Goldman, RBS, Cnooc, WellCare, Refco, MBIA in Court News
Goldman Sachs Group Inc. (GS) persuaded a judge to dismiss Overstock.com Inc. (OSTK)’s lawsuit alleging the investment bank manipulated short sales of the online retailer’s stock from 2005 to 2007, causing the shares to fall.
State court judge John Munter in San Francisco threw out the complaint in a ruling yesterday. The decision comes almost five years after Overstock.com accused Wall Street brokerages of using a practice known as naked short selling to deliberately drive down its shares to allegedly reap security lending fees and appease hedge fund clients who were shorting Overstock.com.
Munter agreed with the defendants, which included Merrill Lynch & Co., that the lawsuit couldn’t go forward because Overstock.com hadn’t shown that any of the conduct it sued over happened in California.
“Plaintiffs have failed to raise a triable issue of material fact supportive of a finding that any act by any defendant foundational to liability, causation or damages occurred in California,” Munter said in the ruling.
Patrick Byrne, chief executive officer of Salt Lake City- based Overstock, has accused investment banks and hedge funds of working together to destroy market value of small-cap companies.
In short selling, investors sell shares they have borrowed in anticipation of making a profit by paying for the stock after its price has fallen. In naked short selling, traders never borrow the stock and can drive down prices by flooding the market with orders to sell shares they don’t have, Overstock.com alleges in court filings.
Overstock claims large portions of its shares were the subject of naked shorting, leading to instances where the short position in its stock has exceeded the entire supply of outstanding shares. Its shares fell from more than $70 in early 2005 to less than $20 in late 2006, according to court filings.
Jonathan Johnson, Overstock’s president, said he hadn’t seen yesterday’s ruling yet and couldn’t comment. He said in an e-mail that Overstock expects to file a racketeering lawsuit on the same allegations in New Jersey tomorrow.
Michael DuVally, a spokesman for New York-based Goldman Sachs, declined to comment on the ruling in a telephone interview. Lawrence Grayson, a spokesman for Charlotte, North Carolina-based Bank of America, and Andrew Frackman, an attorney who represented the Merrill Lynch units in the case, didn’t immediately respond yesterday to e-mail messages seeking comment on the ruling after hours.
The case is Overstock.com v. Morgan Stanley, CGC-07-460147, Superior Court of California, San Francisco.
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RBS Sued for Wrongful Dismissal by Trader Fired Over Libor
Royal Bank of Scotland Group Plc was sued for wrongful dismissal by a former Singapore-based trader who said the bank accused him of improperly trying to influence the setting of London interbank offered rates.
Tan Chi Min said the British Bankers’ Association, which sets the Libor rate, gets input from 16 banks and he was in no position to influence the rate on his own. Tan sought to recoup $1.5 million in bonuses he claims he’s owed and 3.3 million RBS shares, according to the lawsuit filed last month in Singapore’s High Court.
RBS, Britain’s biggest government-owned lender, is co- operating with investigations by the U.S. Commodity Futures Trading Commission, the U.S. Department of Justice and the European Commission into whether Libor had been manipulated.
Apart from the regulators’ actions, investors have accused several banks represented on the Libor panel of distorting market prices by hiding true borrowing costs since as early as 2007. A series of lawsuits filed in 2011 are now winding their way through courts in Europe and the U.S.
Patricia Choo, a Singapore-based spokeswoman for RBS, declined to comment on Tan’s lawsuit. Suresh Nair, a lawyer representing Tan, also declined to comment.
Tan, the former head of delta trading for RBS’s (RBS) global banking and markets division in Singapore, said in his complaint that the bank failed to detail the allegations against him and didn’t specify how he had improperly influenced the setting of Libor for the yen.
It was his responsibility to provide input to the bank’s rate setters and it was common practice for other bank employees to make requests of them, Tan said in the lawsuit.
The case is Tan Chi Min v The Royal Bank of Scotland Plc S939/2011 in the Singapore High Court.
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Cnooc Parent Sued by Fishermen for $34 Million Over Oil Spills
China National Offshore Oil Corp. said 29 fishermen had sued the country’s biggest offshore energy explorer for 234 million yuan ($34 million) for economic losses following oil leaks in Bohai Bay last year.
The state-controlled parent of Cnooc Ltd. (883) has received notification from Tianjin Maritime Court that the fishermen are seeking compensation from the company and ConocoPhillips, owners of Penglai 19-3 field, China National Offshore said in a statement on its website yesterday.
The leaks at China’s largest offshore oilfield tainted about 870 square kilometers (336 square miles) of Bohai Bay, prompting the State Oceanic Administration to shut the field Sept. 2. The Tianjin court accepted a complaint from fishermen alleging the spilled oil killed their clams and sea cucumbers, the official Xinhua News Agency reported Dec. 30.
China National Offshore has submitted an application to the Ministry of Civil Affairs to start a maritime environmental protection fund, the company said Dec. 30. The fund won’t be used to compensate economic losses to fishermen, it said. The field, operated by ConocoPhillips (COP), is 51 percent owned by Cnooc.
SEC Sues Ex-WellCare Executives Over Trading Tied to Fraud Case
Three former WellCare Health Plans Inc. (WCG) executives were sued by U.S. regulators over claims that they sold $91 million of shares while withholding money the firm was required to spend on programs for low-income people.
Todd Farha, who was chief executive officer, Paul Behrens, his chief financial officer, and Thaddeus Bereday, who served as general counsel, sold 1.6 million WellCare shares from 2003 to 2007 while funneling premiums through an internal subsidiary to evade Florida’s regulatory framework, the Securities and Exchange Commission said in a lawsuit in Florida Jan. 9.
The excess premiums, which were counted as revenue, materially inflated net income and diluted earnings per share reported in the Tampa, Florida-based company’s public financial filings, the SEC said. The three executives stepped down in 2008 amid an FBI investigation of the fraud claims.
The SEC is seeking reimbursement of incentive-based and equity-based compensation from Farha and Behrens, and wants to bar all three men from serving as officers or directors of public companies, according to the complaint.
Phone calls to Douglas Jules Titus Jr., an attorney for Farha, and John Lauro, a lawyer for Behrens, weren’t immediately returned. Jack Fernandez, a lawyer for Bereday, declined to comment.
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Refco Customers Lose Appeals Bid on Dismissal of Suit
Former Refco Inc. (RFXCQ) customers lost a bid in appeals court to reverse a lower-court ruling that dismissed their claims against the bankrupt brokerage.
U.S. District Judge Gerald Lynch’s ruling that Refco executives and its auditor didn’t breach agreements with customers was upheld by a three-judge panel of the Second Circuit Court of Appeals, according to a filing yesterday in Manhattan.
The plaintiffs included Capital Management Select Fund and other investment funds that had assets with Refco. They claimed that Refco executives used securities deposited with the company as collateral for loans.
“They fail to make sufficient allegations that their agreements with RCM misled them,” the appeals judges said in their ruling.
The defendants included former Chief Executive Officer Phillip Bennett, former Refco Chief Financial Officer Robert Trosten, former secretary Philip Silverman, and the auditing firm Grant Thornton LLP.
Bennett, 60, pleaded guilty to bank fraud and money laundering in 2008 and is serving a 16-year prison sentence.
The fraud conviction of Joseph Collins, Refco’s former outside lawyer, was reversed Jan. 9 by the same federal appeals court. The panel found that the trial judge improperly instructed a juror outside the presence of Collins’s lawyers.
The case is Capital Management Select Fund Ltd. v. Bennett, 08-6166, U.S. court of Appeals for the Second Circuit (Manhattan).
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J&J Must Pay at Least $579 Million for Risperdal, Texas Says
Johnson & Johnson should reimburse at least $579 million to the Texas Medicaid system for fraudulently promoting its antipsychotic drug Risperdal for uses not approved by U.S. regulators, a state lawyer told jurors.
J&J, the world’s largest health care products company, is defending a lawsuit by Texas Attorney General Greg Abbott that claims the company and its Janssen unit began overhyping and overcharging the state for the drug after its approval in 1993. The company also promoted Risperdal for use by children before it got approval from the Food and Drug Administration, Texas claims.
By making false claims about the drug’s superiority and minimizing its side effects, J&J persuaded Texas Medicaid officials to pay 45 times more for Risperdal than for older types of drugs, Assistant Attorney General Cynthia O’Keefe told jurors in opening a trial yesterday in state court in Austin.
“This is a case about the systematic looting of money from the Texas Medicaid system by one of the oldest and largest drug companies in America,” O’Keefe said.
Texas joined a lawsuit initially filed by whistle-blower, Allen Jones, a former investigator for the Pennsylvania Office of Inspector General. An award of $579 million as sought by the state could be tripled by jurors under Texas law. In addition, if the state wins the case, jurors will decide the number of violations and set a penalty of as much as $10,000 a piece.
An attorney for Jones, Thomas Melsheimer, told jurors that J&J made $34 billion in Risperdal sales over 17 years.
He said J&J, based in New Brunswick, New Jersey, systematically minimized Risperdal’s health risks to establish it as a blockbuster drug.
J&J denies wrongdoing and never acted illegally, attorney Stephen McConnico told jurors in his opening statement. He disputed the state’s contention that Risperdal was not superior to other drugs, saying it succeeded in the market because it was an improvement over an earlier generation of antipsychotics that had debilitating side effects.
He said doctors made the decision to prescribe Risperdal off-label, which is not illegal, because it worked so well.
The case is State of Texas ex rel. Jones v. Janssen LP, D- 1GV-04-001288, District Court, Travis County, Texas (Austin).
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MBIA Reaches Settlement With BNP in Restructuring Lawsuits
BNP, which was among banks that sued MBIA, is withdrawing from two lawsuits in New York State Supreme Court in Manhattan, according to court filings yesterday. David Neustadt, a spokesman for the Department of Financial Services, said the companies reached a settlement.
MBIA, based in Armonk, New York, was sued by a group of financial institutions after the 2009 split of its main bond- insurance unit into two businesses. They claim the restructuring was intended to defraud policyholders and rendered MBIA Insurance Corp. insolvent.
The New York State Insurance Department, which approved the split, was sued with MBIA in a separate proceeding. The insurance department is now part of the Department of Financial Services.
Cesaltine Gregorio, a spokeswoman for Paris-based BNP, declined to comment on the agreement. Marc Kasowitz, an attorney for MBIA, didn’t respond to an e-mail seeking comment.
A group of plaintiffs have withdrawn from the cases, including Wells Fargo & Co., Credit Agricole SA, HSBC Bank USA., JPMorgan Chase & Co. Bank of America Corp., Societe Generale SA, UBS AG and Natixis remain plaintiffs in the cases, according to yesterday’s court filings.
“We are pressing forward until the policyholders receive full satisfaction from the court, MBIA or the Department of Financial Services,” the bank policyholder group said in an emailed statement.
The cases are ABN Amro Bank NV v. MBIA Inc. (MBI), 601475-2009, and ABN Amro Bank NV v. Dinallo, 601846-2009, New York State Supreme Court (Manhattan).
KBR Settles Lawsuit Brought by Driver Injured in Iraq Convoy
KBR Inc. (KBR) settled a lawsuit brought by an injured convoy driver who claimed the company sent civilians into a battle zone in Iraq in 2004 knowing they would be attacked and possibly killed, according to a court filing.
Reginald Cecil Lane, the driver, reached a “confidential settlement” with KBR and its former parent, Halliburton Co. (HAL), his lawyer, Tommy Fibich, said Jan. 9 in court papers. Lane and the defendants asked the court to dismiss the lawsuit, according to the filing.
“Lane was severely injured in the attack, and his wife died during the pendency of the case,” Fibich said yesterday in a phone interview. He declined to comment further on the settlement, citing the confidentiality agreement.
KBR, a Houston-based government contractor, was also sued by the families of seven drivers who were killed in Iraq. The company is appealing a ruling by U.S. District Judge Gray Miller in Houston allowing the suits to go forward. The other claims haven’t been settled, Scott Allen, a lawyer for the families, said yesterday in a phone interview. A KBR representative declined to comment on the settlement, citing a confidentiality agreement.
“Although Halliburton is named in the lawsuit, the activity involved was pursuant to a KBR contract,” Marisol Espinosa, a Halliburton spokeswoman, said in an e-mail. “Defense of this lawsuit is KBR’s responsibility so we cannot comment on the details.”
The case is Lane v. Halliburton, 06-CV-01971, U.S. District Court, Southern District of Texas (Houston).
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Credit-Repair Companies Can Force Arbitration, Court Says
Companies that promise to fix bad credit records can force customers to take disputes to an arbitrator instead of a judge, the U.S. Supreme Court ruled.
The justices, voting 8-1, yesterday said units of CompuCredit Holdings Corp. (CCRT) and Synovus Financial Corp. (SNV) could enforce agreements, signed by customers, that require arbitration of claims stemming from credit cards marketed as a means of rebuilding poor credit. Three customers say the cards’ fees --$257 in the first year alone -- were disclosed only in the fine print of the promotional materials.
The ruling extends prior high court decisions favoring arbitration. The latest case turned on a 1996 law aimed at preventing so-called credit repair companies from ripping off unwary customers. The measure, known as the Credit Repair Organizations Act, says consumers have the “right to sue” companies that violate the law.
The ruling reversed a decision from a San Francisco-based federal appeals court that had let the suit go forward.
The case is CompuCredit v. Greenwood, 10-948, U.S. Supreme Court (Washington).
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Health Management Falls Most in 4 Years as Counsel Resigns
Health Management Associates Inc. (HMA), an operator of acute- care hospitals, fell the most in four years after the company said its general counsel resigned and an analyst raised concerns about an October lawsuit against the company involving Medicare billing.
HMA dropped 22.7 percent to $5.38 at 1:01 p.m. in New York, after earlier declining as much as 31 percent. Timothy Parry will retire immediately as counsel and leave in March, the company said in a filing. MaryAnn Hodge, an HMA spokeswoman, said the change is unrelated to a former employee’s lawsuit.
Sheryl Skolnick, an analyst for CRT Capital Group LLC in Stamford, Connecticut, wrote in a note to investors Jan. 9 about a suit filed by a former HMA employee named Paul Meyer. Meyer, who said he was wrongfully fired after pointing out compliance issues, has “long experience” investigating Medicare fraud, Skolnick wrote.
Meyer said in his complaint that several HMA hospitals had won higher government payments from the Medicare program for the elderly and disabled, in part by “the submission of fraudulent billing to Medicare through the improper admission of patients as inpatients even though such patients clearly did not meet the standards for inpatient admission.”
When Meyer raised concerns of Medicare fraud, the company “treated them seriously and appropriately,” said Susan Toepfer, representing HMA on the case from Stearns, Weaver, Miller, Weissler, Alhadeff & Sitterson in Miami.
Meyer, in the legal papers, said he was fired on the day he told the company he would report violations to the U.S. government. Toepfer said he was fired after refusing to give back documents HMA needed to respond to a federal subpoena.
“This is not a fraud case, it is an individual wrongful termination case,” Toepfer said in a telephone interview.
Toepfer said she didn’t have authorization to say if Parry was working on the case before he resigned. Hodge said she couldn’t comment further on personnel matters or pending litigation.
The case is Meyer v. Health Management Associates Inc., 11- cv-62479-RNS, U.S. District Court, Southern District of Florida (Ft. Lauderdale).
Wilson Sonsini Names Clark, Sheridan as Co-Managing Partners
Wilson Sonsini Goodrich & Rosati the law firm specializing in technology clients, named Douglas Clark and John T. Sheridan as co-managing partners, succeeding Steven E. Bochner.
Clark, who joined the Palo Alto, California-based firm in 1993, served as head of the litigation department for six years. Sheridan has been head of the firm’s business law department for five years. He joined Wilson Sonsini in 1986.
Bochner, who has served as chief executive officer since August 2009, will return full time to his corporate law practice, the firm said yesterday in a statement.
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