Olympus, ENRC, News Corp., Samsung-Apple, Lehman, Chevron in Court News
Olympus Corp. (7733), the camera maker that admitted hiding losses for over a decade, said it’s considering suing present and past executives after receiving a report from a panel probing management responsibility for the cover-up.
The company will announce its response to the panel’s report tomorrow, it said in a statement to the Tokyo Stock Exchange yesterday.
Olympus should seek damages of more than 90 billion yen ($1.2 billion) from more than 10 current and past executives, including President Shuichi Takayama, for covering up massive losses, according to the panel’s report, Kyodo reported yesterday. Former Chief Executive Officer Michael Woodford, who was fired after he questioned $1.5 billion in takeover costs, is suing the company over his dismissal.
The company inflated fees to advisers on the 2008 acquisition of Gyrus Group Plc and overpaid in purchasing three Japanese companies with the intention of increasing goodwill, a separate independent panel investigating the fraud said last month. The panel said it found a culture of “yes men” and a board that failed in its duty to stop a “rotten” core of executives from duping auditors, regulators and investors.
Tokyo-based Olympus admitted in November that former Chairman Tsuyoshi Kikukawa, Hisashi Mori, who was fired as executive vice president, and Hideo Yamada, a former company auditor, colluded to hide losses on securities investments in the 1990s.
The company has lost (7733) about $5 billion of market capitalization since firing Woodford and was forced to restate more than five years of earnings last month to avoid an automatic delisting from the Tokyo Stock Exchange after admitting to a 13-year cover-up.
Olympus declined to comment on the report, Yoshiaki Yamada, a spokesman for the company, said yesterday.
Woodford filed a case in the U.K. last week seeking damages for the remainder of his four-year contract and additional costs. The British national said last week he may also file a case in Japan.
Woodford, 51, also abandoned efforts to regain control of Olympus after failing to gain support from Japanese shareholders.
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ENRC Sues Former Executive in Dispute Over ‘Dishonest’ Raise
Eurasian Natural Resources Corp. (ENRC), the producer of metals in Kazakhstan, sued its former head of human resources Andrew Balgarnie, accusing the ex-Morgan Stanley banker of dishonestly giving himself a 100,000 pound ($154,500) raise.
ENRC filed the counterclaim against Balgarnie last month, according to court documents. The move follows Balgarnie’s decision to sue ENRC for wrongful dismissal in November, claiming he is owed 310,000 pounds in back pay and bonuses.
Balgarnie “is an individual who appears to operate on the basis that wrongdoing on the part of a senior executive is acceptable so long as he can get away with it,” ENRC said in court papers filed on Dec. 22. The company said it is seeking the return of 74,000 pounds which resulted from a pay increase not properly approved by Chief Executive Officer Felix Vulis.
ENRC, which held a three-month review of its corporate governance last year amid conflicts between the board and shareholders, agreed Jan. 5 to acquire First Quantum Minerals Ltd.’s assets in the Democratic Republic of Congo for $1.25 billion, ending a legal dispute between the companies over the Kolwezi copper project.
“The allegations of misconduct and dishonesty as set out in ENRC’s counterclaim are vigorously resisted,” Balgarnie’s lawyer James Cox said in an e-mailed statement.
Vulis resigned in February of last year only to be re- appointed as CEO seven months later following a management review that began when shareholders voted against rehiring independent directors Richard Sykes and Kenneth Olisa in June.
ENRC’s three founders, Alexander Machkevitch, Alijan Ibragimov and Patokh Chodiev, hold 14.6 percent of the company, which makes ferroalloys, iron ore, aluminum and power in Kazakhstan.
“Mr. Balgarnie’s claims are unfounded and ENRC is vigorously defending its position,” the company said in a statement.
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News Corp. (NWSA) Phone-Hacking Probe Yields New Arrest, Police Say
British police investigating phone-hacking by journalists at News Corp.’s now-defunct News of the World tabloid arrested a 47-year-old woman on suspicion of attempting to pervert the course of justice.
The woman was detained Jan. 6 in Essex, England, the Metropolitan Police Service said in a statement, without giving her name. She was then bailed to return to an Essex police station later this month, the MPS said. The BBC reported the woman is Cheryl Carter, the ex-personal assistant of Rebekah Brooks, who was chief executive officer of News Corp.’s U.K. publishing unit before she resigned in July and was arrested in the probe.
The scandal prompted Rupert Murdoch’s News Corp. to close the News of the World in July and drop its 7.8 billion-pound ($12.1 billion) bid for full control of British Sky Broadcasting Group Plc. (BSY) Previous arrests also include former News of the World editor Andy Coulson, who is free on bail until March.
The Jan. 6 arrest is the 17th in the probe, called Operation Weeting. Brooks, who has denied wrongdoing, is on bail until March and hasn’t been charged.
A call to Carter’s home in Essex wasn’t answered. A spokeswoman for News Corp.’s News International unit in London said that Carter left the company last year and declined to comment on whether she was arrested. Carter wrote fashion articles for News Corp.’s Sun tabloid in Britain as recently as October 2011.
Brooks’s spokeswoman Emma Capon didn’t return a call for comment.
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SEC Alters Settlement Policy in Cases With Criminal Convictions
The U.S. Securities and Exchange Commission has modified its boilerplate settlement language to require that defendants admit wrongdoing when they have already done so in parallel criminal proceedings.
The change doesn’t affect the SEC’s typical approach of settling cases without requiring the subject of the action to admit wrongdoing when there is no criminal conviction, SEC Enforcement Director Robert Khuzami said Jan. 6 in a statement.
“The new policy does not require admissions or adjudications of fact beyond those already made in criminal cases, but eliminates language that may be construed as inconsistent with admissions or findings that have already been made in criminal cases,” Khuzami said.
The SEC has come under fire for allowing subjects of lawsuits to settle claims without admitting to the misconduct. U.S. District Court Judge Jed Rakoff cited that policy last month when he rejected the agency’s proposed $285 million settlement with Citigroup Inc. over claims the bank misled investors in a financial product linked to risky mortgages.
The policy change, which has been under consideration for several months, is “separate and unrelated to” Rakoff’s ruling in the Citigroup matter and has no impact on cases with no parallel criminal proceeding, Khuzami said.
Peter Henning, a former SEC attorney who is now a law professor at Wayne State University in Detroit, said “given the admission of guilt in the criminal case, it’s hard to see how this would have any impact.”
Samsung Fails to Win Sales Ban on Apple’s IPhone 4S in Italy
Samsung Electronics Co. (005930), the maker of the Galaxy mobile devices, failed to win a sales ban on Apple Inc. (AAPL)’s latest iPhone in Italy, as a global patent dispute between the two companies continues.
A Milan court rejected Dec. 5 the Suwon, South Korea-based company’s bid to block the iPhone 4S in Italy, said Nam Ki Yung, a Seoul-based spokesman for Samsung, confirming an earlier report by Ansa news agency.
Samsung, which reported a 73 percent jump in fourth-quarter operating profit Dec. 6 after selling a record number of handsets last year, also failed to win a sales ban on the iPhone 4S in France last month. Samsung and Apple have been suing each other in multiple countries over patents related to mobile technologies and designs since the iPhone maker accused the South Korean rival of copying its products last year.
“We will review the ruling and consider all available measures to further protect our intellectual property rights and stop this free riding on our technology,” Samsung said in a statement, referring to the Jan. 5 decision.
Steve Park, an Apple spokesman in Seoul, reiterated the company’s earlier statement on the dispute that Apple needs to protect its intellectual property against “blatant copying.”
Lehman Judge Refuses to Block Zell Option on Archstone
Lehman Brothers Holdings Inc. (LEHMQ) lost a bid to block Bank of America Corp. (BAC) and Barclays Plc (BARC) from giving Sam Zell’s Equity Residential (EQR) an option to buy 26.5 percent of Archstone when a judge said Zell was entitled to the option.
Lehman tried to block the deal, saying it would be forced to pay more than the $2.6 billion it sought to pay for the banks’ 53 percent stake in Archstone. Lehman may be insolvent, yet it is “cash-rich” and can afford to pay a bit more, U.S. Bankruptcy Judge James Peck said in a court hearing Jan. 6.
Peck said he assumed the Zell company would bid about $1.4 billion for half of the banks’ stake, because if Lehman matches his offer, Equity Residential would get a so-called breakup fee in compensation.
The banks’ deal with Zell is really “a disguised sale of 100 percent of the banks’ stake to Lehman,” designed to get a good price, he said. “I know it.” However, he said, the Zell company is entitled to the benefit of exercising its option.
Peck said he agreed with the banks, which had argued that the fight over Archstone “is simply about money.” Lehman wouldn’t be harmed if the deal went forward, he said. He said he sided with the Zell company, which argued it would be harmed if Lehman blocked the deal because it had spent time and money on the investment, and would end up with nothing.
Lehman, which has said it aims to sell Archstone for $6 billion to help pay creditors, is first seeking to gain control by buying the banks’ stake. Zell’s company is Archstone’s biggest rival in the apartment business, referred to by Peck as “the elephant in the room.”
Archstone is Lehman’s biggest real estate asset. It currently owns 47 percent.
Lehman is embarking on a $65 billion liquidation plan after three years in bankruptcy court, with cash of more than $20 billion raised so far. After agreeing to pay the banks $1.3 billion for 26.5 percent of Archstone, Lehman asked Peck to rule that it has the right to take Zell’s option to the rest of the banks’ stake at the same price.
Lehman sued the banks on Dec. 15 for breach of contract, saying they colluded to sell a stake to Zell’s company, Archstone’s “largest competitor.” As part of the suit it asked Peck to block the deal with Zell.
The case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The complaint is Archstone LB Syndication Partner LLC v. Banc of America Strategic Venture Inc. (In re Lehman Brothers Holdings Inc.), 11-02928, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
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Exxon, Salazar Reach Accord on Offshore Oil Lease Dispute
Exxon Mobil Corp. (XOM) and U.S. Interior Secretary Kenneth Salazar agreed to settle a lawsuit in which the world’s largest publicly traded oil company challenged the government’s decision to cancel offshore leases that may yield “billions of barrels of oil,” according to a court filing.
The accord “will allow ExxonMobil to develop this very large, but technically challenging, resource as quickly as possible using a phased approach,” Patrick McGinn, a spokesman for Irving, Texas-based Exxon, said in an e-mail Jan. 6.
Exxon sued Aug. 12 over a ruling by the department that canceled Gulf of Mexico leases for the so-called Julia Unit. The company and the government entered into settlement agreement on Dec. 30, according to a filing Jan. 6 in U.S. District Court in Lake Charles, Louisiana.
Exxon said in its complaint that it sought a suspension for its Julia leases in 2008 because of drilling complexity. It cited federal regulations that allow oil oil producers to suspend production in their fields, partly “to facilitate proper development of a lease.”
The Interior Department denied the request in 2009, stating that the company“had not demonstrated a commitment to production” according to court papers. Unsuccessful appeals followed.
As part of the settlement, the Interior Department granted a suspension of production for the leases from Dec. 13, 2008, to Oct. 31, 2013. The department will grant a second suspension until Aug. 31, 2014, if Exxon and Statoil ASA (STL), a partner in Exxon’s Julia fields, remains in compliance with the terms of the agreement and takes certain steps toward production, according to court documents.
Exxon and Statoil agreed to pay a yearly fee on the original leases of $650 per acre until 87.5 million barrels of oil are produced from the fields. The first fee will be owed for 2011, according to court documents. The minimum royalty rate for the leases was increased to $11 per acre and the yearly rental rate increased to $16 an acre.
Melissa Schwartz, a spokeswoman for the Interior Department, said in an e-mailed statement that the proposed settlement affirms the regulatory process, “provides incentives for timely and thorough development of the leases, and secures a fair return on those resources to the U.S. Treasury.”
The case is Exxon Mobil Corp. v. Kenneth Salazar, 11- CV-1474, U.S. District Court, Western District of Louisiana (Lake Charles).
Chevron’s Bid to Block Ecuadorean Asset Collection Denied
Chevron Corp. (CVX)’s bid to protect its assets that could be seized as part of an $18 billion environmental damages verdict against the company in Ecuador was denied by a U.S. judge, who said the request could be renewed at a later date.
Chevron, the second-largest U.S. oil company, had asked U.S. District Judge Lewis Kaplan in New York to block the collection of the judgment and the “dissipating” of any proceeds pending resolution of the company’s racketeering lawsuit alleging that the plaintiffs engaged in fraud to win the Ecuadorean judgment. The company sought to “temporarily ensure the availability” of all assets while the U.S. case proceeds.
“Chevron has made no effort to quantify the damages it alleged has been sustained to date, let alone to support any damage claim with evidence,” Kaplan said in his ruling Jan. 6.
Chevron was ordered on Feb. 14 to pay as much as $18 billion in compensatory and punitive damages for Texaco Inc.’s alleged dumping of toxic drilling wastes in the Ecuadorean jungle from 1964 to about 1992. The ruling came in an 18-year- old lawsuit decided by a judge in Lago Agrio, a provincial capital near the Colombian border.
While Kaplan blocked the collection of the Ecuadorean judgment in March, a federal appeals panel in September tossed that ruling. The appeals court hasn’t issued a full opinion in the matter.
Chevron denies wrongdoing in the Lago Agrio lawsuit. The company says Texaco cleaned up its share of the pollution at its former oil fields, which were taken over by PetroEcuador, Ecuador’s state-owned oil company. Chevron says it was released from any future liability by an agreement between Texaco and Ecuador.
Kent Robertson, a spokesman for Chevron, said in an e-mail that “we appreciate the court’s prompt response to our motion. The court decided the motion on very narrow grounds and did not question the strength of Chevron’s fraud evidence. Clearly the court has left the door open to a future attachment filing. We look forward to the balance of our racketeering case proceeding and remain committed to holding the plaintiffs’ lawyers accountable for their misconduct.”
Karen Hinton, a U.S. spokeswoman for the Ecuadorean plaintiffs, said in an e-mail that “it is clear that Chevron’s motion had no legal basis and was designed yet again to distract attention from the company’s fraudulent misconduct in Ecuador as well as its obligation to clean up its toxic waste in Ecuador’s Amazon that threatens the lives of thousands of people.”
The racketeering case is Chevron v. Donziger, 11-00691, U.S. District Court, District of New York (Manhattan). The case in Ecuador is Maria Aquinda v. Chevron, 002-2003, Superior Court of Nueva Loja, Lago Agrio, Ecuador.
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Koskie, Siskinds to Lead Class-Action Suit Against Sino-Forest
Koskie Minsky LLP and Siskinds LLP won approval from an Ontario judge to lead an investor class-action lawsuit against Sino-Forest Corp. (TRE) and its executives, according to court documents.
Ontario Superior Court Judge Paul Perell announced the decision Jan. 6 in a 57-page judgment. Four firms competed to be the lead counsel in a class action.
Sino-Forest, a China timber producer, dropped 74 percent in trading on the Toronto Stock Exchange after Carson Block, a short seller, said in June the company had overstated its forest plantation assets. The company, with $1.8 billion in bonds outstanding, has been suspended from share trading since August and denies the allegations.
Richard Chandler, a billionaire investor whose investment company owns 19 percent of Sino-Forest according to data compiled by Bloomberg, said the timber company needs to change its chief executive officer and appoint new directors.
The law firms are seeking damages on behalf of buyers of Sino-Forest shares and bonds in both the primary and the secondary markets, said Dimitri Lascaris, a lawyer at Siskinds, by e-mail Jan. 6.
The firms expect to present a motion for certification of their class-action suit within three months, said Kirk Baert, a lawyer at Koskie, in a telephone interview.
The case is trustees of the Labourers’ Pension Fund of Central and Eastern Canada v. Sino-Forest, 11-CV-431153CP, Superior Court of Justice (Ontario).
CMBS Holders Alleging ‘Brazen Scheme’ Most Popular Docket
A suit by a group of commercial-mortgage backed securities investors accusing a junior lender and other parties, of a “brazen scheme” to steal more than $60 million from bondholders, was the most-read litigation docket on the Bloomberg Law system last week.
The investors, three collateralized debt obligations and TCG Holdings I LLC, hold pieces of a $1.26 billion deal sold by Credit Suisse Group AG in 2007, Royal Bank of Scotland Group Plc analysts led by Richard Hill wrote in a report Dec. 29. They are seeking to block Galante Holdings Inc. from purchasing a $150 million loan on the J.W. Marriott Summerlin Hotel, Resort, Spa and Casino in Las Vegas, according to the court filing.
The suit names TriMont Real Estate Advisors as the so- called special servicer. Special servicers, firms that handle troubled property loans packaged into securities, have the option to buy defaulted loans provided the value is deemed fair. The lawsuit claims that Galante, which owns $10 million in junior debt against the property, “conspired” with the servicer to purchase the debt for less than it’s worth, according to the RBS analysts.
The case is Cedarwoods CRE CDO II Ltd. v. Galante Holdings Inc., 11-653624, New York State Supreme Court in Manhattan (New York County).
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