While prosecutors await a jury’s verdict in the trial of Galleon Group LLC’s Raj Rajaratnam, they may take comfort that four defendants tied to the insider- trading probe that began with him are pursuing plea deals.
Don Ching Trang Chu, a former hedge-fund consultant for Primary Global Research LLC, will probably plead guilty, a judge said at a hearing in his case yesterday, after the government noted “extensive” talks with his lawyer. Prosecutors in the same Manhattan courthouse said this afternoon that Donald Longueuil, a former hedge fund manager at SAC Capital Advisors LP, will plead guilty to related insider-trading charges today.
Yesterday, Craig Drimal, a trader who worked at Galleon, pleaded guilty to conspiracy and securities fraud. He faces a maximum sentence of more than seven years in prison, far more than the average sentence of about 18 months handed down in similar cases since 2003, according to an analysis of court data by Bloomberg News.
The three men are among about three dozen people charged in what prosecutors said was a series of insider-trading rings. Jason Goldfarb, a Brooklyn, New York, lawyer, pleaded guilty April 21 to passing inside tips as part of Drimal’s ring. He faces a maximum of almost four years in prison when he’s sentenced.
Rajaratnam, 53, was arrested in October 2009 in the largest crackdown on hedge-fund insider trading in U.S. history. Prosecutors said he gained $63.8 million from tips leaked by corporate insiders and hedge-fund traders about stocks including Goldman Sachs Group Inc. (GS), Intel Corp. (INTC) and Clearwire Corp. Rajaratnam, who said he based the trades on research, faces as long as 20 years in prison if convicted of the most serious counts.
As the jury weighed the evidence, Rajaratnam sat on a bench outside the courtroom chatting with his lawyers. The panel of nine women and three men began deliberating at about noon on April 25. This afternoon, they asked to hear wiretap recordings presented during the trial.
Prosecutors yesterday failed to persuade U.S. District Judge Richard Holwell to let jurors view transcripts of the recordings in the jury room.
Rajaratnam’s lawyer John Dowd said he “vehemently” objected to providing the transcripts. Holwell, who had previously ruled against the same request, said yesterday that he didn’t see a reason to provide the transcripts now. He also declined Brodsky’s request to give jurors access to the audio recordings themselves.
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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For more about Longueuil and Chu, see below.
Former SAC Capital Manager to Plead Guilty in Insider Probe
Donald Longueuil, a former junior portfolio manager at SAC Capital Advisors LP, will plead guilty to federal charges today, becoming the latest in a series of defendants to seek a deal with prosecutors in a nationwide insider trading probe.
Assistant U.S. Attorney David Leibowitz told U.S. District Judge Jed Rakoff in Manhattan that Longueuil would enter a guilty plea during a hearing yesterday on whether to separate his case from co-defendant Winifred Jiau, a former hedge fund consultant for Primary Global Research LLC.
Longueuil and Jiau were accused of conspiring to commit securities and wire fraud from 2006 to 2010. They pleaded not guilty, rejecting U.S. allegations that nonpublic information Longueuil allegedly received was from an insider at Marvell Technology Group Ltd. or Nvidia Corp., or that Jiau received inside information.
The defendants are among about three dozen people charged in what prosecutors said was a series of insider trading rings tied to Galleon and the indictment of the hedge fund’s co- founder, Raj Rajaratnam. Longueuil and Jiau were part of the third ring, the government said, involving the use of so-called expert networking firms that employed technology company insiders to provide nonpublic information to hedge fund clients.
Craig Carpenito, a lawyer for Longueuil, didn’t immediately return a voice-mail message left at his office.
The case is U.S. v. Jiau, 11-cr-00161, U.S. District Court, Southern District of New York (Manhattan).
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Chu, U.S. Had ‘Extensive’ Plea Talks, Prosecutor Tells Judge
Don Ching Trang Chu, an expert consultant to hedge funds who is accused of passing inside information, had “extensive” plea talks with U.S. prosecutors, a prosecutor told a federal judge yesterday in Manhattan.
Chu, 57, who worked for Primary Global Research LLC, appeared in court yesterday before U.S. District Judge Jed Rakoff, in Manhattan and entered a not guilty plea to a new criminal information unsealed yesterday. That charging document accuses Chu of two crimes, conspiracy to commit securities fraud and conspiracy to commit wire fraud conspiracy.
Federal defendants traditionally waive their right to be indicted by a grand jury and agree to be charged in a criminal information as a prelude to entering into an agreement with prosecutors and pleading guilty.
“This case comes after some extensive plea negotiations and they are still ongoing,” Assistant Manhattan U.S. Attorney David Leibowitz told Rakoff at yesterday’s hearing.
Chu, who worked as the Taiwan liaison for the expert- networking firm based in Mountain View, California, was arrested in November, charged with passing tips to Richard Choo-Beng Lee, a former partner at San Jose, California-based Spherix Capital LLC beginning in late 2008, according to a criminal complaint filed by U.S. Attorney Preet Bharara in Manhattan.
Rakoff noted yesterday that Chu’s case was added yesterday to a pending criminal case involving James Fleishman, a former sales manager with Primary Global. He asked lawyers in the case if they wanted Chu’s case put on the same trial schedule as Fleishman’s case.
Fleishman, who was indicted in February on conspiracy to commit securities fraud and conspiracy to commit wire fraud, has pleaded not guilty and is awaiting trial.
Chu’s lawyer, James DeVita yesterday consented to the cases being joined and told Rakoff he needed to review evidence before agreeing that his client should be tried with Fleishman.
Asked after court if his client was considering pleading guilty, DeVita said, “We’ve had discussions.”
He was the first in a new wave of federal arrests tied to the Galleon Group case, the largest insider trading probe involving hedge funds. Two overlapping insider trading cases involving Galleon Group founder Raj Rajaratnam have led to accusations against more than 20 people.
To date, 21 people have pleaded guilty in the case, with most agreeing to cooperate with prosecutors and testify against others. A federal jury in New York has been deliberating the Rajaratnam case since April 25.
The case is U.S. v. Chu, 11-CR 032, U.S. District Court, Southern District of New York (Manhattan).
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Madoff Trustee Must Publish Probe of Firm, Lawyer Argues
The trustee liquidating Bernard L. Madoff’s defunct firm must publish the results of his probe in the case after spending more than two years and almost $300 million on it, a lawyer for Madoff investors said.
“The trustee has provided none of this information to the customers, to whom he owes a fiduciary duty,” the lawyer, Helen Chaitman, said in a filing April 26 in U.S. Bankruptcy Court in Manhattan on behalf of 1,200 Madoff investors. “The customers now move to compel him to fulfill his statutory obligation.”
Trustee Irving Picard, appointed after Madoff’s December 2008 arrest, has “represented” that he exhaustively investigated the Madoff firm, pursuing its property and tracing customer deposits and withdrawals, Chaitman wrote. Firms retained by the trustee were paid more than $288 million over two years, she said, citing government documents.
Amanda Remus, a Picard spokeswoman, declined to comment.
The trustee has filed more than 1,000 lawsuits seeking to recoup customers’ money. He said this month in a filing that he had recovered $7.6 billion, or 44 percent of the principal lost.
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).
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Sony Faces Lawsuit, Scrutiny Over PlayStation Breach
Sony Corp. (6758)’s network entertainment unit faced a legal and regulatory backlash over delays in telling 77 million subscribers that their personal account data may have been stolen by a hacker.
A lawsuit filed April 27 in federal court in San Francisco alleges the delay left PlayStation console users exposed to losses related to any credit-card data theft. Officials in Connecticut, the U.K. and Ireland began inquiries.
Sony warned customers of the security breakdown on April 26, offering its first accounting of the severity of the intrusion six days after closing the PlayStation Network and Qriocity video- and music-streaming services. The Tokyo-based company said it notified consumers as quickly as it could.
“Consumers and merchants have been exposed to what is one of the largest compromises of Internet security and the greatest potential for credit-card fraud to ever occur in U.S. history,” according to the complaint.
In the lawsuit, plaintiff Kristopher Johns, of Birmingham, Alabama, seeks to represent people who bought a PlayStation console, subscribe to either PlayStation Network or Qriocity service and “suffered loss of service and break of security,” according to the complaint.
The PlayStation Network, which provides access to online games, movies and TV shows, was attacked from April 17 to April 19. Sony had combined PlayStation Network customer data with Qriocity, which offers movies or music in 11 nations on Web- connected Bravia TVs and Blu-ray players.
“It was necessary to conduct several days of forensic analysis, and it took our experts until yesterday to understand the scope of the breach,” Patrick Seybold, a Sony spokesman, said in an e-mail on April 26. “We then shared that information with our consumers and announced it publicly.”
Seybold didn’t respond to requests for comment April 27.
The case is Johns v. Sony Computer Entertainment America LLC, 11-02063, U.S. District Court, Northern District of California (San Francisco).
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Orchard Brands Unit Sues Golden Gate for Dividend Payment
Golden Gate Capital Corp. affiliates were sued by a unit of Orchard Brands Corp., which claims its bankruptcy was caused in part by a fraudulent $310 million special-dividend payment.
The trustee for the litigation trust of Appleseed’s Intermediate Holdings LLC, a unit of Orchard Brands, sued Golden Gate and certain directors, arguing the 2007 leveraged buyout of Blair Corp., an Appleseed’s unit, and a simultaneous dividend payment left the company insolvent with a debt load that would eventually force it into bankruptcy.
Golden Gate “used their leveraged buyout of Blair Corporation to saddle” Appleseed’s “with more than half a billion dollars of new secured debt,” lawyers for the trustee said in the complaint filed yesterday in U.S. Bankruptcy court in Wilmington, Delaware.
By loading the company up with debt and “then simultaneously draining the loan proceeds to pay dividends to themselves,” the private equity firm rendered the company insolvent and “on a collision course with bankruptcy” without receiving “reasonably equivalent value in return for the payments,” the lawyers said in court papers.
Barry O’Sullivan, an outside spokesman for Golden Gate with Coltrin & Associates, wasn’t immediately able to respond to an e-mail seeking comment.
The case is In re Appleseed’s Intermediate Holdings LLC, 11-10160, U.S. Bankruptcy Court, District of Delaware (Wilmington). The lawsuit is In re Michaelson, as Trustee of the Appleseed’s Lit v. Golden Gate Private Equity Inc., 11-51847, U.S. Bankruptcy Court, District of Delaware (Wilmington).
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Deutsche Bank Sued by Hana Daetoo on Losses From Kospi Plunge
Deutsche Bank AG (DBK) was sued by Hana Daetoo Securities Co., a South Korean brokerage, for loss compensation stemming from a stock-market plunge in November.
Hana Daetoo filed the lawsuit to the Seoul Central District Court April 26, demanding 76.4 billion won ($71 million) for losses it incurred on behalf of a client, the Seoul-based company said in an e-mail yesterday. Deutsche Bank’s Hong Kong- based spokesman Michael West sent an e-mail declining to comment.
South Korea’s regulator in February banned Deutsche Bank from trading on its own account for six months, saying the company caused the market rout on Nov. 11, when options expired. The Financial Services Commission also asked prosecutors to investigate five employees at the Frankfurt-based firm.
Unlisted Hana Daetoo is a unit of Hana Financial Group Inc. (086790), the nation’s fourth-largest financial company by assets.
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Ex-Glaxo Lawyer ‘Went Too Far,’ U.S. Says at Trial’s Opening
An ex-GlaxoSmithKline Plc (GSK) attorney accused of covering up the company’s improper marketing of its antidepressant drug Wellbutrin SR is a “lawyer who went too far,” a federal prosecutor said as her trial began.
Lauren Stevens, former vice president and associate general counsel for London-based Glaxo, is charged with impeding an inquiry in 2002 and 2003 by the U.S. Food and Drug Administration into the marketing of the drug for uses not approved by the FDA.
“This is a case about a lawyer who put loyalty to her company above fidelity to the truth and to the law,” said Patrick Jasperse, a Justice Department lawyer, during opening statements yesterday in Greenbelt, Maryland, federal court. “This is a case about a lawyer who went too far, from aggressively representing her company to breaking the law.”
Stevens, 61, of Durham, North Carolina, is charged with one count of obstructing an official proceeding, one count of falsifying and concealing documents and four counts of making false statements. The first two charges are punishable by a maximum of 20 years in prison while the others carry terms of as long as five years.
Stevens’s attorney, Reid Weingarten, told the jury that she never intended to mislead the FDA and that she relied on the advice of in-house lawyers at Glaxo as well as its outside law firm King & Spalding in crafting her company’s responses to the agency.
The case is U.S. v. Stevens, 10-cr-694, U.S. District Court, District of Maryland (Greenbelt).
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Ex-Lehman Executive Appeals Over $19.6 Million Bonus Claim
An ex-Lehman Brothers Holdings Inc. brokerage executive took his fight for $19.6 million in bonuses to a higher court after a bankruptcy judge said Barclays Plc (BARC) didn’t agree to be bound by his Lehman contract when it bought the brokerage.
Maximilian Coreth, hired as a managing director of the Lehman Brothers Inc. brokerage’s fixed income division in April 2008, was granted a base salary of $200,000 and a bonus of $9.8 million for each of 2008 and 2009, according to court documents. If dismissed without cause, he was entitled to two years’ bonuses totaling $19.6 million.
A U.S. court confirmed that London-based Barclays wouldn’t be subjected to so-called successor liability when it bought the defunct firm’s North American business in 2008, U.S. Bankruptcy Judge James Peck wrote in February as he dismissed Coreth’s suit. Lehman filed the biggest bankruptcy in U.S. history in September 2008.
Offering jobs to Coreth and another ex-Lehman employee, “Barclays states that as a Barclays employee, you will continue to receive your current base salary or applicable commission based remuneration,” the judge wrote. “Barclays did not make any commitment in either of the e-mails offering employment to make any bonus payment or assume any obligation arising under any LBI employment contract.”
Michael O’Looney, a Barclays spokesman, declined to comment on the appeal, made in U.S. District Court in New York.
Coreth, who joined Lehman from Morgan Stanley, worked for Barclays from September 2008 to October 2008, when he was fired, according to his 2009 lawsuit. The bank “repudiated its severance obligations” in agreeing to pay severance of $1,960,000, which was about one-tenth of the amount promised by Lehman, he said in the suit.
The main case is In re Lehman Brothers Holdings Inc. (LEHMQ), 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan). Coreth’s appeal is In Re Lehman Brothers Holdings Inc., 1:11-cv-02792, U.S. District Court, Southern District of New York (Manhattan).
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Class Actions Limited as U.S. Supreme Court Supports AT&T
A divided U.S. Supreme Court reinforced the ability of businesses to channel customer complaints into arbitration, ruling that companies can block consumers from pressing those claims as a group.
Voting 5-4 along ideological lines, the court said an AT&T Inc. (T) unit can enforce a contract provision that requires its customers to press any claims individually. The majority said a federal arbitration statute trumps a California law that would have invalidated the provision.
Writing for the majority, Justice Antonin Scalia said class actions would interfere with “fundamental attributes of arbitration,” including its streamlined nature.
“The switch from bilateral to class arbitration sacrifices the principal advantage of arbitration -- its informality -- and makes the process slower, more costly and more likely to generate procedural morass than final judgment,” Scalia wrote.
The case could affect tens of millions of arbitration agreements in California alone, according to court documents. The ruling may also help companies in the 20-plus states that either restrict or bar companies from including class-action bans in consumer arbitration accords.
Businesses say class-action requirements undermine the cost savings that arbitration offers. Amazon.com Inc. (AMZN), Earthlink Inc. (ELNK), DirecTV (DTV) Inc., Comcast Corp. (CMCSA), Dell Inc. (DELL) and the U.S. Chamber of Commerce all filed briefs supporting AT&T.
The fight stemmed from a complaint against AT&T Mobility LLC by Vincent and Liza Concepcion, who say they were improperly charged about $30 in sales tax on a mobile phone AT&T advertised as free. A federal appeals court said the class-action ban in their agreement with AT&T was “unconscionable” under California law.
Scalia said earlier high court rulings “place it beyond dispute that the FAA was designed to promote arbitration.” Chief Justice John Roberts and Justices Clarence Thomas, Anthony Kennedy and Samuel Alito joined Scalia in the majority.
The court’s four Democratic appointees -- Justices Stephen Breyer, Ruth Bader Ginsburg, Sonia Sotomayor and Elena Kagan -- dissented. Breyer said California’s law was “of no federal concern so long as the state does not adopt a special rule that disfavors arbitration.”
The high court “dealt a crushing blow to American consumers and employees,” said Deepak Gupta, Concepcions’ Supreme Court lawyer.
“Now, whenever you sign a contract to get a cell phone, open a bank account or take a job, you may be giving up your right to hold companies accountable for fraud, discrimination other illegal practices,” said Gupta, a lawyer with Public Citizen, a consumer-advocacy group.
“This is a victory for consumers,” AT&T said in a statement. “The court recognized that arbitration often benefits consumers.”
The case is AT&T Mobility v. Concepcion, 09-893, U.S. Supreme Court (Washington).
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Lancer Group Founder Michael Lauer Acquitted of Fraud
Lancer Group founder Michael Lauer was acquitted of fraud charges stemming from an alleged stock-pricing scheme that prosecutors said he used to artificially inflate the value of his hedge funds.
Jurors in federal court in Miami deliberated more than three days before finding Lauer not guilty of wire fraud and conspiracy in connection with the alleged scheme. He faced as many as 25 years in prison and $500,000 in fines if convicted.
“There was simply no evidence, nothing illegal,” Lauer said outside the courtroom after the verdict. He said he plans to return to the hedge fund business.
The government alleged Lauer and an associate bought quantities of restricted stock of shell companies starting in 1999 and instructing brokers to buy a smaller number of shares of the same companies at higher, open-market prices to drive shares to a targeted price, according to court filings.
Lauer, who founded the New York-based Lancer Group in 1993, then falsely valued all of the firm’s securities at the higher closing prices, which artificially inflated the funds’ investment returns, prosecutors contended. That helped attract new investors and generated lucrative fees for fund officials, the government contended.
Lauer’s lawyers countered during the six-week trial that the hedge fund manager was a savvy trader whose stock picks were designed to make money for investors and he didn’t engage in fraud.
The criminal case is U.S. v. Michael Lauer, 08-20071, U.S. District Court, Southern District of Florida (Miami).
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U.K. SFO General Counsel to Join McGuireWoods
The U.K. Serious Fraud Office’s general counsel will join U.S. law firm McGuireWoods LLP, adding to the list of lawyers leaving for private practice as the agency faces possible closure by the government.
Vivian Robinson will join the firm’s London office, Richmond, Virginia-based McGuireWoods said in a statement yesterday. At least five other top lawyers have left the agency this year as it faces dissolution under plans to create an economic crime agency.
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