JPMorgan, FrontPoint, UBS, Goldman, BNY in Court News
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JPMorgan Chase & Co. (JPM) and Goldman Sachs Group Inc. units were sued by two pension funds over claims they made misleading statements about the exposure of MF Global Holdings Ltd. securities to European sovereign debt.
As a result of the misstatements, MF Global’s stock traded at “artificially inflated prices,” the funds said in the complaint filed Nov. 18 in federal court in Manhattan. “While the extent of MF Global’s exposure to European sovereign debt was concealed, the defendants were able to raise some $900 million in the offerings.”
MF Global Holdings, which was run by former Goldman Sachs co-chief executive officer Jon Corzine, filed for bankruptcy Oct. 31 after making bets on sovereign debt and getting margin calls. The New York-based company listed debt of $39.7 billion and assets of $41 billion in Chapter 11 papers. Its broker- dealer is being liquidated separately.
Other companies named as defendants in the complaint were Bank of America Corp. (BAC)’s Merrill Lynch unit, Citigroup Global Markets Inc., Deutsche Bank Securities Inc., RBS Securities Inc. and Jefferies & Co. Corzine and MF Global officers were also named as defendants.
The complaint was filed by IBEW Local 90 Pension Fund and the Plumbers & Pipefitters’ Local #562 Pension Fund. The funds seek to represent other shareholders in a class-action, or group suit.
David Wells, a spokesman for New York-based Goldman Sachs, declined to comment. Shirley Norton, a spokeswoman for Charlotte, North Carolina-based Bank of America, and Joseph Evangelisti, a spokesman for New York-based JPMorgan, didn’t immediately return calls after regular business hours seeking comment on the lawsuit.
The case is IBEW Local 90 Pension Fund v. Corzine, 11-8401, U.S. District Court, Southern District of New York. The bankruptcy case is MF Global Holdings Ltd., 11-bk-15059, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
The brokerage case is Securities Investor Protection Corp. v. MF Global Inc., 11-cv-7750, and the wheat-trading case is Rubin v. MF Global, 08-cv-02233, U.S. District Court, Southern District of New York (Manhattan).
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Ex-FrontPoint Fund Manager Skowron Gets Five Years in Prison
Joseph F. “Chip” Skowron, the ex-FrontPoint Partners LLC fund manager who pleaded guilty in a U.S. insider-trading case, was sentenced to five years in prison.
Skowron, 42, a Yale University-educated physician from Greenwich, Connecticut, pleaded guilty in August to conspiring to commit securities fraud and obstruction of a federal investigation. He was sentenced Nov. 18 by U.S. District Judge Denise Cote in Manhattan.
Galleon Group LLC, the defunct hedge fund at the center of the biggest insider-trading scheme in U.S. history, is seeking restitution as a victim of the crimes committed by Skowron.
Galleon says it lost more than $1.5 million and Deutsche Bank AG (DBK), Germany’s biggest lender, claims losses of $2.4 million as a direct result of Skowron’s inside trades on Human Genome Sciences Inc. (HGSI) in January 2008.
“The funds and/or accounts that Galleon managed may be entitled to restitution in connection with losses they sustained in their trading of HGSI,” George Lau, the former Galleon chief financial officer, said in a Nov. 2 letter to Manhattan U.S. Attorney Preet Bharara.
Skowron admitted that he got a tip from a former adviser for HGSI that trials of a hepatitis C drug were being ended, which prosecutors say allowed FrontPoint to sell its stock in the company before the information became public and avoid $30 million in losses.
The case is U.S. v. Skowron, 11-cr-699, U.S. District Court, Southern District of New York (Manhattan).
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Ex-UBS Banker Gadola Avoids Prison for Helping Tax Cheats
Former UBS AG (UBS) banker Renzo Gadola, who aided Americans in cheating U.S. tax authorities before helping prosecutors snare other bankers, avoided prison when a judge sentenced him to five years of probation.
U.S. District Judge James Lawrence King in Miami rewarded Gadola Nov. 18, citing the “extensive cooperation you have rendered to the United States.” He faced from 10 to 16 months in prison.
Gadola pleaded guilty Dec. 22, admitting he serviced hundreds of secret Swiss bank accounts at UBS from 1995 to 2008 and later as an asset manager. Prosecutors sought leniency for Gadola, who helped build cases against two other bankers in the U.S. crackdown on offshore tax evasion. He will help in future grand jury probes and testify against former customers and colleagues, prosecutors wrote to the judge.
Gadola was willing to give “information and answer questions about his U.S. customers who used secret Swiss bank accounts to evade their income taxes as well as the Swiss bankers and Swiss financial advisers who aided and abetted those U.S. customers,” prosecutors wrote.
The case has changed Gadola’s life forever, Peter Raben, his attorney, said.
“He was an honored citizen and banker in Switzerland,” Raben said. “That’s gone.”
Gadola was arrested on Nov. 7, 2010, after U.S. authorities secretly recorded him in a Miami hotel talking to a client about ways to hide money from the Internal Revenue Service.
The case is U.S. v. Gadola, 10-cr-20878, U.S. District Court, Southern District of Florida (Miami).
West End Financial Founder Landberg Pleads Guilty to Fraud
William Landberg, the founder of the bankrupt New York- based investment firm West End Financial Advisors LLC, pleaded guilty to a federal charge of securities fraud.
Landberg, 59, was accused by U.S. Attorney Preet Bharara of engaging in a scheme to obtain $8.7 million from the German bank West LB AG for purposes not permitted by the credit agreements. He entered his plea Nov. 18 before U.S. Judge Laura Taylor Swain in Manhattan.
In one of three transactions cited by prosecutors, Landberg received $3.9 million from West LB for a loan to develop property on Long Island in New York. He used $2 million of the proceeds for fund commitments, paid $350,000 to investors as purported earnings and kept more than $100,000 for personal use, the prosecutors said.
“The overwhelming amount of the moneys that Mr. Landberg received as advances from the bank went to other loans related to the fund and we believe that the bank has suffered no loss as a result of Mr. Landberg’s conduct,” Michael Bachner, Landberg’s lawyer, said in an interview after the plea hearing.
Sentencing is set for March 16.
The maximum sentence for the one count against Landberg is 20 years in prison. The sentencing guidelines in the plea agreement range from 78 months to 97 months in prison, or as much as eight years. Landberg also will be ordered to forfeit $8.7 million in assets.
The criminal case is U.S. v. Landberg, 10-cr-00538, U.S. District Court, Southern District of New York (Manhattan). The bankruptcy case is West End Financial Advisors LLC, 11-11152, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
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Goldman’s Cohn May Face Questions From Gupta Lawyers in Suit
Goldman Sachs Group Inc. (GS) President Gary Cohn may be questioned by lawyers defending former company director Rajat Gupta and Galleon Group LLC co-founder Raj Rajaratnam against insider-trading claims by federal regulators.
Former Galleon Group trader Ian Horowitz and Goldman Sachs managing director David Loeb were also identified by lawyers as witnesses who may be called to give pretrial testimony.
U.S. District Judge Jed Rakoff in Manhattan is considering whether the parties may take depositions in the Securities and Exchange Commission lawsuit before completion of a parallel criminal case against Gupta.
Gupta was charged in an indictment unsealed on Oct. 26 with five counts of securities fraud and one count of conspiracy to commit securities fraud. The U.S. Securities and Exchange Commission filed the civil lawsuit the same day accusing Gupta of engaging in an “extensive insider-trading scheme” with Rajaratnam.
In the SEC complaint, Gupta is accused of passing tips about Berkshire Hathaway Inc.’s $5 billion investment in Goldman Sachs before it was publicly announced on Sept. 23, 2008, and about Procter & Gamble Co. (PG)’s earnings while he was a board member.
The tips generated “illicit profits and loss avoidance” of more than $23 million, the SEC alleged in its complaint.
Rakoff, who is presiding over both cases, has set trial dates of April 9, 2012, for Gupta’s criminal case and Oct. 1, 2012, for the SEC case.
“I don’t want to change these trial dates under any set of circumstances,” Rakoff told the lawyers at the Nov. 18 hearing.
Lawyers for the SEC and U.S. Attorney’s office asked Rakoff to postpone the depositions, to prevent Gupta’s lawyers from using them to get an unfair advantage in the criminal trial. Lawyers for Gupta and Rajaratnam asked to be permitted to take depositions sooner. Rakoff said he will decide no later than Nov. 29.
Rakoff said he had asked the SEC, Gupta and Rajaratnam to submit lists of the most important 10 witnesses they plan to depose. Cohn, Loeb and Horowitz were disclosed as possible witnesses during the hearing. Rakoff said he will release the rest of the names publicly today.
Rajaratnam was convicted in May of being at the center of the biggest insider-trading scheme in U.S. history and was sentenced last month to 11 years in prison.
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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BNY Mellon Loses Bid to End Virginia Pension Fund Fraud Suit
Bank of New York Mellon Corp. (BK), the world’s largest custody bank, lost a bid for dismissal of a lawsuit in which the state of Virginia accused it of defrauding pension funds in foreign currency exchange trades.
A judge in Fairfax, Virginia, rejected Nov. 18 the bank’s argument that the case couldn’t be brought under the Virginia Fraud Against Taxpayers Act because alleged false or fraudulent claims were never submitted to the state for payment.
“You have a cause of action,” Fairfax County Circuit Judge Terrence Ney told lawyers for the state during a hearing Nov. 18. “There’s no question about that.”
The next hearing in the case is set for Dec. 21.
“We are pleased that the court dismissed two of the three remaining claims brought by the Commonwealth and are gratified that the judge scheduled a prompt hearing on the one remaining claim,” R. Jeep Bryant, a bank spokesman, said by e-mail.
State Attorney General Kenneth Cuccinelli sued in August, claiming the bank violated the state law by charging “undisclosed markups” on currency exchange trades to six retirement funds. Virginia seeks about $931.6 million in damages.
Attorneys general in New York, and Florida have sued over the same issue. Massachusetts filed an administrative action against the bank.
All the cases center on the pricing of small foreign exchange transactions handled automatically by the custody banks on behalf of the pension funds, a service known as standing instruction.
The banks say they acted as a principal, selling one currency for another in arms-length transactions at a set price that customers were free to accept or reject.
The states claim the banks were obliged to act as an agent, obtaining the best possible exchange rate in the interbank currency market. Banks misled clients on how they set prices, the states maintain.
The case is Commonwealth of Virginia v. Bank of New York Mellon Corp., 09-15377, Circuit Court for the County of Fairfax, Virginia (Fairfax).
AT&T Asks Court to Reject U.S. Request to Share FCC Data
AT&T Inc. (T) asked a court to reject a U.S. request for permission to discuss Federal Communications Commission data with outside lawyers and experts to bolster its antitrust case.
The government hasn’t identified specific documents it wants to share, as the court requested, and didn’t explain why it needs to discuss the information with others, AT&T said Nov. 18 in a filing in Washington federal court.
“Far from being a ‘narrow’ request, plaintiffs seek to share with unnamed outside counsel and experts for unnamed non- parties material produced by defendants to the FCC that are contained in 16 different filings,” AT&T said.
The Justice Department asked the court this week to be allowed to discuss documents AT&T filed with the FCC outlining the expected benefits of its proposed $39 billion takeover of T- Mobile USA Inc with outside lawyers and consultants to better prepare for a trial to start Feb. 13.
The government sued Dallas-based AT&T and T-Mobile on Aug. 31, saying a combination of the two companies would “substantially” reduce competition. Seven states and Puerto Rico joined the effort to block the deal, which would make AT&T the biggest U.S. wireless carrier.
The FCC must rule on whether the transfer of spectrum licenses from T-Mobile to AT&T serves the public interest. The agency is reviewing the transaction.
AT&T said in the filing the Justice Department’s request to share the documents with “outside lawyers and consultants representing potential witnesses” is “particularly disturbing,” because such witnesses aren’t usually allowed to see the defendant’s documents.
The government’s case is U.S. v. AT&T Inc., 1:11-cv-01560; Sprint’s case is Sprint Nextel Corp. (S) v. AT&T Inc., 11-cv-01600; and Cellular South’s case is Cellular South Inc. v. AT&T Inc., 1:11-cv-01690, U.S. District Court, District of Columbia (Washington).
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Transocean Can’t Blame U.S. for Gulf Oil Spill, Judge Rules
Transocean filed a claim against the U.S. in February, contending the incident may have been caused in part by the acts of federal agencies and government employees. Transocean was seeking a credit or offset on any prospective damages assessed against the company in the lawsuits.
“The U.S. has sovereign immunity here,” U.S. District Judge Carl Barbier said Nov. 18 at a hearing in federal court in New Orleans in dismissing the claim.
U.S. lawyers argued that the government wasn’t liable for the spill. “It was at all times the responsibility of the private parties involved in the oil drilling venture to comply with federal safety regulations, including maintaining control of their well,” the U.S. said in a May response to Transocean’s claim.
“The ruling addressed procedural aspects of the pleadings,” Brian Kennedy, a Transocean spokesman, said in an e-mail. “It does not impact the evidence that can and will be presented or the manner in which the court will consider the case. As the court said today, Transocean has both the right and ability to submit such evidence for credit against potential damages.”
The Macondo well blowout and the explosion that followed killed 11 workers and set off the worst offshore oil spill in U.S. history.
The case is In Re Oil Spill by the Oil Rig Deepwater Horizon in the Gulf of Mexico on April 20, 2010, MDL-2179, U.S. District Court, Eastern District of Louisiana (New Orleans).
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Transatlantic Sues Validus Over Move to Oust Board Members
Validus said Nov. 3 that it would try to replace the board with three independent directors after Transatlantic didn’t accept its increased cash-and-stock bid of as much as $3.46 billion. Such a move violates Delaware law and the company’s charter, lawyers for Transatlantic said Nov. 18 in a complaint in Delaware Chancery Court.
Validus’s actions, if not stopped by a judge, “will cause severe disruptions to Transatlantic’s business by creating great uncertainty over the size and composition of Transatlantic’s board,” the company said in the complaint.
Validus wants Transatlantic shareholders to vote on several proposals including amending the bylaws to allow stockholders to set the size of the board, removing each of Transatlantic’s seven incumbent directors and electing the three nominees put forth by Validus.
“We believe that this lawsuit is yet another attempt by Transatlantic to frustrate the ability of its stockholders to accept Validus’s compelling offer,” Stan Neve, a spokesman for Validus, said Nov. 18 in a phone interview.
The case is Transatlantic Holdings Inc. v. Validus Holdings Ltd., CA7054, Delaware Chancery Court (Wilmington).
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Deripaska Tells Court He Dislikes Berezovsky Over Debts
Oleg Deripaska, chief executive officer of United Co. Rusal, told a London court he dislikes Boris Berezovsky, the exiled Russian oligarch suing Roman Abramovich for about $6.8 billion.
Deripaska, 43, said he disliked Berezovsky after being questioned about it three times while testifying via a video link from New York at the trial Nov. 18.
“Berezovsky owed me a large amount of money for a sufficiently long period of time,” said Deripaska, speaking in Russian through a translator. Berezovsky had pleaded for a loan because he wanted to buy property, Deripaska said. “It was quite touching.”
Deripaska was called to testify about his role in creating OAO Russian Aluminium in late 2000. Three years later Abramovich sold his stake in Rusal to Deripaska, and Berezovsky says in the London lawsuit that he is owed some of the proceeds.
According to Abramovich, Deripaska fell out with Berezovsky and his associate Badri Patarkatsishvili during Russia’s “aluminum wars” of the 1990s, when the fight for market share often involved violence.
Berezovsky and Patarkatsishvili helped rival firms and didn’t pay back loans, and “Oleg did not take kindly to this and he made it clear,” Abramovich told the court earlier this month. “To put it bluntly, they were cheating him.”
Berezovsky was surprised the debt hadn’t been repaid because he thought Abramovich had “taken care of it,” said Berezovsky’s attorney, Laurence Rabinowitz.
The case is Berezovsky v. Abramovich, High Court of Justice, Queen’s Bench Division, Commercial Court Case No. 09-1080.
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Fannie Mae and Freddie Mac, the mortgage-finance companies operating under U.S. conservatorship, dropped Steven J. Baum PC from their list of law firms eligible to handle foreclosures.
“After Nov. 15, 2011, servicers may not refer any new Fannie Mae foreclosure or bankruptcy cases in New York to Steven J. Baum PC,” Fannie Mae said in servicing notice that day.
Freddie Mac announced its ban Nov. 10. Both companies said the Baum firm would continue to work on matters referred before the effective dates. Neither said why the firm was being suspended.
Last month, Steven J. Baum PC, one of the largest foreclosure law firms in New York state, agreed to pay the U.S. $2 million and change its practices to resolve a probe of its foreclosure filings. The agreement concluded an investigation into whether the firm filed misleading pleadings, affidavits and mortgage assignments in courts, according to a statement by U.S. Attorney Preet Bharara in Manhattan. The settlement didn’t constitute a finding of wrongdoing.
Earl Wells, a spokesman for Baum, didn’t reply to an e-mail seeking comment on Fannie Mae and Freddie Mac’s actions.
Brad German, a spokesman for McLean, Virginia-based Freddie Mac, said the company doesn’t comment on why it drops law firms from its list.
“We add and subtract designated counsel all the time,” he said in a phone interview Nov. 18.
Amy Bonitatibus, a spokeswoman for Washington-based Fannie Mae, said that, beyond the servicing notice, she could only say that “Fannie Mae has permitted servicers to transfer existing cases from the Baum firm to new counsel.”
Steven J. Baum PC, located in Amherst, New York, just north of Buffalo, has attracted lawsuits and fines for its actions during the housing crisis. It has been accused of overcharging, filing false documents and representing parties on both sides of a mortgage transfer. On Oct. 28, a New York Times column reported that the Baum firm held a Halloween party last year during which employees dressed as foreclosed-upon homeowners.
New York Attorney General Eric Schneiderman is investigating the Baum firm, two people familiar with the matter said in May. Danny Kanner, a spokesman for Schneiderman, declined to comment on the investigation.
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