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Citigroup, Refco, Deutsche Bank, Lehman in Court News

Citigroup Inc. reached an agreement over $73.9 million worth of auction-rate securities bought by KV Pharmaceutical Co., a St. Louis-based drug company that sued the bank last year.

“The attorneys for the parties have advised the court that this action has been or will be settled,” U.S. District Judge Laura Taylor Swain in New York wrote in an order Jan. 13. The terms weren’t disclosed.

Citigroup Global Markets said the securities were saleable between auctions and that, in the event an auction failed, the unit would continue to ensure their liquidity, KV Pharmaceutical said in a complaint filed in February in federal court in St. Louis. The case was later moved to the court in New York.

The $330 billion market for auction-rate securities collapsed in February 2008 as the U.S. financial crisis deepened.

In December 2008, Citigroup, accused of improperly touting the instruments as cashlike investments, reached a settlement with state and federal regulators in which it agreed to buy back or help clients unload as much as $19.5 billion in auction-rate securities. Corporate buyers were generally excluded from the regulatory agreement.

Danielle Romero-Apsilos, a spokeswoman for New York-based Citigroup, declined to comment. Janice Forsyth, general counsel of KV Pharmaceutical, didn’t return a call seeking comment.

The case is In re Citigroup Auction Rate Securities Litigation, 08-cv-03095, U.S. District Court, Southern District of New York (Manhattan).

For more, click here.

Ex-Refco Lawyer Collins Gets Seven Years for Fraud

Joseph Collins, Refco Inc.’s former outside lawyer, was sentenced to seven years in prison for helping Chief Executive Officer Phillip Bennett and other executives defraud investors of $2.4 billion.

Collins was convicted in July of charges that he helped Refco’s management conceal transactions from lenders and investors that hid losses incurred by the New York-based firm. Collins had been employed at the time as a corporate lawyer at Chicago’s Mayer Brown LLP.

U.S. District Judge Robert Patterson in New York handed down the sentence after lawyers for Collins asked him to vacate the conviction because they discovered new evidence. At the two-month trial, jurors were unable to reach a verdict on nine counts.

“I think this is a case of excessive loyalty to his client,” Patterson said at yesterday’s sentencing. He said Collins, whom the judge called an “extraordinary man,” abused the trust placed in him as an attorney. “That requires deterrence,” Patterson said.

Once the biggest independent U.S. futures trader, Refco collapsed in 2005, two months after raising $670 million in an initial public offering. Refco filed for bankruptcy after disclosing that it had transferred more than $1 billion in losses to a firm owned by former Chief Executive Officer Phillip Bennett.

Collins, who has been free on bail, was the second person convicted at a trial in the Refco fraud. Tone Grant, Bennett’s former partner, was found guilty of fraud and is serving a 10-year sentence. Bennett, the mastermind of the scheme, pleaded guilty and is serving 16 years.

The case is U.S. v. Collins, 07-cr-1170, U.S. District Court, Southern District of New York (Manhattan).

For more, click here.

Deutsche Bank Settles With North Carolina on Auction-Rate Bonds

Deutsche Bank AG agreed to buy back $7.8 million of auction-rate securities from North Carolina investors whose holdings have been trapped since the market for the debt collapsed in February 2008.

The purchase will liquidate all but $825,000 that Frankfurt-based Deutsche Bank sold to 55 North Carolina investors, Secretary of State Elaine F. Marshall said in a statement announcing the settlement, which was signed Jan. 13.

The accord is the latest under a June settlement in which the bank paid a $15 million fine and said it would repurchase $1 billion in stranded auction-rate securities. The June agreement ended a criminal probe by New York Attorney General Andrew Cuomo into six banks.

“This settlement holds Deutsche Bank accountable for selling auction rate securities to its investors without full disclosure of the risks those purchases involved,” Marshall said in a news release.

Ted Meyer, a Deutsche Bank spokesman in New York, declined to comment when reached by telephone.

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

New Suits

Ecuadoreans Sue Chevron in U.S. to Block Arbitration

Ecuadoreans sued Chevron Corp., asking a U.S. judge to stop the company’s attempt to have an international arbitration panel decide who should pay damages in their environment lawsuit seeking as much as $27 billion for cleanup and other costs.

Chevron, based in San Ramon, California, agreed in 2003 to submit to the jurisdiction of Ecuadorian courts, residents of Ecuador’s Amazon Basin said yesterday in a complaint in federal court in New York. A decision by the judge is “expected imminently,” the plaintiffs said.

Meanwhile the company has sought to have the case decided by an arbitration panel, they said.

“Chevron did not agree to anything,” Kent Robertson, a company spokesman, said in an e-mail. “The record is being distorted.”

The oil producer, which hasn’t drilled a well in Ecuador since 1992, wants arbitrators to require its government to comply with agreements signed from 1994 to 1998 absolving the company from any environmental liabilities.

Chevron also asked to be compensated for damage to its reputation caused by Ecuador’s “outrageous and illegal conduct,” as well as legal fees.

The company in September asked the Permanent Court of Arbitration in The Hague to shift responsibility to Ecuador for paying any damages.

The Ecuadoreans sued Chevron, the second-largest U.S. oil company, in Ecuador alleging damage to the Amazon rainforest from chemical waste produced in oil drilling. An expert for the Ecuadorean court estimated damages at $27 billion.

An earlier case filed by the Ecuadoreans in the U.S. against Texaco Inc., which was acquired by Chevron in 2001, was dismissed, Robertson said.

The Republic of Ecuador in December filed a separate case to block Chevron from pursuing arbitration.

The new case is Yaiguaje v. Chevron Corp., 10-cv-0316, U.S. District Court, Southern District of New York (Manhattan).

Poet Sues California Over Rules That Would Ban U.S. Ethanol

Poet LLC, the largest U.S. ethanol producer, wants a judge to stop California’s plan to ban the use of corn-based ethanol in the biggest U.S. gasoline market.

The company sued the California Air Resources Board on Dec. 23, over its low-carbon fuel standard, which aims to reduce carbon-dioxide emissions. The regulations count the emissions created when corn is planted, harvested and distilled into fuel as part of ethanol’s carbon output.

California, the nation’s largest fuel-consuming state, will implement the law next year. The new rules come as the U.S. is preparing to set guidelines for its own fuel standard and two weeks after a group of 11 governors of Northeast and mid-Atlantic states agreed to develop their own standard.

The standard may stifle the use of ethanol from Midwestern plants owned by Archer Daniels Midland Co., Valero Energy Corp., and Green Plains Renewable Inc., the largest U.S. ethanol producers behind Poet.

Last month, the two largest ethanol trade organizations sued California over the standard, saying the regulation is unconstitutional because it discriminates against out-of-state goods and will stunt ethanol’s growth. The industry also says the standard favors foreign fuels such as ethanol made in Brazil over the fuel made in the U.S.

For more, click here.

For more new suits news from yesterday, click here. For copies of recent civil complaints, click here.


Stanford Receiver, SEC Ask Judge to Put Investor Suits on Hold

R. Allen Stanford’s receiver and U.S. regulators asked a federal judge to temporarily stop all lawsuits by investors against their former financial advisers at Stanford Group Co. and other Stanford-related entities.

“There have now been more than 50 cases filed in state and federal courts that somehow relate to the sale of Stanford CDs or the receivership,” Kevin Sadler, an attorney for receiver Ralph Janvey, said yesterday in a filing made jointly with the U.S. Securities and Exchange Commission.

Responding to investors’ document requests to support those lawsuits “will consume more and more” of the dwindling assets the receiver could use to repay all investors allegedly swindled by the Texas financier, Sadler said in the filing in federal court in Dallas.

Stanford investors have sued their former financial advisers and the clearinghouse and trust company that serviced their accounts in an attempt to recover some of the estimated $7 billion lost through what prosecutors claim was a Ponzi scheme involving certificates of deposit sold by Antigua-based Stanford International Bank Ltd.

In court filings, investors’ lawyers have urged the judge to allow the suits, which the receiver and regulators want to delay until Stanford’s criminal and SEC cases are completed. The investors claim their lawsuits are their best hope of generating significant recovery by tapping insurance coverage for the brokers and other entities before deadlines for filing such claims.

The SEC case is Securities and Exchange Commission v. Stanford International Bank, 09cv298, U.S. District Court, Northern District of Texas (Dallas). The criminal case is U.S. v. Stanford, 09cr342, U.S. District Court, Southern District of Texas (Houston).

For more lawsuits news from yesterday, click here.


Kissel Lawyer Says Hearsay Shouldn’t Have Been Allowed at Trial

The judge in Nancy Kissel’s 2005 trial for murdering her Merrill Lynch & Co. banker husband shouldn’t have allowed hearsay evidence that he believed she was spiking his drinks, her lawyer told Hong Kong’s top appeal court.

“There is huge prejudice in allowing a third party to recount what amounted to intent to kill,” Gerard McCoy said as he concluded his arguments to the Court of Final Appeal.

Prosecutors on Jan. 18 will respond to claims that breaches of evidence rules and misdirection by the judge to the jury led to a miscarriage of justice for Kissel.

Kissel, 45, has admitted killing her husband Robert in 2003, saying it was in self-defense after a prolonged history of forced sex and sodomy. She is serving a life sentence after being convicted of giving the distressed-debt specialist a sedative-laced milkshake and bludgeoning him to death with a 4-kilogram (8.8 pounds) statuette in 2003.

Deputy Director for Public Prosecutions Kevin Zervos said yesterday that he needed more time to review supplementary authorities submitted by the defense and needed more time to prepare his response.

Hong Kong’s Court of Appeal dismissed a 2008 appeal of the conviction, calling the killing “as cogent a case of murder as might be imagined.”

The case is HKSAR v. Nancy Ann Kissel, FACC2/2009, Hong Kong Court of Final Appeal.

For more, click here.

U.K. Should End ‘Loser Pays’ in Lawsuits, Review Says

The U.K. should end the requirement for losers in personal injury lawsuits to cover their opponents’ legal costs, according to a government-sponsored review of civil litigation, a move that would bring British rules more in line with the U.S.

Plaintiffs in unsuccessful injury suits shouldn’t have to pay defendants’ legal costs in most cases, while general damages should increase by 10 percent, Lord Justice Rupert Jackson said in a report published yesterday. So-called referral fees paid by lawyers to companies that send them injury cases should also be eliminated, Jackson said.

The U.K. is considering an overhaul of rules on civil lawsuits due to concern over excesses of litigation and fees and the complexity of the legal system. Britain has also been criticized for being an attractive venue for libel lawsuits against media organizations.

“There seems to be a disproportion between the amounts at stake and the significance of the issues” in some civil cases, Lord Igor Judge, the Lord Chief Justice for England and Wales, told reporters in London yesterday. “If these recommendations are adopted as a whole, there will be a welcome impact on the sometimes devastating costs of civil justice.”

Jackson suggested that measures similar to those for personal injury claims be applied to libel suits, with plaintiffs no longer able to recover the costs of lawyers’ “success fees” and insurance premiums.

U.K. Justice Secretary Jack Straw said in an e-mailed statement he’d be “considering these proposals in detail.” While some of the proposed changes can be implemented by the judiciary itself, others will require new legislation.

For more, click here.

London Life’s Use of Policyholders’ Funds Legal, Lawyer Says

London Life Insurance Co. legally used policyholders’ money to help pay for its takeover by Great-West Lifeco Inc. in 1997 and a ruling otherwise would be an error of law, the companies’ lawyer told a Canadian judge.

Testimony during a three-month trial in London, Ontario, showed Canadian regulators approved London Life’s plan to use C$220 million ($215 million) of the policyholders’ funds and directors acted in the best interest of the company in making the decision, Sheila Block, the lawyer, said yesterday at the close of the trial.

“It’s just like if you took C$220 million and bought a C$220 million bond,” Block said to support her argument that the use of the money was for an investment. “The plaintiffs are urging you to make an error of law,” by reinterpreting a statute a regulator ruled on.

D’Alton Rudd, a former London Life chief actuary, James Jeffery, a former corporate actuary, and a Great-West policyholder sued on behalf of 1.8 million people, accusing the companies of illegally using money from their accounts to help pay for the C$2.9 billion acquisition by Great-West. They’re seeking C$1 billion in damages, including repayment of their money with interest and penalties.

Great-West and its parent company, Power Financial Corp., were set on “maximizing profits at the expense of policyholders,” Paul Bates, the policyholders’ lawyer, said during the trial.

In a deviation from usual procedure, Ontario Superior Court Judge Johanne Morissette ordered the defendants to present their closing arguments first. The plaintiffs are scheduled to give their closing argument yesterday and Morissette said she didn’t plan to let the defendants reply.

The case is Between James Jeffery and London Life Insurance Co., SC46300, Ontario Superior Court of Justice (London, Ontario).

Caterpillar’s Handling of Tractor Defects Questioned at Trial

Caterpillar Inc., the world’s largest maker of bulldozers and excavators, dragged its feet in addressing a defect in a line of earth-moving tractors that led to a construction worker’s injury, a lawyer said.

Caterpillar officials learned in 2002 their line of Wheel Tractor 623 G Scrapers had defects in electronic controls that caused the machines to unexpectedly bounce and didn’t warn customers for more than two years, Mark Lanier, a Houston-based lawyer for a worker left paralyzed in an accident involving a scraper, told a Texas jury Jan. 13.

“There were delays” in warning equipment dealers and machine operators about the bucking scrapers, Lanier said in opening arguments in the trial of Alfonso Lopez’s lawsuit against Caterpillar and Holt Texas Ltd. in San Antonio. “Delay is a problem.” Lopez is seeking $80 million in damages, Lanier said during jury selection on Jan. 11.

Caterpillar’s lawyers contend Lopez wasn’t properly trained to operate the scraper and that the manufacturer warned his employer two years before the worker was injured about reports the machines’ parts sometimes experienced “sudden movements.” The electronic controls at issue were replaced on the machine Lopez used three months before he was injured in 2006, the company’s lawyer noted.

Lopez, 41, says he was using one of the scrapers, which sells for $518,000, to help build a subdivision north of Dallas in August 2006 when the machine “suddenly and without warning began dramatically bouncing up and down,” according to court papers.

The scraper’s bucking caused Lopez’s seat to fail and slammed him against the machine’s body, the court papers say. The worker suffered spinal injuries and a punctured lung in the accident and is now paralyzed from the waist down, Lanier told jurors.

The case is Alfonzo Lopez v. Caterpillar Inc., 2007-CI-15864, District Court for Bexar County, 224th Judicial District (San Antonio).

For more, click here.

Tomra Says EU Antitrust Fine Based on ‘Misleading’ Evidence

Tomra Systems ASA, a maker of machines that collect cans and bottles for recycling, accused the European Union’s antitrust regulator of using “misleading” evidence to fine it 24 million euros ($35 million).

The European Commission failed to bring the necessary evidence when it fined Tomra in March 2006 to show that the Norwegian company had unlawfully hindered the market by offering rebates and discounts to retailers, an EU court was told yesterday.

“There are far too many uncertainties in the decision,” Alan Ryan, a lawyer representing Tomra, told the EU’s General Court in Luxembourg yesterday. “In many cases, the commission just made assumptions. It has simply not met the burden of proof.”

The fine was the result of investigations that started with raids in Norway, Germany and the Netherlands in September 2001. It was the highest penalty levied as a percentage of revenue in this type of abuse case, the EU regulator said at the time. The fine was more than 7 percent of Tomra’s 2005 sales.

“The bottom line is that the basic economic analysis” of the contested agreements in the case “was unsound,” Ryan told a three-judge panel. “What was done was done incorrectly” and on a “selective” basis, he said.

Tomra is asking the court, the EU’s second-highest, to overturn the decision or reduce the fine.

Rulings by the EU General Court, formerly known as the European Court of First Instance, usually come within six months after a hearing and can be appealed.

The case is T-155/06, Tomra Systems v. Commission.

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

Litigation Departments

Lehman Bankruptcy Lawyers, Advisers Paid $588.4 Million So Far

Lehman Brothers Holdings Inc. has paid its lawyers and other bankruptcy advisers $588.4 million in the 15 months since it started liquidating, according to a regulatory filing.

The restructuring firm Alvarez & Marsal LLC, which provided Lehman with its current chief executive officer, Bryan Marsal, led the payments with $218.3 million in fees for “interim management” through December, according to the filing yesterday with the U.S. Securities and Exchange Commission.

Weil Gotshal & Manges LLP of New York was reported by Lehman to have collected $127.1 million through December for acting as the investment bank’s lead bankruptcy law firm, the same amount as Lehman said it had paid through November. Harvey Miller, Lehman’s lead lawyer at Weil Gotshal, didn’t respond to an e-mail seeking comment yesterday.

Lehman, once the world’s fourth-biggest investment bank, is liquidating in bankruptcy to pay creditors, who have filed more than $830 billion of claims. Lehman’s payments to advisers haven’t faced major challenges like bankrupt automaker Chrysler LLC, which is using U.S. Treasury loans to wind itself down.

Lehman filed the biggest U.S. bankruptcy in September 2008 with assets of $639 billion. Creditors include UBS AG, the New York Giants and Abu Dhabi Investment Authority as well as individuals who hold Lehman bonds.

The case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Weil Gotshal & Manges Names Former DOJ Fraud Chief Partner

Weil, Gotshal & Manges LLP said that Steven Tyrrell, former chief of the U.S. Department of Justice’s Fraud Section, is joining the firm as a partner in its Washington office effective Feb. 1.

Tyrrell and Boston partner Thomas C. Frongillo will serve as co-chairs of the firm’s investigations & criminal defense practice, the firm said.

To read more, click here.

For more litigation department news from yesterday, click here.

Court News

China Ex-Vice President of Supreme Court on Trial, Xinhua Says

The former vice president of China’s Supreme People’s Court, Huang Songyou, went on trial yesterday on charges of bribery and graft, the official Xinhua news agency reported, citing the Langfang municipal procuratorate in Hebei province.

Huang, 52, is accused of taking more than 3.9 million yuan ($571,000) in bribes from 2005 to 2008 when he was vice president of the SPC, the news agency said. He is also accused of embezzling 1.2 million yuan in 1997 when he was president of the Zhanjiang municipal Intermediate People’s Court in southern Guangdong province, the report said.

Huang was removed from his post on Oct. 28, 2008, Xinhua said. He is the first chief judge to have been removed for suspected law and discipline violations in the history of the Supreme People’s Court, the agency said, citing Shen Deyong, a vice president of the court.

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