Danielle Chiesi, the former New Castle Funds LLC analyst who was heard on a federal wiretap passing secret tips to Galleon Group LLC co-founder Raj Rajaratnam, was sentenced to 2 1/2 years in prison.
U.S. District Court Judge Richard Holwell in Manhattan yesterday called her crimes “deplorable” as he imposed the sentence, plus two years of supervised release, on the 45-year-old former beauty queen. “This was not an isolated transgression,” he said.
“The message to Wall Street needs to be loud and clear. If you trade on inside information, you will be caught,” Holwell said. “And if convicted, you will be sentenced to a substantial term in prison.”
Chiesi, who wore a light pink sleeveless sheath dress and pearl necklace, must report Sept. 20 to Federal Prison Camp Alderson in West Virginia, a minimum-security facility in the foothills of the Allegheny Mountains where Martha Stewart served a five-month term after being convicted of lying to federal authorities about her sale of stocks.
“I know that there’s a punishment for people who do wrong,” Chiesi told the judge, dropping her head and her voice choking with emotion. “But it won’t happen again.”
Holwell yesterday also imposed a $25,000 fine and ordered her to do 250 hours of community service. He directed that she undergo substance-abuse treatment and therapy “to allow her to readjust a moral compass which obviously fell by the wayside.”
Chiesi pleaded guilty Jan. 19 to three counts of conspiracy, telling Holwell at the time that she was “deeply ashamed” of what she had done.
Chiesi’s lawyer, Alan Kaufman, yesterday asked the judge for less prison time than the 27 months Holwell imposed last year on her former boss, Mark Kurland, co-founder of New Castle Funds, arguing that she was emotionally and financially dependent on Kurland. Chiesi’s lawyers claimed in court papers that Kurland had used their “toxic” sexual relationship to manipulate her into feeding him inside tips.
Assistant U.S. Attorneys Reed Brodsky, Jonathan Streeter and Andrew Michaelson had argued that Chiesi should get a term of 37 to 46 months in prison, citing the U.S. sentencing guidelines, which aren’t binding.
Kaufman said, “We think the judge gave what he thought was a fair sentence and we respect the thoughtfulness and thoroughness he paid. Danielle will serve her sentence and get on with her life.”
The case is U.S. v. Rajaratnam, 09-cr-1184, U.S. District Court, Southern District of New York (Manhattan).
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Madoff Trustee May Have to Drop $2 Billion in Claims on UBS
The liquidator of Bernard L. Madoff’s firm may have to drop about $2 billion in claims against UBS AG after telling a district court judge he will stop demanding damages from the Swiss bank, based on data from a filing by UBS.
Trustee Irving Picard sued UBS twice, seeking $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. He told U.S. District Judge Colleen McMahon in Manhattan this month he would ask UBS only to return money taken from the Ponzi scheme before its 2008 collapse. He had sought “in excess of $2 billion” based on accusations of wrongdoing, UBS said in the filing last month.
Madoff investors will get much less money if Picard drops damage claims in other cases. His lawsuit against JPMorgan Chase & Co. asks for $19 billion in damages, equal to all money lost in the fraud. A $1 billion suit against the New York Mets’ owners uses common-law claims to demand the return of $700 million in principal.
“Picard may have made a tactical decision” to retreat from bigger claims, said Chip Bowles, a bankruptcy lawyer at Greenebaum Doll & McDonald PLLC in Louisville, Kentucky, who isn’t involved in Madoff litigation. The U.S. Supreme Court ruling in the Anna Nicole Smith case indicated that bankruptcy courts will have smaller powers in the future, he said.
Amanda Remus, a Picard spokeswoman, said the trustee’s decision to drop two common law causes of action against UBS and its affiliates “has no impact either on the strength of our case or on the amounts of recoveries and damages that the trustee’s actions will seek for ultimate distribution” to Madoff customers.
After reviewing Picard’s original suit against UBS, Bowles said the trustee “will get large sums of money using garden variety bankruptcy law, but he is giving up at least $2 billion based on common and state law claims.”
Picard’s letter to the judge wasn’t filed in court. McMahon, who is reviewing the case, noted the trustee’s “amendment of right” and withdrawal of common law claims in a letter to both sides’ lawyers filed yesterday in court.
She asked them to clarify by July 22 what claims remain and what funds Picard is trying to recoup relying solely on “garden variety bankruptcy” principles.
The case is Picard v. UBS AG, 11-cv-04213, U.S. District Court, Southern District of New York (Manhattan).
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BP Lawsuit Judge Denies Bid to Order U.S. to Produce E-Mails
BP Plc, trying to counter claims that the company underestimated the size of last year’s Gulf of Mexico oil spill, lost its bid for a court order directing the Obama administration to turn over e-mails from four officials.
U.S. Magistrate Judge Sally Shushan in New Orleans, who is handling evidence rulings in lawsuits over the spill, refused to order the U.S. to produce e-mails from officials including Carol Browner, former assistant to the president for energy and climate change. BP said the officials were involved in the government’s post-spill response including estimates of the flow of oil from the doomed well.
“BP has not made a sufficient demonstration of need for the documents,” Shushan said in a one-page ruling yesterday, denying the request. BP can renew its bid for the e-mails if documents produced in the future “demonstrate a need for discovery,” or additional evidence, from the White House, she said.
The April 2010 Macondo well blowout and the explosion that followed killed 11 workers. The accident and spill led to hundreds of lawsuits against BP and its partners and contractors, including a suit brought by the U.S. under federal pollution laws.
Most of the lawsuits are combined before U.S. District Judge Carl Barbier in New Orleans. BP’s letter, sent July 7, was filed in the court docket yesterday.
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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U.K. Gets Freeze Order Against Swiss Asset-Management Firm
The Financial Services Authority won a court order freezing the U.K. assets of Da Vinci Invest Ltd., a Swiss asset-management firm, as part of a market-abuse case.
Judge Peter Smith in London agreed to extend a previous freezing order and accepted assurances from the defendants not to carry out improper activities. FSA lawyer Javan Herberg told Smith that Unterageri, Switzerland-based Da Vinci Invest and four individual defendants were suspected of market manipulation.
Da Vinci provides alternative investment products to wealthy individuals and institutional investors, according to its website. The Da Vinci Strategies UI Fund has $3.1 million under management.
While Da Vinci does have “legitimate business” in Switzerland, the FSA identified a “very long and repeated pattern of trading” that was cause for concern, Herberg said.
Lawyers for Da Vinci didn’t attend the hearing. The firm said yesterday it was not at fault for actions carried out by third parties.
“We funded some Hungarian traders who traded on the London stock exchange and the FSA has the opinion that they broke some rules,” Hendrik Klein, the chief executive officer of Da Vinci said by phone. “We controlled their risk but we didn’t know exactly how they traded.”
The case is The Financial Services Authority v. Da Vinci Invest Limited & Ors, 11-02409.
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Sony Sued by Zurich American Insurance Over Hacking Defense
Zurich American Insurance Co. sued Sony Corp.’s U.S. unit over its obligation to defend lawsuits and possible probes related to hacking of Sony’s PlayStation Network.
Sony has demanded that Zurich American and Zurich Insurance Co. Ltd., both units of Switzerland-based Zurich Financial Services AG, “defend and potentially indemnify them” from class-action lawsuits, miscellaneous claims and possible probes by state attorneys general over the hacking.
Zurich American and Zurich Insurance “are not obligated to defend or indemnify any of the Sony defendants for the claims asserted,” says the lawsuit, which was filed yesterday in New York state Supreme Court in Manhattan.
Sony restored full PlayStation Network and Qriocity online services in Japan earlier this month, closing a 2 1/2-month chapter in which hackers forced the company to shut down its global video-game and movie-streaming operations.
The April attack on Sony’s data centers in San Diego compromised more than 100 million customer accounts, the second-largest online data breach in U.S. history, and will cost the company an estimated 14 billion yen ($173 million) this fiscal year.
Patrick Seybold, a spokesman for Sony Computer Entertainment, didn’t immediately return a voice-mail message.
The case is Zurich American Insurance Co. vs. Sony Corp. of America, 651982/2011, New York state Supreme Court (Manhattan).
Massachusetts Suing RBC Capital Over Leveraged ETF Sale
Massachusetts’ top securities regulator is suing RBC Capital Markets LLC and one of its former registered representatives over the sale of leveraged exchange-traded funds, saying they sold them to clients who didn’t understand how the investments worked.
Secretary of the Commonwealth William F. Galvin said RBC Capital and Michael Zukowski, a former agent, used “dishonest practices” in selling the funds, according to a statement e-mailed yesterday. Galvin is seeking restitution to Massachusetts investors, a cease and desist order, and an administrative fine.
“The point of the complaint is not that the investors lost money,” Galvin said in the statement. “The dishonesty here is that the investors, and indeed the agent soliciting their investment, did not understand the workings of these funds.”
Galvin said that Zukowski, who worked in the firm’s Osterville office, sold clients “non-traditional” leveraged and inverse ETFs. Leveraged ETFs use swaps or derivatives to amplify daily index returns, while the inverse funds are designed to move in the opposite direction of their benchmark. The Financial Industry Regulatory Authority warned investors and fund sellers in June 2009 that such ETFs might not be a good fit for long-term investors. Galvin opened a probe into the products in July 2009.
Kevin Foster, a spokesman for New York-based RBC Capital Markets, said the firm was “disappointed” with Galvin’s lawsuit.
“We have been cooperating fully on this matter which involves the practices of an ex-employee,” Foster said in an e-mailed statement, adding the firm has “in place extensive policies and procedures and training requirements.”
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SEC Sues Michigan Man for Insider Trading in Brink’s Stock
The U.S. Securities and Exchange Commission sued a Michigan man, claiming he traded on information he learned from a houseguest about the impending acquisition of Brink’s Home Security Holdings Inc.
The SEC, in a complaint filed July 19 in Manhattan federal court, claimed that Robert Doyle, 64, made $88,555 in profits trading in Brink’s Home Security stock after an investment banker for Tyco International Inc., the buyer, inadvertently left behind a draft presentation on the deal.
According to the complaint, the unnamed Tyco banker visited Doyle’s Michigan home from Aug. 23 to Aug. 27, 2009. While there, the banker worked on a presentation to Tyco’s management about a proposal to buy Brink’s Home Security, an installer of security alarms operating as Broadview Security. Months later, in December 2009, Doyle discovered the draft, according to the SEC.
“On Jan. 13, 2010, during phone conversations with the banker, Doyle gleaned from changes in the banker’s travel schedule that the transaction was imminent,” according to the complaint.
Doyle profited from trading in Brink’s Home Security stock after the Jan. 18, 2010, public announcement of the deal caused its price to jump 30 percent, according to the SEC.
Henry Putzel, Doyle’s lawyer, said his client has settled the case and will turn over his profits and pay a fine. Putzel declined to name the banker or identify the banker’s relationship to Doyle.
The case is U.S. v. Doyle, 11-CV-4964, U.S. District Court, Southern District of New York (Manhattan).
Liberty Media’s TruePosition Sues Alcatel Over 4G Locators
Liberty Media Corp.’s TruePosition unit sued Alcatel-Lucent, LM Ericsson and Qualcomm Inc., contending they are trying to shut it out of access to the next generation of phone-locator technology.
TruePosition says it provides superior products to help law-enforcement and other agencies identify locations of mobile cellular devices, and that the rivals are violating U.S. antitrust laws, according to a complaint filed yesterday in federal court in Philadelphia.
Alcatel, Ericsson and Qualcomm are “accelerating standardization of their own positioning technology” and trying to “derail” TruePosition’s technology development, according to court papers.
“The defendants, through the guise of creating objective standards for the telecommunication industry, conspired to exclude a competitor,” Stuart Salen, TruePosition general counsel, said in a statement.
“We haven’t even seen the complaint and as is our general policy we do not comment on pending litigation,” Mary Ward, a U.S. spokeswoman for Paris-based Alcatel-Lucent, said in an e-mailed message.
“We have to review this suit, so we can’t comment on it at this time,” Fredrik Hallstam, a spokesman for Stockholm-based Ericsson, said in a telephone interview.
“We just learned of the complaint,” which “appears to be TruePosition’s dissatisfaction with the standards-setting process,” and are reviewing it, Christie Thoene, a spokeswoman for San Diego-based Qualcomm, said in an e-mailed statement.
The case is TruePosition v. LM Ericsson, 11CV4574, U.S. District Court, Eastern District of Pennsylvania (Philadelphia).
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News Corp. Lawyer Said Marketing Arm Accessed Rival’s Site
News Corp. acknowledged at a 2009 trial over hacking that computers at the company’s U.S. marketing arm were used to access a rival’s password-protected website, Bloomberg News’ David Glovin reports.
The comment constitutes an admission by News Corp., mired in a voice-mail hacking scandal in the United Kingdom, that it has been linked to similar conduct in the U.S. The FBI is investigating whether News Corp. employees attempted such access to voice-mail accounts of victims of the Sept. 11, 2001, terrorist attack on New York’s World Trade Center.
Lee Abrams, a lawyer for News America Marketing In-Store Services, made the comment at a civil trial in Trenton, New Jersey, in a lawsuit brought by Floorgraphics Inc., which sold floor advertising in grocery stores. Floorgraphics accused Wilton, Connecticut-based News America Marketing of stealing business by hacking into its secure website 11 times from October 2003 to January 2004 and through other means.
Abrams told jurors at the Trenton trial that Floorgraphics’ website wasn’t secure and contained only pictures of its advertising, not confidential financial data. He said News America Marketing didn’t steal business.
“News America Marketing has succeeded in this business the old-fashioned way, by working hard to introduce new products,” he told jurors. Of the alleged hacking, he said there was no proof that the accessing of Floorgraphics’ site “had any impact on the success of News America Marketing.”
The case is Floorgraphics v. News America Marketing In-Store Services Inc, 04-cv-3500, U.S. District Court, District of New Jersey (Trenton).
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Altria Wages Last-Ditch Fight to Keep Tax Dodge
Altria Group Inc. says its battle with the Internal Revenue Service over tax deals with Oglethorpe Power Corp. and the Metropolitan Transit Authority in New York will result in a $630 million charge against its 2011 earnings.
These deals, stretching back to 1996, were set up to lower Altria’s tax bill. The company would purchase an ownership stake in public utilities, lease the assets back to the utility and claim millions of dollars in deductions -- without operational control changing hands. If the court rules against it, Altria could end up owing the IRS about $2 billion for deductions claimed from 1996 to 2011, Bloomberg News’ Steven Sloan reports.
The Richmond, Virginia-based company, which owns cigarette maker Philip Morris USA, is one of the last holdouts to argue in federal court that its so-called sale-in, lease-out transactions are valid. These deals, which Congress curbed in 2004 and the IRS began fighting in 2005, have been criticized as a maneuver that allowed companies to load up on tax deductions without taking ownership of the businesses.
A federal appeals court judge in Washington rejected a similar arrangement at Wells Fargo & Co. in April, saying the deals amount to “abusive tax shelters.”
Christopher Growe, an analyst at Stifel Nicolaus & Co. in St. Louis, said Altria’s agreement to record the charge might indicate the company’s chances of beating the IRS are dimming.
Steve Callahan, a spokesman for Altria, said the company wouldn’t comment on the transactions. Altria has already paid about $1.1 billion in taxes related to these deals and is seeking a refund in court.
The case is Altria Group Inc. v. United States, 10-02404, 2nd U.S. Circuit Court of Appeals (New York).
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