Deutsche Bank, MetLife, HSBC, Icahn, Rajaratnam, Mediaset in Court News
UBS AG (UBSN), Switzerland’s largest bank, agreed to pay $160.2 million to settle charges it rigged bids on at least 100 U.S. municipal-bond transactions that generated “millions of dollars in ill-gotten gains.”
UBS will pay $47.2 million to settle Securities and Exchange Commission charges and $113 million to end cases brought by other federal and state authorities, the SEC said yesterday in Washington. Some of the money will be returned to municipalities, the SEC said.
The settlement agreements, which involved 25 states, are part of criminal and civil investigations into a conspiracy by financial firms and municipal advisers to overcharge state and local governments for investment products. UBS’s activity threatened the tax-exempt status of $16.5 billion of municipal bonds, the SEC said.
“Our complaint against UBS reads like a ‘how-to’ primer for bid-rigging and securities fraud,” Elaine Greenberg, chief of the SEC’s Municipal Securities and Public Pensions Unit, said in a statement. “They used secret arrangements and multiple roles to win business and defraud municipalities through the repeated use of illegal courtesy bids, last looks for favored bidders, and money to bidding agents disguised as swap payments.”
The bank is the second to settle charges in the government’s more-than-four-year antitrust investigation into bid rigging for investments states and cities make with proceeds from the $400 billion of bonds they sell yearly. Last year, Bank of America Corp. (BAC) agreed to pay $137 million in restitution.
“UBS is pleased to have resolved this matter with its regulators,” the Zurich-based company said in a statement. “The underlying transactions were entered into in a business that no longer exists at UBS and involved employees who are no longer with the firm.”
Last year, former UBS banker Mark Zaino pleaded guilty to fixing prices when brokering municipal-investment deals by submitting intentionally losing bids at auctions run by Los Angeles-broker CDR Financial Products. UBS allegedly entered into separate trades with another bank that were used to funnel kickbacks to CDR. Zaino agreed to cooperate in the investigation.
The Justice Department also indicted the former co-head of UBS’s municipal derivatives group and two colleagues.
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Merck KGaA (MRK) Units Pay $44 Million to Settle False-Claims Suit
Merck KGaA units agreed to pay $44.3 million to settle allegations the company submitted false claims to U.S. health- care programs because doctors were paid to prescribe its multiple sclerosis drug Rebif, the U.S. said.
The government accused Merck KGaA’s Serono Laboratories Inc. and EMD Serono Inc. of making payments to health-care providers for hundreds of meetings and programs at upscale resorts where Rebif was promoted. The settlement was filed in a whistle-blower lawsuit in federal court in Greenbelt, Maryland, and made public yesterday.
Serono’s actions resulted in the submission of false claims to programs including Medicare and Medicaid for the payment of Rebif because the claims were tainted by kickbacks, the Justice Department said in an e-mailed statement.
Serono denies the allegations and doesn’t admit any liability, according to the settlement. Merck KGaA, based in Darmstadt, Germany, acquired Swiss drugmaker Serono SA in 2007 for $17.9 billion.
Under the agreement, the federal government will receive $34.6 million while various states will split $9.7 million.
Timothy Amato, a former business director for Serono who filed the whistle-blower case in 2005, will receive about $5.2 million, according to a copy of the settlement agreement.
The case is U.S. ex rel. Tim Amato v. Serano Laboratories Inc., 05-cv-03457, U.S. District Court, District of Maryland (Greenbelt).
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AIG Accused of Lying About CDOs in Civil Lawsuit Over Bailout
American International Group Inc. (AIG) engaged in widespread fraud in connection with its U.S. bailout and should be forced to repay “treble damages” to taxpayers, two people said in a civil lawsuit in California.
AIG, four banks and 100 unnamed “John Doe” defendants repeatedly lied to the Federal Reserve Bank of New York and the U.S. Treasury in connection with an $85 billion loan rescuing the insurer in 2008, according to a complaint filed in September and unsealed April 28 in San Diego federal court.
“Each time AIG was caught engaging in fraud it promised to reform its ways,” the complaint alleges, citing financial reporting failures at the company in the years before the bailout. “Each time, AIG reverted to its unlawful and fraudulent way of doing business.”
AIG Chief Executive Officer Robert Benmosche is attempting to resolve legal disputes as the Treasury prepares to sell its 92 percent stake in the New York-based company. AIG, once the world’s largest insurer, has settled lawsuits with investors and former CEO Maurice “Hank” Greenberg since the 2008 rescue.
The lenders, Bank of America Corp.’s Merrill Lynch unit, Deutsche Bank AG, Goldman Sachs Group Inc. (GS) and Societe Generale (GLE), allegedly lied about how AIG’s bailout money was used, according to the complaint. The suit was filed by Derek and Nancy Casady, who say they uncovered evidence through an examination of data using “established investigative methods used by certified fraud examiners.”
A spokesman for AIG in London referred calls to the New York press office. Christina Pretto, a New York-based AIG spokeswoman, didn’t immediately return a call before regular business hours.
Deutsche Bank spokesman Christian Streckert and Societe Generale spokeswoman Laetitia Maurel didn’t immediately return calls for comment. Calls to Goldman Sachs’s and Merrill Lynch’s London press offices weren’t immediately returned.
BofA, Wells Fargo Mortgage Papers Challenged in North Carolina
Bank of America Corp. and Wells Fargo & Co. (WFC), lenders already being probed for faulty home foreclosure practices, were accused by a county official in North Carolina of using mortgage documents that were possibly forgeries.
The signatures of the same names on more than 4,500 documents handled by Lender Processing Services Inc. (LPS) for real estate valued at $624.8 million varied enough to raise doubts about their validity, Jeff Thigpen, register of deeds in Guilford County, North Carolina, told reporters yesterday in Greensboro.
Most of the documents were certificates of satisfaction filed on behalf of San Francisco-based Wells Fargo, Bank of America, based in Charlotte, North Carolina, and other institutions showing the payoff of home mortgages, he said. Thigpen said defective documents may harm a person’s ability to get a loan if there are doubts about the legitimacy of the paperwork discharging a previous mortgage.
“Investigators need to look at all of this, including the possibility of forgery,” Thigpen said in an interview. “I don’t know if the people who signed the documents were authorized to sign the documents or if they were who said they said were. It is all very questionable.”
Thigpen’s allegations, covering paperwork from 2008 through 2010, follows complaints that banks relied on so-called robosigners, who allegedly processed and signed foreclosure documents without verifying the facts of the cases.
Jason Menke, a Wells Fargo spokesman, said the bank’s practices regarding certificates of satisfaction are “appropriate and pose no risk or harm to homeowners in the Carolinas or anywhere else.”
Michelle Kersch, a spokeswoman for Lender Processing Services, said by e-mail that when the company learned of improper signing practices at its subsidiary Docx in November 2009 the process was halted, clients notified and the unit ultimately shut down.
Jumana Bauwens, a spokeswoman for Bank of America, didn’t respond to an e-mail and phone call seeking comment.
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Deutsche Bank Sued by L.A. for Evicting Low-Income Tenants
The bank has become “one of the major slumlords in the city” by buying more than 2,200 properties through foreclosure and letting vacant buildings fall into disrepair, Los Angeles City Attorney Carmen Trutanich said yesterday at a press conference. The bank also unlawfully evicted tenants in order to sell buildings, he said.
“They hurt the most economically vulnerable people in the city,” Trutanich said. “They failed to make necessary repairs and tenants were condemned to live in substandard conditions.”
The lawsuit filed in California state court comes a day after the U.S. Justice Department sued the German bank for more than $1 billion, claiming it lied while arranging federal insurance on faulty mortgages. Deutsche Bank’s MortgageIT unit falsely certified that it was examining default risks while qualifying loans for Federal Housing Administration insurance, according to the government.
Renee Calabro, a spokeswoman for the Frankfurt-based bank, said the complaint filed by the Los Angeles City Attorney is “against the wrong party,” according to an e-mailed statement. “Loan servicers, and not Deutsche Bank as trustee, are contractually responsible for both the maintenance of foreclosed properties and any actions taken with respect to tenants of foreclosed properties.”
Calabro yesterday called the federal government’s lawsuit “unreasonable and unfair” May 3 and said the company would fight the litigation.
The case is People v. Deutsche Bank National Trust Co., BC460878, Superior Court of California (Los Angeles).
MetLife’s $1.8 Billion Award Challenged by United Concordia
United Concordia, a for-profit unit of Pittsburgh-based Highmark Inc., has provided dental insurance for Tricare, the military’s health system, since 1996. The agency awarded a contract to Metropolitan Life Insurance Co., a unit of MetLife, in January.
The company’s complaint, filed in the U.S. Court of Federal Claims in Washington May 3, is sealed. The company also filed a motion asking Judge Eric Bruggink for a temporary restraining order, which could keep MetLife from beginning work on the contract.
United Concordia had protested the contract to the Government Accountability Office, which adjudicates award disputes. The GAO denied the company’s protest on April 27.
United Concordia had $1.78 billion in gross revenue and more than 8 million members in 2010.
Leilyn Perri, a spokesman for Highmark, declined to comment yesterday.
Austin Camacho, a Tricare spokesman, declined to comment on the lawsuit and said the agency was moving forward with the yearlong transition to MetLife.
Karen Eldred, a spokeswoman for MetLife, didn’t respond to a request for comment.
The case is United Concordia Companies Inc. v. U.S., 11- cv-276, U.S. Court of Federal Claims (Washington).
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HSBC Seeks Dismissal of $9 Billion Madoff Trustee Lawsuit
HSBC Holdings Plc (HSBA) asked a judge to dismiss a lawsuit filed by the trustee liquidating Bernard L. Madoff’s firm, saying he isn’t allowed by law to bring such suits on behalf of the confidence man’s customers.
Trustee Irving H. Picard in December sued HSBC and a dozen so-called feeder funds for $9 billion, accusing them of aiding Madoff’s fraud. A U.S. District Court judge temporarily took the case out of bankruptcy court to decide whether Picard can bring common-law claims such as unjust enrichment and can sue on behalf of customers, since his job is to liquidate the Madoff firm.
“The trustee has no standing to bring the common law claims on behalf of BLMIS,” HSBC said May 3 in a U.S. District Court filing in New York, referring to Bernard L. Madoff Investment Securities LLC. “The trustee has no standing to bring the common law claims on behalf of all BLMIS customers.”
Amanda Remus, a Picard spokeswoman, declined to comment.
HSBC, Europe’s biggest bank, also is facing lawsuits from feeder funds and their investors, who claim the bank failed to fulfill custody and administrative duties to them.
Picard, who has filed more than 1,000 suits seeking money for investors in the Ponzi scheme, alleged the bank was aware of concerns that Madoff’s investment business was fraudulent and didn’t take steps to protect investors.
“Had HSBC and the defendants reacted appropriately to such warnings and other obvious badges of fraud outlined in the complaint, the Madoff Ponzi scheme would have collapsed years, billions of dollars and countless victims sooner,” Picard said in a December statement.
The bank said it lost almost $1 billion of its own money investing in feeder funds, “a fact that clearly undermines the trustee’s claim that HSBC was on notice of Madoff’s fraud,” it said in the filing. As Picard himself alleges that Madoff was the “mastermind” of the fraud, established legal rules bar him from suing HSBC “for alleged assistance of what in essence was his own fraud,” it said.
The appeal is Irving H. Picard v. HSBC Bank Plc, 11- cv-0763, U.S. District Court, Southern District of New York (Manhattan).
Laser Spine Surgery Marketed on Google Sees Complaints
Bonnie Balch searched online for a back surgeon and found a pitch she called irresistible: Laser Spine Institute LLC promised to ease her pain and have her out the door in a few hours, Bloomberg News’s David Armstrong reports.
Instead, her October 2008 surgery at the Tampa, Florida- based center left Balch incontinent, with a dangerous spinal fluid leak, she said. Still in pain, she was off work for almost a year and needed a second surgery elsewhere to get relief.
“They should have told me they couldn’t help me,” said Balch, 63, a Longmont, Colorado, flight attendant. “They are in it to make money.” Her insurer paid Laser Spine $90,176 for the operation, a follow-up procedure and some subsequent care.
Balch sued Laser Spine, alleging malpractice, in December 2009, one of 15 cases filed against the company in the past 18 months.
The lawsuits reflect growing complaints about a new area of medicine: high-volume, doctor-owned spinal surgery centers that market directly to patients on Google Inc. (GOOG)’s search site and others. For Laser Spine, the business model generated a 34.3 percent net profit margin from 2006 through 2009 -- eclipsing even the Internet giant’s 24.8 percent for that period.
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Icahn Seeks Dismissal of Last Claim in Lions Gate Lawsuit
The movie studio accused Icahn of paying a special price for Dallas Mavericks owner Mark Cuban’s 5.4 percent stake in Lions Gate, saying it wasn’t fair to other investors. By law, an issuer can’t demand more money for shareholders, Icahn said in a filing May 3 in U.S. District Court in Manhattan.
U.S. District Judge Harold Baer should reconsider his decision to let the accusation stand, “to prevent the manifest injustice that would result from the parties and this court expending substantial resources litigating toward an unobtainable remedy,” Icahn said in the filing.
Baer in March dismissed Lions Gate’s claims that Icahn tried to interfere with its plan to merge with Metro-Goldwyn- Mayer Inc. New York State Supreme Court Justice O. Peter Sherwood the same month threw out Icahn’s lawsuit accusing Lions Gate’s board of conspiring with large shareholders to thwart his hostile bid for the film studio.
The case is Lions Gate Entertainment Corp. V. Icahn, 1:10- cv-08169, U.S. District Court, Southern District of New York (Manhattan.)
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Rajaratnam Jury Hears Wiretaps Again as New Member Joins Panel
Jurors in the insider-trading trial of Raj Rajaratnam reheard recordings of wiretapped conversations played for them last week after restarting deliberations following the replacement of one member of the panel.
With an alternate seated on the panel after Juror 2 was dismissed for medical reasons, U.S. District Judge Richard Holwell in Manhattan yesterday told the eight women and four men to begin weighing the charges anew. The panel later asked to hear 12 wiretaps of Rajaratnam’s phone conversations, nine of which had been played before for the jurors, who began the first round of deliberations April 25.
The jury left yesterday afternoon and will resume deliberations today.
One of the three new recordings captured a conversation in which former McKinsey & Co. partner Anil Kumar told Galleon Group LLC co-founder Rajaratnam, 53, about “massive layoffs on Monday,” which prosecutors said was a tip about job cuts at EBay Inc. (EBAY) in October 2008.
“I love that they’re listening to these calls,” Assistant U.S. Attorney Reed Brodsky told the judge after the jurors left the courtroom. “Some of these calls are fantastic for the government.”
Holwell again refused a U.S. request to give transcripts of the recordings to the jury. The prosecution said jurors may not know precisely which recordings to ask for because they lack a master list and transcripts.
Rajaratnam was arrested in October 2009 in the largest crackdown on hedge-fund insider trading in U.S. history. Prosecutors, relying in part on wiretaps of the defendant’s phone calls, said he gained $63.8 million from tips leaked by corporate insiders and hedge-fund traders about 15 stocks.
Rajaratnam, who said he based the trades on research, was tried on 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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Glaxo May Settle 1,000 More Avandia Lawsuits, Attorney Says
GlaxoSmithKline Plc (GSK), after setting aside more than $6 billion to help settle lawsuits over medicines including its Avandia diabetes drug, is poised to resolve 1,000 more cases, a lawyer for patients said.
Glaxo, the U.K.’s biggest drugmaker, is in settlement talks with lawyers for an estimated 1,000 former Avandia users who sued the company in state courts in Pennsylvania, California and Illinois, Dianne Nast, a plaintiffs’ attorney who serves on a group helping to oversee cases consolidated in federal court in Philadelphia, said in an interview yesterday.
“There are a total of about 5,300 state-court cases pending” around the country, Nast told U.S. District Judge Cynthia Rufe at a hearing in Philadelphia. “I expect a multiple number of them probably will be resolved.” After the hearing, Nast declined to comment on the amount of any settlements.
The company said in September it would stop promoting Avandia worldwide after regulators said the treatment would be withdrawn from the market in Europe and sales would be limited in the U.S. because of studies linking the drug to increased risks of heart attacks.
Glaxo officials have agreed to pay at least $700 million over the last eight months to resolve about 12,000 suits alleging the drugmaker failed to warn consumers that Avandia could cause heart attacks and strokes, people familiar with the accords told Bloomberg News earlier.
Bernadette King, a U.S.-based Glaxo spokeswoman, declined comment on the Avandia settlement talks.
The consolidated case is In re Avandia Marketing, Sales Practices and Products Liability Litigation, 07-01871, U.S. District Court, Eastern District of Pennsylvania (Philadelphia).
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K1 Hedge Funds Weren’t Set Up as Ponzi Scheme, Kiener Says
K1 Group founder Helmut Kiener, accused of defrauding investors of 345 million euros ($513 million), told a court his funds weren’t set up from the beginning to operate as a Ponzi scheme.
In the second part of his testimony at his fraud trial in Wuerzburg, Germany, Kiener yesterday denied some of the charges. Banks that gave him money, including Barclays Plc (BARC) and BNP Paribas (BNP) SA, had to approve his investment proposals and the funds in which he invested, Kiener said.
“Barclays and BNP could have protested against the investment had they really been interested in the investment strategy,” Kiener said in the statement read by his lawyers. “To the extent they didn’t ask questions about particular funds I chose, I didn’t violate the investment agreements.”
Kiener was arrested in 2009 as part of an international probe that included authorities in the U.S. and Germany. Barclays and BNP Paribas lost a combined 223 million euros in his scam, while private investors lost about 122 million euros, prosecutors said. In his first statement at trial last month Kiener confessed to using new investors’ money to make up for losses in the wake of the financial crisis and to having manipulated some account statements.
K1 Invest Ltd. and K1 Global Ltd. were the two main funds he operated and which took the losses that prompted the trial.
Kiener also testified yesterday that he began forging account statements for K1 Invest immediately after it was set up. When he was shown by the court flaws in the numbering of forged statements which could have alerted the recipients to the fraud, Kiener said no one ever noticed or asked him about them.
Simon Eaton, a Barclays Capital spokesman, declined to comment.
A BNP Paribas spokesman who refused to be identified citing bank policy, declined to comment on Kiener’s assertions because the case is ongoing.
Mediaset Challenges EU Over $7.5 Million in Decoder Subsidies
Mediaset SpA (MS), the company controlled by Italian Prime Minister Silvio Berlusconi, told the European Union’s highest court that an EU order forcing it to repay Italy about 5 million euros ($7.5 million) in subsidies for the purchase of digital- broadcast decoders was unsubstantiated.
A lower EU court last year failed to assess whether the European Commission had “sufficiently established” that Mediaset benefited from the subsidies, a lawyer for the Milan- based company said yesterday.
The EU General Court erred when it ruled “that the commission was right to find the existence of an economic benefit by merely relying on abstract and totally unproven allegations,” Mediaset lawyer Konstantinos Adamantopoulos told a five-judge panel of the EU Court of Justice in Luxembourg.
The Brussels-based European Commission, the executive agency for the 27-nation EU, in January 2007 said the subsidies amounted to more than 200 million euros for Italians who purchased digital terrestrial decoders, while satellite technology was excluded. Mediaset was among companies that indirectly benefited from the aid, the commission said.
The lower EU court said last year that the measure had not been “technologically neutral.”
The case is C-403/10 P, Mediaset v. Commission.
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