Galleon Group LLC co-founder Raj Rajaratnam, the hedge fund manager convicted of insider trading, will be heard again on recorded wiretaps in the trial of his former deputy, Zvi Goffer, the judge overseeing the case said.
Rajaratnam, who didn’t testify in his trial, was convicted of 14 criminal counts last week by jurors who heard him talking in dozens of wiretapped conversations with employees and alleged co-conspirators. U.S. District Judge Richard Sullivan said recordings of Rajaratnam will be played in the case of Goffer and two others whose trial began yesterday with jury selection.
“Mr. Rajaratnam is going to be a factor in this trial,” Sullivan told lawyers in a hearing yesterday before the start of jury selection in the same Manhattan courthouse where Rajaratnam was convicted of directing the biggest illegal stock-tipping ring since the 1980s. “He’s going to be mentioned or in fact heard on these tapes.”
Goffer, 34, who left Galleon to work at Schottenfeld Group LLC and then founded his own firm, Incremental Capital LLC, is on trial along with his brother, Emanuel Goffer, 32, and Michael Kimelman, 40, both ex-traders at Incremental. Their trial begins a second round of cases growing out of a nationwide insider-trading investigation.
Referred to by some of his alleged accomplices as “Octopussy,” Zvi Goffer was at the center of the insider-trading scheme, one of three overlapping rings tied to Galleon, according to prosecutors. The reference to the 1983 James Bond movie was due to Goffer’s many sources of information, prosecutors have said.
Sullivan told lawyers he expects jury selection to be completed today, with opening statements to follow.
The case is U.S. v. Goffer, 10-cr-00056, U.S. District Court, Southern District of New York (Manhattan).
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Trader Daniel Corbin Pleads Guilty in New York Federal Court
Day trader Daniel Corbin pleaded guilty in federal court in New York yesterday to charges that he conspired to make illegal trades based on confidential tips gleaned from the wife of a former Lehman Brothers salesman.
Corbin, 35, of Miami Beach, Florida, pleaded guilty to one count each of securities fraud and conspiracy before U.S. Magistrate Judge Henry Pitman in federal court in Manhattan, making him the last of five people indicted in December 2008 to plead guilty.
Corbin said that his partner, Jamil Bouchareb, obtained material non-public information about Veritas DGC Inc. that was used to buy 2,500 shares of the company for their joint account on Sept. 1, 2006. The trade earned them $16,000 in profits. Compagnie Generale de Geophysique SA said four days later it had agreed to buy the provider of geophysical services to the oil industry for $3.1 billion.
Corbin told Pitman in court yesterday that he had “suspicions” that the information that Bouchareb had obtained wasn’t public. Bouchareb got his tips from a former Lehman Brothers Holdings Inc. salesman, Matthew Devlin, and told Corbin about them prior to the trade being made, said Corbin’s attorney, Ronald Gainor.
The case is U.S. v. Corbin, 09-cr-00463, U.S. District Judge, Southern District of New York (Manhattan).
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Rajaratnam Deemed Guilty by Day 2 of Deliberations, Juror Says
Raj Rajaratnam was convicted of insider trading by a jury that never argued during 12 days of secret deliberations that he was innocent, Bloomberg News’s David Voreacos, David McLaughlin and Bob Van Voris report that a juror said.
By the second day of their discussions in federal court in Manhattan, the panel decided the Galleon Group LLC co-founder was guilty of the first conspiracy charge in a 14-count indictment, concluding he traded on illegal tips from former McKinsey & Co. partner Anil Kumar, juror Leila Gonzalez Gorman said in an interview at her home.
It took 10 more days of what Gorman said were tense and sometimes tearful talks, punctuated by the replacement of an ailing juror that forced them to restart deliberations, before a May 11 verdict that Rajaratnam was guilty of five conspiracy and nine securities-fraud charges. Jurors never believed the hedge fund manager’s arguments that his trades were based on a “mosaic” of publicly available information, she said.
“No one was arguing that he was not guilty,” said Gorman, 44, who teaches second-graders in the Bronx. “Some people said ‘I’m not sure about this’ and ‘I’m not sure about that.’ But no one said he’s an innocent man at any point.”
Rajaratnam, 53, faces 15 1/2 years to 19 1/2 years in prison under federal sentencing guidelines. Jurors found he made $63.8 million in illicit profits during a seven-year conspiracy to trade on inside information from corporate executives, traders and directors of public companies.
Lawyers for Rajaratnam, who is free on bail, said he plans to appeal his conviction in the biggest insider trading trial in a generation. Prosecutors for U.S. Attorney Preet Bharara in Manhattan have charged 47 people with insider-trading over 18 months as part of a nationwide investigation.
Rajaratnam didn’t testify, although jurors heard his voice in more than 40 wiretapped conversations with Kumar; Rajiv Goel, a managing director at Intel Corp.; and Danielle Chiesi, an analyst at New Castle Funds LLC. All pleaded guilty, and Kumar and Goel testified against Rajaratnam, as did Adam Smith, a former Galleon trader.
“The wiretaps helped but they were not the most compelling” evidence, Gorman said. “They were very, very helpful because you get to listen to the tone. It pieced everything together. It was a confirmation that this is definitely insider trading.”
Just as important, she said, was the testimony of the conspirators and the government’s expert, as well as e-mails, instant messages, text-messages and government graphs showing the share prices of stocks and the dates of Galleon’s trading. She discounted the testimony of Rajaratnam’s witnesses.
The case is U.S. v. Rajaratnam, 1:09-cr-01184, U.S. District Court for the Southern District of New York (Manhattan).
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Facebook Spared Appeals Court Rehearing in Winklevoss Case
Facebook Inc. won’t have to face an appeals court rehearing on an effort by Cameron and Tyler Winklevoss to undo a settlement of their claims company founder Mark Zuckerberg stole the idea for the social networking site.
The Winklevoss twins, former Harvard University classmates of Zuckerberg’s, will appeal to the U.S. Supreme Court, according to the law firm representing them, Howard Rice in San Francisco. They had asked for an 11-judge panel at the U.S. Court of Appeals to review an April ruling by a three-judge panel that rejected their bid to reopen the settlement. That request was denied yesterday by the court without explanation.
The brothers argued that the three-judge panel erred when it dismissed their claims that the 2008 settlement should be voided because it was procured through fraud. They alleged that Palo Alto, California-based Facebook didn’t disclose an accurate valuation of its shares before they agreed to the $65 million cash and stock settlement. The appeals court ruled that the accord barred future lawsuits and was “quite favorable” to the twins.
“Settlements should be based on honest dealing, and courts have wisely refused to enforce a settlement obtained by fraudulent means,” Jerome Falk, the Winklevosses lawyer, said in an e-mailed statement. “The court’s decision shut the courthouse door to a solid claim that Facebook obtained this settlement by committing securities fraud,” Falk said. “Our petition to the Supreme Court will ask the high court to decide whether that door should be reopened.”
Andrew Noyes, a spokesman for Facebook, the world’s most popular social-networking service, said in an e-mail the company is pleased with yesterday’s ruling.
The case is The Facebook Inc. v. ConnectU Inc., 08-16745, 9th U.S. Circuit Court of Appeals (San Francisco).
Lehman to Pay ‘Saphir’ Derivatives Investors A$98.5 Million
Lehman Brothers Holdings Inc. will pay investors A$98.5 million ($104 million) to settle a derivatives dispute that divided courts in the U.S. and the U.K., according to an Australian trustee who sued on behalf of investors.
Lehman agreed to pay holders of credit-linked notes issued by Mahogany Capital Ltd. as much as 85 cents on each dollar invested in Series I notes that were backed by an Australia and New Zealand Banking Group Ltd. bond and as much as 69 cents on the dollar for a Series II note backed by a Royal Bank of Scotland Group Plc bond, said Chris Green, group executive at Perpetual Corporate Trust in Sydney.
“Those were the assets we were fighting over,” Green said today in a phone interview, referring to the bonds backing the notes. “The question was who got first dibs.”
Lehman had argued it was entitled to the assets, while Perpetual maintained the money should be returned to investors. Courts in the U.K. ruled against Lehman, which is seeking money to pay creditors, while a U.S. bankruptcy judge last year ruled in Lehman’s favor. Allowing an appeal, a U.S. district judge said Lehman had used the lower-court decision as “leverage” in talks with other parties over billions of dollars of similar transactions.
The divided court rulings mean there is still no consensus on who has priority in derivative transactions in which a counterparty defaults, Green said. Billions of dollars with multiple counterparties remain in dispute in the Lehman bankruptcy, he said.
About 1,000 retail investors including Australian charities and local councils will be getting checks within the next month, Green said.
Ralph Miller, a lawyer for Lehman, declined to comment. Kimberly Macleod, a Lehman spokeswoman, also declined to comment.
The main bankruptcy case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
DirectBuy Holdings Accord Rejected by Judge as Too ‘Meager’
DirectBuy Holdings Inc.’s settlement of a nationwide class-action lawsuit over its sales practices was rejected as being too “meager” by a federal court in Connecticut.
The plaintiffs claims were “substantially undervalued,” U.S. District Judge Janet C. Hall in Bridgeport, Connecticut, said yesterday in a written opinion. The accord would require DirectBuy to provide as much as $55 million in free memberships to members to settle claims that the consumer club marked up the supplier and manufacturer prices of its goods.
“The court does not view these claims as so weak that it would be reasonable to settle claims arguably worth over $2 billion for, at most, only a hundredth of this amount,” Hall wrote.
The ruling followed opposition from attorneys general in 37 states who argued last month that the agreement offered no real benefit to consumers. The settlement’s value is vastly overstated and the deal should be rejected entirely, Connecticut Attorney General George Jepsen said April 12 in court papers.
DirectBuy, based in Merrillville, Indiana, franchises stores and charges customers membership fees of $2,900 to $7,000 in exchange for the right to buy appliances and furniture at wholesale prices.
The company allegedly received millions of dollars in kickbacks from manufacturers, resulting in members’ paying more than the discount price, according to court papers.
DirectBuy didn’t admit any wrongdoing in the agreement. Michael Georgeff, a spokesman for the company, didn’t return a phone call and e-mail seeking comment.
Fewer than 1 percent of the settlement class members objected to the deal, with those who did complaining “vociferously,” Hall wrote.
Jeffrey Nobel, an attorney for the plaintiffs, didn’t return a phone call and e-mail seeking comment.
The case is Wilson v. DirectBuy Inc., 09-00590, U.S. District Court, District of Connecticut (Bridgeport).
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Cigna Gets Partial Win at U.S. High Court on Benefits
The U.S. Supreme Court gave a partial victory to Cigna Corp. in a pension fight, setting aside a ruling that required the company to recalculate the benefits for 27,000 workers.
The dispute stemmed from Cigna’s 1998 conversion of its pension plan into a so-called cash balance plan. The workers said they didn’t realize at the time that most of them would lose money as a result of the conversion. Two lower courts said workers were entitled to additional benefits.
The Supreme Court yesterday unanimously set aside those rulings, saying the workers needed to show that they were harmed by Cigna’s violation of a federal employee-benefits law.
The justices stopped short of requiring the workers to show that they relied on plan summaries that a trial judge concluded were misleading.
Cigna in 2008 took a pretax charge of $80 million to cover its estimated liabilities in the case.
Cash balance plans are hybrids that combine elements of traditional employer-funded defined-benefit plans with the transferable personal accounts that are common to 401(k)-style defined-contribution plans.
The case is Cigna v. Amara, 09-804, U.S. Supreme Court (Washington).
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Volcom Shareholder Sues Seeking to Block Sale to PPR
Volcom Inc. was sued over claims its planned $607.5 million sale to PPR SA, the French owner of Gucci and Puma, is unfair and coercive to shareholders.
The proposed agreement is “grossly inadequate,” shareholder Gabriel Graff said in a complaint filed in Delaware Chancery Court. PPR said May 2 it would pay $24.50 a share for Costa Mesa, California-based Volcom to strengthen its lifestyle-sports unit with skate and snowboarding gear.
“Despite the company’s recent financial success, Volcom is trying to sell itself off to PPR,” Graff said in the complaint made public yesterday. Graff seeks to represent all Volcom shareholders in the bid to block to deal.
The offer by Paris-based PPR values Volcom at 24 percent more than its April 29 closing price of $19.73. Graff accused Volcom directors of acting for their own benefit by agreeing to a deal with strict protections.
“These preclusive deal protection devices illegally restrain the company’s ability to solicit or engage in negotiations with any third party,” Graff said.
Rob Whetstone, a spokesman for Volcom, had no immediate comment on the lawsuit.
The case is Graff v. Volcom Inc., CA6487, Delaware Chancery Court (Wilmington).
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Toyota Must Face Unintended-Acceleration Claims, Judge Says
The federal judge overseeing lawsuits against Toyota Motor Corp. involving allegations of unintended acceleration made final an order rejecting the automaker’s bid to throw out claims by vehicle owners claiming economic loss.
The Toyota owners contend the company drove down the value of their vehicles by failing to disclose or fix defects related to sudden acceleration. U.S. District Judge James V. Selna in Santa Ana, California, declined on May 13 to revisit last month’s tentative order allowing the lawsuits to move ahead because the vehicle owners had properly pleaded loss or injury.
“Taking these allegations as true, as the court must at the pleading stage, they establish an economic loss,” Selna wrote, using language identical to his tentative ruling. “A vehicle with a defect is worth less than one without a defect.”
Toyota, the world’s largest automaker, recalled millions of U.S. vehicles, starting in 2009, after claims of defects and incidents involving sudden unintended acceleration. The recalls set off a wave of litigation, including hundreds of economic loss suits and claims by individuals or their families alleging injuries and deaths.
Most of the federal lawsuits were combined before Selna, who is overseeing pretrial evidence-gathering.
Selna issued a similar ruling in November that rejected Toyota’s motion to dismiss an earlier complaint by the vehicle owners.
The cases are combined as 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).
IMF’s Strauss-Kahn Ordered Held Without Bail in New York
International Monetary Fund chief Dominique Strauss-Kahn, accused of attempting to rape a hotel housekeeper, was ordered held without bail by a New York judge after prosecutors said he presented a flight risk.
Strauss-Kahn appeared in Manhattan criminal court yesterday, two days after he was taken into custody aboard an Air France flight as it prepared to depart from John F. Kennedy International Airport. Prosecutors asked Judge Melissa Jackson that he be kept in custody until trial. Strauss-Kahn faces as long as 25 years in prison if convicted of the most serious charges, prosecutors said.
A potential candidate for the French presidency, Strauss-Kahn, 62, has denied the charges and will plead not guilty, his lawyer Benjamin Brafman has said. He didn’t enter a plea yesterday. His next court appearance was set for May 20.
The IMF chief is charged with criminal sexual act, attempted rape, sexual abuse, unlawful imprisonment, sexual abuse and forcible touching, according to court papers.
Stephen Morello, a spokesman for the New York City Department of Correction, said yesterday that Strauss-Kahn may be taken to the city’s main jail complex on Rikers Island, off the shore of northern Queens opposite LaGuardia Airport.
The jail has one-person cells and Strauss-Kahn, because of his prominence, may require an escort when out of his cell, Morello said. He will stay at the courthouse lockup “until we decide to move him somewhere else,” Morello said.
Brafman asked the judge to let his client stay with his daughter, who lives in New York, while awaiting trial. Brafman said Strauss-Kahn’s wife, television journalist Anne Sinclair, was flying to New York yesterday.
After the hearing, Brafman told the reporters at the courthouse that he would review the bail decision.
The alleged attack on a 32-year-old woman at a Sofitel hotel in midtown Manhattan occurred May 14, according to the New York Police Department. The maid picked Strauss-Kahn out of a lineup, police said.
The IMF “remains fully functioning and operational” following Strauss-Kahn’s arrest, the Washington-based organization said in a statement yesterday. John Lipsky, the IMF’s first deputy managing director, is serving as acting managing director, IMF spokesman William Murray said. Murray said Strauss-Kahn’s trip to New York was private and that his hotel room was not paid for by the IMF.
The case is People v. Strauss-Kahn, 1225782, Criminal Court
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Halliburton Engineer Declines to Testify in Oil Spill Suit
A Halliburton Co. engineer who said he warned BP Plc of the risk of a natural-gas surge before the Macondo well blew up has declined to testify in litigation over the incident, Transocean Ltd. said yesterday.
Jesse Gagliano, a technical adviser who was Halliburton’s cementing engineer on the well offshore of Louisiana, “refused to testify last week” in a deposition and invoked his Fifth Amendment rights against self-incrimination, Transocean said in a court filing. Transocean asked the magistrate overseeing depositions to give the company more time to question personnel from Houston-based Halliburton.
The Macondo well blowout and the explosion that followed killed 11 workers and set off the worst offshore oil spill in U.S. history. The accident and spill led to hundreds of lawsuits against London-based BP, which owned the well, Switzerland-based Transocean, which owned the oil rig, and other partners and contractors including Halliburton.
Transocean’s filing yesterday came as parties are seeking sworn testimony by witnesses and representatives of companies involved in the lawsuits. A trial on determining liability for the incident and subsequent spill is set for February 2012 in federal court in New Orleans. Depositions conducted by the various parties may be used in that trial and others.
Gagliano told the U.S. Coast Guard at a hearing last year that he warned BP five days before the explosion that its design for the well was susceptible to a “severe” natural-gas surge. He said he advised BP to assemble the well with 21 centralizers, devices used to ensure the steel pipe lining the well could be properly secured.
BP used six centralizers, according to the report on the explosion by a U.S. presidential panel.
Joshua Berman, Gagliano’s attorney, didn’t return a call for comment. Donald Godwin, Halliburton’s lead trial lawyer in the litigation, 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, MDL-2179, U.S. District Court, Eastern District of Louisiana (New Orleans).
Venezuela Bandagro Bond Case Draws U.S. Supreme Court Inquiry
The U.S. Supreme Court sought the Obama administration’s views on an Ohio investor group’s effort to sue Venezuela over potentially $900 million in bank notes that the South American country says are forgeries.
The justices asked acting Solicitor General Neal Katyal for his advice on whether the high court should hear the case. A lower court barred Venezuela from invoking a U.S. law that immunizes foreign sovereigns from some lawsuits in American courts.
In seeking Supreme Court review, Hugo Chavez’s Venezuelan government told the justices that the suit by DRFP LLC, which does business under the name Skye Ventures, may be the first of several claims over the disputed bearer bonds.
The notes were allegedly issued in 1981 by the Banco de Desarrollo Agropecuario, then a state-owned Venezuelan bank also known as Bandagro.
Skye Ventures says it acquired its two notes only after the Venezuelan attorney general issued a 2003 opinion declaring them valid. The investor group then demanded payment in Columbus. When Venezuela refused, Skye sued.
The two Skye notes have a face value of $50 million apiece. The investor group said in September that with interest the bonds were worth $900 million.
In ruling 2-1 that the suit could go forward, the Cincinnati-based 6th U.S. Circuit Court of Appeals said Venezuela isn’t shielded by the U.S. Foreign Sovereign Immunities Act because the notes let the holder demand payment in the U.S. The majority said Venezuela’s refusal to pay had a “direct effect” on the U.S., putting the dispute within the province of the American court system.
The case is Republica Bolivariana de Venezuela v. DRFP, 10-1144, U.S. Supreme Court.
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