Facebook, Goldman, Credit Suisse, Madoff in Court News
Facebook Inc. (FB) and its co-founder Mark Zuckerberg asked a court to order Paul Ceglia, the New York man who claims half of Zuckerberg’s holdings, to turn over the original contract and e-mails on which he bases his suit, saying the steps are needed to short-circuit a fraud on the court.
Facebook yesterday asked a federal judge in Buffalo for an order requiring Ceglia, 37, to provide expedited fact-finding, or discovery, in the case. The company said forensic examination of the documents will support its claim that the contract is “an amateurish forgery” and the e-mails are fabricated.
“This discovery will bring this case to an immediate end by establishing that the purported contract and e-mails are forgeries,” Facebook and Zuckerberg said yesterday in the court filing. “The contract is a cut-and-paste job, the e-mails are complete fabrications and this entire lawsuit is a fraud.”
Facebook asked for an order forcing Ceglia to immediately produce the original April 2003 signed contract and all e-mails referred to in his complaint. The company also asked the court to seize Ceglia’s computers and otherwise to delay the exchange of evidence in the case until the documents are turned over and inspected.
“Mr. Ceglia welcomes the opportunity to expedite discovery in this case and disagrees with the opinions within the filing, which have been made by those who have not examined the actual contract at issue in this case or any of the other relevant evidence,” Ceglia’s lawyers said in a statement yesterday.
The case is Ceglia v. Zuckerberg, 1:10-cv-00569, U.S. District Court, Western District of New York (Buffalo).
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Tribune Retirees, Deutsche Bank Sue Shareholders Over Buyout
Former shareholders of Tribune Co. (TRBAA) were sued by a Deutsche Bank AG (DBK) unit and retirees over claims that the media company’s 2007 leveraged buyout was a fraud that pushed it into bankruptcy.
The unit of Frankfurt-based Deutsche Bank, in its role as trustee for senior noteholders, sued dozens of shareholders, brokers and other defendants yesterday in federal courts in Philadelphia and Boston. The creditors are owed about $2.5 billion, Deutsche Bank Trust Company Americas said.
“The LBO lined the pockets of Tribune’s former shareholders with $8.5 billion of cash at the expense of Tribune’s creditors, and precipitated Tribune’s careen into bankruptcy,” the Deutsche Bank unit said in the complaints. It asks to recover money paid to shareholders in the buyout that creditors labeled “fraudulent transfers.”
Bank of America Corp., Goldman Sachs Group Inc. (GS) and Scottrade Inc. were among defendants named in the retirees’ complaint, which seeks $109 million. Yesterday’s lawsuits were the first of a group of cases authorized in March by Tribune’s bankruptcy judge. The targeted firms sold Tribune shares for themselves or on clients’ behalf as part of the buyout.
“Tribune, pressured by its majority shareholders and lured by a scheme orchestrated by Sam Zell, abandoned its duties and obligations to its retirees, employees and creditors,” according to the retirees’ complaint filed in New York state court in Manhattan.
Zell, who has been named in similar lawsuits, has repeatedly denied that creditors have any legal basis for suing him. Tribune, which owes about $13 billion to creditors, is valued at about $6.75 billion, according to court records filed by the company.
Bill Halldin, a spokesman for Charlotte, North Carolina-based Bank of America, and David Wells, a spokesman for New York-based Goldman Sachs, declined to comment on the retirees’ lawsuit. Carrie Hibbs, a spokeswoman for St. Louis-based Scottrade, said she couldn’t comment.
The Philadelphia cases are Deutsche Bank Trust Company Americas v. Commonwealth of PA-PSERS, 11-03570, and Deutsche Bank Trust Company Americas v. Ametek Inc. Employees Master Retirement Trust, 11-03569, both U.S. District Court, Eastern District of Pennsylvania (Philadelphia).
The Boston case is Deutsche Bank Trust Company Americas v. Anne G. Taylor, 11-10982, U.S. District Court, District of Massachusetts (Boston). The retirees’ case is Niese v. AllianceBernstein LP, 651516/2011, Supreme Court of the State of New York, New York County (Manhattan). The bankruptcy case is In re Tribune Co., 08-bk-13141, U.S. Bankruptcy Court, District of Delaware (Wilmington).
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Abbott in Settlement Talks on Depakote Marketing, U.S. Says
Abbott Laboratories (ABT) and the U.S. are “engaged in active settlement discussions” of the government’s lawsuit alleging the company improperly marketed its drug Depakote, Justice Department lawyers said in court papers.
The U.S. asked the judge overseeing the suit to halt proceedings until July 8, postponing a May 31 scheduled filing of an amended complaint by the government and allowing settlement discussions to continue. The U.S. also asked the court to consolidate four related false-claims cases.
“The short extension would allow the parties to determine if a negotiated resolution is possible, which could reduce the demand on judicial resources,” Timothy Heaphey and Daniel Bubar, Justice Department lawyers, wrote in a May 20 filing in federal court in Abingdon, Virginia. “Consolidating the actions would avoid having nearly identical filings made in four different actions.”
Whistleblowers claim in the suits that Abbott Park, Illinois-based Abbott marketed Depakote, an epilepsy drug, for unapproved uses including agitation and aggression in patients with dementia, autism, sexual compulsion and other disorders. The government joined the False Claims Act suits in February, according to court dockets. More than 25 states also sued Abbott over the marketing of Depakote.
“We continue to cooperate with the investigation,” Scott Stoffel, a spokesman for Abbott, said yesterday in a phone interview.
Depakote is approved to prevent migraines, treat acute manic episodes in bipolar patients and treat seizure disorders in adults and children, he said in an e-mail.
The case is U.S. ex rel. Spetter v. Abbott Laboratories, 1:10-cv-00006, U.S. District Court, Western District of Virginia (Abingdon).
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Goldman Sachs Said to Get Subpoena From New York Prosecutor
Goldman Sachs Group Inc., the fifth-biggest U.S. bank by assets, received a subpoena from the Manhattan District Attorney’s office seeking information on the firm’s activities leading into the credit crisis, according to two people familiar with the matter.
“We don’t comment on specific regulatory or legal issues, but subpoenas are a normal part of the information request process and, of course, when we receive them we cooperate fully,” said David Wells, a company spokesman.
The request relates to the U.S. Senate’s Permanent Subcommittee on Investigations report on Wall Street’s role in the housing market collapse, which accused New York-based Goldman Sachs of misleading buyers of mortgage-linked investments, the people said, speaking on condition of anonymity because the inquiry isn’t public. The Senate report was referred to the U.S. Justice Department and the Securities and Exchange Commission, which are also investigating.
Erin Duggan, chief spokeswoman for Manhattan District Attorney Cyrus Vance Jr., declined to comment.
A subpoena is a request for information and doesn’t mean the company is a target of a criminal investigation. Analysts including Sanford C. Bernstein’s Brad Hintz have said they don’t expect the firm to be criminally prosecuted.
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Google Antitrust Probe Could Mean Years of Self-Defense
Google Inc. (GOOG) may be forced to spend years defending itself in a U.S. Federal Trade Commission investigation that could be the government’s biggest antitrust probe since the Microsoft Corp. (MSFT) case, Bloomberg News’s Jeff Bliss and Sara Forden report.
Even if Google ultimately prevails, the probe might create uncertainty around the company’s business, slowing its momentum, lawyers and analysts said. Federal courts ruled that Microsoft engaged in illegal monopoly practices in a dispute that stretched over two U.S. presidential administrations.
“Google effectively is already running under the yellow flag of caution,” Eric Goldman, associate professor and director of the High Tech Law Institute at Santa Clara University in California, said in an interview. An FTC probe “could make it more difficult” for Google to compete, he said.
The agency is likely to examine whether Google is using its position in Internet search to subdue rivals in adjacent markets with threats and jacked-up advertising rates, the lawyers said. The company’s conduct in new sectors, such as mobile devices, also will probably be a focus, they said.
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Expert Networker Tapped ‘Cooks’ for Inside Tips, U.S. Says
Ex-Primary Global Research LLC consultant Winifred Jiau gave secret information from insiders at technology companies she called “cooks” to hedge fund managers for a fee, prosecutors told a federal jury in New York.
In opening statements yesterday at Jiau’s criminal trial, Assistant U.S. Attorney David Leibowitz described a “sophisticated” scheme in which he said insiders at technology companies were paid by fund managers for illegal tips. He said her information was precise “to the decimal point.”
Leibowitz said Jiau spoke in code, demanding payments for the information, which she called “sugar,” and describing her sources as “cooks” and referring to tips as “recipes.”
“At the heart of that scheme, playing a critical role, was the defendant,” Leibowitz told jurors. “The defendant was the insider who was worth every penny they paid her, and she received over $200,000 they paid her for that information.”
Jiau, 43, of Fremont, California, is charged with securities fraud as well as conspiracy to commit wire and securities fraud for allegedly passing inside tips about Nvidia Corp. (NVDA) and Marvell Technology Group Ltd. (MRVL)
The charges are connected to the arrests of eight employees or consultants at Primary Global Research, a Mountain View, California-based firm that links investors with industry experts at public companies. She is the first expert networker to go on trial for insider-trading charges and, if convicted, may face as long as 25 years in prison.
The case is U.S. v. Jiau, 11-cr-00161, U.S. District Court, Southern District of New York (Manhattan).
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Marijuana for Migraines Tests Sprint Policy on Workplace Drugs
The 21-year-old woman suffered from migraine headaches. Her health-care provider told her to use marijuana for relief. She did, and was fired from her telemarketing job after failing a drug test required by Sprint Nextel Corp. (S)
She sued TeleTech Holdings Inc. (TTEC), which ran a sales office in Bremerton, Washington, under contract with Sprint, for dismissing her in 2006. The state’s medical-marijuana law lets her smoke pot for medical purposes, she says.
The outcome of the case, now before the state’s Supreme Court, may guide U.S. employers caught between their efforts to maintain a drug-free workplace and laws in 16 states and the District of Columbia that permit the use of marijuana for medical purposes, Bloomberg Government’s Stephanie Armour reports.
“Employers are in a tizzy,” Danielle Urban, a lawyer at Fisher & Phillips LLP in Denver who represents companies, said in an interview. “What if an employee comes in impaired? No one wants to be sued. It could be very costly.”
Federal law further complicates employer decisions. It defines marijuana as a controlled substance similar to cocaine and heroin, with no accepted medical use and penalties for sale and possession.
Companies are fighting, and so far winning, when lawsuits are filed by applicants or employees who are rejected after failing company drug tests. The screening is part of the hiring process for all job candidates at 55 percent of U.S. companies, according to a 2010 survey by the Alexandria, Virginia-based Society for Human Resource Management.
The case is Roe v. TeleTech Customer Care, 81283-7, Supreme Court for the State of Washington (Olympia).
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Credit Suisse Loses Appeal of STMicroelectronics Case
Credit Suisse Group AG (CSGN) lost its appeal of a U.S. judge’s order to pay STMicroelectronics NV (STM), Europe’s largest chipmaker, about $400 million over unauthorized investments in auction-rate securities.
The federal appeals court in Manhattan yesterday upheld most of a March 2010 ruling by U.S. District Judge Deborah Batts, who affirmed a 2009 arbitration award against Zurich-based Credit Suisse by the Financial Industry Regulatory Authority.
The court said Batts should have lowered the amount owed by Credit Suisse because, before her decision, Geneva-based STMicroelectronics sold securities with a face value of $153.5 million to Deutsche Bank AG.
“The district court’s judgment should have credited Credit Suisse for approximately $75 million that ST received in exchange for selling some of the failed auction-rate securities at issue in this case, and should have reduced Credit Suisse’s liability of interest accordingly,” the appeals panel wrote.
David Walker, a spokesman for Credit Suisse, said the ruling will have an “immaterial impact” on the amount of money the bank sets aside for anticipated losses.
The auction-rate securities market, once valued at $330 billion, collapsed in February 2008 when dealers stopped participating in the auctions. Interest on the investments, typically municipal and student-loan-backed bonds and preferred shares, reset every seven to 35 days at bidding managed by the dealers.
STMicroelectronics accused Credit Suisse of investing in risky securities after claiming it would invest only in student loans backed by the U.S. government.
The case is STMicroelectronics NV v. Credit Suisse Securities (USA) LLC, 10-3847, U.S. Court of Appeals for the Second Circuit (Manhattan), and 09-cv-01388, U.S. District Court, Southern District of New York (Manhattan).
Ex-Madoff Employee Eric Lipkin to Plead Guilty, U.S. Says
Former Bernard Madoff employee Eric Lipkin will plead guilty to federal criminal charges including falsifying books and records of a broker-dealer and bank fraud.
Lipkin will plead guilty to six separate crimes, Assistant Manhattan U.S. Attorneys Lisa Baroni and Julian Moore said in a letter to U.S. District Judge Laura Taylor Swain, who is presiding over the case. Lipkin is set to plead on June 6, Baroni said.
In addition to two counts of falsifying records and one count of bank fraud, Lipkin will also plead guilty to two counts of conspiracy and one count of making a false statement. He faces as long as 70 years in prison.
“The parties anticipate that, at the conference, Eric Lipkin, a former employee in the investment advisory business of Bernard L. Madoff Investment Securities LLC, will plead guilty to the information pursuant” to an agreement with the government, prosecutors said in the June 1 letter that was made public yesterday.
James Filan, a lawyer for Lipkin, declined to comment.
The case is U.S. v. Lipkin, 10-CR-228, U.S. District Court, Southern District of New York (Manhattan).
Ex-Xinhua Finance CEO Fredy Bush Pleads Not Guilty to Fraud
The former chief executive officer of Xinhua Finance Ltd., accused of taking part in a $50 million insider-trading scheme, said she isn’t guilty of defrauding investors and lying to regulators.
Loretta Fredy Bush, who headed Xinhua Finance for almost a decade, pleaded not guilty yesterday in federal court in Washington to charges of conspiracy, mail fraud and making false statements. Bush entered her plea by telephone from her residence in Hawaii because of illness, her lawyer said.
Assistant U.S. Attorney Seth B. Waxman said Bush must present herself to the Federal Bureau of Investigation in Honolulu for booking. U.S. District Judge Royce Lamberth said Bush will remain free pending trial.
Lamberth has ordered that details of Bush’s illness remain private.
Two former Xinhua Finance board members indicted with Bush, Shelly Singhal and Dennis Pelino, pleaded not guilty last month.
Xinhua Finance, the first Chinese company listed on the Tokyo stock exchange, provides information products focused on Chinese and international financial markets.
The three are accused of using entities to disguise the sale of shares in Shanghai-based Xinhua Finance from the U.S. Securities and Exchange Commission and investors and engage in insider trading, according to an indictment. They are also accused of manipulating the company’s balance sheet to avoid impairment charges.
The case is U.S. v. Singhal, 11-cr-00142, U.S. District Court, District of Columbia (Washington).
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White House Counsel Bob Bauer Leaving, Administration Says
White House Counsel Bob Bauer is leaving his job to return to private practice and will be replaced by his principal deputy, Kathryn Ruemmler, the administration announced.
Bauer, 59, will return to the law firm Perkins Coie LLP and serve as general counsel for President Barack Obama’s re-election campaign as well as Obama’s personal lawyer, according to a White House statement. Bauer will also serve as the general counsel to the Democratic National Committee.
Ruemmler, 40, joined the administration at the start of Obama’s term and has been a deputy in the counsel’s office since January 2010. Before joining the administration she was a litigation partner in the Washington office of Latham & Watkins LLP from 2007 to 2009.
Ruemmler served as a federal prosecutor for six years and was part of the prosecution team that led to the convictions of former Enron Corp. executives, receiving an award from the attorney general’s office for her work. She also worked in the counsel’s office during the end of President Bill Clinton’s administration.
German Attorneys Call for 19 Percent Increase in Fees
German lawyers deserve a 19 percent increase in the statutory fees they can charge in cases where they can’t negotiate an hourly rate, the head of the country’s attorney association said.
The fees haven’t been altered since 1994, Wolfgang Ewer, the president of the German Attorneys Association, said at the group’s annual meeting in Strasbourg, France, yesterday. If the increase were implemented by 2013, lawyers would get an average annual raise of 2.1 percent, he said.
“For years, the bar had to bear a pay freeze, while costs for running a law firm and employees’ salaries have been rising steadily,” Ewer said. “Professional legal service needs fair pay.”
In Germany, attorneys earn a fee based on the value of a lawsuit or the case at issue, even if they lose. The losing party in a court case has to pay both sides’ legal bills. If their case shows some prospect of success, those unable to pay can get state support to cover the costs of hiring a lawyer. Because the legal aid is taxpayer-funded, any increase in lawyers’ fees also raises public spending.
The statutory fees don’t typically apply to attorneys representing large companies who are generally paid by the hour.
Justice Minister Sabine Leutheusser-Schnarrenberger said in her speech at the meeting yesterday that she will work to change the payment structure as part of a reform of court and other fees.
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