Rajaratnam, Boeing, Madoff, Rye, HSBC, BofA in Court News
Federal prosecutors asked a judge to unseal medical information that Raj Rajaratnam, the hedge fund manager convicted of directing a massive insider trading ring, is using to argue for a reduced sentence.
The public has a constitutional right to view the documents because Rajaratnam is using them to support his argument for leniency, prosecutors told U.S. District Judge Richard Holwell yesterday in a court filing in Manhattan.
“While individuals have a right to medical privacy, Rajaratnam waived such rights, at least in part, by arguing that his medical conditions justify departing or varying from the sentencing guidelines,” prosecutors said in the filing. “The public has a First Amendment right to see the arguments and declarations that both parties submitted to this court about the impact of his medical condition on sentencing.”
Rajaratnam, 54, was convicted in May on all 14 criminal counts against him. Prosecutors said he gained $63.8 million by trading with inside information in 11 stocks, including Goldman Sachs Group Inc. (GS), Intel Corp. (INTC), Google Inc. (GOOG), ATI Technologies Inc. and Clearwire Corp. (CLWR)
Prosecutors have asked Holwell to give Rajaratnam, the co- founder of Galleon Group LLC, from 19 1/2 to 24 1/2 years in prison. Rajaratnam’s lawyers, calling the government’s proposal “grotesquely severe,” asked Holwell for a sentence “substantially below” that. Rajaratnam is scheduled to be sentenced Oct. 13.
Terence Lynam, a lawyer for Rajaratnam, declined to comment on his client’s medical condition or on the government’s court filing. Rajaratnam hasn’t disclosed the nature of any illnesses he is using to argue for a lower sentence.
The case is U.S. v. Rajaratnam, 1:09-cr-01184, U.S. District Court, Southern District of New York (Manhattan).
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Boeing Plant Workers Arrested in Prescription-Drug Scheme
U.S. prosecutors charged 37 people with operating an illegal prescription-drug ring at a Boeing Co. (BA) plant in Ridley Park, Pennsylvania, where the Chinook military helicopter is manufactured.
All but one of the people worked at the plant, which also makes the V-22 Osprey, and no quality or safety problems were found in aircraft being built there, Philadelphia U.S. Attorney Zane Memeger said at a news conference yesterday. Chicago-based Boeing reported the suspected activity to federal authorities four years ago, he said.
“This investigation and prosecution focused not only on the sellers but also on the users because of the critical role that these employees play in manufacturing military aircraft,” Memeger said.
Federal Bureau of Investigation and Drug Enforcement Administration agents raided the plant yesterday, arresting 27 people, Memeger said. Nine others were arrested elsewhere, he said. Memeger wouldn’t comment on the 37th person’s whereabouts.
Twenty-three people face individual indictments for distributing drugs including Actiq, Oxycontin and Xanax. Fourteen others who weren’t indicted face misdemeanor charges of possession. said. Memeger wouldn’t comment on the 37th person’s whereabouts.
Boeing said yesterday that it monitored the employees, who worked in production areas, beginning in August 2007 as part of the federal investigation. Of those arrested, 33 were current employees, said Damien Mills, a Boeing spokesman. More than 6,000 people work at the plant, he said.
“We took appropriate steps to ensure the safety of our employees and the absolute integrity and quality of the products we produce for our customers,” Mills said in a phone interview.
He declined to give details on how Boeing monitored the employees. The company is still conducting an internal probe, Mills said.
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Madoff Trustee Doubles Loss Estimate From Rakoff Mets Ruling
The liquidator of Bernard Madoff’s bankrupt firm more than doubled his estimate of how much investors may lose if he can’t overturn a judge’s ruling that dismissed much of his $1 billion claim against the owners of the New York Mets.
Trustee Irving Picard said yesterday that the ruling cut his potential recovery from clawback suits by at least $2.7 billion, and placed the recovery of another $3.5 billion “in question,” according to a statement from his spokeswoman, Amanda Remus.
U.S. District Judge Jed Rakoff this week cut to about $386 million the $1 billion demanded by Picard from the Major League Baseball team owners, Fred Wilpon and Saul Katz, saying the trustee could only try to take back two years of withdrawals from the Ponzi scheme, instead of six.
A lawyer for Picard said Sept 28 that the two-year rule would cost the trustee “about” $3 billion on all clawback suits. Another aspect of Rakoff’s ruling relating to so-called preference payments jeopardized another $3.5 billion of recoveries, according to yesterday’s statement.
Picard will ask Rakoff to approve an appeal of his ruling to the federal appeals court in New York. The appeals court will then decide whether to review the ruling. Picard, who got a favorable ruling from the appeals court on his formula for compensating investors who lost money, may lose this time.
“I’m not sure Judge Rakoff will give Picard permission to appeal,” said Jonathan Landers of Milberg LLP, which represents investors in more than 25 so-called clawback lawsuits brought by Picard, including some awaiting Rakoff’s attention. “If he does, I expect him to be affirmed by the appeals court.”
An appeal could cause the Madoff firm’s liquidation to “grind to a halt for a year or longer,” Landers said.
The trustee said yesterday his first payments to investors totaling $272 million will be delayed because of Rakoff’s ruling. The checks were due to be issued by Sept. 30, almost three years after the Ponzi scheme collapsed. He didn’t say how long the delay would last.
Rakoff set a trial date of March 19 for the trustee’s case against the Mets owners, after quizzing both sides Sept. 28 on their plans to bring in expert witnesses. He said he was “skeptical” about the trustee’s desire to bring in an expert on investors’ fiduciary duties. Picard based his claims for the $1 billion on allegations the Mets owners failed in their duty to probe Madoff’s fraud amid so-called red flags that warned of irregularities.
The case is: Picard v. Katz, 11-cv-03605, U.S. District Court, Southern District of New York (Manhattan).
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Toyota Wins Dismissal of Speed-Up Case Set for First Trial
Toyota Motor Corp. (7203) won dismissal of the first sudden- acceleration lawsuit set for trial in California in 2013 because a federal judge determined it should have been filed in state court in Utah.
Toyota, the world’s largest automaker, recalled at least 8 million U.S. vehicles starting in 2009, after claims of defects and incidents involving sudden unintended acceleration. The recalls set off hundreds of economic-loss suits and claims of injuries and deaths. The first test case was set for trial in February 2013.
U.S. District Judge James V. Selna in Santa Ana, California, yesterday dismissed that first bellwether case, brought by the families of two people killed in a crash in Utah in 2010, finding a federal warranty claim in the lawsuit failed to meet a required $50,000 threshold for damages. The plaintiffs couldn’t count potential personal injury or punitive damages to reach this requirement, under federal law, Selna said.
“Plaintiffs are unable to reach the jurisdictional threshold of $50,000 in damages,” Selna said. “The case is dismissed for lack of jurisdiction.”
The ruling won’t keep the case from being tried or from remaining in federal court, Mark Robinson, an attorney for the plaintiffs, said in a phone interview. The warranty claim, brought under the federal Magnuson-Moss Warranty Act, was aimed at the dealer and isn’t essential to the lawsuit against Toyota, Robinson said.
“I am drafting a new complaint right now in which the dealer will not be named as a defendant and everything will be cured and the suit will go forward seeking punitive damages and everything else,” he said.
“We are pleased this jurisdictional issue has been resolved and that the court agrees with Toyota that the proper forum for this case is Utah state court,” Celeste Migliore, a Toyota spokeswoman, said in an e-mailed statement.
The Utah lawsuit is Van Alfen v. Toyota Motor Sales USA Inc., 2:11-cv-04143, U.S. District Court, Central District of California (Santa Ana). The cases are combined as In re Toyota Motor Corp. Unintended Acceleration Marketing, Sales Practices and Products Liability Litigation, 8:10-ml-02151, U.S. District Court, Central District of California (Santa Ana).
Rye Portfolio Seeks to Move Madoff Suit, Cites Mets Case
Rye Select Broad Market XL Portfolio Ltd., sued by the liquidator of Bernard Madoff’s firm, asked a federal district judge to take the case out of U.S. bankruptcy court, citing a ruling on the trustee’s $1 billion lawsuit against the owners of the New York Mets.
U.S. District Judge Jed Rakoff this week cut to about $386 million the amount at stake in trustee Irving Picard’s case against the Major League Baseball team owners, Fred Wilpon and Saul Katz. Cayman Islands-based Rye said its case was a similar one involving Madoff customers’ securities transactions, and that the district court sided with the defendants saying such settlement payments were protected by so-called safe harbor law.
Rye is a defendant in a larger lawsuit involving transfers of funds allegedly originating at the Madoff money management firm, via swap transactions, according to Picard’s lawsuit. Picard seeks the return of $400 million from Rye.
David Sheehan, a lawyer for Picard, told reporters after a court hearing Sept. 28 that Rakoff’s ruling would cut the amount of money the trustee could recover for investors who lost money in the Ponzi scheme.
The bankruptcy court case is Picard v. ABN Amro Bank (Ireland), 10-ap-05355, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
HSBC Wins Priority Over Other Banks in U.K. Algosaibi Case
HSBC Holdings Plc (HSBA) won priority for repayment over BNP Paribas (BNP) SA and five other banks in a U.K. lawsuit seeking at least $250 million from Saudi Arabia’s Algosaibi family and their company, which defaulted in 2009.
Priority for repayment from Ahmad Hamad Algosaibi & Brothers Co. relates to five apartments allegedly owned by the family and is contingent on HSBC’s so-called charging orders against the company being finalized, judge Julian Flaux ruled in the High Court in London. A trial over the apartments in London’s Mayfair neighborhood is set for Nov. 28.
“HSBC will have priority over the opposing banks in the event that the charging orders are made final,” Flaux said in yesterday’s judgment. HSBC was first to apply for an interest in the apartments after the bank’s legal advisers discovered the properties by examining Algosaibi documents, Flaux said.
Algosaibi, with interests including construction, beverage- bottling and finance, admitted liability in the matter in June and hasn’t said how or when it will repay the banks in the case or dozens of other lenders seeking repayment. The case includes HSBC’s $85 million claim, British Arab Commercial Bank Ltd.’s $19 million claim, Arab Banking Corp.’s claims totaling $140 million and Credit Agricole SA (ACA)’s $6 million claim.
The case is part of a global dispute between Algosaibi and one of Saudi Arabia’s richest men, Maan al-Sanea, who married into the Algosaibi family and founded the Saad Group, which has businesses ranging from construction to health care. Units of Saad and Algosaibi defaulted after borrowing about $15.7 billion from more than 80 banks.
The other banks in yesterday’s case argued that if they weren’t given an equal share of the apartments with HSBC, they may not recover anything from Algosaibi because of the difficulty of enforcing rulings in Saudi Arabia and “the unlikelihood of assets being available elsewhere,” according to the judgment.
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Strauss-Kahn, French Accuser Face Off Before Paris Police
Dominique Strauss-Kahn and the French woman who accused him of attempted rape met yesterday at a Paris police station for face-to-face questioning on the allegations.
The two left the station in Paris’s 13th arrondissement separately after a 2 1/2-hour “confrontation,” as the meeting is called, according to images broadcast on LCI television.
Writer Tristane Banon told TF1 television after the meeting she “maintained my accusation” against Strauss-Kahn when they met and sought to “know what his arguments were” for denying wrongdoing. Strauss-Kahn didn’t comment before or after the meeting.
Banon claims Strauss-Kahn tried to rape her in 2003 when she visited him for an interview, filing her complaint in July as another attempted-rape case against the 62-year-old was unraveling in New York. Strauss-Kahn resigned his post as head of the International Monetary Fund in May to fight claims by a Manhattan hotel maid. That case was dropped in August after prosecutors said the maid’s story was unreliable. Strauss-Kahn returned to Paris earlier this month.
“I’m scared” to come face to face with Strauss-Kahn, Banon said on Sept. 24 at a Paris rally calling for stricter punishment of violence against women. “I want no money” from him, she said, and should any damages ultimately be awarded to her, she promised to give the money to charity.
Paris prosecutors opened a preliminary inquiry into Banon’s claims to determine whether there is sufficient evidence to open a full investigation. Police have questioned about 20 people with whom Banon spoke or who had heard about the 2003 meeting, including her mother and Strauss-Kahn’s ex-wife and daughter. Yesterday’s meeting should be the final step before prosecutors decide whether to close the case or continue, Agence France- Presse reported.
Strauss-Kahn called Banon’s account “imaginary” in a Sept. 18 television interview and said their 2003 meeting “didn’t involve any aggression, any violence.”
Strauss-Kahn’s lawyer Frederique Baulieu, Banon’s lawyer David Koubbi and a spokeswoman for the prosecutor’s office didn’t respond to requests for comment. The two met unaccompanied by their lawyers, AFP said.
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Fortescue Wins Court Hearing in Bid to Fight Director Ban
Andrew Forrest, founder of Fortescue Metals Group Ltd. (FMG), won a hearing before Australia’s highest court in his bid to fight a regulator-sought ban on holding director posts at publicly traded companies.
The High Court of Australia yesterday granted Forrest’s request for the hearing, Fortescue said in a statement to the Australian stock exchange. A date for the hearing of the appeal hasn’t been set yet.
The Australian Securities and Investment Commission alleged that Forrest and Fortescue, the country’s third-biggest exporter of iron ore, misled and deceived investors with a description of contracts with three Chinese companies. Forrest had breached his duties as a director, according to the regulator.
The commission will defend the appeal, Acting Chairman Belinda Gibson said in a notice on its website.
“This case raises important issues which form the bedrock of confidence in the integrity of our markets, including misleading and deceptive conduct, continuous disclosure and directors’ duties,” Gibson said.
Federal Court Justice John Gilmour cleared Forrest and Fortescue on Dec. 23, 2009, after a trial in Perth, saying their opinions were honestly and reasonably held. An appeal panel overturned the decision on Feb. 18 this year, ruling the conclusion was erroneous and referred the case back to the trial judge for determination of a penalty.
In 2004, Fortescue said in letters to the stock exchange and media releases that the Perth-based company had binding agreements with China Metallurgical Construction Group Corp., China Harbour Engineering Co. and China Railway Engineering Corp. to build an iron ore mine, a port at Port Hedland in Western Australia and a railway, according to court records.
Fortescue shares rose in Sydney trading following the announcements to 50.5 Australian cents on March 23, 2005, from 5.9 cents on Aug. 23, 2004, the records show.
The stock slumped after the Australian Financial Review reported in March 2005 that the agreements didn’t impose any legally binding obligations on the Chinese contractors, according to the appeals court judgment. Fortescue fell 25 percent to 37.7 cents on March 24, 2005.
The appeal case is Australian Securities and Investments Commission v. Fortescue Metals Group Ltd. WAD23/2010. Federal Court of Australia - Full Court (Perth)
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Total Wins, Arkema Loses Court Bid on Chemical Cartel Fine
Total SA (FP)’s Elf Aquitaine unit won a bid at the European Union’s top court to overturn its share of antitrust fines levied against it together with former Total subsidiary Arkema SA (AKE) for fixing prices of a chemical used in detergents.
The European Commission “had not given sufficiently reasoned answers to several of the arguments put forward by Elf Aquitaine in order to establish that Arkema determined its conduct on the market independently,” the EU Court of Justice ruled yesterday. The Luxembourg-based court rejected a separate appeal by Arkema against its part of the fine.
The companies had challenged the way in which the commission calculated part of the 216.9 million-euro ($296 million) penalty against manufacturers, including Akzo Nobel NV (AKZA) and Sanofi-Aventis SA (SAN)’s Hoechst unit, for rigging prices of monochloroacetic acid. The case is the first in which a commission fine was challenged over the failure to show the parent company knew about antitrust violations.
In its 2005 decision, the Brussels-based commission fined Total’s Atofina unit 58.5 million euros, including a joint 45 million-euro penalty for Arkema and Total’s Elf Aquitaine, based in Courbevoie, France. Arkema was spun off from Total in 2006.
“We’re very satisfied with this decision,” Total spokeswoman Sandra Dante said by telephone. “We now have to analyze the ruling before we can make any further comments.”
Sybille Chaix, a spokeswoman for Arkema, didn’t immediately return a call and e-mail seeking comment.
Companies fined in the cartel, including Akzo, lost challenges in 2009 at the EU General Court, the region’s second- highest court. Only Hoechst won a reduction of about 10 percent to its fine, cutting it to 66.6 million euros from 74.03 million euros.
The commission said in 2005 the companies conspired for 15 years to control more than 90 percent of the European market worth as much as 125 million euros annually. Monochloroacetic acid is also used to make adhesives and drugs and to thicken cosmetics.
The cases are: C-520/09 P, Arkema v. Commission; C-521/09 P, Elf Aquitaine v. Commission.
Bank of America Agrees to Reduce Lehman Claims, Return Funds
Bank of America Corp. (BAC) agreed to reduce its derivative claims against Lehman Brothers Holdings Inc. (LEHMQ) entities by $4.5 billion and return about $356 million to Lehman to settle disputes over derivatives obligations.
Under two accords, Bank of America will drop its appeal of a judge’s order to return $501 million in deposits it took from Lehman in 2008 during the financial crisis and the bank’s Merrill Lynch International unit will reduce its derivative claims by about $3 billion, according to documents filed Sept. 28 in U.S. Bankruptcy Court in Manhattan.
Bank of America and Merrill will support Lehman’s liquidation plan under the settlements. Charlotte, North Carolina-based Bank of America’s acquisition of Merrill Lynch & Co. was completed in January 2009.
The transactions at issue include interest-rate swaps, credit derivatives on mortgage-backed bonds and foreign exchange options, according to the documents. Bank of America will have a $402 million non-subordinated general unsecured claim against Lehman Brothers Special Financing Inc. in connection with pre- bankruptcy transactions and Merrill Lynch entities will have a similar claim in the amount of $1.1 billion, according to the filings.
Bank of America was ordered last year to return $501.8 million in deposits to Lehman, after a judge found that the bank took deposits unrelated to its loans to Lehman during the financial crisis and must return them. The bank appealed the order in May.
The bankruptcy case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
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