Rajaratnam, BofA, AIG, BofA, SAC Capital in Court News
After about 18 months preparing to defend Galleon Group LLC’s Raj Rajaratnam at his federal insider-trading trial in Manhattan, attorney John Dowd said he could use a vacation.
Dowd, who spent a fourth day yesterday waiting for jurors to deliver a verdict in the case, said he hasn’t gotten much sleep lately and plans to take a trip to Cape Cod in Massachusetts when the trial’s over.
“You don’t sleep,” said Dowd, chatting with a group of reporters in the courtroom of U.S. District Judge Richard Holwell. “It will take me six months to recover from this.”
Dowd spoke after approaching a group of reporters talking with Assistant U.S. Attorney Reed Brodsky, one of the prosecutors in the case. Reporters, lawyers and trial observers spent yesterday along with Rajaratnam waiting for a verdict, which could come at any time.
Dowd told reporters he has been working non-stop on the Rajaratnam case for the past 10 months. The defense team has about 10 people in the courthouse with another 14 outside, he said.
“Raj was a huge resource” in preparing the defense, Dowd said, providing details of the transactions in the government’s charges against him. “He knew it.”
Dowd said he didn’t have his client testify during the trial because he didn’t want to give prosecutors the opportunity to try to reinforce their points on cross-examination.
“There’s no sense giving these guys any oxygen to retry their case,” he said.
Dowd declined to discuss other aspects of the case or to speculate on what jurors were thinking. He said the Rajaratnam legal team is set up at a hotel in lower Manhattan, where three other teams of lawyers trying cases are also located.
The case is U.S. v. Rajaratnam, 1:09-cr-01184, U.S. District Court, Southern District of New York (Manhattan).
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Bank of America, Citibank, UBS Manipulated Libor, Suit Says
A West Virginia pension sued Bank of America Corp., a Citigroup Inc. (C) unit and UBS AG (UBSN) claiming they manipulated the London Interbank Offered Rate, or Libor, in violation of U.S. antitrust law.
The Carpenters Pension Fund of West Virginia filed a complaint in federal court in Manhattan April 27 claiming the banks and a group of unnamed co-conspirators deliberately understated their borrowing costs to depress Libor, lowering their interest costs on products tied to the rate.
The pension fund seeks to represent a class of all clients of the banks that invested in Libor-based products between 2006 and 2009. The suit seeks unspecified damages, which may be tripled under antitrust law.
“About $350 trillion worth of financial products globally reference Libor, and the lower Libor rates during the relevant period robbed lenders of significant amounts of interest income,” the pension fund claimed in its complaint.
The case is Carpenters Pension Fund of West Virginia v. Bank of America, 11-CV-2883, U.S. District Court, Southern District of New York (Manhattan).
AIG Sues ICP Asset Management for $350 Million in CDO Costs
American International Group Inc. (AIG)’s swaps unit sued ICP Asset Management LLC for fraud in connection with collateralized debt obligations that the insurer says cost it more than $350 million.
AIG Financial Products Corp., in a complaint filed yesterday in New York state Supreme Court, said the investment advisory firm and other defendants victimized AIG and U.S. taxpayers over two CDOs known as Triaxx that were created and managed by ICP entities.
The ICP defendants benefited through “windfall profits and artificially inflated management fees, and through conferring benefits upon favored clients,” including Moore Capital Management LP, according to the complaint.
The allegations are related to a lawsuit the U.S. Securities and Exchange Commission filed in June claiming ICP and founder Thomas Priore arranged more than $1 billion in trades that defrauded clients or broke rules limiting CDO risks.
Priore denied wrongdoing when the SEC suit was filed. He didn’t return calls for comment on yesterday’s complaint. A voice-mail message left with ICP Capital, ICP Asset Management’s New York-based parent company, wasn’t immediately returned.
“We have not seen AIG’s complaint and therefore cannot comment it,” said Shawn Pattison, a Moore Capital spokesman. “The SEC action against ICP has not alleged any wrongdoing by Moore.”
ICP entities executed $1.5 billion in unauthorized or above-market purchases for the Triaxx CDOs, which were designed to benefit them at AIG’s expense, AIG said in its suit. New York-based AIG, which was bailed out by the U.S. government in 2008 after bets on subprime mortgages brought the insurer to the brink of collapse, said the filing is part of an effort to recoup “potentially billions of dollars” from alleged fraud.
The case is AIG Financial Products Corp. v. ICP Asset Management, 651117/2011, New York state Supreme Court (Manhattan).
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Toyota Will Face Acceleration Loss Claims With Final Order
A federal judge overseeing lawsuits against Toyota Motor Corp. (7203) said in a tentative ruling that the automaker must face economic-loss claims over unintended acceleration allegations.
Toyota owners claimed the company failed to disclose or fix defects related to sudden acceleration, driving down the value of their vehicles. U.S. District Judge James V. Selna in Santa Ana, California, said the claims could go forward because vehicle owners met court standards on pleading loss or injury.
“Taking these allegations as true, as the court must at the pleading stage, they establish an economic loss,” Selna wrote in his tentative decision yesterday. “A vehicle with a defect is worth less than one without a defect.”
Toyota, the world’s largest automaker, recalled millions of U.S. vehicles, starting in 2009, after claims of defects and incidents involving sudden unintended acceleration. The recalls set off a wave of litigation, including hundreds of economic loss suits and claims by individuals or their families for injuries and deaths caused by such incidents.
Most of the federal lawsuits were combined before Selna, who is overseeing pre-trial evidence-gathering, or discovery. Selna issued a similar ruling in November rejecting Toyota’s motion to dismiss an earlier complaint by the vehicle owners.
Yesterday’s tentative finding, which won’t take effect unless it becomes final, follows an amended complaint by the plaintiffs and a subsequent renewed motion to dismiss. Selna is scheduled to conduct a hearing today on the Toyota City, Japan- based company’s request to dismiss the cases.
Celeste Migliore, a Toyota spokeswoman, didn’t immediately return a call seeking comment after regular business hours. A judge’s ruling on a motion to dismiss doesn’t consider evidence or the merits of the plaintiffs’ allegations, Migliore said after the decision in November.
The cases are combined as In re Toyota Motor Corp. Unintended Acceleration Marketing, Sales Practices and Products Liability Litigation, 8:10-ml-02151, U.S. District Court, Central District of California (Santa Ana).
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BofA Said to Target Individual States in Foreclosure Inquiry
Bank of America Corp. (BAC) was accused by a top official at the Iowa attorney general’s office of engaging in a divide-and- conquer strategy by undermining support for the settlement of a nationwide probe into foreclosure practices, a person familiar with the matter said.
The bank tried to get attorneys general to break away from those supporting the proposed accord, Iowa Assistant Attorney General Patrick Madigan said during a recent conference call, according to the person. A second person familiar with the settlement talks said the bank sought to sow dissent among the states, eight of which have publicly criticized the proposal’s terms. Both people asked not to be identified because the talks are private. Madigan declined to comment.
“We have held face to face negotiating sessions and our negotiations continue,” Iowa Attorney General Tom Miller, a Democrat who leads the 50-state effort, said in a statement. “We believe all the banks are negotiating in good faith.”
Madigan, who was giving an update to state officials, said the largest U.S. lender by assets was taking a “divide-and- conquer” approach in a bid to disrupt negotiations, according to the person on the call. Jumana Bauwens, a spokeswoman for the Charlotte, North Carolina-based bank, declined to comment.
State and federal agencies including the Justice Department last month submitted a 27-page settlement proposal, or term- sheet, to five mortgage servicers, including Bank of America. The document was offered to start negotiations with banks as part of the 50-state investigation.
The six-month probe was triggered by claims of faulty foreclosure practices following the housing collapse, which state officials said may violate their laws. The people said Madigan’s comments were made on a call that took place within the past two months, after the term sheet was made public.
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Golf Channel Denies Prior Knowledge of Alleged Ponzi Scheme
The Golf Channel said $5.9 million received from companies run by indicted financier R. Allen Stanford was for media services and not proceeds from an alleged Ponzi scheme as the receiver for Stanford’s businesses claims.
TGC LLC, known as the Golf Channel, said in response to the receiver’s lawsuit that it had no knowledge of what the government charges was a $7 billion fraud scheme. Golf Channel officials also threatened to counter-sue the receiver for $14.3 million for breach of contract if the judge presiding over Stanford’s civil fraud trial grants permission.
“The payments at the center of this case have nothing to do with a Ponzi scheme,” Theodore Daniel, the Golf Channel’s lawyer, said in papers filed April 27 in federal court in Dallas. Payments received from the Stanford Financial Group in 2007 and 2008 “were entirely legal” and the result of “arm’s- length, market-based, written contracts,” he said.
Stanford’s court-appointed receiver, Ralph Janvey, sued the Orlando, Florida-based Golf Channel in February to recover what he claimed were fraudulent transfers from allegedly bogus certificates of deposit the financier’s Antiguan bank sold investors. The U.S. Securities and Exchange Commission seized Stanford’s businesses in February 2009 on suspicion of fraud.
Stanford, who denies any wrongdoing, is in jail awaiting trial on criminal fraud charges mirroring the allegations by securities regulators.
The cases are Janvey v. Golf Channel, 3:11-cv-0294; Janvey v. Brown, 3:11-cv-0301; and The Official Stanford Investors’ Committee v. American Lebanese Syrian Associated Charities Inc., 3:11-cv-0303; all U.S. District Court, Northern District of Texas (Dallas).
The criminal case is U.S. v. Stanford, 09cr342, U.S. District Court, Southern District of Texas (Houston). The SEC case is Securities and Exchange Commission v. Stanford International Bank, 09cv298, U.S. District Court, Northern District of Texas (Dallas).
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Primus Loses Bid to Halt $1.7 Billion Malaysia Bank Takeover
A Malaysian court ruled that Hong Leong Bank Bhd. (HLBK)’s 5.06 billion ringgit ($1.7 billion) takeover of EON Capital Bhd. (EON) is legal, thwarting an attempt by the financial group’s biggest shareholder to block the sale.
Primus Pacific Partners Ltd., a Hong Kong-based investment fund, had sued EON and nine of its directors, claiming they had exceeded their powers and breached fiduciary and statutory duties in allowing the takeover by billionaire Quek Leng Chan’s Hong Leong to proceed. In the suit filed through its local unit Primus (Malaysia) Sdn. in June, the fund sought 1.11 billion ringgit in damages if the transaction went ahead at the current offer price.
“The petitioner’s motive is purely to buy time in order to secure another bidder who’d pay more than 7.30 ringgit per share,” Judicial Commissioner Varghese George Varughese said when delivering his judgment yesterday in a high court in Malaysia’s northern Penang state. “Corporate democracy must prevail.”
Primus, which owns 20.2 percent of EON shares, opposes the deal having paid 9.55 ringgit a share for its stake in 2008. That’s 31 percent more than Hong Leong’s all-cash offer which equals to 7.30 ringgit per share. It was outvoted by minority shareholders who favor the takeover at a meeting last year.
The takeover process planned didn’t violate the law or the constitutional provision of the company, the judicial commissioner said in the 100-page judgment.
“The legitimate rules by the majority, however unpleasant and unpalatable to an outvoted shareholder, must only be interfered with if there are definite visible breaches of accepted standards of commercial fairness,” he said. There was “no visible departure from standard practice of fair play” on the part of the independent directors sued in this case.
Primus will file an appeal “as soon as possible,” Ranjit Singh, a lawyer representing the fund, told reporters in Penang yesterday.
This is the second of two court petitions filed by Primus. It already appealing an earlier case it lost in Kuala Lumpur in January after trying to get the shareholder vote declared illegal.
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Ex-SAC Capital Analyst Hollander Reaches SEC Settlement
Jonathan Hollander, a former SAC Capital Advisors LP analyst, agreed to pay more than $220,000 to settle U.S. Securities and Exchange Commission claims that he traded on inside information about a pending takeover of the Albertsons grocery chain, his lawyer said.
The SEC alleged that Hollander tipped others about the acquisition and that he and others earned $95,807 in illegal profits. The settlement must be approved by U.S. District Judge Richard Sullivan in New York, said Aitan Goelman, a lawyer for Hollander.
“Jonathan has decided to settle this matter rather than engage in costly and protracted litigation with the SEC,” Goelman said yesterday in a phone interview. “He is gratified to have the matter behind him and looks forward to moving on with his successful principal-investing and strategic-consulting business as well as his active philanthropic endeavors.”
Hollander agreed to settle without admitting or denying the allegations, the SEC said in a statement. The SEC ordered him to pay $95,807, a civil penalty of $95,807 and prejudgment interest, Goelman said.
The SEC said that in January 2006, while Hollander was still employed as an analyst for an unnamed investment adviser, he traded in Albertsons LLC’s securities on the basis of a material, non-public tip regarding the pending corporate acquisition of the company before the official Jan. 23, 2006, announcement.
In the commission’s complaint, Stamford, Connecticut-based SAC wasn’t named.
The case is SEC v. Hollander, 11-cv-O2885, U.S. District Court, Southern District of New York (Manhattan).
Longueuil Pleads Guilty to Conspiracy, Securities Fraud
Donald Longueuil, a former junior portfolio manager at SAC Capital Advisors LP, pleaded guilty to conspiracy to commit securities and wire fraud and to securities fraud as the U.S. cracks down on insider trading at hedge funds.
Longueuil entered the plea yesterday before U.S. District Judge Jed Rakoff in Manhattan. Rakoff said that there was a plea agreement between the U.S. and the defendant and that Longueuil could face a prison sentence of 46 months to 57 months.
“I am sorry for my actions and the pain that I have caused my family and loved ones,” Longueuil told Rakoff. “I have learned a lot from my experience and I look forward to applying these lessons as I move forward with my life.”
Charges were first filed against Longueuil, 35, in February by U.S. Attorney Preet Bharara in a case that also included another former SAC Capital portfolio manager, Noah Freeman, and Samir Barai, founder of Barai Capital Management, and Jason Pflaum, who worked for Barai. Freeman and Pflaum have pleaded guilty and are cooperating with the U.S.
Longueuil and Winifred Jiau, a former consultant for Primary Global Research LLC, were charged with conspiracy in a new federal indictment in March. Prosecutors said Jiau passed inside information to an unnamed hedge-fund portfolio manager and to Freeman, a Boston hedge-fund manager. Jiau has pleaded not guilty.
The case is U.S. v. Jiau, 11-cr-00161, U.S. District Court, Southern District of New York (Manhattan).
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Allergan Loses $212 Million Federal Botox Lawsuit in Virginia
Allergan Inc. was ordered by a Virginia jury to pay $212 million to a 67-year-old man who said he got permanent brain damage after being injected with Botox to treat cramps and tremors in his hand in 2007.
The Richmond federal jury yesterday awarded Douglas M. Ray $12 million in compensatory damages and $200 million in punitive damages, according to a verdict form provided by the court. Ray, of Fredericksburg, Virginia, said Allergan failed to warn him that injections could trigger an autoimmune reaction leading to brain damage. Botox use left him disabled, Ray said.
Allergan denied a failure to warn or any connection between Ray’s illness and Botox use. The company hasn’t decided whether to appeal, said Caroline Van Hove, a spokeswoman for Irvine, California-based Allergan.
“The verdict reached today is inconsistent with Allergan’s past and current actions to properly warn physicians and patients about the potential risks of Botox,” Van Hove said in an e-mail. “Every known and knowable risk associated with Botox treatment based on the scientific properties of the drug was in fact warned about.”
Botox, used as a wrinkle smoother, is a purified form of the poison botulinum and is given as an injection. It also won regulatory approval last October for use as a treatment for chronic migraine headaches. The drug is also approved to treat “muscle stiffness” in the fingers and arms and “upper limb” spasticity.
The $200 million in punitive damages will be capped at $350,000 under Virginia law, Van Hove said.
“If they appeal, we’ll attack the constitutionality of the cap,” said Ray’s attorney, Ray Chester, in an interview.
The case is Ray v. Allergan Inc., 3:10-cv-00136, U.S. District Court, Eastern District of Virginia (Richmond).
Starbucks Wins Reversal on Applicant Marijuana Disclosure
Starbucks Corp. (SBUX) won a court ruling that it doesn’t have to disclose the identities of potential plaintiffs in a lawsuit filed originally by three job seekers claiming the company illegally required applicants to disclose marijuana convictions.
A California appeals court overturned a lower-court ruling that Starbucks, the world’s largest coffee shop operator, must disclose the identities of former job applicants who might be covered by the plaintiffs’ lawsuit.
Three plaintiffs sued in 2005 seeking class-action, or group, status and as much as $26 million in damages over claims the company violated a California law barring employers from asking prospective hires about convictions for minor marijuana offenses that are more than two years old.
After the appeals court said in 2008 that the three had no basis to sue because they didn’t have marijuana convictions themselves, a lower-court judge ordered Starbucks to review its job applications for possible candidates to lead the lawsuit. Starbucks was ordered to randomly sort through about 135,000 job applications until it found 25 candidates, who were then to be told in a letter that they had a right to opt out of the suit.
The appeals court panel in Santa Ana reversed that order on April 25, saying that requiring the Seattle-based company to disclose the applicants’ identities “ironically violates” the legislation meant to protect them from being stigmatized.
Mike Arias, the lawyer who filed the suit, said the appeals court incorrectly assumed that an opt-out letter would have to state the individuals were contacted because they had a marijuana conviction. Arias said April 27 he may take the case to the California Supreme Court.
“We are pleased with the court’s ruling setting aside further discovery in this matter and paving the way for dismissal of the lawsuit,” Lily Gluzberg, a spokeswoman for Starbucks, said in an e-mailed statement.
The case is Starbucks v. Orange County Superior Court, G04350, California Court of Appeals, Fourth Appellate District, Division Three (Santa Ana.)
KPMG Auditor Cleared of Taking Bribe for Work on Hontex IPO
A KPMG senior manager was cleared by a Hong Kong judge of accepting a HK$300,000 ($38,601) bribe for his work on the listing prospectus of Chinese fabric maker Hontex International Holdings Co.
The prosecution failed to prove beyond reasonable doubt that Leung Sze-chit, 33, intended to accept envelopes containing cash as a reward from Chan Chau-wan, a consultant hired by Hontex for its listing, in February 2010, District Court Judge Stephen Geiser said yesterday.
KPMG resigned as Hontex’s audit firm in May amid an investigation by Hong Kong’s Securities and Futures Commission into alleged false statements made by the company in its listing prospectus. The regulator has obtained a court order freezing almost HK$1 billion in funds raised from the company’s 2009 IPO. Shares have been suspended from trading since March 2010.
Jonathan Li, spokesman for the regulator known as SFC, said yesterday the commission is preparing to file additional court documents in an effort to restore the IPO funds to investors.
The government didn’t present evidence at trial about the specific activities the payments were intended to reward. Justice department lawyer Isaac Tam declined to say whether prosecutors will appeal the verdict.
KPMG China said in a statement that the firm “has cooperated fully with the authorities throughout their investigations.”
The case is Hong Kong SAR v. Leung Sze Chit, DCCC615/2010 in the Hong Kong District Court.
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Lehman Paid Managers, Lawyers $31.9 Million in March
Lehman Brothers Holdings Inc. (LEHMQ), whose fees to advisers have exceeded $1.2 billion during its bankruptcy, paid its lawyers and managers $31.9 million in March.
Restructuring firm Alvarez & Marsal LLC, whose co-founder Bryan Marsal runs the defunct investment bank, made $422.9 million in “interim management” fees for 30 1/2 months of work, including $10.2 million last month, according to the filing with the U.S. Securities and Exchange Commission.
Weil, Gotshal & Manges LLP, based in New York, was paid $286 million for acting as Lehman’s lead bankruptcy law firm through March, including $6.1 million last month.
London-based LBIE paid its advisers $774 million in fees through March 14. PricewaterhouseCoopers LLP, the unit’s administrators, paid themselves 325 million pounds ($540 million). The bank’s law firms, including London-based Linklaters LLP, got $242 million as of March 14, the accounting firm said in an April 14 report.
The bankrupt brokerage’s total administrative fees for just the first 24 months were $420 million, according to the SEC’s Office of the Inspector General. Brokerage trustee James Giddens and his law firm Hughes Hubbard & Reed LLP received about $121 million in fees through September 2010, according to a March 31 bankruptcy court filing in Manhattan.
Lehman filed for bankruptcy on Sept. 15, 2008, with assets of $639 billion.
The case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
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Singapore’s MAS Fines Law Firm Employee for Insider Trading
The Monetary Authority of Singapore fined Song Qing, an employee of law firm Shook Lin & Bok LLP, S$50,000 ($41,000) for contravening insider trading laws.
Song bought 40,000 Bright World Precision Machinery Ltd. (BWPM) shares after reviewing the translation of legal documents containing non-public price sensitive information, the central bank said in a statement yesterday. He made a profit of S$1,000 from the share purchase, the regulator said.
Bright World’s share price jumped 80 percent to 66.5 Singapore cents in July 2008 after China Holdings Acquisition Corp. announced its takeover plans, the monetary authority said. Shook Lin was the legal adviser to Bright World’s majority shareholder in the acquisition, according to the central bank.
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