(Adds Credit Suisse in top section, AT&T in New Suits and Chevron and JPMorgan in Lawsuits. Updates Colorado Pension Plan in New Suits and Hynix in Trials.)
Sept. 20 (Bloomberg) -- Eight offshore banks are under federal grand jury investigation for facilitating tax evasion by U.S. citizens as part of a probe the Justice Department said has dealt “fabled Swiss bank secrecy a devastating blow.”
The department disclosed the probes on a section of its website detailing the Tax Division’s Offshore Compliance Initiative. In 2009, prosecutors charged UBS AG, the largest Swiss bank, with aiding tax evasion by U.S. clients. UBS avoided prosecution by paying $780 million, admitting it fostered tax evasion, and giving the U.S. Internal Revenue Service data on more than 250 accounts. It later turned over data on another 4,450 accounts.
Prosecutors opened 150 grand jury investigations of offshore-banking clients, charging 30 people, and indicting 13 other people who facilitated the hiding of assets offshore, according to the website.
“In addition, grand jury investigations have been opened into eight additional offshore banks across the world,” according to the website. “The outcome cannot be measured in litigation results alone. This enforcement effort has dealt fabled Swiss bank secrecy a devastating blow.”
The Justice Department, which didn’t identify the eight banks, hadn’t previously said how many were under investigation. Charles Miller, a spokesman for the department, declined to comment yesterday.
“The fact that the department has confirmed that there are eight grand jury investigations into offshore banks shows that the government’s enforcement efforts are a lot further along than had previously been disclosed,” Jeffrey Neiman, a former federal prosecutor who worked on the UBS case, said in a phone interview.
Credit Suisse Group AG, the second-largest Swiss bank, has said that U.S. prosecutors said it is a target of a criminal investigation. Victoria Harmon, a spokeswoman for Zurich-based Credit Suisse, declined to comment and referred to a July 21 bank statement.
“Credit Suisse is committed to a fully compliant cross- border business,” the bank said in that statement. “Subject to our Swiss legal obligations and throughout this process we will continue to cooperate with the U.S. authorities in an effort to resolve these matters.”
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AT&T Sued by Cellular South Over Planned Purchase of T-Mobile
AT&T Inc. was sued by Cellular South Inc., the ninth- largest wireless carrier by customers, in an effort to block its acquisition of T-Mobile Inc. based on claims their combined market power violates U.S. antitrust laws.
Cellular South, in a complaint filed yesterday in federal court in Washington, said the merger “threatens to substantially lessen competition” and cause it significant losses and damages.
“The merger of AT&T and T-Mobile is anticompetitive, and will result in consumers facing higher prices, less innovation, fewer choices and reduced competition,” Cellular South said in its complaint.
Its lawsuit challenging the proposed $39 billion merger between AT&T and T-Mobile comes after seven U.S. states on Sept. 16 joined the Justice Department’s lawsuit seeking to block the transaction. Sprint Nextel Corp., the market’s No. 3 player, filed its own antitrust lawsuit challenging the merger a week after the Justice Department’s Aug. 31 complaint.
“As this growing chorus of opposition shows, this proposed transaction violates antitrust law and is not in the best interests of consumers and the American economy,” Vonya McCann, Sprint’s senior vice president of government affairs, said yesterday in an e-mailed statement.
Mike Balmoris, an AT&T spokesman, declined to comment beyond what the company said when Sprint filed its lawsuit Sept. 6. “Sprint is more interested in protecting itself than it is in promoting competition that benefits consumers,” AT&T said at the time.
AT&T has said it will fight the lawsuits in court at the same time as it explores settlement options with the Justice Department. AT&T has said the transaction will improve wireless service and increase investments and jobs.
The case is Cellular South Inc. v. AT&T Inc., 11-cv-01690, U.S. District Court, District of Columbia (Washington).
Jefferies Sues Nasdaq Unit Over Rate Swap Futures Contracts
Jefferies Group Inc. sued International Derivatives Clearing Group LLC, accusing the Nasdaq OMX Group Inc. unit of fraud and breach of contract in connection with interest-rate swap futures contracts.
Jefferies & Co., the investment bank that has been expanding since the financial crisis, claimed in the suit that IDCG and its International Derivatives Clearinghouse unit induced it to enter into the contracts by saying the investment would be “economically equivalent” to transactions in similar instruments in the over-the-counter market. The suit was filed Sept. 16 in New York state court.
“Clearinghouse’s own rules require that it provide transactions that are equivalent to transactions engaged in on the over-the-counter market,” Jefferies said in the complaint. “Yet the transactions that Clearinghouse induced Jefferies to enter on Clearinghouse’s new exchange were not economically equivalent to over-the-counter transactions as Clearinghouse had represented and as its own rules required.”
Frank DeMaria, a spokesman for Nasdaq, called the lawsuit “without merit” and said the company will fight it. Philip C. Korologos, an attorney for Jefferies, declined to comment on the lawsuit in a telephone interview.
The case is Jefferies & Co. v. Nasdaq OMX Group Inc., 652560/2011, New York State Supreme Court, New York County (Manhattan).
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Colorado Official Sues State Pension Plan Demanding Data
Colorado’s public employee pension plan was sued by state Treasurer Walker Stapleton, who asked for a court order directing it to turn over data on its top beneficiaries, according to Attorney General John Suthers.
Suthers sued the Public Employees Retirement Association and 14 trustees yesterday in state court in Denver, a spokesman for the attorney general, Mike Saccone, said in an e-mailed statement. The filing couldn’t immediately be independently confirmed.
Stapleton -- a statutory pension plan trustee -- sued the system after being rebuffed in efforts to learn how much money is paid annually to the top 20 percent of beneficiaries, their age and year of retirement, as well as their final five years of salaries. He wasn’t seeking their identities.
“The treasurer is entitled to a declaration that PERA and defendant trustees have breached their fiduciary duty by improperly and illegally denying the treasurer access to the requested PERA records,” according to the complaint.
“We haven’t seen the lawsuit so we can’t provide comment,” Katie Kaufmanis, a spokeswoman for the association, said when reached by phone.
The case is Stapleton v. Public Employees Retirement Association, Denver County, Colorado, District Court (Denver).
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Chevron Victory Blocking $18 Billion Verdict Thrown Out
A U.S. court ruling blocking enforcement of an Ecuadorean court’s $18 billion environmental damages verdict against Chevron Corp. was thrown out by a federal appeals panel in New York.
“The preliminary injunction issued by the district court on March 7, 2011, is vacated in its entirety,” the U.S. Court of Appeals in New York wrote in an order issued yesterday.
In March, U.S. District Judge Lewis Kaplan in Manhattan issued a ruling that barred Ecuadorean residents in the Amazon River Basin from enforcing an $18 billion judgment awarded by a court in their country until Chevron’s case against the villagers and their lawyers is decided.
The company alleged in a U.S. racketeering lawsuit that lawyers for the Ecuadoreans conspired to fabricate evidence. Attorneys for the Latin American plaintiffs said the lawsuit is an unjustified attempt to derail the pollution lawsuit damages.
At a Sept. 16 argument before the appeals court in New York, a lawyer for the Ecuadoreans said his clients agreed not to enforce the judgment in New York until Ecuador’s top court rules on it.
Chevron, based in San Ramon, California, said in a statement that it was disappointed that a trial set for November has been stayed.
“Chevron remains confident that once the full facts are examined, the fraudulent judgment will be found unenforceable and those who procured it will be required to answer for their misconduct,” the company said in the statement.
“This ruling is affirmation of what we have said all along,” Karen Hinton, a spokeswoman for the plaintiffs, said in an e-mailed statement. “Chevron abused the law, and Judge Kaplan rushed to judgment without considering the overwhelming evidence against the oil giant.”
The racketeering case is Chevron v. Donziger, 11-00691, U.S. District Court, District of New York (Manhattan). The case in Ecuador is Aquinda v. Chevron, 002-2003, Superior Court of Nueva Loja, Lago Agrio, Ecuador.
Madoff Trustee’s JPMorgan Suit Is ‘Clearly Wrong,’ Bank Says
The liquidator of Bernard L. Madoff’s firm is “clearly wrong” in demanding $19 billion in damages from JPMorgan Chase & Co. on behalf of creditors of the Ponzi scheme operator, the bank said.
It has been “settled law” since the 1970s that a bankruptcy trustee cannot assert claims belonging to creditors, JPMorgan said in a Sept. 16 filing in U.S. District Court in Manhattan. Trustee Irving H. Picard defended his lawsuit against the second-biggest U.S. bank earlier this month, saying he was empowered by law to sue JPMorgan on behalf of the con man’s innocent creditors.
Picard’s “argument is so clearly wrong that the trustee did not even make it to Judge Rakoff,” the bank said, citing Judge Jed S. Rakoff’s July ruling in an HSBC Holdings Plc case that Picard can’t sue on behalf of Madoff customers using common-law claims against parties who failed to detect the fraud.
“The trustee and his counsel remain confident in our position,” Amanda Remus, a Picard spokeswoman, said in an e- mail.
JPMorgan is trying to persuade U.S. District Judge Colleen McMahon to dismiss Picard’s damage claims, along with about $1 billion of bankruptcy and other claims. Picard is fighting for the right to demand most of the $100 billion he is seeking from banks and Madoff investors, after Rakoff tossed almost $9 billion in damages sought from HSBC and feeder funds.
In an amended suit, Picard alleged that New York-based JPMorgan, Madoff’s primary banker, “did know” about the fraud and could have stopped it by notifying regulators. In the June suit, he more than tripled his demand for damages, making it equal to his estimate of all principal lost by all Madoff investors by the time the Ponzi scheme collapsed in 2008.
The case is Picard v. JPMorgan Chase & Co., 1:11-cv-00913, U.S. District Court, Southern District of New York (Manhattan).
Michigan Agency Loses Bid to Move Court Fight With Lehman
The Michigan State Housing Development Authority failed to persuade a federal district court to review a bankruptcy judge’s interpretation of swap contracts in its lawsuit against Lehman Brothers Holdings Inc. over derivatives transactions.
U.S. District Judge John Koeltl in Manhattan declined to take the case, according to a court filing yesterday.
The Michigan agency said in May that it is “one of many” derivatives trading partners of Lehman disputing who gets paid first on a swap agreement as a result of a previous ruling by U.S. Bankruptcy Judge James Peck. The Lehman bankruptcy judge’s interpretation of swap contracts is “surpassingly broad” and requires U.S. District Court review because it has ramifications for international securities markets, the authority said.
The global over-the-counter derivatives market is valued at around $600 trillion by the Bank for International Settlements.
In a now-settled case involving a Bank of New York Mellon Corp. trustee unit, Peck ruled in Lehman’s favor, saying that a swap agreement written to protect both parties from default by the other party doesn’t hold under bankruptcy law. He used a similar principle in May when he refused to dismiss a Lehman suit against an entity known as Ballyrock ABS CDO 2007-1 Ltd., the Michigan agency said.
The lawsuit is Michigan State Housing Development Authority v. Lehman Brothers Derivative Products, 09-01728, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The bankruptcy case is In re Lehman Brothers Holdings Inc., 08- 13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
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Hynix Lawyer Says Rambus ‘Squandered’ Memory Chip Opportunity
A lawyer for Hynix Semiconductor Inc. told a jury that Rambus Inc.’s flawed technology and poor business decisions, rather than collusion by rivals, hobbled its chances of making its memory chip the industry standard.
In his closing argument yesterday at a state court trial in San Francisco that began in June, Hynix lawyer Ken Nissly denied that the world’s second-largest maker of computer memory conspired to drive chips designed by Rambus out of the market.
Nissly showed jurors a timeline titled “Rambus Choices Doomed Intel Relationship” to introduce his argument that Rambus “had the best support for innovation they could possibly have” in its 1996 contract to develop its own version of dynamic random access memory, or DRAM, with Santa Clara, California-based Intel Corp., the world’s largest chipmaker.
Rambus “squandered that advantage such that Intel decided by the end of 1999 that it had made a mistake, that it was going to change its road map,” Nissly said.
Rambus contends that Ichon, South Korea-based Hynix and Boise, Idaho-based Micron Technology Inc. colluded to lower the prices of their own memory chips and deserted their commitment to produce Rambus-designed DRAM, or RDRAM, relegating it to a niche role. Micron’s lawyer is scheduled to give a closing argument today after Nissly finishes.
Rambus, which doesn’t manufacture the chips it designs, argued it would have earned $3.95 billion in royalties without the alleged conspiracy. Under California law, a jury finding of damages in that amount would be automatically tripled to $11.9 billion.
Hynix and Micron “cheated” and “rigged the race,” Sean Eskovitz, a lawyer for Rambus, said in his closing argument. The two chip manufacturers first fixed their prices below market value and “when they thought they had pushed RDRAM off to the side, they jacked up the prices.”
“Why did they do this? Power and money,” Eskovitz said. “They knew RDRAM was a threat. They knew they needed to shoot it over and over and over again,” and “they used every possible tactic available to them.”
The case is Rambus Inc. v. Micron Technology Inc., 04- 0431105, California Superior Court (San Francisco).
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Expert Networker Conspired to Pass Secrets, U.S. Says
A former Primary Global Research LLC executive accused of joining an insider-trading scheme knowingly helped public- company employees pass confidential information to fund managers, the U.S. said.
James Fleishman, of Santa Clara, California, is on trial in Manhattan federal court, charged with two counts of conspiracy. He pleaded not guilty to the charges and faces as long as 25 years in prison if convicted.
“He knew confidential information was being passed repeatedly to members of the investment community,” Assistant U.S. Attorney David Leibowitz told jurors in closing arguments yesterday. “He not only knew it, he helped make it happen.”
Leibowitz cited dozens of e-mails Fleishman sent and phone conversations he had with cooperating witnesses that were secretly recorded by the Federal Bureau of Investigation. The prosecutors also cited the testimony of three employees of public technology companies who cooperated with the U.S. and testified during the trial, which lasted two and a half weeks.
Primary Global, based in Mountain View, California, matches investors with specialists who provide insight into specific markets.
In his closing argument yesterday, Ethan Balogh, a lawyer for Fleishman, said there was no evidence his client knew that consultants were violating compliance agreements with their employers.
Balogh said Fleishman had relied on representations that the consultants made. He cited an agreement that consultants signed and submitted to Primary Global confirming they had permission to do outside consulting.
The case is U.S. v. Nguyen, 11-CR-32, U.S. District Court, Southern District of New York (Manhattan).
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Oracle Asked to Revise Request for SAP Verdict Review
Oracle Corp. was asked by a federal judge to consider revising its request to seek review of a court order overturning a $1.3 billion damage award against SAP AG, according to court records.
U.S. District Judge Phyllis Hamilton in Oakland, California, on Sept. 1 granted SAP’s motion to throw out the copyright-infringement verdict against it. She ruled that SAP should get a new trial for damages if Oracle rejects her decision to reduce the amount to $272 million, which she said should be the maximum in damages based on the evidence at trial.
The jury award in November was a record for copyright infringement. In the 11-day trial, Oracle accused SAP’s TomorrowNow software-maintenance unit of making hundreds of thousands of illegal downloads and several thousand copies of Oracle’s software. Oracle said SAP’s aim was allegedly to avoid paying licensing fees and to steal customers.
The case is Oracle Corp. v. SAP AG, 07-01658, U.S. District Court, Northern District of California (Oakland).
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Kaupthing Settles $2.4 Billion Lawsuit on Loan Losses
Kaupthing Bank hf agreed to settle a 1.5 billion-pound ($2.4 billion) claim brought by the Tchenguiz Family Trust over losses caused by the Icelandic bank’s collapse.
Kaupthing reached an agreement with the trust, Vincent Tchenguiz and other companies connected to the family, known for its U.K. real estate investments, for an undisclosed sum, according to a statement. Sean Bellew, a spokesman for Tchenguiz declined to comment on the settlement’s value because the terms are confidential.
“I am delighted that we have been able to bring this complex matter to a satisfactory conclusion and to have dispensed with all the uncertainties which have proved so restricting,” Tchenguiz said in the statement yesterday.
The family had close ties with Kaupthing and suffered what Vincent Tchenguiz described as “massive losses” when the bank failed in October 2008. U.K. regulators are investigating loan deals struck between Kaupthing and Vincent Tchenguiz and his brother Robert. The settlement will help Kaupthing’s creditors, Vincent Tchenguiz said in the statement.
Kaupthing, based in Reykjavik, confirmed a settlement had been reached and the Tchenguiz Family Trust had withdrawn its claims in a statement on its website.
In a separate claim, a trust controlled by Robert is suing Kaupthing to recoup losses of 330.7 million pounds from a failed loan deal. His spokeswoman, Julia Fea, didn’t immediately respond to calls and e-mails seeking comment on the status of that case.
The U.K. Serious Fraud Office arrested the brothers in March as part of an investigation into why investors took large loans from Kaupthing days before it collapsed. Four of Vincent’s companies were forced into administration because of the probe, he said in March. The family is seeking a judicial review into whether the SFO’s actions were legal.
News Corp. Said to Pay $4.7 Million to Dowler Family
News Corp.’s U.K. unit will pay 3 million pounds ($4.7 million) to settle claims that the News of the World tabloid hacked the mobile phone of murdered schoolgirl Milly Dowler, a person with knowledge of the matter said.
The settlement includes a 2 million-pound payment to the Dowler family and a 1 million-pound donation to charity, said the person, who declined to be identified because the talks are private. News Corp. Chairman Rupert Murdoch was personally involved in the negotiations, the person said.
Reports in July that Dowler’s voice mails had been intercepted triggered a public outcry that forced News Corp. to close the 168-year-old tabloid and drop its 7.8 billion-pound bid for full control of British Sky Broadcasting Group Plc. The Parliament’s Culture Committee decided last week to recall News Corp. Deputy Chief Operating Officer James Murdoch after former employees questioned statements he made about his knowledge of the extent of hacking at the News of the World.
News Corp. is trying to “be seen to be generous as it’s much more than would be awarded by a court,” said Niri Shan, the head of media law at Taylor Wessing LLP in London. “The only downside is if it potentially sets an unrealistic expectation for others.”
Mark Lewis, the lawyer for Dowler’s parents and sister, declined to comment when reached yesterday by Bloomberg News. News Corp. said in an e-mailed statement that it was in “advanced negotiations” with the family.
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Debevoise & Plimpton Adds Lawyers in Asia to Target Disputes
Debevoise & Plimpton LLP, the New York-based law firm with about 650 lawyers, said it will move five to Hong Kong to work with Asia-based clients on disputes and U.S. and U.K. regulatory matters.
Partner Christopher Tahbaz said he and former U.K. attorney general Peter Goldsmith will spend part of their time in Hong Kong, while three other lawyers will relocate to the Chinese city from New York next month.
The eighty-year-old law firm, whose other Asia office is in Shanghai, isn’t planning to practice Hong Kong law even as other Wall Street firms such as Davis Polk & Wardwell LLP and Milbank Tweed Hadley & McCloy LLP have been setting up Hong Kong law practices in the past year.
“We prefer to work with the experts in local law,” said Tahbaz, referring to homegrown firms in Hong Kong and other jurisdictions.
Debevoise currently has 15 lawyers in Shanghai and Hong Kong. The firm’s clients in the region include Bank of China Ltd., ArcelorMittal, Alibaba Group Holding Ltd. and TPG Capital.
The firm’s Asia-based disputes practice will focus on commercial arbitration and litigation, including product liability and intellectual property lawsuits outside of Asia, as well as white collar defense and advice related to the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act.
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--With assistance from Linda Sandler, Patricia Hurtado, Bob Van Voris and Chris Dolmetsch in New York; Karen Gullo and Joel Rosenblatt in San Francisco; Kit Chellel, Jonathan Browning and Erik Larson in London; Debra Mao in Hong Kong; Sara Forden in Washington and Andrew Harris in Chicago. Editor: Fred Strasser
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