AIG, Barclays, Google, Goldman, Rajaratnam, BofA in Court News

American International Group Inc. (AIG) should pay more than $1.5 billion to rivals to settle a lawsuit alleging the insurer cheated industry-funded pools that cover injured workers, Liberty Mutual Holding Co. said.

The proposed damages are more than triple the $450 million that AIG agreed to in a preliminary settlement advocated by seven insurers, including Travelers Cos. and Ace Ltd., in January. The higher payout is justified because the settlement didn’t account for the full scope of AIG’s underreporting of premiums, Liberty Mutual’s Safeco and Ohio Casualty subsidiaries said in federal court documents filed April 28 in Chicago.

The settlement “is detrimental to the class of over 500 insurance companies victimized by AIG’s admitted wrongdoing,” Boston-based Liberty Mutual said in an e-mailed statement.

“AIG is confident the settlement will go forward and be approved despite Liberty’s repeated efforts to undo it,” Mark Herr, a spokesman for New York-based AIG, said in an e-mail. “Liberty’s opposition is the latest in a long line of desperate attempts to derail a settlement supported by the 50 state insurance departments and the other insurance companies in the litigation.”

Liberty Mutual filed a lawsuit in 2009 seeking $1 billion and alleging that AIG shortchanged state insurers of last resort by “long-term fraudulent underreporting” of premiums it made selling workers’ compensation coverage. The firm requested class-action status for the case.

The state pools, which cover injuries at employers that pose unattractive risks, are funded by contributions from carriers that offer the coverage and are based on their sales in the private market.

AIG agreed to pay $100 million in fines and $46.5 million in taxes and assessments to resolve a 50-state probe into cheating state workers’ compensation funds, the Pennsylvania insurance regulator said in December. The deal with the states, mostly covering conduct before 1996, is contingent on AIG’s settlement with rival insurers.

The case is Safeco Insurance Company of America v. American International Group Inc. 1:09-cv-02026, U.S. District Court, Northern District of Illinois (Chicago).

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Barclays to Make New Claim Against Lehman Brokerage

Barclays Plc (BARC), which bought Lehman Brothers Holdings Inc.’s North American business, plans to pursue “new arguments” claiming “several billion dollars” from the trustee liquidating the remnants of the brokerage, the trustee said.

Barclays and trustee James Giddens are disputing $3.5 billion in assets after a judge’s ruling that failed to specify how much Barclays was entitled to when it bought bankrupt Lehman’s business in September 2008. In a court filing, Giddens said the U.K. bank’s lawyers told him that Barclays in addition will claim unspecified billions for closing out $6 billion of so-called short positions in derivatives.

The claim will be “purportedly to compensate Barclays for assuming some $6 billion in short derivative positions that Barclays claims it was not otherwise required to cover,” he said in the filing in U.S. Bankruptcy Court in Manhattan April 28. Short positions are closed out by purchasing the securities previously sold.

Barclays said the claim isn’t new, and is part of the ongoing dispute. “To the contrary, we are trying to implement the court’s decision in a way that is consistent with the law,” Michael O’Looney, a Barclays spokesman, said in an e-mail April 29.

U.S. Bankruptcy Judge James Peck directed Barclays and Giddens to interpret a ruling he made in February granting the London-based bank some assets and denying it some others, including cash. The dispute resumed with court filings April 28, in which Barclays asserted its right to assets claimed by the trustee.

Barclays must deliver $1.8 billion in so-called margin assets and pay interest at 9 percent, the trustee said as part of his demands. Barclays, saying it was entitled to the $1.8 billion, accused the trustee of seeking a “windfall” of interest payments for 2 1/2 years, at punitive rates.

“The court should resist the trustee’s effort to reap such a windfall,” Barclays said in the filing. “There is no economic justification.”

The case is In re Lehman Brothers Holdings Inc. (LEHMQ), 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

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New Suits

Android Phone Users Sue Google Over Alleged Location Tracking

Two Android phone users sued Google Inc. (GOOG) over claims their phones secretly recorded and stored data about their movements.

The two residents of Oakland County in Michigan said in a complaint filed April 27 in federal court in Detroit that their HTC Inspire 4G phones, which use Google’s Android Operating System, track their whereabouts “just as if by a tracking device for which a court-ordered warrant would ordinarily be required.”

The plaintiffs seek to represent other Android phone users in a class-action lawsuit, as well as at least $50 million in damages and a court order requiring Google to stop tracking its products’ users.

Google and Apple Inc. (AAPL) are facing scrutiny from consumers and lawmakers over the collection of data on smart phones. Both companies have agreed to testify at a May 10 Senate hearing about consumer privacy on mobile devices.

Chris Gaither, a spokesman for Mountain View, California- based Google, declined to comment on the lawsuit April 28.

“We provide users with notice and control over the collection, sharing and use of location” on Androids, Gaither had said in an e-mail on April 27 regarding lawmakers’ concern over data collection. “Any location data that is sent back to Google location servers is anonymized and is not tied or traceable to a specific user.”

The case is Julie Brown v. Google, 11-11867, U.S. District Court, Eastern District of Michigan (Detroit).

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Legal Reviews

Goldman, JPMorgan Among 16 Banks Targeted by EU in Swaps Probe

Goldman Sachs Group Inc., JPMorgan Chase & Co. (JPM) and 14 other investment banks face the first-ever European Union antitrust probes into the swaps market, following investigations by U.S. regulators.

The EU is examining whether 16 banks, including Citigroup Inc. (C) and Deutsche Bank AG (DBK), colluded by giving market information to Markit Group Ltd., a data provider majority-owned by Wall Street’s largest banks. It will also check if nine of the firms struck unfair deals with Intercontinental Exchange Inc.’s European derivatives clearinghouse, shutting out rivals.

“Lack of transparency in markets can lead to abusive behavior and facilitate violations of competition rules,” Joaquin Almunia, the EU’s competition commissioner, said in an e-mailed statement. “I hope our investigation will contribute to a better functioning of financial markets.”

Global regulators have sought to toughen regulation of the $583 trillion credit-default swaps market, saying the trades helped fuel the financial crisis. The EU’s probes add to separate investigations in the U.K. and U.S. into whether banks colluded to manipulate the London interbank offered rate.

The credit-default swap investigations are the first by antitrust regulators in Europe. The U.S. Justice Department’s probe of the credit derivatives clearing, trading and information services industries is “ongoing,” spokeswoman Alisa Finelli said April 29. The department first confirmed the investigation in July 2009. She declined to comment further.

Markit “does not believe it has engaged in any inappropriate conduct,” Michael Gormley, a spokesman for the company in New York, said in an e-mailed statement. Bloomberg LP, the owner of Bloomberg News, competes with Markit in selling information to the financial-services industry.

Bank of America Corp. (BAC), Barclays Plc, BNP Paribas (BNP) SA, Commerzbank AG (CBK), Credit Suisse Group AG (CSGN), HSBC Holdings Plc (HSBA), Morgan Stanley (MS), Royal Bank of Scotland Group Plc (RBS), UBS AG (UBSN), Wells Fargo & Co. (WFC), Credit Agricole SA and Societe Generale SA will also be investigated for possible collusion in giving “most of the pricing, indices and other essential daily data only to Markit.”

Goldman Sachs declined to comment on the probe, said Michael Duvally, a spokesman for the bank in London.

Deutsche Bank, Commerzbank, JPMorgan, Bank of America, BNP Paribas, Morgan Stanley, Barclays, UBS, Credit Suisse, RBS, Societe Generale, HSBC, Wells Fargo and Citigroup also declined to comment.

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Trials/Appeals

Rajaratnam Insider Jury to Resume Deliberations Next Week

The jury in the insider-trading trial of Galleon Group LLC co-founder Raj Rajaratnam finished deliberating for the week without reaching a verdict and is set to return May 2 to resume weighing evidence.

Jurors in Manhattan federal court put in a half-day April 29 before leaving for the weekend. They submitted no notes to the judge and haven’t asked to review evidence since April 27.

The nine women and three men have deliberated for about 29 hours since U.S. District Judge Richard Holwell instructed them on the law on April 25. In that time, they have asked to hear about 15 wiretap recordings of Rajaratnam’s telephone calls.

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 15 stocks, including Goldman Sachs Group Inc. (GS), Intel Corp. (INTC) and Clearwire Corp.

Rajaratnam, who said he based the trades on research, is charged with five counts of conspiracy and nine counts of securities fraud. He faces as long as 20 years in prison if convicted of the most serious charges. The trial began March 8.

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/Settlement

Malone’s Liberty Media Wins Judge’s Ruling on Starz Splitoff

John C. Malone, the billionaire chairman of Liberty Media Corp., won a ruling from Delaware Chancery Court Judge J. Travis Laster that his splitoff of the Capital Group and Starz Group won’t violate an agreement involving Bank of New York Mellon.

Liberty sued the bank as bond trustee in August asking the Wilmington court to declare that the splitoff wouldn’t constitute a disposition of assets upon which bondholders have claims, Laster said in a 35-page ruling released April 29.

“Liberty did not engage in an ‘overall scheme’ to sell substantially all its assets,” and “is entitled to a declaration that the Capital splitoff does not violate” the contract provision, Laster wrote.

Englewood, Colorado-based Liberty said last June it planned to separate the Liberty Capital and Liberty Starz tracking stock groups from Liberty Interactive tracking stock group, in part as an efficiency move.

The case is Liberty Media Corp. v. The Bank of New York Mellon Trust Co., CA5702, Delaware Chancery Court (Wilmington).

Tobacco Industry Doesn’t Owe Missouri Hospitals, Jury Says

Tobacco companies aren’t liable to Missouri hospitals for money spent on care of patients with smoking-related illnesses who couldn’t pay their medical bills, a St. Louis jury said.

About 40 Missouri hospitals sued Altria Group Inc. (MO)’s Philip Morris unit, R.J. Reynolds Tobacco Co., Lorillard Tobacco Co. and other cigarette makers in 1998, claiming they manipulated the nicotine content in cigarettes and misrepresented the health effects of smoking. The hospitals were seeking more than $455 million in damages, ranging from about $300,000 for some to $86.4 million for the Truman Medical Center in Kansas City.

The industry’s actions boosted the amount spent on unreimbursed and uncompensated tobacco-related health care, the hospitals claimed. The tobacco companies denied any responsibility for patient-care costs at the hospitals or any financial losses by the hospitals. The state-court jury in St. Louis rejected April 29 the hospitals’ claims on a 9-3 vote in the seventh day of deliberations.

The case is City of St. Louis v. American Tobacco Co., cv 982-09652-01, Circuit Court, City of St. Louis, Missouri.

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Court Filings

Suit Alleging Banks Manipulated Libor Most Popular Docket

A lawsuit that accused Bank of America Corp., JPMorgan Chase & Co., HSBC Holdings Plc, Barclays Bank Plc, Citibank NA and Credit Suisse Group AG of conspiring to manipulate the London interbank offered rate was the most-read litigation docket on the Bloomberg Law system last week.

The banks sold Libor-based futures, options, swaps and derivative instruments “at artificial prices that defendants caused,” harming investors, FTC Capital GmbH of Vienna, FTC Futures Fund SICAV of Luxembourg and FTC Futures Fund PCC Ltd. of Gibraltar said in an April 15 complaint in New York federal court.

From 2006 to 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.

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

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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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