The U.S. dropped the biggest prosecution of individuals accused of foreign bribery after two trials in the case ended with three acquittals and seven mistrials.
The Justice Department yesterday asked a federal judge in Washington to dismiss the indictment, which originally accused 22 security-industry officials of planning to make payments to a federal agent posing as a representative of the West African nation of Gabon to secure a stake in a fake $15 million deal for weapons and security gear.
It was the first time the government used a sting operation involving undercover techniques to charge violations of the Foreign Corrupt Practices Act.
“I for one hope that this very long and very expensive ordeal will be a true learning experience for the department and the FBI as they regroup to investigate and prosecute FCPA cases against individuals” U.S. District Judge Richard Leon said in granting the Justice Department’s request. He said he had earlier told prosecutors of his concerns about their “aggressive conspiracy theory” of the case.
In seeking to end the case, the government said in court papers it “carefully considered” the outcomes of the first two trials of 10 defendants and the impact of rulings in those cases the remaining defendants, as well as the resources needed to continue with “another four or more” trials.
“If, as the DOJ said, there’s a sea of global corruption, it’s much wiser for them to use their resources to prosecute those actual crimes, rather than pursuing this fictitious sting operation,” Eric Bruce of Kobre & Kim LLP, who represented defendant Pankesh Patel, said in an interview.
Patel, of the U.K, is managing director of Quartermaster’s Ltd., a company that sells military and law-enforcement uniforms, according to court papers. He was scheduled to be retried in May after a jury last year failed to reach a verdict.
Laura Sweeney, a Justice Department spokeswoman, declined to comment beyond yesterday’s filing.
The case is U.S. v. Goncalves, 09-cr-00335, U.S. District Court, District of Columbia (Washington).
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Stanford’s Secret Loans From His Bank Known to IRS, Lawyer Says
Internal Revenue Service auditors knew about hundreds of millions of dollars R. Allen Stanford borrowed from his Antiguan bank to fund an array of private ventures, a tax lawyer who worked on the audits told jurors in Stanford’s criminal fraud trial yesterday.
“In 1999, the IRS position was these were valid loans and should be treated as valid loans” between the bank and Stanford and between Stanford and his other companies, Larry Campagna, a tax partner with Chamberlain Hrdlicka in Houston, testified in the financier’s defense.
Prosecutors claim Stanford secretly borrowed $2 billion from investor savings at Antigua-based Stanford International Bank Ltd. to finance an extravagant lifestyle and speculative ventures ranging from Caribbean airlines, real estate developments and cricket tournaments. CD buyers were told their funds were held in safe, liquid investments.
U.S. securities regulators seized Stanford’s operations on suspicion of fraud in February 2009. Stanford, 61, is fighting charges he defrauded investors of $7 billion through what the government claims were bogus Antiguan CDs. His trial is in its fifth week in federal court in Houston.
Campagna told jurors that IRS auditors were already in Stanford’s offices examining his personal and corporate tax returns when Chamberlain Hrdlicka was hired to appeal certain IRS rulings in 2003. Under questioning by prosecutors, the tax attorney said the auditors weren’t necessarily given “free rein” to look at any documents they wanted.
Jurors also heard testimony by genealogical researcher Karen Pittman, a college librarian Stanford paid to investigate his ancestry for links to Stanford University founder Leeland Stanford.
Earlier in the trial, prosecutors told jurors that Stanford University has denied any linkage between its founder and the Texas financier. Allen Stanford often touted such blood ties in promotional materials given to investors.
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).
Appeals Court Revives Parmalat Suits Against Grant Thornton
A U.S. appeals court again revived two lawsuits by Parmalat SpA (PLT) against accounting firm Grant Thornton LLP, vacating a lower court judge’s decision dismissing them.
The U.S. Court of Appeals in New York said U.S. District Judge Lewis Kaplan in Manhattan should have abstained from ruling on the cases because of bankruptcy-related proceedings and because he didn’t have jurisdiction over the cases. The appeals court yesterday said the cases should be sent to federal court in Illinois so they can be handled by an Illinois state court.
This is the latest ruling in a case that has gone up to the federal appeals court and back to Kaplan. In January 2011, the 2nd Circuit in New York revived the cases after Kaplan had dismissed the lawsuits, ruling that he’d applied the wrong standard in determining whether to exercise jurisdiction.
The appeals court sent the cases back to Kaplan to determine whether federal law required him to abstain from taking them in favor of the Illinois courts. Kaplan, applying the rule set by the appeals court, ruled in August that he had authority to rule in the cases and then later dismissed them.
Parmalat, a dairy company based in Collecchio, Italy, collapsed in December 2003 in the country’s largest bankruptcy, later disclosing more than 14 billion euros ($20.1 billion) of debt, about eight times the amount reported by its former management. Parmalat SpA emerged from bankruptcy and returned to the stock market in 2005.
“The Second Circuit’s decision today is about which court should resolve the case -- not about how it should ultimately be resolved,” Michele Mazur, a spokeswoman for Grant Thornton, said in an e-mail.
She said the firm is “confident” the Illinois courts will dismiss the case as Kaplan did “after years of exhaustive discovery.”
Grant Thornton never served as Parmalat’s auditor and is in no way responsible for Parmalat’s fraud, she said.
The case is In re Parmalat Securities Litigation, 04- cv-1653, U.S. District Court, Southern District of New York (Manhattan).
Shell EPA Permits for Alaska Drilling Challenged in Court
Royal Dutch Shell Plc (RDSA)’s air pollution permits for offshore oil drilling in Alaska were challenged by environmental groups who said the permits violate the U.S. Clean Air Act.
The Alaska Wilderness League and eight other organizations filed a petition with the U.S. Court of Appeals in San Francisco on Feb. 17, asking it to review two permits the U.S. Environmental Protection Agency granted Shell to operate its Discoverer drillship in the Sea of Beaufort and the Sea of Chukchi.
“As early as this summer, the Discoverer drillship and other vessels in Shell’s fleet could be in the Chukchi Sea or Beaufort Sea of the Arctic Ocean where they will pump tens of thousands of tons of pollution into pristine Arctic skies,” the groups said in a statement yesterday.
The organizations allege that the EPA approved the permits without ensuring that all air quality standards were met, including not requiring that Shell install all the pollution controls that it should have, according to the statement.
The EPA permits were issued Feb. 10 to U.S. subsidiaries of The Hague-based Shell, according to the petition.
“Shell and EPA have worked to assemble strong, environmentally responsible air permits,” Shell spokeswoman Kelly op de Weegh said in an e-mailed statement. “Specifically, we have committed to retro-fit our catalytic exhaust systems and use ultra-low sulfur fuel on all of our vessels.”
The company will continue to work with regulators to get all the permits it needs to start drilling this summer, op de Weegh said.
Shell on Feb. 17 received U.S. approval for its oil-spill response plan in the Chukchi Sea, bringing it closer to winding up a five-year quest to drill off the north coast of Alaska.
An EPA spokesman in Washington didn’t immediately return calls for comment.
The case is Redoil v. EPA, 12-70518, U.S. Court of Appeals for Ninth Circuit (San Francisco.)
Ex-McKinsey Consultant in Embargo Case Again Wins Appeal
A former McKinsey & Co. consultant whose 2010 conviction for violating a trade embargo with Iran was partially set aside in October may face a retrial on three counts after an appeals court sent the case back to a trial judge.
Mahmoud Reza Banki, a naturalized U.S. citizen born in Iran who was sentenced to 2 1/2 years in prison after his New York jury trial, was freed in November after an appeals panel overturned convictions on three of five counts. The government appealed that ruling and the same panel yesterday issued an amended decision that gives prosecutors the option to seek a retrial on the three counts.
“We’re grateful that the panel largely denied the government’s rehearing petition and that it declined to reinstate any of the convictions,” Kathleen M. Sullivan, a partner at Quinn Emanuel Urquhart & Sullivan LLP (496224L) who represents Banki, said in a phone interview.
Banki had been in U.S. custody since his arrest in January 2010 and had served 22 months of his 30-month term before he was released from prison in November.
The defendant, who has a doctorate in chemical engineering from Princeton University, was originally accused of running a “value-transfer” business that essentially moved money to residents of Iran from 2006 to 2009 in violation of the U.S. embargo. Banki received about $4.7 million as part of the transfer process and used the money to buy a $2.4 million condominium, invest in securities and pay credit-card bills, the government charged.
Defense lawyers claimed Banki didn’t violate the law because he got the money from his family and reported the funds to the U.S. government.
In yesterday’s decision, the appeals panel reversed three counts and sent them back for possible retrial to U.S. District Judge John Keenan in Manhattan, who presided over the 2010 trial. The three charges include conspiring to violate the Iran trade embargo, violating the regulation and operating an unlicensed money-transmitting business.
Jerika Richardson, a spokeswoman for Manhattan U.S. Attorney Preet Bharara, declined to comment on the ruling or whether the U.S. would seek to retry Banki.
The case is U.S. v. Banki, 1:10-cr-00008, U.S. District Court, Southern District of New York (Manhattan).
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University Affirmative Action Draws U.S. High Court Scrutiny
The U.S. Supreme Court (1000L) agreed to once again review university affirmative action programs, re-entering a racially charged debate by accepting an appeal from a rejected white applicant to the University of Texas.
The appeal takes aim at a 2003 Supreme Court decision that said universities could continue to consider the race of their applicants to help ensure campus diversity.
Universities have had the court’s blessing for affirmative action since the 1978 Regents of the University of California v. Bakke decision gave race-conscious admissions a limited endorsement. With five of the nine current justices openly skeptical about racial classifications, yesterday’s action suggests the court at a minimum will scale back diversity
The justices will hear the latest case -- in which student Abigail Noel Fisher said she suffered discrimination when she applied to the university’s flagship Austin campus -- during the nine-month term that starts in October, potentially with arguments before the November presidential election.
In urging the court not to hear the Fisher case, Texas argued that “those who drafted and ratified the Fourteenth Amendment did not establish the principle of ‘colorblind’ government that opponents of race-conscious admissions so often invoke.”
Fisher’s lawyers point to statistics indicating that the Top Ten Percent Law, enacted in 1997, was helping ensure a significant number of minority students even without explicit consideration of race.
The case is Fisher v. University of Texas at Austin, 11-345.
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Health-Care Argument Extended to Six Hours at U.S. High Court
The U.S. Supreme Court extended next month’s argument over President Barack Obama’s health-care law to six hours, adding 30 minutes to what was already the longest session in decades.
Responding to a request from both sides, the justices yesterday scheduled an extra half-hour for the first day of arguments, which will run from March 26 to 28.
The first day will center on the Anti-Injunction Act, a law that one federal appeals court concluded prevents judges from ruling until 2015 on the central issue in the dispute: the requirement that Americans either buy insurance or pay a penalty.
Music Producer Spector’s Murder Appeal Rejected by Supreme Court
The U.S. Supreme Court (1000L) rejected an appeal by Phil Spector, the music producer who developed the “wall of sound” recording technique, of his murder conviction for the 2003 shooting death of actress Lana Clarkson.
Yesterday’s rebuff leaves Spector, 72, to serve a prison term of 19 years-to-life in a California state prison.
Spector argued unsuccessfully that his constitutional rights were violated when a judge permitted videotaped evidence from the producer’s first trial, which ended in a hung jury in 2007.
A jury found Spector guilty of second-degree murder for shooting Clarkson, 40, at his mansion a few hours after they met at a nightclub where she worked.
Spector gained fame in the 1960s with his “wall of sound” method. The dense, multilayered productions resulted in hits for the Ronettes, featuring Spector’s future wife Ronnie, and the Righteous Brothers. He produced the Beatles’ album “Let It Be” and solo projects by John Lennon and George Harrison.
The case is Spector v. California, 11-761.
Teva Said to Pay $250 Million to End Nevada Propofol Cases
Teva Pharmaceutical Industries Ltd. (TEVA) will pay more than $250 million to settle more than 80 lawsuits alleging the drugmaker sold the anesthetic Propofol in a way that led colonoscopy patients to develop hepatitis C, people familiar with the accords said.
Teva, the world’s biggest maker of generic medicines, confirmed the settlement yesterday without specifying how much it will pay. The company agreed last week to resolve claims by Las Vegas residents that it intentionally sold Propofol in vials large enough to be reused by doctors, the people said. They spoke on the condition they not be named because they aren’t authorized to speak publicly about the agreements.
The deal also resolves a May 2010 case over Teva’s sales of the anesthetic that spawned a jury award of more than $500 million against the Israeli drugmaker, according to the people familiar with the settlements and a filing with the Nevada Supreme Court. Henry Chanin, a private-school principal from Las Vegas, alleged he developed hepatitis C after getting tainted Propofol during a colonoscopy.
“The parties notify the court that they have agreed to a settlement in this matter,” Chanin’s lawyers told the Nevada Supreme Court in a Feb. 17 filing. Teva had asked the state’s highest court to overturn Chanin’s verdict.
Denise Bradley, a U.S.-based spokeswoman for Petach Tikva, Israel-based Teva, confirmed that the company had settled the Nevada Propofol cases.
“Teva is pleased to have put the vast majority of these matters behind us,” Bradley said in an e-mail. Fifteen Propofol cases remain active on court dockets in Las Vegas, she said.
Teva faced a series of multimillion-dollar verdicts over its Propofol sales in Nevada, including the award to Chanin and more than $162 million awarded to fellow colonoscopy patients Anne Arnold, Richard Sacks and Anthony Devito in October.
The settlement resolves all those verdicts and a Propofol trial that was under way before Judge Jerry Wiese in Las Vegas, the people familiar with the agreements said.
The case involved four colonoscopy patients who blamed their hepatitis C on tainted Propofol from Teva vials. Wiese dismissed the jury last week after learning about the settlement, the people said. Teva officials said in a Feb. 17 with the U.S. Securities and Exchange Commission filing that the drugmaker still faces about 50 claims in state court in Nevada.
Teva officials noted in the filing that the company also faces claims from 4,000 colonoscopy patients, whose cases have been consolidated in federal court in Las Vegas. Those patients haven’t been diagnosed with hepatitis C and are suing over fears that they may contract the disease, the drugmaker’s executives said.
The company also may face claims from an additional 1,700 colonoscopy patients whose claims have been stayed, Teva officials added in the filing.
The Nevada Supreme Court case is Teva Parenteral Medicines Inc. v. Chanin, 07085, Supreme Court of Nevada (Carson City).
BP, Transocean, Settle With Injured Deepwater Horizon Worker
BP Plc (BP/), Transocean Ltd. and others involved in the operation of the Deepwater Horizon rig that exploded in the Gulf of Mexico in 2010 agreed to settle a lawsuit filed by a worker injured in the blast.
Oleander Benton, the Deepwater Horizon worker, said in a filing Feb. 20 in federal court in New Orleans that all the claims have been “amicably settled,” and asked U.S. District Judge Carl Barbier to dismiss the lawsuit.
Benton’s was among at least 40 lawsuits filed by survivors or relatives of the 126-member crew that was aboard the rig when it exploded off the Louisiana coast in April 2010, killing 11 and resulting in the worst oil spill in U.S. history. BP faces hundreds of other lawsuits, including from businesses that have had their properties or livelihoods damaged by the spill, and is pressing to settle claims before a trial over its liability.
“With a reasonable settlement, we will settle,” BP Chief Executive Officer Robert Dudley said Feb. 7 in a Bloomberg Television interview. “If it’s not a reasonable settlement, we’ll go to court.”
BP, based in London, is negotiating with U.S. officials to settle pollution claims, according to a person familiar with the talks, who declined to be identified because the matter isn’t public. The U.S. is seeking fines of as much as $4,300 for each of the 4.1 million barrels spilled after the explosion, which would total as much as $17.6 billion.
The case is In Re: Oil Spill by the Oil Rig Deepwater Horizon in the Gulf of Mexico on April 20, 2010, 2-10-md-1979, U.S. District Court, Eastern District of Louisiana (New Orleans).
Ex-Fiesta Bowl CEO Pleads Guilty in Political Donations Scandal
Former Fiesta Bowl Chief Executive Officer John Junker faces as much as 2 1/2 years in prison after pleading guilty to a state felony charge for his part in soliciting political donations from employees.
Junker will be sentenced April 26 after entering his plea yesterday in Maricopa County Superior Court in Phoenix. As part of a deal, Junker won’t face any more charges after he pleads guilty to a federal felony count, the Associated Press said, citing his attorney, Stephen Dichter.
The Fiesta Bowl was fined $1 million in May after an investigation into campaign contributions and executive compensation. The Arizona Republic reported in December 2009 that current and former bowl employees said they were encouraged to make contributions to certain politicians and then were reimbursed.
“To ensure that violations of the law will not occur again, we have made significant and lasting changes to our governance and hired some great new leaders who are eager to put this sad episode behind us,” Fiesta Bowl Chairman Duane Woods said on the organization’s website.
Junker was fired in March after failing to cooperate with an independent investigation.
Ex-Mets Clubhouse Manager Pleads Guilty in Memorabilia Case
Former New York Mets clubhouse manager Charlie Samuels pleaded guilty to criminal possession of almost $2.3 million worth of team memorabilia including autographed jerseys, bats and baseballs.
Samuels, who has been free on $75,000 bail since his arrest in May, also pleaded guilty to evading city and state taxes, Queens County District Attorney Richard Brown said yesterday in a statement. Samuels is expected to receive five years’ probation at his sentencing on April 16.
The Mets fired Samuels on Nov. 12, 2010, following an internal investigation, and he was charged after a New York Police Department inquiry.
“We thank the NYPD organized crime investigations division and the Queens district attorney’s office for their lengthy and through criminal investigation and successful prosecution,” the Mets said in an e-mail.
After entering his plea yesterday, Samuels, 55, who spent 27 seasons with the Major League Baseball team, was banned from the Mets’ home park, Citi Field, the team’s minor-league park in Brooklyn and the spring training facility in Port St. Lucie, Florida.
Samuels also agreed to pay restitution.
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Transocean Employee Hurt in BP Blast Asks for Separate Trial
Buddy Trahan, a Transocean Ltd. (RIG) rig supervisor who barely survived the BP Plc Deepwater Horizon rig disaster, asked a federal judge to free his stalled personal-injury lawsuit from the oil-spill litigation set for trial in New Orleans on Feb. 27.
Trahan is one of about a dozen Transocean employees who haven’t settled death and injury claims resulting from the Gulf of Mexico rig explosion that killed 11 workers, according to lawyers representing the employees.
His suit against BP shouldn’t have been caught up in the other spill litigation and should be sent to a Texas court for a speedy trial, according to yesterday’s filing by his lawyer, Lance Lubel in the court of U.S. District Judge Carl Barbier.
The judge hasn’t ruled on earlier similar requests by Trahan and families of other workers injured and killed on the rig. They are trying to untangle their cases from the thousands of economic-injury claims consolidated for pretrial processing.
Barbier has said he will address Deepwater Horizon injury and death claims at some point after the spill trial set to begin next week. The nonjury trial is to determine the relative fault of BP, Transocean and other contractors in the offshore project.
Scott Dean and Daren Beaudo, BP spokesmen, and Ellen Moskowitz, a company spokeswoman, didn’t immediately respond to telephone and e-mail messages seeking comment on Trahan’s case.
“I feel betrayed, robbed, ashamed that I’m not strong enough to overcome this,” Trahan said. “I’ve lost my security. I don’t know who I am and what I’m going to do now. They can never make me whole.”
The spill case is In re Oil Spill by the Oil Rig Deepwater Horizon in the Gulf of Mexico on April 20, 2010, 2:10-md-02179, U.S. District Court, Eastern District of Louisiana (New Orleans).
Gas-Fracking Ban in Upstate New York Upheld by State Court Judge
A central New York town can block natural-gas drilling after a state judge, in the first test of local laws, upheld the Town of Dryden’s ban on hydraulic fracturing.
State Supreme Court Judge Phillip Rumsey in a ruling released yesterday said the town’s zoning amendment on gas drilling wasn’t pre-empted by state law. Denver-based Anschutz Exploration Corp. sued in September, seeking to overturn the ordinance, which bans gas and oil exploration in the town about 200 miles (322 kilometers) northwest of Manhattan.
New York placed a moratorium on the drilling process known as hydraulic fracturing in 2010 while state regulators developed environmental rules. Since then, about 20 towns in the state have adopted laws to ban drilling, Karen Edelstein, a geographic information-systems consultant in Ithaca, said.
Jim Monaghan, a spokesman for Anschutz, didn’t return a phone call seeking comment.
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Paramount Pictures Sues Puzo Estate Over ‘Godfather’ Sequels
Paramount Pictures Corp. (0001184D) sued Anthony Puzo, the son and executor of the estate of author Mario Puzo, to prevent the publication of a new sequel novel to “The Godfather.”
Paramount, which says it bought the copyright to Puzo’s novel in 1969, is trying “protect the integrity and reputation of The Godfather trilogy,” according to a complaint filed Feb. 17 in federal court in Manhattan.
Paramount claimed that, after Puzo’s death in 1999, the company agreed to allow Bertelsmann AG (BTG)’s Random House unit to publish a single Godfather sequel, “The Godfather Returns,” in 2004. The estate published another novel, “The Godfather’s Revenge,” in 2006 without Paramount’s approval, according to the complaint.
“Far from properly honoring the legacy of ‘The Godfather,’ the unauthorized ‘The Godfather’s Revenge’ tarnished, and in the process, also misled consumers into believing that ‘The Godfather’s Revenge’ was authorized by Paramount,” Paramount, a unit of New York-based Viacom Inc. (VIAM), said in the complaint.
Paramount is seeking damages and an order barring the Puzo estate from publishing the third sequel novel, “The Family Corleone,” this year.
Bertram Fields, a Los Angeles lawyer who represents the Puzo estate, said he had repeatedly notified Paramount of the sequel, which is to be published in May. The studio didn’t protest before suing, said Fields, who called the suit “a sneak attack.”
“For Paramount to do this to Mario Puzo’s children after the tens of millions of dollars he made for the studio is outrageous,” said Fields in a telephone interview.
The case is Paramount Pictures Corp. v. Puzo, 12-CV-1268, U.S. District Court, Southern District of New York (Manhattan).
Okada Payments Violated U.S. Anti-Bribery Law, Wynn Report Says
Japanese billionaire Kazuo Okada’s Universal Entertainment Corp. improperly gave more than $110,000 in payments and gifts to two chief gambling regulators in the Philippines and their families, according to a report prepared for Wynn Resorts Ltd. (WYNN)
Okada, his associates and companies made three dozen improper payments, including a four-day stay by a Filipino regulator, Cristino Naguiat Jr., in the most expensive room at Wynn Resorts Macau, according to a report by Freeh Sporkin & Sullivan LLP. The room, known as Villa 81, covers 7,000 square feet and costs $6,000 a day, the report said. Okada, who has been asked to step down as a director of Las Vegas-based Wynn Resorts, is developing a gaming business in the Philippines.
“Naguiat’s luxury stays at Wynn Resorts facilities were fully known to Mr. Okada, who actively involved himself in some of the arrangements,” according to the report, prepared by former Federal Bureau of Investigation director Louis Freeh and filed by Wynn with a lawsuit in state court in Nevada.
The suit, filed Feb. 19, claims Okada, Universal and a company controlled by Universal, Aruze USA Inc., breached their duty to Wynn. On Feb. 19, Wynn forcibly redeemed Universal’s 19.7 percent stake in the company at a discount, escalating a dispute between Chief Executive Officer Stephen Wynn and Okada, who helped bankroll the company.
“The decision by the Wynn board, which followed a rushed investigation that lacks absolute findings, to redeem Universal Entertainment’s nearly 20 percent holdings in Wynn Resorts based on its project in the Philippines is outrageous,” Universal said in a statement yesterday.
Universal said in a statement yesterday, that while it hadn’t been provided with a copy of the report, “we believe the allegations leveled against Universal are motivated by self- interest and represent the results of an incomplete and otherwise flawed corporate governance process.”
Universal said Aruze USA would seek a court order to prevent the redemption of the shares.
Okada visited the office of regulator Philippine Amusement and Gaming Corp., or PAGCOR, in Manila yesterday and denied making cash gifts, the regulator said in an e-mailed statement.
The case is Wynn Resorts Ltd. v. Okada, A-12-656710-B, District Court, Clark County, Nevada (Las Vegas). The earlier case is Okada v. Wynn Resorts Ltd., A-12-654522-B, District Court, Clark County, Nevada (Las Vegas). For more, click here.
Paulson Hedge Fund Investor Sues Over Sino-Forest Losses
Hugh Culverhouse seeks class-action status on behalf of all investors who lost money in the hedge fund, according to a complaint filed yesterday in federal court in Miami.
“Defendants breached their fiduciary duties by conducting a grossly negligent due diligence analysis of Sino-Forest’s business operations that did not analyze the substantial risks of holding a near-billion-dollar investment in a forestry company based in China,” Culverhouse said in his complaint.
Sino-Forest’s shares dropped more than 80 percent in June when Carson Block’s Muddy Waters LLC said the Hong Kong-based company overstated its timber holdings. Sino-Forest denied the allegations.
Paulson & Co., based in New York, told clients in a June letter that it lost C$462 million ($463.30 million as of yesterday’s conversion rate) since the end of May on its Sino- Forest investment. The hedge fund had held 31 million shares of Sino-Forest in May, or 12.5 percent of outstanding stock, and had sold its entire stake as of June 17, according to the letter.
“The lawsuit filed by Hugh Culverhouse against Paulson & Co. is without merit,” the company said in a statement. “As in all our investments, Paulson has access to the same information that everyone else in the securities markets does. Like other public market investors, we must rely on audits and underwriter due diligence for comfort that financial statements and disclosures are accurate and reflect the true state of affairs at companies with publicly traded securities.”
Paulson said on a July 21 investor call that he would hire a specialist in Hong Kong after losses tied to Sino-Forest, two people briefed on the matter said that month.
The net realized loss on the investment since Paulson first bought Sino-Forest was C$105 million ($105.25 million), according to yesterday’s company statement.
The case is Culverhouse v. Paulson & Co., 12-cf-20695, U.S. District Court, Southern District of Florida (Miami).
Ex-Credit Agricole Banker Uses Whistle-Blower Rule in Suit
A senior investment banker at Credit Agricole SA (ACA) sued the French lender for millions of pounds, claiming he missed out on bonuses and was dismissed for reporting colleagues under whistle-blowing rules.
Edward Willems, former deputy head of fixed income markets at Credit Agricole’s corporate and investment banking unit, was “subjected to detriment as a result of making protected disclosure,” his lawyer Tom Croxford told a London employment tribunal yesterday.
Willems’ bonuses in 2010 and 2011 were “inappropriately low” because of the whistle blowing, Croxford said, without describing the conduct he reported. Willems “is seeking millions of pounds,” Credit Agricole’s lawyer Nicholas Randall said at the hearing this morning.
While most wrongful dismissal damages are capped at about 72,000 pounds ($114,000), employment tribunals can award unlimited amounts in whistle-blower cases. Samantha Mangwana, an employment lawyer at Russell Jones & Walker who isn’t involved in the case, said she has seen several whistle-blowing claims in the financial industry, often for large sums when bonuses are involved.
Employees are protected by U.K. law from being fired or punished if they reveal malpractice in the public interest. The conduct could be “improper, illegal or negligent behavior by anyone in the workplace,” according to a guidelines published on a British government website.
Meriel Schindler, one of Willems’ lawyers, didn’t respond to an e-mail requesting comment. An e-mail to Credit Agricole’s press office wasn’t immediately answered.
RBS Sued by LBBW Over $71 Million in Mortgage Securities
Royal Bank of Scotland Group Plc was sued in New York by Landesbank Baden-Wuerttemberg over $71 million in mortgage- backed securities.
Landesbank Baden-Wuerttemberg said the offering materials for the sale of the securities contained “misrepresentations and omissions” about the characteristics of the mortgages, according to the complaint filed in New York state court yesterday.
The defendants, which include RBS Securities, obtained mortgage loans from the banks that issued them and bundled them into securities. Landesbank Baden-Wuerttemberg bought the securities, which have declined in value or were sold at a loss, according to the complaint.
“Each of the defendants knew, or at a minimum was negligent in not knowing, that its representations and omissions were false and/or misleading,” Landesbank Baden-Wuerttemberg said in the complaint.
Landesbank Baden-Wuerttemberg, based in Stuttgart, seeks at least $71 million in damages.
Pholida Phengsomphone, a spokeswoman for Edinburgh-based Royal Bank of Scotland, declined to comment.
The case is Landesbank Baden-Wuerttemberg v. Royal Bank of Scotland, 650482-2012, Supreme Court of the State of New York (Manhattan).
Expert Networker John Kinnucan Indicted for Securities Fraud
John Kinnucan, founder of Broadband Research LLC, was indicted for passing tips to clients at two unidentified hedge funds about SanDisk Corp (SNDK), F5 Networks Inc. (FFIV), OmniVision Technologies Inc. (OVTI) and other companies.
Kinnucan, 54, was charged in yesterday’s indictment with two counts of conspiracy and two counts of securities fraud in a scheme to obtain nonpublic information about technology companies for his clients that operated from 2008 to 2010.
Kinnucan “befriended” employees of public technology companies, obtained nonpublic information from them and passed them to his fund manager clients, the U.S. said.
He paid his sources in a variety of ways, prosecutors said, “including paying for their meals at high-end restaurants and shipping them expensive food, providing them with confidential information about other technology companies and industry trends and providing them stock trading advice and tips,” said prosecutors in the office of Manhattan U.S. Attorney Preet Bharara.
Donald Barnetson, a former executive at Milpitas, California-based SanDisk, pleaded guilty in federal court in New York on Feb. 17 and said he conspired with Kinnucan and passed on inside information about his company.
Walter Shimoon, a former Flextronics manager, pleaded guilty in federal court in July and claimed he passed inside information to Kinnucan while working as a consultant for Broadband Research. He said he was paid a total of $27,500 for passing tips about his company, OmniVision Technologies, Apple Inc. and Cisco Systems Inc. (CSCO)
While neither man was named in the indictment of Kinnucan, both men are cooperating with the probe of insider trading by fund managers, expert networking consultants and employees of publicly traded technology companies by the Federal Bureau of Investigation in New York and Bharara’s office.
Thomas Hester, a public defender in Oregon who was appointed to represent Kinnucan, didn’t return a voice-mail message left at his office seeking comment about the case.
The case is U.S. v. Kinnucan, 12-cv-163, U.S District Court, Southern District of New York (Manhattan).
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