Credit Suisse, JPMorgan, UBS, Primary Global in Court News
Credit Suisse Group AG (CSGN), Switzerland’s second-biggest bank, was sued by IKB Deutsche Industriebank AG over $215.4 million in residential mortgage- backed securities.
IKB accused Credit Suisse of “misrepresentations concerning the sale of, and role in the creation and sale” of the securities, purchased by IKB and Rio Debt Holdings (Ireland) Ltd., according to documents filed yesterday in New York State Supreme Court in Manhattan.
The suit seeks rescission of the sale and purchase of the notes, which were arranged, collateralized, underwritten and sold by Credit Suisse, IKB said in the court documents. IKB seeks restitution and damages of at least $215.4 million.
“These allegations are meritless and we will vigorously defend against them,” Credit Suisse said in a statement. “IKB was well informed on the risks associated with these investments. Credit Suisse cannot be held accountable for IKB’s losses on these securities nor for the decline in the U.S. housing market.”
The case is IKB Deutsche Industriebank AG (IKB) v. Credit Suisse Securities (USA) LLC, 653122/2011, New York State Supreme Court, New York County (Manhattan).
SEC Sues Petters Feeder Arrowhead Capital for Aiding Fraud
U.S. Securities and Exchange Commission sued Arrowhead Capital Management LLC and indicted principal James Fry, alleging they aided the fraud committed by Minnesota businessman Thomas Petters.
Petters was found guilty in 2009 of running a $3.5 billion investment fraud scheme in which he used his Petters Co. to lure investors to give him money that he said would finance the purchase of consumer goods shipments. He was sentenced to 50 years in prison.
Arrowhead and Fry earned more than $42 million from three funds they controlled that sent about $600 million in investor money to Petters, according to a complaint filed by the SEC yesterday in federal court in St. Paul, Minnesota.
“From 1998 through 2008, the defendants funneled money into the Petters Ponzi scheme by selling interests in the funds to investors,” the regulator alleged.
Also named as a defendant in the case is Michelle Palm, who the enforcement agency said worked at Arrowhead Capital from September 2007 through August 2009, acting as Fry’s “second in command” from about February 2008.
Palm pleaded guilty in April to one count of securities fraud and one count of making a false statement. Her attorney, William Mauzy of Minneapolis, called his client “an honorable woman.”
“This case is immediately going to be put on hold,” Fry’s attorney, Joseph Friedberg, said yesterday in a telephone interview, noting that the SEC case is assigned to U.S. District Judge Richard H. Kyle, who is also presiding over the criminal case.
Friedberg said while the government claims his client and Arrowhead reaped $42 million, much of that money went toward firm employees’ compensation and firm overhead. Fry, he said, has no money.
The case is Securities and Exchange Commission v. Fry, 11- cv-3303, U.S. District Court, District of Minnesota (St. Paul).
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Madoff Trustee Asks Judge to Speed Appeal of JPMorgan Ruling
The liquidator of Bernard Madoff’s firm, who lost the right to demand $19 billion in damages from JPMorgan Chase & Co. (JPM), said the judge should facilitate his appeal of her ruling because it would finally establish whether his claims were viable.
JPMorgan this month won dismissal of trustee Irving Picard’s damage claims in his lawsuit alleging the biggest U.S. bank aided Madoff’s fraud. Picard can’t sue for common-law damages on behalf of the defunct Madoff firm’s customers, U.S. District Judge Colleen McMahon ruled in New York.
Picard told McMahon in a filing yesterday he has “no choice but to appeal the order.”
“Permitting an immediate appeal would provide much-needed finality for the trustee and the BLMIS estate as to the viability of these claims,” he said, asking her to enter a final judgment in the case, which will make it easier for him to appeal her ruling. BLMIS refers to Madoff’s firm.
Rulings by district judges McMahon and Jed Rakoff have knocked more than $28 billion off of Picard’s claims against banks, and eliminated $6 billion in claims from his clawback suits against investors, according to the trustee’s estimates.
“The court already dismissed all of the common law claims and this decision was well-founded,” said Jennifer Zuccarelli, a spokeswoman for New York-based JPMorgan. “We continue to believe the trustee’s claims are baseless and we will continue to defend our case.”
Rakoff in July threw out almost $9 billion in damages that Picard demanded from HSBC Holdings Plc (HSBA) and feeder funds, and cut by two-thirds the trustee’s $1 billion case against owners of the New York Mets baseball team. Rakoff also is handling Picard’s $59 billion suit against UniCredit Spa (UCG) and Bank Medici AG founder Sonja Kohn.
The amount sought from JPMorgan, Madoff’s primary banker, represented Picard’s estimate of principal lost by all Madoff investors by the time the Ponzi scheme collapsed in December 2008, according to the complaint filed in June. The bank could have stopped the fraud if it had passed on its suspicions to regulators, he alleged.
JPMorgan said it didn’t know about, or in any way become a party to the fraud, and couldn’t be held responsible for a scheme orchestrated by Madoff alone.
Madoff pleaded guilty and is serving a 150-year prison term. Picard and his firm have made about $224 million in fees since Madoff’s 2008 arrest.
The cases are Picard v. JPMorgan Chase & Co., 11-cv-913; Picard v. UBS Fund Services (Luxembourg) SA, 11-cv-4212, U.S. District Court, Southern District of New York (Manhattan).
Madoff Investor Asks U.S. Judge to Dismiss ‘Clawback’ Claims
A lawyer representing 313 people who invested money with Bernard Madoff asked a federal judge to throw out so-called “clawback” claims against them by the trustee liquidating Madoff’s former firm.
Helen Chaitman argued in a hearing yesterday in federal court in Manhattan that her clients took money out of their Madoff accounts in good faith and shouldn’t be forced to pay back net profits to the trustee, New York lawyer Irving Picard.
Picard has filed more than 1,000 suits seeking to force investors with Madoff’s firm, Bernard L. Madoff Investment Securities LLC, to return money they withdrew in excess of the amount they invested over the life of their Madoff accounts.
David Sheehan, who represents Picard, told U.S. District Judge Jed Rakoff that the trustee is seeking only the return of profits from “net winners” to put all of Madoff’s victims on an equal footing. He told Rakoff that only 60 of Picard’s lawsuits claim the defendants knew or should have known Madoff was a fraud.
Rakoff didn’t say when he will rule on Chaitman’s motion to dismiss the suits.
The case is Picard v. Greiff, 11-cv-03775, U.S. District Court, Southern District of New York (Manhattan).
‘Vexatious’ Geologist Makes Class-Action Fights His Business
James J. Hayes agreed to use $300,000 he was paid in a lawsuit settlement in 2008 to start a foundation to create “a more harmonious working relationship between shareholders and their advocates.”
It hasn’t worked out that way, according to subsequent legal opponents, Bloomberg News’ David Glovin reports. Hayes is using the money to finance objections to settlements in class- action lawsuits involving companies whose shares he owns. Because a class action can’t be settled without a judge’s approval, his aim is to block a deal that he says isn’t fair until lawyers change the accord’s terms -- and pay him a fee.
“It’s a vehicle I’m using in objecting,” Hayes, 66, said in an interview about his foundation. “You can call it a business.”
Hayes, a former geologist who never attended law school, won the $300,000 payment to his Foundation for Efficient Markets in March 2008 after objecting to a $3.2 billion settlement of a fraud suit against Tyco International Ltd. (TYC)
Since then, he’s pressed challenges to accords valued at more than $700 million in five other cases, delaying payouts to investors for as long as a year.
Hayes appeared yesterday in federal court in Manhattan to oppose the settlement in a suit against Harmony Gold Mining Co. The company, based in Randfontein, South Africa, was accused of understating costs in public filings, to investors’ detriment.
In his one other pending case, Hayes is objecting to a $586 million accord in a lawsuit in which dozens of underwriters including Credit Suisse Group AG were accused of rigging initial public offerings of technology companies in the 1990s.
Plaintiffs’ lawyers in the IPO case, in court papers seeking dismissal of Hayes’s claims, called him “an unceasingly litigious, obdurately vexatious man with little regard for the merit of his arguments, his chances of success, or the inconvenience, expense and disruption he foists” upon others.
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BAT Calls Australian Tobacco Plain-Pack Law Unconstitutional
British American Tobacco Plc (BATS) said Australia’s cigarette plain-packaging law is unconstitutional and if enacted, the company will sue in the nation’s top court in a bid to repeal it.
The Australian Senate yesterday passed the law and the lower house of parliament will now vote on amendments to the bill, which is to be implemented from December 2012, according to a statement from Australian Health Minister Nicola Roxon.
The country is the first to ban logos on cigarette packaging. Cigarettes will have to be sold in dark brown packages, with no company logos and the same font for all brands, according to a government statement.
“It is unconstitutional for the federal government to remove a legal company’s valuable property without compensation,” London-based BAT’s Australian unit said in an e- mailed statement before the Senate vote referring to the company’s trademarks. The cigarette maker said it “confirmed it will commence proceedings in the High Court against the federal government” should the legislation pass the Senate.
“We won’t be bullied by tobacco companies threatening litigation and we are prepared to fight them if they do,” Roxon said in Melbourne yesterday.
Cigarette makers including BAT and Philip Morris International Inc., the world’s largest publicly traded tobacco company, have taken legal action against the Australian move.
Philip Morris said in June that it served the Australian government with a notice of claim stating its intention to pursue its case in international arbitration. The Australian proposal violates a treaty with Hong Kong and may cause billions of dollars in damages, the maker of Marlboro cigarettes said.
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Ecclestone Testifies Gribkowsky Shake Down Was ‘Sophisticated’
Formula One Chief Executive Officer Bernie Ecclestone told a court that Gerhard Gribkowsky was a frequent drinking partner with his then wife who shook him down in a “sophisticated” manner.
Ecclestone, 81, testified for a second day in Munich at the trial of Gribkowsky, a former chief risk officer at Bayerische Landesbank, who is being tried on charges he received $44 million in bribes to facilitate the 2005 sale of a 47 percent stake in the Formula One racing series to CVC Capital Partners Ltd. for 840 million euros ($1.15 billion).
Ecclestone, who is under investigation by prosecutors, said Nov. 9 that he paid the money because he feared Gribkowsky might tell U.K. tax authorities about a family trust controlled by his then wife. If revenue and customs officials believed Ecclestone controlled the trust, the tax bill might be 40 percent of the fund, which may have been worth as much as 2 billion pounds ($3.2 billion).
“Mr. Gribkowsky was quite sophisticated in shaking me down,” Ecclestone, who has denied wrongdoing, told a court in Munich yesterday through a translator. “I’ve got shaken down by a lot of people, but not as subtle as with Mr. Gribkowsky.”
Ecclestone had wanted Munich-based BayernLB to sell the interest in the racing series it acquired from the 2002 bankruptcy of Leo Kirch’s media group and saw a chance when CVC showed interest, prosecutors said in the indictment. Ecclestone and Gribkowsky agreed on a plan that funneled $44 million to Gribkowsky through sham contracts and off-shore companies, according to prosecutors.
CVC had no knowledge of any payment to Gribkowsky, the company has said in an e-mailed statement.
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Ex-UBS Banker Gadola Earned Leniency in Tax Case, U.S. Says
Former UBS AG (UBSN) banker Renzo Gadola, who helped Americans cheat U.S. tax authorities, deserves leniency at sentencing because he turned in fellow bankers and recorded clients for the Justice Department, prosecutors said.
Gadola, who pleaded guilty Dec. 22, should be sentenced to five months in prison and five months of home confinement, U.S. prosecutors wrote yesterday in a memo to the judge who will sentence him in federal court in Miami. Gadola faces 10 to 16 months in prison under advisory sentencing guidelines.
Gadola was arrested on Nov. 7, 2010, after U.S. authorities secretly recorded him in a Miami hotel talking to a client about ways to hide money from the Internal Revenue Service. He soon began helping prosecutors build cases against two other bankers who were later charged, according to the memo.
“Within days of his arrest, Gadola participated in consensually monitored phone conversations with U.S. customers who continued to maintain secret Swiss bank accounts,” prosecutors wrote. Gadola is scheduled to be sentenced Nov. 18.
Gadola’s attorney, Peter Raben, declined to comment.
The case is U.S. v. Gadola, 10-cr-20878, U.S. District Court, Southern District of Florida (Miami).
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Fleishman Properly Prosecuted in N.Y. for Fraud, U.S. Says
Former Primary Global Research LLC executive James Fleishman, convicted of conspiracy in September as part of a crackdown on insider trading, was properly tried in New York for his crimes, federal prosecutors said.
Fleishman, of Santa Clara, California, has asked U.S. District Judge Jed Rakoff in Manhattan to overturn his conviction or give him a new trial. He said prosecutors failed to establish that any acts committed to further the conspiracy occurred in New York. Fleishman also argues he was improperly barred from taking the stand in his own defense after he was directed to turn over his personal diaries to the U.S.
Prosecutors said in court papers filed Nov. 9 that ample evidence at trial showed that Fleishman or one of his co- conspirators acted to further the conspiracy in New York. They cite a June 2009 meeting in Manhattan between Fleishman and Karl Motey, an independent consultant who cooperated with the government. Fleishman “personally explained PGR’s services to Motey,” prosecutors said.
“The evidence presented at trial undoubtedly supported the jury’s verdict,” Manhattan assistant U.S. attorneys David Leibowitz and Antonia Apps said in court papers. “It’s no accident that Fleishman’s motion quickly glosses over Motey’s corroborated testimony concerning the PGR conference in Manhattan since this evidence alone -- which this court must credit -- dooms Fleishman’s motion.”
Fleishman’s lawyer, Ethan Balogh, didn’t return a voice- mail message left at his office seeking comment.
The case is U.S. v. Nguyen, 11-cr-32, U.S. District Court, Southern District of New York (Manhattan).
Ex-Directors at Military Body Armor Supplier Settle SEC Suit
Three former directors of DHB Industries Inc. will pay more than $1.6 million to resolve U.S. Securities and Exchange Commission claims over their roles in an accounting fraud at the military body-armor supplier.
Cary Chasin, Jerome Krantz and Gary Nadelman would be permanently barred from serving as public-company officers or directors under terms of the settlement, the SEC said yesterday in a statement. The accords are subject to court approval.
“These directors failed to comply with their responsibilities by ignoring the repeated red flags of the massive accounting fraud that senior management orchestrated at DHB,” SEC Miami Regional Director Eric Bustillo said in the statement. “While we won’t second guess the good-faith efforts of most company directors, we will hold accountable those who completely abdicate the duties they owe to the companies and shareholders they represent.”
The SEC previously sued ex-DHB Chief Executive Officer David Brooks and two other former company officers for their roles in the fraud. The civil claims have been stayed pending resolution of criminal actions filed by the U.S. Attorney’s Office for the Eastern District of New York.
“Mr. Nadelman has accepted responsibility and is relieved to put this unfortunate chapter behind him,” Robert C. Gottlieb, his New York-based attorney, said in an e-mail. Messages seeking comment from lawyers for Chasin and Krantz weren’t immediately returned.
DHB changed its name to Point Blank Solutions in October 2007, the same month Brooks, former Chief Operating Officer Sandra Hatfield and former Chief Financial Officer Dawn Schlegel were indicted on fraud charges.
H&R Block’s TaxAct Deal Fell to Price Concerns, Judge Says
H&R Block Inc. (HRB)’s purchase of the maker of TaxAct would probably lead to higher prices for digital tax preparation products, a judge said in an opinion made public yesterday after an Oct. 31 ruling that halted the deal.
U.S. District Judge Beryl Howell in Washington said the $287.5 million acquisition would have resulted in a market “dominated by two large players” -- H&R Block and Intuit, the maker of TurboTax software programs.
Company documents, testimony and other evidence showed that TaxAct’s competition “constrained” H&R Block’s prices, while combining the companies would probably cause prices to rise to the “detriment of the American taxpayer.”
“The totality of the evidence confirms that anticompetitive effects are likely a result of the merger, which would give H&R Block and Intuit control over 90 percent of the market for digital do-it-yourself tax preparation products,” Howell said in her 86-page opinion.
Howell ordered that her opinion in the case remain sealed until the parties had a chance to redact potentially confidential business information.
The U.S. Justice Department argued in a nonjury trial that the acquisition of closely held 2SS Holdings Inc. would cut competition by eliminating a company that vied aggressively with H&R Block and “disrupted” the digital do-it-yourself tax- preparation market with low prices and product innovation.
The transaction would have left Kansas City, Missouri-based H&R Block and Intuit Inc. (INTU), whose TurboTax product is the most widely used digital and on-line software for tax preparation, as the two dominant companies in the market, the department said in its lawsuit. That could have led to higher prices and collusion, Joseph Wayland, the deputy head of the antitrust division, said at the trial that began on Sept. 6.
The purchase of TaxAct by H&R Block would have combined the second- and third-largest providers of these products, according to the department’s complaint.
The case is U.S. v. H&R Block, 1:11-cv-00948, U.S. District Court, District of Columbia (Washington).
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Jenner & Block Hires Partners From Hogan Lovells
Jenner & Block LLP, a U.S. law firm with about 470 attorneys, hired six partners from the Los Angeles office of Hogan Lovells US LLP for its commercial entertainment and media litigation group.
Jenner & Block said in a statement that it hired Richard L. Stone, an antitrust and copyright lawyer in the media and entertainment industries; Kenneth D. Klein, a contract and antitrust attorney; Carissa C.W. Coze, a corporate transactions specialist; Amy M. Gallegos, who specializes in entertainment and media industry commercial litigation; intellectual property and entertainment litigator Julie Ann Shepard; and David R. Singer, an entertainment and media litigator. All will work in the Los Angeles office.
“We have been working together as a team for many years and the opportunity to move together to work at Jenner & Block to help build upon its existing group of leading media and entertainment clients was ideal,” Stone said. “This was the perfect fit for us and where we see our practice expanding well into the future.”
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