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Madoff-Mets, R.J. Reynolds, SAC Capital, Omni in Court News

March 20 (Bloomberg) -- The owners of the New York Mets agreed to a $162 million settlement of claims by the liquidator of Bernard Madoff’s firm that won’t require them to pay any money for at least four years, if ever.

U.S. District Judge Jed Rakoff announced the settlement yesterday before the parties were to have begun selecting a jury for a trial over whether the Mets owners acted in bad faith when they withdrew money from Madoff’s Ponzi scheme. Under the settlement, Fred Wilpon, Saul Katz and related parties owe the Madoff estate $162 million, which will may be totally or partially offset by their own claims for $178 million in losses.

As part of the agreement, Picard dropped his allegation that the Mets owners blinded themselves to Madoff’s Ponzi scheme because it benefited their businesses.

“We were not willfully blind,” Wilpon said after a hearing in Manhattan. “This settlement bears that out.”

The settlement was reached March 16, with the assistance of former New York Governor Mario Cuomo, who acted as mediator in the dispute. Rakoff must approve the deal for it to take effect.

“The settlement is for the benefit of all the customers,” lawyer David Sheehan, who represents Picard, said.

Madoff, 73, pleaded guilty in 2009 to orchestrating what prosecutors called the biggest Ponzi scheme in history. He’s serving a 150-year sentence in federal prison in North Carolina.

The case is Picard v. Katz, 11-cv-03605, U.S. District Court, Southern District of New York (Manhattan).

For more, click here.

Graphic Cigarette Warning Label Upheld by U.S. Appeals Court

Tobacco companies can be forced to put graphic warning labels on cigarette packaging without violating their constitutional rights to free speech, a U.S. appeals court ruled.

The labels, mandatory under the 2009 Family Smoking Prevention and Tobacco Control Act, now include photos picked by the U.S. Food and Drug Administration that show a man expelling cigarette smoke from a hole in his throat, diseased lungs, and a cadaver. R.J. Reynolds Tobacco Co., Lorillard Tobacco Co. and other makers and sellers of tobacco products challenged the law as unconstitutionally compelling speech.

“The warning labels required by the act do not impose any restriction of plaintiffs’ dissemination of speech,” the U.S. Court of Appeals in Cincinnati said. “Instead the labels serve as disclaimers to the public regarding the incontestable health consequences of using tobacco.”

The 2-1 ruling yesterday follows a Feb. 29 decision on a separate case by a federal judge in Washington, who said the FDA’s image requirement does violate the cigarette makers’ free-speech rights. The U.S. is appealing that decision.

The proposed warning labels would cover 50 percent of the front and back of cigarette packages. The U.S. argued that the requirement is “to ensure that the health risk message is actually seen by consumers in the first instance.”

Bryan Hatchell, a spokesman for R.J. Reynolds, said, “It’s important to note that the court, in a split decision, only held that graphic warnings could legally be displayed on cigarette packaging and advertisements.” The judges didn’t rule on the constitutionality of the FDA-proposed images, he said.

The appellate case is Discount Tobacco City & Lottery Inc. v. U.S., 10-5234 and 10-5235, U.S. 6th Circuit Court of Appeals (Cincinnati). The Washington case is R.J. Reynolds Tobacco Co. v. U.S. Food and Drug Administration, 11-cv-1482, U.S. District Court, District of Columbia (Washington).

Israel Discount Bank Wins Court Order Over $17 Million Cache

Israel Discount Bank of New York won a contempt order against Delaware’s First State Depository Co. after asking a judge to preserve $17 million in coins and bullion being held as collateral for loans.

Delaware Chancery Court Judge Donald F. Parsons Jr. yesterday imposed a $5,000-a-day fine on the depository company until it complies with a Feb. 29 order that gave IDB the right to have the coins returned to Delaware for safe-keeping, inspection and appraisal.

First State’s failure to comply with the so-called preliminary injunction “is inexcusable,” Parsons wrote in a court filing. He rejected First State’s argument that it shouldn’t be held in contempt because IDB already has access to enough collateral to protect the loan it made.

IDB claims Wilmington-based First State is trying to sell some of the assets without permission, in violation of the collateral agreement. The assets include more than 12,000 rare presidential or Sacagawea dollar coins with missing edge markings, other collector-quality gold and silver coins, and bullion, according to court papers.

Joseph Cicero, IDB’s lawyer, and Daniel Crossland, representing First State, didn’t immediately respond to phone calls seeking comment on the ruling.

The case is Israel Discount Bank v. First State Depository, CA7237, Delaware Chancery Court (Wilmington).

SAC Extortion Case Conviction of Brooklyn Rabbi Is Upheld

A federal appeals court upheld the conviction of Milton Balkany, a Brooklyn, New York, rabbi found guilty of trying to extort $4 million from Steven Cohen’s SAC Capital Advisors LP.

The U.S. Court of Appeals in Manhattan yesterday rejected Balkany’s claim that he was induced to commit the crime by the firm’s lawyer, Martin Klotz, and was barred from putting on a defense that he had been entrapped by the lawyer working on behalf of prosecutors.

Balkany was convicted of extortion and blackmail by a jury in November 2010 for threatening to disclose insider trading by SAC unless $4 million was paid to charities he operated. There was no evidence at the trial that he had any such evidence. He was sentenced to four years in prison.

“The District Court did not err in refusing to give an entrapment charge because Balkany failed to present any evidence that the government ‘induced’ him to commit the crimes charged,” a panel of judges on the Manhattan-based appeals said yesterday.

“The evidence with respect to the extortion, wire fraud, and blackmail counts established that it was Balkany who first made an unsolicited call to SAC,” the panel said.

Paul Shechtman, a lawyer for Balkany, didn’t immediately reply to a voice-mail message left at his office seeking comment on the decision. Jonathan Gasthalter, a spokesman for SAC, declined to comment.

Prosecutors said the rabbi, who was dean of the Bais Yaakov day school in the Borough Park neighborhood of Brooklyn, told the Stamford, Connecticut-based fund that a federal prisoner in Otisville, New York, to whom he was a spiritual adviser, had described the purported insider-trading scheme to him.

The case is U.S. v. Balkany, 10-cr-441, U.S. District Court, Southern District of New York (Manhattan).

Ex-Investment Adviser Allen Pleads Guilty to Insider Trading

Scott Allen, a former Mercer LLC investment adviser, pleaded guilty to charges that he supplied nonpublic information to a friend in a $2.6 million insider-trading scheme involving drug-company acquisitions.

Allen, 45, of Atlanta, admitted in federal court in Manhattan yesterday that he shared illegal tips about the April 2008 acquisition of Millennium Pharmaceuticals Inc. by Takeda Pharmaceutical Co. and about the 2009 purchase of Sepracor Inc. by Dainippon Sumitomo Pharma Co.

“I had discussions with a personal friend and shared that information with him and he in turn traded on that information,” Allen told U.S. District Judge Deborah Batts. “The motive behind my decision was primarily friendship but also for financial gain.”

Allen pleaded guilty to seven counts of securities fraud and a charge of conspiracy to commit securities fraud. His trial was set to begin March 27 before Batts. He said yesterday in court that he betrayed his fiduciary duty to his employers by passing the tips to his friend, John Bennett, an independent film producer. Bennett pleaded guilty to insider trading charges in November.

Charles Salmans, a spokesman for Mercer, said his firm “is fully cooperating with the authorities in their investigation matter concerning a former employee. Mercer is not a subject or target of the investigation.”

Batts allowed Allen to remain free on $500,000 bond and scheduled his sentencing for Aug. 20. While each count of securities fraud carries a term of as long as 20 years in prison, the Manhattan U.S. Attorney’s Office agreed as part of Allen’s plea not to seek a term of incarceration longer than 57 months.

Allen and his attorney, Brian McEvoy, declined to comment after court.

The case is U.S. v. Bennett, 11-cr-927, U.S. District Court, Southern District of New York (Manhattan).

For more, click here.

For the latest verdict and settlement news, click here.

New Suits

Deutsche Boerse Contests NYSE Merger Rejection Over Derivatives

Deutsche Boerse AG sued to contest the European Union’s rejection of its takeover of NYSE Euronext, a move aimed at settling the issue of how regulators define the size of the region’s derivatives market.

Aspects of the Feb. 1 ruling were “erroneous,” the Frankfurt-based company said in an e-mailed statement yesterday. Appealing the decision is a way to challenge the EU’s legal reasoning and doesn’t necessarily mean companies intend to resurrect their transaction.

Authorities blocked the takeover on grounds that it would create a “near monopoly” in the region’s derivatives. The rejection hinged on a determination that exchange-traded derivatives in Europe are a market unto themselves and shouldn’t be considered part of a larger universe that encompasses over-the-counter contracts changing hands globally.

“This was an unfortunate determination of the definition of the market,” Craig Donohue, the chief executive officer of CME Group Inc. in Chicago, said at an industry panel last week in Boca Raton, Florida. “This is not a European-only market. It’s not a market for only listed derivatives.”

Deutsche Boerse considers “several aspects of the decision” to be wrong, the exchange said in an e-mailed statement yesterday. NYSE Euronext hasn’t decided yet on whether to pursue an appeal, Robert Rendine, a spokesman for NYSE, said yesterday in an e-mailed response, declining to comment further.

Deutsche Boerse agreed to acquire its New York-based rival in a deal valued at $9.5 billion when it was announced in February 2011. The purchase would have put more than 90 percent of Europe’s exchange-traded derivatives market and about 30 percent of stock trading in the hands of one company.

The EU’s antitrust chief Joaquin Almunia blocked the deal “to protect the European economy from the perverse effects of a combination that would have practically eliminated effective competition in the market,” he said Feb. 1.

FDIC Sues Former Omni National Bank Officers for Loan Losses

The Federal Deposit Insurance Corp. sued former executives of Omni National Bank to recover losses from community development loans and spending on low-income properties.

The FDIC says violations of banking laws cost the fund $330.6 million, according to a complaint filed March 16 in federal court in Atlanta. The agency accuses 10 former officers of the failed bank of negligence and gross negligence. Jeffrey L. Levine, one of the bank’s cofounders and a defendant, is serving a five-year sentence in federal prison for fraud related to bad mortgage loans at Omni National, a unit of Omni Financial Services Inc.

Officers violated the bank’s loan policies and procedures by using straw borrowers, by exceeding loan-to-value ratio limits and by failing to properly appraise real estate, according to the FDIC complaint.

The FDIC seeks a jury trial and repayment of $37.2 million from bad low-income property loans and “wasteful expenditures” on other low-income real estate property in bank holdings, according to the complaint.

Lawyers for defendant Stephen M. Klein, Omni National’s former chief executive officer, couldn’t immediately be located for comment on the complaint.

Shannon Livengood, a former vice president who is also a defendant, declined to comment.

The case is Federal Deposit Insurance Corporation as Receiver of Omni National Bank v. Klein, 12-cv-00896, U.S. District Court, Northern District of Georgia (Atlanta).

For the latest new suits news, click here. For copies of recent civil complaints, click here.


Berkshire Investor Suit Over Sokol’s Stock Trades Tossed

Berkshire Hathaway Inc. directors, including billionaire founder Warren Buffett, don’t have to face shareholders’ suits over challenged stock trades by former Berkshire executive David Sokol, a judge ruled.

Investors can’t sue Berkshire’s board because it hasn’t decided whether to sue Sokol, who headed a Berkshire unit, over his stock trades in Lubrizol Corp. during a two-month period starting in December 2010 while Sokol was evaluating the chemical company as a possible Berkshire acquisition, Delaware Chancery Court Judge Travis Laster concluded yesterday.

“There could be some good reasons” to delay suing Sokol to recover $3 million in profits he made from the Lubrizol stock trades and that inaction doesn’t open the board to shareholders’ derivative suits, Laster said.

A Berkshire audit committee concluded in April that Sokol, who headed Berkshire’s NetJets Inc. subsidiary, violated the company’s insider-trading policies and misled Buffett and other officials about his stake in Lubrizol, which he was recommending as a Berkshire takeover target.

Sokol’s purchase of more than $10 million in Lubrizol stock while facilitating Buffett’s deal to buy the lubricant maker “violated company policies, including Berkshire Hathaway’s Code of Business Conduct and Ethics and its insider-trading policies and procedures,” according to the report. Sokol left Berkshire in March 2011 after questions were raised about the stock trades.

Buffett didn’t immediately respond to a request for comment e-mailed to his assistant, Carrie Kizer.

Investors sued Berkshire directors in state court in Wilmington, Delaware, last year alleging the board was dragging its feet in making the decision whether to sue Sokol for usurping a corporate opportunity with the stock trades.

Shareholders filed a so-called derivative action which would return any recovery from insurance covering directors to the investment firm’s coffers.

Robert Weiser, a New York-based lawyer for Berkshire investors seeking to sue the board over Sokol’s trades, told Laster yesterday that shareholders had to press the case against the former executive because of directors’ unwillingness to do so.

Barry Levine, a New York-based lawyer representing Sokol, said the executive disputes investors’ claim that the Lubrizol trades violated federal securities laws. He told Laster that Sokol wasn’t a proper target of investors’ suits since he wasn’t an officer or director of Berkshire.

William Lafferty, a Wilmington-based lawyer for Buffett and other Berkshire directors, said the U.S. Securities and Exchange Commission reportedly has opened an inquiry into Sokol’s Lubrizol trades and Berkshire officials could be waiting for the outcome of that probe before taking any action against Sokol.

“The court should not allow the plaintiffs to hijack” the board’s right to decide whether to sue over Sokol’s trades, Lafferty said.

The case is In re Berkshire Hathaway Inc. Shareholders Litigation, CA 6392, Delaware Chancery Court (Wilmington).

BP Whistle-Blower Seeks Shutdown of Atlantis in Gulf of Mexico

BP Plc’s Atlantis platform, its second-largest oil producer in the Gulf of Mexico, should be shut down until it’s proven to comply with U.S. safety and environmental laws, a lawyer for a whistle-blower told a judge.

BP misled U.S. offshore regulators to win operating permits for its Atlantis platform about 150 miles (240 kilometers) south of New Orleans, according to the whistle-blower. The facility produced an average of 60,000 barrels of oil daily last year and is capable of producing as much as 200,000 barrels a day, according to data on London-based BP’s website.

“Atlantis is presently not fit for service under normal engineering standards,” David Perry, a lawyer for former BP contractor Kenneth Abbott, said at a hearing yesterday in federal court in Houston. “We ask the court to take action to oversee remediation to make it fit for service.”

Abbott, who sued BP on behalf of the U.S. government in 2009, has asked U.S. District Judge Lynn Hughes to move quickly to halt production and appoint a special master to oversee measures to ensure the platform is brought into compliance. Abbott also seeks $7.8 billion from BP, which he estimates is the value of oil and gas BP has pumped through Atlantis since the facility came online in 2007.

Perry told Hughes there’s a specific pressure-relief valve “that is protecting a 16-inch pipeline” connecting Atlantis to shore and “that is undersized by a factor of 20 to 1.” A failure in that valve “could cause catastrophe at any time,” Perry said.

“There is no urgency on this, Atlantis is safe,” BP’s lawyer, Lynne Liberato, told Hughes. “The Interior Department said it was safe after an extensive investigation,” which included looking into Abbott’s allegations, she said at yesterday’s hearing.

BP said in its own court filings that Atlantis is safe and that Abbott’s complaints were dismissed by federal regulators who investigated the issue after the 2010 blowout of BP’s Macondo well, drilled by the Deepwater Horizon. Atlantis is located about 100 miles south of where the Deepwater Horizon disaster occurred.

The U.S. Interior Department in March 2011 said that BP’s deficiencies in documentation for the platform posed no “serious” safety risks, following its investigation of Abbott’s allegations.

The case is U.S ex rel. Abbott v. BP Exploration and Production Inc., 4:09-cv-01193, U.S. District Court, Southern District of Texas (Houston).

For more, click here.

Stanford Investor Class Actions Restored by Appeals Court

R. Allen Stanford’s aggrieved investors can press state court class-action lawsuits they filed seeking to recover losses in his $7 billion international fraud scheme, a U.S. appeals court ruled.

The New Orleans based panel yesterday reversed a lower-court decision that the claims were barred by a federal law preventing plaintiffs from pursuing state-law claims arising from the purchase or sale of federally regulated securities.

A federal court jury in Houston on March 6 found Stanford guilty of mail and wire fraud in the sale of certificates of deposit issued by his Antigua-based Stanford International Bank Ltd. He is to be sentenced June 14.

The purchase or sale of securities is only “tangentially related” to Stanford’s scheme, the unanimous three-judge panel said, reviving four lawsuits filed against those who sold the CDs and lawyers and an insurer for the Stanford bank.

The U.S. Securities and Exchange Commission sued Stanford and two other top executives in his organization in February 2009, alleging they misled investors about the nature and oversight of the Antiguan bank and the CDs it issued.

He and other executives were indicted on federal charges four months later. Finance chief James Davis pleaded guilty to fraud in August 2009 and testified against Stanford in his six-week trial.

The case is Roland v. Green, 11-10932, U.S. Court of Appeals for the Fifth Circuit (New Orleans).

For more, click here.

Chevron, Transocean Managers Banned From Leaving Brazil

Seventeen Chevron Corp. and Transocean Ltd. executives were banned from leaving Brazil pending an investigation into an offshore oil spill.

The order was signed by a federal judge last week as part of the probe into the 3,000-barrel slick off Rio de Janeiro in November, Marcelo del Negri, a spokesman for the federal prosecutor’s office, said in a telephone interview March 18. Transocean owned the rig involved in the spill.

The leak at Chevron’s $3.6 billion Frade field occurred at a time when Brazil is increasing scrutiny of deepwater drilling following the 2010 Macondo spill in the U.S. Gulf of Mexico, which was about 1,630 times bigger. State and federal lawmakers have criticized Chevron for the spill.

“They took this out of proportion,” Cleveland Jones, an oil specialist and geology professor at Rio de Janeiro State University, said in a telephone interview. “It’s far from the coast and it’s a small volume.”

Seepages are common in regions such as the Gulf of Mexico and the North Sea, Jones said.

Chevron has not been notified of the court order yet, Claudia Afflalo, a press officer for Chevron, said in a telephone interview from Rio de Janeiro. Chevron will defend the company and its employees, spokesman Kurt Glaubitz said in an e-mailed statement March 18. Guy Cantwell, a spokesman for Transocean, declined to comment yesterday.

Last week, Chevron shut what oil production remains at the field after detecting a new leak, Glaubitz said. He called the shutdown temporary and said the company will conduct a geologic study of the area.

For more, click here.

For the latest lawsuits news, click here. For the latest trial and appeals news, click here.

On the Docket

Citigroup Settlement With SEC to Be Reviewed in September

A judge’s rejection of a $285 million settlement between Citigroup Inc. and the Securities and Exchange Commission won’t be reviewed by a federal appeals court until September.

In November, U.S. District Judge Jed Rakoff denied approval of the settlement, which was intended to resolve SEC claims that Citigroup, the third biggest U.S. bank, misled investors in $1 billion in securities linked to risky mortgages. In the ruling, Rakoff criticized the SEC’s practice of agreeing to settlements that don’t require the defendants to admit wrongdoing.

Citigroup and the SEC both appealed Rakoff’s ruling. The appeals court last week assigned lawyer John R. Wing to argue the judge’s position before the appeals court.

In an order yesterday, the U.S. Court of Appeals in New York scheduled oral argument in the case for some time in the last two weeks of September. Last week the court blocked Rakoff from holding a trial in the case while it considers the appeal.

The case is U.S. Securities and Exchange Commission v. Citigroup Global Markets Inc., 11-05227, U.S. Court of Appeals for the Second Circuit (New York).

To contact the reporter on this story: Elizabeth Amon in Brooklyn, New York, at

To contact the editor responsible for this story: Michael Hytha at

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