BofA, JPMorgan, BNY Mellon, S&P, AIG, SocGen in Court News

Oct. 6 (Bloomberg) -- Massachusetts Attorney General Martha Coakley said she may sue major banks after she “lost confidence” that they will reach an adequate agreement to resolve disputes over foreclosure practices.

Attorneys general from all 50 states last year announced a probe of bank foreclosure practices following reports that faulty documents were used to seize homes. Since then, attorneys general and federal officials have been negotiating a settlement with the five largest mortgage servicers in the U.S. -- Bank of America Corp., JPMorgan Chase & Co., Citigroup Inc., Wells Fargo & Co. and Ally Financial Inc.

“I have lost confidence that the banks will bring to the table an agreement that properly holds them accountable for wrongful foreclosures,” Coakley, 58, said in a statement today. “Because our office for some time has anticipated that result, we have begun preparing for litigation.”

California Attorney General Kamala Harris said last week that she was rejecting a proposed settlement with the banks and would pursue her own mortgage investigation, according to a letter she wrote to the U.S. Justice Department and Iowa Attorney General Tom Miller, who is leading talks for the states.

New York Attorney General Eric Schneiderman, Delaware Attorney General Beau Biden and Nevada Attorney General Catherine Cortez Masto are also conducting mortgage-related investigations as settlement talks with the banks continue.

Miller said yesterday that the settlement being worked on will hold the banks accountable “in ways that are unprecedented” and will help struggling homeowners across the country. Further negotiations took place this week in Washington.

“While attorneys general are free to criticize an agreement that does not yet exist, we expect that they’ll soon see the tangible results of our yearlong efforts to address improper servicing and foreclosure practices, and provide relief to homeowners,” Miller said in an e-mailed statement.

Coakley said her office is “aggressively proceeding” with plans to file lawsuits. They would include claims tied to the failure to establish the right to start a foreclosure and the filing of false or misleading documents, she said.

Coakley, who has been investigating a mortgage database used by banks known as MERS, didn’t disclose when or which banks would be sued.

New Suits

Merrill Lynch Sued Over Collateralized Debt Obligations

Bank of America Corp.’s Merrill Lynch unit was sued in New York by Loreley Financing over alleged misrepresentations involving $92 million of collateralized debt obligations.

The suit stems from Loreley’s purchase of classes of notes issued in connection with two CDOs, according to a complaint filed yesterday in New York State Supreme Court in Manhattan.

“Defendants made material misrepresentations to plaintiffs, omitted material facts, conspired to defraud plaintiffs, were responsible for fraudulent conveyances, aided and abetted others’ fraud and fraudulent conveyances,” Loreley said in the complaint.

William Halldin, a spokesman for Charlotte, North Carolina-based Bank of America, said the company believes “there is no merit to the claims” and plans to defend itself in court.

The case is Loreley Financing (Jersey) No. 3 Ltd. v. Merrill Lynch, 652732/2011, New York State Supreme Court, (Manhattan).

Conservation Groups Sue U.S. to Block Keystone XL Pipeline

Work on the Keystone XL pipeline, which would transport oil from western Canada to the Gulf of Mexico, should be halted because the U.S. didn’t complete an environmental impact review, advocacy groups said in a lawsuit.

The Center for Biological Diversity, Friends of the Earth Inc. and Western Nebraska Resources Council sued the U.S. in Omaha, Nebraska, federal court yesterday, calling the government review a “sham public process” because the pipeline is moving forward without final approval. They seek a ruling that the work violates the National Environmental Policy Act and an order blocking the pipeline until requisite approvals are obtained.

The $7 billion pipeline, being built by TransCanada Corp., runs through north-central Nebraska’s Sand Hills region. The construction is forcing the clearance of native grasses and relocation of an endangered species of whooping cranes, according to the complaint.

“These activities are on-going and are having adverse environmental impacts and are being carried out before the environmental reviews for the pipeline are complete,” and before permits have been issued, the groups claim.

Wyn Hornbuckle, a spokesman for the U.S. Justice Department, declined to comment on the filing. TransCanada spokesman Terry Cunha didn’t return a call and e-mail seeking comment.

The case is Center for Biological Diversity v. U.S. Department of State, 11cv345, U.S. District Court, District of Nebraska (Omaha).

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Citigroup Sues to Block Arbitration of Saudi Investors’ Claim

A Citigroup Inc. unit sued two Saudi investors seeking to block Financial Industry Regulatory Authority arbitration of their $383 million claim that the bank “wiped out” their family’s wealth.

Abdullah and Ghazi Abbar, a father and son from Jeddah who put family money into hedge funds, have no customer agreements or accounts with Citigroup Global Markets Inc., a New York-based broker dealer that they blame for mismanaging their family’s life savings, according to a complaint the Citigroup unit filed yesterday in federal court in Manhattan.

The Citigroup entities that handled two leveraged option transactions and a private-equity loan for the Abbars are based in the U.K., Switzerland and the Cayman Islands and aren’t subject to arbitration by Finra, a Washington-based brokerage regulator, according to the complaint.

“We are confident this matter will be appropriately resolved when it is reviewed by legal authorities in the jurisdictions that the parties agreed to when they executed their trades,” Natalie Marin, a spokeswoman for New York-based Citigroup, said in an e-mail.

John Rich, an attorney for the Abbars, didn’t return a voice-mail message left after regular business hours seeking comment on the lawsuit.

The Abbars, whose money comes from food products importing, travel and tourism, oil investments and other businesses, were courted by top bank officers, including Chief Executive Officer Vikram Pandit and former global wealth management chief Sallie Krawcheck, to maintain or expand business with the New York-based company, they said in their Finra claim.

“Due to a pattern of gross misconduct by CGMI and its employees and affiliates, from late 2005 to present, the considerable family wealth which the Abbars entrusted to Citigroup has been virtually wiped out,” the Abbars said in the claim they filed with Finra on Aug. 17.

The case is Citigroup Global Markets v. Abbar, 11-6993, U.S. District Court, Southern District of New York (Manhattan).

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Madoff Trustee Seeks to Pursue Racketeering Claim Against Kohn

The trustee liquidating Bernard Madoff’s former firm asked a U.S. judge not to dismiss civil racketeering claims from a $58.8 billion lawsuit against Bank Medici AG founder Sonja Kohn and UniCredit SpA’s Bank Austria.

David Sheehan, a lawyer for trustee Irving Picard, asked U.S. District Judge Jed Rakoff in Manhattan yesterday to deny the defendants’ request that he throw out claims brought under the Racketeer Influenced and Corrupt Organizations Act, or RICO. The law provides the basis for most of the damages Picard seeks in the case.

Lawyers for the defendants argued that Picard lacks standing to sue because he stands in the shoes of the Madoff firm, which was responsible for the fraud, and that Kohn didn’t run a separate racketeering enterprise for purposes of the RICO law.

The defense lawyers also told Rakoff that RICO doesn’t cover a racketeering enterprise that is located primarily overseas. Most of the defendants in the suit, including Kohn, based in Austria, were located outside the U.S., they said.

In a complaint filed in December, Picard, calling Kohn Madoff’s “criminal soul mate,” sued her, along with UniCredit, Bank Austria, Bank Medici and dozens of other Austrian and Italian parties. He claimed Kohn fed more than $9.1 billion of investor money into the Madoff fraud.

In June, Rakoff agreed to take the case from U.S. Bankruptcy Court, saying the case required “significant interpretation of RICO.”

The case is Picard v. Kohn, 11-cv-01181, U.S. District Court, Southern District of New York (Manhattan).

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BNY Mellon ‘Sledgehammer’ Lawsuits Raise Pressure to Settle

Bank of New York Mellon Corp., the largest custody bank, faces increased pressure to reach settlements on foreign-exchange cases following new lawsuits brought by New York and federal officials.

The New York attorney general and the U.S. Attorney’s Office in Manhattan, each of which filed complaints Oct. 4, bring deeper resources and more expertise on financial cases, Barry Barbash, head of the asset-management group at law firm Willkie Farr & Gallagher LLP, said in an interview from his Washington office. New York Attorney General Eric T. Schneiderman can also wield the state’s powerful Martin Act, he said.

“The Martin Act is a fairly significant sledgehammer of a statute” that makes it easier for prosecutors to prove fraud compared with many other states’ laws, said Barbash, a former director of the U.S. Securities and Exchange Commission’s division of investment management.

The New York suit, brought in the state’s Supreme Court, accuses BNY Mellon of defrauding public pension funds of $2 billion over 10 years. The U.S. Attorney’s Office filed a separate suit in federal court. Florida and Virginia have also filed claims against the bank, and Massachusetts regulators are investigating similar claims.

BNY Mellon will fight the lawsuits, said Kevin Heine, a spokesman for the bank. The complaints are based on a “flawed analysis” and a misunderstanding of the global foreign-exchange market, he said.

State Street Corp., the third-largest custody provider, faces similar lawsuits from California and Arkansas. The Boston-based firm has said it will defend itself against the claims.

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Teva Put Profit Ahead of Propofol Patient Safety, Jury Told

Teva Pharmaceutical Industries Ltd., the world’s biggest generic-drug maker, was accused by lawyers at a Nevada trial of putting profit ahead of the safety of colonoscopy patients who got the company’s Propofol anesthetic from reused vials.

Teva, along with drug distributors Baxter International Inc. and McKesson Corp., marketed Propofol in “jumbo-sized vials” knowing it would entice doctors to reuse the containers and increase the spread of blood-borne diseases, Robert Eglet, a lawyer for colonoscopy patients who developed hepatitis after getting the medicine, told a Las Vegas jury yesterday.

“Responsible drug companies should not put profits above patient safety,” Eglet said in closing arguments in the Nevada state court trial of three patients’ lawsuits. “It’s undisputed that these larger vials provided the temptation and the opportunity” for reuse, he added.

Teva faces almost 300 lawsuits stemming from a hepatitis C outbreak three years ago in southern Nevada, the Petach Tikva, Israel-based company said in a regulatory filing last month. Nevada health officials blamed the reuse of Propofol vials for infecting patients with the incurable liver disease. The trial of the first case against Teva and Baxter last year resulted in a verdict of more than $500 million against the drugmakers.

Teva’s lawyer countered that improperly sanitized medical equipment, not reused Propofol containers, caused some Nevada colonoscopy patients to develop hepatitis.

Because of the number of daily procedures being done by some clinics it was “often impossible to properly clean” medical equipment, Mark Tully, one of the drugmaker’s lawyers, told jurors yesterday in his closing argument at the trial, which started more than a month ago. “There were multiple failures to follow proper medical procedures,” he added.

Probes by Nevada health officials and the federal Centers for Disease Control and Prevention blamed the reuse of Propofol vials for infecting patients with the incurable liver disease.

The case is Sacks v. Endoscopy Center of Southern Nevada LLC, 08A572315, District Court for Clark County, Nevada (Las Vegas).

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S&P Rater Was a ‘Wuss’ for Bending for Bankers, Court Told

Standard & Poor’s, bending to pressure from a bank selling investment notes, gave its highest rating to some that resembled a gambler’s tactic of doubling down on losing bets, an Australian court was told.

The ratings company, under investigation by the U.S. over the nation’s credit downgrade, was sued by Australian towns over the sale of notes that plummeted in value during the global financial crisis in 2008.

“You are the wuss for bending over in front of bankers and taking it,” Sebastian Venus, who had prepared an internal model for the notes at S&P, told Derek Ding, an analyst responsible for rating the note, according to e-mail transcripts in a written version of the plaintiffs’ opening statement that was released by the court. “You rate something AAA, when it’s really A-?”

A dozen Australian townships claim they lost A$15 million ($14.3 million) of A$16 million invested in the Community Income Constant Proportion Debt Obligation Notes, or Rembrandts, as they were called. The notes were unwound less than two years after the towns bought them because credit spreads kept increasing and the notes’ cash value was exhausted, according to the court filing.

“The CPDO strategy may be seen as a sophisticated version of the doubling strategy in which a gambler doubles his/her bet every time he/she loses, until a win occurs,” Columbia University Professor Rama Cont said, according to the submission. “A gambler with limited capital might eventually run out of capital before winning and lose everything.”

S&P denied it was pressured by the bank to give the notes the AAA rating, in an e-mailed response to Bloomberg News yesterday.

“The councils are trying to deflect the weakness of their case by pointing to out-of-context e-mails,” the ratings company said. “We conducted our own analysis in line with our rating process.”

The trial is scheduled for 10 weeks in Sydney.

The case is Bathurst Regional Council v. Local Government Financial Services Ltd. NSD936/2009. Federal Court of Australia (Sydney).

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Siga Seeks to Re-Argue Ruling in PharmAthene Smallpox Case

Siga Technologies Inc. asked a Delaware judge to reconsider his award of 50 percent of the profit from a smallpox drug to rival PharmAthene Inc.

Delaware Chancery Court Judge Donald Parsons Jr. ruled Sept. 22 that Siga must share a possible profit of more than $400 million. Siga shares fell as much as 38 percent that day, and declined 3.8 percent yesterday.

Siga, which is seeking permission to re-argue the award, said in a court filing yesterday that Parsons “misapprehended both the law and the facts” in awarding a share of ST-246’s profit to PharmAthene.

Parsons said New York-based Siga breached its obligation to negotiate in good faith on the antiviral drug designed for use in case of a biological attack. He rejected PharmAthene’s claim that Siga breached a binding license agreement and also denied claims for a lump-sum award.

“There is no legal justification for the court to speculate concerning the terms on which the parties might have agreed in the ultimate negotiation,” Andre Bouchard, a lawyer for New York-based Siga, said in his motion.

Eric Goldman, a spokesman for Annapolis, Maryland-based PharmAthene, said yesterday that he couldn’t immediately comment on Siga’s request to re-argue the profit-award ruling.

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

AIG’s United Guaranty to Appeal $45 Million SunTrust Order

A unit of American International Group Inc., the insurer majority owned by the U.S. government, filed a notice of appeal challenging a judge’s order to pay more than $45 million to SunTrust Banks Inc. to fulfill mortgage insurance contracts.

AIG’s United Guaranty unit is seeking to reverse a court ruling that it must pay Atlanta-based SunTrust about $34 million for covered losses, $6 million in interest and $5.4 million in legal fees and costs, according court records. The notice of appeal was filed Oct. 4 in federal court in Richmond, Virginia.

SunTrust sued United Guaranty in 2009 for breach of contract, saying the insurer didn’t meet obligations to cover losses tied to borrower defaults. Beginning in January 2008, United Guaranty “systemically” denied claims on loans that hadn’t been underwritten using an automated system from mortgage investor Fannie Mae, SunTrust said in its complaint.

United Guaranty also denied claims for losses from loans where SunTrust didn’t verify all the information on borrower applications, according to the lawsuit.

Mark Herr, a spokesman for New York-based AIG, said the insurer expected the appeals court to reverse the lower court’s exclusion of evidence that, if admitted, “would have changed the outcome.” Hugh Suhr, a spokesman for SunTrust, declined to comment on the appeal notice.

The loans at issue in the litigation, known as combo loans, involve a combination of first- and second-lien mortgages.

The case is SunTrust Mortgage Inc. v. United Guaranty Residential Insurance Company of North Carolina, 09-00529, U.S. District Court, Eastern District of Virginia (Richmond).

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Societe Generale Wins U.K. Lawsuit Over Saad Group Unit Loan

Societe Generale SA, France’s second-biggest bank, won a U.K. lawsuit alleging a unit of Saudi Arabia’s Saad Group failed to repay a loan of almost $50 million guaranteed by its billionaire founder Maan al-Sanea.

The judgment in the case against Saad Trading Contracting & Financial Services was issued yesterday in London by Judge Nigel Teare. Saad was accused in a trial in July of defaulting on the January 2009 loan four months before the company said it would seek to restructure its debt during the global credit crunch.

Al-Sanea, deemed the world’s 62nd-richest person by Forbes Magazine in 2009, faces separate fraud claims by another Saudi company, Ahmad Hamad Algosaibi & Brothers Co., which alleges al-Sanea used fake documents to take out billions of dollars in loans in Algosaibi’s name. Al-Sanea denies the allegations.

Units of Saad Group and Algosaibi, both based in the Saudi oil city of Al-Khobar, defaulted after borrowing about $15.7 billion from more than 80 banks. Al-Sanea married into the Algosaibi family before founding Saad Group, which has businesses ranging from construction to health care.

Saad Group was also ordered to repay interest and at least 250,000 pounds ($386,000) in legal costs. A spokesman for the company wasn’t immediately able to comment.

“We will be seeking leave to appeal,” Saad Group’s London-based spokesman, Tim Robertson, said in an e-mail.

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Litigation Departments

Zuckerman Spaeder Hires as New York Crime Practice Grows

Zuckerman Spaeder LLP hired Andrew E. Tomback, formerly a partner at Milbank, Tweed, Hadley & McCloy LLP, as the law firm expands its New York white-collar criminal defense practice.

Tomback joins recent hires Steven M. Cohen, a former aide to New York Governor Andrew Cuomo, and defense attorney Paul Shechtman, in Washington-based Zuckerman Spaeder’s New York office, the firm said yesterday in a statement on its website.

On Oct. 3, Zuckerman Spaeder said it added Shechtman, a former director of criminal justice under Governor George Pataki. All three new hires are former federal prosecutors, the firm said.

Partner William W. Taylor III successfully defended Dominique Strauss-Kahn, the former director of the International Monetary Fund, who was accused of sexual assault and attempted rape by a hotel maid in New York. Manhattan prosecutors dropped the charges in August.

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Proskauer Rose Sued by Former CFO for Discrimination

Proskauer Rose LLP was sued for employment discrimination in New York by former Chief Financial Officer Elly Rosenthal, who accused the law firm of firing her after she took leave for breast cancer treatment.

Rosenthal, 57, of Colts Neck, New Jersey, who served as CFO from 1992 to 2008, filed the lawsuit in New York State Supreme Court in Manhattan yesterday, seeking $10 million in compensatory and punitive damages, according to the complaint.

Rosenthal was hired as CFO of the New York-based firm in 1992 and held the position until she was demoted to chief administrative financial officer in September 2008, she said in the complaint. She was fired in March 2011.

“After one of its most senior female employees worldwide was diagnosed with breast cancer and took cancer treatment leave, Proskauer Rose demoted and then terminated her,” Rosenthal’s attorney, David Sanford of Sanford Wittels & Heisler, said in a statement.

Josh Epstein, a spokesman for Proskauer, didn’t respond to a phone call and e-mail seeking comment on Rosenthal’s complaint.

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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