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HSH Nordbank, Credit Suisse, Madoff, GE in Court News

Six former HSH Nordbank AG executives were charged with breach of trust and accounting crimes over their role in collateralized-debt obligations that led to writedowns of 500 million euros ($647 million) in 2008.

Prosecutors have been investigating the so-called Omega 55 transaction since 2009. Among the six now charged are former Chief Executive Officers Dirk Jens Nonnenmacher and Hans Berger and ex-management board members Bernhard Visker and Jochen Friedrich, Hamburg prosecutors’ spokesman Peter Bunners said in an interview yesterday.

“We will release more details of the allegations later this week once we have confirmation that all accused have received the indictment,” Bunners said.

Hamburg and Schleswig-Holstein, which control more than 80 percent of HSH Nordbank, were forced to bail out the lender in 2009. The states provided the bank, based in Hamburg and Kiel, with 3 billion euros in capital and 10 billion euros in guarantees to cover potential losses. The lender also tapped the federal government’s Soffin bank-rescue fund for 17 billion euros in guarantees.

Nonnenmacher didn’t commit any crimes in relation to the Omega 55 transaction, his attorney, Heinz Wagner, said in a phone interview. Nonnenmacher signed the deal after the responsible people at the bank had cleared it, said Wagner. As soon as Nonnenmacher learned that something may have been wrong, he ordered an internal investigation, Wagner said.

“A bank of this size cannot be managed without some division of labor,” said Wagner. For a loan “of the size in question here, his signature wasn’t even required by banking laws.”

Berger’s attorney Otmar Kury didn’t immediately return a call seeking comment.

A report by a special police unit probing the allegations in 2010 found the executives did nothing wrong, Visker’s lawyer, Gaby Muenchhalffen, said in an e-mail statement. Their report was disregarded by prosecutors, she said. The Omega 55 deal was a normal transaction and her client complied with rules and regulations, she said.

Friedrich’s attorney, Wolfgang Prinzenberg, said his client didn’t act contrary to HSH’S interest or his duties at any stage. Friedrich was responsible for capital markets at the lender at the time of the alleged violations.

HSH Nordbank has always underlined that a full investigation of the issue is its own interests, bank spokesman Rune Hoffmann said in an e-mailed statement.

Porsche Sued by Investment Fund Group Seeking EU2 Billion

Porsche Automobil Holding SE was sued by a group of investment funds seeking about 2 billion euros ($2.6 billion) in damages allegedly suffered from the carmaker’s failed takeover attempt of Volkswagen AG in 2008.

The group, whose members weren’t identified, filed the lawsuit in the district court of Stuttgart, Germany, according to a statement released on the OTS newswire Dec. 30. The plaintiffs also filed an arbitration application regarding Volkswagen, two members of the VW supervisory board and one member of the management board of VW, according to the statement.

“The accusations are not justified and we reject them,” Frank Gaube, a spokesman for Stuttgart-based Porsche, said by telephone Dec. 31. The company needs to receive the suit before it can closely examine it, he said.

Porsche and VW agreed to combine in 2009 after Porsche racked up more than 10 billion euros of debt in an unsuccessful attempt to gain control of VW. The merger has been held up by lawsuits linked to Porsche’s failed effort to buy VW, with the Wolfsburg, Germany-based carmaker waiting to avoid being held responsible for any financial ramifications from the suits.

The investor group’s complaint alleges that “Porsche gained control over the price of VW common stock as it secretly built enormous derivative positions covering almost all of VW’s freely traded shares, then triggered a massive short squeeze, and finally released billions of euros worth of shares into the short squeeze for its own profit,” according to the statement.

VW spokesman Michael Brendel didn’t respond to a voice-mail message left on his mobile phone Dec. 31.

Credit Suisse Sued by Dutch Fund Over Mortgage Investments

Credit Suisse Group AG, the second-biggest Swiss bank, was sued in New York state court by Dutch pension fund Stichting Pensioenfonds ABP over losses on investments in mortgage securities.

Credit Suisse sold securities that were backed by low-quality loans and turned out to be “far riskier” than promised, ABP said in a complaint filed Dec. 29 in Manhattan.

The pension fund said Zurich-based Credit Suisse knew of “the wholesale and systematic abandonment” of underwriting guidelines by loan originators, leading to high default and delinquency rates by borrowers.

ABP said it has suffered “substantial losses” on the securities and that it’s increasingly probable that it would not obtain the full payments it expected. A lawyer for ABP couldn’t be reached for comment about the amount of securities at issue in the lawsuit.

Steven Vames, a spokesman for Credit Suisse, declined to immediately comment.

The case is Stichting Pensioenfonds ABP v. Credit Suisse Group AG, 653665-2011, New York State Supreme Court (Manhattan).

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Madoff Trustee Revises Fictitious Statements to $52 Billion

The liquidator of Bernard Madoff’s brokerage revised the con man’s fictitious customer statements to $52 billion from about $65 billion as claims were withdrawn from the liquidation proceeding.

The new number appears on the website of trustee Irving Picard. Picard so far has paid $325.5 million to investors who lost money in the Ponzi scheme holding approved claims of $7.3 billion, according to The Securities Investor Protection Corp. has committed $797.8 million to Madoff investors, it said. The $65 billion was calculated on Nov. 30, 2008, before Madoff’s arrest.

In the three years since his appointment, Picard has raised about $8.7 billion to pay claims, mostly through settlements with investors whom he sued, accusing them of participating in the fraud. About $6 billion of that amount is tied up in court challenges, including $5 billion from Jeffry Picower’s estate and $1 billion from Tremont Group Holdings Inc., according to the website.

Picard spent $434 million liquidating the estate through September, including fees for himself and his law firm of more than $200 million.

Picard, who has filed 1,000 lawsuits seeking $100 billion from banks such as HSBC Holdings Plc and JPMorgan Chase & Co., has seen more than $28 billion of his claims tossed by district judges. He is currently appealing the rulings. His $59 billion suit against UniCredit SpA and Bank Medici AG founder Sonja Kohn is being reviewed by U.S. District Judge Jed Rakoff.

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.

The main case is Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities LLC, 08-ap-1789, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Alcoa Accused of Bribing Alba Officials in Aluminum Scheme

Alcoa Inc. was accused of using a middleman to bribe officials at Bahrain’s state-owned aluminum producer to reap more than $400 million in illegal profit, according to new claims filed in a racketeering lawsuit.

Alcoa, the largest U.S. aluminum producer, made tens of millions of dollars in illegal payments through an intermediary to an official at Aluminium Bahrain BSC, known as Alba, and the government of Bahrain, according to papers filed Dec. 28 in federal court in Pittsburgh. The company also paid more than $5 million in bribes to former Alba Chief Executive Officer Bruce Hall, according to the filing.

Alba sued Alcoa in February 2008 claiming the New York-based company caused it to pay inflated prices for alumina, the principal raw material in aluminum. The case was closed after the U.S. Justice Department said it was investigating whether Alcoa made corrupt payments in Bahrain. It was reopened in November after a judge ruled that Alba could file an amended complaint and a statement laying out its racketeering case.

Mike Belwood, a spokesman for Alcoa, said the claims in Alba’s case are “not supported by the facts.”

“Alba’s statement is yet another recitation of the alleged misdeed of Victor Dahdaleh and Bahraini officials in an attempt to try and construct a claim and survive Alcoa’s upcoming motion to dismiss.”

Alcoa asked to reopen the case in November and sought permission to file a motion seeking its dismissal because racketeering law “does not apply to the extraterritorial conduct,” alleged by Alba, according to court papers.

Hall couldn’t immediately be reached for comment on the filing.

The case is Aluminium Bahrain BSC v. Alcoa Inc., 08-cv-00299, U.S. District Court, Western District of Pennsylvania (Pittsburgh).

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GE Healthcare Pays $30 Million to Settle Medicare Fraud Case

General Electric Co.’s health-care unit will pay more than $30 million to settle claims that a company it bought in 2004 provided false information to Medicare to pad billings for a drug used to diagnose heart disease, the U.S. Justice Department said.

The fraud settlement announced Jan. 29 involving the drug Myoview sold by Amersham Health Inc. resolves claims filed under the False Claims Act. The law allows whistle-blowers to pursue fraud claims on behalf of the federal government and then share in any recovery.

“It’s important for drug manufacturers to provide accurate pricing information to Medicare so that taxpayers aren’t overcharged for medicines purchased with their dollars,” Assistant Attorney General Tony West, who heads the department’s civil division, said in a statement.

The Justice Department has recovered more than $8.7 billion under the False Claims Act since January 2009, the largest-ever three-year total, West said at a Dec. 19 briefing for reporters.

James Wagel, the whistle-blower in the suit against GE Healthcare Inc., will receive $5.1 million from the government’s recovery.

“GE Healthcare is pleased to have reached a resolution in this long-standing case,” said Aleisia Gibson, a company spokeswoman.

CDR Financial, Founder Rubin Plead Guilty in Bid-Rigging Case

CDR Financial Products Inc. and its founder, David Rubin, pleaded guilty less than a week before trial on charges tied to a federal investigation of bid- and auction-rigging in the municipal bond market.

Rubin, 50, and his Beverly Hills, California-based firm were charged along with two other employees. Prosecutors said Rubin, who served as chief executive officer, took kickbacks for running sham auctions for investments.

He pleaded guilty along with the company Dec. 30 in Manhattan federal court. Jury selection in the trial of former CDR Chief Financial Officer Z. Stewart Wolmark and Vice President Evan Zarefsky is set to begin next week and was to include Rubin as a defendant. Rubin tried unsuccessfully to have the trial postponed because his wife is in the final stages of terminal cancer.

“Mr. Rubin has accepted responsibility for his conduct and has pled guilty,” Bradley Simon, a lawyer representing Rubin, said in a phone interview after Rubin’s plea. “Mr. Rubin will now be able to direct all of his energies to caring for his wife and family during this critical time.”

Rubin, who began sobbing at the mention of his wife in the hearing Dec. 30, will be sentenced April 27. He was allowed to remain free on bail.

Rubin and CDR both pleaded guilty to two counts of conspiracy and one count of wire fraud, according to the government. Rubin, CDR’s sole shareholder, pleaded guilty for the company, Simon said.

Rubin faces as much as 35 years in prison. Rubin may also be ordered to pay $1.5 million, according to prosecutors. CDR faces fines of as much as $101 million. The fines may be increased to double the amount gained from the crime or double the loss to victims, the government said.

“Mr. Rubin and his firm were trusted with public money and confidence to assist municipalities with issuing bonds,” FBI Assistant Director in Charge Janice Fedarcyk said in a news release. “Contrary to his agreement and the law, Mr. Rubin shirked his responsibilities while defrauding taxpayers. Thankfully, the bid-rigging scheme, where Mr. Rubin decided the winners and losers, is over.”

The case is U.S. v. Rubin/Chambers, Dunhill Insurance Services Inc., 09-CR-01058, U.S. District Court, Southern District of New York (Manhattan).

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Dupree Is Convicted in $21 Million New York Bank-Fraud Case

A Wharton business school graduate and former University of North Carolina basketball player who ran a New York holding company was convicted by a jury in a $21 million bank-fraud case.

Courtney Dupree was found guilty Dec. 30 in federal court in Brooklyn, New York. He was accused of lying about receivables to New York-based Amalgamated Bank to get and maintain the credit line for his Long Island City-based holding company GDC Acquisitions LLC, which owned lighting and furniture dealers.

The trial began Dec. 6. Amalgamated realized $16 million in losses because of the crime, according to the government. Dupree was chief executive officer of GDC.

“This is a case about lying to a bank to get money,” Assistant U.S. Attorney David Woll told jurors during the trial. “It is about telling lies over and over again in order to grab millions of dollars of the bank’s money.”

Thomas Foley, a lawyer in Hoboken, New Jersey, who was the company’s outside counsel until he became its chief operating officer, was acquitted Dec. 30 of conspiracy, bank fraud and making a false statement.

Dupree was found guilty on four counts including conspiracy to commit bank fraud, bank fraud and two counts of making a false statement.

The case is U.S. v. Dupree, 10-cr-627, U.S. District Court, Eastern District of New York (Brooklyn).

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Litigation Departments

Ex-Lawyer Rothstein Says Funds Didn’t Warn Investors

Scott Rothstein, the Florida lawyer sentenced to 50 years in prison for running a $1.2 billion Ponzi scheme, said officials at three Manhattan hedge funds helped him prop up the fraud in its final months, according to transcripts of a court deposition.

Rothstein, 49, said his scheme began to collapse early in 2009, when he could no longer pay customers. Officials at Platinum Partners Value Arbitrage, Centurion Structured Growth LLC, and Level 3 Capital Fund agreed not to tell potential new investors he failed to make payments to them, he testified.

“The funds were going to give us a positive credit rating,” he said in testimony released Dec. 28. “We were going to use as much of the new money coming in to pay them off, and in fact that’s what we did.” Rothstein was later asked about “false exculpatory e-mails” he had sent to co-conspirators. Eliot Lauer, a lawyer for Platinum and Centurion, asked Rothstein if he was correct in saying no such e-mails were sent to the hedge funds. Rothstein told Lauer he “did not consider your clients to be co-conspirators.”

Rothstein, who has been disbarred, was questioned with the approval of U.S. Bankruptcy Judge Raymond B. Ray in Fort Lauderdale, Florida, on how the scheme worked and who knew about it, as victims seek money from those with knowledge of the fraud.

The questioning took place behind closed doors in a Miami courtroom. Transcripts are being released on the website of the plaintiffs’ law firm Conrad & Scherer.

Rothstein said that, in hopes of a reduced sentence, he was telling prosecutors about everyone involved in his scheme and about police officers and others whom he bribed with cash or encounters with prostitutes.

A recommendation from Centurion, Platinum and Level 3 would have been a lie because he had stopped paying them, Rothstein said. He said Meir Nordlicht, Platinum’s chief investment officer, and Jack Simony, a portfolio manager, agreed to help.

“My only concern was that, at the end of the day, they would lie for us,” Rothstein said. “That was my concern. They didn’t want this to blow. I didn’t want it to blow up. I had been assured by Mr. Simony and Mr. Nordlicht that they would not let it blow up.” Ray Casas, a spokesman for the funds, said Rothstein gave inconsistent accounts and the executives didn’t lie about the fraud.

“Mr. Rothstein’s claims that the funds or their managers would lie for him are absolutely false and are flatly inconsistent with his unequivocal statement that the funds were not his co-conspirators,” Casas said Dec. 29 by e-mail. “He admits he has no knowledge that anyone at the funds lied for him, and not a single one of the dozens of investors in Rothstein’s scheme has said that the funds recommended the investment to them.”

Rothstein, Casas said, “also complained to one of his alleged co-conspirators -- but not the funds -- that the funds were refusing to talk to new investors. This is not the conduct of a hedge fund looking to lure in new investors.”

Simony and Nordlicht haven’t been charged with any crime.

The bankruptcy case is In re Rothstein Rosenfeldt Adler PA, 09-34791, U.S. Bankruptcy Court, Southern District of Florida (Fort Lauderdale). The investors’ suit is Razorback Funding LLC v. Rothstein, 09062943, Circuit Court, 17th Judicial Circuit, Broward County, Florida (Fort Lauderdale). The hedge funds’ suit against TD Bank is Platinum Partners Value Arbitrage Fund LP v. TD Bank NA, 0:11-cv-61835, U.S. District Court, Southern District of Florida (Fort Lauderdale).

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NFL’s Kyle Orton Sues Chicago Law Firm Over Investment Advice

Kyle Orton, the National Football League player, sued a Chicago law firm alleging he and other investors suffered millions of dollars from partnerships that failed to provide anticipated tax benefits.

Orton, in a complaint filed Dec. 29 in state court in Chicago, accuses Chuhak & Tecson PC of misrepresentation and negligence over advice on investments in oil and gas partnerships that were designed to grant tax credits. He and a co-plaintiff seek to represent other investors in a class-action lawsuit.

Andrew Tecson, president of Chuhak & Tecson, said in an e-mail that the firm doesn’t comment on pending litigation.

The firm didn’t warn Orton and other investors that there was a possibility they wouldn’t receive the anticipated tax credits because the partnerships, set up to sell biomass gas from landfills to generate electricity, didn’t meet the statutory requirements for the credits.

Orton, 29, has started the past two games for Kansas City after being claimed by the Chiefs off waivers on Nov. 23. The quarterback began the season with Denver, then was replaced by Tim Tebow as the Broncos’ starter.

The case is Orton v. Chuhak & Tecson, 11CH44662, Cook County Circuit Court (Chicago).

German Corruption Lawyer Rejoins Prosecutor

Wolfgang Schaupensteiner will return to the Frankfurt prosecutor’s office in April after leaving in 2007 to work as an anti-corruption officer for Deutsche Bahn AG, Financial Times Deutschland said, citing him.

There are no positions free in the anti-corruption department and the prosecutor’s office doesn’t yet know which job it will give Schaupensteiner, the German newspaper reported, citing an unidentified spokeswoman for the office.

As a prosecutor, Schaupensteiner exposed “millions” of euros of bribes related to the construction of Frankfurt airport’s second terminal in the 1990s and conducted 15 corruption cases with 200 defendants against Deutsche Bahn, according to the newspaper.

For the latest litigation department news, click here.

Court News

U.S. Chief Justice Offers Confidence in Recusals by Colleagues

U.S. Chief Justice John Roberts said he has “complete confidence” in the ability of his Supreme Court colleagues to decide whether to remove themselves from cases when conflicts arise.

Justices Elena Kagan and Clarence Thomas have been urged to recuse themselves from consideration of the health-care overhaul signed into law by President Barack Obama. The Supreme Court is scheduled to hear arguments about the law’s constitutionality in March.

“I have complete confidence in the capability of my colleagues to determine when recusal is warranted,” Roberts said in a 16-page year-end report released Dec. 31, without naming Kagan or Thomas or citing the health-care debate specifically. “They are jurists of exceptional integrity and experience whose character and fitness have been examined through a rigorous appointment and confirmation process.”

Republican lawmakers and interest groups have said Kagan has a possible conflict of interest if she advised the Obama administration about the health-care legislation while she was solicitor general, the position she held when nominated to the court in 2010. Democrats have said Thomas should recuse himself because his wife, Virginia, has worked for groups that oppose the law. Neither justice has indicated any intent to step aside in the case.

Roberts said there is an important difference between lower federal courts, where judges “can freely substitute for one another” when a recusal occurs, and the Supreme Court, which “consists of nine members who always sit together, and if a justice withdraws from a case, the court must sit without its full membership.”

“A justice accordingly cannot withdraw from a case as a matter of convenience or simply to avoid controversy,” Roberts said.

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Court Filings

Exelon Settlement with Government Most Popular on Bloomberg

The Exelon Corp. settlement with the U.S. Justice Department over its acquisition of Constellation Energy Group Inc., was the most-read litigation docket on the Bloomberg Law system last week.

The U.S. Justice Department agreed to let Exelon carry out the $7.9 billion acquisition on condition that the company sell three electricity-generating plants in Maryland.

The department announced the agreement Dec. 21, shortly after it filed a lawsuit in U.S. District Court in Washington alleging the takeover would eliminate competition and lead to an increase in wholesale electricity prices for consumers in Mid-Atlantic states.

The case is U.S. v. Exelon Corp., 11-cv-02276, U.S. District Court, District of Columbia (Washington).

For more, click here.

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