UBS AG (UBSN), Switzerland’s biggest bank, said it may be unprofitable in the third quarter after a $2 billion loss from unauthorized trading at its investment bank.
London police arrested Kweku Adoboli, a UBS employee, in connection with the loss, according to a person with knowledge of the matter who declined to be identified. City of London police and UBS declined to identify the man.
UBS management aims to “get to the bottom of the matter as quickly as possible, and will spare no effort to establish exactly what has happened,” the bank’s group executive board, led by Chief Executive Officer Oswald Gruebel, said in a memo to employees today. “While the news is distressing, it will not change the fundamental strength of our firm.”
The bank tumbled as much as 9.6 percent in Swiss trading following the announcement, which deals a blow to Gruebel’s attempts to rebuild the investment bank after the division recorded 57.1 billion Swiss francs ($65 billion) in cumulative pretax losses in three years through 2009. The trading loss may revive calls for Gruebel to shrink or shut the unit.
“How many times do we have to see huge UBS losses?” said Simon Maughan, head of sales and distribution at MF Global Ltd. in London. “It looks unreformed, unwieldy and ultimately unsustainable. This could be a critical tipping point for UBS’s strategy.”
A man was arrested in central London at 3:30 a.m. on “suspicion of fraud by abuse of position,” the London police said in a statement today. The man remains in custody and an investigation has begun, the police said.
The matter is still under investigation and the “current estimate of the loss on the trades is in the range of $2 billion,” UBS said in a statement today, the third anniversary of the collapse of Lehman Brothers Holdings Inc. No client positions were affected, the company said, declining further comment.
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HSBC Dropped From Lawsuit Alleging Silver Futures Manipulation
HSBC Holdings PLC (HSBA) is no longer a defendant in a lawsuit by investors who claimed the bank and JPMorgan Chase & Co. (JPM) manipulated silver futures and options prices in violation of U.S. antitrust law.
The investors said in consolidated class-action complaint filed yesterday that they signed a tolling agreement with HSBC and weren’t naming the bank as a defendant. Tolling agreements are often used to stop statutes of limitation from running while the parties discuss settlement or dismissal of a claim.
The investors claim that, starting in March 2008, the banks colluded to suppress silver futures so that call options, or the right to buy, would decline, and put options for the right to sell would increase, according to the complaint filed in federal court in Manhattan.
The Commodity Futures Trading Commission began probing allegations of price manipulation in the silver futures market in September 2008.
Investors seek to represent a class of thousands of people and companies that held or traded silver futures and options on June 26, 2007, or from March 17, 2008, to Oct. 27, 2010.
A call to London-based HSBC seeking comment on the matter after regular business hours yesterday wasn’t immediately returned. Joseph Evangelisti, a spokesman for New York-based JPMorgan Chase, declined to comment.
The case is31 In re Commodity Exchange Inc. Silver Futures and Options Trading Litigation, 11-cv-2213, U.S. District Court, Southern District of New York (Manhattan).
Cohen, SAC Are Dismissed From $8 Billion Fairfax Lawsuit
Billionaire Steven A. Cohen and his SAC Capital Advisors LP won their bid to be dropped from an $8 billion lawsuit accusing them and other hedge funds of spreading negative information to drive down Fairfax Financial Holdings Ltd. (FFH)’s stock price.
New Jersey Superior Court Judge Stephan C. Hansbury in Morristown granted Cohen and Stamford, Connecticut-based SAC Capital’s request that he rule in their favor without the need of a trial.
The complaint is dismissed against them with prejudice, meaning that it can’t be refiled, according to the Sept. 12 order.
Fairfax, a Toronto-based insurer, sued the hedge funds in 2006, alleging they acted to harm the company because they were betting its stock price would decline. The hedge funds named in the suit, including James Chanos’s New York-based Kynikos Associates LP and Daniel Loeb’s New York-based Third Point LLC, have denied Fairfax’s accusations.
“Fairfax intends to appeal the ruling, which it believes is incorrect,” Seth Faison, a spokesman for Fairfax, said in an e-mailed statement. “Otherwise, Fairfax remains confident in its claims against the other defendants. Indeed, a central basis for SAC’s motion was that it was very differently situated from the other defendants and did not trade in the same manner as the other defendants.”
“After five years of litigation, the court’s ruling affirms, as we have always maintained, that this vexatious proceeding against us was entirely baseless and without merit,’” Peter Nussbaum, SAC’s general counsel, said in an e-mailed statement.
The case is Fairfax Financial Holdings Ltd. v. SAC Capital Management LLC, L-2032-06, Superior Court of New Jersey, Morris County (Morristown).
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Sonja Kohn Asks London Court to Dismiss Madoff Clawback Claim
Sonja Kohn, the former chairwoman of Bank Medici AG in Austria, asked a London court to dismiss a lawsuit against her filed by the U.S. trustee liquidating convicted conman Bernard Madoff’s investment company.
The London court doesn’t have jurisdiction and the liquidator, Irving Picard, doesn’t have a valid claim against Kohn, her lawyer, Terence Mowschenson, said at a hearing yesterday. No creditors of the U.K. unit, Madoff Securities International, lost money, Kohn’s lawyer said.
“The London company can’t have suffered any loss,” Mowschenson told Judge Julian Flaux. “It was merely a vehicle for paying money to a number of people” so it’s “difficult to see what the allegation of loss is.”
Picard sued Kohn and the former directors of Madoff’s U.K. unit for a total of $80 million in December. More than $27 million was funneled through the London office to Kohn “in sham transactions purported to be payments for research and other services but which were actually kickbacks paid out of” the New York company, Picard said in a statement at the time.
Mowschenson said yesterday that the payments were for research and referring clients to Madoff.
“Among the people she introduced were the largest financial institutions in the world,” Mowschenson said. “There’s nothing wrong in her being paid by way of commission.”
Madoff pleaded guilty in March 2009 to using money from new investors to pay off old ones in a Ponzi scheme, sparking investigations and dozens of lawsuits. He is serving 150 years in prison in North Carolina for the fraud that destroyed his New York-based firm, which collapsed in December 2008.
The case is Madoff Securities International Ltd. v. Stephen Ernest John Raven, 10-1468, High Court of Justice, Queen’s Bench Division (London).
Brooks Loses Bid for ‘Core’ Role in U.K. Phone-Hacking Probe
Rebekah Brooks, the former chief executive officer of News Corp. (NWSA)’s British publishing unit, lost a bid to have formal legal representation in the U.K. government’s inquiry into phone hacking.
Brooks, who was arrested in July, shouldn’t be a so-called core participant in the inquiry’s hearings because she resigned as CEO, according to a judgment yesterday by Justice Brian Leveson, who is leading the review. Core-participant status and right to have a lawyer present was granted to 46 lawyers and potential hacking victims, including Harry Potter author J.K. Rowling and British actor Hugh Grant.
“Had Mrs. Brooks still been employed by News International Ltd., it may be that she would have coordinated its response; that responsibility now passes to someone else,” Leveson said yesterday. News Corp.’s U.K. unit and the Metropolitan Police were also given core-participant status.
The probe of the culture, practices and ethics of the press was announced on July 13 by U.K. Prime Minister David Cameron, nine days after the revelation that journalists at News Corp.’s News of the World hacked into the phone of murdered school girl Milly Dowler. The probe’s scope extends beyond the now-shuttered tabloid, covering the wider press, including journalists’ contact with politicians and the police.
Brooks, 43, edited the News of the World from 2000 to 2003 and then The Sun newspaper until 2009 before being promoted to CEO of News International, which published both titles. She stepped down on July 15, two days before being arrested.
While Brooks was editing the News of the World, the company’s private investigator Glenn Mulcaire was hacking into celebrities’ mobile phones to get scoops for reporters. She has denied knowing about the practice. Mulcaire pleaded guilty to hacking and was jailed in 2007.
A spokeswoman for Brooks with Bell Pottinger in London, declined to comment.
Police, who have arrested 16 people since reopening the hacking probe in January, are also investigating whether journalists bribed officers for confidential information. The scandal led New York-based News Corp. to close the 168-year-old tabloid and drop its 7.8 billion-pound ($12.3 billion) bid for full control of British Sky Broadcasting Group Plc.
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Birmingham City’s Yeung Loses Court Permission to Travel
Hong Kong’s High Court overruled a lower court decision allowing Birmingham International Holdings Ltd. (2309) Chairman Carson Yeung to leave Hong Kong while on bail, according to Yeung’s lawyer Clive Grossman.
“The reason given was that there is a risk he may not come back,” said Grossman about the ruling by Judge Peter John Line in Hong Kong’s Court of First Instance yesterday.
Yeung was allowed last month by a lower court judge to travel to London from Sept. 15 to Sept. 19 to meet with players and management of British soccer club Birmingham City. Yeung is charged with five counts of money laundering involving HK$721.3 million ($92 million).
Hong Kong’s Department of Justice asked the High Court to review the lower court’s order at a closed-door hearing yesterday.
Department spokeswoman Sherlin Fu confirmed the result of the hearing. She declined to further comment on the case.
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Apple IPad Data Was Given to Fleishman, Samsung Witness Says
An ex-Samsung Electronics Co. (005930) manager, testifying at the insider-trader trial of Primary Global Research LLC executive James Fleishman, told jurors he disclosed confidential shipping data for Apple Inc. (AAPL) iPad components.
Suk-Joo Hwang, who worked for 14 years at the U.S. division of Suwon, South Korea-based Samsung, told jurors yesterday in federal court in New York after he was granted immunity from prosecution by U.S. District Judge Jed Rakoff, who’s presiding over the case.
Hwang said that during lunch at a restaurant in Mountain View, California, with Fleishman and a hedge fund manager he identified as “Greg,” he gave them confidential information about Samsung’s shipment of liquid crystal display screens it was supplying to Apple. The iPad made its U.S. debut in April 2010, four months after the lunch.
“One particular thing I remember vividly was that I talked about the shipment numbers of Apple, it was about iPad,” he said. “This is in December 2009, before it came out with the tablet PC, they didn’t know the name then, so I talked to them about the tablet shipment estimates in that meeting.”
Fleishman, of Santa Clara, California, is charged with two counts of conspiracy for facilitating a scheme in which employees at public companies passed confidential information to fund manager clients of Primary Global, also known as PGR, a Mountain View-based expert-networking firm. He has pleaded not guilty to the charges and faces as long as 25 years in prison if convicted.
Chris Goodhart, a Samsung spokeswoman in San Jose, California, declined to comment on Hwang’s testimony. Steve Dowling, a spokesman for the Cupertino, California-based Apple, also declined to comment.
The case is U.S. v. Fleishman, 11-cr-00032, U.S. District Court, Southern District of New York (Manhattan).
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Commerzbank Sued in Singapore by Ex-Dresdner Workers
Commerzbank AG (CBK), Germany’s second-largest lender, was sued by 10 former employees at its Dresdner Kleinwort unit in Singapore claiming they were entitled to S$9.5 million ($7.7 million) in bonuses.
The former workers at the investment bank claimed they were given false assurances and induced to stay on because of the proposed bonus to be paid in January 2009, according to a lawsuit filed with the Singapore High Court in July.
“Dresdner Bank was entitled to reduce its employees’ 2008 discretionary bonuses in the light of the marked deterioration in the investment bank’s performance in late 2008,” Commerzbank said in an e-mailed statement Sept. 13. The German lender will “vigorously” defend against the claims, it added.
Commerzbank has also been sued by former Dresdner bankers in London and Frankfurt over prospective 2008 bonuses. Commerzbank, which sought 18.2 billion euros ($25 billion) from the German state after Lehman Brothers Holdings Inc. collapsed in 2008, acquired Dresdner Bank AG in January 2009.
Dresdner’s investment-banking operations posted a 6.3 billion-euro loss for 2008.
Kenneth Tan, a lawyer for the former employees, declined to comment on the Singapore lawsuit.
The former employees based in Singapore were informed in December 2008 of their target bonus, which ranged from S$233,099 to S$3.7 million, according to the court filing.
In February 2009, Commerzbank Chief Executive Officer Martin Blessing sent employees an e-mail announcing the cut in bonus for 2008, according to the court papers.
Commerzbank is seeking to dismiss the lawsuit, calling the claims “scandalous” and “vexatious,” according to its defense filed last month.
The case is Brader v. Commerzbank AG, S486/2011, Singapore High Court.
National Football League Retirees Sue Union Over Contract
National Football League players favored current players and rookies over retirees in negotiating a labor contract with the league, retirees said in a lawsuit.
Current players shortchanged them in negotiations with the league, cutting back a commitment to increase pensions to pre-1993 retirees and changing post-career medical options, retirees said in a complaint filed yesterday in federal court in Minneapolis. The retirees are suing as group, seeking class-action status to represent all retired NFL players.
Current players and the union have a “conflict of interest” in representing retirees, former players said in the complaint. Ex-players Carl Eller, Chuck Bednarik, Lem Barney and 25 others asked the Minnesota court to set aside issues related to retirees in the current contract and require renegotiation.
The union and current individual players “had no authority to negotiate with the league the terms of pension, retirement, and disability benefits with respect to the class of retired NFL players,” Eller and the others said in the complaint. The retirees asked the Minnesota court to give them bargaining rights and benefits with the league.
“There was a tradeoff for the benefit of currently active players, free agents and rookies” in the new contract, Michael Hausfeld, a lawyer for the retirees, said yesterday in an interview. “We’re talking about the rights of people who are no longer players and have no employment relationship with the league.”
George Atallah, spokesman for the National Football League Players Association, didn’t immediately return a call and e-mail seeking comment on the complaint.
The case is Eller v. National Football League Players Association, 11-cv-02623, U.S. District Court, District of Minnesota (Minneapolis).
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Barclays Wins Ruling Against Lehman in Fight Over Bonuses
Barclays Plc (BARC) defeated a bid by Lehman Brothers Holdings Inc. to recover $500 million from the British bank in a dispute over the bankruptcy sale of Lehman operations in 2008.
Lehman said Barclays was required to pay $2 billion in employee bonuses as part of the acquisition and paid only $1.5 billion. U.S. Bankruptcy Judge James Peck in Manhattan ruled against Lehman in a decision filed yesterday, calling Lehman’s claims “baseless.”
“In common vernacular, this is a ‘no harm, no foul’ situation in which Lehman has not been hurt regardless of the amounts paid by Barclays to transferred employees,” the judge wrote.
The dispute stems from the purchase by Barclays of Lehman’s North American broker-dealer following the investment bank’s September 2008 bankruptcy filing. Lehman previously lost a bid to recover what it said was an $11 billion windfall that went to London-based Barclays.
Lehman argued it should be awarded $500 million in damages resulting from Barclays’s failure to meet its obligation to pay the full amount of bonuses. The bonus payments were part of the consideration in the sale, Lehman said.
Peck said in his decision that the $2 billion was only an estimate of the total compensation amounts that were to be assumed by Barclays in the transaction. Lehman no longer has liabilities to the employees for bonuses thanks to the sale and hasn’t suffered damages, Peck said.
“Today’s decision importantly confirms that Barclays acted in good faith in its dealings with Lehman, just as the court held in its February decision rejecting Lehman’s effort to modify the sale order,” Barclays attorney Jonathan Schiller, managing partner of Boies, Schiller & Flexner, said in an e-mailed statement.
Kimberly Macleod, a spokeswoman for Lehman, declined to comment on the ruling.
The main case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The lawsuit is Lehman v. Barclays, 09-01731, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
Kolon Loses $920 Million to DuPont in Trial Over Kevlar
Kolon Industries Inc. (120110) lost a $919.9 million jury verdict to DuPont Co. (DD) over the theft of trade secrets about the manufacture of Kevlar, an anti-ballistic fiber used in police and military gear.
Jurors in federal court in Richmond, Virginia, deliberated about 10 hours over two days before finding Gyeonggi, South Korea-based Kolon and its U.S. unit wrongfully obtained DuPont’s proprietary information about Kevlar by hiring some of the company’s former engineers and marketers. The award yesterday is the third-largest jury verdict this year, according to data compiled by Bloomberg.
DuPont, based in Wilmington, Delaware, is spending more than $500 million to boost Kevlar production and meet rising demand for armor and lightweight materials that reduce energy use. Kevlar and Nomex, a related fiber used in firefighting gear, accounted for about $1.4 billion of DuPont’s $31.5 billion in sales last year.
The “jury decision is an enormous victory for global intellectual property protection,” Thomas L. Sager, DuPont’s general counsel, said in a statement. “It also sends a message to potential thieves of intellectual property that DuPont will pursue all legal remedies to protect our significant investment in research and development.”
Kolon said it disagrees with the verdict and will appeal.
The “verdict is the result of a multiyear campaign by DuPont aimed at forcing Kolon out of the aramid fiber market,” Kolon said in a statement e-mailed by Dan Tudesco of Brodeur Partners, a public relations agency. “Kolon had no need for and did not solicit any trade secrets or proprietary information of DuPont, and had no reason to believe that the consultants it engaged were providing such information. Indeed, many of the ‘secrets’ alleged in this case are public knowledge.”
Kolon said it will continue to pursue an antitrust case against DuPont, which is scheduled for a March trial. DuPont will file motions later this year to have the case dismissed, Sager said in a telephone interview.
The case is E.I. du Pont de Nemours & Co. v. Kolon Industries Inc., 09-cv-58, U.S. District Court, Eastern District of Virginia (Richmond).
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Ex-SAP Unit Pleads Guilty to Illegal Oracle Downloads
U.S. District Judge Phyllis Hamilton accepted the plea by the closed SAP unit yesterday in Oakland, California. TomorrowNow was charged on Sept. 8 with 11 counts of unauthorized computer access and one count of criminal copyright infringement.
“No other SAP entity, including SAP AG or SAP America, will face charges arising out of the office’s investigation,” James Dever, an SAP spokesman, said of the Justice Department probe in an e-mailed statement. The parent company is paying the fine, he said.
SAP, the world’s largest maker of business software, was sued by Oracle, its biggest competitor, in 2007 over the downloads. Waldorff, Germany-based SAP shut the Bryan, Texas-based unit in 2008 and didn’t contest at trial that it was liable for infringement by TomorrowNow, which offered software upgrades and fixes to customers who used products made by companies acquired by Oracle.
Oracle claimed at trial that SAP was trying to steal its customers and avoid paying a license fee for the software. Oracle’s expert testified that SAP was liable for as much as $1.7 billion in damages.
SAP said at trial that TomorrowNow never turned a profit and had just tens of millions of dollars in revenue. Oracle lost at most $19.3 million in profit from TomorrowNow’s actions, Greg Lanier, an attorney for SAP, said after the hearing.
“Oracle has spent the last four years uncovering SAP’s massive copyright theft and SAP finally pleaded guilty in federal court to criminal charges for its illegal scheme,” said Deborah Hellinger, an Oracle spokeswoman, in an e-mail. She declined to comment on the fine.
The criminal case is U.S. v. TomorrowNow Inc., 11-00642, U.S. District Court, Northern District of California (Oakland).
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Berkshire Agrees to Settle Australia Suit Over Chopper Crash
Warren Buffett’s Berkshire (BRK/A) Hathaway Inc. agreed to settle Australian insurance claims stemming from a 2005 crash by a Royal Australian Navy helicopter in Indonesia in which nine people were killed.
The Australian government and the Defence Force sued Berkshire and other insurers in December for refusing to pay A$19.8 million ($20.5 million) in claims the government and the defense department incurred in compensating families of the victims and in the legal costs of a Navy Board inquiry.
The government and the insurers reached a settlement in mediation last month, Shamus Toomey, the government’s lawyer, told Federal Court Justice Geoffrey Flick at a hearing in Sydney yesterday. Terms of the settlement are confidential, Toomey said after the hearing.
Berkshire was a primary insurer, responsible for 29.75 percent of any payouts, according to court documents. Great Lakes Re (UK), a unit of Muenchener Rueckversicherungs AG, and Converium Insurance UK Ltd., a unit of SCOR Holding Switzerland AG, each covered 27.25 percent of the policy. The rest of the coverage was shared by 21 other insurers.
The Australian Navy Sea King helicopter Shark 02 crashed April 2, 2005, on the island of Nias while transporting a medical team on a rescue mission to help civilians affected by a March 2005 earthquake.
The case is Commonwealth of Australia v. Berkshire Hathaway International. NSD1715/2010. Federal Court of Australia (Sydney).
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Hoboken Hospital Lawyer Quit Rather Than Participate in Fraud
The former attorney for Hudson Healthcare Inc., the nonprofit operator of Hoboken University Medical Center in New Jersey, said he quit rather than take part in an attempted fraud by the Hoboken Municipal Hospital Authority.
“I will not participate in the fraud I believe your team of lawyers is attempting to perpetuate in the bankruptcy court,” Donald Scarinci said to Hudson Healthcare attorney Joseph DiPasquale, in an e-mail filed with court papers on Sept. 12. “As everyone knows, I resigned from HHI precisely because I could not and would not be a part of any of this.”
Scarinci, a partner at Scarinci & Hollenbeck, was general counsel for Hudson Healthcare until mid-July, when he resigned. Hudson Healthcare filed for Chapter 11 protection Aug. 1 in Newark, New Jersey, while the hospital is being sold.
“I was a first hand witness to a pattern of conduct by HMHA members to intimidate, threaten, control, abuse, and attempt to force” the chief executive officer and other members of the Hudson Healthcare board to “take actions adverse to its charter and otherwise violate the laws of the State of New Jersey,” Scarinci said in court papers.
The hospital is owned and operated by Hudson Healthcare, an authority established by the city of Hoboken when it took over the facility in early 2007.
The case is Hudson Healthcare Inc., 11-33014, U.S. Bankruptcy Court, District of New Jersey (Newark).
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