U.S. Supreme Court justices debated an effort to make investment banks, including units of Goldman Sachs Group Inc. and Morgan Stanley, pay back money they earned by allegedly manipulating dozens of initial public offerings.
Hearing arguments yesterday in Washington, the justices questioned whether Vanessa Simmonds could press ahead with what originally were 55 lawsuits filed in federal court in Seattle.
The dispute stems from a provision in federal securities law that requires corporate insiders to give back “short-swing” profits -- money from the sale of stock held for less than six months. The 1934 Securities Exchange Act gives investors two years to sue over violations.
In letting some of the suits go forward, a federal appeals court said the time limit hadn’t kicked in because the defendants didn’t file required disclosure forms. The panel threw out 30 of the suits on other grounds.
In an hour-long session in Washington, the justices signaled they were reluctant to erect a rigid rule on the time limit. Justice Elena Kagan suggested the court might return the dispute to the lower courts to determine whether Simmonds had enough information about the alleged wrongdoing to file her suit earlier, even without the disclosure forms.
The justices are considering an appeal filed by units of Citigroup Inc., Credit Suisse Group AG, Deutsche Bank AG, JPMorgan Chase & Co. and Bank of America Corp., as well as Morgan Stanley and Goldman Sachs.
Simmonds was a college student when she bought the stock in 55 companies that went public at the height of the IPO boom in the late 1990s and 2000. Her father, David Simmonds, is one of the lawyers pressing the case.
The case is Credit Suisse v. Simmonds, 10-1261, U.S. Supreme Court (Washington).
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Schaeuble Defends EFSF Panel at German Constitutional Court
German Finance Minister Wolfgang Schaeuble defended giving a parliamentary subcommittee the ability to quickly approve emergency or classified euro rescue-fund actions at the nation’s top court.
Germany’s Federal Constitutional Court in Karlsruhe heard arguments in a case filed by two opposition lawmakers, who say the rules curb their parliamentary rights and put power in the hands of too small a group.
The government argues the subcommittee must be allowed to make decisions privately so that the European Financial Stability Facility can take actions requiring strict confidentiality, such as bond purchases on the secondary market.
“Confidentiality is the prerequisite that you can use those instruments at all,” Schaeuble told the judges. “Announcing beforehand that you’ll buy bonds in the secondary market may be suitable at a Carnival speech, but not for responsible operation of the EFSF.”
The court on Sept. 7 cleared Germany’s participation in the EFSF while stressing the legislature, the Bundestag, must keep authority over budgetary aspects of the rescue plan. The nine-member, all-party subcommittee was established to comply with the ruling while giving the panel powers to approve emergency or classified decisions. The 41-member budgetary committee must have a say in EFSF decisions, the court said in its ruling.
The court’s judges in October halted committee activities while the suit is pending.
The judges are expected to issue a ruling later this year.
The case is: BVerfG, 2 BvE 8/11.
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Consultant Made $780,000 on Julius Baer, Swatch Bets, FSA Says
A management consultant on trial for insider trading made about 500,000 pounds ($780,000) betting on tips from a hedge-fund employee about companies including Julius Baer Group Ltd. and Swatch Group AG, prosecutors said.
Rupinder Sidhu, who faces 23 counts of insider trading, used Hotmail accounts and MSN Messenger to covertly communicate with Anjam Ahmad, a trader at AKO Capital LLP, Michael Brompton, a prosecutor for the Financial Services Authority, told a jury in London.
Ahmad told Sidhu, a childhood friend, when AKO was about to buy or sell a stock so he could benefit from the effect on its share price, Brompton said. This was “carried out on an increasingly large scale and for increasingly large profits” between June and August in 2009.
The 40-year-old, who also faces one count of money laundering, pleaded not guilty in April. The trial is expected to last for three weeks.
Sidhu is accused of using spread-betting sites to speculate on stocks including Julius Baer, Swatch, Reed Elsevier Plc and Michael Page International Plc, making sums ranging from 1,600 pounds to 137,000 pounds, Brompton said
It is a “classic example of insider trading,” Brompton told jurors yesterday.
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Cargill Accused of Job Discrimination at Arkansas Plant
Cargill Meat Solutions, processor of Honeysuckle White and Riverside turkeys, discriminated against 4,069 qualified job applicants, the Labor Department said as it sought to strip the company of its U.S. contracts.
Female, white, black, Hispanic and American Indian applicants at the Cargill Inc. unit were denied entry-level jobs at a production plant in Springdale, Arkansas, according to a statement yesterday on an agency complaint. The company has $550 million in contracts to supply the U.S. military, the department said in the statement.
The department filed the complaint after it was unable to arrange back pay, with interest, for the rejected job applicants, according to the statement. The Wichita, Kansas-based company didn’t immediately respond to a request for comment.
“This is an unfortunate case in which thousands of qualified workers were denied the opportunity to compete fairly for jobs in a tough economy,” said Patricia Shiu, director of the Office of Federal Contract Compliance Programs.
The Labor Department is seeking to cancel Cargill Meat Solutions’ government contracts and bar it from future work until the company resolves violations and changes employment practices, according to the statement.
Glencore Unit Should Be Liquidated, Thai Bitumen Says
Glencore International Plc’s Singapore unit should be liquidated after failing to pay a $20.2 million arbitration award, Thai Bitumen Co. said in a lawsuit.
Glencore Singapore, a unit of the largest publicly traded commodities company, is “therefore deemed to be insolvent and unable to pay its debts,” Thai Bitumen director Chaiwat Srivalwat said in the Nov. 23 winding-up petition filed in the Singapore High Court. A closed hearing is scheduled for Dec. 9.
The Singapore unit of Baar, Switzerland-based Glencore was ordered to pay $20.2 million and interest to Thai Bitumen by arbitrator Kenneth Rokison on Sept. 21, according to the lawsuit. Glencore failed to deliver 600,000 barrels of Venezuelan crude oil to Thai Bitumen, breaching an October 2008 sale contract, Rokison ruled in the London arbitration proceedings.
Glencore hasn’t filed its reply to the Singapore lawsuit. Spokesman Charles Watenphul declined to comment on the lawsuit. Thai Bitumen’s Chaiwat and the company’s lawyer Cavinder Bull didn’t reply to an e-mail seeking comment.
Thai Bitumen, a unit of Thailand’s biggest asphalt producer Tipco Asphalt Pcl., and Glencore couldn’t agree on the interest amount to be paid on the arbitration award, according to court papers. Glencore’s lawyers claimed Thai Bitumen had over-calculated the interest by $42,785, according to court filings.
Glencore declared force majeure on the delivery to Thai Bitumen, a legal clause that allows delays because of an incident outside a supplier’s control, after a decision by Venezuelan state oil company Petroleos de Venezuela SA to cut production in 2008, according to the filing.
The case is Thai Bitumen Co. v Glencore Singapore Ltd. CWU152/2011 in the Singapore High Court.
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Olympus Whistle-Blower Woodford Meets With U.S. Prosecutors
Olympus Corp. whistle-blower Michael Woodford said he met for two hours yesterday with U.S. prosecutors and investigators for the Securities and Exchange Commission in New York.
The former head of the Tokyo-based camera maker arrived at the U.S. Attorney’s Office in Lower Manhattan for a briefing with eight investigators from the Justice Department, the Federal Bureau of Investigation and the SEC, he said in an interview. It was Woodford’s second meeting with prosecutors; a prior meeting lasted three hours, he said.
“Different elements or parts of the Olympus story appeal to different jurisdictions,” Woodford said, declining to detail his talks with the U.S. government. “I’ve passed on everything I know.”
Woodford was fired as president and chief executive officer on Oct. 14 after he confronted the Olympus board about oversized payments made to advisers in the acquisition of Gyrus Group Plc in 2008. Olympus revealed this month that it used the purchase of Gyrus and three other takeovers to hide decades-old investment losses.
Jerika Richardson, a spokeswoman for U.S. Attorney Preet Bharara in New York, and SEC spokesman John Nester declined to comment on yesterday’s meeting.
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Wells Fargo Challenges NCUA’s Claims Over Failed Credit Unions
Wells Fargo & Co. said it will challenge a U.S. regulator’s claim that Wachovia Corp. misrepresented mortgage-backed securities in 2006 sales to a pair of credit unions that later collapsed.
The National Credit Union Administration sued Wachovia, accusing the lender acquired by Wells Fargo during the subprime mortgage crisis of “pervasive disregard of underwriting standards” and issuing offering documents with “material untrue statements,” according to a statement released yesterday.
The complaint, filed in U.S. District Court in Kansas, details about $200 million in purchases by the U.S. Central Federal Credit Union and Western Corporate Federal Credit Union, which were placed under conservatorship in 2009. NCUA, which is serving as liquidating agent for the failed lenders, has filed similar suits against firms including Goldman Sachs Group Inc. and JPMorgan Chase & Co.
Ancel Martinez, a spokesman for Wells Fargo, said the San Francisco-based bank believes the claims are without merit.
“We look forward to defending ourselves vigorously in this matter,” Martinez said yesterday in a telephone interview.
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BP Pipeline Rupture May Force It to Pay More for 2006 Spill
BP Plc, still facing fallout from the 2010 explosion of its Macondo well in the Gulf of Mexico, is fighting a U.S. bid to revoke its probation over a five-year-old spill in Alaska following a more recent pipeline rupture.
BP pleaded guilty in 2007 to violating the Clean Water Act by spilling 200,000 gallons of oil from its Prudhoe Bay field into water on Alaska’s North Slope in 2006. It paid a $12 million fine and $8 million for restitution and community service and was put on three years’ probation.
The U.S. government began arguing yesterday in federal court in Anchorage that the U.K.-based company violated its probation by allowing a pipeline rupture two years ago in the same area.
Authorities last year filed a petition to revoke BP’s probation 12 days before it was to expire, claiming the company failed to take precautions and implement safeguards. Prosecutors may seek more money from the company if the judge agrees the terms of the probation were violated.
“BP’s 2006 spill was the result of a lack of maintenance and a failure to heed warning alarms indicating that the pipeline was leaking oil,” U.S. lawyers said in a Nov. 14 filing. “The 2009 spill vividly demonstrates that BP has not adequately addressed the management and environmental compliance problems that have plagued it for many years.”
The spill “was an unfortunate incident, but it was not a crime,” the company said in court papers.
“It was an accident,” Steve Rinehart, a BP spokesman, said in a phone interview. “No one was hurt, and there was minimal environmental impact.”
BP didn’t violate any conditions of its probation, the company said in court filings. BP wasn’t negligent and didn’t discharge oil in the waters of the U.S., the company said.
BP spilled about 13,500 gallons of oil near Prudhoe Bay in November 2009 when a section of the company’s pipeline at its Lisburne Processing Center ruptured, “creating a two-foot hole in the pipe that allowed the contents to spill onto the tundra and surrounding wetlands,” the U.S. said.
The case is U.S. v. BP Exploration (Alaska) Inc., 3:07-cr-00125, U.S. District Court, District of Alaska (Anchorage).
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Anglo Irish Bank Noteholder’s Lawsuit Dismissed by U.S. Judge
Anglo Irish Bank Corp., the bank nationalized by the Irish government in 2009, won dismissal of a noteholder lawsuit that sought to block the sale of its U.S. loan portfolio.
U.S. District Judge Paul G. Gardephe in Manhattan said in an order Nov. 28 that the claims were prohibited by the Foreign Sovereign Immunities Act.
“Defendant is a ‘foreign state’ within the meaning of the” act, Gardephe said. “Plaintiffs have not demonstrated that Ireland has waived sovereign immunity for purposes of this action or that any exception to sovereign immunity is applicable.”
Fir Tree Partners, a New York investment firm, sued Anglo Irish Bank in February, claiming it owns $200 million of notes the bank issued in the U.S. Fir Tree sought an order blocking Anglo Irish Bank from transferring any U.S. assets out of the country so it can force the bank to honor its debt obligations.
Paul Smith, a lawyer for Fir Tree, didn’t return a call to his office seeking comment on the ruling after regular business hours Nov. 28.
The case is Fir Tree Capital Opportunity Master Fund LP v. Anglo Irish Bank Corp., 11-CV-0955, Southern District of New York (Manhattan).
Del Monte, KKR Deal Faces U.S. Antitrust Probe, Lawyer Says
Del Monte Foods Co.’s $5.3 billion sale to a group of private-equity firms led by KKR & Co. is the target of a U.S. Justice Department antitrust probe, a lawyer who sued over the deal said in a court filing.
Federal prosecutors have been “investigating the facts and circumstances surrounding the sale of Del Monte,” Stuart Grant, a lawyer for Del Monte shareholders, said in a Nov. 23 court filing as part of an $89.4 million settlement of investors’ claims over the deal.
Investors in San Francisco-based Del Monte argued in the lawsuit in Delaware Chancery Court in Wilmington they weren’t getting enough for their shares in the buyout. Other shareholders, who filed a related federal court suit in San Francisco, questioned whether private-equity firms rigged bids to artificially lower the price paid for the maker of Meow Mix cat food and Milk Bone dog biscuits.
Gina Talamona, a Justice Department spokeswoman, declined to comment Nov. 28 on whether the antitrust division was investigating the Del Monte buyout. Kristi Huller, a KKR spokeswoman, and Chrissy Stengel, a Del Monte spokeswoman, didn’t return calls seeking comment on the filing Nov. 28.
The settlement also resolves investors’ claims that Barclays Plc, which served as Del Monte’s financial adviser while providing some financing for the buyers, had conflicting interests in the deal. The private-equity group led by New York-based KKR included Vestar Capital Partners and Centerview Partners LLP.
Delaware Chancery Court Judge Travis Laster ordered Del Monte in February to delay a shareholder vote on the deal so investors could consider whether to back it in light of disclosures about London-based Barclays’s dual roles. Laster will decide whether to approve the settlement at a hearing tomorrow.
The Delaware case is In re Del Monte Foods Co. Shareholder Litigation, CA6027, Delaware Chancery Court (Wilmington).
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Facebook Settles Privacy Complaints of U.S. Regulator
Facebook Inc., the world’s biggest social-networking site, agreed to settle complaints by the Federal Trade Commission that it failed to protect users’ privacy or disclose how their data could be used.
The proposed 20-year agreement would require Palo Alto, California-based Facebook to get clear consent from users before sharing material posted under earlier, more restrictive terms, the FTC said yesterday in a statement. It would also compel independent reviews of Facebook’s privacy practices.
“Companies must live up to their promises about privacy,” FTC Chairman Jon Leibowitz said on a conference call with reporters. The settlement “will protect consumer choices and ensure they have full and truthful information about their data.”
The settlement is part of an effort to resolve legal issues that could be a distraction as Facebook moves toward an initial public offering, said Francis Gaskins, president of Los Angeles-based IPODesktop.com, a Web site that tracks IPOs. Facebook is considering an IPO that would raise $10 billion and value the company at more than $100 billion, a person familiar with the matter said.
In a blog posting, Facebook Chief Executive Officer Mark Zuckerberg said the company should have been more vigilant in protecting users’ privacy.
“I’m the first to admit that we’ve made a bunch of mistakes,” he said.
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Geronzi, Arpe Convicted in Parmalat-Related Case
An Italian court convicted bankers Cesare Geronzi and Matteo Arpe in a case related to the 2003 bankruptcy of Parmalat SpA, Radiocor news agency reported.
Geronzi was sentenced to five years in jail, while Arpe was given a sentence of three years and seven months by the court in Parma, Radiocor said. The bankers were accused of fraudulent bankruptcy connected to the sale of water company Ciappazzi to Parmalat.
Ennio Amodio, a lawyer for Geronzi, termed the sentencing “profoundly unfair,” Radiocor said. Both of the bankers previously have denied any wrongdoing. Spokesmen for Geronzi and Arpe weren’t immediately available for comment when contacted by Bloomberg News.
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Fortress Credit Suit Against Dechert Thrown Out on Appeal
Dechert LLP won an appeal dismissing a lawsuit by Fortress Investment Group LLC that claimed the law firm issued a false opinion letter endorsing a transaction with convicted lawyer Marc Dreier.
Fortress claimed the 2008 letter caused it to lend $50 million to what it believed was the firm of Sheldon Solow, a New York developer who was a client of Dreier’s defunct firm, Dreier LLP. Dreier, 61, is serving a 20-year sentence in federal prison after pleading guilty to selling more than $400 million in phony notes to hedge funds.
A state appeals court in Manhattan yesterday reversed a ruling in which a lower-court judge declined to dismiss Fortress’s claims.
“As Dreier was Solow Realty’s attorney and the guarantor of the loan, defendant had no reason to suspect that Solow Realty was not in fact a party to the loan transaction or that Dreier forged the signatures of its principal and CEO,” a unanimous five-judge panel said yesterday in an opinion.
“This decision is of tremendous importance to the lawyers and law firms who give closing legal opinions, a fundamental aspect of many financial transactions,” said Joel Miller, lead counsel for Dechert. Miller said Fortress tried to use the Dechert letter as an “insurance policy against anything going wrong with the transaction, including Fortress’s own lack of due diligence which allowed it be defrauded by Marc Dreier.”
“Dechert told Fortress that it was acting as ‘special corporate counsel’ to Solow Realty in the transaction -- a statement that Fortress relied on in entering into the transaction and that proved to be utterly false,” Marc Kasowitz, who represents Fortress in the case, said in a statement yesterday.
Dreier’s firm, which had 250 attorneys, filed for bankruptcy protection in December 2008.
The case is Fortress Credit Corp. v. Dechert, 603819/2009, New York State Supreme Court, Appellate Division, First Department (Manhattan).
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On The Docket
Allen Stanford Mental Fitness Hearing Scheduled for Dec. 20
R. Allen Stanford, the Texas financier accused of leading a $7 billion investment fraud, faces a Dec. 20 hearing to determine whether he is mentally fit to stand trial next year.
Stanford, 61, returned to Houston earlier this month after an almost nine-month stay at a U.S. Bureau of Prisons hospital at Butner, North Carolina. He was treated there for a dependency on anti-anxiety drugs given to him in prison and evaluated for the after-effects of a head injury sustained in a jailhouse assault.
Houston U.S. District Judge David Hittner yesterday scheduled the competency hearing to determine if Stanford can assist in his defense. In a separate order, the judge said Stanford’s criminal trial would start with jury selection on Jan. 23.
The former chairman and chief executive officer of Houston-based Stanford Group Co. is accused of misleading investors about the nature and oversight of certificates of deposit issued by his Antigua-based Stanford International Bank Ltd.
Stanford, who maintains his innocence, has been in custody since June 2009, when he was indicted by a federal grand jury in Houston. The court has twice postponed previously scheduled trial dates.
Ali Fazel, one of his defense attorneys, yesterday declined to comment on the hearing and trial dates, citing an earlier order from Hittner barring attorneys from discussing the case publicly.
Justice Department spokeswoman Laura Sweeney didn’t immediately respond to a request for comment on the trial date. She has previously declined to comment because of the gag order.
The case is U.S. v. Stanford, 09cr342, U.S. District Court, Southern District of Texas (Houston).
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BP’s Macondo Legal Proceedings May Last to 2014
BP Plc’s legal proceedings over the Macondo well that caused the worst U.S. oil spill may last into 2014, Citigroup Inc. said, citing the company’s lead lawyer.
Blame for the accident will likely be apportioned in late 2013, with punishment decided the following year. That’s later than analyst Alastair Syme had expected and is “slightly more favorable” for the company than an earlier decision, he said in a research note published yesterday.
BP has set aside about $40 billion for costs from the disaster that spewed almost 5 million barrels of oil into the Gulf of Mexico last year. Shares are down more than 30 percent since the spill.
“There is still a risk that ultimate fines and penalties could be above BP’s current financial provisioning,” Syme wrote.
The company is counting on $5 billion in fines and $7 billion in compensation. If BP is found to be grossly negligent, its costs may rise by another $10 billion, Syme said.