Express Scripts, BofA, JPMorgan, UBS, Lehman in Court News

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Five states are considering whether they will sue to challenge Express Scripts Inc.’s bid for Medco Health Solutions Inc. if federal antitrust regulators approve the deal, two people familiar with the matter said.

State attorneys general in New York, Pennsylvania, Ohio, Texas and California are waiting to see if the U.S. Federal Trade Commission approves the $29.1 billion proposed acquisition, said the people, who weren’t authorized to speak publicly and asked not to be identified.

State officials are concerned the FTC will approve the deal with conditions that don’t guard against rising prescription prices and decreased pharmacy services, the people said. A combined Express Scripts-Medco would be the largest U.S. manager of pharmacy benefits.

More than 25 states, including the five considering a lawsuit, are investigating the deal for possible antitrust violations, the people said.

Two pharmacy groups opposing the acquisition said last week the FTC asked them to suggest ways to revise the deal so it wouldn’t harm competition. The request may indicate the agency will approve the deal with conditions, said Jeffrey Schmidt, a former director of the FTC’s Bureau of Competition.

The states could seek a temporary delay in the acquisition’s close and a court order to permanently prevent the deal’s consummation, said Billy Vigdor, an antitrust lawyer with Vinson & Elkins LLP in Washington who represents investors with an interest in the deal.

It can be difficult for states to win when the FTC has allowed a deal to go through, said Andrew Gavil, an antitrust law professor at Howard University in Washington.

Dan Tierney, a spokesman for the Ohio attorney general, and Danny Kanner, a spokesman for the New York attorney general, declined to comment on the possibility of a lawsuit. Nils Frederiksen, a spokesman for the Pennsylvania attorney general, and Lauren Bean, a spokeswoman for the Texas attorney general, also declined to comment. Nick Pacilio, a spokesman for the California attorney general, declined to comment. Brian Henry, a spokesman for St. Louis-based Express Scripts, declined to comment.

Lowell Weiner, a spokesman for Franklin Lakes, New Jersey-based Medco, and Cecelia Prewett, an FTC spokeswoman, also declined to comment.


Bank Whistle-Blower Awarded $18 Million in Foreclosure Deal

Attorney Lynn Szymoniak had spent a career investigating insurance fraud when a bank moved to foreclose on her Florida home in 2008. Almost four years later, the fraud she said she uncovered by combing through mortgage documents earned her $18 million, Bloomberg News’s Jef Feeley and David McLaughlin report.

Szymoniak, 63, is among six whistle-blowers who will pocket $46.5 million as part of a $25 billion national foreclosure settlement that state and federal officials reached in February with five banks, including Bank of America Corp. and JPMorgan Chase & Co., according to the U.S. Justice Department.

“When they did this to her, they picked the wrong person at the wrong time in the wrong place,” Richard Harpootlian, Szymoniak’s attorney in two whistle-blower cases, said in an interview. “They stuck their hand into the beehive.”

Szymoniak’s examination, in which she relied on her experience as an insurance-fraud investigator, led to her claims against banks for submitting fraudulent documents to the federal government asserting that they owned loans insured by the Federal Housing Administration, she said.

The national foreclosure settlement with the five banks, which resolves claims of abusive foreclosure practices, provides mortgage relief to borrowers, pays $1.5 billion to those who lost their homes to foreclosure, and sets standards for how the banks service mortgage loans.

As part of the agreement, whistle-blower claims are being settled for about $228 million, according to court papers filed in federal court in Washington. A group of six whistle-blowers will receive $46.5 million out of that amount, said Alisa Finelli, a Justice Department spokeswoman.

The national foreclosure settlement case is U.S. v. Bank of America Corp., 12-00361, U.S. District Court, District of Columbia (Washington).

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Brian Kim Admits to Grand Larceny in $6 Million Ponzi Case

Brian Kim, founder and operator of the hedge fund Liquid Capital Management LLC, pleaded guilty to grand larceny after being accused by Manhattan prosecutors of running a $6 million Ponzi scheme.

Kim entered the plea March 16 before Justice Charles Solomon of New York State Supreme court in Manhattan, admitting nine of 26 counts against him. Sentencing was set for April 20.

Kim, 36, who fled overseas when he was about to be tried in another case, apologized for dragging out the proceedings.

“I know these matters could have been resolved a long time ago,” he told the court. He said he had no “malicious intent.”

Kim was taken into custody in October 2011 by authorities in Hong Kong, where he fled before a U.S. trial scheduled to begin in January 2011 on charges that he stole $430,000 from a Manhattan condominium complex where he lived.

He admitted that crime March 16 as well. Kim told the judge the stolen money went to his investors.

The Ponzi scheme indictment in February 2011 charged him with running a fraud from January 2003 to January 2011.

Kim told clients they were investing in safe and stable securities, prosecutors said. Instead, he traded in highly speculative contracts and diverted money to himself, they said.

The state case is People v. Kim, 2011/86, New York State Supreme Court, New York County (Manhattan). The CFTC suit is U.S. Commodity Futures Trading Commission v. Kim, 11-cv-01013, and the federal criminal case over the passport fraud is U.S. v. Kim, 11-cr-00642, U.S. District Court, Southern District of New York (Manhattan.)

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Gupta’s Lawyer Says ‘Wrong Man’ on Trial in Insider Case

A lawyer for former Goldman Sachs Group Inc. director Rajat Gupta, accused of passing nonpublic information to Galleon Group LLC fund manager Raj Rajaratnam, said March 16 that the U.S. had the “wrong man” on trial.

Gupta’s lawyer, Gary Naftalis, said that Rajaratnam had a different Goldman Sachs tipper, who gave him confidential information about Intel Corp. and Apple Inc., the lawyer said. That Goldman source was also caught on government wiretaps passing the inside information, Naftalis said.

Gupta, 63, who denies wrongdoing, is scheduled to go on trial May 21 for leaking tips to Rajaratnam about Goldman Sachs and Procter & Gamble Co., where Gupta was also a director.

“There are wiretaps, wiretaps that they’ve had for years, that this confidential information is being given out,” Naftalis argued March 16.

“The fact is important because we have the issue that you have the wrong man on trial here,” Naftalis said. “They know that there is a person at Goldman Sachs who has leaked inside information on at least two securities, on Apple and Intel, to Mr. Rajaratnam. It is certainly clear to us this is hot information. We intend to press on this issue. We think there is a much more circumstantial case that that person should be sitting in the box than us.”

Prosecutors disclosed in a Feb. 3 letter to U.S. District Judge Jed Rakoff, who is presiding over the case, that Rajaratnam had a second “insider at Goldman Sachs” who leaked tips to Rajaratnam. Rakoff has referred to this individual as “Mr. X.”

Prosecutors also said the tips didn’t relate to Goldman Sachs or Procter & Gamble.

Two Goldman Sachs executives, David Loeb and Henry King, are under investigation by the U.S. for possible insider-trading charges, according to people with knowledge of the probe who declined to be identified because the matter isn’t public. Testimony from Rajaratnam’s trial last year showed that Loeb, head of Asia Equity Sales in New York with a focus on Taiwan, had dealings with Rajaratnam.

Lawyers didn’t identify the Goldman Sachs insider in court March 16. Michael DuVally, a spokesman for Goldman Sachs, declined to comment on Naftalis’s assertions.

Rajaratnam, who was convicted by a jury last year of all 14 counts against him, is serving an 11-year prison term.

The case is U.S. v. Gupta, 11-cr-00907, U.S. District Court, Southern District of New York (Manhattan).

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Morgan Keegan Loses Dismissal Bid in $8 Billion Fairfax Suit

Morgan Keegan, the brokerage being sold to Raymond James Financial Corp., lost its bid to be dismissed from an $8 billion lawsuit brought by Canadian insurer Fairfax Financial Holdings Ltd.

Fairfax, in its 2006 lawsuit, accused investors of conspiring with analysts and researchers to spread false rumors and drive down Fairfax’s stock price in a so-called bear raid.

New Jersey Superior Court Judge Stephan C. Hansbury in Morristown ruled March 16 that there was more to the case than whether Morgan Keegan’s analyst reports were free speech protected by the U.S. Constitution’s First Amendment.

“There’s more to this case than the statements made in a couple of reports,” the judge said. “It seems to me an innocent truthful statement could be part of the conspiracy,” he said.

The suit once included as defendants the hedge funds SAC Capital Advisors LP, Third Point LLC and Kynikos Associates LP. The remaining defendants, including New York hedge fund Exis Capital Management Inc., have argued the case doesn’t have enough connection to New Jersey to allow Fairfax’s anti-racketeering counts, which allow for tripling the $8 billion in claims. Toronto-based Fairfax brought other claims in the suit.

Hansbury said he will schedule a trial for September. Bruce Collins, a lawyer for Morgan Keegan, told the judge he will file another motion before then to get his client dismissed. Collins declined to comment on the ruling after the hearing.

Fairfax, which owns stakes in Canadian and U.S. insurers, said in its complaint that the hedge funds coordinated with stock analysts so the funds could profit through short sales, selling borrowing shares in anticipation of making money by replacing them with cheaper shares after the price dropped.

The company’s $8 billion damage claim is based on allegations that the hedge funds’ actions depressed Fairfax’s credit ratings, diminished its ability to make acquisitions and reduced the amount it could raise in debt and equity offerings, according to court papers.

The case is Fairfax Financial Holdings Ltd. v. SAC Capital Management LLC, L-2032-06, Superior Court of New Jersey, Morris County (Morristown).

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Former Madoff Employees Seek Evidence They Were Lied To

Five former employees of Bernard L. Madoff Investment Securities LLC asked that prosecutors be ordered to turn over evidence they were lied to about the firm’s activities to help them fight charges they aided their boss’s fraud.

Annette Bongiorno, Joann Crupi, Daniel Bonventre, Jerome O’Hara and George Perez asked U.S. District Judge Laura Taylor Swain March 16 to order prosecutors to turn over potentially favorable information, including statements from Frank DiPascali Jr., a key Madoff lieutenant who is cooperating with the government.

“We seek disclosure of any and all information suggesting that Madoff and others provided false explanations to customers, financial institutions, and regulators or employees in order to disguise the fact that BLMIS was not investing customer funds,” the defendants said in papers filed in federal court in Manhattan.

The defendants claim the government last month turned over partial FBI reports of interviews with DiPascali that suggest that Madoff, DiPascali and others kept them in the dark about the fact they weren’t investing any of their clients’ money.

O’Hara and Perez, both former computer programmers, were arrested and charged in November 2009. Bonventre, Madoff’s ex-operations chief, was charged in February 2010. Bongiorno, who recruited investors and helped run Madoff’s investment advisory office, and Crupi, who worked for Madoff for 25 years, were charged in November 2010.

According to the defendants’ papers, the notes show DiPascali told investigators that Madoff told people he was trading in Europe, not on U.S. exchanges. When confronted by Perez and O’Hara, Madoff “gave the impression he was not doing anything wrong,” according to the notes.

The case is U.S. v. Bonventre, 10-CR-228, U.S. District Court, Southern District of New York (Manhattan).

Cardinal Health Drug Shipments in Florida Blocked by Court

Cardinal Health Inc. must stop distributing controlled substances from its Lakeland, Florida, center as an appeals court weighs the legality of a U.S. Drug Enforcement Administration order blocking the shipments.

The U.S. Court of Appeals in Washington rejected March 16 Cardinal Health’s request to put on hold a lower court’s Feb. 29 decision upholding the DEA suspension.

Cardinal Health “has not satisfied the stringent requirements for an injunction pending court review,” the three judge panel ruled.

U.S. District Judge Reggie Walton on Feb. 29 said that the government sufficiently proved that the distribution facility posed a public safety threat by shipping heavy volumes of the prescription painkiller oxycodone to pharmacies, including two owned by a unit of CVS Caremark Corp.

“We activated our contingency plans earlier in the month and will continue to endeavor to meet our customers’ needs with minimal disruption from our other distribution centers,” Debbie Mitchell, a spokeswoman for Dublin, Ohio-based Cardinal Health, said in an e-mailed statement.

Walton, on March 14, ordered two CVS stores in Sanford, Florida, to stop filling prescriptions of controlled substances during the DEA investigation. He said the DEA produced enough information to show that pharmacists at the stores filled prescriptions for the painkiller oxycodone that they knew or should have known would lead to the drug being diverted for illegal uses.

CVS appealed that ruling and Walton’s order was temporarily placed on hold.

The three judges in the March 16 ruling on Cardinal Health -- U.S. Circuit Judges Karen LeCraft Henderson, David Tatel and Janice Rogers Brown -- are the same ones considering the CVS appeal.

The cases are Cardinal Health v. U.S. Department of Justice, 12-05061, and Holiday CVS LLC v. Holder, 12-05072, U.S. Court of Appeals, District of Columbia Circuit (Washington).

UBS, BNP Paribas Roles Probed in French Madoff Investigation

UBS AG and BNP Paribas SA are the focus of a Paris criminal investigation of claims French investors were duped into putting their money in funds linked to Bernard Madoff via the banks.

A Paris appeals court issued rulings in January and February instructing Investigating Judge Renaud Van Ruymbeke to expand his probe and concentrate on the banks, which acted as intermediaries between the investors and the Madoff funds, lawyers for investors said March 16.

“The appeals court very strongly advised the investigating judge to look into BNP and UBS to verify whether these didn’t, by participation or negligence, take part in the crime or the harm suffered,” said Jean Reinhart, representing a Frenchwoman who lost money in LuxAlpha Sicav-American Selection fund.

Madoff, 73, pleaded guilty in 2009 to orchestrating what prosecutors called the biggest Ponzi scheme in history and is serving a 150-year sentence in a federal prison in North Carolina. Van Ruymbeke is investigating how French investors came to lose money in the New Yorker’s fraud.

UBS denied having had any knowledge of Madoff’s fraud and “will take all appropriate steps to demonstrate that these allegations are false and without foundation,” the Zurich-based bank said in an e-mailed statement March 16.

A spokesman for BNP Paribas didn’t return calls for comment.

The court also told Van Ruymbeke to get the official list of LuxAlpha investors from Luxembourg’s financial regulator, where the fund was registered, said Veronique Lartigue, a lawyer for other investors.

Lartigue said she thinks the list will show the banks themselves are the listed shareholders, rather than the individuals for whom they were acting. If so, “the private investors, individuals, bank clients wouldn’t be the losers, they would have to be repaid their losses because in fact it’s the banks who were” invested with Madoff, she said.

Van Ruymbeke refused to follow up on these angles, leading the prosecution and victims to ask the court to order him. “It didn’t interest him,” Lartigue said.

About 20 investors have claimed to be victims as part of the French investigation, Reinhart said. Local losses attributed to Madoff’s fraud may have been as much as 500 million euros ($659 million), France’s financial markets regulator estimated.

Lehman Brothers Receives $850 Million in Neuberger Berman Deal

Lehman Brothers Holdings Inc., the failed investment bank that is planning a payment to creditors next month, received $850 million for its preferred equity in asset manager Neuberger Berman Group LLC.

Lehman won court approval in December for a plan to sell its minority equity stake in Neuberger Berman, a transaction that it said would generate $1.5 billion, almost double an offer received in 2008.

The $850 million will be available when Lehman makes a distribution to creditors scheduled for April 17, Lehman said March 16 in a statement. New York-based Lehman, which collapsed in 2008, said March 6 that it exited bankruptcy.

Neuberger Berman intends to be fully employee-owned in the next four to five years, Standard & Poor’s wrote in a March 6 note.

The case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

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TV Cameras Rejected in U.S. Supreme Court Health-Care Case

The U.S. Supreme Court rejected media and lawmaker requests for television coverage of this month’s arguments on President Barack Obama’s health-care law, and agreed to release same-day audio recordings.

The court, in a statement citing the “extraordinary public interest” in the case, said it will post the audio on its website each afternoon of the three-day argument. The court generally releases audio on a weekly basis.

The court will hear six hours of arguments March 26-28 -- the most in 44 years -- and probably rule in late June. The central question in a challenge by 26 states and a business trade group is whether Congress exceeded its authority by requiring Americans to either get insurance or pay a penalty.

The justices have never allowed video coverage of their arguments. Over the years, the justices have provided a number of explanations: that they would lose their anonymity, that cameras would change the dynamic in the courtroom, and that news organizations would use only snippets of the arguments.

In the health-care case, the court received requests for live video or audio coverage from a dozen lawmakers and more than 30 media organizations, including Bloomberg News and C-SPAN.

The court’s three-paragraph statement didn’t mention video cameras. The court’s spokeswoman, Kathy Arberg, said that the court won’t allow television coverage.

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Court Filings

Lehman Most Popular Docket on Bloomberg Law system last week.

Lehman Brothers Holdings Inc.’s, which filed the biggest bankruptcy in U.S. history in 2008, had the most-read docket on the Bloomberg Law system last week.

Lehman’s bankruptcy became America’s most costly in April 2010, when it surpassed the $757 million cost of Enron Corp.’s three-year liquidation, according to data assembled by bankruptcy professor Lynn LoPucki at the University of California, Los Angeles.

The case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

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