The U.S. Securities and Exchange Commission agreed to drop an administrative action against former Goldman Sachs Group Inc. director Rajat Gupta, and he pledged to dismiss a lawsuit claiming the regulatory proceeding violated his constitutional rights.
“Mr. Gupta is very pleased that as a result of his lawsuit the SEC has dismissed its administrative proceeding and he will no longer be singled out for disparate treatment,” Gary Naftalis, his lawyer, said in a statement. “Mr. Gupta’s lawsuit against the SEC has achieved all of the relief he sought.”
The SEC started an administrative proceeding in Washington March 1, claiming Gupta passed inside information to Galleon Group LLC co-founder Raj Rajaratnam about Goldman Sachs and Procter & Gamble Co. (PG), where Gupta was also on the board.
According to an agreement filed yesterday in federal court in Manhattan, the SEC will file any future complaint against Gupta in that court, where it would be heard by U.S. District Judge Jed Rakoff.
“The staff is fully committed to the case and will proceed as appropriate,” John Nester, an SEC spokesman, said in an e- mail.
In the administrative proceeding, the SEC claimed Gupta gave Rajaratnam information about Berkshire Hathaway Inc.’s $5 billion investment in Goldman Sachs. The agency also alleges Gupta told Rajaratnam about quarterly earnings of Goldman Sachs and Procter & Gamble.
Gupta sued in the Manhattan court March 18, claiming the agency violated his rights by pursuing an administrative action rather than a lawsuit in federal court, where Gupta would have more procedural protections, including the right to have the case considered by a jury and the use of federal rules of evidence.
The SEC administrative proceeding is In the Matter of Rajat K. Gupta, 3-14279, U.S. Securities and Exchange Commission (Washington). The court case is Gupta v. SEC, 11-cv-01900, U.S. District Court, Southern District of New York (Manhattan).
Ex-UBS Banker Helped Hide $215 Million From IRS, U.S. Says
Ex-UBS AG (UBS) banker Gian Gisler was charged with conspiring to help at least 38 U.S. clients use Swiss banks to hide more than $215 million from the Internal Revenue Service.
Gisler, 45, aided clients using sham entities to hide assets in undeclared accounts, including one valued at $43.3 million, another worth $42.7 million and a third with $19.7 million, according to an indictment in federal court in Manhattan.
“From the mid-1990s through at least 2010, Gisler allegedly conspired with various U.S. taxpayers and others to ensure that his clients could hide their Swiss bank accounts and the income they generated from the IRS,” according to a statement by U.S. Attorney Preet Bharara.
Gisler worked at UBS from the mid-1990s until 2008, when a U.S. probe of the bank intensified. UBS, the largest Swiss bank, was charged in 2009 with helping Americans evade taxes. The bank avoided prosecution by paying $780 million, admitting it helped Americans evade taxes and turning over data on 250 secret accounts. It later handed over data on another 4,450 accounts.
After 2008, Gisler worked at a Swiss asset-management firm, helping to move accounts of his U.S. clients from UBS to other Swiss banks, according to the indictment.
In mid-2009, that firm began to stop helping U.S. taxpayers keep accounts hidden from the IRS, “which again made it, as a practical matter, impossible for Gisler to conduct his usual business of assisting U.S. taxpayers in maintaining undeclared accounts,” according to the indictment.
He then joined a second asset-management firm, transferring his client accounts to help keep those assets undeclared, according to the indictment.
The case is U.S. v. Gisler, U.S. District Court, Southern District of New York (Manhattan).
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Wells Fargo Sued by Borrowers Over Reverse-Mortgage Policies
Wells Fargo & Co. (WFC) is ignoring federal rules on reverse mortgages and forcing homes into foreclosure instead of giving heirs a chance to buy them, according to a lawsuit.
Estates and surviving spouses have the right to purchase properties at 95 percent of appraised value after the death of a borrower who took out a federally-insured reverse mortgage, lawyers for a California man said in the complaint filed Aug. 3 in federal court in San Francisco.
Wells Fargo hasn’t been notifying heirs of this right and has been starting foreclosures if demands aren’t met for repayment of the full mortgage balance, according to the complaint filed by the son of a California homeowner. The plaintiff, Robert Chandler, also sued the Federal National Mortgage Association, or Fannie Mae.
“Wells Fargo’s actions are not just wrong, they are economically irrational,” Michael Ng, Chandler’s attorney, said yesterday in a statement. “Even though elderly borrowers paid for insurance that protects the bank against the downturn in the housing market, Wells Fargo insists on evicting family members from homes that will go unsold and unoccupied.”
The lawsuit, brought as a class action by Chandler on behalf of himself and other heirs, seeks a court order stopping foreclosures and evictions in affected homes and damages for breach of contract.
Wells Fargo is “reviewing” the complaint and “will reserve comment,” Vickee Adams, a spokeswoman for the San Francisco-based company, said yesterday.
The case is Chandler v. Wells Fargo & Co., 11-cv-03831, U.S. District Court, Northern District of California (San Francisco).
Ex-Mizuho Investment Banker Charged With Insider Trading
Thomas Ammann, a former investment banker at Mizuho International Plc, and two women were charged with insider trading in shares of OCE NV (OCE) prior to the Dutch printing- equipment maker being acquired.
Ammann, 38, and Jessica Mang, a 28-year-old London chiropractor, were charged last week. Christina Weckwerth, a 42- year-old student in Germany, was charged this morning at a London court, the U.K. Financial Services Authority said.
A German national living in London, Ammann faces three counts of insider dealing, Weckwerth two counts and Mang one count. Ammann and Weckwerth were also charged with money laundering, and the ex-banker faces two counts of encouraging insider dealing.
The charges relate to trading in OCE shares between February and November 2009, the FSA said. Tokyo-based imaging company Canon Inc. agreed to buy OCE in a 730 million-euro ($1.04 billion) deal in November 2009. Mizuho acted as the financial adviser to Canon on the acquisition, according to data compiled by Bloomberg.
Mizuho said in a statement the FSA hasn’t alleged any wrongdoing by the bank and no actions are being taken against it. “The transactions to which the charges relate were executed by the individual in his personal capacity and were not done through, or processed by, Mizuho International,” the bank said.
The trio were released on bail and are scheduled to appear again before a London judge on Aug. 23. Ammann’s lawyer, Shaul Brazil, and Mang’s lawyer, Romana Khan, both declined to comment. A lawyer for Weckwerth at Addleshaw Goddard LLP couldn’t immediately be reached.
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Rubicon Sues Ex-Managers for Trying to Start New Firm
Rubicon Fund Management LLP said it sued two former money managers, saying they conspired to start a new firm while one of them was still working at the London-based hedge fund.
Timothy Attias and Santiago Alarco violated their responsibility to the company and partnership contracts, Rubicon said in a statement released yesterday. The suit, which was filed in London, seeks damages and an order delaying the start up of their new fund, the statement said.
“The allegations are completely and utterly baseless, and they will be proven as such,” Attias said in an interview yesterday. A phone number for Alarco couldn’t be located.
Attias and Alarco co-managed Rubicon’s Global Fund, a so- called macro hedge fund that trades currencies, interest rates and bonds to try to take advantage of broad economic trends. Attias quit in January and Alarco left in April. Rubicon’s assets under management declined by about 81 percent to $288 million from $1.6 billion at the end of 2010, according to two people with knowledge of the situation who declined to be named because the numbers aren’t publicly disclosed.
Attias is now a director at SATA Asset Management Ltd., according to a certificate of incorporation filed with the U.K.’s Companies House on June 9. Alarco’s name doesn’t appear on the SATA filing.
Catherine Cripps, who previously worked this year at Zurich-based GAM Holding AG, is also listed as a SATA director. Cripps is also a defendant, Rubicon said. A spokeswoman for GAM, which has been an investor in Rubicon, declined to provide contact details for Cripps.
Attias, is “starting the process” of opening an investment company, Attias said. The firm isn’t managing any money and doesn’t have any offices, he said.
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ConocoPhillips (COP) Investor Says Pay Plan Forgoes Tax Deductions
ConocoPhillips, the third-largest U.S. oil company, was sued by an investor who claimed its executive compensation plan doesn’t comply with tax regulations that allow for deductions.
The plan, which sets maximum pay limits for executives at $400 million a year in stock and cash, doesn’t let the company take a tax deduction for compensation greater than $1 million, according to the complaint filed Aug. 2 in federal court in Wilmington, Delaware, by Robert Freedman, who said he has held shares in the company since December.
“The board’s payment of compensation that is not tax deductible constitutes waste,” Freedman said in the complaint.
The U.S. Internal Revenue Code imposes the $1 million threshold for company chief executives and the four highest paid officers, with exemptions for performance-based pay, according to the complaint. Houston-based Conoco’s performance goals are too vague and don’t adhere standards set by the U.S. Securities and Exchange Commission to qualify, according to the complaint.
Company directors misled investors about the plan in a proxy statement that failed to make proper disclosures before a shareholder vote in May, Freedman alleges. The plan was approved by about 59 percent of the votes cast, according to the complaint.
Freedman is seeking a court order barring awards and payments under the plan as well as unspecified damages on behalf of the company.
“We do not comment on litigation,” said Aftab Ahmed, a ConocoPhillips spokesman, in an e-mailed message.
The case is Freedman v. Mulva, 11-00686, U.S. District Court, District of Delaware (Wilmington).
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BNY Mellon Accused of Violating Law in Trustee Role
Bank of New York Mellon Corp. (BK) was accused by New York’s attorney general of violated state law in its role representing investors in mortgage securities created by Bank of America Corp. (BAC)’s Countrywide Financial unit.
BNY Mellon should pay penalties and restitution to investors, Attorney General Eric Schneiderman said yesterday in a court filing involving Bank of America’s proposed $8.5 billion mortgage-bond settlement. Schneiderman, who said he has “potential claims” against Bank of America, called the settlement unfair to investors and asked a judge to reject it.
“The proposed cash payment is far less than the massive losses investors have faced and will continue to face,” Schneiderman said in the filing in state court in Manhattan.
Under the proposed deal, which requires court approval, Bank of America would pay $8.5 billion to resolve claims from investors who wanted the Charlotte, North Carolina-based bank to buy back loans that were packaged into bonds. The agreement was reached with 22 institutional investors and BNY Mellon, which acts as the trustee for the mortgage-securitization trusts.
BNY Mellon’s conduct as trustee violated the state’s Martin Act by misleading investors, Schneiderman said in court papers filed yesterday.
Schneiderman claims New York-based BNY Mellon was aware of “loan documentation deficiencies,” such as Countrywide’s improper assignments and transfers of notes needed for foreclosures, and that knowledge triggered a “heightened duty” to bondholders, he said.
“The allegations by the New York Attorney General are outrageous, baseless, unsupported by fact and law and we will fight them if necessary in court,” Ron Gruendl, a BNY Mellon spokesman, said in an e-mail.
“We are confident that we have fulfilled in all respects our responsibilities as trustee,” Gruendl said. “The AG’s action is misguided and fails to comprehend the role of the trustee and the benefit the settlement would provide to investors.”
Lawrence Grayson, a spokesman for Bank of America, declined to comment.
The case is In the matter of Bank of New York Mellon, 651786/2011, New York State Supreme Court, New York County (Manhattan).
Lehman, Hong Kong Liquidators Resolve $20 Billion of Claims
Lehman Brothers Holdings Inc. (LEHMQ) said it settled $20 billion of intercompany claims with liquidators for Lehman Hong Kong and won the affiliate’s support for its liquidation plan.
Details of the agreement, which is subject to court approval in the U.S. and Hong Kong, weren’t provided in Lehman’s statement Aug. 2.
Edward Middleton, a partner at KPMG China and one of the Hong Kong liquidators, said that the settlement will benefit creditors by speeding liquidations.
A final reconciliation of claims related to derivatives positions should be reached within 60 days, he said Aug. 3.
Lehman is gathering support for a $65 billion liquidation plan. It said last month that creditors holding more than $100 billion in claims signed their support for the company’s latest payout plan, which allots more money to a group including Goldman Sachs Group Inc. (GS) and less to bondholders including Paulson & Co.
The compromise reached, after contentious battles with creditors, by Lehman Chief Executive Officer Bryan Marsal and negotiators including lawyer Lori Fife of Weil Gotshal & Manges LLP, Lehman’s bankruptcy law firm, ends the threat of “protracted litigation” over the plan, Lehman said in a statement in July.
Lehman aims to confirm its plan by year end and start distributing a “significant” amount of its $21 billion in available cash shortly after, Fife said.
Kimberly Macleod, a spokeswoman for New York-based Lehman, didn’t immediately return an e-mail seeking comment after regular business hours yesterday.
Lehman’s eight Hong Kong units have about $24 billion of assets and claims totaling more than $36 billion on their books, Middleton said Aug. 3. That included about 2,500 listed equity investments and more than 2,700 derivative trades when KPMG took over in September 2008, he said.
Lehman filed for bankruptcy in 2008 with assets of $639 billion.
The case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
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MGA Wins $225 Million in Punitive Damages, Fees Against Mattel
MGA Entertainment Inc., maker of Bratz dolls, won $225 million in punitive damages, attorney fees and costs from Mattel Inc. (MAT), bringing the total award in the trial over the doll’s origins to $310 million.
U.S. District Judge David Carter in Santa Ana, California, yesterday awarded MGA $85 million in punitive damages and $2.5 million in fees and costs for its trade-secret theft claims against Mattel. The judge separately awarded MGA about $137 million in fees and costs for having to defend against Mattel’s copyright-infringement claims.
“Mattel asserted a copyright claim that was stunning in scope and unreasonable in relief it requested,” Carter said. “The claim imperiled free expression, competition, and the only serious competitor Mattel had faced in the fashion doll market in nearly 50 years.”
The jury in April agreed with closely held MGA that Mattel stole its trade secrets when company employees got into MGA’s showrooms at toy fairs using phony business cards. The jurors awarded MGA $3.4 million for each of the 26 instances in which they found that Mattel had misappropriated a trade secret. Carter yesterday reduced the jury award to $85 million.
The jury rejected a claim that MGA stole Mattel’s trade secrets in 2000 when it made an agreement with Carter Bryant, a toy designer. Mattel said Bryant was working for it when he came up with the idea for the Bratz dolls and made the first sketches. The jury also rejected claims that the pouty multiethnic dolls, which MGA started selling in 2001, violated Mattel’s copyright.
“This is a step in the right direction to right the wrongs of Mattel’s criminal acts towards MGA,” Isaac Larian, MGA’s chief executive officer, said in an e-mailed statement. “We will now pursue our antitrust case against Mattel and its CEO Bob Eckert in order to get fully compensated for the damages Mattel has caused MGA, MGA’s employees and the Bratz brand.”
In a separate ruling yesterday, Carter denied Mattel’s request for a new trial or for a ruling that the evidence presented didn’t support the jury’s trade-secret misappropriation verdict.
MGA, based in Van Nuys, California, said in a May 6 fee request that Barbie-doll maker Mattel set out to destroy most of the value of its business and succeeded.
Mattel, based in El Segundo, California, asked the judge to reject the request for legal costs, saying its copyright- infringement claims were “objectively reasonable.”
Lisa Marie Bongiovanni, a Mattel spokeswoman, didn’t immediately return a call to her office yesterday.
The case is Bryant v. Mattel, 04-09049, U.S. District Court, Central District of California (Santa Ana).
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Societe Generale (GLE) Suit Alleging Theft of Secrets Is Dismissed
Societe Generale SA agreed to dismiss a suit in which it claimed a former foreign-exchange trader misappropriated trade secrets before leaving the bank.
In a May 17 complaint in Manhattan federal court, the bank sought an order to force the ex-employee, Karma Tenzing, to return what it claimed was confidential material.
Tenzing “systematically sent to his home and to third parties confidential SG trade secrets about client trades and contacts, procedures, personal data, client identities, and business P&L information,” the bank alleged in the complaint.
Tenzing, described by Societe Generale as a junior salesman, offered the information to his employer-to-be, Credit Agricole SA (ACA), according to Societe Generale.
Tenzing said in a court filing that he didn’t provide a person at Credit Agricole “with a customer list as SocGen alleges.” He provided the names of two friends as references and “a generic list of mostly hedge funds and banks which trade widely in the industry,” he said.
“I have no intention of using the materials competitively and am trying to return them to SocGen,” Tenzing said in the May 23 filing.
Other documents he was accused of taking weren’t confidential or he sent home for his own use, he said.
Both sides agreed to dismissal of the suit, according to court papers filed July 7. The dismissal came after the Paris- based bank told U.S. District Judge George Daniels May 26 that the parties had reached “a settlement in principle” and were completing an agreement.
Settlement terms weren’t disclosed.
Mitchell Cohen, Tenzing’s lawyer, didn’t reply to a voice- mail message yesterday. Andrez Carberry, a lawyer for Societe Generale reached by telephone yesterday, declined to comment on the dismissal of the suit. Anne-Sophie Gentil, a spokeswoman for Credit Agricole, didn’t immediately reply to a voice-mail message yesterday seeking comment on the Societe Generale allegations.
The case is Societe Generale v. Tenzing, 11-cv-3366, U.S. District Court, Southern District of New York (Manhattan).
VeriFone Cleared to Buy Hypercom in Settlement With U.S.
VeriFone Systems Inc. (PAY) reached a settlement with the U.S. Justice Department that will let it acquire rival Hypercom Corp. on the condition it sells Hypercom’s U.S. point-of-sale terminal business.
An agreement with the Justice Department filed yesterday specifies that private equity firm Gores Group LLC will buy the terminals business. The U.S. sued to block the $485 million deal on concerns that combining VeriFone and Hypercom would hinder competition in the market for the retail checkout terminals, the Justice Department said in an e-mailed statement.
The proposed divestment “ensures that competition will remain in point-of-sale terminals markets,” Christine Varney, head of the Justice Department’s Antitrust Division, said in the statement. The sale “will create an independent and significant competitor in the United States, both right now and into the future,” she said.
Businesses use point-of-sale terminals to accept electronic payments such as credit and debit cards. VeriFone, based in San Jose, California, is the second-largest maker of electronic- payment equipment. Hypercom, based in Scottsdale, Arizona, is No. 3, according to a Justice Department filing made with the settlement.
Together, the two companies control more than 60 percent of the U.S. market for terminals used by the largest retailers, according to the Justice Department. Ingenico SA, based in France, is the biggest maker of card-payment terminals.
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Ex-Wall Street Lawyer Pleads Guilty to Federal Tax Charges
John J. O’Brien, a former lawyer at Sullivan & Cromwell LLP specializing in corporate mergers and acquisitions, pleaded guilty to charges he failed to pay income taxes.
O’Brien, 48, of Caroga Lake in the foothills of New York’s Adirondack Mountains, was charged in a misdemeanor criminal information Aug. 3 in federal court in Manhattan. He entered his plea yesterday before U.S. Magistrate Judge Henry Pitman and was released on a $100,000 personal recognizance bond with a week to secure a co-signer.
O’Brien earned about $10.8 million in partnership income for the tax years 2001 to 2008 and failed to file a federal tax return for each of those years, the government said. He used the unreported income to pay for personal expenses, including the purchase of a weekend home, funding of a rare-books business, Hudson Street Books, and international travel, prosecutors said.
“John O’Brien went to work every day at a prestigious law firm where he advised clients on how to comply with the law at the same time that he was knowingly breaking it,” Manhattan U.S. Attorney Preet Bharara said in a statement. “He thumbed his nose at the IRS to fund an even more lavish lifestyle than his generous income permitted.”
O’Brien, a 1992 graduate of New York University Law School, made more than $3 million in capital contributions to the rare- books business from 2004 to 2008 instead of paying income tax liabilities that totaled more than $2.5 million, prosecutors said.
O’Brien was charged with two counts of willful failure to file U.S. individual income tax returns and two counts of willful failure to pay tax. He pleaded guilty to all four and faces as much as one year in prison on each count at sentencing, which is scheduled for Nov. 16 before Pitman.
O’Brien agreed to pay no less than $2.8 million in restitution, representing the full amount of taxes and interest due to the Internal Revenue Service for the tax years 2001 to 2008, prosecutors said in a plea agreement. He has paid about $800,000 to the IRS, said his attorney, Russell Neufeld, during yesterday’s hearing.
Neufeld declined to comment after the hearing. Karen Braun, a spokeswoman for Sullivan & Cromwell, declined to comment on the charges before yesterday’s plea.
The case is U.S. vs. O’Brien, 11-cr-0652, U.S. District Court, Southern District of New York (Manhattan).
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