MF Global, Goldman, Wells Fargo, JPMorgan, S&P in Court News

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Jon S. Corzine, MF Global Holding Ltd.’s former chief executive officer, may face potential legal liability if investigators show he knew customer money might be used when he ordered $200 million transferred to a U.K. account as his brokerage neared collapse, Bloomberg News’ Linda Sandler and Phil Mattingly report that former prosecutors said.

The ex-Goldman Sachs Group Inc. co-chairman gave “direct instructions” to move money from a U.S. account to meet an overdraft with JPMorgan Chase & Co. just days before MF Global’s bankruptcy, according to a memo by congressional investigators. Such accounts may have contained assets belonging to both customers and MF Global.

The U.S. Department of Justice and federal regulators are investigating the firm’s Oct. 31 collapse. Corzine, a Democrat from New Jersey who served in the U.S. Senate and as governor, told Congress last year he never directed customer funds be used improperly. Though showing he deliberately used customer money would be the key to a criminal case, former prosecutors said Corzine, who hasn’t been charged with any wrongdoing, could be deemed liable in civil cases for misuse of customer money simply for ordering the hole in JPMorgan’s account plugged, if it turns out customer funds were used.

“It’s not whether he specified,” John Moscow, a former chief prosecutor in the office of Manhattan District Attorney Robert Morgenthau, said yesterday in an interview. “The economics of the situation were he was out of money. The bottom line is, he was taking a risk with somebody else’s money.”

In a casino, said Moscow, now with Baker Hostetler LLP in New York, “if I put your money on the table, I’ve committed larceny as soon as I expose it to risk.”

Andrew Levander, a lawyer for Corzine, didn’t return a call or e-mail after normal business hours seeking comment on the probe. A congressional hearing on the issue is set for this week.

MF Global and its brokerage sought Chapter 11 bankruptcy protection in New York after a $6.3 billion bet on the bonds of some of Europe’s most indebted nations prompted regulator concerns and a credit-rating downgrade. Corzine, 65, quit MF Global Nov. 4. The bankruptcy trustee overseeing the liquidation of the company’s brokerage subsidiary has estimated a $1.6 billion shortfall between customer claims and assets available.

Edith O’Brien, a treasurer for New York-based MF Global, said in an e-mail quoted in the Congressional memo that the $200 million transfer was “Per JC’s direct instructions,” according to a copy of the memo obtained by Bloomberg News.

The e-mail, dated Oct. 28, was sent three days before the company collapsed, according to the document. The account may have contained both client and company funds, the memo states.

The brokerage case is Securities Investor Protection Corp. v. MF Global Inc., 11-02790, U.S. District Court, Southern District of New York; The parent’s bankruptcy case is MF Global Holdings Ltd., 11-bk-15059, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

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Goldman Sachs’s ‘Fabulous Fab’ in Rwanda While Awaiting Trial

Fabrice Tourre, the Goldman Sachs Group Inc. executive director who called himself “fabulous Fab,” has done volunteer work in Rwanda and started a U.S. doctorate program while awaiting trial in a government fraud suit his bank settled for $550 million.

The Securities and Exchange Commission alleged in a 2010 complaint that Goldman Sachs and Tourre, 33, who is on unpaid leave, defrauded investors in a collateralized debt obligation known as Abacus 2007-AC1.

The regulator identified Tourre as a “resident of Kigali, Rwanda,” in court papers filed March 21 in Manhattan federal court. Tourre had been in the African nation’s capital working for a non-governmental organization before beginning his studies at the University of Chicago, according to a person familiar with his travels who declined to be identified because the matter isn’t public.

“Tourre is a U.S. resident studying for a Ph.D. in economics at the University of Chicago,” his lawyer, Pamela Rogers Chepiga, said in a statement March 21. Steve Koppes, a university spokesman, said Tourre has been enrolled in the program since September.

The SEC alleged the Goldman Sachs executive director didn’t disclose that hedge fund Paulson & Co. helped pick the securities underlying the Abacus CDO with the intention of betting against them.

New York-based Goldman Sachs agreed in July 2010 to pay $550 million, the largest penalty ever assessed by the agency against a Wall Street firm, to settle allegations against it.

Tourre remains a defendant in the case. U.S. District Judge Barbara Jones in Manhattan last year narrowed some of the claims against him while allowing the case to go forward.

The reference to Kigali came in papers filed by the SEC seeking to question Jorg Zimmerman, a former employee of IKB Deutsche Industriebank AG in Germany. The SEC claimed Tourre spoke with Zimmerman to encourage his bank to invest in the securities. Tourre has denied any wrongdoing.

The case is SEC v. Tourre, 10-cv-03229, U.S. District Court, Southern District of New York (Manhattan).

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Wells Fargo Should Be Forced to Comply With Subpoenas, SEC Says

Wells Fargo & Co. failed to hand over documents demanded in U.S. subpoenas and should be forced to cooperate with a probe into its sale of almost $60 billion in residential mortgage-backed securities, regulators said.

The Securities and Exchange Commission asked a federal judge to compel the bank, the largest U.S. home lender, to deliver documents it agreed to produce under subpoenas dating from September, the agency said March 23 in a statement. The SEC said it’s looking into possible fraud by the San Francisco-based company and hasn’t concluded that anyone broke the law.

Almost four years after mounting mortgage defaults prompted unprecedented government bailouts of the financial system, regulators are still examining how banks packaged and sold home loans to investors. The SEC is looking for evidence that firms failed to disclose underlying credit weaknesses in mortgage pools and delinquencies, and has also told Goldman Sachs Group Inc. and JPMorgan Chase & Co. that they may face civil claims.

The agency’s request, if granted, would give Wells Fargo 14 days to hand over 1,365 e-mails and attachments it has withheld from the SEC, according to a court filing. The bank said in a statement that enforcement action is unwarranted and that it will defend itself in court.

The watchdog is examining whether Wells Fargo misrepresented or omitted facts in offerings from September 2006 to early 2008, according to the statement. While the bank reviewed a sampling of loans and excluded those that failed to meet its standards, Wells Fargo may not have taken steps to address flaws in the remainder of the pool, the agency said.

Investigators are seeking information on the bank’s underwriting guidelines and on due diligence, according to the statement. The agency filed its request in federal court in San Francisco. Marc Fagel, the head of the SEC’s office in that city, declined to comment on the request.

“Wells Fargo believes the subpoena enforcement action is inappropriate and unwarranted and will vigorously defend itself in court,” Mary Eshet, a Wells Fargo spokeswoman, said in an e-mailed statement. The bank has cooperated with the agency and believed it had an understanding on the requested documents, which was violated by the March 23 filing, she said.

The case is Securities and Exchange Commission v. Wells Fargo & Co., 12-80087, U.S. District Court, Northern District of California (San Francisco).

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CBOE, McGraw Hill Ask Court to Enforce ISE Option Trade Ban

CBOE Holdings Inc. and McGraw-Hill Cos. asked an Illinois court to enforce a 2010 order barring International Securities Exchange LLC from providing a forum for trading of S&P 500-based options.

Judge William O. Maki in Chicago barred ISE from featuring the listings in July 2010, ruling that the CBOE-owned Chicago Board Options Exchange holds an exclusive license to offer options based on the S&P 500. The index is a licensed product of McGraw-Hill’s Standard & Poor’s Financial Services LLC.

ISE on March 13 announced plans to list options for the Max SPY index, which it called “a new proprietary index that represents 10 times the value” of the exchange-traded fund based on the S&P 500.

“ISE’s options actually are structured to be options on the S&P 500,” McGraw-Hill and CBOE said in a statement March 23 announcing the court filing. “CBOE and S&P brought this action in order prevent this violation of both CBOE’s license rights in S&P 500 index options and S&P’s proprietary rights.”

In their court papers, CBOE and McGraw-Hill said they want the court to issue an order barring ISE from violating the previous injunction or declare that it would violate that injunction for ISE to list or provide an exchange market for the trading of the options or cause the Options Clearing Corporation to settle them.

Molly McGregor, a spokeswoman for New York-based ISE, said the company doesn’t comment on pending litigation.

The injunction request was assigned to Cook County Judge Franklin Valderrama. Lawyers for the CBOE and McGraw-Hill on April 5 will ask for the matter to be transferred back to Maki, according to court papers they provided to Bloomberg News.

The case is Chicago Board Options Exchange Inc. v. International Securities Exchange LLC, 06CH24798, Cook County, Illinois, Circuit Court, Chancery Division (Chicago).

Depfa, Pisa Swaps Feud Needs Trial in Italy and U.K., Judge Says

A London judge ruled that a dispute between Depfa Bank PLC, Dexia SA and the Italian province of Pisa over a swaps deal needs separate trials in Italy and the U.K.

While the banks had asked the judge to refer the case to a European Court for a final ruling on jurisdiction, Judge Nigel Teare refused the request, saying proceedings in the two countries were different.

The case is one of several being fought over derivatives used to hedge interest rates sold to European regional governments by investment banks that turned out to be far more costly than predicted.

Dexia and Depfa filed a lawsuit in London in 2009 seeking a ruling that the swaps are valid. Pisa wants an Italian court to approve its decision to annul them, according to Teare’s judgment.

“The proceedings are different and the administrative matters must be heard in Italy,” Pisa lawyer Germana Lo Iacono-Smith said in a phone interview.

Benoit Gausseron at Dexia in Paris didn’t immediately respond to a phone call requesting comment. A call to the press room of Hypo Real Estate Holding AG, Depfa’s parent company, wasn’t answered.

Ex-NBA Player Tate George Indicted in $2 Million Ponzi Scam

Tate George, a former player for the National Basketball Association’s New Jersey Nets and Milwaukee Bucks, was indicted on charges of running a $2 million Ponzi scheme that targeted ex-professional athletes.

George, 43, raised more than $2 million for his company, the George Group, after telling investors his real-estate development portfolio was worth $500 million, according to a four-count wire-fraud indictment in federal court in Newark, New Jersey.

George, a Newark resident, told prospective investors that their money would fund the George Group’s development of real estate projects in New Jersey and Connecticut, prosecutors charged.

“Instead of using investments to fund real estate development projects as promised, George used the money from new investors to pay existing investors in Ponzi scheme fashion,” U.S. Attorney Paul Fishman said in a statement.

George faces as many as 20 years in prison on each count. His attorney, Thomas Ashley, didn’t immediately return a call seeking comment on the indictment.

George was arrested last September on a Federal Bureau of Investigation complaint charging him with one count of wire fraud. He was released on $250,000 bail.

After his arrest, Ashley said: “He maintains his innocence and will plead not guilty. All these charges are clearly defensible.”

The case is U.S. v. George, 11-mag-03197, U.S. District Court, District of New Jersey (Newark).

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New Suits

Deloitte & Touche Sued in New York Over WG Trading Fraud

Deloitte & Touche LLP, one of the so-called Big Four accounting firms, was sued by a pension fund over WG Trading Co., the company allegedly used in a Ponzi scheme by former managers Paul Greenwood and Steven Walsh.

The Iowa Public Employees’ Retirement System suffered millions of dollars in losses as a result of the scheme, according to the lawsuit, which was filed in federal court in New York March 22.

Deloitte & Touche served as the auditor of a company controlled by the operators of the scheme and “aided and abetted” it by issuing “unqualified and/or ‘clean’” audit reports that the pension fund relied on while purchasing securities that were issued as part of the scheme, according to the complaint.

Deloitte “acted in willful blindness of the scheme, and its auditing practices were so deficient that the audits amounted to no audit at all, or an egregious refusal to see the obvious, or investigate the doubtful, and the professional judgments which it made were such that no reasonable auditor would have made the same decisions if confronted with the same facts,” lawyers for the pension fund said in the complaint.

The claims are “ill conceived” and without merit, Jonathan Gandal, a spokesman for Deloitte LLP, said in an e-mail. Deloitte & Touche, based in New York, is a subsidiary of Deloitte LLP, the U.S. arm of U.K.-based Deloitte Touche Tohmatsu Ltd., according to its website.

“Deloitte & Touche LLP did not audit the financial statements of the Westridge entities at which the fraud allegedly occurred,” Gandal said. “Rather, Deloitte audited the financial statements of a separate entity, WG Trading Company Limited Partnership, through 2007, and there is no information which calls into question either the correctness of those financial statements or Deloitte’s full compliance with professional standards.”

Any wrongdoing is “solely attributable” to the principals of the Westridge entities, one of whom has already pleaded guilty to related charges, Gandal said.

Greenwood and Walsh were indicted in July 2009 on charges that they conspired to defraud investors of $554 million. The U.S. said the scheme stretched from 1996 until the men were arrested in February 2009. Greenwood pleaded guilty to six charges, including conspiracy and securities fraud. Walsh has pleaded not guilty.

The case is Iowa Public Employees’ Retirement System v. Deloitte & Touche LLP, 12-cv-2136, U.S. District Court, Southern District of New York (Manhattan).

Shell Sued in U.K. Over ‘Massive’ Oil Spills in Nigeria in 2008

Royal Dutch Shell Plc, Europe’s largest oil company, was sued in Britain by 11,000 Nigerians who say their land, rivers and forests were spoiled by two “massive” spills in the Niger River delta in 2008.

The lawsuit was filed in London March 23 after talks between Shell and residents of the coastal Bodo community failed to produce a deal, the group’s law firm Leigh Day & Co. said in a statement. While Shell admits liability for the leaks, it claims local people spilled most of the oil.

“We had thought that the invitation to sit around the table meant that Shell was taking the impact of the two oil spills seriously,” the lawyer for the Nigerians, Martyn Day, said in the statement. “We are now left with the only option of taking the claims through the U.K. courts to obtain justice.”

The lawsuit, which says 500,000 barrels of oil leaked, comes two months after Nigerian President Goodluck Jonathan said he would seek compensation from Shell, based in The Hague, for another incident in which nearly 40,000 barrels spilled at the Bonga field in the country’s worst offshore spill in more than a decade.

Before and after the two leaks, “there were a number of other spills as the result of illegal theft of oil and sabotage that resulted in significantly higher amounts of oil being spilled,” Jonathan French, a Shell spokesman in London, said March 23 in a phone interview. Local people have the “misguided belief that more oil spilled equals more compensation.”

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Wells Fargo Sues Medical Development Over $30 Million Loan

Wells Fargo & Co., the fourth-largest U.S. bank by assets, sued prison-service provider Medical Development International Ltd. in Delaware Chancery Court seeking to recover $30 million in loans.

Wells Fargo contends Medical Development of Ponte Vedra, Florida, has been in default of the loans “for quite some time,” and asks a judge to appoint a receiver.

The company and affiliates have “also engaged in a series of self-dealing transactions including, among other things, so-called ‘loans’ to executives” for a “working farm,” a biographical screenplay and payments for “a Tesla Roadster,” lawyers for San Francisco-based Wells Fargo said in court papers filed March 23 in Wilmington.

Medical Development, with $55.3 million in assets and $74.9 million in liabilities as of Dec. 31, is headed by Chief Executive Officer Richard Willich and provides medical contracting, management and administration for federal prisons, according to the complaint.

Medical Development lawyer Tracy Wenzel said officials are going to review the case and had no immediate comment.

The case is Wells Fargo Bank v. Medical Development International Ltd., CA7352, Delaware Chancery Court (Wilmington).

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JPMorgan Sued by Currency Trader Over $3 Million Decimal Point

JPMorgan Chase & Co. is being sued by a trader who says he accepted a contract from the investment bank because a typographical error made him believe he would be paid 10 times what was actually offered.

Kai Herbert, a Switzerland-based currency trader, is suing JPMorgan for about 580,000 pounds ($920,000), his lawyers said at a trial in London this week. The original contract said Herbert’s annual pay would be 24 million rand ($3.1 million). JPMorgan blamed the mistake on a typographical error and said the figure should have been 2.4 million rand, according to court documents.

“That must have been the moment your heart sank,” Judge Henry Globe said at the trial this week, referring to when Herbert discovered the mistake. Herbert resigned from UBS AG in June 2010 following the offer from JPMorgan to relocate to Johannesburg. Herbert didn’t report for work after discovering the discrepancy and JPMorgan rescinded the employment offer in December 2010.

He has been unemployed since, other than eight months at Credit Suisse Group AG where he was fired in a round of layoffs in November. Banks globally have cut about 196,000 jobs since the start of 2011, according to data compiled by Bloomberg.

“How can you possibly suggest that they would pay you so much money for an executive director level job?” Charles Ciumei, a lawyer for JPMorgan, asked during Herbert’s cross-examination. The bank said Herbert could have mitigated his lost earnings by taking the position at the New York-based bank.

Kate Haywood, a spokeswoman at JPMorgan declined to comment. Herbert’s lawyer, Dale Langley, declined to comment as did JPMorgan lawyer Stefan Martin.

The case is Herbert v. JPMorgan, High Court of Justice Queen’s Bench Division, No. HQ11X02595

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S&P’s Model Was ‘Garbage In, Garbage Out,’ Australia Lawyer Says

Standard & Poor’s ignored warnings that notes sold to Australian towns didn’t deserve a AAA rating and used faulty data to support its decision, a lawyer said.

“It was a simple case of GiGo - garbage in, garbage out,” said Noel Hudley, lawyer for a dozen Australian towns seeking to recoup investments that were wiped out when the notes’ value collapsed during the 2008 global financial crisis.

The towns claim they lost A$15 million ($15.6 million) of A$16 million invested in the Community Income Constant Proportion Debt Obligation Notes. They were unwound less than two years after the towns bought them as credit spreads increased and their cash value was exhausted, and the towns accused S&P of giving the notes the highest rating on pressure from a bank.

An S&P committee determining the rating on the notes had 31 results from tests run by analysts, with 68 percent of those findings not supporting a AAA rating, Hudley said March 23, on the first day of closing statements before Justice Jayne Jagot in Federal Court in Sydney.

The ratings company didn’t follow procedures that are a standard in the industry in developing the rating, Hudley said, citing evidence given by experts during the trial.

“You are the wuss for bending over in front of bankers and taking it,” Sebastian Venus, who had prepared an internal model for the notes at S&P, wrote to Derek Ding, an analyst responsible for rating the note, according to e-mail transcripts presented in court documents. “You rate something AAA, when it’s really A-?”

The plaintiffs cited “selectively” from the hundreds of documents that were submitted, S&P said.

“Those e-mail exchanges also evidence the fact that S&P did not simply rubber stamp ABN’s opinion,” the company said. “Conflicting views are to be expected in the context of any serious process of analysis and consideration.”

The closing statements from the towns, LGFS, ABN Amro Bank and S&P are scheduled to take at least until March 30.

The case is: Bathurst Regional Council v. Local Government Financial Services Ltd. NSD936/2009. Federal Court of Australia (Sydney).

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Lockheed Martin to Pay $15.9 Million for Mischarging U.S.

Lockheed Martin Corp., the biggest U.S. defense contractor, will pay $15.9 million to settle allegations it mischarged the federal government for tools used on military aircraft.

The settlement arose from a pricing fraud by a Lockheed subcontractor that began 14 years ago, according to the Justice Department. Lockheed Martin passed the excessive costs on to the government in violation of the False Claims Act, the U.S. said in a statement.

“It is troubling that a large defense contractor with long-established contractual ties with the United States failed to undertake appropriate measures to ensure the integrity and validity of the costs it submitted to the United States,” Stuart F. Delery, acting assistant attorney general for the Justice Department’s civil division, said in the March 23 statement.

The settlement resolves two whistle-blower cases filed in federal court in Dallas. The whistle-blowers will receive $2 million of the proceeds, according to the Justice Department.

Joe Stout, a spokesman for Bethesda, Maryland-based Lockheed Martin, said the company cooperated with the government’s investigation into its tool supplier that led to the conviction of the subcontractor’s president.

The case is U.S. ex rel. Becker v. Tools & Metals Inc., 05-00627, U.S. District Court, Northern District of Texas (Dallas).

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Court News

U.S. Court of Appeals Appoints Two New Bankruptcy Judges

Chief Judge Dennis Jacobs of the United States Court of Appeals for the Second Circuit announced the appointment of Nancy Hershey Lord, formerly of the New York State Office of the Attorney General, as a United States Bankruptcy Judge for the Eastern District of New York. Lord’s position began on Feb. 29, according to a statement from the court March 21.

The Court also appointed Paul R. Warren, former Clerk of Court for the Western District of New York, as a United States Bankruptcy Judge for the Western District of New York. Warren began on March 15, the court said in a statement March 21.

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