UBS, JPMorgan, N.J. Ponzi, SocGen, Mahindra, Northern Rock in Court News
Swiss lawmakers approved a UBS AG tax treaty, ending a two-year legal battle with the U.S. that threatened the bank’s American operations.
The agreement, through votes in both chambers of Parliament, came after week-long negotiations between the upper and the lower house in which deputies dropped a demand for the treaty to be opened to a nationwide referendum.
“This is a good result for the constructive forces in this Parliament,” Swiss Justice Minister Eveline Widmer-Schlumpf told reporters after the debate. “I’m relieved.”
Switzerland agreed in August 2009 to hand over data on as many as 4,450 UBS clients suspected of tax evasion to the U.S. Internal Revenue Service. Parliamentary approval became necessary after a court ruled on Jan. 21 that the agreement couldn’t be enforced as it then stood. A referendum would have meant a deadline for disclosure of the information would have been missed.
The Bern, Switzerland-based lower house, or National Council, voted 81-63 to endorse the treaty without the referendum option, with 47 abstentions. The upper house, or Council of States, approved the treaty earlier today.
In February 2009, UBS avoided U.S. prosecution by paying $780 million, admitting it helped wealthy Americans evade U.S. taxes from 2000 to 2007, and handing over account data on more than 250 U.S. clients. The next day, the U.S. sued UBS, seeking data on 52,000 Swiss accounts in a so-called John Doe summons.
Today’s vote removed the threat of further civil litigation against UBS under the John Doe summons and additional fallout under criminal law. The U.S. Justice Department agreed last year to defer prosecution of UBS for allegedly aiding tax evasion.
Justice Minister Eveline Widmer-Schlumpf said at the time UBS faced an “existential threat” without the accord and the Swiss economy would have suffered severe repercussions.
In a January ruling, the Swiss Federal Administrative Court said the deal struck between Switzerland and the U.S. wasn’t enforceable under existing bank-secrecy rules.
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JPMorgan Sued by Assured Guaranty Over Alabama Sewer Bonds
JPMorgan Chase & Co. was sued by insurer Assured Guaranty Ltd. to recover all claims the guarantor might have to pay on $378 million of coverage provided for sewer bonds issued by Jefferson County, Alabama.
Assured, the top U.S. municipal debt insurer by volume, said in a lawsuit filed yesterday in New York State Supreme court in Manhattan that New York-based JPMorgan concealed about $3 million in illegal payments to friends of county commissioners to ensure it won business with the county. Some of the payments were then funneled to the officials, the complaint said.
“Had JPMorgan and the county not misrepresented and concealed from Assured the true facts regarding the unlawful payments that JPMorgan made to secure its position as lead underwriter for the warrants and swap provider for the county, Assured never would have issued the policies,” the lawsuit said.
Assured Guaranty is the second bond insurer to sue JPMorgan over a $3 billion refinancing of sewer debt that collapsed during the credit crisis and almost bankrupted the county. Syncora Guaranty Inc. sued JPMorgan and the county on April 29 alleging they fraudulently obtained more than $1 billion in insurance coverage for the sewer bonds.
Brian Marchiony, a JPMorgan spokesman, didn’t return a call and e-mail seeking comment.
JPMorgan arranged the refinancing of the Jefferson County sewer system in 2002 and 2003, converting the district’s fixed- rate debt -- issued so the sewer system was able to comply with a 1996 federal consent decree -- into floating-rate bonds.
The obligations were paired with more than $5 billion of interest-rate swaps, meant to lock in lower borrowing costs.
The financing fell apart in 2008 when the companies guaranteeing the debt lost their top credit ratings because of losses on unrelated mortgage-backed securities. In January 2008, Jefferson County’s interest costs soared more than threefold to 10 percent.
Financial Security Assurance Holdings Inc., acquired by Assured Guaranty in July, provided insurance to the county, which according to the lawsuit included $352 million of the sewer bonds and a $26.4 million surety bond. Assured has paid more than $4 million on the surety bond, the suit said.
The case is Assured Guranty Municipal Corp. F/K/A/ Financial Security Assurance Inc. v. JPMorgan Chase Bank NA, 650642, New York State Supreme Court (Manhattan).
New Jersey Woman Charged in $45 Million Ponzi Scheme
A New Jersey woman was charged with directing a $45 million real estate Ponzi scheme that allegedly defrauded more than 20 investors in New York and New Jersey.
Antoinette Hodgson, 58, of Montclair, New Jersey, was released yesterday on $6 million bond after appearing before U.S. Magistrate Judge Frank Maas in Manhattan. Hodgson paid off early investors in her business with funds from later participants and spent some of their money on herself, said prosecutors in the office of Manhattan U.S. Attorney Preet Bharara.
Hodgson, in a scheme from 2006 to December 2009, promised high rates of return on funds to buy and renovate residential properties that would be re-sold or rented, prosecutors said. She spent hundreds of thousands of dollars at Atlantic City and Las Vegas casinos, used $70,000 to buy a Dunkin’ Donuts franchise in Arizona, and gave herself, friends and family members tens of thousands more, prosecutors said.
“What Antoinette Hodgson allegedly promised to investors seemed too good to be true and that’s because it was,” Bharara said in a statement. “This case is a further reminder that whether the real estate market is up or down, innocent investors can be and will be targeted by unscrupulous fraudsters.”
Jack Arseneault, Hodgson’s lawyer, said after court that his client didn’t misappropriate investors’ money and will fight the charges.
The case is U.S. v. Antoinette Hodgson, 10-MAG-01261, Southern District of New York (Manhattan).
Former Taylor Bean Chief Farkas Charged With Fraud
Lee Farkas, the former chairman of Taylor, Bean & Whitaker Mortgage Corp., was accused by the U.S. of helping run a more than $1.9 billion fraud scheme aimed in part at the government’s Troubled Asset Relief Program.
An indictment unsealed yesterday in federal court in Alexandria, Virginia, alleges that Farkas, 57, and fellow conspirators sought to deceive financial firms and TARP by covering up shortfalls at his closely held mortgage lending company based in Ocala, Florida. The company filed for bankruptcy in August.
Farkas was arrested June 15 by the Federal Bureau of Investigation in Ocala, said Lindsay Godwin, an FBI spokeswoman.
The scheme contributed to the failure of Colonial BancGroup Inc., one of the 50 largest U.S. banks in 2009, and Taylor, Bean & Whitaker, once one of the largest closely held mortgage companies in the U.S., the Justice Department said in a news release.
Farkas and unnamed co-conspirators are accused by the government of misappropriating more than $400 million from a division of Colonial and about $1.5 billion from Ocala Funding, a mortgage lending facility controlled by Taylor, Bean & Whitaker. The indictment alleges that Farkas and his co- conspirators committed wire and securities fraud by attempting unsuccessfully to persuade the government to provide Colonial with about $553 million in TARP funds.
Farkas misappropriated more than $20 million in Taylor, Bean & Whitaker funds for personal use, according to the government’s pretrial detention memo.
“Mr. Farkas will enter a plea of absolutely not guilty, will vigorously defend against the charges and looks forward to having his day in court to clear his name,” Anthony C. Cochran, an attorney for Farkas with Chilivis, Cochran, Larkins & Bever LLP in Atlanta, said in an e-mailed statement.
The case is USA v. Farkas, 10cr200, U.S. District Court, Eastern District of Virginia (Alexandria).
Mahindra Sued by Georgia Auto Dealer to Enforce Sales Accord
Mahindra & Mahindra Ltd., India’s largest maker of sport- utility vehicles, was sued by a Georgia dealer, which asked the Atlanta District Court to prohibit Mahindra from sales in the U.S. through any other distributor.
Global Vehicles USA Inc. said in its June 14 lawsuit that Mahindra breached a 2006 agreement by twice rejecting its purchase orders for the Mumbai-based company’s vehicles. It also asked the court to order Mahindra to perform its obligations under the agreement.
Roma Balwani, a spokeswoman for Mahindra, said yesterday the lawsuit and a separate arbitration was without merit and would be “vigorously contested.”
“Mahindra remains committed to launch its products in the U.S. market,” she said in an e-mailed statement. The Indian automaker’s plan to sell its Scorpio pickup truck in the U.S. has been held up by more than a year after delays in obtaining technical clearance for its vehicles, a process known as homologation.
Global Vehicles, based in Alpharetta, Georgia, said in its lawsuit that Mahindra “in bad faith” engaged in protracted contract negotiations for services relating to emission tests prescribed by the U.S. Environmental Protection Agency and safety tests prescribed by the National Highway Traffic Safety Administration, or NHTSA.
The case is Global Vehicles USA Inc. v. Mahindra & Mahindra Ltd., 10-CV-1818, U.S. District Court, Northern District of Georgia (Atlanta).
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U.S. Won’t Lift Deepwater Drilling Ban, Lawyers Tell Judge
The six-month moratorium on deepwater drilling ordered in the wake of the Gulf of Mexico oil spill is essential to ensure public safety and shouldn’t be lifted, U.S. regulators said yesterday in a court filing.
Hornbeck Offshore Services Inc. and other offshore service and supply companies last week sued U.S. Interior Secretary Kenneth Salazar, the head of the Minerals Management Service, and both federal agencies, asking a federal court in New Orleans to lift an executive ban on oil and natural gas exploration in waters more than 500 feet deep.
The moratorium was imposed May 27 after the April explosion and sinking of the Deepwater Horizon off the Louisiana coast, which has triggered the largest oil spill in U.S. history. Hornbeck and the other companies contend they will suffer irreparable economic harm from the suspension in drilling. The U.S. said further investigation is needed before the ban can be lifted.
“The Secretary’s decision was a valid exercise of his discretion predicated on the need to ensure that no further drilling accidents occur pending review and implementation of safety protocols and procedures,” lawyers for the agencies said yesterday. “The short-term economic harm asserted by the plaintiffs fails to meet their burden of demonstrating irreparable harm.”
The moratorium applies to all floating rigs in the deepwater Gulf of Mexico except two hired by BP Plc to drill relief wells to try to cap the runaway well spewing from 35,000 to 60,000 barrels of oil daily.
The lawsuit was originally filed June 7 by Covington, Louisiana-based Hornbeck. Since then, it has been joined by more than a dozen companies that build rigs, operate supply-boat fleets, provide remotely-operated submarines, clean tanks, load cargo and provide other support for the 33 rigs drilling in the deepwater Gulf of Mexico when the ban was imposed.
“The potential immediate losses include, but are not limited to, the loss of 3,000 to 6,000 Louisiana jobs directly and indirectly related to the deepwater drilling operations at the 33 wells,” Hornbeck attorney Carl Rosenblum said in court papers June 9. “Lost wages for direct and indirect jobs lost could be over $165 million to $330 million per month for every month the 33 platforms are idle.”
Rosenblum didn’t return a call seeking comment yesterday.
The case is Hornbeck Offshore Services LLC v. Salazar, 2:10-cv-01663, U.S. District Court, Eastern District of Louisiana (New Orleans).
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UBS Banker Poteroba’s Codefendant Koval Seeks Bail
Alexei Koval, who prosecutors said conspired with UBS AG investment banker Igor Poteroba to earn almost $1 million in profits through insider trading, sought release on bail yesterday after being indicted.
Koval, 36, of Chicago, was charged with conspiracy to commit securities fraud and three counts of insider trading in a scheme that lasted from 2005 to this March, said prosecutors in the office of Manhattan U.S. Attorney Preet Bharara. The indictment was filed May 20 and made public yesterday.
Poteroba was accused in March in a criminal complaint of leaking to Koval and a third person merger tips on six UBS Healthcare Client mergers and acquisitions which were being considered. The ring used code words such as “frequent flier miles” and references to a Macy’s Inc. wedding registry and earned at least $870,000 from the illegal trades, prosecutors said.
Koval pleaded not guilty when he was arraigned in May, his lawyer, James DeVita, said after court yesterday. Poteroba, 36, who the U.S. said is an executive director at UBS Securities LLC, wasn’t named in yesterday’s indictment. Both men face as long as 20 years in prison if convicted of securities fraud.
Koval has remained in custody since his arrest in Chicago in March. U.S. Magistrate Judge Frank Maas yesterday delayed a hearing on setting bail for two days to give Koval’s lawyer time to find three people acceptable to prosecutors to co-sign the bond. DeVita proposed a $5 million bond.
A federal judge in New York on March 25 set Poteroba’s bail at $5 million.
Kris Kagel, a spokesman for Zurich-based UBS, said March 24 that the bank was cooperating with the authorities and that Poteroba was on administrative leave.
The case is U.S. v. Poteroba, 10-CR-443, U.S. District Court, Southern District of New York (Manhattan).
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Kerviel Says Faked Orders for Misdirection Weren’t ‘Credible’
Jerome Kerviel said he created fictitious transactions to sidetrack Societe Generale SA controllers, while denying his actions deserved to be called forgery.
The former trader denied he made fakes, in response to a judge’s question, while conceding he put false information on computers, created false documents in e-mails and traded beyond limits set by the bank.
“The explanation was not credible,” Kerviel said of a response to questions from one of the bank’s controllers sent in July 2007. On June 15, Kerviel testified his cover-ups were “so crude” they should have been discredited and only served to buy him time to get his trades back into positive territory.
Kerviel, 33, is on trial, blamed for the bank’s 4.9 billion-euro ($6 billion) loss in January 2008, the result of unwinding 50 billion euros worth of positions he took and hid with fake hedges. In addition to falsifying documents, he is charged with computer hacking and abuse of trust.
Judge Dominique Pauthe reviewed some of the dozens of e- mails between Kerviel and various bank officials yesterday, asking Kerviel to explain financial terminology, abbreviations and English terms.
The hearing opened with a debate between lawyers for the bank and the former trader over whether France’s second-largest bank by market value should turn over additional computer hard drives related to Kerviel now located in Chicago.
“We want transparency,” said Kerviel lawyer Olivier Metzner.
Societe Generale lawyer Jean Veil said the bank has been forthcoming in admitting it failed to catch Kerviel’s activities in spite of repeated alerts and queries.
“We had weaknesses, we have admitted them,” Veil said. “If there were never control failures, there would be no fraud.”
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Northern Rock Shareholders Appeal to Human Rights Court
Northern Rock Plc shareholders seeking payment from the U.K. government for stock they claim was made worthless when the bank was nationalized asked the European Court of Human Rights to take their case.
Small shareholders expect to win “fair compensation” from the court in Strasbourg, France, since investors in other bailed-out banks were treated more favorably, Dennis Grainger, a plaintiff in the case, said yesterday in a statement.
“The shareholders, the true owners, of Northern Rock, were treated very differently by the government when compared to shareholders in other U.K. banks which subsequently received financial assistance,” Grainger said in the statement.
Northern Rock, nationalized in February 2008, was the first U.K. casualty of the credit crunch. The lender almost collapsed in 2007 after it had to seek emergency funding from the Bank of England and then suffered a run on its deposits.
Shareholders in July 2009 lost a court bid for compensation after a three-judge panel at the Court of Appeal in London threw out a lawsuit filed by hedge funds SRM Global, RAB Capital Plc and a group of private investors.
A call to the U.K. Treasury office wasn’t returned.
Messier Defends Bronfman Over Vivendi Share Sale at Trial
Former Vivendi SA Chief Executive Officer Jean-Marie Messier told a Paris court that a 2002 plan to sell shares wasn’t presented to ex-Vice-Chairman Edgar Bronfman Jr. as a certainty.
Vivendi didn’t approve the sale until after a December 2001 board meeting attended by Bronfman, Messier said. Bronfman, who Messier said resigned his post before the final decision was made, is accused of gaining $12.8 million from stock options on the basis of non-public information ahead of the share sale.
At a Dec. 14, 2001, board meeting “we raised the existence of the option, and it was a serious option” to sell shares, Messier said. “We hadn’t determined the desire, and we hadn’t determined the date.”
Bronfman and Messier are among seven defendants at the trial, which focuses on a $77 billion acquisition spree under Messier that almost bankrupted Vivendi. A New York jury in January found the company liable for misleading statements to investors in the same period, prompting it to put aside 550 million euros ($677 million) to cover a possible award in the lawsuit.
Vivendi is a civil plaintiff in the trial. The Paris prosecutors’ office advised against prosecuting any of the men, before being overruled by investigating judge Jean-Marie d’Huy.
Bronfman, the CEO of Warner Music Group Corp., is charged with insider trading in the case. The other six defendants in the case are accused of misleading investors about Vivendi’s financial health. At least one other defendant also faces insider-trading charges.
Stelios Says EasyJet Food Sales, Car Rental Are Airline Extras
EasyJet Plc founder Stelios Haji-Ioannou told a London court that only ticket sales are a core airline activity under a licensing agreement. Other activities, including on-board food sales aren’t covered.
Stelios, who prefers to be known by his first name, is suing the airline over the services that can be offered under the “easy” and “EasyJet” name. The lawyer for Stelios’s EasyGroup this week said that the dispute hinges on the difference between “core” and “ancillary” airline services.
EasyJet, Europe’s second-largest discount carrier behind Ryanair Holdings Plc, signed a brand license agreement with Stelios’s EasyGroup holding company in November 2000, shortly before its initial offering of shares to investors. The contract said the Luton, England-based company must derive at least 75 percent of its sales from airline operations.
“Anything that is an optional extra, that the passenger is given a choice over whether to consume, is ancillary and conducive to” the business of “offering passenger transport on fixed-wing aircraft,” Stelios said while under cross examination from EasyJet lawyer Geoffrey Hobbs.
While it would be “stupid” to charge passengers to use the toilet, it would count as a non-core service, Stelios said.
The sale of services such as food, travel insurance and car hire at the passengers’ destinations aren’t integral to the airline’s business, EasyGroup said in court papers. EasyJet said those services, along with luggage and priority boarding fees, are part of its main business.
The case is EasyGroup IP Licensing Ltd. vs. EasyJet Airline Company Ltd., HC 08 C02329, U.K. High Court.
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Google Wi-Fi Data Collection Discussed by 30 Attorneys General
Google Inc.’s collection of data via Wi-Fi networks was the subject of a conference call among law enforcement officials from 30 U.S. states, according to Connecticut Attorney General Richard Blumenthal.
“We’re looking to establish where, when, why, for how long and for what purpose there was this collection of information on wireless networks,” Blumenthal said June 15 in an interview. The call included representatives of the states’ attorneys general.
The discussion reflects widening concern among law enforcement over the way Google handles user information. The company said last month it mistakenly gathered data from open wireless networks while it was capturing images of streets and houses for its Street View service, a product that lets users view photographs of an area online.
Blumenthal has demanded that Mountain View, California- based Google inform his office of any data gathered from his state’s residents and businesses without permission, the attorney general said this month. Google owns the world’s largest search engine.
“This was a mistake, but we don’t believe we did anything illegal,” Google said in an e-mailed statement. “We’re working with the relevant authorities to answer their questions and concerns.”
The U.S. Federal Trade Commission said last month that it is reviewing Google’s data gathering. An Oregon judge has ordered the company turn over similar data collected in that state, including any e-mails, files or digital phone records, according to court documents.
Also this month, Google said it was turning over to regulators in Germany, France and Spain data it mistakenly collected from unsecured Wi-Fi networks.
The Oregon case is Vicki Van Valin v. Google, 10-00557, U.S. District Court, District of Oregon (Portland).
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