(Updates Bank of America with judge’s comments in Verdicts section.)
Nov. 8 (Bloomberg) -- JPMorgan Chase & Co. was sued by two investors who claim the bank was “at the very center” of Bernard Madoff’s Ponzi scheme.
The investors, Stephen and Leyla Hill, claim JPMorgan should have been aware that Bernard L. Madoff Investment Securities LLC was passing all the money he stole from customers through a JPMorgan account known as the “703 Account.” They seek to represent all investors who had money invested with Madoff in December 2008, when he was arrested and the fraud collapsed. He was convicted and sentenced to 150 years in prison.
“While numerous financial institutions enabled Madoff’s fraud, JPMC was at the very center of that fraud, and thoroughly complicit in it,” the Hills said in a complaint filed yesterday in Manhattan federal court. “JPMC could not perform even cursory due diligence on Madoff or BLMIS without bumping up against evidence of Madoff’s fraud.”
The suit comes a week after a judge dismissed $19 billion in claims by the trustee liquidating Madoff’s former firm. On Nov. 1, U.S. District Judge Colleen McMahon in Manhattan ruled that the trustee, Irving Picard, isn’t the legally appropriate party to demand common-law damages on behalf of former Madoff investors such as the Hills.
Jennifer Zuccarelli, a spokeswoman for New York-based JPMorgan, didn’t return a call seeking comment on the lawsuit.
The case is Hill v. JPMorgan Chase & Co., 11-07961, U.S. District Court, Southern District of New York (Manhattan).
JPMorgan Sued by Louisiana Pension Over Treasury Sanctions
JPMorgan Chase & Co. was sued by Louisiana’s pension fund for police, which said the bank’s $88.3 million settlement with the U.S. Treasury Department stemmed from a breach of fiduciary duty by its directors.
The complaint, filed yesterday in New York State Supreme Court in Manhattan, follows an Aug. 25 announcement that the company agreed to resolve alleged violations of international sanctions programs including Cuban assets control and anti- terrorism regulations.
The Louisiana Municipal Police Employees Retirement System, an investor in JPMorgan that provides retirement benefits for full-time municipal police officers in Louisiana, accused the current directors of the New York-based bank, including Chairman Jamie Dimon, of “knowingly” allowing and rewarding violations of Treasury Department programs.
“The misconduct occurred, unchecked, under the defendants’ watch because of their complicity in the improprieties alleged herein,” the pension fund said in the complaint. “Because of its acquiescence in the scheme, JPMC’s board cannot be disinterested and independent.”
The Treasury said that JPMorgan, through its correspondent banks, maintained prohibited financial transactions with sanctioned entities in countries including Cuba and Iran. The JPMorgan payment agreed upon by the Office of Foreign Assets Control, known as OFAC, involves “egregious” violations for five years, according to a Treasury Department statement.
The OFAC enforcement action covers actions from December 2005 to March 2011 involving multiple violations of sanctions programs, the Treasury Department said. The violations include processing 1,711 wire transfers totaling $178.5 million from December 2005 to March 2006 involving Cuban people and a trade loan of $2.9 million with a blocked affiliate to the Islamic Republic of Iran Shipping Lines.
OFAC said the $88.3 million payment from JPMorgan is based on the bank’s cooperation, transaction review and the absence of an OFAC notice or finding of violation during the five years of the transactions.
The lawsuit seeks unspecified damages “caused by the individual defendants’ unlawful course of conduct and breaches of fiduciary duty,” including costs to the company associated with the settlement, remedial measures, damage to goodwill and “increased regulatory scrutiny.”
Jennifer Zuccarelli, a spokeswoman for JPMorgan, declined to comment on the lawsuit.
The case is Louisiana Municipal Police Employees Retirement System v. Dimon, 653083/2011, New York State Supreme Court (Manhattan).
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Ex-New Star Manager Sues Over Bullying, Being Called Moron
Patrick Evershed, a former New Star Asset Management Holdings Inc. fund manager, was bullied by company founder John Duffield and called a “criminal” and a “moron,” Evershed’s lawyer said.
Evershed is suing New Star for unfair dismissal at a London employment tribunal. His lawyer, Daphne Romney, said at the first day of the trial yesterday that he was subjected to “a very unpleasant environment.”
Duffield “called the fund managers morons and criminals,” including Evershed, Romney said. He “asked if they were ashamed of themselves when their funds performed poorly” and was “angry, antagonistic and unpleasant.”
Evershed was suspended by the fund’s chief executive officer, Howard Covington, in 2008, shortly after writing a letter to New Star’s human resources department complaining about Duffield’s conduct. In the letter, Evershed said Duffield “has been most vile to most of the fund managers for several years and bullying us.”
Evershed later resigned and sued the fund in October 2008. Evershed said he joined New Star in 2002, after being recruited by Duffield, under the agreement that his New Star Select Opportunities Fund wouldn’t exceed investments of 50 million pounds ($80 million). He said the limit was critical to its success, according to an appeals court judgment from last year that permitted him to pursue the claims.
Most U.K. unfair dismissal claims are capped at about 65,000 pounds ($104,000). Evershed is also pursuing whistleblowing claims that may have a higher value. The trial is scheduled to last 10 days. A request for comment to New Star’s law firm, Olswang LLP, wasn’t returned.
Patrick Evershed v. New Star Asset Management, case no. 2203495/2008, Central London Employment Tribunal.
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Cigarette Warnings Blocked by Court on Free-Speech Grounds
A federal judge blocked new U.S. rules for graphic health warnings on cigarette packaging from taking effect, saying the required text and images may violate tobacco companies’ free speech rights.
U.S. District Judge Richard Leon in Washington ruled yesterday that ordering tobacco companies, including Lorillard and R.J. Reynolds Tobacco Co., to display images of diseased lungs and a cadaver with chest staples on an autopsy table may “unconstitutionally compel speech.”
Leon postponed the Sept. 22 deadline for the regulations to take effect while he reviews the constitutionality of the Food and Drug Administration rule.
“While the line between the constitutionally permissible dissemination of factual information and the impermissible expropriation of a company’s advertising space for government advocacy can be frustratingly blurry, here -- where these emotion-provoking images are coupled with text extolling consumers to call the phone number ‘1-800-QUIT’ -- the line seems quite clear,” Leon said in his ruling.
Lorillard, R.J. Reynolds, Commonwealth Brands Inc., Liggett Group LLC and Santa Fe Natural Tobacco Co. sued the FDA in August, claiming its mandates for cigarette packages, cartons and advertising violate the First Amendment.
Stephanie Yao, a spokeswoman for the agency, said by e-mail that the agency “does not comment on proposed, pending or ongoing litigation.”
Lorillard’s lawyer Floyd Abrams said in a statement that the ruling “reaffirms fundamental First Amendment principles by rejecting the notion that the government may require those who sell lawful products to adults to urge current and prospective purchasers not to purchase those products.”
“We’re pleased with the judge’s ruling and look forward to the court’s final resolution of the case,” Bryan Hatchell, a spokesman for Reynolds American Inc., R.J. Reynolds’s parent, said in an interview.
The case is R.J. Reynolds Tobacco Co. v. U.S. Food and Drug Administration, 11-cv-1482, U.S. District Court, District of Columbia (Washington).
Ex-Motorola Worker on Trial for Stealing Secrets for China
An ex-Motorola Inc. software engineer, stopped by U.S. customs agents at a Chicago airport while allegedly carrying 1,000 company documents, $30,000 and a one-way ticket to China, committed economic espionage for her native country, a federal prosecutor told a trial judge.
Hanjuan Jin, 41, a Chinese-born naturalized U.S. citizen, is accused of stealing mobile telecommunications technology for a Beijing business, Kai Sun News (Beijing) Technology Co., also known as SunKaisens, and for China’s military.
“The defendant has a job waiting for her, a job in China with a company that provides cellular technology to the Chinese military,” prosecutor Christopher Stetler said yesterday in his opening statement, recounting Jin’s Feb. 28, 2007, interception as she boarded a flight at O’Hare International Airport.
Jin waived her right to a jury and is being tried by U.S. District Judge Ruben Castillo in Chicago. If convicted on any of the three Chinese-military-related charges, she faces as long as 15 years in prison. The top penalty for each of the remaining three counts is 10 years.
Defense lawyer Beth Westman Gaus told Castillo that while Jin may have been a bad employee, none of the documents on which the U.S. case relies, describing a “push-to-talk” mobile-phone technology, contain secrets valuable to Motorola.
“It was a developmental dead-end,” Gaus said of the company’s integrated digital enhanced network or iDEN technology. “It was obsolete.”
Wang Baodong, a spokesman for the Chinese embassy in Washington, didn’t reply to e-mailed requests for comment on the allegations.
Since that February 2007 incident, Jin’s former employer has become two companies.
“Motorola Solutions has cooperated with the government throughout its investigation and prosecution of this case and continues to fully cooperate with the Department of Justice,” Nicholas Sweers, a company spokesman, said in an e-mailed statement.
The criminal case is U.S. v. Jin, 08-cr-192, U.S. District Court, Northern District of Illinois (Chicago). The civil case is Motorola Inc. v. Lemko Corp., 08-cv-5427, U.S. District 27 Court, Northern District of Illinois (Chicago).
The state court case is Lemko Corp. v. Motorola Solutions, 2011L11566, Cook County, Illinois, Circuit Court, Law Division (Chicago).
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AT&T to Get More Sprint Data in T-Mobile Case, Court Rules
Sprint Nextel Corp. must provide AT&T Inc. with updated internal documents relevant to AT&T’s defense against a U.S. lawsuit seeking to block its purchase of T-Mobile USA Inc., a federal court ruled.
Sprint must turn over all documents requested by AT&T that the wireless carrier hasn’t already given the Justice Department, including data on its recent addition of Apple Inc.’s iPhone, U.S. Special Master Richard Levie in Washington said in a ruling yesterday. Levie gave Sprint until Nov. 21 to meet AT&T’s requests.
“AT&T is entitled to discover what effect the iPhone and other events of the past few months have had on Sprint’s relevant market share, a part of the government’s” case, Levie said, adding that the documents Sprint gave the Justice Department are more than six months old.
AT&T in a filing last week in U.S. District Court listed 47 areas of interest, including whether Sprint had any plans for a “business combination” with T-Mobile in the event the AT&T transaction is blocked. AT&T says it needs the documents to defend against the Justice Department’s antitrust suit to stop the $39 billion transaction.
John Taylor, a spokesman for Overland Park, Kansas-based Sprint, declined to comment on the ruling.
Michael Balmoris, a spokesman for AT&T, didn’t respond to e-mail messages seeking comment on the ruling.
U.S. District Judge Ellen Segal Huvelle, who will decide the case, has scheduled the trial for February.
The Justice Department sued AT&T and Bonn-based Deutsche Telekom AG’s T-Mobile unit on Aug. 31, saying a combination of the two companies would “substantially” reduce competition. Seven states and Puerto Rico joined the effort to block the deal, which would make AT&T the biggest U.S. wireless carrier.
The case is U.S. v. AT&T Inc., 11-01560, U.S. District Court, District of Columbia (Washington).
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Wal-Mart Sued Over Listeria As Pressure on Retailers Grows
In late August, Charles Palmer ate cantaloupe bought at a Wal-Mart Stores Inc. store in Colorado. Two weeks later, he began feeling sick, then became unresponsive and was rushed to a hospital where doctors diagnosed a listeria infection.
Now the 71-year-old retired Marine isn’t just suing Granada, Colorado-based Jensen Farms, which grew the tainted cantaloupe that he claims sickened him. He’s also suing Wal-Mart for selling the fruit.
Fallout from the outbreak that’s killed 29 Americans is broadening to other major retailers that sold the tainted produce and is spurring a national debate on the role groceries and stores should play in making the food-supply chain safe.
“Retailers are going to be left holding the bag,” said Bill Marler, a Seattle-based lawyer who’s filed at least eight lawsuits targeting both the Colorado farm, its distributor and Wal-Mart. “The grocery stores and retailers who sold the product -- from big-box stores to road-side stands -- are going to have to step in and fill the gap.”
Victims of the listeria outbreak may file claims seeking more than $100 million, Marler said in a telephone interview. A U.S. House committee is investigating the outbreak and may hold hearings.
Craig Wilson, head of food safety at Costco Wholesale Corp., says producers should get ahead of the issue by expanding their internal food-safety checks to fight contamination. Jim Prevor, a Boca Raton, Florida-based industry analyst, said such tests by grocers or producers would be expensive and ineffective. Either way, retailers can expect the pressure on them to grow, Marler said.
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Bank of America $410 Million Overdraft Fee Accord Approved
Bank of America Corp., the largest debit card issuer, won court approval of a $410 million settlement with customers who claimed the bank illegally charged excessive overdraft fees in electronic transactions.
U.S. District Judge James Lawrence King in Miami yesterday approved the accord between the bank and about 1 million account holders, who may receive as much as 45 cents on the dollar on their claims, their lawyers said. That still amounts to a fraction of the overdraft fees they paid, the lawyers added.
The accord was the first announced and approved of a number of settlements of claims that banks such as Charlotte, North Carolina-based Bank of America processed account transactions in a way to make it more likely to incur overdraft fees. Union Bank NA, based in San Francisco, agreed last week to pay $35 million to settle the same claims with its customers.
“We’re pleased to have reached a fair resolution in this matter,” Anne Pace, a spokeswoman for Bank of America, said in a phone interview yesterday.
At issue in the case was the automatic charging of overdraft fees for debit card transactions to about 13.2 million customers. Consumers alleged Bank of America and other banks, including JPMorgan Chase & Co. and Wells Fargo & Co., adopted policies designed to force customers to pay illegal overdraft fees.
Bank of America, based in Charlotte, North Carolina, didn’t admit any liability in the settlement.
Along with the settlement, King approved $123 million in legal fees for customers’ lawyers. That amounts to 30 percent of the accord, which drew objections from some Bank of America customers.
King said Bank of America customers may not have “ever seen a penny” of recovered overdraft fees without the “massive effort” of their lawyers.
“I find it fair and reasonable” that customers’ lawyers would request a fee amounting to 30 percent of the recovery, the judge said.
The case is In Re Checking Account Overdraft Litigation, 1:09-md-02036, U.S. District Court, Southern District of Florida (Miami).
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Citigroup Settlement for $285 Million Is ‘Fair,’ SEC Says
Citigroup Inc. and the U.S. Securities and Exchange Commission defended their $285 million settlement of claims the bank misled investors in collateralized debt obligations.
The SEC, responding to questions raised last month by U.S. District Judge Jed Rakoff in Manhattan, yesterday called the settlement with Citigroup “fair, adequate and reasonable,” and said it should be approved by the court. Rakoff scheduled a hearing on the settlement Nov. 9.
“The proposed settlement reasonably reflects the scope of relief likely to be obtained by the commission under the applicable law if successful at a trial on the merits,” the SEC said in a brief. “The settlement allows the commission to devote resources that may have been required for this matter to investigate other fraud and misconduct.”
Rakoff, who in 2009 rejected a $33 million settlement between the agency and Bank of America Corp., asked Citigroup and the SEC to address nine questions about the proposed settlement, including “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?”
Danielle Romero-Apsilos, a spokeswoman for New York-based Citigroup, the third-biggest U.S. bank, didn’t return a voice- mail message seeking comment on the SEC filing.
In its filing yesterday, Citigroup also said the settlement was fair and asked the judge to consider the impact on its shareholders of “any outcome other than a negotiated ‘no admit, no deny’ settlement.”
“The ‘public interest’ is served by sophisticated litigants compromising complicated matters in a manner that avoids wasteful litigation and exposing both parties to extreme results,” the bank wrote.
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).
3M Must Pay $1.3 Million for Failing to Market MRSA Detector
3M Co., the maker of Scotch Tape and Post-It Notes, must pay $1.3 million in damages to investors, including a unit of the British military, after failing to capitalize on its acquisition of technology that detects the hospital infection MRSA.
A London judge ruled 3M would have to pay damages to Porton Capital Ltd. and Ploughshare Innovations Ltd., a civilian unit of the U.K. Ministry of Defence. The two companies sold their stakes in MRSA specialist Acolyte to 3M in a deal that depended on sales of its products. They said they lost about $56 million in potential profits because 3M failed to properly market Acolyte’s MRSA-detecting technology.
While Judge Nicholas Hamblen accepted 3M had breached its obligations in developing the BacLite product, he rejected as “optimistic” the claimants’ estimate of damages.
In an e-mailed statement, 3M called the ruling a “decisive victory.”
“This judgment reaffirms what 3M believed all along --that it acted appropriately in attempting to market this product, and ultimately deciding the product was not commercially viable,” said Maureen A. Harms, 3M’s assistant general counsel.
3M is suing Porton Capital in the U.S. for threatening to use political connections against the St. Paul, Minnesota-based company unless it settled the London litigation.
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JFK-Plot Prosecutor to Head Criminal Division in Brooklyn
Marshall Miller, the assistant U.S. attorney who led the prosecution of five men for plotting to blow up John F. Kennedy International Airport, was named chief of the criminal division in the Eastern District of New York, which includes Brooklyn.
U.S. Attorney Loretta Lynch announced the appointment in a memo to staff obtained by Bloomberg News. Miller, 40, is replacing Richard P. Donoghue, who is leaving to become head of litigation at CA Inc., the company in Islandia, New York, formerly known as Computer Associates, according to Robert Nardoza, a spokesman for Lynch. The Eastern District prosecuted a $2.2 billion fraud at CA Inc. in which former Chief Executive Officer Sanjay Kumar pleaded guilty in 2006.
Miller also led the prosecution of four defendants who pleaded guilty during trial to conspiring to acquire about $1 million of anti-aircraft missiles and other equipment for the Liberation Tigers of Tamil Eelam.
Miller, who graduated from Yale Law School in 1998, joined the prosecutor’s office the next year. He has served as the deputy chief of the criminal division. In 2009, he was named the most outstanding assistant U.S. attorney by the National Association of Former United States Attorneys.
News Corp. Confirms Surveillance of Hacking Victims’ Lawyers
News Corp.’s U.K. unit said it conducted surveillance of two lawyers representing victims of alleged phone hacking by the company.
News International said it monitored lawyers Mark Lewis and Charlotte Harris, an act the company called “deeply inappropriate in these circumstances,” according to its statement yesterday.
The company is being investigated for potential hacking of thousands of people’s phones by its News of the World tabloid, which was shuttered in July as the scandal expanded. The Guardian newspaper reported earlier that News International had hired private investigators within the past 18 months to secretly videotape Lewis and Harris and their family members.
“News International’s enquiries have led the company to believe that Mark Lewis and Charlotte Harris were subject to surveillance,” the company said. “This action was not condoned by any current executive at the company.”
News Corp.’s Deputy Chief Operating Officer James Murdoch, 38, who was in charge of the company’s European operations, has been re-called to a U.K. government committee hearing on Nov. 10 to answer questions about how much he knew about the extent of hacking at its U.K. newspapers.
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--With assistance from Bob Van Voris, Chris Dolmetsch, Thom Weidlich and Edmund Lee in New York, Tom Schoenberg and Stephanie Armour in Washington, Lindsay Fortado and Kit Chellel in London, Laurence Viele Davidson in Atlanta and Andrew Harris in Chicago. Editors: Mary Romano, Stephen Farr
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