Lawyers for Rajat Gupta, the former Goldman Sachs Group Inc. (GS) and Procter & Gamble Co. director who has denied U.S. charges he leaked stock tips to Raj Rajaratnam, are investigating whether the hedge fund manager had a different inside source at the companies.
At a Manhattan court conference Jan. 20, defense attorney Gary Naftalis complained federal prosecutors hadn’t turned over documents he wanted on whether Rajaratnam or others at his hedge fund, Galleon Group LLC, had a source inside Goldman Sachs or P&G other than Gupta, a transcript of the proceeding stated. Gupta is accused of leaking information about both companies.
At the hearing, Naftalis said Gupta’s defense may turn on whether “there are people at Goldman Sachs and at Procter & Gamble who are giving out inside information, whether it be about Goldman or Procter & Gamble or affiliates.” That would “constitute real exculpatory information for a real defense that the source of any information here is not us but somebody else.”
Assistant U.S. Attorney Reed Brodsky told the judge that prosecutors had “no information, zero, no witness statements, no documents, no type of any kind that anyone other than Mr. Gupta tipped Mr. Rajaratnam or anyone at Galleon about material nonpublic information of Goldman or of Procter & Gamble,” according to the transcript.
Near the conclusion of the discussion, U.S. District Judge Jed Rakoff told Naftalis the government is “going to give you Mr. X, they’re going to point you to at least areas where they think Mr. X’s possible involvement in leaking information comes up in the stuff you have.”
Naftalis didn’t return a call seeking comment on the hearing. Paul Fox, a spokesman for P&G, and David Wells, a spokesman for Goldman Sachs, declined to comment.
At a hearing Jan. 17, Brodsky said the witnesses for Gupta may include Goldman Sachs director Claes Dahlback and Berkshire Hathaway Inc. (BRK/A) reinsurance chief Ajit Jain.
Gupta, who faces trial in April on five counts of securities fraud and one count of conspiracy, faces as long as 20 years in prison if convicted on each of the securities fraud charges and as long as five years if convicted of conspiracy, according to the government. He also faces a fine of as much as $5 million. Rajaratnam is serving an 11-year prison term after being convicted of directing the biggest hedge fund insider trading scheme in U.S. history.
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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Blavatnik Opposes JPMorgan Delay Over Lawyer’s Heart Surgery
Billionaire Len Blavatnik, who is suing JPMorgan Chase & Co. over claims it lost 10 percent of the $1 billion it managed for him, refused to extend the fact-gathering period as requested by a bank lawyer about to have open-heart surgery, the lawyer said.
Bruce Birenboim, an attorney for JPMorgan, explained Blavatnik’s refusal in a letter to a Manhattan judge Jan. 27. Birenboim said Blavatnik wouldn’t extend the schedule two months to June 29, a request Birenboim made because he will be unavailable for six to eight weeks.
“I have never in my 30 years of practice found an adversary’s position to be so unprincipled and unprofessional,” Birenboim, a partner at Paul, Weiss, Rifkind, Wharton & Garrison LLP, wrote to New York State Supreme Court Justice Melvin L. Schweitzer. He said Blavatnik and his lawyers “have chosen to litigate this matter without regard” for “common civilities” and “professional courtesies.”
Blavatnik, 54, sued in 2009, claiming that New York-based JPMorgan, the biggest U.S. bank by assets, put twice as much money into risky mortgages as his investment guidelines allowed while Chief Executive Officer Jamie Dimon was unloading such securities from the bank’s books. Blavatnik says the bank lost $98 million of his funds.
Blavatnik, born in Ukraine, runs New York-based Access Industries Group, which owns energy, media and real-estate companies. Blavatnik is worth $9.5 billion, according to Forbes. Blavatnik bought Warner Music Group Corp. from Edgar Bronfman last year.
The case is CMMF LLC v. JPMorgan Investment Management Inc., 601924-09, New York State Supreme Court (Manhattan).
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Schwab Suit Against Merrill Wins Judge’s Tentative Go-Ahead
Bank of America Corp.’s Merrill Lynch unit, Wells Fargo Co. (WFC) and UBS AG (UBSN) must face a lawsuit by Charles Schwab Corp. (SCHW) alleging they misled the company about the risks of $100 million worth of mortgage-backed securities it bought from them, a California judge ruled tentatively.
Judge Richard Kramer in San Francisco said Jan. 27 that he intends to let claims over 46 of the 50 securitizations at issue proceed. The four claims he rejected, because they were filed too late, involved securities from Countrywide Financial Corp., the mortgage lender acquired in 2008 by Charlotte, North Carolina-based Bank of America.
“It is my tentative ruling that those four securitizations are barred by the statute of repose,” Kramer said at a hearing Jan. 27.
Schwab, an independent San Francisco-based brokerage, alleged in a 2010 lawsuit that the securities dealers lied or didn’t disclose information about loans underlying the bonds they sold, including the loan-to-value ratios of mortgages and the number of properties that were not primary residences, according to the complaint.
The case is one of several pending in state courts around the country by investors seeking repayment for mortgage-backed securities. The Federal Home Loan Banks of Seattle, San Francisco, Pittsburgh, Chicago and Indianapolis, as well as companies including Schwab and Allstate Insurance Co., have sued investment banks under state investor-protection laws.
The case is Charles Schwab v. Merrill Lynch, Pierce, Fenner & Smith, 10-501151, California Superior Court (San Francisco).
Mets Owners Ask Judge to Dismiss Madoff Trustee’s Claims
The New York Mets’ owners asked a judge to dismiss $386 million in remaining claims brought by the trustee liquidating Bernard Madoff’s firm, saying their “early faith” in Madoff was well-founded because of his reputation.
U.S. District Judge Jed Rakoff threw out most of trustee Irving Picard’s $1 billion in claims against the team owners. The judge said Picard must prove they were willfully blind to the convicted Ponzi schemer’s crimes if he wants to recoup money they withdrew from their Madoff accounts, the Mets owners noted. Since Picard hasn’t proved that, he has no case against them, they argued.
“Defendants trusted their broker, Bernard L. Madoff, and never suspected him of any fraud, let alone a Ponzi scheme,” team owners Fred Wilpon and Saul Katz said in a court filing Jan. 26. Picard can’t show they believed there was “a high probability” that Madoff was running a Ponzi scheme or that they took “deliberate action” to avoid seeing what was going on, they said.
The Mets owners, after losing money in the Ponzi scheme and an income stream from Madoff, have said they are trying to sell stakes in the Major League Baseball team. Picard’s claims remain a threat to their finances.
Asking Rakoff to rule on one of his remaining claims, Picard said the Mets owners must return $83 million in fictitious profits taken from Madoff’s Ponzi scheme in the two years before his 2008 arrest. The law allows him to take back the money simply because the operation was a fraud, he said in a court filing Jan. 26.
To get the money, Picard need only prove that Katz and Wilpon didn’t give value in return for the money, and they can’t possibly prove they did, as they were net winners, he said.
To get the other $300 million, Picard must prove the Mets owners were willfully blind to the fraud, Rakoff has said. s that they didn’t know of the fraud, Wilpon and Katz attached testimony from Arthur Friedman, a partner in their company, Sterling Equities, who handled their investments with the Madoff firm, depositing checks, making withdrawals and trying to duplicate Madoff’s investment strategy.
The case is Picard v. Katz, 11-cv-03605, U.S. District Court, Southern District of New York (Manhattan).
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Goldman Sued by Stichting Pensioenfonds in New York
Goldman Sachs Group Inc. was sued by the Netherlands’ biggest retirement fund, accusing the investment bank of making false or misleading statements in selling residential mortgage- backed securities.
Stichting Pensioenfonds ABP (ADPZ) sued New York-based Goldman Sachs in New York State Supreme Court Jan. 27, saying that the bank knew that originators of the loans underlying the investments hadn’t followed underwriting standards.
“Goldman knew of, and facilitated, the wholesale and systematic abandonment of underwriting guidelines by various third-party originators faced with Goldman’s demands that as many loans as possible be originated so that they could be packaged and sold to investors like plaintiff,” lawyers for Stichting said in the lawsuit.
Stichting also sued Deutsche Bank AG and JPMorgan Chase & Co. (JPM) over sales of mortgage-backed securities in New York state court last year.
Stichting, the pension fund for Dutch public educational and government workers, has more than 250 billion euros ($332.8 billion) in assets under management, according to the complaint.
Michael Duvally, a spokesman for Goldman Sachs, declined to comment on the lawsuit in a telephone interview.
The case is Stichting Pensioenfonds ABP v. Goldman Sachs Group Inc., 650264/2012, New York State Supreme Court, New York County (Manhattan).
Carnival Sued in Miami Over Fatal Costa Concordia Shipwreck
Carnival Corp., the world’s largest cruise line owner, was sued in Miami over the Jan. 13 wreck of the Costa Concordia off the coast of Italy.
The complaint, which names six plaintiffs, four Americans and two Italians, was filed Jan. 27 in state court in Miami, said attorney Marc J. Bern, who provided Bloomberg with a copy. The filing couldn’t be independently confirmed with the court.
The plaintiffs were “in terror of catastrophic injury, death, drowning, having been placed in a situation where common sense said the vessel was sinking but the orders from the crew were to return to their cabins,” according to the complaint.
Bern said he’s working with an Italian consumer-law group, Codacons, as well as the New York firm of Proner & Proner. He said he expects to later sue on behalf of about 1,000 passengers of the Costa Concordia.
Carnival Cruise lines, based in Miami, and Costa Cruise Lines, based in Hollywood, Florida, are named as defendants in the complaint. Vance Gulliksen, a spokesman for Carnival, said, “Since this is pending litigation, we are not in a position to comment at this time.”
The Carnival ship, carrying 4,200 passengers and crew for a Mediterranean cruise, struck rocks and ran aground leaving at least 17 people dead.
The case is Scimone v. Carnival Cruise Lines, Circuit Court of the 11th Judicial Circuit (Miami).
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Omnicare Sued by U.S. Regulators to Block Takeover of PharMerica
U.S. regulators sued Omnicare Inc. (OCR) to block its $440.8 million takeover of rival drug-supply company PharMerica Corp. (PMC), a deal they said would increase prices for elderly nursing-home residents covered by Medicare.
Omnicare’s acquisition of Louisville, Kentucky-based PharMerica would give it the bargaining leverage to raise medicine prices for those covered by Medicare prescription drug plans, passing those costs on to U.S. taxpayers, the Federal Trade Commission said Jan. 27 in a statement.
Omnicare offered $15 a share in August in an unsolicited bid for PharMerica, which the Covington, Kentucky-based company extended Jan. 27 for a fourth time before the FTC’s announcement. The regulators’ complaint leaves little room for Omnicare to make changes or negotiate further, probably killing the deal, said A.J. Rice, an analyst with Susquehanna Financial Group LLP in New York. That would make PharMerica attractive to private-equity firms, he said.
An acquisition would give Omnicare control of as much as 60 percent of the market to distribute drugs to nursing homes, hospitals and hospices, said Jeff Jonas, an analyst with Gabelli & Co. in Rye, New York. Omnicare already is the largest such supplier.
“If Omnicare is allowed to purchase its biggest and only national competitor, it will diminish competition and raise health-care costs, leaving taxpayers and patients to foot the bill,” said Richard Feinstein, director of the FTC’s bureau of competition, in a statement.
Omnicare said in a statement that it disagrees with the FTC decision and the deal for PharMerica would help lower costs. The company sought the acquisition to save money through automation and scale amid U.S. cuts to health-care spending, Omnicare Chief Executive Officer John Figueroa said when the bid was announced in August.
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Former Groupon Sales Reps Countersue Over ‘Abusive’ Tactics
Groupon, the world’s largest online coupon site, sued two former managers in October after they left to join Google Offers, a competing venture. Lawyers for the managers accused Groupon of using “sham litigation” to bully and silence employees and obtain intelligence on a burgeoning competitor, according to court papers filed Jan. 25 in an Illinois state court.
“In its stop-at-nothing strategy to take itself public and further enrich its founders, Groupon has crossed the line,” lawyers for the managers said. “This counterclaim seeks to put an end to that abusive and illegal behavior.”
The filing accused Groupon of hiring “out-of-work young people” based on false promises and using a complicated compensation scale to undercut commissions and implement unrealistic sales quotas. As morale waned among employees ahead of the company’s initial public offering, Groupon filed the lawsuit and several others like it in an attempt to silence workers, lawyers for the managers said in the filing.
“This suit also signaled to employees that, should they leave, Groupon would aggressively attempt to prevent them from working for a competitor, regardless of the legality of Groupon taking such action,” lawyers for the managers said in the filing.
Julie Mossler, a spokeswoman for Groupon, didn’t immediately return a phone call and e-mail seeking comment on the counterclaims.
The case is Groupon Inc. v. Hanna, 11CH36731, Cook County, Illinois, Circuit Court, Chancery Division (Chicago).
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Cantor Couldn’t Mitigate Effect of Four Departures, Court Told
Cantor Fitzgerald LP, suing four managing directors in Hong Kong who left to join a China-backed investment bank, had no opportunity to mitigate the situation, the New York brokerage’s lawyer said.
“Four people from an organization leave in an abrupt manner on the same day,” Cantor’s lawyer Nicholas Cooney said in his closing arguments Jan. 27. “They didn’t have time to bring others up to speed.”
Jason Boyer, the former head of Cantor’s Hong Kong business, and Bradford Ainslie - formerly of its Asian cash equities desk - last week told Judge A.T. Reyes that their resignations were independent of each other. Together with Brett McGonegal and Uwe Parpart, Cantor’s former Asia chief economist and strategist, they joined Reorient Financial Markets Ltd., backed by an asset manager under China’s State-owned Assets Supervision and Administration Commission.
“Employees are allowed to discuss amongst themselves plans for the future under the law,” Ashley Burns, a lawyer representing McGonegal and Ainslie told the court Jan. 27.
Cantor accuses the four defendants of breaching their employment contracts and said the departure of the four caused a 29 percent drop in its average monthly revenue in Hong Kong.
Reyes reserved his judgment, saying he would rule as soon as possible. He declined to seal portions of documents detailing Cantor’s past revenue and expenses, as well as how the brokerage calculated compensation.
The case is Cantor Fitzgerald Europe, Cantor Fitzgerald (Hong Kong) Capital Markets Ltd. and Jason Boyer, Bradford Ainslie, Brett McGonegal, Uwe Henke von Parpart, HCA1160/2011 in Hong Kong’s Court of First Instance.
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U.S. Asks Appeals Court to Affirm $7.2 Billion Picower Deal
The U.S. asked a federal appeals court to affirm a $7.2 billion forfeiture by the Jeffry Picower estate, to be used to compensate investors who lost money in Bernard Madoff’s Ponzi scheme.
A challenge by Adele Fox was “frivolous,” and it wouldn’t serve justice to let her intervene in a deal that “in no way impairs Fox’s rights,” the U.S. said in a court filing in New York. Fox, a former Madoff investor, sought to overturn the settlement because it gave Madoff trustee Irving Picard priority in dealing with the Picower estate, and barred her from suing the estate herself.
Fox, in addition to making “irrelevant” arguments, is “single-handedly holding up the distribution of more than $7.2 billion of funds to Madoff’s victims in desperate need of those funds,” Matthew Schwartz, an assistant U.S. attorney, wrote in a Jan. 26 filing. He asked the court to dismiss Fox’s appeal of a lower-court ruling affirming the settlement.
Fox said she is among the Ponzi scheme’s so-called net winners, who took out more money than they put in. The trustee and the government have determined that “not a penny of the forfeiture” by the Picower estate will go to her and other net- winner investors, she said in her appeal.
Picower, one of Madoff’s largest investors, may have suspected the con man was running a Ponzi scheme, according to Picard. Picower drowned in 2009 and his estate forfeited the money to the U.S. and Picard to settle the trustee’s claims.
The case is U.S. v. $7.2 billion, 11-2898, U.S. Court of Appeals for the Second Circuit (New York).
One Stanford Client Lost $20 Million, Ex-Executive Testifies
A former Stanford Group Co. executive told a jury that one client of R. Allen Stanford’s securities brokerage lost at least $20 million before the business was closed by U.S. regulators.
Jason Green, who led Stanford Group’s private client group, made that statement while being cross-examined by the financier’s lawyer on the fifth day of Stanford’s investor fraud trial at the U.S. courthouse in Houston.
Stanford’s defense lawyers have maintained that all purchasers of the certificates of deposit issued by his Antigua- based Stanford International Bank Ltd. and sold by the brokerage were able to withdraw every penny of their money until the Securities and Exchange Commission sued in February 2009.
Asked by defense attorney Ali Fazel if anybody had not gotten their money back before then, Green replied, “Yes, one person I know of specifically” was denied $20 million. Green didn’t identify the client.
Stanford, 61, who was indicted in June 2009, is accused of leading a $7 billion investment fraud scheme centered on sales of the CDs. Charged with 14 counts including mail fraud, wire fraud and obstruction of an SEC probe, he told jurors earlier this week that he’s innocent.
The criminal case is U.S. v. Stanford, 09-cr-342, U.S. District Court, Southern District of Texas (Houston). The SEC case against Stanford 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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Perelman’s MacAndrews & Forbes Loses $16 Million Drapkin Verdict
Ronald Perelman’s MacAndrews & Forbes Holdings Inc. was ordered by a jury to pay $16 million to Perelman’s ex- lieutenant, Donald Drapkin, after jurors found the billionaire’s firm breached a separation agreement.
Jurors in Manhattan federal court deliberated for about 90 minutes before returning their verdict Jan. 27 in Drapkin’s breach-of-contract lawsuit. They had heard three days of testimony.
“I’m very happy,” Drapkin said immediately after the verdict.
“We are obviously disappointed” in the outcome, Barry Schwartz, executive vice chairman of MacAndrews & Forbes, said in a statement. “We believe that the facts unequivocally proved a substantial breach by Mr. Drapkin. We will review all appropriate post-trial options.”
Drapkin, a dealmaker, sued MacAndrews & Forbes in 2009, saying he was hired by Perelman in the 1980s to serve as vice chairman and act as in-house investment banker. In court papers, he said the relationship between the two men had deteriorated so much by 2006 that Drapkin’s salary had been slashed and his responsibilities cut.
Drapkin said he agreed to leave the firm in 2007 in return for millions of dollars in severance and proceeds from the sale of his stock. He claimed he wasn’t paid $16 million. MacAndrews & Forbes said it withheld the payments because Drapkin breached the separation agreement by withholding documents and trying to get Eric Rose, who heads the firm’s life sciences business, to leave.
The judge barred evidence about the soured relationship and said the focus of the trial would be on whether the firm had breached its contract with Drapkin. As a result, much of the three days of testimony focused on contract clauses, document retention and e-mails.
The cases are Drapkin v. Mafco Consolidated Group, 09- cv-1285, and MacAndrews & Forbes LLC v. Drapkin, 09-cv-4513, U.S. District Court, Southern District of New York (Manhattan).
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Carnival Reaches Consumer Settlement as Wreck Sparks Lawsuits
Carnival Corp. (CCL)’s Italian unit said it reached a damage- settlement agreement with consumer groups, as the company was sued for the first time in the U.S. over the wreck of the Costa Concordia cruise ship.
Costa Crociere SpA agreed to pay 11,000 euros ($14,500) to every passenger of the cruise ship that ran aground off the Italian coast on Jan. 13, killing at least 16, plus reimburse expenses including the cost of the cruise, according to a statement from the Genoa-based company Jan. 27. The agreement was reached with consumer groups in countries including Italy, Germany, France and Spain, a company spokesman said.
The U.S. complaint, alleging negligence and breach of contract, was filed Jan. 26 in federal court in Chicago by crew member Gary Lobaton, who seeks class-action status to represent all victims of the disaster off Giglio Island. A spokesman for Costa, a unit of Miami-based Carnival, declined to comment on the U.S. lawsuit.
Italian criminal lawyer Giulia Bongiorno next week will file a complaint on behalf of clients with Italian prosecutors investigating the wreck. Concordia’s Captain Francesco Schettino was placed under house arrest on Jan. 17 for allegedly causing the wreck and abandoning the ship.
“My clients aren’t happy with just a financial compensation,” Bongiorno, who helped overturn the murder conviction of Amanda Knox’s former boyfriend Raffaele Sollecito in October, said in a phone interview Jan. 27. The aim is to request that prosecutors investigate all responsibilities and not just the captain’s, she said. Bongiorno, 45, who’s also a member of Italy’s Parliament, will represent more than 50 passengers, Corriere della Sera said.
The Concordia struck rocks near Giglio after 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 on a Mediterranean cruise carrying about 4,200 passengers and crew. Eighteen are still missing, though that number probably includes two of the dead who have not yet been identified.
The compensation proposal “is higher than the current indemnification limits that are provided for in international conventions and the laws currently in force,” Costa Crociere said. Families of victims and injured will be offered a separate compensation, Costa said. A Costa spokesman declined to immediately comment on the U.S. lawsuit.
Italian consumer group ADOC estimated that about 3,000 passengers would get about 14,000 euros each if they accept the offer, including expenses, according to an e-mailed statement. ADOC forecast 85 percent of passengers will accept the offer. That would bring the total cost to about 42 million euros. Carnival has liability cover of as much as $3 billion with the Standard Club, a mutual insurance association owned by ship owners, and the Steamship Mutual Underwriting Association Ltd., according to spokesmen for the two firms.
Italian consumer group Codacons advised clients not to accept the offer, according to a statement on its website Jan. 27. The association is putting together a class-action lawsuit with U.S. law firms Napoli Bern Ripka Shkolnik and Proner Proner LLP to be filed in Miami, it said. The group is seeking “at least” 125,000 euros per passenger and more than 1 million euros for “most serious cases,” according to the statement.
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