Bank of New York Mellon Corp. will pay $1.3 million to New York, Texas and Florida to resolve a probe into manipulative trading of auction-rate securities.
The joint investigation by the Texas State Securities Board, the Florida Office of Financial Regulation and New York Attorney General Eric Schneiderman was tied to the actions of Mellon Financial Markets as an intermediary broker on behalf of Citizens Property Insurance Corp. of Florida, according to statements from Schneiderman’s office and the Florida and Texas agencies. The settlement includes penalties, fees and costs.
Auction-rate securities are municipal bonds, corporate bonds and preferred stocks whose rates of return are periodically reset through auctions. The market for the securities collapsed in February 2008 after major dealers withdrew their support for the auctions, causing most of them to fail.
From January 2008 to February 2008, Mellon Financial enabled Citizens Property to buy large quantities of its own auction-rate securities by placing bids in its own auctions as if it were an independent third-party buyer, Schneiderman’s office said in a statement.
Citizens Property knew that broker-dealers who were managing the securities would have rejected the bids and asked for help from Mellon Financial Markets, which agreed to submit the trades to help the Florida insurer avoid detection, Schneiderman’s office said.
Citizens Property’s bids were below market rates and resulted in the auctions clearing at rates lower than they would have had the insurer not intervened, Schneiderman’s office said. Investors earned $6.7 million less in interest than they would have had Citizens not joined the auctions, the Texas State Securities Board said.
Mellon Financial “traders and their managers understood that CPIC’s bidding would set clearing rates lower than they would have been in the absence of such bidding, and that this would be both detrimental and objectionable to other investors bidding on or holding CPIC’s auction rate securities,” Schneiderman’s office said.
“BNY Mellon Capital Markets is pleased to have resolved this matter, which centered on the isolated conduct of three individuals who are no longer with the company,” Ron Sommer, a Bank of New York Mellon spokesman, said in an e-mailed statement.
It would be inappropriate for Citizens Property Insurance to comment on the settlement, Christine Ashburn, director of legislative and external affairs for the Tallahassee-based company, said in an e-mail.
“It is important to recognize that Citizens was vigilant in obtaining guidance from outside legal counsel prior to engaging in these transactions,” Ashburn said. “We continue to believe that our actions were legally permissible, and we remain committed to providing any information regulators may request.”
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Ex-New Star Founder Refutes Former Fund Manager’s Bullying Claim
John Duffield, founder of New Star Asset Management Holdings Inc., denied claims made by a former fund manager that he bullied his staff.
Patrick Evershed made “extreme and colorful statements” at an employment tribunal hearing in a dispute that was subsequently settled this month, Duffield said in comments on a website. The case was settled before New Star could fully refute them in court, he said.
“Patrick made a number of statements that were exposed as misleading during cross-examination or were refuted under oath by New Star’s witnesses before he truncated the hearing,” Duffield said on his website.
Evershed sued New Star for unfair dismissal after being suspended in 2008 by the fund’s chief executive officer, Howard Covington. The suspension came shortly after Evershed wrote a letter to New Star’s human resources department complaining about Duffield’s conduct.
“I’d love to give a detailed response to some of the points, but I can’t,” Evershed said of Duffield’s comments in a telephone interview yesterday.
Evershed and New Star “reached an agreement which resolves the employment tribunal proceedings without admission of liability,” Henderson Group said in an e-mailed statement. “Both parties are satisfied with the terms of the agreement, and have agreed to keep them confidential.”
Ex-Secret Service Official Wins Dismissal of Conspiracy Charge
Conspiracy charges were dismissed against a former Secret Service official and five other security-company executives in the first prosecution of alleged foreign bribery based on a government sting operation run inside the U.S.
U.S. District Judge Richard Leon yesterday threw out the conspiracy charge at the defendants’ request after the government finished presenting its case to a federal jury in Washington. Five of the executives still face additional foreign bribery charges.
Prosecutors allege that R. Patrick Caldwell, former chief executive officer of Protective Products of America Inc. and an ex-deputy assistant director at the Secret Service, joined an illegal business deal by agreeing to make payments to an FBI agent posing as a representative of the west African country of Gabon.
Leon’s ruling, which he made from the bench after 12 weeks of trial, resulted in the acquittal of Stephen Giordanella, Caldwell’s predecessor at Protective Products.
“Judge Leon followed the law and made a correct and just decision,” said Paul Calli, lawyer for Giordanella. “Mr. Giordanella should have never been charged. He was innocent.”
Alisa Finelli, a Justice Department spokeswoman, declined to comment.
The trial that opened Sept. 28 is the second in a 22-defendant kickback conspiracy case stemming from a fake $15 million weapons deal. It’s the biggest prosecution of individuals accused of violating the Foreign Corrupt Practices Act, or FCPA. A trial of four others arrested in the sting ended in a mistrial in July after a jury failed to agree on a verdict.
The other defendants are John Mushriqui, Jeana Mushriqui, John Godsey and Marc Morales. Each was charged with one count of conspiracy and two to five counts of bribery. The bribery charges carry maximum five-year prison sentences.
All six have pleaded not guilty.
The case is U.S. v. Goncalves, 09-cr-00335, U.S. District Court, District of Columbia (Washington).
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Madoff Sons Can’t Appeal in $198 Million Suit, Judge Rules
Bernard Madoff’s sons can’t appeal a bankruptcy judge’s decision to permit a $198 million claim against them to go forward, a federal judge in Manhattan said.
U.S. District Judge William Pauley yesterday declined to hear an appeal of the September decision in favor of Irving Picard, the trustee liquidating Bernard L. Madoff Investment Securities LLC, in his claim against several Madoff family members including Andrew Madoff and the estate of Mark Madoff, who committed suicide in December 2010.
In the suit, filed in 2009, Picard claimed Madoff’s family used the firm as their “family piggy bank” and should be forced to turn over the money to victims of Madoff’s Ponzi scheme. He sued Mark and Andrew Madoff as well as Bernard Madoff’s brother Peter Madoff and his niece, Shana Madoff Swanson. All the defendants held senior positions at the Madoff firm.
Picard claimed that the defendants failed to stop Madoff’s fraud, instead choosing to profit from it. In the September ruling, U.S. Bankruptcy Judge Bernard Lifland ruled that Picard could pursue most of his claims against the Madoffs and gave him the opportunity to amend his complaint.
Madoff, 73, who pleaded guilty to charges of masterminding the biggest Ponzi scheme in history, is serving a 150-year term in a federal prison in North Carolina.
Amanda Remus, a spokeswoman for Picard, declined to comment on yesterday’s ruling. Martin Flumenbaum, who represents Andrew Madoff and Mark Madoff’s estate, didn’t immediately return a voice-mail message.
The case is: Picard v. Estate of Mark Madoff, 11-Misc.-379, U.S. District Court, Southern District of New York (Manhattan).
Apple Unlikely to Win German Ban on Samsung Galaxy 10.1N
Apple Inc. is unlikely to win a ban on sales of Samsung Electronics Co.’s Galaxy 10.1N tablet computer, a modified version introduced after sales of the original tablet were blocked, a German court said.
The Dusseldorf court that banned sales of the Galaxy 10.1 on Sept. 9 is unlikely to grant Apple an injunction against the Galaxy 10.1N, Presiding Judge Johanna Brueckner-Hofmann said at a hearing yesterday. Samsung has changed the device’s design sufficiently to distance it from the iPad, she said, adding that the view is preliminary. A ruling was scheduled for Feb. 9.
“Consumers are well aware that there is an original and that competitors try to use similar designs, so buyers are vigilant when looking at products,” Brueckner-Hofmann said. “We don’t think that someone buys a Samsung to make his table neighbor at the coffee house believe he owns an iPad.”
Apple has faced setbacks in its legal fight against Samsung, its closest rival in tablet computers, since its initial September success in Germany. The iPad maker failed to convince an Australian court on Dec. 9 to reinstate a ban in that country and two days ago, a Dusseldorf court voiced doubts about the reach of Apple’s European Union design right that was the basis for the company’s Sept. 9 injunction.
The new Samsung tablet has thicker edges and the front screen has speakers which distinguish it from the iPad, the court said. There is also a broad Samsung label that ensures consumers aren’t confused, according to the judges.
Apple’s lawyer Matthias Koch argued that Samsung is still exploiting the reputation of the iPad.
Samsung lawyer Thomas Musmann argued that Cupertino, California-based Apple is trying to monopolize the tablet format.
Yesterday’s case is LG Dusseldorf, 14c O 292/11.
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Chevron, Transocean Face Brazil Indictment Over Oil Leak
Chevron Corp., the operator of the Brazilian offshore well that triggered oil leaks, and rig owner Transocean Ltd. will defend executives threatened with criminal indictments in the South American nation.
Chevron learned that Brazil’s federal police intend to indict employees involved in the drilling that led to the Nov. 7 leaks from seafloor fissures near the $3.6 billion Frade development, Kurt Glaubitz, a spokesman for the San Ramon, California-based company, said in a statement Dec. 21. Transocean, in a separate statement Dec. 21, said it will “vigorously defend the company and its collaborators.”
Chevron, the second-largest U.S. energy company by market value, has been fined 50 million reais ($26.9 million) and ordered to halt all drilling and crude production off Brazil’s coast after discovering the leaks last month. Chevron estimated the volume of the seeps at 3,000 barrels during the eight days it took for the company to locate and halt the leaks.
Chevron and other offshore oil explorers are facing increased scrutiny of their drilling practices in the wake of BP Plc’s 2010 blowout of a well in the Gulf of Mexico that killed 11 workers and led to the worst U.S. offshore crude spill.
Chevron underestimated the amount of pressure at an oil deposit it was exploring, and crude leaked from the reservoir for about eight days, George Buck, president of Chevron’s Brazilian subsidiary, said on Nov. 20. Buck was among 17 Chevron and Transocean employees targeted for indictments, the Folha de S. Paulo newspaper reported Dec. 21. Glaubitz declined to identify the employees targeted for indictment. George wasn’t available to comment, the spokesman said.
Anthony Dovkants, a spokesman for Vernier, Switzerland-based Transocean, said in an e-mailed statement that the allegations were without merit.
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Electronic Arts Must Defend Activision Contract Claims at Trial
Electronic Arts Inc., the second-biggest U.S. video-game publisher, lost a court bid to dismiss the $400-million contract-interference claims by its larger rival Activision Blizzard Inc.
California Superior Court Judge Elihu Berle, at a hearing Dec. 21 in Los Angeles, denied Electronic Arts’ request to throw out the claims, saying Activision had provided sufficient evidence that a jury should decide whether Electronic Arts broke the law by talking to two creators of Activision’s “Call of Duty” franchise while they were still under contract.
Berle rejected Electronic Arts’ argument that it was perfectly lawful for the two top executives of Activision’s Infinity Ward studio, Jason West and Vince Zampella, to explore future employment opportunities. It was “a whole different scenario” if Electronic Arts approached the two executives while there was still more than two years left on their contract, the judge said.
Activision, based in Santa Monica, California, last year added Electronic Arts as a cross-defendant to a lawsuit that was initially brought by West and Zampella after they were fired. They had sued for $36 million, saying Activision fired them to avoid paying the royalties they were owed for “Call of Duty: Modern Warfare 2,” the top-selling game the previous year.
Robert Klieger, a lawyer for Redwood City, California-based Electronic Arts, declined to comment after the hearing.
“We’re pleased with the ruling and look forward to proving our case at trial,” Steven Marenberg, a lawyer for Activision, said after the hearing.
The case is West v. Activision, SC107041, California Superior Court (Los Angeles County).
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NCAA Denies Claims in Head Injury Suit by Ex-Collegiate Athletes
The National Collegiate Athletic Association denied claims in a lawsuit filed by former college football players who accuse it of profiting from athletes while neglecting those who suffer concussions.
The response, filed Dec. 21 in federal court in Chicago, addresses claims raised in a class-action lawsuit brought by 25-year-old Adrian Arrington, a former football player for Eastern Illinois University. Where it doesn’t deny the allegations, the NCAA says it is “without knowledge” of the practices that Arrington and other athletes say show a failure to enforce safety measures to protect players from head injuries.
The NCAA said in the court filing that it earned revenue of $749.8 million in the 2009-2010 season, and that it doesn’t pay salaries to student-athletes. The organization also responded to arguments that it doesn’t require its member institutions to educate athletes about reporting concussions and their symptoms.
“Each member institution is responsible for protecting the health of its student-athletes,” according to the filing. The NCAA said that “for decades it has provided appropriate information and guidance on concussions to its member institutions” and encourages those schools to educate athletes about “symptoms associated with concussions.”
The cases are Arrington v. NCAA, 11-6356, U.S. District Court, Northern District of Illinois (Chicago), and Owens v. NCAA, 11-6816, U.S. District Court, Northern District of Illinois (Chicago).
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Allen Stanford Found Mentally Fit for January Fraud Trial
R. Allen Stanford is mentally fit to stand trial and will face a jury next month on charges he swindled investors of more than $7 billion, a U.S. judge ruled. The trial is to begin with jury selection on Jan. 23.
Stanford’s defense team argued unsuccessfully that his mental capacity was diminished by head injuries he suffered in a 2009 jailhouse assault and the effects of powerful anxiety medications prescribed in prison after the beating.
“I have found by a preponderance of the evidence that Stanford is competent to stand trial,” U.S. District Judge David Hittner in Houston said yesterday in finding Stanford able to assist in his defense.
Hittner’s ruling followed 2 1/2 days of debate over the extent of brain damage Stanford, 61, suffered from the assault and the extent to which he might be faking memory loss.
The case is U.S. v. Stanford, 09-cr-342, U.S. District Court, Southern District of Texas (Houston).
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Cameron Asks Court to Scuttle BP Gulf Spill Trial Plan
Cameron International Corp. asked a federal appeals court to derail the February nonjury trial over 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 a panel of the U.S. Court of Appeals meeting in Dallas to throw out the existing trial plan and rule that the company has a right to a trial before a jury. U.S. District Judge Carl Barbier, who is overseeing much of the spill litigation, has scheduled the 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 would follow, the judge said. Cameron, which settled damage claims with BP last week, said the trial plan violates its constitutional rights.
“There is not a claim against Cameron that does not implicate our right to a jury trial under the Seventh Amendment,” Russell Post, a Cameron attorney, told the judges at the hearing in federal court.
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, 11-30987, 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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Convicted Swindler Rothstein Says Partners Knew of Scheme
Scott Rothstein, the Florida lawyer convicted in a $1.2 billion investment fraud, said two of his former law firm partners also knew of the scheme, according to a transcript of a sworn deposition made public Dec.22.
Rothstein, sentenced to 50 years in prison, said his former partners, Stuart Rosenfeldt and Russell Adler, were aware of the scheme, according to a transcript of the deposition taken this month at the federal courthouse in Miami as part of their law firm’s bankruptcy case. The transcript was posted on the website of the law firm Conrad & Scherer, which represents some of the investors seeking to recover money invested in the scheme.
“They knew that we were moving money illegally in and out of the law firm,” Rothstein said of Rosenfeldt and Adler, according to the transcript. “At various points in time, they came to know that there was a Ponzi scheme going on, although the word Ponzi was never utilized.”
Rothstein, formerly of Rothstein Rosenfeldt Adler PA in Fort Lauderdale, Florida, pleaded guilty in January 2010 to five counts of racketeering, money laundering and wire fraud after admitting he sold investors interests in bogus settlements in sexual-harassment and whistle-blower lawsuits.
Bruce Lehr, a lawyer for Rosenfeldt, said Dec. 22 in a phone interview that his client wasn’t aware of the Ponzi scheme.
“Stuart Rosenfeldt had absolutely no idea of the wrongdoings of Scott Rothstein until Mr. Rothstein fled the country,” Lehr said. “Mr. Rothstein, who pleaded guilty and was sentenced to 50 years in prison, had no credibility then. The fact that after spending some time behind bars, he has decided to throw his law partner under the bus has not awarded him new credibility.”
Adler’s attorney, Fred Haddad, said Rothstein was lying about his client.
“He didn’t know anything about what Rothstein was doing,” Haddad said. “I like Scott personally. I’ve gotten drunk with Scott. But he said at the beginning of his depo that this would be the first time in his life that he’s told the truth. I think he still hasn’t reached the first time in his life to tell the truth.”
Rosenfeldt and Adler haven’t been charged with wrongdoing.
The case is In re Rothstein Rosenfeldt Adler PA, 09-34791, U.S. Bankruptcy Court, District of Southern Florida (Fort Lauderdale).
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