Facebook, UBS, MBIA, Google, Credit Suisse in Court News
Lawyers representing Paul Ceglia, the western New York man who claims a 2003 contract with Facebook Inc. (FB) co-founder Mark Zuckerberg entitles him to half of Zuckerberg’s holdings, said they are quitting, less than three months after taking on the case.
Seven lawyers, with the firms DLA Piper LLP and Lippes Mathias Wexler Friedman LLP, announced the withdrawal in papers filed yesterday in federal court in Buffalo, New York.
The lawyers gave no reason for leaving and said in the filing that they will be replaced by Jeffrey Lake, a San Diego attorney. Ceglia, 37, remains represented by Paul Argentieri, the Hornell, New York, lawyer who filed the original complaint against Palo Alto, California-based Facebook and Zuckerberg on June 30, 2010.
“We have withdrawn from the case and no longer represent Paul Ceglia,” DLA Piper said in a statement. “Due to our attorney-client privilege obligations, there will be no further comment.”
The lawyers’ withdrawal comes two days before a judge in Buffalo will hear arguments on Facebook’s request for an order requiring Ceglia to immediately turn over the original of the contract, a set of alleged e-mails between Ceglia and Zuckerberg and all of his computers. Facebook argued the order is needed to short-circuit what it calls a “fraud on the court.”
Among the lawyers leaving the case yesterday are DLA Piper partners Christopher Hall and Robert Brownlie and Lippes Mathias partner Dennis Vacco, a former New York state attorney general. Vacco declined to comment and the other lawyers didn’t return calls seeking comment.
Argentieri and Lake didn’t return calls seeking comment.
Ceglia claims he is entitled to a multibillion-dollar stake in Facebook. The closely held company is valued at as much as $71 billion, according to Sharespost.com, an online marketplace for investments in companies that aren’t publicly traded. Facebook runs the world’s biggest social-networking site.
Facebook has denied Ceglia’s claim, calling the contract a forgery and the suit a scam in court filings. Earlier this month, the company asked the court to put on hold the normal pretrial exchange of evidence and order Ceglia to turn over the contract and other materials to determine whether they are phony.
The case is Ceglia v. Zuckerberg, 1:10-cv-00569, U.S. District Court, Western District of New York (Buffalo).
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Bank of America Said to Near $8.5 Billion Settlement
Bank of America Corp. is nearing an $8.5 billion settlement with a bondholder group including BlackRock Inc. (BLK) to resolve claims over soured mortgage securities, three people briefed on the talks said.
The bank’s board of directors met yesterday to discuss an accord, which would resolve demands from institutional investors that it buy back billions of dollars in home loans, said the people, speaking on the condition of anonymity because the talks aren’t public.
Investors, also including Pacific Investment Management Co. and the Federal Reserve Bank of New York, demanded in October that the Charlotte, North Carolina-based company repurchase home loans that had been packaged into bonds by Countrywide Financial Corp., which was acquired in 2008 by Bank of America, the nation’s largest lender by assets.
Jerry Dubrowski, a spokesman for Bank of America, Brian Beades at New York-based BlackRock and Jeffrey Smith at the New York Fed said they couldn’t comment. Kathy Patrick, a lawyer at Houston-based Gibbs & Bruns LLP, who is representing investors, also said she couldn’t immediately comment. Mark Porterfield, a spokesman for Newport Beach, California-based Pimco, didn’t return phone and e-mail messages seeking comment.
UBS Can Sue MBIA Over Restructuring, N.Y. Highest Court Says
UBS AG (UBSN), Bank of America Corp. and about a dozen other banks won reinstatement of a lawsuit against MBIA Inc. (MBI) challenging the 2009 restructuring of its insurance unit that guaranteed toxic debt.
The state Court of Appeals in Albany, New York’s highest court, announced its decision yesterday, overturning a lower-court ruling.
A state appellate court in January dismissed the suit by the banks, which claimed the bond insurer’s restructuring was intended to defraud policyholders. The banks claim the restructuring was a “fraudulent conveyance” that left MBIA undercapitalized and possibly unable to pay future claims.
The Court of Appeals decision turned on whether approval of the split by the state Insurance Department superintendent precluded the bank policyholders’ claims.
The decision restored the banks’ claims of fraudulent conveyance, breach of contract and abuse of the corporate form. The court agreed with the lower court that a claim for unjust enrichment should be dismissed.
“We are disappointed by the court’s decision, but as it is strictly a procedural ruling it does not address the merits of the case, and we remain confident that we will ultimately prevail,” Willard Hill, MBIA’s chief marketing and communications officer, said in an e-mailed statement.
“This is a significant victory,” Robert Giuffra Jr., lead counsel for the banks and a partner at Sullivan & Cromwell LLP in New York, said in an interview. “The position MBIA was proposing was one that basically would have resulted in a massive increase in the power of administrative agencies in New York state government and less power for courts.”
The banks said in court filings that the split transferred $5 billion in cash and securities out of MBIA’s primary operating unit, MBIA Insurance Corp., to another entity, now known as National Public Finance Guarantee Corp.
The banks suing also include French banks BNP Paribas and Societe Generale and a unit of Belgian bank KBC Groep NV, the recipient of 7 billion euros ($10 billion) in Belgian government rescue funds.
The case is ABN Amro Bank NV v. MBIA Inc., 601475-2009, New York state Supreme Court, New York County (Manhattan).
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Madoff Trustee Serves Summons on Citigroup Fund Company
The trustee liquidating Bernard Madoff’s firm served a summons on a Citigroup Inc. affiliate that was named as a defendant in a $975 million lawsuit against so-called feeder fund Kingate Global Fund Ltd., according to a court filing yesterday.
Citi Hedge Fund Services Ltd. of Bermuda was administrator for the Kingate funds, which put all their money in the Ponzi scheme, according to trustee Irving H. Picard’s lawsuit. Instead of verifying Madoff’s pricing information, Citi Hedge calculated the Kingate funds’ value using the con man’s data and reviewed trade confirmations that were “facially impossible,” he said in a suit amended this month.
Citi Hedge was bought by Citigroup in 2007, according to Picard. Kingate Global paid the firm or its predecessor $4.2 million from 2000 to 2007, and Kingate Euro Fund Ltd. paid a smaller amount, he said.
In the suit, Picard said the Kingate funds and other parties should have known of the fraud and should be ordered to return $975 million in funds they took out of the Ponzi scheme before Madoff’s 2008 bankruptcy. HSBC Bank Bermuda Ltd., custodian for the Kingate funds, also was named as a defendant.
The funds are being liquidated in the British Virgin Islands.
Danielle Romero-Apsilos, a Citigroup spokeswoman, didn’t immediately respond to an e-mail seeking comment. HSBC Holdings Plc, which has asked a judge to dismiss a $9 billion Picard lawsuit against it and feeder funds, has said it is fighting Madoff-related claims. William Tacon of Zolfo Cooper, the liquidator for the Kingate funds, has declined to comment on Picard’s suit.
The case is Picard v. Ceretti, 09-1161, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
Merrill, UBS Commit Fraud on Swaps, Lombardy Tells U.K. Court
Bank of America Corp.’s Merrill Lynch unit and UBS AG committed fraud and made “an unfair profit” through hidden fees charged on swaps, according to U.K. court filings by the Italian region of Lombardy, which must set aside millions of euros to cover potential Greek bond losses.
Both banks “deliberately failed to disclose the implicit costs of the transaction, intending to derive an advantage” from the region’s “inexperience and ignorance,” lawyers for Lombardy said in court filings this month.
The region was responding to lawsuits filed by Merrill Lynch and UBS at the High Court in London last July. The banks are seeking confirmation that derivatives contracts with the region, home to Italy’s financial capital Milan, are valid.
The case centers on a 2002 agreement between the banks and the region that changed the way Lombardy would repay a $1 billion 30-year bond. Under the deal, Lombardy was to make the payments in installments instead of a so-called bullet repayment when the bond matured. The banks set up a fund to invest the city’s payments in securities, such as sovereign bonds, until the debt matured. Lombardy said in a statement yesterday it will set aside 153 million euros ($218 million) for potential losses on Greek bonds held in the fund.
Lombardy claims Merrill hid 59.39 million euros in costs from the region, and that UBS hid 35.95 million euros on the $1 billion deal. The costs were “abnormal and exorbitant,” because “a reasonable or normal implicit cost of the sinking fund was nil,” the region said. If the costs were known, Lombardy wouldn’t have entered into the transaction, it said.
UBS, and its banker Gaetano Bassolino, Merrill and its banker Daniele Borrega committed “truffa,” Lombardy said in the filing, using the Italian word for fraud.
“I was 25, had recently graduated, and had a junior role on the desk at the time of the transactions,” Bassolino said. A spokeswoman for UBS declined to comment further.
Borrega, who like Bassolino was authorized by the U.K. securities regulator at the time of the deals, declined to comment through a bank spokesman. A spokesman for the region also declined to comment.
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Sierra Club Can’t Join U.S. to Sue BP Over Spill, Judge Says
The Sierra Club lost its bid to join the U.S. government’s civil lawsuit against BP Plc (BP/) seeking billions of dollars for violations of pollution laws and damage to natural resources during the Gulf of Mexico oil spill.
The environmental group asked on Feb. 7 for “a seat at the table” in the government’s case, saying environmentalists would push for stiffer fines than the U.S. would. The government argued that environmentalists could express their opinions through “friend of the court” briefs.
U.S. Magistrate Judge Sally Shushan in New Orleans said in her ruling yesterday that the Sierra Club could make its positions known without becoming a party to the litigation.
“In the event there is a settlement, it will be able to present public comment,” Shushan said in her ruling.
The court is overseeing more than 350 lawsuits against BP and other companies involved in the worst offshore oil spill in U.S. history.
The government may pursue fines against BP of $1,100 to $4,300 per barrel spilled, depending on the level of negligence it determines was involved in the incident. The government lawsuit also seeks billions of dollars for restoration of publicly owned wetlands, marshes, beaches, fisheries and wildlife harmed by the spill.
More than 4.1 million barrels of crude oil gushed from a subsea well off the Louisiana coast, after the Deepwater Horizon drilling rig exploded and sank in April of last year. BP, as owner of the offshore lease, is legally responsible for civil fines and natural resources restoration costs under the Oil Pollution Act.
The Sierra Club, based in San Francisco, claims regulators may share some blame for the environmental damage because they approved “BP’s grossly inadequate oil spill response plans” and let London-based BP “overuse damaging oil dispersants” during the government-directed spill clean-up effort, the group’s lawyers said in court papers.
Wyn Hornbuckle, a U.S. Justice Department spokesman, declined to comment. Eric Huber, a Sierra Club lawyer, didn’t return a voice-mail message seeking comment after regular business hours.
Daren Beaudo, a BP spokesman, declined to comment.
The case is In re Oil Spill by the Oil Rig Deepwater Horizon in the Gulf of Mexico on April 20, 2010, MDL-2179, U.S. District Court, Eastern District of Louisiana (New Orleans).
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Icahn’s High River Sues for Access to Forest Labs Records
High River LP, a firm controlled by billionaire Carl Icahn, sued Forest Laboratories Inc. (FRX) seeking details on a U.S. proposal to bar the company and Chief Executive Officer Howard Solomon from doing business with federal health programs.
Shareholders have a right to know what Solomon did or failed to do to warrant such an “unprecedented” action by the government, lawyers for High River said in the complaint filed yesterday in Delaware Chancery Court.
“The company’s public disclosures about this affair have been opaque, inaccurate and seemingly designed to reveal the least possible information,” High River said in the complaint. “The stockholders have not even been informed of the factual charges against Mr. Solomon.” U.S. Food and Drug Administration.
Forest said in April that it would contest plans by the Department of Health and Human Services’ Office of the Inspector General to bar it from U.S. programs. The action follows the company’s guilty plea and $313 million settlement last year for distributing its Levothroid drug before it was approved by the U.S. Food and Drug Administration.
Icahn’s claims are “entirely without merit,” Forest Labs said in an e-mail sent by outside spokesman Hugh Burns .
“The company previously has disclosed the sole basis of the HHS-OIG action against Mr. Solomon, which is that he is ‘associated with’ Forest,” the company said in the statement. “Mr. Solomon has never been accused of any wrongdoing in connection with the matters settled by the company in 2010.”
The case is High River Limited Partnership v. Forest Laboratories Inc., CA6614, Delaware Chancery Court (Wilmington).
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Google Sued for $421 Million by Paris Rival for Ad Policies
Google Inc. (GOOG) was sued in France by a local competitor over claims the world’s largest search engine blocks rivals from reaping advertising revenue and gives preference to its own sites in query results.
1PlusV, a Paris-based web publisher, filed the lawsuit to the Paris Commercial Court yesterday, seeking 295 million euros ($421 million) in damages and an order that Google post details of alleged “anti-competitive behavior” on its French home page for three months, 1PlusV said in an e-mailed statement.
“Google employed a number of anti-competitive practices and unethical behavior over a period of four years to cripple 1PlusV’s ability to generate business and advertising,” 1PlusV said in its statement. These practices include “suffocation of technological competitors” and “manipulation of ‘natural results.’”
1PlusV has made similar complaints against Google in two filings to European Union competition regulators last year and in February, saying the Mountain View, California-based company discriminates against so-called vertical search sites like 1PlusV. Other companies including Microsoft Corp. (MSFT) have joined with 1PlusV in asking for a review of Google’s practices.
“We have only just received the complaint so we can’t comment in detail yet,” Al Verney, a spokesman for Google in Brussels, said in an e-mailed statement. “We always try to do what’s best for our users. It’s the key principle that drives our company and we look forward to explaining this.”
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Deutsche Bank’s Fitschen Backs Lender’s View in Kirch Suit
Deutsche Bank AG (DBK) management board member Juergen Fitschen backed the testimony of other executives at the lender that they had no plan to make Leo Kirch hire the bank to restructure his media group in 2002.
Fitschen testified about a management board meeting on Jan. 29, 2002, as part of a 2 billion-euro ($2.85 billion) lawsuit filed by Kirch. At the meeting, Rolf Breuer, the bank’s chief executive officer at the time, talked about a dinner he had with then-Chancellor Gerhard Schroeder regarding Kirch Media. No decision was made to actively seek work from Kirch, Fitschen testified at the Munich appeals court yesterday.
“We agreed that Breuer should seek talks with Kirch to see where he stands,” said Fitschen. “Only after such a step had been taken would we have formed an opinion on what to do.”
Kirch has claimed Frankfurt-based Deutsche Bank secretly planned in 2002 to damage his reputation in an effort to exert pressure on him. According to Kirch, part of that plan was a Feb. 3, 2002, interview Breuer gave on Bloomberg Television in which the executive said, “everything that you can read and hear” is that “the financial sector isn’t prepared to provide further” loans or equity to Kirch. Within months, Kirch’s group filed the country’s biggest bankruptcy since World War II.
Fitschen testified yesterday regarding language in the minutes of the management board meeting. Chief Executive Officer Josef Ackermann and Chairman Clemens Boersig also had testified about that issue in May.
At the end of yesterday’s hearing, Presiding Judge Guido Kotschy said that under the court preliminary assessment, Ackermann and Boersig’s statement that the board only talked about what it would do if it was approached by a third party, wasn’t in line with the language of the minutes.
The judge also called “hardly believable” Breuer’s claims that his comments about Kirch during the TV interview were an “accident,” as the former Deutsche Bank chief had told the court in February.
The judges scheduled more hearings in October and November and will call several former executives of others lenders to testify about a Feb. 14, 2002, meeting to which Deutsche Bank had invited the media group’s banks. Kirch claims Deutsche Bank suggested then that his group be broken up. Among the witnesses to be called are Bernd Fahrholz, former Dresdner Bank AG CEO and former Commerzbank AG CEO Klaus-Peter Mueller.
The next hearing is scheduled for Oct. 25.
The case is OLG Muenchen, 5 U 2472/09.
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Judge Rejects SEC Claims That Morgan Keegan Misled Investors
A U.S. judge rejected Securities and Exchange Commission claims that Regions Financial Corp. (RF)’s Morgan Keegan brokerage unit misled investors about $2.2 billion in auction-rate securities before the market for the instruments collapsed in 2008.
“The SEC has not introduced any evidence to show that Morgan Keegan instituted a companywide policy encouraging its brokers to misrepresent ARS liquidity risks,” U.S. District Judge William S. Duffey Jr. said yesterday in a summary judgment in Atlanta. The “failure to predict the market does not amount to securities fraud.”
The SEC sued Morgan Keegan in July 2009, claiming it encouraged brokers to push the debt before the $330 billion market froze in February 2008, and customers weren’t told about the growing risk the securities could become difficult to sell. Since then, dozens of banks have returned billions of dollars to harmed investors.
John Nester, an SEC spokesman, said the agency is considering whether to appeal. A phone call after normal business hours to Tim Deighton, a spokesman for Birmingham, Alabama-based Regions, wasn’t immediately returned.
Federal and state regulators have sanctioned banks for selling auction-rate securities as safe, cash-like investments. The instruments are typically municipal bonds, corporate bonds and preferred stocks whose rates of return are periodically reset through an auction.
The SEC cited testimony of four customers claiming they were misled by Morgan Keegan brokers who allegedly said ARS were “cash equivalents” and “completely liquid,” according to the judgment. Duffey faulted the agency for arguing those investors’ claims were true for others.
“The SEC is attempting to bootstrap the investor-specific impact of the misrepresentations alleged by four individual investors as a grounds to seek relief for a whole class of investors without any evidence that the other investors received similar oral misrepresentations,” Duffey said in the judgment.
Ex-Credit Suisse Broker Butler Has Resentencing Postponed
Former Credit Suisse Group AG (CSGN) broker Eric Butler, whose securities-fraud conviction was overturned by an appeals court, had his resentencing postponed on two other convictions.
Butler was to be resentenced yesterday. In a letter June 27 to U.S. District Judge Jack B. Weinstein in Brooklyn, New York, his lawyers said Butler couldn’t be resentenced yet because of procedural issues. They also said Butler would agree to have the fraud charge remain in federal court in Brooklyn, even after the appeals court said it belonged in federal court in Manhattan. The agreement apparently means that the conviction would stand.
“The defendant will agree to venue in the Eastern District of New York,” they wrote.
Butler and his partner, Julian Tzolov, were convicted of intentionally misleading clients about securities purchased on their behalf.
One of Butler’s lawyers, Steven F. Molo, confirmed the adjournment in a phone interview and said the parties would have to discuss the procedural issues. Robert Nardoza , a spokesman for U.S. Attorney Loretta Lynch, declined to comment.
The case is U.S. v. Tzolov, 08-cr-370, U.S. District Court, Eastern District of New York (Brooklyn).
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Madoff Judge Approves $212 Million Deal With Feeder Funds
A judge approved a $212 million settlement between the trustee liquidating Bernard Madoff’s firm and two bankrupt U.S. funds related to the Fairfield Greenwich Group, the biggest so-called feeder fund in Madoff’s Ponzi scheme.
U.S. Bankruptcy Judge Burton Lifland approved the deal yesterday in bankruptcy court in Manhattan.
Trustee Irving Picard made changes to the deal after investors in Fairfield Sentry Ltd., a related fund, objected to the settlement, which is part of a total $4 billion deal with funds related to the Fairfield Greenwich Group. He agreed they could sue fund managers to try to recoup their losses.
Under the agreement with Greenwich Sentry LP and Greenwich Sentry Partners LP, Picard will drop claims of $212 million against the funds. The funds in return will reduce their claims against the Madoff bankruptcy estate and sign over claims they had made against Fairfield Greenwich Group, according to court papers.
Greenwich Sentry will cut its claim against the Madoff estate to $35 million, from more than $140 million, and the other fund’s claim will drop to about $2 million from $2.5 million.
Last month, Picard said he would end his effort to collect $3.8 billion that three offshore Fairfield funds allegedly withdrew from the Madoff firm in the final six years of the fraud. The offshore funds agreed to cut their claims on the Madoff estate.
Fairfield Greenwich Group, founded by Walter Noel, invested about $7 billion with Madoff, according to court documents.
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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