Railroads, Juniper, Health Law, Harbinger: Compliance

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The four largest U.S. railroad companies won their bid to reverse a ruling that turned a price-fixing lawsuit against them by shippers into a group lawsuit with potential damages of at least $10 billion.

A three-judge panel of the U.S. Court of Appeals in Washington Aug. 9 threw out a decision by a lower-court judge certifying the class, sending it back for him to reconsider in light of a subsequent Supreme Court ruling on class certification. The lower court also used a flawed model for determining potential harm to shippers, the panel said.

“Mindful that the district court neither considered the damages model’s flaw in its certification decision nor had the benefit” of the Supreme Court case, “we will vacate class certification and remand the case to the district court to afford it an opportunity to consider these issues,” U.S. Circuit Judge Janice Rogers Brown wrote for the panel.

The suit, brought in 2007 by Olin Corp. and seven other companies that ship goods by rail, alleges the railroad operators colluded at an industry meeting in 2003 to impose a surcharge tied to total transportation costs rather than to actual fuel prices during a 3 1/2-year period.

U.S. District Judge Paul Friedman last year certified a class of about 30,000 shippers in a case against Union Pacific Corp., the largest U.S. carrier by revenues; Burlington Northern Santa Fe, a unit of Warren Buffett’s Berkshire Hathaway Inc., the number two freight carrier; and CSX Corp. and Norfolk Southern Corp.

“While this obviously was not our preferred outcome, we are gratified that the case was remanded,” Stephen Neuwirth, of Quinn Emmanuel Urquhart & Sullivan LLP, co-lead counsel for the shippers, said in an e-mailed statement. “We are confident that we will be able to demonstrate that the damages model in fact satisfies the highest standards that have been set by the courts, and that ultimately the case will move forward as a class action.”

Tom Lange, a spokesman for Union Pacific, said in a statement that the company is “pleased with the court’s decision and looks forward to the opportunity to reaffirm that Union Pacific’s fuel surcharge program complied with the applicable legal requirements.”

The case is In re Rail Freight Fuel Surcharge Antitrust Litigation, 12-07085, U.S. Court of Appeals, District of Columbia (Washington).

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Compliance Policy

ASIC Increases Disclosure Requirements for Dark Trading Systems

The Australian Securities and Investments Commission updated disclosure requirements in an e-mailed statement, with rules that will come into force over nine months.

Crossing-system operators must report to ASIC if they identify suspicious activity, and activity on their crossing system must be monitored from Nov. 10.

“We expect the new rules will quickly lead to changes in the behavior of market participants, building on the positive changes we have already seen with other recent rule changes and the work of ASIC’s taskforces on dark liquidity and high-frequency trading,” ASIC Commissioner Cathie Armour wrote in an e-mailed statement.

Compliance Action

U.S. Said to Plan Charges Against Former JPMorgan Employees

The U.S. may announce charges as early as this week against former London-based JPMorgan Chase & Co. employees related to allegations they tried to conceal losses last year, a person familiar with the matter said.

The situation remains fluid and it isn’t clear who may be charged, said the person, who requested anonymity because the information wasn’t public. Those facing U.S. charges include Javier Martin-Artajo, a Spaniard who lives in London and a former executive who oversaw the trading strategy, and Julien Grout, a French citizen and a trader who worked for him, the New York Times reported Aug. 9. Prosecutors also are weighing penalties for the bank, including a fine and a reprimand, the newspaper said in a subsequent report.

The investigation has centered on whether employees at JPMorgan’s chief investment office attempted to inflate the value of trades on the bank’s books by mismarking them, a person with knowledge of the matter said previously. Federal officials are considering charges related to mismarking books and falsifying documents, the person said.

Edward Little, an attorney for Grout, said his client moved back to France before media reports last week about the potential charges and that he has no intention of fleeing, the New York Times reported late yesterday.

The bank first disclosed losses at its London office in May 2012 after what Chief Executive Officer Jamie Dimon called “egregious mistakes” in managing credit-derivative positions. The trades by Bruno Iksil, nicknamed the London Whale because of the size of his holdings, eventually caused more than $6.2 billion of losses for the company.

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Juniper Falls After Disclosing Foreign Bribe Investigations

Juniper Networks Inc. fell the most in more than three months after disclosing that it’s being investigated for possible violations of the U.S. Foreign Corrupt Practices Act.

The shares fell 5.6 percent to $20.92 at the close on Aug.

9. The U.S. Securities and Exchange Commission and the Department of Justice are both conducting investigations, the Sunnyvale, California-based company disclosed in a filing Aug.


Juniper, the No. 2 maker of networking equipment, generated more than half of its sales outside the U.S. in 2012, according to data compiled by Bloomberg. The Foreign Corrupt Practices Act prohibits U.S. companies from paying bribes to foreign officials to win business. The company is cooperating with the investigations and “can’t predict the scope or duration,” said Michael Busselen, a spokesman for Juniper.

John Nester, a spokesman for the SEC, and Peter Carr, a Justice Department spokesman, declined to comment.

In many instances, companies are investigated under the FCPA because distributors or resellers don’t have strong internal controls to prevent bribery, according to Jayson Noland, an analyst at Robert W. Baird & Co. in San Francisco.

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Obama Financial Fraud Task Force Takes On Banks Too Big to Fail

The criminal investigation of JPMorgan Chase & Co.’s mortgage-backed securities practice is evidence a U.S. Justice Department task force set up to investigate causes of the financial crisis is finally getting some traction against banks blamed for ruining the economy.

The probe, disclosed last week in the bank’s quarterly filing, is the latest enforcement effort to emerge from the Residential Mortgage Backed Securities Working Group. It was set up last year on orders of President Barack Obama to coordinate prosecutions of fraudulent underwriting activity by banks that contributed to the financial crisis.

The JPMorgan probe, which is also looking at possible civil violations, grew out of the working group’s efforts, said Lauren Horwood, a spokeswoman for U.S. Attorney Benjamin Wagner in Sacramento, who is leading the investigation and is a member of the group’s parent, the Financial Fraud Enforcement Task Force.

“Over the last year and a half, the RMBS Working Group members have been aggressively investigating multiple cases across the country and the public is only beginning to see the results,” Associate Attorney General Tony West, the No. 3 ranking official at the Justice Department, said in an e-mail.

The JPMorgan Chase investigation, which may not lead to criminal charges, follows parallel civil lawsuits filed earlier this week by the U.S. Securities and Exchange Commission and the U.S. Attorney Office in Charlotte, North Carolina. U.S. officials claim Bank of America Corp. failed to disclose risks embedded in $850 million in mortgage-backed securities issued in


The RMBS group’s director is Geoff Graber, who was also the lead Justice Department lawyer in the investigation of New York-based McGraw Hill Financial Inc.’s S&P unit. More than 200 federal and state attorneys, investigators and analysts have played a role in the group’s work, according to the Justice Department.

Graber’s coordinating team, composed of eight members, is based in Washington and made up of criminal prosecutors, civil attorneys and analysts. As part of its work, it conducts day-long meetings every two months, the most recent of which occurred on July 12, according to the Justice Department.

The group has faced criticism from lawmakers and consumer advocates for its failure to live up to the promises President Obama made when he announced its establishment in his January 2012 State of the Union address. The pace of the group’s work drew early complaints from lawmakers.

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SAC Allowed by Judge to Keep Operating While Facing Charges

SAC Capital Advisors LP, the hedge fund owned by Steven Cohen that is facing criminal charges and a civil money laundering lawsuit, won a judge’s approval of a business plan that will allow the firm to continue operating during the cases.

U.S. District Judge Richard Sullivan in Manhattan on Aug. 9 issued an order saying that federal prosecutors, who indicted the firm July 25 in an insider-trading scheme and filed a suit against the Stamford, Connecticut-based fund, will avoid interfering with SAC’s legitimate operations.

The approved plan requires that SAC maintain at least 85 percent of the “aggregate value” of assets owned by the firm’s “entity defendants” as of July 1 and in exchange, allows for the fund to continue its lawful operations. If the assets fall below the specified level in a given month, the fund is required to “replenish” the monies, according to the order.

Jonathan Gasthalter, a spokesman for SAC at Sard Verbinnen & Co., declined to comment on the filing.

Oregon Exchange Delay Adds to Scale-Down of Health Law Goals

Oregon, a Democratic-led state that has embraced President Barack Obama’s Affordable Care Act, won’t meet all the requirements for its health-insurance exchange when the online marketplace opens Oct. 1.

For at least two weeks, people using Cover Oregon won’t be able to complete their purchase without help from a certified insurance broker or community group, said Lisa Morawski, an exchange spokeswoman. Consumers in all 50 states were supposed to be able to freely shop for health plans on their own.

“We thought that this was an opportunity for us to open our doors on Oct. 1 with all the functionality, but not overload the system,” Morawski said Aug. 9 by telephone.

Oregon’s step-back suggests that states don’t have enough time to comply with next year’s core implementation of the 2010 health law as Obama envisioned. Even the federal data services hub that is supposed to connect the exchanges may not get final security certification until Sept. 30, the inspector general for the Health and Human Services Department said April 5.

“With all of the delays -- the Supreme Court delay, the election -- states and HHS for that matter simply don’t have enough time to put this together as it should be,” said Dan Schuyler, director of exchange technology at the consulting firm Leavitt Partners in Salt Lake City.

Oregon is one of 14 states building their own exchanges. The federal government is doing most or all of the work in the remaining 36 states. The U.S. Centers for Medicare and Medicaid Services, which is supervising the building of state exchanges, is aware of Oregon’s plan and isn’t concerned, Brian Cook, an agency spokesman, said in an e-mail.

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U.S. Regulator Issues Bitcoin-Related Subpoenas, WSJ Reports

New York’s banking regulator issued subpoenas to about two dozen companies associated with bitcoin as it looks into the virtual-currency industry, the Wall Street Journal reported, citing people familiar with the matter.

The subpoenas, issued by the Department of Financial Services, seek information on topics including antimoney-laundering, consumer protection and investment strategies, according to the report, which didn’t identify the people. The subpoenas were issued late last week, the Journal said.

The department is considering setting new guidelines aimed at virtual currencies, the newspaper reported, citing a memo from Benjamin Lawsky, the agency’s head. The memo, which the regulator plans to issue today, expresses concern that virtual-currency companies aren’t complying with the state’s money-transmission laws, according to the report.

Bitcoin is a virtual currency created four years ago that can be used to buy and sell a broad array of items, from electronics to illegal narcotics.

Coinsetter LLC, one of the companies cited in the report as having been issued a subpoena, said the dialogue with the regulator will have a positive effect on the industry, according to Chief Executive Officer Jaron Lukasiewicz. Lukasiewicz said there had been no misbehavior toward consumers by the leading bitcoin companies.

“U.S.-based Bitcoin companies are taking regulation very seriously, and each company is closely working with legal advisers to form and follow plans that adhere to it,” Lukasiewicz said in an e-mail.

In the Courts

Cantor, Ex-Trader Exchange Suits Over Alleged Blackmail Threat

Cantor Fitzgerald LP accused a fired Singapore-based derivatives trader of making a blackmail threat in an exchange of lawsuits between the brokerage and its former employee over his dismissal.

Gavin White, the former trader, sued in Singapore’s High Court for wrongful dismissal, claiming unspecified damages. Cantor, the New York-based independent broker-dealer, countersued for a repayment of a loan and a return of a portion of his wages. A closed hearing is scheduled for Aug. 15.

White, who had refused a 20 percent pay cut proposal in October, had said he might complain about alleged breaches by the brokerage in Australia, Cantor’s Singapore unit said in its counterclaim. Cantor denied there had been any breaches and said it had a right to fire him for gross misconduct. White threatened to damage the firm’s reputation, which amounted to a threat of blackmail, the brokerage said.

“Mr. White strenuously denies that he made any such threat as alleged by Cantor,” his lawyer Pradeep Pillai said in a phone interview. “He is eager to have his name cleared of the allegation of gross misconduct.”

In addition to denying having made the statements attributed to him, White said that any comments he made in October meetings to discuss his pay with his supervisor weren’t supposed to be used against him. Cantor breached a three-year employment contract by firing him in November, he said in the complaint.

Cantor proposed to cut White’s pay in October because his division was underperforming and the brokerage couldn’t sustain the “extremely high salaries” on the team, the firm said in court papers.

White was paid S$580,000 ($461,000) a year at Cantor. Cantor is seeking the return of S$297,576.

Robert Hubbell, a spokesman for Cantor, declined to comment on the litigation.

The case is White v. Cantor Fitzgerald (Singapore) Capital Markets Ltd. S139/2013. Singapore High Court.

UBS Agrees to Pay $120 Million to Settle Lehman Suit Claims

UBS AG, Switzerland’s largest bank, agreed to pay $120 million to settle claims by investors in Lehman Brothers Holdings Inc. securities in a lawsuit tied to the investment bank’s 2008 collapse.

UBS was accused of violating federal securities laws in underwriting and selling the securities to investors, who claimed that offering materials contained misleading information about Lehman Brothers’ financial condition.

“UBS is pleased to have resolved this legacy litigation matter arising out of the 2008 financial crisis,” the Zurich-based lender said in a statement. “UBS agreed to the settlement to avoid the cost and uncertainty of continued litigation.”

The settlement, disclosed Aug. 8 in a filing in federal court in New York, compares “favorably” with other recoveries stemming from the credit crisis, the plaintiffs said. Lehman Brothers filed for bankruptcy in September 2008.

The settlement, which requires court approval, represents a recovery of 13.4 percent of the total face value of securities at issue, or about $896 million, without taking into account UBS’s defenses and rights of offset, according to the court filing.

The case is In re Lehman Brothers Securities and Erisa Litigation, 09-md-02017, U.S. District Court, Southern District of New York (Manhattan).

N.Y. Federal Reserve Bomb Plotter Sentenced to 30 Years

A Bangladeshi man who tried to detonate what he thought was a 1,000-pound bomb at the New York Federal Reserve was sentenced to 30 years in prison.

Quazi Mohammad Rezwanul Ahsan Nafis, 22, who was drawn into an undercover operation, was arrested in October after repeatedly attempting to set off fake explosives provided to him by federal agents. He pleaded guilty in February and on Aug. 9 was sentenced by U.S. District Judge Carol Bagley Amon in Brooklyn, New York, for attempting to use a weapon of mass destruction.

“I am persuaded that the defendant was a serious threat to the safety of New Yorkers, of Americans,” Amon said during a hearing, imposing a sentence that was at the lower end of a recommended range of as much as life in prison.

On the day of his attempted bombing, while covering his face, wearing sunglasses and disguising his voice, Nafis had a federal agent posing as a co-conspirator record a video statement he made, saying “We will not stop until we attain victory or martyrdom,” according to a criminal complaint.

In the courtroom Aug. 9, Nafis, clean-shaven and wearing an over-sized khaki jail uniform, said he was grateful to the agents who caught him. He asked the judge to “please have mercy on me.”

The U.S. alleged that Nafis came to the U.S. in January 2012 with the intention of carrying out a terrorist attack. After a brief period at Southeast Missouri State University, he went to New York and tried to recruit others for his plot, prosecutors alleged.

His lawyer, Heidi Cesare, said Nafis has taken responsibility for his actions and is unlikely to pose a future threat.

The case is U.S. v. Nafis, 1:12-cr-00720, U.S. District Court, Eastern District of New York (Brooklyn).

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Harbinger Sues Deere, Garmin Over Spectrum for GPS Products

Hedge fund Harbinger Capital Partners sued Deere & Co., Garmin International Inc. and Trimble Navigation Ltd. claiming they concealed facts about global positioning satellite products that ruined Harbinger’s investment in a wireless communications business.

The companies are accused of failing to disclose that Harbinger’s venture, LightSquared, would interfere with their products, according to a complaint filed Aug. 9 in federal court in Manhattan. Harbinger is seeking damages of at least $1.9 billion.

“Plaintiffs have already lost a great deal and now stand to lose their entire investment,” Harbinger said. “Plaintiffs never would have made this investment if the defendants had told the truth earlier.”

LightSquared filed for bankruptcy in 2012. U.S. regulators blocked the service after GPS-device makers and users -- including the U.S. military and commercial airlines -- said signals from LightSquared’s service would confound navigation gear.

The case is Harbinger Capital Partners v. Deere & Co., 13-cv-05543, U.S. District Court, Southern District of New York (Manhattan).

Carla Main in New Jersey at cmain2@bloomberg.net.

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