BofA, BP, Morgan Stanley, HP, JPMorgan in Court News

Bank of America Inc.’s Countrywide Financial unit, acquired by the bank in 2008, was accused of “massive fraud” in a lawsuit by investors who claim they were misled about mortgage-backed securities.

TIAA-CREF Life Insurance Co., New York Life Insurance Co. and Dexia Holdings Inc. are among a dozen institutional investors who filed the complaint yesterday in New York state Supreme Court.

The investors claim they bought hundreds of millions of dollars of Countrywide mortgage-backed securities from 2005 to 2007 because they wanted conservative, low-risk investments. They said they relied on term sheets, prospectuses and other materials provided by the firm that were recklessly or knowingly false.

“Countrywide was an enterprise driven by only one purpose -- to originate and securitize as many mortgage loans as possible into MBS to generate profits for the Countrywide defendants without regard to the investors that relied on the critical, false information provided to them with respect to the related certificates,” according to the complaint.

The suit follows other fraud actions against Countrywide related to alleged misstatements to investors regarding the company’s mortgage-loan underwriting standards.

The complaint names more than 20 defendants, including Countrywide Home Loans Inc., Bank of America, Countrywide co-founder and former Chief Executive Officer Angelo Mozilo and other former executives.

Shirley Norton, a spokeswoman for Charlotte, North Carolina-based Bank of America, had no immediate comment. David Siegel, an attorney for Mozilo, didn’t immediately return a call seeking comment.

The case is Dexia Holdings v. Countrywide Financial Corp., 650185/2011, New York state Supreme Court (Manhattan).

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BP Accused by Lawyers of Breaking Racketeering Law in Spill

BP Plc was accused by lawyers for victims of the worst offshore oil spill in U.S. history of breaking civil racketeering laws by engaging in a pattern of violations that led to the disaster.

“BP engaged in a pattern of fraudulent conduct directed at regulators from the inception of the Macondo project, continuing through and after the spill and to this day,” Stephen Herman and James Roy, lawyers for hundreds of oil-spill victims, said yesterday in a filing in federal court in New Orleans. “BP’s fraudulent actions and omissions were part of a broader pattern of unlawful conduct that it has employed over the years to place profits over safety.”

Herman and Roy are liaison counsel for a committee representing plaintiffs in more than 400 lawsuits over damages for personal and economic injuries caused by last April’s explosion of the Deepwater Horizon drilling rig off the Louisiana coast.

The rig, which was owned by a unit of Transocean Ltd., was drilling the well, named Macondo, for BP at the time of the blast. BP is the only company named as a defendant in the spill victims’ master civil RICO complaint.

Daren Beaudo, a BP spokesman, declined to comment on the filing.

Also yesterday, Mississippi Attorney General Jim Hood asked the judge overseeing oil-spill litigation against London-based BP to take an oversight role to “correct deficiencies” in the $20 billion spill-claims fund run by Kenneth Feinberg.

Feinberg has been criticized by spill victims’ lawyers for his administration of the claims process through which BP has said it would pay “all legitimate claims” filed by people and businesses damaged by the spill. Critics contend Feinberg has delayed or denied claims without adequate explanation and established protocols that encourage cash-strapped claimants to accept small, quick payments to avoid years of litigation.

Amy Weiss, a spokeswoman for Feinberg, declined to comment.

The case is In Re Oil Spill by the Oil Rig Deepwater Horizon in the Gulf of Mexico on April 20, 2010, 2:10-md-2179, U.S. District Court, Eastern District of Louisiana (New Orleans).

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Ambac Says JPMorgan Refused Mortgage Repurchases It Sought

JPMorgan Chase & Co. demanded that a lender repurchase bad mortgages even as it resisted calls to buy back the loans from bonds created by Bear Stearns Cos., an insurer said in court papers.

“That would be pretty bad” if true, said Joshua Rosner, an analyst at New York-based research firm Graham Fisher & Co. He said such allegations show why “investors and consumers have a right to be distrustful of the banks’ statements.”

Ambac Assurance Corp., the debt guarantor partly seized last year by Wisconsin’s insurance commissioner, made the claim in a proposed amended complaint in its lawsuit against Bear Stearns’s EMC Mortgage unit, now owned by JPMorgan. Ambac, seeking to add a fraud claim to the case, referenced depositions, e-mail and letters in the filing, which was unsealed Jan. 14 in Manhattan federal court.

Mortgage-bond investors and other insurers, including Allstate Corp., Pacific Investment Management Co. and MBIA Inc., have accused loan sellers or bond underwriters of sometimes misrepresenting the quality of the underlying debt enough to trigger contractual or legal provisions requiring repurchases. So-called mortgage putbacks may cost banks and lenders as much as $90 billion, JPMorgan bond analysts said in an October report.

Jennifer Zuccarelli, a spokeswoman for New York-based JPMorgan, declined to comment on the filing, which the company had fought to keep secret. A federal judge must still rule on whether to allow the amended complaint to go forward.

The case is Ambac v. EMC Mortgage, 08-cv-9464, U.S. District Court, Southern District of New York (Manhattan).

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Morgan Stanley’s Ahmed Cooperating in Galleon Probe

Morgan Stanley Managing Director Kamal Ahmed is “cooperating” with the bank’s investigation of allegations raised in a U.S. court filing that an employee helped pass information in the Galleon Group LLC hedge fund insider trading scandal, Ahmed’s lawyer said.

Douglas Tween, a lawyer at Baker & McKenzie LLP in New York who represents Ahmed, said yesterday in a phone interview that he is “confident that when the investigation is completed, and all the facts are gathered, it will be shown that he did nothing illegal or unethical.”

Raj Rajaratnam, the founder of Galleon Group, is charged with five counts of conspiracy to commit securities fraud and nine counts of securities fraud. He’s the central figure in an insider-trading probe in which more than 20 people have been criminally charged. Rajaratnam has pleaded not guilty and is scheduled to go to trial Feb. 28.

Prosecutors filed a superseding indictment dated Jan. 20 against Rajaratnam that added a new securities-fraud count and provided additional details about stocks he is alleged to have traded illegally. A Morgan Stanley banker, whose name was redacted in the court filing, was accused of passing information on Advanced Micro Devices Inc.’s purchase of ATI Technologies Inc.

“In or about May 2006, [redacted], a banker with Morgan Stanley, provided [redacted] with information regarding AMD’s acquisition of ATI,” according to the letter, signed by Assistant U.S. Attorney Jonathan Streeter. “[Redacted] provided this information to Rajaratnam.”

The case is U.S. v. Rajaratnam, 1:09-cr-1184, U.S. District Court, Southern District of New York (Manhattan).

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Bear Stearns Bid to Get Securities Suit Tossed Denied by Judge

Bear Stearns Cos. once the world’s fifth-largest investment bank, lost a bid to dismiss a federal securities lawsuit when a judge ruled there is sufficient reason to take parts of the consolidated case to trial.

An investor originally sued the New York-based firm in November 2007 alleging mismanagement, in part for buying risky subprime mortgage loans for collateralized debt obligations, according to court papers. Other lawsuits followed.

“The incantation of fraud-by-hindsight will not defeat an allegation of misrepresentations and omissions that were misleading and false at the time they were made,” wrote U.S. District Judge Robert W. Sweet in a 398-page opinion Jan.19.

JPMorgan Chase & Co. bought Bear Stearns in March 2008, with the firm on the brink of collapse.

In his opinion, Sweet refused to dismiss a case alleging misstatements by Bear Stearns and auditor Deloitte & Touche, and agreed to dismiss a so-called derivative suit seeking damages for the company and a suit filed by former Bear Stearns employees over a stock ownership plan.

“It is important to recognize that in ruling on the defendants’ motions to dismiss, the court was required to assume that the allegations in plaintiffs’ complaint were true,” and “Deloitte believes that the claims asserted against it are meritless,” said company spokesman Jonathan Gandal in an e-mailed message.

“We believe that the Bear Stearns-related security law claims that survived the motion to dismiss are entirely without merit and we intend to seek their dismissal at an appropriate juncture,” said JPMorgan Chase spokeswoman Jennifer Zuccarelli in a telephone interview.

The combined case is In Re: Bear Stearns Cos. securities, Derivative, and ERISA Litigation, 09-MDL-1963, U.S. District Court for the Southern District of New York (Manhattan).

Merrill Wins Court Dismissal of Auction-Rate Lawsuit

Bank of America Corp.’s Merrill Lynch unit won dismissal of a lawsuit by a Kentucky bank that claimed it was misled when it bought $10 million in auction rate securities.

U.S. District Judge Loretta Preska in Manhattan yesterday tossed out the lawsuit by Community Trust Bank of Pikeville, Kentucky, which purchased the auction rate securities from Merrill in 2006.

Merrill Lynch “provided sufficient disclosures” that it might submit “a support bid into an auction to ensure the auction is successful,” Preska said in a written opinion yesterday.

Auction-rate securities are municipal bonds, corporate bonds and preferred stocks whose rates of return are periodically reset through auctions. Underwriters and broker-dealers have been sued since the February 2008 collapse of the $330 billion market for auction-rate securities.

In the lawsuits, investors accused financial institutions of steering them to instruments promoted to be as safe as cash that turned out to be illiquid and impossible to redeem. The plaintiffs also claimed the banks didn’t adequately disclose that they took part in the auctions to keep them from failing. The market froze when the financial firms ended that participation.

Jessica Case, a lawyer for Community Trust, didn’t return a call seeking comment.

The case is In Re: Merrill Lynch & Co. Auction Rate Securities, 09-md-2030, U.S. District Court, Southern District of New York (Manhattan).

HP Can Proceed With Hurd Departure Investigation, Judge Rules

A federal judge allowed a probe of Mark Hurd’s departure from Hewlett-Packard Co. to go forward, overriding Hurd’s objection to the investigation based on claims he deserves to see documents HP’s board refuses to share.

U.S. District Judge James Ware, in San Jose, California, canceled a hearing on the matter scheduled for yesterday, finding “good cause” to let the company investigation go forward while halting the lawsuit that prompted it for 45 days. The suit alleges that directors at the largest maker of computers wasted company money by awarding Hurd as much as $53 million in severance when he resigned as chief executive officer in August.

Hurd quit after the Palo Alto, California-based company found that he violated business conduct standards in trying to conceal a personal relationship with a contractor.

Ware scheduled a new hearing in March, requiring an “update on the investigation” beforehand, according to his Jan. 20 order.

Ware’s order doesn’t say whether Hurd was able to see the documents he seeks. The new probe would be conducted by a committee of directors who joined HP after Hurd’s departure and by lawyers not involved in the shareholder litigation, according to a case-management statement filed Jan. 14.

Mylene Mangalindan, an HP spokeswoman, declined to comment on the judge’s ruling yesterday. Glenn Bunting, a spokesman for Hurd, didn’t immediately return calls and e-mails seeking comment after business hours.

The case is Levine v. Andreessen, 10-03608, U.S. District Court, Northern District of California (San Jose).

Khodorkovsky May Face Third Trial, Prosecutors Say

Mikhail Khodorkovsky, the jailed former head of Yukos Oil Co., may face a third trial in Russia if an investigation unearths further evidence against him, prosecutors said.

Russian law enforcement agencies are hunting for 18 “accomplices” of Khodorkovsky and his former business partner, Platon Lebedev, prosecutors Valery Lakhtin and Gulchekhra Ibragimova said in an interview published in the Komsomolskaya Pravda newspaper yesterday.

Khodorkovsky, once Russia’s richest man and a critic of Prime Minister Vladimir Putin, last month was sentenced to another six years beyond his eight-year prison term for fraud. He was found guilty of money laundering and of embezzling in a ruling that will keep him in jail until 2017.

The tycoon’s defense team declined to immediately comment when contacted by Bloomberg News.

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BOC Hong Kong Manager Warned Lehman Product Buyers, Court Told

A BOC Hong Kong (Holdings) Ltd. manager facing criminal charges for selling structured products linked to Lehman Brothers Holdings Inc. warned customers they could lose their money, her lawyer said.

Cheung Kwai-kwai took her customers through sales leaflets for the products, including the part showing that they weren’t principal protected, her lawyer Peter Duncan said in his closing submission yesterday in Hong Kong District Court.

Cheung, 48, pleaded not guilty to seven counts of fraudulently or recklessly inducing customers, including retirees and investors who hadn’t completed primary school, to invest a total of about $770,164 in minibonds and Constellation notes, between 2005 and 2008. Judge Garry Tallentire said yesterday the verdict would be delivered on Feb. 18.

Cheung made statements to customers that the structured products were safe, principal-protected, and failed to disclose that the risk level designated by the bank was “high,” Senior public prosecutor Jonathan Man said yesterday.

Angel Yip, a spokeswoman for BOC Hong Kong didn’t respond to an e-mailed request for comment yesterday. It was one of 16 banks that agreed to a settlement to buy back the products for at least 60 cents on the dollar.

The case is Hong Kong SAR v. Cheung Kwai Kwai, DCCC526/2010, in Hong Kong District Court.

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Singapore Criticizes Fund Managers’ ‘Window Dressing’

The Monetary Authority of Singapore said it won’t tolerate “window dressing” by fund managers in its response to an appeal against the civil stock-rigging lawsuit it won last year against Pheim Asset Management Sdn.

“Any other decision would encourage and embolden professional market players to flout the rules and undermine the integrity of the market,” the central bank said in documents filed at the Singapore High Court on Jan. 21, arguing that the appeal by Pheim and its Chief Executive Officer Tan Chong Koay should be dismissed.

Pheim and Tan, 61, have denied rigging the stock and said they’re “value” investors. They bought almost 90 percent of the traded shares of United Envirotech Ltd. from Dec. 29 to Dec. 31, 2004. The shares rose 17 percent over the three trading days and helped raise the net asset value of the fund’s accounts, triggering bonuses of S$50,790 ($39,560) and a management fee of S$115. The trial is scheduled to start the week of March 14.

Justice Lai Siu Chiu in her Sept. 17 ruling said Pheim and Tan had sought to boost their reputation instead of seeking monetary gains in rigging the stock. The MAS, which had sought a fine of S$1 million each, said in its January filing the S$250,000 penalty imposed was “amply justified.”

Cavinder Bull from Drew & Napier LLC is acting for the monetary authority and Vinodh Coomaraswamy is representing Tan and Pheim.

The case is Tan Chong Koay v Monetary Authority of Singapore, CA186/2010 in the Singapore High Court.

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SEC Settles Foreign Bribe Case With Ex-Innospec Chief

The former chief executive officer of Innospec Inc., Paul W. Jennings, agreed to settle foreign bribery allegations brought by the U.S. Securities and Exchange Commission.

Jennings agreed to pay about $229,000 in penalties to resolve claims that he bribed Iraqi and Indonesian officials to win contracts for the company’s specialty chemicals, the SEC said in a statement. The agency filed a civil complaint yesterday against Jennings in federal court in Washington.

The SEC claimed that Jennings “actively participated in bribery schemes” in Iraq and Indonesia since 2004. The agency said that from 2000 to 2008 Innospec Inc. paid more than $6 million in bribes in exchange for about $177 million in revenue, which generated $60 million in profit.

Jennings’s attorney, Jay Holtmeier, didn’t immediately return a telephone message seeking comment.

Innospec spokesman Brian Watt declined to comment on Jennings’s settlement, saying the company resolved its matter with authorities last year.

The case is U.S. Securities and Exchange Commission v. Jennings, 11-cv-00144, U.S. District Court, District of Columbia (Washington).

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JPMorgan Wins at U.S. High Court in Credit-Card Case

The U.S. Supreme Court, ruling in favor of a JPMorgan Chase & Co. unit, shielded banks from some lawsuits by credit-card consumers whose interest rates were increased after they went into default.

The justices yesterday unanimously said that a since-changed Federal Reserve Board regulation let Chase Bank USA raise James A. McCoy’s interest rates without notifying him. Chase’s cardholder agreement said the company could impose higher rates in the event of a default.

In siding with Chase, the court said it was deferring to the Fed’s interpretation of the rule, known as Regulation Z. Although the Fed changed the regulation in 2009 to require notification to defaulting customers, the Obama administration argued that companies before then didn’t have to provide notice.

“Because the interpretation the board presents in its brief is consistent with the regulatory text, we need look no further in deciding this case,” Justice Sonia Sotomayor wrote for the court.

The San Francisco-based 9th U.S. Circuit Court of Appeals had ruled against Chase in a decision that led to similar suits being filed in California against other banks.

Regulation Z implements a consumer-protection provision in the U.S. Truth in Lending Act.

The case is Chase Bank v. McCoy, 09-329, U.S. Supreme Court (Washington).

Worker Retaliation Suits Backed by U.S. Supreme Court

The U.S. Supreme Court bolstered the ability of employees to sue for retaliation, ruling in favor of a man who was fired after his fiancée complained about alleged sex discrimination at the same company.

The justices yesterday unanimously said that Title VII, the federal law that covers gender and racial discrimination in the workplace, protects third parties from retaliation in addition to the person pressing the original complaint.

The anti-retaliation provision in Title VII is “worded broadly,” Justice Antonin Scalia wrote for the court. “We think it obvious that a reasonable worker might be dissuaded from engaging in protected activity if she knew that her fiancé would be fired,” he wrote.

The ruling lets Eric L. Thompson press ahead with a lawsuit against his former employer, North American Stainless LP. Thompson was fired in 2003, three weeks after the company learned that his fiancée, Miriam Regalado, had filed a complaint with the Equal Employment Opportunity Commission and claimed she had suffered discrimination by her supervisor.

A federal appeals court had barred the suit from going forward. The Obama administration backed Thompson in the case.

The case is Thompson v. North American Stainless, 09-291, U.S. Supreme Court (New York).

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