Bank of America Corp. is impeding an investigation of its loan modification practices by negotiating settlements with borrowers who must agree to keep them secret and not criticize the bank in exchange for cash payments and loan relief, Arizona officials say.
The Arizona Attorney General’s office is asking a court to block those aspects of the settlements and require the bank to turn over all the agreements. The bank denies any wrongdoing.
One 2011 accord involving a borrower facing foreclosure who defaulted on a $253,142 mortgage included a $5,000 payment, plus $7,500 for legal fees, and the defaulted payments were waived and the loan was modified to a 40-year term with a 2 percent interest rate, court documents show. The terms of the original loan and the borrower’s complaint about the lender weren’t described in the documents.
The borrower “will remove and delete any online statements regarding this dispute, including, without limitation, postings on Facebook, Twitter and similar websites,” and not make any statements “that defame, disparage or in any way criticize” the bank’s reputation, practices or conduct, according to documents filed in state court in Phoenix. The borrower’s name and address were redacted.
Bank of America attorneys argue that borrowers don’t have to sign the agreements to get a loan modification and deny that settlements hinder the state’s probe. Borrowers can be subpoenaed to disclose the accords, and the Charlotte, North Carolina-based bank won’t enforce the non-disparagement provision if they talk to investigators, the bank’s lawyers have said in court filings.
A hearing is set for Feb. 1 on the dispute.
Arizona Attorney General Thomas Horne, a Republican who took office last January, is investigating Bank of America as part of a 2010 lawsuit alleging customers of its Countrywide Financial mortgage unit were misled about requirements for loan modifications. The bank, which acquired Calabasas, California- based Countrywide in 2008, provided inaccurate and deceptive reasons for denying modification applications, according to the the complaint. A similar suit was filed by Nevada.
Patricia Lee Refo, a Bank of America attorney, said in court filings that the confidentiality provisions are common in settlement agreements, which the bank uses on a “limited” basis to resolve disputes and avoid a costly lawsuit. There’s no policy to ask borrowers to sign settlement agreements in exchange for loan modifications, David Thornton, senior vice president for social media and urgent customer relations, said in a filing.
The case is Arizona v. Countrywide Financial Corp. CV2010-033580, Arizona Superior Court, Maricopa County (Phoenix).
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Commerzbank ‘Broke Promise’ Over $518 Million Bonus Pool
Commerzbank AG (CBK) broke a pledge by its Dresdner Bank unit to pay bonuses from a guaranteed pot of 400 million euros ($518 million), lawyers for a group of bankers suing the German lender said yesterday.
“This case boils down to people keeping their promises and not saying one thing and doing another,” attorney Andrew Hochhauser said in London court yesterday, the first day of the trial over the dispute.
More than 100 bankers sued Germany’s second-biggest lender in the U.K., claiming they were guaranteed a bonus pool in 2008 by Stefan Jentzsch, then Dresdner chief executive officer. Commerzbank completed a takeover of the bank in January 2009 and slashed bonuses by 90 percent or more, according to court papers from the former Dresdner bankers.
Hochhauser said Commerzbank executives, including Chief Executive Officer Martin Blessing, knew a commitment had been made and “moved the goalposts.” Both Blessing and Jentzsch will appear as witnesses at the trial.
Commerzbank, based in Frankfurt, said record losses at Dresdner in 2008 justified the decision to reduce bonuses. The lender has faced other lawsuits in London, Germany and Singapore from workers who said they weren’t paid what they were due after the 2009 takeover.
Commerzbank said in an e-mailed statement it planned to “mount a vigorous defense” to all the claims made against it.
The bankers’ cases include Mr. Fahmi Anar & Others v. Dresdner Kleinwort Limited, Commerzbank AG (CBK), High Court of Justice, Queen’s Bench Division, HQ09X05230 and Richard Attrill & 71 others v. Dresdner Kleinwort Limited, Commerzbank AG, HQ09X04007
Stanford Invented Offshore Bank’s U.K. Insurer, Prosecutor Says
R. Allen Stanford failed to tell a financial adviser he hired for his first offshore bank that the insurer he selected for the institution was a company he created, a federal prosecutor told a jury.
Assistant U.S. Attorney William Stellmach made that claim yesterday while questioning the adviser, Michelle Chambliess, on the first day of testimony at the federal courthouse in Houston, where Stanford is on trial charged with investment fraud.
Chambliess said she was one of Stanford’s first hires in 1987, at Guardian International Investment Services, a U.S.- based sibling of Stanford’s Montserrat-based Guardian International Bank Ltd. Guardian was the precursor to Stanford International Bank Ltd., the Antiguan entity at the heart of Stanford’s alleged $7 billion fraud.
Stanford told her he’d obtained insurance for the bank from a carrier called British Insurance Fund Ltd., which appeared to be an independent U.K.-based company.
“Did he ever tell you it was a shell company he had set up?” Stellmach asked.
“No,” Chambliess replied.
“Would that have made any difference to you?” he asked.
“Absolutely,” she said. “Then there wouldn’t be insurance.”
The Guardian bank later moved to Antigua, where it was renamed. Stanford is charged with wire fraud and mail fraud, crimes that carry maximum sentences of 20 years in prison, as well as obstruction of an SEC investigation. U.S. District Judge David Hittner has said the trial may last about six weeks.
Stanford, 61, told the jury Jan. 24 he isn’t guilty. Yesterday, wearing a double-breasted navy suit and a light blue shirt, he occasionally pursed his lips and shook his head as he watched his ex-employees testify against him.
The case is U.S. v. Stanford, 09-cr-342, U.S. District Court, Southern District of Texas (Houston).
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Illinois’s Lisa Madigan Sues Standard & Poor’s Over Ratings
Illinois Attorney General Lisa Madigan sued Standard & Poor’s, accusing the company of a “fraudulent role’” in assigning improperly high ratings to mortgage-backed securities.
The complaint against the unit of the McGraw Hill Cos. was filed yesterday in Cook County Circuit Court, alleging the ratings service put profit first, while purporting to provide independent, objective analyses, Madigan said in a statement.
“S&P ignored the increasing risks posed by mortgage-backed securities, instead giving the investment pools ratings that were favorable to its investment bank client base,” Madigan said.
In one 2007 online exchange among S&P workers, Madigan contends, an employee said an investment “could be structured by cows and we would rate it,” according to the statement.
“The case is without merit and we will defend ourselves vigorously, David Wargin, a spokesman for Standard & Poor’s, said in a phone interview.
The case is Illinois v. The McGraw-Hill Cos. and Standard & Poor’s, 12CH02535, Circuit Court of Cook County, Illinois, County Department, Chancery Division (Chicago).
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Adelphia’s Rigases Tax Case Should Be Dismissed, Prosecutors Say
A six-year-old tax indictment of Adelphia Communications Corp. (ADELQ) founder John Rigas and his son Timothy, who are already in prison for securities fraud, should be dismissed, U.S. prosecutors told a federal judge.
John Rigas, 86, is serving a 12-year prison term, and his son Timothy, 55, is serving 17 years after being convicted in 2004 of looting Adelphia and lying about its finances. The company was once the fifth-largest U.S. cable TV provider.
They were subsequently indicted in 2005 in federal court in Pennsylvania on charges that that they conspired to dodge taxes -- and evaded them -- on $1.9 billion they stole from the cable company. The Rigases have sought since then to gain dismissal of the tax indictment.
‘‘This case never should have been brought,” said Rigas attorney Lawrence McMichael. “We’re pleased that the government decided to drop it.”
On Jan. 18, U.S. District Judge John E. Jones III dismissed the conspiracy count on instructions from a federal appeals court to review the charge, leaving eight counts of tax evasion. Prosecutors yesterday asked him to dismiss the remaining counts.
In light of the judge’s Jan. 18 ruling, Smith and the tax division of the Justice Department re-examined the case, according to the motion. Prosecutors decided to drop their prosecution while the Internal Revenue Service pursues a civil administrative case, the government said.
The Rigases entered a federal prison in August 2007. John Rigas is projected for release on Jan. 23, 2018, and his son will likely go free on June 23, 2022. They were convicted in federal court in New York of securities fraud and bank fraud, as well as conspiring to commit securities fraud, bank fraud, falsify books and records and make false statements to the Securities and Exchange Commission.
The Pennsylvania case is U.S. v. Rigas, 05-cr-402, U.S. District Court, Middle District of Pennsylvania (Williamsport).
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SEC Says Rakoff Erred on ‘Public Interest’ Test for Accords
U.S. Securities and Exchange Commission lawyers said U.S. District Judge Jed Rakoff erred in determining that courts must find its proposed settlements with companies to be “in the public interest” to win approval.
Courts must only find the accords to be “fair, adequate and reasonable,” SEC attorney Andrea Wood told a federal judge in Wisconsin in a filing defending the agency’s proposed settlement with Milwaukee-based Koss Corp. (KOSS), a manufacturer of stereo headphones sued for allegedly making materially inaccurate financial statements for fiscal years 2005 through 2009.
In November, Rakoff in Manhattan rejected Citigroup Inc. (C)’s $285 million settlement with the SEC over claims the bank misled investors in collateralized debt obligations. He had criticized the SEC’s practice of letting financial institutions such as New York-based Citigroup settle without admitting or denying liability, and said in his Citigroup ruling that in cases that touch on the transparency of financial markets, “there is an overriding public interest in knowing the truth.”
“The commission respectfully submits that the district court in SEC v. Citigroup Global Mkt. erred in adding the requirement that a reviewing court also find such judgments to be in the public interest,” Wood said in a filing yesterday. “Nonetheless, in this case, the proposed consent judgments are in the public interest, as well as being fair, adequate and reasonable and therefore satisfy the Citigroup standard.”
In the proposed Koss settlement, Koss and its chief executive officer didn’t admit or deny the SEC’s claims.
U.S. District Judge Rudolph T. Randa in Milwaukee had questioned the adequacy of the SEC-Koss settlement’s provision that the company promise not to violate securities laws in the future. He said the agreement is vague and could pose problems for enforcing it.
The case is SEC v. Koss, 11-991, U.S. District Court, Eastern District of Wisconsin (Milwaukee).
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Accused Inside Traders Kuo, Newman Released on Bond in N.Y.
Danny Kuo and Todd Newman, two of seven men accused of taking part in a “criminal club” of hedge fund traders and analysts who swapped illegal secrets involving Dell Inc. (DELL), were allowed to remain free on bond.
Both Kuo, a former fund manager at Whittier Trust Co., and Newman, a former portfolio manager at Diamondback Capital Management LLC, were arrested on Jan. 18 by agents of the Federal Bureau of Investigation. Kuo, who was arrested at his home in San Marino, California, and Newman were ordered to appear in Manhattan federal court yesterday to face the charges.
U.S. Magistrate Judge Michael Dolinger agreed to release Newman on $3 million bond secured by $750,000 in cash. He also ordered Newman to surrender his travel documents and limit his travel to parts of New York, as well as to Massachusetts, Rhode Island and Connecticut.
“My client has been aware of the investigation for more than a year, and in addition, there were reports in December that he would be charged and nothing happened,” his lawyer, Alfred Pavlis, told Dolinger. “His actions show that he intends to appear in court and respond to the charges.”
Dolinger directed that Kuo be released on $300,000 bond and surrender his Taiwanese and U.S. passports.
Citing Kuo’s ties to Taiwan, Assistant U.S. Attorney David Leibowitz said the U.S. wanted more stringent restrictions placed on his movements, and those of his wife and child. The prosecutor also said Kuo had lost his job and stopped going to school, further loosening his links to the U.S.
Newman and Kuo are each charged with conspiracy to commit securities fraud and securities fraud. They face as long as 25 years in prison if found guilty, prosecutors said.
Newman, Kuo and their co-defendants reaped almost $62 million from insider trades in the personal-computer maker, U.S. Attorney Preet Bharara said last week. The tipping scheme included one trade that earned a $53 million illegal windfall for Level Global Investors LP co-founder Anthony Chiasson and his fund, prosecutors said. Chiasson also has been arrested and charged.
The case is U.S. v. Newman, 12-00124, U.S. District Court, Southern District of New York (Manhattan).
Kim Dotcom’s Megaupload Co-Accused Granted Bail in N.Z. Court
Two men accused alongside Megaupload.com founder Kim Dotcom of the biggest copyright infringement in U.S. history were granted bail in a New Zealand court because they were unlikely to flee the country.
The risk of Bram van der Kolk and Finn Batato trying to escape from New Zealand was low and both were of good character, North Shore District Judge David McNaughton wrote in separate rulings released by e-mail yesterday. A bail hearing for the fourth man arrested in New Zealand on Jan. 20 was adjourned until today, according to a court spokesman.
Dotcom and his colleagues are sought in the U.S. where they were indicted on charges that the file-sharing website was part of a $175 million copyright infringement conspiracy with pirated film and music files being exchanged. He was arrested at his leased New Zealand mansion on Jan. 20, and the U.S. has 45 days from that date to file a formal extradition request.
“I am mindful of the scale of the offending described in the indictment and that this is the biggest case of its kind prosecuted in the United States,” McNaughton wrote. “It is safe to assume that substantial terms of imprisonment would be imposed.”
Van der Kolk and Batato were remanded in custody for a week while their homes were assessed for electronic monitoring, according to stuff.co.nz.
Batato is a German citizen who lives in Munich and was only in New Zealand to attend Dotcom’s 38th birthday party, according to his bail ruling. He has no criminal convictions and, like Dotcom and van der Kolk, denies any part of the alleged conspiracy.
Dotcom was yesterday denied bail as flight risk remained a “real and significant possibility.” He had access to 23 separate bank accounts in Hong Kong that held more than NZ$26 million ($21.3 million), according to his ruling. The FBI said his earnings for 2010 were $42 million and he had NZ$10 million in New Zealand government bonds.
The U.S. indicted Dotcom because some of Megaupload’s servers were based in that country. Other servers were based in Canada and the Netherlands, according to the ruling.
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Novartis Will Pay $99 Million to Settle Overtime Lawsuit
A unit of Novartis AG (NOVN), the Swiss drugmaker, won a judge’s preliminary approval of a $99 million settlement in a lawsuit brought by sales representatives who claimed they were denied overtime pay, court records show.
The class-action settlement, tentatively approved Jan. 24 by U.S. District Judge Paul Crotty in Manhattan, covers more than 7,000 current and former sales representatives, according to a statement by the company and lawyers for the workers. Crotty will hold a final approval hearing on May 31.
“We believe this settlement is in the best interest of our employees and the company,” Andre Wyss, president of Novartis Pharmaceuticals Corp., said in the statement. “We have been litigating this case for nearly six years and the company has determined that it is time to resolve these wage and hours claims.”
The settlement resolves wage-and-hour claims brought in 2006, as well as those filed more recently, according to the statement. Novartis, the No. 2 Swiss drugmaker behind Roche Holding AG (ROG), is “confident that sales representatives should continue to be exempt from overtime,” Wyss said.
Workers settled before the U.S. Supreme Court decides whether drugmakers must pay overtime to as many as 90,000 sales representatives. The high court will review a lower court’s conclusion that salespeople for a GlaxoSmithKline Plc (GSK) unit aren’t covered by a federal wage-and-hour law. Similar cases are pending against Johnson & Johnson (JNJ), Bristol-Myers Squibb Co. (BMY) and a unit of Merck & Co. Arguments haven’t been scheduled.
While lawyers for the Novartis workers are confident the Supreme Court will rule favorably, “the risks of litigation are great,” David Sanford, the lead lawyer for the plaintiffs, said in the statement.
“It is a fair and equitable result and can serve as an exemplar for companies around the U.S. that face wage-and-hour litigation,” said Sanford, of Sanford Wittels & Heisler LLP.
The case is In re Novartis Wage and Hour Litigation, 06- md-01794, U.S. District Court, Southern District of New York (Manhattan).
Einhorn, Greenlight Fined $11 Million in U.K. for Punch Sale
David Einhorn and Greenlight Capital Inc. were fined 7.2 million pounds ($11.2 million) by the U.K.’s financial regulator for trading on inside information in Punch Taverns Plc in 2009.
Einhorn, Greenlight’s 43-year-old chairman, was told of Punch Taverns’ plan to sell equity by a broker representing the company, the Financial Services Authority said in an e-mailed statement yesterday. He then sold more than 11 million Punch Taverns shares over the following four days, avoiding losses of about 5.8 million pounds for the fund, the regulator said.
Greenlight said the market abuse was “inadvertent” and the regulator agreed it wasn’t deliberate or reckless. The fine won’t come out of Greenlight funds, the New York-based firm said in a statement.
“We believe that this action is unjust and inconsistent with the law and with prior FSA enforcement,” Einhorn said in the Greenlight statement. “However, rather than continue an arduous fight, we have decided to put this matter behind us.”
“Einhorn is an experienced professional with a high profile in the industry,” said Tracey McDermott, the FSA’s acting enforcement chief. “We expect someone in his position to be able to identify inside information when he receives it and to act appropriately. His failure to do so is a serious breach.”
Einhorn heard in a June 2009 telephone conference call that Punch Taverns was about to sell additional equity, the FSA said. Einhorn gave instructions to Greenlight to sell Punch shares “a matter of minutes” after the call ended, according to the regulator. The hedge fund reduced its holdings in Punch shares from 13.3 percent of its outstanding shares to 8.9 percent over the next four days.
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Ex-HealthSouth Chief Scrushy’s Prison Term Cut to 70 Months
HealthSouth Corp. (HLS) founder Richard Scrushy may be freed this year after being resentenced to 70 months in prison for making a campaign contribution to Alabama’s former governor in exchange for a seat on a state hospital board.
U.S. District Judge Mark Fuller resentenced Scrushy, 59, yesterday in Montgomery, Alabama, his lawyer, Arthur Leach, said. His original prison term was six years and 10 months. Before yesterday, Scrushy’s projected release date was June 2013, according to the U.S. Bureau of Prisons.
“This basically is getting him home 12 months early,” Leach said yesterday in a phone interview. “It allows him to get on with his life, find a job and support his family.”
An appeals court in May overturned two honest-services convictions and upheld two others after the U.S. Supreme Court narrowed the scope of a law making it a crime to deprive citizens and shareholders of the honest services of public and corporate officers.
Scrushy was assigned to a federal prison in Beaumont, Texas, after a jury convicted him in 2006 of giving former Alabama Governor Don Siegelman a $500,000 campaign contribution in exchange for a seat on a hospital regulatory board. He was acquitted in 2005 of charges of directing an accounting fraud at his health-care company.
He will probably go to a halfway house within the next 30 days, Leach said. From there he will spend six months in home confinement under the supervision of the Bureau of Prisons before being eligible for supervised release, the lawyer said.
The case is U.S. v. Scrushy, 05-cr-119, U.S. District Court, Middle District of Alabama (Montgomery).
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Knox Trial Lawyer Said to Lead Italy Concordia Class-Action Suit
Giulia Bongiorno, the lawyer who helped overturn the murder conviction of Amanda Knox’s former boyfriend Raffaele Sollecito, will lead a class-action suit against Carnival Corp. (CCL)’s Italian unit over the sinking of the Costa Concordia, a person familiar with the case said.
Bongiorno, 45, who’s also a member of Italy’s parliament, agreed to lead the case on behalf of about 30 passengers from the cruise ship that ran aground off the Italian coast on Jan. 13, killing at least 16, the person said. The suit may be filed in Grosseto, Italy, the person said. The criminal investigation into the sinking and the actions of the ship’s captain are being handled in Grosseto.
The Concordia struck rocks near Giglio, Italy, after Captain Francesco Schettino deviated from the planned route and steered close to the island, court documents show. The accident happened hours after the vessel left a port near Rome for a Mediterranean cruise carrying about 4,200 passengers and crew. Twenty-two people are still missing, though that number includes six of the dead who haven’t yet been identified.
Bongiorno was the lawyer who led the appeal case that overturned Sollecito’s conviction for the 2007 murder of British student Meredith Kercher in Perugia, Italy. Knox’s conviction was also overturned in October.
Bongiorno was also part of the legal team that successfully defended former Prime Minister Giulio Andreotti in a trial for association with the Mafia.
Baer Said Under Review to Become New U.S. Antitrust Chief
William Baer, whose law firm championed AT&T Inc. (T)’s failed bid to acquire T-Mobile USA (DTE) Inc., is the top candidate to head the U.S. Justice Department’s antitrust division, two people familiar with the situation said.
Baer, 61, who leads the antitrust group at Arnold & Porter LLP in Washington, is the subject of a background investigation for the job by the Federal Bureau of Investigation, said the people, who spoke on condition of anonymity because the process is confidential.
The White House is vetting Baer for the post after Sharis Pozen, acting chief of the Justice Department’s antitrust division, said Jan. 23 she will leave her position on April 30.
Baer and Gina Talamona, a Justice Department spokeswoman, declined to comment on the potential nomination in separate e- mails.
Baer, who was named one of the “Decade’s Most Influential Lawyers” by the National Law Journal in 2010, is a former director of the U.S. Federal Trade Commission’s Bureau of Competition and has represented corporate clients including General Electric Co. (GE), Intel Corp. (INTC) and Cisco Systems Inc. (CSCO) in private practice.
The Justice Department and FTC share responsibility for enforcing antitrust laws.
Jones Day Boosts Dallas Office With Three Ex-SNR Denton Partners
Jones Day (1113L) hired ex-U.S. Attorney Matthew D. Orwig and two other litigators, Basheer Y. Ghorayeb and Shawn Cleveland, all formerly of SNR Denton US LLP in Dallas.
The moves will help Jones Day strengthen its litigation team, the firm said Dec. 24 in a statement. All three will work as partners out of the firm’s Dallas office, adding to the more than 200 lawyers Jones Day employs in Houston and Dallas.
“Matt, Shawn and Basheer bring us formidable litigation capabilities in white collar, securities, patent and other trial and appellate areas, both here in Texas and firmwide,” said Pat Villareal, partner-in-charge of Jones Day’s Dallas office, in a statement.
Orwig, 53, was a U.S. attorney for the Eastern District of Texas, based in Tyler, from 2001 to 2007. He was the managing partner of SNR Denton’s Dallas office.
Ghorayeb, 35, was a member of Denton’s litigation and arbitration practice. Cleveland, 40, who also served on that team, helped represent Kenneth Lay, the late former chairman of Enron Corp., in the civil and criminal cases that followed the company’s collapse.
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