Facebook, Madoff, Royal Dutch Shell, Altria in Court News

A Credit Suisse Group AG (CS) unit was sued by over securitized mortgage loans for which Assured Guaranty Ltd. (AGO) guaranteed payments to investors and that the bond insurer says were riskier than promised.

Credit Suisse’s DLJ Mortgage Capital Inc. misrepresented the quality of loans underlying the mortgage securities, exposing Assured to “hundreds of millions of dollars” in current and future claim payments, Assured units said in a complaint filed yesterday in New York state Supreme Court.

“Assured is exposed to enormous current and future claims under the policies,” they said.

Credit Suisse spokesman Steven Vames said in an e-mailed statement that the company would fight Assured’s attempt to “misuse litigation to sidestep its insurance responsibilities and shift its own exposure to others.” Credit Suisse Securities (USA) LLC is also named as a defendant.

“Assured is a sophisticated multibillion dollar insurance company that received full disclosure about the securities they chose to insure,” he said. “Now that investors have suffered losses, Assured has chosen to file a lawsuit to evade its insurance obligations.”

Assured is among bond insurers including MBIA Inc. (MBI) that are suing lenders from Bank of America Corp. (BAC) to Deutsche Bank AG (DBK) over mortgages packaged into securities and backed by the insurers.

Assured Chief Executive Officer Dominic Frederico said on a conference call with investors in May that it was seeking buybacks from Credit Suisse, Deutsche Bank and UBS AG (UBSN) on $5.4 billion of loans he said violated so-called representations and warranties made by the banks.

The case is Assured Guaranty Municipal Corp. v. DLJ Mortgage Capital Inc, 652837-2011, New York state Supreme Court (Manhattan).

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Lawsuits/Pretrial

Facebook Ownership Claimant Ceglia Loses His Third Legal Team

Paul Ceglia, the New York man who claims a 2003 contract entitles him to half the holdings of Facebook Inc. founder Mark Zuckerberg, lost his third legal team after allegedly telling them to violate a court order.

Jeffrey Lake, a San Diego, California, lawyer whose firm represents Ceglia in the suit, filed papers in federal court in Buffalo, New York yesterday to withdraw from the case and asking for a three-week delay to allow a new legal team to “come up to speed.”

“Paul Ceglia is currently in discussions with several attorneys concerning substitution of new counsel in this case,” Lake said in an affidavit filed with the court. “It is my understanding that these attorneys are diligently coming up to speed with the facts and proceedings in an effort to effectively represent Paul Ceglia in future proceedings.”

The move comes after Facebook asked a federal judge to impose sanctions on Ceglia for allegedly failing to turn over evidence and telling his lawyers not to comply with a court order. Since filing the suit in June 2010, Ceglia has had three sets of lead counsel quit the case. At least two other law firms declined to represent Ceglia after reviewing his evidence.

Facebook, which operates the world’s biggest social- networking site, asked U.S. Magistrate Judge Leslie Foschio in papers filed Oct. 14 to punish Ceglia and his lawyers for failing to produce all the e-mail accounts and passwords he used since 2003. Ceglia’s lawyers said in court papers Oct. 7 that their client instructed them “not to comply” with that part of Foschio’s order, issued in August.

“The decision by Ceglia’s lawyers to turn on their client and publicly accuse him of wrongdoing by disclosing their confidential communications with him -- as part of an effort to protect themselves and shift the blame to their client -- raises serious questions as to whether they have violated their professional duties and may continue to represent Ceglia in this matter,” Facebook said in its filing.

In his suit, filed in June 2010, Ceglia claims he and Zuckerberg signed a contract in 2003 making them partners at the start of Palo Alto, California-based Facebook. The company calls Ceglia’s claim a fraud.

Lake didn’t return a call and e-mail message seeking comment.

The case is Ceglia v. Zuckerberg, 1:10-cv-00569, U.S. District Court, Western District of New York (Buffalo).

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AT&T Claims Sprint Working With U.S. in T-Mobile Lawsuits

AT&T Inc. said Sprint Nextel Corp. (S) and Cellular South Inc. are working with the U.S. Justice Department to gain a tactical advantage in lawsuits seeking to block AT&T’s proposal to buy T- Mobile USA Inc.

In a filing yesterday in Washington, AT&T asked U.S. District Judge Ellen Segal Huvelle to reject Sprint and Cellular South’s request for access to confidential information it turned over to the Justice Department for its lawsuit seeking to block the deal, arguing the judge denied a similar request last month by Sprint. AT&T said the U.S. is now backing the companies’ bid for “special privileges” in the case.

Sprint and Cellular South last week asked Huvelle to allow their outside lawyers and experts to use the confidential data to prepare for trial in their own lawsuits challenging the T- Mobile deal. To deprive them of that opportunity creates a “fundamental unfairness,” they said in a joint filing.

“The United States supports petitioners’ motion because it would like to augment its litigation efforts with the work of privately funded counsel,” Mark Hansen, of Kellogg, Huber, Hansen, Todd, Evans & Figel PLLC in Washington, a lawyer for AT&T, said in the filing.

The companies argued that, as competitors with relevant information, they have been subpoenaed for documents by AT&T in the government’s antitrust suit. At the same time, Huvelle, overseeing all the AT&T cases, froze document exchanges in the private lawsuits while she weighs the company’s bid to dismiss them. On Oct. 12, the Justice Department urged Huvelle to allow Sprint and Cellular South access to AT&T’s information.

In yesterday’s filing, AT&T said the subpoenas it issued to Sprint, Cellular South and 14 other wireless providers are routine and seek information on similar topics. Huvelle said in a court filing that she’ll address the issue at a hearing scheduled for Oct. 24.

John Taylor, a spokesman for Sprint, said AT&T is seeking “volumes of documents” beyond the more than two million pages Sprint and Cellular South gave the government during the Justice Department probe.

The case is U.S. v. AT&T Inc. (T), 11-cv-01560, U.S. District Court, District of Columbia (Washington).

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Madoff Feeder Fund Investors Seek Customer Status in Appeal

Investors in 16 funds that channeled money into Bernard L. Madoff’s Ponzi scheme asked a court to rule they were Madoff “customers” eligible to claim money set aside for the confidence man’s victims.

The investors, in a brief filed Oct. 14, asked U.S. District Judge Denise Cote in New York to reverse a Bankruptcy Court ruling that blocks them from claiming a share of the $8.7 billion recovered so far by Madoff bankruptcy trustee Irving H. Picard. U.S. Bankruptcy Judge Burton Lifland ruled them ineligible in June, because they didn’t hold accounts directly with Madoff’s firm, Bernard L. Madoff Investment Securities LLC.

The investors say they placed their money with funds that put 95 percent or more with Madoff’s firm. Lifland agreed with Picard’s decision to deny their claims.

“The Bankruptcy Court simply ignores that the ‘Feeder Funds’ were created specifically, and with a legal obligation, to invest their investors’ funds in the BLMIS accounts, expressly to take advantage of Bernard Madoff’s management of their money through his apparently successful, long-term ‘split strike conversion’ investment strategy,” the investors said in the brief.

The case is Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities LLC, 1:11-cv-06565, U.S. District Court, Southern District of New York (Manhattan).

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Trials

Torture Suits Against Companies Draw U.S. High Court Review

The U.S. Supreme Court agreed to use a case involving units of Royal Dutch Shell Plc (RDSA) to consider whether corporations can be sued under federal laws that protect people in other countries from human rights abuses.

The justices yesterday said they will hear two appeals on the issue, including one from a group of Nigerians who say two Shell units were complicit in torture and execution in the country’s Ogoni region from 1992 to 1995. A federal appeals court threw out the case, saying companies can’t be sued under the two-century-old Alien Tort Statute.

The lower court ruling created “a blanket immunity for corporations engaged or complicit in universally condemned human rights violations,” the alleged victims argued in their appeal.

Multinational companies have faced dozens of suits accusing them of playing a role in human rights violations, environmental wrongdoing and labor abuses. Exxon Mobil Corp. (XOM), Coca-Cola Co. (KO), Pfizer Inc. (PFE), Unocal Corp., Chevron Corp. (CVX) and Ford Motor Co. (F) have all been sued under either the Alien Tort Statute or a related law, known as the Torture Victim Protection Act or TVPA.

The justices also accepted a case that may determine whether companies can be sued under the TVPA. In that case a federal appeals court threw out a suit filed against the Palestinian Authority and the Palestinian Liberation Organization by the sons and widow of Azzam Rahim, a U.S. citizen allegedly tortured and murdered in the West Bank during the 1990s.

A Supreme Court decision in favor of the two units, Shell Petroleum NV and Shell Transport and Trading Co., would change the law in much of the country. Most federal appeals courts to consider the issue have said that companies can be sued under the 1789 Alien Tort Statute, just like individuals.

Kayla Macke, a Shell spokeswoman in Houston, said the company wouldn’t comment on the Supreme Court case.

The Shell case is Kiobel v. Shell Petroleum, 10-1491. The Palestinian case is Mohamad v. Rajoub, 11-88, U.S. Supreme Court (Washington).

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Philip Morris Misled Smokers on Light Cigarettes, Jury Told

Altria Group Inc. (MO)’s Philip Morris unit deceived Missouri consumers by marketing Marlboro Lights as safer than regular cigarettes, a lawyer told a St. Louis jury.

“Philip Morris made two promises -- to provide lower tar and nicotine to smokers,” Stephen Swedlow, who represents Missouri smokers suing the company, said yesterday in closing arguments in the state-court trial. “They did not deliver on this.”

In the lawsuit, a class action, or group case, filed in 2000 on behalf of all buyers of Marlboro Lights in Missouri, the smokers claim Philip Morris misrepresented that the brand was lower in tar and nicotine, a violation of state merchandising law. The cigarettes are no safer than others, the consumers said in court papers.

The smokers, who are seeking $700 million plus punitive damages, don’t claim any personal injuries. The class, which was certified in 2005, includes as many as 400,000 current and former Marlboro Lights smokers. The trial began with opening statements last month.

“There was no deception on our part,” Beth Wilkinson, a Philip Morris attorney, said in her closing argument.

“Did they prove that Marlboro Lights didn’t deliver less tar and nicotine? Did they prove that Marlboro Lights withheld information?” she asked. “They did not prove their case.”

Philip Morris didn’t tout Marlboro Lights as safer and its packages contain the same warnings as other cigarettes, Wilkinson said. “What other product in the United States has a warning that you’re taking your life in your own hands if you smoke these?”

Missouri smokers sustained no damages, George Lombardi, another Philip Morris attorney, said in his closing yesterday.

Philip Morris owes damages because the company “fraudulently represented” that there was less tar and nicotine in Marlboro Lights, Swedlow, the plaintiffs’ attorney, said yesterday. The smokers didn’t get what they were promised and this made their purchases worth less than what they paid, he said.

The case is Larsen v. Philip Morris Cos., 002-00406-02, Circuit Court, City of St. Louis, Missouri.

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Weavering Chief Orchestrated $600 Million Fraud, Lawyer Says

The founder of Weavering Capital (UK) Ltd. was the “chief architect of a $600 million hedge-fund fraud” as he hid losses from investors and falsely inflated the fund’s value, a lawyer for the fund’s administrators said.

Magnus Peterson “attracted hundreds of millions of dollars from investors” by marketing the Weavering Macro Fixed Income Fund Ltd. as an easily liquidated fund with low risk, a lawyer for the administrators of the fund, Robert Anderson, said at the first day of a civil trial in London yesterday seeking to recoup losses from Peterson and other former Weavering employees.

The fund collapsed in March 2009, and Peterson and Edward Platt, his deputy investment manager, were arrested by the U.K. Serious Fraud Office, which investigates white-collar crime. The SFO decided last month not to bring charges because it didn’t think it could win a conviction.

Peterson told investors the fund had returns of as much as 12 percent per year, with a diversified portfolio of exchange- traded futures and options, based on the macroeconomic research of James Stewart, the fund’s then chief economist, Anderson said.

After the fund lost money on Peterson’s options trades, he sought to hide the losses with fraudulent swaps investments. When the fund collapsed, administrators discovered that the counterparty for the Macro fund’s biggest trading position was controlled by Weavering.

“The fraud was discovered when investors sought to withdraw their money following the market turbulence of 2008,” Anderson said. “The reported value of the fund consisted solely of the worthless swaps.”

MCR, Weavering’s administrator, is also suing Peterson’s wife, Amanda, and Platt. The Petersons, both derivatives traders, met while they were working at the Swedish bank Skandinaviska Enskilda Banken AB in London in the 1980s. Amanda Peterson, who was also an employee of Weavering, “ought to have uncovered and reported the fraud,” Anderson said.

The defendants will present their arguments later in the trial. A spokeswoman at Stephenson Harwood, Amanda Peterson’s law firm, declined to comment on the lawsuit. Magnus Peterson and Platt are representing themselves in the case.

Barnaby Stueck, a lawyer for MCR, said last month there is “a devastating weight of evidence against Mr. Peterson.” He said he disagreed with the outcome of the SFO investigation. MCR liquidator Geoffrey Bouchier said it was “deeply disappointing to Weavering’s investors and creditors.”

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Verdicts/Settlements

Ex-Deloitte Partner’s Wife Settles SEC Case for $1 Million

Annabel McClellan, the wife of an ex-Deloitte Tax LP partner, agreed to pay $1 million to settle a U.S. Securities and Exchange Commission lawsuit alleging she and her husband tipped family members to merger deals.

The SEC will drop claims against her husband Arnold McClellan, who headed one of Deloitte’s regional mergers and acquisitions teams, if a federal judge approves his wife’s settlement, said Daniel Bookin, his attorney.

Annabel McClellan didn’t admit wrongdoing, according to a consent of final judgment filed yesterday in federal court in San Francisco. Robert Tashjian, an SEC lawyer in San Francisco involved in the case, declined to comment.

McClellan, who pleaded guilty in April to one count of obstructing the SEC’s investigation, said she overhead her husband talking about the deals and passed the information to her brother-in-law, according to a transcript of her change of plea hearing.

Nanci Clarence and Nicole Neubert, lawyers for Annabel McClellan, didn’t return messages seeking comment about the settlement.

The McClellans, of San Francisco, were sued last year for allegedly telling family members of at least seven confidential buyouts between 2006 and 2008 planned by Deloitte’s clients, including Kronos Inc., aQuantive Inc. and Getty Images Inc. The relatives made about $3 million in profits, the lawsuit said.

The case is U.S. v McClellan, 10-5412, U.S. District Court (San Francisco).

Grupo Mexico Ordered to Pay $1.3 Billion to Southern Copper

Grupo Mexico SAB must return $1.3 billion in shares to Southern Copper Corp. (SCCO) for forcing the unit to overpay for a Mexican mining company, a Delaware judge ruled.

Southern Copper bought a 99 percent stake in Minera Mexico, a company owned by Grupo Mexico, in October 2004 for $3.75 billion, higher than a previous valuation of $3.1 billion. The transaction was unfair, Delaware Chancery Court Chief Judge Leo Strine ruled.

“A focused, aggressive controller extracted a deal that was far better than market,” Strine wrote in a 106-page opinion on Oct. 14.

Southern Copper shareholders sued on behalf of the company claiming that it overpaid because directors and a financial adviser failed to derive a true value for Minera and instead relied on a relative analysis when comparing the two companies, according to court documents.

Juan Rebolledo, a Grupo Mexico spokesman, said the company will appeal the ruling.

Grupo Mexico, which owns about 80 percent of Southern Copper, “is in total disagreement with the court’s ruling,” the company said in a separate statement. The form to make the payment to compensate Southern Copper still needs to be set by the court, Grupo Mexico said.

A special committee of Southern Copper directors made “strenuous efforts” to justify the deal by optimizing Minera’s cash flows, discounting the fact that the Mexican company had trouble paying its bills, and agreeing to pay a special dividend, Strine said in the ruling.

“The special committee turned the ‘gold’ it was holding in trust into ‘silver’ and did an exchange with ‘silver’ on that basis, ignoring that in the real world the gold they held had a much higher market price,” Strine wrote.

The case is In Re Southern Peru Copper Shareholder Derivative Litigation, CA961, Delaware Chancery Court (Wilmington).

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Accenture Verdict on Theft of Partner’s Work Upheld by Judge

Accenture LLP can’t retry a Houston jury’s finding that it maliciously misappropriated a joint marketing partner’s software product and intentionally cut the startup firm out of future business deals, a U.S. judge ruled.

U.S. District Judge Keith P. Ellison upheld a Houston federal jury’s May verdict that consulting giant Accenture stole key components of Wellogix Inc.’s proprietary “purchase to pay” software and used it without compensation.

“Wellogix presented evidence that Accenture not only intended to misappropriate Wellogix’s trade secrets, but that it also intended to cause Wellogix substantial harm,” Ellison said in an Oct. 14 ruling. “There was evidence that Accenture intended to steal Wellogix’s trade secrets and to cut Wellogix out of the business deals with BP and SAP America Inc. Ultimately, the court finds that there is sufficient evidence that Accenture engaged in reprehensible conduct.”

Ellison’s order slashed the $94 million damages awarded the startup software developer to a combined $44 million in compensatory and punitive damages. Ellison said jurors gave Wellogix $50 million more in punitive damages than its lawyers had asked for.

“The amount so exceeds what was requested by Wellogix’s counsel that it appears contrary to right reason,” Ellison said. He ordered Wellogix to either accept the reduced damages award or take its chances on a new trial. He denied Accenture’s request for a new trial in the same order.

Rick Laminack and Tom Pirtle, Wellogix’s lawyers, didn’t return calls seeking comment on the judge’s order. Christina Rodriguez and Maria Boyce, Accenture’s attorneys, also didn’t return calls for comment yesterday.

The case is Wellogix Inc. v Accenture LLP, 3:08-cv-0019, U.S. District Court, Southern District of Texas (Houston).

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Litigation Departments

News Corp. (NWSA) Drops Farrer & Co. Before Phone-Hacking Testimony

News Corp. parted ways with the law firm Farrer & Co., which represented the company in lawsuits involving phone- hacking at the News of the World, days before a lawyer at the firm is scheduled to testify to Parliament.

The decision was “mutually agreed” by the law firm and News Corp.’s Management and Standards Committee, which is running an internal probe of the hacking scandal, the company said in an e-mail yesterday. News Corp. replaced Farrer & Co. with the law firm Olswang, which was already advising the committee and handling a few of the lawsuits, it said.

“They’ve essentially consolidated all the cases,” News Corp.’s London-based spokeswoman Alice MacAndrew said in a phone interview. “Olswang had been working with the company since February and they were doing a couple of the cases, and it made sense to transition to one firm.”

News Corp., based in New York, has agreed to pay more than 4 million pounds ($6.3 million) in at least six settlements with celebrities who were the subjects of News of the World stories. The family of murdered schoolgirl Milly Dowler was offered 2 million pounds plus a 1 million-pound donation to charity in September, in the largest settlement to date, according to a person familiar with the case.

Farrer & Co. partner Julian Pike is scheduled to address Parliament’s Culture, Media and Sport Committee on Oct. 19 about News Corp.’s settlement with Gordon Taylor, chief executive of the Professional Footballers’ Association. Victims’ lawyers have said the deal was a bid to stop the scandal from spreading.

“The company thought it best to make the announcement ahead of Pike’s meeting with Parliament, in the interest of transparency,” MacAndrew said.

Farrer & Co. spokeswoman Cara Rowell said it is “no longer representing” News Corp. in the phone hacking litigation. She declined to comment further, citing client confidentiality.

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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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