Oct. 27 (Bloomberg) -- David Wormsley, the Citigroup Inc. banker accused by Terra Firma Capital Partners Ltd. founder Guy Hands of misleading him about an auction of EMI Group Ltd., said he was the victim of a lie told by Hands the weekend before the bidding in May 2007.
Wormsley, testifying yesterday in a federal court trial in Manhattan, told jurors that he got a phone call from someone on EMI’s deal team on Friday, May 18, 2007, before the May 21 bid deadline. In the phone call, the executive told him that Hands claimed Wormsley had said that the company’s board would approve a price of 2.40 pounds ($3.80) a share for the company.
“It was completely and utterly unacceptable to suggest that I had told him that 240 was acceptable or likely to be recommended by the board of EMI,” Wormsley told the nine jurors considering Terra Firma’s $8.3 billion suit against Citigroup. “I was furious.”
Hands, who won the auction for EMI the following Monday with a bid of 2.65 pounds a share, claims Wormsley falsely said in three telephone calls over that weekend that Cerberus Capital Management LP planned to submit a competing bid for the 113-year-old music publishing and recording company based in London.
Cerberus had decided not to bid, leaving Terra Firma without competition in the auction. Terra Firma claims that if it had known the truth, it would have sought more information about EMI’s business and finances and negotiated a better price.
Citigroup says Wormsley didn’t mislead Hands and claims the suit is the result of disappointment over a money-losing deal. In his testimony yesterday, Wormsley said he didn’t recall details of his conversations with Hands leading up to the bidding.
“I just remember speaking to him over the weekend on the subject of finance,” Wormsley said.
The case is Terra Firma Investments (GP) 2 Ltd. v. Citigroup, 09-cv-10459, U.S. District Court, Southern District of New York (Manhattan).
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Deutsche Bank Warned Client Over Choices, Lawyer Says
Deutsche Bank AG, which is suing a former client for $1.8 million that he failed to pay back after incurring losses on investments tied to Citigroup Inc. shares, had cautioned him about the bets, the German bank’s lawyer told a Singapore court yesterday.
Chang Tse Wen, a Taiwanese scientist who invented the Xolair asthma drug, lost money because of his own investment decisions, the lawyer Ang Cheng Hock said in presenting Deutsche Bank’s claim for the amount outstanding on Chang’s account.
Chang, 62, is seeking $49 million from Deutsche Bank in a countersuit, claiming he was induced to open his first private banking account in August 2007, according to his lawyer Muralidharan Pillai. The bank was negligent in its advice and made fraudulent misrepresentations, Chang claimed.
The scientist “entrusted his first ever windfall of monetary wealth” to the bank which had promised tailor-made financial advice, Pillai said in the counterclaim. Chang received $118 million in 2007 after Genentech Inc. acquired Tanox Inc., the company he founded, for $919 million.
Kathryn Hanes, a Singapore-based spokeswoman for Deutsche Bank, said the allegations made by Chang are without merit.
“The bank conducted itself properly throughout its relationship with the customer and acted entirely in accordance with its rights,” she said yesterday.
The case is Deutsche Bank AG v Chang Tse Wen S731/2009 in the Singapore High Court.
Eurostar Says It Won’t Sign Train Deal Until End of Court Case
Eurostar Group Ltd. said it would postpone signing a contract to buy a new fleet of trains from Siemens AG until the end of a court case.
Alstom SA is suing Eurostar at the High Court in London seeking an order halting the deal until a full trial can take place. Eurostar had planned to sign the contract last night, the company’s lawyer Michael Bowsher said at the hearing yesterday. He said the company won’t sign until the hearing ends. Justice Geoffrey Vos, the judge hearing the case, said it will probably conclude Oct. 28.
Alstom claims that its rights under European Union law were violated by Eurostar’s bidding process, and that it would suffer “serious and irreparable harm,” if Siemens is allowed to win the bid, the company’s lawyer Sarah Hannaford told the court yesterday.
Eurostar said on Oct. 7 it would buy 10 trains in a contract worth 600 million euros ($833 million) from Siemens to add routes and fend off competition from Germany’s Deutsche Bahn AG, which plans services via the tunnel under the English Channel from 2013.
Eurostar officials referred Oct. 25 to an Oct. 20 statement that described Alstom’s arguments as “without foundation.”
The case, Alstom Transport v. Eurostar International Ltd., is being heard at the High Court in London.
ArcelorMittal Should Lose Cartel Fine Appeal, Court Aide Says
ArcelorMittal, the world’s largest steelmaker, should lose a challenge to an antitrust fine, an adviser to the European Union’s highest court said.
The fine against three of the company’s units should be upheld, Yves Bot, an advocate general at the EU’s Court of Justice in Luxembourg, said in a non-binding opinion yesterday. He rejected arguments by ArcelorMittal that too much time elapsed between the time of the violation and the antitrust fine. A ruling by the court in line with the advice would be a victory for the European Commission, the 27-nation EU’s antitrust agency, which also filed an appeal.
ArcelorMittal is challenging the decision by the EU’s antitrust regulator in 2006 to re-open a probe against it and re-impose a 10 million-euro ($14 million) cartel fine levied on the units.
Lynn Robbroeckx, a spokeswoman for ArcelorMittal declined to immediately comment.
The commission decision concerned ArcelorMittal International SA, formerly known as TradeArbed SA, ArcelorMittal Luxembourg and ArcelorMittal Belval & Differdange SA, formerly known as Arcelor Profil Luxembourg SA.
The cases are C-201/09 P, ArcelorMittal Luxembourg v. Commission, C-216/09 P, Commission v. ArcelorMittal Luxembourg SA and Others.
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Fed’s ‘Pit Bull’ Takes on Bank of America in Buyback Battle
Kathy D. Patrick is a Houston lawyer who spends her Sundays teaching children about God. The rest of the week, according to one attorney who knows her, she can be “as frightening as a pit bull on steroids.”
That’s bad news for issuers of mortgage-backed securities like Bank of America Corp. Patrick represents bond investors including the Federal Reserve Bank of New York and BlackRock Inc. who are seeking to force the bank to buy back bad home loans, claiming the debt failed to match contractual promises about its quality, Bloomberg’s Thom Weidlich, Laurel Brubaker Calkins and Jody Shenn report.
Patrick’s law firm, Gibbs & Bruns LLP, is a 30-lawyer outfit that says it specializes in “bet the company” litigation. This month, it reached a settlement with JPMorgan Chase & Co. and Bank of Montreal stemming from an alleged fraud at a Canadian gold company. Earlier this year, Goldman Sachs Group Inc. and UBS AG settled with the firm over the sale of $550 million in mortgage-backed securities. Patrick reached that settlement on behalf of her clients just two months after filing suit.
Patrick, 50, is “fearless and tenacious,” said Dan Cogdell, a Houston criminal-defense lawyer who said she is capable of pit bull-like aggressiveness “if the need be.” If she succeeds in getting Bank of America to settle, it may trigger more calls for buybacks in the $1.4 trillion market for so-called non-agency mortgage securities, which lack government backing.
Bank costs from repurchasing mortgages in such securities may total as much as $179.2 billion, including expenses related to suits against bond underwriters, Chris Gamaitoni, a Compass Point Research and Trading LLC analyst, estimated in August.
In June 2009, Patrick got Credit Suisse Group AG and Deutsche Bank AG to agree to pay $1.73 billion to end litigation over their decision to back out of the leveraged buyout of Huntsman Corp. Her firm is suing Zurich-based Credit Suisse as bond underwriter for a now-defunct Ohio company that sold securities based on health-care providers’ unpaid bills.
“She has a deep understanding of the banking process and the constraints, motivations and incentives of the banking industry,” said Harry M. Reasoner, a partner at Vinson & Elkins LLP in Houston, who also represented Huntsman.
In the fight against Charlotte, North Carolina-based Bank of America, Patrick represents the biggest bond investors in the U.S., including Pacific Investment Management Co., which runs the world’s biggest bond fund.
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Blockbuster Counsel Weil Rejects Claim It Has Conflict
Blockbuster Inc.’s bankruptcy counsel, Weil Gotshal & Manges LLP, said its work for film studios doesn’t create a conflict of interest with its representation of the movie-rental company, as an investor claims.
Lyme Regis Partners LLC, an investor in Blockbuster’s 9 percent senior notes, objected to Blockbuster’s hiring the law firm, saying its relationships with movie studios mean it isn’t “disinterested” as the law requires. That claim is unfounded, the law firm said yesterday in a filing in U.S. Bankruptcy Court in New York.
“The fact that Lyme Regis, an obvious distressed-debt trader, made a bad investment by purchasing not only unsecured but contractually subordinated debt does not give it license to submit frivolous pleadings,” Weil Gotshal’s lawyers wrote.
Lyme Regis objected to other motions in Dallas-based Blockbuster’s Chapter 11 case, including its bid to finance operations. It said the company structured its bankruptcy to protect movie studios and game-providers to the detriment of other creditors.
Scott McMillan, a lawyer for Lyme Regis, didn’t immediately return calls seeking comment.
Weil represents only one of nine studios that Blockbuster may pay in its bankruptcy, Sony Pictures Home Entertainment. Its work for Sony is “connected to antitrust and decree issues” and doesn’t create a conflict, its lawyers wrote in court filings.
The case is In re Blockbuster, 10-14997, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
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Hawk Sued by Investor Over $413 Million Buyout Plan
Hawk Corp., the maker of brakes, clutches and other friction products that’s being bought by Carlisle Cos., was sued by an investor who claims stockholders will be shortchanged in the $413 million deal.
Hawk, based in Cleveland, said in an Oct. 15 statement it would be acquired by Carlisle, a construction materials maker with headquarters in Charlotte, North Carolina, for $50 a share in cash.
“The proposed transaction comes at a time when the company’s stock price is on a strong upswing” and “insiders are well aware of the company’s intrinsic value and that Hawk shares are significantly undervalued,” shareholder Timothy B. Hardy said in a Delaware Chancery Court lawsuit filed Oct. 25 in Wilmington.
The companies said in the statement that the buyout will expand Carlisle’s line of products and help it in emerging markets including China, India and Brazil.
Hardy asks a judge to grant the lawsuit class-action, or group, status on behalf of all outside stockholders; to halt the transaction as it stands; and award damages and legal fees and expenses.
Officials of Hawk and Carlisle didn’t immediately return phone messages seeking comment on the lawsuit.
The case is Timothy B. Hardy v. Hawk Corp., CA5925, Delaware Chancery Court (Wilmington).
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Fed Won’t Join Bank High Court Appeal on Crisis Loans
The Federal Reserve won’t join a group of the largest commercial banks in asking the U.S. Supreme Court to let the government withhold details of emergency loans made to financial firms in 2008.
The central bank’s decision not to appeal makes it less likely the high court will hear the case, said Tom Goldstein, a Washington lawyer who has argued 22 cases before the high court since 1999 and whose Scotusblog website tracks the panel.
The Clearing House Association LLC, a group of the biggest commercial banks, filed the appeal yesterday. Under federal rules for appeals, a lower court’s order requiring disclosure remains on hold until the Supreme Court acts. Kit Wheatley, an attorney for the Fed, confirmed that the central bank won’t join the appeal. David Skidmore, a spokesman for the central bank, did not immediately respond to requests for additional comment.
The bank group is appealing a federal judge’s August 2009 ruling requiring the Fed to disclose records of its emergency lending. Bloomberg LP, the parent company of Bloomberg News, sued for the release of the documents under the Freedom of Information Act.
The central bank has never disclosed the identities of borrowers since the creation in 1914 of its Discount Window lending program, which provides short-term funding to financial institutions, the Clearing House said in its petition.
“Disclosure of this information threatens to harm the borrowing banks by allowing the public to observe their borrowing patterns during the recent financial crisis and draw inferences -- whether justified or not -- about their current financial conditions,” the group said in its appeal.
The Fed’s emergency programs, which were “essential responses to the recent financial crisis,” would be harmed if the central bank is forced to disclose lending records, the group said in a statement yesterday. “Unless the ruling is overturned by the U.S. Supreme Court, businesses and individuals may decline to participate in these programs, possibly impairing the federal government’s ability to act effectively in times of crisis.”
“Greater transparency results in more accountability, and the banks’ resistance continues to engender suspicion among taxpayers about the bailouts,” said Matthew Winkler, Bloomberg News editor-in-chief. “The banks’ move to appeal will deepen the public’s skepticism and defend a position that every other court has disagreed with. The public has the right to know.”
Under the Supreme Court’s normal procedures, the justices may say as early as mid-December whether they will take up the case. If so, they would hear arguments next year and likely rule by July.
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Glaxo Settles Defective-Drug Suit for $750 Million
GlaxoSmithKline Plc agreed to pay $750 million to settle a U.S. government false-claims lawsuit over the sale of defective drugs.
Glaxo, the U.K.’s largest drugmaker, and the U.S. Justice Department announced the accord yesterday, resolving a lawsuit first filed in 2004 by Cheryl D. Eckard, a former global quality assurance manager for the London-based company.
“This is not something I wanted to do, but because of patient safety it was necessary,” Eckard, 51, told reporters following a Justice Department press conference in Boston. As a whistleblower, she will receive $96 million from the settlement money.
Glaxo was accused in court papers of selling tainted drugs under false pretenses. The medicines, made at a Glaxo plant in Cidra, Puerto Rico, were misidentified as a result of product mix-ups, according to papers filed in federal court in Boston. The affected drugs included the antidepressant Paxil CR and the diabetes treatment Avandamet.
The settlement includes a criminal fine and forfeiture totaling $150 million and a $600 million civil settlement under the False Claims Act and related state claims, the Justice Department said in a statement.
“We will not tolerate corporate attempts to profit at the expense of the ill and needy in our society -- or those who cut corners that result in potentially dangerous consequences to consumers,” Carmen M. Ortiz, the U.S. Attorney in Boston, said at yesterday’s news conference.
SB Pharmco Puerto Rico Inc., a Glaxo unit, agreed to plead guilty to charges relating to the manufacture and distribution of adulterated drugs made at the now-shuttered plant, the Justice Department said. Glaxo said in July it had agreed in principle with the U.S. to pay 500 million pounds ($791 million) to resolve the investigation.
“We regret that we operated the Cidra facility in a manner that was inconsistent with current Good Manufacturing Practice requirements and with GSK’s commitment to manufacturing quality,” PD Villarreal, a Glaxo senior vice president, said in an e-mailed statement.
The case is U.S. v. SmithKline Beecham Corp., 04-10375, U.S. District Court for Massachusetts (Boston).
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Ex-PWS CEO Gets 21 Months in Insurance-Bribery Probe
Julian Messent, the former chief executive officer of PWS International Ltd., was sentenced to 21 months in prison for paying about $2 million in bribes to win reinsurance contracts in Costa Rica.
Messent, 50, was also fined 100,000 pounds ($159,000) by Judge Geoffrey Rivlin in London yesterday for funneling money to at least three Costa Rican officials to retain contracts with state-owned telecommunications, electricity and insurance companies. Messent pleaded guilty last week to two counts of corruption for making 41 payments from 1999 until 2002, some of which went to bank accounts in Panama and Miami held by the officials, while others went to their wives.
“You were deeply involved” in paying the bribes, Rivlin said yesterday at Messent’s sentencing. “The corrupt sums which you authorized represent a loss to the Republic of Costa Rica.”
By making the improper payments to keep the contracts, Messent made a 265,000-pound profit, Rivlin said. Messent was a director in charge of the firm’s Latin America group when the payments were made and was later promoted to CEO post.
Messent’s lawyer, Eve Giles of Kingsley Napley LLP, declined to immediately comment after the sentencing.
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Florida Foreclosure Cancellations Frustrate Miami Judge
The Miami judge managing a backlog of 80,000 foreclosures expressed frustration that lenders including Bank of America Corp. and JPMorgan Chase & Co. continue to cancel foreclosure auctions.
Circuit Judge Jennifer Bailey in Miami-Dade County, which has the most foreclosures in Florida, recently set up a system to clear the logjam. She also chaired a state Supreme Court task force last year set up to address the volume of foreclosures in the state’s courts.
“It’s very frustrating to have put in this effort to design, plan and implement this system and when we finally get some forward momentum, we start slowing down again because of the banks,” she said yesterday in an interview.
Bailey said banks are canceling foreclosure sales every day. They canceled at least 20 yesterday in front of one judge, saying they had to review the affidavits used to seize homes.
The cancellations came as Charlotte, North Carolina-based Bank of America and Detroit-based Ally Financial Inc.’s GMAC Mortgage unit said they were moving to complete pending foreclosures. They had suspended foreclosure sales and judgments after complaints that home seizures nationwide were based on faulty documentation.
Attorneys general in all 50 states, as well as federal agencies including the U.S. Justice Department, are investigating.
GMAC said it’s reviewing foreclosure cases with potentially defective affidavits in the 23 states that use judicial proceedings for foreclosures, including Florida. If there are problems, they will be fixed and the cases will proceed, said Gina Proia, a spokeswoman for GMAC. Any case going to foreclosure sale in non-judicial states will also be reviewed, she said in an interview.
Bank of America, the largest U.S. bank by assets, has completed a review of its foreclosure procedures and will “shortly” begin resubmitting affidavits in judicial foreclosure cases, spokesman Dan Frahm said Oct. 25 in a statement.
On the Docket
Prosecutors Ask to Seal Ex-Goldman Programmer’s Trial
The trial of a former Goldman Sachs Group Inc. computer programmer should be held in part behind closed doors to protect the securities firm’s trade secrets, prosecutors said.
The government will introduce evidence at the trial, which is scheduled to start Nov. 29, to show that information Sergey Aleynikov is accused of stealing were Goldman Sachs trade secrets, prosecutors said in a filing Oct. 26 in federal court in Manhattan. Aleynikov’s defense will try to show the information wasn’t secret, prosecutors said.
Prosecutors asked U.S. District Judge Denise Cote to close the courtroom to the public when this evidence is presented. They also asked that trial exhibits “describing or containing” Goldman Sachs’s trade secrets shouldn’t be made publicly available, so that both sides can present their evidence without compromising any of the firm’s proprietary information.
Aleynikov, who worked as a programmer at Goldman Sachs from May 2007 through June of 2009, is accused of copying hundreds of thousands of lines of computer source code related to the firm’s high-frequency trading business on his last day of work. Aleynikov told federal investigators that he intended only to copy “open source” code not owned by Goldman Sachs, according to the prosecutors’ court filing.
Aleynikov’s lawyer, Kevin Marino, declined to comment.
The case is U.S. v. Aleynikov, 10-00096, U.S. District Court, Southern District of New York (Manhattan.)
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