489390b7c8514eeca5af961e7d15a66f 35 2009-11-20T18:49:00-06:00

Outcry from Goldman Sachs Group Inc.'s shareholders over the company's proposed record-setting bonus payments this year highlights a growing trend of shareholders trying to assert control over executive pay in the wake of the financial crisis and bailout, according to securities attorneys. The Wall Street Journal reported Friday that some of Goldman's largest shareholders are demanding that the investment bank reduce its bonus pool. Goldman is currently planning to make the biggest employee payout in its 140-year history, according to the Journal. Because Goldman has paid back all the money it borrowed from the Federal Reserve under the Troubled Asset Relief Program, it is no longer bound by TARP's limits on executive pay. But the outrage over its proposed bonuses reveals that shareholders won't be content to see banks go back to paying prebailout bonuses, which many blame for helping to cause last year's financial meltdown by encouraging dangerous risks. “You'll see pressure being put on the companies from shareholders to take a hard look at executive compensation packages,” said Kevin Petrasic, of counsel at Paul Hastings Janofsky & Walker LLP. “You'll see a lot more shareholder scrutiny of executive compensation programs that take inappropriate risks.” Jonathan Lewis, a partner at Debevoise & Plimpton LLP, said shareholders usually won't go as far as Goldman's in demanding direct control over executive compensation. They will, however, try to put various controls in place to limit what they see as excessively risky bonus packages, Lewis said. “There's been a growing emphasis on risk,” he said. What shareholders can do about their dissatisfaction is an open question. “Right now, under the law, they can sell their stock,” said Kathy Jaffari, a partner at Saul Ewing LLP. However, Jaffari said, voting shareholders can exert indirect pressure through their role in electing directors. “If directors want to maintain their positions, they're going to want to talk to shareholders,” Jaffari said. In some circumstances, powerful shareholders could also try to bring in directors that favor their own policies, Lewis said. “The principal way a shareholder influences compensation is by running a dissident slate,” he said. Whether shareholders can expand their influence over executive compensation beyond these indirect measures will depend, in large part, on the success of various proposals circulating in Congress and among regulatory agencies to give them a louder voice. The U.S. Securities and Exchange Commission is considering two rules to that effect. One affects New Exchange Act Rule 14a-11 and would bar companies from stopping shareholders from including their board nominee in the company's proxy materials unless the shareholders were barred from doing so under existing state law or the company's bylaws. The proposed change also sets stock ownership limits that a shareholder would have to reach in order to place a nominee into the proxy materials. Investors would be able to combine their stakes in order to meet those thresholds, and a shareholder would have to hold the securities for at least a year before making a nomination and sign a statement saying he intends to hold the securities through the annual meeting at which the vote is taken. A second proposed rule change, to Rule 14a-8(i)(a), says shareholders could require corporations to include shareholder proposals to amend their bylaws so they do not conflict with SEC rules. Another possible change could come from a bill that would give shareholders an advisory vote on executive compensation, known as say-on-pay. In July, the U.S. House of Representatives voted to pass a bill requiring nonbinding say-on-pay shareholder votes and preventing directors on a company's compensation committees from having financial ties to the company or its other directors. President Barack Obama has advanced say-on-pay in his broader financial regulatory reform package, and similar measures are moving through the U.S. Senate. Attorneys said that if shareholders get these new powers, they won't necessarily use them to challenge particular bonus schemes head-on, but are more likely to push for structural changes that discourage excessive or risky compensation. “I think there's been a greater emphasis on prospective improvements,” said Steve Rabitz, a partner at Stroock & Stroock & Lavan LLP. “You're going to see a lot more requirements for people to have skin in the game” — for example, by requiring that more compensation be in stock rather than cash. Rabitz said that shareholders won't necessarily end up being knee-jerk opponents of generous, performance-based compensation. They, along with companies' directors, will need to find a new balance between incentivizing healthy risk and maintaining accountability to shareholders. “Do I think we live in a different era now than we did before? Absolutely,” Rabitz said. “Do I think we'll know what that era is before we answer these broader questions through experience? No.” Another possible avenue for shareholders to influence executive compensation is through litigation, or the threat of it. Investors who think they've been hurt by a bad compensation scheme could bring lawsuits for breach of fiduciary duty, arguing that directors should have learned from the financial meltdown that large bonuses tied to short-term performances are risky. “Each situation is going to depend on particular facts and circumstances,” Petrasic said. “Having said that, I think there will be more lawsuits in that vein.” Attorneys are generally skeptical that such lawsuits will meet with success, even if shareholders file them. The shareholders will have a difficult case because corporate law still gives directors a lot of leeway to make decisions on compensation. “The board is charged with the business judgment rule, and that's a pretty high standard,” Lewis said. Arguing that a board should have made a different decision on bonuses “is going to be a difficult claim to prove,” Rabitz said. He noted that companies will still need to compete with each other for talent, which will often mean offering generous compensation. Attorneys said that instead of fighting over bonuses in courts, or even through proxy battles, companies and shareholders are more likely to approach a new understanding by talking to each other. Jaffari called outrage over bonuses “an opportunity for companies to talk to the shareholders.” Already, some financial firms are starting to make changes in response to shareholders, by disclosing more information about their compensation packages, attorneys said. “Banks have been making changes, and I expect they will continue to make changes, in the way they pay people,” Lewis said. “I think management is much more sensitive to the issue from shareholders' perspective,” Petrasic said. --Additional reporting by Evan Weinberger

131605 0 0 2009/11/30 00:00 Goldman Outrage Heralds Shareholder Activism On Pay Friday, Nov 20, 2009 2009/10/30 2009/10/30 50 2009/11/20 1

cda3266587574ddcba86fa5b3b5175a3 34 2009-11-20T18:01:00-06:00

NYSE Euronext, LCH.Clearnet, BATS Global Markets and several other financial institutions have asked the House Financial Services Committee to scrap a proposal for a “rigid cap” on dealer ownership of over-the-counter derivative clearinghouses that are part of the overall financial regulatory overhaul, according to reports. In a letter sent Monday to committee chairman Rep. Barney Frank, D-Mass., and ranking Republican Spencer Bachus of Alabama, the exchanges said "overly restrictive limits on swap dealer ownership will significantly hamper the development of derivatives clearinghouses and execution facilities," Reuters reported Friday. Last month, the committee approved an amendment that limited the collective ownership of derivative clearinghouses by dealers or major market participants to 20 percent in a bid to prevent potential conflicts of interest. Ultimately, the amendment, known as the Lynch amendment, was ditched because of procedural problems. But Frank has said that he wants to reinsert the amendment into the derivatives bill when it is debated on the floor of the House. That debate is expected to happen in December, although Democrats have slowed the overall financial regulatory package in committee. A bill on regulation of the OTC derivatives market passed by the House Agriculture Committee, which has authority over the U.S. Commodity Futures Trading Commission, did not include the proposed 20 percent cap. The exchanges’ letter claimed that instituting the cap would dissuade banks and other major financial players from getting involved in the development and operation of clearinghouses. The clearinghouses are seen by many as a way to bring transparency to the estimated $450 trillion OTC derivatives market, as well as to protect investors in case of counterparty default. Putting in a cap would "freeze the ability of each of our businesses to evolve, by making it impossible for us to grow or even to decrease the ownership stake that a broker-dealer holds in the business," the letter said, according to Reuters. NYSE Euronext, the parent of the New York Stock Exchange and several other exchanges, recently sold major stakes in its U.S. derivatives operations to five banks, including Goldman Sachs Group Inc. and Morgan Stanley, according to Reuters. The users of LCH.Clearnet own a majority stake in Europe’s largest independent trading clearinghouse. Banks own a large share of BATS as well as other clearinghouses that signed on to the Monday letter. Trading OTC derivatives, like credit default swaps, on clearinghouses is just a part of the broader reform of the market. Many observers say credit default swaps and other derivatives helped to exacerbate the financial crisis, one of the causes of the current deep recession. The Over-the-Counter Derivatives Markets Act also would impose new transparency, oversight and reporting requirements on over-the-counter derivative swaps. An amendment introduced by Frank and passed in committee requires all financial institutions to trade clearinghouse-approved securities derivatives transactions on an exchange, as well as any swaps that may significantly increase counterparties' risk exposure. The provision exempts small businesses and traders looking solely to hedge commercial risks by derivatives trading, as well as give the U.S. Securities and Exchange Commission permission to exempt institutions dabbling in financial derivatives trading, if the majority of their OTC swaps are done for risk management purposes. Critics have called this provision a massive loophole that weakens the reform effort. --Additional reporting by Jessica Dye

135595 0 0 2009/12/20 00:00 Exchanges Want Clearinghouse Position Cap Scrapped Friday, Nov 20, 2009 2009/11/20 2009/11/20 89 2009/11/20 1

ac0568eadf3c4f7eb0ae46b9db98cdbc 78 2009-11-20T17:38:00-06:00

The Ohio attorney general has targeted the three leading ratings agencies with allegations of wreaking havoc on the U.S. financial markets by providing unjustified and inflated ratings of asset-backed securities in exchange for lucrative fees from securities issuers. Richard Cordray filed the suit on behalf of five Ohio public employee retirement systems against Standard & Poor’s Financial Services LLC, S&P parent The McGraw-Hill Cos. Inc., Moody’s Corp., Moody’s Investors Service Inc. and Fitch Inc. in the U.S. District Court for the Southern District of Ohio on Friday. The rating agencies falsely represented that their AAA credit ratings were independent, objective, and based upon thoughtful and adequate methodologies, the complaint says. In truth, the rating agencies subverted those principles and negligently provided unjustified and inflated ratings in exchange for the lucrative fees that the ABS issuers paid the defendants for not only rating the securities but also for helping to structure them, the complaint says. The ratings agencies’ actions constituted negligent misrepresentation and violated Ohio securities law, according to the complaint. According to preliminary estimates, the improper ratings cost the Ohio funds losses in excess of $457 million, Cordray said Friday. “The rating agencies assured our employee pension funds that many of these mortgage-backed securities had the highest credit ratings and the lowest risk,” Cordray said. “But they sold their professional objectivity and integrity to the highest bidder.” “The rating agencies’ total disregard for the life’s work of ordinary Ohioans caused the collapse of our housing and credit markets and is at the heart of what’s wrong with Wall Street today,” Cordray said. Public statements and testimony indicate that rating agency executives and analysts knew their ratings of mortgage-backed securities were wrong, the complaint says. Cordray cited one rating agency analyst’s admission that the market for mortgage-backed securities was “little more than a house of cards,” with a much higher risk of devaluation than indicated by the purported investment-grade AAA rating. Another rating agency analyst said, “We rate every deal. It could be structured by cows and we would rate it,” according to Cordray. “We believe the claim has no legal or factual merit, and we intend to defend ourselves vigorously against it,” a McGraw-Hill spokesperson said Friday. “A recent SEC examination of our business practices found no evidence that decisions about ratings methodologies or models were based on attracting or losing market share,” the spokesperson said. “Fitch has no comment as we have not received the Ohio attorney general’s complaint,” Kevin Duignan, managing director and global head of corporate communications for Fitch, said Friday. Cordray is currently representing the funds in several other major securities cases, including class action securities lawsuits against AIG, Bank of America, Fannie Mae and Freddie Mac, and to date has obtained more than $2 billion from such cases. In the current case, he is seeking rescission of the funds’ purchases of the securities at issue, compensatory damages, interest, costs and attorneys’ fees, according to the complaint. Representatives for Moody’s did not respond to requests for comment by press time Friday. Counsel information for the defendants was not immediately available. The case is Ohio Police & Fire Pension Fund et al. v. Standard & Poor’s Financial Services LLC et al., case number 2:09-cv-1054, in the U.S. District Court for the Southern District of Ohio. --Additional reporting by Evan Weinberger

135443 0 0 2009/12/20 00:00 Ohio AG Goes After S&P, Moody’s, Fitch On ABS Ratings Friday, Nov 20, 2009 2009/11/20 2009/11/20 34 2009/11/20 1

70f9cb670d6143f2a16e2423a943f099 34 2009-11-20T17:34:00-06:00

Investors in an allegedly fraudulent settlement funding business run by Florida attorney and socialite Scott W. Rothstein have lodged a $100 million suit in a Florida state court, the latest development in a high-profile probe into what investigators say could be a $1 billion Ponzi scheme. The investors alleged 119 total counts against nine defendants in a 147-page complaint submitted Friday in Broward County Circuit Court, including several counts each of conversion, fraudulent misrepresentation, negligent misrepresentation, negligent supervision, breach of fiduciary duty, civil conspiracy and aiding and abetting fraud. The suit also names TD Bank NA, a subsidiary of Toronto Dominion Bank, as complicit in the scheme. Rothstein “bilked investors out of hundreds of millions of dollars” by assigning them bogus settlements facilitated through his settlement funding business, according to the complaint. The investors, individuals and partnerships that invested as much as $45 million with Rothstein, seek $100 million in compensatory damages, plus interest, punitive damages and attorneys’ fees. Rothstein drew national attention earlier this month when partners at his law firm, Rothstein Rosenfeldt Adler PA, sued him over irregularities in a settlement funding business that involved the facilitation of presuit, structured legal settlements and the sale of those settlements to investors. According to the suit from Rothstein’s colleagues at RRA, suspicions arose when investors told RRA that they believed substantial funds were not properly accounted for or were missing. The latest suit accuses Rothstein of persuading consumers to invest in settlements that never existed — “a classic Ponzi scheme.” Rothstein gained notoriety in the Fort Lauderdale, Fla. area and surrounding communities by spending “prolifically,” buying himself at least 16 properties, 25 cars and an 87-foot yacht, according to the complaint. Rothstein made his way into respected social circles, and was an active fundraiser for former President George W. Bush and current Republican Gov. Charlie Crist of Florida. His alleged scheme “was predicated on” telling investors he had an extensive in-house private investigating team comprised of former FBI and CIA agents, “whose singular task was to obtain compromising evidence against high-profile putative defendants,” the suit alleged. “Rothstein’s story was that the evidence and surveillance acquired … was presented to the putative defendant who was then offered an opportunity to avoid litigation and the negative publicity associated therewith by agreeing to resolve the matter voluntarily and by confidential settlement with the putative plaintiff,” according to the complaint. But, while a few of the compromising records might have been real, the suit alleges, all of the confidential settlements “were purely fabricated.” The FBI and the Internal Revenue Service issued a call last week for information from individuals who invested in Rothstein’s Structured Settlement Investment business in an effort to determine the full scope of the matter and the amount of losses incurred. John Gillies, special agent in charge of the FBI's Miami field office, said Rothstein’s scheme was likely to involve more than $1 billion and thousands of investors in the U.S. and across the globe, an FBI representative confirmed. The agencies are seeking information from any of Rothstein’s investors or from individuals who have information that would be helpful to the investigation, the FBI said Thursday. Attorneys for the investors in the most recent suit could not be immediately reached Friday. The investors are represented by Conrad & Scherer LLP. Representation for the defendants was not immediately available Friday. The latest case is Razorback Funding LLC et al. v. TD Bank NA et al., case number CACE09062943, in Broward County Circuit Court. --Additional reporting by Christopher Norton and Pete Brush

135563 0 0 2009/12/20 00:00 Investors Sue Rothstein For $100M Over Ponzi Scam Friday, Nov 20, 2009 2009/11/20 2009/11/20 73 2009/11/20 1

66caa14cc07b4bc99c6cfc20145d3b86 90 2009-11-20T17:00:00-06:00

In a victory for investors who collect securities settlements from soon-to-be bankrupt companies, noteholders including Alfa SAP and two ING funds will not have to return early payments they received from Enron to the Enron Creditors Recovery Corp. The U.S. District Court for the Southern District on New York on Thursday reversed a bankruptcy court order and instructed the bankruptcy court to enter summary judgment in favor of Alfa and ING regarding payments they received for Enron notes. The ING funds are ING VP Balanced Portfolio Inc. and ING VP Bond Portfolio Inc. Shortly before it filed for bankruptcy at the end of 2001, Enron paid out more than $1.1 billion to retire some of its unsecured and uncertified paper prior to its maturity date. JP Morgan, Goldman Sachs and Lehman Bros. all participated in this redemption process in one way or another, the court said. After the company went bankrupt, Enron brought nearly 200 adversary proceedings against former noteholders, seeking to recover payments the company had made prior to maturity dates. Noteholders argued they were entitled to keep the money under a safe harbor provision that bars avoidance of transfers that constitute settlement payments in connection with transactions in securities. The plain language of the bankruptcy code extends to commercial paper, and the early payments made by Enron can be seen as settlement payments, the district court found. A settlement payment is any transfer that concludes or consummates a securities transaction, according to the court. Under this definition, the early payments were indeed settlement payments, the court said. The U.S. Securities and Exchange Commission had argued that reversing the $1.1 billion in payments could be disruptive to the affected markets, but Enron wanted the money returned so it could be redistributed to other creditors. However, the transfers clearly were perceived as settlement payments, and they were consummated using the standard clearing mechanism for transactions in commercial paper, according to the court. The prepayments were not phony or sham transactions, the court found. Though they were made within 90 days of Enron filing for Chapter 11, they still constituted settlement payments and are therefore off the table, the court said. "The transfers fall within the literal language of the statute," the court said. "That is the end of the matter." Bingham McCutchen LLP represents ING in the matter, but counsel was not available for comment. Enron is represented by Togut Segal & Segal LLP, Weil Gotshal & Manges LLP, Venable LLP, Bell Boyd & Lloyd LLP, Crowell & Moring LLP and Klee Tuchin Bogdanoff & Stern LLP. Counsel declined to comment on the matter. Counsel information for Alfa was not immediately available. The case is In re: Enron Creditors Recovery Corp. et al., case number 01-16034, in the U.S. Bankruptcy Court for the Southern District on New York.

135520 0 0 2009/12/20 00:00 Alfa, ING Keep Money In Enron Securities Dispute Friday, Nov 20, 2009 2009/11/20 2009/11/20 89 2009/11/20 1

812e486cbf3747da91062f0a61009566 90 2009-11-20T16:34:00-06:00

Spanish banking giant Banco Santander SA has asked a federal judge in Florida to toss a class action alleging that it was negligent in investing over $3 billion in Bernard L. Madoff’s $65 billion Ponzi scheme, saying that the bank monitored the fraudster as closely as anyone. In a motion filed Wednesday in the U.S. District Court for the Southern District of Florida, Banco Santander said that it had made efforts to perform due diligence on Madoff’s operations, including having inspectors based in New York and other locales. The existence of those due diligence efforts was even noted in the class complaint, Banco Santander noted. Filed in January against Banco Santander, its Geneva-based subsidiary Optimal Investment Services, and a number of other foreign citizens and corporations, the complaint alleges that the defendants carelessly invested money from the Optimal SUS Fund with Madoff while assuring investors that they scrutinized every investment and carefully selected hedge fund managers. Investors in the suit point to a “plethora of red flags” that they argue should have called into question the legitimacy of Madoff's hedge fund. But given that sophisticated investors and regulators, including the U.S. Securities and Exchange Commission and the Financial Industry Regulatory Authority did not detect the fraud, the plaintiffs’ claims of misleading investors simply don’t hold up, Banco Santander said. “If Madoff’s scheme was so obviously fraudulent and so easily detectable, there is simply no rational explanation why thousands of sophisticated investors would have continued to invest vast sums of money with Madoff and why the SEC would have concluded, after considering some of the very ‘smoking guns’ plaintiffs cite in the complaint, that there was ‘no evidence of fraud,’” the motion to dismiss said. Javier Bleichmar, a partner with Labaton Sucharow LLP representing the plaintiffs, declined to comment on the motion to dismiss. The suit also names as defendants one former director of Optimal Investment Services, as well as auditor PricewaterhouseCoopers LLP, transfer agent HSBC Securities Services and HSBC Institutional Trust Services, which was charged with guarding the plaintiffs' funds. In a joint motion also filed Wednesday, PwC and Banco Santander urged Judge Paul C. Huck to dismiss those claims because the funds at the heart of the cases are based in Switzerland, the Bahamas and Ireland. HSBC filed a separate motion to dismiss on similar grounds on Wednesday as well. The class consists of investors who purchased shares of the Optimal SUS fund between Jan. 27, 2004, and Dec. 10, 2008. In February, Banco Santander agreed to issue a corrected notice to allow investors devastated by Madoff’s scheme to assess the bank's compensation offer in light of the putative class action, laying to rest an emergency motion by the plaintiffs to enjoin the bank from communicating with clients on the matter. The bank said it would send a notice explaining details of the lawsuit to approximately 30 percent of its clients who had not yet settled. Santander clients’ losses are the largest Madoff-related losses that a single bank has reported, according to the complaint. In May, the trustee overseeing the liquidation of Madoff's investment firm announced a settlement with the Optimal Strategic U.S. Equity Ltd. fund and the Optimal Arbitrage Ltd. fund that will see the trustee recoup more than $235 million. The plaintiffs are represented by Coughlin Stoia Geller Rudman & Robbins LLP, Hanzman Gilbert LLP and Labaton Sucharow LLP. Banco Santander is represented by Hunton & Williams LLP. PricewaterhouseCoopers LLP is represented by Cravath Swaine & Moore LP and Kenny Nachwalter PA. HSBC is represented by Cleary Gottlieb Steen & Hamilton LLP and Squire Sanders & Dempsey LLP. The case is In re: Banco Santander Securities-Optimal Litigation, case number 1:09-cv-20215, in the U.S. District Court for the Southern District of Florida. --Additional reporting by Pamela Wilkinson and Erin Fuchs

135381 0 0 2009/12/20 00:00 Santander Says It Performed Madoff Due Diligence Friday, Nov 20, 2009 2009/11/20 2009/11/20 50 2009/11/20 1

9602462937c545739e11df73bfbbcaa7 17 2009-11-20T15:43:00-06:00

The federal judge overseeing a securities class action against Vivendi SA has rejected the plaintiffs’ bid to force the French entertainment giant to withdraw a suit it filed in Paris seeking to bar two class representatives from participating in the U.S. case, instead taking steps to obviate any need for the courts to infringe on each other’s jurisdictions. Judge Richard J. Holwell of the U.S. District Court for the Southern District of New York issued a memorandum opinion and order Thursday denying the plaintiffs’ Oct. 13 motion for a preliminary injunction that would have required Vivendi to withdraw the suit it filed in Paris against parties including French class representatives Olivier Gerard and Gerard Morel. Vivendi’s suit, lodged in the Tribunal de Grande Instance de Paris, sought to enjoin Gerard and Morel from participating in the U.S. trial, which started on Oct. 5 and will likely go through the end of the year. Judge Holwell noted that both the French and American courts were being asked to enjoin parties from proceeding in a foreign jurisdiction. While Judge Holwell concluded that the plaintiffs had “likely established their entitlement to an anti-suit injunction” against Vivendi, the court would elect to take a path that would avert the need for the two courts to enter competing anti-suit injunctions. When the injunction motion was argued, Vivendi’s counsel conceded that there didn’t have to be French class representatives in order to have French shareholders in the class, and that if the U.S. court relieved Morel and Gerard of their roles as class representatives, Vivendi would not argue that French shareholders should be excluded from the class, Judge Holwell noted. Those representations offer a pragmatic solution to the conflict that doesn’t necessitate a foreign anti-suit injunction, the judge said. Since the Paris suit is aimed at Morel and Gerard in their capacity as class representatives in the U.S. suit, taking that role away would appear to make it unnecessary to for either court to issue an injunction, the opinion said. ‘Without finding that the Paris action renders Gerard and Morel inadequate class representatives, the court, in the interests of comity and on the basis of Vivendi’s representations, hereby relieves them of their responsibilities as class representatives,” Judge Holwell said. Vivendi’s Paris suit claims that the U.S. class action is arbitrary and abusive and accuses the plaintiffs of forum shopping because of their inclusion of French shareholders in the class. Vivendi initially sought to impose steep financial sanctions on the defendants --Morel, Gerard and French shareholders group -- but later backed away from that demand. In May 2007, the Southern District of New York certified a class of Vivendi investors that included shareholders from France, the Netherlands, England and the U.S. A Vivendi spokesperson could not be immediately reached for comment. Vivendi is represented in the U.S. suit by Cravath Swaine & Moore LLP and Weil Gotshal & Manges LLP. The plaintiffs are represented by Abbey Spanier Rodd & Abrams LLP and Milberg LLP, among others. The case is In re: Vivendi Universal SA Securities Litigation, case number 1:02-cv-05571-RJH-HBP, in the U.S. District Court for the Southern District of New York. --Additional reporting by Anne Urda Judge Richard J. Holwell of the U.S. District Court for the Southern District of New York issued a memorandum opinion and order Thursday denying the plaintiffs’ Oct. 13 motion for a preliminary injunction that would have required Vivendi to withdraw the suit it filed in Paris against parties including French class representatives Olivier Gerard and Gerard Morel. Vivendi’s suit, lodged in the Tribunal de Grande Instance de Paris, sought to enjoin Gerard and Morel from participating in the U.S. trial, which started on Oct. 5 and will likely go through the end of the year. Judge Holwell noted that both the French and American courts were being asked to enjoin parties from proceeding in a foreign jurisdiction. While Judge Holwell concluded that the plaintiffs had “likely established their entitlement to an anti-suit injunction” against Vivendi, the court would elect to take a path that would avert the need for the two courts to enter competing anti-suit injunctions. When the injunction motion was argued, Vivendi’s counsel conceded that there didn’t have to be French class representatives in order to have French shareholders in the class, and that if the U.S. court relieved Morel and Gerard of their roles as class representatives, Vivendi would not argue that French shareholders should be excluded from the class, Judge Holwell noted. Those representations offer a pragmatic solution to the conflict that doesn’t necessitate a foreign anti-suit injunction, the judge said. Since the Paris suit is aimed at Morel and Gerard in their capacity as class representatives in the U.S. suit, taking that role away would appear to make it unnecessary to for either court to issue an injunction, the opinion said. ‘Without finding that the Paris action renders Gerard and Morel inadequate class representatives, the court, in the interests of comity and on the basis of Vivendi’s representations, hereby relieves them of their responsibilities as class representatives,” Judge Holwell said. Vivendi’s Paris suit claims that the U.S. class action is arbitrary and abusive and accuses the plaintiffs of forum shopping because of their inclusion of French shareholders in the class. Vivendi initially sought to impose steep financial sanctions on the defendants --Morel, Gerard and French shareholders group -- but later backed away from that demand. In May 2007, the Southern District of New York certified a class of Vivendi investors that included shareholders from France, the Netherlands, England and the U.S. A Vivendi spokesperson could not be immediately reached for comment. Vivendi is represented in the U.S. suit by Cravath Swaine & Moore LLP and Weil Gotshal & Manges LLP. The plaintiffs are represented by Abbey Spanier Rodd & Abrams LLP and Milberg LLP, among others. The case is In re: Vivendi Universal SA Securities Litigation, case number 1:02-cv-05571-RJH-HBP, in the U.S. District Court for the Southern District of New York. --Additional reporting by Anne Urda

135439 0 0 2009/12/20 00:00 Judge Won't Force Vivendi To Withdraw Paris Suit Friday, Nov 20, 2009 2009/11/20 2009/11/20 74 2009/11/20 1

ee8d4a74c1a1425e8bb348b8bdd12bc4 101 2009-11-20T15:29:00-06:00

OppenheimerFunds Inc. has said it will pay $20 million to settle a lawsuit by the state of Oregon, which claimed that the fund’s supposedly conservative 529 program actually made aggressive, risky investments that lost parents money they had been saving to pay for college for their children. Oppenheimer approved and announced the deal on Thursday that would end Oregon Attorney General John Kroger’s allegations of breach of contract and fiduciary duty, violation of state securities laws, negligence and negligent misrepresentation. The agreement would allow state officials and the company to avoid a protracted, expensive legal battle, Oppenheimer said in a statement. The company didn’t admit any wrongdoing in the settlement, which calls for the state to distribute to participants in the college-savings plan. Kroger sued the company and two affiliates in April to recover at least $36.2 million that the investment manager allegedly lost by mismanaging the Oregon 529 College Savings Network. The $20 million settlement will be divided among the roughly 45,000 accountholders, based on how heavily individual accounts were invested in the Core Bond Fund, according to a statement from State Treasurer Ben Westlund and Kroger. “We are vigilantly watching out for Oregon families who are investing for a better future,” Westlund said. “It was important for the board to get this matter resolved in a timely way so that money could get back into the accounts of families that need it now, not several years from now.” The suit made Oregon the first state to take legal action against Colorado-based Oppenheimer to recoup losses in college savings programs, the Oregon Department of Justice said. The settlement could pressure other states that are also seeking to recoup money lost in the same fund to settle more quickly, the Wall Street Journal reported. According to the suit, which Kroger filed after a three-month investigation, Oppenheimer served as the investment manager of two plans under the state's college savings network, including the Oregon College Savings Plan, which is marketed directly to the public and maintains a conservative investment policy. The suit focuses on the activities of the Oppenheimer Core Bond Fund, which was part of five age-based portfolios in the OCSP. In 2004, the defendants, including New York-based OppenheimerFunds Distributor Inc. and OFI Private Investments Inc., agreed to manage the portfolios by preserving capital and seeking minimal income growth through investments primarily in bond underlying funds, the regulators allege. But in 2007 and 2008, the character of the OCBF changed radically as it began to sell credit default swaps and other high-risk derivative instruments to Wall Street firms, promising to pay and insure those firms for losses that occurred as a result of defaults in mortgage-backed securities investments, the complaint said. Although the defendants were shuttling college savings into a “hedge-fundlike investment fund” that took extreme risks in a search for speculative large returns, neither investors nor the state were alerted that the fund had become significantly more aggressive and risky, the suit alleges. As a direct result, college savers in Oregon's plans lost at least $36.2 million, according to the complaint. Both parties expect to distribute settlement money to plan participants early next year, Oppenheimer said. No further details of the settlement were available. Oppenheimer said it was “one of the largest and most successful 529 program managers and remains committed to its 529 plan management business,” according to the statement. “Long known for its advocacy on behalf of investors, the company continues to help individuals reach the important goal of savings for a college education by encouraging smart planning and informed choices” through its programs, it said. The state of Oregon is represented in the matter by attorneys from the Oregon Department of Justice and Stoll Stoll Berne Lokting & Schlachter PC. Counsel information for Oppenheimer was not available. The case is the State of Oregon v. OppenheimerFunds Inc. et al., case number 09C14018, in the Circuit Court for the State of Oregon for the County of Marion.

135512 0 0 2009/12/20 00:00 OppenheimerFunds Settles Ore. 529 Suit For $20M Friday, Nov 20, 2009 2009/11/20 2009/11/20 73 2009/11/20 1

b6a5aaf802c74259a54a4b5b3aea2d00 101 2009-11-20T15:12:00-06:00

After letting Bernard Madoff's massive $50 billion Ponzi scheme slip by largely unnoticed, the U.S. Securities and Exchange Commission’s Office of the Inspector General has issued a report that takes a long, hard look at the process currently used to single out investment advisers for investigation and suggests how to repair the fraud detection methods that failed Madoff investors. SEC Inspector General David Kotz released a report Thursday detailing the agency’s review process for examining advisers and proposed 11 recommendations he believes will strengthen the agency’s process for selecting what firms to investigate. In August the OIG issued a 457-page report detailing the SEC’s inability to detect Madoff's fraud scheme despite “ample information” and numerous complaints. Thursday’s report details the shortcomings in the SEC’s investigatory process, including the agency’s labeling of Bernard L. Madoff Investment Securities LLC as a “medium” risk. The SEC’s examination unit, the Office of Compliance Inspections and Examinations, assigns each investment adviser a ranking of low, medium or high risk based on the firm’s response to Part 1 of the Uniform Application for Investment Adviser Registration, which advisers must complete when registering with the SEC. Kotz says there were numerous “lies and misrepresentations” in BMIS’ Form ADVs that should have tipped the agency off to take a closer look or elevate the firm’s rating to high risk, which would have subjected it to routine investigations. A main goal of the report was to understand how BMIS flew under the SEC’s radar for so long and why the firm was not investigated after its 2006 investment adviser registration. The report argues that the SEC should have acted immediately and performed an investigation when BMIS registered as an investment adviser in 2006, shortly after the close of an SEC investigation that found that BMIS had acted as an unregistered investment adviser to hedge funds, institutions and “high-net-worth individuals.” “We found that until Madoff confessed to operating a Ponzi scheme in December 2008, OCIE never initiated an examination of BMIS even after BMIS was forced to finally register in August 2006,” the report said. A lack of communication between branches of the SEC is partially to blame, according to the report, and Kotz suggests that the OCIE should implement a procedure for creating risk ratings based on a search from all SEC databases, including those involving past investigations with different departments. Kotz also says the OCIE should examine investment advisers’ Form ADV filings and document or investigate discrepancies the moment it becomes aware of negative information involving the adviser. The report also asserts that current OCIE procedures do not give adequate weight to the amount of assets managed by advisers. Advisers with more assets under management should be monitored more carefully, and those with a high number of clients and high asset levels should receive higher risk ratings, Kotz said. The OCIE also should require more information in Form ADVs such as performance information, the name of the firm’s auditor and the auditor’s opinion of the firm, the report suggested. Kotz asked SEC Chairwoman Mary Schapiro and her colleagues to respond with a corrective plan remedying the deficiencies within 45 days.

135382 0 0 2009/12/20 00:00 Post-Madoff SEC Report Targets Investigation Process Friday, Nov 20, 2009 2009/11/20 2009/11/20 89 2009/11/20 1

f21ad43386c149188b0b01fb080e59ec 101 2009-11-20T14:30:00-06:00

Retalix Ltd. has quickly snuffed a putative shareholder class action accusing the software company and its directors of agreeing to a lopsided $32.9 million share purchase agreement with a group of investors. The company, a leading provider of point of sale software for retailers, announced Thursday that the plaintiff agreed to dismiss the case that had tried to block the strategic financing transaction, which has now been consummated. The plaintiff asked Judge Richard A. Schell of the U.S. District court for the Eastern District of Texas to dismiss the class action complaint roughly a month after accusing Retalix of selling shareholders downriver when granting investors a stock purchase price well below market values. Rather than respond to the defendants' attempt earlier in November to dismiss the lawsuit for lack of jurisdiction, the plaintiff agreed to dismiss the case outright without prejudice as long as Retalix refrained from seeking costs or sanctions, according to the stipulation. Neither the plaintiff nor plaintiff’s counsel are receiving any consideration whatsoever in connection with the dismissal, the stipulation said. While Retalix has a U.S. subsidiary, the company argued that the suit could not survive dismissal because it strictly concerned parties and transactions based in Israel. The suit claimed that Retalix officers and directors breached their fiduciary duty and failed maximize shareholder value when agreeing to a $9.10 purchase price even though the stock has consistently traded above $12 per share. Notably, Oppenheimer & Co. Inc., the company’s own financial adviser on the deal, concluded that Retalix could get as much as $15 per share from investors seeking a 20 percent equity stake in the company, according to the complaint. “The proposed agreement is wrongful, unfair and harmful to the company’s public stockholders, and represents an effort by defendants to aggrandize their own financial position and interests at the expense of and to the detriment of class members,” the complaint said. The action also accused the company founders of self-dealing because they had arranged to sell their stock at $12 per share, a good 32 percent greater than the price tendered to shareholders. Attorneys for the plaintiff could not be reached for comment Friday. In October, Retalix shareholders overwhelmingly approved the financing transaction, which provides an aggregate $32.9 million for the company in exchange for 17.7 percent of the outstanding share capital and warrants for additional purchases. The so-called Alpha investor group also acquired stock from one of the company’s founders, upping their ownership to 20 percent of the outstanding shares. The plaintiff is represented by Hubbard & Biederman LLP. Retalix is represented by Katten Muchin Rosenman LLP and Kane Russell Coleman & Logan PC. The case is Tamar v Retalix Ltd. et al., case number 4:09-cv-00511, in the U.S. District Court for the Eastern District of Texas.

135379 0 0 2009/12/20 00:00 Retalix Downs Investor Suit, Closes $33M Equity Deal Friday, Nov 20, 2009 2009/11/20 2009/11/20 74 2009/11/20 1

3f90d0ff85df4fef823a404bec117962 59 2009-11-20T14:00:00-06:00

The special receiver for defunct AmeriFirst Funding Inc. is taking a third crack at a negligence suit against the law firm Godwin Ronquillo PC and one of its former partners over their securities law advice. Special receiver Ronald Reneker filed a second amended complaint Thursday in the U.S. District Court for the Northern District of Texas against the law firm and its former partner Phillip W. Offill. Reneker alleges Godwin Ronquillo, which provided legal representation to AmeriFirst and its top executives, made misrepresentations to the Texas State Securities Board that allowed AmeriFirst to continue its illegal sales of collateral secured debt obligation notes. The receiver seeks to hold the firm liable both for legal fees paid for what he claims was inadequate advice and representation, and for the $36.5 million liability owed to investors for securities law violations, according to the complaint. The suit marks the third time Reneker has brought the complaint, which was dismissed most recently Oct. 20 when Judge Sidney Fitzwater concluded that Reneker had standing to sue but had failed to state sufficient facts for the case to move forward. In the first dismissal, Judge Fitzwater said that Reneker did not have standing to bring the negligence claim against Godwin Ronquillo because it was the investors of AmeriFirst clients who incurred damages, not the AmeriFirst clients directly. To remedy the issue, Reneker then alleged that Godwin Ronquillo was negligent in failing to investigate issues relating to the improper sale of securities, to advise AmeriFirst clients to stop their illegal activities and to 'blow the whistle' on the AmeriFirst clients. He claimed the law firm’s alleged negligence caused the AmeriFirst clients to incur additional and unnecessary liabilities to third parties. Judge Fitzwater concluded that the two versions of the complaint were materially different, but found that, even assuming attorneys had a duty to reveal their clients' illegal actions, Reneker still failed to plead a negligence claim that was plausible on its face. The judge said if AmeriFirst clients knew they were committing fraud, it wasn’t apparent how the law firm’s failure to tell them what they already knew could be a negligent breach of a lawyer’s duty to the client. He gave Reneker 30 days to amend the complaint. Richard A. Sayles, lead trial counsel for the defendants, noted Friday that the filing represents the receiver’s third chance to bring the suit, and that the defendants did not believe allegations in the newest complaint could be supported with proper evidence. “One must assume that they did the best job they could do when they were given a second opportunity, and we believe that this latest amendment is a desperation move on their part,” Sayles said. “We are confident that this be dismissed and we are looking forward to presenting that to the court in the proper manner,” he said. An attorney for the receiver could not immediately be reached for comment Friday. The U.S. Securities and Exchange Commission first filed a suit against AmeriFirst, certain affiliates and two men who controlled the company in July 2007, accusing them of conning elderly investors out of millions of dollars and of using the money to buy houses, cars and an airplane. In May, one of the men was handed a 15-month prison sentence in a corresponding criminal case. Meanwhile, the other man settled the SEC action by agreeing to disgorge more than $54.2 million. Reneker was appointed special receiver to make decisions about the filing, prosecution and ultimate disposition of any lawsuit that included Godwin Ronquillo and Offill. Reneker is represented in the matter by Eggleston & Briscoe LLP. Godwin Ronquillo, formerly known as Godwin Pappas Ronquillo LLP, is represented by Sayles Werbner PC. The case is Reneker et al. v. Offill et al., case number 08-cv-01394, in the U.S. District Court for the Northern District of Texas. --Additional reporting by Jesse Greenspan

135414 0 0 2009/12/20 00:00 AmeriFirst Trustee Refiles Law Firm Negligence Suit Friday, Nov 20, 2009 2009/11/20 2009/11/20 100 2009/11/20 1

515686c3ef43417e87ce3a150ae66aa3 52 2009-11-20T13:10:00-06:00

After more than three years of litigation and failed mediation efforts, Quest Software Inc. has agreed to pay a class of investors $29.4 million to settle allegations that the company’s stock options backdating artificially inflated stock prices. On Thursday, the lead plaintiff asked Judge David O. Carter of the U.S. District Court for the Central District of California to preliminarily approve the settlement and put to rest claims that Quest concealed backdated stock option grants and issued overblown financial reports. The proposed settlement provides almost $30 million for a class of investors who purchased Quest Software stock between Nov. 9, 2001, and July 3, 2006, according to the motion. In a declaration in support of the settlement, Marian P. Rosner, an attorney for the plaintiff and partner at Wolf Popper LLP, deemed the settlement a victory for the shareholders. “The proposed settlement is an excellent recovery for the class. The proposed settlement was reached after three years of extensive and aggressive litigation,” Rosner said. “It is the result of arm’s-length negotiations conducted by experienced counsel and represents a very substantial recovery of the class’ estimated damages.” Despite the strength of the shareholder claims, the proposed settlement is preferable to running the inherent risks of bringing a case to trial, Rosner said. In July 2008, Quest came up short in an attempt to dismiss the second amended complaint, and Judge Carter granted class certification to plaintiff Middlesex Retirement System in September 2009. A spokeswoman for Quest declined to comment. The case dates back to October 2006, when Middlesex accused Quest of knowingly backdating its stock options for all employees, leading to overstated financial filings and inflated stock prices. Under the company’s "bucket and best price” methodology system, Quest would identify the date when the company's stock was at its lowest and then issue options for that month or quarter on that date, according to the complaint. After the options were issued, the compensation committee of Quest's board of directors would sign off on the options by issuing uniform written consents. Quest issued options through the “bucket and best price” system for every level of employee, the complaint said. Quest acknowledged the practice and reissued previous earnings reports to reflect an additional $150 million in compensation for employees, according to the complaint. The U.S. Securities and Exchange Commission issued a Wells notice initiating an investigation into Quest's options backdating in March 2008. The agency ended its investigation in March when Quest agreed to an entry of a judgment enjoining it from future violations of federal securities laws. The plaintiff seeks a hearing on the settlement Dec. 7. The plaintiffs are represented in the current matter by Wolf Popper LLP and Hulett Harper Stewart LLP. Quest is represented by Cooley Godward Kronish LLP, Latham & Watkins LLP and Sheppard Mullin Richter & Hampton LLP, among others. The case is Middlesex Retirement System et al. v. Quest Software Inc. et al., case number 06-cv-06863, in the U.S. District Court for the Central District of California. -- Additional reporting by Jocelyn Allison

135429 0 0 2009/12/20 00:00 Quest Shareholders Drop Backdating Suit For $29M Friday, Nov 20, 2009 2009/11/20 2009/11/20 14 2009/11/20 1

57e76ddd6c8e485e915a87a866505f2a 90 2009-11-19T18:45:00-06:00

A jury has convicted the ex-chairman of McKesson Corp. on several counts of securities fraud handed down in the wake of a $9 billion accounting scandal at the health care firm but has let the firm's former general counsel off the hook. The jury found Charles W. McCall guilty of securities fraud, falsifying books, records and accounts, and circumventing internal accounting controls, and returned not guilty verdicts for Jay Lapine on the same charges, in the U.S. District Court for the Northern District of California on Thursday. McCall also was convicted on three counts of securities fraud in connection with false registration statements and Securities and Exchange Commission filings. The duo had been accused of helping to carry out a massive plot to “cook the books” prior to McKesson’s 1999 merger with HBO & Co., a health services software maker based in Atlanta. McCall was the CEO of HBOC prior to the merger and later became the chairman of the newly formed McKesson-HBOC Inc. Lapine served as general counsel for HBOC and subsequently for McKesson-HBOC. In 2000 the U.S. Securities and Exchange Commission charged three McKesson executives with running a lengthy scheme to inflate revenues and stock prices. Federal prosecutors later brought criminal charges against a slew of executives. The complaint named former HBO & Co. co-presidents Jay P. Gilbertson and Albert J. Bergonzi as the architects of the fraud. Lapine and McCall were indicted in 2003. The SEC claimed that the defendants gave themselves large bonuses tied to the company’s artificially enhanced financial performance and that they benefited from selling shares of HBO & Co. stock at prices they helped inflate. The fraud at the company allegedly began in 1997 and continued until the first quarter of 1999, the first quarter after the merger of the two companies. In April 1999 McKesson said it had begun an internal investigation into financial reporting irregularities. The probe eventually resulted in the earnings restatement that caused the company’s market value to tumble by $9 billion. McKesson wound up paying nearly $1 billion in 2005 to settle a derivative action and an investor class action filed after the company was forced to restate earnings after the merger in 1999. At a 2006 trial in San Francisco, McCall and Lapine were acquitted of conspiracy and won a mistrial on accusations of securities fraud, falsifying books and circumventing accounting rules. Prosecutors retried the pair in the current case on the charges the jury in the first trial could not agree upon. "We are gratified that this jury was able to sort through a very complicated case to understand the core truth that Mr. Lapine was innocent of these charges," Mark Topel, attorney for Lapine, said Thursday. “Our client is extremely relieved that the case is over and he has been fully exonerated.” Attorneys for McCall could not be reached for comment Thursday. McCall is represented by attorneys from Hogan & Hartson, Paul Weiss Rifkind Wharton & Garrison LLP and Heller Ehrman LLP. Lapine is represented by attorneys from Kasowitz Benson Torres & Friedman LLP. The case is United States v. Bergonzi et al., case number 3:00-cr-00505, in the U.S. District Court for the Northern District of California. --Additional reporting by Anne Urda Correction: A previously published version of this article incorrectly stated that Paul Weiss Rifkind Wharton & Garrison LLP represented Lapine in addition to McCall. Lapine was in fact solely represented by Kasowitz Benson.

135354 0 0 2009/12/19 00:00 McCall Guilty Of McKesson-HBOC Fraud, Lapine Free Thursday, Nov 19, 2009 2009/11/19 2009/11/19 84 2009/11/19 1

e2548d2b10f34220a22d79072faff6da 34 2009-11-19T18:20:00-06:00

A foreign currency trader who swindled investors across the country to fund his lifestyle and buy gifts for girlfriends has been sentenced to more than 24 years in prison and ordered to pay $18 million in restitution. Luis Hiram Rivas, who pled guilty in August to wire fraud, money laundering and bankruptcy fraud, learned his fate on Thursday in the U.S. District Court for the Eastern District of Tennessee for the Ponzi scheme, according to federal prosecutors. Rivas also pled guilty to wire fraud related to the scam in federal court in South Carolina. Rivas defrauded hundreds of would-be investors, using the more than $18 million he received to purchase expensive items — including a $163,000 Land Rover — for himself, his girlfriends, and “so-called” equity traders, according to the U.S. Attorney's Office for the Eastern District of Tennessee. The scheme ran between March 2007 and May 2008, when he courted investors by saying he was an experienced and successful foreign currency trader. He guaranteed up to a 60 percent returns on investments, according to the Associated Press. Rivas ran the operation from his Chattanooga, Tenn.-based organization he called the Forex Project. It spread as he opened other “trading centers” in Knoxville and in Spartanburg, S.C., Panama City, Fla., and Tulsa, Okla., according to prosecutors. Early investors received monthly payments that came from new investors' money. Most of the investors' money was never actually invested. Instead, Rivas bought houses, cars, fur coats, jewelry, limousine service, clothes, home furnishings and stays in hotel suites — purchases that were rewards to employees and other people who helped him further the scheme, prosecutors said. He also used proceeds to grow the fraud by giving bonuses to some of his investors — who he called “equity agents” — to encourage them to recruit others. Rivas also committed bankruptcy fraud after three of his victims filed an involuntary bankruptcy petition in May 2008 in order to force Rivas into bankruptcy. He then shifted “hundreds of thousands of dollars” out of the bankruptcy estate, prosecutors said. He fled Tennessee in May 2008 but was caught later in Topeka, Kan., carrying about $100,000 in cash. Assistant U.S. Attorney Gary Humble has said Rivas gave $225,000 to the "mother of his child to hide from bankruptcy trustees,” the AP reported. He had faced up to 75 years in prison and fines of up to $1.25 million. On Thursday, Judge Curtis L. Collier also sentenced him to three years' supervised release and $500 in special assessments. Rivas managed to swindle about 495 people, according to U.S. Bankruptcy Trustee Grey Steed, who was charged with going through Rivas' financial records, the AP reported. Some money was recovered with a public auction of Rivas' ill-gotten luxury items, the AP reported. A call for comment to Rivas' federal public defender was not immediately returned. One of the cases is U.S. v. Rivas, case number 1:08-cr-00095-1, in the U.S. District Court for the Eastern District of Tennessee.

135356 0 0 2009/12/19 00:00 Currency Trader Gets 24 Years For $18M Ponzi Fraud Thursday, Nov 19, 2009 2009/11/19 2009/11/19 73 2009/11/19 1

480ddf112f4d4784838be0fa71500c16 73 58 2009-11-19T17:37:00-06:00

The Delaware Supreme Court has affirmed a $10 million default judgment for Italiana Coke SpA and Energy Coal SpA, which had enforced a settlement deal that ended the coal companies' fraud litigation against two energy investors. Delaware's high court made the ruling Nov. 16, affirming the Delaware Chancery Court 's decision to hit Luca Minna and Laura Garrone with the hefty default judgment. The trial court opted for the default judgment — further mandating that they pay more than $700,000 in attorneys' fees — after Minna and Garrone “willfully flouted” obligations to the court, including motions to compel, the state high court ruled Nov. 16. “I think it's an important case both because of the remedy and the fact that it's a big judgment,” Joseph De Simone, an attorney for Mayer Brown LLP who represents the appellees, told Law360. “It's a good guidepost for parties of what not to do in litigation — things to avoid so you don't get sanctioned.” Meanwhile, Edwards Angell Palmer & Dodge LLP attorney John L. Reed told Law360 that the Delaware high court's opinion contained “indisputable inaccuracies” and that his client intends to file a motion for reargument. Italiana and Energy Coal's beef with Minna and Garrone goes back to 2004, according to the opinion. The high court said the two appellants — who recently had formed Carbon Power USA — convinced Italiana and Energy Coal in 2004 and 2005 to invest $12.5 million in two coal mining investment companies: Cobart Inc. and Oripaya Mining Inc. Energy Coal grew concerned over how its money was being invested in 2006, and in October 2007 it demanded to inspect books and records, according to the opinion. Subsequently, Energy Coal sued Carbon Power in Delaware state court, claiming that it had neglected to pay $925,000 as part of an agreement the two companies executed in 2007. Energy Coal filed two more actions for books and records and a fourth action in May 2008 claiming fraud, conversion and breach of fiduciary duty and seeking $12 million in damages. The parties eventually agreed to settle the suits for $10 million, the opinion said, adding that Energy Coal sued to enforce the settlement after it failed to receive the first $500,000 payment on the deal. According to the high court opinion, among Minna and Garrone's misdeeds was the fact that they had failed to pay about $400,000 in attorneys' fees to Energy Coal and Italiana that the trial court initially ordered before issuing the default judgment. Minna and Garrone argued for the first time at an April 8 hearing that they couldn't afford the fees, the high court said. However, in their response brief, Minna and Garrone said they made the following claim in court on March 19: “As to the $426,691.81 defendants now concede as reasonable, they, as individuals, do not have the personal financial wherewithal to pay said amount to plaintiffs.” The case was heard Nov. 16 before Justices Carolyn Berger, Jack B. Jacobs and Henry duPont Ridgely. Edwards Angell Palmer & Dodge LLP represents the appellants. The appellees were represented by Young Conaway Stargatt & Taylor LLP and Mayer Brown LLP. The case is Luca Minna and Laura Garrone v. Energy Coal S.p.A. and Italiana Coke S.p.A., case number 267,2009, in the Supreme Court of the State of Delaware.

135291 0 0 2009/12/19 00:00 Del. High Court Affirms $10M Win For Italiana Coke Thursday, Nov 19, 2009 2009/11/19 2009/11/19 73 2009/11/19 1

960f5bc498eb46628113a947f896c920 63 2009-11-19T17:05:00-06:00

A federal judge has appointed a receiver to handle the remaining assets of bankrupt oil and gas securities firm Heartland Resources Inc. following a magistrate's finding that, without a receiver, plaintiffs alleging a $14 million fraud would suffer irreparable injury. Judge Joseph H. McKinley Jr.'s order, issued Tuesday in the U.S. District Court for the Western District of Kentucky, accepted other findings of fact issued Oct. 22 by Magistrate Judge E. Robert Goebel, who ruled that the remaining Heartland-related assets — consisting of interests in oil and gas wells and mineral leases — are in danger of being lost. The court directed receiver William B. Blackmon, a semi-retired engineer from Middlesboro, Ky., to assume control of the Heartland assets. Blackmon said Thursday that he was in the process of familiarizing himself with the case. Heartland and executives Mark Haynes and David Stewart — who are defendants in the case — had objected to the appointment of a receiver, arguing that they had offers to sell the Heartland assets. Earlier this month plaintiff Frederick Clayton Jr. filed a motion for summary judgment against Heartland, Haynes and Stewart, among others, accusing them of failing to disclose crucial information to investors and engineering sham transactions. Heartland filed for bankruptcy in May 2008, the same month the securities plaintiffs filed suit. In September Bankruptcy Judge Joan A. Lloyd granted the securities plaintiffs relief from an automatic bankruptcy stay to continue their litigation. A hearing on a pending motion to dismiss the bankruptcy — presumably paving the way for the sale of the company's assets by the newly appointed receiver — is set for Jan. 21. The plaintiffs claim they invested nearly $15 million in Heartland securities and have only received some $418,000 in distributions. The investors are asking the court to grant summary judgment as a matter of law and declare rescission of investments totaling more than $14 million. The plaintiffs are represented by Waller Lansden Dortch & Davis LLP. Counsel information for the defendants in the securities-related matter was not immediately available. Their previous counsel has left the case, according to the docket. Heartland is represented in its bankruptcy by attorney Mark H. Flener, according to the docket. The case is Clayton et al. v. Heartland Resources Inc. et al., case number 1:08-cv-04, in the U.S. District Court for the Western District of Kentucky. The bankruptcy is In re: Heartland Resources, case number 09-10917, in the U.S. Bankruptcy Court for the Western District of Kentucky. --Additional reporting by Anne Urda

135193 0 0 2009/12/19 00:00 Receiver Tapped In $14M Heartland Securities Case Thursday, Nov 19, 2009 2009/11/19 2009/11/19 89 2009/11/19 1

21e24ca1879340ae9654cf9b777a2057 34 2009-11-19T17:04:00-06:00

A Florida tycoon has hurled a raft of corruption allegations at the judge presiding over the receivership of Rothstein Rosenfeldt & Adler PA, the firm facing bankruptcy amid a Ponzi scheme scandal. Judge Herbert Stettin allegedly worked as an arbitrator while continuing to sit as a judge, an improper arrangement that allowed law firms to funnel money to him, multimillionaire Peter Halmos said in a statement issued Thursday. Judge Stettin has been named as receiver in the Rothstein Ponzi scandal. Halmos has no stake in those proceedings, but wants the public to learn of the judge's alleged corruption, which he encountered in an arbitration proceeding that Judge Stettin presided over, he told Law360. Halmos took his allegations public after Florida courts refused to allow a case against Stettin, he said. A sitting judge may not serve as an arbitrator, or engage in any private legal employment, under Florida's constitution, Halmos said. “It's an intolerable conflict of interest,” he said. Judge Stettin has allegedly used his arbitration work a “billing conduit” that allows local lawyers to secretly pass cash to Judge Stettin in his capacity as an arbitrator while appearing in his courtroom, Halmos said. Judge Stettin has allegedly tried the mask the source of his money by perjuring his sworn disclosure statements, which are required to show detailed information on income sources, according to Halmos. Rather than fully complying, Judge Stettin allegedly lists hundreds of thousands in donations under “arbitration fees” and lists his home address as the address of the payer, according to Halmos. “Well his home address ain't paying him $650,000. How is [listing that way] identifying who is?” Halmos said. The alleged conflict of interest calls into question Judge Stettin's fitness to serve as the Rothstein receiver, Halmos said. “The victims of the Rothstein Rosenfeldt & Adler law firm have every right to question Judge Stettin's fitness to continue as their fiduciary and to seek the appointment of an honest, independent trustee,” his statement said. Halmos also accused Judge Stettin of conflicts of interest in the Rothstein receivership itself, created by, among other things, a long relationship with former Judge Barry Stone, now of Rothstein, and ties to the father of a Rothstein partner. “Ethics complaints against Florida judges or attorneys ultimately must be decided by the Florida Supreme Court in legal proceedings brought before it,” said Craig Waters, a spokesman for the Florida Supreme Court. “Any comment by the court only can be made during those proceedings, once they are properly brought,” Waters said. There is some dispute as to whether Judge Stettin is actually still sitting — Halmos insists that he is, while Waters said he has retired. Halmos' beef with Judge Stettin stems back to an arbitration battle with his brother over $20 million, he said. Halmos says he placed the money in a trust for his parents, but stipulated that unused money would go to charity. His brother, he says, tried to use the money for himself. Appointed arbitrator, Judge Stettin allegedly threatened Halmos with jail for contempt of court unless he paid his brother the money. Halmos stopped short of accusing Stettin of taking a bribe, saying he wants to stick with making allegations that can proved with the public record. Halmos made his millions as the founder of SafeCard Services, a credit card protection company. He gained some notoriety as rich eccentric in the wake of a 2007 Vanity Fair article that detailed his life on Legacy, a megayacht that was then beached in a National Wildlife Refuge near Key West, Fla. Prosecutors claim that the Scott W. Rothstein, CEO of Rothstein Rosenfeldt Adler, has been operating a Ponzi scheme since 2005, using fake settlements as bait for investors. A group of investors filed an involuntary bankruptcy petition against the firm in the U.S. Bankruptcy Court for the Southern District of Florida earlier in November, after news broke of the Ponzi scheme allegations. --Additional reporting by Shannon Henson and Anne Urda

135261 0 0 2009/12/19 00:00 Judge Who Is Rothstein Receiver Accused Of Corruption Thursday, Nov 19, 2009 2009/11/19 2009/11/19 80 2009/11/19 1

A Florida tycoon has hurled a raft of corruption allegations at the judge presiding over the receivership of Rothstein Rosenfeldt & Adler PA, the firm facing bankruptcy amid a Ponzi scheme scandal.

f41f91acc9d548229ee0b62777c521d6 80 2009-11-19T16:56:00-06:00

The U.S. Securities and Exchange Commission has accused a former executive of semiconductor company Tvia Inc. of making side deals with customers that caused the company to overreport revenues by $5 million and allowed him to pocket $300,000 after he cashed in stock options he had won for hitting revenue targets. Benjamin Silva III, Tvia's former vice president of worldwide sales, was charged in a civil action along with former Chief Financial Officer Diane Bjorkstrom of financial reporting fraud for inflating revenues, according to an SEC suit filed Tuesday in the U.S. District Court for the Northern District of California. In its complaint the SEC says Silva granted side deals to customers for extended payment terms to help him and his sales team meet the company's revenue goals. He hid the deals from other Tvia executives and auditors, and that caused the company to report millions of dollars in revenue it didn't really have, the SEC said. When he learned in late 2005 that auditors had begun questioning why it was taking customers so long to pay, Silva allegedly applied payments from new customers to old receivables and lied to auditors to cover his tracks, according to the suit. “Sales executives have a responsibility to provide complete information to finance personnel so that the company can report accurate financial information to the investing public,” Marc J. Fagel, director of the SEC's San Francisco regional office, said in a statement. Besides extending the terms of payment, some side deals also obligated Tvia to find buyers for product the customer was unable to sell, according to the complaint. Silva's side agreements — with MicroNetwork Korea, MJL Technology in South Korea, Advent Technology and others — illegally inflated Tvia's revenue by about $5 million from September 2005 to June 2006, the complaint said. That caused the company's quarterly reports to consistently inflate revenue statements. In one quarter alone, revenue was overstated by $3.16 million, or 165 percent, the complaint said. With his side deals, Silva was able to meet revenue targets and reap performance-based awards. He got one option to buy 70,000 shares of Tvia stock and exercised all his available options, making a $300,00 profit, the SEC said. Bjorkstrom, who already has agreed to settle the claims by paying a $20,000 penalty, had been accused of improper accounting for letting Tvia recognize revenue on merchandise shipped to a customer weeks before the customer had actually agreed to accept it. The SEC said Bjorkstrom also failed to act on red flags surrounding Silva's alleged misconduct, like not challenging him when he gave dubious explanations for his actions, the complaint said. Bjorkstrom consented to judgment but did not admit the allegations. The agreement also banned her from appearing or practicing before the SEC as an accountant for two years, the SEC said. Both defendants were named — along with Tvia and its former CEO Eli Porat, who stepped down this year — in a 2006 securities class action over the inflated revenue reports, which the plaintiffs said caused them to buy overpriced Tvia securities that plummeted by half after news of misleading revenues was disclosed, according to the complaint in that case. The company settled in 2007 with shareholders for $2.85 million, to be paid by insurers, according to court records. The company also had sued Silva and Bjorkstrom over the allegations. “I have not had a chance to review the complaint in any great detail,” Silva's attorney, David T. Alexander, said of the SEC's complaint. Reporting revenue and the recognition of sales is the responsibility of other senior mangers at the company and outside auditors, he said. The company's suit against Silva, which made the same accusations, has been dismissed, he added. Silicon Valley-based Tvia, which sells digital display processors for advanced flat-panel televisions, filed for Chapter 11 reorganization in October 2008. An attorney for Bjorkstrom did not immediately return a call for comment. Attempts to reach representatives for Tvia were unsuccessful. The Law Offices of David T. Alexander represents Silva. Orrick Harrington & Sutcliffe LLP represents Bjorkstrom. The SEC case is U.S. Securities and Exchange Commission v. Benjamin Silva III, case number 5:09-cv-05395-PVT, in the U.S. District Court for the Northern District of California. Another is U.S. Securities and Exchange Commission v. Diane Bjorkstrom, case number 5:09-cv-05394-PVT, in the same court. The shareholder suit is Donald Richardson et al. v. Tvia Inc. et al., case number 5:06-cv-06304-RMW, in the same court.

135186 0 0 2009/12/19 00:00 SEC Hits Ex-Tvia Execs For Revenue Reporting Fraud Thursday, Nov 19, 2009 2009/11/19 2009/11/19 50 2009/11/19 1

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Deloitte Touche Tohmatsu and Grant Thornton International have agreed to cough up $15 million to settle with a class of Parmalat SpA stockholders in a suit stemming from the Italian dairy giant's collapse. The lead plaintiffs for a certified class of Parmalat stockholders filed a motion asking the court to preliminarily approve the settlement Thursday in the U.S. District Court for the Southern District of New York. The class of securities holders will net $15 million if the settlement is approved by U.S. District Judge Lewis A. Kaplan. Deloitte Touche Tohmatsu and its U.S.-based unit Deloitte Touche have agreed to pay $8.5 million to settle allegations of fraud by Italian auditors connected to Parmalat's 2003 spiral into bankruptcy. Grant Thornton International has agreed to a $6.5 million settlement. Asking the court to grant preliminary approval to the settlement for notice to class members and to set a date for a hearing on final approval and a proposed plan of allocation, the plaintiffs stressed that the settlements were the result of months of negotiations between informed parties. “We think it's a noteworthy settlement because the settlement involves the worldwide coordinating organizations — Deloitte Touche Tohmatsu and Grant Thornton International — who were sued not directly for anything they did, but for audits by their affiliate firms in Italy,” James Sabella of Grant & Eisenhofer PA, lead counsel for the plaintiffs, told Law360. “It's very rare that any settlements have been achieved involving those organizations rather than the actual member firms who practice in the various jurisdictions,” Sabella said. A representative for Deloitte Touche declined to comment on the proposed settlement Thursday because the court has not yet made its final determination. Grant Thornton International could not be reached for comment. Judge Kaplan certified the class — comprised of shareholders who purchased Parmalat stock between Jan. 5, 1999, and Dec. 18, 2003 — in August, but stipulated that the settlement class would exclude foreign plaintiffs, because U.S. securities laws did not apply to their allegations. Much of the securities fraud class action had been tentatively resolved prior to class certification, with Parmalat's announcement of a $40 million settlement with shareholders in May and Judge Kaplan's dismissal of certain defendants, including Citigroup Inc., Bank of America Corp. and other Parmalat underwriters, on Aug. 7. The Parmalat scandal began in December 2003 when the company had difficulty making a €150 million ($231.7 million) bond payment. The lack of funds raised questions, as the company was supposed to have nearly €4 billion in offshore accounts. The dairy giant was forced to file for bankruptcy in 2003, and the company emerged from bankruptcy protection in 2006. In December 2003, the U.S. Securities and Exchange Commission filed a suit charging Parmalat with “one of the largest and most brazen corporate financial frauds in history.” Soon after the discovery of alleged accounting misdeeds at the company, Parmalat executives began pointing the finger at auditors and underwriters, claiming that the banks played a role in the company’s bankruptcy. The plaintiffs are represented by Grant & Eisenhofer PA, Cohen Milstein Sellers & Toll PLLC and Spector Roseman Kodroff & Willis PC. Deloitte Touche is represented by Latham & Watkins LLP and Kramer Levin Naftalis & Frankel LLP. Grant Thornton is represented by Stroock & Stroock & Lavan LLP, Freeman Freeman & Salzman, and Campbell Campbell Edwards & Conroy PC. The case is In re: Parmalat Securities Litigation, case number 04-md-01653, in the U.S. District Court for the Southern District of New York. --Additional reporting by Julie Zeveloff

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Merrill Lynch Pierce Fenner & Smith Inc. has asked a judge to dismiss a complaint in the multidistrict litigation over auction rate securities, arguing that Community Trust Bank Inc.'s allegation that Merrill Lynch surreptitiously manipulated the ARS market doesn't hold water. Merrill Lynch filed its motion to dismiss Pikesville, Ky.-based Community Trust Bank's second amended complaint in the U.S. District Court for the Southern District of New York on Wednesday. Community Trust Bank filed its second amended complaint (the target of Merrill's dismissal bid) on Oct. 26. Community Trust, which still holds $9.9 million worth of ARS it bought in 2006, is trying to get around the illiquidity of that investment by lodging numerous claims against Merrill, all of which are based on the assertion that Merrill covertly influenced the ARS market by submitting bids on its own behalf, according to the motion. "The fatal flaw in Community Trust’s argument is that the clandestine behavior it accuses Merrill Lynch of was not actually secretive," Merrill said in a memorandum supporting its dismissal bid. "All of the alleged omissions and deceptive practices identified in the complaint were fully disclosed to Community Trust and the market as a whole." However, Richard A. Getty, who represents Community Trust Bank, said that the motion to dismiss was baseless. "I think they got their facts wrong," Getty said of Merrill Lynch's motion. "We believe it will be overruled once we respond." Community Trust's claim that Merrill Lynch, through sources including brokers, failed to disclose facts about the auction market, is vague and opaque, Merrill's dismissal bid said. The plaintiff didn't identity an omission of material fact — and the information that Merrill Lynch allegedly concealed from investors was fully disclosed, the motion asserted. A private placement memorandum, or PPM, laid out the auction process and Merrill Lynch's role in the auction market, the motion said. Community Trust alleged that Merrill Lynch did not disclose that it placed orders for its own account using support bids and routinely intervened in auctions to set rates and stave off failed auctions. But the PPM specifically said that Merrill routinely placed bids to prevent auction failures or stop an auction from clearing at a rate Merrill believed was higher that the market for similar securities, Wednesday's motion said. And while Community Trust accused Merrill of failing to disclose that the ARS Merrill was selling were only liquid because Merrill and other dealers were propping up and manipulating the market, the PPM said that the fact that an auction clears doesn't mean an investment in the ARS is free from significant liquidity or credit risks, according to Merrill. Community Trust can't claim it was ignorant about facts and risks it was repeatedly warned about, Merrill Lynch argued. In addition, the fact that Merrill regularly bought ARS in auctions for its own account belies any intent to defraud, the motion to dismiss said. A Merrill Lynch spokesman was not immediately available to discuss the dismissal bid on Thursday. Merrill Lynch is represented in the Community Trust suit by Maynard Cooper & Gale PC. Skadden Arps Slate Meagher & Flom LLP represents Merrill in the MDL. Community Trust is represented by Getty & Childers PLLC. The Community Trust suit is Community Trust Bank Inc. v. Merrill Lynch Pierce Fenner & Smith Inc., case number 09-5403, in the U.S. District Court for the Southern District of New York. The MDL is In re: Merrill Lynch Auction Rate Securities Litigation, case number 09-md-2030, in the U.S. District Court for the Southern District of New York.

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