Inside-Trading ‘Club,’ Citigroup, Total in Court News

Four men arrested last month for allegedly participating in a “criminal club” that made almost $62 million using illegal tips to trade in Dell Inc. stock pleaded not guilty.

Level Global Investors LP co-founder Anthony Chiasson; Todd Newman, a portfolio manager formerly at Diamondback Capital Management LLC; Jon Horvath, an analyst at hedge fund Sigma Capital Management LLC; and Danny Kuo, a fund manager for Whittier Trust Co., entered not guilty pleas to conspiracy and securities fraud charges yesterday in Manhattan federal court.

Prosecutors from the office of Manhattan U.S. Attorney Preet Bharara said the ring, which allegedly involved five hedge funds and investment firms, is the largest identified by the U.S. to date tied to a single stock. One trade earned a $53 million illegal windfall for Chiasson and Level Global, prosecutors allege.

All four men are charged with one count of conspiracy to commit securities fraud. Newman is charged with three counts of securities fraud and Chiasson with four counts of securities fraud. Horvath and Kuo are additionally charged with one count of securities fraud. All four were arrested Jan. 18. They entered their pleas in a hearing before U.S. District Judge Richard Sullivan.

Prosecutors have recordings of conversations between Chiasson and John Kinnucan, founder of an expert networking firm whose mobile phone was wiretapped by federal investigators, Assistant U.S. Attorney Antonia Apps told the judge.

“Mr. Chiasson fired me after only three months, much to my surprise at the time, but after seeing the kind of information he was evidently getting elsewhere, now I understand why he didn’t have any need for the types of channel checks I could provide,” Kinnucan said in an e-mail yesterday.

Kinnucan said he’s “highly confident Mr. Chiasson will not be convicted of any insider trading charges based on any of our conversations, since everything we talked about was industry-standard research, as practiced by all the investment banks, large and small, and which practices have been blessed by the SEC for many years now,” a reference to the U.S. Securities and Exchange Commission.

Prosecutors also have recordings of Newman, Horvath and Kuo speaking with cooperating witnesses, Apps said. She didn’t name the witnesses.

Three other men charged in the scheme pleaded guilty and are cooperating with the U.S. -- Jesse Tortora, formerly of Diamondback; Spyridon “Sam” Adondakis, a Level Global analyst; and Sandeep Goyal, a former employee at Round Rock, Texas-based Dell, the third-largest maker of personal computers.

Sullivan scheduled a hearing in the case for April 13. He didn’t set a trial date.

The case is U.S. v. Newman, 12-cr-121, U.S. District Court, Southern District of New York (Manhattan).

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Ex-Citigroup Executive Denies Wrongdoing in Tibor-Fixing Case

A former Citigroup Inc. executive accused by Japanese regulators in a probe of suspected interest-rate manipulation denied wrongdoing and said authorities never questioned him before they issued findings.

Christopher Cecere, who worked for Citigroup in Tokyo as head of G10 trading and sales for Asia until 2010, was identified as “Director A” in a Dec. 16 administrative case by Japan’s Financial Services Agency, according to two people with knowledge of the inquiry. The agency said Director A and another Citigroup trader engaged in “seriously unjust and malicious” conduct by asking bankers to alter data they submitted in the process of setting a benchmark Japanese lending rate. Japan’s FSA penalized the firm and took no action against the employees.

During Citigroup’s internal investigation, the New York-based bank didn’t question Cecere about his conduct or indicate to him that it suspected he had acted improperly, he said in a Feb. 10 phone interview. Regulators also didn’t seek his version of events, he said. He left the firm in good standing, he said. He later joined Brevan Howard Asset Management LLP, a London-based hedge fund that manages about $33 billion.

Japan’s regulators were the first to announce findings as authorities in Asia, Europe and the U.S. conduct widening inquiries into whether employees at some of the world’s biggest banks sought to manipulate the London, Tokyo and euro interbank offered rates, known as Libor, Tibor and Euribor, respectively. The rates were used by investors to gauge the ability of firms to borrow money at the height of the 2008 credit crisis and can play a key role in derivatives trades.

While Cecere asserted his innocence, he declined to comment on the FSA’s description of events, including whether he pressed someone to change rates for Tibor, saying he has no insight into the watchdog’s investigation or findings.

Citigroup was forced to write off $50 million as it exited trades made by Tokyo-based employees, a person familiar with the matter said last week. Thomas Hayes, a Tokyo-based trader for Citigroup, was dismissed last year for suspected involvement in the rate manipulation, according to two people familiar with the case. Contact information for Hayes couldn’t be found.

Cecere said the holdings that Citigroup recorded losses on were one of many businesses that reported to him in his role overseeing sales and trading units in Asia.

Mika Nemoto, a Tokyo-based spokeswoman for Citigroup, declined to comment on Cecere’s remarks.

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New Suits

Total SA’s SunPower Sues SolarCity Over Trade-Secret Pacts

Total SA’s SunPower Corp. sued SolarCity Corp. for unfair business practices, claiming five former SunPower employees illegally used trade secrets.

SunPower said a forensic investigation after the five left the company showed they had copied “tens of thousands of files” and moved information to SolarCity computers, according to a complaint filed Feb. 13 in federal court in San Jose, California.

“Defendants have willfully interfered with SunPower’s ownership and possessory rights to such property without lawful justification,” SunPower said in the complaint. The company is seeking unspecified damages.

SunPower, based in San Jose, makes solar panels, and San Mateo, California-based SolarCity is a distributor of such panels and related equipment, SunPower said.

Jonathan Bass, a SolarCity spokesman, didn’t immediately return voice and e-mail messages seeking comment on the lawsuit.

The case is SunPower v. SolarCity, 12-cv-694, U.S. District Court, Northern District of California (San Jose).

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Stanford Lost $711 Million on Side Ventures, FBI Agent Says

R. Allen Stanford lost $711 million on companies in which he’d invested $2 billion of investor funds secretly borrowed from his offshore bank in Antigua, a federal agent testified.

Stanford’s borrowings contributed to a $7.05 billion “hole” investigators said existed between the $8.59 billion in reported assets and $1.54 billion in actual assets at Stanford International Bank Ltd. at year-end 2008, FBI Special Agent Robert Martin told jurors yesterday.

Stanford’s attorneys have told jurors in the financier’s criminal fraud trial that he was in the process of recapitalizing his offshore bank, by transferring 130 private ventures onto the bank’s balance sheet, when U.S. regulators seized his operations on suspicion of fraud in February 2009. If regulators hadn’t blocked the consolidation, his lawyers claim, none of Stanford’s investors would have lost money.

“Practically none of Mr. Stanford’s companies were profitable,” Martin testified in federal court in Houston. While some of Stanford’s investments showed earnings from time to time, Martin said that only the tiny commercial bank Stanford ran for Antiguan islanders consistently earned a yearly profit.

Stanford, 61, is fighting charges he defrauded investors of more than $7 billion through what prosecutors say was a Ponzi scheme built on bogus certificates of deposit at Stanford International Bank. The financier, who has been jailed as a flight risk since his indictment in June 2009, faces as long as 20 years in prison if convicted of the most serious charges against him.

The criminal case is U.S. v. Stanford, 09-cr-342, U.S. District Court, Southern District of Texas (Houston). The SEC case is Securities and Exchange Commission v. Stanford International Bank, 09-cv-298, U.S. District Court, Northern District of Texas (Dallas).

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J&J Defends Synthes Bid at European Union Antitrust Hearing

Johnson & Johnson defended its planned acquisition of orthopedics maker Synthes Inc. at a meeting with European Union antitrust regulators Feb. 13.

“There was an oral hearing,” said Antoine Colombani, a spokesman for the European Commission in Brussels. He declined to comment further. A hearing usually follows a formal antitrust complaint listing regulators’ concerns that a deal may harm competition.

The commission opened an expanded probe in November into the deal. It said at the time that the transaction may trigger an increase in prices for orthopedic medical devices.

The world’s second-largest seller of health products agreed in April to buy Synthes, a maker of medical tools to treat damaged bones, in a deal valued at the time at $21.3 billion, the biggest purchase in the New Brunswick, New Jersey-based company’s history. It would make J&J the leader in the $5.5 billion market for devices used to treat trauma victims.

A Johnson & Johnson spokesman, William Price, declined to comment in an e-mail. Synthes didn’t immediately respond to an e-mail seeking comment. The commission has a deadline of April 2 to rule on the deal.

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Wachovia Settles Normandy Hill’s Le-Nature’s Suit Over Loan

Wells Fargo & Co.’s Wachovia Capital Markets LLC settled investor claims that it failed to disclose signs of fraud at Le-Nature’s Inc. as it arranged a $285 million loan before the drink maker’s bankruptcy.

Normandy Hill Master Fund LP sued Wachovia Capital Markets in New York state Supreme Court in June 2010, saying it relied on false financial statements when it arranged the loan two months before Le Nature’s went bankrupt in 2006. Terms of the settlement weren’t disclosed in a court filing made public yesterday.

“The parties are pleased to be able to resolve their differences through a negotiated settlement given the complicated nature of the claims involved,” Aaron A. Mitchell, an attorney representing Normandy Hill, said in a phone interview.

Le-Nature’s, based in Latrobe, Pennsylvania, made bottled water, tea and other flavored drinks. Gregory J. Podlucky, the company’s founder, and others were indicted in September 2009 on charges they duped creditors out of more than $800 million by overstating company revenue. Podlucky pleaded guilty in May 2011 and was sentenced to 20 years in prison in October.

There was no dismissal or settlement with the suit’s remaining parties, which include Podlucky, Le-Nature’s former executive vice president Robert Lynn and BDO Seidman LLP, Mitchell said. Lynn was found guilty by a jury in July and sentenced to 15 years in prison last month.

Elise Wilkinson, a spokeswoman for San Francisco-based Wells Fargo, didn’t respond to voice-mail and e-mail messages seeking comment on the settlement.

The case is Normandy Hill Master Fund LP v. Wachovia Capital Markets, 650548/2010, New York State Supreme Court (Manhattan).

Lehman’s $699 Million Deal With JPMorgan Is Uncontested

Lehman Brothers Holdings Inc.’s $699 million settlement with JPMorgan Chase & Co. was unopposed by creditors as it heads for a court hearing today, according to a court filing.

Under the agreement yesterday, JPMorgan will pay bankrupt Lehman the money, which the bank’s investment fund affiliates had claimed as compensation for losses on Lehman investments. Lehman and its creditors had said the claims weren’t “plausible.”

The judge usually approves such uncontested agreements put before him. The $699 million was part of an $8.6 billion fight between Lehman and JPMorgan. Lehman has been trying to recover the funds, consisting of collateral deposited with the bank about the time of Lehman’s 2008 bankruptcy.

The lawsuit is Lehman Brothers Holdings Inc. v. JPMorgan Chase Bank NA, 10-03266, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Glaxo Settles Almost 25,000 Avandia Cases Under Mediation

GlaxoSmithKline Plc settled almost 25,000 cases over its Avandia diabetes drug in mediation as multidistrict litigation begins to wind down, lawyers told a federal judge in Philadelphia.

In November, U.S. District Judge Cynthia Rufe appointed a mediator to preside over settlement negotiations. She also set a 75-day deadline to resolve 85 percent of the remaining cases. While it was unclear in a court hearing yesterday whether lawyers met the threshold, Rufe called the effort “a major success.”

“Mediation will no longer be the focus of this court’s effort,” Rufe said. “We will resolve the remaining cases through litigation.”

The settlements are part of London-based Glaxo’s efforts to resolve legal issues stretching back more than a decade. The drugmaker announced in November that it would pay $3 billion to settle U.S. criminal and civil probes into whether Glaxo illegally marketed Avandia and other medications.

More than 2,500 Avandia cases are consolidated before Rufe in Philadelphia. Other cases are pending in state courts around the U.S. So far, as many as 50,000 cases have been resolved, including claims filed in both state and federal court, Diane Nast, a plaintiffs’ attorney who serves on a group helping to oversee cases, told Rufe yesterday.

Glaxo said in 2010 that it would stop promoting Avandia worldwide after studies linked the drug to increased risks of heart attacks. The company already agreed to pay at least $700 million to settle more than 15,000 patients’ claims that the drug caused heart attacks and strokes, people familiar with the accords said last year.

“The majority of the cases in total have been settled,” Bernadette King, a U.S.-based Glaxo spokeswoman, said yesterday in a phone interview. “The cases have to be reviewed and the precise numbers determined at some point to see which cases qualify under the settlements.” The consolidated case is In re Avandia Marketing, Sales Practices and Products Liability Litigation, 07-01871, U.S. District Court, Eastern District of Pennsylvania (Philadelphia).

Raymond James U.K. Unit Wins Court Battle Over Client Poaching

Raymond James Financial Inc.’s U.K. unit won a lawsuit in which financial advisory firm Towry Holdings Ltd. accused the company and seven employees of taking its clients.

A U.K. judge dismissed Towry’s claim, which sought as much as 6 million pounds ($9.4 million), Faegre Baker Daniels LLP, a law firm representing Raymond James, said in an e-mailed statement.

Towry sued for breach of contract after seven of its financial advisers joined Raymond James’s U.K. unit and were followed by some of their clients, the firm said. The case highlights the importance of knowing which restrictions apply to new recruits, and “taking time to ensure they are not breached,” Faegre Baker Daniels partner Alex Denny said.

The seven employees had worked for a company taken over by Towry in 2009 and were employed under different contracts to its other staff, Andrew Fisher, Towry’s chief executive officer, said in an e-mailed statement.

“We did not undertake this action lightly but to protect our legitimate business interests for our clients and shareholders,” Fisher said.

Siemens, Toshiba Lose EU Court Appeal Over Czech Antitrust Fines

Siemens AG, Toshiba Corp. and Hitachi Ltd. are among electric-equipment makers that lost a European Court challenge to overturn more than 900 million koruna ($47 million) in Czech antitrust fines.

The EU Court of Justice ruled that the Czech antitrust regulator was right to fine at least 10 companies a record 979 million koruna in 2007, a month after the EU authority had levied a 750.7 million-euro penalty ($988 million) on them for colluding on prices of electric equipment. The companies, also including Areva SA and Alstom SA, challenged the legality of the Czech fine, which was later cut to 942 million koruna.

A Czech regional court in 2008 overturned the national penalty, ruling that the companies couldn’t be fined twice, once by the European Commission and once by Czech regulator. On appeal by the Czech antitrust watchdog, a high court in 2009 annulled that ruling and said the regional court had to re-examine the case.

The regional court referred the case to the EU tribunal questioning whether EU or Czech law applied for the period during which the cartel took place in the Czech Republic before the country became part of the 27-nation bloc in May 2004.

The case is: C-17/10, Toshiba Corporation, Areva, Mitsubishi Electric Corp., Alstom, Fuji Electric, VA TECH Transmission & Distribution GmbH & Co. KEG, Siemens AG, Hitachi Ltd, Japan AE Power Systems Corp., Nuova Magrini Galileo SpA v. Urad pro ochranu hospodarske souteze.

Grupo Mexico Wins $83 Million in Sterlite Case Over Asarco

Grupo Mexico SAB’s Asarco LLC won $82.8 million in a lawsuit against copper producer Sterlite Industries (India) Ltd. over a failed deal to buy Asarco out of bankruptcy, or less than 4 percent of what it was seeking.

U.S. Bankruptcy Judge Richard Schmidt in Corpus Christi, Texas, awarded the damages to Asarco in a ruling Feb. 13. The amount was less than the about $2.28 billion the copper miner wanted following Sterlite’s decision in 2008 to walk away from an agreement to buy the company.

Sterlite, which blamed a drop in copper prices for failing to complete the deal, harmed Tucson, Arizona-based Asarco by delaying its exit from bankruptcy, Schmidt said. The judge reduced the damages because Grupo Mexico and Sterlite waged a 2009 bidding war for Asarco, which Grupo Mexico won.

“Damages must be reduced to reflect a subsequent mitigating transaction even if such transaction differs structurally from the initial transaction,” Schmidt said. “Here, the mitigation effort started immediately after the alleged breach and continued until the bankruptcy process resulted in the parent being declared the winner.”

Jorge Pulido, head of investor relations for Mexico City-based Grupo Mexico, declined to comment on the ruling. Schmidt awarded Asarco $132.8 million in damages less a $50 million letter of credit that Asarco was authorized in 2009 to draw down.

Sterlite, based in India, is a unit of Vedanta Resources Plc. A Sterlite spokesman couldn’t be reached for comment after business hours.

The case is Asarco LLC v. Sterlite (USA) Inc., 10-02010, U.S. Bankruptcy Court, Southern District of Texas (Corpus Christi).

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Litigation Departments

Facebook Awarded $75,777 in Legal Fees From Claimant Ceglia

Facebook Inc. was awarded $75,777 in legal fees after a judge ruled that Paul Ceglia ignored a pretrial discovery order to turn over e-mail accounts in his ownership claim against the social network.

U.S. Magistrate Judge Leslie Foschio yesterday gave Facebook most of the $84,196 it claimed as reimbursement for the 177 hours spent by its lawyers in filing motions to force Ceglia to comply with the order. Ceglia has already paid a $5,000 fine imposed by Foschio in federal court in Buffalo, New York.

Ceglia claims he has a 2003 contract signed by Facebook co-founder Mark Zuckerberg that gave him half-ownership of the company, now worth an estimated $82.3 billion, according to, which tracks nonpublic companies. Facebook, based in Menlo Park, California, operates the most popular social-networking site in the world.

Foschio rejected arguments by Ceglia that the fees claimed by Facebook were “stratospheric” and not justified by the “garden-variety” issues presented by the case.

Ceglia’s lawyer, Dean Boland of Lakewood, Ohio, didn’t return a voice-mail message seeking comment on the ruling.

The case is Ceglia v. Zuckerberg, 1:10-cv-00569, U.S. District Court, Western District of New York (Buffalo).

Singapore to Allow Foreign Firms Invest in Local Law Firms

Singapore passed legislation to allow foreign law firms to own stakes in local legal practices or share in their profits, under legislative changes proposed by Law Minister K. Shanmugam yesterday.

The Southeast Asian city will also relax the rules for the admission of experienced foreign trial lawyers, he told Parliament. Shanmugam has said Singapore won’t “turn back” after licensing six foreign firms in December 2008 to practice local corporate law.

The decision to allow foreign law firms to own stakes in local practices may help proposed tie-ups such as one between London-based Allen & Overy LLP and Singapore’s Allen & Gledhill. The two firms said in November they were in preliminary talks on proposals to combine, subject to any necessary regulatory approvals in Singapore.

Allen & Overy, Clifford Chance LLP, Norton Rose LLP, White & Case LLP, Herbert Smith LLP and Latham & Watkins LLP were awarded the six qualifying foreign law practice licenses in 2008. The firms made commitments to double their revenue, staffing and profits in Singapore in five years.

Lawmakers including Hri Kumar and Christopher De Souza, both lawyers and from the ruling party, raised concerns about the further opening of Singapore’s legal industry.

“In a firm where the final decision lies abroad, the bottom line becomes paramount,” said Kumar, a lawyer with Drew & Napier LLC in Singapore.

“Does the minister foresee our legal industry heading the direction of Hong Kong where international law firms dominate nearly every area of law and is that a consequence the government favors or is prepared to accept?” he asked.

The decision to allow foreign law firms to take stakes lies with local law practices, Shanmugam said in response. The proposed change isn’t a “mandate” that domestic law firms are required to followed, he said. The changes will take effect in the second quarter.

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(Removes pay reference in third paragraph of Citigroup item published Feb. 15.)
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