Aug. 25 (Bloomberg) -- Lloyd’s of London underwriters are attempting to convince a U.S. judge that financier R. Allen Stanford conspired to steal money so they can avoid paying attorneys to defend him on criminal fraud charges.
U.S. District Judge Nancy Atlas yesterday began hearing evidence in Houston federal court in a three-day civil trial conducted without a jury in Stanford’s lawsuit against the London-based insurers.
Stanford, charged with leading a $7 billion fraud scheme, and three former colleagues who are now co-defendants in his criminal case, claim they can’t afford defense lawyers without access to $100 million in liability insurance Lloyd’s sold to Stanford Financial Group. Lloyd’s has denied their claim, citing a guilty plea by Stanford’s former finance chief and reports by forensic accountants who’ve probed Stanford’s books.
“Basically, the underwriters sought to convict their own insureds,” Lee Shidlofsky, a lawyer for Stanford’s colleagues, said in an e-mail earlier this year. “And by doing so, underwriters undermined the very essence of the protections afforded by a directors’ and officers’ policy.”
Stanford and his co-defendants are charged with 21 criminal counts of deceiving investors about the security and oversight of $7 billion of certificates of deposit issued by Antigua-based Stanford International Bank Ltd.
Stanford will be tried before a federal court jury in Houston in January. The other defendants will be tried together at a later time. During the proceedings yesterday, Dan Cogdell, a lawyer for co-defendant Laura Pendergest-Holt, said his client had reached a settlement with Lloyd’s. Pendergest-Holt was Stanford’s chief investment officer. Cogdell declined to disclose the terms of the accord.
The criminal case is U.S. v. Stanford, 09cr342, U.S. District Court, Southern District of Texas (Houston). The SEC case is Securities and Exchange Commission v. Stanford International Bank, 09cv298, U.S. District Court, Northern District of Texas (Dallas).
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WaMu Must Face Lawsuit During Reorganization Hearing
Washington Mutual Inc., the former owner of the biggest U.S. bank to fail, must face a trial over who owns $4 billion in low-ranking debt known as trust-preferred securities before it can end its bankruptcy.
U.S. Bankruptcy Judge Mary F. Walrath in Wilmington, Delaware scheduled a trial of an investor lawsuit to begin on Nov. 1, the first day of a so-called confirmation hearing on the company’s reorganization proposal. Lawyers for WaMu and investors, including Black Horse Capital LP and Lonestar Partners LP, agreed the issue must be resolved before WaMu can end its bankruptcy and distribute more than $6 billion to creditors.
As the confirmation hearing continues in early November, other critics of WaMu’s plan may want to use any facts or arguments presented by the investors to attack the reorganization proposal, Walrath said. Shareholders claim that the holding company’s bank should never have been seized by regulators and sold to JPMorgan Chase & Co. in 2008.
In July, a group of investors sued JPMorgan over the way the trust-preferred securities were converted from debt-like investments into equity. The securities are part of a settlement among WaMu, JPMorgan and federal regulators.
The case is In Re Washington Mutual Inc., 08-12229, U.S. Bankruptcy Court, District of Delaware (Wilmington).
Michael Douglas Lawyer Calls Ex-Wife Greedy in Court
Academy Award-winner Michael Douglas and his ex-wife’s lawyers traded accusations of greed while fighting over the earnings from the actor’s reprise as the avaricious Gordon Gekko in “Wall Street: Money Never Sleeps.”
Diandra Douglas sued in June, saying she was entitled to 50 percent of the actor’s earnings from the 2010 sequel to the 1987 “Wall Street” film under the couple’s 1998 settlement agreement that provides her with 50 percent of his interest in films, television and stage work created during their marriage - - as well as spinoffs of that work.
Marilyn Chinitz, the actor’s attorney yesterday argued that didn’t include new projects such as “Wall Street: Money Never Sleeps,” which is set to open Sept. 24. She said Douglas wasn’t a producer of the 1987 film and that he gave his wife what was she was entitled to receive under his contract 12 years ago.
The Douglases themselves didn’t appear in the Manhattan courtroom. Their attorneys faced off before state Supreme Court Acting Justice Matthew F. Cooper, who first must decide whether the case should be heard in New York or sent back to Santa Barbara, California, where the settlement was executed.
“Mr. Douglas is seeking to shirk his financial responsibility that was entered into when he signed this contract,” Diandra Douglas’s attorney, Nancy Chemtob, said.
Douglas won an Oscar for his role as Gordon Gekko, a cut-throat corporate raider who preached that “Greed, for lack of a better word, is good.” Gekko, loosely based on convicted arbitrager Ivan Boesky, symbolized the excesses of Wall Street in the 1980s. The new film, with the same director, Oliver Stone, picks up with Gekko’s release from prison.
The case is Diandra M. Douglas v. Michael Douglas, 350044/2010, New York state Supreme Court (Manhattan).
Bank of New York Mellon’s Ivy Denies Clients Misled
Bank of New York Mellon’s Ivy Asset Management LLC and two of its executives denied they misled clients about investments tied to convicted Ponzi scheme operator Bernard Madoff and asked a judge to dismiss the claims made by New York Attorney General Andrew Cuomo.
Ivy, BNY Mellon’s New York-based investment adviser, withheld damaging information about Madoff so the firm could make millions of dollars in fees, Cuomo said when he sued Ivy in May. He also sued former Ivy Chief Executive Officer Lawrence Simon and ex-Chief Investment Officer Howard Wohl. The complaint was filed in New York state Supreme Court.
In their answers filed Aug. 23, Simon, Wohl and Ivy asked for a judgment in their favor, dismissal of all claims, and payment of legal fees.
Simon, Wohl and Ivy “had no duty to disclose the information that the complaint alleges was not disclosed,” the defendants wrote. They also claim they “acted at all times in good faith and without any fraudulent intent.”
From 1998 to 2008, Ivy was paid more than $40 million to give advice and conduct due diligence for clients with large Madoff investments, Cuomo claims. He said internal e-mails revealed that even after the company learned Madoff wasn’t investing client funds as promised, Ivy kept silent to keep from losing the fees. Ivy’s clients lost more than $227 million, Cuomo said.
The case is New York v. Ivy, 450489/2010, New York state Supreme Court (Manhattan).
Citigroup Ordered to Pay $1 Million to Muni-Bond Fund Clients
Citigroup Inc. was ordered by brokerage-industry arbitrators to pay more than $1 million to three investors in its municipal-bond funds.
The clients, demanding more than $2 million, had accused the New York-based bank’s global markets unit of breaching fiduciary duty and other misconduct tied to their investments in funds known as MAT Five and MAT Three, according to an Aug. 23 Financial Industry Regulatory Authority award. The three-member arbitration panel didn’t explain its reasoning for the ruling.
“The fund was represented by Citigroup to its brokers as a fixed-income alternative,” Ryan Bakhtiari, an attorney for the claimants at law firm Aidikoff, Uhl & Bakhtiari, said in a statement. “In truth, evidence at the hearing demonstrated that MAT was a risky investment.”
The ruling “is inconsistent with other decisions and we are disappointed that these claims were not dismissed,” Citigroup spokesman Alexander Samuelson said.
In May, arbitrators dismissed a $1.5 million claim brought by another investor in the funds, according to decisions posted on Finra’s website. In two other rulings that month, arbitrators ordered the company to pay plaintiffs a total of more than $2 million.
McAfee Shareholder Sues to Block Takeover by Intel
A McAfee Inc. investor sued to block Intel Corp.’s proposed $7.68 billion takeover of the maker of security software.
Directors of McAfee, the second-biggest maker of security software, have a duty to get the best price for shareholders, Natalie Gordon said Aug. 20 in a Delaware Chancery Court complaint in Wilmington.
“Both the value to McAfee shareholders contemplated in the merger and the process by which defendants propose to consummate the merger are fundamentally unfair” to shareholders, Gordon said in the complaint, asking to pursue the case on behalf of all McAfee shareholders.
Intel’s $48-a-share cash offer, announced Aug. 19, represents a 60 percent premium over McAfee’s closing price the day before.
Both boards unanimously approved the deal, the biggest acquisition by Intel, the world’ largest chipmaker. Both companies are based in Santa Clara, California.
The case is Gordon v. McAfee Inc., 5752, Court of Chancery, State of Delaware (Wilmington).
Santander Analyst Made Insider Trades Before BHP Bid, SEC Says
A Banco Santander SA analyst and an accomplice illegally reaped almost $1.1 million with insider trades before BHP Billiton Ltd.’s $39 billion dollar takeover bid for Potash Corp. of Saskatchewan Inc., U.S. regulators said.
Juan Jose Fernandez Garcia, 35, and Luis Martin Caro Sanchez, 36, used accounts at the same U.S. brokerage to buy more than $61,000 in Potash stock options days before BHP’s offer became public Aug. 17, the Securities and Exchange Commission said in documents filed Aug. 20 to federal court in Illinois. Fernandez Garcia heads the bank’s European equity derivatives research, according to the agency’s complaint.
The men “tried to move off-shore highly suspicious trading profits made just a few days before,” said Daniel Hawke, who leads a group at the SEC that polices market abuse, in a statement August 23. “We will act swiftly and decisively to deny wrongdoers the profits of their illegal activity.”
Messages left after work hours for Santander spokeswoman Angela Roche weren’t immediately returned. The SEC said it doesn’t know of lawyers representing the defendants. An e-mail to Fernandez Garcia was answered with an automated reply saying he will be out of office until Sept. 9. A phone number for Caro Sanchez couldn’t immediately be found.
Potash shares jumped 28 percent on the day the Saskatoon, Saskatchewan-based company said it had rejected a takeover offer from BHP, the world’s largest mining company. Melbourne-based BHP took its $130-a-share cash bid directly to Potash investors.
In its complaint, the SEC asserted that the two defendants had “material, nonpublic information” about BHP’s proposal, without specifying how they obtained it. A judge temporarily froze their accounts, according to the agency’s statement.
The case is Securities and Exchange Commission v. Garcia, 10-C-5268, U.S. District Court, Northern District of Illinois, (Chicago).
FedEx Sues Cuomo for Overstepping Authority in Probe
FedEx Corp. sued New York Attorney General Andrew M. Cuomo, claiming he is overstepping his authority in a state investigation of the company’s rates, routes and services.
FedEx, the world’s second-largest package-delivery firm, said in a suit filed in federal court in Manhattan yesterday that it is regulated by the federal government. It asked for a court order barring Cuomo from continuing the investigation.
“FedEx is therefore faced with an ongoing investigation and civil prosecution that is beyond the right, power, or duty of the State Attorney General to pursue and prosecute,” the firm said.
John Milgrim, a spokesman for Cuomo, said in an e-mail, “We’re reviewing the filing which we have just received.”
Cuomo notified FedEx in June that his office was investigating the company’s insurance policies and coverage for items it ships. His office served a subpoena upon the firm on June 8, seeking information about FedEx’s “rates routes, prices and or services,” the company said in its complaint. FedEx has until next week to respond to the subpoena.
In its suit, FedEx said Cuomo’s office is investigating “repeated fraudulent or illegal acts” committed by the freight company and “persistent fraud or illegality.” Cuomo also seeks information about FedEx’s agreements with any insurance companies related to liability insurance for items shipped through the freight company, the company said.
The firm seeks a court order blocking Cuomo from pursuing the investigation and says it continues to be “irreparably harmed” by the disruption of business and adverse publicity from the Attorney General’s probe.
The case is Federal Express Corp. v. Andrew Cuomo, 10-CV-6343, U.S. District Court, Southern District of New York (Manhattan).
Pactiv Investor Sues Hefty Bag Maker Over Takeover
Reynolds Group Holding Ltd.’s takeover of Pactiv Corp., the maker of Hefty bags, was challenged in a lawsuit by a trade union pension plan calling the deal “fundamentally unfair” to Pactiv shareholders.
Pactiv, Chairman Richard Wambold, seven board members, Rank Group Investments Ltd. and its Reynolds Group unit were sued yesterday in Illinois state court in Chicago by a plumbers and pipe-fitters union plan.
The $4.5 billion transaction was announced by Pactiv on Aug. 17. The per-share price of $33.25 represents a 39 percent premium over its $23.97 May 14 closing price before the disclosure of negotiations. The acquiring Rank Group unit, manufacturer of Reynolds Wrap foil, is also taking on about $1.5 billion in debt.
Pactiv had “excellent prospects for future growth,” according to the complaint, which called the agreed price unfair. The union plan said company directors breached their fiduciary duty to shareholders by undervaluing the company.
The pension fund seeks an order blocking the transaction until Pactiv’s directors obtain the best possible price for shareholders. They also want the court to certify the injured shareholders as a group for purposes of the lawsuit.
Matthew Gonring, a spokesman for Lake Forest, Illinois-based Pactiv, declined to comment.
Petra Beck, a Winterthur, Switzerland-based spokeswoman for Reynolds couldn’t immediately be reached for comment. The company’s media relations department didn’t immediately reply to an e-mailed request for comment.
The case is Local Union 373 U.A. Welfare Pension & Annuity Funds v. Wambold, 10CH36437, Cook County, Illinois, Circuit Court, Chancery Division (Chicago).
Xerox’s $69 Million Settlement of ACS Suits Approved
Xerox Corp., the world’s largest maker of high-speed color printers, won final approval for the $69 million settlement of a shareholder lawsuit challenging its $6 billion takeover of Affiliated Computer Services Inc.
ACS investors sued in Delaware Chancery Court and in state court in Texas alleging directors of the student-loan processing company wrongfully agreed to allow ex-Chairman Darwin Deason to collect more than $1 billion in the buyout. The settlement resolves both the Delaware and Texas claims.
“$69 million is a high monetary benefit” for ACS investors, Delaware Chancery Court Judge Donald Parsons Jr. said yesterday in giving final approval to the accord. He also approved $17.2 million in legal fees for investors’ lawyers.
Lisa Weaver, a spokeswoman for Norwalk, Connecticut-based Xerox, didn’t immediately return a call for comment on the settlement’s approval.
Under the agreement, according to court papers, ACS will pay $56.1 million and Deason will pay $12.8 million, some subject to insurance payments. Former ACS stockholders who file claims will share what’s left of the settlement fund after legal fees and administrative expenses, according to court papers.
The Delaware cases are Sheet Metal Workers Local 28 v. Affiliated Computer Services, CA4933, and New Orleans Employees’ Retirement System v. Deason, CA4940 (Consolidated), Delaware Chancery Court (Wilmington).
Roche, Ranbaxy Settle Dispute Over Generic Valcyte Antiviral
Roche Holding AG settled a patent-infringement lawsuit over Ranbaxy Laboratories Ltd.’s efforts to sell a generic version of an antiviral medicine that treats eye infections in transplant patients and people with AIDS.
The settlement was disclosed in a filing asking a U.S. appeals court in Washington to remand the case so it can be dismissed at the lower court. Yesterday, the request was granted. Terms weren’t immediately available, and a spokesman for Basel, Switzerland-based Roche declined to comment.
Roche had appealed a judge’s ruling that Ranbaxy’s drug doesn’t infringe a patent that expires in 2015. Valcyte, which contains valganciclovir hydrochloride, and a related drug called Cymevene, had sales of 296 million Swiss francs ($287 million) in the first half, Roche said July 22.
U.S. District Judge Freda Wolfson in Trenton, New Jersey, ruled last year that the generic version by Ranbaxy would have a different crystalline form of Valcyte than what is covered by Roche’s patent. She upheld the validity of the patent. The settlement is contingent on Wolfson vacating her decision.
Ranbaxy, based in Gurgaon, India, near New Delhi, is majority-owned by Japan’s Daiichi Sankyo Co.
The case is Roche Palo Alto LLC v. Ranbaxy Laboratories Ltd., 06-2003, U.S. District Court for the District of New Jersey (Trenton).
Colgan Lawsuits on 50-Death Crash Lead to 2 Settlements
Two families agreed to settle wrongful-death lawsuits over the crash of Continental Airlines Connection Flight 3407, which killed 50 people.
The families of John G. Roberts III and Darren Tolsma reached the first accords stemming from the Feb. 12, 2009, crash outside Buffalo, New York, killing all 49 people aboard and one on the ground, court papers show. Regional carrier Pinnacle Airlines Corp. operated the flight through its Colgan Air unit.
Tolsma, 45, was an engineer at Northrop Grumman Corp. on classified military projects. He and his wife, Robin, had two children. Roberts, 48, was a vice president at Deloitte Consulting India in Mumbai, according to his lawyer.
“Some families, when they receive a significant offer, would choose to take it and move on,” said Tolsma’s attorney James Kreindler of Kreindler & Kreindler LLP. “Most of the families will hang in and go the distance until a trial to get the sort of numbers we think are appropriate.”
Settlement terms are confidential. A trial in the other cases is set for March 2012 in federal court in Buffalo.
The families claim corporate decisions caused Captain Marvin Renslow, 47, and co-pilot Rebecca Shaw, 24, to make a series of mistakes that doomed the flight from Newark, New Jersey.
A spokeswoman for Houston-based Continental, Julie King, declined to comment on the settlements. Joe Williams, a spokesman for Pinnacle, based in Memphis, Tennessee, said in an e-mail that the company is “pleased that these cases have been amicably resolved.”
The families of Tolsma and Roberts also sued Bombardier Inc., maker of the Dash 8 Q400 plane. John Arnone, a spokesman for Montreal-based Bombardier, declined to comment.
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