Bloomberg News

Soros, Galleon, BSkyB, BNY Mellon, BofA, S&P in Court News

October 05, 2011

(Adds Soros in top section, Rajaratnam in Verdicts, BNY Mellon and BofA in New Suits and MERS in Lawsuits.)

Oct. 5 (Bloomberg) -- Billionaire investor George Soros’s fight against his 2002 insider-trading conviction in France, over the sale of Societe Generale SA shares, may end tomorrow when the European Court of Human Rights rules on his appeal.

The 81-year-old claimed his conviction was based on rules the stock-market regulator said were too vague to determine whether he acted illegally. That violated his rights under the European Convention on Human Rights, he argued.

Soros was convicted of insider trading and ordered to repay 2.2 million euros ($2.9 million) he made from the 1988 share purchase after a Paris court found he acted with the knowledge that the bank might be a takeover target. French stock market regulators didn’t pursue Soros, saying insider-trading laws were too vague to determine whether he had broken them.

The decision to pursue Soros without the support of the regulator was “rare” for French courts and done more “in consideration of the persona of Mr. Soros,” said Denis Chemla, a Paris partner in Herbert Smith LLP’s Paris office. The case spawned a lot of “fantasies; it was a French institution under attack by a cosmopolitan international financier.”

Soros turned to the human rights tribunal in December 2006 after he lost his appeal to the Cour de Cassation, France’s top court, which quashed the fine while upholding the conviction.

The human rights court can review whether the defendants’ human rights were respected. If he wins, Soros may ask French judges for the conviction to be overturned. Tomorrow’s decision can be appealed to the Strasbourg, France-based court’s Grand Chamber.

“We are hopeful that the court will rule along the lines of its preliminary judgment on admissibility last year,” Ron Soffer, Soros’s attorney, said in a telephone interview yesterday. “If it isn’t clear to the market regulator, then it should be presumed not clear; I don’t think the courts should apply novel interpretations of the law retroactively.”

Verdicts/Settlements

Rajaratnam Says He Deserves No More Than 8 Years in Prison

Galleon Group LLC’s Raj Rajaratnam, claiming that prosecutors overstated how much he profited from directing what they called the biggest hedge fund insider-trading scheme in history, said he should get a prison term of 6 1/2 to 8 years.

Rajaratnam, 54, was convicted in May of 14 counts of securities fraud and conspiracy. Prosecutors, who say he made $72 million from his crimes, asked for a term ranging from 19 years and seven months to 24 1/2 years, citing federal sentencing guidelines and the “historic nature of his crimes.”

At a hearing yesterday in Manhattan federal court, defense lawyer Terence Lynam said the calculations by prosecutors were wrong. Rajaratnam made only $7.4 million personally in management fees and from Galleon trades, Lynam said. Prosecutors rejected the defense position.

“The government has proved beyond a reasonable doubt that he was a serial insider trader,” Assistant U.S. Attorney Reed Brodsky told U.S. District Judge Richard Holwell, who will preside over Rajaratnam’s sentencing Oct. 13.

Lynam argued Rajaratnam didn’t deserve the enhanced sentence sought by prosecutors, saying the government improperly calculated Rajaratnam’s gains from trading on information from insiders, as well as losses he avoided through the schemes.

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

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Premier League, Pubs Get Split EU Court Ruling on TV Rights

The Premier League’s geographic restrictions on broadcasters such as British Sky Broadcasting Group Plc showing its soccer matches breach European Union antitrust rules, the bloc’s highest court said in a ruling that may still limit what pub and bar owners can show customers.

The EU Court of Justice in Luxembourg ruled that territorial licenses are “contrary” to competition law “if the license agreements prohibit the supply of decoder cards to television viewers who wish to watch the broadcasts.” While the court said anyone can watch such broadcasts, pubs can’t show the feeds via foreign decoder cards without the permission of the copyright owner, such as the broadcasters and the league.

The Premier League, home to some of Europe’s most successful clubs including Manchester United and Liverpool, 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 ruling offers something for the league and the U.K. pub owner who tried to show local matches from a Greek provider.

“On one hand now it’s very blunt and very clear that absolute territorial restrictions on how right holders license their exclusive rights are not permitted,” said Daniel Geey, a lawyer at Field Fisher Waterhouse LLP in London. “The Premier League will get some comfort that the actual feed that goes out, which does contain copyrighted aspects, cannot be shown without the right holder’s permission.”

The EU court case was triggered by two cases pending at the U.K. High Court. In one, Karen Murphy, the owner of the Red, White and Blue Pub in Southsea, England, faces a criminal lawsuit after buying a decoder card that allows her to show league games from Greek television. BSkyB, the U.K.’s biggest pay-TV operator, said the cards are “illicit” because they’re being used outside their specified area.

The current system is “not a fair, free choice,” Murphy said yesterday in an interview with British Broadcasting Corp., adding she paid about 800 pounds a year for the Greek service, compared with the 700 pounds a month that a Sky package would have cost. Sky and the league would “do anything, obviously, to protect their income.”

The Premier League said that the judgment “makes it clear that the screening in a pub of football-match broadcasts containing protected works requires the Premier League’s authorization.”

BSkyB spokesman Robert Fraser declined to immediately comment.

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.

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Expedia Mislabeled Available Rooms as Booked, Court Says

Online travel agency Expedia Inc. engaged in “misleading marketing practices” by showing rooms as booked and mislabeled who offered promotional prices on rooms, a Paris court ruled yesterday.

The court found Expedia had fixed the issues before the trial and ordered that it pay about 367,000 euros ($484,000) to Synhorcat, a French hotel and restaurant association, and two hotels that joined its claim for unfair business practices.

Expedia said in an e-mailed statement that the decision “recognizes the efforts made and the results obtained to improve access to information and transparency.”

Expedia, based in Bellevue, Washington, and its TripAdvisor unit, were sued by the group and hotels in Paris and Brittany, with the support of the consumer-protection division of France’s finance ministry. Synhorcat claimed Expedia advertised reduced rates at hotels without their consent, showed available rooms as fully booked and inserted third-party bookers’ phone numbers in place of the hotels’.

For the latest verdict and settlement news, click here.

New Suits

BNY Mellon Sued by U.S., N.Y. Over Foreign-Currency Trading

Bank of New York Mellon Corp. was sued by the U.S. Attorney’s Office in Manhattan and the New York attorney general for allegedly defrauding clients in foreign currency trades.

The bank earned $2 billion through a 10-year fraud in which it misrepresented to customers its pricing practices, according to a complaint by New York Attorney General Eric Schneiderman and the City of New York. The U.S. Attorney’s Office filed a separate suit in federal court.

“From at least 2001 to the present, the bank has engaged in a multipronged campaign of deception,” the state and city said in their complaint in state Supreme Court in Manhattan. The two filings couldn’t immediately be confirmed in online court records.

The bank’s scheme defrauded thousands of clients nationwide, according to the New York complaint. Victims included public and private pension funds and federally insured financial institutions, officials said in court papers and in statements. New York City pension funds, including the Teachers’ Retirement System of the City of New York, lost tens of millions of dollars, they said.

The lawsuits come after attorneys general in Florida and Virginia sued BNY Mellon in August. Like New York, those states allege the bank overcharged public retirement funds in foreign- exchange transactions. The New York complaint supersedes, or replaces, a whistleblower lawsuit filed in 2009, Schneiderman’s office said in a statement.

BNY Mellon will fight the lawsuits, said Kevin Heine, a spokesman for the bank. The complaints are based on the same “flawed analysis” and a misunderstanding of the global foreign exchange market, he said.

“Simply put, this is the kind of prosecutorial overreach that ill serves New York, New Yorkers and the pension funds that the Office of the New York Attorney General purports to represent,” Heine said in an e-mailed statement.

The cases are United States of America v. Bank of New York Mellon Corp., U.S. District Court, Southern District of New York (Manhattan), and People of the State of New York v. Bank of New York Mellon Corp., 114735-2009, New York State Supreme Court (Manhattan).

For more, click here.

BofA, JPMorgan Accused of Charging Veterans Illegal Fees

Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo & Co. were among 13 banks and mortgage lenders accused in a so- called whistleblower lawsuit of charging military veterans illegal fees to refinance home loans.

The banks charged fees barred under a U.S. Department of Veterans Affairs program and hid the charges to get government guarantees for the loans, according to the whistleblower complaint brought in 2006 by two mortgage brokers that was unsealed Oct. 3 in federal court in Atlanta.

“This is a massive fraud on the American taxpayers and American veterans,” James E. Butler Jr., a lawyer for the plaintiffs, said in an e-mailed statement. “Knowing they weren’t allowed to charge the fees, the banks and mortgage companies inflated allowable charges to hide these illegal fees without telling the veterans who were the borrowers or the VA they were doing so.”

The Justice Department isn’t joining the lawsuit, according to a Sept. 30 filing by the U.S. Attorney’s office in Atlanta.

The whistleblowers, who worked for Financial Services Inc., doing business as Veteran’s Mortgage Co., accuse the banks of violating the U.S. False Claims Act and seek $5,500 to $11,000 in damages on behalf of the U.S. for each violation.

Lawrence Grayson, a spokesman for Charlotte, North Carolina-based Bank of America; Vickee Adams, a spokeswoman for San Francisco-based Wells Fargo; and Joe Evangelisti, a spokesman for New York-based JPMorgan, declined to comment on the lawsuit.

The case is U.S. ex rel. v. Wells Fargo, 06-547, U.S. District Court, Northern District of Georgia (Atlanta).

News Corp. Sued by 13 People in a Day as Hacking Cases Grow

News Corp.’s U.K. unit was sued by 13 people yesterday and at least 24 since last week over claims related to phone-hacking at the defunct News of the World tabloid.

The latest rash of lawsuits in London include complaints filed by pop star Dannii Minogue; Paul Burrell, Princess Diana’s former butler; and Sara Payne, the mother of a murdered eight- year-old girl, who had close ties to the newspaper.

News Corp. now faces at least 64 lawsuits linked to the phone-hacking scandal that forced the company to shutter the weekly tabloid in July. The company is facing probes by British police and an independent body set up by the U.K. government into the activities of reporters and private investigator Glenn Mulcaire, who was jailed in 2007 for hacking into voice-mails.

“So far, fewer than 5 percent of the victims of Glenn Mulcaire have been notified,” Mark Lewis, a lawyer for some phone-hacking victims, said in an e-mail. “He was just one agent used by one paper. When the final tally takes place, we will see thousands of claims and more than one paper.”

News Corp. has reached settlements with at least two celebrities who sued the newspaper. Actress Sienna Miller agreed to a 100,000-pound ($154,000) payout and sports commentator Andy Gray will receive 20,000 pounds. Both will also receive legal costs.

“News International is committed to reaching fair and where possible swift settlements with victims of illegal voice- mail interception and has unreservedly apologized to those affected,” a spokeswoman for News Corp.’s U.K. unit said in an e-mailed statement.

The company has a 20 million-pound fund to settle phone- hacking cases. Lewis said that as the number of plaintiffs grows, his own estimate of 100 million pounds looks like “a serious underestimate.” News Group agreed to pay one Lewis client, the family of murdered schoolgirl Milly Dowler, a settlement valued at 3 million pounds, a person familiar with the matter said last month.

For more, click here.

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

Lawsuits/Pretrial

MERS Wins Dismissal of 72 Suits Challenging Its Legality

Mortgage Electronic Registration Systems Inc. won dismissal of 72 lawsuits questioning the legality of its system for allowing banks to use it to register home loans.

U.S. District Judge James A. Teilborg in Phoenix, where the cases have been centralized, dismissed the litigation in an Oct. 3 order. Teilborg rejected the homeowners’ claims that MERS is a “sham beneficiary” and that foreclosures based on MERS documents are invalid. The decision echoed a federal appeals court ruling last month that upheld an earlier holding of his.

“MERS serves as the beneficiary on plaintiffs’ deeds of trust, as the nominee or agent for ‘any valid note holder,’” Teilborg wrote.

MERS, a unit of Reston, Virginia-based Merscorp Inc., bills itself as a provider of “support services to the mortgage industry,” specifically tracking the servicing rights and ownership interests in mortgage loans. The company lets banks electronically register their sales of home loans so they can avoid trudging down to the county records office.

“The master complaint has been dismissed and we’ll be appealing that decision,” Robert Hager, a Reno, Nevada-based lawyer for the borrowers, said in a phone interview.

Teilborg said the borrowers failed to show that MERS isn’t a beneficiary on the deed of trust, that the MERS deeds are invalid or that MERS’s assignments of the deeds were defective because it didn’t have the right to make the transfers.

The case is In re Mortgage Electronic Registration Systems (MERS) Litigation, 09-md-2119, U.S. District Court, District of Arizona (Phoenix); the appeal is Cervantes v. Countrywide, 09- 17364, U.S. Court of Appeals for the Ninth Circuit (San Francisco).

For more, click here.

IRS Stingy With Whistleblower Payouts, Slow to Follow Up Tips

The IRS took more than four years to reward a whistleblower through a new program to encourage tipsters and has drawn criticism from the Government Accountability Office for failing to move faster.

A recent GAO study found that the program, which has attracted tips from more than 1,300 whistleblowers, doesn’t collect data that could speed up evaluation of information that started to pour in after Congress authorized the Internal Revenue Service to establish the office in late 2006.

“Five years later, they have to start paying rewards,” Stephen Kohn, executive director of the National Whistleblower Center, a Washington-based nonprofit group that advocates for government informants, told Bloomberg Government.

The 2006 law was designed to help the IRS narrow the tax gap, which is the difference between taxes owed and taxes paid. The gross amount of the gap is estimated to be $345 billion.

Senator Charles Grassley, an Iowa Republican who pushed for the law, noted that by comparison the U.S. Justice Department has collected more than $27 billion under the False Claims Act, the law upon which the IRS whistleblower statute is modeled. The figure cited by Grassley reflects recoveries since 1986 changes to the law and includes at least $7.8 billion collected since 2009, according to Justice Department figures.

“Here’s an opportunity for the IRS to get the help of a lot of non-IRS employees, the same way the Justice Department is getting the help of a lot of non-Justice employees,” Grassley said in a telephone interview.

He recently asked the IRS to address issues identified by the GAO report and by whistleblower advocates. Grassley, who said he knows of only one IRS whistleblower award, said the agency is slow to pursue tips because of concerns that the information could reflect negatively on its enforcement.

For more, click here.

For the latest lawsuits news, click here.

Trials

S&P Rating in Australia Based on ‘Imagined Events’

Standard & Poor’s, under investigation by the U.S. over the nation’s credit downgrade, gave its highest rating to notes whose value was dictated by “imagined events,” a lawyer for a group of Australian investors told a court.

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

“The note is really just a series of rules,” Noel Hutley, lawyer for the plaintiffs, told Federal Court Justice Jayne Jagot yesterday in Sydney at the start of a scheduled 10-week trial. The rules were supposed to be affected by external events, yet were “akin to a game” with “imagined events” dictating the outcome, Hutley said.

Bathurst regional council and Corowa Shire Council seek to recoup losses they incurred from the purchase of securities in 2006.

The Bathurst council paid A$1 million ($948,600) to acquire a 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 start of Hutley’s opening statement was dominated with explanations and definitions of terms involved in the construction and sale of the CPDOs.

ABN Amro Bank NV, one of the lenders involved in the sale of the notes, objected to Hutley’s proposal to allow his opening statement to be made public.

The statement contains “sensationalist allegations” that aren’t based on filings in court, said Ian Jackman, the bank’s lawyer.

The case is Bathurst Regional Council v. Local Government Financial Services Ltd., NSD936/2009, Federal Court of Australia (Sydney).

For more, click here.

H&R Block Gives Justice Department Test for AT&T Trial

The government’s fight to keep H&R Block Inc. from buying the maker of TaxAct products gave the Justice Department unit seeking to block AT&T Inc.’s purchase of T-Mobile USA Inc. its first merger trial in seven years.

“It doesn’t matter whether it’s a relatively small transaction or a transaction involving billions of dollars, the law should be applied the same way,” Joseph Wayland, the deputy head of the antitrust division, said in closing arguments Oct. 3. “This merger totally lacks any redeeming features.”

U.S. District Judge Beryl Howell in Washington said she expected to decide by the end of the month whether H&R Block’s $287.5 million acquisition of closely held 2SS Holdings Inc. violates antitrust law.

Howell’s ruling could serve as a template for the judge overseeing the government’s case against AT&T, which is scheduled for trial on Feb. 13, said Washington antitrust lawyer David Balto.

“If the Justice Department is unsuccessful, it could pose significant obstacles to its objection to the AT&T merger,” Balto said in an interview.

The lawsuits against AT&T and H&R Block are among a handful of occasions in the past decade when the Justice Department sued to block a merger. In the AT&T and H&R Block cases, Wayland, who joined the antitrust unit a year ago from Simpson Thacher & Bartlett LLP in New York, leads the litigation.

The case is U.S. v. H&R Block, 1:11-cv-00948, U.S. District Court, District of Columbia (Washington).

For more, click here

Berlusconi’s Fininvest Contests Mondadori Ruling in Filing

Fininvest SpA, the investment company owned by Prime Minister Silvio Berlusconi, submitted a filing contesting an Italian appeals court ruling requiring the company to pay Compagnie Industriali Riunite SpA 564 million euros ($744 million).

Fininvest said in a statement yesterday that it made the filing with the Ministry of Justice and the country’s highest court.

CIR said in a separate statement yesterday that Fininvest’s move is “a groundless attempt” to overturn the ruling made by the appeals court in July regarding the takeover battle for publisher Arnoldo Mondadori Editore SpA dating back to 1991.

For the latest trial and appeals news, click here.

Litigation Departments

Chicago Lawyer Agrees With U.S. to Stop Touting Tax Shelters

A Chicago tax attorney consented to a court order barring him from promoting tax shelters that the U.S. claimed were phony.

John E. Rogers agreed to the entry of orders against him and two businesses, Sugarloaf Fund LLC and Jetstream Business Ltd., without admitting to allegations made in a federal complaint filed last year in federal court in Chicago.

The U.S. Justice Department accused Rogers of using distressed Brazilian debt to improperly reduce his customers’ reported income, leading to more than $370 million in deductions. U.S. District Judge Samuel Der Yeghiayan signed the orders on Sept. 30.

“The Justice Department is committed to exposing and shutting down fraudulent tax shelters and their promoters,” D. Patrick Mullarkey, acting assistant U.S. attorney general in the Justice Department’s tax division, said yesterday in a statement announcing the ban on Rogers and his businesses.

Rogers, reached by phone at his Chicago law office, declined to comment on the court orders. He was formerly affiliated with the law firm Seyfarth Shaw LLP.

The case is U.S. v. Rogers, 10-cv-07068, U.S. District Court, Northern District of Illinois (Chicago).

For the latest litigation department news, click here.

--With assistance from Heather Smith in Paris; Tom Schoenberg and Andrew Zajac in Washington; David Voreacos in Newark, New Jersey; Stephanie Bodoni in Luxembourg; Andrew Harris in Chicago; Joe Schneider in Sydney; Kit Chellel in London; Thom Weidlich in Brooklyn, New York; Edvard Pettersson in Los Angeles; Patricia Hurtado and David McLaughlin in New York; and Chiara Remondini in Milan. 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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