A former executive at expert-networking firm Primary Global Research LLC, James Fleishman, was found guilty of helping pass confidential information to fund managers as part of an insider-trading scheme.
Fleishman, of Santa Clara, California, was found guilty yesterday by a Manhattan federal jury of conspiracy to commit securities fraud and conspiracy to commit wire fraud. The jury deliberated for about six hours before reaching a verdict.
U.S. District Judge Jed Rakoff set sentencing for Dec. 21. Until then, Fleishman, who faces as long as 25 years in prison, remains free on bond. He and his lawyer, Ethan Balogh, declined to comment as they left the courthouse.
“We had enough evidence to find the defendant guilty of both counts,” said jury foreman Ben Stein, who works in the information-technology sector of a financial-services business. “It was not easy, but we had lots of evidence.”
Since November, 15 people have been charged by federal prosecutors in the office of Manhattan U.S. Attorney Preet Bharara in a probe of expert networkers and hedge fund managers. Twelve have pleaded guilty, including Noah Freeman, a former portfolio manager with SAC Capital Advisors LP, and Samir Barai, the founder of Barai Capital Management LP.
Fleishman, 42, was the second to go to trial. Winifred Jiau, a former Primary Global consultant who was convicted at trial in June of securities fraud and conspiracy, is scheduled to be sentenced today in Manhattan federal court.
Prosecutors said Fleishman obtained and passed confidential data from technology company employees who were moonlighting as consultants for Mountain View, California-based Primary Global. The secret tips were given to fund managers who paid Primary Global for consultation calls, prosecutors said.
The case is U.S. v. Nguyen, 11-cr-32, U.S. District Court, Southern District of New York (Manhattan).
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Full Tilt Paid Board With Players’ $440 Million, U.S. Says
Full Tilt Poker paid board members more than $440 million using funds it had told its online poker players would be available to them for withdrawal at any time, U.S. prosecutors said.
Manhattan U.S. Attorney Preet Bharara’s office yesterday asked U.S. District Judge Leonard B. Sand for permission to add the new allegations to a civil forfeiture case first filed against Full Tilt, PokerStars, Absolute Poker and other businesses in April.
“Full Tilt insiders lined their own pockets with funds picked from the pockets of their most loyal customers while blithely lying to both players and public alike about the safety and security of the money deposited with the company,” Bharara said in statement.
The forfeiture action parallels criminal charges also brought by Bharara against the poker companies and 11 people, alleging bank fraud, money laundering and illegal gambling. Prosecutors said that after the U.S. enacted a law in 2006 barring banks from processing payments to offshore gambling websites, Full Tilt, PokerStars and Absolute Poker worked around the ban to continue operating in the U.S.
Ireland-based Full Tilt, Absolute Poker of Costa Rica and PokerStars, based on the Isle of Man, were the leading online poker sites doing business with U.S. customers.
Bharara’s office said in yesterday’s filing that Full Tilt management’s payment processing had so degraded by last year that it was crediting website players with money never collected from their accounts.
L. Barrett Boss, an attorney for Full Tilt, didn’t immediately reply to telephone and e-mail messages seeking comment on prosecutors’ filing.
The civil forfeiture case is U.S. v. PokerStars, 11-cv-2564, U.S. District Court, Southern District of New York (Manhattan). The criminal case is U.S. v. Tzvetkoff, 10-cr-336, U.S. District Court, Southern District of New York (Manhattan).
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News Corp. Said to Get Letter From U.S. in Bribery Probe
News Corp. was sent a letter by U.S. prosecutors investigating foreign bribery, requesting information on alleged payments employees made to U.K. police for tips, according to a person with knowledge of the matter.
The letter is part of an effort by the U.S. Justice Department to determine whether News Corp. violated the Foreign Corrupt Practices Act, or FCPA, according to the person, who declined to be identified because the matter isn’t public. News Corp. fell 1.7 percent on the news.
The inquiry advances an existing U.S. probe that is reviewing claims that victims of the Sept. 11, 2001, attacks had their phones hacked by News Corp. employees. The letter doesn’t carry the same legal force as a grand jury subpoena, which would compel a response under law.
Earlier this year, it was revealed that reporters at New York-based News Corp.’s News of the World had hacked the voicemail accounts of celebrities and a young girl who had been kidnapped and murdered. Investigators subsequently began looking into allegations that the tabloid’s staffers made payments to police officers in return for confidential information.
The FCPA, enacted in 1977, makes it a crime for U.S. businesses or their employees to pay off representatives of a foreign government in an attempt to gain a commercial advantage. Federal prosecutors have broad discretion to interpret the law and its definition of who qualifies as a government official.
In July, News Corp. retained attorney Mark Mendelsohn of Paul Weiss Rifkind & Garrison LLP, according to the Wall Street Journal, which is owned by News Corp. Prior to joining the law firm, Mendelsohn had overseen the Justice Department’s FCPA investigations.
Suzanne Halpin, a spokeswoman for News Corp., didn’t immediately return calls seeking comment on the letter. Last week, she declined to comment on the probe. Jerika Richardson, a spokeswoman for Manhattan U.S. Attorney Preet Bharara, whose office initiated the FCPA investigation, declined to comment.
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BP Says It Didn’t Hide Information About Gulf Well Blowout
BP Plc said it didn’t hide information about a possibly dangerous condition in the Macondo oil well before or after it blew out in April 2010, killing 11 people and triggering the biggest U.S. offshore oil spill.
BP personnel determined that a sand layer above the blast site was water-bearing rather than a gas-containing “hydrocarbon zone” and provided supporting data to its well partners before the blowout, according to a court filing yesterday. BP investigators reported publicly after the explosion that this may have been gas-containing sand, while determining it wasn’t a cause of the incident, the company said in the filing.
A Halliburton Co. unit that provided cementing services for the well asked a federal court in New Orleans Sept. 1 to allow it to add a claim of fraud in its lawsuit against BP over the spill, contending concealment of the hydrocarbon zone. Halliburton shouldn’t be allowed to add the new claim, BP said in its filing.
“There is no evidence that BP held the pre-incident belief that the sand was hydrocarbon-bearing, or that it had any intent to conceal,” the company said in the filing. BP distributed information about the shallower sand within days after the incident, the company said.
“Had BP disclosed the higher hydrocarbon zone in April 2010, Halliburton would not have pumped the cement program unless and until changes were made to the cement program, changes that likely would have required BP to redesign the production casing,” Tara Mullee Agard, a spokeswoman for Houston-based Halliburton, said yesterday by e-mail.
The Macondo blowout 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 U.S. District Judge Carl Barbier in New Orleans.
The federal 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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Verizon Must Face Claims Over Idearc Spinoff, Judge Rules
Verizon Communications Inc. must face claims in a lawsuit accusing it of defrauding creditors of Idearc Inc. when it spun off the directory business in 2006, a judge ruled.
U.S. District Judge A. Joe Fish in Dallas denied Verizon’s request to dismiss claims that the telecommunications company intended to “hinder, delay or defraud” creditors and that it aided and abetted breach of fiduciary duty, according to a decision filed Sept. 19.
“These detailed and particularized allegations show that Verizon had a motive and opportunity to commit the alleged actual fraudulent transfers, and they permit the court to draw a reasonable inference of Verizon’s intent,” Fish wrote.
As a result of the spinoff, Verizon received $9.5 billion in assets from Idearc and Idearc was left insolvent, U.S. Bank NA, the trustee for a litigation trust for creditors, said in a lawsuit last year. Idearc filed for bankruptcy in 2009.
Robert Varettoni, a Verizon spokesman, declined to comment.
The case is U.S. Bank National Association v. Verizon Communications Inc., 10-01842, U.S. District Court, Northern District of Texas (Dallas).
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Bank of America, Merscorp Sued by Dallas District Attorney
Bank of America Corp. and Mortgage Electronic Registration Systems Inc. were sued by Dallas County District Attorney Craig Watkins over claims that the tracking of mortgages violates Texas law.
Merscorp Inc.’s MERS, which runs an electronic registry of mortgages, cheated Dallas County out of “tens of millions in uncollected filing fees,” Watkins said in a statement. MERS tracks servicing rights and ownership interests in mortgage loans on its registry, allowing banks to buy and sell loans without recording transfers with counties.
Watkins, in a complaint filed yesterday in state court in Dallas, claims MERS was established by banks including Bank of America to avoid paying filing fees, as well as to ease transfers of mortgages. The county asked the court to hold Bank of America liable as a shareholder of MERS and said the bank “knew or should have known” that the system would cause improper filing.
“Texas public policy favors a reliable functioning public recordation system to avoid destructive breaks in title, confusion as to true identity of the holder of a note, fraudulent foreclosures and uncertainty as to title when a home is sold,” Watkins said in the 48-page complaint. MERS “has all but collapsed this system throughout the U.S,” he said.
Jerry Dubrowski, a spokesman for Charlotte, North Carolina-based Bank of America, didn’t return calls seeking comment after regular business hours.
“We have not had an opportunity to review the complaint and have no comment at this time,” Karmela Lejarde, a Merscorp spokeswoman, said yesterday in an e-mail.
Dallas County may add other banks to the lawsuit, Watkins said yesterday in an interview. Naming Bank of America first was “a strategic move,” he said. “We expect more banks will be in this before it’s over.”
The case is Dallas County v. Merscorp Inc., CC-11-06571-E, County Court at Law, Dallas County, Texas.
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Gryphon’s Marsh Gets Eight Years in Prison in Stock-Tip Case
Kenneth Marsh, the “ringleader” behind the Gryphon Holdings Inc. boiler-room operation on New York’s Staten Island, was sentenced to eight years in prison for his role in defrauding almost 5,500 people out of $20 million.
Marsh, 44, the last of the 18 Gryphon defendants to learn his prison term, was sentenced yesterday by U.S. District Judge Jack Weinstein in Brooklyn, New York. He pleaded guilty in April to one count of securities fraud, admitting he misled investors into paying for phony stock tips.
“The victims were heard and they told heart-wrenching stories,” Weinstein said.
Gryphon charged clients as little as $99 and as much as $250,000 for access to its investment recommendations, according to a related civil lawsuit by the U.S. Securities and Exchange Commission. The other 17 defendants in the scheme, including members of its sales force, all pleaded guilty and got sentences ranging from three to 25 months. Marsh personally made $1.9 million through Gryphon, according to the SEC complaint.
“The court endeavored mightily to balance all of the factors and came up with a fair and just sentence,” Alan S. Futerfas, one of Marsh’s lawyers, said after the hearing yesterday.
Futerfas said he would have to discuss with Marsh whether to appeal the sentence.
Marsh, a former stockbroker who had been barred from the securities industry, used the fictitious names Michael Warren and Ken Maseka to pose as two investment advisers with experience working at Goldman Sachs Group Inc. and Lehman Brothers Holdings Inc.
Seven former salesmen and Marsh’s ex-wife, Nicole Marsh, who ran Gryphon with him, cooperated with prosecutors, according to the government. Nicole Marsh, 32, was sentenced to three months in prison on Sept. 14.
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).
Baxter Wins Bid to Force Teva to Honor Hepatitis-Case Accord
Baxter International Inc. won a bid to force Teva Pharmaceutical Industries Ltd. to pay costs of defending Nevada lawsuits alleging that the drugmakers’ sales of the anesthetic propofol led to patients developing hepatitis.
An arbitration panel properly found that Teva was bound by an agreement to cover all liability tied to claims that tainted vials of propofol caused colonoscopy patients to develop hepatitis, Delaware Chancery Court Judge Travis Laster concluded. A Las Vegas jury last year ordered Teva and Baxter to pay more than $500 million in damages to a Las Vegas school principal on one such claim.
The arbitration finding “is valid and enforceable,” Laster said in a Sept. 15 ruling. The accord requires Petach Tikva, Israel-based Teva to reimburse Baxter for “all claims, damages, liability or losses” from the cases, the judge said.
The indemnity agreement is among the evidence a Las Vegas jury is hearing in the trial of three more cases alleging Teva and Baxter officials sold propofol in oversized vials that encouraged medical personnel to reuse the containers for multiple patients. Las Vegas residents contend they got hepatitis C from the tainted vials.
Denise Bradley, a U.S.-based spokeswoman for Teva, declined to comment on the judge’s ruling. Deborah Spak, a spokeswoman for Deerfield, Illinois-based Baxter, didn’t immediately return a call for comment on the decision.
The Delaware case is Baxter International Inc. v. Teva Pharmaceuticals USA Inc., 6819, Delaware Chancery Court (Wilmington.) The Nevada case is Sacks v. Endoscopy Center of Southern Nevada LLC, 08A572315, District Court for Clark County, Nevada (Las Vegas).
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IBM Offers to Settle EU Antitrust Probe, Second Case Closed
International Business Machines Corp. offered to resolve a European Union investigation into claims the company blocked competition from rival providers of maintenance services for mainframe computers.
The European Commission, the Brussels-based EU antitrust regulator, yesterday asked for comments on IBM’s commitments to ensure the availability of spare parts and technical data. The commission also closed a separate probe over IBM’s mainframe computers after three competitors dropped complaints.
The commission in 2010 opened investigations into Armonk, New York-based IBM over possible conduct that may have blocked competitors in mainframe software and maintenance contracts by restricting access to parts. While IBM has shifted its focus away from hardware toward its more profitable software and services businesses, the mainframe operations have high gross margins and help pull in revenue for other divisions.
“It seems that IBM has taken a pragmatic approach and determined that these commitments do not constitute a significant issue for them and that it’s preferable to get a settlement and put this probe behind them instead of fighting till the end,” Christian Riis-Madsen, an antitrust partner in Brussels at law firm O’Melveny & Myers LLP, said by telephone.
The company said in an e-mailed statement that it “welcomes” the commission’s decision “to close the investigation of IBM’s mainframe and associated intellectual property rights.” The company said it also looked forward to providing the basis for the final resolution of the probe into maintenance practices.
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Yukos Wins Partial Victory Over Russia in European Court
A European court handed a partial victory to former managers of Yukos Oil Co., ruling that Russia had violated the company’s rights while rejecting a political motivation behind tax claims that led to its bankruptcy.
Russia infringed on the company’s property rights with penalties imposed concerning the 2000-2001 tax assessments and left Yukos inadequate time to prepare a case, precluding a fair trial, the European Court of Human Rights said.
“The crux of Yukos’s case was essentially the speed with which it was required to pay and the speed with which the auction had been carried out,” the Strasbourg, France-based court said in a statement on its website yesterday.
Yukos’s main assets, now owned by state-run OAO Rosneft, were seized and auctioned off by the government in 2004 to settle more than $30 billion of tax claims. Yukos owner Mikhail Khodorkovsky, who is in prison serving 13 years for crimes including tax evasion and fraud, maintains the charges were fabricated because he opposed then-President Vladimir Putin. Putin, now prime minister, has denied any involvement in the case.
The court said it wasn’t prepared to decide on a demand for compensation in excess of $100 billion by Russia’s once-largest oil producer. The same court awarded Khodorkovsky almost 25,000 euros ($34,200) in May, saying he was held in “inhuman and degrading conditions.”
“For Khodorkovsky, to see the European Court of Human Rights rule that the case against his company was lawless with human rights violated on several counts was certainly a victory, if a partial one,” said Masha Lipman, an analyst at the Carnegie Moscow Center research group.
Yukos failed to prove the tax case against it was politically motivated, the court said. The May 31 ruling on Khodorkovsky’s complaint had also dismissed claims that his arrest on fraud charges was politically driven, saying the accusations required incontestable proof.
“The ultimate resolution on the damages is yet to come and I think ultimately that that will be resolved in favor of Yukos stakeholders,” Bruce Misamore, former chief financial officer of Yukos, said on a webcast press conference yesterday.
The court’s decision was a compromise, according to Carnegie’s Lipman.
The case is: OAO Neftyanaya kompaniya YUKOS v. Russia, 14902/04, European Court of Human Rights.
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Boston Scientific Wins Dismissal of Suit Over Sales Group
Boston Scientific Corp. won dismissal of a class-action lawsuit accusing the company of failing to disclose questionable sales practices in its cardiac-devices group to investors.
Four pension funds sued last year, claiming losses of more than $2.8 million from buying the stock at an artificially inflated price. U.S. District Judge Douglas Woodlock in Boston ruled Sept. 19 that the complaint failed to state a “cognizable” claim for securities fraud.
“Rather than suggesting an intent to deceive investors, the facts contained in the complaint exhibit the defendants engaging in a good faith process to inform themselves and the public of the risks,” Woodlock said in a 41-page opinion.
Boston Scientific failed to promptly disclose its decision to fire some sales representatives after an internal audit uncovered ethical violations in dealings with physicians, according to the complaint, filed on behalf of investors who bought the stock from Oct. 20, 2009, to Feb. 10, 2010.
The company, based in Natick, Massachusetts, disclosed the terminations in February 2010 after many of the sales personnel were hired by competitor St. Jude Medical Inc., court papers showed. Boston Scientific reported in April 2010 that the disciplinary actions would result in about $300 million in losses.
The company made the disclosures in a “reasonable time,” Woodlock said in his ruling.
Jonathan Shapiro, an attorney for one of the plaintiffs, Steelworkers Pension Trust, didn’t return a phone call seeking comment on the ruling.
The case is In re Boston Scientific Corp. Securities Litigation, 10-10593, U.S. District Court, District of Massachusetts (Boston).
Former CSK Auto CFO Watson Sentenced to Two Years in Prison
The former chief financial officer of CSK Auto Corp. was sentenced to two years in prison for his role in a scheme to manipulate the company’s earnings and double-bill customers, federal prosecutors said.
Don W. Watson, 55, of Gilbert, Arizona, was also ordered Sept. 19 to serve three years of supervised release and to pay restitution in an amount to be set by the court at a later date, according to a U.S. Justice Department statement. Edward Novak, Watson’s attorney, didn’t respond to a message seeking comment about the sentencing.
O’Reilly Automotive Inc. this month agreed to pay $20.9 million to resolve a Justice Department probe of a scheme to manipulate earnings and double bill at CSK Auto before O’Reilly bought it in 2008.
The investigation has produced guilty pleas from three former CSK Auto employees, including Watson, the department said.
The case is U.S. v. Fraser, 09-cr-00372, U.S. District Court, District of Arizona (Phoenix).
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SEC Ex-Counsel Referred to Justice Dept. Over Madoff Work
The U.S. Justice Department should consider whether a former Securities and Exchange Commission general counsel violated criminal law by working on policy related to Bernard Madoff’s fraud when he had a financial interest in the outcome, the SEC’s internal watchdog said.
In a 119-page report sent to Capitol Hill yesterday, SEC inspector general H. David Kotz said he is referring the conflict-of-interest allegations against David Becker to prosecutors after receiving guidance from the U.S. Office of Government Ethics. He also urged the SEC to overhaul its procedures for providing ethics advice to agency officials.
Becker, who inherited profits from the Madoff fraud, “participated personally and substantially in particular matters in which he had a personal financial interest,” Kotz wrote. The issues Becker worked on “could have directly impacted his financial position,” Kotz said in the report.
Kotz opened his probe in March after Becker and his brothers were sued by the court-appointed trustee in the Madoff bankruptcy case to recover $1.5 million in what he termed fictitious profits. When he joined the agency in 2009, Becker told Chairman Mary Schapiro and William Lenox, then the agency’s ethics counsel, about his family’s Madoff investment. Lenox told Becker in May 2009 that he didn’t have a financial conflict of interest and could work on the policy.
A phone call to William Baker III, Becker’s attorney at Latham & Watkins LLP, wasn’t immediately returned.
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