Citigroup Inc.’s Citibank, Bank of America Corp.’s Merrill Lynch unit and five other banks were sued by the trustee liquidating Bernard Madoff’s firm to recover more than $1 billion for the con man’s defrauded customers.
The banks, which include Natixis SA, Fortis Prime Fund Solutions Bank (Ireland) Ltd., ABN Amro Bank NV, Nomura Bank International Plc. and Banco Bilbao Vizcaya Argentaria SA, received money through Madoff feeder funds when they knew, or should have known, that Madoff’s investments were a fraud, the trustee, Irving Picard, said yesterday in a statement.
Picard, who faces a two-year legal deadline that runs out Dec. 11, has filed hundreds of suits in the past month, seeking more than $34 billion from banks, feeder funds, investors and others alleged to have profited from Madoff’s decades-long Ponzi scheme, the biggest in history. So far, Picard has recovered about $2.5 billion for victims of the fraud.
“Citi will vigorously defend against these claims by the trustee as they are without merit and entirely untrue,” Danielle Romero-Apsilos, a Citigroup spokeswoman, said in an e-mailed statement. “Citi did not know about nor in any way assist in the Madoff fraud.”
Representatives of the other banks didn’t return requests seeking comment after regular business hours yesterday. Picard filed the complaints under seal yesterday in U.S. Bankruptcy Court in Manhattan.
Picard also sued former Tremont Capital Management Chief Executive Officer Sandra Manzke and Maxam Capital Management seeking more than $100 million.
Maxam, which Manzke started after she left Tremont in 2005, invested more than $300 million of investors’ money with Madoff in less than three years, Picard said in a complaint filed yesterday in U.S. Bankruptcy Court in Manhattan. He seeks a return of almost $100 million that Maxam withdrew from Madoff as well as fees the firm received.
Manzke didn’t immediately respond to an e-mailed request seeking comment yesterday. Jonathan Cogan, a lawyer who represents Manzke in a separate securities lawsuit against Tremont, also didn’t immediately return a call to his office after regular business hours yesterday.
The main case is Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities LLC, 08-01789, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The London case is Madoff Securities International Ltd. v. Stephen Ernest John Raven, 10-1468, High Court of Justice, Queen’s Bench Division (London). The Maxam case is Irving Picard v. Maxam Absolute Return Fund, 10-ap-5342, U.S. Bankruptcy Court, Southern District of New York (Manhattan.)
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DBS Accused of Misrepresenting Lehman-Related Product in Suit
DBS Bank Ltd., a unit of Southeast Asia’s biggest lender, was sued by a client claiming fraudulent and negligent misrepresentations that a $1.5 million Lehman Brothers Holdings Inc.-related investment was “sound.”
Former DBS banker Desmond Lim Hong Nian had said principal invested in the structured product was safe, according to a Nov. 30 lawsuit filed with the Singapore High Court by Australian Mark Carpenter.
He’s seeking to recover the $1.17 million he lost when Lehman filed for bankruptcy protection in 2008, and claiming an additional $280,000 from DBS and Lim for losses incurred after the bank made five unauthorized transactions in currency-linked investments, according to court filings.
DBS in February had its ban on the sale of structured notes lifted by the Monetary Authority of Singapore after it improved the internal procedures of its advisory services across all investment products. The Singapore-based bank was one of 10 financial institutions banned from selling structured notes following claims by investors that they were misled on products tied to Lehman.
Jenny Lee, a Singapore-based spokeswoman at DBS, said the bank will defend the lawsuit. Lim is no longer employed by the bank, she added, declining to elaborate.
Carpenter’s lawyer N. Sreenivasan couldn’t be reached for comment at his office.
DBS denied in court filings telling Carpenter that his principal in the investments would be protected. Carpenter indicated he was prepared to take high risks and was an experienced investor who made his own decisions, the bank said.
The case is Mark Carpenter vs DBS Bank Ltd. S444/2010 in the Singapore High Court.
Picard Sues Madoff U.K. Ex-Directors, Family Members
The liquidators of Bernard Madoff Securities International Ltd., the U.K. arm of the convicted con man’s investment firm, sued the unit’s former directors in a London court seeking at least $80 million.
The suit, filed yesterday, alleges the U.K. office acted “as a cover” for the New York firm’s fraud, the liquidators said in a joint statement with Irving Picard, the U.S. trustee of Madoff’s business and the other plaintiff in the suit. The defendants include Madoff’s brother, his two sons and five directors including Stephen Raven, the former chief executive officer of the European unit, the liquidators said.
The directors breached their duties “by making fraudulent payments to various Madoff-related entities, including payments for luxury goods and services enjoyed by Bernard Madoff and the Madoff family, including a yacht, a home in the south of France, and an Aston Martin car,” the liquidators at Grant Thornton LLP said in a statement.
Madoff, 72, pleaded guilty in March 2009 to using money from new investors to pay off old ones in a Ponzi scheme, sparking investigations and dozens of lawsuits. U.K. prosecutors dropped a criminal probe into Madoff’s London unit in February after they found “insufficient evidence” to charge anyone.
More than $910 million was transferred between the London unit and Bernard L. Madoff Investment Securities LLC in New York from the time of the office’s founding in 1983 until firm’s collapse in December 2008, according to the statement.
“These are baseless claims against Mark and Andrew Madoff, who were not involved in the financial operations of Madoff Securities International” Martin Flumenbaum, an attorney for Madoff’s sons, said in an e-mailed statement. “They were outside directors with de minimis ownership interests. They had no knowledge of their father’s crimes, including any fraudulent activity related to the London entity.”
Raven’s lawyer, Nicola Finnerty, declined to immediately comment. Charles Spada, a lawyer for Madoff’s brother, Peter, declined to comment.
Sonja Kohn, the former chairman of Bank Medici AG in Austria, was also sued for funneling more than $27 million to the London unit “in sham transactions purported to be payments for research and other services, but which were actually kickbacks,” according to the statement.
Calls to a Kohn spokesman and a lawyer that previously represented her weren’t immediately returned.
The case is Madoff Securities International Ltd. v. Stephen Ernest John Raven, 10-1468, High Court of Justice, Queen’s Bench Division (London).
Madoff Trustee Sues UBS for $555 Million, Tremont
UBS AG and Tremont Group Holdings Inc., the hedge-fund firm owned by Oppenheimer Acquisition Corp., were sued by the trustee liquidating Bernard Madoff’s investment firm over claims they profited from his fraud.
The claim for at least $555 million against UBS comes after a $2 billion suit against the Zurich-based bank last month, Irving H. Picard, the lawyer appointed as trustee by a New York bankruptcy court, said in a statement Dec. 7.
Picard said in a separate statement that Tremont, its funds, affiliates and owners including Massachusetts Mutual Life Insurance Co. ignored obvious warning signs of fraud to maximize their own profits and self-interest. The statement didn’t say how much he was seeking from Tremont.
Any money recovered will be returned to Madoff’s victims on a pro rata basis, said Picard, who has so far recovered about $2.5 billion for creditors of Bernard L. Madoff Investment Securities LLC. Picard faces a Dec. 11 deadline to file claims against parties alleged to have profited from Madoff’s fraud.
Chris Cockerill, a Hong Kong-based spokesman for UBS, said yesterday by e-mail that the bank would take “all appropriate steps” to show Picard’s latest allegations are “false and unfounded.”
Mark Cybulski, a spokesman for MassMutual, couldn’t be reached by telephone after working hours and didn’t respond to an e-mail requesting comment.
Madoff, 72, is serving a 150-year sentence in a federal prison in North Carolina after admitting he directed the biggest Ponzi scheme in history.
Bank of America Sues Former Employees Over Client Data
Bank of America Corp. sued four former employees over claims they mounted a “coordinated attack” by taking client records to their new employer, New York-based Dynasty Financial Partners.
The ex-employees of Bank of America’s U.S. Trust unit said in their resignation letters that taking the records is allowed under a voluntary recruiting agreement, according to the complaint filed yesterday in New York state Supreme Court.
Neither Charlotte, North Carolina-based Bank of America, the biggest U.S. lender, nor U.S. Trust signed such an agreement, according to the complaint. Bank of America seeks a court order barring the former employees from using U.S. Trust’s wealth management client information.
U.S. Trust’s client records are contained in databases which provide “complete, comprehensive information regarding every aspect of a client or potential client’s financial information, including their liquid assets, total net worth, investment styles and preferences, and asset allocation,” according to the complaint.
The records may also contain clients’ bank account identification and names of advisers, accountants and attorneys, according to the complaint. The suit names as defendants Dynasty Financial, Michael C. Brown, Charles F. Britton, Marcus Wilson and Amanda Kerley.
Brown, a Bank of America financial adviser with $5.9 billion in client assets, was recruited by Todd S. Thomson, Citigroup Inc.’s former head of wealth management, Bloomberg News reported Dec. 6. Dynasty Financial, which offers technology and services for independent advisory firms, was founded by Thomson and Shirl Penney, another ex-Citigroup manager.
U.S. Trust, founded a decade before the Civil War, was purchased by Charles Schwab Corp. in 2000. Bank of America agreed to pay $3.3 billion for the business in 2006 to add to its units that manage the assets of wealthy Americans.
Steven Goldberg, a spokesman for Dynasty Financial, declined to immediately comment.
The case is Bank of America v. Michael C. Brown, New York Supreme Court, New York County (Manhattan).
SEC Suit Claims Insider Trading of Wimm-Bill-Dann
The U.S. Securities and Exchange Commission sued unidentified buyers of Wimm-Bill-Dann Foods OJSC securities over what the agency called “highly profitable and suspicious purchases” before PepsiCo Inc. announced it would buy a 66 percent stake in the Russian dairy and juice producer.
“Unknown purchasers” bought 400,000 American depositary receipts in the Russian company from Nov. 29 to Dec.1, when there was no public information available concerning the contemplated acquisition, the agency said yesterday in a complaint in federal court in New York.
After PepsiCo’s announcement of the acquisition, the price of Wimm-Bill-Dann’s ADRs, traded on the New York Stock Exchange, increased by 28 percent, the SEC said.
“As a result, the unknown purchasers are in a position to realize total profits of approximately $2.7 million from the sale of the ADRs,” the SEC said in the complaint.
PepsiCo, based in Purchase, New York, announced Dec. 2 that it intended to acquire the interest in the company for $3.8 billion, with U.S. shares priced at $33. That was 32 percent more than the average in the preceding 30 days.
The investors bought Wimm-Bill-Dann’s U.S. shares through an account at SG Private Banking (Suisse) SA, a subsidiary of Societe Generale Bank & Trust SA, the U.S. regulators said in the complaint.
The case is SEC v. One or More Unknown Purchasers, 10-cv-9159, U.S. District Court, Southern District of New York (Manhattan).
BNP Paribas Sued by Former Clients Claiming Deception, Fraud
BNP Paribas Wealth Management was sued by two former private banking clients in Singapore who claim they were deceived into buying high-risk investment products that resulted in an $11 million loss.
The unit of the world’s biggest bank by assets and Wee Wan Tin, a Singapore-based managing director, engaged in fraud to sell two-year equity-linked investments tied to Intel Corp., Advanced Micro Devices Inc. and Dell Inc. in 2007, Indonesian businessman Henry Djuhari and his wife Nathaline Lie Djuhari said in a lawsuit filed with Singapore’s High Court.
The loss was because of the global financial turmoil and the couple’s decision to sell the investments, the Paris-based bank said in its filing with the court. The Djuharis had also “voluntarily consented” to taking on the risks involved, BNP Paribas said. A closed hearing in the case was held Dec. 7.
See Tow Soo Ling, the lawyer for the Djuharis, didn’t reply to an e-mail and phone calls requesting comment.
Yunis Lee, a Singapore-based spokeswoman at BNP Paribas, said she couldn’t immediately comment on the case.
The case is Henry Djuhari & Anor vs. BNP Paribas Wealth Management & Anor, S604/2010 in the Singapore High Court.
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Bank of America Deal in Muni Case May Be ‘Tip of the Iceberg’
Bank of America Corp.’s agreement to pay $137 million in restitution for taking part in a nationwide bid-rigging conspiracy for municipal-investment contracts may soon be followed by more settlements to repay the scheme’s victims, the Justice Department’s Antitrust Division head said.
“Stay tuned to this channel -- I think you will see a lot more activity in the coming weeks and months,” Christine Varney, the antitrust chief, said, according to Bloomberg News’s Martin Z. Braun and Jeff Bliss. “We are committed to getting restitution, full restitution, to all the municipalities that were victims of this scheme,” Varney added.
Bank of America, which has assisted the government probe of the $2.8 trillion municipal-bond market since at least 2007 in return for leniency, has provided documents, e-mails and recordings of phone calls, according to court records of civil suits. In September, Douglas Lee Campbell, formerly employed by the bank’s municipal derivatives group, pleaded guilty to taking part in a conspiracy to pay state and local governments below-market rates on investments purchased with bond proceeds.
Bank of America’s settlement is “likely the tip of the iceberg,” Andrew Gavil, a law professor at Howard University in Washington, D.C., said in an e-mail. He said other conspirators may pay much higher penalties.
The government has identified more than a dozen firms, including JPMorgan Chase & Co., UBS AG, and Societe Generale as unindicted co-conspirators in a criminal case brought by the Justice Department against a Los Angeles investment broker.
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Toyota Will Face Acceleration Cases Under Tentative Order
Toyota Motor Corp. will have to face lawsuits claiming deaths and personal injuries caused by unintended sudden acceleration of its vehicles if a tentative ruling by a federal judge in California becomes final.
Lawyers for injured customers and families of those killed in accidents provided sufficient evidence to allow their cases to go forward, said U.S. District Judge James V. Selna in Santa Ana, California, in a tentative ruling yesterday. Selna earlier denied Toyota’s motion to dismiss class-action, or group suits claiming economic losses related to sudden acceleration.
The automaker is accused in the lawsuits of failing to disclose or warn of a defect in its vehicles that could cause sudden acceleration. Toyota said in court filings that the plaintiffs didn’t offer specific allegations of an actual defect and that the company didn’t conceal anything.
“Toyota demands a level of specificity that is not required at the pleadings stage,” Selna wrote in his tentative order. “The defect is identified: plaintiffs’ cars suddenly and unexpectedly accelerate and do not stop upon proper application of the brake pedal.”
The company, based in Toyota City, Japan, has recalled more than 8 million vehicles for repairs related to sudden, unintended acceleration. In September 2009, the automaker announced a recall of 3.8 million Toyota and Lexus vehicles because of a defect that may cause floor mats to jam accelerator pedals. The company later recalled vehicles over defects involving the pedals themselves.
“Judge Selna’s ruling is tentative and we will be in court” today to discuss it, Celeste Migliore, a Toyota spokeswoman, said in an e-mail. “It would be inappropriate to comment on a tentative ruling.”
Toyota faces about 400 lawsuits alleging lost vehicle value or injury or death from sudden acceleration.
Selna is scheduled to hear oral arguments today about his tentative ruling. Federal lawsuits claiming death or injury caused by episodes of sudden acceleration are combined in his court.
“If the judge finalizes this important tentative ruling, the plaintiffs’ ship is sailing at full speed with a prevailing wind,” Mark Robinson, one of the lead lawyers in the personal injury and death cases, said yesterday in a phone interview.
The cases are combined as In re Toyota Motor Corp. Unintended Acceleration Marketing, Sales Practices and Products Liability Litigation, 8:10-ml-02151, U.S. District Court, Central District of California (Santa Ana).
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Barclays Used Credit Ratings ‘Arbitrage’ for CDOs, Court Told
Barclays Plc exploited the difference between companies’ credit ratings and the view the open market took of their default risk in structuring securities, a former Barclays banker told a London court.
Antonio Agresta, who structured the notes at the center of a 92 million-euro ($122 million) lawsuit, told the High Court yesterday that the process, known as “credit ratings arbitrage,” “formed the basis” of the bank’s collateralized debt obligation business.
“The CDO business existed because historically there has been a consistent discrepancy between the implied default probability” of credit ratings “and historical default rates,” Agresta said.
Barclays is being sued by San Marino bank Cassa di Risparmio della Repubblica di San Marino SpA, or CRSM, for fraudulent misrepresentation over the sale of CDOs. Barclays denies the allegations that it sold CSRM structured notes designed to have a much higher default risk than their triple-A rating suggested.
The case is scheduled to last for the rest of the year.
The case is: Cassa di Risparmio della Repubblica di San Marino SpA v. Barclays Bank Plc, 08-757, High Court of Justice, Queen’s Bench Division.
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Ex-Goldman Programmer’s Expert Says Code Was on Web
The computer source code former Goldman Sachs Group Inc. programmer Sergey Aleynikov is accused of stealing can be found on the Internet, an expert witness testified as the defense began its case in Aleynikov’s trial.
Benjamin Goldberg, an associate professor of computer science at New York University, said he made a side-by-side comparison of the code Aleynikov allegedly stole from Goldman with what’s publicly available on websites and determined they were either the same or Goldman’s was slightly modified.
“The material he downloaded or obtained from Goldman Sachs’s computers contained lots of open source software,” Goldberg testified as the defense began presenting its case yesterday.
Aleynikov was arrested in July 2009 and indicted Feb. 11 for stealing high-frequency trading code software from the brokerage. His attorney, Kevin Marino, argues his client broke a confidentiality rule of the company and didn’t commit a crime. Aleynikov has denied any criminal wrongdoing.
Federal prosecutors in New York concluded their case yesterday by calling witnesses who told jurors about a lawsuit against Aleynikov. The suit accused him of violating intellectual property rights of the “Wheel of Fortune” television show as the president of a company.
The case is U.S. v. Aleynikov, 1:10-cr-00096, U.S. District Court, Southern District of New York (Manhattan).
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Alien-Hiring Sanctions Supported in U.S. Supreme Court Hearing
U.S. Supreme Court justices signaled they are inclined to uphold an Arizona law that threatens companies with the revocation of their corporate charters if they hire illegal aliens.
Chief Justice John Roberts and Justice Antonin Scalia took the lead as the justices aimed a barrage of questions at a lawyer challenging the measure in an hour-long hearing in Washington.
The case may provide a hint as to the court’s approach to other state immigration measures, including a separate Arizona statute that gives local police a greater role in arresting illegal immigrants.
The U.S. Chamber of Commerce is challenging the law alongside civil rights groups and a labor union. President Barack Obama’s administration also says the law should be struck down.
The case, which the court will resolve by early July, is Chamber of Commerce v. Whiting, 09-115.
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J&J Loses Jury Trial on Warnings of Levaquin Risk
Johnson & Johnson failed to properly warn of the risks of tendon damage linked to its antibiotic Levaquin, a Minnesota jury said in the first trial on claims over the drug.
The Minneapolis federal court jury yesterday awarded damages of $700,000 in the case of John Schedin, 82, for failure to warn. It rejected his claim that J&J violated state consumer-fraud law by misrepresenting or concealing information about Levaquin. Jurors are considering Schedin’s claim for punitive damages.
Schedin in 2008 sued J&J and its Ortho-McNeil-Janssen Pharmaceuticals unit, claiming he ruptured both Achilles tendons after taking the drug. The companies didn’t warn doctors and patients of Levaquin’s association with tendon damage, he said.
The trial is the first on more than 2,600 claims in U.S. courts alleging that Levaquin caused tendon damage in patients and that New Brunswick, New Jersey-based J&J failed to disclose the risk adequately.
The jury assigned 75 percent of liability to Ortho-McNeil-Janssen, 10 percent to Schedin and 15 percent to his doctor, who isn’t part of the lawsuit. This will reduce the judgment so far against Ortho to $630,000, Jake Sargent, a company spokesman, said yesterday in an interview.
The company will issue a statement when the trial is over, Michael Heinley, a spokesman, said in an e-mail.
The case is Schedin v. Johnson & Johnson, 08-cv-05743, combined for trial in In re Levaquin Products Liability Litigation, 08-md-01943, U.S. District Court, District of Minnesota (Minneapolis).
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‘Twilight Zone’ Foreclosure Law Firm in N.Y. Draws Fine, Suits
Steven J. Baum’s New York foreclosure law firm has attracted lawsuits and fines for its actions during the housing crisis, with one judge likening its conduct to something out of the “Twilight Zone,” Bloomberg News’s Thom Weidlich and Karen Freifeld report.
As recently as last month, Baum’s firm, which one lawyer for homeowners said processes about half the foreclosures in New York state, was ordered to pay $14,532.50 in legal fees and costs and a $5,000 fine by Nassau County District Court Judge Scott Fairgrieve in Hempstead, New York.
The judge said that when Paul Raia refused to vacate a Garden City co-op after foreclosure, Baum’s firm filed an eviction petition that misidentified the lender.
“Falsities were contained in five paragraphs out of only ten paragraphs in the entire petition,” Fairgrieve wrote in his Nov. 23 decision.
All 50 U.S. state attorneys general are investigating whether banks, loan servicers and law firms properly prepared documents to justify hundreds of thousands of foreclosures. The probe came after JPMorgan Chase & Co. and Ally Financial Inc.’s GMAC mortgage unit said they would stop repossessions in 23 states where courts supervise home seizures and Bank of America Corp. froze foreclosures nationwide.
Steven J. Baum PC, located in Amherst, New York, just north of Buffalo, has been accused of overcharging, filing false documents and representing parties on both sides of a mortgage transfer. Baum runs the firm his father founded in 1972, according to a fact-sheet provided by Earl V. Wells III, his spokesman.
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Louisiana Judge Removed by U.S. Senate for Corruption
The U.S. Senate voted to convict a federal judge accused of corruption and remove him from the bench, the first time that has happened in 21 years and only the eighth time in history.
Judge G. Thomas Porteous of New Orleans was charged with taking cash and bribes from lawyers and bail bondsmen with cases before his court, making false statements in declaring personal bankruptcy and lying to the Senate during his confirmation. At least two-thirds of the Senate voted guilty on each of the four charges, the threshold needed for a conviction.
The House earlier this year approved four articles of impeachment against Porteous, 63. It found that he had a gambling problem and was soliciting cash during his time as a federal judge and earlier while serving on a state court.
Porteous’s lawyer in the impeachment proceedings, Jonathan Turley, argued that the accusations against him are either false, based on errors or weren’t serious enough to be considered “high crimes and misdemeanors.” Turley said Porteous already had pledged to retire and not to return to the bench.