News in Brief Broker Dealer

• Crosby & Higgins News
• Legal News In Brief
- Business Litigation
- Intellectual Property
- Broker-Dealer
• Articles & Resources

Legal News In Brief - Broker-Dealer

February 2006

Parmalat Proceeds with Suit Against Bank of America (February 1, 2006)

Parmalat Chief Executive Enrico Bondi brought an action against lender Bank of America. Bondi's allegations include that Bank of America failed to disclose the true state of Parmalat's affairs, failed to disclose the true interest rates of certain loans, failed to disclose a scheme by a group of corrupt Parmalat executives to loot millions from the dairy company, and structured financial transactions in a way to conceal and facilitate the looting. Additionally, Bank of America allegedly directed Parmalat to issue a press release which misrepresented details of a financial move involving Parmalat's Brazilian unit, contributing to the dairy company's financial collapse in 2003. Bank of America moved to be dismissed from the suit; U.S. District Judge Lewis A. Kaplan ruled against the motion, but dismissed most of the civil racketeering claims against Bank of America.

CFTC Sues Futures Trader (February 3, 2006)

The Commodity Futures Trading Commission filed a suit against Charles DeFazio, a California futures trader. Despite DeFazio's alleged six-year history of losses exceeding $1 million, he told investors he was successful and induced investors to invest, and subsequently lose, nearly $1 million more. CFTC alleges that DeFazio improperly commingled investor funds and misrepresented his trading history, which misled investors to invest money which he lost. The CFTC is seeking permanent injunctive relief, the return of funds to defrauded customers, fines, nad repayment by DeFazio of his gains.

January 2006

AGPA Files Antitrust Suit Against Exxon and BP (January 17, 2006)

Alaska Gasoline Port Authority filed a lawsuit against energy suppliers Exxon Mobil Corp. and BP PLC primarily alleging that the companies engaged in anticompetitive behavior by conspiring not to sell natural gas to AGPA. AGPA contends that the energy companies are inhibiting the construction of a gas pipeline in an attempt to maintain its monopoly over the transportation and distribution of its natural gas from the North Slope of Alaska.

McAfee Settles with SEC (January 20, 2006)

The SEC brought an action against software maker McAfee Inc. alleging that from 1998 through 2000, McAfee inflated its net revenues and defrauded investors by engaging in activities including overselling its products to distributors in amounts that greatly exceeded customer demand and recording these sales as revenue. In addition, McAfee allegedly used a wholly owned subsidiary, Net Tools, Inc., to repurchase inventory that had been oversold to distributors. In December 2000, McAfee announced that it would miss its quarterly revenue projection by $190 million, which allegedly resulted in a loss of more than $1 billion in market capitalization from the resulting stock price drop. McAfee has agreed to pay a $50 million civil penalty to settle the action. The proposed settlement is still subject to court approval.

SEC Investigates Poker Bid (January 23, 2006)

The SEC is investigating the legitimacy of a tender offer bid for $700 million for the gaming entertainment group World Poker Tour Enterprises, Inc. The bid was placed by Doyle Brunson, a World Series of Poker champion. Brunson and his attorneys publicized an offer to buy all of WPTE's stock, causing the stock price to increase quickly. Soon after, Brunson and his attorneys dropped their interest in the deal, causing the stock to drop sharply, which allegedly resulted in tens of millions of dollars in losses for investors.

November 2005

Legg Mason Makes Largest Acquisition in Firm History (November 4, 2005)

Baltimore based investment firm Legg Mason acquired an 80% share in the Permal Group for $800 million. The firm also has a four year period in which it has the option of buying out remaining control in the company. Legg Mason is also in negotiations with Citibank for their worldwide asset management business, which deals with more than $437 billion in assets.

Refco sued by Thomas H. Lee Partners (November 15, 2005)

Former executives of Refco, the collapsed futures and commodities brokerage firm is being sued by the private equity company Thomas H Lee Partners. Thomas H. Lee Partners owns over half of Refco. The suit seeks to recover $245 million and alleges that Refco executives engaged in fraud to hide bad debt in order to falsely maintain the company's value. Additionally, federal prosecutors are attempting to recover over $700 million from the executives.

Federal Prosecutors Seek to Dismiss Arthur Anderson Indictment (November 23, 2005)

Arthur Anderson, Enron Corp.'s former accounting firm, was convicted in June 2002 of obstructing evidence for destroying Enron-related documents prior to Enron's collapse. Now federal prosecutors are asing to have the conviction vacated and the indictment dismissed.

The 2002 conviction essentially destroyed Arthur Anderson, then one of the "Big Five" accounting firms in the country. Additionally, all 28,000 people across the country employed by Arthur Anderson lost their jobs when the company fell shortly after the conviction.

October 2005

Spitzer Drops Charges Against Broker (October 14, 2005)

New York Attorney General Eliot Spitzer dropped criminal charges against Theodore Sihpol, a former Banc of America securities broker who was accused of engaging in "late trading." Late trading involves largeinvestors trading mutual fund shares after the 4pm close of the market. The practice is illegal because it gives large investors an advantage over smaller ones, who have to wait until the market opens the next morning to make their trades.

Sihpol settled civil charges brought by the SEC. The settlement included a $200,000 fine and a five-year ban from the securities industry. The criminal charges were dropped because the attorney general believed the interests of justice were served by the penalty imposed by the SEC, a spokesperson for the attorney general said.

Jury Verdict Overturned in Insider Trading Case (October 26, 2005)

A New York judge overturned a jury's guilty verdict in the case of a man accused of insider trading. John J. Cassese, the former president and chairman of Computer Horizons Corp., was accused of insider trading. Cassese had inside information of an upcoming tender offer for another company. He quickly bought stock in the company, and sold it after the tender offer was publicly announced. The acts brought him a profit of $149,000.

The jury in the case found Cassese guilty, but Southern District of New York Judge Robert Sweet overturned the verdict. Judge Sweet held that the evidence was insufficient to support the jury's finding that Cassese acted with criminal intent. The 2nd US Circuit Court of Appeals upheld Judge Sweet's ruling.

August 2005

Enron Settles Suit Against Banks (August 16, 2005)

JPMorgan Chase & Co. and Toronto Dominion Bank agreed to pay $350 million and $70 million respectively to Enron to settle a suit filed by Enron alleging that the banks aided the company’s preventable collapse. In addition to these settlement payments and other payments including a $2.2 billion payment by JPMorgan to Enron shareholders for its part in a class-action lawsuit, the banks have agreed not to pursue certain claims in Enron's bankruptcy proceedings.

SEC Files Suit Against Former Bristol-Myers Executives (August 24, 2005)

The Securities and Exchange Commission filed suit against the former CFO of Bristol-Myers, Frederick Schiff, and the former president of the company's Worldwide Medicine Group, Richard J. Lane, for allegedly deceiving investors about the company's financial performance in 2000 and 2001. The former executives are accused of inflating revenues by $1.5 billion by leading the company in giving financial incentives to its wholesalers to purchase excess inventory ahead of demand. In addition, the executives allegedly directed the company to improperly tap reserves to inflate revenue numbers, the SEC says. Along with encouraging and engaging in other acts which violate of provisions of federal securities laws involving fraud, reporting, books and records, and internal controls.

July 2005

Ebbers Sentenced to 25 Years in Prison (July 13, 2005)

Bernard Ebbers, former WorldCom chief executive was sentenced to 25 years in prison. Ebbers was convicted in March of nine felonies that carried a maximum prison term of 85 years for his role in the $11 billion accounting fraud at WorldCom. The scandal was the largest among a group of high profile scandals at companies including Enron, Adelphia and other companies. WorldCom filed the largest bankruptcy in U.S. history in 2002. The company's collapse led to billions of dollars in losses for shareholders and employees.

Morgan Stanley Pays Parmalat (July 19, 2005)

Italian dairy giant Parmalat received a 155 million euro ($187 million) payment from Morgan Stanley, the first international bank to settle with Parmalat following the massive fraud scandal at the company. Parmalat launched claims against dozens of Italian and international banks, claiming they knew the dairy company was failing even as they helped it raise funds shortly before news of the scandal broke in December 2003. Morgan Stanley settled with Parmalat in an agreement that covers all outstanding claims between the companies, and principally concerns a bond issue that it arranged for Parmalat in June 2003.

Former WorldCom Executives Settle (July 25, 2005)

Former WorldCom finance chief Scott Sullivan, former accounting director Buford Yates, and former controller David Myers have reached settlements in a class action lawsuit brought by investors for their role in the accounting scandal that led to the bankruptcy of WorldCom. Sullivan, Yates and Myers plead guilty to fraud and helped the government build its case against former chief executive, Bernard Ebbers. The amount each will pay as part of the settlement has not yet been disclosed to the public.

June 2005

Ex-AremisSoft CEO Settles for $200 Million (June 12, 2005)
Former CEO of AremisSoft Corp. Roys Poyiadjis has settled charges by the Securities and Exchange Commission and has agreed to pay $200 million. Poyiadjis was charged in October of 2001 for engaging in insider trading of the company’s tock through offshore entities while making false statements about the company in regulatory filings. The money will go to defrauded investors as part of the software company's bankruptcy resolution.

Freddie Mac Continues to Pay (June 14, 2005)
Freddie Mac has already paid the Office of Federal Housing Enterprise Oversight $125 million to settle charges stemming from its accounting problems and misstated income from 2000 to 2002. In addition, the company has already spent $16.8 million in legal fees and may continue to pay out large legal claims from several shareholder and antitrust lawsuits that are still pending in addition to other pending suits by the SEC and the OFHEO stemming from its multibillion-dollar earnings restatement.

Federal Court Sentences Adelphia Founder and Son to Prison (June 21, 2005)
Adelphia Communications Corp. founder John Rigas was sentenced to 15 years in prison for his role in the fraud scandal that sent Adelphia into bankruptcy three years ago. The founder and his son were accused of using complicated cash-management systems to spread money around to various family-owned entities and as a cover for stealing about $100 million for themselves. The company collapsed into bankruptcy in 2002 after it disclosed $2.3 billion in off-balance-sheet debt that prosecutors said was deliberately hid by the Rigases. The family has already agreed to forfeit more than $1.5 billion to settle regulatory charges.

Judge Adds to Perelman’s Award (Friday, June 24, 2005)
Financier Ron Perelman’s $1.45 billion verdict against Morgan Stanley was increased overall by approximately $130 million incorporating a decrease in the award of $84.5 million from the verdict because of related settlements Perelman previously received and an addition of over $208 million in interest to the award.

Perelman was awarded the original $1.45 billion in actual and punitive damages from Morgan Stanley for allegedly deceiving Perelman about Sunbeam Corp.'s financial condition. The jury found that Perelman, the Revlon cosmetics chief, relied on false statements that Sunbeam was a turnaround success and could afford to acquire his camping equipment company. Sunbeam filed for bankruptcy protection in 2001 after its financial troubles were discovered, and Perelman alleged he suffered millions in losses because stock he received in the deal plunged in value.

Italy Prosecutes Parmalat Founder and Others (June 25, 2005)
The founder of Parmalat Calisto Tanzi, fifteen executives, and the Italian offices of Bank of America, Deloitte & Touche, and the former Italian affiliate of Grant Thornton were charged for their roles in the fraud scandal which let to the company’s bankruptcy in December of 2003. The parties allegedly misled investors by market-rigging, false auditing and hindering the work of regulators. Other banks such as Citigroup, Morgan Stanley, Deutsche Bank and UBS, along with Italian asset manager Nextra may also be indicted separately for their involvement with the scandal.

May 2005

Jury Awards Perelman 1.45 Billion from Morgan Stanley (May 19, 2005)
Businessman Ron Perelman was awarded $1.45 billion in actual and punitive damages from Morgan Stanley for allegedly deceiving Perelman about Sunbeam Corp.'s financial condition. The jury found that Perelman, the Revlon cosmetics chief, relied on false statements that Sunbeam was a turnaround success and could afford to acquire his camping equipment company. Sunbeam filed for bankruptcy protection in 2001 after its financial troubles were discovered, and Perelman alleged he suffered millions in losses because stock he received in the deal plunged in value.

SEC Charges Fund Manager in Securities Fraud (May 18, 2005)
The Securities and Exchange Commission charged Vincent Montagna, the manager of Manhattan-based hedge funds Tiburon Asset Management LLC and Tiburon Partners Ltd. with defrauding investors of $10 million. The complaint, filed in the U.S. District Court for the Southern District of New York, alleged that Montagna violated federal securities laws by knowingly or recklessly disregarding that two of the funds' major assets had become worthless by November 2001 and deceiving prospective investors with false information of the funds’ outstanding returns. Montagna allegedly solicited new investments in the funds by using false and inflated valuations until September 2002, when he finally announced the funds' values had been cut by about half.

Supreme Court Rules on Relevance of Inflated Stock Prices (May 3, 2005)
The U.S. Supreme Court ruled that inflation of a stock price at the time of purchase does not in itself satisfy the element of loss causation for securities fraud suits; there must be a direct connection between an alleged misrepresentation and a stock price drop. Plaintiffs will only be able to recover damages for economic losses that are the proximate cause of misrepresentations.

Crosby & Higgins News | Legal News In Brief | Articles & Resources

Crosby Higgins LLP, 350 Broadway, Suite 300 New York, NY 10013 | Tel: 877-5-BIZLAW or (646) 452-2300 Fax: (646) 452-2301