Morgan Stanley reached a settlement with MBIA Inc. over credit-default swaps that led to billions of dollars of losses for the bank, agreeing to terminate the contracts and drop a challenge to the insurer’s restructuring.
MBIA will make a $1.1 billion cash payment to Morgan Stanley as part of the settlement, according to a person familiar with the agreement who asked not to be named because the amount hasn’t been made public. Morgan Stanley will take a $1.2 billion loss this quarter related to the deal, the New York-based bank said yesterday in a statement.
Morgan Stanley’s exposure to MBIA, and its attempts to hedge those risks, have resulted in losses of about $3 billion since the start of 2008, not including yesterday’s announcement. The settlement will increase Morgan Stanley’s capital, boosting the Tier 1 common ratio under new rules by about 75 basis points, according to the statement.
“It’s critical that we reposition for the new regulatory environment and do so quickly,” Morgan Stanley Chief Executive Officer James Gorman said in the statement. “A top priority for 2011 was to address this large outstanding legacy exposure and this settlement is consistent with our efforts to build capital and de-risk the balance sheet.”
The agreement “removes a legal headache, and should give a boost to Morgan’s balance-sheet efficiency” Glenn Schorr, an analyst at Nomura Holdings Inc., said in a note to investors. The deal “could also cause the firm’s CDS spread to tighten as earnings volatility should decline,” Schorr said.
MBIA, based in Armonk, New York, will withdraw a suit against Morgan Stanley relating to $223 million of residential mortgage-backed securities. Morgan Stanley plans to end its participation in litigation challenging the split of the insurer’s business.
“This settlement is good for Morgan Stanley, good for MBIA and good for the markets and our financial system, allowing firms to move forward and rebuild,” Benjamin Lawsky, New York state’s financial services superintendent, said in a separate statement.
Kevin Brown, a spokesman for MBIA, declined to comment.
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Syracuse University, Boeheim Sued Over Fine Sex-Abuse Claims
Syracuse University and its head basketball coach, Jim Boeheim, were sued by two men claiming “years of sexual molestation” at the hands of former assistant coach Bernie Fine.
Robert “Bobby” Davis, 39, of Onondaga County, New York, and his stepbrother Michael Lang, of Oswego County, who both served as ball boys for the Syracuse basketball program, filed a complaint yesterday in New York State Supreme Court in Manhattan. Fine was sued on Dec. 8 in Pennsylvania state court by Zach Tomaselli, who said he was abused by the coach as a 13-year-old in a Pittsburgh hotel room.
“The sexual abuse occurred in Fine’s office at Manley Field House, a short distance from (and for years, next door to) Boeheim’s office,” lawyers for Davis and Lang said in their complaint. “It occurred on team trips to other cities for away games, including when the team attended and participated in the Final Four; it occurred at a fraternity house on campus where Fine was a supervisor; and it occurred in Fine’s car and in his home.”
Syracuse fired Fine, who was in his 36th season at the upstate New York university, on Nov. 27 after he was accused of sexually abusing the two former ball boys. Onondaga County District Attorney William Fitzpatrick said on Dec. 8 that Fine won’t face charges related to those allegations because the claims are too old to prosecute.
Scott McDowell, a spokesman for Syracuse University, said in a e-mail that the school is declining to comment on the lawsuit.
Ted Feeley, a spokesman for the Syracuse athletic department, declined to comment on the lawsuit. William Albert, a spokesman for Harris Beach Pllc, a Pittsford, New York-based law firm representing Fine, didn’t respond to messages seeking comment. Fine has denied wrongdoing.
The case is Davis v. Syracuse University, 113967/2011, New York State Supreme Court (Manhattan).
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Madoff Trustee Sues Credit Suisse to Recover $375 Million
Credit Suisse Group AG was sued by the trustee liquidating Bernard Madoff’s former investment firm to recover $375 million in redemptions that were taken out of con man’s company before his Ponzi scheme was exposed.
Trustee Irving Picard filed an adversary complaint yesterday in U.S. Bankruptcy Court in Manhattan for the return of funds transferred to the Swiss bank by investors in Fairfield Sentry Ltd. and Kingate Global Fund Ltd. The two so-called feeder funds, which invested almost all their assets with Madoff, are now in liquidation themselves, Picard said.
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. Picard has filed similar lawsuits to recover investments taken out of Madoff’s firm.
“While we are still reviewing the complaint, there is no allegation that CS did anything wrong,” Victoria Harmon, a spokeswoman for Zurich-based Credit Suisse, said in an e-mail. “This is simply another of the numerous claims the trustee has filed in an attempt to clawback further funds.”
The case is Picard v. Credit Suisse, 11-02925, U.S. Bankruptcy Court, Southern District of New York (Manhattan.)
Ex-Siemens Executives Charged in Argentine ID Bribery Scheme
Eight former executives at Siemens AG, Europe’s largest engineering company, were charged by the U.S. with conspiring to bribe Argentine government officials to land a $1 billion contract to make national identity cards.
The U.S. said the former executives ran a decade-long scheme to pay more than $100 million in bribes to officials including cabinet ministers and presidents to win the contract, and to cover their tracks so the fraud wouldn’t be exposed.
The counts against the former officials include conspiracy to violate the Foreign Corrupt Practices Act and the wire-fraud statute, money laundering conspiracy and wire fraud, according to an indictment unsealed yesterday in Manhattan federal court.
The case showed “corruption on an absolutely stunning scale,” Assistant Attorney General Lanny Breuer said in a call with reporters yesterday. “This is the first time we have so many defendants charged with this fraud.”
The defendants in the criminal case are Uriel Sharef, 67, a former member of the managing board of Munich-based Siemens; Herbert Steffen, 74, Andres Truppel, 57, Ulrich Bock, 68, Eberhard Reichert, 74, Stephan Signer, 51, Carlos Sergi, 78, and Miguel Czysch, 79.
A ninth executive, Bernd Regendantz, was named in a related complaint filed yesterday by the U.S. Securities and Exchange Commission and not charged with a crime. Czysch and Reichert, who were charged criminally, aren’t named as defendants in the SEC complaint, which was also filed in Manhattan federal court.
“The company is not indicted,” said Alexander Becker, a Siemens spokesman. “We can’t comment on proceedings against individuals.”
The SEC claims that executives of Siemens and its Argentine subsidiary bribed officials in Argentina from 1996 to 2007.
Steffen’s attorney, Steffen Ufer, said that his client denies wrongdoing and that he settled an investigation of the same issues with prosecutors in Munich.
Sharef’s lawyer, Heiko Lesch, and Hans Dieter Gross, who represents Bock, declined to comment.
Jan Olaf Leisner, who represents Truppel, and Eberhard Zeeb, Signer’s lawyer, didn’t reply to e-mails seeking comment.
“He acted honorably at all points in the investigation and in the best interest of Siemens, where he continues to work, and he will not be named criminally,” Regendantz’s lawyer, Nicholas De Feis, said in a phone interview.
The criminal case is U.S. v. Sharef, 11-01056, U.S. District Court, Southern District of New York (Manhattan). The civil case is U.S. Securities and Exchange Commission v. Sharef, 11-CV-9073, U.S. District Court, Southern District of New York (Manhattan).
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Kraft, Kellogg Sue Egg Companies Claiming Antitrust Breach
Kellogg Co., General Mills Inc. and units of Kraft Foods Inc. and Nestle SA sued Cal-Maine Foods Inc. and 10 more egg producers for allegedly conspiring to control prices and supplies in violation of antitrust laws.
The plaintiffs, among the world’s biggest makers of packaged food, said in a complaint filed Dec. 12 in federal court in Chicago that they suffered damages as a result of the alleged conspiracy to control the supply of eggs and to artificially maintain and increase pricing.
“Defendants and their co-conspirators controlled and manipulated capacity for production of eggs and egg products,” according to the complaint.
The companies are seeking a court order barring the egg producers’ alleged improper acts and money damages, which can be tripled under federal antitrust law.
Timothy Dawson, chief financial officer of Jackson, Mississippi-based Cal-Maine, said the allegations are similar to those in lawsuits filed in Pennsylvania. He said the company would defend against this one, too.
“We are aware of it,” Dawson said in a phone interview. “This is just another one of those suits.” He declined to comment further.
The case is Kraft Foods Global Inc. v. United Egg Producers Inc., 11-cv-8808, U.S. District Court, Northern District of Illinois (Chicago).
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Cameron Asks Court to Derail February BP Gulf Spill Trial
Cameron International Corp. asked a federal appeals court to derail a trial set for February to determine which companies should be blamed for the 2010 BP Plc oil spill in the Gulf of Mexico.
Cameron, which made the blow-out prevention equipment used for the Macondo well, asked the U.S. Court of Appeals in New Orleans to throw out the existing trial plan and rule that claims against the company should be tried before a jury. U.S. District Court Judge Carl Barbier, who is overseeing much of the spill litigation, has scheduled a nonjury trial for Feb. 27 in New Orleans to determine liability and apportion fault.
Barbier plans two subsequent nonjury phases on the size of the spill and efforts to contain it. Test jury trials on damages to victims would follow, the judge has said. Cameron said that trial plan violates its constitutional rights.
“The proceeding envisioned by the district court’s plan is not a ‘trial’ as it is known in Anglo-American law,” Cameron, a defendant in hundreds of lawsuits over the explosion and subsequent oil spill, said in a court filing. “Its three phases are reminiscent of the procedures followed by European courts in which the judges are active prosecutors in search of justice while the litigants are virtually bystanders.”
The appeals court last week set oral arguments on Cameron’s challenge for Dec. 22 in Dallas.
The April 2010 Macondo well blowout and the explosion that followed killed 11 workers and set off the worst offshore oil spill in U.S. history. The accident and spill led to hundreds of lawsuits against BP and its partners and contractors, including Cameron; Transocean Ltd., the Switzerland-based owner and operator of the Deepwater Horizon drilling rig that exploded; and Halliburton Co., which provided cementing services.
The appeals case is In re Cameron International, U.S. Court of Appeals for the Fifth Circuit. The lawsuits are combined in 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).
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Sandusky Waived Hearing After Last-Minute, Late-Night Talks
Jerry Sandusky’s lawyer and prosecutors negotiated late into last night to set the stage for the abbreviated preliminary hearing in the child sex-abuse case against the former Pennsylvania State University assistant football coach.
Sandusky, 67, waived his right to the hearing at the start of the 8:30 a.m. session yesterday in Bellefonte, Pennsylvania, where some of his accusers were set to testify. He also waived an arraignment, pleading not guilty to more than 40 criminal counts related to the alleged molestation of 10 boys from 1994 to 2009. The decision was made at 10:30 p.m. yesterday after talks with prosecutors by phone, his attorney, Joseph Amendola, said in an interview.
Amendola said he got commitments from the prosecutors to expedite evidence sharing and to maintain bail terms in exchange for the waiver. The deal may backfire on the defense, a former prosecutor said. By choosing not to question the 11 witnesses set to testify yesterday, Amendola and his client are forgoing valuable information they could use at trial.
“In a preliminary hearing, you have the right to confront your accusers, you have the right to cross-examine witnesses. It’s a very helpful and powerful tool for a trial lawyer,” said Jack McMahon, a former prosecutor in the Philadelphia District Attorney’s office. “It doesn’t make sense to give up that important right.”
Sandusky was initially charged on Nov. 5 with crimes involving eight boys. He was rearrested last week and charged with more crimes after two new accusers came forward. The charges include nine counts of involuntary deviate sexual intercourse, each punishable by as much as 20 years in prison.
Prosecutors said Sandusky used Second Mile, a children’s charity he founded, to recruit victims, befriending them and “grooming” them with gifts, trips to football games and money. The alleged victims ranged in age from 10 to 15 when the abuse occurred, according to court documents.
The case is Commonwealth of Pennsylvania v. Sandusky, MJ-49201-cr-0000636-2011, Magisterial District Court, Centre County.
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HTC Files Complaint in Taiwan Against Citigroup Employee
HTC Corp., the biggest seller of smartphones in the U.S., filed a complaint in Taiwan against a Citigroup Inc. employee after the broker downgraded its recommendation on the company, preceding a 59 percent drop in the handset maker’s shares.
“HTC submitted the case in August against a person at Citigroup Global Markets” in relationship to alleged violations of the Securities and Exchange Act, Huang Mou-hsin, deputy chief prosecutor at the Taipei District Prosecutors Office, said by phone yesterday. He declined to identify the person and said investigations are continuing. Annie Lu, a spokeswoman for Taoyuan, Taiwan-based HTC, declined to comment.
Citigroup, the best-performing broker covering HTC, on July 7 cut the stock to “sell” from “buy,” citing corporate governance concerns over its purchase of S3 Graphics Co., competition from Samsung Electronics Co. and slowing demand. HTC last month cut its sales forecast citing competition and prompting at least six brokers to downgrade the stock.
“Given the matter is being reviewed by the authorities, it would be inappropriate for us to provide any comments,” Citibank said in an e-mailed response to queries yesterday. HTC hasn’t publicly named the Citigroup employee or cited what information it has concerns over.
HTC filed a suit against an analyst at Citigroup, alleging the person disseminated false information that affected the handset maker’s share price, the Taipei-based Commercial Times reported yesterday, without saying where it got the information.
The handset maker’s close relationship with operators, and customers delaying purchases of Apple Inc.’s latest iPhone, helped HTC become the leading seller of smartphones in the U.S. last quarter, according to researcher Strategy Analytics Inc.
HTC shares have dropped 59 percent since July 6, the day before Citigroup Taipei-based analysts Kevin Chang and Jonathan Gu published a report outlining their downgrade and cut their 12 month price target by 37 percent.
They revised their recommendation to “hold” in September, after the stock had dropped more than 30 percent, and then again rated it “sell” on Nov. 23.
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SEC Accounting-Fraud Cases Drop to 10-Year Low: BGOV Barometer
The U.S. Securities and Exchange Commission brought the fewest accounting-fraud cases in a least a decade in fiscal 2011, reflecting a shift in enforcement priorities in the wake of the financial crisis.
The BGOV Barometer shows the agency filed 109 actions related to financial fraud and issuer disclosure in the year ended Sept. 30, punctuating a four-year decline in such cases from a recent high of 219 in fiscal 2007, according to SEC data.
A focus on cases related to the financial crisis and on Ponzi schemes following the Bernard Madoff swindle may have drawn resources away from traditional priority areas such as accounting fraud, said Joan McKown, a former SEC lawyer.
“There’s always a trade-off,” said McKown, now a partner with the law firm Jones Day in Washington. “If one area has gone down, there might be a concern about whether there’s something they’re missing.”
Accounting fraud had constituted the biggest category of enforcement actions for most of the last decade, SEC figures show. McKown said a surge in such cases through 2007 followed accounting scandals at Enron Corp. and Adelphia Communications Corp.
The decline in accounting cases since then came after the biggest reorganization of the SEC’s enforcement division in 30 years. Robert Khuzami, who became head of the enforcement branch in 2009, realigned investigators’ priorities, establishing five specialized units to focus on market abuse, municipal securities, foreign bribery, structured products and asset managers such as hedge funds.
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Novell Makes Closing Arguments at Microsoft Antitrust Trial
Novell Inc. and Microsoft Corp. made closing arguments yesterday in Novell’s case claiming the world’s largest software maker unfairly used its monopoly on personal computer operating systems to suppress WordPerfect, a rival word-processing program.
In defending the case in federal court in Salt Lake City, Microsoft called Chairman Bill Gates as a witness last month. Gates testified that he “absolutely” denied the central allegation of Novell’s suit: that in 1994, in developing the Windows 95 operating system, Microsoft blocked an element of the software to thwart Novell’s WordPerfect and Quattro Pro programs.
Novell is seeking as much as $1.3 billion in damages, which would be tripled under antitrust law. The company “wanted nothing more than to compete on the merits of its products,” the company’s lawyer, Jeffrey Johnson, told the jury.
A decision to restrict outside programmers’ access to “extensions,” or programming code -- a decision that Novell claims deliberately targeted WordPerfect and made it impossible to run properly on Windows -- was made at a 1993 “high-level executive retreat” at Hood Canal, Washington, Johnson told jurors.
Gates’s testimony that the extensions were “trivial and unimportant -- hardly worth his time” doesn’t withstand scrutiny, Johnson said. Johnson revisited testimony and e-mails presented at trial to argue the decision was a “purely predatory action.”
“He wasn’t telling the truth,” Johnson said, referring to Gates’s testimony. “It was important to him.”
David B. Tulchin, a lawyer representing Microsoft, told jurors that Novell “showed you not one document in which Novell complained to Microsoft” about the blocked extensions in 1994 or 1995. A juror might conclude that a company facing $1 billion of damages without the code at issue would “speak up,” he said.
The case is Novell Inc. v. Microsoft Corp., 04-01045, U.S. District Court, District of Utah (Salt Lake City).
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Ex-Washington Mutual Officers Reach $64 Million FDIC Settlement
Three former executives of Washington Mutual, Inc. have agreed to a $64 million settlement of a lawsuit brought by the Federal Deposit Insurance Corp. over the bank’s failure in September 2008, according to FDIC officials.
Former chief executive Kerry Killinger, former chief operating officer Stephen Rotella and the former top lending official David Schneider had faced claims from the FDIC that they pay $900 million.
The FDIC values the settlement at $64 million, according to the officials, who briefed reporters on the condition of anonymity yesterday.
WaMu failed after depositors withdrew money and a years-long focus on subprime mortgages took its toll, and its holding company has since been the subject of litigation by shareholders, noteholders, officers and regulators. Its deposits, assets and certain liabilities were immediately sold to JPMorgan Chase & Co. after its regulator, the now-defunct Office of Thrift Supervision, closed the Seattle-based bank.
The settlement will be formalized in the next day and made public within a week, the officials said.
Commerzbank’s Eurohypo Ordered to Pay on Profit Certificates
Commerzbank AG’s Eurohypo must pay interest to holders of profit certificates, a German appeals court ruled in a case brought by private-equity firm Crown Ocean Capital Ltd.
The Frankfurt Higher Regional Court yesterday overturned a lower court ruling from last year that Eurohypo, Commerzbank’s real estate arm, could stop payments for 2009 after recording a loss. The certificates were originally issued by Rheinhyp AG, which later became part of Eurohypo.
QVT Financial LP, a New York hedge fund, won a ruling in Frankfurt earlier this year over the issue in a separate suit. QVT has also sued in Delaware, claiming Eurohypo owes $68 million for profit-dependant payments on hybrid capital investments. Commerzbank is trying to raise 5.3 billion euros ($7 billion) in capital by mid-2012.
Commerzbank, which agreed to buy Eurohypo in 2005, will analyze the ruling and may appeal, company spokesman Maximilian Bicker said in an e-mailed statement. Eurohypo can appeal the decision to Germany’s top civil court.
“The ruling for the first time clarifies an important legal issue: how do you have to indemnify profit certificate investors in a takeover,” said Klaus Steiner, Crown Ocean’s lawyer. “The court reasoned that you have to grant them protection similar to shareholders in that situation under German law.”
Yesterday’s case is OLG Frankfurt am Main, 5 U 56/11.
Standard Bank Settles $150 Million Loan Fight With Saudi Sheikh
Saudi Arabia’s third-richest man and Standard Bank Group Ltd. have settled their dispute over unpaid loans, according to court documents filed in London.
Standard Bank’s U.K. unit sued Sheikh Mohamed bin Issa al Jaber for the repayment of $150 million in loans to companies in his MBI International & Partners Inc. group. Al Jaber said he would countersue the Johannesburg-based bank over unauthorized currency trades made from his account.
“On Dec. 7, Standard Bank, Sheikh Mohamed and his corporate entities reached a mutually agreeable settlement of all claims between them,” al Jaber’s spokesman Neil McLeod said in an e-mailed statement.
Janice Garraway, a London based spokeswoman for Standard Bank, confirmed the agreement.
Judge Julian Flaux on Dec. 12 ordered the lawsuit be put on hold because the parties had settled. He also lifted the global freezing order against the Sheikh’s assets, which al Jaber has said forced parts of his hotel business into administration and cost him more than 1 billion pounds ($1.55 billion). The terms of the settlement filed Dec. 12 with the court weren’t made public.
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White-Collar Defenders in Demand at Law Firms
White-collar criminal-defense attorneys may be more sought-after at U.S. law firms than at any other time in a decade because of stepped-up enforcement of a federal anti-bribery statute and the Dodd-Frank regulatory law.
There is “greater demand for white-collar and enforcement partners than any time I can recall in my 20-plus years as a recruiter, other than when Enron was dominating the headlines,” said Jon Lindsey of Major, Lindsey & Africa, a legal recruiting firm in New York. Enron Corp., once the largest energy trader, declared bankruptcy in December 2001.
Heightened enforcement since 2007 of the federal Foreign Corrupt Practices Act, which makes it a crime to bribe foreign officials to get business, and a whistle-blower provision in Dodd-Frank are driving the trend, Lindsey said.
At least nine of the 67 highest-grossing American firms announced they hired partners for their white-collar defense or regulatory compliance practices in the past 15 weeks.
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