Bloomberg News

Rajaratnam, SocGen, Blackstone, S&P, AT&T in Court News

October 04, 2011

(Adds Rajaratnam in top section, Moody’s in Lawsuits and Exxon in Trials.)

Oct. 4 (Bloomberg) -- Raj Rajaratnam, the hedge fund manager convicted of directing a massive insider-trading ring, opposed a government request to unseal data about his medical condition, claiming it would only fuel a “media feeding frenzy.”

The public has no right to the information submitted to the court in a bid for leniency, Rajaratnam’s lawyers, led by John Dowd, argued in papers filed in Manhattan federal court yesterday. Rajaratnam is to be sentenced by U.S. District Judge Richard Holwell Oct. 13

“The idea that Mr. Rajaratnam’s interest in keeping his medical conditions private must yield to the public’s prurient interest in such intimate details is absurd,” the lawyers wrote. “No defendant should be forced to choose between providing the court with medical information relevant to sentencing and making himself the subject to a salacious and morbid media feeding frenzy.”

Rajaratnam, 54, was convicted in May on all 14 criminal counts against him. Prosecutors said he gained $63.8 million by trading with inside information in 11 stocks, including Goldman Sachs Group Inc., Intel Corp., Google Inc., ATI Technologies Inc. and Clearwire Corp.

The government is urging Holwell to give Rajaratnam, the co-founder of Galleon Group LLC, 19 1/2 to 24 1/2 years in prison. Rajaratnam’s lawyers, calling the government’s proposal “grotesquely severe,” asked for a sentence “substantially below” that.

Ellen Davis, a spokeswoman for U.S. Attorney Preet Bharara, declined to comment on the court filing.

The case is U.S. v. Rajaratnam, 1:09-cr-01184, U.S. District Court, Southern District of New York (Manhattan).

For more, click here.

On The Docket

Kerviel Appeal on SocGen Trading Verdict Scheduled for June

Jerome Kerviel’s appeal of a three-year jail sentence and order to repay Societe Generale SA’s 4.9 billion-euro ($6.5 billion) trading loss was scheduled for June 2012.

A Paris appeals court yesterday set the appeal hearings to run from June 4 to June 28. Kerviel didn’t attend yesterday’s session.

While Kerviel said during the trial that his activities were “probably not” part of his mandate, his lawyer Olivier Metzner said yesterday that he is appealing all three guilty counts -- breach of trust, forging documents and computer hacking.

Kerviel, 34, was held solely responsible for the loss in the 2010 verdict. The judges rejected his arguments that his superiors at the bank, France’s second largest, knew he had trades that exceeded his limits and that it was the bank’s decision to unwind the bets over three days of falling markets in 2008 that caused such a large loss.

Kerviel was “crushed” by the verdict, he said after the decision. Metzner criticized the ruling, saying the bank should have reduced the loss it claimed because of a 1.7 billion-euro deferred tax credit it received. The 4.9 billion-euro figure was the difference between the 6.38 billion euros the bank lost unwinding the positions and Kerviel’s 2007 trading profit of 1.47 billion euros.

Societe Generale said after the ruling it had “learned its lessons” from the episode and improved its risk controls. A spokeswoman for the bank declined to comment on the appeal yesterday.

Premier League Risks Blow to BSkyB TV-Rights at EU’s Top Court

English soccer’s Premier League and European governing body UEFA risk losing part of their revenue from exclusive television rights sold to broadcasters such as British Sky Broadcasting Group Plc in a ruling by the European Union’s highest court today.

The EU Court of Justice in Luxembourg is set to decide whether the Premier League’s exclusive regional contracts to televise its soccer matches are lawful. An adviser to the court in a non-binding opinion in February said they are not.

The Premier League is home to some of Europe’s most successful clubs including Manchester United and Liverpool. The league started a three-year 1.8 billion-pound ($2.8 billion) U.K. television contract in August 2010, and receives a further 1.4 billion pounds from the sale of international broadcast rights.

“The biggest fallout is probably for the Premier League,” Daniel Geey, a lawyer at Field Fisher Waterhouse LLP in London. “Their 1.8 billion-pounds contract, of which they’re in the second year of three, could potentially be deemed illegal and have to be renegotiated.”

The EU court case was partly triggered by a U.K. dispute involving Karen Murphy, the owner of the Red, White and Blue Pub in Southsea, close to Portsmouth, England. She faces a criminal lawsuit after buying a decoder card that allows her to show Premier League games from Greek television. BSkyB, the U.K.’s biggest pay-TV operator, said the cards are “illicit” because they are being used outside their specified area.

Today’s EU judgment is “going to determine the way in which broadcasting rights generally, not just live-football, are marketed in the EU for generations to come,” Paul Dixon, Murphy’s lawyer, said in a phone interview.

The cases are C-403/08, Football Association Premier League Ltd, v. QC Leisure and C-429/08, Karen Murphy v. Media Protection Services Limited.

For more, click here.

New Suits

Enterprise Breached Pipeline Contract, Energy Transfer Says

Enterprise Products Partners LP breached its contract when it abandoned an agreement to build a pipeline while planning to pursue a similar project with another company, Energy Transfer Partners LP said in a lawsuit.

Energy Transfer filed suit in Texas state court on Sept. 30, a day after Enterprise announced the new pipeline project with Enbridge Inc. Energy Transfer, based in Dallas, alleges breach of contract, breach of fiduciary duty and unfair competition in the lawsuit, which also accuses Enbridge of interference.

Enterprise, the biggest U.S. pipeline operator, proposed a joint venture with Energy Transfer in April to build a 400,000- barrel-a-day oil conduit from Cushing, Oklahoma, to Houston. Enterprise, based in Houston, called off the so-called Double E pipeline on Aug. 19 citing a lack of sufficient customer interest.

The company announced a partnership with Calgary-based Enbridge on Sept. 29 to build an 800,000-barrel-a-day pipeline between the two cities. That project is known as the Wrangler pipeline.

Enterprise tried to persuade Energy Transfer “to terminate the joint venture due to the new pipeline’s supposed lack of commercial viability, while simultaneously plotting to establish a new joint venture to build the same pipeline,” Energy Transfer said in its complaint.

“When Enterprise could not persuade Energy Transfer to terminate the joint venture, Enterprise simply pretended that the joint venture never existed,” according to the complaint.

The lawsuit is “frivolous” and Enterprise will seek to have it dismissed, Rick Rainey, a company spokesman, said in an e-mailed statement.

Larry Springer, a spokesman for Enbridge, said the company doesn’t comment on pending lawsuits.

The lawsuit is Energy Transfer Partners LP v. Enterprise Products Partners LP, 11-12667, District Court, Dallas County, Texas (Dallas).

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

Lawsuits/Pretrial

Moody’s, Fitch, S&P Must Face New Mexico Securities Lawsuit

Moody’s Corp., Fitch Inc. and Standard & Poor’s must face claims in a lawsuit brought by investors in mortgage-backed securities that they violated New Mexico securities law.

U.S. District Judge James O. Browning in Albuquerque, New Mexico, in a Sept. 30 order denied the rating companies’ request to dismiss the claim against them. The judge didn’t provide his reasons for the ruling, saying he will issue a detailed opinion later.

The plaintiffs, led by the Maryland-National Capital Park & Planning Commission Employees’ Retirement and the Midwest Operating Engineers Pension Trust Fund, filed an amended complaint in December, seeking to represent other investors in $5 billion of Thornburg Mortgage Home Loans Inc. mortgage-backed securities.

The investors allege that the rating companies gave the securities false and misleading AAA or Aaa ratings.

In a Feb. 11 request to dismiss the claim, lawyers for the rating companies said every court has rejected efforts to hold them liable under federal securities law.

The plaintiffs’ claim under New Mexico law was a “blatant attempt to avoid the parade of recent decisions that have rightly held that issuing credit ratings is not the same thing as selling or underwriting securities,” according to the filing by the companies.

Browning also granted and denied in part motions to dismiss by the underwriters and other defendants.

“Moody’s believes the lawsuit is without merit and remains confident the claims against it will ultimately dismissed,” Michael Adler, a spokesman for the New York-based company, said in a phone interview.

Ed Sweeney, a spokesman for Standard & Poor’s in New York, had no immediate comment on the ruling. Sandro Scenga, a spokesman for Fitch, didn’t return a call to his office seeking comment.

The case is Genesee County Employees Retirement System v. Thornburg Mortgage Securities Trust 2006-3, U.S. District Court, District of New Mexico (Albuquerque).

Blackstone Rejected by U.S. Supreme Court on IPO Lawsuit

The U.S. Supreme Court refused to halt a proposed investor class-action suit that accuses Blackstone Group LP, the largest private-equity firm, of making inadequate disclosures before its 2007 initial public offering.

The justices yesterday turned away an appeal from Blackstone, leaving intact a federal appeals court’s conclusion that the complaint made plausible allegations that the company omitted material information in its initial public offering prospectus and registration statement. The rebuff lets the litigation move ahead to the evidence-gathering stage.

The investors claim Blackstone Chairman Stephen Schwarzman and other officials knew about problems at two companies in which the New York-based firm had a stake, including one that issued securities tied to subprime mortgages.

The complaint also alleges that Blackstone misrepresented the prospects for its real estate investments by stating in its registration statement that the industry “is experiencing historically high levels of growth and liquidity.”

The case is Blackstone Group v. Litwin, 11-15, U.S. Supreme Court (Washington).

Singapore Pledges Jail, New Tactics for Financial Criminals

Singapore, where assets under management have risen fivefold to $1.2 trillion since 2001, will seek tougher penalties for white-collar criminals and co-operate more with global agencies to deter money laundering and tax evasion, Attorney General Sundaresh Menon said.

Prosecutors are also considering the use of deferred prosecution, Menon, 49, said in an interview, a year after taking office. He was referring to a commonly used method in the U.S. under which defendants who agree to cooperate with investigators, pay fines or implement corporate reforms have charges against them dismissed if they fully comply.

The Asian city-state, which has the highest proportion of millionaires of any place in the world and with economic growth of 14.5 percent last year boosted by two new casinos, was criticized in a March U.S. State Department report as being vulnerable to money launderers.

Menon dismissed suggestions from the U.S. March report that Singapore’s bank secrecy laws attract tax evaders and money launderers.

For more, click here.

Icelandic Court Dismisses Some Charges Against Former Premier

An Icelandic court dismissed two of six charges against former Prime Minister Geir H. Haarde, limiting the scope of a trial designed to determine his culpability in the island’s 2008 banking crisis.

Landsdomur, a special court convening for the first time since its creation in 1905, threw out charges alleging the former premier had neglected his duty as the head of government and for failing to ensure the government studied the risks facing Iceland’s banks.

Haarde will continue to stand trial on charges that he failed to force the country’s bank industry to shrink and for neglecting to ensure that Landsbanki Islands hf established subsidiaries outside Iceland to protect the country from foreign depositor claims. Two other smaller charges were also upheld.

For the latest lawsuits news, click here.

Trials/Appeals

Exxon Says Punitive Awards in Gas-Leak Case Were Excessive

Exxon Mobil Corp. shouldn’t be forced to pay more than $1 billion in punitive damages over a 2006 gasoline leak in Maryland that allegedly fouled residents’ drinking water, lawyers for the world’s largest publicly traded energy company argued in court.

The punishment damages, handed down in June to 160 homeowners and businesses as part of a $1.5 billion jury award, are excessive and weren’t justified based on the facts of the case, John E. Griffith Jr., one of Exxon Mobil’s attorneys, told Baltimore County Circuit Judge Robert Dugan yesterday.

“The evidence is totally insufficient to justify” the awards, Griffin argued in state court in Towson, Maryland. Dugan, who already has rejected Exxon’s request for a new trial, said he would issue a written decision on the punitive-damage awards later.

The $1.5 billion verdict in the environmental case was the second-largest in the U.S. this year and the 21st-largest of all time, according to data compiled by Bloomberg. Officials of Irving, Texas-based Exxon Mobil have asked Maryland’s appellate courts to overturn the verdict.

Jurors handed down the verdict on behalf of residents of the Baltimore County community of Jacksonville for losses tied to a 37-day gasoline leak from a local station’s tank farm. The incident sent more than 26,000 gallons of fuel into the area’s groundwater, according to court filings. The rural community doesn’t have a public water system and relies on wells for drinking water.

The case is Michael Allison v. Exxon Mobil Corp, 03-C-07- 003809, Circuit Court for Baltimore County (Towson).

For more, click here.

Supreme Court May Enter 2012 Election With Politicized Docket

The U.S. Supreme Court may be thrust into the 2012 election campaign with potential cases on President Barack Obama’s health-care law, illegal immigration and affirmative action in the term that started yesterday.

The nine-month session already includes fights over police use of tracking devices and nudity on broadcast television, and review of the health-care law is likely after the Obama administration asked last week for a hearing.

The court may increase the stakes by taking up appeals that aim to limit the use of race by university admissions offices and bolster the power of states to crack down on illegal immigration.

“This term could turn out to be one of the most momentous Supreme Court terms in decades,” said Elizabeth Wydra, chief counsel of the Washington-based Constitutional Accountability Center, which advocates for civil rights and broad federal power.

The court would probably decide the health-care, admissions and immigration cases at the close of its term in late June, less than five months before the November election.

Health care alone would create the rare if not unprecedented scenario of an election-year Supreme Court ruling on a president’s signature legislative accomplishment. Lower courts are divided on the constitutionality of the measure and its requirement that Americans either acquire insurance or pay a penalty. Both the Obama administration and a group of 26 states opposing the law filed Supreme Court appeals last week.

For more, click here.

Berezovsky Seeks $5.56 Billion From Abramovich

A trial of Roman Abramovich, the owner of Chelsea Football Club, began yesterday in London over claims the Russian billionaire forced his former business partner Boris Berezovsky to sell shares in an oil company.

Abramovich, one of Russia’s richest men, lost a Court of Appeals bid to dismiss the lawsuit in February. He has repeatedly denied the allegations. Berezovsky is seeking damages of $5.56 billion in the trial, which is scheduled for 16 weeks.

The dispute stems from a business deal to acquire Sibneft that both men thought “would make them wealthy beyond their wildest dreams,” Berezovsky’s lawyer Laurence Rabinowitz said at yesterday’s hearing. The partnership collapsed when Abramovich decided “wealth and influence were worth more than loyalty.”

Berezovsky, a Russian billionaire living in exile in the U.K., claims Abramovich used “threats and intimidation” to force him to sell shares of OAO Sibneft at a fraction of their value. Berezovsky sold Abramovich the Sibneft stake for $1.3 billion between 2001 and 2003. Then in 2005, Abramovich sold Sibneft to state-run OAO Gazprom for $13.1 billion.

Abramovich allegedly told Berezovsky the Russian government would take the Sibneft shares if he didn’t agree to sell them and his holdings in the aluminum producer United Co. Rusal. Berezovsky has lived in the U.K. since seeking asylum in 2001.

S&P Faces Australia Trial Over Ratings of CDOs Sold to Towns

Standard & Poor’s, the rating company being investigated by U.S. regulators over the nation’s credit downgrade, will face trial in an Australian court to defend allegations it misled investors with ratings of collateralized debt obligations, in the first case of its kind.

Two Australian towns and an insurer sued the U.K. arm of S&P’s owner McGraw-Hill Cos., along with financial-services firms including Royal Bank of Scotland Group Plc, who were involved in the sale of AAA-rated securities that plummeted in value during the global economic crisis in 2008.

“It is my understanding that this is the first trial globally, focusing on a rating agency’s involvement in the CDO debacle that materially contributed” to the global downturn, John Walker, executive director of litigation funder IMF (Australia) Ltd., which is paying for the lawsuit, said in an e- mail. Walker declined to comment further until the start of the trial today.

Statecover Mutual Ltd., a workers’ compensation insurer of local governments in New South Wales, Bathurst regional council and Corowa Shire Council seek to recoup the losses they incurred from the purchase of securities in 2006.

The Bathurst council paid A$1 million ($963,000) to acquire a so-called Community Income Constant Proportion Debt Obligation Note, or a CPDO, on Dec. 20, 2006, and was advised less than two years later that the note was being unwound and the council would receive a repayment on the note of A$67,043, according to the statement of claim.

The CPDO note was rated as AAA by S&P, and a financial market specialist at Local Government Financial Services Ltd. assured Bathurst’s accountants that the CPDO wasn’t like a CDO, in which the council had a specific policy not to invest, the plaintiff said.

“The Standard & Poor’s report was misleading and in material ways misdescribed the characteristics and operations of the CPDO note,” according to the filing.

The trial in Sydney Federal Court before Justice Jayne Jagot is scheduled for 10 weeks.

“We believe the case brought by LGFS and others against McGraw-Hill UK lacks merit,” S&P said in an e-mailed statement yesterday. “Because the action is before the Australian courts it is not appropriate to discuss it.”

The case is Statecover Mutual Ltd. v. Local Government Financial Services Ltd. NSD1268/2010. Federal Court of Australia (Sydney).

For more, click here.

For the latest trial and appeals news, click here.

Verdicts/Settlements

AT&T Rejected by U.S. Supreme Court on $500 Million Tax Refund

The U.S. Supreme Court turned away a bid by AT&T Inc. for a $500 million tax refund in a fight stemming from government subsidies to the company for serving remote areas.

The justices yesterday left intact a federal appeals court ruling that rejected the Dallas-based company’s bid for a refund on its 1998 and 1999 federal taxes.

AT&T received $1.5 billion during those years under the state and federal “universal service” programs. The company sought to treat the money as “contributions to capital,” a classification that would have spread the tax burden over several years.

The Internal Revenue Service disagreed, saying the company had to treat the funds as income for the 1998 and 1999 tax years.

The case is AT&T v. United States, 10-1204, U.S. Supreme Court (Washington).

For the latest verdict and settlement news, click here.

--With assistance from Stephanie Bowdoin in Luxembourg; Tariq Panja, Omar Valdimarsson and Erik Larson in London; Andrea Tan in Singapore; Heather Smith in Paris; Joe Schneider in Sydney; Greg Stohr in Washington; Margaret Cronin Fisk in Southfield, Michigan; Edvard Pettersson in Los Angeles; Bob Van Voris in New York; Jef Feeley in Towson, Maryland; and Mike Lee in Dallas. 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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