Jan. 19 (Bloomberg) -- Bank of America Corp., ordered to return $500 million in deposits to Lehman Brothers Holdings Inc. and pay $90 million in interest, said it didn’t act with “maliciousness” and shouldn’t have to pay damages greater than $1.3 million of Lehman’s costs for litigating the case.
The bank wants to argue the point in a written brief to U.S. Bankruptcy Judge James Peck, who has said he might fine Bank of America for breaking bankruptcy rules in taking the deposits, according to the bank’s Jan. 14 filing in U.S. Bankruptcy Court in Manhattan.
Lehman isn’t entitled to punitive damages because it can’t prove the bank acted maliciously, Bank of America said in the filing, a report by the two banks on the status of the case.
On top of the $590 million, Lehman said it wants at least $10 million more, including attorney fees and other funds taken by the bank.
Peck said in his November ruling that Charlotte, North Carolina-based Bank of America took deposits unrelated to the loans to Lehman that it sought to protect. The seizure after New York-based Lehman went bankrupt violated the law, he said.
The case is Bank of America NA v. Lehman Brothers Holdings Inc., 08-01753, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
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Apple May Not Need to Reveal Details of Jobs Medical Leave
Apple Inc. may already have told investors all it needs to about Steve Jobs’s health problems in its Jan. 17 statement that he was granted a leave of absence, according to three securities law experts, Bloomberg News’ Chris Dolmetsch and Peter Burrows report.
“They don’t have to say any more than the fact that he’s taking a leave, it’s indefinite, if that’s what it is,” James Cox, a Duke University law professor, said yesterday. “Then they can express lots of generalized optimism which is not going to get them into trouble because that’s the kind of expected puffery for which there’s no actionable claims to speak of.”
Jobs took a leave of absence as his health deteriorates from battling a rare form of cancer and the effects of a liver transplant he had almost two years ago, according to a person with knowledge of the situation.
Securities laws require Apple to disclose developments that a reasonable investor would consider to be important, Peter Henning, a law professor at Wayne State University, said in a phone interview. The SEC hasn’t provided guidance on whether that would include Jobs’s medical condition, he said.
Steve Dowling, an Apple spokesman, declined to comment beyond the statement.
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Parmalat Claim Against Grant Thornton Revived by Court
Two suits by Parmalat SpA and the company’s Parmalat Capital Finance Ltd. unit claiming damages from the accounting firm Grant Thornton LLP were revived by a federal appeals court in New York.
The appeals court ruled yesterday that U.S. District Judge Lewis Kaplan, who was assigned to oversee federal Parmalat-related lawsuits from throughout the country, applied the wrong standard in deciding to exercise jurisdiction over the Grant Thornton suits, which were originally filed in Illinois state court.
The appeals court sent the cases back to Kaplan to determine whether he should have permitted the cases to stay in Illinois. Kaplan, after taking jurisdiction over the cases, dismissed them in 2009. An affirmative ruling by Kaplan, or by the appeals court reviewing Kaplan’s answer to the question, would undo the dismissals and permit the Illinois court to consider the claims.
The case is In re Parmalat Securities Litigation, 04-cv-01653, U.S. District Court, Southern District of New York (Manhattan).
Banks in MBIA Suit Oppose Insurance Department Appeal
UBS AG, Bank of America Corp. and other financial institutions opposed the New York state Insurance Department’s appeal of a court order to review e-mails by officials who approved the 2009 split of MBIA Inc.
The banks, which sued over MBIA’s restructuring, filed papers yesterday with the state’s Appellate Division, First Department, in opposition to the department’s Jan. 3 motion for permission to appeal.
In the case, filed in New York state Supreme Court in Manhattan, the banks, which hold MBIA Insurance Corp. policies, are challenging the department’s decision to allow MBIA to split its municipal bond policies from its guarantees of subprime mortgages and other debt that led to the loss of its top ratings in 2008.
The state appeals court dismissed another case this month by the banks challenging the split of the Armonk, New York-based company, leading MBIA to climb to the highest since September 2008. That decision will be appealed to New York’s highest court, in Albany, according to Robert Giuffra Jr., lead counsel for the banks.
The banks claim the bond insurer’s restructuring left MBIA Insurance Corp. with insufficient assets to honor its long-term obligations.
“The New York Insurance Department is fighting tooth and nail to stop the public from knowing anything about the basis for its improper decision to allow MBIA to strip $5 billion in assets from MBIA Insurance and illegally engineer its unprecedented split into a ‘good insurer’ and a ‘bad insurer,’” Giuffra said in an e-mailed statement.
The banks claim the restructuring transferred $5 billion in cash and securities out of MBIA’s primary operating unit, MBIA Insurance, to another entity now known as National Public Finance Guarantee Corp., according to the complaint. The move benefited MBIA shareholders and executives while leaving MBIA Insurance with insufficient assets to honor long-term guarantees of about $230 billion in debt, the plaintiffs said.
The case is ABN Amro Bank NV v. MBIA Inc., 601846-2009, New York State Supreme Court (Manhattan).
Ally’s GMAC Dismisses 250 Maryland Foreclosures
Ally Financial Inc.’s GMAC Mortgage unit agreed to drop about 250 foreclosure cases in Maryland that were tied to defective affidavits, the company said yesterday.
GMAC made the decision in November to dismiss and re-file active foreclosure cases that may have been affected by flawed foreclosure affidavits, Gina Proia, a spokeswoman for Ally, said yesterday in an e-mailed statement.
“We’re dismissing the cases but they will be re-filed,” Proia said. “The intention is to re-file the cases to go through the new foreclosure procedures in Maryland.”
GMAC’s decision comes after a Maryland nonprofit, Civil Justice Inc., agreed to drop a class-action lawsuit on behalf of homeowners whose foreclosure documents were signed by GMAC employee Jeffrey Stephan, Anthony DePastina, an attorney for Civil Justice, said in a phone interview. Stephan said in sworn depositions last year and in 2009 that he signed as many as 10,000 affidavits a month without checking their accuracy in a practice that has come to be known as “robo-signing.”
“Hopefully GMAC’s actions will set a precedent with other lenders where robo-signing has occurred,” DePastina said. “I think there will be a ripple effect throughout the country.”
DePastina said as many as 1,000 foreclosures may be tied to defective affidavits. Proia said that number is “factually inaccurate.”
“The company has been filing cases for dismissal and many have already been granted,” Proia said in an e-mail.
Ally’s GMAC Mortgage unit halted evictions in 23 states in September amid concerns over its handling of foreclosure documents. All 50 U.S. states are investigating mortgage firms after revelations that banks may have acted illegally in using so-called robo-signers to validate documents.
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Ex-Hedge Fund Manager Swindled Investors, U.S. Claims
A former hedge fund manager defrauded almost 50 investors in a seven-year scheme that cost his clients more than $3.5 million, Chicago U.S. Attorney Patrick Fitzgerald said.
James Brandolino, 42, of Joliet, Illinois, was charged yesterday with a single count of mail fraud, a crime punishable by as many as 20 years in prison, Fitzgerald said in a statement.
“Since 2003, Brandolino allegedly told investors that their funds, minus a commission, would be used to trade futures contracts and always told them that the trading was profitable, even though often it was not,” Fitzgerald said.
A former principal of the Brandolino Investment Group, Falcon Capital Partners LLC and Lloyd Lewis Capital Inc., Brandolino took in about $4.7 million from “high net worth investors,” according to the U.S.
He provided about $1.1 million in redemptions, lost about half of the balance and spent most of the remainder on a 2004 BMW, a Rolex wristwatch and a down payment on an unbuilt condominium in Greece, Fitzgerald said.
Brandolino surrendered to federal agents yesterday and, at an initial appearance before U.S. Magistrate Judge Michael Mason, asked to remain in federal custody, according to prosecutors.
“Jim turned himself in before any investigation began in an attempt to do the right thing,” his lawyer, Robert J. Callahan of Chicago, said in a telephone interview. Citing the federal case, Callahan declined to comment further.
Brandolino, who didn’t enter a plea yesterday, waived his right to a hearing where the government must prove it has probable cause to believe he committed a crime, said Randall Samborn, a spokesman for Fitzgerald. The U.S. has 30 days to obtain a grand jury indictment, Samborn said.
The case is U.S. v. Brandolino, U.S. District Court, Northern District of Illinois (Chicago).
JPMorgan’s EMC Mortgage Sued Over Home Loan Documents
JPMorgan Chase & Co.’s EMC Mortgage, facing homeowner lawsuits over foreclosures, was sued by the trustee of a mortgage portfolio for refusing to turn over documents detailing the quality of loans bought by the trust.
Wells Fargo & Co., the trustee, is seeking access to files for more than 2,000 underlying mortgages in the Bear Stearns Mortgage Funding Trust 2007-AR2, according to the complaint filed yesterday in Delaware Chancery Court in Wilmington.
“The trustee has repeatedly requested that EMC provide access to the subject documents,” Wells Fargo said in the complaint. “EMC has played proverbial ‘rope a dope’ and otherwise continued to drag its feet, and has produced nothing.”
Claims of wrongdoing by banks and loan servicers triggered a 50-state investigation last year into whether hundreds of thousands of foreclosures were properly documented as the housing market collapsed. Lending practices have also pitted mortgage-bond investors against banks over misrepresentations such as overstatements of borrowers’ income and inflated appraisals.
Christine Holevas, a spokeswoman for New York-based JPMorgan, declined to comment.
The case is Bear Stearns Mortgage Funding Trust 2007-AR2 by Wells Fargo Bank NA as Trustee v. EMC Mortgage Corp., CA6132, Delaware Chancery Court (Wilmington)
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Boeing Gets Support at Top Court on $3 Billion Award
The U.S. Supreme Court questioned a ruling that could force Boeing Co. and General Dynamics Corp. to pay $3 billion in a clash with the Navy over a canceled contract for a stealth fighter aircraft.
Hearing arguments in a 20-year-old legal dispute, the justices yesterday reviewed a federal appeals court decision letting the Navy cancel the contract on the grounds that the companies failed to meet their obligations. The ruling put the government on track to recover $1.35 billion in payments, plus the interest that has accrued over two decades.
Several justices suggested the government’s invocation of the so-called state secrets privilege, which let it avoid disclosing sensitive information, prevented Boeing and General Dynamics from presenting their case. Chief Justice John Roberts and Justice Antonin Scalia said the fairest outcome might be to throw out the whole case -- barring both the U.S. claim and the companies’ bid for $1.2 billion plus interest.
Two other justices, Ruth Bader Ginsburg and Stephen Breyer, voiced support for the government. Breyer said the companies’ position would mean that “we’re not just throwing a monkey wrench into the gears of government contracting, we’re throwing the whole monkey.”
The multibillion-dollar fight stems from one of the largest defense procurement fiascos in U.S. history. The A-12 Avenger, as the plane was known, never made it into production in spite of years of development. It was designed to penetrate heavily defended locations.
In 1988, General Dynamics and McDonnell Douglas signed a contract to build eight of the planes for the Navy at a total target price of $4.4 billion. Three years later, the Navy and then-Defense Secretary Dick Cheney declared the company in default and canceled the contract.
The cases are General Dynamics v. United States, 09-1298, and Boeing v. United States, 09-1302, U.S. Supreme Court.
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Mattel Accuses MGA of Stealing Bratz Doll Idea at Second Trial
Mattel Inc., the maker of Barbie, accused rival toymaker MGA Entertainment Inc. of stealing its idea for the pouty, multiethnic Bratz doll in 2000 when it made a deal with the Mattel designer who created it.
Opening statements started yesterday in Santa Ana, California, federal court for a trial that U.S. District Judge David Carter has said may take as long as four months. Mattel is seeking damages for copyright infringement and trade-secret theft from closely held MGA, which in turn will ask the jury to hold Mattel liable for unfair competition and stealing its trade secrets.
The case returns to court after a $100 million verdict in favor of Mattel was overturned on appeal. MGA, based in Van Nuys, California, said in court filings that Mattel may seek as much as $1.1 billion in damages for its trade-secret claims.
In 2008, a federal jury in Riverside, California, agreed with Mattel that doll designer Carter Bryant made most of the initial sketches for the Bratz dolls while he worked for El Segundo, California-based Mattel. The jury awarded the toymaker $100 million in damages and Stephen Larson, the judge presiding over the trial, awarded Mattel rights to most of MGA’s Bratz products.
The U.S. Court of Appeals in San Francisco found that Larson had wrongly ruled that Mattel automatically owned Bryant’s design under the terms of an invention agreement and that the judge incorrectly gave Mattel ownership of later Bratz dolls that MGA developed.
The case is Bryant v. Mattel, 04-09049, U.S. District Court, Central District of California (Santa Ana).
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Defective-Product Awards Rise as Trial Jurors Slap Companies
Cybex International Inc., a fitness equipment maker, lost a $66 million jury verdict in New York last month to an assistant physical therapist who was paralyzed when an exercise machine fell on her at work.
The state court jury’s Dec. 7 decision in Buffalo illustrates the most prominent trend in U.S. court verdicts in 2010: a surge in awards against companies accused of putting defective products on the market, Bloomberg News’ Margaret Cronin Fisk reports
The stalled economy and a surfeit of negative corporate news, such as the BP Plc oil spill, sudden-acceleration suits against Toyota Corp. and bank foreclosure practices, has fueled public anger, affecting lawsuits against companies in unrelated cases across the country, legal experts said.
“Jurors are more willing to believe that there was corporate wrongdoing that was intentional,” said Ophelia Camina, a lawyer at Susman Godfrey LLP in Dallas who won a $246 million verdict last year in a breach-of-warranty and fraud case against JDA Software Group Inc. “It’s easier to get people angry when they’re already brooding.”
The Cybex verdict, which was more than twice the company’s market value, sent its shares down 37 percent. The accident was unprecedented and not the result of a faulty product, the Medford, Massachusetts-based company said. Cybex said it plans to appeal.
Ten of the 50 largest jury verdicts last year came in product-defect cases, compared with five in 2009 and one in 2008, according to data compiled by Bloomberg. There were 15 such verdicts of $25 million or more in 2010, compared with seven in 2009.
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UBS Client Loses Swiss Appeal Against Data Handover to U.S.
An American client of UBS AG lost an appeal against the handover of her account data to the U.S. Internal Revenue Service in a Swiss ruling that may be relevant to about a dozen similar cases.
The client, who wasn’t identified, was the beneficiary of a foundation based in neighboring Liechtenstein that earned at least 300,460 Swiss francs ($314,000) on its UBS account and didn’t declare the funds to the IRS, Switzerland’s Federal Administrative Court said in a ruling published yesterday. The court said the client was suspected of tax fraud as defined under a Swiss-U.S. agreement that came into force last year.
Switzerland agreed in 2009 to hand over information on as many as 4,450 UBS accounts to the IRS, lifting a U.S. legal threat to the country’s biggest bank. The UBS customer had argued she didn’t benefit from an “offshore company account” as described in the 2009 accord.
Foundations can be regarded as companies if they are able to own property or have a lasting relationship with a bank, the Bern, Switzerland-based court said in its ruling. There are about a dozen similar appeals hinging on that definition, court spokesman Andrea Arcidiacono said by telephone.
Official Faces Life in Jail as Singapore Deters Graft
Singapore may send a former government executive to prison for life to protect its graft-free image, after jailing the first of his alleged accomplices in a decade-long scam for 10 years.
Ho Yen Teck, 31, was sentenced on Jan. 14 for his part in cheating three government agencies of more than S$12.5 million ($9.7 million), the city’s biggest public-sector graft case since 1995. Prosecutors say Koh Seah Wee, a former deputy director at the Singapore Land Authority, masterminded the fraud, which has “severely shaken the public confidence” in government controls. Koh, whose trial hasn’t been set, faces 372 charges, each of which carries a maximum term of as long as 10 years.
Koh, 40, is accused of defrauding the Singapore Supreme Court of an undisclosed amount, the Intellectual Property Office of Singapore of S$286,000 and the land authority of S$12.2 million. He and Christopher Lim Chai Meng, 37, his former subordinate, submitted false invoices through various shell companies set up by five people including Ho for fictitious information technology services and goods at the land agency, according to court papers.
Ho’s lawyer Jackson Eng of Drew & Napier LLC said he is seeking his client’s instructions on whether to appeal the sentence.
Koh’s lawyer Ravinderpal Singh declined to comment as the case is before the courts.
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J. Crew Agrees to Settle Lawsuit Tied to TPG Buyout
J. Crew Group Inc. agreed to settle a lawsuit over its proposed $3 billion takeover by private-equity firms TPG Capital and Leonard Green & Partners LP, and will spend another month seeking competing offers.
J. Crew will extend the period to solicit competing offers until Feb. 15, according to a statement yesterday from the New York-based clothier. J. Crew originally had until Jan. 15 to find other offers. The agreement also will include a $10 million payment to plaintiffs.
Shareholders had filed complaints questioning whether Chief Executive Officer Millard Drexler, who began negotiating with the buyout firms months before the deal became public, obtained a fair price from TPG and Los Angeles-based Leonard Green. J. Crew now plans to hold a shareholder vote on the deal March 1.
The parties agreed that TPG and Leonard Green would accept a smaller $20 million payment if J. Crew accepts a competing offer. The original $27 million fee, equal to about 1 percent of the purchase price, was already lower than the typical breakup fee. TPG and Leonard Green offered $43.50 a share for J. Crew on Nov. 23.
The case is In Re J. Crew Shareholders Litigation, 6043, Delaware Chancery Court (Wilmington).
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