Bloomberg News

WaMu, BNP Paribas, JPMorgan, Deutsche Bank in Court News

July 06, 2011

(Adds WaMu in top section, Yahoo in New Suits, JPMorgan in Lawsuits and Primary Global in Verdicts. Updates Argentine-Bond Holders in Verdicts.)

July 6 (Bloomberg) -- Ex-Washington Mutual Inc. Chief Executive Officer Kerry Killinger and two other former bank officials ended talks with the Federal Deposit Insurance Corp. on settling a lawsuit, a lawyer said.

Killinger, former Chief Operating Officer Stephen Rotella and David Schneider, the bank’s former home-loans president, asked a judge to dismiss the FDIC’s suit after the negotiations failed, according to Barry Ostrager, a lawyer for Rotella and Schneider.

“There are presently no settlement discussions and the defendants stand on their motions to dismiss,” Ostrager said yesterday in an e-mail, referring to all three defendants.

In 2008, regulators seized Seattle-based Washington Mutual Bank, 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 Washington Mutual Inc. officials in March, claiming they took extreme risks with the bank unit’s home-loans portfolio, causing billions of dollars in losses. The FDIC accused the executives of disregarding the bank’s long-term safety and fixating on rewarding themselves. The men received more than $95 million in compensation from January 2005 to September 2008, the FDIC said.

The settlement negotiations were revealed in a June 16 court filing, when both sides said they were “diligently working” to resolve remaining disputes. Lawyers said in some instances the settlement terms required the approval of third parties.

“The FDIC is essentially suing my clients for making business decisions that were fully disclosed, monitored, approved and transparent to the FDIC,” Ostrager said in the e- mail. “There is no legal basis for seeking to retroactively impose financial liability upon bank executives for making business decisions of a type that were common and unobjectionable at the time.”

Barry Kaplan, a lawyer representing Killinger, confirmed that the settlement negotiations have “not succeeded at this point,” and declined to comment further.

David Barr, an FDIC spokesman, said the agency declined to comment.

The case is FDIC v. Killinger, 11-00459, U.S. District Court, Western District of Washington (Seattle).

Trials/Appeals

Greek Bailout Was ‘Unavoidable,’ Schaeuble Tells Top Court

German Finance Minister Wolfgang Schaeuble told a German court that euro-area governments had no other option than to bail out Greece and set up a wider euro-rescue fund to stem contagion.

Many analysts fear that an uncontrolled Greek default would be more dramatic than the 2008 financial crisis, Schaeuble said at a hearing at the Federal Constitutional Court in Karlsruhe, Germany, yesterday. The court is hearing three challenges to German participation in the multi-billion-euro rescue packages.

While European leaders work on additional steps to avoid a Greek default, the court is reviewing two packages from May of last year. The cases target Germany’s share of the 110 billion euros ($159 billion) in loans for Greece from euro-region governments and the International Monetary Fund as well a separate 750 billion-euro rescue fund that sought to halt the spread of Greece’s debt crisis.

“A stable currency is the pillar of economic welfare in Europe,” Schaeuble said, defending the government position at the court. “It’s also important for global economic stability, where the euro is already a sought-after reserve currency.”

Germany, as Europe’s largest economy, is the biggest contributor to the euro-region bailouts.

The cases were filed by academics and a lawmaker who have unsuccessfully turned to the court before to try to block Germany’s participation in parts of European Union integration.

The euro-region action violated fundamental EU treaty rules including the prohibition to pay other member states’ debts as well as a ban on central banks financing governments, law professor Dieter Murswiek said in his opening address to the court. He represents lawmaker Peter Gauweiler, a member of Chancellor Angela Merkel’s Christian Democratic bloc, who is one of the plaintiffs in the case.

The court is expected to take several months before it will issue a ruling.

The cases are BVerfG, 2 BvR 987/10, 2 BvR 1099/10 and 2 BvR 1485/10.

For more, click here.

BNP Paribas Sued by Client Claiming Unlawful Transactions

A client of BNP Paribas Wealth Management claimed in a Singapore court yesterday that the unit of Europe’s largest bank by assets made unauthorized trades that led to a S$1.1 million ($898,000) shortfall in his account.

Nitine Jantilal, a BNP client since 2002, is asking the bank to account for the loss in his account, which fell to S$4.2 million in July 2009, said his lawyer, T. Kulasingam Sureshan. Jantilal didn’t know about some transactions carried out by the bank or authorize certain withdrawals, Sureshan said.

“The primary complaint is about the unlawful withdrawals from the accounts,” Sureshan told Singapore High Court Justice Choo Han Teck at the start of an eight-day trial.

BNP Paribas denies wrongdoing and was authorized to carry out the trades in question, K. Muralidharan Pillai, a lawyer for the bank, said in court.

The case is Nitine Jantilal v. BNP Paribas Wealth Management S1048/2009 in the Singapore High Court.

Airline Groups Attack EU’s Carbon Curbs at Bloc’s Top Court

International airlines said European Union plans to make carriers comply with emission curbs constitute an illegal levy that will undermine efforts to fight climate change.

The International Air Transport Association told a hearing at the EU Court of Justice in Luxembourg that carriers oppose on several grounds “unilateral action” that extends the EU carbon market to all flights that depart from or arrive at an airport in the region.

The EU plan “is not the right way to reduce international airline emissions, nor is it lawful,” said Conor Quigley, a lawyer for the International Air Transport Association and the National Airlines Council of Canada. Their members account for about 93 percent of international flights.

United Continental Holdings Inc., AMR Corp.’s American Airlines and the Air Transport Association of America are leading the court challenge against the EU’s first attempt to extend the world’s largest carbon cap-and-trade program beyond its borders. The EU’s move, which follows a doubling of airline discharges in Europe over two decades, is a “practical example” of necessary action to prevent global warming, EU Climate Commissioner Connie Hedegaard said last month.

The carriers claim the plan violates international law, the Kyoto Protocol, an EU-U.S. Open Skies Agreement and the Convention on International Civil Aviation, the so-called Chicago Convention.

“The only way of ensuring a coherent framework for reducing emissions from aircraft is through multilateral agreement, rather than through unilateral and piecemeal regulation, which can only lead to chaos at the international level,” Derrick Wyatt, a lawyer for the ATA and its member airlines, told a 13-judge panel of the court yesterday.

Advocate General Juliane Kokott said she will deliver a non-binding opinion on the case on Oct. 6.

The case is C-366/10, The Air Transport Association of America v. The Secretary of State for Energy and Climate Change.

For more, click here.

For the latest trial and appeals news, click here.

New Suits

Strauss-Kahn Accused of Attempted Rape in Writer Complaint

A French novelist filed an attempted rape complaint against Dominique Strauss-Kahn, saying the former International Monetary Fund chief assaulted her in 2003 when she tried to interview him.

The criminal complaint was mailed to the Paris prosecutor yesterday, said David Koubbi, a lawyer for Tristane Banon, the writer.

“We are waiting from news from the prosecutor,” Koubbi said in an interview yesterday.

Strauss-Kahn, 62, stepped down from the IMF after being charged with sexually assaulting a maid at a New York hotel in May. He was released from home confinement and had his bail returned as local prosecutors uncovered evidence the 32-year-old woman had lied about key aspects of her life.

Banon’s allegations are “imaginary” and her “complaint arises quite opportunistically,” given that “the deceitful nature of the accusations he faces in the U.S. is no longer in any doubt,” according to an e-mailed statement from Strauss- Kahn’s French lawyers, Frederique Baulieu and Henri Leclerc. They are preparing a slander complaint against Banon at Strauss- Kahn’s request, they said.

For more, click here.

InnerWorkings Sues Yahoo in Illinois Court Over Defamation

InnerWorkings Inc. sued Yahoo! Inc. claiming the search- engine provider erroneously undervalued its earnings, depressing the stock price.

Yahoo’s finance website has said since March that InnerWorkings’ earnings before interest, taxes, depreciation and amortization, or Ebitda, for the past 12 months is $20.9 million, or about $5 million less than the actual amount, InnerWorkings said in the lawsuit filed yesterday in Illinois state court in Chicago.

The error results in an unfavorable “enterprise value to Ebitda ratio,” according to the complaint. Yahoo, based in Sunnyvale, California, arrives at that figure by dividing the market value by the Ebitda, while factoring in debt, minority interests and other variables, InnerWorkings said.

“The Yahoo! finance posting of this Ebitda information on InnerWorkings Inc. is a false and defamatory statement” that resulted in the shares being undervalued, according to the complaint.

Dana Lengkeek, a spokeswoman for Yahoo, didn’t return a call seeking comment.

The case is InnerWorkings v. Yahoo, 2011L006923, Illinois County Department, Circuit of Cook County (Chicago).

Standard Chartered Sued in Singapore Over Madoff ‘Feeder Fund’

Standard Chartered Bank Plc was sued by two groups of Dubai-based investors in Singapore claiming they lost $10 million after being misled into investing in funds that channeled money to Ponzi scheme operator Bernard L. Madoff.

American Express Bank Ltd., which has since been acquired by Standard Chartered, had misrepresented Fairfield Sentry Ltd. as an “extremely stable” investment, the investors said in two lawsuits filed with the Singapore High Court. The bank also claimed it performed “extensive due diligence” on Fairfield, a so-called feeder fund in Madoff’s Ponzi scheme, according to court papers submitted by the investors.

The two groups of former clients were experienced investors who knew of the risks involved, Standard Chartered said in filings on June 27. The London-based bank denied misleading the investors and wasn’t responsible for their investment decisions, it said in the filing.

Ally Lim, a Singapore-based spokeswoman at Standard Chartered, declined to comment, as did Niru Pillai, the lawyer representing both groups of investors.

The first group of seven investors is claiming $5.34 million from the bank while the second group of 17 is seeking $4.75 million, according to their lawsuits.

The cases are Tradewaves Ltd. v Standard Chartered Bank S337/2011 and Jitendra Gopaldas Bhatia v Standard Chartered Bank S338/2011 in the Singapore High Court.

For the latest new suits news, click here.

Lawsuits/Pre-trial

JPMorgan, Customers at Impasse in Overdraft Fee Accord Talks

JPMorgan Chase & Co. and consumers who sued the bank over claims of excessive overdraft fees have reached an impasse in settlement talks, a mediator said.

Two mediation sessions held between the company and the plaintiffs’ committee on March 17 and June 28 failed, the mediator, Thomas E. Scott, said July 1 in a report filed in federal court in Miami.

“Following the second effort, the undersigned has decided to declare an impasse at this time,” according to the document signed by Scott.

Consumers sued accusing JPMorgan and more than a dozen other banks of illegally charging excessive fees for overdrafts. Bank of America Corp., the largest U.S. lender by assets, agreed to pay $410 million in February to settle the lawsuits against it. The bank didn’t admit any liability in the cases.

Los Angeles resident Andrea Luquetta sued JPMorgan in 2009 claiming the bank’s overdraft fees were excessive, unfair and deceptive. The suit named JPMorgan and Washington Mutual Bank Inc., which JPMorgan acquired in 2008. The case is now part of multidistrict litigation in the Miami court.

Thomas Kelly, a JPMorgan spokesman, declined to comment on the report. Jeremy W. Alters, a plaintiffs’ attorney, didn’t reply to phone and e-mail messages seeking comment.

The case is In Re: Checking Account Overdraft Litigation, 1:09-md-02036, U.S. District Court, Southern District of Florida (Miami).

For copies of recent civil complaints, click here. For the latest lawsuits news, click here.

Verdicts/Settlement

Ex-Primary Global Consultant Pleads Guilty in Insider Case

Walter Shimoon, the former Primary Global Research LLC consultant charged in a nationwide probe of insider trading, pleaded guilty to conspiracy and securities fraud.

Shimoon faces as many as 30 years in prison at his sentencing, scheduled for July 8, 2013 before U.S. District Judge Jed Rakoff in Manhattan federal court. Shimoon’s court date was delayed until then because he is cooperating with prosecutors.

Shimoon told Rakoff yesterday that he made a total of $45,500 for passing inside information to the hedge fund clients of two expert research firms. He pleaded guilty to two counts of conspiracy and one count of securities fraud.

In a parallel lawsuit, the U.S. Securities and Exchange Commission alleged Shimoon spoke with people from at least 11 hedge funds over 14 months and leaked stock tips to some of them.

Shimoon, a former Flextronics International Ltd. manager, was arrested in December with three other defendants and charged with conspiracy and wire fraud.

“I knew that it was material, non-public information that I possessed only because of my employment by Flextronics,” Shimoon told Rakoff.

Also charged with Shimoon were former Primary Global executive James Fleishman; Mark Anthony Longoria, who worked at Advanced Micro Devices Inc.; and Manosha Karunatilaka, a former account manager at Taiwan Semiconductor Manufacturing Co.

Longoria and Karunatilaka have pleaded guilty. Fleishman is scheduled to be tried next month on two counts of conspiracy.

Winifred Jiau, a former Primary Global consultant, was convicted of securities fraud and conspiracy June 20 in Manhattan federal court.

The case is U.S. v. Shimoon, 10-mj-2823, U.S. District Court, Southern District of New York (Manhattan).

Argentine-Bond Holders Can’t Seize Assets, Court Rules

Bondholders with judgments against Argentina can’t seize $105 million of Argentine central bank assets held at the Federal Reserve Bank of New York, a federal appeals court ruled.

A three-judge panel in New York ruled yesterday that the Foreign Sovereign Immunities Act bars NML Capital Ltd. and EM Ltd., which hold $2.4 billion in judgments against Argentina, from collecting funds belonging to the Banco Central de la Republica Argentina.

The decision overturns an April 2010 ruling by U.S. District Judge Thomas Griesa permitting the seizure. The appeals court vacated Griesa’s order and sent the case back to his court for further proceedings.

The judgments stemmed from Argentina’s 2001 default on $80 billion owed to foreign creditors.

The appeals court’s decision “is wrong,” NML said in a statement. “We are deeply disturbed by the potential consequences of such broad and unwarranted immunity, which will enable foreign nations to abuse the U.S. Federal Reserve system in order to advance their own unscrupulous efforts.”

NML said it is considering whether to pursue a further appeal in the case.

“My client is pleased with the result,” said Jonathan Blackman, a lawyer for the Republic of Argentina.

Joseph Neuhaus, an attorney for Banco Central de la Republica Argentina, declined to comment. EM lawyer David Rivkin didn’t return a call seeking comment.

The case is NML Capital v. Banco Central de la Republica Argentina, 10-1487, U.S. District Court, Southern District of New York (Manhattan).

For more, click here.

Deutsche Bank Loses Ruling in Kirch Suit Over 2009 Meeting

Deutsche Bank AG, Germany’s biggest bank, lost an appeals case in a lawsuit brought by media entrepreneur Leo Kirch over the company’s 2009 annual shareholder meeting.

The Higher Regional Court of Frankfurt yesterday annulled the meetings’ decision to discharge management and supervisory board members from liability. The judges also voided decisions to authorize capital, according to the written ruling.

Deutsche Bank can only comment once it reviews the full judgment and will then also decide on a possible appeal, Detlev Rahmsdorf, a spokesman for the lender, said in an interview. By bringing such suits, Kirch is trying to divert attention from the failure of his company, Rahmsdorf said.

Yesterday’s case is OLG Frankfurt am Main, 5 U 104/10.

Former ICBC Executive Chan Pleads Guilty in Bribery Case

Industrial & Commercial Bank of China (Asia) Ltd.’s former head of corporate banking Derick Chan Po-fui pleaded guilty to accepting bribes, according to Hong Kong’s Independent Commission Against Corruption.

Chan pleaded guilty to accepting HK$1 million ($128,000) and HK$2.3 million from Zeng Wei, a shareholder and director of property developer United Win Holdings Ltd., the ICAC said in a statement posted on its website July 4.

Chan, who will be sentenced July 20, took the money in exchange for delaying the due dates for repayment of loans, the ICAC said. ICBC (Asia) is a unit of Industrial & Commercial Bank of China Ltd., the world’s largest lender by market value.

Hilda Chow, a Hong Kong-based spokeswoman for ICBC (Asia), declined to comment yesterday. No phone number was available for United Win.

Zeng, 48, had an arrest warrant issued against him after he failed to appear in court for the trial July 4, according to the ICAC statement. Zeng has also been charged with giving a HK$2 million bribe to Chan Yick-yiu, former head of real estate and finance at ICBC (Asia), the ICAC said.

Chan Yick-yiu pleaded not guilty July 4 to six charges, including accepting the bribe from Zeng, according to the statement. His trial is scheduled for today.

For the latest verdict and settlement news, click here.

--With assistance from Andrea Tan in Singapore; Karin Matussek in Karlsruhe, Germany; Bob Van Voris in New York; Heather Smith in Paris; Joel Rosenblatt in San Francisco; and Stephanie Bodoni in Luxembourg. Editor: Stephen Farr

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: Michael Hytha at mhytha@bloomberg.net.


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