More than 100 bankers claim Commerzbank AG (CBK) broke a pledge by Dresdner Bank, which it bought in 2009, to set aside about $516 million for bonuses and are asking a U.K. court this week to order that they be paid.
In the trial, scheduled to begin tomorrow in London, the former Dresdner bankers seek about 50 million euros ($64.5 million), with individual payouts of as much as 2 million euros. The suit is the largest in the U.K. over bonus cuts resulting from the financial crisis following the bankruptcy of Lehman Brothers Holdings Inc.
After buying the bank, Commerzbank slashed by as much as 90 percent bonuses promised to workers by former Dresdner Chief Executive Officer Stefan Jentzsch, the claimants said in court papers. Germany’s second biggest lender argues it shouldn’t have to make the payments because of record losses at Dresdner after Lehman’s demise.
“Commerzbank will show that Dresdner Bank was entitled to reduce its employees’ 2008 discretionary bonuses in the light of the significant deterioration in the investment bank’s performance in late 2008,” it said in an e-mailed statement.
Witnesses at the Dresdner trial will include Jentzsch and current Commerzbank CEO Martin Blessing, along with current and former Dresdner employees. Commerzbank has already faced other lawsuits in London, Germany and Singapore from workers who said they weren’t paid what they were due after the 2009 takeover. It won the German case and has settled others in London.
The cases include Fahmi Anar & Others v. Dresdner Kleinwort Ltd., Commerzbank AG, High Court of Justice, Queen’s Bench Division, HQ09X05230 and Richard Attrill & 71 others v. Dresdner Kleinwort Ltd., Commerzbank AG, HQ09X04007
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JPMorgan Sued by John Hancock Over Mortgage Securities
JPMorgan Chase & Co. was sued by Manulife Financial Corp.’s John Hancock Life Insurance unit, which accused the bank of fraud in connection with the sale of residential mortgage-backed securities.
The lawsuit, filed yesterday in New York state Supreme Court in Manhattan, seeks unspecified damages for losses of market value and principal and interest payments, as well as rescission and recovery of payment for the investments.
John Hancock bought the securities “in reliance on the false and misleading” statements made by the defendants, which include Bear Stearns & Co. and Washington Mutual Inc. (WAMUQ), both of which were acquired by JPMorgan, lawyers for the Boston-based insurer said in the lawsuit.
“Based on these material misrepresentations and omissions, plaintiffs purchased securities that were far riskier than had been represented, backed by mortgage loans worth significantly less than had been represented, and that had been made to borrowers who were much less creditworthy than had been represented,” attorneys for John Hancock said in the lawsuit.
Pools of home loans securitized into bonds were a central part of the housing bubble that helped send the U.S. into the biggest recession since the 1930s. The housing market collapsed, and the crisis swept up lenders and investment banks as the market for the securities evaporated.
The case is John Hancock Life Insurance Co. v. JPMorgan Chase & Co. (JPM), 650195/2012, New York state Supreme Court (Manhattan).
Morgan Stanley (MS) Sued by Sealink Over Mortgage Securities
Morgan Stanley was sued by Sealink Funding Ltd., which accused the bank of fraud in connection with more than $556 million in residential mortgage-backed securities.
Sealink, a fund created to manage Landesbank Sachsen AG’s riskiest assets after the German lender almost collapsed, filed the lawsuit in New York state Supreme Court in Manhattan on Jan. 20.
The securities were bought between 2006 and 2007 using information provided by Morgan Stanley, which said it had conducted due diligence on the lenders of the mortgages on which the investments were based and assured Sealink that the loans met underwriting standards and deserved the AAA ratings they were assigned, lawyers for Sealink said in a statement.
“In truth, and as Sealink and the world would only later discover, the originators whose loans collateralized the Morgan Stanley RMBS at issue were among the worst of the worst culprits in the subprime lending industry,” Sealink said in the lawsuit.
Lauren Onis, a spokeswoman for Morgan Stanley, didn’t immediately comment on the lawsuit in a telephone interview.
Sealink filed similar suits against JPMorgan Chase & Co. and Bank of America’s Countrywide unit in September. Pools of home loans securitized into bonds were a central part of the housing bubble that helped send the U.S. into the biggest recession since the 1930s. The housing market collapsed, and the crisis swept up lenders and investment banks as the market for the securities evaporated.
The case is Sealink Funding Ltd. v. Morgan Stanley, 650196/2012, New York state Supreme Court (Manhattan).
Macy’s Sues Martha Stewart Living Over Exclusivity Agreement
Macy’s Inc. (M) sued Martha Stewart Living Omnimedia Inc. seeking to enforce an agreement allowing its department stores exclusive rights to sell certain Martha Stewart-branded products.
The retailer filed a complaint in New York State Supreme Court in Manhattan yesterday aimed at stopping New York-based Martha Stewart Living from executing a new sales agreement with J.C. Penney Co., according to court documents.
Macy’s, based in Cincinnati, renewed a 2006 agreement for Martha Stewart-branded products, such as cookware, kitchen utensils and bed and bath items, for another five years, Jim Sluzewski, a spokesman for the retailer, said in an e-mail. It expires in January 2018, Sluzewski said.
The lawsuit seeks to enforce the agreement “in which the right for Macy’s to sell product exclusively in these categories was clearly outlined,” Sluzewski said.
“Macy’s plans to fully support its exclusive Martha Stewart-branded product going forward,” Sluzewski said. “Martha Stewart is among a wide range of leading brands offered in Macy’s home store and we will continue to expand and improve our home offering based on localized customer preferences across the country.”
Jeanne Meyer, a Martha Stewart Living spokeswoman, said in an e-mail that the company “typically doesn’t comment on legal matters.”
The case is Macy’s Inc. v. Martha Stewart Living Omnimedia (MSO) Inc., 650197/2012, New York State Supreme Court (Manhattan).
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Foreclosure Deal Won’t Be Reached This Week, Miller Says
Iowa Attorney General Tom Miller said a deal with the five biggest U.S. mortgage servicers to resolve a probe of foreclosure practices won’t be reached this week.
State and federal officials have been negotiating a settlement with the five largest mortgage servicers -- Bank of America Corp., JPMorgan Chase & Co., Citigroup Inc. (C), Wells Fargo & Co. (WFC) and Ally Financial Inc (ALLY). Representatives of Democratic attorney general offices met yesterday at a Chicago hotel to discuss a proposed accord.
The deal with the banks would be worth about $25 billion, two people familiar with the matter said last week. That would drop to about $19 billion if California Attorney General Kamala Harris decides not to sign on, the people said.
“We have not yet reached an agreement with the nation’s five largest servicers, and we won’t reach a settlement any time this week,” Miller, who has been leading the negotiations for the states, said in a statement.
Banks would fund loan principal writedowns for homeowners and provide refinancing, the people said. The proposal also sets requirements for how to conduct home foreclosures. Delaware Attorney General Beau Biden, a Democrat, won’t sign on to the proposed foreclosure settlement as currently drafted, Deputy Attorney General Ian McConnel said in a phone interview yesterday.
Yesterday’s meeting in Chicago is an opportunity for officials at Democratic attorney general offices to ask questions before they are asked to decide whether to sign on. Housing and Urban Development Secretary Shaun Donovan, who is also attending, declined to comment during a break.
The attorneys general from all 50 states announced in 2010 they were investigating bank foreclosure practices after disclosures that the companies were using faulty documents in seizing homes.
Mets Owners to Ask Judge to Decide Madoff Trustee Suit
The owners of the New York Mets baseball team will ask a Manhattan judge to decide remaining claims of $386 million in a suit from Irving Picard, the trustee for Bernard Madoff’s defunct firm.
U.S. District Judge Jed Rakoff threw out most of Picard’s $1 billion claims against the team owners and this month refused to let the trustee appeal his ruling before a March jury trial. The Mets owners, Fred Wilpon and Saul Katz, will ask Rakoff next month for judgment on all remaining counts of Picard’s complaint, they said in a Jan. 20 court filing. Picard said separately he wants a ruling before trial on one remaining count of his lawsuit.
New York lawyer Picard originally demanded $300 million in profit and $700 million in principal from Wilpon, Katz and a group of family members and related entities, saying they turned a blind eye to Madoff’s Ponzi scheme. The partners denied the allegation. In September, Rakoff dismissed all or part of nine out of 11 claims in Picard’s suit against Wilpon and Katz.
Denying Picard’s request to let him appeal this month, Rakoff, a fan of the New York Yankees, cited a quotation usually attributed to that team’s Hall of Fame catcher, Yogi Berra.
The case is Picard v. Katz, 11-cv-03605, U.S. District Court, Southern District of New York (Manhattan).
Megaupload Founder Bail Delayed After Guns, Pink Cadillac Seized
Megaupload.com’s founder was ordered by a New Zealand judge to remain in jail, three days after the U.S. shut down the file- sharing website and police arrested him in his mansion, seizing luxury cars, guns and art.
Kim Dotcom, the website’s German founder who legally changed his name from Schmitz, was remanded to Jan. 25, when the judge is scheduled to rule on his bail request, a court official said by telephone. Dotcom and three other men appeared in court in Albany, a suburb of Auckland, on U.S. charges.
Police used helicopters in the raid on the so-called Dotcom Mansion on Jan. 20, the eve of Dotcom’s 38th birthday, after the U.S. government charged seven men in an alleged $175 million copyright infringement conspiracy. Megaupload was advertised as having more than 1 billion visitors, more than 150 million users, 50 million daily visitors, and accounted for 4 percent of Internet traffic, prosecutors said.
When police arrived at Dotcom’s leased Auckland home, he entered his house and activated electronic locks, New Zealand police said in the statement. They neutralized locks and cut their way into a safe room, where Dotcom was found with what looked like a sawed-off shotgun, according to the statement.
He denied any wrong doing at yesterday’s hearing, according to stuff.co.nz website.
Prosecutor Anne Toohey urged the judge to deny Dotcom’s request for bail, saying he was a flight risk, stuff.co.nz reported.
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Rajat Gupta Files Demand for Jury Trial in SEC Civil Case
Rajat Gupta, the former Goldman Sachs Group Inc. (GS) director charged with insider trading as part of the Galleon Group LLC probe, filed a demand for a jury trial in the civil case brought against him by the U.S. Securities and Exchange Commission.
The SEC claims Gupta, 63, gave Raj Rajaratnam, the convicted Galleon co-founder, information about Berkshire Hathaway Inc. (BRK/A)’s $5 billion investment in Goldman Sachs. The agency also alleges that Gupta told Rajaratnam about quarterly earnings of Goldman Sachs and Procter & Gamble, where Gupta was also a director.
Gupta, who faces related criminal charges in a separate case, has denied wrongdoing.
The SEC filed an administrative proceeding against Gupta in Washington on March 1, claiming he passed illegal inside information to Rajaratnam. The agency later withdrew that action and sued Gupta in federal court in Manhattan, after Gupta claimed the administrative proceeding improperly deprived him of procedural protections, including the right to have a jury, rather than a judge, determine the case.
Rajaratnam, 54, was found guilty in May of 14 criminal counts of conspiracy and securities fraud. He is serving an 11- year sentence in a federal medical prison in Massachusetts.
The case is Gupta v. SEC, 11-cv-01900, U.S. District Court, Southern District of New York (Manhattan).
HSBC Withdraws Madoff Settlement Offer After Case Dismissed
HSBC Holdings Plc (HSBA), Europe’s largest lender, withdrew a settlement offer with investors in a feeder fund that lost money in Bernard Madoff’s Ponzi scheme after a U.S. court dismissed the case.
The individual investors in 2009 sued Thema International Fund Plc and 27 other defendants, including HSBC, Thema’s custodian bank, alleging the bank should have known of Madoff’s fraud. HSBC asked the court to dismiss the case in October, saying it should be heard in Ireland and Luxembourg. The court yesterday found Ireland was a “more appropriate forum,” the London-based lender said in a statement yesterday.
Madoff, 73, pleaded guilty in 2009 to orchestrating what prosecutors called the biggest Ponzi scheme in history. He is serving a 150-year sentence in a federal prison in North Carolina. HSBC amended its settlement with the investors in November after the bank’s original offer was rejected by a U.S. judge two months earlier. The proposal offered shareholders in Thema as much as $62.5 million.
The court “declined to consider whether to grant approval of the proposed settlement between HSBC and the plaintiff, as was required for the settlement to become effective,” the bank said yesterday.
“In light of the court’s decisions, HSBC has terminated the settlement agreement,” the lender said. “The plaintiff contests HSBC’s right to terminate and has appealed the court’s decisions.”
Venezuela Rebuffed by U.S. High Court on Bandagro Bond Suit
The U.S. Supreme Court (1000L) refused to block an Ohio investor group from suing Venezuela over potentially $900 million in bank notes that the South American country says are forgeries.
The justices yesterday turned away an appeal from Hugo Chavez’s Venezuelan government, which sought to invoke a U.S. law that immunizes foreign sovereigns from some lawsuits in American courts. The Supreme Court acted after the Obama administration urged rejection of the appeal.
The suit by DRFP LLC, which does business under the name Skye Ventures, may be the first of several claims over the disputed bearer bonds, according to Venezuela’s appeal.
The notes were allegedly issued in 1981 by the Banco de Desarrollo Agropecuario, then a state-owned Venezuelan bank also known as Bandagro.
The two Skye Ventures notes have a face value of $50 million apiece. The investor group said in 2010 that, with interest, the bonds were worth as much as $900 million.
Skye Ventures says it acquired its two notes only after the Venezuelan attorney general issued a 2003 opinion declaring them valid. The investor group then demanded payment in Columbus. When Venezuela refused, Skye sued.
A federal appeals court in Cincinnati ruled in 2010 that Venezuela isn’t shielded by the U.S. Foreign Sovereign Immunities Act. The court left open the possibility that Venezuela could win dismissal of the case using a different line of argument.
The case is Republica Bolivariana de Venezuela v. DRFP, 10-1144, U.S. Supreme Court, (Washington).
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Allen Stanford’s Prospective Jurors Probed for Bias by Judge
The R. Allen Stanford who arrived at the Houston federal courthouse in shackles to start his $7 billion investment fraud trial yesterday is far different from the Texas billionaire prosecutors indicted 2 1/2 years ago.
Weeks before his June 2009 indictment, Stanford strode into the same courthouse with a high-profile defense lawyer and volunteered to surrender. U.S. marshals declined at the time to arrest the Stanford Group Co. founder, then estimated by Forbes to be worth $2.2 billion.
“I’m not a damn swindler,” Stanford said weeks before he was charged. He vowed to clear his name, take back assets seized by securities regulators, and repay more than 20,000 investors he’s accused of defrauding through allegedly bogus certificates of deposit at Antigua-based Stanford International Bank Ltd.
Now 61 and visibly thinner, Stanford has endured a string of setbacks since he was indicted and jailed because prosecutors said he might try to flee. In September 2009, he suffered broken facial bones in a beating by another inmate and became addicted to anti-anxiety medications prescribed by prison doctors after the attack. After eight months in a prison rehabilitation unit, Stanford claims he still can’t remember much of his life or details of his once far-flung business empire, according to his lawyers.
The judge interviewed 80 prospective jurors yesterday, questioning them to determine possible bias for or against the former financier. About a fourth of them said they had some familiarity with Stanford’s story. By day’s end, more than half of the panelists had been sent home, while Hittner detained the rest for further questioning in his chambers.
The judge told them to return to court today.
Prosecutors accuse Stanford of skimming more than $1 billion in investor deposits to fund a lavish lifestyle -- including yachts, a fleet of jets, cricket teams and a private Caribbean island -- and to support multiple women, several of whom crowded into court almost three years ago with their children to support the financier. The Stanford entourage has since dwindled to occasional courtroom appearances by his mother and a lone female admirer, who says she also visits him regularly in prison.
Houston attorneys Ali Fazel and Robert Scardino, Stanford’s lead defense counsel, said they’ll use thousands of bank and business records to show jurors the financier never intended to defraud anyone. They claim no investor lost money until the government stepped in and seized the businesses, destroying their value. Stanford International Bank stumbled in the same global financial meltdown that tripped up banks worldwide in late 2008, they said.
The criminal case is U.S. v. Stanford, 09-cr-342, U.S. District Court, Southern District of Texas (Houston). The SEC case is Securities and Exchange Commission v. Stanford International Bank, 09-cv-298, U.S. District Court, Northern District of Texas (Dallas).
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Polly Peck Ex-CEO Nadir Accused at Trial of $233 Million Theft
Asil Nadir, the former Polly Peck International Plc chief executive who fled Britain in 1993 following claims of fraud, was accused at a trial in London of stealing 150 million pounds ($233.4 million) from the company.
The amount, revealed by prosecutors on the first day of a four-month trial in London, is more than four times the figure cited by the Serious Fraud Office since the case began nearly two decades ago. Nadir, 70, and associates withdrew the money from the now-defunct electronics and food-packaging firm’s U.K. bank accounts and funneled it through companies in Switzerland and the Bahamas between 1987 and 1990, prosecutors said.
Nadir “wielded very considerable power” over the company’s operations and management, prosecutor Philip Shears said at London’s Old Bailey criminal court. “We say he abused that power and helped himself to tens of millions of pounds of PPI’s money.”
When London-based Polly Peck collapsed in 1990, its administrators found more than 700 million pounds owed to creditors was unrecoverable from units of the company, which Nadir built up during the 1980s by expanding into areas such as electronics, hotels and an acquisition of the Del Monte (DLM) fruit brand. Nadir agreed to return to the U.K. in 2010 to face fraud claims nearly 20 years after fleeing.
The SFO accused Nadir of 13 counts of theft totaling about 34 million pounds, using a selection of “sample” transfers. Nadir denies the charges.
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Diamondback Avoids Prosecution, Agrees to Pay $9 Million
Manhattan U.S. Attorney Preet Bharara said his office agreed not to prosecute Diamondback for the actions of two former employees, Todd Newman, a former portfolio manager, and Jesse Tortora, a former analyst. In a complaint filed last week, prosecutors said the pair and five other men were part of a “criminal club” of fund managers and analysts who swapped illegal tips.
Newman, who began working at Diamondback in March 2006, was charged with conspiracy to commit securities fraud and securities fraud in the criminal complaint filed by Bharara’s office on Jan. 18. Tortora has pleaded guilty and is cooperating with the U.S., Bharara said. Newman, who hasn’t entered a plea, was released on $3 million bond.
“The misconduct under investigation did not, and does not, extend beyond the statement of facts and was not known by the firm’s co-founders,” assistant U.S. attorneys Antonia Apps and David Leibowitz said in court papers.
A lawyer hired by Diamondback concluded after an investigation that certain trades by Newman and Tortora in Dell and Nvidia resulted from material nonpublic information they received from an unidentified expert-networking firm, prosecutors said. The external probe found “no evidence that either the conduct or the improper information” was known by the firm’s co-founders, according to prosecutors.
Diamondback yesterday separately agreed to resolve a Jan. 18 Securities and Exchange Commission lawsuit over trades made in 2008 and 2009 by the former employees, the SEC said in a statement.
The SEC filed claims against Diamondback, Newman and Tortora last week as part of a wider insider-trading case that involved five different hedge funds and investment firms. The agency claimed Newman learned inside information about Dell’s earnings in 2008 from Tortora.
The case is SEC v. Adondakis, 12-cv-409, U.S. District Court, Southern District of New York (Manhattan).
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California Slaughterhouse Law Struck Down by Top U.S. Court
The U.S. Supreme Court overturned a California law requiring slaughterhouses to immediately euthanize animals that are too sick to stand up, saying the measure violated a federal meat-safety law.
The unanimous ruling yesterday is a victory for the National Meat Association, an industry trade group that challenged the California law.
Because federal law similarly bans the slaughter of downed cattle for food, the California law would have had its greatest impact on the handling of pigs. Under federal law, downed hogs can be slaughtered after they undergo a veterinary check to ensure they aren’t diseased. The hogs also must become ambulatory before they can be slaughtered.
The state law was enacted in 2008 after the Humane Society of the United States released a video of so-called downer cattle being kicked, electrocuted, dragged with chains and rammed with a forklift at a Westland/Hallmark Meat Co. slaughterhouse.
The California law banned slaughterhouses from buying or selling downer animals and from butchering them for human consumption. The measure also required humane handling of the animals.
The Obama administration argued alongside the meat-industry trade group in urging the court to declare the state law “pre- empted” by the federal statute.
The case is National Meat Association v. Harris, 10-224, U.S. Supreme Court (Washington).
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Christie Nominees to Supreme Court Include First Asian-American
New Jersey Governor Chris Christie said he is nominating two people to the state Supreme Court, including the first openly gay justice and the first Asian American.
Bruce Harris, a registered Republican and mayor of Chatham, would be the first openly gay justice and the third black justice, Christie, a first-term Republican, said yesterday at a press conference in Trenton. Phil Kwon, who is undeclared, would be the first Asian-American justice, Christie said.
The nominations need approval from the Senate, which is controlled by Democrats. Senate President Stephen Sweeney, a West Deptford Democrat, held up Christie’s May 2010 Supreme Court nomination of Anne Patterson for a year, saying the governor’s unprecedented move to deny tenure to a sitting Supreme Court Justice, John Wallace, had politicized the court.
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