Taylor Bean, AstraZeneca, Blackstone, Rambus in Court News

JPMorgan Chase & Co. (JPM) agreed to pay $153.6 million to settle U.S. regulatory claims it misled pension funds and a Lutheran group while selling a product linked to risky mortgages as the housing market unraveled.

The company, the only major Wall Street bank to remain profitable throughout the financial crisis, didn’t tell investors that hedge fund Magnetar Capital LLC helped pick assets linked to a synthetic collateralized debt obligation in 2007, the Securities and Exchange Commission wrote in a fraud case filed yesterday at Manhattan federal court. Magnetar, betting housing prices would fall, stood to profit if assets defaulted.

“JPMorgan marketed highly complex CDO investments to investors with promises that the mortgage assets underlying the CDO would be selected by an independent manager looking out for investor interests,” the SEC’s enforcement chief, Robert Khuzami, said in a statement. “With today’s settlement, harmed investors receive a full return of the losses they suffered.”

Magnetar didn’t control the asset-selection process and its bets were part of a “market neutral” portfolio, Steve Lipin, a spokesman for the hedge fund, said yesterday in an e-mail.

“Magnetar is not a party to the settlement nor a defendant in this case, and was not involved in the marketing of the securities,” Lipin said. “The SEC staff issued a closing letter to Magnetar stating that it does ‘not intend to recommend any enforcement action’ against Magnetar, any of its funds or any current or former Magnetar personnel.”

JPMorgan said yesterday in a statement that the bank booked $900 million in losses on the CDO and, after an internal review, voluntarily made $56 million in payments to investors of a separate CDO called Tahoma I.

“The SEC has not charged the firm with intentional or reckless misconduct,” JPMorgan said in the statement.

Asked why JPMorgan executives weren’t sued, Khuzami said, “We look hard and long at the conduct of individuals and make our decisions based on the evidence.”

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Ex-Taylor Bean CEO Gets 40-Month Sentence for Fraud Scheme

Paul Allen, the former chief executive officer of Taylor, Bean & Whitaker Mortgage Corp., was sentenced to 3 1/2 years in prison in federal court in Virginia for his role in a $3 billion fraud scheme.

Allen, 55, yesterday became the sixth person sent to prison by U.S. District Judge Leonie Brinkema for participating in a fraud that duped some of the largest U.S. financial institutions. The scheme also targeted the federal bank bailout program and contributed to the failure of Montgomery, Alabama- based Colonial Bank and its parent, Colonial BancGroup Inc.

Prosecutors asked Brinkema to sentence Allen to six years in prison. Allen pleaded guilty in April to one count of conspiracy to commit bank and wire fraud and one count of making false statements.

Sean Ragland, 37, a former senior financial analyst at Taylor Bean who also pleaded guilty to the fraud, was sentenced yesterday to three months in prison, Peter Carr, a spokesman for U.S. Attorney Neil MacBride, said.

The cases are U.S. v. Allen, 11-cr-00165, and U.S. v. Ragland, 11-cr-00162, U.S. District Court, Eastern District of Virginia (Alexandria).

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New Suits

London Police Arrest 19-Year-Old in Sony, CIA Hacking Probe

London police arrested a 19-year-old man suspected of being involved in a hacking attack on Sony Corp. (6758) and the U.S. Central Intelligence Agency.

The arrest was a “pre-planned intelligence-led operation” as part of an investigation into hacking of international business and intelligence agencies, the Metropolitan Police said in a statement yesterday. Police called it “a significant arrest.”

The police searched a residence in Essex, England, last night after the man’s arrest, which “led to the examination of a significant amount of material.” The man, who wasn’t identified, is being questioned at a police station.

Police are looking into whether the suspect is associated with Lulz Security, known as LulzSec, or Anonymous groups. LulzSec has claimed credit for breaking into websites at Sony and the U.S. Senate, while Anonymous said in April it would wage a cyber war against Tokyo-based Sony for trying to prevent people from tinkering with PlayStation 3 game consoles. Daichi Yamafuji, a spokesman for Sony, declined to comment.

“Seems the glorious leader of LulzSec got arrested, it’s all over now... wait... we’re all still here!” the group wrote on its Twitter feed following the arrest.

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Gome Says It’s Suing Ex-Chairman Chen for Breach of Agreement

Gome Electrical Appliances Holding Ltd., China’s second- largest electronics retailer, said it filed a lawsuit in Beijing against former chairman Chen Xiao for breaching an agreement to protect the company’s reputation.

Chen broke the agreement by giving “false and misleading company information to a finance newspaper reporter” that damaged Gome’s reputation and operations, the company said June 20 in an e-mailed statement. Chen said he wasn’t aware of a lawsuit filed against him and declined to comment further when reached by phone June 20.

Chen had resigned in March after losing a boardroom battle with Gome’s billionaire founder Huang Guangyu, who fought from prison to reassert his influence over the company after being jailed on bribery and insider trading charges. Gome on May 11 fell the most in almost two months in Hong Kong trading after the 21st Century Business Herald carried remarks by Chen.

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Lawsuits/Pretrial

Ex-FrontPoint Manager Skowron in Talks With U.S. on Fraud Case

Ex-FrontPoint Partners LLC hedge fund manager Chip Skowron, charged as part of a nationwide insider trading crackdown, is in talks with federal prosecutors that may involve plea negotiations, according to court filings.

Skowron was charged in April by the office of U.S. Attorney Preet Bharara in Manhattan with conspiracy, securities fraud and obstruction. He was also sued by the Securities and Exchange Commission.

Prosecutors claimed he obtained nonpublic information from Dr. Yves Benhamou, an expert in hepatitis drugs and a former adviser for Human Genome Sciences Inc. The tips concerned hepatitis C drug trials and enabled Greenwich, Connecticut-based FrontPoint to avoid more than $30 million in losses, the government said. Benhamou has since pleaded guilty.

“Counsel for the defendant and I have had ongoing discussions regarding a possible disposition of this case,” Assistant Manhattan U.S. Attorney Pablo Quinones wrote in court papers filed June 13 in Skowron’s case. “We plan to continue our discussions.”

“This request can mean a whole range of things,” said Stephen Miller, a former federal prosecutor in New York and Philadelphia who’s not involved in the case. “It can mean they’re talking about the actual plea discussions, how much jail time is the government going to seek all the way to a prosecutor badgering a defense lawyer about ‘When are you going to get your client in to plead guilty?’” said Miller, now a partner at Cozen O’Conner.

The defendant may also be seeking a delay “to buy more time to do more of an investigation or raise motions with the court,” Miller added.

The case is U.S. v. Skowron, 11-MAG-00997, U.S. District Court, Southern District of New York (Manhattan).

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Primedia Suits Over KKR Share-Buyback Deals Revived by Court

Primedia Inc. (PRM), the publisher of free auto and real-estate guides, must face investors’ claims that share buybacks unfairly benefited buyout firm KKR & Co., the company’s controlling shareholder, a court ruled.

The Delaware Supreme Court reinstated June 20 Primedia shareholders’ lawsuits seeking to recoup monies for the company tied to the KKR buybacks. The state’s highest court found a Delaware Chancery Court judge erroneously threw out the cases last year after concluding investors had to prove KKR’s actions harmed the company.

“Actual harm to the corporation is not required” for investors to state breach-of-fiduciary duty claims like those leveled against KKR, Chief Justice Myron Steele said in a 25- page ruling.

The decision comes a month after Primedia agreed to sell itself to an affiliate of TPG Capital, the buyout firm co- founded by David Bonderman, in a deal valued at about $525 million. Primedia investors are slated to receive $7.10 in cash for each share.

KKR officials don’t comment on pending litigation, Kristi Huller, the firm’s spokeswoman, said in a telephone interview. Jeff Grossman, a Primedia spokesman, didn’t return a call for comment yesterday.

Joseph Rosenthal, a Wilmington, Delaware-based lawyer representing Primedia investors in the case, didn’t return calls for comment on the ruling.

The Supreme Court case is Kahn and Spiegal v. Kolberg Kravis Roberts & Co. LP and Primedia Inc., No. 436, 2010, Delaware Supreme Court (Dover). The chancery court case is In re Primedia Inc. Derivative Litigation, 1808-N, Delaware Chancery Court (Wilmington).

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Banks Will Be Sued If Foreclosure Talks Collapse, States Say

Two state attorneys general who are among those leading negotiations with the five largest U.S. mortgage servicers over their foreclosure practices said the banks would be sued if a settlement isn’t reached.

Illinois Attorney General Lisa Madigan and North Carolina Attorney General Roy Cooper threatened litigation if settlement talks with the companies, including Bank of America Corp. (BAC) and JPMorgan Chase & Co., break down.

“If we don’t get an agreement, we’re prepared to go to court,” Cooper told homeowner advocates at a meeting of state attorneys general in Chicago yesterday.

Cooper and Madigan are members of the executive committee of attorneys general which, along with officials from federal agencies, is negotiating with the banks. State and federal officials are seeking to set standards for the way the banks service loans and conduct foreclosures. They also want monetary relief for homeowners.

Iowa Attorney General Tom Miller, who is leading negotiations for the states, told the group of homeowner advocates that officials are making progress in the negotiations. He declined to provide any details.

“We don’t want a settlement around the margins, around the edges,” Miller said. “The settlement has to be fundamental, has to make some changes that are worth it, that are constructive.”

AstraZeneca Breached Albemarle Supply Pact With Bachem Deal

AstraZeneca Plc (AZN), Britain’s second-biggest drugmaker, breached a supply contract with U.S. chemical maker Albemarle Corp. (ALB) by agreeing to buy a critical drug component from Bachem Holding AG (BANB), a U.K. judge ruled.

AstraZeneca violated a 2005 deal by switching in October 2007 to Bachem’s Sochinaz unit for supply of propofol, the active ingredient in its Diprivan anesthetic, Justice Julian Flaux ruled yesterday at the High Court in London. Albemarle terminated the deal in 2008 over the breach.

“Albemarle is entitled in principle to recover damages for that breach,” Flaux said in the ruling. “Assessment of those damages will have to be the subject of a subsequent trial.”

AstraZeneca, which bought the ingredient from Albemarle as early as 1994, didn’t give the Baton Rouge, Louisiana-based company a chance to match the offer from Switzerland’s Sochinaz, according to the ruling. The drugmaker breached the deal again by not offering the supply business to Albemarle when it matched Sochinaz’s bid, he said.

Albemarle also had a “limited” breach of the contract by failing to fulfill a 2007 supply order, according to the ruling. Some of AstraZeneca’s counterclaims were split into another case, while others must be heard in the U.S., according to the ruling.

“The court has found both parties to be in breach of contract, but AstraZeneca’s claim for damages is limited,” Abigail Baron, a company spokeswoman, said in a statement. “AstraZeneca is currently considering its options for further review, one of which is to appeal.”

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Hong Kong Regulator Fails to Win Freeze of Tiger Asia Assets

A Hong Kong court refused to order the freezing of HK$38.5 million ($4.9 million) of assets held by Tiger Asia Management LLC, the hedge-fund firm led by Bill Hwang, to restore alleged insider trading profits to investors.

Judge Jonathan Harris said yesterday the court lacks the authority to declare that the firm had engaged in insider dealing, agreeing with Tiger Asia that the offense should be decided in the Market Misconduct Tribunal or a criminal court. He granted a request from the Hong Kong Securities and Futures Commission, which had sought the freeze, for a hearing to discuss how to proceed with its allegations.

Harris last week delayed his ruling in a case where the SFC is asking for final orders to restore HK$832 million raised by Hontex International Holdings Co. in its 2009 initial public offering to current shareholders. There were similar issues regarding the jurisdiction of the regulator, he said.

The SFC intends to appeal the ruling, according to a statement yesterday. Starting civil proceedings in the Market Misconduct Tribunal would give the Tiger Asia parties immunity from criminal prosecution, the regulator said.

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Centro Wins Dismissal of Suit to Block Sale to Blackstone

Centro Properties Group (CNP) won the dismissal of a shareholder lawsuit which sought to block a $9.4 billion sale of its U.S. malls to a unit of Blackstone Group LP (BX), allowing the transaction to be completed by June 30.

Smartec Capital Pty, which owns less than 0.5 percent of Centro’s outstanding shares, sued in Sydney federal court claiming the Melbourne-based company needed shareholder approval for the transaction to proceed. Federal Court Judge Margaret Stone threw out the lawsuit yesterday without a hearing.

The plaintiff’s lack of “prospects for success are such that the proceedings should be summarily dismissed,” Stone said in court.

Blackstone Real Estate Partners VI LP, a unit of the world’s biggest private-equity firm, agreed to buy Centro’s 588 U.S. malls in March. Centro is selling assets to pay debt that totaled A$16 billion ($17 billion) as of Dec. 31, according to its financial statements. The shopping-mall manager said on March 1 it also agreed to swap part of its debt for 108 Australian properties and will be left with about A$100 million to distribute to shareholders when the deals are concluded.

Smartec claimed Centro violated Australian rules for listed companies by not seeking shareholder approval for the U.S. sale. The investor sought to overturn a ruling by the Australian Securities Exchange, which found that approval wasn’t needed because Centro’s U.S. assets didn’t make up its main business.

The case is: Smartec Capital Pty Ltd. v. Centro Properties Ltd. NSD913/2011. Federal Court of Australia (Sydney).

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BTA Bank Seeks Two Jail Sentences in $4 Billion Fraud Suit

BTA Bank, the biggest Kazakh lender before its nationalization in 2009, is seeking U.K. prison terms for two men in connection with a $4 billion fraud allegedly spearheaded by former Chairman Mukhtar Ablyazov.

Syrym Shalabayev, Ablyazov’s brother-in-law who’s the subject of an arrest warrant for failing to reveal his assets, deserves an extra week to comply before being sentenced, Justice Michael Briggs ruled June 20 at the High Court in London. BTA had sought an immediate sentence for him at the hearing.

Shalabayev, accused of secretly administering Ablyazov’s assets, must take “a more serious approach” to the claims, Briggs said at the hearing. He “is likely to face a very serious custodial sentence” if he fails to do so.

BTA, which defaulted on $12 billion of debt before restructuring last year, filed a series of U.K. cases against Ablyazov and ex-Chief Executive Officer Roman Solodchenko over claims they siphoned money using fake loans. The lender says litigation against the men will benefit Royal Bank of Scotland Group Plc (RBS), Barclays Plc (BARC), Commerzbank AG (CBK) and other creditors that financed its rapid growth before the global credit crisis.

Shalabayev, whose whereabouts are unknown, is considering cooperating in the case, which has already resulted in an order to freeze 200 million pounds of his assets, his lawyer said at the June 20 hearing. Almaty-based BTA seeks a court order forcing the lawyer to reveal Shalabayev’s contact details.

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Trials/Appeals

Rambus Chip Failure Due to Flaws, Not Plot, Hynix Tells Jury

Rambus Inc. (RMBS) chips failed in the marketplace because computer makers found them technically inferior and too expensive, not because of a conspiracy among rival companies, Hynix Semiconductor Inc. (000660) said at a trial of Rambus’s antitrust lawsuit.

Rambus-designed chips hit the memory market with “a whimper and not a bang” and survived only as a “niche product,” Hynix lawyer Kenneth L. Nissly told jurors yesterday in California state court in San Francisco.

Rambus, based in Sunnyvale, California, is seeking as much as $12.9 billion from Hynix and Micron Technology Inc. (MU), based on arguments they conspired to thwart its dynamic random access memory, or DRAM.

The $4.3 billion in damages sought by Rambus against the two companies would be automatically tripled under California law, according to Rambus.

Nissly made an argument that chipmakers have used with some success in patent cases against Rambus: that the company “had at its core,” before any of the chips at issue in the case were produced, a plan to sue Hynix and Micron and destroy documents critical to revealing that plan.

“We’re talking about setting out to destroy documents so they don’t get used in litigation,” Nissly said.

Rambus claims Hynix, based in Ichon, South Korea, and Micron, based in Boise, Idaho, inflated the price of RDRAM chips and collusively underpriced their own SDRAM and DDR chips to undercut competition.

The case is Rambus Inc. v. Micron Technology Inc., 04-431105, California Superior Court (San Francisco).

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Wal-Mart Women Vow to Press Bias Fight in Courts, Agency

The women who sought to sue Wal-Mart Stores Inc. (WMT) for gender bias on behalf of 1.5 million co-workers said they will press their fight against the nation’s largest private employer in smaller lawsuits in lower courts and claims with the U.S. Equal Employment Opportunity Commission.

The U.S. Supreme Court said June 20 that the women failed to prove the world’s largest retailer had a nationwide policy that led to gender discrimination. The court deprived them of the leverage a nationwide suit brings, both in pooled legal resources and a potential multibillion-dollar verdict, forcing them to pursue claims on their own.

“When I go back to work tomorrow, I’m going to let them know we are still fighting,” said Christine Kwapnoski, an assistant manager at a Sam’s Club in Concord, California. She had accused a male manager of yelling at female employees and telling her to “doll up” by wearing more makeup and dressing better while working on a loading dock.

Wal-Mart may now face thousands of lawsuits nationwide and claims of discrimination before federal agencies as plaintiffs’ lawyers fan out to courts across the country to file new complaints on behalf of members of the failed group suit.

Kwapnoski and others pressing their suit claimed they were victimized by Wal-Mart’s practice of letting local managers make subjective decisions about pay and promotions. More than 100 employees filed sworn statements saying they were paid less and given fewer opportunities for promotion than male colleagues.

Wal-Mart said yesterday that the high court ruling “effectively ends this class-action lawsuit.”

“As the majority made clear, the plaintiffs’ claims were worlds away from showing a companywide pay and promotion policy,” Wal-Mart, led by Chief Executive Officer Mike Duke, said in a statement.

The case is Wal-Mart Stores v. Dukes, 10-00277, U.S. Supreme Court (Washington).

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On the Docket

Allen Stanford’s Criminal Fraud Trial Delayed Until January

Indicted financier R. Allen Stanford’s criminal trial was postponed to January from September so he can complete rehabilitation treatment for dependence on anti-anxiety drugs prescribed by prison doctors.

U.S. District Judge David Hittner in Houston said doctors treating Stanford said that it will take him as long as four more months to kick his dependence on anti-anxiety drugs prescribed after he was severely beaten by another inmate in September 2009.

Hittner found Stanford incompetent to assist in his own defense in January after three psychiatrists testified the former billionaire’s mental capacities were diminished from over-medication and lingering head injuries suffered in the prison fight.

The criminal case is U.S. v. Stanford, 09cr342, U.S. District Court, Southern District of Texas (Houston). The SEC case is Securities and Exchange Commission v. Stanford International Bank, 09cv298, U.S. District Court, Northern District of Texas (Dallas).

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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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