Galleon Group LLC trader Zvi Goffer, accused of leading one of three insider-trading rings that are the subject of a U.S. probe, pleaded not guilty to new federal charges in an amended indictment.
Goffer and his brother Emanuel Goffer, along with Craig Drimal and Michael Kimelman, yesterday entered not guilty pleas to the new indictment filed by the U.S. on April 7.
U.S. District Judge Richard Sullivan in New York granted defense lawyers’ request for a one-week delay in the trial, which was originally set to begin May 9. The attorneys said they needed time to review evidence because of the new charges.
“I’m not persuaded that a lengthy adjournment is appropriate,” Sullivan told the lawyers, some whom asked for a two-month delay. “It seems an awful lot of what happens in trial preparation happens in the month before trial.”
Prosecutors filed a superseding indictment against five defendants. All the defendants were traders, except for Jason Goldfarb, who is a lawyer. Sullivan said Goldfarb wasn’t in court yesterday because of a religious observance.
The indictment added new charges of securities fraud against Zvi Goffer, who now faces two counts of conspiracy and 12 counts of securities fraud. It also removed as defendants David Plate, a former trader at Schottenfeld Group LLC, and Arthur Cutillo, who was a lawyer at the firm Ropes & Gray LLP. Plate pleaded guilty in July while Cutillo pleaded guilty Jan. 14.
The case is U.S. v. Goffer, 10-cr-00056, U.S. District Court, Southern District of New York (Manhattan).
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Banks Await Foreclosure Deal’s Financial Terms as States Split
Attorneys general negotiating the settlement of a nationwide foreclosure investigation have yet to approach banks with a proposed dollar amount that would fund principal reductions for borrowers, a state official said.
The states have agreed on some terms while failing so far to reach an accord on monetary payments by lenders, a person familiar with the talks said last week. Eight Republican attorneys general have publicly challenged the concept of principal reductions as part of a 50-state settlement.
Last month, officials representing the state probe and the Justice Department submitted settlement terms to five mortgage servicers, including Bank of America Corp. (BAC) and JPMorgan Chase & Co. (JPM) They called for a “substantial portion” of an unspecified monetary amount to go toward a loan modification program. Virginia Attorney General Kenneth Cuccinelli and six other Republican attorneys general assailed the proposal as an overreach of state power, with four calling principal reduction a “moral hazard.”
“You’re declaring in advance who the winners and losers are,” Georgia Attorney General Sam Olens said in an interview yesterday. “I’m a little concerned that this process disengages the normal market forces.”
The six-month probe was triggered by claims of faulty foreclosure practices following the housing collapse, which state officials said may violate their laws. Geoff Greenwood, a spokesman for Iowa Attorney General Tom Miller, a Democrat who leads the investigation, said in an interview that the states haven’t presented a dollar figure to the banks, declining further comment.
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Madoff Investors’ Lawsuit Against U.S. Dismissed by Court
Two of Bernard L. Madoff’s investors lost their bid to sue the U.S. Securities and Exchange Commission for allegedly gross negligent oversight in its failure to uncover his almost $20 billion fraud scheme.
U.S. District Judge Laura Taylor Swain in New York yesterday threw out the 2009 lawsuit by investors Phyllis Molchatsky and Steven Schneider which claimed the SEC failed to detect and end the scheme.
“Plaintiffs have identified no statutory or regulatory provision that suggests the existence of prescriptive rules for the conduct of SEC investigations,” Swain said in a 28-page ruling, adding “there is no reason to believe that information concerning any such duties would not be publicly available.”
Madoff, 72, is serving a 150-year sentence for running the fraud through his New York-based Bernard L. Madoff Investment Securities LLC.
Molchatsky, a disabled retiree and single mother who claims she lost $1.7 million in the fraud, and Schneider, a doctor who said he lost almost $753,000, filed the lawsuit under the Federal Tort Claims Act in October 2009 after the SEC denied their administrative claims.
The U.S. asked the court to dismiss the case, claiming the government are immune from suits because the SEC has discretion in deciding who to investigate and how to conduct its queries.
Kevin Callahan, a spokesman for the SEC, declined to comment on the court’s ruling. Plaintiffs’ lawyer Howard Elisofon of New York-based Herrick Feinstein LLP, did not immediately respond to a phone message seeking comment.
The case is Molchatsky vs. U.S., 1:09-cv-08697, U.S. District Court, Southern District of New York (Manhattan).
Online Poker Alleged Payment Processor Pleads Not Guilty
A Las Vegas man who allegedly acted as a payment processor for online poker companies pleaded not guilty in New York federal court to bank fraud and illegal gambling charges.
Chad Elie, 31, entered the plea before U.S. Magistrate Judge Frank Maas to nine counts, including conspiracy to violate the Unlawful Internet Gambling Enforcement Act and conspiracy to commit bank fraud and wire fraud. Wire fraud alone carries a maximum sentence of 30 years in prison and a $1 million fine.
“Client pleads not guilty, intends to aggressively defend,” his attorney, William Cowden of Mallon & McCool in Washington, told reporters after yesterday’s proceeding. Asked why he surrendered Elie’s 500-gigabyte hard drive to prosecutors, Cowden replied, “Don’t want to waste any time with the government.”
Elie was one of 11 people charged on April 15 in a revised indictment against the founders of PokerStars, Full Tilt Poker and Absolute Poker.
Prosecutors allege that after the U.S. enacted a law in 2006 barring banks from processing payments to offshore gambling websites, the three companies worked around the ban to continue operating in the U.S.
Elie is one of a group of people accused of serving as “payment processors” for the poker companies and lying to U.S. banks about the nature of the financial transactions they were processing, according to the indictment.
He was released yesterday on a $250,000 bond secured by $50,000 cash to be paid by three people, including his wife, Destiny Davis, who was in court yesterday. He is scheduled for his next appearance before U.S. District Judge Lewis A. Kaplan on May 11.
The case is U.S. v. Scheinberg, 10-cr-00336, U.S. District Court, Southern District of New York (Manhattan).
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Berkshire Hathaway, Buffett, Sokol Sued Over Lubrizol Profit
Berkshire investor Mason Kirby, suing to recover damages for the company, contends that Sokol, also a defendant, hurt the firm by taking a stake in Lubrizol before recommending to Buffett that Berkshire buy the company, according to papers made public yesterday in Delaware Chancery Court in Wilmington.
“Sokol knew that Buffett would closely consider and likely take his recommendation,” Kirby said. “As a result of Sokol’s unethical behavior, Berkshire suffered significant reputational losses and other damages.”
Sokol bought 96,060 shares of Lubrizol in early January before recommending that Omaha, Nebraska-based Berkshire acquire the company, Buffett said in a March statement announcing Sokol’s resignation.
Buffett didn’t immediately respond to a request for comment e-mailed to his assistant, Carrie Kizer.
The case is Kirby v. Sokol, CA6392, Delaware Chancery Court (Wilmington).
BP Sued by Gulf Well Partner Moex Over Blow-Out, Oil Spill
Mitsui & Co. (8031)’s Moex Offshore LLC unit, a 10 percent partner with BP Plc (BP/) in the blown-out Macondo well in the Gulf of Mexico, sued BP for economic losses as a result of the project’s failure and the spill that followed.
Moex, claiming BP broke its partnership agreement, asked a federal judge in New Orleans to declare it isn’t responsible for damages and cleanup costs resulting from the worst off-shore oil spill in U.S. history. Moex said London-based BP was responsible for the blow-out and the spill.
“BP’s conduct was the proximate cause of foreseeable damage suffered by Moex Offshore, including claims made against it for liability for death, personal injury, cleanup costs, economic loss, loss of investment, lost profits and any damages or fines assessed in pending or future proceedings involving the spill,” Moex said in a court filing yesterday.
Moex, saying it had no fault in the blow-out and spill, also accused Transocean Ltd. (RIG), the owner of the rig that drilled the Macondo well, of gross negligence. Switzerland-based Transocean was responsible along with BP for the damages, according to the unit of Tokyo-based Mitsui.
BP has said it expects its minority partners in the damaged well to pay their share of billions of dollars in cleanup costs, oil-spill damages and pollution fines. Moex and Anadarko Petroleum Corp. (APC), which had a 25 percent stake in the well, deny having any decision-making role or prior knowledge of the way BP operated the drilling project.
“No evidence exists to support a claim of gross negligence against Transocean,” Brian Kennedy, a spokesman for the drilling company, said in an e-mail.
“Moex’s filing contains a number of specific allegations against BP that are not supported by fact or by law,” Daren Beaudo, a BP spokesman, said in an e-mail. “BP will respond to the complaint in a timely manner.”
The case is part of 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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U.S. High Court Signals Rejection of Climate Change Suits
The U.S. Supreme Court signaled it is poised to throw out a state lawsuit that seeks to force five companies including American Electric Power Co. (AEP) to cut their emissions of gases that contribute to climate change.
Hearing arguments yesterday in Washington, justices across the ideological spectrum said the Environmental Protection Agency was better equipped than a federal court would be to sort through the costs and benefits of reducing carbon emissions.
Justice Ruth Bader Ginsburg said the states are seeking to turn a federal trial judge into a “super EPA,” questioning whether the judge would be able to determine whether to cap carbon output.
“That just sounds to me like what EPA does when it sets emissions standards,” Ginsburg said.
The Obama administration is joining the power industry in urging rejection of the suit. The other defendants include Xcel Energy Inc., (XEL) Duke Energy Corp. (DUK) and Southern Co. (SO), and the government-owned Tennessee Valley Authority.
The case is American Electric Power v. Connecticut, 10-174, U.S. Supreme Court (Washington).
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Ex-Credit Industriel Client Wins New Trial for Suit
Credit Industriel & Commercial (CC)’s dispute with a former Singapore client over a S$6.4 million ($5.1 million) debt must be resolved in a new trial after additional evidence came to light, a judge ruled.
CIC, as the unit of France’s Groupe Credit Mutuel is known, won a judgment in May when then Judicial Commissioner Philip Pillai ruled Teo Wai Cheong didn’t pay for investments known as accumulators in 2008. Teo had denied he gave instructions to his banker, Ng Su Ming, to buy the products.
Singapore’s court of appeal ordered CIC to disclose internal communications and transcripts of phone conversations that Ng had with Teo and other clients, who may have disputed giving instructions to buy the accumulators, Chief Justice Chan Sek Keong said in an April 11 ruling, made available yesterday.
“Amongst the newly disclosed documents are documents relevant to determining whether Teo was telling the truth in denying that he gave instructions to Ng, or what kind of instructions he gave to Ng,” Chan wrote. “A fresh trial is the better solution.”
Accumulators commit investors to buy stocks at preset prices for a specified period of time.
Pillai had ruled that a private bank doesn’t act as a trusted adviser when, as in this case, the contract specifically states that the client is responsible for transaction risks.
The case is Teo Wai Cheong v. Credit Industriel & Commercial CA99/2010 in the Singapore Court of Appeal.
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Former Taylor Bean Chairman Farkas Guilty of Conspiracy, Fraud
Lee Farkas, the ex-chairman of Taylor, Bean & Whitaker Mortgage Corp., was found guilty of 14 counts of conspiracy and bank, wire and securities fraud in what prosecutors said was a $3 billion scheme involving fake mortgage assets.
A federal jury in Alexandria, Virginia, yesterday returned the verdict after one day of deliberations. Farkas, who was free during the trial, was taken into custody. He faces a maximum sentence of 30 years on the conspiracy and bank-fraud charges and 20 years or more on the wire-fraud and securities-fraud counts when he’s sentenced on July 1.
Prosecutors said Farkas, 58, orchestrated one of the largest and longest-running bank frauds in the U.S. that duped some of the country’s largest financial institutions, targeted the federal bank bailout program and contributed to the failures of Taylor Bean and Montgomery, Alabama-based Colonial Bank.
Prosecutors spent eight days laying out the allegations for jurors. The government called 23 witnesses, including officials at Freddie Mac, Bank of America Corp. and Deutsche Bank AG. (DBK) Six of those who testified were former colleagues or associates of Farkas who had pleaded guilty to conspiracy charges.
Farkas used Taylor Bean as his own “personal piggy-bank” and stole more than $30 million from the company he built to buy homes, cars, airplanes, restaurants and other side businesses, said Assistant U.S. Attorney Charles Connolly during closing arguments.
Farkas, who denied any wrongdoing, testified on his own behalf and called two former Taylor Bean employees and a forensic accountant in his defense.
William Cummings, one of Farkas’s lawyers, said the defense team is disappointed with the verdict.
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 Judge Defers Risperdal Penalty Ruling in South Carolina
A South Carolina judge yesterday deferred a decision on the penalties he will impose on a Johnson & Johnson (JNJ) unit for violating consumer-protection laws in a case in which the attorney general seeks billions of dollars.
Jurors ruled March 22 that Janssen sent doctors a misleading letter in 2003 on the safety and effectiveness of its antipsychotic drug Risperdal. The panel also said the letter and the drug’s package label violated the South Carolina Unfair Trade Practices Act.
“I obviously have received a great deal of information,” Couch said in the Court of Common Pleas in Spartanburg. “I’ll report to you once I have my findings.”
Lawyers for New Brunswick, New Jersey-based Janssen urged Couch to impose minimal damages. They said the letter sent to 7,194 doctors in South Carolina wasn’t untrue, and that no company had ever faced “substantial penalty” for a package insert approved by the U.S. Food and Drug Administration.
“The question is whether anybody was hurt,” Janssen lawyer Edward Posner argued yesterday to the judge. “There’s no evidence that anybody was deceived, or that a doctor, patient or the state was harmed by the violation.”
An attorney for South Carolina, Donald Coggins, urged the judge to impose the maximum penalty of $5,000 for each of thousands of violations. Those violations, the state argues, include as many as 722,000 Risperdal prescriptions written, 183,144 calls on doctors by Janssen sales representatives, and 496,565 sample boxes distributed.
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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Madoff Trustee Charges $175 Million to Recover $7.6 Billion
The trustee liquidating Bernard L. Madoff’s defunct investment firm said he has recovered more than $7.6 billion for investors in the Ponzi scheme against fees of $175.5 million since Madoff’s arrest.
Irving Picard, who has filed more than 1,000 suits seeking money for the con man’s investors, said in February he was halfway to recovering the $20 billion in principal lost when Madoff was arrested in 2008. In a court filing April 18, he put the recovery $2.4 billion lower. The difference is the amount of forfeited funds held by the U.S. Attorney, which is being disputed in court.
Picard gave the new numbers as part of a fee request to a bankruptcy judge, seeking approval for $43.2 million for four months’ work by himself and his law firm, New York-based Baker & Hostetler LLP. Amanda Remus, a spokeswoman for Picard, declined to immediately comment.
Picard’s biggest recovery was a $7.2 billion settlement he and U.S. prosecutors reached in December with the estate of Jeffry Picower, a Madoff investor who died in 2009. Of that amount, about $5 billion went to Picard, he said in the filing in U.S. Bankruptcy Court in Manhattan.
Recoveries could rise if Picard’s suits against feeder funds succeed, the trustee said in March.
Picard’s law firm said it spent 7,086 hours on investigations at a cost of $3.1 million from Oct. 1 to Jan. 31. Administration consumed 7,033 hours, and cost $2.1 million. The trustee’s case against JPMorgan Chase & Co. took 1,971 hours, while a case against the owners of the New York Mets required 1,660 hours and customer claims took 4,837 hours, according to the filing.
The main case is Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities LLC, 08-ap-1789, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
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