Insider Trading, MGA-Mattel, BP, U.S. Airways in Court News

Galleon Group LLC co-founder Raj Rajaratnam’s lawyer accused U.S. prosecutors of living in a “make-believe” and “imaginary world” where publicly available information about pending deals “didn’t exist.”

John Dowd, in the second day of closing arguments at Rajaratnam’s insider-trading trial, took jurors in Manhattan federal court through weeks of evidence to show that his client wasn’t guilty of conspiracy or securities fraud. His recurring theme was that information the government claimed was secret was actually public knowledge.

Dowd said Rajaratnam traded on information about a pending takeover of ATI Technologies Inc. by Advanced Micro Devices Inc. (AMD) because Hector Ruiz, the chief executive officer of AMD at the time, had told Wall Street analysts about it. Prosecutors say Rajaratnam was tipped by Anil Kumar, a former partner at McKinsey & Co., where AMD was a client.

“Word had gotten around,” Dowd said. “Hector was talking about it.”

Dowd’s April 21 summation came in the seventh week of a trial that might send Rajaratnam, 53, to prison for 20 years in the biggest U.S. crackdown on insider trading at hedge funds. Rajaratnam 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. (AKAM)

On rebuttal, Assistant U.S. Attorney Jonathan Streeter told jurors that Rajaratnam was the manager of a multibillion-dollar hedge fund and a graduate of a top U.S. business school, the Wharton School at the University of Pennsylvania. “Of course” Rajaratnam knew it was illegal to trade on advance word of a company’s earning, Streeter said.

The judge is likely to instruct jurors on the law today, and jurors will then begin deliberating.

Rajaratnam is charged with five counts of conspiracy and nine counts of securities fraud. The conspiracy counts each carry a maximum five-year prison sentence and the fraud counts each carry a maximum 20-year term.

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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Verdicts/Settlements

Jury Finds for MGA in Long-Running Case Over Bratz Dolls

A jury last week found that MGA Entertainment Inc. had neither stolen the idea for its popular Bratz dolls from Mattel nor infringed the giant toymaker’s copyright.

The federal court jury in Santa Ana, California, found Mattel, the maker of the Barbie doll, liable for stealing closely held MGA’s trade secrets when its representatives used fake identities to gain access to MGA’s showrooms at toy fairs. The jury awarded MGA $88.4 million in damages.

The jury also awarded Mattel $10,000 in damages on its claims that MGA interfered with the contract of Mattel’s former employee. The jury also found that that Mattel should have known as early as 2002 about the contract interference.

Jennifer Keller, a lawyer for Van Nuys, California-based MGA, said the company may seek punitive damages that could triple the award because the jury found Mattel’s conduct was “willful and malicious,” as well as attorney fees.

Michael T. Zeller, a lawyer for Mattel, said the company will ask the judge to set aside the jurors’ findings and rule in favor of the Mattel claims they rejected.

“There is clear and compelling evidence that overwhelmingly proves that Carter Bryant made these drawings and sketches while he was employed at Mattel,” Zeller said.

The case has taken a circuitous path. In 2008, a jury in Riverside, California, found for El Segundo, California-based Mattel. That jury awarded the big toy manufacturer $100 million in damages after finding that the designer, Carter Bryant, made most of the initial sketches for the dolls while he worked for Mattel. Last year, a federal appeals court overturned that verdict. The appeals court, in ordering a second trial, said the lower-court judge had erred in ruling that Bryant’s employment agreement entitled Mattel to the designer’s drawings as a matter of law. The appeals court also found that the judge, Stephen Larson, who has since returned to private practice, was wrong to award Mattel the rights to most of MGA’s Bratz products.

In the current trial, Mattel, the maker of the Barbie doll, claimed lost profits of $314 million to $544 million.

The case is Bryant v. Mattel, 04-09049, U.S. District Court, Central District of California (Santa Ana).

For the latest verdict and settlement news, click here.

Lawsuits/Pretrials

U.S. Judge Dismisses Suit Challenging Obama Health Overhaul

A federal judge in New Jersey dismissed a lawsuit challenging the constitutionality of the Obama administration’s health-care law.

U.S. District Judge Freda Wolfson ruled that Nicholas Purpura and Donald R. Laster Jr. lack legal standing to challenge the 2010 Patient Protection and Affordable Care Act. They claimed the law’s requirement that almost every American have some form of medical insurance starting in 2014 was unconstitutional.

Purpura is 68 and claims he would lose “Medicare Advantage,” while Laster is handicapped and said that as a result of the law, he would “be tax [sic] on medical devices that cross state lines, and will suffer restrictions to certain drugs,” Wolfson wrote.

The plaintiffs, who brought the suit pro se, or without lawyers, alleged “few, if any, facts demonstrating the effect that the act has on them currently or the effect that the act will have in the future,” Wolfson ruled in federal court in Trenton. “These allegations fail to establish plaintiffs’ standing to challenge any of the provision of the act.”

Twenty five states have joined in the lawsuit filed a year ago by then-Florida Attorney General Bill McCollum. Last month, a U.S. appeals court in Atlanta put on an expedited schedule the federal government’s appeal of a judge’s decision throwing out the Obama administration’s health-care law.

The case is Purpura v. Sebelius, 10-cv-4814, U.S. District Court, District of New Jersey (Trenton).

U.S. Seeks Delay of Insider-Trading Case Against FDA Chemist

The U.S. asked a federal judge to delay its insider-trading case against a Food and Drug Administration chemist, claiming the government is trying to work out a potential resolution with the defendant.

Prosecutors, in a filing April 20 in federal court in Greenbelt, Maryland, said the defendant, Cheng Yi Liang, agreed to a 60-day delay of the case.

“The parties request additional time in order to discuss further steps and a potential resolution of this matter,” the government said.

Cheng Yi Liang, who worked for the FDA’s Center for Drug Evaluation and Research, and his son, Andrew Liang, are accused of reaping at least $3 million from trading on nonpublic information related to drug-approval applications.

The Liangs, who live in Gaithersburg, Maryland, were charged last month with conspiracy, wire fraud and securities fraud. The maximum penalty for the fraud charges is 20 years in prison.

The U.S. Securities and Exchange Commission, in a related civil suit said the elder Liang made $3.6 million by trading shares of 19 firms before 27 FDA decisions since 2006.

An FDA employee since 1996, Liang had computer access to the nonpublic records of the review process for each drug examined by the office, the U.S. said.

Liang traded in smaller developmental drug companies, where a government decision would be more likely to have a significant effect on the stock price, the SEC said. He gained more than $1 million trading stock of Vanda Pharmaceuticals Inc. (VNDA) a Rockville, Maryland, firm that rose more than 600 percent a day after the FDA cleared sales of its schizophrenia drug Fanapt in May 2009, according to the lawsuit.

He profited from share purchases ahead of 19 positive announcements and on short sales before six negative decisions, the SEC said. He also avoided losses by selling stock before two other negative decisions, the agency said. His average profit on each announcement was $135,015, according to the lawsuit.

Andrew Carter, Liang’s lawyer, declined to comment.

The cases are U.S. v. Chen Yi Liang, 8:11-mj-01236-WGC, and U.S. v. Andrew Liang, 8:11-mj-01237-WGC, U.S. District Court, District of Maryland (Greenbelt).

Winklevosses Ask Court to Look Into Possible Facebook Evidence

Cameron and Tyler Winklevoss and Divya Narendra said they will ask a federal court in Boston to look into the possibility that Facebook Inc. hid instant messages during a lawsuit claiming company founder Mark Zuckerberg stole their idea for the social network.

In papers filed April 20, the Winklevosses and Narendra told the court they will ask it to conduct an inquiry into claims reported on the Internet and in The New Yorker magazine that Facebook improperly withheld “critical evidence,” including instant messages allegedly sent by Zuckerberg in 2003.

“If that is true, we need to know why these documents were not produced then,” Tyler Meade, a lawyer for Narendra and the Winklevoss twins, said in an e-mail message last week.

The three sued Zuckerberg in 2004 claiming he stole the idea for Facebook and delayed their project, ConnectU, while they were all Harvard University students. The dispute is dramatized in the Academy Award-winning 2010 film “The Social Network.” The filing is the latest move by the Winklevosses to reopen their litigation challenging the origins of the world’s most popular social networking site.

On April 11, a federal appeals court in San Francisco upheld the Winklevosses’ $65 million settlement with Facebook in 2008, rejecting their claim it should be thrown out because Facebook misled them about the company’s value at the time. They have asked for review by an expanded panel of the appeals court.

“We consider the matter concluded,” Andrew Noyes, a Facebook spokesman, said in an e-mail last week.

Last week’s papers also quote a complaint filed by Paul Ceglia, a western New York man who claims a 2003 contract entitles him to half of Zuckerberg’s Facebook holdings. According to the Ceglia complaint, filed in federal court in Buffalo, New York, April 11, Zuckerberg e-mailed him on Nov. 22, 2003: “I have recently met with a couple of upperclassmen here at Harvard that are planning to launch a site very similar to ours. If we don’t make a move soon, I think we will lose the advantage we would have if we release before them. I’ve stalled them for the time being.”

If the Ceglia e-mail is genuine, Facebook should have produced it to the Winklevosses and Narendra in their suit, they said in the court filing.

Orin Snyder, a lawyer for Facebook, has said Ceglia’s ownership claim is “ridiculous,” and that an amended complaint citing e-mails by Zuckerberg “is no better.”

The case is: The ConnectU Inc. v. Facebook Inc., 07-cv-10593, U.S. District Court, District of Massachusetts (Boston).

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Bank of America Dismissed From Countrywide Securities Lawsuit

Bank of America Corp. was dismissed from a lawsuit brought by investors who bought mortgage-backed securities sold by Countrywide Financial Corp., the home lender Bank of America acquired in 2008.

U.S. District Judge Mariana Pfaelzer granted Bank of America’s request to dismiss the claim against it on grounds that it can’t be held liable for actions of a unit, according to an April 20 order filed in Los Angeles.

The investors failed to show that two separate transactions in 2008, whereby Bank of America, through a subsidiary, acquired and transferred the Countrywide assets, constituted a “de facto” merger, Pfaelzer said.

The judge had dismissed the lawsuit in November, saying the investors didn’t sufficiently demonstrate they suffered an injury for the securities they bought, and that the statute of limitations had expired for some claims. The judge allowed the plaintiffs to file an amended complaint to address these failings before she would rule on Bank of America’s Aug. 20 request to dismiss it from the complaint.

Bank of America said in its Aug. 20 filing that Countrywide remained a separate, wholly owned subsidiary of the bank and that, as a parent company, it can’t be held liable for the mortgage lender’s alleged wrongdoing.

Joel Laitman, a lawyer representing the investors, didn’t immediately return a call to his office after regular business hours.

Shirley Norton, a spokeswoman for Charlotte, North Carolina-based Bank of America, declined to comment.

Pfaelzer held a hearing on March 23 on motions to dismiss the other claims in the amended complaint and has yet to issue a ruling on those requests.

The case is Maine State Retirement System v. Countrywide Financial Corp., 10-cv-00302, U.S. District Court, Central District of California (Los Angeles).

Goldman Ex-Director Seeks to Have District Judge Decide SEC Case

Former Goldman Sachs Group Inc. director Rajat Gupta, accused by the U.S. Securities and Exchange Commission of leaking inside information about the company, seeks to have his SEC dispute heard by a U.S. district judge in New York.

The SEC, in an administrative proceeding filed March 1 in Washington, accuses Gupta of giving information to Galleon Group LLC co-founder Raj Rajaratnam about Berkshire Hathaway Inc. (BRK/A)’s $5 billion investment in Goldman Sachs. The agency also alleges Gupta told Rajaratnam about the New York-based bank’s quarterly earnings and those of Procter & Gamble Co., where Gupta was also a director. Gupta hasn’t been criminally charged.

Gupta sued the SEC on March 18 in federal court in Manhattan, denying the SEC’s allegations and arguing he was the only one of more than two dozen people tied to the government’s Galleon case to have such an administrative proceeding filed against him. He also argued the SEC’s allegations occurred at least 1 1/2 years before regulators were allowed to bring such an action under the Dodd-Frank Act.

“We have a constitutional issue here,” Gupta’s lawyer, Gary Naftalis, told U.S. District Judge Jed Rakoff, who is presiding over Gupta’s lawsuit.

Naftalis argued that under the SEC proceeding, Gupta won’t have access to the evidence collected by the SEC which must be turned over to a defendant during a civil lawsuit. He also told Rakoff that an administrative law judge will first make a finding and that a final determination is made by the SEC. Gupta could appeal only after the SEC makes its finding, Naftalis said.

In such an SEC proceeding, the judge is allowed to consider hearsay, or evidence that may only be indirect or speculative. Brenda Murray, the SEC’s chief administrative law judge, previously declined to stay the commission’s action and scheduled a July 18 administrative trial for Gupta.

Richard Humes, a lawyer for the SEC, on April 21 said that federal courts don’t have jurisdiction in the dispute before any findings are made in its administrative action against Gupta. If there is a finding in the administrative proceeding, Gupta must take any appeal directly to a federal appeals court, Humes said.

“Even if it makes a mistake, the proper process is to take the appeal to the appeals court and correct it,” Humes said.

Rakoff said he would issue a ruling later.

Rajaratnam, 53, is on trial in federal court in Manhattan in the largest crackdown on hedge-fund insider trading in U.S. history. The Sri Lankan-born money manager is accused of gaining $63.8 million from tips leaked by corporate insiders including Gupta. Rajaratnam denies wrongdoing, saying he based trades on research.

The case is Gupta v. SEC, 11-cv-01900, U.S. District Court, Southern District of New York (Manhattan). The Rajaratnam case is U.S. v. Rajaratnam, 1:09-cr-01184, U.S. District Court, Southern District of New York (Manhattan).

Whole Foods Florida Suit Over Trade Practices Can Proceed

A Florida judge allowed a lawsuit to proceed that claims Whole Foods Market Inc. (WFM) violated the state’s deceptive trade-practices law by selling frozen vegetables from China grown in a polluted region by prisoners and certified as organic.

Miami-Dade County Circuit Judge Amy Steele Donner on April 20 denied the grocery chain’s motion to dismiss the suit filed on behalf of the Southeast Consumer Alliance Inc., a nonprofit organization based in Boca Raton, Florida.

The suit claims that Whole Foods knew that its Silver River supplier, based in the Chinese province of Zhejiang, was actually a front company for a network of farms where Chinese prisoners are forced to work and that the farms are irrigated from a highly polluted river.

The suit also claims that Austin, Texas-based Whole Foods knew that the company providing the initial organic certification is owned by the Chinese government, which also owns the farms, creating a conflict of interest.

A spokeswoman for the grocery store chain didn’t immediately return a phone call seeking comment. Whole Foods attorney Christopher Wayne Wadsworth said he wasn’t authorized to comment on the case.

Bruce Baldwin, the plaintiff’s attorney, said Whole Foods pulled many of its Chinese frozen vegetables off the shelves after he filed the suit but that the company continues to sell Chinese soybeans. The case, which is seeking class-action, or group, certification, was originally filed in 2009 and amended last year to include the deceptive trade practices claim.

The case is Southern Consumer Alliance Inc. v. Whole Foods Market Inc., 09-cv-92727CA, Miami-Dade County Circuit Court (Miami).

For the latest lawsuits news, click here.

Trials/Appeals

Akamai Loss to Limelight to Be Reheard by U.S. Appeals Court

Akamai Technologies Inc. persuaded a U.S. appeals court to reconsider whether Limelight Networks Inc. (LLNW) infringed a patent over software that speeds delivery of Web videos.

A three-judge panel of the U.S. Court of Appeals for the Federal Circuit said in December Limelight didn’t infringe the patent. In an order posted on the court’s website April 21, the Federal Circuit said the dispute will be decided by all active judges of the court.

Akamai’s lawsuit in 2006 accused Tempe, Arizona-based Limelight of building its business on technology developed by Akamai’s founders at the Massachusetts Institute of Technology in Cambridge. Akamai faces increased competition from Limelight, Level 3 Communications Inc. (LVLT) and Cotendo Inc. over CDNs, which distribute movies, music and software to computers on behalf of services such as Hulu LLC and Netflix Inc. (NFLX)

The en banc Federal Circuit in Washington, which specializes in U.S. patent law, will consider whether a company should be found liable for infringing a patent if separate entities perform different steps in an invention.

A federal jury in Boston in 2008 sided with Akamai before the judge reversed the $45.5 million verdict. The judge ruled that Limelight’s actions alone didn’t use the Akamai technology, meaning it couldn’t be held liable. Three judges of the Federal Circuit affirmed that decision in December. The appeals court last week vacated that decision and ordered lawyers in the case to submit new written legal arguments. It gave no date for when the case would be heard.

“Limelight believes the decision of the panel was correct and should be affirmed,” the company said in a statement. “This was not an issue of first impression for the panel -- its ruling affirmed the court’s precedent from earlier decisions.”

The case is Akamai Technologies v. Limelight Networks, 2009-1372, U.S. Court of Appeals for the Federal Circuit (Washington). The lower court case is Akamai Technologies v. Limelight Networks Inc., 06cv11109, U.S. District Court, District of Massachusetts (Boston).

For the latest trial and appeals news, click here.

New Suits

Transocean Blamed in BP (BP/) Suit for Billions in Spill Damages (1)

BP Plc sued Transocean Ltd. (RIG), the owner and operator of the Deepwater Horizon drilling rig that exploded one year ago, for billions of dollars in damages related to the Gulf of Mexico oil spill.

BP said in a complaint filed April 20 in federal court in New Orleans that it has incurred costs of $17.7 billion and that it took a pretax charge last year of $40.9 billion in relation to the spill. The London-based company said that without Transocean’s “misconduct,” there wouldn’t have been any explosion, fire, deaths or oil spill.

“The simple fact is that on April 20, 2010, every single safety system and device and well control procedure on the Deepwater Horizon failed, resulting in the casualty,” BP said in its complaint.

The Macondo well blowout and the explosion that followed killed 11 workers and set off the worst offshore oil spill in U.S. history. The accident and spill led to hundreds of lawsuits against BP and its partners and contractors. BP’s filing last week came as part of a series of complaints and counterclaims by plaintiffs and defendants meeting a deadline set by the federal judge overseeing the suits.

The lawsuits also name as defendants Halliburton (HAL) Co., which provided cementing services, and BP’s minority partners in the well, Anadarko Petroleum Corp. (APC) and Mitsui & Co. (8031)’s Moex Offshore LLC unit. U.S. District Judge Carl Barbier has scheduled a nonjury trial for February 2012 to determine fault.

“This suit is specious and unconscionable,” Lou Colasuonno, a Transocean spokesman, said in an e-mailed statement. “The Deepwater Horizon was a world-class drilling rig manned by a top-flight crew that was put in jeopardy by BP, the operator of the Macondo well, through a series of cost-saving decisions that increased risk -- in some cases, severely.”

Transocean on April 20 filed cross-claims against its former partners in the Macondo well project, accusing BP of failing “to honor its contractual commitments,” said Kerry Miller, a Transocean attorney. BP has failed to indemnify Transocean against lawsuits for death, personal injury and pollution, as required by its drilling contract, Miller said.

Halliburton filed claims against BP, Transocean and the other contractors, claiming any damages resulting from the blowout or spill were “proximately caused by the actions and/or omissions” of the other parties “and not by any conduct on the part of Halliburton Energy Services.” Halliburton claimed indemnity for any damages it might be assessed. “Halliburton remains confident that we executed our work on the Macondo well under BP’s direction and according to their plan,” Cathy Mann, a company spokeswoman, said in an e-mail.

Last week BP also sued Cameron International Corp. (CAM) over allegations that that company’s blowout-prevention equipment was a cause “in whole or in part” of the well blowout and spill.

Cameron’s design and manufacture of the blowout preventer, or BOP, “used on the Deepwater Horizon, as well as Cameron’s maintenance and modification of that BOP, did not meet the standards of a reasonable manufacturer and service provider,” BP said in a filing. The blowout preventer “failed to properly operate when needed and was unreasonably dangerous when used as intended,” BP said.

Cameron said in court filings last week that the explosion wasn’t its fault because oil and gas were already surging toward the rig when workers tried to activate the blowout-prevention equipment to seal the well. “Hydrocarbons had entered the riser well before the crew attempted to activate the BOP, and even a perfectly functioning BOP could not have prevented the explosions,” Cameron said in its April 15 filing.

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. BP claims the blowout preventer was defectively designed and incapable of working as expected.

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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US Airways Files Antitrust Suit Against Sabre Holdings

US Airways Group Inc. said it filed a federal antitrust lawsuit against airline ticket reservation service Sabre Holdings Corp. to halt alleged anticompetitive and anticonsumer practices and recover monetary damages.

Sabre, the parent of Travelocity.com, “engaged in a pattern of exclusionary conduct to shut out competition, protect its monopoly pricing power and maintain its technologically-obsolete business model,” Tempe, Arizona-based US Airways said April 21 in a statement.

More than 35 percent of US Airways revenue is booked through Sabre and affiliated travel agents, the carrier said. The lawsuit follows a new distribution pact between Sabre and US Airways reached earlier this year.

Industry tensions boiled over on Dec. 21 when AMR Corp.’s American Airlines pulled fares from travel agent Orbitz.com as the carrier focuses on a proprietary computer system to share prices, bypassing distributors such as Sabre. American is in talks with Sabre to settle a lawsuit the airline filed Jan. 10.

Sabre is “reviewing the details of their legal claims,” Nancy St. Pierre, a spokeswoman for Southlake, Texas-based Sabre, said in an e-mail. “We will have further comment when appropriate.”

Bronco Drilling Sued by Investor Over Chesapeake Energy Bid

Bronco Drilling Co. was sued in Delaware Chancery Court by a stockholder seeking more than the $11 a share being offered for the company by Chesapeake Energy Corp. (CHK) The deal is currently valued at about $316 million.

Directors of Bronco, based in Edmond, Oklahoma, have a duty to get the best price for the company and have undervalued the stock, investor Sam Berlinberg said in a complaint filed April 20 in Wilmington.

“The proposed transaction offers Bronco shareholders a mere 6 percent premium,” and “analysts have set a target price for Bronco shares as high as $13.50,” the plaintiff’s lawyers said in court papers.

Bronco, which reported a $50.6 million net loss last year on $124.4 million in revenue, is 22 percent owned by Third Avenue Management LLC and 15 percent controlled by billionaire Carlos Slim.

“It is our policy to not comment on pending litigation,” Bob Jarvis, a Bronco spokesman, said in an e-mailed message.

The case is Sam Berlinberg v. Bronco Drilling Co., CA6398, Delaware Chancery Court (Wilmington).

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

To contact the reporter on this story: Ellen Rosen in New York at erosen14@bloomberg.net.

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

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