Goldman, FrontPoint, A&P, TCW, Facebook, BofA in Court News
Goldman Sachs Group Inc. (GS) was sued by Allstate Insurance Co. over the sale of more than $100 million worth of residential mortgage-backed securities that the insurer claims the bank itself called “junk” and “lemons.”
Allstate asked for damages including the lost market value of the securities, plus principal and interest payments in the complaint filed yesterday in New York state Supreme Court in Manhattan.
The insurer, based in Northbrook, Illinois, has filed similar suits against JPMorgan Chase & Co. (JPM) over $700 million of mortgage-backed securities the bank sold the insurer; Credit Suisse Group AG (CSGN) units for more than $231 million of the securities; Bank of America Corp.’s Merrill Lynch unit over some $167 million; Citigroup Inc. (C), over more than $200 million; and Deutsche Bank AG, over about $185 million. Allstate said the banks misrepresented underwriting standards, owner occupancy data and loan-to-value ratios.
Goldman Sachs knew these types of securities were “junk,” “dogs,” “crap” and “lemons,” according to yesterday’s suit, which claims the words are Goldman Sachs’s own, recently revealed in governmental investigations, to describe them.
Michael Duvally, a spokesman for Goldman Sachs, declined to comment on the suit.
Allstate purchased more than $123 million of the securities from April 2006 to March 2007 in reliance on Goldman Sachs’s misrepresentations and omissions, according to the complaint.
The case is Allstate Insurance Co. v. Goldman Sachs & Co., 652273/2011, New York state Supreme Court (Manhattan).
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Ex-FrontPoint Manager Skowron Pleads Guilty in Insider Case
Ex-FrontPoint Partners LLC hedge fund manager Joseph F. “Chip” Skowron pleaded guilty in a U.S. insider-trading case.
Skowron, a medical doctor, pleaded guilty to one count of conspiring to commit securities fraud and to obstruct a Securities and Exchange Commission investigation. He was accused of trading on inside information about Human Genome Science Inc. and then lying to investigators.
“I knew my actions were wrong and I deeply regret my participation in these activities,” Skowron told U.S. District Judge Denise Cote in Manhattan yesterday. Skowron faces as much as five years in prison when sentenced Nov. 18.
The government claimed that Skowron obtained nonpublic information from Yves Benhamou, an expert in hepatitis drugs and a former adviser for Human Genome Sciences. The tips, concerning hepatitis C drug trials, let Greenwich, Connecticut-based FrontPoint avoid more than $30 million in losses, the U.S. said. Benhamou has pleaded guilty.
Benhamou acted as a paid consultant to hedge funds while working as an adviser to HGSI and serving on its steering committee for trials of Albuferon, a hepatitis treatment, the U.S. said. Prosecutors claimed Skowron gave Benhamou more than $14,600 in cash and paid for hotel rooms and expenses.
The guilty plea is the latest in a nationwide federal investigation into insider trading at hedge funds.
“Dr. Skowron lied to and misled FrontPoint’s internal compliance team, the external counsel hired to independently investigate his actions, and the federal government,” FrontPoint said in a statement yesterday. “FrontPoint was never accused of any wrongdoing and has fully resolved this matter with the government.”
In a plea agreement, prosecutors and lawyers for Skowron agreed that federal sentencing guidelines would call for him to serve 87 to 108 months in prison. Conspiracy carries a top sentence of 60 months, or five years.
In addition, Skowron faces the possibility of three years supervised release and a fine, according to Cote. As part of the plea agreement he agreed to forfeit $5 million to the government.
The criminal case is U.S. v. Skowron, 11-MAG-00997; the civil case is Securities and Exchange Commission vs. Benhamou, 10-cv-8266, U.S. District Court, Southern District of New York (Manhattan).
Former Ahold Executive Kaiser Pleads Guilty in Fraud Case
The ex-marketing chief of a former U.S. unit of Dutch grocer Royal Ahold NV pleaded guilty to conspiracy 13 months after his previous conviction for overstating earnings was overturned.
Former U.S. Foodservice Inc. executive Mark Kaiser, 54, admitted yesterday in Manhattan federal court to participating in an $800 million securities fraud. At his sentencing Dec. 7, he could receive as much as five years in prison.
Prosecutors alleged Kaiser made fraudulent representations about U.S. Foodservice’s financial condition in a bid to burnish his resume for a promotion at the Columbia, Maryland-based unit. He was convicted in 2006 of helping the subsidiary inflate profits from 2000 to 2003 by wrongly recording promotional rebates as income and sentenced to seven years in prison.
In July 2010, the U.S. Court of Appeals in New York threw out his convictions for securities fraud, conspiracy and four counts of making false filings with the U.S. Securities and Exchange Commission. The appeals court said he was entitled to a new trial because the lower court judge erred by admitting into evidence the statement of the unit’s general counsel.
Royal Ahold, based in Amsterdam, sold U.S. Foodservice in 2007 to Kohlberg Kravis Roberts & Co. and Clayton Dubilier & Rice Inc. for $7.1 billion.
The case is U.S. v. Kaiser, 04-cr-733, U.S. District Court, Southern District of New York (Manhattan).
Ex-Optionable Chief Admits to Scheme to Hide Bank Losses
Cassidy, 52, pleaded guilty yesterday in Manhattan federal court to one count of conspiracy to commit wire fraud. The judge set a Dec. 15 sentencing date.
The case stems from C$680 million ($690.5 million) of pretax commodity-trading losses the bank announced in April 2007. Those losses grew to C$853 million for the fiscal year, paring profit by C$440 million. Cassidy was charged with fraud in 2008 for helping a former trader at the bank conceal the losses.
Cassidy, an ex-convict who hid his criminal record, helped former trader David Lee hide commodity losses from the bank to win business for Optionable, a brokerage firm focusing on energy derivatives, according to prosecutors.
Cassidy was sentenced to 30 months in prison for credit-card fraud in 1997 and six months for income-tax evasion in 1993, court records show.
The case is U.S. v. Cassidy, 08-CR-1101, U.S. District Court, Southern District of New York (Manhattan).
A&P Reaches Settlement With OfficeMax Over Executive Hires
The agreement ends litigation between the companies and allows A&P to focus on its restructuring, Montvale, New Jersey- based A&P said in an Aug. 12 bankruptcy court filing. Terms of the settlement are confidential.
OfficeMax, based in Naperville, Illinois, sued A&P, its Chief Executive Officer Sam Martin and two other executives last year. The office-supply company said Martin left to join A&P and improperly recruited the other two executives in violation of agreements with OfficeMax.
The bankruptcy case is Great Atlantic & Pacific Tea Co. (GAP) Inc., 10-24549, U.S. Bankruptcy Court, Southern District of New York (White Plains).
British Man Confesses in German Carbon-Trading Tax-Fraud Trial
A British national confessed he was one in a chain of carbon-emission trading company managers who cost Germany about 230 million euros ($332 million) in lost tax revenue.
The 27-year-old man, whose full name can’t be used under German law, is one of six suspects in a trial that began yesterday in Frankfurt on claims they took advantage of German valued-added tax rules in place until June 2010. Like other suspects, he ran a trading company and sold certificates to Deutsche Bank AG. (DBK)
“It was clear that, with the under-market prices we were trading at, someone in the line before me must have evaded the 19 percent of value-added tax and the trading chain was part of the arrangement,” he told the court. “I thought at the time that my actions were only morally wrong. I know now that they are also a form of criminal tax evasion.”
The case is part of the biggest crackdown on emissions- related tax fraud since Europe began its cap-and-trade system in 2005. German authorities enlisted assistance from 10 countries last year and froze 100 million euros in funds. Frankfurt prosecutors estimate German tax authorities lost a total of 850 million euros and are investigating a total of 170 people. The six on trial yesterday were indicted first because they are in custody.
Presiding Judge Martin Bach disclosed the court had told the defendants in April that they may get a reduced sentence if they confessed. A sentence of about seven years in prison is likely for the man who confessed, Bach said.
The court has scheduled more than 40 additional trial days through March. The trial will resume on Aug. 22 when a second defendant is scheduled to address the court on the allegations.
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DoubleLine’s Gundlach Says He Offered to Buy TCW in 2009
DoubleLine Capital LP’s Jeffrey Gundlach testified that in September 2009 he offered to buy TCW Group Inc., the asset- management company that fired him three months later.
Gundlach, who started DoubleLine weeks after TCW fired him in December 2009, told a Los Angeles jury yesterday that he offered about $350 million for 51 percent of the firm. TCW claims that Gundlach and three other former TCW employees stole its trade secrets to open a rival business. Gundlach says TCW fired him to avoid paying hundreds of millions of dollars in fees.
TCW, the Los Angeles-based unit of Societe Generale (GLE) SA, sued Gundlach, 51, in January 2010, a month after more than half of TCW’s fixed-income professionals had joined his new firm. TCW seeks $375 million in damages, claiming Gundlach stole its trade secrets, including client portfolio data, to start DoubleLine.
Gundlach, who had worked at TCW for 25 years and who was named Morningstar’s Fixed Income Manager of the Year in 2006, countersued, saying that TCW fired him to avoid having to pay management and performance fees for the distressed-asset funds his group managed and that went “through the roof.” Gundlach seeks about $500 million.
TCW argues that Gundlach wouldn’t have been able to get DoubleLine started so quickly if he hadn’t had access to TCW trade secrets and confidential information.
Gundlach testified that he offered to buy the majority stake in TCW at a Sept. 3, 2009, meeting with the firm’s chief executive officer, Marc Stern, when he thought Stern was about to fire him. The case is Trust Co. of the West v. Gundlach, BC429385, California Superior Court, Los Angeles County.
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Deutsche Post Appeals Court Ruling on E-Postbrief Advertising
Deutsche Post AG (DPW), the world’s biggest carrier of air and sea freight by volume, is appealing a court decision forbidding the marketing of its E-Postbrief electronic-message service as being as secure as normal mail.
The E-Postbrief isn’t allowed to be advertised as “as safe and reliable as a letter” or as having “the advantages of the classic letter on the Internet” because the service doesn’t allow senders to sign a legally binding physical document, according to a June 30 ruling by the regional court in Deutsche Post’s headquarters city of Bonn. The case was brought by Germany’s VZBV consumer-rights association.
Deutsche Post has already filed an appeal to the Higher Regional Court in Cologne, Matthias Nordmeyer, a spokesman at the court in Bonn, said yesterday. The postal service contends in the appeal that the E-Postbrief has contractual validity in certain cases that should allow the advertising to continue, Stefan Hess, a spokesman for Deutsche Post, said in a phone interview.
“There have always been certain contracts, those which need a signature on paper, which aren’t legally binding if communicated via E-Post,” Hess said. “But there are also others, such as bills of sale, which can be, and we don’t therefore think that these are misleading advertising slogans.”
Oscar Mayer Wieners Battle Ball Park Franks in Hot Dog Fight
Sara Lee Corp. (SLE), the maker of Ball Park-brand frankfurters, began its trial against Oscar Mayer Wiener-making regional rival Kraft Foods Inc. (KFT) over which company’s advertisements are truthful.
Kraft, the world’s second-biggest food company, stands accused of deceiving consumers about the ingredients in franks it says are 100 percent beef and of lying about taste-test results. Northfield, Illinois-based Kraft countersued, claiming Downers Grove, Illinois-based Sara Lee is lying about its claim to award-winning taste for its products.
The trial over encased meats began yesterday midway between each company’s headquarters at the federal courthouse in Chicago, where the common hot dog is served on a poppy seed bun topped with yellow mustard, green relish, diced tomatoes, chopped onions, sport peppers and a quarter of a pickle.
“Let the wiener wars begin,” U.S. Magistrate Judge Morton Denlow said as the proceeding started.
Consumers in the U.S. bought more than $1.6 billion worth of hot dogs last year, eating about 7 billion of them from the federal holidays of Memorial Day in late May to Labor Day at the beginning of September, according to statistics compiled by the National Hot Dog & Sausage Council, a Washington-based meat industry advocacy group.
Sara Lee, which also produces desserts, breads, coffees and luncheon meats, sued Kraft in 2009, alleging it violated Illinois laws prohibiting deceptive trade practices. Sara Lee, challenging the composition of Oscar Mayer 100 percent jumbo beef franks, seeks unspecified money damages in the trial.
The hot dogs, according to Sara Lee’s complaint, contain water, salt, corn syrup, paprika, dried garlic, spices and other ingredients.
“The product is neither 100 percent, nor pure beef,” according to Sara Lee’s complaint, which also accuses Kraft of lying about taste-test results.
Kraft engaged in a “massive and unprecedented” campaign to mislead consumers, Sara Lee lawyer Richard Leighton told Denlow yesterday. He said the campaign was driven by Kraft’s fear that Ball Park sales would eclipse those of Oscar Mayer.
Kraft, the maker of Nabisco cookies, A-1 steak sauce, Cool Whip dessert toppings and Velveeta processed cheese, accused Sara Lee of violating the state’s deceptive-trade laws by claiming its Ball Park Angus Beef Franks won prizes they didn’t win.
“Sara Lee did not possess competent and reliable evidence that the claims were true,” Kraft said in its complaint. Kraft also seeks unspecified money damages.
The case is Sara Lee Corp. v. Kraft Foods Inc., 09-cv- 03039, U.S. District Court, Northern District of Illinois (Chicago).
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Facebook Says ‘Authentic’ Ceglia Contract Proves Claims Phony
Facebook Inc. says its discovery of an “authentic contract” between its chief executive officer, Mark Zuckerberg, and Paul Ceglia shows the western New York man’s claims to part- ownership of the company are phony.
The document, which doesn’t mention Facebook, was found on Ceglia’s computer, embedded in electronic data from 2004, according to papers filed by Facebook yesterday in federal court in Buffalo, New York. It refers only to StreetFax, a company Ceglia was trying to start at the time.
Facebook attached a blurry image of the contract to its court papers. The document, dated April 28, 2003, appears to include signatures by Zuckerberg and Ceglia and a handwritten addition to the contract’s terms.
“The court-ordered forensic testing has uncovered the authentic contract between Mark Zuckerberg and StreetFax that Ceglia attempted to conceal,” Facebook said in its filing. “This smoking-gun evidence confirms what defendants have said all along: the purported contract attached to the complaint is an outright fabrication.”
If the contract included in yesterday’s Facebook filing proves to be genuine, it would doom Ceglia’s claim to part- ownership of the world’s biggest social-networking site. Facebook is valued at $69.2 billion, according to Sharespost.com, an online marketplace for shares of privately held companies.
Ceglia claims, in his suit filed last year, that Zuckerberg agreed to give him a share of Facebook in exchange for $1,000 in start-up money.
Ceglia’s lawyer, Jeffrey Lake, didn’t return a phone message yesterday seeking comment on the Facebook filing.
U.S. Magistrate Judge Leslie Foschio last month ordered Ceglia to let Facebook run forensic tests on his computers, hard drives and electronic storage media, as well as on the contract and the e-mails he says support his claim. In court papers Aug. 5, Palo Alto, California-based Facebook said its inspection, by the computer forensics firm Stroz Friedberg LLC, had turned up “smoking gun” evidence of fraud.
The case is Ceglia v. Zuckerberg, 1:10-cv-00569, U.S. District Court, Western District of New York (Buffalo).
BofA, Other Banks Can Resume N.J. Mortgage Servicing
Citigroup Inc.’s mortgage unit and Wells Fargo & Co. (WFC) also won permission in an order yesterday by Superior Court Judge Mary Jacobson in Trenton, New Jersey. Each had to show their processes and procedures to ensure that information in uncontested foreclosures is based on a personal review of records. The judge ordered the four lenders to undergo monitoring.
The lenders were among six whose practices came under scrutiny Dec. 20, when New Jersey Supreme Court Chief Justice Stuart Rabner said they were implicated in “robo-signing,” in which foreclosure documents were automatically signed without personal verification of the contents.
For each bank, Jacobson signed an order outlining a series of conditions, including: Has the bank “established specific procedures for staff to ensure that the information set forth in affidavits/certifications submitted in foreclosure proceedings is based on a personal review of business records?”
The orders didn’t affect two other banks subject to the review, Ally Financial Inc. and OneWest Bank.
In announcing the review last year, Rabner said New Jersey was the first U.S. state to take such an action. The state’s courts received 21,752 new foreclosures in 2006 and 65,222 in 2010 through late December. Only 6 percent of cases were contested last year, meaning 94 percent lacked “any meaningful adversarial proceeding,” according to a court order at the time.
Attorneys general from all 50 states in October started probing mortgage servicers after revelations that they may have acted illegally in having employees sign affidavits that they didn’t review. State and federal officials are negotiating a settlement with the five largest mortgage servicers.
The case is In the Matter of Residential Mortgage Foreclosure Pleading and Document Irregularities, Superior Court of New Jersey, Chancery Division-General Equity Part, F-59553- 10, Mercer County (Trenton).
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Wisconsin Prosecutor Probes Pre-Labor Ruling Judge Assault
The district attorney of Wisconsin’s Sauk County will probe the alleged assault of one state supreme court justice by another on the day before the panel upheld a law restricting collective bargaining.
The incident allegedly took place June 13 at the court in Madison, the seat of Dane County. The next day, it reinstated the legislation, which applies to state employees.
Dane County District Attorney Ismael Ozanne, who filed the suit that led to the ruling, had sought the appointment of a special prosecutor to investigate the incident involving Justices David Prosser and Ann Walsh Bradley. Bradley accused Prosser of putting her in a chokehold, a claim Prosser denied, according to the Milwaukee Journal Sentinel.
Ozanne cited a report from the office of Sheriff David Mahoney in making his request to Dane County Chief Judge C. William Foust, who announced the appointment yesterday of Patricia Barrett, a Republican. She declined to comment on her selection.
Prosser and Bradley couldn’t be immediately reached. Tom Sheehan, a spokesman for the state supreme court, said Prosser “is not able to comment” and Bradley isn’t available to comment.
Ozanne, a Democrat, challenged Republican Governor Scott Walker’s collective-bargaining legislation in a suit filed in March asserting Republican legislators violated the Open Meetings Law, invalidating the adoption by the state senate.
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Lawyer Daugerdas Seeks New Trial Based on Juror Misconduct
Paul Daugerdas, a former lawyer at the defunct law firm Jenkens & Gilchrist, and three other defendants convicted of a 10-year tax shelter scheme asked a judge for a new trial, claiming a juror lied about her background to get on the panel.
In papers filed in Manhattan federal court, lawyers for the convicted defendants claimed that Catherine Conrad, Juror No. 1 in the trial, hid details of her background from the court, including a law degree, at least four arrests and the fact that she is serving a sentence of probation for shoplifting.
The request for a new trial was dated July 8. U.S. District Judge William Pauley yesterday ordered the request made public.
In May, the jury including Conrad convicted Daugerdas on more than 20 criminal counts, including conspiracy, tax evasion and attempting to impede the Internal Revenue Service. The jurors found three of Daugerdas’s co-defendants guilty of tax evasion and other charges and acquitted a fourth.
There was no answer at an office phone listing for Catherine Conrad, a suspended Bronx, New York, attorney identified by the defendants as Juror No. 1. A voice message wasn’t immediately returned. It couldn’t be independently confirmed whether the suspended attorney is the same person as Juror No. 1.
Carly Sullivan, a spokeswoman for U.S. Attorney Preet Bharara in Manhattan, declined to comment on the matter.
In court papers unsealed yesterday, defense investigators said they first looked into Conrad’s background after she sent a May 25 letter to Assistant U.S. Attorney Stanley Okula praising the prosecution team and discussing the jury’s deliberations.
In the letter, Conrad described herself as “the nerdy person with the ‘Susan Brune’ glasses, I was always head down taking notes!” Susan Brune is a lawyer who represented convicted defendant David Parse, an accountant who formerly worked as a client adviser at Deutsche Bank AG unit Alex. Brown, in the case.
In the letter, Conrad said she “held out for two days” to convict Parse of a conspiracy charge, then “had to throw in the towel.”
The defendants claim Conrad wouldn’t have been permitted to serve on the jury if she had told the truth about her background. Her presence on the panel deprived them of a fair trial, they said.
The case is U.S. v. Daugerdas, 09-CR-581, U.S. District Court, Southern District of New York (Manhattan).
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