Madoff, Halliburton, Wells Fargo in Court News
Irving Picard, the trustee overseeing the bankruptcy of Bernard Madoff’s investment firm, spent $26.9 million in the six months ended Sept. 30 while recovering $849,000 for victims of Madoff’s Ponzi scheme, according to a report filed in Manhattan federal court.
Picard has recovered a total of about $1.5 billion for creditors of Bernard L. Madoff Investment Securities LLC, he said in a filing with U.S. Bankruptcy Judge Burton Lifland made public Oct. 30. The trustee said he evaluated 14,030 investor claims as of Oct. 22 and approved 2,280. He has committed to paying $738 million on behalf of the Securities Investor Protection Corp., which is obligated to compensate cheated investors as much as $500,000 on most claims, according to the report.
The largest component of the expenses for the half-year period is $15.8 million in legal fees to Picard’s firm, Baker & Hostetler LLP. Most of the money recovered in the six-month period, $771,000, came from Madoff investors who received preferences, or payments, in the 90 days before the bankruptcy filing, according to Picard’s report.
“I have nothing to add to the report and exhibit,” Picard said in an e-mail yesterday.
Madoff, 72, was arrested in December 2008 and charged with securities fraud for directing the biggest Ponzi scheme in U.S. history. He pleaded guilty in March 2009 and is serving a 150-year prison sentence.
At the time of his arrest, Madoff’s account statements reflected 4,900 accounts with $65 billion in nonexistent investments, according to Picard. Investors lost about $20 billion in principal.
The case is Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities LLC, 08-01789, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
Halliburton Ordered to Turn Over Cement in Probe
Halliburton Co. (HAL) was ordered to turn over cement used on the Deepwater Horizon project in connection with a probe into the cause of the Gulf of Mexico oil spill. A federal judge in New Orleans issued the order on Oct. 27.
The court order by U.S. District Judge Carl Barbier of New Orleans requires Halliburton to turn over “certain materials” used in the cementing jobs on the Deepwater Horizon project to federal investigators from the U.S. Coast Guard and the Department of the Interior.
“It is further ordered that no destructive testing on the cementing components will be conducted without further order of the Court,” said Barbier, who also is overseeing civil litigation arising from the oil spill.
“Halliburton will comply immediately with Judge Barbier’s order issued earlier today and expects the government to retrieve these items next week,” Halliburton spokeswoman Cathy Mann said in an e-mail.
The case is In re Oil Spill by the Oil Rig Deepwater Horizon in the Gulf of Mexico on April 20, 2010, 2:10-md-02179, Eastern District of Louisiana (New Orleans).
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Ohio’s Cordray Asks for Affidavits by ‘Robo-Signer’
Ohio Attorney General Richard Cordray asked judges in his state for copies of foreclosure affidavits filed in their courts that are signed by a woman he identified as a “robo-signer” for Wells Fargo Bank NA. (WFC)
Cordray sent a letter to 133 judges asking for information on any cases that involved Xee Moua, a Wells Fargo vice president of loan documentation. Cordray sent a separate letter to Wells Fargo & Co. asking the bank to vacate any foreclosure judgment in Ohio involving incorrect affidavits.
Moua gave a deposition in a Florida case in March in which she testified that “statements made by her in sworn affidavits were false,” Cordray said in the letter. Moua said she wasn’t familiar with the books and records related to the transactions an affidavit covered, according to Cordray.
“These are crucial misstatements that are an affront to our legal system,” he wrote. “If you become aware of affidavits Ms. Moua signed in any foreclosure cases filed in your Court, I would appreciate receiving copies of such affidavits.”
Tom Goyda, a spokesman for Wells Fargo, said the company’s policy is “to comply with all applicable state and federal laws and to follow required court procedures” and that executives “intend to cooperate” with Cordray’s inquiries.
Wells Fargo, the biggest U.S. home lender, said Oct. 27 that it will file supplemental foreclosure affidavits to courts in about 55,000 proceedings after finding some statements “did not strictly adhere to the required procedures.”
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Merck Legal Costs for Vioxx Reduce Profit 6 Years After Recall
Merck & Co. (MRK) set aside $950 million to resolve a criminal probe into the Vioxx painkiller it withdrew six years ago, raising potential legal costs to $7.7 billion.
The legal reserve contributed to a 90 percent decline in third-quarter income to $342 million, the Whitehouse Station, New Jersey-based drugmaker said in a statement on Oct. 29.
Merck, the second-biggest U.S. drugmaker, pulled Vioxx from the market in 2004 after a study showed it doubled the risk of heart attacks and strokes. The company previously paid $4.85 billion to settle thousands of lawsuits claiming injuries and another $1.9 billion for legal costs. The new legal reserve will cover an “anticipated resolution” of a probe by U.S. prosecutors into research and marketing of Vioxx.
Merck previously disclosed that federal prosecutors in Boston had identified the company in March 2009 as a target of a grand jury investigation, and that witnesses had been called in the probe. It also said that certain cities in Europe were weighing whether to bring criminal charges.
“Our discussions with the government are ongoing, and until they’re concluded, there can be no certainty about a definitive resolution,” spokesman Ron Rogers said in an interview.
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CommScope Sued Over $3.9 Billion Carlyle Buyout
CommScope Inc. was sued by a shareholder over claims that the Carlyle Group’s $3.9 billion buyout of the telecommunications-equipment maker undervalues the company.
Carlyle, the world’s second-largest private-equity firm after Blackstone Group LP, said Oct. 27 that it would buy Hickory, North Carolina-based CommScope for $31.50 a share in cash. Shareholder Dennis Rice accused the buyout firm and CommScope directors of taking advantage of a drop in company shares, in a Delaware Chancery Court complaint in Wilmington.
“Carlyle recognized CommScope’s solid performance and potential for growth and determined to capitalize on the recent downturn in the company’s stock price at the expense of CommScope’s shareholders,” lawyers for Rice said in the Oct. 28 complaint. “Company executives are favoring Carlyle over other potential bidders.”
The offer represents a 36 percent premium to the closing price on Oct. 22, the last trading day before CommScope said it was in talks to be acquired by Washington-based Carlyle.
The deal would be the biggest takeover in the telecommunications-equipment industry in at least two years, according to data compiled by Bloomberg. Four deals disclosed in the industry in the last year have been valued at $1 billion or more, with an average premium paid of 43 percent.
CommScope Chief Executive Officer Frank Drendel and other directors would fare better than shareholders in the proposed deal, Rice said in the complaint.
A CommScope spokesman, Rick Aspan, didn’t immediately return a phone call seeking comment.
The case is Rice v. CommScope Inc., CA5936, Delaware Chancery Court (Wilmington).
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Hands’s EMI Claim on Citigroup Limited to $2 Billion
A New York judge ruled that Terra Firma Capital Partners Ltd. founder Guy Hands will get no more than $2 billion in damages, one-fourth of what he was seeking, if he wins a case against Citigroup Inc. (C) over the acquisition of EMI Group Ltd., the Financial Times reported.
Hands says he wouldn’t have bid 265 pence a share for EMI in May 2007 if he hadn’t received three phone calls from David Wormsley, the head of Citigroup’s U.K. investment-banking operations at the time.
Judge Jed Rakoff, who had presided over the case for the past two weeks, ruled out using a lost profit theory as a basis for damage calculation, the newspaper reported. If a fair market value theory proposed by Hands’s lawyer is accepted, Citigroup may be exposed to a $2 billion damages claim, the newspaper said.
Andrew Dowler, a London-based spokesman at Terra Firma, declined to comment when contacted by phone.
Wormsley denies giving bid information to Hands and Citigroup on Oct. 18 called Terra Firma’s allegations “categorically untrue.”
Oracle Loses Bid to Delay Trial on SAP Download Damages
A federal judge denied Oracle Corp. (ORCL)’s request for a three-day delay of a trial over whether rival SAP AG (SAP) should pay damages because a now-defunct unit improperly downloaded Oracle software.
U.S. District Judge Phyllis Hamilton in Oakland, California, ruled Oct. 29 that the trial will begin today with jury selection. She denied SAP AG’s request that she order both companies to refrain from speaking outside the courtroom about the case.
Oracle sued SAP in 2007 over downloads by a software maintenance unit called TomorrowNow. SAP said there were “inappropriate” downloads and said in court papers that it may owe tens of millions of dollars in damages. Oracle is seeking billions.
The case is Oracle Corp. v. SAP AG, 07-01658, U.S. District Court, Northern District of California (Oakland).
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Black Wins Reversal of 2 of 4 Counts, Resentencing
Conrad Black won his appeal of two of his 2007 convictions and lost on two others, in a ruling by the U.S. Court of Appeals in Chicago that may send him back to prison.
A guilty verdict for obstruction of justice, for which the former Hollinger International Inc. chairman received the longest sentence, was upheld Oct. 29, as well as one of three fraud counts. The court reversed two fraud counts.
A three-judge appeals panel, ruling on Black’s case for the second time, said he and his co-defendants can be retried on the charges for which convictions were overturned. The same panel upheld his conviction in 2008, triggering a U.S. Supreme Court appeal.
U.S. District Judge Amy St. Eve in Chicago, who presided over the trial, sentenced Black to 6 1/2 years in prison for the obstruction count and five years on the fraud counts to run concurrently. He served more than two years before gaining bail pending the outcome of his appeal in July.
The ex-publisher and author, along with three other Hollinger executives, was convicted for participating in the theft of $6.1 million from the Chicago-based newspaper publisher after an almost four-month trial.
“Today’s decision was all that could have been expected and is a gratifying elimination of the main remaining charges,” Black’s office said in a statement. “All of the defendants are innocent of all allegations, civil and criminal, and are reviewing the next steps in this very long and exacting process of achieving complete vindication.”
The Supreme Court in June returned the case to the Chicago tribunal after narrowing the scope of a federal statute under which Black, his co-defendants and -- in a separate case -- former Enron Corp. Chief Executive Officer Jeffrey Skilling were convicted.
Black can be retried on the two crimes for which convictions were canceled, according to the opinion written by Circuit Judge Richard Posner. Prosecutors “may wish” to conserve resources and proceed directly to the resentencing, he wrote.
The government will tell the trial court its intentions “at the appropriate time after we have studied the opinion carefully,” the Justice Department said in a statement.
“We will be reviewing the court’s opinion and will proceed as appropriate,” Black’s appellate counsel Miguel Estrada, a partner in the Washington office of Los Angeles-based Gibson, Dunn & Crutcher LLP, said in a phone interview.
The case is U.S. v. Black, 07-4080, 08-1030, 08-1072 and 08-1106, U.S. 7th Circuit Court of Appeals (Chicago).
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Ex-Morgan Stanley Broker Gets One Year in Scheme
Salvatore Zangari, 34, was sentenced Oct. 29 by U.S. District Judge John Gleeson in Brooklyn, New York. When he pleaded guilty April 15, Zangari admitted that he conspired in a plan that resulted in the payment of sham fees to a purported stock-loan finder. The scheme lasted from March 2004 to December 2005, prosecutors said.
“Stupidity. I really can’t sit here and justify what I did,” Zangari told the judge when asked why he participated.
Zangari’s guilty plea marked the 32nd conviction obtained as part of an investigation of the stock-loan industry, according to Robert Nardoza, a spokesman for U.S. Attorney Loretta Lynch in Brooklyn. The probe focuses on allegations that employees took bribes or purported finder fees, often when no services had been rendered.
Zangari’s crime called for a sentence of 1 1/2 to 2 years under federal guidelines, prosecutors said.
The case is U.S. v. Zangari, 10-cr-00255, U.S. District Court, Eastern District of New York (Brooklyn).
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Westgate Capital’s Nicholson Sentenced to 40 Years for Fraud
Westgate Capital Management LLC founder James Nicholson was sentenced to 40 years in prison after pleading guilty to defrauding investors in a Ponzi scheme.
U.S. District Judge Richard J. Sullivan imposed the sentence at a hearing Oct. 29 in Manhattan. The government had requested a term of 45 years; Nicholson’s lawyers asked Sullivan to sentence him to 10 years.
Prosecutors claimed Nicholson’s fraud cost investors $141 million. Defense lawyers claimed in court papers that investors lost no more than $50 million.
Nicholson, 44, of Saddle River, New Jersey, admitted he lied to investors about stock trades, the returns on his investments and the amount he had under management. He said he controlled $50 million to $60 million, while telling investors he had $900 million under management, prosecutors said.
The case is U.S. v. Nicholson, 09-cr-414, U.S. District Court, Southern District of New York (Manhattan).
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Alstom’s Bid to Block Eurostar Contract Dismissed
Justice Geoffrey Vos at the High Court in London refused to grant the French company a temporary injunction that would have barred Eurostar from signing a contract with Siemens until a full trial could take place. Alstom has claimed it would suffer “serious and irreparable harm,” if the German company were allowed to win a bid for trains to operate in the tunnel under the English Channel.
While Alstom made valid arguments about the fairness of Eurostar’s bidding criteria, Vos said it would be “unjust” for him to “freeze the tendering process.” If he did, it might take as long as a year before Eurostar could place the order.
Eurostar said Oct. 7 it would buy 10 trains from Siemens in a contract worth 600 million euros ($834 million) to add routes and fend off competition from Germany’s Deutsche Bahn AG, which plans services via the tunnel from 2013. A lawyer for Alstom argued earlier this week the company’s rights to transparency and non-discrimination under European Union rules were violated by Eurostar’s bidding process.
“Alstom will pursue alternative legal options to uphold its position,” the company, based near Paris, said Oct. 29 in a statement following the ruling, adding that it “has already submitted its case to the European Commission.”
Eurostar will postpone signing the contract until Nov. 2 to give them time to file papers, the company’s lawyer Michael Bowsher said.
Siemens is “very pleased that the injunction has been refused,” spokeswoman Anja Uhlendorff said in an e-mailed statement. “We look forward to proceeding and signing the contract with Eurostar once the legal process permits.”
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White-Collar Criminals May Use Age to Seek Lighter Sentences
Elderly people convicted of financial fraud and other federal crimes will be more likely to invoke their age in seeking lower prison terms due to a change in U.S. sentencing guidelines set to go into effect Nov. 1, Bloomberg News’ Thom Weidlich reports.
The amendment states that age may be relevant in calculating sentencing ranges. The current language says age is “not ordinarily relevant.” Some high-profile defendants such as Adelphia Communications Corp.’s John Rigas and former Illinois Governor George Ryan were in their 70s and 80s when sentenced.
“These sentences can turn into death sentences for individuals who are older,” Jeff Ifrah, co-author of “Federal Sentencing for Business Crimes,” said in a phone interview. “You’ll start seeing defendants” ask for lower departures from the normal guideline “based on age in the appropriate circumstances.”
White-collar defendants tend to be older than those convicted of other federal crimes. Almost half of all defendants sentenced last year for tax offenses and 28.3 percent for money laundering were older than 50, the most of any age category in statistics compiled by the U.S. Sentencing Commission.
Last year, only 2.6 percent of defendants got a downward departure from the guideline range due to age, according to the commission.
The amendment changes the guidelines to say that “age (including youth) may be relevant” if age is a factor “to an unusual degree.”
Laura Sweeney, a spokeswoman for the U.S. Justice Department, didn’t return a call seeking comment on the guideline change.
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Candys Win Suit Over Ex-Chelsea Barracks Worker Bonus
The design firm founded by Christian Candy and his brother Nick won a lawsuit against the former development director for the Chelsea Barracks project in London, who had sued over an unpaid bonus.
Candy & Candy Ltd. doesn’t have to pay a 160,000-pound ($255,000) bonus to Andrew Locke, because he wasn’t employed on the date the bonus would have been owed, the U.K. Court of Appeal ruled Oct. 29.
Locke was hired by the Candys on Sept. 17, 2007, and fired by the firm on Sept. 7 the following year. The firm paid Locke six months’ salary after he was fired, under the terms of his contract. The company didn’t pay the 160,000-pound bonus because Locke hadn’t been employed for a full year.
Locke declined to immediately comment after the ruling. Stafford’s request for permission to appeal the judgment was denied. He can still apply directly to the U.K. Supreme Court to hear the matter, the judges said.
Candy & Candy “has always maintained that it acted properly and in accordance with Mr. Locke’s contract of employment and that he was not entitled to the bonus he claimed,” the firm said in an e-mailed statement. “We hope that this is now an end to the matter.”
The case is Locke v. Candy & Candy Ltd., A2/2010/0807, Court of Appeal, Civil Division (London).
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H&R Block Suit Against HSBC Most Popular Docket on Bloomberg
H&R Block Inc. (HRB)’s lawsuit against HSBC Holdings Plc (HSBA) was the most-read litigation docket on the Bloomberg Law system last week. The suit, by the biggest U.S. tax-preparation firm, was filed in federal court in St. Louis on Oct. 15. It alleges the bank violated a contract to provide tax refund loans through 2013.
The U.S. Internal Revenue Service has said it will no longer help banks including HSBC and Republic Bancorp Inc. (RBCAA) underwrite tax refund loans that lawmakers and consumer groups say carry unfairly high interest rates.
The case is HRB Tax Group Inc. v. HSBC Bank USA NA, 10-cv-01946, U.S. District Court, Eastern District of Missouri (St. Louis).
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On The Docket
Judge Orders Regulators, Drilling-Ban Foes to Court on Nov. 9
The U.S. judge overseeing legal challenges to the Obama Administration’s deep-water drilling ban ordered government regulators, environmentalists, politicians and oil industry groups opposed to the moratorium to a conference in New Orleans federal court on Nov. 9.
“The court would like to know what issues remain to be resolved in each case,” U.S. District Judge Martin Feldman said in an order issued Oct. 29.
It’s the first time Feldman has asked parties involved in all four lawsuits related to the administrative policy restricting drilling in waters deeper than 500 feet to assemble together in his court. The order includes environmentalists who sued in Washington federal court this month to force Interior Secretary Kenneth Salazar to restore the ban he rescinded.
The Obama Administration first restricted deep-water drilling in May, after the sinking of the Deepwater Horizon rig caused the BP Plc oil spill in the Gulf of Mexico. Feldman threw out that first ban in June, calling it overly broad, and Salazar instituted a second, similar ban in July. Salazar withdrew the latter ban this month after determining the industry has made progress on improving offshore drilling safety and oil-spill response capabilities.
The cases are Hornbeck Offshore Services LLC. v, Salazar, 2:10-cv-1663; Ensco Offshore Co. v. Salazar, 2:10-cv-1941; State of Texas v. Salazar, 2:10-cv-2949, all U.S. District Court, Eastern District of Louisiana (New Orleans), and Center for Biological Diversity v. Salazar, 1:10-cv-1787, U.S. District Court, District of Columbia (Washington).
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