SAC, Citigroup, JPMorgan, Lehman, SAP in Court News
Steven A. Cohen’s SAC Capital Advisors LP got a government subpoena for documents as the U.S. widens a probe of Wall Street insider trading that has implicated former traders at the firm.
The subpoena came from U.S. officials, said a person familiar with the matter who declined to be identified because the matter is private. No allegation of wrongdoing has been made against SAC, which manages $12 billion. Jonathan Gasthalter, a firm spokesman, declined to comment.
“It could be that they’re just looking at individuals who used to work there,” said Andrew Hruska, a former federal prosecutor at King & Spalding LLP. “You can’t rule out the possibility that they’re trying to build a case against SAC.”
Federal Bureau of Investigation agents, probing possible illegal trading by hedge funds, on Nov. 22 searched the offices of Level Global Investors LP and Diamondback Capital Management LLC. Both firms were founded by former employees of Stamford, Connecticut-based SAC. A third hedge fund, Boston-based Loch Capital Management, was also searched by agents yesterday, according to a person familiar with that matter.
Level Global was founded in 2003 by SAC veteran David Ganek. Diamondback was started in 2005 by Rich Schimel, Lawrence Sapanski and Chad Loweth, all former SAC traders.
Wellington Management Co., the Boston-based money manager that oversees $598 billion, got a U.S. request for documents, a person familiar with that firm said yesterday. Wellington said on an internal conference call Nov. 22 that it is reviewing its records and didn’t engage in illegal trading, according to the person, who asked not to be named because the firm is private. Sara Lou Sherman, a firm spokeswoman, declined to comment.
Janus Capital Group Inc. said yesterday in an e-mailed statement that it got a request for general information and will cooperate with the inquiry. The Denver-based firm didn’t identify what agency made the inquiry or comment further.
In typical insider trading cases, the Securities and Exchange Commission issues administrative subpoenas for trading records or the Justice Department seeks grand jury subpoenas, said John J. Carney, a former U.S. prosecutor and SEC attorney. The use of search warrants indicates a more aggressive approach by federal authorities, he said.
Steve Bruce, a spokesman for Diamondback, and Andy Merrill, a spokesman for Level Global, confirmed that the FBI searched their offices and said their firms are cooperating.
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Meinl Sues Atrium, Gazit, Citigroup Unit Over Shares
Meinl Bank AG, the Austrian lender controlled by the Meinl family, sued management and key shareholders of Atrium European Real Estate Ltd. in a dispute over the property developer formerly associated with the lender.
Meinl Bank filed the lawsuit, which is seeking more than 1.2 billion euros ($1.6 billion), as a so-called derivative lawsuit on behalf of Atrium, Meinl Chief Executive Officer Peter Weinzierl said in Vienna. The suit says Atrium management and shareholders Gazit-Globe Ltd. and Citigroup Inc.’s Citi Property Investors harmed other investors when they canceled a 300 million-euro share issue in 2009 and prematurely converted a bond into Atrium shares.
“Funds were moved from Atrium to Citi and Gazit in a way that can’t be justified,” Weinzierl said.
Citigroup and Israeli property developer Gazit-Globe took control of what was then Meinl European Land in 2008 and renamed it Atrium after Meinl European Land was investigated for using 1.8 billion euros to buy back shares without telling investors in advance. Family head Julius Meinl V was arrested last year over the allegations.
Atrium in August sued Meinl, Julius Meinl, Meinl Bank and eight other people and companies for 2.1 billion euros in the U.K.. Atrium claimed they breached their fiduciary duties to the company.
Meinl’s suit is “misguided and without merit,” Atrium said in a statement. The company said it was confident that its own claims against Meinl are “in no way adversely affected by these latest actions of Meinl Bank.” Gazit said it hasn’t received a copy of the lawsuit and a Citigroup spokesman in London wasn’t immediately available to comment.
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N.Y. Appeals Court Reinstates Claims Against JPMorgan
A New York appeals court reinstated claims by an Assured Guaranty Ltd. subsidiary in a lawsuit that alleges a JPMorgan Chase & Co. asset-management business knew the risks associated with investing in subprime mortgage-backed securities and concealed them.
In a decision released yesterday, New York’s Appellate Division, First Department, reinstated contract claims as well as claims for breach of fiduciary duty and gross negligence against J.P. Morgan Investment Management Inc. after a lower court dismissed the complaint in January.
The appeals court found that common-law causes of action for breach of fiduciary duty and gross negligence brought by Assured Guaranty (UK) Ltd. weren’t preempted by the Martin Act, a state securities law.
“In short, there is nothing in the plain language of the Martin Act, its legislative history or appellate level decisions in this state that supports defendant’s argument that the act preempts otherwise validly pleaded common-law causes of action,” Judge John W. Sweeny Jr. wrote in the unanimous decision.
The case arose out of Assured Guaranty’s guarantee of notes supporting a reinsurance transaction involving a special purpose vehicle named Orkney Re II Plc, according to the complaint. J.P. Morgan acted as investment manager for about $553 million of assets for Orkney.
Kristen Chambers, a spokeswoman for JPMorgan, didn’t return a call for comment.
The case is Assured Guaranty Ltd. v. J.P. Morgan Investment Management Inc., 603755/2008, New York state Supreme Court (Manhattan).
Icahn Asks Judge to Dismiss Lions Gate Lawsuit
Carl Icahn asked a federal judge to dismiss a lawsuit by Lions Gate Entertainment Corp. alleging the financier was “secretly plotting” to merge the company with Metro-Goldwyn- Mayer Inc.
Vancouver-based Lions Gate’s claims that Icahn failed to disclose his plans should be dismissed because “there was no duty to disclose, and in any case, the required disclosures were made,” according to a filing in U.S. District Court in Manhattan Nov. 22.
The company’s allegations that Icahn misled shareholders by buying MGM debt while criticizing the prospect of a merger of the two studios “are not true,” Icahn said.
In the lawsuit, the studio, whose films include “Crash” and “Precious,” alleged that Icahn undermined any proposed transactions by making false and misleading statements.
“Icahn opposed a merger with MGM not because it was bad for Lions Gate shareholders, but because it was good -- so good, in fact, that he wanted to postpone it until he could buy as much of both companies as he could and thus extract for himself as much of the value stemming from the merger as possible,” Lions Gate said in the complaint, filed last month.
Icahn acquired a sufficiently large position in both companies “at depressed prices to ensure that he maximized his own profits,” Lions Gate said.
Asking for the claims to be dismissed, Icahn said he “had no duty to disclose his views about a tentative or inchoate plan for a Lions Gate-MGM merger.”
“Indeed, neither Icahn, not Lions Gate had any merger plan to disclose,” he said.
The case is Lions Gate Entertainment Corp., v. Icahn, 10- CV-8169, U.S. District Court, Southern District of New York (Manhattan).
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Irish Nationwide Wins Bid to Dismiss U.K. Bondholder Lawsuit
Irish Nationwide Building Society won a bid to have a lawsuit filed by two subordinated bondholders seeking the liquidation of the nationalized property lender thrown out.
The bondholders, Satinland Finance Sarl and Trimast Holding Sarl, didn’t have a valid claim, Judge George Mann said in his ruling yesterday at a London court. The investors are seeking to force a BNP Paribas SA unit, the debt program trustee, to file a winding-up petition against Irish Nationwide.
The investors sued after Irish Finance Minister Brian Lenihan said Sept. 30 that holders of subordinated bonds would be expected to share in the cost of bailing out Irish Nationwide and Anglo Irish Bank Corp., the country’s two nationalized lenders. The government has committed 5.4 billion euros ($7.4 billion) to rescue Irish Nationwide, as losses mounted amid surging bad loans.
The case was “bound to fail,” Mann said. “This was not, in my view, a promising action at all.”
A lawyer for the bondholders, Neil Calver, declined to comment after the ruling.
The case is Satinland Finance SARL v. BNP Paribas Trust Corp. UK Ltd., case no. HC10C03541, High Court of Justice, Chancery Division (London).
BP’s $2 Billion in Payments Fail to Halt Gulf Criticism
Kenneth Feinberg has paid out almost $2 billion from BP Plc’s oil-spill compensation fund without quelling criticism by Gulf Coast residents such as casino workers seeking to recover lost tips.
Yesterday was the deadline for spill victims to apply to the Gulf Coast Claims Facility run by Feinberg for emergency payments, which are intended to provide immediate relief without requiring recipients to waive their rights to sue BP later. The fund draws on a $20 billion account set up by the London-based oil company to compensate those affected by the U.S.’s biggest offshore spill.
Feinberg, a Washington lawyer, has paid out about five times the amount BP provided directly before he took charge of the payments on Aug. 23. Members of Congress, state officials and business groups say claims continue to be compensated inconsistently, with little explanation for why some are rejected or checks are smaller than victims requested.
“People are frustrated, and they get more frustrated when they hear about people who are doing the same job in some other industry but are getting checks,” said Beverly Martin, director of the Mississippi Casino Operators Association.
As of Nov. 20, more than 411,000 claims had been submitted to Feinberg’s fund, with more than 122,000 claims paid or approved, for a total of $1.92 billion, and 139,000 needing further documentation, according to a status report issued by the facility. Almost 61,200 claims have been denied.
“Something is working correctly when you get 400,000 claims in three months and pay out over $2 billion,” Feinberg said in a phone interview Nov. 22.
The complaints by casino workers follow earlier protests by Gulf Coast Realtors and hotel and restaurant owners in Florida who said they feared being shut out of the process.
Feinberg, whose firm is being paid $850,000 a month by BP to administer the fund, has adjusted his stance along the way to attract more spill victims to participate.
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Kirch Told to Prove Ex-Deutsche Bank Chief Sparked Bankruptcy
Leo Kirch, who filed a 1.3 billion-euro ($1.75 million) damages suit against Deutsche Bank AG, must show that comments made about his media group’s creditworthiness caused its 2002 bankruptcy, a judge said.
Kirch needs to show in detail that comments made by the lender’s former Chief Executive Officer Rolf Breuer were at least one of the triggers for the bankruptcy, Presiding Judge Brigitte Pecher said at a hearing at the Munich Regional Court yesterday.
“The plaintiff must concretely show that other banks didn’t provide any more loans because of that interview,” Pecher said. “It’s not enough to say that was likely.”
Kirch has filed numerous suits against the Frankfurt-based bank over a dispute that arose after Breuer said in a February 2002 Bloomberg television interview, “everything that you can read and hear” is that “the financial sector isn’t prepared to provide further” loans or equity to Kirch.
Germany’s highest civil court ruled in 2006 that Breuer was wrong to question the creditworthiness of Kirch’s group just months before its collapse, making him and the bank in principle liable to the Printbeteiligungs unit. The top court left the question open whether Breuer’s statement caused the bankruptcy and what amount of compensation might be justified, saying trial courts need to decide these issues.
In yesterday’s suit, Kirch is seeking about 900 million euros from Deutsche Bank and Breuer because he was forced to sell his 40 percent stake in Axel Springer AG in a foreclosure sale in October 2002 to the lender. Kirch had used the shares as collateral for a loan from the bank.
He also claims his Printbeteiligungs unit suffered losses of about 400 million euros over a contract because of the group’s insolvency.
The court scheduled a ruling for Feb. 22.
The case is LG Muenchen, 33 O 9550/07.
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Lehman Brokerage Claims $7 Billion From Barclays
The trustee for Lehman Brothers Holdings Inc.’s brokerage asked a judge to disallow what he called the wrongful transfer of $7 billion of assets to Barclays Plc after it bought the defunct investment bank’s brokerage in the 2008 financial crisis.
The request was filed Nov. 23 in U.S. Bankruptcy Court in New York by trustee James Giddens. The money includes $1.3 billion of transfers that the U.S. Securities and Exchange Commission said separately may have been made in violation of securities laws.
Barclays, based in London, is seeking $3 billion of the assets, saying Giddens promised to shift them after Lehman filed the biggest bankruptcy in U.S. history.
“Transferring these additional assets to Barclays would materially and adversely affect the estate and deprive the trustee of customer property needed to satisfy the claims of those customers whom Barclays rejected,” Giddens said in the filing.
The assets were fought over in more than 30 days of court testimony at a nonjury trial that ended last month. Lehman, its creditors and the trustee made their last efforts in the Nov. 22 filings to sway Judge James Peck, who may rule on the case in January or February, lawyers in the case said.
Peck must decide whether to alter a deal sealed in a week of financial turmoil or let all or part of it stand. Barclays was the sole bidder for Lehman’s brokerage, taking 10,000 employees and giving 72,000 customers access to $40 billion in assets frozen in the bankruptcy, the bank has said.
Kimberly Macleod, a Lehman spokeswoman, and Michael O’Looney, a Barclays spokesman, declined to comment on the SEC filing.
The case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
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SAP Must Pay Oracle $1.3 Billion Over Unit’s Downloads
SAP AG, the world’s largest maker of business application software, must pay $1.3 billion to Oracle Corp. for copyright infringement by a now-defunct software maintenance unit, a federal jury in California decided.
Yesterday’s verdict is the largest jury award of 2010, according to Bloomberg data. It is the largest ever for copyright infringement and the 23rd-largest of all time for any jury award, according to Bloomberg data.
The jury awarded the damages after an 11-day trial in Oakland, California. Oracle, the second-biggest maker of business software, sued Walldorf, Germany-based SAP in 2007 claiming its U.S.-based unit made hundreds of thousands of illegal downloads and several thousand copies of Oracle’s software to avoid paying licensing fees and steal customers.
“We are, of course, disappointed by this verdict and will pursue all available options, including post-trial motions and appeal if necessary,” Bill Wohl, an SAP spokesman, said outside the courtroom. “This will unfortunately be a prolonged process and we continue to hope that the matter can be resolved appropriately without more years of litigation.”
Geoffrey Howard, an attorney for Redwood City, California- based Oracle, said before the verdict that the breadth of the illegal downloading was “unprecedented” in the software industry.
“The underlying theme of the case came down to damages,” David Boies, another Oracle attorney, said after the verdict. “The facts of damages proven by the contemporaneous record of both companies was quite clear.”
SAP didn’t contest that it was liable for the infringement by its TomorrowNow unit, which it acquired in 2005 and closed in 2008. SAP lawyers told the jury at trial that Oracle’s estimate that it was owed at least $1.7 billion for the infringement was grossly exaggerated. SAP said it owed about $40 million.
The case is Oracle Corp. v. SAP AG, 07-01658, U.S. District Court, Northern District of California (Oakland).
Former Comverse Chief Settles SEC Backdating Case
Jacob “Kobi” Alexander, the former head of Comverse Technology Inc., agreed to pay $53.6 million to settle a Securities and Exchange Commission probe of allegations that he led an options-backdating scheme at the company.
Alexander will disgorge $26.2 million and pay $21.4 million in interest, in addition to a $6 million fine, according to a letter yesterday from defense lawyer Robert Morvillo to U.S. District Judge Nicholas Garaufis in Brooklyn, New York. Alexander and his wife will give up two U.S. bank accounts in a separate civil-forfeiture action filed by federal prosecutors, according to the letter. The accounts hold $46 million, according to a statement by prosecutors in Brooklyn.
“Mr. Alexander is pleased to have resolved the SEC and civil-forfeiture actions and to put these matters behind him,” Jeremy Temkin, another lawyer for the ex-Comverse chief, said in a phone interview. “Like the previous settlements of the other civil cases, the resolutions of the SEC and civil-forfeiture actions is without any admission of fault on his part.”
Alexander, an Israeli citizen who was New York-based Comverse’s chief executive officer, was arrested in Namibia in September 2006. He is free on bail in that country while the U.S. seeks his extradition to face criminal charges related to the alleged stock-option backdating.
Alexander, who originally fought the forfeiture, consented to the action so long as the money was returned to Comverse, which has agreed to use it to settle shareholder litigation.
“Alexander fled halfway around the world, but he was not able to escape the financial consequences of his crimes,” U.S. Attorney Loretta Lynch in Brooklyn said in the statement
In December, Alexander agreed to contribute $60 million as part of a $225 million settlement Comverse reached with shareholders.
The forfeiture case is U.S. v. All Funds on Deposit at, 06- cv-3730, the SEC case is SEC v. Alexander, 06-cv-3844, and the criminal case is U.S. v. Alexander, 06-cr-628, U.S. District Court, Eastern District of New York (Brooklyn).
Airgas Wins Ruling Invalidating Annual-Meeting Bylaw
Airgas Inc. won an appeals court ruling that may derail a $5.5 billion hostile takeover bid from Air Products & Chemicals Inc., which has been pursuing the industrial-gas company for more than a year.
The Delaware Supreme Court ruled yesterday that Airgas shareholders can’t force the board of directors to hold the next annual meeting in January, just four months after the 2010 meeting. Air Products aimed to use that meeting to replace three Airgas directors with its own nominees and take control of the largest U.S. distributor of packaged gases.
The state’s highest court concluded a bylaw changing Airgas’s annual meeting date improperly shortened the terms of directors on the industrial-gas supplier’s staggered board. Analysts said the ruling may cause Air Products to drop its $65.50-a-share bid.
“The first concern is that Air Products walks away,” Louis Meyer, a New York-based analyst at Oscar Gruss & Sons who rates Airgas a “hold,” said in telephone interview. “This situation is getting old, and old deals sometimes die before they reach the finish line.”
The ruling extends by about nine months the time it would probably take for Air Products to replace a majority of the Airgas board.
Continuing the fight through Airgas’s next annual meeting, which could take place next October, would make it the longest U.S. hostile takeover in at least a decade, surpassing Oracle Corp.’s 556-day hostile pursuit of PeopleSoft Inc., according to data compiled by Bloomberg of bids worth more than $1 billion.
“Today is a victory for Airgas shareholders,” Airgas Chief Executive Officer Peter McCausland said in an e-mailed statement. “The Supreme Court’s ruling maintains the balance of bargaining power that Delaware companies with staggered boards have always expected.”
“We are disappointed” by the ruling, Air Products said in a statement. “Airgas shareholders have been disenfranchised and have lost hundreds of millions of dollars in market value as a result.”
The case is Airgas Inc. v. Air Products & Chemicals Inc., 649-2010, Delaware Supreme Court (Dover). The lower-court case is Airgas Inc. v. Air Products & Chemicals Inc., 5817, Delaware Chancery Court (Wilmington).
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BAE Admits Guilt in Accounting Case, Faces December Sentencing
BAE Systems Plc, Europe’s biggest defense company, said it failed to keep proper accounting records of payments in a case that tests U.K. fraud prosecutors’ ability to negotiate plea deals.
BAE lawyer David Perry said yesterday at a hearing at a Magistrates Court in London that the company will enter a guilty plea at a higher court next month. The company has entered into a plea deal, Louis Mably, a lawyer for the Serious Fraud Office, which is prosecuting the case, told the judge.
BAE is charged with knowingly not keeping proper records that explain payments that relate to two contracts, according to the indictment.
District Judge Caroline Tubbs said sentencing should be approved by a higher court. She sent the case to Southwark Crown Court. The next hearing will take place on Dec. 20.
LVMH, L’Oreal Lose Ruling on $62 Million French Fine
LVMH Moet Hennessy Louis Vuitton SA and L’Oreal SA were among 15 perfume makers and retailers ordered by France’s highest appeals court to pay a 46.2 million-euro ($62 million) price-fixing fine levied in 2006.
The Cour de Cassation restored the competition regulator’s fine yesterday and ordered the Paris appeals court to rehear the case, saying the lower body had erred in dismissing the penalty based on the age of the evidence.
“In rejecting the claims declared and upheld by the report, without studying the merit of these claims and means of defense to counter them, the appeals court violated” the commercial and civil code, the Cour de Cassation said yesterday, referring to the regulator’s report on its findings.
Yesterday’s decision is a victory for the French Competition Authority, which has had at least four decisions overturned or reduced this year on appeal. The Paris appeals court cut a record 575.4 million-euro fine against steelmakers and brokers in January by 87 percent, and in February, the court said the regulator had been wrong to suspend France Telecom SA’s exclusive iPhone contract with Apple Inc.
L’Oreal, the world’s biggest cosmetics maker, said in a statement that the company didn’t take part in any price fixing agreement.
LVMH, the largest luxury-goods manufacturer, didn’t immediately comment on the ruling yesterday. The regulator repaid the perfume companies after the lower court ruling.
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Tribune Creditors Seek to Sue Attorneys Over Fees
Tribune Co. creditors are seeking to sue the lawyers and financial advisers who helped the newspaper publisher file its bankruptcy.
The official committee of unsecured creditors filed court papers yesterday requesting permission to sue at least nine law firms or financial advisers that were paid more than $18 million in the 90 days before the media company filed for bankruptcy in December 2008. Targets include lead bankruptcy law firm Sidley Austin LLP and financial consultant PricewaterhouseCoopers LLP.
Under U.S. law, a company can recover money it wrongly paid to vendors 90 days before a bankruptcy filing. The creditors committee is asking to challenge those payments instead of Tribune because the company may run into a conflict if it sues its own lawyers. U.S. Bankruptcy Judge Kevin Carey agreed to consider letting the committee sue on behalf of all creditors at a hearing as soon as Nov. 29.
Tribune can’t exit bankruptcy until Carey approves one of four competing proposals to resolve lawsuits over the company’s 2007 leveraged buyout. Until those lawsuits are either settled, or a plan to bring them to trial is created, the company can’t leave court protection.
The case is In re Tribune Co., 08-13141, U.S. Bankruptcy Court, District of Delaware (Wilmington).
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