Lawyer Indicted, Data Breaches, Tax Evasion: Compliance
Theodore L. Freedman, a former bankruptcy partner with the international law firm Kirkland & Ellis LLP, was indicted yesterday for understating his income by $2.1 million from 2001 to 2004.
Prosecutors charged Freedman, 63, with four counts of filing false tax returns and allege that 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.
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 the indictment which federal prosecutors in New York released yesterday.
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 immediately return a voice-mail message left at his home.
The case is U.S. v. Freedman, U.S. District Court, Southern District of New York (Manhattan).
Compliance Policy
IRS Takes Too Long to Notify Taxpayers of Data Breaches
The U.S. Internal Revenue Service doesn’t always promptly notify taxpayers when personal information has inadvertently been disclosed, a government review of IRS procedures found.
The IRS failed to properly alert taxpayers to privacy breaches in 35 of 98 cases of inadvertent disclosures sampled by the Treasury Inspector General for Tax Administration, according to a report by the inspector general released yesterday.
“Taxpayers need to be assured that the IRS will promptly notify them of inadvertent disclosures of their confidential information, so they can take appropriate steps to protect themselves from identity theft or other harm,” Inspector General J. Russell George said in a statement accompanying the report.
Inadvertent disclosures of taxpayer information can occur through mix-ups, such as sending a tax return to an incorrect fax number or mailing a return to a different person with a similar name.
The inspector general considered notifications timely if they were made within 45 days. Notification letters in the sample took an average of 86 days.
“While any inadvertent disclosure is of great concern, nothing in this report suggests any systemic vulnerability,” IRS spokeswoman Julianne Breitbeil said in a statement. “Taxpayers can be confident that their data is secure with the IRS, and protection of taxpayer data is a top priority for the agency.”
There is no indication that any of the incidents of inadvertent disclosure examined by the inspector general led to any taxpayer harm, Breitbeil said.
George’s report made four recommendations to improve training and procedures to ensure faster notifications. The IRS agreed with all of the recommendations.
IRS Phases In Rule for Overseas Banks Naming U.S. Customers
The Internal Revenue Service released a second round of guidance to overseas banks grappling with a proposal that would require them to disclose their U.S. clients to the agency.
The guidance issued yesterday provides more time for overseas institutions to implement the proposal, which was slated to take effect at the beginning of 2013. Overseas institutions now have until Jan. 1, 2014, to begin withholding 30 percent of interest and dividend payments from U.S. customers that don’t provide adequate identification details.
The announcement is intended to address the concerns of overseas financial institutions, including Toronto-Dominion Bank (TD) of Canada, Allianz SE (ALV) of Germany and Aegon NV (AGN) of the Netherlands, which have said the proposal is too complex.
Compliance Action
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, that he failed 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.
Jeffrey Harris, Ginzburg’s lawyer at Rubin, Winston, Diercks, Harris & Cooke LLP in Washington, declined to comment after the hearing.
“This is just a case where a guy had an account with after-tax dollars, lost money and did not file a form,” he said in a phone interview yesterday.
Ginzburg agreed to pay a civil penalty of half the account’s balance. He faces a maximum of five years in prison. Levy set sentencing for Nov. 17.
“Those who willfully conceal assets overseas undermine the playing field for all taxpayers,” U.S. Attorney Loretta Lynch said in a statement.
U.S. citizens or residents with a foreign financial account worth more than $10,000 in a particular year must disclose the account to the Treasury Department in an FBAR report by June 30 of the following year, according to Lynch’s statement.
The case is U.S. v. Ginzburg, 11-cr-432, U.S. District Court, Eastern District of New York (Brooklyn).
HSBC India Client Pleads Not Guilty to False Tax Returns
A Wisconsin neurosurgeon pleaded not guilty to charges that he failed to declare an HSBC Holdings Plc (HSBA) account in India once valued at $8.7 million in his tax returns.
Arvind Ahuja appeared yesterday in federal court in Milwaukee, where he was indicted June 28 as part of a U.S. crackdown on offshore tax evasion. U.S. Magistrate Judge Nancy Joseph released him on a $5,000 cash bond, saying he needs court permission to travel in the U.S. outside of eastern Wisconsin.
Ahuja is accused of filing false tax returns from 2006 to 2009 and of failing to file Reports of Foreign Bank and Financial Accounts, or FBARs, for the same period. Prosecutors said he failed to report more than $1.2 million in interest income and pay taxes on those earnings.
The case is based on a “tenuous factual basis,” Dan K. Webb, Ahuja’s attorney, said in an interview after the hearing. He said HSBC didn’t give his client 1099 forms about his interest income. Ahuja has one of the most prosperous neurosurgery practices in the Midwest and made full payments to the Internal Revenue Service when he learned of his mistake, Webb said.
If convicted, Ahuja, who lives in Greendale, Wisconsin, faces as long as 10 years in prison on the FBAR charges and three years on the false tax return charges.
Assistant U.S. Attorney Tracy Johnson argued that Ahuja, a native of India and a naturalized U.S. citizen, has the means and the motive to flee with his family. She also said his suburban Milwaukee home is valued at $1.2 million and his summer home in Aspen, Colorado, is worth $8.5 million.
The U.S. filed a civil action in April against London-based HSBC, the largest European bank by assets, seeking information about U.S. citizens who may have banked in India to hide accounts from the Internal Revenue Service.
In April, a New Jersey businessman pleaded guilty to conspiring with five HSBC bankers to hide his Indian accounts from the IRS.
Prosecutors also have charged at least two dozen clients of UBS AG, Switzerland’s largest bank, four UBS bankers, and five bankers at Credit Suisse Group AG (CSGN), Switzerland’s second-largest bank.
The case is U.S. v. Ahuja, 11-cr-00135, U.S. District Court, Eastern District of Wisconsin (Milwaukee).
Credit Suisse Is a Target of U.S. Private-Banking Tax Probe
Credit Suisse Group AG, the second-biggest Swiss bank, is a target of an investigation by the Department of Justice over former cross-border private banking services to U.S. customers.
“Subject to our Swiss legal obligations, we will continue to cooperate with the U.S. authorities in an effort to resolve these matters,” the Zurich-based bank said in an e-mailed statement today. The bank, which was informed of the probe yesterday, has already been responding to requests for information, including subpoenas, from the Department of Justice, it said.
Four bankers who worked at Credit Suisse were charged with conspiring to help clients in the U.S. evade taxes through secret bank accounts, according to an indictment from earlier this year. In the fall of 2008, when the bank began closing its cross-border business with U.S. clients, it had “thousands” of accounts with $3 billion in assets not declared to the U.S. Internal Revenue Service, according to the indictment.
The Swiss government is in talks with authorities in the U.S. to resolve the issue of untaxed assets held by U.S. citizens in Swiss bank accounts, a government official said last month.
Daniel Saameli, a spokesman for Switzerland’s finance ministry, said the government “acknowledges the developments,” while declining to comment further.
UBS AG (UBSN), Switzerland’s biggest bank, disclosed in May 2008 that it was under investigation in the U.S. on allegations of helping Americans evade taxes. The bank agreed to pay $780 million, admitting that it fostered tax evasion, and to give the IRS data on more than 250 accounts to avoid criminal prosecution. The Justice Department last October dismissed the case against UBS after the expiration of an 18-month deferred prosecution agreement. The IRS dropped a demand for the identities of Americans who hold secret offshore accounts at UBS in November after the bank turned over data on more than 4,000 clients.
For more, click here.
Groupon’s Coupon Expiration Examined by Connecticut AG Jepsen
Groupon Inc.’s practice of selling group-discount coupons with expiration dates is being reviewed by Connecticut Attorney General George Jepsen for possible state law violations.
“It appears that what Groupon Inc. sells or offers may fall within the definition of a gift certificate under Connecticut law,” Jepsen said in a press statement issued yesterday. “Connecticut law prohibits gift certificates from being sold or issued subject to an expiration date.”
Jepsen, in a July 12 letter, asked Groupon Chief Executive Officer Andrew Mason how his company’s certificates are bought and redeemed, how many have been sold in state, which retailers have accepted them and the typical terms of those agreements.
The attorney general also asked about expiration dates. The Chicago-based company has until Aug. 5 to reply.
Groupon delivers daily discounts on hotels, restaurants and other goods and services to 83.1 million subscribers. The daily deal market pioneered by Groupon may generate $3.9 billion in U.S. sales in 2015, from $873 million in 2010, according to the research firm BIA/Kelsey in Chantilly, Virginia.
Julie Mossler, a spokeswoman for the company, didn’t immediately reply to voice-mail and e-mail messages seeking comment. The company last month announced plans to raise $750 million in an initial public offering.
Consumers have filed at least 12 federal court lawsuits challenging its business practices. Cases, including those originally brought in California, Massachusetts, Washington, Alabama and Illinois, have been consolidated for pre-trial proceedings before U.S. District Judge Dana Sabraw in San Diego.
The multidistrict case is In re Groupon Inc. Marketing and Sales Practices Litigation, MDL 2238, U.S. District Court, Southern District of California (San Diego).
Total, Arkema Lose EU Appeals of 78.6 Million-Euro Cartel Fine
Total SA (FP), Europe’s largest refiner, and its former unit 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 respond 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.
Swiss Regulator Added Smaller Banks to Stress Tests This Year
Switzerland’s banking regulator said it “regularly” puts UBS AG and Credit Suisse Group AG, the country’s biggest banks, through stress tests and has started doing similar exercises for smaller lenders as well.
“This year we started stress-testing further significant Swiss banks,” Tobias Lux, a spokesman for the Swiss Financial Market Supervisory Authority, or Finma, said by telephone yesterday.
The European Union will tomorrow publish the results of its stress tests on banks, which include a review of how lenders would handle an economic contraction, a drop in equity markets and possible trading losses on sovereign debt. Finma doesn’t plan to publish anything tomorrow as its tests aren’t coordinated with the EU, Lux said.
UBS and Credit Suisse are sometimes tested more than once a year, depending on market conditions, he said. Stress tests for the smaller banks are more “targeted” toward the lenders’ main lines of business. Finma would, for example, put a bank’s mortgage portfolio through a stress scenario, he said.
Courts
Bank of America Said to Offer MBIA Deal in Mortgage Suit
Bank of America Corp. (BAC), 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. MBIA shares surged as much as 13 percent yesterday.
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.
MBIA has booked $2.7 billion in estimated recoveries on its balance sheet for mortgage-bond repurchase claims as of the first quarter, the firm said in a May filing. The insurer said it believes it is entitled to collect the full $4.6 billion of losses it has incurred on the debt. Through September, MBIA had paid out $2.5 billion on mortgage securities sponsored by Countrywide, Chief Executive Officer Jay Brown said in February.
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.
UBS to Get Review of Madoff Trustee Suit by District Judge
A U.S. district judge said she will review lawsuits against UBS AG 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. (JPM), 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, 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).
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 (DBK) 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.
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.”
Dexia said it invested more than $1 billion in Deutsche Bank residential mortgage-backed securities in 32 offerings from 2005 to 2007. Belgium and France led a 6.4 billion-euro ($9.2 billion) bailout of Dexia in September 2008 as the financial crisis forced governments to prop up institutions across Europe.
Deutsche Bank and its MortgageIT unit were sued by the U.S. in federal court in New York in May and accused of lying to qualify thousands of risky mortgages for a government insurance program.
Deutsche Bank earlier this week asked a judge to dismiss the U.S. complaint, saying that the alleged conduct occurred before it acquired MortgageIT.
Attorneys general from all 50 states and federal agencies are investigating the way banks handle mortgage loans and conduct foreclosures. Deutsche Bank is among lenders being probed by New York Attorney General Eric Schneiderman’s office over mortgage securitization, a person familiar with the matter said on May 24.
The case is Dexia SA/NV v. Deutsche Bank AG, 651918/2011, New York State Supreme Court, New York County (Manhattan).
Varian Semiconductor Sued by Investor Over $4.9 Billion Bid
Varian Semiconductor Equipment Associates Inc. (VSEA) was sued in federal court by an investor who says stockholders will be shortchanged in a planned $4.9 billion, $63-a-share takeover by Applied Materials Inc. (AMAT)
Investor David Crane also contends Varian directors violated U.S. securities law by issuing misleading proxy materials that failed to fully explain the sales process and why the board “chose to negotiate exclusively with Applied,” according to a complaint filed yesterday in Boston.
Shareholders “will be prevented from obtaining a fair price for their common stock” unless a judge and jury stop the transaction under its present terms, Crane said in court papers.
Applied, based in Santa Clara, California, agreed May 4 to buy Gloucester, Massachusetts-based Varian Semiconductor in anticipation of increased demand for microchip technology used in mobile devices such as Apple Inc. (AAPL)’s iPhone.
Bob Halliday, Varian’s chief financial officer, didn’t immediately return a call seeking comment on the lawsuit.
The case is Crane v. Varian Semiconductor, 11CV11236 RGS, U.S. District Court, District of Massachusetts (Boston).
Comings and Goings
Freddie Mac’s Robert Bostrom to Join SNR Denton as Partner
Robert Bostrom, the general counsel of Freddie Mac, is leaving to join SNR Denton as a partner in August. Bostrom will split his time between the New York and Washington offices, a spokeswoman for the firm said. Bostrom had worked at Freddie Mac since 2006, according to SNR Denton’s statement yesterday.
To contact the reporter on this story: Ellen Rosen in New York at erosen14@bloomberg.net.
To contact the editor responsible for this report: Michael Hytha at mhytha@bloomberg.net.
Rate this Page