Galleon, Merkin, Goldman, Pfizer, BP, in Court News

Former McKinsey & Co. director Anil Kumar has agreed to pay almost $2.8 million to settle civil allegations of insider trading brought by the U.S. Securities and Exchange Commission.

Kumar’s settlement with the SEC comes four months after he pleaded guilty in the largest ever hedge fund insider trading case. He’s cooperating with prosecutors in the criminal case against Galleon Group LLC founder Raj Rajaratnam, who has denied wrongdoing.

The settlement covers $2.6 million in illegal profits for Kumar and interest of about $190,000, according to a filing yesterday in federal court in Manhattan. Kumar also agreed as part of the settlement not to “engage in any act, practice or course of business which operates or would operate as a fraud or deceit upon any person.”

Robert Morvillo, a lawyer for Kumar, declined to comment. John Heine, a spokesman for the SEC, didn’t have an immediate comment.

In its civil lawsuit against Kumar, the SEC said Kumar was a friend of Rajaratnam’s and a direct or indirect investor in at least one Galleon fund. In court in January, Kumar said Rajaratnam approached him in late 2003 or early 2004 and offered to pay him $500,000 annually in exchange for tips about McKinsey clients.

The case is SEC v. Galleon, 09-cv-8811, U.S. District Court, Southern District of New York (Manhattan).

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Merkin Investor Awarded $1.8 Million in Madoff Case

An investor in J. Ezra Merkin’s Ascot Partners L.P., a feeder fund for Ponzi schemer Bernard Madoff, was awarded $1.75 million by arbitrators who found Merkin intentionally breached his fiduciary duty by not disclosing Madoff’s role in the fund, according to a court filing.

Merkin also was negligent in performing due diligence on Madoff, a majority of an arbitration panel found, according to a petition filed yesterday in New York state court. Investor Noel Wiederhorn, who put $1.46 million into Ascot Partners in 2003 and 2004, is seeking a judgment confirming the award, which was for the amount he invested plus interest.

Wiederhorn, a Wycoff, New Jersey, pediatrician, also asked that the sealed record of the arbitration case be made public.

“These findings could have significance in later litigation and arbitrations against Mr. Merkin as well as against numerous other Madoff feeder-fund managers,” Weiderhorn’s attorney, David Bamberger, wrote in asking for the record to be unsealed.

The evidence showed “major contradictions and ambiguities” in transaction confirmations, which should have caused Merkin to question the Madoff trades, according to his filing. The evidence in the hearing also established the “extreme improbability” of the transactions Madoff reported in the over-the-counter options market, the papers said.

Merkin has been pursued by investors, government officials and regulators since Madoff’s $65 billion fraud was exposed in


Madoff, 71, pleaded guilty in March 2009 and is serving a 150-year sentence.

The new case is Wiederhorn v. Merkin, 601265/2010, New York State Supreme Court, New York County (Manhattan).

Goldman, Citigroup Are Winners in Barring Short-Selling Suit

The U.S. Supreme Court refused to revive a price-fixing suit that accused a dozen Wall Street firms, including Goldman Sachs Group Inc. and Citigroup Inc., of conspiring to inflate brokerage fees to short sellers.

The justices yesterday left intact a decision by a federal appeals court in New York throwing out the suit. The lower court concluded that the Securities and Exchange Commission’s oversight of short selling puts that business outside the ambit of the federal antitrust laws.

Electronic Trading Group LLC claimed in the 2006 lawsuit, which sought class-action status, that the banks conspired to charge inflated borrowing fees through daily conversations, e-mails and faxes. The suit alleged that the firms jointly determined which securities they should classify as “hard-to-borrow.”

The suit also named units of Bank of America Corp., JPMorgan Chase & Co., Deutsche Bank AG, Morgan Stanley and UBS AG.

The case is Electronic Trading Group v. Banc of America Securities, 09-1059, U.S. Supreme Court (Washington).

Infineon, Elpida Said to Be in EU Cartel Settlement

Infineon Technologies AG, Europe’s second-largest chipmaker, Mitsubishi Electric Corp. and other chipmakers agreed to pay fines as part of the first settlement of a price-fixing case brought by the European Union, four people with knowledge of the investigation said.

The settlement with the European Commission may be disclosed as soon as May 19, said the people, who declined to be identified because the negotiations are private. As many as seven other chipmakers, including Elpida Memory Inc., will also participate, the people said. Micron Technology Inc. received immunity in the case, the people said.

The settlement is the first time the Brussels-based commission has reached an agreement with companies involved in a price-fixing probe. All companies that agree to the settlement terms as proposed by the commission receive a 10 percent reduction in their fine.

Amelia Torres, a spokeswoman for EU antitrust matters, said she can’t comment on cases where the Brussels-based commission hasn’t yet reached a decision.

Kay Laudien, a spokesman for Neubiberg, Germany-based Infineon, couldn’t immediately be reached for a comment.

Pai Pei-lin, a spokesman for Taoyuan, Taiwan-based Nanya Technology, declined to comment on whether the company had agreed to pay a fine. Representatives at Samsung, Hynix, Mitsubishi, Elpida, Toshiba, Hitachi, and NEC also declined to comment.

Novartis Must Pay Punitive Damages in Sex-Bias Case

A Novartis AG pharmaceuticals unit discriminated against female sales representatives in the U.S. and must pay $3.4 million to a dozen women plus punitive damages to be decided, a federal jury found.

The jury in Manhattan federal court reached its decision yesterday after a month long trial of a class-action lawsuit on claims of discrimination against women at Novartis Pharmaceuticals, a U.S. unit of Europe’s second-largest drugmaker. The nine jurors’ award to the women for lost pay and other damages came in the first stage of deliberations. The panel will decide tomorrow on the amount of punitive damages.

The women are part of the Basel, Switzerland-based company’s 14,000-member workforce in the U.S. They’ve said they’re seeking about $200 million in punitive damages. Jurors found that Novartis discriminated against women over pay and promotion and because they got pregnant.

“Novartis has been involved in systemic discrimination since 2002,” David Sanford, a lawyer for the women, said in an interview after the verdict. “The verdict supports the claims of 5,600 women.”

Novartis said in a statement that it is disappointed in the verdict and plans to appeal.

“We believe the plaintiffs’ claims were unfounded,” the company said, adding that it has been “recognized for its commitment to an inclusive environment.”

The case is Velez v. Novartis Corp., 04-cv-9194, U.S. District Court, Southern District of New York (Manhattan).

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Pfizer Settles Neurontin Suit Over Minister’s Death

Pfizer Inc. agreed to settle a wrongful-death lawsuit alleging its Neurontin epilepsy medicine caused a retired minister to commit suicide two months after he started taking the drug.

Lawyers for New York-based Pfizer, the world’s biggest drugmaker, told U.S. District Judge Aleta Trauger in Nashville, Tennessee, they resolved claims by the family of Richard Smith, which were set to go to trial yesterday. It’s the second settlement of claims that officials of a Pfizer unit knew the epilepsy drug posed a suicide risk and failed to disclose it to patients and doctors.

The terms weren’t disclosed. Smith, 79, was a retired Church of Christ minister, according to court papers.

Pfizer faces more than 1,000 lawsuits accusing it of illegally promoting Neurontin for unapproved uses and helping to cause some users’ suicides. In March, a Boston jury ordered Pfizer to pay more than $140 million in damages to an insurer over its marketing practices in connection with the drug. Pfizer has denied any wrongdoing in connection with its handling of Neurontin.

“We are pleased to have reached an agreement with the Smith family to resolve this case as it avoids the time and expense of a trial,” Chris Loder, a Pfizer spokesman, said in an e-mailed statement.

The case is Ruby Smith v. Pfizer Inc., 05-cv-11515-PBS, U.S. District Court, Middle District of Tennessee (Nashville).

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Cable Companies Rejected by U.S. High Court on Must-Carry Rule

The U.S. Supreme Court, refusing to reconsider a longstanding cable industry complaint, left intact a federal requirement that providers include local broadcast stations in their channel lineups.

The high court yesterday rejected an appeal from New York- area cable provider Cablevision Systems Corp., which objected on free- speech grounds to a requirement that it make a local station available to customers on Long Island.

The appeal sought to overturn 1994 and 1997 Supreme Court decisions that upheld the must-carry rule, which Congress enacted in 1992 to protect the broadcasting industry from the growing power of cable TV networks. Cablevision, backed by Time Warner Cable Inc. and an industry trade group, said the rationale behind the must-carry rule no longer exists, in part because satellite services have captured more of the TV market.

“The cable industry has experienced transformative market and technological changes, including the emergence of vibrant competition,” Cablevision argued in its appeal. “Cable companies simply no longer have the bottleneck control that was crucial to the court’s rationale” in the earlier cases.

The case is Cablevision Systems v. FCC, 09-901, U.S. Supreme Court (Washington).

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Seamstress in SEC Insider Case Wins Judge’s Ruling

A retired Croatian seamstress won a ruling from a federal judge in New York reversing a $5.7 million judgment against her in a 2005 insider trading lawsuit.

A lawyer for Sonja Anticevic, 63, convinced U.S. District Judge Kimba Wood in New York to vacate the judgment. Anticevic is the aunt of David Pajcin, one of the ringleaders of a wide-ranging insider-trading plot that operated from mid-2004 to mid-2005. Pajcin, of Clifton, New Jersey, went to prison as one of a half-dozen defendants who pleaded guilty in a criminal case. In a related civil lawsuit, the SEC claimed Anticevic gave Pajcin permission to execute illegal trades through her account.

Wood said in a May 14 ruling that she received a letter from Anticevic’s Croatian lawyer on March 30 explaining why the retired seamstress had failed to respond to the lawsuit after the judge ordered her to do so last year. That failure prompted Wood to enter a default judgment against Anticevic.

“Anticevic made a good faith effort to respond to the court’s July 2009 order,” Wood wrote, explaining that Anticevic’s 2009 response was returned to her because it was improperly addressed. “Further, the court notes that Anticevic is a foreigner and likely not familiar with the U.S. legal system and court procedures.”

The case is SEC v. Pajcin, 05-cv-6991, U.S. District Court, Southern District of New York (Manhattan).

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New Suits

U.S. Minerals Service Sued Over Whistleblower Claims

The U.S. Minerals Management Service failed to act on a whistleblower’s warnings that a BP Plc oil and gas platform in the Gulf of Mexico lacked safety and engineering documentation, an environmental watchdog said.

Food & Water Watch filed a suit yesterday asking a U.S. judge to force MMS, which oversees mineral production on federal lands and the Outer Continental Shelf, to shut down London-based BP’s Atlantis platform until the company can prove the system, one of the Gulf’s largest, was built according to engineer-certified designs and is operating safely.

The Atlantis, which can produce 200,000 barrels of oil and 180 million cubic feet of gas daily, is located about 100 miles south of the runaway well damaged by last month’s sinking of the Deepwater Horizon drilling rig, which was leased by BP. The blowout well has already spilled more than 4 million gallons of crude into the nation’s second-largest fishery since the sinking occurred April 20.

“It is inconceivable that BP could justify the risk of commissioning Atlantis production without completed design documentation,” Mike Sawyer, an independent safety engineer with Apex Safety Consultants of Houston, said in an affidavit provided to MMS last year. Sawyer was hired to analyze evidence former BP contractor Kenneth Abbott provided to the environmental group.

BP believes the accusations in the MMS lawsuit are unsubstantiated, spokesman Scott Dean said. “We are aware that the MMS is conducting an investigation in connection with past allegations made about our Atlantis platform,” he said in an e-mail yesterday. “We will continue to cooperate fully with their requests for information.”

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Interactive Data Sued Over $3.4 Billion Buyout Bid

Interactive Data Corp., the Pearson Plc unit that provides financial market data and services, was sued by a stockholder who contends IDC shares are worth more than a $3.4 billion bid from Warburg Pincus LLC and Silver Lake.

IDC said May 4 it would be bought for $33.86 per share. Investor Brad Marques sued in Delaware Chancery Court seeking more money.

“Despite its promise and poise for growth, the company agreed to enter into the proposed transaction at an unfairly low price,” according to a complaint filed May 14.

Brian Willinsky, a spokesman for Bedford, Massachusetts- based IDC, declined to comment.

The case is Brad Marques v. Rona Fairhead, et al, CA5498, Delaware Chancery Court (Wilmington).

Japan Air Fixed Cargo-Fuel Surcharge, Australian Regulator Says

Japan Airlines Corp. illegally fixed fuel and security surcharges between 2002 and 2006, the Australian Competition and Consumer Commission alleged in a lawsuit filed yesterday.

The commission started proceedings in Australia’s Federal Court against the carrier, which is restructuring under bankruptcy protection. The civil suit, which alleges Japan Air conspired with competing freight carriers, seeks penalties and costs, according to a statement received by e-mail from the commission yesterday.

Tokyo-based Japan Air has received the complaint and declined to comment until it has reviewed it, spokeswoman Sze Hunn Yap said.

The regulator has already filed suit against Cathay Pacific Airways Ltd., Korean Air Lines Co., Air New Zealand Ltd., and five other airlines, according to the statement.

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

Legal Reviews

Greece Considering Legal Action Against U.S. Banks for Crisis

Greece is considering taking legal action against U.S. investment banks that might have contributed to the country’s debt crisis, Prime Minister George Papandreou said.

“I wouldn’t rule out that this may be a recourse,” Papandreou said, in response to questions about the role of U.S. banks in the crisis, in an interview on CNN’s “Fareed Zakaria GPS.” The program, broadcast yesterday, was taped on May 13. Neither Papandreou nor Zakaria mentioned any banks by name.

Papandreou said the decision on whether to go after U.S. banks will be made after a Greek parliamentary investigation into the cause of the crisis.

In the days leading up to the May 10 announcement of a loan package worth almost $1 trillion to halt the spread of Greece’s fiscal woes, European Union regulators were examining whether speculators manipulated the prices of bonds and equities and contributed to the crisis.

The Committee of European Securities Regulators said on May 7 it was investigating “exceptional volatility” in the markets and would work with other regulators, including the U.S. Securities and Exchange Commission, as part of a coordinated clampdown.

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NML Asks Bank of America If Kirchner Holds Assets

NML Capital Ltd., which is suing Argentina for repayment of its defaulted bonds, asked Bank of America Corp. whether President Cristina Fernandez de Kirchner and 130 individual public officials are holding assets there.

A copy of NML’s March 10 subpoena was included in a court filing by Argentina yesterday in Manhattan federal court. Argentina is asking U.S. District Judge Thomas Griesa in New York to quash, or suppress, the subpoena as irrelevant.

NML has a $300 million judgment against Argentina stemming from a 2001 bond default and wants to collect on the judgment. In a May 4 letter to the lawyer for NML, Argentina’s attorney, Carmine Boccuzzi, said the request to Bank of America for information about assets held there by Kirchner and other Argentine officials had no bearing to the case. Creditors may only pursue state assets, not those of government officials, he said.

“Among the reasons the NML subpoena is improper is that it requests information concerning third parties separate from the Republic, including dozens of Republic officials, independent corporate entities, and government agencies and instrumentalities that have already been held by the court to be separate from the Republic,” Boccuzzi wrote.

In a May 12 response, NML’s lawyer said the firm is entitled to seek Argentina’s assets “anywhere” they’re held.

NML’s lawyer, Joel Miller, didn’t return a call.

“The subpoena must be quashed because it is vastly overbroad,” lawyers for Argentina argue in a legal brief.

The case is NML v. Argentina 08-cv-3302, U.S. District Court, Southern District of New York (Manhattan).


Qatari Diar Abandoned Chelsea Deal, CPC Says at Trial

Qatari Diar Real Estate Investment Co., a unit of the emirate’s sovereign-wealth fund, should pay as much as 81 million pounds ($117 million) for abandoning a deal to build luxury apartments at London’s Chelsea Barracks, U.K. developer CPC Group Ltd. said at a trial yesterday.

Qatari had no reason to back out of the project and is now refusing to pay so-called deferred compensation it owes after buying CPC’s share of the development, lawyer Anthony Stephen Grabiner said in opening arguments at a London trial over the contract dispute.

Qatari’s employees made personal allegations against real- estate entrepreneur Christian Candy, who controls CPC, in a “desperate throw of the dice to divert attention from its own actions,” Grabiner said.

A joint venture of CPC and Qatari Diar paid 959 million pounds for Chelsea Barracks in January 2008. In November of that year, Qatari Diar bought out CPC’s stake for an initial payment of about 38 million pounds and agreed to pay 81 million pounds later in deferred compensation, CPC said. Candy was retained for project management, design and marketing.

When Prince Charles subsequently criticized the development as unsuitable for the area, Qatari Diar withdrew its planning application. CPC sued in November for breach of contract.

Joe Smouha, Qatari’s lawyer from Essex Court Chambers, said the deferred compensation being demanded by CPC was “uncertain in both amount and timing.” Qatari argues that it shouldn’t have to pay the deferred compensation because no value has been created on the site.

CPC said the deferred payment is intended to cover what has already been sold to Qatari, rather than a projected value.

“Whether or not QD believed it had made a bad bargain, it was and is still required to comply with its terms,” CPC said in court papers. Qatari “wants full control of the project, and wants to shuffle off the corresponding obligation to pay for it.”

The trial before Judge Peter Smith is scheduled to last from five to 10 days.

The case is CPC Group Ltd. v. Qatari Diar Real Estate Investment Company, case no. 4260/09, High Court of Justice, Chancery Division (London).

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Shanghai Court Rejects Appeals of 3 Ex Rio Workers, Xinhua Says

A Shanghai court upheld the convictions and sentences of three men jailed on corruption and commercial espionage charges involving Rio Tinto Plc, the official Xinhua news agency reported, citing an unnamed spokesperson from the city’s Higher People’s Court.

The court rejected the appeals of Wang Yong, Ge Minqiang and Liu Caikui, Xinhua said.

For the latest trial and appeals news, click here.

Litigation Departments

SunTrust Judge Says Auction Buyers Don’t Owe Fees

SunTrust Banks Inc. customers who lost their lawsuit against the company for selling them auction-rate securities don’t have to pay the bank’s legal fees for bringing the suit, a federal judge ruled.

U.S. District Judge Thomas W. Thrash Jr. in Atlanta nixed SunTrust’s argument that the investors should have to pay the bank’s legal fees because they sued the wrong subsidiary and because they said they held auction-rate securities after they had redeemed them.

“Their auction-rate securities became illiquid and were worth less because of it,” Thrash wrote in a May 14 order docketed yesterday. “Even if they could eventually sell at par, they suffered harm because of the long period of illiquidity.”

In September, Thrash threw out the investors’ suit, saying the allegations weren’t “stated with particularity” and didn’t give rise to a strong inference of fraudulent intent, as required by U.S. securities law. At least 19 underwriters and broker-dealers have been sued in class-action, or group, suits since the $330 billion market for auction-rate securities collapsed in February 2008. None of the suits has survived a motion to dismiss.

Auction-rate securities are municipal bonds, corporate bonds and preferred stocks whose rates of return are periodically reset through auctions.

Hugh Suhr, a spokesman for Atlanta-based SunTrust, declined to comment.

The bank said the plaintiffs should be punished for making allegations that weren’t supported by the evidence. It said that they weren’t harmed by owning the securities because they had redeemed them at par.

The case is Zisholtz v. SunTrust Banks Inc., 08-cv-1287, U.S. District Court, Northern District of Georgia (Atlanta).

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