The U.S. Securities and Exchange Commission renewed its demand that Galleon Group cofounder Raj Rajaratnam turn over wiretaps recorded by the Justice Department, before a criminal trial set to begin next month in New York.
The SEC, which has charged Galleon, Rajaratnam and others with insider trading in a civil enforcement action, claimed in papers filed Jan. 11 that it needs access to the wiretaps to prepare its case.
“There is no telling how much additional material will be contained on the intercepts that warrants follow-up by the SEC,” the agency claimed.
The SEC request follows a ruling by U.S. District Judge Richard J. Holwell in November that prosecutors hadn’t violated the law in wiretapping Rajaratnam and Danielle Chiesi, a former hedge fund consultant who was charged with Rajaratnam. Rajaratnam has offered to produce relevant wiretaps after the conclusion of his trial.
Rajaratnam claims that only 240 of the 18,150 communications wiretapped on Rajaratnam’s and Chiesi’s telephones are relevant to the SEC case, the agency said in its papers.
Jim McCarthy, a spokesman for Rajaratnam, had no immediate comment on the SEC demand.
The criminal case is U.S. v. Rajaratnam, 1:09-cr-1184; the civil case is SEC v. Galleon Management LP, 09-cv-08811, U.S. District Court, Southern District of New York (Manhattan).
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Jiau to Be Moved to New York to Face Insider Charges
Winifred Jiau, a former Primary Global Research LLC consultant arrested in a U.S. Justice Department insider-trading probe, will be transferred to federal court in New York from San Francisco to face charges.
U.S. Magistrate Judge Bernard Zimmerman in San Francisco yesterday ordered Jiau to be transported “forthwith” to face charges by federal prosecutors in New York that she sold information about Nvidia Corp. and Marvell Technology Group Ltd. to portfolio managers at three unidentified hedge funds through Primary Global. Jiau didn’t contest the transfer.
Jiau’s preliminary hearing in federal court in Manhattan will be delayed 30 days to give her attorney time to prepare, Zimmerman said. Yesterday’s hearing in Zimmerman’s court lasted less than two minutes.
Jiau, who was arrested Dec. 28, has been in custody in Dublin, California, after Zimmerman said there was a risk she would flee if released on bail.
She faces one count each of conspiracy to commit securities fraud and securities fraud. Under sentencing guidelines, she may be imprisoned for 51 months to 63 months if convicted, Assistant U.S. Attorney Wilson Leung said Jan. 3. Leung said then that prosecutors in the office of U.S. Attorney Preet Bharara in Manhattan intended to indict her “shortly.”
Jiau intends to plead not guilty, her attorney, Mark Goldrosen, said Jan. 11.
The U.S. insider-trading probe became public in 2009 with the arrest of Galleon Group LLC hedge fund co-founder Raj Rajaratnam, who denies the charges against him and is scheduled to go on trial in Manhattan on Feb. 28.
Global Reinsurance Antitrust Suit Against Equitas Reinstated
A Global Reinsurance Corp. antitrust suit against Equitas Ltd. was reinstated by a New York appeals court, after a lower court dismissed the case.
Equitas is an unlisted reinsurance company created by Lloyd’s of London to protect it from policies sold before 1993, including asbestos and environmental claims. The complaint alleges cost savings from eliminating competition over claims-handling with respect to the pre-1993 business were realized at its expense.
“The allegations are sufficient because they support a reasonable inference that at all relevant times the Lloyd’s syndicates had market power, i.e., ‘the ability to raise price significantly above the competitive level without losing all of [their] business,” according to the 4-1 decision, issued yesterday by New York’s Appellate Division, First Department.
Equitas is alleged to be at the hub of a worldwide conspiracy -- with Lloyd’s a submarket -- involving the purchase, sale and servicing of coverage reinsurers provide to insurers that provide the coverage to underlying policyholders of property, casualty and related insurance, the decision said.
In March 2007, Warren Buffett’s Berkshire Hathaway Inc. completed a transaction to assume as much as $7 billion of liabilities held by Equitas, with National Indemnity Co. providing reinsurance.
The agreement, announced in October 2006, ended more than a decade of concern that Equitas, representing about 34,000 private investors with personal liability as former “names” at Lloyd’s, would be unable to pay potential claims.
Kevin Arquit, an attorney for Equitas, did not return a call for comment.
The case is Global Reinsurance Corp. -- U.S. Branch etc. v Equitas Ltd., 600815/2007, New York state Supreme Court (Manhattan).
Ensco Wants U.S. Ordered to Process Drilling Permits
Ensco Offshore Co. asked a judge to order the Obama administration to process five permits for drilling in the Gulf of Mexico, claiming the U.S. has prevented rigs from returning to work despite lifting a ban in October.
“There has been no activity for about three months after the moratorium has been suspended,” Adam Feinberg, Ensco’s attorney, said at a hearing in New Orleans federal court yesterday. None of the permits that would have been barred by the moratorium has been approved since the ban was lifted, he said.
U.S. regulators imposed the moratorium on drilling in waters deeper than 500 feet on July 12, to replace an earlier ban struck down by Feldman as too broad. Interior Secretary Kenneth Salazar lifted the second moratorium in October and asked Feldman to throw out Ensco’s lawsuit challenging it. The bans came in response to the April 20 Deepwater Horizon rig explosion that killed 11 workers and caused a well owned by BP Plc to leak crude into the gulf for months.
The U.S. hasn’t unreasonably delayed granting permits for drilling in the gulf, government lawyer Guillermo Montero told U.S. District Judge Martin Feldman of New Orleans.
“Everybody wants these permits to be issued,” Montero said. The new safety rules have to be followed, he said.
Feldman dismissed part of Ensco’s suit in November while retaining the drilling company’s remaining claims that regulators improperly delayed permitting decisions and exceeded their authority in requiring permits. Feldman, who heard arguments yesterday on these claims, asked for additional briefing by Jan. 20 before making a ruling.
The case is Ensco Offshore Co. v. Salazar, 2:10-cv-01941, U.S. District Court, Eastern District of Louisiana (New Orleans).
Evonik Must Reveal EU Papers on Additive Cartel, Customers Say
Evonik Industries AG, Germany’s largest specialty chemicals maker, should turn over European Union filings about its involvement in a 13-year price-fixing cartel, lawyers for meatpackers told a U.K. judge.
The filings, in which Evonik sought to reduce EU fines by describing the cartel for animal-feed additives, would assist in customer lawsuits against the cartel members, a lawyer for the Dutch meat processor Vion NV and Moy Park Ltd., a U.K. unit of Brazilian meatpacker Marfrig Alimentos SA, argued yesterday.
“Detailed notes” and documents about “the day-to-day operations of the cartel and how prices were fixed” would assist the companies in their lawsuit, Ben Rayment, Moy Park’s lawyer from Monckton Chambers in London, said at the hearing at the Competition Appeal Tribunal in London.
European Commission antitrust regulators in 2002 fined Essen, Germany-based Evonik 118 million euros ($154 million) for agreeing with other companies to fix the price of methionine, an amino acid added to most animal feed and to all chicken feed, from 1986 to 1999. The European Court of Justice dismissed the company’s appeal in 2008.
Evonik earlier asked to add Sanofi-Aventis SA as a co-defendant in the case. Aventis SA, now part of Paris-based Sanofi-Aventis, and another unit were also part of the cartel. Aventis won immunity from fines in the case by revealing the cartel to authorities and cooperating with the investigation.
Evonik’s lawyer, Daniel Beard of Monckton Chambers in London, said at the hearing that providing the documents would “undermine” the way in which the European Commission’s so-called leniency documents are supposed to be used. The claimants asked the tribunal to seek permission from the commission to use the documents in the case.
Ponzi Schemer Who Spent $22 Million Pleads Guilty, Police Say
A director of GFX Capital Ltd., whom London police accused of running a Ponzi scheme, pleaded guilty to fraud and admitted spending 14 million pounds ($22 million) of his customers’ money.
Terry Freeman pleaded guilty to fraudulent trading and engaging in business while bankrupt at Southwark Crown Court in London, police said yesterday in a statement. Freeman, whose fraud affected about 700 people, is scheduled to be sentenced Feb. 14.
Investors gave Freeman their money “with the promise of no risk and high returns on the foreign-exchange markets,” police said in the statement. “In fact, millions of pounds of their money were soon disappearing on botched trades.”
Freeman was charged in October 2009. His scheme began falling apart after a bad bet on the U.S. dollar in 2008, based on his assumption Lehman Brothers Holdings Inc. would receive a government bailout, police said. After the bankruptcy, he lost half of his total investment fund while reporting 12 percent profits anyway, police said.
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Abbott Sued Over Claims Arthritis Drug Caused Cancer
Abbott Laboratories was sued by a Texas rheumatoid arthritis sufferer who claims she developed lymphoma after taking its drug Humira in a company-sponsored clinical trial in 2005.
“Abbott had the data in its possession by January 2005 to alert people to the three- to fivefold potential risk of cancer for patients taking Humira,” lawyer Andy Vickery said in a lawsuit filed Jan 11 in Houston federal court. “Abbott did nothing to warn patients directly about the risks of Humira-induced cancers” until federal regulators required it in 2009.
Gayathri Murthy, a Houston hospital worker, began taking Humira as part of a clinical trial in early 2005, for treatment of rheumatoid arthritis, according to the complaint. Her doctor warned her the drug increased the risk of tuberculosis and said other side effects were similar to the “side effects of aspirin.”
She remained on the drug until she was diagnosed with lymphoma in February 2006, according to the complaint.
Humira is expected to outsell Roche Holding AG’s Avastin cancer medicine by 2016 to become the world’s most lucrative drug, according to a May forecast by research company EvaluatePharma. Revenue from Humira will increase about 9 percent annually to $10.1 billion in 2016 from $5.6 billion in 2009, London-based EvaluatePharma said in a May 3 statement.
“Humira has more than 12 years of clinical and safety data and best-in-class efficacy,” Adelle Infante, Abbott’s spokeswoman, said in a brief phone interview yesterday. “The therapeutic risks associated with Humira are well-known and documented in the prescribing label.”
Humira’s full warning label, which was inserted in packaging provided to doctors rather than patients, warned in July 2004 that patients in clinical trials of the same class of drugs as Humira developed a small number of cancers not seen in patients receiving other rheumatoid arthritis treatments, according to the complaint.
The case is Murthy v. Abbott Laboratories, 4:11-cv-00105, U.S. District Court, Southern District of Texas (Houston).
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Oregon Sues J&J Over Secret Recall of Faulty Motrin
Johnson & Johnson, after recalling more than 40 types of medicines last year, was sued by Oregon over claims it put consumers at risk by secretly removing defective Motrin painkiller from store shelves.
Attorney General John Kroger said Johnson & Johnson sought to avoid negative publicity with a plan to covertly buy up supplies of the defective product from retailers instead of conducting an open recall. The complaint, filed Jan. 11 in state court in Portland, seeks restitution of all Oregon purchases of Motrin plus unspecified damages.
“Companies that break the rules and put consumers at risk will be held accountable,” Kroger said yesterday in a statement on the suit.
J&J, the world’s biggest maker of health-care products, recalled the medicines because of contamination and inaccurate labeling. The company became the target of government investigation after it was forced to suspend operations at a Pennsylvania plant following a recall of children’s Tylenol. The probe uncovered the use of contractors to buy defective Motrin.
“McNeil’s actions were consistent with applicable law and there was no health or safety risk to consumers associated with this limited recall,” Marc Boston, a spokesman for the J&J unit in Fort Washington, Pennsylvania, said in an e-mailed statement. “As there is no legal basis for the claims advanced by Oregon, we intend to seek dismissal of the complaint.”
The Motrin tablets, which didn’t dissolve properly, were sold in 8-caplet and 24-caplet containers at gas stations, truck stops and convenience stores, according to the complaint. Johnson & Johnson’s McNeil subsidiary allegedly hired contractors to go into stores in early 2009 and secretly purchase the supplies, according to the complaint.
The case is Oregon v. Johnson & Johnson, Circuit Court, Multnomah County (Portland).
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Insider-Trading Cooperators at Heart of Prosecutions
UBS AG investment banker Nicos Stephanou, facing more than 10 years in prison for insider trading, made a quick decision following his arrest two years ago: He decided to become a government informant.
As the U.S. government cracks down on insider trading at hedge funds, technology companies and expert-networking firms, more than a dozen traders, lawyers and executives are following in Stephanou’s footsteps. In bids for leniency, they’ve turned on friends and associates, Bloomberg News’ David Glovin reports. While prosecutors have touted the use of wiretaps in the case of Galleon Group LLC’s Raj Rajaratnam, convictions in such cases may rest on testimony by accomplices who point a finger at confederates to save their own skin.
On Jan. 11, Bob Nguyen, who worked at Primary Global Research LLC, a Mountain View, California-based expert-networking firm that links employees of public companies with traders, pleaded guilty to insider trading and agreed to cooperate with prosecutors. He is the latest of the firm’s former employees and consultants implicated in a federal investigation of trading by hedge funds.
Next month’s insider trading trial of Rajaratnam may feature testimony from several cooperators, including one who befriended him a quarter of a century ago.
At his Feb. 8 guilty plea, Rajiv Goel, who had been a managing director in Intel Corp.’s treasury group, said he leaked tips to Rajaratnam “because of my friendship for him.” Goel’s lawyer, David Zornow, declined to comment.
Rajaratnam, 53, denies wrongdoing and said he didn’t trade on inside information. At the trial in Manhattan federal court, prosecutors also plan to present wiretaps of his phone calls.
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Boston Scientific Unit Gets Probation Over Devices
A judge accepted a Boston Scientific Corp. unit’s guilty plea to charges it hid defects in heart defibrillators and placed the company on three years’ probation to deter similar conduct.
U.S. District Judge Donovan Frank in St. Paul, Minnesota, agreed yesterday to honor Guidant’s plea agreement after rejecting it in April. Boston Scientific agreed in November that the unit would plead guilty to two misdemeanors and pay $296 million to settle a U.S. Justice Department probe. Frank added the probationary term at a hearing yesterday.
“There were decisions made deliberately to advantage the company by withholding information and misrepresenting information,” Robert Lewis, an assistant U.S. Attorney, told Frank before he approved the plea.
Prosecutors said in court papers that Guidant officials learned as early as 2002 that some of the implantable defibrillators had a tendency to short-circuit and caused users’ deaths. The Natick, Massachusetts-based company didn’t disclose the defects for more than three years, the U.S. said.
Paul Donovan, a Boston Scientific spokesman, didn’t return a call and e-mail seeking comment on the judge’s decision to accept Guidant’s plea and place the company on probation.
Boston Scientific halted all sales of heart-rhythm devices in March because of an erroneous filing with regulators. The U.S. Food and Drug Administration cleared the company to begin selling defibrillators again about a month later. The devices are implanted in patients’ bodies to shock hearts back into normal rhythm.
The case is U.S. v. Guidant LLC, 10-mj67-DWF, U.S. District Court, District of Minnesota (St. Paul).
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Ex-Nomura Vice President Gets 7 Years for Conspiracy
A former Nomura International Plc vice president received a seven-year prison sentence for his role in attempting to defraud companies and banks out of 50 million pounds ($79 million).
Matthew Hinds, 36, and his accomplice, Ganendran Subramaniam, 34, were sentenced at a criminal court in London after they were found guilty of conspiracy to defraud at an 11-week trial, police said in a statement yesterday. Subramaniam received an 11-year term.
Subramaniam made a deposit on the purchase of a shell company called Astrobridge Ltd. in 2007, and then worked with Hinds at Nomura to attain mortgages “worth tens of millions” of pounds to buy London properties, police said. Hinds created false documents on Nomura letterhead, stating Astrobridge was run by a millionaire commodity trader and that it had revenue of $400 million, which were then sent to potential lenders.
“These are two of the longest sentences for fraud that I recall during my many years with the police,” said Steve Head, the City of London Police’s head of economic crime. “The sentences given to the two defendants demonstrate just how seriously the courts are taking incidences.”
The owner of Astrobridge was unaware of the activities, according to police. Nomura discovered the scheme through a letter from someone who received one of the pair’s false bank guarantees, police said. The bank conducted an internal investigation and then referred the case to police.
“As soon as Nomura discovered Matthew Hinds’ actions in 2007, we alerted the relevant authorities including the police,” the bank said in a statement. “Since then we have fully supported their enquiries. The attempted fraud by Matthew Hinds was in a personal capacity and not related in any way to Nomura’s business.”
Edward Hayes LLP, the law firm that represented Hinds, didn’t return a call seeking comment. Subramaniam represented himself, according to the court.
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Tucson Shooting Case to Be Handled by Judge From San Diego
The case of Jared Lee Loughner, accused of murder and attempted murder in a Jan. 8 shooting rampage in Tucson, Arizona, will be presided over by a federal judge from San Diego.
U.S. District Judge Larry A. Burns was appointed to handle the case after federal judges in Arizona recused themselves, according to a statement yesterday by the U.S. Court of Appeals in San Francisco. David Madden, assistant circuit executive with the appeals court district that includes Arizona, said the court proceedings would take place in Arizona.
Burns was nominated to the court by President George W. Bush in 2003. He’s a former deputy district attorney and assistant U.S. attorney in San Diego.
“He strikes me as a very good choice,” said Mark Holscher, a lawyer who represented former U.S. Representative Randy “Duke” Cunningham before Burns. “He’s a very conscientious and fair judge who runs a tight courtroom.”
Burns in 2006 sentenced Cunningham to eight years and four months in prison after the congressman admitted taking bribes from defense contractors. The judge also presided over the prosecution and sentencing of Javier Arellano-Felix, head of the Arellano-Felix drug cartel in Mexico.
“In high-profile cases there are a lot of distractions, but he won’t allow that to impact the case,” said Edward “Pat” Swan, a San Diego lawyer who worked with Burns at the U.S. Attorney’s Office. “He doesn’t show bias and gives both parties the opportunity to be heard.”
U.S. Representative Gabrielle Giffords, an Arizona Democrat, was shot through the head Jan. 8 during a community meeting at a Tucson shopping mall. Six people were killed, including U.S. District Judge John Roll, who was the chief judge of the federal district court in Arizona. Loughner, 22, the alleged gunman, is being held without bail in Phoenix and could face the death penalty if convicted.
Judy Clarke, the lawyer appointed to represent Loughner, didn’t return a call to her San Diego office seeking comment yesterday. Clarke said at Loughner’s initial court appearance on Jan. 10 that all federal prosecutors in Arizona should step down from the case.
Loughner is charged in federal court with two counts of murder in the deaths of Roll and one of the congresswoman’s aids. Loughner also is charged with the attempted assassination of Giffords, who is in critical condition at a Tucson hospital, and the attempted murder of two other members of her staff.
Loughner is scheduled to appear again in court on Jan. 24 to enter a formal plea.
The case is U.S. v. Loughner, 11-00035, U.S. District Court, District of Arizona (Phoenix).