Rajaratnam, Barclays, JPMorgan, Citigroup in Court News
Raj Rajaratnam, the Galleon Group LLC co-founder, missed court after getting emergency surgery, and the jury weighing insider-trading charges against him will take today off for a juror’s medical procedure.
Rajaratnam’s surgery May 1 was to treat a bacterial infection of his foot, defense lawyer John Dowd said in a written statement distributed to reporters yesterday after his client didn’t show up at Manhattan federal court.
“It is hoped that he will be recovered sufficiently to return to the courthouse this week,” Dowd said in the statement. He said Rajaratnam waived his right to be in court during deliberations, which began April 25. “The court has approved this absence,” Dowd said in the statement.
Rajaratnam, 53, was arrested in October 2009 in the largest crackdown on hedge-fund insider trading in U.S. history. Prosecutors said he gained $63.8 million from tips leaked by corporate insiders and traders about 15 stocks.
The jury finished its sixth day of deliberations yesterday without reaching a verdict.
U.S. District Judge Richard Holwell and his clerk, Bill Donald, said yesterday that there will be no deliberations today due to a juror’s medical procedure.
“No juror should feel any time pressure whatsoever,” he said in a letter to the panel. “The jury will have all the time it needs to reach its verdict.
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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Lehman Seeks $500 Million From Barclays in Bonus Dispute
Lehman Brothers Holdings Inc. is claiming $500 million from Barclays Plc (BARC) for allegedly failing to pay all of the bonuses the U.K. bank agreed to when it bought the defunct investment firm’s North American business.
Lehman wrote a letter to U.S. Bankruptcy Judge James Peck saying an opinion he wrote in February showed that Barclays ‘‘breached its bonus payment obligations.’’ The letter was filed in U.S. Bankruptcy Court in Manhattan on April 29.
Barclays has said it paid the full $2 billion it promised, including non-bonus compensation. Peck issued the February opinion in a lawsuit that Lehman lost seeking $11 billion from Barclays over the deal.
Peck’s ruling, which followed a trial with more than 30 days of testimony, exonerated Barclays from having contrived to make a ‘‘windfall’’ on the purchase as Lehman alleged. The ruling left the two sides still fighting over what is owed to whom.
Separately, the trustee for Lehman’s brokerage is in a dispute with Barclays over $3.5 billion in assets after Peck failed to specify how much Barclays was entitled to when it bought the North American business in September 2008.
Michael O’Looney, a spokesman for London-based Barclays, didn’t immediately respond to an e-mail seeking comment.
The case is In re Lehman Brothers Holdings Inc. (LEHMQ), 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
U.S. Joins Whistle-Blower Suit Against Education Management
The U.S. Justice Department joined an employee whistle- blower suit against Education Management Corp. (EDMC), intervening for the first time in the student recruitment practices at for- profit colleges.
The suit alleges that Pittsburgh-based Education Management, 40 percent owned by Goldman Sachs Group Inc. (GS) funds, illegally paid recruiters based on the number of students they enrolled, the company said in a Securities and Exchange Commission filing yesterday. The government, in most cases, forbids such incentive compensation for colleges accepting federal aid because of concern the practice will encourage companies to enroll unqualified students.
The Justice Department action in federal court in Pittsburgh follows scrutiny by Congress and the U.S. Education Department of sales practices, student-loan defaults and job placement claims at for-profit colleges, which can receive as much as 90 percent of their revenue from federal financial aid. Several states intend to join the Justice Department’s civil action in federal court, Education Management said.
‘‘The design of the compensation plan was based on advice of counsel that the plan complied with” exceptions to federal law banning incentive compensation,’’ the company said in its filing. “The company intends to vigorously defend itself.”
The company, which enrolls more than 148,000 students, operates the Art Institute chain, Argosy University, Brown Mackie College and South University. Analysts project the company will report revenue of $2.89 billion in the year ending in June, according to the average of estimates compiled by Bloomberg News.
The case is U.S. v. Education Management, 07-cv-00461, U.S. District Court, Western District of Pennsylvania (Pittsburgh).
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Thornburg Mortgage Seeks $2 Billion From JPMorgan, Citigroup
JPMorgan Chase & Co. (JPM), Citigroup Inc. (C) and three other banks helped to push Thornburg Mortgage Inc. into a “free-fall” bankruptcy, the firm’s trustee claimed in a lawsuit seeking to recover $2 billion.
After making “unjustified” margin calls, the banks extracted more than $700 million of margin and interest payments from Thornburg, then sold their collateral and left the company to file for Chapter 11 protection during the credit crisis in May 2009, trustee Joel Sher said in the April 30 filing in U.S. Bankruptcy Court in Baltimore.
Sher, who is liquidating the firm, now called TMST Inc., accused the five banks of using “market disruption as a justification to initiate a collusive scheme to take control of the debtors and eventually drive them into bankruptcy.”
Credit Suisse Group AG (CSGN), Royal Bank of Scotland Plc and UBS AG, or their affiliates, also are defendants in the lawsuit. JPMorgan was named because it bought assets from Bear Stearns Cos., a lender to Thornburg.
The trustee last year sued former Thornburg executives, saying they conspired to start a new business using cash and information taken from the company.
The bankruptcy case is Thornburg Mortgage Inc., 09-17787, U.S. Bankruptcy Court, District of Maryland (Baltimore).
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TCF Bank Seeks Appellate Order to Block Debit Card Fee Cap
TCF National Bank has asked a U.S. appeals court for an order that would block federal regulations capping the amount of money the biggest U.S. banks can charge retailers for processing debit-card transactions.
The bank, a TCF Financial Corp. (TCB) unit that sued Federal Reserve Chairman Ben S. Bernanke, is challenging U.S. District Judge Lawrence L. Piersol’s April 4 decision denying its request to halt implementation of the rule.
The lender challenges legislation appended to last year’s Dodd-Frank financial regulation overhaul bill. The provision, sponsored by U.S. Senator Richard Durbin, an Illinois Democrat, and known as the Durbin Amendment, bars banks with more than $10 billion in assets from collecting from retailers more money for debit-card transactions than the actual cost of providing that service.
“We are talking about the establishment of a confiscatory rate regime fully 15 years after banks began their debit businesses,” TCF’s attorneys argued in their brief filed yesterday with the St. Louis-based U.S. Court of Appeals.
Matt Miller, a Justice Department spokesman, didn’t immediately return a call seeking comment.
TCF has argued that the proposed fee cap, which isn’t yet in force, is unconstitutional.
The lower case is TCF National Bank v. Bernanke, 10- cv-04149, U.S. District Court, District of South Dakota (Sioux Falls). The appellate case is TCF National Bank v. Bernanke, 11-1805, U.S. Court of Appeals for the Eighth Circuit (St. Louis).
Massachusetts Court Hears Pivotal Mortgage-Transfer Case
A Massachusetts man should be allowed to keep property he bought from U.S. Bancorp even though the bank didn’t have the right to foreclose on the previous owner, a lawyer argued before the state’s highest court.
The Massachusetts Supreme Judicial Court heard oral arguments yesterday in the appeal of a lower-court decision that said the buyer of residential property in Haverhill, Massachusetts, never owned it because U.S. Bancorp foreclosed before it got the mortgage. If that decision is upheld it could have wide implications in the foreclosure crisis in which banks are accused of clouding home titles through sloppy transferring of mortgages. The high court will rule at a later date.
The lower court’s “statement that my client received nothing is what we disagree with,” Jeffrey Loeb, a lawyer for so-called third-party buyer Francis J. Bevilacqua III told the panel yesterday.
The state high court already ruled Jan. 7 in a different case, U.S. Bank v. Ibanez, that banks can’t foreclose on a house if they don’t own the mortgage. That case didn’t address the status of those who buy property from someone after an invalid foreclosure.
“If the decision is upheld, and generally applied, it likely will have adverse implications for hundreds or even thousands of Massachusetts property owners if they find themselves in Bevilacqua’s shoes,” the Mortgage Bankers Association wrote in a friend-of-the-court brief.
Claims of wrongdoing by banks and loan servicers triggered a 50-state investigation last year into whether thousands of U.S. foreclosures were properly documented during the housing collapse.
Bevilacqua’s case could affect trusts that bundled mortgages and sold securities to investors. Like the Ibanez case, the court’s decision may resonate with other states as they grapple with the rights of new homebuyers who may hesitate to complete a purchase for fear of uncertain title. That may be especially so in states such as Massachusetts that don’t require court action to seize a house.
The case is Bevilacqua v. Rodriguez, 10880, Supreme Judicial Court of Massachusetts (Boston).
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Companies Get U.S. High Court Review on Consumer Lending Suits
The U.S. Supreme Court agreed to decide whether companies that promise to fix bad credit records can force dissatisfied customers to take complaints to arbitration, rather than court.
The justices yesterday said they will hear an appeal from units of CompuCredit Holdings Corp. (CCRT) and Synovus Financial Corp. (SNV), which are fighting a suit over credit cards marketed as a means of rebuilding poor credit. Three customers say the cards’ hefty fees -- $257 in the first year alone -- were disclosed only in the fine print of the promotional materials.
The decision to take up the case comes days after the court ruled 5-4 that companies can require customers and employees to press complaints in arbitration as individuals, rather than a group.
The latest case turns on a 1996 law aimed at preventing so- called credit repair companies from ripping off unwary customers. The measure, known as the Credit Repair Organizations Act, says consumers have the “right to sue” companies that violate the law.
The question for the Supreme Court is whether that language means consumers can go to court even if the application they signed says they must arbitrate all disputes.
In letting the suit go forward, a San Francisco-based federal appeals court said that “Congress meant what it said in using the term ‘sue,’ and that it did not mean ‘arbitrate.’’
CompuCredit Corp., which marketed and serviced the cards, and Synovus Bank, which issued them, point in their appeal to the Federal Arbitration Act. The companies said that law creates ‘‘the strong presumption than an arbitration agreement is enforceable.’’
The case, which the court will consider during its 2011-12 term, is CompuCredit v. Greenwood, 10-948, U.S. Supreme Court (Washington).
Actelion Drops on $547 Million Jury Award to Asahi Kasei
Actelion Ltd. (ATLN) fell the most in 14 months in Zurich trading after a U.S. jury decided the Swiss biotechnology company should pay Asahi Kasei Pharma Corp. as much as $547 million in a dispute.
The Superior Court jury in San Mateo County, California, will resume deliberations today regarding potential punitive damages, Allschwil-based Actelion said in a statement. After that, the drugmaker will decide on whether to appeal, according to the statement.
The award may add to pressure on Actelion as shareholders prepare to vote at the May 5 annual meeting on competing proposals by the board and investor Elliott Advisors (UK) Ltd. Elliott, the biggest shareholder with more than a 6 percent stake, has proposed ousting board members after a series of clinical trial setbacks. Elliott Advisors, which wants Actelion to consider strategy options including a sale, said Actelion should delay the investor meeting.
‘‘While we find ourselves in a very strong position to see real change at Actelion by the election of our proposed slate of nominees,’’ Elliott Advisors said in a statement, ‘‘we believe our effort to refresh the board would be further strengthened if the AGM were adjourned until later in May or June.’’
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Satyam Investors’ U.S. Suit Settled by PwC for $25.5 Million
Investors in Satyam Computer Services Ltd. (SCS) settled a lawsuit against PricewaterhouseCoopers LLP for $25.5 million related to its audit of the Indian firm that included a $1 billion overstatement of assets.
Satyam, the software exporter embroiled in India’s biggest corporate fraud probe, reached a $125 million settlement in February in the class action in New York. Satyam agreed last month to pay $10 million to settle a U.S. Securities and Exchange Commission lawsuit.
PricewaterhouseCoopers and four related entities audited or played a role in the audits of Satyam’s financial statements, according to the shareholders’ complaint. The settlement, which requires a judge’s approval, was disclosed in filings April 29 in federal court in Manhattan.
‘‘Plaintiffs and lead counsel believe that the proposed PwC settlement represents an excellent result and is in the best interests of the class,” lawyers for the investors wrote in court papers.
In September, Satyam, based in Hyderabad, India, reported its first annual earnings in two years. Former Chairman Ramalinga Raju disclosed in January 2009 that he overstated Satyam’s assets by $1 billion, triggering a stock plunge and investor lawsuits in the U.S. Tech Mahindra Ltd. (TECHM), based in Pune, India, acquired control of the software-services provider in May 2009. Satyam’s American depositary receipts traded on the New York Stock Exchange.
The case is In re Satyam Computer Services Ltd. Securities Litigation, 09-md-2027, U.S. District Court, Southern District of New York (Manhattan).
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Secret Cash in Wisconsin Court Race Makes Judges ‘Spectators’
Before Justice David T. Prosser Jr. and challenger JoAnne Kloppenburg faced off in the April 5 Wisconsin Supreme Court election, unidentified contributors spent almost six times more than the candidates on the race.
Five nonprofit groups with ties to business, labor, trial lawyers and Tea Party organizations spent $4.4 million on behalf of Prosser and Kloppenburg without disclosing the names of those who funded them. The U.S. Supreme Court sanctioned the practice in January 2010, and the effects can be seen in judicial races in Wisconsin, Ohio, Michigan and other states.
The funding of state Supreme Court campaigns is becoming more opaque as judges interpret a wide array of laws contested in legislatures. Many governing bodies are freshly empowered: The Republican Party took full control of 25 legislatures in the last election, up from 14. The issues before the bench include restrictions on personal-injury lawsuits, taxation, curbs on abortion and challenges to environmental regulations.
“The candidates have become spectators in their own elections,” said Mike McCabe, executive director of the Wisconsin Democracy Campaign, which tracks contributions.
“The trend has been toward more and more undisclosed spending. It will reach a point where all the spending will come from groups using anonymous sources,” McCabe said in a telephone interview from Madison. “It’s been brought into sharp focus in Wisconsin.”
Spending for state Supreme Court elections doubled in the past decade to more than $200 million, according to the Brennan Center for Justice at New York University, which advocates for impartial courts.
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Winston & Strawn Ex-Partner Pleads Guilty in Starr Fraud
Winston & Strawn LLP ex-partner Jonathan Bristol pleaded guilty to charges that he helped launder almost $19 million in financial adviser Kenneth I. Starr’s investment fraud.
Bristol admitted yesterday to a charge of conspiracy to launder money before U.S. District Judge Deborah A. Batts, U.S. Attorney Preet Bharara in Manhattan said in an e-mailed statement.
Starr, the New York money manager whose clients included actors Sylvester Stallone and Wesley Snipes, was sentenced to 7 1/2 years in prison March 2 after pleading guilty to defrauding nine celebrities out of $33.3 million. Bristol admitted that he allowed Starr to wire funds in and out of his escrow account, knowing that the funds were proceeds of Starr’s fraud, Bharara said in the statement.
Bristol “abused his position as a partner at a prominent New York City law firm to break the law over and over again,” Bharara said in the statement. “Bristol should have been a gatekeeper; instead, he was an enabler to Kenneth Starr and his multimillion-dollar fraud.”
Bristol faces a maximum sentence of five years in prison and a fine of $250,000, and agreed to pay restitution of $18.9 million, according to the statement. His sentencing is scheduled for Sept. 26.
Bristol was in a “very tough position,” his lawyer, Susan Kellman, said in a phone interview. “He should’ve known something was wrong, and by the time he did he was paralyzed by the predicament he was in,” Kellman said.
The case is U.S. v. Bristol, 10-cr-1239, U.S. District Court, Southern District of New York (Manhattan).
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