The estate of investment adviser Stanley Chais must face claims by the trustee liquidating Bernard L. Madoff Investment Securities LLC that Chais and related entities fraudulently received more than $1 billion as “insiders” of Madoff’s Ponzi scheme.
U.S. Bankruptcy Judge Burton Lifland refused to dismiss trustee Irving Picard’s lawsuit seeking to recover allegedly fraudulent withdrawals made by Chais and his family partnerships during a 13-year period starting in 1995, according to the ruling filed yesterday in federal bankruptcy court in Manhattan.
Lifland did dismiss Picard’s claim seeking the immediate turnover of transferred funds. Picard sued Chais and related entities in May 2009 saying Chais was a beneficiary of the Ponzi scheme for at least 30 years and “knew or should have known that they were reaping the benefits of manipulated purported returns, false documents and fictitious profits.”
Chais, who was among Madoff’s largest investors, denied wrongdoing and said he was duped by Madoff. Chais died in September at age 84. The defendants in the Picard suit are Chais family members and trusts that the family oversees, according to Lifland’s ruling.
Philip White, an attorney for the Chais entities, didn’t immediately return a voice-mail left after regular business hours.
Madoff pleaded guilty and is serving a 150-year prison sentence. At the time of his arrest in December 2008, his account statements reflected 4,900 accounts with stated balances of $68 billion. Investors lost about $20 billion in principal, Picard has said.
The case is Picard v. Chais, 09-01172, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
Bank of America Wins Claims Dismissal in Auction-Rate Case
Bank of America Corp. won dismissal of claims by investors that it misled them about the liquidity of its auction-rate securities and manipulated the market for the investments.
U.S. District Judge Jeffrey White in San Francisco said yesterday in an order that investors can renew market-manipulation claims if they add more information to their case.
Investors who bought auction-rated securities from 2003 to 2008 sued Bank of America in 2009 on claims the securities were offered as safe, cash-like investments while the company hid their risks. Banks running auctions abandoned the $330 billion market in 2008 during the subprime market slump, and investors were stuck with the products.
Bank of America, based in Charlotte, North Carolina, agreed in October 2008 to buy back $4.5 billion in auction-rate securities and pay a $50 million fine, in accords with the U.S. Securities and Exchange Commission and New York State.
Plaintiffs in the San Francisco case haven’t benefited from the settlement and continue to hold the securities or sold them at a loss, according to White’s ruling.
Dan Girard, an attorney for investors, didn’t immediately return a voice-mail message seeking comment.
The case is Bondar v. Bank of America, 08-02599, U.S. District Court, Northern District of California (San Francisco).
NFL, Union Argue Television Revenue Advance Before U.S. Judge
A U.S. judge said he will rule quickly on the legal fight between the National Football League and its players union over about $4 billion in television money.
The NFL Players Association wants U.S. District Judge David Doty in Minneapolis to overturn an arbitrator’s decision allowing the league to keep the broadcast rights fees that the union says were improperly negotiated so owners would receive money from networks even if there’s a work stoppage that cancels games in the 2011 season.
Tom Heiden, a lawyer for the union, said in court in Minneapolis yesterday that the television deals provided owners with a “$4 billion war chest, every dollar of which is available to them to finance their 2011 lockout.”
“This plan was so important that those TV deals would never have been done without these lockout provisions,” Heiden said.
Owners voted in 2008 to opt out of the league’s labor deal with players, which expires next week, saying it didn’t account for costs such as those of building stadiums.
The league says the television deals were negotiated in good faith. Gregg Levy, a lawyer for the NFL, said in court that the league also earned hundreds of millions of dollars in new broadcast money by redistributing some digital rights.
“There’s no evidence at all that the NFL traded dollars, or the potential for dollars, in 2010 for rights in 2011,” he said.
The case is White v. NFL, 4:92-cv-00906, U.S. District Court for the District of Minnesota (Minneapolis).
Michigan Foreclosures-by-Advertising Surprise Homeowners
Chuck and Alicia Krantz fell behind on their mortgage payments last year and sought to modify the loan to save their three-bedroom ranch home in Westland, Michigan, just outside Detroit, from foreclosure.
Two payments in April brought them current, they said in a lawsuit filed in Detroit federal court. In May, CitiMortgage Inc., a unit of Citigroup Inc., told them they were in foreclosure and would be refunded the $3,129.96 they sent the month before. As foreclosure proceeded, they continued to pursue a modification, Chuck Krantz said in an interview.
CitiMortgage sent a modification package in May, requesting documents. Even as they discussed the modification with CitiMortgage, an advertisement announcing the foreclosure was published, said Adam Alexander, the Krantzes’ lawyer. The home was sold at a sheriff’s auction in June.
Homeowners nationwide claim that banks and loan servicers are pushing through foreclosures, or arbitrarily rejecting or ignoring loan-modification requests, Bloomberg News’s Margaret Cronin Fisk reports.
CitiMortgage denied the Krantzes’ claims. The company “admits only that it sent plaintiffs a notice under the ‘Making Home Affordable’ Program on May 26, 2010,” its lawyers said in court papers. Making Home Affordable is the federal home-loan modification program.
After the Krantzes provided documents, they “were repeatedly advised that their modification application was incomplete,” the lawyers said in the Feb. 3 filing.
“We believe the case is without merit,” Robert Julavits, a Citigroup spokesman, said in an e-mail. “We plan to defend our position vigorously.”
The case is Krantz v. CitiMortgage, 2:11-cv-10371, U.S. District Court, Eastern District of Michigan (Detroit).
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Beckman Coulter Sued by Investor Over $6 Billion Danaher Bid
Beckman Coulter Inc., the medical-diagnostic equipment maker being bought by microscope maker Danaher Corp. for $6.8 billion, was sued by a shareholder who says the company is worth more than the $83.50-a-share bid.
Directors of Brea, California-based Beckman Coulter didn’t meet their obligation to get the best price for shareholders in a sale, Yuri Levin said Feb. 23 in a complaint in Delaware Chancery Court in Wilmington.
The sale price “is unfair and grossly inadequate” considering the prospect for growth, and officials have a self-interest in selling the company because “the board and certain officers would receive an aggregate of approximately $42 million” by cashing out stock, Levin contends.
Danaher, based in Washington, said Feb. 7 it agreed to buy Beckman Coulter amid increased demand for medical tests from an aging population.
“As a matter of policy, we don’t comment on lawsuits,” Mary Luthy, a Beckman Coulter spokeswoman, said yesterday in a phone interview.
The case is Levin v. Beckman Coulter Inc., CA6213, Delaware Chancery Court (Wilmington).
Publicis Groupe, MSLGroup Sued for Gender Discrimination
Publicis Groupe and MSLGroup were sued and accused of discriminating against female public-relations employees in pay, promotions and firings.
Monique da Silva Moore, a former global health-care director for MSLGroup, a unit of Paris-based Publicis Groupe, sued yesterday in federal court in New York, claiming that men dominate senior management at a company where 70 percent of the employees are women.
“Publicis’s glass ceiling might as well be a cement wall,” da Silva Moore said in the complaint. “Gender discrimination permeates Publicis’s entire PR practice.”
Da Silva Moore seeks to represent a class of hundreds of current and former U.S. public-relations employees of Publicis and MSLGroup and claims more than $100 million in damages.
“We generally do not comment on pending litigation, but we can say that the fact that the Equal Employment Opportunity Commission dismissed Ms. da Silva’s charge reflects the lack of merit to her claims,” Trudi Harris, a spokeswoman for MSLGroup, said in an e-mailed statement. She said the company expects the court will reach the same conclusion.
Janette Wipper, a lawyer for da Silva, said in an e-mailed statement that the EEOC “did not issue any finding concerning our client’s charge.” The agency’s investigation has no bearing on the lawsuit, she said.
Peggy Nahmany, a spokeswoman for Publicis, had no comment on the suit.
The case is Da Silva Moore v. Publicis Groupe, 1:11-cv-01279, U.S. District Court, Southern District of New York (Manhattan).
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SAP Asks Court to Reduce Oracle Award or Order New Trial
SAP AG, the business-software maker that a jury found should pay $1.3 billion to rival Oracle Corp., asked a judge to hold a new trial or reduce the award to no more than $407.8 million.
Oracle didn’t provide sufficient evidence to justify the verdict, a “miscarriage of justice,” Walldorf, Germany-based SAP said Feb. 23 in papers in federal court in Oakland, California. SAP said Feb. 3 it would seek to overturn the jury award, the largest ever for copyright infringement.
A new trial isn’t needed and the verdict should stand, Oracle said in filings. Oracle, based in Redwood City, California, accused SAP’s U.S.-based TomorrowNow software-maintenance unit of making hundreds of thousands of illegal downloads and several thousand copies of Oracle’s software to avoid licensing fees and steal customers.
The case is Oracle Corp. v SAP AG, 07-01658, U.S. District Court, Northern District of California (Oakland).
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Ex-U.S. Mortgage President Sentenced to 14 Years for Fraud
The former president of U.S. Mortgage was sentenced to 14 years in prison after admitting to a conspiracy that prosecutors said defrauded credit unions and Fannie Mae of $136 million.
Michael J. McGrath Jr., 47, of Montclair, New Jersey, pleaded guilty in June 2009 to one count each of conspiracy to commit money laundering and conspiracy to commit mail and wire fraud. U.S. District Judge Katharine S. Hayden sentenced McGrath yesterday in Newark, New Jersey, U.S. Attorney Paul Fishman said in an e-mailed statement.
U.S. Mortgage, based in Pine Brook, New Jersey, underwrote mortgages and serviced loans for credit unions before filing for bankruptcy in 2009. Starting in 2002, McGrath fraudulently sold credit-union loans to Fannie Mae and used the proceeds to finance U.S. Mortgage’s operations and investments for himself and his company, Fishman said.
To conceal the fraudulent sales, U.S. Mortgage Chief Financial Officer Leroy Hayden, 47, provided false reports to credit unions saying loans that had been sold were still in their portfolios, according to the statement. Hayden, who pleaded guilty to one count of wire fraud, is scheduled to be sentenced next month.
McGrath’s lawyer, Michael Critchley, didn’t immediately return a call seeking comment after regular business hours yesterday.
The case is USA v. Michael J. McGrath Jr.,09-436 U.S. District Court, District of New Jersey (Newark).
Ex-Taylor, Bean Official Admits Guilt in $1.9 Billion Fraud
The ex-treasurer of Taylor, Bean & Whitaker Mortgage Corp., once the 12th-largest mortgage lender in the U.S., admitted helping run a $1.9 billion fraud scheme that targeted the government’s Troubled Asset Relief Program and contributed to the failure of Colonial Bank.
Desiree Brown, 45, pleaded guilty yesterday in federal court in Alexandria, Virginia, to a single fraud conspiracy count and agreed to cooperate with prosecutors bringing Lee Farkas, former chairman of Taylor Bean, to trial on April 4. Brown also settled a civil suit with the Securities and Exchange Commission, the SEC said.
Until yesterday, Farkas, 58, was the only person charged in what the government said was a massive scheme to deceive financial firms and TARP by covering up shortfalls at Taylor Bean. Farkas was charged in a 16-count indictment in June and faces the possibility of spending the rest of his life in prison, according to court papers.
“Were there other people besides Mr. Farkas who were involved in this scheme?” U.S. District Judge Leonie M. Brinkema asked Brown at the plea hearing.
“Yes, ma’am,” Brown answered.
Brown, of Hernando, Florida, faces a maximum penalty of 30 years in prison, a $250,000 fine and an order to pay restitution to more than 250 victims. She is to be sentenced on June 10.
The crime included conspiring to transfer funds between closely held Taylor Bean and Colonial Bank, a unit of Colonial BancGroup Inc., to hide overdrafts, prosecutors said. The bank was one of the 50 largest in the U.S., according to the government.
The Brown case is USA v. Brown, 1:11-cr-00084, and the Farkas case is USA v. Farkas, 1:10-cr-00200, U.S. District Court, Eastern District of Virginia (Alexandria).
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Hollywood Studios Lose Appeal on Australian Piracy Lawsuit
Walt Disney Co. and Viacom Inc.’s Paramount Pictures are among Hollywood’s biggest movie studios that lost a piracy lawsuit in Australia as an appeals court upheld a ruling that a local Internet provider wasn’t responsible for customers’ illegally downloading films.
The Federal Court of Australia Full Court, in a 2 to 1 decision, yesterday upheld Judge Dennis Cowdroy’s Feb. 4, 2010, verdict that vindicated iiNet Ltd. The studios can appeal the ruling to the country’s High Court. A notice must be filed within 28 days, unless an extension is sought.
Village Roadshow Ltd.’s Roadshow Films led the companies trying to stop iiNet customers from using BitTorrent software to illegally download copyrighted films, in a precedent-setting case for all Internet providers in Australia.
A ruling in the studios’ favor would have made all Internet providers liable for their customers’ conduct.
“The evidence supports a conclusion that iiNet demonstrated a dismissive and, indeed, contumelious, attitude to the complaints of infringement,” Judge Arthur Emmett wrote. “Its conduct did not amount to authorization of the primary acts of infringement on the part of iiNet users.”
The case is Roadshow Films Pty. v. iiNet Ltd. NSD179/2010, Federal Court of Australia (Sydney.)
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Horizon to Pay $45 Million Fine in Price-Fixing Case
Horizon Lines Inc. will plead guilty and pay a $45 million fine for fixing freight rates, the U.S. Justice Department said.
Horizon, based in Charlotte, North Carolina, conspired to fix prices for shipping freight between the U.S. and Puerto Rico from May 2002 to April 2008, according to the department, citing a one-count felony charge filed yesterday in U.S. District Court in Puerto Rico.
The fine stems from an investigation the department’s Antitrust Division is conducting of the coastal water freight industry, according to the department. In 2008, five former executives pleaded guilty in the Horizon case.
Horizon executives met with co-conspirators to fix rates and surcharges and then make sure the plot was carried out, the department said.
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On The Docket
Toyota Sudden-Acceleration Suit Scheduled for Trial in March
Lawyers suing Toyota Motor Corp. in sudden-acceleration lawsuits coordinated in California said the carmaker didn’t disclose that a related case was scheduled for trial next month in federal court in Central Islip, New York.
“This situation seriously undermines the policy goals underlying the coordination of these actions in the present” multidistrict litigation, lawyers for plaintiffs in the coordinated cases said in a filing Feb. 23 in federal court in Santa Ana, California. “Toyota never sought to have this action coordinated with the MDL.”
U.S. District Judge James Selna, who is overseeing the coordinated cases, set a hearing for today on whether the New York case should be transferred to Santa Ana. The lawyers also seek an order that Toyota disclose any related federal court cases that aren’t already part of the multidistrict litigation.
The federal lawsuits against Toyota alleging economic loss, wrongful death or personal injury from sudden unintended acceleration were consolidated before Selna in April. The judge said last month that he wanted the initial bellwether case to go to trial in the first three months of 2013.
Toyota, the world’s largest automaker, recalled millions of U.S. vehicles last year and in 2009, most for defects related to unintended acceleration. The company, based in Toyota City, Japan, paid a record $48.8 million in fines for how some of the recalls were conducted. The carmaker said yesterday that it’s recalling another 2.17 million vehicles in the U.S. for carpet and floor-mat flaws that could jam gas pedals.
The New York case was brought in July of 2008 by Amir Sitafalwalla, who claimed he was seriously injured when the 2005 Scion TC he was driving “without warning accelerated resulting in a violent collision.”
Celeste Migliore, a spokeswoman for Toyota Motor Sales USA in Torrance, California, and Robert Scumaci, a lawyer for Toyota in the New York case, didn’t immediately return calls seeking comment yesterday.
The New York case is Sitafalwalla v. Toyota Motor Sales, 08-03001, U.S. District Court, Eastern District of New York (Central Islip).
The coordinated cases are In re Toyota Motor Corp. Unintended Acceleration Marketing, Sales Practices and Products Liability Litigation, 8:10-ml-02151, U.S. District Court, Central District of California (Santa Ana).
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