Euro Rescue, AT&T, JPMorgan, BofA, Citigroup in Court News

Challenges to Germany’s participation in the euro rescue funds were rejected by the nation’s top court, which said the government must seek some parliamentary approval for any future bailout payments.

The Federal Constitutional Court in Karlsruhe today threw out lawsuits targeting Germany’s share of the 110 billion euros ($155 billion) in loans for Greece from euro-region governments and the International Monetary Fund, as well as a separate 750 billion-euro rescue fund approved last year to halt the spread of Greece’s debt crisis.

The ruling will aid German Chancellor Angela Merkel’s efforts to gain support for participation in a new round of European Financial Stability Facility programs. She pledged last week to consult lawmakers as her Cabinet agreed on a reworked plan that will raise Germany’s share of EFSF loan guarantees to 211 billion euros from 123 billion euros.

“This gives a green light for continued bailouts, which is the only track available to euro-zone leaders right now,” Fredrik Erixon, head of the European Centre for International Political Economy in Brussels, said in a telephone interview.

The court said the ruling shouldn’t be seen as “blanket” approval for rescue participation and the government must seek approval from the parliament’s budget committee for guarantees it assumes under the EFSF.

“Parliamentary decisions about taxing and spending are a central element of democratic self government under the constitution,” Andreas Vosskuhl, president of the court, said in the ruling. “As representatives of the people, the elected members of parliament thus also need to remain in control over elementary budgetary decisions.”

The cases are BVerfG, 2 BvR 987/10, 2 BvR 1099/10 and 2 BvR 1485/10.

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New Suits

AT&T, U.S. Must Consider Settlement Prospects, Judge Orders

AT&T Inc. (T) and the Justice Department must come to court Sept. 21 ready to discuss “the prospects for settlement” of the government’s antitrust lawsuit seeking to block the company from buying T-Mobile USA Inc., a judge said.

U.S. District Judge Ellen S. Huvelle in Washington issued the order yesterday after a telephone conference with the parties in the case, according to the court docket. Huvelle told the company and the Justice Department to file by Sept. 16 a joint proposal for scheduling the litigation that would “facilitate the just, speedy and inexpensive” management of the case.

“I read this to mean that the judge wants them to state succinctly what the areas of disagreement are and determine whether she can facilitate a settlement,” said Melissa Maxman, the Washington-based co-chair of the antitrust practice group at Cozen O’Connor. “If not, then she will set a schedule for proceeding with litigation. It will make things clearer.”

The Justice Department sued Dallas-based AT&T on Aug. 31 to stop its $39 billion acquisition of Deutsche Telekom AG (DTE)’s T- Mobile unit. The government said the combination of the two companies, which would make AT&T the biggest U.S. wireless carrier, would “substantially” reduce competition.

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Lawsuits/Pretrial

FHFA Says Estimates on Damages From 17 Banks Are Premature

The U.S. Federal Housing Finance Agency, which sued 17 banks over $196 billion in mortgage-backed securities bought by Freddie Mac and Fannie Mae, said it’s premature to estimate how much it may recover.

Damage estimates that said the FHFA is seeking about $200 billion from its suits -- the total cost of the securities --are “excessive,” the agency said yesterday in a statement it called “a fuller statement of purpose.”

The agency, which represents the interests of Freddie Mac and Fannie Mae, mortgage-finance companies under government conservatorship, said actual damages would reflect “losses incurred” or recoveries determined by evidence or judicial findings.

In the relief section of the agency’s Sept. 2 complaints against the banks, including Bank of America Corp. and JPMorgan Chase & Co. (JPM), its first demand for relief asked for a “rescission and recovery of the consideration” Fannie Mae and Freddie Mac paid the mortgage-backed securities.

Using the purchase price for the securities to gauge damages doesn’t reflect repayments of principal or the remaining value of the securities, which would offset any recovery, the agency said in the statement.

“Such numbers reflect the original amount of such securities purchased, not the losses incurred or the potential recoveries at the end of this process,” the agency said in the clarifying statement.

The cases are Federal Housing Finance Agency v. Bank of America Corp., 11-CV-6195; FHFA v. Barclays Bank Plc., 11-CV- 6190; FHFA v. Citigroup, 11-CV-6196; FHFA v. Credit Suisse Holdings (USA) Inc., 11-CV-6200; FHFA v. Deutsche Bank AG (DBK), 11- CV-6192; FHFA v. First Horizon National Corp. (FHN), 11-CV-6193; FHFA v. Goldman, Sachs & Co., 11-CV-6198; FHFA v. HSBC North America Holdings Inc., 11-CV-6189; FHFA v. JPMorgan Chase & Co., 11-CV- 6188; FHFA v. Merrill Lynch & Co., 11-CV-6202; FHFA v. Nomura Holding America Inc., 11-CV-6201; FHFA v. SG Americas Inc., 11- CV-6203, U.S. District Court, Southern District of New York (Manhattan).

Also: FHFA v. Ally Financial Inc.; FHFA v. Countrywide Financial Corp.; FHFA v. General Electric Co. (GE); FHFA v. Morgan Stanley (MS), New York State Supreme Court, New York County (Manhattan).

And: FHFA v. Royal Bank of Scotland, 11-CV-1383, U.S. District Court, District of Connecticut (New Haven).

U.S. RICO Law Can’t Be Applied Abroad, Madoff Judge Says

A U.S. judge who is reviewing the Bernard Madoff trustee’s $59 billion anti-racketeering lawsuit against Italy’s UniCredit SpA (UCG) and Austrian Sonja Kohn said “it is now settled law that RICO cannot be applied extraterritorially.”

U.S. District Judge Jed Rakoff, explaining an earlier decision to take over consideration of the issue from a bankruptcy judge, said he would determine “the precise contours” of the Racketeer Influenced and Corrupt Organizations Act and how it was used by the liquidator of Madoff’s firm, Irving Picard.

Rakoff will take into account recent rulings by higher courts that RICO doesn’t apply to actions that mainly involve foreign actors and foreign acts, he said in a court filing yesterday in Manhattan.

“The court agrees with UniCredit that this relatively new doctrine will require significant interpretation of RICO,” Rakoff said.

Picard named UniCredit and its Bank Austria unit in a December complaint against Bank Medici AG founder Kohn and dozens of other Austrian and Italian parties. He alleged they were part of an international “illegal scheme” masterminded by Kohn to feed money to Madoff’s Ponzi scheme. The trustee demanded $19.6 billion -- his estimate at the time of all principal lost by Madoff investors -- while using RICO to seek triple the amount.

The case is Picard v. Kohn, 11-cv-01181, U.S. District Court, Southern District of New York (Manhattan).

BofA ‘Herding Lions’ to Push Through $8.5 Billion Deal

Bank of America Corp. (BAC)’s bid to resolve mortgage liabilities with an $8.5 billion settlement faces drawn-out litigation and may require a bigger payout as investors and regulators scrutinize the deal, Bloomberg News’ David McLaughlin reports.

U.S. agencies including the Federal Deposit Insurance Corp. and companies such as American International Group Inc. (AIG) have lined up to gather information about the accord that they may use to fight for more money.

New York Attorney General Eric Schneiderman, who is trying to block the deal, said in court papers that the bank faces liability for actions that amount to “persistent illegality.”

“There is no precedent for what’s happening here,” said Zachary Rosenbaum, an attorney in New York at Lowenstein Sandler PC who isn’t involved in the case. “When you’re dealing with this many disparate interests it makes things extraordinarily difficult to reach one definitive settlement absent a judicial decision. They use the term herding cats. This is like herding lions.”

The agreement is a move by Bank of America Chief Executive Officer Brian T. Moynihan, 51, to resolve mortgage liabilities tied to the bank’s 2008 acquisition of lender Countrywide Financial Corp. It settles a fight with institutional investors that demanded the bank buy back home loans that didn’t meet their promised quality. The loans were packaged into bonds by Countrywide and sold to investors.

Bank of New York Mellon Corp. (BK), the trustee for the mortgage-bond deals, has asked New York State Supreme Court Justice Barbara R. Kapnick to approve the settlement and bind investors outside those that negotiated it. The accord, which calls for Bank of America to pay $8.5 billion, covers 530 mortgage trusts with an original principal balance of $424 billion, the bank said in a June 29 statement.

Investors objecting to the agreement include insurance companies, pension funds and a group of federal home loan banks. They are demanding more information to investigate the deal.

AIG said that Bank of America is “drastically underpaying,” while Western and Southern Life Insurance Co. called the settlement “a sweetheart deal.” Investors have also complained about not having the right to opt out of the accord if it’s approved.

Bank of America believes there are “compelling reasons” why the agreement should be approved, said Lawrence Grayson, a spokesman for the Charlotte, North Carolina-based lender.

“The courts have outlined a process in which all of the matters raised to date will be resolved, and we will continue to rely upon that process,” Grayson said in an e-mailed statement.

The case is Bank of New York Mellon v. Walnut Place LLC, 11-cv-5988, U.S. District Court, Southern District of New York (Manhattan).

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Ex-News Corp. (NWSA) Executives Dispute James Murdoch on Hacking

News Corp. Deputy Chief Operating Officer James Murdoch’s version of events surrounding phone-hacking at the News of the World tabloid was disputed by former News Corp. executives testifying to the U.K. Parliament.

Tom Crone, the News of the World’s lawyer until July, and Colin Myler, the newspaper’s former editor, said they told Murdoch in 2008 about an e-mail that suggested other reporters were implicated in phone-hacking. Crone said it was “absolutely inconceivable” that the pair wouldn’t have explained this when they met Murdoch to discuss a lawsuit settlement.

“I think everybody perfectly understood the seriousness and significance of what we were discussing,” Myler told the House of Commons Culture Committee in London yesterday in a session in which four witnesses were questioned for a total of 3 1/2 hours. “As far as I’m concerned there was no ambiguity.”

In July, Murdoch told the committee that he hadn’t been told of evidence that illegality went beyond a single reporter, and that he had understood that an outside probe by a law firm had confirmed there was no wider wrongdoing.

Revelations in July that the News of the World intercepted the voicemail of a murdered schoolgirl in 2002 prompted the closure of Britain’s biggest-selling newspaper and forced News Corp. to withdraw a takeover bid for British Sky Broadcasting Group Plc. (BSY) Prime Minister David Cameron will be questioned by a separate panel about his 2007 decision to hire a former News of the World editor, Andy Coulson, as his communications chief.

James Murdoch said that he stands by his testimony. Neither Myler nor Crone told him that wrongdoing extended beyond reporter Clive Goodman and private investigator Glenn Mulcaire, he said in a statement.

“As I said in my testimony, there was nothing discussed in the meeting that led me to believe that a further investigation was necessary,” Murdoch said.

Earlier, Jon Chapman, the former head of legal affairs at News Corp.’s U.K. unit, said the company’s investigation into phone hacking after a reporter’s arrest was never intended to be a wide-ranging probe into wrongdoing.

A law-firm probe commissioned by the company was designed to deal with an employment lawsuit filed by Goodman, Chapman said. Chapman said his own review of e-mails didn’t find evidence of illegal activity.

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Cuban Says He Saw ‘Red Flags’ Before Mamma.com Share Sale

Billionaire Mark Cuban, who is being sued by U.S. regulators for alleged insider trades in Mamma.com, said he saw “red flags” at the company before he sold his shares.

Cuban said in a filing last week in Dallas federal court that he needs access to U.S. Securities and Exchange Commission investigative documents on Mamma.com Inc., the Montreal-based Internet search company now known as Copernic Inc., to combat the civil insider-trading suit filed by the SEC in 2008.

The SEC accused Cuban of trading on confidential information when he sold his stake in Mamma.com just before it announced a private placement of shares. In an Aug. 29 filing requesting that the SEC share more materials from an investigation of Mamma.com, Cuban, 53, said he had other reasons to sell.

“Mr. Cuban has repeatedly stated that he sold his shares in Mamma.com in part because he saw ‘red flags’ in the company and he began to suspect that the individuals involved with Mamma.com might be ‘crooked,’” according to the filing, which states that the SEC was investigating Mamma.com “around this time.”

Cuban, who has denied wrongdoing, said in the filing he is seeking documents about the probe, which he said was closed without the commission taking action.

Joel Villeneuve, a spokesman for Copernic, didn’t return a phone call seeking comment.

The SEC contends that in June 2004, Cuban found out about the company’s plan to raise money through a private investment, which would significantly dilute his stake in the company. He sold his shares, saving about $750,000 in losses, the SEC said.

SEC spokesman John Nester declined to comment on the filing. Thomas Melsheimer, Cuban’s lead attorney, didn’t immediately return a telephone call seeking comment.

The case is Securities and Exchange Commission v. Cuban, 08-cv-2050, U.S. District Court, Northern District of Texas (Dallas)

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Trials/Appeals

J&J Failed to Warn About Drug’s Tendon Risks, Lawyer Says

Johnson & Johnson (JNJ) failed to properly warn two New Jersey men that the antibiotic Levaquin could damage their tendons, a lawyer told a state jury.

Officials of New Brunswick, New Jersey-based J&J and its Ortho-McNeil-Janssen Pharmaceutical unit downplayed Levaquin’s risks in warning labels even after receiving reports from Europe about tendon ruptures, said Andy Alonso, a lawyer for Paul Gaffney and Robert Beare. The two men contend they suffered Achilles-tendon injuries after taking the antibiotic.

“J&J officials knew there was a problem and did everything they could to hide it” to protect Levaquin’s sales, Alonso told jurors yesterday in opening statements in state court in Atlantic City, New Jersey.

A J&J lawyer countered yesterday that the drugmaker repeatedly warned doctors and patients about reports linking tendon ruptures to Levaquin, starting when it was approved for sale in the U.S. in 1996.

“From the very first label, Johnson & Johnson included information about reports of ruptures of the shoulder, hand and Achilles tendon,” Christy Jones, the company’s lawyer, told jurors in her opening statement.

The Atlantic City case is the third over Levaquin tendon injuries to go to trial since November and the first to be tried in New Jersey state courts. J&J faces more than 2,600 claims in U.S. courts over the drug, court dockets show.

The case is Beare v. Johnson & Johnson, L-196-10-MT, Superior Court of New Jersey for Atlantic County (Atlantic City).

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Ritchie Gets Suit Against Petters Executives Reinstated

Ritchie Capital Management LLC won a U.S. appeals court ruling reinstating its lawsuit against two executives who worked for convicted fraud-scheme operator Thomas J. Petters.

Ritchie filed the civil racketeering and fraud suit in 2009 against former Petters Group Worldwide LLC Chief Executive Officer Mary Jeffries and Camille Chee-Awai, who was chief operating officer of Petters Co. Ritchie claimed they schemed with Petters to deprive Ritchie of its collateralized investment in Petters-owned Polaroid Corp.

A federal judge in Minneapolis dismissed the case last year, finding it was barred by another court’s injunction against new suits involving Petters’s companies, which were in receivership. The dismissal was improper, the U.S. Court of Appeals in Minneapolis said yesterday.

“The district court erred in concluding Ritchie’s action was barred by the receivership order,” the three-judge appeals panel said in a 17-page decision. “Nor did the receivership have the power to cast its anti-suit injunction net that broadly.”

Petters was sentenced to 50 years in prison in 2009 after being found guilty of running a $3.5 billion fraud. Petters conned investors into giving him money to finance phony consumer-goods purchase contracts, U.S. prosecutors said.

Andrew Birrell, Jeffries’s attorney, and Terrence Canade, Chee-Awai’s lawyer, didn’t return calls for comment on the appeals-court ruling.

The appeal is Ritchie Capital Management v. Jeffries, 10- 2568, 8th U.S. Circuit Court of Appeals; the lower-court case is Ritchie Capital Management LLC v. Jeffries, 10-00668, U.S. District Court, District of Minnesota (Minneapolis).

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Verdicts/Settlement

MBIA Settles Suit Over Mortgage Exposure for $68 Million

Bond insurer MBIA Inc. (MBI), which guaranteed some of Wall Street’s toxic mortgage debt, agreed to pay $68 million to resolve investor lawsuits alleging the company misled shareholders about its exposure to mortgage-backed securities.

The accord settles claims by lead plaintiff Teachers’ Retirement System of Oklahoma and shareholders who purchased MBIA stock from July 2007 to January 2008, according to filings in federal court in Manhattan yesterday by lawyers for the company and investors. The company denied wrongdoing, the filings said.

“Although we continue to believe our CDO exposure was fully disclosed, we are pleased to have reached a settlement that puts this matter behind us,” said Kevin Brown, a spokesman for Armonk, New York-based MBIA.

Investors alleged that MBIA made false and misleading statements about the nature and extent of its exposure to collateralized debt obligations containing residential mortgage- backed securities, including the company’s exposure to CDOs made up of other CDOs containing the securities, the filings said.

Steven Singer, an attorney for investors, said the accord was a “very substantial recovery, in terms of the amount of recoverable damages.” The settlement is subject to court approval.

The case is In Re MBIA Inc. Securities Litigation, 08-264, U.S. District Court, Southern District of New York (Manhattan).

Ex-Citigroup Executive Foster Pleads Guilty to Bank Fraud

Gary Foster, a former Citigroup Inc. (C) vice president accused of embezzling $22.9 million from the bank, pleaded guilty to one count of bank fraud in federal court in Brooklyn, New York.

Foster, 35, of Englewood Cliffs, New Jersey, was arrested in June at New York’s John F. Kennedy International Airport after returning from Bangkok. Foster, who worked in the bank’s treasury finance department, transferred money from various Citigroup accounts and ultimately to his own account at JPMorgan Chase & Co.

“I executed a scheme to defraud Citigroup,” Foster told U.S. District Judge Eric Vitaliano yesterday. “I directed funds to be wired into my personal account at JPMorgan.”

Under nonbinding sentencing guidelines, Foster faces a maximum of about 10 years in prison, Assistant U.S. Attorney Michael Yaeger told Vitaliano.

Foster was released June 27 on an $800,000 bond secured by his parents’ house in Teaneck, New Jersey. His mother works as a teller for Bank of America Corp., one of his lawyers, Isabelle A. Kirshner, said during that court appearance.

“It was our determination that it was in his best interest to resolve the case as quickly as possible,” Kirshner, of Clayman & Rosenberg LLP in Manhattan, said after yesterday’s plea. “I don’t think it’s in Mr. Foster’s interest to blame Citigroup for dropping the ball.”

As part of his plea deal, Foster agreed to forfeit about $16 million in properties, including residences in Manhattan, Brooklyn and New Jersey, as well as a Ferrari and a Maserati and bank accounts, Yaeger told the judge yesterday.

“We are outraged by the actions of this former employee,” Shannon Bell, a spokeswoman for New York-based Citigroup, said in a June e-mail. “Citi informed law enforcement immediately upon discovery of the suspicious transactions and we are cooperating fully to ensure Mr. Foster is prosecuted to the full extent of the law.”

“We are pleased that Mr. Foster will be held accountable for his crimes,” Bell said in an e-mail yesterday.

The case is U.S. v. Foster, 11-cr-00601, U.S. District Court, Eastern District of New York (Brooklyn).

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Ex-AOL Finance Chief Kelly Settles SEC Suit for $260,000

Former AOL Inc. (AOL) finance chief John Michael Kelly agreed to pay $260,000 to settle a Securities and Exchange Commission suit claiming he helped overstate Internet ad revenue at the company.

The SEC sued eight former AOL executives in 2008, including Kelly and another former chief financial officer, Joseph Ripp, claiming they helped inflate revenue at the company by more than $1 billion from 2000 to 2002.

In a judgment signed by U.S. District Judge Colleen McMahon in Manhattan yesterday, Kelly agreed to turn over $200,000 in profits he allegedly made from the scheme and pay a $60,000 penalty. Kelly didn’t admit or deny the allegations in agreeing to settle.

AOL agreed in 2005 to pay $300 million to settle a related investigation.

The case is Securities and Exchange Commission v. Kelly, 08-CV-4612, U.S. District Court, Southern District of New York (Manhattan).

Honey Made Near Monsanto GM Crops Must Get EU Check

Beekeepers with hives close to fields of Monsanto Co. (MON) genetically modified corn must have their honey checked by regulators before selling it in the European Union, the region’s highest court said.

EU rules require prior authorization before goods containing genetically modified organisms are marketed.

“Honey and food supplements containing pollen derived from a GMO are foodstuffs produced from GMOs which cannot be marketed without prior authorization,” the EU Court of Justice in Luxembourg ruled yesterday. The requirement “applies irrespective of whether the pollen is introduced intentionally” or not.

The world’s largest seed company, St. Louis-based Monsanto, received EU permission in 1998 to cultivate its MON 810 maize and the various products derived from the strain such as maize flour, starch and oil. The German state of Bavaria has a number of fields where the crop is grown for research.

Karl Heinz Bablok, one of a group of beekeepers that brought yesterday’s case, detected traces of the crop in his honey and in the pollen he harvested from a field a few hundred meters behind his beehives.

Beekeepers now “may have a claim for damages against a farmer if MON 810 pollen from his cultivation gets into their honey,” German law firm Gassner, Groth, Siederer & Coll, which is representing the beekeepers, said in a statement. “If the beekeeper can no longer sell his honey, this is considered a major impairment,” as is the need to move the hives.

The case is C-442/09, Bablok and Others.

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Litigation Departments

Ex-Acting U.S. Solicitor General Katyal Joins Hogan Lovells

Former Acting U.S. Solicitor General Neal Katyal joined the Washington office of Hogan Lovells to lead the law firm’s appellate practice alongside partner Cate Stetson.

Katyal, who will be a partner at the firm, served as the U.S. Justice Department’s top courtroom attorney and until last month was the Obama administration’s lead litigator in federal appellate arguments in defense of the health-care overhaul. Katyal served in that role since Obama picked then-Solicitor General Elena Kagan to join the U.S. Supreme Court last year.

Before joining government, Katyal was a law professor for almost 15 years at Georgetown University Law Center in Washington and was director of the school’s Center on National Security and the Law, according to the statement. He has argued 15 U.S. Supreme Court cases including Hamdan v. Rumsfeld, in which the court ruled military tribunals at Guantanamo Bay unconstitutional, according to the statement.

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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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