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BofA, Facebook, Morgan Stanley, Galleon, BP in Court News

Nov. 4 (Bloomberg) -- American International Group Inc. and other investors should be able to penetrate the “shroud of secrecy” that exists over negotiations leading up to Bank of America Corp.’s $8.5 billion mortgage-bond settlement, a lawyer for the insurance company said.

The institutions that negotiated the settlement -- Bank of America, Bank of New York Mellon Corp. and a group of institutional investors -- want to keep their communications confidential, said Dan Reilly, a lawyer for AIG, at a court hearing yesterday.

“We have many questions, and we need more information,” Reilly told U.S. District Judge William Pauley in Manhattan. Investors in the mortgage-bonds covered by the deal, he said, “should know whatever it is they’re trying to keep secret.”

Bank of America’s proposed $8.5 billion settlement would resolve a fight with investors in Countrywide Financial Corp. mortgage-bonds. Charlotte, North Carolina-based Bank of America acquired Countrywide in 2008. BNY Mellon, the trustee for the mortgage-bond trusts covered by the agreement, has sought court approval of the agreement.

The settlement has drawn criticism from some investors, including AIG. Others have filed objections seeking more information about the deal.

At yesterday’s hearing, Pauley said the exchange of evidence could proceed as Bank of New York seeks to appeal Pauley’s decision that the settlement should be reviewed in federal court and not state court.

Kevin Heine, a Bank of New York spokesman, declined to comment on the remarks by AIG’s lawyer. Kathy Patrick, a lawyer for the institutional investor group, and Lawrence Grayson, a Bank of America spokesman, didn’t respond to e-mails seeking comment on them.

The case is Bank of New York Mellon v. Walnut Place LLC, 11-cv-05988, U.S. District Court, Southern District of New York (Manhattan).

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Facebook Claimant Paul Ceglia Ordered Back to U.S. by Judge

Paul Ceglia, who claims he has a 2003 contract that gives him half of Facebook Inc. founder Mark Zuckerberg’s holdings, was ordered to return to the U.S. from Ireland to locate evidence in his case.

U.S. Magistrate Judge Leslie Foschio in Buffalo, New York, yesterday ordered Ceglia, who has been living in Ireland for several months, to return to the U.S. to search for removable computer storage devices he claims are no longer in his possession.

Foschio gave Ceglia until Dec. 2 to find and turn over the items or provide a sworn declaration explaining how he lost or disposed of them. Foschio also said Facebook may subpoena information from several providers for Web-based e-mail accounts used by Ceglia since 2003.

Dean Boland, who formally took over as Ceglia’s new lead lawyer in the case Oct. 21, said he welcomes Foschio’s order and that he and his client are working to provide the evidence requested by Facebook.

Ceglia claims that, sometime after the lawsuit was filed, Zuckerberg deleted some e-mails relating to the case from his Harvard University account.

Orin Snyder, a lawyer for Palo Alto, California-based Facebook, called the claim “delusional.”

Facebook, which owns the world’s biggest social-networking site, says Ceglia’s contract is phony and alleges he fabricated e-mails to support his claim.

In his suit, filed in June 2010, Ceglia claims he and Zuckerberg signed a contract in 2003 making them partners at the start of Facebook. Ceglia says he communicated with Zuckerberg in 2003 and 2004 using Internet-based e-mail accounts. He says he cut and pasted their correspondence into word-processing documents, which he printed and saved.

The case is Ceglia v. Zuckerberg, 1:10-cv-00569, U.S. District Court, Western District of New York (Buffalo).

Morgan Stanley Wins Narrowing of Singapore Investor Lawsuit

Morgan Stanley won a narrowing of claims in a lawsuit by Singapore investors who said the firm induced them to buy synthetic collateralized debt obligations that were designed to fail.

U.S. District Judge Leonard Sand on Oct. 31 granted the firm’s request to throw out the claims of negligent misrepresentation, breach of fiduciary duty, unjust enrichment, aiding and abetting. Sand, in New York, allowed other claims of fraud and breach of good covenant and good faith to continue.

Last year, a group of investors sued Morgan Stanley, the sixth-largest U.S. bank by assets, alleging it created collateralized debt obligations -- a debt security usually backed by bonds or corporate loans -- and failed to inform the investors that it was a counter-party to the agreements. For each dollar the investors lost, the bank gained a dollar, the investors said.

Sand said the plaintiffs “have pled what amounts to self-dealing by Morgan Stanley, insofar as Morgan Stanley was betting against, or ‘shorting’ the synthetic CDOs that it had itself created. The engineered frailty of the CDOs and Morgan Stanley’s positions on both sides of the deal adequately alleges motive.”

The judge said that New York-based Morgan Stanley hasn’t proffered evidence to suggest that investors were “placed on guard” and concluded the plaintiffs have shown sufficient evidence that they acted reasonably in relying upon the firm’s statements.

The case is Dandong v. Pinnacle Performance Limited, 10-CV-8086, U.S. District Court, Southern District of New York (Manhattan).

Saudi Sheikh Says Bank Owes Him for Unauthorized Trades

Saudi Arabia’s third richest man filed a counterclaim in his fight with Standard Bank Group Ltd. over unpaid loans, accusing the South African lender of allowing unauthorized trading from a personal account.

Standard Bank’s U.K. unit is suing Sheikh Mohamed bin Issa al Jaber in London seeking repayment of $150 million in loans to companies in his MBI International & Partners Inc. group. The Johannesburg-based bank says al Jaber personally guaranteed the debt.

Al Jaber’s lawyers said in an Oct. 31 counterclaim that the bank had an agreement with his personal adviser, Salim Khoury, which represented a conflict of interest. The bank let Khoury breach foreign-exchange trading limits, then loaned him money to cover the losses, al Jaber’s lawyers said in the documents. Damages owed by Standard Bank to the Sheikh wipe out the $150 million debt, the lawyers said.

“Sheikh Mohamed is determined to defend his business, and for the truth surrounding the actions of the bank and the alleged targeting of his personal adviser to be known,” his spokesman Neil McLeod said in an e-mailed statement yesterday.

At a court hearing last week, al Jaber said he had lost more than 1 billion pounds ($1.6 billion) because of the dispute with Standard Bank.

“The Sheikh has, through the course of his defense of the proceedings, raised a number of allegations,” Janice Garraway, a spokeswoman for Standard Bank, said in an e-mailed message. “The bank considers that these allegations, and any counterclaim said to arise as a result, are entirely without merit.”

For the latest lawsuits news, click here.


Abramovich Says He Feared Russia’s Murderous Aluminum Trade

Billionaire Roman Abramovich had to be persuaded to invest in Russian aluminum plants in 2000 because “every three days someone was murdered in that business,” he told a London court.

Abramovich, testifying in the $6.8 billion legal fight with his former business partner Boris Berezovsky, said he got into the aluminum business in spite of worker disputes and the presence of criminal gangs after being pressured by Badri Patarkatsishvili, an associate of Berezovsky.

“I didn’t want to have anything to do with a business like that without Badri,” the 45-year-old billionaire owner of Chelsea Football Club said. “I wouldn’t have poked my nose in there.”

Abramovich was part of a group who bought the assets, including one of the largest aluminum smelters in the world, for around $550 million in 2000. Berezovsky says Abramovich could never have taken part in that deal without his help and political connections and that he wasn’t paid enough for his stake in the business. The aluminum assets eventually became part of what is now United Co. Rusal.

Berezovsky claims in his lawsuit that Abramovich bullied him into selling his stakes in Russian oil and metal companies, including OAO Sibneft, for far below their real value by telling him the government would seize his shares if he didn’t sell. The London trial has provided insight into how two of the world’s richest men made their fortunes in the chaos following the collapse of communism, and how their friendship soured after Berezovsky fled Russia in 2000.

In witness statements filed at court, Abramovich argued Berezovsky’s role had been to provide “krysha,” or protection, in the “dangerous and risky” environment of Russia after the fall of communism, and that he held no shares.

He said he paid Berezovsky and Patarkatsishvili hundreds of millions of dollars for physical and political protection before eventually giving them $1.3 billion in 2001 and 2002 to break off the arrangement.

The case is: Berezovsky v. Abramovich, High Court of Justice, Queen’s Bench Division, Commercial Court Case No. 09-1080.

For more, click here.

For the latest trial and appeals news, click here.

New Suits

BNP Paribas Unit Sued by Madoff Trustee for $1 Billion

A BNP Paribas SA unit was sued by the trustee liquidating Bernard Madoff’s former investment firm for almost $1 billion in redemptions by a feeder fund of the con man’s scheme that was transferred to the bank.

The Cayman Islands-based feeder fund, Harley International Ltd., transferred about $975.5 million to BNP Paribas Arbitrage, trustee Irving Picard said in a complaint filed yesterday in U.S. Bankruptcy Court in Manhattan. Picard said he won a default judgment for more than $1 billion against Harley last year but hasn’t recovered any money from the judgment.

Madoff, who pleaded guilty to fraud charges, is serving 150 years in prison for the largest Ponzi scheme in U.S. history. Investors lost about $20 billion in principal, Picard has said. JPMorgan Chase & Co. on Nov. 1 won dismissal of $19 billion in claims by Picard, who sought common-law fraud damages on behalf of Madoff customers, claiming the bank aided in the fraud.

Antoine Sire, a spokesman for Paris-based BNP Paribas, didn’t respond to an e-mailed request seeking comment on the complaint after regular business hours.

The case is Irving Picard v. BNP Paribas Arbitrage, 11-2796, U.S. Bankruptcy Court, Southern District of New York (Manhattan.)

Allied Home Mortgage Founder Sues HUD for Halting Privileges

Allied Home Mortgage Corp. sued the U.S. Department of Housing and Urban Development for suspending the firm’s ability to write Federal Housing Authority-insured home loans.

Allied and James C. Hodge, founder and chief executive officer of the Houston-based firm, sued HUD Secretary Shaun Donovan and the agency after federal authorities sued Allied and Hodge on Nov. 1 for alleged fraudulent lending practices.

The same day the U.S. sued Allied, HUD suspended the firm’s ability to participate in FHA-insured mortgage loans. That suspension will wipe out 70 percent of Allied’s business, Hodge claimed in his lawsuit filed yesterday in federal court in Houston.

“The immediate suspension of authority to originate and underwrite loans will effectively kill Allied Corp. as an ongoing business,” Kent Altsuler, Hodge’s lawyer, said in the filing.

The government action will also cause Allied’s warehouse financing lines of credit to be terminated, according to the new lawsuit.

“This means that Allied Corp. will not only be unable to originate FHA-insured mortgage loans, but Allied will also be unable to originate any sort of mortgage loans -- whether FHA-insured or not,” Altsuler said.

The government claims one-third of the 112,324 loans originated by Allied from 2001 through 2010 defaulted, forcing HUD to pay $834 million in insurance claims, according to its lawsuit, which was filed in federal court in New York.

“Allied has profited for years as one of the nation’s largest FHA lenders by engaging in reckless mortgage lending, flouting the requirements of the FHA mortgage insurance program and repeatedly lying about its compliance,” the U.S. said in its complaint. “In the past decade, Allied has originated loans out of hundreds of branches it never disclosed to HUD.”

The case is Allied Home Mortgage Corp. v. Donovan, 4:11-cv-3864, U.S. District Court, Southern District of Texas (Houston). The related case is U.S. v Allied Home Mortgage Corp., 11-cv-5443, U.S. District Court, Southern District of New York (Manhattan).

For more, click here.

California Hospitals Sue State, U.S. to Block Medi-Cal Cuts

Hospitals in California sued the state and the U.S. Department of Health and Human Services to block cuts to government reimbursements for health-care providers that serve low-income people.

The cuts of more than 20 percent, including for skilled nursing services, resurrect previous reductions that the courts have found to be in violation of the federal Medicaid Act, the California Hospital Association said in a complaint filed Nov. 1 in Los Angeles. The lobby group, which represents dozens of hospitals in the state including St. Jude Medical Center and Shriners Hospitals, seeks a court order that the new cuts are unlawful.

“With the action being challenged here, the state has effectively rolled three unlawful cuts and limitations into one, and then cut the rates even further for good measure, all in the name of budgetary savings,” lawyers for the hospital group said in the complaint.

The California Department of Health Care Services said Oct. 27 that the federal Centers for Medicare and Medicaid Services approved the state’s proposal to reduce Medi-Cal reimbursement rates. The cuts are part of state’s 2011-12 budget and represent $623 million in savings, according to the California department’s Oct. 27 statement.

Norman Williams, a spokesman for the California Department of Health Services, said in a phone interview yesterday that the agency doesn’t comment on pending litigation. The department submitted an analysis to CMMS that showed the reductions would allow sufficient access for beneficiaries and it will monitor access after the cuts are implemented, Williams said.

The case is California Hospital Association v. Toby Douglas, 11-9078, U.S. District Court, Central District of California (Los Angeles).

For more, click here.

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


Rajaratnam Should Pay More Fines After Conviction, SEC Says

Galleon Group LLC co-founder Raj Rajaratnam should pay more penalties even though he’s already been sentenced to 11 years in prison and fined for insider trading, the U.S. Securities and Exchange Commission said.

Rajaratnam, 54, was ordered to pay a $10 million fine and forfeit $53.8 million at his Oct. 13 sentencing by the federal judge who presided over his criminal trial. He has argued he shouldn’t have to pay any more fines to the SEC because he has “already suffered enormous financial consequences.”

Regulators, who sued Rajaratnam after his 2009 arrest, have said his charitable works shouldn’t be considered in calculating a civil penalty. While his philanthropic activities were taken into consideration for reducing his prison sentence, they are “unpersuasive” in the civil action, the SEC said yesterday in federal court in Manhattan.

“The commission asks that the court primarily consider Rajaratnam’s conduct for which he was convicted, the effects of which ripple beyond the profit gained/losses avoided by Rajaratnam,” Valerie Szczepanik, a lawyer for the SEC, said in the filing. “Rajaratnam’s crimes were serious and wrongful, he continues to refuse to accept responsibility for them.”

U.S. District Judge Jed Rakoff, who is presiding over the SEC case, told lawyers at an Oct. 28 hearing that he expected to issue a ruling on the matter by Nov. 7.

Rajaratnam’s lawyers disputed the government’s calculation of how much money he earned as a result of the securities fraud and insider tips he received from friends. His lawyers argue that Galleon investors reaped the “majority of the ill-gotten gains” and that he personally only profited by $4.7 million.

The case is SEC v. Rajaratnam, 09-CV-8811, U.S. District Court, Southern District of New York (Manhattan).

BP Unit to Pay Texas $50 Million in Pollution Settlement

BP Products North America Inc. agreed to pay $50 million to Texas to settle enforcement actions claiming the company violated environmental protection laws at its Texas City refinery, the state attorney general said.

Texas alleged the BP Plc unit emitted pollutants during and after a March 2005 explosion at the refinery. The blast, set off when a refinery unit that boosts octane in gasoline overflowed and ignited in a fireball, killed 15 and injured hundreds.

“The proposed agreement resolves the state’s enforcement actions against BP Products for unlawful pollutant emissions at its Texas City refinery,” Texas Attorney General Greg Abbott said yesterday in a press release. The agreement “reflects the state’s commitment to protecting air quality and holding polluters accountable for illegal emissions,” he said.

Abbott sued BP in 2009, alleging violations of state environmental laws in connection to the 2005 explosion. The state later added allegations of additional violations covering emissions in 2010, the attorney general said yesterday.

The agreement “is an important milestone in the progress of operations” at the Texas City refinery, Daren Beaudo, a BP spokesman, said in an e-mail. “BP has made major investments in our people, our plant and our processes to modernize the Texas City refinery, and we have an ongoing program of continuous improvement to further enhance plant safety and environmental compliance.”

BP previously paid a $50 million fine and pleaded guilty to one violation of the federal Clean Air Act to resolve U.S. claims over the 2005 explosion. The company also paid about $180 million in 2009 to settle civil allegations of clean air violations brought by the U.S. Department of Justice and Environmental Protection Agency.

The case is State of Texas v. BP Products North America Inc., D-1-GV-09-000921, District Court, Travis County, Texas (Austin).

For the latest verdict and settlement news, click here.

Litigation Departments

Justice Dept. Won’t Probe Ex-SEC Official Becker, Lawyer Says

Federal prosecutors have told former U.S. Securities and Exchange Commission General Counsel David Becker that they won’t open an investigation into whether he violated ethics laws, his attorney said.

The SEC’s inspector general, H. David Kotz, in September called for the Justice Department to review whether Becker should be criminally charged for having a financial interest in a policy he worked on relating to the Bernard Madoff Ponzi scheme. Becker inherited profits from the fraud through an account held by his late mother.

“We are gratified at the decision, and it’s consistent with our view that Mr. Becker did exactly what he was supposed to do under the circumstances,” Becker’s attorney, William Baker III, said in an interview yesterday.

Becker, who left the agency in February to return to private legal practice, has said he had no financial interest in the SEC’s Madoff policy. He had received clearance from the SEC’s ethics counsel to work on the matter in 2009. He had also informed SEC Chairman Mary Schapiro about the matter.

A Justice Department spokeswoman and Kotz didn’t respond to requests for comment.

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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