The New York Mets owners have to give up as much as $83 million in illegal profits from Bernard Madoff’s Ponzi scheme and face a trial over another $303 million of their own money to determine if they acted in bad faith, a judge ruled.
U.S. District Judge Jed Rakoff refused yesterday to dismiss the suit as baseball team owners Fred Wilpon and Saul Katz had asked. Rakoff ruled that Madoff trustee Irving Picard can claim as much as $83.3 million without a trial. Picard seeks another $303 million, and must prove to a jury that the Mets owners and other defendants were “willfully blind” to the fraud.
“The court remains skeptical that the trustee can ultimately rebut the defendants’ showing of good faith, let along impute bad faith to all the defendants,” Rakoff said in his ruling in U.S. District Court in Manhattan. “The principal issue remaining for trial is whether the defendants acted in good faith when they invested in Madoff securities in the two years prior to bankruptcy or whether, by contrast, they willfully blinded themselves to Madoff’s Ponzi scheme.”
The trial is set to start March 19 in Manhattan court. The fraud cost investors an estimated $20 billion in principal, Picard has said.
In his suit, Picard tried to show the Mets owners blinded themselves to Madoff’s fraud because it benefited their businesses, ranging from the team to real estate. Wilpon and Katz countered by saying they trusted their money manager. Both sides presented conclusions disguised as facts, Rakoff said.
The jury will be asked to decide whether Picard can take back principal the defendants withdrew from Madoff’s firm over two years or transferred to others, and what the status of their claims against the Madoff estate should be, Rakoff said.
Rakoff last year threw out most of Picard’s $1 billion lawsuit against the owners, saying Picard could pursue only $386 million at trial. Yesterday he said Picard he would rule later on how much of the $83.3 million Picard can claim without trial. The sum represents fictitious profit got from the Ponzi scheme in the two years before the con man’s 2008 arrest.
David Newman, a Mets spokesman, didn’t immediately respond to an e-mail asking if the team owners would appeal Rakoff’s eventual decision on the profit. Amanda Remus, a Picard spokeswoman, didn’t immediately respond to an e-mail seeking comment on the ruling.
The case is Picard v. Katz, 11-cv-03605, U.S. District Court, Southern District of New York (Manhattan).
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Madoff-Related Lawsuit Should Be Dismissed, BNY Mellon Says
Bank of New York Mellon Corp. asked a court to dismiss a lawsuit filed on behalf of three funds that accused the company of negligence relating to Bernard Madoff’s Ponzi scheme.
In a lawsuit filed in New York State Supreme Court in December, the so-called Rye funds accused the bank and its BNY Alternative Investment Services unit, which served as fund administrator, of acting with “gross negligence” and helping funnel billions of dollars into Madoff’s scheme.
BNY Mellon provided “purely administrative services” for the funds, such as mailing account statements, processing customer subscriptions and calculating each fund’s net asset value, the bank said in court documents filed March 2.
“BNY Mellon had no role whatsoever in selecting the Rye Funds’ investments, monitoring those investments, recommending new or different investments or determining whether investments were suitable (or, indeed, fraudulent,)” the New York-based bank said in the filing.
The case is Plaintiffs’ State and Securities Law Settlement Class Counsel on Behalf of the State Law Subclass and the Securities Subclass in “In re Tremont Securities Law, State Law and Insurance Litigation” v. Bank of New York Mellon Corp. (BK), 653415/2011, New York State Supreme Court (Manhattan).
Lawyer Who Spotted Broker Fraud Rewarded With 5-Year SEC Ordeal
When Theodore Urban, general counsel at Ferris, Baker Watts Inc., spotted and questioned a broker’s suspicious trading patterns in 2007, he triggered a five-year probe by U.S. regulators who said he failed as a supervisor.
After the U.S. Securities and Exchange Commission began its investigation, Urban, who had worked at the SEC and U.S. Commodity Futures Trading Commission before joining the broker- dealer, said he had urged senior executives to fire the broker. Even though an administrative law judge exonerated him, his ordeal didn’t end until Jan. 26, when the full commission dismissed the matter without an opinion.
In dropping the case, the commissioners didn’t explain when a compliance officer or in-house counsel at a broker-dealer or investment adviser becomes a supervisor liable for an employee’s actions. Without knowing where their responsibilities lie, compliance officers and in-house lawyers may be reluctant to report wrongdoing when they find it, Bloomberg News’ Ellen Rosen reports. SEC Commissioner Daniel Gallagher addressed what he called this “dangerous dilemma” last month.
“Robust engagement on the part of legal and compliance personnel raises the specter that such personnel could be deemed to be ‘supervisors’ subject to liability for violations of law by the employees they are held to be supervising,” he said in a speech in Washington on Feb. 24. The SEC, he said in a phone interview Feb. 29, needs to offer guidance so that those overseeing compliance “won’t be afraid to be zealous because they’ll be tagged as a supervisor.”
The administrative proceeding was In the Matter of Urban, File No. 3-13655, Securities and Exchange Commission (Washington).
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Assured Guaranty MBS Suit Against UBS Moved to U.S. Court
Assured Guaranty Ltd.’s (AGO) lawsuit against a UBS (UBS) AG unit accusing the company of failing to meet obligations related to the pooling of residential mortgage-backed securities was moved to federal court.
The lawsuit, filed in New York State Supreme Court in Manhattan on Feb. 2, was moved to U.S. District Court for the Southern District of New York, according to documents filed ydesteray in state court.
Assured Guaranty Municipal Corp., a New York-based unit of the Hamilton, Bermuda-based insurer, accused Wilmington, Delaware-based UBS Real Estate Securities Inc. of failing to abide by obligations under pooling and servicing agreements related to residential mortgage-backed securities sold in three offerings in 2006 and 2007.
UBS said Assured Guaranty is a “sophisticated market participant” and understood the risks it was taking when it agreed to insure about $1.5 billion in securities backed by “high-risk mortgages.”
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.
The case is Assured Guaranty Municipal Corp. v. UBS Real Estate Securities Inc., 650327/2012, New York state Supreme Court (Manhattan).
Activision Wins Ruling on 1 of 2 Ex-Executives’ Fraud Claims
Activision Blizzard Inc. (ATVI), the No. 1 U.S. publisher of video games, won dismissal of one of two fraud claims in its litigation against the former heads of its Infinity Ward studio, whom the company fired in 2010.
State Superior Court Judge Elihu Berle in Los Angeles agreed yesterday with Activision that a fraudulent-inducement claim made by Jason West and Vincent Zampella, creators of the blockbuster game “Call of Duty: Modern Warfare 2,” shouldn’t go forward. He let stand a claim for promissory fraud.
West and Zampella said that they were considering leaving Activision when their contracts expired in October 2008. They alleged that Activision made false promises to string them along and create “Modern Warfare 2,” which became the bestselling game of 2010, before firing them.
“We’re very pleased,” Robert Schwartz, a lawyer for West and Zampella, said after the hearing. “The judge ruled there is admissible evidence, including from a senior executive, that Activision never intended to honor the contract.”
The former executives added the fraud claims to a 2010 breach-of-contract and wrongful-termination suit in which they alleged that Activision, based in Santa Monica, California, fired them to avoid paying millions of dollars in royalties for the game.
Activision maintains they were fired because they were in talks with rival Electronic Arts Inc. to set up a new development studio while they still had two years left on their contracts with Activision.
“All in all it was a very good day for Activision,” Steve Marenberg, a lawyer for the company, said after the hearing. “When the judge reached the substance of our claims, he ruled for us.”
The remaining fraud claim by West and Zampella survived only because “peculiarities of the California summary judgment procedure,” Marenberg said.
A trial is scheduled for May 7.
The case is West v. Activision, SC107041, California Superior Court (Los Angeles County).
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U.S. Files Formal Request With New Zealand to Extradite Dotcom
The U.S. government has formally asked New Zealand to extradite Megaupload.com founder Kim Dotcom, who was indicted in Virginia on charges of involvement in the country’s biggest copyright infringement conspiracy.
The extradition papers for Dotcom; Finn Batato, the chief marketing officer at Megaupload; Mathias Ortmann, co-founder and director of the file-sharing website; and Bram van der Kolk, who oversaw programming at the website, were received at the North Shore District Court near Auckland on March 2, said Magila Annandale, a New Zealand Ministry of Justice spokeswoman.
Dotcom ran a “Mega Conspiracy,” U.S. prosecutors said in a Feb. 17 revised indictment filed in a court in Alexandria, Virginia, accusing him of generating more than $175 million in criminal proceeds from the exchange of pirated film, music, book and software files. He faces as long as 20 years in prison for each of the racketeering and money-laundering charges in the indictment.
The U.S. extradition papers weren’t immediately available from the North Shore District Court. A judge has to approve requests from people not involved in the case for access to files after receiving a written application and obtaining views of all parties in the matter, Annandale said in an e-mail yesterday.
Dotcom, 38, was also charged in the U.S. with five counts of criminal copyright infringement and five counts of wire fraud. The defendant, who legally changed his family name from Schmitz, has denied any criminal misconduct.
He was released from jail on Feb. 22 over objections from the U.S., after Judge N.R. Dawson ruled he wasn’t a flight risk. Dotcom is restricted to his rented $18 million mansion and subject to electronic monitoring, according to the bail conditions.
An extradition hearing has been scheduled for Aug. 20.
Okada Manila Tour Is Defining Moment as Wynn Goes ‘Nuclear’
Stephen Wynn stepped off his private jet at Manila airport in June 2010 to be greeted by the Philippines gaming regulator. On the tarmac too, in black wraparound sunglasses and trademark 1950s-style slicked-back hair, was Japanese slot-machine billionaire Kazuo Okada.
Okada, 69, wanted the chief executive officer of Wynn Resorts Ltd. (WYNN) to join his $2 billion casino and hotel project on Manila Bay. Wynn, companion Andrea Hissom and Wynn Resorts Chief Operating Officer Marc Schorr toured a hotel, shopping mall and casino showcasing Manila’s investment potential, and sat through a presentation on the new project in an air-conditioned marquee, photographs of the trip show.
That visit proved pivotal for Okada’s ambition to create an Asian casino empire -- only not as he’d hoped, according to an interview last week detailing how his 12-year alliance with Wynn went sour. Philippines regulator Efraim Genuino was indicted in an ongoing graft case. By the fall, Wynn was focusing on Okada’s Philippines activities, court documents show, removing him as vice chairman last year and forcibly buying his $2.77 billion stake last month at a 30 percent discount.
During three hours at his 36th-floor office in Hong Kong’s Tsim Sha Tsui district, Okada laid out his version of the split with Wynn, whose business he helped revive with funding in 2000, Bloomberg News’ Vinicy Chan and Kana Nishizawa report. It’s a story at odds with the 47-page report Wynn commissioned from Louis J. Freeh, a former director of the U.S. Federal Bureau of Investigation, which catalogs more than $110,000 in hotel rooms, meals and gifts for gaming officials and their associates that Wynn’s lawyers said may have breached U.S. anti-graft laws.
“They gave the board the report without letting me review it,” said Okada, founder of Tokyo-based Universal Entertainment Corp. (6425) “Even criminals would be asked to sign off on the findings to ensure there are no mistakes.”
The boardroom scrap at Las Vegas-based Wynn Resorts shows the dilemma U.S. companies face when seeking growth in Asia, where a broader acceptance of gift giving and hospitality conflicts with the tightening anti-bribery regime at home. Wynn Resorts alleges Okada misused its assets, name and know-how to promote himself, even though Wynn had decided to stay out of the Philippines, and that his actions put the company’s gambling licenses at risk.
Freeh briefed Wynn Resorts’ director on his findings Feb. 18, and on the same day they judged Okada to be an “unsuitable person,” invoking a clause in the articles of incorporation to redeem the 20 percent stake that made him the company’s biggest shareholder. Okada said he’s gathering evidence to show the report was riddled with errors and exaggerated standard industry practice as a pretext to eliminate a man Wynn, 70, had come to regard as a threat.
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UBS, JPMorgan Print-Room Data Used in U.K. Insider-Trading Ring
Seven people made more than 1 million pounds ($1.5 million) profit by trading on information taken from the print rooms for UBS AG (UBSN) and JP Morgan Chase & Co. (JPM), a lawyer for the Financial Services Authority said yesterday.
Inside information obtained by brothers Ersin Mustafa and Ali Mustafa who worked at the firms’ print rooms was used by five others to place trades through Mitesh Shah, who was a broker at Finspreads, now called City Index Ltd., said Michael Bowes, a lawyer for the prosecution. The men bet on six companies, including Biffa Group Ltd. and Premier Oil Plc., between May 2006 and 2008.
“They were what could be described as day-traders,” Bowes told a London court. They used multiple accounts “as a way of seeking to distract from attention.”
The FSA filed charges in the case, known as Saturn, in 2010 after a 21-month investigation, which employed around 25 lawyers and investigators probing 130 trading accounts. The regulator has led a crackdown on market abuse, fining David Einhorn and Greenlight Capital Inc. 7.2 million pounds in January for trading on inside information in Punch Taverns Plc (PUB) in 2009.
The defendants in the Saturn case were either family members or friends, and were able to coordinate their actions, Bowes said. Executives at the banks weren’t involved in the ring.
There is “no allegation whatsoever that anyone” at JPMorgan or UBS did anything wrong, Bowes said.
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Stanford Fraud Trial Jury Ordered to Resume Deliberations
The jury in R. Allen Stanford’s fraud trial was ordered by the judge to return to deliberations after the panel sent a note saying it couldn’t reach a unanimous verdict in its fourth day of reviewing the evidence.
The eight men and four women on the jury told U.S. District Judge David Hittner in Houston yesterday they were “unable to reach a verdict on each of the 14 counts,” the judge said, reading their note to attorneys for both sides.
Hittner instructed jurors to “continue your deliberations in this case,” telling them the trial has been costly in terms of both time and money, that the lawyers were unlikely going to be able to put on a better trial and that another jury was unlikely to be more conscientious.
Stanford, 61, is accused of leading a $7 billion international fraud scheme involving the sale of certificates of deposit issued by his Antigua-based bank. He faces as long as 20 years in prison if found guilty of the most severe charges, mail fraud and wire fraud. The financier maintains he is not guilty.
Jury selection in the case began Jan. 23 and the panel heard five weeks of evidence.
The government presented testimony from investors who bought the allegedly fraudulent CDs as well as from the executives who helped sell them.
The defense presented former Stanford employees who said they saw no evidence of fraud at the company. Some offered testimony in support of the defense’s contention that Stanford was an absentee visionary who left the details of running his operation to Davis. Stanford didn’t testify during the trial.
The case is U.S. v. Stanford, 09-cr-00342, U.S. District Court, Southern District of Texas (Houston).
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Corporate Human Rights Case Expanded by U.S. Supreme Court
The U.S. Supreme Court ordered a second round of arguments in a case that might shield multinational companies, including Royal Dutch Shell Plc (RDSA), from accusations they played a role in human-rights abuses.
The justices yesterday expanded their review of a lawsuit that claims Shell units were complicit in torture and execution in Nigeria in the 1990s. The court said it will now consider whether the two-century-old Alien Tort Statute can be invoked for alleged wrongdoing that occurs beyond the U.S. borders.
Multinational companies have faced dozens of suits accusing them of playing a role in human rights violations, environmental misconduct and labor abuses. Exxon Mobil Corp. (XOM), Coca-Cola Co. (KO), Pfizer Inc. (PFE), Unocal Corp (UCL)., Chevron Corp. (CVX) and Ford Motor Co. (F) have all been sued under either the Alien Tort Statute or a related law, known as the Torture Victim Protection Act.
When they heard arguments in the Shell case last week, the justices focused on whether the Alien Tort Statute allowed suits against corporations. Several justices, including Samuel Alito, suggested during the argument that they were more interested in considering whether the law could be applied overseas.
The court’s briefing schedule means the new argument will take place during the nine-month term that starts in October.
The case is Kiobel v. Shell Petroleum, 10-1491, U.S. Supreme Court (Washington).
U.S. Challenges Judge Ruling on Cigarette Graphic Warnings
The U.S. government appealed a federal judge’s ruling throwing out requirements for graphic warning labels regarding the health risks of cigarettes.
The Food and Drug Administration filed a notice of appeal yesterday in U.S. District Court in Washington seeking to overturn Judge Richard Leon’s Feb. 29 decision that the government’s rule violates the tobacco companies’ rights to free speech.
The U.S. Court of Appeals in Washington is scheduled to hear arguments next month on the government’s challenge to a ruling Leon issued in November that canceled a Sept. 22 deadline for tobacco companies to begin displaying images such as diseased lungs and a cadaver with chest staples on an autopsy table on the top half of the front and back of all cigarette packages.
It is unclear whether the three-judge panel will consider yesterday’s appeal on April 10.
Lorillard Inc. (LO), Reynolds American Inc. (RAI)’s R.J. Reynolds unit, Commonwealth Brands Inc., Liggett Group LLC and Santa Fe Natural Tobacco Co. sued the FDA in August, claiming its mandates for cigarette packages, cartons and advertising violate the First Amendment. The companies said in court papers that it would cost them a total of about $20 million to meet the 2012 deadline.
The graphics were supposed to cover the top half of the front and back of cigarette packages and 20 percent of print advertisements. The FDA estimated the visual warnings would help lower the smoking rate by about 0.212 percentage points, Leon wrote in his opinion.
The case is R.J. Reynolds Tobacco Co. v. U.S. Food and Drug Administration, 11-cv-1482, U.S. District Court, District of Columbia (Washington).
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Carbon Traders Stole Millions in Tax Fraud, Prosecutor Says
Seven carbon-credit traders used a “carefully organized plan” to commit tax fraud worth about 40 million pounds ($63.4 million), prosecutors said at the start of a London trial.
The group are accused of using a series of companies registered under the European Union carbon-credits trading program to fraudulently claim Value Added Tax.
At least 25 people were arrested in Germany and the U.K during a 2010 crackdown on tax fraud in the $121 billion-a-year European carbon-trading industry. About 1,000 companies are registered in the EU, U.K. prosecutors said.
“The scale of it was quite extraordinary,” said Michael Parroy, a prosecution lawyer. “They helped themselves to 38 million pounds worth of VAT in the space of three-and-a-half months” in 2009.
The traders imported emissions credits tax free from Europe, passed them through a series of intermediary companies and sold them to buyers including BP Plc (BP/), Royal Dutch Shell Plc, Deutsche Bank AG (DBK) and Morgan Stanley (MS), Parroy said.
Prosecutors said 29-year-old Sandeep Singh Dosanjh, from Gravesend, made the most from the fraud and used the proceeds to buy luxury cars and property in London’s exclusive Notting Hill neighborhood.
Also accused are Dhanvinder Basra, Navdeep Singh Gill, Sandeep Harry, Pritpal Singh, Ranjot Chahal and Kernjit Dhillon, who are connected by family or friendship to Dosanjh, Parroy said.
Lawyers for the traders will present their defense later in the trial.
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AmEx Transfers Didn’t Aid Hezbollah in Attacks, Court Says
American Express Bank Ltd. isn’t liable for Hezbollah rockets attacks on Israel in 2006 because of financial transactions, an appeals court ruled, affirming a lower court’s dismissal of a suit brought by families of U.S., Israeli and Canadian victims.
The federal appeals court in New York, yesterday affirmed a 2010 U.S. District Judge George Daniels’s dismissal of a negligence claim against American Express. The plaintiffs “failed plausibly to allege that AmEx’s conduct was the proximate cause of the plaintiffs’ injuries,” the appeals court said.
The victims and family members alleged that New York-based American Express and Lebanese Canadian Bank helped the terrorist group attack targets in northern Israel in July and August 2006 by handling wire transfers of millions of U.S. dollars.
The appeals court said it may later review claims of personal jurisdiction against Lebanese Canadian Bank, a Beirut- based lender that merged with Societe Generale Lebanon last year. Daniels dismissed the claims saying he didn’t have jurisdiction.
The plaintiffs, relatives of American, Israeli and Canadian citizens in Israel, alleged that Lebanese Canadian bank, which had no branches, offices or employees in the U.S., “knowingly maintained” bank accounts of alleged Hezbollah affiliates.
The appeals court said it will seek a determination from the New York Court of Appeals, the state’s highest court, on whether the plaintiffs’ claims for negligence and breach of duty can be applied to a foreign bank’s maintenance of correspondence under New York law.
The circuit is awaiting a U.S. Supreme Court ruling in a case in which Royal Dutch Shell Plc argues it can’t be sued by Nigerians seeking damages from torture and murders committed by their government in the early 1990s.
The Supreme Court heard arguments in the case, Kiobel v. Shell Petroleum on Feb. 28. A decision may be issued this year.
“Should the Supreme Court reverse our decision in Kiobel, and the Court of Appeals indicate that we have personal jurisdiction over the Lebanese Canadian Bank in this case, the Alien Tort statute claims will likely require further proceedings in the district court,” the panel of appeals judges ruled yesterday.
The case is Licci v. Lebanese Canadian Bank, 10-1306, U.S. Court of Appeals for the Second Circuit (New York). The U.S. Supreme Court case is Kiobel v. Royal Dutch Petroleum Co., 10-1491, U.S. Supreme Court (Washington).
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Facebook Claimant to Be Represented by Milberg Law Firm
Paul Ceglia, who claims a 2003 contract with Facebook Inc. (FB) co-founder Mark Zuckerberg gave him half the company, hired Milberg LLP (1401L) to represent him in his federal lawsuit against the world’s biggest social network.
The move, made public in filings yesterday in federal court in Buffalo, New York, follows the hiring and departure of several firms from Ceglia’s legal team since he sued in June 2010.
Milberg, a 71-lawyer firm based in New York, is known for representing investors and consumers in class actions, or group lawsuits. Formerly Milberg Weiss Bershad Hynes & Lerach LLP, Milberg was the biggest firm representing shareholders in securities fraud suits against companies before it split in two in 2004 amid a U.S. investigation that sent four former partners to prison.
Milberg recovered $137.5 million in shareholder suit settlements in 2010, the most recent year for which data is available, according to Institutional Shareholder Services Inc., which tracks the settlements.
“Their participation speaks to the strength of Paul’s case, now that defendants will not be able to dismiss it on their empty claims of fraud,” Dean Boland, a Lakewood, Ohio, lawyer who represents Ceglia, said in a text message yesterday.
Facebook, based in Menlo Park, California, accuses Ceglia of fabricating the contract and has called his suit a fraud.
Orin Snyder, a Facebook lawyer, didn’t immediately return a phone message seeking comment on the hiring.
The case is Ceglia v. Zuckerberg, 1:10-cv-00569, U.S. District Court, Western District of New York (Buffalo).
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Former U.S. Prosecutor Barkow Joins Jenner & Block Law Firm
Anthony S. Barkow, a former federal prosecutor and an executive director at the New York University School of Law, joined the Chicago-based law firm Jenner & Block LLP (1180L).
Barkow, 42, is the founder of NYU’s Center on the Administration of Criminal Law, a nonprofit advisory group on good governmental practices in the criminal justice system, according to its website. He was an assistant U.S. attorney in Manhattan and Washington, prosecuting securities and commodities fraud, terrorism and organized crime.
“The white-collar area is extremely active, and it will only see an increase,” Barkow said in a telephone interview. “The firm is filled with supremely talented lawyers, and I’m eager to be a part of it.”
He will join the firm’s New York office as a partner in its white-collar defense and investigations practice.
As a federal prosecutor, Barkow assisted in the 2006 conviction of lawyer Lynne F. Stewart for providing material support to the terrorist group of Ahmed Omar Abdel Rahman, and helped to prosecute insider trading and securities and accounting fraud.
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New Jersey Supreme Court Justice Long Retires at Age Limit
Virginia Long, the third woman appointed to the New Jersey Supreme Court, has retired after reaching the age limit of 70, the Star-Ledger of Newark, New Jersey, reported.
Long, a liberal Democrat appointed to the state’s highest court in 1999 by Republican Governor Christine Todd Whitman, wrote more than 3,000 opinions, and was a consistent opponent of the death penalty, the Star-Ledger reported.
She joins the Fox Rothschild law firm, where her husband is a partner, this week, the newspaper said.
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