Rajaratnam, S&P, Foreclosure Probe, Barclays in Court News

Raj Rajaratnam corrupted friends and employees of his hedge fund to “conquer” Wall Street, a prosecutor told jurors in his summation at the insider-trading trial of the Galleon Group LLC co-founder.

Assistant U.S. Attorney Reed Brodsky told jurors in Manhattan federal court yesterday that Rajaratnam was guilty of more than just insider trading: He was a corrupter of others.

From the outset of his remarks, Brodsky said Rajaratnam “corrupted his friends and employees” to “get secret information.” The goal was to get money and “conquer the stock market at the expense of the law,” the prosecutor said.

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., Clearwire Corp. and Akamai Technologies Inc.

“Getting information that others didn’t have was very valuable,” the prosecutor said. “It meant the defendant knew tomorrow’s news today, and it meant big money for the defendant’s fund and for himself.”

As he has throughout the trial, Rajaratnam sat quietly in a second row of defense lawyers, his hands folded, while Brodsky told jurors that government wiretaps of Rajaratnam’s conversations were “devastating evidence of the defendant committing crimes in real time.”

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

John Dowd, an attorney for the Sri Lankan-born money manager, spent the first hour of his summation urging an acquittal, accusing the government of “smearing” his client. He repeatedly said the U.S. case was “a fiction.”

“The government is trying to make Galleon into something it wasn’t,” Dowd said. “Rajaratnam worked hard for Galleon investors.”

Jurors saw that Rajaratnam was hard-working, that Galleon’s research operation was extensive and that Rajaratnam demanded transparency at meetings where analysts defended investment ideas, Dowd said. The lawyer assailed government witnesses for their “unreliable” testimony and said prosecutors gave several who pleaded guilty a “free pass” in return for their testimony.

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

For more, click here.

For the latest trial and appeals news, click here.

Lawsuits/Pretrial

S&P Can’t Be Sued in Frankfurt Over Lehman Ratings, Court Says

Standard & Poor’s Financial Services LLC, a unit of McGraw- Hill Cos., can’t be sued in Frankfurt over its ratings of Lehman Brothers Holdings Inc. (LEHMQ), a German court ruled.

A German pensioner seeking compensation for 30,000 euros ($43,500) he lost investing in Lehman certificates had his suit turned away yesterday, Frankfurt court spokesman Arne Hasse said in an interview, because the tribunal doesn’t have jurisdiction to decide the case. The suit claimed S&P’s A+ rating for the securities in May 2008 was misleading.

Rating companies have come under fire for their alleged failure to foresee the financial crisis and for granting top rankings to mortgage bonds that fell in value after home-loan defaults. Investors brought cases in Germany after a U.S. court ruled the ratings companies can’t be held liable because their ratings are protected speech.

A different chamber of the Frankfurt court last month sent another case against S&P to a Munich tribunal, saying that court may have jurisdiction because the firm owns a trademark registered with the German trademark office based in that city.

The judges in March rejected a similar suit against Moody’s Corp. (MCO) saying the New York-based company couldn’t be sued in Frankfurt. That case is now on appeal.

Yesterday’s case is LG Frankfurt, 2-13 O 111/10.

Oklahoma Seeks Its Own Accord With Banks on Foreclosures

Oklahoma Attorney General Scott Pruitt, a critic of proposed settlement terms from a 50-state foreclosure investigation, is seeking an alternative accord with banks, his office said.

Pruitt instructed his staff to work on a settlement that is specific to Oklahoma’s concerns “while respecting the appropriate role of attorneys general,” his office said in an e-mailed statement.

“This alternative to the current proposed term sheet could provide other states with a model to consider,” according to the statement.

Pruitt is among at least eight Republican attorneys general who have criticized a federal-state settlement proposal submitted last month to five mortgage servicers, including Bank of America Corp. (BAC) The 27-page document was offered to start negotiations with banks as part of an investigation into foreclosure and mortgage-servicing practices.

Besides Pruitt, attorneys general in Florida, Texas, Virginia, South Carolina, Nebraska, Alabama and Georgia have criticized terms that call for a loan-modification program that would reduce principal balances for borrowers.

In a March 16 letter to Iowa Attorney General Tom Miller, Pruitt said forcing lenders to reduce mortgage balances would take away incentives for banks to loan money and “destroy an already devastated housing market.” Miller is leading the negotiations for the states.

Pruitt wrote that the nationwide investigation by states into foreclosure and servicing practices “has morphed into an attempt to establish an overarching regulatory scheme that fundamentally restructures the mortgage loan industry in the United States.”

Diane Clay, a spokeswoman for Pruitt, didn’t return a phone call seeking comment. Geoff Greenwood, a spokesman for Miller, didn’t respond to an e-mail seeking comment.

Wal-Mart Suit May Halt Fourfold Increase in Class-Action Deals

Amy Velez, a Novartis AG (NOVN) sales consultant, said she got a smaller pay raise than male colleagues who couldn’t match her performance marketing the drugmaker’s Ritalin for hyperactivity and its antifungal medicine Lamisil.

Velez, who worked in the Washington area, sued and won a $175 million U.S. settlement last year for thousands of women employed by Novartis, contributing to a fourfold rise in the value of the 10 biggest settlements from 2009. Employers are seeking ways to head off such class-action cases and reverse the trend.

Their hopes may reside with the U.S. Supreme Court. Wal- Mart Stores Inc., the world’s biggest retailer, is asking the nation’s highest court to reject certifying as many as 1.5 million women on its payrolls as possible victims of discrimination. A lower court granted class-action status to a job-bias lawsuit against the company.

“If the Supreme Court rules with a draconian interpretation and raises the bar for plaintiffs, it will spell the end of class actions,” David Sanford, a managing partner at Sanford Wittels & Heisler LLP in Washington who represents employees in such group cases, said in an interview.

Intel Corp. (INTC), Bank of America Corp. and Microsoft Corp. (MSFT) are among 20 businesses backing Wal-Mart at the Supreme Court. A decision may be issued in late June or early July, before the court recesses for the year.

The combined value of the top 10 class-action settlements in cases not brought by government agencies reached $346 million last year, up from $86 million in 2009, according to a study by Seyfarth Shaw LLP, which represents employers in class actions. Among such suits last year, the largest settlements involved race, age and sex discrimination, the Chicago-based firm said.

Novartis’s settlement last year of Velez’s suit, which said the Basel, Switzerland-based drugmaker discriminated against 5,600 sales representatives on pay and promotion, was among the biggest payouts in an employment discrimination case, according to the study. Novartis paid $152.5 million to members of the class and lawyers and $22.5 million to improve employment practices, according to court records.

Rachel Zabinski, a Novartis spokeswoman, declined to comment.

The costs of fighting class-action cases often prompt employers to settle without regard to wrongdoing, said Matthew Webb, senior vice president for the U.S. Chamber Institute for Legal Reform, an affiliate of the Chamber of Commerce in Washington, the nation’s largest business lobbying group. The cases can lead to endless requests from lawyers for information, which tie up attorneys and drive up legal bills, he said in an interview.

The case is Wal-Mart Stores v. Dukes, 10-277.

For more, click here.

NFL, Players Break From Talks Ahead of Judge’s Lockout Ruling

The National Football League and its players suspended talks on a new labor accord for almost a month while they await a federal judge’s ruling on a request to end the lockout.

Players’ and owners’ representatives met four times over the past two weeks in Minneapolis with the mediator, Chief Magistrate Judge Arthur Boylan, under orders from U.S. District Judge Susan Richard Nelson in St. Paul, Minnesota.

“We’re going to be back here on May 16 to continue the mediation,” James Quinn, outside counsel for the players, said as he left yesterday’s meeting, according to video comments posted on NFL.com. “Everybody believes that it was helpful.”

Jeff Pash, executive vice president and general counsel for the league, said Boylan’s contributions are moving the sides toward a conclusion.

“This was a valuable process. I don’t think a single minute of it was wasted time,” Pash said on NFL.com. “We’ll be back here ready to make a deal; that’s the only way we’re going to solve this problem.”

Before the players and owners meet again, Nelson is expected to rule on the players’ lawsuit to end the lockout.

Quarterbacks Tom Brady, Peyton Manning and Drew Brees led a group of 10 NFL players who sued the league on March 11 after negotiations on a new labor contract ended without agreement. The players moved to decertify their union and owners declared a lockout. Players claim the league’s policies violate U.S. antitrust laws.

For the latest lawsuits news, click here.

New Suits

Gunns Sued by Shareholders Over 2010 Financial Disclosure

Gunns Ltd. (GNS), Australia’s biggest woodchip exporter, failed to warn investors of a drop in profit in the first half of fiscal 2010 as required by law, lawyers suing on behalf of about 300 shareholders said.

The investors lost millions of dollars after shares slumped following the company’s announcement in February 2010 that profit fell 99 percent to A$420,000 ($445,000), the law firm Maurice Blackburn said yesterday in an e-mailed statement announcing the lawsuit.

Gunns slumped 22 percent in Sydney trading on Feb. 22, 2010, following the release of first-half financial data, which created concern among investors that the company wouldn’t be able to expand. The shares had a further decline of as much as 15 percent on Feb. 26, 2010, sinking to a nine-year low.

“Investors expect listed companies and their officers to fulfill disclosure obligations,” Jason Geisker, a senior associate at Maurice Blackburn, said in the statement.

Matthew Horan, an outside spokesman for Launceston, Tasmania-based Gunns, said the company will defend itself in court.

The lawsuit, filed in Federal Court in Sydney, is being financed by IMF (Australia) Ltd., the country’s biggest litigation funder.

The suit was filed on behalf of shareholders who bought stock between Aug. 31, 2009, and Feb. 19, 2010, Maurice Blackburn said.

For the latest new suits news, click here. For copies of recent civil complaints, click here.

Verdicts/Settlements

U.K. Banks’ Loss on PPI Challenge May Cost Them $7.4 Billion

U.K. banks including Barclays Plc (BARC) and HSBC Holdings Plc (HSBA) may face costs of as much as 4.5 billion pounds ($7.4 billion) after losing a bid to stop the nation’s finance regulator from imposing rules on customer compensation for improperly selling loan insurance.

The British Bankers’ Association lost a court review yesterday of the Financial Services Authority’s guidelines on how lenders should handle consumer complaints over payment- protection insurance.

The FSA imposing the guidelines would unlawfully require banks to make compensation payments, the industry group said. The agency has estimated the cost of implementing the proposals to review past sales could cost firms 3.2 billion pounds, and another 1.3 billion pounds for handling customer complaints, the BBA said in court papers.

“We are disappointed with today’s judgment and now need to consider the details of it very carefully as well as next steps including whether it would be appropriate to apply for permission to appeal,” the BBA said in a statement on its website.

PPI generates as much as 5.5 billion pounds in annual revenue for U.K. banks, with about 6.5 million policies sold in 2006, the FSA has estimated. The insurance is used to cover payments on credit cards and mortgages in case of illness or unemployment. Customers who bought PPI rarely compared prices and terms or switched providers, and usually weren’t aware they could have purchased it from other companies, the U.K.’s Competition Commission has said.

U.K. banks would face measures that apply retroactively to past sales, which the BBA has said would go beyond the rules and regulatory requirements that are already in place.

“The banks are right to object,” said Ash Saluja, a lawyer at CMS Cameron McKenna LLP in London. “We should not have a rulebook to which back-dated rules can effectively be added in order to justify compensation.”

The FSA issued its guidelines in August and clarified them in November after the BBA asked for a court review. Firms reject more than half the PPI complaints they received, and “some rejected almost all of them,” the FSA said in a statement yesterday.

“There is no requirement to stop selling PPI, there is no reputational damage to all sellers, it is only those whose sales show systemic problems on their own analysis who have to take remedial steps,” Judge Duncan Ouseley said in yesterday’s ruling.

Lloyds Banking Group Plc (LLOY) may have the highest risk from the ruling, owing as much as 1.5 billion pounds in compensation and costs for improper PPI sales, Morgan Stanley analysts said in a report in October.

The ruling’s “financial impact can only be assessed once the legal proceedings have been finally determined,” Lloyds said in a statement yesterday. It “could be material to the group’s financial position.”

The case is The Queen on the Application of the British Bankers Association v. Financial Services Authority, 10/10619, High Court of Justice, Administrative Court (London).

For more, click here.

BT Loses Court Bid to Annul Parts of U.K. Online-Piracy Law

BT Group Plc (BT/A), Britain’s largest fixed-line phone company, and TalkTalk Telecom Group Plc (TALK) lost a U.K. court bid to quash parts of a digital-piracy law intended to curb illegal file sharing of music, film and books.

The U.K. Digital Economy Act, which passed last year, doesn’t violate European Union law, as the companies claimed, or place unfair enforcement costs on Internet providers, Justice Kenneth Parker ruled yesterday in the High Court in London.

“I cannot conclude from the evidence as a whole that the scale of the likely costs” would “render disproportionate legislation aimed at substantially strengthening the protection of copyright material,” Parker said in the ruling.

The law was created to prevent unlawful downloading of copyright material by requiring Internet service providers to block some repeat offenders. BT and TalkTalk, which sought the so-called judicial review last year, said enforcing the law would cost “tens of millions of pounds in new systems and processes” to monitor Internet users.

Citing its commitment to “tackling online piracy,” the government “will set out the next steps for implementation of the Digital Economy Act shortly,” the Department for Culture, Media and Sport said in a statement yesterday.

BT and TalkTalk said they were reviewing yesterday’s ruling and considering their options. TalkTalk said it may appeal the decision.

For more, click here.

Mead Johnson Loses Bid to Cancel $13.5 Million Jury Verdict

Mead Johnson Nutrition Co. (MJN), the baby-formula maker that Bristol-Myers Squibb Co. (BMY) took public in February 2009, lost a bid to overturn a $13.5 million jury verdict in a false- advertising case over its product Enfamil.

A federal appeals court in Richmond, Virginia, yesterday affirmed a 2009 finding that the Glenview, Illinois-based company engaged in false advertising in a mailing to more than 1.5 million people that said “store brand” infant formula was inferior to its Enfamil LIPIL.

The suit was filed by PBM Products Inc., a unit of Perrigo Co. (PRGO) that makes store brand infant formula. PBM, based in Gordonsville, Virginia, sued Mead Johnson twice before over advertising campaigns.

“As the litigation history of the parties demonstrates, despite having twice been restrained from disseminating misleading advertising, Mead Johnson continued to do so,” Circuit Judge Andre Davis wrote. “PBM cannot fairly compete with Mead Johnson unless and until Mead Johnson stops infecting the marketplace with misleading advertising.”

Art Shannon, a spokesman for Perrigo, said, “We are very pleased” with the ruling.

Christopher Perille, a Mead Johnson spokesman, said in an e-mail that the company will comply with the court’s ruling.

“The case focused on a single direct mail piece, and the statements that the district judge decided should be discontinued have not been used for over a year,” Perille said.

The case is PBM Products LLC v. Mead Johnson & Co., 10- 1421, U.S. Court of Appeals for the Fourth Circuit (Richmond).

For the latest verdict and settlement news, click here.

To contact the reporters on this story: Elizabeth Amon in Brooklyn, New York, at eamon2@bloomberg.net; Ellen Rosen in New York at erosen14@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.