Citigroup, MF Global, Gupta, UBS, Chevron in Court News
Citigroup Inc. (C)’s Singapore unit sued Hong Kong-based hedge fund manager Raghavendran Rajaraman, seeking to recoup $1.03 million in trading losses the bank says he incurred after gold fell from a record high in September.
Rajaraman had $19.2 million worth of gold in his account on Sept. 23 which the bank sold, along with other collateral, on Sept. 26 “in the face of a rapidly deteriorating market,” leaving a $1 million shortfall, according to a Nov. 18 lawsuit filed with the Singapore High Court. The first closed hearing is scheduled for Jan. 27.
Gold plunged 11 percent in September, the most since October 2008, after futures reached a record $1,923.70 an ounce on Sept. 6. The bank liquidated Rajaraman’s account after it reached a so-called forced sell level and got his authorization, according to court papers. Gold for February delivery in New York was at $1,601.30 an ounce at 9:55 a.m. Singapore time.
Rajaraman works with hedge fund 3 Degrees Asset Management and was a currency options trader with Citigroup in Singapore until 2007, according to the lawsuit.
He hasn’t filed his defense and didn’t return three calls to his mobile-phone. Richard Healy, Rajaraman’s lawyer at Oldham, Li & Nie, declined to comment.
“We intend to pursue the case and it’s inappropriate for us to comment further,” said Citigroup’s Singapore-based spokesman Adam Abdur Rahman.
Citigroup breached its agreement by closing his account without prior notice, according to an Oct. 7 letter from Oldham, Li & Nie to the bank’s lawyers including William Ong at Allen & Gledhill LLP.
“As a direct consequence of the bank’s breach,” Rajaraman suffered a $1.7 million loss, representing his collateral, according to the letter. He incurred a further $1.03 million loss as the bank prematurely liquidated the account instead of waiting for 24 hours after the account reached the force-sell level, Rajaraman’s lawyers said in the letter.
The case is Citibank Singapore Ltd. v Raghavendran Rajaraman S826/2011 in the Singapore High Court.
Life Partners Sued by SEC for Fraud in Life Settlement Deals
Life Partners Holdings Inc. (LPHI) and three top executives are facing U.S. regulatory claims that they defrauded shareholders by systematically understating risk related to the firm’s purchases of life insurance policies.
Jan. 3 the Securities and Exchange Commission said Chairman and Chief Executive Officer Brian D. Pardo, President and General Counsel R. Scott Peden and Chief Financial Officer David M. Martin participated in a scheme that misled investors about the firm’s profit potential.
“The senior-most executives at Life Partners concealed significant risks to the business, manipulated financial statements with improper accounting, and knowingly profited from their misconduct by executing insider trades based on information that was not available to the public,” David Woodcock, director of the SEC’s Fort Worth Regional Office, said in a statement Jan. 3.
The company, which buys rights to death benefits from policyholders in exchange for lump-sum payments, knowingly underestimated life expectancies used in transactions from 2007 to 2011, the SEC said in its statement. Pardo sold $11.5 million of stock and Peden sold shares valued at $300,000 while privy to inside information, the agency said.
“It is very disappointing that the SEC has chosen to pursue litigation over issues that we believe have no merit and financial presentation issues that we do not believe are material,” Pardo, who owns more than 50 percent of the firm’s shares, said in a statement. “We intend to vigorously defend ourselves against these meritless claims.”
Calls to the company seeking further comment Jan. 3 and yesterday weren’t returned. Peden didn’t respond to a telephone message left at a residential listing under his name in Woodway, Texas. A listing couldn’t be found for Martin.
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Quanta Sues AMD Over Microchips for Notebook Computers
AMD and its ATI Technologies Inc. unit sold chips that didn’t meet heat tolerances and were unfit for particular purposes, Taoyuan, Taiwan-based Quanta claimed Jan. 3 in a federal court filing in San Jose, California. The chips were used in notebooks Quanta made for NEC Corp. (6701) and caused the computers to malfunction, according to the filing.
“Quanta has suffered significant injury to prospective revenue and profits,” the company said in the complaint. Quanta is seeking a jury trial and damages, according to court papers.
“AMD disputes the allegations in Quanta’s complaint and believes they are without merit,” Sunnyvale, California-based AMD’s spokesman, Michael Silverman, said in an e-mailed message.
“AMD is aware of no other customer reports of the alleged issues with the AMD chip that Quanta used, which AMD no longer sells,” Silverman said. “In fact, Quanta has itself acknowledged to AMD that it used the identical chip in large volumes in a different computer platform that it manufactured for NEC without such issues.”
The case is Quanta v. Advanced Micro Devices, 12-cv-12, U.S. District Court, Northern District of California (San Jose).
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Halliburton Denies Destroying Evidence in BP Oil Spill Case
Halliburton Co. (HAL) denied BP Plc (BP/)’s accusation that engineers destroyed testing evidence to keep it from being used in litigation over the Gulf of Mexico rig blast that triggered the worst offshore oil spill in U.S. history.
BP and Halliburton are suing each other over whose actions caused the Macondo well to explode off the Louisiana coast in April 2010. BP asked U.S. District Judge Carl Barbier of New Orleans to sanction Halliburton last month, alleging the cementing services firm hid or destroyed unfavorable testing evidence.
Halliburton said in a filing yesterday that engineers followed company policy to discard the testing results and materials because the tests were “performed on lab stock that remains available today.” Halliburton also said tests on cement samples like those used in the well showed the formula was stable.
Halliburton’s engineers turned over notes and testified under oath that tests showed “a stable foam was observed after the slurry was conditioned -- a critical fact that BP continues to ignore,” Donald Godwin, Halliburton’s lead trial lawyer, said in a filing in federal court in New Orleans.
“We stand by our motions and the arguments we made in prior papers,” Daren Beaudo, a spokesman for BP, said in an e-mail in response to Halliburton’s filing.
BP and Halliburton have been fighting about the cement job Halliburton provided to seal the well against leaks, based on BP’s design specifications. Halliburton used an innovative foaming cement formulation that critics claim wasn’t right for the Macondo formation. As a result, BP claims the contractor’s work was flawed, while Halliburton maintains BP provided faulty information.
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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MF Global Plaintiffs Compete to Lead Lawsuit Against Corzine
Plaintiffs including funds and retirement systems are competing to lead a lawsuit against Jon Corzine, MF Global Holdings Ltd.’s former chief executive officer, over the collapse of the commodity brokerage.
Corzine is the defendant in at least nine lawsuits before a federal judge in Manhattan that seek compensation for losses from the company’s bankruptcy, according to court papers.
U.S. District Judge Victor Marrero has been combining the cases into one, saying they make similar claims that Corzine and other company officials made misleading statements about MF Global’s financial condition before its Oct. 31 Chapter 11 filing.
Banyon Capital Master Fund Ltd., Virginia and Arkansas retirement systems and the Building Trades United Pension Trust Fund all filed separate requests in court yesterday to serve as lead plaintiff. Yesterday was the deadline for such requests, according to court papers.
Andrew Levander, a lawyer for Corzine, didn’t immediately respond to an e-mail seeking comment on the filings.
The Virginia Retirement System, which wants to lead the suit together with Canada’s Province of Alberta, said in a filing the two together lost more than $19 million on MF Global stock and debt.
They asked court approval of their hiring law firms Bernstein Litowitz Berger & Grossman LLP, whose cases include a shareholder suit against BP Plc directors and managers, and Labaton Sucharow LLP, as co-lead counsel for investors suing Corzine.
Corzine, the former governor of New Jersey, and senior MF Global officers touted the company’s internal financial controls and liquidity levels in statements that were “materially misleading or untrue,” according to a Nov. 3 complaint filed in Manhattan federal court by Joseph DeAngelis on behalf of himself and other MF Global shareholders.
DeAngelis also named Henri Steenkamp, the New York-based company’s chief financial officer, and Bradley Abelow, its president.
MF Global filed for bankruptcy listing $41 billion in assets after making bets on European sovereign debt and getting margin calls. The holding company is the parent of a futures brokerage that is being liquidated in a separate court proceeding.
The main case is DeAngelis v. Corzine, 11-cv-7866, U.S. District Court, Southern District of New York (Manhattan).
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Rajat Gupta Seeks to Have Some Insider-Trading Counts Thrown Out
Rajat Gupta, the former Goldman Sachs Group Inc. (GS) director charged with insider trading as part of the Galleon Group LLC probe, asked a judge to dismiss some of the counts against him.
The government’s indictment focuses on two instances in which the U.S. said Galleon co-founder Raj Rajaratnam traded on information he allegedly received from Gupta, though it “improperly uses those two instances to create five purportedly separate substantive securities-fraud charges,” according to Gupta’s filing in federal court in Manhattan.
“The five substantive securities fraud counts in the indictment, because they stem from just two purported unlawful acts, repeatedly charge what are, at most, two alleged offenses,” according to the filing Jan. 3. Gupta asked the judge to consolidate the charges or order prosecutors to choose which to pursue.
In a separate filing Jan. 3, Gupta asked that prosecutors be barred from using wiretap evidence. The government intends to present a “circumstantial case” based on the timing of alleged telephone calls between Gupta and Rajaratnam and recordings the U.S. obtained by wiretapping Rajaratnam’s cell phone, according to the filing.
Gupta’s lawyers said the court’s rejection of a similar bid by Rajaratnam to bar the intercepts as evidence during his trial was incorrect. Federal laws restricting use of wiretaps don’t permit them in investigations of suspected insider trading, according to Gupta’s filing.
Gupta, who also sat on the board of Procter & Gamble Co. and led McKinsey & Co., was indicted by a federal grand jury in October on five counts of securities fraud and one count of conspiracy to commit securities fraud for passing inside information to Rajaratnam. Gupta also faces a lawsuit filed by the U.S. Securities and Exchange Commission.
Ellen Davis, a spokeswoman for U.S. Attorney Preet Bharara in Manhattan, didn’t immediately return a call seeking comment on the filings after regular business hours yesterday.
Rajaratnam, 54, was convicted in May of directing the biggest insider-trading ring in a generation. His 11-year prison term was the longest sentence ever handed down for such a crime and the culmination of a four-year nationwide probe of insider trading.
The case is U.S. v. Gupta, 11-cr-00907, U.S. District Court, Southern District of New York (Manhattan).
CFTC Asks Court to Dismiss Challenge to Position Limits Rule
The U.S. Commodity Futures Trading Commission asked a federal appeals court to dismiss a challenge by two Wall Street groups to its rule that limits commodity speculation, one of the financial industry’s highest-profile efforts to weaken last year’s Dodd-Frank law.
The CFTC filed its request yesterday in the U.S. Court of Appeals in Washington, arguing the appeals court doesn’t have jurisdiction to consider the lawsuit. The agency said that the district court must first consider a challenge to the rule.
The International Swaps and Derivatives Association Inc. and Securities Industry and Financial Markets Association filed lawsuits in two federal courts in Washington last month, arguing that the CFTC used a flawed analysis of Dodd-Frank when it decided to impose the restrictions. The associations also said the CFTC failed to properly weigh the rule’s costs and benefits.
In response to questions from the district court judge, the groups said last month they didn’t oppose putting the district court case on hold while the appeals court considers the challenge.
The case is International Swaps and Derivatives Association v. CFTC, 11-01491, is U.S. Court of Appeals for the District of Columbia (Washington).
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Stanford’s Defense Experts Paid, Ordered to Remain on Case
R. Allen Stanford’s defense experts were ordered to continue defending the former financier in a $7 billion investment fraud case by a U.S. appellate court that also agreed to pay their back wages, according to court filings.
All of Stanford’s non-attorney experts quit last week after appellate judges controlling the former billionaire’s taxpayer-funded defense budget said they would limit and withhold the experts’ compensation until after conclusion of his trial, set to begin Jan. 23 in Houston federal court.
“It would be neither feasible nor economical to obtain a replacement to perform the services Marcum was expected by counsel to provide,” Circuit Judge Edith Jones, the chief of the U.S. Court of Appeals in New Orleans, said in a letter yesterday to Marcum LLP, one of the expert contractors that resigned last week from Stanford’s defense team.
Jones issued similar orders and agreements to pay overdue invoices to two other expert-services contractors to keep them working on Stanford’s defense. Accumyn Consulting and the Worley Group had also resigned last week over non-payment of bills dating back to September, according to court filings.
Ali Fazel, Stanford’s lead criminal-defense attorney, said the defense was hampered by the resignation of all expert-services contractors on Dec. 30, after the appellate court balked at paying their bills. Jones, in her letters yesterday, said billings by Marcum and Accumyn feature “hourly rates significantly in excess of the rates payable under the Criminal Justice Act to even the most experienced attorneys.”
Stanford, 61, has been in custody as a flight risk since he was indicted in June 2009 on charges of defrauding investors through allegedly bogus certificates of deposit at his Antigua-based Stanford International Bank. He denies any wrongdoing.
The criminal case is U.S. v. Stanford, 09cr342, U.S. District Court, Southern District of Texas (Houston). The SEC case is Securities and Exchange Commission v. Stanford International Bank, 09cv298, U.S. District Court, Northern District of Texas (Dallas).
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Ex-UBS Wealth CEO Failed to Act on Risk Failures, FSA Says
John Pottage, the former chief executive officer of UBS AG (UBSN)’s wealth-management unit in the U.K., didn’t heed warning signs that risk controls in the division were ineffective before an unauthorized trading loss was discovered, the U.K.’s finance regulator said.
Pottage, now a senior executive at the bank’s headquarters in Zurich, should have started a review of controls after a client-money breach, a payment fraud, and other failings were discovered, the Financial Services Authority said in court papers. He also should have done an “adequate initial assessment” of the unit’s controls after becoming CEO, a lawyer for the FSA said at a trial in London yesterday.
Pottage’s actions constituted a regulatory breach, FSA lawyer Andrew Hochhauser said in the first day of closing arguments in the case, where the ex-CEO is challenging a 100,000 pound ($156,000) fine. The case is the first time the regulator has sought to penalize an executive for oversight failures.
Pottage said in court papers he worked to improve systems and controls in the unit when he started as CEO in September 2006 and doesn’t deserve a fine. Pottage, who moved to Zurich amid the FSA probe, denies the charge that he should’ve acted sooner than he did to review weaknesses in the systems and controls, and “is supported in that denial by UBS,” his lawyers have said.
Pottage testified during the three-week hearing that he was “confused” by the regulator’s attempt to fine him and that he thought it didn’t understand his role at the bank. He said during a meeting with the regulator in 2009 that he was “concerned that the interviewer thought the CEO was a fully empowered individual.”
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Chevron Bid to Dismiss $18 Billion Award Rejected in Ecuador
Chevron Corp. (CVX)’s effort to overturn an $18 billion judgment against it was rejected by an Ecuador appeals court in a lawsuit alleging the company is responsible for chemicals spilled in the Amazon River basin more than 20 years ago.
The “adverse ruling” upholding the lower-court judgment was issued by a panel of three judges in the Provincial Court of Justice of Sucumbios in Lago Agrio, Ecuador, Chevron said in an e-mailed statement Jan. 3.
Chevron appealed a February ruling that it was responsible for chemical-laden wastewater dumped in jungle land from 1964 to about 1992 by Texaco Inc., which Chevron acquired in 2001.
The “decision is another glaring example of the politicization and corruption of Ecuador’s judiciary that has plagued this fraudulent case from the start,” Chevron said in its statement. The company “does not believe that the Ecuador ruling is enforceable in any court that observes the rule of law.”
The appeals court ratified the February ruling “in all of its parts, including the conviction for moral reparation or its alternative and costs,” according to the decision.
Chevron is still reviewing the ruling and hasn’t decided what it will do next, Kent Robertson, a spokesman for the San Ramon, California-based company, said Jan. 3 in a phone interview. He said the company “has a procedural right to seek clarification and amplification from the court that issued this ruling.”
Chevron can also appeal the decision to the next level of Ecuador’s judiciary, Robertson said.
Karen Hinton, a spokeswoman for lawyers representing the Ecuador residents who sued Chevron, said in an e-mailed statement, “The decision by an independent appellate court is yet further confirmation of Chevron’s extraordinary greed and criminal misconduct in Ecuador.”
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Pfizer Must Pay $45 Million in Prempro Cases, Court Rules
Pfizer Inc. (PFE) must pay more than $45 million in damages to two women who blamed the company’s menopause drugs for their breast cancers, an appeals court ruled.
Connie Barton and Donna Kendall, two Illinois women who sued Pfizer units Wyeth and Pharmacia & Upjohn over their menopause medications, deserved both compensatory and punitive damages over the companies’ handling of the drugs, a panel of the Pennsylvania Superior Court ruled Jan. 3.
“We are very disappointed with the court’s decisions in these cases and continue to believe there was no basis in fact or law for the jury verdicts,” Chris Loder, a spokesman for New York-based Pfizer, said in an e-mailed statement. Pfizer officials will ask the Pennsylvania Supreme Court to review the lower court’s findings, he said.
More than 6 million women took Prempro and related menopause drugs to treat symptoms including hot flashes and mood swings before a 2002 study highlighted their links to cancer. At one point, Pfizer and its units faced more than 10,000 lawsuits over the medications.
“This is a great way to start 2012 for these two brave women,” Zoe Littlepage, one of Barton’s lawyers, said in a telephone interview yesterday. Under the appellate ruling, Barton would get a total of $11.2 million while Kendall would get $34.3 million, Littlepage said.
At the height of the litigation, Pfizer faced more than 10,000 claims that its menopause drugs caused breast cancer, according to lawyers for former users. Those lawsuits included more than 8,000 cases consolidated in federal court in Arkansas and suits in state courts in Pennsylvania, Nevada and Minnesota.
The company has begun settling some suits and has set aside $840 million so far to resolve cases, officials said in November. Pfizer has resolved about 46 percent of the pending Prempro suits, officials said.
The case is Barton v. Wyeth Pharmaceuticals Inc., 040406301, Court of Common Pleas, Philadelphia County, Pennsylvania (Philadelphia).
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Ex-LyondellBasell Employee Gets 7-Year Sentence in Kickbacks
Ex-LyondellBasell Industries NV (LYB) employee Jonathan Paul Barnes was sentenced to seven years in prison on fraud and money-laundering charges in a kickback scheme involving oil shipments to the company’s Texas refinery.
Barnes, 56, was sentenced yesterday in Houston federal court by U.S. District Judge Sim Lake, who also ordered Barnes to pay $82 million in restitution, federal prosecutors said in a statement.
Barnes pleaded guilty in March to accepting about $20 million in kickbacks while managing marine chartering for Lyondell’s Houston refinery from 2007 to early 2010.
He acknowledged running a scheme that overcharged Lyondell’s Houston subsidiary roughly $82 million on oil shipments from Venezuela, according to court papers. He was assisted by two oil traders, Bernard Langley, 54, of the U.K., and Clyde Meltzer, 65, of Houston and Livingston, N.J. Both have pleaded guilty to funneling kickbacks to Barnes and are awaiting sentencing in April.
“The United States has already seized assets purchased with proceeds from the kickback fraud that are valued at approximately $20 million,” Kenneth Magidson, the U.S. Attorney for Houston, said in the statement.
The seized assets included real estate in Houston, Florida and upstate New York and “more than 15 luxury and classic vehicles including a 1957 Cadillac once owned by Frank Sinatra, a boat and numerous pieces of high-end jewelry,” Magidson said.
“The kickback scheme was uncovered during an internal audit, which raised questions about certain marine chartering costs which appeared to deviate from the industry norm,” David Harpole, Lyondell’s Houston spokesman, said in an e-mail in response to yesterday’s sentencing. He said that when an internal investigation disclosed apparent kickbacks, the company “took immediate steps to address the matter,” including firing Barnes and referring the matter for criminal investigation by the Justice Department’s Houston division.
Rusty Hardin, Barnes’s lawyer, didn’t respond to a call seeking comment on yesterday’s sentence.
The case is U.S. v. Barnes, 4:10-cr-0787, U.S. District Court, Southern District of Texas (Houston).
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Florida Foreclosure Lawyer Stern Sued by DJSP Enterprises
David Stern, the Florida foreclosure lawyer who profited off the state’s housing bust before losing his biggest clients, was sued by a partner company that claims it was damaged by Stern’s foreclosure practices.
DJSP Enterprises Inc. (DJSP), which took on the non-legal foreclosure-processing services of Stern’s law firm and depended on his referrals, said in a copy of a complaint included in a regulatory filing dated Jan. 3 that Stern concealed his business was “systematically engaging in unlawful and fraudulent conduct” in foreclosures.
Those practices jeopardized Stern’s relationships with his biggest clients, including banks and government mortgage companies Fannie Mae and Freddie Mac, and the viability of his law firm and DJSP, according to the complaint.
DJSP said the complaint was filed Jan. 3 in Broward County, Florida. The filing of the suit couldn’t be immediately confirmed with the court.
Jeffrey Tew, a lawyer for Stern, said his client would fight the claims. Stern’s law firm has stopped handling foreclosure cases, according to Tew.
“We don’t think the allegations are well founded,” he said in a phone interview.
Lehman Brokerage Trustee Seeks $24.3 Million for Four Months
The trustee liquidating the Lehman Brothers Inc. brokerage is seeking $24.3 million in fees for himself and his law firm for the four months through June, plus expenses of about $299,916.
James Giddens, who also is liquidating the MF Global Inc. broker-dealer, asked a judge to approve the fees for Lehman work Jan.3in his eighth request in the three years since the Lehman parent filed the biggest bankruptcy in U.S. history. Prior fees and expenses approved for the trustee and his firm, Hughes Hubbard & Reed LLP, total $145.6 million, according to a filing yesterday in U.S. Bankruptcy Court in Manhattan.
Giddens worked 468 hours at $891 an hour for $417,255 in fees during the four-month period, out of more than 51,000 hours billed by the firm, according to the filing.
Giddens plans to start paying the Lehman brokerage’s remaining customers, mostly hedge funds and institutions, early next year from available assets of $18.3 billion, he said last month. He didn’t say how much money customers can expect, only that his goal was to make “a significant” payment. Large payouts must await the resolution of remaining disputes over claims filed against the defunct brokerage, he said.
By law, Giddens must share the assets equally among customers. He has gathered $23.7 billion to pay customers from settlements, litigation and negotiations with banks and other business partners, according to court records. He is holding $3 billion of the total in reserve for a court fight with Barclays Plc (BARC), which in 2008 bought North American businesses of the brokerage’s parent, Lehman Brothers Holdings Inc.
The Lehman brokerage liquidation is Securities Investor Protection Corp. v. Lehman Brothers Inc., 08-01420, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
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