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Countrywide, UBS, JPMorgan, Goldman in Court News

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Countrywide Financial Corp. investors, led by a group of New York retirement funds, agreed to settle a class-action lawsuit for more than $600 million, a person familiar with the case said.

U.S. District Judge Mariana Pfaelzer in Los Angeles in December certified a class of investors who bought Countrywide shares or certain debt securities from March 12, 2004, to March 7, 2008. The U.S. appeals court in San Francisco on April 19 denied the defendants permission to appeal that ruling. No settlement papers have been filed.

Shirley Norton, a spokeswoman for Bank of America Corp., which acquired Countrywide in 2008, declined to comment on April 23. Jennifer Bankston, a spokeswoman for Labaton Sucharow LLP, the firm representing the pension funds, said mediation between the parties took place this month and declined to comment on the settlement.

The New York State Common Retirement Fund and five New York City pension funds claimed former Countrywide Chief Executive Officer Angelo Mozilo and other executives hid from them that the company was fueling its growth by letting underwriting standards deteriorate. Bank of America acquired Calabasas, California-based Countrywide, which was the biggest U.S. home lender, in July 2008.

David Siegel, a lawyer for Mozilo, didn’t immediately return a call seeking comment.

The class-action lawsuit names 50 defendants, including Goldman Sachs Group Inc., Citigroup Inc., JPMorgan Chase & Co. and 23 other Countrywide underwriters. It also named the auditing firm KPMG LLP. The underwriters and KPMG are accused of securities-law violations and not fraud.

Dean Kitchens, a lawyer representing the underwriters, and Todd Gordinier, a lawyer representing KPMG, didn’t immediately return calls seeking comment April 23.

The case is In re Countrywide Financial Corp. Securities Litigation, 07-05295, U.S. District Court, Central District of California (Los Angeles).

UBS to Pay $217 Million to Settle HealthSouth Case

UBS AG agreed to pay $217 million to HealthSouth Corp. shareholders and bondholders to settle litigation they brought after an accounting fraud was discovered at the health-care services provider.

The settlements between UBS, Switzerland’s biggest bank, and the securities holders were entered in the case docket April 22. The shareholders will receive $117 million and the bondholders $100 million. In addition, Ernst & Young LLP, HealthSouth’s accounting firm, agreed to pay the bondholders $33.5 million. It settled with the shareholders last year for $109 million.

The litigation stems from a $2.7 billion fraud at HealthSouth that led to guilty pleas from 15 executives, including five former finance chiefs. The fraud unraveled in March 2003 when federal agents raided the offices of Birmingham, Alabama-based HealthSouth, the largest U.S. provider of inpatient rehabilitation services. The discovery caused a drop in the company’s share price that wiped out almost $6 billion in market value.

“We believe these substantial settlements reflect a great result for bond purchasers who were damaged as a result of the massive fraud at HealthSouth,” David Bronner, chief executive officer of the Retirement Systems of Alabama, the lead bondholder plaintiff, said in an e-mailed statement.

In settling, both Zurich-based UBS, HealthSouth’s investment bank, and New York-based Ernst & Young denied wrongdoing. U.S. District Judge Karon Bowdre in Birmingham must approve the agreements.

“UBS continues to deny all charges of wrongdoing or liability arising out of its engagement for HealthSouth,” Kristopher Kagel, a spokesman for the company, said in an e-mailed statement. “As established in multiple proceedings, HealthSouth’s corrupt insiders repeatedly lied to UBS bankers. This settlement is fully funded by insurance, except for a less than 3 percent co-insurance payment by UBS.”

The case is In re HealthSouth Securities Litigation, 03cv1500, U.S. District Court, Northern District of Alabama (Birmingham).

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Ex-Watchmaker Barouh Gets 10 Months in UBS Tax Case

Jack Barouh, a former watchmaker and ex-UBS AG client, was sentenced to 10 months in prison, the longest term given any customer of the bank since the U.S. began a crackdown on offshore tax evasion.

Barouh, 65, admitted in February that he skimmed money from his company and didn’t report income on $10 million in assets, including $6 million in offshore accounts at UBS. Barouh’s lawyer asked for a sentence of a year’s home detention, saying Barouh is the son of Holocaust survivors who taught him to “hide and hoard” and compulsively “want to establish a secret nest egg.” Prosecutors asked April 16 for a 15-month prison term.

U.S. District Judge Adalberto Jordan granted leniency, saying Barouh cooperated with prosecutors probing offshore tax evasion and tried to voluntarily disclose his account to the Internal Revenue Service. Still, the judge said, Barouh deserved prison for his conduct.

“He did this for many years, hiding tens of millions of dollars,” Jordan said in federal court in Miami.

Barouh is among 11 UBS clients who pleaded guilty to tax crimes since the Zurich-based bank agreed in February 2009 to pay $780 million to avoid prosecution for helping wealthy Americans evade taxes. Since then, six other clients have been sentenced. Four got probation or home detention, one got two months in prison and another was sentenced to one month.

The case is U.S. v. Barouh, 10-cr-20034, U.S. District Court, Southern District of Florida (Miami).

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FSA Asks Calvert to Forfeit $1.5 Million in Insider-Trade Case

Malcolm Calvert, the former partner at JPMorgan Chase & Co.’s Cazenove unit who is serving a 21-month sentence for insider trading, may have to forfeit about 1 million pounds ($1.5 million), a London court heard April 23.

The U.K. financial regulator asked Judge Peter Testar to rule that Calvert must pay 473,955 pounds for confiscation of his profits from trades made with inside information, plus interest; and another 482,908 pounds in costs for his prosecution. Calvert’s attorney, Hugo Keith, argued the Financial Services Authority calculated the forfeiture amount incorrectly, and that the agency’s costs were “grotesque.”

Calvert, who arrived at court April 23 from Ford Open Prison in a grey sweater and pants, was convicted last month in the FSA’s third criminal insider-trading case to reach a jury trial.

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New Suits

Lehman Investors Add Auditor Ernst & Young to Suit Over Deals

Lehman Brothers Holdings Inc.’s auditor Ernst & Young LLP was added as a defendant in a lawsuit seeking to recover money from former executives and underwriters for failing to disclose Repo 105 transactions.

The investor lawsuit, amended to add findings contained in a 2,200-page report published March 11 by Lehman bankruptcy examiner Anton Valukus, was filed April 23 on behalf of a group of retirement funds including the Alameda County Employees’ Retirement Association in Oakland, California, and the Government of Guam Retirement Fund.

“Throughout our period as the auditor of Lehman, we firmly believe our work met all applicable professional standards, applying the rules that existed at the time,” Charlie Perkins, an Ernst & Young spokesman, said in an e-mailed statement.

The investors, in their original lawsuit filed in June 2008 in federal court in Manhattan, claimed that New York-based Lehman made false statements about liquidity, failed to take timely writedowns of its positions on mortgage-backed securities and overstated their value. Defendants in the case include former Lehman Chief Executive Officer Richard Fuld.

Lehman filed for bankruptcy in September 2008 with $639 billion in assets. It has said it will spend five years liquidating to pay unsecured creditors as little as 14.7 cents on the dollar.

“Lehman’s bankruptcy was the result of a series of unprecedented adverse events in the financial markets,” Perkins said. “It was not caused by any accounting issues.”

The case is In re Lehman Brothers Equity/Debt Securities Litigation, 08-cv-05523, U.S. District Court, Southern District of New York (Manhattan).

UralChem Sued for 3.1 Billion Rubles Over Contract

United Chemical Co. UralChem, seeking to raise as much as $642 million in a London initial public offering, is being sued for 3.1 billion rubles ($106 million) over failing to buy agreed volumes of raw materials.

OAO Apatit filed three suits against UralChem and unit OAO Voskresensk Mineral Fertilizers in Russian courts over supply contracts for apatite concentrate in 2008 and 2009, Apatit’s parent OAO Phosagro said in an e-mailed statement.

Moscow Arbitration Court spokesman Dmitry Tafintsev said the court received a 1.7 billion-ruble lawsuit against UralChem and its unit and will decide within five days whether to review the claim. Apatit filed two suits against Voskresensk April 23 with the Moscow Region Arbitration Court, a court spokesman said, declining to be identified in line with court policy.

OAO Silvinit, Russia’s largest potash producer, also said on its Web site that it filed a case in Moscow against UralChem and OAO Acron, claiming the two companies colluded on prices.

Moscow Arbitration Court registered a case involving the companies on April 21 and appointed a judge, said an official who declined to be identified because of court policy.

UralChem hasn’t received notification of the lawsuits by PhosAgro and Silvinit, and will defend its interests, the company said in an e-mailed statement April 23. Elena Kochubey, a spokeswoman for Acron in Moscow, said the company couldn’t respond until it received written notice of a lawsuit.

For the latest new suits news, click here. For copies of recent civil complaints, click here.


AIG May Be on the Hook in Lawsuits Against Goldman Sachs Board

American International Group Inc. may be required to pay to defend lawsuits against Goldman Sachs Group Inc.’s top executives, including Chairman and Chief Executive Officer Lloyd Blankfein, under directors’ and officers’ insurance policies held by the company.

AIG, which was rescued from collapse by the U.S. government, sold so-called Side A directors’ and officers’ coverage to New York-based Goldman Sachs, according to a person with knowledge of the policy. Goldman Sachs was sued April 16 by the U.S. Securities and Exchange Commission, which claimed it misled investors about collateralized debt obligations tied to subprime mortgages in 2007.

“If it were a derivative suit against Goldman, defense costs would be covered, and I’d prefer not to be a primary on the policy,” said John Degnan, vice chairman and chief operating officer of AIG competitor Chubb Corp., while answering a question about Goldman Sachs on an April 22 earnings call.

Goldman Sachs’s board and top management were sued by investors in two separate cases. The investors, Morton Spiegel and Robert Rosinek, said in complaints filed April 22 in New York State Supreme Court in Manhattan that Goldman Sachs officers and directors breached their duty to the company by permitting it to enter into a series of collateralized debt obligations tied to subprime mortgages.

One of those CDOs is the subject of a lawsuit against the New York-based firm by the SEC.

According to the derivative complaints, Blankfein and the other defendants failed to exercise oversight of the deals, exposing Goldman Sachs to billions of dollars in possible liability and damage to its reputation.

“As a result of the individual defendants’ unlawful course of conduct and breaches of fiduciary duties, Goldman Sachs has sustained substantial economic losses, and has had its reputation in the business community and financial markets irreparably tarnished,” the investors said in the complaints.

Mark Herr, an AIG spokesman, didn’t return a call seeking comment April 23. On April 20, he declined to comment on the Goldman Sachs policy. Goldman Sachs spokesman Ed Canaday declined to comment. The firm has said it will fight the SEC case.

AIG is the lead insurer of the Goldman Sachs board against shareholder suits, according to a person with knowledge of the policy. AIG may therefore have to pay the defense costs in the suit in addition to any verdict or settlement.

The cases are Rosinek v. Blankfein, 650318-10, and Spiegel v. Blankfein, 650319-10, New York State Supreme Court (Manhattan).

For more, click here.

Goldman Sachs Director Gupta Said to Be Suspect in Leak

Goldman Sachs Group Inc. director Rajat Gupta is suspected by U.S. investigators of tipping off a hedge fund billionaire to a $5 billion investment in the bank by Warren Buffett’s Berkshire Hathaway Inc., a person with direct knowledge of the inquiry said.

Gupta, 61, who has said he won’t stand for re-election to Goldman Sachs’s board, told Galleon Group founder Raj Rajaratnam about Buffett’s plan before it was announced in September 2008, the person said, declining to be identified because the inquiry isn’t public.

Rajaratnam, who was arrested Oct. 16, is fighting criminal charges and U.S. Securities and Exchange Commission civil claims that he used inside information to trade shares of companies including Advanced Micro Devices Inc. In a March 22 letter to Rajaratnam’s lawyers, made public April 9, prosecutors said they had an interest in his trading in Goldman Sachs stock in 2008. Three days before the letter was sent, Goldman Sachs announced Gupta was leaving its board.

“Rajat has neither violated any law nor done anything else improper,” his attorney, Gary Naftalis of Kramer, Levin, Naftalis & Frankel LLP, said in a statement. “He has always conducted himself with integrity in his business, philanthropic and personal life.”

Goldman Sachs spokesman Samuel Robinson, SEC spokesman John Nester and Janice Oh, a spokeswoman for U.S. Attorney Preet Bharara in New York, declined to comment.

Gupta hasn’t been formally accused of any wrongdoing.

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Citigroup Wins Bid to Drop Suit Over Brokers’ Signing Bonuses

Citigroup Inc. won dismissal of a lawsuit by six former brokers who said they shouldn’t have to pay back the balance on their signing-bonus loans totaling $1.51 million.

U.S. District Judge Lewis A. Kaplan in New York granted Citigroup’s request in a ruling April 23.

“Having left the firm without repaying everything they owed, they brought this baseless lawsuit in what quite plainly was a studied effort to prevent collection of the debts they owed through the arbitration process,” Kaplan wrote.

Thomas Banus sued Citigroup in New York federal court in August. An amended complaint in October added five other former Citigroup brokers, who the bank said received signing bonuses ranging from Banus’s $45,675 to as much as $801,546. The plaintiffs sought class-action, or group, status on behalf of at least 500 brokers employed by Citigroup in the previous six years who executed promissory notes.

They asked the court to rule that they don’t owe the money. Newly hired brokers are typically given loans, portions of which are forgiven annually for a number of years. If the broker leaves before the loan is completely forgiven, the remaining portion must be paid back with interest.

Banus called that requirement “unconscionable” in his complaint. He said he shouldn’t have to pay all at once the $39,000 left on his forgivable signing-bonus loan when he quit in 2006.

“We are extremely disappointed with Judge Kaplan’s decision,” the brokers’ lawyer, Mark Thierman of Reno, Nevada, said in an e-mail.

The case is Banus v. Citigroup Global Markets Inc., 09-cv-07128, U.S. District Court, Southern District of New York (Manhattan).

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BG, Eni Venture Face $2.5 Billion of Kazakh Claims

The Kazakh government is demanding at least $2.5 billion from an oil venture led by BG Group Plc and Eni SpA after talks stalled on the state’s entry into the project, said two people with knowledge of the matter.

The Central Asian state slapped the venture, Karachaganak Petroleum Operating BV, with tax and environmental claims last year, and sued for “illegal earnings” this year, after the producer demanded $1.4 billion in tax rebates, said the people, who declined to be identified before a settlement.

Kazakhstan is aiming to gain more revenue from resource projects developed under production-sharing agreements, which allow investors to recoup costs before the government profits. Karachaganak is the only major Kazakh oil development without state participation.

The dispute mirrors changes at the Kashagan project, the country’s biggest oil development. In 2008, partners led by Eni agreed to pay higher royalties and cede shares to state-run KazMunaiGaz National Co. after the government condemned cost overruns and delays. The phase that runs from 2002 to 2014 may cost more than $38 billion.

“Investors are getting more and more concerned,” said Ana Jelenkovic, a London-based analyst at Eurasia Group, a political risk consulting company. “There’s going to be increasing noise from international companies but ultimately it’s not that shocking anymore what the government is doing.”

The Karachaganak partners want to understand the basis of the Kazakh claims and resolve the dispute amicably, said a person familiar with their plans, who declined to be identified before the issues are settled.

Francesca Ciardiello, a spokeswoman for Karachaganak Petroleum in Aksai, Kazakhstan, declined to comment on the figures in an e-mailed response to questions, saying “there are various issues that are currently under negotiation or investigation.” BG spokesman Neil Burrows referred questions to the venture. Eni spokesman Filippo Cotalini declined to immediately comment.

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CSR Wins Federal Court Appeal on Sugar Spinoff Plan

CSR Ltd., Australia’s second-largest building products maker, won court approval to spin off its sugar unit as it considers a A$1.75 billion ($1.6 billion) offer from China’s Bright Food Group Co.

The appeal judges considered that an “error” was made in the initial ruling that blocked the spinoff, according to a decision handed down April 23 by the Full Federal Court in Sydney.

The lower court ruled Feb. 3 that the spinoff and proposed capital reduction would leave the company with less capital to meet asbestos-related liabilities. CSR’s mills produce 45 percent of Australia’s raw sugar and account for about 4 percent of the international trade.

“We welcome today’s judgment,” CSR spokesman Martin Cole said outside the court. “We had appealed on the basis that the first judgment contained errors in law and we welcome the clarification in today’s judgment,” he said.

CSR said April 1 it would enter talks with Shanghai-based Bright Food on the offer, which was conditional on regulatory approvals and closer examination of the sugar division.

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For the latest lawsuits news, click here.

Legal Reviews

Citic Pacific Seeks Review of Materials Police Seized

Citic Pacific Ltd. said it wants an independent counsel appointed to assess whether Hong Kong police, probing the biggest currency derivatives loss by a Chinese company, had the right to seize certain materials.

“Citic Pacific believes its legal advice is privileged and should be returned,” it said in an e-mailed statement April 23. “Material that is irrelevant to search warrants, and thus should not have been taken, should also be returned.”

Police raided the head office of the Hong Kong-listed company on April 3, 2009, investigating whether the steelmaker and property developer had made false statements or conspired to defraud. Citic Pacific was forced to seek aid from parent Citic Group, which is backed by China’s Cabinet, and Larry Yung resigned as chairman.

Richard Turnbull, a prosecutor with the Department of Justice, said April 23 Hong Kong investigators are still conducting their own determination of which seized materials might be protected by legal privilege.

Citic Pacific said in its statement April 23 that the principle of privilege, the right to confidential legal advice, is protected by Hong Kong’s Basic Law, or mini constitution. It has asked the High Court for directions on how to proceed.

The company may be trying to avoid a court battle over what materials were protected, said Malcolm Kemp, Head of Litigation at Stephenson Harwood in Hong Kong.

“They may be trying to do this as cheaply and efficiently as possible,” Kemp said.

For more, click here.


Gome Founder’s Bribery, Insider-Trading Trial Ends

Huang Guangyu’s Beijing trial ended after a one-day hearing for the insider-trading and bribery charges against the founder of Hong Kong-listed Gome Electrical Appliances Holdings Ltd.

“The trial concluded yesterday,” a female court clerk surnamed He at the Beijing No. 2 Intermediate People’s Court said April 23. The clerk said she didn’t know when the judgment would be announced.

Prosecutors said Huang, once China’s richest person, traded shares of Shenzhen-listed Beijing Centergate Technologies (Holding) Co. Ltd. worth more than 1.4 billion yuan ($205 million) with inside information and bought $106 million of Hong Kong currency illegally, according to the official Xinhua News Agency.

Xinhua said Huang’s wife, Du Juan, and Xu Zhongmin, a business partner of Huang’s, were also charged with insider trading.

“I think the judgment will be announced within a week,” said Zhao Guohua, a lawyer for Xu. Zhao said the trial lasted about 12 hours and declined to say how the defendants pleaded.

Huang, who had been held by police for 15 months, was also charged with bribing five government officials with 4.5 million yuan in cash and property between 2006 and 2008, the Xinhua report said.

Gome’s mainland China subsidiary, Gome Appliances Co., was also indicted for corporate bribery. The company intends to fight the charges, it said in a March 1 exchange filing.

Karin Wong of Brunswick Group LLC, hired by Gome to handle public relations, declined to comment in a phone interview April 23.

For more, click here.

For the latest trial and appeals news, click here.

Court Filings

SEC Suit Against Goldman Tops Bloomberg Chart

The suit against Goldman Sachs Group Inc. brought by U.S. regulators for fraud tied to collateralized debt obligations was the most-read litigation docket on the Bloomberg Law system last week.

Goldman Sachs created and sold CDOs linked to subprime mortgages in early 2007, as the U.S. housing market faltered, without disclosing that hedge fund Paulson & Co. helped pick the underlying securities and bet against the vehicles, the Securities and Exchange Commission said April 16. Billionaire John Paulson’s firm earned $1 billion on the trade and wasn’t accused of wrongdoing. The SEC also sued Fabrice Tourre, a Goldman Sachs vice president who helped create the CDOs, known as Abacus.

The case is Securities and Exchange Commission v. Goldman Sachs, 10-cv-03229, U.S. District Court, Southern District of New York (Manhattan).

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