Glaxo, AT&T, Visa, Facebook, Rajaratnam in Court News

GlaxoSmithKline Plc (GSK) agreed to pay $3 billion to settle U.S. criminal and civil investigations into whether the company marketed drugs for unapproved uses and other matters.

Negotiations over the terms are ongoing and will be completed next year, the London-based company said in a statement yesterday. The cost is covered by existing legal provisions and will be paid from the company’s cash resources, Glaxo said.

The potential settlement brings Glaxo closer to putting years of legal probes behind it. The company set aside 2.2 billion pounds ($3.5 billion) in the fourth quarter in anticipation of reaching an agreement on the cases.

“This is a significant step toward resolving difficult, longstanding matters which do not reflect the company that we are today,” Chief Executive Officer Andrew Witty said in the statement. “In recent years, we have fundamentally changed our procedures for compliance, marketing and selling in the U.S. to ensure that we operate with high standards of integrity.”

“This news essentially draws a line under a 10-year legal saga,” Gbola Amusa, an analyst at UBS AG (UBSN) in London, said in an e-mail. The company still has about 1 billion pounds in extra provisions set aside, he said. “This removes significant uncertainty on ongoing legal issues,” said Amusa, who recommends buying Glaxo shares.

Federal prosecutors began an investigation in Colorado in 2004, later taken over by the U.S. attorney in Massachusetts, into whether Glaxo promoted drugs for unapproved uses, and into ways Glaxo potentially influenced doctors. The probe concerns nine of the company’s best-selling products from 1997 to 2004, Glaxo said in 2009.

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Lawsuits/Pretrial

Sprint Allowed to Pursue Legal Challenge to AT&T-T-Mobile Deal

Sprint Nextel Corp. (S) can sue AT&T Inc. over its proposed purchase of T-Mobile USA Inc., a federal judge ruled, saying the fact that the companies are competitors doesn’t bar a private antitrust lawsuit.

U.S. District Judge Ellen Segal Huvelle in Washington said yesterday that the suit by Sprint, and another by Cellular South Inc. to block the $39 billion deal, can proceed. Still, the judge dismissed several claims, limiting the cases to Sprint’s allegations regarding access to mobile devices and Cellular South’s complaints involving roaming fees as well as devices.

“Where private plaintiffs have successfully pleaded antitrust injury, the fact that they are defendants’ competitors is no bar,” Huvelle said in her ruling.

Sprint and Cellular South will now be able to “supplement” the Justice Department’s lawsuit to stop the deal, Andrew Gavil, a law professor at Howard University in Washington, said in an e-mail. While the government will try to prove how the merger would harm consumers, the companies will attack the way the transaction might diminish competition in the wireless telephone industry, he said.

“It is an important victory for Sprint and Cellular South,” Gavil said.

AT&T argued that Overland Park, Kansas-based Sprint can’t challenge the purchase under antitrust law because it’s a competitor rather than a consumer. It also contended that Sprint’s claims that the acquisition would hurt its business are unfounded.

Cellular South Inc., based in Ridgeland, Mississippi, filed a similar lawsuit that AT&T also asked Huvelle to dismiss. The company changed its name to C Spire in September.

Huvelle scheduled a hearing on the cases for Dec. 9.

“We believe the limited, minor claims they have left are entirely without merit,” Wayne Watts, AT&T’s senior executive vice president and general counsel, said in an e-mailed statement.

Sprint and Cellular South issued statements saying they were “pleased” that the judge allowed them to “continue fighting” the proposed merger.

Gina Talamona, a Justice Department spokeswoman, declined to comment.

The government’s case is U.S. v. AT&T Inc. (T), 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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Visa, MasterCard Put Potential Fee Settlement at $4 Billion

Visa Inc. (V) and MasterCard Inc. (MA), the world’s biggest payment networks, put any potential settlement of price-fixing litigation by merchants at about $4 billion.

MasterCard “extrapolated an estimate of a reasonably possible loss of at least $500 million if there is a negotiated settlement with all plaintiffs,” MasterCard Chief Executive Officer Ajaypal S. Banga said on an earnings conference call with investors yesterday.

In February, Visa, MasterCard and the banks being sued by merchants over swipe fees, or interchange, agreed that Visa would be responsible for two-thirds of any settlement and MasterCard would be responsible for about one-eighth. Visa said in regulatory filings it has a litigation escrow account with $2.7 billion in cash available. Those figures put a potential settlement at $4 billion.

Visa, MasterCard, the banks and the merchants yesterday argued before U.S. District Judge John Gleeson in Brooklyn, New York, on why he should rule in their favor without the need of a trial in the antitrust litigation, begun in 2005.

Banga didn’t say that any settlement was imminent, either in the class action or in suits brought by individual merchants including Publix Super Markets Inc. (PUSH), the Lakeland, Florida-based supermarket chain, and Rite Aid Corp. (RAD), the Camp Hill, Pennsylvania-based drugstore chain.

“While we’ve made substantial progress with the individual merchant plaintiffs, there has not been similar progress with the class plaintiffs,” he said. “At this time, it is not possible to put an upper limit on this loss due to the significantly higher demands by the class plaintiffs, which are unacceptable to MasterCard.”

Visa and MasterCard argued they and banks including JPMorgan Chase & Co., Bank of America Corp. (BAC) and Citigroup Inc. (C) can’t be accused of a conspiracy because the merchants don’t directly pay the interchange fees on payment-card purchases.

They also argued that the accusations are covered by a settlement in previous litigation and that the payment-card operators are now public companies, which set the fees themselves, rather than joint ventures of the banks.

Merchants such as D’Agostino Supermarkets Inc. in Larchmont, New York, and Collective Brands Inc. (PSS)’s Payless ShoeSource in Topeka, Kansas, accuse Visa, MasterCard and the banks in a class-action suit of violating antitrust laws with the inflated swipe fees.

The case is In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, 05-md-1720, U.S. District Court, Eastern District of New York (Brooklyn).

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Facebook Claimant Says Zuckerberg Deleted E-Mails After Suit

Paul Ceglia, the New York man claiming half of Facebook Inc. founder Mark Zuckerberg’s holdings, asked a judge to sanction Zuckerberg for allegedly destroying e-mail messages related to their dispute.

Ceglia said in filings Nov. 1 in federal court in Buffalo, New York, that Zuckerberg deleted e-mails from his Harvard University account after Ceglia filed the lawsuit and after Zuckerberg received a so-called litigation hold.

In his lawsuit, 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 has called Ceglia’s claim a fraud.

Ceglia has said he communicated with Zuckerberg in 2003 and 2004 using Internet-based e-mail accounts. Ceglia claims he cut and pasted their correspondence into word processing documents, which he printed and saved.

“These filings by Ceglia and his latest lawyer are truly delusional,” Orin Snyder, a lawyer for Zuckerberg and Facebook, said in an e-mailed statement. “These are the desperate acts of a man whose fraudulent lawsuit has now been fully exposed.”

In his request for sanctions Nov. 1, Ceglia seeks an order prohibiting Facebook or Zuckerberg from disputing the authenticity of his e-mails. Ceglia hired a new lawyer this month, his fourth lead counsel since filing the lawsuit.

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

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Deutsche Bank, MortgageIT Suit Should Go Forward, U.S. Says

Deutsche Bank AG (DBK), Germany’s biggest bank, and its MortgageIT unit should be required to defend the $1 billion suit by the government claiming they lied as part of a “massive fraud” to qualify thousands of risky mortgages for a federal insurance program, the U.S. said.

The U.S. claims Frankfurt-based Deutsche Bank and MortgageIT falsely certified that they properly assessed the default risk of borrowers, qualifying loans for insurance by the Housing and Urban Development Department’s Federal Housing Administration, according to a complaint filed May 3 in Manhattan federal court.

“This misconduct -- which MortgageIT began as early as 1999 and which Deutsche Bank continued and exacerbated after acquiring MortgageIT in 2007 -- resulted in a wave of defaults and more than $368 million in FHA insurance losses on loans that never should have been originated in the first place,” the U.S. said in a brief yesterday opposing the defendants’ request to dismiss the suit.

The U.S. sued under the False Claims Act, which permits it to seek triple damages and penalties of more than $1 billion.

The case is U.S. v. Deutsche Bank AG, 11-cv-2976, U.S. District Court, Southern District of New York (Manhattan).

Dynegy Asks Judge to Dismiss Avenue Investments Lawsuit

Dynegy Inc. (DYN), the third-largest independent U.S. power producer, asked a New York judge to dismiss a lawsuit by Avenue Investments LP that claims the company stole assets from bondholders in a restructuring.

Bondholders led by Avenue sued Houston-based Dynegy in New York State Supreme Court on Sept. 21, seeking to undo the company’s restructuring, which Avenue said improperly removed coal-fired power plants from the reach of bondholders and transferred them to stockholders.

Dynegy asked Justice Bernard Fried in Manhattan to dismiss the complaint in court documents filed on Oct. 31, saying that New York is the wrong jurisdiction and that the Avenue bondholders don’t have standing to sue, to pursue so-called fraudulent conveyance claims or to bring derivative claims for breach of fiduciary duty.

“This lawsuit was plainly designed to interfere with Dynegy’s exchange offer by communicating to participants that plaintiffs would challenge the exchange after the fact,” Dynegy said in the court documents.

Dynegy said July 10 that it would restructure to avoid violating an earnings-to-interest covenant in its loan agreement. The company created two units, one owning eight natural gas-fired power generation facilities and another owning a group of six coal-fired facilities, both of which would be “bankruptcy remote,” insulating them if affiliates become insolvent, according to a statement.

The case is Avenue Investments LP v. Dynegy Inc., 652599/2011, New York state Supreme Court (Manhattan).

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Dahdaleh Gets $16 Million Bail Overturned, No Electronic Tag

British investor Victor Dahdaleh won a ruling overturning a 10 million-pound ($16 million) bail requirement to be released pending a trial on bribery charges.

Dahdaleh, 68, also doesn’t have to wear an electronic tag after a judge at a London criminal court struck down several bail conditions yesterday, said David Jones, a spokesman for the Serious Fraud Office, which is prosecuting the case. Dahdaleh, the owner of Dadco Group, is accused of paying bribes to a Bahraini royal and the former chief executive officer of Aluminium Bahrain BSC (ALBH) to win contracts for Alcoa Inc. (AA)

The judge refused Dahdaleh’s request to travel outside of England and Wales, Jones said. Dahdaleh must report to a police station in the Belgravia neighborhood of London twice a week and must spend nights at his home there.

Several of his friends must still adhere to pledges to pay 1.4 million pounds if Dahdaleh fails to return to court, Jones said. Philip Martin Cutts, the chief executive officer of Credit Suisse Group AG’s U.K. private bank, and BP Plc executive Thomas Prescott are among those that made the assurances at a hearing earlier this week.

Dahdaleh was charged Oct. 24 with six counts of making corrupt payments, two counts of money laundering, and one charge of conspiracy to corrupt. He is accused paying bribes to officials of the smelting company Aluminium Bahrain, known as Alba, including Sheikh Isa Bin Ali al-Khalifa, the former oil minister of Bahrain and former chairman of the board of directors, and Bruce Hall, the former chief executive officer.

Dahdaleh’s lawyer, Arnondo Chakrabarti, declined to comment.

Germany Charges Olympus Managers With Breach-of-Trust

Hamburg prosecutors have charged three former managers of an Olympus Corp. (7733) unit in Europe with breach of trust, spokesman Wilhelm Moellers said yesterday.

The managers, one Italian and two German nationals, were charged in March in connection with four payments totaling 640,000 euros ($883,000) made between July and October 2003 where no services appeared to have been rendered, Moellers said in a telephone interview. Two of the managers allegedly authorized the payments, while a third is allegedly related to a Swiss company that was the beneficiary of the payments, he said.

“The court now has to decide whether to open the case,” he said, adding that no hearing date has been set.

Franziska Jorke, an Olympus Europa Holding GmbH spokeswoman in Hamburg, declined to comment on the identity of the managers or on the details of the case.

Olympus, the world’s largest maker of endoscopes, has been in a war of words with fired president Michael C. Woodford over advisory fees paid in takeovers. On Nov. 1, the Tokyo-based company said it selected former prosecutors to investigate past acquisitions.

“In 2008, following an audit by the tax authorities, a transaction was subjected to an internal audit,” Jorke said in an e-mail. “Having consulted our external legal advisers, Olympus submitted details of this transaction to the Office of the Public Prosecutor. The management of Olympus Europa Holding had no knowledge of the transaction in question prior to the internal audit.”

U.S. Witness in Azeri Bribery Case Faces New Laundering Claims

A Swiss lawyer who was the U.S. government’s star witness in the 2009 bribery trial of American businessman Frederic Bourke faces new allegations that he orchestrated a $1 billion money-laundering scheme.

The lawyer, Hans Bodmer, pleaded guilty to money laundering and testified for U.S. prosecutors at Bourke’s trial for paying bribes in an oil deal in Azerbaijan. Bodmer said he told Bourke, an investor in the 1998 oil deal, about the bribery plot he helped organize. Bourke was convicted. Bodmer returned to his Zurich law practice.

A New York judge on Nov. 10 will hear arguments on Bourke’s claim that Bodmer lied at the trial. Meanwhile, Bodmer is facing new laundering allegations. In August, Russian billionaire Oleg Deripaska filed a legal complaint in Switzerland accusing him and others of masterminding a scheme last year to loot OJSC MMC Norilsk Nickel (GMKN), a nickel producer in which Deripaska invests.

“Under the pivotal involvement of Hans Bodmer, a complex structure was created” to siphon funds out of Norilsk Nickel, Deripaska’s complaint says. “The accused parties extracted the assets of Norilsk Nickel unlawfully and to their own advantage, an amount of approximately $1 billion.”

Bourke’s lawyer, Michael Tigar, declined to say whether he would cite the new allegations in his bid to win a new trial for his client. As he challenges his conviction in an appeals court, Bourke has also returned to the trial judge to claim that prosecutors knew Bodmer lied in his testimony. Prosecutors say there’s no evidence Bodmer lied when he tied Bourke to the bribery scheme.

Bodmer’s lawyer, Saul Pilchen, didn’t have an immediate comment on the Swiss case. Jerika Richardson, a spokeswoman for U.S. Attorney Preet Bharara in New York, declined to comment.

The Bourke case is U.S. v. Bourke, 05-cr-00518, U.S. District Court, Southern District of New York (Manhattan).

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New Suits

Austrian City Sues Bawag for $35 Million on Swiss Franc Swap

Linz, Austria’s third-biggest city, sued Bawag PSK Bank over a 195 million Swiss franc ($221 million) swap.

Bawag didn’t inform Linz about the potential risks of the 2007 swap, which was used to secure a franc bond, according a copy of the suit posted on Linz’s website. The city is seeking 30.64 million francs in the case.

Disputes over swap agreements, typically used by municipal agencies to lower interest payments, have spread through Europe with lawsuits in Germany, Italy and the U.K. Deutsche Bank AG in March lost a case over swaps in the first ruling by Germany’s highest court concerning sales of the products.

Bawag “overstepped all legal boundaries that need to be observed when entering into a contract with a municipality,” Mayor Franz Dobusch told reporters in Linz yesterday, according to Austria Press Agency.

Sabine Hacker, a spokeswoman for the bank, didn’t immediately answer a call after business hours yesterday. Bawag, which is controlled by Cerberus Capital Management LP, in March said that it “vehemently” rejected Linz’s claims.

Linz’s former finance director Werner Penn, who resigned in March, entered into the bond without getting the necessary approval from city agencies.

The city has formed a special committee to investigate the swap. Austrian Central Bank Governor Ewald Nowotny, who headed Bawag when the swap was entered into, will address the committee on Nov. 23, according to the committee’s chairwoman Ursula Roschger.

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Trials

Lilly Hid Zyprexa’s Diabetes Risks, Student Died, Lawyer Says

Eli Lilly & Co. (LLY) didn’t properly warn a patient who took its Zyprexa antipsychotic medication of diabetes risks and the young man died, a lawyer for his family told a jury in the first case to go to trial over the drug.

Cody Tadai, a 20-year-old college student, took Zyprexa to battle mental illness without either him, or his doctor, being properly advised about the drug’s link to diabetes, Ronald Makarem, a Los Angeles-based lawyer, said in closing arguments in the trial of a lawsuit filed by members of Tadai’s family. They contend the student died of diabetes-related ailments in March 2007 and that the drugmaker put profits ahead of the safety of Zyprexa users.

“They chose money over safety,” Makarem told jurors in state court in Los Angeles yesterday. A verdict on behalf of Tadai’s family would remind Lilly executives to ensure “safety comes first and money second,” he added.

Indianapolis-based Lilly, which lost patent protection on Zyprexa last month, has paid about $2.9 billion to resolve government and individual claims over its marketing of the antipsychotic drug.

Lilly agreed in 2009 to pay $1.42 billion to settle federal prosecutors’ allegations that it illegally marketed Zyprexa for unapproved uses. The drugmaker also agreed to pay more than $260 million to resolve similar state claims. The company also has agreed to pay more than $1.2 billion to settle about 31,000 suits by former users of the drug.

Stefanie Prodouz, a Lilly spokeswoman, declined to comment yesterday on why the drugmaker decided to make the Tadai family’s Zyprexa suit the first to go to trial after more than eight years of litigation over the medication. The drug was Lilly’s top seller last year, racking up more than $5 billion in sales.

The drugmaker still faces about 40 Zyprexa suits that include claims from about 110 former users of the drug, Lilly executives said in an Oct. 28 U.S. Securities and Exchange Commission filing.

The case is Cody Tadai v. Eli Lilly & Co., BC 379020, California Superior Court (Los Angeles County).

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Ex-Milan Mayors Tell Court of Bank Swap Fees, Adviser Roles

Former Milan Mayor Gabriele Albertini told a court yesterday he knew banks would charge the city for arranging a 2005 financing package that included swaps, though he didn’t know the amount of the commissions.

“I took it for granted that banks were charging a fee,” Albertini said under questioning from a defense lawyer for the banks at a trial in Milan yesterday. “Banks aren’t doing charity.”

The firms charged a “symbolic” 168,000 euros ($231,000) for arranging a 1.7 billion-euro bond sale, and he knew the city would pay other commissions, Albertini said. He added that he didn’t know how they would be paid or how much.

JPMorgan Chase & Co. (JPM), UBS AG, Deutsche Bank AG and Dublin- based Depfa Bank Plc face charges of mis-selling swaps to the municipal government of Italy’s commercial capital, derivatives that adjusted payments on the 2005 bond offering. Prosecutor Alfredo Robledo said the banks earned 101 million euros in hidden fees and misled Milan by telling the city it could save about 55 million euros with the bond sale and a series of swaps. The banks deny the charges.

Milan is seeking damages in the trial and sued the banks in civil courts.

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Verdicts/Settlements

Rajaratnam Said to Be Assigned to Massachusetts Medical Prison

Raj Rajaratnam, the hedge fund manager sentenced to 11 years in prison for insider trading, was assigned to a federal prison medical center in Massachusetts, according to a person familiar with the matter.

Rajaratnam, 54, was ordered by U.S. District Judge Richard Holwell to report to prison on Dec. 5. At Rajaratanam’s request, Holwell, who handed down the sentence on Oct. 13 in Manhattan federal court, recommended the Galleon Group LLC co-founder do his time at the Federal Correctional Complex in Butner, North Carolina, where convicted Ponzi schemer Bernard Madoff is serving a 150-year sentence.

Rajaratnam, who says he has health problems including diabetes and will likely need dialysis and an eventual kidney transplant, was instead assigned to Federal Medical Center Devens, according to the person familiar with the matter. Devens is located on the decommissioned Fort Devens military base in Ayer, Massachusetts, 39 miles (63 kilometers) west of Boston.

John Dowd, Rajaratnam’s lawyer, declined to comment on the prison assignment.

Ed Ross, a Bureau of Prisons spokesman, also declined to comment, citing a policy not to disclose prison assignments before the prisoner is in custody.

Devens houses male inmates who need specialized or long- term medical or mental health care, according to the Bureau of Prisons website. It is designated as an administrative facility, which means it has inmates from different security classifications - from white collar criminals like Rajaratnam to mobsters and sex offenders.

In addition to the medical center, Devens includes a minimum security prison camp.

Devens inmates often leave the facility to see outside specialists and to have tests and medical procedures not available in the medical center, according to Sandra Howard, M.D., clinical director at Devens, who submitted an affidavit in Rajaratnam’s case in September at the request of the government. The facility has regular onsite specialists in cardiology, nephrology, endocrinology, surgery, neurology and pulmonology.

Devens provides dialysis to about 85 inmates, with the capacity for as many as 125, Howard said.

Rajaratnam is the central figure in what U.S. investigators called the largest hedge fund insider-trading case in U.S. history. The probe, which leveraged the widespread use of FBI wiretaps for the first time in such an inquiry, led to convictions of more than two dozen people.

Prosecutors said the hedge fund manager made more than $72 million by using illegal tips to trade in stocks of companies including Goldman Sachs Group Inc., Intel Corp., Google Inc., ATI Technologies Inc. and Clearwire Corp.

The case is U.S. v. Rajaratnam, 09-01184, U.S. District Court, Southern District of New York (Manhattan).

Singapore Investors Lose Bid to Recoup Lehman-Related Losses

A group of 213 investors in Singapore lost a bid to recoup S$18 million ($14 million) of losses tied to Lehman Brothers Holdings Inc. (LEHMQ), with an appeal court upholding a lower court ruling that dismissed their claim.

DBS Bank Ltd., which sold credit default swaps linked to Lehman, had inconsistencies in the investment’s prospectus and pricing statement, the investors claimed. They sought to have the contracts annulled and their investments returned. DBS Bank, a Singapore-based unit of DBS Group Holdings Ltd. (DBS), Southeast Asia’s biggest bank, had declared the investments were worthless after Lehman collapsed in 2008.

The investment structure was artificial and complex, the three-judge panel of the appeal court said in yesterday’s ruling. The formula for calculating the payouts in the event of a default is consistently stated across several documents and, as a result, the investors claim must fail, the judges said.

“A person who signs a contract which is set in a language he is not familiar with or whose terms he may not understand is nonetheless bound by the terms of that contract,” the judges said in the ruling. “The principle of caveat emptor applies equally to literates and illiterates.”

The case is Soon Kok Tiang v. DBS Bank Ltd. CA6/2011, Singapore Court of Appeal.

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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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