Rajat Gupta, the former Procter & Gamble Co. (PG) director indicted last year for insider trading, illegally tipped now-convicted hedge fund manager Raj Rajaratnam about P&G’s 2008 sale of Folgers Coffee Co. to J.M. Smucker Co. (SJM), federal prosecutors said.
J.M. Smucker, the Orrville, Ohio-based maker of jams and other food products, bought Folgers for about $3 billion in June 2008. Prosecutors told U.S. District Judge Jed Rakoff in Manhattan yesterday at a pre-trial hearing that the government may file a superseding indictment against Gupta, also a former director of Goldman Sachs Group Inc. (GS), by the end of the month.
Also yesterday, Rakoff said Gupta should “not be too optimistic” about his request to bar Rajaratnam’s wiretapped calls as evidence in the case.
Gupta’s lawyer, Gary Naftalis, asked Rakoff to direct prosecutors to provide more specific details about their case against his client. Naftalis described as “vague” the indictment filed in October which alleges Gupta passed tips about Cincinnati-based Procter & Gamble, Goldman Sachs, and other “companies.”
“In June 2008, Procter & Gamble sold its Folgers Coffee business to J.M. Smucker,” Assistant U.S. Attorney Richard Tarlowe told Rakoff in court yesterday. “The allegation is that Mr. Gupta disclosed the information about that before it was public to Mr. Rajaratnam.”
When asked by Naftalis to identify any other co- conspirators in the case against Gupta or sources of illegal tips, prosecutors said Gupta was the sole source of inside information for any trading done by Rajaratnam.
“We have no evidence whatsoever that anyone other than Mr. Gupta tipped Mr. Rajaratnam,” Assistant U.S. Attorney Reed Brodsky said.
The U.S. will probably argue at the April 9 trial that Rajaratnam told another person that Gupta gave him illegal tips, defense lawyers said in a Jan. 3 filing. Gupta contends that prosecutors are trying to make Rajaratnam a government witness by using statements he made about his alleged sources of inside information. Defense lawyers note that prosecutors at the same time have challenged Rajaratnam’s veracity, and even called the Galleon Group LLC co-founder a liar.
Gupta’s lawyers said they may argue that the government can’t claim that Rajaratnam, convicted of directing the biggest insider-trading scheme in a generation, is believable on statements identifying Gupta as his source for illegal tips when prosecutors have cast doubt on his truthfulness.
Gupta, 63, who also led McKinsey & Co., was indicted in October on accusations that he passed inside information to Rajaratnam.
He was charged with five counts of securities fraud and one count of conspiracy to commit securities fraud. If convicted, he faces as many as 20 years in prison on each of the securities fraud counts and as long as five years on the conspiracy charge. He denies wrongdoing.
Rajaratnam, 54, who was convicted by a jury last year, is serving an 11-year prison term.
Ellen Davis, a spokeswoman for Preet Bharara, U.S. Attorney in Manhattan; Jim Margolin, the Federal Bureau of Investigation spokesman; and Naftalis declined to comment on Gupta’s court filing.
The cases are U.S. v. Gupta, 11-cr-00907, and SEC v. Gupta, 11-cv-07566, U.S. District Court for the Southern District of New York (Manhattan).
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Lehman Seeks Option to Buy All of Archstone Company
Bankrupt Lehman, which has said it plans to sell Archstone for $6 billion to help pay creditors, first seeks to gain control by buying the banks’ stake. Sam Zell’s Equity Residential (EQR), Archstone’s rival in the apartment business, holds an option to buy half of the banks’ stake in the company.
Through the option, “EQR got the cheapest seat at the table that it could,” Paul DeFilippo, a lawyer for Lehman, said at a court hearing yesterday before U.S. Bankruptcy Judge James Peck in Manhattan. “It could exert leverage to buy 100 percent of Archstone.”
Archstone is the largest real-estate asset of Lehman, which is embarking on a $65 billion liquidation plan after three years in bankruptcy court. After agreeing to pay the banks $1.3 billion for 26.5 percent of Archstone, Lehman is asking Peck to rule that it has the right to take Zell’s option to the rest of the banks’ stake at the same price.
Joseph Frank, a lawyer for London-based Barclays, told Peck that the banks have a right to sell their Archstone stakes at a market price. If Zell values the second piece of their holding at more money, Lehman should match his offer, Frank said.
According to Frank, Lehman executives told directors at a Dec. 8 board meeting that they expected to pay about $1.4 billion for the second half of the banks’ stake, not $1.3 billion.
“That was before Lehman sued us,” he said.
Lehman sued the banks on Dec. 15 for breach of contract, saying they colluded to sell a stake to Zell’s company, Archstone’s “largest competitor.”
“Lehman doesn’t like Equity Residential,” Frank said. “If they want to keep the elephant out of the tent they can. They just have to pony up.”
The case is In re Lehman Brothers Holdings Inc. (LEHMQ), 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The complaint is Archstone LB Syndication Partner LLC v. Banc of America Strategic Venture Inc. (In re Lehman Brothers Holdings Inc.), 11-02928, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
Alabama Sheriff Can’t Halt Lawsuits, Bankruptcy Judge Rules
The sheriff of Jefferson County, Alabama, and his deputies can’t temporarily avoid lawsuits as a result of the county’s bankruptcy, a judge ruled.
U.S. Bankruptcy Judge Thomas B. Bennett said civil rights and other suits against Sheriff Mike Hale may proceed so long as the plaintiffs understand they won’t collect any money from the county while it’s in bankruptcy. The sheriff’s department is funded by the county, which may be forced to pay the sheriff’s legal bills.
Plaintiffs who win a judgment against the sheriff will have to return to court for a separate ruling after the bankruptcy is over to collect any money from the county, Bennett said.
“Why would you want to go forward if you have to come back and re-litigate?” Bennett asked lawyers for a group of people suing the sheriff’s department.
Jefferson County filed for bankruptcy last year after the county, state officials and bondholders failed to implement a tentative agreement that would have cut debt by about $1 billion.
Hale asked Bennett to determine whether the sheriff’s department is entitled to the so-called automatic stay of lawsuits granted the county when it filed bankruptcy in November.
The case is In re Jefferson County, 11-05736-9, U.S. Bankruptcy Court, Northern District of Alabama (Birmingham).
WikiLeaks Backers Lose Bid to Keep Twitter Data From U.S.
Three WikiLeaks backers lost their bid to keep information on them collected from their Twitter Inc. accounts from being turned over to U.S. prosecutors who are investigating the group’s publication of classified information.
U.S. District Judge Liam O’Grady in Alexandria, Virginia, denied Jan. 4 a request by the backers that the information sought by prosecutors be blocked while a federal appeals court considers their challenge. O’Grady, in his ruling, said the appeal has little chance of success because existing case law “overwhelmingly” supports the government’s position.
“Litigation of these issues has already denied the government lawful access to potential evidence for more than a year,” O’Grady said in his ruling. “The public interest therefore weighs strongly against further delay.”
The litigation over the Twitter data was the first public skirmish in the government’s criminal investigation of WikiLeaks’s leader, Julian Assange, and others who may have helped leak diplomatic cables and classified military documents through the WikiLeaks website.
The subscribers challenging the order include Birgitta Jonsdottir, a member of the Icelandic parliament; Jacob Appelbaum, a computer security researcher who represented WikiLeaks at a 2010 hacker’s conference in New York; and Rop Gonggrijp, described in court papers as a Dutch activist and businessman.
The three subscribers argued that the U.S. subpoena to Twitter violated their privacy and their rights under the First Amendment of the U.S. Constitution.
“We’re obviously disappointed by this ruling and we think the judge got it wrong,” said Aden Fine, a lawyer with the American Civil Liberties Union who represents Jonsdottir. Fine said his client is considering her options, which include asking the appeals court to delay turning over the data.
They filed an appeal with the U.S. Appeals Court in Richmond, Virginia, last month after O’Grady upheld a magistrate judge’s ruling that required San Francisco-based Twitter to give investigators data on subscribers “associated with WikiLeaks,” including Assange and Bradley Manning, a U.S. soldier charged with leaking classified information.
The district court case is In re Application of the U.S. for an Order Pursuant to 18 USC 2703(d), 11-dm-00003, U.S. District Court, Eastern District of Virginia (Alexandria). The appeal is In re: 2703(d) Application, 11-5151, U.S. Court of Appeals for the Fourth Circuit (Richmond).
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Wells Fargo Faces Scrutiny by Investors on Mortgage Bonds
A bondholder group that won an $8.5 billion settlement (BAC) from Bank of America Corp. on securities backed by soured home loans may also seek payments from Wells Fargo & Co. (WFC), the nation’s biggest mortgage lender.
The law firm Gibbs & Bruns LLP said in a statement yesterday it’s seeking information on pools securing more than $19 billion of residential mortgage-backed securities issued by affiliates of Wells Fargo.
Faulty mortgages and foreclosures (HOMFCLOS) have cost the five largest U.S. home lenders about $70 billion since the start of 2007 and helped drive Bank of America’s shares down almost 60 percent in the past 12 months. Gibbs & Bruns said last month it may also seek reimbursements from JPMorgan Chase & Co. (JPM), the biggest and most profitable U.S. bank.
“Our clients continue to seek a comprehensive solution to the problems of ineligible mortgages in RMBS pools and deficient servicing of those loans,” Kathy Patrick, the Houston-based law firm’s lead counsel on the case, said in the statement. Mary Eshet, a spokeswoman for San Francisco-based Wells Fargo, didn’t have an immediate comment.
News Corp. Pushes Voicemail-Hacking Settlements as Trial Nears
News Corp.’s (NWSA) British newspaper unit is pursuing settlements of at least 10 lawsuits by politicians, movie-stars and other prominent victims of phone hacking before the first civil trial over the scandal starts next month.
Labour party lawmaker Chris Bryant and celebrity lawyer Graham Shear, whose phones were hacked to get stories for News Corp.’s News of the World tabloid, are close to settling their claims, according to documents obtained by Bloomberg News. Their lawsuits were joined with four other “test cases” for a three- week trial scheduled to start Feb. 13 in London.
“Some of the criticism of News Corp.’s conduct to date has been about their use of confidential settlements in the past to prevent facts coming into the public domain, so when it comes to settling any of these test cases, they should tread carefully,” said Mark Watts, a data-privacy lawyer at Bristows in London.
If settlements are reached, about two dozen other backup cases are available, though several of those are also close to settling, including suits filed by ex-lawmaker George Galloway and former U.K. Deputy Prime Minister John Prescott, according to the document.
The trial is intended to give guidance on money damages for 70 cases and potentially hundreds of out-of-court settlements.
Judge Geoffrey Vos created the test-case procedure in May, two months before News Corp. closed the 168-year-old News of the World and dropped its 7.8 billion-pound ($12.1 billion) bid for full control of British Sky Broadcasting Group Plc (BSY) to contain public outrage over the five-year-old scandal.
“They’re trying to avoid the judge making awards that will set a dangerous precedent for further claims,” said Niri Shan, a media lawyer with Taylor Wessing LLP in London. “They’re buying off the risk of that, and it’s not unheard of for cases to settle at the last minute -- even at the door of the court.”
Daisy Dunlop, a spokeswoman for News International, declined to comment on the settlement talks.
Tamsin Allen, the lawyer for Bryant and Prescott, confirmed that settlement talks are under way. Shear, the celebrity lawyer, didn’t return a call for comment.
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Bayer Judge Postpones First Yaz Trial to Have Cases Mediated [bn:WBTKR=BAYN:GR]
Bayer AG (BAYN) , Germany’s largest drugmaker, won’t face the first trial next week over claims its birth-control pills caused blood clots after a judge appointed a mediator in hopes of settling the cases.
U.S. District Judge David Herndon in Illinois last week postponed the Jan. 9 trial of a lawsuit accusing Bayer and some of its units of misleading women about the health risks of its Yasmin family of birth-control pills. The case was the first of more than 10,000 suits over injuries allegedly caused by the drugs, which include the Yaz contraceptive.
Instead, Herndon ordered Bayer and lawyers for women suing the company to meet with mediator Stephen Saltzburg, a George Washington University law professor, to explore the possibility of “settlements in this litigation,” the judge said in a Dec. 31 order.
“While continuing to defend the litigation, the company is engaged in mediation and settlement discussions,” Rosemarie Yancosek, a Bayer spokeswoman, said in an e-mailed statement yesterday.
The cases filed in federal courts were consolidated before Herndon in East St. Louis, Illinois, for pretrial information exchanges.
Herndon scheduled a series of trials for early this year so juries could begin weighing claims that Bayer and its units marketed Yaz and other contraceptives as safer than rivals’ products while knowing they posed a higher risk of clots.
After Bayer officials protested that so-called bellwether trials wouldn’t provide much guidance on the validity of plaintiffs’ claims, Herndon called in Saltzburg as a mediator, Michael Papantonio, a Pensacola, Florida-based lawyer for women suing Bayer, said earlier this week. He was slated to be one of the lead lawyers for Kerry Sims, whose case was scheduled to begin Jan. 9.
“Bayer didn’t want to go to trial and the judge decided to see whether they wanted to seek a solution outside the courtroom,” Papantonio said. “He’s giving both sides a chance to be creative.”
The case is In re Yasmin and Yaz (Drospirenone) Marketing, Sales Practices and Product Liability Litigation, 09-md-02100, U.S. District Court, Southern District of Illinois (East St. Louis).
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SK Chairman Chey Indicted by South Korean Prosecutors
Chey Tae Won, the chairman of South Korea’s third-largest industrial group, was indicted on charges that he embezzled funds from SK Holdings Co. (003600) affiliates to cover investment losses by him and his younger brother.
Seoul prosecutors, who held a televised briefing on Chey’s indictment yesterday, didn’t detain the 51-year-old. The chairman hasn’t used any company money inappropriately and will prove his innocence in court, SK said in an e-mailed response to questions from Bloomberg News.
SK Holdings has businesses including oil exploration and refining, chemicals, telecommunications and transportation. The indictment came on the same day that SK group (SKGZ) companies said they would more than double investment to 19 trillion won ($16.5 billion) this year from 2011 and hire 7,000 more workers.
The investigation may have a “psychological” impact on SK companies while it shouldn’t affect the day-to-day running of individual businesses, said Lee Jin Woo, a fund manager at Seoul-based KTB Asset Management Co.
Chey, who in 2008 was pardoned by President Lee Myung Bak of a fraud conviction, pledged to keep his businesses unaffected by the current investigation, SK said in a statement on Dec. 23.
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J&J Said to Agree to Pay $1 Billion in Risperdal Marketing Probe
Johnson & Johnson (JNJ) will pay more than $1 billion to the U.S. and most states to resolve a civil investigation into marketing of the antipsychotic Risperdal, according to people familiar with the matter.
J&J, the world’s largest health products company, reached an agreement last week with the U.S. attorney in Philadelphia, according to the people, who weren’t authorized to speak about the matter. Negotiations over a possible criminal plea are still under way, they said.
The U.S. government has been investigating Risperdal sales practices since 2004, including allegations the company marketed the drug for unapproved uses, J&J has said in Securities and Exchange Commission filings (JNJ). The company said it has been in negotiations with the U.S. to settle the investigation.
J&J, based in New Brunswick, New Jersey, disclosed in August that it reached an agreement to settle a misdemeanor criminal charge related to Risperdal marketing. The company is discussing paying about $400 million more to settle that portion of the investigation, one of the people said.
“We’re not going to comment on rumor or speculation,” Teresa Mueller, a J&J spokeswoman, said in a phone interview.
The Food and Drug Administration approved Risperdal in 1993 for psychotic disorders including schizophrenia. That market is limited, and J&J’s Janssen unit sought to sell Risperdal for bipolar disorder, dementia, mood and anxiety disorders and other unapproved uses, according to documents in a lawsuit against J&J by the state of Louisiana. It was later approved for other uses.
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Actavis Will Pay $118.6 Million to End Drug-Pricing Claims
Units of Actavis Group Hf (ACT) agreed to pay $118.6 million to resolve claims that they caused the U.S. and four state governments to overpay for drugs.
The settlement, filed Dec. 29 in federal court in Boston, followed an $84 million accord announced a day earlier in a lawsuit by the state of Texas (STOTX1), bringing the total to $202.6 million. In February, a state court jury in Austin ordered units of the Iceland-based company to pay $170 million for inflating billings to the Texas Medicaid program.
In the larger accord, Actavis settled with the U.S., New York, Florida, South Carolina and Iowa. The U.S., Florida and Texas cases were filed by Ven-A-Care of the Florida Keys Inc., a specialty pharmacy which prosecuted them civilly.
Ven-A-Care sued under the U.S. False Claims Act and similar statutes in Florida and Texas, which lets whistle-blowers sue on behalf of the government and share in any recovery. The states pursued their cases separately.
Gerard Farrell, a spokesman for Actavis Inc., the U.S. unit based in Morristown, New Jersey, had no immediate comment on the settlement.
Ven-A-Care settled more than 20 lawsuits since 2000 that allowed state and federal governments to collect about $3 billion. Ven-A-Care collected more than $400 million in whistle- blower fees during that period.
“Ven-A-Care is pleased to have resolved all of its matters with the Actavis group of companies,” said its attorney, James Breen.
Ven-A-Care claimed that Actavis defrauded the U.S. and state governments by falsely reporting inflated prices of drugs. Actavis knew that the governments would use those false reports to set higher reimbursement rates for Medicaid, Ven-A-Care claimed. Actavis denied wrongdoing in the settlements.
The Justice Department didn’t join the case, although it recovered $108 million. Between the two cases, Ven-A-Care collected $15.6 million, court records show.
“The U.S. declined to intervene, which means the Justice Department didn’t invest any resources in the case,” Breen said. “Ven-A-Care and its legal team funded and pursued the case, took all the risks, and will return over $108 million to the federal government. That’s exactly the way the False Claims Act is supposed to work.”
The case is In re Pharmaceutical Average Wholesale Price Litigation, MDL No. 1456, U.S. District Court, District of Massachusetts (Boston). The Texas case is State of Texas Ex. Rel. Ven-A-Care of the Florida Keys Inc., D-1-GV-08-1566, Texas District Court, Travis County (Austin).
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