Bloomberg News

Goldman, Citigroup, Madoff, JPMorgan, MERS in Court News

October 28, 2011

(Adds Goldman in top section, BP in Lawsuits and Citigroup in Verdicts.)

Oct. 28 (Bloomberg) -- Basis Capital, an Australian hedge fund, said one of its funds filed a new lawsuit in state court in New York against Goldman Sachs Group Inc. over the sale of securities known as Timberwolf and Point Pleasant.

The filing couldn’t immediately be confirmed from court records.

A June 2010 lawsuit by Basis Capital’s Basis Yield Alpha Fund in federal court in Manhattan was dismissed earlier this year. U.S. District Judge Barbara Jones ruled the Australian fund couldn’t use U.S. securities laws to pursue its claims against Goldman Sachs.

The earlier complaint says the fund was forced into insolvency after buying mortgage-linked securities created by Goldman Sachs, in what one Goldman Sachs executive described internally as a “shi--y deal.”

“We remain committed to holding Goldman to account,” Basis Capital director Stuart Fowler said in a statement yesterday.

Edward Naylor, a Hong Kong-based spokesman for Goldman Sachs, said the U.S. bank acted appropriately and Basis Capital wasn’t misled.

“Basis and Goldman Sachs relied on the same data on the underlying mortgages and both were well aware of the prevailing global market conditions,” Naylor said by phone yesterday. “Goldman Sachs was also an investor in Timberwolf securities and lost several hundred million dollars.”

Lawsuits/Pretrial

Citigroup’s $285 Million SEC Settlement Questioned by Judge

Citigroup Inc.’s $285 million settlement with the U.S. Securities and Exchange Commission was questioned by a federal judge who asked both sides to justify the accord as fair.

U.S. District Judge Jed Rakoff, who in 2009 rejected a $33 million settlement between the SEC and Bank of America Corp., set a hearing on the matter for Nov. 9.

Citigroup, the third-biggest U.S. bank, agreed this month to pay the money to resolve SEC claim that the New York-based company misled investors in a $1 billion collateralized debt obligation linked to risky mortgages.

“Why should the court impose a judgment in a case in which the SEC alleges a serious securities fraud but the defendant neither admits nor denies wrongdoing?” Rakoff wrote in the first of nine questions he ordered the parties to address in the hearing.

Danielle Romero-Apsilos, a Citigroup spokeswoman, declined to comment on Rakoff’s order.

In September 2009, Rakoff rejected Bank of America’s settlement with the SEC over claims it misled investors about Merrill Lynch & Co. bonuses, saying the deal suggested “a rather cynical relationship between the parties.”

In his five-page order yesterday, Rakoff told the parties to address whether the public has an interest in determining if the SEC claims against Citigroup are true and how the amount of loss to victims and the proposed judgment against the bank were calculated.

In the Citigroup settlement, announced Oct. 19, both sides agreed to resolve claims that Citigroup structured and sold the collateralized debt obligations in 2007 without telling investors it was betting the underlying assets, about half of which it had helped select, would decline in value.

The case is U.S. Securities and Exchange Commission v. Citigroup Global Markets Inc., 11-cv-7387, U.S. District Court, Southern District of New York (Manhattan).

For more, click here.

Madoff Family May Keep $82 Million Under Ruling Limitation

Bernard L. Madoff’s family would keep about $82 million of “other investors’ money” under a ruling that limited a bankruptcy trustee to claiming from the owners of the New York Mets only two years of withdrawals from the Ponzi scheme, according to a court filing.

The confidence man’s family took out $141 million in the six years before Madoff’s firm went bankrupt in 2008, of which less than $59 million was taken in the two years before the bankruptcy, trustee Irving Picard said in a filing. Many other investors are trying to hang onto “stolen” money that belongs to customers who took losses in the fraud, he said.

“But the trustee is a fiduciary of all customers and, as such, must make every effort to obtain redress for all the customers of BLMIS who fell victim to Madoff’s fraud,” he said in the filing in U.S. District Court in Manhattan yesterday, referring to the Madoff firm.

Picard wrote about the Madoff family in court papers filed after U.S. District Judge Jed Rakoff told him to explain why another investor, James Greiff, shouldn’t keep money he says he took “in good faith” from the Ponzi scheme. Rakoff’s Madoff caseload includes Picard’s suits against the Mets owners and Greiff.

“These arguments implicate the questions about how to integrate the securities and bankruptcy laws,” Rakoff wrote in an order. Under securities law, some withdrawals from a brokerage firm may be protected from clawbacks, he has said.

“Hiding behind the veil of ‘innocent investor,’ Greiff aims to keep money he now knows was stolen from other customers,” Picard told Rakoff.

“This is a public disgrace,” Helen Chaitman, a lawyer for Greiff, said in an e-mail. “Picard owes a fiduciary duty to Mr. Greiff under the Securities Investor Protection Act. Yet, he attacks an innocent victim.”

The case is Picard v. Greiff, 11-cv-03775, U.S. District Court, Southern District of New York (Manhattan).

For more, click here.

Louisiana Must Give BP Data or Lose Spill Claims, Judge Says

Louisiana must quickly turn over all documents BP Plc has requested or face stiff fines and possible dismissal of the state’s claims for environmental and economic losses from the 2010 oil spill, a judge ruled.

If Louisiana fails to meet strict new deadlines, the earliest of which is Nov. 3, the state will be fined $2,500 a day, U.S. Magistrate Sally Shushan said in an order yesterday in New Orleans federal court. That fine rises to $5,000 a day after seven days and to $10,000 a day after 14 days, if Louisiana continues to delay.

“At the end of 21 days of non-compliance, the court will consider, either on its own motion or the motion of any party, whether the claims of Louisiana in this MDL shall be dismissed in whole or in part for failure to prosecute,” Shushan said in a five-page order.

Shushan is assisting U.S. District Judge Carl Barbier of New Orleans, who presides over more than 350 spill-related lawsuits that have been consolidated into a multidistrict litigation proceeding for pretrial processing.

Louisiana must produce documents related to the first phase of the spill trial, to determine liability and which companies must pay for damages suffered by thousands of coastal businesses and property owners from the spill. On Oct. 12, after the judge had granted Louisiana one extension to the document production deadline, the state’s lawyers told Shushan they would need 14 to 16 more weeks to complete that task.

“While the court appreciates that Louisiana is required to expend public funds to produce the documents, it is necessary that its document production be completed so that this MDL proceeding may progress as scheduled,” Shushan said. BP must be given the state’s documents with enough time to be “adequately prepared” for depositions scheduled to begin Nov. 14, she said.

Amanda Larkins, spokeswoman for Louisiana Attorney General James “Buddy” Caldwell, declined to immediately comment.

The case is In Re: Oil Spill by the Oil Rig Deepwater Horizon in the Gulf of Mexico on April 20, 2010, MDL-2179, U.S. District Court, Eastern District of Louisiana (New Orleans).

Lehman Says Bankruptcy Judge Must Keep JPMorgan Lawsuit

Lehman Brothers Holdings Inc. said a bankruptcy judge must handle its $8.6 billion lawsuit against JPMorgan Chase & Co. because the case involves “classic” bankruptcy claims and related common-law claims that don’t require a higher-court ruling.

Lehman sued New York-based JPMorgan last year, saying the bank extracted assets that fatally weakened the firm before its 2008 collapse. JPMorgan said it took the collateral under a federal law enacted to safeguard banks lending to faltering companies. It asked a district judge to decide the case.

The exit from bankruptcy courts became common after a Supreme Court ruling in the Anna Nicole Smith case described limits to the powers of bankruptcy judges. JPMorgan, HSBC Holdings Plc, UniCredit SpA and hundreds of individuals have asked district judges to handle suits brought by the liquidator of Bernard L. Madoff’s firm.

JPMorgan’s effort to move the Lehman case is based on a “mischaracterization” of the claims and the Supreme Court ruling, the bankrupt firm said in a filing.

The bank’s interpretation “is so overbroad as to require a radical alteration of the division of labor between bankruptcy courts and district courts,” it said yesterday in the filing in U.S. District Court in Manhattan.

Joseph Evangelisti, a spokesman for JPMorgan, the largest U.S. bank, declined to comment on the filing.

The District Court case is Lehman Brothers Holdings Inc. v. JPMorgan Chase Bank NA, 11-cv-06760, U.S. District Court, Southern District of New York (Manhattan).

For more, click here.

Wal-Mart Workers Limit Gender Bias Suit to California Stores

Lawyers for women who originally sued Wal-Mart Stores Inc. for sex discrimination on behalf of 1 million co-workers nationwide amended the lawsuit yesterday, limiting it to gender- bias claims by California workers.

The filing comes four months after the U.S. Supreme Court in June barred the case as a class action covering all U.S. stores, saying the women failed to prove the world’s largest retailer had a nationwide policy that led to gender discrimination. The Supreme Court sent the suit back to federal court in San Francisco, where it was first filed in 2001.

The new filing alleges that Wal-Mart blocked women in California from promotions and paid them less in management and hourly positions than men doing comparable work. Lawyers for the women said they amended the suit to respond to the Supreme Court’s rejection of the nationwide class.

“The Supreme Court did not rule on the merits of the action, but only ruled that the class as certified could not proceed,” they said in yesterday’s filing. “It did not preclude prosecution of a class that was consistent with its newly announced guidelines and standards.”

The amended lawsuit was filed by five current or former company employees on behalf of all women working in California Wal-Mart and Sam’s Club stores from December 1998 to the present. At least 95,000 current and former female Wal-Mart workers may be covered by the new complaint, said Brad Seligman, an attorney for the employees.

The new filing won’t answer the Supreme Court’s concerns, said attorney Theodore J. Boutrous Jr., who represents Bentonville, Arkansas-based Wal-Mart.

“The Supreme Court rejected these very same class action theories when it reversed the plaintiffs’ lawyers’ last effort in June,” he said in an e-mail. “The plaintiffs’ lawyers do not come close to meeting the standards for obtaining class certification and their arguments still rely on the same incorrect and discredited theories that the Supreme Court repudiated.”

The California action is the first of “an armada of cases” to be filed against Wal-Mart on behalf of female employees in individual states or regions, said attorney Joseph Sellers, who also represents the women.

The California lawsuit is Dukes v. Wal-Mart Stores Inc., 01-cv-02252, U.S. District Court, Northern District of California (San Francisco). The Supreme Court case is Wal-Mart v. Dukes, 10-00277, U.S. Supreme Court (Washington).

For more, click here.

For the latest lawsuits news, click here.

New Suits

Mortgage Registry MERS Sued by Delaware Attorney General

Merscorp Inc., the operator of a national mortgage registry used by banks, was sued by Delaware’s attorney general for allegedly using deceptive practices that hide information from borrowers.

The MERS database, which tracks ownership interests in mortgages, impeded the ability of homeowners to fight foreclosures and obscures its data, Delaware Attorney General Beau Biden said in a complaint filed yesterday.

“MERS engaged and continues to engage in a range of deceptive trade practices that sow confusion among consumers, investors and other stakeholders in the mortgage finance system, damage the integrity of Delaware’s land records, and lead to unlawful foreclosure practices,” Biden said.

MERS tracks servicing rights and ownership interests in mortgage loans on its electronic registry, allowing banks to buy and sell loans without recording transfers with individual counties. MERS acts as the lender’s nominee, remaining the mortgagee of record as long as the note promising repayment is owned by a MERS member.

Janis Smith, a spokeswoman for Merscorp, said the allegations in the suit have no merit.

“MERS’s business practices are transparent,” she said in a phone interview. “There is no confusion.”

“Merscorp has cooperated in good faith with the Delaware attorney general’s office and complied with their requests for information under a subpoena issued earlier this year,” Smith said. “The lawsuit they filed was unexpected, and we disagree with the allegations made in their complaint.”

The case is State of Delaware v. MERSCORP Inc., CA6987, Delaware Chancery Court (Wilmington).

For more, click here.

Two Innospec Ex-CEOs Charged Over Alleged Bribes in Indonesia

Two former chief executive officers of Innospec Ltd. were charged with trying to bribe officials of the Indonesia government to win contracts to supply the fuel additive tetraethyl lead.

Dennis Kerrison, 67, of Surrey, and Paul Jennings, 54, of Cheshire, were charged yesterday with conspiracy to corrupt at a London criminal court. Kerrison was CEO of the company under its previous name, Octel Corp., according to the Serious Fraud Office, which is prosecuting the case. The charges cover a six- year period, from 2002 until 2008.

Jennings is also accused of conspiring to bribe Iraqi government officials to secure contracts to supply products including tetraethyl lead, and for the officials to give poor reviews to a competing product manufactured by the Ethyl Corp. subsidiary of Richmond, Virginia-based NewMarket Corp.

Kerrison, who worked for Innospec until early 2005, has been cooperating with the SFO, he said in a statement sent by his spokesman.

“It is a matter of great regret that they have not listened to the substantial points made by him,” spokesman Andy Wigmore said in the e-mailed statement. “He will be vigorously defending the allegation that he directed, managed or was involved in bribery.”

Jennings’s lawyer, Angus McBride, didn’t immediately respond to a request for comment. Both men were released on bail and are scheduled to appear at a higher criminal court on Jan. 6.

Madoff Trustee Sues Somers Dublin Seeking $86.4 Million

The trustee liquidating Bernard Madoff’s defunct firm sued Somers Dublin Ltd., an Irish affiliate of HSBC Holdings Plc, seeking $86.4 million.

Trustee Irving Picard said he aims to recover “customer property” from companies that invested with Fairfield Sentry Ltd., a so-called feeder fund that placed money in Madoff’s Ponzi scheme. Picard demanded the return of any funds received from investments with Fairfield, according to the lawsuit filed yesterday in U.S. Bankruptcy Court in Manhattan.

HSBC Securities Services (Ireland) Ltd. owns Somers Dublin, which has offices in Dublin, according to the complaint. HSBC Holdings, based in London, is Europe’s biggest bank. Somers Nominees (Far East) Ltd., a Bermudan company, was also named in the lawsuit.

Somers Dublin officials couldn’t immediately be reached for comment on the lawsuit after business hours in Ireland.

Fairfield is in liquidation in the British Virgin Islands.

The case is Picard v. Somers Dublin Ltd., 11-02784, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

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

Trials

Chelsea Owner Abramovich to Take Stand in Billionaire Battle

Roman Abramovich, the billionaire owner of Chelsea Football Club, had to watch from the other side of the courtroom as his former business partner Boris Berezovsky called him a “gangster” who wasn’t smart enough to succeed on his own.

In the next stage of a London trial pitting two of the world’s richest men against each other, Abramovich will take the witness stand to defend himself. His testimony is scheduled to begin Nov. 2.

Exiled Russian businessman Berezovsky said he was intimidated by Abramovich into selling his stakes in state-owned companies for less than they were worth. He is seeking $6.8 billion in damages, including interest, in the trial that began earlier this month.

Berezovsky, who built Russia’s largest car dealership LogoVaz in the 1990s, was cross-examined for seven days, more than 30 hours of court time, before stepping down from the witness box Oct. 17. In tense exchanges with Abramovich’s lawyer Jonathan Sumption, he was accused of money laundering and lying to support his case.

“You are prepared to say anything in a document put before the English courts, whatever you think suits your case, whether it is true or not,” said Sumption.

Abramovich, who is 53rd on Forbes’ list of the world’s richest people and rarely speaks in public, will probably have to spend at least as long as Berezovsky did on the stand, Max Hastings, a member of Berezovsky’s legal team, said in a phone interview last week.

Karyl Nairn, a lawyer representing Abramovich, didn’t respond to an e-mail seeking comment on the trial.

The two men present contrasting versions of the events which turned them from friends and allies into enemies. Berezovsky claims Abramovich told him the Russian state would seize his shares in OAO Sibneft and United Co. Rusal unless he sold them in 2001 and 2003.

Abramovich said Berezovsky’s role was as a political power broker and that he had no actual stake in either company.

For more, click here.

For the latest trial and appeals news, click here.

Verdicts/Settlements

Citigroup Wins Approval of $13.5 Million Investor Accord

Citigroup Inc., the third-biggest U.S. bank, won court approval of a $13.5 million settlement of shareholder claims over the sale of its former Student Loan Corp. unit.

The accord, which provided an extra $2.50 a share to Student Loan investors, was “an excellent result,” Delaware Chancery Court Judge Travis Laster said before approving the settlement yesterday at a hearing in Wilmington.

Investors sued Student Loan in September 2010, alleging they were getting shortchanged in the $600 million sale to Discover Financial Services. Laster declined to block the deal last year, saying shareholders could seek damages later in a trial. The Student Loan unit was one of at least 21 Citigroup businesses put up for sale by Chief Executive Officer Vikram Pandit following the bank’s $45 billion bailout in 2008.

Citigroup is “pleased the settlement has received the court’s approval,” Shannon Bell, a spokeswoman for the New York-based bank, said in an e-mailed statement.

Student Loan, based in Stamford, Connecticut, agreed to the $30-a-share bid by Riverwoods, Illinois-based Discover in September 2010. The offer was 40 percent more than the trading price of the Citigroup unit’s shares at the time.

The takeover made Discover the third-largest U.S. provider of private student loans, behind SLM Corp. and Wells Fargo & Co. The sale to Discover also involved the acquisition of some loan portfolios by Citigroup and SLM, Laster said yesterday.

Student Loan investors argued that directors didn’t shop around enough for the best price for the Citigroup unit and failed to make proper disclosures about the deal. Student Loan executives later disclosed more information about the fees paid to bankers advising them on the deal, Laster said.

The Delaware case is Kahn v. Student Loan Corp., CA5832, Delaware Chancery Court (Wilmington).

For more, click here.

Ex-Primary Global Executive Fleishman Seeks New U.S. Trial

Former Primary Global Research LLC executive James Fleishman, convicted of two counts of conspiracy in September as part of a U.S. crackdown on insider trading, is asking for the charges to be dismissed or for a new trial.

Fleishman was convicted Sept. 20 by a federal jury in Manhattan of helping pass confidential information to fund managers as part of an insider-trading scheme. Prosecutors said Fleishman obtained and passed confidential data from technology company employees who were moonlighting as consultants for Mountain View, California-based Primary Global. The secret tips were given to fund managers who paid Primary Global fees for consultation calls, prosecutors said.

Fleishman’s lawyer, Ethan Balogh, said in court papers filed Oct. 26 that prosecutors failed to establish that any acts to further the conspiracy occurred in New York. Balogh also argued that Fleishman was improperly told that the only way he would be allowed to testify in his own defense was if he turned over to prosecutors diaries during a four-year period.

Testimony about a June 2009 meeting in Manhattan between Fleishman and Karl Motey, an independent consultant who was cooperating with the government and wearing a body wire, failed to establish that Fleishman committed any wrongdoing during that meeting, Balogh said.

“The government failed to present sufficient evidence of venue in the Southern District of New York,” Balogh said in court papers.

A spokeswoman for U.S. Attorney Preet Bharara in Manhattan couldn’t immediately be reached for comment.

The case is U.S. v. Nguyen, 11-cr-32, U.S. District Court, Southern District of New York (Manhattan).

For the latest verdict and settlement news, click here.

--With assistance from Bob Van Voris, David McLaughlin, Patricia Hurtado and Linda Sandler in in New York; Margaret Cronin Fisk in Detroit; Lindsay Fortado and Kit Chellel in London; Phil Milford, Jef Feeley and Dawn McCarty in Wilmington, Delaware; Karen Gullo and Michael Hytha in San Francisco; Laurel Brubaker Calkins in Houston; and Margaret Cronin Fisk in Southfield, Michigan. 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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