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Citigroup, U.S. Bancorp, Olympus, Wal-Mart in Court News

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Nov. 10 (Bloomberg) -- Citigroup Inc. and the U.S. Securities and Exchange Commission defended their $285 million settlement of claims that the bank misled investors in collateralized debt obligations as a judge questioned whether the deal is in the public interest.

U.S. District Judge Jed Rakoff, who in 2009 rejected a $33 million settlement between the SEC and Bank of America Corp., spent much of an hour-long hearing yesterday asking both sides why he should approve an accord that doesn’t require Citigroup to admit any wrongdoing.

“Why does that make any sense in this context?” Rakoff asked Matthew Martens, the SEC’s chief litigation counsel, in the hearing in federal court in Manhattan.

Rakoff asked New York-based Citigroup and the SEC last month to address nine questions about the proposed settlement, including whether the public interest requires a determination of the truth of Citigroup’s alleged fraud. At yesterday’s hearing, Rakoff criticized the SEC’s argument that he isn’t required to weigh the public’s interest in considering the settlement.

“It’s an interesting position,” Rakoff told Martens. “I’m supposed to exercise my power, but not my judgment.”

Rakoff didn’t say when he’ll rule on the joint request to approve the settlement.

Rakoff also asked why he should endorse a provision barring Citigroup from violating securities laws in the future, when the SEC hasn’t filed civil contempt proceedings against a major financial institution, including Citigroup, for violating such a provision in at least 10 years.

“Why do you ask for an injunction when you never use it?” Rakoff asked Martens.

Rakoff asked Brad Karp, a lawyer for Citigroup, if the New York-based bank admits it did what the SEC claims in the complaint.

“We do not admit the allegations,” Karp said, to laughter in the standing-room-only courtroom. “But if it’s any consolation, we don’t deny them.”

The case is U.S. Securities and Exchange Commission v. Citigroup Global Markets Inc., 11-cv-7387, U.S. District Court, Southern District of New York (Manhattan).

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New Suits

U.S. Bancorp Sued by Pension Fund Over Investor Losses on CDOs

U.S. Bancorp was sued by an Oklahoma police pension fund over allegations investors in mortgage bonds were hurt by the bank failing to ensure that securities were backed by loans.

U.S. Bancorp knew mortgage loans underlying the bonds weren’t properly transferred to trusts and caused investors to suffer millions of dollars in losses, Oklahoma Police Pension and Retirement System said in a complaint filed yesterday in federal court in Manhattan.

“U.S. Bank’s violations of its duties have resulted in certificate holders unnecessarily suffering millions of dollars of losses because they were dependent on a faithless trustee to protect their interests,” the fund said in its complaint.

The mortgages loans were pooled and securitized by Bear Stearns, the investment bank that was acquired by JPMorgan Chase & Co. As the trustee for the two trusts at issue in the lawsuit, U.S. Bancorp was required to take steps to ensure the securities sold to investors were properly backed by mortgages, the pension fund said.

The bank, for example, was required to take physical possession of documents in mortgage-loan files and review the files for any defects. Transfer of the proper documentation was needed for the trusts to take ownership of the loans, the Oklahoma fund said.

U.S. Bancorp’s failures meant securities purchased by investors “were not, in fact, legally collateralized by mortgage loans,” according to the court filing. The pension fund filed the complaint as a class-action, or group, lawsuit, and seeks to represent other investors.

Tom Joyce, a spokesman for Minneapolis-based U.S. Bancorp, said in an e-mail that the bank hadn’t received the complaint.

The case is Oklahoma Police Pension and Retirement System v. U.S. Bank National Association, 11-08066, U.S. District Court, Southern District of New York (Manhattan).

OppenheimerFunds Sued by Royal Park Over Scaldis Loans

Massachusetts Mutual Life Insurance Co.’s OppenheimerFunds unit was sued by Royal Park Investments SA/NV in New York over $1 billion in loans that Royal Park claims were improperly procured.

The lawsuit stems from “serial breaches” of lending agreements with Royal Park’s predecessor, Scaldis Capital Ltd., according to the complaint, which was filed yesterday in New York State Supreme Court in Manhattan. Brussels-based Royal Park was set up in May 2009 by Fortis Bank SA/NV, Belgium and BNP Paribas SA to manage a pool of distressed debt securities.

Scaldis in May 2007 committed to lend as much as $1 billion to AAArdvark XS, an Oppenheimer investment vehicle, according to the complaint. The suit accuses Oppenheimer, its Harbourview Asset Management affiliate and AAArdvark XS of “immediately” breaching the loan contracts, which allegedly limited the quality and type of securities that could be purchased with the proceeds.

“Although AAArdvark XS had no right to receive, much less keep, Scaldis’s money in light of defendants’ breaches, defendants insist that AAArdvark XS will keep that money unless and until a court orders AAArdvark XS to give it back,” Royal Park said in the complaint.

OppenheimerFunds has no comment on the lawsuit, said Samuel Wang, a spokesman for the company.

Fortis, Scaldis’s sponsor on the loans to AAArdvark XS, initially bore the risk until they were assumed by Royal Park, according to the suit, which seeks unspecified compensatory damages, costs and disbursements, including attorneys’ fees.

The case is Royal Park Investments SA/NV v. OppenheimerFunds Inc., 653111/2011, New York State Supreme Court (Manhattan).

Ex-Citigroup Indonesia Manager Allegedly Stole $5 Million

Inong Malinda Dee, a former relationship manager at Citigroup Inc.’s Indonesia unit, stole more than $5 million from clients by having them sign blank transfer forms or forging their signatures, a prosecutor said.

Dee used the forms to transfer $5.15 million from Citigold rupiah and dollar accounts, without the clients’ knowledge, from January 2007 to February this year, according to an indictment read by a team of six prosecutors, led by Tatang Sutarna, on the first day of Dee’s money laundering and banking law violation trial at the South Jakarta district court Nov. 8.

Dee, who is 49 according to the indictment, denies the charges, Batara Simbolon, one of her 15 lawyers, told reporters after the trial was adjourned. The defense declined to file “exceptions” or challenges, to the indictment, because it would delay the proceedings while the judge considered them, Simbolon said.

Indonesia’s central bank in May banned Citigroup from adding new wealth management clients for one year, opening new branches for a year and from using third-party debt collectors for two years after local police accused Dee of stealing from clients and a separate probe into the death of a credit card customer at one of its Jakarta offices.

“This incident was isolated to a single branch in Jakarta. Citibank identified the suspicious transactions and informed the local regulators and the police,” said Mona Monika, a Citibank spokeswoman. “We continue to offer our full cooperation and assistance to the authorities.”

Dee, who was detained March 24 after Citigroup reported her to the national police, faces five to 20 years imprisonment if convicted, Simbolon said.

“This case hasn’t been completed, it still has long way to go,” Dee said in an interview Nov. 8.

Interclick Sued by Shareholder Over Yahoo Sale Agreement

Interclick Inc., a provider of marketing advice based on consumers’ online behavior, was sued by a shareholder over Yahoo! Inc.’s $270 million purchase of the company.

Yahoo on Nov. 1 said it agreed to acquire New York-based Interclick for $9 a share, or a 22 percent premium based on its Oct. 31 closing price.

Shareholder Sam Elghanian filed the suit in New York State Supreme Court in Manhattan Nov. 8, saying that the proposed deal undervalues Interclick and favors company insiders and Sunnyvale, California-based Yahoo rather than investors.

“The proposed transaction does not appear to adequately value Interclick’s shares,” according to the complaint. “Rather, the proposed transaction appears to favor the interests of Yahoo! and the company’s insiders, to the detriment of the company’s public shareholders.”

Calls to Interclick’s New York headquarters weren’t answered and Siobhan Aalders, an outside spokeswoman for the company, declined to comment immediately on the suit.

The case is Sam Elghanian v. Interclick Inc., 653101/2011, New York State Supreme Court (Manhattan).

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


Delaware Can’t Intervene in BofA Mortgage Case, BNY Says

Delaware Attorney General Beau Biden shouldn’t be allowed to intervene in litigation over Bank of America Corp.’s proposed $8.5 billion mortgage-bond settlement with investors, Bank of New York Mellon Corp. said.

The attorney general’s office doesn’t have a right to intervene in the case and its request should be denied, Bank of New York said in a filing yesterday in U.S. District Court in Manhattan.

Biden has asked for a federal judge’s permission to participate in the case, saying he is seeking to protect the interests of investors and protect claims he may have, according to a court filing.

The proposed settlement would resolve claims from investors in Countrywide Financial Corp. mortgage bonds. Countrywide was acquired by Bank of America in 2008. Bank of New York acts as trustee for the mortgage-bond trusts and is seeking court approval of the settlement.

The case is Bank of New York Mellon v. Walnut Place LLC, 11-cv-5988, U.S. District Court, Southern District of New York (Manhattan).

Daimler Loses Bid for Review of Argentine Rights Case Ruling

Daimler AG lost its bid for further review of a U.S. court ruling that it must face claims that its Argentine Mercedes-Benz unit collaborated with state security forces to kill and torture workers in the so-called Dirty War.

The U.S. Court of Appeals in San Francisco yesterday denied the Stuttgart, Germany-based carmaker’s request to have a larger panel of judges review a decision by three of its judges to allow the case to proceed. The court didn’t rule on the claims. Daimler denies wrongdoing.

Mercedes-Benz Argentina employees were kidnapped, detained or tortured during the Dirty War, the former workers and their families said in a complaint filed in federal court in San Jose, California, in 2004. The war began in 1976 when the military overthrew the government of President Isabel Peron.

Mercedes-Benz collaborated with Argentina’s military to brutally punish workers it viewed as union agitators, the workers and their families alleged in court filings. In May, the appeals court panel sent the case back to a federal judge in San Jose.

Han Tjan, a Daimler spokesman, didn’t respond to a phone message seeking comment on the ruling.

The case is Bauman v. DaimlerChrysler, 07-15386, U.S. Court of Appeals for the Ninth Circuit (San Francisco).

Ex-Olympus Officials Face Prison If Allegations are Proved

Former Olympus Corp. officials face as long as 10 years in prison if investigations into the company’s claims that they hid decades of losses lead to convictions for fraud, falsification of financial statements or aggravated breach of trust.

The Tokyo Prosecutor’s Office is investigating Olympus on suspicion the company broke securities laws after the camera maker said Nov. 8 that ex-chairman Tsuyoshi Kikukawa, former executive vice president Hisashi Mori and auditor Hideo Yamada colluded to hide losses by paying inflated fees to advisers.

“The allegations appear to be a classic accounting or securities fraud and are significant enough that Japanese authorities may take firm action,” said Samuel Williamson, a partner in Kirkland & Ellis LLP’s white-collar criminal investigations and government enforcement practice.

Prison for such offenses in Japan are rare, said Williamson, a former U.S. Department of Justice prosecutor now based in Shanghai. While the founder of Internet startup Livedoor Inc. Takafumi Horie is serving 2 1/2 years in prison for accounting fraud, the former president of cosmetics maker Kanebo Ltd. Takashi Hoashi had his two-year sentence for the same crime suspended when it was issued in 2006.

“With U.K. and U.S. authorities reportedly looking into the allegations, this has already received more international attention than Livedoor or Kanebo,” Williamson said.

Olympus said Nov. 8 that it continues to pursue an internal investigation into the allegations by former President Michael Woodford that $1.5 billion was siphoned out of the company through writedowns and fees related to a series of takeovers.

Kikukawa, who had Woodford removed, resigned on Oct. 26 as investors increased pressure for a review of the deals. Kikukawa denied any wrongdoing when he stepped down and said he intended to stay on the board.

Olympus declined a request to interview Kikukawa, Mori and Yamada. In six attempts to talk to Kikukawa at his home, the former chairman didn’t appear.

Mori, who was fired Nov. 8, couldn’t be reached at the Kawasaki city home address for him given in U.K. filings. Yamada is willing to resign, according to Olympus.

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Ecclestone Says He Had No Alternative to Gribkowsky Payments

Formula One Chief Executive Officer Bernie Ecclestone told a court that he believed he had no “alternative” to making payments to Gerhard Gribkowsky as part of the sale of Bayerische Landesbank’s stake in the racing series.

Ecclestone, 81, testified he feared that Gribkowsky might disclose information to U.K. tax authorities about a trust controlled by his then wife that might be “very expensive” for him. Gribkowsky, a former chief risk officer at BayernLB, is being tried in Munich on charges he received $44 million in bribes to facilitate the 2005 sale to CVC Capital Partners Ltd.

Prosecutors have said that Ecclestone is under investigation in the case. Munich-based BayernLB sold its 47 percent stake in the world’s most watched racing series to CVC for 840 million euros ($1.15 billion).

“I gave money to Mr. Gribkowsky because I really at the time didn’t have any alternative,” Ecclestone told the court through an interpreter. “The alternative was that I was under the impression that he may give some information to the internal revenue authority of the U.K., and if he would do so it could be very expensive for me.”

Ecclestone had wanted BayernLB to sell the interest in the racing series it acquired from the 2002 bankruptcy of Leo Kirch’s media group and saw a chance when CVC showed interest, prosecutors said in the indictment. Ecclestone and Gribkowsky agreed on a plan that funneled $44 million to Gribkowsky through sham contracts and off-shore companies, according to prosecutors.

As Ecclestone didn’t want to pick up the tab for the bribes, Gribkowsky set up a plan to funnel money from BayernLB to the Formula One chief, according to the indictment. The bank manager signed a contract under which BayernLB had to pay Ecclestone a kickback of $41.4 million and another $25 million to the Bambino trust held by his then-wife Slavica Ecclestone, prosecutors claimed.

The Bambino trust was behind Ecclestone’s decision to make the payments to Gribkowsky. Ecclestone testified that he feared Gribkowsky might tell U.K. authorities that he controlled the trust, rather than his wife.

The trust involved a sum of as much as 2 billion pounds ($3.2 billion) and the dissolution of the trust could have meant it being taxed at 40 percent, Ecclestone said.

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California Slaughterhouse Law May Be Voided by High Court

U.S. Supreme Court justices signaled they are poised to overturn a California law that requires slaughterhouses to immediately euthanize animals that are too sick to stand up.

Hearing arguments yesterday in Washington, a majority of the court’s nine justices suggested they view the measure as running afoul of federal meat-safety law. The National Meat Association, an industry trade group, is challenging the California law.

“I don’t see how you can argue that you aren’t trenching on the scope” of the federal statute, Justice Sonia Sotomayor said to the state lawyer defending the California measure.

The state law was enacted in 2008 after the Humane Society of the United States released a video of so-called downer cattle being kicked, electrocuted, dragged with chains and rammed with a forklift at a Westland/Hallmark Meat Co. slaughterhouse.

The California law bans slaughterhouses from buying or selling downer animals and from butchering them for human consumption. The measure also requires humane handling of the animals. A San Francisco-based federal appeals court refused to block the law.

Because federal law similarly bans the slaughter of downed cattle for food, the California law would have its greatest impact on the handling of pigs. Under federal law, downed hogs can be slaughtered after they undergo a veterinary check to ensure they aren’t diseased. The hogs also must become ambulatory before they can be slaughtered.

The case is National Meat Association v. Harris, 10-224, U.S. Supreme Court (Washington).

For more, click here.

U.K. Regulator Must Explain in Wal-Mart Price-Fixing Appeal

Britain’s antitrust regulator was ordered to explain how it will continue fighting appeals of its cigarette price-fixing fines against Imperial Tobacco Group Plc, Wal-Mart Stores Inc. and 10 other manufacturers and retailers.

The Office of Fair Trading, which fined the group a total of 225 million pounds ($359.3 million) last year, must explain by yesterday “whether it continues to contest the appeals, and if so, on what factual and legal basis,” the Competition Appeal Tribunal said in a Nov. 7 order. A hearing on the future of the case is scheduled for Nov. 11 in London.

The watchdog claims Bristol, England-based Imperial and Japan Tobacco Inc.’s Gallaher unit agreed with retailers to fix prices on cigarettes, hand-rolled tobacco, pipe tobacco and cigars from 2001 to 2003. J Sainsbury Plc, the U.K.’s third-largest supermarket chain, was a whistleblower in the case and gave evidence that led to fines against Wal-Mart’s Asda chain, Co-Operative Group Ltd. and William Morrison Supermarkets Plc, among others.

Imperial appealed its 112.3 million-pound fine as did Asda and Co-Operative, which were each fined about 14 million pounds. The challenge was joined by William Morrison, which was penalized a total of 19.5 million pounds and Royal Dutch Shell Plc, fined 3.35 million pounds.

OFT spokeswoman Kasia Reardon declined to comment.

For the latest trial and appeals news, click here.


Ex-UBS Client Werdiger Gets One-Year in Prison on Tax Charges

A diamond merchant and former UBS AG client who pleaded guilty to using a Swiss account to hide more than $7.1 million from U.S. tax authorities was sentenced to one year and one day in prison.

Richard Werdiger, 64, is one of 36 Americans charged since 2007 in a U.S. crackdown on offshore tax evasion, and his was the longest prison term by a day. Werdiger, who pleaded guilty in March in federal court in New York, yesterday paid a civil penalty of $3.84 million and was fined $50,000.

“For over two decades, Richard Werdiger engaged in an elaborate subterfuge to avoid paying his fair share of taxes to the U.S. government,” U.S. Attorney Preet Bharara said in a statement. “We will find tax cheats of all stripes and they will be punished.”

The U.S. crackdown has led to charges against UBS, the largest Swiss bank, as well as at least 21 other bankers, advisers and attorneys. The Justice Department has said eight offshore banks are under grand-jury investigation for facilitating tax evasion.

Werdiger pleaded guilty to conspiracy and five counts of filing false tax returns.

His attorney, Ian Comisky, didn’t return a call seeking comment after yesterday’s court appearance.

The case is U.S. v. Werdiger, 10-cr-325, U.S. District Court, Southern District of New York (Manhattan).

Saudi Arabia’s Algosaibi Wins Cayman Judgment Against Al-Sanea

Maan al-Sanea, founder of Saudi Arabia’s Saad Group, must pay damages to competitor Ahmad Hamad Algosaibi & Brothers Co. for conspiracy and breach of fiduciary duty, a judge ruled in the Cayman Islands.

Al-Sanea failed to file a defense in the case in which he’s accused of taking out billions of dollars in fraudulent loans in Algosaibi’s name when he was working for the company, according to a Nov. 7 default judgment from the Grand Court of the Cayman Islands. Damages will be determined later, it said.

“Al-Sanea has repeatedly said he is waiting for his day in court to defend the charges against him,” Eric Lewis, a legal coordinator for Algosaibi, said in the statement after the judgment was issued. “Clearly, he cannot defend the fraud charges on the merits and the court has acted accordingly.”

The case is part of a global dispute between the companies after they defaulted in 2009 on a total of about $15.7 billion in loans from more than 100 banks. Al-Sanea, one of Saudi Arabia’s richest men, married into the Algosaibi family before founding Saad Group. He faces claims he forged signatures to take out as much as $10 billion in fake loans through Algosaibi’s Money Exchange unit, which he ran.

Al-Sanea also faces a fraud lawsuit in New York and investigations in Bahrain and Switzerland.

Tim Robertson, Saad Group’s London-based spokesman, declined to comment. Al-Sanea has repeatedly denied the allegations and said Algosaibi knew of the loans he took out.

For the latest verdict and settlement 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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