Winifred Jiau, a former Primary Global Research LLC consultant, lost her bid to be released from custody while facing insider-trading charges after the U.S. said she was making plans to flee in recorded jailhouse phone calls.
U.S. District Judge Robert Patterson in New York yesterday ordered Jiau held without bail, reversing a decision last week approving her release on a $500,000 bond package. She has been in custody since her arrest on Dec. 28.
Prosecutors said Jiau was recorded in conversations with Terry Peng, a friend who agreed to be a co-signer on her bond, according to a letter dated yesterday to the court.
“While Jiau at times attempted to speak in code, in those calls she makes her intention to leave the United States unmistakably clear,” prosecutors said.
Jiau, 43, was indicted Feb. 22 for conspiracy and securities fraud stemming from an insider-trading scheme involving expert networkers and hedge funds. She has pleaded not guilty to the charges.
Her lawyer, Joanna Hendon, didn’t return a voice mail message left at her office after regular business hours seeking comment.
Peng didn’t return a voice mail message seeking comment.
The next court hearing in the case is set for March 9.
The case is U.S. v. Winifred Jiau, 11-CR-161, U.S. District Court, Southern District of New York (Manhattan).
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HSBC Sued for Collecting ‘Excessive’ Overdraft Fees
An HSBC Holdings Plc (HSBA) unit was sued for collecting “excessive” overdraft fees and failing to alert customers when they make a transaction that incurs the $35 charge.
The lawsuit, filed March 2 in New York state Supreme Court by customers who claim they were billed improper fees, is a proposed class action that seeks to represent New York customers of HSBC Bank USA NA.
HSBC Bank, a unit of defendant HSBC USA Inc., reorders debits from highest to lowest during the course of a day, according to the suit. If a customer has a $50 balance and makes four transactions of $10 and one for $100 later the same day, HSBC debits the transactions from largest-to-smallest, subjecting the customer to four overdraft fees rather than one, the suit claims.
“It is through manipulation of customers’ transaction records that HSBC maximizes overdraft penalties imposed on customers,” according to the complaint.
Neil Brazil , a spokesman for HSBC, said, “We provide customers with clear transparent information on overdraft policies and pricing and comply with all relevant regulations.”
London-based HSBC Holdings is Europe’s biggest bank by market value.
The case is Ofra Levin v. HSBC Bank USA NA, 650562/2011, New York state Supreme Court (Manhattan).
Clinical Data Sued Over Forest Laboratories Takeover Plan
Clinical Data, based in Newton, Massachusetts, said in a statement Feb. 22 that it agreed to be bought by New York-based Forest Laboratories for $30 a share plus as much as $6 a share more depending on the success of Clinical Data’s antidepressant Viibryd.
The price “is inadequate and significantly undervalues the company,” considering its prospects, said Bradley Wojno in a Delaware Chancery Court complaint filed March 1 in Wilmington. Wojno, seeking to proceed on behalf of all Clinical Data outside shareholders, asked the court to stop the proposed transaction and award damages and legal fees.
Viibryd was approved by the U.S. Food and Drug Administration Jan. 21 for treatment of adult major depressive disorder and may be introduced in the second half of the year, the companies said in the statement. Forest has been looking to license new drugs to replace Lexapro, an antidepressant that accounts for 56 percent of its sales and is set to lose patent protection next year.
Theresa McNeely, a Clinical Data spokeswoman, said the company had no comment on the lawsuit. Frank Murdolo, a Forest Laboratories spokesman, was traveling and wasn’t immediately available to comment.
The case is Wojno v. Fromkin, CA6233, Delaware Chancery Court (Wilmington).
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Citigroup Wins Dismissal of Auction-Rate Securities Suits
Citigroup Inc. (C) won dismissal of five consolidated lawsuits filed by investors over auction-rate securities in federal court in New York, ruling the plaintiffs failed to sufficiently allege securities fraud claims.
U.S. District Judge Laura T. Swain in Manhattan granted March 1 Citigroup’s request to dismiss the case, which combined five class-action, or group, suits. Swain in 2009 dismissed the claims, ruling the complaint was insufficient and allowed the plaintiffs to re-file their complaint.
The investors claimed Citigroup sold or underwrote auctions of more than $30 billion in auction rate securities. The plaintiffs said Citigroup manipulated the market by intervening in auctions to ensure the securities would be sold when supply outstripped demand. They said Citigroup prevented the failed auctions to offset the impact of the subprime-mortgage crisis and to generate underwriting, broker-dealer and auction-dealer fees.
“Plaintiffs cannot, in light of the information available to them, allege facts sufficient to demonstrate the requisite reasonable reliance element of the market manipulation claim,” Swain said.
Citigroup had argued its own buying and selling in the auctions, which was disclosed and kept them from failing, didn’t amount to market manipulation. Citigroup told investors it might stop participating in the auctions at its discretion, the bank said.
The case is In re Citigroup Auction Rate Securities, 1:08- cv-3095, U.S. District Court, Southern District of New York (Manhattan).
Credit Suisse Banker Bagios Granted Bail in U.S. Tax Case
Credit Suisse Group AG (CSGN) banker Christos Bagios, who is accused of helping American clients hide as much as $500 million in assets from U.S. tax authorities when he worked at UBS AG, was granted bail yesterday by a federal judge.
Bagios, in custody since his Jan. 26 arrest, must post a $500,000 corporate surety bond and a $150,000 cash bond, U.S. Magistrate Judge Robin Rosenbaum said in federal court in Fort Lauderdale, Florida. The judge also ruled that prosecutors had probable cause to charge Bagios, 45, with conspiring to defraud the U.S. by impeding the Internal Revenue Service.
UBS, Switzerland’s largest bank, avoided prosecution in 2009 when it admitted helping Americans cheat the IRS. The Zurich-based bank agreed to pay $780 million in fines and penalties and turned over to the U.S. data on previously secret accounts. The judge yesterday made public a criminal complaint that said Bagios helped 100 to 150 U.S. taxpayers hide assets from the IRS.
“He doesn’t understand what he’s accused of doing wrong,” Arthur Greenspan, a lawyer for Bagios, told the judge March 1. “He doesn’t believe he did anything wrong. He doesn’t believe that he aided tax evaders.”
Rosenbaum refused March 1 to release Bagios, after a prosecutor said the two sides had been in negotiations.
“We thought it would not make sense to go forward with a full charging document when we felt he might become a cooperator” for the government, Kevin Downing, a senior trial attorney in the Justice Department’s tax division, told the judge March 1 during a conference call from the courtroom.
The case is U.S. v. Bagios, 11-06030, U.S. District Court, Southern District of Florida (Fort Lauderdale).
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Ex-Goldman Sachs Programmer in Custody After Bail Revoked
Sergey Aleynikov, the former Goldman Sachs Group Inc. (GS) programmer convicted of stealing the firm’s trade secrets by appropriating computer source code, was returned to custody after a judge declared him a flight risk.
U.S. District Judge Denise Cote in Manhattan revoked the bail of Aleynikov, 41, and ordered him remanded to the custody of the U.S. Marshal’s Service on Feb. 24, court records show. The defense has appealed the ruling to the 2nd U.S. Circuit Court of Appeals in New York.
Aleynikov, a U.S. citizen who emigrated from Russia, was convicted in December of theft of trade secrets and transportation of stolen property in interstate and foreign commerce. Set for sentencing March 18, he faces a maximum of 15 years in prison, according to the office of Manhattan U.S. Attorney Preet Bharara.
“The government has abiding concerns about the risk of the defendant’s flight, in light of new information about the defendant’s family circumstances,” the U.S. Attorney said in a letter to the judge dated Feb. 23. “The defendant reportedly has a close relationship with his mother, who plans to return to Russia.”
In the appeal of the bail revocation, Kevin Marino, a lawyer representing Aleynikov, said “the record reflects clear and convincing evidence that Aleynikov is not a risk of flight.”
Aleynikov was employed by New York-based Goldman for two years developing computer code for its high-frequency trading business. He resigned in June 2009 to work for Teza Technologies LLC, a Chicago-based trading firm, according to court documents.
On his last day at Goldman, Aleynikov transferred “substantial portions” of proprietary code from Goldman’s computer network to an outside server in Germany, prosecutors said. Later at home in New Jersey he downloaded the source code files to his home computer, according to the indictment.
The case is U.S. v. Aleynikov, 10-00096, U.S. District Court, Southern District of New York (Manhattan).
China Forestry Says Ex-CEO Li Han Chun Detained by Police
China Forestry Holdings Ltd. (930) said Li Han Chun, its former chief executive officer, was detained by police in China for the alleged embezzlement of 30 million yuan ($4.6 million).
Li, replaced by Li Jian as CEO on Feb. 18, removed company files including sales documents of unit Kunming Ultra Big Forestry Resources Development Co., according to a China Forestry statement to the Hong Kong stock exchange yesterday. Li Han Chun was detained by police in China’s Guizhou province on Feb. 24, it said.
Hong Kong Court of First Instance Judge Carlye Chu on Feb. 11 extended an order to freeze HK$398.2 million ($51.12 million) of assets held by the former CEO, who sold shares before the Beijing-based company disclosed accounting irregularities. Moody’s Investors Service put China Forestry’s debt on review for a downgrade on the share suspension in the city Jan. 26.
“The market’s confidence in the management collapsed with the confirmation” of Li’s detention, said Michael Tam, a Hong Kong-based analyst with South China Finance & Management Ltd. “We know nothing about the acting CEO; stock prices will drop when shares resume trading.”
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Interior Department to Comply With Order on Drilling Permits
The U.S. Interior Department said yesterday it will follow a federal judge’s order to rule on more deep-water oil drilling permits within 30 days.
“We will comply with the court order and make the decision, up or down, on the pending permits,” Deputy Secretary David J. Hayes told the Senate Committee on Energy and Natural Resources yesterday.
The department picked Noble Energy Inc. (NBL) to restart deep- water drilling in the Gulf of Mexico 10 months after BP Plc’s Macondo well blowout. The Houston-based company won an exploration permit on Feb. 28.
The permit to Noble Energy will serve as a “template for others to be issued in days ahead,” Interior Secretary Ken Salazar told the Senate panel yesterday. He said the pace of permit approvals may never return to the rate before the BP spill.
U.S. District Judge Martin Feldman on Feb. 17 ordered U.S. offshore energy regulators to act within 30 days on five permit applications filed by companies that have drilling contracts with Ensco Offshore Co., the company leading the legal challenge to the government’s offshore drilling bans.
Feldman said those permits have been delayed four months to nine months by drilling suspensions imposed by regulators after the biggest U.S. offshore oil spill. Before that, permits were typically processed within two weeks.
The department had said oil companies must show they met new standards for safety and spill control before they are allowed to resume exploration in the deep waters.
Hayes said the department will approve more permits because oil containment systems have been developed. The equipment used by Helix Energy Solutions Group Inc. (HLX) and Marine Well Containment Co. still requires a “significant amount of work,” Salazar said.
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Lehman Failed to Advise of CDO Risks, Australian Towns Say
Lehman Brothers Holdings Inc. (LEHMQ)’s Australian unit failed to advise of the risks of collateralized debt obligations and ignored policies that required municipalities to invest conservatively, a lawyer for towns and councils seeking to recoup investment losses said.
The town officials “had little or no knowledge of the complex structured investments,” Tony Meagher, a lawyer representing the towns, told Federal Court Judge Steven Rares in Sydney yesterday at the start of the trial.
Wingecarribee Shire Council, the City of Swan and Parkes Shire Council claim they were sold improper investments as Lehman pushed synthetic collateralized debt obligations, or SCDOs, to collect fees and commissions that were greater than it would have earned from selling term deposits. The towns, which represent Australian municipalities that bought SCDOs from Lehman from March 2003 to May 2008 and lost money, seek refunds for the cost of the investments.
By June 2005, 110 local governments in Australia, including 55 in New South Wales, with A$640 million ($646 million) in funds were being advised by Lehman, the towns said in court papers. Wingecarribee has A$21.4 million of losses on the books from the investments, some of which the town continues to hold, Meagher said. Swan and Parkes have losses of A$15.9 million on the books, he said.
The synthetic collateralized debt obligations, which invest in credit default swaps or other non-cash assets to gain exposure to pools of debt comprising of mortgages, car loans or credit card debt, weren’t the sort of investments municipalities were allowed to make by law and Lehman ignored municipal officials’ requests to invest in floating rate notes where capital was guaranteed 100 percent, Meagher said.
John Sheahan, Lehman’s lawyer, declined to make an opening statement. He said the judge had “a good understanding” of the areas in dispute.
The Australian suit is the first time Lehman has been forced to defend itself in a trial over the sale of the SCDOs, John Walker, executive director of IMF (Australia), the country’s largest litigation funder, said in a telephone interview. IMF is paying the costs of the lawsuit.
“It’s the first one to go to trial internationally,” Walker said. Similar lawsuits have been filed in the U.S. and Europe, although none have reached the trial stage, he said.
The case is Between Wingecarribee Shire Council and Lehman Brothers Australia Ltd., NSD 2492/2007, Federal Court of Australia (Sydney).
K1 Kiener Trial Revisits ‘B-Movie’ With Bank Losses, Suicide
Private planes, luxury villas in Florida, multimillion dollar losses, diplomatic immunity from an African nation and a Spanish suicide form the backdrop for the trial of K1 Group hedge fund founder Helmut Kiener.
Kiener’s fraud led to losses of 345 million euros ($477 million), including 223 million euros at Barclays Plc (BARC) and BNP Paribas (BNP) SA, prosecutors say. His trial on fraud, forgery and tax evasion that started yesterday in Wuerzburg, Germany, will be a chance to examine how banks and regulators missed chances to spot irregularities, said Klaus Nieding, a lawyer for investors.
“This all looks like a really bad B-movie if you look at the elements,” Nieding said. “It’s unbelievable that big international banks apparently didn’t do their homework when doing business with this man.”
Kiener, 51, is the central figure in an international criminal probe that led to his arrest in October 2009 as part of a joint German-U.S. investigation after JPMorgan Chase & Co. (JPM) found suspicious transactions involving K1 when it acquired Bear Stearns Cos., according to a person familiar with the matter. Dieter Frerichs, the former managing director of the two K1 funds in the British Virgin Islands, shot himself in July to avoid being arrested on the Spanish island of Mallorca.
The K1 founder claimed immunity from prosecution because he was registered in the Netherlands as a diplomat from the African nation of Guinea-Bissau. Kiener has lost several bids for release from pretrial detention.
“It would be a prejudgment to call this a fraud,” Kiener told reporters when entering the courtroom. He faces as much as 15 years in prison.
“The deception allegations are hitting him very hard,” his attorney Achim Groepper said. Kiener has “the wish and intention to compensate investors who lost money, as much as this is possible.”
Private investors lost about 122 million euros in the scam, prosecutor Martin Gallhoff said when reading the indictment. Kiener sold participation rights in K1 Invest and K2 Global, the group’s main funds, which now have no money left, he said.
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Exxon, Shell, Total Win Appeal Over Fine for Fuel Price-Fixing
Exxon Mobil Corp. (XOM), Royal Dutch Shell Plc (RDSA), Chevron Corp. (CVX), and Total SA (FP) won a ruling at France’s highest appeals court giving them a second chance to fight a 41.1 million-euro ($57 million) fine for fixing the price of fuel for certain Air France-KLM (AF) Group flights.
The Paris appeals court erred in using European Community competition rules to uphold the 2008 fine for conspiring to keep their shares of the market for fueling flights during stopovers on France’s Reunion Island, according to the March 1 ruling posted on the Competition Authority website.
The companies must now return to the appeals court to ask again for the fine to be reversed.
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Starr, Fund Manager to Celebrities, Sentenced to 7 1/2 Years
Kenneth I. Starr, the money manager whose clients included actors Sylvester Stallone and Wesley Snipes, was sentenced to 7 1/2 years in prison after pleading guilty to defrauding nine celebrities out of $33.3 million.
The sentence issued yesterday by U.S. District Judge Shira Scheindlin in Manhattan fell between Starr’s request for 60 months and prosecutors’ recommendation that he be sentenced within the non-binding federal guideline range of 121 months to 151 months. She also ordered Starr to pay forfeitures and restitution of $29.1 million.
“I stand before you a contrite man and an ashamed man,” Starr, 67, told Scheindlin. “I have no one to blame but myself.”
The case is U.S. v. Starr, 1:10-cr-520, U.S. District Court, Southern District of New York (Manhattan).
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Ex-Colonial Bank Official Admits Role in Lender’s Fraud
A former Colonial Bank executive admitted to conspiring with officials at Taylor, Bean & Whitaker Mortgage Corp. to defraud investors and the government of about $970 million.
Catherine Kissick, 50, pleaded guilty to one count of conspiracy to commit wire, securities and bank fraud yesterday in federal court in Alexandria, Virginia. She agreed to cooperate with prosecutors bringing Lee Farkas, Taylor Bean’s former chairman, to trial on April 4 in what the Justice Department says was a $1.9 billion fraud scheme.
Kissick, a former Colonial Bank senior vice president, admitted that from 2002 through August 2009 she conspired with Farkas and other Taylor Bean and Colonial Bank officials to transfer more than $400 million between the bank and the mortgage lender to hide Taylor Bean overdrafts.
Kissick is the second person to plead guilty in what the Justice Department said was a scheme that targeted the government’s Troubled Asset Relief Program and contributed to the Montgomery, Alabama-based bank’s failure.
The U.S. Securities and Exchange Commission, using a figure of $1.5 billion to describe the size of the scheme, filed a related securities suit yesterday against Kissick, along with a proposed settlement of the case. Kissick didn’t admit or deny the SEC’s allegations.
Taylor Bean’s, former treasurer, Desiree Brown, pleaded guilty Feb. 24 to the same conspiracy charge and agreed to cooperate with prosecutors. Brown, 45, also settled an SEC suit.
The case is U.S. v. Kissick, 11-cr-00088, U.S. District Court, Eastern District of Virginia (Alexandria).
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Pillsbury Hires 6 Howrey Partners for Construction Practice
Pillsbury Winthrop Shaw Pittman LLP, a San Francisco-based law firm, said it hired a construction litigation team of six partners and seven associates from law firm Howrey LLP, the latest of several departures this year.
The attorneys, who are joining Pillsbury’s New York, San Francisco, Los Angeles and Washington offices, include John Heisse, former co-head of Howrey’s construction litigation group. Heisse will lead Pillsbury’s construction team from San Francisco.
“These attorneys are a dynamic fit for us given Pillsbury’s industry focus in energy, real estate, and project development,” Pillsbury Chairman Jim Rishwain said yesterday in a statement.
The group includes two lawyers in Los Angeles. In addition to Heisse, the partners are David Dekker, Jeffrey Gans, Melissa Lesmes and Michael McNamara in Washington and Robert Thum in Los Angeles.
Howrey spokeswoman Chris Till didn’t return a phone call seeking comment on the departures.
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