Prosecutors at the Manhattan District Attorney’s Office who are examining Goldman Sachs Group Inc. (GS) may have an easier time than federal authorities in bringing criminal charges because of a 90-year-old New York state law, Bloomberg News’s David Voreacos reports.
District Attorney Cyrus Vance Jr. subpoenaed Goldman Sachs, the fifth-biggest U.S. bank by assets, for records on its activities leading into the credit crisis, two people familiar with the matter said. Vance may bring charges under the state’s Martin Act, which lawyers call a potent tool for New York prosecutors probing investment frauds, Ponzi schemes and other white-collar crime.
To prove securities fraud in federal court, prosecutors must show that a defendant intended to defraud victims and that the investors relied on misstatements or omissions. Under the Martin Act, prosecutors aren’t required to prove intent, said Michael Perino, a law professor at St. John’s University in New York.
“The reason why New York prosecutors love it so much and Wall Street firms hate it so much is that it is a much, much easier case to bring,” Perino said in an interview. “All a prosecutor has to show under the Martin Act is a material misstatement in connection with a securities offering.”
Vance’s subpoena of New York-based Goldman Sachs related to the U.S. Senate’s Permanent Subcommittee on Investigations report on Wall Street’s role in the collapse of the financial markets, said the people, who spoke on condition of anonymity because the inquiry isn’t public.
The subcommittee, led by Michigan Democrat Carl M. Levin, released a 640-page report in April that accused the bank of misleading buyers of mortgage-linked investments. Levin said Goldman Sachs also misled Congress about the company’s bets on the housing market. The firm has said its testimony was truthful.
“Subpoenas are a normal part of the information request process,” said David Wells, a spokesman for Goldman Sachs. The bank is cooperating with the investigation, he said.
Vance is far from deciding to charge any individuals with crimes, said John Moscow, a former deputy chief of the investigations division in the Manhattan District Attorney’s Office.
“The big question they’re probably looking to answer is what happened,” said Moscow, now at Baker Hostetler LLP. “When you’ve figured out what happened, then you can figure out if it’s wrongful and it’s criminal. Before you’ve figured out what happened, it’s premature” to predict the outcome.
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JPMorgan Seeks Dismissal of $6.4 Billion Madoff Trustee Suit
JPMorgan Chase & Co. (JPM) sought to dismiss a $6.4 billion lawsuit by the trustee liquidating Bernard Madoff’s firm, saying he doesn’t have the right to sue the bank on behalf of the con man’s investors.
Trustee Irving Picard sued JPMorgan in U.S. Bankruptcy court in Manhattan in December, alleging it ignored signs of fraud as billions of dollars flowed from Madoff’s account at the bank to investors. JPMorgan was Madoff’s primary banker. The lawsuit seeks $1 billion in fees and transfers, and $5.4 billion in damages, alleging that JPMorgan defrauded federal regulators and violated banking law.
JPMorgan, the second-biggest U.S. bank, asked in a filing June 3 that a U.S. District Court judge dismiss the suit. The trustee’s “complaint never alleges facts showing that anyone at JPMorgan knew that Madoff was a crook,” the bank said in the filing.
Picard was hired to liquidate Madoff’s firm and doesn’t have the legal right to sue on behalf of investors in the $17 billion Ponzi scheme, New York-based JPMorgan said. Picard has filed more than 1,000 suits seeking $90 billion for Madoff investors.
Amanda Remus, a Picard spokeswoman, didn’t return a call to her office after regular business hours.
The appeal is Picard v. JPMorgan Chase & Co., 1:11-cv- 00913, U.S. District Court, Southern District of New York (Manhattan).
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Primeo Fund to Take Madoff Trustee Suit to District Court
Primeo Fund, sued along with HSBC Holdings Plc (HSBA) by the trustee liquidating Bernard Madoff’s firm, will ask a district judge to remove the case from bankruptcy court.
Trustee Irving Picard sued HSBC and a dozen so-called feeder funds including Primeo for $9 billion in December, saying they should have known of the fraud. Primeo, based in the Cayman Islands, will follow HSBC, Europe’s biggest lender, in asking a higher court to review Picard’s claims against it, according to a court filing June 1.
Primeo, which is being liquidated, was a fund tied to Bank Medici AG and its founder Sonja Kohn that invested in Madoff’s firm and other feeders such as Alpha Prime, according to Picard’s suit. Primeo took $145 million, mostly its principal, out of the Madoff firm in the six years before the 2008 bankruptcy, which Picard is seeking to recover, he said in the suit. Its profit was a scant $27,942, according to Picard.
The trustee put total six-year withdrawals by funds he named in the HSBC suit at $2 billion.
HSBC has asked U.S. District Judge Jed Rakoff in New York to dismiss Picard’s suit, saying it didn’t know of the fraud and lost $1 billion of its own money investing in funds that in turn put money with Madoff.
Madoff is serving a 150-year sentence in federal prison in North Carolina.
Amanda Remus, a Picard spokeswoman, declined to comment.
The HSBC appeal is Irving H. Picard v. HSBC Bank Plc, 11- cv-0763, U.S. District Court, Southern District of New York (Manhattan).
Chiquita Fails to Halt Suit Over Colombia Torture, Murder
Chiquita Brands International Inc. (CQB), owner of the namesake banana label, failed to halt U.S. lawsuits brought by thousands of Colombians who said they or their relatives were tortured or killed by militias the company paid.
U.S. District Judge Kenneth Marra in West Palm Beach, Florida, denied June 3 Chiquita’s motion to dismiss some of the claims brought under the Alien Tort Statute and the Torture Victim Protection Act. The civil suits, which have been joined into a single case, seek compensation for the victims.
The company was fined $25 million after pleading guilty in March 2007 to engaging in transactions with a terrorist group for paying Colombian paramilitary militias $1.7 million from 1997 to 2004. No executives were charged.
The seven complaints consolidated before Marra cover “several thousand” plaintiffs alleging their family members were killed or tortured by Colombian paramilitary groups in banana-growing regions of the country, according to the June 3 order. The paramilitaries targeted trade unionists and leftist activists, the judge said.
“While the court allowed some claims to move forward, it is important to understand that at this stage of the proceedings, the court is required by law to treat plaintiffs’ outrageous and false allegations as if they were true,” Ed Loyd, a company spokesman, said in an e-mail. “Plaintiffs now have the burden of proving these allegations.”
While dismissing some of the Colombians’ claims, Marra rejected some of Chiquita’s arguments, including the notion that that because the case could have foreign policy implications it should be dismissed. He also rejected Chiquita’s assertion that allowing the claims would give rise to thousands more suits under the Alien Tort Statute.
The case is In Re: Chiquita Brands International, Inc., Alien Tort Statute and Shareholders Derivative Litigation, 08- 1916, U.S. District Court, Southern District of Florida (Fort Lauderdale).
Ex-Egypt Bank Chairman Makes Bail on Hotel Sex-Abuse Charge
Mahmoud Abdel Salam Omar, the former chairman of Egypt’s Bank of Alexandria and head of El-Mex Salines, was released on bail as he awaits trial on charges he sexually abused a maid at the Pierre hotel in Manhattan.
Omar, 72, was released June 3 before his case was called, said Sharman Stein, a spokeswoman for the New York City Department of Correction. A New York state judge in Manhattan earlier this week set bail of $50,000 bond or $25,000 cash.
Omar, who made a brief appearance June 3 in a Manhattan courtroom, had been confined at Rikers Island, the city’s main jail complex. Dominique Strauss-Kahn, the former International Monetary Fund chief, was locked up there last month after being charged with the sexual assault and attempted rape of a maid at the Sofitel, another Manhattan hotel. Omar declined comment as he left the courthouse. His case was adjourned until Aug. 23.
“He is presumed innocent,” his lawyer Lori Cohen of Cohen & Funk in Manhattan said outside the courtroom after the appearance. Cohen added Omar would testify before a grand jury on the case “if it comes to that.”
Joan Vollero, a spokeswoman for Manhattan District Attorney Cyrus Vance Jr., declined to comment.
Cohen said Omar was held in lieu of bail until this morning because most, if not all, of his assets aren’t in the U.S.
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Ex-SAC Capital Manager Testifies He Committed Crimes at Fund
Ex-SAC Capital Advisors LP portfolio manager Noah Freeman told a federal jury in New York that he committed insider trading while working at two separate hedge funds, including while overseeing a $300 million fund at SAC.
Freeman, 35, who pleaded guilty to securities fraud charges in February and is cooperating with the government, testified June 3 against Winifred Jiau, 43, the first of the so-called expert networkers to go on trial as part of a U.S. crackdown on insider trading of hedge funds. She is accused of passing illegal tips to fund managers.
Freeman said he was approached by agents with the Federal Bureau of Investigation in late November or early December, who played a recording of a conversation he had with Jiau and Sam Barai, founder of New York-based Barai Capital Management. He said he promptly hired a lawyer and started cooperating with the government.
“I told representatives of law enforcement the crimes I committed and other people had committed,” Freeman said.
“Did you volunteer information about other individuals who were committing crimes?”
“I did,” Freeman said. “On, at least in passing, more than a dozen.”
Jiau’s lawyer, Joanna Hendon, said June 3 she will call Barai as a witness during her case.
Freeman testified for about an hour before court recessed for the day. His testimony is scheduled to resume today. He is the first of three cooperating witnesses that the government said would be called to testify.
Freeman’s lawyer, Benjamin Rosenberg of Dechert LLP, didn’t return a call seeking comment.
The case is U.S. v. Jiau, 11-CR-161, U.S. District Court, Southern District of New York (Manhattan).
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Altria Appeals Tobacco Sales Oversight Ruling by U.S. Judge
Cigarette makers including Altria Group Inc. (MO)’s Philip Morris USA unit are appealing a judge’s ruling that oversight of the industry resulting from a 1999 racketeering case is necessary and will continue.
The defendants, which also include Reynolds American Inc. (RAI)’s R.J. Reynolds Tobacco and Lorillard Inc. (LO)’s Lorillard Tobacco, notified U.S. District Judge Gladys Kessler in Washington June 3 that they are challenging her authority to oversee the case in an appeal.
Kessler ruled June 1 that her involvement wasn’t ended by a 2009 law that empowered the U.S. Food and Drug Administration to monitor the industry and establish restrictions on the sale, promotion and distribution of tobacco products.
In her ruling, Kessler said the cigarette makers continue to challenge the law that created the FDA’s regulation of the industry and if they prevail, “it will be all the more necessary for them to be restrained by this court from any future violations” of the Racketeer Influenced and Corrupt Organizations Act.
In 2006, Kessler found that the companies violated the law by conspiring to hide the dangers of cigarettes. She ordered the companies to stop marketing cigarettes as “light” and “low- tar” and to make statements about the health effects of smoking in newspapers and magazines and on cigarette packages.
The case is U.S. v. Philip Morris USA Inc., 99-cv-02496, U.S. District Court, District of Columbia (Washington).
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NFL Owners Take Fight Over Lockout-Lift Order to Appeals Court
National Football League lawyers are asking a U.S. appeals court June 3 to reverse a lower judge’s order directing them to end their player lockout.
Team owners blocked player access to coaching staffs, trainers and practice facilities on March 12 after collective bargaining talks collapsed. Players disavowed their union and sued the NFL for allegedly violating U.S. antitrust laws.
U.S. District Judge Susan Richard Nelson in St. Paul, Minnesota, ordered an end to the lockout on April 25, saying it would probably cause the players irreparable harm. The NFL won a temporary stay of Nelson’s order and is asking a three-judge appellate panel in St. Louis to overturn it.
“The public interest is not served by placing the injunctive thumb of an antitrust court on negotiations over terms and conditions of employment,” the owners argued in a May 26 court filing.
The 32-team league, based in New York, is the richest U.S. pro sports league with annual revenue of about $9 billion. Players and owners dispute how to divide that money. They also disagree over a rookie salary cap, expanding the regular season to 18 games from 16 and health care.
Ten players, led by Super Bowl-winning quarterbacks Tom Brady, Drew Brees and Peyton Manning, sued the NFL on March 11 alleging that league owners engage in anticompetitive practices.
The lower court case is Brady v. National Football League, 11-cv-639, U.S. District Court, District of Minnesota (St. Paul). The appellate case is Brady v. National Football League, 11-1898, 8th U.S. Circuit Court of Appeals (St. Louis).
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Ex-Wachovia Manager Gets Seven Years for $14 Million Fraud
A former Wachovia Bank manager in Virginia who admitted to stealing $14.1 million from bank clients through a bogus wealth- management scheme was sentenced to seven years in prison.
Linda Speaks Tribby, 42, who pleaded guilty to one count of bank fraud in March, was sentenced June 3 in federal court in Alexandria, Virginia. Tribby used the funds to buy a helicopter, a luxury motor home, rural houses and property, and exotic animals, including two zebras, prosecutors said.
U.S. District Judge Liam O’Grady ordered Tribby to make full restitution to victims and forfeit property, funds held in bank accounts and the helicopter.
“Linda Tribby’s stunning greed and extravagant life style drove her to steal more than $14 million,” U.S. Attorney Neil MacBride said in a statement.
Tribby, of Lovettsville, Virginia, was an employee of Wachovia, bought by Wells Fargo & Co. (WFC) in 2008, and its predecessors for more than 25 years, according to prosecutors. Her last job was as a business-relationship manager developing client accounts in and around Loudoun County, prosecutors said.
From about December 2003 to January, Tribby sold some customers on a “wealth-management account product” that she said earned tax-free interest -- a product the bank didn’t offer -- then transferred funds from their accounts into accounts that she controlled, prosecutors charged.
The case is U.S. v. Tribby, 1:11-cr-00106-LO-1, U.S. District Court, Eastern District of Virginia (Alexandria).
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J&J Must Pay $327 Million Over Deceptive-Marketing Claims
A Johnson & Johnson (JNJ) unit must pay more than $327 million in penalties for deceptively marketing the antipsychotic drug Risperdal as safer and better than competing medicines, a South Carolina judge ruled.
J&J’s Ortho-McNeil-Janssen Pharmaceuticals unit repeatedly violated South Carolina’s consumer-protection laws by sending a 2003 letter to doctors touting Risperdal as superior to rival drugs and including deceptive information in the product’s warning label, Judge Roger Couch in Spartanburg, South Carolina, concluded.
“We don’t believe that the dissemination of an FDA approved package insert constitutes a violation of the South Carolina Trade Practices Act,” Kara Russell, a spokeswoman for Janssen said in an e-mailed statement. “We do not believe the ruling can be upheld on appeal.”
South Carolina’s lawyers, who originally sued the J&J unit in 2007 for making misleading claims about Risperdal, sought billions of dollars in penalties over the marketing.
Risperdal’s global sales peaked at $4.5 billion in 2007 and declined after the company lost patent protection. The drug generated $3.4 billion in sales in 2008, or 5.4 percent of J&J’s total revenue, according to company filings. Sales of the drug fell to $527 million last year, according to a January earnings report.
The state’s case centered on drug-safety claims that New Brunswick, New Jersey-based J&J and Janssen made in November 2003 correspondence to about 700,000 doctors across the U.S., including 7,200 in South Carolina.
The case is State of South Carolina v. Janssen Pharmaceuticals, 2007-CP-42-1438, Circuit Court for Spartanburg County, South Carolina (Spartanburg).
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Longtop Financial Investor Suit Most Popular on Bloomberg
An investor lawsuit against Longtop Financial Technologies Ltd. (LFT), alleging the company overstated profit margins and concealed adverse facts was the most-read litigation docket on the Bloomberg Law system last week.
Joe Mikus, the investor, seeks to represent people who purchased shares of Longtop from June 2009 through April on claims that they lost money when the shares fell 33 percent around April 26 after reports questioned the company’s finances, according to documents filed in federal court in Los Angeles.
Longtop, a Hong Kong-based software provider whose 2007 U.S. initial public offering was underwritten by Goldman Sachs Group Inc. and Deutsche Bank AG (DBK), said May 23 that auditor Deloitte Touche Tohmatsu Ltd. resigned and the U.S. Securities and Exchange Commission was investigating claims by Deloitte. The auditor said in a resignation letter that it found falsehoods in company financial reports, Longtop said in a May 23 statement.
The case is Mikus v. Longtop Financial Technologies Ltd., 2:11-cv-04402, U.S. District Court, Central District of California (Los Angeles).
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