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BofA, Delta, Barclays, Goldman, Deutsche Telekom in Court News

Dec. 1 (Bloomberg) -- Testimony by a Bank of America Corp. employee in a New Jersey personal bankruptcy case may give more ammunition to homeowners and investors in their legal battles over defaulted mortgages, Bloomberg News’ Prashant Gopal and Jody Shenn report.

Linda DeMartini, a team leader in the company’s mortgage-litigation management division, said during a U.S. Bankruptcy Court hearing in Camden last year that it was routine for the lender to keep mortgage promissory notes even after loans were bundled by the thousands into bonds and sold to investors, according to a transcript. Contracts for such securitizations usually require the documents to be transferred to the trustee for mortgage bondholders.

In the case, U.S. Bankruptcy Judge Judith H. Wizmur on Nov. 16 rejected a claim on the home of John T. Kemp, ruling his mortgage company, now owned by Bank of America, had failed to deliver the note to the trustee. That could leave the trustee with no standing to take the property, and raises the question of whether other foreclosures could similarly be blocked.

Following the decision, the bank disavowed the statements by DeMartini, whom it had flown in from California to testify. It was the policy of Countrywide Financial Corp., acquired by Bank of America in July 2008, to deliver notes as called for in its securitization contracts, according to Larry Platt, an attorney at K&L Gates LLP in Washington designated by the bank to answer questions about the case.

“This particular employee was mistaken in what she said,” Platt said in a telephone interview.

Wizmur’s ruling is being scrutinized by lawyers for borrowers seeking to stall repossessions as a way to press lenders to modify their debt. Attorneys for homeowners have already won cases by calling into doubt the legitimacy of affidavits used to take back properties.

“If this is correct, many, many, many foreclosures already occurred in which this plaintiff didn’t have the note,” said Bruce Levitt, the South Orange, New Jersey, attorney representing Kemp. “This could affect thousands or hundreds of thousands of loans.”

The case is In the Matter of John T. Kemp, Kemp v. Countrywide Home Loans Inc., 08-02448, U.S. Bankruptcy Court, District of New Jersey (Camden).

For more, click here.

Delta Air Wins Dismissal of Virgin Suit Over First-Class Seats

Delta Air Lines Inc., the world’s second-biggest carrier, won the dismissal of a Virgin Atlantic Airways Ltd. U.K. lawsuit over a patent for flat-bed seats.

Virgin, the long-haul carrier controlled by billionaire Richard Branson, sued Atlanta-based Delta in 2008 over claims that its seats, designed by Premium Aircraft Interiors Group Ltd., infringed Virgin’s patent. The British carrier “has no real prospect of establishing infringement,” Judge Richard Arnold in London said in a judgment yesterday.

The ruling “does not necessarily deprive Virgin of the possibility of relief against Delta,” Arnold said. “Virgin may be able to bring a claim against Delta for infringement of one or more of its U.S. patents. It may also, at some point in the future, be in a position to sue Delta for infringement of a European patent containing seat unit claims.”

The case is Virgin Atlantic Airways v. Delta Air Lines, HC08C1577, High Court of Justice Chancery Division.

MF Global U.K. Unit Sued Over Investor’s $1.55 Million Loss

MF Global Holdings Ltd. was sued by an investor who claims the brokerage caused him to lose about 1 million pounds ($1.55 million) by encouraging him to make short-term, risky trades.

An account manager at MF’s GNI unit gave Michael Wilson, an Aberdeen, Scotland-based businessman, “market commentary and investment advice” that broke rules on execution-only accounts, Wilson’s lawyer, Jalil Asif, told a London court yesterday.

Following advice from his account manager, Wilson took a “risky” strategy of short-term buying and selling of a type of derivatives that resulted in large losses. The brokerage should have “balanced what was said” by the account manager by telling Wilson the risks, Asif said.

Wilson operated an execution-only account at GNI between 2003 and 2005, his lawyer Asif said. Even though it was an execution-only account the brokerage “permitted” Wilson’s account manager “to provide market commentary and investment advice” while he wasn’t permitted to do so under Financial Services Authority rules, Asif said in written arguments.

MF’s lawyer, James Smith, said the manager never gave investment advice.

“He was merely seeking to assist Mr. Wilson in the context of an execution-only dealing relationship,” Smith said. “Mr. Wilson knew perfectly well what he was doing and always would have traded the way he did.”

The case is Michael Duthie Wilson v MF Global Ltd., HQ09X01868, High Court of Justice, Queen’s Bench Division.

For the latest lawsuits news, click here.

New Suits

Lehman Sues BofA Over $150 Million Collateralized Debt

Lehman Brothers Holdings Inc. sued Bank of America Corp., claiming $150 million on a collateralized debt obligation.

Lehman is seeking to prevent Bank of America from using “unenforceable” clauses of the deal to “improperly” change Lehman’s right to priority payment on the CDO, according to a complaint filed Nov. 29 in U.S. Bankruptcy Court in New York.

Seeking money to pay creditors, the bankrupt investment bank has been using lawsuits and requesting court rulings to preserve disputed payment rights on derivatives transactions. The disputes hinge on conflicts between bankruptcy law and the rules governing swap agreements.

Bank of America, sued in its role as trustee, had no comment, said spokesman William Halldin.

The bankruptcy case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

IVest Managing Partner Defrauded Investors, U.S. Says

U.S. prosecutors accused IVest International Holdings Inc.’s managing partner of conspiring to solicit millions of dollars from investors and using the money for mortgage payments, golfing expenses and $100,000 in New York Yankees tickets.

William Graulich IV, 54, of Henryville, Pennsylvania, is charged with interstate wire fraud for promoting risk-free investments in notes, letters of credit and other financial instruments, U.S. Attorney Paul J. Fishman in Newark, New Jersey, said in a statement yesterday.

“Graulich, along with unnamed co-conspirators, represented that they had an ‘exclusive’ investment platform available by invitation only, and that had been previously open only to those able to invest at least $100 million,” Fishman said. He said they promised “weekly returns of 22 percent.”

“He’s taken the position that he’s not guilty of any financial crime,” Graulich’s lawyer, Jay V. Surgent of Lyndhurst, New Jersey, said in a telephone interview yesterday. “We’ll proceed with a vigorous defense.”

According to the criminal complaint, one unnamed investor met Graulich in London for a presentation and invested about $4.4 million with him. Graulich used a bank account in Morristown, New Jersey, according to the complaint.

The case is U.S. v. Graulich, 10-8302, U.S. District Court, District of New Jersey (Newark).

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


SEC Avoiding Criticism on Lehman Deal, Barclays Says

The U.S. Securities and Exchange Commission faulted Barclays Plc’s purchase of bankrupt Lehman Brothers Holdings Inc.’s brokerage to avoid “political criticism” if any brokerage customers don’t get paid, Barclays said in a court filing.

The U.K. bank asked a New York bankruptcy judge to dismiss the SEC’s argument that $1.3 billion in pending transfers may be needed for customers. The assets were allocated to Barclays in a sale given “unqualified support” by previous SEC commissioners faced with “a potentially disastrous liquidation” of the brokerage in the 2008 financial crisis, Barclays said Nov. 29.

“This court should not countenance new SEC commissioners repudiating their predecessors’ position before this court in an effort to avoid any perceived political criticism,” it said in the filing in U.S. Bankruptcy Court in Manhattan.

The U.K.’s third-largest bank is awaiting the judge’s verdict after a court trial over an alleged $11 billion “windfall” it made buying the brokerage in the 2008 financial crisis. Barclays says it is still owed $3 billion allocated to it in a sale contract signed by all parties to the deal.

SEC spokesman John Nester declined immediate comment.

The SEC said in a Nov. 22 court filing that two transfers from the Lehman brokerage would violate securities law if they increased the deficiency in the accounts. They are $769 million in securities held in the brokerage’s reserve bank account, and $507 million in assets listed as a debit item in the brokerage’s customer reserve, according to the SEC.

The SEC “did not raise these alleged prerequisites at the time of the sale,” Barclays said in court papers. “Barclays was making an enormous investment (and taking an enormous risk) by acquiring” Lehman’s business..

The case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

For more, click here.

Ex-Goldman Programmer Aleynikov Stole Code, Jury Told

Sergey Aleynikov, a former Goldman Sachs Group Inc. programmer, “stole valuable secret computer code” from the brokerage, a prosecutor told jurors at the opening of the trial in New York on charges of theft of trading software.

Assistant U.S. Attorney Joseph Facciponti made the government’s opening statement yesterday in federal court in New York. Aleynikov’s lawyer followed, saying his client broke a confidentiality rule of the company and committed no crime.

Aleynikov is charged with violating the Economic Espionage Act and the Interstate Transportation of Stolen Property Act. U.S. District Judge Denise Cote, who is presiding over the trial, dismissed a third criminal count of unauthorized computer access in September.

If convicted, Aleynikov faces as much as 15 years in prison.

He “thought that he’d found a foolproof way of getting around the security barriers” designed to prevent employee theft of trade secrets, Facciponti told the jury. Aleynikov sent stolen code to a code-storage website in Europe that wasn’t blocked by Goldman Sachs, he said. Aleynikov then executed a program to cover his tracks, Facciponti said.

A defense lawyer, Kevin Marino, argued in his opening statement that Aleynikov intended to strip out pieces of open-source software -- software available for use by the public -- contained within the Goldman Sachs code files. He tried to cover his tracks because he knew he was violating the company’s confidentiality rules and feared he would be sued by the firm.

“I will dispute to my death that violating a Goldman Sachs confidentiality provision is a federal crime,” Marino said.

The case is U.S. v. Aleynikov, 1:10-cr-00096, U.S. District Court, Southern District of New York (Manhattan).

For more, click here.

For the latest trial and appeals news, click here.


Ex-Deutsche Telekom Manager Convicted Over Spy Scandal

A former Deutsche Telekom AG security manager was convicted of violating privacy rules and improperly using funds for his involvement in spying on journalists and board members at the company.

The Bonn Regional Court sentenced Klaus Trzeschan to three and a half years in prison at a hearing yesterday. Trzeschan, who was also convicted of fraud, had admitted that he participated in the corporate spying.

The case centers on allegations that managers at the company obtained phone records for journalists and supervisory board members to search for sources of news leaks. Prosecutors in June dropped probes into former Chairman Klaus Zumwinkel and ex-Chief Executive Officer Kai-Uwe Ricke.

“I wouldn’t call this a spy affair, because we’re talking about serious crimes here,” Presiding Judge Klaus Reinhoff said after delivering the verdict. “We cannot stress enough that Deutsche Telekom made it really easy for Mr. Trzeschan to commit these crimes.”

“We will review the written judgment and will comment at the appropriate time,” Trzeschan’s attorney Hans-Joerg Odenthal said after the verdict.

For more, click here.

Singapore Airlines to Pay $48 Million Fine, U.S. Says

Singapore Airlines Cargo Pte Ltd. agreed to plead guilty and pay a $48 million criminal fine for its role in a conspiracy to fix prices, the U.S. Justice Department said.

The department filed a one-count felony charge in federal court yesterday accusing the company of helping fix prices between 2002 and 2006, the Justice Department said in an e-mailed statement.

The plea deal, which requires court approval, is the latest in the department’s ongoing investigation into the air-cargo industry. Including yesterday’s events, 20 airlines and 17 executives have been charged and more than $1.7 billion in fines have been levied.

In a statement, Singapore Airlines Cargo said it has cooperated with the investigation.

“The company decided to accept the offer after consulting its legal advisers and carefully weighing its options,” according to the statement.

Other airlines that have agreed to pay fines in the investigation are Polar Air Cargo LLC, a unit of Atlas Air Worldwide Holdings Inc.; Air France-KLM Group; Cathay Pacific Airways Ltd.; SAS Cargo Group A/S and Martinair Holland NV, a unit of KLM.

For the latest verdict and settlement news, click here.

To contact the reporter on this story: Elizabeth Amon in Brooklyn, New York, at

To contact the editor responsible for this story: David E. Rovella at

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