The U.S. Securities and Exchange Commission was sued by eight of R. Allen Stanford’s investors, who claim regulators’ “negligence and misconduct” caused their losses.
U.S. securities regulators seized Stanford’s operations in February 2009 on suspicion of fraud. Investors who purchased certificates of deposit at the financier’s Antigua-based Stanford International Bank Ltd. lost more than $7 billion, according to a lawsuit filed by the SEC.
The SEC’s inspector general, in a report issued last year, faulted the agency’s Fort Worth, Texas, office and some of its employees for failing to act against Stanford before it did. The investors, in a lawsuit filed at the U.S. court in Dallas on March 24, claim regulators should have investigated Stanford earlier and caught on sooner to what the agency ultimately contended was a “massive” Ponzi scheme.
“But for the negligent acts and omissions, misconduct and breaches of duty by Spencer Barasch, a former SEC regional Enforcement Director, the negligent supervision of Barasch by his SEC supervisors, and other inexcusable acts of negligence by SEC employees, the plaintiffs would not have made, and lost, their investments,” according to the complaint filed by the investors’ lawyer, Edward Gonzales III.
Barasch, who left the SEC’s Fort Worth office in 2005 and is now a lawyer in private practice, didn’t return a call March 25 to his law firm, Andrews Kurth LLP in Dallas.
“We strongly believe this action is without merit,” Andrews Kurth Managing Partner Bob Jewell said in an e-mailed statement. “Spencer Barasch served the SEC with honor, integrity and distinction. We disagree with the characterization of Mr. Barasch’s involvement put forth by the inspector general in his report last year in regard to the Stanford Financial Group matter.”
Stanford, 61, who is in jail awaiting trial on parallel criminal charges, denies any wrongdoing.
The case is Robert Dartez LLC v. the U.S., 3:11-cv-0602, U.S. District Court, Northern District of Texas (Dallas).
The criminal case is U.S. v. Stanford, 09cr342, U.S. District Court, Southern District of Texas (Houston). The SEC case is Securities and Exchange Commission v. Stanford International Bank, 09cv298, U.S. District Court, Northern District of Texas (Dallas).
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‘Mini-Madoff’ Arrested in $300 Million Suspected Ponzi Scheme
Spanish police said they arrested a foreign-exchange operator suspected of running a $300 million Ponzi-type fraud that may have affected at least 100,000 investors in Europe, the U.S. and Latin America.
The “mini-Madoff,” dubbed in reference to jailed Ponzi conman Bernard L. Madoff, offered returns of as much as 10 percent to 20 percent monthly for investments in foreign currencies and instead used the money to buy real estate for himself and colleagues, according to a National Police statement March 25.
The man, German Cardona Soler, is 49 years old and a Spanish citizen, said a police spokeswoman who declined to be named, following agency policy. He was arrested in the Mediterranean city of Valencia. Two more people were apprehended and seven people were accused in relation to the suspected fraud, the statement said.
Accounts in 12 banks have been blocked and the titles frozen for more than 20 properties in Spain, the police said.
In Ponzi schemes, money from new customers is typically used to pay phony “returns” to earlier investors, giving the pretense that actual investments have taken place.
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BNP, Deutsche Bank Suits Against Bank of America Narrowed
A federal judge narrowed suits filed against Bank of America Corp. (BAC) by BNP Paribas Mortgage Corp. and Deutsche Bank AG (DBK) over hundreds of millions of dollars in losses on asset-backed commercial paper, dismissing some of the claims while allowing the cases to go forward.
U.S. District Judge Robert Sweet on March 23 dismissed several claims against Bank of America and ruled that BNP Paribas (BNP), the parent of BNP Paribas Mortgage, is an improper plaintiff in the suit.
Deutsche Bank and BNP Paribas Mortgage sued separately in 2009, claiming they lost $1.6 billion in asset-backed notes. The notes were issued by a special-purpose entity known as Ocala Funding LLC, which provided funding for mortgage loans originated by Taylor, Bean & Whitaker Mortgage Corp.
The BNP Paribas unit and Deutsche Bank claim their agreements required that Ocala hold $1.6 billion in cash or mortgage loans as collateral to be deposited with Bank of America, the deal’s trustee.
“BNP Paribas is pleased with the judge’s decision and we look forward to continuing to pursue our remedies in court,” bank spokeswoman Megan Stinson said in an e-mailed statement.
“The judge significantly limited the plaintiffs’ case, dismissing 14 of their 20 claims, and held that the remaining claims must be decided on the facts,” Bank of America spokesman Bill Halldin said in an e-mailed statement. “We look forward to presenting those facts to the court."
Deutsche Bank spokeswoman Amanda Williams didn’t return a voice-mail message seeking comment on the ruling.
The cases are Deutsche Bank v. Bank of America, 09-cv-9784, and BNP Paribas v. Bank of America, 09-cv-9783, U.S. District Court, Southern District of New York (Manhattan).
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Madoff Trustee Calls Lawyer’s Demand ‘Baseless, Fallacious’
The trustee liquidating Bernard L. Madoff’s firm said a lawyer’s attempt to remove him from his job was a “baseless, fallacious and unprofessional attack” that should be “summarily rejected” by the bankruptcy judge.
Helen Chaitman, a lawyer for Madoff investors, has been seeking to overturn trustee Irving Picard’s $220 million settlement with heirs of Norman Levy, saying Picard concealed the scale of Levy’s business with the jailed conman. Last week in a court filing, she asked a judge to remove Picard from his post.
Chaitman didn’t “set forth” any basis for the trustee’s removal, a lawyer for Picard said in a letter to U.S. Bankruptcy Judge Burton Lifland in Manhattan on March 25.
“The attempt to remove the trustee and counsel in a reply brief is procedurally flawed and lacks any foundational support,” wrote David Sheehan of Picard’s law firm, Baker & Hostetler LLP. “Moreover, it is a baseless, fallacious and unprofessional attack upon the integrity of the trustee and his counsel.”
The effort to undo the settlement should be denied, he said.
Chaitman said Sheehan’s letter hadn’t challenged her claim that Picard withheld “material” information.
“We will be seeking the appropriate relief,” she said in a voice-mail message.
The case is Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities LLC, 08-01789, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
EIIB Can’t Join HSBC Joint Lawsuit Against Algosaibi
European Islamic Investment Bank Plc (EIIB), the London-based lender whose deals comply with Sharia law, cannot add its $78 million claim against Ahmad Hamad Algosaibi & Brothers Co. to a U.K. group lawsuit, a judge ruled.
The bank knew about the joint claims by HSBC Holdings Plc (HSBA) and five other lenders against Algosaibi, a Saudi investment company, by at least October and waited too long to ask to join, Justice Julian Flaux ruled March 25 at the High Court in London.
Allowing EIIB to join the consolidated lawsuit “runs the risk of derailing the whole case,” Flaux said in the hearing. The bank “has only itself to blame” for deciding to spend time on settlement talks instead of suing sooner, he said.
The dispute, stemming from the largest default in Saudi Arabia to come out of the financial crisis, has total claims of about $250 million and is scheduled for trial in June. The case already faces potential delays in procuring evidence because of unrest in the Middle East, Flaux said.
The suit includes HSBC’s $85 million claim, British Arab Commercial Bank Ltd.’s $19 million claim, Arab Banking Corp.’s claims totaling $140 million and Credit Agricole SA (ACA)’s $6 million claim. The banks, which say they are competing for limited assets, challenged EIIB’s bid to join the case.
The suit was triggered by a dispute between Algosaibi, a holding company with interests from bottling to finance, and Maan al-Sanea, the founder of Saudi Arabia’s Saad Group. Units of the two families defaulted after borrowing at least $15.7 billion from more than 80 banks, and lawsuits are pending around the globe.
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Verdicts and Settlements
Ex-CSK Auto Chief Settles SEC Clawback Suit, Records Show
Former CSK Auto Corp. Chief Executive Officer Maynard Jenkins settled a U.S. Securities and Exchange Commission lawsuit seeking to recover $4.1 million he received during an accounting fraud he didn’t orchestrate, according to court filings.
Jenkins, who stepped down as CSK’s top executive in 2007, agreed to resolve regulators’ claims that he improperly received bonuses and wrongfully profited from stock sales, SEC officials said in the March 24 filing. Terms of the “tentative settlement” weren’t disclosed.
“The settlement agreement will avoid the need for the parties to spend further resources prosecuting or defending these claims,” lawyers for the SEC and Jenkins said in the filing in federal court in Phoenix.
The SEC’s 2009 case against Jenkins was the first so-called “clawback” suit seeking to seize executive payouts from an official who wasn’t directly involved in wrongdoing at his company.
Matthew MacDonald, a Los Angeles-based lawyer for Jenkins, and John Nester, an SEC spokesman, didn’t return calls seeking comment on the settlement.
The SEC sued Jenkins after CSK, acquired by O’Reilly Automotive Inc. (ORLY) in 2008, was forced to restate financial results from fiscal year 2001 through 2005. Company officials said as much as $89 million in inventory and vendor allowances were overstated.
The case is SEC v. Jenkins, 09-cv-1510, U.S. District Court, District of Arizona (Phoenix).
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Deutsche Bank Asked About Business With Kirch Media
Leo Kirch, in his first court appearance in a nine-year-old dispute with Deutsche Bank AG, said the lender in 2001 “surprisingly” contacted him about doing business with his media group.
Kirch, 84, testified at a Munich appeals court hearing March 25 in a 2 billion-euro ($2.8 billion) lawsuit against the bank and its former chief executive officer, Rolf Breuer.
Kirch’s feud with the Frankfurt-based bank stems from a February 2002 Bloomberg television interview in which Breuer said, “everything that you can read and hear” is that “the financial sector isn’t prepared to provide further” loans or equity to Kirch. Four months later Kirch Holding GmbH filed the country’s biggest bankruptcy since World War II.
“Breuer requested information from us and said he needs to know everything,” Kirch said in a statement read to the court on his behalf. “There was no doubt that he meant the complete Kirch group.”
Kirch lost the case in lower court and appealed. The bank and Breuer deny wrongdoing.
Kirch is seeking to establish that negotiations with Deutsche Bank in 2001 and early 2002 reached a point under German law that allows a plaintiff rights similar to breach of contract claims. Breuer told the court in February that Kirch took the initiative and asked former German Chancellor Helmut Kohl to help arrange the meeting.
Kirch, who suffers from diabetes and deteriorating eyesight, was brought into the courtroom in a wheelchair. He voice was barely audible and an aide sitting next to him helped him answer the court’s questions. After 90 minutes, a doctor said Kirch could no longer testify. The court will recall him at another date.
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Florida Settles With Law Firm in Foreclosure Investigation
A Fort Lauderdale, Florida, law firm agreed to pay $2 million to resolve an investigation by the state attorney general’s office into the firm’s handling of foreclosure cases on behalf of lenders.
The Law Offices of Marshall C. Watson also agreed to adhere to certain requirements in its foreclosure cases, Attorney General Pam Bondi said in a statement March 25. Investigations into other law firms are ongoing, she said.
“We are aggressively investigating these law firms in order to protect the interests of everyone involved in foreclosure proceedings,” Bondi said.
The Florida attorney general’s office said last year it was investigating law firms in the state that handle residential foreclosure cases. The firms appeared to be “fabricating and/or presenting false and misleading documents in foreclosure cases,” the office said on its website.
The attorney general’s office continues to investigate four firms, spokeswoman Jennifer Meale said in a phone interview March 25. The firms are the Law Offices of David J. Stern PA, Shapiro & Fishman LLP, Florida Default Law Group and Ben-Ezra & Katz PA, she said.
The state also has “informal inquiries” into additional foreclosure law firms, Meale said. She declined to provide details of the probes.
Watson, the president and chief executive officer of the firm, said in a statement he is pleased the investigation was resolved “without any findings.”
Ex-Glaxo Lawyer May Face New Indictment After Case Dismissed
An ex-GlaxoSmithKline Plc (GSK) lawyer who won dismissal of a false-statements case against her may face new charges after a federal judge said he would allow prosecutors to seek another indictment.
U.S. District Judge Roger Titus set an April 26 trial date in Greenbelt, Maryland, for the lawyer, Lauren Stevens, saying it was conditioned on whether the government could secure a new indictment in time. Titus dismissed the case against Stevens on March 23 after finding prosecutors misinformed the grand jury about a key element of Stevens’s defense.
“The government can’t make a commitment as to which way it will go,” Titus said at a hearing March 25, noting the prosecutors could also seek to appeal the dismissal.
Stevens was charged with obstructing an investigation into whether Glaxo marketed the antidepressant Wellbutrin for unapproved uses. She based her defense on the claim that, in responding to a Food and Drug Administration inquiry, she took the advice of the law firm King & Spalding, her attorney Reid Weingarten said at a hearing two weeks ago.
Weingarten declined to comment March 25.
Prosecutors wouldn’t say in court March 25 what they plan to do. At the previous hearing on whether the case should be dismissed, government lawyers said they wanted an opportunity to seek another indictment if Titus threw out the case. Stevens was scheduled to go to trial on April 5.
Patrick Jasperse, the Justice Department attorney prosecuting the case, declined to comment.
The case is U.S. v. Stevens, 10-cr-694, U.S. District Court, District of Maryland (Greenbelt).
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Rajaratnam Criminal Case Most Popular Docket on Bloomberg
Galleon Group LLC’s Raj Rajaratnam, who is accused of making $45 million from tips leaked by corporate insiders, had the most-read litigation docket on the Bloomberg Law system last week.
Rajaratnam, 53, is the central figure in the largest crackdown on hedge-fund insider trading in U.S. history. Rajaratnam denies wrongdoing, saying he based trades on research.
The trial began March 8. Prosecutors said last week that they will present another two weeks’ of testimony.
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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