Goldman Sachs Group Inc. (GS) Chief Executive Officer Lloyd Blankfein and six others may be questioned under oath by lawyers for the Securities and Exchange Commission and Rajat Gupta, who was charged with insider trading as part of the Galleon Group LLC investigation.
Lawyers for Gupta, a former Goldman Sachs director, sought to depose Blankfein and other firm executives including Chief Financial Officer David Viniar, President Gary Cohn, Managing Director David Loeb and John Bryan, as part of a related suit brought by the SEC. While U.S. District Judge Jed Rakoff in New York authorized the questioning of Blankfein before the April 9 criminal trial, he said depositions of the other officers must be conducted afterwards.
Gupta, who also sat on the board of Procter & Gamble Co. and led McKinsey & Co., was indicted by a federal grand jury in October on five counts of securities fraud and one count of conspiracy to commit securities fraud for passing inside information to Galleon co-founder Raj Rajaratnam. Rakoff is presiding over Gupta’s criminal case as well as the SEC lawsuit.
In addition to Blankfein, Rakoff granted SEC requests to question Gary Rosenbach, Galleon’s co-founder, and Ian Horowitz, a former trader who worked for Rajaratnam and was recorded on a U.S. wiretap. The judge said lawyers may also depose three other individuals associated with Galleon -- Ananth Muniyappa, Brock Vandervliet and Leon Shaulov. Also to be deposed is Greg Ormond of Exemplar Wealth.
“The court sees no material argument whatsoever for delaying the depositions,” Rakoff said in his ruling.
Gupta, 62, of Westport, Connecticut, was a close friend and business associate of Rajaratnam, prosecutors said. He made multimillion-dollar investments with the hedge fund manager and also passed him inside information after attending Goldman Sachs board meetings from 2008 through January 2009, according to the indictment.
David Wells, a spokesman for New York-based Goldman Sachs, declined to comment on Rakoff’s ruling. John Nester, a spokesman for the SEC, declined to immediately comment on the judge’s decision.
Raj Rajaratnam was sentenced to 11 years in prison, the longest ever for insider trading, after he was convicted earlier this year. He is set to surrender to prison officials Dec. 5.
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).
Appeals Panel to Review Bid to Return BofA Accord to State
Bank of New York Mellon Corp. (BK) persuaded a federal appeals court to review its request to return an $8.5 billion bond settlement with Bank of America Corp. to state court from federal court for a judge’s approval.
The Manhattan-based U.S. Court of Appeals in New York yesterday granted the petition for expedited review. BlackRock Inc. (BLK) had also asked the court to reverse U.S. District Judge William Pauley’s ruling in October keeping the accord in federal court for review, rather than remanding it to New York State Supreme Court.
The proposed agreement, first filed in New York state court, would settle claims from investors in the mortgage bonds of Countrywide Financial Corp., which Charlotte, North Carolina- based Bank of America (BAC) bought in 2008. The deal was reached with an institutional investor group that includes BlackRock and Pacific Investment Management Co. and would apply to 530 mortgage-securitization trusts.
“Delay in the resolution of this appeal will prejudice the institutional investors and other beneficiaries of the trusts,” New York-based BlackRock said in papers filed with the appeals court on Nov. 1.
Bank of New York, the trustee for the mortgage-bond trusts, filed the settlement in state court and planned to seek approval at a November hearing. Under the state proceeding, approval would bind investors outside the group that negotiated the agreement.
An investor group, Walnut Place LLC and related entities, moved the case to federal court and is fighting a bid by Bank of New York to return it to state court.
The case is Bank of New York Mellon v. Walnut Place LLC, 11-4554, 11-4571, U.S. Court of Appeals for the Second Circuit (Manhattan).
News Corp. (NWSA) Defeats Lawsuit Over Shine Group Acquisition Records
Rupert Murdoch and his News Corp. persuaded a judge to throw out an investor lawsuit seeking information about the $675 million purchase of a U.K.-based television production company owned by Murdoch’s daughter.
Delaware Chancery Court Judge John Noble concluded that a suit filed by an Illinois-based pension fund seeking to inspect News Corp. documents about the purchase of Elisabeth Murdoch’s Shine Group Ltd. was moot since it and other shareholders had also sued the company’s directors over the deal.
Lawyers for Central Laborers Pension Fund can no longer “tender a proper purpose for pursuing efforts to inspect the books and records of News Corp.” on the acquisition, Noble ruled yesterday.
The ruling comes as New York-based News Corp. continues to be investigated and sued over claims that thousands of people’s phones were hacked by its News of the World tabloid, which was shuttered in July.
Teri Everett, a News Corp. spokeswoman, didn’t return a call for comment on Noble’s decision to throw out the investor suit.
News Corp. officials announced in February the media company would acquire Shine Group, which supplies television content to U.K. TV companies including the British Broadcasting Corp., in an all-stock deal valued at about $675 million.
The case is Central Laborers Pension Fund v. News Corp, CA 6287, Delaware Chancery Court (Wilmington).
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Ally Financial Units Sued by Insurer Over Mortgage Loans
Ally Financial Inc., the auto and home lender that received a government bailout, was sued by Financial Guaranty Insurance Co., which claims Ally misrepresented the quality of mortgage loans underlying securities that Financial Guaranty insured.
In lawsuits filed Nov. 29 in New York State Supreme Court in Manhattan, Ally Financial’s GMAC Mortgage and Residential Funding units are accused of breach of contract in connection with policies issued by New York-based Financial Guaranty related to about $3.8 billion worth of residential mortgage- backed securities.
GMAC Mortgage “fraudulently induced FGIC’s agreement to provide this insurance through willful and material misrepresentations and omissions concerning the nature of its business practices and the credit quality of tens of thousands of mortgage loans that provided the collateral” for securities, Financial Guaranty said in court papers.
“There are substantial legal and factual defenses related to the FGIC claims and we intend to defend our position aggressively,” Gina Proia, a spokeswoman for Detroit-based Ally, said in an e-mail. “We have reviewed loan level ‘put- back’ claims from FGIC in the normal course as contractually required and have met our contractual obligations at all times, including repurchasing loans where a claim was valid.”
FGIC Corp., the holding company for Financial Guaranty Insurance Co., sought bankruptcy protection from creditors in August 2010 after suffering losses from the drop in the U.S. housing market.
The cases are Financial Guaranty Insurance Co. v. GMAC Mortgage LLC, 653302/2011; Financial Guaranty Insurance Co. vs. Residential Funding Co. LLC, 653303/2011; and Financial Guaranty Insurance Co. vs. Residential Funding Co., 653304/2011, New York State Supreme Court, New York County (Manhattan).
Penn State Sued by Man Alleging Years of Sandusky Sex Abuse
Pennsylvania State University and its former assistant football coach Jerry Sandusky were sued by an unidentified man who claims Sandusky sexually abused him more than 100 times over four years.
The plaintiff sued yesterday as a John Doe in the Philadelphia Court of Common Pleas, saying he met Sandusky through the Second Mile youth charity at the age of 10 and was sexually abused from 1992 to 1996. The abuse occurred in and out of Pennsylvania, including on university property, according to the complaint. Second Mile, which Sandusky founded, is also a defendant.
Sandusky, 67, is charged with 40 criminal counts tied to alleged sexual molestation of eight boys from 1994 to 2009. He has denied wrongdoing. The plaintiff in yesterday’s suit, the first against Penn State stemming from the Sandusky case, accused Second Mile and the university of negligence in failing to protect children from sexual abuse.
“I don’t want other kids to be hurt and abused by Jerry Sandusky, or anybody like Penn State to allow people like him to do it -- rape kids!” the accuser said yesterday in a statement. “I never told anybody what he did to me over 100 times at all kinds of places until the newspapers reported that he had abused other kids, and the people at Penn State and Second Mile didn’t do the things they should have to protect me and the other kids.”
Joseph Amendola, an attorney for Sandusky, didn’t return a phone call seeking comment on the suit
Lisa Powers, a spokeswoman for the State College, Pennsylvania-based university, declined to comment on the suit, saying the school hadn’t received the court documents.
“We will review the lawsuit and respond appropriately when we have done so,” Eric Herman, a spokesman for Second Mile, said in an e-mail. “The Second Mile will adhere to its legal responsibilities throughout this process. As always, our thoughts and prayers are with the victims and their families.”
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BTA Bank (BTAS) Seeks Jail for Ex-Chairman Ablyazov at U.K. Trial
BTA Bank, the Kazakh lender that defaulted on $12 billion of debt before restructuring last year, asked a U.K. judge to jail its former chairman, Mukhtar Ablyazov, for contempt of court in a fraud lawsuit.
Ablyazov, who fled Kazakhstan to escape prosecution and lives in the U.K., violated a 2009 court order freezing his assets by failing to reveal ownership in a Moscow skyscraper project and more than 600 shell companies used to conceal his wealth, BTA’s lawyer said yesterday at the start of a two-week trial in London. Ablyazov attended the hearing with an interpreter.
“There hasn’t quite been a case like this before,” BTA’s lawyer, Stephen Smith of New Square Chambers, said at the hearing. “The bank’s primary purpose is to coerce Ablyazov into complying with the court order.”
BTA, based in Almaty, filed a series of U.K. lawsuits against Ablyazov and Roman Solodchenko, its former chief executive officer, claiming they took more than $5 billion from the bank using fake loans, back-dated documents and a web of offshore companies. The men deny the claims, while BTA has said its accountants are still unwinding the transactions behind the alleged theft.
Ablyazov claims the bank’s case is politically motivated because he was part of the democratic opposition to Kazakhstan’s president, Nursultan Nazarbayev, who has ruled the country for more than two decades and was re-elected in April with 95.5 percent of the vote.
The bank’s “true motive” for seeking to put Ablyazov in jail during the case is to win “a knockout blow in order to impact Ablyazov’s ability to operate commercially or politically or to defend himself,” his lawyer Duncan Matthews said at yesterday’s hearing.
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Deutsche Bank Lawyer Says HMRC Warning Didn’t Change Trade
A Deutsche Bank AG tax lawyer said that in 2009 the lender considered its German carbon-trading businesses safe and wasn’t prompted to change its policies by a warning from British tax authorities.
After talking with a German tax investigator in December 2009 and January 2010, he had no indication that the bank’s trades were linked to fraud, Goetz Weitbrecht, Deutsche Bank’s head of tax for continental Europe, said at a Frankfurt criminal trial yesterday. That assessment was backed by the fact a tax review by German officials wasn’t continued and Value Added Tax refunds were paid out at the time, he said.
“I personally had an all-clear signal,” Weitbrecht said. “Had we gotten the indication that something was wrong, we would have stopped the trades.”
Six managers at emissions-trading companies are on trial in Frankfurt in what prosecutors call an international scheme to evade VAT when trading the certificates with Deutsche Bank. Neither the bank nor Weitbrecht are accused of wrongdoing at the trial.
The U.K. Revenue & Customs office, or HMRC, told Deutsche Bank tax managers in London at a Nov. 18, 2009, meeting that 90 percent of emission trading in some countries was done to commit VAT fraud, according to a memo read in the court by a defense lawyer yesterday.
Weitbrecht said yesterday that, while he may have been informed about the London HMRC meeting, he doesn’t remember it. He relied on information he received from Harald Gebbers, a German tax investigator with whom he spoke twice on the phone in December 2009 and January 2010, and on the fact that tax authorities paid out VAT refunds to Deutsche Bank at the time, Weitbrecht said.
“We had a good and trusting relationship with the authorities, so I relied on the information I got there,” Weitbrecht said.
German prosecutors formally started their probe of the trading on Nov. 19, 2009. Tax investigators had already looked earlier into the issue. Prosecutors are probing 170 suspects, including seven Deutsche Bank employees.
Presiding Judge Martin Bach said yesterday he expects closing arguments to start tomorrow. A verdict may come before Christmas.
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SocGen Wins Defamation Suit Over Report Questioning Solvency
Societe Generale SA (GLE) won a defamation suit against an online news site over a September report that France’s second biggest bank was shut out of the interbank lending market.
ElectronLibre.info, published by Paris-based EL Publishing SAS, must pay 1 euro ($1.35) to Societe Generale for publishing the report, a Paris court ruled yesterday.
EL Publishing and director Emmanuel Torregano were ordered to pay Societe Generale legal costs and to remove the Sept. 7 article from the site within three days or risk an additional 1,000-euro-a-day fine. The site must also run a paragraph on its homepage saying the court condemned it for running the article and to pay for that to appear in a publication of Societe Generale’s choosing.
Europe’s sovereign-debt crisis has hit French banks hard. Societe Generale has fought to maintain customer confidence as shares have dropped almost 46 percent since Aug. 1 and its third-quarter profit fell 31 percent on a 333 million-euro pretax writedown on Greek sovereign debt and lower trading revenue. The bank sued Associated Newspapers Ltd.’s Mail on Sunday in London in October for an August report that it was in a “perilous” state and possibly on the “brink of disaster.”
“Given the current situation and all that we have learned” about banks during the sovereign-debt crisis, “I will advise my client to appeal,” ElectronLibre lawyer Hasna Boulet said in a telephone interview.
Rajaratnam Asks Court to Let Him Remain Free During Appeal
Raj Rajaratnam, the former Galleon Group LLC hedge fund manager convicted of directing the biggest insider-trading ring in a generation, asked a federal appeals court to let him remain free while he challenges the government’s use of wiretaps in his trial.
Rajaratnam, 54, scheduled to begin an 11-year sentence in a Massachusetts prison next week, claims improper wiretapping of his phone conversations will lead to reversal of his May conviction and that he should remain free in the meantime. A panel of the U.S. Court of Appeals in New York declined to rule immediately after a 20-minute hearing yesterday.
Patricia Millett, a lawyer for Rajaratnam, told the court his appeal presents a “substantial question of law” and said he’s unlikely to flee to his native Sri Lanka before the appeal is decided.
“His passport was surrendered ages ago. All his family are here,” Millett told a three-judge panel of the court. “He has nothing to go to in Sri Lanka.”
U.S. District Judge Richard Holwell, who presided over the case and sentenced Rajaratnam in October, rejected his request for bail pending the appeal. Rajaratnam claims a March 7, 2008, wiretap application by FBI special agent B.J. Kang contained “glaring omissions” that would likely lead the appeals court to reverse his conviction, justifying his release on bail.
Millett argued the omissions violated Rajaratnam’s constitutional rights and the legal requirement that the government show wiretapping is necessary before getting a warrant.
“There is no substantial question of law likely to result in a new trial,” said Assistant U.S. Attorney Jonathan Streeter, who argued that the court should let Rajaratnam begin his prison term.
The case is U.S. v. Rajaratnam, 11-4416, U.S. Court of Appeals for the Second Circuit (Manhattan). The lower-court case is U.S. v. Rajaratnam, 09-01184, U.S. District Court, Southern District of New York (Manhattan).
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Ex-Ropes & Gray Lawyer Gets 6 Months in Goffer Tipping Case
Brien Santarlas, a former lawyer at Ropes & Gray LLP, was sentenced to six months in prison for passing information on pending mergers to stock traders.
Santarlas, 34, pleaded guilty to insider-trading charges in December 2009 and cooperated with the U.S. investigation of illegal tips to hedge funds.
Calling that cooperation “very, very important,” U.S. District Judge Richard Sullivan in Manhattan yesterday said that as a lawyer, Santarlas should be held to a high standard and his sentence should send a message to other attorneys.
“It’s important that those legal professionals understand they breach those duties at their peril,” Sullivan said before he handed down Santarlas’s sentence. “You don’t get a pass.”
Santarlas and Arthur Cutillo, a fellow attorney at Ropes & Gray, passed tips about two pending mergers that the firm was working on to Cutillo’s college roommate, Jason Goldfarb, who passed along the information to Zvi Goffer, a former trader at Galleon Group LLC. The deals were Bain Capital Partners’ acquisition of 3Com Corp. and TPG Capital’s purchase of Axcan Pharma Inc.
Santarlas pleaded guilty to securities fraud and agreed to forfeit $32,500.
“I’ll never forgive myself,” Santarlas told the judge yesterday. “I violated my oath as an attorney.”
The case is U.S. v. Goffer, 10-cr-00056, U.S. District Court, Southern District of New York (Manhattan).
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