News Corp., Arch, UBS, Barclays, Galleon in Court News
News Corp. (NWSA) Chairman Rupert Murdoch and his sons Lachlan and James were sued in Manhattan federal court by a shareholder who says the phone-hacking scandal damaged the company and who described their actions as “damning.”
Gregory Shields, a News Corp. shareholder from California, alleges Murdoch and the other defendants breached their fiduciary duties by their actions, engaged in “gross mismanagement” of News Corp. and wasted corporate assets.
Shields’s case is a derivative suit, a claim filed on behalf of the company to enforce legal rights the company’s officers and directors have allegedly failed to assert.
The defendants “made false and/or misleading statements as well as failed to disclose material adverse facts about the company’s business,” Shields said in the complaint. “News Corp. has been damaged by News Corp. board’s failure to adequately address the unlawful activities that have occurred at the company.”
Julie Henderson, a spokeswoman for New York-based News Corp., didn’t immediately return a voice-mail message left at her office seeking comment about the suit. Bloomberg LP, the parent of Bloomberg News, competes with News Corp. units in providing financial news and information.
Shields said the value of the company’s stock has been reduced as a result of revelations that the company’s News of the World tabloid in the U.K. hacked into the voice mail of murdered teenager Milly Dowler. Since the scandal first broke, News Corp. stock has declined by about 7 percent and may drop further, he said. The final issue of the News of the World was published July 10.
The case is Shields v. Murdoch, 11-CV-4917, Southern District of New York (Manhattan).
SEC Freezes Assets of Swiss Firms in Insider Trading Case
The U.S. Securities and Exchange Commission won a temporary asset freeze against three Swiss firms, claiming they profited from insider trading in Arch Chemicals Inc. shares.
The SEC, in a case filed July 15 in Manhattan federal court, said two of the firms are controlled by Yomi Rodrig, a Turkish trader living in Geneva. The three are accused of making millions of dollars by buying Arch shares in the days before Basel, Switzerland-based Lonza Group Ltd. (LONN) announced on July 11 its plan to buy the specialty chemicals maker for $1.2 billion. The agency won the asset freeze the same day it filed the suit.
Arch rose 21 percent in the week before Lonza said it would buy all of the Norwalk, Connecticut-based company’s outstanding shares for $47.20 each. Arch jumped an additional 12 percent the day of the announcement to close at $47.37.
The companies allegedly controlled by Rodrig are Compania Internacional Financiera and Geneva-based Coudree Capital Gestion SA, according to the complaint. The third defendant, Chartwell Asset Management Services, is described in the complaint as an investment adviser based in Geneva.
U.S. District Judge Denise Cote scheduled a hearing July 28 to consider whether to extend the asset freeze.
In 2005, Rodrig agreed to forfeit more than $4.8 million in trading profits and pay a penalty of $1.4 million to resolve an SEC claim that he violated short-selling rules. Rodrig settled without admitting or denying the SEC’s allegations.
“As I read the complaint, it simply says the trades were suspicious,” Ira Sorkin, a lawyer for Rodrig, said yesterday in a telephone interview. “That’s not the standard for trading on inside information.”
The case is SEC v. Compania Internacional Financiera SA, 11-CV-4904, U.S. District Court, Southern District of New York (Manhattan).
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Cuban Can’t Claim ‘Unclean Hands’ in SEC Case, Judge Says
Mark Cuban, the billionaire owner of the Dallas Mavericks, can’t argue the U.S. Securities and Exchange Commission’s insider-trading case against him is mostly barred because the agency investigated him in an improper manner, a judge ruled.
U.S. District Judge Sidney A. Fitzwater granted the SEC’s request to remove Cuban’s so-called unclean hands defense in a decision yesterday.
The defense is available “only in strictly limited circumstances” including when misconduct “results in prejudice to the defense of the enforcement action that rises to a constitutional level and is established through a direct nexus between the misconduct and the constitutional injury,” which Cuban hasn’t shown, Fitzwater wrote in his ruling.
The SEC sued Cuban in 2008, accusing him of trading on confidential information when he sold his stake in Mamma.com Inc., a Canadian Internet search company, just before it announced a private placement of shares.
“This was a minor legal skirmish over whether we could bring this affirmative defense,” Lyle Roberts, a lawyer for Cuban at Dewey & LeBoeuf LLP in Washington, said in a phone interview.
Cuban argued in a Feb. 4 court filing that, in its investigation of him, the agency “engaged in egregious acts of misconduct” and conducted the probe “in an unfair, biased and improper manner.”
Cuban said the SEC was determined to bring an action regardless of what evidence it uncovered and it didn’t give him a fair opportunity to argue against such an action, which is typically allowed.
The case is Securities and Exchange Commission v. Cuban, 08-cv-2050, U.S. District Court, Northern District of Texas (Dallas).
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UBS Wins Bid to Hear Ex-Client Payment Dispute in Singapore
UBS AG (UBSN) won a bid to have its $12.6 million lawsuit against former client Scott Francis Tyne and his Telesto Investments Ltd. heard in Singapore instead of Australia, where Tyne sued the lender.
UBS had demanded Tyne and Telesto pay the sum, which it claims he owes, after arguing that he violated an understanding not to sue. Tyne sued the bank in Australia alleging UBS breached its duty to Telesto by selling it Kazakhstan bank bonds that later defaulted.
“Singapore is not only the natural forum for the determination of the dispute but is clearly and distinctly the more appropriate forum,” Singapore High Court Judge Steven Chong wrote in an 87-page July 14 ruling.
Telesto had borrowed $60 million from Zurich-based UBS and had a shortfall in its account in October 2008 when the value of its investments fell in the midst of the global financial crisis, UBS said in its lawsuit. Tyne was the personal guarantor for the loan taken out by Telesto, a trust company registered in Jersey, the Channel Islands.
The Swiss bank ended an agreement not to sell his assets in October, saying Telesto broke an understanding when it sued the bank, according to the Singapore lawsuit. Tyne had waived his claims against UBS by accepting a standstill agreement, the bank said.
UBS’s lawyer Hri Kumar had sued to stop Tyne from pursuing the case in Australia.
The case is UBS AG v. Telesto Investments Ltd. & Scott Francis Tyne S801/2010 in the Singapore High Court.
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Ex-Galleon Fund Manager Cardillo to Pay $68,000 in SEC Suit
Michael Cardillo, who pleaded guilty in the Galleon Group LLC hedge-fund insider trading case, was ordered to pay more than $68,000 as part of a U.S. Securities and Exchange Commission suit.
Cardillo pleaded guilty in January to securities fraud and conspiracy and agreed to cooperate with the government. U.S. District Judge Richard J. Sullivan yesterday ordered Cardillo to pay $68,520, representing profits he gained as a result of his conduct and other penalties. He was sued by the SEC in January.
Cardillo, who worked at Galleon from 2003 to 2009 in the back office and was a trader and portfolio manager, testified in May as a government witness at the insider-trading trial of former Galleon trader Zvi Goffer, his brother Emanuel Goffer and Michael Kimelman, who worked with both brothers at Incremental Capital LLC after Zvi Goffer left Galleon.
The Goffer brothers and Kimelman were convicted in June on charges of securities fraud and conspiracy stemming from one of three overlapping rings tied to Galleon co-founder Raj Rajaratnam.
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.
The case is SEC v. Cardillo, 11-CV-549, Southern District of New York (Manhattan).
Former Commodities Trader Pleads Guilty in Threats Case
Former commodities trader Vincent P. McCrudden, accused of threatening to kill financial regulators, pleaded guilty yesterday.
McCrudden pleaded guilty to two counts of transmission of threats to injure, before opening arguments were scheduled to begin in his trial in federal court in Central Islip, New York. The charges carry a maximum sentence of 10 years in prison. His sentencing was scheduled for Dec. 5.
McCrudden, 50, who also ran his own hedge funds, was accused of threatening the lives of 47 current and former officials, including Securities and Exchange Commission Chairwoman Mary L. Schapiro and Commodity Futures Trading Commission Chairman Gary Gensler.
McCrudden has been held without bail since he was arrested Jan. 13 returning from Singapore. He was charged with threatening the regulators in profanity-filled e-mails and, after the CFTC sued him in December, Web postings. McCrudden had said he was being persecuted for fighting back against unfair regulatory actions that destroyed his career.
The government estimated that federal guidelines call for a sentencing range for McCrudden of 27 to 33 months in prison, Hurley said. In court yesterday, McCrudden said the execution list was meant to be “provocative.”
“I had no intent to injury or bodily harm anybody,” he said. He apologized to his victims and to his family.
“I’m not sure there was any one factor,” Barket said. “Vince just realized it would be a better thing for him to admit what he did.”
The criminal case is U.S. v. McCrudden, 11-cr-61, and the civil case is U.S. Commodity Futures Trading Commission v. McCrudden, 10-cv-5567, U.S. District Court, Eastern District of New York (Central Islip).
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Barclays Settles Part of Lawsuit by Ex-Bond Trader’s Fund
Barclays Plc (BARC) settled part of an ongoing legal battle with a hedge fund set up by one of its former bond and derivative traders, which shut after the bank withdrew its money.
Nylon Capital LLP, founded by former Barclays proprietary trader Alan Burnell, had sought 10.6 million pounds ($17 million) from London-based Barclays for expenses it said it was owed following the closure of its flagship fund in 2010. Barclays asked for a ruling that it didn’t have to return any of the profits made on its initial investment in the fund.
In a ruling handed down yesterday, a U.K. judge said the two sides had “reached agreement.”
Jon Laycock, a spokesman for Barclays Capital, said the two sides “resolved this matter to their mutual satisfaction” and declined to comment further. Neil Bennett, a spokesman for the hedge fund, said the process was ongoing and declined to comment further.
Nylon Capital has made another claim for damages against Barclays over the closure of its fund at the London Court of International Arbitration. In a company filing in May, Nylon Capital said the arbitration court found that Barclays breached its contractual obligations when it “prematurely redeemed its investment.” A hearing to assess damages hasn’t yet been set, it said.
Burnell, former European head of government bonds and fixed income derivatives at investment bank Barclays Capital, founded Nylon Capital in 2004. Barclays provided 250 million pounds of seed capital and took a minority stake in the partnership managing the funds, court documents show.
When Barclays withdrew its money in 2009, Nylon Capital liquidated its assets and returned the remaining cash to investors.
The case is Barclays Bank Plc v. Nylon Capital LLP, Case no. 10-00897, High Court of Justice, Chancery Division (London)
WexTrust’s Shereshevsky Gets 21-Year Prison Term for Fraud
WexTrust Capital LLC co-founder Joseph Shereshevsky was sentenced to 21 years and 10 months in prison after pleading guilty to defrauding victims of at least $9.2 million as part of a Ponzi scheme.
Shereshevsky, 54, and WexTrust co-founder Steven Byers were charged in 2008 with lying to investors in their now-collapsed real estate fund. Many of their victims were members of the Orthodox Jewish community. The penalty was at the top of the range suggested by federal guidelines. Byers was sentenced to more than 13 years in April.
“Mr. Shereshevsky very much had a controlling role in this criminal enterprise,” U.S. Circuit Judge Denny Chin said in a hearing yesterday in Manhattan. “Although he purports to be a religious man, he preyed on his own community.”
Shereshevsky, the former chief operating officer of Chicago-based WexTrust, pleaded guilty to mail fraud, conspiracy and securities fraud in February. Chin said yesterday that victims may have lost more than $20 million.
Prosecutors claimed Byers and Shereshevsky told investors they planned to buy residential and commercial properties in Illinois, North Carolina, Wisconsin, New York and elsewhere. Instead, they paid investor returns and financed unrelated projects, the government said.
The criminal case is U.S. v. Byers, 08-cr-1092, U.S. District Court, Southern District of New York (Manhattan).
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News Corp. Says Lawyer to Lead Internal Phone-Hacking Probe
News Corp. appointed Anthony Grabiner, a U.K. lawyer and chairman of retailer Arcadia Group Plc, to lead an internal probe into phone hacking at its News of the World newspaper.
Grabiner, who represented Liverpool Football Club last year in a legal battle with former owners Tom Hicks and George Gillett, will head a committee investigating wrongdoing by employees, News Corp. said yesterday. Grabiner will serve as an independent director on the management and standards committee with Simon Greenberg, corporate affairs director at the News International U.K. unit, and General Manager Will Lewis.
The 66-year-old Grabiner “will bring his undoubted experience and intellect to this very important role,” News Corp. Executive Vice President Joel Klein said in a statement. “His appointment clearly demonstrates that we are serious about putting things right that have gone wrong in the past.”
The move is a step for News Corp. Chairman Rupert Murdoch to address the crisis at the News of the World that has forced the closure of the 168-year-old Sunday tabloid, the resignation of two senior executives and shelved News Corp.’s 7.8 billion pound ($12.5 billion) bid for full ownership of British Sky Broadcasting Group Plc.
The new committee will report to Klein, Murdoch’s top adviser, and Viet Dinh on behalf of News Corp.’s independent directors, the company said in the statement.
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Obama to Pick Former Ohio Attorney General for Consumer Post
President Barack Obama said he will nominate former Ohio Attorney General Richard Cordray to lead the Consumer Financial Protection Bureau, which opens this week amid continuing political fights about its scope.
Cordray is currently the assistant director for enforcement at the bureau.
After losing his bid for re-election in November, Cordray was recruited by Elizabeth Warren, the Harvard University professor who developed the idea for the new agency and was appointed by Obama last fall to set it up.
Warren’s prospects for becoming director of the bureau suffered a setback last year when Christopher Dodd, the Connecticut Democrat then in charge of the Senate Banking Committee, said she couldn’t win confirmation.
A onetime law clerk to U.S. Supreme Court Justices Byron White and Anthony Kennedy, Cordray has personally argued seven cases before the high court. He was also a five-time winner on the quiz show “Jeopardy.”
As attorney general, he sued GMAC Mortgage LLC and its corporate parent, Ally Financial Inc. (ALLY), accusing them of using fraudulent affidavits in court cases over foreclosures in Ohio, according to the state’s website. His office also managed litigation against financial firms including American International Group (AIG) and Bank of America Corp.
Cordray recovered “more than $2 billion” through the lawsuits he brought, the White House said in its statement.
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Personal-Injury Lawyer Shkolnik Sued by Former Law Firm
Hunter Shkolnik, a lawyer who successfully represented injured defibrillator users against Medtronic Inc. (MDT) and Boston Scientific Corp. (BSX), was sued by his former law firm over claims he solicited clients for a rival.
Shkolnik, who left Rheingold, Valet, Rheingold & McCartney LLP last week for Napoli Bern Ripka LLP, allegedly took more than 600 client files, confidential client lists and electronic data from Rheingold’s computer system, according to the complaint filed yesterday in New York State Supreme Court. Rheingold is seeking a temporary restraining order while the parties are engaged in arbitration.
“Shkolnik’s wrongful taking and use of the firm’s confidential client information to solicit or attempt to induce the firm’s clients to leave the firm threatens the lifeblood of the firm,” Rheingold said in the filing.
Napoli Bern said July 12 that the firm would change its name to Napoli Bern Ripka Shkolnik LLP to reflect Shkolnik’s addition as a senior partner. Shkolnik spent more than 15 years at Rheingold and led that firm’s complex and mass tort litigation, according to Napoli’s statement.
“I’m allowed to contact my former clients and allowed to be retained by them,” Shkolnik said yesterday in a phone interview after a court hearing in the case. “I’ve moved on to my new firm and look forward to servicing my old clients.”
A judge declined to grant Rheingold a temporary restraining order, Shkolnik said. The firm’s senior partner, Paul Rheingold, didn’t immediately return an e-mail seeking comment. A call to Rheingold’s New York offices seeking comment wasn’t immediately returned.
The case is Rheingold Valet Rheingold Shkolnik & McCartney LLP v. Shkolnik, Supreme Court of the State of New York County of New York, 651945/2011.
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