The U.S. Department of Justice may pursue claims against other lenders after suing Deutsche Bank AG (DBK) for more than $1 billion, alleging the firm lied while arranging federal insurance on faulty mortgages.
The Housing and Urban Development Department is examining loans insured through the Federal Housing Administration and may refer additional cases to the Justice Department, HUD’s general counsel, Helen Kanovsky, said yesterday in an interview.
“We go where the evidence takes us, and if it takes us to the larger players on Wall Street, so be it,” Kanovsky said. U.S. Attorney Preet Bharara said it wouldn’t be a “fantastical stretch” for prosecutors to scrutinize other lenders.
Deutsche Bank’s MortgageIT unit falsely certified that it was examining default risks while qualifying loans for FHA insurance, according to the government’s complaint. HUD has already borne $386 million in claims and costs, and has yet to make payments on defaulted loans with principal balances of $888 million. Some mortgages stem from the housing boom, when the industry eased lending standards, fueling more than $2 trillion in credit losses and writedowns.
“Nobody was doing any mortgage due diligence whatsoever,” said Christopher Thornberg, principal at Beacon Economics LLC in Los Angeles. He said the government may have brought the claim against Deutsche Bank as a “test case” before targeting other banks or seeking to force settlements.
“The only question is, ‘Who’s next?’” Thornberg said.
Kanovsky and Bharara declined to identify lenders that might face claims.
“We could see another potential big negative for the industry out of this,” said Paul Miller, a former examiner for the Federal Reserve Bank of Philadelphia and an analyst with FBR Capital Markets in Arlington, Virginia. “It’s going to be a continued earnings drag on the industry.”
Deutsche Bank said it will “vigorously” fight the government’s allegations.
“We believe the claims against MortgageIT and Deutsche Bank are unreasonable and unfair,” Renee Calabro, a spokeswoman for the Frankfurt-based company, said by e-mail. “Close to 90 percent of the activity covered by the DOJ allegations happened prior to Deutsche Bank’s acquisition of MortgageIT.”
Deutsche Bank and MortgageIT concealed problem loans through “egregious” violations of HUD rules for analyzing the income and creditworthiness of borrowers, according to the Justice Department’s complaint filed yesterday in Manhattan federal court. MortgageIT endorsed more than 39,000 loans for FHA insurance after 1999, making them “highly marketable for resale,” the U.S. said. Of those, 12,500 defaulted.
The Justice Department didn’t file criminal charges or identify employees.
The case is U.S. v. Deutsche Bank AG, 11-cv-2976, U.S. District Court, Southern District of New York (Manhattan).
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Savvis Sued by Investor Over $2.5 Billion CenturyLink Offer
Savvis Inc. (SVVS), which provides online business data storage, was sued in Delaware Chancery Court by an investor who contends a $2.5 billion cash-and-stock buyout offer from phone company CenturyLink Inc. (CTL) is inadequate.
Stockholder Hilary Kramer claims Savvis directors violated their duties by failing to get the best possible price and seeks an injunction to stop the deal, according to a complaint filed yesterday in Wilmington.
“Defendants failed to explore strategic alternatives to a buyout notwithstanding Savvis’ bright prospects for growth and profitability” in advanced “cloud” computer-data hosting services, Kramer said in the filing.
Town & Country, Missouri-based Savvis, 18 percent owned by the Welsh Carson Anderson & Stowe venture capital firm of New York, reported $933 million in revenue last year.
Savvis and Monroe, Louisiana-based CenturyLink announced the buyout agreement April 27, with Savvis stockholders to receive $30 in cash and $10 in CenturyLink shares for each of their shares, an 11 percent premium at the time.
Matt Benson, a spokesman for Savvis in San Francisco, didn’t immediately return phone and e-mail messages seeking comment on the lawsuit.
The case is Hilary Kramer v. James E. Ousley and Savvis Inc., CA6438, Delaware Chancery Court (Wilmington).
Disney Unit Sues Dish Network for Giving Away Starz Movies
A Walt Disney Co. (DIS) unit sued Dish Network Corp. (DISH), the second- largest U.S. satellite-TV provider, for copyright violations in connection with the distribution of movies on the Starz service.
Dish was accused of giving subscribers free access to the Starz premium television service, including copyrighted movies that were provided by Disney on the condition that Starz operate as a premium channel such as HBO, Cinemax and Showtime, the suit says. Starz, a unit of John Malone’s Liberty Media Corp., wasn’t named in the suit filed May 2 in federal court in New York.
“Dish’s unlawful distribution, transmission, copying and public display and/or performance of the Starz programming, including Disney Enterprises’ copyrighted movies, has already resulted in the repeated and continuing infringement of plaintiffs’ copyright rights,” the suit says.
A voice-mail message left with Dish Network’s media relations office wasn’t immediately returned.
The case is Disney Enterprises Inc. vs. Dish Network LLC, 11-cv-2973, U.S. District Court, Southern District of New York (Manhattan)
Italy Consumer Group Challenges Lactalis’s Parmalat Offer
Lactalis shouldn’t be allowed to make a tender offer because the company doesn’t publicly disclose its accounts, according to a statement published on Codacons website.
“A takeover by a company that doesn’t publish its accounts violates the principle of transparency,” the consumer group said. “It doesn’t allow those involved to make an informed choice: neither investors, nor Parmalat, nor the unions nor consumers.”
Codacons, joined by other consumer groups, filed the appeal with the administrative court in the region of Lazio.
Lactalis, the privately held maker of President cheese, on April 26 offered to pay 3.38 billion euros ($4.9 billion) in an unsolicited bid for the 71 percent of Parmalat it doesn’t own to create the world’s largest dairy company.
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Ex-Goldman Programmer Aleynikov Denied Freedom During Appeal
Goldman Sachs Group Inc. (GS) computer programmer Sergey Aleynikov won’t be freed from jail while he appeals a 97-month prison term for stealing the firm’s computer trading code, a federal appeals court ruled.
Aleynikov was convicted by a jury in December of violating the Economic Espionage Act and the Interstate Transportation of Stolen Property Act. His lawyer, Kevin Marino, told a panel of three appeals court judges for the 2nd U.S. Circuit Court of Appeals that there was a substantial likelihood his client’s conviction would be overturned.
On his last day of work at New York-based Goldman Sachs in June 2009, Aleynikov uploaded hundreds of thousands of lines of source code from the firm’s trading system, the U.S. said. He then circumvented Goldman Sachs’s security system, sent the code to an outside server in Germany, compressed and encrypted it and later took it with him to a meeting with new employers in Chicago.
“There is a substantial question as to whether stealing computer source code violates either of these statutes,” Marino said. “Goldman Sachs never intended to place its high-frequency trading system into the stream of commerce.”
Marino argued during the trial that Aleynikov only took open-source code he had written at Goldman Sachs and that nothing he took was proprietary. U.S. District Judge Denise Cote, who presided over the trial, rejected the argument, and in March, ordered Aleynikov jailed pending his appeal, saying he posed a risk of flight.
Assistant U.S. Attorney Joseph Facciponti yesterday told the appeals court that Aleynikov still posed a flight risk. Facciponti said prosecutors were confident the conviction would be upheld because the U.S. believes Aleynikov violated the statutes by first taking the source code and then transporting it across state lines when he traveled to Chicago with it.
The case is U.S. v. Aleynikov, 1:10-cr-00096, U.S. District Court, Southern District of New York (Manhattan).
Anadarko Prepared to ‘Come to the Table’ With BP, CEO Says
Anadarko Petroleum Corp. (APC), the Texas company that owns a stake in BP Plc (BP/)’s damaged Macondo well in the Gulf of Mexico, said it’s “prepared to come to the table” to resolve disputed costs from last year’s oil spill.
Anadarko has filed a lawsuit blaming BP for the explosion at Macondo on April 20, 2010, and the record offshore U.S. oil spill that followed. BP is seeking billions of dollars from Anadarko in spill-related costs for its interest in the project.
“We don’t think that we owe anything, but we also realize that our investors would like us to consider some sort of approach that’s perhaps a compromise from that,” Chief Executive Officer Jim Hackett said during a conference call with investors and analysts. “We’re prepared to come to the table under the right circumstances.”
BP asked a judge to put the lawsuits on hold, saying a joint-operating agreement requires the parties to first attempt dispute resolution through arbitration.
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Novell Antitrust Lawsuit Against Microsoft Revived by Court
Novell Inc. (NOVL)’s antitrust lawsuit against Microsoft Corp. (MSFT), accusing the world’s largest software maker of undermining Novell’s WordPerfect program, was revived by a U.S. appeals court in Virginia.
The federal appeals court in Richmond yesterday said Novell didn’t give up its right to pursue the lawsuit when it transferred its claims related to its personal computer operating system products to Caldera Inc. in 1996.
“Although the underlying lawsuit involves complex issues of antitrust law, the primary question before us is one of contract interpretation: whether a 1996 contract between Novell and a third company divested Novell of its right to bring the present claim,” Judge Allyson Duncan wrote in the 2-1 decision.
Kevin Kutz, a spokesman for Microsoft, said the company doesn’t think Novell’s case has any merit.
“We are disappointed with the Fourth’s Circuit’s decision to reverse in part the district court’s summary judgment ruling which dismissed these very old claims, although we are pleased that at this point only one part of one of Novell’s claims remains,” Kutz said in an e-mailed statement.
Ian Bruce, a spokesman for Novell, didn’t return a phone message and an e-mail message seeking comment.
The lawsuit, filed in 2004, is a byproduct of the U.S. government’s landmark case against Microsoft that was settled more than eight years ago after the Redmond, Washington-based company was declared an illegal monopolist.
The case is Novell Inc. v. Microsoft Corp., 10-1482, U.S. Court of Appeals for the Fourth Circuit (Richmond).
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UBS Unit Loses $10.6 Million Sex-Harassment Verdict
UBS Financial Services Inc. lost a jury verdict of almost $10.6 million in a case brought by a former sales assistant who said she was sexually harassed by a supervisor in Missouri and then fired for complaining about him.
Carla C. Ingraham, 51, who worked in the Kansas City, Missouri, office of UBS Financial, said the company began investigating her after she complained of harassment in December 2008 and fired her in July 2009. UBS Financial, a unit of Zurich, Switzerland-based UBS AG (UBSN), denied the allegations.
The jury in Kansas City, Missouri, yesterday awarded Ingraham $10 million in punitive damages, $350,000 for sexual harassment and $242,000 for retaliation. UBS Financial is considering whether to appeal the verdict, said Karina Byrne, a spokeswoman for the bank.
“The firm does not tolerate sexual harassment of any kind against an employee,” Byrne said yesterday in an e-mailed statement. The company “prohibits any form of retaliation against an employee who may file a complaint under the UBS sexual-harassment policy.”
Byrne said the punitive-damages verdict will be limited to $500,000 by caps on such awards.
Ingraham will also be seeking future lost pay and attorneys’ fees to be added to the verdict, Dennis Egan, her lawyer, said. These amounts will be determined by the court and the punitive award will be capped at five times the final judgment, under law, Egan said.
The case is Ingraham v. UBS Financial Services Inc., 0916- CV-36471, Circuit Court, Jackson County, Missouri (Kansas City)
Glaxo Said to Pay $120 Million to Settle Denture-Cream Suits
GlaxoSmithKline Plc (GSK) has paid at least $120 million to resolve claims that some of its Poligrip products have caused neurological disorders because the denture cream contains zinc, two people familiar with the accords said.
Glaxo, the U.K.’s biggest drugmaker, resolved more than 100 lawsuits over the past nine months alleging it failed to warn consumers about Poligrip’s zinc-related health risks, the people said. The accords averaged more than $1 million apiece said the people, who declined to be identified because they weren’t authorized to speak publicly.
“GSK has been dogged by litigation over a variety of its products and has been moving aggressively to resolve those cases,” Navid Malik, a London-based analyst with Matrix Corporate Capital LLP, said in a phone interview. “I see these settlements as part of that effort.”
Officials of London-based Glaxo agreed in February to remove zinc from its line of denture-cream products after researchers linked some neurological problems, including nerve damage, to heavy use of zinc-laden denture adhesives. The company’s Super Poligrip Original, Ultra Fresh and Extra Care products all contained the ingredient, which improves adhesive power.
Bethany Burtyk, a U.S.-based spokeswoman for Glaxo, said the company doesn’t comment on cases in litigation.
Glaxo, which said in July 2010 that it had resolved some Poligrip suits, noted this year in a U.S. Securities and Exchange Commission filing it had “reached agreements in principle to settle the vast majority of the current cases.” Glaxo officials didn’t comment in the filing on the value of the settlements.
The consolidated case is In Re Denture Cream Products Liability Litigation, 09-02051, U.S. District Court, Southern District of Florida (Miami.)
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Actelion to Appeal Jury Verdict in Asahi Kasei Drug Dispute
Actelion Ltd. (ATLN) will appeal a California jury verdict awarding Asahi Kasei Pharma Corp. about $577 million in a dispute over development of a lung drug.
Asahi Kasei yesterday won $30 million in punitive damages from three executives of Allschwil, Switzerland-based Actelion, on top of the $547 million in compensatory damages a state court jury in San Mateo, California, last week determined that the drugmaker must pay. No punitive damages were awarded against Actelion or three other corporate defendants.
“The ruling is neither supported by the facts nor is it correct as a matter of law,” Actelion said today in a statement. The Swiss company said it filed a motion that may lead to a “substantial reduction” in the compensatory figure.
The award may add to pressure on Actelion as the drugmaker battles a hedge fund that has proposed that shareholders oust board members at the annual meeting tomorrow. The fund, Elliott Advisors (UK) Ltd., has said Chief Executive Officer Jean-Paul Clozel should leave Actelion’s board and the company should consider options including a sale.
In the earlier liability phase of the trial, Tokyo-based drugmaker Asahi Kasei claimed Actelion acquired CoTherix Inc. to halt work on the fasudil lung drug and protect profit margins for its own competing product, Tracleer. Before the acquisition, CoTherix was developing fasudil with Asahi Kasei.
The case is Asahi Kasei Pharma Corp. v. Actelion Ltd., CIV 478533, Superior Court of California (San Mateo County).
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BP Unit to Pay $25 Million to Settle Alaska Spill Claims
A BP Plc unit agreed to pay $25 million to settle a U.S. lawsuit stemming from two oil spills in Alaska and other alleged environmental violations.
BP Exploration (Alaska) Inc., in filing yesterday in federal court in Anchorage, Alaska, agreed to pay the civil penalty and to make improvements on its pipelines. London-based BP didn’t admit any liability, according to the proposed agreement. The public will have 30 days to comment on the settlement, which must be approved by a judge.
“Defendant has started implementation and operation of some corrective measures, including replacement of the Prudhoe Bay oil transit lines, improved leak detection on the oil transit lines, and improved operation and maintenance of the Pipeline System,” the Justice Department said in the proposed agreement.
The U.S. sued BP in 2009 for violations of the Clean Air Act, the Clean Water Act and federal pipeline-safety laws. The violations arose from two spills of crude oil in Alaska in 2006 and improper removal of asbestos materials from its pipelines that same year.
A BP spokesman, Steve Rinehart, said in an e-mail that “the terms of the agreement are fair.”
The case is U.S. v. BP Exploration (Alaska) Inc., 09-cv- 00064, U.S. District Court, District of Alaska (Anchorage).
Mylan Lawsuit Over Ranbaxy’s Lipitor Copy Thrown Out by Judge
Mylan Inc.’s lawsuit seeking to force the U.S. Food and Drug Administration to act on Ranbaxy Laboratories Ltd. (RBXY)’s application to sell a generic version of Lipitor was dismissed by a federal judge in Washington.
U.S. District Judge James Boasberg ruled that drugmakers can’t sue over pending applications filed by their competitors, according to an opinion filed May 2 in federal court in Washington. He also said Mylan’s lawsuit is premature, since an application from its Matrix Laboratories Ltd. subsidiary to sell a copy of the cholesterol-lowering drug is still pending.
“Nothing prevents Mylan from seeking judicial recourse if and when FDA renders a final exclusivity decision that is not to Mylan’s liking,” Boasberg said in the ruling, quoting an FDA document.
Ranbaxy plans to begin selling copies of the Pfizer Inc. (PFE) drug in November, although it doesn’t yet have FDA clearance. Mylan had sued the agency in March, claiming that it and other generic-drug makers should be allowed to enter the market as early as June because of manufacturing violations at two Ranbaxy factories in India.
A call to Mylan’s corporate communications office after regular business hours wasn’t immediately returned.
Sandy Walsh, an FDA spokeswoman, didn’t immediately return a voice-mail message left after regular business hours.
The case is Mylan Pharmaceuticals Inc. v. U.S. Food and Drug Administration, 11-cv-00566, U.S. District Court, District of Columbia (Washington).
International Coal Liable for $104.1 Million, Court Rules
International Coal Group Inc. (ICO), the company that agreed May 2 to be bought by Arch Coal Inc. (ACI) for $3.4 billion, said a court held that it’s liable for $104.1 million after it breached a coal supply contract.
Wolf Run, a subsidiary of Scott Depot, West Virginia-based International, breached a coal supply contract with Allegheny Energy Supply and Monongahela Power Company when it declared force majeure and temporarily idled a mine in the third quarter of 2006, a trial court ruled.
International said that it has enough cash on hand and credit to appeal the case and that it doesn’t expect the ruling to derail the merger with Arch, to be completed by June 30.
“I don’t think a $100 million ruling is going to stop Arch from going through with a multibillion-dollar merger,” said Jeremy Sussman, an analyst at Brean Murray & Co. in New York.
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