Bank of America Corp., the biggest U.S. lender, has made a preliminary offer to bond insurer MBIA Inc. (MBI) aimed at settling a legal dispute tied to defective mortgages, according to two people briefed on the discussions.
The two companies remain split on how much the Charlotte, North Carolina-based bank would have to pay to resolve the disagreement and it is unclear when an agreement can be reached, said the people, who declined to be identified because the talks are private. Bill Halldin, a spokesman for Bank of America, and Kevin Brown of Armonk, New York-based MBIA declined to comment.
A settlement would help revive the fortunes of MBIA, the biggest bond insurer before the financial crisis, which has posted cumulative losses of more than $5 billion since the end of 2006. Bank of America Chief Executive Officer Brian T. Moynihan is working to resolve demands from bond buyers and insurers over defective mortgages created by Countrywide Financial Corp., acquired by his predecessor in 2008.
“We will fight and represent your interest to the point where we got the interests represented,” Moynihan said in a June 1 conference. “There is a point where fighting doesn’t have any value.”
The lawsuit is among several between Bank of America and MBIA, which guaranteed Wall Street’s toxic mortgage debt. Bank of America bought Countrywide in 2008 and Merrill Lynch & Co. in 2009, two of the largest participants in the market for subprime home mortgages.
An eventual settlement may cost Bank of America “in the higher end” of a $2 billion to $3 billion range, Robert Haines, an analyst at CreditSights Inc., said this week in an interview.
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Dexia Sues Deutsche Bank Over $1 Billion Securities Purchase
Dexia SA (DEXB), the lender to local governments rescued by France and Belgium in 2008, sued Deutsche Bank AG claiming fraud in connection with more than $1 billion in residential mortgage- backed securities.
Germany’s biggest bank played a “ubiquitous role” in the mortgage origination and securitization process while betting against the U.S. housing market as far back as 2005, according to the complaint. By the end of 2007, Deutsche Bank had amassed a $10 billion short position that paid off when the loans backing the securities failed, Brussels-based Dexia said.
“Deutsche Bank originated, purchased, financed and securitized exceptionally high-risk loans into these RMBS, all while internally disparaging the poor quality of these loans and the RMBS they backed as ‘pigs’ and ‘crap,’” Dexia said in the complaint.
Pools of home loans securitized into bonds were a central part of the housing bubble that helped send the U.S. into the biggest recession since the 1930s. The housing market collapsed, and the crisis swept up lenders and investment banks as the market for the securities evaporated.
Renee Calabro, a spokeswoman for Frankfurt-based Deutsche Bank, said yesterday by e-mail that the company would fight the lawsuit, which she said was “without merit.”
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Ex-News of the World Editor Arrested in Phone-Hacking Probe
London police arrested a former News of the World editor as part of the investigation into phone hacking at the News Corp. (NWS) tabloid, a day after the company dropped a bid for full ownership of British Sky Broadcasting Plc.
Neil Wallis, 60, was arrested yesterday on suspicion of conspiring to intercept phone calls. He had also worked as a paid communications consultant for the police in 2009 and 2010, the Metropolitan Police Service said in a statement.
The arrest is at least the seventh of a reporter or editor with ties to News of the World this year. Police are investigating allegations reporters at the now-defunct tabloid hacked into the mobile phones of politicians, celebrities, and murder and terror victims, and bribed police officers for information. The scandal forced Rupert Murdoch-led News Corp. (NWSA) to shut the newspaper.
Wallis had a contract to provide communication advice, including advice on speech writing and public relations activity while the agency’s deputy director of public affairs was on sick leave, the police said.
A call by Bloomberg News to a North London phone number listed for an N. Wallis wasn’t answered.
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Hong Kong Judge Won’t Halt Tiger Asia’s Trading; SFC to Appeal
Hong Kong’s securities regulator failed to obtain a trading ban against New York-based hedge fund Tiger Asia Management LLC based on insider trading allegations.
Judge Jonathan Harris of Hong Kong’s High Court ruled yesterday the court couldn’t make the order to ban Tiger Asia and its employees from trading in securities or derivatives in the city before the Securities and Futures Commission proves its insider trading case in a tribunal or criminal court.
Harris last month refused to freeze HK$38.5 million ($4.9 million) of assets held by Tiger Asia, the hedge-fund firm led by Bill Hwang, or to rule on the SFC’s insider trading allegations, saying the court lacked the power to do so. The SFC, as the regulator is called, argued at a hearing on July 11 that the trading ban should be considered separately.
The regulator will appeal both decisions, it said in a statement yesterday. The SFC said on June 21 that starting civil proceedings before the market misconduct tribunal would immunize Tiger Asia and its officers from criminal prosecution.
Tiger Asia, which has specialized in trading equities in China, Japan and South Korea since its inception, doesn’t have an office in Hong Kong, and all of its employees are based in New York, according to the regulator. Tiger Asia isn’t licensed by the SFC.
Tiger Asia disclosed in October it had also received a subpoena from the U.S. regulator.
Union Bank Must Face Group Lawsuit on Overdrafts, Judge Says
UnionBanCal Corp. customers may sue as a group over the bank’s overdraft-fee policy, a judge ruled in certifying the first class-action case in litigation against dozens of banks, according to lawyers in the case.
The courtroom ruling by U.S. District Judge James Lawrence King July 13 in Miami may affect hundreds of thousands of customers of the San Francisco-based bank. He also said customers can’t pursue a racketeering claim against the bank, which does business as Union Bank NA and is a unit of Mitsubishi UFJ Financial Group Inc. (8306)
Customers are suing 30 banks, claiming they illegally charged excessive overdraft fees, said Aaron Podhurst, the lead plaintiffs’ attorney. The cases were consolidated before King for the pretrial collection of evidence.
“In many respects, these banks are similarly situated and the classes are similarly situated,” Podhurst said in an interview. “This indicates he’s going to certify for these other banks.”
Bank of America Corp. (BAC), the biggest U.S. bank, in February agreed to pay $410 million without admitting liability to settle allegations against it. Institutions including Citigroup Inc. (C), JPMorgan Chase & Co. (JPM) and Wells Fargo & Co. (WFC) are defendants in related lawsuits.
John Sullivan, lead attorney for Union Bank, confirmed that King said in court that he would certify class-action case. He referred other questions to the bank. A bank spokesperson didn’t immediately return a call seeking comment.
The case is In Re Checking Account Overdraft Litigation, 09-cv-02036, U.S. District Court, Southern District of Florida (Miami).
UBS to Get Review of Madoff Trustee Suit by District Judge
A U.S. district judge said she will review lawsuits against UBS AG (UBSN) by the liquidator of Bernard Madoff’s firm, at least the fourth time a bank in the Madoff case gained access to a higher court.
Trustee Irving Picard sued UBS twice in bankruptcy court, demanding $2.6 billion and alleging the Zurich-based bank aided Madoff’s fraud by setting up so-called feeder funds and agreeing “to look the other way” at irregularities. U.S. District Judge Colleen McMahon in Manhattan, who is handling Picard’s $19 billion suit against JPMorgan Chase & Co., said the UBS case raises similar issues of whether Picard has a right to sue for damages.
Her acceptance of the case, noted on a court docket yesterday, is another challenge to Picard, who has filed 1,000 lawsuits seeking $100 billion for the Ponzi scheme’s investors. HSBC Holdings Plc has asked U.S. District Judge Jed Rakoff to dismiss a $9 billion suit against the U.K. bank and so-called feeder funds, arguing that Picard went far beyond his role as liquidator of the Madoff firm.
Rakoff also is considering whether the trustee had a right to use U.S. racketeering law in a $59 billion suit against UniCredit SpA (UCG), Bank Medici AG, its founder Sonja Kohn and dozens of Italian and Austrian parties.
While suits to recoup money taken out of a bankrupt firm are common, Picard is mostly suing for damages, using laws that banks say are open to question.
The case is Picard v. UBS AG, 11-cv-04213, U.S. District Court, Southern District of New York (Manhattan).
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Deutsche Bank Appeals Against Asset Freeze in South Korea
Deutsche Bank AG (DBK), Germany’s biggest lender, has appealed a South Korean court order freezing some of its assets, amid allegations that its staff unfairly profited from a market plunge last year.
Deutsche Bank filed the appeal on June 13, Gong Do Il, a spokesman for the Seoul Central District Court, said by phone yesterday. Michael West, Deutsche Bank’s Hong Kong-based spokesman, said in an e-mail that the bank had no comment.
The lender said June 9 that a preservation order on some of its assets was granted by a court at the request of prosecutors and without Deutsche Bank’s arguments being heard. South Korea’s Financial Services Commission asked prosecutors to investigate Deutsche Bank employees over a Nov. 11 plunge in the nation’s benchmark Kospi Index (KOSPI) that wiped out about $26 billion in market value.
Regulators accused Deutsche Bank employees of triggering the plunge in violation of stock market rules and banned the lender from trading shares and derivatives for its account for six months from April 1. It was the heaviest penalty imposed on any securities company in Korea.
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Deutsche Bank Said to Settle ‘Spread Ladder Swap’ Cases
Deutsche Bank AG, Germany’s biggest bank, is trying to settle pending lawsuits involving swap contracts that were similar to those in a German high court ruling against the lender.
The bank has settled several cases and is trying to end others in lower tribunals and Germany’s top civil court, three people with knowledge of the issue said. They declined to be identified because the negotiations are private.
The Federal Court of Justice, the country’s highest civil court, ruled in March that Deutsche Bank must cover losses caused by a derivative it branded “CMS Spread Ladder Swap,” unless the bank disclosed the product had an initial negative market value. The bank said at the time that there are eight cases at the top court and 17 in lower courts over the same type of derivative.
“To avoid more adverse top court rulings over an issue where you already lost contains a pragmatic approach,” said Ulrike Gantenberg, a litigator at Heuking Kuehn Lueer Wojtek in Dusseldorf, who isn’t involved in the cases. “You don’t serve yourself if you give the judges more opportunities to make law that’s not in favor of your interests and that of the specific industry as a whole.”
Deutsche Bank is trying to settle other cases pending at the top court to avoid producing more precedents over the issue, two of the people said. In some of these cases the plaintiffs have refused to settle, they say.
Deutsche Bank respects the Federal Court of Justice’s legal assessment and is reviewing to what extent it applies to pending cases, said Armin Niedermeier, a spokesman for the Frankfurt- based lender. The bank declined to comment further, he said.
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Ex-UBS Customer Pleads Guilty to Hiding Swiss Bank Account
A New York podiatrist pleaded guilty to failing to report his $3.11 million Swiss account at UBS AG to U.S. authorities.
Anton Ginzburg, 51, admitted yesterday in federal court in Brooklyn, New York, to failing to file a Report of Foreign Bank and Financial Accounts form, or FBAR, for 2007.
“I knew that I should file this form but I did not do so,” he told U.S. Magistrate Judge Robert M. Levy.
Ginzburg’s case is part of a U.S. crackdown on tax evasion. Zurich-based UBS, Switzerland’s biggest bank, agreed in 2009 to pay $780 million to defer prosecution for aiding tax evasion by U.S. clients. The bank admitted that its Swiss private bankers helped wealthy Americans evade U.S. taxes from 2000 to 2007.
The case is U.S. v. Ginzburg, 11-cr-432, U.S. District Court, Eastern District of New York (Brooklyn).
Total, Arkema Lose EU Appeals of 78.6 Million-Euro Cartel Fine
Total SA (FP), Europe’s largest refiner, and its former subsidiary Arkema SA (AKE) lost European Union court appeals against a 78.6 million-euro ($112 million) fine levied for unlawful price- fixing of bleaching chemicals.
The EU General Court, the region’s second-highest tribunal, rejected all arguments by the companies and upheld the fines in a ruling in Luxembourg yesterday.
Total’s arguments “were manifestly not capable of constituting a sufficient body of evidence to rebut the presumption of imputability to the parent company,” the court said.
The European Commission, the EU’s antitrust regulator, fined seven companies 388.1 million euros in 2006 for fixing prices of hydrogen peroxide and sodium perborates, used by the pulp and paper industry and to make antiseptic and hair-care products. Solvay SA (SOLB) and Akzo Nobel NV (AKZA) previously paid $72.8 million to settle U.S. criminal charges in a similar cartel.
Sandra Dante, a spokeswoman for Paris-based Total, declined to comment. Spokespeople for Colombes, France-based Arkema didn’t immediately answer to a call seeking comment. Yesterday was a public holiday in France.
The cases are T-189/06, Arkema France v. European Commission; T-190/06, Total and Elf Aquitaine v. Commission.
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Allen & Overy Partner Arrested in Child Pornography Case
Edward M. De Sear, an Allen & Overy LLP law firm partner specializing in asset-backed securities, was charged by federal prosecutors in New Jersey with distributing child pornography.
De Sear, 64, was arrested yesterday after the Federal Bureau of Investigation executed a search warrant at his house in Saddle River, New Jersey, and found pornographic computer images of prepubescent children engaged in sexual acts with adults, according to the arrest complaint.
From September to February, De Sear downloaded and distributed videos and images of child pornography on the Internet through peer-to-peer file-sharing software, U.S. Attorney Paul Fishman said in a statement. Undercover agents downloaded pornography on three occasions from an Internet protocol address registered to De Sear, the complaint said.
During the execution of the search warrant, De Sear admitted “he downloads and shares child pornography,” that he “uses the P2P network to download and share child pornography,” and that he “receives sexual gratification from viewing child pornography,” according to the FBI complaint.
De Sear faces as long as 20 years in prison. He appeared yesterday in federal court in Newark, New Jersey, where he was released on a $250,000 bond with electronic monitoring. His attorneys, John Vazquez and Michael Critchley Jr., didn’t immediately return calls seeking comment yesterday.
A spokeswoman for the firm said it is doing an internal investigation and had no further comment.
The case is U.S. v. De Sear, 11-mj-08143, U.S. District Court, District of New Jersey (Newark).
News Corp. Inquiry Led by ‘Formidable’ Former Prosecutor
The U.K. judicial review into the phone-hacking scandal that has engulfed Rupert Murdoch’s News Corp. will be led by a former prosecutor best known for the conviction of an English serial killer.
Prime Minister David Cameron yesterday chose Lord Justice Brian Leveson, 62, to head up the independent review. Speaking to Parliament, Cameron said the inquiry will report back within 12 months regarding press regulation and will have the power to question under oath proprietors and managers, such as Murdoch and his son James. A second part of the inquiry, a probe of wrongdoing by the press and police, may take longer because of criminal proceedings, Cameron said.
Leveson “has been involved in any number of high-profile cases where public scrutiny has been intense,” said John Benson, a barrister at Atlantic Chambers in Liverpool. “He won’t be in any way fazed by the fact that the eyes of the world will be watching.”
The judicial inquiry is in addition to a Parliamentary investigation and pending police probes of allegations that Murdoch’s News of the World newspaper hacked into mobile-phone voice-mail messages for stories and bribed police officers. The scandal forced News Corp. to shut the tabloid newspaper and drop its bid for full control of British Sky Broadcasting Group Plc. (BSY)
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Former Kirkland & Ellis Partner Indicted on Tax Charges
Theodore L. Freedman, a former bankruptcy partner with the international law firm Kirkland & Ellis LLP, was indicted for lying about his personal income to U.S. tax authorities.
Prosecutors charged Freedman, 63, with four counts of filing false tax returns, understating his income by $2.1 million from 2001 to 2004.
Freedman avoided paying $1 million in federal taxes by falsely claiming he had sustained losses as the sole proprietor of a law practice in Dutchess County, New York, according to the indictment, released yesterday by federal prosecutors in New York.
At the time, Freedman was a partner at Kirkland & Ellis, according to papers he filed on behalf of clients in U.S. Bankruptcy Court. Freedman actually made $5.4 million from the firm during those years, according to prosecutors.
Freedman faces as many as 12 years in prison if convicted.
“Mr. Freedman resigned from the firm in October 2010,” Kate Slaasted, a Kirkland & Ellis spokeswoman, said in a statement. “We understand that the federal indictment relates exclusively to Mr. Freedman’s personal conduct. Accordingly, the firm will not comment on the matter.”
Freedman didn’t return a voice-mail message left at his home.
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