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Citigroup, Chevron, JPMorgan, BoA, BP, Knauf in Court News

The U.S. Securities and Exchange Commission appealed a federal judge’s decision to reject its proposed $285 million settlement with Citigroup Inc.

The appeal, filed yesterday in the U.S. Court of Appeals in New York, challenged U.S. District Judge Jed Rakoff’s rejection last month of the settlement, which involved claims that Citigroup misled investors in a $1 billion financial product linked to risky mortgages.

“We believe the district court committed legal error by announcing a new and unprecedented standard that inadvertently harms investors by depriving them of substantial, certain and immediate benefits,” SEC Enforcement Director Robert Khuzami said yesterday in a statement.

Rakoff criticized the agency’s practice of resolving cases without requiring the subject of the allegations to admit wrongdoing. In his ruling, Rakoff said the settlement didn’t provide him with “any proven or admitted facts” to inform his judgment.

Khuzami said the judge’s decision “is at odds with decades of court decisions that have upheld similar settlements.”. Rakoff’s approach “could in practical terms press the SEC to trial in many more instances, likely resulting in fewer cases overall and less money being returned to investors,” he said in the statement.

The SEC said a settlement such as the one struck with Citigroup “puts money back in the pockets of harmed investors without years of courtroom delay and without the twin risks of losing at trial or winning but recovering less than the settlement amount -- risks that always exist no matter how strong the evidence.”

Danielle Romero-Apsilos, a Citigroup spokeswoman, said the New York-based bank disagrees with the court’s rejection of the settlement. The agreement “fully complies with long-established legal standards,” she said.

If the case went to trial, she said, “we would present substantial factual and legal defenses to the charges.”

The case is U.S. Securities and Exchange Commission v. Citigroup Global Markets Inc., 11-cv-07387, U.S. District Court, Southern District of New York (Manhattan).

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Chevron Oil Spill Spurs Lawsuit to Freeze 17% of Brazil’s Rigs

The Brazilian prosecutor who filed a lawsuit against Chevron Corp. and Transocean Ltd. said he’s seeking a “permanent” ban on the companies’ operations in the South American nation after an oil spill last month.

The lawsuit has been assigned to a federal judge and there is no timeline yet for a possible ruling, Eduardo Santos, the federal prosecutor in Campos, in Rio de Janeiro state, told reporters yesterday. Santos, who is suing Chevron and Transocean for 20 billion reais ($10.8 billion), said previous fines in the millions of reais against other companies haven’t been enough in preventing such accidents.

“Brazil has to change the paradigm from millions to billions,” Santos said

The case imperils Brazil’s plan to boost crude output because Transocean operates 10 of the 61 rigs working in the country and it would be hard to replace them in a tight market for oil equipment, said Judson Bailey, an analyst at Jefferies & Co. Brazilian oil production growth has slowed after the country increased safety requirements following the spill at BP Plc’s Macondo well in the Gulf of Mexico last year.

“The rig market is pretty tight, so if Transocean were banned, the oil companies wouldn’t be happy at all,” Bailey said in a phone interview from Houston. “Chevron and Petrobras can’t get a rig elsewhere, so it messes with the state-owned oil company.”

Chevron, based in San Ramon, California, and Transocean, based in Vernier, Switzerland, said Dec. 14 that they haven’t been notified and are cooperating with authorities.

Chevron has come under increased scrutiny in Brazil after 3,000 barrels of oil leaked last month from an oil field in deep waters of the Campos Basin. The company underestimated the amount of pressure at an oil deposit it was exploring, and crude leaked from the reservoir for about eight days, George Buck, the head of Chevron for Brazil, said on Nov. 20.

In the next few weeks, prosecutors will probably file a criminal lawsuit against Chevron for alleged environmental crime, said Romulo Sampaio, a law professor at Brazil’s Getulio Vargas Foundation.

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Allen Stanford Amnesia Claim ‘Not Credible,’ Prosecutors Say

R. Allen Stanford may be faking amnesia and should be tried in January as scheduled on charges he led a $7 billion investment fraud, prosecutors said, citing a prison medical evaluation.

Stanford’s scores on medical and neuropsychological tests “were sufficiently low as to evidence that he either was not trying or was faking,” Assistant U.S. Attorney Gregg Costa said, citing a doctor’s report. The prosecutor, in the proposed court order filed yesterday, asked U.S. District Judge David Hittner in Houston to find Stanford competent to stand trial.

A doctor who evaluated the defendant at a federal prison in Butner, North Carolina, “concluded that Stanford’s performance indicated that he was ‘blatantly simulating cognitive defects/known to be malingering,’” Costa said.

Stanford, 61, has been imprisoned as a flight risk since his June 2009 indictment on charges of defrauding investors through a scheme built on allegedly bogus certificates of deposit at Antigua-based Stanford International Bank Ltd.

Hittner delayed the trial, which had been set for last January, after three doctors testified that Stanford was incapable of assisting in his defense. They said Stanford had become addicted to anxiety drugs prescribed in prison and could be suffering lingering effects of a head injury suffered in a 2009 inmate assault.

Ali Fazel, Stanford’s lead criminal-defense attorney, urged Hittner in a separate court filing to reject the Butner medical evaluation and continue delaying Stanford’s trial. Fazel asked the judge to rely on the testimony of experts Stanford’s defense team plans to present at a competency hearing next week in Houston.

Prosecutors claim Stanford skimmed more than $1 billion of investor funds to finance a lavish lifestyle that included a fleet of jets and yachts, several mansions and a private Caribbean island, as well as financial support for women with whom he has had children.

The case is U.S. v. Stanford, 09-cr-342, U.S. District Court, Southern District of Texas (Houston).

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Ex-Cuomo Aide Said to Be Among Possible Foreclosure Monitors

A former aide to New York Governor Andrew Cuomo is among candidates being considered to ensure that banks including JPMorgan Chase & Co. and Bank of America Corp. comply with any settlement of a nationwide foreclosure probe, a person familiar with the matter said.

Steven M. Cohen, who was the governor’s secretary, is one potential foreclosure monitor, according to the person, who declined to be identified because the negotiations are secret. That person said North Carolina Commissioner of Banks Joseph A. Smith Jr. is also a candidate, as did a second person who asked not to be identified.

Selection of a monitor is one of the final issues to be worked out between the banks and state and federal officials, said the people. Selection of the monitor is a key issue for the regulators because success of the agreement will largely depend on his or her work, one of the people said.

Another candidate is Nicolas P. Retsinas, a former assistant secretary of the U.S. Department of Housing and Urban Development, one of the people said.

All 50 states last year said they were investigating bank foreclosure practices following disclosures that the companies were using faulty documents in seizing homes. State and federal officials leading the talks are seeking an agreement that provides mortgage relief to homeowners and sets standards for foreclosure practices.

The monitor would ensure compliance with any agreement with mortgage servicers, according to a settlement proposal offered to the banks in March. In addition to JPMorgan and Bank of America, Citigroup Inc., Ally Financial Inc. and Wells Fargo & Co. are participating in the negotiations.

Cohen declined to comment on whether he was a candidate for the monitor post. Smith declined to comment on any nomination to monitor the foreclosure agreement. Retsinas didn’t return a call seeking comment on the monitor position.

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BP, TNK Billionaires Seek to Defeat Oil-Company Theft Claims

BP Plc and its billionaire partners in Russian oil venture TNK-BP asked a New York judge to throw out claims against them seeking more than $1 billion in damages over the alleged theft of an oil company.

The lawsuit by Norex Petroleum Ltd. stems from more than a decade of litigation in Russia and the U.S. over Yugraneft, which owns an oil field in Western Siberia. Norex claims its controlling stake in Yugraneft was stolen through corruption and armed force and that BP and its partners profited off the scheme at Norex’s expense.

BP and the other defendants in the lawsuit, including billionaires Leonard Blavatnik and Victor Vekselberg, asked New York State Supreme Court Justice Eileen Bransten in Manhattan yesterday to dismiss the complaint. Norex has fought in Russian and U.S. courts over Yugraneft and lost, they argue.

“Norex cannot use this court as an appellate court to overturn prior litigation decisions and outcomes,” said Owen Pell, an attorney at White & Case LLP who argued for dismissal. “They litigated all these issues in Russia.”

Norex says that in 2001, militiamen wearing fatigues and armed with AK-47 assault rifles, forcibly entered Yugraneft’s corporate offices, telling employees that TNK had assumed ownership of the company, according to the Norex complaint. The men were acting at the direction of Blavatnik, Vekselberg and Alfa Group, Norex said.

“The assertions in Norex’s lawsuit are not only untrue, they are simply a tired rehash of the same preposterous claims they have been recycling for the past 12 years in both U.S. and Russian courts,” Mike Sitrick, a spokesman for Blavatnik, said in an e-mailed statement. Previous lawsuits have been dismissed, and “we are confident plaintiff’s latest attempt will suffer the same fate,” he said.

Representatives of TNK-BP and Alfa Group couldn’t be reached for comment.

The case is Norex Petroleum Ltd. v. Blavatnik, 650591-2011, New York State Supreme Court (Manhattan).

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Ex-Primary Global Executive Fleishman Seeks Home Detention

James Fleishman, the former Primary Global Research LLC executive convicted of conspiracy as part of a U.S. crackdown on insider trading of consultants and fund managers, asked for a sentence of 12 months’ home detention.

Fleishman, 42, of Santa Clara, California, is to be sentenced Dec. 21 by U.S. District Judge Jed S. Rakoff in Manhattan. He asked for detention rather than prison in a court filing Dec. 14 by his lawyer, Ethan A. Balogh

“Mr. Fleishman does not present as a rogue employee, secretly stealing his employer’s property for personal gain at the expense of his employer, but instead as a man who worked for essentially what became a rogue enterprise in which a legitimate business model was structured in a way that misappropriation of third-party information was likely to occur,” Balogh said in court papers.

Company management “sought to shield itself from liability” when employees or consultants passed confidential information, the attorney wrote.

Fleishman was convicted in September of two conspiracy charges for a scheme to obtain and pass confidential information from technology company employees moonlighting as consultants for Mountain View, California-based Primary Global, a so-called expert-networking firm.

Fleishman faces as long as 20 years in prison on the most serious count, according to prosecutors.

The case is U.S. v. Nguyen, 11-cr-32, U.S. District Court, Southern District of New York (Manhattan).

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Chinese Drywall Maker to Pay $800 Million to Settle Suits

Knauf Plasterboard Tianjin Co., a Chinese drywall maker, agreed to pay at least $800 million to settle homeowner claims that faulty building materials contaminated their homes with corrosive sulfur fumes, plaintiffs’ lawyers said.

Knauf agreed to resolve claims involving about 4,500 properties that contain the tainted drywall, lawyers for property owners said yesterday in an e-mailed statement. Homeowners said the faulty wallboard emits gases that corrode copper coils and electrical and plumbing equipment.

“KPT has agreed to provide thousands of families the opportunity to recover losses caused by KPT drywall,” Russ Herman, a New Orleans-based lawyer representing property owners, said in the statement.

The accord was announced yesterday before U.S. District Judge Eldon Fallon in New Orleans, who is overseeing about 12,000 suits filed over the contaminated drywall that have been consolidated for pretrial evidence gathering. KPT is a subsidiary of Iphofen, Germany-based Knauf International, owned by Knauf Group.

The $800 million figure “is wildly speculative and premature given the settlement terms,” Greg Wallance, a KPT lawyer, said yesterday at a press conference. “We are confident the figure will be considerably lower.”

The agreement didn’t contain a minimum or maximum number on the cost of repairing homes with the faulty drywall, Steven Glickstein, another company lawyer, said in a telephone interview.

The amount of the settlement will range from $800 million to $1 billion, depending on the number of homeowners who can prove they had KPT drywall, Herman said yesterday at a press conference.

KPT payments won’t reach that level, Wallance said. Many plaintiffs don’t have KPT drywall in their homes and actual costs for remediation “will be controlled through a competitive bidding process,” he said. “Those who select a cash option will receive a discounted settlement value.”

The consolidated case is In re Chinese-Manufactured Drywall Products Liability Litigation, 2:09-md-02047, U.S. District Court, Eastern District of Louisiana (New Orleans).

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Madoff’s Former Controller to Plead Guilty, U.S. Tells Court

Bernard Madoff’s ex-controller, Enrica Cotellessa-Pitz, is expected to plead guilty to criminal charges stemming from her former boss’s Ponzi scheme, the U.S. said in a court filing.

Cotellessa-Pitz, who hasn’t been charged yet, will admit to falsifying documents to aid Madoff’s fraud and to deceiving U.S. regulators, as part of a cooperation agreement with the government, assistant U.S. attorneys Lisa Baroni and Julian Moore told a federal judge in a letter yesterday.

Cotellessa-Pitz will plead guilty to four counts of conspiracy, falsifying books and records of a broker-dealer, falsifying books and records of an investment adviser and making false filings with the U.S. Securities and Exchange Commission, the prosecutors said. The charges carry as long as 50 years in prison, according to the letter to U.S District Judge Laura Taylor Swain.

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 $20 billion in principal, the U.S. trustee liquidating Madoff’s securities business has said.

David Rody, a lawyer for Cotellessa-Pitz, didn’t respond to voice-mail and e-mail messages seeking comment on the letter.

The criminal case is U.S. v. O’Hara, No. 10-CR-228, U.S. District Court, Southern District of New York (Manhattan). The bankruptcy claim is Picard v. Cotellessa-Pitz, 10-4213, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Bayer’s $750 Million Modified-Rice Settlement Now Binding

A Bayer AG unit said a $750 million settlement with U.S. rice farmers who sued after their crops became tainted by a genetically modified strain is binding now that the requisite number of growers has accepted the deal.

First announced in July, the agreement ended scores of cases filed against Bayer CropScience by growers in Arkansas, Louisiana, Mississippi, Missouri and Texas.

“A sufficient number of now-verified registrations for the settlement program have been filed by growers to represent 85 percent of U.S. long-grain rice acreage, a threshold point established for the agreements to become binding,” Bayer CropScience said yesterday in a statement.

Bayer CropScience and a Louisiana State University facility in Crowley were testing a strain of the rice for resistance to Bayer’s Liberty-brand herbicide.

The genetically modified variety cross-bred with and “contaminated” more than 30 percent of U.S. rice lands, Don Downing, lawyer for the farmers, said at the first trial in November 2009.

U.S. exports fell as the European Union, Japan, Russia and other overseas buying ceased or was slowed for testing of U.S.- grown long-grain rice, growers alleged.

Bayer CropScience denied the testing program was negligently managed and claimed sale prices rebounded after the initial drop. The unit of Leverkusen, Germany-based Bayer AG said the trace amounts of the LibertyLink rice posed no threat to people.

The case is In re Genetically Modified Rice Litigation, 06-md-01811, U.S. District Court, Eastern District of Missouri (St. Louis).

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Pfizer Settled About Half of Prempro Cases, Adds to Reserve

Pfizer Inc., the world’s largest drugmaker, has settled almost half of the lawsuits over its menopause drugs and increased the funds set aside to resolve the cases, the company said in a regulatory filing.

Pfizer and its Wyeth and Pharmacia & Upjohn units have resolved about 46 percent of suits that claimed the companies’ hormone-replacement medicines, including Prempro and Premarin, caused breast cancer, according to the Securities and Exchange Commission filing. Pfizer said it added $68 million to the $772 million it already reserved for the cases.

“We have recorded a charge of $260 million in the first nine months of 2011 that provides for the minimum expected costs to resolve all the remaining hormone-replacement actions,” Pfizer officials said in the Nov. 10 filing.

More than 6 million women took Prempro and related menopause drugs to treat symptoms including 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, exceeded $2 billion before the release of the Women’s Health Initiative study sponsored by the National Institutes of Health.

“Pfizer continues to have a strong record of success in defending these cases,” Chris Loder, a company spokesman, said in an e-mailed statement. “While we will continue to look for opportunities to enter into favorable settlements where appropriate, we will also continue to vigorously defend these medicines in litigation.”

Zoe Littlepage, a lawyer representing women suing Pfizer over the menopause drugs, said that reserve doesn’t provide enough compensation to spur settlements of outstanding claims.

“Based upon the size of the jury verdicts to date, and the fact that multiple appellate courts have now affirmed some of those verdicts, this new amount of money set aside by Pfizer seems grossly insufficient to resolve the remaining claims,” Littlepage said in an e-mailed statement.

The consolidated case in Arkansas is In Re Prempro Products, 03-CV-015070-WRW, U.S. District Court, Eastern District of Arkansas (Little Rock).

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ArcelorMittal, Anglo Win Case Overturning Sishen Right Award

ArcelorMittal South Africa Ltd. and Anglo American Plc unit Kumba Iron Ore won a bid to overturn the award of a right over the country’s largest iron-ore mine to a company whose owners include a business partner of President Jacob Zuma’s son.

The High Court set aside the award of a 21.4 percent permit to the Sishen mine to Imperial Crown Trading 289 (Pty) Ltd., whose owners include Jagdish Parekh, a business partner of Duduzane Zuma. The right was previously held by ArcelorMittal South Africa, a unit of the world’s biggest steelmaker. Its stock surged the most in 11 months in Johannesburg.

Sishen Iron Ore Co., owned by Kumba and Exxaro Resources Ltd., holds 100 percent of the right to the operation and the 21.4 percent portion was never available for conversion, Judge Raymond Zondo said in the Pretoria court yesterday.

“We are delighted that the judgment has confirmed that Sishen Iron Ore is the only holder of the mining rights over Sishen and that no other person including Imperial holds or may be granted competing rights,” Kumba said in an e-mailed statement. “With regards to the interpretation of the Mineral and Petroleum Resources Development Act, we need to await the full judgment and the reasons for the court’s decision.”

Zondo’s full ruling will be available on Dec. 20, he said.

ArcelorMittal South Africa is “pleased about the ruling,” spokesman Themba Hlengani said in an interview. “It confirms our long-held view Kumba applied for and was granted 100 percent of the right in the first instance.”

The Vanderbijlpark-based steelmaker’s Sishen right lapsed after it failed to apply for a license by April 30, 2009, to satisfy a change in legislation.

Imperial will appeal the ruling “early in the new year,” Ronnie Mendelow, the company’s lawyer, said in Pretoria.

The Department of Mineral Resources, which opposed the action, will await the full judgment on the ruling before commenting and will take legal advice on how to proceed further, it said in an e-mailed statement.

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‘Greedy’ Insider Trader Jailed for Using Hedge-Fund Tips

A London management consultant was sentenced to two years in prison after being convicted of making about 500,000 pounds ($774,000) using confidential tips from a hedge-fund trader.

Jurors found Rupinder Sidhu guilty on 22 of 23 insider-dealing charges yesterday, said Chris Hamilton, a spokesman for the U.K. Financial Services Authority, which filed the case. A separate charge of money laundering wasn’t considered.

“You are greedy,” Judge Michael Gledhill told Sidhu yesterday. “Sheer greed is behind all these offenses.”

Sidhu, 40, used information from AKO Capital LLP trader Anjam Ahmad about the hedge fund’s trading plans to spread bet on companies including Julius Baer Group Ltd., Swatch Group AG and Michael Page International Plc between June and August 2009, prosecutors said. He is the eighth person sentenced to prison for insider trading in a case brought by the FSA.

Sidhu denied all the charges, claiming he didn’t know Ahmad was passing on inside information. In a June 2010 trial, Ahmad was given a suspended jail sentence of 10 months, 300 hours of community service and fined 50,000 pounds after pleading guilty to insider trading.

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