April 26, 2024

You are here: Home / Archives for federal district court

S.E.C to Appeal Rejection of Citigroup Settlement

December 15, 2011 by Leave a Comment

In a filing in Federal District Court in New York, the commission said it would ask the United States Court of Appeals for the Second Circuit to overturn a decision by Judge Jed S. Rakoff. In the decision, the judge rejected an agreement for Citigroup to pay $285 million and accept an injunction against future violations of the antifraud clauses of federal securities laws.

Judge Rakoff ruled in November that the proposed settlement was “neither fair, nor reasonable, nor adequate, nor in the public interest,” in part because Citigroup was allowed to neither admit nor deny the charges. Judge Rakoff said that without an admission or evidence that Citigroup had violated the law, he had no way to determine whether the settlement was adequate.

The appeal carries significant risk for the S.E.C. because if the ruling were upheld by the appeals court, it would set a precedent that would be likely to influence judges hearing similar cases.

The Second Circuit court, located in New York, hears many cases involving financial issues and securities laws. While its decisions are not binding on other circuits, they often influence judges around the country, securities law experts say.

Citigroup was charged by the S.E.C. with fraud for selling a $1 billion fund in 2006 and 2007 that invested in mortgage-related securities without telling investors that the bank was betting against many of the securities in the portfolio.

Judge Rakoff ordered the S.E.C. and Citigroup to prepare for a trial to begin in July.

At the time of Judge Rakoff’s decision, Robert Khuzami, the S.E.C.’s director of enforcement, said that the Citigroup settlement “reasonably reflects the scope of relief that would be obtained after a successful trial,” and that the judge’s decision “ignores decades of established practice throughout federal agencies and decisions of the federal courts.”

The S.E.C. has long contended that it must settle most cases rather than take them to trial because its limited resources cannot afford much litigation. In addition, the commission says it frequently achieves in its settlements much the same result that it could hope to obtain in court, without enduring the expense of a trial.

Article source: http://feeds.nytimes.com/click.phdo?i=8a9065493986b0e15b5bed6afcf8b785

Filed Under: Business News Tagged With: , ,

DealBook: Manager Who Claimed to Own Facebook Shares Charged With Fraud

November 18, 2011 by Leave a Comment

John A. Mattera was arrested in Florida on Thursday.Palm Beach County JailJohn A. Mattera was arrested in Florida on Thursday.

It may be the new, new thing in fraud.

John A. Mattera, 50, a Florida-based investment manager, was arrested Thursday on charges of running an $11 million, two-year fraud that falsely promised investors access to coveted shares of Groupon, Facebook and other private companies.

Mr. Mattera, the head of the Praetorian Global Fund, claimed to own more than a million shares each of Facebook and Groupon, according to a complaint filed in Federal District Court in Manhattan. He represented to investors that those holdings, bought on the private markets, would surge in value after the companies went public, the complaint said. Prosecutors allege the fund didn’t have such investments.

Instead, Mr. Mattera used millions of dollars of investor money to finance his lavish lifestyle, the complaint alleges. Among Mr. Mattera’s expenses: more than $245,000 for home furnishings and interior design services, more than $11,000 for tailored clothing and more than $17,000 for “boat-related expenses.”

Prosecutors have charged Mr. Mattera with one count of conspiracy to commit securities fraud and wire fraud, one count of securities fraud, one count of wire fraud and one count of money laundering. The Securities and Exchange Commission is also taking civil action against Mr. Mattera.

“As alleged, John Mattera duped investors into believing they had bought rights to shares of coveted stock in Facebook and other highly visible and attractive companies which had not yet gone public,” Preet S. Bharara, the United States attorney in Manhattan, said in a statement. “With today’s charges, his charade is exposed and he will be held to account for his alleged crimes.”

Carl F. Schoeppl, Mr. Mattera’s lawyer in the criminal case, declined to comment.

The charges against Mr. Mattera come as investors clamor for shares of newly public Internet companies, a frenzy that echoes the early days of the last dot-com boom in the 1990s. Getting into a company early can be lucrative. Groupon, the daily deals site, jumped more than 30 percent on its first day of trading.

To attract clients, Mr. Mattera allegedly enlisted the help of Joseph Almazon, an unregistered broker with Spartan Capital Partners on Long Island, who solicited investments for Mr. Mattera’s Praetorian funds using LinkedIn advertisements that offered customers “the opportunity to buy pre-I.P.O. shares” in Facebook, Groupon, Twitter, Zynga and other companies. Mr. Almazon promised that “unlike most of the other investment banking firms, we let you sell your shares right at the open” — referring to the first day the company goes public, according to the civil action.

After investors signed up, their money was transferred to an escrow service headed by John R. Arnold. Mr. Arnold, in turn, passed the money along to himself and to Mr. Mattera, as well as to accounts registered to Mr. Mattera’s mother and wife, the complaint said.

Mr. Mattera is no stranger to the law. In 2009, he was accused by the Securities and Exchange Commission of evading registration requirements by backdating certain promissory notes. He paid a penalty of $140,000 and was barred from trading penny stocks, shares of smaller public companies that are worth less than $1 apiece.

Three of the current criminal charges against Mr. Mattera, who was arrested at his home in Fort Lauderdale, Fla., on Thursday, carry a maximum sentence of 20 years in prison each. He faces a maximum sentence of five years on the conspiracy charge.

Mr. Mattera and his associates “exploited investors’ desire to get an inside track on a wave of hyped future I.P.O.s,” George S. Canellos, the S.E.C.’s New York regional director, said in a statement. “Even as investors believed their funds were sitting safely in escrow accounts, Mattera plundered those accounts to bankroll a lifestyle of private jets, luxury cars, and fine art.”

Article source: http://feeds.nytimes.com/click.phdo?i=4783a7d474e06210e2c822368f56052a

Filed Under: Business News Tagged With: , ,

DealBook: Rajaratnam Ordered to Pay $92.8 Million Penalty

November 9, 2011 by Leave a Comment

Judge Jed. S. Rakoff of Federal District Court in Manhattan.Fred R. Conrad/The New York TimesJudge Jed. S. Rakoff of Federal District Court in Manhattan.

A federal judge on Tuesday ordered the convicted hedge fund titan Raj Rajaratnam to pay a $92.8 million penalty, the largest ever assessed against a person in a Securities and Exchange Commission insider trading case.

Combined with the fines and forfeitures ordered last month when he was sentenced to 11 years in prison for insider trading, Mr. Rajaratnam will be paying a total of $156.6 million.

“The penalty imposed today reflects the historic proportions of Raj Rajaratnam’s illegal conduct and its impact on the integrity of our markets,” said Robert S. Khuzami, the S.E.C.’s head of enforcement.

Legal experts say the S.E.C. fine against Mr. Rajaratnam is noteworthy because in many cases judges will not impose such substantial civil penalties against a defendant who has already been sentenced and ordered to pay stiff criminal fines.

Mr. Rajaratnam’s lawyers argued that given the financial penalties imposed in the criminal case — a $10 million fine and $53.8 million in forfeited profits — additional civil penalties were unwarranted.

Judge Jed S. Rakoff, the presiding judge in the S.E.C.’s case against Mr. Rajaratnam, rejected that notion.

“This misapprehends both the nature of this parallel proceeding and the purposes of civil penalties,” Judge Rakoff said in his order. “S.E.C. civil penalties, most especially in a case involving such lucrative misconduct as insider trading, are designed, most importantly, to make such unlawful trading a money-losing proposition not just for this defendant, but for all who would consider it.” He added that it was a warning that, if caught, “you are going to pay severely in monetary terms.”

Judge Rakoff arrived at the $92.8 million figure by imposing the maximum penalty under the law of three times Mr. Rajaratnam’s illegal gains at his hedge fund, the Galleon Group.

“This case cries out for the kind of civil penalty that will deprive this defendant of a material part of his fortune,” he said.

The S.E.C. brought a parallel civil lawsuit against Mr. Rajaratnam in the Federal District Court in Manhattan on the same day in October 2009 that the Justice Department charged him with orchestrating a giant insider trading scheme. At the time, Mr. Rajaratnam was one of the most powerful hedge fund managers; Forbes magazine estimated his net worth at $1.5 billion.

It is unclear how much money Mr. Rajaratnam has left. Judge Rakoff said that he reviewed the government’s presentence report, which is not public, and said that Mr. Rajaratnam’s net worth “considerably exceeds” the penalties imposed in the criminal case. A federal jury in Manhattan convicted Mr. Rajaratnam in May.

Mr. Rajaratnam’s total fines and forfeiture paid to the government are among the largest ever paid by an individual white-collar defendant. Still, it pales in comparison to Michael Milken, the 1980s junk bond financier, who paid $600 million in fines and restitution along with his guilty plea on securities law violations. Jeffrey K. Skilling, the former chief executive of Enron, was ordered to forfeit $60 million for his role at the collapsed energy company, an amount that is still subject to his legal appeals.

Separately on Monday, in a hearing before Judge Rakoff, the S.E.C. said it wanted to question “one or both” of Mr. Rajaratnam’s brothers in an insider trading case against Rajat K. Gupta, a former Goldman Sachs director who was indicted last month on charges that he passed illegal stock tips to Mr. Rajaratnam.

One brother, Rengan Rajaratnam, has been named an unindicted co-conspirator of Mr. Rajaratnam. The other brother, Ragakanthan, who goes by R.K., kept an office at Galleon. Neither has been charged with any crimes.

Judge Rakoff’s ruling in S.E.C. v. Raj Rajaratnam

Article source: http://feeds.nytimes.com/click.phdo?i=0ce4ca85ac316444cff82bef536957dc

Filed Under: Business News Tagged With: , ,

In S.E.C. Fraud Cases, Banks Make Promises Again and Again

November 8, 2011 by Leave a Comment

To an outsider, the vow may seem unusual. Citigroup, after all, was merely promising not to do something that the law already forbids. But that is the way the commission usually does business. It also was not the first time the firm was making that promise.

Citigroup’s main brokerage subsidiary, its predecessors or its parent company agreed not to violate the very same antifraud statute in July 2010. And in May 2006. Also as far as back as March 2005 and April 2000.

Citigroup has a lot of company in this regard  on Wall Street. According to a New York Times analysis, nearly all of the biggest financial companies — Goldman Sachs, Morgan Stanley, JP Morgan Chase and Bank of America among them — have settled fraud cases by promising that they would never again violate an antifraud law, only to have the S.E.C. conclude they did it again a few years later.

A Times analysis of enforcement actions during the past 15 years found at least 51 cases in which the S.E.C. concluded that Wall Street firms had broken anti-fraud laws they had agreed never to breach. The 51 cases spanned 19 different firms.

On Wednesday, Judge Jed S. Rakoff of the Federal District Court in Manhattan, an S.E.C. critic, is scheduled to review the Citigroup settlement. Judge Rakoff has asked the agency what it does to ensure companies do not repeat the same offense, and whether it has ever brought contempt charges for chronic violators. The S.E.C. said in a court filing Monday that it had not brought any contempt charges against large financial firms in the last 10 years.

Since the financial crisis, the S.E.C. has been criticized for missing warning signs that could have softened the blow. The pattern of repeated accusations of securities law violations adds another layer of concerns about enforcing the law. Not only does the S.E.C. fail to catch many instances of wrongdoing, which may be unavoidable, given its resources, but when it is on the case, financial firms often pay a relatively small price.

Senator Carl Levin, a Michigan Democrat who is chairman of the Senate permanent subcommittee on investigations and has led several inquiries into Wall Street, said the S.E.C.’s method of settling fraud cases, is “a symbol of weak enforcement. It doesn’t do much in the way of deterrence, and it doesn’t do much in the way of punishment, I don’t think.”

Barbara Roper, director of investor protection for the Consumer Federation of America, said, “You can look at the record and see that it clearly suggests this is not deterring repeat offenses. You have to at least raise the question if other alternatives might be more effective.”

S.E.C. officials say they allow these kinds of settlements because it is far less costly than taking deep-pocketed Wall Street firms to court and risking losing the case. By law, the commission can bring only civil cases. It has to turn to the Justice Department for criminal prosecutions.

Robert Khuzami, the S.E.C.’s enforcement director, said never-do-it again promises were a deterrent especially when there were repeated problems. In their private discussions, commissioners weigh a firm’s history with the S.E.C. before they settle on the amount of fines and penalties. “It’s a thumb on the scale,” Mr. Khuzami said. “No one here is disregarding the fact that there were prior violations or prior misconduct,” he said.

But prior violations are plentiful. For example, Bank of America’s securities unit has agreed four times since 2005 not to violate a major antifraud statute, and another four times not to violate a separate law. Merrill Lynch, which Bank of America acquired in 2008, has separately agreed not to violate the same two statutes seven times since 1999.

Article source: http://feeds.nytimes.com/click.phdo?i=e2600bad3cee49ab54e3403005e529cb

Filed Under: Business News Tagged With: , ,

Bucks Blog: F.T.C. Claims Abusive Tactics by Two Debt Collection Firms

October 27, 2011 by Leave a Comment

In tough economic times, with many people out of work and struggling to pay their bills, it’s no surprise that debt collectors are out in force. But recently, the Federal Trade Commission moved to shut down two California-based operators that handled collections nationally, including one that is accused of using tactics so egregious that they resemble scenes from a film noir script.

The first case involves a company operating from Van Nuys, Calif., under various names, including Forensic Case Management Services and Rumson, Bolling Associates, which hired itself out to small businesses on a contingency basis. In other words, it charged no fee unless it was successful in collecting on a debt. (Its slogan was “no recovery, no fee.”)

The F.T.C.’s complaint, filed in Federal District Court for the Central District of California in Los Angeles, charges the company with violations of the F.T.C. Act and the Fair Debt Collection Practices Act, which outline what firms can and cannot do to collect a debt. (Harassment and threats of physical harm, as you might expect, are not allowed.) You can read about the rules here.

When the company’s collectors got a consumer on the phone, the commission claims, representatives used abusive language — most of which can’t be published here — to bully people into making a payment. (The least crude of the terms included “deadbeat,” “lowlife” and “piece of crap.”) The company also divulged some people’s debts to neighbors and co-workers.

The commission’s complaint offers two jaw-dropping examples. In one, the callers attempted to collect from a woman who was unable to pay the balance due for her daughter’s funeral. “During the calls, Rumson, Bolling Associates told her they were going to dig her daughter up and hang her from a tree if she did not pay the debt,” the complaint says. Callers also threatened to eat her dog and even to kill her if she didn’t pay, the complaint says.

Another instance involved a woman who had fallen behind on her payments to a funeral home, after both of her sons died within a week of each other. The callers “asked how she would feel if her son’s body was dug up and dropped outside her door,” the complaint states.

In some cases, the consumers were terrified enough to turn over some cash. But even then, the company “in many cases” didn’t send the money along to its clients, “instead keeping the proceeds from the collection efforts for themselves.”

On Sept. 27, the court granted the F.T.C.’s request to stop the company’s operations and continue a freeze on its assets. The court also appointed a receiver to oversee the company while the agency pursued the case.

Christopher Pitet, a lawyer for the defendants, said they disputed the claims. “This was a business committed to running lawfully,” he said. “If there were violations of the act, it was by employees not acting in accordance with company policy.”

In the second case, also filed with the Federal District Court for the Central Division of California, the F.T.C. claims that collectors with seven related companies operating out of Corona, Calif., including Rincon Management Services, used “bogus threats” of lawsuits to intimidate consumers into paying debts that they often did not even owe.

The callers posed as lawyers or process servers, the complaint says, and sometimes called the consumer’s employer or family in an attempt to trick them into thinking they, too, could face legal action if they did not help the collector obtain payment.

The company gave employees scripts, in both English and Spanish, that included tips like “contact relatives instead of the debtor on the initial call to create urgency,” the complaint says.

On Oct. 11, the court granted the commission’s request for a temporary restraining order against Rincon, which halted its operations, froze its assets and appointed a receiver to run the business while the agency pursued the case.

Calls to phone numbers listed for Rincon were not immediately returned.

Have you had an unpleasant experience with a debt collector?

Article source: http://feeds.nytimes.com/click.phdo?i=613d1ff0982a99822fd1d95c1917bd4f

Filed Under: Your Money Tagged With: , ,

DealBook: Bank of America Faces a $50 Billion Shareholder Lawsuit

September 28, 2011 by Leave a Comment

Harry Campbell

Bank of America’s potential liability for bad mortgages — in the tens of billions of dollars — is well known. But Bank of America is haunted by other demons from the financial crisis, the most significant one being a lawsuit arising from its troubled Merrill Lynch acquisition.

This lawsuit, brought by Bank of America shareholders, claims that Bank of America and its executives, including its former chief executive, Kenneth D. Lewis, failed to disclose what would be a $15.31 billion loss at Merrill in the days before and after the acquisition. The plaintiffs contend that this staggering loss was hidden to ensure that Bank of America shareholders did not vote against the transaction.

Deal Professor
View all posts

Bank of America disclosed this loss after Merrill was acquired. At the same time, Bank of America also disclosed a $20 billion bailout by the government. The bank’s stock fell by more than 60 percent in a two-week period, a market value loss of more than $50 billion.

This episode also spawned a lawsuit from the Securities and Exchange Commission that Bank of America, Mr. Lewis and Joseph Price, the former chief financial officer, settled for $150 million. Judge Jed S. Rakoff of the Federal District Court in Manhattan approved the deal but complained that it didn’t sufficiently penalize the individuals involved. The amount was paid by Bank of America with no liability for Mr. Lewis or Mr. Price. Judge Rakoff called the settlement “half-baked justice at best.”

Judge Rakoff may see his wish for greater penalties granted. The New York attorney general’s office has a lawsuit on the matter.

More significantly, a lawsuit seeking about $50 billion was brought by some of the largest class-action law firms and is quietly advancing in the Federal District Court in Manhattan.

The plaintiffs contend that Bank of America engaged in a deliberate effort to deceive the bank’s shareholders.

According to the plaintiffs, who include the Ohio Public Employees Retirement System and a Netherlands pension plan that is the second-largest in Europe, Bank of America’s senior management, including Mr. Lewis and Mr. Price, began to learn of large losses at Merrill Lynch in early November 2008, months before the deal closed.

Mr. Price met with the bank’s general counsel, Timothy J. Mayopoulos, to discuss whether to disclose the loss — at the time about $5 billion — to Bank of America shareholders. Mr. Mayopoulos testified to the New York attorney general’s office that while his initial reaction was that disclosure was warranted, he decided against it. Merrill had been losing $2.1 billion to $9.8 billion a quarter during the financial crisis, and so this loss would be expected by Merrill and Bank of America shareholders.

Plaintiffs in the private action and the New York attorney general’s complaint claim that after this meeting, Mr. Price and other senior executives at Bank of America sought to keep this loss quiet and that Mr. Price in particular misled Mr. Mayopoulos.

Mr. Mayopoulos has testified that on Dec. 3, 2008, Mr. Price told him that the estimated loss would be $7 billion.

Mr. Mayopoulos concluded again that no disclosure was necessary. Plaintiffs contend that Mr. Price misled Mr. Mayopoulos as the forecasted loss at this time had now grown to more than $10 billion.

The Bank of America vote occurred on Dec. 5 without its shareholders knowing about this gigantic looming Merrill loss, which was now about $11 billion.

Mr. Mayopoulos has testified he was surprised at this higher number when he learned of it at a Dec. 9 board meeting. Mr. Mayopoulos sought to meet with Mr. Price about the new loss. The next day, Mr. Mayopoulos was fired and escorted out of the building.

The Merrill acquisition was completed on Jan. 1, 2009.

Two weeks later, Bank of America disclosed for the first time that Merrill had suffered an after-tax net loss of $15.31 billion.

Bank of America has argued in its defense that the exact amount of the loss was uncertain during this time. Moreover, this disclosure was not necessary because Merrill’s losses were within the range of previous losses and included a good will write-off of about $2 billion that was previously disclosed. The total loss was not material.

But if it is true that Mr. Price, with Mr. Lewis’s assent, kept this information from Mr. Mayopoulos in order to avoid disclosure, this is a prima facie case of securities fraud. Would Bank of America shareholders have voted to approve this transaction? If the answer is no, then it is hard to see this as anything other than material information.

Plaintiffs in this private case have the additional benefit that this claim is related to a shareholder vote. It is easier to prove securities fraud related to a shareholder vote than more typical securities fraud claims like accounting fraud. Shareholder vote claims do not require that the plaintiffs prove that the person committing securities fraud did so with awareness that the statement was wrong or otherwise recklessly made. You only need to show that the person should have acted with care.

This case is not only easier to establish, but the potential damages could also be enormous. Damages in a claim like this are calculated by looking at the amount lost as a result of the securities fraud. A court will most likely calculate this by referencing the amount that Bank of America stock dropped after the loss was announced; this is as much as $50 billion. It is a plaintiff’s lawyer’s dream.

Bank of America is facing a huge liability from this claim. It is also facing even more liability for those who bought and sold stock during this period up until Jan. 15. In a ruling on July 29, the judge in this case allowed these claims to proceed against Bank of America, Mr. Price and Mr. Lewis. The judge had already ruled that the disclosure claim related to the proxy vote could proceed.

This case is on a relatively fast track, with an October 2012 trial date.

Given the $50 billion claim looming over it, Bank of America will most likely try to settle this litigation. The settlement value appears to be in the billions. Firing your main witness — Mr. Mayopoulos — and escorting him out the door no doubt only increases the cost.

The case shows how regulators’ actions can be supplemented by private actions. And if the plaintiffs win, this case may be the exceedingly rare event of directors and officers, particularly Mr. Lewis and Mr. Price, actually having to pay money personally to settle a securities fraud claim. If so, the two men would join the relatively few executives from the financial crisis who have been personally penalized.

Whatever the outcome of this case, it appears that Bank of America shareholders were sacrificed in December 2008 so that the Merrill deal could be completed. The bill may now be coming due for Bank of America.

Steven M. Davidoff, writing as The Deal Professor, is a commentator for DealBook on the world of mergers and acquisitions.

Article source: http://feeds.nytimes.com/click.phdo?i=24a0f719c712e1b74f9b71ecc8497ba6

Filed Under: Business News Tagged With: , ,

DealBook: Guilty Plea Expected in Hedge Fund Case

May 27, 2011 by Leave a Comment

11:46 a.m. | Updated
Samir Barai, a former Citigroup executive who ran Barai Capital Management, is expected to plead guilty on Friday afternoon to insider trading before a magistrate at the Federal District Court in Manhattan, a person briefed on the matter told DealBook.

The government charged Mr. Barai in February with swapping illegal stock tips with two portfolio managers at SAC Capital, the hedge fund run by the billionaire investor Steven A. Cohen. The two SAC managers, Noah Freeman and Donald Longueuil, have already pleaded guilty. A fourth person, Jason Pflaum, an employee of Mr. Barai’s, has also pleaded guilty.

When Mr. Longueuil pleaded guilty last month, he said that he had bought shares in Marvell Technology Group after receiving a tip about the chipmaker’s financial information from Mr. Barai.

Evan Barr, a lawyer for Mr. Barai, declined to comment. A spokeswoman for the United States attorney in Manhattan declined to comment.

The case is connected to the government’s investigation of expert-network firms that facilitate meetings between money managers and industry experts, including employees of public companies. A number of consultants at Primary Global Research, an expert-network firm at the center of the government’s investigation, have already pleaded guilty to providing traders with confidential information about publicly traded companies.

“Given the scope of the allegations to date, we are not talking simply about the occasional corrupt individual,” said Preet Bharara, the United States attorney in Manhattan, at an earlier news conference discussing expert-network firms. “We are talking about something verging on a corrupt business model.”

Mr. Barai, 39, was a former client of Primary Global. He has been cooperating with federal prosecutors and providing them with information about his illegal trading, according to court filings. The government has charged him with trading on secret corporate information provided to him by Winifred Jiau, a consultant at Primary Global.

Ms. Jiau, who has pleaded not guilty, is scheduled to go to trial on Wednesday.

Also Friday, Sonny Nguyen, a former employee at Nvidia, a graphics chipmaker, is expected to plead guilty to providing Ms. Jiau with confidential information about his company. He is expected to testify at Ms. Jiau’s trial.

Mr. Nguyen’s lawyer could not immediately be identified.

“Nvidia placed Mr. Nguyen on administrative leave immediately upon our being informed of his intent to plead guilty, and he has now resigned,” said the company in a statement provided to DealBook. “This was a clear violation of law and our company policies. We continue to cooperate fully with the New York U.S. attorney’s office and the F.B.I.”

Article source: http://feeds.nytimes.com/click.phdo?i=68d44187a992553cbc84f1c3ccf9f7ff

Filed Under: Business News Tagged With: , ,

On Tyson’s Face, It’s Art. On Film, a Legal Issue.

May 21, 2011 by Leave a Comment

In “The Hangover Part II,” the sequel to the very successful what-happened-last-night comedy, the character played by Ed Helms wakes up with a permanent tattoo bracketing his left eye. The Maori-inspired design is instantly recognizable as the one sported by the boxer Mike Tyson, which is part of the joke. (Mr. Tyson makes an appearance in both films, playing himself.)

But S. Victor Whitmill, a tattoo artist formerly of Las Vegas and currently from rural Missouri, doesn’t quite see the humor. Mr. Whitmill designed the tattoo for Mr. Tyson, called it “tribal tattoo,” and claims it as a copyrighted work.

He has gone to Federal District Court in St. Louis to ask a judge to stop Warner Brothers Entertainment from using the tattoo in its posters or in the movie, which would amount to stopping the film from being released, as well as to demand monetary damages for what he calls “reckless copyright infringement” by the studio.

“Mr. Whitmill has never been asked for permission for, and has never consented to, the use, reproduction or creation of a derivative work based on his original tattoo,” argues the lawsuit, which was filed April 28, and will be taken up next week.

The suit isn’t frivolous, however, legal experts say. They contend the case could offer the first rulings on tricky questions about how far the rights of the copyright holder extend in creations that are, after all, on someone else’s body. They are questions likely to crop up more often as it becomes more common for actors or athletes to have tattoos and as tattoo designs become more sophisticated.

Warner Brothers responded on Friday in a brief to Judge Catherine D. Perry, stating that any delay in releasing the film would have huge economic costs. It also argued that there was no legal precedent for Mr. Whitmill’s assertion of copyright, saying he had put forward a “radical claim that he is entitled, under the Copyright Act, to control the use of a tattoo that he created on the face of another human being.”

Copyright and trademark law can be hard to understand intuitively — for example, the idea that you can “own” a photograph or a letter, but not own the right to reproduce its content. The example of a tattoo, where “ownership” means having it become part of your body, actually does little to clear up the matter.

The wrinkle in the “Hangover” lawsuit is that Mr. Whitmill has taken pains to leave Mr. Tyson out of it. “This case is not about Mike Tyson, Mike Tyson’s likeness, or Mike Tyson’s right to use or control his identity,” the complaint says. “This case is about Warner Bros. appropriation of Mr. Whitmill’s art and Warner Bros. unauthorized use of that art, separate and apart from Mr. Tyson.”

“One of the things that the copyright law gives you as an artist is control over your work — and he lost control here,” said Michael A. Kahn, the lawyer who is representing Mr. Whitmill. The complaint includes a photograph of the tattoo being inked and a statement from Mr. Tyson agreeing that “all artwork, sketches and drawings related to my tattoo and any photographs of my tattoo are property” of Mr. Whitmill’s business.

If a tattoo clearly violates copyright — say, exactly reproduces a Keith Haring drawing or an Annie Leibovitz photograph without permission — could a court order it removed?

The case gets more serious, according to Christopher A. Harkins, an expert on copyright and patents who has written the definitive law review article on the subject, when someone tries to profit from the copying — by, for instance, selling photographs of the infringing tattoos.

“I don’t see a court forcing someone to remove it, or wear a burqa, but they may not allow me to profit from that work that I had tattooed on my body,” he said, adding that it would be very unlikely that this action could delay “The Hangover Part II” from being released.

The range of material that individuals and businesses are seeking to get copyright protection for has only been expanding, often at the insistence of movie studios. Mattel has gone to court to assert the copyright of the face of its Barbie doll; fashion companies have been lobbying Congress to pass a law to protect unique, nontrivial new designs. And trademark, which is governed by different laws and is much more contextual, has been used by athletes and coaches to get a measure of control over terms like “three-peat” or “Revis Island.”

Article source: http://feeds.nytimes.com/click.phdo?i=bef3c824a25f5b25df11796772dcf54c

Filed Under: Business News Tagged With: , ,

Claiming Fraud in A.I.G. Bailout, Whistle-Blower Lawsuit Names 3 Companies

May 5, 2011 by Leave a Comment

The lawsuit, filed by a pair of veteran political activists from the La Jolla area of San Diego, asserts that A.I.G. and two large banks engaged in a variety of fraudulent and speculative transactions, running up losses well into the billions of dollars. Then the three institutions persuaded the Federal Reserve Bank of New York to bail them out by giving A.I.G. two rescue loans, which were used to unwind hundreds of failed trades.

The loans were improper, the lawsuit says, because the Fed made them without getting a pledge of high-quality collateral from A.I.G., as required by law.

“To cover losses of those engaged in fraudulent financial transactions is an authority not yet given to the Fed board,” said the plaintiffs, Derek and Nancy Casady, in their complaint, filed in Federal District Court for the Southern District of California.

The lawsuit names A.I.G., Goldman Sachs and Deutsche Bank as defendants, but not the Fed.

Senior Fed officials have stated repeatedly that they had to take unusual steps in 2008 because the global financial system was close to breaking down. The Casadys’ lawyer, Michael J. Aguirre, argued that even so, the Fed was required to comply with its own governing statutes. He said that when the Fed bailed out a nonbank, it was required to secure the loan with the same liquid, high-quality collateral it required when lending to a troubled bank.

A spokesman for A.I.G., Mark Herr, said the Casadys’ lawsuit was “devoid of merit” and said Mr. Aguirre appeared to be recycling old and discredited legal theories.

Separately, A.I.G. is now among the companies turning to the courts in hopes of recovering losses from 2008, and seeking restitution from some banks.

A spokesman for Goldman Sachs said he was not familiar with the Casadys’ lawsuit and could not comment on it. A spokeswoman for Deutsche Bank declined to comment.

The litigation shines a critical light on the Federal Reserve’s on-again-off-again power to bail out nonbanking institutions like Wall Street firms and insurance companies. The Fed first got that authority during the Great Depression, but Congress revoked it in 1958. And then, as the legal walls between banking and other financial services began to fall in the 1990s, Congress once again gave the Fed the power to make emergency loans to nonbanks.

The relevant language is contained in a single, murky sentence inserted in a bill passed the day before Thanksgiving in 1991, as members of Congress were rushing to catch their flights home. Former Senator Christopher Dodd added it at the request of Goldman Sachs and other Wall Street firms, which were still stinging from a major market crash in 1987 and eager to empower the Fed to step in if a similar problem happened again.

The Casadys’ lawsuit says the resulting law needs judicial review because it went flying through Congress with little debate and now appears to be feeding high-risk behavior. Investors in nonbanks now expect that the Fed will open a safety net to catch them, should they falter, the suit contends.

“Congress did not show a legislative intent to convert the Federal Reserve into a bank for bailing out failed speculators,” the complaint asserts.

The suit was filed under the False Claims Act, a federal law that permits private citizens to sue on behalf of government agencies if they believe they have knowledge of a fraud. The law gives people a chance to try to recover money for the government and, by extension, the taxpayers. Plaintiffs who succeed typically get a percentage.

Although the bailout of A.I.G. took place over many months and involved a total commitment of $182 billion, the lawsuit focuses on just part of it — two emergency loans, totaling about $44 billion, made at the end of October 2008. The money was used to settle trades involving two big blocks of complex, mortgage-linked securities, some of which were underwritten by Goldman Sachs and Deutsche Bank, and guaranteed by A.I.G.

When A.I.G. went into a free fall in 2008, the Fed extended the two loans to buy up the troubled securities and put them into two special-purpose vehicles, Maiden Lane II and Maiden Lane III, for holding until the turmoil subsided. Earlier this year, the Fed allowed some of the impaired assets to be sold to undisclosed purchasers.

The Casadys say the Fed erred in making the loans, because it needed a pledge of high-quality collateral from A.I.G. and instead got a big portfolio of impaired assets.

Article source: http://feeds.nytimes.com/click.phdo?i=474e471bcc5aafe23c6590fd5348042d

Filed Under: Economy News Tagged With: , ,
« Previous Page