MBIA Inc. hid potential losses of as much as $950 million on commercial real estate debt as it sought New York regulators’ approval to restructure its insurance business in 2008, banks including Bank of America Corp. and UBS AG claimed in court papers.
New York insurance regulators were given an internal presentation that included “manual overrides” of loan data that dropped potential losses from the debt to zero, the banks said in a brief that was filed in redacted form in March and unsealed yesterday in state court in Manhattan.
When making its case to the regulators, MBIA, once the world’s biggest bond insurer, deleted parts of a presentation originally given in November 2008 to the company board’s credit risk committee. Those deletions showed that in a “more stressful economic environment” the insurer could have losses from the debt as much as $950 million, according to the court papers.
The banks’ claim is “absolutely false” and regulators were told of both the overrides and the impact they had on loss projections, Marc Kasowitz, a lawyer for MBIA, said in an interview yesterday.
“The evidence is clear and unequivocal that all of the issues with respect to these overrides were clearly and unequivocally communicated to the insurance department, and the insurance department acknowledges that,” he said. “It was not just disclosed, but it was discussed.”
Eric Dinallo, then the state’s insurance superintendent, approved the split in 2009, allowing Armonk, New York-based MBIA to move its guarantees on state and municipal bonds out of the unit that insured some of Wall Street’s riskiest mortgage debt.
Bank of America, UBS and other institutions sued MBIA and the state under New York’s Article 78, which allows court review of state administrative decisions. The banks say the restructuring allowed MBIA to move $5 billion from the company’s MBIA Insurance Corp. unit into a new insurer in a bid to revive its business of guaranteeing state and municipal debt.
Kasowitz said a trial is expected in early 2012.
“We’re completely confident that the proceeding is going to uphold and approve the determination of the superintendent of insurance in approving the transformation,” he said.
The Article 78 case is ABN Amro Bank NV v. Dinallo, 601846-2009, New York state Supreme Court (Manhattan).
‘Hedge Fund Paymasters’ Bought Inside Tips From Jiau
A former Primary Global Research LLC consultant got friends at Nvidia Corp. and Marvell Technology Group Ltd. to give her financial data she sold to her “hedge fund paymasters,” a prosecutor told a jury.
“This was a brazen insider-trading scheme, and at the heart of it was Winifred Jiau,” Assistant U.S. Attorney Avi Weitzman said yesterday in closing arguments at her trial in Manhattan federal court. “Just like her hedge fund clients, she did it for the money,” he said.
Jiau, 43, is charged with illegally passing nonpublic financial information about the two Santa Clara, California-based technology companies to hedge fund managers. She’s the first of the so-called expert networkers to go on trial since the U.S. charged at least a dozen people beginning in November.
Jiau, of Fremont, California, is charged with securities fraud and conspiracy to commit securities fraud. If convicted she faces as long as 25 years in prison.
Weitzman said Jiau befriended Sonny Nguyen, then a senior financial analyst for Nvidia, and Stanley Ng, an accountant with Marvell, to obtain the information she then sold.
Nguyen testified for the prosecution as one of three cooperating witnesses. He pleaded guilty to federal charges in May. Ng was placed on administrative leave by Marvell in January after he refused to cooperate with an internal investigation, court records show.
Noah Freeman, a former SAC Capital Advisors LP portfolio manager, testified that he had a secret agreement with Samir Barai, founder of New York-based Barai Capital Management LP, to pay Primary Global for exclusive access to Jiau.
Joanna Hendon, Jiau’s lawyer, told the jury that despite the government’s assertion her client was at the center of the insider-trading scheme, Barai and Freeman had many other sources of inside information. There was no evidence they considered her tips serious enough to base trades upon, she said.
She showed jurors the raft of e-mails concerning Marvell financial information which was sent by another person the portfolio managers nicknamed “10-K” because Freeman said his tips were as complicated as a company’s filing. Hendon also presented jurors with Jiau’s trading records that showed she lost tens of thousands of dollars when she traded in Marvell and Nvidia stock.
U.S. District Judge Jed Rakoff, who is presiding over the case, told jurors yesterday that they will hear a rebuttal summation from a prosecutor today and then he will instruct them on the law. They will then begin their deliberations, he said.
The case is U.S. v. Jiau, 1:11-cr-00161, U.S. District Court, Southern District of New York (Manhattan).
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Debit-Card Swipe-Fee Cap ‘Not Traditional,’ Bank Lawyer Argues
A planned cap on the debit-card swipe fees charged to merchants by the biggest U.S. banks is “discriminatory,” a lawyer for one of the affected banks told a U.S. appeals court panel.
Timothy D. Kelly, a lawyer for TCF National Bank, told the St. Louis-based court yesterday that it should reverse a trial judge’s decision denying the bank’s bid to block the cap while the lender challenges its legality. The provision is scheduled to take effect July 21.
The limit on per-transaction charges is part of the Dodd-Frank financial overhaul. Banks with more than $10 billion in assets won’t be allowed to collect more than the cost of providing the service, making profit impossible, TCF claims.
“Below-cost rates and widespread exemptions are not traditional rate regulation,” Kelly told the three-judge panel.
TCF, a Sioux Falls, South Dakota, unit of TCF Financial Corp., sued last year seeking to invalidate the measure, arguing it violates the U.S. Constitution’s promises that the government will not confiscate private property without just compensation and of equal protection under the law.
The federal government has “unlimited discretion” to regulate the U.S. banking industry, Justice Department lawyer Lindsey Powell told the judges, in defense of the regulation.
The as-yet-unannounced rate is to be fixed by the Federal Reserve. It’s part of a regulatory program intended “to restore to reasonable levels” fees charged to merchants and, through them, to consumers, attorneys for the government argued in appellate filings.
Federal Reserve Chairman Ben S. Bernanke is the lead defendant in the TCF suit, which also names Vice Chairman Janet Yellen, four Fed governors and Acting Comptroller of the Currency John Walsh.
The lower-court case is TCF National Bank v. Bernanke, 10-cv-04149, U.S. District Court, District of South Dakota (Sioux Falls). The appeal is TCF National Bank v. Bernanke, 11-1805, U.S. Court of Appeals for the Eighth Circuit (St. Louis).
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Ex-Credit Suisse Broker Should Go to Prison Now, U.S. Says
Former Credit Suisse Group AG broker Eric Butler, whose conspiracy conviction for fraudulently selling securities was upheld June 15, should go immediately to prison, the U.S. said.
The U.S. Court of Appeals upheld two conspiracy convictions against Butler. It reversed a securities-fraud conviction, ruling that Brooklyn, New York, was the wrong venue for the trial on the charge.
“In light of the Court of Appeals’ decision, the government now moves for the defendant’s immediate remand,” U.S. Attorney Loretta E. Lynch in Brooklyn said yesterday in a court filing. The appeals court said Butler needs to be resentenced, and Lynch asked for a court date for that “as soon as possible.”
Butler and his partner Julian Tzolov were accused of intentionally misleading clients about securities purchased on their behalf, falsely claiming they were backed by federally guaranteed student loans.
The men told clients the investments, actually backed by riskier corporate debt and subprime mortgages, were a safe alternative to bank deposits or money-market funds, according to Lynch’s office. Victims’ losses were more than $1.1 billion, according to the government.
Steven F. Molo, a lawyer for Butler at MoloLamken LLP in Manhattan, didn’t return a call for comment on Lynch’s request.
In January 2010, U.S. District Judge Jack B. Weinstein sentenced Butler to five years in prison on each count, to be served concurrently. He has been out on bail pending his appeal. Butler, who was found guilty at a trial in 2009, also was fined $5 million on the securities-fraud conviction.
The appeals court rejected the government’s argument that Butler could be tried for securities fraud in the Eastern District of New York because he and Tzolov flew out of John F. Kennedy International Airport in Queens, which is part of the district, to meet with clients they defrauded.
The case is U.S. v. Tzolov, 08-cr-370, U.S. District Court, Eastern District of New York (Brooklyn). The appeal is U.S. v. Tzolov, 10-562, 2nd U.S. Circuit Court of Appeals (Manhattan).
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Bayer Loses U.S. High Court Case on Baycol Class-Action Suit
The U.S. Supreme Court cleared the way for two West Virginians to seek class-action status in a suit against a Bayer AG unit over its withdrawn cholesterol drug Baycol.
The justices yesterday unanimously overturned a decision that said the pair was bound by a ruling rejecting a West Virginia class-action bid in an earlier Baycol suit.
Keith Smith and Shirley Sperlazza are seeking to sue Bayer Corp. on behalf of all West Virginians who took Baycol. They said they shouldn’t be bound by the earlier ruling because they weren’t involved in that case.
Bayer withdrew Baycol from the market in August 2001. The U.S. Food and Drug Administration said Baycol was linked to rhabdomyolysis, a sometimes-fatal muscle breakdown disorder.
The case is Smith v. Bayer, 09-1205, U.S. Supreme Court (Washington).
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Ex-IMF Chief Strauss-Kahn Told Police He Had Immunity
Former International Monetary Fund chief Dominique Strauss-Kahn told police he had diplomatic immunity when he was first detained at a New York airport, according to a filing by Manhattan prosecutors.
Strauss-Kahn, 62, who is awaiting trial on charges of sexually assaulting and attempting to rape a Manhattan hotel maid on May 14, made the statement after police stopped him at John F. Kennedy International Airport the day of the alleged attack, according to the disclosure form sent yesterday to New York State Supreme Court Justice Michael Obus in Manhattan, who is presiding over the case.
“We would like you to come with us,” Detective Diwan Maharaj told Strauss-Kahn on the jetway before taking him to the Port Authority Police precinct at the airport about 5 p.m.
“I have diplomatic immunity,” Strauss-Kahn said while being handcuffed, according to the filing.
“Where is your passport?” Maharaj asked.
“It’s not in this passport, I have a second passport,” Strauss-Kahn said.
Strauss-Kahn has a laissez-passer travel document issued by the United Nations. The UN modifies laissez-passer agreements based on the status of the relevant organization and its officials.
Strauss-Kahn’s lawyers, Bill Taylor and Benjamin Brafman, haven’t claimed their client enjoys diplomatic immunity. After surrendering his French passport to the district attorney’s office, his lawyers said they would get the laissez-passer, which was in Strauss-Kahn’s Washington office, and turn it over.
Brafman didn’t respond to an e-mail about yesterday’s filing.
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Algosaibi Overwhelmed by Claims, Lawyer Says Can’t Pay EIIB
European Islamic Investment Bank Plc is seeking payment of its $78 million claim against Saudi investment firm Ahmad Hamad Algosaibi & Brothers Co. without a trial.
EIIB, which filed its claim on behalf of a group of other banks, sought the ruling from a London judge after Algosaibi admitted June 15 liability in another case where HSBC Holdings Plc and four other banks are seeking $250 million from the company. Algosaibi, which has defaulted on its debt, said there isn’t enough money to go around.
“They would like to pay, but they are unable,” Ewan McQuater, Algosaibi’s lawyer, said at yesterday’s hearing. The company “is overwhelmed” by demands for payment, he said.
EIIB, a London-based lender whose deals comply with Sharia law, in March lost a bid to join the HSBC case before trial began. HSBC’s lawsuit stems from the largest Saudi default to come out of the credit crunch and includes claims by British Arab Commercial Bank Ltd., Arab Banking Corp. and Credit Agricole SA. Algosaibi dropped its defense of the HSBC case after deciding it would probably lose if the 10-week trial continued.
Jim Courtovich, a spokesman for Al-Khobar, Saudi Arabia-based Algosaibi, declined to comment on EIIB’s request for summary judgment.
The company has said Maan al-Sanea, an Algosaibi family relation and founder of Saudi conglomerate Saad Group, wrongfully got about $9.2 billion of loans in Algosaibi’s name. The company is suing him in other jurisdictions. Litigation under way in the Cayman Islands could ultimately affect more than 100 banks that made loans to Algosaibi.
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Toshiba Among Display Makers Sued for Price Fixing
Toshiba Corp., Sharp Corp. and at least 13 other makers of liquid-crystal displays were sued by retailer P.C. Richard & Son Inc. over claims they conspired to fix prices.
Beginning about 1996, the companies “met in person or communicated by other means to agree on LCD product prices and the amount of LCD products each would produce,” according to the complaint filed yesterday in federal court in Brooklyn, New York.
In addition to Farmingdale, New York-based P.C. Richard, the suit was filed by Pontiac, Michigan-based ABC Appliance Inc., which runs retailer ABC Warehouse, and Marta Cooperative of America Inc., a buying cooperative based in Scottsdale, Arizona.
Seven of the defendants have admitted to participating in the conspiracy and paid millions of dollars in criminal fines, according to the lawsuit. Best Buy Co., the world’s largest consumer-electronics retailer, sued the display makers last year.
Keisuke Oomori, a spokesman for Tokyo-based Toshiba, said the company is checking on the matter. Miyuki Nakayama, a spokeswoman for Osaka, Japan-based Sharp, declined to comment.
The case is P.C. Richard & Son Long Island Corp. v. AU Optronics Corp., 11-2903, U.S. District Court, Eastern District of New York (Brooklyn).
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Heineken Wins Cut to EU Beer Cartel Fine in Court Ruling
Heineken NV, the world’s third-largest brewer by volume, and Bavaria NV won bids to reduce antitrust fines levied by the European Union.
The EU General Court cut Heineken’s fine to 198 million euros ($280 million) from 219.3 million euros and Bavaria’s fine to 20.7 million euros from 22.8 million euros. The Luxembourg-based court said the European Commission failed to prove the extent of the cartel.
“The commission has not proved that the infringement concerned the occasional coordination of commercial conditions, other than prices, offered to individual customers in the on-trade segment,” said the court. Handwritten notes on which the commission relied included references that “are sporadic and brief” about which the companies “have put forward a plausible alternative explanation.”
The commission, the EU’s antitrust regulator, fined the two brewers and Dutch rival Royal Grolsch NV in April 2007 for coordinating prices in the Netherlands from at least 1996 to 1999. InBev NV, which has since merged with Anheuser-Busch Cos. to become the world’s largest brewer, escaped a fine after tipping off EU officials.
The court largely confirmed the commission’s decision to impose “deterrent fines” in an important market for consumers, Amelia Torres, a spokeswoman for the Brussels-based regulator, said in an e-mail.
“We are disappointed that the general court has not accepted all of our arguments, but we appreciate that the court has reduced the amount of the original fine,” Jean-Francois van Boxmeer, chief executive officer of Heineken, said in the statement. The company said it “will consider its options” after it has studied the ruling.
The cases are T-235/07, Bavaria v. Commission; T-240/07, Heineken Nederland and Heineken v. Commission.
Edison, Air Liquide EU Rulings May Aid Fine Cuts, Lawyers Say
Edison SpA and Air Liquide SA’s successful challenges to European Union antitrust fines may aid companies seeking to avoid paying fines for competition violations committed by subsidiaries, lawyers said.
Edison yesterday won a EU court challenge to a 58.1 million-euro ($82 million) antitrust fine based on errors committed by EU regulators. Air Liquide SA, the world’s biggest producer of industrial gases, also won its bid to overturn the EU’s decision of collusion in the cartel.
The EU General Court in Luxembourg said regulators failed to consider evidence submitted by Edison showing it didn’t have decisive influence over units involved in the cartel. The European Commission in April slashed a fine against ArcelorMittal SA by 80 percent, saying they couldn’t force the company to pay fines imposed on several of the steelmakers’ units.
“Until today’s judgment no parent company had ever before managed to escape liability,” said Alfonso Lamadrid, a lawyer at Garrigues in Brussels. “This is one of the most common grounds of appeal.”
The court also reduced Solvay SA’s fine in the case to 139.5 million euros, from 167 million euros. FMC Corp. lost an appeal to overturn or cut a 25 million-euro penalty.
Amelia Torres, a spokeswoman for the Brussels-based antitrust agency, said the regulator carefully asses the decision
“The general court confirmed the correctness of the commission’s decision as regards parental liability,” by upholding regulators’ decision to require two other companies in the cartel, FMC and SNIA SpA, to pay their units’ fines, she said.
Brussels-based Solvay, the world’s largest soda-ash maker, got the highest penalty of 167 million euros plus a 26 million-euro fine for Solvay Solexis, which it acquired from Edison in 2002. Erik De Leye, a spokesman for Solvay, had no immediate comment on yesterday’s fine reduction.
The cases are: T-185/06, L’Air Liquide v. Commission; T-186/06, Solvay v. Commission; T-191/06, FMC Foret v. Commission; T-192/06, Caffaro v. Commission; T-194/06, SNIA v. Commission; T-195/06, Solvay Solexis v Commission; T-196/06, Edison v. Commission; T-197/06, FMC v. Commission.
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Facebook Message Juror Gets Eight-Month Sentence in U.K.
An English juror was jailed for eight months after she used Facebook Inc.’s social-networking service to contact a defendant in a drug case and discussed the jury’s deliberations.
Joanne Fraill, 40, was sentenced yesterday by the Chief Justice Igor Judge and two other judges. She admitted to contempt of court at a hearing earlier this week.
“Her contact with the acquitted defendant as well as her repeated searches on the Internet constituted flagrant breaches of the orders made by the judge for the proper conduct of the trial,” Judge said.
This is the first time someone has been punished for contempt of court because of contact over the Internet, according to U.K. Solicitor General Edward Garnier, who prosecuted the case.
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Boeing Case Jets Obama Lawyer From Obscurity
Appearing under threat of a subpoena isn’t the only reason Lafe Solomon may be uncomfortable when U.S. lawmakers question unfair-labor charges he brought against Boeing Co. today.
The uproar over cases he’s filed since President Barack Obama named him acting general counsel of the National Labor Relations Board a year ago was a shock after 39 years of relative anonymity as a career employee with the federal agency, Solomon said.
“I’ve gone from one or two Google pages to hundreds,” Solomon, 61, said in an interview with Bloomberg Government. “Nothing really prepared me for the nonlegal parts of this job. I never could have imagined any of this, ever.”
Solomon has become a public enemy to business groups and their Republican allies, especially after his April 20 complaint saying Boeing built a nonunion assembly plant for its new 787 Dreamliner in South Carolina in retaliation for work stoppages by unions at its Seattle-area production hub. Boeing, the world’s largest aerospace company, has denied such motives.
The House Oversight and Government Reform Committee, headed by Republican Representative Darrell Issa of California, is holding today’s session in North Charleston, site of the plant. The hearing’s title indicates the reception Solomon may receive: “Unionization Through Regulation: The NLRB’s Holding Pattern on Free Enterprise.”
“The committee has made it clear that it is their intention to subpoena me if I do not voluntarily appear,” Solomon wrote in a June 10 letter to Issa. Solomon said he would show up even though he was concerned about lawmakers questioning “an agency acting in its quasi-judicial capacity about its decisions in a pending case.”
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Judge Hearing Google Suit Over Microsoft Contract Tough on U.S.
U.S. Judge Susan G. Braden, who will rule on Google Inc.’s challenge to an Interior Department plan to buy Microsoft Corp. products, pushes agencies to prove contracts are awarded in fair competitions, court records show.
The 62-year-old judge is weighing Google’s allegation that the department improperly favored Microsoft for a planned $59.3 million e-mail services contract. The companies are vying for a foothold in the U.S. government cloud-computing market, valued at as much as $20 billion.
A George W. Bush nominee who joined the U.S. Court of Federal Claims in 2003, Braden’s experience as a litigator has translated into a no-nonsense judicial style that focuses on the facts, lawyers and former clerks said.
“The judge does not mince words,” David Nasse, a former clerk, told Bloomberg Government. “She’s incredibly thorough. If you’re not prepared, and you don’t know the facts of your case, she’s going to let you know that.”
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