The trustee liquidating Bernard L. Madoff’s investment firm filed more than $50 billion in so-called clawback suits to compensate victims of the con man’s fraud since his arrest two years ago for masterminding the biggest Ponzi scheme in U.S. history.
Irving Picard, the trustee, filed hundreds of suits against banks, feeder funds, investors and others alleged to have profited from Madoff’s decades-long fraud. Among those sued was Madoff’s son Mark, who was found dead Dec. 11 in Manhattan of an apparent suicide.
The deadline for Picard to file claims expired at midnight Dec. 11. So far, he has recovered about $2.5 billion. Last week, he sued Bank Medici AG and its founder, Sonja Kohn, as well as Bank Austria, UniCredit SpA and dozens of other parties. He is seeking $19.6 billion from them, which could potentially triple to $58.8 billion under the Racketeer Influenced and Corrupt Organizations Act. It’s the biggest claim filed by Picard.
Kohn, 62, whom Picard called Madoff’s “criminal soul mate,” used a relationship with the financier that began in 1985 to help build the Vienna-based bank, feeding more than $9.1 billion of investor money into his company, Picard said in a complaint last week in U.S. Bankruptcy Court in New York.
Andreas Theiss, a lawyer for Kohn and Medici in Vienna, said in an interview that, “Kohn and Medici are victims of Madoff. What is being claimed in the lawsuit has nothing to do with reality.”
UniCredit said in an e-mailed statement on behalf of itself, Bank Austria and its fund management unit Pioneer Global Asset Management SpA, which is also a defendant, that they will fight the lawsuit.
Their “attorneys are reviewing the matter and we will manage this through the normal course legal process,” the bank said in a statement.
Madoff, 72, who pleaded guilty, is serving a 150-year sentence in federal prison in North Carolina.
The case is Picard v. Kohn, 10-5411, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
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Ex-Goldman Sachs Programmer Found Guilty of Stealing Secrets
Former Goldman Sachs Group Inc. computer programmer Sergey Aleynikov was found guilty of two counts of stealing the firm’s trade secrets by appropriating part of a high-frequency computer source code.
Aleynikov went on trial Nov. 29 in federal court in New York on charges of violating the Economic Espionage Act and the Interstate Transportation of Stolen Property Act. He faces as long as 10 years in prison on the espionage charge and five years for the interstate transportation charge.
U.S. District Judge Denise Cote set sentencing of Aleynikov for March 18. He and his lawyer both declined comment. He will be under home confinement and electronic monitoring, Cote ruled.
Assistant Manhattan U.S. Attorney Rebecca Rohr, in her closing statement on Dec. 9, told jurors that Aleynikov was a “thief.” On his last day of work at New York-based Goldman Sachs in June 2009, Aleynikov uploaded hundreds of thousands of lines of source code from the firm’s trading system, she said.
He circumvented Goldman Sachs’s security system, sent the code to an outside server in Germany, and later compressed and encrypted the code, Rohr said. Aleynikov took the code with him to a meeting with his new employers in Chicago in July 2009, she said.
While Aleynikov may have broken a confidentiality rule of Goldman Sachs, he didn’t commit a crime, said his attorney, Kevin Marino.
“He violated the policy, OK, but that’s not a crime,” Marino told jurors. “A crime is when you act to harm the victim and benefit yourself.”
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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Moody’s Ratings Are Protected Speech, Judge Says
Ratings by Moody’s Investors Service Inc., Standard & Poor’s and Fitch Ratings Ltd. are protected speech, a California judge said Dec. 10 in a tentative ruling in a $1 billion lawsuit by California Public Employees’ Retirement System against the companies.
Judge Richard Kramer in San Francisco state court said the companies’ ratings of three structured investment vehicles that the retirement system lost money on are a form of speech about an issue of public interest that is protected under a California law designed to fend off lawsuits meant to chill public debate.
The case is Calpers v. Moody’s, 09-490241, Superior Court of California, County of San Francisco.
Vivendi to Pay $87.8 Million to Settle GVT Fraud Case
Vivendi SA agreed to pay a record 150 million reais ($87.8 million) to settle allegations by Brazil’s securities regulator that it fraudulently misled investors in its 7.2 billion reais purchase of telephone carrier GVT Holding SA.
Paris-based Vivendi was accused of providing incomplete information that led investors to believe it had enough GVT shares to fend off rival bids for the company, according to e-mailed statement announcing the accord by Brazilian securities regulator CVM.
Vivendi, the owner of the world’s largest music and video- game companies, outbid Telefonica SA late last year for control of GVT, raising its initial bid to top the Spanish rival. Vivendi, which operates France’s second-largest mobile-phone company SFR together with Vodafone Group Plc, has said it will use GVT to expand into pay television in Brazil.
The French company said in an e-mailed statement Dec. 10 that the payment didn’t imply the acknowledgment of wrongdoing. The payment concludes the investigation, Vivendi said.
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Ex-Morgan Crucible Chief Gets 18 Months in Prison
Ian Norris, the former chief executive officer of Morgan Crucible Co., was sentenced to 18 months in prison for his role in a scheme to fix prices for carbon and graphite products.
U.S. District Judge Eduardo Robreno in Philadelphia also ordered Norris, 67, to pay a $25,000 fine and serve three years’ probation after his prison term. A federal jury convicted Norris in July of conspiring to obstruct justice. The same jury acquitted him of trying to influence others’ grand jury testimony and of intent to induce the destruction of records.
“Obstruction of justice is an extremely serious crime,” Robreno said before imposing the sentence. “It strikes at the heart of the rule of law and it makes other crimes possible. Mr. Norris has not yet come completely to the realization of his factual guilt, as far as I can tell.”
Norris was extradited from the U.K. this year, the first foreign defendant sent to the U.S. to face charges arising from a criminal antitrust investigation, Justice Department officials said in March.
Christopher Curran, a defense attorney for Norris, said Dec. 10 that his client will appeal the conviction.
The case is U.S. v. Norris, 03-cr-632, U.S. District Court, Eastern District of Pennsylvania (Philadelphia).
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Leahy, Pillet Charged in EADS Insider-Trading Probe
Airbus SAS Chief Operating Officer John Leahy and Erik Pillet, the former human resources director at the European Aeronautic Defence and Space Co. unit, were charged by a Paris investigating judge with insider trading.
Leahy was placed under investigation Nov. 5, and Pillet Oct. 1 after they were called in for questioning, said a spokeswoman for the prosecutor’s office who declined to be named citing office policy.
Criminal investigators are looking into allegations that as many as 17 current and former EADS officials engaged in insider trading ahead of the announcement about production problems that would delay the A380, the world’s biggest passenger plane. The report precipitated a 26 percent drop in the share price on June 14, 2006.
France’s market regulator cleared the officials and the company of any wrongdoing in December 2009 in a parallel probe.
Leahy’s lawyer Patrick Bernard and EADS spokesman Pierre Bayle declined to comment. Calls for comment to the men’s offices weren’t immediately returned.
Four former executives including former EADS co-chief executive officer Noel Forgeard and one current official have also been preliminarily charged in the probe. The investigation began after EADS investors filed a criminal complaint following the 2006 share price slide.
HSBC, Kingate Global Fund Sued in London Over Madoff Fraud
HSBC Holdings Plc and Kingate Management Ltd. were sued in London by Irving Picard, the trustee liquidating Bernard Madoff’s investment firm in New York.
The lawsuits, filed Dec. 10 at the High Court, follow cases filed by Picard against HSBC and Kingate in New York bankruptcy court. Picard sued HSBC last week for $9 billion over claims it aided Madoff’s fraud through a network of feeder funds in Europe, the Caribbean and Central America.
The trustee sued two Kingate “feeder funds” in April, arguing that he can retrieve $255 million in fake profit the funds withdrew from Madoff’s business within 90 days before his arrest in December 2008.
Picard, facing a deadline to file claims to retrieve money for victims of Madoff’s fraud, is filing lawsuits in London for the first time. Picard and 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, seeking at least $80 million, on Dec. 8.
Picard won a court order in London in May forcing investment firm FIM Advisers LLP to hand over additional documents about whether it knew about Madoff’s Ponzi scheme. FIM managed the Kingate Global and Kingate Euro hedge funds, now in liquidation in Bermuda, which funneled more than $1.7 billion to Madoff.
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.
Adrian Russell, a spokesman for HSBC, declined to immediately comment. Federico Ceretti and Carlo Grosso, who head FIM Advisers, didn’t immediately respond to a call seeking comment.
Kevin McCue, a spokesman for Picard, didn’t immediately respond to a request for comment.
The cases are Irving H. Picard (as Trustee for the Liquidation of Bernard L. Madoff Investment Securities LLC) v. Kingate Management Ltd. & 11 ors, case no. 10-1478, and Irving H. Picard v. HSBC Plc, case no. 10-1479, High Court of Justice, Queen’s Bench Division (London.)
Kerviel, SocGen Sued by Employees for Stress, Lost Savings
Jerome Kerviel and Societe Generale SA were sued by four bank employees who said they suffered emotionally and financially after his unauthorized trading cost the bank 4.9 billion euros ($6.5 billion) in 2008.
The women are seeking 15,000 euros each in “moral damages” and as much as 3,973 euros in financial damages for the hit their savings took when the bank’s shares fell, according to the lawsuit filed Dec. 10 in Nanterre, near Paris.
The women “had sizable losses wiped from their savings,” according to an e-mailed copy of the lawsuit. The financial losses “aggravated the moral prejudice they suffered, adding to their state of anxiety and resentment.”
The employees sued two months after the former trader was sentenced to three years in jail and ordered to repay the loss, for which the court said he alone was responsible. Kerviel, who is free pending his appeal, said throughout the trial that the bank knew of his trading and condoned it. The lawsuit quotes extensively from a report by the French Banking Commission, which fined Societe Generale 4 million euros for lax controls related to Kerviel.
Societe Generale had no comment on the lawsuit, said Laura Schalk, a spokeswoman for the bank. Calls to lawyers for Kerviel and the bank for comment weren’t immediately returned.
Former Vitesse Chief Tomasetta Charged in Backdating
Former Vitesse Semiconductor Corp. Chief Executive Officer Louis Tomasetta and ex-Executive Vice President Eugene Hovanec were charged by the U.S. with securities fraud stemming from an options-backdating scheme.
Tomasetta, 62, of Ojai, California, and Hovanec, 60, of Westlake Village, California, were named in an indictment unsealed Dec. 10 in U.S. District Court in New York that also charged them with conspiracy, making false entries with the U.S. Securities and Exchange Commission in a scheme which prosecutors said ran between 2001 and mid-2006.
Prosecutors in the office of Manhattan U.S. Attorney Preet Bharara, whose office is prosecuting the case, allege that Tomasetta, who co-founded the company, and Hovanec “engaged in an illegal scheme to deceive Vitesse’s auditors, investors and others” concerning the company’s true financial condition.
Knowing that the company wasn’t going to meet its own goals for revenue or earnings, Tomasetta, Hovanec and others “devised a scheme to falsely inflate Vitesse’s revenues,” prosecutors said.
The two men also backdated numerous stock options granted to Vitesse employees from 2001 to 2004 by backdating the options, prosecutors said.
Both defendants pleaded not guilty Dec. 10 before U.S. Magistrate Judge Michael Dolinger in New York and were released on $1 million bond, said Ellen Davis, a spokeswoman for Bharara’s office.
The case is U.S. v. Tomasetta, 10-CR-1205, U.S. District Court, Southern District of New York (Manhattan).
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GMAC Allowed to Proceed With Maine Foreclosure Sales
GMAC Mortgage LLC can sell foreclosed homes in Maine after defeating a bid by homeowners in the state who sought a federal court order blocking sales and evictions.
U.S. District Judge D. Brock Hornby, at a hearing Dec. 10 in Portland, Maine, declined to grant a temporary restraining order that a plaintiff’s lawyer said would have kept GMAC from selling foreclosed homes and evicting residents.
The judge said his decision hinged on the power of federal courts to stop proceedings in state courts, where foreclosures take place. He said individual homeowners who face losing their homes in a foreclosure sale can go to state court to stop the sales, he said.
“This decision is based on the limited authority federal courts have,” Hornby said.
The Maine case, filed in state court in October and moved to federal court by GMAC in November, involves five homeowners who are suing GMAC, claiming the company relied on defective court documents in seizing homes. The plaintiffs are seeking to represent all Maine homeowners who are facing foreclosure by GMAC or who lost their homes in a GMAC foreclosure during the past six years, according to court documents.
Maine Attorney General Janet Mills is considering joining the GMAC lawsuit, Assistant Attorney General Linda Conti said in an interview Dec. 10. The office is also considering filing its own lawsuit against GMAC, she said.
GMAC had agreed to suspend foreclosure sales and evictions in the state until the judge ruled on the restraining order, Andrea Bopp Stark, a lawyer for the plaintiffs said. That agreement expired Dec. 10.
The case is Bradbury v. GMAC Mortgage LLC, 10-00458, U.S. District Court, District of Maine (Portland).
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Ex-Network Associates Finance Chief Wins Reversal
Prabhat Goyal, the former Network Associates Inc. chief financial officer convicted in 2007 of securities fraud and of making false statements to auditors, won reversal on all 15 counts on appeal.
The U.S. Court of Appeals in San Francisco agreed Dec. 10 with Goyal’s argument that, based on the evidence presented by prosecutors at his trial, no jury should have convicted him.
“Even viewing the evidence in the light most favorable to the prosecution, no reasonable juror could have found Goyal guilty beyond a reasonable doubt on any of the charges against him,” the three-member panel said in its ruling.
A federal grand jury indicted Goyal in 2004 for conspiring to secretly pay distributors to buy more inventory than they could sell during a given quarter and to hold onto the excess instead of returning it to the company.
The fraud caused Network Associates to overstate revenue by more than $470 million and understate losses by about $330 million from 1998 to 2000, according to the indictment.
“We’re extremely gratified by the court of appeals’ careful and unassailable opinion,” said attorney Seth Waxman, who argued the case on appeal for Goyal.
Goyal, in October 2008, was sentenced to serve one year and one day in prison for each count, with the terms to run concurrently, according to the trial court’s electronic docket. Waxman said his client never served that time and was free on bail pending the outcome of the appeal.
“We are in the process of reviewing the decision,” said Jack Gillund, a spokesman for the office of U.S. Attorney Melinda Haag in San Francisco.
The case is U.S. v. Goyal, 08-10436, U.S. Court of Appeals for the Ninth Circuit (San Francisco). The lower court case is U.S. v. Goyal, 04-cr-00201, U.S. District Court, Northern District of California (San Francisco).
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Countrywide Foreclosure Suit Most Popular Docket on Bloomberg
A bankruptcy lawsuit against New Jersey home owner John T. Kemp, whose mortgage company, a judge ruled, had failed to deliver the note to the trustee, was the most-read litigation docket on the Bloomberg Law system last week.
The rejection of the claim came after Linda DeMartini, a mortgage-litigation management division team leader at Bank of America Corp., which acquired Kemp’s company, Countrywide Financial Corp. in 2008, said during a bankruptcy 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. Contracts for such securitizations usually require the documents to be transferred to the trustee for mortgage bondholders. That could leave the trustee with no standing to take the property, and raises the question of whether other foreclosures could similarly be blocked.
The bank disavowed the statements by DeMartini, whom it had flown in from California to testify. It was the policy of Countrywide, 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 of America to answer questions about the case.
The case is In the Matter of John T. Kemp, Kemp v. Countrywide Home Loans Inc., 08-02448, U.S. bankruptcy Court for the District of New Jersey (Camden).
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On the Docket
Raj Rajaratnam Insider Trading Trial to Start Feb. 28
Galleon Group LLC founder Raj Rajaratnam is scheduled to go on trial Feb. 28 on charges he used tips from company executives, hedge-fund employees and others in a multimillion- dollar insider-trading scheme.
U.S. District Judge Richard J. Holwell, in an order filed Dec. 10 in federal court in Manhattan, said the charges against Rajaratnam will be tried separately from those against his co-defendant Danielle Chiesi. The trial of Chiesi, a former hedge fund consultant, is scheduled to start April 25.
Rajaratnam, 53, was arrested last year and is the central figure in a probe of insider trading at hedge funds that has led to 14 guilty pleas. He and Chiesi, a former consultant at New Castle Funds LLC, deny wrongdoing. Theirs is the largest insider-trading case involving hedge funds.
Rajaratnam and Chiesi last month lost a bid to block the first-ever use of wiretap evidence in an insider-trading case. Evidence at an October hearing showed that the government secretly recorded about 2,400 conversations between Rajaratnam and more than 130 friends, business associates and alleged accomplices.
The case is U.S. v. Rajaratnam, 09-1184, U.S. District Court, Southern District of New York (Manhattan.)