Drill Ban, IBM, UBS, SocGen, Morgan Stanley, Skilling, Black in Court News
A federal judge denied the U.S. government’s request to delay an order that allows deepwater oil drilling to resume while the U.S. notified an appeals court it would challenge the decision lifting the six-month moratorium.
U.S. District Judge Martin Feldman in New Orleans yesterday refused to stay his June 22 order lifting a moratorium imposed by President Barack Obama in reaction to the worst oil spill in U.S. history. The government said it would appeal and asked Feldman to put his order on hold.
“The defendants’ motion to stay pending appeal is hereby denied for the same reasons given in this court’s June 22, 2010, order granting the plaintiffs’ motion for preliminary injunction,” Feldman wrote in yesterday’s ruling. The judge said in the earlier decision that the ban was too broad and would cause irreparable harm to offshore-oil service companies.
Charles Miller, spokesman for the U.S. Justice Department, declined to comment on yesterday’s ruling.
The government yesterday filed a notice with Court of Appeals in New Orleans saying defendants including Kenneth Salazar, secretary of the Interior, “hereby appeal.”
Obama temporarily halted all drilling in waters deeper than 500 feet on May 27 to give a presidential commission time to study improvements in the safety of offshore operations.
Hornbeck Offshore Services Inc. and more than a dozen Louisiana offshore service and supply companies sued U.S. regulators to lift the ban, arguing they would suffer irreparable economic harm from the suspension in drilling.
The case is Hornbeck Offshore Services LLC v. Salazar, 2:10-cv-01663, U.S. District Court, Eastern District of Louisiana (New Orleans), and the appeal is 10-30585, U.S. Court of Appeals for the Fifth Circuit (New Orleans).
For more, click here.
Banker Who Blew Whistle on Tax Cheats Secrecy Seeks Pardon
Bradley Birkenfeld, once a UBS AG banker who handled a $200 million investment for a billionaire client, now makes 12 cents an hour mopping floors at the federal prison in Minersville, Pennsylvania.
Sleeping in a bunk bed in a dormitory-style building with 35 other inmates is far from the reward Birkenfeld says he deserves for exposing a massive tax-evasion scandal at UBS, the biggest Swiss bank. He told U.S. authorities how UBS bankers came to the U.S. to woo rich Americans, managed $20 billion of their assets, and helped them cheat the Internal Revenue Service.
Birkenfeld, 45, has asked President Barack Obama to commute a 40-month term he began in January at Schuylkill Federal Correctional Institution for his part in the conspiracy. He is seeking payment from the IRS whistleblower program and wants the U.S. Department of Justice to punish prosecutors who wouldn’t grant him immunity before his 2008 indictment and guilty plea.
“I delivered and documented this entire scandal, the largest in U.S. history,” Birkenfeld said in one of two prison interviews with Bloomberg News. “I’m the most famous whistleblower in the history of the world. It’s a question of doing the right thing, and that’s what I did.”
His disclosures preceded UBS’s decision to pay $780 million to avoid prosecution, admit it fostered tax evasion from 2000 to 2007, and turn over data on 250 secret accounts to the IRS. UBS later agreed to reveal data on another 4,450 accounts, a transfer upheld last week by the Swiss Parliament. For lifting the veil on Swiss bank secrecy, Birkenfeld said, he’s a hero, not a criminal.
The case is U.S. v. Birkenfeld, 08-cr-60099, U.S. District Court, Southern District of Florida (Fort Lauderdale).
For more, click here.
For the latest lawsuits news, click here.
IBM Sues to Bar Former Services Manager From Joining Oracle
International Business Machines Corp., the largest computer-services provider, sued a former technology services manager to keep her from working at Oracle Corp., saying the new position violates a non-compete clause.
Joanne Olsen, a 31-year veteran of IBM, left the company this month to become a senior vice president at Oracle, according to the suit, filed June 16. As a general manager in IBM’s technology services division, Olsen knew about IBM’s growth strategies and potential acquisitions, the company said.
“As a long time general manager in our services business and as a member of the company’s leadership team, Joanne Olsen possesses valuable confidential information about IBM and our operations,” IBM spokesman Doug Shelton said yesterday in an e- mailed statement.
Olsen signed a non-compete clause in July 2009, stating she can’t join a competitor for a year after leaving, according to the suit. At Oracle, she would become senior vice president of on-demand services, managing the delivery of its applications and reporting directly to Chief Executive Officer Larry Ellison, it said.
For the latest new suits news, click here. For copies of recent civil complaints, click here.
Kerviel Prosecutor Seeks Four-Year Prison Sentence
Jerome Kerviel should serve four years in prison for his role in Societe Generale SA’s 4.9 billion-euro ($6 billion) loss, French prosecutor Jean-Michel Aldebert said in his closing arguments to judges in Paris.
Kerviel, 33, is accused of abuse of trust, faking documents and hacking the bank’s computers. The trading loss occurred as the bank unwound 50 billion euros in positions he’d built up by January 2008, far beyond his trading limits, and concealed with faked hedges and forged orders.
“Jerome Kerviel is a liar, a trickster, and a fraudster,” Aldebert said. “I ask you to declare him guilty of the charges.”
Kerviel has insisted that his actions were “professional errors” rather than crimes. He told the court earlier in the trial that the faked documents were so simple anyone would have known they were forgeries, his excuses were so far-fetched they shouldn’t have been believed, and that the money he was using was always visible to the bank.
The recommended sentence is “very, very heavy,” Kerviel lawyer Olivier Metzner said outside the courtroom. Kerviel’s goal “was to make money for the bank.”
Metzner will deliver closing arguments today, on the trial’s final day.
The three-week long trial has featured more than 30 witnesses, including Kerviel’s bosses, colleagues and bank controllers. Daniel Bouton, Societe Generale’s chief executive officer at the time of the loss, called the former trader’s conduct a “catastrophe” for the bank.
For more, click here.
Chinese Drywall Claimant Count Is Unknown, Judge Says
Courts are still unsure how many claimants will sue USG Corp. and Knauf Group over defective drywall as they seek to determine the magnitude of the litigation, said a federal judge who is overseeing the cases.
U.S. District Judge Eldon Fallon said yesterday during a court conference in New Orleans that his rulings have resolved only 10 of what could be 40,000 claims. The court is using various methods to determine the “whole census” of parties to the litigation, he said.
Those cases, part of coordinated litigation over allegedly defective drywall, are intended as a bellwether to help determine property damage issues in other cases against manufacturers. Two of the bellwether claims settled this week before trial.
Under that settlement, Knauf Plasterboard Tianjin Co. agreed to pay for removal and replacement of the drywall from one home and repairs to the electrical system, as well as $40,000 for moving, rent, storage and personal items. In the other claim, Knauf agreed to pay $20,175 to an apartment owner for lost rental income pending a six-month inspection of 21 units allegedly damaged by the drywall. The company also agreed to remove and replace the drywall and replace wiring.
In the first jury trial in the U.S. over defective drywall, a state court panel in Miami last week said a Florida family suffered $2.5 million in damages as a result of defective drywall.
The case is In re Chinese-Manufactured Drywall Products Liability Litigation, 2:09-md-02047, U.S. District Court, Eastern District of Louisiana (New Orleans).
For the latest trial and appeals news, click here.
Morgan Stanley to Pay $102 Million in Subprime Accord
“Morgan Stanley backed loans for homeowners they knew or should have known were destined to fail,” Coakley said during a press conference yesterday in Boston.
The bank is barred from making unfair loans and will be required to make additional disclosures going forward, Coakley said yesterday.
The bundling of the riskiest type of mortgages into securities turned the U.S. housing slump into a global recession as foreclosures deflated bond values and toppled Wall Street firms such as Lehman Brothers Holdings Inc. The Massachusetts attorney general reached a $60 million settlement last year with Goldman Sachs Group Inc.
A representative of New York-based Morgan Stanley didn’t immediately return a call seeking comment.
Skilling, Black Get Partial Victories From High Court
The U.S. Supreme Court scaled back a favorite tool used by prosecutors in fraud cases, ruling in favor of Jeffrey Skilling on his conviction for leading the Enron Corp. accounting fraud while stopping short of granting him a new trial.
The court also sided with former Hollinger International Inc. Chairman Conrad Black, telling a lower court to reconsider his corporate fraud conviction.
With both men, the effect on their convictions will be determined by lower courts. Skilling’s lawyers said before the ruling that a victory on the honest-services question would give them grounds to seek reversal of the rest of the conviction, along with his 24-year sentence. The government has said even the conspiracy verdict that was directly before the high court might not have to be overturned.
“We’re back in the game,” Daniel Petrocelli, Skilling’s lead lawyer, said in a telephone interview. He said yesterday’s ruling would be “fatal to the government’s case.”
Black was convicted of mail fraud and obstruction of justice and sentenced to 6 1/2 years in prison. As with Skilling, his lawyers will have a chance to seek invalidation of the entire verdict, while the government can argue that the entire conviction should stand.
Writing for the court, Justice Ruth Bader Ginsburg said the law, which covers fraud schemes to “deprive another of the intangible right to honest services,” was so vague it could be constitutionally applied only to cases involving bribery or kickbacks. The ruling raises questions about potentially hundreds of other convictions and pending prosecutions.
The case is Skilling v. United States, 08-1394, U.S. Supreme Court (Washington).
For more, click here.
Ex-Qwest Chief Nacchio Loses Bid for Reduced Prison Sentence
Joseph Nacchio, the former chief of Qwest Communications International Inc., lost a bid to reduce his insider trading sentence by almost half after a judge heard arguments on how much he gained from his crime.
U.S. District Judge Marcia Krieger in Denver said yesterday that Nacchio, who had been sentenced to six years in prison, must serve 70 months. She upheld a $19 million fine -- the maximum Nacchio faced -- and approved forfeiture of $44.6 million, a figure that Nacchio and the government had agreed on. He was originally ordered to forfeit $52 million.
Nacchio, 61, of Rumson, New Jersey, was convicted in 2007 for illegally selling $52 million of stock in Denver-based Qwest in 2001 based on inside information. A federal appeals court last year ordered that he be resentenced because the trial judge incorrectly calculated his gains from stock sales. He has served almost 15 months.
Nacchio, over the objection of at least one Qwest officer he worked with, “refused to tell investors about the breakdown of revenue,” Krieger said at yesterday’s hearing. Specifically, he withheld how much Qwest was relying on riskier, declining, non-recurring sources of revenue, she said.
“Mr. Nacchio knew what the risk was, he could assess the risk” as he sold more than $50 million in Qwest shares in 2001, Krieger said. “The public did not know.”
The case is U.S. v. Nacchio, 1:05-cr-00545, U.S. District Court, District of Colorado (Denver).
For more, click here.
Philip Morris $100 Million Punitive Verdict Reversed
Philip Morris USA won a ruling from the Oregon Supreme Court blocking a $100 million punitive damage verdict awarded to the husband of Michelle Schwarz, an Oregon woman who died of lung cancer in 1999.
The court yesterday ordered a new trial on punitive damages, ruling that the jury that awarded the money received faulty instructions from the trial judge. Yesterday’s ruling upholds the decision of a state appeals court.
The Oregon Supreme Court found that the trial court should have told jurors that they weren’t permitted to award punitive damages to punish Philip Morris for harm caused to anyone other than Schwarz.
“The trial court did, in giving the uniform jury instruction, permit the jury to consider evidence of harm to nonparties in assessing punitive damages,” Justice Martha Lee Walters wrote on behalf of the court.
The case is Estate of Michelle Schwarz v. Philip Morris Inc., S053644, Oregon Supreme Court.
Ex-Brocade Chief Reyes Gets 18 Months for Backdating
Greg Reyes, former chief executive officer at Brocade Communications Systems Inc., was sentenced to 18 months in prison for backdating employee stock-option grants and hiding the practice from company auditors and shareholders.
U.S. District Judge Charles Breyer in San Francisco also ordered Reyes yesterday to pay a fine of $15 million and said he must surrender by Sept. 10 to begin his term.
Reyes, 47, was found guilty of securities fraud and other charges in March at his second trial stemming from stock-options manipulation at Brocade, the biggest maker of switches for data- storage networks.
Reyes’s attorney, Stephen Neal, pleaded for leniency.
“I find Greg Reyes a man of extraordinary integrity,” Neal said. “I would trust him with everything in my life, from my family to the shirt off my back.”
In a courtroom that included Reyes’s family and more than two dozen supporters, Reyes broke down in tears standing before the judge, too overcome to read his prepared statement. Instead, Neal read Reyes’s statement, saying in part, “I am a shell of the man I once was. Words cannot express how sorry I am.”
The case is U.S. v. Reyes, 06-556, U.S. District Court, Northern District of California (San Francisco).
For more, click here.
Court Curbs Overseas Reach of U.S. Securities Laws
The justices unanimously said federal securities laws don’t reach allegations by three Australians who bought shares of Melbourne-based NAB in that country. The Australians argued that U.S. courts could consider the case because it centered on alleged wrongdoing by a former U.S. subsidiary of the bank.
The investors in the Supreme Court case said HomeSide Lending Inc., formerly a Florida-based mortgage-service subsidiary of NAB, fraudulently overvalued its assets, eventually forcing $2.2 billion in writedowns.
NAB disclosed in 2001 that interest-rate assumptions used by HomeSide in a valuation model were incorrect and caused inflated estimates of mortgage-servicing fees. Writedowns in 2001 caused the bank’s American depositary receipts to fall more than 11 percent.
NAB acquired HomeSide in 1998, then sold it to Washington Mutual Inc. in 2002.
NAB argued that the alleged misstatements and omissions all were made in Australia by the parent company.
The case is Morrison v. National Australia Bank, 08-1191, U.S. Supreme Court (Washington).
For more, click here.
Oddo Loses Bid to Get $37 Million Back in Madoff Case
French money manager Oddo & Cie lost a bid to get 30 million euros ($37 million) from a Luxembourg fund that had lost millions investing with Bernard Madoff.
Luxembourg’s Cour de Cassation, the nation’s highest court, dismissed Oddo’s appeal in the case at a hearing yesterday. A UBS AG unit had turned the money over to the liquidators for the LuxAlpha Sicav-American Selection fund last year.
The country’s Court of Appeal in July 2009 reversed a ruling that had forced UBS to pay the money to Oddo. The appeals court doubted whether Oddo Asset Management had the right to the money, ordering it to give the funds back to UBS, which in turn handed it to LuxAlpha.
Oddo was the first to file a case in Luxembourg seeking redemptions from funds or banks after Madoff’s 2008 arrest. UBS and its local unit, which had served as custodian for LuxAlpha, have been sued in more than 100 Luxembourg cases by investors.
This decision is part of “a provisional procedure,” Gregoire Charbit, manager at Oddo, said in an e-mail. “There’s still a case on the substance in which the Group Oddo & Cie started a case against LuxAlpha over reimbursement and one against UBS over fault.”
UBS spokeswoman Tatiana Togni said by telephone the Zurich- based bank “welcomed” the ruling.
Bernard Madoff pleaded guilty in March 2009 to orchestrating the biggest Ponzi scheme in history. He was sentenced to 150 years in a federal prison in North Carolina.
Nemazee Sentence of Up to 19 1/2 Years Urged by U.S.
Hassan Nemazee, a former political fundraiser for U.S. President Barack Obama and Secretary of State Hillary Clinton, should be sentenced to as much as 19 years and seven months in prison for his bank fraud conviction, prosecutors said.
Nemazee pleaded guilty in federal court in Manhattan in March to defrauding Citigroup Inc., HSBC Holdings Plc and Bank of America Corp. out of millions of dollars. After he was arrested in August, prosecutors said he cheated the banks out of $292 million. He’s to be sentenced June 30.
Nemazee deserves from 15 years and eight months to 19 years and seven months, prosecutors said June 23 in court papers.
“The defendant was, in essence, running a Ponzi scheme -- using the proceeds of one fraud to pay off another fraud victim,” Assistant U.S. Attorney Daniel W. Levy wrote in a memorandum to U.S. District Judge Sidney Stein.
In court during his guilty plea, Nemazee said his fraud began in the mid-1990s as he faced financial difficulties. He admitted that he used forged documents to borrow from banks and said he intended to repay the lenders. He said he was unable to do so as his investments went bad.
Nemazee’s lawyer, Paul Shechtman, didn’t reply to a voice- mail message left at his office seeking comment.
The case is U.S. v. Nemazee, 09-mj-1927, U.S. District Court, Southern District of New York (Manhattan).
For more, click here.
For the latest verdict and settlement news, click here.
Lehman Pays Its Bankruptcy Advisers $830.6 Million
Lehman Brothers Holdings Inc., the investment bank that has been in bankruptcy since September 2008, paid its lawyers and managers $830.6 million for 20 months of work, according to a regulatory filing.
The restructuring firm Alvarez & Marsal LLC, which provided Lehman with its current chief executive officer, Bryan Marsal, led the payments with $296 million in fees for “interim management” through May, according to the June 23 filing with the U.S. Securities and Exchange Commission.
Jenner & Block LLP, the law firm headed by Lehman examiner Anton Valukas, earned $54 million for more than a year’s work producing a 2,200-page report on the bankruptcy. Duff & Phelps LLC, a financial advisory firm that worked with Valukas, made $39.3 million.
Weil Gotshal & Manges LLP of New York collected $190.7 million for acting as the investment bank’s lead bankruptcy law firm. Milbank Tweed Hadley & McCloy LLP got $52.8 million for advising Lehman’s creditors’ committee.
Lehman and its affiliates had cash holdings of $18.4 billion on May 31, up from $17.4 billion at the start of the month. Lehman filed the biggest U.S. bankruptcy in September 2008 with assets of $639 billion.
The case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
For the latest litigation department news, click here.
Lawyers Group Says Nominee Kagan Is Well Qualified for Court
The American Bar Association, the nation’s largest legal professional association, said U.S. Solicitor General Elena Kagan is well qualified to be on the Supreme Court.
The ABA “has returned its highest rating of unanimously well qualified,” said Senate Judiciary Committee Chairman Patrick Leahy in a statement. The rating “is further evidence of Elena Kagan’s qualifications to serve as an independent justice,” the Vermont Democrat said.
The ABA, a group of 400,000 legal professionals, regularly provides ratings for nominees to the federal bench.
President Barack Obama on May 10 nominated Kagan, 50, to replace retiring Justice John Paul Stevens. A former dean of Harvard Law School, Kagan is currently the administration’s chief courtroom lawyer. Her confirmation hearings before the Senate Judiciary Committee begin June 28.