Adelphia Communications Corp. was illegally coerced through the use of commercial loans by Citigroup Inc., Credit Suisse Group AG and other banks trying to get lucrative investment banking work, a lawyer seeking recovery for the defunct cable television company’s creditors said.
The banks pressured Adelphia to tie loans, totaling $2.8 billion from 1999 to 2001, to promises of more fees for underwriting billions of dollars in bond debt and stock offerings, a lawyer for the Adelphia Recovery Trust told a judge yesterday in federal court in New York.
The trust, formed to pursue claims against lenders, seeks to prove that banks knew of the fraud that led to the collapse of the fifth-largest cable television company in 2002. Adelphia disclosed then that founder John Rigas and his family owed $2.3 billion in off-balance-sheet debt on three syndicated bank loans taken jointly with the company.
“It’s clear that the bankers would not have agreed to these co-borrowing facilities without the promise of investment services,” Michael Harwood, a lawyer for the trust, said in court. Bank lawyers argued this week that a judge should dismiss the case before an Oct. 25 trial date.
A lawyer appearing on behalf of the banks, Jean-Marie Atamian, spoke before Harwood and said the trust has failed to show violations of the Bank Holding Company Act. The law bars banks from tying credit or services to the requirement that it provide another form of credit or services.
“At most, the evidence reflects cross-selling and cross-marketing, and there’s nothing inappropriate about that,” said Atamian of Mayer Brown, a law firm that represents Bank of Montreal in the litigation. “There’s no evidence that the banks coerced Adelphia to purchase anything.”
Rigas is serving 12 years in prison, and his son Timothy is serving 15 years after their convictions for looting Adelphia and lying about its finances. The trust is pursuing claims for fraud, aiding and abetting fraud, and aiding and abetting breach of fiduciary duty. The company sold its cable television assets to Time Warner Inc. and Comcast Corp.
The case is Adelphia Recovery Trust v. Bank of America NA, 05-cv-9050, U.S. District Court, Southern District of New York (Manhattan).
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Barnes & Noble Poison Pill Upheld by Delaware Judge
Yucaipa Cos.’ Ron Burkle lost a bid to invalidate Barnes & Noble Inc.’s poison pill anti-takeover defense in his effort to gain more shares and install candidates on the bookseller’s board.
Delaware Chancery Court Judge Leo Strine Jr. decided in an 87-page opinion yesterday that the company’s policy was a justifiable defense mechanism.
“The defendants have shown that their adoption and use of the rights plan was a good, fair, reasonable response to a threat to Barnes & Noble and its stockholders,” Strine said in dismissing the lawsuit.
Yucaipa sued New York-based Barnes & Noble, the largest U.S. bookstore chain, in May, saying Chairman Leonard Riggio and other directors engineered a “self-dealing scheme designed to entrench the Riggio family” and stop Burkle from gaining control of board seats.
Mary Ellen Keating, a spokeswoman for Barnes & Noble, said the company was “pleased” with yesterday’s decision, which helps “protect shareholders against Yucaipa’s efforts to gain control of the company” without paying a premium.
Frank Quintero, a spokesman for Yucaipa, declined to comment on the ruling.
Yucaipa filed a proxy contest to replace three Barnes & Noble board members who are up for re-election next month, including Riggio. Burkle is one of the candidates, along with Stephen Bollenbach, chairman of Los Angeles-based KB Home, and Michael S. McQuary, chief executive officer of Atlanta-based Wheego Electric Cars Inc., Yucaipa said yesterday in its filing with the U.S. Securities and Exchange Commission.
Yucaipa will also seek to boost the number of shares an outsider may acquire to 30 percent from 20 percent, the stake allowed under the poison pill provision.
The case is Yucaipa American Alliance Fund II LP v. Riggio, CA5465, Delaware Chancery Court (Wilmington).
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Sanjay Kumar Loses Appeal of 12-Year Prison Sentence
Former CA Inc. Chief Executive Officer Sanjay Kumar, convicted of leading a $2.2 billion fraud at the company, lost an appeal to have his 12-year prison sentence reduced.
The U.S. appeals court in Manhattan yesterday affirmed the sentence of Kumar, 48, who pleaded guilty in 2006 to charges of conspiracy, fraud and obstruction of justice. Kumar is serving his sentence at a federal prison in New Jersey.
The court also affirmed the conviction of CA’s former top sales executive, Stephen Richards, and ordered him resentenced. Richards was sentenced to seven years for his role in the fraud.
Kumar and several deputies pleaded guilty to inflating revenue by backdating sales contracts. CA, based in Islandia, New York, was known as Computer Associates International Inc. when Kumar ran the company.
In addition to the prison sentence, Kumar was required to sell his 58-foot yacht, two Ferraris and investment accounts under an agreement with prosecutors to pay $50 million in restitution.
The case is U.S. v. Kumar, 06-CR-5482, 2d U.S. Circuit Court of Appeals (Manhattan).
Blackstone Manager’s Father-in-Law Pleads Guilty
Stuart Ross, accused of trying to extort money from his son-in-law, Blackstone Group LP Senior Managing Director David Blitzer, pleaded guilty to attempted grand larceny.
State Supreme Court Justice Bonnie Wittner promised at a hearing in Manhattan yesterday to sentence Ross to probation.
Ross, the father of Allison Blitzer, David Blitzer’s wife, was indicted for grand larceny and attempted grand larceny in 2008. Ross and co-defendant Stuart Jackson, his former lawyer, threatened to ruin David Blitzer’s life unless he paid them as much as $11 million, according to Manhattan prosecutors.
“It’s the path of least resistance,” attorney Matthew Myers, who has represented Ross, said in an interview yesterday after the plea. “It is somewhat of a family issue, so you’re talking about dragging in numerous family members and airing a lot of dirty laundry.”
Ross, who Myers said caught pneumonia in jail, is formally set to be sentenced Oct. 5. Jackson has a court hearing scheduled for Aug. 16 to choose a trial date, prosecutors said.
Christine Anderson, a spokeswoman for Blackstone, didn’t return a call for comment.
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Sands, Singapore Law Group Settle Conference Dispute
Las Vegas Sands Corp.’s Singapore casino resort and a lawyers’ group settled lawsuits over unpaid bills and compensation for a May conference, which marred the opening of the $5.5 billion complex.
The suits will be discontinued as part of an amicable, confidential settlement, Sands unit Marina Bay Sands Pte and IPBA 2010 Pte, the organizer of the Inter-Pacific Bar Association conference, said in a joint statement yesterday.
Marina Bay Sands “regrets the unfortunate incidents that affected the conference held at its facilities,” the statement said. IPBA had claimed that Sands misrepresented its resort as a world-class venue at a time some rooms were unfinished and some facilities were closed. IPBA had been sued for S$641,246 ($470,000) in unpaid bills.
IPBA will receive a discount on its bill, according to two people familiar with the settlement earlier. The lawyers’ group had paid S$200,000 of the S$841,245.75 bill, according to court papers.
“Some of the problems were normal opening difficulties that any property has, particularly one of that size,” Michael Leven, Las Vegas Sands’ chief operating officer, said in a June 9 Bloomberg Television interview in New York. “But we did have a convention of lawyers to start out with, so we knew we were going to have some kind of conversation.”
The cases are Marina Bay Sands Pte Ltd. v. IPBA 2010 Singapore Pte Ltd. S464/2010 and S348/2010 in the Singapore High Court.
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Blagojevich Jury Says It’s Decided on Two Counts
The judge in the trial of Rod Blagojevich said he will tell the jury to continue deliberating after the panel said it reached a decision on two counts, without saying what the verdicts are.
U.S. District Judge James B. Zagel told the former Illinois governor, his lawyers and federal prosecutors that he will instruct the jury to work through each of the other 22 counts until they’ve reached a conclusion on all charges in the corruption trial at Chicago’s federal courthouse.
The twice-elected Democrat’s trial started June 3. The jury of six men and six women has been deliberating since July 28 and yesterday told the court they may be deadlocked.
“We have reached unanimous decision on two counts. We are unable to reach agreement on any of the remaining counts,” they told Zagel in a note yesterday that he read in court.
The jury told the judge they had not been able to decide on any of the 11 pending wire fraud counts, which are punishable by up to 20 years imprisonment.
Zagel, after consulting with defense attorneys and prosecutors, said he would tell the jury they should address each count until they come to a resolution, even if the outcome is that they cannot all agree.
“You should deliberate on the wire fraud counts, to the extent necessary to enable you to decide on those counts,” the judge said he would reply to the panel.
“I learned a long time ago never to guess what a jury’s going to do,” Sam Adam Sr., one of the ex-governor’s defense attorneys told reporters outside the courtroom. “I have no idea what they’re going to do.”
“I think there’s a lot of cautious optimism,” Adam’s co-counsel, Aaron Goldstein, said. “Endless speculation, that’s where we’re at right now.”
The case is U.S. v. Blagojevich, 08-cr-00888, U.S. District Court, Northern District of Illinois (Chicago).
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UniCredit Probed by Madoff Trustee for Legal Claims
A UniCredit SpA unit that invested $1.1 billion of client money in Bernard Madoff “feeder funds” is being probed for possible legal claims by the liquidator for the conman’s business.
An ex-employee of Pioneer Alternative Investment Management in Dublin should be forced to give testimony about the unit’s internal examinations of the funds, trustee Irving Picard said in filings Aug. 11 in U.S. Bankruptcy Court in New York.
The testimony would assist Picard’s “investigation of the role that Pioneer and other third parties may have played in connection with the affairs of” Madoff’s company, the trustee’s lawyer, Marc Hirschfield, said in the filing.
Picard has sued feeder funds and Madoff family members for the return of about $15 billion in fake profit from the fraud. Madoff, 72, pleaded guilty last year and is serving a 150-year sentence for running the largest Ponzi scheme in U.S. history.
Pioneer was formed in 1999 and as of June 30 managed more than 2.5 billion euros ($3.21 billion), according to its website.
Renato Vichi, a spokesman for Milan-based UniCredit, couldn’t be reached by phone and didn’t return an e-mail seeking comment.
Picard asked U.S. Bankruptcy Judge Burton Lifland to request an order from the High Court in London forcing testimony from the former Pioneer employee who lives in the city, according to the filing.
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Presidential Life Wins Dismissal of Ex-Chief’s Suit
Presidential Life Corp. won dismissal of a lawsuit filed by former Chairman and Chief Executive Officer Herbert Kurz, who wants to replace the board and consider selling the company.
Kurz sued the insurer last month in Delaware Chancery Court contending the company’s “advance notice bylaw provision” would unfairly block his director nominees at the Aug. 18 stockholders’ meeting.
After three independent proxy advisory firms recommended that shareholders vote for the company’s slate, Presidential Life dropped its opposition to Kurz’s picks and Judge Donald Parsons Jr. yesterday closed the case.
“Whereas the company will accept Mr. Kurz’s nomination” for directors, “this action is dismissed on the grounds that it is moot,” Parsons wrote.
The current company leadership remains focused “on creating long-term value for all stockholders,” Presidential Life Chairman William M. Trust Jr. said in a statement.
The case is Kurz v. Presidential Life, CA5659, Delaware Chancery Court (Wilmington).
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HP Shareholders Sue Hurd, Board Over Resignation
A Hewlett-Packard Co. investor sued former Chief Executive Officer Mark Hurd and the board of directors, claiming disclosures surrounding his resignation led to a drop in the shares.
“HP lost significant credibility and the market punished HP (and its shareholders)” following the Aug. 6 announcement of Hurd’s departure, according to the complaint filed Aug. 10 in state court in Santa Clara County, California, by a Massachusetts-based pension fund.
Hurd resigned as Chairman and CEO after an investigation found that he had a personal relationship with a contractor who received inappropriate payments from HP, the world’s biggest maker of personal computers and printers. HP shares slumped following Hurd’s departure, erasing $9 billion in market value, according to the lawsuit.
Chief Financial Officer Cathie Lesjak, who succeeded Hurd as interim CEO, is also a defendant in the so-called derivative suit filed by the Brockton Contributory Retirement System on behalf of Palo Alto, California-based HP.
Gina Tyler, a spokeswoman for HP, declined to comment on the lawsuit or on insider-trading allegations lodged by the fund against Hurd and Lesjak.
HP ascribed Hurd’s resignation to results of a corporate investigation of a sexual harassment complaint lodged against him. He had led the company for five years.
Mary Blasy, a lawyer for the pension fund with San Diego’s Scott+Scott LLP, declined to comment on the case or upon the insider-trading allegations.
The case is Brockton Contributory Retirement System v. Andreessen, 110cv179356, Superior Court of California, County of Santa Clara.
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Capmark Creditors Ask to Sue Citigroup, Goldman Sachs
Capmark Financial Group Inc.’s creditors sought court permission to sue Citigroup Inc. and Goldman Sachs Group Inc. over a $1.5 billion loan made to the commercial property lender.
The loan provided “little to no value” to Capmark and merely ensured the lenders were paid ahead of other creditors, unsecured creditors said in a papers filed Aug. 10 in U.S. Bankruptcy Court in Wilmington, Delaware.
The lack of assets available to pay unsecured creditors “is the direct result of this troubling transaction,” the committee representing the creditors said in the filing. The creditors are seeking court permission to sue on behalf of the company.
Andrea Raphael, a spokeswoman for Goldman, and Alexander Samuelson, a Citigroup spokesman, declined to comment.
Capmark, based in Horsham, Pennsylvania, filed for bankruptcy Oct. 25, blaming falling property values and a drop in lending. Since filing for bankruptcy, the company has sold most of the assets.
The case is In re Capmark Financial Group Inc., 09-13684, U.S. Bankruptcy Court, District of Delaware (Wilmington).
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Credit Suisse Clients Questioned by German Prosecutor
Credit Suisse Group AG’s clients in Germany are being questioned by prosecutors as part of a probe into allegations that employees of Switzerland’s second-biggest bank may have helped customers evade taxes.
About 1,500 letters with questionnaires were sent to Credit Suisse clients who had voluntarily declared their hidden accounts, Nils Bussee, a spokesman for the Dusseldorf prosecutors’ office said by phone yesterday. The recipients are being treated as witnesses in the case and are obliged to respond, he said, adding the office already received some answers.
German authorities earlier this year obtained a disk with data that prompted probes against some 1,100 customers of the Zurich-based bank. German offices of Credit Suisse were searched last month by the Dusseldorf investigators, who said they seized “substantial” amounts of data.
Germans with undeclared accounts began coming forward to declare their income after Germany said it would buy stolen data on Swiss bank accounts. More than 10,000 voluntary declarations were made in six weeks through the middle of March, according to a survey of finance authorities in Germany’s 16 states.
Credit Suisse spokesman Hans-Peter Waefler declined to comment yesterday.
Dusseldorf prosecutors are investigating 175 cases, including some unidentified Credit Suisse employees. The rest of the cases were referred to other prosecutors based on where the suspects live.
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Sasol Denies Propylene Antitrust Breach Allegations
Sasol Ltd., the largest producer of motor fuels from coal, denied breaching competition laws in the propylene market in South Africa and will defend itself against claims by antitrust authorities if an agreement isn’t reached.
The Competition Commission said in a statement yesterday it referred complaints of collusion and excessive pricing in the polymers market against Sasol Chemical Industries Ltd. and Safripol Ltd. to the Competition Tribunal. The commission recommended an administrative penalty of 10 percent of SCI’s annual turnover for each of the alleged breaches, Sasol said.
“South African propylene and polypropylene prices are comparable to international prices and hence Sasol believes that there is no legitimate basis for the Competition Commission’s excessive pricing allegations,” the company said.
Sasol already agreed this year to pay 251 million rand ($34 million) and sell five fertilizer blending plants after breaking anti-cartel rules. In 2008, it was fined 318 million euros ($407 million) by the European Union for its part in a wax cartel. South African authorities are probing other company operations.
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