Lawyers for Rajat Gupta, the former Goldman Sachs Group Inc. (GS) and Procter & Gamble Co. (PG) director who has denied U.S. charges he leaked stock tips to Raj Rajaratnam, are investigating whether the hedge fund manager had a different inside source at the companies. At a Manhattan court conference Jan. 20, defense attorney Gary Naftalis complained federal prosecutors hadn’ t turned over documents he wanted on whether Rajaratnam or others at his hedge fund, Galleon Group LLC, had a source inside Goldman Sachs or P&G other than Gupta, a transcript of the proceeding stated. Gupta is accused of leaking information about both companies. At the hearing, Naftalis said Gupta’ s defense may turn on whether "there are people at Goldman Sachs and at Procter & Gamble who are giving out inside information, whether it be about Goldman or Procter & Gamble or affiliates." That would "constitute real exculpatory information for a real defense that the source of any information here is not us but somebody else." Assistant U.S. Attorney Reed Brodsky told the judge that prosecutors had "no information, zero, no witness statements, no documents, no type of any kind that anyone other than Mr. Gupta tipped Mr. Rajaratnam or anyone at Galleon about material nonpublic information of Goldman or of Procter & Gamble," according to the transcript. At the same time, Brodsky said prosecutors had turned over documents that the defense contends may point to a Rajaratnam source at Goldman or P&G other than Gupta. The government said the files don’ t involve tips that relate to the crimes with which Gupta is charged. Near the conclusion of the discussion, U.S. District Judge Jed Rakoff told Naftalis the government is "going to give you Mr. X, they’ re going to point you to at least areas where they think Mr. X’ s possible involvement in leaking information comes up in the stuff you have." Naftalis didn’ t return a call seeking comment on the hearing. Paul Fox, a spokesman for P&G, and David Wells, a spokesman for Goldman Sachs, declined to comment. Gupta, who faces trial in April on five counts of securities fraud and one count of conspiracy, faces as long as 20 years in prison if convicted on each of the securities fraud charges and as long as five years if convicted of conspiracy, according to the government. He also faces a fine of as much as $5 million. Rajaratnam is serving an 11-year prison term after being convicted of directing the biggest hedge fund insider trading scheme in U.S. history. The cases are U.S. v. Gupta, 11-cr-00907, and SEC v. Gupta, 11-cv-07566, U.S. District Court for the Southern District of New York ( Manhattan ). For more, click here. Blavatnik Opposes JPMorgan Delay Over Lawyer’ s Heart Surgery Billionaire Len Blavatnik, who is suing JPMorgan Chase & Co. over claims it lost 10 percent of the $1 billion it managed for him, refused to extend the fact-gathering period as requested by a bank lawyer about to have open-heart surgery, the lawyer said. Bruce Birenboim, an attorney for JPMorgan, explained Blavatnik’ s refusal in a letter to a Manhattan judge Jan. 27. Birenboim said Blavatnik wouldn’ t extend the schedule two months to June 29, a request Birenboim made because he will be unavailable for six to eight weeks. "I have never in my 30 years of practice found an adversary’ s position to be so unprincipled and unprofessional," Birenboim, a partner at Paul, Weiss, Rifkind, Wharton & Garrison LLP, wrote to New York State Supreme Court Justice Melvin L. Schweitzer. He said Blavatnik and his lawyers "have chosen to litigate this matter without regard" for "common civilities" and "professional courtesies." Blavatnik, 54, sued in 2009, claiming that New York-based JPMorgan, the biggest U.S. bank by assets, put twice as much money into risky mortgages as his investment guidelines allowed while Chief Executive Officer Jamie Dimon was unloading such securities from the bank’ s books. Blavatnik says the bank lost $98 million of his funds. Blavatnik, born in Ukraine, runs New York-based Access Industries Group, which owns energy, media and real-estate companies. Blavatnik is worth $9.5 billion, according to Forbes . Blavatnik bought Warner Music Group Corp. from Edgar Bronfman last year. The case is CMMF LLC v. JPMorgan Investment Management Inc., 601924-09, New York State Supreme Court (Manhattan). For more, click here. Schwab Suit Against Merrill Wins Judge’ s Tentative Go-Ahead Bank of America Corp .’s Merrill Lynch unit, Wells Fargo Co. (WFC) and UBS AG (UBSN) must face a lawsuit by Charles Schwab Corp. (SCHW) alleging they misled the company about the risks of $100 million worth of mortgage-backed securities it bought from them, a California judge ruled tentatively. Judge Richard Kramer in San Francisco said Jan. 27 that he intends to let claims over 46 of the 50 securitizations at issue proceed. The four claims he rejected, because they were filed too late, involved securities from Countrywide Financial Corp., the mortgage lender acquired in 2008 by Charlotte, North Carolina-based Bank of America. "It is my tentative ruling that those four securitizations are barred by the statute of repose," Kramer said at a hearing Jan. 27. Schwab, an independent San Francisco-based brokerage, alleged in a 2010 lawsuit that the securities dealers lied or didn’ t disclose information about loans underlying the bonds they sold, including the loan-to-value ratios of mortgages and the number of properties that were not primary residences, according to the complaint. The case is one of several pending in state courts around the country by investors seeking repayment for mortgage-backed securities. The Federal Home Loan Banks of Seattle, San Francisco, Pittsburgh, Chicago and Indianapolis, as well as companies including Schwab and Allstate Insurance Co., have sued investment banks under state investor-protection laws. The case is Charles Schwab v. Merrill Lynch, Pierce, Fenner & Smith, 10-501151, California Superior Court (San Francisco). Mets Owners Ask Judge to Dismiss Madoff Trustee’ s Claims The New York Mets’ owners asked a judge to dismiss $386 million in remaining claims brought by the trustee liquidating Bernard Madoff ‘s firm, saying their "early faith" in Madoff was well-founded because of his reputation. U.S. District Judge Jed Rakoff threw out most of trustee Irving Picard ‘s $1 billion in claims against the team owners. The judge said Picard must prove they were willfully blind to the convicted Ponzi schemer’ s crimes if he wants to recoup money they withdrew from their Madoff accounts, the Mets owners noted. Since Picard hasn’ t proved that, he has no case against them, they argued. "Defendants trusted their broker, Bernard L. Madoff, and never suspected him of any fraud, let alone a Ponzi scheme," team owners Fred Wilpon and Saul Katz said in a court filing Jan. 26. Picard can’ t show they believed there was "a high probability" that Madoff was running a Ponzi scheme or that they took "deliberate action" to avoid seeing what was going on, they said. 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. Picard’ s claims remain a threat to their finances. Asking Rakoff to rule on one of his remaining claims, Picard said the Mets owners must return $83 million in fictitious profits taken from Madoff’ s Ponzi scheme in the two years before his 2008 arrest. The law allows him to take back the money simply because the operation was a fraud, he said in a court filing Jan. 26. To get the money, Picard need only prove that Katz and Wilpon didn’ t give value in return for the money, and they can’ t possibly prove they did, as they were net winners, he said. To get the other $300 million, Picard must prove the Mets owners were willfully blind to the fraud, Rakoff has said. s that they didn’ t know of the fraud, Wilpon and Katz attached testimony from Arthur Friedman , a partner in their company, Sterling Equities, who handled their investments with the Madoff firm, depositing checks, making withdrawals and trying to duplicate Madoff’ s investment strategy. The case is Picard v. Katz, 11-cv-03605, U.S. District Court, Southern District of New York (Manhattan). For more, click here. For the latest lawsuits news, click here. New Suits Former Groupon Sales Reps Countersue Over ‘Abusive’ Tactics Former Groupon Inc. (GRPN) sales managers countersued the company, which had accused them of taking trade secrets to Google Inc. (GOOG) Groupon, the world’ s largest online coupon site, sued two former managers in October after they left to join Google Offers, a competing venture. Lawyers for the managers accused Groupon of using "sham litigation" to bully and silence employees and obtain intelligence on a burgeoning competitor, according to court papers filed Jan. 25 in an Illinois state court. "In its stop-at-nothing strategy to take itself public and further enrich its founders, Groupon has crossed the line," lawyers for the managers said. "This counterclaim seeks to put an end to that abusive and illegal behavior." The filing accused Groupon of hiring "out-of-work young people" based on false promises and using a complicated compensation scale to undercut commissions and implement unrealistic sales quotas. As morale waned among employees ahead of the company’ s initial public offering, Groupon filed the lawsuit and several others like it in an attempt to silence workers, lawyers for the managers said in the filing. "This suit also signaled to employees that, should they leave, Groupon would aggressively attempt to prevent them from working for a competitor, regardless of the legality of Groupon taking such action," lawyers for the managers said in the filing. Julie Mossler, a spokeswoman for Groupon, didn’ t immediately return a phone call and e-mail seeking comment on the counterclaims. The case is Groupon Inc. v. Hanna, 11CH36731, Cook County, Illinois, Circuit Court, Chancery Division (Chicago). For more, click here. For the latest new suits news, click here. For copies of recent civil complaints, click here. Trials/Appeals Cantor Couldn’ t Mitigate Effect of Four Departures, Court Told Cantor Fitzgerald LP, suing four managing directors in Hong Kong who left to join a China-backed investment bank, had no opportunity to mitigate the situation, the New York brokerage’ s lawyer said. "Four people from an organization leave in an abrupt manner on the same day," Cantor’ s lawyer Nicholas Cooney said in his closing arguments Jan. 27. "They didn’ t have time to bring others up to speed." Jason Boyer, the former head of Cantor’ s Hong Kong business, and Bradford Ainslie – formerly of its Asian cash equities desk – last week told Judge A.T. Reyes that their resignations were independent of each other. Together with Brett McGonegal and Uwe Parpart, Cantor’ s former Asia chief economist and strategist, they joined Reorient Financial Markets Ltd., backed by an asset manager under China ‘s State-owned Assets Supervision and Administration Commission. "Employees are allowed to discuss amongst themselves plans for the future under the law," Ashley Burns, a lawyer representing McGonegal and Ainslie told the court Jan. 27. Cantor accuses the four defendants of breaching their employment contracts and said the departure of the four caused a 29 percent drop in its average monthly revenue in Hong Kong. Reyes reserved his judgment, saying he would rule as soon as possible. He declined to seal portions of documents detailing Cantor’ s past revenue and expenses, as well as how the brokerage calculated compensation. The case is Cantor Fitzgerald Europe , Cantor Fitzgerald (Hong Kong) Capital Markets Ltd. and Jason Boyer, Bradford Ainslie, Brett McGonegal, Uwe Henke von Parpart, HCA1160/2011 in Hong Kong’ s Court of First Instance. For more, click here. U.S. Asks Appeals Court to Affirm $7.2 Billion Picower Deal The U.S. asked a federal appeals court to affirm a $7.2 billion forfeiture by the Jeffry Picower estate, to be used to compensate investors who lost money in Bernard Madoff’ s Ponzi scheme. A challenge by Adele Fox was "frivolous," and it wouldn’ t serve justice to let her intervene in a deal that "in no way impairs Fox’ s rights," the U.S. said in a court filing in New York. Fox, a former Madoff investor, sought to overturn the settlement because it gave Madoff trustee Irving Picard priority in dealing with the Picower estate, and barred her from suing the estate herself. Fox, in addition to making "irrelevant" arguments, is "single-handedly holding up the distribution of more than $7.2 billion of funds to Madoff’ s victims in desperate need of those funds," Matthew Schwartz, an assistant U.S. attorney, wrote in a Jan. 26 filing. He asked the court to dismiss Fox’ s appeal of a lower-court ruling affirming the settlement. Fox said she is among the Ponzi scheme’ s so-called net winners, who took out more money than they put in. The trustee and the government have determined that "not a penny of the forfeiture" by the Picower estate will go to her and other net- winner investors, she said in her appeal. Picower, one of Madoff’ s largest investors, may have suspected the con man was running a Ponzi scheme, according to Picard. Picower drowned in 2009 and his estate forfeited the money to the U.S. and Picard to settle the trustee’ s claims. The case is U.S. v. $7.2 billion, 11-2898, U.S. Court of Appeals for the Second Circuit (New York). One Stanford Client Lost $20 Million, Ex-Executive Testifies A former Stanford Group Co. executive told a jury that one client of R. Allen Stanford’ s securities brokerage lost at least $20 million before the business was closed by U.S. regulators. Jason Green, who led Stanford Group’ s private client group, made that statement while being cross-examined by the financier’ s lawyer on the fifth day of Stanford’ s investor fraud trial at the U.S. courthouse in Houston. Stanford’ s defense lawyers have maintained that all purchasers of the certificates of deposit issued by his Antigua- based Stanford International Bank Ltd. and sold by the brokerage were able to withdraw every penny of their money until the Securities and Exchange Commission sued in February 2009. Asked by defense attorney Ali Fazel if anybody had not gotten their money back before then, Green replied, "Yes, one person I know of specifically" was denied $20 million. Green didn’ t identify the client. Stanford, 61, who was indicted in June 2009, is accused of leading a $7 billion investment fraud scheme centered on sales of the CDs. Charged with 14 counts including mail fraud, wire fraud and obstruction of an SEC probe, he told jurors earlier this week that he’ s innocent. The criminal case is U.S. v. Stanford, 09-cr-342, U.S. District Court, Southern District of Texas (Houston). The SEC case against Stanford is Securities and Exchange Commission v. Stanford International Bank, 09-cv-298, U.S. District Court, Northern District of Texas (Dallas). For more trial details, click here. For the latest trial and appeals news, click here. Verdicts/Settlements Carnival Reaches Consumer Settlement as Wreck Sparks Lawsuits Carnival Corp. (CCL) ‘s Italian unit said it reached a damage- settlement agreement with consumer groups, as the company was sued for the first time in the U.S. over the wreck of the Costa Concordia cruise ship. Costa Crociere SpA agreed to pay 11,000 euros ($14,500) to every passenger of the cruise ship that ran aground off the Italian coast on Jan. 13, killing at least 16, plus reimburse expenses including the cost of the cruise, according to a statement from the Genoa-based company Jan. 27. The agreement was reached with consumer groups in countries including Italy, Germany, France and Spain, a company spokesman said. The U.S. complaint, alleging negligence and breach of contract, was filed Jan. 26 in federal court in Chicago by crew member Gary Lobaton, who seeks class-action status to represent all victims of the disaster off Giglio Island. A spokesman for Costa, a unit of Miami-based Carnival, declined to comment on the U.S. lawsuit. Italian criminal lawyer Giulia Bongiorno next week will file a complaint on behalf of clients with Italian prosecutors investigating the wreck. Concordia’ s Captain Francesco Schettino was placed under house arrest on Jan. 17 for allegedly causing the wreck and abandoning the ship. "My clients aren’ t happy with just a financial compensation," Bongiorno, who helped overturn the murder conviction of Amanda Knox’ s former boyfriend Raffaele Sollecito in October, said in a phone interview Jan. 27. The aim is to request that prosecutors investigate all responsibilities and not just the captain’ s, she said. Bongiorno, 45, who’ s also a member of Italy’ s Parliament, will represent more than 50 passengers, Corriere della Sera said. The Concordia struck rocks near Giglio after Schettino deviated from the planned route and steered close to the island, court documents show. The accident happened hours after the vessel left a port near Rome on a Mediterranean cruise carrying about 4,200 passengers and crew. Eighteen are still missing, though that number probably includes two of the dead who have not yet been identified. The compensation proposal "is higher than the current indemnification limits that are provided for in international conventions and the laws currently in force," Costa Crociere said. Families of victims and injured will be offered a separate compensation, Costa said. A Costa spokesman declined to immediately comment on the U.S. lawsuit. Italian consumer group ADOC estimated that about 3,000 passengers would get about 14,000 euros each if they accept the offer, including expenses, according to an e-mailed statement. ADOC forecast 85 percent of passengers will accept the offer. That would bring the total cost to about 42 million euros. Carnival has liability cover of as much as $3 billion with the Standard Club, a mutual insurance association owned by ship owners, and the Steamship Mutual Underwriting Association Ltd., according to spokesmen for the two firms. Italian consumer group Codacons advised clients not to accept the offer, according to a statement on its website Jan. 27. The association is putting together a class-action lawsuit with U.S. law firms Napoli Bern Ripka Shkolnik and Proner Proner LLP to be filed in Miami, it said. The group is seeking "at least" 125,000 euros per passenger and more than 1 million euros for "most serious cases," according to the statement. For more, click here. For the latest verdict and settlement news, click here. To contact the reporter on this story: Elizabeth Amon in Brooklyn, New York, at [email protected] . To contact the editor responsible for this story: Michael Hytha at [email protected] .
 

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