Bank of New York Mellon Corp. agreed to change its disclosure statements for so-called standing instruction foreign exchange transactions to partly resolve a lawsuit by U.S. prosecutors.
The bank won’t use the phrase “best execution” in describing its standing instruction service to clients or say that it’s free, according to the agreement approved yesterday by U.S. District Judge Lewis Kaplan in New York. The U.S. won’t seek a court order forcing the bank to disclose how it prices the transactions, according to the filing.
The lawsuit by U.S. Attorney Preet Bharara in Manhattan is one of several brought against the bank, alleging it defrauded clients in foreign currency trades.
The U.S. attorney in an Oct. 4 complaint claimed that BNY Mellon defrauded clients that used its standing instruction foreign exchange service, under which the bank automatically provides currency exchange when the client buys or sells foreign securities. The phrase “best execution” suggests that clients will be getting the best available exchange rate at the time of the transaction, according to the complaint.
“While we are confident that we have provided our clients and their investment managers with the information needed to make informed trading decisions, this agreement addresses disclosure questions raised by the U.S. attorney and is consistent with our ongoing commitment to implement enhancements that will benefit our clients,” the bank said in a statement yesterday.
Under the partial settlement, BNY Mellon must disclose how transactions executed through its standing instruction service are priced and must make certain pricing data available to custodial clients, Bharara said in a statement yesterday.
The parties will continue to litigate the remaining claim in the lawsuit for civil penalties, according to the partial settlement agreement. The U.S. seeks “hundreds of millions” in penalties, Bharara said.
The case is U.S. v. Bank of New York Mellon Corporation, 11-6969, U.S. District Court, Southern District of New York (Manhattan).
Credit Suisse Wins Dismissal of Claims Bank Misled on AOL (AOL) Stock
A Credit Suisse Group AG (CSGN) unit and four of its former executives, including technology investment banker Frank Quattrone, won dismissal of a lawsuit alleging they deceived investors into buying AOL Time Warner (TWX) stock.
U.S. District Judge Nathaniel Gorton in Boston threw out both of the claims in the class-action complaint against the bank and the executives after finding that a study by the plaintiffs’ expert witness was flawed, according to a Jan. 13 ruling. The case was set to go to trial in March.
The case was brought by individuals and a pension fund that bought stock in AOL Time Warner Inc. from the time of its merger in January 2001 until a disclosure in July 2002 of an investigation of its accounting practices. They claimed that 35 research reports issued by the unit, then known as Credit Suisse First Boston, over that period recommended buying the stock and set unattainable financial projections even as the analysts knew the company couldn’t reach those results.
The failure by the expert witness, Scott Hakala, to “isolate the effect of defendants’ alleged fraud from other industry- and company-specific news reported on event days confounds his event study and renders it unreliable,” Gorton said in his ruling.
Frederic Fox, a lawyer for the plaintiffs, declined to comment on the ruling yesterday.
“Credit Suisse’s approach is to fight cases that we believe are meritless,” Steven Vames, a spokesman, said in an e-mailed statement. “We fought this case for 10 years and are gratified by the outcome.”
“We’re pleased with the court’s opinion and are happy to put this flawed case behind us,” Kenneth Hausman, a lawyer for Quattrone, said in a telephone interview.
The case is In re Credit Suisse-AOL Securities Litigation, 02-12146, U.S. District Court, District of Massachusetts (Boston).
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Highland Crusader Asks Court to Reject UBS $686 Million Suit
Highland Crusader Holding Corp. asked a New York state court to dismiss a lawsuit filed by UBS AG (UBSN) seeking damages of more than $686 million for alleged fraudulent conveyances and tortious interference.
UBS, Switzerland’s biggest lender, sued Highland Crusader in New York State Supreme Court in Manhattan in September, claiming the hedge fund “fraudulently induced” the bank to restructure a collateralized debt obligation transaction in 2008.
Most of the lawsuit is a “rote regurgitation” of claims that have been raised in the past against the fund’s parent, Highland Capital Management LP, and dismissed, Highland Crusader said in court documents filed Jan. 16.
“Here we go again,” Highland Crusader said in the filing. The company called the Zurich-based bank’s complaint “yet another fatally flawed attempt to impose contractual liability on a Highland Capital Management LP managed third party based on flimsy allegations and dismissed claims.”
Highland Capital, founded by James Dondero and Mark Okada in Dallas in 1993, announced plans in October 2008 to close its flagship Crusader Fund and the Highland Credit Strategies Fund over a three-year period after suffering losses on high-yield, high-risk loans and other types of debt.
The UBS communications office didn’t respond to an e-mail seeking comment on the filing.
The case is UBS Securities LLC v. Highland Crusader Holding Corp., 652646/2011, New York State Supreme Court (Manhattan).
Fate of 7,000 Stanford Ponzi Investors Hangs on Rare SEC Lawsuit
For 40 years, the U.S. Securities and Exchange Commission and the congressionally chartered group that protects against broker theft have worked in tandem to reimburse people whose accounts are pilfered, Bloomberg News’ Robert Schmidt and Joshua Gallu report.
Now the SEC and the Securities Investor Protection Corp., or SIPC, are about to face off in a bitter court fight that may determine how future fraud victims are covered, raise broker fees that support SIPC and cast doubt on the SEC’s political independence.
The dispute centers on whether more than 7,000 brokerage customers who invested in the alleged $7 billion Ponzi scheme run by R. Allen Stanford are entitled to have their losses covered by SIPC.
SIPC, a nonprofit corporation funded by the brokerage industry, says the Stanford investments don’t fit into the confines of the federal law that governs who’s eligible for the payouts. Investors and their advocates in Congress say SIPC is deliberately taking a narrow view of the law to protect brokers from higher assessments.
The SEC’s commissioners, who have oversight of SIPC, ultimately sided with the investors. In June, the agency ordered SIPC to start a process that could grant as much as $500,000 per client -- the same maximum amount it offers in any case. After SIPC balked, the SEC for the first time sued the group in federal court in Washington.
As the two prepare for a Jan. 24 court date, SIPC has come out swinging, hiring two prominent law firms and an ex-federal judge who’s been on the short list for a Republican Supreme Court nomination. In legal briefs, it accuses the SEC of ceding to pressure from Congress to flout the letter of the law, and argues that the agency’s position jeopardizes investor payouts in other cases, including for clients of Bernard Madoff and MF Global Holdings Ltd (MFGLQ).
“The dollars are such and the principles are such that we have to take it seriously,” said Stephen Harbeck, who has worked at SIPC for 36 years and is now its president.
Harbeck has said that SIPC shouldn’t get involved because investors received actual CDs after the brokerage passed their money to a bank. What happened after that isn’t under SIPC’s purview because the Stanford account holders have possession of their securities, he told a court-appointed receiver in 2009. SIPC covers theft but not fraud, he said.
SEC spokesman John Nester said SIPC’s accusation that the agency was responding to pressure from Congress was “inaccurate” and said “the commission’s decision was based on the facts and the law.”
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Areva Ex-Chief Lauvergeon Says She Was ‘Slandered, Spied Upon’
Anne Lauvergeon defended her record as chief executive officer of Areva SA (AREVA) and said the nuclear-fuel manufacturer spied on her and didn’t pay what they owed her after not renewing her contract seven months ago.
Lauvergeon filed a criminal complaint in Paris against unidentified persons in December after seeing a report by private investigators of her and her husband’s movements and communications. She filed a suit on Jan. 11 against Areva, asking the Paris commercial court to order the state-controlled company to honor a 1.06 million-euro ($1.35 million) departure payment and 440,000 euros for a non-compete clause.
Lauvergeon was denied a third term weeks before her contract expired in June, when the government replaced her with Luc Oursel, Areva’s head of marketing. French authorities are investigating Areva’s $2.5 billion purchase of Canadian uranium mining company UraMin in 2007 after the Paris-based manufacturer forecast an operating loss for 2011 in December because of asset writedowns on mining projects and plant closures in response to the nuclear accident in Japan last year.
Areva’s board “decided to suspend the payment as it hadn’t yet received the report of three independent auditors” looking into the UraMin deal, Patricia Marie, a spokeswoman for Areva, said yesterday. That report is expected by the end of February, she said. Areva is cooperating with the investigation into the spying claims, Marie said.
The French company, the world’s biggest supplier of nuclear fuel and services, paid a “normal” price for UraMin (AREVA), Lauvergeon said Jan. 16. Areva had been searching since 2005 for a company to buy to secure access to uranium.
The acquisition was reviewed by law firms, auditors and the government undertook “a very significant analysis” of the decision as well, Lauvergeon said.
A hearing on Lauvergeon’s complaint regarding her pay is scheduled for Feb. 3.
Applebee’s Restaurants Rebuffed by Top U.S. Court in Wage Case
The U.S. Supreme Court refused to halt a lawsuit that accuses the Applebee’s restaurant chain of underpaying more than 5,500 servers and bartenders in violation of federal labor law.
The justices yesterday turned away an appeal by Applebee’s, operated by DineEquity Inc. (DIN), leaving intact a federal appeals court ruling that let the suit proceed.
The appeal turned on the Labor Department’s interpretation of part of the U.S. Fair Labor Standards Act. The disputed provision lets employers pay as little as $2.13 an hour to workers who receive tips, as long as their combined pay reaches the $7.25 hourly minimum wage.
The Labor Department says the provision doesn’t fully apply when employees spend more than 20 percent of their time performing duties that don’t directly result in tips. The department says that in those cases the employer may have to pay higher wages for the part of the job that doesn’t lead to tips.
In Applebee’s case, the bartenders and servers say they spend much of their time cleaning, taking inventory, stocking serving areas and preparing silverware.
The rebuff is a setback to the National Restaurant Association and U.S. Chamber of Commerce, which supported the Applebee’s appeal.
The case is Applebee’s v. Fast, 11-425, U.S. Supreme Court (Washington).
Finra’s Legal Immunity Won’t Be Questioned by U.S. High Court
The U.S. Supreme Court refused to question the legal immunity of the Financial Industry Regulatory Authority and other private organizations that oversee the country’s financial markets.
The justices yesterday rejected an appeal from a securities firm that accused Finra, as the brokerage-industry oversight body is known, of misleading members about the potential cost to them of its 2007 merger with the New York Stock Exchange’s oversight unit.
The suit by Standard Investment Chartered Inc. also named current and former Finra officers, including Mary Schapiro, now the chairman of the Securities and Exchange Commission.
The suit centered on the proxy solicitation Finra issued in 2006 to change its bylaws to match those of the NYSE. Finra was known as the National Association of Securities Dealers at the time.
Standard Investment argued in its appeal that so-called self-regulatory organizations are entitled to immunity only when they are directly performing a duty on behalf of the government. In throwing out the suit, a federal appeals court in New York said those organizations also are immune for actions they take “incident to” their regulatory functions.
Finra is one of more than 30 self-regulatory organizations registered with the SEC. Standard Investment is based in Costa Mesa, California.
The case is Standard Investment Chartered v. National Association of Securities Dealers, 11-381.
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Amazon.com Sued by Customer Over Hackers’ Theft of Zappos Data
Amazon.com Inc. (AMZN) was accused in a lawsuit by a customer of its Zappos.com unit of violating federal consumer credit laws by failing to protect her personal information after the company said hackers stole account numbers and other data.
Theresa Stevens, a resident of Beaumont, Texas, said that as a result of the breach, she and other Zappos customers are more likely to receive e-mails from spoof websites and unknowingly give away personal information to hackers, according to her complaint filed Jan. 16 in federal court in Louisville, Kentucky. The customers also will incur expenses for credit monitoring and suffer emotional distress and loss of privacy, according to the complaint.
Stevens seeks to represent 24 million Zappos customers whose personal information was compromised, according to the complaint. She received an e-mail from the online shoe retailer Jan. 16 saying her information was stolen as part of a data breach. Hackers gained access to Zappos.com’s internal network through unprotected computer servers located in Shepherdsville, Kentucky, according to the complaint.
Stevens seeks unspecified damages and a court order requiring Amazon.com to pay for credit monitoring and identity theft insurance. Drew Herdener, a spokesman for Seattle-based Amazon, didn’t immediately return a voice-mail message seeking comment yesterday about the lawsuit.
The case is Stevens v. Amazon.com, 12-cv-00032, U.S. District Court, Western District of Kentucky (Louisville).
Apple Files German Design Suit Against 10 Samsung Smartphones
The suit targeting 10 smartphones was filed in the Dusseldorf Regional Court and is based on Apple design rights Apple in Europe, court spokesman Peter Schuetz said via phone yesterday. Apple also started a separate suit against five Samsung tablet computer models related to a September ruling banning the Galaxy 10.1., he said.
Last month, the Dusseldorf court said it is unlikely to grant an injunction against the Galaxy 10.1N and an appeals court also voiced doubts about the reach of Apple’s European Union design right that won the company the injunction against the Galaxy 10.1. The new suits aren’t filed under emergency proceedings and allow Apple a new procedure against both models.
After making headlines by initially winning the September injunction, the Cupertino, California-based Apple has faced setbacks in its battle against its closest rival in tablet computers. In addition to the German litigation, the iPad maker failed to convince an Australian court on Dec. 9 to reinstate a ban in that country. Both companies also filed patent suits against each other in several European countries.
A spokesman for Samsung, who declined to be identified, said the company had received both suits.
The Galaxy 10.1N is a modified version introduced after sales of the original 10.1 tablet were blocked.
The new cases are LG Dusseldorf, 14c O 293/11 and 14c O 294/11.
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J&J Pushed Risperdal for Kids Without Approval, Memo Shows
A Johnson & Johnson (JNJ) unit marketed its Risperdal drug in 2004 to doctors working with troubled children even though regulators hadn’t approved the drug for those patients, company records show.
Officials of J&J’s Janssen unit pushed salespeople in Texas to “flood clinics with Risperdal stuff” as part of a 2004 campaign to increase prescriptions for the anti-psychotic drug written for children and adolescents, according to an internal memo put into evidence yesterday in state court in Austin, Texas. The U.S. Food and Drug Administration didn’t approve Risperdal for any pediatric use until 2006.
Texas officials contend New Brunswick, New Jersey-based J&J, the world’s largest health-care products company, defrauded the state Medicaid program by promoting Risperdal for uses not approved by U.S. regulators, including for children with psychiatric disorders. The state joined a lawsuit filed by a whistle-blower, Allen Jones, a former Pennsylvania health-care fraud investigator.
Lawyers for Texas Attorney General Greg Abbott are asking jurors to award the state at least $579 million from J&J and Janssen in damages over the companies’ marketing program for the anti-psychotic medicine.
Shane Scott, a former Janssen sales manager in Texas, testified he got a memo from his superiors in the summer of 2004 calling for a push to market Risperdal to treat attention- deficit syndrome in kids at the beginning of a new school year.
“When kids are back in school, they are more likely to take their ADD meds,” Scott testified during a videotaped deposition that was played for jurors.
The Texas case is Texas v. Janssen LP, D-1GV-04-001288, District Court, Travis County, Texas (Austin).
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Text, Lies and ‘Dr. Evil’ at Issue in Russian Oligarch Trial
Claims that Boris Berezovsky went to meetings in a bathrobe and signed text messages as “Dr. Evil” were invented by Roman Abramovich and his friends, Berezovsky’s lawyers argued as a lawsuit between the men drew to a close.
Both sides have accused each other of dishonesty and greed during the three-month trial in London. Over the next two days, Berezovsky’s lawyers have a last chance to discredit Chelsea Football Club owner Abramovich, 45, as they sum up the $6.8 billion claim against him to judge Elizabeth Gloster.
“The cynical manipulation of evidence and indeed of the trial process,” by Abramovich is one of the factors Gloster should consider, Berezovsky lawyer Laurence Rabinowitz said yesterday. Their “smears and innuendo” cast doubt on Abramovich’s case, he argued.
Berezovsky, now living in exile in London, claims Abramovich used Kremlin connections to intimidate him into selling stakes in Russian oil and metal companies for far below their real value 10 years ago. The trial ends this week after hundreds of hours of court time, millions of pounds in legal fees and witnesses ranging from kitchen staff to billionaires such as United Co. Rusal Plc (486) founder Oleg Deripaska.
Berezovsky, 65, who built Russia’s largest car dealership in the 1990s, fled the country in 2000 after falling out of favor with then-President Vladimir Putin.
During more than 30 hours of cross-examination in October, Berezovsky said Abramovich wasn’t smart enough to succeed in Russia without him. He maintains he helped Abramovich build up stakes in oil company OAO Sibneft and aluminum assets which eventually became part of Rusal in return for a share of the companies, and that Abramovich forced him to sell by saying the Russian state would seize his shares unless he did. Berezovsky claims he lost about $6.8 billion on the sales.
Abramovich said he gave Berezovsky and an associate, Badri Patarkatsishvili, hundreds of millions of dollars for physical and political protection before paying them $1.3 billion to break off the arrangement in 2001 and 2002.
Rabinowitz said the judge needs to determine whether Abramovich “provided a plausible explanation for the enormous and indeed admitted payments made to Mr. Berezovsky?”
He made the payments “because they related to ownership interests in Sibneft and Rusal and that, we say, explains their size,” Rabinowitz said.
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TD Bank (TD) Aided Rothstein Fraud, Investors’ Lawyer Tells Jury
TD Bank helped Scott Rothstein, the convicted and disbarred Florida attorney, keep his $1.2 billion Ponzi scheme afloat by assuring victims their money was safe while Rothstein depleted the accounts, a lawyer for investors told a jury.
David Mandel, an attorney for Coquina Investments, in closing arguments yesterday after a trial in Miami, pointed to letters in which bank Vice President Frank Spinosa said Rothstein’s account was locked and the money in it could be disbursed only to Corpus Christi, Texas-based Coquina.
Coquina Investments’ Rothstein lawsuit is the first such case against the bank to go to trial. Attorneys representing other investors have been watching it closely.
“This case is very significant,” said William Scherer, an attorney representing a group that lost $180 million. “This is the canary in the coal mine for our case.”
Scherer is also suing TD Bank, a unit of Toronto-Dominion Bank, claiming it had a direct role in the fraud.
Mandel asked for $32 million in compensatory damages and $140 million in punitive damages.
Spinosa took the stand during the trial before U.S. District Judge Marcia Cooke and refused to testify, citing his Fifth Amendment right not to be forced to incriminate himself.
“For all intents and purposes, Frank is the bank” where Rothstein is concerned, Mandel told the jury, referring to Spinosa, who is no longer with the bank.
Mandel said other bank officials failed to act when unusual activity in Rothstein’s accounts triggered money-laundering alerts in the bank’s internal system.
Holly R. Skolnick, a lawyer for TD Bank, said Coquina must have realized that investments earning almost 50 percent in a few months were too good to be legitimate.
“It was obvious to Coquina that these were fraudulent investments,” Skolnick told jurors. “It had to be obvious. These deals make no sense.”
Rothstein pleaded guilty to five counts of wire fraud, conspiracy and racketeering and was sentenced to 50 years in prison in 2010. Victims of his fraud believed they were buying stakes in sexual and employment discrimination settlements that Rothstein’s law firm, Rothstein Rosenfeldt Adler PA, was handling. The settlements were fictional.
The case is Coquina Investments v. Rothstein, 0:10- cv-60786, U.S. District Court, Southern District of Florida (Miami).
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Dart’s Fund May Get Top Court Review on Argentine Judgment
Two funds, one controlled by billionaire Kenneth Dart, may get a U.S. Supreme Court (1000L) hearing in their legal fight to collect at least $2 billion owed by the government of Argentina.
The justices yesterday asked the Obama administration for advice on an appeal by Dart’s EM Ltd. and NML Capital Ltd., an affiliate of the New York-based hedge fund Elliott Associates LP, in a multipronged dispute stemming from Argentina’s 2001 default on $95 billion of bonds.
The funds, which refused to exchange their securities in a 2005 Argentine debt swap, are seeking to enforce $2 billion in judgments they have won in U.S. court cases.
In the case acted on yesterday, EM and NML are trying to seize $100 million in Argentine central bank assets being held at the Federal Reserve Bank in New York. A federal appeals court said that money is shielded under the U.S. Foreign Sovereign Immunities Act.
Dart is president of Mason, Michigan-based Dart Container Corp., the world’s largest maker of foam cups. He gave up his U.S. citizenship in the 1990s to avoid taxes and moved to the Cayman Islands.
Justice Sonia Sotomayor didn’t take part in yesterday’s order. She was involved in the litigation over Argentina’s bonds as an appeals court judge.
The case is EM Ltd. v. Republic of Argentina, 11-604, U.S. Supreme Court (Washington).
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Jefferson County Paid Lawyers $22.1 Million in Fees Over Debt
Alabama’s Jefferson County (3681MF), which filed the biggest municipal bankruptcy in November, has paid lawyers $22.1 million to handle legal troubles caused by its debt crisis, according to county records.
Most of the legal fees are related to a default on more than $3 billion in sewer warrants, County Attorney Jeffrey Sewell said. After the crisis started in 2008, the county hired law firms to negotiate with warrant holders, defend against lawsuits in New York and Alabama, and unsuccessfully fight a tax ruling that cut revenue by $70 million a year, Sewell said.
Jefferson County, home to the city of Birmingham, filed for Chapter 9 bankruptcy after local and state officials and bondholders failed to implement an agreement that would have required the sewer debt to be cut by about $1 billion, rates to increase and the Alabama Legislature to enact new laws to benefit the county’s finances.
Jefferson County’s local bankruptcy firm, Birmingham-based Bradley Arant Boult Cummings LLP, was paid $9.6 million since 2008, the most of any firm hired by the county, according to county records. The county’s main bankruptcy firm, Los Angeles- based Klee, Tuchin, Bogdanoff & Stern LLP, was paid $911,000 since it was hired in 2011.
The county’s bankruptcy is tied to a sewer refinancing tainted by political corruption. In 2009, JPMorgan Chase & Co. agreed to a $722 million settlement with the Securities and Exchange Commission over payments its bankers allegedly made to people tied to county politicians to win business.
The case is In re Jefferson County, 11-05736-9, U.S. Bankruptcy Court, Northern District of Alabama (Birmingham).
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