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Rajaratnam, Massey, Madoff, Devon Energy in Court News

Rajat Gupta, while on the Goldman Sachs Group Inc. board in 2008, told Galleon Group LLC co-founder Raj Rajaratnam of the board’s talks on whether to buy American International Group Inc. or Wachovia Corp., according to a wiretapped recording.

Prosecutors at Rajaratnam’s insider trading trial yesterday played a recording of a July 2008 discussion between the two men, one of about 170 wiretaps the government said it plans to present in Manhattan federal court. During the conversation, Rajaratnam asked about a “rumor that Goldman may look to buy a commercial bank.”

“Yeah, this is being discussing at the board meeting,” Gupta replied, adding that it was “a divided” discussion. Among the institutions that the Goldman Sachs board discussed were Charlotte, North Carolina-based Wachovia, now part of Wells Fargo & Co., and New York-based insurer AIG, according to the transcript.

Testimony in Rajaratnam’s trial continued yesterday with former McKinsey & Co. partner Anil Kumar, a government witness, who described Rajaratnam’s relationship with Gupta. Before prosecutors played the tape, Kumar testified that Gupta had invested or planned to invest in several Galleon Group funds.

Prosecutors previously said that Gupta, who isn’t charged with criminal wrongdoing, tipped Rajaratnam about Goldman Sachs transactions, including Berkshire Hathaway Inc.’s 2008 investment in the bank. Yesterday’s recording was the first tape played in which Gupta was a participant in the conversation.

On the recording, Gupta said some Goldman Sachs board members believed commercial banking was a “low-return business,” while others said such a bank was a “low-cost source” of funding.

Ed Canaday, a spokesman for New York-based Goldman Sachs, Mark Herr, a spokesman for AIG, and Mary Eshet, a spokeswoman for San Francisco-based Wells Fargo, declined to comment.

Rajaratnam’s attorney, John Dowd, later cross-examined Kumar, focusing on his cooperation agreement with the U.S. Kumar has pleaded guilty in the Galleon case and is testifying for prosecutors in exchange for leniency. Kumar testified that insider trading wasn’t part of the original consulting agreement between him and Rajaratnam.

The case is U.S. v. Rajaratnam, 1:09-cr-01184, U.S. District Court, Southern District of New York (Manhattan).

For more, click here.

For the latest trial and appeals news, click here.

New Suits

Juno Founders Sued by SEC Over $1.8 Million Fraud Claim

Juno Mother Earth Asset Management LLC and founders Eugenio Verzili and Arturo Rodriguez were sued by the U.S. Securities and Exchange Commission for defrauding clients out of $1.8 million.

Juno, which was an investment manager for three hedge funds; Verzili, 44, of Miami Beach, Florida; and Rodriguez, 47, of Costa Rica, looted assets from a hedge fund they managed in a scheme that began in 2007, the SEC said in a lawsuit filed yesterday in federal court in Manhattan.

The defendants inflated and misrepresented Juno’s assets by about $40 million, misappropriated funds and later concealed Juno’s “precarious financial condition,” according to the complaint.

“This action concerns defendants’ multi-faceted scheme to defraud a hedge fund under their control as well as investors in the fund,” the SEC said in the complaint.

Verzili and Rodriguez directed Juno to withdraw a funds for improper purchases, including $9,500 a month in rent for an apartment the two shared, as well as “travel, meals, entertainment and department store purchases,” the SEC said.

Omar Ortega, a lawyer for the men, didn’t immediately return a voice-mail message left at his office seeking comment.

The case is SEC v. Juno Mother Earth Asset Management LLC, 11-CV-1778, U.S. District Court, Southern District of New York (Manhattan).

Porsche Sued by Greenlight, Tiger Over Short-Selling Losses

Porsche SE, the German automaker, was sued by hedge funds Greenlight Capital Inc., Tiger Management LLC and other funds over $1 billion in short-selling losses.

The funds accused Porsche of fraud, saying it hid its plan to corner the market in Volkswagen AG shares, according to a complaint filed yesterday in New York State Supreme Court. The funds had shorted, or bet against, Volkswagen stock and suffered losses when Porsche revealed its holdings.

“Porsche lured the plaintiffs into a trap, making plaintiffs believe VW shares were overvalued while hiding from plaintiffs the risk of a massive short squeeze that would send the price skyrocketing several hundred percent,” they said in court papers.

Porsche was sued in federal court in New York over the same allegations and won dismissal of the lawsuits last year.

Albrecht Bamler, a spokesman for Stuttgart, Germany-based Porsche, didn’t immediately return an e-mail seeking comment after normal business hours.

The case is Glenview Capital LP v. Porsche Automobil Holding SE, 650678-2011, New York State Supreme Court (Manhattan).

Massey Security Chief Pleads Not Guilty to Obstruction

The chief of security at the Massey Energy Co. West Virginia coal mine where an explosion killed 29 workers last year pleaded not guilty to federal charges that he obstructed justice and made false statements to U.S. agents.

Hughie Elbert Stover, of Richmond, Virginia-based Massey’s Performance Coal unit, was indicted last month by a federal grand jury investigating the cause of the explosion, the worst U.S. mine disaster in 40 years. The indictment is the first criminal charge arising from the U.S. investigation of the April 5 blast at Performance Coal’s Upper Big Branch mine in Montcoal, West Virginia.

Stover, 60, of Clear Fork, West Virginia, is accused of lying to an FBI agent and a U.S. Mine Safety and Health Administration investigator about whether he instructed security guards at the Upper Big Branch mine to announce the arrival of safety inspectors. The U.S. also alleges Stover ordered the disposal of security-related documents in January.

“The company takes this matter very seriously and is committed to cooperating with the U.S. attorney’s office,” M. Shane Harvey, Massey’s general counsel, said in an e-mailed statement. “The matter remains under review and the company has no further comment at this time.”

When asked yesterday at a news conference after the hearing about the possibility of more indictments, R. Booth Goodwin, U.S. attorney for the Southern District of West Virginia, replied: “Stay tuned.”

The case is U.S. v. Stover, 11-cr-38, U.S. District Court, Southern District of West Virginia (Beckley).

For more, click here.

Sixth Avenue Electronics Sued by GE Over $9.61 Million Debt

Sixth Avenue Electronics City Inc., with more than 15 locations in New York, New Jersey, Pennsylvania and Delaware, was sued by a financing affiliate of General Electric Co. seeking to collect $9.61 million in debt.

GE Commercial Distribution Finance Corp. contends it provided inventory financing for Springfield, New Jersey-based Sixth Avenue beginning in 2007, and that the electronics retailer is in default of payments.

“Borrower has failed and refused to remit the past-due payments,” and GE “is lawfully entitled to possession of the inventory,” GE lawyers said in a complaint filed yesterday in federal court in Wilmington, Delaware.

A company spokesman, William Pereira, said in an e-mailed message that Sixth Avenue has no comment “at this time.”

The case is Capital Solutions v. Sixth Avenue Electronics City Inc., U.S. District Court, District of Delaware (Wilmington).

Astellas Sued for Alleged Scheme to Delay Prograf Generics

Astellas Pharma Inc. was sued by a drug wholesaler over an alleged scheme to delay generic versions of immune-suppressant Prograf.

Astellas illegally maintained a monopoly on the market for tacrolimus, which it sells as Prograf, for almost two years by filing a “sham” petition with the U.S. Food and Drug Administration to require safety and efficacy tests for the generics, Louisiana Wholesale Drug Co. said in the complaint.

“The only material difference between generic drugs and their brand name counterparts is price,” lawyers for the wholesaler said in the complaint filed yesterday in federal court in Delaware. “Astellas was keenly aware that it would lose a substantial amount of its sales of Prograf very quickly once AB-rated generics came to market.”

Prograf, given to transplant patients to avoid organ rejection, has faced generic competition since August 2009 in the U.S. when Novartis AG’s Sandoz unit began selling the first copy of the drug. That month, the FDA also denied Astellas’s petition, filed in 2007, which included a request that the regulator require doctors be notified whenever a substitute oral medicine is about to be provided to a transplant patient.

Stan Neve, a spokesman for Tokyo-based Astellas, didn’t immediately return a phone call seeking comment.

The case is Louisiana Wholesale Drug Co. v. Astellas Pharma US Inc., U.S. District Court, District of Delaware (Wilmington).

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


Ruth Madoff Account Got $14 Million Via Fraud, Trustee Says

Ruth Madoff’s account at Bank of New York Mellon Corp. received “fraudulent” transfers of at least $14 million, said the trustee liquidating her husband Bernard Madoff’s firm, who wants to “recapture” $44.8 million.

Irving Picard, the trustee, said last week that he asked the bank for the couple’s monthly bank statements, canceled checks and other records from January 2002 through December 2008, to show other parties, or use in court filings. Bank of New York had no objection to providing them, he said in the March 10 filing in U.S. Bankruptcy Court in Manhattan.

Money going into Ruth Madoff’s personal bank account came from the imprisoned fraudster’s companies, which received nothing in return, Picard said in previous filings. When Bernard Madoff’s Ponzi scheme collapsed in 2008, the funds became the property of his customers, Picard said in his 2009 lawsuit against Ruth Madoff.

She is due to respond to the suit by March 31. While she forfeited houses, jewels and bank accounts to the U.S. government in June 2009, she remains “a person of substantial means,” according to Picard.

In the Bank of New York account, some transfers masqueraded as interest payments on loans made by Madoff companies, which should have gone to the businesses and not to the owner’s wife, Picard said. A $2.3 million deposit originating in the Madoff brokerage was used “for the purchase of a yacht for the personal enjoyment of Mrs. Madoff and her family,” Picard said.

Ruth Madoff’s lawyer, Peter Chavkin, and Amanda Remus, a Picard spokeswoman, declined to comment on the case.

The case is Picard v. Madoff, 1:09-ap-1391, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

For more, click here.

Las Vegas Sands Must Face Suit Over Firing, Judge Rules

Las Vegas Sands Corp., the world’s biggest casino operator by market value, must face a lawsuit by the former top executive of its Chinese unit over his firing, a Nevada judge ruled.

State court Judge Elizabeth Gonzalez in Las Vegas yesterday rejected the company’s request to dismiss the suit by Steven Jacobs. The former chief executive officer of Sands China Ltd. claims the company breached his employment contract. Lawyers for Las Vegas Sands argued the case should be heard in China, where the company operates casinos in Macau.

Las Vegas Sands “controlled Mr. Jacobs’s employment in every manner,” Don Campbell, a lawyer for Jacobs, told Gonzalez at a hearing yesterday while arguing that the case should be heard in her court.

Jacobs contends in court filings that he was fired after clashing with billionaire Sheldon Adelson, the chairman and CEO of Las Vegas Sands. Jacobs claims the disputes centered on his resistance to alleged demands by Adelson to commit acts that might violate U.S. law, according to the filings.

Lawyers for the casino company countered in their own filings that Jacobs was dismissed for working on unauthorized deals and violating company policy.

Ron Reese, a spokesman for Las Vegas Sands, declined to comment on the judge’s decision.

The case is Jacobs v. Las Vegas Sands Corp., A-10-627691, Nevada District Court, Clark County (Las Vegas)

For more, click here.

U.S. Wins Delay in Deadlines for Quick Drill Permit Action

U.S. offshore regulators aren’t required to act this month on certain Gulf of Mexico drilling permits delayed by the Obama Administration’s ban, a federal appeals court said.

A three-judge panel yesterday granted the government’s request for a reprieve from a court-ordered deadline without comment.

U.S. regulators threatened to deny the seven Gulf drilling permits that U.S. District Judge Martin Feldman in New Orleans singled out for quick action if they were forced to act by his deadlines. Feldman ordered government action by March 19 on five permits and by March 31 on two additional permits.

The Interior Department had asked Feldman to delay his order so that the U.S. Court of Appeals would have time to review it. When Feldman didn’t respond quickly, the U.S. turned to the appellate court.

Regulators claim the permitting process is a cooperative dialogue between the agency and operators, which can take days or months to complete. These seven permit applications are incomplete and “cannot be approved in their current state,” according to a March 9 filing by the Bureau of Ocean Energy Management, Regulation and Enforcement.

Wyn Hornbuckle, a Justice Department spokesman, said government lawyers would have no immediate comment on the appellate court ruling.

The case is Ensco Offshore Services Inc. v. Salazar, 2:10-cv-01663, U.S. District Court, Eastern District of Louisiana (New Orleans). The appeal case is 11-30225, U.S. Court of Appeals for the Fifth Circuit (New Orleans).

For more, click here.

Zijin Mining Falls After Getting Court Notice on Xinyi Dam

Zijin Mining Group Co., China’s biggest publicly traded gold producer, fell the most in eight months in Hong Kong after receiving a notice from the Guangdong Province Xinyin City People’s Court that it will hear a case started by 850 villagers against the company.

The shares fell as much as 6 percent, the biggest drop since July 13, and traded at HK$6.14 at 11:09 a.m. in Hong Kong yesterday. In Shanghai, they fell as much as 6.1 percent, the most since Nov. 16, to 7.61 yuan. They traded at 7.71 yuan around 11.09 a.m.

Zijin Mining is being sued for 170 million yuan ($25.8 million) after a tailing dam collapsed last year, killing 22 people. A government investigation into the accident in December placed the blame on the company, which was accused of breaching dam construction regulations.

Zijin shouldn’t be held liable for the fact that it is a shareholder of Xinyi Zijin, the regional unit that operates the dam, and it will defend itself against the legal proceedings, the Fujian province-based company said in a statement March 15 to the Hong Kong exchange.

For the latest lawsuits news, click here.


Devon Energy, Billionaire Rees-Jones Liable for $116 Million

Devon Energy Production Co. and Trevor Rees-Jones must pay the Dallas billionaire’s ex-partner $116 million for defrauding him of his true share of a company that Devon later bought for $2 billion, a Houston jury said.

A Texas state court jury awarded March 14 damages to D. Bobbitt Noel Jr., a former minority partner in Chief Holdings LLC, which Rees-Jones sold to Devon in 2006. Jurors found Rees-Jones profited in excess of $360 million by selling Chief for 20 times the value he placed on the company when he bought Noel out in 2004.

“We always thought justice would prevail, despite the wealth and resources of the defendants,” Noel’s lawyer, Grant J. Harvey of Gibbs & Bruns LLP in Houston, said yesterday in a statement.

Noel sold his 5.76 percent stake in Chief Holdings to Rees-Jones for $6.5 million in 2004, Harvey said. Jurors found that if he had retained the interest, it would be worth $116 million today.

Craig Haynes, Rees-Jones’s lawyer, said he still expects the oilman to prevail. Noel signed a release of all claims and promised never to sue Rees-Jones as part of the sale of his stake, which may lead the judge to disregard the jury’s findings, Haynes said.

“We are confident that release is going to be enforced as a matter of law and that no judgment will be entered,” Haynes said in a telephone interview. “There was another partner in the same position and making the same claims as Noel, and his release has been enforced in a different court.”

Devon, as successor in interest to Chief, also was found liable by the jury for the fraud.

“Devon acquired Chief Holdings in 2006, two years after the events in question occurred, and was named as a defendant solely because it had assumed the legal liabilities of Chief Holdings in connection with that acquisition,” Chip Minty, Devon’s spokesman, said in an e-mailed statement yesterday. “The plaintiff did not allege any misconduct of any sort by any persons at Devon.”

Minty said Oklahoma City-based Devon plans to appeal the verdict and seek full payment of any judgment and legal expenses from Rees-Jones, under an indemnity agreement. The lawsuit isn’t anticipated to have any material effect on the company, he said.

The case is D. Bobbitt Noel Jr. v. Devon Energy Production Co., 2008-39598, 127th Judicial District Court of Harris County, Texas (Houston).

For more, click here.

For the latest verdict and settlement news, click here.

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