Citigroup Inc. was accused of fraud by Moneygram Payment Systems Inc., the electronic cash-transfer business, in a lawsuit seeking to recover an alleged $140 million in collateralized debt obligation losses.
The bank and two of its units, Citigroup Global Markets Inc. and Citigroup Global Markets Ltd., undertook a “fraudulent scheme” to sell nine mortgage-related CDOs to Moneygram from 2005 to 2007, according to a complaint filed Oct. 26 in state court in Minneapolis. Citigroup allegedly marketed the CDOs as investment grade.
“In reality, however, the CDOs that Citi sold to Moneygram were ‘junk’ on the very day that Citi sold them,” according to the complaint. The CDOs weren’t backed by the promised overcollateralization of assets, Minneapolis-based Moneygram said.
The third-biggest U.S. lender, Citigroup last month agreed to pay $285 million to settle U.S. regulatory claims that it misled investors about the nature of a $1 billion collateralized debt offering in 2007.
“We believe the suit is without merit,” Danielle Romero-Apsilos, a spokeswoman for New York-based Citigroup, said in an e-mail.
The case is Moneygram Payment Systems Inc. v. Citigroup Inc., 27cv11-21348, Hennepin County, Minnesota, District Court (Minneapolis).
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AT&T to Get Updated Sprint Data in T-Mobile Case, Court Rules
AT&T Inc. must be provided by Sprint Nextel Corp with updated internal documents relevant to its defense against a U.S. antitrust lawsuit seeking to block its purchase of T-Mobile USA Inc.
Sprint must turn over all documents requested by AT&T that the company hasn’t already given the Justice Department, including data on Sprint’s recent addition of Apple Inc.’s iPhone, U.S. Special Master Richard Levie in Washington said in a ruling Nov. 6. Levie said Sprint must give AT&T the data it seeks by Nov. 21.
“AT&T is entitled to discover what effect the iPhone and other events of the past few months have had on Sprint’s relevant market share, a part of the government’s” case, Levie said, adding that the documents Sprint gave the Justice Department are more than six months old.
AT&T in a filing last week in U.S. District Court listed 47 areas of interest, including whether Sprint had any plans for a “business combination” with T-Mobile if the AT&T transaction is blocked. AT&T says it needs the documents to defend against the Justice Department’s suit to stop the $39 billion transaction.
Levie noted in his ruling yesterday that 29 requests had remained in dispute between the companies. Of those, 11 involved supplementing information Sprint gave to the Justice Department to include data from May to the present. Three requests also seek data from May 2009 to April 2010 regarding Sprint’s wireless-plan pricing and “specialized customers.”
Levie also said Sprint must turn over any information given to the Federal Communications Commission regarding the T-Mobile deal that hadn’t been given to the Justice Department.
AT&T also requested Sprint’s analysis of the merger and information on Sprint’s bids for government contracts over the past three years, the identities of Sprint’s business and government customers, and the number and location of proposed cell sites that Sprint planned at some point to deploy and abandoned.
Sprint urged Levie to throw out AT&T’s subpoenas, saying its rival’s requests are “overlapping” and “burdensome.” Levie, who is handling decisions on document exchanges in the case, told Dallas-based AT&T last month to remove from its request any documents Sprint already provided to the Justice Department.
John Taylor, a spokesman for Overland Park, Kansas-based Sprint, declined to comment on the ruling.
Michael Balmoris, a spokesman for AT&T, didn’t respond to an e-mail message seeking comment on the ruling.
U.S. District Judge Ellen Segal Huvelle, who will decide the case, has scheduled the trial for February.
The case is U.S. v. AT&T Inc., 11-01560, U.S. District Court, District of Columbia (Washington).
Louisiana Won’t Face Penalties, Dismissal of BP Spill Claims
Louisiana won’t face penalties and possible dismissal of its 2010 oil-spill damage claims after complying with a court order to turn over state records to BP Plc, a federal judge said.
U.S. District Judge Carl Barbier of New Orleans said Nov.4 in a one-page ruling that Louisiana “has certified to the court” that it has turned over all applicable spill documents sought by BP for use in the first phase of litigation over the worst offshore oil spill in U.S. history.
U.S. Magistrate Judge Sally Shushan last week threatened to fine the state as much as $2,500 a day if officials didn’t produce the documents by Nov. 3. Shushan also said she would increase the fines and might dismiss all of Louisiana’s environmental and economic-damage claims from the spill if the state missed further deadlines.
BP faces at least 350 lawsuits by coastal businesses and property owners for damages caused by more than 4.1 million gallons of crude oil that leaked from its Gulf of Mexico well last year. Louisiana has sued London-based BP for millions of dollars in environmental and economic damages and seeks pollution fines of at least $1 million a day.
The case is In Re: Oil Spill by the Oil Rig Deepwater Horizon in the Gulf of Mexico on April 20, 2010, MDL-2179, U.S. District Court, Eastern District of Louisiana (New Orleans).
Ex-Champion Whistle-Blower’s Crimes Spur Bid to Revise Suits
Champion Laboratories Inc. and other oil-filter makers asked a judge to require more than 50 class-action lawsuits to be refiled to remove any reference to a former employee who pleaded guilty to fabricating a document that triggered a U.S. antitrust probe.
Champion, Honeywell International Inc. and other companies made the request Nov. 1 in federal court in Chicago, after the Oct. 26 sentencing of William G. Burch to two years in prison. Burch, 53, pleaded guilty on June 29 in Philadelphia, admitting he concocted evidence in a 2008 whistle-blower lawsuit claiming Champion and its competitors fixed prices on automobile aftermarket filters.
Burch, who was fired by Champion, admitted he altered a price-increase letter on Honeywell stationery to create a “smoking gun” that made the case more enticing to a law firm he hired. He said he lied to Justice Department prosecutors who opened a grand jury investigation based on his phony claims. The companies also claim he doctored conversations he recorded.
Lawyers for the filter makers urged the judge overseeing the civil litigation to bar those suing on behalf of direct and indirect purchasers of filters from “benefiting from Burch’s fraud by using his manipulated tapes and perjured testimony to support their case,” according to the filing.
“This court has the inherent power to do much more; courts have appropriately dismissed cases based on misconduct this egregious,” wrote the attorneys, who amplified an earlier request made in court papers before the Burch sentencing hearing.
Lawyers for plaintiffs say they have substantial evidence independent of Burch to show that the companies engaged in a price-fixing scheme that began in 1999. In a Sept. 26 court filing, they urged U.S. District Judge Robert Gettleman to allow the case to proceed so that they can conduct pre-trial depositions of witnesses.
“We believe that based on material independent of Mr. Burch and certain material that corroborates what he says that the case should continue,” said attorney Bernard Persky of Labaton Sucharow LLP in New York, who represents direct purchasers. “We should be allowed to do discovery.”
The criminal case is United States v. William G. Burch, 11-cr-334, U.S. District Court, Eastern District of Pennsylvania (Philadelphia). The civil case is In Re: Aftermarket Filters Antitrust Litigation, 08-cv-4883, U.S. District Court, Northern District of Illinois (Chicago).
BNY Mellon Is Said in Talks to Settle Trading Lawsuits
Bank of New York Mellon Corp., the world’s largest custody bank, is in early stage talks with federal prosecutors to settle accusations the bank overcharged customers for foreign-exchange trading, according to a person briefed on the discussions.
The talks have just begun and it’s too soon to say whether they will result in a settlement, and whether any deal could serve as a model for resolving other lawsuits the bank is facing, said the person, who asked not to be identified because the discussions are confidential.
The U.S. Attorney in Manhattan filed suit against New York-based BNY Mellon on Oct. 4, the same day the bank was sued by New York Attorney General Eric Schneiderman, who said the bank defrauded public pension funds of $2 billion over 10 years. Attorneys general in Virginia and Florida have filed similar lawsuits, as have pension funds in Los Angeles and other California counties.
Chief Executive Officer Gerald Hassell, while denying the accusations, has said he would be “pragmatic” in his approach to resolving them.
Kevin Heine, a spokesman for BNY Mellon, declined to comment. Jerika Richardson, a spokeswoman for the U.S. Attorney, declined to comment on the talks.
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Liquid Capital’s Kim Pleads Not Guilty to $6 Million Fraud
Brian Kim, the former hedge-fund manager at Liquid Capital Management LLC accused of fleeing to Hong Kong while awaiting trial on fraud charges, pleaded not guilty to running a $6 million Ponzi scheme.
Kim, 36, appeared Nov. 4 before Justice Charles Solomon in New York State Supreme Court in Manhattan and pleaded to counts in two indictments. One from February charged him with grand larceny and other crimes for running the Ponzi scheme. Another charged him with bail-jumping and fleeing to Hong Kong after being accused in a previous case.
Kim was indicted in 2009 and accused of stealing $430,000 from the Christadora House, an East Village condominium complex where he lived. He fled before a trial in January using a fraudulently obtained passport and was returned to the U.S. on Oct. 12, prosecutors said.
“Those who prey upon unsuspecting investors and attempt to evade responsibility will be held accountable,” Manhattan District Attorney Cyrus Vance said Nov. 4 in a statement about the case.
Kim and his firm are accused of running a Ponzi scheme from January 2003 to January 2011. Kim told clients they were investing in safe and stable securities while he generated losses trading highly speculative futures contracts and diverted money to himself, prosecutors said.
The state case is People v. Kim, 2011/86, New York State Supreme Court, New York County (Manhattan). The CFTC suit is U.S. Commodity Futures Trading Commission v. Kim, 11-cv-01013, and the federal criminal case is U.S. v. Kim, 11-cr-00642, U.S. District Court, Southern District of New York (Manhattan.)
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Lilly Not Responsible for Zyprexa User’s Death, Jury Finds
Eli Lilly & Co. isn’t responsible for the death of a college student who was taking the drugmaker’s Zyprexa antipsychotic medication, a jury ruled in the first case to go to trial over the drug.
Jurors in state court in Los Angeles deliberated about 11 hours over two days before clearing Lilly of responsibility for the 2007 death of Cody Tadai, a 20-year-old community college student who succumbed to diabetes-related illnesses while taking Zyprexa for mental illness. His family alleged the company hid the drug’s diabetes risks to protect sales.
“We are pleased the jury recognized that Lilly met its duty to warn about the risks of Zyprexa,” Stefanie Prodouz, a Lilly spokeswoman, said in an e-mailed statement.
It’s the first verdict in a Zyprexa case since litigation over the antipsychotic drug, the drugmaker’s top seller, began more than eight years ago. Indianapolis-based Lilly, which lost patent protection on Zyprexa last month, has paid about $2.9 billion to resolve government and individual claims over its marketing of the medication.
Lilly agreed in 2009 to pay $1.42 billion to settle federal prosecutors’ allegations that it illegally marketed Zyprexa for unapproved uses. The drugmaker also agreed to pay more than $260 million to resolve similar state claims. Lilly has agreed to pay more than $1.2 billion to settle about 31,000 suits by former users of the drug.
Prodouz declined to comment Nov. 1 on why the drugmaker decided to make the Tadai family’s Zyprexa suit the first to go to trial. The drug was Lilly’s top seller last year with more than $5 billion in sales.
The drugmaker still faces about 40 Zyprexa suits that include claims from about 110 former users of the drug, Lilly executives said in an Oct. 28 U.S. Securities and Exchange Commission filing.
Randy Tadai, the student’s father, said the family brought the case to draw attention to the dangers of the drug. He added that while he was disappointed with the jury’s finding, the family would “have to accept the decision of the court.”
“Lilly is sorry for the family’s loss, but the facts didn’t point to either Zyprexa or Lilly as the cause” of the college student’s death, Prodouz said in the statement.
The case is Cody Tadai v. Eli Lilly & Co., BC 379020, California Superior Court (Los Angeles County).
Union Bank to Settle $35 Million Overdraft-Fee Litigation
Union Bank will settle a lawsuit over its overdraft-fee policy for $35 million, according to a filing in federal court in Miami.
U.S. District Judge James Lawrence King ruled in September that Union Bank would have to defend the civil claims.
Customers claimed in more than 30 nationwide lawsuits that more than 30 banks process checking account debit card transactions non-sequentially to deplete the accounts and trigger overdraft fees.
Last year, the Federal Reserve imposed rules prohibiting lenders from automatically charging fees when consumers have insufficient funds for electronic or debit transactions.
At least five suits in other states that weren’t part of the multidistrict suit but claimed the same overcharge-fee practices have settled.
Daniel Weidman, a spokesman for San Francisco-based Union Bank, declined to comment on the settlement.
“We’re very happy that we could come together with Union Bank,” said Aaron S. Podhurst, attorney for the plaintiffs. “I think it will be a very fair settlement.”
The case is In Re Checking Account Overdraft Litigation, 09-cv-02036, U.S. District Court, Southern District of Florida Miami).
News Corp. Begins Settlement Plan for Phone-Hacking Victims
News Corp.’s U.K. unit started a voluntary settlement program for thousands of potential victims of phone hacking by the company’s News of the World tabloid, which was shuttered in July as the scandal expanded.
Victims can apply online for what it called a “speedy, cost-effective alternative to litigation,” London-based News International said Nov. 4 in a statement. The applications will be assessed by former judge Charles Gray to ensure fairness, the company said. The settlement program was first announced in April and begins taking claims Nov. 4.
“It should provide very significant benefits to applicants such as avoiding the enormous expense of court proceedings,” Gray, a Court of Appeal judge who retired in 2008, said in the statement. “I look forward to adjudicating awards under the scheme, at all times safeguarding the fairness of the process and the rights of applicants.”
The five-year-old scandal swelled in July when it was revealed the News of the World targeted the mobile phone of murdered school girl Millie Dowler in 2002, hampering a police search when she was missing. News Corp. closed the 168-year-old tabloid and dropped its 7.8 billion-pound ($12.5 billion) bid for full control of British Sky Broadcasting Group Plc. It was previously thought the tabloid targeted only celebrities.
The settlement plan, which doesn’t have a preset limit on how much it can pay out, starts as News Corp. Deputy Chief Operating Officer James Murdoch prepares to testify for a second time before Parliament about the scandal on Nov. 10. Former executives questioned his previous testimony.
London’s Metropolitan Police notified about 500 potential victims whose names appear in the notes of the News of the World’s former private investigator Glenn Mulcaire. Mulcaire was jailed for hacking in 2007 along with a reporter. The police said Nov. 4 the total number of victims could be as high as 5,795.
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Koh Seah Wee Sentenced to 22 Years Jail for Singapore Fraud
Koh Seah Wee was sentenced to 22 years in jail and Lim Chai Meng to 15 years for their roles in cheating Singapore government agencies of S$12.5 million ($10 million) in the city’s biggest public-sector fraud since 1995.
Koh, formerly a deputy director at the Singapore Land Authority, pleaded guilty to 55 charges including cheating and conversion of property from criminal proceeds at a hearing in Singapore on Oct. 28. Lim, who was his subordinate, pleaded guilty to 49 counts including money laundering.
Justice Tay Yong Kwang sentenced the men, who faced a maximum of 10 years in jail for each cheating charge. Koh was accused of defrauding the land authority of S$12.2 million and the Intellectual Property Office of Singapore of S$286,000, and was charged with 372 counts of cheating and corruption at the agencies. Lim was charged on 309 counts of defrauding the land authority.
Ravinderpal Singh, Koh’s lawyer, had urged the court to consider his voluntary surrender and cooperation as mitigating factors. About S$8.2 million in assets have been seized from Koh, who graduated from Australia’s Queensland University of Technology with a first class honors degree in electrical engineering, Singh said.
Prosecutors had sought imprisonment of 16 to 20 years for Lim, while his lawyers, Subhas Anandan and Sunil Sudheesan, asked Justice Tay to consider a jail term of 10 to 12 years.
Ho Yen Teck, an accomplice in defrauding the land authority, was sentenced on Jan. 14 to 10 years in jail.
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Goldman Suit Over Role in El Paso Buyout Most Popular Docket
Goldman Sachs Group Inc., which was sued by a pension fund that alleges the New York-based investment bank had a conflict of interest in its role as adviser in the planned $21 billion purchase of El Paso Corp., was the most-read litigation docket on the Bloomberg Law system last week.
Goldman Sachs, which owns about 20 percent of Kinder Morgan Inc., steered El Paso directors to sell at a price below its full value, earning larger advisory fees than if the company had completed a planned spinoff, lawyers for the Louisiana Municipal Police Employees Retirement System said in the complaint. Goldman Sachs also stands to see its Kinder Morgan investment increase in value, according to the complaint.
“The El Paso board impermissibly heeded the advice of its conflicted financial adviser Goldman Sachs and abandoned a previously announced spinoff of its exploration and production business in favor of a low premium sale to competitor Kinder Morgan,” lawyers for the retirement system, an investor in El Paso, said in the complaint filed Oct. 21 in Delaware Chancery Court in Wilmington.
Andrea Rachman, a spokeswoman for Goldman Sachs, declined to comment on the lawsuit when it was filed except to say that the bank’s representatives on Kinder Morgan’s board recused themselves from the deal process.
The case is Louisiana Municipal Police Employees Retirement System v. Braniff, CA6960, Delaware Chancery Court (Wilmington).
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On The Docket
German Top Court to Rule on EFSF Panel By Christmas
Germany’s highest court may rule by Christmas on whether a special parliamentary body is authorized to clear emergency issues regarding the euro rescue fund, Focus reported, citing Andreas Vosskuhle, president of the court.
The Federal Constitutional Court last month placed a temporary ban on any decisions taken by the nine-member subcommittee of the country’s lower house of parliament affecting the European Financial Stability Facility.
The ban has only stopped the panel “temporarily” and the court wants to take a principal decision by Christmas, the magazine cited Vosskuhle as saying in an interview.