BP, BofA, JPMorgan, Morgan Stanley, Goldman in Court News

BP Plc (BP\) may face as much as $17.6 billion in civil pollution fines and possibly billions of dollars more in criminal penalties as its settlement with businesses and individuals harmed by the 2010 Gulf of Mexico oil spill shifts the focus to government claims.

BP said March 2 it would pay an estimated $7.8 billion to resolve private plaintiffs’ claims for economic loss, property damage and injuries. The settlement, to be paid from a $20 billion trust for spill victims set up in 2010, doesn’t resolve federal and state government environmental damage claims. BP has set aside $37 billion to cover spill costs.

Because plaintiffs’ lawyers and government officials have worked together to gather evidence about who is at fault for the spill, U.S. Justice Department attorneys are likely to take the lead in the case, said Edward Sherman, a Tulane University Law School professor in New Orleans who teaches classes on complex litigation and mass-tort law.

“We’ll now see the federal government pick up the ball in this case and run with it,” Sherman said in a phone interview. “They have plenty of lawyers capable of effectively presenting the case against BP and the other defendants.”

U.S. District Judge Carl Barbier in New Orleans had been set to hear evidence in a trial starting today to decide fault for the spill. BP was sued along with Vernier, Switzerland-based Transocean Ltd. (RIG), owner and operator of the doomed Deepwater Horizon rig, and Houston-based Halliburton Co. (HAL), provider of cementing services at the Macondo oil well, about 45 miles (72 kilometers) off the Louisiana coast.

Barbier delayed the trial after a settlement was announced of consolidated cases against London-based BP that are overseen by a group of lawyers known as the Plaintiffs Steering Committee, or PSC. He said in a March 2 order that he will schedule a status conference to discuss the consequences of the accord and set a new trial date.

The judge said he delayed the trial because the settlement “would likely result in a realignment of the parties in this litigation and require substantial changes” to the trial plan he adopted.

BP officials said their estimates showed the PSC spill settlement would cost the company at least $7.8 billion. They said the figure didn’t amount to a cap of how much the company would pay to resolve claims over the disaster.

The case is In re Oil Spill by the Oil Rig Deepwater Horizon in the Gulf of Mexico on April 20, 2010, MDL-2179, U.S. District Court, Eastern District of Louisiana (New Orleans).

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New Suits

Bank of America Sued by Fund Over Mortgage-Backed Securities

Bank of America Corp. was sued by Asset Management Fund over claims it gave faulty information about the loans backing $239.5 million worth of residential mortgage-backed securities.

The suit accuses the Charlotte, North Carolina-based bank and other defendants of making “material misrepresentations and omissions” about underwriting standards used to issue mortgage loans that were pooled together into the securities, which were sold to Chicago-based Asset Management Fund, according to court documents.

“Each of the defendants knew, or at a minimum was negligent in knowing, that its representations and omissions were false and/or misleading at the time they were made,” lawyers for Asset Management Fund said in the court documents, which were filed in New York State Supreme Court March 1.

Pools of home loans securitized into bonds were a central part of the housing bubble that helped send the U.S. into the biggest recession since the 1930s. The housing market collapsed, and the crisis swept up lenders and investment banks as the market for the securities evaporated.

Asset Management Fund, which does business as AMF Funds, sued JPMorgan Chase & Co. in the same court over similar claims last month. The firm, which is managed by Shay Assets Management Inc., had about $590 million in assets under management in 2011, according to its website.

Lawrence Grayson, a spokesman for Bank of America, said in an e-mail that the company had no comment on the lawsuit.

The case is Asset Management Fund v. Bank of America Corp. (BAC), 650614/2012, New York State Supreme Court (Manhattan.)

Principal Life Sues JPMorgan Over Mortgage-Backed Securities

JPMorgan Chase & Co. was sued by a Principal Financial Group Inc. (PFG) unit, which accused the bank of making false statements in connection with the sale of $114.9 million in residential mortgage-backed securities.

Principal Life Insurance Co., a unit of the Des Moines, Iowa-based seller of insurance and retirement products, accused New York-based JPMorgan Chase of making “misrepresentations and omissions” about the mortgage loans that were pooled together into the securities, according to documents filed in New York state Supreme Court March 1.

Pools of home loans securitized into bonds were a central part of the housing bubble that helped send the U.S. into the biggest recession since the 1930s. The housing market collapsed, and the crisis swept up lenders and investment banks as the market for the securities evaporated.

Jennifer Zuccarelli, a spokeswoman for JPMorgan Chase, didn’t immediately respond to a telephone message left at her office seeking comment on the lawsuit.

The case is Principal Life Insurance Co. v. JPMorgan Chase & Co. (JPM), 650615/2012, New York state Supreme Court (Manhattan).

Morgan Stanley Executive Charged in Hate Crime Stabbing

Morgan Stanley’s William Bryan Jennings, the bank’s bond- underwriting chief in the U.S., was charged with a hate crime for stabbing a New York City cab driver of Middle Eastern descent over a fare.

The driver said Jennings assaulted him Dec. 22 with a “pen knife” and used racial slurs after a 40-mile cab ride from New York City to his $3.4 million home in Connecticut’s Fairfield County, Darien Police Detective Mark Cappelli said.

Jennings and the driver argued over the fare from New York, where his lawyer said the executive had attended a charity event. After arriving at his driveway, Jennings refused to pay $204, the driver told police. A fight ensued and Jennings cut the driver, police said. The banker, who turned himself in two weeks later, was charged with second-degree assault, theft of services and intimidation by bias or bigotry. He faces as many as 5 years in prison on the assault charge.

“He has been placed on leave,” Pen Pendleton, a spokesman for the New York-based bank, said March 2. Jennings was released on $9,500 bond and is set for a court appearance on March 9.

The banker has worked at Morgan Stanley (MS) his entire securities-industry career, starting in 1993, according to the Financial Industry Regulatory Authority.

Now co-head of North American fixed-income capital markets, he worked his way up from associate; vice president, and then principal, for debt capital markets; to executive director for investment banking and then managing director for fixed income capital markets.

Jennings, a graduate of Williams College who also received a master’s in business from Northwestern University, contacted police after learning he was being sought in relation to the incident, Darien Police Lt. Ronald Bussell said. He was arrested and charged Feb. 29.

Eugene Riccio, Jennings’ defense attorney, said the driver made an “exorbitant demand” closer to $300 and that he attempted to abduct his client after driving him from a charity event in Manhattan. He declined to specify the event or where his client had hailed the cab.

“My client was the victim of a crime that night -- not the perpetrator of one,” Riccio said, denying that his client made any racial slurs. “He was abducted against his will from his own driveway. Fortunately he was able to escape.”

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U.S. Busts 29 Over $325 Million in Counterfeit Chinese Goods

U.S. authorities charged 29 people with smuggling $325 million in counterfeit consumer goods from China, including phony Nike sneakers and Coach handbags, through a New Jersey port.

The bust was one of the largest counterfeiting probes in U.S. history, and it involved smuggling cigarettes, handbags and sneakers through the Port Newark-Elizabeth Marine Terminal as U.S. agents secretly watched and listened, U.S. Attorney Paul Fishman said. Agents infiltrated two overlapping criminal rings and lured them to use a front company run by the government.

Authorities arrested 23 people in New York, New Jersey, Texas and the Philippines. Six are at large. Most are Chinese and lived in New York. Prosecutors said they used phony paperwork to import goods in corrugated shipping containers, used distributors and wholesalers, and laundered illicit proceeds.

The arrest complaints quote dozens of secretly recorded conversations, including one between Hai Yan Jiang, 32, of Richardson, and Lin Wu, 43, of Maspeth, New York. They discussed importing counterfeit cosmetics, and Wu asked if the products would be safe, according to their arrest complaint.

Yan said the cosmetics were “counterfeit, but of good quality,” adding: “All I care about is to make money, other things do not matter.”

The cases include U.S. v. Patrick Siu, 12-cr-7061 and U.S. v. Ning Guo, 12-cr-7060, U.S. District Court, District of New Jersey (Newark).

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Lawsuits/Pretrial

Credit Suisse Must Face $2 Billion National Century Notes Case

Credit Suisse Group AG (CSGN) must defend fraud claims by institutional investors who bought $2 billion in notes issued by the bankrupt health-care financer, National Century Financial Enterprises Inc., a judge ruled March 2.

The noteholders claim Credit Suisse, the placement agent, knew or should have known of the $2.9 billion fraud that led to National Century’s collapse in 2002. Ten executives of the Dublin, Ohio-based company were convicted of crimes, including former Chief Executive Officer Lance Poulsen, who is serving 30 years in prison.

Credit Suisse argued that it didn’t know of the fraud, which National Century hid, and that it didn’t mislead noteholders, according to the March 2 ruling by U.S. District Judge James Graham in Columbus, Ohio. Graham granted other parts of the bank’s motion to dismiss the case.

Claims against the Zurich-based bank for negligent misrepresentation and aiding and abetting breach of fiduciary duty were dismissed by the judge.

“Credit Suisse will continue its defense of this decade- old case, and remains confident that a jury will find based on all the evidence that it should not be held responsible for assisting or committing any wrongdoing,” Steven Vames, a Credit Suisse spokesman, said in an e-mailed statement.

The case is In re National Century Financial Enterprises Inc. Investment Litigation, 03-md-01565, U.S. District Court, Southern District of Ohio (Columbus).

U.S. Urges Dismissal of Greenberg’s $25 Billion AIG Claim

The U.S. government said Maurice “Hank” Greenberg, the former American International Group Inc. (AIG) chief executive officer, should not be allowed in a court case to “rewrite” the insurer’s rescue agreement and make American taxpayers pay $25 billion more.

The U.S. Justice Department, in a filing March 1 in the U.S. Court of Federal Claims in Washington, said a lawsuit filed by Greenberg’s Starr International Co. seeking damages in that sum for the 2008 AIG takeover should be dismissed. The government said Starr lacks the authority to sue and has no claim.

“Starr demands that the court second guess AIG and rewrite the rescue agreement by making American taxpayers pay an additional $25 billion, based upon a market valuation of AIG after the rescue,” the U.S. said in its filing. “Although Starr may disagree with the terms to which AIG agreed, any burdens resulting from that agreement should be borne by AIG and its shareholders, not the public.”

Starr International 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.

Alison Preece, a spokeswoman for the law firm representing Starr, declined to comment on the government’s filing.

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).

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Aluminium Bahrain Seeks to Keep Alcoa Bribery Suit Alive

Bahrain’s state-owned aluminum producer asked a court to let it proceed with racketeering claims that it overpaid for raw materials because of bribes directed by Alcoa Inc. (AA), the largest U.S. aluminum producer.

Aluminium Bahrain BSC (ALBH), known as Alba, claims that New York- based Alcoa bribed senior officials in Bahrain and caused Alba to pay almost $500 million more than it should have for alumina, the principal raw material in aluminum. Alcoa has asked a judge to dismiss the case, arguing that the alleged conduct took place outside the U.S. and shouldn’t be litigated in federal court.

Alba countered that Alcoa and other defendants used offshore shell companies to “perpetrate and conceal a massive, home-cooked bribery scheme conceived, orchestrated, and directed in and from the United States,” according to its filing March 1 in federal court in Pittsburgh.

Lori Lecker, an Alcoa spokeswoman, said in an e-mail that “Alba’s allegations remain unsupported by law or by fact.”

The case is Aluminium Bahrain BSC v. Alcoa Inc., 08- cv-00299, U.S. District Court, Western District of Pennsylvania (Pittsburgh).

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Delphi’s Buyout by Tokio Should Be Blocked, Judge Is Told

Delphi Financial Group Inc. (DFG)’s $2.7 billion buyout by rival insurer Tokio Marine Holdings Inc. (8766) should be blocked because it doesn’t provide enough for investors while unfairly enriching the company’s top executive, a lawyer argued to a judge.

Robert Rosenkranz, Delphi’s chief executive officer, negotiated a side deal that would wrongly compensate him as part of the sale to Tokio Marine, Stuart Grant, a lawyer for pension- fund investors that sued, told a judge March 2 in Wilmington, Delaware.

Under the non-binding deal, Tokio Marine would maintain contracts with two firms Rosenkranz owns that do business with Delphi, or buy them, the investors’ lawyers claim. The side agreement is different from an executive’s asking for salary and benefits from a buyer, Grant told Delaware Chancery Court Judge Sam Glasscock in a hearing on the funds’ request for a temporary order blocking the deal.

“It’s something else to say, ‘I have been stealing from the company for years and I need you to help me keep stealing,’” Grant said after Glasscock asked him why the side agreement was wrong.

Delphi’s lawyers contend that Rosenkranz only discussed a sale of the firms with Tokio Marine officials and didn’t reach any formal deal.

The pension funds want Glasscock to temporarily halt the sale while a trial on the disputes goes forward. Glasscock ended the March 2 hearing without issuing a decision. He said he would try to release his ruling this week.

The case is In re Delphi Financial Group Shareholder Litigation, 7144, Delaware Chancery Court (Wilmington).

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Trials/Appeals

Gupta Animosity With Rajaratnam Key to Defense, Lawyer Says

A “key defense theme” in the case of Rajat Gupta, the former Goldman Sachs Group Inc. (GS) director accused of insider trading, will be his poor relationship with Raj Rajaratnam, the Galleon Group LLC cofounder convicted of profiting from his tips, one of Gupta’s lawyers said.

In a letter to U.S. District Judge Jed Rakoff March 1, lawyer David Frankel said an unnamed “key government witness” discussed the “animosity between the two men” in a July 2010 interview with investigators from the Securities and Exchange Commission and Federal Bureau of Investigation.

The disclosure came in a letter seeking exculpatory material in the SEC notes from 44 interviews jointly conducted by the agency and the U.S. Attorney’s office in their investigation.

In a hearing in January before Rakoff, who will preside over Gupta’s trial in May, prosecutors said Claes Dahlback, a Goldman Sachs director who is a former chief executive officer of Sweden’s Investor AB (INVEA), spoke to Gupta after Rajaratnam’s October 2009 arrest.

“Dahlback asked Gupta if Gupta knew Rajaratnam,” Rakoff said, quoting a memo summarizing Dahlback’s June interview with the government. “Gupta responded that ‘Rajaratnam was a bad man.’ Gupta further stated Gupta lost money with Rajaratnam,” Rakoff said, summarizing the witness report.

Ellen Davis, a spokeswoman for U.S. Attorney Preet Bharara in Manhattan, declined to comment.

The case is U.S. v. Gupta, 11-cr-00907, U.S. District Court for the Southern District of New York (Manhattan).

Goldman’s Blankfein Was Prepped by U.S., Gupta’s Lawyer Says

Lawyers for Rajat Gupta, the former Goldman Sachs Group Inc. director accused of passing inside tips, said prosecutors in the case conducted preparation sessions with Goldman Sachs Chief Executive Officer Lloyd Blankfein before his Feb. 24 deposition.

Blankfein, who testified as a prosecution witness at the insider-trading trial of Galleon Group LLC co-founder Raj Rajaratnam, was questioned as part of a parallel insider-trading lawsuit brought by the U.S. Securities and Exchange Commission against Gupta, who was charged in October with passing nonpublic information to Rajaratnam.

“Does Goldman Sachs have any interest in the outcome of this litigation?” Gary Naftalis, Gupta’s lawyer asked Blankfein at the end of the deposition that began at 10:22 a.m. and concluded at 7:14 p.m.

“No,” Blankfein replied.

Excerpts from the Blankfein transcript were attached to the defense lawyers’ letters to U.S. District Judge Jed Rakoff, who is presiding over both cases.

Blankfein, who might be a prosecution witness against Gupta, said during the day-long deposition that he had participated in two sessions in which Assistant U.S. Attorney Reed Brodsky, who is prosecuting Gupta, asked “three-quarters” of the questions. The sessions were held at Goldman Sachs, Blankfein said.

Federal Bureau of Investigation agents were also present at the preparatory sessions, as well as SEC representatives, Naftalis said in a March 1 letter to Rakoff.

The excerpts also show that SEC lawyers objected numerous times to questions Naftalis asked about the government’s preparation of Blankfein, citing a legal privilege barring Gupta from discovering information about its legal strategy and the thought processes of its lawyers.

Naftalis has asked Rakoff to allow Gupta’s defense team to resume questioning Blankfein about these preparations and require the SEC to provide Gupta with the documents shown to Blankfein during the sessions. While Naftalis didn’t allege anything improper occurred during the preparation sessions, he said he’s seeking the documents used to help prepare Blankfein.

“The SEC’s attempt to withhold from disclosure the documents shown to Mr. Blankfein by Mr. Brodsky to refresh his recollection fails,” Naftalis said in the letter to Rakoff.

“There can be no dispute that Blankfein is a key witness with respect to the allegations against Mr. Gupta,” Naftalis said. “It is therefore in the ‘interests of justice’ to permit Mr. Gupta to cross-examine these documents.”

Gupta, who denies wrongdoing, was charged in October with leaking information about Goldman Sachs and Procter & Gamble Co. to Rajaratnam, who was convicted last year and is serving an 11- year prison sentence. Gupta was also a director at P&G.

The case is U.S. v. Gupta, 11-cr-00907, U.S. District Court for the Southern District of New York (Manhattan).

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Vulcan-Martin Marietta Merger-Trial Judge Reserves Decision

Vulcan Materials Co. (VMC)’s planned hostile takeover by rock- crushing rival Martin Marietta Materials Inc. (MLM) could be blocked by a Delaware Chancery Court judge who reserved decision on the case after a four-day trial.

Judge Leo Strine Jr. asked lawyers March 2 for post-trial briefings before the end of the month in Wilmington, Delaware, and said he’d hold final arguments the week of March 29.

If the ultimate remedy is to “block it,” the question is, “for how long?” Strine said of Martin Marietta’s $4.7 billion stock-swap bid.

In guiding lawyers’ future arguments, Strine said, “I don’t think there was ideal scrutiny on either side” of the potential combination, subject of initial friendly talks two years ago.

The “primary reason” for the breakdown in earlier talks was that the parties “couldn’t decide who was going to run it,” the judge said.

“I think it’s a tough case,” Strine said. “Martin Marietta has put itself in an awkward position.”

Combining the companies is “compelling” and would create “enormous shareholder value,” Martin Marietta’s Chairman, Stephen P. Zelnak, told the judge March 2.

Martin Marietta sued Birmingham, Alabama-based Vulcan on Dec. 12, the same day it made the unsolicited bid.

Martin Marietta has asked Strine to declare that the offer wasn’t prohibited by a May 2010 confidentiality agreement. Vulcan claims Martin Marietta violated the agreement with its public offer.

The case is Martin Marietta Materials v. Vulcan Materials, CA7102, Delaware Chancery Court (Wilmington).

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Verdicts/Settlements

ING Wins Challenge Forcing EU to Reconsider Bailout Terms

ING Groep NV (INGA) won a court ruling forcing European Union regulators to re-examine the conditions they imposed on the Dutch lender’s government rescue in the wake of the 2008 financial crisis.

The EU’s General Court said the European Commission wrongly considered a revision of repayment terms as 2 billion euros ($2.65 billion) of additional aid to ING on top of 10 billion euros it received in 2008. The court struck down part of the EU’s decision, which will force regulators to re-open their assessment of part of the Dutch government’s bailout to the bank.

ING was ordered by the commission to sell units to shrink its balance sheet by 45 percent by the end of 2013 and avoid undercutting rivals on prices for some banking products for three years or until it repaid the aid. The lender returned 5 billion euros of aid in 2009 after agreeing with the Netherlands on revised repayment terms. The EU regulator determined that change amounted to extra aid of about 2 billion euros.

“This is quite good news for ING,” said Cor Kluis, an analyst at Rabobank International in Utrecht. “Hopefully it won’t take too much time for the EC to adjust the terms. We also hope the EC won’t appeal.”

ING and the Dutch government challenged the terms of the EU’s approval, which the bank says punished it too harshly for state help in 2008 and 2009. ING said the regulator miscalculated the amount of aid and imposed excessive restructuring demands.

“ING welcomes the judgment to partially annul the EC decision,” the Amsterdam-based bank said in a statement. “ING will carefully assess the full judgment and its consequences. Announcements on any potential further actions will only be made if and when appropriate.”

The commission will publish a revised decision on the aid terms, Antoine Colombani, spokesman for Joaquin Almunia, the EU’s antitrust commissioner, said in an e-mail. The regulator will “carefully assess” the ruling before deciding whether to appeal, he said.

The Dutch Finance Ministry in The Hague is “satisfied” by the ruling and will study it to “further assess the consequences,” spokesman Ben Feiertag, said in a phone interview.

The Dutch central bank joined the case on ING’s behalf. National bank supervisors should formally be heard by the commission to avoid it imposing terms that hurt financial stability, it said. Klaas Knot, who heads the central bank, has also argued for a dispute settlement procedure when competition and national financial regulators clash.

“We see today’s ruling as a signal to the commission that it would be wise to involve national supervisors in its decisions,” said Kees Verhagen, a spokesman for the Dutch central bank in Amsterdam. “The court ruled the decision was based on incomplete information and that was partly caused by the fact that they ignored information submitted by the national supervisor.”

The cases are T-33/10, ING Groep v. Commission and T-29/10, Netherlands v. Commission.

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Litigation Departments

Law Firm Representing Deutsche Bank in Kirch Litigation Quits

One of three law firms that represented Deutsche Bank AG (DBK) and its former Chief Executive Officer Rolf Breuer in the decade-long dispute with Leo Kirch’s media group resigned from the case.

Sernetz Schaefer Rechtsanwaelte told the Munich appeals court hearing two related cases on Feb. 27 that they no longer work for the lender or Breuer, Manfred Wolf, a lawyer at the Munich-based firm said in an interview March 2. He declined to say why his firm decided to withdraw.

Deutsche Bank, Germany’s biggest lender, rejected March 1 a proposal to settle the litigation tied to comments by Breuer in 2002 about the Kirch group’s creditworthiness. The bank said it made the decision after a “thorough review,” which included considering internal and external legal advice.

Deutsche Bank and Kirch’s heirs discussed a settlement of the claims that Breuer’s comments caused the collapse of the media group. The amount talked about was 800 million euros ($1 billion), a person with knowledge of the negotiations said last month. The Frankfurt-based bank was said to have previously rejected a 775 million-euro settlement proposed by a Munich court.

Detlev Rahmsdorf, a Deutsche Bank spokesman, declined to comment.

The two other German law firms that represent Deutsche Bank and Breuer in the matter are Hengeler Mueller and Gleiss Lutz.

The Munich appeal court scheduled March 2 new hearings in one Kirch damage suit for April 18 and May 2. In the second case pending at that court, no hearings have been scheduled, according to court spokesman Wilhem Schneider.

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Court Filings

Paulson & Co. lawsuit Was Most Popular Docket on Bloomberg

A lawsuit over Paulson & Co.’s reported $468 million losses in Sino-Forest Corp. (TRE) was the most-read docket on the Bloomberg Law system last week.

Investor Hugh Culverhouse, who seeks class-action status on behalf of all investors who lost money in the hedge fund, filed the complaint Feb. 21 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 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.”

The case is Culverhouse v. Paulson & Co., 12-cf-20695, U.S. District Court, Southern District of Florida (Miami).

To contact the reporter on this story: Elizabeth Amon in Brooklyn, New York, at eamon2@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.

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