Strauss-Kahn, AIG-BofA, UniCredit, Citigroup in Court News

Dominique Strauss-Kahn, the former International Monetary Fund chief criminally charged with sexually assaulting a hotel housekeeper, was sued by the woman for what her lawyer called “violent and deplorable acts.”

Nafissatou Diallo, who emigrated to the U.S. from Guinea, filed the complaint yesterday in New York State Supreme Court in the Bronx, where she lived at the time of the incident. The criminal case against Strauss-Kahn, 62, a onetime French presidential hopeful, is pending in state court in Manhattan.

Diallo, who revealed her identity in media interviews last month, was working at the Sofitel hotel in midtown Manhattan May 14 when she entered Strauss-Kahn’s suite, where the incident took place. Strauss-Kahn, whose lawyer has said the encounter wasn’t forcible, was arrested and charged with sexual assault and attempted rape.

“Believing that he was immune from the laws of this country, defendant Strauss-Kahn intentionally, brutally and violently sexually assaulted Ms. Diallo and in the process humiliated, degraded, violated and robbed Ms. Diallo of her dignity as a woman,” her lawyers said in the complaint.

The suit seeks unspecified monetary damages for physical and psychological harm, damage to Diallo’s reputation, career, and mental anguish, for the assault, battery, intentional infliction of emotional distress and false imprisonment. Strauss-Kahn has pleaded not guilty to criminal charges and denied any wrongdoing.

“Ms. Diallo has filed her lawsuit now because she wants to vindicate her rights and hold Dominique Strauss-Kahn accountable for the violent and deplorable acts committed against her,” defense lawyer Kenneth Thompson said yesterday in an interview. “We expect that the District Attorney will stand by this victim, because to abandon her would also be an abandonment of other women who are going to be raped or sexually assaulted in the future.”

The Manhattan District Attorney’s office is still investigating the criminal case. Strauss-Kahn, who remains free while he awaits trial, is scheduled to return to court Aug. 23.

On July 1, prosecutors told a judge that the criminal case was hurt by Diallo’s “substantial credibility issues,” which included lying to a grand jury about her actions immediately after the alleged attack as well as regarding details of her life history.

It’s unusual for such a civil suit to be filed before the criminal case has been resolved, said New York attorney Paul Callan, who isn’t involved in the case.

“Thompson is fearful the criminal case is going to be dropped so he’s throwing out the rule book,” said Callan, who represented the estate of Nicole Brown Simpson in a lawsuit against former professional football player O.J. Simpson.

Erin Duggan, a spokeswoman for Manhattan District Attorney Cyrus Vance Jr., declined to comment on the lawsuit. She said the criminal case was “continuing.”

It is easier to prove a civil case than a criminal case. The “preponderance of the evidence” is all that is necessary in a civil case, whereas criminal jurors must be convinced “beyond a reasonable doubt.”

“If there’s a little more evidence on the side of one party than the other, that party wins,” Callan said.

“We have maintained from the beginning that the motivation of Mr. Thompson and his client was to make ‎money,” Strauss- Kahn’s criminal defense attorneys, Benjamin Brafman and William Taylor, said in an e-mailed statement. “The filing of this lawsuit ends any doubt on that question. The civil suit has no merit and Mr. ‎Strauss-Kahn will defend it vigorously.‎”

The civil case is Diallo v. Strauss-Kahn, 11-307065, New York State Supreme Court (Bronx County); The criminal case is People v. Strauss-Kahn, 11-02526, New York State Supreme Court (New York County).

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AIG Sues Bank of America Over $10 Billion in Mortgage Losses

American International Group Inc. (AIG), the bailed-out insurer, sued Bank of America Corp. over $10 billion in losses on mortgage-bond investments. The bank dropped 16.5 percent in New York trading.

AIG bought more than $28 billion in residential mortgage- backed securities marred by a “massive fraud” conducted by Bank of America and businesses it took over -- Countrywide Financial Corp. and Merrill Lynch & Co., the insurer said in a complaint filed yesterday in New York State Supreme Court.

“Bank of America’s fraud caused billions of dollars in damage to AIG and we are bringing this suit today to protect AIG and the taxpayers’ stake in it,” Mark Herr, a spokesman for New York-based AIG, said in a statement. “This is not the first lawsuit that AIG has filed against counterparties that have sought to profit at our expense, and we anticipate that it will not be the last.”

The bank rejects the insurer’s “assertions and allegations,” said Larry DiRita, a spokesman for the Charlotte, North Carolina-based lender, the biggest in the U.S. by assets.

“AIG recklessly chased high yields and profits throughout the mortgage and structured finance markets,” said DiRita. “It is the very definition of an informed, seasoned investor, with losses solely attributable to its own excesses and errors.”

The case is American International Group Inc. v. Bank of America Corp. (BAC), 652199-2011, New York State Supreme Court (Manhattan).

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Yahoo Investors Sue Over Alibaba Payment Restructuring

Yahoo! Inc. shareholders, claiming they were misled about the restructuring of the online payment business of China’s Alibaba Group Holding Ltd., sued the owner of the biggest U.S. Web portal.

The investors, in a complaint filed yesterday in federal court in San Francisco, claim the search-engine provider failed to tell them before May 10 that its $1 billion investment in Alibaba was “severely impaired” by the transfer of the payment business, Alipay, to a closely held company controlled by Alibaba Chairman Jack Ma.

Yahoo management was informed no later than March 31 about the restructuring, which reduced the value of the Sunnyvale, California-based company’s investment in Alibaba by billions of dollars, according to the complaint.

Chinese regulations that precipitated the restructuring were anticipated in 2009, requiring “Yahoo or Alibaba to divest themselves of Alipay but Yahoo had failed to develop a strategy to recover the value it had in Alibaba,” according to the suit.

Alibaba, based in Hangzhou in eastern China, said July 29 that its two biggest shareholders, Yahoo and Softbank Corp. (9984), Japan’s third-biggest mobile carrier, agreed to a compensation deal that may result in Alibaba receiving as much as $6 billion from Alipay. The agreement ended a four-month dispute between Alibaba, China’s biggest e-commerce company, and foreign shareholders over the spinoff of Alipay.

The sale of the online payment business to Ma’s company last year lacked the approval of the board and was only disclosed to investors in March, Yahoo said previously.

The lawsuit was filed on behalf of the Twin City Pipe Trades Service Association based in Saint Paul, Minnesota.

Dana Lengkeek, a Yahoo spokeswoman, had no immediate comment yesterday.

The case is Twin City Pipe Trades Pension v. Yahoo! Inc., 11-03870, U.S. District Court, Northern District of California (San Francisco).

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Lawsuits/Pretrial

Madoff Trustee Can’t Pursue UniCredit Bank Austria AG Claims

Irving Picard, the trustee for Bernard Madoff’s former firm, doesn’t have standing to pursue common-law claims against UniCredit Bank Austria AG, a unit of UniCredit Spa (UCG), Italy’s biggest bank, a federal judge ruled.

U.S. District Judge Jed Rakoff in New York on Aug. 6 added UniCredit Bank Austria to a July 28 opinion barring Picard from pursuing some claims in his lawsuit against the UniCredit parent company as well as London-based HSBC Holdings Plc. (HSBA)

The July 28 order was amended, Rakoff wrote, to “include a dismissal of the trustee’s common law claims against Bank Austria.”

Picard in December filed a revised complaint in U.S. Bankruptcy Court against HSBC, accusing it of aiding Madoff’s fraud. The complaint seeks to recover $2 billion in transfers out of Madoff’s business. It also asserted common-law claims seeking at least $6.6 billion from HSBC and about $2 billion from a group of 36 other defendants, including Milan-based UniCredit, according to Rakoff’s ruling.

Rakoff took the case out of bankruptcy court and considered whether Picard could bring common-law claims, such as aiding and abetting Madoff’s fraud. The judge said July 28 that all the common-law claims must be dismissed, with the remainder of the case returned to the bankruptcy court.

Picard didn’t immediately return a phone message seeking comment yesterday after regular business hours.

The case is Picard v. HSBC Bank Plc, 11-cv-0763, U.S. District Court, Southern District of New York (Manhattan).

Donald Rumsfeld Must Face Torture Suit by Men Held in Iraq

Former U.S. secretary of defense Donald Rumsfeld must face a lawsuit filed against him by two American men claiming they were wrongfully held and tortured by U.S. forces in Iraq.

The U.S. Court of Appeals in Chicago yesterday upheld a lower court ruling last year allowing the men, Donald Vance and Nathan Ertel, to pursue claims that Rumsfeld should be found personally liable for their treatment.

Ertel and Vance, in a 2006 federal lawsuit, claimed they were taken into custody, then held at the U.S. Army’s Camp Cropper while working for Iraqi-owned Shield Group Security after reporting to the U.S. what they believed was illegal activity by their employer and American personnel.

“We conclude that plaintiffs have sufficiently alleged that Secretary Rumsfeld acted deliberately in authorizing interrogation techniques that amount to torture,” U.S. Circuit Judge David Hamilton wrote for the three-judge panel.

Whether Vance and Ertel can actually prove that assertion “remains to be seen,” the court said.

David B. Rivkin, a lawyer for the former defense secretary, criticized the court ruling in a statement issued by Rumsfeld’s office in Washington. He said it endangers U.S. soldiers.

“Today’s decision by the Seventh Circuit Court of Appeals is a blow to the U.S. military,” Rivkin, a partner in Cleveland-based Baker Hostetler LLP, said yesterday. “This decision is troubling, particularly for the uniformed personnel throughout the entire chain of command who are defendants in this lawsuit. Having judges second-guess the decisions made by the armed forces halfway around the world is no way to wage a war.”

Charles Miller, a spokesman for the U.S. Justice Department, said by phone he couldn’t immediately comment on the court’s decision. The department is representing Rumsfeld and the U.S. in the case.

The defense was appealing a ruling last year by U.S. District Judge Wayne Andersen in Chicago. Rumsfeld resigned his position in the Cabinet of President George W. Bush in December 2006.

“They had an important decision to make involving the constitutional rights of citizens in the difficult context of a wartime, which is when constitutional rights get strained,” attorney Michael Kanovitz, who represents Vance and Ertel, said by phone yesterday. “It made the correct choice to protect those rights.”

The lower case is Vance v. Rumsfeld, 06-cv-06964, U.S. District Court, Northern District of Illinois (Chicago). The appellate case is Vance v. Rumsfeld, 10-1687 and 10-2442, 7th U.S. Circuit Court of Appeals (Chicago).

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Artificial-Knee Suits Targeting Zimmer Now Haunt Lawyers

Zimmer Holdings Inc. (ZMH), facing 78 product-liability lawsuits over its NexGen Flex artificial knees, has a rare strategy to defend the product: target lawyers representing the patients.

Attorney Brett Emison, who wrote a blog post about failures in NexGen knees, got a letter from Zimmer lawyers accusing him of “alarmist fear mongering” and demanding he stop.

“It’s a blatant attempt to try to frighten plaintiffs’ lawyers from pursuing these cases,” said Emison of Lexington, Kentucky-based Langdon & Emison.

He’s not alone in drawing the legal wrath of the world’s biggest maker of replacement knees and hips. The Warsaw, Indiana-based company has sued seven law firms this year and sent warning letters to at least three more, saying their ads and Internet postings distorted the safety record of its $1.8 billion-a-year knee business.

The pre-emptive strikes, begun in January, are an unusually aggressive move, even in an orthopedics industry that’s become rife with litigation, said law professor David Logan.

Zimmer is firing “a shot across the bow to these plaintiffs’ firms,” said Logan, dean at Roger Williams University’s law school in Bristol, Rhode Island, in a telephone interview. “It’s like putting a loaded gun on the table for negotiations. You’re saying, ‘Not only are we not going to give you money, we’re going to go after you as well.’”

The 84-year-old company is merely trying to correct the record about the 3 million NexGen knees implanted worldwide since 1994, said Garry Clark, a Zimmer spokesman. In contrast to the lawyers’ claims, joint-replacement databases in the U.K., Sweden and Australia show the products have among the industry’s lowest failure rates, he said by e-mail. (U.S. implant registries, started this year, haven’t released data yet.)

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Fund Manager Efrosman Is Extradited From Poland, U.S. Says

Aleksander Efrosman, accused of cheating investors out of millions of dollars that he used for his own benefit, including gambling more than $3 million, was extradited from Poland, the U.S. said.

Efrosman, 49, who controlled foreign-currency hedge funds Century Maxim Fund Inc. and AJR Capital Inc., was indicted in 2006. He had fled the U.S. with millions of dollars in 2005, traveling to Mexico, Panama and then Poland, using the alias “Mikhail Grosman” and a fraudulent Russian passport, according to a statement yesterday by U.S. Attorney Loretta Lynch in Brooklyn.

“This defendant allegedly created a web of lies to fleece unsuspecting investors,” Lynch said in the statement. “He will now be held to account for the charged crimes.”

Efrosman, a U.S. citizen, was living in Krakow and was extradited to the U.S. on Aug. 5, according to the statement. He faces mail-fraud, wire-fraud and money-laundering charges, and a maximum penalty of 20 years in prison. He was arrested in Poland on May 28.

He is accused of stealing money from clients who gave him $5 million in 2004 and 2005. He gambled more than $3 million at the Foxwoods Resort Casino in Mashantucket, Connecticut, prosecutors said.

His lawyer, Michael Schneider, couldn’t immediately be reached.

Efrosman, formerly of Staten Island, New York, was arraigned Aug. 6 in federal court in Brooklyn, and ordered detained, according to the statement. He is scheduled to appear before U.S. District Judge Nicholas G. Garaufis on Aug. 10.

The case is U.S. v. Efrosman, 06-cr-95, U.S. District Court, Eastern District of New York (Brooklyn).

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Verdicts/Settlement

Browns’ Lerner Wins Court for Return of Hedge Fund Investment

Billionaire Randy Lerner, owner of the National Football League’s Cleveland Browns, won a court order for the return of the remainder of his $40 million investment in a hedge fund that had refused to say where the money was invested.

Officials of Paige Capital Management LLC, created in 2006 to buy companies that faltered during the U.S.’s economic decline, improperly refused to return Lerner’s funds and retained them for the “selfish reason” of generating management fees, Delaware Chancery Court Judge Leo Strine concluded yesterday.

“I order a remedy requiring the immediate return” of all Lerner’s capital invested in the fund along with interest tied to the delay in handing over the funds, Strine said in 100-page ruling. The fund is run by Michele Paige, a former investment manager for billionaire Carl Icahn, along with her husband, Christopher Paige.

William Dolan, one of the Paiges’ lawyers, didn’t immediately return a phone call for comment yesterday on Strine’s decision.

Lerner, former chairman of financial services company MBNA Corp. who also owns the English Premier League soccer club Aston Villa, rebuffed a March offer by the Paiges to settle the case for about $3 million, according to court filings.

The Paiges sued Lerner’s investment fund last year arguing the billionaire was violating so-called “gate provisions” in his investment contract. The Paiges said the agreement barred Lerner from withdrawing his money because it amounted to more than 20 percent of the fund’s assets under management, according to court filings.

The fund returned about $8 million to Lerner in November 2010 under the terms of its agreement with the billionaire, according to court filings.

Lerner countered he was the only outside investor in the Paiges’ funds and properly requested his entire investment be returned after a three-year “lock-up period” expired in March 2010, court filings show.

The case is Paige Capital Management LLC v. Lerner Master Fund, 5502-VCS, Delaware Chancery Court (Wilmington).

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Sirius XM Subscriber Hearing Ends Without Decision on Accord

A federal judge declined to rule from the bench on the settlement of a lawsuit by Sirius XM Radio Inc. (SIRI) subscribers who claimed the satellite radio broadcaster broke the law when it raised prices after merging with its only rival.

U.S. Judge Harold Baer in Manhattan reserved a decision on the accord after subscribers argued at a hearing yesterday that the agreement gives them too little and the lawyers too much.

Subscriber Carl Blessing of Florida sued Sirius XM in 2009, claiming it violated federal antitrust and state consumer- protection laws when it raised prices and levied a music royalty fee after Sirius Satellite Radio and XM Satellite Radio completed their merger in 2008. Blessing said in his complaint his monthly rate jumped 40 percent to $27.88 after the merger.

“I rely on satellite radio every day for weather and news,” Marguerite Willis, a subscriber from South Carolina who commutes 180 miles a day for work, told the judge. “I have no alternative. Combining Sirius and XM created a firm with monopoly power in rural South Carolina.”

The subscribers said New York-based Sirius XM broke promises it made to win approval of the merger from the U.S. Federal Communications Commission and Justice Department. Sirius XM said the increases were imposed to cover higher costs.

Baer in March let the federal antitrust claim proceed as a class-action, or group, lawsuit, on behalf of Sirius XM subscribers. He denied class-action status on the state-law claims.

The class and Sirius XM reached a pretrial settlement, and Baer gave preliminary approval to the agreement in May.

The accord, valued at $180 million, provides that prices for basic service and Internet access, as well as the music royalty fee, will remain at current levels through the end of the year. Subscribers who canceled can reconnect without paying a fee. Those whose plans expire after Dec. 31 can renew before that time at current rates. Subscribers will get no cash.

“The expectation was that the price would increase $2 a month” after a cap imposed by the FCC expired in July, Joseph Sabella, a lawyer representing the class, told the judge. He said there were 67 objections to the settlement out of 15 million class members.

Objectors argued that Sirius XM hadn’t ever said it would definitely raise prices before year-end. Some objected to language in the accord that would release Sirius from further claims. They also objected to the $13 million Sirius would pay for fees and expenses to the lawyers representing the class.

“The settlement is appropriately scaled to the scope of the case,” John Marjoras, a lawyer representing Sirius, told the judge yesterday. “There were hard-fought negotiations. We fully expected to go to trial.”

The case is Blessing v. Sirius XM Radio, 1:09-cv-10035, U.S. District Court, Southern District of New York (Manhattan).

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Former Citigroup Trader to Pay $1.49 Million Over Fraud

Former Citigroup Inc. (C) trader Otmane El Rhazi was ordered to pay more than $1.49 million to resolve U.S. regulatory claims that he used noncompetitive and fictitious trades to steal money from the bank.

El Rhazi, a Moroccan national who worked for Citigroup Global Markets in the U.K., made platinum and palladium futures trades from November 2010 to April that diverted $373,860 to his own account, the Commodity Futures Trading Commission said yesterday in a statement citing a July 29 court order imposing restitution and a $1.12 million monetary penalty.

“El Rhazi consistently profited his personal account at the expense of the Citi account,” U.S. District Judge Denise L. Cote said in the order filed in the Southern District of New York. El Rhazi was also permanently banned from trading, the CFTC said, citing the court order.

Mark Costiglio, a Citigroup spokesman, declined to comment. The order listed no contact information for El Rhazi, and Dennis Holden, a CFTC spokesman, said the former trader had no defense attorney of record.

Harmony Gold Settles Claim With Lead Plaintiff Over Profit

Harmony Gold Mining Co., Africa’s third-biggest producer of the metal, said it settled with the lead plaintiff of a group that claimed the company overstated earnings in 2007.

The settlement is a “reasonable amount with which we’re comfortable,” Marian van der Walt, a spokeswoman for Johannesburg-based Harmony, said yesterday by mobile phone, declining to disclose the details.

Harmony hasn’t admitted any liability in connection with the proposed settlement of the class action, filed in the U.S. District Court for the Southern District of New York in May 2008, it said in a statement. The court will hold a hearing on Nov. 10 to rule on whether the agreement will be approved.

“A mediated settlement process was followed to avoid protracted and expensive litigation,” Harmony’s Chief Executive Officer Graham Briggs said in yesterday’s statement.

Former Chief Executive Officer Bernard Swanepoel and Financial Director Nomfundo Qangule resigned in 2008 after the company said it overlooked about 250 million rand ($35 million) of costs.

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Litigation Departments

K&L Gates Sues Former Hong Kong Partner Charged With Theft

K&L Gates LLP, a Pittsburgh-based law firm with 2,000 lawyers worldwide, sued a former partner in Hong Kong after he was charged with theft and forgery in the process of transferring funds to a Macau casino company.

The law firm “will pursue and support any and all measures - administrative, civil and criminal - against any wrong-doer to rectify any harm that has been done,” it said in an e-mailed statement.

The former partner Navin Kumar Aggarwal is in custody after police charged him June 24 with three counts of theft and three counts of forgery. He resigned when confronted with the allegations in mid-June, K&L Gates said. The firm, which itself has been sued for at least HK$250.4 million ($32 million), sued Aggarwal for breach of trust and asked Hong Kong’s High Court to freeze his assets.

Aggarwal, 44, is scheduled to appear in court on Aug. 22 to face the charges related to stealing HK$16.6 million from the accounts of RIM China Co. held with K&L Gates and transferring the funds to Wynn International Marketing Ltd. last year. His lawyer, Gloria Chan, declined to comment when reached by telephone.

K&L Gates said it “immediately” began collaborating with Hong Kong authorities when it learned of the matter, and has hired independent counsel and forensic accountants for an investigation supervised by its Asia Managing Partner David Tang.

Valerie Cheung, a spokeswoman for The Law Society of Hong Kong, said it has imposed conditions on Aggarwal’s law license. She declined to elaborate citing ongoing court proceedings.

The civil cases are K&L Gates v. Navin Kumar Aggarwal HCA1061/2011, Hind International Investment Ltd. v. K&L Gates HCA1352/2011, Smartworld International Ltd. v. Navin Kumar Aggarwal & Ors, HCA1136/2011, Penguin Assets Ltd. v. K&L Gates HCA1142/2011, Emperor Securities Ltd. v. Navin Kumar Aggarwal & Ors HCA1167/2011, Lam Shu Chung v. Navin Kumar Aggarwal & Ors HCA1244/2011 and Wang Qiang v. Navin Kumar Aggarwal & Ors HCA1048/2011. The criminal case is HKSAR v. Navin Kumar Aggarwal ESC2673/2011.

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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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