Countrywide Financial, JPMorgan, HSBC, Skilled Healthcare in Court News
Goldman Sachs Group Inc. agreed to pay $550 million and change its business practices to settle U.S. regulatory claims it misled investors in collateralized debt obligations linked to subprime mortgages.
The penalty is the largest ever levied by the Securities and Exchange Commission against a Wall Street firm, the agency said in a statement announcing the accord yesterday. Under the deal, Goldman Sachs acknowledged it made a “mistake” and that marketing materials for the instruments had “incomplete information,” the agency said.
“This settlement is a stark lesson to Wall Street firms that no product is too complex, and no investor too sophisticated, to avoid a heavy price if a firm violates the fundamental principles of honest treatment and fair dealing,” SEC Enforcement Director Robert Khuzami said in the statement.
Goldman Sachs created and sold the CDOs in 2007, as the U.S. housing market faltered, without disclosing that hedge fund Paulson & Co. helped pick the underlying securities and bet against the vehicles, the SEC said in an April 16 lawsuit. Billionaire John Paulson’s firm earned $1 billion on the trade and wasn’t accused of wrongdoing.
“It was a mistake for the Goldman marketing materials to state that the reference portfolio was ‘selected by’ ACA Management LLC without disclosing the role of Paulson & Co. Inc. in the portfolio selection process,” the SEC’s statement quoted Goldman Sachs as saying in settlement documents.
The bank, based in New York, didn’t admit or deny wrongdoing under the accord, the SEC said. The payment includes a $300 million fine and $250 million as restitution to investors. The settlement is subject to a judge’s approval.
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Firefighters Flooded Rig, Caused Oil Spill, Suit Says
The worst oil spill in U.S. history was triggered by firefighting boats that flooded the Deepwater Horizon drilling rig with water, causing it to sink into the Gulf of Mexico and damage BP Plc’s well, a lawsuit claims.
Commercial fishermen, waterfront property owners and oil industry workers who have lost jobs because of the oil spill yesterday sued 17 companies whose fireboats responded to the explosion aboard the Deepwater Horizon on April 20. The rig was still attached to the subsea well when it sank two days later.
“It was the flooding of the Deepwater Horizon and the resulting sinking of the rig that directly caused the piping to break and begin spewing millions of gallons of oil into the ocean,” Lloyd Frischhertz and Gerald Maples, lawyers for the spill victims, said in a complaint filed in federal court in New Orleans.
The lawsuit doesn’t seek damages from BP, rig-owner Transocean Ltd. or the U.S. Coast Guard, which helped direct the firefighting effort. The plaintiffs claim the fireboats violated industry standard procedures that warn against using water cannons to attack pressurized oil fires aboard marine vessels.
“Any request or encouragement by U.S. Coast Guard, British Petroleum or Transocean to pump water and use water cannons” for extended periods to fight the fire “should have been met with protest and refusal,” according to the complaint.
As many as eight fireboats each shot “10,000 to 50,000 gallons of seawater on the rig per minute,” according to the complaint. They flooded the rig’s upper compartments and destabilized it, causing it to tip over and sink, the plaintiffs said.
Molly Hottinger, a spokeswoman for Seacor Holdings Inc., parent of defendant Seacor Marine, declined to comment. Les Van Dyke, a spokesman for Diamond Offshore Drilling Inc., a unit of which is also a defendant in the suit, didn’t immediately return a call for comment.
The case is Robin v. Seacor Marine LLC, 2:10-cv-01986, U.S. District Court, Eastern District of Louisiana (New Orleans).
Countrywide ‘Disregarded’ Guidelines, Lawsuit Says
Countrywide Financial Corp., the mortgage lender acquired by Bank of America Corp., systemically disregarded lending guidelines in the loans it underwrote, according to a revised lawsuit by investors.
Documents for mortgages originated by Countrywide and later securitized contained misrepresentations and omissions, and didn’t follow the lender’s own guidelines, the investors said in the 146-page complaint.
“Despite assurances by the defendants in the offering documents that mortgage loans collateralizing the certificates were originated pursuant to stated guidelines, nothing could have been further from the truth,” the plaintiffs said.
The complaint, which seeks group status on behalf of investors who claim to have purchased $351 billion of mortgage- backed securities, was filed yesterday. A copy was posted on a website by lawyers representing the plaintiffs and couldn’t be independently verified.
The suit, which alleges violations of federal securities laws, was first filed in January.
Shirley Norton, a Bank of America spokeswoman, declined to comment.
The case is Maine State Retirement System v. Countrywide, 10-cv-00302, U.S. District Court, Central District of California (Los Angeles).
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BP Suits Top 300 on Claims by Workers, Mall, Sheriff
BP Plc faces more than 300 lawsuits seeking billions of dollars in potential claims as damage from the worst oil spill in U.S. history ripples through the nation’s Gulf Coast economy.
A regional shopping mall in southern Louisiana sued July 12 in New Orleans federal court over the loss of customers, a parish sheriff filed suit there July 9 to recover lost business tax revenue, and growing numbers of BP employees and investors lodged claims over alleged corporate mismanagement that caused BP’s share price to fall by half. The complaints surpassed 300 July 14, according to court records compiled by Bloomberg.
These lawsuits join scores of proposed class actions filed by commercial fishing companies, beach-front property owners, restaurant owners and environmentalists claiming harm from the drifting oil. Legal experts said the number of suits will continue to rise after the damaged well has stopped gushing oil.
“There are more than 100,000 individual damage claims filed in the BP claims process, so we’ll probably see a multiple of that number of court cases before it’s all said and done,” Houston attorney Brent Coon said yesterday in a telephone interview.
Coon said he’s filed “very few” lawsuits so far on behalf of the 100 spill-related clients he represents, because he’s waiting to see whether London-based BP pays claims from the $20 billion fund the company created for that purpose.
Michael Salt, a spokesman for BP, declined to comment.
Estimates of BP’s ultimate payout over the spill are rising along with the number of lawsuits. Analysts in May estimated costs of judgments and claims wouldn’t exceed $20 billion. A June 2 Credit Suisse report assessed BP’s liabilities at $37 billion in cleanup and potential litigation expenses. Three weeks later, oil analyst Fadel Gheit, at Oppenheimer & Co., put the financial hit from the Deepwater Horizon rig disaster as high as $60 billion.
Lawyers will ask a panel of federal judges in Boise, Idaho, on July 29 to consolidate the cases into two multidistrict litigations, or MDLs, to streamline pretrial rulings, evidence- gathering and organization.
One MDL would cover economic loss and environmental damage claims in a dozen states. Most of these cases also name as defendants Transocean Ltd., Halliburton Energy Services, Cameron International Corp. and Anadarko Petroleum, all of whom allegedly played a role in the spill. BP has asked the Boise panel to consolidate the cases in federal court in Houston, while attorneys for multiple plaintiffs are seeking assignment to New Orleans.
The other MDL will cover lawsuits by investors in BP U.S. shares who claim the company’s officers failed to disclose safety problems, artificially inflating stock value, or that management failures led to the spill.
“BP’s procedures for minimizing its financial losses from drilling rig problems were no more than fantasies,” according to a complaint in a shareholder class action filed in Lafayette, Louisiana. “BP was simply not the enterprise that its public communications pictured.”
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JPMorgan Wins Dismissal of Madoff Fraud Victim’s Lawsuit
JPMorgan Chase & Co., the second-largest U.S. bank by assets, won dismissal of a lawsuit by a victim of Bernard L. Madoff’s Ponzi scheme claiming the bank knowingly participated in the fraud.
U.S. District Judge Barbara S. Jones in New York yesterday threw out a suit filed by MLSMK Investments Co., which said the New York-based bank in September 2008 investigated Madoff, determined he was a fraud and liquidated its $250 million investment in a Madoff-linked fund.
“While it might have been possible for defendants to determine that Madoff was committing fraud from the ‘red flags’ that plaintiff points out, plaintiff alleges no facts to demonstrate that defendants actually did make such a discovery,” Jones wrote in an opinion released yesterday.
MLSMK, a Palm Beach, Florida, partnership, claimed it lost $12.8 million to Madoff from October to December 2008, the month Madoff was arrested and charged in history’s biggest Ponzi scheme.
“We thought we laid out enough of a factual basis, at the pleading stage, to show that Chase knew at least by September 2008 that Madoff was committing fraud, but continued providing services that enabled him to continue the fraud,” said Howard Kleinhendler, a lawyer for MLSMK.
Kleinhendler said his client is considering an appeal.
The case is MLSMK Investments Co. v. JPMorgan Chase & Co., 09-cv-04049, U.S. District Court, Southern District of New York (Manhattan).
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Conrad Black Not Entitled to Bail, U.S. Tells Appeals Court
Conrad Black, the imprisoned ex-Hollinger International Inc. chief executive officer found guilty of fraud and obstructing justice, isn’t entitled to bail as an appeals court reviews his conviction, prosecutors argued.
Black, 65, last week asked the U.S. Court of Appeals in Chicago to free him while it reviews his conviction in light of last month’s Supreme Court ruling that narrowed the scope of a federal law making it a crime to deprive someone of the right to “honest services.”
The government said yesterday in court papers that Black’s trial jury had proof that the former CEO committed fraud involving money, not just the deprivation of honest-services.
Prosecutors “presented the honest-services fraud theory to the jury based on the same fraudulent conduct that supported the money-fraud theory,” the Justice Department told the court. The jury had sufficient evidence to convict either way, they said. Black shouldn’t be freed because he’s unlikely to win the appeal, they said.
The honest-services fraud law was used to prosecute corporate officers and public officials who the government said had cheated shareholders and taxpayers. Ex-Illinois Governor Rod Blagojevich is facing honest-services fraud charges in a criminal trial in the U.S. courthouse where Black was convicted.
Black and former Enron Corp. CEO Jeffrey Skilling were convicted after trials based in part on that charge. Since March 2008, Black has been serving a 6 1/2-year sentence at a federal prison in Coleman, Florida.
“The Supreme Court has now unanimously ruled that a violation affecting Mr. Black’s Sixth Amendment jury trial right occurred,” wrote defense attorney Miguel A. Estrada of the Washington office of Los Angeles-based Gibson Dunn & Crutcher LLP.
Estrada told the court Black’s conviction must be set aside unless the court is certain the jury’s verdict couldn’t be attributed to instructions they received from the trial judge on the honest-services law.
Black and three associates were found guilty in the theft of $6.1 million from Hollinger International as they engineered its sale of assets. The company was once the world’s third- largest publisher of English-language newspapers.
The case is U.S. v. Black, 07-4080, U.S. Seventh Circuit Court of Appeals (Chicago).
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Swiss Lawyer Indicted for Conspiring With HSBC Client
A Swiss lawyer was indicted on U.S. charges that he helped a Virginia surgeon use an HSBC Holding Plc account to hide assets from the Internal Revenue Service.
Felix Mathis, a Zurich-based attorney at Froriep Renggli LLP, is alleged to have used a sham Liechtenstein trust to conceal assets that the surgeon, Andrew Silva, held at HSBC. The federal grand jury in Virginia also accused Mathis in two “structuring” counts of helping Silva secretly import $235,000 into the U.S. without reporting it to the government.
Silva was sentenced on June 11 to two years of probation after pleading guilty to conspiring with a Swiss banker and a Zurich attorney to defraud the IRS. As part of his guilty plea, Silva, who is cooperating with prosecutors, implicated Mathis.
The U.S. Justice Department is also conducting a criminal investigation of HSBC clients who may have failed inform the IRS of accounts in India or Singapore, according to three people familiar with the matter.
A call to Mathis’s office in Zurich after business hours wasn’t returned. He faces up to 25 years in prison if convicted.
Silva in 1997 inherited from his mother a bank account held at the Zurich branch of an “international bank” in the name of the Liechtenstein trust, prosecutors said. Two years later, he met with Mathis, who managed the account and advised the surgeon not to disclose it to U.S. authorities, they said.
Told the bank was closing the account in September 2009, Silva made two trips to Zurich to meet with Mathis and the Swiss banker late last year, prosecutors said. They refused to wire the funds to the U.S. because it would “leave a trail” for law enforcement and instead gave him $200,000 in two individually wrapped “bricks” of $100,000 each, prosecutors said.
To avoid U.S. requirements that he report the importation of amounts exceeding $10,000 in currency, Silva mailed the cash home in 26 packages, they said. He had Mathis’ help, prosecutors said.
Mathis is not in U.S. custody.
The case is USA v. Mathis, 10-cr-260, U.S. District Court, Eastern District of Virginia (Alexandria).
Dole Banana Workers Jury Award Tossed Due to Fraud
California Court of Appeal Judge Victoria Chaney, at a hearing yesterday in Los Angeles, threw out the 2007 verdict and the underlying lawsuit, after hearing arguments last week by Dole lawyers that the plaintiffs had lied about becoming sterile because of pesticides used at Dole’s banana farms in Nicaragua in the late 1970s.
“The judgment is vacated” Chaney said, citing “blatant” fraud, active concealment and witness tampering by lawyers in Nicaragua that deprived Dole of its right to gather evidence in the Central American country. “Retrial is not an option.”
Chaney’s ruling follows her order last year dismissing two related cases by groups of purported banana workers before they had gone to trial. She found that the lawsuits were the result of a pattern of “deliberate and egregious misconduct” by lawyers in Nicaragua who had recruited the plaintiffs.
Steve Condie, a lawyer for the Nicaraguans, said he will appeal the decision. The judge’s ruling was based on testimony from secret, so-called John Doe witnesses who the plaintiffs’ lawyers weren’t allowed to interview, Condie said after the hearing. Some of those witnesses later admitted they had been paid by Dole, according to the lawyer.
Chaney said in her decision that she wasn’t persuaded by the allegations of bribery.
Scott Edelman, a lawyer for Dole, said after the hearing that the judge had approved the expenses the company paid for the protected witnesses. Chaney allowed Dole to introduce evidence of fraud provided by the anonymous witnesses after the 2007 trial. Dole claimed that the witnesses would be in danger in Nicaragua if their identities became known.
“It’s never been about banana workers,” Edelman said. “This case was brought by fake banana workers.”
Most of Dole’s records in Nicaragua were destroyed in the aftermath of the Sandinista revolution, opening the door to the fraudulent claims, according to lawyers for the company, based in Westlake Village, California.
The 2007 trial has been the only one in the U.S. by foreign workers claiming sterility from DBCP exposure. Thousands of similar claims from workers in Central American countries are pending in state court in Los Angeles.
The case is Tellez v. Dole Food Co., BC312852, Superior Court of California, Los Angeles County.
Fundraiser Nemazee Gets 12 Years for Citigroup, HSBC Fraud
Hassan Nemazee, a fundraiser for President Barack Obama and Secretary of State Hillary Clinton, was sentenced to 12 years in prison for cheating Citigroup Inc., HSBC Holdings Plc and Bank of America Corp. of $292 million.
U.S. District Judge Sidney Stein in New York yesterday imposed the punishment, including restitution of $292 million to the three banks. Nemazee can remain free until he reports to prison by Aug. 27, Stein said.
“Pride, ego, arrogance, self-image, self-importance -- all of this and more are among the reasons why I turned down this destructive path,” Nemazee told the judge before he was sentenced.
Nemazee, 60, pleaded guilty in March. The government asked for a prison term of 15 1/2 to 19 1/2 years, saying he ran a Ponzi scheme that used proceeds from one bank loan to pay others.
“Part of the manner in which the defendant was able to dupe the banks into lending him substantial sums of money was to trade on his substantial reputation in political circles as a prodigious fundraiser,” the government said in court papers.
Prosecutors have hired a forensic expert to help locate Nemazee’s assets. They are investigating whether he stashed assets overseas. The government assailed him in court papers for failing to cooperate in its investigation.
Assistant U.S. Attorney Michael Lockard valued Nemazee’s Manhattan apartment on Park Avenue at $16.5 million, his estate in Katonah, New York, at $2.1 million, and two other New York apartments at more than $2 million each. Nemazee also owns real estate in Italy.
Prosecutors recovered $93.5 million in cash and securities, including $75 million that Nemazee took from an HSBC line of credit shortly before his arrest last August, they said. The government is seeking the return of political and charitable donations to more than 100 organizations, Lockard said.
Sheila Nemazee, the defendant’s wife, and other family members are contesting part of the forfeiture efforts, claiming assets such as the Park Avenue apartment as their own.
The case is U.S. v. Nemazee, 1:09-cr-00902, U.S. District Court, Southern District of New York (Manhattan).
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Ryanair, O’Leary Settle EasyJet Founder’s Suit on Pinocchio Ad
Ryanair Holdings Plc and Michael O’Leary, its chief executive officer, apologized to the founder of rival EasyJet Plc and agreed to pay about 50,000 pounds ($77,000) to settle a lawsuit over an advertisement that likened him to Pinocchio.
At a hearing yesterday at the High Court in London, lawyers for O’Leary withdrew allegations made against Stelios Haji- Ioannou, who prefers to go by Stelios, in a series of advertisements.
In a half-page advertisement in the Daily Telegraph yesterday, O’Leary and Ryanair apologized “unreservedly” for tagging a photograph of Stelios as “Easyjet’s-Mr. Late Again” in a prior advertisement carried in the newspaper.
“It is not very often that someone as arrogant and as powerful as O’Leary is forced to apologize to someone else in public,” Stelios said in an e-mailed statement. “I took this legal action to protect my reputation. I am not a liar and that statement was libelous.”
The contested ads, published in January and February, said EasyJet hadn’t published its on-time flight statistics for 37 weeks and showed a picture of Stelios with his nose elongated like the character Pinocchio, Stelios’s lawyer Chris Scott said at the hearing yesterday.
When Stelios asked for an apology, Ryanair refused and said the dispute should be settled with a sumo wrestling contest or a race around London’s Trafalgar Square, Scott said, reading a joint statement signed by both Stelios’s and Ryanair’s lawyers.
The case is Haji-Ioannou v. O’Leary, HQ10X00565, High Court of Justice Queens Bench Division.
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Skilled Healthcare Agrees to Mediation to Settle Verdict Award
Skilled Healthcare Group Inc., which was ordered by a California jury to pay $671 million for improperly staffing nursing homes, agreed to try to settle the case in mediation.
Skilled Healthcare and the plaintiffs in the suit agreed to end all litigation during the mediation, the Foothill Ranch, California-based company said in a statement yesterday.
The plaintiffs accused Skilled Healthcare of improperly staffing 22 facilities in the state. A Humboldt County jury on July 6 found the company liable for $613 million in statutory damages, the maximum allowed by state law, and $58 million for restitution.
The lawsuit was filed in 2006 on behalf of current and former residents of 22 Skilled Healthcare operations in California.
The verdict is the largest jury award in the U.S. this year, according to data compiled by Bloomberg. Skilled Healthcare said the award exceeds the policy limits of its insurance. The company had a net loss of $133 million last year on revenue of $759.8 million.
Skilled Healthcare also agreed not to file for bankruptcy protection during the mediation period, which is scheduled to end Aug. 9. The proposal must be approved by a judge.
The case is Lavender v. Skilled Healthcare Group, DR060264, Superior Court, Humboldt County, California (Eureka).
Telkom South Africa to Pay $80 Million to End Telcordia Dispute
Telkom South Africa Ltd., Africa’s largest fixed-line phone company, said it will pay U.S. software maker Telcordia Technologies Inc. $80 million to settle a nine-year dispute over a canceled contract.
The companies reached an agreement based on an arbitration ruling, Pretoria-based Telkom said in a statement yesterday. Telkom made a provision of $77 million for the dispute in March.
The dispute arose in 2001 when Telkom terminated a contract placed with Telcordia for the supply of a customer-care management system. Telcordia claimed damages of $128 million plus interest at an annual rate of 15.5 percent.
Telcordia, based in Piscataway, New Jersey, was acquired in 2005 by private-equity firms Providence Equity Partners Inc. and Warburg Pincus LLC from Science Applications International Corp., according to the software maker’s website.
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Specter Says He Will Back Kagan’s U.S. Supreme Court Nomination
Senator Arlen Specter, a Pennsylvania Democrat, said he will support Elena Kagan’s nomination to the U.S. Supreme Court even though he has misgivings about her “non-answers” to questions at her confirmation hearings.
Specter, a member of the Senate Judiciary Committee, said in a USA Today opinion column he will vote for Kagan in part because she has endorsed one of his pet causes, allowing television cameras at Supreme Court arguments.
He also applauded her high regard for the late Supreme Court Justice Thurgood Marshall. That suggests Kagan, a Marshall law clerk, will “protect individual rights in the congressional-executive battles,” Specter wrote.
“In addition to her intellect, academic and professional qualifications, Kagan did just enough to win my vote by her answers that television would be good for the country and the court and by identifying Justice Marshall as her role model,’ he said.
The Judiciary Committee will vote July 20 on Kagan’s nomination, putting it on track for confirmation about two months before the beginning of the next court term. Jim Manley, a spokesman for Senate Majority Leader Harry Reid, said the full Senate will vote the week of Aug. 2.