Hedge fund Oasis Management LLC sued Morgan Stanley for C$9.5 million ($9.3 million) over options in Sino-Forest Corp. (TRE) bought before the Toronto-listed timber company’s stock plunged 71 percent in two days in June.
Morgan Stanley failed to settle the options contracts in an effort to “limit its liability,” Oasis said in a lawsuit filed in London in July. Hong Kong-based Oasis bought options to sell Sino-Forest at C$19 on May 12, three weeks before shares fell to C$5.22 on allegations it had overstated forestry holdings.
Shares in Sino-Forest have fallen 74 percent since June 1, the day before short-seller Carson Block’s Muddy Waters LLC research firm said the company had overstated its holdings. While investors including hedge fund manager John Paulson and billionaire Richard Chandler took losses when Sino-Forest shares sank, holders of put contracts could reap returns from selling stock at prices far above the present value.
The Oasis deal will cost Morgan Stanley (MS) C$7.5 million to settle, the hedge fund said in its court filing. The put options are valued at C$9.5 million, compared with C$2 million for the equivalent shares, it said in the lawsuit. Oasis paid Morgan Stanley a premium of C$770,000 for the options in May.
New York-based Morgan Stanley claimed the options were terminated because trading in Sino-Forest’s shares was suspended, Oasis lawyers said in the filing. The bank offered Oasis C$3.8 million to cancel the deal, the hedge fund said in the lawsuit.
Morgan Stanley spokesman Michael Wang declined to comment Sept. 23. Katie Bolton, a Hong Kong-based spokeswoman for Oasis, declined to comment.
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Citigroup Sued by IKB Over $4.2 Million in Mortgage Notes
Citigroup Inc. (C), the third-largest U.S. bank, was sued for fraud by IKB Deutsche Industriebank AG over a sale of $4.2 million in residential mortgage-backed securities.
An IKB unit took part in the purchase of million of notes in a transaction underwritten and sold by New York-based Citigroup, according to court papers filed Sept. 22 in New York State Supreme Court in Manhattan.
IKB, based in Dusseldorf, accused Citigroup of fraud, negligent misrepresentation, unjust enrichment and breach of contract in the one-page filing. The German lender asked a judge to rescind the sale and award unspecified punitive damages.
Danielle Romero-Apsilos, a spokeswoman for Citigroup, declined to comment on the complaint.
The case is IKB Deutsche Industriebank AG (IKB) v. Citigroup Inc., 652609/2011, Supreme Court of the State of New York, County of New York (Manhattan).
Ex-NBA Player Tate George Charged in $2 Million Ponzi Scheme
Tate George, a former player with the National Basketball Association’s New Jersey Nets and Milwaukee Bucks, was charged with running a $2 million Ponzi scheme that targeted former professional athletes.
George, 43, raised more than $2 million for his company, The George Group, after telling investors his real-estate development portfolio was worth $500 million, according to a Federal Bureau of Investigation complaint charging him with wire fraud.
“In reality, The George Group had virtually no income generating operations,” U.S. Attorney Paul Fishman said in a statement.
George used the money he raised to pay early investors in his company and to fund living expenses such as mortgage and child-support payments, restaurant meals, clothing and gas, according to the FBI complaint.
George faces as many as 20 years in prison for the scheme, which prosecutors said ran from 2005 to March. His attorney, Thomas Ashley, didn’t immediately return a call seeking comment.
The case is U.S. v. George, 11-mag-03197, U.S. District Court, District of New Jersey (Newark).
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Silvercorp Sues Chinastockwatch.com Over Stock Manipulation
Silvercorp Metals Inc. (SVM), a Canadian miner of silver in China, sued two websites and their operators for allegedly spreading false information in an effort to drive down the company’s stock price.
Chinastockwatch.com, a New York-based website that posts reports on public companies, and operator Jerry Katz published “false, defamatory and fraudulent statements,” Silvercorp said in the complaint filed Sept. 22 in New York State Supreme Court in Manhattan.
Alfredlittle.com, website operator Alfred Little and an editor, Simon Moore, also were named as defendants in the lawsuit. Silvercorp seeks punitive damages of at least $10 million and compensatory damages of more than $1 million.
The defendants sought “to artificially drive down the price of Silvercorp common stock in order to obtain illicit profits on short sales,” the Vancouver-based company said in the complaint. Short investors sell borrowed shares with plans to buy them back later at a lower price.
No contact information was listed on Chinastockwatch.com and Katz couldn’t be immediately reached to comment on the lawsuit. The complaint is “frivolous” and Alfredlittle.com has “nothing to do with” Chinastockwatch.com, Moore said.
“Every statement that was made in every single report that was published on Silvercorp from Alfredlittle.com is completely factual,” Moore said in a telephone interview. “Absolutely nothing in any of our previous reports on other companies that we’ve published on including Silvercorp has ever been exaggerated.”
The case is Silvercorp Metals Inc. (SVM) vs. Chinastockwatch.com, New York State Supreme Court, New York County (Manhattan), 150374/2011.
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AT&T Judge Sets Expert Reports Deadlines in Antitrust Case
The judge overseeing the U.S. Justice Department’s antitrust lawsuit seeking to block AT&T Inc. (T)’s $39 billion takeover of T-Mobile USA Inc. gave both sides until Dec. 28 to file reports by expert witnesses.
Responses to those reports must be filed by Jan. 9, according to the order issued Sept. 23 by U.S. District Judge Ellen Segal Huvelle. Rebuttal reports must be delivered by Jan. 16, according to the order.
The judge’s order resolved a dispute between the government and AT&T over deadlines for the expert reports. On Sept. 23 the U.S. Justice Department asked Huvelle to give it until Jan. 5 to prepare its reports, while AT&T had pressed for a Nov. 15 deadline. The trial is set to begin Feb. 13.
The expert reports will likely be central to the case, said Howard University law professor Andrew Gavil.
“The government will have to lay out how the merger will be anticompetitive and the only way to present those models is with economists,” Gavil said in a phone interview. “To the extent there is a difference of opinion between the government and AT&T, this is the area that is likely to heat up and be critical ground for discussion.”
The Justice Department sued Dallas-based AT&T and Bonn- based Deutsche Telekom AG (DTE)’s T-Mobile unit on Aug. 31, saying a combination of the two companies, which would make AT&T the biggest U.S. wireless carrier, would “substantially” reduce competition. Last week, seven states joined the government’s effort to block the deal.
The case is U.S. v. AT&T Inc., 11-cv-01560, U.S. District Court, District of Columbia (Washington).
Madoff Trustee Renews $91 Million Sterling Partner Suit
The liquidator of Bernard Madoff’s firm filed a revised lawsuit against money management firm American Securities LP that demanded $91.9 million dollars of funds taken out of the con man’s firm since January 2000.
American Securities, after meeting Fred Wilpon and Saul Katz, owners of the New York Mets Major League Baseball team, joined with their Sterling Equities Inc. in 1991 to create a $4.5 billion-asset real estate investment company, Sterling American Property Inc., according to Madoff trustee Irving Picard. Madoff was among the investors, Picard said in a court filing Sept. 23.
Closely held American Securities and its executives had access to the con man and should have responded to so-called red flags warning of fraud, Picard said in an amended complaint filed in U.S. Bankruptcy Court in Manhattan.
Of the money Picard is demanding, about $10 million was fake profit, he said.
A call seeking comment on the complaint from Charles Klein, a founder and managing director of American Securities, wasn’t immediately returned.
Madoff, 73, is serving a 150-year sentence in a federal prison in North Carolina.
The case is Picard v. American Securities, 1:10-ap-05415, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
News Corp. (NWSA) to Be Sued in U.S. by Victims of Phone Hacking
News Corp. (NWS) directors will be sued in the U.S. by victims of phone hacking by reporters at the News of the World tabloid, a lawyer said.
Legal action will be started in the U.S. within 10 days, Mark Lewis, a lawyer representing phone-hacking victims in London, said in an interview broadcast on Sky News Sept.23.
Lewis represents phone-hacking victims including the family of murdered schoolgirl Milly Dowler. Revelations that Dowler’s mobile-phone messages were deleted while she was missing in 2002 led to the closure of the News of the World and forced News Corp. to drop a takeover bid for British Sky Broadcasting Group Plc. (BSY)
U.S. lawyers will make the final decisions on the defendants to include in the lawsuit, Lewis said in a separate interview on BBC News. He said that lawyers are looking at areas that should have been part of the knowledge of directors of a large corporation. Lawyers would seek to speak with News Corp. Chairman Rupert Murdoch and Deputy Chief Operating Officer James Murdoch, Lewis said.
Miranda Higham, a spokeswoman for News Corp. in London, declined to comment on the U.S. lawsuits. Lewis didn’t return a call from Bloomberg News seeking comment.
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Obama Health-Care Law Leaves Appeals Court With Questions
President Barack Obama’s health-care law got a mixed reception in its fourth review by a federal appeals court as three judges grappled with questions about the law’s constitutionality and their own authority to rule on it.
In a two-hour argument Sept. 23 in Washington, two judges of the U.S. Court of Appeals for the District of Columbia Circuit said a ruling upholding the law, which requires that most Americans buy insurance or face a tax penalty, could leave the government with unprecedented power over its citizens.
“In 220 years there has been a whole lot of laws and a lot of crises, yet Congress has never once mandated a purchase,” said Judge Brett Kavanaugh, adding that the “lurking next step” might be a law requiring investment in private retirement accounts.
Kavanaugh also questioned whether federal courts could rule on the law before any taxpayer had been assessed a penalty.
The Washington appellate panel may be the last to rule on the law before it reaches U.S. Supreme Court. The Obama administration must signal next week whether it will seek high court review of another court’s opinion declaring the insurance mandate unconstitutional.
Two federal appeals courts have ruled on the insurance mandate. A Cincinnati panel in June decided Congress’s authority to regulate interstate commerce extended to enacting the insurance mandate. The U.S. Court of Appeals in Atlanta threw out the mandate on Aug. 12, concluding Congress can’t compel people to buy a product for their entire lives.
An appeals panel in Richmond, Virginia, decided on Sept. 8 that it was blocked by a statute that generally bars challenging taxes before they’re collected or assessed.
The case argued Sept. 23 was brought in June 2010 by five individuals who claimed they and their families could face collective penalties of more than $27,000 for failing to obtain insurance.
U.S. District Judge Gladys Kessler in February dismissed their suit, finding the mandate constitutional.
The U.S. calls the insurance mandate the linchpin of the Patient Protection and Affordable Care Act, claiming that without expanding the pool of younger, healthier customers the insurance industry can’t meet its obligations for coverage under the law.
The case is Seven-Sky v. Holder, 11-5047, U.S. Court of Appeals for the District of Columbia (Washington).
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Marcellus Gas Drillers Face ‘Chaos’ in Land Law Ruling
A Pennsylvania appeals court ruling has raised questions about who can claim ownership of natural gas embedded in the Marcellus shale formation, potentially putting in doubt the legitimacy of thousands of drilling leases, Bloomberg News’ Jim Polson and Mike Lee report.
The state’s Superior Court said Pennsylvania law governing ownership of oil and gas rights isn’t clear and a lower-court judge should solicit expert opinions in a case pitting current landowners against the heirs to an 1881 deed.
“Dozens of energy companies have invested billions of dollars in leasing shale gas production rights in Pennsylvania,” Larry Nettles, an attorney with the Houston- based law firm Vinson & Elkins LLP, said in a telephone interview. “This opinion calls into question whether they have those rights.”
For more than a century, Pennsylvania has required landowners to consider oil and gas rights separate from more general “mineral rights” when transferring ownership of resources beneath the surface of their property. The defendants in the title dispute argued shale gas is different and should be considered part of the mineral rights because it is contained inside rock.
The Superior Court, the second-highest court in the state, ruled Sept. 7 that current law doesn’t sufficiently address whether “Marcellus shale constitutes a mineral,” the question that’s now to be hashed out by the lower court.
Until the case is decided, oil and gas companies will face uncertainty about whether they’ve signed drilling leases with the right people, legal experts say. Owners of oil and gas rights who signed leases with gas producers could find that they don’t own the gas after all.
“If, somehow, shale gas is different, that would be a sea change in Pennsylvania law,” David Fine, a Harrisburg, Pennsylvania-based attorney for K&L Gates LLP, said Sept. 22 in a telephone interview. “The issue is whether they’ve entered into a lease with someone and somebody else is going to find a problem with the title.”
The case may take as long as two years to wind through the courts, Fine said.
The case is John E. and Mary Josephine Butler v. Charles Powers Estate et al, 1795-mda-2010, Superior Court of Pennsylvania.
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Potash Producer Civil Antitrust Suit Rejected by U.S. Court
Potash Corp. of Saskatchewan Inc. and six other producers of the fertilizer chemical won a U.S. appeals court ruling rejecting purchaser claims they were conspiring to fix prices in violation of federal antitrust laws.
The buyers sued in 2008, claiming violations of the U.S. Foreign Trade Antitrust Improvements Act, which can extend the reach of American antitrust law to foreign anticompetitive conduct that affects U.S. imports.
The Chicago-based court ruled that Minn-Chem Inc. and its co-plaintiffs failed to state a plausible “direct, substantial and reasonably foreseeable,” link between the allegedly anti- competitive activity of the producers -- all of whose mining operations are based in Canada, Russia or Belarus -- and the U.S. market for their product.
“All of the anticompetitive conduct identified in the complaint is alleged to have occurred outside the United States,” U.S. Circuit Judge Diane Sykes wrote in the court’s unanimous 27-page decision.
Also named as defendants in the case were Calgary-based Agrium Inc. (AGU), Plymouth, Minnesota-based The Mosaic Co. (MOS), as well as Russian and Belarussian companies. As of 2008, they accounted for about 71 percent of the world’s supply of potash, according to the Sept. 23 court ruling.
“We are evaluating the opinion and making decisions about what we will be doing,” San Francisco attorney Bruce Simon, who argued the case for the purchasers on June 3, said Sept. 23 in a phone interview. He declined to comment further.
“We believe the court made the right ruling,” Rob Litt, a spokesman for The Mosaic Co., said in a phone interview.
“We’re certainly very pleased with the decision of the court,” said Bill Johnson, a spokesman for Saskatoon-based Potash Corp.
The case is Minn-Chem Inc. v. Agrium Inc., 10-1712, U.S. U.S. Court of Appeals for the Seventh Circuit (Chicago).
Emanuel Goffer Seeks Prison Term of Less Than 46 Months
Emanuel Goffer, convicted of insider trading with his brother Zvi Goffer, is seeking a prison term of less than 46 months, saying he plays a critical role in raising a 3-year-old son with developmental problems.
Emanuel Goffer is set to be sentenced Oct. 7 before U.S. District Judge Richard Sullivan in Manhattan, who imposed a 10- year prison term on his brother this week.
In court papers filed Sept. 23, Emanuel Goffer asked for a “tempered sentence” shorter than the 46- to 57-month federal sentencing guidelines range calculated by U.S. probation officials. Goffer said in the filings that his son isn’t meeting “age appropriate gross motor milestones.”
Goffer also disputes a U.S. finding that he earned more than $2 million by insider trading.
Jerika Richardson, a spokeswoman for the office of U.S. Attorney Preet Bharara, declined to comment.
The case is U.S. v. Goffer, 10-cr-00056, U.S. District Court, Southern District of New York (Manhattan).
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