JPMorgan, BofA, Citigroup, Barclays, Madoff in Court News

JPMorgan Chase & Co., Bank of America Corp. (BAC) and Citigroup Inc. (C) were among five banks sued by Massachusetts for allegedly conducting unlawful foreclosures and deceiving homeowners.

Massachusetts Attorney General Martha Coakley filed the lawsuit yesterday against the three banks, as well as Wells Fargo & Co. (WFC) and Ally Financial Inc., in state court in Boston. The banks are accused of engaging in unfair and deceptive trade practices in violation of state law, according to the attorney general.

“We believe the stakes could not be higher at this stage of the game,” Coakley said at a press conference in Boston. “The foreclosure crisis continues to be at the root of the economic mess that we find ourselves in and our inability to turn it around.”

State attorneys general across the country have been negotiating a possible settlement with the five banks that would resolve a probe into foreclosure practices that began more than a year ago following disclosures that faulty documents were being used to seize homes.

Wells Fargo Chairman and Chief Executive Officer John Stumpf said in a CNBC interview yesterday that he is disappointed the lawsuit was filed. Wells Fargo is based in San Francisco.

“We’ve worked hard to come to an agreement that I think would be good for the country and good for housing,” he said. “We can work through that better together than working it out in court.”

Gina Proia, a spokeswoman for Detroit-based Ally, said its GMAC Mortgage unit, which was named as a defendant, will “vigorously defend” itself against the lawsuit and has worked “in good faith” with Coakley’s office during the past year to discuss mortgage servicing and ways to assist borrowers.

Tom Kelly, a spokesman for New York-based JPMorgan, said the bank is disappointed Coakley filed the lawsuit while negotiations with state and federal officials continue.

“We continue to believe that collaborative resolution rather than continued litigation will most quickly heal the housing market and help drive economic recovery,” Lawrence Grayson, a spokesman for Charlotte, North Carolina-based Bank of America, said in a statement.

Citigroup hasn’t had time to review the lawsuit, Mark Rodgers, a spokesman for the New York-based bank, said in an e- mail. The bank has been cooperating with the attorney general, he said.

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Wells Fargo Sues U.S. Claiming $350 Million in Excess Taxes

Wells Fargo & Co. sued the U.S. government claiming it’s owed more than $350 million in refunds for tax overpayments.

Some excess payments were caused by “computational and data entry errors” by the Internal Revenue Service, and the government hasn’t acted on its claim for a refund, Wells Fargo said yesterday in a lawsuit filed in the U.S. Court of Federal Claims in Washington.

Wells Fargo, based in San Francisco, says the overpayments involve the interest rates on taxes paid and stem from acquisitions by the bank from 1996 through 2008.

“Wells Fargo, on its own behalf and on behalf of its predecessors whose assets and liabilities were assumed by Wells Fargo” filed claims for refunds “based on application of a net zero rate of interest,” according to the complaint.

Ancel Martinez, a Wells Fargo spokesman, declined to comment immediately on the lawsuit. Sara Eguren, an IRS spokeswoman, said the agency doesn’t generally comment on litigation.

The case is Wells Fargo & Co. v. U.S., 11-808, U.S. Court of Federal Claims (Washington).

Barclays Sued Over Competing Bid for Carbon Trader

A Barclays Plc (BARC) unit was accused of using its role as a deal adviser to a carbon-trading firm to get confidential data about a takeover target and then buying the company itself, according to a lawsuit filed by CF Partners (U.K.) LLP.

CF Partners hired Barclays to work on its plan to buy Tricorona AB, a Sweden-based emissions trader, in 2008. When the deal stalled, Barclays began secret negotiations with Tricorona, according to papers filed by CF Partners’ lawyers.

Barclays, based in London, completed a $173 million deal for 85 percent of Tricorona in July 2010. Barclays spokeswoman Aurelie Leonard declined to comment on the dispute.

The bank used confidential research from CF Partners about the value of Tricorona’s portfolio, according to the lawsuit. CF Partners wants damages of least 82.4 million euros ($111 million) from Britain’s second-largest bank for breach of confidence.

James McRobbie, general counsel of CF Partners, declined to comment.

The case is CF Partners (UK) LLP v Barclays Bank Plc & Anr, HC11C03443, High Court of Justice, Chancery Division.

Ex-Millennium Global Manager Charged With Securities Fraud

Federal prosecutors charged Michael Balboa, a former portfolio manager at Millennium Global Investments Ltd., with participating in a securities fraud scheme involving Nigerian sovereign debt.

A criminal complaint unsealed yesterday in federal court in Manhattan alleges that Balboa and his co-conspirators sent multiple e-mails to an independent valuation agent who inflated month-end market prices for Nigerian warrants.

The complaint, filed by U.S. Postal Inspector Jessica Brown, charges that Balboa engaged in an eight-month scheme in 2008 to commit securities and wire fraud with two unidentified co-conspirators who are cooperating with the government.

Millennium Global in 2008 liquidated Balboa’s hedge fund, which buys emerging-market debt, after lenders withdrew credit, two people familiar with the situation said in October 2008. Millennium Global, a London-based money manager, was founded by former Goldman Sachs Group Inc. (GS) executive Michael Huttman in 1994.

Balbao was also sued by the U.S. Securities and Exchange Commission.

The case is U.S. v. Balboa, 11-mag-3038, U.S. District Court, Southern District of New York (Manhattan).

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Lawsuits/Pretrial

Greenberg’s AIG Bailout Suits Pursue Unique Theories

Maurice R. Greenberg, the former American International Group Inc. (AIG) chief executive officer, seeks to break new ground in lawsuits challenging the U.S. takeover of the insurer in a bailout that reached $182 billion.

Greenberg’s Starr International Co. sued the government Nov. 21, calling the public assumption of 80 percent of stock in the insurer in 2008 an unconstitutional “taking” of property that requires $25 billion in compensation.

Starr also sued the Federal Reserve Bank of New York, saying it breached its duty to AIG shareholders by loaning $85 billion at 14.5 percent while offering better terms to banks in a “backdoor bailout.” AIG almost collapsed after bets tied to the housing market soured, and the bailout was revised at least four times before reaching $182 billion.

Both complaints were filed by attorney David Boies, who represented the U.S. in its Microsoft Corp. 1999 antitrust trial and Al Gore in the Florida presidential recount litigation in 2000.

“Any time David Boies is asking for $25 billion, I would say this is not a normal case,” said Robert H. Thomas of the Honolulu firm Damon Key Leong Kupchak Hastert.

“He takes cutting edge cases in unexplored areas of law,” said Thomas, who specializes in land-use and eminent domain. “It’s audacious. As someone who represents plaintiffs in these kinds of cases, I’d say more power to him. But it’s a stretch.”

Boies didn’t respond to requests for comment on his chances of success in the Starr cases.

Jack Gutt, a spokesman for the New York Fed, said the allegations have no merit.

“AIG’s board of directors had an alternative choice to borrowing from the Federal Reserve, and that choice was bankruptcy,” Gutt said. “Bankruptcy would have left all AIG shareholders with worthless stock. The Federal Reserve’s actions with regard to AIG helped to restore financial stability in the United States during a period of intense volatility and vulnerability in the U.S. economy.”

The federal claims case is Starr International Co. v. U.S., 1:11-cv-00779, U.S. Court of Federal Claims (Washington). The Federal Reserve case is Starr International Co. v. Federal Reserve Bank of New York, 1:11-cv-08422, U.S. District Court, Southern District of New York (Manhattan).

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Online Gambling Trial Judge ‘Unlikely’ to Dismiss Indictment

A federal judge said he’s unlikely to dismiss an illegal gambling case involving the three largest Internet poker companies doing business in the U.S.

“I think it extraordinarily unlikely the entire indictment will be dismissed,” U.S. District Judge Lewis Kaplan in Manhattan said at the end of a hearing yesterday on a request to dismiss the case. He said he would rule later on the motion and that a trial, if held, would begin March 12.

Eleven defendants were accused in April of bank fraud, money laundering and illegal gambling through the online companies PokerStars, Full Tilt Poker and Absolute Poker.

Lawyers for two of the defendants, Chad Elie and John Campos, argued in court yesterday that the U.S. law making it a crime for businesses to accept payment in connection with unlawful Internet gambling doesn’t apply to poker.

The case is U.S. v. Scheinberg, 10-cr-00336, U.S. District Court, Southern District of New York (Manhattan).

Madoff Trustee Can Appeal $19 Billion JPMorgan Ruling

The liquidator of Bernard L. Madoff’s firm, who lost the right to demand $19 billion in damages from JPMorgan Chase & Co. (JPM), can appeal the ruling to a higher court, a judge said.

JPMorgan last month won dismissal of trustee Irving Picard’s damage claims in his lawsuit alleging the biggest U.S. bank aided Madoff’s fraud. Picard can’t sue for common-law damages on behalf of the defunct Madoff firm’s customers, U.S. District Judge Colleen McMahon ruled in New York.

The judge directed a clerk to enter a final judgment dismissing eight claims from Picard’s complaint and said he can appeal the ruling under a deal struck with JPMorgan, according to court papers. Her decision followed a telephone conference Nov. 30, she said.

Picard agreed to put his remaining claims against JPMorgan on hold while he appeals. He told McMahon in a filing last month he has “no choice but to appeal the order.”

“Permitting an immediate appeal would provide much-needed finality for the trustee and the BLMIS estate as to the viability of these claims,” he said. BLMIS refers to Madoff’s firm.

Rulings by district judges McMahon and Jed Rakoff have knocked more than $28 billion off of Picard’s claims against banks and may cost him as much as $11 billion in recoveries from other cases to benefit investors who lost money in the Ponzi scheme, according to the trustee’s estimates.

The amount sought from JPMorgan, Madoff’s primary banker, represented Picard’s estimate of principal lost by all Madoff investors by the time the Ponzi scheme collapsed in December 2008, according to a complaint filed in June. The bank could have stopped the fraud if it had passed on its suspicions to regulators, he alleged.

JPMorgan said it didn’t know about or in any way become a party to the fraud and couldn’t be held responsible for a scheme orchestrated by Madoff alone.

Madoff pleaded guilty and is serving a 150-year prison term. Picard and his firm have made about $224 million in fees since Madoff’s 2008 arrest.

The McMahon cases are Picard v. JPMorgan Chase & Co., 11- cv-913; Picard v. UBS Fund Services (Luxembourg) SA, 11-cv-4212, U.S. District Court, Southern District of New York (Manhattan).

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Trials/Appeals

Lindsey Manufacturing Wins Dismissal of Foreign Bribery Case

Lindsey Manufacturing Co., the first corporation to go to trial on charges it violated the U.S. Foreign Corrupt Practices Act, won dismissal of its conviction after the judge found the prosecution had engaged in “flagrant” misconduct.

U.S. District Judge Howard Matz in Los Angeles yesterday threw out the convictions of the Azusa, California-based maker of emergency electricity towers; Keith Lindsey, the closely held company’s president; and Steve Lee, its finance chief, and he dismissed the indictment.

Matz said it was “with deep regret” that he was compelled to find that the government had allowed an Federal Bureau of Investigation agent to testify untruthfully before a grand jury, inserted falsehoods in requests for search warrants, improperly reviewed e-mails between a defendant and her lawyer, and made misrepresentations to the court, among other misconduct.

“Dr. Lindsey and Mr. Lee were put through a severe ordeal,” the judge said in his ruling. “Charges were filed against them as a result of a sloppy, incomplete and notably over-zealous investigation, an investigation that was so flawed that the government’s lawyers tried to prevent inquiry into it.”

At a Nov. 29 hearing, where the judge had issued his tentative decision to dismiss the case, Jeffrey Goldberg, a Justice Department lawyer, argued that the government had made only “honest mistakes” that didn’t warrant a finding of misconduct.

The government is appealing the ruling, according to a notice of appeal filed yesterday.

A jury in May found the company and the two executives guilty of paying bribes, through an intermediary, to executives with a state-owned Mexican utility to win contracts. Lindsey and Lee faced as long as five years in prison for each of five counts of bribing a foreign official, as well as five years for a conspiracy count.

The case is U.S. v. Aguilar, 10-1031, U.S. District Court, Central District of California (Los Angeles).

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Verdicts/Settlements

Rajaratnam Must Report to Prison After Bail Request Denied

Raj Rajaratnam, the former Galleon Group LLC hedge fund manager convicted of directing the biggest insider-trading ring in a generation, must go to prison while he challenges the government’s use of wiretaps in his trial, an appeals court ruled.

Yesterday’s decision clears the way for Rajaratnam, 54, to report to federal prison in Massachusetts to begin serving an 11-year sentence. He has been ordered to surrender Dec. 5.

“The defendant shall surrender at such time and place as shall be instructed by the district court,” a panel of U.S. appeals court judges in New York said, denying him a chance to remain free on bail. Terence Lynam, a lawyer for Rajaratnam, declined to comment on the ruling.

In a 20-minute hearing Nov. 30 before the appeals court in Manhattan, a defense lawyer said improper wiretapping of Rajaratnam’s phone conversations would lead to reversal of his May conviction and that he should remain free in the interim.

Patricia Millett, another lawyer for Rajaratnam, told the three-judge panel that the appeal presented a “substantial question of law” and that Rajaratnam was unlikely to flee to his native Sri Lanka before a ruling.

U.S. District Judge Richard Holwell, who presided over the case and sentenced Rajaratnam in October, had rejected a request for bail pending the appeal.

The appeals court panel included U.S. Chief Judge Dennis Jacobs and Circuit Judges Robert Katzmann and Peter Hall.

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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Roomy Khan’s Sentencing Delayed as Cooperation Continues

Roomy Khan’s sentencing for her role in the Galleon Group LLC insider-trading case was postponed after U.S. prosecutors said she’s still helping them investigate at least one person who hasn’t been charged.

Khan, a former Intel Corp. (INTC) executive and stock trader, was among the first people to plead guilty and cooperate with the U.S. against Raj Rajaratnam, Galleon’s co-founder. She was scheduled to be sentenced Dec. 5. Yesterday, U.S. District Judge Richard Berman, who is presiding over her case, granted the government’s request and set her sentencing for March 1.

While Khan didn’t testify at Rajaratnam’s trial, she played a crucial role for the U.S. as prosecutors and agents with the FBI used her information to obtain a court-authorized wiretap of Rajaratnam’s phone, according to testimony from a pretrial hearing in his case last year.

“Khan is continuing to cooperate in connection with the investigation of at least one individual who has not yet been charged,” Assistant U.S. Attorney Andrew Michaelson said.

Rajaratnam, 54, was convicted in May of directing the biggest insider-trading ring in a generation and sentenced to serve an 11-year prison term. He lost a bid yesterday to remain free pending his appeal and was ordered by a panel of judges at the U.S. Court of Appeals in New York to surrender to U.S. prison officials on Dec. 5.

The case is U.S. v. Khan, 09-cr-991, U.S. District Court, Southern District of New York (Manhattan).

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Del Monte Wins Approval of Settlement of KKR Buyout Suits

Del Monte Foods Co. (DLM) and Barclays Plc won a judge’s approval of a $89.4 million settlement of investor lawsuits over the buyout of the pet-food maker by a group of private-equity firms led by KKR & Co.

The accord, which gave Del Monte investors about 50 cents more a share, “provides excellent consideration,” Delaware Chancery Court Judge Travis Laster said before approving the settlement yesterday at a hearing in Wilmington.

Investors in San Francisco-based Del Monte, maker of Meow Mix cat food and Milk Bone dog biscuits, alleged they were shortchanged in KKR’s buyout, for which London-based Barclays provided some financing. Shareholders received a total $19.50 a share as a result of the accord, according to court filings.

Kristi Huller, a KKR spokeswoman, couldn’t immediately comment on Laster’s decision to approve the settlement yesterday and Kerrie-Ann Cohen, a Barclays spokeswoman, declined to comment. Chrissy Stengel, a Del Monte spokeswoman, didn’t immediately return a call seeking comment.

The accord resolves claims that Barclays, which also served as Del Monte’s financial adviser, had conflicting interests in the $5.3 billion deal because of its financing for the buyers. The private-equity group led by New York-based KKR included Vestar Capital Partners and Centerview Partners LLP.

As part of the settlement, Laster yesterday approved a total of $22.3 million to cover Del Monte investors’ legal fees and costs in bringing the case.

The case is In re Del Monte Foods Co. Shareholder Litigation, CA6027, Delaware Chancery Court (Wilmington).

Ingersoll-Rand Reaches Settlement in Employee Payout Dispute

Ingersoll-Rand Plc (IR) reached a settlement with 130 employees who sued for as much as $72 million in pay under an incentive plan tied to the sale of the company’s Dresser-Rand Group Inc. (DRC) unit.

Terms weren’t disclosed in court documents. The accord was reached on Nov. 29 during the third week of a trial in federal court in Newark, New Jersey. U.S. District Judge Dickinson Debevoise dismissed jurors before they could weigh whether Ingersoll-Rand owed from $11 million, as the company argued, to $72 million, as workers claimed.

“This was a good settlement,” attorney Mark Lanier, who represented a group of employees, said in a telephone interview. “We were excited to finish the case. But by settling at this time, we eliminated the risk of an adverse verdict or a two-year appeal.”

Ingersoll-Rand, a Swords, Ireland-based maker of heating and ventilation equipment, offered the plan, dated in 2000, to retain workers when it began trying to sell Dresser-Rand. After Dresser-Rand, which makes oilfield equipment, was sold in 2004 for $1.2 billion, Ingersoll-Rand said the 2000 plan no longer applied. Workers sued and Debevoise ruled the plan remains in effect, setting up the trial.

Misty Zelent, a spokeswoman for Ingersoll-Rand, didn’t immediately return a call seeking comment on the settlement.

The case is Nye v. Ingersoll Rand Co., 08-cv-03481, U.S. District Court, District of New Jersey (Newark).

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Litigation Departments

Two Rothstein Employees Charged in Lawyer’s Ponzi Scheme

Federal prosecutors charged two more associates of Scott Rothstein, the Fort Lauderdale, Florida, attorney who last year admitted to selling investors interest in bogus settlements in sexual-harassment and whistle-blower cases.

William Boockvor, 66, was charged yesterday with one count of conspiracy to commit wire fraud and helping Rothstein’s scheme by preparing false documents purportedly from TD Bank (TC), where Rothstein’s firm held about 38 trust accounts, prosecutors said in a statement.

The statements were used to convince investors that Rothstein’s law firm was holding money in trust when in fact the money was being spent on his lavish lifestyle and political and charitable contributions. Boockvor worked for the firm doing a variety of administrative tasks, according to prosecutors.

Marybeth Feiss, 42, one of Rothstein’s administrative assistants, was charged with violating federal election campaign laws and conspiring to defraud the U.S. by helping to bundle more than $1 million in contributions to the presidential campaign of U.S. Senator John McCain, the Arizona Republican.

The government said Feiss organized political fundraisers where contributions were solicited for McCain’s campaign. The law firm allegedly reimbursed its associates and employees for their contributions, disguising those payments as bonuses or expense reimbursements.

Feiss, reached at home, declined to comment on the charges. No attorney was listed in federal records for Boockvor, and he couldn’t immediately be reached for comment.

Boockvor used unidentified co-conspirators who worked for TD Bank to convince potential investors that the bank statements were legitimate, the government said.

The latest cases bring to eight the number of people charged in the scheme. “We are not done yet,” U.S. Attorney Wifredo A. Ferrer in Miami said yesterday in a statement.

The cases are U.S. v. Boockvor, 0:11-cr-60281, and U.S. v. Feiss, 0:11-cr-60282, U.S. District Court, Southern District of Florida (Fort Lauderdale).

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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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