BofA, Wegelin, JPMorgan, WJB Capital, BP in Court News

Bank of America Corp. lost a ruling in a court fight against MBIA Inc. (MBI) that will help the bond insurer as it tries to recover losses on home loans made by the bank’s Countrywide Financial unit.

MBIA, which says it was duped into guaranteeing payment on Countrywide mortgage bonds, needs only to show the lender made misrepresentations about the loans backing the bonds, instead of establishing they caused the losses the insurer is seeking to recover, New York state Judge Eileen Bransten said in a decision issued yesterday.

“No basis in law exists to mandate that MBIA establish a direct causal link between the misrepresentations allegedly made by Countrywide and claims made under the policy,” she wrote.

The ruling is among legal disputes with bond insurers and investors that “could significantly impact” the potential costs from loans made before the collapse of the U.S. housing market in 2008, Bank of America said in a regulatory filing in August.

Defeats on such matters may add as much as $9 billion to what Bank of America owes bond insurers, according to an August estimate by hedge fund Branch Hill Capital, which has bet against the lender’s stock and has invested in MBIA.

MBIA, which sued Countrywide in 2008, guarantees payments to investors that bought securities backed by pools of the lender’s loans. The insurer says the loans were riskier than Countrywide promised, and as they defaulted, the Armonk, New York-based company was forced to make payments. Through September 2010, MBIA had paid out $2.5 billion on mortgage securities sponsored by Countrywide, Chief Executive Officer Jay Brown told a New York State Assembly committee in February.

Brown said in an e-mailed statement that the company is “very pleased” with the decision.

“The ruling provides us with a straightforward path to recovery of our losses,” he said.

Charlotte, North Carolina-based Bank of America is still reviewing the ruling, spokesman Lawrence Grayson said in a phone interview. He pointed out that the judge denied a ruling requested by MBIA in connection with Countrywide’s obligations to repurchase loans.

The case is MBIA Insurance Corp. v. Countrywide Home Loans Inc., 602825-2008, New York State Supreme Court (Manhattan).

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New Suits

Wegelin Bankers Said to Be Charged by U.S. in Tax Crackdown

Three Swiss bankers charged with conspiring to help U.S. clients hide more than $1.2 billion from American tax authorities worked at Switzerland’s Wegelin & Co., a person familiar with the matter said.

Michael Berlinka, Urs Frei and Roger Keller told clients that they were less vulnerable to a U.S. crackdown on offshore tax evasion because their bank didn’t have offices outside Switzerland, according to an indictment filed yesterday in federal court in Manhattan.

The bank was Wegelin, according to the person, who wasn’t authorized to speak about the matter and didn’t want to be identified. The indictment refers to “Swiss Bank A” and said all three worked at its Zurich branch. No one answered calls after regular business hours at Wegelin, Switzerland’s oldest private bank. Wegelin Bank’s Thomas Tschudi didn’t respond to an e-mail seeking comment.

The indictment comes amid U.S.-Swiss talks to resolve a U.S. probe of offshore tax evasion. Officials are trying to conclude negotiations on a civil settlement with Swiss banks, as well as criminal probes of 11 of them, including Wegelin, based in St. Gallen.

Prosecutors have filed tax charges against more than three dozen former U.S. clients of UBS AG (UBSN) and Credit Suisse Group AG (CSGN), Switzerland’s two biggest banks, and London-based HSBC Holdings Plc (HSBA), Europe’s biggest bank. At least 24 bankers, advisers and attorneys also have been charged.

The indictment details how Berlinka, Frei and Keller helped 23 U.S. clients open undeclared accounts at their bank. Kenneth Heller, a disbarred New York maritime attorney who pleaded guilty on June 27 to hiding more than $26.4 million in accounts at UBS and Wegelin, is also referred to in the indictment. He is scheduled to be sentenced Jan. 20.

The case is U.S. v. Berlinka, 12-cr-00002, U.S. District Court, Southern District of New York (Manhattan).

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JPMorgan Sued for $95 Million Over Mortgage Securities

JPMorgan Chase & Co., the biggest U.S. bank by assets, was sued for about $95 million over mortgage loans bundled into securities.

JPMorgan “materially breached” representations about loans backing the securities, a mortgage-securitization trust said in a summons filed Dec. 30 in New York State Supreme Court in Manhattan.

The Bear Stearns trust is seeking damages of at least $95 million, according to the court filing. Bear Stearns Cos., which was acquired by New York-based JPMorgan, and EMC Mortgage Corp. are also named as defendants.

Jennifer Zuccarelli, a JPMorgan spokeswoman, declined to comment on the lawsuit.

The case is Bear Stearns Asset Backed Securities Trust 2005-4 v. EMC Mortgage Corp., 650003-2012, New York State Supreme Court (Manhattan).

WJB Capital Group Sued by Investor Alleging Fraud

WJB Capital Group Inc., the Wall Street firm that said it’s shutting down its brokerage operations, was sued by an investor over fraud allegations.

WJB Capital and Chief Executive Officer Craig Rothfeld were accused of fraud, breach of contract and other claims over a $250,000 investment in the company, according to a lawsuit filed Dec. 31 in New York State Supreme Court.

James McNally said that in exchange for a $250,000 investment he was promised “compensation for the duration of the investment.” WJB Capital failed to pay and used the money “for fraudulent purposes,” according to the complaint.

“We deny the allegations,” Rothfeld said about McNally’s complaint. “They are baseless and without merit.”

An attorney for McNally didn’t reply to a message seeking comment.

WJB Capital voluntarily ceased broker-dealer operations yesterday, Rothfeld said. The company was “unable to raise capital in a manner that would have allowed the firm to continue its operations given the current climate and the constraints that would have been placed on everyone,” the CEO said

The case is James McNally v. WJB Capital Group Inc., 650005-2012, New York State Supreme Court (Manhattan).

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Lawsuits/Pretrial

JPMorgan May Know Soon If Lehman Lawsuit Will Be Dismissed

JPMorgan Chase & Co. (JPM), fighting Lehman Brothers Holdings Inc. over billions of dollars in claims and damages, may know soon whether its bid to dismiss the defunct firm’s $8.6 billion lawsuit will succeed, a district judge said.

U.S. District Judge Richard Sullivan in New York said he is “working on” a decision on whether Lehman’s suit against the biggest U.S. bank belongs in district court, according to court papers. However, a bankruptcy judge may be ready to rule soon on JPMorgan’s move to dismiss the case, and should do so first, Sullivan told both sides, according to a transcript of a Dec. 30 court session.

“I don’t want to be in a situation where the bankruptcy court is just doing nothing because they’re waiting for me to rule,” Sullivan said. “They got this thing all teed up, maybe just ready to press a button on it.”

Lehman’s suit alleges the New York-based lender helped cause its 2008 collapse by demanding $8.6 billion in collateral. JPMorgan has argued that the case needs a district judge because it raises legal issues beyond the jurisdiction of a bankruptcy judge, who can’t rule on matters including Lehman’s allegation that JPMorgan caused monetary damage to failing Lehman in 2008. Lehman says the suit confines itself to bankruptcy matters.

Separately, JPMorgan is defending $6 billion in claims that Lehman says are “significantly overstated.”

Lehman filed the biggest bankruptcy in U.S. history in September 2008, listing $613 billion in debt.

JPMorgan, which lent $70 billion to Lehman’s brokerage around the time of the bankruptcy, sued Lehman back after the $8.6 billion suit, alleging Lehman defrauded its lender into making the loan.

The main case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The lawsuit is Lehman Brothers Holdings Inc. v. JPMorgan Chase Bank NA, 10-03266, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The district case is Lehman Brothers Holdings Inc. v. JPMorgan Chase Bank, 11-cv-6760, U.S. District Court, Southern District of New York (Manhattan).

BP Seeks Recovery of All Gulf Spill Costs From Halliburton

BP Plc (BP/) seeks to have Halliburton Co. (HAL), its cement contractor for the Macondo well project whose blowout set off the 2010 Gulf of Mexico oil spill, pay all of the oil company’s related costs and damages.

BP had paid more than $21 billion in cleanup costs and economic damages to individuals, businesses and governments harmed by the spill as of Dec. 1, the company said on its website. BP reserved more than $40 billion to cover costs related to the sinking of the Deepwater Horizon drilling rig.

The oil company seeks “the amount of costs and expenses incurred by BP to clean up and remediate the oil spill, the lost profits from and/or diminution in value of the Macondo prospect, and all other costs and damages incurred by BP related to the Deepwater Horizon incident and resulting oil spill,” Don Haycraft, BP’s lead trial attorney, said in a filing Jan. 2 in federal court in New Orleans.

BP and Halliburton accuse each other’s employees of making critical mistakes that caused the blowout of the London-based oil company’s well off the Louisiana coast in 2010. The explosion aboard the Deepwater Horizon killed 11 workers and caused the worst offshore spill in U.S. history.

BP, which owned the Macondo lease, and Halliburton, which provided well-completion services for the project, jointly face more than 500 lawsuits by coastal property owners, businesses and governments claiming billions of dollars in damages from the drifting oil. The lawsuits have been combined for pretrial processing in federal court in New Orleans, where a judge is scheduled to begin a trial in February to determine liability for the spill.

Halliburton, based in Houston, has said in court papers that its cementing-services contract requires BP to indemnify it from all damage claims, even if its employees were found to have shared blame for the disaster.

BP, rejecting that argument, accused Halliburton in the Jan. 2 filing of gross negligence. That level of misconduct “will suffice to eliminate any indemnity obligation for damages of any kind,” Haycraft said in the filing.

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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Coal Producers Rise on Court’s Delay of EPA Pollution Rule

U.S. coal producers including Peabody Energy Corp. (BTU) and Alpha Natural Resources Inc. (ANR) rose after a federal court ruled that the Environmental Protection Agency must delay implementing air-pollution regulations.

Peabody, the largest U.S. coal-mining company, rose as much as 10 percent. James River Coal Co. (JRCCQ), which operates mines in Kentucky, gained as much as 13 percent while Patriot Coal Corp. advanced as much as 9.1 percent.

The U.S. Appeals Court in Washington on Dec. 30 granted a request by electric power producers and other challengers to delay the deadline for some plants to start reducing some polluting emissions.

The EPA’s Cross-State Air Pollution Rule seeks to impose caps on sulfur dioxide, which can lead to acid rain, and nitrogen dioxide, a component of smog, in Texas and 26 eastern states.

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Trials/Appeals

Stanford Seeks Trial Delay After Court Puts Expert Pay on Hold

R. Allen Stanford, accused of running a $7 billion investment fraud, seeks a three-month delay in his Jan. 23 trial date after his expert witnesses quit because they weren’t being paid.

Stanford’s experts haven’t been paid for four months, Ali Fazel, Stanford’s lead criminal-defense lawyer, said in court papers filed Dec. 30 in federal court in Houston. They quit last week after the U.S. Court of Appeals, which controls budgets for Stanford’s publicly funded defense, ruled that it will “modify and limit the expert budget moving forward” and withhold payments to them until after the trial, Fazel said.

Stanford, 61, has been in custody since he was indicted in June 2009 on charges of defrauding investors through bogus certificates of deposit at his Antigua-based Stanford International Bank.

Stanford was declared mentally fit for trial on Dec. 22, after completing eight months of rehabilitation at a federal prison hospital in Butner, North Carolina. U.S. District Judge David Hittner found the former financier had sufficiently recovered from head injuries suffered in a September 2009 jailhouse assault and an addiction to anxiety drugs prescribed by prison doctors following the attack.

Fazel said in the Dec. 30 filings that prosecutors didn’t oppose a one-week delay in yesterday’s deadline for filing expert reports in the case.

Assistant U.S. Attorney Gregg Costa told Hittner last month that the government doesn’t oppose a delay of six to eight weeks in Stanford’s trial to give him more time to review documents with his attorneys.

Laura Sweeney, a Justice Department spokeswoman, declined to comment on the request for a three-month delay, citing a gag order issued by the judge.

The case is U.S. v. Stanford, 09-cr-00342, U.S. District Court, Southern District of Texas (Houston).

Exxon’s Pursuit of Venezuelan Cash ‘Not Over Yet’ After Ruling

Exxon Mobil Corp. (XOM)’s four-year hunt for billions of dollars in nationalized Venezuelan oil profits isn’t finished after an international panel slashed the U.S. oil company’s claim by 89 percent.

Venezuela’s state-controlled oil producer, known by the acronym PDVSA, was ordered to pay Exxon $746.9 million for the 2007 seizure of oil wells, crude-processing facilities and related equipment, according to a copy of the International Chamber of Commerce’s Dec. 23 ruling obtained by Bloomberg News. The award represents 11 percent of the $7 billion sought by Exxon, the world’s largest company by market value.

Exxon, the first international energy explorer to abandon Venezuela 4 1/2 years ago when Hugo Chavez consolidated control of the nation’s oil industry, is counting on a separate arbitration case overseen by the World Bank to win billions in potential profits the company says were lost as a result of the nationalization, said Lysle Brinker, director of energy equity research at IHS Inc. (IHS)

“Initially, this looks like a pretty low number because it does not fully reflect the value of the assets Exxon lost,” Brinker said Jan. 2 in a telephone interview from Norwalk, Connecticut. “But this is not over yet.”

Exxon and the Venezuelan government are scheduled to resume arguments before the World Bank panel in February.

Exxon sought arbitration with PDVSA and the Venezuelan government in 2007, a decade after Mobil Corp. began drilling wells in the Orinoco River basin and building facilities to process the region’s thick, tar-like crude. Exxon acquired Mobil and assumed operations of the Cerro Negro venture in 1999.

PDVSA said yesterday on its website that it will pay $255 million in cash for the judgment, after accounting for about $300 million in a frozen New York bank account and $191 million in Exxon debt that the Venezuelan company will cancel. The total amount of the International Chamber of Commerce ruling was for $907.6 million, minus a $161 million counterclaim by PDVSA.

The separate proceeding before the World Bank’s International Centre for the Settlement of Investment Disputes is “larger” than the ICC case, Patrick McGinn, an Exxon spokesman, said Jan. 2 in an e-mailed statement.

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U.K. Plans Appeal to Court Ruling Against Solar Subsidy Cut

The U.K. government will appeal a High Court ruling against its decision to cut subsidies for solar power, a spokeswoman for the Department of Energy and Climate Change said.

Lawyers for the government will submit the appeal today, the spokeswoman said by phone yesterday, asking not to be named in line with the department’s policy.

The High Court in London ruled on Dec. 21 that a government decision to cut a feed-in tariff for solar energy starting on Dec. 12 was “unlawful.”

The court decision was a victory for companies including Solarcentury Holdings Ltd., which challenged the plan to reduce rates paid for solar by as much as 55 percent before a consultation with the industry finished on Dec. 23.

Barker said on Twitter yesterday he planned to publish proposals to reform the feed-in tariff scheme this month to make it “more like Germany.” The spokeswoman said the government aimed to publish the proposals, a second consultation that would consider tariffs for non-solar photovoltaic technologies, “as soon as possible.”

Lawmakers in both the ruling Conservative Party and the Labour opposition say cuts are necessary to prevent a surge in solar power from jacking up electricity bills. Climate Change Minister Greg Barker wrote on his Twitter feed yesterday that he would appeal the decision.

“The current high tariffs for solar PV are not sustainable, and changes need to be made in order to protect the budget, which is funded by consumers through their energy bills,” Barker said in a statement in December.

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Verdicts/Settlements

Union Carbide Asbestos Verdict Erased by Mississippi Judge

A $322 million jury verdict in an asbestos case against Dow Chemical Co. (DOW)’s Union Carbide unit and Chevron Phillips Chemical Co. was overturned by a Mississippi judge.

The companies asked the state Supreme Court to overturn the verdict, saying Smith County Circuit Judge Eddie Bowen had a conflict of interest because his parents had asbestos legal claims, including one against Union Carbide.

The state’s high court removed Bowen from the case last year. His replacement, Special Judge William F. Coleman, said on Dec. 22 that the companies’ request to remove Bowen and vacate the verdict were “well taken and should be granted.”

The May 4, 2011, verdict was the largest ever made to a single asbestos case plaintiff, according to data compiled by Bloomberg. State punitive-damages restrictions would have reduced the verdict by at least $260 million. Coleman’s order doesn’t include information on a new trial. The jury award was the ninth-largest in the U.S. overall in 2011, according to Bloomberg data.

Dow Chemical spokesman Scot Wheeler wasn’t available to comment on the judge’s order. Bowen’s court administrator, Judy Herrington, said he was out of the office and wouldn’t comment on the case.

Plaintiff Thomas Brown claimed he developed asbestosis after being exposed to the toxic fibers while mixing drilling mud on oil rigs in the Gulf of Mexico. He claimed Union Carbide and Chevron Phillips knew asbestos is toxic and didn’t warn him.

The case is Brown v. Phillips Co., 2006-196, Circuit Court, Smith County, Mississippi (Raleigh).

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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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