BofA, Pfizer, Sharp, Morgan Stanley, AT&T, BP in Court News

Bank of America Corp. (BAC) reached a $315 million settlement with a group of investors who sued its Merrill Lynch unit claiming they were misled about mortgage- backed securities, according to a court filing.

Holders of the asset-backed certificates sued Merrill Lynch starting in December 2008 for alleged “false and misleading” prospectus statements related to the securities, according to the complaint and a brief filed yesterday in Manhattan federal court.

The investors said that inaccurate statements were made about qualifications of mortgage-loan borrowers, property appraisals and debt-to-income ratios of applicants, and that “the registration statement materially misrepresented the credit quality of the mortgage loans underlying the certificates.”

The $315 million will be distributed to certificate holders who submit valid claim forms, plaintiffs’ lawyers said in court papers.

Lawrence Grayson, a Bank of America spokesman, said in a phone interview that the company had no comment on the settlement.

Merrill Lynch, bought by Bank of America in 2009, said investor losses were the result of “the overall economic downturn, housing-price declines and reduced liquidity,” according to settlement papers.

The investors’ attorneys requested a final hearing on March 21 to approve the settlement.

The litigation included “review and analysis of more than 20 million pages of documents,” David Stickney, a lawyer for the investors, said in court papers.

The lead case is Public Employees’ Retirement System of Mississippi v. Merrill Lynch & Co., 08-CV-10841, U.S. District Court, Southern District of New York (Manhattan).

Pfizer Ordered by Jury to Pay $72.6 Million in Prempro Case

Pfizer Inc. (PFE) must pay $72.6 million in damages to three women who said they developed breast cancer after taking the company’s menopause drugs, a Philadelphia jury decided.

Jurors yesterday in state court deliberated over two days before finding hormone-replacement drugs made by Pfizer’s Wyeth and Pharmacia Upjohn units were responsible for Susan Elfont, Bernadette Kalenkoski and Judy Mulderig developing cancer. The panel awarded Elfont $20 million in compensatory damages; Kalenkoski, $27.9 million; and Mulderig, $24.8 million.

“We are obviously disappointed with the verdict in this case,” Chris Loder, a Pfizer spokesman, said in a written statement. “Once the verdict is finalized, the company will weigh its legal options to determine how it will continue with the case.”

More than 6 million women took Prempro and related menopause drugs to treat symptoms such as hot flashes and mood swings before a 2002 study highlighted their links to cancer. Wyeth’s sales of the medicines, which are still on the market, topped $2 billion before the release of the Women’s Health Initiative, a National Institutes of Health-sponsored study.

Until 1995, many menopausal women combined Premarin, Wyeth’s estrogen-based drug, with progestin-laden Provera, made by Pfizer’s Upjohn unit, to relieve their symptoms. Wyeth combined the two hormones in its Prempro pill.

Pfizer’s Wyeth and Upjohn units have now lost 10 of the 18 Prempro cases decided by juries since trials began in 2006. The drugmaker got some of those verdicts thrown out after trial or had the awards reduced. It resolved some of the verdicts through settlements, while other decisions are on appeal. It also has had cases thrown out before trial.

Pfizer announced in May that it had settled a third of the pending Prempro cases and had set aside $772 million to help resolve the claims.

The Philadelphia case is Elfont v. Wyeth Pharmaceuticals Inc., 00924, Jury Term 2004, Philadelphia Court of Common Pleas (Philadelphia).

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KV Pharmaceutical to Pay $17 Million in False-Claims Case

KV Pharmaceutical Co. agreed to pay $17 million to settle allegations that it made false claims to the U.S. in seeking reimbursement for unapproved drugs.

The settlement resolves allegations made in a whistle- blower lawsuit filed in Boston federal court, according to an e- mailed statement yesterday from the Justice Department. The U.S. claimed that Ethex Corp., a now-defunct unit of KV Pharmaceutical, misrepresented the regulatory status of Nitroglycerin ER and Hyoscyamine Sulfate ER, according to the statement.

The Food and Drug Administration found the drugs ineligible for reimbursement by government health programs including Medicaid, the Justice Department said. The company will pay $10.2 million to the U.S. and $6.8 million to states involved in the lawsuit. The whistle-blower will receive $1.5 million from the U.S. share of the settlement, according to the statement.

“Today’s settlement underscores our commitment to pursuing pharmaceutical companies that allegedly provide false information to obtain taxpayer dollars for unapproved and ineffective drugs,” said Tony West, assistant attorney general for the Justice Department’s Civil Division.

The $17 million will be paid out over five years, with less than $1 million to be paid within the first year, Greg Divis, president and chief executive officer of the Bridgeton, Missouri-based drugmaker, said in an e-mailed statement.

“We are satisfied with the settlement terms and the resolution of a legacy issue associated with our dissolved Ethex subsidiary,” Divis said.

The case is U.S., ex rel v. Actavis Mid-Atlantic, 02-11738, U.S. District Court, District of Massachusetts (Boston).

Alpha to Pay $209 Million Settlement Over Coal Mine Blast

Alpha Natural Resources Inc. (ANR) will pay $209 million to settle a criminal investigation and civil proceedings related to the fatal 2010 explosion at the Upper Big Branch coal mine, the deadliest U.S. mining disaster in 40 years.

The payment includes $46.5 million in restitution to the families of the 29 miners who were killed and the two who were injured in the April 5, 2010, accident, as part of a non- prosecution agreement with the U.S. Justice Department, Bristol, Virginia-based Alpha said in a filing yesterday.

Alpha will also spend $80 million on mine-safety upgrades, $48 million for health and safety research and development, and $35 million to resolve outstanding citations.

Upper Big Branch, located in Raleigh County, West Virginia, was operated by Massey Energy Co., which Alpha acquired in June for $7.1 billion.

“Investors were expecting anything from $100 million to $150 million,” said Lucas Pipes, a New York-based analyst with Brean, Murray Carret & Co. “It’s higher than expected but not egregiously higher than what folks were pricing in.”

“The investigation of individuals associated with Massey is still ongoing,” U.S. Attorney Booth Goodwin said at a press conference in Charleston, West Virginia, yesterday. “This agreement does not impair any criminal charges against any individuals.”

The settlement also doesn’t affect any civil lawsuits filed by the miners’ families, Goodwin said.

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Sharp, Seven Panel Makers Pay $388 Million in Antitrust Case

Sharp Corp., Samsung Electronics Co. (005930), and six other makers of liquid crystal display panels used in computers and televisions agreed to pay $388 million to settle price fixing claims by direct purchasers of the products.

Sharp paid $105 million, Samsung paid $82.7 million and Chi Mei Optoelectronics Corp. paid $78 million, according to filings in federal court in San Francisco. The companies were alleged in a group lawsuit to have fixed prices of the panels, driving up prices for purchasers. The suit stems from a U.S. Justice Department investigation.

The case is In Re TFT-LCD (Flat Panel) Antitrust Litigation, 07-1827, Northern District of California (San Francisco).

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AMR Corp. Wins Ruling Over $30 Million Grant From TSA

AMR Corp. (AMR)’s American Airlines won a federal appeals court ruling over a $30 million Transportation Security Administration grant it sought for a baggage-security system at John F. Kennedy International Airport.

The U.S. Court of Appeals in Washington yesterday said the TSA improperly rejected American’s request for reimbursement for the system, which was put in place at the New York airport after the Sept. 11, 2001, terrorist attacks. The three-judge panel ordered to agency to reconsider its decision.

The agency acted “arbitrarily and capriciously” in denying the airline’s request “without providing a sufficient rationale on the record for doing so,” Judge David Sentelle wrote in the opinion.

American said it constructed a so-called in-line baggage security system at JFK in 2002 to detect explosives at the urging of the TSA, according to the ruling. An in-line system checks for explosives while luggage is on the airport’s baggage conveyor.

At the time, the airline preferred a system that screened bags in the airport lobby at standalone stations where explosive detection systems were already available, noting the in-line system would require alterations to the terminal building, according to the ruling.

Charles Miller, a Justice Department spokesman, said the department was reviewing the appeals court decision.

“Today’s court decision affirms that the federal statutory mandate requiring payment was not followed in this matter,” Tim Smith, an American spokesman, said in an e-mailed statement. “American looks forward to meeting with the TSA to discuss this further.”

The case is American Airlines Inc. v. Transportation Security Administration, 10-1418, U.S. Court of Appeals for the District of Columbia (Washington).

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Lawsuits/Pretrial

Expert-Networking Executive Loses Bid for New Fraud Trial

Former Primary Global Research LLC executive James Fleishman lost a bid to have a conviction for his role in an insider-trading conspiracy thrown out by a federal judge.

U.S. District Judge Jed Rakoff in Manhattan also rejected Fleishman’s request for a new trial. Rakoff denied both requests in a one-page order made public yesterday.

Fleishman, of Santa Clara, California, had argued that prosecutors failed to establish that any of his alleged contributions to the conspiracy occurred in New York. He had also said he was improperly barred from taking the stand in his own defense when he was told that before he could be questioned he had to turn over his personal diaries to prosecutors.

Fleishman was convicted in September of two separate conspiracy charges for what the U.S. said was a scheme to obtain and pass confidential information from technology company employees who moonlighted as consultants for Mountain View, California-based Primary Global, a so-called expert-networking firm.

The nonpublic information went to fund managers who paid Primary Global for consultation calls, prosecutors said.

Fleishman’s sentencing is set for Dec. 21. He faces as long as 20 years in prison on the most serious count, according to prosecutors.

Ethan Balogh, a lawyer for Fleishman, didn’t return a voice-mail message left at his office seeking comment.

The case is U.S. v. Nguyen, 11-cr-32, U.S. District Court, Southern District of New York (Manhattan).

Morgan Stanley (MS) Denies Wrongdoing in Investors’ Lawsuit

Morgan Stanley, accused by 18 Singapore investors of fraudulently wiping out their $154.7 million investment, denied wrongdoing and said the group was sophisticated and knew of the risks involved.

The bank acted in good faith and shouldn’t be liable for losses suffered by the investors as they were caused by events beyond its control, Morgan Stanley said in a filing in federal court in Manhattan Dec. 5.

Morgan Stanley, based in New York, on Oct. 31 won a narrowing of claims by the Singapore investors who said they were induced to buy synthetic collateralized debt obligations that were designed to fail.

Any alleged misstatements by Morgan Stanley on the notes “were mere puffery or were vague statements of optimism,” the bank said in its filing yesterday. “Defendants had no duty to disclose the allegedly omitted information.”

U.S. District Judge Leonard Sand had granted the firm’s request to throw out claims of negligent misrepresentation, breach of fiduciary duty, unjust enrichment, aiding and abetting. Sand allowed other claims of fraud and breach of good covenant and good faith to continue.

The investors had shown sufficient evidence that they acted reasonably in relying upon Morgan Stanley’s statements, Judge Sand said on Oct. 31.

The investors alleged Morgan Stanley created collateralized debt obligations -- a debt security usually backed by bonds or corporate loans -- and failed to inform the investors that it was a counter-party to the agreements. For each dollar the investors lost, the bank gained a dollar, the group, including the Singapore Government Staff Credit Cooperative Society Ltd. said in their lawsuit filed last year.

The case is Dandong v. Pinnacle Performance Limited, 10- CV-8086, U.S. District Court, Southern District of New York (Manhattan).

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Trials/Appeals

AT&T, Sprint Propose Antitrust Trial After Government’s Case

AT&T Inc. (T) and Sprint Nextel Corp. (S) agreed their dispute over AT&T’s planned purchase of T-Mobile USA Inc. (DTE) should be tried after the government’s case opposing the deal while they clashed on the proposed schedule.

AT&T and Sprint, in separate filings yesterday in U.S. District Court in Washington, said their aim is to avoid interfering with trial of the U.S. Justice Department’s lawsuit scheduled for Feb. 13.

Sprint and Cellular South Inc., which also sued to block the $39 billion T-Mobile acquisition, proposed that Judge Ellen Segal Huvelle set a trial date “immediately” after all the evidence is presented in the U.S. case “so that they can be heard prior to the closing of the transaction.”

AT&T argued that no trial date should be set until Huvelle hands down a verdict in the Justice Department case. The lawsuits involve different claims and will require different evidence, the company said.

“The schedule for this litigation need not depend on the timing for the closing of this transaction,” AT&T’s lawyer, James Wade of Haynes & Boone LLP in Washington, wrote. Wade argued that Huvelle has authority to order the merged company to change its behavior after the deal has closed if she finds antitrust violations.

A hearing in all three antitrust cases is scheduled for Dec. 9.

The Justice Department sued Dallas-based AT&T and T-Mobile 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.

Sprint, the third-biggest U.S. wireless carrier, filed its antitrust lawsuit on Sept. 6, saying the proposed merger would weaken its ability to compete with AT&T, the second-biggest, and Verizon Communications Inc. (VZ), the market leader.

Cellular South, based in Ridgeland, Mississippi, sued on Sept. 19, claiming the merger threatened to “substantially” cut competition.

The government’s case is U.S. v. AT&T Inc., 1:11-cv-01560; Sprint’s case is Sprint Nextel Corp. 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).

Accused Inside Trader ‘Shocked’ Hedge-Fund Friend Misled Him

Accused insider trader Rupinder Sidhu told U.K. authorities he was shocked to discover a friend who worked as a hedge-fund trader had passed him confidential information.

Sidhu, a management consultant from Osterley, West London, thought share tips from AKO Capital LLP trader Anjam Ahmad were based on “research, knowledge and expertise” not inside information, according to a statement he gave to the Financial Services Authority that was read out in court yesterday.

“I was shocked to discover what Ahmad had been doing at his work,” Sidhu wrote. “I have not knowingly been involved in any insider-dealing activity.”

Ahmad told Sidhu when his firm was about to buy or sell a stock so Sidhu could benefit from the effect of those trades on its share price, Michael Brompton, a lawyer for the FSA said last week. Sidhu, 40, made about 500,000 pounds ($780,500) from spread bets on companies including Julius Baer Group Ltd., Swatch Group AG (UHR) and Michael Page International Plc (MPI) between June and August 2009, according to prosecutors.

Sidhu, who pleaded not guilty to 23 counts of insider trading and one money laundering charge in April, is due to be cross-examined today. Insider trading carries a maximum sentence of seven years.

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BP Has Road Map in Citgo Oil-Spill Case for Macondo Fine

A Citgo Petroleum Corp. oil-spill case gives a template for the way BP Plc (BP/)’s liability and penalty will be decided in the government’s Clean Water Act lawsuit over the worst U.S. offshore spill.

U.S. District Judge Richard T. Haik in Lafayette, Louisiana, ruled Sept. 29 that Citgo must pay $6 million, or $111 per barrel of oil spilled at its Lake Charles refinery in 2006. That’s about 10 percent of the maximum $1,100 under the Clean Water Act. The amount can rise to $4,300 for gross negligence.

In the BP case, U.S. District Judge Carl Barbier in New Orleans will oversee a trial to begin Feb. 27 on fault and on whether there was gross negligence, which BP denies. Barbier will use his findings in a later trial on the penalty.

The spill size and BP’s cleanup efforts may keep the penalty at the low end of the scale, said Anthony Sabino, a St. John’s University law professor in New York.

“When you get into the stratosphere of a half billion, or $1 billion, that punishment may be unjust by itself,” said Sabino, a specialist in litigation and oil-and-gas law.

A fine of $111 a barrel would be $455.1 million, using the government estimate of 4.1 million barrels spilled. The maximum amount, $1,100, would mean a $4.51 billion penalty; the top figure for gross negligence, $17.6 billion.

The company declined to comment on the litigation through a spokesman, Scott Dean.

BP set aside $3.5 billion for Clean Water Act fines for the Macondo spill, assuming $1,100 a barrel and its own estimate of 3.2 million barrels, according to an annual report extract posted on the company website.

The April 2010 Macondo well blowout and following explosion killed 11 workers and set off the worst offshore oil spill in U.S. history. The accident led to hundreds of lawsuits against London-based BP and its partners and contractors.

The BP case is U.S. v. BP Exploration & Production Inc., 2:10-cv-04536, U.S. District Court, Eastern District of Louisiana (New Orleans). The case is part of 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).

The Citgo case is U.S. v. Citgo Petroleum Corp., 2:08- cv-00893, U.S. District Court, Western District of Louisiana (Lafayette).

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New York Executives Go to Trial on $21 Million Fraud

Two executives of a New York holding company that owned lighting and furniture dealers used false information to get $21 million in loans from Amalgamated Bank, a prosecutor said at the start of their trial.

Courtney Dupree, the former chief executive officer of GDC Acquisitions LLC in Long Island City in Queens, New York, and Thomas Foley, a lawyer in Hoboken, New Jersey, who was the company’s outside counsel and then became its chief operating officer, are charged with bank fraud, conspiracy and false statements.

“This is a case about lying to a bank to get money,” Assistant U.S. Attorney David Woll told jurors yesterday in federal court in Brooklyn, New York. “It is about telling lies over and over again in order to grab millions of dollars of the bank’s money.”

Dupree and Foley ran a scheme to defraud New York-based Amalgamated, with $4.5 billion in assets, and C3 Capital LLC, a private-equity investment firm, from January 2007 to July 2010, according to prosecutors in the office of U.S. Attorney Loretta Lynch.

Amalgamated realized $16 million in losses from the crime, Woll told jurors yesterday.

U.S. District Judge Kiyo A. Matsumoto is presiding over the trial.

When Dupree was originally arrested in July 2010, “Amalgamated was being repaid on time and had been every month,” Roscoe C. Howard, one of his lawyers, told jurors yesterday. “And the bank was not complaining.”

Howard, a partner at Andrews Kurth LLP in Washington, said documents in the trial wouldn’t back up the government’s fraud accusations.

“Fraud cases leave an audit trail,” he told the jurors. “‘Show it to us if you’ve got it.’ But they can’t. Because it doesn’t exist.”

The case is U.S. v. Dupree, 10-cr-627, U.S. District Court, Eastern District of New York (Brooklyn).

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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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