Madoff Trustee, Arbitration Ruling, Taxes: ComplianceEllen Rosen and Carla Main
Banks including JPMorgan Chase & Co. and HSBC Holdings Plc can’t be sued by the Bernard Madoff firm’s liquidator for $30 billion, an appeals court ruled.
Madoff trustee Irving Picard had appealed lower court rulings that barred him from demanding damages from banks that allegedly ignored Madoff’s fraud for the sake of fees. Federal district judges Colleen McMahon and Jed Rakoff, both in Manhattan, had said Picard can’t accuse the banks of fraud because he’s the trustee for a fraudulent enterprise, citing a legal principal called in pari delicto.
The U.S. Court of Appeals in New York agreed yesterday. “Picard stands in the shoes of BLMIS and may not assert claims against third parties for participating in a fraud that BLMIS orchestrated,” according to the ruling by three judges including Chief Judge Dennis Jacobs.
BLMIS is the former securities firm of Madoff, who orchestrated the biggest Ponzi scheme in U.S. history, reporting a mostly fictitious $65 billion in assets. His fraud cost customers an estimated $17 billion in principal.
Picard’s defeat yesterday means that Madoff’s customers will have a smaller pot from which to recover their remaining losses, and some investors who bought discounted claims on the con man’s estate may lose the bets they made.
Picard is reviewing the decision, spokeswoman Amanda Remus said in an e-mail. He has about $4 billion of other claims against the banks that he is “vigorously” pursuing, she said.
Two other appeals courts have ruled that a trustee liquidating a fraudulent business can’t accuse other parties of fraud. A court in Richmond, Virginia, in May said a bank allegedly holding Ponzi customers’ money couldn’t be sued, and a Chicago court in April 2012 said a trustee couldn’t sue accountants for not detecting a Ponzi scheme.
The New York appeal judges said at the end of their ruling that they would leave it to Congress to change the law if legislators wanted to empower trustees to bring such lawsuits.
Picard has so far paid investors almost $4.8 billion from the Madoff estate’s customer fund, out of about $17 billion of estimated lost principal, according to his website.
The bankruptcy case is Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities LLC, 08-ap-1789, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
The appeal is In re Bernard L. Madoff, 11-05175, U.S. Court of Appeals for the Second Circuit (Manhattan).
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Arbitration Backed as High Court Rules for American Express
The U.S. Supreme Court reinforced companies’ power to funnel legal disputes into arbitration, ruling in favor of American Express Co. in an antitrust clash with retailers over the credit cards they must accept.
The justices, voting 5-3, said merchants seeking to sue American Express are bound by an agreement they signed to pursue disputes individually before an arbitrator. A federal appeals court had refused to enforce the arbitration accord, saying its bar on class actions would make it infeasible for the merchants to press their claims.
Writing for the majority, Justice Antonin Scalia said courts must respect arbitration agreements -- and bans on class actions -- even when the cost of pressing an individual case would exceed the potential damages.
In dissent, Justice Elena Kagan said the ruling would let wrongdoers immunize themselves against lawsuits. She said American Express had used its market clout to foist the contract on retailers.
Justices Ruth Bader Ginsburg and Stephen Breyer joined Kagan in dissent. Justice Sonia Sotomayor, who was involved with the case as an appellate judge, didn’t take part in the Supreme Court’s decision.
Chief Justice John Roberts and Justices Anthony Kennedy, Clarence Thomas and Samuel Alito joined Scalia in the majority.
The decision extends a 2011 Supreme Court ruling that said companies can use arbitration accords to block employees and consumers from pressing claims as a group. Both cases turned on the 1925 Federal Arbitration Act, which says courts must enforce arbitration accords the same as any other contract.
Yesterday’s ruling “preserves the availability of arbitration as a fair, efficient and cost-effective way to resolve disputes,” American Express said in an e-mailed statement.
“The decision is catastrophic for the antitrust laws, as well as for civil rights, consumer rights and many other statutory rights,” said Paul Bland, an attorney with Public Justice, a Washington-based advocacy group.
The case is American Express v. Italian Colors Restaurant, 12-133.
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Credit Suisse, Baer Seen Facing Delay in U.S. Tax Settlement
Credit Suisse Group AG and Julius Baer Group Ltd., the largest Swiss banks embroiled in a U.S. tax-evasion probe, may face delays in reaching settlements after the Swiss Parliament rejected a bill that would have freed the industry to send information to the U.S.
The two Zurich-based banks, among at least 14 Swiss financial firms investigated by the Department of Justice since 2011 for allegedly helping Americans hide money from the Internal Revenue Service, are seeking to strike individual agreements to avoid or defer prosecution by the U.S.
The government bill, supported by Swiss banks, was aimed at helping firms not yet part of the U.S. probe avoid an indictment like that of Wegelin & Co., which pleaded guilty in January to helping American clients dodge taxes. While Credit Suisse and Julius Baer can already share some data with U.S. authorities, lawmakers’ rejection of the bill June 19 in Bern may complicate matters for them.
Switzerland, the world’s largest center for cross-border wealth, is trying to shed its reputation as a haven for undeclared funds. Credit Suisse and Julius Baer are in talks with the U.S. authorities to resolve the probes after UBS AG, the biggest Swiss bank, avoided prosecution in 2009 by admitting it aided tax evasion, paying $780 million and handing over client names.
Both banks have previously said they expect to pay fines and provide client names to resolve the U.S. probes after the Justice Department indicted bankers and requested the firms give up the names of former clients with undeclared offshore wealth.
Julius Baer is seeking to resolve the matter by the end of this year with an “affordable” settlement, Chief Executive Officer Boris Collardi said May 30. Credit Suisse Chairman Urs Rohner told Swiss paper Neue Zuercher Zeitung in an interview published May 28 that “to believe that one can just postpone this problem and that it will solve itself isn’t realistic.”
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Bank Traders, Brokers Worked With Hayes on Libor, SFO Says
Tom Hayes, the former UBS AG and Citigroup Inc. trader, conspired with employees of at least five other banks and three interdealer brokers over a four-year period to manipulate yen Libor rates, prosecutors said.
Hayes appeared at a London criminal court for the first time yesterday where prosecutors laid out the charges against him. The 33-year-old was charged with working with employees at JPMorgan Chase & Co., Royal Bank of Scotland Group Plc, HSBC Holdings Plc, Rabobank Groep and Deutsche Bank AG, as well as Tullett Prebon Plc, ICAP Plc and RP Martin Holdings Ltd., the U.K. Serious Fraud Office said in documents read out yesterday.
The charges come almost a year after Barclays Plc became the first of three banks fined as part of global regulators’ probes into the London interbank offered rate and other benchmarks. Hayes has also been charged by the U.S. Justice Department, which is running a parallel criminal investigation.
Hayes tried to manipulate rates “with the intention that the economic interests of others would be prejudiced and/or to make personal gain for themselves or another,” U.K. prosecutors said in the indictment yesterday.
Hayes faces eight counts of conspiracy to defraud in the case, four covering the period from Aug. 8, 2006, until Dec. 3, 2009, while he worked at UBS, and the other four from Dec. 1, 2009 until Sept. 7, 2010, when he was at Citigroup.
Hayes, a British national who worked in Tokyo, was arrested in the U.K. probe on Dec. 11 along with two employees of the brokerage RP Martin. Hayes was charged on June 18 with eight counts of conspiracy to defraud after he answered police bail in central London.
Hayes joined UBS in 2006 and worked at the Swiss lender until 2009, when he joined Citigroup. He was dismissed by Citigroup less than a year later for involvement in suspected rate-rigging, a person with knowledge of the matter said in October. He worked at Edinburgh-based RBS from 2001 to 2003.
The SFO said on June 18 that their probe into rate-rigging is continuing.
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Google Gets 3 Months to Fix Privacy or Face French Fines
France gave Google Inc. three months to amend its policy regarding Internet users’ data to avoid fines, and said five other European countries will follow suit by the end of July.
The U.S. search engine giant is breaching French laws because it “prevents individuals from knowing how their personal data may be used and from controlling such use,” France’s National Commission for Computing and Civil Liberties, the country’s data protection watchdog known as CNIL, said yesterday in a statement in Paris. It ordered Google to comply with the French Data Protection Act.
Google faces probes across Europe over changes to harmonize privacy policies for more than 60 products last year. Global data protection regulators this week wrote to the Mountain View, California-based company urging Chief Executive Officer Larry Page to contact them about possible issues with its web-enabled eyeglasses, called Google Glass.
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Delta Wins U.S. Antitrust Approval for Virgin Atlantic Stake
Delta Air Lines Inc. won U.S. Justice Department approval of its proposed equity investment in Richard Branson’s Virgin Atlantic Airways Ltd. and of the carriers’ related trans-Atlantic joint venture.
The department’s antitrust division announced yesterday that it had closed its investigation into the deal, allowing it to proceed. European regulators have also signed off on the transaction.
“The facts and circumstances did not warrant further investigation or action,” the Justice Department said in an e-mailed statement.
Delta, based in Atlanta, agreed on Dec. 11 to buy a 49 percent stake in the U.K. carrier for $360 million to boost its share of the trans-Atlantic travel market. The agreement included a joint venture on 31 daily round-trip flights between North America and the U.K. Virgin Group retains a 51 percent stake.
Delta also won European Union approval for the transaction, according to an e-mailed statement from EU regulators yesterday.
“The division and the European Commission cooperated closely throughout the course of their respective investigations, with frequent contact between the agencies,” the Justice Department said. “This cooperation, facilitated by the parties, made for a more efficient review process.”
Apple Denies Fixing E-Book Prices in Antitrust Trial Closing
Apple Inc. made a final pitch to defend itself against U.S. charges it led publishers in a scheme to fix the prices for electronic books, with the company’s lawyer telling a judge that it did nothing wrong.
“Apple did not conspire with a single publisher to fix prices in the e-books industry,” Orin Snyder, Apple’s lawyer, told U.S. District Judge Denise Cote yesterday in his closing argument at the end of a civil antitrust trial in Manhattan. “Apple acted lawfully and did not violate the antitrust laws.”
The government claims Apple and five of the biggest book publishers conspired to move the e-book market to a model that raised prices and harmed consumers. The trial focused on December 2009 and January 2010, when Apple was rushing to sign contracts with the publishers and build an iBookstore in time for the introduction of the iPad.
Snyder, in his 2 1/2-hour argument, told Cote that Apple’s entry into the e-book market, which had been dominated by Amazon.com Inc., lowered prices overall and helped consumers by bringing innovation and competition. He argued that the government “overreached” in its suit against Apple, claiming that a ruling for the U.S. Justice Department would be “unprecedented and dangerous” for companies.
Cote, who will decide the case without a jury, interrupted Snyder repeatedly with questions. In a court conference before the trial, Cote told lawyers for both sides her “tentative view” was that the government has evidence Apple “knowingly participated in and facilitated a conspiracy to raise prices of e-books.”
Mark Ryan, a lawyer for the Justice Department, followed Snyder yesterday, arguing that Apple headed up “an old-fashioned, straightforward price-fixing agreement.”
The case is U.S. v. Apple Inc., 12-cv-02826, U.S. District Court, Southern District of New York (Manhattan).
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Virginia Lawyer Gets 15 Years for Small Business Loan Fraud
A Virginia lawyer yesterday was sentenced to 15 years and eight months in prison for his role in a scheme that resulted in more than $100 million in losses on loans backed by the U.S. Small Business Administration.
Joon Park, 43, of Falls Church, was sentenced in federal court in Baltimore. He admitted that from 2003 to October 2011, he and his co-conspirators submitted SBA loan applications with fraudulent documents including counterfeit cashier’s checks and falsified bank statements and tax returns, U.S. Attorney Rod Rosenstein of Maryland said yesterday in a statement.
Park arranged for 124 fraudulent loans with 17 commercial lenders ranging from $100,000 to $14.5 million, according to a superseding indictment returned March 7 by a federal grand jury.
Four other participants in the scheme have already been sentenced to prison and a fifth conspirator has pleaded guilty and is awaiting sentencing.
The case is U.S. v. Park, 11-cr-00600, U.S. District Court, District of Maryland (Baltimore).
OBIC Faces 8.85 Million Yen Fine for Misstatements, SESC Says
OBIC, the Japanese provider of computer system integration and services, faces a fine of 8.85 million yen ($91,000) for misstating reports, Japan’s Securities and Exchange Surveillance Commission said.
The commission made the announcement in a statement distributed to the press in Tokyo.
FTC Chief Ramirez Calls on Agency to Probe ‘Patent Trolls’
U.S. Federal Trade Commission Chairwoman Edith Ramirez said the agency should conduct a broad probe of patent-assertion entities, known as “patent trolls” to those who accuse them of abusing the system.
Ramirez yesterday said she would like to see a full-fledged inquiry to determine whether the entities’ activities hamper or encourage innovation and competition. President Barack Obama earlier this month announced a crackdown on patent litigation in an effort to protect technology, finance and retail companies from lawsuits and demands for fees.
The crackdown includes five executive actions and seven recommendations that require congressional action. A White House commission report said more than 100,000 companies were threatened with claims of infringement last year by patent-assertion entities, whose sole business is to obtain patents and use them to extract royalties from other businesses.
The entities are “driving the increase in patent litigation and targeting firms in a growing slice of the economy,” Ramirez said yesterday at a workshop sponsored by the Washington-based American Antitrust Institute and the Computer and Communications Industry Association, a trade group whose members include Google Inc. and Microsoft Corp. “The costs to consumers from PAE activity appear increasingly tangible and direct.”
EU Says Merger-Rules Overhaul May Focus on Minority Holdings
Revamped European Union merger-control rules may lead to scrutiny of deals that involve minority shareholdings, EU regulators said as they sought views on ways to bolster the merger-review process.
“A minority stake owned by a firm in a company that supplies an important input to the acquirer’s competitors may lead to supply problems for those competitors,” the Brussels-based commission said in an e-mailed statement yesterday. “The current merger regulation applies only to transactions leading to an acquisition of control over a company.”
The commission said it’s also weighing changes to streamline the referral of merger reviews from national regulators to the EU regulator and vice versa, “provided none of the authorities involved objects to the referral.”
EU Competition Commissioner Joaquin Almunia last month briefed lawmakers at the European Parliament of the proposals to revamp the merger-review process. The commission said the consultation process on the overhaul will end on Sept. 20.
In the Courts
HSBC Unit Liability on 2009 Verdict $1.5 Billion, Court Told
HSBC Holdings Plc unit once known as Household International Inc. is liable for about $1.5 billion in damages to shareholders who a Chicago federal court jury found in 2009 were misled by the company and three executives, a plaintiffs’ attorney said.
The lawyer, Michael J. Dowd, told U.S. District Judge Ronald A. Guzman at a hearing yesterday in Chicago that an independent claims examiner reviewed and approved investor claims approaching that amount, for which the attorney seeks entry of a partial judgment.
That $1.48 billion in allowed claims from about 10,000 stockholders may be augmented by pre-judgment interest in the 11-year-old lawsuit or wiped out by post-trial motions, Dowd said in an interview outside the courtroom. Still more claims remain to be resolved, he said.
Noting the litigation has gone on “for years and years,” Guzman said from the bench, “it’s got to come to an end.”
Jurors in May 2009 decided the company, former Chief Executive Officer William Aldinger and two other people made recklessly misleading comments 16 times and in one instance involving Aldinger, did so knowingly.
While the jury determined that stockholder losses from March 23, 2001, to Oct. 11, 2002, could be as much as $23.94 a share, it made no lump-sum award. The ensuing claims evaluation process has lasted four years.
Household was acquired by London-based HSBC in March 2003 for $15.5 billion.
The case is Lawrence E. Jaffe Pension Plan v. Household International Inc., 1:02-cv-05893, U.S. District Court, Northern District of Illinois (Chicago).
Comings and Goings
Senate Panel to Question SEC Nominees Stein, Piwowar June 27
Two U.S. Senate aides nominated to join the Securities and Exchange Commission will get a confirmation hearing before the Senate Banking Committee on June 27, according to a Senate announcement yesterday.
Michael S. Piwowar and Kara M. Stein will face questions posed by their current and former bosses on the committee. Piwowar, a Republican, is the chief economist for the committee’s Republican members. Stein worked for the committee under Senator Jack Reed, a Rhode Island Democrat who previously led a securities subcommittee.
A vote on their nominations will be held at a subsequent hearing, the banking committee said in a news release. Full Senate approval could come as early as July.
President Barack Obama nominated Piwowar and Stein to join the commission on May 23. Stein would replace Democrat Elisse B. Walter, whose term has expired. Piwowar would succeed Republican Troy A. Paredes, who will leave the commission after serving one five-year term.
Ex-SEC Boston Chief Joins LPL Financial as General Counsel
LPL Financial Holdings Inc., the brokerage fined last month for systemic failures and misstatements, hired the former head of the U.S. Securities and Exchange Commission’s Boston office as its general counsel.
David Bergers, who starts work on Aug. 5, will also be managing director for legal and government relations at Boston-based LPL Financial, which specializes in the technology and service businesses, the firm said in a statement yesterday. He will also serve on the management and risk oversight committees.
LPL Financial has been faulted in recent years by the Financial Industry Regulatory Authority, the brokerage industry self-regulator, and securities watchdogs from at least seven states, according to public filings with Finra.
The hiring of Bergers, 45, comes about a month after LPL Financial agreed to pay $9 million to resolve Finra claims that it failed to supervise employees’ e-mails and made misstatements to investigators. LPL said it regretted the lapses and that the firm had taken steps to redesign its compliance program.
“I’ve been impressed with LPL’s recent investments in people and technology and the steps the company is taking to improve its compliance functions and risk oversight,” Bergers said in an e-mail. “I look forward to helping the firm provide the highest quality advice and service to investors.”
SEC Chairman White Sending Right Signal, Levitt Says
U.S. Securities and Exchange Commission Chairman Mary Jo White is sending the right signal by saying the agency will seek more admissions of wrongdoing in enforcement cases, said Arthur Levitt, a former SEC chairman.
“Mary Jo did exactly what she should have done,” Levitt, 82, said yesterday in an interview on Bloomberg radio. “She’s going to be selective in terms of egregious cases where she’s really going to go for the gold.”
White, a former Debevoise & Plimpton LLP partner who took over the SEC in April, said on June 18 that the regulator would seek more admissions of misconduct as a condition of settling cases. Typically, the SEC allows subjects to settle cases without either admitting or denying wrongdoing, a practice that has drawn fire from lawmakers, consumer groups and jurists.
“What she’s saying is, we’re going to pick a case and make an example of it,” said Levitt, who is an adviser to Promontory Financial Group LLC and a Bloomberg LP board member. “I don’t think that means that 50 percent of cases will get litigated, we may be talking about 2 or 3 percent. She’s sending exactly the right signal.”