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BofA, Citigroup, JPMorgan, Credit Suisse, TCF in Court News

Bank of New York Mellon Corp. filed a court petition seeking approval of an $8.5 billion settlement with Bank of America Corp. over residential mortgage-securitization trusts.

BNY Mellon made the filing yesterday in New York State Supreme Court in Manhattan as trustee of 530 residential mortgage-securitization trusts established from 2004 to 2008. Investors claimed that Countrywide Home Loans Inc. and other sellers breached agreements.

The agreement requires Bank of America, the parent of Countrywide, or Countrywide, or both, to pay $8.5 billion into the trusts, with amounts based on past and expected future losses associated with the loans in each.

“This settlement resolves a significant portion of the Countrywide private label securitization exposure and it allows us to put this matter behind us and focus on running our business,” Jerome Dubrowski, a spokesman for Bank of America, said in an interview.

Justice Barbara R. Kapnick of New York State Supreme Court in Manhattan yesterday set a hearing on the settlement for Nov. 17.

Bank of New York Mellon is to give notice of the accord to investors in the mortgage-backed securities, mortgage companies Fannie Mae and Freddie Mac, ratings companies, bond insurers including Ambac Assurance Corp. and MBIA Insurance Corp., and underwriters including Deutsche Bank AG and Goldman Sachs Group Inc.

While individual agreements govern each securitization, all contain representations that the mortgage loans conform to underwriting guidelines and conform to their descriptions in investor disclosure documents, the petition says. The loan documents also include servicing obligations, it says.

“A substantial dispute has arisen concerning the sellers’ alleged breaches of representations and warranties in the governing agreements, and the master servicer’s alleged violations of prudent servicing obligations,” the petition says.

Institutional investors, whose current holdings are in the tens of billions of dollars, according to the filing, include Blackrock Financial Management Inc., Pacific Investment Management Company LLC, Federal Home Loan Mortgage Corp., Goldman Sachs Asset Management LP, Trust Co. of the West, and Teachers Insurance and Annuity Association of America.

The case is In the matter of the application of The Bank of New York Mellon, 651786/2011, New York state Supreme Court, New York County (Manhattan).

For more, click here.

Citigroup, Lehman Europe Settle Over $2.5 Billion in Assets

Citigroup Inc. and Lehman Brothers International Europe reached a settlement over assets valued at more than $2.5 billion that were held for the collapsed investment bank by Citigroup in a number of countries.

Citigroup agreed to immediately begin transferring assets held in custody for LBIE, which it kept while determining how it was affected by Lehman’s collapse, PricewaterhouseCoopers, Lehman’s U.K. administrator, said in a statement. Both parties will drop all claims against each other, PwC said.

“This is by far the largest single deal we have undertaken and easily the most complex to negotiate and then structure, given the sheer scale of the legacy relationship between Citigroup and LBIE,” Paul Copley, a PwC restructuring partner who led the negotiations, said in the statement.

Before going into administration, LBIE and New York-based Citigroup entered into “a large volume” of agreements related to over-the-counter derivatives, stock lending, repurchase transactions, prime brokerage and trading arrangements, both on behalf of the banks and for third parties, LBIE said.

LBIE’s former parent company, Lehman Brothers Holdings Inc., collapsed in September 2008, filing the largest bankruptcy in U.S. history. London-based LBIE is in administration in the U.K. Citigroup and LBIE have “taken steps” to return assets to clients that were held by Citigroup during the administration, according to the statement.

“We have worked closely with the administrators of LBIE and their team for many months to ensure that the arrangements between Citigroup and LBIE were resolved amicably and in a manner which fairly reflected the interests of both parties,” Citigroup spokesman Jeffrey French said in an e-mailed statement.

Lehman Brothers Holdings said in a court filing in New York yesterday that it reached a deal with bondholders, led by hedge fund Paulson & Co., and derivatives creditors including Goldman Sachs Group Inc. and Morgan Stanley on a $65 billion liquidation plan.

JPMorgan’s $153.6 Million SEC Settlement Approved by Judge

A New York federal judge approved a $153.6 million settlement by JPMorgan Chase & Co. of allegations by the Securities and Exchange Commission that the bank misled investors in a mortgage securities transaction just as the housing market was starting to plummet, according to court records.

JPMorgan doesn’t admit or deny allegations in the complaint, and will pay a civil penalty of $133 million, plus $18.6 million repayment of its profits and $2 million in interest, according to papers signed by Judge Richard M. Berman in Manhattan court yesterday. Of the payments, $126 million will be for investors who bought notes in a product called Squared CDO 2007-1.

The order also states that JPMorgan and its employees are barred from making money by “means of any untrue statement of a material fact or any omission of a material fact” or engaging in any transaction which “would operate as a fraud or deceit upon the purchaser.”

The case is In re U.S. Securities and Exchange Commission v. JPMorgan Securities LLC; 11-cv-04206; Southern District of New York (Foley Square).

Raymond James to Pay $300 Million in Auction-Rate Settlement

Raymond James Financial Inc. will pay $300 million to clients who bought auction-rate securities, moving to resolve regulators’ claims that the firm misled investors about risk before the market froze three years ago.

Raymond James agreed to repurchase securities from customers whose holdings have been unavailable since the $330 billion market collapsed in February 2008, the U.S. Securities and Exchange Commission and the North American Securities Administrators Association said yesterday in separate releases. The firm will also reimburse interest costs for some clients who took loans from the firm, the regulators said.

“Raymond James improperly marketed and sold ARS to customers as safe and highly liquid alternatives to money market accounts and other short-term investments,” Eric Bustillo, director of the SEC’s regional office in Miami, said in a statement.

Federal and state regulators have sanctioned banks including Citigroup Inc., UBS AG, Bank of America Corp. and Deutsche Bank AG for selling them as safe, cash-like investments before credit markets froze. Auction-rate securities are typically municipal bonds, corporate bonds and preferred stocks whose rates of return are reset periodically through auctions.

“I am pleased we are able to resolve this issue and provide liquidity to clients who continue to hold ARS in their portfolios,” Raymond James Chief Executive Officer Paul Reilly said in a statement.

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Ex-Credit Suisse Broker Butler in Plea Talks, U.S. Says

Former Credit Suisse Group AG broker Eric Butler, convicted in 2009 of fraudulently selling subprime securities to corporate clients that cost investors more than $1.1 billion in losses, is in plea talks to resolve pending charges, a prosecutor said.

“We’re in discussion, plea negotiations, to resolve these matters,” Assistant U.S. Attorney Daniel Spector told U.S. District Judge Paul G. Gardephe yesterday in Manhattan.

A federal appeals court this month threw out Butler’s securities-fraud conviction at a federal trial in Brooklyn, saying the court was the wrong venue for the charge. At the same time, the appeals court upheld convictions for conspiracy to commit wire fraud and conspiracy to commit securities fraud.

Butler still faces wire-fraud counts in federal court in New York. Spector said yesterday the charges were refiled in Manhattan, in the Southern District of New York, after Butler’s lawyers challenged the charges on grounds of venue.

Brooklyn is in the Eastern District of New York. Butler worked in the Zurich-based Credit Suisse’s office in Manhattan.

“We gave the defendant an opportunity to resolve all of these charges in one forum in the Eastern District,” Spector said. “They chose to force the case to be brought here. They made that choice, and it should be resolved here.”

Butler’s lawyer, Steven F. Molo, argued that the wire-fraud charges stemmed from the same conduct for which Butler had been convicted in Brooklyn and shouldn’t have to face retrial in Manhattan.

“Not only are the government sore losers, they’re sore winners,” Molo said. “They brought these counts in the Eastern District for the same scheme. I find this to be frankly an extraordinary waste of the Department of Justice’s time and money.”

Gardephe agreed to adjourn the case until July 25 to allow both sides to file papers to support their position.

Molo and Spector declined to comment on the plea negotiations after the conference.

Butler and his co-defendant Julian Tzolov were charged with conducting what prosecutors said was an illegal scheme in which they falsely told clients their products were backed by federally guaranteed student loans and were a safe alternative to bank deposits or money-market funds.

The case is U.S. v. Butler, 1:09-cr-00685, U.S. District Court, Southern District of New York (Manhattan).

Bid to Block Debit Card Swipe Cap Denied By Appeals Court

TCF Financial Corp. failed to persuade a U.S. appeals court to block a federal regulation capping the fees the biggest U.S. banks can get from retailers for processing debit-card transactions.

The St. Louis-based U.S. Court of Appeals yesterday, in a unanimous nine-page ruling, upheld an April decision by U.S. District Judge Lawrence L. Piersol that the lender hadn’t shown it was likely to prevail on its claims the cap is unconstitutional.

The swipe-fee cap, to be set by the Federal Reserve, applies to all U.S. banks with at least $10 billion in assets. The measure, sponsored by U.S. Senator Richard Durbin, an Illinois Democrat, was as an addition to last year’s Dodd-Frank financial overhaul legislation.

“No legal prohibition exists against TCF fully recouping the costs of its debit-card services by assessing customer fees,” the three-judge appeals court panel said yesterday.

Swipe fees, or interchange, are set by Visa Inc. and MasterCard Inc., the biggest electronic-payment networks, which collect the money and remit it to card-issuing member banks.

In a June 21 letter to Piersol, attorneys for the government told the court that the Federal Reserve, at a meeting that day, would “consider and vote” on the final regulation, which hasn’t yet been set.

TCF National Bank, a Sioux Falls, South Dakota-based unit of TCF Financial, filed the lawsuit last year, naming as lead defendant U.S. Fed Chairman Ben S. Bernanke and including 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, 8th U.S. Circuit Court of Appeals (St. Louis).

For the latest verdict and settlement news, click here.

New Suits

Southern Union Investors Sue to Block Energy Transfer Buyout

Southern Union Co., a natural-gas pipeline operator that is the target of buyout offers, was sued by investors who contend they aren’t getting enough for their shares in a $4.2 billion bid by Energy Transfer Equity LP.

Executives of Houston-based Southern Union didn’t properly shop around for higher bids for the energy company and structured the Energy Transfer deal in a way to discourage other offers, officials of KBC Asset Management NV, a Southern Union investor, said in suit filed in Delaware yesterday.

“The company’s public shareholders will not receive adequate or fair value for their Southern Union common stock,” under Energy Transfer’s bid, lawyers for the fund said in the Delaware Chancery Court suit. Investors would get partnership units worth $33 each under the offer.

The suit comes almost a week after Tulsa, Oklahoma-based Williams Cos., another natural-gas provider, made an unsolicited $4.86 billion all-cash bid for Southern Union. The offer values Southern Union at $39 a share. That’s $6 a share, or about $750 million, more than the June 16 sale price announced by Southern Union and Energy Transfer.

Energy Transfer’s officials said June 28 that Southern Union directors are violating the buyout agreement by discussing the bid with Williams’s executives. Southern Union said they aren’t breaching the contract with the talks, according to a filing with the U.S. Securities and Exchange Commission.

John Barnett, a Southern Union spokesman, didn’t return calls for comment yesterday on the shareholder suit.

The KBC suit is KBC Asset Management NV v. Southern Union Co., 6622, Delaware Chancery Court (Wilmington.) The Septa suit is Southeastern Pennsylvania Transportation Authority v. Southern Union Co., 6615, Delaware Chancery Court (Wilmington.)

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Ex-Lehman Managing Director Faces Prescription Forgery Charge

Bradley H. Jack, a former Lehman Brothers Holdings Inc. managing director, was arrested in Connecticut by police who charged him with attempting to pass a fake prescription for Oxycontin and Ritalin.

Jack, 52, is accused of using a forged prescription at a Fairfield CVS pharmacy June 24 for 12 pills of the painkiller Oxycontin and nine pills of Ritalin, a drug used to treat attention deficit disorder, said Lt. James Perez of the Fairfield Police Department.

A store employee followed the suspect outside the pharmacy, watched him get into a black Range Rover and drive away, Perez said June 28 in a telephone interview. The employee reported the license plate number of the vehicle to police, who traced it to two residences -- one on Sasco Hill Road in Fairfield and the other on North Avenue in Westport, according to Perez.

Jack joined New York-based Lehman in 1984 and ran investment banking from 1996 to 2002, when he became co-chief operating officer with Joseph Gregory. In 2004, he was named to the office of the chairman with the responsibility of overseeing all of the firm’s investment banking relationships.

He decided to retire from New York-based Lehman to pursue work in the nonprofit sector and spend time with his family, said Richard Fuld, Lehman’s former chief executive officer, in June 2005.

Bradley Jack, when approached at his Westport property, said he hasn’t “been in business in five years” and that stories about his arrest have “some misunderstanding.”

“I can’t comment on anything about that,” Jack said when asked about the arrest. “It’s my personal life.”

Jack referred questions to a Norwalk, Connecticut attorney, William A. Pelletreau, who didn’t return messages left at his office after business hours. Robert Satti, a state’s attorney in Bridgeport, declined to comment on the case.

For more, click here.

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Oracle Opposes HP Bid to Seal Court Records in Contract Suit

Oracle Corp. asked a judge to reject an attempt by Hewlett-Packard Co. to seal court filings in the computer company’s breach-of-contract lawsuit against the software maker’s decision to end support for a product.

Lawyers for Redwood City, California-based Oracle contend officials of Palo Alto, California-based Hewlett-Packard overreached when they sought to have filings sealed in a suit over Oracle’s announcement that it would no longer support its database software on Hewlett-Packard computer servers that use the Itanium chip.

“Oracle asks the court to make clear now that this litigation will take place in the sunshine,” the company’s attorneys said in a filing yesterday in state court in San Jose, California.

Hewlett-Packard sued Oracle earlier this month claiming the software maker went from partner to “bitter antagonist” by breaching agreements with the biggest personal computer maker. The suit cited Oracle’s hiring of Hewlett-Packard’s former Chief Executive Officer Mark Hurd as one of the acts that soured the companies’ relationship.

The computer maker’s executives also alleged Oracle officials used “strong-arm tactics” to force customers to “shift from HP’s Itanium server hardware to Oracle’s own server hardware.” Oracle said in March it would no longer support its database software on Hewlett-Packard computer servers that use the Itanium chip, made by Intel Corp.

Hewlett-Packard has asked a California judge to seal filings in its suit because they reveal confidential information, including details of a settlement of litigation over Hurd’s defection, Oracle’s lawyers said in yesterday’s filing.

Hurd left Hewlett-Packard in August after a company probe determined he violated its standards of business conduct in connection with a woman who served as one of the company’s contractors. The panel didn’t find Hurd had violated the company’s sexual-harassment policy.

Oracle’s lawyers noted in yesterday’s filing that the settlement of litigation over Hurd’s hiring already has been made public and there’s no basis for sealing filings detailing it.

The case is Hewlett-Packard Co. v. Oracle Corp., 111CV203163, California Superior Court, Santa Clara County.

For more, click here.

Massey Faked Reports Ahead of 2010 Fatal Mine Blast, U.S. Says

Massey Energy Co. managers pressured coal miners to fabricate safety reports to mislead inspectors before the 2010 West Virginia mine explosion that killed 29 people, federal investigators said.

Kevin Stricklin, the assistant administrator of coal at the U.S. Mine Safety and Health Administration, said his agency’s investigation of the April 2010 blast found duplicate books on daily mine operations. On several occasions in the months before the blast, the books didn’t match, he said. One set told inspectors there were no serious issues while internal reports revealed many hazards, he said.

“Managers were aware that chronic hazardous conditions were not recorded,” Stricklin said at a briefing for families of victims who died in the explosion, which was the worst U.S. mining disaster in 40 years. “Management pressured examiners to not record hazards in the books.”

Massey agreed in January to be acquired by Alpha Natural Resources Inc. for $7.1 billion. Ted Pile, an Alpha spokesman, said the company would look at the agency’s conclusion as part of a separate probe of the fatal blast.

“We heard this information for the first time from MSHA at the same time everyone else did,” Pile said in an e-mail.

Stricklin said Massey managers had to countersign books at the Upper Big Branch mine and knew that the hazards, from low air flow to high levels of explosive gas, went unreported.

A West Virginia investigator said in a report last month that Massey is to blame for the fatal explosion at the mine. An investigation by Massey concluded that the explosion was beyond its control, and was a naturally occurring event caused by an inundation of natural gas.

MSHA plans to complete its own investigation this fall.

“This explosion could and should have been prevented by the mine operator,” Stricklin said.

For the latest lawsuits news, click here.


Obama Health-Care Overhaul to Be Appealed to Supreme Court

A U.S. appeals court upheld President Barack Obama’s health-care reform act, setting the stage for a request that the Supreme Court review claims that the law violates the Constitution.

The Cincinnati-based Court of Appeals voted 2-1 yesterday to reject a challenge to the legislation by the Ann Arbor, Michigan-based Thomas More Law Center, a Christian-based public interest law firm, which contended Congress exceeded its power in imposing the individual mandate.

“Not every intrusive law is an unconstitutionally intrusive law,” Jeffrey Sutton, the first Republican-appointed judge to back the law in litigation across the country, said in his opinion.

Yesterday’s federal appeals court ruling was the first to address the constitutionality of Obama’s signature legislative accomplishment. Robert Muise, who argued the case for the Thomas More center in Cincinnati, said by phone that his group will ask the high court to take the case.

“This case ultimately needs to be decided by the U.S. Supreme Court,” Muise said, adding that his organization will file its petition for review as quickly as possible.

Two other appeals courts have heard arguments on challenges to the health-care overhaul and the high court may wait for their rulings before getting involved.

Sutton, an appointee of Republican President George W. Bush, joined Judge Boyce Martin, named to the bench by President Jimmy Carter, in the majority.

Sutton is a former law clerk to Antonin Scalia, the conservative U.S. Supreme Court justice who wrote this month’s opinion rejecting a nationwide gender-bias suit against Wal-Mart Stores Inc. Scalia once called Sutton “one of the very best law clerks I ever had.”

As a lawyer, Sutton persuaded the high court to limit Congress’s power by shielding states from suits under federal age-bias and disabilities laws.

The Patient Protection and Affordable Care Act, signed into law by Obama in March 2010, is intended to create the first near-universal U.S. health-care coverage program.

The statute bars insurers from rejecting coverage for people who are already sick, and from imposing limits on lifetime costs.

It also requires almost every American resident to have health insurance starting in 2014 or to pay a tax penalty.

Opponents of the act, including the Thomas More center’s Muise, have argued the mandate exceeds the regulatory powers given to Congress under the U.S. Constitution.

The Cincinnati case is Thomas More Law Center v. Obama, 10-2388, U.S. Court of Appeals for the Sixth Circuit (Cincinnati).

For more, click here.

For the latest trial and appeals news, click here.

Litigation Departments

Facebook Claimant Ceglia’s Lawyer Exodus Prompts Delay Bid

Facebook Inc. claimant Paul Ceglia asked a U.S. court to delay his lawsuit claiming half the holdings of the company’s co-founder, Mark Zuckerberg, as Ceglia seeks to reconstruct his legal team.

Most of Ceglia’s lawyers, from the firms DLA Piper LLP and Lippes Mathias Wexler Friedman LLP, filed papers June 28 in federal court in Buffalo, New York, saying they were quitting less than three months after joining the case.

On the eve of a hearing requested by Facebook, which claims the case is a “fraud on the court,” Ceglia asked the judge yesterday for a three-week postponement. He said he wants to allow a new lawyer, Jeffrey A. Lake of San Diego, to become familiar with the case and to permit Ceglia to hire new lead counsel.

“We’ve been very impressed with the all firms we have interviewed,” said Paul Argentieri, of Hornell, New York, Ceglia’s original attorney. “The directive from our client was clear: find a firm with the resources, experience, and legal horsepower to handle a case of this magnitude. But above all, find someone who will not be intimidated by the defendant.”

DLA Piper, which has 4,200 lawyers in 30 countries, is one of the biggest law firms in the world. The Lippes Mathias lawyers representing Ceglia included former New York Attorney General Dennis Vacco. DLA Piper and Vacco declined to say why they were withdrawing from the case.

Ceglia claims he and Zuckerberg signed a contract in 2003 that made them equal partners when Zuckerberg launched Facebook the following year. Facebook, based in Palo Alto, California, is valued at as much as $71 billion, according to, an online marketplace for investments in companies that aren’t publicly traded.

Facebook and Zuckerberg claim the contract is a fake and have called Ceglia a con man in court papers. Facebook has asked a Buffalo judge to issue an order seizing Ceglia’s computers and requiring him to turn over an original contract and e-mails.

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

For the latest litigation department news, click here.

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