HSBC, JPMorgan, Strauss-Kahn, Lehman, Galleon in Court News

HSBC Holdings Plc (HSBA) lost a bid to dismiss a lawsuit by a group of Taiwanese banks that accuse HSBC Bank USA of helping deceased financier Danny Pang’s PEMGroup defraud them of more than $500 million.

U.S. District Judge Philip Gutierrez on May 19 rejected HSBC’s arguments that the banks should have brought their claims in the British Virgin Islands, where the PEMGroup entities that issued the securities were based, rather than in Los Angeles. He also dismissed contentions that the banks didn’t provide enough facts to support their fraud and conspiracy claims.

“These allegations, taken together, create a reasonable inference that, based on the close business relationship between HSBC and PEM Group, as well as the material incentives HSBC stood to gain by providing investors with misleading or inaccurate data regarding the investments, HSBC had sufficient knowledge of PEM Group’s fraud,” Gutierrez said in his order.

Hua Nan Commercial Bank claimed $191 million in losses; Hua Nan Investment Trust, $48 million; Cosmos Bank Taiwan (2837), $45 million; EnTie Commercial Bank (2849), $50 million; Bank SinoPac, $122 million; and Taichung Commercial Bank (2812), $70 million, according to their October complaint.

The banks said HSBC, the cash and asset custodian for the PEMGroup securities, lied to investors about how long the bank had serviced PEMGroup’s investments and falsely represented that PEMGroup’s prior investment products had been performing in conformity with their offering memoranda.

Gutierrez dismissed fraud and negligent misrepresentation claims by EnTie and Taichung. The banks were allowed to restate their claims in an amended complaint.

Juanita Gutierrez, a spokesman for HSBC in New York, said the bank wouldn’t comment on pending litigation.

Pang committed suicide in September 2009.

The case is Hua Nan Commercial Bank v. HSBC Bank USA, 10- 8773, U.S. District Court, Central District of California (Los Angeles).

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Strauss-Kahn Lawyer Says Accusations Will Be Proven False

Dominique Strauss-Kahn’s lawyer said the first findings of his investigation show that accusations by a hotel maid that the former International Monetary Fund chief tried to rape her are false.

Benjamin Brafman, the lawyer, said he is “confident” Strauss-Kahn will be acquitted after a trial. Brafman spoke in an interview with France’s national TF1 television from Israel, where he was staying for personal reasons, according to the French broadcaster.

“From what I have seen already in the file, I am confident,” said Brafman, whose comments in English were translated into French for broadcast. “If he can have a fair trial, at the end of the hearings he will be acquitted. From the investigations we have carried out, I believe the accusations will prove false.”

Strauss-Kahn, 62, is charged in state court in New York with sexual assault and attempted rape of a hotel housekeeper in Manhattan on May 14. Strauss-Kahn, who resigned as IMF managing director on May 18, was released from the Rikers Island jail complex on May 20 after posting $1 million to the court as part of his bail agreement. He also posted a $5 million bond as a guarantee that he will appear for trial.

The former French finance minister is staying temporarily at a building in lower Manhattan that includes residential units.

In an indictment filed May 19, Strauss-Kahn is charged with criminal sex acts, attempted rape, sexual abuse, unlawful imprisonment and forcible touching. While he has denied the accusations, he hasn’t entered a formal plea to any of the charges. He is scheduled to be arraigned June 6.

The case is People v. Strauss-Kahn, 2526/11, Supreme Court of the State of New York, New York County (Manhattan).

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New Suits

Banque Syz Sued by Madoff Trustee for $73.3 Million

Banque Syz & Co. was sued for $73.3 million by the trustee liquidating Bernard L. Madoff’s firm.

The Swiss bank, which received the money from so-called feeder funds, “knew or should have known of numerous irregularities” about the con man’s firm because of its expertise in private banking and institutional asset management, trustee Irving Picard said in a May 20 bankruptcy court filling.

Calls to the Geneva bank’s main number went unanswered outside of regular business hours.

Banque Syz, which had an account in New York with Madoff’s firm, filed a customer claim seeking to recover funds it said it lost on Madoff investments, according to Picard’s filing. In the process, the bank “submitted” to the jurisdiction of the bankruptcy court and “should reasonably expect to be subject to New York jurisdiction,” the trustee said.

The case is Irving H. Picard v. Banque Syz & Co., 11-02149, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

JPMorgan Sued by NES Financial Over 2008 Sale of Business

JPMorgan Chase & Co. (JPM) was sued by NES Financial Corp. for allegedly defrauding it in the purchase of a tax-related business, leaving NES with billions of dollars in potential liability.

NES Financial, in a complaint filed in federal court in Manhattan May 19, claimed that JPMorgan improperly hid a “lengthy history of legal violations” when it sold its Section 1031 tax-deferred exchange business to NES in 2008.

“While NESF thought it was purchasing a business that would solidify its reputation for quality and trustworthiness, it received a business that saddled it with potentially massive liability,” the company claimed in its complaint.

As a result, NES Financial said, it is unable to raise capital from outside investors and its value dropped to $7 million from about $41 million before the sale.

NES Financial helps its clients avoid U.S. taxes by facilitating so-called 1031 exchanges, according to its website. Section 1031 of the U.S. Tax Code permits the owners of certain types of property used for business or investment to exchange them “for property of like kind,” without recognizing a loss or gain for tax purposes.

Jennifer Zuccarelli, a JPMorgan Chase spokeswoman, didn’t return a phone message seeking comment on the suit.

The case is NES Financial Corp. v. JPMorgan Chase Bank NA, 11-cv-3437, U.S. District Court, Southern District of New York (Manhattan).

For the latest new suits news, click here. For copies of recent civil complaints, click here.

Trials/Appeals

Wal-Mart, CVS Drug Case Sent Back to West Virginia Court

Wal-Mart Stores Inc. (WMT), CVS Caremark Corp. (CVS) and four other drug retailers lost their bid to move to federal court a lawsuit by the state of West Virginia over pricing of generic drugs on claims the case was a class action.

The U.S. Court of Appeals in Richmond, Virginia, said May 20 that the drug retailers failed to show that the state was pursuing a group lawsuit, or class action, which would have required the litigation to be handled by a federal court. The four other defendants are Target Corp. (TGT), Walgreen Co. (WAG), Kroger Co. (KR) and Sears Holdings Corp. (SHLD)’s Kmart chain.

The lawsuit “was brought under a West Virginia statute regulating the practice of pharmacy and the West Virginia Consumer Credit Protection Act, neither of which includes provisions providing for a typical class action,” the appeals court wrote in its 2-1 decision.

West Virginia Attorney General Darrell McGraw sued the retailers in state court in Boone County, alleging the stores overcharged state residents while filling prescriptions in violation of two state laws. West Virginia law requires substitution of generic drugs when available and requires pharmacies to pass on the savings from using generics to consumers, according to the state’s lawsuit.

The defendants sought to move the case to federal court in Charleston, West Virginia, claiming the lawsuit was a “disguised class action.”

In a dissent, U.S. appeals judge Ronald Lee Gilman, said West Virginia’s case has the elements of a class action and should remain with the federal court.

“There is a saying that if something looks like a duck, walks like a duck, and quacks like a duck, it is probably a duck,” Gilman said.

Greg Rossiter, a spokesman for Bentonville, Arkansas-based Wal-Mart, said Gilman’s dissent sums up the company’s view “nicely.”

Molly Koenst, a spokeswoman for Minneapolis-based Target, declined to comment.

Kimberly Freely, a spokeswoman for Sears, based in Hoffman Estates, Illinois, and Keith Dailey, a spokesman for Cincinnati- based Kroger, declined to comment. Tiffani Washington, a spokeswoman for Deerfield, Illinois-based Walgreen, and Christine Cramer, a spokeswoman for Woonsocket, Rhode Island- based CVS Caremark, also declined to comment.

The case is West Virginia v. CVS Pharmacy Inc., 11-1251, 4th U.S. Circuit Court of Appeals (Richmond).

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Verdicts/Settlement

J&J Unit Ordered to Pay $10 Million Over Motrin Injuries

A Johnson & Johnson (JNJ) unit must pay $10 million in damages to the family of a 13-year-old girl who suffered skin burns and eye damage after she took Children’s Motrin to treat a fever and cough, a Pennsylvania jury ruled.

Jurors in state court in Philadelphia deliberated for 10 hours over two days before holding J&J’s McNeil Consumer Products unit liable for Brianna Maya’s injuries. Maya, now 13, was left blind in one eye and suffered burns over 84 percent of her body after taking Motrin in 2000 when she was 3 1/2.

The ruling means that “J&J and McNeil will be called to task” for failing to properly warn parents about Motrin’s risks, Keith Jensen, a lawyer for Maya and her family, said in an interview after the verdict was announced May 20.

J&J, the world’s second-biggest seller of medical products, recalled more than 40 consumer brands last year, among them varieties of children’s and infants’ Tylenol, Motrin and St. Joseph Aspirin, over fears they had been tainted by production problems. The withdrawals cost the New Brunswick, New Jersey- based company $900 million in sales and prompted regulators to exercise more oversight at McNeil plants.

The drugmaker “strongly disagrees with today’s verdict and we are considering out legal options,” Marc Boston, a McNeil spokesman, said in an e-mailed statement.

The case is Maya v. Johnson & Johnson, 002879, February Term 2009, Court of Common Pleas, Philadelphia County (Philadelphia).

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Sirius XM Wins Preliminary Approval of Class-Action Accord

Sirius XM Radio Inc. (SIRI) won a judge’s preliminary approval to settle a class-action lawsuit by a group of subscribers who claimed the satellite-radio company violated antitrust law by boosting prices after acquiring its only rival.

A hearing will be held Aug. 8 to determine whether the settlement, valued at $180 million, is “fair, reasonable and adequate to the class,” U.S. District Judge Harold Baer said, according to a filing May 20 in Manhattan. No cash payments will be made under the deal, court papers show.

Sirius Satellite Radio Inc. bought XM Satellite Holdings Inc., its only competitor, in 2008. A subscriber, Carl Blessing, sued in December 2009 claiming the company “abused its monopoly power” after the merger by raising prices, breaching subscriber contracts and making false and misleading statements to the public.

Baer certified the complaint as a class action in March. A settlement was reached before the judge ruled on whether New York-based Sirius XM violated antitrust law.

Patrick Reilly, a Sirius XM spokesman, and James Sabella, a lawyer for the subscribers, didn’t respond to e-mails seeking comment.

Under the settlement, Sirius agreed to not raise prices this year, deferring a plan to boost the monthly price by $2. Many class members paid a monthly multiradio charge of $8.99, according to court filings.

The case is Blessing v. Sirius XM Radio Inc., 09-10035, U.S. District Court, Southern District of New York (Manhattan.)

Hong Kong’s Lehman Minibond Holders Approve Settlement Offer

Hong Kong investors in notes tied to failed Lehman Brothers Holdings Inc. (LEHMQ) approved a settlement agreement that would return as much as 96.5 percent of their original investment.

More than the required 75 percent of holders of the structured notes, or so-called minibonds, passed the accord following three days of meetings in Hong Kong, according to a statement from receiver PricewaterhouseCoopers LLP May 20. The payments may be made in June, it said.

A successful settlement would help end discontent that led investors to hold almost daily protests outside bank branches in Hong Kong, featuring banging of cymbals and bullhorns blaring, after New York-based Lehman’s collapse in September 2008 wiped out their investments. About 43,000 Hong Kong investors had bought an estimated $1.8 billion of the minibonds from lenders.

The agreement covers about 31,000 buyers. Investors in the 24 series of bonds will get 70 percent to 93 percent of their money back, PwC said in March. Banks distributing the minibonds offered an additional payment that would bring eligible investors’ recovery levels to as much as 96.5 percent.

A July 2009 repayment offer from 16 banks of at least 60 cents on the dollar for a total of HK$6.3 billion ($810 million) failed to mollify some investors. Bank of China Ltd. (3988)’s Hong Kong unit was the biggest seller of the notes on the island, while HSBC Holdings Plc is the trustee for the minibonds program.

The notes were sold to investors including the elderly and poorly educated people as well as mentally ill individuals, according to an investigation by the city’s de facto central bank that was made public by lawmakers in April 2009.

The current settlement, reached between HSBC and the Lehman estate, is conditional upon the court order being valid.

BP Says Mitsui Will Pay $1 Billion in Gulf Spill Settlement

BP Plc (BP/) said a unit of Mitsui & Co. will pay $1.065 billion to settle claims from last year’s Gulf of Mexico spill, the first payment by one of the U.K. oil producer’s partners in the failed Macondo well.

BP reached an agreement with MOEX Offshore 2007 LLC, which had a 10 percent stake in the well, covering all claims between the companies related to the spill, the London-based company said May 20 in a statement. Mitsui said BP had claimed about $2.1 billion. BP shares rose the most since January.

“To have one, admittedly the smaller of the two partners, settling” and “joining sides is significant from the moral point of view,” David Stedman, a London-based analyst at Daiwa Securities, said by phone. “It looks on paper as a reasonably good deal for Mitsui,”

The Macondo well blowout, which killed 11 workers and caused the biggest U.S. oil spill, led to hundreds of lawsuits against BP and its partners and contractors. BP said it’s working to ensure other parties, including Anadarko Petroleum Corp. (APC), which held 25 percent in Macondo, rig owner Transocean Ltd. (RIG) and cement provider Halliburton Co. (HAL), contribute “appropriately.”

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SEB, HVB Lose Asia Pacific Breweries Gambler Fraud Appeal

Bayerische Hypo-und Vereinsbank AG and SEB AB lost an appeal to Singapore’s top court seeking to recover $58.6 million in loans taken out by a former Asia Pacific Breweries Ltd. (APB) executive to fund his gambling habits.

Skandinaviska Enskilda Banken, also known as SEB, and HVB were among four banks that had handed out S$117.1 million ($94.6 million) in loans in an “elaborate fraud” engineered by Chia Teck Leng, the brewer’s former finance manager, Chief Justice Chan Sek Keong wrote in a 99-page ruling May 20.

Japan’s Mizuho Financial Group Inc. and Sumitomo Mitsui Financial Group Inc. withdrew their case against Singapore-based Asia Pacific Breweries, which makes Tiger Beer, and Chia on the seventh day of the trial.

“They tell a cautionary tale of how two foreign banks in their eagerness to secure a banking relationship” with Asia Pacific Breweries failed to exercise due diligence, Judge Chan wrote. Chia, called a “compulsive gambler,” was jailed for 42 years in 2004 for cheating and forgery.

Asia Pacific Breweries “was itself a victim of fraud and is not responsible to repay loans,” Chief Executive Officer Roland Pirmez said in a statement to the Singapore Exchange May 20.

Both European banks had argued that Asia Pacific Breweries should be liable for their losses as Chia was the most senior finance person in the brewer’s Singapore unit and responsible for financial matters.

The case is Skandinaviska Enskilda Banken AB (SEBA), Singapore Branch v Asia Pacific Breweries (Singapore) Pte Ltd. & Another CA121/2009 and Bayerische Hypo-Und Vereinsbank Aktieengesellschaft v Asia Pacific Breweries (Singapore) Pte Ltd. & Another CA122/2009 in the Singapore High Court.

Sirius XM Wins Preliminary Approval of Class-Action Accord

Sirius XM Radio Inc. won a judge’s preliminary approval to settle a class-action lawsuit by subscribers who claimed the satellite-radio company violated antitrust law.

A final hearing will be held Aug. 8 to determine whether the settlement, valued at $180 million, is “fair, reasonable and adequate to the class,” U.S. District Judge Harold Baer said, according to a filing May 20 in Manhattan. No cash payments will be made under the deal, court papers show.

Sirius Satellite Radio Inc. bought XM Satellite Holdings Inc., its only rival, in 2008. A subscriber, Carl Blessing, sued in December 2009 claiming the company “abused its monopoly power” after the merger by raising prices, breaching subscriber contracts and making false and misleading statements to the public.

Baer certified the complaint as a class action in March. A settlement was reached before the judge ruled on whether New York-based Sirius XM violated antitrust law.

Patrick Reilly, a Sirius XM spokesman, and James Sabella, a lawyer for the subscribers, didn’t respond to e-mails seeking comment.

Under the settlement, Sirius agreed to not raise prices this year, deferring a plan to boost the monthly price by $2. Many class members paid a monthly multiradio charge of $8.99, according to court filings.

Former subscribers who canceled service would be entitled to one month of free service.

The case is Blessing v. Sirius XM Radio Inc., 09-10035, U.S. District Court, Southern District of New York (Manhattan.)

For the latest verdict and settlement news, click here.

Litigation Departments

Lehman Paid Weil Gotshal $45.9 Million in Four Months

Lehman Brothers Holdings Inc. paid its lead bankruptcy law firm Weil, Gotshal & Manges LLP $45.9 million in fees plus $1.1 million in expenses from Feb. 1 through May 31, 2010, according to a court filing May 20.

The New York-based firm, where partner Harvey Miller is the defunct firm’s top legal adviser, asked for $46.7 million plus expenses of $1.1 million for the period, and was paid almost all it requested. Miller billed Lehman at $990 an hour for 477.1 hours, or a total of $468,369.

Lehman’s fees to managers and advisers have exceeded $1.2 billion during its bankruptcy, according to court documents.

Milbank, Tweed, Hadley & McCloy LLP, the law firm for Lehman’s committee of creditors, was paid $19 million in fees plus $847,210 in expenses for the four months, according to the filing. The law firm said it spent $544,240 on computer-database research and $102,392 on photocopies.

Kimberly Macleod, a Lehman spokeswoman, declined to comment.

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

For the latest litigation department news, click here.

Court Filings

Rajaratnam Criminal Docket Most Popular on Bloomberg

Raj Rajaratnam, the hedge-fund tycoon and Galleon Group LLC co-founder, who was found guilty of 14 counts against him in the largest illegal stock-tipping case in a generation, had the most-read litigation docket on the Bloomberg Law system last week.

A jury of eight women and four men in Manhattan returned the verdict May 11 after hearing evidence that Rajaratnam, 53, engaged in a seven-year conspiracy to trade on inside information from corporate executives, bankers, consultants, traders and directors of public companies including Goldman Sachs Group Inc. (GS) He gained $63.8 million, prosecutors said.

Defense attorney John Dowd said that he would appeal the verdict to the 2nd U.S. Circuit Court of Appeals in Manhattan.

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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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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