Sept. 16 (Bloomberg) -- Kweku Adoboli, the UBS AG trader arrested in London yesterday, admitted to causing losses while the bank’s risk-control officers were examining his trades, a person with knowledge of the matter said.
UBS said yesterday it suffered a loss of about $2 billion from “unauthorized” trading.
Adoboli hired lawyers at Kingsley Napley in London to represent him, a spokeswoman said today in a phone interview.
The firm previously advised Nick Leeson, who caused the collapse of Barings Plc with $1.4 billion in losses in 1995. Leeson, a former derivatives trader, caused the demise of Britain’s oldest merchant bank after losses on the futures and options markets in Singapore and Osaka, Japan, were uncovered.
UBS, Switzerland’s biggest bank, asked British police at 1 a.m. to arrest Adoboli before notifying the U.K. financial regulator or prosecutors, according to two people familiar with the matter.
The Financial Services Authority was notified shortly after police. Prosecutors at the Serious Fraud Office, which also handles white-collar crime, weren’t contacted at all, according to the people, who declined to be identified because the investigations are private.
The investigation highlights the fragmented financial crime enforcement agencies in the U.K. with jurisdictions that often overlap. That UBS went straight to police after learning about a $2 billion loss on trades indicates that the 31-year-old Adoboli may have been a flight risk, or that the bank wanted to distance itself from any crime, said Lindsay Thomas, a financial regulation adviser at Sustainable Risks.
UBS wants “to suggest that it was a terrible criminal act, and that they were a victim,” Thomas said in a phone interview in London.
The City of London police arrested Adoboli at a business address in London at 3:30 a.m. on suspicion of fraud and abuse of position in connection with unauthorized trading at UBS’s investment bank. Police declined to identify the address. Adoboli remains in custody during the probe, Commander Ian Dyson said yesterday.
UBS is still investigating the matter, the Zurich-based bank said in a statement. No client positions were affected, and it may be unprofitable in the third quarter because of the loss, UBS said, declining to comment further.
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ETF Securities Sued by Former Executive in U.K. Over Bonus
ETF Securities Ltd., the world’s largest provider of exchange-traded commodity funds, was sued in London by a former employee who says he is owed a stake in the company tied to a 2006 bonus award.
Stefan Garcia, now an executive at another ETF firm, said the bonus gave him options to buy 1,000 shares of the company at 49.99 pounds ($79) with no time limit, according to U.K. court documents filed in July.
ETF Securities, based in Jersey, is considering selling as much as $1 billion in shares through an initial public offering amid growing investor demand for exchange-traded products, according to a May report in the Wall Street Journal that cited unidentified bankers familiar with the matter.
Graham Tuckwell, chairman and chief executive officer of ETF Securities, said in a phone interview the case was “absolutely without merit.” He said the claim was based on a “small administrative error” and the options had expired.
Garcia was awarded the options because at that early stage the company had “limited cash to fund its growth,” according to documents filed by his lawyers. Tuckwell sent Garcia an e-mail in May refusing to allow him to exercise the options.
Mark Levine, a partner at London law firm Mishcon de Reya who is representing Garcia, said his client had a multimillion-pound claim and declined to comment further.
The case is Cherrin v. ETF Security Ltd., HQ11X02645, High Court of Justice, Queen’s Bench Division.
JPMorgan Unit Must Buy Back $558 Million in Loans, Suit Says
JPMorgan Chase & Co.’s EMC Mortgage unit was sued by Wells Fargo & Co., the trustee for a mortgage portfolio, for refusing to buy back more than 800 defective home loans.
EMC rejected “repeated repurchase demands” for the loans in the Bear Stearns Mortgage Funding Trust 2007-AR2, San Francisco-based Wells Fargo said in a public version of the complaint filed Sept. 14 in Delaware Chancery Court in Wilmington. The case was initially filed under seal.
“The loans have been plagued by an alarming rate of defaults and foreclosures,” Wells Fargo said in the complaint. “Approximately three-quarters of the loans in the trust have been modified or liquidated, or are now seriously delinquent.”
The complaint is the second Wells Fargo has filed as trustee against EMC. The trustee settled a suit brought in January after EMC agreed to turn over files for more than 2,000 underlying mortgages in the trust.
A review of 948 loan files revealed that at least 840, or about 89 percent, failed to comply with EMC’s representations and warranties, according to the complaint.
Patrick Linehan, a spokesman for New York-based JPMorgan, declined to comment on the lawsuit.
The case is Bear Stearns Mortgage Funding Trust 2007-AR2 by Wells Fargo Bank NA as Trustee v. EMC Mortgage LLC, CA6861, Delaware Chancery Court (Wilmington).
U.K. to Sue ECB Over Planned Restrictions on Clearing Houses
Britain will sue the European Central Bank over plans to prevent some euro-denominated securities from being cleared outside the 17 countries that share the currency, in the first such move by a government.
The U.K. planned to present a legal challenge against the ECB over its location policy for clearing houses at the European Court of Justice in Luxembourg, the Treasury in London said in an e-mailed statement Sept. 14.
“It does seem to indicate a possible change in the approach that the U.K. is taking to Europe,” Darren Fox, a financial services lawyer at Simmons & Simmons LLP, said in a telephone interview in London. “There has been a perception in the City that the U.K. hasn’t been doing as much in Europe as it could have done to protect the interests of the U.K. financial-services industry. Perhaps this is a sign that the worm is turning.”
It’s the first time any European government has sought to sue the ECB, the Treasury said. The U.K. is accusing the central bank of going against principles of the European Union single market and contravening European law amid wider international efforts to regulate derivatives markets.
A spokeswoman for the Frankfurt-based ECB declined to comment.
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Express Scripts Sues Walgreen Over Medicare Patients
Express Scripts Inc. sued Walgreen Co. for what it called a “campaign to disparage” the pharmacy-benefits manager in an illegal attempt to wrest away customers.
Walgreen, the biggest U.S. drugstore chain, is using false advertising to encourage Medicare patients to leave Express Scripts in violation of a contract that expires Dec. 31, St. Louis-based Express Scripts said in a Sept. 7 complaint filed in federal court in Chicago. Express Scripts said it will suffer “irreparable damage” unless the court issues an injunction stopping Walgreen’s action.
Walgreen, of Deerfield, Illinois, said in June that it will not participate in Express Scripts’ pharmacy network next year because negotiations collapsed on renewing the contract worth more than $5 billion in annual drug sales. A website sponsored by Walgreen says Medicare recipients who remain with Express Scripts won’t be able to fill Part D prescriptions after Dec. 31.
“This is false and highly misleading because nothing will prohibit Walgreen from continuing to fill valid prescriptions for such members after Dec. 31, 2011, even if Walgreen is not a part of Express Scripts’ pharmacy network,” Express Scripts said in the complaint.
Walgreen has asked the court to stay the proceedings, saying in a Sept. 12 motion that Express Scripts brought its claims in the wrong forum because the contract requires the parties to resolve such disputes through binding arbitration.
“We think that it is important to inform our patients and the public how this may impact their ability to fill prescriptions at Walgreen next year if Express Scripts serves as the pharmacy-benefit manager for their particular health care plans, and we regret that Express Scripts has resorted to litigation in an effort to stop us,” Michael Polzin, a spokesman for Walgreen, said Sept. 14 in an e-mail. “We obviously intend to vigorously defend against their suit.”
The case is Express Scripts Inc. v. Walgreen Co., 11-cv-06223, U.S. District Court, Northern District of Illinois (Chicago).
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BP Investors’ Derivative Spill Suits Dismissed by U.S. Judge
BP Plc won’t have to face some lawsuits in the U.S. brought by institutional investors on behalf of the company over last year’s Gulf of Mexico drilling-rig explosion and oil spill, a federal judge ruled.
U.S. District Judge Keith P. Ellison in Houston agreed with BP’s arguments that the claims should be filed in U.K. courts because the company is based in London. Ellison said he may reverse this dismissal if English courts “refuse to accept jurisdiction” for reasons other than the plaintiffs’ failure to comply with procedural requirements.
“Because this derivative lawsuit involves the internal governance of an English corporation, the convenience of the parties and the interests of justice favor England as a more convenient forum,” Ellison said yesterday in a 31-page decision.
Investors sued BP claiming that the company’s management and board caused the spill by knowingly putting profits ahead of safety. The Deepwater Horizon rig exploded in April 2010 while drilling a BP well off the Louisiana coast, killing 11 and spilling more than 4.1 million barrels of oil.
The investors’ suits, so-called derivative claims brought on behalf of the company, are combined with other shareholder actions before Ellison in Houston. Lawsuits seeking money for economic and personal injuries from the spill are consolidated before a different U.S. judge in New Orleans.
“The primary concern of this derivative litigation is the internal affairs of an English corporation, and the suit seeks to recover damages for the benefit of BP only,” Ellison said in his ruling. “English law governs this dispute and will determine whether the individual defendants breached their fiduciary duties and harmed BP in the process.”
BP spokesmen Scott Dean and Daren Beaudo didn’t immediately return phone or e-mail messages seeking comment on the ruling after regular business hours. Mark Lebovitch and Lewis Kahn, investor attorneys, didn’t immediately return calls seeking comment.
The case is In re BP Shareholder Derivative Litigation, 4:10-cv-03447, U.S. District Court, Southern District of Texas (Houston).
Lions Gate Suit Against Carl Icahn Voluntarily Dismissed
Lions Gate Entertainment Corp.’s lawsuit against billionaire investor Carl Icahn in Manhattan federal court was voluntarily dismissed by both sides.
Lions Gate, an independent producer of films including “Precious” and “American Psycho” and the “Mad Men” television series, sued Icahn in October, claiming he tried to interfere with the studio’s plan to merge with Metro-Goldwyn-Mayer Inc.
In papers filed with the court yesterday, both sides said the case is being dismissed with prejudice, meaning it can’t be reinstituted. The papers didn’t say whether the dismissal is part of any settlement in the case.
In March, U.S. District Judge Harold Baer dismissed most of Lions Gate’s allegations, permitting it to go forward with a claim that Icahn paid a special price for Dallas Mavericks owner Mark Cuban’s 5.4 percent stake in Lions Gate, which the studio said wasn’t fair to other investors.
William Savitt, a lawyer for Lions Gate, and Joseph DiBenedetto, who represents Icahn, didn’t return messages seeking comment on the court filing.
The case is Lions Gate Entertainment Corp. V. Icahn, 1:10-cv-08169, U.S. District Court, Southern District of New York (Manhattan).
AT&T, U.S. Offer Plan for Confidential Data in T-Mobile Case
AT&T Inc. and the U.S. Justice Department agreed on a plan for handling confidential data in the government’s antitrust lawsuit seeking to block the company’s purchase of wireless carrier T-Mobile USA Inc.
A filing by the department yesterday in federal court in Washington sets definitions for what will be deemed confidential and how that information will be disclosed in the case. AT&T didn’t oppose the department’s proposed order, the government said.
The two sides haven’t addressed the issue of how much access AT&T’s in-house lawyers will have to confidential materials submitted by “non-parties” in the case, according to the filing. The non-parties should have a chance to be heard in court regarding how their confidential information will be handled, the department said.
“Defendants wish to designate up to 10 (total) in-house lawyers to have access to confidential information,” the department said in the filing.
Mike Balmoris, an AT&T spokesman in Washington, didn’t immediately respond to a telephone message and an e-mail message seeking comment on the filing.
The Justice Department sued Dallas-based AT&T and Bonn-based Deutsche Telekom AG’s T-Mobile unit on Aug. 31, saying a combination of the two companies, which would make AT&T the biggest U.S. wireless carrier, would “substantially” reduce competition.
AT&T, in a filing last week, said the T-Mobile deal is good for mobile-phone customers because it would lead to better service, fewer dropped calls and lower prices for consumers.
U.S. District Judge Ellen Segal Huvelle has set a hearing for Sept. 21 and told the parties to be prepared to discuss settlement options.
The case is U.S. v. AT&T Inc., 11-cv-01560, U.S. District Court, District of Columbia (Washington).
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Fleishman Doesn’t Take Stand as U.S. Rests in Insider Trial
James Fleishman, the former Primary Global Research LLC executive on trial over charges he participated in an insider-trading scheme, didn’t take the stand in his own defense after prosecutors finished their case.
Fleishman, of Santa Clara, California, is charged with two counts of conspiracy for his role in what prosecutors said was a scheme in which technology-company employees, working as consultants for the company passed secret tips to hedge fund managers.
“The government has rested and the defense has rested,” U.S. District Judge Jed Rakoff in Manhattan told jurors yesterday. “On Monday, we will have closing arguments and you will get the case then.”
Rakoff said Fleishman’s lawyers may submit some written evidence without calling witnesses to testify. After court, Ethan Balogh, Fleishman’s lawyer, said his client wouldn’t testify. If convicted, Fleishman faces as long as 25 years in prison.
The Mountain View, California-based firm, also known as PGR, matches employees of public companies with fund managers for a fee. Of the 15 people charged in the probe, 12 have pleaded guilty. Fleishman and Winifred Jiau, a former PGR consultant convicted in June, were the only ones who have gone to trial.
Also yesterday, former Taiwan Semiconductor Manufacturing Co. manager Manosha Karunatilaka was sentenced to 18 months in prison for his role in the scheme involving PGR.
Balogh yesterday cross-examined Suk-Joo Hwang, a former Samsung Electronics Co. manager who said he worked as a consultant for PGR for seven years. Hwang said he sometimes passed confidential information to PGR clients.
The case is U.S. v. Fleishman, 11-cr-00032, U.S. District Court, Southern District of New York (Manhattan).
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Blame for 2010 Gulf Spill Will Be Decided by Trial Judge
Which companies share the blame for the Gulf of Mexico oil spill and will have to pay for it will be decided in a non-jury trial set to begin Feb. 27, a federal judge in New Orleans said.
BP Plc, which owned the subsea well that exploded off Louisiana in April 2010, claims Transocean Ltd., Halliburton Co., Cameron International Corp. and other contractors involved in the offshore drilling operation share responsibility for mistakes that caused the disaster.
“The trial will address all allocation of fault issues that may properly be tried to the bench without a jury,” U.S. District Judge Carl Barbier said Sept. 14 in a written order. This includes “the negligence, gross negligence, or other bases of liability of, and the proportion of liability allocable to the various defendants, third parties, and non-parties,” he said.
The Macondo blowout and the explosion that followed killed 11 workers and set off the worst offshore oil spill in U.S. history. The accident and spill led to hundreds of lawsuits against London-based BP and its partners and contractors. The lawsuits over economic losses and personal injuries have been combined before Barbier in New Orleans.
The lawsuits also name as defendants Transocean, the Switzerland-based owner and operator of the Deepwater Horizon drilling rig that exploded; Houston-based Halliburton, which provided cementing services to the well; and Cameron International, which provided blowout-prevention equipment. BP’s minority partners in the well, Anadarko Petroleum Corp. and Mitsui & Co.’s Moex Offshore LLC unit, were also sued.
The first test trial on damages is scheduled for July.
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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Bridgestone to Pay $28 Million Fine Over Bribes, U.S. Says
Bridgestone Corp., the world’s biggest tire maker, agreed to pay $28 million to settle criminal allegations it conspired to bribe government officials in Latin America, the U.S. Justice Department said.
Bridgestone will plead guilty to charges of plotting to rig bids and make corrupt payments related to the sale of products including marine hose, used to transfer oil between tankers and storage facilities, Sharis A. Pozen, acting chief of the Justice Department’s antitrust division, said yesterday in a statement. The company said it will withdraw from the marine hose business.
From as early as January 1999 until late May 2007, Tokyo-based Bridgestone conspired to fix prices and allocate market shares of marine hose in the U.S. and elsewhere, Pozen said. The company allegedly conspired to make payments to Latin American government officials to obtain and retain business.
As part of the agreement, Bridgestone will cooperate with the department’s investigation, according to the statement. The agreement requires court approval.
Bridgestone has dismantled its international engineered products department, closed its Houston office and terminated many of its third-party agents, the company said yesterday in an e-mailed statement.
“We are committed to the efforts to further enhance and expand our remediation measures, and to conduct business in compliance with the competition and anticorruption laws around the world,” Bridgestone said.
Hermes Executive Says Takeover Win Locks in Independence
Hermes International SCA’s founding family’s ability to set up a holding company is “a decisive step” in the fight to defend against a takeover, the luxury-goods maker’s deputy managing director said.
A Paris court yesterday rejected an appeal by minority investors who opposed a decision by the French market authority waiving rules to allow the family to set up a holding company. The family sought the structure to protect the Birkin-bag maker after LVMH Moet Hennessy Louis Vuitton SA, the world’s largest luxury-goods maker, began building what is now a 21.4 percent stake.
“When the holding company is in place, it will become completely obvious that the claims of unity that have taken place for months and have been questioned will be impossible to challenge anymore,” Deputy Managing Director Patrick Albaladejo said in a phone interview yesterday. “This is a decisive step.”
The Autorite des Marches Financiers was right to grant the family permission to pool a 50.2 percent Hermes stake into a holding company without bidding for the rest of the business, as the regulator would normally require for a group with that large a stake joining together, the Paris appeals court said.
The court rejected the objections of minority investors represented by a shareholder advocacy group Adam, which had sought to have AMF force the family to make an offer for all outstanding shares.
While LVMH has said it isn’t seeking control or a board seat, its stake has prompted takeover talk. LVMH won’t be a passive shareholder in Hermes and can provide its Paris-based rival with strategic and operational help, LVMH Chairman Bernard Arnault has said.
“All the statements from the family have been very precise and decisive on this, that they don’t want to engage in discussions,” Albaladejo said, adding that he isn’t aware of any contact with Arnault.
Hermes wants LVMH to reduce its stake by more than half to free shares on the open market, according to Bertrand Puech, who heads the bag maker’s founding family. Even if LVMH doesn’t reduce the holding, Hermes will run the company as it sees fit, Puech has said.
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Watson, Sandoz Pay $145 Million to Settle Drug-Price Case
Watson Pharmaceuticals Inc., the generic-drug maker, will pay $79 million and Novartis AG’s Sandoz unit will pay $66 million to resolve claims they defrauded U.S. and state governments by causing Medicaid to overpay for drugs.
Both lawsuits were filed under the U.S. False Claims Act by Ven-A-Care of the Florida Keys Inc., a specialty pharmacy. The settlements resolved portions of the U.S. false claims cases and similar claims by various states. The law allows whistle-blowers to file on behalf of the government and share in any recovery.
Ven-A-Care has settled at least 18 lawsuits since 2000 that have allowed state and federal governments to collect at least $2.2 billion. Ven-A-Care has reaped more than $380 million in whistle-blower fees during that period. James Breen, an attorney for Ven-A-Care, declined to comment on the latest settlements.
The settlements by Watson and Sandoz were filed Sept. 14 in federal court in Boston, where U.S. District Judge Patti Saris is overseeing the so-called Average Wholesale Price litigation against drugmakers.
Charlie Mayr, a spokesman for Parsippany, New Jersey-based Watson, declined to comment on the settlement. He referred to the company’s last annual report, filed in February, that said the company reached a settlement with Ven-A-Care for $79 million in December.
The claims were “unfounded,” and Sandoz settled “to end the uncertainty of protracted litigation,” Eric Althoff, a spokesman for Basel, Switzerland-based Novartis, said in an e-mail. “Sandoz is committed to conducting business in compliance with all applicable laws and regulations, as well as our own high ethical standards,” he said.
The case is In Re Pharmaceutical Industry Average Wholesale Price Litigation, MDL No. 1456, U.S. District Court, District of Massachusetts (Boston).
SABMiller’s Grolsch Wins EU Court Appeal of Antitrust Fine
Grolsch, a unit of SABMiller Plc, the world’s second-largest brewer by volume, won a European Union court appeal of a 31.7 million-euro ($43.8 million) fine levied for colluding on beer prices in the Netherlands.
Antitrust officials didn’t give sufficient proof to “establish the direct participation of Grolsch” in the cartel and “failed to explain” why the company should be held liable for the conduct of a Dutch subsidiary, the EU General Court, the region’s second-highest tribunal, said in a ruling yesterday.
The European Commission, the EU’s antitrust regulator, fined Royal Grolsch NV, Heineken NV and Bavaria NV in 2007 for fixing 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. Grolsch was bought by SABMiller in a takeover completed in 2008.
Heineken won a cut to its fine to 198 million euros from 219.3 million euros in a ruling by the EU court in June. Bavaria had its penalty trimmed to 20.7 million euros from 22.8 million euros, after the court said the European Commission failed to prove the extent of the cartel.
The commission will “analyze the ruling carefully” and will then consider whether to appeal the judgment or readopt the cartel decision, Amelia Torres, a spokeswoman for the EU regulator, said in an e-mail.
The case is: T-234/07, Koninklijke Grolsch v. Commission.
New York ‘Boiler-Room’ Salesman Anderson Gets Two Years
Baldwin Anderson was sentenced to two years in prison for taking part in a “boiler-room” investment-fraud scheme on New York’s Staten Island.
Anderson, 57, a former salesman for Gryphon Holdings Inc., was sentenced yesterday by U.S. District Judge Jack Weinstein in Brooklyn, New York. He’s been in custody since June 14, when he admitted to participating in the crime during the second day of his trial. He was the last of 18 defendants in the Gryphon case to plead guilty and the only one to go to trial.
Gryphon misled investors into paying for phony stock tips and investment advice, defrauding them of $20 million, prosecutors charged. Gryphon told victims its office was on Wall Street or even in the New York Stock Exchange when it was in a strip mall on Staten Island, according to prosecutors in the office of U.S. Attorney Loretta Lynch.
“I lost sight of the truth, I lost sight of what was good and I lost sight of the laws that govern this great country,” Anderson told Weinstein at a Sept. 13 hearing.
Anderson’s lawyer, Michael Padden, declined to comment after the sentencing.
Kenneth Marsh, 44, who ran Gryphon, was the last defendant before Anderson to plead guilty, on April 14. He hasn’t received his prison sentence yet.
The criminal case is U.S. v. Marsh, 10-cr-00480, and the SEC case is SEC v. Gryphon Holdings Inc., 10-cv-01742, U.S. District Court, Eastern District of New York (Brooklyn).
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