Three former UBS AG executives who pleaded guilty or were sentenced in U.S. courts over a 24-hour period put the largest Swiss bank in a different light than its website touting the skill and professionalism of its bankers.
Yesterday and the day before, one banker pleaded guilty and another was sentenced in separate cases involving insider trading while a third pleaded guilty in a tax case. A fourth man, an ex-UBS client, admitted yesterday to hiding his Swiss bank account from U.S. tax authorities. Zurich-based UBS admitted last year that it helped thousands of Americans evade taxes, avoided U.S. prosecution by paying $780 million and gave the Internal Revenue Service data on accounts.
Igor Poteroba, 37, pleaded guilty to one count of conspiracy to commit securities fraud and three counts of securities fraud on Dec. 21 before U.S. District Judge Paul A. Crotty in Manhattan, according to court records. He was accused of tipping friends to potential mergers and has agreed to forfeit $465,000 in proceeds from the crime.
Nicos Stephanou will serve no more prison time after testifying for prosecutors at an unrelated insider-trading trial. He was sentenced yesterday in federal court in New York after spending 19 months in custody after his arrest. Freed in August, he was the government’s star witness in the trial of Joseph Contorinis, a former money manager at Jefferies Paragon Fund who was convicted in October in an insider-trading scheme that prosecutors said netted more than $7 million in illegal profits.
In a third case, former UBS banker Renzo Gadola pleaded guilty to helping wealthy American clients hide assets from the Internal Revenue Service.
Gadola, 44, yesterday admitted conspiring with a Swiss banker to encourage U.S. clients who hadn’t told the IRS about their UBS accounts to open undeclared ones at Basler Kantonalbank. Gadola, who is cooperating with prosecutors, entered his plea in federal court in Miami.
The unidentified banker and Gadola told clients not to join a partial amnesty program that led 18,000 Americans to disclose offshore accounts to the IRS, prosecutors said. Gadola and the banker told U.S. clients “not to disclose their undeclared accounts at Basler Kantonalbank and other banks to the United States government,” according to court filings.
A former UBS client, Ernest Vogliano, pleaded guilty to six federal tax charges for hiding about $1.8 million in a Swiss bank account from the IRS.
Vogliano, who lives in New York, was among seven one-time UBS clients who were arrested or whose guilty pleas were announced in April. Vogliano entered his plea yesterday in federal court in Manhattan.
The Poteroba case is U.S. v. Poteroba, 10-mag-00562, U.S. District Court, Southern District of New York (Manhattan); The Stephanou case is U.S. v. Contorinis, 09-cr-467, U.S. District Court, Southern District of New York (Manhattan). The Gadola case is U.S. v. Gadola, 10-cr-20878, U.S. District Court, Southern District of Florida (Miami). The Vogliano case is U.S. v. Vogliano, 10-cr-327, U.S. District Court, Southern District of New York (Manhattan).
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JPMorgan to Pay Florida $25 Million for Securities Sales
JPMorgan Chase & Co., the second-biggest U.S. bank by assets, agreed to pay Florida $25 million to settle allegations it sold unregistered securities to a state-run municipal money-market fund that suffered a run on deposits because it held defaulted debt.
Participants in Florida’s Local Government Investment Pool will get $23 million of the settlement to reimburse them for losses in 2007 on asset-backed securities, some of which were sold by JPMorgan to the fund’s overseer, the State Board of Administration, Attorney General Bill McCollum said yesterday in a statement. The rest will pay fines and related costs, he said.
“This settlement is part of the state’s continued efforts to secure the maximum valuation of investment securities held by the SBA,” McCollum said from Tallahassee, the capital.
Assets in what was once the largest U.S. manager of municipal cash plunged from $27 billion in November 2007 to about $6.9 billion this week after it said that it held defaulted mortgage-backed bonds. A rush by municipalities to pull out money forced the fund to freeze withdrawals, leaving some communities without cash to pay workers and other costs.
The fund, since renamed Florida Prime, was reorganized to segregate the defaulted securities under a plan from New York-based BlackRock Inc., the biggest publicly traded U.S. money manager. The best-quality securities were set aside as Fund A and resumed paying withdrawals.
“The settlement is a fair, reasonable and a responsible result for the participants,” Ash Williams, the state board’s executive director, said in the statement from McCollum.
McCollum said the New York-based bank’s JPMorgan Securities LLC unit had violated Florida law by selling unregistered bonds to the fund.
JPMorgan “desires to resolve this matter to avoid the burden and cost of any litigation, and accordingly does not admit or deny” the findings of Florida’s investigation, the company said in the settlement agreement.
“We are pleased that both parties can now move past this issue and we look forward to continuing our service to the state of Florida,” JPMorgan said in a statement e-mailed from the office of its spokesman, Joe Evangelisti, in New York.
ICAP Fails to Force Ex-Brokers to Boost Compensation
ICAP Plc, the world’s biggest broker of trades between banks, lost a bid to force two former employees to pay a further HK$32.9 million ($4.2 million) in compensation for resigning with immediate effect.
Former Hong Kong equity desk head Elaine Chan and deputy Paul Kwok don’t have to pay ICAP funds equivalent to the bonuses they would have earned had they stayed, Hong Kong Court of First Instance Judge Arjan Sakhrani ruled yesterday.
Chan and Kwok quit in November 2006 to join Nittan Capital Asia Ltd. and paid ICAP a combined HK$5 million in lieu of working their notice period to January 2008. Sakhrani said ICAP couldn’t be paid what the workers may have earned in bonuses, which can’t be considered wages.
“We are reserving our position with respect to an appeal,” said London-based ICAP’s spokesman Mike Sheard in an e-mailed statement.
ICAP’s Hong Kong unit said the bonuses would have been the same as they earned a year earlier: HK$19.5 million for Chan and HK$13.4 million for Kwok.
“I am happy with the result and am glad this episode is over after more than three years,” Chan said by e-mail yesterday. “It’s time to move on.”
The case is ICAP (Hong Kong) Ltd. and Elaine Chan and Kwok Chi Leung, CA636&637/2007, Hong Kong Court of First Instance.
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Martek Biosciences Option Buyers Accused of Inside Trades
Unknown buyers of Martek Biosciences Corp. options were sued by the U.S. Securities and Exchange Commission over claims they traded on inside information of Royal DSM NV’s acquisition of the company.
The SEC said in a complaint filed yesterday in federal court in Manhattan that the unknown purchasers used an anonymous UBS AG account to buy 2,615 call options on Martek stock from Dec. 10 to Dec. 15 and then sold the options on Dec. 21, the same day the acquisition was announced. Martek, based in Columbia, Maryland, develops products made from microalgae.
“As a result, the unknown purchasers are in a position to realize total profits of approximately $1.2 million from the sale of call options,” the agency said in its complaint.
Royal DSM, a chemical company based in Heerlen, Netherlands, said it would pay $1 billion, or $31.50 a share, for all outstanding Martek common stock, a 35 percent premium over the previous day’s closing price, according to the SEC. The SEC said there was no publicly available information about the Martek acquisition before it was announced.
The SEC is seeking an order blocking the buyers from violating U.S. securities law and requiring them to turn over the profits and pay civil fines.
The case is Securities and Exchange Commission v. One or More Unknown Purchasers of Securities of Martek Biosciences Corp., 10-cv-09527, U.S. District Court, Southern District of New York (Manhattan).
Bloomberg Sues ECB to Force Disclosure of Greece Swaps
Bloomberg News filed a lawsuit against the European Central Bank, seeking the disclosure of documents showing how Greece used derivatives to hide its fiscal deficit and helped trigger the region’s sovereign debt crisis.
The lawsuit asks the European Union’s General Court in Luxembourg to overturn a decision by the ECB not to disclose two internal documents drafted for the central bank’s six-member executive board in Frankfurt this year. The notes show how Greece used swaps to hide its borrowings, according to a March 3 cover page attached to the papers obtained by Bloomberg News.
ECB President Jean-Claude Trichet withheld the documents after the EU and International Monetary Fund led a 110 billion-euro bailout ($144 billion) for Greece. The dossier should be disclosed to stop governments from employing the derivatives in a similar way again and to show how EU authorities acted on information they had on the swaps, according to the suit, filed by Bloomberg Finance LP, the parent of Bloomberg News.
The EU is dependent “on member states taking an open and transparent approach in relation to their levels of debt,” Bloomberg said in its suit. “If Greece has failed to take such an approach in the past, there is a compelling public interest in relevant information being disclosed.”
An ECB spokeswoman declined to comment on the lawsuit, which is based on the EU’s freedom of information rules.
The Greek government didn’t originally disclose the swaps, designed to help it comply with the deficit and debt rules it agreed to meet when it joined the euro in 2001. Eurostat, the EU’s statistics agency, said last month the swaps added 5.3 billion euros to the country’s debt, without giving details. Repeated revisions of Greece’s national accounts, beginning last year, spurred a surge in borrowing costs that pushed the country to the brink of default and triggered a regionwide debt crisis.
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J&J Directors Ignored ‘Red Flags’ on Recalls, Probes
A group of Johnson & Johnson shareholders accused the company’s directors of ignoring “red flags” foreshadowing product recalls and government probes of manufacturing defects and marketing practices.
The shareholders asked a judge to find that directors and top executives mismanaged J&J and order them to pay damages. They also want J&J to “improve its corporate governance and internal procedures,” according to a complaint filed Dec. 17 in federal court in Trenton, New Jersey. Any money recovered would go to the company and not investors individually.
J&J, the world’s biggest maker of health-care products, recalled more than 40 types of medicines this year because of contamination and incorrect labeling. U.S. lawmakers began investigating J&J after a recall of batches of children’s Tylenol in April forced the company to suspend operations at a Pennsylvania plant. The probe uncovered the use of contractors to buy defective Motrin painkiller.
J&J also faces government investigations into whether it illegally marketed drugs and devices for uses not approved by the Food and Drug Administration and paid kickbacks. On Dec. 17, shareholders amended their so-called derivative lawsuits that seek to force directors and officers to pay the company.
Carol Goodrich, a spokeswoman for New Brunswick, New Jersey-based J&J, said the company is reviewing the complaint and has no comment.
The case is In Re Johnson & Johnson Derivative Litigation, 10-cv-2033, U.S. District Court, District of New Jersey (Trenton).
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ASIC Sues Macquarie, Bank of Queensland Over Storm
Bank of Queensland Ltd. and Macquarie Bank Ltd. breached contracts with investors and together with the Commonwealth Bank of Australia were involved in an unregistered investment scheme related to the collapse of Storm Financial Ltd., Australia’s securities regulator said.
The Australian Securities & Investments Commission sued the three banks in federal court yesterday seeking compensation for investors in Storm, which had managed A$4 billion ($4 billion). The suit was filed after the regulator said it failed to reach an out-of-court settlement with the banks.
“ASIC has maintained that a commercial resolution is the preferred approach,” Tony D’Aloisio, the commission’s chairman, said in a statement. “Unfortunately, discussions did not result in a satisfactory outcome.”
Storm induced investors to mortgage their homes, take out margin loans, and put the money into Storm Australian Index Trusts with the promise their returns would be enough to pay the loans and live off the proceeds in retirement, according to ASIC’s statement of claim filed in federal court in Sydney yesterday.
Storm, which was based in Townsville, Queensland, received commissions from the investments in the trusts and had a incentive to encourage clients to maximize the amount of money they put into the funds, the regulator said.
The company collapsed in January, 2009, after banks notified customers they were in breach of their margins. Storm said at the time trading losses resulted in a decline in income which the company couldn’t absorb any longer.
Bank of Queensland said in a regulatory filing yesterday it intends to defend itself. The bank didn’t act illegally or dishonestly, it said.
Commonwealth Bank said, “The bank fundamentally disagrees with ASIC’s view of the role of banks in losses suffered by Storm investors,” the bank said in an e-mailed statement yesterday.
Macquarie and its staff acted ethically, lawfully and professionally, the bank said in an e-mailed statement yesterday.
The case is Australian Securities and Investments Commission v. Bank of Queensland Ltd., NSD1797/2010, Federal Court of Australia (Sydney).
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MBIA May Use Statistical Sampling in Bank of America Suit
Bank of America Corp. lost a bid to prevent MBIA Inc. from using statistical sampling to pursue repurchase demands in a lawsuit claiming it was fraudulently induced to insure $21 billion in mortgage-backed securities.
MBIA asked New York State Supreme Court Judge Eileen Bransten to allow company lawyers to develop evidence using samples from 368,000 mortgages in 15 securitized pools to establish its fraud claims, rather than go through each loan. Proceeding loan by loan might lead to “a delay of several years before trial,” Philippe Z. Selendy, an attorney for Armonk, New York-based MBIA, said in an Oct. 13 letter to the judge.
“The court does not find any prejudice in deciding the motion before it and allowing the use of statistically significant samples of the securitizations at issue,” Bransten ruled yesterday. She said the defendants could also choose to use their “own sampling chosen in a statistically valid manner” to rebut MBIA’s arguments.
Bank of America said it was “too early” in the litigation to allow such sampling, according to court papers.
“Today’s ruling is limited and procedural in nature. Nothing has been decided on the merits,” Jerry Dubrowski, a spokesman for Charlotte, North Carolina-based Bank of America, said yesterday in an e-mailed statement. “As the court notes, MBIA must prove each element of its claims -- this we believe it cannot do. We intend to continue to aggressively defend.”
MBIA’s suit against Bank of America and its Countrywide unit is one of at least 12 claims brought by insurers in state and federal courts targeting issuers of mortgage-backed securities, including Deutsche Bank AG, Credit Suisse and GMAC Mortgage LLC. Government-owned mortgage companies Fannie Mae and Freddie Mac, and bond investors such as MetLife Inc., are also pursuing repurchase demands from originators of the securities.
Bank of America is in talks with institutional investors, including Pacific Investment Management Co. and Blackrock Inc., over repurchase demands, the bank said in a Dec. 16 statement.
A decision to allow sampling would reduce the time and cost of MBIA’s litigation and aid other insurers and investors pursuing put-back lawsuits, New York attorney David Grais said before the ruling was issued.
The case is MBIA Insurance v. Countrywide Home Loans, 602825-08, New York State Supreme Court (Manhattan).
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AIG Fine May Give Competitors Momentum in $1 Billion Lawsuit
American International Group Inc., the company defending itself against a $1 billion workers’ compensation lawsuit filed by rival insurers, may have handed its accusers momentum by agreeing to pay $146.5 million to settle a probe by regulators.
“That certainly can’t help their position in court,” said Edward Priz, president of Riverside, Illinois-based commercial insurance consultant Advanced Insurance Management LLC.
AIG will pay $100 million in fines and $46.5 million in taxes and assessments to resolve the 50-state investigation, the Pennsylvania insurance regulator said yesterday. New York-based AIG was suspected of cheating state-run funds that serve as insurers of last resort against workplace injuries.
AIG, once the world’s largest insurer, shortchanged the state pools by underreporting premiums it made selling workers’ compensation protection, rivals including Liberty Mutual Holding Co. said in court documents filed in 2009 in U.S. District Court in Chicago. The state insurers of last resort, which cover injuries at employers that pose unattractive risks, are funded by contributions from carriers that offer the coverage.
“Accurate company financial data is an essential ingredient of proper insurance regulation,” Pennsylvania acting commissioner Robert Pratter said in a statement. “This reflects the seriousness of the violations in this instance over a sustained period of time -- primarily prior to 1996 -- by AIG’s prior senior management.”
The agreement, endorsed by eight states including Pennsylvania, is contingent upon approval by at least 35 other regulatory jurisdictions and AIG’s settlements with rival insurers, according to the statement.
“If this settlement becomes final, we will have resolved all remaining regulatory issues related to AIG’s workers’ compensation premium reporting for our stakeholders,” Mark Herr, an AIG spokesman, said in a statement.
The case is National Council on Compensation Insurance Inc. v. American International Group Inc. 1:07-cv-02898, U.S. District Court, Northern District of Illinois (Chicago).
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RBS Unit May Win U.K. Tax Case After EU Court Ruling
A German unit of Royal Bank of Scotland Group Plc should win a dispute with U.K. authorities over value-added tax in a car-leasing agreement with a Vinci SA subsidiary, the European Union’s highest court said.
The European Court of Justice yesterday rejected claims by the U.K. tax office that the car-leasing transaction amounted to an abusive practice solely aimed at getting a fiscal advantage.
RBS Deutschland “provided the services at issue in the course of a genuine economic activity,” a five-judge panel of the EU court in Luxembourg ruled. “Where it is possible for the taxable person to choose from among a number of transactions, he may choose to structure his business in such a way as to limit his tax liability.”
Yesterday’s ruling follows an EU court decision from 2006 that said the U.K. may ban companies from cutting their VAT bill by setting up artificial transactions that seek no other commercial purpose than to avoid paying tax. U.K. Revenue and Customs argued RBS’s German unit had set up such a deal with Vinci Fleet Services. The EU court disagreed.
The U.K. can’t “refuse to allow” companies to recoup VAT paid on goods that are subsequently leased in other EU states just because these leasing transactions aren’t subject to the levy, the court said.
U.K. Revenue and Customs “is currently considering the impact of this judgment carefully,” the tax office said in an e-mailed statement.
The case is C-277/09, The Commissioners for Her Majesty’s Revenue & Customs v. RBS Deutschland Holdings GmbH.
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Lehman Client-Money Appeal by GLG Going to U.K. Supreme Court
A GLG Partners Inc. fund can appeal part of a ruling over billions of dollars that Lehman Brothers International Europe didn’t properly protect by putting it in separate accounts.
The U.K. Supreme Court granted permission Dec. 20, according to the judgment, which was posted yesterday on the website of LBIE administrator PricewaterhouseCoopers LLP.
GLG, which had its money separated from the bank’s, is appealing an August ruling by a London court. That decision said the administrators must identify all client funds that weren’t properly segregated and pool them with accounts that were kept separate. GLG is a unit of London-based Man Group Plc.
Clients can claim from the pool, whether their money was separated or not, according to the August judgment. It overturns a lower court’s decision to treat clients whose money wasn’t separated as unsecured creditors in the U.K. insolvency case, likely giving them only a fraction of what they are owed.
“The joint administrators and the client money team continue to make progress in identifying client money in unsegregated bank and transaction accounts,” PwC said.
Arun Srivastava, a lawyer for Hong Leung Bank Bhd., which represented the general estate in the dispute, said their interests “will be put forward by GLG” in the appeal.
Robert Turner, a lawyer for CRC Credit Fund Ltd., which acted on behalf of clients whose money wasn’t segregated, didn’t immediately respond to an e-mail seeking comment.
Another appeal in the case, by Lehman Brothers Inc., was denied. The administrators also weren’t granted permission to appeal but can act as respondents.
Modified Sugar Beet Crop’s Destruction Put on Hold by Court
Genetically modified sugar beet plants that would produce seeds for the 2012 planting season can’t yet be destroyed as ordered by a judge, a federal appeals court in San Francisco ruled.
The U.S. Court of Appeals put on hold until Feb. 28 a judge’s Nov. 30 order to dig up 256 acres of sugar beet seedlings, or until it issues an order, whichever is first, according to a ruling yesterday. Environmental groups sued the U.S. Department of Agriculture to block planting permits given four companies for beets that were modified to withstand Monsanto Co.’s Roundup herbicide.
Sugar beets, grown on 1.3 million acres in 10 states, provide half the nation’s sugar supply, according to the Sugar Industry Biotech Council. The groups and organic seed organizations claim wind-blown pollen from the genetically engineered crops will contaminate conventional sugar beets and other closely related plants.
Monsanto and sugar beet companies said the genetically modified seedlings, or stecklings, could “save the livelihoods of thousands of our nation’s sugarbeet farmers,” according to court filings. The plants won’t flower before the permits expire in February, so there is no risk of gene flow, the USDA said in court filings.
The appeals court on Dec. 6 put a temporary hold on U.S. District Judge Jeffrey White’s Nov. 30 order, which the government is appealing.
The case is Center for Food Safety v. Vilsack, 10-17722, 9th U.S. Circuit Court of Appeals (San Francisco).
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