Wells Fargo, Mariner Energy, Langford, BofA, SAC, Facebook in Court News

Wells Fargo & Co. (WFC), the biggest U.S. home lender, said it reached a $590 million settlement in principle with plaintiffs who claimed in a lawsuit that Wachovia Corp. misled investors.

The accord, subject to court approval, is reflected in the bank’s financial statements and “will not have a material adverse effect on Wells Fargo’s consolidated financial position,” according to a regulatory filing Aug. 5 by the San Francisco-based company. Wells Fargo acquired Wachovia in 2008.

Investors had accused Wachovia of making misleading disclosures relating to the sale of securities between 2006 and 2008, according to the complaint. The statements related to the quality of assets linked to the mortgage portfolio of Golden West Financial, a California home lender it had acquired.

“Wells Fargo agreed to this settlement in order to avoid the distraction, risk and expense of on-going litigation,” Mary Eshet, a spokeswoman for the bank, said in an e-mailed statement. “The settlement agreement does not constitute an admission of Wells Fargo of liability or any violation of law by Wachovia.”

Accounting firm KPMG LLP, which did auditing work for Wachovia and was also listed as a defendant, reached a $37 million settlement, according to a statement Aug. 5 from law firms representing the plaintiffs. “We’ve agreed to settle to avoid the cost of litigation and to put this matter behind us,” George Ledwith, a KPMG spokesman, said in a phone interview.

Wachovia, in marketing 30 separate bond and preferred security sales totaling more than $35 billion, referred to the “pristine” quality and conservative underwriting of its Pick- A-Pay portfolio, and the adequacy of loss reserves and capital, which ultimately proved untrue, according to the complaint. Pick-A-Pay loans, or option-ARMs, let homeowners defer some payments on adjustable-rate home loans and add them to the principal.

“We believe that these settlements reflect an outstanding result for bond and preferred-security purchasers who were damaged as a result of false and misleading offering materials,” the attorneys representing investors wrote in their joint statement.

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Ex-Mariner Energy Director Admits Passing Merger Tip to Son

A former director of Mariner Energy Inc. (ME) pleaded guilty to passing inside information about the company’s planned acquisition by Apache Corp. (APA) to his son.

H. Clayton Peterson of Denver, a former Arthur Andersen partner who also served on the board of Re/Max International Inc., pleaded guilty to conspiracy and securities fraud Aug. 5 in Manhattan federal court. His son, Drew, also pleaded guilty Aug. 5.

Clayton Peterson, who was appointed to Mariner’s board in March 2006, said he passed information about the planned transaction in April 2010 to his son, who traded on the tip.

“I knew that my actions were wrong and I deeply regret my conduct,” Clayton Peterson, 65, told U.S. District Judge Robert Patterson. “It has ruined my life and my son’s life and I apologize.”

Clayton Peterson faces as much as 20 years in prison for securities fraud and five years for conspiracy. He was ordered released on $500,000 bond.

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Ex-Alabama County Official Langford Loses Bribe Case Appeal

Larry P. Langford, a former Birmingham, Alabama, mayor and Jefferson County Commission president serving a prison term for bribery, lost an appeal of his convictions.

The decision was posted Aug. 5 by the federal appeals court in Atlanta.

Langford, 63, is serving a 15-year prison term for taking bribes in connection with the refinancing of sewer debt when he headed the county commission. He was removed as mayor when he was convicted in 2009.

Jurors found Langford solicited cash, loan payoffs and designer suits from William Blount, former head of a securities firm in Montgomery, Alabama, and Albert LaPierre, a consultant, in return for bring Blount into sewer-system refinancing.

“The evidence of Langford’s guilt in accepting many bribes -- including testimony by Blount, corroborated by extensive documentation, that he paid Langford $240,000 in cash, clothing and jewelry so that Blount’s investment-banking firm would receive millions of dollars’ worth of fees from financial transactions in Jefferson County -- was overwhelming,” the appeals court said in its opinion.

Michael Rasmussen, an attorney for Langford, declined to comment on the ruling, saying he hadn’t yet read it.

Jefferson County, with its seat in Birmingham, defaulted on sewer bonds in 2008 after the financial crisis pushed up the cost of the floating-rate debt and triggered an early repayment clause it couldn’t afford.

It is negotiating with creditors to avert what would be the largest municipal bankruptcy in U.S. history.

The case is U.S. v. Langford, 7:08-cr-00245, U.S. District Court, Northern District of Alabama (Birmingham). The appeal is U.S. v. Langford, 10-11076, U.S. Court of Appeals for the 11th Circuit (Atlanta).

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U.S. Again Asks Judge to Clear Comcast-NBC Merger Accord

The U.S. Justice Department urged a federal court to approve the settlement outlining conditions for permitting Comcast Corp. (CMCSA)’s takeover of NBC Universal in response to a judge’s threat to block the deal.

The Justice Department defended an “alternative arbitration mechanism” through which online video distributors could get content from Comcast-NBC following criticism last month from U.S. District Judge Richard Leon in Washington. Leon said at a July 27 hearing he was concerned that an arbitration process to be overseen by the department wouldn’t allow appeals.

The process, which would use an outside, neutral arbitrator, provides a “speedier and less costly alternative,” the Justice Department said in court filing Aug. 5. The online video distributors would still have the option of arbitration overseen by the Federal Communications Commission, whose decisions can be appealed, according to the filing.

Comcast’s proposed acquisition of NBC Universal won approval Jan. 18 from U.S. regulators, under an agreement with the FCC and the Justice Department that imposed conditions designed to protect the emerging online-video market. The settlement is pending final approval by Leon.

“I’m giving you fair notice I am not sure I am going to sign this,” Leon said at the July 27 hearing. “This not a fait accompli, not in this court.”

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New Suits

BofA’s ReconTrust Sued Over Washington Foreclosure Actions

Bank of America Corp. (BAC)’s ReconTrust unit failed to conduct foreclosures as a neutral third party as required by law, Washington state Attorney General Rob McKenna said in a lawsuit.

ReconTrust, which acted as a trustee handling foreclosures, had a duty to act in good faith to borrowers as well as lenders, McKenna said Aug. 5 at a press conference announcing the suit. ReconTrust also concealed or misrepresented the actual owner of the debt when handling foreclosures, according to the complaint filed in state court in Seattle.

The lawsuit follows an investigation of Washington trustees’ foreclosure practices, including faulty documentation. McKenna said the lawsuit was filed because ReconTrust didn’t take corrective actions to change its ways.

“They have left us with no choice,” McKenna said. “We will have the full attention of ReconTrust and its owner, Bank of America, and they will be more interested in sitting down and making things right.”

“ReconTrust operates in compliance with applicable state and federal laws,” Jumana Bauwens, a spokeswoman for Charlotte, North Carolina-based Bank of America, said in an e-mailed statement.

“We disagree with the Attorney General’s concerns on this issue and will vigorously defend the services of ReconTrust against this challenge,” she said. “We make every effort to reach out to delinquent customers to offer home retention options as well as foreclosure avoidance programs. Foreclosure is always our last resort.”

Washington is a so-called nonjudicial foreclosure state, where courts don’t review documents and banks hire trustees to handle home seizures.

The state is seeking civil penalties of $2,000 a violation and the complaint alleges thousands of violations, McKenna said. The lawsuit also is seeking restitution for homeowners who unfairly lost their properties.

The case is Washington v. ReconTrust Co., 11-26867-5, Superior Court, King County, Washington (Seattle).

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Lawsuits/Pretrial

U.S. District Court Must Decide Lehman Claims, JPMorgan Says

JPMorgan Chase & Co. (JPM), sued for $8.6 billion by bankrupt Lehman Brothers Holdings Inc., said the defunct firm’s common- law claims against it must be decided by a U.S. district court judge rather than a bankruptcy judge.

In a court filing Aug. 5 in Manhattan, the New York-based bank said the U.S. Supreme Court ruling in the Anna Nicole Smith case limited the power of bankruptcy judges to rule on such claims.

JPMorgan, the second-biggest U.S. bank, has been fighting Lehman’s suit in bankruptcy court, fending off demands for the return of $8.6 billion in collateral, plus “tens of billions” in damages for allegedly accelerating the former investment bank’s demise. After the ruling in the Smith case, a district judge must determine damage claims brought under New York state law, JPMorgan said in the filing.

“Those claims, through which plaintiffs seek to augment the estate by recovering damages for JPMorgan’s alleged misconduct in precipitating LBHI’s bankruptcy filing, are legally indistinguishable from the state-law tortuous interference counterclaim in Stern,” the bank said, referring to the Supreme Court case known as Stern v. Marshall.

Recent rulings by higher courts have left bankruptcy cases in disarray. U.S. District Judge Jed Rakoff threw out demands by the liquidator of Bernard Madoff’s firm for billions of dollars in damages from London-based HSBC Holdings Plc. (HSBA) The Supreme Court’s June decision limited bankruptcy courts’ ability to rule on state-law claims as well as ending any chance for heirs of Smith, a former Playboy model, to collect a $449 million judgment against the estate of J. Howard Marshall, the Texas billionaire to whom she had been married.

According to JPMorgan, Lehman’s demand for return of the collateral can’t be decided by a bankruptcy judge either. Those claims were made to pad out bankrupt Lehman’s estate, and “fall outside the claims-allowance process” that is the business of a bankruptcy court, it said.

Lehman disagreed about the impact of Stern v. Marshall.

“The Stern court left untouched the bankruptcy courts’ authority to enter final judgments on common-law claims” that stem from the bankruptcy, it said in a filing.

The Lehman suit is Lehman Brothers Holdings Inc. (LEHMQ) v. JPMorgan Chase Bank NA, 10-03266, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Amaranth Suit Against JPMorgan Chase Dismissed by Judge

Amaranth Advisors LLC, the commodities fund that collapsed in 2006, can’t proceed with a lawsuit claiming JPMorgan Chase & Co. executives helped cause its demise by sabotaging a bailout by Citadel Investment Group LLC, a judge ruled.

The hedge fund, which lost $2 billion in September 2006 on natural gas futures and derivatives bets that went awry, can’t press its claim that JPMorgan officials interfered with its Citadel deal by casting aspersions on Amaranth’s financial condition, New York Supreme Court Judge O. Peter Sherwood concluded.

Amaranth officials can’t prove two JPMorgan executives’ statements were the reason Citadel officials decided to cancel the bailout effort, Sherwood said in a nine-page ruling Aug. 5.

“We disagree with the court’s conclusion and plan to appeal,” J.B. Heaton, a Chicago-based lawyer for Amaranth, said in a telephone interview. Jennifer Zuccarelli, a JPMorgan spokeswoman, didn’t immediately return a call for comment on Sherwood’s ruling.

The case is Amaranth LLC v. JPMorgan Chase & Co., 603756/2007, New York state Supreme Court, New York County (Manhattan).

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WaMu Bank’s Failure Won’t Result in Criminal Charges

Washington Mutual Bank’s failure, the biggest in U.S. history, won’t result in criminal charges against its former executives, U.S. Attorney Jenny A. Durkan in Seattle said.

A federal investigation of the bank’s collapse included hundreds of interviews and a review of millions of documents concerning its operations, Durkan and the Justice Department said Aug. 5 in an e-mailed statement.

“The evidence does not meet the exacting standards for criminal charges in connection with the bank’s failure,” according to the statement.

The bank, the operating unit of Washington Mutual Inc. (WAMUQ), was seized by regulators on Sept. 25, 2008, and sold to JPMorgan Chase & Co. for $1.9 billion. The bank had more than 2,200 branches and $188 billion in deposits. The following day, the parent company filed for bankruptcy.

Former U.S. Attorney Jeffrey Sullivan in Seattle, citing “intense public interest” in the bank’s failure, said in October 2008 that his office had created a task force working with investigators from the Federal Bureau of Investigation, the Federal Deposit Insurance Corp., the Securities and Exchange Commission and the Internal Revenue Service to investigate its collapse.

Andrew C. Irgens, a lawyer representing Washington Mutual Inc. in its bankruptcy case, didn’t immediately return a call and e-mail seeking comment after regular business hours Aug. 5.

Federal prosecutors continue to cooperate with the FDIC in a lawsuit against three former Washington Mutual executives, according to the statement.

In that case, the FDIC accuses former Washington Mutual Inc. Chief Executive Officer Kerry Killinger, former Chief Operating Officer Stephen Rotella and David Schneider, the bank’s former home-loans president, of taking extreme risks with the bank unit’s home-loans portfolio, causing billions of dollars in losses.

The FDIC accuses the executives of disregarding the bank’s long-term safety and fixating on rewarding themselves. The men received more than $95 million in compensation from January 2005 to September 2008, according to the suit.

The FDIC case is FDIC v. Killinger, 11-00459, U.S. District Court, Western District of Washington (Seattle). The bankruptcy case is In re Washington Mutual Inc., 08-12229, U.S. Bankruptcy Court, District of Delaware (Wilmington).

Cohen, SAC Should Be Dropped From Fairfax Suit, Lawyer Says

Billionaire Steven A. Cohen and his SAC Capital Advisors LP should be dropped from a lawsuit accusing it and other hedge funds of conspiring to spread negative information about Fairfax Financial Holdings Ltd. (FFH), a lawyer argued in court.

Fairfax, a Toronto-based insurer, sued the hedge funds in 2006, alleging they acted to harm the company because they were betting its stock price would decline. Fairfax seeks more than $8 billion in damages.

“We simply didn’t do anything to injure Fairfax,” Martin B. Klotz, a lawyer for Cohen and SAC Capital, told New Jersey Superior Court Judge Stephan C. Hansbury Aug. 5 in Morristown. “We did nothing to participate in the enterprise alleged here.”

Fairfax alleges that the funds coaxed John Gwynn, a former insurance analyst at Morgan Keegan & Co. in Memphis, Tennessee, into giving them his negative Fairfax reports before they were published. It also says the funds disseminated false information about the company to the media, the government and ratings services.

The hedge funds named in the suit, including Stamford, Connecticut-based SAC Capital, James Chanos’s New York-based Kynikos Associates LP and Daniel Loeb’s New York-based Third Point LLC, have denied Fairfax’s accusations.

Lawyers for Fairfax are scheduled to argue later against the request by Cohen and SAC Capital that Hansbury rule in their favor without the need of a trial.

The case is Fairfax Financial Holdings Ltd. v. SAC Capital Management LLC, L-2032-06, Superior Court of New Jersey, Morris County (Morristown).

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Facebook Says Ceglia Computers Show ‘Smoking Gun’ of Fraud

Facebook Inc. said its inspection of computers turned over by Paul Ceglia, the western New York man who claims he’s entitled to half of Chief Executive Officer Mark Zuckerberg’s holdings in the social-networking company, shows “smoking gun” evidence of fraud.

Ceglia sued Facebook and Zuckerberg last year, claiming that a two-page contract Zuckerberg signed in 2003 gave Ceglia half of the company when the service was started the following year. Since then, Palo Alto, California-based Facebook has grown to become the world’s biggest social-networking site.

U.S. Magistrate Judge Leslie Foschio in Buffalo, New York, last month ordered Ceglia to let Facebook run forensic tests on his computers, hard drives and electronic storage media, as well as on the contract and the e-mail he says support his claim.

“Defendants have uncovered smoking-gun evidence that the purported contract at the heart of this case is a fabrication,” Facebook said in its court filing Aug. 4.

In a publicly filed version of the motion papers, Facebook, citing a confidentiality order in the case, didn’t identify the evidence it says was “embedded in the electronic data on Ceglia’s computer.”

Paul Argentieri, a lawyer for Ceglia, declined to comment on Facebook’s claim, citing Foschio’s July 13 confidentiality order.

The case is Ceglia v. Zuckerberg, 1:10-cv-00569, U.S. District Court, Western District of New York (Buffalo).

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Dowler Lawyer Says Reporters Admit Phone Tapping Knowledge

As many as two dozen U.K. reporters at more than one newspaper admit they knew phone-hacking occurred, according to a lawyer for potential victims of privacy breaches by News Corp. (NWSA)’s News of the World tabloid.

“Sources” at three U.K. police forces also told the lawyer, Mark Lewis of Taylor Hampton Solicitors Ltd., that they knew of officers providing journalists information in exchange for payments, he said in an interview in his office in London.

While the phone-hacking scandal has mostly affected News Corp., U.K. lawmakers called Aug. 4 for Piers Morgan, the host of CNN’s “Tonight” show and a former editor of the Daily Mirror, to return to Britain to answer questions.

That request came after singer Paul McCartney’s ex-wife Heather Mills told the British Broadcasting Corp. that their phone had been hacked. McCartney told a group of U.S. television critics Aug. 4 that he planned to contact U.K. police about Mills’s claims, the Telegraph reported.

“It used to be that every journalist who phoned up would say ‘yeah, this used to happen -- of course I never did it’,” said Lewis, who represents the family of murdered schoolgirl Milly Dowler, whose phone was hacked. He said between a dozen and two dozen journalists had told him they knew of hacking instances. “Everyone knew it happened.”

Lewis declined to name the publications whose journalists had phoned him, or the police officers implicated in corrupt payments. A spokesman for London’s Metropolitan Police said the force won’t comment on speculation.

Daisy Dunlop, a spokeswoman for News Corp.’s News International U.K. publishing unit, didn’t return a call for comment.

The scandal has snowballed since 2007, when News of the World royal reporter Clive Goodman and private investigator Glenn Mulcaire were jailed for phone hacking. Police are probing the extent of phone and computer hacking by journalists and illegal payments to officers, while Prime Minister David Cameron last month announced a public inquiry into the saga that will investigate whether other papers hacked phones.

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Stanford Liquidators Win Bid to Get $20 Million in U.K. Assets

Stanford International Bank’s liquidators won a bid to gain access to $20 million of assets frozen in the U.K.

Grant Thornton LLP, which is liquidating the Antigua-based bank, will use the money to fund its plan to recover assets for victims of R. Allen Stanford’s alleged Ponzi scheme. Judge Elizabeth Gloster ordered Aug. 4 the release of $20 million, with $5 million to be made available to Grant Thornton immediately.

Stanford, 61, faces civil and criminal allegations that he defrauded investors of more than $7 billion using bogus certificates of deposit issued by Stanford International Bank. Stanford denies the claims. His criminal trial was postponed until January 2012 because of health problems.

About $100 million of Stanford International Bank’s assets are held in the U.K. in various hedge funds. The money has been the subject of a legal battle over access to the funds. The U.K. Serious Fraud Office wants to hand the assets to the U.S. Department of Justice.

Grant Thornton said it will use the money to fund lawsuits against banks and advisers who worked with Stanford. The accounting firm also hopes to clawback funds from investors who profited from the alleged fraud, its lawyers said.

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Litigation Departments

News Corp. Director Leading Inquiry Has Ties to Murdochs

News Corp.’s independent directors, obligated to assess Rupert Murdoch and other top executives’ handling of the company’s phone-hacking scandal, are relying for guidance on Viet Dinh, a board member with personal ties to the Murdoch family.

Dinh, 43, is point man between the independent board members and a panel that New York-based News Corp. created to cooperate with authorities probing phone hacking by the defunct News of the World tabloid and to evaluate company standards.

A Washington attorney and Georgetown University Law Center professor, Dinh has been a friend of Chief Executive Officer Rupert Murdoch’s oldest son Lachlan since 2003 and is godfather to Lachlan’s second child. In 1992, a decade before they met, the South China Morning Post, then owned by Murdoch, helped Dinh free his sister from a Hong Kong refugee camp.

“Usually it’s required that an investigation like this is undertaken by a committee of independent directors,” said Jay Lorsch, a Harvard Business School professor who has served on the boards of four publicly traded companies. “It’s very hard to be objective if you’re involved in any way -- financially or emotionally -- with the family of the chief executive you are supposed to be supervising.”

Dinh will update directors on the scandal at an Aug. 9 board meeting in Los Angeles, two people familiar with the situation said. The “management and standards” committee, established by News Corp. last month, reports to board member and Executive Vice President Joel Klein, a former assistant U.S. attorney general and New York City schools chief, who then reports to Dinh, the company said in a July 18 statement.

Dinh declined to comment for this story, as did Lachlan Murdoch, who is an investor in Australian media companies and has been a News Corp. board member since 1996. Teri Everett, a News Corp. spokeswoman, had no comment.

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Allen & Overy Sues Nimbus for Legal Fees After Delayed IPO

Allen & Overy LLP, the U.K.’s third most profitable law firm, sued Nimbus Communications Ltd., claiming the Indian media company failed to pay some of its legal fees after delaying its initial public offering.

Nimbus’s lawyer Chandra Mohan said Aug. 4 that the parties are in negotiations. The London-based law firm is seeking $226,490 from Nimbus for breach of contract, according to its lawsuit filed with the Singapore High Court in February.

Allen & Overy -- through its former Singapore joint law venture with Shook Lin & Bok LLP -- was the legal adviser to Deutsche Equities India Pte and Edelweiss Capital Ltd. (EDEL) on the proposed share sale. Nimbus was required to pay all legal fees related to the IPO whether it was completed or not by Nov. 30, 2007, according to the lawsuit.

While Mumbai-based Nimbus has paid Allen & Overy $150,000, an agreed fee cap was voided after the company missed deadlines to file its draft prospectus to the Indian regulator and complete the share sale, according to court filings. The law firm’s fees ranged from $180 an hour for a paralegal to $675 for a partner.

Nimbus hasn’t filed its response, Mohan said. Ken Aboud, Allen & Overy’s managing partner in Singapore, declined to comment on the lawsuit.

The case is Allen & Overy LLP v Nimbus Communications Ltd. S101/2011 in the Singapore High Court.

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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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