(Updates Wynn item and adds Intel and SEC in Lawsuits/Pretrial and Google, Rio Tinto and EPA Rule Challenge in Trials/Appeals.)
Feb. 10 (Bloomberg) -- Bank of America Corp., JPMorgan Chase & Co. and three other U.S. banks reached a $25 billion settlement with 49 states and the U.S. government to end a probe of abusive foreclosure practices stemming from the collapse of the housing bubble.
The U.S. Justice Department, Department of Housing and Urban Development and state attorneys general yesterday announced the agreement, which was more than 16 months in the making following a move by states to investigate bank foreclosure practices in 2010.
The nation’s five largest mortgage servicers -- Bank of America, JPMorgan, Wells Fargo & Co., Citigroup Inc. and Ally Financial Inc. -- entered into the settlement. With 49 state attorneys general on board, U.S. Attorney General Eric Holder called the agreement the largest federal-state civil settlement in U.S. history.
Oklahoma entered into a separate agreement worth $18.6 million with the banks and didn’t sign the federal settlement, according to a statement from the state’s attorney general, Scott Pruitt.
The $25 billion agreement includes a $1.5 billion payment to some 750,000 borrowers who lost their homes to foreclosure. About $17 billion will pay for mortgage debt forgiveness, forbearance, short sales and other assistance to homeowners. Servicers will also provide $3 billion in refinancings to lower homeowners’ interest rates.
Bank of America has committed as much as $11.8 billion, including a cash payment of $3.24 billion, according to a government fact sheet. The balance will be applied toward mortgage modifications, principal reductions and other benefits for borrowers. Ally has committed as much as $310 million; Citigroup $2.2 billion; JPMorgan $5.29 billion and Wells Fargo $5.35 billion.
“This settlement will help provide additional support for homeowners who need assistance, brings more certainty to the housing market and aligns to our ongoing commitment to help rebuild our neighborhoods and get the housing market back on track,” Dan Frahm, a Bank of America spokesman, said in a statement.
The settlement doesn’t release any criminal liability or grant any immunity, release any private claims by individuals or any class-action claims, or release claims related to the packaging of mortgage loans into securities, according to the website outlining the agreement.
The resolution also establishes a monitor, Joseph A. Smith Jr., North Carolina’s top banking regulator, to track compliance with the terms of the agreement.
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Ex-Takeda Executive Committed Insider Trading, SEC Claims
A former Takeda Pharmaceutical International Inc. executive was accused of using inside information to make more than $63,000 trading in call options, according a lawsuit filed by the U.S. Securities and Exchange Commission.
Brent Bankosky, a former director in Takeda’s business development group, used non-public information to trade in advance of Takeda’s announcement of transactions involving Cell Genesys Inc. and Millennium Pharmaceuticals Inc., the SEC said in a civil complaint filed yesterday in Manhattan federal court.
Bankosky also used information about confidential discussions between Takeda and two other drug companies, Arena Pharmaceutical Inc. and AMAG Pharmaceutical Inc., according to the agency. Bankosky failed to profit from his trades in those companies’ securities, the SEC said.
Elissa Johnsen, a spokeswoman for Osaka, Japan-based Takeda Pharmaceutical Co.’s North American unit, didn’t immediately return a voice-mail message seeking comment on the SEC suit. Bankosky’s lawyer, Robert Heim, also didn’t immediately return a voice mail seeking comment.
The case is SEC v. Bankosky, 12-CV-1012, U.S. District Court, Southern District of New York (Manhattan).
Lehman Sues Citigroup for $2.5 Billion ‘Wrongfully’ Taken
Bankrupt Lehman Brothers Holdings Inc. sued Citigroup Inc.’s Citibank for $2.5 billion claiming the bank “wrongfully” withheld the money after it was transferred by Lehman in the months before its 2008 bankruptcy.
Lehman also is seeking “hundreds of millions” owed by Citibank, and wants to reduce or deny $2 billion of claims Citibank filed against Lehman, according to a court filing Feb. 8.
Lehman, which is pursuing a liquidation plan that would pay creditors less than 18 cents on the dollar, has said that $2 billion of the cash it has gathered so far to pay creditors was pledged to Citigroup. In addition to trying to free up cash, it is seeking to cut bank claims on its assets to increase the amount available for other creditors.
“This action is an unjustified attempt by the Lehman estates to renege on their obligations to Citi, and claw back assets to which they have no right,” said Danielle Romero- Apsilos, a spokeswoman for New York-based Citigroup. The bank, which “went out of its way to try to help Lehman prior to its bankruptcy filing,” will fight the lawsuit, she said.
According to Lehman, Citibank has said it’s entitled to $2 billion of the defunct firm’s cash to secure its claims on Lehman, which would otherwise be unsecured.
The so-called setoff “is in violation of the bankruptcy code,” Lehman said in the lawsuit.
Romero-Apsilos said the bank took the cash to protect itself and its shareholders from loss. Lehman filed the biggest U.S. bankruptcy in history with debt of $613 billion more than three years ago.
The case is Lehman v. Citibank, 12-01044, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
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Intel Antitrust Suit Dropped by N.Y. Attorney General
New York state has ended its more than two-year-old antitrust suit against Intel Corp. without fining the chipmaker or imposing any restrictions on its conduct.
Intel hasn’t admitted any wrongdoing or agreed to any limitations on its business practices, said Sumner Lemon, a spokesman for the Santa Clara, California-based company. Intel, the world’s largest chipmaker, will pay $6.5 million to cover the cost of some of the litigation, he said.
“While certain other matters are on appeal, this settlement brings to an end what was the last active court-level antitrust litigation involving Intel’s sales conduct,” Lemon said. It “puts an end to any associated expense and distraction from such matters.”
New York sued Intel in November 2009, accusing it of using threats and illegal payments to pressure computer manufacturers to use its chips. Leonard Stark, a U.S. district judge in Delaware who is presiding over the case, canceled the Feb. 14 trial to allow lawyers from both sides to discuss whether the case should be dismissed.
“While we were disappointed by the rulings of the Delaware federal judge handling the matter, it’s important to note that our claims were dismissed on procedural, not substantive grounds,” Jennifer Givner, a spokeswoman for New York Attorney General Eric Schneiderman, said in an e-mailed statement. “We continue to believe that those claims, which were asserted under the previous administration, had merit, but in light of the court’s decision believe that no purpose is served by pursuing the matter further.”
The case is State of New York v. Intel Corp., 09-cv-827, U.S. District Court, District of Delaware (Wilmington).
SEC Said to Review Settlement With Ex-Bear Stearns Managers
The U.S. Securities and Exchange Commission is considering a proposed settlement with two former Bear Stearns Cos. portfolio managers to resolve a case that has been pursued by federal securities regulators for more than three years, three people familiar with the matter said.
Ralph Cioffi and Matthew Tannin, who managed the Wall Street firm’s two largest hedge funds, are scheduled to stand trial on Feb. 13 over SEC civil claims that they deceived their own investors about their funds’ subprime mortgage exposure, causing losses of about $1.6 billion when the funds collapsed in July 2007. SEC commissioners were scheduled to vote on a proposed agreement in a closed meeting yesterday, the people said without providing details of the deal.
Cioffi and Tannin gained attention in November 2009 when a federal court jury found them not guilty in a related criminal trial, the first stemming from a U.S. probe of the collapse of the subprime-mortgage market. Cioffi, 56, was senior portfolio manager for the funds and Tannin, 50, was chief operating officer.
The hedge funds filed for bankruptcy in July 2007 after collateralized debt obligations linked to risky home loans began to sour. Bear Stearns collapsed less than a year later and was purchased by New York-based JPMorgan Chase & Co.
The two men misrepresented the funds’ deteriorating condition and the level of investor redemption requests as they sought to bring in new money and keep existing investors from withdrawing funds, the SEC said in its complaint. They also exaggerated their own investments in the funds while using their personal stakes as a selling point, the SEC said.
Cioffi and Tannin have contested the SEC’s claims for more than three years in U.S. District Court in Brooklyn, New York. They argued in a December filing that, under a U.S. Supreme Court ruling involving Janus Capital Group Inc., they can’t be held liable for alleged misstatements in monthly reports to investors because they only assisted in preparing the documents.
The proposed settlement being weighed by SEC commissioners would still need to be approved by U.S. District Judge Frederic Block in Brooklyn.
John Nester, an SEC spokesman, declined to comment, as did Nina Beattie, an attorney for Tannin at Brune & Richard LLP. Phone calls to Edward Little and Marc Weinstein, lawyers for Cioffi at Hughes Hubbard & Reed LLP, weren’t immediately returned.
Wynn Resorts Hearing Over Financial Records Access Continued
Wynn Resorts Ltd.’s former Vice Chairman Kazuo Okada must wait until Feb. 23 to find out whether he can access the casino operator’s financial records, a Las Vegas judge ruled, saying she needs more time to go over the document requests in detail.
Nevada state court judge Elizabeth Gonzales said at the conclusion of a hearing yesterday that she wants to look at Okada’s requests to determine which ones are reasonable.
“The company has a right to determine each document individually,” Gonzales said. A director’s right to review company books is “limited under Nevada law,” she said.
Okada, who was removed as vice chairman in October, sued in state court in Clark County, Nevada, to force the company to produce spending records. Okada, who is chairman of Universal Entertainment Corp., Wynn’s largest shareholder, has $380 million invested in the casino operator dating back to 2000, according to regulatory filings.
Kirk Lenhard, an attorney for Wynn, argued that Okada’s request was premature as such actions should be brought before the board of directors. The board should be allowed to review the request at a meeting next month before the court rules, Lenhard said.
Gidon Caine, an attorney for Okada, said the request was about “good corporate governance.”
Gonzales “did not grant Mr. Okada’s request for relief but she did ask us to reconsider the request,” Robert Shapiro, a lawyer for Wynn Resorts, said after the hearing. “We will go to the board of directors and get back to Judge Gonzales in two weeks.”
The case is Okada v. Wynn Resorts Ltd., A-12-654522-B, District Court, Clark County Nevada (Las Vegas)
U.S. Drops Antitrust Lawsuit Against Deutsche Boerse, NYSE
The U.S. Justice Department said it dismissed an antitrust lawsuit and proposed settlement agreement with Deutsche Boerse AG and NYSE Euronext because the two exchange owners have given up on their proposed merger.
The lawsuit and settlement are “no longer necessary since the parties have formally abandoned their plans to merge,” the Justice Department said in a statement yesterday.
Deutsche Boerse and NYSE Euronext terminated their merger agreement Feb. 2, a day after European antitrust regulators blocked the transaction because it would have concentrated too much derivatives trading in the hands of a single entity.
The Justice Department had cleared the transaction Dec. 22 on the condition that a Deutsche Boerse unit sell its 31.5 percent stake in another U.S. equity market, Direct Edge Holdings LLC. The proposed settlement resolved the concerns about competition the Justice Department outlined in a lawsuit filed the same day.
At its peak, a combined New York-based NYSE Euronext and Frankfurt-based Deutsche Boerse would have been valued at more than $26 billion.
Apple Loses German Case Over Samsung’s Galaxy Tab 10.1N
Apple Inc., maker of the iPad and iPhone, for the second time failed to win a ban on sales of Samsung Electronics Co.’s Galaxy 10.1N from a German court.
The Dusseldorf Regional Court rejected the bid for an emergency ruling yesterday in a case where Apple invoked a European design right. Apple last week lost a similar attempt over a technology patent in a Munich court.
A Dusseldorf appeals court last week upheld Apple’s request to ban sales of the Galaxy Tab 10.1, the predecessor model, which the company had won in the same lower court that rejected yesterday’s bid. Samsung began selling the Galaxy Tab 10.1N, a revised version, in Germany last year to get around that ban. Samsung lost two patent rulings against its rival in a Mannheim court last month.
“The Galaxy Tab 10.1N now sufficiently differs from the form Apple has registered as a design right,” the court said in a statement. “Apple’s iPads and Samsung’s Galaxy Tab 10.1N now are two competing products of equal value.”
The legal battle between Cupertino, California-based Apple and its closest competitor in tablet computers is intensifying as an increasing number of consumers use tablets and smartphones to visit websites, play games and download music. More patent rulings between the two are scheduled for the coming weeks.
Samsung said the ruling affirms its position that the Galaxy Tab 10.1N is distinctive and doesn’t infringe the rights asserted by Apple. The Galaxy Tab 10.1N remains available to consumers in Germany, Samsung said.
Apple spokesman Alan Hely declined to comment on yesterday’s ruling and referred to the company’s earlier statement that Samsung is “blatantly” copying the iPhone and iPad.
Yesterday’s case is LG Dusseldorf, 14c O 292/11.
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Google, Amazon.com Win Trial Over Interactive Web Patents
Google Inc. and Amazon.com Inc. were among the companies that won a jury trial that challenged the validity of patents of a Texas business on ways to make the Internet more interactive.
A federal jury in Tyler, Texas, said two patents owned by Eolas Technologies Inc. of Tyler are invalid. Adobe Systems Inc., CDW Corp., JCPenney Co., Staples Inc., Yahoo! Inc. and Google’s YouTube unit were also challenging the patents.
Eolas and the University of California, which co-owns the patents because they stem from work by Michael Doyle, the Eolas founder and a former university researcher, claimed some basic Internet features used their technology, including music clips, search features, maps, advertisements and embedded applications.
More than a dozen companies had been named in the 2009 lawsuit. Apple Inc., Citigroup Inc. EBay Inc. and Playboy Enterprises Inc. were among companies that settled before trial.
The case was to have been tried in phases before U.S. District Judge Leonard Davis, with the first looking at the validity of the two patents, and then subsequent trials on infringement and damages by groups of companies. Yesterday’s verdict eliminates the need for those later trials.
“We’re disappointed, but we respect the jury’s decision,” said Douglas Cawley of McKool Smith in Dallas, a lawyer for Eolas. “We will evaluate our options.”
The verdict “affirms our assertion that the claims are without merit,” said Jim Prosser, a spokesman for Mountain View, California-based Google.
The case is Eolas Technologies Inc. v. Adobe Systems Inc., 09cv446, U.S. District Court, Eastern District of Texas (Tyler).
Rio Tinto Loses Bid to Challenge Australian Labor Ruling
Rio Tinto Group lost a bid to keep using non-unionized workers in Western Australia’s Pilbara region, a decision a lawyer for the world’s third-biggest mining company said may affect other companies.
The High Court of Australia today rejected the miner’s request for a full hearing as it attempted to overturn last year’s appeal court ruling that invalidated its agreements with railway workers and could give unions more leverage to represent other employees.
John West, Rio Tinto’s lawyer, said failure to overturn the appeal court decision would affect about 3,000 workers who have contracts with BHP Billiton Ltd. and HWE Mining. “Their agreements have evaporated,” West said. “All someone has to do now is sue.”
Rio Tinto’s attempt to stem the influence of unions at its mines is part of a bigger battle in Australia between labor, pressing to entrench workers’ bargaining rights, and business, which claims current laws stifle productivity. The government, which re-introduced worker safeguards in 2009, is reviewing legislation, with a three-member panel scheduled to issue a report by the end of May.
“Five years ago Australia was one of the cheapest places in the world for us to do business; today it’s one of the most expensive,” Rio Tinto’s Chief Executive Officer Tom Albanese said on a conference call yesterday. He said he’s concerned “about the declining levels of productivity” in Australia.
“The unions were pretty well shut out,” Brandon Ellem, an associate professor at the University of Sydney and author of “Hard Ground: Unions in the Pilbara,” said in a phone interview before today’s decision. The earlier Federal Appeal Court ruling, “will make it a lot easier,” for workers to organize, he said.
The High Court panel said Rio Tinto’s prospects of winning a reversal of the appeal court decision were insufficient to warrant a full hearing.
EPA Cross-State Air Rule Unlawful, Opponents Tell Court
The U.S. Environmental Protection Agency’s regulation on interstate air pollution is “one of the most costly, burdensome and arbitrary” rules ever issued under the Clean Air Act, opponents told a federal appeals court.
More than three dozen challengers to the EPA’s Cross-State Air Pollution Rule in filings yesterday urged the U.S. Appeals Court in Washington to vacate the rule, which was put on hold by the court in December while it considered the legality of the regulation.
Southern Co., EME Homer City Generation LP, a unit of Edison International, and Energy Future Holdings Corp. units in Texas are among the power companies challenging the rule. The state of Texas, the National Mining Association and the International Brotherhood of Electrical Workers joined in parallel cases, saying the rule puts an undue financial burden on power producers and threatens electricity reliability by forcing companies to shut some older plants.
The EPA rule, which applies to Texas and 26 eastern states, imposes caps on sulfur dioxide, which can lead to acid rain and soot harmful to humans and ecosystems, and nitrogen oxide, a component of ground-level ozone and a main ingredient of smog.
The rule, issued in July and revised in October, applies to emissions that cross state lines.
Power companies, state officials and lawmakers said the EPA provided too little time to comply, and argued in court that the October revisions should invalidate the entire rule.
Arguments in the case are scheduled for April 13. The EPA is scheduled to respond to the opponents’ filings on March 1.
The case is EME Homer City Generation LP v. U.S. Environmental Protection Agency, 11-1302, U.S. Court of Appeals for the District of Columbia (Washington).
Stanford Bank’s Swiss Accounts $1 Billion Short, Regulator Says
An Antiguan banking regulator told the jury in R. Allen Stanford’s criminal trial he was “shocked” to find $1 billion missing from Swiss bank accounts belonging to Stanford’s Antiguan bank, days before U.S. regulators seized the company on suspicion of fraud in February 2009.
Paul Ashe, Antigua’s supervisor of international banks, testified that records he received from Societe Generale SA in early 2009 listed $250 million in Stanford International Bank Ltd.’s Swiss investment account as of mid-2008. Stanford bank records Ashe examined in the same timeframe showed $1.25 billion in the same account.
“I was shocked,” Ashe testified yesterday in federal court in Houston. “It suggested the document shown to us when we did the examination was altered, forged.”
Prosecutors claim Stanford masterminded a $7 billion investment fraud through bogus certificates of deposit at his Antigua-based Stanford International Bank. Stanford, 61, who denies all wrongdoing in connection with the alleged scheme, has been in custody as a flight risk since his indictment in June 2009.
Witnesses have testified that Stanford secretly borrowed more than $2 billion to finance a lavish lifestyle and private businesses ranging from Caribbean airlines and real estate to cricket tournaments. Prosecutors have presented evidence suggesting that Stanford bribed Leroy King, then Antigua’s top banking regulator, to hide the fraud.
Ashe testified he found no mention of Stanford’s sizeable borrowings in Stanford International Bank’s investment portfolio records. Under Antiguan banking laws, any significant loans to bank insiders must be “fully secured by cash, and the cash should be placed within the bank itself, not in another bank,” he said.
If Stanford International Bank had revealed Stanford’s loan was part of its investment portfolio, “that would’ve been the end of the bank,” Ashe testified. “This loan would’ve been illegal. It would’ve been reckless, irresponsible and downright negligent.”
Stanford’s attorneys have told jurors the financier was in the process of consolidating more than 100 private companies and investments onto the bank’s ledgers in late 2008. They said the consolidation would have zeroed out Stanford’s loan balance and repaid all depositors if the SEC had not stepped in and stopped the process. They contend the court-appointed U.S. receiver has destroyed much of the value of Stanford’s companies through mismanagement.
Kinder Morgan’s El Paso Buyout Should Be Barred, Lawyer Says
Kinder Morgan Inc.’s proposed $21.1 billion buyout of rival pipeline operator El Paso Corp. should be barred because it was tainted by Goldman Sachs Group Inc.’s conflicting interests in the deal, a lawyer for El Paso investors said.
Goldman Sachs, which holds a 19 percent stake in Houston- based Kinder Morgan, improperly served as an adviser to El Paso on the acquisition offer, said Mark Lebovitch, a lawyer for pension funds from Louisiana, Florida and New York that sued over the deal.
“If there was ever a conflict that can’t be neutralized, this is it,” Lebovitch told Delaware Chancery Court Judge Leo Strine yesterday at a hearing in Wilmington. “The word ‘conflict’ just doesn’t do it justice.”
Goldman Sachs’s business practices have been criticized during the past two years after the New York-based company agreed to pay $550 million to resolve government claims that marketing materials about investments linked to subprime mortgages had “incomplete information.”
It was the largest penalty ever levied by the U.S. Securities and Exchange Commission against a Wall Street firm. Goldman Sachs also faced questions from politicians and labor unions about its compensation system after getting taxpayer aid during the financial crisis.
El Paso’s board ultimately agreed to Kinder’s bid, which includes both cash and stock and provides a 37 percent premium to shareholders, officials for the company said last year. El Paso investors contend the offer was too low.
Lebovitch told the judge yesterday that Goldman’s dual roles as investor and adviser in the El Paso deal tainted the pipeline company’s consideration of Kinder Morgan’s offer
The case is In re El Paso Corp. Shareholder Litigation, Consolidated 6949-CS, Delaware Chancery Court (Wilmington).
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Delaware’s Secret Courts are Unconstitutional, Lawyer Says
Delaware Chancery Court’s use of its five judges to preside over secret arbitration proceedings is unconstitutional, a lawyer for a state advocacy group said.
Arbitration used to settle disputes between companies outside the public eye in the presence of judge amounts to a trial, especially if that judge is deciding facts and applicable law in a decision that’s binding, attorney David Finger told a federal judge in Philadelphia yesterday. The public has a right under the First Amendment of the U.S. Constitution to access judicial proceedings, Finger said.
“The point is the right to observe the judges in action,” Finger told U.S. District Judge Mary A. McLaughlin in a hearing to decide whether the Delaware statute should stand. “Evidence is being presented and the judge is making findings of fact and rules of law.”
The argument is at the heart of a complaint filed by the Delaware Coalition for Open Government Inc. against the five Chancery Court judges in October challenging the 2009 statute governing the sealed proceedings. The Reporters Committee for Freedom of the Press and five news organizations, including the New York Times and the Associated Press, filed papers in support of the Delaware Coalition. The Delaware State Bar Association, the New York Stock Exchange and Nasdaq have backed the court.
The complaint was filed after Skyworks Solutions Inc., a semiconductor maker, and Advanced Analogic Technologies Inc., a chipmaker, revealed in September that both companies filed arbitration petitions under the Delaware program.
The dueling petitions were the first public indication that the statute had been put into use in the Chancery Court, which has jurisdiction over the majority of Fortune 500 companies. At least six companies have used the confidential process so far, Finger said. Delaware Superior Court has a similar statute, which hasn’t yet been used, Finger said.
Andre Bouchard, an attorney for the judges, argued that the proceedings fall within the scope of traditional commercial arbitrations that have long been confidential and are meant to streamline litigation and bring business to the state.
“If you opened up public access to this, what would be the good of it?” Bouchard said. “Confidentiality is a key benefit of commercial arbitration.
The case is Delaware Coalition for Open Government Inc. v. Strine, 11-01015, U.S. District Court, District of Delaware (Wilmington.)
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Jones Day Hires Ex-Latham Partner Tang for Securities Practice
Jones Day hired John Tang, a former partner at Latham & Watkins LLP, as the firm expands its securities litigation team in San Francisco.
Tang, 42, the former co-chairman of Latham’s securities litigation and professional liability practice group, will join the San Francisco office as a partner in the securities litigation and Securities and Exchange Commission enforcement practice, Jones Day said yesterday in a statement.
Jones Day, which has more than 320 lawyers in five California offices, was ranked as the seventh-highest-grossing law firm in 2010 by the American Lawyer, a trade magazine, with more than $1.62 billion in revenue.
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--With assistance from David McLaughlin, Bob Van Voris, Ian Thomas and Linda Sandler in New York, Susan Decker, Sara Forden, Joshua Gallu, Tom Schoenberg and Lorraine Woellert in Washington, Karin Matussek in Berlin, Sophia Pearson in Philadelphia, Jef Feeley in Wilmington, Delaware, Ian King in San Francisco and Joe Schneider in Sydney. Editor: Fred Strasser
To contact the reporters on this story: Elizabeth Amon in New York at firstname.lastname@example.org; Ellen Rosen in New York at email@example.com
To contact the editor responsible for this story: Michael Hytha at firstname.lastname@example.org