Raj Rajaratnam, whose 11-year prison sentence is the longest in U.S. history for insider trading, was ordered to pay a record $92.8 million penalty in a case brought by the U.S. Securities and Exchange Commission.
The Galleon Group LLC co-founder, 54, had argued he shouldn’t have to pay any additional civil penalties in the SEC case. He said he had already suffered enough after being ordered by U.S. District Judge Richard Holwell to pay a $10 million fine and forfeit $53.8 million, in addition to the prison term, at his Oct. 13 sentencing. His prison surrender date is Dec. 5.
U.S. District Judge Jed Rakoff in New York issued the order yesterday, siding with the SEC on its request for a judgment without a trial. Rakoff said that at the request of Rajaratnam’s lawyers, he reviewed the pre-sentencing report prepared by court officials in the criminal case. He said Rajaratnam’s net worth “considerably exceeds the financial penalties imposed in the criminal case.”
“When to this is added the huge and brazen nature of Rajaratnam’s insider trading scheme, which, even by his own estimate, netted tens of millions of dollars and continued for years, this case cries out for the kind of civil penalty that will deprive this defendant of a material part of his fortune,” Rakoff said in his order.
The SEC’s action against Rajaratnam, who was convicted in May in a New York jury trial, was part of a larger insider- trading probe that has resulted in civil charges being filed by the agency against 29 people and entities, the agency said. Secret tips were passed involving securities of more than 15 companies and illicit profits made or losses avoided were more than $90 million, the SEC said.
The judge’s ruling also prohibits the fund manager from future violations of U.S. securities law, the agency said.
Samidh Guha, a lawyer for Rajaratnam, didn’t return a voice-mail message left at his office seeking comment about Rakoff’s ruling.
Rakoff’s ruling brings the total to $156.6 million in monetary sanctions against Rajaratnam for the civil and criminal cases. His 11-year sentence is the longest term ever imposed for insider trading, though less than half of the maximum sought by the U.S.
The case is SEC v. Rajaratnam, 09-cv-8811, U.S. District Court, Southern District of New York (Manhattan).
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Obama Health-Care Law Ruled Constitutional by Appeals Court
President Barack Obama’s health-care legislation requiring almost all Americans to have medical insurance beginning in 2014 is constitutional, a U.S. appeals court ruled.
The U.S. Court of Appeals in Washington yesterday upheld the measure Obama signed into law in March 2010. It was the third appellate court to rule on the constitutionality of the Patient Protection and Affordable Care Act, and the second to reject a legal challenge to the insurance mandate.
“Congress, which would, in our minds, clearly have the power to impose insurance purchased conditions on persons who appeared at a hospital for medical services -- as rather useless as that would be -- is merely imposing the mandate in reasonable anticipation of virtually inevitable future transactions in interstate commerce,” Judge Laurence Silberman wrote in the 2-1 opinion.
The Washington appeals court may be the last to rule on the law before the U.S. Supreme Court takes it up. The Obama administration asked the high court to review an Aug. 12 ruling by the Atlanta appeals court that found the insurance mandate is unconstitutional. The Christian faith-based Thomas More Law Center, which lost challenges to the legislation in a Detroit federal court and at a U.S. appeals court in Cincinnati, also asked the Supreme Court to review its case.
A U.S. Court of Appeals panel in Richmond, Virginia, addressing two cases in a pair of Sept. 8 rulings, concluded it was blocked from ruling on the merits of the law by a statute that generally bars challenging taxes before they’re collected or assessed.
The high court justices will consider whether to take the cases at their conference on Nov. 10.
The case is Seven-Sky v. Holder, 11-5047, U.S. Court of Appeals for the District of Columbia (Washington).
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Standard Bank Wins Case Against Saudi Billionaire Over Loan
Standard Bank Plc won its case against Saudi billionaire Sheikh Mohamed bin Issa al Jaber for the repayment of about $150 million in loans.
A London judge ordered the founder of MBI International & Partners Inc. to begin repaying the debt immediately, saying there was “no real defense at all” against the claims.
Standard Bank sued al Jaber in London seeking repayment of $150 million in loans to companies in his MBI group. The Johannesburg-based bank says al Jaber personally guaranteed the debt. It won a global freezing order on the sheikh’s assets last year, which forced parts of his JJW Hotels & Resorts Ltd. chain into administration, al Jaber said in a court appearance on Nov. 3. He claims to have lost more than 1 billion pounds ($1.61 billion) because of the dispute.
Al Jaber, Saudi Arabia’s third-richest man with interests in hotels and agribusiness, will appeal and filed a complaint regarding Standard Bank to the Financial Ombudsman service, his spokesman Neil McLeod said in an e-mailed statement. He previously filed a counterclaim at the court accusing the lender of allowing unauthorized trading from a personal account.
Standard Bank had an agreement with al Jaber’s personal adviser, Salim Khoury, which represented a conflict of interest, his lawyers said in a legal filing. The lawyers said the bank let Khoury breach foreign-exchange trading limits, then loaned him money to cover the losses.
Khoury said in an e-mailed statement “these allegations are without any merit.”
Jones Day, the law firm representing Standard Bank, said in an e-mailed statement that the global freezing order against al Jaber’s assets granted by a U.K. court in 2010 would remain “pending satisfaction of the judgment debt.”
“The bank had always been confident in what it considered to be a straightforward debt claim,” the firm said.
News Corp. (NWS) Must Pay $44,000 for Mosley Sex Story in France
News Corp. (NWSA) was ordered to pay as much as 32,000 euros ($44,000) in fines and fees by a Paris court over a March 2008 report claiming Max Mosley took part in a Nazi-themed sex party.
News Corp. was wrong to publish in France images from a video taken by another party guest that violated Mosley’s privacy, a Paris court ruled yesterday in the first of 21 cases he’s brought outside the U.K., where the incident occurred.
The former Formula One president won a record 60,000-pound ($96,400) breach-of-privacy award from Rupert Murdoch’s News of the World tabloid in 2008 for publishing the story on a Nazi- themed “orgy,” along with a video, without contacting him. The News of the World was shuttered in July after allegations that phone-hacking there was widespread.
The criminal court verdict “shows News Group was involved in criminality,” Mosley said yesterday in a telephone interview. “I think there were 1,300 copies of the newspaper sold in France -- so that works out at 5 euros a copy. If it was in England it would have been 12 or 13 million euros. I could have retired on that.”
Jean-Frederic Gaultier, a lawyer for News Corp. in Paris, declined to comment on the decision. Calls to News Corp. for comment weren’t immediately returned.
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Altria Says West Virginia Tobacco Case Ends in Mistrial
The first part of a two-phase trial of wrongful-death and personal-injury claims by smokers and their families in state court in Wheeling, West Virginia, ended yesterday, less than two weeks after jurors began hearing evidence.
“We do believe that a mistrial was appropriate though, given that we believe the court made numerous legal errors in this case,” Steve Callahan, a spokesman for Richmond, Virginia- based Altria, said in an e-mail yesterday. He didn’t say why the mistrial had been declared.
The case, which was originally consolidated for trial in 2000, was moved to Wheeling from Charleston, West Virginia, after Circuit Judge Arthur Recht was unable to find enough jurors qualified to hear the case there.
The jurors were to have determined questions related to the companies’ liability, including whether they marketed defective products. If the panel returned a verdict for the smokers, it would have been asked to determine whether the defendants engaged in conduct that would support an award of punitive damages.
The case is In Re Tobacco Litigation (Individual Personal Injury Cases), 00-C-5000, West Virginia Circuit Court, Ohio County (Wheeling).
Glaxo Facing Mediation Push to Resolve Avandia Lawsuits
GlaxoSmithKline Plc (GSK), which has agreed to pay $3 billion to resolve claims it illegally marketed its Avandia diabetes drug, is facing a judge’s push to resolve most of the remaining patient lawsuits over the medication.
U.S. District Judge Cynthia Rufe said Nov. 7 that she appointed a mediator to “preside over settlement negotiations” for an unspecified number of Avandia cases consolidated before her in Philadelphia. Rufe set a 75-day deadline to resolve 85 percent of the remaining cases, according to court filings.
“If we don’t make it within the time period, the judge will start fast-tracking cases for trial,” said Paul Kiesel, a lawyer representing California residents suing over the drug.
Glaxo, the U.K.’s biggest drugmaker, is trying to resolve legal issues stretching back more than a decade. Executives said Nov. 3 the London-based company will pay $3 billion to settle U.S. criminal and civil probes into whether Glaxo illegally marketed Avandia and other medications.
“GSK welcomes the court’s mediation order and looks forward to constructive discussions with the special master,” Bernadette King, a U.S.-based Glaxo spokeswoman, said in an e- mailed statement yesterday.
Glaxo already has agreed to pay more than $700 million to settle patient claims that Avandia caused heart attacks and strokes, people familiar with the accords said earlier this year. The settlements resolved more than 10,000 cases, the people said.
Kiesel estimated that Glaxo still faces about 20,000 Avandia claims, comprising cases consolidated before Rufe, those filed in state courts and suits that have been stayed subject to agreements between the drugmaker and plaintiffs’ lawyers.
Rufe named Patrick A. Juneau, a Lafayette, Louisiana-based lawyer, to mediate in the Avandia cases. Juneau has served as a mediator in more than 2,000 cases, including those brought by breast-implant patients and plaintiffs suing Guidant Corp. over faulty heart defibrillators, according to his law firm’s website.
If Juneau is unable to resolve 85 percent of the cases within the 75-day period, Rufe said she will put 100 of the oldest suits into a trial pool and push to have them ready to be presented to jurors within 60 days, according to court filings.
The consolidated case is In re Avandia Marketing, Sales Practices and Products Liability Litigation, 07-01871, U.S. District Court, Eastern District of Pennsylvania (Philadelphia).
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Pfizer, Ranbaxy Sued By Pharmacies Alleging Price Fixing
Pfizer Inc. (PFE) and Ranbaxy Pharmaceuticals Ltd. were sued by 11 California pharmacies alleging the companies agreed to delay release of a generic version of the cholesterol-lowering drug Lipitor in the U.S. and then fixed its price.
Pfizer obtained extra time to be the exclusive seller of Lipitor and garnered $18 billion as a result of an unlawful agreement with Ranbaxy, which in exchange was able to distribute the generic of Lipitor earlier in foreign markets, according to the complaint.
Lipitor’s current price exceeds $4 a day, while a generic will sell for as low as 10 cents, the drug stores claim. Lipitor’s purchasers in the U.S. are paying inflated prices for the drug as a result, the pharmacies said in the complaint filed Nov. 7 in federal court in San Francisco.
Lipitor, which generated $10.7 billion in revenue for New York-based Pfizer last year, loses U.S. patent protection on Nov. 30. A legal settlement with Pfizer gave New Delhi-based Ranbaxy six months’ exclusivity to market generic Lipitor, the world’s best-selling drug.
The lawsuit seeks disgorgement of profits from the allegedly illegal arrangement and triple damages.
Chris Loder, a Pfizer spokesman, said the U.S. Federal Trade Commission reviewed the terms of the 2008 settlement.
“Pfizer believes this suit has no merit and we are confident that the Lipitor patent settlement with Ranbaxy is appropriate,” Loder said in a telephone interview. “We view the suit as nothing more than an attempt to extract money.”
Chuck Caprariello, a spokesman for Ranbaxy, didn’t return a voice-mail message seeking comment on the complaint.
The case is Chimes Pharmacy v. Pfizer, 11-5375, U.S. District Court, Northern District of California (San Francisco).
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Aluminium Bahrain Lawsuit Against Alcoa Reopened by Judge
A U.S. judge reopened a racketeering lawsuit filed by Bahrain’s state-owned aluminum producer against Alcoa Inc., the largest U.S. aluminum producer.
Aluminium Bahrain BSC (ALBH), known as Alba, sued in February 2008, claiming that New York-based Alcoa bribed senior officials in Bahrain and caused Alba to pay inflated prices for alumina, the principal raw material in aluminum. A month later, U.S. District Judge Donetta Ambrose administratively closed the case in federal court in Pittsburgh after the U.S. Justice Department said it was investigating whether Alcoa made corrupt payments in Bahrain.
Alcoa asked Ambrose last month to reopen the case and sought permission to file a motion seeking its dismissal because racketeering law “does not apply to the extraterritorial conduct” alleged by Alba.
Ambrose ruled yesterday that Alba can file an amended complaint within 20 days, and a statement laying out its racketeering case within 30 days after that. The case statement will remain under court seal, along with any motion by Alcoa to dismiss the lawsuit, she said.
“The court will revisit the issue of unsealing any sealed portion of the record, if necessary, within six months of the date of this order, unless the government provides good cause against such unsealing,” she ruled.
Lori Lecker, an Alcoa spokeswoman, said in an e-mail the company is pleased that the judge granted its request to re-open the case.
“After three-and-a-half years we can have our day in court,” she said. “We look forward to filing our motion to dismiss.”
An Alba attorney, Mark MacDougall of Akin Gump Strauss Hauer & Feld LLP in Washington, didn’t return a call seeking comment.
The case is Aluminum Bahrain BSC v. Alcoa Inc. (AA), 08- cv-00299, U.S. District Court, Western District of Pennsylvania (Pittsburgh).
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Credit Suisse Disclosing U.S. Client Data After IRS Request
Credit Suisse Group AG (CSGN), Switzerland’s second-biggest bank, told U.S. clients it is giving confidential client account data to the Swiss tax authorities, who will decide whether to disclose it to the Internal Revenue Service.
The U.S. is probing whether Credit Suisse helped Americans evade taxes, and the IRS used a 1996 tax treaty to request data for certain accounts held between 2002 and 2010, according to Nov. 2 letter sent to a client by the bank. The IRS sought data for accounts owned through domiciliary companies in which clients are the beneficial owners, according to the letter.
The Swiss Federal Tax Administration issued an “immediately executable” order to the Zurich-based bank, which has no right to appeal, according to the letter. Taxpayers can consent to the SFTA handing over their account data to the IRS, or they can use the Swiss legal system to appeal a ruling by the SFTA that their account information must be given to the IRS, according to the letter.
“Please be advised that Credit Suisse is not able to provide any information on whether or not information with respect to a specific account will be provided to the IRS,” according to the letter, signed by managing directors Michel Ruffieux and Stephan Gussmann.
Credit Suisse said July 15 that it’s a target of a criminal probe by the Justice Department over former cross-border private-banking services to U.S. customers. On July 21, seven Credit Suisse bankers were indicted on a charge of conspiring to help U.S. clients evade taxes through secret accounts.
Credit Suisse spokesman David Walker declined to say how many accounts it has handed over or to comment further.
The SFTA, which will collect the data from Credit Suisse, wasn’t immediately available to comment.
Account holders who contest the handover of their data must notify the U.S. Justice Department they are appealing, according to the client letter.
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SEC Seeks to Question Rajaratnam Brothers in Gupta Case
The U.S. Securities and Exchange Commission wants to question “one or both” brothers of Raj Rajaratnam for its lawsuit against Rajat Gupta, the former Goldman Sachs Group Inc. director, an agency lawyer said.
The SEC sued Gupta on Oct. 26, accusing him of feeding tips to Rajaratnam, the Galleon Group LLC co-founder convicted of being at the center of the largest hedge fund insider-trading case in U.S. history.
That same day, Manhattan U.S. Attorney Preet Bharara charged Gupta with five counts of securities fraud and one count of conspiracy to commit securities fraud. Rajaratnam, who is a co-defendant in the SEC’s case against Gupta, was separately sued by the agency in 2009 when he was first charged criminally.
“We have a long list of witnesses including the defendant and one or both of Mr. Rajaratnam’s brothers,” Kevin McGrath, a lawyer for the U.S. Securities and Exchange Commission, told U.S. District Judge Jed Rakoff yesterday at a hearing.
Rajaratnam’s brother, Rengan, who operated his own fund, Sedna Capital Management LLC, was heard talking to his brother Raj Rajaratnam on wiretaps that were recorded by the Federal Bureau of Investigation and played at the Galleon Group co- founder’s trial. Prosecutors also identified Rengan Rajaratnam as an unindicted “co-conspirator” with Raj Rajaratnam.
Rajaratnam’s other brother has been identified in published reports as Ragakanthan Rajaratnam. Neither of the convicted fund manager’s brothers has been charged with criminal wrongdoing.
The cases are U.S. v. Gupta, 11-cr-00907, and SEC v. Gupta, 11-cv-07566, U.S. District Court, Southern District of New York (Manhattan).
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Allied Home Mortgage Asks Judge to Restore FHA Privileges
Allied Home Mortgage Corp. asked a federal judge in Houston to restore its ability to originate and underwrite Federal Housing Authority-insured home loans, after U.S. officials suspended those privileges last week.
The U.S. Department of Housing and Urban Development sued Allied Home Mortgage and James C. Hodge, its chief executive officer, on Nov. 1 over allegedly fraudulent practices. The agency suspended their FHA lending privileges the same day.
U.S. District Judge Melinda Harmon on Nov. 3 rejected Hodge’s request for a temporary restraining order against HUD, only to reverse herself a few hours later and ask the department and Hodge to provide more information at yesterday’s hearing.
“They’ve had 10 years to explain their actions,” Assistant U.S. Attorney Jaimie Nawaday told the judge. “HUD reasonably said enough is enough.”
Hodge has said that the immediate loss of FHA privileges would “effectively kill Allied Corp. as an ongoing business” and eliminate 723 jobs. Houston-based Allied, which last year called itself the largest closely held mortgage broker in the U.S., sued to prevent the government from suspending the company’s FHA lending capabilities until the lawsuit was resolved.
“This is a half-baked attempt to put another mortgage broker out of business so HUD can say it is cleaning up the industry,” said Bruce Alexander, Hodge’s attorney.
Allied said HUD’s complaints are with a company that preceded Allied Home Mortgage Corp. Although both companies are controlled by Hodge, Alexander said they are separate and the later firm has no successor liability.
The cases are Allied Home Mortgage Corp. v. Donovan, 4:11- cv-3864, U.S. District Court, Southern District of Texas (Houston); and U.S. v Allied Home Mortgage Corp., 11-cv-5443, U.S. District Court, Southern District of New York (Manhattan).
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Bawag Sues Linz for $575 Million in Swiss Franc Swap Dispute
Bawag PSK Bank, the Austrian lender controlled by Cerberus Capital Management LP, is counter-suing the city of Linz in a dispute over a 195 million Swiss franc ($216 million) swap contract.
The lender yesterday filed the suit for 417.7 million euros ($575 million) at the Commercial Court of Vienna, it said in an e-mailed statement. Linz last week sued Bawag, saying the bank didn’t inform Austria’s third-biggest city about the potential risks of the 2007 deal, which secured a franc bond.
The total claim in Bawag’s lawsuit can be calculated by adding the market value of the swap of about 350 million euros, the costs for terminating the swap ahead of time and an installment that Linz failed to pay in October, Chief Executive Officer Byron Haynes told reporters Nov. 7.
“Our legal position is strong,” he said, “We won’t have to and will not make any impairments.”
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.
Linz, which also says the contract was entered into without proper approvals, is is seeking 30.6 million francs in the case.
“We have tried to work with the city of Linz to find a solution and even though they made this legal filing we will still try to work with them to find a solution,” Haynes said. “It is in everybody’s interest.”
BNP Pursues Deripaska Firms Over Loan to Pay for Magna Stake
BNP Paribas (BNP) SA said companies controlled by Russian billionaire Oleg Deripaska defaulted on an $878 million loan he used to buy a stake in Canadian car-parts maker Magna International Inc. (MG) in 2007.
OAO Russian Machines, where Deripaska is chairman, failed to honor an $87 million guarantee on the debt when its Dutch unit defaulted, lawyers for the bank said at a London court hearing Nov. 7.
BNP Paribas, France’s largest lender, is calling for Russian Machines to honor the guarantee and is seeking a ruling that the dispute should be resolved by a U.K. arbitrator. Deripaska’s lawyers are seeking to have the dispute dealt with in a Russian court.
Deripaska, 43, borrowed the money from BNP through the Dutch unit in May 2007 to finance the purchase of 20 million shares of Magna. When Paris-based BNP seized the shares as collateral for its loan in October 2008, they had lost almost half their value as a result of slumping U.S. and European auto sales and didn’t cover the balance of the loan.
“The guarantee had not been properly approved, in violation of Russian laws, and thus it is being disputed now by Ingosstrakh-Investments, which holds shares in Russian Machines in trust for the pension fund,” said Richard Stewart, a partner at Bryan Cave LLP who represents the Russian company. Ingosstrakh is pursing that claim in Russian court.
Graham Dunning, a lawyer for BNP Paribas, argued that Ingosstrakh is also owned and controlled by Deripaska.
Ashling Cashmore, a spokeswoman for BNP Paribas, declined to comment.
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