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SAC, UBS, Galleon, Facebook, Deutsche Bank in Court News

May 16 (Bloomberg) -- SAC Capital Advisors LP alleged the ex-wife of founder Steven A. Cohen met with lawyers for Fairfax Financial Holdings Ltd. before suing him over claims he cheated her out of money in their 1990 divorce, Bloomberg News’ Thom Weidlich reported.

SAC Capital, in a March 2 filing unsealed May 13 in a Fairfax lawsuit against it and other hedge funds, said that the Canadian insurer or its lawyers may have been involved in Patricia Cohen’s suit.

“SAC has learned from reliable sources that Patricia Cohen in fact met with counsel for Fairfax prior to filing that lawsuit,” SAC said in the filing.

Fairfax, in its 2006 lawsuit in state court in Morristown, New Jersey, accuses SAC Capital and other hedge funds of conspiring to spread negative information about Toronto-based Fairfax because they were betting its stock price would decline. The funds, including Stamford, Connecticut-based SAC Capital, have denied the accusation.

“Neither Fairfax nor its lawyers had anything to do with Patricia Cohen’s lawsuit, and only learned about it from news reports,” Michael Bowe, a lawyer for Fairfax at Kasowitz Benson Torres & Friedman LLP in Manhattan, said in an e-mail. “Suggestions otherwise sound paranoid.”

Jonathan Gasthalter, a SAC Capital spokesman, declined to comment. SAC Capital has about $13 billion under management.

Howard W. Foster, a lawyer for Patricia Cohen at Foster PC in Chicago, declined to comment. She has appealed the March 30 dismissal of her suit in federal court in Manhattan.

In the suit, she said SAC Capital was “the product of an ongoing racketeering scheme” that has engaged in insider trading, bank fraud, money laundering and other misconduct.

SAC Capital in March 2 motions sought permission to conduct sworn interviews with a Fairfax representative and Patricia Cohen about any communications between her and the company.

Stephen M. Orlofsky, the court-appointed “discovery master” deciding evidence-sharing disputes in the New Jersey case, denied the hedge fund’s request to interview the Fairfax representative about Patricia Cohen in a May 11 order. He denied the request to interview Patricia Cohen on April 1, according to the order.

SAC Capital appealed the denial of its request to interview Patricia Cohen, according to Orlofsky, a former federal judge in New Jersey and a partner with Blank Rome LLP in Princeton. The appeal is pending.

The case is Fairfax Financial Holdings Ltd. v. SAC Capital Management LLC, L-2032-06, Superior Court of New Jersey, Morris County (Morristown). Patricia Cohen’s case is Cohen v. Cohen, 11-1390, U.S. Court of Appeals for the Second Circuit (New York) and 09-cv-10230, U.S. District Court, Southern District of New York (Manhattan).

For more, click here.

UBS, Other Banks Ask Court to Reinstate Suit Over MBIA Split

UBS AG and about a dozen other banks asked New York’s highest court to reinstate a lawsuit over MBIA Insurance Corp.’s split in 2009.

The banks filed a so-called reply brief with the New York Court of Appeals in Albany May 13 that said the court should reverse a lower court decision dismissing the suit against MBIA. Oral arguments in their appeal are set for May 31.

Armonk, New York-based MBIA Inc. in January won dismissal of the lawsuit by banks including UBS and Bank of America Corp. that claimed the bond insurer’s restructuring was intended to defraud policyholders. The financial institutions claim the restructuring, approved by New York’s insurance department, was a “fraudulent conveyance” that left MBIA undercapitalized and possibly unable to pay out future claims.

The banks argued the insurance department’s approval of the split shouldn’t stop them from suing under creditor and debtor laws and common law where the agency “provided no notice” to policyholders before approval, which was issued in an “informal” process and relied on MBIA’s “self-interested factual assertions.”

MBIA Inc. last month told the Court of Appeals the lower court correctly dismissed the suit. According to their brief, the restructuring was done to help unfreeze the public finance markets during the financial crisis and was approved by the insurance department after an extensive review that found MBIA Insurance would remain solvent and have sufficient resources to meet claims.

Kevin Brown, an MBIA spokesman, had no immediate comment on the banks’ brief.

The case is ABN Amro Bank NV v. MBIA Inc., 601475-2009, New York state Supreme Court (Manhattan).

For more, click here.

Galleon Defendants Denied Requests on Trial Evidence, Timing

Two former Galleon Group LLC traders accused of insider trading lost bids to introduce evidence or delay their trial, which is set to begin today, just days after co-founder Raj Rajaratnam’s jury conviction.

Emanuel Goffer was denied a motion for a two-week postponement because of “inflammatory” publicity surrounding the May 11 conviction of his former boss in Manhattan federal court.

“The court sees no reason, and Goffer has not offered one, why potential prejudice resulting from a juror’s familiarity with Rajaratnam’s trial cannot be identified and addressed during jury selection,” U.S. District Judge Richard Sullivan said in an order dated May 13.

Co-defendant Michael Kimelman was denied his request to introduce evidence that the U.S. offered him a plea deal on a count of conspiracy to commit securities fraud in exchange for a sentence of probation.

Kimelman, who maintains his innocence, said in court papers they wanted the jurors to know he rejected a plea deal that would have meant no jail time, his lawyers said in court papers.

“Kimelman’s rejection of the government’s plea deal is of little probative value,” Sullivan said in the order rejecting the motion. “Introduction of this evidence would likely distort the issues and distract the jury from the alleged facts underlying the crime.”

Michael Sommer, a lawyer for Kimelman, declined to comment. Michael Ross, a lawyer for Goffer, didn’t immediately return a call seeking comment.

Rajaratnam, 53, was found guilty on May 11 of all 14 counts against him. The jury heard evidence that he gained $63.8 million over seven years through trading on inside information from corporate executives, bankers, consultants and the directors of public companies.

Another former Galleon trader, Zvi Goffer, Emanuel’s brother, is also set to face trial with the two men. Their trial begins today New York.

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

Facebook Must Face Suit Claiming It Gave Advertisers User Data

Facebook Inc., the world’s most popular social-networking service, must face a lawsuit in which it’s accused of giving advertisers personal information about users who clicked on ads.

U.S. District Judge James Ware in San Jose, California, threw out May 12 most of the claims against Facebook, giving the plaintiffs a chance to refile five of the eight dismissed. Ware rejected Facebook’s argument that the entire lawsuit should be dismissed because the users didn’t show an injury sufficient to bring the case.

“The court finds that plaintiffs have alleged facts sufficient to establish that they have suffered the injury required for standing,” Ware wrote in his ruling.

The plaintiffs claim in the lawsuit that, when Facebook users click on advertisements, their identification or user names are transmitted to the advertisers. Advertisers can obtain users’ names, genders and pictures without their consent, the plaintiffs said.

Andrew Noyes, a Facebook spokesman, didn’t return an e-mail seeking comment after regular business hours May 12.

The case is In re Facebook, 10-02389, U.S. District Court for the Northern District of California (San Jose).

Winklevoss Twins Must Face Suit Over Failed Alliance

Cameron and Tyler Winklevoss, the twins challenging a $65 million settlement with Facebook Inc., must face a lawsuit filed by a Boston businessman over a failed partnership, a judge ruled.

The businessman, Wayne Chang, claims in a lawsuit filed in December 2009 that a former partnership with the Winklevosses’ ConnectU project entitles him to part of the Facebook settlement.

Superior Court Judge Peter Lauriat in Boston on April 28 denied the Winklevoss twins’ motion to dismiss the case, ruling that Chang’s prior relationship with the twins gives him standing to seek a share of the settlement proceeds in proportion to his ownership interest in ConnectU as determined by a fact-finder.

“We’re pleased with the court’s ruling,” Alan Rose Jr., an attorney for Chang, said May 13 in a phone interview. “The value of Mr. Chang’s claims are completely intact, and that’s what we care most about.”

Chang is seeking half of any settlement proceeds with Facebook, Rose said.

Erin E. Howard, an attorney for the Winklevosses, didn’t immediately return a phone call May 13 seeking comment.

The Winklevosses sued Facebook founder Mark Zuckerberg in 2004 claiming he stole the idea for the social network and delayed their ConnectU project while they were all Harvard University students.

A federal appeals court in San Francisco on April 11 upheld the Winklevosses’ $65 million settlement with Facebook in 2008, rejecting their claim that it should be thrown out because Facebook misled them about the company’s value at the time.

The case is Chang v. Winklevoss, SUCV2009-05397, Massachusetts Superior Court, Suffolk County (Boston).

For more, click here.

Xinhua Finance Ex-CEO Bush Denies U.S. Insider-Trading Charges

Xinhua Finance Inc.’s former chief executive officer, Loretta Fredy Bush, denies that she was part of a $50 million insider-trading scheme that defrauded investors and U.S. regulators, her lawyer said.

Bush, along with former Xinhua Finance board members Shelly Singhal and Dennis Pelino, were charged May 10 in federal court in Washington with conspiracy, mail fraud and false statements. Shanghai-based Xinhua Finance, the first Chinese company listed on the Tokyo stock exchange, provides information products focused on Chinese and international financial markets.

The three are accused of using entities to disguise the sale of shares in Shanghai-based Xinhua Finance from the Securities and Exchange Commission and investors and engage in insider trading, according to an indictment. They are also accused of manipulating the company’s balance sheet to avoid impairment charges.

“The allegations regarding Ms. Bush are characterizations of legitimate business transactions by disgraced lawyers who have pleaded guilty to lying to prosecutors about other matters and now are trying to curry favor with these prosecutors,” Bush’s lawyer, Charles Leeper of Drinker Biddle & Reath in Washington, said May 12 in an e-mailed statement.

Pelino denies the charges, claiming that lawful business transactions were “misconstrued” by prosecutors, according to an e-mailed statement from his lawyer, Atlee Wampler, in Miami. It is also unlikely the U.S. has jurisdiction over the China-based company, Wampler said in the statement.

All three remain free pending arraignment scheduled for tomorrow.

The case is U.S. v. Singhal, 11-cr-00142, U.S. District Court, District of Columbia (Washington).

For more, click here.

For the latest lawsuits news, click here.

New Suits

Barriger, of G&B Partners, Charged by U.S. in Fraud Scheme

Lloyd Barriger, who operated a commercial real-estate financing fund that collapsed in 2008, was charged May 13 by U.S. prosecutors in New York with conspiracy and securities fraud for defrauding investors.

Barriger, who operated Gaffken & Barriger Fund LLC, a Monticello, New York-based business, was accused of operating a scheme between April 2005 and September 2008 with an unnamed co-conspirator who served as the vice president and an owner of an underwriter of the fund’s loans, the U.S. alleged.

Barriger claimed his fund held real estate assets, including collateralized commercial mortgage loans, prosecutors said. The fund raised capital for its operations through sales of securities to public investors after he obtained a $15 million line of credit in 2006.

In July of that year, Barriger started a scheme to defraud in which, under false pretenses, he solicited $12.6 million from more than 70 old and new investors, prosecutors said.

Barriger failed to inform investors that delinquencies on the fund’s loan portfolio spiked to more than 25 percent in July 2007 and increased to about 34 percent in November 2007, the indictment alleged.

As a result of these delinquencies and the fund’s failure of borrowers to repay their loans, the fund experienced what prosecutors said was “a severe liquidity crunch” and the fund wasn’t able to support the promised 8 percent return to investors.

A lawyer for Barriger couldn’t immediately be reached for comment.

The case is U.S. v. Lloyd Barriger, 11cr416, Southern District of New York (White Plains).

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


Conrad Black Should Resume 6 1/2-Year Sentence, U.S. Says

Conrad Black, the former Hollinger International Inc. chairman, should resume serving the 6 1/2-year prison sentence he received after being convicted for fraud and obstruction of justice in 2007, U.S. prosecutors said.

“The facts relating to defendant’s crimes have not changed,” the prosecutors said in a brief filed May 13 with U.S. District Judge Amy J. St. Eve in Chicago. The author and former newspaper publisher is slated to be resentenced on June 24.

A federal jury found Black, 66, and three other men guilty in the theft of a combined $6.1 million from the company now known as the Sun-Times Media Group Inc. after a four-month trial. St. Eve sentenced Black to 60 months in prison on three fraud counts and 78 months for obstructing a U.S. government investigation.

The U.S. Supreme Court last year narrowed the scope of the mail-fraud statute under which Black had been found guilty and returned his case to a Chicago-based federal appeals panel that had previously upheld the verdict.

That panel last year vacated Black’s convictions on two of the three fraud counts, leaving the remaining convictions intact and giving Chicago U.S. Attorney Patrick Fitzgerald’s office discretion to retry him. Assistant U.S. Attorney Julie Porter in January told St. Eve there would be no retrial.

Black, who was freed on bail in July, shouldn’t be returned to prison, his lawyers said May 13. Black served about two years and four months of his term at the Coleman Federal Correctional Complex in Florida while fighting to have the verdict overturned.

He has asked the Supreme Court to review the second appeals court ruling. His lead appellate lawyer, Miguel Estrada, on May 9 told St. Eve he believed the high court would make that decision known on May 31.

The case is U.S. v. Black, 05-cr-00727, U.S. District Court, Northern District of Illinois (Chicago).

Rambus Falls as Micron, Hynix Cases Sent Back to Lower Court

Rambus Inc. fell the most in 16 months after a U.S. appeals court agreed that the company destroyed documents relevant to patent infringement cases with Micron Technology Inc. and Hynix Semiconductor Inc. and sent the cases back to a lower court to determine appropriate sanctions.

The U.S. Court of Appeals for the Federal Circuit in Washington vacated May 13 a lower court rulings in the cases, which centered on whether Sunnyvale, California-based Rambus should be allowed to enforce patents on computer-memory chips since the company may have destroyed documents needed in the cases.

As part of the ruling, the appeals court also threw out a verdict that resulted in a $397 million judgment against Hynix won by Rambus so the district court can revisit the document-destruction issue. Questions about the Rambus document-retention policy have dogged the company for years. Hynix and Micron have claimed that Rambus misled a board that sets industry standard for DRAM chips and then destroyed evidence that would prove the allegations.

“If the district court again concludes on remand that there was bad faith and prejudice, the record evidence may indeed justify a dispositive sanction, but the seriousness of such a sanction warrants an analysis of all of the factors discussed,” the appeals court panel wrote in the Micron order.

The appeals are Micron Technology v. Rambus, 2009-1263, and Hynix Semiconductor v. Rambus, 2009-1299, U.S. Court of Appeals for the Federal Circuit (Washington). The lower-court cases are Micron Technology Inc. v. Rambus Inc., 00-cv-00792, U.S. District Court, District of Delaware (Wilmington) and Hynix Semiconductor Inc. v. Rambus Inc., 00-cv-20905, U.S. District Court, Northern District of California (San Jose).

For the latest trial and appeals news, click here.


Ex-CSK Auto CFO Pleads Guilty to Earnings Scheme, U.S. Says

Former CSK Auto Corp. Chief Financial Officer Don W. Watson pleaded guilty in Arizona federal court to fraud charges related to misstated earnings at the company from 2001 to 2006, the Justice Department said.

Watson, 55, of Gilbert, Arizona, admitted in court May 13 that he and others claimed tens of millions of dollars in false vendor rebates as income, the agency said in a statement.

Watson “used his position as CFO to manipulate CSK’s books and lie about the company’s true worth,” Assistant U.S. Attorney General Lanny A. Breuer said in the statement. “He misled shareholders and the investing public.”

In March, former CSK Chief Executive Officer Maynard Jenkins settled a U.S. Securities and Exchange Commission lawsuit under undisclosed terms. The suit sought to recover $4.1 million Jenkins received through an accounting fraud he didn’t orchestrate, according to court filings.

The SEC sued Jenkins after CSK, acquired by O’Reilly Automotive Inc. in 2008, was forced to restate financial results from fiscal year 2001 through 2005. Company officials said as much as $89 million in inventory and vendor allowances were overstated.

Watson and Martin G. Fraser, CSK’s former president and chief operating officer, were indicted in 2009 on securities-fraud and conspiracy charges over their alleged use of improper accounting methods to artificially inflate the company’s revenue.

Watson’s lawyer, Edward Novak, didn’t return a call seeking comment.

The case is U.S. v. Fraser, 09-cr-00372, U.S. District Court, District of Arizona (Phoenix).

Thor Industries to Pay $1 Million to Settle SEC Allegations

Thor Industries Inc., the biggest U.S. maker of recreational vehicles, agreed to pay $1 million to settle a U.S. Securities and Exchange Commission lawsuit claiming one of its executives underreported company costs.

The proposed settlement was filed in federal court in Washington May 12 along with a complaint that alleges Mark Schwartzhoff, the vice president of finance at Thor’s Dutchmen Manufacturing Inc., “engaged in a fraudulent accounting scheme to understate Dutchmen’s cost of goods sold.”

Schwartzhoff overstated Dutchmen’s pretax income by almost $27 million from fiscal year 2003 to the second quarter of fiscal 2007, according to the SEC. The executive, who was fired in 2007, agreed to pay almost $400,000 in penalties, according to court filings.

“Thor’s failure to maintain accurate books and records and adequate internal accounting controls violated a 1999 commission cease-and-desist-order,” the SEC in said court papers, referring to similar misconduct at a different Thor unit.

Without admitting or denying the allegations, Thor Industries agreed to hire an SEC-approved independent consultant to evaluate internal accounting controls at its headquarters in Jackson Center, Ohio, and at its other units. The agreement requires court approval.

Richard Riegel, Thor’s senior group president, said the company looks forward to working with the independent consultant.

“We’re just pleased the issue has come to a resolution because we’ve become a much, much, much better company,” he said.

The case is SEC v. Thor Industries, 11-cv-00889, U.S. District Court, District of Columbia (Washington).

For the latest verdict and settlement news, click here.

Court Filings

Deutsche Bank Mortgage Suit Most Popular Docket on Bloomberg

The U.S. Department of Justice’s suit against Deutsche Bank AG, for more than $1 billion, alleging the firm lied while arranging federal insurance on faulty mortgages, was the most-read litigation docket on the Bloomberg Law system last week.

Deutsche Bank’s MortgageIT unit falsely certified that it was examining default risks while qualifying loans for FHA insurance, according to the government’s complaint.

The case is U.S. v. Deutsche Bank AG, 11-cv-2976, 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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