Finivest, Commerzbank, BofA, Madoff, Exxon in Court News

Fininvest SpA, the investment company of Prime Minister Silvio Berlusconi, was ordered to pay Compagnie Industriali Riunite SpA more than 540 million euros ($770 million) by an Italian court. Fininvest said it will appeal.

The company will also have to pay interest and CIR’s court expenses, an appeals court in Milan decided, according to the text of the ruling released July 9 and obtained by Bloomberg News. The decision is effective immediately, the court said.

Marina Berlusconi, the premier’s daughter and Fininvest president, called the decision a “bitter defeat for justice” and “the umpteenth scandalous episode of frantic aggression that has gone on for years against my father, by all means and on all fronts, including entrepreneurial and economic.” Fininvest will appeal the ruling, she said in an e-mailed statement.

Fininvest in October 2009 was ordered to pay 750 million euros to CIR for bribing a judge during a takeover battle for publisher Arnoldo Mondadori Editore SpA dating back to 1991. Fininvest, which said at the time the ruling was “profoundly unjust,” appealed and won a suspension of the court ruling, which allowed the company to delay payment while its appeal went through the courts.

In December 2009, Fininvest provided an 806 million-euro bank guarantee, including interest and “ancillary costs” to cover the damages owed to CIR.

The guarantee was provided by a group of banks including Intesa Sanpaolo SpA, UniCredit SpA, Banca Monte dei Paschi di Siena SpA and Banca Popolare di Sondrio SCARL, Ansa news agency reported at the time. Compensation will be paid if Fininvest loses the appeal.

The appeals court said separately that Silvio Berlusconi should be considered co-responsible for the civil charges tied to the bribery ruling, Ansa reported.

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Caterpillar Accused of Demoting CPA Discovering Tax Dodge

Caterpillar Inc. used offshore subsidiaries in Switzerland and Bermuda to avoid about $2 billion in U.S. taxes from 2000 to 2009, boosting its earnings through a “tax and financial statement fraud,” according to a Caterpillar executive’s lawsuit, Bloomberg News’ Peter S. Green reports.

The company, the world’s largest construction-equipment maker, sold and shipped spare parts globally from an Illinois warehouse while improperly attributing at least $5.6 billion of profits from those sales to a unit in Geneva, according to the suit filed by Daniel J. Schlicksup. He was a global tax strategy manager for Caterpillar from 2005 to 2008.

Schlicksup, 49, sued in U.S. District Court in Peoria, Illinois, in 2009, claiming he was moved to a job that limits his career opportunities because he complained to superiors that the “Swiss Structure” ran afoul of U.S. tax rules. He’s seeking a court order to give him back his old job and prevent any retaliation. He also seeks stock options that he claims were wrongly withheld as well as legal fees and punitive damages.

His lawsuit, which calls the structure a “tax dodge,” followed a request for job protection he filed with the U.S. Department of Labor under provisions of the Sarbanes-Oxley Act, court records show. The law bars retaliation against corporate whistleblowers. Schlicksup declined to comment for this story. His attorney, Dan O’Day, declined to say whether Schlicksup has taken his concerns to the Internal Revenue Service.

Caterpillar spokesman Jim Dugan said the company has engaged in no wrongdoing, and its attorneys said in a court filing that Schlicksup’s transfer wasn’t a demotion. Dugan declined to comment on the suit’s specific allegations, saying Caterpillar “complies with applicable tax laws and regulations.”

Magistrate Judge Byron G. Cudmore has ordered the pre-trial exchange of evidence to continue, and according to court records, a trial date has been set for Jan. 16, 2012, before U.S. District Judge Michael M. Mihm.

The case is Schlicksup v. Caterpillar Inc., et al, 09-01208, U.S. District Court for the Central District of Illinois (Peoria).

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Commerzbank Unit, Eurohypo, Must Face QVT Fund U.S. Lawsuit

Eurohypo AG, a unit of Commerzbank AG, must face a U.S. lawsuit by QVT Fund LP over purported payments the bank owes QVT and other investors in Delaware-based trusts owned by Eurohypo.

Delaware Chancery Court Judge Donald F. Parsons denied the bank’s request to dismiss the complaint and ruled that the issues in the case must be determined under Delaware law, according to a court filing yesterday.

“I conclude that the central questions before this court require the application of Delaware law,” and Eurohypo’s argument that the Delaware lawsuit will cause “inconvenience and expense” because of a similar German proceeding “are also unavailing,” Parsons said in the ruling.

The lawsuit stems from a dispute over 2010 dividend payments that weren’t made to QVT and other holders of trust preferred securities which they claim they were entitled to receive, according to court documents.

Maximilian Bicker, a spokesman for Frankfurt-based Commerzbank, wasn’t immediately able to respond to an e-mail seeking comment.

Eurohypo created the Delaware trusts in 2003 and 2005, and raised $1.2 billion of “profit-dependent securities,” court papers and company statements show. QVT, managed by New York-based hedge fund QVT Financial LP, owns about $226 million of the trust securities. QVT seeks about $68 million for the Trust investors, about $14.1 million for itself, and “further damages” to be determined at trial.

“Having reaped the benefits associated with raising capital from investors using Delaware entities, the defendants now are unwilling to live up to their obligations,” QVT said in the complaint.

The bank argues it wasn’t obligated to make dividend payments to the Trust holders in 2010 because it wasn’t profitable in 2009, and the payments are based on making a profit in the previous year.

The case is QVT Fund LP v. Eurohypo Capital Funding, CA5881 Delaware Chancery Court (Wilmington).

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Expert-Network Founder Who Refused FBI Wire Expects Arrest

John Kinnucan, the expert-networking firm founder whose public refusal of an FBI request to wear a wire presaged a dozen insider-trading arrests, said he expects to be charged himself, Bloomberg News’ Patricia Hurtado reports.

Kinnucan, who runs Broadband Research LLC in Portland, Oregon, may have good reason to fear the worst. Federal prosecutors in New York disclosed in court papers that they had a court-authorized wiretap on his mobile phone in connection with their case against Donald Longueuil, a former SAC Capital Advisors LP portfolio manager who pleaded guilty to insider-trading charges on April 28 in Manhattan federal court.

Walter Shimoon, a former Flextronics International Ltd. executive who pleaded guilty July 5 in federal court in New York, said during his plea hearing that he had given Kinnucan confidential nonpublic information about his own company, as well as OmniVision Technologies Inc., Apple Inc. and Cisco Systems Inc.

“Am I a target? Yeah, absolutely,” Kinnucan said in a telephone interview. “There’s a saying that the government indicts who they investigate, so I have always assumed that I was a target.”

Longueuil, Shimoon and Kinnucan have been swept up in the biggest insider trading investigation in a generation, one that has implicated hedge funds, technology firms and expert networking firms like Broadband. Kinnucan denied he ever received illegal tips on companies, and insisted the kind of information he provided hedge fund clients was publicly available.

“They’re trying to criminalize standard industry practices here,” Kinnucan said. “The kind of information I provide to my clients is exactly what is provided by large investment banks.”

Kinnucan hasn’t been charged with a crime. Ellen Davis, a spokeswoman for Manhattan U.S. Attorney Preet Bharara, declined to comment.

The case is U.S. v. Walter Shimoon, 11-cr-00032, U.S. District Court, Southern District of New York (Manhattan).

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Countrywide Wages Victorious Tranche Warfare Against Investors

Investors who sued over $351 billion in downgraded Countrywide Financial Corp. mortgage-backed securities after the 2007 subprime market collapse may have to settle for less than 1 percent of what they initially sought, Bloomberg News’ Edvard Pettersson reports.

U.S. District Senior Judge Mariana Pfaelzer in Los Angeles, who narrowed the case to $2.6 billion in bonds and dropped Countrywide parent Bank of America Corp. as a defendant, has gone further than other judges in scaling back such claims. Her rulings in April and May show the difficulty of trying to hold banks liable for billions of dollars in debt downgraded to junk.

“The recent court rulings provide encouragement for Countrywide and Bank of America and could indicate that the courts would limit or reduce the number of claims in these cases or perhaps dismiss them in their entirety,” said Patrick McManemin, a lawyer with Patton Boggs LLP in Dallas who has worked on both sides of mortgage-securities cases and isn’t involved in the Los Angeles litigation.

Countrywide, based in Calabasas, California, was once the biggest U.S. residential home lender, originating or purchasing about $1.4 trillion in mortgages from 2005 to 2007. The bulk of them were sold to investors as mortgage-backed securities. Bank of America acquired Countrywide in 2008.

The Los Angeles lawsuit, filed last year and led by the Iowa Public Retirement System, was, at $351 billion, the largest in terms of securities at stake among dozens of cases brought against lenders and underwriters. A hearing on Countrywide’s next bid to have the claims dismissed is scheduled for Sept. 12.

The case, like similar suits brought under the U.S. Securities Act of 1933, isn’t part of an $8.5 billion settlement announced June 29 between Bank of America and 22 institutional investors in Countrywide mortgage-backed securities. That accord, if approved, will resolve investors’ claims that Countrywide was required under contract to repurchase loans that didn’t meet its underwriting guidelines.

The Los Angeles case is Maine State Retirement System v. Countrywide Financial Corp., 10-cv-00302, U.S. District Court, Central District of California (Los Angeles).

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RBS Asks U.K. Court to Block $100 Million U.S. Case

Royal Bank of Scotland Group Plc asked a U.K. judge to limit the amount of e-mails it must turn over as it seeks to halt Highland Capital Management LP’s $100 million U.S. lawsuit over a failed bond transaction.

RBS is seeking a court order blocking the Dallas-based hedge fund’s recent litigation in Texas. In that case, the bank is accused of misleading a U.K. court last year in a lawsuit over Highland’s failed collateralized debt obligation.

Highland was ordered in December by Justice Michael Burton in London to pay RBS 19 million pounds ($30.5 million) over the bond deal’s collapse, caused by the turmoil in the financial markets in 2008. Burton awarded RBS about half of what it sought after finding the Edinburgh-based bank had misled clients about the CDO and offered deceptive evidence to the court.

RBS, which sued again in Britain to stop the Texas case, argued July 8 in the High Court in London that the bank shouldn’t have to provide the broad types of evidence Highland affiliates are seeking.

Highland has separately appealed last year’s ruling, claiming RBS’s behavior means it should pay less.

RBS spokesman Michael Strachan declined to comment on the case when reached by phone July 8.

Mets Owners Again Seek Dismissal of Madoff Trustee’s Suit

Owners of the New York Mets baseball team renewed their request that a $1 billion lawsuit by the liquidator of Bernard Madoff’s firm be thrown out after a judge said the trustee may have erred in demanding money from them.

Fred Wilpon and Saul Katz said July 7 in a court filing that the trustee, Irving Picard, wasn’t entitled to take back principal or so-called fictitious profit they made in Madoff’s Ponzi scheme. Picard argued they should have investigated the fraud.

U.S. District Judge Jed Rakoff in Manhattan agreed to review the case, saying that judges have struggled with the duty of inquiry into fraud for more than half a century, and it may not have been the “governing law” for the Mets owners.

Picard seeks the return of $700 million in principal and $300 million in profit, saying the team’s owners had a duty to investigate “red flags” warning of possible fraud.

The Mets owners said the payments, made over 25 years, “discharged the broker’s legal obligation to its customers,” and couldn’t be treated as so-called fraudulent transfers, as Picard tried to do.

“The trustee can prove no such guilty knowledge, nor any bad faith,” they said in the filing.

The case is Picard v. Katz, 11-cv-03605, U.S. District Court, Southern District of New York (Manhattan).

Strauss-Kahn Faces Preliminary Paris Probe on Attempted Rape

The Paris prosecutor opened a preliminary investigation July 8 into an attempted rape complaint by a French writer against Dominique Strauss-Kahn.

The prosecutor will seek to determine whether there are grounds for a full criminal probe into Tristane Banon’s claims the former International Monetary Fund chief assaulted her in 2003 when she went to interview him, according to spokeswoman Agnes Labregere-Delorme.

Strauss-Kahn, 62, stepped down from the IMF after being charged with sexually assaulting a maid at a New York hotel in May. He was released last week from home confinement and had his bail returned after U.S. prosecutors uncovered evidence the 32-year-old woman who accused him had lied about key aspects of her life. Strauss-Kahn denies the claims in both cases.

Lawyers for Strauss-Kahn in France didn’t return calls for comment. He has called Banon’s claims “imaginary” and asked that a slander complaint against Banon be prepared, according to a July 5 statement by his lawyers.

Banon was an intern with magazine Paris Match in 2003 and had just signed a contract for a book on politicians’ regrets. She met Strauss-Kahn in February for a follow-up interview at his friend’s apartment in Paris, she said in an interview published in the July 6 issue of L’Express.

Strauss-Kahn turned off her tape-recorder and began assaulting her, touching her breasts and putting his hands in her mouth and underwear, she said, according to the magazine. She kicked him and said “you’re not going to rape me,” then ran out, got in her car and called her mother, the magazine quoted her as saying.

Banon’s lawyer, David Koubbi, didn’t immediately return calls for comment on the opening of the preliminary investigation. Prosecutors received Banon’s complaint on July 6.

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New Suits

J&J’s Scios Unit Charged in Misbranding of Natrecor Drug

Johnson & Johnson’s Scios unit was charged by U.S. prosecutors with misbranding the heart drug Natrecor because the medicine’s labeling allegedly lacked adequate directions for use.

Scios Inc. distributed misbranded Natrecor from Kansas throughout the U.S. from August 2001 to June 2005, according to a charging document filed July 7 in federal court in San Francisco.

The charge is a single misdemeanor count under the Federal Food, Drug and Cosmetic Act, said Shaun Mickus, a spokesman for New Brunswick, New Jersey-based Johnson & Johnson.

“With regard to the investigation that led to the misdemeanor charge, the parties have reached an agreement that is pending approval by the court,” Mickus said July 8 in a phone interview. He declined to comment further.

The charge carries a maximum fine of $200,000 or twice the gain or loss resulting from the illegal conduct and unspecified restitution, according to the charging document.

Joshua Eaton, an attorney with the Justice Department in San Francisco, didn’t return a voice-mail message seeking comment.

The Justice Department in 2009 joined two whistleblower lawsuits accusing Scios of marketing Natrecor for unauthorized uses. The practice cost the government-run health insurance program Medicare “substantial amounts,” the department said.

Johnson & Johnson and Scios deny engaging in off-label marketing of Natrecor, the company said in court documents.

The criminal case is U.S. v Scios, 11-461, U.S. District Court, Northern District of California (San Francisco).

J&J Suppressed Cancer Test Over Listerine Link, Suit Says

Johnson & Johnson, the world’s second-largest maker of health-care products, was sued for at least $70 million by a company that claims it interfered in a contract over distribution of an oral cancer test.

Oral Cancer Prevention International Inc., a private company based in Suffern, New York, sued over a contract it signed in February 2010 with OraPharma Inc., then a J&J unit. OraPharma agreed to distribute OCPI’s Oral CDx Brush Test, which identifies precancerous cells in the mouth, according to the complaint filed in federal court in Trenton, New Jersey.

J&J, which also sells Listerine mouthwash, then grew “extremely concerned about the implications” of a study published in Australia that linked mouthwashes with a high alcohol content to cancer, according to the complaint. J&J didn’t want to “lend credence to the link between Listerine and oral cancer” by selling both its mouthwash and OralCDx, the complaint said.

“Johnson & Johnson induced OraPharma to breach the sales agreement to suppress sales of and withhold from the public a proven life-saving oral cancer prevention product in order to protect the sales of its mouthwash, Listerine, which has been linked to oral cancer,” said the complaint, filed July 6.

Bonnie Jacobs, a spokesman for New Brunswick, New Jersey-based J&J, said the “company is confident that we have engaged in proper business practices and we look forward to the opportunity to resolve this matter through the legal system.”

The case is Oral Cancer Prevention International Inc. v. Johnson & Johnson, 11-cv-3878, U.S. District Court, District of New Jersey (Trenton).

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Exxon Mobil to Face Indonesia Human Rights Suit, Court Rules

Exxon Mobil Corp. must face claims it aided and abetted murder, torture and sexual assault by its security forces in Indonesia’s Aceh province, a federal appeals court ruled, reinstating a lawsuit thrown out by a lower court.

In a 2-1 decision July 8, the U.S. Court of Appeals in Washington said Exxon Mobil didn’t have corporate immunity from claims filed by 15 Indonesian villagers under the Alien Tort Statute. The court reversed the ruling of a trial judge who said the villagers couldn’t use U.S. courts to sue over alleged actions that took place in Indonesia and involved the Indonesian military during a period of martial law.

“It would create a bizarre anomaly to immunize corporations from liability for the conduct of their agents in lawsuits brought for ‘shockingly egregious violations of universally recognized principles of international law,’” Judge Judith Rogers wrote in her 112-page opinion.

An Exxon Mobil spokesman, Patrick McGinn, said the company has “fought these baseless claims for many years” and is reviewing the decision.

In two lawsuits consolidated for appeal, Indonesian villagers claimed Exxon Mobil was responsible for the abuses because they were committed by an Indonesian military unit dedicated only to Exxon’s Aceh facility and under the company’s direction and control. Exxon provided material support to the unit by hiring mercenaries for training, advice and intelligence, the villagers alleged.

The case is John Doe VII v. Exxon Mobil Corp., 09-7125, U.S. Court of Appeals for the District of Columbia (Washington).

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Oakton Wins A$15 Million Settlement in Tenix Contract Fight

Oakton Ltd., an Australian computer services provider, said it won an A$15 million ($16.1 million) settlement in a contract dispute with Tenix Solutions IMES Pty.

Neither company admitted liability in the settlement, Melbourne-based Oakton said in a statement to the Australian Stock Exchange July 8.

Oakton and Tenix sued each other in the Supreme Court of Victoria, after Tenix canceled a contract Feb. 15, 2010, and demanded A$19 million as compensation. Oakton countersued claiming A$12 million in damages.

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Court Filings

Dodgers Bankruptcy Suit Most Popular Bloomberg Docket

The Los Angeles Dodgers, which filed for bankruptcy protection June 27, had the most-read litigation docket on the Bloomberg Law system last week.

The filing came after Major League Baseball rejected a television deal with News Corp.’s Fox Sports, leaving team owner Frank McCourt unable to make payroll.

Major League Baseball Commissioner Bud Selig said the 17-year TV-rights deal, which McCourt valued at about $3 billion, would harm the franchise in the long term. Baseball took over the Dodgers’ business operations about two months ago.

The team listed assets of as much as $1 billion and debt of as much as $500 million in a Chapter 11 petition filed in U.S. Bankruptcy Court in Wilmington, Delaware.

The case is In re Los Angeles Dodgers LLC, 11-12010, U.S. Bankruptcy Court, District of Delaware (Wilmington).

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