(Adds Facebook and Madoff in Lawsuits section, TCF National Bank in Trials and Colonial Bank’s Kissick in Verdicts. Updates J&J in Verdicts section.)
June 20 (Bloomberg) -- Paul Ceglia, who says that a 2003 contract entitles him to half the Facebook Inc. holdings of the company’s co-founder and chief executive officer, Mark Zuckerberg, showed no deception on a polygraph test about his claim last week, his lawyers said in a court filing.
The June 11 test was disclosed in papers filed June 17 by Ceglia’s lawyers opposing Facebook’s request that it be allowed to immediately inspect the original of the alleged contract and the e-mails Ceglia claims he exchanged with Zuckerberg in 2003 and 2004, before being required to turn over any evidence to Ceglia.
“I respectfully suggest that Mark Zuckerberg undergo the same polygraph examination I have in order to expose who is really telling the truth,” Ceglia, 37, said in a sworn statement submitted June 17 to the federal court in Buffalo, New York, where his suit is pending.
In the filing, Ceglia’s lawyers asked the court to order both sides to turn over evidence to determine whether the contract is genuine, including all of Zuckerberg’s documents, e- mails and instant messages relating to Facebook before July 30, 2004. Ceglia asked the court to order both sides into mediation.
Ceglia hasn’t shown the original contract publicly or to representatives of Facebook. The two-page document is in a bank safe-deposit box in Hornell, New York, according to Ceglia’s lawyers.
Ceglia claims he is entitled to a multibillion-dollar stake in Facebook. The closely held company may be worth $69.3 billion, according to Sharespost.com, an online marketplace for investments in companies that aren’t publicly traded. Palo Alto, California-based Facebook runs the world’s biggest social- networking site.
In its June 2 request, Facebook called Ceglia “a hustler” who has engaged in various swindles over the past several years. The company said Ceglia’s claimed contract is “an amateurish forgery” and the e-mails fabricated. Facebook argued it needed to examine the documents immediately to put an end to a fraud on the court.
The case is Ceglia v. Zuckerberg, 1:10-cv-00569, U.S. District Court, Western District of New York (Buffalo).
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SIPC Opposes Bid by Mets Owners to Move Madoff Dispute
The Securities Investor Protection Corp. opposed an effort by the owners of the New York Mets to move a $1 billion lawsuit filed by the trustee liquidating Bernard Madoff’s defunct firm to federal district court from bankruptcy court.
In a filing June 17 in federal court in Manhattan, the SIPC backed the trustee, Irving Picard, who has asked the district court to leave the case to the bankruptcy court. The SIPC argued that the bankruptcy court is better equipped to consider the case and that the Mets owners and a group of related parties willingly submitted themselves to bankruptcy-court jurisdiction by filing claims in that forum.
“The motion is an unwarranted attempt to remove to this court matters within the bankruptcy court’s ‘core’ jurisdiction and competence,” the SIPC argued.
Picard sued Fred Wilpon and Saul Katz, owners of the Mets, seeking the return of $300 million in what he called “fictitious” profit and $700 million in principal taken out of the Madoff firm by Wilpon’s Sterling Equities Inc. and its partners. The Sterling-related parties are trying to have the suit moved to district court and to block Picard’s attempts to collect from them.
Picard and the SIPC claim the Sterling defendants were so dependent on the money they made from Madoff that they turned a blind eye to indications he was running a fraud. The Mets owners claim they were innocent victims of Madoff’s Ponzi scheme.
The bankruptcy court case is Picard v. Katz, 1:10-ap-05287, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
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Debit-Card Swipe-Fee Cap ‘Not Traditional,’ Bank Lawyer Says
A planned cap on the debit-card swipe fees charged to merchants by the biggest U.S. banks is “discriminatory,” a lawyer for one of the affected banks told a U.S. appeals court panel.
Timothy D. Kelly, a lawyer for TCF National Bank, told the St. Louis-based court June 16 that it should reverse a trial judge’s decision denying the bank’s bid to block the cap while the lender challenges its legality. The provision is scheduled to take effect July 21.
The limit on per-transaction charges is part of the Dodd- Frank financial overhaul. Banks with more than $10 billion in assets won’t be allowed to collect more than the cost of providing the service, making profit impossible, TCF claims.
“Below-cost rates and widespread exemptions are not traditional rate regulation,” Kelly told the three-judge panel.
TCF, a Sioux Falls, South Dakota, unit of TCF Financial Corp., sued last year seeking to invalidate the measure, arguing it violates the U.S. Constitution’s promises that the government won’t confiscate private property without just compensation and of equal protection under the law.
The federal government has “unlimited discretion” to regulate the U.S. banking industry, Justice Department lawyer Lindsey Powell told the judges, in defense of the regulation.
The as-yet-unannounced rate is to be fixed by the Federal Reserve. It’s part of a regulatory program intended “to restore to reasonable levels” fees charged to merchants and, through them, to consumers, attorneys for the government argued in appellate filings.
Federal Reserve Chairman Ben S. Bernanke is the lead defendant in the TCF suit, which also names Vice Chairman Janet Yellen, four Fed governors and Acting Comptroller of the Currency John Walsh.
The U.S. central bank in December said it was considering fixing the rate, required by law to be “reasonable and proportional” to the cost of providing the service, at 12 cents per swipe. The Fed hasn’t said when the rate will be announced, Susan Stawick, a spokeswoman, said June 13.
The lower-court case is TCF National Bank v. Bernanke, 10- cv-04149, U.S. District Court, District of South Dakota (Sioux Falls). The appeal is TCF National Bank v. Bernanke, 11-1805, U.S. Court of Appeals for the Eighth Circuit (St. Louis).
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Jiau Jury Begins Deliberations on Insider-Trading Charges
Jurors began deliberations on insider-trading charges against Winifred Jiau, a former Primary Global Research LLC consultant accused of illegally passing nonpublic information to hedge fund managers.
Prosecutors said Jiau used friends at Nvidia Corp. and Marvell Technology Group Ltd., then sold the financial data to Noah Freeman, a former SAC Capital Advisors LP portfolio manager, and Samir Barai, founder of New York-based Barai Capital Management LP. Freeman testified at Jiau’s trial that he and Barai paid $10,000 a month for exclusive access to Jiau.
Jiau, 43, of Fremont, California, is charged in federal court in New York with securities fraud and conspiracy to commit securities fraud. If convicted, she faces as long as 25 years in prison.
She denies the charges. Her lawyer, Joanna Hendon, argued to the jury in closing statements June 16 that while her client did give the men information, the information wasn’t “material,” meaning it wasn’t something a reasonable investor would consider important in trading and wouldn’t have a bearing on the stock price.
Freeman and Jason Pflaum, an analyst who worked for Barai, both are cooperating with the U.S. and testified at the trial. A third man who admitted being part of the scheme, Sonny Nguyen, a former Nvidia financial analyst who was a friend of Jiau’s, testified he passed confidential information about Nvidia’s quarterly earnings once to her in August 2008.
The case is U.S. v. Jiau, 1:11-cr-00161, U.S. District Court, Southern District of New York (Manhattan).
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Ex-WaMu Executives in Settlement Talks With FDIC Over Losses
Former Washington Mutual Inc. Chief Executive Officer Kerry Killinger and Chief Operating Officer Stephen Rotella are in lawsuit settlement talks with the Federal Deposit Insurance Corp., according to a court filing.
Lawyers for Killinger, Rotella and David Schneider, Washington Mutual’s former home-loans president, exchanged term sheets with FDIC attorneys and are “diligently working to resolve their remaining disputes,” according to papers filed yesterday in federal court in Seattle.
“In some instances, the settlement terms must have consent of certain third parties,” lawyers for both sides said.
In September 2008, regulators seized WaMu, once the nation’s biggest savings and loan, and sold it to New York-based JPMorgan Chase & Co. for $1.9 billion. The FDIC sued the bank officials in March, claiming they took extreme risks with WaMu’s home-loans portfolio, causing billions of dollars in losses.
Lawyers for both sides asked the court to extend until July 1 the deadline for the former executives to file their initial response to the complaint, which also names Killinger’s and Rotella’s wives as defendants. A final mediation session is scheduled for June 30, according to court papers.
Bank executives blamed Killinger during hearings before the U.S. Senate last year for ineffective management and lax lending standards. Killinger was CEO for 18 years before he was ousted on Sept. 8, 2008. He told senators last year that his company became the largest bank failure in U.S. history in part because it was excluded from a group of financial institutions favored by U.S. policy makers.
Rotella, who blamed Killinger for failing to institute stricter lending controls, said in a letter to friends in March that the FDIC suit was an abuse of power. A copy of the letter was provided in March to Bloomberg News by Rotella’s spokesman, Daniel Hilley.
Hilley declined to comment June 17 on any potential settlement. David Barr, a spokesman for the FDIC in Washington, also declined to comment on a possible settlement.
Steven Caplow, an attorney for Schneider and the Rotellas, didn’t return a phone call and e-mail seeking comment. David Aufhauser, an attorney for the Killingers, also didn’t return a phone call and e-mail seeking comment.
The case is FDIC v. Killinger, 11-00459, U.S. District Court, Western District of Washington (Seattle).
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Ex-Credit Suisse Broker Butler Likely to Get Same Sentence
Former Credit Suisse Group AG broker Eric Butler is likely to receive the same five-year sentence after a federal appeals court overturned his securities-fraud conviction earlier this week, a judge said June 17.
The U.S. Court of Appeals in New York on June 15 overturned Butler’s securities-fraud conviction, ruling that Brooklyn was the wrong venue for the trial on the charge. The appeals court upheld Butler’s conviction on two conspiracy counts.
The appeals panel said that, because of its decision, Butler will have to be resentenced. In January 2010, U.S. District Judge Jack B. Weinstein sentenced Butler to five years in prison on each count, to be served concurrently. He has been out on bail pending his appeal.
“While the matter is open, it is unlikely that the sentencing terms on Counts One and Three will be changed from five years’ imprisonment, concurrent,” Weinstein said in an order June 17.
Butler and his partner Julian Tzolov were accused of intentionally misleading clients about securities purchased on their behalf, falsely claiming they were backed by federally guaranteed student loans.
The men told clients the investments, actually backed by riskier corporate debt and subprime mortgages, were a safe alternative to bank deposits or money-market funds, according to Lynch’s office. Victims’ losses were more than $1.1 billion, according to the government.
Steven Molo, an attorney representing Butler, didn’t return a message left at his office seeking comment.
The case is U.S. v. Tzolov, 08-cr-370, U.S. District Court, Eastern District of New York (Brooklyn). The appeal is U.S. v. Tzolov, 10-562, 2nd U.S. Circuit Court of Appeals (Manhattan).
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J&J Wins Trial Over Claims Antibiotic Levaquin Caused Injuries
Johnson & Johnson isn’t responsible for a tendon injury sustained by an 84-year-old man and properly warned of the risks posed by its antibiotic Levaquin, a Minneapolis jury decided.
Calvin Christensen, who said he ruptured the Achilles tendon in his right foot after taking the drug while hospitalized for pneumonia, sued the company and its Ortho- McNeil Pharmaceutical unit in 2007. Christensen said the companies downplayed the risks of Levaquin to boost sales of the drug.
Johnson & Johnson denied any failure to warn and contended Christensen needed Levaquin to treat the pneumonia. The Minneapolis federal court jury rejected his claim June 17.
“The jury took a good, hard look at all the evidence and correctly concluded that Ortho-McNeil-Janssen Pharmaceuticals, Inc. acted responsibly and properly in disclosing the risks associated with this effective and life-saving medicine,” James B. Irwin, a lawyer for the company, said in a statement after the verdict.
Christensen’s case is the second of more than 2,500 pending claims in U.S. courts to go to trial over allegations that Levaquin caused tendon damage in patients and that the company failed to adequately disclose the risk. J&J and Ortho-McNeil lost the first trial when a separate Minneapolis jury awarded $1.8 million to an 82-year-old man who ruptured both Achilles tendons.
Ron Goldser, a lawyer for the plaintiff, said in a brief interview that his side is “disappointed.”
The lawsuit is Christensen v. Johnson & Johnson, 07-03960, combined for trial in In re Levaquin Products Liability Litigation, 08-md-01943, U.S. District Court, District of Minnesota (Minneapolis).
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Colonial Bank’s Kissick Sentenced in $2.9 Billion Fraud
A former executive of the defunct Colonial Bank, Catherine Kissick, was sentenced to eight years in prison for her role in a $2.9 billion fraud involving Taylor, Bean & Whitaker Mortgage Corp.
Kissick, 50, whose role in the fraud contributed to the failures of Colonial Bank and Taylor, Bean, was sentenced June 17 by U.S. District Judge Leonie M. Brinkema in Alexandria, Virginia, the U.S. attorney for the district said in an e-mailed statement.
Kissick, who headed the bank’s mortgage warehouse lending division, pleaded guilty in March to one count of conspiracy to commit bank, wire and securities fraud. Co-conspirator Teresa Kelly, a former operations supervisor at Colonial who reported to Kissick, was also sentenced June 17 to three months in prison, prosecutors said.
Lee Farkas, the ex-chairman of Taylor, Bean, on April 20 was found guilty of 14 counts of conspiracy and bank, wire and securities fraud in what prosecutors said at the time was an almost $3 billion scheme involving fake mortgage assets.
Colonial Bank was one of the 25 largest banks in the U.S. and Taylor Bean was one of the largest closely held mortgage lending companies in 2009, according to the statement.
Brooklyn Money Manager Gets 20 Years for Ponzi Scheme
Philip Barry, a money manager from Brooklyn, New York, was sentenced to 20 years in prison for running a $45 million Ponzi scheme that defrauded hundreds of investors over three decades.
Barry, 53, was sentenced June 17 by U.S. District Judge Raymond J. Dearie in Brooklyn. After a one-week trial in November, a jury convicted him on all the counts he faced -- one of securities fraud and 33 of mail fraud.
“I hurt a lot of people,” Barry told Dearie before being sentenced. “I do not wish to hide how bad it was.”
Barry, a resident of the Bay Ridge section of Brooklyn, began accepting money in 1978 from investors, guaranteeing fictional annual profits, according to prosecutors in the office of U.S. Attorney Loretta Lynch. Instead, he used new investors’ money to pay earlier ones, prosecutors said. His fraud is believed to be the longest-lasting Ponzi scheme in U.S. history, they said.
In a separate action, the U.S. Securities and Exchange Commission said Barry diverted some of the investor money to a mail-order pornography business. In April, the SEC asked the court to dismiss a libel suit Barry brought over the accusation.
The criminal case is U.S. v. Barry, 09-cr-0833, the SEC case is Securities and Exchange Commission v. Barry, 09-cv-3860, and Barry’s suit against the SEC is Barry v. SEC, 10-cv-4071, U.S. District Court, Eastern District of New York (Brooklyn).
Imperial Tobacco Says Court Dismisses Vending-Machine Appeal
Imperial Tobacco Group Plc, the maker of Davidoff cigarettes, said one of its units lost an appeal to block a U.K. government ban on sales of tobacco from vending machines.
The Court of Appeal in London upheld June 17 a December ruling rejecting the challenge to parts of the U.K. Health Act 2009, which will ban such sales beginning Oct. 1, Imperial said June 17 in a statement.
“We will be asking the court for permission to appeal the decision to the Supreme Court,” Imperial said in the statement. “If permission to appeal is granted, we have also asked the court to delay implementation of the vending ban until the appeal has been decided.”
The loss for Bristol, England-based Imperial’s Sinclair Collis unit comes as tobacco companies seek to offset declining demand by increasing prices and fighting new regulations. In April 2010, Imperial and competitor British American Tobacco Plc joined retailers seeking court review of a government ban on stores displaying cigarettes, cigars, pipes and rolling tobacco.
Atrium Cuts Ties With Meinl in Billion-Euro Legal Settlement
Atrium European Real Estate Ltd., a developer of shopping malls in eastern Europe, and former affiliate Meinl Bank AG agreed to settle multibillion euro lawsuits against each other.
Atrium, based on the Jersey Channel Island, and Meinl Bank agreed to drop all claims and withdraw all lawsuits against each other, according to separate statements by the two companies. They will also sever all remaining business ties, including Meinl’s role as trustee for several of Atrium’s outstanding bonds. No payments will be made as part of the agreement, they said.
“This settlement will enable Atrium to focus on a forward- looking strategy rather than historical issues,” Atrium said in its statement. “Consistent with the position that each party has taken in cases in which it is a defendant, each party denies that it has engaged in any wrongdoing.”
“This is good news for Atrium,” said Igor Muller, an analyst at Wood & Co. in Prague. “It takes away all potential risks associated with the past of the company and eliminates the pressure that was put on the management.”
Israeli property developer Gazit-Globe Ltd. and Citigroup Inc. took control of Atrium in 2008 after the company, then called Meinl European Land, was investigated for using 1.8 billion euros ($2.6 billion) in 2007 to buy back shares without informing investors in advance. Julius Meinl V, who heads Meinl Bank, was arrested in 2009 over the allegations and released after posting 100 million euros bail.
Last August, Atrium sued Meinl Bank, Julius Meinl and eight other people and companies for 2.1 billion euros in London. Meinl Bank countersued Atrium’s management and shareholders Gazit and Citigroup in November for more than 1.2 billion euros.
Julius Meinl and the other Meinl executives sued by Atrium, as well as Atrium’s management and shareholders Gazit and Citigroup are all part of the settlement, the companies said in their statements.
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Airgas Settles Suit Against Cravath Swaine Over Air Products
Airgas Inc. said it settled a lawsuit accusing Cravath Swaine & Moore LLP of having access to confidential information while helping rival Air Products & Chemicals Inc. prepare a failed takeover offer.
Airgas, the Radnor, Pennsylvania-based distributor of industrial gases, sued Cravath in state court in Philadelphia in February 2010 claiming the New York firm violated state ethics rules prohibiting conflicts of interest. The case, which sought to bar Cravath from representing Air Products, was later transferred to federal court.
“The lawsuit has been dismissed by agreement of the parties,” Airgas said June 17 in a statement. “The terms of the settlement are confidential.”
Cravath served as Airgas’s legal counsel in at least 25 financing deals from 2001 to October 2009 when it notified the company it could no longer continue in that role because of a conflict.
Air Products pursued Airgas beginning in February 2010 before dropping its $5.9 billion hostile bid a year later after a Delaware judge upheld the company’s anti-takeover defense.
Robin Shanzer, a spokeswoman for Cravath, didn’t return a phone call seeking comment.
The case is Airgas Inc. v. Cravath, Swaine & Moore LLP, 10- 612, U.S. District Court, Eastern District of Pennsylvania (Philadelphia).
U.S. Lawyer Fighting Boeing Says He Regrets Causing Job Fears
The U.S. lawyer who filed a labor complaint against Boeing Co. over a nonunion plant the aerospace company opened in South Carolina said he regrets the fear the dispute has caused workers there about their jobs.
“These are difficult economic times, and I truly regret the anxiety this case has caused them and their families,” Lafe Solomon, acting general counsel of the National Labor Relations Board, said in testimony at a congressional hearing June 17 in the state. “The issuance of the complaint was not intended to harm the workers of South Carolina but rather to protect the rights of workers.”
The NLRB said in the April 20 complaint that Boeing built the nonunion assembly plant for its new 787 Dreamliner in North Charleston, South Carolina, in retaliation for work stoppages by unions at its Seattle-area production hub. Republicans who lead the House Oversight and Government Reform Committee called the June 17 hearing in North Charleston to examine what they called the NLRB’s “unionization through regulation.”
Boeing, the world’s largest aerospace company, should be required to build an additional 787 assembly line in Washington state as a remedy, according to Solomon. A hearing on the complaint began June 14 in Seattle before an administrative law judge, who urged the Chicago-based company and the Machinists union to settle their differences.
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Bear Stearns Loan Suit Most Popular Docket on Bloomberg
A lawsuit by Syncora Guarantee Inc. alleging that J.P. Morgan Securities LLC, formerly Bear, Stearns & Co., made false and misleading statements about loans pooled into a 2007 mortgage-backed securities transaction was the most-read litigation docket on the Bloomberg Law system last week.
The transaction, known as GreenPoint Mortgage Funding Trust 2007-HE1 and insured by Syncora, resulted in more than $168.6 million in unreimbursed insurance claims after about two years, according to the complaint, filed June 6 in New York state Supreme Court in Manhattan.
The case is Syncora Guarantee Inc. v. J.P. Morgan Securities LLC, 651566/2011, New York state Supreme Court (Manhattan).
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--With assistance from Erik Larson in London; Bob Van Voris, Patricia Hurtado, Linda Sandler, Karen Freifeld, Chris Dolmetsch and Thom Weidlich in New York; Sophia Pearson in Wilmington, Delaware; Holly Rosenkrantz in North Charleston, South Carolina; Stephanie Armour in Washington; Margaret Cronin Fisk in Southfield, Michigan; Beth Hawkins in Minneapolis; Andrew Harris in St. Louis; and Boris Groendahl in Vienna. Editor: Glenn Holdcraft.
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