Highland Capital Management LP, the debt manager with about $22 billion in assets under management, and JPMorgan Chase & Co. (JPM) were sued by a Houston pension plan over claims that willful looting led to the demise of the Highland Crusader Fund.
Highland co-founders James Dondero and Mark Okada caused the Crusader Fund to engage in “dozens of self-interested transactions” with Highland affiliates designed to benefit the firm at the fund’s expense, the Houston Municipal Employees Pension System said in the complaint. The pension plan, which invested $15 million in the fund, is seeking unspecified losses caused by the alleged wrongdoing.
The Crusader Fund “was harmed by virtue of being stuck with poor quality assets that it would not have had if the partnership had been managed in the best interests of the partnership and its limited partners,” lawyers for the pension plan said in the complaint filed in Delaware Chancery Court.
Highland, founded by Dondero and Okada in Dallas in 1993, announced plans in October 2008 to shutter its flagship Crusader Fund and the Highland Credit Strategies Fund over a three-year period after suffering losses on high-yield, high-risk loans and other types of debt. Since then, the firm and two JPMorgan units that administered the funds have been sued over claims of fraudulently misleading investors about the health of the funds and failing to provide accurate monthly statements.
“We are extremely disappointed by the action filed today by a single law firm in the Delaware Court, which is an attempt to derail the continued hard work of over 100 investors,” Armel Leslie, a Highland Capital spokesman, said in an e-mailed statement. “As highlighted by the recently announced agreement among investors in the Highland Credit Strategies hedge fund, we are confident that an equitable solution that benefits all Crusader investors will be reached.
Highland announced in April that it had won approval from a court in Bermuda to distribute assets of the Highland Credit Strategies fund.
Highland froze limited partner withdrawals from the funds in 2008 even while it managed to reduce its own investment in the Crusader Fund from $395 million to $16 million, according to the pension plan’s complaint.
Jennifer Zuccarelli, a JPMorgan spokeswoman, had no immediate comment on the complaint.
The case is Houston Municipal Employees Pension System v. Highland Crusader Fund GP, CA6510, Delaware Chancery Court (Wilmington).
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H&R Block Sued by U.S. to Stop Purchase of TaxAct Maker
The U.S. Justice Department sued H&R Block Inc. (HRB) to stop its proposed purchase of TaxAct, saying the companies’ merger would stifle competition and raise prices in the growing market for consumer tax-preparation software.
The department claimed in an antitrust complaint filed yesterday in federal court in Washington that the deal would eliminate a company that has competed aggressively with H&R Block and ‘‘disrupted” the U.S. digital do-it-yourself tax- preparation market through low pricing and product innovation.
H&R Block, the biggest U.S. tax preparation firm, agreed to buy privately held 2SS Holdings Inc., the developer of TaxAct digital tax preparation products, on Oct. 13 in a transaction valued at $287.5 million.
“The documents we acquired from parties during the course of our investigation will show that the principal purpose of the transaction was to eliminate a competitor,” Christine Varney, the head of the Justice Department’s Antitrust Division, said during a conference call yesterday.
An end of head-to-head competition between TaxAct and H&R Block would leave only two major providers of digital tax- preparation services for consumers, the department said in a statement.
William C. Cobb, H&R Block’s president and chief executive officer, said yesterday in an e-mailed statement that the Justice Department’s decision would “stifle smart business growth.”
The case is U.S. v. H&R Block, 1:11-cv-00948, U.S. District Court for the District of Columbia (Washington).
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Abbott Labs Sued on Claims Humira Caused Permanent Eye Damage
The doctor who treated Jamie Bixby at the New York Eye and Ear Infirmary in Brooklyn in 2008 said Bixby’s optic neuritis was “related to her use of Humira,” according to the lawsuit, which was filed May 20 in Chicago federal court, near the drugmaker’s headquarters in Abbott Park, Illinois.
Bixby said she was told by a nurse on the company’s telephone helpline that the eye pain she began experiencing after a month of Humira treatments wasn’t related to the drug. An eye doctor diagnosed Bixby with permanent damage to the myelin sheath of her optic nerves a month later, after she sought emergency treatment when vision in one eye became blurry with black holes.
If Abbott had warned Bixby or her gastroenterologist “that Humira could be the source of her eye pain, she would have immediately discontinued taking the drug and would have immediately obtained proper emergency medical treatment,” Bixby said in the complaint.
“Humira has more than 12 years of clinical and safety data and best-in-class efficacy,” Adelle Infante, an Abbott spokeswoman, said in an e-mail yesterday. “The therapeutic risks associated with Humira, including disorders of the nervous systems, are well known and documented in the prescribing label.”
The case is Bixby v. Abbott Laboratories, 1:11-cv-3414, U.S. District Court, Northern District of Illinois (Chicago).
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JPMorgan, UBS, Deutsche Bank Said to Be Added to Probe
JPMorgan Chase & Co., UBS AG and Deutsche Bank AG (DBK) are being probed in an expanded investigation by New York Attorney General Eric Schneiderman into mortgage securitization, according to a person familiar with the matter.
Four bond insurers also were subpoenaed: Ambac Financial Group Inc. (ABKFQ), MBIA Inc. (MBI), Syncora Holdings Ltd. (SYCRF) and Assured Guaranty Ltd., according to the person, who couldn’t be identified because the probe isn’t public.
Schneiderman is seeking information on claims paid out during and after the economic crisis and any information or documents related to litigation or settlements with the banks, according to the person.
Goldman Sachs Group Inc., Bank of America Corp. (BAC) and Morgan Stanley (MS) are already part of the probe, a person familiar with the matter said earlier this month. Schneiderman, who took office in January, is examining mortgage practices and the packaging and sale of loans to investors, according to a person.
Lauren Passalacqua, a spokeswoman for the New York attorney general, declined to comment. Michael Fitzgerald, a spokesman for Ambac, declined to comment. Torie von Alt, a spokeswoman for UBS, and JPMorgan spokesman Tom Kelly declined to comment. Deutsche Bank said a spokesperson wasn’t immediately available to comment.
Syncora and Assured Guaranty didn’t immediately return telephone calls or e-mails seeking comment.
Kevin Brown, a spokesman for MBIA, confirmed that the company has received a subpoena and that “the information sought in the subpoena relates to the allegations in our various RMBS complaints.”
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Higher Court Will Decide Whether Picard Can Sue JPMorgan
A bankruptcy judge doesn’t have the authority to decide whether the trustee liquidating Bernard Madoff’s firm has the right to sue JPMorgan Chase & Co. for $6.4 billion, a higher court said.
U.S. District Judge Colleen McMahon in New York said she would determine whether trustee Irving Picard has standing to sue the bank on behalf of the con man’s customers, as JPMorgan requested. The question of Picard’s status requires “significant interpretation” of federal non-bankruptcy law that isn’t the province of a bankruptcy court, she said in a written opinion yesterday explaining her May 4 decision to take the case.
In its request, “JPMorgan has satisfied the standard for mandatory withdrawal” of the case to a higher court, she said.
JPMorgan argued that Picard was hired to liquidate the Madoff firm, and wasn’t empowered by law to mount a class-action suit to recover money on behalf of Madoff customers. Picard, claiming that he was suing as a single entity, not a class, “misses the point,” the judge said.
“The issue is whether seeking damages on behalf of more than 50 persons or prospective class members triggers” a law that might bar Picard from bringing his suit, the judge said.
McMahon’s opinion is another challenge to Picard, who has filed more than 1,000 suits claiming $100 billion for investors in the Ponzi scheme. HSBC Holdings Plc (HSBA) has asked U.S. District Judge Jed Rakoff in Manhattan to dismiss a $9 billion lawsuit against it and so-called feeder funds, saying Picard isn’t allowed by law to bring such suits on behalf of Madoff customers.
Taking the HSBC case temporarily, Rakoff agreed with the U.K. bank that Picard’s lawsuit raised issues beyond the jurisdiction of the bankruptcy court where Picard filed the suit. He said he would 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.
Picard, whose firm was paid $146 million through March for work since Madoff’s 2008 arrest, has fought to keep his cases in bankruptcy court. JPMorgan “no doubt hopes to distance itself both from the thousands of victims of that scheme and from other alleged wrongdoers” by going to district court, Picard said in a March filing.
The appeal is Picard v. JPMorgan Chase & Co., 1:11- cv-00913, U.S. District Court, Southern District of New York (Manhattan).
U.S. Faulted on Failing to Catch Credit-Crunch ‘Bandits’
In November 2009, Attorney General Eric Holder vowed before television cameras to prosecute those responsible for the market collapse a year earlier, saying the U.S. would be “relentless” in pursuing corporate criminals.
In the 18 months since, no senior Wall Street executive has been criminally charged, and some lawmakers are questioning whether the U.S. Justice Department has been aggressive enough after declining to bring cases against officials at American International Group Inc. (AIG) and Countrywide Financial Corp., Bloomberg News’ Justin Blum reports.
Prosecutions of three categories of crime that could be linked to the causes of the crisis -- corporate, securities and bank fraud -- declined last fiscal year by 39 percent from 2003, the period after the accounting scandals at Enron Corp. and WorldCom Inc., Justice Department records show.
“You need a massive prosecutorial effort,” said Solomon Wisenberg, a white-collar defense attorney at Barnes & Thornburg LLP in Washington and a former federal prosecutor. “I don’t see evidence that it’s happening. If we were talking baseball, it would be at the AAA level.”
The Justice Department and Federal Bureau of Investigation dispute that, saying they are continuing to investigate potential wrongdoing connected to the emergency, and some probes didn’t find criminal behavior. They say they stepped up mortgage-fraud prosecutions, which more than doubled in fiscal 2010 from 2009, the first full year for which there is data.
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Ensco, U.S. Seek, Get More Time to Reach Deep-Water Deal
Ensco Offshore Co. and the U.S. Justice Department sought and received more time to negotiate an end to its lawsuit over deep-water oil drilling permits.
U.S. District Judge Martin Feldman in New Orleans yesterday gave the government an 11-day extension until June 20 to act on six offshore drilling permit applications that Ensco claims were unreasonably delayed by regulators. Ensco and the government asked for the delay in a joint filing on May 20.
Both sides said an 11-day temporary delay of the judge’s May 10 order would “prevent further unnecessary litigation.” If they can’t reach a settlement by June 20, they may seek to extend the stay to continue talks, according to the filing.
On May 10, Feldman, ruling on one of six issues in the protracted suit, agreed with Ensco arguments that the London- based company’s applications to the U.S. Interior Department had been “unreasonably delayed” and he ordered the government to act within 30 days on six deepwater drilling permit requests.
The Interior Department opposed Ensco’s suit, saying that a delay in issuing new permits was needed to give the industry time to boost safety and spill-response capabilities after the Deepwater Horizon drilling rig off the Louisiana coast exploded in April 20, 2010. The blast and spill released 4.1 million barrels of crude from BP Plc (BP/)’s Macondo well.
President Barack Obama temporarily halted all drilling in waters deeper than 500 feet in May 2010. Feldman threw out the ban as overly broad and punitive to the Gulf Coast economy. The government imposed a similar, second ban that was withdrawn in October. In February, Feldman found the Obama administration in contempt for continuing to stall the resumption of deep-water drilling through what he called a de-facto ban.
The case is Ensco Offshore Co. v. Salazar, 2:10-cv-01941, U.S. District Court, Eastern District of Louisiana (New Orleans).
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Microsoft Appeal of 899 Million-Euro Fine May Limit EU Powers
Microsoft Corp. (MSFT)’s challenge to an 899 million-euro ($1.26 billion) European Union penalty for failing to comply with an antitrust ruling may lead to a curb on regulators’ powers.
The world’s largest software company will tell judges at an appeal hearing today that in 2008 the European Commission failed to give it sufficient guidance to avoid the fine.
Microsoft is the only company in more than 50 years of EU competition policy to be penalized for failing to comply with an order. The Brussels-based commission said it breached an earlier ruling by overcharging for licenses that rivals needed to connect products to Windows computers. As the first appeal of such a decision, the judges at the EU General Court in Luxembourg will clarify the scope of the commission’s power.
“It’s not about the money for Microsoft, it’s not about the money for the commission or the other applicants,” said Nicolas Petit, a competition law professor at the University of Liege in Belgium. “At the heart of the case is whether a regulator can find and penalize infringements without really saying what the substance of the law is.”
The commission, the EU’s antitrust authority, imposed the 899 million-euro fine as a so-called periodic penalty payment on Redmond, Washington-based Microsoft for failing to comply with a 2004 antitrust order.
Under the initial decision, Microsoft was fined 497 million euros and ordered to provide data to competitors to allow servers to connect to computers using the Windows operating system.
Microsoft was also required to limit to a “reasonable” amount the royalties it charged for the technology. An EU court in September 2007 rejected Microsoft’s appeal of that decision.
Today’s case is the last remnant of years of disputes with the commission that resulted in fines totaling 1.68 billion euros. Microsoft agreed to a settlement in 2009 in a bid to close a long chapter in the company’s uneasy relationship with the EU regulator.
Amelia Torres, a spokeswoman for the commission, declined to comment.
The case is T-167/08, Microsoft v. European Commission.
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Ex-Galleon Trader Slaine Recorded Meetings With Goffer
David Slaine, a former Galleon Group LLC employee who pleaded guilty to criminal charges, told jurors in the insider- trading trial of Zvi Goffer that he wore a body wire to help gather evidence for the government.
Slaine, who pleaded guilty to conspiracy and securities fraud in December 2009, testified yesterday in federal court in Manhattan that he cooperated with federal agents for about 2 1/2 years to try to avoid prison. Prosecutors played recordings of meetings in which Slaine, pretending to be considering a position with Goffer’s firm Incremental Capital LLC, tried to learn the source of Goffer’s tips.
Prosecutors claim Goffer’s source was Jason Goldfarb, a Brooklyn, New York, lawyer who got tips from Brien Santarlas and Arthur Cutillo, two former lawyers in the New York office of the firm Ropes & Gray LLP. Santarlas, who has pleaded guilty and is also cooperating with the government, completed his testimony yesterday. Goldfarb and Cutillo have also pleaded guilty.
Goffer, 34, founded Incremental Capital after he was fired from Galleon, his lawyer, William Barzee, said in his opening statement to jurors May 18. Goffer is being tried with his brother, Emanuel Goffer, 32, and Michael Kimelman, 40, both former traders at Incremental.
The case is U.S. v. Goffer, 10-cr-00056, U.S. District Court, Southern District of New York (Manhattan).
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Bank of America Appeals Judge’s $502 Million Lehman Ruling
Bank of America Corp., ordered by a judge to return $501.8 million in deposits to Lehman Brothers Holdings Inc. (LEHMQ) and pay interest, appealed the ruling yesterday in a higher court.
U.S. Bankruptcy Judge James Peck signed the final judgment last week after a November finding that Bank of America took deposits unrelated to its loans to Lehman during the 2008 financial crisis and must return them. He set interest at 9 percent from November 2008 to December 2010.
Bank of America, based in Charlotte, North Carolina, argued that it had a right to take Lehman’s deposits to offset its loans, based on “uncontradicted legal rules and written contracts.” It filed a notice of appeal yesterday in U.S. Bankruptcy Court in Manhattan.
“We look forward to a review on appeal by the U.S. District Court,” Lawrence Grayson, a spokesman for the bank, said in an e-mail yesterday.
The case is one of several involving banks such as Barclays Plc (BARC) and JPMorgan Chase & Co. that Peck is considering as New York-based Lehman, which filed the biggest bankruptcy in U.S. history more than two years ago, sues to recover money to pay creditors. The defunct firm, which has said creditors stand to get an average of 18.6 cents on the dollar, lost an $11 billion lawsuit against Barclays.
Lehman’s lenders, including Bank of America, became “increasingly uneasy” about the investment bank’s financial health in the summer of 2008, Peck wrote in November. Later that year, Bank of America took collateral posted by Lehman to cover overdrafts, using it to offset amounts owed on unrelated derivatives deals, according to the ruling.
The bank didn’t first ask Peck for relief from the bankruptcy law provision that prevents such seizures, called the automatic stay, Peck said.
Peck ruled that an earlier security agreement drawn up by Bank of America related only to Lehman’s intraday overdrafts and shouldn’t have been used to offset derivative transactions.
The bankruptcy case is In re Lehman Brothers Holdings Inc., 08-13555, and the lawsuit is Bank of America NA v. Lehman Brothers Holdings Inc., 08-01753, both in U.S. Bankruptcy Court, Southern District of New York (Manhattan).
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Bank of America $410 Million Overdraft Fee Accord Approved
Bank of America Corp., the largest U.S. lender by assets, won preliminary court approval for a $410 million settlement with consumers who claimed the bank illegally charged excessive overdraft fees.
U.S. District Judge James Lawrence King in Miami yesterday tentatively approved the accord between about 1 million account holders and the bank, according to minutes from a hearing posted on the court’s website. A final approval hearing is set for November. The judge will award plaintiff attorneys’ fees from the $410 million fund, said one of the lead lawyers for the consumers, Jeremy Alters.
Anne Pace, a spokeswoman for Charlotte, North Carolina- based Bank of America, said the bank already has made changes to its overdraft policies, including the elimination of overdraft fees for debit card transactions and reduced fees for customers who overdraw their accounts.
“We’re pleased to reach a fair resolution to this matter,” she said.
Institutions including Citigroup Inc. (C), JPMorgan Chase & Co. and Wells Fargo & Co. (WFC) were named in related lawsuits. Yesterday’s settlement is only with Bank of America. Bank of America didn’t admit any liability in the cases, Alters said.
The case is In Re Checking Account Overdraft Litigation, 09-02036, U.S. District Court, Southern District of Florida (Miami).
General Dynamics, Boeing Backed by High Court in A-12 Case
The U.S. Supreme Court set aside a ruling that had put the federal government on track to collect $3 billion from Boeing Co. (BA) and General Dynamics Corp. (GD) in a 20-year-old fight over a canceled Navy aircraft contract.
The justices unanimously said the government forfeited one aspect of its claim against the companies by invoking the so- called state secrets privilege to avoid disclosing sensitive information in the litigation.
The ruling sent the dispute back to a lower court. The justices also rejected a bid by General Dynamics to reinstate a $1.2 billion award the companies won at an earlier stage in the litigation.
“Neither side will be entirely happy with the resolution we reach today,” Justice Antonin Scalia wrote for the court.
A federal appeals court had said the Navy was justified in canceling the A-12 Avenger contract on grounds that the companies failed to meet their obligations. The ruling put the government in line to recover $1.35 billion in payments, plus the interest that has accrued over two decades.
In setting aside that ruling, the Supreme Court said the government’s invocation of the state secrets privilege prevented the courts from resolving one part of the case.
The fight stems from one of the largest defense procurement fiascos in U.S. history. The A-12, designed to penetrate heavily defended locations, never made it into production in spite of years of development.
The cases are General Dynamics v. United States, 09-1298, and Boeing v. United States, 09-1302.
Ex-UBS Client Jackson Given One Year Probation in Tax Case
A former UBS AG (UBSN) client who pleaded guilty to failing to tell U.S. authorities about an offshore account avoided prison at the hands of a judge who will sentence her father today for a similar offense.
Lucille Abrahamsen Jackson, 42, got one year of probation yesterday in federal court in Newark, New Jersey, where her father, Harry Abrahamsen, also pleaded guilty last year. In pleading, Jackson said that her father set up a Swiss bank account in her name in 1992 to evade U.S. taxes and that its value reached $759,376 in 2003.
Jackson is one of more than two dozen former UBS clients who pleaded guilty to tax crimes. Zurich-based UBS avoided U.S. prosecution in February 2009 by paying $780 million, turning over the names of U.S. account holders and saying it helped Americans hide assets from the Internal Revenue Service.
“I commend the government for going after these offshore tax cheats,” U.S. District Judge Dennis Cavanaugh said at the hearing. “There’s no question that this is serious. However, in the big scheme of things, this is definitely on the lesser side of the types of cases that the government prosecutes.”
Jackson, of Hillsdale, New Jersey, has “already paid a significant penalty, both financially and personally,” the judge said. He denied a request by prosecutors to sentence her to six months of home confinement.
Jackson admitted she filed a false tax return in 2005, and she failed to file required Foreign Bank and Financial Accounts Reports, or FBARs, from 2000 to 2007.
As a civil penalty, she had to pay 50 percent of the highest annual balance of the account in those years. She paid an FBAR penalty of $379,688. With back taxes and penalties, she paid more than $400,000, said her lawyer, Robert Mintz.
“I would like to express how deeply remorseful I am,” Jackson told Cavanaugh as she wept. Jackson, who runs a printing company, said her actions affected her family and her employees.
The case is U.S. v. Jackson, 10-00797, U.S. District Court, District of New Jersey (Newark).
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Lehman Paid Managers, Lawyers $27.1 Million in April
Lehman Brothers Holdings Inc., whose fees to advisers have exceeded $1.26 billion during its bankruptcy, paid lawyers and managers $27.1 million in April.
Weil, Gotshal & Manges LLP, based in New York, was paid $293.8 million through April for acting as Lehman’s lead bankruptcy law firm, including almost $7.9 million last month.
Restructuring firm Alvarez & Marsal LLC, whose co-founder Bryan Marsal runs the defunct investment bank, made $431.7 million in “interim management” fees for 31 1/2 months of work, including $8.9 million last month, according to a filing with the U.S. Securities and Exchange Commission.
Marsal, who bills Lehman hourly, aims to raise $61 billion by selling the defunct c ompany’s assets to pay $322 billion in claims, giving creditors 18.6 cents on the dollar, on average.
Kimberly Macleod, a Lehman spokeswoman, didn’t respond to an e-mail seeking comment.
Once the world’s fourth-biggest investment bank, Lehman is fighting for control of a $61 billion liquidation plan with a group of bondholders including hedge fund Paulson & Co. and a rival group of derivatives creditors that includes Goldman Sachs Group Inc. (GS) and Morgan Stanley.
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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