Pequot, Medical Manager, Starr, Viacom, FIM, Madoff, Wyeth in Court News
The ex-wife of a former Microsoft Corp. employee could be eligible for a $1 million bounty for helping U.S. regulators impose one of the largest-ever insider trading fines against Arthur Samberg’s Pequot Capital Management Inc.
The Securities and Exchange Commission got “direct evidence” of market-moving information passed to Samberg by David Zilkha from a hard drive in possession of Karen Kaiser, Zilkha’s former spouse, the SEC said in a complaint yesterday. That means she may be eligible for a whistleblower reward of up to 10 percent of the $10 million fine Samberg and Pequot agreed to pay in settling the case.
“The bounty is by no means the reason why we brought forth the evidence to the SEC, but it is something that we certainly are going to be pursuing,” her lawyer, Mark Sherman, said in an interview yesterday.
Samberg, 69, and Pequot, once the world’s biggest hedge fund, agreed to pay a total of almost $28 million, including forfeiture of profits and interest, to settle claims they traded illegally on confidential information from Zilkha in 2001.
The settlement resolves the agency’s second probe of Pequot’s trades, after SEC lawyers in 2006 said there was insufficient evidence to support claims. Investigators’ interest rekindled last year after they got copies of e-mails showing Zilkha got information about Microsoft’s earnings from colleagues at the Redmond, Washington-based software maker.
Zilkha’s attorney, Henry Putzel, didn’t return a phone call seeking comment on the case. Jonathan Gasthalter, a spokesman for Samberg and Wilton, Connecticut-based Pequot, declined to comment on their settlement. Samberg and the firm didn’t admit or deny wrongdoing under the accord.
SEC spokesman John Nester declined to comment on Kaiser’s eligibility for a whistleblower award. Individuals can’t apply for bounties until after fines are paid by alleged wrongdoers.
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Ex-AFW Principal Weitzman Gets 97 Months for Fraud
Matthew Weitzman, a former principal of AFW Asset Management Inc., was sentenced to 97 months in prison after he pleaded guilty last year to stealing from the firm’s clients.
Weitzman, 44, also was ordered to pay $7.1 million in forfeiture at his sentencing hearing yesterday, according to a statement from U.S. Attorney Preet Bharara in Manhattan. Weitzman, who lives in Armonk, New York, pleaded guilty in October to investment advisory fraud, wire fraud and securities fraud.
AFW is a financial planning and investment management firm with offices in Purchase, New York, and Natick, Massachusetts, according to the U.S. Attorney’s statement. Weitzman was a co- founder of the firm, which had more than $190 million in assets under management at the end of 2008, according to the statement. Eight unidentified victims complained that funds were missing from their accounts, prosecutors said last year.
“I was disappointed the judge imposed a sentence of the length that she did,” Weitzman’s lawyer, Marc Mukasey, said in a phone interview. “I thought that the work Mr. Weitzman had begun to do to repay his victims was laudable and deserving of credit.”
Weitzman will report to prison in August, his lawyer said.
The case is U.S. v. Weitzman, 09-cr-00989, U.S. District Court, Southern District of New York (Manhattan).
Convicted Ex-Medical Manager Executives Win Acquittal
John H. Kang and John P. Sessions, former executives of Medical Manager Health Systems Inc., won a U.S. judge’s reversal of a jury verdict that the men were guilty of conspiracy to commit fraud.
U.S. District Judge David Norton in Charleston, South Carolina, yesterday ruled in a 43-page opinion that the “convictions must be set aside” because the statute of limitations expired in the case. The verdict was returned March 1, ending an almost six-week trial.
The office of South Carolina U.S. Attorney William Nettles didn’t return a voice-mail message seeking comment on the judge’s ruling.
“The abusive nature of this prosecution is just amazing,” Sessions’s attorney, Gary Trombley of Tampa, Florida, said in a telephone interview.
“You would think someone with some authority or discretion would have decided to get rid of this case in one fashion or another because they dismissed all the other defendants,” he said.
Kang’s lawyer, Walker Coleman of Charleston, didn’t immediately return a call seeking comment.
The case is U.S. v. Kang, 05cr928, U.S. District Court, District of South Carolina (Beaufort).
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Pfizer Loses Bid to Get Prempro Verdict Thrown Out
Pfizer Inc. lost a bid to have a judge throw out a $9.4 million jury award to an Alabama woman who developed breast cancer after taking the company’s menopause drugs.
A state-court judge in Philadelphia denied requests by Pfizer’s Wyeth unit to set aside the award to Audrey Singleton or reduce the $6 million in punitive damages jurors awarded over her use of the drugmaker’s hormone-replacement medicines. Singleton’s lawyers alleged the company hid the drugs’ health risks.
The judge’s ruling “validates the jury system and confirms that this community is outraged by Wyeth’s conduct,” Zoe Littlepage, one of Singleton’s lawyers, said in an interview yesterday.
More than 6 million women have taken hormone-replacement medicines to treat menopause symptoms such as hot flashes, night sweats and mood swings. Until 1995, many patients combined Premarin, an estrogen-based drug made by Wyeth, with progestin- laden Provera, made by another Pfizer unit. Wyeth combined the two hormones in its Prempro medicine.
“While we are disappointed in the trial court’s ruling, it clears the way for the company to appeal this decision,” Pfizer spokesman Chris Loder said yesterday in an e-mailed statement. “We stand by our belief that there is no basis in fact or law for the jury’s verdict.”
The Philadelphia case is Singleton v. Wyeth Inc., 050102885, Court of Common Pleas, Philadelphia County, Pennsylvania.
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Financial Adviser Starr Charged With Fraud by U.S.
Kenneth Ira Starr, a New York investment adviser whose clients have included actors Sylvester Stallone and Wesley Snipes, was charged with stealing clients’ money to buy luxury items including a $7 million apartment.
Starr was arrested yesterday by federal prosecutors in New York and accused of fraud, money laundering and lying to a federal officer as part of a $30 million fraud. Also charged was Andrew Stein, the former borough president in Manhattan, who is accused of aiding Starr in the fraud.
Starr, manager of more than $700 million, “systematically defrauded his clients,” Robert Beranger, an agent with the Internal Revenue Service, said yesterday in a criminal complaint in Manhattan federal court.
“He used his access to famous and powerful clients to burnish an image of trustworthiness, leading his clients to entrust him with management and control of their financial affairs,” Beranger said in court papers.
Starr is also accused of stealing client funds in what prosecutors called a Ponzi scheme, a type of swindle in which early investors are paid with later investments, not actual earnings on their money.
In Manhattan federal court, a magistrate released Stein, 65, on $250,000 bond. His lawyer, Andrew Maloney, said his client “stunned” by the charges. Stein isn’t accused of participating in Starr’s alleged thefts.
Starr was ordered held in prison after prosecutors said they couldn’t locate $14 million that he allegedly stole. Joshua Klein, Starr’s defense lawyer, asked a federal judge to reconsider and release Starr on a $5 million bond.
“I believe in the law,” Starr said in court. “I would never flee. My children are here, my wife is here.”
The U.S. Securities and Exchange Commission also filed a civil lawsuit yesterday, saying Starr used his power of attorney or signatory authority over clients’ accounts to transfer their money to his own account.
The civil lawsuit is SEC v. Starr, 1:10-cv-04270, U.S. District Court, Southern District of New York (Manhattan).
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Madoff Trustee Sues to Block Claims Against Family
A trustee overseeing the liquidation of Bernard Madoff’s firm filed court papers seeking to block a dozen lawsuits against relatives of the convicted Ponzi scheme operator.
The trustee, Irving Picard, asked a U.S. bankruptcy court in Manhattan yesterday to halt the suits, arguing that they are an attempt by the claimants to “leapfrog” other victims to recover more than they’re due.
“There is only one pool of customer property, and the third party plaintiffs should not be allowed to obtain preferential recoveries,” Picard argued in court papers.
Yesterday’s action is the latest by Picard, who has recovered more than $1.5 billion for the victims of Madoff’s fraud, to halt suits he claims are impeding the fair distribution of money to creditors of Bernard L. Madoff Investment Securities LLC. Last month, U.S. Bankruptcy Judge Burton Lifland blocked claims by investors against Jeffry Picower, a longtime Madoff investor who drowned in his swimming pool last year.
The 12 suits Picard seeks to block are filed against Bernard Madoff’s wife, Ruth Madoff, brother Peter Madoff, sons Andrew and Mark Madoff, and niece Shana Madoff Swanson. Half the suits have been temporarily delayed, Picard said in the papers. The rest are active, he said.
Bernard Madoff, 72, pleaded guilty last year to orchestrating the biggest Ponzi scheme in history. He is serving a 150-year sentence in federal prison in North Carolina.
Picard has filed claims against the Madoff family members seeking almost $200 million he claims they got in fraudulent transfers from the former Madoff firm.
The case is Picard v. Stahl, 10-3268, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
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Yahoo, Facebook, EBay Urge End to Viacom YouTube Suit
The four Internet companies filed friend-of-the-court legal briefs on behalf of YouTube May 26 in Manhattan federal court, where a judge is weighing YouTube’s and Viacom’s legal motions in the 2007 lawsuit.
“Plaintiffs’ legal arguments, if accepted, would retard the development of the Internet and electronic commerce,” Asim Bhansali, an attorney representing the four companies, said in the brief.
Viacom, which owns MTV Networks and the Paramount film studio, claimed YouTube displayed 63,000 copyrighted works on its video-sharing website without authorization. In March, New York-based Viacom asked U.S. District Judge Louis Stanton for a summary judgment ruling in its favor.
YouTube, also seeking summary judgment from Stanton, said it’s protected by the safe-harbor provision of the federal Digital Millennium Copyright Act, which states that a service provider isn’t liable for infringement if it removes material from its site when notified by the copyright owner.
The Viacom case is Viacom International Inc. v. YouTube, 07-2103, Southern District of New York (Manhattan). The soccer case is The Football Association Premier League Limited v. YouTube, 07-3582, Southern District of New York (Manhattan).
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FIM Advisers Ordered to Give Madoff Trustee Kingate Documents
A London judge ordered investment firm FIM Advisers LLP to hand over additional documents to the trustee liquidating Bernard L. Madoff Investment Securities LLC.
Irving Picard, a court-appointed trustee in the Madoff bankruptcy in New York, is seeking information on whether FIM knew about the Ponzi scheme that cost investors billions, Justice David Kitchin said yesterday in his ruling. FIM, based in London, managed the Kingate Global and Kingate Euro hedge funds now in liquidation in Bermuda.
FIM had sought to limit the documents they provided to Picard to between August 2005 through December 2008, when Madoff’s fraud was discovered. Kingate was one of the largest feeder funds to Madoff, funneling more than $1.7 billion to his business.
Madoff pleaded guilty in March 2009 to using money from new investors to pay off old ones in a Ponzi scheme, sparking investigations and dozens of lawsuits in the U.S. and Europe. Picard has filed lawsuits against Madoff investors, seeking the return of fake profits from the Ponzi scheme.
FIM, run by Carlo Grosso and Federico Ceretti, has already begun to turn over documents, its lawyer Antony Zacaroli said at the hearing this week.
The case is In the Matter of Bernard L. Madoff Investment Securities LLC, between Picard v. FIM Advisers LLP & others, GLC 80/10, High Court of Justice, Chancery Division (London).
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Pfizer’s Wyeth Loses Hearing Bid Over Premarin Suit
The Supreme Court of Canada yesterday declined to hear Wyeth’s appeal of a British Columbia decision that allowed the group suit to proceed. The high court gave no reason for its decision.
The ruling clears the way for the suit to proceed to a certification hearing in December, where plaintiff Dianna Stanway will ask a judge to let all Canadian women who took Wyeth’s hormone-replacement medicines sue as a group, said David Klein, Stanway’s lawyer at Klein Lyons in Vancouver.
“About nine out of 10 pharmaceutical lawsuits in Canada are certified,” Klein said in a phone interview.
Wyeth’s U.S. and Canadian units were sued in 2006 by Dianna Stanway, of Sechelt, British Columbia. Stanway claimed she developed breast cancer as a result of taking estrogen-based Premarin in combination with another drug, progestin. Wyeth’s U.S. units urged the appeals court to throw out the suit, claiming British Columbia courts didn’t have jurisdiction to try the case.
Wyeth sold and promoted the drug in Canada and its “conduct amounts to personal subjection to the jurisdiction,” Judge Kenneth Smith wrote on behalf of the appeals panel. “It was therefore reasonable for them to contemplate they might be sued in British Columbia.”
The Supreme Court ruling was procedural and not a decision on the merits of the case, said Chris Loder, a Pfizer spokesman.
“We continue to believe Wyeth acted responsibly by conducting or supporting more than 180 studies on hormone therapy’s benefits and risks,” Loder said. The company “provided proper, accurate and science-based information to patients and doctors.”
The case is Wyeth Pharmaceuticals v. Dianna Louise Stanway, 33580, Supreme Court of Canada (Ottawa). The appeals court case is Between Dianna Louise Stanway and Wyeth Pharmaceuticals Inc., CA036317, Court of Appeal for British Columbia (Vancouver).
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Ex-Qwest Chief Nacchio Seeks Speedy Return to Prison
Former Qwest Communications International Inc. chief Joseph Nacchio filed an emergency request that he be returned to his prison in Pennsylvania after appearing in federal court in Denver more than three weeks ago.
Nacchio, serving a six-year prison term for insider trading, appeared in Denver for a court hearing on May 4. His journey with U.S. marshals back to his prison in Schuylkill, Pennsylvania, has included stops in Oklahoma City, Harrisburg, Pennsylvania, and Newburgh, New York, and he is now being held in Brooklyn, New York, according to a court filing yesterday.
While the Denver judge ordered him to be returned as “expeditiously as possible” to Pennsylvania at the May 4 hearing, Nacchio said he “remains in transit with no indication when he will be returned,” according to the court filing.
In Brooklyn, he “was denied his medication for days, and cannot receive visitors,” according to the filing.
The case is U.S. v. Nacchio, 1:05-cr-00545, U.S. District Court, District of Colorado (Denver).
Argentine Bond Awards to Be Recalculated, Court Rules
A U.S. judge who awarded damages to holders of defaulted Argentine bonds in a group lawsuit must recalculate those damages to more closely reflect individual losses, an appeals court ruled.
The U.S. Court of Appeals in New York ruled yesterday that the lower court couldn’t ignore questions affecting the value of claims such as when a bond was bought or whether it was purchased on the secondary market, even though it might have no effect on what a plaintiff ultimately collects.
“The court reasoned that granting inflated judgments was justifiable because, given Argentina’s general refusal to pay any judgment against it, plaintiffs were unlikely to recover,” the court said. “However practical this approach might have been, we conclude it was improper.”
Argentina is restructuring $18.3 billion worth of bonds held out of a 2005 settlement after the nation defaulted on $95 billion in debt in 2001. Economy Minister Amado Boudou said May 19 that about $8.5 billion, or 46 percent, of the eligible debt had been tendered so far. The offer, as measured in net-present value terms, was worth about 42.5 cents on the dollar last week, according to RBS Securities Inc.
Creditors have filed about 140 individual and 18 class action lawsuits in the U.S., winning judgments totaling about $6.4 billion, Argentina said in a prospectus filed with the U.S. Securities and Exchange Commission on April 28.
As much as $4 billion of defaulted debt remains in the hands of investment funds that are pursuing litigation, Boudou said in a May 21 interview on Canal 7 television in Buenos Aires.
The case is Puricelli v. Republic of Argentina, 09-0332, 2nd U.S. Circuit Court of Appeals (New York).
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EBay Asks Paris Court to Reverse $49 Million LVMH Fakes Ruling
EBay Inc. asked the Paris appeals court to overturn a 40- million euro ($49 million) award to LVMH Moet Hennessy Louis Vuitton SA, the world’s largest luxury-goods maker, for not doing enough to stop the sale of counterfeits.
The Paris commercial court erred in ruling that EBay is a party to the sales that occur on its websites and, as such, has a greater obligation to block fakes than it would as a simple host site, Thomas Rouhette, a lawyer for EBay, said yesterday.
“There is not a single incentive to sell counterfeits” on EBay, Rouhette said in asking the judge to “put an end to this campaign by LVMH.”
Yesterday’s hearings are part of an dispute between EBay, the most-visited U.S. e-commerce website, and French brand owners over online sales of their products. While the June 30, 2008, decisions agreed with LVMH arguments that EBay is an online auction broker, EBay has had more success recently in defending its business before French courts.
The anti-counterfeit steps offered by EBay “are basic measures,” Didier Malka, a lawyer for the two LVMH units concerned, Louis Vuitton Malletier and Christian Dior Couture, said yesterday. “EBay can take additional steps and doesn’t.”
The judge is scheduled to issue a decision on Sept. 3 on the appeal.
Lawyer’s U.K. Insider-Trading Trial Ends After Brother Dies
A U.K. judge stopped the insider-trading trial of a former partner at law firm Dorsey & Whitney LLP following the death of the defendant’s brother.
Judge Peter Testar at Southwark Court in London told the jury to “discharge” the case against Andrew Rimmington after his brother’s death May 26 from a May 15 attack. The trial of two other men accused with him will continue, he said.
“I have come to the conclusion that it would be unfair to expect Mr. Rimmington to continue,” Testar said. The death of Rimmington’s brother is “now being investigated by the police.”
Rimmington was on trial with former McDermott Will & Emery partner Michael McFall and former NeuTec Pharma Ltd. financial director Peter Andrew King. The prosecution says the lawyers made illegal trades in NeuTec after King leaked information about a proposed takeover. The case is being brought by the Financial Services Authority.
Earlier in the trial, prosecutor Michael Bowes said the two lawyers made 39,000 pounds each ($57,000) in June 2006 after King gave McFall a tip that Basel, Switzerland-based Novartis AG’s planned to purchase NeuTec. McFall gave the information to Rimmington, Bowes said. The men deny wrongdoing.
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Kagan Would Break New Gender Barrier as Third Female Justice
As the U.S. Supreme Court’s third female member, Elena Kagan would represent a shift laden with symbolism, and perhaps substance as well.
Kagan’s confirmation by the Senate would put women in three of the court’s nine chairs for the first time in its 221-year history. Twenty-nine years after Sandra Day O’Connor broke the court’s gender barrier, women would occupy about the same percentage they constitute in the legal profession at large.
Studies suggest that the appointment of a third female director can change a corporate board’s dynamics, and women’s advocates say they hope the 50-year-old Kagan would have a similar effect, burying the perception and the reality of the court as a male-dominated enclave.
“What we have seen repeatedly with two women on the Supreme Court is that they are seen as exceptions to the rule,” said Marcia Greenberger, co-president of the National Women’s Law Center in Washington. Kagan’s appointment, she said, moves “toward the day when it’s accepted that women are just as likely as men to be on the Supreme Court.”
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