Mortgage Investigations, Media Ethics, Dow, Sabre, MBIA-BofA in Court News
Singapore Exchange withdrew a lawsuit filed to force China Sky Chemical Fibre Co. (CSCF) to comply by listing rules, and said lawyers for both sides met after the company ignored a deadline to appoint a special auditor.
China Sky’s lawyer is seeking further instructions from the Quanzhou City, Fujian-based company, the exchange, Southeast Asia’s biggest bourse by value of shares traded, said in a statement yesterday. Singapore Exchange didn’t give a reason for withdrawing the suit, according to a separate statement.
Investors have pressed for tougher rules as accounting scandals wiped out millions of dollars in the market values of China-based companies including Sino-Forest Corp. (TRE) and led others such as FerroChina Ltd. (FRC) to be delisted. The exchange had accused China Sky of “flagrant disregard” of its order to appoint a special auditor.
“SGX must show its teeth and pressure errant companies,” said Aloysius Wee, managing principal at the Singapore operations of Beijing-based Dacheng Law Offices. “Legal proceedings may not be the appropriate way.”
Singapore Exchange (SGX), also known as SGX, sued the Chinese nylon-fiber maker and four of its Chinese directors on Jan. 6 to compel the appointment of a special auditor to investigate “interested-party transactions,” a failed land purchase and certain repair costs. All three independent directors at China Sky quit Jan. 5, citing non-compliance with the bourse’s order.
SGX issued the two statements after a closed hearing on the lawsuit at Singapore’s High Court yesterday.
“Close-door mediation would be the best way forward,” said Wee, who isn’t involved in the case. “It’s face-saving for both.”
Some demands made by the bourse “were extremely unreasonable,” China Sky said in minutes of a Dec. 24 meeting in Singapore between its Chief Executive Officer Huang Zhong Xuan and the bourse’s Lawrence Wong. The Chinese company released the minutes in a Jan. 6 statement to the Singapore Exchange. China Sky will “continue to communicate with SGX to resolve the impasse,” it said in the statement.
The case was Singapore Exchange Securities Trading Ltd. v. China Sky Chemical Fibre Co., Huang Zhong Xuan, Cheung Wing Lin, Song Jian Sheng and Wang Zhi Wei OS11/2012 in the Singapore High Court.
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JPMorgan, Pforzheim Urged to Settle $71 Million Swap Suit
JPMorgan Chase & Co. (JPM) and the German city of Pforzheim should settle a dispute over 56 million euros ($71 million) in losses on an interest-rate swap, a judge said.
The city should accept one-third of the amount, Presiding Judge Daniel Koehler told the parties at a hearing in Frankfurt yesterday. While the city may win the case if it can prove that it wasn’t properly informed about the initial market value of the derivative, this isn’t guaranteed and proceedings may drag on for a long time, he said.
“A settlement would pour money in the city’s coffers right away,” Koehler said. “The amounts at stake aren’t peanuts and both sides face considerable risks in this case.”
The city of Pforzheim is among several European municipalities that lost millions of euros on derivative transactions that went sour. After Deutsche Bank AG (DBK), Germany’s biggest bank, lost a case over interest-rate swaps at Germany’s highest civil court last year, cities and small companies are trying to recover their losses in court.
Lawyers for the city said the settlement amount proposed by the judge wouldn’t be acceptable and that the city council must consider the issue. JPMorgan’s lawyer said he will discuss the proposal with his client. The court scheduled a ruling for March 23.
Pforzheim bought the swap to mirror a derivative it had acquired from Deutsche Bank that accumulated 20 million euros of losses. Over time, the Deutsche Bank transaction turned positive, while the swap from JPMorgan incurred about 60 million euros in losses.
Under most interest-rate swap agreements sold to utilities, medium-size companies and cities, the lender paid a fixed rate and the customer an amount based on Euribor rates.
The top court’s reasoning in the Deutsche Bank ruling would apply in this case, so JPMorgan had a duty to disclose any negative market value, Judge Koehler said. While the city had experience with swaps and the negotiations were handled by two women with some knowledge in the area, that didn’t exclude the bank’s duty to advise its customer, he said. The court’s assessment is preliminary, the judge added.
Yesterday’s case is LG Frankfurt, 2-25 O 669/10.
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States Discuss Mortgage Investigations as Bank Talks Drag On
About a dozen state attorneys general met last week to discuss their mortgage investigations and how they might work together as settlement talks with banks over foreclosures drag on, three people familiar with the matter said.
The group, which met in Washington, included New York Attorney General Eric Schneiderman, California’s Kamala Harris and Martha Coakley of Massachusetts, according to two of the people, who declined to be named because they weren’t authorized to speak about the meeting. Schneiderman, Harris and Coakley are each conducting separate investigations of bank practices.
The meeting occurred as state and federal officials are negotiating a settlement with the five largest mortgage servicers, including Bank of America Corp. and JPMorgan Chase & Co., that would set requirements for conducting foreclosures and provide relief to homeowners.
Schneiderman, Harris and Coakley, along with Nevada Attorney General Catherine Cortez Masto and Delaware’s Beau Biden, have raised concerns about any deal that protects banks from future investigations. Masto and Biden also attended the Jan. 10 meeting, according to one of the people. The five states aren’t among those negotiating directly with the banks.
“A number of likeminded AGs met together to discuss current and ongoing investigations into the mortgage finance and foreclosure industries in addition to prospective or future investigations that may be fruitful,” Delaware Deputy Attorney General Ian McConnel said in a phone interview. He declined to comment further.
Harris and Masto announced in December they were collaborating in their mortgage and foreclosure investigations. Schneiderman and Biden are also cooperating. In December, Coakley sued Charlotte, North Carolina-based Bank of America, New York-based JPMorgan, Citigroup Inc. (C), Wells Fargo & Co. and Ally Financial Inc. (ALLY), accusing them of conducting unlawful foreclosures and deceiving homeowners.
Iowa Attorney General Tom Miller is leading talks for the states. Geoff Greenwood, his spokesman, said in an e-mailed statement that Miller and other representatives of the negotiating team “encourage input from their colleagues.”
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U.K. Tabloid Publisher Seeks Inquiry Ban on Secret Evidence
Associated Newspapers Ltd. (DMGT), which publishes the Daily Mail in Britain, asked a judge to ban the use of anonymous evidence by journalists at a U.K. inquiry into media ethics, set up after News Corp.’s phone-hacking scandal.
Allowing unnamed reporters and editors to allege illegal practices at newspapers other than News Corp. (NWSA)’s now-shuttered News of the World tabloid, would be unfair to other publishers and risk hurting their reputations, Associated Newspapers’ lawyer, Mark Warby, said at a hearing Jan. 13 in London.
The inquiry, led by Judge Brian Leveson, is preparing to use “untested evidence that will tend to tar Associated Newspapers with a broad brush,” Warby said. “The press are in a very real sense on trial.”
The publisher, a unit of Daily Mail and General Trust, also publishes the Mail on Sunday and Metro. The Daily Mail’s editor, Paul Dacre, has been a critic of the inquiry, saying in October that phone hacking at the News of the World exposed police failures and government hypocrisy rather than a need for more industry regulation, which could result from the inquiry.
The victims of phone hacking and other wrongdoing by U.K. tabloids “support the inquiry’s decision to allow anonymous evidence,” said Dominic Crossley, who represents a selection of victims at the inquiry.
“It’s an important part of the proper running of the inquiry, given the inevitability that journalists will be fearful of giving evidence in view of the impact upon their employment,” Crossley said in a phone interview.
The inquiry was announced in July by U.K. Prime Minister David Cameron after revelation that the News of the World hacked into the voice mail of a murdered school girl in 2002, when she was missing. The probe extends beyond News Corp.’s five-year-old phone-hacking scandal, covering the ethics of the newspaper industry and its relationship with politicians and police.
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J&J Marketed Risperdal for Kids After FDA Warnings, Jurors Told
The antipsychotic drug Risperdal was marketed for children and adolescents by Johnson & Johnson’s Janssen unit after warnings by the U.S. Food and Drug Administration not to do so, a witness told jurors.
Janssen’s marketing to children began after the drug’s introduction in 1994 and continued until the FDA’s first approval for pediatric uses in 2006, jurors in state court in Austin, Texas, heard Jan. 13 from attorney Arnold Friede, an expert witness for the state. Texas seeks at least $579 million from J&J, claiming it defrauded the state Medicaid program by hyping Risperdal and overbilling.
Friede explained company documents and FDA letters as lawyers for Texas seek to show Janssen repeatedly disregarded agency admonitions to not market Risperdal beyond its initial approved use for psychotic disorders including schizophrenia.
Friede, a consultant who once worked at the FDA and Pfizer Inc., said Janssen disregarded the drug’s label. From December 1993 to October 2006, it said: “Safety and effectiveness in children have not been established.”
J&J, based in New Brunswick, New Jersey, is the world’s largest health-care products company. It denies the Texas claims.
Texas joined a whistle-blower lawsuit filed in 2004 by Allen Jones, a former Pennsylvania state investigator. An attorney for Jones told jurors in his opening statement this week that J&J made $34 billion in Risperdal sales over 17 years.
The case is Texas v. Janssen LP, D-1GV-04-001288, District Court, Travis County, Texas (Austin).
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Ecclestone Hid $5 Million Payment to Gribkowsky, Adviser Says
Formula One Chief Executive Officer Bernie Ecclestone ordered a secret $5 million payment to former Bayerische Landesbank (BLGZ) Chief Risk Officer Gerhard Gribkowsky, his adviser on the transfer said.
“Ecclestone told me to transfer $5 million of his money to Mr. Gribkowsky by using a special company so his name wouldn’t appear,” Andre Favre, who worked as an adviser to Ecclestone, told a Munich court at Gribkowsky’s bribery trial. “All Ecclestone told me was that he owed Gribkowsky the money.”
Favre said he made the payment to the banker through a Panama-based company named Lewington Invest, which was bought for $2,000 or $3,000 by a law firm in Geneva in 2007 on behalf of Ecclestone.
Prosecutors charged Gribkowsky, who managed Munich-based BayernLB’s interest in the Formula One racing series, with accepting bribes, breach of trust and tax evasion. They claim he received $44 million in bribes to facilitate the sale of the bank’s 47 percent stake in the Formula One to CVC Capital Partners Ltd.
Gribkowsky demanded $50 million from Ecclestone as a reward for approving the deal and threatened to disclose possible tax violations by the Bambino family trust run by Ecclestone’s then wife, prosecutors said. Gribkowsky denies the charges.
BayernLB acquired the Formula One stake after the 2002 bankruptcy of Leo Kirch’s media group. Gribkowsky clashed with Ecclestone and sued him in a London court over corporate- governance rules the Formula One chief had changed to limit the lender’s influence. Ecclestone wanted to push BayernLB out and saw a chance when CVC showed interest, prosecutors said in the indictment.
Ecclestone testified in November that he saw no “alternative” to making payments to Gribkowsky as he feared that Gribkowsky might disclose information to U.K. tax authorities about the family trust that might be “very expensive” for him.
Roche Faces First Trial of Claims Over Raptiva Infections
Officials of Genentech, a unit of Basel, Switzerland-based drugmaker Roche, are readying for a Jan. 30 jury trial in state court in California over allegations that Raptiva caused Stephen Johnson’s death. The 46-year-old Louisiana businessman took the drug to treat a skin condition. Genentech withdrew the medication from the market almost three years ago after it was linked to fatal brain infections.
“Psoriasis isn’t life-threatening and his wasn’t even that horrible,” Mark Lanier, a lawyer for Johnson’s family, said in an interview. “This drug was never about the patients. This drug was about the money.”
Genentech, based in South San Francisco, California, began withdrawing Raptiva from U.S. and European markets in April 2009 after three psoriasis patients were diagnosed with progressive multifocal leukoencephalopathy, or PML, a rare, incurable brain infection. The month before the withdrawal, Roche completed a $46.8 billion buyout of the biotech company.
Nadine O’Campo, a Genentech spokeswoman, declined to comment on the upcoming Raptiva trial. “Given this litigation is ongoing, we are not commenting,” she said in an e-mailed statement.
Johnson’s case is the first of about 100 Raptiva suits that have been consolidated before Judge Steven Brick in state court in Oakland, California. Lanier said there are other cases in federal and state courts in Texas and Massachusetts.
The family is seeking $15 million in compensatory damages over Johnson’s death along with “several hundred million dollars” in punitive damages, Lanier said.
The case is Johnson v. Genentech Inc., RG 10-494957, California Superior Court, Alameda County (Oakland).
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Mabey & Johnson Owner to Repay Dividends Over Iraq Contract
Mabey & Johnson Ltd.’s owner was ordered by a U.K. court to pay 131,201 pounds ($201,200) in dividends gained after the bridge builder paid kickbacks to win contracts from Saddam Hussein’s Iraqi government.
Mabey Engineering Holdings Ltd. will repay “sums it received through share dividends derived from contracts won through unlawful conduct,” the Serious Fraud Office said in an e-mailed statement.
Two former directors of the closely held U.K. construction company were found guilty last year of paying more than 420,000 euros ($536,700) to Iraq to win contracts, in violation of United Nations sanctions against the country.
Mabey & Johnson alerted the SFO in 2008 of “irregularities it had identified as a result of an internal investigation” and was convicted of corruption and breaches of UN sanctions in 2009, the fraud office said.
“The company is viewed by the SFO as having conducted itself in an exemplary way through its self-referral, extensive cooperation with the authorities and the transformation of the company,” the SFO said in the statement.
Peter Lloyd, chief executive officer of Mabey Holdings, said the payment marked “the final chapter in our diligent and painstaking work to root out historic unlawful practices,” according to an e-mailed statement. Mabey now has new management and “rigorous anti-bribery and corruption procedures.”
Ex-Dow Scientist Gets 5-Year Term for Trade Secret Theft
A former Dow Chemical Co. (DOW) research scientist was sentenced to five years in prison for stealing trade secrets and selling them to Chinese companies.
The sentence against Wen Chyu Liu, also known as David W. Liou, was handed down Jan. 12 by U.S. District Judge James J. Brady in Baton Rouge, Louisiana. A jury in February convicted Liu of perjury and conspiring to steal Dow trade secrets. He was indicted in 2005.
Liu, 75, of Houston worked for Dow from 1965 to 1992. At its Plaquemine, Louisiana, facility he had access to secrets related to the manufacture of chlorinated polyethylene or CPE, used in the making of vinyl siding, electrical cable jackets and industrial hoses, according to a U.S. Justice Department statement Jan. 13.
“Liu traveled extensively throughout China to market the stolen information, and evidence introduced at trial showed that he paid current and former Dow employees for Dow’s CPE-related material and information,” the department said.
He paid one Dow worker $50,000 for a process manual and other product-related information, the U.S. said.
“The technology that Mr. Liou was convicted of stealing belonged to Dow,” the Midland, Michigan-based company said in an e-mailed statement Jan. 13. “Because of his education and position within the company, Mr. Liou knew of its immense value.”
Dow called the theft and sale of its intellectual property “a complete betrayal of the trust imparted to Mr. Liou as a Dow employee.”
The Dow Chemical case is U.S. v. Liu, 05-cr-00085, U.S. District Court, Middle District of Louisiana (Baton Rouge). The Dow AgroSciences cases are U.S. v. Huang, 11-cr-00163 and 10- cr-00102 U.S. District Court, Southern District of Indiana (Indianapolis).
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On the Docket
Sabre Says Judge Delays Trial in AMR Flight-Data Access Lawsuit
Sabre Holdings Corp. says a Texas state judge has delayed until Aug. 6 the trial in a lawsuit with AMR Corp.’s American Airlines over distribution of the carrier’s fare and flight data.
The trial initially was set for June 13. Sabre compiles fare and flight data from airlines and distributes it to travel agents.
Allen Stanford’s Lawyers Can’t Quit His Case, Judge Says
R. Allen Stanford’s attorneys must defend him at a $7 billion investment fraud trial that will begin Jan. 23 in Houston federal court, said a U.S. judge who rejected the lawyers’ bid to quit.
Stanford’s court-appointed attorneys, Ali Fazel, Robert Scardino, John Parras and Ken McGuire, asked to exit his case in a motion filed on Jan. 11, less than two weeks before the start of jury selection. They claimed they hadn’t been given enough time or resources to prepare an adequate defense against what they describe as a complicated financial fraud case.
“The defense team’s primary reason for seeking such relief is based upon its self-proclamation that Stanford’s right to effective assistance of counsel will be impaired,” Hittner said in a two-page order that also rejected the lawyer’s bid for a three-month delay in starting the trial.
“The court notes that the defense team maintains this position despite the fact that two of its lawyers -- Scardino and Fazel -- have been appointed to this case since November 2010, and the other two lawyers -- Parras and McGuire -- have been appointed to this case since March 2011,” Hittner said.
Stanford, 61, has been imprisoned 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 Ltd. Stanford denies all wrongdoing.
Hittner said in a separate order late Jan. 13 that Stanford’s lawyers could argue yet another delay request, which they filed under seal last week, at a pretrial hearing next week.
The lawyers seek “a continuance on the basis that a non- attorney member of the defense team will be unavailable to assist at the commencement of trial,” Hittner said in the ruling. He ordered the government and Stanford’s lawyers to continue “full trial preparation” in the meantime.
The former financier was declared indigent and given a taxpayer-financed defense because all of his assets were frozen by court order after the U.S. Securities and Exchange Commission sued him in February 2009.
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-SEC Lawyer Barasch Settles Stanford Ethics Dispute With U.S.
Spencer C. Barasch, a former lawyer for the U.S. Securities and Exchange Commission accused of killing investigations into the business practices of R. Allen Stanford, settled a dispute with Justice Department.
Barasch was identified in a 2010 SEC inspector general’s report as having “quashed” three probes into Stanford’s operations while head of enforcement in the agency’s Fort Worth, Texas, office, and then representing the financier before the SEC in 2006, a year after leaving the commission.
Stanford was indicted in June 2009 by a federal grand jury in Houston on 21 counts including conspiracy to commit mail and wire fraud and obstruction of an SEC investigation. He has pleaded not guilty. The counts have since been reduced to 14. Jury selection in his trial is set to start on Jan. 23.
“There must be zero tolerance for ethical missteps,” U.S. Attorney John M. Bales of Beaumont, Texas, said Jan. 13 in a statement. Barasch agreed to pay a $50,000 fine, according to the statement.
Barasch worked for Stanford after being told by the SEC that he couldn’t do so because of a “permanent conflict of interest,” Bales said.
Barasch’s lawyer, Paul Coggins, said in an e-mailed statement that his client entered into an accord to avoid the expense and uncertainty of drawn-out litigation.
“At no time has he compromised his honor or ethics and we vigorously dispute any suggestion to the contrary,” Coggins said.
Barasch, who left the SEC in 2005 after a 17-year career, is now in private practice in the Dallas office of the Houston- based law firm Andrews Kurth LLP (1262L).
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MBIA Suit Against BofA Most Popular Docket on Bloomberg
An MBIA Inc. (MBI) suit alleging Bank of America Corp. saying duped it into guaranteeing payment on Countrywide mortgage bonds, was the most-read litigation docket on the Bloomberg Law system last week.
MBIA, which sued Countrywide in 2008, guarantees payments to investors that bought securities backed by pools of the lender’s loans. The insurer says the loans were riskier than Countrywide promised, and as they defaulted, the Armonk, New York-based company was forced to make payments. Through September 2010, MBIA had paid out $2.5 billion on mortgage securities sponsored by Countrywide.
On Jan. 3, Bank of America lost a ruling that will help the bond insurer as it tries to recover losses. MBIA needs only to show the lender made misrepresentations about the loans backing the bonds, instead of establishing they caused the losses the insurer is seeking to recover, New York state Judge Eileen Bransten said in a decision.
The case is MBIA Insurance Corp. v. Countrywide Home Loans Inc., 602825-2008, New York State Supreme Court (Manhattan).
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