The U.S. Justice Department sued to block AT&T Inc. (T)’s proposed $39 billion takeover of T-Mobile USA Inc., saying the deal would “substantially lessen competition” in the wireless market.
The government is seeking a declaration that AT&T’s takeover of T-Mobile, a unit of Deutsche Telekom AG (DTE), would violate U.S. antitrust law, according to a complaint filed yesterday in federal court in Washington. The U.S. also asked for a court order blocking implementation of the deal, the largest announced acquisition of the year, according to data compiled by Bloomberg.
AT&T Chief Executive Officer Randall Stephenson’s proposed purchase of Bellevue, Washington-based T-Mobile, announced in March, would combine the second- and fourth-largest carriers to create a new market leader ahead of No. 1 Verizon Wireless. The new company would dwarf current No. 3 carrier Sprint Nextel Corp. (S), which argued against the deal.
“AT&T’s elimination of T-Mobile as an independent, low- priced rival would remove a significant competitive force from the market,” the government said in court papers.
AT&T said it was surprised by the government suit and that it will ask for an expedited hearing in the matter.
“We have met repeatedly with the Department of Justice and there was no indication from the DOJ that this action was being contemplated,” Wayne Watts, AT&T’s general counsel, said in a statement. He said the company intends to fight the litigation.
Bonn-based Deutsche Telekom said in an e-mailed statement that it too would contest the U.S. government suit.
“DOJ failed to acknowledge the robust competition in the U.S. wireless telecommunications industry and the tremendous efficiencies associated with the proposed transaction,” the German company said, adding it appreciates the Justice Department’s “willingness to discuss possible remedies” to address the competitive concerns.
“The important point is that the Justice Department has gone ahead and challenged a big merger of competitors, which it just hasn’t done,” said Eleanor Fox, a law professor at New York University. “People were getting used to seeing press releases saying the Justice Department has agreed to merger XYZ with a spinoff.”
The FCC said that it was continuing its review. In an e- mailed statement FCC Chairman Julius Genachowski said the record before the agency “raises serious concerns about the impact of the proposed transaction on competition.”
The case is U.S. v. AT&T Inc., 11-01560, U.S. District Court, District of Columbia (Washington).
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Cerberus, Chatham Face October Trial in Innkeepers Lawsuit
Cerberus Capital Management LP and Chatham Lodging Trust (CLDT) will face an Oct. 10 trial over their backing out of a deal to buy hotels from Innkeepers USA Trust, a bankrupt operator of Residence Inns, Marriott hotels and Hampton Inns.
U.S. Bankruptcy Judge Shelley C. Chapman in Manhattan set the expedited trial schedule yesterday. Innkeepers sued Cerberus and Chatham Aug. 29 seeking to force them to honor the deal to buy 64 hotels or pay damages.
The approved Chapter 11 plan by the operator of 71 hotels rested on the sale. Cerberus and Chatham said Aug. 22 they’d ended the $1.1 billion agreement, citing a possible adverse change that could affect Innkeepers’ long-term business. They didn’t say what the change was.
“It’s a fairly well circumscribed issue” over whether there was a legitimate material adverse change, Chapman said yesterday.
Innkeepers, whose parent is managed by an affiliate of Leon Black’s private-equity firm Apollo Global Management LLC, filed for bankruptcy in July 2010 with a pre-arranged reorganization plan proposed by Apollo and Lehman Ali, a unit of bankrupt Lehman Brothers Holdings Inc., which was rejected by creditors.
The case is In re Innkeepers USA Trust, 10-13800, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
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Ex-Primary Global Executive’s Conspiracy Trial Begins
The insider-trading conspiracy trial of former Primary Global Research LLC executive James Fleishman will include testimony from ex-technology executives implicated in the alleged plot, the U.S. said.
Fleishman, of Santa Clara, California, went on trial yesterday before U.S. District Judge Jed Rakoff in Manhattan on two counts of conspiracy for his role in what prosecutors say was a two-yearlong insider-trading scheme. Fleishman, who has pleaded not guilty, faces as long as 25 years in prison if convicted.
The defendant worked with “a corrupt network of insiders” at technology companies who “sold out their employers by stealing and then peddling their valuable inside information,” Manhattan U.S. Attorney Preet Bharara said at the time the charges were announced in December.
A jury was selected yesterday to hear the case, which Rakoff said would last about three weeks. Two men who have entered guilty pleas in the insider probe, Mark Anthony Longoria, a former Advanced Micro Devices Inc. (AMD) manager, and Daniel DeVore, a former supply manager for Dell Inc. (DELL), have agreed to testify against Fleishman, assistant U.S. attorneys Antonia Apps and David Leibowitz said.
Thirteen people have been convicted in the crackdown, including 12 who pleaded guilty. Winifred Jiau, a former Primary Global consultant was convicted at trial in June of securities fraud and conspiracy for passing inside tips about Nvdia Corp. and Marvell Technology Group Ltd. (MRVL) to hedge fund managers.
Primary Global, based in Mountain View, California, links investors with industry experts at public companies. In his position as a sales manager, Fleishman was responsible for attracting new clients and arranging for fund managers to speak to consultants, the U.S. said.
The case is U.S. v. Nguyen, 11-cr-00032, U.S. District Court, Southern District of New York (Manhattan).
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Ex-Galleon Trader Drimal Sentenced to 5 1/2 Years in Prison
Former Galleon Group LLC hedge fund trader Craig Drimal, who took part in an insider trading scheme that stretched from technology firms to pharmaceutical companies, was sentenced to 5 ½ years in prison.
Drimal, 55, pleaded guilty in April in to conspiracy and securities fraud, admitting that he and others at Galleon traded on inside information obtained from lawyers working on transactions involving 3Com Corp. and Axcan Pharma Inc. Drimal said the information was obtained from Arthur Cutillo and Brien Santarlas, lawyers at Boston-based Ropes & Gray LLP.
Prosecutors had asked U.S. District Judge Richard Sullivan, who handed down the 66 month-term yesterday in Manhattan, to sentence Drimal within the federal guidelines range of 70 to 87 months. Drimal had sought community service or home confinement in lieu of a prison term, prosecutors said.
The government said in court papers that a “strong message of deterrence to others in the hedge fund community” must be sent, and that the “nature and extent of his criminal conduct doesn’t warrant community service.”
The case is U.S. v. Goffer, 10-cr-00056, U.S. District Court, Southern District of New York (Manhattan).
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TCW Rests Case in Gundlach Trial Over Trade Secrets, Fees
TCW Group Inc. rested its case in the trial that pits the asset-management firm against its former chief investment officer, Jeffrey Gundlach.
Former TCW president Bill Sonneborn, now chief executive officer of KKR Financial Holdings LLC, was the last witness TCW called to support its claims that Gundlach and three other former employees stole TCW’s trade secrets to start DoubleLine Capital LP, the rival asset-management business Gundlach set up 10 days after TCW fired him in December 2009.
“I encouraged him to terminate Jeffrey,” Sonneborn told the jurors, recalling an August 2009 conversation he had with TCW CEO Marc Stern. Sonneborn, who had left TCW in 2008, said he told Stern that Gundlach was becoming a disease or a cancer for the company. Sonneborn said Stern was unwilling to fire Gundlach at that time because he was too important for TCW.
TCW, the Los Angeles-based unit of Societe Generale (GLE) SA, sued Gundlach, 51, in January 2010, after more than half of its fixed-income professionals joined DoubleLine. TCW’s damages expert told jurors in California state court in Los Angeles that the company suffered $344 million in damages from Gundlach’s alleged interference with contracts and $222 million from a claimed breach of fiduciary duty.
Gundlach, who had worked at TCW for 25 years and was named Morningstar’s Fixed Income Manager of the Year in 2006, countersued, saying TCW fired him to avoid having to pay management and performance fees for the distressed-asset funds his group managed and that went “through the roof.” Gundlach seeks about $500 million.
Gundlach, who testified for four days, has denied that DoubleLine used any of TCW’s trade secrets or proprietary information and said that DoubleLine employees were told to turn over any TCW files they might have had. Gundlach told the jury that the success of his funds was due to “experience and thinking” rather than to analytical systems.
The case is Trust Co. of the West v. Gundlach, BC429385, California Superior Court Los Angeles County (Los Angeles).
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Pfizer Settles Lipitor Suit With Generic Maker Dr. Reddy’s
Pfizer Inc. (PFE), the world’s largest drugmaker, settled a patent-infringement lawsuit with the Indian generic-drug maker Dr. Reddy’s Laboratories Ltd. over the cholesterol treatment Lipitor. The terms weren’t disclosed.
Pfizer, based in New York, sued Dr. Reddy’s in December 2009 to block generic copies of Lipitor from coming out before Pfizer’s patent for the tablets expires in 2017. The companies settled on Aug. 19, and U.S. District Judge Leonard P. Stark in Wilmington, Delaware, dismissed the case Aug. 29, according to court records.
“We have closed our litigation with Pfizer, but the date of entry into the market is not yet confirmed,” Kedar Upadhye, a spokesman for Dr. Reddy’s, said in a statement yesterday. The agreement is subject to review by the U.S. Justice Department and the Federal Trade Commission, the company said.
“We can confirm that we have reached an agreement with Dr. Reddy’s regarding a patent case involving Lipitor,” Christopher Loder, a Pfizer spokesman, said in an e-mailed statement. “Terms of the agreement are confidential.”
Teva Pharmaceutical Industries Ltd. (TEVA) and Mylan Inc. also have reached settlements with Pfizer to sell generic forms of Lipitor, known chemically as atorvastatin.
The case is Pfizer v. Dr. Reddy’s, 1:09-cv-00943, U.S. District Court, District of Delaware (Wilmington).
To see the patent, click: 5,969,156.
J. Crew, Funds Said to Reach $16 Million Settlement Over Buyout
J. Crew Group Inc. and the two private-equity firms buying the retailer agreed to pay $16 million to resolve investor lawsuits over the deal, reviving a previous settlement that had collapsed, three people familiar with the matter said.
Executives of New York-based J. Crew and buyout firms TPG Capital LP and Leonard Green & Partners LP, who acquired the clothing-store chain for $3 billion, agreed to add an additional $6 million to the original $10 million settlement to end litigation over the buyout, the people said yesterday.
J. Crew sued a group of shareholders in Delaware Chancery Court in Wilmington in May in a bid to enforce the original $10 million settlement, which collapsed four months earlier. The new accord will resolve the company’s suit as well as investors’ challenges to the acquisition, said the people, who didn’t want to be identified because the agreement wasn’t public.
TPG, based in Fort Worth, Texas, and Los Angeles-based Leonard Green agreed in November to buy J. Crew for $43.50 a share. The company operates 250 retail stores under brands including Madewell and 85 factory outlet locations, as well as a catalog business. A majority of J. Crew’s shareholders voted to approve the buyout in March.
Margot Fooshee, a J. Crew spokeswoman, and TPG spokesman Owen Blicksilver declined to comment.
Cody Franklin, a spokesman for Leonard Green, didn’t immediately return a call seeking comment yesterday. Stuart Grant, a Wilmington, Delaware-based lawyer representing the pension funds that challenged the buyout, also didn’t immediately return calls seeking comment.
Chancery Court Chief Judge Leo Strine still must approve the new settlement before it becomes final. No date has been set for that hearing, according to court dockets.
The case is In re J. Crew Shareholders Litigation, 6043, Delaware Chancery Court (Wilmington).
Diamondback Capital Trader Settles SEC Insider-Trading Case
An ex-portfolio manager for Diamondback Capital Management LLC, Anthony Scolaro, agreed to pay about $203,000 to settle an insider-trading lawsuit filed against him by the U.S. Securities and Exchange Commission.
Scolaro, 50, trading on Diamondback’s behalf, was accused of reaping $1.1 million for the Stamford-Connecticut based hedge fund by trading on inside information about Axcan Pharma Inc. late in 2007. He agreed to disgorge $140,400 in principal and interest and pay a $63,000 penalty, the SEC said in a statement. Diamondback, also named as a relief defendant, agreed to disgorge $1.07 million in principal and interest, according to the SEC.
The allegations were related to a criminal case in which Scolaro pleaded guilty to insider-trading charges stemming from the Galleon Group LLC investigation, the agency said yesterday in a complaint in U.S. District Court in New York.
Scolaro’s November 2010 plea of guilty to insider trading was unsealed in May. He hasn’t been sentenced. His attorney, William Brodsky, didn’t immediately reply to a telephone message seeking comment on yesterday’s filing.
Diamondback disclosed the settlement to its investors in a letter yesterday, Steven Bruce, a spokesman, said by e-mail.
“The complaint contains no allegations of misconduct by Diamondback,” the firm said, adding that it and not its investors will pay for the settlement.
The case is SEC v. Diamondback Capital Management LLC, 11- cv-6112, in the U.S. District Court, Southern District of New York (Manhattan).
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New York Attorney General Deposed 53 in Bank of America Case
New York Attorney General Eric Schneiderman’s office has taken testimony from 53 witnesses in its investigation into Bank of America Corp. (BAC)’s 2008 acquisition of Merrill Lynch & Co., a federal judge said.
U.S. District Judge Kevin Castel in Manhattan said in an order yesterday that “there have been 53 examinations under oath by the NYAG” in its investigation. The witnesses weren’t identified in the order, which involved evidence gathering in the case.
Castel, who is overseeing separate shareholder litigation over the Merrill Lynch deal, said the depositions overlap with information sought by both sides in the litigation in his court.
The attorney general’s office, under Andrew Cuomo, now New York’s governor, sued Bank of America, former Chief Executive Officer Kenneth Lewis and former Chief Financial Officer Joseph Price in February 2010.
Cuomo accused Bank of America of misleading shareholders about huge losses at Merrill Lynch to win approval of the deal and then manipulating the federal government into contributing bailout funds from the Troubled Asset Relief Program to complete it.
Danny Kanner, a spokesman for Schneiderman, had no immediate comment on Castel’s order. Bob Stickler, a Bank of America spokesman, said in an e-mail that all of the depositions were taken while Cuomo was attorney general.
“The vast majority of them were in 2009 and early 2010,” Stickler said. “There is nothing new on the deposition front.”
The case is In re Bank of America Corp. Securities, Derivative and ERISA Litigation, 09-mdl-2058, U.S. District Court, Southern District of New York (Manhattan).
Parmalat Judge Reaffirms Dismissal of Grant Thornton Cases
A U.S. judge reaffirmed his ruling in two suits by Parmalat SpA (PLT) against accounting firm Grant Thornton LLP.
U.S. District Judge Lewis Kaplan in Manhattan yesterday ruled that he was correct in taking the two cases, which were originally filed by Parmalat and its Parmalat Capital Finance Ltd. unit in Illinois state court in 2004 and 2005. Kaplan dismissed the suits in 2009.
In January, a federal appeals court in Manhattan revived the cases, ruling that Kaplan had applied the wrong standard in determining whether to exercise jurisdiction.
The appeals court sent the cases back to Kaplan to determine whether federal law required him to abstain from taking them in favor of the Illinois courts. Kaplan, applying the rule set by the appeals court, said yesterday that he was entitled to rule in the cases.
Parmalat, a dairy company based in Collecchio, Italy, collapsed in December 2003 in the country’s largest bankruptcy, later disclosing more than 14 billion euros ($20.1 billion) of debt, about eight times the amount reported by its former management. Parmalat SpA emerged from bankruptcy and returned to the stock market in 2005.
Enrico Bondi, who was appointed to oversee the Parmalat bankruptcy, sued Grant Thornton, claiming it aided in the fraud that led to Parmalat’s collapse. Parmalat Capital also sued the firm.
The case is In re Parmalat Securities Litigation, 04- cv-1653, U.S. District Court, Southern District of New York (Manhattan).
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Venoco Sued by Shareholder Over $770.2 Million Buyout Offer
A Venoco Inc. (VQ) investor sued to block a bid by the company’s founder to take the oil and gas producer private.
Chairman and Chief Executive Officer Timothy Marquez’s $770.2 million offer is unfair to shareholders and undervalues the company, shareholder James G. Prince said yesterday in a complaint in Delaware Chancery Court. Prince asked that the case be a class-action suit including other Venoco shareholders.
“Marquez strategically timed the proposed transaction during a period of economic turmoil in which the terms of the proposed transaction could be superficially viewed in a positive light,” lawyers for Prince wrote.
Marquez, who holds 50.3 percent of the Denver-based oil and gas company’s shares, offered this week to buy the rest for $12.50 each.
Phil McPherson, a Newport Beach, California-based analyst with Global Hunter Securities LLC, said Aug. 29 that the offer represents a significant discount to the value of the company’s assets and may prompt investor lawsuits and a potentially higher bid from another oil producer.
Venoco, founded in 1992, is the second-largest landholder in California’s Monterey oil-shale formation.
Mike Edwards, a spokesman for Venoco, didn’t immediately return a phone call seeking comment on the complaint.
The case is Prince v. Venoco Inc., CA6823, Delaware Chancery Court (Wilmington).
CareFusion Sues Hospira Over Drug-Delivery System Patents
Hospira, based in Lake Forest, Illinois, is using protected technology in products including the Symbiq, Plum and LifeCare brand of infusion equipment, CareFusion said in papers filed Aug. 30 in federal court in Wilmington, Delaware.
“The evidence will likely show” that Hospira has “acted with disregard of CareFusion’s patent rights, without any reasonable basis for doing so,” and should pay lost profits and royalties to San Diego-based CareFusion, according to the complaint.
CareFusion itself was sued Aug. 29 in federal court in Chicago by rival B. Braun Medical Inc. over infusion-pump patents, according to a B. Braun statement.
“We think we’ve got a strong position in this suit and our plan is to vigorously defend it,” said Hospira spokeswoman Tareta Adams in a telephone interview.
The case is CareFusion v. Hospira, 11-762, U.S. District Court, District of Delaware (Wilmington).
To see the patents, click: 7,171,277; 7,835,927.
Sino-Forest Investors Sue Executives for Backdated Stock Options
Sino-Forest Corp. (TRE) Chief Executive Officer Allen Chan and Chief Financial Officer David Horsley received stock options that were backdated or mispriced in violation of Toronto Stock Exchange rules, according to a lawsuit from two investors.
The options include those issued to Chan in 1996 and 2007 and to Horsley in 2005 and 2007, according to a statement of claim sent yesterday by the investors to an Ontario court.
“The defendants profited handsomely from the market’s resulting appetite for Sino’s securities,” according to the claim. “Certain of the individual defendants sold Sino shares at lofty prices, and thereby reaped millions of dollars of gains.”
The class action was filed by trustees of the Labourers’ Pension Fund of Central and Eastern Canada and the trustees of the International Union of Operating Engineers Local 793 Pension Plan for Operating Engineers in Ontario. The plaintiffs are seeking damages from Sino-Forest, Chan and Horsley and other defendants.
Stan Neve, an external spokesman for Sino-Forest in New York, declined to comment. Horsley didn’t immediately respond to voice-mail messages left at his office and on his mobile phone. Chan didn’t immediately return a call seeking comment to Sino- Forest’s Hong Kong offices after regular working hours.
Sino-Forest’s shares were suspended from trading in Toronto on Aug. 26 after the Ontario Securities Commission said officers and directors of the Hong Kong- and Mississauga, Ontario-based company may have engaged in acts “related to its securities” that they “knew or should have known” perpetuated a fraud. Chan resigned as CEO two days later.
The case is Trustees of the Labourers’ Pension Fund of Central and Eastern Canada v. Sino-Forest, 11-4311530, Superior Court of Justice (Ontario).
Baxter Sues Teva to Enforce Agreement Over Hepatitis Cases
Baxter International Inc. (BAX), the maker of blood products and intravenous drugs, sued Teva Pharmaceutical Industries Ltd. to enforce an indemnity agreement over claims the drugmakers sold the anesthetic propofol in a way that led some patients to develop hepatitis.
Baxter contends in a Delaware Chancery Court lawsuit that an arbitration panel found Teva was bound by an agreement to cover all liability stemming from cases blaming tainted vials of propofol for colonoscopy patients developing hepatitis C. A Las Vegas jury last year ordered Teva and Baxter to pay more than $500 million in damages to a Las Vegas school principal on one such claim.
“Teva is obligated to indemnify Baxter for any and all claims, damages, liabilities or losses, including” punitive- damage awards in propofol cases, Deerfield, Illinois-based Baxter said in the Delaware suit, filed Aug. 30.
The suit comes as a Las Vegas jury is hearing testimony in the trial of three more cases alleging Teva and Baxter officials sold propofol in oversized vials that encouraged medical personnel to reuse the containers for multiple patients. Las Vegas residents contend they got hepatitis C from the tainted vials.
Denise Bradley, a U.S.-based spokeswoman for Teva, didn’t immediately respond to a call and e-mail seeking comment on Baxter’s suit.
Teva faces almost 300 lawsuits stemming from a hepatitis C outbreak three years ago in southern Nevada, the Petach Tikva, Israel-based company said in a regulatory filing last month. Nevada health officials blamed the reuse of propofol vials for infecting patients with the incurable liver disease.
Teva manufactures the drug and San Francisco-based McKesson Corp. (MCK) is its current U.S. distributor. Baxter sold the drug for Teva until 2009, according to court filings. Propofol is an intravenous agent used for sedation or anesthesia, according to Teva’s website.
Teva already agreed to settle about one-third of the hepatitis-related suits alleging patients received propofol from reused containers, according to a July 28 filing with the U.S. Securities and Exchange Commission. Teva said it set aside an undisclosed reserve to cover the settlements.
The Delaware case is Baxter International Inc. v. Teva Pharmaceuticals USA Inc., 6819, Delaware Chancery Court (Wilmington.) The Nevada case is Sacks v. Endoscopy Center of Southern Nevada LLC, 08A572315, District Court for Clark County, Nevada (Las Vegas).
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New Jersey’s Christie Sued by Unions over Pension, Health Cuts
New Jersey public employee unions, seeking to block a law reducing pension and health benefits, sued Governor Chris Christie and other state officials.
The lawsuit was filed yesterday by more than 20 unions and individuals, according to federal court records in Trenton, New Jersey.
The law deprives workers of their due process rights by suspending pension adjustments, increasing employees’ contributions, underfunding pensions, and delegating to pension committees an “unrestrained authority to reduce pension and change eligibility requirements,” according to a copy of the complaint on the New Jersey Education Association’s website.
Christie signed the bill into law June 28, raising pension and health-care expenses for public workers, after urging lawmakers since September to approve measures cutting health- care costs and reducing a $53.9 billion deficit in the state pension system. The plan drew protests from teachers, firefighters and other public workers and was opposed by a majority of Democratic lawmakers.
The state and other officials in addition to Christie are named as defendants in the lawsuit.
Michael Drewniak and Kevin Roberts, both spokesmen for Christie, didn’t immediately return a call seeking comment after regular business hours yesterday.
The case is New Jersey Education Association v. State of New Jersey, 11-05024, U.S. District Court, District of New Jersey (Trenton).
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