SAC Capital Advisors LP accounts tied to portfolio managers who pleaded guilty in a nationwide probe of insider trading are being investigated by U.S. prosecutors. Those accounts include one run by SAC founder Steven A. Cohen.
In a March 24 letter filed in Manhattan federal court, prosecutors said they had recovered records from the hedge fund, and listed documents tied to the “Cohen Account” that they made available to defense lawyers. The files are among a growing amount of data, wiretap-recordings and e-mails involving hedge funds, companies and individuals accumulated as part of the government’s investigation.
The “Cohen Account” consists of the best trading ideas unearthed by the 100 teams at Stamford, Connecticut-based SAC. The portfolio managers and analysts submit their stock picks to Cohen and his team, and if he uses them in his account -- and they make money -- they get paid for their idea.
SAC, a hedge fund with $13 billion under management, has come under scrutiny as part of the U.S. crackdown on illegal stock-tipping at hedge funds, banks, technology companies and expert-networking firms, according to court records.
In February, prosecutors charged two former SAC portfolio managers with insider trading while working at the fund.
Donald Longueuil pleaded guilty April 28 in Manhattan federal court, telling a judge he “obtained material, non- public information” from an accomplice in 2008 about Marvell Technology Group Ltd. (MRVL) He isn’t cooperating with prosecutors. Noah Freeman, who worked at SAC from June 2008 to January 2010, pleaded guilty Feb. 7 as part of a cooperation deal with prosecutors.
Longueuil said during his plea hearing that he was part of a conspiracy that encompassed his time at SAC. Other alleged members of the conspiracy charged in the case included Samir Barai, the founder of Barai Capital Management LP in New York.
Barai’s assistant, Jason Pflaum, pleaded guilty in December. Barai hasn’t entered a plea.
Longueuil named Barai as his accomplice after U.S. District Judge Jed Rakoff in Manhattan asked him who he conspired with.
Evan Barr, a lawyer for Barai, didn’t return a call seeking comment May 6.
Also charged in the probe was Winifred Jiau, a consultant at Primary Global Research LLC, a company that puts industry experts in contact with hedge fund traders.
Jiau, who pleaded not guilty, is in negotiations with federal prosecutors, according to a May 3 letter filed in Manhattan federal court. Her lawyer, Joanna Hendon, didn’t return a call seeking comment. Ellen Davis, a spokeswoman for Manhattan U.S. Attorney Preet Bharara, declined to comment.
Jonathan Gasthalter, a spokesman for SAC, declined to comment on the investigation. He previously said the firm was cooperating with prosecutors and was “outraged” at the actions of two former employees.
The case is U.S. v. Jiau, 11-cr-00161, U.S. District Court, Southern District of New York (Manhattan).
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Palm Beach Court Moves to Restart Foreclosures by Stern
Florida’s Palm Beach County courts moved to restart about 9,000 stalled foreclosure cases handled by David Stern, the lawyer under investigation by the Florida attorney general for using possibly false documents.
A state judge in the county began a review of Stern’s cases May 6, ordering conferences for about 500 of them and approving new lawyers for banks to replace Stern. Peter Blanc, the chief judge for the county, said in a telephone interview before the hearing that he’s worried that Stern’s cases will become inactive.
“I just didn’t want 9,000 cases sitting on our docket with this much uncertainty around it,” Blanc said.
The Law Offices of David J. Stern stopped handling foreclosure cases on behalf of lenders after clients cut ties with the firm, leaving about 100,000 cases across the state needing new lawyers, according to a letter Stern wrote to the Palm Beach County circuit court.
At the May 6 hearings, Palm Beach County Circuit Judge Meenu Sasser approved new attorneys to take over almost 250 foreclosure cases from Stern, with another 250 cases scheduled for the afternoon session.
The hearings were set after Stern said in a March letter to the court that his firm no longer had the resources to file motions to withdraw as attorney in its foreclosure cases across the state. Stern said in most cases he hadn’t been notified of a replacement law firm.
“Given these circumstances, we estimate that we still need to withdraw from approximately 100,000 files statewide,” Stern wrote.
Jeffrey Tew, a lawyer for Stern, said the situation in Palm Beach was created by the banks that pulled their foreclosure work from Stern’s firm last year. The banks still haven’t assigned new lawyers to tens of thousands of cases, he said.
“The Stern firm is doing its best to assist the court, given the circumstances,” Tew said.
Florida began investigating the Stern firm’s practices last year. Stern appeared to be “fabricating and/or presenting false and misleading documents in foreclosure cases,” according to the state attorney general’s office. Banks and government-owned mortgage companies Fannie Mae and Freddie Mac transferred their foreclosures to other firms.
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BP Seeks Dismissal of Pension-Fund Claims Over Oil Spill
BP Plc (BP) asked a judge to throw out investor claims that management downplayed safety risks before and after its Macondo oil well blew out in the Gulf of Mexico last year, causing billions of dollars in stock market losses.
The company also asked U.S. District Judge Keith P. Ellison to restrict any surviving investor fraud claims to owners of BP American depositary receipts, which trade on the New York Stock Exchange. BP said U.S. securities laws don’t apply to holders of foreign shares, such as the company’s common stock, which trades in London, where the company is based.
The investors “seek to transform a matter involving allegedly negligent safety processes into an action for securities fraud,” BP said in its filing. Citing previous court rulings, BP said, “securities laws do not protect investors against negligence.”
Shareholders led by the pension funds of New York and Ohio are claiming billions of dollars in losses and seek recovery from BP and its directors and officers. Lawsuits over personal and economic injuries from the spill are combined in New Orleans federal court and aren’t affected by this request.
The case is In re BP Plc (BP/) Securities Litigation, 4:10-md- 2185, U.S. District Court, Southern District of Texas (Houston).
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Abramovich Wins U.K. Bid to See Evidence in Berezovsky Lawsuit
Roman Abramovich, the billionaire accused of using threats to force an ex-business partner to sell shares in Russian businesses, won a U.K. ruling gaining access to testimony from a dead associate.
Boris Berezovsky, who claims intimidation by Abramovich cost him as much as $4 billion, must reveal transcripts of talks between his ex-lawyers and Georgian tycoon Badri Patarkatsishvili, who did business with the men and died in 2008, Judge Elizabeth Gloster ruled May 6 in the High Court in London.
“Patarkatsishvili’s alleged role is of central importance,” Gloster said in the judgment. The deceased Georgian “is said to have been present when the alleged oral agreements were made” and later complained to Abramovich about his actions, she said.
Berezovsky, a Russian billionaire living in exile in the U.K., claims Abramovich used ties to the Kremlin to force him to sell his holdings in the Russian oil company OAO Sibneft and the aluminum producer Rusal at a fraction of their value. Abramovich, the Russian owner of Chelsea Football Club, last year lost a court bid to block the case from going to trial in October.
Berezovsky used the disputed evidence to argue his case during earlier court proceedings, according to the ruling. Allowing him to continue keeping the evidence secret would “amount to cherry-picking of the worst kind,” Gloster said in her ruling.
Patarkatsishvili, who gave control of his Imedi media company to News Corp. in 2007 in order to enter politics, died at age 52 in his home near London in February 2008, a month after being charged in Georgia with plotting a coup against President Mikheil Saakashvili.
Police initially treated Patarkatsishvili’s death as suspicious. A pathologist told a U.K. inquest the businessman had a severe heart condition at the time of his death, the Associated Press reported at the time.
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Servier Denies Having Concealed Risks of Diabetes Drug
Les Laboratoires Servier, France’s second-biggest drugmaker, denied allegations by government investigators that the company concealed the risks of a drug now suspected of having caused the deaths of as many as 2,000 people.
Servier also never pressed regulators to keep the drug on the market regardless of the risks, the closely held company, based in Neuilly-sur-Seine, said in a document sent via e-mail made public yesterday. The drug, benfluorex hydrochloride, was sold in France for 33 years until it was pulled from the market in November 2009.
A government investigative agency, the Inspection Generale des Affaires Sociales, said in a Jan. 15 report that Servier depicted benfluorex as a diabetes treatment, when in reality it was a “potent” appetite suppressant closely related to fenfluramine, a component of the diet-drug combination fen-phen. Fenfluramine was withdrawn from the U.S. market in 1997 after it was linked to heart-valve damage.
The report is mistaken and biased, Servier said. The agency didn’t ask the company to provide clinical data that could have led to more accurate conclusions, Servier said.
“Benfluorex is not a fenfluramine in disguise,” the company said in the document. The treatment, sold in France under the brand name Mediator, has a chemical structure similar to that of fenfluramine, but the two compounds work differently once inside the body, according to Servier.
“We always were transparent with regulators,” the drugmaker said in the e-mailed document. “We acted responsibly throughout the entire life of this medicine.”
JPMorgan Is in ‘Advanced’ Negotiations to Resolve CDO Probe
JPMorgan Chase & Co. (JPM), the only Wall Street bank to remain profitable throughout the financial crisis, is in “advanced” negotiations to resolve its piece of a broader U.S. Securities and Exchange Commission investigation into how mortgage-linked securities were packaged and sold as the housing market unraveled.
JPMorgan’s securities unit has been cooperating with agency officials and “is currently in advanced discussions with the staff concerning a potential resolution of that investigation,” the New York-based bank said in a quarterly financial report filed with the SEC May 6.
The SEC is working to wrap up investigations into how banks bundled and sold investments tied to risky mortgages, after years of being faulted by lawmakers and investors for failing to hold Wall Street accountable for misconduct that may have fueled the financial crisis. JPMorgan has been probed by the SEC for its role in designing and selling a $1.1 billion collateralized debt obligation known as “Squared” in 2007, according to a person briefed on the matter.
“There can be no assurance that any such resolution will be finalized or approved,” JPMorgan said in the May 6 filing. The bank didn’t specify which CDOs were the subject of the SEC talks.
JPMorgan, the second-largest U.S. bank by assets, also received a subpoena from the SEC over failed mortgages as part of a separate investigation into whether some banks, including Credit Suisse Group AG, failed to share refunds from sellers of faulty debt, a person familiar with the investigation said.
The agency has targeted firms at various stages of the loan-packaging process, ranging from originators such as Countrywide Financial Corp. to underwriters including Wells Fargo & Co. (WFC), which agreed last month to pay $11 million to settle SEC claims that it sold risky CDOs at unfair prices.
JPMorgan spokesman Joe Evangelisti declined to comment about that probe last month.
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Synthes Sued in Delaware by Shareholder Over J&J Purchase
Synthes Inc. (SYST), the biggest maker of devices to treat bone fractures and traumatic injuries, was sued by a shareholder claiming the price of its proposed $21.3 billion purchase by Johnson & Johnson (JNJ) is inadequate.
The proposed deal is more favorable to J&J than Synthes shareholders in light of the company’s dominant market share of orthopedic devices and J&J’s recent stock declines after struggling with recalls, the Norfolk County Retirement System said in the complaint.
“The merger price is the product of a poorly motivated and flawed process during which Synthes’s board made no meaningful attempt to generate interest from other buyers or otherwise maximize value for Synthes’s shareholders,” the retirement system said in the complaint filed May 5 in Delaware Chancery Court in Wilmington.
The deal is the biggest purchase in J&J’s 125-year history and gives it access to a $5.5 billion market for devices that treat trauma victims. The purchase price is 8.5 percent more than Synthes’s closing price on April 26, the day before the deal was announced. Synthes is based in West Chester, Pennsylvania, and its shares trade in Switzerland.
Daniela Stuber, a spokeswoman for Synthes, didn’t immediately return a phone call and e-mail seeking comment. Bill Price, a J&J spokesman, declined to comment in a telephone interview.
The case is Norfolk County Retirement System v. Hansjoerg Wyss, CA6452, Delaware Chancery Court (Wilmington).
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Rajaratnam Jurors Set to Begin Third Week of Deliberations
Jurors in the insider-trading trial of Galleon Group LLC co-founder Raj Rajaratnam, after finishing a second week of deliberations without reaching a verdict, are scheduled to resume their discussions today.
U.S. District Judge Richard Holwell discharged the panel for the weekend at the end of May 6, a day in which jurors sent no notes asking for evidence or other materials.
Rajaratnam, wearing a blue protective boot on his right foot, returned to court May 6 for the first time during the week. Rajaratnam was absent, with Holwell’s approval, after having emergency surgery May 1 to treat a bacterial infection of his foot.
The jurors, who have been considering the case for all or part of nine days, restarted their deliberations May 4 after one juror had to be replaced by an alternate because of unspecified medical reasons.
Rajaratnam, 53, is on trial as part of 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.
The case is U.S. v. Rajaratnam, 09-cr-01184, U.S. District Court, Southern District of New York (Manhattan).
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JPMorgan Settlement Over Military Families’ Mortgages Approved
JPMorgan Chase & Co., after admitting it mishandled mortgages of U.S. service members, won approval of a $56 million settlement of claims that it overcharged on their home loans.
U.S. District Judge Margaret B. Seymour in Columbia, South Carolina, found that the accord, which provides $27 million in cash to military personnel overcharged on mortgages as well as other benefits, was a fair resolution of suits over the problem loans.
Service members who suffered from the overcharges think the settlement “is phenomenal,” said Jonathon Rowles, a Marine fighter pilot who sued JPMorgan over the handling of his loan.
“They recognized they made mistakes and they took the steps to fix them and compensate people for their damages,” Rowles said in an interview after the hearing. “I’m pleased with the way it turned out.”
JPMorgan officials acknowledged earlier this year that one of the bank’s units made errors in handling mortgages covered by the Servicemembers Civil Relief Act. That law was enacted in 1942 to shield deployed military personnel from financial stress.
Bank officials “regret the mistakes our firm made on mortgages for members of the military,” Frank Bisignano, a JPMorgan executive who leads the home-lending unit, said in an e-mailed statement May 6.
“We hold ourselves accountable and responsible for these mistakes, and fixing them is just the beginning of a new way forward with the military and veteran community,” he added.
JPMorgan executives discovered the errors after Rowles, who holds the rank of captain, sued the bank in federal court in South Carolina last year over the mortgage unit’s handling of his $255,000 loan.
The South Carolina case is Rowles v. Chase Home Finance LLC, 10-1756, U.S. District Court, District of South Carolina (Beaufort).
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Ex-A.B. Watley Trader Fined $3,000 in Squawk-Box Case
Former A.B. Watley Group Inc. day trader Warren Fellus was fined $3,000 and spared prison or probation after pleading guilty to his role in a scheme to use Merrill Lynch & Co.’s “squawk box.”
U.S. District Judge I. Leo Glasser in Brooklyn, New York, imposed the fine on Fellus May 6. Fellus testified at the trial that led to the convictions of six defendants, prosecutors in the office of U.S. Attorney Loretta Lynch said in a May 2 letter to Glasser asking for leniency. Fellus pleaded guilty to conspiracy to commit securities fraud in 2005.
“I apologize for what I’ve done,” Fellus told Glasser before the judge imposed sentence. “I’ve tried to correct my wrong. I am a family man and I can assure you this will never, ever happen again.”
Fellus was one of 10 former day traders and managers from New York-based broker-dealer A.B. Watley that the U.S. Securities and Exchange Commission accused of illegally using Merrill’s internal “squawk boxes” -- devices that broadcast orders within a securities firm -- to trade ahead of large institutional trades.
Robert M. Vela, an attorney for Fellus, declined to comment after the hearing.
The case is U.S. v. Fellus, 05-426, and the main case is U.S. v. Mahaffy, 05-cr-00613, U.S. District Court, Eastern District of New York (Brooklyn).
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Google Loses Copyright Appeal Over Belgian Newspaper Links
Google Inc. (GOOG) lost an attempt to overturn a Belgian ruling that blocked it from publishing links to local newspapers on its online news service.
The Court of Appeal in Brussels on May 5 upheld a 2007 lower court ruling that forced Google to remove links and snippets of articles from French- and German-language Belgian newspapers from Google.com and Google.be. Google, the owner of the world’s most-used search engine, faced a 25,000-euro ($36,300) daily fine for any delay in implementing the judgment.
Copiepresse, the group that filed the suit on behalf of the newspapers, said the snippets generated revenue for the search engines and that publishers should be paid for the content. The publications have a second suit pending in which they seek as much as 49.1 million euros for the period in which their content was visible on Google News.
“This case sets a precedent,” said Flip Petillion, a Brussels-based partner with Crowell & Moring LLP, who wasn’t involved with the case. “Google has every interest in taking the debate to the highest level, they have no choice” other than to appeal, he said.
Google said it remains committed to further collaborate with publishers in finding “new ways for them to make money from online news.” Google has the option to appeal the ruling to the Cour de Cassation, Belgium’s highest court.
“We believe Google News to be fully compliant with copyright law and we’ll review the decision to decide our next course of action,” Mountain View, California-based Google said in an e-mailed statement. “We believe that referencing information with short headlines and direct links to the source -- as it is practiced by search engines, Google News and just about everyone on the web -- is not only legal but also encourages web users to read newspapers online.”
Copiepresse said in a statement it is pleased with the decision and “hopes Google will have the intelligence to look for a fair solution to end this situation.”
BP May Get Rosneft Swap for Ceding Arctic Project to TNK-BP
BP Plc gained the right to carry out a $7.8 billion share swap with state-owned Russian oil producer OAO Rosneft in return for ceding the right to an Arctic oil exploration deal to its TNK-BP venture.
An arbitration panel in London issued a consent order May 6 for the deal, conditional upon Rosneft’s approval, BP and its billionaire partners in TNK-BP said in a joint statement. The BP-Rosneft alliance is Robert Dudley’s biggest deal since becoming chief executive officer of the U.K. producer following the Gulf of Mexico oil spill last year.
The ruling may end almost four months of wrangling after BP’s partners in TNK-BP challenged the Kara Sea exploration deal and share swap in court. An injunction won by the billionaires’ AAR group remains in place pending Rosneft’s agreement.
Rosneft last month agreed to move back the deadline to complete a deal to exchange about 9.5 percent of its shares for 5 percent of BP to May 16. The Kara Sea blocks in Russia’s Arctic may contain as much as 100 billion barrels of oil.
As a condition of the share swap, the court said the stakes would need to be held for investment purposes only, with voting rights exercised by independent trustees, according to the statement. Neither Rosneft nor BP is allowed representation on each other’s boards.
“We welcome today’s developments,” Stan Polovets, the CEO of AAR, said in an e-mailed statement. “We see the Arctic transaction with Rosneft as a great opportunity for TNK-BP and for Russia.”
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On The Docket
Chiquita Says It Expects EU Cartel Decision by Mid-July
Chiquita Brands International Inc. (CQB) said it expects the European Commission to publish its decision on an alleged fruit cartel “before the middle of July 2011.”
The commission has questioned the granting of immunity or leniency from antitrust fines in relation to the probe, Chiquita said in a U.S. regulatory filing May 6.
Lehman’s Bankruptcy Most Popular Docket on Bloomberg
Lehman Brothers Holdings Inc. (LEHMQ)’s bankruptcy case was the most-read litigation docket on the Bloomberg Law system last week.
Once the fourth-largest investment bank, New York-based Lehman filed the biggest bankruptcy in U.S. history, listing $613 billion in debts.
The case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
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