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Citigroup, Stanford, Primary Global in Court News

Citigroup Inc. Chief Executive Officer Vikram Pandit and Pramit Jhaveri, head of the bank’s Indian unit, were cleared by local police of involvement in an alleged $66 million fraud at its branch in Gurgaon.

Citigroup employee Shivraj Puri was taken into custody as part of an investigation into complaints that he forged documents to lure investors, S.S. Deswal, commissioner of police in Gurgaon near New Delhi, told reporters yesterday. The alleged fraud was confined to Citigroup’s Gurgaon office and involved 3 billion rupees ($66 million) that was invested over 15 months, Deswal said.

Senior Citigroup executives were accused by Helion Advisors Pvt. Managing Director Sanjeev Aggarwal of conspiring with Puri to defraud him of 324.3 million rupees, according to an e-mailed statement yesterday. The New York-based bank last week filed a police complaint accusing Puri of promising “extraordinary high interest rates” to lure clients and siphoning funds.

“Citi identified the fraud and immediately reported the matter to the regulators and law enforcement agencies,” Debasis Ghosh, a spokesman for Citigroup in Mumbai, said in an e-mail. Aggarwal’s “claims against senior executives are completely without basis and we intend to contest them vigorously.”

“Citi will continue to work with the authorities on this investigation,” Ghosh said.

Aggarwal didn’t return two calls to his mobile phone and one to his office.


PharmAthene Funded Siga Drug Trial, Official Says

PharmAthene Inc. provided funding to Siga Technologies Inc. to conduct a human safety trial of a drug designed to fight smallpox outbreaks linked to terrorist attacks, a PharmAthene official testified.

Siga was persuaded by PharmAthene to conduct the first phase of human safety trials for its smallpox antiviral ST-246 without funding from the U.S. National Institutes of Health in order to get human data on the product faster, Valerie Riddle, PharmAthene’s senior vice president and medical director, testified yesterday in Delaware Chancery Court.

“PharmAthene provided the funding to Siga,” Riddle said during the second day of a trial in PharmAthene’s lawsuit against Siga over a licensing agreement for the smallpox medicine.

PharmAthene, based in Annapolis, Maryland, sued New York-based Siga in 2006, asking a judge to affirm the purported licensing agreement for the drug, which has gotten the attention of U.S. officials seeking ways to counter potential biological terror attacks. Siga contends there is no license and the company isn’t legally bound by documents prepared for a deal.

Riddle testified that PharmAthene also helped Siga prepare for a site meeting for a contract proposal that it submitted to the NIH. In addition, PharmAthene advised Siga on applying for a drug designation that provides for tax credits and marketing incentives, she said.

“Working toward developing 246 was the goal regardless of the business arrangement,” Riddle said. “I always thought we would get 246 either under a merger agreement or under a license arrangement.”

Former PharmAthene Chief Executive Officer David Wright testified Jan. 3 that Siga officials “guaranteed” the two companies would either merge or that Siga would license the drug to PharmAthene. He also acknowledged that Siga paid off a $3 million loan that helped fund the drug’s development.

The case is PharmAthene Inc. v. Siga Technologies Inc., CA2627, Delaware Chancery Court (Wilmington).

For more, click here.

U.S. Agrees to Delay of Allen Stanford Fraud Trial

U.S. prosecutors agreed to postpone the scheduled Jan. 24 criminal trial of financier R. Allen Stanford, who is accused of leading a $7 billion investment fraud scheme.

Prosecutors said in papers filed with U.S. District Judge David Hittner in Houston Jan. 3 that while they didn’t oppose a defense request to put off the trial, they disagreed on the duration of any delay.

“The requested continuance of two years is excessive,” Assistant U.S. Attorney Gregg Costa said in the filing. Stanford’s lawyers, who took over his defense in October, say they need time to prepare.

Stanford, 60, was indicted in 2009 for allegedly masterminding a securities fraud scheme centered on the sale of certificates of deposit by his Antigua-based Stanford International Bank Ltd. He has denied the charges.

Preparation of his defense has been hampered by changes of counsel. Stanford fired Houston attorneys Dick DeGuerin and Kent Schaffer over what both lawyers called personality and strategic conflicts. He lost the ability to pay lawyer Robert Bennett after a court said Lloyd’s of London underwriters didn’t have to honor a directors’-and-officers’ insurance policy.

Stanford is now represented by court-appointed defense lawyers, Ali Fazel and Robert Scardino. They have told the court that their client may be psychologically unfit to stand trial and have asked for a hearing to assess his competency.

Hittner is slated to hear arguments on the postponement tomorrow. Scardino said in a telephone interview that the judge will consider the length of the delay and hear arguments on Stanford’s fitness for trial.

The criminal case is U.S. v. Stanford, 09cr342, U.S. District Court, Southern District of Texas (Houston).

For the latest trial and appeals news, click here.


Ex-Primary Global Insider Suspects Maintain Bail After Hearing

A former sales manager and two ex-consultants for expert-networking firm Primary Global Research LLC were released on bail after a hearing before a New York federal judge as part of their prosecution in a nationwide probe of hedge fund insider trading.

James Fleishman, 41, a salesman at Primary Global, consultants Walter Shimoon, 39, formerly of Flextronics International Ltd., a Singapore-based maker of electronic components, and Mark Anthony Longoria, 44, formerly with chipmaker Advanced Micro Devices Inc., made their initial appearances yesterday in Manhattan after having their cases transferred from California and Texas, said Ellen Davis, a spokeswoman for the Justice Department.

Prosecutors alleged that the defendants, who haven’t entered formal pleas, were part of a “corrupt network of insiders” at leading technology companies who also served as consultants at expert-networking firms and are accused of peddling inside information to hedge funds.

The three men were charged Dec. 16 along with another man in complaints filed by Manhattan U.S. Attorney Preet Bharara. Magistrate Judge James Francis, who presided over yesterday’s hearing, agreed to continue all the defendants on the same bond conditions directed by judges last month.

Shimoon was released on $150,000 bond secured by $15,000 in cash, Longoria was continued free on a $50,000 bond and Fleishman had his $700,000 bond secured by $50,000 in cash and his home in Santa Clara, California.

Lawyers for all three men declined comment after court. Henry Mazurek, a lawyer for Shimoon, Fleishman’s lawyer, Ethan Balogh, and Jonathan Marks, a lawyer for Longoria, all declined comment.

The four defendants were charged with fraud and conspiracy and face as long as 20 years in prison on the most serious count, said Edeli Rivera, a spokeswoman for Bharara’s office. A fifth man, Daniel DeVore, a former supply manager at Dell Inc., pleaded guilty Dec. 10 to conspiracy to commit securities fraud and wire fraud.

The case is U.S. v. Shimoon, 10-mj-2823, U.S. District Court, Southern District of New York (Manhattan).

For more, click here.

Ex-Madoff Aide Bongiorno Transferred to New York Jail

Annette Bongiorno, who is accused of helping her former boss, Bernard L. Madoff, run a multibillion-dollar Ponzi scheme, has been moved to a Manhattan jail as she tries to win her release from U.S. custody.

Bongiorno, 62, is being held at the Metropolitan Correctional Center in Lower Manhattan, according to the Bureau of Prisons’ website. After surrendering to a lockup in Florida last month, Bongiorno is now in the New York jail as her attorneys seek to win her freedom by persuading a judge to set her bail at $2.5 million.

The former Madoff aide made her request for bail yesterday while another ex-Madoff worker, Daniel Bonventre, asked a judge to dismiss criminal charges against him. Bonventre said in court papers that prosecutors are interfering with his constitutional right to counsel by threatening to seize his assets -- including funds paid to his attorney’s escrow account -- because he wouldn’t cooperate with the government in its investigation of Bernard L. Madoff Investment Securities LLC.

Prosecutors’ “overriding objective” is “to pressure Mr. Madoff’s former employees to help the government build a case against one or more of the people closest to Mr. Madoff and the principal benefactors of his fraud: longstanding friends who invested extraordinary sums with him, as well as family members who worked with him at BLMIS, including his wife, brother, niece, nephew and two sons,” Bonventre’s lawyer, Andrew Frisch, wrote in a court filing yesterday.

Bongiorno is arguing for reduced bail of $2.5 million because prosecutors last week began seizing bank accounts belonging to her and her husband. She oversaw about 200 accounts at Madoff Securities, where she worked with Bonventre and others charged with aiding Madoff’s fraud. They deny wrongdoing.

The case is U.S. v. O’Hara, 10-cr-00228, U.S. District Court, Southern District of New York (Manhattan).

For more, click here.

U.K. Wins Global Asset Freeze Against Mining Firm Sinaloa Gold

Britain’s financial regulator won a court order freezing 890,000 pounds ($1.39 million) held by Sinaloa Gold Plc, a London-based mining company accused of violations related to the sale of its shares.

The worldwide freezing order, initially secured by the Financial Services Authority on Dec. 17, was extended until Jan. 13 by Justice David Richards at the High Court in London last week. The watchdog said at the hearing that it is seeking to recover money paid to Sinaloa for its shares.

The company, which explores for gold in Sinaloa, Mexico, was incorporated in May and was listed in Frankfurt last month, according to its website.

The FSA complaint also names one of Sinaloa’s directors, Glen Lawrence Hoover, as well as a Frankfurt-based company called PH Capital Invest, which the FSA in October added to its list of firms that aren’t authorized to carry out regulated activities in the U.K.

Sinaloa’s lawyer, David Orchard of the firm Stanwyck & Bond in London, declined to comment after the Jan. 3 hearing.

Court documents that include the FSA’s allegations in the case aren’t yet public. Joseph Eyre, a spokesman for the regulator, said the case doesn’t involve market manipulation and declined to comment further.

Hoover didn’t return a message left at Sinaloa’s London office last week and calls to the number yesterday weren’t answered. A call to the company’s U.S. office in Layton, Utah, after the hearing last week wasn’t returned.

For the latest lawsuits news, click here.

New Suits

China Gas Executives Held for Suspected Embezzlement

China Gas Holdings Ltd., the energy supplier to mainland homes and businesses, said two board members have been detained by the Shenzhen Municipal Public Security Bureau since Dec. 18 for suspected embezzlement.

Liu Ming Hui and Huang Yong have been held for investigation for suspected “embezzlement of the assets of an organization in which they have duties,” China Gas said in a statement to the Hong Kong stock exchange yesterday.

China Gas has conducted an internal review that found “no indication of any irregularities involving recent material movement of cash or funds,” according to the statement. The gas supplier, whose shares in Hong Kong were suspended on Dec. 20, has ordered an independent review.

“The incident won’t affect the company’s day-to-day gas business, but investors will worry about its corporate governance and this will affect its image,” Yuk-kai Lee, an analyst at Core Pacific-Yamaichi International, said by telephone from Hong Kong. “Its shares will be under heavy selling pressure in the short term.”

For more, click here.

DeVry Directors Face Lawsuit Over Recruitment Tactics

A DeVry Inc. shareholder sued 14 of the for-profit education company’s officers and directors alleging their failure to properly oversee the schools’ recruitment and financial aid policies injured the company.

Shareholder Timothy Hald, in a lawsuit filed Jan. 3 in Illinois state court in Chicago, claims bad recruiting practices at DeVry schools have left students debt ridden and without prospects for employment.

“The improper recruiting tactics allowed DeVry to grow rapidly, but now threaten the company’s future profitability and survival,” Hald said. He is seeking a court order for the directors to reform DeVry’s governance and pay restitution to the company.

For-profit education companies including DeVry, Washington Post Co.’s Kaplan Inc. and Apollo Group Inc.’s Phoenix University have been criticized for their rising student loan default rates by federal legislators and the non-profit Education Trust research center.

The Washington-based Education Trust, in a November report, said only one in five for-profit college students earns a bachelor’s degree within six years and most graduate with “enormous debt.”

DeVry Inc., based in the Chicago suburb of Downers Grove, operates its namesake university and Carrington College, the Keller Graduate School of Management and Chamberlain College of Nursing.

Chairman Harold T. Shapiro and Chief Executive Officer Daniel Hamburger are among the officers and directors named as defendants in the lawsuit. Joan Bates, a company spokeswoman, didn’t immediately respond to voice-mail and e-mail messages seeking comment after regular business hours.

The case is Hald v. Hamburger, 11CH00087, Cook County, Illinois, Circuit Court, Chancery Division (Chicago).

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


Microsoft Loses Appeal in $388 Million Uniloc Verdict

Microsoft Corp., the world’s biggest software maker, infringed a patent on technology used to deter piracy owned by Uniloc USA Inc. and Uniloc Singapore Private Ltd., an appeals court said. A new trial on damages was ordered.

The U.S. Court of Appeals for the Federal Circuit in Washington yesterday called for a new trial on the amount Microsoft should pay Uniloc, saying a lower-court verdict of $388 million in damages was “fundamentally tainted by the use of a legally inadequate methodology.”

“It’s a strong validation of the value of the patent,” Brad Davis, chief executive officer of Irvine, California-based Uniloc USA, said in a telephone interview. “The damages issue is what it is, and we’ll live with it. We have a sense of how much we contributed to Microsoft’s bottom line.”

U.S. District Judge William Smith in Providence, Rhode Island, had thrown out a 2009 verdict Uniloc won. The company was appealing Smith’s decision, while Microsoft was seeking a court ruling that would limit the ability of patent owners to seek big damage awards from large technology companies.

Uniloc’s suit, filed in October 2003, targeted Microsoft’s Windows XP operating system and some Office programs. Microsoft, based in Redmond, Washington, argued that it used a different method for registering software and that the patent was invalid.

Lawyers for closely held Uniloc showed jurors at trial a pie chart with $19.1 billion in revenue from the Windows XP operating system and some versions of Word. They were seeking 2.9 percent of that total, or about $564 million. The jury awarded Uniloc $388 million.

The panel’s award was the third-largest jury verdict in 2009 and the second-biggest patent verdict, behind a $1.67 billion award against Abbott Laboratories.

The case is Uniloc USA v. Microsoft Corp., 10-1035, U.S. Court of Appeals for the Federal Circuit (Washington). The lower court case is Uniloc USA Inc. v. Microsoft Corp., 03cv440, U.S. District Court, District of Rhode Island (Providence).

For more, click here.

For the latest verdict and settlement news, click here.

Litigation Departments

Paul Weiss Partner May Sue Ex-Wife Over Madoff Funds

A New York law firm partner who said he paid his ex-wife $2.7 million of the purported value of his account with Bernard Madoff can sue her to revise their 2006 agreement because of the Ponzi scheme, an appeals court ruled.

Yesterday’s decision overturns a lower-court ruling dismissing the suit by Steven Simkin, chairman of Paul, Weiss, Rifkind, Wharton & Garrison LLP’s real estate department. Simkin sued his former wife, Laura Blank, in state court in Manhattan in February 2009 after Madoff’s fraud became public.

The state’s Appellate Division, First Department, reinstated the complaint, citing the doctrines of “mutual mistake” and “unjust enrichment.” Two of the five justices dissented.

“Even though there is an express contract between the parties, it is unclear whether it covers the current dispute; therefore, plaintiff may plead unjust enrichment,” the court’s majority said.

The decision also made a distinction between a mistake in valuation and Simkin’s theory of “mutual mistake” as to the existence of the account itself because of Madoff’s scheme.

Simkin said he and his ex-wife believed they owned an account with Bernard L. Madoff Investment Securities LLC, which was their largest asset, according to the decision. Of the $6.6 million that Simkin paid Blank under their 2006 agreement, he said $2.7 million was attributable to her share of a Madoff account valued at $5.4 million. He’s seeking restitution from her.

Blank’s lawyer, Richard Emery of Emery Celli Brinckerhoff & Abady LLP in New York, called yesterday’s decision “completely erroneous” and vowed to take the case to the New York state Court of Appeals, the state’s highest court.

“Of course, we have sympathy for Simkin’s loss, but it doesn’t mean that everybody he did business with should have their money clawed back just because he paid them believing he had more money than he did,” Emery said in a phone interview. “Is every divorce agreement to be revisited when values change in the future?”

Simkin and his attorney, Mark Alcott, of counsel to Paul Weiss, didn’t return calls seeking comment.

The case is Simkin v. Blank, 101501/2009, New York State Supreme Court, Appellate Division, First Department (Manhattan).

For more, click here.

For the latest litigation department news, click here.

On the Docket

Hermes Buyout Defense Ruling Unlikely This Week, Activist Says

A request by the founding family of Hermes International SCA to set up a defense against a possible takeover by LVMH Moet Hennessy Louis Vuitton SA without having to bid for the rest of Hermes won’t be decided on this week, a French shareholder-activist group said.

France’s financial markets regulator isn’t likely to decide at a Jan. 6 meeting whether the family can set up a holding company controlling more than half of Hermes’s equity without making a public offer for all shares, Colette Neuville, the head of Minority Shareholder Defense Association, said yesterday after sending a letter urging the AMF not to allow the plan.

“It would shock me” if the Autorite des Marches Financiers reached a decision this week, Neuville said in a telephone interview. “It’s not ripe. There are many, many questions” to be addressed.

Members of the family proposed forming a holding company after LVMH, the world’s largest luxury goods maker, announced in October it had acquired a 17.1 percent stake via equity swaps. LVMH said on Dec. 21 it increased its stake to at least 20 percent.

The defensive move would establish that the family, who own more than 70 percent of the scarf and bag maker, is acting in concert and gives them a right of first refusal on the sale of any shares held directly by other family members.

That should trigger AMF rules requiring the family bid for the rest of the shares, Neuville said in her third letter to the AMF.

Hermes spokeswoman Christel Denef said she had no information on the matter. An AMF spokeswoman declined to comment on the meeting of the 16-member board.

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