Lehman, Taylor Bean, JPMorgan, Morgan Stanley in Court News
U.S. Treasury Secretary Timothy Geithner agreed to answer questions in writing in Lehman Brothers Holdings Inc.’s lawsuit against JPMorgan Chase & Co. (JPM), which claims the bank contributed to Lehman’s collapse in 2008.
Geithner’s agreement, noted in a March 16 filing by the U.S. in federal court in Washington, forestalls a judge’s ruling on whether he could be compelled to testify in the case. U.S. District Judge Reggie Walton yesterday accepted the arrangement and ordered both sides to update him by April 3.
“If the parties should reach an impasse or plaintiff is otherwise dissatisfied with the written responses, the parties shall so notify the court,” Assistant U.S. Attorney John Interrante said in the filing.
Lehman sued Geithner in February, alleging that the Treasury Department “has for many months delayed and ultimately refused” to allow testimony by the secretary. His testimony is key to Lehman’s contention that JPMorgan siphoned off $8.6 billion during the 2008 credit crisis, according to a court filing in Washington.
Geithner, at the time president of the Federal Reserve Bank of New York, discussed the collateral JPMorgan was demanding for its loans with Richard Fuld and Jamie Dimon, Lehman’s and JPMorgan’s chief executive officers, in the week before Lehman’s bankruptcy, according to the filing. He also met with Dimon and Henry Paulson, then Treasury Secretary, to discuss “concerns” that Dimon was using the crisis to strengthen his bank at Lehman’s expense, they said.
Paulson, according to the March 16 filing, has also agreed to answer questions in writing.
Lehman claims in court papers to have interviewed more than 200 witnesses.
JPMorgan, which lent $70 billion to Lehman’s brokerage around the time of the 2008 bankruptcy, sued Lehman back after the $8.6 billion suit, alleging Lehman defrauded its lender into making the loan. JPMorgan has asked a judge to dismiss Lehman’s suit.
Lehman filed the biggest bankruptcy in U.S. history in 2008, listing $613 billion in debt.
The testimony case is Official Committee on Unsecured Creditors of Lehman Brothers Holdings In., 12-00098, U.S. District Court, District of Columbia (Washington). The main case is In re Lehman Brothers Holdings Inc. (LEHMQ), 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The lawsuit is Lehman Brothers Holdings Inc. v. JPMorgan Chase Bank NA, 10-03266, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
Ex-Taylor Bean Finance Chief Admits Role in $3 Billion Fraud
Taylor, Bean & Whitaker Mortgage Corp.’s former finance chief admitted to helping his boss, Lee Farkas, commit what prosecutors say was one of the largest bank frauds in U.S. history.
Delton de Armas, 41, pleaded guilty March 20 in federal court in Alexandria, Virginia, to one count of conspiracy to commit bank and wire fraud and one count of false statements in a scheme that contributed to the failures of Montgomery, Alabama-based Colonial Bank and its parent, Colonial BancGroup, once among the nation’s 25 biggest depository banks.
He faces as many as 10 years in prison when he’s sentenced by U.S. District Judge Leonie Brinkema on June 15.
“As CFO, Mr. de Armas could have put a stop to the fraud the moment he discovered it,” U.S. Attorney Neil MacBride said in an e-mailed statement. “Instead, the hole in Ocala Funding grew to $1.5 billion on his watch, and as it grew, so did his lies to investors and the government.”
From 2005 through August 2009, de Armas helped Farkas and other conspirators misappropriate more than $1.5 billion from Ocala Funding LLC, a financing vehicle used and controlled by Taylor Bean, according to a statement of facts filed by prosecutors and signed by de Armas. De Armas issued false financial reports that masked shortfalls at Ocala Funding in order to keep auditors at bay and investors on board, the document states.
“I regret I didn’t speak up more,” de Armas, of Carrollton, Texas, told Brinkema yesterday after being asked about his role in covering up Taylor Bean and Ocala Funding’s financial problems.
Farkas, the ex-chairman of Taylor Bean, is serving a 30- year sentence after being convicted in April of 14 counts of conspiracy and bank, wire and securities fraud in what prosecutors said was a $3 billion scheme involving fake mortgage assets.
The case is U.S. v. Armas, 12-00096, U.S. District Court, Eastern District of Virginia (Alexandria).
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JPMorgan Chase Settles AFTRA Pension Suit for $150 Million
JPMorgan Chase & Co. will pay $150 million to settle a lawsuit claiming losses from the bank’s securities lending program, according to court papers.
The suit was filed by three union pension funds, which represented a class of all investors in a group of structured debt securities. The settlement was announced last month. The parties disclosed the terms of the agreement in a filing in Manhattan federal court March 16.
The funds claim they lost money that New York-based JPMorgan invested for them in medium-term notes issued by Sigma Finance Corp., a structured investment vehicle that collapsed in 2008.
The union pension funds representing the class are the AFTRA Retirement Fund, the Imperial County Employees’ Retirement System and the Investment Committee of the Manhattan and Bronx Surface Transit Operating System.
The case is Board of Trustees of the AFTRA Retirement Fund v. JPMorgan Chase Bank NA, 09-cv-686, U.S. District Court, Southern District of New York (Manhattan).
States Shielded From Medical-Leave Suits by U.S. High Court
The U.S. Supreme Court shielded states from claims that they illegally denied medical leave to workers, dividing along ideological lines in a clash about the federal government’s power over the states.
The justices, voting 5-4, ruled against a Maryland state court employee who was fired after requesting medical leave. The majority said states can’t be sued for violating the sick-leave provisions of the U.S. Family and Medical Leave Act.
The decision marks a shift for the court, giving new life to a line of rulings that in the 1990s progressively bolstered states’ immunity from lawsuits and split the nine justices. The court had stopped moving in that direction in 2003, when it said state workers could seek damages for violations of other provisions in the federal family-leave law.
Chief Justice John Roberts and Justices Anthony Kennedy, Antonin Scalia, Samuel Alito and Clarence Thomas, all appointed by Republican presidents, formed the majority. The ruling prompted Justice Ruth Bader Ginsburg, appointed by a Democrat, to take the unusual step of reading a summary of her dissent from the bench.
The decision affects only public employers and doesn’t apply to companies.
The case is Coleman v. Court of Appeals of Maryland, 10-1016.
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Pacific Capital Bancorp Investor Sues Over $1.5 Billion Bid
Pacific Capital’s board had a duty to maximize shareholder value in the deal, and should have negotiated a higher price than the agreed-upon $46 a share, Ernesto Rodriguez said in a complaint filed yesterday in Delaware Chancery Court in Wilmington.
Shareholders will receive “grossly inadequate consideration” in the deal, said Rodriguez, who asks a judge to grant the case class-action status, on behalf of all outside shareholders, and to stop the buyout.
UnionBanCal, based in San Francisco, said in a March 12 statement it would acquire Santa Barbara-based Pacific Capital to expand in central California.
Debbie Whiteley, a spokeswoman for Pacific Capital, didn’t immediately respond to an e-mail seeking comment about the lawsuit.
The case is Rodriguez v. Ford and Pacific Capital Bancorp., CA7341, Delaware Chancery Court (Wilmington).
Sun Hung Kai Executive Director Arrested in Bribery Probe
Sun Hung Kai Properties Ltd. (16), Hong Kong’s biggest developer by market value, said an executive director was arrested by the city’s anti-corruption body as part of an investigation into alleged bribery.
Sun Hung Kai has set up a panel of three board members to handle the investigation into Thomas Chan Kui-Yuen, the developer said in a statement to the city’s stock exchange March 19. The shares declined to the lowest in a month.
Chan was in charge of land acquisitions by the $38 billion builder of Hong Kong’s tallest office tower. The company has been run by co-chairmen Thomas and Raymond Kwok since the ouster as chairman in 2008 of their brother Walter, who alleged they opposed his questions over corporate governance matters.
The Independent Commission Against Corruption is investigating a suspected “offense or offenses” related to the city’s Prevention of Bribery Act, Sun Hung Kai said in its statement yesterday without giving further details. ICAC spokesman Alan Tse declined to comment, as did Sun Hung Kai spokeswoman’s Margaret Ng.
Chan, an executive director for Sun Hung Kai since 1987, is responsible for land acquisitions and project planning, according to the company’s latest annual report. His age is given as 65 in the report, which was published in October. He was paid HK$11 million ($1.4 million) in the financial year ended June 2011, the report said.
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Transocean Holders’ Suits Over Rig Explosion Tossed by Judge
Transocean Ltd. (RIG), owner of the oil rig leased to BP Plc (BP/) that exploded and spewed millions of gallons of oil into the Gulf of Mexico, doesn’t have to face investor claims that the company failed to disclose repeated safety failures, a judge ruled.
Transocean shareholders can’t make a case that Chief Executive Officer Steven Newman made “materially false and misleading statements” about the company’s safety record in violation of federal securities laws, U.S. District Judge Naomi Reice Buchwald in New York concluded yesterday.
Some shareholders contend Newman made statements on calls with analysts in 2009 and 2010 that were designed to mislead investors about Transocean’s pattern of safety violations and artificially inflate its share price. The suits also allege the CEO failed to disclose problems that later were linked to the fatal explosion on the Deepwater Horizon rig that led to the largest offshore spill in U.S. history.
“To allow lead plaintiffs’ claims to proceed because certain undisclosed safety issues may have contributed to the Deepwater Horizon disaster would be to permit a claim based on fraud by hindsight,” Buchwald said in her 46-page ruling.
“We are very pleased with the order and the result,” Lou Colasuonno, a spokesman for Vernier, Switzerland-based Transocean, said in an e-mailed statement.
Both Transocean and BP were sued by investors as part of a wave of litigation generated by the April 2010 spill from the Macondo Well off the coast of Louisiana. Many of the cases have been consolidated before a judge in Houston.
Yesterday’s ruling covers at least two securities cases against Transocean that were consolidated before Buchwald in federal court in New York, according to an October 2010 court filing.
The securities case is Foley v. Transocean Ltd, 10-cv-5233 (NRB), U.S. District Court, Southern District of New York (New York).
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Banks Suing N.Y. Over MBIA Restructuring Won’t Demand Jury
Banks suing a New York state regulator over the decision to approve the 2009 restructuring of bond insurer MBIA Inc.’s (MBI) insurance business won’t seek a jury trial in the case, according to court documents.
MBIA, based in Armonk, New York, was sued by financial institutions after the 2009 split of its main bond-insurance unit into two businesses. The banks claim the restructuring was intended to defraud policyholders and rendered MBIA Insurance Corp. insolvent. Former state Insurance Superintendent Eric Dinallo was sued separately under a law that allows court review of administrative decisions.
The banks won’t demand a jury in the case against the regulator and agreed to have it tried by Justice Barbara R. Kapnick of state Supreme Court, Robert Giuffra, a lawyer for the petitioners, said March 19 in a letter to the judge. A trial is to begin between May 2 and 14, according to Giuffra’s letter.
UBS AG will withdraw from the MBIA litigation, a person familiar with the matter said March 15. Switzerland’s biggest lender is one of four remaining banks in the lawsuit that bought default protection from MBIA against losses on mortgage-linked debt.
Fourteen other firms dropped out of the suits, including Morgan Stanley (MS) and Barclays Plc, after settlements that terminated their hedges with MBIA.
The cases are ABN Amro Bank NV v. Dinallo, 601846-2009, and ABN Amro Bank NV v. MBIA, 601475-2009, New York State Supreme Court (Manhattan).
Stifel to Pursue Claims Against RBC After Settling With Schools
Stifel Financial Corp. (SF), sued by five Wisconsin school districts over collateralized debt obligations, said it will pay them $13 million and plans to join them in pressing claims against Royal Bank of Canada.
The payment may convert Stifel from a defendant to a plaintiff in a lawsuit the districts filed against Toronto-based RBC in 2008. The St. Louis-based financial services firm cited “numerous misrepresentations, omissions and conflicts of interest” contained in CDOs created by the Canadian bank and sold to trusts set up by the districts for $200 million with money they raised by issuing asset-backed notes.
“The CDOs were collateral for the notes and those CDOs are now worthless,” Stifel said yesterday in a statement issued jointly with the districts.
RBC issued a statement March 19 calling Stifel’s claims “preposterous.”
“We vehemently deny their allegations,” the bank said.
The original complaint was filed in state court in Milwaukee by school districts in Kenosha, Waukesha, West Allis/West Milwaukee, Whitefish Bay and Kimberly. Stifel and the schools said they need court permission to file their amended complaint.
“No district, if it had known what we now know about the product that RBC actually sold us, would have made this investment,” Kenosha schools Superintendent Michele Hancock said in the joint statement.
RBC said in its statement that Stifel unilaterally designed this investment, and had represented to the bank in writing that the CDOs were suitable for the schools’ objectives.
The case is Kenosha Unified School District v. Royal Bank of Canada (RY) Europe Ltd., 2008-cv-013726, Milwaukee County, Wisconsin Circuit Court (Milwaukee).
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Apple Fails to Wrest Android Data From Motorola Mobility
Apple Inc. (AAPL) lost a bid to force Motorola Mobility Holdings Inc. (MMI) to turn over data about Google Inc. (GOOG)’s development of the Android mobile-phone operating system and planned acquisition of the mobile phone manufacturer.
U.S. Circuit Judge Richard A. Posner, who in June will preside over back-to-back patent trials pitting Apple against Motorola, denied the production request in a single-paragraph order issued March 19.
“The motion is vague and overbroad and Motorola’s objections are persuasive,” Posner wrote. The mobile phone maker’s opposition to Apple’s March 16 demand was filed under seal.
Google last month received U.S. and European Union approval for its planned $12.5 billion acquisition of Libertyville, Illinois-based Motorola Mobility, which already makes phones reliant upon the Android system.
Google, based in Mountain View, California, would also acquire about 17,000 patents. In a regulatory filing March 19, Motorola said it expected the sale to close in the first half of this year, while adding that it can provide no assurances the transaction will be approved by China.
Apple, based in Cupertino, California, makes the rival iPhone which runs on the company’s proprietary software.
Motorola Mobility (MMI), which spun off from Motorola Inc. last year, has been warring with Apple over patent rights in U.S. and European courts.
Kristin Huguet, a spokeswoman for Apple, declined to comment on Posner’s decision. Jennifer Erickson, a Motorola Mobility spokeswoman, didn’t reply to telephone and e-mail messages seeking comment.
The case is Apple Inc. v. Motorola Inc., 11-cv-08540, U.S. District Court, Northern District of Illinois (Chicago).
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Ex-Morgan Stanley Broker Faces Testimony Loss in Ruling’s Appeal
Former Morgan Stanley broker Mark Mensack, ordered by industry arbitrators to repay $1.2 million in bonus and lawyer’s fees, may struggle to overturn the ruling after eight hours of testimony went unrecorded.
Mensack, now a managing director at Piedmont Investment Advisors, said he is seeking to appeal a decision after it led to his bankruptcy. The Financial Industry Regulatory Authority, which organizes arbitration proceedings for brokerages, their employees and customers, told him that eight of the 18 hours of testimony from the hearing weren’t recorded due to mechanical or human error, he said.
The missing testimony may make it more challenging for Mensack to have the arbitration panel’s decision overturned, a procedure that is almost always daunting, said Howard Meyers, a professor at New York Law School. Finra doesn’t have a process for challenging awards. A court can overturn a ruling if arbitrators acted corruptly, disregarded the law or had no basis for an award, according to Finra’s website. Parties have 90 days after a ruling to file a motion to vacate it.
“Courts actually favor arbitration because it clears up their dockets, and they are very loathe to look behind an arbitrator’s reasoning, so there are very limited grounds for vacating,” said Meyers. “If this individual thought there was something that was said during arbitration that would be useful to show some grounds for vacating, he’s got an uphill battle now.”
Michelle Ong, a spokeswoman for Finra, declined to comment.
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Barclays’ Companies Say McKillen Tried to Profit on Hotel Rescue
Patrick McKillen, the developer suing David and Frederick Barclay, sought a $5 million-pound ($7.9 million) annual fee as part of a failed bid to use Qatari investors to restructure the debt of three luxury London hotels, lawyers for the Barclays’ companies said.
McKillen was questioned on the second day of the London trial about his efforts as the director of Coroin Ltd., the owner of Claridge’s, the Berkeley and the Connaught, to find a solution to its 660-million-pound debt in 2010 and 2011.
The proposed fee for McKillen to stay on if Qatari investors took a majority stake “was really an inducement to sell your shares,” said Kenneth Maclean, who represents the Barclays’ companies. McKillen said the money was for hotel refurbishment. “This was a budgeted fee for future work,” he told the court.
Coroin is worth more than 1 billion pounds ($1.6 billion), according to McKillen, who owns 36 percent of it. The Barclays bought 800 million euros ($1.06 billion) of its debt last year from Ireland’s National Asset Management Agency, the so-called “bad bank” which houses distressed loans resulting from the country’s property crash.
McKillen says the brothers acted dishonorably in trying to acquire the hotels and is seeking a court ruling that he has the right to buy the remaining shares in Coroin. His lawyers argued the Barclays intend to divide up the company and sell the 200- year-old Claridge’s and the other hotels.
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