(Adds Madoff and Martha Stewart in Lawsuits and Stanford and Primary Global in Trials. Updates Koch in New Suits and ‘Occupy’ in Lawsuits.)
Feb. 13 (Bloomberg) -- Whitman Capital LLC’s president was charged with taking part in two separate insider-trading conspiracies, using illegal tips on Google Inc., Polycom Inc. and Marvell Technology Group Ltd. to make more than $900,000 for the hedge fund.
Doug Whitman traded on information he got from two sources, including one who already admitted to sharing tips with Galleon Group LLC co-founder Raj Rajaratnam, according to an indictment filed Feb. 10 in Manhattan federal court. The U.S. Securities and Exchange Commission also sued Whitman, 54, and his Menlo Park, California-based hedge-fund firm for insider trading.
“Whitman recognized the value of the information he got, and paid cash for it in one case, and bartered his own inside information in the other,” Janice Fedarcyk, assistant director in charge of the FBI’s New York office, said in a statement.
Some of the tips were supplied by Roomy Khan, a former executive at Intel Corp. and Whitman’s neighbor, according to the SEC. Khan tipped Whitman about earnings at Polycom, a maker of video-conferencing equipment, and search-engine operator Google before they were made public, the SEC said.
“Doug Whitman is innocent of the insider-trading charges that have been brought against him,” his attorney, David L. Anderson, said in an e-mailed statement. “Mr. Whitman traded on the basis of lawful research and analysis, not unlawfully obtained inside information.”
Anderson said his client had cooperated with the U.S. probe. He said the charges were based on allegations by Motey and Khan, who hope to get reduced sentences by accusing his client.
The criminal case is U.S. v. Whitman, 12-cr-00125; the civil case is Securities and Exchange Commission v. Whitman, 12- cv-01055, U.S. District Court, Southern District of New York (Manhattan).
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Mets Used Madoff Money for Deferred Compensation, Picard Says
The liquidator of Bernard Madoff’s firm said the New York Mets owners were so “hooked” on money from the con man that they used it in place of disability insurance for the baseball team and to fund players’ deferred-compensation plans.
Irving Picard, the Madoff trustee, told a federal judge he is entitled to pursue a $386 million lawsuit against the Mets owners because they chose to be “willfully blind” to the fraud to maintain an income stream that was essential to their business. The Mets’ Madoff accounts funded working capital, as well as insurance and compensation, he said.
“When faced with cash crunches from week to week, the Mets routinely and confidently relied on future Madoff returns to bridge the gap,” and any excess cash went back into Madoff’s firm, Picard said in a Feb. 9 filing in U.S. District Court in Manhattan. “The Mets relied on Madoff’s returns as a predictable source of income for a business -- professional baseball -- with an otherwise unpredictable revenue stream.”
The Mets owners, after losing money in the Ponzi scheme and an income stream from Madoff, have said they are trying to sell stakes in the Major League Baseball team. They have cut the team’s payroll and hired a restructuring firm to advise them on their finances, which remain under threat from Picard’s claims.
Sterling Equities Inc.’s partners declined to comment in an e-mailed statement, saying they would respond to Picard’s filing this week.
Sterling partners Fred Wilpon and Saul Katz have said they trusted their broker and never suspected him of any fraud, let alone a Ponzi scheme. Picard’s suit should be thrown out because he cannot prove willful blindness, only make allegations, they have said.
The Mets owners said they should be allowed to keep $83 million in fictitious profits taken from Madoff’s Ponzi scheme as well as their principal, because the money was owed by the registered brokerage to its clients. Picard had asked U.S. District Judge Jed Rakoff to rule now on his right to take the profits, in advance of a trial set for March 19.
Madoff, 73, pleaded guilty in 2009 to orchestrating what prosecutors called the biggest Ponzi scheme in history. He is serving a 150-year sentence in a federal prison in North Carolina.
The case is Picard v. Katz, 11-cv-03605, U.S. District Court, Southern District of New York (Manhattan).
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BNY Mellon Denied Second Bid to Dismiss Virginia Fraud Case
Bank of New York Mellon Corp., the world’s largest custody bank, failed a second time to win dismissal of the state of Virginia’s lawsuit accusing it of defrauding pension funds in foreign-currency trades.
A state judge in Fairfax, Virginia, on Feb. 10 again rejected the bank’s argument that it can’t be sued under the Virginia Fraud Against Taxpayers Act because alleged false or fraudulent claims were never submitted to the state for payment.
Fairfax County Circuit Judge Terrence Ney, who ruled against a similar request by the bank in November, said during a hearing on Friday the case may turn on the contracts between the pension funds and the bank.
The bank will have another opportunity to seek dismissal of the case at a hearing scheduled for Feb. 22. That hearing, which may last more than a day, will examine evidence produced by the bank in an effort to show it didn’t violate the law.
At the Feb. 10 hearing, Virginia attempted, and failed, to resurrect another argument as to why the bank was liable under the anti-fraud statute.
Brandy Bergman, a spokeswoman for the bank, said in an interview that the bank is pleased the court again rejected that argument and will “closely scrutinize the remaining claim at a hearing later this month.”
State Attorney General Kenneth Cuccinelli sued in August, claiming the bank violated state law by charging “undisclosed markups” on currency-exchange trades to six retirement funds. Virginia is seeking about $931.6 million in damages.
“We are pleased that the judge has determined our complaint can move forward,” Brian Gottstein, a spokesman for Cuccinelli, said in an e-mail.
Attorneys general in New York and Florida have sued over the same issue. Massachusetts filed an administrative action against the bank.
All the cases center on the pricing of small foreign- exchange transactions handled automatically by the custody banks on behalf of the pension funds, a service known as standing
The case is Commonwealth of Virginia v. Bank of New York Mellon Corp., 09-15377, Circuit Court for the County of Fairfax, Virginia (Fairfax).
Wegelin Doesn’t Appear at Hearing, Called ‘Fugitive’ by U.S.
Wegelin & Co., the 270-year-old Swiss bank facing criminal charges in a U.S. crackdown on firms suspected of aiding tax evasion, failed to appear at a court hearing as prosecutors called the bank a “fugitive.”
Prosecutors said after the hearing on Feb. 10 in Manhattan federal court that three Wegelin client managers charged in the case also failed to appear and were considered fugitives.
When no defendants or defense attorneys showed up in court, U.S. District Judge Jed Rakoff asked prosecutors for a proposal on how to proceed. Prosecutors said they will confer with the Justice Department and advise Rakoff on their proposals.
“Unlike an individual, arresting a company is somewhat difficult,” Rakoff said.
Wegelin said in a statement after the hearing that it didn’t appear because “the legal prerequisites to initiating criminal proceedings under U.S. law have not been met.”
According to the statement, the case can’t begin until the defendant has been served with a summons. Because Wegelin hasn’t been properly served, the bank said, it wasn’t required to appear and proceedings may not begin.
Wegelin is the first overseas bank to be indicted by the U.S. for aiding tax fraud, federal prosecutors in New York said this month. The three Wegelin client managers at the Zurich branch, Michael Berlinka, Urs Frei and Roger Keller, were also indicted.
The managers serviced “undeclared accounts” for U.S. taxpayers, meaning the income derived from them wasn’t reported to the U.S. Internal Revenue Service, according to the superseding indictment filed this month.
The case is U.S. v. Wegelin, 12-00002, U.S. District Court, Southern District of New York (Manhattan).
Mark Cuban Faces SEC Deposition in Insider Trading Lawsuit
Mark Cuban, the billionaire owner of the Dallas Mavericks basketball team, appeared at the U.S. Securities and Exchange Commission on Friday to face questions related to the agency’s insider-trading lawsuit against him.
Cuban, 53, has been fighting for more than three years against SEC claims that he traded on confidential information when he sold his stake in Mamma.com, a Canadian Internet search company now known as Copernic Inc., just before it announced a private placement of shares. He arrived at the SEC’s offices in Fort Worth, Texas, at 8:45 a.m. with his attorney Stephen Best following a Jan. 13 court order to appear for the deposition.
In a 2008 lawsuit, the SEC claimed Guy Faure, then chief executive officer of Mamma.com, told Cuban in a 2004 phone call about plans for a private share offering. Cuban sold shares ahead of the deal, avoiding $750,000 in losses after the offering diluted his holdings, the SEC said.
The agency claims that Cuban agreed with Faure at the beginning of their call to keep the information confidential and told the CEO after learning details of the plan, “Well, now I’m screwed. I can’t sell.”
U.S. District Judge Sidney Fitzwater threw out the case in July 2009, ruling that Cuban didn’t agree not to trade on the information, only to keep it confidential.
The U.S. Court of Appeals in New Orleans overturned Fitzwater’s decision, finding the SEC’s allegations “provide more than a plausible basis to find that the understanding between the CEO and Cuban was that he was not to trade.”
Cuban has accused the SEC staff of engaging in “egregious acts of misconduct” in their probe of his trades. The SEC’s inspector general investigated Cuban’s allegations and issued a report last year saying they were unfounded.
The case is Securities and Exchange Commission v. Cuban, 08-cv-2050, U.S. District Court, Northern District of Texas (Dallas).
Martha Stewart Living Fires Back Against Macy’s in Lawsuit
Martha Stewart Living Omnimedia Inc., sued last month by Macy’s Inc. over its deal to sell merchandise in J.C. Penney Co. stores, defended the agreement and filed counterclaims against Macy’s.
The agreement with J.C. Penney is permitted under an existing contract between Macy’s and Martha Stewart Living, the company said in a filing Feb. 10 in New York State Supreme Court in Manhattan.
“Macy’s simply has no exclusive right to MSLO’s creativity or design concepts, now or in the future,” Martha Stewart Living said.
Macy’s sued in January seeking to stop New York-based Martha Stewart Living from executing the J.C. Penney agreement. Macy’s, based in Cincinnati, claims its contract gives the retailer an exclusive right to sell Martha Stewart-branded products within certain categories.
In its filing Feb. 10, Martha Stewart Living accused Macy’s of breach of contract, saying the retailer has stocked and priced Martha Stewart products in a manner that favors Macy’s own private-label brands.
“They have used Martha Stewart Collection products to draw customers into Macy’s Home Store, where its own private-label brands take center stage and, of course, generate higher profits for Macy’s without the burden of paying royalties,” the company said.
Jim Sluzewski, a Macy’s spokesman, declined to comment on the claims.
The case is Macy’s Inc. v. Martha Stewart Living Omnimedia Inc., 650197/2012, New York State Supreme Court (Manhattan).
Twitter Subpoena Challenged by N.Y. ‘Occupy’ Protester
Manhattan District Attorney Cyrus Vance Jr.’s subpoena of Twitter Inc. for information about the account of an Occupy Wall Street protester and Brooklyn-based writer is improper, the National Lawyers Guild said in a motion to block the request.
Martin Stolar, an attorney with the National Lawyers Guild, filed the request to invalidate the subpoena on Feb. 6, according to court papers posted on the guild’s website. Vance is seeking information about the “@destructuremal” account of Malcolm Harris, 22, who was arrested with about 700 protesters on the Brooklyn Bridge on Oct. 1, according to the filing.
“It’s like swatting a gnat with a sledgehammer,” Stolar said Feb. 10 in a phone interview. “This is one count of disorderly conduct for being one of 700 people arrested,.”
There was no indication Harris had a conspiratorial role or did anything out of the ordinary, Stolar said.
Joan Vollero, a spokeswoman for Vance, said prosecutors previously subpoenaed Twitter and declined to comment further.
The National Lawyers Guild is providing free defense for arrested Occupy Wall Street protesters including Harris. The group has provided attorneys for almost 2,200 people since the protests began Sept. 17, according to a statement.
The case is People of the State of New York v. Harris, 11-80152, Supreme Court of the State of New York (Manhattan).
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Motorola Mobility Loses Patent Case Against Apple in Germany
Motorola Mobility Holdings Inc., which has won two rulings against Apple Inc. in Germany, failed to win a third in a patent case involving the use of mathematical sequences in mobile telecommunications.
The Regional Court in Mannheim rejected the suit Feb. 10. Motorola Mobility didn’t show that Apple is violating the patent, Presiding Judge Andreas Voss said when delivering the ruling.
The decision ends a winning streak by Motorola Mobility, which has twice prevailed over Apple in the same court. More cases between the two are pending in German courts, including a bid by Motorola Mobility to enforce its first win from December, which forced Apple to briefly remove some older iPhones and iPad models from its online store in Germany last week.
“While we can’t comment on specific details, we will continue to protect our intellectual property,” Jennifer Weyrauch-Erickson, a spokeswoman for Motorola Mobility, said in an e-mailed statement.
Apple spokesman Alan Hely declined to comment.
Google Inc. is buying Libertyville, Illinois-based Motorola Mobility to gain mobile patents and expand its hardware business. Google’s Android operating system is used by smartphones from HTC Corp. and Samsung Electronics Co. that compete with Apple’s iPhone.
The case is LG Mannheim, 7 O 230/11.
For the latest verdict and settlement news, click here.
Bayer Sues Watson Over Patent for Beyaz Birth Control Pill
A unit of Bayer AG, Germany’s largest drugmaker, sued Watson Pharmaceuticals Inc., accusing the generic-drug maker of violating a patent for Beyaz birth control pills.
Watson, based in Parsippany, New Jersey, is trying to develop a copy of Beyaz in violation of the patent, Bayer Pharma AG and partner Merck & Cie. claimed Feb. 10 in court papers filed in U.S. District Court in Wilmington, Delaware.
Bayer and Merck “are entitled to an award of damages and treble damages for any commercial sale or use” of Watson’s generic version of Beyaz, the companies said.
Bayer, of Leverkusen, Germany, asked a judge to ban the sale of any Watson birth control product based on the patent.
Watson plans to challenge the validity of the patent, Charlie Mayr, a spokesman for Watson, said in a telephone interview Friday.
The lawsuit “initiates the formal process of challenging the patent on the product,” Mayr said.
The case is Merck Cie. v. Watson Pharmaceuticals Inc., 12- cv-00161, U.S. District Court, District of Delaware (Wilmington).
To see the patent, click: 6,153,401.
EPA Sued by 11 States to Enforce Standards Limiting Soot
New York, California and nine other states sued to enforce clean air standards after the U.S. Environmental Protection Agency failed to meet a deadline to limit soot pollution.
The lawsuit, filed Feb. 10 in federal court in New York, asks a judge to order the EPA to propose and complete the standards, Attorney General Peter P. Kilmartin of Rhode Island, one of the plaintiffs, said in a statement. The complaint couldn’t be immediately confirmed in court electronic records.
“The science is clear that the current federal standards for soot emissions are woefully inadequate, causing premature deaths and serious chronic respiratory harm,” Kilmartin said.
According to the American Lung Association, one in 17 Americans lives in areas with unhealthy year-round levels of soot pollution, Kilmartin said. Most soot comes from diesel vehicles and power plants, he said.
Connecticut, Delaware, Maryland, Massachusetts, New Mexico, Oregon, Vermont and Washington also sued the EPA, according to the statement.
EPA spokeswoman Enesta Jones had no immediate comment on the lawsuit.
Koch Industries Sued by Madoff Trustee for $21.5 Million
Koch Industries Inc., the company run by billionaire brothers Charles and David Koch, was sued for $21.5 million by the trustee liquidating Bernard Madoff’s firm.
The trustee, Irving Picard, sued to recover money received from a feeder fund that invested with Madoff, according to the complaint filed Feb. 9 in U.S. Bankruptcy Court in Manhattan. Madoff is serving 150 years in federal prison for running the biggest Ponzi scheme in U.S. history.
One of the largest closely held companies in the world, Koch Industries has businesses in chemicals, refining, consumer products and commodities trading. Charles Koch is chairman and chief executive officer of the company, and David Koch is an executive vice president.
Melissa Cohlmia, a spokeswoman for the Wichita, Kansas- based company, said Picard’s complaint was “without merit.”
“The Koch entity involved made an investment in an entirely separate fund,” she said in an e-mailed statement. “That Koch entity no longer exists and its investment was redeemed in 2005, long before anyone knew of Madoff’s fraud.”
The case is Picard v. Koch Industries Inc., 12-01047, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
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Tearful Stanford Investor Tells Jury of Losing Life Savings
A retired U.S. Air Force medic told jurors at R. Allen Stanford’s criminal trial that she lost four-fifths of her savings and her dream of a comfortable retirement on now- worthless certificates of deposit from Stanford’s bank.
“Being in the military, I was just a middle-class, hard- working person who took care of my family and made my ends meet,” a tearful Dianne Hammer testified Feb. 10 in Stanford’s fraud trial in federal court in Houston. “You really don’t get rich serving in the military.”
Hammer’s broker at Stanford Group Co. and marketing brochures from Stanford International Bank didn’t say that investors were supposed to have a net worth of $1 million or annual incomes of $250,000 to buy CDs from the Antiguan bank, she said. Prosecutors claim Stanford ran the bank as a Ponzi scheme that defrauded investors of more than $7 billion.
Testifying for prosecutors, Hammer, 54, said she increased her Stanford CD holdings from $50,000 to $260,000 in August 2008, after she discussed deteriorating financial market conditions with her Stanford broker.
“He said since it was an overseas bank, it was safer than banks in the U.S. were at the time,” she said. The adviser also recommended she combine investments with her elderly parents so the family could qualify for a higher interest rate on their joint holdings at SIB, she said.
Stanford, 61, has denied wrongdoing. His lawyers have told jurors that all of Stanford’s customers were wealthy, accredited investors, with sophisticated investment knowledge.
Hammer told jurors that she now lives on a modest military pension. When U.S. securities regulators seized Stanford’s operations on suspicion of fraud in February 2009, Hammer said her SIB statement listed her CD account balance as $280,679.
The criminal case is U.S. v. Stanford, 09-cr-342, U.S. District Court, Southern District of Texas (Houston). The SEC case is SEC v. Stanford International Bank, 09-cv-298, U.S. District Court, Northern District of Texas (Dallas).
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Primary Global’s James Fleishman Denied Bail Pending Appeal
Former Primary Global Research LLC executive James Fleishman, convicted of taking part in an insider-trading scheme, will have to report to prison this month to start serving a 2 1/2-year sentence after losing a bid for bail pending appeal.
The U.S. Court of Appeals in New York denied Feb. 10 Fleishman’s request to remain free while it considers the challenge to his conviction on two conspiracy charges.
Fleishman is accused of participating in a scheme to obtain and pass along confidential information from technology company employees who moonlighted as consultants for Mountain View, California-based Primary Global, a so-called expert-networking firm. The tips were given to fund managers who paid Primary Global for consultation calls, prosecutors said.
In December, U.S. District Judge Jed Rakoff in Manhattan denied Fleishman’s request to dismiss his conviction or grant him a new trial.
The case is U.S. v. Nguyen, 11-cr-32, U.S. District Court, Southern District of New York (Manhattan).
Bard Wins Ruling Upholding $371 Million Award Against Gore
C.R. Bard Inc., a maker of catheters, won a U.S. court ruling that upholds a $371 million patent-infringement judgment against W.L. Gore & Associates Inc.
There was “substantial evidence” to support a verdict that Gore infringed a patent for vascular grafts, the U.S. Court of Appeals for the Federal Circuit in Washington said Friday in a ruling. Including interest, royalties and fees, Gore owed $783 million as of June, Bard said in a regulatory filing last year.
The case began in 2003 and involves a dispute dating back to 1974 over a tube that helps retain the shape of non-coronary blood vessels using a substance known as ePTFE that is similar to DuPont Co.’s Teflon, according to the patent. Closely held Gore, a Newark, Delaware-based maker of surgical products and fibers, said it uses the substance for its Gore-Tex fabrics.
Resolution of the case may bring in about $1 billion for Bard, adding $1 a share to annual earnings, Raj Denhoy, an analyst with Jefferies & Co. in New York, said in a note to clients. While the litigation isn’t over, Bard “is very close to the finish line,” Denhoy said.
Bard rose 3.6 percent to $95.67 at the close of New York trading, the biggest percentage gain since Nov. 30. The stock has climbed 12 percent this year.
Scott Lowry, a spokesman for Murray Hill, New Jersey-based Bard, said the company is pleased with the ruling.
Michael Ratchford, a spokesman for Gore, said in an e- mailed statement that “undoubtedly, we are disappointed with the court’s decision. But the company is as strong as it’s ever been, and this does not change our plans to continue to bring to market innovative and reliable products that improve health and save lives.”
The case is Bard Peripheral Vascular Inc. v. W.L. Gore & Associates Inc., 2010-1510, U.S. Court of Appeals for the Federal Circuit (Washington). The lower court case is Bard Peripheral Vascular v. W.L. Gore & Associates, 03cv597, U.S. District Court, District of Arizona (Phoenix).
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Credit Suisse Trader Case Was Most Popular Docket on Bloomberg
The U.S. Securities and Exchange Commission’s suit against Kareem Serageldin, Credit Suisse Group AG’s former global head of structured credit trading, was the most-read docket on the Bloomberg Law system last week.
Serageldin was charged in a scheme to falsify prices tied to collateralized debt obligations to meet targets and boost year-end bonuses for his $5.35 billion trading book.
Serageldin, 38, who lives in the U.K. and led the securities department of Credit Suisse’s investment banking division, was named in an indictment on Feb. 1 in New York. Two of his former subordinates, David Higgs, 42, and Salmaan Siddiqui, 36, pleaded guilty in federal court in New York on Feb. 1 and said they’re cooperating with the U.S. in the probe.
The cases are U.S. v. Higgs, 12-cr-00088, and U.S. v. Siddiqui, 12-cr-00089, U.S. District Court, Southern District of New York (Manhattan). The SEC case is U.S. Securities and Exchange Commission v. Serageldin, 12-cv-00796, U.S. District Court, Southern District of New York (Manhattan).
--With assistance from David Glovin, Patricia Hurtado, Don Jeffrey, Tiffany Kary, David McLaughlin, Linda Sandler and Bob Van Voris in New York; Steven Church and Phil Milford in Wilmington, Delaware; Susan Decker, Joshua Gallu and Tom Schoenberg in Washington; Laurel Brubaker Calkins in Houston; and Karin Matussek in Berlin. Editor: Glenn Holdcraft
To contact the reporter on this story: Ellen Rosen in New York at firstname.lastname@example.org.
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