Bloomberg News

Standard Chartered, Kinnucan, Apple, SocGen in Court News

March 15, 2012

Standard Chartered Plc (STAN), the U.K. bank whose earnings from China doubled last year, said its private-bank relationship manager Wu Yidian Eden has been detained by police in the Asian nation.

“We are unable to comment on the reason for her detention -- this is a matter for the police,” Singapore-based spokeswoman Melissa Cheah said in an e-mailed response to queries today. “We can confirm that Standard Chartered is not being investigated.”

Police from the city of Wuxi notified Shanghai-based Wu’s family of her detention on March 6, the Wall Street Journal reported today. Chinese authorities are investigating a client of Wu, a naturalized Singapore citizen, who allegedly fled with as much as $50 million from Agricultural Bank of China Ltd., according to the report. Wuxi is about 90 miles from Shanghai.

A press officer at state-owned Agricultural Bank declined to comment and four calls to the Wuxi city government’s publicity department weren’t answered.

Singapore’s Consulate-General in Shanghai is aware of the case and will render all necessary consular assistance, attache Lynn Ho said in an e-mail.

Standard Chartered, HSBC Holdings Plc (HSBA) and Hong Kong-based Bank of East Asia Ltd. (23) are among foreign lenders expanding in China to tap its growing wealth. Chinese millionaires will hold $8.76 trillion of assets by 2015 as their number is set to more than double, according to a study by Julius Baer Group and CLSA Asia Pacific Markets in September.

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New Suits

Two Swiss Advisers Helped Clients Evade Taxes, U.S. Charges

Two Swiss men who acted as “full service tax evasion advisers” helped U.S. clients hide hundreds of millions of dollars from tax authorities, while delivering cash in hotels and through a child courier, prosecutors said.

Hans Thomann and Josef Beck, who worked as independent financial advisers, conspired to help Americans defraud the Internal Revenue Service and ran unlicensed businesses that moved cash for clients, according to charges filed March 13 in federal court in Manhattan.

Thomann helped clients hide $138 million in assets from the IRS and Beck helped conceal $129 million, according to indictments unsealed yesterday. Working separately, they helped clients move cash, using street corners and hotel rooms to evade detection, prosecutors said yesterday in a statement. Beck even used a child “to make a drop,” prosecutors said.

Prosecutors said the men worked with Wegelin & Co., the 270-year-old private bank, which last month became the first Swiss lender indicted in the U.S. The Justice Department has charged at least 23 foreign bankers, advisers and attorneys, and at least 40 U.S. taxpayers in a crackdown on offshore tax evasion since 2008.

Both Thomann, 61, and Beck, 46, met clients in Manhattan hotels to hand them cash they couldn’t withdraw without visiting Switzerland and pick up money to deposit in their undeclared accounts, according to the indictments.

Beck, who ran the asset-management firm Beck Verwaltungen AG, also gave addresses to his clients in the U.S. and Israel where they could pick up or drop off cash, and sometimes they gave cash to one another, prosecutors said.

Thomann was a banker at UBS AG (UBSN), Switzerland’s biggest bank, from 1993 until 2003, according to his indictment.

U.S. prosecutors charged Zurich-based UBS in 2009 with helping Americans hide assets from the IRS. UBS avoided prosecution by admitting it aided tax evasion, paying $780 million and handing over data on 250 accounts. It later disclosed another 4,450 accounts, causing U.S. customers to seek new banks.

Thomann helped 33 former UBS clients transfer their accounts to other banks, including Wegelin and several unidentified institutions, according to his indictment. They were referred to as “a Swiss bank,” “the Swiss branch of an Israeli bank,” “a Swiss cantonal bank” and “Swiss- Liechtenstein Bank No. 1.”

The cases are U.S. v. Thomann, 12-cr-00212, and U.S. v. Beck, 12-cr-00211, U.S. District Court, Southern District of New York (Manhattan).

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Lawsuits/Pretrial

Analyst Kinnucan Pleads Not Guilty to Insider Trading

Broadband Research LLC founder John Kinnucan, who challenged U.S. authorities to arrest him for more than 18 months, pleaded not guilty to federal insider trading charges and remains in custody because he’s unable to make bail.

Kinnucan was indicted on Feb. 21 by a federal grand jury in New York, accused of passing inside tips to hedge fund clients about SanDisk Corp. (SNDK), OmniVision Technologies Inc. (OVTI) and other companies. He was arrested at his home in Portland, Oregon, on Feb. 16 by agents with the Federal Bureau of Investigation.

Kinnucan “befriended” employees of public technology companies, obtained nonpublic information from them and passed it to his fund manager clients, prosecutors in the office of Manhattan U.S. Attorney Preet Bharara alleged.

U.S. District Judge Deborah Batts in New York said Kinnucan could be released on $5 million bond, rejecting the government’s claims he had engaged in a “campaign” of threats against prosecutors and agents handling his case.

The judge last week ordered him to be transported by U.S. marshals to New York to face trial. His lawyer told Batts that Kinnucan had been unable to raise the $100,000 in cash and property necessary to secure the bond or obtain the signatures of four financially responsible people.

Prosecutors said at a hearing after the arrest that Kinnucan posed a danger to the community and a threat to authorities handling his case, citing at least 24 menacing voice-mail messages he left on the office phones of U.S. prosecutors and FBI agents, as well as at the homes of two cooperating witnesses.

The case is U.S. v. Kinnucan, 12-cv-163, U.S District Court, Southern District of New York (Manhattan).

Apple Asks Hong Kong Court to Continue IPad Case Against Proview

Apple Inc. (AAPL), fighting over the rights to the iPad name in China, asked a Hong Kong court to continue a parallel case against Proview International Holdings Ltd. (334), which says it owns the trademark.

“Their application was about testimony they wanted to exclude,” Sun Min, a director of Proview International, said after a pretrial hearing in the High Court yesterday. Sun didn’t comment on the content of the testimony after telling the court that Proview, a failed Hong Kong-listed display maker, opposes Apple’s request.

Apple is awaiting a ruling by a court in Guangdong province, China, on whether it or Proview owns the rights to the iPad trademarks in the world’s fastest-growing major economy. The Cupertino, California-based company also filed a lawsuit in Hong Kong against Proview founder Rowell Yang and his companies for conspiring to breach their sale agreement.

Apple’s lawyer, who didn’t identify herself in court, urged Hong Kong High Court master Reuden Lai to ensure that the case proceeds to trial on schedule. After the hearing, she declined to identify herself or elaborate on the pretrial application.

Proview International doesn’t have a lawyer for the Hong Kong proceedings, Sun told the court yesterday.

A Hong Kong court in July issued an order preventing Proview from selling the trademarks.

The world’s most-valuable technology company started litigation in 2010 against Proview, the same year it introduced the iPad tablet. It lost the case last year in the southern Chinese city of Shenzhen, where a court ruled that Apple hadn’t properly acquired the trademarks because the Proview entity that owned them wasn’t involved in the sale agreement.

On Feb. 29, the Higher People’s Court of Guangdong heard Apple’s appeal. A ruling is expected within three months.

Proview has asked China customs authorities to block imports and exports of the tablet computer. Roger Xie, Proview’s lawyer, has said Proview also filed requests to retailers to halt iPad sales.

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Trials/Appeals

Stryker, Glaxo Court Losses Mar U.S. Drug-Marketing Crackdown

Former Stryker Biotech LLC (SYK) sales manager David Ard waited more than two years for his trial on charges that he joined a scheme to market unapproved medical devices to surgeons.

Prosecutors abruptly dropped the case Jan. 17, five days after opening the trial in which Stryker was also a defendant. They had told jurors in Boston federal court that Ard and two of his colleagues were criminals.

U.S. Attorney Carmen Ortiz in Boston, who dropped the charges against the three defendants and later a fourth Stryker employee, had another drug-marketing prosecution fall apart nine months earlier. A U.S. judge in Maryland threw out charges last May against Lauren Stevens, an ex-GlaxoSmithKline Plc (GSK) lawyer accused of obstructing a probe into the marketing for unapproved uses of Wellbutrin SR, an antidepressant.

The Ard and Stevens cases may illustrate how the Justice Department has failed at times to prove that health-care industry executives are criminals, even as their employers admit criminal charges, write large checks and promise reform, Bloomberg News’ David Voreacos and Janelle Lawrence report. For those accused and then cleared, the experience can be scarring.

The cases are U.S. v. Stryker Biotech LLC, 09-cr-10330, U.S. District Court, District of Massachusetts (Boston); and U.S. v. Stevens, 10-cr-00694, U.S. District Court, District of Maryland (Greenbelt).

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Verdicts/Settlements

SAIC to Pay $500 Million to Settle New York CityTime Fraud

Science Applications International Corp. (SAI), the contractor hired to overhaul payroll systems for New York City agencies, agreed to pay $500.4 million under a deferred-prosecution agreement to resolve claims that it conspired to defraud the city.

SAIC admitted that it failed to investigate claims that a manager of the CityTime payroll project directed staffing tasks to a single subcontractor, Technodyne LLC, in exchange for kickbacks, according to documents unsealed yesterday by federal prosecutors. The McLean, Virginia-based company also failed to notify the city of the claims, according to the agreement.

Payments to Technodyne for the project ballooned to $325 million from $17 million, even as the contract was amended to transfer cost overruns to the city, according to a statement of responsibility submitted by SAIC. The total cost of the program was $693 million, according to Marc LaVorgna, a spokesman for Mayor Michael Bloomberg. The mayor is founder and majority owner of Bloomberg News parent Bloomberg LP.

SAIC agreed to the filing of one count of conspiracy to commit wire fraud and to disgorge proceeds of the offense, including $370.4 million in restitution to the city and a $130 million penalty, according to a Justice Department letter describing the settlement. An independent monitor will be appointed to ensure compliance with the accord and with procurement policies.

If SAIC pays the money and cooperates with federal investigators, the U.S. will seek to have the charges dropped after three years, according to the agreement.

U.S. District Judge George Daniels approved the agreement yesterday.

“We welcome this settlement as an important step in our efforts to move forward as a better, stronger company,” SAIC Chief Executive Officer John Jumper said in a statement yesterday. “We have implemented strong improvements to our compliance program and have new leadership in place. Our financial position is solid.”

The case is U.S. v. Science Applications International Corp., 11-cr-00121, U.S. District Court, Southern District of New York (Manhattan).

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Former Taylor Bean Finance Chief Reaches Plea Agreement

Taylor, Bean & Whitaker Mortgage Corp.’s former finance chief reached a plea agreement with federal prosecutors, almost a year after the company’s chairman was found guilty of running a $3 billion fraud.

Delton de Armas is scheduled to appear in court for a plea hearing on March 20, according to a filing yesterday in U.S. District Court in Alexandria, Virginia. The court’s docket doesn’t say what de Armas is being charged with.

Peter Carr, a spokesman for U.S. Attorney Neil MacBride, declined to comment on the filing. De Armas couldn’t be located for comment.

Lee Farkas, the ex-chairman of Taylor Bean, is serving a 30-year sentence after being convicted in April of 14 counts of conspiracy and bank, wire and securities fraud in what prosecutors said was a $3 billion scheme involving fake mortgage assets.

Six conspirators to the fraud scheme who pleaded guilty and testified against Farkas at trial were sentenced to prison terms ranging from three months to eight years.

Taylor Bean, based in Ocala, Florida, was servicing more than 500,000 mortgages, including $51 billion of Freddie Mac loans, when it collapsed in August 2009, according to court records.

The case is U.S. v. Armas, 12-00096, U.S. District Court, Eastern District of Virginia (Alexandria).

Securities Suits’ Settlement Value Lowest in Decade, Report Says

The number of securities class action settlements approved by U.S. courts dropped in a “weak year” to the lowest point in a decade as the average amount of each accord fell by 42 percent in 2011, according to a report.

Sixty-five such cases were resolved last year for a total of $1.4 billion, the fewest settlements and lowest aggregate dollar value in more than 10 years, Cornerstone Research, an economics and financial consulting firm, said in a study released yesterday. The average settlement amount fell from $36.3 million in 2010 to $21 million last year, according to the annual report.

“The class action securities fraud market is a business, just like any other, and the 2011 settlements data indicate that the plaintiffs and their counsel are coming off a weak year,” Joseph Grundfest, a Stanford University law professor, said in a statement accompanying the report’s release.

The settlement value fell 58 percent, from $3.2 billion in 2010 to $1.4 billion last year, according to the report. The 2011 total is half that of 2002, the next lowest year.

The declining numbers reflect the weakness of cases filed three to five years ago, tougher standards of proof imposed upon by the U.S. Supreme Court (1000L) and market instability that has made it more difficult for shareholders filing suit to say they weren’t aware of the inherent risk of investing, Grundfest said.

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Litigation Departments

Kerviel Dropped by Lawyer for SocGen Loss Appeal

Jerome Kerviel’s lawyer, Olivier Metzner, has dropped him as a client over a difference in his defense strategy, leaving the former trader without a lawyer for the June appeal of his 2010 conviction for Societe Generale (GLE) SA’s 4.9 billion-euro ($6.4 billion) trading loss, Les Echos said yesterday, citing Metzner.

Metzner didn’t immediately return a call for comment by Bloomberg News.

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To contact the reporter on this story: Elizabeth Amon in Brooklyn, New York, at eamon2@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.


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