Kareem Serageldin, Credit Suisse Group AG (CSGN)’s former global head of structured credit trading, was charged in a scheme to falsify prices tied to collateralized debt obligations to meet targets and boost year-end bonuses for his $5.35 billion trading book.
Serageldin, 38, who lives in the U.K. and led the securities department of Credit Suisse’s investment banking division, was named in an indictment unsealed yesterday in New York. Two of his former subordinates, David Higgs, 42, and Salmaan Siddiqui, 36, pleaded guilty in federal court in New York yesterday and said they’re cooperating with the U.S. in the probe.
Higgs and Siddiqui said during their guilty pleas that Serageldin told them to overstate the value of mortgage-backed assets in a Credit Suisse trading book known as ABN1 after the collapse of the U.S. housing market. Both said they did so to enhance their job performance and bonuses.
“While the residential housing market was in a freefall, these defendants decided they were above the rules of the market and above the law,” Manhattan U.S. Attorney Preet Bharara told reporters yesterday.
Switzerland’s second-largest bank said in 2008 it would take writedowns on asset-backed securities after finding “mismarkings” by a group of traders. The Zurich-based bank said it would write down $2.65 billion after a review found pricing errors on residential mortgage-backed bonds and CDOs made “by a small number” of traders who were subsequently fired or suspended.
The U.S. Securities and Exchange Commission yesterday sued Serageldin, Higgs, Siddiqui and Faisal Siddiqui. The SEC identified Faisal Siddiqui, 36, of New York, as a vice president at Credit Suisse’s CDO trading group in New York. The SEC said that Salmaan Siddiqui and Faisal Siddiqui aren’t related.
Serageldin earned $7.27 million in salary and other compensation in 2007, the U.S. said. Once Credit Suisse learned of the scheme, they rescinded more than $5.2 million of the incentive pay he received, prosecutors said.
Serageldin, a U.S. citizen living in the U.K., isn’t in U.S. custody, Bharara said.
“We do not consider him a fugitive,” Bharara said. “We encourage him and his lawyer to come to the United States and answer the charges against him.”
If Serageldin doesn’t come to New York, Bharara said his office will seek to extradite him.
Both Higgs and Siddiqui pleaded guilty to one count each of conspiracy to falsify books and records and commit wire fraud, which carries a maximum five-year prison term and three years of supervised release.
Higgs and Siddiqui were released on $500,000 bond each and ordered to surrender their passports. Both agreed to pay unspecified restitution, the U.S. said.
Higgs, Siddiqui and Serageldin haven’t worked for Credit Suisse since their employment was terminated in 2008, said Steven Vames, a spokesman for the bank in New York.
Serageldin couldn’t be immediately reached for comment on the allegations.
The cases are U.S. v. Higgs, 12-cr-00088, and U.S. v. Siddiqui, 12-cr-00089, U.S. District Court, Southern District of New York (Manhattan). The SEC case is U.S. Securities and Exchange Commission v. Serageldin, 12-cv-00796, U.S. District Court, Southern District of New York (Manhattan).
For more, click here.
Standard Life Wins $157 Million Insurance Suit Over Lehman Loss
Standard Life Plc (SL/) won a 100 million pound ($157 million) case over whether insurers, including ACE European Group Ltd., had to pay for losses on asset-backed securities after the collapse of Lehman Brothers Holdings Inc. (LEHMQ)
A Standard Life unit sued 11 insurers in a London court, saying they should have covered payments it made to customers after a fund it had marketed as low-risk lost nearly 5 percent of its value on one day in January 2009.
Judge Henry Eder yesterday ruled Standard Life should be able to recover the money it used to repay customer losses as long as it paid a deductible of 10 million pounds.
The Standard Life Pension Sterling Fund, which was valued at 2.2 billion pounds and had 97,000 customers at the end of 2008, invested around half its value in debt securities. The 2009 losses led to “a mass of complaints” and “severe pressure from the Financial Services Authority,” Eder said in his judgment.
Jonathan Shillington, an outside spokesman for ACE, didn’t immediately comment. Standard Life said in a statement the insurers had been given permission to appeal and that the issue wouldn’t be heard until later this year.
For more, click here.
BAA Loses Appeal Over Forced Sale of London Stansted Airport
BAA Ltd., the owner of London’s Heathrow airport, lost an appeal against the forced sale on antitrust grounds of the U.K. capital’s Stansted terminal and one of its two bases in central Scotland.
BAA’s case arguing that the U.K. airport market had become more competitive since the Competition Commission’s decision almost three years ago was unanimously dismissed, the Competition Appeal Tribunal in London said in a ruling yesterday.
“We are disappointed by the decision of the tribunal, which we will now carefully consider before making any further statements,” London-based BAA said in an e-mail. Stansted is the company’s second-busiest airport and the biggest base for Ryanair Holdings Plc (RYA), Europe’s No. 1 discount airline.
BAA was ordered to find buyers for Stansted and London Gatwick airport in March 2009, together with Edinburgh or Glasgow in Scotland. Gatwick was sold to Global Infrastructure Partners Ltd. for 1.51 billion pounds ($2.4 billion), but the other disposals were delayed after the tribunal upheld claims that an adviser to the regulator had a conflict of interest, before revisiting the issue and reaching the same conclusion.
The Competition Commission said in a statement it was pleased the decision had been upheld and that it’s now “surely time” for BAA to accept the ruling and complete the disposals.
For more, click here.
Glaxo Settles 20,000 Lawsuits Over Avandia, Lawyer Says
GlaxoSmithKline Plc (GSK), which is paying $3 billion to resolve government claims that it illegally marketed drugs such as the Avandia diabetes medication, agreed to settle more lawsuits over the pills, a lawyer said.
Glaxo, the U.K.’s biggest drugmaker, agreed last month to resolve more than 20,000 cases alleging Avandia causes heart attacks, said Paul Kiesel, a lawyer for former users. The accord, reached in court-ordered mediation, included a case that was set for trial in state court in Los Angeles, he said.
“We are pleased the mediation has successfully resulted in the settlement of a significant number of the remaining cases,” Kiesel, one of the lead lawyers for plaintiffs in the Avandia litigation, said Jan. 31 in a telephone interview.
The settlements are part of London-based Glaxo’s efforts to resolve legal issues stretching back more than a decade. Executives announced in November that the drugmaker will pay $3 billion to settle U.S. criminal and civil probes into whether Glaxo illegally marketed Avandia and other medications.
The company already has agreed to pay at least $700 million to settle more than 15,000 patients’ claims that Avandia caused heart attacks and strokes, people familiar with the accords said last year.
The most-recent settlements of Avandia patients’ suits “are covered by existing provisions and those payments will be funded through existing cash resources,” Bernadette King, a U.S.-based Glaxo spokeswoman, said in an e-mailed statement Jan. 31.
More than 2,500 Avandia cases are consolidated before U.S. District Judge Cynthia Rufe in Philadelphia, who appointed a mediator in a bid to resolve the remaining claims over the drug. Other cases are pending in state courts around the U.S.
Patrick A. Juneau, a Lafayette, Louisiana-based lawyer named as the Avandia mediator, helped the company and plaintiffs’ lawyers reach agreement on the accords for the more than 20,000 cases, Kiesel said.
The consolidated case is In re Avandia Marketing, Sales Practices and Products Liability Litigation, 07-01871, U.S. District Court, Eastern District of Pennsylvania (Philadelphia).
For more, click here.
Calpers, Specialist Firms Reach Accord on Trading Ahead
The California Public Employees’ Retirement System, the biggest U.S. pension fund, reached a settlement in a shareholder lawsuit against specialist firms over a practice known as trading ahead, according to a court filing.
U.S. District Judge Robert Sweet in Manhattan said in a Jan. 31 filing that the parties in the 2003 lawsuit have entered into a “memorandum of understanding that contemplates the submission of a stipulation of settlement” that will resolve the case. The document contained no other details.
Calpers and other investors alleged that from 1999 to 2003, specialist firms traded for their own accounts ahead of clients, resulting in inferior prices for their own accounts.
The firms engaged in practices known as inter-position, in which they place themselves between matching orders in an effort to generate profits, and trading ahead, in which they trade for their own accounts knowing how a public investor’s order would affect a stock price, Calpers said in the complaint.
The New York Stock Exchange, which had been named as a defendant, settled the lawsuit in 2010, agreeing to make current and former personnel available for interviews and provide documents in the litigation, lawyers for the exchange said in court filings. The exchange didn’t admit wrongdoing.
Specialist firms agreed to reimburse clients $247 million to settle a 2004 lawsuit by the Securities and Exchange Commission alleging they violated trading rules.
Brad Pacheco, a Calpers spokesman in Sacramento, didn’t immediately respond to a message seeking comment on the settlement. Irwin Warren and James McClammy, attorneys for the specialists firms, didn’t return voice-mail messages seeking comment after regular business hours.
The case is In re NYSE Specialist Securities Litigation, 03-8264, U.S. District Court, Southern District of New York (Manhattan).
For the latest verdict and settlement news, click here. For the latest new suits news, click here. For copies of recent civil complaints, click here.
Foreclosure Agreement Deadline for States Postponed to Feb. 6
The deadline for states to decide whether to join a proposed nationwide foreclosure settlement with banks was delayed to Feb. 6 from Feb. 3, the Iowa Attorney General’s Office said.
States were given more time to evaluate the proposal, which may total $25 billion, after at least one asked for a delay, Geoff Greenwood, a spokesman for Iowa Attorney General Tom Miller, said yesterday in a phone interview. Miller is helping to lead negotiations.
State and federal officials have been negotiating an agreement with mortgage servicers that would provide mortgage relief to homeowners and set requirements for how banks conduct foreclosures.
State officials are reviewing the agreement with Bank of America Corp., JPMorgan Chase & Co., Citigroup Inc., Wells Fargo & Co. (WFC) and Ally Financial Inc (ALLY)., and are being asked to sign on. Greenwood declined to name the state that asked for more time or comment on state support for the deal.
Nevada Attorney General Catherine Cortez Masto said in a Jan. 27 letter to Miller, the Justice Department and U.S. Housing and Urban Development Secretary Shaun Donovan that she needed answers to 38 questions to evaluate the deal.
The deadline was changed as Oregon Attorney General John Kroger said yesterday in a statement that he would sign on to the settlement, joining Connecticut Attorney General George Jepsen, who also supports it.
Delaware Attorney General Beau Biden has said he won’t sign on to the settlement.
Bank Foreclosure Accord Backed by Oregon Attorney General
Oregon’s attorney general agreed to join a proposed multistate settlement over foreclosure and mortgage-servicing, saying it penalizes banks and offers relief to homeowners.
The settlement will provide $30 million to the state and as much as $200 million in relief to Oregon homeowners, including those facing foreclosure, Attorney General John Kroger said yesterday in a statement.
“This agreement penalizes banks that engaged in wrongful foreclosure practices and brings badly needed relief for distressed homeowners,” he said. “I am not confident we could get a better agreement on this limited set of issues if we litigated for several more years.”
All 50 states announced an investigation into bank foreclosure practices in 2010 following disclosures that companies were using flawed documents in seizing homes. A group of state attorneys general and federal officials have since negotiated terms of a proposed settlement that would set standards for how banks conduct foreclosures while providing mortgage relief to borrowers.
Connecticut Attorney General George Jepsen said in an e- mailed statement Jan. 31 that he would also sign on to the agreement. The deal “would impose tough new servicing standards on banks and hold them accountable for what have become familiar abuses,” he said.
For more, click here.
Greenberg Amends Suit Seeking U.S. Compensation for AIG Takeover
Maurice “Hank” Greenberg, the former American International Group Inc. (AIG) chief executive officer, revised his lawsuit seeking $25 billion over the U.S. takeover of the insurer, claiming a banker said the government wanted to “steal” the business.
The amended complaint, filed Jan. 31 in the U.S. Court of Federal Claims in Washington, quotes an unidentified banker hired to represent the Federal Reserve Bank of New York during bailout discussions in 2008.
“These guys are going to try and steal the business,” the banker said to an AIG representative, according to the complaint.
Greenberg’s Starr International Co. sued the government Nov. 21, calling the public assumption of 80 percent of stock in the insurer in 2008 an unconstitutional “taking” of property that requires $25 billion in compensation.
U.S. Claims Judge Thomas Wheeler ordered Jan. 31 that AIG be notified that it was added as a “nominal” defendant in the case, meaning the company would be bound by any judgment.
The revised complaint buttressed earlier claims that the U.S. taking of 562.9 million shares of AIG common stock was illegal. Starr claims that while the U.S. got so-called fairness opinions from banks on exchanging two groups of preferred stock, it failed to get such an opinion in exchanging a block of preferred stock for 562.9 million shares “for virtually nothing.”
Starr, AIG’s largest shareholder at the time of the bailout, claims that in the midst of the financial crisis in September 2008, the U.S. took 80 percent of AIG’s equity while violating the constitutional rights of shareholders to due process and equal protection of the law.
Alison Preece, a spokeswoman for Starr’s lawyers at Boise, Schiller & Flexner LLP, declined to comment on the amended lawsuit. Charles Miller, a Justice Department spokesman, couldn’t immediately comment on the revised lawsuit.
The federal claims case is Starr International Co. v. U.S., 1:11-cv-00779, U.S. Court of Federal Claims (Washington). The Federal Reserve case is Starr International Co. v. Federal Reserve Bank of New York, 1:11-cv-08422, U.S. District Court, Southern District of New York (Manhattan).
For more, click here.
Apple Loses Bid to Ban Samsung Galaxy Tab 10.1N, Nexus Phone
Apple Inc. (AAPL) failed to get a preliminary ban on sales of Samsung Electronics Co.’s Galaxy 10.1N and Galaxy Nexus mobile phone from a German court.
The Munich Regional Court rejected the motion yesterday, in a case where Apple invoked a patent granted last year protecting technology related to touch screens for tablets and smartphones.
“Samsung has shown that it is more likely than not that the patent will be revoked because of a technology that was already on the market before the intellectual property had been filed for protection,” Presiding Judge Andreas Mueller said when delivering the ruling.
The decision comes a day after a Dusseldorf appeals court upheld Apple’s request to ban sales of the Galaxy Tab 10.1, the predecessor model. Samsung began selling the Galaxy Tab 10.1N, a revised version, in Germany to get around the ban. A lower Dusseldorf court is scheduled to rule next week on a separate case Apple filed over the Galaxy 10.1N. Samsung lost two patent rulings against its rival in a Mannheim court last month.
Neither Samsung nor Apple immediately replied to e-mails seeking comment on yesterday’s case.
Yesterday’s case is LG Muenchen 21 O 26022/11.
For more, click here.
Phone Hacker Must Reveal Who at News Corp. Gave Instructions
Glenn Mulcaire, the ex-private investigator who hacked into celebrities’ voice mails for News Corp. (NWSA)’s News of the World, lost a U.K. appeal to avoid giving “incriminating” evidence in civil lawsuits against him.
The ruling yesterday by the Court of Appeal in London upholds a judge’s order for Mulcaire to disclose who at the now- defunct tabloid told him to intercept phone messages left for a British actor and a celebrity publicist and what information was collected. Mulcaire’s lawyers argued that by doing so he would incriminate himself.
“I intend to appeal this ruling to the Supreme Court, because this may affect my right to claim” the privilege against self-incrimination “in other civil cases still being brought against me,” Mulcaire said in a statement released by his lawyer, Sarah Webb. Judge David Neuberger said Mulcaire doesn’t have to release the information until the nation’s highest court decides whether to review the issue.
Mulcaire and News Corp.’s U.K. newspaper unit were sued by dozens of celebrities and other victims whose phones were hacked to get stories. The company settled more than half of the 60 hacking lawsuits against it last month including those by actor Jude Law and soccer player Ashley Cole.
For more, click here.
Pemex Amends Case Against Shell Claiming Trade in Stolen Gas
Petroleos Mexicanos’ production unit filed an amended lawsuit against Shell Chemical Co., Marathon Petroleum Co. and ConocoPhillips (COP) Co. alleging they and other U.S. companies traded natural gas condensate stolen from Mexico.
The substance, a mixture of hydrocarbon liquids produced with natural gas that competes with light crude oil, is targeted by Mexican drug cartels, stolen and imported to the U.S. by companies previously sued by Pemex, as the company is known, it said in its complaint.
Shell Chemical, a unit of Royal Dutch Shell Plc (RDSA); Marathon; and ConocoPhillips, named as defendants in the new complaint, “appear to have been innocent” and dealt in the condensate only after it was laundered, according to Pemex.
“Even absent knowledge or intent, however, the defendants’ use, purchase, and sale of stolen Mexican condensate in the U.S. was without right or title from the Mexican government, and therefore, was wrongful under the laws of Mexico and the U.S.,” Mark Maney, an attorney for Pemex, said in the Jan. 27 amended complaint filed in federal court in Houston.
Rich Johnson, a spokesman for ConocoPhillips, had no immediate comment. A voice-mail message seeking comment about the complaint left on the media line for Shell, wasn’t immediately answered. Shane Pochard, a spokesman for Marathon, didn’t immediately respond to a voice-mail message seeking comment about the case.
The cases are Pemex Exploracion y Produccion v. BASF 4:10- cv-01997 and Pemex v. Big Star Gathering Ltd, 4:11-cv-2019, U.S. District Court, Southern District of Texas (Houston).
For the latest lawsuits news, click here.
Stanford Secretly Lent $2 Billion to His Firms, Witness Says
A former Stanford Financial Group Co. accountant testified that he grew concerned about $2 billion R. Allen Stanford secretly borrowed from his Antiguan bank after hearing the company’s finance chief say repeatedly in 2007 and 2008, “The emperor has no more clothes.”
“I interpreted that to mean Mr. Stanford didn’t have any money to cover this debt, nor did the companies have the money to pay it back, and the bank didn’t have the money to pay it back,” Henry Amadio, the accountant, told jurors yesterday at Stanford’s criminal fraud trial in federal court in Houston.
Stanford, 61, is accused of skimming more than $1 billion in investor funds from his Antigua-based Stanford International Bank Ltd. to fund a billionaire’s lifestyle and private businesses ranging from Caribbean airlines to cricket tournaments. Stanford, who faces as long as 20 years in prison if convicted of the most serious charges, denies all wrongdoing.
Amadio, testifying for the government, told jurors he prepared monthly reports tracking the financier’s personal loans from the Antiguan bank, which prosecutors claim was at the heart of an alleged $7 billion Ponzi scheme. The loans weren’t disclosed to investors, he said.
Bank funds borrowed by Stanford flowed through several intermediary companies before they were used to cover operating losses and startup expenses at the financier’s affiliated companies, Amadio testified. He said Stanford Financial Group Chief Financial Officer James Davis instructed him to record these loans as capital infusions into the companies rather than as loans from Allen Stanford.
“There is not going to be repayment; there is no other option,” Amadio said, reading to jurors from an e-mail he received from Davis in 2007. In the e-mail, Davis said the accounting treatment was directed by Stanford, the bank’s sole shareholder.
Amadio said he worried that investors’ savings were being secretly diverted to cover losses at Stanford’s other companies.
“The combined profits of the bank were not enough” to provide Stanford sufficient legitimate profits to lend more than $2 billion to his other businesses, Amadio testified. “The only other conclusion was the money was coming from depositors’ accounts.”
Amadio told jurors he was ordered to strip all bank records, including his reports tracking Stanford’s loans, from computers at Stanford’s Houston headquarters and move them to a portable hard drive in 2006, after U.S. securities regulators began investigating the bank.
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).
For more, click here.
Tottenham Manager Redknapp Denies Cheating on U.K. Taxes
Tottenham manager Harry Redknapp denied cheating on his U.K. taxes, telling a London court that speeding fines were as close as he has come to breaking the law.
The coach is accused of working with his co-defendant, Sheffield Wednesday owner Milan Mandaric, to evade U.K. taxes when they were at Portsmouth soccer club. Redknapp took the stand yesterday for the first time, and stopped his testimony to accuse a police detective of starring at him “to cause me trouble.”
Redknapp, 64, is fighting charges that Mandaric paid $295,000 into a secret Monaco bank account named after the manager’s dog Rosie to avoid paying income tax. Redknapp is the favorite to replace England manager Fabio Capello after this summer’s European Championships.
“I’ve always paid my tax,” Redknapp said. “I’ve always gone to the best available people. I’ve employed the best firm of accountants. I have always paid too much tax rather than not enough.”
Redknapp’s trial is in its second week. This afternoon, he accused detective Dave Manley, who led the investigation, of trying to unsettle him on the stand.
“Mr. Manley, can you stop starring at me,” Redknapp said, pointing a finger at Manley, who sat behind prosecutor John Black. “I know you’re trying to cause me a problem.”
Prosecutors claim the offshore account was opened to funnel bonus payments from a player trade and performances, to Redknapp without paying U.K. employment taxes. Mandaric claimed the money was outside of his and Redknapp’s soccer relationship, and he saw it as “seed capital” with which he could invest in U.S. stocks on Redknapp’s behalf and solidify the pair’s friendship.
For more, click here.
For the latest trial and appeals news, click here.
U.S. Justice Department’s Greg Andres to Return to Davis Polk
Greg Andres, a former federal prosecutor and senior official with the U.S. Justice Department, will rejoin Davis Polk & Wardwell LLP in the law firm’s white-collar defense group.
Andres, 44, who served as deputy assistant attorney general in the Justice Department’s criminal division, will represent clients in both civil and criminal trials, the New York-based firm said yesterday in a statement. Andres was an associate in Davis Polk’s litigation department from 1997 to 1999 before leaving to become a federal prosecutor.
Andres’s responsibilities at the Justice Department included supervision of the fraud and appellate sections, according to the statement. His trials include the prosecution of former Credit Suisse Group AG broker Eric Butler for securities fraud. Butler was convicted in 2009 and sentenced to five years in prison.
For the latest litigation department news, click here.
To contact the reporter on this story: Elizabeth Amon in Brooklyn, New York, at firstname.lastname@example.org.
To contact the editor responsible for this story: Michael Hytha at email@example.com.