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BofA, JPMorgan, UBS, Deutsche Bank, Galleon in Court News

Updated on

Sept. 23 (Bloomberg) -- Bank of America Corp. is among a group of lenders that may face a wave of new lawsuits claiming cash-strapped counties were cheated out of millions of dollars by a system used for more than a decade to register mortgages.

Dallas County District Attorney Craig Watkins said state attorneys general and county officials across the U.S. have expressed interest in his lawsuit against Mortgage Electronic Registration Systems Inc. and Bank of America, filed in Texas state court on Sept. 21. Dallas County could be owed as much as $100 million in filing fees, he said.

“This is a big new front,” said Christopher L. Peterson, associate dean and professor at the University of Utah S.J. Quinney College of Law. “This case is scary because if Dallas wins then there are a lot of other counties around the country that are going to follow.”

MERS, a unit of Reston, Virginia-based Merscorp Inc., says on its website that its aim is to place every mortgage in the country on an electronic, rather than a paper, system that allows members to buy and sell mortgages.

MERS acts as the lender’s nominee and remains the mortgagee of record as long as the note promising repayment is owned by a MERS member. Dallas County claims this allows banks to buy and sell loans without properly recording transfers with counties and paying the fee.

“The MERS business model and practices are legal and comply with the recording statutes and regulations of Texas,” Janis Smith, a spokeswoman for Merscorp, said in an e-mail. The claims in the lawsuit “are without legal or factual merit.”

Shirley Norton, a spokeswoman for Charlotte, North Carolina-based Bank of America, the biggest U.S. lender by assets, declined to comment on the suit.

Liability in the Dallas case could exceed $1 billion, based on the number of mortgages in the county, Peterson said. Local laws impose substantial penalties, as well as back payments of fees and taxes, if false documents were filed in land transactions, said Peterson, who has advised private plaintiffs making similar claims.

Faulty mortgages and foreclosures have already cost the five biggest home lenders $66 billion, according to data compiled by Bloomberg. Bank of America’s credit rating was cut on Sept. 21 by Moody’s Investors Service in part because the bill for mortgage disputes may climb past the $39 billion committed since 2007. County clerks in Kentucky have also sued MERS, while officials in Massachusetts and Michigan say they are exploring the possibility.

The Texas case is Dallas County v. Merscorp Inc., CC-11-06571-E, County Court at Law, Dallas County, Texas. The Kentucky case is Christian County Clerk v. Mortgage Electronic Registration Systems Inc., 5:11-cv-00072, U.S. District Court, Western District of Kentucky (Louisville).

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New Suits

JPMorgan Sues American Century Over $848 Million Share Sale

JPMorgan Chase & Co. sued mutual fund firm American Century Cos. over claims it was shortchanged in a $848 million optioned share sale to Canadian Imperial Bank of Commerce.

American Century failed to disclose material information regarding the sale and the shares were not purchased at their fair market value, lawyers for JPMorgan said in a public version of the complaint filed Sept. 21 in Delaware Chancery Court. The complaint was initially filed under seal.

“The allegation that American Century breached an option agreement is without merit and the edited complaint filed in Delaware yesterday is an inaccurate and incomplete representation of the facts,” American Century said in a statement e-mailed by Chris Doyle, a spokesman for the firm.

CIBC, Canada’s fifth-largest bank, announced in July that it agreed to buy a 41 percent stake in American Century from JPMorgan. The cash acquisition is the third-largest purchase by the Toronto-based bank.

JPMorgan purchased a roughly 45 percent interest in Kansas City, Missouri-based American Century for about $900 million in January 1998, according to the complaint. Under a 2009 option agreement between American and JPMorgan, American could purchase all of the shares JPMorgan owned in the firm and resell them to a third party.

JPMorgan, based in New York, said in its complaint that it learned of the share sale through a public announcement. The transaction was completed on Aug. 31.

“American Century improperly withheld information regarding the CIBC stock sale from JPMorgan’s director designee on American Century’s board,” lawyers for the bank said in the redacted complaint.

The case is JPMorgan Chase & Co. v. American Century Companies Inc., CA6875, Delaware Chancery Court (Wilmington.)

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Madoff Trustee Sues Atlantic Security Bank for $120 Million

The trustee overseeing the liquidation of Bernard L. Madoff’s firm sued Atlantic Security Bank for $120 million.

The lawsuit is one of several filed by Irving Picard to recoup what he said is “customer property” from companies that invested with Fairfield Sentry Ltd., a so-called feeder fund that placed money in the con man’s Ponzi scheme. Atlantic Security Bank is incorporated in the Cayman Islands and has offices in Panama, according to Picard’s suit filed yesterday in U.S. Bankruptcy Court in Manhattan. A phone number for the bank couldn’t be immediately located.

The case is Picard v. Atlantic Security Bank, 11-02730, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

For the latest new suits news, click here. For copies of recent civil complaints, click here.


Madoff Family Wins Partial Dismissal of $198 Million Suit

Bernard L. Madoff’s family won dismissal of part of a $198 million lawsuit by the liquidator of the con man’s firm, while the judge left Irving Picard free to pursue most of his claims.

U.S. Bankruptcy Judge Burton Lifland struck Picard’s claims for some transfers of money out of the jailed Ponzi scheme operator’s firm. Picard, who sued Madoff’s brother, two sons and niece, is free to amend his suit, the judge said in a court filing yesterday.

Picard’s 2009 lawsuit against the brother, Peter Madoff, sons Andrew and Mark Madoff and niece Shana Madoff Swanson, all of whom held senior positions at the defunct money-management firm, claimed they spent more than $198 million of investors’ money and treated the con man’s investment firm as their “family piggy bank.”

Peter Madoff was chief compliance officer at Bernard L. Madoff Investment Securities LLC. Madoff’s sons, Andrew and Mark, were co-directors of trading at the investment firm, and Shana Madoff was compliance director, according to Picard.

Mark Madoff committed suicide in December.

“Mark and Andrew Madoff had no prior knowledge of Bernard Madoff’s crimes and contacted the U.S. Department of Justice and the SEC immediately after their father told them he had defrauded his investment advisory clients,” Martin Flumenbaum, a lawyer for Andrew Madoff and Mark Madoff’s estate, said in an e-mail yesterday. “Whether or not the trustee amends his complaint to reassert some or all of the claims that were dismissed today, we fully expect to prevail on the merits.”

Charles Spada, who has been representing Peter Madoff, had no comment on the ruling.

Mark Smith, a lawyer for Shana Madoff, didn’t immediately respond to an e-mail seeking comment yesterday.

Refusing to dismiss the entire suit, Lifland said the family’s failure to stop Madoff’s fraud was “unsurprising given their close familial relationship with Madoff and proximity” to his firm. However, Picard’s suit contains “some correctable pleading deficiencies” that need to be amended, he said.

The case is Picard v. Peter Madoff, 09-1503, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

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UBS Trader Adoboli Faces Added Fraud Charge, Prosecutor Says

Kweku Adoboli, the UBS AG trader charged with fraud and false accounting that may have resulted in a $2.3 billion loss, said through his lawyer that he was “sorry beyond words” after facing an additional fraud charge at a court hearing yesterday.

The 31-year-old, who holds a Ghanaian passport, didn’t apply for bail when he appeared at a magistrate’s court in London. Prosecutor David Levy said the alleged loss may exceed $2.3 billion. Adoboli wasn’t required to enter a plea yesterday and another hearing was scheduled for Oct. 20.

The trader is “sorry beyond words for what happened here,” said Patrick Gibbs, Adoboli’s lawyer. He apologized for his “disastrous miscalculations,” Gibbs said.

Adoboli, who appeared yesterday wearing a dark grey suit, white shirt and navy tie, has been in police custody since he was arrested Sept. 15 on suspicion of making the unauthorized trades.

Prosecutors charged him Sept. 17 with fraud and false accounting dating back to 2008. The prosecution yesterday added a charge to extend the fraud allegations to 2008 as well.

If convicted, he faces as many as 10 years in prison, according to sentencing guidelines. Time spent in custody beforehand would be deducted from any sentence.

Louise Hodges, another of Adoboli’s lawyers, declined to comment after the hearing. Yves Kaufmann, a spokesman for UBS in Zurich said “the loss arising from the unauthorized trades is $2.3 billion, as we have stated” previously.

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Smith Barney Lead Plaintiff Thrown Out, Never Owned Shares

Citigroup Inc.’s Smith Barney unit can’t be sued by the lead plaintiff in a six-year-old shareholder fraud class action because the fund never owned any shares that are the basis of the lawsuit, a judge said.

U.S. District Judge William H. Pauley III, citing “epic failures” by the lawyers on both sides of the case, yesterday dismissed the lead plaintiff, Operating Local 649 Annuity Trust Fund. The fund’s attorneys told the judge that their client owned more than 75,000 shares of a similarly named security and not those involved in the case.

Pauley called the effect of the error “seismic,” and said it has caused “considerable waste of time and resources.”

“After six years of litigation, including extensive motion practice, an appeal to the Second Circuit, remand, more motion practice, and discovery, lead counsel learned that the lead plaintiff never purchased any of the securities at issue in this action,” Pauley, in Manhattan, wrote in yesterday’s decision.

Bernstein Liebhard partner Stanley Bernstein said the lawyers relied on the union’s certification that it had bought the mutual fund shares and brokerage statements that mistakenly reflected the mutual fund shares along with their ticker symbol.

“We did not just rely on somebody’s word,” Bernstein said in a phone interview yesterday. “We had the underlying core documentation from the broker. And it was wrong.”

Charles Platt, a partner in the New York office of Wilmer Cutler Pickering Hale and Dorr LLP, which represents Citigroup, declined to comment on Pauley’s opinion yesterday.

The mistake will require several motions to be rebriefed,

The case is In re Smith Barney Transfer Agent Litigation, 05-cv-07583, U.S. District Court, Southern District of New York (Manhattan).

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Deutsche Bank Swap Ruling May Apply to Other Cases, Judge Says

A German top court ruling on swaps that Deutsche Bank AG lost in March may also apply in cases involving other derivatives, a judge said.

The Frankfurt Regional Court will review to what extent the top court ruling governs currency options as well, Presiding Judge Bruno Menhofer said yesterday at a hearing in a lawsuit against the lender seeking 30 million euros ($40 million) in damages. The court’s assessment is preliminary, he said. The case was brought by travel company Schauinsland-Reisen GmbH.

The Federal Court of Justice, Germany’s highest civil court, ruled in March that Frankfurt-based Deutsche Bank must cover losses caused by a derivative it branded a “CMS Spread Ladder Swap,” because the bank didn’t disclose the product had a initial negative market value. Deutsche Bank is arguing that ruling only applies to the same kind of product. Former customers are hoping to capitalize on the ruling to collect damages for other bets that went sour.

“The top court has used very, very strong language as regards disclosure duties the bank has,” said Menhofer. “The ruling is a leading precedent setting clear standards and we have to see how they apply to the product at issue here.”

Yesterday’s case is LG Frankfurt, 3-04 O 50/10.

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Saad Group’s Al-Sanea Wins End to $9.2 Billion Asset Freeze

Maan al-Sanea, founder of Saudi Arabia’s Saad Group, won dismissal of a $9.2 billion asset freeze in the Cayman Islands after Ahmad Hamad Algosaibi & Brothers Co. admitted failing to disclose evidence.

Algosaibi agreed it “breached its duty of full and frank disclosure” when it won the asset freeze against al-Sanea in 2009, the Grand Court of the Cayman Islands ruled Sept. 21. Algosaibi applied last month to voluntarily dismiss the freeze after it found new evidence that should have been revealed earlier. Al-Sanea still faces a fraud lawsuit filed by Algosaibi in New York and probes in Bahrain and Switzerland.

“Since AHAB started its litigation scheme over two years ago, I have been resolute in my complete rejection of its desperate claims that I somehow defrauded the Algosaibis,” al-Sanea said yesterday in a statement, using Algosaibi’s initials.

The asset freeze was part of a global legal dispute between the companies after they defaulted in 2009 on a total of about $15.7 billion in loans from more than 100 banks. Al-Sanea, one of Saudi Arabia’s richest men who married into the Algosaibi family before founding Saad Group, faces claims he forged signatures to take out as much as $10 billion in fake loans through Algosaibi’s Money Exchange unit, which he ran.

The dismissal of the asset freeze doesn’t prove al-Sanea’s innocence or reduce his legal troubles, said Eric Lewis, a legal coordinator for the Algosaibi family. Al-Sanea has refused to appear in court in the Cayman Islands, Lewis said.

Algosaibi “voluntarily withdrew the freezing order and did not seek a new one, despite all the essential allegations of fraud and forgery having been proven correct,” Lewis said. “Maan al-Sanea has spent two years in procedural maneuvers to avoid a court from considering his vast fraud.”

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Boeing, General Dynamics Seek End to $3 Billion Claims Case

Boeing Co. and General Dynamics Corp. urged a federal claims court judge to end the companies’ 20-year-old dispute with the U.S. in which the government sought $3 billion over a canceled Navy aircraft contract.

Lawyers for the companies asked U.S. Federal Claims Judge Robert Hodges during a hearing yesterday to find that the case over the A-12 bomber can no longer be litigated because of classified data, noting that the parties, with their cross claims, “have fought to a draw” after two decades.

“We have come the conclusion that it’s time for the Boeing Company to lay down its sword,” said Boeing’s lawyer, Charles Cooper of Cooper & Kirk in Washington.

The fight has moved back and forth among courts since it began in 1991, reaching the U.S. Supreme Court in September 2010. In May, the high court set aside a ruling that put the U.S. in line to recover $3 billion from the companies. The case was sent back to a lower court to determine whether the government had a responsibility to disclose classified information vital to the performance of the contract.

The Justice Department said yesterday that it will continue to pursue the claim, arguing that the justices had an opportunity to dismiss the case and didn’t.

“If the Supreme Court had wanted that outcome, it could have ordered that outcome,” Justice Department lawyer Bryant Snee said.

In August, lawyers for Boeing, which also filed claims against the government, sent a letter to the department urging it to drop the case.

“The time has come for all parties to step back, to reflect on where we are after two decades of contesting this matter, and to finally do what we should have done years ago: agree to bring this litigation to an end,” the Boeing lawyers wrote, submitting the letter to U.S. Court of Federal Claims in a Sept. 20 filing.

The case is Boeing Co. v. U.S., 91-cv-1204, U.S. Court of Federal Claims (Washington).

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For the latest lawsuits news, click here.


Galleon Sentencing Scorecard: Average Prison Term Is 3 Years

Galleon Group LLC co-founder Raj Rajaratnam will be sentenced on Oct. 13 for insider trading after being convicted by a jury in Manhattan federal court.

Prosecutors say Rajaratnam, who was convicted in May, should serve as long as 24 1/2 years in prison, calling him the “modern face of insider trading.” On Sept. 21, judges in Manhattan sentenced two other convicted insider traders -- Zvi Goffer and Winifred Jiau -- to prison terms of 10 years and four years, respectively.

Since Rajaratnam’s arrest in October 2009, judges in Manhattan federal court have sentenced 12 defendants in cases linked to Galleon. All but two pleaded guilty. The average prison term has been 35.75 months, or almost three years behind bars.

Typically, those convicted at a trial get longer prison terms than those pleading guilty. In addition to the two Galleon defendants who took their cases to a jury, Manhattan judges since 2003 have imposed sentences in three other cases where the main charge was insider trading and a jury returned a guilty verdict. The average sentence has been six years and two months.

About two dozen others are waiting to be sentenced in the Galleon cases. They include Emanuel Goffer, a former trader and brother of Zvi Goffer, who was convicted at a trial, and Anil Kumar, a former McKinsey & Co. executive who pleaded guilty and testified against Rajaratnam in a bid for leniency.

The Rajaratnam case is U.S. v. Rajaratnam, 1:09-cr-01184, U.S. District Court, Southern District of New York (Manhattan).

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For the latest trial and appeals news, click here.


Judge Approves Madoff Trustee Settlement With Tremont Funds

A judge approved a $1 billion settlement of a lawsuit by liquidator of Bernard Madoff’s firm and hedge-fund firm Tremont Group Holdings Inc.

In the deal approved yesterday by U.S. Bankruptcy Judge Burton Lifland, trustee Irving Picard will accept a cash payment of more than $1 billion from funds associated with Tremont. In exchange, the Tremont funds will be allowed to make claims on the Madoff estate of about $3 billion, according to court filings.

The settlement is “fair and reasonable,” Lifland said.

Among the parties settling were Oppenheimer Acquisition Corp., an affiliate of the Oppenheimer mutual funds that bought Tremont, and Oppenheimer’s parents, MassMutual Holding LLC and Massachusetts Mutual Life Insurance Co.

Earlier this month, New York Life Insurance Co. and six other insurance companies assailed the settlement. As limited partners of the hedge-fund firm’s Opportunity III fund, they said they would lose if a court rules that the Ponzi scheme’s so-called net winners should be compensated, because they wouldn’t be allowed to recalculate their claims. A U.S. appeals court yesterday denied Picard’s move to strike a request by Madoff investors for a second hearing on the issue.

Picard sued Tremont and related entities for $2.1 billion, saying they ignored warnings that Madoff could be running a Ponzi scheme and profited from it, according to a complaint unsealed in March. The payment from Tremont, the second-biggest so-called feeder into Madoff’s multibillion-dollar fraud, will add to the $2.6 billion in the fund for Madoff customers, Picard has said.

The case is Picard v. Tremont Group Holdings Inc., 10-5310, U.S. Bankruptcy Court, Southern District of New York (Manhattan.)

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PharmAthene Wins Rights to Profit From Siga Smallpox Drug

Siga Technologies Inc. must share with PharmAthene Inc. profit from sales of a smallpox drug that may total more than $400 million, a judge ruled. Trading in shares of both companies was halted.

Delaware Chancery Court Judge Donald Parsons Jr. in Wilmington said yesterday New York-based Siga breached its obligation to negotiate in good faith on ST-246, an antiviral drug for use in case of a biological attack. Parsons rejected PharmAthene’s claim that Siga breached a binding license agreement. He also denied claims for a lump sum award and instead ordered the companies to share the profits.

“The plaintiff is entitled to share in any profits realized from the sale of the drug in question,” Parsons said yesterday in a 118-page opinion.

Lewis Goldberg, a Siga spokesman, said the company couldn’t immediately comment on the ruling. Siga was preparing a statement, he said.

Stacey Jurchison, a spokeswoman for Annapolis, Maryland-based PharmAthene, said the ruling appears to have granted the company a “50 percent profit split.”

“We think it is a very good outcome,” Jurchison said in a phone interview.

The case is PharmAthene Inc. v. Siga Technologies Inc., CA2627, Delaware Chancery Court (Wilmington).

For more, click here.

Ford Wins Reversal of $43 Million Award in Fatal Crash Case

Ford Motor Co. won reversal of an Illinois jury’s $43 million damage award in a lawsuit filed after a 2003 crash killed a 73-year-old man and severely burned his wife.

The Illinois Supreme Court yesterday threw out the verdict rendered after a 2005 trial concluding that Dora Jablonski and the estate of her husband, John, failed to prove the gas tank of their 1993 Lincoln Town Car had been defectively designed.

Their car burst into flames after being hit in the rear by another vehicle traveling at an estimated 55 to 65 miles per hour while they were stopped at a highway construction zone in southwest Illinois, causing an item in the trunk to pierce the tank.

“Plaintiffs presented insufficient evidence from which a jury could conclude that Ford breached its duty of reasonable care” on three negligent design theories, the court said. It rejected a fourth argument as not viable under state law.

Bradley M. Lakin, the Wood River, Illinois, attorney who took the case to trial, didn’t immediately reply to telephone messages seeking comment on yesterday’s ruling.

“Ford is gratified by the court’s decision,” Marcey Evans, a spokeswoman for the Dearborn, Michigan-based automaker, said in an e-mail.

“The 1993 Town Car exceeded all federal crash safety standards,” she said. “While the Jablonskis were victims of a tragic accident caused by a distracted driver who rear-ended them at 60 miles per hour, it was unfair to blame Ford for their injuries.”

Jablonski v. Ford Motor Co., Illinois Supreme Court case no. 2011IL110096 (Springfield).

For the latest verdict and settlement news, click here.

Litigation Departments

Richard Zabel Said to Get Deputy U.S. Attorney Post in N.Y.

Richard Zabel, a federal prosecutor in Manhattan, was promoted to deputy U.S. attorney for the Southern District of New York, a person familiar with the matter said.

Zabel served as co-head of litigation at Akin Gump Strauss Hauer & Feld LLP from 1999 until 2009, when he rejoined the prosecutor’s office in Manhattan. He replaces Boyd Johnson III, who is leaving to join the law firm Wilmer Cutler Pickering Hale & Dorr LLP, according to the firm.

A graduate of Princeton University and Harvard Law School, Zabel worked as an assistant U.S. attorney in Manhattan from 1991 to 1999, holding positions including chief of the office’s narcotics unit. He co-wrote two reports published in 2008 and 2009 by the group Human Rights First, “In Pursuit of Justice, Prosecuting Terrorism Cases in the Federal Courts.”

He twice won the Attorney General’s Award for Distinguished Service for his role in the prosecutions of a violent criminal organization known as the Latin Kings and members of the Gambino organized crime family.

Johnson, a graduate of Hamilton College and Cornell Law School, has been a prosecutor in the office since 1999, holding positions including chief of the public corruption unit and head of the international narcotics trafficking unit.

He is scheduled to start work with Washington-based Wilmer Hale’s litigation and white-collar practices on Oct. 1.

Under the supervision of both men, prosecutors in the office have won several insider-trading cases including the May conviction of Raj Rajaratnam, co-founder of Galleon Group LLC.

For the latest litigation department news, click here.

To contact the reporter on this story: Elizabeth Amon in Brooklyn, New York, at

To contact the editor responsible for this story: Michael Hytha at

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