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Thoroughbred Sex, UBS, Ally, IndyMac, BNY in Court News

Updated on

Dec. 15 (Bloomberg) -- International rules adopted in Australia requiring thoroughbreds to physically mate to produce offspring eligible for racing are seen to illegally curb competition and a lawyer said they should be abolished.

The industry’s “self-regulation has become anti-competitive and exclusionary,” Ian Tonking, a lawyer for Bruce McHugh, the former Sydney Turf Club chairman who sued to allow artificial insemination for race horses, told a judge today. “This court cannot conclude the rules do not substantially lessen competition or amount to a constraint on trade.”

McHugh’s lawsuit challenges a multibillion-dollar industry for breeding that sees owners of the world’s most-prized horses, including Dubai’s ruler Sheik Mohammed bin Rashid al-Maktoum, send so-called shuttle stallions around the globe to breed with mares. Tonking was commenting during the first of three scheduled days of closing arguments before Sydney Federal Court Justice Alan Robertson, who will rule on the case.

Allowing artificial insemination would threaten traditions behind the sport’s appeal to kings, queens, sheikhs and billionaires, Tony Bannon, lawyer for the Sydney Turf Club, had said during the eight-week trial that concluded Oct. 28.

Fees for a mating episode have reached as much as $330,000, according to, a website on the breeding industry in Australia, the world’s second-biggest thoroughbred racing jurisdiction behind the U.S.

The vast majority of breeders in Australia are small operators, who have an average of three mares and whose voice is being ignored, Tonking said during the trial. They would benefit from not having to ship their mares to stud farms and gaining access to the sperm of top-rated horses worldwide, he said.

“There is no public benefit that might outweigh the anti-competitive conduct” of the industry, Tonking said today.

The case is Between Bruce McHugh and the Australian Jockey Club Ltd. NSD1187/2009. Federal Court of Australia (Sydney).

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Ex-UBS Trader Says Bank Had No Unauthorized Trading Controls

UBS AG’s wealth-management unit in London had no controls to prevent unauthorized trading in client accounts, according to a lawyer for a former trading desk head challenging a 1.25 million-pound ($1.93 million) fine.

UBS “was to some extent complicit” in Sachin Karpe’s unauthorized trades because “senior managers” were copied on e-mails about some client accounts, Karpe’s lawyer, Michael Blair, said at a court hearing in London this week. An external auditor’s review, commissioned by the bank, determined there were no controls to prevent internal unauthorized transfers or loans between clients of the bank unit, Blair said.

“He did not circumvent controls because there were none in place,” Blair said. “If there were no rules, he could not have been proved to be doing anything wrong.”

The case is one of three challenges by individual UBS bankers to Financial Services Authority enforcement actions stemming from the unauthorized trades. Zurich-based UBS in 2009 paid an 8 million pound-fine and agreed to reimburse customers $42.4 million.

Karpe, who is also accused of moving money between client accounts to hide losses from unauthorized foreign-exchange trades and helping a client use an offshore investment fund in violation of Indian law, is challenging the FSA fine at a court hearing that began Dec. 12.

Karpe, who was fired from his post overseeing Indian clients on the Asia-2 desk, accepts that he deserves a lifetime ban from working in Britain’s financial services industry, Blair said.

“That’s quite a considerable scalp for the FSA and it’s not being challenged,” Blair said. The fine isn’t an “appropriate penalty” because it would bankrupt Karpe, he said.

Karpe and his desk made as many as 50 unauthorized trades a day over a two-year period, according to the FSA. Over a one-year period from 2006 to 2007, he placed 1,404 foreign-exchange trades with values of $11.3 billion, 4.3 billion pounds, 1.9 billion euros ($2.5 billion), 109 billion Japanese yen ($1.4 billion), and 1.1 billion Swiss francs ($1.1 billion), the regulator said in court documents.

The trades were discovered after a UBS whistle-blower reported a $5,000 transfer from a customer account to Karpe’s personal bank account in 2007, the FSA said. The bank began a review that led to Karpe being fired in early 2008.

A UBS spokesman said the bank has “acknowledged that there were weaknesses in certain aspects of Wealth Management U.K.’s control environment.”

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New Suits

Ally Financial Sued by DZ Bank on Mortgage-Backed Securities

Ally Financial Inc. and Bank of America Corp. were sued by DZ Bank AG over the sale of $289.8 million of residential mortgage-backed securities.

The defendants were “actively involved” in all aspects of the securitization of the products, acting as underwriters, broker-dealers and guarantors, DZ, the central bank for the German cooperative banks, said in a complaint filed Dec. 13 in New York State Supreme Court.

The offering for the sale misrepresented the underwriting standards used in issuing the mortgages that were pooled to make the securities, DZ said. Other defendants include RBS Securities Inc. and Financial Guaranty Insurance Co.

“The offering materials also contained material misrepresentations and omissions regarding key statistical characteristics of the mortgage loans,” DZ said. These included loan-to-value ratios and the percentage of owner-occupied properties, DZ said.

“Specific claims are not clearly outlined in the preliminary filing by this investor,” Gina Proia, a spokeswoman for Detroit-based Ally, said in an e-mail. “The company stands by the disclosures and rejects the factual assertions in the filing.”

Bank of America declined to comment, Lawrence Grayson, a spokesman for the Charlotte, North Carolina-based company, said in an e-mail.

The case is Deutsche Zentral-Genossenschaftsbank v. Ally Financial, 653449-2011, Supreme Court of the State of New York, County of New York (Manhattan).

Iceland Sued by EFTA on U.K., Dutch Icesave Depositor Claims

Iceland is being sued by a European agency after failing to compensate the U.K. and Dutch governments for depositor losses from the collapse of Landsbanki Islands hf.

“Iceland must comply with its obligations under the European Economic Area Agreement,” Oda Helen Sletnes, the president of the EFTA Surveillance Authority -- the European Free Trade Association’s executive body -- said yesterday in a statement. “It must ensure compensation of all depositors under the conditions prescribed by the deposit guarantee directive and without discrimination.”

U.K. and Dutch depositors were compensated by their governments after Landsbanki’s 2008 failure left their savings in limbo. Iceland said in September that proceeds from the estate of Landsbanki will reach about $11 billion, enough to cover all depositor losses, and about twice the amount owed under the depositor guarantee directive. Landsbanki’s winding-up committee said Dec. 7 it made a first payment of 432 billion kronur ($3.5 billion) toward reducing its obligations.

“The EFTA Court is the normal recourse to resolve the legal uncertainty in this matter,” the office of Iceland’s Prime Minister Johanna Sigurdardottir said in an e-mailed statement. “Iceland’s government has outlined detailed arguments for its position and will defend its interest vigorously before the EFTA Court.”

Iceland’s Finance Minister Steingrimur J. Sigfusson didn’t return calls seeking comment on the lawsuit.

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Ex-IndyMac Chief Perry Must Face FDIC Lawsuit Over Loan Losses

Michael Perry, the ex-IndyMac Bancorp Inc. chief executive officer, must face the Federal Deposit Insurance Corp.’s claims over more than $600 million in losses on mortgage loans that couldn’t be sold.

U.S. District Judge Otis Wright II in Los Angeles denied Perry’s request to dismiss the lawsuit. The judge disagreed with Perry’s argument that the so-called business-judgment rule protects corporate officers as well as directors from lawsuits over their decisions made on behalf of the corporation.

The “business-judgment rule does not protect officers’ corporate decisions,” the judge said in his Dec. 13 order, citing California legislative history.

The FDIC sued Perry in July, alleging that he acted negligently when he allowed IndyMac, once the second-largest U.S. independent mortgage lender, to generate and purchase $10 billion in risky loans to be sold in the secondary market in 2007. The market at that time had become unstable and illiquid and IndyMac wasn’t able to sell the loans, which caused the bank $600 million in losses, the FDIC said.

IndyMac was seized by regulators in July 2008 after a run by depositors left the Pasadena, California-based company strapped for cash. The Securities and Exchange Commission, in a lawsuit filed in February, accused Perry and two other former IndyMac executives of failing to warn investors of the bank’s deteriorating financial condition.

D. Jean Veta, a lawyer for Perry, didn’t return phone and e-mail messages yesterday seeking comment on the ruling.

The case is FDIC v. Perry, 11-05561, U.S. District Court, Central District of California (Los Angeles).

BNY Asks Court to Dismiss New York’s Currency-Trading Suit

Bank of New York Mellon Corp., the world’s largest custody bank, asked a court to dismiss the New York attorney general’s lawsuit accusing it of defrauding clients in foreign-exchange transactions.

Attorney General Eric Schneiderman sued BNY Mellon in October, saying it misled clients about the pricing of currency trades. BNY Mellon said in a filing Dec. 13 in New York State Supreme Court that there was no fraud because clients were fully informed.

“Those allegations negate any possibility of fraud because a party that knows exactly what it is getting, and at what price, cannot, as a matter of law have been defrauded,” the bank said.

BNY Mellon made $2 billion over a 10-year period by defrauding public and private pension funds, the attorney general claims. The bank, which is also fighting lawsuits by Florida and Virginia and the U.S. attorney’s office in Manhattan, engaged in “a multi-pronged campaign of deception,” the attorney general said.

Schneiderman’s complaint focuses on BNY Mellon’s “standing instruction” program, in which a client gives the bank standing authorization to execute certain foreign-exchange transactions without negotiating the price of the purchase or sale in advance, according to the lawsuit.

BNY Mellon falsely told these clients they would get “the best rate of the day” and the “most attractive/competitive rate” available to the bank, when in fact they received the worst or almost the worst price at which the currency had traded in the interbank market, according to the complaint.

“This lawsuit is wrong, both on the law and on the facts,” Kevin Heine, a BNY Mellon spokesman, said in a statement. “It is based on a fundamental misunderstanding of the role of custodian banks and the operation of the global foreign currency market.”

Danny Kanner, a spokesman for Schneiderman, declined to comment on the bank’s filing.

The case is People of the State of New York v. The Bank of New York Mellon Corp., 114735-2009, New York State Supreme Court (Manhattan).

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Ex-BTA Chairman Ablyazov Says He Didn’t Understand Order

Mukhtar Ablyazov, the former chairman of BTA Bank, told a U.K. court that he didn’t understand a freezing order against him in a case over the Kazakh lender’s claims he embezzled more than $5 billion.

BTA has asked the court to put Ablyazov, who fled Kazakhstan to escape prosecution and lives in the U.K., in jail for failing to reveal ownership of more than 600 shell companies and a Moscow tower during its fraud case against him.

“I didn’t have any intention to hide anything,” Ablyazov said in contempt proceedings at a London court yesterday. “I did exactly as much as my solicitors advised me.”

BTA says Ablyazov and its former chief executive officer, Roman Solodchenko, took more than $5 billion from the bank using fake loans, back-dated documents and offshore companies. Ablyazov claims the case is politically motivated because of his opposition to Kazakh leader Nursultan Nazarbayev.

Ablyazov only now understands “what a freezing order was about,” he told the court.

Earlier in the day, Syrym Shalabayev, Ablyazov’s brother-in-law who was sentenced in June to 18 months in a U.K. jail for failing to disclose his assets, gave evidence via video link from an unknown location.

For the latest lawsuits news, click here.


Kluger Pleads Guilty in Law-Firm Insider Trading Scheme

Attorney Matthew Kluger pleaded guilty to stealing corporate merger tips from four law firms to fuel an insider trading scheme that prosecutors said generated $37 million in illegal profits.

Kluger, 50, was the third defendant to plead guilty, admitting in federal court in Newark, New Jersey, that he stole nonpublic data on about 30 corporate transactions over 17 years. He said he passed tips to middleman Kenneth Robinson, who gave them to trader Garrett Bauer to buy shares. When the deals went public, Bauer sold shares and gave cash to his partners.

Kluger “did it for selfish reasons that he recognizes and feels terrible about,” his attorney, Alan Zegas, said in an interview after the court hearing. Kluger passed along tips gained from his work at four law firms including Skadden, Arps, Slate, Meagher & Flom LLP and Wilson, Sonsini, Goodrich & Rosati PC.

Prosecutors said the scheme involved companies such as Sun Microsystems Inc., 3Com Corp. and Acxiom Corp. They said Bauer, who pleaded guilty Dec. 8, made more than $30 million in profit, while Robinson and Kluger each made less than $1 million. Robinson pleaded guilty April 11 after secretly recording the other two men for the Federal Bureau of Investigation.

Kluger only learned after his arrest on April 6 that Bauer was trading “far in excess of what he said he was doing” and wasn’t splitting the profits equally, as the men agreed, Zegas said after the hearing. “He would not have agreed if he knew what Mr. Bauer was trading.”

Outside the courtroom, Kluger said: “I did not know Bauer.”

Zegas disputed the government’s claim that it was a $37 million scheme. He said the length of Kluger’s sentence will depend on the amount of profit he could have “reasonably foreseen” he would make.

Like Bauer, Kluger pleaded guilty to securities fraud, conspiracy to commit securities fraud, conspiracy to commit money laundering and obstruction of justice. He also agreed to forfeit $415,000 in cash.

The case is U.S. v. Bauer, 11-cr-03536, U.S. District Court, District of New Jersey (Newark).

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Bourke FCPA Bribery Conviction Upheld by U.S. Appeals Court

Frederic Bourke, a Connecticut businessman who co-founded handbag maker Dooney & Bourke, failed to overturn his conviction for a bribery scheme in an oil deal 13 years ago in Azerbaijan.

The U.S. Court of Appeals in Manhattan yesterday upheld Bourke’s conviction by a jury two years ago, saying there was enough evidence to find that he knew of the bribery scheme or took steps to avoid learning about it.

“A rational juror could conclude that Bourke deliberately avoided confirming his suspicions” about bribes, two judges wrote in a 27-page ruling. “This same evidence may also be used to infer that Bourke actually knew about the crimes.”

The ruling comes as the U.S. Justice Department steps up enforcement of the Foreign Corrupt Practices Act, which outlaws bribes to win overseas business. Federal prosecutors yesterday charged eight ex-executives at Siemens AG, Europe’s largest engineering company, with conspiring to bribe Argentine government officials to land a $1 billion contract to make national identity cards.

Bourke’s lawyer, Michael Tigar, said his client, who was sentenced to a year in prison, may seek a new hearing in the appeals court or review of his case by the U.S. Supreme Court.

“We are disappointed in the results,” he said in a statement.

Bourke was convicted at a 2009 trial in Manhattan of conspiring to violate the FCPA by joining the bribery scheme. He was sentenced to a year in prison. His lawyer, Michael Tigar, didn’t immediately respond to a call for comment.

Bourke is free on bail.

The case began in 1998 after the collapse of a bid by an investor group to buy Azerbaijan’s oil company. Prosecutors said Bourke, without paying bribes himself, knew that the deal’s promoter, Viktor Kozeny, had bribed Azeri leaders when he invested. Kozeny has said he paid millions of dollars in cash and gave the Azeris a secret two-thirds interest in a venture he formed to buy the oil company.

The Bourke case is U.S. v. Bourke, 05-cr-00518, U.S. District Court, Southern District of New York (Manhattan). The appeal is U.S. v. Kozeny, 09-4704, U.S. Court of Appeals for the Second circuit.

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Accountant Gets 14 Months in Connecticut Hedge-Fund Case

A Venezuelan accountant was sentenced to 14 months in prison for his role in trying to hinder a probe into a Connecticut hedge fund manager accused of conducting a Ponzi scheme.

Juan Carlos Guillen Zerpa, 44, was sentenced yesterday in federal court in Bridgeport, Connecticut, for lying to the U.S. Securities and Exchange Commission, according to Tom Carson, spokesman for U.S. Attorney David Fein in New Haven.

Guillen admitted to aiding Francisco Illarramendi, majority owner of Michael Kenwood Group LLC, a holding company for an investment adviser through which Illarramendi managed several hedge funds. Illarramendi pleaded guilty to fraud and obstruction on March 7.

Guillen was managing partner of BDO Guillen Martinez & Asociados, the Venezuelan affiliate of BDO International Ltd., according to the Latin American Herald Tribune. BDO is the world’s fifth-largest accounting network, according to its website.

Guillen, who was sentenced by U.S. District Judge Stefan R. Underhill, was an accounting professional who sold “his title for an expected payday of $1 million in exchange for his obstruction of justice and false statements to a federal agency about the existence of hundreds of millions of dollars of fraudulent assets,” prosecutors wrote in court papers.

Illarramendi, 42, of New Canaan, Connecticut, used money from new investors to pay returns he promised to earlier ones using fraudulent documents that purported to show his hedge funds had hundreds of millions of dollars in credits, according to prosecutors.

“We’re not happy with the result but at the same time I understand it was a fair sentence,” Michael Diaz Jr., a lawyer for Guillen, said in a phone interview. Diaz, of Diaz, Reus & Targ LLP in Miami, had asked that his client be sentenced to the 63 days he spent in jail.

The criminal case is U.S. v. Guillen, 11-cr-76, U.S. District Court, District of Connecticut (Bridgeport), and the SEC case is SEC v. Illarramendi, 11-cv-78, U.S. District Court, District of Connecticut (New Haven).

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Ex-Synthes Executive Gets Eight-Month Term in Bone-Cement Case

A former Synthes Inc. executive was sentenced to eight months in jail for his role in an unapproved trial of a bone-cement compound that led to the deaths of three patients, authorities said.

Richard Bohner, 57, of Malvern, Pennsylvania, was the last of four officials to be sentenced. They pleaded guilty to a single misdemeanor count of shipping adulterated and misbranded Norian XR in interstate commerce, according to a statement yesterday from the U.S. Attorney’s office in Philadelphia.

The defendants “approved rogue clinical trials” using the bone-void fillers “to treat vertebral compression fractures of the spine in elderly patients,” without the permission of the U.S. Food and Drug Administration, according to the statement. U.S. District Judge Legrome Davis passed sentence Dec. 13.

Last month, Davis sentenced Michael Huggins and Thomas Higgins, who got nine months in jail, and John Walsh, who got five months.

The cement, approved for elsewhere in the body, was used in the spines of 200 patients with fractured vertebrae. Three patients died from a rapid drop in blood pressure during spinal surgeries, prosecutors said.

The case is U.S. v. Norian Corp., 09-00403, U.S. District Court, Eastern District of Pennsylvania (Philadelphia).

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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