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Bank of America, Hevesi, Zurich in Court News

A former Bank of America Corp. computer programmer was accused in a lawsuit by the bank of stealing 21 confidential files the day before he was to be fired.

Rao Chalasani e-mailed the files to himself the night before the company was to announce it was firing 400 people, including him, Bank of America said in a complaint filed yesterday in federal court in Manhattan. Chalasani worked in New York for the bank’s global markets portfolio management group, according to the complaint.

“It appears that defendant stole key documents from the company with the intent of causing harm to Bank of America’s business and reputation,” the bank said.

Bank of America is seeking a court order requiring Chalasani to return the files, plus unspecified damages. The files included profit-and-loss figures, current securities trading positions and company risk assessments, according to the bank.

Chalasani didn’t return a voice-mail message left yesterday at his home in New Jersey.

On Sept. 30, as part of a security review of large files sent by employees outside the company, Bank of America discovered that on Sept. 20 at 9:32 p.m., the night before the firings were to be announced, Chalasani sent the 21 files from his company e-mail address to a personal address, the bank claimed.

The case is Banc of America Securities LLC v. Chalasani, 1:10-CV-7681, U.S. District Court, Southern District of New York (Manhattan).


Ex-New York Comptroller Pleads Guilty in Pension Probe

Former New York Comptroller Alan Hevesi pleaded guilty to a felony corruption charge in Attorney General Andrew Cuomo’s probe of “pay to play” at the state pension fund he managed from 2003 to 2006.

Hevesi, 69, admitted yesterday to a second-degree charge of receiving reward for official misconduct before Justice Lewis Bart Stone in state Supreme Court in Manhattan.

Hevesi said in court that he gave preferential treatment to Markstone Capital Partners, approving $250 million in pension fund investments in exchange for almost $1 million in gifts, including $75,000 in travel expenses, $380,000 in sham consulting fees for a lobbyist, and more than $500,000 in campaign contributions.

“I deeply regret my conduct, and I sincerely and deeply apologize to the people of the state of New York, the court and my family,” Hevesi said.

Hevesi, a Democrat, agreed to cooperate in Cuomo’s probe and the judge said he may be sentenced to 1 1/3 years to 4 years in prison or as little as no time at all. Sentencing is set for Dec. 16. Stone freed Hevesi on his own recognizance.

Henry “Hank” Morris, Hevesi’s former top political consultant, is awaiting trial on charges he corrupted the investment process to benefit money managers who made campaign contributions and politically connected placement agents who received lucrative fees, including himself.

Hevesi said yesterday he knew Morris was “a paid placement agent in connection with Common Retirement Fund investments” and that Morris steered fund investments “to friends and political associates.”

In all, about $5 billion of the New York state pension fund’s $9.5 billion in alternative investments made in the 2003-2007 period were tainted by kickbacks, according to the U.S. Securities and Exchange Commission, which is also investigating.

For more, click here.

Zurich Will Pay $455 Million in Farmers Settlement

Zurich Financial Services AG, Switzerland’s largest insurer, will pay $455 million to settle a U.S. class-action lawsuit related to its Farmers Group unit and incur attorneys’ fees of as much as $90 million.

The settlement will cut net income by $295 million in the third quarter, the Zurich-based company said yesterday in a statement. Total post-tax charges related to the settlement will cut shareholders’ equity by about 2.40 Swiss francs ($2.49) a share, the insurer said.

The settlement will resolve all claims, dating back to 1999, in an August 2003 lawsuit that challenged management services fees paid by the Farmers Exchanges to Farmers Group Inc., a unit of Zurich Financial. As many as 13 million policyholders may qualify for an average payout of about $35, the company said.

“It is bad news of course, but frankly it is part of the business when being active in a market like the U.S.,” Marc Effgen, a London-based analyst with Helvea commented via e-mail.

The company started a mediation process late last year, leading to yesterday’s settlement, Zurich Financial Chief Executive Officer Martin Senn said on a conference call yesterday.

For more, click here.

Lehman U.K. Unit Loses $1.1 Billion Suit Against Other Unit

A Frankfurt court yesterday rejected an 802 million-euros ($1.1 billion) claim Lehman Brothers International Europe, the bank’s London-based unit, made against Lehman Brothers Bankhaus AG in Germany.

The Frankfurt Regional Court issued its ruling in the case yesterday without specifying its reasons, Joachim Kuehne, a lawyer for the administrator of Lehman Brothers Bankhaus, said in an interview. The ruling affirms the German affiliate’s previous rejection of a claim by LBIE, the London-based unit of Lehman Brothers Holdings Inc., seeking the return of what it said were client funds, LBIE’s U.K. administrator PricewaterhouseCoopers said in a statement on its website.

“The U.K. unit argued that we were holding a trust for them,” Kuehne said. “We denied that and the court apparently followed our arguments and fully rejected the case.”

Lehman International, which ran Lehman’s London-based prime brokerage, had about 3,500 hedge funds and other asset managers as clients. The U.K. unit’s failure froze at least $65 billion in brokerage assets and clients are still trying to recover funds.

The U.K. administrators “are disappointed with the court’s decision and expect to make an appeal upon receipt of the written grounds for the judgment,” PwC said in the statement. “Without a successful appeal there is a low likelihood of any financial recovery.”

The case is LG Frankfurt, 23 O 385/09.

For the latest verdict and settlement news, click here.


Ex-Prosecutor Says Rajaratnam Wiretapped After Probe Stalled

The criminal insider-trading probe of Galleon Group co-founder Raj Rajaratnam had stalled before a federal judge authorized wiretaps in March 2008, a former federal prosecutor who worked on the case said in court.

“By the time that we applied for that wiretap in March 2008, the investigation had been going on for more than a year and had certainly produced a lot of phone records,” said Lauren Goldberg, the former assistant U.S. Attorney in Manhattan who oversaw the preparation of the wiretap application. “But it’s fair to say that we’d hit a bit of a wall and we weren’t going to be making any progress unless we got up on a wire.”

She testified that prosecutors met at least three times with the U.S. Securities and Exchange Commission, which had a parallel investigation of Rajaratnam, to discuss the probe.

U.S. District Judge Richard Holwell in New York concluded a four-day hearing yesterday over defense claims that the government misled a different judge into authorizing the wiretaps in March 2008.

Rajaratnam’s lawyers are seeking to show that U.S. agents illegally wiretapped his communications and that the recordings can’t be used in his criminal insider-trading trial. Holwell said he will rule on the legality of the wiretaps, which are the centerpiece of the biggest insider-trading prosecution in history, after both sides submit additional briefs to the court.

The prosecution is the first in which the government has used secret intercepts of telephone calls to investigate and prosecute insider trading.

Rajaratnam, 53, is the central figure in an alleged insider-trading scheme that prosecutors claim netted millions of dollars in illegal profits. He denies wrongdoing.

In the hearing yesterday, Goldberg was asked by Assistant U.S. Attorney Avi Weitzman about the purpose of the government’s wiretaps.

“The principal objective here was to identify the other individual investors in the insider-trading activity and to obtain incriminating evidence of that activity,” she said.

Rajaratnam claims that prosecutors also misled the judge about the background of Roomy Khan, an ex-Intel Corp. executive whose disclosures prompted the investigation. Had prosecutors been more forthcoming about Khan’s criminal record and other parts of her history, the wiretaps wouldn’t have been approved, Rajaratnam’s lawyer, John Dowd, has argued.

The case is U.S. v. Rajaratnam, 09-cr-01184, U.S. District Court, Southern District of New York (Manhattan).

For more, click here.

Moody’s Again Seeks Dismissal of Calpers’s $1 Billion Suit

Moody’s Investors Service Inc., Standard & Poor’s and Fitch Ratings Ltd. asked a second time for dismissal of the California Public Employees’ Retirement System’s $1 billion lawsuit over their risk assessments.

The ratings companies claim Calpers, the biggest U.S. pension fund, is trying to block their free-speech rights, according to filings in state court in San Francisco.

Calpers sued the three major bond-rating companies in July 2009 for losses it said were caused by their “wildly inaccurate” risk assessments on three structured investment vehicles. The so-called SIVs, after receiving the companies’ highest ratings in 2006, collapsed in 2007 and 2008, according to the Calpers complaint.

A judge refused to dismiss the case in May. The ratings companies argued in an Oct. 4 filing that the case should be thrown out under a California law intended to block baseless lawsuits by parties trying to stop critics from speaking out about issues of public concern.

“Requiring rating agencies to defend against meritless claims brought by any of the countless and powerful investors in SIVs” or any other issuer would “materially inhibit the free flow of the important information the defendants provide,” lawyers for Moody’s and Standard & Poor’s said in the filing.

The case is California Public Employees’ Retirement Systems v. Moody’s Corp., 09-490241, Superior Court of California, County of San Francisco.


Symphony Capital Sued by Former Fund Manager Over Bonus

Symphony Capital Partners Ltd., the Singapore private equity firm that sold its stake in hospital operator Parkway Holdings Ltd. in 2008, was sued by a former partner who claims he was deprived of a share of the profit.

Sanjay Sehgal, who left Symphony in mid-2005 after almost 10 years with the firm, claims in his complaint he’s entitled to a $4.4 million bonus, which includes a share of the profit from the sale to Parkway. A hearing of the case began in Singapore’s High Court yesterday.

Sehgal’s bonus was rightfully reduced by 60 percent, according to the terms of his contract, Symphony, whose management team founded London-listed Symphony International Holdings Ltd., said in court documents. Symphony Capital had offered him $1.3 million, to be paid in June, ten years after the fund that originally invested in Parkway closed.

Symphony Chairman Anil Thadani asked Sehgal to sign a release which had “arbitrary, unreasonable and draconian” terms before the $1.3 million bonus would be paid, according to the lawsuit. Sehgal refused and sought to limit the terms of the release, he said.

Thadani and Sehgal declined to comment.

The case is Sehgal Sanjay Kumar v Symphony Capital Partners Ltd. S625/2009 in the Singapore High Court.

For more, click here.

EU to Review Lawsuits for Antitrust, Consumer Complaints

The European Union will consider plans to allow group lawsuits for antitrust violations and consumer complaints, while stopping short of endorsing U.S.-style class-action complaints.

Combining individual lawsuits into a group or “collective redress” claim would save legal costs and speed up the judicial process, three EU commissioners said in a document obtained by Bloomberg News.

The EU must avoid “the risk of abusive litigation” that is built into U.S. law, according to the document to be presented by Justice Commissioner Viviane Reding, Antitrust Commissioner Joaquin Almunia and Consumer Commissioner John Dalli at a meeting next week. “Such abuses have occurred in the U.S.” because there are “strong economic incentives for parties to bring a case to court.”

Neelie Kroes, Almunia’s predecessor as competition commissioner, championed group lawsuits as a way to compensate victims of illegal monopolies and cartels. Such lawsuits, in addition to fines that can reach millions of euros, might help victims recover losses and deter antitrust violations, she argued.

The latest EU proposals could expand on Kroes’s plans, allowing consumers to possibly seek damages for wider “illegal business practices.” The document will be the basis of discussions next week on whether to start a formal consultation to draft legislation on the issue.

For more, click here.

For the latest trial and appeals news, click here.

New Suits

Illinois Attorney General Files Suit Against Enbridge

Illinois Attorney General Lisa Madigan sued Enbridge Energy Partners LP over the company’s Sept. 9 oil leak in Romeoville, Illinois.

Madigan and Will County prosecutor James Glasgow filed the eight-count complaint yesterday at the Illinois courthouse in Joliet, southwest of Chicago, seeking the imposition of fines and financial responsibility for the cleanup.

“Enbridge must be held accountable for all of the environmental and public health impacts of this oil spill,” Madigan said in a statement announcing the lawsuit.

The case was filed more than three weeks after the Sept. 9 pipeline rupture spilled about 6,100 barrels of oil in Romeoville, 30 miles (48 kilometers) southwest of Chicago. The 34-inch line runs from Superior, Wisconsin, to Griffith, Indiana, according to Enbridge’s website.

Enbridge restarted Line 6A on Sept. 17. The company accounts for about 11 percent of U.S. crude imports, according to its website, and the line that ruptured can carry 670,000 barrels of oil a day, equal to more than one-third of Midwest imports.

Gasoline in the Chicago spot market rose as much as 10 percent after the Sept. 9 closure on speculation that refiners would have to cut output, leading to tighter supply.

Enbridge has completed “nearly all” of the action items required by the U.S. Environmental Protection Agency, Gina Jordan, an Enbridge spokeswoman, said in an e-mailed statement. Madigan is “simply protecting the state’s interests” to ensure that the company will follow through on cleanup, she said.

The case is People of the State of Illinois v. Enbridge Energy LP, 10CH06266, in the Will County, Illinois, Circuit Court, Chancery Division (Joliet).

Hypercom Sues VeriFone Over $290 Million Buyout Bid

Hypercom Corp., a maker of electronic-payment software, sued rival VeriFone Systems Inc. over disclosure of VeriFone’s unsolicited $290 million cash buyout offer.

Hypercom’s board rejected San Jose, California-based VeriFone’s $5.25-a-share bid after the largest maker of electronic-payment equipment made its offer public Sept. 24. Hypercom sued VeriFone in Delaware Chancery Court in Wilmington for violating a confidentiality agreement between the companies.

“Public disclosure of the fact that Hypercom may be subject to an acquisition will irreparably damage Hypercom’s ability to attract and retain qualified employees,” Hypercom’s lawyers said in the Sept. 23 suit. The complaint was filed under seal and made public Oct. 6 at the request of Bloomberg News.

VeriFone, best known for having its credit-card payment devices in New York City taxi cabs, wants Hypercom to expand its European business, analysts say. The offer was 24 percent higher than Hypercom’s closing stock price on Sept. 23.

VeriFone spokesman Pete Bartolik said in a telephone interview he wasn’t familiar with the suit and couldn’t immediately comment. Pete Schuddekopf, a Hypercom spokesman, didn’t immediately return a call for comment.

Hypercom is asking Chancery Judge Travis Laster to bar VeriFone from pushing ahead with its “hostile offer,” according to the suit.

The case is Hypercom Corp. v. VeriFone Systems Inc., 5845, Delaware Chancery Court (Wilmington).

Remy International Sued by Investor Over Stock Swap

Remy International Inc., the auto-parts maker that emerged from bankruptcy protection in 2007, was sued by a shareholder challenging a planned exchange of preferred stock for common shares.

JB Capital Partners LP, owner of an undisclosed number of common shares, contends Pendleton, Indiana-based Remy will wrongly dilute its holdings by the exchange, according to court papers.

“The exchange offer is blatantly unfair” and the company has “failed to disclose material information” concerning the valuation process, JB lawyers say in a complaint filed yesterday in Delaware Chancery Court in Wilmington.

Remy said in a Sept. 29 statement it would provide newly issued shares of common stock for all outstanding shares of Series A and Series B preferred stock, at the equivalent of $1,000 a share plus unpaid dividends. Remy valued the common stock at about $9 a share, “$5.00 less than the price at which Remy’s stock traded at prior to announcement,” according to court papers.

Fred Knechtel, a spokesman for Remy, declined to immediately comment.

The case is JB Capital Partners LP v. Remy International, CA5874, Delaware Chancery Court (Wilmington).

Commerzbank Sued for $68 Million by QVT Hedge Fund

QVT Financial LP, a New York-based hedge fund, said it sued Commerzbank AG’s property-lending unit Eurohypo in the U.S. for allegedly failing to pay $68 million on securities linked to two trusts in Delaware.

Eurohypo, which raised $1.2 billion in “profit-dependant” securities, said it suffered a loss on its balance-sheet last year and refused to repay QVT, the hedge fund said yesterday in a statement. The loss is irrelevant because Commerzbank agreed to compensate its unit for any losses, QVT said.

“Having reaped the benefits associated with raising capital from U.S. investors, the defendants now are unwilling to live up to their obligations,” according to a copy of QVT’s complaint, which it said was filed yesterday in state court in Delaware.

Commerzbank, the second-biggest bank in Germany, agreed in June 2007 to reimburse Eurohypo for its losses under a so-called domination agreement, which allows parent companies to pool their cash and tax benefits with subsidiaries and make management decisions, according to QVT. The hedge fund filed a similar lawsuit in Germany in August, according to the statement.

Commerzbank spokesman Maximilian Bicker declined to comment.

The case is QVT Fund v. Eurohypo Capital Funding, Delaware Chancery Court (Wilmington).

ICBC (Asia) Executive Is Charged, Released in Bribery Case

An executive from Industrial & Commercial Bank of China (Asia) Ltd. and two other people were released on bail after being charged in a bribery case brought by Hong Kong’s Independent Commission Against Corruption.

Derick Chan Po-fui, 50, head of the corporate banking department, and Chan Yick-yiu, 43, former head of real estate and finance at the bank, were charged, the anti-graft agency said in a statement yesterday. Zeng Wei, 47, a major shareholder of United Win Holdings Ltd., was also charged, the ICAC said.

ICBC (Asia), a unit of Industrial & Commercial Bank of China Ltd., the world’s biggest lender by market value, had no comment, spokeswoman Hilda Chow said by phone. The bank cooperated in the investigation, code-named “Thunderbolt,” the ICAC said. No phone number was available for United Win.

The defendants face nine charges, including one count that alleged Derick Chan accepted bribes of HK$1 million and HK$2.3 million from Zeng to extend the due date for repayment of loans, the ICAC said.

Chan Yick-yiu is charged with accepting bribes of HK$500,000 and HK$2 million for helping Zeng and his companies prepare loan proposals with the bank.

The defendants appeared in Eastern Magistracy yesterday without entering pleas. Zeng was granted cash bail of HK$800,000 and the other two defendants HK$500,000 each. They were ordered to surrender their travel documents and not to interfere with prosecution witnesses.

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

Court News

Breyer Says U.S. Supreme Court Isn’t Pro-Business

Justice Stephen Breyer rejected the notion that the U.S. Supreme Court has a pro-business slant and said the court doesn’t rule in favor of companies any more frequently than it has historically.

“I looked back,” he said in a Bloomberg Television interview in which he discussed his new book. “I couldn’t find a tremendous difference in the percentage of cases. They’ve always done pretty well.”

The U.S. Chamber of Commerce won at least a partial victory in 13 of the 16 cases in which it filed a brief during the court term that concluded in June. The business trade group has won at least half its cases every year for more than a decade.

Breyer also said that partisan politics doesn’t influence the court’s actions, even in cases with political ramifications, including the decision this year that allowed unlimited corporate and union campaign spending, and the Bush v. Gore ruling that decided the 2000 presidential election.

“I don’t see that politics,” Breyer said. “It would be bad if it were there. And I don’t see it.”

The 72-year-old Breyer, who was appointed by Democratic President Bill Clinton in 1994, serves on a court that now may split along party lines in some high-profile cases.

The five Republican appointees all were in the majority in the campaign finance case, known as Citizens United v. Federal Election Commission.

Of the four Democratic appointees now on the court, three were in dissent, and the fourth, Justice Elena Kagan, had defended the spending limits when she was the Obama administration’s top Supreme Court advocate. Kagan joined the court in August and took the bench this week for the start of the new term.

For more, click here.

On the Docket

Pricewaterhouse’s AIG Settlement to Go Before Judge

PricewaterhouseCoopers LLP’s 2-year-old, $97.5 million settlement with holders of American International Group Inc. securities is set to go before a federal judge next month.

The accounting firm said in October 2008 it would compensate the plaintiffs for their losses to avoid “enormous litigation costs” over claims it helped AIG mislead investors. The settlement won preliminary court approval and is scheduled for a hearing in Manhattan on Nov. 30, law firm Labaton Sucharow said yesterday in a statement.

An investigation by then-New York Attorney General Eliot Spitzer and U.S. regulators triggered a $3.9 billion earnings restatement by AIG in May 2005 and led to the ouster of Maurice “Hank” Greenberg, the New York-based insurer’s chief executive officer for almost 40 years.

Plaintiffs in the proposed class-action suit, who held shares of companies that AIG bought with its stock, include the Ohio Public Employees Retirement System, according to court documents.

Steven Silber, a PricewaterhouseCoopers spokesman, said he couldn’t immediately comment. The firm said in 2008 that its work for AIG was “in accordance with professional standards.”

The case is In re American International Group Inc. Securities Litigation, 04-cv-08141, U.S. District Court, Southern District of New York (Manhattan).

(Corrects reference to relationship between Symphony Capital Partners and Symphony International Holdings.)

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