May 25, 2017

Copyright Lawsuit Targets Cover Songs on YouTube

In the latest sign of friction over the licensing of online music, a group of music publishers has sued Fullscreen, one of the largest suppliers of videos to YouTube, saying that many of Fullscreen’s videos — particularly cover versions of popular songs — infringe on the publishers’ copyrights.

Fullscreen is one of the largest of the so-called multichannel networks, or M.C.N.’s, which produce their own content — the company’s offices are in Culver Studios in Los Angeles, where “Gone With the Wind” and “Citizen Kane” were filmed — and represent the work of thousands of other creators of widely varying sizes. According to Fullscreen, the 15,000 channels the company represents have a total of 200 million subscribers and draw more than 2.5 billion views each month.

Among the most popular videos on YouTube are cover versions of popular songs, often by amateurs or semiprofessionals who have built a following online. But according to the suit, filed in United States District Court in Manhattan on Tuesday by groups represented by the National Music Publishers’ Association, most of these lack the proper licenses and do not pay publishers and songwriters the royalties earned from ad revenue. (Publishers represent the music and lyrics underlying songs, not recordings of them, which are covered by a separate copyright.)

According to the suit, Fullscreen and its founder, George Strompolos, who is named as a defendant, “have willfully ignored their obligation to obtain licenses and pay royalties to exploit the vast majority of the musical content disseminated over Fullscreen’s networks.” A spokeswoman for Fullscreen declined to comment.

The publishers represented in the suit include Warner/Chappell Music, which is owned by the Warner Music Group and is one of the biggest publishers, along with several independents like Songs Music Publishing and Peermusic. An exhibit submitted with the suit lists dozens of songs that Fullscreen is accused of using without proper licenses, including hits by Lady Gaga, Kanye West, Britney Spears and others.

As YouTube has become the default listening service for young people, the music industry has frequently sparred with YouTube and its owner, Google, over the licensing issues, which can be confusingly opaque. YouTube, for example, is responsible for the licensing and royalties of user-generated content loaded directly to its system, but often yields that responsibility to M.C.N.’s and other major partners.

In turn, those networks have come under fire from music groups, and negotiations have been slow. In February, Fullscreen and Maker Studios announced licensing deals with the Universal Music Publishing Group, one of the largest publishers, but most others had no such deals.

An announcement on Tuesday about the publishers’ suit against Fullscreen suggested that it had been prompted by a breakdown in licensing negotiations. At the same time that it announced the suit, the association said it had reached an agreement in principle with Maker Studios on licensing.

Article source: http://www.nytimes.com/2013/08/07/business/media/copyright-lawsuit-targets-cover-songs-on-youtube.html?partner=rss&emc=rss

Judge Rules Against Apple in E-Books Trial

“Without Apple’s orchestration of this conspiracy, it would not have succeeded as it did in the spring of 2010,” the judge, Denise L. Cote of United States District Court in Manhattan, said in her ruling. She said a trial for damages would follow.

In a courtroom last month, government lawyers argued that Apple had colluded with five big American publishers to raise prices for electronic books across the publishing market.

The Justice Department had brought the antitrust case against Apple and the publishers a year ago. The publishers all settled their cases, but Apple executives insisted that the company had done nothing wrong.

The antitrust battle underscores the turmoil in the book industry as readers shift from ink and paper to electronic devices like tablets and smartphones, where they can buy content with the push of a button. While the publishers want to embrace new media, they are also trying to protect their profits and retain control of their businesses. Apple’s lawyers noted at the trial that the publishers had long complained that Amazon.com’s uniform pricing of $9.99 for new e-book titles was too low.

In his testimony, Eddy Cue, Apple’s senior vice president of Internet software and services, who was in charge of negotiating deals with the publishers, conceded that Apple opened the door for book publishers to raise prices in its own e-book store. But he said that the company was not intending to push Amazon, the dominant player in the e-book market, to raise its prices, too.

“Amazon could have negotiated a better deal,” Mr. Cue said in his testimony. “They had a lot more power.”

But the Justice Department said Apple’s deal with the publishers left Amazon with no choice but to raise prices. When Apple entered the e-book market in 2010, it changed the way publishers sold books by introducing a model called agency pricing, where the publisher — not the retailer — sets the price, and Apple took a cut of each sale. As a result, the publishers were able to set e-book prices higher. Apple proposed price caps of $12.99 and $14.99.

Apple also included a condition in its contracts, called the most-favored nation clause, requiring the publishers to allow Apple to sell e-books at the same price as the books would be sold in any other store. Apple has said the clause was intended to guarantee that its customers got the lowest e-book prices, but the government argued that it defeated price competition.

The Justice Department said that the publishers used their relationship with Apple, combined with the most-favored nation clause, to threaten Amazon to switch to the agency model so they could raise prices. If Amazon did not agree to those terms, the government said, the publishers intended to withhold their e-books from the retailer until the more expensive hardcover books had been on the market for awhile.

In the trial, government lawyers showed e-mails sent between Apple and the publishers in the weeks leading up to the introduction of the iPad and the opening of Apple’s e-book store.

One e-mail, written by Steven P. Jobs when he was chief executive of Apple, was frequently brought up at the trial. In an e-mail conversation with Mr. Cue about the contracts negotiated with the publishers, Mr. Jobs wrote: “I can live with this, as long as they move Amazon to the agent model too for new releases for the first year. If they don’t, I’m not sure we can be competitive.” The Justice Department said this showed Apple’s intent to help the publishers push Amazon to the agency model so they could raise e-book prices.

But Apple’s lead counsel, Orin Snyder of Gibson, Dunn Crutcher, contended that the note written by Mr. Jobs was a draft. He showed a version of the e-mail that did not have language about forcing Amazon to change the way it sold books. At the trial, it was never fully resolved which version of Mr. Jobs’s e-mail was actually sent to Mr. Cue. But the version presented by the Justice Department indicated that it was written at a later time and was signed “Steve,” suggesting that it might have been the final draft.

Judge Cote said the words of Mr. Jobs were compelling evidence against Apple. They showed that the late Apple chief was aware that the publishers were unhappy with Amazon’s pricing of $9.99 for e-books, and that Apple’s entry would drive up prices across the industry.

In one famous instance, Mr. Jobs made comments to a reporter after he introduced the iPad and the iBookstore in January 2010. When asked why consumers would purchase an e-book from Apple’s store instead of Amazon.com, where e-books were $9.99, Mr. Jobs replied, “The prices will be the same.”

“Apple has struggled mightily to reinterpret Jobs¹s statements in a way that will eliminate their bite,” Judge Cote said. “Its efforts have proven fruitless.”

In his arguments, Mr. Snyder tried to illustrate that the publishers “fought tooth and nail” with Apple before agreeing to the terms, rather than colluding with the company. In support of that argument, he showed e-mails from the publishing executives arguing with Mr. Cue about the contract terms.

On the last day of the trial, Mr. Snyder told Judge Cote that there was much more at stake than the health of the book market. Mr. Snyder said a ruling against Apple could stifle the way retailers do business with media providers, including music labels and movie studios. Retailers negotiating with content providers might feel pressured to “not utter a word” about their discussions with other companies, he said. Businesses negotiating deals with multiple partners often inform each party of what the others have agreed to, he said, so they know they are being treated fairly.

Article source: http://www.nytimes.com/2013/07/11/technology/judge-rules-against-apple-in-e-books-trial.html?partner=rss&emc=rss

Judge Accepts Transocean Plea in Gulf Spill

The Switzerland-based owner and operator of the Deepwater Horizon oil rig was charged with negligently discharging oil into the gulf.

“I believe the plea agreement is reasonable and is accepted,” said United States District Judge Jane Triche Milazzo. No witnesses came to court to object to the agreement, and Judge Milazzo said she received no letters of opposition.

Transocean’s criminal fine is the second highest assessed for an environmental disaster, but it pales in comparison with the $1.26 billion in criminal fines that BP was assessed for the same accident, which spewed millions of barrels of crude oil into the gulf, fouling hundreds of miles of beaches in Louisiana, Mississippi and Alabama.

Various government and independent reports have concluded that Transocean’s crew was negligent in interpreting pressure tests that might otherwise have made certain that the well casing and cement would not have leaked oil and gas. In court filings, the government reiterated its contention that BP supervisors had ultimate responsibility for supervising the testing.

In a statement made when the agreement was reached last month, Transocean said it represented a “a positive step forward” and company lawyers in a filing said Transocean “accepts responsibility” for criminal conduct.

The company has also agreed to pay $1 billion in civil penalties, and will be on probation for five years. Much of the money Transocean has agreed to pay will go toward research for oil spill prevention and response and to restoration of coastal natural habitat, including the restitution of barrier islands off the coast of Louisiana.

Now the long legal process surrounding the 2010 accident will focus again on BP.

BP, which has already pleaded guilty to 11 counts of felony manslaughter and other charges and agreed to pay a total of $4.5 billion in fines and penalties, is scheduled to return to court again on Feb. 25. Unless it reaches a settlement with the Justice Department before that date, it faces as much as $21 billion in civil fines for what the government claims was gross negligence for the discharge of an estimated 4.9 million barrels of oil over 87 days.

BP has so far strongly contested the claim that it was grossly negligent and it maintains that the government’s estimates for the amount of oil spilled has been exaggerated. BP executives have publicly and privately said they do not expect to settle out of court, and government rhetoric describing the company’s responsibilities has become more heated in recent months.

In its defense in the coming trial, BP has indicated that it will try to assign more responsibility to Transocean and Halliburton, whose employees were involved in cementing the well, for causing the accident. In a $7.8 billion settlement last year with a plaintiffs’ steering committee, it sought to assign claims to the two other companies.

BP is also facing potential damages of more than $30 billion from claims made by the gulf states and local governments for property and economic damages. The company has already been forced to divest roughly $38 billion of assets to survive its long legal struggle.

Article source: http://www.nytimes.com/2013/02/15/business/judge-clears-transocean-plea-in-gulf-spill.html?partner=rss&emc=rss

Duncan Law School Sues American Bar Association

The Duncan School of Law in Knoxville, Tenn., whose quest for A.B.A. approval was the subject of an article in The New York Times on Sunday, learned on Tuesday that its application had been turned down. It filed its case in the United States District Court for the Eastern District of Tennessee.

The A.B.A.’s decision was a major blow to Duncan, which is two years old and has 190 students. The association is the government-endorsed regulator of law schools and without the group’s blessing, Duncan students face severely limited career options. All but a handful of states require a diploma from an A.B.A.-accredited school in order to sit for the bar and practice.

“It was not our goal to be adversarial with the A.B.A.,” said Duncan’s dean, Sydney A. Beckman, “but we felt as though we had to do this to obtain a fair review. All we want is what we think we’ve earned: provisional accreditation.”

John O’Brien, chairman of the association’s council that oversees accreditation, said Duncan had been denied approval because it did not measure up in essential areas.

“We followed all our procedures,” Mr. O’Brien said, “and as is the case with any school that receives an adverse result, it’s because standards weren’t met in one way or another.”

Specifically, the council found that Duncan, which is part of Lincoln Memorial University, fell short of a standard that prohibited the school from enrolling students who did not appear “capable of satisfactorily completing its educational program and being admitted to the bar.” The standard, say legal scholars, is to protect students from schools that are trying to cover their costs by admitting people who are unlikely to succeed.

“What is critical to understand here is that the council has a duty to prospective students when it grants a seal of approval,” said Stephen Gillers, a New York University law professor and expert on legal ethics. “Their interests may not always align with the interests of the school in winning approval. The people who run the school and the students they want to attract are two different constituencies. The council’s primary duty is to the students.”

Mr. Beckman countered that the median Law School Admission Test score of Duncan’s incoming students is 147 (out of a possible 180), which he said met or exceeded the scores of eight accredited schools. He added that the grade-point average of incoming students met or exceeded roughly 30 A.B.A.-approved schools.

But as supporters of the standards note, A.B.A.-approved law schools are reviewed every seven years and a school whose incoming students have subpar test and grade-point averages may get a warning or face the possibility of losing accreditation — though losing accreditation seems unlikely. The A.B.A. has never revoked accreditation from a fully accredited law school.

The Times used the story of Duncan’s four-year pursuit of A.B.A. accreditation to look at the costs of starting a new law school, and in particular, a school that was hoping to keep tuition to a minimum. The main benefactor of the school, a retired entrepreneur named Pete DeBusk, said that tuition could have been half of the eventual price — which is $28,000 a year — except for the expense of meeting the association’s standards.

He and Mr. Beckman cited the expense of the faculty, which is about half of the entire school budget. The association’s standards limit the use of adjunct instructors, which cost far less than the full-time, tenured professors found at most A.B.A.-approved law schools.

What are the odds of Duncan prevailing with this lawsuit? Worse than dim, predicted Professor Gillers.

“The lawsuit is doomed,” he said. “The antitrust argument seems to be that the A.B.A. is limiting the number of law schools. But there are 200 A.B.A.-approved law schools, so if the council’s secret agenda is to limit competition, it’s doing a lousy job.”

Mr. DeBusk, Duncan’s principal backer, appears undaunted. Mr. DeBusk, the founder of a medical device company who was raised in a trailer home in Kentucky, said the school was part of his mission to bring education to the people from the Appalachian Mountains. On Thursday, he was in no mood to retreat.

“We’ll be accounted for,” he said, “We go at this hard.”

Article source: http://feeds.nytimes.com/click.phdo?i=577a27e1f0842ad68ee3b3c2821cc5a5

DealBook: Congress to Examine S.E.C. Settlement Policy

Representative Spencer Bachus, the chairman of the House Financial Services Committee.Andrew Harrer/Bloomberg NewsRepresentative Spencer Bachus, the chairman of the House Financial Services Committee.

8:27 p.m. | Updated

WASHINGTON — The Securities and Exchange Commission’s practice of settling cases while allowing corporations or other defendants to neither admit nor deny the charges will be the subject of a hearing early next year by the House Financial Services Committee.

The committee chairman, Representative Spencer Bachus, Republican of Alabama, said Friday that “the S.E.C.’s practice of using ‘no-contest settlements’ has raised concerns about accountability and transparency.” He said the hearings were supported by both Republican and Democratic lawmakers.

Settlements of enforcement actions using the “neither admit nor deny” construct have been the focus of increased scrutiny, including in the recent Citigroup case, where United States District Court Judge Jed S. Rakoff rejected a $285 million settlement between the financial company and the commission.

Judge Rakoff said that he could not determine whether the settlement was fair because there were no proven or accepted facts in the case on which to evaluate the settlement.

The S.E.C. accused Citigroup of fraud for selling a portfolio of mortgage-related securities to investors without disclosing that it had bet against many of the items in the portfolio.

But Citigroup would not admit that it did anything wrong, leading Judge Rakoff to say that there was no basis on which to make a judgment. He therefore rejected the agreement and ordered the two sides to prepare for a trial. The S.E.C. said this week it would appeal the ruling.

Representative Barney Frank of Massachusetts, the leading Democrat on the committee, praised Mr. Bachus for announcing a hearing. “The policy of signing agreements without forcing firms to admit or deny wrongdoing raises serious issues,” he said.

The S.E.C. has defended the agreements, saying that it allows the commission to bring enforcement actions against companies and extract penalties without having to bear the costs and the uncertain outcome of a trial.

Robert Khuzami, the S.E.C.’s director of enforcement, says that the commission usually achieves the same settlement by this method that it might expect at trial and he notes that other enforcement agencies also commonly employ the practice.

Article source: http://feeds.nytimes.com/click.phdo?i=6f9c42211265c5e35f8b2e45e4ae8e49

European Inquiry Focuses On Setting of E-Book Prices

The European Commission said that Apple might have helped imprints like Penguin, owned by Pearson of Britain, and HarperCollins, owned by News Corporation of the United States, engage in “anticompetitive practices affecting the sale of e-books.”

In particular, the commission said it was “examining the character and terms of the agency agreements entered into” by the publishers and retailers of e-books, like Apple.

The three other imprints named by the commission were Hachette Livre, owned by Lagardère of France; Simon Schuster, a division of CBS of the United States; and Macmillan, a unit of Verlagsgruppe Georg von Holtzbrinck of Germany.

Apple declined to comment.

In a statement, Pearson said it did “not believe it has breached any laws, and will continue to fully and openly cooperate with the commission.” HarperCollins said that it was “cooperating fully with the investigation.”

Lagardère, based in Paris, declined to comment on the announcement, according to Bloomberg News.

Simon Schuster, in a statement, said it was “cooperating with the investigation.” Holtzbrinck did not immediately respond to an e-mail query, according to Bloomberg News.

Similar concerns in the United States have already led to litigation.

In August, Hagens Berman, a law firm, filed a class-action lawsuit in the United States District Court for the Northern District of California, contending that the publishers and Apple increased prices for popular e-book titles to improve profits and force an e-book rival, Amazon, to abandon “pro-consumer discount pricing.”

According to Hagens Berman, the “publishers believed that Amazon’s wildly popular Kindle e-reader device and the company’s discounted pricing for e-books would increase the adoption of e-books, and feared Amazon’s discounted pricing structure would permanently set consumer expectations for lower prices.”

Until recently, a variety of retailers including large bookstore chains had the power to set the price of books.

But that system began to change when the publishers, possibly with the help of Apple, whose popular iPad also serves as an e-book reader, took greater control over setting prices, according to European officials.

Those changes may have kept the prices of e-books higher than they might otherwise have been in a fully competitive market, the officials said.

The decision to open the case came after surprise inspections by European authorities at the offices of companies in the sector in March, and the commission said it would treat the case “as a matter of priority.”

The decision also follows “a significant number of complaints” to the Office of Fair Trading in Britain.

That office closed a similar investigation on Tuesday, saying in a statement that, “the European Commission is currently well placed to arrive at a comprehensive resolution of this matter.”

European officials are now expected to investigate further to determine whether the five publishers, helped by Apple, deliberately set out to influence prices, and whether consumers have been paying too much for e-books.

The European Commission can fine companies who violate the bloc’s competition rules up to 10 percent of their global annual sales, and it can require them to change business practices.

Article source: http://www.nytimes.com/2011/12/07/technology/eu-investigates-possible-cartel-in-e-book-market.html?partner=rss&emc=rss

F.C.C. Seeks Review of AT&T Merger With T-Mobile

The chairman, Julius Genachowski, made the move after the commission’s staff concluded that the deal would harm consumers, kill jobs and result in an overly concentrated wireless phone industry, F.C.C. officials said.

The decision puts another large roadblock in front of ATT, the nation’s second-largest wireless phone company, in its effort to buy T-Mobile, the fourth-largest carrier. In August, the Justice Department filed a federal antitrust lawsuit to block the merger, saying it would stifle competition.

Mr. Genachowski on Tuesday notified the other three F.C.C. commissioners that he intended to refer the proposed merger to an administrative law judge for a trial-like hearing in which ATT would be required to show that the deal was “in the public interest.” The commission — currently composed of three Democrats, including Mr. Genachowski, and one Republican — is likely to vote on the chairman’s plan in the next couple of weeks, an agency official said.

The merger is subject to F.C.C. approval because the joining of the two companies will require transfer of licenses to use public airwaves for cellphone signals and wireless Internet access. The judge will weigh the evidence and render a decision, which then will be reviewed by the F.C.C. for a final judgment.

A hearing before the administrative judge would not happen until after the antitrust trial, scheduled for February in United States District Court in Washington, is completed.

Larry Solomon, senior vice president for corporate communications at ATT, called the F.C.C.’s action “disappointing.”

“It is yet another example of a government agency acting to prevent billions in new investment and the creation of many thousands of new jobs at a time when the U.S. economy desperately needs both,” Mr. Solomon said in a statement. “At this time, we are reviewing all options.”

Consumer groups and ATT rivals, who have strongly opposed the merger, hailed Mr. Genachowski’s move. “As Chairman Genachowski said in August when the Justice Department filed its antitrust lawsuit against ATT, the record before the F.C.C. presented ‘serious concerns about the impact of the proposed transaction on competition,’ “ said Vonya McCann, senior vice president for government affairs at Sprint, the third-largest carrier, which has filed its own lawsuit seeking to block the merger. (Verizon is the largest carrier.)

ATT has sought to shift the focus of the public debate about the merger to jobs in recent months, casting the deal as crucial to meeting President Obama’s goal of expanding high-speed Internet.

“This merger is going to be a driver of innovation, it’s going to result in further investment in rural America and more jobs in rural America,” Robert Quinn, ATT’s senior vice president for federal regulatory and chief privacy officer, said in an interview earlier this month.

But the company has been carefully circumspect about providing details about how its direct employment in the wireless business will be affected by the merger. Asked by the F.C.C. last month for specifics on how many workers the combined company would employ, the company said that many jobs would be eliminated and offered a confidential estimate of “payroll and other job-related savings” whose language strongly implied the number would go down instead of up. That has left F.C.C. officials unimpressed. “The record clearly shows that, in no uncertain terms, this merger would result in a massive loss of U.S. jobs and investment,” said a senior F.C.C. official, who spoke on the condition of anonymity because of confidentiality agreements involving ATT’s estimates. The official declined to provide specific figures for jobs lost.

ATT struck back at that statement, noting that the F.C.C. said its own plan for a $4.5 billion annual investment to expand broadband in rural areas would create 500,000 jobs in six years.

Article source: http://feeds.nytimes.com/click.phdo?i=471f1c143bd6b1d17b72c81b23ed165e

Judge Denies Madoff Trustee’s Quest for Damages From Big Banks

In a decision released Tuesday, Judge Colleen McMahon of United States District Court in Manhattan ruled that the trustee, Irving H. Picard, did not have the legal right to pursue $20 billion in combined damage claims against JPMorgan Chase Company and UBS.

JPMorgan Chase served for decades as Mr. Madoff’s banker and also created and sold derivatives pegged to his investment performance. UBS provided various banking and administrative services to a host of European investment funds that steered money into Mr. Madoff’s hands.

The ruling on Tuesday echoed the reasoning offered in July by Judge Jed S. Rakoff, also of United States District Court, when he barred the trustee from seeking a combined $8.8 billion in similar damage claims against HSBC, the London-based banking giant, and UniCredit, one of Italy’s largest banking groups.

The banks’ arguments before Judge Rakoff persuaded him to dismiss the disputed claims, Judge McMahon noted in her opinion. “I am persuaded as well,” she said.

As in the cases before Judge Rakoff, the issue before Judge McMahon was whether Mr. Picard, as the trustee for Mr. Madoff’s bankrupt estate, could sue the banks for harm they supposedly caused to Mr. Madoff’s investors, as opposed to harm inflicted on the bankrupt estate.

And like Judge Rakoff, Judge McMahon determined that when Mr. Picard sued third parties for damages, he stood in the shoes of Mr. Madoff, the Ponzi schemer, not in the shoes of Mr. Madoff’s victims. Therefore, he could sue only if the defendants had harmed Mr. Madoff, which they clearly had not done, since their banking services facilitated the flow of cash into his fraud from around the world.

Therefore, only Mr. Madoff’s creditors — his victims — have legal standing to sue the various bank defendants for damages, Judge McMahon said.

Underlying Mr. Picard’s arguments was the question of whether those victims had the practical means or the leeway under bankruptcy law to individually pursue multibillion-dollar claims against a roster of global banks.

The trustee’s lawsuits accused the defendant banks of willfully turning a blind eye to evidence that Mr. Madoff was operating a fraud, thereby allowing his scheme to continue and increasing the financial destruction it caused. Mr. Picard argued in court that federal law gave him the power to pursue those damage claims on behalf of the creditors.

Judge McMahon acknowledged that “allowing the trustee to pursue claims that belong properly to individual creditors would accrue to the benefit of all creditors by augmenting the bankruptcy estate,” the primary source from which Mr. Picard hopes to compensate the cash losers in Mr. Madoff’s scheme.

And she noted that if Mr. Picard were able to collect enough in damages, he could also make payments to those who lost only their paper profits in the scheme, although they would not receive as much as the cash losers.

But those practicalities did not tilt her ruling in favor of Mr. Picard’s legal theory.

“This theory is not supported by the statute’s text and history or by any persuasive case law,” Judge McMahon concluded. She said the points of law put forward by the trustee before her and before Judge Rakoff were “no more persuasive to me than they were to him.”

As a result of her ruling, the trustee’s claims against the two giant banks will be limited to those that fall under the terms of the federal bankruptcy code, which allows Mr. Picard to recover fictional profits withdrawn during a specific period before the collapse of the Madoff fraud in December 2008.

For JPMorgan Chase, according to the trustee’s calculations, those claims are less than $500 million, a fraction of the $19 billion Mr. Picard was seeking. However, he remains free to pursue just over half of the $2 billion he sought from UBS in the bankruptcy court.

In a statement, the trustee’s lawyers said they had appealed Judge Rakoff’s ruling and intended to appeal this latest decision as well. The trustee and his counsel “remain confident in the cases,” the statement continued.

Article source: http://feeds.nytimes.com/click.phdo?i=cbe065c65e708dbf8f8c4581e5c64d58

DealBook: Madoff Victims Set to Get First Payments

Jin Lee/Bloomberg NewsBernard L. Madoff leaving court in 2009.

8:23 p.m. | Updated

The first batch of checks for eligible victims of Bernard L. Madoff’s epic Ponzi scheme will go into the mail starting Wednesday, according to the trustee liquidating the Madoff estate in federal bankruptcy court.

The payment — totaling $312 million — “is the first return of stolen funds to Madoff’s defrauded customers,” the trustee, Irving H. Picard, said on Tuesday. “The need among many Madoff customers is urgent, and we are working to expedite these distributions.”

The payments would have been made last week, but were delayed for a few days to allow Mr. Picard’s lawyers to analyze the effects of a significant ruling on Sept. 27 by Judge Jed S. Rakoff of United States District Court in Manhattan in a case involving the owners of the New York Mets. In that ruling, Judge Rakoff allowed the trustee to seek only the return of fictional profits the Mets owners withdrew in the last two years of the fraud, which lasted more than a decade.

The trustee, citing New York State law, had sought to recover fictional profits paid in the six years before the scheme collapsed in December 2008. The judge also rejected the trustee’s bid to recover preference claims, the cash paid to team owners in the last 90 days of the fraud.

Related Links

If applied to the hundreds of lawsuits Mr. Picard is pursuing against other Madoff investors who withdrew more than their original cash principal, the ruling would reduce Mr. Picard’s potential recoveries by $6.2 billion.

The trustee delayed the payments last week until he could determine if the ruling would affect the proposed distribution. Those potential issues “have since been resolved,” Mr. Picard said Tuesday in a statement.

The $312 million is being distributed to the holders of 1,230 Madoff accounts and represents a recovery of roughly 4.6 cents on the dollar. The customers eligible for payouts are those who had not withdrawn all the cash they had invested. Some may have already received cash advances of as much as $500,000 from the Securities Investors Protection Corporation, an industry-financed fund that handles brokerage firm liquidations. Under a federal appeals court ruling in August, investors who recovered all their initial cash outlay before the fraud collapsed are not eligible for the current distribution.

Through out-of-court settlements by the trustee and civil forfeiture agreements with the Justice Department, $10.7 billion has been collected to cover what the trustee estimates to be about $18 billion in out-of-pocket cash losses by eligible victims — a sum that ultimately could allow those victims to recover more than half the cash they lost in the Madoff fraud, far more than is typical in Ponzi schemes.

According to the trustee, that cash — including $7.2 billion from the estate of Jeffry Picower, a longtime Madoff investor who died in 2009 — cannot be distributed until the resolution of appeals challenging the terms of those settlements and the formula Mr. Picard used to calculate eligible claims in the complex and controversial liquidation.

“While we cannot predict the timing of rulings on these appeals, we maintain that the appeals of the Picower and other settlements are frivolous and will be dismissed,” said David J. Sheehan, a lawyer for the trustee and a partner at Baker Hostetler. If the trustee prevails in those court battles, he would “distribute those funds as quickly as possible,” Mr. Sheehan said.

Mr. Picard has sued for nearly $100 billion in fictional profits and damages from giant global banks, hedge funds and investment managers who dealt with Mr. Madoff during his scheme. If the trustee recovers more than the $18 billion, the money could be used to cover general fraud claims by all Madoff investors.

Article source: http://feeds.nytimes.com/click.phdo?i=03fa6a39419a4ad46f2682769003d000

Mets Ruling May Reduce Payout to Madoff Victims

A ruling this week in a case the trustee for victims of Bernard L. Madoff’s Ponzi scheme had filed against the owners of the New York Mets could wind up cutting the amount available to pay all victim claims by up to $11 billion, a lawyer for the trustee said on Wednesday.

The lawyer, David J. Sheehan, said the ruling in the Mets case also would require the trustee, Irving H. Picard, to delay an initial cash payment to eligible victims, scheduled for later this week, until he can determine the ruling’s impact on the amounts owed to other victims of the epic fraud.

Mr. Sheehan’s warnings underscored how potentially damaging the Mets ruling could be for the trustee’s broader effort to recover cash from all of the so-called net winners in the case — those, like the Mets owners, who took more cash from their Madoff accounts than they put in. Those recoveries are the primary source of cash available to the trustee to compensate the net losers, those who took less from their Madoff accounts than they put in.

On Tuesday, United States District Judge Jed S. Rakoff threw out all but two of the 11 claims filed by the trustee and ruled that he could seek no more than $386 million in fictitious profits that Mr. Madoff paid out to the Mets owners, Fred Wilpon and Saul Katz. That figure was based on the sum the men invested in the two years before the fraud was discovered in December 2008, the recovery window set by federal bankruptcy law. The trustee had been seeking $1 billion in fictitious profits and principal paid out in the last six years of the fraud, as permitted under New York State law.

But if Mr. Picard is limited to the two-year federal window in all of the nearly 1,000 lawsuits he has filed against other net winners, his potential recovery would be cut by a total of $5.9 billion, according to Mr. Sheehan. Another element of the ruling could erase another $5.5 billion he is seeking in court, he said.

The enormous scam took in thousands of investors and generated paper losses of almost $65 billion and cash losses of about $18 billion. To date, the trustee has raised about $10.6 billion to cover the cash losses, primarily through out-of-court settlements.

Tuesday’s ruling, consequently, could significantly reduce the amount of money the trustee could seek through lawsuits to compensate the net losers in the fraud.

“This does have real ramifications,” Mr. Sheehan said.

The elimination of the six-year recovery window in the Mets case was cheered by lawyers for other net winners who have been sued, most of whom said their clients would owe far less under the two-year standard.

“This is the first victory for the Madoff net winners,” said Barry Lax, a lawyer for a number of net winners. “Nine of the 11 claims were dismissed and since the Wilpons and Katzes were net winners, other net winners will benefit from the ruling.”

A second element of the ruling is less clear-cut but potentially just as damaging to the trustee. Among the claims thrown out by Judge Rakoff was an attempt by the trustee to recover cash the Mets owners had withdrawn from their Madoff accounts in the final 90 days of the fraud, so-called preference claims.

For the Mets owners, that figure added up to $14.2 million. But if all the 90-day preference claims asserted in all the lawsuits filed by Mr. Picard were eliminated, it would reduce his potential recovery by another $5.5 billion, according to Mr. Sheehan.

Because of the ruling’s broad impact, Mr. Sheehan in a hearing Wednesday asked Judge Rakoff to allow the trustee to seek an expedited appellate review of the decision. “I want clarity from the courts,” Mr. Sheehan said.

Judge Rakoff has set March 19 as the trial date for the two claims remaining in the trustee’s case against the Mets owners, and the trustee has already indicated he will seek a jury trial in the case.

Mr. Sheehan said he would continue to prepare for trial even as he sought an expedited appeal, adding: “If he gets reversed, the whole trial will be different,”

Article source: http://feeds.nytimes.com/click.phdo?i=0890dabcfd75cb64c9d98cba9cbeb521