Barclays, Madoff, Credit Suisse, Goldman in Court News
Barclays Plc (BARC), which bought Lehman Brothers Holdings Inc.’s North American business, must return $2 billion in margin assets to the trustee liquidating the remains of Lehman’s brokerage and pay about $270 million in interest, a bankruptcy judge ruled.
U.S. Bankruptcy Judge James Peck in New York yesterday said Barclays must pay the trustee 5 percent interest on the assets from September 2008 until he signs his final order on the case. Barclays will appeal, the bank said in an e-mailed statement.
The amount Barclays must return will be offset by $1.1 billion in assets that the two parties previously agreed should go to the U.K. bank, which bought Lehman’s businesses in the 2008 credit crisis. That cuts its cost to about $1.2 billion, including interest. However, Barclays lost its bid for $1.9 billion in margin to offset liabilities it took on with some of the brokerage’s trading positions.
Peck’s “ruling brings finality to this issue by confirming that the $4 billion in Lehman cash and other margin assets belongs to the Trustee,” William Maguire, a lawyer for brokerage trustee James Giddens, said in an e-mail.
Peck affirmed a February ruling, saying the continuing dispute over $4 billion in so-called margin assets used to back trades arose partly from Barclays’ effort to change its argument by claiming it was entitled to noncash margin.
The dispute, arising from Barclays’ September 2008 purchase of bankrupt Lehman’s businesses and subsequent profit on them, led to a bankruptcy court trial in 2010 with more than 30 days of testimony. The trial pitted the third-biggest U.K. bank against two defunct parts of what was once the fourth-largest U.S. investment bank.
Barclays, based in London, and the Lehman brokerage continued their quarrel after Peck’s February ruling didn’t specify how they must divide some components of the assets, held to back trades taken over by Barclays with the purchase.
“We are pleased with the court’s February ruling that upheld the sale of Lehman Brothers’ North American business,” said Barclays spokesman Michael O’Looney, in an e-mail. “We are also pleased that the trustee has agreed to transfer $1.1 billion in trading assets to Barclays. However, there are aspects of the ruling with which we disagree and which we will appeal.”
Giddens said, “We were obligated to take this matter to Court to protect LBI’s public customers. Our efforts have been vindicated and customers will benefit.” LBI is Lehman Brothers Inc., the remnants of the brokerage.
The main case is In re Lehman Brothers Holdings Inc. (LEHMQ), 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
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Halliburton Loses as Supreme Court Backs Securities Suits
The U.S. Supreme Court made it easier for investors to press securities fraud suits, ruling for shareholders who accuse Halliburton Co. (HAL) of misrepresenting its financial condition while under Dick Cheney’s leadership.
The justices yesterday unanimously said the shareholders can sue as a group without first establishing that they lost money as a result of the alleged fraud.
The shareholders, led by the Erica P. John Fund, contend that Halliburton from 1999 to 2001 falsified earnings reports, played down estimated asbestos liability and overstated the benefits of a merger. Cheney, later the U.S. vice president, served as chairman and chief executive officer of the oilfield services provider during part of the disputed period.
The high court case concerned the standard that applies at the so-called class certification stage, not at final judgment. The Supreme Court previously said that, to get class-action status, shareholders must show they made investment decisions in reliance on a company’s alleged misstatements. Shareholders can meet that test by showing the company perpetrated a so-called fraud on the market.
Chief Justice John Roberts yesterday said that requirement doesn’t mean that investors seeking class-action status must show that they lost money as a result of the alleged fraud.
“The fact that a subsequent loss may have been caused by factors other than the revelation of a misrepresentation has nothing to do with whether an investor relied on the misrepresentation in the first place,” Roberts wrote in his opinion for the court.
Houston-based Halliburton said in a statement that it will make other arguments against class-action status when the case returns to the appeals court. The company said it hasn’t set aside any money to cover potential damages “because it does not believe that loss is probable.”
Boies called the ruling “a victory for effective enforcement of public securities laws and for individuals and institutions that are injured by securities fraud.”
The case is Erica P. John Fund v. Halliburton, 09-1403, U.S. Supreme Court (Washington).
Ex-Madoff Employee Eric Lipkin Pleads Guilty in Ponzi Scheme
Former Bernard Madoff employee Eric Lipkin pleaded guilty to charges that he falsified documents to help carry out the biggest Ponzi scheme in U.S. history.
Lipkin, 37, pleaded guilty to six criminal counts, including conspiracy, falsifying records and bank fraud, in a hearing yesterday in Manhattan federal court. Lipkin agreed to cooperate with the government in its investigation of the fraud at Bernard L. Madoff Investment Securities LLC, which became public with Madoff’s arrest in December 2008.
“I’d like to first apologize to my family, my friends and all the victims in the case,” Lipkin told U.S. District Judge Laura Taylor Swain.
Lipkin then told Swain that he falsified documents to show non-existent account holdings, to put people on the Madoff payroll who didn’t work for the firm and to fraudulently apply for a construction loan. Swain accepted Lipkin’s plea before approving an agreement between Lipkin and federal prosecutors to release him on a $2.5 million bond pending his sentencing.
Swain told Lipkin he faces as long as 70 years in prison. Madoff, 73, is serving a 150-year term in a North Carolina prison.
The case is U.S. v. Lipkin, 10-CR-228, U.S. District Court, Southern District of New York (Manhattan).
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GE Rejected by U.S. Supreme Court on Superfund Law Challenge
The U.S. Supreme Court refused to hear General Electric Co. (GE)’s contention that the Environmental Protection Agency is abusing the federal Superfund law in its efforts to force companies to clean up hazardous waste sites.
The justices yesterday left intact a federal appeals court decision upholding a Superfund provision that GE said violates the constitutional rights of companies.
The disputed provision lets the EPA order companies to begin cleanup of a contaminated site. Although companies can go to court to challenge the order, they run the risk of being fined as much as $37,500 a day for noncompliance.
The Obama administration urged the Supreme Court not to hear the appeal.
The case is General Electric v. Jackson, 10-871, U.S. Supreme Court (Washington).
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Ex-IMF Chief Strauss-Kahn Pleads Not Guilty to Sex Assault
Former International Monetary Fund Managing Director Dominique Strauss-Kahn pleaded not guilty three weeks after his arrest on charges of sexually assaulting and attempting to rape a Manhattan hotel maid.
“Not guilty,” Strauss-Kahn, wearing a blue tie and a dark suit, told New York State Supreme Court Justice Michael Obus yesterday in Manhattan. The defendant was flanked by his attorneys, Benjamin Brafman and William Taylor III. After the hearing, Strauss-Kahn left the courthouse hand-in-hand with his wife, Anne Sinclair, as hotel workers shouted “Shame on you.”
Strauss-Kahn, 62, was arrested May 14 and later indicted on seven counts, including criminal sex act, attempted rape, sexual abuse, unlawful imprisonment and forcible touching. If convicted of the top charges, he faces as long as 25 years in prison.
He allegedly attacked a housekeeper, a 32-year-old from Guinea, at the Midtown Manhattan Sofitel on May 14, grabbing her breasts and trying to pull down her pantyhose, prosecutors said in court papers. The former IMF chief attempted to rape her and forced oral sex, according to the indictment.
“There was no element of forcible compulsion whatsoever in this case,” Brafman told reporters outside the courthouse after the arraignment. Obus scheduled the next hearing for July 18.
Strauss-Kahn, a former French finance minister, was released from jail on May 20. Among the terms of his release are $1 million bail, a $5 million bond and security measures that include electronic monitoring, steps that the district attorney’s office estimates cost $200,000 a month.
“All of Dominique Strauss-Kahn’s power, money and influence throughout the world will not change the truth of what he did to her in that hotel room,” Kenneth P. Thompson, a former federal prosecutor who is representing the accuser, said after the hearing. “She is going to come into this courthouse, sit down on that witness stand and tell the world what Dominique Strauss-Kahn did to her.”
The case is People v. Strauss-Kahn, 2526/11, Supreme Court of the State of New York, New York County (Manhattan).
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Ex-Credit Suisse Employees Face Trial in Korea, Times Says
The pair were charged with investing in struggling firms between 2005 and 2006 to boost their stock prices and selling borrowed shares from the companies at higher prices, the newspaper said, citing the Seoul Central District Prosecutors’ Office.
Three phone calls to the prosecutors’ office were unanswered yesterday, a Korean national holiday. Uni Park, a spokeswoman for Credit Suisse in Seoul, declined to comment.
ArcelorMittal Joins Kumba Court Action on Sishen Mine Rights
ArcelorMittal South Africa Ltd. (ACL), a unit of the biggest steelmaker, won court approval to join Kumba Iron Ore Ltd. (KIO)’s legal bid to reverse the state’s award of rights over the Sishen iron-ore mine to Imperial Crown Trading 289 Ltd.
“ArcelorMittal (MT) has a direct and substantial interest in the pending review and interdict proceedings,” the company said in an e-mailed statement yesterday. “It is both necessary and convenient that it be joined as a party.”
Kumba, based in Pretoria, is asking the nation’s High Court to set aside the government’s award of prospecting rights last year to Imperial, whose owners include Jagdish Parekh, a business partner of South African President Jacob Zuma’s son Duduzane. ArcelorMittal, based in Vanderbijlpark, lost rights over 21.4 percent of Sishen after failing to renew the title.
The steelmaker was also approved to join an application by Kumba to stop South Africa granting mining rights to Imperial.
The court decision means “some of the detail that would have been covered in the arbitration will now be dealt with in the High Court,” Kumba said yesterday in an e-mailed response to a query, adding it’s satisfied with the ruling. “This will narrow the focus of the arbitration which will be bound by any ruling made by the High Court.” The hearing begins Aug. 12, it said.
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Gupta Sued by Goldman Shareholder for ‘Short-Swing’ Profits
Ex-Goldman Sachs Group Inc. (GS) director Rajat Gupta was sued by a shareholder to recover “short-swing” profit on trades allegedly based on inside tips from Gupta that were made by Galleon Group LLC co-founder Raj Rajaratnam.
Investor James Mercer, in a complaint filed yesterday in federal court in Manhattan, seeks to recover profit Galleon made from trading Goldman shares within a six-month period based on information from Gupta.
“Mr. Gupta was beneficial owner of these securities because he had a pecuniary interest in the profits generated by this trading activity,” Mercer, a resident of Kirkland, Washington, said in the complaint. “Mr. Rajaratnam undoubtedly paid Mr. Gupta for the Goldman Sachs inside information on which these trades were made.”
Mercer is seeking a judgment requiring Gupta to pay the short-swing profits from Galleon’s trading, from June to October of 2008. Mercer didn’t specify the amount he’s seeking in the suit.
“This lawsuit is completely without merit, and we will vigorously defend against it,” Gary Naftalis, a lawyer for Gupta, said in a statement.
In March, the U.S. Securities and Exchange Commission filed an administrative proceeding accusing Gupta of passing tips to Rajaratnam. Naftalis called those allegations totally baseless at the time.
Ed Canaday, a spokesman for Goldman Sachs, declined to comment yesterday.
The case is Mercer v. Gupta, 11-cv-03828, U.S. District Court, Southern District of New York (Manhattan).
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Ex-SAC Capital Manager Compares Expert Networking to Match.com
A former SAC Capital Advisors LP portfolio manager told a jury he made millions of dollars on illegal inside information using expert networking firms, which he likened to online dating service Match.com LP.
Noah Freeman, who pleaded guilty to securities fraud and is cooperating with the government, resumed his testimony yesterday in federal court in New York against Winifred Jiau, 43. He said she passed him “perfect information” about Nvidia Corp. (NVDA) and Marvell Technology Group Ltd. for at least eight quarters, and that he made $5 million to $10 million on Nvidia and “broke even” on Marvell.
Jiau, of Fremont, California, is a former Primary Global Research LLC consultant and the first of the so-called expert networkers to go on trial as part of a U.S. crackdown on insider trading at hedge funds. Charged with conspiracy and securities fraud, she faces as long as 25 years in prison if convicted.
Freeman, 35, said the networking firms matched portfolio managers with specialists in public companies from a database of consultants. He called them “expert introduction firms” adding, “They are firms where they introduce employees of these companies to fund managers, sort of like Match.com.”
Jonathan Gasthalter, a spokesman for Stamford, Connecticut- based SAC Capital, declined to comment. He said earlier that Freeman and Longueuil were both dismissed from SAC Capital in 2010 because of poor performance.
The case is U.S. v. Jiau, 11-CR-161, U.S. District Court, Southern District of New York (Manhattan).
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Ex-Taylor Bean President Deserves 5-Year Sentence, U.S. Says
Raymond Bowman, former president of Taylor, Bean & Whitaker Mortgage Corp., should be sentenced to five years in prison for his part in a $3 billion fraud at the company, prosecutors told a federal judge.
Desiree Brown, the lender’s former treasurer, deserves an eight-year term, the government said June 4 in court papers.
The two are to be sentenced June 10 by U.S. District Judge Leonie Brinkema in Alexandria, Virginia, for their roles in a scheme that duped some of the country’s largest financial institutions, targeted the federal bank bailout program and contributed to the failures of Montgomery, Alabama-based Colonial Bank and its parent, Colonial BancGroup Inc.. (CBCGQ)
“Bowman’s important -- although limited -- role in one of the largest fraud schemes in recent history warrants a substantial sentence,” prosecutors wrote.
Bowman, who lives in Atlanta, pleaded guilty in March to one count of conspiracy to commit wire fraud, bank fraud and securities fraud and one count of making false statements. He faces a maximum sentence of 10 years in prison.
Prosecutors said Bowman should receive a shorter sentence because he admitted his crimes and helped the government in its case against Lee Farkas, Taylor Bean’s former chairman.
A jury in Alexandria found Farkas guilty April 19 of 14 counts of conspiracy and bank, wire and securities fraud after a two-week trial. Farkas was taken into custody after the verdict. He is to be sentenced on June 27.
Bowman’s lawyer, Eric L. Yaffe of Gray Plant Mooty in Washington, declined to comment. Brown’s lawyer, Jack Maro of Ocala, Florida, said he will ask the judge to consider sentencing his client to five or six years in prison.
The Bowman case is U.S. v. Bowman, 11-cr-00118, the Brown case is USA v. Brown, 11-cr-00084, and the Farkas case is USA v. Farkas, 1:10-cr-00200, U.S. District Court, Eastern District of Virginia (Alexandria).
Tzolov Should Be Granted Leniency in Sentencing, U.S. Says
Julian Tzolov, a former Credit Suisse Group AG (CS) broker who pleaded guilty to securities fraud, should be granted leniency in his sentencing today because of his “substantial assistance,” including testifying against his former partner, federal prosecutors said.
Tzolov, 38, fled the U.S. before returning to plead guilty to 12 counts, including securities fraud, wire fraud and bail jumping. After returning, he testified at Eric Butler’s trial that the two men told clients they invested their money in auction-rate securities backed by federally guaranteed student loans when they were actually backed by riskier corporate debt and subprime mortgages.
“Tzolov detailed in a straightforward and direct manner the complexities of the auction-rate securities market, how he and Butler manipulated their clients’ investment in that market through repeated lies -- in person, over the phone and by e-mail -- and how they profited from that scheme to defraud,” prosecutors in the office of U.S. Attorney Loretta Lynch wrote in a court filing yesterday.
The government estimated Tzolov’s and Butler’s crimes cost clients including GlaxoSmithKline Plc (GSK) and STMicroelectronics NV (STM) about $1.1 billion. The jury found Butler, 39, guilty in August 2009. U.S. District Judge Jack B. Weinstein sentenced Butler to five years in prison. He is free on bail while he appeals his conviction. Weinstein is scheduled to sentence Tzolov today.
The case is U.S. v. Tzolov, 08-cr-370 and 09-cr-475, U.S. District Court, Eastern District of New York (Brooklyn), and 09- cr-685, U.S. District Court, Southern District of New York (Manhattan).
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On the Docket
Wal-Mart Tops High Court Agenda as Video Game Ruling Looms
Violent video games, climate change and a million Wal-Mart Stores Inc. (WMT) employees will preoccupy the U.S. Supreme Court in the homestretch of its nine-month term.
The justices will issue 31 rulings over the next four weeks, beginning yesterday. The June flurry has become a tradition at a court where the combination of summer plans and calendar realities can leave the justices resembling high school students rushing to complete their term papers.
The disputes include two securities-fraud clashes, two patent cases, a campaign-finance test, a free-speech case involving pharmaceutical marketing and a fight over suits against generic-drug makers. Those rulings ultimately may be overshadowed by higher-profile decisions, particularly the class-action case that will determine whether potentially a million workers can unite in a suit accusing Wal-Mart of gender bias.
“There are three major rulings coming that will set the tone for the term: global warming, class actions and violent video games,” said Tom Goldstein, a lawyer at Goldstein, Howe & Russell PC and the creator of the Scotusblog website.
The March 29 argument in the Wal-Mart case suggested skepticism among the justices about the scope of the class approved by a federal appeals court. Should the justices rule in Wal-Mart’s favor, they could either kill the lawsuit outright or kick the case back to a lower court.
The ruling will be the court’s first in a dozen years on the standards for certifying a class action. In a testament to the importance of the case, more than 20 companies are supporting Wal-Mart, the country’s biggest private employer.
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