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MF Global, JPMorgan, HSBC, Pfizer, Wells Fargo in Court News

Updated on

Jon Corzine and four other former executives of bankrupt MF Global Holdings Ltd. were sued by a group of commodity traders seeking damages for lost funds.

Henning-Carey Proprietary Trading LLC, a clearing firm and member of CME Group Inc., joined with eight traders in seeking recovery of an unaccounted-for $1.2 billion in customer funds at the brokerage unit MF Global Inc.

“Defendants were responsible for insuring that the plaintiffs’ property was properly segregated and accounted for,” the traders said in the complaint filed yesterday in federal court in Chicago.

The suit is one of several filed by brokerage customers and former employees against Corzine, MF Global executives or the company since it filed for bankruptcy protection on Oct. 31.

Corzine told the House Agriculture Committee at a hearing in Washington yesterday that he “would never have intended” transfers from segregated accounts and had teams in place at the firm to ensure they didn’t occur.

He wouldn’t say if he and other executives were willing to share customers’ losses.

Corzine and his executives were responsible for looking after customers’ segregated accounts, yet the money went missing as the company tried to salvage its business after “engaging in highly leveraged and speculative trading in foreign sovereign bonds,” the traders claimed in the complaint.

Andrew Levander, an attorney for Corzine, didn’t respond to an e-mail yesterday seeking comment on the traders’ allegations.

The plaintiffs’ accounts were frozen along with about 38,000 others on Oct. 31, after “apparent segregation violations,” making it impossible for customers to access their accounts or the assets in them, the plaintiffs said.

The case is Henning-Carey Proprietary Trading LLC v. Corzine, 11-cv-08717, U.S. District Court, Northern District of Illinois (Chicago).

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Julius Baer, Falcon Sued by Trustee for Madoff-Related Funds

Julius Baer Group Ltd., the 121-year-old Swiss wealth manager, and Falcon Private Bank Ltd. were sued by the trustee liquidating Bernard Madoff’s former investment firm who is seeking to recover $76 million in redemptions.

Irving Picard filed two lawsuits yesterday in U.S. Bankruptcy Court in Manhattan for a return of funds that were transferred to the two Swiss banks by investors in Fairfield Sentry Ltd., a feeder fund for Madoff’s firm. The trustee seeks about $37 million from Julius Baer and about $39 million from Falcon, a Zurich-based private bank owned by the government of Abu Dhabi.

“We cannot comment on pending legal cases,” said Jan Vonder Muehll, a Zurich-based spokesman for Julius Baer, which manages 166 billion Swiss francs ($179 billion) for private clients.

In 2010, the liquidators of the Fairfield funds started separate litigation against Julius Baer, the bank said in its 2010 annual report.

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 $19 billion in principal, Picard has said. Fairfield is in liquidation in the British Virgin Islands. Picard has filed similar lawsuits to recover investments taken out of Madoff’s firm before the fraud was exposed.

Irene Franco, a spokeswoman for Falcon, said the firm hasn’t been informed about the claim.

The cases are Picard v. Bank Julius Baer & Co., 11-2922, and Picard v. Falcon Private Bank, 11-2923, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Stichting Pensioenfonds Sues JPMorgan Chase Over Securities

Stichting Pensioenfonds ABP, the Netherlands’ biggest retirement fund, sued JPMorgan Chase & Co., alleging violations of securities laws and fraud involving sales of residential mortgage-backed securities.

The suit, filed in New York state court in Manhattan Dec. 7, accused the New York-based bank of negligent misrepresentation, alleging the sales were based on false and misleading statements. Damages should be determined at trial, according to the filing.

“ABP purchased securities that were far riskier than had been represented, backed by mortgage loans worth significantly less than had been represented and that had been made by borrowers who were much less creditworthy than had been represented,” ABP said.

Jennifer Zuccarelli, a spokeswoman for JPMorgan, declined to comment about the lawsuit.

The Heerlen, Netherlands-based pension fund sued Deutsche Bank AG over similar allegations in New York State Supreme Court in September. ABP serves as the pension fund for Dutch public educational and government workers and has more than 250 billion euros ($332.8 billion) in assets under management, according to the complaint.

The case is Stichting Pensioenfonds ABP v. JPMorgan Chase & Co., 653383/2011, New York State Supreme Court (Manhattan)

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


HSBC Allowed by Judge to Join JPMorgan in Madoff Appeals

HSBC Holdings Plc can join JPMorgan Chase & Co. and UBS AG in appeals of decisions dismissing most of the lawsuits brought by the trustee liquidating Bernard L. Madoff Investment Securities Inc., a judge ruled.

U.S. District Judge Jed Rakoff in July dismissed most of the Madoff trustee’s $9 billion suit against London-based HSBC. In November, U.S. District Judge Colleen McMahon threw out most of the trustee’s $19 billion suit against New York-based JPMorgan and dismissed most of the suit against UBS.

The two judges ruled on the same grounds, accepting the banks’ arguments that the claims underlying the trustee’s suits could only be brought by individual Madoff creditors.

Irving Picard, the Madoff trustee, couldn’t appeal immediately because neither judge dismissed all of the suits. To lift the bar to appeal, McMahon previously entered a final judgment in the JPMorgan case, allowing Picard to seek a review by a U.S. Court of Appeals.

Yesterday, at the request of HSBC, Rakoff did the same by entering a final dismissal judgment so Picard can appeal. HSBC said it wanted to have its case heard at the same time as JPMorgan’s.

The HSBC case lacked “factors that might lead the court to deny such relief” in Picard’s suit against New York Mets owners Fred Wilpon and Saul Katz, Rakoff said. In September, Rakoff knocked out about $700 million of the $1 billion in claims in the Wilpon case and scheduled a jury trial for March.

Rakoff said he is still considering whether to allow Picard to appeal his decision that the trustee can only sue to recover fictitious profits that customers took out within two years of the Madoff firm’s bankruptcy. Picard sought to go back six years in disgorging bogus profits from the Ponzi scheme.

Picard argued in court papers that Rakoff should allow an immediate appeal because another district judge disagreed with Rakoff’s conclusion that suits can only look back two years. Until the question on timing is resolved, hundreds of suits by the trustee against customers are in limbo.

The HSBC suit in U.S. District Court is Picard v. HSBC Bank Plc, 11-763, U.S. District Court, Southern District of New York (Manhattan). The UBS suit in district court is Picard v. UBS AG, 11-04213, in the same court. The JPMorgan lawsuit in district court is Picard v. JPMorgan Chase & Co., 11-00913, in the same court. The JPMorgan lawsuit in bankruptcy court was Picard v. JPMorgan Chase & Co., 10-04932, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The Wilpon suit in district court is Picard v. Katz, 11-03605, U.S. District Court, Southern District New York (Manhattan).

The Madoff liquidation case is Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities Inc., 08-01789, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The criminal case is U.S. v. Madoff, 09-cr-00213, U.S. District Court, Southern District of New York (Manhattan).

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Samsung Loses Bid to Block Apple IPhone 4S Sales in France

Samsung Electronics Co. failed to win a court order blocking Apple Inc. from selling its newest smartphone, the iPhone 4S, in France.

The Paris court rejected Samsung’s request for an emergency order against Apple while it considers the South Korean company’s patent-infringement claims.

Samsung, the biggest maker of smartphones, sought to block sales of the new handset in France, Italy and the U.K. days after it was unveiled in October, arguing Apple violated its wireless-communications patents. Suwon, South Korea-based Samsung sued in Paris in July over earlier versions of the iPhone and Apple’s iPad tablet.

“The disproportionate character of the ban sought by Samsung against Apple is clear,” Judge Marie-Christine Courboulay said in the decision yesterday.

The Paris court ruled Samsung must pay Apple 100,000 euros ($134,100) for legal fees while denying Apple’s request for damages. Samsung’s claim wasn’t “abusive” and the company’s infringement claims can move forward as a regular lawsuit, Courboulay said.

Florence Catel, a Samsung spokeswoman in Paris, declined to comment on the decision. Calls to Apple’s office in London for comment weren’t immediately returned.

Samsung has been locked in a global legal battle with Apple since the Cupertino, California-based company claimed in an April suit that Samsung’s Galaxy devices copied the iPad and iPhone. Samsung was the world’s biggest maker of smartphones in the last quarter, while Apple dominates the tablet market.

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Education Management Should Face Recruitment Suit, U.S. Says

Education Management Corp., the second-largest U.S. for-profit college chain, should be forced to defend a lawsuit alleging its recruiting policies helped the company wrongfully secure more than $11 billion in student aid, government lawyers said in a court filing.

U.S. officials have properly outlined claims that Pittsburgh-based Education Management created an illegal compensation system for admission recruiters to ensure a steady flow of students who receive government aid to pay college expenses, Justice Department attorneys said in the filing made public yesterday.

“EDMC’s unlawful compensation scheme emanates from the highest levels of the corporation and represents a conscious effort to do exactly what” federal regulations prohibit in terms of providing bonuses to recruiters, the government said in the filing in federal court in Pittsburgh opposing the firm’s request to have the case thrown out.

For-profit colleges have been under scrutiny by Congress, state lawmakers and attorneys general who are investigating sales practices and students’ debt loads. Eleven states and the District of Columbia joined the U.S. as plaintiffs in the case.

The government, which intervened in suits filed by two EDMC whistleblowers, contends the company systematically violated federal law by paying recruiters based on their success in persuading prospective students to enroll in the for-profit school.

EDMC argued in court filings that prosecutors haven’t properly stated claims supporting allegations that the institution started a companywide campaign to defraud the government and violate Department of Education regulations.

“We are reviewing the governments’ responses to EDMC’s motion to have the court dismiss this lawsuit, and we will have an opportunity to file a reply with the court,” Bonnie Campbell, a legal adviser to the company, said in an e-mailed statement. “Based on what we have seen, we continue to believe the case should be dismissed.”

The case is U.S. v. Education Management Corp., 07-00461, U.S. District Court, Western District of Pennsylvania (Pittsburgh).

For the latest lawsuits news, click here.


Pfizer Wins Review of Punitive-Damages Award in Prempro Case

Pfizer Inc., the world’s largest drugmaker, persuaded a Pennsylvania appeals court to review an $8.6 million punitive-damages award to a woman who blamed her cancer on the company’s menopause drugs.

The Pennsylvania Supreme Court agreed to hear arguments by Pfizer’s Wyeth unit that a judge erred in letting a Philadelphia jury award punishment damages to Mary Daniel, a former bank manager from Arkansas who sued the drugmaker alleging its Prempro pills caused her breast cancer. Jurors also awarded Daniel more than $1.6 million in compensatory damages on her claim.

More than 6 million women took Prempro and related menopause drugs to treat symptoms such as hot flashes and mood swings before a 2002 study highlighted their links to cancer. Wyeth’s sales of the medicines, which are still on the market, topped $2 billion before the release of the Women’s Health Initiative, a National Institutes of Health-sponsored study.

“The company is pleased the Pennsylvania Supreme Court will hear the company’s appeal regarding whether punitive damages are warranted,” Chris Loder, a Pfizer spokesman, said in an e-mailed statement yesterday. “The company has said all along that Wyeth acted responsibly” in its handling of the drug, he added.

Until 1995, many menopausal women combined Premarin, Wyeth’s estrogen-based drug, with progestin-laden Provera, made by Pfizer’s Upjohn unit, to relieve their symptoms. Wyeth combined the two hormones in its Prempro pill.

Pfizer’s Wyeth and Pharmacia & Upjohn units have lost 10 of the 18 Prempro cases that juries have considered since trials began in 2006. The most recent verdict came this week when a Philadelphia jury awarded three women more than $72 million in damages on their claims over the drugmaker’s hormone-replacement medications.

“We are pleased the court declined to consider any issue relating to Wyeth’s negligence in causing her breast cancer or Mrs. Daniel’s compensatory award,” Zoe Littlepage, one of the woman’s lawyers, said in an e-mailed statement yesterday.

The case is Daniel v. Wyeth, 040602368, Court of Common Pleas (Philadelphia).

For more, click here.

‘Oddball’ Hedge-Fund Friend Chose Stocks, Sidhu Tells Court

Rupinder Sidhu, who is accused of insider trading, said he had no idea stock tips from his “eccentric” friend at hedge fund AKO Capital LLP were based on confidential information.

Prosecutors allege AKO trader Anjam Ahmad told Sidhu when the fund was about to place large buy or sell orders so Sidhu could benefit from the effect on the shares. The pair split profits of about 500,000 pounds ($783,500) from spread bets on companies including Julius Baer Group Ltd., Swatch Group AG and Michael Page International Plc between June and August 2009, the U.K. Financial Services Authority said in a London trial.

“I didn’t know about any AKO orders,” Sidhu testified yesterday. “I was basing my trades on Ahmad’s decisions and his rationale.”

Sidhu denies 23 counts of insider trading and one money-laundering charge for which he’s on trial. The 40-year-old management consultant from Osterley, West London, admitted contacting Ahmad using unregistered mobile phones and instant-messaging accounts under false names to discuss trades. In one MSN Messenger conversation, they made a coded reference to a potential purchase as a “party.”

Sidhu told jurors this was because he wanted to keep the spread betting secret from his family, who banned the practice after he racked up heavy trading losses in 2008. Ahmad told Sidhu his contract with AKO prevented him from trading for himself.

Ahmad, a former equity strategist at Citigroup Inc., was a gifted mathematician who was known for being “quirky and eccentric” and “an oddball,” Sidhu said in testimony Dec. 7. They had been friends since secondary school and Sidhu regularly sought his advice on trading.

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Pfizer Settles Prempro Case After Losing $72.6 Million Verdict

Pfizer Inc., the world’s largest drugmaker, agreed to settle claims that its menopause drugs caused cancer in three women who won a $72.6 million jury award earlier this week, a lawyer said.

The New York-based company agreed to resolve claims by Susan Elfont, Bernadette Kalenkoski and Judy Mulderig that hormone-replacement drugs made by two Pfizer units caused their breast cancer, Ted Meadows, a lawyer for the women, said in an interview yesterday. A Philadelphia jury awarded the three women $72.6 million in compensatory damages on Dec. 6.

“They’re just glad to be able to go on with their lives,” said Meadows, who declined to disclose the amounts of the settlements because they are confidential.

The accord comes a day before jurors were to begin hearing testimony in a second phase of the case. The panel would have been asked to decide whether Pfizer should face punitive damages over its handling of the menopause drugs.

“The parties have entered into a mutual agreement to resolve this case under confidential terms,” Chris Loder, a Pfizer spokesman, said in a telephone interview. The earlier verdict will be set aside as part of the settlement, he said.

More than 6 million women took Prempro and related menopause drugs to treat symptoms such as hot flashes and mood swings before a 2002 study highlighted their links to cancer. Wyeth’s sales of the medicines, which are still on the market, topped $2 billion before the release of the Women’s Health Initiative, a National Institutes of Health-sponsored study.

The Philadelphia case that settled is Elfont v. Wyeth Pharmaceuticals Inc., 00924, Jury Term 2004, Philadelphia Court of Common Pleas (Philadelphia).

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Garrett Bauer Pleads Guilty to Trading on Stolen Merger Tips

Garrett Bauer, a New York stock trader, pleaded guilty to his role in an insider-trading scheme that the U.S. says generated $37 million in illegal profits by relying on corporate merger tips stolen from four law firms.

Bauer, 44, joined middleman Kenneth T. Robinson and attorney Matthew H. Kluger in using nonpublic data to trade ahead of more than 30 corporate transactions over 17 years, he admitted in federal court in Newark, New Jersey. Robinson, who cooperated with prosecutors, pleaded guilty in April.

In charging the men in April, prosecutors said the scheme involved companies such as Sun Microsystems Inc., 3Com Corp. and Acxiom Corp. They said Bauer made more than $30 million on the scheme, while Robinson earned more than $875,000 and Kluger more than $500,000.

“After taking the lion’s share of the $37 million in profits, Bauer now faces punishment for conduct that undermines the fairness of our financial markets and the public’s trust in the safety of its investments,” U.S. Attorney Paul Fishman said in a statement.

Bauer admitted securities fraud, conspiracy to commit securities fraud, conspiracy to commit money laundering, and obstruction of justice. He faces as many as 20 years in prison on the fraud and obstruction counts when he is sentenced March 13. He forfeited cash and property worth more than $23 million.

Bauer, who is free on $4 million bail, regrets his actions and has been giving lectures to students and traders about insider trading, said his attorney Michael Bachner. He has spoken at business schools, law schools, churches and synagogues to audiences ranging from 20 to 200 people, Bachner said.

The cases are U.S. v. Bauer, 11-mj-03536, and U.S. v. Robinson, 11-cr-00223, U.S. District Court, District of New Jersey (Newark).

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Wells Fargo to Pay $148 Million in Muni Bid-Rigging Case

Wells Fargo & Co. agreed to pay $148 million to settle criminal charges and civil claims for conspiring to overcharge state and local governments on investments, becoming the fourth bank to enter a settlement in the case.

The deal will resolve investigations into Wachovia Bank, which Wells Fargo acquired in 2008, by U.S. agencies, including the Securities and Exchange Commission and the Justice Department, as well as attorneys general in 26 states, the Justice Department said in a statement.

The case is the latest in a more than five-year investigation into how Wall Street banks conspired with local-government advisers to reap excessive fees on investments sold to public agencies by rigging competitive auctions and carving up the market among themselves. JPMorgan Chase & Co., UBS AG and Bank of America Corp. previously settled similar cases.

“Wachovia won bids by playing an elaborate game of ‘you scratch my back and I’ll scratch yours,’ rather than engaging in legitimate competition to win municipalities’ business,” Robert Khuzami, director of the SEC’s Division of Enforcement, said in a statement.

The settlement by Wells Fargo will bring to $673 million the amount that banks have paid to settle the case, some of which is being returned to localities that were overcharged in the scheme.

Wells Fargo, based in San Francisco, said the conduct was by former employees of Wachovia before its acquisition. About $59 million from the settlement will go to state attorneys general, the bank said.

“Wells Fargo is pleased to have fully resolved this investigation of Wachovia Bank,” the bank said in a statement.

The charges are connected to investment contracts that states and cities bought with proceeds raised in the $3.7 trillion municipal-bond market, allowing them to earn a return until the cash is needed for public-works projects.

For more, click here.

KME, Halcor Lose EU Top Court Challenges of Antitrust Fines

KME Group SpA and Greek metals processor Halcor SA lost European Union top court appeals over cartel fines.

The antitrust penalties against the companies should stand, the EU Court of Justice in Luxembourg said in rulings yesterday.

KME appealed fines levied in two separate cartels in 2003 and in 2004, respectively. A lower EU court in 2009 rejected the company’s first challenge to the 2003 fine of 39.8 million euros ($53.3 million). In 2004, KME was fined 67.1 million euros and Halcor 9.16 million euros in another cartel. Halcor’s fine was cut to 8.25 million euros by a lower EU court in 2010.

The European Commission, the 27-nation EU’s antitrust regulator, fined three companies in 2003, including Outokumpu Oyj and Wieland-Werke AG, a total of 79 million euros for a cartel between 1988 and 2001 in the market for copper tubes used in air conditioning and refrigeration. A few months later, the regulator levied a 222.3 million-euro penalty on companies including KME and Halcor in the water, heating and gas tubes market.

Yesterday’s ruling confirms the lower court’s decision which largely backed the EU antitrust authority, the Brussels-based regulator said in an e-mailed statement.

Halcor will examine the ruling and has already set aside 5 million euros to cover part of the fine, according to a filing the company made to the Athens bourse. Francesco Giubilei, a spokesman for Florence, Italy-based KME said he couldn’t comment because it’s a national holiday.

The cases are: C-272/09 P, KME and Others v. European Commission, C-389/10 P, KME Germany and Others v. Commission.

For the latest verdict and settlement news, click here.

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