Credit Suisse, Deutsche Bank, Goldman, UBS in Court News
Former Credit Suisse Group AG (CSGN) broker Eric Butler had his securities-fraud conviction overturned by a federal appeals court, which ruled that Brooklyn, New York, was the wrong venue for the trial on the charge.
The U.S. Court of Appeals in New York yesterday upheld Butler’s conviction on two conspiracy counts. Butler was convicted in 2009 of fraudulently selling securities that cost investors more than $1.1 billion in losses.
“No conduct that constituted the offense took place in the Eastern District” of New York, which includes Brooklyn, the Manhattan-based court ruled.
Butler and his partner Julian Tzolov intentionally misled clients about securities purchased on their behalf, falsely claiming they were backed by federally guaranteed student loans. The men told clients the investments, actually backed by riskier corporate debt and subprime mortgages, were a safe alternative to bank deposits or money-market funds, according to prosecutors in the office of U.S. Attorney Loretta Lynch in Brooklyn.
“We will review the Second Circuit’s decision and consider our options,” Robert Nardoza, a spokesman for Lynch, said in an e-mail.
“We’re grateful that the court reversed on the substantive count and would have preferred an outright reversal,” Steven F. Molo, a lawyer for Butler at MoloLamken LLP in Manhattan, said in a phone interview.
The appeals panel said that, because of its decision, Butler will have to be resentenced. In January 2010, U.S. District Judge Jack B. Weinstein sentenced Butler to five years in prison on each count, to be served concurrently. He has been out on bail pending his appeal.
The case is U.S. v. Tzolov, 08-cr-370, U.S. District Court, Eastern District of New York (Brooklyn). The appeal is U.S. v. Tzolov, 10-562, 2nd U.S. Circuit Court of Appeals (Manhattan).
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Ex-Nvidia Analyst Says He Passed Tips to Networker Jiau
A former Nvidia Corp. (NVDA) financial analyst testified he passed confidential information about his company to a former Primary Global Research LLC consultant after she befriended him and suggested they form an investment club.
Sonny Nguyen, 39, the former analyst, testified that he passed data about Nvidia’s quarterly earnings once to Winifred Jiau, 43, in August 2008. He said the two met when Jiau worked as a contract employee at the Santa Clara, California-based chipmaker in about 2007 and she was about to leave the company.
Jiau, 43, is on trial charged with illegally passing tips about Nvidia and Marvell Technology Group Ltd. (MRVL) to hedge fund managers. She is the first of the expert networkers, who provide industry information to financial company clients, to go to trial on charges of securities fraud and conspiracy. She faces as long as 25 years in prison if convicted.
“She was asking me to provide Nvidia’s inside information,” Nguyen testified, adding that he knew that’s what she wanted. “I had access to all the company’s financial data,” Nguyen said.
Assistant U.S. Attorney Avi Weitzman asked Nguyen what he understood Jiau’s motive was.
“My understanding was that she was going to buy or sell for personal gain,” Nguyen said. “It would be stock tips of inside information from various companies.”
The case is U.S. v. Jiau, 1:11-cr-00161, U.S. District Court, Southern District of New York (Manhattan).
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Algosaibi Drops Defense of HSBC $250 Million Default Case
Ahmad Hamad Algosaibi & Brothers Co., a Saudi investment company that defaulted on billions of dollars of debt, won’t defend itself against a $250 million U.K. lawsuit filed by HSBC Holdings Plc (HSBA) and four other banks.
Algosaibi switched course during a London trial after deciding the judge would likely find the company hadn’t done enough to prevent the forgery and fraud it alleges were behind the loans, the family said yesterday in a statement. The company has said Maan al-Sanea, a family relation and founder of Saudi conglomerate Saad Group, wrongfully got about $9.2 billion of loans in Algosaibi’s name.
“It could be found in this case that if the Algosaibis knew there was” improper use of loans “they should have taken more aggressive steps to detect and prevent the massive forged lending scheme,” said Eric Lewis, Algosaibi’s legal coordinator with the law firm Baach Robinson & Lewis Pllc in Washington.
The case follows a global dispute between Algosaibi and al-Sanea, one of Saudi Arabia’s richest men who married into the family before founding Saad Group. Units of the conglomerates, both based in the Saudi oil city of Al-Khobar, defaulted in 2009 after borrowing about $15.7 billion from more than 80 banks. Algosaibi has sued al-Sanea in the Cayman Islands, Saudi Arabia and New York.
James Milton, a spokesman for Saad Group from Cardew Group in London, declined to comment when reached yesterday by phone. The company has previously denied all claims by Algosaibi, sometimes referred to as AHAB.
HSBC spokesman Brendan McNamara declined to comment on the case until a judgment is handed down.
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3M Sued by U.K. Over Development of Superbug Detection Product
3M Co. (MMM), the maker of products including Scotch tape and Post-it Notes, is being sued by investors including the U.K.’s Ministry of Defence for failing to market and develop technology that detects hospital superbug MRSA.
A U.K. unit of 3M bought the superbug detector in 2007 and then let it “whither,” Stephen Phillips, a lawyer for Porton Capital Ltd. and Ploughshare Innovations Ltd., a civilian unit of the Ministry of Defence, said at a trial yesterday. The investors are seeking $54 million in lost profits, he said.
Porton and Ploughshare Innovations sold 3M a company called Acolyte, which had obtained regulatory approval for MRSA detection product BacLite, Phillips said. Part of the sales price was a payment based on net Acolyte sales in 2009, capped at 41 million pounds ($66.5 million) according to court documents.
“By a mixture of delay, incompetence and lack of due diligence by the 3M group, BacLite was allowed to whither on the vine,” Phillips said.
In 2008, 3M scaled back, and then terminated the marketing of Acolyte’s sales activities, resulting in no payment for the claimants, Phillips said.
The St. Paul, Minnesota-based company said in a statement on its website that it ceased marketing BacLite because it proved not to be “commercially viable.”
“In the view of the company, BacLite was not commercially viable and it failed to meet certain standards of the marketplace, so the company discontinued its efforts to sell the product,” 3M lawyer William A. Brewer III said in the statement.
The case is 2008-877 Porton Capital Technology Funds v. 3M UK Holdings Limited.
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HP Sues Oracle in California Over Breach of Contract Claims
The lawsuit, filed yesterday in state court in San Jose, California, cites Oracle’s hiring of Hewlett-Packard’s former Chief Executive Officer Mark Hurd last year and Oracle’s March announcement that it would no longer support its database software on Hewlett-Packard computer servers that use the Itanium chip. Oracle also has used “strong-arm tactics” in forcing customers to “shift from HP’s Itanium server hardware to Oracle’s own server hardware,” the suit said.
The suit, which also cites libel claims, follows Hewlett-Packard’s June 8 letter to Oracle demanding that the software maker keep supporting a server chip made by Intel Corp. (INTC), reiterating its concern that the move will hurt customers and trammel competition.
On March 22, Oracle said that it would stop developing software for Intel’s Itanium chip that powers Hewlett-Packard’s line of Integrity servers, which can cost hundreds of thousands of dollars.
Oracle, in an e-mailed statement, said Hewlett-Packard knew of Intel’s plans to terminate its Itanium processor, and said the company attempted to mislead customers and shareholders into believing such plans don’t exist. Hewlett-Packard’s claim that Oracle breached an agreement to support Hewlett-Packard’s Itanium processor is false, Oracle said.
Hewlett-Packard spokesman Bill Wohl said in an interview that its lawsuit is an attempt to address harm to its customers.
The company demands Oracle reverse its decision on Itanium support and change its licensing scheme for the Itanium processor, Wohl said.
The case is Hewlett-Packard Co. v. Oracle Corp., 111CV203163, California Superior Court, Santa Clara County.
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U.S. Seeks to Collect $403.8 Million in Deutsche Bank Accord
The U.S. filed a lawsuit in Manhattan federal court seeking to collect $403.8 million as part of a 2010 non-prosecution agreement with Deutsche Bank AG (DBK) over improper tax shelters.
Deutsche Bank admitted in December to criminal wrongdoing and agreed to pay $553.6 million to avoid prosecution over fraudulent shelters that generated $29 billion in phony tax losses.
In the complaint filed yesterday, the U.S. government asked for the $403.8 million it said Frankfurt-based Deutsche Bank had turned over to the U.S. Treasury Department in satisfaction of its forfeiture obligation.
John Gallagher, a Deutsche Bank spokesman, had no immediate comment.
The government claimed that from 1996 to 2002, Deutsche Bank helped wealthy U.S. citizens avoid taxes through 15 different shelters, including transactions called “BLPS,” “FLIP” and “HOMER.” In the settlement, Deutsche Bank said it participated in at least 1,300 transactions for more than 2,100 customers.
The case is U.S. v. $403,794,153.00 in U.S. Currency, 11-cv-04045, U.S. District Court, Southern District of New York (Manhattan).
Blackstone Group Sued Over Sale of Hotel Owner Extended Stay
Blackstone Group LP (BX) was sued over its 2007 sale of Extended Stay Inc., which left the hotel company insolvent and drove it into bankruptcy, a trust for Extended Stay creditors said.
Blackstone “siphoned” $2.1 billion from the company as part of the leveraged buyout without regard for how it would perform following the deal, the creditor trust said in lawsuits filed yesterday in U.S. Bankruptcy Court in Manhattan and New York State Supreme Court. Blackstone called the suits meritless.
“Blackstone siphoned $2.1 billion of value from the debtors, rendering them insolvent, undercapitalized and unable to survive,” the complaints state. “The defendants were well aware of the financial harm of the LBO, but nevertheless caused or allowed it to happen.”
Blackstone, based in New York, sold Extended Stay to David Lichtenstein’s Lightstone Group LLC for $8 billion, according to a Lightstone statement at the time. Lichtenstein and Lightstone are also named as defendants in the lawsuits. Extended Stay filed for bankruptcy in 2009.
“The real cause of the company’s bankruptcy was an economic tsunami which resulted in across-the-board revenue per available room declines of more than 20 percent,” Christine Anderson, a Blackstone spokeswoman, said in an e-mailed statement. “This was an industrywide phenomenon that landed every large lodging transaction executed in 2006-2007 in bankruptcy, foreclosure or restructuring.”
A representative of Lightstone couldn’t immediately be reached for comment.
The bankruptcy case is Extended Stay Litigation Trust v. Blackstone Group LP., 11-02254, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The state-court case is Extended Stay Litigation Trust v. Blackstone Group, 651667-2011, New York State Supreme Court (Manhattan).
Centro Sued Over $9.4 Billion Sale of Assets to Blackstone
Centro Properties Group said it was sued over claims that a proposed $9.4 billion sale of its U.S. malls to a unit of Blackstone Group LP must be approved by shareholders.
Smartec Capital Pty, which owns less than 0.5 percent of Centro’s outstanding shares, filed the lawsuit in the Federal Court of Australia, Melbourne-based Centro said yesterday. The Australian Securities Exchange ruled that Centro didn’t need shareholder approval to sell the U.S. assets, the shopping-mall manager said in a statement.
Blackstone Real Estate Partners VI LP, a unit of the world’s biggest private-equity firm, agreed to buy Centro’s 588 U.S. malls on March 1. Centro is selling assets to pay debt that totaled A$16 billion as of Dec. 31, according to its financial statements.
“Centro considers that this proceeding is misconceived,” the company said in the statement. Smartec’s actions are “diverting management resources and expense and damaging and being inconsistent with the best interests of all security holders,” it said.
A copy of the suit, filed in Sydney Federal Court, wasn’t immediately available.
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Goldman Sachs, Lehman End Fight Over Documents for Probe
Goldman Sachs Group Inc. (GS) settled a dispute with Lehman Brothers Holdings Inc. over documents related to a short-selling investigation the failed investment bank is conducting.
A lawyer for Goldman Sachs announced the settlement yesterday during a hearing in U.S. Bankruptcy Court in Manhattan. He didn’t disclose details. Goldman Sachs is competing with Lehman and a creditor group led by hedge fund Paulson & Co. to propose a liquidation plan for the defunct firm.
Goldman Sachs accused Lehman June 14 of harassment in making a “baseless” demand for documents as part of a probe of whether rival firms contributed to its September 2008 failure by putting pressure on its stock through rumors and so-called short sales.
Lehman said the fifth-biggest U.S. bank was “deliberately moving at glacial pace” in handing over information. It asked U.S. Bankruptcy Judge James Peck to order New York-based Goldman Sachs to produce the documents within two weeks.
The case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
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UBS Client Greeley Charged in U.S. Tax Case in San Francisco
A UBS AG (UBSN) client, Robert E. Greeley, was charged by prosecutors in California with filing a false tax return that failed to disclose two Swiss accounts held in the name of Cayman Islands entities that he controlled.
Greeley controlled a UBS account named Meyrin Investors from 2002 through at least 2008 and one named Exchange Preferred Limited from 2004 through at least 2008, according to a criminal charge filed June 14 in federal court in San Francisco. Greeley was charged with filing a 2008 tax return that didn’t disclose those accounts or the interest income earned.
Greeley couldn’t immediately be located for comment, and court records didn’t include the name of his lawyer.
Greeley is one of more than two dozen former UBS clients accused of tax crimes since 2007. Zurich-based UBS avoided U.S. prosecution in February 2009 by paying $780 million, turning over the names of U.S. account holders and saying it helped Americans hide assets from the Internal Revenue Service.
The case is U.S. v. Greeley, 11-cr-374, U.S. District Court, Northern District of California (San Francisco).
Adelphia’s Rigases Lose Bid to Dismiss Criminal Tax Case
Adelphia Communications Corp. founder John Rigas and his son Timothy, who are in prison for securities fraud, failed to persuade a U.S. judge to dismiss a pending criminal tax case against them.
John Rigas, 86, is serving 12 years and Timothy Rigas, 55, 17 years for looting the cable company and lying about its finances. After a federal jury in New York convicted them in 2004, U.S. prosecutors in Pennsylvania charged the two with conspiring to dodge taxes on $1.9 billion they stole from Adelphia, a cable-television company that collapsed in 2002.
The Rigases asked a judge to dismiss the tax charges, claiming prosecutors in the New York case interfered with their rights to legal counsel and a fair trial by threatening Adelphia with indictment if it supported them, including by advancing legal fees. U.S. District Judge John E. Jones III in Harrisburg, Pennsylvania, said June 14 that those actions were irrelevant because they occurred before the New York fraud case.
“When the Rigases were indicted in the instant tax evasion prosecution, they had already been convicted of federal securities fraud violations,” he wrote. “That Adelphia did not provide them at that point with legal fees to defend themselves in the instant indictment is nothing short of typical business practice.”
An attorney for the Rigases, Lawrence McMichael, said he was disappointed by the ruling. He intends to file a similar motion in federal court in New York, he said.
The case is U.S. v. Rigas, 05-cr-402, U.S. District Court, Middle District of Pennsylvania (Harrisburg).
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Second Rothstein Associate Pleads Guilty in Investment Scam
A second associate of convicted fraudster Scott Rothstein admitted to his role in a $1.2 billion investment scheme involving fake lawsuit settlements.
Stephen Caputi, a 53-year-old nightclub manager, pleaded guilty yesterday to one count of conspiracy to commit wire fraud before U.S. District Judge William Zloch in Fort Lauderdale, Florida. Howard Kusnick, formerly of Rothstein’s law firm, entered a guilty plea to the same charge June 14 in West Palm Beach, Florida.
Rothstein pleaded guilty last year to five counts of racketeering, money laundering and wire fraud, admitting he sold investors interests in bogus settlements in sexual-harassment and whistle-blower suits. He was sentenced to 50 years in prison.
Caputi attended meetings with potential investors in the scheme, posing as a banker or a plaintiff in the phony suits, federal prosecutors said.
“I have a lot of remorse and regret for what I’ve done,” Caputi told the judge. “I want to get this behind me and get on with my new life.”
Caputi faces a maximum term of five years in prison at his sentencing, which is set for Aug. 24. Prosecutors agreed to take his cooperation in their investigation into account when making a sentencing recommendation, Zloch said.
Hy Shapiro, Caputi’s attorney, declined to comment after yesterday’s hearing. Assistant U.S. Attorney Jeffrey Kaplan also had no comment.
The cases are U.S. v. Kusnick, 11-60125, U.S. v. Caputi, 11-60124, U.S. v. Renie, 11-60123, U.S. District Court, Southern District of Florida (Fort Lauderdale).
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