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Porsche, UBS, Lloyds, RBS, PWS, Cuban in Court News

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Porsche SE was sued by Viking Global Investors over claims the automaker’s attempted takeover of Volkswagen AG was an illegal stock fraud scheme that cost the hedge fund at least $390 million.

The complaint against Porsche, filed Oct. 22 in federal court in Manhattan, follows a similar lawsuit by U.S.-based short sellers of VW stock who claim the sports-car maker secretly cornered the market in VW shares in 2008 and later cost them more than $1 billion in losses.

Viking took short positions on VW shares believing the stock was overpriced, and relying on Porsche’s public assurances in 2008 that it didn’t own or intend to acquire a controlling interest in VW, according to the suit.

“Unbeknownst to Viking or the market, at least as early as March 2008, Porsche was taking steps to corner the market in VW shares as part of an effort to secretly take control of VW,” the New York-based fund claims in the suit. “Through careful market manipulation and false statements, Porsche convinced investors to believe that the VW shares were overvalued, inducing them to enter into short sales of VW shares.”

Because of Porsche’s “stranglehold” on the VW shares, short sellers lost about $38.1 billion in less than one week and Viking lost at least $390 million in two days, according to the complaint.

Heiner von der Laden, a Porsche spokesman, wasn’t available for comment after business hours Oct. 22.

Volkswagen, based in Wolfsburg, Germany, and Europe’s largest carmaker, agreed to join with Porsche in August 2009 after the 911 sports-car maker’s debt tripled to more than 10 billion euros ($14 billion) following its failed bid to buy VW by securing stock through options trading. VW has since bought 49.9 percent of Porsche’s operating unit for 3.9 billion euros, setting the stage for a merger in 2011.

The case is Viking Global Equities LP v. Porsche Automobil Holdings SE, 10-08073, U.S. District Court, Southern District of New York (Manhattan).

N.Y. Attorney General Sues FedEx on Driver Status

New York Attorney General Andrew Cuomo sued FedEx Corp. in state court Oct. 22 saying the delivery company improperly classifies ground delivery drivers as independent contractors rather than employees.

In the lawsuit, filed in New York’s Supreme Court, Cuomo said the company’s FedEx Home Delivery service classifying its drivers as contractors rather than employees fails “to provide its drivers the rights” afforded other employees and doesn’t comply with the state’s labor laws.

The contractor model gives FedEx’s Ground unit a cost advantage of as much as 30 percent over rival United Parcel Service Inc., University of Pittsburgh business professor Marick Masters has estimated.

“FedEx has the power to control, and does in fact control, almost all aspects of its drivers’ work,” including “hours, job duties, routes, and even clothing,” Cuomo said in the filing. “The drivers are clearly perceived by the public to be employees.”

Some FedEx drivers have filed private litigation. FedEx in June won partial dismissal of a class-action lawsuit brought by contract drivers who contend they are entitled to full benefits because the company treats them as employees.

The company’s Home Delivery service has 701 contractors that, combined, employ 2,500 workers, said Maury Lane, a FedEx spokesman. The average contractor had revenue of $190,000, said Lane, with the 10 largest billing an average of $2.6 million in 2009.

“It is disappointing that in the midst of his campaign for governor, Attorney General Cuomo would choose to destroy that many jobs in New York,” Lane said, commenting after reviewing a copy of the filing.

“Any suggestion that the Attorney General’s office handling of this case is improper is absurd,” John Milgrim, a spokesman for Cuomo, said in an e-mailed statement. “This office and a group of other states had been negotiating with FedEx for months. The case was filed, as was a similar case by Kentucky, when those discussions broke down,” Milgrim said.

The Indiana case is In re FedEx Ground Package System Inc. Employment Practices Litigation, 3:05-md-00527, U.S. District Court, Northern District of Indiana (South Bend).

The New York case is New York State vs. FedEx Ground Package System, Inc., Supreme Court of New York, County of New York.

Sands Sued by Former China Chief for Contract Breach

Steven Jacobs, the former chief executive of Sands China Ltd., sued Las Vegas Sands Corp. and its Hong Kong-listed casino operator, claiming they breached his employment contract.

Jacobs, fired by Sands China’s board on July 23 for reasons it didn’t disclose, filed his complaint in a court in Clark County, Nevada, according to the court’s website. The complaint wasn’t available.

“We deny the allegations,” Jacqueline Wu, a spokeswoman for Sands China, said Oct. 22.

Billionaire Sheldon Adelson is the chairman and chief executive officer of Las Vegas Sands, the world’s largest casino by market capitalization. Company spokesman Ron Reese said in July that the dismissal “is not about any dispute between Mr. Adelson and Mr. Jacobs.”

Jacobs was hired in 2009 as president of Las Vegas Sands’ Macau operations and was named chief executive in August 2009.

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Adelphia Trust Reaches $175 Million Deal With Banks

Citigroup Inc., Bank of America Corp., JPMorgan Chase & Co. and other banks agreed to pay $175 million to settle a lawsuit with a legal trust pursuing claims on behalf of bankrupt Adelphia Communications Corp.

The accord, filed Oct. 18 in federal court in Manhattan, resolves claims by the Adelphia trust that the banks aided and abetted a breach of fiduciary duty by the family of the cable television company’s founder, John Rigas, and aided and abetted a fraud by Rigas and his son.

John Rigas, 85, is serving 12 years in prison, and his son Timothy is serving 15 years after being convicted in 2004 of looting Adelphia and lying about its finances. The company, once the fifth-largest U.S. cable-TV provider, collapsed in 2002 and its assets were sold to Time Warner Inc. and Comcast Corp.

The deal “represents a fair and reasonable settlement” and is “the product of substantial arm’s-length negotiation” between the trust and the banks, according to a filing by attorneys for the trust.

U.S. District Judge Lawrence McKenna has scheduled a Nov. 18 hearing in Manhattan to review the settlement. The agreement, negotiated with the help of a mediator, averts a trial set for Oct. 25.

The settlement won’t end litigation by the Adelphia trust against Goldman Sachs & Co. and HSBC Bank USA.

The case is Adelphia Recovery Trust v. Bank of America NA, 05-cv-9050, U.S. District Court, Southern District of New York (Manhattan).

UBS Tax-Fraud Charge Is Dropped by U.S. Prosecutors

The U.S. Justice Department dismissed Oct. 22 a landmark criminal case against UBS AG that prompted the bank to admit it helped Americans evade taxes.

Prosecutors said Zurich-based UBS, the largest Swiss bank, complied with an 18-month agreement signed in February 2009 to defer prosecution for conspiring to defraud the U.S. by helping 17,000 Americans hide accounts from the Internal Revenue Service.

As part of the agreement, UBS paid $780 million, admitted fostering tax evasion from 2000 to 2007, and handed over account data on more than 250 U.S. clients, piercing the veil of Swiss bank secrecy. UBS later turned over data on 4,450 more accounts. Prosecutors said UBS also honored its pledge to end its cross- border business and cooperate with the U.S.

“The United States agreed that if UBS AG fully complied with all of its obligations,” the case would be dismissed, Justice Department lawyers said in a motion in federal court in Fort Lauderdale, Florida. “The United State believes that dismissal is appropriate.”

The case is U.S. v. UBS AG, 09-cr-60033, U.S. District Court, Southern District of Florida (Fort Lauderdale).

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Lloyds, RBS Win Appeal Over European Directories Plan

Lloyds Banking Group Plc, Royal Bank of Scotland Group Plc and Barclays Bank Plc won an appeal over part of the 2 billion- euro ($2.78 billion) loan restructuring plan for Macquarie Group Ltd.’s European Directories SA.

The Court of Appeal in London overturned Oct. 22 a lower-court decision blocking the senior lenders, who hold 1.5 billion euros of debt, from wiping out second-lien ranking creditors in a bid to sell the directories company without any liabilities. European Directories also supported the appeal.

The company, the banks and other senior lenders including Allied Irish Banks Plc and Bank of New York Mellon Corp.’s Alcentra, created the plan after London-based European Directories, owned by the Australian financial-services firm Macquarie Group, missed loan payments earlier this year. The turnaround involves placing the directories company in bankruptcy and selling it to the lender group.

Junior investors AMP Capital Investors Ltd. and Hastings Fund Management Ltd., both Australian money managers holding 17.7 million euros of second-lien debt, argued that the mechanism used to implement the senior lenders’ plan would breach loan agreements.

The three-judge panel declined to give the second-lien creditors permission to appeal to the Supreme Court.

“We are obviously extremely disappointed at the Court of Appeal’s judgment,” said Richard East, a lawyer at Quinn Emanuel Urquhart & Sullivan LLP in London, who represents the junior lenders. “The second-lien lenders continue to think that the lower-court’s decision is correct, and will seek permission for further appeal to the Supreme Court,”

Del Jones, a London-based spokesman for European Directories, declined to comment.

The case is HHY Luxembourg SARL v. Barclays Bank, High Court of Justice Chancery Division, HC10C02857.

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Ex-PWS Chief Pleads Guilty to Charges Over Costa Rican Bribes

Julian Messent, the former chief executive officer of PWS International Ltd, pleaded guilty to paying more than $2 million in bribes to win contracts in Costa Rica.

Messent admitted to two counts of corruption for funneling money to at least three Costa Rican officials to retain reinsurance contracts from a state-owned telecommunications and electricity company.

“These were very large government contracts with high premiums and large amounts of money being funneled back,” Hodge Malek, a lawyer for the Serious Fraud Office, which prosecuted the case, told a London court Oct. 22.

PWS, a London-based reinsurance company founded by Lord Malcolm Pearson, was bought by THB Group in 2008. Pearson, a member of the House of Lords and the former head of the U.K. Independence Party, founded PWS in 1964.

Costa Rican prosecutors are investigating 10 people for accepting bribes in the case, SFO spokeswoman Katie Winstanley said.

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Greenberg Loses Bid to Toss Cuomo Case on AIG Fraud

Maurice “Hank” Greenberg, the former chief executive officer of American International Group Inc., lost a bid to throw out a lawsuit by New York state accusing him of structuring insurance transactions that misled investors.

State Supreme Court Justice Charles Ramos in Manhattan denied Greenberg’s summary-judgment motion seeking to dismiss Attorney General Andrew Cuomo’s lawsuit, according to an order dated Oct. 21. The judge also denied a summary-judgment motion by Howard Smith, AIG’s former chief financial officer.

Cuomo accused Greenberg and Smith of negotiating and structuring two “sham” reinsurance deals that forced New York-based AIG to restate its financial statements for the years 2001 through 2004 and resulted in the criminal indictments of a former AIG executive and four former General Reinsurance Corp. executives, according to the judge’s ruling.

In his order, Ramos granted Cuomo’s motion for summary judgment on the issue of liability for one of the transactions. The judge wrote that the amount of damages due would be resolved at a separate hearing.

Lee Wolosky, an attorney for Greenberg, didn’t return a message seeking comment.

The case is State of New York v. Greenberg, 401720-2010, New York state Supreme Court (Manhattan).

Cuban Offers to Hire Lawyers to Review SEC Documents

Mark Cuban, the billionaire owner of the Dallas Mavericks who is accused by the U.S. Securities and Exchange Commission of insider trading, offered to pay lawyers to help the agency speed its review of documents in his case.

An attorney for Cuban, Stephen Best, told U.S. District Judge Reggie Walton in Washington that he was seeking a creative solution to moving the case along, noting the federal government often hired contractors.

“I have never heard about the government becoming indignant about accepting” assistance, Best told Walton at a hearing Oct. 22.

Walton asked SEC attorneys to review whether bringing in contract attorneys for the task would violate federal hiring procedures or whether contractors would be allowed to review the documents, some of which may be classified.

The judge last month said the SEC improperly withheld documents that Cuban requested through the Freedom of Information Act, and said the defendant should be granted access. His lawyers complain that current schedules call for the documents to be delivered in March 2012.

Melinda Hardy, an SEC attorney, said in court that Cuban’s offer was unprecedented. She said the agency is concerned that people with “deep pockets would come in and go to the front of the line.”

The Cuban file is so voluminous that an attorney assigned to review it would have to spend more than eight months, assuming a pace of four pages a minute and eight-hour days without breaks, the SEC lawyers said.

The SEC alleges that Cuban traded on confidential information when he sold his stake in Inc., a Canadian Internet search company, just before it announced a private placement of shares.

The case is Cuban v. SEC, 09-cv-996, U.S. District Court, District of Columbia (Washington). The insider-trading case is SEC v. Cuban, 09-10996, 5th U.S. Circuit Court of Appeals for the Fifth Circuit (New Orleans) and SEC v. Cuban, 08-cv-2050, U.S. District Court, Northern District of Texas (Dallas).

For the latest lawsuits news, click here.


Ex-Delphi Chief Battenberg Misled Investors, Jury Told

Former Delphi Corp. Chief Executive Officer J.T. Battenberg III misled investors about the company’s financial condition, a lawyer for the U.S. Securities and Exchange Commission told a jury at the start of a trial.

The SEC sued Battenberg and three other ex-Delphi executives in the trial in 2006, alleging they engaged in “fraudulent accounting or disclosure schemes” before the auto-parts supplier entered bankruptcy protection in 2005. The trial began Oct. 22 before U.S. District Judge Avern Cohn in Detroit.

The defendants “had a responsibility to fairly and accurately report the financial performance of the Delphi Corp.,” said Jan Folena, a lawyer for the SEC. “While the employees at Delphi were engineering auto parts, their executives were engineering numbers.”

Delphi, once the largest U.S. auto-parts supplier, filed for bankruptcy after failing to win wage cuts and financial aid from its former parent, General Motors Co. It emerged from bankruptcy last year.

The jury began hearing the SEC’s claims against Battenberg; Paul Free, a former Delphi controller and chief accounting officer; Milan Belans, a former director of capital planning and pension analysis; and Catherine Rozanski, a former accounting director.

The agency earlier settled cases against the company and John Blahnik, a former treasurer.

The SEC claims Delphi artificially inflated share prices by issuing misleading statements in the years before the bankruptcy. Battenberg, Free and Belans were responsible for false statements or omissions of material fact in Delphi’s 10-K for 2000, its filing for the third quarter of 2000 and an 8-K on May 31, 2001, the government says.

Lawyers for the defendants said Oct. 22 that there was no attempt to mislead investors and their clients didn’t commit fraud.

The case is SEC v. Battenberg, 2:06-cv-14891, U.S. District Court, Eastern District of Michigan (Detroit).

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Ex-Deutsche Telekom Chief Says He Didn’t Order Spying

Former Deutsche Telekom AG chief executive officer Kai-Uwe Ricke told a court that he didn’t know people at the company used illegal methods when trying to identify a press-informant in 2005.

Ricke was testifying at the Bonn trial of a former security manager, Klaus Trzeschan, who is accused of taking part in illegal corporate spying at the company. While Ricke asked the company’s security unit to find out the perpetrator, the former CEO said he didn’t know that phone records would later be examined.

“I can rule out 100 percent that we discussed any illegal methods,” Ricke told the court. “Had I learned about it, I would have stepped in. I spent my whole career in telecommunications and knew what that would have meant.”

The case centers on allegations that managers at Europe’s largest phone company obtained phone records for journalists and supervisory board members to search for the sources of news leaks. Prosecutors searched offices of Deutsche Telekom and its T-Mobile unit in May 2008 after the company filed a criminal complaint over the issue.

Authorities also searched the homes of former Chairman Klaus Zumwinkel and Ricke 10 months later. Bonn prosecutors in June dropped their investigation of Ricke and Zumwinkel saying they didn’t have evidence to prove the two knew about the phone- record reviews at the time they took place. Ricke and Zumwinkel have denied any wrongdoing.

After confidential information about Deutsche Telekom appeared in the press in January 2005, Ricke asked the security department to find out who had leaked it.

Ricke said Oct. 22 he hadn’t had a private conversation about the press leaks with Trzeschan at the time and said he first met him only a month later. In subsequent discussions over the course of 2005, Trzeschan never mentioned illegal phone-record reviews, said Ricke.

“I never thought about how security would do its work, I wasn’t an expert,” said Ricke. “This was their core competence.”

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For the latest trial and appeals news, click here.

Court Filings

RBS’s Suit over Liverpool Soccer Club Most Popular Docket

The Royal Bank of Scotland Group Plc lawsuit that successfully prevented the owners of the Liverpool soccer club from proceeding with a Texas lawsuit that was blocking the forced sale of the English soccer club was the most-read litigation docket on the Bloomberg Law system last week.

On Oct. 14, Justice Christopher Floyd ruled to prevent Liverpool owners Tom Hicks and George Gillett from interfering with the 300 million pound ($475 million) sale to the operators of the Boston Red Sox baseball team.

The case is Royal Bank of Scotland Plc v. Hicks, HC10C03206, High Court of Justice, Chancery Division.

For more, click here.

On the Docket

Terra Firma Will Call Citigroup Banker as Hostile Witness

The Citigroup Inc. banker accused of misleading Terra Firma Capital Partners Ltd. founder Guy Hands about the 2007 auction of EMI Group Ltd. will tell his story to a Manhattan federal jury as early as today.

David Boies, the lead lawyer for Hands and London-based Terra Firma, told U.S. District Judge Jed Rakoff Oct. 22 that he will call the banker, David Wormsley, as a hostile witness in the trial.

Hands claimed, in testimony over three days, that Wormsley misled him about the 2007 auction of London-based EMI Group Ltd., leading Terra Firma to overpay for the 113-year-old music company. Wormsley’s lawyers have contradicted Hands’s account of three crucial phone calls between them in May 2007, according to court papers.

The calls, which took place the weekend before the auction, are at the center of Terra Firma’s suit. Hands claims Wormsley, his former friend and business associate, told him that Cerberus Capital Management LP planned to submit a competing bid for EMI. In fact, New York-based Cerberus had withdrawn from the bidding, leaving Terra Firma without competition, according to court filings.

“If it wasn’t for those phone calls, they wouldn’t have been scrambling and they wouldn’t have put the bid in at that price at that time,” said Werner Kranenburg, a London-based lawyer observing the trial, summarizing Hands’s testimony.

Wormsley will have to persuade jurors “that he wasn’t trying to convince his friend into rash actions over that weekend,” Kranenburg said.

Ted Wells, Citigroup’s lawyer, tried to show that Terra Firma’s 2.65-pound-a-share bid was based on due diligence the firm conducted before the auction, as well as conversations with EMI’s chief executive officer and Terra Firma’s estimate of the company’s worth, and not on any information passed along by Wormsley.

In pretrial rulings, Rakoff said that Terra Firma must prove that Wormsley lied to Hands or was reckless about whether his statements were true.

The case is Terra Firma v. Citigroup, 09-cv-10459, U.S. District Court, Southern District of New York (Manhattan).

For more, click here.

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