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UBS, Commercial Bank, Microsoft, Wal-Mart in Court News

Updated on

Kweku Adoboli, the trader accused of costing UBS AG $2.3 billion by making unauthorized trades, falsified records on exchange-traded-fund transactions, prosecutors said.

Prosecutors amended two of the four charges against Adoboli to indicate that records he allegedly falsified were on ETF trades. A London magistrates court yesterday transferred the case against the 31-year-old to a criminal court where he will be expected to enter a plea on the accusations at a Nov. 22 hearing.

The charges, which also include two counts of fraud and date back to 2008, cover “a large number of transactions,” prosecutor David Williams said at the hearing yesterday. “He exposed the bank to risk of large losses.”

Adoboli has been in custody since his arrest on Sept. 15, when UBS asked the City of London police to detain him after he reported the losses. He was charged two days later with fraud and false accounting. The trading loss prosecutors claim he was responsible for led to the departures of Chief Executive Officer Oswald Gruebel and the co-heads of the Swiss bank’s global equities business. Adoboli was fired by the bank on Sept. 17, Williams said.

ETFs are exchange-listed products that mirror indexes, commodities, bonds and currencies and allow investors to buy and sell them like stocks.

Adoboli, who holds a Ghanaian passport, appeared before a panel of three judges yesterday and his lawyer Patrick Gibbs said he wouldn’t indicate how his client planned to plead. He said through his lawyer at a hearing last month he was “sorry beyond words” for his “disastrous miscalculations.”

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SEC Cases Bypass Top Executives, Target Employees for Negligence

A central piece of evidence against Citigroup Inc. that led to a $285 million settlement with the Securities and Exchange Commission is an e-mail message from a former employee to his supervisor, Bloomberg News’ Joshua Gallu and Jesse Hamilton report.

“Don’t tell” a counterparty that Citigroup is shorting the security, former employee Brian Stoker wrote in 2006 to his unnamed supervisor. The agency sued Stoker, saying he was responsible for structuring the deal in which Citigroup failed to disclose that it had chosen about half the assets and was betting they would decline in value. No charges were announced against the supervisor.

That detail highlights a pattern in SEC enforcement cases that is drawing criticism from lawyers and lawmakers: Even as the agency has collected $2 billion in penalties from financial firms for wrongdoing related to the 2008 financial crisis, few top executives have been sanctioned, particularly in connection with complex instruments like collateralized-debt obligations.

“It’s very good to hold a corporation responsible, but these corporations are run by people,” Representative Michael Capuano, a Massachusetts Democrat and senior member of the House Financial Services subcommittee on investigations, said in an interview. “It’s impossible for me to believe” a firm would allow an individual to make deals without supervision that later “are found to be so beyond the pale that someone has to pay hundreds of millions of dollars in punishment.”

Stoker’s attorney, Fraser Hunter, said his client will “defend this lawsuit vigorously.”

The SEC has faced growing criticism from investors, lawmakers and judges who have claimed the agency has been more concerned about reaching expedient settlements with companies than rooting out wrongdoing by individuals that may have contributed to the 2008 financial crisis.

SEC officials have countered that many of the causes of the financial crisis involved poor decision-making that might not qualify as illegal.

“Let’s keep in mind that obviously not all losses in the financial crisis resulted from fraud and misconduct,” SEC Enforcement Director Robert Khuzami said Oct. 19 in an interview with Bloomberg Television. “We can’t sue people based on poor judgment or poor risk-management policies or procedures or investments that perform badly.”

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Failed Bank’s Shabudin, Yu Plead Not Guilty in Fraud Case

Former United Commercial Bank executives Ebrahim Shabudin and Thomas Yu pleaded not guilty to hiding loan losses from auditors and investors in the failed San Francisco-based bank.

Shabudin, a former chief credit officer, and Yu, a former credit risk manager, were charged by federal prosecutors with six counts. The pair and Thomas Wu, the bank’s former chief executive officer, were also sued by the U.S. Securities and Exchange Commission and accused of hiding $65 million in loan losses before the bank collapsed.

Shabudin and Yu were the first senior bank officials charged with fraud at a financial institution that got money from the government’s Trouble Assets Relief Program, known as TARP. The program was meant to shore up financial institutions hit with losses from mortgage-backed securities.

United Commercial received $298 million from TARP in November 2008 after Yu and Shabudin manipulated books and records to conceal the amount of bad loans and avoid publicly reporting losses, according to a Sept. 15 indictment.

The bank failed in November of that year and was taken over by the government, which has paid out $397 million. The failure has cost the Federal Deposit Insurance Corp.’s insurance fund $2.5 billion, the SEC said in its complaint. No TARP funds have been repaid.

Shabudin and Yu were released yesterday after the judge ordered them each to post a $500,000 property bond. The next court hearing is scheduled for Nov. 4.

The criminal case is U.S. v Shabudin, 3:11-cr-00664, U.S. District Court, Northern District of California (San Francisco). The SEC case is Securities and Exchange Commission v. Wu, 4:11-cv-04988, U.S. District Court, Northern District of California (Oakland).

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Two Oil Traders Admit Kickbacks to Ex-LyondellBasell Worker

Two oil traders pleaded guilty to paying more than $20 million in kickbacks to a former LyondellBasell Industries NV executive who scheduled oil shipments for the company’s Houston refinery.

Traders Bernard Langley, 54, of the U.K., and Clyde Meltzer, 65, of Houston and Livingston, New Jersey, said in federal court in Houston that they paid the kickbacks to LyondellBasell’s Jonathan Barnes, according to a statement by the U.S. attorney’s office. Barnes agreed to pay above-market shipping rates to tanker companies controlled by the two traders to transport Venezuelan crude oil to Houston, in exchange for one-third of the profits the traders received, prosecutors said.

“From 2007 through late 2009, when new management at Lyondell discovered the overcharges, Langley and Meltzer used Swiss bank accounts to pay Barnes more than $20 million in kickbacks,” Houston U.S. Attorney Kenneth Magidson said in the statement.

Langley and Meltzer agreed to forfeit more than $20 million in assets, including cash from bank accounts in Switzerland and Monoco, luxury and classic cars, jewelry, real estate in Texas and Florida, and their investment in a Houston sports bar, according to Magidson.

Langley and Meltzer could be sentenced to as much as 20 years in prison and ordered to pay restitution of as much as $57 million when they are sentenced in January, according to Magidson’s statement. The two men have been in federal custody since December, when both were arrested in Houston after a recorded meeting with Barnes.

Barnes was indicted in November of last year and has been cooperating with prosecutors. He pleaded guilty to his role in the scheme in March, according to court records.

“We found a problem, we reported it, and we worked closely with the U.S. attorney’s office in Houston to identify what had happened,” David Harpole, a spokesman for Rotterdam-based LyondellBasell, said in a phone interview yesterday. He said the company discovered the kickbacks when an internal audit “raised questions about certain marine charter payments that were outside the norms.”

The case is U.S. v. Barnes, H-10-787-S, U.S. District Court, Southern District of Texas (Houston).

For the latest lawsuits news, click here.

New Suits

Microsoft Sued by MiniFrame Over Alleged Unfair Competition

Microsoft Corp., the world’s largest software maker, was sued by Israel-based MiniFrame Ltd. for allegedly offering anticompetitive terms for multiserver operating systems.

MiniFrame said Microsoft uses its monopoly on the client operating-system market to interfere with potential partners and customers. Before 2007, Microsoft didn’t include any restrictions in its licenses that would prevent multiple users, MiniFrame said in a complaint filed yesterday in Manhattan federal court.

MiniFrame alleges that Redmond, Washington-based Microsoft is attempting to retain its monopoly on the server operating-system market and the client operating-system market and is attempting to monopolize the personal-computer sharing software market and the multiuser software market.

“Microsoft recognized the competitive threat which shared PC systems posed and engaged in several anticompetitive strategies in order to ensure that it will maintain or otherwise have a monopoly for any multiuser market, whether it be the server operating system market, the PC sharing software market, or the combination of the two markets,” MiniFrame said.

MiniFrame said there no technological reason multiple users can’t access or use the same Windows Client Operating System at the same time.

A Microsoft representative didn’t return a voice-mail message seeking comment about the complaint.

The case is MiniFrame v. Microsoft Corp. 11-CV-7419, U.S. District Court, Southern District of New York (Manhattan).

Wedbush Lawsuit Says Ex-Employees Took Secrets to Liquidnet

Wedbush Securities Inc. sued two former employees and trading platform Liquidnet Holdings Inc., accusing them of taking customer lists, documents and disclosures from the firm.

The suit accuses New York-based Liquidnet, used by institutional investors to buy and sell large blocks of shares, and the ex-employees, Louis Kerner and Michael Silverstein, of working together to take proprietary information from Wedbush in order to start the same business at Liquidnet.

Liquidnet said on Oct. 17 that it hired Kerner to run a new group focused on private companies, and that he would be joined by Silverstein. Wedbush filed the lawsuit yesterday in New York State Supreme Court in Manhattan.

“Kerner, Silverstein and Liquidnet engaged, and continue to engage, in the premeditated taking and misappropriation of certain of Wedbush’s most valuable trade secret and confidential and proprietary information,” Wedbush said in the complaint.

Liquidnet received the lawsuit and is reviewing it closely, Melissa Kanter, a spokeswoman for the company, said in an e-mail. She declined to comment further on the complaint.

Kerner began working for Los Angeles-based Wedbush in its New York office in April 2010 and had been managing director of its Private Shares Group since March, while Silverstein began working in Wedbush’s Los Angeles office in February and had been reporting to Kerner and others since April, Wedbush said in the complaint.

Kerner called a Wedbush managing director on Oct. 16 and told him that he and Silverstein would be joining a competitor the next day, Wedbush said in the complaint. The managing director, Cyrus Pirasteh, reminded Kerner of his confidentiality obligations, and Kerner replied that the Private Shares Group’s clients belonged to him and that Wedbush could speak to his lawyers if the firm had “a problem with that,” according to the complaint.

The case is Wedbush Securities Inc. v. Liquidnet Inc., 652875/2011, New York State Supreme Court (Manhattan).

For more, click here.

Ex-Louis Berger Group President Charged With False Claims

The former president and chief executive officer of Louis Berger Group Inc., a New Jersey engineering consulting firm, was charged with overbilling the U.S. government on overseas reconstruction projects.

Derish Wolff, 76, was accused of conspiring to defraud the U.S. Agency for International Development by inflating overhead and other indirect costs over almost two decades on hundreds of millions of dollars in contracts in Iraq and Afghanistan. He surrendered yesterday to the Federal Bureau of Investigation in Newark, New Jersey.

“During decades at the helm of a company entrusted with the rebuilding of battle-scarred nations Derish Wolff focused on profits over progress,” U.S. Attorney Paul Fishman said in a statement. “Wolff allegedly used his position to lead others in the scheme, setting targets that could be reached only through fraud.”

The indictment follows an agreement by the company on Nov. 5 to pay $69.3 million to resolve criminal and civil probes related to overbilling for reconstruction contracts in Iraq and Afghanistan and other work. Two former executives also pleaded guilty that day in federal court in Newark.

Wolff was charged with conspiring with Salvatore Pepe, the former chief financial officer, and Precy Pellettieri, the former controller, who admitted to conspiring to defraud USAID. The Wolff indictment, unsealed yesterday, doesn’t specify a specific amount of loss by the government.

Wolff, a resident of Miami and Bernardsville, New Jersey, appeared in federal court in Newark, where he was released on $1 million bail. He faces as long as 10 years in prison on the conspiracy charge and five years on each of five counts of filing false claims.

“Mr. Wolff intends to plead not guilty because he is not guilty, and he looks forward to establishing it in court,” his attorney, Herbert Stern, said in a phone interview.

The case is U.S. v. Wolff, U.S. District Court, District of New Jersey (Newark).

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


Wal-Mart’s Massmart Purchase Faces South Africa Court Appeal

South African government lawyers urged the Competition Appeal Court to compel regulators to review a decision allowing Wal-Mart Stores Inc. to buy control of Massmart Holdings Ltd., saying they failed to adequately consider the public interest.

The Competition Tribunal ruled on May 31 that the world’s biggest retailer could proceed with the deal on condition no jobs are cut for two years and the companies set up a 100 million-rand ($12.4 million) fund to assist local suppliers and manufacturers. The government objected, saying the conditions were inadequate to protect the economy and prevent a surge in imports undermining manufacturing output.

“The question before court is whether the merger can or cannot be justified on public-interest grounds,” Wim Trengove, the government’s senior counsel, told the court yesterday. “The tribunal erred” by failing to place the onus on the companies to prove they wouldn’t increase imports and destroy jobs.

Wal-Mart, based in Bentonville, Arkansas, paid 16.5 billion rand in June for a 51 percent stake in Massmart, South Africa’s biggest food and general-goods wholesaler. The U.S. company outlined plans on June 26 to create 15,000 jobs in South Africa within five years and allocate most of an expected 60 billion rand in additional purchases of food or fast-moving consumer goods to local suppliers in that period.

In court papers filed on July 20, Economic Development Minister Ebrahim Patel, Trade and Industry Minister Rob Davies and Forestry and Fisheries Minister Tina Joemat-Pettersson said the transaction should be reconsidered because the tribunal’s hearings were flawed.

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For the latest trial and appeals news, click here.


Mattel Wins Dismissal of MGA Entertainment’s Antitrust Lawsuit

Mattel Inc. won dismissal of an MGA Entertainment Inc. lawsuit accusing it of antitrust violations related to the fight between the two companies over MGA’s Bratz dolls.

U.S. District Judge David Carter in Santa Ana, California, said in yesterday’s ruling that MGA’s claims against Mattel should have been, or might have been, raised in earlier lawsuits. Carter, saying it didn’t “appear impossible for MGA to allege anticompetitive conduct” after a cutoff date in August 2010, gave the company until Nov. 11 to file an amended complaint to make those claims.

MGA said in its antitrust complaint filed in February that it sought $1 billion in damages and asked that the amount be tripled for the alleged antitrust violations. The Van Nuys, California-based company accused Mattel and Chief Executive Officer Robert Eckert of embracing a “litigate MGA to death” strategy.

Susan Hale, an MGA spokeswoman, didn’t immediately return phone and e-mail messages seeking comment on the ruling after regular business hours yesterday.

The case is MGA Entertainment v. Mattel, 11-01063, U.S. District Court, Central District of California (Los Angeles.)

Pfizer Settles Whistle-Blower Suit Over Detrol Marketing

Pfizer Inc. agreed to pay $14.5 million to settle a lawsuit brought by two whistle-blowers who claimed the company improperly marketed its bladder-control drug Detrol.

The whistle-blowers, former sales representatives David Wetherholt and Marci Drimer, sued Pfizer in federal court in Boston in 2006, claiming the company cheated Medicaid, the state-administered, federal health-care program for low-income people, by pushing Detrol for a prostate condition. The suit was filed under the False Claims Act on behalf of the U.S. and multiple states.

Pfizer will pay $14.5 million to the U.S. government, 49 states and the District of Columbia, Thomas M. Greene, a lawyer for the whistle-blowers, said yesterday in a statement. The ex-Pfizer employees will receive 27 percent of the federal portion of the recovery, or about $3.3 million, he said.

“The plan to market Detrol off-label to new patient populations was hatched by a marketing team, not by research and development,” Greene said in an interview. “Instead of asking, ‘Who will Detrol help?’ or even, ‘How does Detrol work?’ the question became, ‘Who can we convince to buy Detrol?’”

Pfizer denied any wrongdoing. The New York-based company settled the lawsuit on “favorable terms,” it said yesterday in a statement.

“This settlement allows Pfizer to avoid the cost and distraction of litigation and put this matter behind us,” the company said.

The U.S. declined to intervene, or join, the Detrol lawsuit in 2009. The whistle-blowers pursued the claim on their own after that decision, Greene said.

Wetherholt and Drimer also alleged Pfizer forced them out after they complained about marketing practices. Greene declined to comment on whether their claims of wrongful termination were settled.

Wetherholt and Drimer will also receive an undetermined amount from the $2.62 million portion of the settlement shared by the states, Greene said.

“They will receive a percentage of the state settlements for those states with false claims acts,” he said.

The case is U.S. ex. rel. Wetherholt v. Pfizer Inc., 06-10204, U.S. District Court, District of Massachusetts (Boston).

EDF Aid Appeal Should Be Reviewed, EU Court Adviser Says

Electricite de France SA, Europe’s biggest power producer, may lose a case over more than 1.2 billion euros ($1.65 billion) in French government aid if the European Union’s top court follows its adviser’s opinion.

Advocate General Jan Mazak of the EU Court of Justice said yesterday in a non-binding opinion that a lower court made errors in a 2009 ruling in favor of EDF and it should re-examine the case.

The EU’s executive agency is challenging a court’s ruling in December 2009 overturning its decision that aid EDF received from France was unlawful. The EU General Court, the region’s second-highest court, at the time said the European Commission’s analysis of the subsidies was flawed.

The commission ordered the Paris-based utility in 2003 to pay 889 million euros in back taxes plus interest due since 1997, when EDF booked a tax concession related to its ownership of France’s high-voltage electricity network. EDF repaid France more than 1.2 billion euros.

EDF appealed to the EU court in 2004 arguing the commission made mistakes and forced a repayment far greater than what was due. The commission checks whether government aid distorts competition in the 27-nation EU.

The advocate general yesterday said the EU General Court improperly assessed how the commission should have examined the state aid to EDF.

“EDF takes note of the advocate general’s opinion which doesn’t prejudge the final ruling of the court, which is expected in 2012,” a spokeswoman for EDF said by telephone yesterday.

The commission “notes with interest the opinion of the Advocate General” and waits for the court’s ruling, according to Amelia Torres, a spokeswoman for EU Competition Commissioner Joaquin Almunia.

The case is C-124/10, Commission v. EDF.

Ex-Le-Nature’s Chief Executive Officer Sentenced to 20 Years

Former Le-Nature’s Inc. Chief Executive Officer Gregory J. Podlucky was sentenced to 20 years in prison for fraud, tax evasion and money-laundering related to the 2006 collapse of the bottled-water company.

Podlucky was the mastermind behind a scheme that cost lenders, shareholders and others $684.5 million, Assistant U.S. Attorney James Y. Garrett said in court papers filed yesterday. Podlucky was sentenced yesterday in U.S. District Court in Pittsburgh to the maximum allowed under a plea agreement, Garrett said in an interview.

“Whether or not defendant’s conduct should be deplored as evil, the ingenuity, industry and magnitude of his extraordinary crimes are plain to see,” Garrett said in court papers.

Podlucky’s brother Jonathan and at least three other Le-Nature’s employees also pleaded guilty to charges related to the fraud, according to court papers.

Alexander H. Lindsay Jr., Podlucky’s attorney, didn’t return a call for comment on the sentence.

The case is U.S. v. Podlucky, 2:09-cr-00279, U.S. District Court, Western District of Pennsylvania (Pittsburgh).

For the latest verdict and settlement news, click here.

Litigation Departments

Lawsky Juggles Conflicting Roles as Financial Cop in N.Y.

Ben Lawsky, the first person to head New York’s newly established Financial Services Department, said he’ll be juggling conflicting roles of enforcer and promoter as he oversees the state’s banks and insurance companies.

“Being a better consumer-protection agency and fraud detector, while keeping New York the financial center of the world, aren’t necessarily contradictory,” Lawsky, 41, said during an interview in his office in lower Manhattan. “But doing this well requires a delicate balance that’s hard to achieve.”

New York Governor Andrew Cuomo initially proposed investing Lawsky’s department with powers comparable to those of the state attorney general. The idea got scaled back, though the legislature did give Lawsky oversight of new financial products that fall outside the jurisdiction of existing regulations. That was designed to counter what Lawsky called Wall Street’s history of devising products that circumvent regulation.

“This is designed for the future,” Lawsky said. “We will have oversight of products intentionally designed to be neither fish nor fowl, where they’re not a commodity, not a security and not insurance -- products designed to fall into regulatory gaps.”

Lawsky, who will monitor about 4,400 financial companies managing more than $6.2 trillion in assets, is “a prosecutor at heart” who will take an aggressive approach, said Neil Barofsky, the former special inspector general for the Troubled Assets Relief Program and an ex-colleague.

A former assistant U.S. attorney, Lawsky also spent four years as the top financial crimes prosecutor for then-New York Attorney General Cuomo, and was in the thick of Cuomo’s effort to force banks that received taxpayer bailouts to disclose sensitive information about bonus payments.

Lawsky led the probe into $3.6 billion in bonuses Merrill Lynch & Co. gave executives as Bank of America Corp. acquired the company. As Cuomo’s special assistant, he was the prime mover behind the ongoing lawsuit filed in early 2010 accusing former Bank of America Chief Executive Officer Ken Lewis of misleading shareholders and government officials about Merrill’s financial condition.

For more, click here.

For the latest litigation department news, click here.

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