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Rajaratnam, Goldman, Taylor Bean, Wells Fargo in Court News

April 18 (Bloomberg) -- Federal prosecutors said they were prepared to summon Goldman Sachs Group Inc. President Gary Cohn as a witness to rebut Galleon Group LLC co-founder Raj Rajaratnam’s defense in his insider-trading trial.

Assistant U.S. Attorney Reed Brodsky told U.S. District Judge Richard Holwell in Manhattan on April 12 that the government would call Cohn to testify if a defense witness, former Galleon U.S. President Richard Schutte, was permitted to tell jurors about comments Cohn made at a meeting with Rajaratnam on July 31, 2008.

“That’s hearsay” and shouldn’t be allowed as evidence, Brodsky told the judge, according to a transcript of a “sidebar” conference that jurors and others in the courtroom couldn’t hear. If the defense witness testified about Cohn’s comments, Brodsky said, “We are prepared to call Mr. Cohn, and we would be allowed to do that as part of our rebuttal case.”

Schutte, who completed his testimony April 14, wasn’t asked by Rajaratnam’s lawyers about Cohn’s comments at the meeting. Brodsky told Holwell April 14 that prosecutors intended to present a rebuttal case. He didn’t mention Cohen or identify other potential witnesses.

Lucas van Praag, a Goldman Sachs spokesman, declined to comment. Ellen Davis, a spokeswoman for U.S. Attorney Preet Bharara in Manhattan, also declined to comment.

Rajaratnam, 53, has been on trial since March 8 in the largest crackdown on hedge-fund insider trading in U.S. history. The Sri Lankan-born money manager is accused of gaining $63.8 million from tips leaked by corporate insiders and hedge-fund traders about a dozen stocks, including Goldman Sachs, Intel Corp., Clearwire Corp. and Akamai Technologies Inc. He denies wrongdoing, saying he based his trades on research.

Gregg Jarrell, the top economist for the U.S. Securities and Exchange Commission from 1984 to 1987, testified April 15 as an expert witness for Rajaratnam. Jarrell, who now teaches at the University of Rochester’s graduate school of business in New York, said the tips Rajaratnam allegedly received weren’t material to Galleon or didn’t comprise inside information.

Jarrell showed jurors charts displaying press articles and analyst reports about the stocks Rajaratnam is accused of trading based on inside information.

Jarrell’s testimony will continue today.

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 more about Schutte’s testimony, click here.

Ex-Taylor Bean’s Farkas Testifies He Didn’t Commit Crimes

Lee Farkas, the former chairman of Taylor, Bean & Whitaker Mortgage Corp. on trial for allegedly masterminding a 1.9 billion fraud scheme, testified that he didn’t commit any crimes.

Farkas told jurors April 15 in federal court in Alexandria, Virginia, that he was aware his company was having cash problems, saying it was the nature of the business for a growing company that was funding hundreds of new mortgages a day. Farkas said he didn’t have authority to move money between Taylor Bean accounts at Colonial Bank and said his employees acted on directions from bank officials on how to deal with overdrafts.

“I didn’t believe at the time I committed any crimes and I don’t believe now that I committed any crimes,” Farkas said.

Farkas, 58, is charged with orchestrating a fraud involving fake mortgage assets that duped some of the country’s largest financial institutions, targeted the Troubled Asset Relief Program and contributed to the failure of Montgomery, Alabama-based Colonial Bank.

Farkas is accused of 14 counts of conspiracy and wire, bank and securities fraud. If convicted of the single conspiracy charge, Farkas faces a prison term of as long as 30 years.

The case is U.S. v. Farkas, 10-cr-00200, U.S. District Court, Eastern District of Virginia (Alexandria).

For more, click here.

For the latest trial and appeals news, click here.


Kluger Granted Bail as Insider-Trading Probe Widens

Matthew Kluger, the lawyer charged with passing merger-and-acquisition tips stolen from four law firms, was granted bail April 15 in an insider-trading case that prosecutors now say generated at least $37 million in profits.

Kluger, 50, appeared in federal court in Newark, New Jersey, where he agreed to post a $1 million bond. He must undergo electronic monitoring and detention at his home in Oakton, Virginia, where he was arrested April 6. Kluger’s parents will secure the bond with $500,000 in cash. Kluger’s father, Richard, is a Pulitzer Prize-winning social historian.

Kluger is charged with passing inside data to a middleman who gave it to stock trader Garrett D. Bauer in a scheme spanning 17 years. The middleman, Kenneth T. Robinson, pleaded guilty April 11 and secretly recorded Kluger and Bauer for the Federal Bureau of Investigation last month. On April 6, prosecutors said the illicit profits in the last five years of the scheme was at least $32 million. April 15, they said it was at least $37 million.

“The overall number of trades in the scheme, and his profits from the scheme, continue to rise,” Assistant U.S. Attorney Judith Germano told U.S. Magistrate Judge Mark Falk.

Prosecutors say he helped Robinson and Bauer use nonpublic data to trade ahead of at least 15 corporate transactions involving companies such as Sun Microsystems Inc., 3Com Corp. and Acxiom Corp.

Kluger lives with a former partner who is helping him raise their children, Kluger attorney Alan Zegas told Falk. The judge said Kluger can leave his house for child care and may undergo mental-health treatment as needed.

Authorities said Kluger passed tips about deals that he learned of when he was an associate for New York-based Cravath, Swaine & Moore LLP from 1994 to 1997 and Skadden, Arps, Slate, Meagher & Flom LLP, another New York firm, from 1998 to 2001. Kluger also passed on tips that he stole from Fried Frank Harris Shriver & Jacobson LLP after he left Skadden Arps, Robinson said in pleading guilty.

After a hiatus, the scheme resumed in December 2005 and ran until March of this year, when Kluger worked in the Washington office of Wilson, Sonsini, Goodrich & Rosati PC, authorities said.

The case is U.S. v. Bauer, 11-mj-3536, U.S. District Court, District of New Jersey (Newark). The Robinson case is U.S. v. Kenneth Robinson, U.S. District Court, District of New Jersey (Newark).

For more, click here.

Mattel Suit Over Alleged MGA Illegal Money Transfers Dismissed

A judge dismissed Mattel Inc.’s lawsuit alleging that rival toymaker MGA Entertainment Inc. illegally transferred $400 million to shield it from a possible judgment in a federal court battle.

California Superior Court Judge Mel Red Recana in Los Angeles issued an April 13 order saying he agrees with the judge overseeing the federal case who previously rejected the claims.

“The state court has ruled on procedural grounds and is leaving open our right to re-file the case at a later date,” Mike Zeller, a lawyer for Mattel, said in an e-mailed statement.

Mattel and closely held MGA are awaiting a jury verdict in a second federal court trial over the origins of MGA’s Bratz dolls. Mattel, based in El Segundo, California, accuses MGA of trade-secret theft and copyright infringement, alleging that a Mattel designer came up with the idea for Bratz and secretly took it to MGA. MGA, based in Van Nuys, California, also seeks damages from Mattel for trade-secret theft.

MGA Chief Executive Officer Isaac Larian said in an e-mailed statement said the company will sue Mattel for malicious prosecution and for its legal fees.

The state court case is Mattel v. MGA, BC444819, Superior Court of California (Los Angeles County).

Alstom Executives Say Bribery Search Warrants Aren’t Valid

Executives at Alstom SA’s U.K. unit said investigators didn’t have enough evidence to search their homes as part of a probe into claims the company paid 81 million pounds ($132 million) in bribes.

A lawyer for Stephen Burgin, president of the French transport company’s unit, and Robert Purcell, its finance director, told a London court April 15 that they should be allowed to argue the U.K.’s Serious Fraud Office didn’t have enough reason to suspect them.

“There is absolutely no evidence of these men being involved in any substantial payments,” said Clare Montgomery, their lawyer. The men joined Alstom in 2008 and 2009 “well after” the allegations took place.

Burgin and Purcell won a partial ruling last year allowing them to argue police didn’t have good reason to arrest them as part of a bribery, money laundering and false accounting probe. They are seeking court approval to also challenge the SFO’s role in the case. Prosecutors suspect that from 2004 to 2010 Alstom, through its Alstom Network U.K. Ltd. unit, gave money to companies that acted as “bogus consultants” to bribe overseas officials for contracts, according to court papers.

A lawyer for the SFO, James Eadie, said Alstom Network acted as “a conduit” to pass money through and that the payments were “ongoing.”

The unit was paying “nine times as much commission in the Middle East and Africa compared to Europe, and eight times for Asia,” Eadie said. “That’s as good of an inference as one could muster.”

Alstom has denied the allegations. No further hearings in the matter were scheduled.

The cases are Burgin v. Commissioner of Police of the Metropolis, 10/6227; and Burgin v. Director of the Serious Fraud Office, 10/5723, High Court of Justice, Administrative Court (London).

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


Wells Fargo Can’t Claim $115 Million Tax Deductions

Wells Fargo & Co. won’t be able to claim $115 million in tax deductions from 2002 based on an appellate court judge’s ruling that its leases with public transit agencies and technology companies amount to “abusive tax shelters.”

The U.S. Court of Appeals for the Federal Circuit upheld April 15 a lower court decision that found the bank’s leases with 26 entities including New Jersey Transit and the Washington Metropolitan Area Transit Authority “lack economic substance.” The leases were structured as so-called sale-in, lease-out -- or SILO -- deals that allow tax-exempt entities to bestow their tax benefits to a taxpayer for a fee.

The tax benefits include deductions for depreciation of assets. The appeals court rejected the Wells Fargo leases as little more than a money-making strategy for all the entities involved.

“These transactions were win-win situations for all the parties involved because free money -- in the form of previously unavailable tax benefits utilized by Wells Fargo -- was divided among all parties,” Judge William C. Bryson wrote in the opinion. “The money was not entirely ‘free,’ of course, because it was in effect transferred to Wells Fargo from the public.”

Mary Eshet, a spokeswoman for San Francisco-based Wells Fargo, said the bank was “disappointed” by the decision.

“Wells Fargo continues to believe in the merits of the litigated transactions,” she said in an e-mailed statement April 15.

The case is Wells Fargo & Co. v. U.S., 2010-5108, U.S. Court of Appeals for the Federal Circuit (Washington).

For more, click here.

Ex-New York Comptroller Hevesi Gets Up to 4 Years in Prison

Former New York State Comptroller Alan Hevesi, who pleaded guilty in a pay-to-play scandal at the state pension fund he once ran, will go to prison for as many as four years.

Hevesi, 71, the highest-ranking official convicted in an investigation of corruption at the pension fund, was sentenced to a minimum of one year April 15 by State Supreme Court Justice Michael Obus in Manhattan. Hevesi, a Democrat, resigned in 2006 after four years as comptroller.

“I publicly disgraced myself,” Hevesi told the judge at his sentencing hearing. “I have only myself to blame. I will live with this shame for the rest of my life.”

Hevesi pleaded guilty in October to the crime of receiving reward for official misconduct. He admitted giving preferential treatment to Markstone Capital Partners, approving $250 million in pension-fund investments in exchange for almost $1 million in gifts, including $75,000 in travel expenses, $380,000 in sham consulting fees for a lobbyist, and more than $500,000 in campaign contributions.

Henry “Hank” Morris, Hevesi’s former political consultant, was sent to prison for as long as four years in February. Morris, who reaped $19 million in fees through 23 state investments while acting as a middleman, admitted that the investment process at New York’s pension fund was manipulated to benefit him, his associates and contributors to Hevesi’s campaign. Morris agreed to forfeit the $19 million.

The case is People v. Hevesi, New York State Supreme Court, New York County (Manhattan).

For more, click here.

Abbott Agrees to Pay $52 Million to Resolve Aids Drug Case

Abbott Laboratories agreed to pay $52 million to resolve claims by direct drug buyers that it tried to harm competition when it quadrupled the price of its HIV medicine Norvir in 2003.

The settlement, which is subject to court approval, would resolve a class-action lawsuit filed on behalf of Abbott customers that purchased Norvir, a boosting agent for other HIV drugs, and a second medicine Kaletra, which includes Norvir, according to an April 8 filing in federal court in Oakland, California. Abbott denied wrongdoing, according to the accord.

Abbott increased the wholesale price of a Norvir capsule containing 100 milligrams to $8.57 from $1.71, the Abbott Park, Illinois-based company said in court documents. GlaxoSmithKline Plc and drug retailers and distributors sued, claiming other drugmakers that used Norvir in their medicines couldn’t compete on price with Kaletra, and the price increase penalized drug customers that wanted to buy medicines that competed with Kaletra.

Abbott said it increased Norvir’s prices for legitimate business purposes and Kaletra lost market share after the price increase.

CVS Caremark Corp., Walgreen Co., Rite Aid Corp. and retailers that sued opted out of the settlement, according to court documents.

The case is Meijer v. Abbott Laboratories, 07-5985, U.S. District Court, Northern District of California (Oakland).

Crest Nicholson, ISG Pearce Win 82% Reduction of U.K. Fines

Britain’s antitrust regulator lost another round of appeals in its price-fixing case against U.K. builders after a court cut by 82 percent its fines against Crest Nicholson Plc and a former subsidiary, ISG Pearce Ltd.

The Office of Fair Trading was “wrong in principle” and out of step with its own guidelines when it fined the companies a total of 5.19 million pounds ($8.5 million) for joining a cartel to drive up prices, the Competition Appeal Tribunal ruled April 15 in London. The fine was reduced to 950,000 pounds.

“The ultimate penalty imposed on the appellants in the decision was disproportionate and excessive in all the circumstances of the infringement,” the tribunal said in its judgment.

The regulator in 2009 levied fines totaling 129.5 million pounds against 103 builders, including Balfour Beatty Plc and Carillion Plc, the U.K.’s two biggest, for rigging bids from 2000 to 2006. Twenty-five companies appealed, including Kier Group Plc, whose penalty of 17.9 million pounds was reduced to 1.7 million pounds.

“We will consider these judgments in detail, alongside those in all other construction appeals, and will then decide whether to appeal to the Court of Appeal,” OFT spokesman Frank Shepherd said April 15 in a statement.

For the latest verdict and settlement news, click here.

Litigation Departments

BofA Hires SEC’s Former Top Cop for Legal Disputes, Probes

Gary Lynch, the former Securities and Exchange Commission enforcement head who later helped Morgan Stanley and Credit Suisse AG tackle legal disputes, is looking to repeat his success at the biggest U.S. bank.

Bank of America Corp. announced April 14 that it had hired Lynch, 60, as its global chief of legal, compliance and regulatory relations. Scott Silvestri, a Bank of America spokesman, said Lynch wasn’t available for an interview.

Chief Executive Officer Brian Moynihan, 51, brings in Lynch as the Charlotte, North Carolina-based bank deals with lawsuits and investigations tied to soured loans from the housing boom. The lender, which posted its first profit in three quarters April 15, had its capital plan rejected by the Federal Reserve last month.

Lynch, who started at the SEC in 1976, headed the regulator’s enforcement division from 1985 to 1989. He led investigations of Ivan Boesky, the former takeover investor who was convicted of insider trading, and Michael Milken, the high-yield bond chief at Drexel Burnham Lambert Inc. who went to prison for securities violations.

Lynch joined Credit Suisse First Boston as it faced a federal probe into its handling of initial public offerings during the dot-com bubble. He took over Morgan Stanley’s legal division after it lost a $1.57 billion verdict as its lawyers failed to turn over relevant e-mails.

Lynch’s position was newly created, and general counsel Ed O’Keefe will report to him, the bank said. Lynch, who’s been in London since 2009, is moving back to New York.

For more, click here.

Court Filings

Galleon’s Rajaratnam Case Most Popular Docket on Bloomberg

The trial of hedge fund manager Raj Rajaratnam was the most-read litigation docket on the Bloomberg Law system last week.

Rajaratnam, 53, has been on trial since March 8 in the largest crackdown on hedge-fund insider trading in U.S. history. The Sri Lankan-born money manager and co-founder of Galleon is accused of gaining $63.8 million from tips leaked by corporate insiders and hedge-fund traders. He denies wrongdoing, saying he based his trades on research.

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.

To contact the reporter on this story: Elizabeth Amon in Brooklyn, New York, at

To contact the editor responsible for this story: Michael Hytha at

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