Strauss-Kahn Evidence, Deutsche Bank, Rajaratnam, Lloyds in Court News
Ex-Galleon Group LLC portfolio manager Michael Cardillo testified about trading on inside tips, discussing the information with colleagues, including the brother of firm co-founder Raj Rajaratnam, and sending phony e- mails to cover his tracks.
Cardillo, a prosecution witness in the insider-trading trial of Zvi Goffer, Emanuel Goffer and Michael Kimelman, told jurors in New York yesterday how he traded on illegal tips about acquisitions involving ATI Technologies Inc., Kronos Inc., Axcan Pharma Inc., 3Com Corp. and Hilton Hotels Corp.
In at least one case, he sent e-mails to others at Galleon including R.K. Rajaratnam, the co-founder’s brother, extolling the value of Hilton’s stock before buying it for his fund’s portfolio.
“I sent it as a cover-up to buying the stock based on inside information,” said Cardillo, who pleaded guilty in January to charges of conspiracy and securities fraud.
Cardillo testified that his employment overlapped with Zvi Goffer’s for six or seven months. Goffer, 34, founded Incremental Capital LLC after he was fired from Galleon, his lawyer, William Barzee, said May 18 in his opening statement to jurors.
The Goffer brothers and Kimelman 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.
Raj Rajaratnam was found guilty May 11 in the largest insider-trading prosecution in a generation. He was convicted on 14 counts of securities fraud and conspiracy and prosecutors say may be given as long as 19 1/2 years in prison when he’s sentenced on July 29.
The case is U.S. v. Goffer, 10-cr-00056, U.S. District Court, Southern District of New York (Manhattan).
Rajaratnam Lawyers Ask Judge to Void Jury’s Guilty Verdicts
Lawyers for Raj Rajaratnam, the Galleon Group LLC co- founder found guilty May 11 in the largest insider-trading prosecution in a generation, asked the federal judge in the case to overturn the jury’s verdicts.
Rajaratnam’s lawyers moved for acquittal twice during the trial in April. U.S. Judge Richard Holwell reserved judgment on those motions. The renewed motion for acquittal was filed yesterday in federal court in Manhattan.
Rajaratnam, 53, was found guilty of all 14 counts against him and faces 15 1/2 years to 19 1/2 years in prison when he is sentenced on July 29.
“The court must set aside the jury’s verdict and enter judgment of acquittal if it concludes that the evidence that the defendant committed the crime alleged is nonexistent or so meager that no reasonable jury could find guilt beyond a reasonable doubt,” his lawyers said in the motion.
The case is U.S. v. Rajaratnam, 09-1184, U.S. District Court, Southern District of New York (Manhattan).
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Blood at Scene Becomes Pivotal for Strauss-Kahn Defense
Evidence that Dominique Strauss-Kahn’s encounter with a hotel maid may have involved force, including reports of blood at the scene, might damage any defense contention that she consented, Bloomberg News’ Karen Freifeld and Greg Farrell reported that former prosecutors said.
Strauss-Kahn is accused in a seven-count indictment of forcibly trying to have intercourse with the woman at the Sofitel hotel in midtown Manhattan, and of making her have oral sex with him. Strauss-Kahn, who resigned as head of the International Monetary Fund after being charged with sexual assault and attempted rape, plans to plead not guilty, his lawyers have said.
Reports have emerged since Strauss-Kahn’s May 14 arrest that physical evidence, including semen and a cut on the defendant’s back, suggests contact between the accuser, a 32- year-old West African immigrant, and Strauss-Kahn, 62. Strauss- Kahn hasn’t confirmed or denied there was an encounter, and his attorneys have hinted that, if there was one, it was consensual.
“If the DNA evidence is straightforward and there are no big surprises along the way here, plea negotiations would seem inevitable,” Samuel Buell, a former federal prosecutor, said in a phone interview. “It may be a matter of some time before the defendant can be brought to understand the necessity of those discussions.”
A New York Police Department crime scene unit gathered evidence from Strauss-Kahn’s hotel suite, Assistant District Attorney John “Artie” McConnell told a judge last week. While the results of tests performed on material taken in the searches weren’t available as of the May 19 hearing, preliminary indications “support the victim’s version of events,” the prosecutor said.
Strauss-Kahn’s body was examined and photographed after his May 14 arrest. Defense lawyers Benjamin Brafman and William Taylor said their client agreed to a government request for a physical examination.
News organizations including the Wall Street Journal have reported that a DNA sample from Strauss-Kahn matched semen found on the maid’s shirt. According to other reports, carpet samples taken from the room may contain semen traces and blood was found on the sheets. Reports also said Strauss-Kahn cut his back on a piece of furniture in the room during a struggle with the victim.
Erin Duggan, a spokeswoman for the New York District Attorney’s office, declined to comment on the reports. Paul Browne, a spokesman for the police department, didn’t return calls seeking comment. Brafman, who declined to comment on the reports, told a judge last week that the evidence was in his client’s favor.
“The forensic evidence, we believe, are not consistent with forcible encounter,” he said at Strauss-Kahn’s first appearance in Manhattan criminal court. “This is a very, very defensible case.”
The case is People v. Strauss-Kahn, 1225782, Criminal Court of the City of New York (New York County).
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Four States’ Lawyers Announce New Foreclosure Probe Actions
The attorneys general of four states including Illinois and California announced new demands in their probes of foreclosure practices by banks and the mortgage-servicing industry.
California Attorney General Kamala Harris said yesterday she subpoenaed Lender Processing Services Inc. (LPS) as part of her investigation into so-called “robo-signing,” the practice signing foreclosure documents without verifying their accuracy.
Illinois Attorney General Lisa Madigan is issuing subpoenas to Lender Processing and Nationwide Title Clearing Inc., another Florida-based company, she said yesterday.
“Foreclosure became a rubber-stamping operation that robbed many homeowners of the American dream without a fair and accurate process,” Madigan said in a statement. “California homeowners have been exposed to fraud and crime at every step of the mortgage process,” Harris said in a separate statement.
The subpoena announcements come a day after attorneys general in the 50-state investigation of foreclosure practices met with representatives from the five largest U.S. banks.
State legal officers at the meeting told the banks they will face an estimated $17 billion in claims if the inquiries result in civil lawsuits, according to a person with knowledge of the talks.
Negotiators for the banks said they are prepared to dispute such demands in court, said the person, who asked to remain anonymous because the discussions aren’t public. The attorneys general and federal officials are negotiating with the five largest loan servicers, Bank of America Corp. (BAC), JPMorgan Chase & Co. (JPM), Citigroup Inc. (C), Wells Fargo & Co. (WFC) and Ally Financial Inc.
Michelle Kersch, a spokeswoman for Lender Processing Services, based in Jacksonville, Florida, didn’t return a call for comment.
“Nationwide Title Clearing has not yet been served a subpoena from the Illinois attorney general and therefore cannot comment on the specifics at this time,” Cassandra McSparin, spokeswoman for Palm Harbor, Florida-based company, said in an e-mailed statement. “The company intends to cooperate with the Attorney General’s office to the fullest extent of the law.”
Nationwide’s mortgage assignment documents and procedures have been “thoroughly audited and examined for accuracy,” McSparin said.
Many of the states are conducting probes of foreclosure practices independent of the 50-state probe.
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Ex-Deutsche Bank CEO Breuer Rejected Deal in Fraud Case
Former Deutsche Bank AG (DBK) Chief Executive Officer Rolf Breuer, charged with attempted fraud over his testimony in a lawsuit filed by Leo Kirch, rejected a settlement with prosecutors that would have included a fine and a suspended prison sentence.
Breuer declined to accept a so called penal order that would have included a suspended one-year prison term, his lawyer Sven Thomas said in an interview yesterday. The deal would have also included a fine, two people familiar with the issue said. They declined to be identified because the negotiations weren’t public.
“There were talks but we rejected the proposal because we have a clear acquittal strategy,” said Thomas. “We may have settled had the prosecution agreed to drop charges for a very small amount.”
The case is part of a nine-year-old fight over Breuer’s comments about the creditworthiness of Kirch’s media group. Kirch claimed the comments precipitated the group’s bankruptcy and filed suits for a total of at least 3.3 billion euros ($4.6 billion), which are pending. The banks and Breuer rejected a 775 million-euro settlement over the civil litigation proposed by a judge in March.
Barbara Stockinger, spokeswoman for Munich prosecutors, declined to comment.
A trial date hasn’t been set yet.
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Travelport Asks Court to Dismiss AMR Suit in Ticketing Dispute
Travelport Ltd. asked a U.S. federal court to throw out an antitrust lawsuit filed by American Airlines, saying the claims are being used to gain power in contract negotiations.
The suit is part of a growing dispute between some U.S. airlines and global distribution systems such as Travelport over control of flight and fare data made available to travel agents. American wants to bypass such distributors and substitute its proprietary technology.
“This is not a genuine antitrust lawsuit brought by consumers suffering from excessive or artificial price increases,” Travelport said in the response filed yesterday in U.S. District Court in Fort Worth, Texas. “It is an opportunistic lawsuit brought by a large and powerful company seeking to enhance its already substantial commercial bargaining leverage.”
Spokesmen for AMR Corp. (AMR)’s American, the third-largest U.S. airline, didn’t respond to a telephone call and e-mail. American, based in Fort Worth, sued Travelport and Orbitz Worldwide Inc. (OWW) in April. Travelport owns 48 percent of Chicago- based Orbitz, the second-largest U.S. online travel agency.
The Travelport case is American Airlines Inc. v. Travelport Ltd., 4-11-cv-00244, Northern District of Texas (Fort Worth).
South Korea Plans Tougher Penalties for ‘Unfair Trading’
South Korea plans to clamp down on stock market manipulation and trading on undisclosed information after $26 billion was wiped from the value of the nation’s listed companies in a matter of minutes last November.
The Financial Services Commission is drafting revisions to capital-markets laws to increase penalties, said Ernst Lee, a spokesman at the regulator. The revisions, which will require approval by the National Assembly, may be submitted as early as June and would help seize profits made from “unfair trading,” Lee said by phone yesterday.
Deutsche Bank AG received in February the heaviest penalty ever imposed on a securities firm in South Korea when it was banned from trading shares and derivatives for its own account for six months, starting in April. The regulator said the bank’s employees conspired to manipulate the market on Nov. 11 by selling 2.44 trillion won ($2.2 billion) worth of shares in the last minutes of trading that day to make gains from “speculative” derivatives positions built in advance.
“There are always loopholes in law that people are seeking to exploit and the system can be abused as trading gets more and more complex,” said Kim Young Joon, a fund manager at NH-CA Asset Management in Seoul, which oversees $9 billion in assets. “It’s natural and right move for the government to try to close these loopholes.”
Michael West, a Hong Kong-based spokesman for Deutsche Bank, wasn’t immediately reachable for comment via telephone and e-mail yesterday.
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Longtop Financial Sued by Investor Claiming Fraud in Reports
Longtop Financial Technologies Ltd. (LFT), facing an inquiry by U.S. securities regulators over its financial reports, was sued by an investor alleging the company overstated profit margins and concealed adverse facts.
Joe Mikus, the investor, seeks to represent people who purchased shares of Longtop from June 2009 through April on claims that they lost money when the shares fell 33 percent around April 26 after reports questioned the company’s finances, according to documents filed in federal court in Los Angeles.
Longtop, a Hong Kong-based software provider whose 2007 U.S. initial public offering was underwritten by Goldman Sachs Group Inc. and Deutsche Bank AG, said May 23 that auditor Deloitte Touche Tohmatsu Ltd. resigned and the U.S. Securities and Exchange Commission was investigating Deloitte’s claims. The auditor said in a resignation letter that it found falsehoods in company financial reports, Longtop said in a May 23 statement.
The lawsuit was filed the same day by New York-based Rosen Law Firm. The firm has filed about 20 investor suits against Chinese companies listed in the U.S. by reverse mergers, Laurence Rosen, managing partner, said in a telephone interview yesterday. In a reverse merger, a closely held company becomes public by purchasing a shell company that already trades.
The case is Mikus v. Longtop Financial Technologies Ltd., 2:11-cv-04402, U.S. District Court, Central District of California (Los Angeles).
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Novartis Not Liable Over Bone-Drug Warnings, Jury Rules
Karlene Hogan sued Novartis in 2006, claiming her late husband, Timothy Hogan, developed the condition by getting injections of Zometa, a bond-strengthening drug for cancer patients, according to the complaint.
“The labels included the risks that were known and knowable at that time,” Bruce Berger, a lawyer for Novartis, told jurors in his closing argument yesterday.
Novartis, based in Basel, Switzerland, faces about 700 suits over Zometa and Aredia, a similar drug. Yesterday’s verdict is Novartis’s second win out of four trials held over the drugs.
In November, a federal jury in Winston-Salem, North Carolina, ruled that Novartis should pay more than $12.8 million to a North Carolina woman’s family over claims Zometa and Aredia damaged her jaw. The award was reduced under state law to $1.26 million, including interest.
In October, a New Jersey jury rejected a woman’s claims that Aredia and Zometa caused her jaw deterioration. In October 2009, a Montana jury ordered Novartis to pay $3.2 million in damages to a cancer patient who made the same claims over the medicines.
John Vecchione, a lawyer for Hogan, declined to comment on yesterday’s verdict.
The case is Hogan v. Novartis Pharmaceuticals Corp., 06- cv-260, U.S. District Court, Eastern District of New York (Brooklyn).
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Lloyds to Pay $33 Million for Rejecting Customer Complaints
Lloyds Banking Group Plc (LLOY)’s Bank of Scotland unit must pay 20.5 million pounds ($33.3 million) for rejecting complaints over retail investment products without taking customers’ circumstances into account.
The bank was fined 3.5 million pounds by Britain’s Financial Services Authority for mishandling complaints, and agreed to pay 17 million pounds in compensation to customers, the regulator said in a statement yesterday.
Bank of Scotland “wrongly rejected a significant number” of the 2,592 complaints it received between July 2007 and October 2009, the FSA said. The agency found the bank didn’t fairly assess whether the investments were suitable for the customers who complained, and didn’t analyze the complaints it received as a way to improve its business.
“The fine reflects BOS’s serious failure to treat vulnerable customers fairly,” said Tracey McDermott, the acting director of enforcement at the FSA. “The firm’s failure to ensure it had a robust complaint-handling process in place led to a significant number of complaints being rejected when they should have been upheld.”
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Morgan Crucible Wins Dismissal of U.K. Claims Over Cartel
Morgan Crucible Co., the maker of carbon materials for medical and transportation equipment, won its dismissal from a U.K. lawsuit filed by Deutsche Bahn AG and 30 other European rail companies over a defunct graphite cartel.
The group needed to sue Morgan Crucible sooner than the other cartel members because it was a whistle-blower in the underlying European Union case and wasn’t involved in a challenge to EU fines, the Competition Appeal Tribunal ruled yesterday. The rail companies waited to sue until after the EU appeal was finished.
“The claims against Morgan Crucible in these proceedings have not been brought within the time limit,” the London court, which handles U.K. antitrust cases, said in its decision.
The price-fixing, which lasted from 1988 to 1999, caused customers to pay too much for graphite-based goods used for transferring electricity in train motors. While Windsor, England-based Morgan Crucible won immunity from EU fines by being the first to cooperate, its former Chief Executive Officer Ian Norris was sentenced to 18 months in prison in a parallel U.S. case.
One of the rail companies’ lawyers, Lianne Craig of Hausfeld & Co., declined to comment when reached yesterday by phone.
European Union regulators in 2003 levied fines totaling 101 million euros ($142 million) against four of the cartel’s five members, SGL Carbon SE (SGL), France’s Carbone Lorraine SA, Austria’s Hoffmann & Co. and Schunk GmbH. The railway companies’ lawyers have said the case, filed in December, may be the most significant claim of its kind in Europe.
The case is Deutsche Bahn AG & Others v. Morgan Crucible Co. & Others, 1173/5/7/10, Competition Appeal Tribunal (London).
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On the Docket
MasterCard EU Court Case Over Fees Will Be Heard July 8
MasterCard Inc. (MA)’s appeal against a European Union decision forcing it to revise the way it calculates a transaction fee paid by retailers will be heard on July 8.
Lawyers for MasterCard will be able to explain to EU General Court judges at the July oral hearing in Luxembourg why it seeks to overturn the 2007 decision by the European Commission. The court’s press service confirmed the hearing date yesterday.
The case is T-111/08, MasterCard and others v. European Commission.
ING’s EU Court Challenge Over Bailout to Be Heard July 12
ING Groep NV (INGA)’s appeal of a decision by European Union regulators on the bank and insurer’s government bailout will be heard by the EU’s second-highest court on July 12.
The EU General Court based in Luxembourg is expected to hear arguments from lawyers representing the bank, the Netherlands and the European Commission before the tribunal breaks for summer, its press service said yesterday.
The cases are T-33/10, ING Groep v. Commission and T-29/10, Netherlands v. Commission.
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