Bernard Madoff’s investors, employees and family members were sued by a trustee seeking to recover as much as $69 million in fake profits they received before the con man’s firm collapsed.
New York attorney Irving Picard, appointed trustee by a federal bankruptcy court, on Nov. 26 sued people who allegedly invested with Madoff and withdrew more money than they contributed. Picard, with the approval of the Manhattan judge overseeing the liquidation of New York-based Bernard L. Madoff Investment Securities LLC, has filed such “clawback suits” in an attempt to obtain as much as $17.5 billion for victims of the largest Ponzi scheme in U.S. history.
Picard said in a statement that those targeted in this latest round of lawsuits are family members and employees, or their relatives. In some of the complaints filed in U.S. Bankruptcy Court, he didn’t identify the defendants as having such connections to Madoff.
“The transfers received by defendant constitute non- existent profits supposedly earned in the account, but, in reality, they were other people’s money,” Picard said in a complaint seeking $2.8 million from David Washburn, a Madoff investor. Washburn didn’t return a phone call seeking comment.
Among those previously sued by the trustee is Bernard Madoff’s wife Ruth, who was named in a complaint filed in July 2009. Defendants in the new lawsuits include Marion Madoff, the wife of Madoff’s brother Peter, who Picard said received $14.1 million in customer funds that should be returned. Picard sued Peter Madoff in October 2009.
Charles Spada, a lawyer for Peter Madoff, didn’t return a call to his office after business hours.
“We have been in touch with each defendant and their counsel, seeking a prompt settlement of these claims and an out- of-court resolution,” Picard said in the e-mailed statement. “However, as these attempts have not reached a satisfactory conclusion, we are moving ahead with litigation.”
Madoff, 72, is serving 150 years in prison after pleading guilty to orchestrating the fraud that destroyed his New York- based firm, which collapsed in December 2008.
The bankruptcy case is SIPC v. Bernard L. Madoff Investment Securities LLC, 08-1789, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
ADCB Sues Credit Suisse, S&P in U.S. on Investment Product
Abu Dhabi Commercial Bank PJSC, the United Arab Emirates’ third-biggest bank by assets, sued Credit Suisse Group AG, Standard & Poor’s and others for allegedly providing misleading information on an investment product.
The lawsuit filed in New York alleged that Credit Suisse “failed to disclose conflicts of interest and other material information, and provided misleading information, when structuring, marketing and selling an investment, known as Farmington, to ADCB in 2007,” the bank said in an e-mailed statement Nov. 26. The lender also alleged that Standard & Poor’s “provided inaccurate, investment-grade ratings to assets associated with the Farmington structure.”
Abu Dhabi Commercial made a 560 million-dirham ($153 million) provision in 2007 for losses from investments in the U.S. subprime mortgage market. The bank also sued Morgan Stanley & Co., Bank of New York Mellon Corp. and three securities ratings services for allegedly rating too highly a structured investment vehicle that collapsed in 2007.
The bank invested in a structured investment vehicle known as Stanfield Victoria in 2005 and 2006, and the investment vehicle faced liquidity issues in 2007, according to the statement. Abu Dhabi Commercial alleged it was “induced to enter into an emergency restructuring transaction, Farmington, based on false and misleading information.”
A spokeswoman for Credit Suisse and a spokesman for Standard & Poor’s weren’t immediately available to comment when called Nov. 24.
Hewlett-Packard Sued in Sealed Cases Over Mark Hurd Departure
Hewlett-Packard Co., the world’s largest computer maker, was sued by shareholders seeking information about the company’s ouster of former Chief Executive Officer Mark Hurd.
In one of two cases filed in Delaware Chancery Court, mostly under seal, shareholder Lawrence Zucker sued some HP directors seeking “monetary relief” on behalf of the company.
According to a summary posted on the Wilmington, Delaware, court’s public docket describing some of the sealed complaint’s contents, the investor alleged that officials of the Palo Alto, California-based computer-maker violated their duties. According to the Nov. 24 summary, the plaintiff alleged in the complaint that the defendants caused “corporate waste arising out of a severance agreement between Hewlett-Packard and Mark Hurd.” In the previous suit, filed Nov. 18, shareholder Ernesto Espinoza seeks the release of “corporate documents.”
Hurd, 53, resigned as HP’s chairman and CEO on Aug. 6, after a company investigation of a sexual harassment-allegation determined that he violated its standards of business conduct, according to a statement from Hewlett-Packard. The former contractor who made the harassment claim was later identified by her lawyer Gloria Allred as Jodie Fisher. HP said it didn’t find that Hurd had violated its harassment policy.
Hurd now works for software maker Oracle Corp. as a co- president.
Mylene Mangalindan, an HP spokeswoman, didn’t return phone messages seeking comment on the lawsuits Nov. 26. Glenn Bunting, a spokesman for Hurd at Sitrick & Co., couldn’t immediately be reached for comment. Deborah Hellinger, a spokeswoman for Redwood City, California-based Oracle, declined to comment in an e-mailed message.
The cases are Zucker v. Andreessen, CA6014, and Espinoza v. Hewlett-Packard Co., CA6000, Delaware Chancery Court (Wilmington).
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Australian Regulator to Sue CBA, Macquarie Over Storm
The Australian Securities & Investments Commission said it will commence proceedings against Commonwealth Bank of Australia, Bank of Queensland Ltd. and Macquarie Bank Ltd. seeking compensation for investors in Storm Financial Ltd., according to an e-mailed statement.
Commonwealth Bank, Australia’s largest lender, said in a statement it will “strongly defend” its position in any legal proceedings stemming from Storm Financial. Commonwealth Bank in December 2008 contacted Storm customers to notify them of margin lending breaches, and in January 2009 Storm closed its business and fired all employees as its investments soured.
Commonwealth Bank had agreed to refund investors where it had been found the bank lent them money “imprudently,” the Australian Newspaper reported in February. Bank of Queensland said in a filing it’s disappointed with the approach by the regulator, while Macquarie Group Ltd., parent company of Macquarie Bank, said it is “disappointed by the claims made by ASIC, which it believes are unsustainable and speculative.”
ASIC said in its statement Nov. 26 that it won’t commence proceedings for as long as three weeks as talks to resolve the dispute continue.
Novell Sued Over $2.2 Billion Attachmate Buyout
Novell Inc., the software maker being bought by Attachmate Corp. for $2.2 billion, was sued by a stockholder who contends the $6.10-a-share bid is “inadequate.”
The proposed sale doesn’t treat all shareholders equally, investor Lawrence Fisk said in his complaint, filed in Delaware Chancery Court in Wilmington on Nov. 23, the day after the Attachmate offer was announced. Hedge-fund manager Elliott Associates LP, which failed to take Novell private in March, would get 7 percent of the merged company for its 7 percent stake in Novell.
Those, and other terms, “are fundamentally unfair to plaintiff and the other shareholders of the company,” Fisk said.
Novell, based in Waltham, Massachusetts, began looking for another buyer after rejecting Elliott’s $2 billion takeover offer in March. Elliott’s desire to retain a stake in the merged company shows that the hedge-fund manager believes the price is too low, the complaint alleges. The offer denies future value to other shareholders who aren’t being given the same opportunity, the lawsuit claims.
Novell spokesman Ian Bruce didn’t return a call for comment.
The case is Fisk V. Novell Inc., 6012, Delaware Chancery Court (Wilmington).
J. Crew, TPG Sued by Shareholder Over Buyout Deal
J. Crew Group Inc. and TPG Capital were sued by a J. Crew shareholder seeking to block the clothing retailer’s proposed $3 billion buyout, which he said undervalues the company.
The acquisition of J. Crew by TPG and Leonard Green & Partners LP for $43.50 a share “materially undervalues” the company and is unfair to stockholders, Arnold J. Church, a J. Crew shareholder, said in a complaint filed Nov. 24 in New York State Supreme Court.
“In short, the proposed acquisition is designed to unlawfully divest J. Crew’s public stockholders of the future growth potential of the company by engaging in an unfair process riddled with self-dealing,” the complaint states.
J. Crew announced the buyout by TPG and Leonard Green on Nov. 23. The lawsuit seeks class-action, or group, status on behalf of J. Crew shareholders, according to the complaint. Besides J. Crew and TPG, the complaint names as defendants Leonard Green and J. Crew officers and directors, including Chief Executive Officer Millard “Mickey” Drexler.
A J. Crew spokesman couldn’t be reached for comment. Spokesmen for TPG and Leonard Green couldn’t be reached for comment because their offices were closed.
The case is Arnold J. Church v. J. Crew Group Inc., 652101-2010, New York State Supreme Court (Manhattan).
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Trials/Appeals
Ex-Utility Manager May Settle Charges Over UBS Deal
The former head of a German municipal utility and two brokers charged with corruption connected to collateralized debt obligation transactions with UBS AG and other banks may reach a plea deal with prosecutors and the court.
A settlement proposal will be presented Dec. 1, presiding judge Karsten Nickel said on the first day of a trial in Leipzig, Germany. The men are accused of working together when arranging the deal and of sharing kickbacks from the transactions.
“We offered a settlement to the defendants earlier during the probe and have said that we wish to hear confessions and see prison terms of several years,” prosecutor Till von Borries told reporters after the Nov. 26 hearing. “These were highly criminal activities.”
The case is related to hedging transactions in 2006 and 2007 for cross-border leasing deals KWL-Kommunale Wasserwerke Leipzig GmbH, the Leipzig water utility, had previously closed. KWL in February filed a suit in Leipzig against UBS, Landesbank Baden-Wuerttemberg and Depfa Bank Plc to invalidate the transactions in which KWL assumed guarantees for unsecured loans.
Four UBS employees are also being investigated over the issue, von Borries said. At least some of the suspects no longer work at the lender, he said, without identifying them.
UBS spokeswoman Anja Schlenstedt declined to comment.
Klaus Heininger, the former managing director of KWL- Kommunale, is on trial on charges of accepting bribes, breach of trust, falsifying financial statements and tax evasion. Two other suspects, financial advisers Juergen Blatz and Berthold Senf, are charged with bribing Heininger. Heininger is also facing charges in a related case that goes to trial on Dec. 9.
The lawyers for the three defendants told the court at the Nov. 26 hearing they won’t comment on the allegations before the end of settlement talks. They declined to comment after the hearing.
The criminal case is LG Leipzig, 11 Kls 395 Js 2/10.
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Verdicts/Settlement
Ex-PM Group Manager Convicted in Insider Trading Case
A former PM Group Plc manager was convicted of insider trading by a London jury on charges he sold shares of the company before it announced that orders had fallen.
Neil Rollins, 46, was convicted Nov. 26 on five counts of insider dealing and four counts of money laundering in a case filed by the U.K. Financial Services Authority.
Judge James Wadsworth said he would issue a sentence on Jan. 21. The maximum penalty for insider dealing is seven years. Rollins is aware that the Wadsworth “is going to send him to prison,” his lawyer, Gareth Rees, told the court. “The question is, how long.”
Rob Rode, another lawyer for Rollins, declined to comment after the hearing.
Rollins testified during the trial that while he had been told by his bosses not to trade on any information he had about the company, his decision to sell the shares wasn’t influenced by the confidential data. He denied all wrongdoing.
According to the indictment, Rollins sold 74,000 shares in the company in August and September 2006. He transferred 120,000 pounds ($193,000) to his father in an attempt to launder his profits, the indictment said.
Charges Against Agliotti for Kebble’s Murder Dropped
Charges against Glenn Agliotti for the murder of South African mining magnate Brett Kebble were dropped by a Johannesburg court.
The state has not made a prima facie case, Judge Frans Kgomo said in the South Gauteng High Court Nov. 26. Agliotti, 54, kissed his lawyer, Laurance Hodes, on both cheeks after Kgomo told him he was free to go.
“I am very angry for what they put me through” Agliotti, who was arrested in 2006, told reporters at the court as friends clustered around the convicted drug dealer. “It affected my whole life, my family is very traumatized.”
The four-month trial showed that Kebble, who died at the age of 41, had become a suicidal recluse as he considered poisoning himself and bringing down a plane that he was in before ordering his own shooting to avoid a possible jail sentence. Kebble bled to death in his silver Mercedes S600 on the night of Sept. 27, 2005, after being shot seven times on a road crossing the main highway into Johannesburg’s city center.
Kebble, who had been forced to resign as chief executive officer of three mining companies, faced a probe after assets worth hundreds of millions of dollars went missing from Randgold & Exploration Ltd., a Johannesburg-based company that he led. Marais Steyn, Randgold’s CEO, declined to comment when called Nov. 26.
In an 11-year career in South Africa’s gold mining industry, Kebble, who was also CEO of Johannesburg’s JCI Ltd. and Western Areas Ltd., helped set up two of the country’s four biggest gold companies, Harmony Gold Mining Co. and DRDGold Ltd.
Testimony from Clinton Nassif, who said he helped arrange the killing, was “annihilated”, Hodes said on Nov. 18. Agliotti didn’t testify.
“I don’t see anything embarrassing about this,” Mthunzi Mhaga, a spokesman for the National Prosecuting Authority, told reporters at the court, adding that the prosecutors will decide whether to appeal the judgment. The state will continue to seek the extradition of John Stratton, a business partner of Kebble’s, from Australia to help with investigations, he said.
Kgomo said Nov. 26 that Nassif had been discredited and stripped him of immunity from prosecution. Nassif on July 29 told the court that Kebble “pleaded” with him to arrange the killing.
“Nassif was proven to be an untruthful witness who changed his version whenever an inconsistency in his evidence was pointed out,” Kgomo said. “Nassif’s evidence is of such poor quality that it cannot be safely relied on.”
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Court Filings
GM Liquidation Case Most Popular Docket on Bloomberg
General Motors Corp.’s bankruptcy case was the most- read litigation docket on the Bloomberg Law system last week.
GM filed for bankruptcy in June 2009. It sold its more valuable assets to a newly formed company that has since gone public. Unwanted properties were left under bankruptcy protection.
Last week, the liquidation terms were delayed after creditors complained. On Nov. 22, U.S. Bankruptcy Judge Robert Gerber in Manhattan scheduled a hearing on Dec. 2 after attorneys for the government and creditors said they’d failed to agree on the budget for the trusts in the wind-down of the now- defunct part of the carmaker. A creditors’ lawyer, Thomas Moers Mayer, said creditors and the U.S. Treasury disagree on several other issues as well in the largest manufacturing reorganization in history.
The case is In re Motors Liquidation Co., 09-50026, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
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