Rajaratnam, Citigroup, Morgan Stanley, Madoff in Court News

Galleon Group LLC co-founder Raj Rajaratnam, at the center of largest crackdown on hedge-fund insider trading in U.S. history, didn’t take the witness stand as jurors heard one last wiretapped recording in his trial.

Prosecutors’ brief rebuttal of Rajaratnam’s weeklong defense included playing a recording of a phone call between Rajaratnam and former New Castle Funds LLC analyst Danielle Chiesi. During the Sept. 30, 2008, call, Chiesi asked Rajaratnam if he had bought 1 million shares of Advanced Micro Devices Inc. (AMD), calling the purchase “a very bold move unless you know what we know.”

Prosecutors, who are scheduled to begin their closing arguments to the jury today, have said Rajaratnam got a tip from Anil Kumar, a former McKinsey & Co. director, that Sunnyvale, California-based AMD was about to announce the sale of a manufacturing entity to Mubadala Development Co., a sovereign wealth company operated by Abu Dhabi.

The close of evidence yesterday came six weeks into a trial that might send Rajaratnam to prison for 20 years. Rajaratnam, 53, is accused of gaining $63.8 million from tips leaked by corporate insiders and hedge-fund traders about a dozen stocks, including Goldman Sachs Group Inc. (GS), Intel Corp. (INTC), Clearwire Corp. and Akamai Technologies Inc.

The Sri Lankan-born money manager denies wrongdoing, saying he based his trades on research.

After prosecutors and Rajaratnam’s lawyers complete their closing arguments, the jury will begin its deliberations.

The defense case focused on the testimony of former Galleon U.S. President Richard Schutte and of Gregg Jarrell, the top economist for the U.S. Securities and Exchange Commission from 1984 to 1987.

They told jurors that stock trading trends, analyst reports and news accounts circulating in the marketplace gave Rajaratnam a lawful basis to make the stock trades that prosecutors say were corrupt.

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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U.S. Makes Final Arguments to Jury in Taylor Bean Fraud Case

The case against Lee Farkas, the ex-chairman of Taylor, Bean & Whitaker Mortgage Corp. and accused mastermind in a $1.9 billion fraud, ended with U.S. prosecutors saying he stole millions of dollars out of greed and his lawyer saying Farkas is innocent while others made mistakes.

Farkas and the government made final arguments to the jury yesterday in federal court in Alexandria, Virginia. U.S. District Judge Leonie Brinkema gave the jurors instructions on the law yesterday and had them begin deliberations on whether Farkas is guilty of 14 counts of conspiracy and bank, wire and securities fraud.

Assistant U.S. Attorney Charles Connolly told the jury that Farkas used his employees, Taylor Bean and the defunct Colonial Bank to carry out “one of the largest and longest-running bank fraud schemes in the country.”

“He did it out of greed,” said Connolly, adding that Farkas took more than $30 million from Taylor Bean for his own use. “Without TBW, Lee Farkas couldn’t live the lifestyle he wanted.”

Farkas, 58, is charged with orchestrating a fraud involving fake mortgage assets that duped some of the country’s largest financial institutions, targeted the federal bank bailout program and contributed to the failure of Montgomery, Alabama- based Colonial Bank.

If convicted of the single conspiracy charge, Farkas faces as many as 30 years in prison.

Bruce Rogow, one of Farkas’s lawyers, said in his closing argument that those who pleaded guilty “believed in their heart of hearts that they didn’t do anything wrong” and were under pressure from the government to plead.

“When you take a look, the only common sense conclusion is that all of these people were working together, not on a criminal conspiracy, but working together with Colonial Bank to have Taylor Bean succeed,” Rogow said.

The case is U.S. v. Farkas, 10-cr-00200, U.S. District Court, Eastern District of Virginia (Alexandria).

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J&J Asks Risperdal Judge for ‘Small Penalty,’ Not ‘Billions’

Johnson & Johnson (JNJ) lawyers urged a South Carolina judge to impose a “small penalty” after jurors found the company violated consumer-protection laws, not the “billions of dollars” sought by the state.

The judge heard arguments yesterday over what penalties he should impose after a state court jury in Spartanburg ruled March 22 that J&J sent doctors a misleading letter in 2003 on the safety and effectiveness of its antipsychotic drug Risperdal.

Lawyers for Attorney General Alan Wilson urged Circuit Judge Roger Couch to impose penalties of $5,000 for each of hundreds of thousands of violations of the South Carolina Unfair Trade Practices Act, potentially billions of dollars. J&J said the state vastly overstated the impact of the violations.

“We have a case here where nobody has been deceived and nobody has been harmed,” attorney Edward Posner argued on behalf of New Brunswick, New Jersey-based J&J, in the Court of Common Pleas. “At most a small penalty should be imposed.”

Lawyers representing Wilson, John White and Donald Coggins, argued J&J should be penalized for the 2003 letter that its Ortho-McNeil-Janssen Pharmaceuticals unit sent to 7,194 doctors in South Carolina. The letter went to 700,000 doctors across the U.S.

J&J corrected the missive after the U.S. Food and Drug Administration sent a warning letter saying J&J made false and misleading claims that minimized the potentially fatal risks of diabetes and overstated the drug’s superiority to competitors.

White and Coggins said J&J should pay $5,000 for each of as many as 722,000 Risperdal prescriptions written, 183,144 calls on doctors by J&J sales representatives, and 496,565 sample boxes distributed. Most of those violations, they argued, spanned 1998 to 2008. Coggins said they chose not to request a specific dollar amount, preferring to let Couch decide.

The case is State of South Carolina v. Janssen Pharmaceuticals, 2007-CP-42-1438, Circuit Court for Spartanburg County, South Carolina (Spartanburg).

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Winklevoss Twins Seek Again to Re-Open Facebook Settlement

Cameron and Tyler Winklevoss are seeking review of an April 11 court ruling they lost enforcing a $65 million settlement with Facebook Inc. over their claims that company founder Mark Zuckerberg stole the idea for the social networking site.

A three-judge appeals court panel in San Francisco erred when it rejected the Winklevoss brothers’ claims that the 2008 settlement should be voided because it was procured with fraud, the twins’ attorney said in a court filing yesterday. The brothers want a rehearing before a larger panel of the U.S. Court of Appeals in San Francisco.

The Winkelvosses, former Harvard University classmates of Zuckerberg’s, allege that Facebook didn’t disclose an accurate valuation of its shares before they agreed to the cash and stock settlement. The appeals court ruled that the accord, now worth $100 million more than its original amount, barred any future lawsuits and was “quite favorable” to the twins.

Whether the Winklevosses “would be better off financially keeping the proceeds of the settlement rather than rescinding and proceeding with their lawsuit against Facebook is a personal judgment for them -- not an appellate court -- to make,” Jerome Falk, their attorney, said in the court filing.

The twins hired Zuckerberg to help build dating website ConnectU Inc. while they were students at Harvard in Cambridge, Massachusetts, in 2003. The Winklevosses and a partner, Divya Narendra, originally accused Zuckerberg in a lawsuit of stealing their idea and delaying the ConnectU project while secretly building Facebook.

The case is The Facebook Inc. v. ConnectU Inc., 08-16745, 9th U.S. Court of Appeals for the Ninth Circuit (San Francisco).

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U.S. High Court Defers Action on Virginia Health-Care Bid

The U.S. Supreme Court deferred taking action on a bid by Virginia’s attorney general for fast-track consideration of the state’s challenge to President Barack Obama’s health-care overhaul.

Virginia, one of 27 states that say the measure is unconstitutional, is urging the justices to take the unusual step of scheduling arguments without waiting for rulings by the four appeals courts that are poised to consider the law.

The case was on a list of petitions for review the justices were scheduled to consider at a private conference last week. The justices resolved most of those cases in a list of orders released yesterday in Washington. They will release more orders a week from yesterday.

Attorney General Kenneth Cuccinelli of Virginia said in an interview last week that the petition was a long shot. He argued in court papers that the dispute “is of imperative national importance requiring immediate determination in this court.”

The states say Congress overstepped its authority by requiring Americans to either obtain insurance or pay a penalty.

The step sought by Virginia, known as certiorari before judgment, is one the court has taken only a handful of times, including its 1974 decision ordering President Richard Nixon to turn over Oval Office tape recordings and its 1952 ruling blocking President Harry S Truman from seizing the nation’s steel mills.

The Obama administration argued that the health-care dispute doesn’t rise to that level of urgency, in part because the disputed provision doesn’t take effect until 2014.

“The constitutionality of the minimum coverage provision is undoubtedly an issue of great public importance,” acting U.S. Solicitor General Neal Katyal argued in court papers. “This case is not, however, one of the rare cases that justifies deviation from normal appellate practice and requires immediate determination in this court.”

Another appeals court, based in Cincinnati, will consider the issue June 1, and a third, based in Atlanta, will hear arguments June 8 in a case involving the other 26 states challenging the law. An appeals court in Washington will consider the matter later this year.

The Supreme Court case is Virginia ex rel. Cuccinelli v. Sebelius, 10-1014.

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Deutsche Bank Said to Reject $1.1 Billion Kirch Settlement

Deutsche Bank AG (DBK) rejected a 775 million-euro ($1.1 billion) settlement proposed last month by a Munich court that may have ended a nine-year dispute with Leo Kirch over the collapse of his media group, two people familiar with the case said.

The March 24 proposal by the Munich appeals court was made a day before Kirch testified in the case, said the people, who declined to be identified because the negotiations were private. The bank spurned the offer because the amount was too high, one of the people said.

Kirch has filed suits against the Frankfurt-based bank over a 2002 Bloomberg television interview by Rolf Breuer, the bank’s chief executive officer at the time. In the interview, 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.

The settlement would have ended all the litigation. Kirch has filed two separate damages suits against the lender and Breuer seeking a total of 3.3 billion euros. He has also filed criminal complaints and civil suits challenging votes at shareholder meetings. The bank and Breuer deny wrongdoing.

Chief Executive Officer Josef Ackermann is scheduled to testify May 19 at the Munich court in a hearing over one of the lawsuits, court spokesman Wilhelm Schneider said in an interview yesterday. The bank’s chairman, Clemens Boersig, and management- board members Juergen Fitschen and Hermann-Josef Lamberti are also testifying. The court summoned the men at Deutsche Bank’s request.

In the case, Kirch is seeking 2 billion euros, claiming Deutsche Bank had a secret plan to cause difficulties for his media company and then force him to hire the bank to help restructure the firm.

The Munich appeals case is OLG Muenchen, 5 U 2472/09.

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Verdicts/Settlements

Citigroup, Morgan Stanley Cleared in Parmalat Case

Citigroup Inc. (C), Deutsche Bank AG, Morgan Stanley, Bank of America Corp. (BAC) and bankers at the firms were acquitted by a Milan court in a market-abuse case relating to the 2003 collapse of Parmalat Finanziaria SpA, Italy’s biggest dairy company.

“The detailed examination of evidence in court brought a clear view of the facts,” Francesco Isolabella, a lawyer for Deutsche Bank, said after Judge Gabriella Manfrin read out the ruling in Milan yesterday.

Milan prosecutors had claimed the banks knew Parmalat’s true financial situation when they sold bonds and carried out transactions on behalf of the food maker. The company, now called Parmalat SpA (PLT), failed in Italy’s biggest bankruptcy and its founder Calisto Tanzi has been convicted of misleading investors. Parmalat’s collapse left the maker of juices and long-life milk with 14 billion euros ($20 billion) in debt, about eight times the amount reported to investors.

The bankers didn’t commit the alleged crimes, the court ruled. The three judges will publish the reasoning behind yesterday’s ruling within 90 days.

Citigroup, the third-biggest U.S. bank, said in a statement that the ruling confirms the bank and its employees had no involvement. Deutsche Bank said its employees acted professionally and abided by Italian law, according to a statement. Morgan Stanley (MS) in a statement said the firm was “pleased” with the court’s decision.

Parmalat was brought down by “some of its executives and some of its auditors,” Bank of America said in a statement. The ruling confirms that “none of Bank of America’s employees were aware of Parmalat’s fraud.”

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New Suits

Investment Funds Allege Banks Conspired to Manipulate Libor

Three investment funds accused banks including Bank of America Corp., JPMorgan Chase & Co. (JPM), HSBC Holdings Plc (HSBA), Barclays Bank Plc and Credit Suisse Group AG (CSGN) of conspiring to manipulate the London interbank offered rate. The lawsuit was filed April 15 in New York federal court.

The banks allegedly sold Libor-based futures, options, swaps and derivative instruments “at artificial prices that defendants caused,” thereby harming investors, FTC Capital GmbH of Vienna, FTC Futures Fund SICAV of Luxembourg and FTC Futures Fund PCC Ltd. of Gibraltar contend in the complaint.

Between 2006 and 2009, the banks “collectively agreed to artificially suppress the Libor rate and, in early 2008, ‘‘during the most significant financial crisis since the great depression,’’ the rate remained steady when it ‘‘should have increased significantly,’’ the funds contend in court papers.

Last month a person close to an investigation on possible Libor manipulation said regulators in the U.S. and U.K. were cooperating in the probe. The U.S. Justice Department, Securities and Exchange Commission and Commodity Futures Trading Commission are working together with the U.K.’s Financial Services Authority on the probe, according to two people familiar with developments.

‘‘We believe the suit is without merit,’’ said Danielle Romero-Apsilos, a spokeswoman for Citigroup.

Lawrence Grayson, a spokesman for Bank of America, declined to comment.

Deutsche Bank spokesman Ronald Weichert said he couldn’t immediately comment. Eberhard Roll and Walter Hillebrand-Droste, spokesmen for defendant WestLB AG in Dusseldorf, weren’t immediately reachable for a comment.

Officials at Lloyds Banking Group Plc (LLOY) and HSBC Holdings Plc weren’t immediately available to comment. A spokeswoman at Barclays Plc (BARC) in London declined to comment.

Counts in the civil complaint include fraudulent concealment, violation of the U.S. Commodity Exchange Act, antitrust violations, and unjust enrichment.

Jennifer Zuccarelli, a JPMorgan spokeswoman, declined to comment. A spokeswoman for Credit Suisse in London declined to comment.

The case is FTC Capital v. Credit Suisse, U.S. District Court, Southern District of New York (Manhattan).

American Indian Tribe Sues BP for Oil Spill Damages

BP Plc (BP/) was sued by the Pointe Au Chien tribe over claims the Indian group’s ancestral lands and fishing grounds in southern Louisiana were devastated by the 2010 oil spill.

The tribe ‘‘has suffered loss of use of its historical and cultural lands, including tribal cemeteries, Indian mounds, shell middens and traditional fisheries,” according to the complaint, filed in federal court in New Orleans on April 15.

“Use of these lands has been lost from April 20, 2010, to the present,” the complaint alleged, citing the date the Deepwater Horizon rig blew up while drilling an offshore well for BP. The tribe said it has an “an aboriginal land title claim” to the damaged areas.

The Pointe Au Chien case is the first oil-spill damages suit filed by any of Louisiana’s American Indian tribes. BP faces thousands of claims and more than 350 lawsuits seeking damages from individuals and businesses harmed by oil that gushed from its damaged subsea well last year.

The Pointe Au Chien tribe numbers roughly 680 members and isn’t one of four federally recognized tribal nations in Louisiana, according to its lawyer in the case, Joel Waltzer. The Pointe Au Chien, which has settled the reedy coastal marshlands for centuries, are recognized by the state of Louisiana.

The tribe seeks compensation for lost tax revenue and income, decline in property values, spill cleanup costs, restoration of its damaged natural resources, and punitive damages.

BP spokesman Daren Beaudo didn’t immediately respond to a request for comment on the tribe’s lawsuit.

The case is In Re: Oil Spill by the Oil Rig “Deepwater Horizon” Local Government Entities, 2:10-cv-09999, U.S. District Court, Eastern District of Louisiana (New Orleans).

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Lawsuits/Pretrial

Cameron Says Gulf Blast Wasn’t Caused by Faulty Blowout Device

Cameron International Corp. (CAM) said the Deepwater Horizon explosion wasn’t its fault because oil and gas were already surging toward the rig when workers tried to activate blowout- prevention equipment the company made.

“Time does not go in reverse,” Cameron said in an April 15 filing in New Orleans federal court. “The simple chronology of events” detailed in a post-accident report undercuts claims that Cameron’s blowout preventer, or BOP, malfunctioned and failed to prevent the explosion, the company said.

Cameron, along with BP Plc and other companies involved in the Deepwater Horizon drilling disaster, faces hundreds of spill-related lawsuits over personal and economic injuries caused by the worst offshore oil spill in U.S. history. Eleven workers were killed by the April 20, 2010, rig explosion.

Plaintiffs suing the companies over the spill have claimed Houston-based Cameron’s BOP wasn’t designed to handle the extreme environment and thicker drill pipes found in ultra-deep wells like the one the Deepwater Horizon was drilling for BP in the Gulf of Mexico.

Government forensic examiners who studied the Deepwater Horizon’s recovered BOP determined that its pincers failed to completely sever and seal a slightly off-center drill pipe that got jammed in the preventer by the uncontrolled flow of oil and gas in the well.

Cameron cited findings by a U.S. presidential commission that investigated the Deepwater Horizon blowout, as well as a court filing by spill victims, that it says support Cameron’s claim the BOP didn’t cause the explosion.

The case is In re Oil Spill by the Oil Rig Deepwater Horizon in the Gulf of Mexico on April 20, 2010, MDL-2179, U.S. District Court, Eastern District of Louisiana (New Orleans).

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Apple Asks Judge to Dismiss Case Claiming ITunes Monopoly

Apple Inc. (AAPL) asked a federal judge to dismiss a consumer antitrust lawsuit claiming the company limited choice by linking iPod music downloading to its iTunes music store.

Robert Mittelstaedt, an attorney for the Cupertino, California-based company, yesterday told U.S. District Judge James Ware in San Jose, California, that blocking iPod music downloads that used competitors’ software was intended to improve downloading quality for iTunes customers.

Changes that Apple made in 2004, just days after Internet music software company RealNetworks Inc. (RNWK) announced a technology allowing songs from its online store to be played on iPods, weren’t anticompetitive, he said.

“Apple’s view is that iPods work better when consumers use the iTunes jukebox rather than third party software that can cause corruption or other problems,” Mittelstaedt said at a hearing.

Apple co-founder and chief executive officer Steve Jobs, ordered by a separate judge to answer questions in the case, met with plaintiff attorneys for a deposition on April 12, Bonny Sweeney, a lawyer representing iTunes customers who sued, said yesterday. She declined to comment further.

Jobs took a medical leave from the company starting Jan. 17. The CEO, who has battled a rare form of cancer, has taken time off for medical reasons three times in the past seven years.

The case is Apple iPod, iTunes Antitrust Litigation, C05-0037JW, U.S. District Court, Northern District of California (San Jose).

U.S. Attorney Seeks Dismissal of Madoff Investor’s Claim

U.S. Attorney Preet Bharara in Manhattan seeks to dismiss a claim by an investor in Bernard Madoff’s defunct investment company to part of a $7.2 billion settlement.

U.S. prosecutors and the trustee liquidating Madoff’s firm settled a suit against the estate of billionaire Jeffry Picower for $7.2 billion in December. Asking a Manhattan judge to dismiss the investor’s claim, Bharara said he was seeking a final order of forfeiture to close the case.

The investor holding up closure of the case, Adele Fox, has no “property interest” in the Picower funds and hasn’t yet proved her “victimhood,” Bharara said in the April 15 filing in U.S. District Court in Manhattan.

“Her attempt to have the court mandate the allocation of forfeited funds among victims in advance of that determination is a naked end-run around” legal limitations, he said in the filing.

Investors seeking to recoup money from the Madoff fraud unsuccessfully challenged a $220 million settlement between trustee Irving Picard and the family of Norman F. Levy. A bankruptcy judge ruled on March 30 that the deal will stand.

The main 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).

Foreclosure Probe Talks Said to Yield Agreements With Banks

Attorneys general negotiating a settlement of a 50-state investigation of foreclosure practices have reached agreements with lenders on some terms while failing so far to reach an accord on potential monetary payments by the banks, said a person familiar with the talks.

The probe was triggered by claims of faulty foreclosure practices following the housing collapse which law enforcement officials said may violate state law. Significant progress has been made on a deal with lenders, which include Bank of America Corp. and JPMorgan Chase & Co., with agreements in principle reached on several issues, said the person, who didn’t specify the areas of accord as they may change as talks proceed.

It may take at least two months to reach a final agreement, said the person, who declined to be identified because the talks are private. An accord remains out of reach because states want principal reductions for borrowers, which is more than banks agreed to in deals reached with U.S. regulators last week, said Allison Schoenthal, a lawyer at Hogan Lovells in New York.

“Principal reductions I don’t think are going to be agreed to by banks, and I don’t think the banks see a need for a penalty when, in their view, they haven’t done anything wrong,” said Schoenthal, who represents lenders and servicers and isn’t involved in the talks.

Geoff Greenwood, a spokesman for Iowa Attorney General Tom Miller, who leads the negotiations for the states, declined to comment. Dan Frahm, a spokesman for Charlotte, North Carolina- based Bank of America, and Thomas Kelly, a spokesman for New York-based JPMorgan, didn’t respond to e-mails seeking comment.

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On the Docket

Rambus Antitrust Trial Against Micron, Hynix Set for June 7

A trial over Rambus Inc. (RMBS)’s antitrust lawsuit against Micron Technology Inc. (MU) and Hynix Semiconductor Inc. (000660) claiming $4.3 billion in alleged damages was scheduled for June 7.

The trial date was posted yesterday on the electronic docket for the case in state court in San Francisco.

Rambus, based in Sunnyvale, California, alleges that Micron and Hynix artificially inflated the price of Rambus-designed dynamic random access memory, or DRAM, chips to drive Rambus technology out of the computer memory market. Samsung Electronics Co. agreed to pay $900 million in a settlement that removed it from the case.

A May 2 trial date for a separate patent-infringement lawsuit by Rambus against Hynix and two other chipmakers in federal court in San Jose, California, was vacated last month. The judge in that case said March 25 that the trial should wait until after the U.S. Court of Appeals for the Federal Circuit in Washington has decided related cases.

Linda Ashmore, a Rambus spokeswoman, didn’t return a message seeking comment.

The case is Rambus Inc. v. Micron Technology Inc., 04-431105, Superior Court of California (San Francisco County).

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: Michael Hytha at mhytha@bloomberg.net

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