Fairfield, Madoff, Goldman, BP, UBS in Court News
Fairfield Greenwich Group co-founder Walter Noel was sued by the trustee overseeing the liquidation of Bernard Madoff’s firm as part of an amended lawsuit that names 43 new defendants.
Noel and the other defendants worked with Madoff and his firm “to commit, and exponentially expand, the single largest financial fraud in history,” trustee Irving Picard said in the complaint filed yesterday in U.S. Bankruptcy Court in Manhattan. “Every dollar the defendants purportedly ‘earned,’ and every dollar they kept to unjustly enrich themselves, was stolen money.”
Madoff, 72, is serving a 150-year sentence in federal prison in Butner, North Carolina, after pleading guilty to orchestrating the biggest Ponzi scheme in history. Fairfield served as a marketing and investor relations arm for Bernard L. Madoff Investment Securities LLC, helping to enable the scheme, Picard said.
Fairfield spokesman Thomas Mulligan, reading from a company statement, said the decision to expand the lawsuit was “incomprehensible” because the company is currently involved in good-faith negotiations with Picard.
“The Madoff trustee’s amended complaint is replete with false, misleading and rehashed accusations,” Fairfield said in the statement.
The case is Picard v. Fairfield Sentry Ltd., 09-AP-1239, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
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Venezuela Bankers to Face Trial on Misuse of Depositor Funds
Venezuela will try eight bankers and the country’s former securities chief on charges related to the misuse of depositor funds, the attorney general’s office said.
Arne Chacon and Miguel Vaz of Banco Real Banco de Desarrollo face charges of exploiting depositors, while Orlando Suarez Contramaestre, Luis Suarez Montenegro and Milagros Vivas Moncayo face charges of acting as accomplices, the attorney general said in a statement sent by e-mail July 20. Antonio Marquez, a former securities regulator, will also face charges of complicity.
Ricardo Fernandez Barrueco, who owned four banks taken over by the government, and Jose Camacho Uzcategui were charged with alleged complicity in appropriating and deviating depositors’ money and undue approval of loans. Caribay Camacho de Castro, Camacho Uzcategui’s daughter, will face trial for complicity in the diversion of depositors’ money. All nine people headed to trial face the charge of association with delinquency, the statement said. All will remain in jail until their trials.
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Facebook Didn’t Sign Ownership Contract, CEO Says
Facebook Inc. (FB), facing a lawsuit from a New York man claiming an agreement entitles him to 84 percent of the company, is “quite sure” it never signed such a contract, Chief Executive Officer Mark Zuckerberg said.
Zuckerberg, speaking in a TV interview with ABC World News, was responding to an earlier comment from Facebook lawyer Lisa Simpson, who told a judge the company was “unsure” whether he had signed a contract. Paul Ceglia sued Facebook and Zuckerberg in New York state court, claiming that an April 2003 agreement entitles him to ownership of most of the company.
“If we said that we were unsure, I think that was likely taken out of context,” Zuckerberg said in the interview with Diane Sawyer. “Because I think we were quite sure that we did not sign a contract that says that they have any right to ownership over Facebook.”
Ceglia’s lawsuit calls into question provenance of the world’s most popular social-networking site, estimated to be worth $24.6 billion by SharesPost.com, an online marketplace for closely held firms.
Ceglia, a resident of Wellsville, New York, included in his June 30 complaint a two-page “work for hire” contract, which he claimed entitled him to control of the site.
His lawyer produced a copy of the document for U.S. District Judge Richard Arcara July 20 at a hearing in federal court in Buffalo, New York.
“Whether he signed this piece of paper, we’re unsure at this moment,” Facebook attorney Simpson said in court.
Paul Argentieri, a lawyer for Ceglia, responded to Zuckerberg’s comments yesterday.
“If he thinks he can go to court and give an answer like that -- I think it’s not possible,” Argentieri said.
Squawk-Box Brokers Lose Retrial Bid on New Evidence
A former broker at Merrill Lynch & Co. and Citigroup Inc. (C) lost a bid to throw out his conviction for selling access to his brokerages’ internal “squawk boxes” after arguing prosecutors hid evidence of his innocence.
Kenneth Mahaffy Jr., and five co-defendants found guilty last year, asked U.S. District Judge John Gleeson in Brooklyn, New York, to cancel their convictions, dismiss the indictment or grant them a new trial. Gleeson denied their request in an order yesterday.
Lawyers for the men claim federal prosecutors withheld 27 transcripts of testimony from witnesses in a related civil lawsuit brought by the U.S. Securities and Exchange Commission. Mahaffy’s lawyer, Andrew Frisch, said he discovered the documents in December, four days after the ex-broker was sentenced to two years in prison.
“None of the testimony on which the motion relies even remotely supports the proposition that it would be permissible to sell squawk-box information to day traders so they could try to trade ahead of block orders,” Gleeson wrote in his order.
Frisch said in a phone interview, “We’re very optimistic about our appeal.”
Mahaffy was one of three brokers convicted in April 2009 of conspiring to sell day traders access to internal squawk boxes used to discuss pending trades. Three former day-trading executives at New York-based A.B. Watley Group Inc. (ABWG) were also convicted.
Gleeson has allowed the defendants, who were sentenced in December, to remain free during an appeal.
Defense lawyers argued that the government withheld documents showing that more than 10 brokerage employees said in depositions that what was said on the squawk boxes wasn’t confidential.
Prosecutors said the transcripts wouldn’t have altered the verdict. The SEC testimony wasn’t favorable to the defendants, was immaterial and wouldn’t have cleared them of wrongdoing, the government said.
The day traders were accused of using information overheard on the intercoms to trade shares ahead of larger institutional transactions, prosecutors said at trial.
The case is U.S. v. Mahaffy, 05-cr-00613, U.S. District Court, Eastern District of New York (Brooklyn).
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BP Judge Asked to Compel Details of Gulf Spill Fund
BP Plc (BP/) should be required to specify in writing how it will fund, protect and replenish a $20 billion fund dedicated to paying cleanup and damage claims from the Gulf of Mexico oil spill, lawyers suing the company said.
BP should produce “any and all trust documents, escrow agreements or other formation documents or agreements to which BP is a signatory” relating to two funds BP agreed to establish, the lawyers said in a motion filed July 20 with U.S. District Judge Carl Barbier in New Orleans. Barbier is presiding over more than 30 spill-damage cases.
One fund is the $20 billion spill-claims escrow account administered by New York lawyer Kenneth Feinberg, and the other is a $100 million companion fund to aid oilfield workers hurt by a U.S. offshore drilling moratorium imposed after the spill.
“No one, it seems, has ever seen a document signed off on by BP,” Steve Herman, an interim liaison lawyer appointed by Barbier to coordinate claims, said in a statement released by his office yesterday. “What, specifically, has BP committed to do, and what, specifically, has BP given Mr. Feinberg the authority to agree to do on behalf of BP?”
BP faces more than 300 lawsuits, including proposed class actions, claiming potentially billions of dollars in damages to commercial fishing interests, tourist businesses and property owners harmed by the drifting oil. The spill was caused by the sinking of the Deepwater Horizon drilling rig, leased by BP, off the Louisiana coast in April.
Herman said lawyers have been trying to clarify details of how BP’s claims funds will work ever since the escrow accounts were announced June 16 in a joint press release issued by the White House and BP.
He said a telephone conference late yesterday with BP’s lawyers failed to produce documents detailing specifics of BP’s agreements. He said BP has been applying agreements he negotiates on behalf of the New Orleans cases throughout the company’s claims-payment process.
BP’s Houston media relations personnel didn’t return a call yesterday seeking comment.
The case is In Re: Deepwater Horizon, 2:10-cv-01156, U.S. District Court, Eastern District of Louisiana (New Orleans).
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SEC’s Demand That Goldman Admit ‘Mistake’ Could Spur Lawsuits
By forcing Goldman Sachs Group Inc. (GS) to admit a “mistake,” U.S. regulators may be signaling a more confrontational approach to future settlements that could expose Wall Street to more investor lawsuits.
In its $550 million accord with Goldman Sachs, the Securities and Exchange Commission deviated from its usual practice of imposing a fine while letting a firm remain silent on whether it engaged in misconduct. Firms that are required to admit oversights may find it difficult to argue in private litigation that they conceded no wrongdoing and settled purely to end regulatory scrutiny, said Salvatore Graziano, a lawyer who specializes in class-action suits on securities fraud.
“This makes it even harder to assert that they settled out of convenience,” said Graziano, of Bernstein Litowitz Berger & Grossmann LLP in New York. “Once it’s out there, it’s out there.”
The SEC accused Goldman Sachs three months ago of selling a mortgage security without disclosing that hedge fund Paulson & Co. helped design the asset and was betting it would fail.
While Goldman Sachs still used the boilerplate language of not acknowledging or refuting improper conduct, the company also said it was a “mistake” that its marketing materials for the security called Abacus 2007-AC1 included “incomplete information.” The documents didn’t include Paulson’s role, according to the SEC settlement. The mistake admission was limited to the Abacus deal.
Goldman Sachs spokesman Michael DuVally declined to comment on why the firm admitted to a mistake. On a call with Wall Street analysts yesterday, David Viniar, the chief financial officer, was asked what impact the SEC settlement will have on any lawsuits against the company.
“We don’t think it’s going to have any material impact,” Viniar said. “We think there’s nothing new in the settlement.”
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Transocean Employees Become Focus of BP Investigators
Transocean Ltd. (RIG) employees onboard the Deepwater Horizon drilling rig when it exploded in the Gulf of Mexico have become the focus of a U.S. government probe into the cause of the fatal disaster.
Stephen Bertone, chief engineer on the rig, and Mike Williams, chief engineer technician, were designated as parties of interest July 20 by a joint U.S. Coast Guard-Interior Department investigative panel. That boosted to five the number of Transocean workers who could face criminal charges stemming from the accident that killed 11 people.
No one from BP Plc, which leased the Deepwater Horizon to drill the Macondo well, or from other companies involved in the work has been named a party of interest, according to the panel’s website. Transocean, the largest offshore oil driller, may be held liable because under maritime law the vessel owner has ultimate responsibility for the safety of those onboard, said Paul Sterbcow, an attorney representing Williams.
He later declined to comment on Williams.
Guy Cantwell, a spokesman for Switzerland-based Transocean, declined to comment on the details of the investigation.
Nine corporate entities have been designated as parties of interest by the panel. They are BP and its partners in the well, Anadarko Petroleum Corp. (APC) and Mitsui Oil Exploration Co., which is 70 percent-owned by Japan’s Mitsui & Co.; Transocean; Halliburton Co. (HAL); Cameron International Corp. (CAM); Weatherford International Ltd.; M-I Swaco; and Dril-Quip Inc. (DRQ)
A fourth round of hearings is scheduled for Aug. 23-27 in Houston.
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New York, Ohio Funds Seek Lead in BP Investor Suit
The public pension funds of New York and Ohio asked a Louisiana court to appoint them as lead plaintiffs in a securities class-action lawsuit against BP Plc.
The company and some officers and directors are responsible for the loss in share value since the April explosion and sinking of the Deepwater Horizon oil rig in the Gulf of Mexico, according to a complaint in federal court in Lafayette, Louisiana, filed on behalf of BP investors.
The two state pension funds lost $229.4 million in BP investments, New York Comptroller Thomas P. DiNapoli and Ohio Attorney General Richard A. Cordray said July 20 in court papers. The funds asked that similar cases against BP be consolidated with the Ohio and New York plaintiffs as leads.
The states’ funds are the best choice “by virtue of the enormous loss they suffered from their investments in BP as a result of the defendants’ misconduct,” they said in court papers. “New York and Ohio have an extremely large financial interest in this litigation.”
The company and its management “made false and misleading statements regarding BP’s safety protocols, operations, and safety record, as well as its ability to respond to a major oil spill,” the funds said in yesterday’s filing.
The case is Ludlow v. BP Plc, 6:10-cv-00818, U.S. District Court, Western District of Louisiana (Lafayette).
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L’Oreal Heiress Wants to Block Use of Butler’s Tapes
L’Oreal SA (OR) heiress Liliane Bettencourt asked a Paris court to block a news website’s use of recordings that sparked a political scandal and led police to question a member of President Nicolas Sarkozy’s government.
Bettencourt’s right to privacy trumps the freedom of the press claimed by the website, Mediapart, her lawyer told the Paris appeals court. A lower court was wrong to allow the recordings, made by Bettencourt’s former butler of conversations she had with friends and advisers, to be used because of their news value, he said.
The right to privacy “is fundamental in French law,” Bettencourt’s lawyer Thierry Marembert said in court yesterday. “These conversations were of a personal nature,” including several with another of her lawyers.
The tapes, made between May 2009 and May 2010, were turned over to Bettencourt’s only child, who gave them to police. They appeared on Mediapart in June, just before a trial over the daughter’s claims her mother was manipulated into giving away a billion euros ($1.28 billion) in gifts to a photographer friend.
The trial over Bettencourt’s daughter’s claims was postponed indefinitely to investigate the recordings on July 1. That same day the lower court in Paris ruled to allow the recordings’ use by Mediapart, saying removing the items from the website “would restrain journalists’ ability to effectively fulfill their mission in an excessive and unjustified way.”
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Brazil Court Rules Madoff Suit to Be Tried Locally, Valor Says
A Brazilian court ruled that a lawsuit against Banco Santander SA (SAN) in Miami over losses tied to investments in Bernard Madoff’s funds will be tried in the South American country, Valor Economico reported.
The decision by the Sao Paulo state court may clear the way for other Brazilians who are suing over Madoff’s funds in Miami to bring their cases to Brazil, Valor said. The Madrid-based bank can appeal the decision, Valor said.
Helaine Rosa Saab and four of her children sued Santander, claiming the bank invested her late husband’s money without his consent in a fund that fed Madoff’s funds, Valor said. The investment dwindled to less than $141,000 in February 2009 from $647,555 in 2002, Valor said.
Santander won’t comment on matters still in court, the company told Bloomberg News in an e-mailed statement.
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Black Freed From Prison After Posting $2 Million Bond
Conrad Black, the ex-Hollinger International Inc. chairman, was freed from prison after posting a $2 million bail bond guaranteed by a family friend.
Black, 65, yesterday left the Coleman Federal Correctional Institution, where he had been since March 2008, prison spokesman Gary Miller said. Black will be free as he appeals mail fraud and obstruction of justice convictions.
U.S. District Judge Amy J. St. Eve in Chicago set the bail amount yesterday and said Black isn’t permitted to leave the U.S. at this time. He must make his way to Chicago for a July 23 hearing at which the judge will instruct him on terms of his release.
“His home is in Canada,” defense attorney Miguel A. Estrada told St. Eve at this morning’s bail hearing, seeking greater freedom for his client. The judge said she would consider it after seeing a Black financial statement and hearing from a pretrial services officer.
Black earlier this week won the right to bail from a federal appeals court, based on a June 24 Supreme Court decision. The high court narrowed the scope of a law prosecutors used to convict him. The court ordered the Chicago-based appeals court to reconsider its prior ruling upholding the conviction.
Black and three associates were found guilty of stealing $6.1 million from Hollinger International as they engineered sales of its assets. Black was sentenced to 6 1/2 years on the obstruction of justice charge and received a five-year concurrent sentence for fraud.
The trial court case is U.S. v. Black, 05-cr-00727, U.S. District Court, Northern District of Illinois (Chicago). The appellate case is U.S. v. Black, 07-4080, U.S. Court of Appeals for the Seventh Circuit (Chicago).
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Cantor’s Lutnick Says U.K. Carbon Unit Made No Money
Howard Lutnick, chairman of Cantor Fitzgerald LP, said that its U.K. carbon credits brokerage was a money-losing failure, with business projections based on dreams.
Cantor is suing Stephen Drummond, a former executive at the brokerage, in London for the return of $2 million it says it lent him while he was running the unit, CantorCO2e. Drummond is countersuing, claiming he was wrongfully dismissed in 2009 for failing to tell the company he was in talks with a competitor about a job.
Lutnick said on the witness stand yesterday that since Drummond left, Cantor has been trying to turn Drummond’s operation into revenue.
“We can’t figure out how to make money from it,” he said. “The pipeline that Mr. Drummond talked about was a dream. None of Mr. Drummond’s projections came true.” The business was built on a “giant series of ifs,” he said.
CantorCO2e and EcoSecurities, the competitor Drummond was in discussions with, both manage projects that receive Certified Emission Reduction credits under the 1997 Kyoto Protocol.
Cantor fired Drummond a few months after providing the loan when it discovered he had been meeting with EcoSecurities. Drummond claims he was wrongfully dismissed, and says he doesn’t owe the company money, because the $2 million was paid to him in exchange for his shares when Cantor bought the business.
The cases are Cantor Fitzgerald LP v. Stephen Drummond and Stephen Drummond v. CantorCO2e Ltd.
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Swiss Tax Case of Two UBS Clients Must Be Reheard, Court Says
Swiss tax authorities failed to hear the two plaintiffs before issuing the order, the court said in a July 15 ruling published yesterday. The court sent the matter back to the tax office that must give the plaintiffs an opportunity to comment and then issue a new decision, according to the ruling.
In a pilot case earlier this week, the court said that an agreement with the U.S. to transfer data on as many as 4,450 UBS accounts is binding and rejected a bid to block sending account information.
Last month the Swiss parliament approved the 2009 agreement with the U.S., elevating it to the status of an official state treaty. That treaty will also govern the tax office’s decision in yesterday’s case.
After realizing its mistake, the tax office tried to revoke the order. The tax agency will now review yesterday’s case and any decision will be guided by the pilot case ruling, said Roger Braunschweig, a tax administration official.
UBS spokesman Dominique Gerster declined to comment. The bank clients weren’t indentified.
Yesterday’s case is: A-3786/2010.
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Brookfield’s A$110 Million Wembley Accord Approved by Court
Brookfield Multiplex Group’s A$110 million ($97 million) settlement with about 120 individual and institutional investors, who claimed they lost money because the company failed to disclose losses at London’s Wembley Stadium, was approved by the Federal Court of Australia.
Brookfield Multiplex, an Australian unit of Toronto-based Brookfield Asset Management Inc. (BAM/A), didn’t admit to any wrongdoing in agreeing to settle the lawsuit, the company said in a statement yesterday.
The settlement is the third to surpass the A$100 million level under Australia’s class-action regime and is about 20 times greater than the investors would have obtained under an offer Brookfield Multiplex made in 2007, Maurice Blackburn said in the statement.
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