The accord also included a $10 million payment to plaintiffs.

Executives of New York-based J. Crew have “sent the signal to the world that they are investing all resources in closing the deal with TPG as soon as possible and nobody else should bother to bid for J. Crew,” Grant said yesterday in a letter to Delaware Chancery Court Judge Leo Strine in Wilmington.

Shareholders had filed complaints questioning whether J. Crew Chief Executive Officer Millard Drexler, who began negotiating with the buyout firms months before the deal became public, got a fair price from TPG and Los Angeles-based Leonard Green.

Margot Fooshee, a spokeswoman for J. Crew, and Owen Blicksilver, a spokesman for Fort Worth-based TPG, declined to comment.

The parties agreed in a settlement announced Jan. 18 that TPG and Leonard Green would accept a smaller $20 million payment if J. Crew accepted a competing offer. The original $27 million fee, equal to about 1 percent of the purchase price, was already lower than the typical breakup fee. TPG and Leonard Green offered $43.50 a share for J. Crew on Nov. 23.

The case is In Re J. Crew Shareholders Litigation, 6043, Delaware Chancery Court (Wilmington).

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GlaxoSmithKline Avandia Heart Attack Death Lawsuit Settled

GlaxoSmithKline Plc said it settled on the eve of trial a lawsuit alleging its Avandia diabetes drug caused a North Carolina man to die of a heart attack, avoiding a jury determination over risks associated with the medicine.

The U.K.’s biggest drugmaker resolved the suit by the family of James Burford, an Avandia user who died in 2006. The company declined to provide details of the accord’s terms. The resolution eliminates the risk Glaxo would face a large jury award, said Navid Malik, a drug-industry analyst at Matrix Corporate Capital in London.

Investors worried it “could lead to substantial punitive damages,” Malik said in a Jan. 25 interview. The company has already agreed to pay almost half a billion dollars to resolve claims it hid the drug’s health risks. “GSK needs to successfully settle as many of these cases as possible.”

The lawsuit, scheduled for trial this week in Philadelphia federal court, was the first of 2,000 heading to court alleging London-based Glaxo hid Avandia’s health risks. Regulators in Europe had the drug withdrawn from the market and U.S. sales were limited because of heart attack risks. Glaxo had also said it was setting aside money to address federal prosecutor probes of its marketing of at least nine drugs, including Avandia.

Mary Anne Rhyne, a U.S.-based spokeswoman for Glaxo, said in an e-mailed statement Jan. 30 that the company settled the Burford case to avoid the risks and costs of litigation.

The latest settlement resulted from Glaxo’s move to resolve all Avandia cases brought by Joseph Zonies and Thomas Cartmell, two plaintiffs’ attorneys picked by U.S. District Judge Cynthia Rufe in Philadelphia to lead a group steering the progress of more than 1,600 cases consolidated there. Zonies, of Denver, and Cartmell, of Kansas City, Missouri, didn’t return calls seeking comment.

The case is Deborah A. Burford v. SmithklineBeecham Corp., 07-cv-05360, U.S. District Court, District of Pennsylvania (Philadelphia).

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Hong Kong Bans Trader for Life for Using Insider Information

Hong Kong’s securities regulator banned Zhang Bijia for life after the city’s market misconduct tribunal found that he and his then-girlfriend engaged in insider trading of Mirabell International Holdings Ltd.

Liu Yan Yan, then a trainee at law firm Norton Rose, had in February 2008 provided Zhang, who was then working at Access Capital Ltd., information that Belle International Holdings Ltd. was to make a general cash offer for Mirabell above the last traded market price, according to a statement from the city’s Securities and Futures Commission.

Norton Rose, which was advising Belle in the acquisition of Mirabell, cooperated fully with the investigation, spokesman Sean Twomey said in a statement. Liu was suspended in June 2008 and no longer works for the firm, he said.

“We take and have always taken the obligations of client confidentiality very seriously. It is required of and impressed upon all staff and lawyers as an absolute requirement,” he said.

Hong Kong’s market misconduct tribunal ordered that Zhang pay the government HK$74,474 ($9,552) for the profit earned from his misconduct, and HK$642,184 for the government’s costs. It also recommended that the SFC take action against Zhang and that Hong Kong’s Law Society take action against Liu.

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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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