UBS, JPMorgan, HSBC, Deutsche Bank, Citigroup in Court News

UBS AG, Switzerland’s biggest bank, sought immunity from prosecution by Canadian regulators probing a potential conspiracy to rig the price of derivatives globally, three people with knowledge of the inquiry said.

The lender is the cooperating party referred to by Canada’s Competition Bureau in court papers filed by the regulator with the Ontario Superior Court in May, said the people, who declined to be identified because the identity of the firm hasn’t been made public.

The papers, shown this week to Bloomberg News by court clerks, indicate a bank told the regulator that traders and cash brokers conspired to influence the Yen London interbank offered rate from 2007 to 2010 to profit on interest-rate derivatives linked to the benchmark. Regulators worldwide are investigating whether banks attempted to manipulate the London, Tokyo and euro interbank offered rates, known as Libor, Tibor and Euribor.

UBS has also suspended a number of employees including Yvan Ducrot, co-head of rates, and Holger Seger, global head of short-term interest rates trading, as part of an investigation of its rate submissions, said a person briefed on the matter who declined to be identified because the decision is private.

The bank has already been given conditional immunity by the Swiss Competition Commission as part of an investigation into suspected manipulation of the Yen Libor, Tibor and Swiss franc Libor rates. The Zurich-based lender was granted similar immunity by the U.S. Department of Justice last year as part of its probes of Yen Libor and Euroyen Tibor rates.

Dominik von Arx, a spokesman for UBS in London, declined to comment on the court case. Alexa Keating, a spokeswoman for the Competition Bureau, declined to comment on the identity of the cooperating party.

“There is no conclusion of wrongdoing at this time and no charges have been laid,” Keating said in an e-mailed statement.

Neither Ducrot nor Seger were reachable through their office telephone numbers and neither responded to e-mails through LinkedIn. A profile under Seger’s name says he oversees 70 traders worldwide. The Financial Times reported the suspensions earlier today. Von Arx declined to comment on the report.

According to the affidavit filed by the bureau, Canadian officials were informed that HSBC Holdings Plc, JPMorgan Chase & Co., Citigroup Inc., Deutsche Bank AG, Royal Bank of Scotland Group Plc, ICAP Plc and RP Martin Holdings Ltd. took part in the scheme. Employees at the banks agreed to make artificially high or low submissions for Yen Libor to improve the outcomes of trades tied to the rate, the Canadian regulator said, citing information it received under the immunity program.

The documents also describe similar communications involving traders at other banks. For instance, Peter O’Leary, a trader at HSBC, allegedly instructed cash brokers on how to influence the benchmark rate, the bureau said. It also described communications involving London-based traders Guillaume Adolph at Deutsche Bank, Stuart Wiley at JPMorgan and Brent Davies at RBS, as well as former RBS employee Will Hall and former JPMorgan employee Paul Glands. The bureau hasn’t brought claims against any of them.

Wiley and Glands declined to comment. Davies didn’t return calls to his mobile phone. There was no response to an e-mail sent to an address found for O’Leary. Contact information for Adolph and Hall couldn’t be located through directory assistance and in an Internet search.

Spokesmen for New York-based JPMorgan and Citigroup, Frankfurt-based Deutsche Bank, Edinburgh-based RBS and London-based ICAP have declined to comment on the affidavit. A spokeswoman for London-based HSBC didn’t respond to requests for comment.

Tavistock Communications, which handles media inquiries for RP Martin, issued a statement saying, “RP Martin has received requests from certain regulators to provide information on a voluntary basis to assist them with their preliminary inquiries but no formal allegations have been made against RP Martin by any regulator.”

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Goldman Sachs Analyst Inquiry Said to Show U.S. Focus on Taiwan

The investigation of a Goldman Sachs Group Inc. analyst shows U.S. officials have intensified their focus on banks and Taiwan in a multiyear insider-trading probe that has implicated hedge funds, technology company employees and consultants, a person familiar with the matter said.

The investigation of Henry King, the Goldman Sachs analyst covering Taiwan, shows federal authorities are expanding the insider-trading probe by U.S. Attorney Preet Bharara in Manhattan and the FBI in New York, said the person, who didn’t want to be identified because the matter isn’t public.

The probe, called operation “Perfect Hedge,” began five years ago and has resulted in insider-trading and securities fraud charges being filed against 64 people, with more than 50 since 2009 either pleading guilty or being convicted at trial. They included Galleon Group LLC co-founder Raj Rajaratnam, who is serving an 11-year prison term.

James Margolin, a spokesman for the Federal Bureau of Investigation in New York, declined to comment on the case, or whether King is cooperating. King didn’t answer calls to his Hong Kong office number yesterday. E-mails to his company account received an auto reply saying he’s out of the country on a personal matter.

Michael DuVally, a Goldman Sachs spokesman, declined to comment on the investigation of King, or whether he remains a bank employee or is on leave. Ellen Davis, a spokeswoman for Bharara, declined to comment.

King, based in Hong Kong, covers Taiwanese companies including Quanta Computer Inc. and Compal Electronics Inc., the world’s two largest manufacturers of notebook computers for clients including Hewlett-Packard Co. and Dell Inc., according to data compiled by Bloomberg.

King, who joined Goldman Sachs in 2002, was named head of Taiwan research in 2005. Prior to New York-based Goldman Sachs, he worked at Credit Suisse First Boston and Indosuez W.I. Carr Securities Ltd.

Bharara’s office in October indicted Rajat Gupta, a former Goldman Sachs and Procter & Gamble Co. director, with leaking material, nonpublic information to Rajaratnam about the two companies. Gupta has denied wrongdoing.

Prosecutors said in a Feb. 3 letter to U.S. District Judge Jed Rakoff, who is presiding over Gupta’s case in Manhattan, that they had witness statements that there was a second “insider” at Goldman Sachs who leaked tips to Rajaratnam that “did not relate to Goldman and/or Procter & Gamble.”

Prosecutors didn’t disclose which stocks the second unnamed tipper, who Rakoff called “Mr. X,” had allegedly disclosed to Rajaratnam.

Gupta’s lawyer, Gary Naftalis, declined to comment about King, or other Goldman Sachs sources Rajaratnam may have had for illegal tips. Naftalis has argued in court that he should be permitted to use such information while defending Gupta at trial.

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New Suits

Olympus Former Chairman and Six Others Arrested Over Fraud

Three former executives at Olympus Corp., including ex-chairman Tsuyoshi Kikukawa, and four others were arrested for suspected violation of Japan’s Financial Instruments and Exchange Act.

The camera maker is facing shareholder lawsuits and may be subject to further criminal investigation after admitting to a 13-year cover-up. The company restated past securities reports and took a $1.3 billion reduction in net assets in December.

Olympus’s Tokyo headquarters and its affiliated offices were raided in December by prosecutors after the company said Kikukawa and two others colluded to hide investment losses from the 1990s. The stock has plunged 49 percent since the Oct. 14 dismissal of its first non-Japanese president, Michael Woodford, who later publicly questioned inflated takeover costs.

Kikukawa, 70, who headed Olympus for 10 years until last year, Hideo Yamada, 67, who led the investment unit since the 1980s and later became an auditing officer, and former Executive Vice President Hisashi Mori concealed losses, booked overstated goodwill and falsified financial statements, the prosecutors said in a statement.

The prosecutors also arrested Akio Nakagawa, cited in a December panel report as having aided Olympus in structuring its loss-hiding schemes. Nobumasa Yokoo, who was also named in the report, Taku Hada and Hiroshi Ono, were arrested by the Tokyo Metropolitan Police, according to the statement.

“We take the situation seriously,” Yoshiaki Yamada, a spokesman for Olympus, said by phone yesterday. “We will cooperate fully with investigators.”

At a press conference in London this morning, former president Woodford said, while the arrests were encouraging, “there are still many important issues which are not covered by today’s announcement.” He called for further investigation into the role of banks and accounting firms in the fraud, and said three directors at the company -- Masataka Suzuki, Kazuhiro Watanabe and Shinichi Nishigaki -- should be replaced.

Olympus sued 19 current and former executives, including current President Shuichi Takayama and five corporate auditors, in January over their roles in concealing losses. The company formed panels to reform management and nominate a new board.

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UBS Claims Two Ex-Advisers Took Customer Data to Wells Fargo

A UBS AG brokerage unit sued two former financial advisers in Chicago, claiming they took confidential trade secret information including customer account data to competitor Wells Fargo Advisers LLC.

Named as defendants in the lawsuit filed yesterday by UBS Financial Services Inc. are David Kinnear and Kathleen Bakas, who allegedly resigned two days ago to join the Wells Fargo & Co. unit. One full-time and one part-time UBS employee, all part of Kinnear’s wealth-management group, went with them, according to the complaint.

“Led by Kinnear, the team serviced accounts that generated more than $3.7 million in revenues for UBS over the past 12 months of the defendants’ employment,” UBS alleged.

The New York-based brokerage unit of Zurich-based UBS seeks a court order blocking the defendants and any Wells Fargo representative from soliciting any UBS client Kinnear or Bakas had advised while there, preventing the disclosure of any proprietary UBS information and directing its return.

UBS also seeks expedited arbitration of its claims through the Financial Industry Regulatory Authority.

Ancel Martinez, a spokesman for San Francisco-based Wells Fargo, which isn’t a party to the suit, couldn’t immediately comment on the case. Kinnear and Bakas didn’t immediately respond to e-mail messages seeking comment on the lawsuit.

The case is UBS Financial Services Inc. v. Kinnear, 12CH05333, Cook County, Illinois, Circuit Court, Chancery Division (Chicago).

Deutsche Bank Sued Over $512 Million in Mortgage Securities

Deutsche Bank AG’s Ace Securities was sued in New York state court for fraud for allegedly misrepresenting the quality of $512 million worth of residential mortgage-backed securities by Phoenix Light SF Ltd.

Phoenix Light, which bought and later sold the securities, is seeking at least $300 million in damages, according to a summons filed yesterday. It accuses Ace Securities of making “material misrepresentations and omissions” regarding underwriting standards used to issue the mortgage loans that were pooled together into the offerings, according to court filings.

Ace Securities knew about problems with the mortgages underlying the securities because of reports they received from mortgage-review firm Clayton Holdings, yet still included them in the offerings that were sold to the plaintiffs, according to Phoenix Light.

“The securities have performed worse than expected due to the poorer-quality collateral, and defendants’ wrongdoing has led directly to plaintiffs’ damages, which include loss of market value on the securities,” Phoenix Light said in the filing. “Plaintiffs have lost the entire value of certain of the securities.”

Duncan King, a New York spokesman for Frankfurt-based Deutsche Bank, said in a phone interview that the claims had no merit and the company would fight the suit.

The case is Phoenix Light SF Ltd. v. Ace Securities Corp., 650422/2012, New York state Supreme Court (Manhattan).

Syncora Guarantee Sues EMC Over Mortgage-Backed Securities

Syncora Guarantee Inc. sued JPMorgan Chase & Co.’s EMC Mortgage unit over mortgage-backed securities, alleging fraud and breach of contract in a lawsuit filed in New York state court.

The suit was brought in connection with a transaction known as SACO I Trust 2006-1, which involved the securitization of residential mortgage loans with an aggregate principal balance of more than $310 million, Syncora said in the complaint. That transaction served as collateral for the issuance of about $303 million in securities.

EMC Mortgage was a unit of Bear Stearns Cos. until the investment bank was bought by JPMorgan in 2008. Bear Stearns and EMC obtained a financial-guaranty insurance policy from New York-based bond insurer Syncora “to enhance the marketability of the securities and their return on the transaction,” according to the lawsuit.

Bear Stearns made “materially false and misleading representations to induce Syncora to insure the transaction,” and didn’t conduct “extensive due diligence” as it had promised, lawyers for the bond insurer said in the lawsuit.

The transaction had experienced cumulative losses of $96.7 million as of Sept. 30, which has resulted in Syncora making more than $51.9 million in claim payments, the complaint says.

Jennifer Zuccarelli, a spokeswoman for New York-based JPMorgan Chase, declined to comment on the lawsuit in an e-mail.

The case is Syncora Guarantee Inc. v. EMC Mortgage LLC, 650420/2012, New York State Supreme Court (Manhattan.)

Ex-Aluminium Bahrain Executive Charged by U.K. With Corruption

U.K. prosecutors charged Bruce Allan Hall with corruption and money laundering tied to his time as an executive at Aluminium Bahrain B.S.C., a smelting company in Bahrain.

An Australian national, Hall was released on conditional bail and must appear at a London criminal court next month, the Serious Fraud Office said in an e-mailed statement yesterday. He is accused of accepting bribes over an eight-year period while he worked at the company, known as Alba, the prosecutors said.

Hall was extradited from Australia to London to face the charges, the SFO said. His co-defendant in the case, British investor Victor Dahdaleh, is also scheduled to appear at the same court hearing, the SFO said.

Dahdaleh was charged Oct. 24 with six counts of making corrupt payments, two counts of money laundering, and one charge of conspiracy to corrupt. He is accused of paying bribes to Alba officials to win contracts for Alcoa Inc., the largest U.S. aluminum producer.

Efforts to reach Hall or an attorney representing him were unsuccessful. A call to the SFO wasn’t immediately returned.

Taleo Sued by Shareholder Over $1.9 Billion Oracle Offer

Taleo Corp. was sued by an investor claiming the human-resources software company failed to get the best price in its planned $1.9 billion acquisition by Oracle Corp.

Hillary Coyne contends Taleo directors are duty-bound to maximize shareholder value in such a sale, and violated that duty by agreeing to the $46 per-share buyout, according to a complaint filed Feb. 14 in Delaware Chancery Court in Wilmington.

The offer “does not account for Taleo’s expected future growth,” and “particularly its July 2011 acquisition of JobPartners, which significantly expanded the company’s presence in Europe,” Coyne’s lawyers said in court papers.

Oracle, based in Redwood City, California, said Feb. 9 it would buy Taleo in part to expand so-called cloud computing, which provides software, storage and other services from remote data centers.

Caroline Japic, a spokeswoman for Dublin, California-based Taleo, declined to comment on the lawsuit.

The case is Coyne v. Taleo, CA7245, Delaware Chancery Court (Wilmington).

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BofA Seeks to Change Venue on $8.5 Billion Mortgage Deal

Bank of America Corp. and a group of investors that reached an $8.5 billion mortgage-bond settlement with the bank are seeking to overturn a ruling that kept the deal before a federal judge for review.

Bank of America, based in Charlotte, North Carolina, and the investor group, which includes BlackRock Inc., have said the settlement over Countrywide Financial Corp. mortgage bonds should be considered by a state court in New York, where it was first filed last year for approval.

“This case does not belong in federal court at all,” Charles Rothfeld, a lawyer for Bank of New York Mellon Corp., which is seeking approval of the settlement, said at a hearing yesterday before the U.S. Appeals Court in Manhattan.

The accord would resolve claims from investors about defective Countrywide mortgages underlying their securities. The deal has the support of the investors that negotiated it, including BlackRock and Pacific Investment Management Co. American International Group Inc. and others are opposed or have demanded more information to evaluate it.

U.S. District Judge William Pauley in Manhattan in October ruled that the settlement should be considered in federal court for approval because it “implicates core federal interests in the integrity of nationally chartered banks and the vitality of the national securities markets.”

Bank of America, the investor group and Bank of New York, the trustee for the mortgage securitization trusts, are asking the appeals court to overturn Pauley’s ruling. Under the federal Class Action Fairness Act, it should be returned to state court, they said in court papers.

Entities under the name Walnut Place, which own Countrywide mortgage bonds, said the case should remain in federal court. Bank of New York is trying to obtain approval for one of the largest class-action settlements in history “without providing adequate protection” for investors, Walnut Place said.

The case is Bank of New York Mellon v. Walnut Place LLC, 11-cv-05988, U.S. District Court, Southern District of New York (Manhattan).

Macy’s Says Martha Stewart Living Is Holding It ‘Hostage’

Martha Stewart Living Omnimedia Inc. is “essentially holding Macy’s hostage” by saying that its pact with the department-store chain expires in January 2013, Macy’s Inc. said in court papers in their contract dispute.

Macy’s sued in January to stop New York-based Martha Stewart Living from executing an agreement to sell merchandise in J.C. Penney Co. stores. Macy’s, based in Cincinnati, said it has the exclusive right to sell Martha Stewart-branded products in certain categories.

Martha Stewart Living fired back last week, accusing Macy’s of breach of contract and saying that the retailer has stocked and priced Martha Stewart products in a manner that favors Macy’s own private-label brands. Martha Stewart Living also said Macy’s couldn’t have exercised a five-year renewal option on the deal between the two companies because of the breach.

“The uncertainty created by MSLO’s breach has put Macy’s in an inequitable and untenable position,” Macy’s said in papers filed Feb. 14 in New York state Supreme Court. “If the agreement were to actually expire in January 2013, Macy’s would have to immediately begin seeking to replace and wind down the Martha Stewart product line at Macy’s.”

Jeanne Meyer, a spokeswoman for Martha Stewart Living, said the company stands behind earlier statements and what has been said in court filings.

The case is Macy’s Inc. v. Martha Stewart Living Omnimedia Inc., 650197/2012, New York state Supreme Court (Manhattan).

JPMorgan, Lehman Trade Data on Bank’s $6 Billion Claim

JPMorgan Chase & Co. and Lehman Brothers Holdings Inc., after getting a judge’s approval yesterday to settle a $699 million dispute, are trading documents in a fight over a sum that’s almost 10 times larger, according to a court filing.

The biggest U.S. bank, which lent $70 billion to Lehman’s brokerage around the time of the 2008 bankruptcy, says it is still owed $6.3 billion by the defunct firm and its brokerage. Lehman, which termed the claim “significantly overstated,” agreed that certain shared documents and information should be treated confidentially, according to yesterday’s filing in U.S. Bankruptcy Court in Manhattan.

The fight relates to JPMorgan’s role as a go-between for the Lehman brokerage’s repurchase agreements with short-term investors after the parent’s bankruptcy. Lehman said last year that JPMorgan failed to sell collateral securing the loans in a “commercially reasonable manner.” JPMorgan said it generated more than $18 billion of cash from the sale of collateral “in some of the most difficult markets in modern times,” benefiting Lehman.

Separately, New York-based JPMorgan is fighting a lawsuit by Lehman that alleges the lender helped cause its 2008 collapse by demanding $8.6 billion in collateral. The settlement approved yesterday, which means that JPMorgan will return $699 million of the collateral to Lehman, doesn’t affect the bank’s other claims against the defunct firm, a lawyer for JPMorgan told the judge yesterday.

JPMorgan sued Lehman back after the $8.6 billion suit, alleging Lehman defrauded its lender into making the loan. It has asked the judge to dismiss Lehman’s suit.

Lehman filed the biggest bankruptcy in U.S. history in 2008, listing $613 billion in debt.

The main case is In re Lehman Brothers Holdings Inc., 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).

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Stanford Helped Support Antiguan Banking Reforms, Witness Says

R. Allen Stanford underwrote expenses for a blue-ribbon panel to “clean up” Antigua’s offshore banking sector in 1999, a lawyer who served on that commission testified.

“Antigua was getting blasted” for lax regulation and poor cooperation with international anti-money-laundering efforts, which threatened island banks’ ability to do business with U.S. banks, Patrick O’Brien, a former U.S. Customs Service agent, said yesterday at Stanford’s criminal fraud trial.

“If the Federal Reserve won’t do business with your country, you’re out of business,” he told the jury. “Allen Stanford wanted it to be the crown jewel of the Caribbean.”

O’Brien said he and Stanford personally seized the records of all Antiguan offshore banks over the protests of Althea Crick, the island’s top regulator. They loaded the records into Stanford’s truck and put them under guard in a Stanford facility so the commission could “do its job,” he said.

“Ms. Crick was an obstructionist; we couldn’t get the records; we couldn’t get things done,” O’Brien testified. “We were basically stonewalled. The only one who could authorize access was Ms. Crick and she wouldn’t.”

Jurors previously heard Crick testify that Stanford tried to take control of Antigua’s banking regulatory agency through a combination of threats and charm.

Prosecutors have told jurors that Stanford bribed Crick’s successor, Leroy King, with satchels of cash and Super Bowl tickets to shield Antigua-based Stanford International Bank Ltd. from scrutiny by island and international regulators.

Stanford is accused of defrauding investors of more than $7 billion through a Ponzi scheme built on bogus certificates of deposit at that bank.

O’Brien is the first defense witness in Stanford’s trial, which is in its fourth week in federal court in Houston. After he retired from the customs service, O’Brien worked for Greenberg Traurig LLP, a law firm that represented Stanford’s businesses. He said he “did a little bit of work” for Stanford before the financier asked him to join the Antiguan banking reform commission.

Stanford, 61, denies all wrongdoing. He has been in prison since being indicted in June 2009 and faces as long as 20 years in prison if convicted of the most serious charges against him.

The criminal case is U.S. v. Stanford, 09-cr-342, U.S. District Court, Southern District of Texas (Houston). The SEC case is Securities and Exchange Commission v. Stanford International Bank, 09-cv-298, U.S. District Court, Northern District of Texas (Dallas).

Ex-News Corp. Phone Hacker Approved for Supreme Court Appeal

The ex-News Corp. private detective who was jailed in 2007 for intercepting mobile-phone voice mails won permission to appeal to the U.K. Supreme Court in a dispute over giving incriminating evidence in civil cases against him.

Glenn Mulcaire, 41, won the court’s approval yesterday in London, according to his lawyer Sarah Webb. The private eye, who hacked into phone messages for News Corp.’s News of the World tabloid, was re-arrested last year as part of a new police probe involving hundreds of newly identified victims. The appeal relates to parallel civil lawsuits filed by victims.

“It’s clearly a very important matter of law which the Supreme Court have decided they should rule on,” Webb, of Payne Hicks Beach in London, said in a phone interview. A two-day hearing scheduled to start May 9 could affect how British courts deal with self-incrimination in lawsuits, she said.

Mulcaire and Clive Goodman, a reporter for the News of the World, pleaded guilty and were jailed for as long as six months in 2007 for intercepting phone messages for members of Prince Charles’s staff and five other public figures. Police opened a new probe a year ago after celebrities’ civil lawsuits revealed evidence of thousands more potential victims and the involvement of more News Corp. journalists.

Mulcaire, whose phone-hacking notes were seized by police in 2006, has been named in many of the claims filed against News Corp.’s U.K. newspaper unit since the scandal erupted again in

2010. The appeal stems from lawsuits by actor Steve Coogan and Nicola Phillips, a former employee of celebrity publicist Max Clifford, whose voice mails were intercepted.

The Court of Appeal on Feb. 1 upheld a ruling that Mulcaire must disclose who at the tabloid told him to intercept messages left for Coogan and Phillips, what information was collected and to whom he gave it. Mulcaire’s lawyers argued that by doing so he would incriminate himself if he’s charged in the new police probe. While Coogan has since settled his case, Phillips hasn’t and the ruling could affect future cases.

In a separate phone-hacking suit filed by the Welsh pop star Charlotte Church, scheduled for a trial starting Feb. 27, Mulcaire’s lawyers are seeking to block the press from reporting on evidence about the private detective’s activities that could potentially undermine him in a criminal case.

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Citigroup Mortgage Unit to Pay $158.3 Million in Settlement

Citigroup Inc.’s CitiMortgage unit agreed to pay $158.3 million to settle claims tied to its actions in a federal home-loan insurance program, the Manhattan U.S. Attorney’s office said.

The U.S. settled a lawsuit against the Citigroup unit that alleged more than six years of misconduct in connection with the Federal Housing Administration Direct Endorsement Program, the U.S. Attorney’s office said yesterday in a statement. In the settlement, CitiMortgage admitted to falsely stating that some loans were eligible for mortgage insurance through the U.S. Department of Housing and Urban Development, according to the statement.

“For far too long, lenders treated HUD’s insurance of their mortgages like they were playing with house money,” Manhattan U.S. Attorney Preet Bharara said in the statement. “In fact, they were playing with other people’s money and other people’s homes.”

Five banks including Citigroup settled with 49 states on Feb. 9 to end a probe into abusive foreclosure practices, with Citigroup agreeing to pay as much as $2.2 billion.

“We are pleased to resolve this matter in conjunction with the National Mortgage Settlement reached last week among the five largest mortgage servicers and the Department of Justice and state attorneys general,” Mark Rodgers, a spokesman for New York-based Citigroup, said in an e-mailed statement. “As with the larger mortgage agreement, we have fully provided for this settlement as of the fourth quarter of 2011.”

The case is U.S. ex rel. Hunt v. Citigroup Inc., 11-cv-005473, U.S. District Court, Southern District of New York (Manhattan).

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Fortis, Former Executives Held Liable for Damages in Court

Fortis, now known as Ageas, and its former executives Jean-Paul Votron and Gilbert Mittler misled investors about the bank’s ability to meet capital requirements for more than a month in 2008 and are liable for damages, a court ruled.

How much Ageas, Votron and Mittler must pay will be determined in separate proceedings, the district court in the Dutch city of Utrecht said in a ruling yesterday. Maurice Lippens, the former chairman of Fortis, can’t be held personally liable for misleading investors, according to the ruling.

The verdict is the first court victory for investors who lost money in the collapse of Fortis, once Belgium’s largest financial-services company. Fortis’s market value dropped by

8.21 billion euros ($10.8 billion) in the period when the court said investors were being misled, according to data compiled by Bloomberg. It lost an additional 5.39 billion euros on June 26, 2008, when Fortis said it would scrap an interim dividend and announced a share sale.

“Ageas regrets this judgment and will lodge an appeal against it with a view to protecting the interests of its stakeholders,” the insurer, based in Brussels and Utrecht, said yesterday in a statement.

Fortis will cover any damages its former top executives are found liable for, according to their 2008 termination agreements. Ageas is contesting those commitments in a lawsuit Votron, Mittler and Lippens filed before the Utrecht court, Greet Poulmans, a spokeswoman for Ageas, said by telephone from Brussels.

Pentagon Capital Must Pay SEC $76.8 Million for Abusive Trading

Pentagon Capital Management Plc, a closed U.K. hedge fund, was told by a judge to pay $76.8 million in a lawsuit filed in 2008 by the U.S. Securities and Exchange Commission over allegedly abusive mutual fund trading.

U.S. District Judge Robert Sweet in Manhattan ruled Feb. 14 that the SEC proved its claim in a 17-day trial last year that the hedge fund and its chief executive officer, Lewis Chester, engaged in a fraudulent scheme by making mutual fund trades after the 4 p.m. close of markets in New York.

“The defendants intentionally, and egregiously, violated the federal securities laws through a scheme of late trading,” Sweet wrote in the Feb. 14 decision. “This scheme was broad-ranging over the course of several years and in no sense isolated.”

Sweet ruled that Pentagon Capital and Chester must disgorge $38.4 million in improper profits on the trades. He imposed the same amount as an additional civil penalty.

“We are extremely disappointed by the judgment and intend to appeal,” Frank Razzano, a lawyer for the defendants, said in a telephone interview.

Sweet ruled against the SEC’s claim that Pentagon Capital committed fraud by making deceptive, rapid-fire transactions known as market-timed trades.

Pentagon Capital said in 2008 that it was closing and returning investors’ money because of the SEC investigation and civil suit.

The case is Securities and Exchange Commission v. Pentagon Capital Management Plc, 08-cv-3324, U.S. District Court, Southern District of New York (Manhattan).

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Litigation Departments

Ex-Juror Says She Lied to Be ‘More Marketable’ in Tax Case

A juror who helped convict four defendants in a 10-year tax shelter scheme said she lied about her background to make herself “more marketable” to serve on the panel.

Catherine Conrad, who was Juror No. 1 in the trial of Paul Daugerdas, a former lawyer at the defunct law firm Jenkens & Gilchrist, and three others, testified in a hearing in Manhattan federal court yesterday that she failed to disclose that she’s an alcoholic and a suspended attorney with numerous arrests for crimes including shoplifting and driving under the influence of alcohol.

Daugerdas and the other defendants convicted in May at the end of a 10-week trial have asked U.S. District Judge William Pauley to order a new trial based on Conrad’s lies and omissions about her past during jury selection. Pauley ordered her arrested this morning after she telephoned a judge’s clerk in Manhattan federal court to say she wasn’t going to obey a court subpoena requiring her to testify yesterday.

“I know I served and I know I did my civic duty,” Conrad told Pauley near the end of her testimony yesterday. “I know my disclosures would definitely not have allowed me to serve as a juror.”

Pauley is holding a two-day hearing to determine whether to throw out the convictions and order a new trial. Conrad was granted immunity for her testimony yesterday, after invoking her constitutional right not to incriminate herself. Pauley released Conrad at the end of 3 1/2 hours on the stand.

Jurors convicted Daugerdas on more than 20 criminal counts, including conspiracy, multiple counts of tax evasion and attempting to impede the Internal Revenue Service. He faces more than 20 years in prison.

The defendants claim Conrad wouldn’t have been permitted to serve on the jury if she’d told the truth about her background. Her presence on the panel deprived them of a fair trial, they said.

The case is U.S. v. Daugerdas, 09-CR-581, U.S. District Court, Southern District of New York (Manhattan).

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