Goldman Sachs, Galleon, Madoff, Macquarie in Court News

Goldman Sachs Group Inc. won dismissal of lawsuits over employee bonuses filed in New York by shareholders who called the awards a waste of assets.

Security Police & Fire Professionals of America Retirement Fund and Judith A. Miller sued the investment bank in December 2009, accusing directors and executives of breaching their fiduciary duties by reserving half of the company’s net revenue for employee compensation. Shareholders Ken Brown and Central Laborers Pension Fund filed similar suits the following month.

New York State Supreme Judge Bernard J. Fried ordered the lawsuits dismissed on Sept. 21, according to court documents filed yesterday. The plaintiffs agreed to the dismissal in January 2010, after New York-based Goldman Sachs said its ratio of compensation and benefits to net revenue for 2009 was its “lowest as a public company,” Fried said in his ruling.

Fried denied the plaintiffs’ request for attorney fees and expenses, and rejected a request from Brown -- who died in December 2010 -- for an incentive fee award of $25,000. Brown’s attorney, Lynda J. Grant, didn’t return a voice-mail message seeking comment on Fried’s ruling.

Michael DuVally, a Goldman Sachs spokesman, declined to comment on the ruling.

The cases are Brown v. Blankfein, 650003/2010, and Central Laborers’ Pension Fund v. Goldman Sachs, 600036/2010, both in New York State Supreme Court, New York County (Manhattan).

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Rajaratnam Judge Asks to Review Sentencing Report on Jiau

The U.S. judge who is to sentence Galleon Group LLC co-founder Raj Rajaratnam for insider trading on Oct. 13 asked to see the sentencing report for Winifred Jiau, a former consultant for Primary Global Research LLC.

Jiau was sentenced to four years in prison last week for her role in an insider-trading ring. She was convicted in June of one count each of conspiracy and securities fraud for passing earnings and other information about Nvidia Corp. and Marvell Technology Group Ltd. to two hedge fund managers.

Rajaratnam, 54, was convicted in May of 14 criminal counts of conspiracy and securities fraud for directing what prosecutors said was the largest hedge-fund insider trading ring. The U.S. has said Rajaratnam should be sentenced to a term of 19 1/2 to 24 1/2 years, a penalty the defense has called “grotesquely severe.”

The request by U.S. District Judge Richard Holwell in Manhattan, who presided over Rajaratnam’s trial, was granted Sept. 23 by U.S. District Judge Jed Rakoff, who sentenced Jiau, according to a court filing yesterday.

“Judge Holwell would like to review that presentence report in preparation for the upcoming sentencing of the defendant Raj Rajaratnam,” Thomas McCarthy, a senior U.S. probation officer, wrote in the request to Rakoff.

The U.S. said Rajaratnam made $63.8 million using illegal tips to trade in the stocks of companies including Goldman Sachs Group Inc., Intel Corp., Google Inc., ATI Technologies Inc. and Clearwire Corp.

Ellen Davis, a spokeswoman for Manhattan U.S. Attorney Preet Bharara, declined to comment on yesterday’s filing.

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

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Strauss-Kahn Cites Diplomatic Immunity to Fend Off Maid’s Suit

Former International Monetary Fund chief Dominique Strauss-Kahn, who was cleared last month of charges that he assaulted a hotel maid in New York, asked a judge to dismiss the lawsuit brought by his accuser.

Strauss-Kahn, 62, said in a motion filed with Judge Douglas McKeon in New York State Supreme Court in the Bronx borough of New York City yesterday that the lawsuit filed by the maid, Nafissatou Diallo, should be thrown out because Strauss-Kahn had diplomatic immunity.

“As managing director -- which is the chief executive position at the IMF -- Mr. Strauss-Kahn enjoyed absolute immunity from civil suit under applicable principles of international law,” according to the filing by William W. Taylor III, an attorney for Strauss-Kahn.

Manhattan District Attorney Cyrus Vance Jr.’s office last month dropped sexual-assault charges filed against Strauss-Kahn in May after Diallo accused him of trying to rape her in his suite at the Sofitel in midtown Manhattan. Diallo, 33, sued Strauss-Kahn on Aug. 8, seeking unspecified damages.

Diallo’s attorneys, Kenneth P. Thompson and Douglas H. Wigdor, said in a statement that Strauss-Kahn’s claim of diplomatic immunity will fail because he isn’t a diplomat, was in New York on personal business and paid for his own room.

“This baseless motion is another desperate attempt to avoid having to answer for the deplorable acts he committed against Ms. Diallo,” Thompson and Wigdor said in the statement.

The case is Diallo v. Strauss-Kahn, 11-307065, New York State Supreme Court (Bronx County).

Merkin Fund Investor Lawsuits Over Madoff Losses Dismissed

Lawsuits filed by investors in three of J. Ezra Merkin’s hedge funds, holding him and BDO International responsible for their losses in Bernard Madoff’s Ponzi scheme, were dismissed by a federal judge.

U.S. District Judge Deborah Batts in Manhattan ruled that investors in funds named Ascot Partners, Gabriel Partners and the Ariel Fund can’t show that Merkin lied about money invested in Madoff’s fund or that BDO, an accounting firm, ignored “red flags” of the fraud.

“The offering memoranda and prospectuses contain warnings sufficient to preclude a claim of intentional or reckless misrepresentation in those documents,” Batts said in an opinion released yesterday. “In addition, plaintiffs’ allegations of red flags are unavailing given the opposing considerations of Madoff’s immense reputation and deep deception.”

The suit was filed in 2008 by a group of investors seeking to represent a class of all the investors in the funds.

Arthur Abbey, a lawyer representing the investors, didn’t return a phone message and e-mail seeking comment on the ruling.

Madoff, 73, is serving a 150-year term in federal prison in North Carolina after pleading guilty to orchestrating history’s biggest Ponzi scheme.

The case is In Re Merkin and BDO Seidman Securities Litigation, 08-cv-10922, U.S. District Court, Southern District of New York (Manhattan).

Goldman Sachs Asks Judge to Put Thornburg Suit on Hold

Goldman Sachs Group Inc., sued by defunct Thornburg Mortgage Inc., asked a bankruptcy judge to put the lawsuit on hold while a district judge decides whether to take the case. Bankrupt TMST Inc.’s contract claims should be dismissed because Goldman Sachs was exercising its rights after an “incontrovertible margin default,” the New York-based bank said in a Sept. 23 court filing.

TMST trustee Joel Sher filed at least eight lawsuits from April 28 to April 30, seeking more than $2 billion from JPMorgan Chase & Co., Citigroup Inc., Barclays Plc, Bank of America Corp. and other companies, alleging that they made unjustified margin calls that helped to cause Thornburg’s downfall.

News Corp. Marketer Used Mafia Lessons to Instill Fear

A News Corp. unit that used lessons gleaned from Mafia films to motivate employees and crush rivals is the latest arm of Rupert Murdoch’s media empire to be swept up in a probe that began with hacking and bribery allegations.

Already the subject of inquiries in America and the U.K. of police payoffs and illegal voice-mail access by its British newspapers, News Corp. has been asked by U.S. investigators for documents relating to its News America Marketing Group, which places in-store ads in supermarkets and retailers worldwide, according to a person familiar with the matter.

The U.S. government last month asked a lawyer at Williams & Connolly LLP for documents from a 2009 trial between News America and a New Jersey advertising company, Floorgraphics Inc., according to the person, who declined to be identified because the request was confidential. New York-based News Corp. in July hired Brendan Sullivan, a criminal defense lawyer at the Washington law firm, amid claims of illegal hacking at the now-defunct News of the World tabloid.

The expanding review by U.S. prosecutors of potential wrongdoing at News of the World, which represented only 1 percent of annual revenue for News Corp., has now touched a subsidiary that generated four times that much, and about 12 percent of the parent company’s profit for fiscal 2011.

That unit, rivals claimed in court papers, has expanded by flouting antitrust laws, and in one case, computer hacking. News America’s CEO, also publisher of the New York Post, testified in one case that he used popular Mafia films such as “‘A Bronx Tale” and “The Untouchables” to teach employees how to instill fear in potential clients.

“There is a pattern of anticompetitive behavior by News Corp.,” said Melanie Sloan, executive director of Citizens for Responsibility and Ethics in Washington, a government watchdog group. “We’ve seen it in Britain, and we’ve seen it in America.”

Suzanne Halpin, a spokeswoman for News America, declined to comment on the U.S. request for information.

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New Suits

Deloitte Sued for $7.6 Billion in Taylor Bean Collapse

Deloitte & Touche LLP, one of the so-called Big Four accounting firms, was sued for failing to detect a fraud that allegedly led to more than $7 billion in losses at defunct mortgage lender Taylor, Bean & Whitaker Mortgage Corp.

Deloitte, which audited Taylor Bean’s financial statements from 2002 to August 2009, ignored red flags in the company’s books, allowing the lender’s former chairman, Lee Farkas, to orchestrate a fraud that toppled the company, according to the complaints filed yesterday in state court in Miami. Taylor Bean’s bankruptcy trustee, Neil Luria, and its Ocala Funding unit are seeking more than $7.6 billion in damages.

“Deloitte’s negligence, and willful blind eye, was the fuel without which the looters’ fraud would have sputtered out long before it resulted in the multibillion-dollar debt under which TBW collapsed,” according to Luria’s complaint.

The claims are “utterly without merit,” Jonathan Gandal, a spokesman for New York-based Deloitte, said in an e-mail. Taylor Bean and Ocala were wholly owned private companies through which “convicted felon Lee Farkas and his co-conspirators committed their crimes,” Gandal said.

“The bizarre notion that his engines of theft are entitled to complain of injury from their own crimes and to sue the outside auditors they lied to defies common sense, not to mention the law,” Gandal said in the e-mail.

The cases are Luria, Plan Trustee of the Taylor, Bean & Whitaker Trust v. Deloitte & Touche LLP; Ocala Funding LLC, v. Deloitte & Touche LLP, Circuit Court of the 11th Judicial Circuit, Miami-Dade County, Florida.

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Carter’s Ex-Executive Elles Pleads Not Guilty to Fraud Charges

Joseph Elles, a former sales executive at Carter’s Inc., pleaded not guilty to charges he reported inflated sales at the world’s biggest maker of children’s clothing.

U.S. Magistrate Judge Janet King in Atlanta granted Elles $100,000 bail after his arraignment yesterday on 32 counts including securities fraud, wire fraud, causing the filing of false financial statements and falsifying corporate books and records.

Elles, 57, a former executive vice president, “induced” customers such as Kohl’s Corp. to make “substantial purchases” of Carter’s products at unauthorized millions of dollars in discounts that he didn’t disclose, according to the indictment filed Sept. 21.

Elles allegedly hid those discounts, causing the company to overstate profit, prosecutors said. He also aided others, some of whom U.S. prosecutors haven’t identified, according to the indictment.

The U.S. Securities Exchange Commission sued Elles in December. The SEC charges mirror the indictment by the U.S. Attorney’s Office in Atlanta.

The SEC agreed not to sue Atlanta-based Carter’s because of the company’s “prompt and complete self-reporting.”

Raymond Joseph Burby, a lawyer for Elles, said in an e-mailed statement that his client will defend himself against the charges and “absolutely denies that he intended to defraud anyone in connection with the purchase or sale of Carter’s securities, as alleged in the indictment.”

Prosecutors should have waited to see what the evidence “revealed about the conduct of all employees at Carter’s and Kohl’s who were involved in this matter,” Burby said in his statement.

Prosecutors yesterday asked the judge to set bond at $200,000, saying that Elles’s financial statements indicated he has close to $1 million in cash. Attorneys for Elles sought a lower bond, arguing that their client isn’t a flight risk.

“He came here today to voluntarily surrender,” Burby told King. “He is going to be here when the court needs him to be.”

Elles faces as long as 10 years in prison if convicted, Assistant U.S. Attorney David M. Chaiken said yesterday in court.

The case is U.S. v. Elles, 11-CR-445, U.S. District Court, Northern District Court of Georgia (Atlanta).

News Corp. Faces Another Round of Hacking Claims From 2008

News Corp., former publisher of the shuttered News of the World tabloid, was hit last week with accusations that reporters hacked into voice mails as late as 2008, a year after a reporter and detective were jailed for the offense.

Jade Goody, the reality TV star who died of cervical cancer in 2009, may have had her phone hacked by News of the World reporters in the months leading up to her death, according to Max Clifford, her former public-relations representative.

If proven true, the allegation indicates hacking continued two years after private investigator Glenn Mulcaire and former royal reporter Clive Goodman illegally accessed story subjects’ voice mails. Goodman and Mulcaire were jailed in 2007 for hacking. James Murdoch, deputy operating chief of News Corp. and head of the company’s U.K. publishing unit, has repeatedly said he didn’t know hacking was widespread at the tabloid and that wrongdoing took place before he joined the company in 2007.

“If it was going on as late as 2008, serious questions will be asked as to what procedures were in place to stop it from happening again internally,” said Niri Shan, the head of media law at Taylor Wessing LLP in London. Murdoch “is in charge, so he’s ultimately responsible.”

News Corp.’s directors will also be sued in the U.S. by victims of News of the World hackers, lawyer Mark Lewis said in an interview broadcast on Sky News last week. Lawyers are looking at what directors at the New York-based corporation should have known about hacking activities and will seek to speak with James Murdoch and his father, News Corp. Chairman and Chief Executive Officer Rupert Murdoch, Lewis said in a separate interview on the BBC.

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Macquarie Wins A$95 Million Tax Dispute Over Minara Sale

Macquarie Bank Ltd., a unit of Australia’s biggest investment bank, won a A$95 million ($93 million) dispute with the Australian Tax Office over the 2004 sale of a stake in nickel producer Minara Resources Ltd.

Federal Court Justice Richard Edmonds in Sydney yesterday dismissed the tax office’s claim that Macquarie used a tax avoidance scheme when it engineered the sale of 165.5 million shares held by MatlinPatterson Global Opportunities Partners LP at A$2.90 each.

The unit of the Sydney-based Macquarie Group Ltd. claimed at a hearing in June that the government was attempting to assess taxes against it on profit made by MatlinPatterson.

John Hurst, an outside spokesman for Macquarie, declined to comment on the ruling.

MatlinPatterson, which was Minara’s second-biggest shareholder, bought a 35.9 percent stake in 2003 in the mining company as part of an attempt to take it over, according to court documents. Macquarie arranged a “bought deal” in February 2004 for the MatlinPatterson shares, purchasing them for A$2.65 each and selling them on to institutions for A$2.90, earning A$41.4 million on which the bank paid A$12 million in taxes, according to the court papers.

The case is Macquarie Bank Ltd. v. Commissioner of Taxation. NSD105/2010. Federal Court of Australia (Sydney).

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On The Docket

Gribkowsky Trial Set For October Over Formula One Stake Sale

A German regional court allowed breach of trust, accepting bribes and tax evasion charges against Gerhard Gribkowsky, a former Bayerische Landesbank risk manager, to go to trial.

The trial over the sale of the lender’s stake in Formula One racing is set to start Oct. 24, the regional court said in an e-mailed statement yesterday.

Focus magazine had reported on the trial date earlier this weekend and had said that Formula One Chief Executive Officer Bernie Ecclestone will testify in the case, without saying where it had obtained the information.

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