The trial of Jerome Kerviel, beginning more than two years after Societe Generale SA accused him of losing 4.9 billion euros ($5.8 billion) on unauthorized market bets, may turn on whether the trader can show the bank knew what he was doing.
Kerviel is charged with abuse of trust, faking documents and computer hacking related to the losses at France’s second-largest bank by market value. The Paris trial starting today has resulted in more foreign press accreditation requests to the court than at any time in a decade.
Kerviel and lawyer Olivier Metzner will battle prosecutors and Societe Generale, which is seeking to recoup the losses. The Paris-based bank disclosed the unauthorized bets on Jan. 24, 2008, with then-Chief Executive Officer Daniel Bouton calling Kerviel a “terrorist.”
Kerviel, 33, who has said he is innocent of the charges, claimed the bank knew of his activities.
Societe Generale, whose legal team is led by attorney Jean Veil, filed a criminal complaint the day it announced the loss, initiating the probe. The bank will participate in the trial as a civil party, a status that enables it to seek damages under French law. In France, criminal claims precede civil claims, so if Kerviel is cleared, the bank won’t be able to seek restitution.
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Toyota Investors Vie for Lead-Plaintiff Lawsuit Spot
Toyota Motor Corp. investors alleging the company failed to disclose design flaws that might cause its cars to suddenly accelerate vied to become lead plaintiffs in a group of securities class-action lawsuits.
Lawyers for investors including the Commonwealth of Massachusetts Pension Reserves Investment Management Board tried to persuade U.S. District Judge Dale S. Fischer at a hearing yesterday in Los Angeles to appoint their client as lead plaintiff. Lawyers named as lead counsel in a class-action case are entitled to a larger share of any recovery.
Fischer said she will hold off making a decision until the U.S. Supreme Court issues its ruling in a lawsuit against National Australia Bank Ltd. which may limit the ability of foreign investors to use American courts to sue companies based abroad. The Supreme Court heard arguments in that case in March.
The Toyota investor with the largest loss among the plaintiffs before Fischer is Skandia Life Insurance Co., a Swedish company, which claims it lost $34.9 million. Investors who have the most at stake financially are given preference to be appointed lead plaintiff in securities class-action cases.
Fischer asked lawyers in an April 23 order to explain why they were representing groups of investors, rather than individual ones, if not for the sole purpose to create a larger loss figure and have their group be appointed lead plaintiff.
Gerald Silk, a lawyer for a group of five institutional investors including the Maryland State Retirement and Pension System who together claim $91.8 million in losses, said his clients had come together on their own.
Toyota faces more than 300 lawsuits in state and federal court, including proposed class actions over economic losses and claims of personal injuries or deaths caused by sudden-acceleration incidents.
The case is Stackhouse v. Toyota Motor Corp., 10-922, U.S. District Court, Central District of California (Los Angeles).
Madoff Liquidators Clash Over LuxAlpha Fund Assets
Authorities overseeing funds linked to Bernard Madoff’s fraud are sparring over assets, with Luxembourg liquidators saying they will oppose any U.S. moves to reduce recoveries for European investors.
The liquidators for Access International Advisors LLC’s LuxAlpha Sicav-American Selection said in a letter to investors obtained by Bloomberg News that U.S. trustee Irving Picard is taking steps that may have a “significant effect” on recoveries. The liquidators will also resist Picard’s requests for documents that could identify LuxAlpha investors.
“The actions of the trustee are prone to have a significant effect on the recovery rate for the shareholders,” LuxAlpha’s liquidators said in a May 20 letter sent to the fund’s shareholders. “A substantial loss in the shareholders’ investments cannot be excluded. The liquidators will vigorously resist such an eventuality.”
LuxAlpha had $1.4 billion in net assets, according to Bloomberg data, a month before Madoff was arrested in December 2008. The LuxAlpha liquidators have sued UBS AG, the fund’s custodian, and Ernst & Young LLP, the fund’s auditor, seeking more than $1.3 billion to repay investors.
Franz Schiltz, a Luxembourg lawyer for Picard, and Picard spokesman Kevin McCue declined to comment. Alain Rukavina, a liquidator for LuxAlpha, couldn’t be reached.
Bernard Madoff, 72, pleaded guilty in March 2009 to orchestrating the biggest Ponzi scheme in history. He was sentenced to 150 years in a federal prison in North Carolina.
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CKX, Owner of ‘American Idol,’ Sued Over Buyout Bid
CKX Inc., the owner of TV’s “American Idol,” was sued by a shareholder demanding its directors seek competing bids after a group led by the show’s creator, Simon Fuller, made a $600 million takeover offer.
The bid, for about $6.45 per share, undervalues the New York-based company in light of its prospects, investor Richard Nierenberg said in a complaint filed yesterday in Delaware Chancery Court in Wilmington. He asked the court to order the board to generate an auction for the company and to entertain all reasonable bids.
“Delaware law requires directors to take all steps reasonably required to maximize the value stockholders will receive,” and “the $600 million offering price provides inadequate consideration,” Nierenberg contends.
CKX confirmed May 28 it had received the offer and said it was considering potential alternatives. Fuller and former CKX Chief Executive Officer Robert F.X. Sillerman tried to take the company private in 2007 and dropped their $12-a-share bid in 2008.
The company has a market capitalization of about $466 million, according to Bloomberg data.
Ed Tagliaferri, a spokesman for CKX, said in an e-mailed message that the company had no comment.
The case is Nierenberg v. CKX Inc., CA5545, Delaware Chancery Court (Wilmington).
Standard & Poor’s Sued in Frankfurt Court Over Lehman Ratings
Standard & Poor’s Financial Services LLC, a unit of McGraw-Hill Cos., was sued in a Frankfurt court over its ratings of Lehman Brothers Holdings Inc. before the bank’s collapse in 2008, a lawyer said.
A German pensioner who owned Lehman certificates is seeking compensation for 30,000 euros ($35,790) lost when the investment bank filed bankruptcy, his lawyer Jens-Peter Gieschen said in an e-mailed statement yesterday. He declined to identify the plaintiff.
Meinrad Woesthoff, the spokesman for the Frankfurt court, said he wasn’t immediately able to confirm the suit, which claims the A+ rating for Lehman in May 2008 on which the investor relied was misleading.
Rating companies have come under fire for their alleged failure to foresee the financial crisis and for granting top rankings to mortgage bonds. In the wake of the euro crisis, governments are discussing new rules and alternatives for rating the creditworthiness of issuers.
“Rating agencies so far have bet on that they won’t be held responsible for their wrongful assessments,” said Gieschen. “If lawmakers aren’t willing to draw the necessary consequences, we will hit the agencies at their most vulnerable spot, with the help of the courts.”
Doris Keicher, a spokeswoman for S&P in Frankfurt, declined to comment.
Evonik Sued by Vion Units Over Cartel for Chicken-Feed Additive
Evonik Industries AG was sued in London by Vion NV, a Dutch meat processor, over claims that one of its units charged too much for a chicken-feed additive during a 13-year price-fixing cartel.
Vion and its U.K. producers sued Evonik on May 21, claiming they were overcharged as a result of the price-fixing scheme from 1986 to 1999, according to filings at the Competition Appeal Tribunal in London.
“The effect of the infringement was to maintain prices” at a higher level than they should have been, the tribunal said in the June 3 filing describing the case. Vion claims it “suffered loss and damage,” the tribunal said.
The Evonik subsidiary involved in the case, Dusseldorf- based Evonik Degussa GmbH, postponed a hearing scheduled for today at the tribunal in London while it seeks to add the Paris- based drugmaker Sanofi-Aventis SA as a co-defendant in the case, without explaining why.
“To the extent that there is any liability to claimants, that liability should” be shared between the Aventis parties and Evonik Degussa, Evonik’s lawyer, John Reynolds of the firm White & Case LLP in London, said in an e-mail. “Evonik Degussa is seeking an appropriate contribution from Aventis.”
Geoffroy Bessaud, a Sanofi-Aventis spokesman, didn’t return a call.
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Court Gives First Jail Terms for 1984 Bhopal Disaster
An Indian court sentenced seven former senior employees of Union Carbide Corp.’s local unit to two years each in jail, after the first ever convictions related to the deadly 1984 leak of toxic gas in Bhopal.
Those given prison terms include the former chairman of Union Carbide India Ltd., Keshub Mahindra, one of eight charged with causing death by negligence, the Press Trust of India news agency reported. One of the accused has since died. The Supreme Court ruled the officials could not face charges of culpable homicide for one of the world’s worst industrial accidents.
An explosion at the Union Carbide pesticide plant on Dec. 3, 1984, released methyl isocyanate gas into the streets of Bhopal, the capital of Madhya Pradesh state in central India. Union Carbide estimated that 3,800 people were killed by the leak. Amnesty International, a human rights group, commissioned a study that showed 7,000 perished within days, and that another 15,000 later died from exposure to the gas.
“After 26 years, if a court finds someone guilty then you cannot call it justice,” Rachna Dhingra of the Bhopal Group for Information and Action, said in a phone interview. “The maximum punishment they got is two years in jail, after killing thousands of people, maiming tens of thousands and poisoning the water.”
Keshub Mahindra, 86, is now the chairman of Mahindra & Mahindra Ltd., India’s biggest tractor maker. Mahindra’s spokeswoman Roma Balwani said the company will issue a statement later.
Those convicted are all Indians. Warren Anderson, the former chairman of Union Carbide, had earlier been declared by a court an absconder after failing to appear for trial, the Press Trust agency said.
Union Carbide said yesterday the company and its officials are not subject to the jurisdiction of Indian courts since they did not have any involvement in the operation of the Bhopal plant, which was owned and operated by Union Carbide India Ltd., or UCIL.
“All the appropriate people from UCIL -- officers and those who actually ran the plant on a daily basis -- have appeared to face charges,” Tomm F. Sprick, a spokesman for Union Carbide, said in an e-mailed response.
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Close Brothers, Astaire Units Fined by FSA for Lapses
The U.K. financial regulator fined units of Close Brothers Group Plc and Astaire Group Plc for failing to segregate clients’ money from their own.
Rowan Dartington & Co., a Bristol, England-based stockbroker owned by Astaire Group, was fined 511,000 pounds ($740,000) for not keeping client money in trust accounts that would protect it in case the firm went bankrupt, the Financial Services Authority said in a statement. Close Investments Ltd. was docked 98,000 pounds for similarly not segregating accounts, the regulator said in a separate statement.
“It is essential for firms to adhere to our client money rules, and recent action in this area shows that our focus has intensified,” FSA enforcement director Margaret Cole said. “Firms should be in no doubt that if they fail to get their house in order in this regard we will take action.”
No clients lost money because of the errors and both firms received a 30 percent discount on their fines for cooperating. Close reported the problem on its own, the FSA said.
“Not only has Rowan Dartington’s cooperation with the FSA resulted in a much reduced fine than would otherwise have been the case, but it has also helped to develop an operationally strengthened and more robust service to clients,” Astaire Group said in a statement yesterday.
Close Investments failed from the start of 2008 to January 2010 to verify that accounts relating to unregulated collective investments it managed were correctly set up as client money accounts, the FSA said.
Close Investments “alerted the FSA to the inadvertent breach and has been working constructively with the FSA throughout their investigation,” Anthony Silverman, a spokesman for the London-based company, said in an e-mailed statement. “This has included putting in place measures to rectify the breach as well as a review of client asset procedures.”
Rowan Dartington was also unable to show it could recover up to 1.4 million pounds of its own net assets in its accounting records and has since written off 1.04 million pounds, the FSA said.
The firm “will continue, with external assistance, to seek to identify and subsequently recover these monies over the forthcoming months,” Astaire Group said.
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Patricia Cohen’s Lawyer Kachroo Seeks to Withdraw
Gaytri Kachroo, the attorney for Patricia Cohen in her lawsuit against SAC Capital Advisors LP founder Steven A. Cohen, has asked a judge for permission to withdraw from the case because her client can’t pay her.
Kachroo filed her request to withdraw from the case yesterday in Manhattan federal court. Patricia Cohen earlier fired her first attorney, Paul Batista, in her suit against ex-husband. Patricia Cohen alleges that Steven Cohen cheated her out of money in their divorce, an allegation he denies.
Patricia Cohen “has been unable to meet her financial obligations,” Kachroo wrote in a three-page request to withdraw. Kachroo said her firm “is not in a position to continue without the financial payments” that Patricia Cohen “is obligated to make under her retention agreement.”
Patricia Cohen, who separated from her then-husband in 1988, claims assets were hidden from her and the New York state courts during their divorce proceedings. She says she’s entitled to at least half of his hedge fund business, which was developed in part with $1 million Patricia Cohen earned from a real estate business.
Jonathan Gasthalter, a spokesman for Stamford, Connecticut- based SAC, declined to comment.
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Starr Judge Appoints Receiver, Bars Client Payments
Aurora Cassirer, a lawyer at Troutman Sanders LLP, was appointed by a judge to temporarily take control of Starr Investment Advisors LLC and Starr & Co., money management firms run by jailed financial adviser Kenneth Ira Starr.
U.S. District Judge Sidney Stein in New York yesterday barred Cassirer from making payments to Starr’s clients, as part of his ruling appointing her temporary receiver.
Starr, 66, was arrested and charged May 27 with orchestrating a fraud scheme that prosecutors said may exceed $30 million as more victims come forward. The U.S. Securities and Exchange Commission sued Starr and his wife, Diane Passage, winning a court order freezing Starr-related bank accounts and now having the firm controlled by a receiver.
The civil suit is SEC v. Starr, 1:10-cv-04270, and the criminal case is U.S. v. Starr, 1:10-mj-01135, U.S. District Court, Southern District of New York (Manhattan).
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BP Wants Leak Lawsuits Heard by Judge With Oil Ties, Times Says
BP Plc was criticized by some legal experts for seeking to have pre-trial matters in lawsuits related to the Deepwater Horizon oil leak handled by a judge with energy-industry links, the London-based Times reported.
The company filed papers requesting that the matter be assigned to Judge Lynn Hughes, 69, who lectures for the American Association of Petroleum Geologists, members of which are mainly in the oil and gas business, the newspaper said.
Hughes has also leased energy mineral rights to energy exploration companies, though not to BP, the Times said.
David Guest, a lawyer for Earthjustice, a Washington-based environmental group, described BP’s request as “corporate arrogance,” adding that “it looks such scandalous behavior that it would be hard to stick,” the newspaper said.
On the Docket
Blackstone Manager’s Father-in-Law Wins Pretrial Bail
Stuart Ross, accused of trying to extort money from his son-in-law, Blackstone Group LP Senior Managing Director David Blitzer, told a New York state judge he wants to represent himself at his trial.
Ross was indicted for grand larceny and attempted grand larceny in 2008 with co-defendant Stuart Jackson, his former lawyer. Both pleaded not guilty. State Supreme Court Justice Bonnie Wittner, who held Ross without bail last month, said he can act as his own attorney and that he can be released if he posts a $200,000 bond.
Ross, 74, of Aventura, Florida, is the father of Allison Blitzer, David Blitzer’s wife. He and Jackson threatened to ruin David Blitzer’s life unless he paid them as much as $11 million, according to Manhattan prosecutors.
“We’re going to go forward with the trial,” Wittner told Ross yesterday, though she backed off a July 26 trial date she scheduled earlier. “You want to represent yourself. I know you’re a lawyer. You know the risks.”
Ross, 74, has been jailed in New York since May 26 when he was extradited from Florida. Wittner issued a warrant for him after he failed to appear at an earlier court date. Matthew Myers, the lawyer who has represented Ross in the case, said he had been hospitalized.
Outside the courtroom, Myers said he didn’t believe that Ross, who made millions when he brought the Smurfs cartoon characters to America, had the money to make bail. “He made some bad investments,” Myers said.
Ross was charged in 2008 after demanding that Blitzer give him large sums of money or he would harass him over the telephone and make accusations to his supervisors at Blackstone, law enforcement and the media, evidence presented to a grand jury showed, Wittner wrote in court papers.
Ross claims the money was part of a business deal, not extortion, according to Myers.
The parties are due back in court June 28 to pick a trial date.
Erin Duggan, a spokeswoman for Manhattan District Attorney Cyrus Vance. Peter Rose, a spokesman for New York-based Blackstone, also declined to comment.
The cases are People v. Ross, 08-062712, and People v. Jackson, 08-062713, New York State Supreme Court, New York County (Manhattan).