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Madoff, Goldman, HSBC, SunTrust, Google in Court News

Bernard Madoff’s investors could lose $3 billion if the liquidator of the con man’s firm doesn’t succeed in overturning a judge’s ruling that dismissed much of his $1 billion claim against the owners of the New York Mets.

U.S. District Judge Jed Rakoff on Sept. 27 dismissed nine of 11 causes of action asserted by trustee Irving Picard against trusts and individuals linked to Fred Wilpon and Saul Katz. He said Picard could try to reclaim only two years of withdrawals from the Ponzi scheme.

The ruling would cut Picard’s recoveries from the Mets owners to $386 million, and halve the amount the trustee can take back from all Madoff investors, David Sheehan, a lawyer for Picard, told reporters after a court hearing yesterday.

“The difference for the whole case is about $3 billion,” he said. Under New York State law, the trustee could take back withdrawals over six years, he said.

Picard will first ask Rakoff to approve an appeal to the federal appeals court in New York. The appeals court will then decide whether to review the ruling. Picard, who got a favorable ruling from the appeals court on his formula for compensating investors who lost money, may win again, said Chip Bowles, a bankruptcy lawyer at Greenebaum Doll & McDonald PLLC in Louisville, Kentucky, who isn’t involved in the case.

“There is every chance the Second Circuit will allow the trustee to use state law to pursue claims under the New York time limits,” he said in an e-mail.

Rakoff set a trial date of March 19 for the trustee’s case against the Mets owners, after quizzing both sides yesterday on their plans to bring in expert witnesses. He said he was “skeptical” about the trustee’s desire to bring in an expert on investors’ fiduciary duties -- Picard based his claims for the $1 billion on allegations the Mets owners failed in their duty to probe Madoff’s fraud despite so-called red flags that warned of irregularities.

Rakoff, who said in his ruling, “A securities investor has no inherent duty to inquire about his stockbroker,” told Sheehan the subject was “a matter of law,” not “a matter for experts.” He was also skeptical of listening to an expert on red flags, whom Sheehan proposed bringing, he said.

Rakoff’s ruling that the trustee can only take back two years of withdrawals was good news for investors facing so-called clawback suits, from the Mets owners’ group to individuals who took more money out of the Ponzi scheme than they put in.

The case is: Picard v. Katz, 11-cv-03605, U.S. District Court, Southern District of New York (Manhattan).

For more, click here.

Goldman Sachs Wins Dismissal of Lawsuit Over CDO Loss

Goldman Sachs Group Inc. won dismissal of a lawsuit brought by Landesbank Baden-Wuerttemberg over losses on $37 million in collateralized debt obligations.

U.S. District Judge William Pauley III in Manhattan ruled yesterday that the bank didn’t sufficiently back up its claims against Goldman Sachs, which underwrote Davis Square, a CDO collateralized by residential mortgage-backed securities in 2006, and against Los Angeles-based TCW Asset Management Co., which manages collateral for asset-backed securities.

Goldman Sachs, based in New York, and TCW sold the Davis Square securities to institutional investors, marketing it as a $2 billion “High Grade Structured Product CDO” backed by investment-grade mortgage-backed securities, Pauley said in his opinion yesterday. LBBW bought two notes totaling $37 million.

Pauley said about 79 percent of the mortgages underlying Davis Square were below prime and at an increased risk of default. He ruled that LBBW failed to allege specific facts to support its claims for fraud and unjust enrichment. He also said the bank was a sophisticated investor that accepted the risks of its investment.

LBBW, based in Stuttgart, Germany, sued in October 2010. The bank claimed that Goldman knew many of the mortgages didn’t conform to the requirements for inclusion in the CDO and that they were riskier than indicated in the Davis Square offering circular. The bank claimed Goldman Sachs also concealed the true risk of the mortgages from ratings companies, which gave Davis Square a triple-A rating.

A voice-mail message seeking comment on the ruling from LBBW’s press services department wasn’t returned after regular business hours in Germany.

The case is Landesbank Baden-Wuerttemberg v. Goldman Sachs, 10-7549, U.S. District Court, Southern District of New York (Manhattan.)

HSBC India Client Indicted by U.S. Over $8.7 Million Account

A Wisconsin neurosurgeon was re-indicted by a U.S. grand jury on new charges that he failed to declare an HSBC Holdings Plc account in India valued in 2009 at $8.7 million.

Arvind Ahuja was indicted again by a federal grand jury in Milwaukee, where he was initially charged June 28 with concealing accounts from the Internal Revenue Service. The nine-count indictment added a charge that Ahuja conspired with two HSBC India bankers to defraud the IRS from 2006 to 2009.

The charges against Ahuja come amid a widening U.S. crackdown on offshore tax evasion that includes grand jury investigations of eight foreign banks. Prosecutors have filed criminal tax charges against more than three dozen former U.S. clients of UBS AG and Credit Suisse Group AG, Switzerland’s two biggest banks, and London-based HSBC, Europe’s biggest bank.

Ahuja took steps to hide his offshore accounts, according to the indictment made public yesterday. In 2007, an HSBC India banker told a colleague that Ahuja “has requested that he does not want any kind of mail at his US or India address,” according to the indictment. “He wants a HOLD on all his accounts.”

Prosecutors said Ahuja failed to report more than $1.2 million in interest income, pay taxes due or file Reports of Foreign Bank and Financial Accounts, or FBARs.

Dan K. Webb, Ahuja’s attorney, said in an e-mailed statement that the government’s allegations are “far off-base, and we will continue to present a vigorous, fact-based defense.”

The bank’s failure to issue Ahuja documents stating his interest income “directly caused” the prosecution, Webb said.

“Dr. Ahuja has paid all U.S. income taxes on all monies deposited into these foreign bank accounts as well as his personal income in the U.S.,” he said. “The only issue is taxes owed on the interest earned in these foreign bank accounts.”

After Ahuja became aware that the bank didn’t report interest income to him, he paid all taxes, interest and penalties, according to Webb. The charges “have absolutely nothing to do with Dr. Ahuja’s practice of medicine, and Dr. Ahuja’s primary focus remains on providing his patients with world-class neurological case.”

The case is U.S. v. Ahuja, 11-cr-00135, U.S. District Court, Eastern District of Wisconsin (Milwaukee).

For more, click here.

SunTrust, M&T Win Delay in Overdraft-Fee Cases During Appeal

SunTrust Banks Inc., M&T Bank Corp. and two other banks accused of gouging customers on overdraft fees won a delay of lawsuits against them while an appeals court considers whether the plaintiffs have to go through arbitration.

U.S. District Judge James Lawrence King in Miami put the case on hold as the U.S. Court of Appeals in Atlanta reviews his Sept. 1 decision allowing the plaintiffs -- customers with debit cards attached to their checking accounts -- to proceed with their lawsuits. King rejected the banks’ argument that the customers were legally bound to arbitrate the dispute.

Arbitration agreements for SunTrust, M&T, Regions Financial Corp. and Branch Banking & Trust Co. are “unconscionable” and can’t be enforced, King said in his opinion. He said the Supreme Court ruling in AT&T Mobility LLC v. Concepcion, which involved arbitration agreements for AT&T Inc. wireless customers, didn’t require arbitration in every case.

In a two-page ruling yesterday, King said the parties in the case had agreed to the delay during the appeal.

Bruce Rogow, an attorney for the plaintiffs, didn’t return a call seeking comment on the order.

The litigation before King involves more than 30 banks sued over their overdraft-fee policies. The customers claim the banks reorder debit-card transactions in their computers to maximize overdraft fees.

The plaintiffs’ lawyers argued that forcing customers into arbitration would effectively bar millions of customers from pursuing claims individually because they aren’t worth the effort.

Bank of America Corp., the biggest U.S. bank, in February agreed to pay $410 million without admitting liability to settle an overdraft lawsuit brought by its customers.

The case is In Re Checking Account Overdraft Litigation, 09-cv-02036, U.S. District Court, Southern District of Florida (Miami).

Google Asks Judge in AT&T Case to Protect ‘Sensitive’ Data

Google Inc. asked a U.S. judge overseeing the government’s lawsuit seeking to stop AT&T Inc. from buying T-Mobile USA Inc. for a chance to contest the disclosure of its confidential data in the case.

Google, which provided the information to the Justice Department in its investigation of the proposed T-Mobile deal, made its request Sept. 27 in federal court in Washington. Google, describing the data as “competitively sensitive” and related to internal products and launch plans, urged U.S. District Judge Ellen Segal Huvelle to have the parties give the company advance notice of possible disclosures in court or to experts.

“Without such additional protection, Google and other non-parties could find their confidential information -- such as Google’s business plans related to Android -- in the hands of competitors (or their competitors’ consultants), or even in newspapers, without having had prior notice of its disclosure,” Google said its request to intervene in the lawsuit.

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 would “substantially” reduce competition. Seven states joined the government’s effort to block the deal, which would make AT&T the biggest U.S. wireless carrier.

Michael Balmoris, an AT&T spokesman, didn’t respond Sept. 27 to an e-mail message seeking comment on Google’s request.

The case is U.S. v. AT&T Inc., 11-cv-01560, U.S. District Court, District of Columbia (Washington).

For the latest lawsuits news, click here.

New Suits

SEC Sues NIR’s Ribotsky for Stealing $1 Million From Clients

The U.S. Securities and Exchange Commission sued investment firm NIR Group LLC and its principal for allegedly hiding poor performance from investors and siphoning more than $1 million for personal use.

Corey Ribotsky, the sole managing member of Long Island-based NIR, wrote checks to himself from the firm’s $876 million AJW family of hedge funds from 2004 to 2009, even after his head accountant told him he was violating the law, the SEC said yesterday in a complaint filed in federal court in New York. NIR and Ribotsky will fight the SEC’s claims, according to a statement from Brad Gerstman, Ribotsky’s lawyer.

NIR’s strategy of buying stakes in distressed and start-up firms through private investment in public equity, or PIPE transactions, began to show signs of failure in 2007 when many of the companies that got financing from AJW funds were essentially defunct or near bankruptcy, the SEC said in its lawsuit. The agency also sued Daryl Dworkin, a former NIR analyst accused of falsifying client reports under Ribotsky’s direction who pleaded guilty to related criminal charges in July


“In a classic betrayal of trust, Ribotsky stole from his investors and falsely assured them that his struggling hedge funds were thriving,” SEC Enforcement Director Robert Khuzami said in the agency’s statement.

Ribotsky also “repeatedly lied” to investors from 2007 to 2009 about the AJW Funds’ performance and liquidity, telling them NIR could liquidate investments in 36 to 48 months, “a practical impossibility” given the size of the investments and adverse market conditions, the SEC said in the statement.

“The complaint appears to be a stretch in an attempt to justify approximately two years of time and resources poured into the investigation,” Gerstman said.

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


Ex-Secret Service Agent on Trial Accused of Foreign Bribery

A former Secret Service official is standing trial with five other security-company executives in the first prosecution of alleged foreign bribery based on a government sting operation run inside the U.S.

R. Patrick Caldwell, former chief executive officer of Protective Products of America Inc. and an ex-deputy assistant director at the Secret Service, is accused of joining an illegal business deal by agreeing to make payments to an FBI agent posing as a representative of the west African country of Gabon, prosecutors said yesterday as trial began in federal court in Washington.

“Most corrupt deals are never discovered by law enforcement, but this time someone was watching and someone was recording the deal -- the FBI,” Laura Perkins, a Justice Department trial attorney, told the jury.

The trial that opened yesterday is the second in a 22-defendant kickback conspiracy case stemming from a fake $15 million weapons deal. It’s the biggest U.S. prosecution of individuals accused of violating the Foreign Corrupt Practices Act, or FCPA. A trial of four others arrested in the sting ended in a mistrial in July after a jury failed to agree on a verdict.

The other defendants in the trial are John Mushriqui, Jeana Mushriqui, Stephen Giordanella, John Godsey and Marc Morales. Each is charged with one count of conspiracy and all except Giordanella also face two to five counts of bribery. The FCPA conspiracy and bribery charges carry maximum five-year prison sentences.

All six have pleaded not guilty to the charges.

The case is U.S. v. Goncalves, 09-cr-00335, U.S. District Court, District of Columbia (Washington).

For more, click here.

States Appeal to U.S. Supreme Court on Obama Health Law

States challenging President Barack Obama’s health-care overhaul asked the U.S. Supreme Court to intervene, saying a federal appeals court didn’t go far enough when it invalidated a portion of the law.

Adding to calls for the high court to determine the fate of the law, the 26 states, led by Florida, said yesterday that the entire measure should be invalidated. The Justice Department signaled this week that it will file its own Supreme Court appeal in the case.

The Atlanta-based 11th U.S. Circuit Court of Appeals gave the states a partial victory in their lawsuit challenging the law, ruling that Congress lacked the constitutional power to require people to either get insurance or pay a penalty. At the same time, the court said it would strike down only the mandate, leaving intact other provisions, including a requirement that insurers accept applicants with pre-existing conditions.

There is “compelling evidence that Congress intended the mandate to function as the act’s essential lynchpin and would never have passed the act without it,” the states argued in a Supreme Court filing.

The states are also asking the high court to review the law’s expansion of the Medicaid program for the poor. The 11th Circuit upheld that provision, saying it didn’t violate the rights of the states.

The case is Florida v. U.S. Department of Health and Human Services.

Ecclestone Gave Gribkowsky Up to $80 Million, Newspaper Says

Gerhard Gribkowsky, a former Bayerische Landesbank risk manager, may have received as much as $70 million or $80 million from Formula One Chief Executive Officer Bernie Ecclestone, Handelsblatt reported, citing a document from Munich prosecutors.

This is more than previously reported, the newspaper said. Sven Thomas, Ecclestone’s lawyer, didn’t immediately return a call from Bloomberg News seeking comment. Handelsblatt said Gribkowsky’s lawyer didn’t answer detailed questions on the issue and Ecclestone’s lawyer didn’t want to comment on the question.

Gribkowsky and Ecclestone said the payments had nothing to do with the sale of Formula One shares, Handelsblatt reported. Gribkowsky’s lawyer, Rainer Bruessow, said in August that there is no evidence supporting the allegations against his client.

A German regional court allowed breach of trust, accepting bribes and tax evasion charges against Gribkowsky, it said on Sept. 26. The trial over the sale of the lender’s stake in Formula One racing is set to start Oct. 24, the regional court said.

For the latest trial and appeals news, click here.


German Online-Betting Ban Upheld by Appeals Court

Bwin.Party Digital Entertainment Plc and other Internet betting companies lost a series of top appeals court cases over Germany’s ban on online gambling.

The Federal Court of Justice, Germany’s highest civil court, said in five lawsuits brought by state-owned lotteries that the prohibition is justified to combat dangers associated with gambling.

“Because of the greater dangers of the Internet, above all anonymity, lack of social control and accessibility at any time, this sales venue can be subject to stricter regulation than traditional offers,” Presiding Judge Joachim Bornkamm said after delivering the rulings.

The European Union’s top court ruled last year that Germany’s betting monopoly, which only allows state-controlled companies to offer most sports betting, violates European laws. Germany has faced criticism for allowing private horse betting while outlawing other forms of private sport bets. The EU court ruling didn’t bring an end to the various suits pending in Germany over the issue.

Bwin e.K., the German unit that was party to the lawsuit, said it will review whether to file a constitutional complaint. The ruling only covers the current regulation that will elapse at the end of the year, it said.

Yesterday’s cases are, BGH I ZR 189/08 et al.

Reebok, FTC Settle False Sneaker-Claims Case for $25 Million

Reebok International Ltd. agreed to pay $25 million to resolve government allegations that the sneaker maker deceptively claimed its so-called toning shoes helped strengthen leg and buttock muscles.

The settlement with the Federal Trade Commission covers advertising starting in 2009 for Reebok’s EasyTone walking shoes and flip flops and RunTone running shoes. The agency said the ads made unsupported claims that walking in EasyTone footwear was “proven” to tone buttocks 28 percent more than other sneakers and build calf muscles by 11 percent more.

“We spent a lot of time examining the evidence the company put forward and found it wanting,” said David Vladeck, head of the FTC’s Bureau of Consumer Protection during a press conference in Washington yesterday. “This settlement is also to remind advertisers big and small that they must have adequate proof before making claims.”

Vladeck declined to comment on whether other shoe companies are being probed for similar claims.

The settlement prohibits Reebok, a unit of Herzogenaurach, Germany-based Adidas AG, from making unsubstantiated claims regarding the strengthening and toning benefits of its footwear, the agency said. The FTC set up a website for consumers explaining how to seek a refund for the shoes involved in the lawsuit.

The case is Federal Trade Commission v. Reebok International Ltd., 1:11-cv-02046, U.S. District Court, Northern District of Ohio (Cleveland).

Hypo Real Estate Minority Squeeze-Out Cleared by Appeals Court

Hypo Real Estate Holding AG’s former minority investors lost an appeals court ruling over the lender’s rescue by the government, which forced them to sell their stock.

The Munich Higher Regional Court rejected the plaintiffs’ arguments that the so-called squeeze-out was unconstitutional and violated European rules, the court said in an e-mailed statement yesterday.

The step was legal, given “the meaning of the financial sector for a functioning economy and thus for the stability of the state and society,” the court said. “Without government support many lenders would have become bankrupt which would have caused a breakdown of the financial sector and a recession.”

The German government and financial institutions had to rescue Hypo Real Estate in 2009 after the lender’s Dublin-based Depfa Bank Plc unit couldn’t raise financing when the bankruptcy of Lehman Brothers Holdings Inc. froze credit markets.

The plaintiffs were seeking to invalidate a decision at Munich-based Hypo Real Estate’s Oct. 5, 2009, shareholder meeting, when the government bank-rescue fund, known as Soffin, used its majority of votes to force minority shareholders including U.S. investment firm J.C. Flowers & Co. to sell their shares in a squeeze-out.

A capital increase of 3 billion euros ($4 billion), excluding subscription rights for shareholders other than Soffin, was approved at an earlier meeting held on June 2, 2009. That brought Soffin’s stake in Hypo Real Estate above the 90 percent threshold required to force remaining investors to sell their stock.

Only about a dozen of the original 38 plaintiffs appealed the lower court ruling. Flowers didn’t join the appeal.

Hypo Real Estate is the target of several suits over its near collapse and investor losses. The Munich Higher Regional Court is also hearing a test case under a mass-litigation procedure to bundle claims of former holders who seek damages. Lawyer Andreas Tilp who is representing investors in that case said their combined claims are worth about 900 million euros.

Yesterday’s case is OLG Muenchen, 7 U 711/11.

For the latest verdict and settlement news, click here.

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