Galleon, Deutsche Bank, Smurfit, Madoff, Lehman, BTA Bank in Court News
Zvi Goffer, a former deputy of Galleon Group LLC co-founder Raj Rajaratnam, employed corrupt lawyers who passed tips on deals and used disposable mobile phones to communicate, a prosecutor told a jury in New York.
“This is a case about corruption, about traders who bribed lawyers to get secrets from companies,” Assistant Manhattan U.S. Attorney Andrew Fish told federal court jurors yesterday in his opening remarks. “Traders who then used this information to buy stock and make millions of dollars.”
Goffer, 34, who left Galleon to work at Schottenfeld Group LLC and then founded his own firm, Incremental Capital LLC, went on trial with his brother, Emanuel Goffer, 32, and Michael Kimelman, 40, both ex-traders at Incremental.
All three men are charged with securities fraud and conspiracy, stemming from one of three overlapping rings tied to Galleon, prosecutors said. They face as long as 20 years in prison if convicted of fraud.
“This man, Zvi Goffer, was the ringleader of that scheme,” Fish said, pointing to Goffer. “He paid tens of thousands of dollars in cash bribes for inside information.”
Fish told jurors they would hear wiretaps of telephone calls Goffer made discussing the scheme with his co-defendants that were secretly recorded by the U.S. He also said the jury would hear from three cooperating witnesses who were participants in the scheme, including Brien Santarlas, one of two former Ropes & Gray LLP lawyers who pleaded guilty to passing tips to another codefendant.
Fish said that when Goffer sought to get a job at Galleon, he passed inside information he’d learned about a transactions involving 3Com Corp. and Axcan Pharma Inc. to Craig Drimal, a former Galleon trader. Drimal earned more than $6 million on the deal, Fish said.
Zvi Goffer’s lawyer, William Barzee, said in his opening statement to jurors that his client was actually fired by Rajaratnam for his failure as a trader.
Barzee said Goffer based trades on research and by speaking to analysts and listening to rumors prevalent on Wall Street.
Barzee told jurors the government’s wiretaps are less than 1 percent of the telephone conversations actually recorded by the U.S. He called his client a “braggart” and said Zvi Goffer liked to exaggerate what he knew.
“It’s stupid, it’s immoral, it’s probably wrong,” he said. “But it’s certainly not insider trading and it’s not illegal. It’s what happens every single day.”
The case is U.S. v. Goffer, 10-cr-00056, U.S. District Court, Southern District of New York (Manhattan).
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J&J Failed to Warn Parents About Motrin Risks, Lawyer Argues
Johnson & Johnson (JNJ) failed to warn parents that its Children’s Motrin and Children’s Tylenol pain relievers can cause allergic reactions that leave kids blinded and burned, a lawyer for the family of a girl allegedly injured by the drugs said.
J&J officials had studies linking the pain relievers to a drug reaction that can cause skin burns and eye damage and didn’t provide warnings on the medicines’ labels, Keith Jensen, an attorney for the family of Brianna Maya, told a Philadelphia jury yesterday. Maya was left blind in one eye and suffered burns over 84 percent of her body after taking Motrin and Tylenol in 2000 when she was 3 1/2, Jensen said. She’s now 13 years old.
The pain relievers “destroyed her life before she was old enough to understand” what was happening to her, Jensen said in closing arguments in the trial of the family’s lawsuit against New Brunswick, New Jersey-based J&J.
“McNeil complied with every federal regulation and that’s what the proof is,” Jones told jurors.
The panel will begin deliberating the case today after Judge Nitza I. Quinones Alejandro instructs jurors about the applicable law.
The case is Maya v. Johnson & Johnson, 002879, February Term 2009, Court of Common Pleas, Philadelphia County (Philadelphia).
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Ex-IMF Chief Strauss-Kahn Seeks Court Review of Bail Denial
Former International Monetary Fund chief Dominique Strauss- Kahn is asking a second New York judge to release him on bail after being jailed on charges he sexually assaulted and attempted to rape a hotel maid in Manhattan.
Strauss-Kahn, who resigned his post today, has been held in New York’s Rikers Island jail complex since he was ordered held in custody at his arraignment May 16 before Judge Melissa Jackson. In a filing today in state court, Strauss-Kahn said he didn’t intend to leave the U.S. without court permission and waived his extradition rights.
“In the event I fail to voluntarily appear in the New York court for any such proceedings, I waive the issuance and service of the warrant provided by law for my extradition from the Republic of France or any other jurisdiction,” Strauss-Kahn said in an affidavit filed in court.
A bail hearing is scheduled for today and may be heard by State Supreme Court Justice Michael Obus.
Strauss-Kahn’s proposal includes a requirement that he be confined to home detention 24 hours a day in Manhattan with electronic monitoring, in addition to posting $1 million in cash for bail, according to court filings. He previously surrendered his French passport to the District Attorney’s Office. His so- called laissez-passer travel document issued by the United Nations will be given to his lawyers, who will turn it over to prosecutors, according to the filing.
In denying bail, Jackson agreed with prosecutors that Strauss-Kahn was a flight risk.
Erin Duggan, chief spokeswoman for Manhattan District Attorney Cyrus Vance Jr., declined comment on today’s bail hearing.
At the May 16 bail hearing, Benjamin Brafman, Strauss- Kahn’s lawyer, asked Jackson to let his client stay with his daughter, who lives in Manhattan.
Camille Strauss-Kahn is a graduate student at Columbia University and lives permanently on the Upper West side of Manhattan, according to yesterday’s filing.
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Smurfit Holders Ask Judge to Block $3.5 Billion Buyout Bid
Smurfit-Stone Container Corp. investors urged a judge to block a $3.5 billion buyout of the packaging maker by Rock-Tenn Co. (RKT) because it doesn’t provide enough for the company’s shares.
Smurfit-Stone directors didn’t properly shop around to get the highest bid for the Chicago-based company and allowed Rock- Tenn executives to include language in the deal to scare off other potential suitors, Stuart Grant, a lawyer for disgruntled Smurfit-Stone shareholders, argued yesterday.
“This company is worth a heck of a lot more” than Rock- Tenn’s $35-a-share offer, Grant told Delaware Chancery Court Judge Donald Parsons at a hearing. Parsons said he would rule on the investors’ request to block the buyout by May 20.
Rock-Tenn, based in Norcross, Georgia, agreed earlier this year to buy Smurfit-Stone for about $35 a share, half in cash and half in Rock-Tenn stock, according to court papers. The combination would create North America’s second-biggest containerboard producer after Memphis, Tennessee-based International Paper Co. (IP)
Third Point LLC, Royal Capital Management LLC and Monarch Alternative Capital LP, which collectively own about 9 percent of Smurfit-Stone’s shares, have vowed to vote against the deal, which the funds contend undervalues Smurfit-Stone. A shareholder vote on the offer is set for May 27.
Smurfit-Stone’s lawyer countered yesterday that the company’s directors weighed at least one other buyout bid for the container company and forced Rock-Tenn officials to bump up their offer several times.
“There’s no evidence that these directors fell down on the job,” William Savitt, a New York-based lawyer for the company, told Parsons at a hearing in Wilmington, Delaware.
The Chancery case is Marks v. Smurfit-Stone, CA-6164, Delaware Chancery Court (Wilmington). The bankruptcy case was Smurfit-Stone Container Corp. (SSCC), 09-10235, U.S. Bankruptcy Court, District of Delaware (Wilmington).
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Madoff Trustee Drops $212 Million Claims Against Feeders
The trustee liquidating Bernard L. Madoff’s firm agreed not to pursue $212 million from two bankrupt U.S. funds related to the Fairfield Greenwich Group, the biggest so-called feeder fund in Madoff’s Ponzi scheme.
As part of a settlement with the trustee, the funds, Greenwich Sentry LP and Greenwich Sentry Partners LP, reduced their claims against the Madoff bankruptcy estate and signed over claims they had made against Fairfield Greenwich Group, trustee Irving Picard said in a statement yesterday. Greenwich Sentry cut its claim against the Madoff estate to $35 million, from more than $140 million, and the other fund’s claim dropped to about $2 million, from $2.5 million, he said.
“The agreements greatly further the interests of the customers” of the conman, Picard said in a court filing yesterday in U.S. bankruptcy court in Manhattan.
The main case is Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities LLC, 08-1789, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
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Lehman Suit Belongs in District Court, Michigan Agency Says
The Michigan State Housing Development Authority, which sued Lehman Brothers Holdings Inc. (LEHMQ) in bankruptcy court over derivatives transactions, said it is seeking to move its suit to a higher court.
The Lehman bankruptcy judge’s interpretation of swap contracts is “surpassingly broad” and requires U.S. District Court review because it has ramifications for international securities markets, the authority said May 17 in court papers. The global over-the-counter derivatives market is valued at $601 trillion by the Bank for International Settlements.
The Michigan agency is “one of many” derivatives trading partners of Lehman disputing who gets paid first on a swap agreement as a result of a previous ruling by U.S. Bankruptcy Judge James Peck, it said in the filing. While that case involving a Bank of New York Mellon Corp. (BK) trustee unit was settled, Peck’s ruling stands, it said.
“The bankruptcy court continues to adhere to the reasoning of BNY Trustee -- while the correctness of that decision remains very much unresolved,” it said, referring to Peck’s ruling.
In the BNY case, Peck ruled in Lehman’s favor, saying that a swap agreement written to protect both parties from default by the other party didn’t apply under bankruptcy law. He used a similar principle earlier this month when he refused to dismiss a Lehman suit against an entity known as Ballyrock ABS CDO 2007- 1 Ltd., the Michigan agency said.
The authority sells bonds to raise money to help fund home mortgages and rental housing developments. It struck a swap agreement with a Lehman unit in 2000 to offset its interest rate risk as a borrower, according to the filing. The agreement allowed either party to end the transaction if the other defaulted, it said.
The lawsuit is Michigan State Housing Development Authority v. Lehman Brothers Derivative Products, 09-01728, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The bankruptcy case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
BTA Bank Seeks U.K. Arrest of Ex-Chairman Ablyazov Over Assets
BTA Bank, the Kazakh lender suing former executives for alleged fraud during the credit crunch, said it asked a U.K. judge to jail ex-Chairman Mukhtar Ablyazov for failing to fully disclose his assets to the court.
Kazakhstan’s third-biggest lender, which seeks $4 billion in the case, said it filed the request with the High Court in London on May 16, after forensic accountants found evidence of more than 600 shell companies used by Ablyazov to hide his wealth in violation of a U.K. order freezing his assets.
“Mr. Ablyazov has not complied with numerous orders requiring full disclosure of all his assets,” BTA said yesterday in a statement. It wants him to “comply with the court’s orders and unwind the improper transactions that he has carried out.”
BTA, whose creditors include Royal Bank of Scotland Group Plc (RBS), Barclays Plc (BARC) and Morgan Stanley (MS), claims Ablyazov and ex- Chief Executive Officer Roman Solodchenko conspired to siphon money from the bank before fleeing from Kazakhstan to London. The lender was nationalized in 2009 and later defaulted on $12 billion of debt held by some of the world’s biggest banks.
“Mr. Ablyazov is meeting all the conditions of the freezing order,” his spokesman, Locksley Ryan of London-based RLF Partnership Ltd., said in a phone interview. “There’s absolutely no suggestion of him not meeting the court order.”
The case is JSC BTA Bank v. Mukhtar Ablyazov,  EWHC 1136 (Comm), Royal Courts of Justice (London).
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Ex-Diamondback Capital Manager Pleaded Guilty in 2010
A former Diamondback Capital Management LLC portfolio manager, Anthony Scolaro, pleaded guilty to conspiracy and securities fraud in November, according to a plea agreement unsealed yesterday in Manhattan federal court.
Scolaro admitted to conspiring with Franz Tudor, a trader at New York-based Schottenfeld Group LLC, from October 2007 to sometime in 2008. Tudor, who cooperated with prosecutors after pleading guilty to securities fraud in October 2009, gave Scolaro an illegal tip on the acquisition of Axcan Pharma Inc., announced on Nov. 29, 2007, according to the criminal charges.
“The defendant, Franz Tudor, and others known and unknown, executed trades in the securities of Axcan prior to the public announcement of the acquisition, earning thousands of dollars in unlawful profits,” the government alleged in the seven-page charging document.
The charges against Scolaro make public for the first time the connection between the federal insider-trading probe of Galleon Group LLC, where Tudor also worked, and a series of raids by the FBI of hedge funds in November. The searches were carried out as part of an insider trading investigation of hedge fund and expert networking firms.
Steve Bruce, a spokesman for Stamford, Connecticut-based Diamondback, declined to comment. Roger Jassie, chief compliance officer at Schottenfeld, didn’t return a voice-mail message seeking comment.
The plea agreement, dated Nov. 12, requires Scolaro to cooperate with the government’s investigation and to testify as a prosecution witness at any trial in the matter.
On Nov. 22, FBI agents from New York and Boston executed search warrants at the offices of Level Global Investors LP as well as Diamondback, firms founded by alumni of SAC Capital Advisors LP. Agents that day also searched the offices of Loch Capital Management in Boston.
The case is U.S. v. Scolaro, U.S. District Court, Southern District of New York (Manhattan).
Ageas (AGS), Dutch State Win Ruling on Fortis Investors’ Damages
Ageas, the insurer that groups the remains of Fortis, and the Dutch state defeated a court bid by Fortis shareholders seeking damages for a 95 percent share-price decline in 2008 following the company’s bailout.
The Amsterdam district court rejected demands from Adriaan de Gier, a lawyer who claimed to represent about 1,600 Fortis investors, to reverse the nationalization of Ageas’s Dutch insurance and banking businesses in October 2008 or be compensated for damages, according to a ruling published yesterday.
Fortis was forced to sell parts of the company in a state- organized breakup in 2008 to avert collapse as the credit crunch worsened, customers pulled deposits and investors lost confidence. The Netherlands bought the Dutch banking and insurance units and its stake in ABN Amro Holding NV for 16.8 billion euros ($23.9 billion) after an earlier rescue plan was deemed insufficient.
“The Fortis ship ended up in financially heavy weather at the end of September 2008” and “its cargo, valuable to many for different reasons, threatened to get lost,” Judge Hans Vrakking wrote in the ruling. “Drastic measures at full sea were unavoidable.”
The ruling is “very disappointing” and an appeal is foreseen, De Gier said.
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Manhattan Prosecutor Said to Withdraw From Strauss-Kahn Case
A top Manhattan prosecutor withdrew from handling the prosecution of former International Monetary Fund chief Dominique Strauss-Kahn because her husband works for his defense lawyer’s firm, a person familiar with the matter said.
Karen Friedman Agnifilo, chief of the trial division at the Manhattan District Attorney’s office, disqualified herself from the case of Strauss-Kahn, said the person, who declined to be identified because the matter isn’t public. The former IMF chief, who resigned today, is charged with sexual assault and attempted rape in an alleged attack on a New York hotel maid.
Agnifilo is married to Marc Agnifilo, an attorney at the New York firm of Brafman & Associates. Benjamin Brafman has been hired as defense counsel for Strauss-Kahn.
Agnifilo recused herself from the case “as soon as the law firm of Brafman & Associates, with which her husband is associated, was engaged as counsel for the defendant,” Erin Duggan, the chief spokeswoman for Manhattan District Attorney Cyrus Vance Jr., said in a statement. “This is consistent with routine practice.”
Neither Karen Friedman Agnifilo nor Marc Agnifilo responded immediately to calls for comment.
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On the Docket
U.S. Defends Minimum Coverage Mandate in Health-Care Appeal
The Obama administration defended its health-care legislation’s minimum-coverage mandate in a court filing that sets the stage for next month’s appeal hearing over a U.S. judge’s decision to strike down the law.
A federal appeals court in Atlanta on June 8 will hear argument from attorneys for the U.S. and for 26 states that sued successfully to void the Patient Protection and Affordable Care Act signed into law by President Barack Obama in March 2010.
The U.S. is appealing Judge C. Roger Vinson’s Jan. 31 ruling that the mandate compelling most Americans to obtain coverage starting in 2014 exceeds Congress’s power to regulate commerce. The Pensacola, Florida, judge concluded that without that requirement the remainder of the act was unworkable and invalid.
The states have urged the appeals court to uphold Vinson’s ruling.
The Atlanta-based court will be the third federal appeals court to hear argument over the legality of the legislation. The U.S. Court of Appeals in Richmond, Virginia on May 10 heard arguments on the appeals of rulings by two federal judges in that state, one of whom upheld the act’s constitutionality and another who held the individual mandate portion alone invalid.
A U.S. appellate panel in Cincinnati is set to hear arguments June 1 in an appeal by Thomas More Law Center, a nonprofit law group that advocates for Christian values, of a Detroit federal judge’s ruling last year upholding the law.
Inconsistent decisions rendered by the three appellate panels may set the stage for later review by the U.S. Supreme Court.F
The case is State of Florida v. U.S. Department of Health and Human Services, 11-11021, 11th U.S. Circuit Court of Appeals (Atlanta).
To contact the editor responsible for this story: Michael Hytha at email@example.com