Deutsche Bank, MBIA, Goldman, Strauss-Kahn in Court News
July 12, 2011, 6:40 AM EDTBy Elizabeth Amon
(Adds Deutsche Bank and MBIA in Lawsuits section and Strauss-Kahn in New Suits and On The Docket. Updates Goldman Sachs in Lawsuits section.)
July 12 (Bloomberg) -- Deutsche Bank AG, Germany’s biggest bank, and its MortgageIT unit asked a U.S. judge to dismiss a $1 billion federal government lawsuit claiming they lied to qualify thousands of risky mortgages for a government insurance program.
The U.S. claims Deutsche Bank and MortgageIT falsely certified that they properly assessed the default risk of borrowers, qualifying loans for insurance by the Housing and Urban Development Department’s Federal Housing Administration, according to a complaint filed May 3 in Manhattan federal court.
“The complaint is long on unsupported and conclusory rhetoric but short on facts and legal underpinnings,” Deutsche Bank argued in a court filing yesterday. “It utterly fails to state any basis on which to hold Deutsche Bank liable for alleged conduct that occurred before it acquired MortgageIT and in which it had no involvement.”
The U.S. sued under the False Claims Act, which permits it to seek triple damages and penalties of more than $1 billion.
The government claims Deutsche Bank and MortgageIT masked problem loans through “egregious” violations of HUD rules for analyzing the income and creditworthiness of borrowers. MortgageIT endorsed more than 39,000 loans for FHA insurance after 1999, making them “highly marketable for resale,” the U.S. claimed. Of those, 12,500 defaulted.
Ellen Davis, a spokeswoman for U.S. Attorney Preet Bharara in Manhattan, declined to comment on the filing.
The government’s case targets statements that Deutsche Bank and MortgageIT made as participants in the FHA’s Direct Endorsement Lender Program.
Frankfurt-based Deutsche Bank, which acquired MortgageIT in 2007, argued that it’s not legally responsible for any liability tied to MortgageIT’s operations. MortgageIT stopped lending to homebuyers shortly after the acquisition, according to the court filing.
Both defendants argued that the False Claims Act doesn’t authorize the government to impose liability based on allegedly false certifications made by a MortgageIT official about compliance with the requirements of the Direct Endorsement Lender Program.
The case is U.S. v. Deutsche Bank AG, 11-cv-2976, U.S. District Court, Southern District of New York (Manhattan).
MBIA, Merrill Agree to Drop Mortgage-Debt Protection Suit
Merrill Lynch & Co. units now owned by Bank of America Corp. and MBIA Inc. agreed to dismiss a breach-of-contract lawsuit over protection sold against mortgage-debt defaults, according to a court filing.
MBIA, the largest bond insurer, sued seeking to unwind or recover payouts for $5.7 billion of credit-default swaps and related insurance sold against collateralized debt obligations. The Armonk, New York-based company claimed Merrill Lynch’s effort to market the CDS contracts to MBIA was part of a scheme to offload billions of dollars in deteriorating U.S. subprime mortgages from 2006 and 2007.
Both companies agreed to voluntarily dismiss the case and not bring it again and pay their own legal fees, according to the filing yesterday in New York state court.
A state appeals court had dismissed the case in February saying there were disclaimers in the contracts providing that the buyers had the ability to evaluate the transactions and understood the risks. MBIA said at the time that it planned to appeal the decision.
Kevin Brown, an MBIA spokesman, declined in a phone interview to comment on the filing or whether there was a settlement. Bill Halldin, a spokesman for Charlotte, North Carolina-based Bank of America, didn’t return a voice-mail message left after regular business hours.
A lower court in 2010 disallowed five claims and let a breach of contract claim proceed.
The case is MBIA Insurance Corp. v. Merrill Lynch, Pierce, Fenner & Smith, 09601324, New York State Supreme Court, New York County (Manhattan).
Gupta Lawsuit Against SEC Can Go Forward, U.S. Judge Rules
Rajat Gupta, the former Goldman Sachs Group Inc. director, can proceed with a lawsuit claiming the U.S. Securities and Exchange Commission violated his rights when it filed an administrative action accusing him of passing illegal stock tips.
The SEC initiated the administrative proceeding in Washington on March 1, claiming Gupta passed information to Galleon Group LLC co-founder Raj Rajaratnam about Goldman Sachs and Procter & Gamble Co., where Gupta was also on the board.
U.S. District Judge Jed Rakoff ruled yesterday that Gupta, who hasn’t been charged criminally, may argue that the agency intentionally singled him out for unfair treatment in retaliation for claiming his innocence. Rakoff said that all of the other suits filed in the Galleon case, against 21 people and seven companies, are in federal court.
“We have the unusual case where there is already a well- developed public record of Gupta being treated substantially disparately from 28 essentially identical defendants, with not even a hint from the SEC, even in their instant papers, as to why this should be so,” Rakoff wrote in an opinion yesterday.
SEC spokesman John Nestor said the agency may appeal the ruling.
Rajaratnam was found guilty of 14 criminal counts of conspiracy and securities fraud on May 11. He is awaiting sentencing.
The case is Gupta v. SEC, 11-CV-1900, U.S. District Court, Southern District of New York (Manhattan).
SIPC Opposes Attempt by Mets Owners to Dismiss Madoff Suit
The Securities Investor Protection Corp. opposed a request by the owners of the New York Mets baseball team to dismiss a $1 billion suit by the trustee liquidating Bernard Madoff’s firm.
The trustee, Irving Picard, is suing Fred Wilpon and Saul Katz and their firm, Sterling Equities, seeking the return of $700 million in principal and $300 million in profit from Madoff’s Ponzi scheme. Picard claims the team’s owners had a duty to investigate “red flags” warning of possible fraud.
SIPC yesterday asked U.S. District Judge Jed Rakoff in Manhattan to let the suit go forward, arguing that Picard has the legal authority to pursue the claim.
Rakoff agreed this month to review the case, which Picard filed last year in bankruptcy court. He said judges have struggled with the duty of inquiry into fraud for more than half a century and the duty may not have applied to the Mets owners.
The case is Picard v. Katz, 11-cv-03605, U.S. District Court, Southern District of New York (Manhattan).
Strauss-Kahn’s French Accuser Makes Statement to Paris Police
Paris police took a statement yesterday from French writer Tristane Banon, who has accused Dominique Strauss-Kahn of attempting to rape her.
Banon met with the police yesterday, said Agnes Labregere- Delorme, a spokeswoman for the prosecution, which began a preliminary investigation on July 8 into her claim that the former International Monetary Fund chief assaulted her in 2003.
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 this month and had his bail returned after U.S. prosecutors uncovered evidence the 32-year-old woman who accused him had lied about key aspects of her life. Strauss-Kahn denies the claims in both cases.
Banon’s lawyer David Koubbi declined to comment on her police statement.
Strauss-Kahn has called Banon’s claims “imaginary” and asked that a slander complaint against her be prepared, according to his lawyers.
At the time of the alleged incident, Banon was an intern with magazine Paris Match and had just signed a contract for a book on politicians’ regrets. She met Strauss-Kahn for a follow- up interview at his friend’s apartment in Paris, she said in an interview published in the July 6 issue of L’Express.
Strauss-Kahn turned off her tape-recorder and began assaulting her, touching her breasts and putting his hands in her mouth and underwear, she said, according to the magazine. She kicked him and said “you’re not going to rape me,” then ran out, got in her car and called her mother, the magazine quoted her as saying.
EMG Shareholders Seek $8 Billion in Pipeline Damages
Shareholders of East Mediterranean Gas Co. will take legal action against Egypt, seeking more than $8 billion in damages for interruptions in natural gas supply through a cross-border pipeline, a company official said.
The shareholders from Israel, the U.S. and Thailand agreed on the action in the wake of three explosions in the past five months that damaged the pipeline, which carries gas from Egypt to Israel, Nimrod Novik, a member of the EMG board, said yesterday. The company will pursue the claims through the International Court of Arbitration, a dispute resolution service run by the Paris-based International Chamber of Commerce.
“The lawyers have advised the government of Egypt as well as the United States and other relevant governments that this process is under way,” Novik said in a telephone interview from his office in Herzliya, north of Tel Aviv .
Egypt restored gas exports to Israel last week at 20 percent of contracted amounts after a July 4 explosion disrupted the network. Among the shareholders in EMG are Egypt National Gas Co., Israeli businessman Yossi Maiman, U.S. billionaire Sam Zell and PTT Pcl, Thailand’s biggest energy company.
For the latest lawsuits news, click here.
New Suits
Strauss-Kahn Claims Slander by French Accuser, Lawyer Says
Former International Monetary Fund chief Dominique Strauss- Kahn filed a complaint with Paris prosecutors accusing a French woman of slander over allegations that he attempted to rape her in 2003, according to her lawyer.
The claim against Tristane Banon shows Strauss-Kahn’s “judicial survival instinct,” said her attorney, David Koubbi, in an interview yesterday. “In a moment when anybody would have apologized to the victim, he files claims against her.”
Banon’s accusations came after Strauss-Kahn, 62, was freed from home confinement in Manhattan during a criminal probe of allegations by a 32-year-old hotel maid there. The employee of New York’s Sofitel hotel alleged the ex-IMF chief attempted to rape her in May. Strauss-Kahn, who stepped down from his post after being charged in New York state court, has denied any wrongdoing in both cases.
Henri Leclerc, a lawyer for Strauss-Kahn, didn’t return calls seeking comment. A spokeswoman for the Paris prosecution didn’t return calls seeking comment.
Pfizer Sues Apotex Over Generic Version of Pain Drug Lyrica
Pfizer Inc., the world’s largest drugmaker, accused Apotex Inc. in a lawsuit of infringing two U.S. patents for the nerve- pain drug Lyrica.
Apotex, based in Toronto, plans to market a generic version of Lyrica before the newest patent expires in 2018, Pfizer said in a complaint filed July 8 in federal court in Wilmington, Delaware. Pfizer claimed it “will be substantially and irreparably harmed” by the alleged infringement.
Lyrica generated more than $800 million in sales in the first quarter for New York-based Pfizer, which is selling units and trimming jobs in preparation for pending loss of patent protection for its best-selling drug Lipitor, used to control cholesterol.
Elie Betito, a spokesman for closely held Apotex, didn’t immediately return voice and e-mail messages seeking comment on the filing.
The case is Pfizer Inc. v. Apotex Inc., U.S. District Court, District of Delaware (Wilmington).
To see the patents, click: 6,197,819 and 5,563,175.
Nakheel’s Ex-CEO Suing Developer for $3.7 Million in Dues
Nakheel PJSC’s former chief executive officer, Chris O’Donnell, is suing the developer of palm-shaped islands off Dubai’s coast for $3.7 million in unpaid dues, interest and damages.
The CEO, who quit last month after five years at the developer’s helm, filed the lawsuit in the Dubai World Special tribunal on June 22, according to a court filing dated June 22 and made available on the court’s website yesterday.
O’Donnell is seeking $3 million in long-term incentives as well as $290,850 in losses tied to currency fluctuations. He is also asking Nakheel to pay $180,000 in interest, calculated at 12 percent per year, the documents show.
Nakheel, which is restructuring $13 billion of debt, was forced to cut hundreds of employees and cancel or delay property projects after the global credit crisis caused demand in Dubai to evaporate. Home prices in Dubai dropped more than 60 percent from their peak in mid-2008.
The former CEO was paid 3.8 million dirhams ($1 million) in basic annual salary and was given a business class ticket to his home country of Australia every year, the documents show.
For the latest new suits news, click here. For copies of recent civil complaints, click here. For the latest trial and appeals news, click here.
Verdicts/Settlement
Conrad Black Must Go Back to Prison by Sept. 6, Court Says
Conrad M. Black, the former Hollinger International Inc. chairman and chief executive officer sentenced to serve an additional year in prison, must report by Sept. 6, a federal court in Chicago said.
Black’s original 6 1/2-year term was reduced to 3 1/2 years last month by U.S. District Judge Amy J. St. Eve after the former newspaper publisher successfully appealed two of three mail fraud counts of which he was convicted in 2007.
St. Eve, in an order dated July 5 and posted on the court’s electronic docket yesterday, recommended that Black, 66, be returned to the low-security prison at Coleman, Florida, where he spent 29 months before being granted bail last year.
Hollinger International was once the world’s third-biggest publisher of English-language newspapers. Its publications included the U.K.’s Daily Telegraph, Canada’s National Post and the Jerusalem Post.
Black was originally found guilty for his role in the theft of $6.1 million from the Chicago-based company now known as Sun- Times Media Group Inc. Convictions overturned on appeal reduced the total value of the theft to $600,000.
Each court reviewing the case upheld the jury’s finding that Black obstructed justice when he removed boxes from his Toronto office that prosecutors said contained documents sought by the U.S. government.
The U.S. Bureau of Prisons has final say on where Black will serve the remainder of his punishment.
The case is U.S. v. Black, 05-cr-00727, U.S. District Court, Northern District of Illinois (Chicago).
Illinois ‘Jobs Now!’ Stimulus Plan Upheld by Top State Court
Illinois Jobs Now!, the $31 billion economic stimulus package of Governor Pat Quinn, was upheld by the state Supreme Court in a ruling on the legality of the legislation that created the program.
The court’s decision yesterday reversed a Jan. 26 ruling by an intermediate-level appellate panel that held the legislation creating the plan violated a state constitutional requirement that bills be limited to a single subject.
“What this means is our jobs recovery program can go forward, full speed ahead,” Quinn said yesterday in a televised press conference.
The lower-court’s ruling derailed projects approved by the state legislature in 2009 and cast doubt on the future of economic-development plans that were part of the stimulus package.
Among those plans were investments in state roads, railways, schools and broadband Internet access, said Quinn, who said he wanted to be “the builder governor.”
The now-overturned decision had also blocked a revenue stream generated by higher liquor taxes, privatization of the state lottery and levies on video poker operations.
Objecting to the tax increases, W. Rockwell Wirtz, the owner of the Chicago Blackhawks hockey team, and his liquor distributorship, Wirtz Beverage Illinois, sued to block the program.
The Wirtz group, in an e-mailed statement issued by outside spokesman by Guy Chipparoni, said while it was disappointed by the outcome, it respected the court’s opinion.
“Our issue was not with the lawmakers, but the law,” Chipparoni said.
The case is Wirtz v. Quinn, 111903, Illinois Supreme Court (Springfield).
For more, click here.
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On The Docket
Strauss-Kahn Lawyers, Prosecutors Delay Hearing Until Aug. 1
Manhattan District Attorney Cyrus Vance Jr. and lawyers for Dominique Strauss-Kahn agreed to delay until Aug. 1 the next court hearing in the sexual assault case against the former International Monetary Fund chief.
Strauss-Kahn, accused of sexually assaulting and attempting to rape a midtown Manhattan hotel housekeeper on May 14, had been due back in New York state Supreme Court on July 18.
“The purpose of this adjournment is to facilitate both parties’ continued investigation in this matter,” Assistant District Attorney Joan Illuzzi-Orbon wrote in a letter yesterday to Justice Michael Obus, who’s presiding over the case.
Defense attorneys Benjamin Brafman and William W. Taylor also said in a statement that, by Aug. 1, they hope Vance will be ready to throw out the case. Vance disclosed in a letter dated June 30 that the 32-year-old housekeeper, a native of Guinea, lied about key aspects of her life and her actions immediately after the incident.
“We hope that during this time the district attorney will make the necessary decision to dismiss the case against Mr. Strauss-Kahn,” Brafman and Taylor said in the statement yesterday.
Kenneth P. Thompson, the lawyer for Strauss-Kahn’s accuser, asked Vance in a July 6 letter to recuse himself from the case, accusing prosecutors of “repeated and damaging leaks to the media” to discredit his client and undermine her charges.
“At the end of its investigation, we expect the district attorney’s office to stand by the victim and take her case to trial,,” Thompson said yesterday in an e-mailed statement. “Justice requires no less.”
Strauss-Kahn, 62, was detained the day of the alleged attack and kept from taking an Air France flight at John F. Kennedy Airport. He was originally held without bail, after prosecutors argued he was a flight risk because France doesn’t extradite its citizens.
On May 20, Strauss-Kahn was released on bail under restrictions that included home confinement under tight security measures. He was released from house arrest, in a rented townhouse in lower Manhattan, July 1 after prosecutors told the judge that the case had been hurt by “substantial credibility issues.”
The case is People v. Strauss-Kahn, 2526/11, New York State Supreme Court, New York County (Manhattan).
For more, click here.
--With assistance from Bob Van Voris, Karen Freifeld and Linda Sandler in New York, Heather Smith in Paris, Andrew Harris in Chicago, Tim Jones in London, Zainab Fattah in Dubai, Phil Milford in Wilmington, Karen Gullo in San Francisco and Jonathan Ferziger in Tel Aviv. Editors: Glenn Holdcraft, Stephen Farr
To contact the reporter on this story: Elizabeth Amon in New York at eamon2@bloomberg.net
To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net
