Royal Bank of Scotland Group Plc’s interest-rate traders were seated with one of the main rate setters in its London office to share information, and discussed rates on conference calls, a fired trader said.
Tan Chi Min, let go over accusations he manipulated the London interbank offered rate, made the claims in court papers filed with the Singapore High Court on March 23. Tan, who sued RBS for wrongful dismissal, has accused the bank of using an internal probe into Libor manipulation to find scapegoats after condoning such behavior.
Regulators worldwide are investigating whether banks attempted to manipulate rates including Libor, the basis for $360 trillion of securities around the globe. The probes have called into question whether the banks can be trusted to set the rates with minimal regulatory oversight. Investigators have sought information from lenders including RBS, Citigroup Inc. (C) and Deutsche Bank AG.
Paul White, RBS’s principal rate setter for yen Libor, and Tan’s team in London were “specifically seated together” in the London office to “facilitate the sharing of information and workload,” Tan, the bank’s former head of short-term interest- rate trading for the yen, said in court papers.
White, who was based in London, was also dismissed as part of the bank’s Libor probe, two people briefed on the matter said last month. He hasn’t been accused of wrongdoing by regulators. Contact numbers for White couldn’t be located through the Internet or directory assistance.
Patricia Choo, a Singapore-based RBS spokeswoman, declined to comment on Tan’s claims. Tan’s lawyer Suresh Nair declined to comment.
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UBS Wins Dismissal of Fraud Claim in HSH Nordbank Suit
UBS AG (UBS) won dismissal of a fraud claim filed against the bank by HSH Nordbank AG over losses on a collateralized debt obligation linked to the U.S. subprime-mortgage market.
A New York state appeals court in Manhattan yesterday dismissed the fraud claim against Zurich-based UBS, reversing an October 2009 ruling by state Supreme Court Justice Richard Lowe that allowed it to proceed.
The appeals court said HSH Nordbank, a regional German bank that was bailed out during the financial crisis, was “explicitly warned” of the risks in the transaction and could have uncovered any misrepresentation by doing its own due diligence.
“If we were to affirm the denial of the motion to dismiss this fraud claim, we would be judging the sufficiency of a claim asserted by a 140 billion euro commercial bank by a standard more lenient than the one by which this court has judged similar claims made by individual investors against their retail brokers,” Justice David Friedman said in the ruling.
HSH Nordbank, based in Hamburg, sued UBS in February 2008, accusing the bank of fraud, breach of contract and other claims over losses on the investment, a CDO called North Street 2002-4.
HSH Nordbank said in the lawsuit that its predecessor, Landesbank Schleswig-Holstein (LSCH), invested $500 million in the CDO with UBS in March 2002. HSH Nordbank, which was created in June 2003 by the combination of Hamburgische Landesbank (HLAB) and Landesbank Schleswig-Holstein, said it lost almost all of the investment.
The case is HSH Nordbank AG v. UBS AG (UBSN), 600562/2008, New York Supreme Court (Manhattan).
Gupta Denied Bid to Suppress Evidence of Rajaratnam Wiretaps
Rajat Gupta, the former Goldman Sachs Group Inc. (GS) director accused of passing tips to Galleon Group LLC co-founder Raj Rajaratnam, lost a bid to suppress government wiretaps caught on Rajaratnam’s mobile phone.
U.S. District Judge Jed Rakoff in New York said March 26 that the wiretaps can be used for the same reason that U.S. District Judge Richard Holwell allowed their use against Rajaratnam at his trial.
“Gupta offers no arguments different from the arguments Judge Holwell considered in the Rajaratnam case,” Rakoff said in an order. “He argues instead that Judge Holwell’s conclusions are in error. The court disagrees.”
Rakoff also granted Gupta’s lawyers two more hours to question Goldman Sachs Chief Executive Officer Lloyd Blankfein under oath as part of a related U.S. Securities and Exchange Commission suit against Gupta and Rajaratnam. Rakoff is presiding over both the criminal and civil cases.
Blankfein, a prosecution witness at the Rajaratnam insider- trading trial, was questioned Feb. 24 as part of the parallel SEC lawsuit.
SEC lawyers objected to questions asked by Gupta’s lawyer, Gary Naftalis, about the government’s preparation of Blankfein for his testimony, citing a legal rule barring Gupta from discovering information about its legal strategy and the thought processes of its lawyers.
Gupta has pleaded not guilty. He faces as long as 20 years in prison if convicted of any of the securities fraud charges and as long as five years if convicted of conspiracy. He may be fined as much as $5 million if convicted, prosecutors said.
He is scheduled to go on trial May 21.
U.S. v. Gupta, 11-907, U.S. District Court, Southern District of New York (Manhattan).
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Wells Fargo Must Face Class Action Over Securities Lending
Wells Fargo & Co. (WFC) must face a group lawsuit by institutional investors that claim the bank marketed a risky securities-lending program as safe.
U.S. District Judge Donovan W. Frank in St. Paul, Minnesota, certified the suit as a class action yesterday, finding that common issues predominated, including whether Wells Fargo “knew or should have known that the investments it selected did not comport with investment mandates.” These issues “will likely turn on substantially the same evidence for the class as a whole,” Frank said in a 21-page decision.
The lawsuit, filed in 2010 by the City of Farmington Hills Employees Retirement System, a Michigan pension fund, on behalf of more than 100 other institutional investors, claimed breach of fiduciary duty and fraud. The investors sought permission to pursue the case against Wells Fargo as a group.
Wells Fargo “touted” its securities-lending program “as a highly-secure way for its institutional clients to maximize portfolio returns,” according to the complaint. Instead, the pension fund said, “Wells Fargo invested a substantial portion of the collateral in extremely risky securities.”
The investors also claimed that Wells Fargo concealed investment performance from class members to prevent them from exiting the securities-lending program.
Wells Fargo will “appeal the decision immediately,” Laura Fay, a spokeswoman for the San Francisco-based company, said in an e-mail. “Wells Fargo categorically denies the allegations made in this lawsuit and will vigorously defend.”
The class action is City of Farmington Hills Employees Retirement System v. Wells Fargo Bank NA, 10-cv-04372, U.S. District Court, District of Minnesota (St. Paul).
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Barnes & Noble Wins Dismissal of Four Directors From Lawsuit
Barnes & Noble Inc. (BKS), the biggest U.S. bookstore chain, won a judge’s dismissal of four company directors alleged to have unfairly sided with founder Leonard Riggio in the company’s $596 million buyout of his college-textbook firm.
Two other people named in a lawsuit, former directors Lawrence S. Zilavy and Michael J. Del Giudice, must stand trial along with the chairman and founder, Delaware Chancery Court Judge Leo Strine ruled yesterday at a hearing in Wilmington.
Saying there was no evidence they acted in bad faith, Strine dismissed independent directors Irene Miller, Margaret Monaco and William Dillard II, along with Leonard’s brother, Vice Chairman Stephen Riggio, who recused himself from the vote.
The Louisiana Municipal Police Employees Retirement System, a holder of company common stock, sued the board Aug. 17, 2009, contending officials violated their duties and wasted corporate assets in the sale. The suit seeking damages was filed on behalf of the company. A trial is tentatively set to begin June 18.
The independent directors “had a strong interest in making sure Barnes & Noble didn’t overpay” for the college book firm, and “you can’t be personally liable merely for casting a vote,” defendants’ lawyer Kenneth Nachbar told Strine.
Directors were beholden to Leonard Riggio through long-term associations, recognized his plans for transition to digital readers and “knew Mr. Riggio was the godfather of all this technology,” countered plaintiff’s lawyer Pamela Tikellis.
The investors argued that the board allowed Riggio to dictate terms and timing of the 2009 buyout of Barnes & Noble College Booksellers Inc. and didn’t force him to seek other offers for the company to justify the purchase price.
Mary Ellen Keating, a spokeswoman for Barnes & Noble, declined to comment on the ruling in an e-mail message.
The case is In Re Barnes & Noble Stockholder Derivative Litigation, CA No. 4813, Delaware Chancery Court (Wilmington).
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SEC Sues Former United Commercial Bank Executive Cinderey
The U.S. Securities and Exchange Commission sued former United Commercial Bank Vice President John Cinderey, accusing him of creating false records tied to the defunct San Francisco- based bank’s evaluation of loan risks.
United Commercial, a unit of UCBH Holdings Inc (UCBHQ)., was seized by regulators in November 2009. It failed following the 2008 credit crisis and caused a $2.5 billion loss to the Federal Deposit Insurance Corp.’s insurance fund, according to the SEC. Cinderey, 64, was in charge of the bank’s commercial banking division, the SEC said.
Cinderey, taking orders from his superiors during the financial crisis, “misstated and omitted material information in documents provided to the bank’s independent auditors,” the SEC said in its complaint filed yesterday in federal court in San Francisco. Cinderey “altered memoranda addressing the risks associated with certain large loans and the potential losses the bank faced from the loans,” which auditors relied on, according to the complaint.
Three former executives at the bank were sued by the SEC last year over claims they misled investors by concealing at least $65 million in loan losses before the lender collapsed.
In its suit filed in October, the SEC claimed United Commercial Bank’s chief executive officer, Thomas Wu, worked with Chief Operating Officer Ebrahim Shabudin and senior officer Thomas Yu to hide impaired assets from auditors, causing UCBH Holdings (UCBHQ) to understate 2008 operating losses.
Cinderey’s lawyer, Mary McNamara, didn’t return a call seeking comment.
The case is Securities and Exchange Commission v. Cinderey, 12-01519, U.S. District Court, Northern District of California (San Francisco).
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Health Law Seen in Jeopardy After Justices Questioning
U.S. Supreme Court justices voiced skepticism about President Barack Obama’s health-care law, hinting they might strike down his biggest domestic achievement just months before the election.
On the second of three days in the historic case, justices’ questions over the law’s requirement that Americans buy insurance or pay a penalty indicated they might split 5-to-4, with five Republican appointees banding together to topple the law.
Justice Anthony Kennedy said the requirement to obtain coverage is telling individuals they “must act.” Kennedy, who most often occupies the court’s ideological middle ground, said, “That changes the relationship of the government to the individual in a fundamental way.”
Justice Samuel Alito called the penalties a “huge subsidy” from young, healthy people who don’t want insurance to those who need a lot of health care.
The law would extend coverage to 32 million people and revamp an industry that accounts for 18 percent of the U.S. economy. The court hasn’t overturned a measure with such sweeping impact since the 1930s, when it voided parts of Franklin D. Roosevelt’s New Deal.
The court probably will rule in late June.
The Obama administration needs the vote of at least one of the five Republican appointees on the nine-member court to uphold the law.
Heading into yesterday’s session, Chief Justice John Roberts and Justices Antonin Scalia, Kennedy and Alito were the most likely candidates, given their records. All four aimed questions at U.S. Solicitor General Donald Verrilli, who argued in the law’s defense.
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J&J Duped Arkansas Doctors Over Risperdal, Lawyer Tells Jury
Johnson & Johnson (JNJ) officials repeatedly misled Arkansas doctors about the safety of the antipsychotic drug Risperdal, and the drugmaker should be held responsible for those deceptions, a lawyer said.
J&J’s Janssen unit made misleading claims about Risperdal’s health risks and effectiveness in a letter to more than 6,200 Arkansas doctors, violating the state’s deceptive-trade practices law, one of the state’s lawyers told a jury in Little Rock yesterday. Arkansas is seeking more than $1.25 billion in penalties over the campaign.
“By the time this case is over, we will prove to you that Janssen lied about Risperdal’s dangers just to make money,” Fletcher Trammell, an attorney for Arkansas, told jurors in opening statements in the state-court trial over J&J’s Risperdal marketing tactics.
It’s the fifth jury trial over states’ claims that J&J, the second-biggest maker of health products, hid Risperdal’s diabetes risks and tricked Medicaid regulators into paying millions of dollars more than they should have for the medicine. J&J ended the most recent trial in Texas with a $158 million settlement in January. The Texas settlement won court approval yesterday.
J&J has said it provided proper warnings about diabetes risks on Risperdal’s label and that U.S. regulators approved those disclosures. Efforts to tie labeling claims to Medicaid fraud should fail because “compliance with federal drug labeling statutes and regulations is not a condition of payment or participating in” a state Medicaid program, J&J said in a July 2010 court filing.
Janssen didn’t engage in deceptive trade practices and didn’t harm anyone, James Simpson, a company lawyer, told the jury yesterday.
The case is State of Arkansas v. Ortho-McNeil-Janssen Pharmaceuticals Inc., CV07-15345, Pulaski County Circuit Court (Little Rock).
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J&J’s $158 Million Settlement With Texas Approved by Court
Johnson & Johnson and the state of Texas won court approval of the company’s agreement to pay $158 million to settle claims that the drugmaker fraudulently marketed its Risperdal anti- psychotic drug.
J&J reached the settlement in January to resolve claims it defrauded the state’s Medicaid program by promoting Risperdal for uses not approved by U.S. regulators, including for children with psychiatric disorders. The state also claimed the New Brunswick, New Jersey-based drugmaker downplayed the health risk of Risperdal.
Travis County District Judge John Dietz in Austin, Texas, approved the settlement yesterday following a meeting in court with lawyers. J&J and its Janssen unit denied any wrongdoing in the final agreement.
“This settlement represents a resolution to claims brought by the State in 2004 for alleged Medicaid overpayment during the years 1994-2008, and will circumvent potentially lengthy and costly appellate activities,” Teresa Mueller, a company spokeswoman, said in an e-mail.
Under the agreement, J&J and Janssen will pay $158 million, with 40 percent going to the state, 31 percent to the U.S., 17 percent to whistle-blower Allen Jones, who brought the lawsuit, and the rest to his attorneys, Tommy Jacks, one of Jones’s lawyers, said in an interview.
Tom Kelley, spokesman for the Texas attorney general, declined to comment on the breakdown. The state is getting a larger share than initially expected, he said.
The settlement, reached during trial, was the first time J&J and its Janssen unit settled a state’s claims over Risperdal. The company lost jury trials in South Carolina and Louisiana over Risperdal marketing. Opening statements in a trial in Arkansas began yesterday.
The Texas case is Texas v. Janssen LP, D-1GV-04-001288, District Court, Travis County, Texas (Austin).
Soros Insider Trading Appeal Rejected by ECHR Grand Chamber
Billionaire investor George Soros lost a challenge to his 2002 insider trading conviction, with the European Court of Human Rights’s Grand Chamber refusing to review whether France had violated his rights.
The court’s Grand Chamber declined to hear Soros’s appeal in a statement yesterday, without providing any reasoning. Soros, 81, was convicted by Paris courts in 2002 for using insider information about Societe Generale SA (GLE) in his trading. He argued that French market regulations weren’t clear enough to hold him responsible.
As “a famous institutional investor, well-known to the business community and a participant in major financial projects,” Soros should have been “particularly prudent” in ensuring he was obeying insider-trading laws, the Strasbourg, France-based European court said in its October decision.
In the French case, Soros was ordered to repay 2.2 million euros ($2.9 million) he’d made from the share purchase and subsequent sale after judges found he’d acted with the knowledge that the bank might be a takeover target.
While prosecutors filed criminal charges, French stock market regulators didn’t pursue Soros, saying insider-trading laws were too vague to determine whether he’d broken them.
Soros’s Paris lawyer, Ron Soffer, declined to immediately comment on the decision.
U.S. Seeks to Dismiss Convictions of Bribe Sting Defendants
U.S. prosecutors asked a judge to dismiss the convictions of three men who pleaded guilty in a foreign-bribery sting, a month after abandoning the case against 19 others charged in the same alleged conspiracy.
The Justice Department, in a filing yesterday in U.S. District Court in Washington, said an earlier ruling by U.S. District Judge Richard Leon throwing out conspiracy charges against other defendants in the case should “apply equally” to Jonathan Spiller, Haim Geri and Daniel Alvirez.
“The government has concluded that further prosecution of the Gabon-related charges against defendants Spiller, Geri and Alvirez is unlikely to be successful,” prosecutors said in the filing.
Leon suggested at a hearing yesterday that he would grant the request. He ordered the parties to submit additional filings on how to dispose of the guilty pleas.
“I’m pleased to see the government made the right decision,” he said.
At the request of prosecutors, Leon on Feb. 21 dismissed the indictment accusing 19 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. The case was dropped after the government failed to win convictions of 10 people who went to trial.
“This outcome was the right thing to do by everyone’s standpoint,” Alvirez’s lawyer, Asa Hutchinson, said in an interview.
Geri’s lawyer, Eric Bruce of Kobre & Kim LLP, said in a statement that “it would have been a grave injustice” for his client “to be branded a felon as a result of this failed sting operation.”
Spiller, in a statement, said he was glad “this painful episode in my life is now over.”
The case is U.S. v. Goncalves, 09-cr-00335, U.S. District Court, District of Columbia (Washington).
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U.S. Tax-Evasion Probes Said to Slow as Prosecutors Transfer
The U.S. Justice Department has lost almost 30 percent of its tax prosecutors in the past month, slowing a U.S. crackdown on offshore banks that enabled tax evasion, according to four people familiar with the matter, Bloomberg News’ David Voreacos reports.
Twenty-five of the 95 prosecutors in the tax division left headquarters in Washington for six-month “details” with U.S. attorneys around the country, and another three took permanent assignments, according to the four people, who declined to be identified because they aren’t authorized to speak publicly.
Many of the lawyers handled cases involving foreign banks or financial advisers suspected of helping U.S. clients cheat on taxes, the people said. The transfers came amid criminal probes of at least 11 Swiss financial institutions, including Credit Suisse Group AG, with the tax division leading or assisting each prosecution.
“To move one-third of these people from that effort will significantly compromise such enforcement at the very time it is needed to deal with the huge amounts of offshore cases coming to the tax division,” said Nathan Hochman, a former assistant attorney general who oversaw the tax division under President George W. Bush.
The prosecutors “have significant experience, training and knowledge when it comes to the enforcement of tax laws pertaining to overseas accounts,” said Hochman, now a partner at Bingham McCutchen LLP in Santa Monica, California.
The division also investigates identity theft, illegal tax shelters and other crimes, while approving every tax case filed by the 94 presidentially appointed U.S. attorneys serving the Justice Department around the country.
“Offshore non-compliance by U.S. taxpayers remains a top priority for the Justice Department’s Tax Division,” said Charles Miller, a Justice Department spokesman. “We will continue to pursue those cases vigorously.”
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JPMorgan Promotes Biben to General Counsel for Consumer Banking
JPMorgan Chase & Co. (JPM), the largest U.S. bank, elevated home- lending general counsel Matt Biben to head legal strategy for all of the firm’s consumer business.
Biben, who previously worked at Bank of New York Mellon Corp., will continue overseeing litigation and policy for mortgages while supervising the bank’s legal teams for credit cards, auto financing, student lending and consumer and business banking, according to an internal memo sent to employees.
Madoff Trustee’s Ex-U.K. Lawyer Pleads Guilty to Expenses Fraud
A London lawyer who had represented the U.S. trustee liquidating Bernard Madoff’s assets pleaded guilty to fraudulently claiming 1.2 million pounds ($1.9 million) in expenses from his law firm, Hogan Lovells LLP.
Christopher Grierson, a former partner at the firm in London who advised on asset-tracing and fraud, admitted to 57 fake travel claims, the Crown Prosecution Service said in a statement yesterday. He will be sentenced in May.
“Fraud is always a serious matter,” said Sue Patten, the head of CPS’s Central Fraud Group. “Defrauding your employer or otherwise abusing a position of trust, especially over a long period of time, makes it particularly serious.”
Irving Picard, the U.S. bankruptcy court-appointed trustee liquidating the accounts of Bernard L. Madoff Investment Securities LLC, hired Grierson in 2009 to help recover Madoff assets in Europe. Grierson, who was charging as much as 610 pounds per hour, dropped the case in 2010 because of client conflicts when his firm, then Lovells LLP, merged with Washington-based Hogan & Hartson LLP.
No clients were affected by the fraud and Grierson repaid the firm, Hogan Lovells said in May, when he was fired. The firm conducted an internal investigation and referred the matter to police and the Solicitors Regulation Authority, which oversees lawyer conduct.
Chris Hinze, a spokesman for Hogan Lovells in London, declined to comment further yesterday.
Tax-Lien Probe Wins Sixth N.J. Plea as Lawyer Admits Guilt
The owner of a New Jersey real estate company became the sixth person to plead guilty in a federal antitrust probe, admitting he conspired for a decade to rig auctions of municipal tax liens throughout the state.
Robert E. Rothman, an attorney who owns Rothman Realty Corp. in Englewood, New Jersey, pleaded guilty yesterday in federal court in Newark, New Jersey. Rothman, 59, is the sixth person to admit his role in the scheme and cooperate with a growing investigation by the Justice Department’s antitrust division.
Rothman admitted he helped eliminate competition from 2000 to 2009 by submitting collusive bids at auctions. The group allocated “which tax liens each would bid on” and bought liens at “collusive and non-competitive” rates, he admitted. If liens were unpaid, their buyers could foreclose against the property.
“The Antitrust Division’s investigation into municipal tax liens is ongoing and active,” Sharis A. Pozen, acting assistant attorney general, said in a statement. “The division will not tolerate this kind of illegal conduct that harms distressed homeowners.”
Rothman faces as many as 10 years in prison, although he is likely to get far less time if prosecutors are satisfied with his cooperation. U.S. District Judge Dennis Cavanaugh set sentencing for July. He released Rothman on a $100,000 unsecured bond.
Rothman’s attorney, Robert Cleary, the former U.S. attorney in New Jersey, declined to comment on his client’s plea.
The case is U.S. v. Rothman, U.S. District Court, District of New Jersey (Newark).
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