Credit Suisse to Pay $400 Million to Settle U.S. Bond Lawsuits

March 15, 2013Email ThisPrintNewslettersTweetArticleCommentsCredit Suisse Group AG has agreed to pay at least $400 million to settle lawsuits by investors over the Swiss bank’s role in raising money for a healthcare financing company that collapsed in a $2.9 billion fraud more than a decade ago.

The settlement averts a trial in Manhattan federal court that had been scheduled to begin in two weeks. It stems from the activities of National Century Financial Enterprises Inc., which filed for bankruptcy protection in November of 2002.

Investors accused Credit Suisse of selling National Century notes and defending their creditworthiness despite knowing that the company misused investor funds, and while missing red flags that National Century co-founder and Chief Executive Lance Poulsen masterminded the fraud.

“This agreement represents a full and final settlement in respect of this noteholder litigation against Credit Suisse,” Credit Suisse said in a statement on Thursday.

Credit Suisse will pay $400 million to a group of plaintiffs that includes the state of Arizona, AllianceBernstein Holding LP and Allianz SE’s Pimco unit, the plaintiffs’ lawyer, Kathy Patrick of Gibbs & Bruns, said in a phone interview.

Investors who brought the lawsuits had bought National Century notes from 1998 to 2002.

In addition to the $400 million accord with Gibbs & Bruns’ clients, Credit Suisse has also agreed to separate settlements with Lloyds TSB Bank Plc and MetLife Inc.

Lloyds TSB spokesman Ed Petter confirmed the settlement but said its terms were confidential. MetLife spokesman Christopher Breslin said his company reached an “amicable resolution” to the case, addling it was glad “to put this issue to rest.”

Credit Suisse said the settlement will reduce its previously reported fourth-quarter net profit by 134 million Swiss francs ($141 million), to 263 million Swiss francs from 397 million.

National Century had helped finance clinics and hospitals, and bought accounts receivable with money it got through the sale of notes, including notes that Credit Suisse helped sell.

But the U.S. Department of Justice said the Dublin, Ohio-based company misused investor money, funneled corporate funds to top executives, and lied to investors to hide its fraud.

Poulsen is serving a 30-year prison term following his 2008 conviction for fraud, conspiracy and money laundering. Several other former National Century executives were also convicted of crimes.

Jury selection in the investor suit had been scheduled to begin on March 28.

Credit Suisse in January lost its bid to be tried separately from Poulsen, who is considered insolvent.

Noteholders had previously reached other settlements over the collapse, including a 2006 accord with JPMorgan Chase & Co .

“We have recovered $1 billion of losses for our clients, when prior settlements are taken into account,” Patrick said. “This represents nearly 80 cents on the dollar.”

The cases, all in the U.S. District Court, Southern District of New York, are Crown Cork & Seal Co et al v. Credit Suisse First Boston Corp et al, No. 12-05803; Arizona v. Credit Suisse First Boston Corp et al, No. 12-05804; City of Chandler et al v. Bank One NA et al, No. 12-05805; Lloyds TSB Bank Plc v. Bank One NA et al, No. 12-07263; and Metropolitan Life Insurance Co et al v. Bank One et al, No. 12-07264.

 

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Missouri House Panel Mulls Bill on Work Discrimination Lawsuits

February 13, 2013Email ThisPrintNewslettersTweetArticleComments

Republicans are hoping the third time is a charm for a measure a Missouri House committee considered that would make it harder for employees to win lawsuits alleging workplace discrimination.

Democratic Gov. Jay Nixon has vetoed similar legislation each of the last two years. But with a veto-proof Republican majority in both legislative chambers, the bill could have a different fate this year.

The measure sponsored by Rep. Kevin Elmer would require workers who file suit over an employer’s action to prove that discrimination was a

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Lawsuits Cast Darker Shadow Over Banks Than Libor Fines

December 21, 2012Email ThisPrintNewslettersTweetArticle1 CommentsWhile banks appear to be brushing off record fines for rigging interbank interest rates, investors are starting to worry about a rising tide of civil lawsuits from disgruntled customers.

UBS shares touched 18 month highs after U.S., Swiss and British regulators on Wednesday fined the bank a near record $1.5 billion for fiddling interest rates, the second regulatory fine for manipulating the London interbank offered rate (Libor) and its euro equivalent Euribor.

But the “big unknown” cost of repairing the damage caused by the fixing of rates used as a benchmark for pricing trillions of dollars worth of financial contracts is civil litigation, said Paras Anand, European equities head at Fidelity Worldwide Investment.

“That is one thing at the back of our minds that we have to be cognisant of,” Anand said. Fidelity Worldwide holds around 1.2 percent of UBS stock.

An early indication of the possible cost to the banking industry came hours after UBS was fined when the U.S. federal watchdog estimated mortgage lenders Fannie Mae and Freddie Mac, which had to be bailed out during the 2007/08 financial crisis, could have lost more than $3 billion as a result of Libor manipulation.

The watchdog urged the regulator to consider whether the losses warranted a lawsuit against the banks that set Libor.

Since June, when the first fine for manipulation was levied on Britain’s Barclays, there have been a series of U.S. Libor-related claims.

Claims have come from large investors, local governments like the city of Baltimore, home owners claiming rate rigging made their mortgages more expensive, and small U.S. banks that have filed lawsuits accusing their big cousins of collusion.

In August, New York lawyer Brian Murray filed a lawsuit on behalf of investors in Alaska – as well as investors in Wyoming, North Dakota and about 20 other states – accusing banks of rigging Libor.

In Britain, the Financial Services Authority (FSA) has said Libor fiddling could have caused “serious harm” to other market participants. Lawyers, who are starting to circulate guides to Libor litigation, say potential claims are trickling in.

“I think there are going to be a large number of claims – and, more importantly, a small number of those will be incredibly high-value claims,” said Ali Akram, senior lawyer at UK firm Lex Law.

Long Road

The manipulation of Libor casts doubt on every contract that has used it as a reference point, including commercial borrowers with loans linked to Libor, parties to interest rate derivatives such as swaps, investors holding portfolios of floating rate securities, guarantors of borrowing linked to Libor and savers being paid a rate of interest referencing Libor.

There are also potential claims by shareholders for any falls in stock prices as the scandal escalates.

Lawyers believe Libor manipulation has caused extensive losses to investors and borrowers worldwide. The scale of payouts could run into tens of billions of dollars, analysts estimate.

But as Libor rates are calculated by averaging out bank submissions and stripping out the highest and lowers outliers, calculating losses and proving individual bank conduct caused a loss can be complex.

“We’re at the beginning of a long road,” said Stephen Rosen, a lawyer for UK firm Collyer Bristow, which has a handful of clients eyeing Libor-related claims.

To date, just one case has been brought in Britain against Barclays by Guardian Care Homes, a residential care home operator. It is suing for up to 37 million pounds ($60 million) over the alleged mis-selling of interest rate hedging products that were based on Libor rates.

Economic Spillover

But the scandal is escalating.

Britain’s RBS is also expecting to be fined by next February, while more than a dozen banks such as Deutsche Bank , Citigroup, J.P. Morgan and HSBC remain under the spotlight as authorities in Europe, Japan and North America probe the Libor scandal.

Barclays, Citi, J.P. Morgan, Deutsche Bank, HSBC, Lloyds, Rabobank and RBS have all said in previous releases that they are subject to civil or private lawsuits filed in the United States over Libor.

Barclays said the first class action lawsuit filed was in April 2011, and the complaints are similar and seek an unspecified amount of damages.

Regulators and politicians are mindful of the impact of lawsuits on economic recovery and stability, some experts say, coming on top of the fines. While UBS was fined three times more than Barclays, fears of spiralling settlements could be overdone as authorities seek to balance the fallout.

“There will be a round of going through pain before politicians get scared and step in … At some time politicians and regulators will wake up and see that it will hit the economy,” said Chirantan Barua, a senior banks analyst at Bernstein Research.

Baruna estimated about 15-20 banks could be implicated in the Libor manipulation once global investigations are completed, which could give claimants plenty of fodder for lawsuits.

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Facebook IPO Lawsuits to Be Heard in Court in New York

October 5, 2012Email ThisPrintNewslettersTweetArticleCommentsDozens of lawsuits against Facebook Inc., the NASDAQ exchange and various underwriters will be centralized before a federal judge in New York, who must sort through the legal aftermath of Facebook’s botched initial public offering.

A panel of federal judges on Thursday ordered that cases filed around the United States be transferred to U.S. District Judge Robert Sweet in Manhattan. Facebook had requested the transfer, while some investors sought to keep their cases in California.

While some of the cases concern different defendants and claims, “they do involve enough common questions of fact, related circumstances and common discovery to warrant centralization,” the panel said.

Facebook said in a statement that it was pleased with the ruling, and that it would “vigorously” defend itself. An attorney for some of the California plaintiffs declined to comment, while a NASDAQ representative did not immediately respond to a request for comment.

Investors say they lost money due to technical glitches on the Nasdaq stock market and accuse the company of selectively disclosing unflattering information about its business prospects to Wall Street analysts who then shared it with privileged investors.

The lawsuits, which are seeking unspecified damages, could cost Facebook millions of dollars to defend as it strives to put the IPO behind it.

Facebook’s stock tumbled as much as 50 percent after its debut at $38 per share. It closed at $21.95 on Thursday.

In at least 33 lawsuits seeking class action status, investors have asked courts to hold the company and its underwriters responsible for causing their losses.

Facebook has said that it did not violate any rules and that NASDAQ was to blame for trading glitches on the day of the offering.

Grouping cases together keeps similar lawsuits from proceeding at the same time in different courts.

Lawsuits against NASDAQ OMX Group Inc., which accuse the exchange of being negligent in failing to execute trades in the face of record-breaking volume during the IPO, will also be in front of Sweet.

But the exchange has already asked that their cases proceed on a separate track from the Facebook lawsuits.

The case is In Re: Facebook Inc, IPO Securities and Derivative Litigation, U.S. Judicial Panel on Multidistrict Litigation, No. 12-md-2389.

 

 

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Facebook IPO Lawsuits Likely to Be Heard by New York Judge

September 21, 2012Email ThisPrintNewslettersTweetArticleCommentsFacebook Inc. and most of its adversaries in a raft of lawsuits over its $16 billion initial public offering can agree on at least one thing: that the cases should be heard in a New York court.

At a hearing on Thursday, lawyers for both sides asked a judicial panel to pool together dozens of lawsuits against the social networking company in Manhattan federal court. The panel made no immediate ruling, but did not question the idea of grouping the cases in New York.

In at least 33 lawsuits seeking class-action status, Facebook investors have asked courts to hold the company and its underwriters responsible for causing them losses in the IPO in May. Investors say they lost money due to technical glitches on the Nasdaq stock market and accuse the company of selectively disclosing unflattering information about its business prospects to Wall Street analysts who then shared it with privileged investors.

Facebook’s IPO was one of the most hotly anticipated in recent memory, but the technical malfunctions embarrassed the company and the NASDAQ. The lawsuits, which seek unspecified damages, could cost Facebook millions of dollars to defend, as it strives to put the IPO problems behind it.

While lawsuits have been also been filed in California, Florida and Washington, D.C., most plaintiffs and the defendants say the cases should proceed in New York because witnesses, evidence relating to the IPO, and the underwriter banks are all in that city.

“We’re glad to be in New York and we’d like to stay here,” Andrew Clubok, a lawyer for Facebook, told the Judicial Panel on Multidistrict Litigation at the hearing in Manhattan federal court.

The only lawyer to speak against consolidation of the cases represented plaintiffs in two “derivative” lawsuits currently before a federal judge in San Francisco. Those suits seek to hold Facebook’s board and Chief Executive Mark Zuckerberg responsible for damage they claim was done to the company.

The derivatives plaintiffs say the litigation should take place in California state court, near Facebook’s headquarters, for easy access to witnesses and documents.

The 11-judge multidistrict panel, which meets periodically to decide where wide-ranging litigation should be consolidated, is expected to issue a decision within weeks. Seven judges were present for Thursday’s hearing.

Most of the cases are in New York already, and have been added to the docket of Manhattan federal judge Robert Sweet ever since he was randomly assigned the first complaint.

“There may be a good chance that Judge Sweet could get this case,” panel Judge Paul Barbadoro of New Hampshire said, prompting laughs from the crowded courtroom.

Facebook has said that it did not violate any rules and that Nasdaq was to blame for trading glitches on its first day of trading.

NASDAQ OMX Group Inc. is also facing investor lawsuits that claim it was negligent in failing to execute trades in the face of record-breaking volume during the IPO.

William Slaughter, an attorney for NASDAQ, told the judges on Thursday that the exchange agreed those cases should also be before Judge Sweet, but that they should proceed on a separate track from the Facebook lawsuits.

“The two sets of actions … really don’t have much in common,” he said.

The case is In Re: Facebook Inc., IPO Securities and Derivative Litigation, U.S. Judicial Panel on Multidistrict Litigation, No. 12-md-2389.

 

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