July 8 (Bloomberg) -- A Chicago trading firm accused Bank of America Corp., JPMorgan Chase & Co., UBS AG and Citigroup Inc. of conspiring to manipulate the London interbank offered rate.
The banks drove down Libor to generate billions of dollars in profits from swaps, loans, interest rate derivatives and other financial instruments whose value depended on the rate, Eldorado Trading Group LLC said in a complaint filed July 5 in federal court in Newark, New Jersey.
The civil lawsuit is one of several filed in response to probes by the U.S. Justice Department, Securities and Exchange Commission and Commodity Futures Trading Commission related to whether there were improper attempts to manipulate Libor. The rate, at which banks borrow from one another in the London interbank market, is a short-term, international benchmark.
The banks “had a substantial incentive to manipulate, and in fact did manipulate, Libor downward, in order to increase the income from its interest rate derivatives and similar instruments,” according to Eldorado’s complaint. “This manipulation resulted in billions of dollars in revenue.”
Eldorado owned futures and options contracts based on Eurodollar deposits traded on the Chicago Mercantile Exchange from August 2007 to December 2009, according to the complaint. It seeks to represent similar owners of contracts traded on the Chicago exchange.
Karina Byrne, a UBS spokeswoman, said the Zurich-based bank is cooperating with the U.S. probes, and has also gotten requests for information from the Japan Financial Services Agency and the U.K. Financial Services Authority.
“We believe this suit is without merit,” Danielle Romero-Apsilos, a spokeswoman for New York-based Citigroup, said in an e-mail.
Lawrence Grayson, a spokesman for Charlotte, North Carolina-based Bank of America, declined to comment. Jennifer Zuccarelli, a spokeswoman for New York-based JPMorgan, declined to comment.
The case is Eldorado Trading Group LLC v. Bank of America Corp., 11-cv-3847, U.S. District Court, District of New Jersey (Newark).
Liberty Mutual, Safeco Sue Goldman Alleging Securities Fraud
Liberty Mutual Insurance Co. and Safeco Corp. sued Goldman Sachs Group Inc. for “making misleading statements and omissions” in a preferred-stock offering for Federal Home Loan Mortgage Corp. in 2007.
The plaintiffs, which also include Peerless Insurance Co., said they invested $37.5 million in the offering of Freddie Mac shares, which Goldman underwrote, according to a filing July 6 in federal court in Boston.
Goldman claimed Freddie Mac “already met its regulatory capital requirements” and that the offering was made to increase the mortgage company’s capital base, the plaintiffs said.
“The stated purpose for the offering was false,” the plaintiffs said in the complaint. “Goldman knew or recklessly ignored that Freddie Mac did not meet its regulatory capital requirements, and Freddie Mac remained severely undercapitalized even after the sale of the preferred stock.”
“The suit is without merit and we intend to contest it vigorously,” Michael DuVally, a spokesman for New York-based Goldman Sachs, said in a telephone interview.
The insurers are seeking damages of more than $100 million and a trial by jury. They said in the complaint that their investments are “virtually worthless.”
The case is Liberty Mutual Insurance Co. v. Goldman Sachs & Co., 11-11194, U.S. District Court, District of Massachusetts (Boston).
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Blackboard Inc. Sued by Investor Over Providence Buyout Bid
Blackboard Inc., an educational-software maker, was sued in Delaware Chancery Court by an investor contending the company’s stock is undervalued in a proposed $1.64 billion buyout by Providence Equity Partners Inc.
The company is being sold through “an unfair process and for an unfair price,” shareholder Astor BK Realty Trust contended in a complaint filed yesterday in Wilmington, Delaware.
The Providence, Rhode Island-based investment firm agreed July 1 to buy Blackboard, of Washington, for $45 a share in cash, a 21 percent premium at the time.
Astor is seeking class-action, or group, status for the lawsuit on behalf of common stockholders and an order to stop the buyout or award damages.
Michael Stanton, a spokesman for Blackboard, didn’t immediately return a call seeking comment on the suit.
The case is Astor BK Realty Trust v. Chasen, Delaware Chancery Court (Wilmington).
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JPMorgan Reserves Right to Jury Trial in Lehman Lawsuit
JPMorgan Chase & Co., sued for $8.6 billion by bankrupt Lehman Brothers Holdings Inc., said it reserved its right to a review of the case in U.S. District Court and a trial by jury, according to a court filing yesterday.
JPMorgan is fighting Lehman’s suit in bankruptcy court in Manhattan, saying it was protected by so-called safe harbor law when it took collateral from the defunct firm in 2008. Congress created the law to protect banks lending to faltering companies, New York-based JPMorgan has said.
Such issues aren’t usually decided in bankruptcy court, according to JPMorgan. In yesterday’s filing, the bank said it has a right to have the issues reviewed “de novo” by a district court and to seek a jury trial “in any case, controversy or proceeding related” to Lehman’s suit.
Lehman claimed in the lawsuit filed last year that JPMorgan demanded guarantees that fatally weakened the firm, and the transactions weren’t eligible for safe-harbor protections. Lehman demanded $8.6 billion in collateral, plus tens of billions of dollars in damages from JPMorgan, the second-biggest U.S. bank.
JPMorgan, which lent $70 billion to Lehman’s brokerage around the time of the September 2008 bankruptcy, sued Lehman back, alleging it defrauded its lender into making the loan.
Separately, a district judge has taken over a $19 billion lawsuit filed against JPMorgan by the trustee liquidating Bernard Madoff’s firm. When asking the judge to take the case, JPMorgan argued that it involved issues of common law and federal law that a bankruptcy judge isn’t entitled to decide.
The Lehman suit is Lehman Brothers Holdings Inc. v. JPMorgan Chase Bank NA, 10-03266, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
UBS Suits by Madoff Trustee May Be Handled by District Judge
A U.S. district judge said she will review lawsuits against UBS AG by the liquidator of Bernard Madoff’s defunct firm, and will probably take the case out of bankruptcy court to rule on it herself.
Trustee Irving Picard sued UBS twice, demanding $2.6 billion and alleging the Zurich-based bank aided Madoff’s fraud by setting up so-called feeder funds and agreeing “to look the other way” at irregularities. U.S. District Judge Colleen McMahon, who is handling Picard’s $19 billion suit against JPMorgan Chase & Co., said the UBS case is related and raises similar issues of whether Picard has a right to sue.
In a note to lawyers filed yesterday in court, McMahon gave Picard until July 11 at 5 p.m. to explain on paper how she is mistaken.
McMahon said in May that a bankruptcy judge isn’t entitled to decide whether Picard has the right to sue New York-based JPMorgan on behalf of the con man’s customers, and she would handle that case.
JPMorgan argued that Picard was hired to liquidate the Madoff firm, and wasn’t empowered by law to mount a class-action suit to recover money on behalf of Madoff customers. Picard, defending his suit, “misses the point,” the judge said. The trustee last month trebled the amount of money he demanded from the second-biggest U.S. bank.
The UBS case is Picard v. UBS AG, 10-ap-4285, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
JPMorgan ‘Madoff’ Suit Rightfully Dismissed, Court Says
A lawsuit accusing JPMorgan Chase & Co. of conspiring with Bernard Madoff to injure an investment company was rightfully dismissed by a U.S. District Court, an appeals court said.
MLSMK Investment Co. accused New York-based JPMorgan of violating U.S. racketeering law in conspiring with the Ponzi scheme operator to harm investors. The plaintiff is barred from making the claim by securities law, the higher court decided. The ruling was filed by the 2nd U.S. Circuit Court of Appeals yesterday.
MLSMK lost its $12.8 million investment with Madoff’s firm when the con man was arrested in December 2008, according to the filing. It sued JPMorgan on grounds that the company was Madoff’s banker, using state and federal law to allege that JPMorgan helped Madoff to “fleece” his victims while benefiting from fees paid by Madoff, according to the filing.
U.S. District Judge Barbara Jones in Manhattan dismissed the case, saying the suit didn’t adequately show any of the facts the plaintiff was alleging. The appeals court last month affirmed the judge’s dismissal of the state law claims, including aiding and abetting the fraud, commercial bad faith, and negligence. The latest ruling affirms dismissal of the outstanding claim brought under federal racketeering law, according to the filing.
Madoff, 73, is serving a 150-year sentence in a North Carolina federal prison.
The case is MLSMK Investment Co. v. JPMorgan, 10-cv-3040, U.S. District Court, Southern District of New York (Manhattan).
Algosaibi Family Ordered by U.K. Court to Show Saudi Assets
Saudi Arabia’s Algosaibi family and their company, which defaulted in 2009, were ordered by a U.K. judge to disclose their assets after admitting liability in a $250 million lawsuit by HSBC Holdings Plc and four other banks.
Ahmad Hamad Algosaibi & Brothers Co. and more than a dozen “wealthy” family members must provide lists of all assets worth $50,000 or more by Aug. 4, including property in Saudi Arabia, Justice Julian Flaux ruled yesterday in the High Court in London.
Algosaibi, which had sought as many as six weeks to catalog its Saudi possessions, was also told to reveal if any business assets had been moved irregularly since June 16, when the family dropped its defense during a trial on the banks’ claims. The company still hasn’t made a public offer to pay the banks, Flaux said.
A Saudi court order freezing Algosaibi’s assets in the country “isn’t preventing the family from carrying on quite expensive litigation all around the world,” Tim Lord, a lawyer for London-based HSBC, said at the hearing. “It’s about time they pay off these debts.”
The case is part of a global dispute between Algosaibi and one of Saudi Arabia’s richest men, Maan al-Sanea, who married into the Algosaibi family and founded the Saad Group, which has businesses ranging from construction to health care. Units of Saad and Algosaibi, both based in the Saudi oil city of Al-Khobar, defaulted after borrowing about $15.7 billion from more than 80 banks. Algosaibi has sued al-Sanea in the Cayman Islands, Saudi Arabia and New York, accusing him of heaping debt on the company by taking out fraudulent loans.
Algosaibi, with interests including construction, beverage bottling and finance, “remains willing to negotiate with banks toward a fair and comprehensive resolution,” the law firm Baach Robinson & Lewis Pllc in Washington said in a statement on behalf of Algosaibi. “AHAB does not have the funds to pay the massive amounts that were borrowed in its name.”
The London case, stemming from the largest Saudi default to come out of the credit crunch, includes HSBC’s $85 million claim, British Arab Commercial Bank’s $19 million claim, Arab Banking Corp.’s claims totaling $140 million and Credit Agricole SA’s $6 million claim.
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JPMorgan, Mets Tactic May Cut Madoff Jackpot
Legal victories by owners of the New York Mets and JPMorgan Chase & Co. may slash the $100 billion Irving Picard is seeking on behalf of Bernard Madoff’s clients, undercutting bets traders have made on victims’ claims, Bloomberg News’ Linda Sandler reports.
Picard, liquidator of Madoff’s firm, has filed 1,000 suits on behalf of Madoff investors. He sued JPMorgan Chase for $19 billion, equal to all the money lost by all investors in Madoff’s Ponzi scheme. He sued HSBC Holdings Plc and a dozen feeder funds for $9 billion, and seeks as much as $59 billion -- including trebled racketeering charges -- from Bank Medici AG, its founder, Sonja Kohn, and UniCredit SpA. The Mets owners, Fred Wilpon and Saul Katz, face a $1 billion suit.
The banks say that Picard is straining the limits of the law as he tries to grab back money for victims of Madoff’s fraud. They won initial victories by persuading a judge to remove their dispute with Picard from bankruptcy court to higher district courts, which will decide whether Picard exceeded his powers.
If the suits are scaled back by this tactic, Madoff clients will have a smaller pot of damages from which to recover losses, and investors who bought some of their claims at discount may lose the bets they made. Madoff claims are now trading at about 70 cents on the dollar.
“The general view is, Picard will have enough success with his lawsuits to provide substantial recovery over and above what has settled,” said Andrew Gottesman, who heads bankruptcy claims trading at SecondMarket in Manhattan. “That’s what’s driving pricing. If the trustee loses those lawsuits against the banks, traders’ sense of the risk involved would change.”
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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Foreign Bribe Sting Operation for Weapons Ends in Hung Jury
U.S. prosecutors’ first foreign bribery case based on a sting operation ended with jurors failing to agree whether four security company executives sought corrupt deals from an agent posing as a representative of Gabon.
The 12-member jury told U.S. District Judge Richard Leon in Washington yesterday it had reached an impasse after six days of deliberations. Leon decided to declare a mistrial rather than sending the jurors back to continue deliberating.
“It’s a close call, counsel,” Leon said in court. “What makes it a particularly close call is the amount of time, money, energy and effort” that went into this case.
U.S. prosecutor Joey Lipton said in court that the government intends to seek a retrial.
The prosecution of the four is part of a 22-defendant kickback conspiracy case stemming from the sting operation and a fake $15 million weapons deal. It’s the biggest U.S. prosecution of individuals for bribing foreign officials.
Prosecutors allege the men sought to funnel payments to Gabon’s minister of defense in exchange for contracts to provide guns, grenades and uniforms for the African country’s presidential guard. The attempted payments violated the Foreign Corrupt Practices Act, prosecutors said.
Defense lawyers accused the government of engineering the conspiracy, breaking Federal Bureau of Investigation rules about handling informants, and obscuring from their clients that the deal involved a kickback payment by calling it a commission.
The defendants -- John Wier III, Andrew Bigelow, Lee Tolleson and Pankesh Patel -- have denied any wrongdoing.
Laura Sweeney, spokeswoman for the Justice Department, declined to comment, as did lawyers for the four defendants.
The case is U.S. v. Goncalves, 09-cr-00335, U.S. District Court, District of Columbia (Washington).
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JPMorgan to Pay $228 Million to Settle Municipal Bid-Rig Case
JPMorgan Chase & Co. agreed to pay $228 million to settle federal charges that the bank conspired to rig the bidding on investment contracts sold to state and local governments, the Securities and Exchange Commission said.
JPMorgan, the second-biggest U.S. bank, agreed to pay $177 million to settle federal and state charges and to return $51.2 million to municipal borrowers affected by the conduct, the SEC said in a statement.
The U.S. Justice Department and the SEC for more than four years have been investigating how banks and financial advisers fixed the bidding on investments sold to municipalities. Prosecutors say the conspiracy cost taxpayers by allowing banks to pay governments below-market rates. UBS AG and Bank of America Corp. previously settled similar charges.
JPMorgan “improperly won bids by entering into secret arrangements with bidding agents to get an illegal ‘last look’ at competitors’ bids,” Robert Khuzami, director of the SEC’s Division of Enforcement, said in a statement. “Municipal issuers and investors didn’t stand a chance against the fraudulent strategies,” he said.
JPMorgan “doesn’t tolerate anticompetitive activity or other violations of law,” the bank said in a news release. The charges were the result of former employees at a small part of the company that has since been shuttered, the bank said. The employees concealed their conduct from management, JPMorgan said.
“The firm assisted the government agencies in their investigations and is pleased to have resolved this matter with its regulators,” the statement said.
Wells Fargo to Pay $125 Million Over Mortgage Securities
Wells Fargo & Co. agreed to pay $125 million to settle accusations by investors that the bank misled them about the risks of mortgage-backed securities it sold.
The plaintiffs in the consolidated group case, or class action, include the General Retirement System of Detroit, New Orleans Employees’ Retirement System and other public pensions, according to the settlement filed July 6 in federal court in San Jose, California.
Wells Fargo, the largest U.S. home lender, and several investment banks that underwrote the securities were sued in 2009 over alleged violations of securities laws in connection with sales of mortgage pass-through certificates. The bank and the underwriters deny wrongdoing, according to the court filing.
“The proposed settlement agreement is a negotiated resolution as to all named defendants and is intended to avoid the distraction and expense of litigation,” Ancel Martinez, a Wells Fargo spokesman, said in a telephone interview.
The bank still faces claims in state courts in California, Illinois and Indiana filed by individual investors and federal home loan banks seeking to rescind billions of dollars of mortgage-backed securities purchases.
“It’s a very favorable outcome and will be significant for investors,” David Stickney, a lawyer for the plaintiffs, said in a phone interview.
The case is In Re Wells Fargo Mortgage-Backed Certificates Litigation, 09-1376, U.S. District Court, Northern District of California (San Jose).
Fisher’s Firm Told to Pay $376,000 on Investment Losses
Fisher Investments Inc., the firm run by Forbes magazine columnist Kenneth Fisher, may have to pay damages of $376,075 for breaching its fiduciary duty to a retired investor.
Sharyn Silverstein, 64, is entitled to out-of-pocket losses she incurred as a result of Fisher Investments liquidating her bond portfolio and investing 100 percent of the proceeds in stocks, according to a copy of the interim arbitration award obtained by Bloomberg News. Silverstein had invested with Fisher in 2007 after multiple calls and visits from a Fisher outside salesman, according to the award document. She had initially contacted the firm after seeing a Fisher advertisement for a complimentary book in USA Today, the document said.
“She called Fisher to get a copy of a free book, with no intention of doing business with Fisher, and ended up being pressured and eventually persuaded, despite significant resistance on her part and that of her husband, to turn over all of her fixed-income securities to Fisher to be invested in equities,” Karen Willcutts, the JAMS arbitrator for the case, wrote in a 25-page interim award dated July 5. JAMS, based in Irvine, California, is a private forum for arbitration and mediation. Some investment adviser firm agreements include a clause that parties must resolve any disputes through private arbitration.
“The decision was completely wrong on the law and the facts. With more than 25,000 clients, losing an arbitration once every seven years is a record far better than any major competitor, which underscores the integrity of our firm,” said David Eckerly, group vice president corporate communications for Woodside, California-based Fisher Investments. Kenneth Fisher is the firm’s founder and chief executive officer.
Joseph Peiffer, a New Orleans-based attorney with Fishman Haygood Phelps Walmsley Willis & Swanson, LLP, who represents Silverstein, declined to comment.
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