Foreign Bribery, Wynn, Parmalot, Paulson, Teva in Court News
February 23, 2012, 1:19 AM ESTBy Ellen Rosen
Feb. 22 (Bloomberg) -- The U.S. dropped the biggest prosecution of individuals accused of foreign bribery after two trials in the case ended with three acquittals and seven mistrials.
The Justice Department yesterday asked a federal judge in Washington to dismiss the indictment, which originally accused 22 security-industry officials of planning to make payments to a federal agent posing as a representative of the West African nation of Gabon to secure a stake in a fake $15 million deal for weapons and security gear.
It was the first time the government used a sting operation involving undercover techniques to charge violations of the Foreign Corrupt Practices Act.
“I for one hope that this very long and very expensive ordeal will be a true learning experience for the department and the FBI as they regroup to investigate and prosecute FCPA cases against individuals” U.S. District Judge Richard Leon said in granting the Justice Department’s request. He said he had earlier told prosecutors of his concerns about their “aggressive conspiracy theory” of the case.
In seeking to end the case, the government said in court papers it “carefully considered” the outcomes of the first two trials of 10 defendants and the impact of rulings in those cases the remaining defendants, as well as the resources needed to continue with “another four or more” trials.
“If, as the DOJ said, there’s a sea of global corruption, it’s much wiser for them to use their resources to prosecute those actual crimes, rather than pursuing this fictitious sting operation,” Eric Bruce of Kobre & Kim LLP, who represented defendant Pankesh Patel, said in an interview.
Patel, of the U.K, is managing director of Quartermaster’s Ltd., a company that sells military and law-enforcement uniforms, according to court papers. He was scheduled to be retried in May after a jury last year failed to reach a verdict.
Laura Sweeney, a Justice Department spokeswoman, declined to comment beyond yesterday’s filing.
The case is U.S. v. Goncalves, 09-cr-00335, U.S. District Court, District of Columbia (Washington).
For more, click here.
Trials/Appeals
Stanford’s Secret Loans From His Bank Known to IRS, Lawyer Says
Internal Revenue Service auditors knew about hundreds of millions of dollars R. Allen Stanford borrowed from his Antiguan bank to fund an array of private ventures, a tax lawyer who worked on the audits told jurors in Stanford’s criminal fraud trial yesterday.
“In 1999, the IRS position was these were valid loans and should be treated as valid loans” between the bank and Stanford and between Stanford and his other companies, Larry Campagna, a tax partner with Chamberlain Hrdlicka in Houston, testified in the financier’s defense.
Prosecutors claim Stanford secretly borrowed $2 billion from investor savings at Antigua-based Stanford International Bank Ltd. to finance an extravagant lifestyle and speculative ventures ranging from Caribbean airlines, real estate developments and cricket tournaments. CD buyers were told their funds were held in safe, liquid investments.
U.S. securities regulators seized Stanford’s operations on suspicion of fraud in February 2009. Stanford, 61, is fighting charges he defrauded investors of $7 billion through what the government claims were bogus Antiguan CDs. His trial is in its fifth week in federal court in Houston.
Campagna told jurors that IRS auditors were already in Stanford’s offices examining his personal and corporate tax returns when Chamberlain Hrdlicka was hired to appeal certain IRS rulings in 2003. Under questioning by prosecutors, the tax attorney said the auditors weren’t necessarily given “free rein” to look at any documents they wanted.
Jurors also heard testimony by genealogical researcher Karen Pittman, a college librarian Stanford paid to investigate his ancestry for links to Stanford University founder Leeland Stanford.
Earlier in the trial, prosecutors told jurors that Stanford University has denied any linkage between its founder and the Texas financier. Allen Stanford often touted such blood ties in promotional materials given to investors.
The criminal case is U.S. v. Stanford, 09-cr-342, U.S. District Court, Southern District of Texas (Houston). The SEC case is Securities and Exchange Commission v. Stanford International Bank, 09-cv-298, U.S. District Court, Northern District of Texas (Dallas).
Appeals Court Revives Parmalat Suits Against Grant Thornton
A U.S. federal appeals court in New York has again revived two suits by Parmalat SpA against accounting firm Grant Thornton LLP, vacating a lower court judge’s decision dismissing them.
The U.S. Court of Appeals in New York said U.S. District Judge Lewis Kaplan in Manhattan should have abstained from ruling on the cases because of bankruptcy-related proceedings and because he didn’t have jurisdiction over the cases. The appeals court yesterday said the cases should be sent to federal court in Illinois so they can be handled by an Illinois state court.
This is the latest ruling in a case that has gone up to the federal appeals court and back to Kaplan. In January 2011, the 2nd Circuit in New York revived the cases after Kaplan had dismissed the lawsuits, ruling that he’d applied the wrong standard in determining whether to exercise jurisdiction.
The appeals court sent the cases back to Kaplan to determine whether federal law required him to abstain from taking them in favor of the Illinois courts. Kaplan, applying the rule set by the appeals court, ruled in August that he had authority to rule in the cases and then later dismissed them.
Parmalat, a dairy company based in Collecchio, Italy, collapsed in December 2003 in the country’s largest bankruptcy, later disclosing more than 14 billion euros ($20.1 billion) of debt, about eight times the amount reported by its former management. Parmalat SpA emerged from bankruptcy and returned to the stock market in 2005.
A call for comment to a Grant Thornton spokeswoman in California before business hours wasn’t immediately returned.
The case is In re Parmalat Securities Litigation, 04-cv- 1653, U.S. District Court, Southern District of New York (Manhattan).
Shell EPA Permits for Alaska Drilling Challenged in Court
Royal Dutch Shell Plc’s air pollution permits for offshore oil drilling in Alaska were challenged by environmental groups who said the permits violate the U.S. Clean Air Act.
The Alaska Wilderness League and eight other organizations filed a petition with the U.S. Court of Appeals in San Francisco on Feb. 17, asking it to review two permits the U.S. Environmental Protection Agency granted Shell to operate its Discoverer drillship in the Sea of Beaufort and the Sea of Chukchi.
“As early as this summer, the Discoverer drillship and other vessels in Shell’s fleet could be in the Chukchi Sea or Beaufort Sea of the Arctic Ocean where they will pump tens of thousands of tons of pollution into pristine Arctic skies,” the groups said in a statement yesterday.
The organizations allege that the EPA approved the permits without ensuring that all air quality standards were met, including not requiring that Shell install all the pollution controls that it should have, according to the statement.
The EPA permits were issued Feb. 10 to U.S. subsidiaries of The Hague-based Shell, according to the petition.
“Shell and EPA have worked to assemble strong, environmentally responsible air permits,” Shell spokeswoman Kelly op de Weegh said in an e-mailed statement. “Specifically, we have committed to retro-fit our catalytic exhaust systems and use ultra-low sulfur fuel on all of our vessels.”
The company will continue to work with regulators to get all the permits it needs to start drilling this summer, op de Weegh said.
Shell on Feb. 17 received U.S. approval for its oil-spill response plan in the Chukchi Sea, bringing it closer to winding up a five-year quest to drill off the north coast of Alaska.
An EPA spokesman in Washington didn’t immediately return calls for comment.
The case is Redoil v. EPA, 12-70518, U.S. Court of Appeals for Ninth Circuit (San Francisco.)
For the latest trial and appeals news, click here.
Supreme Court
University Affirmative Action Draws U.S. High Court Scrutiny
The U.S. Supreme Court agreed to once again review university affirmative action programs, re-entering a racially charged debate by accepting an appeal from a rejected white applicant to the University of Texas.
The appeal takes aim at a 2003 Supreme Court decision that said universities could continue to consider the race of their applicants to help ensure campus diversity.
Universities have had the court’s blessing for affirmative action since the 1978 Regents of the University of California v. Bakke decision gave race-conscious admissions a limited endorsement. With five of the nine current justices openly skeptical about racial classifications, yesterday’s action suggests the court at a minimum will scale back diversity
The justices will hear the latest case -- in which student Abigail Noel Fisher said she suffered discrimination when she applied to the university’s flagship Austin campus -- during the nine-month term that starts in October, potentially with arguments before the November presidential election.
In urging the court not to hear the Fisher case, Texas argued that “those who drafted and ratified the Fourteenth Amendment did not establish the principle of ‘colorblind’ government that opponents of race-conscious admissions so often invoke.”
Fisher’s lawyers point to statistics indicating that the Top Ten Percent Law, enacted in 1997, was helping ensure a significant number of minority students even without explicit consideration of race.
The case is Fisher v. University of Texas at Austin, 11- 345.
For more, click here.
Health-Care Argument Extended to Six Hours at U.S. High Court
The U.S. Supreme Court extended next month’s argument over President Barack Obama’s health-care law to six hours, adding 30 minutes to what was already the longest session in decades.
Responding to a request from both sides, the justices yesterday scheduled an extra half-hour for the first day of arguments, which will run from March 26 to 28.
The first day will center on the Anti-Injunction Act, a law that one federal appeals court concluded prevents judges from ruling until 2015 on the central issue in the dispute: the requirement that Americans either buy insurance or pay a penalty.
Music Producer Spector’s Murder Appeal Rejected by Supreme Court
The U.S. Supreme Court rejected an appeal by Phil Spector, the music producer who developed the “wall of sound” recording technique, of his murder conviction for the 2003 shooting death of actress Lana Clarkson.
Yesterday’s rebuff leaves Spector, 72, to serve a prison term of 19 years-to-life in a California state prison.
Spector argued unsuccessfully that his constitutional rights were violated when a judge permitted videotaped evidence from the producer’s first trial, which ended in a hung jury in 2007.
A jury found Spector guilty of second-degree murder for shooting Clarkson, 40, at his mansion a few hours after they met at a nightclub where she worked.
Spector gained fame in the 1960s with his “wall of sound” method. The dense, multilayered productions resulted in hits for the Ronettes, featuring Spector’s future wife Ronnie, and the Righteous Brothers. He produced the Beatles’ album “Let It Be” and solo projects by John Lennon and George Harrison.
The case is Spector v. California, 11-761.
Verdicts/Settlements
Teva Said to Pay $250 Million to End Nevada Propofol Cases
Teva Pharmaceutical Industries Ltd. will pay more than $250 million to settle more than 80 lawsuits alleging the drugmaker sold the anesthetic Propofol in a way that led colonoscopy patients to develop hepatitis C, people familiar with the accords said.
Teva, the world’s biggest maker of generic medicines, confirmed the settlement yesterday without specifying how much it will pay. The company agreed last week to resolve claims by Las Vegas residents that it intentionally sold Propofol in vials large enough to be reused by doctors, the people said. They spoke on the condition they not be named because they aren’t authorized to speak publicly about the agreements.
The deal also resolves a May 2010 case over Teva’s sales of the anesthetic that spawned a jury award of more than $500 million against the Israeli drugmaker, according to the people familiar with the settlements and a filing with the Nevada Supreme Court. Henry Chanin, a private-school principal from Las Vegas, alleged he developed hepatitis C after getting tainted Propofol during a colonoscopy.
“The parties notify the court that they have agreed to a settlement in this matter,” Chanin’s lawyers told the Nevada Supreme Court in a Feb. 17 filing. Teva had asked the state’s highest court to overturn Chanin’s verdict.
Denise Bradley, a U.S.-based spokeswoman for Petach Tikva, Israel-based Teva, confirmed that the company had settled the Nevada Propofol cases.
“Teva is pleased to have put the vast majority of these matters behind us,” Bradley said in an e-mail. Fifteen Propofol cases remain active on court dockets in Las Vegas, she said.
Teva faced a series of multimillion-dollar verdicts over its Propofol sales in Nevada, including the award to Chanin and more than $162 million awarded to fellow colonoscopy patients Anne Arnold, Richard Sacks and Anthony Devito in October.
The settlement resolves all those verdicts and a Propofol trial that was under way before Judge Jerry Wiese in Las Vegas, the people familiar with the agreements said.
The case involved four colonoscopy patients who blamed their hepatitis C on tainted Propofol from Teva vials. Wiese dismissed the jury last week after learning about the settlement, the people said. Teva officials said in a Feb. 17 with the U.S. Securities and Exchange Commission filing that the drugmaker still faces about 50 claims in state court in Nevada.
Teva officials noted in the filing that the company also faces claims from 4,000 colonoscopy patients, whose cases have been consolidated in federal court in Las Vegas. Those patients haven’t been diagnosed with hepatitis C and are suing over fears that they may contract the disease, the drugmaker’s executives said.
The company also may face claims from an additional 1,700 colonoscopy patients whose claims have been stayed, Teva officials added in the filing.
The Nevada Supreme Court case is Teva Parenteral Medicines Inc. v. Chanin, 07085, Supreme Court of Nevada (Carson City).
BP, Transocean, Settle With Injured Deepwater Horizon Worker
BP Plc, Transocean Ltd. and others involved in the operation of the Deepwater Horizon rig that exploded in the Gulf of Mexico in 2010 agreed to settle a lawsuit filed by a worker injured in the blast.
Oleander Benton, the Deepwater Horizon worker, said in a filing Feb. 20 in federal court in New Orleans that all the claims have been “amicably settled,” and asked U.S. District Judge Carl Barbier to dismiss the lawsuit.
Benton’s was among at least 40 lawsuits filed by survivors or relatives of the 126-member crew that was aboard the rig when it exploded off the Louisiana coast in April 2010, killing 11 and resulting in the worst oil spill in U.S. history. BP faces hundreds of other lawsuits, including from businesses that have had their properties or livelihoods damaged by the spill, and is pressing to settle claims before a trial over its liability.
“With a reasonable settlement, we will settle,” BP Chief Executive Officer Robert Dudley said Feb. 7 in a Bloomberg Television interview. “If it’s not a reasonable settlement, we’ll go to court.”
BP, based in London, is negotiating with U.S. officials to settle pollution claims, according to a person familiar with the talks, who declined to be identified because the matter isn’t public. The U.S. is seeking fines of as much as $4,300 for each of the 4.1 million barrels spilled after the explosion, which would total as much as $17.6 billion.
The case is In Re: Oil Spill by the Oil Rig Deepwater Horizon in the Gulf of Mexico on April 20, 2010, 2-10-md-1979, U.S. District Court, Eastern District of Louisiana (New Orleans).
For the latest verdict and settlement news, click here.
New Suits
Paramount Pictures Sues Puzo Estate Over ‘Godfather’ Sequels
Paramount Pictures Corp. sued Anthony Puzo, the son and executor of the estate of author Mario Puzo, to prevent the publication of a new sequel novel to “The Godfather.”
Paramount, which says it bought the copyright to Puzo’s novel in 1969, is trying “protect the integrity and reputation of The Godfather trilogy,” according to a complaint filed Feb. 17 in federal court in Manhattan.
Paramount claimed that, after Puzo’s death in 1999, the company agreed to allow Bertelsmann AG’s Random House unit to publish a single Godfather sequel, “The Godfather Returns,” in 2004. The estate published another novel, “The Godfather’s Revenge,” in 2006 without Paramount’s approval, according to the complaint.
“Far from properly honoring the legacy of ‘The Godfather,’ the unauthorized ‘The Godfather’s Revenge’ tarnished, and in the process, also misled consumers into believing that ‘The Godfather’s Revenge’ was authorized by Paramount,” Paramount, a unit of New York-based Viacom Inc., said in the complaint.
Paramount is seeking damages and an order barring the Puzo estate from publishing the third sequel novel, “The Family Corleone,” this year.
Bertram Fields, a Los Angeles lawyer who represents the Puzo estate, said he had repeatedly notified Paramount of the sequel, which is to be published in May. The studio didn’t protest before suing, said Fields, who called the suit “a sneak attack.”
“For Paramount to do this to Mario Puzo’s children after the tens of millions of dollars he made for the studio is outrageous,” said Fields in a telephone interview.
The case is Paramount Pictures Corp. v. Puzo, 12-CV-1268, U.S. District Court, Southern District of New York (Manhattan).
Okada Payments Violated U.S. Anti-Bribery Law, Wynn Report Says
Japanese billionaire Kazuo Okada’s Universal Entertainment Corp. improperly gave more than $110,000 in payments and gifts to two chief gambling regulators in the Philippines and their families, according to a report prepared for Wynn Resorts Ltd.
Okada, his associates and companies made three dozen improper payments, including a four-day stay by a Filipino regulator, Cristino Naguiat Jr., in the most expensive room at Wynn Resorts Macau, according to a report by Freeh Sporkin & Sullivan LLP. The room, known as Villa 81, covers 7,000 square feet and costs $6,000 a day, the report said. Okada, who has been asked to step down as a director of Las Vegas-based Wynn Resorts, is developing a gaming business in the Philippines.
“Naguiat’s luxury stays at Wynn Resorts facilities were fully known to Mr. Okada, who actively involved himself in some of the arrangements,” according to the report, prepared by former Federal Bureau of Investigation director Louis Freeh and filed by Wynn with a lawsuit in state court in Nevada.
The suit, filed Feb. 19, claims Okada, Universal and a company controlled by Universal, Aruze USA Inc., breached their duty to Wynn. On Feb. 19, Wynn forcibly redeemed Universal’s 19.7 percent stake in the company at a discount, escalating a dispute between Chief Executive Officer Stephen Wynn and Okada, who helped bankroll the company.
“The decision by the Wynn board, which followed a rushed investigation that lacks absolute findings, to redeem Universal Entertainment’s nearly 20 percent holdings in Wynn Resorts based on its project in the Philippines is outrageous,” Universal said in a statement yesterday.
Universal said in a statement yesterday, that while it hadn’t been provided with a copy of the report, “we believe the allegations leveled against Universal are motivated by self- interest and represent the results of an incomplete and otherwise flawed corporate governance process.”
Universal said Aruze USA would seek a court order to prevent the redemption of the shares.
Okada visited the office of regulator Philippine Amusement and Gaming Corp., or PAGCOR, in Manila yesterday and denied making cash gifts, the regulator said in an e-mailed statement.
The case is Wynn Resorts Ltd. v. Okada, A-12-656710-B, District Court, Clark County, Nevada (Las Vegas). The earlier case is Okada v. Wynn Resorts Ltd., A-12-654522-B, District Court, Clark County, Nevada (Las Vegas). For more, click here.
Paulson Hedge Fund Investor Sues Over Sino-Forest Losses
John Paulson’s $23 billion hedge fund was sued by an investor over its losses in Sino-Forest Corp. last year.
Hugh Culverhouse seeks class-action status on behalf of all investors who lost money in the hedge fund, according to a complaint filed yesterday in federal court in Miami.
“Defendants breached their fiduciary duties by conducting a grossly negligent due diligence analysis of Sino-Forest’s business operations that did not analyze the substantial risks of holding a near-billion-dollar investment in a forestry company based in China,” Culverhouse said in his complaint.
Sino-Forest’s shares dropped more than 80 percent in June when Carson Block’s Muddy Waters LLC said the Hong Kong-based company overstated its timber holdings. Sino-Forest denied the allegations.
Paulson & Co., based in New York, told clients in a June letter that it lost C$462 million ($463.30 million as of yesterday’s conversion rate) since the end of May on its Sino- Forest investment. The hedge fund had held 31 million shares of Sino-Forest in May, or 12.5 percent of outstanding stock, and had sold its entire stake as of June 17, according to the letter.
“The lawsuit filed by Hugh Culverhouse against Paulson & Co. is without merit,” the company said in a statement. “As in all our investments, Paulson has access to the same information that everyone else in the securities markets does. Like other public market investors, we must rely on audits and underwriter due diligence for comfort that financial statements and disclosures are accurate and reflect the true state of affairs at companies with publicly traded securities.”
Paulson said on a July 21 investor call that he would hire a specialist in Hong Kong after losses tied to Sino-Forest, two people briefed on the matter said that month.
The net realized loss on the investment since Paulson first bought Sino-Forest was C$105 million ($105.25 million), according to yesterday’s company statement.
The case is Culverhouse v. Paulson & Co., 12-cf-20695, U.S. District Court, Southern District of Florida (Miami).
Ex-Credit Agricole Banker Uses Whistle-Blower Rule in Suit
A senior investment banker at Credit Agricole SA sued the French lender for millions of pounds, claiming he missed out on bonuses and was dismissed for reporting colleagues under whistle-blowing rules.
Edward Willems, former deputy head of fixed income markets at Credit Agricole’s corporate and investment banking unit, was “subjected to detriment as a result of making protected disclosure,” his lawyer Tom Croxford told a London employment tribunal yesterday.
Willems’ bonuses in 2010 and 2011 were “inappropriately low” because of the whistle blowing, Croxford said, without describing the conduct he reported. Willems “is seeking millions of pounds,” Credit Agricole’s lawyer Nicholas Randall said at the hearing this morning.
While most wrongful dismissal damages are capped at about 72,000 pounds ($114,000), employment tribunals can award unlimited amounts in whistle-blower cases. Samantha Mangwana, an employment lawyer at Russell Jones & Walker who isn’t involved in the case, said she has seen several whistle-blowing claims in the financial industry, often for large sums when bonuses are involved.
Employees are protected by U.K. law from being fired or punished if they reveal malpractice in the public interest. The conduct could be “improper, illegal or negligent behavior by anyone in the workplace,” according to a guidelines published on a British government website.
Meriel Schindler, one of Willems’ lawyers, didn’t respond to an e-mail requesting comment. An e-mail to Credit Agricole’s press office wasn’t immediately answered.
For the latest new suits news, click here. For copies of recent civil complaints, click here.
--With assistance from Patricia Hurtado, Don Jeffrey, Saijel Kishan and Bob Van Voris in New York; Tom Schoenberg and Greg Stohr in Washington; Jef Feeley in Wilmington, Delaware; David Voreacos in Newark, New Jersey; Laurel Brubaker Calkins in Houston; Edvard Pettersson in Los Angeles; Laurence Viele Davidson in Atlanta; Joe Schneider in Sydney; Kit Chellel in London. Editor: Mary Romano
To contact the reporter on this story: Ellen Rosen in New York at erosen14@bloomberg.net.
To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.
