Bloomberg News

Reserve, Monsanto, Visa, Chrysler, Ford in Court News

May 06, 2009

Managers of the Reserve Primary Fund (RPFXX:US), the $62.5 billion money-market fund whose collapse set off an industrywide run by investors, committed fraud by failing to provide key material facts to investors and trustees, the U.S. Securities and Exchange Commission said in a complaint.

The complaint names Reserve Management Co., founder and Chief Executive Officer Bruce R. Bent and his son, President Bruce R. Bent II. The complaint, filed yesterday in federal court in Manhattan, also seeks to expedite the distribution to shareholders of the fund’s remaining $4.8 billion in assets.

Reserve Primary, run by New York-based Reserve Management, on Sept. 16 became only the second money-market mutual fund to drop below $1 a share, known as breaking the buck, after suffering losses on debt issued by bankrupt Lehman Brothers Holdings Inc.

To read more of this story, click here.

Visa Seeks $98 Million in New Lawsuit Against Reserve Fund

The U.S. unit of Visa Inc. (V:US), the world’s largest electronic- payments network, sued the Reserve Fund for $98 million, saying the money-market firm is wrongly withholding a portion of its $982 million redemption request.

The breach-of-contract lawsuit was filed yesterday in Manhattan federal court. San Francisco-based Visa says it tendered a redemption request to the Reserve Fund on Sept. 15 that’s only been partially honored.

“As of today -- more than seven months later -- defendants still hold more than $97 million of Visa’s money along with dividends of over a million dollars,” the complaint says.

The U.S. Reserve Primary Fund (RFIXX:US) broke the buck last year and subsequently collapsed. The fund is retaining $4.8 billion of investors’ money, the Wall Street Journal reported in April.

Visa also complained about a “distribution plan” proposed by the Reserve Fund that will return only 91.72 cents per $1 share, with the 8.28 cents remaining in a “special reserve” to pay liabilities and fees. That might cost Visa more than $82 million, according to the complaint.

The case is Visa v. The Reserve Fund, 09-cv-4331, U.S. District Court, Southern District of New York (Manhattan).

Monsanto Sues DuPont to Stop Use of Roundup Genes

Monsanto Co. (MON:US), the world’s biggest seed maker, sued DuPont Co. (DD:US) to prevent it from combining Monsanto genetic traits with its own to produce Roundup herbicide-resistant corn and soybean seeds.

DuPont is violating Monsanto’s U.S. contract rights and patents by using the Roundup Ready trait with DuPont’s genetics, Monsanto said yesterday. Monsanto is seeking to stop DuPont from infringing its Roundup Ready patent and to terminate the soybean license agreement, according to the lawsuit filed May 4 in federal court in St. Louis, where Monsanto is based.

DuPont since 2005 has said its so-called GAT technology would be an alternative to Roundup Ready crops, which are unaffected by glyphosate herbicides. Monsanto said last month the companies were in dispute resolution over DuPont’s plan to combine Roundup Ready technology with DuPont genetics in Optimum GAT soybeans, which won U.S. regulatory approval last year.

“As the saying goes, imitation is the sincerest form of flattery,” Monsanto Chief Executive Officer Hugh Grant said yesterday in a statement. “However, unlawfully taking technology is neither imitation nor flattery. It is unethical and wrong.”

DuPont, the No. 2 seedmaker, said Monsanto is trying to stifle competition at the expense of improved crop yields for farmers. Companies should be allowed to combine genetic traits in their seeds “without restrictions imposed by trait providers,” DuPont said in an e-mailed statement.

To read more of this story, click here.

SEC’s First Swap Case Targets Deutsche Bank Salesman

U.S. regulators filed their first insider-trading case focusing on credit-default swaps, suing a Deutsche Bank AG salesman who allegedly tipped a hedge-fund portfolio manager to a bond sale in 2006.

Jon-Paul Rorech, 36, a bond and credit-default swap salesman at Deutsche Bank Securities, passed information on the pending sale to former Millennium Partners LP money manager Renato Negrin, 45, who then bought swaps to reap a $1.2 million profit when the deal was announced, the Securities and Exchange Commission said in a statement yesterday. The agency wants them to forfeit “unlawful trading profits” and pay unspecified fines.

The agency’s complaint at federal court in Manhattan doesn’t accuse Frankfurt-based Deutsche Bank or New York-based Millennium of wrongdoing. Millennium, which manages about $11 billion, has agreed to set profits in escrow until the suit is resolved, the regulator said.

“We have a zero-tolerance policy toward insider trading and Millennium requires every employee to certify annually that they are aware of and in compliance with our policies,” firm founder Israel Englander said in a statement yesterday.

Deutsche Bank spokesman Ted Meyer didn’t respond to a request for comment.

Rorech’s lawyer, Richard Strassberg of Goodwin Procter LLP in New York, said his client denies the SEC claims.

Negrin “flatly denies the charges, and he intends to contest them,” said his lawyer, Lawrence Iason of Morvillo, Abramowitz, Grand, Iason, Anello & Bohrer PC in New York. “We are confident he will be vindicated.”

To read more of this story, click here.

Unilever Sued Over SuperShots Claims on Blood Pressure Benefits

The U.S. unit of Unilever NV, the world’s second-largest consumer-products company, was sued by a Texas man who claims its fruit blend drinks known as Promise SuperShots make misleading claims about health benefits.

The drinks, packaged in small “shot” sized plastic bottles, falsely claim their 350 milligrams of potassium help consumers control blood pressure and flush sodium from their bodies, according to the lawsuit filed May 1 in federal court in Newark, New Jersey.

“SuperShots do not help control blood pressure or flush sodium one shot at a time,” James Slaughter of Poteet, Texas, said in the complaint, which seeks group, or class-action, status. “Moreover, SuperShots have not been subjected to clinical trials of any kind.”

Unilever, based in London and Rotterdam, sells brands including Hellmann’s, Ben & Jerry’s, Wishbone, Lipton and Slim- Fast. Its U.S. unit is based in Englewood Cliffs, New Jersey. A spokeswoman for Unilever United States Inc. didn’t return a call seeking comment.

The complaint claims Unilever violated New Jersey’s Consumer Fraud Act and breached implied and express warranties. It seeks unspecified compensatory damages.

The case is James Slaughter v. Unilever United States Inc., 09-cv-2072, U.S. District Court, District of New Jersey (Newark).

To read more of this story, click here.

For more new suits news from yesterday, click here. For copies of recent civil complaints, click here.

Lawsuits/Pretrial

Chrysler Dissidents Must Reveal Their Identities, Judge Says

Chrysler LLC dissident lenders must reveal their identities by 10:00 a.m. today, a bankruptcy judge ruled, rejecting claims that their safety was at risk.

U.S. Bankruptcy Judge Arthur Gonzalez in New York forced the group to file a list of its members publicly, denying their request to reveal their identities only to the bankruptcy court. Gonzalez said the lenders have no evidence that keeping their identities private would help protect them. The group seeks to block an auction of most company assets to an entity managed by Fiat SpA, an outcome Chrysler said would force it to liquidate, costing thousands of jobs.

Thomas Lauria, a lawyer for the dissidents, told Gonzalez yesterday that the group has been exposed to “undue reputational damage, and threats of violence.” He said criticism of the group was exceptional, because it came from U.S. President Barack Obama.

Gonzalez said criticism is inherent in any bankruptcy, and Obama shouldn’t be singled out as an exceptional party given the government’s involvement with Chrysler.

Robert W. Hamilton, a lawyer for Chrysler, said the threats couldn’t be taken seriously, as they were postings on an Internet message board affiliated with the Washington Post.

The case is In re. Chrysler LLC, 09-50002, U.S. Bankruptcy Court, Southern District of New York (Manhattan)

To read more of this story, click here.

Danny Pang Asks Court to Unfreeze Assets in SEC Case

Danny Pang, the financier who the U.S. government claims defrauded Taiwanese investors, asked a judge to unfreeze his assets, saying the accusation is based on an unreliable former employee.

The Securities and Exchange Commission sued on April 24 and asked a court to freeze assets of Pang and his Private Equity Management Group Inc. The request was based on uncorroborated statements by a competitor who was fired in 2007, Pang said yesterday in court documents in Los Angeles.

Regulators obtained an emergency order April 27, saying Pang and PEMGroup paid existing investors with funds raised from new ones and claimed the returns came from investments in life insurance policies. Pang, 42, was also charged by prosecutors with trying to evade transaction-reporting laws. He denied the accusations through his attorney.

“Mr. Pang looks forward to having the court understand the real facts here, including the fact that PEMGroup was, and is, a real business with hundreds of millions of dollars in assets, and that has never missed a payment to investors,” his lawyer, David Schindler, said yesterday in an e-mailed statement.

Todd Brilliant, an SEC spokesman in Los Angeles, didn’t return a call to his office. PEMGroup is based in Irvine, California.

The case is SEC v. Private Equity Management Group Inc., 09-02901, U.S. District Court, Central District of California (Los Angeles.)

Monsanto Loses Bid to Lift German Ban on Altered Corn

Monsanto Co. (MON:US), the world’s largest seed producer, lost an emergency court request to lift a German ban on genetically modified corn.

Germany’s prohibition on a strain of genetically modified corn made by Monsanto was justified because “a preliminary assessment” showed the plant raises a potential danger, the Braunschweig Administrative Court said in an e-mailed statement yesterday.

The law doesn’t require “a scientific finding that shows a danger for the environment beyond doubt,” the court said in its ruling. “It’s enough that new or additional information indicates that humans or animals may be hurt.”

Germany joined a widening European prohibition on genetically modified crops that may lead U.S. trade officials to retaliate. The ban applies to Monsanto’s MON810, a pest- resistant corn variety, that’s already forbidden in France, Austria, Hungary, Greece and Luxembourg, German Agriculture Minister Ilse Aigner said April 14.

“We will analyze the ruling and then decide on whether to appeal,” Andreas Thierfelder, Monsanto’s director of public affairs in Germany, said in an interview.

The ruling is preliminary and the judges will further examine the case before issuing a final verdict, the court said. No date for a hearing or a final decision has been set.

Yesterday’s ruling is VG Braunschweig, 2 B 111/09. The full case is VG Braunschweig, 2 A 110/09.

Chrysler Non-TARP Lenders Say Auction Plan Is Unfair

Chrysler LLC’s plan to auction most of its assets to an entity managed by Fiat SpA is unfair because it prevents creditors from using their claims to make a non-cash bid, a group of secured lenders told a bankruptcy judge.

The group, calling itself Chrysler’s non-TARP lenders, in reference to the Troubled Assets Relief Program, said the proposed auction chills bids from other parties and would prevent a so-called credit bid from its group.

Under a credit bid, parties use debt to buy a company. The group also seeks to block the proposed sale to an alliance led by Fiat, as well as a request by the U.S. automaker for approval of a $4.5 billion Treasury loan to finance the reorganization.

The group also objected to rules that would require all competing bids be subject to the same terms as the proposed transaction with the government and Fiat. Because bids need to be made in a week under the proposed timeline, there isn’t enough time for parties to do the due diligence required for a competing bid.

The group has pitted itself against secured lenders that agreed to the Fiat deal, including JPMorgan Chase & Co. (JPM:US), Citigroup Inc. (C:US), Morgan Stanley and Goldman Sachs Group Inc. (GS:US), saying they had conflicts of interest because they had also accepted TARP funds.

The case is In re. Chrysler LLC, 09-50002, U.S. Bankruptcy Court, Southern District of New York (Manhattan)

To read more of this story, click here.

For more lawsuits news from yesterday, click here.

Trials/Appeals

Janus Capital CEO Black Admits Deal Broke Promise to Managers

Janus Capital Group Inc (JNS:US).’s chief executive officer acknowledged that a side deal he struck with one of the firm’s star portfolio managers broke a promise to give all fund overseers equal contract protections.

Gary Black testified yesterday that the Denver-based investment firm’s officials decided in 2005 to give a secret deal to Scott Schoelzel, head of Janus’s top-rated Twenty Fund at the time. They earlier had promised Janus’s 20 other fund managers that all of their compensation agreements would have the same protections.

“We made a business decision to give Scott a special plan,” Black said during the trial of a lawsuit filed by Edward Keely, an ex-Janus fund manager. Black said Janus officials felt they had to reward Schoelzel, recognized as one of the U.S.’s top stock pickers, because he was a “franchise player.”

Black, 49, was Janus’s chief investment officer before becoming CEO in January 2006. The trial is throwing a spotlight on Black’s move in 2004 to curtail the power of individual fund managers in favor of team-based investing and altering of compensation agreements.

Black, a former investment chief at Goldman Sachs Asset Management’s global-equities business, in 2004 arrived at company that had been battered by the collapse of technology stocks and the mutual-fund trading scandal of 2003.

The case is Edward Keely v. Janus Management Holdings Corp., 07-07366, Colorado District Court (Denver).

To read more of this story, click here.

Perelman Asks Florida Court to Revive Morgan Stanley Case

Financier Ronald Perelman urged a Florida court to revive an almost $1.6 billion case against Morgan Stanley (MS:US) over the sale of Coleman Co. (370044Q:US) to one of the investment bank’s clients.

Lawyers for Perelman, who controls cosmetics maker Revlon Inc. (REV:US), yesterday asked Florida’s 4th District Court of Appeal to let him probe whether Morgan Stanley’s destruction of e-mails about the 1998 sale warrants a new trial.

The case is Coleman Holdings Inc. v. Morgan Stanley Inc., 4D08-4022, District Court of Appeal, Fourth District of Florida (West Palm Beach).

To read more of this story, click here.

For more trial and appeals news from yesterday, click here.

Verdicts/Settlements

Ex-Day Trader Pleads Guilty in Insider Trading Case

A former day trader, Jamil Bouchareb, pleaded guilty to federal charges that he traded on stock tips gleaned from the wife of a former Lehman Brothers Holdings Inc. (LEHMQ:US) salesman.

Bouchareb, 27, entered his plea yesterday to conspiracy and securities fraud in federal court in Manhattan. He faces as long as 46 months in prison when he’s sentenced. He also agreed to forfeit $1.58 million.

Along with Bouchareb, federal prosecutors in December charged Matthew Devlin, a former Lehman salesman, with insider trading for stealing information from his wife, a Brunswick Group public-relations executive involved in corporate deals. Nina Devlin, who wasn’t accused of wrongdoing, was suspended from her job after her husband’s arrest.

“There was a point when I realized some of the information was coming from his spouse,” Bouchareb told U.S. Magistrate Judge Debra Freeman, who accepted the plea. “She was in public relations.”

Assistant U.S. Attorney Reed Brodsky said he wasn’t sure whether the guilty plea was legally sufficient because Bouchareb may not have acknowledged the full extent of his crime. Brodsky said he may oppose the plea when a district judge is asked to formally accept it.

People trading on the tips reaped more than $4.8 million on illegal transactions from March 2004 to July 2008, according to a related civil case brought by the U.S. Securities and Exchange Commission.

The case is U.S. v. Bouchareb, 08-mj-2777, U.S. District Judge, Southern District of New York (Manhattan).

Ford Settles Lawsuit After $40 Million Jury Verdict

Ford Motor Co. (F:US), the second-largest U.S. automaker, reached a confidential settlement with a 27-year-old woman who was awarded $40 million last week by a Georgia jury, the company said.

Jessica Mundy claimed the transmission in her 2004 Ford Explorer was defective and inadvertently shifted into reverse after she placed it in park. The Explorer accelerated backward after she left the vehicle and ran over her, leaving her paraplegic, said her attorney, Jeff Harris.

A state court jury in Decatur, Georgia, awarded Mundy and her husband $40 million, including $30.7 million in punitive damages, Harris said. The jury on April 29 found Mundy 20 percent at fault for the accident. Ford (F:US) has settled the suit while denying any defect or wrongdoing, said Kristen Kinley, a company spokesman.

The case is Mundy v. Ford, 07A74503-2, State Court, DeKalb County, Georgia (Decatur).

To read more of this story, click here.

Asiana Pleads Guilty to Price Fixing, to Pay $50 Million Fine

Asiana Airlines Inc., South Korea’s second-largest carrier, pleaded guilty to conspiring to fix international cargo rates and passenger fares and will pay a $50 million fine.

U.S. District Judge John D. Bates accepted the plea at a hearing yesterday in Washington. The company had faced a fine of as much as $339 million under U.S. law, though the judge said he agreed the lesser amount, paid in installments, is required to prevent Asiana from “compromising its financial viability.”

Asiana, Cargolux Airlines International SA and Nippon Cargo Airlines Co. agreed last month to plead guilty and pay a combined $214 million in criminal fines for conspiring to fix prices. Cargolux and Nippon Cargo will be sentenced before Bates later this month.

The case is U.S. v. Asiana Airlines Inc., 09-cr-99, U.S. District Court, District of Columbia (Washington).

WellCare Health Enters Into Deferred Prosecution Agreement

WellCare Health Plans Inc. (WCG:US) said it will pay $80 million and hire an outside monitor to avoid prosecution on a U.S. conspiracy charge involving health-care programs for the young and poor in Florida.

The U.S. Attorney for the Middle District of Florida filed a one-count criminal information against the Tampa-based company alleging conspiracy to commit health-care fraud, WellCare said yesterday in a statement. If the company follows what is known as a deferred prosecution agreement, the U.S. Attorney will seek dismissal, according to the statement.

The charge concerns the Florida Medicaid and Healthy Kids programs, according to the statement. The agreement settles an investigation that became public in October 2007 when the FBI and Florida authorities raided company headquarters. Under the agreement, the independent monitor chosen by the U.S. Attorney will be retained for 18 months.

To read more of this story, click here.

For more verdict and settlement news from yesterday, click here.

Litigation Departments

Schumer Recommends Lynch for Brooklyn U.S. Attorney

Loretta Lynch, who led the U.S. Attorney’s Office in Brooklyn as U.S. Attorney from 1999 to 2001 during the administration of President Bill Clinton, was recommended to return to that post by Senator Charles Schumer of New York.

Schumer announced his recommendation yesterday in a statement. Lynch’s jurisdiction would include the New York City boroughs of Brooklyn, Queens and Staten Island, as well as the two suburban Long Island counties of Nassau and Suffolk.

Lynch, a graduate of Harvard College and Harvard Law School, is a partner in the New York office of the Washington- based law firm Hogan & Hartson.

For more litigation department news from yesterday, click here.

On the Docket

Morgan Stanley Indicted Bankers Trial Set for Sept. 28

Five current and former employees of Morgan Stanley were indicted and ordered to stand trial in connection with the 2003 bankruptcy of dairy company Parmalat SpA, Ansa news service reported, without saying where it got the information.

Judge Maria Cristina Sarli set a trial date of Sept. 28, Ansa said. Switchboard operators at the Parma courthouse and the prosecutor’s office said officials weren’t available for comment. A spokesman for Morgan Stanley declined to comment.

Parmalat went bankrupt in December 2003 after revealing that a 3.95 billion euro ($5.3 billion) account at Bank of America didn’t exist, saying that documents certifying the account were falsified.

To contact the reporter on this story: Elizabeth Amon in Brooklyn, New York, at eamon2@bloomberg.net.

To contact the editor responsible for this story: David E. Rovella at drovella@bloomberg.net.


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