Fairfield, Dreier, UBS, Fortis, Madoff in Court News

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Fairfield Greenwich Group, the hedge fund that steered $7 billion to Bernard Madoff, faces new claims of fraud by investors who previously alleged negligence against co-founders Walter Noel, Jeffrey Tucker and Andres Piedrahita.

The class-action suit, first filed in January in Manhattan federal court, was amended April 24 to include claims that the three co-founders and the firm acted so recklessly in placing client money with Bernard L. Madoff Investment Securities LLC that their actions constituted fraud. The amended complaint relies on documents filed by Massachusetts Secretary of the Commonwealth William Galvin, who filed an administrative complaint against Fairfield Greenwich and its Sentry Funds April 1, and other investigation by the plaintiffs.

The investors’ complaint, which seeks damages for their losses, claims that Fairfield Greenwich and its executives had no basis to tell investors that their historical profits were real, that Madoff’s “split-strike conversion strategy” was legitimate, or that the firm conducted adequate due diligence.

“The evidence that has come to light shows that certain of the Fairfield defendants had acted so recklessly in promoting the Fairfield Sentry Funds that they’re liable for fraud,” said Stuart Singer, of Boies, Schiller & Flexner LLP, one of the lead lawyers in the case. Had Fairfield Greenwich investigated Madoff, the “fraud would have been exposed many years ago,” he said.

Madoff, 70, pleaded guilty March 12 to fraud by using money from new investors to pay off old ones in the largest Ponzi scheme in U.S. history. Before his Dec. 11 arrest, he had told his thousands of clients that they had about $65 billion in accounts with him, prosecutors said.

Feeder funds like Fairfield Greenwich gathered investor money in their own names and sent it to Madoff.

“These are absolutely meritless allegations against Mr. Tucker and Fairfield Greenwich,” his lawyer, Marc Kasowitz, said in an interview yesterday. “Mr. Tucker and Fairfield Greenwich were as much the victims of Madoff’s fraud as the literally thousands of other victims.”

The suit names Madoff, Fairfield Greenwich, and directors of Fairfield funds. Also sued were Citco Bank Nederland NV, a custodian; Citco Fund Services (Europe), a transfer agent; and fund administrator GlobeOp Financial Services SA.

Calls to Fairfield Greenwich’s lawyer, Peter Kazanoff, and Piedrahita’s lawyer, Andrew Levander, weren’t returned. Noel’s lawyer, Glenn Kurtz, declined to comment. A Citco spokeswoman and a GlobeOp spokeswoman didn’t return calls.

The consolidated case is Anwar v. Fairfield Greenwich, 09-cv-00118, U.S. District Court for the Southern District of New York (Manhattan).

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Marc Dreier Will Plead Guilty to Charges on May 11

Marc Dreier, the New York law firm founder charged with defrauding hedge funds, will plead guilty to federal charges including conspiracy and wire fraud on May 11, his lawyer said.

Dreier sold more than $700 million in phony promissory notes to at least 13 hedge funds and three individuals, according to an indictment unsealed against him last month in federal court in New York. Victims lost more than $400 million, according to the charges.

Dreier, a graduate of Yale College and Harvard Law School, was arrested on Dec. 8 and charged with conspiracy, securities fraud and wire fraud. Prosecutors said he faces 30 years to life in prison if convicted.

Defense attorney Gerald Shargel said in an interview after a court appearance yesterday that Dreier will plead guilty to all the charges in the indictment, including money laundering, conspiracy, securities fraud and five counts of wire fraud. The admission of guilt isn’t the result of a plea bargain, he said. “There is no agreement,” Shargel said.

Dreier has been confined to his Upper East Side apartment in Manhattan, where he is watched by hired armed guards, a condition of the $10 million bond set by the judge overseeing the case. He wasn’t at yesterday’s hearing.

Shargel said he will seek leniency for Dreier at the sentencing. “We are going to express acceptance of responsibility and profound remorse,” he said.

The case is U.S. v. Dreier, 09-CR-85, U.S. District Court, Southern District of New York (Manhattan).

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Swiss Want U.S. to Drop UBS Lawsuit in Return for Tax Accord

Switzerland wants the U.S. to drop a lawsuit aimed at forcing UBS AG to disclose client names as the two countries open talks to improve the exchange of information on tax dodgers, Finance Minister Hans-Rudolf Merz said.

Merz said he made the request in a meeting on April 25 with Treasury Secretary Timothy Geithner, who “acknowledged the suggestion in a positive way.” Negotiations with the U.S. over a new agreement are scheduled to start today in Bern, and Merz told reporters he expects to reach a deal by end of the year.

“We’re of the opinion that the U.S. side should withdraw their charges,” Merz said at a press briefing after the meeting with Geithner. “We’d give U.S. authorities an easier access. In this situation, they should withdraw their charges.”

UBS, reeling from the biggest writedowns of any European lender, was sued by the U.S. in February in an effort to force disclosure of the identities of as many as 52,000 American customers who allegedly hid their Swiss accounts from U.S. tax authorities. The bank, which received government aid in October, said this month that clients at the main wealth management unit withdrew 23 billion Swiss francs ($20 billion) in assets.

Fortis Investors Lose Bid to Block Bank Sale to BNP

Fortis minority investors opposing the transaction with BNP Paribas lost a bid for an injunction suspending the voting rights of about 25 percent of the shares registered to cast ballots today on the Fortis breakup.

A request by Mischael Modrikamen, a Brussels-based lawyer representing about 2,300 Fortis investors, to suspend the voting rights of about 170 million shares was “inadmissible,” Francine De Tandt, the president of the Brussels commercial court, said today in court.

Fortis is seeking shareholder approval for the sale of its banking units in Belgium and Luxembourg at meetings in Ghent, Belgium, today and in the Dutch city of Utrecht tomorrow. Fortis is confident the breakup will get backing today because more shareholders are eligible to vote than at the Feb. 11 meeting in Brussels, Chairman Jozef De Mey said in an interview yesterday.

W.R. Grace Asks Judge to Throw Out Criminal Charges

U.S. prosecutors filed a “political prosecution” against W.R. Grace & Co., then supported it by presenting perjured testimony and withholding documents that showed a key witness had lied, a lawyer for the company argued.

Grace and four former executives are on trial in federal court in Missoula, Montana, charged in the asbestos contamination of Libby, a town in the northwest corner of the state. David Bernick, Grace’s lead lawyer, told U.S. District Judge Donald Molloy yesterday that the government’s misconduct was so extreme that he should throw out all the charges against the defendants.

“It is flagrant, it is pervasive, it is systematic,” Bernick argued in a daylong hearing yesterday. Prosecutors violated the defendants’ right to a fair trial, driven by “their notion of doing right by the people of Libby,” Bernick said.

At the request of prosecutors, Molloy yesterday dismissed the case against former Grace senior vice president Robert Walsh. Assistant U.S. Attorney Kris McLean told Molloy that the government can’t prove its case against Walsh, because of recent evidence rulings by the judge.

Yesterday’s hearing comes after prosecutors called their last witness in the trial, which began Feb. 19. Defense lawyers filed court papers late last week asking Molloy to throw out the case, based largely on the allegedly perjured testimony of former Grace executive Robert Locke, who spent three days on the stand as a government witness.

Grace, a specialty chemicals manufacturer based in Columbia, Maryland, is accused of conspiring to endanger the residents of Libby by exposing them to asbestos-contaminated vermiculite and to defraud the government by lying to investigators. Grace was also charged with violating the Clean Air Act and obstructing justice.

If convicted, Grace could be fined more than $280 million. Two individual defendants charged with conspiracy could be sentenced as much as five years in prison if convicted. Two other defendants, charged under the Clean Air Act with endangering Libby residents, face as long as 15 years.

All the defendants have pleaded not guilty. Walsh was charged with a single count of conspiracy, which Molloy dismissed yesterday.

Defense lawyers claim prosecutors allowed Locke to lie on the stand and didn’t turn over 128 e-mails between Locke and Robert Marsden, an investigator with the Environmental Protection Administration, until it was too late. They claim the e-mails show the prosecution team had an improperly close relationship with Locke and that Locke loathed Grace and Robert Bettacchi, his former boss, who is one of the individual defendants in the trial.

After the hearing, Stephen Spivak, Walsh’s lawyer, declined comment, citing a gag order issued by the judge.

The Montana case is U.S. v. W.R. Grace, 05-CR-7, U.S. District Court, District of Montana (Missoula).

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Rambus Antitrust Case Against Manufacturers Can Go Forward

Rambus Inc., the designer of chips for Sony Corp.’s PlayStation video-game console, can pursue its antitrust claims against memory-chip manufacturers, a California Judge tentatively ruled.

San Francisco Superior Court Judge Richard Kramer said yesterday that a ruling against Rambus in federal court in Delaware shouldn’t prevent the California case from going forward. Rambus sued Samsung Electronics Co., Hynix Semiconductor Inc. and Micron Technology Inc., claiming the manufacturers conspired to fix prices of dynamic random access memory, or DRAM, to artificially make Rambus-designed chips more expensive and keep the Los Altos, California-based company out of the memory-chip market.

The case is Rambus Inc. v. Micron Technology Inc., 04-431105, San Francisco County Superior Court.

Paris Prosecutors Are Asked to Seize Madoff Home on the Riviera

Paris prosecutors are reviewing a request to seize Bernard Madoff’s home in the French Riviera filed by a woman who lost money in the New Yorker’s Ponzi scheme, a spokeswoman for the prosecutors’ office said.

“We received the request and are studying it,” Isabelle Montagne, a spokeswoman for the prosecutors’ office, said in a telephone interview yesterday.

The prosecutors’ office opened a preliminary investigation in January into criminal claims that French investors had been cheated out of their money by Madoff-linked funds. The inquiry is on-going, Montagne said yesterday.

Madoff, 70, is in jail after pleading guilty March 12 to defrauding investors. He faces as much as a 150-year sentence for using money from new investors to pay off old ones in a global fraud that ran from at least the early 1990s. His sentencing is scheduled for June 16.

The woman’s lawyer, Jean Reinhart, didn’t return a call seeking comment.

Court Suspends Telecom Argentina Shareholder Meeting

An Argentine court suspended Telecom Argentina SA’s shareholder meeting, ruling that it shouldn’t be held amid an antitrust agency ban that prohibits directors from Telecom Italia SpA from voting.

Telecom Argentina reported the meeting’s suspension in a filing posted yesterday on the Web site of Argentina’s securities regulator. The shareholder meeting was to be held in Buenos Aires today.

A federal appeals court issued the suspension order on April 24 in response to a request from Telecom Italia, which owns 50 percent of Telecom Argentina, the company said in the filing. The filing included a copy of the Argentine court ruling.

Last week, Argentina’s antitrust regulator rejected an appeal by Telecom Italia of an April 3 order to not use its voting rights in Telecom Argentina while the regulator investigates Telefonica SA’s stake in the Buenos Aires-based company.

Argentina’s antitrust agency is examining if Telefonica’s participation in Telecom Italia violates Argentine anti-monopoly rules. Telefonica and Telecom Italia control Argentina’s two biggest phone companies.

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New Suits

Perelman Sued by Investor Seeking to Block Conversion of Shares

Revlon Inc. controlling shareholder Ronald Perelman was sued by an investor seeking to block the billionaire’s $75 million bid to convert the company’s remaining Class A common shares to preferred stock.

Vern Mercier, who owns an undisclosed amount of the cosmetic maker’s stock, contends Perelman and others are shortchanging investors by seeking to acquire all of the company’s stock at an unfair price, according to a suit filed April 24 in Delaware Chancery Court in Wilmington. Revlon would get the $75 million to pay down debt as part of the proposal from Perelman’s MacAndrews & Forbes Holdings Inc.

MacAndrews “is seeking to reap the benefits of Revlon’s business plan and capital spending and to do so at an artificially low price,” Mercier’s lawyers said in the suit. He’s asking a judge to block the deal.

Perelman’s company, which already holds 75 percent of Revlon’s voting shares, proposed to swap all of the outstanding shares of Revlon’s Class A common stock it doesn’t own for preferred stock that would pay an annual dividend of

12.5 percent. The proposal was made in an April 20 filing with the U.S. Securities and Exchange Commission.

“The lawsuit is without merit and we intend to defend it vigorously,” Christine Taylor, Perelman’s spokeswoman, said yesterday in an interview.

The case is Vern Mercier v. Ronald O. Perelman, 4532, Delaware Chancery Court (Wilmington).

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NRG Appeal in Electricity Case Gets U.S. Supreme Court Review

The U.S. Supreme Court agreed to hear arguments from a unit of NRG Energy Inc. in a fight over the standards that apply when federal regulators consider challenges to electricity contracts.

The justices will review a federal appeals court decision that NRG and its allies say would undermine a settlement reached by 107 participants in a segment of the New England electricity market.

The nation’s highest court will consider the level of scrutiny the Federal Energy Regulatory Commission should afford to challenges to payments made under the settlement and other power-industry contracts.

NRG, a power producer based in Princeton, New Jersey, says FERC should apply the relatively deferential “public interest” standard the agency uses when refereeing a dispute between two contracting entities.

The U.S. Court of Appeals for the D.C. Circuit disagreed, saying regulators should apply the more rigorous “just and reasonable” standard when assessing an objection from a party that didn’t sign a contract. That ruling was a victory for officials from Maine, Massachusetts and Connecticut who object to the settlement.

The fight stems from a settlement in the so-called capacity market for electricity in New England. In a capacity market, unlike a wholesale energy market, purchasers buy an option to acquire a certain quantity of electricity.

The justices will hear arguments in their 2009-10 term in the case, NRG v. Maine Public Utilities Commission, 08-674, U.S. Supreme Court (Washington).

For more trial and appeals news from yesterday, click here.


Mattel Defeats MGA Bid to Reduce Award in Bratz Case

Mattel Inc., the world’s largest toymaker, defeated an effort by rival MGA Entertainment Inc. to have a $100 million jury award reduced over claims a former Mattel employee first created MGA’s Bratz dolls.

U.S. District Judge Stephen Larson, in an order yesterday, rejected closely held MGA’s arguments that the damage award was duplicative. Larson also lifted a stay on his previous order barring MGA from making and selling the multiethnic fashion dolls and appointed a temporary receiver to oversee the Bratz business.

“The jury’s verdict of $100 million is well within the range of possible awards based on the evidence of record, and therefore the court must leave it undisturbed,” Larson said in his decision.

The judge denied a Mattel request for a ruling that all Bratz dolls infringe its copyright as a matter of law. The judge threw out $31,500 the jury had awarded Mattel for drawings that were taken to MGA because the drawings were ordered to be returned.

Two MGA lawyers, Patricia Glaser and Thomas Nolan, didn’t return calls to their offices after regular business hours. Sandra Ravan, a spokeswoman for Van Nuys, California-based MGA, didn’t return a call to her office and an e-mailed request seeking comment.

Lisa Marie Bongiovanni, a spokeswoman for El Segundo, California-based Mattel, declined to comment.

The case is Bryant v. Mattel, 04-09049, U.S. District Court, Central District of California (Riverside).

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Qualcomm to Pay Broadcom $891 Million in Patent Case

Qualcomm Inc., the world’s biggest maker of mobile-phone chips, agreed to pay Broadcom Corp. $891 million in cash over four years to end a global dispute over handset-technology patents.

The companies will license each other’s patents and pledged not to sue each other again, according to a joint statement April 26. The first payment, of $200 million, will be made by June 30. The deal doesn’t affect Qualcomm’s revenue model of licensing its technology to handset manufacturers and phone-service providers, the company said.

The agreement removes a threat hanging over Qualcomm, which had been forced to limit some of its phone-chip sales after losing a trial to Broadcom in May 2007. Qualcomm faced a hearing next month that could have resulted in further limitations. The Southern California-based chipmakers had been fighting in courts since 2005, after Broadcom, known for making parts for TV set-top boxes, began targeting the mobile-phone market.

Broadcom accused its rival of infringing patents, which Qualcomm denied. The agreement protects Qualcomm’s mobile-phone customers from patent-infringement allegations made by Broadcom, and Broadcom’s customers in businesses other than handsets won’t have to worry about patent lawsuits from Qualcomm. Mobile-phone companies won’t be able to avoid making license payments to Qualcomm by becoming customers of Irvine, California-based Broadcom.

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Pepco Rejected by U.S. Supreme Court on Nuclear Fuel Lawsuit

The U.S. Supreme Court rejected an appeal by two units of Pepco Holdings Inc., refusing to revive a suit for as much as $100 million from the federal government for its failure to remove spent nuclear fuel from power plants.

The justices, without comment, left intact a U.S. appeals court’s conclusion that the Pepco units had transferred their rights to sue to a unit of Public Service Enterprise Group Inc.

Under a 1982 law, the Energy Department was supposed to begin removing nuclear waste from facilities around the country by 1998. The government’s failure to come up with a long-term plan for waste storage meant it didn’t meet the deadline, even though it had collected more than $20 billion in fees from power companies.

The Pepco suit accused the government of taking private property without compensation in violation of the Constitution. Pepco is based in Purchase, New York.

The case is Delmarva Power & Light v. United States, 08-790, U.S. Supreme Court (Washington).

For more verdict and settlement news from yesterday, click here.

Litigation Departments

Former Heller Ehrman Employees Sue Partners for $32 Million

Former employees of the defunct law firm Heller Ehrman LLP sued the former partners of the firm, seeking to recover $32 million of unpaid wages and benefits they lost when the firm collapsed last year.

Former Heller Ehrman secretary Debora Biggers and other members of the proposed group claim the firm violated state and federal laws requiring that companies give workers 60 days’ notice before closing, according to an amended complaint filed on April 24 in San Francisco bankruptcy court.

The firm’s partner-level attorneys, known as shareholders, “earned enormous profits from the employees’ labor, allowed Heller Ehrman to collapse and have since moved on to other law firms where they have continued their successful careers,” according to the complaint.

The complaint names former Heller Ehrman Chairman Matthew Larrabee and 12 other partners, including Peter Benvenutti, a member of the firm’s dissolution committee.

Larrabee, now a partner in the San Francisco office of Philadelphia-based Dechert LLP, and Benvenutti, now a partner in the San Francisco office of Washington-based Jones Day, didn’t respond to phone calls and e-mail requesting comment.

Heller Ehrman, founded in 1890, dissolved in September after merger attempts failed and partners’ departures led to a default on its primary credit agreement. Litigation work dried up after the firm settled several large cases last year.

It filed for Chapter 11 bankruptcy in San Francisco in December, listing assets and debt of $50 million to $100 million. Before dissolving, the firm had 13 offices around the world and more than 700 lawyers.

The cases are In re Heller Ehrman LLP, 08-32514, and Biggers v. Heller Ehrman, 09-03058, U.S. Bankruptcy Court, Northern District of California (San Francisco)

Former Yukos Oil Lawyer Bakhmina Out of Jail, Interfax Reports

Svetlana Bakhmina, the former lawyer for OAO Yukos Oil Co. who gave birth to a daughter in November, is out of jail after a court granted her parole last week, the Interfax news service said, citing her husband.

Bakhmina’s husband Mikhail Zhuravlev said yesterday that he had collected his wife and she is at home, according to the Moscow-based agency. Bakhmina feels “normal,” Interfax quoted him as saying.

Bakhmina was jailed in December 2004 for tax evasion and embezzlement as part of the case against Yukos, once Russia’s largest oil exporter and its owner, Mikhail Khodorkovsky, once Russia’s richest man.

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