Galleon Group LLC co-founder Raj Rajaratnam’s arrest for insider trading in October 2009 made a former Advanced Micro Devices Inc. (AMD) employee afraid the U.S. suspected him of passing tips to the fund, he said.
“I was pretty scared, pretty paranoid,” testified Mark Anthony Longoria, a former AMD manager. “I thought I was the individual giving out information that they were referring to.”
Longoria, who pleaded guilty in June and is cooperating with the U.S., is testifying at the insider-trading trial of James Fleishman, a Primary Global Research LLC executive. The Mountain View, California-based firm, also known as PGR, matches employees of public companies with fund managers for a fee.
Fleishman, of Santa Clara, California, is on trial in federal court in Manhattan, charged with two counts of conspiracy for his role in what prosecutors say was a scheme in which technology-company employees working as consultants for Primary Global passed secret tips to hedge fund managers. Fleishman, who has pleaded not guilty, faces as long as 25 years in prison if convicted.
Longoria testified yesterday that he gave confidential information about AMD to Fleishman and fund managers “two or three times” while moonlighting as a PGR consultant from 2006 until 2010. Longoria said he couldn’t remember when he specifically passed this information nor say whether he gave Fleishman specific information on revenue.
Longoria said that after he read about the arrest of Rajaratnam and five others on Oct. 16, 2009, he telephoned Fleishman to find out if PRG did business with Galleon. Rajaratnam was charged with running a $20 million insider- trading scheme.
The Federal Bureau of Investigation wiretapped the call, which was played yesterday for the jury.
Longoria was one of four people arrested in December 2010 by federal prosecutors in New York in overlapping insider- trading probes involving Galleon and other funds by Manhattan U.S. Attorney Preet Bharara’s office.
He pleaded guilty to conspiracy to commit securities and wire fraud, securities fraud, wire fraud and making false statements to prosecutors and FBI agents. He said he faces as long as 50 years in prison.
The case is U.S. v. Fleishman, 11-CR-32, U.S. District Court, Southern District of New York (Manhattan).
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TCW Says Gundlach Prepared to ‘Eliminate’ Former Employer
Ex-TCW Group Inc. chief investment officer Jeffrey Gundlach engineered a scheme to use his former employer’s trade secrets to start his own firm in 2009, TCW’s lawyers told a Los Angeles jury in closing arguments.
The California state court jury must try to decide whether Gundlach secretly plotted to set up DoubleLine Capital LP while still at TCW or whether the company breached its contract with him, as Gundlach alleges, and fired him to avoid having to pay him hundreds of millions of dollars in fees on the distressed- asset funds he set up in 2007 and 2008.
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 claims it suffered $344 million in damages from Gundlach’s alleged interference with clients’ contracts and $222 million from a claimed breach of fiduciary duty.
“They secretly stole, they secretly set up a Delaware company,” TCW lawyer John Quinn told the jury yesterday. “They were preparing to eliminate TCW as a competitor.”
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.
The jury heard more than six weeks of testimony as the two sides provided conflicting views of Gundlach’s falling out with TCW Chief Executive Officer Marc Stern in 2009, which ended with Stern’s buying Metropolitan West Asset Management LLC to run TCW’s fixed-income group and firing Gundlach in December 2009.
Gundlach has denied that DoubleLine used any of TCW’s proprietary software systems and data.
The case is Trust Co. of the West v. Gundlach, BC429385, California Superior Court, Los Angeles County (Los Angeles).
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BNY Mellon Sued Over Lehman Losses by Detroit Pension Funds
The pension funds allege in their complaint that BNY Mellon encouraged them to join its securities lending program, under which the bank would lend securities owned by the funds to creditworthy borrowers. The funds viewed the program as “akin to a conservative money market account,” according to the complaint filed Sept. 12 in federal court in New York.
The bank invested in Lehman notes in 2006 on behalf of the pension funds and continued to maintain the investments as uncertainty surrounding Lehman grew, the funds said.
BNY Mellon, based in New York, breached its fiduciary duty to the pension funds for city employees, including police officers and firefighters, they said in their complaint. The funds seek to represent a group of investors that together lost more than $1 billion in the notes.
Kevin Heine, a BNY Mellon spokesman, had no immediate comment yesterday.
The case is General Retirement System of the City of Detroit v. BNY Mellon N.A., 11-06345, U.S. District Court, Southern District of New York (Manhattan).
News Corp. (NWS) Unit Sued by Mother of 7/7 London Terror Victim
News Corp.’s U.K. unit was sued by the mother of a victim of the July 7, 2005, terrorist attacks claiming that reporters hacked into voice mail to get stories regarding her son.
The complaint was added yesterday to a group of test cases that will determine the level of appropriate damages in phone hacking lawsuits. The latest case, filed by Sheila Henry, is the first lodged by a victim of a crime, Hugh Tomlinson, a lawyer for some phone-hacking plaintiffs, said at a hearing.
Revelations that the voice mail of murdered schoolgirl Milly Dowler’s phone was hacked led News Corp. (NWSA) to close the 168- year-old News of the World tabloid in July. The paper has been sued by dozens of celebrities and politicians, including actor Jude Law and former Deputy Prime Minister John Prescott, who claim the paper accessed their voice mails for stories.
“Milly Dowler’s family has not issued proceedings yet, but another victim of crime started proceedings yesterday,” Tomlinson told Judge Geoffrey Vos yesterday.
News Corp.’s U.K. unit “continues to cooperate fully with the Metropolitan Police Service in its investigations,” the company said in a statement. “We are eager to assist it in any way possible to ensure that those responsible for criminal acts are brought to justice.”
The case is Sheila Henry v. News Group Newspapers & Glenn Michael Mulcaire, case no. 11-3086, High Court of Justice, Chancery Division (London).
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FDA Insider-Trading Defendant Charged With Child Pornography
Andrew Liang, accused of joining an insider-trading scheme with his father, a U.S. Food and Drug Administration chemist, was charged with possessing child pornography found in the course of the fraud investigation.
Liang, and his father, Cheng Yi Liang, who worked for the FDA’s Center for Drug Evaluation and Research, allegedly reaped at least $3 million from trading on nonpublic information related to drug-approval applications.
Liang was charged yesterday in federal court in Maryland with one count of possessing child pornography. The government asked that Liang forfeit a MacBook laptop computer seized at his Gaithersburg, Maryland home during raids by the Federal Bureau of Investigation in March and April.
Liang’s lawyer, Timothy Sullivan, didn’t immediately return telephone messages seeking comment on the new charge.
If convicted, Liang faces a maximum penalty of 10 years in prison and a $250,000 fine. Liang would also be required to register as a sex offender. Liang is free pending a court date, which has yet to be scheduled, said Marcia Murphy, a spokeswoman for U.S. Attorney Rod Rosenstein.
The insider-trading case has been postponed because “the parties are near resolution of this matter,” David Salem, assistant U.S. attorney, said in an Aug. 29 filing.
The new case is U.S. v. Andrew Liang, 11-cr-00501. The insider trading cases are U.S. v. Chen Yi Liang, 8:11-mj-01236- WGC, and U.S. v. Andrew Liang, 8:11-mj-01237-WGC, U.S. District Court, District of Maryland (Greenbelt).
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Foreclosure Deal Shouldn’t Waive All Claims, Official Says
Banks shouldn’t be protected from liability for mortgage securitization as part of a national foreclosure settlement, said Minnesota’s attorney general, joining other states voicing concern over the issue.
Any settlement shouldn’t release the banks from liability for the bundling of mortgages into securities or for the use of a mortgage registry known as MERS, Attorney General Lori Swanson said in a Sept. 9 letter obtained by Bloomberg News.
“The banks should not be released from liability for conduct that has not been investigated and is not appropriately remedied in any settlement,” Swanson wrote to her counterparts in New York and Iowa.
State and federal officials are negotiating a settlement with the five largest mortgage servicers in the U.S., including Bank of America Corp. (BAC) and JPMorgan Chase & Co. (JPM) All 50 states announced an investigation into bank foreclosure practices last year.
Government officials are seeking an agreement that provides funding for writedowns on mortgage loans for borrowers and sets standards for how the banks service loans, interact with borrowers and conduct foreclosures, according to terms proposed in March.
Some attorneys general have criticized any agreement that would provide the banks with releases for certain claims, such as securitization, and protect the companies from state investigations.
“We have received Attorney General Swanson’s letter and agree that any agreement must not prevent attorneys general investigating the mortgage crisis from following the facts wherever they lead,” Danny Kanner, a spokesman for New York Attorney General Eric Schneiderman, said in an e-mail.
State officials negotiating the settlement with the banks don’t intend to release securitization claims, Geoff Greenwood, a spokesman for Iowa Attorney General Tom Miller, said in an interview. Miller, a Democrat, is leading talks for the states. The liability releases are being negotiated, said Greenwood, who declined to comment about whether claims related to the MERS database would be released.
“We share a lot of common ground with Attorney General Swanson, and we appreciate her input,” Greenwood said.
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U.K. Probe of HSBC Clients Said to Widen Over Swiss Tax Dodge
HSBC Holdings Plc (HSBA) clients with accounts at its Swiss private bank in Geneva are the target of a widening investigation by U.K. authorities into alleged tax evasion, according to two people familiar with the matter.
Revenue and Customs, known as HMRC, will write to an additional 4,500 clients of the London-based bank, giving them the choice of making a full disclosure or face investigation, said the people, who declined to be named because the matter is confidential. About 800 customers have already been sent so- called Code of Practice 9 letters informing them that their tax affairs over the past 20 years will be probed, they said.
The U.K. tax authority is allocating more staff to the project as it widens the probe of Swiss bank account holders at Europe’s biggest lender, the people said. HMRC received the data from its French counterparts after Herve Falciani, a former software technician at HSBC in Geneva, stole details on at least 24,000 accounts.
Patrick O’Brien, a spokesman for HMRC in London, and a spokesman for HSBC in Geneva declined to comment.
First-half outflows from European clients were “considerable,” partly because of the data theft, Alexandre Zeller, chief executive officer of HSBC’s Swiss unit, said last month, without providing details.
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Former SAC Capital Portfolio Manager Settles With SEC
Donald Longueuil, a former junior portfolio manager at SAC Capital Advisors LP, agreed to settle a civil suit filed by the U.S. Securities and Exchange Commission.
Longueuil was sentenced to 30 months in prison in July after pleading guilty to criminal charges of conspiracy and securities fraud in a case that also included former SAC portfolio manager Noah Freeman, Samir Barai, founder of Barai Capital Management, and Jason Pflaum, an analyst who worked for Barai.
All four men pleaded guilty in a U.S. investigation targeting insider trading at hedge funds. The settlement, filed in U.S. District Court in Manhattan yesterday, says that Longueuil is cooperating with the SEC’s investigation.
Longueuil agreed to pay the SEC $353,000 in the settlement. The agreement gives him credit for the larger amount, $1.25 million, that he is required to forfeit to the government as part of the criminal conviction.
The case is Securities and Exchange Commission v. Longoria, 11-CV-753, U.S. District Court, Southern District of New York (Manhattan).
Judge Invalidates Health-Care Act’s Insurance-Buying Mandate
The insurance-buying mandate in President Barack Obama’s health-care reform legislation is unconstitutional, a federal judge in Pennsylvania ruled.
U.S. District Judge Christopher C. Conner in Harrisburg yesterday said Congress exceeded its powers under the federal constitution when it included in the act Obama signed into law last year a provision requiring almost all Americans to have medical insurance starting in 2014.
“The federal government,” Conner said, “is one of limited enumerated powers, and Congress’s efforts to remedy the ailing health care and health insurance markets must fit squarely within the boundaries of those powers.”
Three federal appeals courts have weighed in on the issue since June 29. A Cincinnati panel backed the provision, 2-1, while one in Atlanta voted it down by the same margin. The U.S. appeals court in Richmond on Sept. 8 rejected two separate challenges on jurisdictional grounds.
The Harrisburg ruling, if appealed, would be heard by the U.S. Court of Appeals in Philadelphia, which hasn’t yet ruled on the merits of the Patient Protection and Affordable Care Act.
Tracy Schmaler, a spokeswoman for the U.S. Justice Department, didn’t immediately reply to voice-mail and e-mail requests for comment.
The case is Goudy-Bachman v. U.S. Department of Health and Human Services, 10-cv-763, U.S. District Court, Middle District of Pennsylvania (Harrisburg).
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Sabre Wins Dismissal of Antitrust Claims in US Airways Suit
Sabre Holdings Corp., which was sued by US Airways Group Inc. (LCC) over its system for distributing data to travel agents, won dismissal of two of the antitrust claims against it.
In a one-page, handwritten ruling filed Sept. 12, U.S. District Judge Miriam Goldman Cedarbaum in Manhattan threw out US Airways’ claims that Sabre conspired and monopolized what it called the “Sabre travel agent market.”
Cedarbaum ordered US Airways to file an amended complaint to provide the sources of information and bases for its allegations in the two remaining counts.
US Airways’ antitrust suit against Sabre, the largest so- called global distribution system based in the U.S., followed a complaint filed by AMR Corp. (AMR)’s American Airlines in Texas state court in January as the carriers seek more control over dissemination and sale of their products.
In the remaining claims, US Airways said Sabre restrained competition through a series of agreements with airlines and travel agents and that it conspired with other operators of global distribution systems, which provide travel agents with fare and schedule information, to keep out competitors.
US Airways spokesman Todd Lehmacher declined to comment on the ruling except to say the case is going forward. In papers it filed in August seeking dismissal of the complaint, Sabre, based in Southlake, Texas, said the suit is “US Airways’ attempt to renegotiate the three-year contract” with the airline.
The case is U.S. Airways Inc. v. Sabre Holdings Corp., 11- cv-02725, U.S. District Court, Southern District of New York (Manhattan).
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