Strauss-Kahn, Madoff, BofA, Morgan Stanley in Court News

The hotel maid who accused Dominique Strauss-Kahn, the ex-International Monetary Fund managing director now charged with sexual assault and attempted rape, hired additional legal counsel in anticipation of an attack on her reputation and credibility, her lawyer said.

Attorney Norman Siegel, former director of the New York Civil Liberties Union, and former Assistant U.S. Attorney Kenneth P. Thompson, who prosecuted New York City police officers for the beating and torture of Abner Louima, have begun to work on behalf of the 32-year-old hotel maid from Guinea, according to Jeffrey Shapiro, who has been representing her.

“We anticipate the defense in this case is going to mount some sort of an assault on her,” Shapiro, a New York personal-injury lawyer, said yesterday in a phone interview. “It requires a team effort” to protect her, he said.

In a May 25 letter to the Manhattan district attorney complaining about media leaks in the case, defense attorneys Benjamin Brafman and William Taylor III said that if they wanted to feed the media frenzy, they could release information that would “gravely undermine the credibility” of the woman.

In a letter yesterday, the prosecutor’s office responded that it also was concerned about the leaks -- and “troubled” by the defense lawyers’ claims that they possessed information that might negatively affect the case and the woman’s credibility.

“We are aware of no such information,” Manhattan Assistant District Attorney Joan Illuzzi-Orbon wrote. “If you really do possess the kind of information that you suggest that you do, we trust you will forward it immediately.”

Brafman and Taylor didn’t respond to calls or e-mails seeking comment. Siegel and Thompson also didn’t return calls seeking comment. Shapiro said a civil lawsuit had not been discussed.

The case is People v. Strauss-Kahn, 1225782, Criminal Court of the City of New York. New York County (Manhattan).

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Litigation Departments

Madoff Trustee Picard Charges $5,803 Daily, Lawyer Says

A lawyer who said she represents 800 Bernard L. Madoff investors told a Manhattan judge they objected to a $43.9 million fee request by trustee Irving Picard and his law firm Baker & Hostetler LLP.

The charges for the period from Oct. 1 through Jan. 31 work out to $5,803 daily for the trustee, who is liquidating the con man’s investment firm, and $351,033 daily for his law firm, including weekends and holidays, lawyer Helen Chaitman said in a court filing. The latest fee request would bring total compensation for the trustee and his firm to $179.8 million since the Ponzi scheme operator’s 2008 arrest, she said in yesterday’s filing in U.S. Bankruptcy Court in Manhattan.

Picard’s personal share of the $179.8 million would be $4.3 million, according to court filings. However, his contract with Baker & Hostetler might entitle him to a third or more of the total compensation from the Madoff case, Chaitman said.

“If I’m a lawyer and I originate business, I can get 35 percent of what I originate,” she said in a phone interview. “If I have clout, I can get 50 percent of what I bring in.”

A Picard spokeswoman, Amanda Remus, said by e-mail, “Ms. Chaitman’s filing contains numerous factual inaccuracies, which the trustee’s counsel will address fully in court.” She didn’t specify the errors.

A hearing on Picard’s sixth fee application is set for June


The main case is Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities LLC, 08-ap-1789, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

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New Suits

Auditor BDO USA Sued by Stanford’s Investors for $10.7 Billion

BDO USA LLP and its parent, the ex-auditors of indicted financier R. Allen Stanford’s former company, were sued for $10.7 billion by investors claiming BDO ignored signs of potential fraud.

“Despite the pervasive fraud that infected Stanford Financial Group’s operations, BDO repeatedly issued unqualified audit opinions on its Stanford client’s annual financial statements,” Edward Snyder, a lawyer for Stanford investors, said in a complaint filed yesterday in federal court in Dallas.

Stanford’s companies “needed BDO’s unqualified audit opinions to satisfy securities regulators and to continue recommending” sales of the allegedly bogus certificates of deposit at Stanford International Bank Ltd. in Antigua, the investors said in the complaint.

U.S. Securities and Exchange Commission regulators seized Stanford’s operations in February 2009 on allegations they were involved in a “massive Ponzi scheme” that defrauded investors of more than $7 billion.

“We have yet to be served with the complaint and therefore are unable to comment at this time,” Jerry Walsh, a spokesman for BDO, said in an e-mail. “However, the fact that this complaint was not filed until now -- years after the Stanford fraud came to light and after many other investor complaints were filed -- reflects a transparent understanding that the allegations lack merit.”

Stanford, 61, has been incarcerated since June 2009 as a flight risk after he was indicted on parallel criminal fraud charges. He denies the charges and is scheduled for trial in federal court in Houston in September.

The case is Wilkinson v. BDO USA LLP, 3:11-cv-1115, U.S. District Court, Northern District of Texas (Dallas).

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Knights of Columbus Targets BofA Foreclosure Actions in Suit

Knights of Columbus, a charitable organization and an investor in mortgage-backed securities, is seeking a court order to learn more about foreclosure practices by Bank of America Corp., the biggest U.S. bank.

Bank of America, which services mortgage loans on behalf of investors, may be acting for its own benefit, Knights of Columbus said in a lawsuit filed yesterday in New York State Supreme Court.

The Charlotte, North Carolina-based bank may also be damaging borrowers whose loans were pooled together and sold to investors, and “undermining efforts to restore economic prosperity to the country,” the group said.

Jumana Bauwens, a spokeswoman for Bank of the America, didn’t immediately respond to an e-mail seeking comment.

The bank isn’t named as a defendant in the lawsuit. It acts as servicer for loans that were pooled and sold as mortgage-backed securities, collecting payments from borrowers on behalf of investors and foreclosing when borrowers default.

Knights of Columbus is suing Bank of New York Mellon Corp. seeking an accounting of two trusts that hold mortgage loans. Bank of New York is the trustee for the trusts.

Kevin Heine, a spokesman for the bank, declined to comment.

The case is Knights of Columbus v. Bank of New York Mellon, 651442-2011, New York State Supreme Court (Manhattan).

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Delaware Judge Delays Ruling in Massey Investor Lawsuit

A Delaware judge reserved ruling on a request by Massey Energy Co. investors to block the coal producer’s $7 billion takeover by Alpha Natural Resources Inc. before a scheduled June 1 shareholder vote on the deal.

At a hearing yesterday in Delaware Chancery Court in Wilmington, Judge Leo Strine Jr. told lawyers for the investors that he wasn’t likely to grant their request to bar the buyout until they can pursue mismanagement claims against directors over the April 2010 accident that killed 29 miners.

“I actually have to apply the law,” Strine said during the hearing. “I can’t grant an affirmative injunction or affirmative relief except on undisputed facts or after a trial.”

Massey, the largest coal producer in central Appalachia, was sued in Delaware last year by the New Jersey Building Laborers Pension Fund alleging directors failed to adequately address poor safety conditions that killed workers at the Upper Big Branch mine in West Virginia.

The pension fund is seeking to hold Massey’s board liable for the Richmond, Virginia-based company racking up more than $25 million in assessed violations by the U.S. Mine Safety and Health Administration from the disaster. The fund’s case was filed as a so-called derivative suit, which would return any recovery to the company. Individual shareholders wouldn’t receive any direct payments as a result of the complaint.

Stuart Grant, an attorney for the fund, urged Strine to bar the deal for at least 15 days, giving shareholders time to assess the value of legal claims the buyout would transfer to Alpha. Those claims would be lost, as Alpha would have no incentive to pursue them, Grant said.

Kevin Abrams, an attorney for Massey, countered that it wasn’t necessary for Strine to rule on Grant’s suggestion that the claims be transferred to a litigation trust.

“There is no irreparable harm poised by the consummation of the merger,” Abrams said. “There are multiple avenues for the continued prosecution or recovery under the derivative claims.”

The consolidated case is In Re Massey Energy Co. Derivative and Class Action Litigation, CA5430, Delaware Chancery Court (Wilmington)

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Facebook Says Suit by Man Who Hired Zuckerberg Is a Fraud

Facebook Inc. and its co-founder Mark Zuckerberg admitted some factual allegations in a lawsuit by a western New York man who says a 2003 contract entitles him to half of Zuckerberg’s Facebook holdings, while calling the case as a whole “a fraud on the court.”

In an answer filed yesterday in federal court in Buffalo, Facebook and Zuckerberg admitted that the two men met in the lobby of a Boston hotel in April 2003 and that Zuckerberg, then a Harvard University student, signed a contract with Ceglia to work on, a company Ceglia was trying to start at the time, after answering an online job posting.

Facebook and Zuckerberg yesterday denied the principal allegations of the suit, claiming that Ceglia’s claims are based on a doctored contract and fabricated e-mails. The contract Zuckerberg signed had nothing to do with Facebook, they said.

In an amended complaint filed last month, Ceglia quoted from e-mails he claimed he exchanged with Zuckerberg, which he said support his claim that the two men formed a partnership that gave Ceglia half-ownership of Facebook when it was launched in 2004.

Ceglia claims Zuckerberg defrauded him by lying about the early success of “The Face Book” at Harvard. Ceglia said he is entitled to a multi-billion-dollar stake in Facebook, a closely held company valued at as much as $55 billion, according to, an online marketplace for investment in companies that aren’t publicly traded. Palo Alto, California-based Facebook runs the world’s biggest social-networking site.

“The purported contract was signed in 2003, yet plaintiff waited until 2010 to file this action -- a seven-year delay during which plaintiff remained utterly silent while Facebook grew into one of the world’s best-known companies,” the company said in its answer yesterday.

Robert Brownlie, a lawyer for Ceglia, didn’t return a phone message seeking comment.

The case is Ceglia v. Zuckerberg, 1:10-cv-00569, U.S. District Court, Western District of New York (Buffalo).

Mets Owners Seek to Move Picard Suit to District Court

Fred Wilpon and Saul Katz, owners of the New York Mets Major League Baseball team, asked a federal judge in New York to consider whether Irving Picard, the trustee liquidating Bernard Madoff’s firm, has a right to sue them for $1 billion on behalf of Madoff’s clients.

Picard sued the Mets owners in bankruptcy court, demanding return of $300 million in what he called “fictitious” profit and $700 million in principal taken out of the Madoff firm by Sterling Equities Inc. and its partners. His amended suit in March, seeking to void so-called fraudulent transfers, was “rife with false allegations,” and raises “significant questions” about Picard’s interpretation of federal legislation and laws, the Sterling partners said in a court filing.

As former customers of the con man, they withdrew funds in conformity with securities laws, they said.

“The trustee’s complaint seeks to avoid transfers that do not fit within the parameters of either the preference or the fraudulent conveyance avoidance powers under the bankruptcy code,” they said in a bankruptcy court filing yesterday.

The Mets owners’ move to take their case out of bankruptcy court is another challenge to Picard, whose firm was paid $146 million through March for work since Madoff’s 2008 arrest.

U.S. District Judge Colleen McMahon in Manhattan said this week she would decide whether the trustee has the right to sue JPMorgan Chase & Co. for $6.4 billion on behalf of Madoff customers, as Picard claimed. HSBC Holdings Plc has asked U.S. District Judge Jed Rakoff in Manhattan to dismiss a $9 billion lawsuit against it and so-called feeder funds, saying Picard doesn’t have legal authority to bring such suits on behalf of Madoff customers.

Amanda Remus, a spokeswoman for Picard, didn’t respond to an e-mail seeking comment.

Picard first sued the Mets owners in December. In March, the Sterling partners asked a bankruptcy judge to dismiss the trustee’s amended complaint. The trustee filed his opposition to dismissal on May 19.

The bankruptcy court case is Picard v. Katz, 1:10-ap-05287, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

BP Asks New Orleans Judge to Reject Some Spill Damage Claims

BP Plc urged a U.S. judge to dismiss hundreds of lawsuits from Gulf Coast residents and businesses seeking economic damages from the worst offshore oil spill in U.S. history.

A lawyer for BP argued yesterday in federal court in New Orleans that spill victims can only sue for economic losses under specific laws governing offshore spills and that lawsuits filed under other statutes should be dismissed. The London-based oil company also said spill victims are obligated to pursue claims for resolution through a $20 billion trust fund BP established for that purpose before they can sue.

“BP’s position is not that every single claim needs to be dismissed,” Andrew Langan, BP’s lawyer, told U.S. District Judge Carl Barbier at yesterday’s hearing. Claims that have been improperly filed or not yet presented to BP’s trust fund should be dismissed, he said.

More than 4.1 million barrels of crude gushed into the Gulf of Mexico after BP’s Macondo well blew out off the Louisiana coast in April 2010. Thousands of coastal tourism businesses, property owners, commercial fishing interests and seafood processors have sued BP and its contractors in about 450 lawsuits, which are gathered for joint pretrial processing before Barbier.

Earlier this year, BP and its contractors filed court papers outlining positions they contend undercut the oil spill-damages suits on legal grounds.

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).

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Ex-Nasdaq Managing Director Johnson Admits to Insider Trading

Former Nasdaq Stock Market Managing Director Donald Johnson pleaded guilty to using information gleaned from his position with the exchange to engage in insider trading, the U.S. Justice Department said.

Johnson, 56, pleaded guilty to one count of securities fraud, according to papers filed in federal court in Alexandria, Virginia. He admitted he bought and sold shares of five Nasdaq-listed companies based on inside information from 2006 to 2009.

He often made the trades from his work computer at Nasdaq, according to a lawsuit filed at the same time in federal court in Manhattan by the U.S. Securities and Exchange Commission.

“Mr. Johnson was a fox in a henhouse,” Assistant Attorney General Lanny Breuer said yesterday in a statement. “Nasdaq-listed companies entrusted him with their sensitive, nonpublic information so that he could provide them with analyses about their stock. He then used that very information to cheat the system and make an illegal profit.”

Johnson, a former managing director at Nasdaq’s market intelligence desk in New York, admitted making more than $640,000 from the illegal trades. Among the shares he traded was United Therapeutics Corp. based on inside information about test results for the drug Viveta, now called Tyvaso, and about the approval of the drug, prosecutors said.

“My client chose to accept responsibility today for his actions,” Johnson’s lawyer, Jonathan Simms, said yesterday in a phone interview. “Those who know Mr. Johnson will agree that these charges are in no way indicative of his overall character.”

Johnson faces a maximum sentence of 20 years in prison at his sentencing, scheduled for Aug. 12. The plea deal didn’t include an agreement on what sentence the government will ask the judge to impose, Simms said.

“We’re fully cooperating with the authorities,” said Frank De Maria, a spokesman for Nasdaq OMX, who declined to comment further.

The case is U.S. v. Johnson, 11-254, U.S. District Court, Eastern District of Virginia (Alexandria.)

BofA, Morgan Stanley Settle Claims on Military Foreclosures

Bank of America Corp. and Morgan Stanley units will pay $22.4 million to resolve U.S. allegations that they improperly foreclosed on active-duty soldiers, including some who suffered severe injuries, without first obtaining court orders.

The Bank of America unit will pay $20 million to settle a lawsuit alleging improper foreclosure on about 160 members of the military between 2006 and 2009, the Justice Department said in a statement yesterday. Morgan Stanley’s Saxon Mortgage Services Inc. unit will pay $2.35 million to resolve a lawsuit alleging it improperly foreclosed on 17 service members from 2006 to 2009.

“The men and women who serve our nation in the armed forces deserve, at the very least, to know that they will not have their homes taken from them wrongfully while they are bravely putting their lives on the line on behalf of their country,” Thomas Perez, the assistant attorney general overseeing the Justice Department’s civil rights division, said in yesterday’s statement.

The foreclosures violated the Servicemembers Civil Relief Act, which was enacted to shield deployed military personnel from financial stress, according to the Justice Department.

“These errors are not acceptable, and we certainly regret them,” Terry Laughlin, head of Bank of America’s unit managing foreclosures and defaulted loans, said in an e-mail. “While most cases involve loans originated by Countrywide and the improper foreclosures were taken or started by Countrywide prior to our acquisition, it is our responsibility to make things right.”

Morgan Stanley apologizes to the military families affected by the mistakes, Mark Lake, a spokesman for the New York-based bank, said in an e-mailed statement.

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