UBS, Microsoft, Shell, Madoff, Deutsche Bank in Court News
Steven Kobayashi, a former UBS AG (UBSN) financial adviser in California, pleaded guilty to wire fraud and agreed to serve more than five years in prison for improperly transferring client funds to his bank accounts, U.S. Attorney Melinda Haag said in a statement yesterday.
Kobayashi, 39, of Livermore, California, was charged in March with taking money from his clients’ UBS accounts and putting it into his accounts, sometimes gaining customer authorization to withdraw their money by telling them it would be used to purchase investments, prosecutors said.
An adviser at the UBS Financial Services LLC office in Walnut Creek, California, from 2004 to September 2009, Kobayashi also forged investors’ signatures or copied and pasted their signatures from other documents to facilitate funds withdrawals, Haag said.
Between 2006 and 2009, Kobayashi transferred more than $5.4 million in client funds to his bank accounts, prosecutors said. In March, he settled a U.S. Securities and Exchange Commission lawsuit alleging he misappropriated $3.3 million in a scheme that included bilking investors in a private investment fund and spending $1.4 million of their money on cars, prostitutes and gambling. He didn’t admit or deny wrongdoing.
Joyce Leavitt, an attorney with the federal public defender’s office in Oakland, California who represented Kobayashi, didn’t return a voice-mail message.
The criminal case is U.S. v. Kobayashi, 11-106 and the SEC case is U.S. v. Kobayashi, 11-981, U.S. District Court, Northern District of California (Oakland).
Microsoft Loses at Top U.S. Court on $300 Million I4i Award
The U.S. Supreme Court upheld a patent-infringement verdict that will cost Microsoft Corp. (MSFT) $300 million and already has forced changes in its Word software.
The justices yesterday unanimously rejected calls from Microsoft and its allies, including Apple Inc. (AAPL) and Google Inc. (GOOG), to overturn the award and make some patents more vulnerable to legal challenge.
The ruling is a victory for closely held I4i LP, which claimed in its 2007 lawsuit that its patented technology had been incorporated into Word, the word-processing program used by 500 million people. The award is the largest ever upheld on appeal in a patent case.
“It’s strongly in our favor and strongly in favor of protecting the U.S. patent system and ensuring inventors get protection,” I4i Chairman Loudon Owen said in an interview. “It is one of the most significant business cases that the court has decided in decades.”
“While the outcome is not what we had hoped for, we will continue to advocate for changes to the law that will prevent abuse of the patent system and protect inventors who hold patents representing true innovation,” said Kevin Kutz, a Microsoft spokesman, in an e-mail.
Microsoft contended that the disputed patent was based on technology already in the marketplace. The question for the Supreme Court was whether, as a lower court concluded, Microsoft needed to make that showing by “clear and convincing” evidence to overcome the longstanding presumption that patents approved by the U.S. Patent and Trademark Office are valid.
Microsoft argued that a less-demanding standard should apply when a jury is presented with evidence about pre-existing technology that the patent examiner didn’t consider.
“Any recalibration of the standard of proof remains in its hands,” Sotomayor said.
The case is Microsoft v. I4i Limited Partnership, 10-290, U.S. Supreme Court (Washington.)
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UCB Unit Pleads Guilty to Improper Epilepsy Drug Marketing
A unit of drugmaker UCB SA (UCB) pleaded guilty in the U.S. to a misdemeanor and will pay more than $34 million in fines and penalties for the improper marketing of the epilepsy medicine Keppra.
UCB Inc. admitted yesterday in federal court in Washington that it promoted Keppra for uses unapproved by the U.S. Food and Drug Administration. The plea was accepted by U.S. District Judge Ricardo Urbina.
UCB Inc. is a Smyrna, Georgia, unit of Brussels-based UCB SA. Keppra, with 942 million euros ($1.37 billion) in sales last year, is the company’s top-selling drug, according to data compiled by Bloomberg.
The criminal plea was part of a global settlement that the Justice Department reached with UCB, which includes resolution of a related civil false-claims case, according to a sentencing memorandum.
“UCB put its pursuit of profits ahead of its obligations to patients,” Ronald C. Machen Jr., U.S. attorney for the District of Columbia, said in an e-mailed statement. “Today’s guilty plea and UCB’s $34 million payout should remind drug companies that try to cleverly design off-label marketing schemes that we will not allow them to compromise patient safety.”
UCB admitted that it unlawfully promoted Keppra for use in treating migraine, a use that wasn’t approved by the FDA, according to the criminal charge.
Christie Madara, a UCB spokeswoman, said the company has been cooperating with the investigation since 2008 and is pleased to have the matter resolved. She said the probe focused on issues that occurred more than six years ago.
The case is U.S. v. UCB Inc., U.S. District Court, District of Columbia (Washington).
Ponzi Schemer Rothstein’s Associates Set to Change Pleas
Four South Florida men who pleaded not guilty to aiding Scott Rothstein in a $1.2 billion investment scheme involving fake court settlements are set to change their pleas, according to court filings.
Howard Kusnick, an attorney at Rothstein’s Fort Lauderdale law firm; Curtis Renie and William Corte, information technology employees of the firm; and Stephen Caputi, an associate of Rothstein’s, are scheduled for change-of-plea hearings in federal court in Florida starting next week, according to case dockets. Each was charged in May with a single count of conspiracy to commit wire fraud.
Rothstein pleaded guilty to five counts of racketeering, money laundering and wire fraud in January 2010, admitting he sold investors interests in fake lawsuit settlements. He was sentenced to 50 years in prison.
Alicia Valle, a spokeswoman for the U.S. Attorney’s Office in Miami, declined to comment, as did Hy Shapiro, Caputi’s attorney, and Joshua Rydell, Kusnick’s attorney. Alvin Entin, who represents Corte, and Albert Levin, an attorney for Renie, didn’t return calls seeking comment.
Prosecutors said Kusnick wrote a letter claiming to have settled a pending case in a client’s favor when the case had never been filed and no settlement existed. Caputi attended meetings with potential investors in the scheme, acting as a banker or as a plaintiff in fictitious suits, prosecutors said.
Renie and Corte created a Web page designed to look like it was the website of a bank so investors would think Rothstein’s law firm held as much as $1.1 billion in trust accounts, prosecutors charge.
Each faces a maximum sentence of five years in prison.
The cases are U.S. v. Kusnick, 11-60125, U.S. v. Caputi, 11-60124, U.S. v. Renie, 11-60123, U.S. District Court, Southern District of Florida (Fort Lauderdale).
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Spanish Company Sues German Agency Over E. Coli Claim
Frunet SL, a Spanish producer of fruits and vegetables, sued a German health authority and sought emergency access to files linking the outbreak of E. coli to the company’s cucumbers.
The Malaga-based company filed the request after the Hamburg health authority declined to provide full documentation on the process of testing the cucumbers, law firm Lindenpartners said in an e-mailed statement yesterday. The financial damage to Frunet and other producers is “immense and existence- threatening,” according to the statement, which didn’t say whether Frunet was seeking compensation.
No one at the Hamburg Authority for Health and Consumer Protection picked up the phone after business hours yesterday.
German officials are struggling to find the source of the infection, which has claimed 27 lives and affected almost 3,000 people, mostly in Germany. Spanish cucumbers and organic sprouts, which health agencies suspected, haven’t been proven to be responsible for the outbreak.
“Lindenpartners criticizes the information policy of the Hamburg health authority, which has scared the public with demonstrably wrong and partly contradictive statements and which has caused massive harm to vegetable producers all over Europe,” the firm said in the statement. “The opaque distribution of competencies and responsibility at federal and state levels has contributed to this situation.”
Shell’s U.S. Deep-Water Oil Drilling Disputed in Petitions
U.S. approval of a Royal Dutch Shell Plc (RDSA) oil exploration plan for the deep waters of the Gulf of Mexico is illegal and should be withdrawn, environmental groups led by the Natural Resources Defense Council said in petitions.
The NRDC and Oakland, California-based Earthjustice, in filings yesterday in the U.S. Court of Appeals in Atlanta, said the May 10 action by the Bureau of Ocean Energy Management, Regulation and Enforcement violates environmental laws.
Earthjustice’s petition included Gulf Restoration Network, Florida Wildlife Federation and Sierra Club Inc. The New York- based NRDC was joined by Defenders of Wildlife and the Center for Biological Diversity, the group said in an e-mailed statement.
Shell was first to win approval for its deep-water drilling plans after passing U.S. environmental reviews adopted following the BP Plc (BP/) oil spill, triggered by an explosion aboard the Deepwater Horizon drilling rig. The Hague-based Shell was cleared to drill five exploratory wells in waters as deep as 7,259 feet (2,213 meters), 72 miles off the Louisiana coast.
“It’s unsafe to resume drilling in the Gulf given what we’ve learned from the Deepwater Horizon incident,” David Pettit, senior attorney at the NRDC, said in a phone interview.
The Bureau of Ocean Energy Management had no comment, said Melissa Schwartz, a spokeswoman.
“We will fully assist the government in defending this plan,” Bill Tanner, a Shell spokesman, said in an e-mail.
BP’s well exploded on April 20, 2010, killing 11 people, destroying the rig, and spewing crude for 87 days.
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Hackers Fight Rivals, FBI to Control Hijacked Networks
Just after 3 a.m. on May 26, Karim Hijazi, the chief executive officer of Unveillance, a cyber-security firm, received an e-mail from hackers calling themselves LulzSec. They demanded he help them take over some networks of hijacked computers that other criminals were operating, Bloomberg News’ By Michael Riley reports.
Unveillance had information on the so-called botnets because it was tracking them for potential corporate targets, Hijazi said in an interview. LulzSec had leverage to make Hijazi comply because it had hacked his Wilmington, Delaware-based company’s e-mail system and threatened to post captured confidential documents online if he didn’t help the group.
“If they did get a hold of these, they could potentially do way more damage than what’s already being done to these corporate targets,” said Hijazi, who rejected the demands. “The harm could be monumental.”
Botnets, which secretly control almost one-fifth of all home computers, have become a hotly contested terrain in the cyber-underground, according to Alex Cox, a security researcher at Reston, Virginia-based NetWitness Corp. Criminals who run them or rivals who want to are facing off against each other and against law enforcement and intelligence agencies that seek to render the rogue networks harmless or use them for their own devices, according to cyber-security experts.
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Foreclosure Probe ‘Closer’ to Settlement, Iowa Official Says
Iowa Attorney General Tom Miller, the leader of a 50-state probe of foreclosure practices, said a settlement is “closer” and that state and federal officials want a monitor to ensure that banks keep their promises.
The state attorneys general began an investigation in October as a response to revelations of faulty foreclosure procedures by mortgage servicers. The states and the U.S. Justice Department have been negotiating an accord with the five largest servicers including Bank of America Corp. (BAC), JPMorgan Chase & Co. (JPM) and Wells Fargo & Co. (WFC)
A settlement with the banks should include a monitor to ensure they comply with all the terms of any agreement, Miller said yesterday in a phone interview. A monitor would have “substantial authority” to enforce the settlement terms, he said.
“One of the great challenges is enforcement,” Miller, a Democrat, said. “We have to make sure that they do what’s promised. That’s going to be very difficult.”
The state attorneys general are seeking “considerably more” than the $5 billion proposed by the banks as a settlement figure, he said. Payments by the banks should go toward mortgage principal reductions and compensating homeowners for wrongful foreclosures, said Miller, who declined to comment further about the amount that state and federal officials are seeking.
In March, state and federal officials submitted their proposed settlement terms to the servicers, a group that also includes Citigroup Inc. (C) and Ally Financial Inc., seeking funding for principal writedowns and standards for servicing loans and conducting foreclosures. Terms have been revised as the two sides negotiate.
“We’re getting closer” to a resolution, Miller said. He wouldn’t predict when an agreement would be reached. “It’s hard to put a time on it that would be accurate.”
Bank of America spokesman Dan Frahm, JPMorgan spokesman Thomas Kelly and Vickee Adams, a spokeswoman for Wells Fargo, declined to comment. Gina Proia, a spokeswoman for Ally Financial, didn’t immediately comment.
“We consider our conversations with the AGs and agencies to be private, so we do not provide details,” Mark Rodgers, a Citigroup spokesman, said in an e-mail.
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Ensco, U.S. Settle Suit Over Deep-Water Drilling Permits
Ensco Offshore Co. and the U.S. Justice Department settled a lawsuit claiming federal regulators intentionally delayed deep-water drilling after lifting a moratorium.
U.S. regulators halted all drilling in waters deeper than 500 feet in May 2010 following the explosion and sinking of the Deepwater Horizon rig off the Louisiana coast. After offshore companies and regional leaders sued, U.S. District Judge Martin Feldman in New Orleans threw out the ban as overly broad and punitive to the Gulf Coast economy.
Interior Secretary Kenneth Salazar imposed a second ban in July and Ensco, a unit of London-based Ensco Plc (ESV), sued. Ensco pursued the suit even after the U.S. lifted the second moratorium, contending that regulators continued to halt deep- water drilling and delayed six of the company’s permit applications.
“Under the terms of the parties’ now-executed settlement agreement, defendants are to act on those of the six permit applications that are presently before the defendants no later than July 8, 2011,” lawyers for Ensco and the Justice Department said in a court filing yesterday.
The government and Ensco also filed a proposed order requiring the U.S. to submit a report to Feldman on the status of the permits by June 20.
Wyn Hornbuckle, a Justice Department spokesman, declined to comment. Sean O’Neill, an Ensco spokesman, didn’t return a call and e-mail seeking comment.
The case is Ensco Offshore Co. v. Salazar, 2:10-cv-01941, U.S. District Court, Eastern District of Louisiana (New Orleans).
UBS Loses Bid to Dismiss French Madoff Investors’ Lawsuit
UBS AG lost a bid to have an investor lawsuit related to Bernard Madoff’s role in the bank’s LuxAlpha Sicav-American Selection Fund dismissed when a French court said local investors had a separate claim from the fund’s liquidators.
A commercial court in Paris said in an opinion yesterday that while their case is admissible, it will wait to issue a final ruling until the Luxembourg-based LuxAlpha liquidators’ claims are resolved by judges there.
The suit is one of many over UBS’s role as custodian for LuxAlpha, which invested 95 percent of its assets with Madoff and is being liquidated. Irving H. Picard, the trustee liquidating Madoff’s firm, sued the bank for $2.6 billion last year, claiming UBS aided the fraud partly by setting up feeder funds like LuxAlpha.
Should Luxembourg courts back local claims against UBS, “one could deduce at least a partial responsibility by the defendants in the context of the purportedly inexact documentation in France,” the judges wrote in their decision.
Dominique Gerster, a UBS spokesman, said the Zurich-based bank welcomes the court’s “overall conclusions.”
Madoff pleaded guilty in 2009 to charges related to his decades-long Ponzi scheme and is serving a 150-year sentence in a U.S. federal prison.
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Kingate Funds Must Return $975 Million, Madoff Trustee Says
Kingate Global Fund Ltd., Kingate Euro Fund Ltd. and other defendants must return $975 million in funds they took out of Bernard L. Madoff’s Ponzi scheme, said the trustee liquidating the jailed con man’s investment firm.
The trustee, Irving Picard, filed a new complaint against the two so-called feeder funds who invested with Madoff, adding defendants and boosting his demand from $255 million in a 2009 suit. The amended complaint was filed June 8 after U.S. Bankruptcy Judge Burton Lifland gave Picard permission to do so. The funds are being liquidated in the British Virgin Islands.
The new complaint names Federico Ceretti and Carlo Grosso, “Italian nationals operating from England” who funneled about $1.7 billion of investors’ money to Madoff from 1994 through the Kingate funds, which they set up and ran, Picard said. Ceretti, Grosso and the funds should have known of Madoff’s fraud and must return $975 million they redeemed before Madoff’s 2008 bankruptcy, Picard said in the suit.
“These avoidable transfers to the Kingate funds are customer property that must be returned to the estate,” he said. He also wants any tax refunds the defendants may get on their fictitious profits from the Ponzi scheme, he said.
William Tacon of Zolfo Cooper, the liquidator for the funds, has declined to comment on Picard’s suit.
Picard has recovered about $7.6 billion for investors who lost more than $17 billion in the Ponzi scheme, although most of it isn’t yet available for distribution, he has said. He and his law firm, Baker & Hostetler LLP, charged more than $175 million for their work, according to court filings.
The case is Picard v. Ceretti, 09-1161, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
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Deutsche Bank Says Korea Court Orders Freeze on Some Assets
Deutsche Bank AG (DBK), Germany’s biggest lender, said a South Korean court ordered a freeze on some of its assets in the Asian nation.
“We understand that a preservation order was granted by a court at the prosecutors’ request and without Deutsche Bank’s arguments being heard,” Michael West, Deutsche Bank’s Hong Kong-based spokesman, said in an e-mailed response to a query. “The order does not reflect the merits of any case that may be heard in the future.”
Deutsche Bank hasn’t received the court order yet and no one at the lender had been charged, West wrote.
The Seoul Central District Court accepted South Korean prosecutors’ requests to temporarily seize assets worth 44.8 billion won ($41 million) from Deutsche Bank’s Seoul branch and its South Korean securities unit, Yonhap News reported earlier, citing legal officials it didn’t identify. Officials at the court’s public relations team declined to comment.
South Korean prosecutors are investigating allegations that Deutsche Bank staff made unfair profit from a plunge in South Korea’s benchmark Kospi Index (KOSPI) on Nov. 11. The country’s financial regulators banned Deutsche Bank from trading shares and derivatives for its own account for six months starting from April after saying that the lender’s employees conspired to manipulate the market. The case was subsequently referred to prosecutors.
“The bank continues to cooperate with the prosecutors’ ongoing investigation,” Deutsche Bank’s West said in yesterday’s e-mail. “No charges have been laid against Deutsche Bank, its Korean subsidiaries or staff.”
Toyota Owners Can’t Use California Law in Economic Loss Suit
Toyota Motor Corp. (7203) vehicle owners outside California can’t pursue under that state’s laws their claims that unintended acceleration problems lowered the value of their cars, a judge ruled.
Toyota owners say the company drove down the value of their vehicles by failing to disclose or fix defects related to sudden acceleration. Their lawyers asked U.S. District Judge James V. Selna in Santa Ana, California, to allow them to pursue their claims under California law, which gives plaintiffs a better chance than most states of recovering damages.
Toyota asked the judge to find that car owners can’t use California law on suits brought in other states. About 70 percent of the economic-loss cases were filed outside the state. Using California’s law would permit claims to go forward that would be barred by laws in other states, Selna said.
“Application of California law to a nationwide class, at least in some instances, would drastically expand the scope of relief available to plaintiffs (to the detriment of Toyota),” Selna said in yesterday’s ruling. “Application of California law would likely have the effect of reviving a number of claims that would otherwise be time barred.”
Selna had said in court papers filed May 13 that he was likely to rule in the vehicle owners’ favor. He issued the final ruling June 8.
“We’re gratified the court has recognized that allowing a few handpicked plaintiffs to set the course for customers throughout the United States through this kind of procedural engineering would go against established law, diminish Toyota’s substantive rights and undermine the purposes of these multidistrict proceedings,” Celeste Migliore, a spokeswoman for the Toyota City, Japan-based automaker, said in an e-mailed statement.
Steve W. Berman, a lead lawyer for the vehicle owners, said he was “quite surprised” by the ruling. It won’t be a “huge issue” for the plaintiffs, he said.
“We will prove a defect exists that Toyota hid and if we have to do it state by state, so be it,” Berman said.
The cases are combined as In re Toyota Motor Corp. Unintended Acceleration Marketing, Sales Practices and Products Liability Litigation, 8:10-ml-02151, U.S. District Court, Central District of California (Santa Ana).
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On The Docket
German Top Court Schedules Hearing in Euro Bailout Suits
Germany’s top constitutional court scheduled a hearing on lawsuits against the nation’s participation in the euro-area rescue fund and the aid package for Greece.
The Federal Constitutional Court in Karlsruhe will hear oral arguments in three cases over the issue on July 5, the court said in an e-mailed statement yesterday. The cases were brought by a group of academics and lawmaker Peter Gauweiler.
“In this lead case, the court for the first time decides in the main proceedings on constitutional questions relating to the Greece aid and the Euro-rescue package,” the court said. “There are many additional cases pending over the issues which will be ruled on subsequently.”
The German high court has drawn criticism for not acting swiftly on the suits, which were filed in the first half of 2010. The judges declined to issue emergency orders blocking the aid package for Greece in May 2010 and the euro-area rescue fund in June 2010 and didn’t schedule a hearing on the main legal questions in the cases until yesterday.
The court’s agenda for the hearing includes as many admissibility issues as substantive law questions, indicating that the court is considering whether the case can be dismissed for procedural reasons. The court normally takes a few months after a hearing before it issues a ruling.
The cases are BVerfG, 2 BvR 987/10, 2 BvR 1099/10 and 2 BvR 1485/10.
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