Swiss banks will likely settle a sweeping U.S. probe of offshore tax evasion by paying billions of dollars and handing over names of thousands of Americans who have secret accounts, Bloomberg News’ David Voreacos, Klaus Wille and Giles Broom report.
U.S. and Swiss officials are concluding negotiations on a civil settlement amid U.S. criminal probes of 11 financial institutions, including Credit Suisse Group AG (CSGN), suspected of helping American clients hide money from the Internal Revenue Service, according to five people with knowledge of the talks who declined to speak publicly because they are confidential.
Switzerland, the biggest haven for offshore wealth, wants an end to new U.S. probes while preserving its decades-old tradition of bank secrecy, the people said. The U.S. seeks data on Americans who have dodged U.S. taxes and a pledge by Swiss banks to stop helping such clients, according to the people. The Swiss reached accords this year with Germany and the U.K. on untaxed assets.
“The Swiss would like to get out of this by paying money, and they’ve done that with other countries,” said tax attorney H. David Rosenbloom of Caplin & Drysdale Chartered in Washington, who isn’t involved in the talks. “For the U.S., it’s not primarily a money question. It’s a matter of making sure the laws apply fairly among taxpayers.”
The Swiss government seeks to outline a final accord for the Foreign Affairs Committee of its Parliament’s upper house on Nov. 10, according to a person familiar with the matter. The number of banks that will pay to resolve the U.S. negotiations may extend beyond the 11 under criminal investigation, the people said.
“We are aiming for an all-encompassing solution that will apply to all the banks,” Finance Minister Eveline Widmer- Schlumpf said in an Oct. 4 interview in the Swiss capital Bern. “We don’t want to be confronted with the same issues time and again.”
The Justice Department also may bring criminal charges or civil enforcement actions against any of the 11 financial institutions. They could avoid prosecution by separately paying fines, admitting wrongdoing and disclosing data, the people said. On Aug. 30, the Justice Department requested statistical data from the 11 about their U.S. accounts, which the U.S. has received and is analyzing, the people said.
The group of 11 also includes HSBC Holdings Plc (HSBA), the biggest European bank, Basler Kantonalbank (BSKP), Wegelin & Co., Zuercher Kantonalbank, and Julius Baer Group Ltd. (BAER), the people said. Three Israeli banks -- Bank Leumi Le-Israel BM (LUMI), Bank Hapoalim BM (POLI), and Mizrahi-Tefahot Bank Ltd. (MZTF) -- are on the list, as well as Liechtensteinische Landesbank AG (LLB) and an asset manager, NZB AG, according to the people.
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Goldman Sachs Sued Over Role in El Paso’s $21 Billion Buyout
Goldman Sachs Group Inc. was sued by a pension fund that alleges the New York-based investment bank had a conflict of interest in its role as adviser in the planned $21 billion purchase of El Paso Corp. (EP) by Kinder Morgan Inc.
Goldman Sachs, which owns about 20 percent of Kinder Morgan, steered El Paso directors to sell at a price below its full value, earning larger advisory fees than if the company had completed a planned spinoff, lawyers for the Louisiana Municipal Police Employees Retirement System said in the complaint. Goldman Sachs also stands to see its Kinder Morgan investment increase in value, according to the complaint.
“The El Paso board impermissibly heeded the advice of its conflicted financial adviser Goldman Sachs and abandoned a previously announced spinoff of its exploration and production business in favor of a low premium sale to competitor Kinder Morgan,” lawyers for the retirement system, an investor in El Paso, said in the complaint filed Oct. 20 in Delaware Chancery Court in Wilmington.
In addition to Goldman Sachs, the complaint also names individual El Paso directors and Kinder Morgan.
While Morgan Stanley served as financial adviser on the sale, Goldman’s presence “tainted the entire process,” lawyers for the retirement fund said in the complaint. Goldman continued to act as financial adviser on “related matters” in connection with the transaction, the pension fund said in the complaint, citing the companies’ joint press statement.
Andrea Rachman, a spokeswoman for Goldman Sachs, declined to comment except to say that the bank’s representatives on Kinder Morgan’s board recused themselves from the deal process.
Larry Pierce, a spokesman for Houston-based Kinder Morgan, said in an e-mail that the company doesn’t comment on pending litigation. Richard Wheatley, a spokesman for El Paso, also declined to comment.
The case is Louisiana Municipal Police Employees Retirement System v. Braniff, CA6960, Delaware Chancery Court (Wilmington).
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Standard Bank Sues Saudi Billionaire Over $150 Million Debt
The bank says al Jaber personally guaranteed three loans to JJW Hotels & Resorts Ltd. and Ajwa for Food Industries Co. in 2008, according to court papers outlining its claim.
Al Jaber, Saudi Arabia’s third-richest man according to Arabian Business, believes he has a claim against the bank over a $96.5 million loss from unauthorized foreign-exchange trades, his lawyer Catharine Otton-Goulder said Oct. 20 at a pre-trial hearing.
He blames Standard Bank, a unit of Johannesburg-based Standard Bank Group Ltd., for the trades from a personal account he held with the company and says the loans were provided to cover the foreign-exchange losses.
Janice Garraway, a spokeswoman for Standard Bank in London, declined to comment on the case via e-mail Oct. 20. Gary Pegg, an attorney for al Jaber, didn’t respond to an e-mail requesting comment.
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Brigham Exploration Sued by Shareholders Over Statoil Deal
The offer price is a discount to the oil and gas producer’s 52-week high trading price, according to separate suits filed by the same law firm on behalf of shareholders Robert Fioravanti and Howard Weisberg.
“The proposed transaction is the product of a flawed process that involved no known open auction,” Weisberg said Oct. 20 in a complaint in Delaware Chancery Court.
Statoil said Oct. 17 that it would buy all of Brigham’s shares for $36.50 each, a 20 percent premium to the company’s Oct. 14 closing price. The deal is the seventh-largest takeover announced this year in the oil and gas industry.
Statoil, Norway’s biggest oil company, is using Brigham to expand into unconventional U.S. assets such as the Bakken shale area in North Dakota.
The offer price reflects an inadequate premium given Brigham’s strong growth prospects and is still below the 23 percent average premium for the industry this year, the shareholders said.
The deal also includes preclusive protection devices include a clause prohibiting Brigham from seeking a third-party bid and a $136.5 million termination fee that discourages other potential buyers, according to the complaints.
Weisberg and Fioravanti are seeking to represent all Brigham shareholders in their request to bar the transaction.
Rob Roosa, a spokesman for Brigham Exploration, didn’t return a phone call seeking comment.
The cases are Weisberg v. Brigham Exploration Co., CA6957, and Fioravanti v. Brigham Exploration Co., CA6962, Delaware Chancery Court (Wilmington)
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AT&T Seeks to Knock Out Government’s Ally in T-Mobile Hearing
AT&T Inc. (T) will ask a federal judge to throw out Sprint Nextel Corp. (S)’s lawsuit to stop its purchase of T-Mobile USA Inc., seeking a decision that would curb Sprint’s ability to help the U.S. block the deal.
AT&T will argue at a hearing today in Washington that Sprint, as a competitor rather than a consumer, has no right under antitrust law to bring the suit and that Sprint’s claims the $39 billion deal would hurt its business are unfounded.
Should AT&T persuade U.S. District Judge Ellen Segal Huvelle to dismiss the case, Sprint’s advice on the Justice Department’s suit would be limited by its restricted access to confidential AT&T information, said Thomas Horton, a law professor at the University of South Dakota Law School and former antitrust attorney in the department.
“It will expedite the government’s case to have Sprint as an official ally,” said Horton, who spent about eight years in the antitrust division.
Sprint told Huvelle on Oct. 12 that to prepare its case it needed access to confidential data the Justice Department collected from AT&T during the U.S. probe of the proposed T- Mobile merger. The company said it suffered from “fundamental unfairness” because, as a competitor with relevant information, AT&T is allowed to subpoena Sprint documents in the government’s antitrust case.
Huvelle, overseeing all the AT&T cases, froze the document exchanges while she weighs the motion to dismiss.
The government’s case is U.S. v. AT&T Inc., 11-01560; Sprint’s case is Sprint Nextel Corp. v. AT&T Inc., 11-01600; and Cellular South’s case is Cellular South Inc. v. AT&T Inc., 11-01690, U.S. District Court, District of Columbia (Washington).
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Goldman Sachs Asks New York Court to Dismiss Allstate Suit
Goldman Sachs Group Inc. (GS) asked a judge in New York state court to dismiss a lawsuit filed by Allstate Insurance Co. over the alleged fraudulent sale of residential mortgage-backed securities.
The Northbrook, Illinois-based insurer sued New York-based Goldman Sachs in New York State Supreme Court in Manhattan on Aug. 15 over the sale of more than $100 million worth of residential mortgage-backed securities, asking for damages including the lost market value of the investments.
Allstate filed the lawsuit and seven similar complaints against various issuers and underwriters of residential mortgage-backed securities, using “generalities and unsupported assumptions” to recoup investment losses on certificates it bought in five offerings in 2006, Goldman Sachs said in court documents filed Oct. 21.
“Despite its financial sophistication and expertise (including in the housing market, where it is a leading insurer), Allstate now suffers from buyer’s remorse and has sued the counterparties with which it traded at arm’s length, claiming in separate actions that each of the eight sellers of RMBS misled it as to characteristics of the securities,” Goldman Sachs said in the court documents.
Allstate has also sued lenders including JPMorgan Chase & Co., Credit Suisse Group AG, Bank of America Corp. (BAC)’s Merrill Lynch unit, Citigroup Inc. and Deutsche Bank AG over residential mortgage-backed securities.
The case is Allstate Insurance Co. v. Goldman, Sachs & Co., 652273/2011, New York state Supreme Court (Manhattan).
Andrew Madoff Seeks Appeal in Picard $198 Million Suit
Andrew Madoff, son of confidence man Bernard L. Madoff, asked to appeal a bankruptcy judge’s ruling that allowed a $198 million lawsuit by the liquidator of his father’s firm to go forward, according to a court filing.
Trustee Irving Picard last month won a court ruling permitting him to pursue most claims in a 2009 lawsuit alleging that the Madoffs treated the now-defunct firm, Bernard L. Madoff Investment Securities LLC, as their “family piggy bank.” U.S. Bankruptcy Judge Burton Lifland also dismissed some claims in the case while allowing Picard to file a new complaint.
Andrew Madoff asked a U.S. District Court judge to allow an appeal, according to Oct. 6 filing in U.S. Bankruptcy Court in New York. In court papers filed in his own behalf and as executor of his late brother’s estate, he said the judge’s decision would result in a “massive expansion of liability” for managers of banks and large corporations for the wrongs of individual units.
Picard opposed Andrew Madoff’s request to appeal Oct. 20, saying in his court papers that Lifland’s ruling was “well- reasoned” and that he would seek to prove his claims at a trial.
In his lawsuit, Picard said that Madoff family members -- including Bernard’s brother Peter Madoff, sons Andrew and Mark Madoff and niece Shana Madoff Swanson, all of whom held senior positions at Madoff Securities -- profited from the fraud.
Instead of preventing the crime, they took $198 million in investor money from the New York-based money-management firm to finance a business venture, pay for restaurants, vacations and clothing and to buy cars, boats and vacation homes, he said.
Picard didn’t try to prove in his complaint that the family “engaged in any kind of securities fraud, dishonesty, or deception,” only that they were derelict in their duty and misused company funds, he said in the Oct. 20th filing.
Martin Flumenbaum, a lawyer for Andrew Madoff and Mark Madoff’s estate, has said that the Madoff sons didn’t know of their father’s scheme and that they contacted prosecutors after their father told them of his fraud. Bernard Madoff is serving a 150-year prison term.
The case is Picard v. Madoff, 09-1503, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
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AIG Bid to Move BofA Lawsuit to State Court Denied by Judge
American International Group Inc. (AIG)’s request to move a $10 billion lawsuit against Bank of America Corp. to state court from federal court was denied by a U.S. judge.
AIG in August sued Bank of America in New York state court over $10 billion in losses on mortgage-bond investments. Charlotte, North Carolina-based Bank of America then moved the case to federal court.
U.S. District Judge Barbara Jones in Manhattan denied New York-based AIG’s request to return the case to state court in an order dated Oct. 20.
The case is American International Group Inc. v. Bank of America Corp., 11-06212, U.S. District Court. Southern District of New York (Manhattan).
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Kimelman Appeals Conviction, Sentence for Insider Trading
Michael Kimelman, the co-founder of Incremental Capital LLC, appealed his conviction and sentence for insider trading.
Kimelman, sentenced Oct. 12 to 2 1/2 years in prison, appealed to the U.S. Court of Appeals in New York, according to a court filing dated Oct. 20.
A jury found Kimelman guilty in June in a scheme to bribe two lawyers at the Boston-based law firm Ropes & Gray LLP to disclose secret information about companies including 3Com Corp. and Hilton Hotels Corp. Also found guilty were brothers Zvi and Emanuel Goffer.
The case is USA v. Goffer, 10-00056, U.S. District Court, Southern District of New York (Manhattan).
Massmart Ruling Failed to Consider Economy, Jobs, Union Says
South African regulators who let Wal-Mart Stores Inc. (WMT) buy control of Massmart Holdings Ltd. (MSM) failed to take account of negative effects on the economy or jobs, a lawyer for a union seeking to dismantle the deal said.
The Competition Tribunal “has reached a fundamentally wrong conclusion” in its conditional approval of the acquisition, Paul Kennedy, senior counsel for the South African Commercial, Catering and Allied Workers Union, told an appeal court in Cape Town Oct. 21. “Certainly this merger will benefit the shareholders of the merged parties. It may have very negative consequences. There is a danger of job losses.”
The union is asking the Competition Appeal Court to overturn the tribunal’s May 31 clearance of Wal-Mart’s purchase of a 51 percent holding in Johannesburg-based Massmart, South Africa’s biggest food and general-goods wholesaler. Approval was subject to the companies promising to refrain from firing workers for two years and set up a fund to assist local suppliers and manufacturers.
Wal-Mart, the world’s largest retailer, paid 16.5 billion rand ($2.05 billion) in June for the stake in Massmart. On June 26, the Bentonville, Arkansas-based company said it would create 15,000 jobs in South Africa within five years and spend about 60 billion rand more on food or fast-moving consumer goods in the period, most of which would go to local suppliers.
Kennedy said there was a “dearth of information” about what effect the takeover will have on imports and employment, and that the companies failed to disclose sufficient information to regulators.
Judge Dennis Davis, the court president, said that while he had “significant difficulty” with evidence provided by the companies, “they can’t have information that goes outside the confines of their business.”
David Unterhalter, the retailers’ senior counsel, argued that takeovers under South African law should be approved provided they don’t significantly reduce competition. There’s no onus on companies to prove a takeover is counter to the public interest, he said.
The three-judge panel will “take time to consider” its ruling, Davis said at the conclusion of the hearings Oct. 21, without specifying a deadline.
Should the court decide against referring the decision back to the tribunal, it may either uphold the approval of the takeover or rule that it should have been rejected or subjected to different conditions, the judge said Oct. 20.
The case is South Africa Commercial, Catering and Allied Workers Union v Wal-Mart Stores Inc. and Massmart Holdings Ltd., 111/CAC/Jul11.
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Hedge Fund CEO Brownstein Pleads Guilty to Insider Trading
Drew “Bo” Brownstein, the founder and chief executive officer of Denver-based Big 5 Asset Management, pleaded guilty to trading on inside information about a corporate merger.
Brownstein, 35, made more than $2.5 million in illegal profits for his hedge fund and for relatives by trading on a tip in advance of Apache Corp. (APA)’s $2.7 billion acquisition of Mariner Energy Inc. (ME) in April 2010, prosecutors said.
“I’ve severely disappointed my family, colleagues, investors and friends,” Brownstein told U.S. District Judge Robert Patterson in Manhattan federal court Oct. 21. “I’m truly sorry.”
The sentencing guideline is 37 to 46 months with the plea agreement, the judge said. Brownstein, who pleaded guilty to one count of securities fraud, will be sentenced on Dec. 20. He was released on a $500,000 personal recognizance bond.
“You had inside information about the fact that Mariner’s stock would probably go up because it was about to be acquired by another company,” Patterson said to Brownstein.
The tip originated with H. Clayton Peterson of Denver, a retired former Arthur Andersen partner who served on Mariner Energy’s board of directors, prosecutors said. Peterson, who was also a director of Re/Max International Inc. and Lone Pine Resources Inc., pleaded guilty to conspiracy and securities fraud in August. His son, Drew, a Denver financial adviser, pleaded guilty to the same charges.
Clayton Peterson, who was appointed to Mariner’s board in March 2006, said he passed information about the planned transaction in April 2010 to his son. At his guilty plea, Drew Peterson, 35, said he bought shares of Mariner stock based on the tip and passed the information to another unidentified person who also traded on it.
The case is U.S. v. Peterson, 11-CR-665, U.S. District Court, Southern District of New York (Manhattan).
Macklowe Wins Case Icahn Filed Over Aborted 2006 Reckson Bid
New York developer Harry Macklowe won a jury verdict that his company doesn’t owe Carl Icahn’s Meadow Star LLC $60 million for backing away from a 2006 bid to buy six New York skyscrapers from Reckson Associates Realty Corp.
Macklowe’s attorney, Roger Netzer, said a unanimous jury voted in favor of his client after two hours of deliberations in a lawsuit filed in 2008 by Meadow Star, an affiliate of Icahn Enterprises LP, in New York state court in Manhattan. A verdict was entered Oct. 19 for Macklowe, according to court records.
Meadow Star alleged Macklowe company WH Rome Partners LLC failed to put up its half of $1.2 billion to outbid SL Green Realty Corp. (SLG) for the Reckson buildings, according to court filings. SL Green paid $4.5 billion in cash and stock to buy all of Reckson’s holdings.
“A deal is a deal and Mr. Macklowe honored his obligations under the language of the contract that these very sophisticated parties had agreed to,” Netzer said Oct. 22 in a telephone interview. Herbert Beigel, an attorney who represented Icahn’s company at trial, declined to comment about the verdict.
The aborted offer cost Icahn $60 million, according to his complaint. Netzer said Macklowe’s half of the bid wasn’t required unless certain conditions were met, including a signed acquisition agreement with Reckson and a guarantee that the bid wouldn’t exceed $1.2 billion.
The case is Meadow Star LLC v. Harry Macklowe and WH Rome Partners LLC, 08-603165, New York State Supreme Court (Manhattan).
Abbott Said to Agree to Pay $1.3 Billion for Depakote Suits [bn:WBTKR=ABT:US]
Abbott Laboratories (ABT)  agreed to pay at least $1.3 billion to settle claims by the U.S. government and 24 states alleging the company illegally marketed its Depakote epilepsy drug, people familiar with the accords said.
Abbott executives, federal prosecutors and state officials reached a tentative agreement calling for the drugmaker to pay about $800 million to resolve civil claims over Depakote and about $500 million in criminal penalties for marketing the epilepsy medicine for unapproved uses, said three people familiar with the settlement who declined to be identified because the agreement hasn’t been made public. Abbott said last week it was reserving $1.5 billion to cover costs of the potential settlement.
“Settlement negotiations are ongoing,” Scott Stoffel, a spokesman for Abbott, said in a phone interview Oct. 21. He declined to comment further. Charles Miller, a U.S. Justice Department spokesman, had no comment on the settlement.
The Abbott Park, Illinois-based company said Oct. 19 that it will split next year, with one company selling medical products and the other prescription medicines. Powered by Humira, an anti-inflammatory with $6.5 billion in annual sales, the new drugmaker may attract a bid from Merck & Co., Roche Holding AG or Bayer AG, said Jeffrey Holford, a Jefferies Group Inc. analyst.
The settlement would be the third-largest illegal pharmaceutical marketing accord in U.S. history, behind the $2.3 billion Pfizer paid in 2009 over the marketing of its Bextra painkiller and other drugs and the $1.4 billion Eli Lilly & Co. (LLY) paid the same year over sales of its Zyprexa anti-psychotic medicine.
The case is U.S. ex rel. McCoyd v. Abbott Laboratories, 1:07-cv-00081, U.S. District Court, Western District of Virginia (Abingdon).
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Markit to Settle Suit Against Former Employees
Markit Group Ltd. agreed to settle a lawsuit against two former employees in Singapore after they pledged not to compete with the firm for one year.
Zhibo Li, previously a vice-president of sales, and Shiyang Cui, who was an associate vice-president, are permanently banned from using or disclosing information obtained from Markit, according to a filing with the Singapore High Court this month.
Markit, a swap prices data provider, sued Li and Cui last month, accusing them of breaching their employment contracts and misusing the firm’s trade secrets to set up rival Fundamentrix Pte. Li and Cui are also banned from soliciting clients of the London-based company for one year.
Caroline Lumley, a spokeswoman at Markit, declined to comment Oct. 20 on the agreement. Both Li and Cui didn’t reply to two e-mails seeking comment.
The case is Markit Asia Pte. & Ors v Zhibo Li & Ors S628/2011 in the Singapore High Court.
News Corp. (NWSA) to Pay $4.8 Million to End Dowler Hacking Case
News Corp.’s U.K. unit agreed to pay 3 million pounds ($4.8 million) to settle claims that its News of the World tabloid hacked the mobile-phone messages of a murdered schoolgirl in 2002, hampering a police investigation.
The deal -- the biggest payout by News Corp. since the hacking scandal erupted -- includes a 2 million-pound payment to the family of Milly Dowler and a 1 million-pound donation to charity, London-based News International said Oct. 20. News Corp. Chairman Rupert Murdoch, 80, was personally involved in the negotiations, a person familiar with the matter said last month.
“When I met with the Dowlers in July, I expressed how deeply sorry I was for the hurt we had caused this family,” Murdoch said in the statement, which indicated he would personally pay the 1 million-pound charitable donation. “The behavior that the News of the World exhibited towards the Dowlers was abhorrent.”
The settlement was confirmed by News Corp. the same day as the New York-based company’s annual shareholder meeting in Los Angeles. U.K. lawmaker Tom Watson, who is part of a government probe of the scandal, said he would attend the meeting to speak against the company’s management. The California Public Employees’ Retirement System and other large investor groups have also taken stances aimed at loosening Murdoch’s control, citing concerns about how the phone-hacking issue was handled.
Reports in July that Dowler’s messages had been intercepted, hampering a police search when she was still missing, triggered a public outcry that led News Corp. to close the 168-year-old tabloid and drop its 7.8 billion-pound bid for full control of British Sky Broadcasting Group Plc. (BSY) The hacking was previously thought to be limited to celebrities, athletes, royalty and other public figures.
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Madoff Bankruptcy Judge Grants Trustee $44.7 Million in Fees
A bankruptcy judge signed an order granting $44.7 million in fees to the law firm liquidating Bernard Madoff’s money- management company for work from Feb. 1 to May 31, according to a court filing.
Trustee Irving Picard and his firm, Baker & Hostetler LLP, have made more than $224 million since Madoff’s arrest in December 2008, according to court records.
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