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February 2006
Exxon Settles with Service Station Dealers (February 2, 2006)
U.S. District Court Judge Alan Gold tentatively approved a $1.075 billion agreement between Exxon Mobil Corp. and thousands of service station dealers that sued the company for allegedly failing to provide promised discounts for wholesale motor fuel and fraudulently hiding its failure to pay.
The service station dealers commenced the suit in 1991, and a jury found in favor of the dealers in 2001 and ordered Exxon to pay $500 million. Exxon appealed the verdict and the U.S. Supreme Court denied Exxon's appeal last June, by which time the payment had increased to more than $1 billion with interest. The two sides reached the settlement of $1.075 billion in December. The final approval of the settlement will be issued by Judge Gold in April.
California Attorney General Challenges H&R Block's Loan Program (February 15, 2006)
A California Attorney General Bill Lockyer filed suit against H&R Block Inc. to prevent it from offering its "refund anticipation loan" program in California. Under the program, the company provides cash advances to customers so the customers will not have to wait an extra one to four weeks for a tax refund check from the federal government. In return for the loans, customers must agree to give a percentage of their tax refunds to H&R Block. Lockyer alleges that the company misleads its customers about the costs of the short-term loans, and has not adequately informed loan recipients of the possile penalties or interest of these loans, including the possible consequences if the amount refunded by the federal government is less than anticipated.
January 2006
Morgan Stanley Owes Little Fiduciary Duty (January 3, 2006)
In 2002, Morgan Stanley DW, Inc. sold its online business and online accounts to rival broker Harris Direct. At the time of the transfer, customers were free to terminate their accounts at any time. The company was accused of breaching its duty of loyalty to its customers when it transferred the customers' online accounts. Applying California law, the court found that Morgan Stanley owed almost no fiduciary duty to the client, and therefore Morgan Stanley was not in breach.
Ex-HealthSouth CEO Repays Nearly $48 Million (January 6, 2006)
As a result of a law suit, former HealthSouth Corp. CEO Richard Scrushy has been ordered to repay $48 million in bonuses. The bonuses were received from 1997 to 2002 for his role in the company's achievements which were fabricated and never actually achieved. The suit was brought as a derivative suit, and the money recovered will be returned to the company.
SEC Sues Executives for $2.6 Billion (January 10, 2006)
The Securities and Exchange Commission has filed suit against four former executives of National Century Financial Enterprises Inc., including former CEO Lance Poulsen, former COO Donald S. Ayers, former CFO Randolph H. Speer and former director of Accounts Recivables Rebecca S. Parrett. The suit alleges that the executives made advances of at least $1.2 billion of subsidiaries' funds without acquiring eligible receivables in return which allegedly violated numerous agreements with its subsidiaries to maintain certain balances in reserve accounts and to secure the notes.
Additionally, the SEC alleges that the executives transferred funds among subsidiaries' bank accounts in an effort to conceal cash shortfalls of up to $350 million and recorded about $1 billion in fraudulent medical accounts receivable in subsidiaries' financial records. They misrepresented the status of cash accounts and the collateral base by falsifying monthly reports, accounting records and offering documents.
November 2005
Massey Energy Settles Shareholder Lawsuit (November 14, 2005)
Massey Energy Co., the country's fourth larges coal producer, has settled a derivative suit brought by its stockholders. A derivative suit is one brought by shareholders on behalf of the company. The shareholders of Massey Energy sued the company's board of directors and other executives, alleging breach of fiduciary duty, misappropriation of information and corporate waste.
The settlement terms include the proposal by Massey of measures making it easier to amend company by-laws, add directors and lower the mandatory retirement age. Massey and its insurance company also agreed to pay the plaintiff's legal fees, amounting to $2.5 million.
Aircraft Parts Maker Settles Fraud Suit (November 17, 2005)
Paul R. Brilles, Inc., operating as PB Fasteners, was sued in 2001 by two of its former employees who alleged that PB Fasteners failed to perform a specific test on fasteners the company made under a Pentagon contract. The employees allege that PB Fasteners employees falsified paperwork to make it appear that the test had been performed. The fasteners are tested in order to detect gaps and cracks in the metal, flaws which could cause the fasteners to fail. So far none of the fasteners in quesiton have failed while being used in aircraft. PB Fasteners agreed to pay $2.5 milion to resolve the dispute, but did not admit to any wrongdoing.
Former Maryland State Senator Accused of Contract Fraud(November 28, 2005)
Former Maryland Senator Thomas L. Bromwell, Sr. has been indicted on charges of fraud and racketeering in connection with awarding of public contracts. Bromwell's wife, Mary Patricia Bromwell, was also acused of participating in the scheme, as was W. David Stoffregen, the former head of a contracting company.
The charges allege that Bromwell used his political position to help Stoffregen and his company, Poole & Kent, Corp., win a multi-million dollar contract to do work on a University of Maryland Medical System facility. The former senator is accused of intervening on Stoffregen's behalf in disputes with the University. In exchange, Stoffregen provided Bromwell with more than $85,000 in construction work on a new Baltimore residence.
October 2005
Supreme Court Rejects Appeal for Lost Profits for Oil Company (October 11, 2005)
Exxon Mobil and Saudi Basic Industries Corp. (SABIC), two oil companies, entered into a joint venture and formed Yanbu Petrochemical Co. and Exxon Chemical Arabia. Exxon Mobil brought suit against SABIC for allegedly engaging in secret profit markups. A Delaware court awarded Exxon Mobil $92.8 million in damages, representing the amount it was overcharged in the joint venture, and the court awarded an additional $324 million, representing lost profits. SABIC appealed to the high court to challenge the lost profits figure, arguing that the Delaware courts failed to properly consider a statement from the Saudi Arabian government on how its laws should have been interpreted.
Samsung Pays $300 Million Fine for Price Fixing (October 16, 2005)
A Samsung Electronics Co. Ltd. and its U.S. subsidiary, Samsung Semiconductor Inc. pled guilty to a felony price-fixing charge. Samsung will pay a $300 million fine to settle accusations of conspiring to fix prices of memory chips used in electronics such as personal computers, printers, video recorders, and mobile phones between April 1999 and June 2002. Competitors in the industry have paid fines totaling $345 million and have pled guilty to various price fixing schemes. The government said victims of the price-fixing were Dell Inc., Compaq Computer Corp., Hewlett-Packard Co., Apple Computer Inc., International Business Machines Corp., and Gateway Inc.
Investors File Suit After Reincorporation (October 11, 2005)
JInvestors of News Corp., which includes large American, European and Australian pension funds, have filed suit against Rupert Murdoch and a dozen officers and directors alleging fraud, breach of contract, negligent misrepresentation and breach of fiduciary duty. The investors alleged that in conjunction with the company's transcontinental reincorporation in Delaware, Murdoch and the officers and directors of News Corp. promised shareholders that the company would not adopt a poison pill lasting more than one year without express shareholder approval.
However, less than one year after its reincorporation in Delaware, Murdoch and the News Corp. directors unilaterally approved a two-year extension of a temporary "poison pill" provision.
The poison pill limits the amount of stock an investor can acquire in the company without the consent of its board. The investors currently seek a preliminary injunction that would prevent the defendants from extending the poison pill past its November 8 expiration date without shareholder approval.
August 2005
PricewaterhouseCoopers Settles to End Overbilling Suit (August 11, 2005)
Accounting firm PricewaterhouseCoopers LLP settled a lawsuit by the government for $41.9 million. The lawsuit was brought by Neal Roberts, a former partner at the accounting firm on behalf of the government. Roberts alleged that the company consistently overbilled the government for travel expenses by failing to disclose that it had received rebates on its travel expenses from credit card and travel companies, airlines, hotels, and rental car agencies.
Customers Sue Ameritrade for Delaying Trades (August 11, 2005)
A class-action lawsuit filed on behalf of all Ameritrade customers since April 2000 in U.S. District Court alleges that online broker Ameritrade is being accused of costing investors $100 million by delaying orders to buy and sell stock. Ameritrade advertised that the median time to execute all trades from August 2003 to January 2004 was less than three seconds, however, customers alleged that in at least one example, it took more than an hour to execute a trade costing an investor thousands of dollars.
Rubber Chemical Antitrust Investigation Leads to Indictment (August 11, 2005)
Jurgen Ick and Gunter Monn, two former executives at German chemical maker Bayer AG were indicted for their roles in an alleged international, industry price-fixing scheme to drive up the costs of rubber chemicals used to make shoes, tires and other products by suppressing competition. The two men allegedly participated in meetings with other rubber chemical makers where they discussed and agreed on plans to raise product prices in the U.S. and elsewhere. Ick and Monn are among a group of executives from various rubber chemical companies that have been fined. If Ick and Monn are convicted, they could be sentenced up to three years in prison and charged with up to $350,000 in fines each.
Court Temporarily Blocks Mutual Fund Rule (August, 10, 2005)
The U.S. Chamber of Commerce asked a federal appeals court to temporarily block a Securities and Exchange Commission regulation which mandates that the chairman and three out of every four directors of mutual funds be independent, with no connection to company management. The appeals court ordered the SEC to review the rule, to examine the costs that mutual funds would incur to comply with the regulation, and to consider alternatives to the requirement that fund chairmen be independent. The rule was originally intended to protect investors from abuses by mutual funds.
July 2005
Microsoft Settles Suit with IBM (July 1, 2005)
Microsoft Corp. will pay $775 million to settle its antitrust suit with IBM. IBM alleged that certain Microsoft practices affected its OS/2 operating system and SmartSuite products, along with its server and hardware business. Along with other provisions of the settlement, Microsoft has agreed to give $75 million in credit toward the deployment of its software at International Business Machines Corp.
Justice Departments Appeals Tobacco Ruling to Supreme Court (July 18, 2005)
The Justice Department appealed the decision by the U.S. Court of Appeals for the District of Columbia to allow the government to go after only future proceeds resulting from an ongoing tobacco industry conspiracy. The department asked the Supreme Court to consider whether under the civil provisions of the Racketeer Influenced and Corrupt Organizations Act, the government is entitled to obtain past proceeds. The Justice Department brought suit in 1999 against tobacco companies including Altria Group Inc. and Philip Morris USA Inc. and groups such as the Council for Tobacco Research-U.S.A. Inc. and the Tobacco Institute for allegedly intentionally hiding the health dangers of cigarettes. The Supreme Court is expected to decide whether to hear the appeal in the fall, after its new term begins in October.
New York Attorney General Seeks Information from Moody’s Corp (July 28, 2005)
New York Attorney General Eliot Spitzer's office subpoenaed Moody’s Corp in mid-May and again on July 13th seeking documents regarding its ratings on various securities offerings. Specifically, Spitzer's office is looking into securities backed by jumbo mortgages from prime borrowers and other credit enhancement evaluations along with information regarding its ratings of reinsurance companies. Moody's has agreed to cooperate with the investigation.
June 2005
Supreme Court Overturns Arthur Andersen Conviction (May 31, 2005) The Supreme Court overturned the conviction of accounting firm Arthur Andersen. Andersen officials were convicted in June 2002 of obstruction of justice for destroying documents relating to its work for Enron. The Supreme Court Justices ruled that the jury instructions at issue were improperly vague. The case was sent back to the lower federal courts to sort out.
Microsoft Makes Concessions to Comply with Antitrust Rules (June 6, 2005)
In addition to a 624 million dollar fine issued against Microsoft Corp. in March of last year, European Union antitrust regulators asked Microsoft to make changes to its Windows software in order to comply with the Commission’s antitrust rules. Microsoft complied with many of the proposals including implementing a new royalty structure on the licensing of Windows codes, making an interoperable Windows product widely available, and giving rival companies free access to some of its software codes. The Commission is currently testing the changes to determine if compliance to the proposals was met.
Supreme Court Allows Property Seizures for Private Development (June 24, 2005)
The Supreme Court ruled that local governments have the authority to seize private land and turn the land over to private developers. In the past, the government had the authority to condemn land exercising "eminent domain" power for public use such as for the use of eliminating slums and building highways or schools. The Court’s ruling provides that local officials can use their "eminent domain" power to condemn private homes for private development or the purpose of boosting tax revenue.
The decision was made from a Connecticut case where homeowners filed suit to try to keep the municipality from condemning their homes for use as part of a redevelopment project. With a split decision, the Supreme Court found the city could go forward with the project and condemn the homes.
Plaintiff Allegedly Takes Illegal Kickbacks in Filing Corporate Class Actions (June 27, 2005)
Seymour Lazar, a plaintiff in dozens of corporate class actions filed by law firm Milberg Weiss, has been indicted for allegedly taking at least $2.4 million in illegal kickbacks from the law firm. The indictment alleges that Lazar engaged in a scheme in which he or a family member agreed to serve as lead plaintiff for a share of the attorney's fees.
Law firms are prohibited from sharing attorneys’ fees with a client who acted as a named plaintiff, but Milberg Weiss allegedly improperly paid plaintiffs to file lawsuits against publicly traded companies. Federal prosecutors are investigating the law firm for fraud, conspiracy and kickbacks. The law firm has generated about $44 million in legal fees from cases in which Lazar or a family member was a plaintiff.
May 2005
EU Waits for Microsoft to Respond (May 23, 2005)
European Union antitrust regulators fined Microsoft $624 million in March of last year for dominating the software industry and locking out competitors. The European Commission required Microsoft to share under certain conditions its Windows server code with rivals to make the industry more competitive in the European marketplace but Microsoft has reportedly failed to comply with these orders. The Commission has given Microsoft Corporation until the end of May to come up with satisfactory proposals to settle the case or face punitive sanctions. If Microsoft does not respond by the end of May, then the EU has the right to fine Microsoft up to 5 percent of its daily global turnover for each day that a decision is not applied to its satisfaction.
CaliforniaSues Power Providers (May 20, 2005)
California Attorney General Bill Lockyer alleges that power providers PowerEx and Public Service Company conspired to drive up electricity prices during California ’s energy crisis in 2000 and 2001. The suit accuses the power providers of violating state antitrust laws by engaging in activities that limited the supply of electricity and drove up wholesale prices. The state is seeking damages of more than $1 billion.
Supreme Court Holds Ban on Out-of-State Wine Shipments Unconstitutional
(May 18, 2005)
The U.S. Supreme Court ruled that consumers can buy wine directly from out-of-state vineyards. The Court majority stated that state bans, including bans in New York and Michigan , which allow direct shipments for in-state wineries but not for out-of-state wineries, are anti-competitive and inconsistent with the Commerce Clause of the Constitution.
Higgins Files Suit to Bar NYSE-Archipelago Merger (May 9, 2005)
William Higgins, head of a group seeking changes at the NYSE, filed suit against NYSE Chief Executive John Thain, the NYSE Board, and Goldman Sachs Group Inc. to block the merger between the NYSE and all-electronic stock market Archipelago Holdings Inc. Higgins claims that the terms of the merger constitute a breach of fiduciary responsibility and seeks a better deal for New York Stock Exchange owners.
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