U.S. prosecutors asked a judge to delay the civil insider-trading case against Rajat Gupta brought by the Securities and Exchange Commission so that Gupta’s criminal trial can proceed first.
U.S. District Judge Jed Rakoff in New York scheduled a hearing today to decide whether to postpone the civil case against the former Goldman Sachs Group Inc. (GS) director until the criminal trial is completed, according to Stephanie Cirkovich, a spokeswoman for the Manhattan federal courts.
Gupta, who also sat on the board of Procter & Gamble Co. (PG) and led McKinsey & Co., was charged with five counts of securities fraud and one count of conspiracy to commit securities fraud in an indictment unsealed Oct. 26.
The SEC filed a related civil suit the same day against Gupta and his business associate Raj Rajaratnam, the Galleon Group LLC co-founder convicted in May of being at the center of the biggest insider-trading scheme in U.S. history.
Lawyers for Gupta and Rajaratnam oppose the civil case postponement sought by prosecutors in the office of Manhattan U.S. Attorney Preet Bharara, Cirkovich said.
Rakoff, who is presiding over both cases, has scheduled an April 9 trial date for Gupta’s criminal case and an Oct. 1 trial date for the SEC lawsuit.
The indictment of Gupta, 62, alleges that the resident of Westport, Connecticut, was a close friend of Rajaratnam who made multimillion-dollar investments with him and also passed him inside information after attending board meetings from 2008 through January 2009.
The tips generated “illicit profits and loss avoidance” of more than $23 million, the SEC alleged in its complaint.
Gary Naftalis, a lawyer for Gupta, didn’t return a voice- mail message left at his office seeking comment about today’s hearing.
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).
Barclays Sues UniCredit Units on $108 Million Credit Deal
Barclays agreed to provide credit protection to two of the Italian bank’s units, HVB and UniCredit Bank Austria, in September 2008. The two subsidiaries stopped making payments in June 2010 and said the credit-protection agreement was terminated because of a regulatory change, according to court documents.
Barclays, based in London, says the contracts, valued at around 80 million euros, are valid.
In a pretrial ruling, a London judge yesterday rejected an application for an additional hearing on “a series of preliminary issues.”
UniCredit sent a letter to Barclays in June 2010 saying its guarantee was no longer recognized by the Bank of Italy as “providing regulatory capital relief” and should be terminated, according to court documents. Barclays replied, refusing the request because it “would deprive Barclays of a significant proportion of the overall revenue that it had bargained for.”
The trial is scheduled to take place at London’s High Court as early as next year. A UniCredit spokeswoman had no immediate comment.
Strauss-Kahn Legal Woes Grow With French Prostitution Probe
Dominique Strauss-Kahn’s sex life continues to haunt the former International Monetary Fund chief as a prostitution investigation in northern France raises new allegations that may be used against him in a U.S. lawsuit.
Prosecutors in Lille are investigating whether Strauss- Kahn’s alleged meetings with prostitutes were paid for by French construction company Eiffage SA. (FGR) His name was first linked to the case as officials in New York and Paris dropped separate sexual-assault probes involving Strauss-Kahn.
Strauss-Kahn, 62, gave up his post as managing director of the IMF after Nafissatou Diallo, a maid at the Manhattan Sofitel, said he assaulted her in his hotel room. While prosecutors abandoned the case because of concerns about Diallo’s credibility, she filed a civil suit that her lawyers say will be buttressed by revelations in Paris and Lille.
“This is definitely very, very useful for the case in New York,” said Christopher Mesnooh, a Paris lawyer who isn’t involved in the case. “This would be manna for them if they can use it, because it shows contempt for women.”
Strauss-Kahn said he did nothing wrong in relation to the Lille investigation and asked to be questioned “to put an end to the dangerous and spiteful insinuations” in the press, according to a Nov. 11 statement from his lawyers.
“We haven’t had any access to the case file, we don’t even know what the accusations are,” Henri Leclerc, one of Strauss- Kahn’s attorneys in Paris, said yesterday. “We’ve never been heard, either as a witness or target.”
Leclerc declined to comment on whether the prostitution investigation could affect the New York civil suit.
The Lille investigation, called the Carlton Affair for the hotel where some of the encounters allegedly occurred, has led to charges against eight people, including three Carlton hotel officials and a local police chief, according to a spokeswoman for prosecutors in the city. Prostitution is legal in France and the investigation has focused on crimes like procurement, misuse of funds, fraud and falsifying documents.
The police have been aided by an inquiry at Eiffage, which filed its own complaint for misuse of corporate funds in the affair. Eiffage suspended David Roquet, head of an asphalt- mixing unit near Lille, after he was charged for having allegedly paid for prostitutes with company money, according to an Oct. 21 company statement. An Eiffage spokeswoman said yesterday the internal investigation is continuing and declined to comment beyond the previous statements.
The New York case is Diallo v. Strauss-Kahn, 11-307065, New York State Supreme Court (Bronx County).
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Motorola Mobility Accused in Lemko Trade-Secret Theft Suit
Motorola Mobility Holdings Inc. was accused in a lawsuit by Lemko Corp. of misappropriating trade secrets on technology for locating emergency callers on cellular networks.
An engineer employed at Lemko who created computer codes that calculate the location of mobile phones left in 2006 to work for Motorola Mobility, which lacked the position- determining technology, according to the complaint. The engineer was hired because she had “access to and knowledge of Lemko’s trade secrets,” including source code for that technology, the company alleged.
Motorola Mobility exported technology developed by the engineer to its facility in China, where it was incorporated into the company’s mobile phones, according to the complaint. The company allegedly destroyed computer files showing use of Lemko’s computer code and fired the engineer in 2008.
Lemko seeks compensation for the loss of royalties and other unspecified damages.
Motorola Mobility is being acquired by Google Inc., which isn’t named in the suit.
Christa Smith, a Motorola Mobility spokeswoman, didn’t reply to a voice-mail message seeking comment about the lawsuit.
The case is Lemko Corp. v. Motorola Mobility Holdings Inc., 2011L12432, Illinois Circuit Court, Cook County, Law Division (Chicago)
Buffett’s NetJets Sues U.S. Over $642.7 Million in Taxes
NetJets, the private-aircraft company owned by Warren Buffett’s Berkshire Hathaway Inc. (BRK/A), sued the U.S. over excise taxes and penalties totaling $642.7 million assessed against the company.
The Internal Revenue Service improperly assessed the so- called ticket tax, an excise tax on payments made in exchange for air transportation, NetJets said in its complaint in federal court in Columbus, Ohio, dated Nov. 14.
NetJets seeks a refund and abatement of the ticket tax. The company claims in its suit that Congress intended the tax to apply to passengers who use commercial or charter aircraft owned by others.
“The ticket tax was not intended to apply to private aircraft owners and the fees they pay to maintain and operate their aircraft,” NetJets said in the complaint.
NetJets also claimed that the IRS didn’t provide any guidance about the types of fees for which the company would have to collect the ticket tax from passengers.
Anthony Burke, a spokesman for the IRS, said in a telephone interview that the agency doesn’t discuss pending litigation.
The case is NetJets Large Aircraft Inc. v. U.S., 2:11- cv-01023, U.S. District Court, Southern District of Ohio, (Columbus).
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Chelsea Director Says Markets Feared ‘Godfather’ Berezovsky
A Chelsea Football Club board member and former Salomon Brothers director said he sought to distance oil company OAO Sibneft from Boris Berezovsky during a 1997 bond offering because investors viewed him as a “godfather-like” figure with criminal ties.
Eugene Tenenbaum worked on the oil company’s bond sale while at Salomon Brothers in 1997, according to a witness statement filed at a London court yesterday. A year later, Tenenbaum joined Sibneft as head of corporate finance and now has close ties with Roman Abramovich, the owner of Chelsea.
At the time of the offering, the bank put out a statement denying market rumors Berezovsky had a stake in Sibneft, because of the “negative reaction” of some investors who were concerned about his “association with criminal elements” and “strong political agenda,” Tenenbaum said.
Berezovsky, who now lives in exile in the U.K., is suing Abramovich for $6.8 billion claiming Abramovich intimidated him into selling shares in Sibneft and other state-owned businesses about a decade ago for less than they were worth. Sibneft is now known as OAO Gazprom Neft.
Under questioning from Berezovsky’s lawyers, Tenenbaum said he hadn’t asked for details of how much of Sibneft Abramovich owned when he joined the company because, “in Russia you don’t ask those sorts of questions.”
Tenenbaum, a Canadian citizen, is also a director of Evraz Plc, a steelmaker part-owned by the Abramovich.
Abramovich denies Berezovsky ever had stakes in Sibneft or in aluminum assets which eventually became part of United Co. Rusal Plc, and that he simply provided “krysha,” or protection, in the dangerous environment of Russia after the collapse of communism.
The case is Berezovsky v. Abramovich, High Court of Justice, Queen’s Bench Division, Commercial Court Case No. 09-1080.
Toyota Wins Right to Appeal in Sudden Acceleration Suits
Toyota Motor Corp. (TM) won approval to proceed with its appeal of a judge’s ruling that allowed plaintiffs who hadn’t had problems with sudden unintended acceleration of their vehicles to seek economic damages for the alleged defect.
The U.S. Court of Appeals in San Francisco, in a Nov. 15 order, granted Toyota permission to appeal the decision by the federal judge who oversees the consolidated lawsuits that were brought against the carmaker following a series of recalls starting in 2009.
U.S. District Judge James V. Selna in Santa Ana, California, said in July that Toyota could immediately challenge part of his May decision rejecting the company’s bid to dismiss the suits. Toyota could seek to appeal his ruling granting “standing,” or the right to sue, to certain vehicle owners, Selna said.
The appeal would focus on the issue “of whether each plaintiff must allege that he or she has experienced a manifestation of the product’s alleged defect in order to allege that he or she suffered an injury,” Selna said at the time. “An immediate appeal” of the standing ruling “will materially advance the ultimate termination of this litigation,” he said.
The Toyota owners contend the company drove down the value of their vehicles by failing to disclose or fix defects related to sudden acceleration. Selna said in May that car owners who hadn’t experienced incidents had met pleading standards to claim losses.
Celeste Migliore, a spokeswoman for Toyota Motor Sales USA in Torrance, California, said in an e-mailed statement that the carmaker looked forward to presenting its arguments to the U.S. Court of Appeals.
Steve Berman, a lawyer for the plaintiffs, didn’t immediately return a call to his office Nov. 16 seeking comment on the ruling.
The cases are combined as In re Toyota Motor Corp. (7203) Unintended Acceleration Marketing, Sales Practices and Products Liability Litigation, 8:10-ml-02151, U.S. District Court, Central District of California (Santa Ana).
The appellate case is Certain Economic Loss Plaintiffs v. Toyota, 11-80187, U.S. Court of Appeal for the Ninth Circuit (San Francisco).
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Lake Shore Asset Management’s Baker Sentenced to 20 Years
Philip J. Baker, principal of the collapsed Chicago hedge fund Lake Shore Asset Management Ltd., was sentenced to 20 years in prison for his role in a fraud that prosecutors said cost investors $154.8 million.
Baker, 46, pleaded guilty to a single count of wire fraud in August. Accused of running a global fraud scheme that ensnared almost 1,000 investors over five years, he was indicted in absentia in February 2009.
“I just want to say I’m sorry to my family and to my former clients. Thank you,” Baker told U.S. District Judge John Darrah in Chicago yesterday, before receiving the maximum sentence allowable under the law.
Prosecutors said Baker misappropriated at least $30 million in investor funds for his own use and that of another Lake Shore director. The U.S. Commodity Futures Trading Commission sued the firm in 2007, claiming it misled investors about its profitability.
The CFTC later won a court order barring Lake Shore from commodities trading.
A Canadian citizen, Baker was extradited from Germany after the U.S. agreed to drop criminal contempt and obstruction of justice charges. He had faced 27 criminal counts including 17 for wire fraud and two for commodities fraud, as well one count of embezzlement of commodity pool funds.
“This is an egregious -- perhaps that’s an understatement- - an egregious and long-running fraud,” Assistant U.S. Attorney Clifford Histed told the court yesterday, arguing for the maximum punishment.
The criminal case is U.S. v. Baker, 1:09-cr-00175, and the civil case is U.S. Commodity Futures Trading Commission v. Lake Shore Asset Management Ltd., 1:07-cv-03598, U.S. District Court, Northern District of Illinois (Chicago).
Sandoz Agrees to Pay $150 Million to Resolve Drug-Price Case
Novartis AG (NOVN)’s Sandoz unit agreed to pay $150 million to resolve claims that it caused the U.S. and state governments in California and Florida to overpay for drugs, court records show.
The U.S. would recover $86.5 million, California would get $40 million and Florida would receive $15.2 million under the agreement filed Nov. 16 in federal court in Boston, where U.S. District Judge Patti Saris is overseeing the so-called average wholesale price litigation against drugmakers. The companies asked Saris to approve the settlement.
Ven-A-Care of the Florida Keys Inc., a specialty pharmacy, sued Sandoz under the U.S. False Claims Act, as well as similar laws in California and Florida, which allow whistle-blowers to sue on behalf of the government and share in any recovery. Ven- A-Care would get $8.3 million from Florida and California. Its U.S. share wasn’t stated in court documents.
Ven-A-Care has settled at least 20 lawsuits since 2000 that allowed state and federal governments to collect about $3 billion. Ven-A-Care reaped more than $400 million in whistle- blower fees during that period. James Breen, an attorney for Ven-A-Care, declined to comment. Ven-A-Care, declined to comment on the settlement.
“This agreement will allow Sandoz to focus on its core mission to deliver high-quality, affordable medicines to patients” while avoiding “the expense, inconvenience and uncertainty of protracted litigation,” the company said in an e-mailed statement.
The case is In Re Pharmaceutical Industry Average Wholesale Price Litigation, MDL No. 1456, U.S. District Court, District of Massachusetts (Boston).
Ex-Madoff Trader David Kugel Agrees to Plead Guilty to Fraud
A former trader at convicted con man’s Bernard Madoff’s investment firm, David Kugel, agreed to plead guilty to fraud, prosecutors said.
Kugel is expected to enter a guilty plea “pursuant to a cooperation agreement with the government” at a Nov. 21 hearing, prosecutors said Nov. 16 in a letter to U.S. District Judge Laura Taylor Swain in Manhattan that was posted on the Justice Department’s website.
Kugel was a supervisory trader in the proprietary trading operation of Bernhard L. Madoff Investment Securities LLC, according to the letter. He’s accused of conspiracy to commit securities fraud going back to the early 1970s by helping to create fake trades used to deceive Madoff’s customers.
He is also accused of conspiracy to commit bank fraud, as well as securities and bank fraud, and falsifying records. The maximum prison sentence for bank fraud is 30 years.
Madoff, who pleaded guilty to fraud charges, is serving 150 years in prison for the largest Ponzi scheme in U.S. history. Investors lost about $20 billion in principal, the U.S. trustee liquidating the securities business has said.
Dan Zelenko, a lawyer for Kugel, declined to comment on the letter.
The case is U.S. v. Kugel, 10-228, U.S. District Court, Southern District of New York (Manhattan.)
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