Tyco, Citigroup, JPMorgan Chase, GE in Court News
(Corrects to add new law firm statement describing Kozlowski’s job in first item in story published March 16.)
The new home of felon and ex-Tyco International Ltd. (TYC) Chief Executive Officer Dennis Kozlowski, while not furnished with the $6,000 shower curtain and paintings by Monet and Renoir that decorated his previous Manhattan abode, offers a stunning view of Central Park and the New York skyline.
Convicted in 2005 of looting his company, Kozlowski was transferred from an upstate prison to a minimum-security facility on Manhattan’s 110th Street near Fifth Avenue, on the north border of the park, Bloomberg News’ Bob Van Voris and Patricia Hurtado report. Kozlowski leaves every weekday morning to participate in a work-release program, said Peter Cutler, a spokesman for the New York State Department of Corrections and Community Supervision.
Alan Lewis, Kozlowski’s lead lawyer and a partner at Carter Ledyard & Milburn LLP, said in an e-mailed statement that the ex-CEO works as a clerk at a software company, revising an earlier comment by partner Michael Shapiro in a telephone interview that Kozlowski worked as a financial consultant. The two attorneys co-chair New York-based Carter Ledyard’s white collar practice, according to its website.
Kozlowski, still serving a prison sentence of 8 1/3 to 25 years, must return every work night to his new home, known as the Lincoln Correctional Facility, Cutler said. He is permitted to spend Saturday nights outside the prison, according to Cutler.
Kozlowski, along with former Chief Financial Officer Mark Swartz, was convicted in June 2005 of securities fraud, grand larceny and falsifying business records.
Swartz also has been transferred to the Lincoln facility and is participating in work-release, according to his lawyer, Charles Stillman. Stillman declined to provide any additional details of his client’s status.
The jury, in New York State Supreme Court in Manhattan, found that Kozlowski and Swartz stole about $137 million from Tyco in unauthorized compensation and made $410 million from the sale of inflated stock. An earlier trial resulted in a mistrial after a juror reported receiving threats.
Kozlowski, 65, has his first parole hearing next month and could be released as soon as Aug. 25, Cutler said.
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Citigroup-SEC Trial Is Delayed by Federal Appeals Court
Citigroup Inc. (C) and the U.S. Securities and Exchange Commission won a delay in the trial of a lawsuit the agency brought against the bank while an appeals court considers a judge’s refusal to approve their $285 million settlement.
In November, U.S. District Judge Jed Rakoff declined to approve the accord resolving claims that New York-based Citigroup, the third-biggest U.S. bank, misled investors in a $1 billion financial product linked to risky mortgages. He ordered them to go to trial, which was scheduled for July 16.
“The SEC and Citigroup have made a strong showing of likelihood of success in setting aside the district court’s rejection of their settlement,” the court wrote.
In his decision, Rakoff criticized the agency’s practice of settling without requiring the subject of the allegations to admit wrongdoing, and said the proposed accord was “neither fair, nor reasonable, nor adequate, nor in the public interest.” The agreement didn’t provide him with “any proven or admitted facts” to inform his judgment, he said.
Rakoff didn’t return a call seeking comment on the appeals- court ruling. Danielle Romero-Apsilos, a Citigroup spokeswoman, said the company was pleased with the appeals court’s ruling.
“We agree to settlements when the terms reflect what we reasonably believe we could obtain if we prevailed at trial, without the risk of delay and uncertainty that comes with litigation,” Robert Khuzami, director of the SEC’s enforcement division, said in a statement yesterday. “This settlement approach preserves resources that we can use to stop other frauds and protect other victims.”
In December, the appeals court halted the lower-court proceedings until it made the ruling it did yesterday.
The appeals court said yesterday that while it found likelihood of success on the appeal for the purposes of halting the lower-court proceedings, that didn’t mean the panel that hears the merits of the case will do so.
The case is U.S. Securities and Exchange Commission v. Citigroup Global Markets Inc., 11-05227, U.S. Court of Appeals for the Second Circuit (New York). The district court case is 11-cv-7387, U.S. District Court, Southern District of New York (Manhattan).
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JPMorgan Sued by Assured Guaranty Over Mortgage Securities
Assured Guaranty Corp. (AGO) sued JPMorgan Chase & Co.’s EMC Mortgage and Bear Stearns units in New York state court, accusing them of making misrepresentations to market mortgage- backed securities.
The lawsuit was brought in connection with a mortgage- backed securities transaction known as SACO I Trust 2005-GPI, sold in September 2005, which has experienced cumulative losses of more than $75 million, resulting in more than $43 million in claims to be paid by the plaintiff, a New York-based unit of Hamilton, Bermuda-based insurer Assured Guaranty Ltd.
“The transaction that Bear Stearns marketed and effectuated based on its materially false and misleading representations and disclosures has failed miserably,” Assured Guaranty said in its complaint. “An overwhelming percentage of the loans that Bear Stearns securitized in the transaction either have been written off as total losses or are severely delinquent.”
EMC Mortgage was a unit of Bear Stearns Cos. until the investment bank was bought by JPMorgan (JPM) in 2008.
Jennifer Zuccarelli, a spokeswoman for New York-based JPMorgan, didn’t immediately return a phone message seeking comment on the lawsuit.
The case is Assured Guaranty Corp. v. EMC Mortgage LLC, 650805/2012, New York State Supreme Court (Manhattan.)
Morgan Stanley Sues Sterling Stamos Over $17.6 Million
Morgan Stanley sued Sterling Stamos funds over $17.6 million in distributions, which it claims were withheld from a hedging affiliate that owned units in a liquidating trust set up by the money management firm
The Sterling Stamos firm was established by Peter Stamos, chairman of Major League Baseball’s investment advisory board, with the New York Mets owners as partners, and has $9.5 billion of assets under management, according to court documents.
The firm’s funds told Morgan Stanley they were holding distributions in escrow because they feared they would face competing claims on the money from two of the investment bank’s units even after being told there was no risk of that, Morgan Stanley said in a filing in New York state court yesterday.
“Even with these airtight assurances, defendants continue to refuse to turn over the funds due to MS hedging,” it said in the filing.
Morgan Stanley is seeking return of the money, plus interest. Stamos didn’t immediately return a call seeking comment on the lawsuit.
The case is Morgan Stanley & Co. v. Sterling Stamos Security Fund LP, 650796/2012, Supreme Court of the State of New York, County of New York.
BP Whistle-Blower Seeks ‘Immediate’ Action in Atlantis Case
BP Plc (BP\)’s Atlantis facility, its second-largest oil producer in the Gulf of Mexico, remains unsafe and is operating under permits BP obtained by lying to regulators, a whistle-blower said in court filings.
“Immediate court action is needed to remedy unsafe conditions on Atlantis,” Mikal Watts, an attorney for former BP contractor Kenneth Abbott, said in papers filed yesterday seeking a trial date in federal court in Houston, where the case has been pending since 2009.
“BP has falsely certified compliance with critical environmental and safety regulations” to pump billions of dollars in petroleum from the offshore facility, the lawyer said. “BP’s corporate policy and practice is to buy its way out after it is caught and then do it again.”
Abbott sued London-based BP in 2009 on behalf of the U.S. government, seeking to get a judge to shut down Atlantis, which produces about 120,000 barrels of oil daily, according to court records. Abbott said the judge should appoint a special master to oversee measures to bring the offshore facility into compliance with safety and environmental laws.
He also seeks $7.8 billion from BP, which he estimated in court papers is the value of oil and gas the company has pumped through Atlantis since it came online in 2007.
BP said in its own court filings that Atlantis is safe and that Abbott’s complaints were dismissed by federal regulators who investigated the issue after the April 2010 blowout of BP’s Macondo well drilled by the Deepwater Horizon. The Atlantis production platform is located about 100 miles (161 kilometers) south of where the Deepwater Horizon drilling rig disaster occurred.
“We fundamentally disagree with plaintiffs’ claims in this lawsuit,” Daren Beaudo, a BP spokesman, said yesterday in an e- mail. “The Department of Interior conducted a thorough investigation of Mr. Abbott’s lawsuit allegations and concluded that Mr. Abbott’s allegations are unfounded and the Atlantis platform is safe and should continue to be operated by BP.”
Lawyers for BP and Abbott will meet before U.S. District Judge Lynn Hughes on March 19. Abbott’s lawyers said they will seek an immediate hearing on safety issues.
The case is United States of America Ex Rel. Abbott v. BP Exploration and Production Inc., 4:09-cv-01193, U.S. District Court, Southern District of Texas (Houston).
Apollo Bid for Great Wolf Resorts Challenged by Shareholders
The deal, which would pay shareholders $5 a share in cash and assume outstanding debt, is inadequate, given that the company’s own financial adviser, Deutsche Bank Securities Inc., valued the company as high as $7.98 a share, David Raul, custodian for Pinchus E. Raul Utma, said in a complaint filed March 15 in Delaware Chancery Court.
The proposed transaction “was the result of an unfair and flawed sales process in which Apollo was favored over other interested parties,” Raul said in the complaint.
Great Wolf, which runs 11 family entertainment parks throughout North America, said March 13 that the sale would maximize shareholder value and help refine and promote the brand. The deal represented a 19 percent premium over Madison, Wisconsin-based Great Wolf’s closing stock price on March 12, the company said in a statement.
In a separate lawsuit, shareholder Scott Ferguson accused directors of breaching their fiduciary duty by enacting a shareholder rights plan, or poison pill, to make it more difficult for an acquirer other than New York-based Apollo to buy Great Wolf.
The proposed deal includes a no-solicitation provision and a $5.3 million termination fee, Ferguson said in his complaint. Both Ferguson and Raul seek to represent all Great Wolf shareholders in an effort to get the court to bar the deal.
Michael Fox, a spokesman for Great Wolf from ICR Inc., didn’t immediately return a phone call and e-mail seeking comment on the complaints.
The cases are Ferguson v. Great Wolf Resorts Inc., CA7329; Raul v. Schaefer, CA7328, Delaware Chancery Court (Wilmington).
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Education Management Preys on Students, Ex-Recruiter Claims
Education Management Corp. (EDMC), the second-largest U.S. for- profit college chain, defrauded U.S. taxpayers by paying illegal bonuses to recruiters who cited falsified job-placement data to lure students, a former employee claimed in a lawsuit.
Education Management used “boiler-room” tactics to receive millions of dollars in federally backed student loans and grants, Jason Sobek, a former recruiter for the company’s South University, said in a complaint unsealed March 14 in Pittsburgh federal court. The company targeted “troubled” students, including the homeless and mentally ill, according to the lawsuit.
For-profit colleges, which can receive as much as 90 percent of their revenue from federal financial-aid programs, are under scrutiny by Congress, state attorneys general and federal prosecutors for their sales practices and student-loan default rates. The Justice Department and several states joined a separate whistle-blower case last year against Education Management that makes similar allegations.
Education Management “had a corps of recruiters, all well- trained in sales and closing techniques, who perfected the art of preying on the hopes and dreams of vulnerable students desperately seeking better lives,” Sobek said in his complaint, which was filed in 2010. He worked as an associate director of admissions from June 2008 until November 2010.
Jacquelyn Muller, a spokeswoman for Pittsburgh-based Education Management, didn’t return messages seeking comment.
The Justice Department hasn’t intervened in this case though it is still investigating, Andrew Stone, an attorney for Sobek, said in a phone interview.
Margaret Philbin, a spokeswoman for U.S. Attorney David J. Hickton in Pittsburgh, didn’t immediately return a phone call seeking comment on Sobek’s complaint.
The case is U.S., ex. rel. Jason Sobek v. Education Management, 10-cv-0131, U.S. District Court, Western District of Pennsylvania (Pittsburgh).
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Sands China Faces $375 Million Compensation Claim in Macau Court
Sands China Ltd. (1928), the casino operator controlled by billionaire Sheldon Adelson’s Las Vegas Sands Corp. (LVS), said a Macau company filed a compensation claim of 3 billion patacas ($375 million) against its subsidiary and three other companies.
Asian American Entertainment Corp., which filed the claim with the Macau judicial court, is seeking compensation for damages resulting from the alleged breach of agreements related to a bid for the Macau government’s award of gaming concessions in 2001, Sands said yesterday in a statement to Hong Kong’s stock exchange.
Sands’ subsidiary Venetian Macau SA and LVS (Nevada) International Holdings Inc., Las Vegas Sands LLC and Venetian Casino Resort Hotel LLC were the four companies named in the claim, according to the statement.
The claim relates to events that occurred before Venetian Macau was incorporated in June 2002, Sands said, without disclosing details. Sands China spokeswoman Mabel Wu declined to comment further.
The New York Times reported on March 13 that Asian American Entertainment was Sands’ former partner, controlled by the Taiwanese businessman Shi Sheng Hao. The company accused Sands of improperly breaking off a 2001 agreement to bid for a Macau casino license, the report said, citing a court filing.
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Rakoff Takes Mets-Related Case to Review ‘Good Faith’ Issue
U.S. District Judge Jed Rakoff, who will oversee a trial of whether the New York Mets owners acted in “good faith” when they took $303 million from Bernard Madoff’s Ponzi scheme, said he will take another case to examine similar issues.
Maxam Capital Management LLC and founder Sandra Manzke were sued for $100 million in principal by Madoff trustee Irving Picard. Rakoff, who has about 280 Mets-related cases already, said he will remove the case from bankruptcy court to decide Picard’s rights and obligations under non-bankruptcy law, according to a court order filed in Manhattan yesterday.
The judge will determine whether Picard can nullify transfers owed by a brokerage to a customer, and what standard of proof the trustee must meet “in order to show that defendants did not receive transfers in good faith,” he said.
The Mets owners’ trial is set to start March 19 in Manhattan.
The Maxam case is Picard v. Maxam Absolute Return Fund LP, 11-cv-7428, U.S. District Court, Southern District of New York (Manhattan).
Rajaratnam to Invoke Fifth Amendment If Judge Orders Deposition
Raj Rajaratnam, the Galleon Group LLC co-founder serving 11 years in prison for insider trading, will invoke his constitutional right against self-incrimination if ordered to give a deposition, his lawyer said.
Rajaratnam will invoke the Fifth Amendment if New York State Supreme Court Justice Eileen Bransten directs him to testify in the case from the Federal Medical Center Devens in Ayers, Massachusetts, where he’s been incarcerated since December, Samidh Guha, the attorney, said in a court filing.
Lawyers for Diversified Group, a tax-shelter promoter, asked Bransten on Feb. 15 to allow them to depose Rajaratnam and Galleon Group co-founder Gary Rosenbach as part of a 2010 lawsuit. Guha has asked Bransten to deny the request, saying Rajaratnam is entitled to Fifth Amendment privileges while he is appealing his conviction. A hearing was held in the case March 13 and Bransten hasn’t ruled yet, a court clerk said.
Rajaratnam and his wife, Asha, along with Rosenbach and his wife, Susan, sued Diversified in 2005, saying they were tricked into investing in an illegal tax shelter. The lawsuit sought to recover at least $15 million in interest, penalties and fees that Rajaratnam and Rosenbach paid to the IRS. It didn’t seek the taxes they paid.
Rajaratnam and Rosenbach won a 2009 arbitrators’ decision against Diversified and its president for $5.8 million, according to court records. Diversified and its founder were found to have committed fraud in the marketing, promotion and implementation of the tax shelter sold to Rajaratnam, Rosenbach and their wives.
In 2010, Diversified sued a tax attorney and three consulting firms over the structuring of the tax shelter -- the lawsuit for which they seek to depose Rajaratnam and Rosenbach.
The case is Diversified Group Inc. v. Marcum & Kleigman LLP, 450286/2010, New York State Supreme Court (Manhattan).
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Ex-Helmerich & Payne Rig Manager Denies Lying About Tests
A former manager at drilling-rig operator Helmerich & Payne Inc. (HP) pleaded not guilty to a charge of lying to a federal agent reviewing blowout-prevention testing and records of rigs in the Gulf of Mexico.
Federal prosecutors said Donald Hudson lied to an investigator with the Office of the Inspector General at the U.S. Interior Department when he denied directing others to falsify blowout-prevention testing records.
“Not guilty,” Hudson said at his arraignment in federal court in New Orleans yesterday.
Magistrate Judge Louis Moore Jr. accepted the plea and set a trial date for April 30. Moore said Hudson didn’t have to be held in custody because he had no prior criminal history.
“You’re free to go,” Moore told the defendant.
The U.S. said Hudson was employed by Tulsa, Oklahoma-based Helmerich & Payne as a drilling-rig manager in May 2010, a time of heightened vigilance in the gulf after the blast that killed 11 crew members aboard the Deepwater Horizon rig operated by BP Plc (BP/), an unrelated incident that triggered the nation’s worst offshore oil spill.
The company said it was cooperating with a grand jury investigation of the matter.
The case is U.S. v. Hudson, 12-cr-115, U.S. District Court, Eastern District of Louisiana (New Orleans).
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Ex-GE Manager Is Convicted of Murder, Gets Life Sentence
Hemy Neuman, a former GE Energy manager, was found guilty of murder in the shooting death of a co-worker’s husband and sentenced 90 minutes later by a Georgia judge to imprisonment for life with no possibility of parole.
A jury in Decatur, Georgia, where the killing happened in November 2010, delivered the guilty verdict yesterday after deliberating a day and a half.
After a break, Superior Court Judge Gregory Adams began hearing arguments on the sentence. While the jury found Neuman is mentally ill, he faced a mandatory life sentence under Georgia law. The mental-illness finding means he will receive treatment.
Neuman pleaded not guilty by reason of temporary insanity in the killing of Russell “Rusty” Sneiderman, 36, the husband of a GE Energy subordinate with whom he had a relationship called an obsession by lawyers for both sides.
The judge called the crime a “for lack of a better word, planned execution.” Sneiderman was killed in front of the day care center where he had dropped off his 2-year-old son.
Robert James, the DeKalb County district attorney, told the judge that Neuman “savagely gunned down” Sneiderman and deserved the sentence that Adams imposed.
“He had limitless potential which will now never be realized,” the victim’s brother, Steve, told the judge. “He was a great father. All of that love is silenced forever.”
He urged Adams to “show him the same mercy he showed Rusty” and impose life without parole.
Neuman spoke in his own behalf.
“A lot of what Mr. Sneiderman said about Rusty Sneiderman is true,” Neuman said. “He was a good man. I am so so so sorry for their loss.”
He didn’t ask for a lighter sentence. His lawyer Doug Peters asked for the possibility of parole because of Neuman’s mental illness.
The case is State v. Neuman, 11CR1364-5, Georgia Superior Court, DeKalb County (Decatur).
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N.Y. Woman Charged With Running Brothel Gets New Lawyer
Anna Gristina, a New York woman charged with running a brothel that prosecutors said catered to high-net-worth clients, will have a new lawyer, Gary Greenwald, who has represented Mafia leader Vincent Gigante.
Justice Juan Merchan of state Supreme Court in Manhattan yesterday accepted Greenwald as Gristina’s new lawyer and rejected Greenwald’s request to reduce her bail, which is set at $1 million in cash, or a $2 million bond.
Yesterday’s hearing had been set to argue whether Gristina could use her former lawyer’s Tribeca loft to satisfy a $2 million bond requirement. The legal issues are no longer relevant since the man offering his apartment, Peter Gleason, is no longer Gristina’s lawyer, Merchan said.
Gleason maintained his offer to use his $2.5 million apartment to guarantee her appearance for trial, and have her and her family stay with him. Gristina, the mother of four, has pleaded not guilty.
Greenwald argued that her bail should be much lower considering co-defendant Jaynie Baker is out on $100,000 bail, and concerns that Gristina is a flight risk aren’t valid.
Gristina, 44, a Scot who lived in Monroe, New York, is a legal permanent resident of the U.S. Baker, 30, has also pleaded not guilty to charges of promoting prostitution along with Gristina.
The case is People v. Gristina, 12-00751, New York state Supreme Court, New York County (Manhattan).
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