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Galleon, Hermes, Strauss-Kahn, AIG, HSBC, RBS in Court News

Updated on

The jury in the trial of former Galleon Group LLC trader Zvi Goffer heard from a disbarred lawyer who told of using prepaid cell phones to pass along merger tips gleaned from his former law firm and taking cash-stuffed envelopes in return.

Brien Santarlas, 34, who worked as an attorney in the New York office of the firm Ropes & Gray LLP, testified yesterday in the trial of Goffer, a former employee of Galleon co-founder Raj Rajaratnam, and two other men on trial for insider trading in federal court in Manhattan.

Santarlas, testifying under a cooperation agreement with the government, said he and another former Ropes & Gray attorney, Arthur Cutillo, told Brooklyn, New York, lawyer Jason Goldfarb in 2007 about acquisitions involving 3Com Corp. and Axcan Pharma Inc. He said Goldfarb gave him $25,000 for the 3Com information and $7,500 for Axcan.

“When I received the cash, Jason had told me to dispose of the phone -- break it in half, submerge it in water and put it in a garbage can,” Santarlas testified.

Prosecutors claim Goldfarb passed the information to Goffer, who used it to get a job at Galleon. Santarlas, Cutillo and Goldfarb have all pleaded guilty in the case.

Assistant U.S. Attorney Andrew Fish played recordings of wiretapped phone calls between Goffer and Goldfarb in which they discuss Goffer’s new job at Galleon.

Goffer, 34, founded his own firm, Incremental Capital LLC, after he was fired from Galleon, his lawyer, William Barzee, said in his opening statement to jurors May 18. Goffer is being tried with his brother, Emanuel Goffer, 32, and Michael Kimelman, 40, both former traders at Incremental.

All three men are charged with securities fraud and conspiracy, stemming from one of three overlapping rings tied to Galleon, prosecutors said. They face as long as 20 years in prison if convicted of fraud.

Santarlas is scheduled to continue his testimony when the trial resumes on May 23.

The case is U.S. v. Goffer, 10-cr-00056, U.S. District Court, Southern District of New York (Manhattan).

Hermes Investors Seek to Quash Family’s LVMH Buyout Defense

Hermes International SCA’s founding family shouldn’t have received a waiver of market rules allowing them to shield the firm from takeovers, minority investors in the luxury-goods maker told a French court.

The Autorite des Marches Financiers erred in granting the family permission to pool a 50.2 percent Hermes stake into a holding company without bidding for the rest of the business, as the regulator would normally require for a group holding that large a stake, lawyers for minority investors said.

“There must be existing control” to warrant a waiver, lawyer Alain Geniteau told the court yesterday. “The reality is that there was no control of the Hermes company by the family,” as demonstrated by the need to form a new structure to block hostile bids.

The court has the power to uphold or quash the AMF waiver, though not to issue a new ruling on the request. The family has said it wants to keep Hermes, the maker of Birkin bags, independent since LVMH Moet Hennessy Louis Vuitton SA, the world’s largest luxury-goods maker, unveiled a 17.1 percent holding in October. Paris-based LVMH now owns 20.2 percent of the equity and, while it has said it’s not seeking control or a board seat, the stake has prompted takeover talk.

The case hinges on whether the new structure alters the company’s control, according to Hermes family lawyers and Olivier Douvreleur, the AMF’s director of legal affairs.

The court is expected to rule on the appeal Sept. 15.

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Deutsche Bank’s Ackermann, Boersig Deny Secret Kirch Plan

Deutsche Bank AG executives including Chief Executive Officer Josef Ackermann and Chairman Clemens Boersig in court testimony yesterday countered claims there was a plan to make Leo Kirch hire the bank to restructure his media group in 2002.

Ackermann and Boersig testified about a management board meeting on Jan. 29, 2002, as part of a 2 billion-euro ($2.9 billion) lawsuit filed by Kirch. While Rolf Breuer, the bank’s CEO at the time, talked about a dinner meeting he had with then-Chancellor Gerhard Schroeder over Kirch Media, the board didn’t decide at the meeting to solicit work from Kirch, Ackermann said.

“I was certainly not known as someone to back away from an investments mandate, had that been definitely decided on,” said Ackermann, who was responsible for investment banking at the time. “But I frankly admit, I didn’t want such a mandate from Mr. Kirch.”

Kirch has claimed Frankfurt-based Deutsche Bank secretly planned in 2002 to damage his reputation in an effort to exert pressure on him. According to Kirch, part of that plan was an interview Breuer gave on Bloomberg Television in which he said “everything that you can read and hear” is that “the financial sector isn’t prepared to provide further” loans or equity to Kirch. Within months, Kirch’s group filed the country’s biggest bankruptcy since World War II.

Kirch claims that WAZ Mediengruppe and Friede Springer at the time were interested in acquiring his 40 percent stake in publisher Axel Springer AG and secretly worked with the bank to get it. Kirch pledged the stake as collateral for a loan from the bank.

The case is: OLG Muenchen, 5 U 2472/09.

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Strauss-Kahn Granted Bail Pending Sexual Assault Trial

Dominique Strauss-Kahn, the former head of the International Monetary Fund, was granted bail pending his trial on charges that he sexually assaulted and attempted to rape a hotel housekeeper.

Conditions include posting $1 million bail and a $5 million insurance bond secured by his house; submitting to electronic monitoring 24 hours a day and having an armed guard at all times. Strauss-Kahn, 62, will spend the night at the Rikers Island jail complex and may be released today, his lawyer, William Taylor, said after the hearing.

“If the defendant were to be able to leave the country it might very well be impossible to bring him back,” New York state Supreme Court Justice Michael Obus said. “The critical issue is what, if anything, can be done to ensure that the defendant remains here.”

Strauss-Kahn was indicted yesterday on seven counts including criminal sex act; attempted rape; sexual abuse; unlawful imprisonment; and forcible touching. He is scheduled to be arraigned in New York on June 6. Defense lawyers said Strauss-Kahn will plead not guilty. He hasn’t entered a formal plea to any of the charges.

At the hearing yesterday, Taylor, Strauss-Kahn’s lawyer, said that as part of his bail, his client would live with his wife, Anne Sinclair, in New York. Strauss-Kahn was arrested May 14 and sent to Rikers Island May 16 after a judge deemed him a flight risk.

“We are very relieved and very happy and now we can focus on some other aspects of the case,” Taylor said after the hearing.

Strauss-Kahn informed the Executive Board of the IMF of his intention to resign as managing director effective immediately, the IMF said in a statement dated yesterday.

“I want to say that I deny with the greatest possible firmness all of the allegations that have been made against me,” Strauss-Kahn said in a letter included in the IMF statement.

The case is People v. Strauss-Kahn, 1225782, Criminal Court of the City of New York (New York County).

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Madoff Trustee Says Mets Owners ‘Refuse’ to Return Money

A lawyer for the trustee liquidating the estate of Bernard L. Madoff said Mets owners Fred Wilpon, Saul Katz and the Sterling Equities Inc. partners “refuse to return” $300 million in “other people’s money” received from the jailed con man.

Trustee Irving Picard’s lawyer, David Sheehan, made the statement yesterday as part of a move to persuade a bankruptcy judge not to dismiss Picard’s $1 billion lawsuit against the Mets owners. In addition to $300 million in what he called “fictitious profits,” the trustee is seeking return of their principal invested with Madoff.

Picard said his case against Sterling and its partners stems from a bankruptcy-law concept of good faith. The concept doesn’t require that those sued acted illegally or knew they were dealing with a Ponzi scheme, he said.

“Under bankruptcy law, a defendant did not act in good faith if what it knew about BLMIS gave it a reason to inquire further, but instead it turned a blind eye and continued to take money from an enterprise it should have known might be a fraud,” he said in the statement. Bernard L. Madoff Investment Securities LLC was Madoff’s investment firm.

“Today’s filing recklessly rehashes the same fictitious claims” from the trustee, Sterling said yesterday in a statement. “He has no evidence, and no witnesses, to support his baseless claims.”

Asking a judge in March to dismiss the Picard suit, the Sterling partners said they weren’t professional investors and saw no warning signs.

The main case is Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities LLC, 08-ap-1789, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

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AIG to Negotiate Sharing of Data in Sex-Discrimination Case

American International Group Inc. agreed to negotiate with a lawyer for two former female employees on how to share the salary data of workers who held similar jobs as part of a gender-discrimination lawsuit.

Lawyers for AIG disclosed the deal yesterday during a hearing before Judge Donna Martinez in U.S. District Court in Hartford, Connecticut. Both sides will review information on 117 non-revenue producing vice presidents and assistant vice presidents of AIG Financial Products, the unit that almost caused the insurer’s collapse with bets on subprime mortgages.

Susan Potter, 58, and Deonna Taylor, 63, were vice presidents at Wilton, Connecticut-based AIG FP. Potter lost her job in July 2009 as the unit was being dismantled in the wake of a $182.3 billion U.S. bailout that protected banks from losses on contracts they had with AIG, according to the lawsuit. Taylor was dismissed in October 2008.

The plaintiffs, who previously had sought information on a bigger number of employees, “can narrow the field,” said Deborah McKenna, a lawyer representing the ex-workers. The Financial Products unit has fewer than 200 employees, compared with more than 400 before the bailout, as New York-based AIG winds down derivatives contracts to focus on insurance.

AIG has sought to limit the amount of information it makes available, saying that records about bonuses for traders may threaten employees’ safety. Rachel Cowen, an AIG attorney, said the firm would provide job descriptions for the 117 workers “to see if we can take some of the people off” the list. The two sides are “a little bit apart” on the plaintiffs’ requests for base salary and total compensation for the workers, Cowen said.

The plaintiffs are pushing AIG to identify employees who were promoted as “there is no real record of how that happened,” McKenna said.

Martinez set a telephone conference for June 15.

The case is Potter v. AIG Financial Products Corp., 3:10-cv-00250, U.S. District Court, District of Connecticut (New Haven).

HSBC Client Charged With Failing to Report Offshore Account

A managing director at SCG Consulting Group in Boston was charged with failing to report his offshore account at HSBC Holdings Plc to U.S. authorities.

Michael F. Schiavo, 53, failed to file a Report of Foreign Bank and Financial Accounts form, or FBAR, disclosing an account at HSBC Bank Bermuda, according to a criminal charge filed yesterday in federal court in Boston. Schiavo agreed to plead guilty, according to a Justice Department statement.

Schiavo, of Westford, Massachusetts, is one of at least three clients of HSBC, the largest European bank by assets, charged in a U.S. crackdown on offshore tax evasion. Prosecutors also have charged at least two dozen clients of UBS AG, Switzerland’s largest bank, four UBS bankers and five bankers at Credit Suisse Group AG, Switzerland’s second-largest bank.

Schiavo’s firm serves the venture capital and private-equity industries, according to the charge. Since July 2003, he has been a director at Boston Private Bank & Trust Co., a Boston-based commercial bank.

He has been a partner in business deals since the 1990s with Peter Schober, who pleaded guilty Nov. 23 to failing to file an FBAR over a UBS AG account that held at least $1 million. Schober is cooperating with prosecutors, court records show.

Schiavo faces as many as five years in prison. James W. Lawson, an attorney for Schiavo, didn’t return a call seeking comment.

The case is U.S. v. Schiavo, U.S. District Court, District of Massachusetts (Boston).

For more, click here.

Goodwin Drops Part of Injunction on ‘Sexual Relationship’

Former Royal Bank of Scotland Group Plc Chief Executive Officer Fred Goodwin withdrew part of an injunction barring newspapers from writing about a “sexual relationship,” hours after a lawmaker released details of the court order.

Hugh Tomlinson, Goodwin’s lawyer, said at a hearing yesterday in London that his client no longer required a court order barring the media from reporting that he obtained the injunction. Ben Stoneham, a Liberal Democrat member of the upper House of Lords, said in Parliament that Goodwin’s injunction related to a relationship with a “senior colleague.”

“The purpose of the injunction was to prevent the publication that Mr. Goodwin had the sexual relationship in question,” Justice Michael Tugendhat said. Tugendhat said the media is still banned from naming the woman involved or giving any details about the affair.

RBS posted the biggest loss in U.K. corporate history in 2008 and required a bailout following the bank’s 73.3 billion-euro ($104.9 billion) acquisition of ABN Amro of the Netherlands. Goodwin was cleared of responsibility in December in a report by the FSA on RBS’s 45.5 billion-pound ($73.7 billion) rescue.

Stoneham said in Parliament yesterday that the injunction may prevent the incident from being reported to regulators.

“Every taxpayer has a direct public interest in the events leading up to the collapse of the Royal Bank of Scotland, so how can it be right for a super-injunction to hide the alleged relationship between Sir Fred Goodwin and a senior colleague?” Stoneham asked. “If true, it would be a serious breach of corporate governance and not even the Financial Services Authority would be allowed to know about it.”

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

On The Docket

Rambus $4.3 Billion Trial Scheduled During Judge’s Jury Duty

Rambus Inc.’s trial in its seven-year battle to claim $4.3 billion in damages from memory-chip manufacturers was set for the same day that the judge presiding over the case is scheduled to report for jury duty.

San Francisco Superior Court Judge James J. McBride told lawyers May 18 that the June 7 start date for the antitrust trial coincides with his jury duty obligation, leading him to move the Rambus trial to the following day. Ann Donlan, a court spokeswoman, confirmed the conflict in a phone interview.

McBride, a former police officer and assistant district attorney in San Francisco, hasn’t served as a juror in his 17 years on the bench, making it “unlikely” though not impossible he will be selected next month, Donlan said.

“He has to report June 7 and from there we’ll have to see what happens,” Donlan said. If he is selected to serve as a juror, the antitrust trial “would be continued on a day-to-day basis until he was able to preside” over the proceeding, she said.

In its complaint, originally filed in 2004, Rambus alleges that two memory manufacturers, Boise, Idaho-based Micron Technology Inc. and Ichon, South Korea-based Hynix Semiconductor Inc., artificially inflated the price of Rambus-designed dynamic random access memory, or DRAM, chips to drive Rambus technology out of the computer memory market.

A previous defendant, Samsung Electronics Co., agreed last year to pay $900 million in a settlement that removes it from the litigation.

The case is Rambus Inc. v. Micron Technology Inc., 04-431105, Superior Court of California (San Francisco County).

Court News

Senate Blocks Confirmation of Appellate Court Nominee Liu

The U.S. Senate blocked the nomination of Goodwin Liu to the 9th U.S. Circuit Court of Appeals in San Francisco, the first rejection of one of President Barack Obama’s judicial choices.

With 60 votes needed to end debate on the University of California law professor’s nomination, the largely party-line tally was 52 in favor of proceeding to a confirmation vote, 43 against. Joining 51 Democrats voting to end debate was Senator Lisa Murkowski, an Alaska Republican, while 42 Republicans and Senator Ben Nelson, a Nebraska Democrat, opposed the motion. Republican Senator Orrin Hatch of Utah voted “present.”

The procedural vote came after more than a year of delays in the confirmation process stemming from Republican opposition to Liu’s selection.

Opponents said Liu, 40, lacks necessary courtroom experience and has activist judicial views reflected in writings and speeches supporting expanded welfare rights, gay marriage and privacy rights. Senator Chuck Grassley of Iowa, the top Republican on the Judiciary Committee, said Liu as a judge might favor contemporary ideas over the Constitution’s legal standards.

“I am concerned by his apparent lack of appreciation for the proper role of a judge in our system of checks and balances,” Grassley said. “His philosophy leads to an inevitable expansion of the power of the judiciary.”

For more, click here.

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