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DealBook: In Tourre Trial, S.E.C. Wages Battle Against Its Own Witness

July 17, 2013 by Leave a Comment

Fabrice Tourre, a former Goldman Sachs trader, outside a Manhattan federal court on Monday.Andrew Burton/Getty ImagesFabrice Tourre, a former Goldman Sachs trader, outside a Manhattan federal court on Monday.

The Securities and Exchange Commission had hoped to use Paolo Pellegrini, a chief architect of one of the most lucrative hedge fund bets in history, to buttress its case against Fabrice Tourre, a former Goldman Sachs trader charged with defrauding investors in a complex mortgage security.

But on Wednesday, Mr. Pellegrini did his best to try and dynamite the government’s case. At one point, he apparently contradicted testimony he had previously given in a deposition with S.E.C. lawyers, leading to a terse exchange on the witness stand.

Mr. Pellegrini’s role in helping Paulson Company earn $1 billion by betting against home loans through an investment assembled in part by Mr. Tourre made him an ideal witness for the government’s side. The S.E.C. had been hoping to use the hedge fund executive to show that the onetime Goldman employee failed to let investors in the mortgage security know that Paulson Company was actually betting against them.

That plan was thrown into disarray during several hours of combative testimony in a Lower Manhattan federal courtroom on Wednesday, as Mr. Pellegrini — who had already proved a difficult presence — repeatedly accused the agency of trying to trick and intimidate him.

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In perhaps the most striking moment of the trial so far, the witness asserted that he had informed an executive at the bond insurer, the ACA Financial Guaranty Corporation, one of the purported victims of the failed investment, that his then-employer did in fact intend on betting against the mortgage deal.

That led to the first of several battles between Mr. Pellegrini and Matthew Martens, the S.E.C.’s lead lawyer in the case, over what the hedge fund executive had previously testified under oath. Mr. Martens, his voice tight and arms crossed over his chest, repeatedly read back Mr. Pellegrini’s previous claim that he could not recall telling ACA of Paulson Company’s intentions.

Mr. Pellegrini, fixing an unblinking stare at his questioner, instead contended that he used those words “under pressure” from the S.E.C. and its “hostile questions.” He subsequently explained that he intentionally took a more careful and vague approach during the deposition because he was concerned that the agency was trying to deceive him.

“You are tricking me into saying so many things,” Mr. Pellegrini declared on the witness stand at one point. At another, he said, “It depends on what you mean by factual knowledge.”

The change of heart could cut against a core assertion of the S.E.C. that Mr. Tourre had failed to tell ACA and another investor that the mortgage security at the heart of the case was constructed in large part by a hedge fund betting against its success. In a court filing from March, the agency quoted Mr. Pellegrini as saying that he had trouble meeting with potential partners if he made it known that he would bet against them. A number of e-mails presented in court on Wednesday suggested that Mr. Pellegrini’s boss, the hedge fund billionaire John Paulson, and one adviser were aware of the troubles that publicizing the bet against mortgages would pose.

An executive at ACA has testified that executives at Goldman and at Paulson had failed to make the true nature of the hedge fund’s interest known.

But Mr. Pellegrini insisted repeatedly in court that he had informed several potential business partners that Paulson Company intended on betting against securities built on home loans, depicting a firm whose motivations should have been well-known in the investment community. At one point, he suggested that his memory was jogged in part by helpful instruction from the presiding judge in the case, Katherine B. Forrest.

Barely veiled contempt colored many of the exchanges between Mr. Pellegrini and Mr. Martens. When the S.E.C. lawyer asked the witness to find a particular section of a document, Mr. Pellegrini leaned back in his chair, casually sipped from a cup of water, and drily asked, “Do you mind locating it for me?”

During a break in proceedings, Mr. Martens told Judge Forrest that he thought the hedge fund executive’s claims to have been pressured by his office was “garbage.”

Article source: http://dealbook.nytimes.com/2013/07/17/in-tourre-trial-s-e-c-wages-battle-against-its-own-witness/?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

The Media Equation: Martha Stewart Struggles to Stay on Top

March 10, 2013 by Leave a Comment

Maybe that’s why she can still draw a crowd, even when the subject is contract law. Add in her lifestyle — as reflected in her magazines, her television work and even her Twitter account — and she can engender admiration, envy and aspiration.

So there we all were in New York State Supreme Court one morning last week, a roomful of reporters and a dozen high-priced lawyers who could barely fit in front of Justice Jeffrey Oing.

And in case you thought Ms. Stewart’s charisma had completely dimmed, keep in mind that while the trial may be a contract dispute in name, it is really a schoolyard fight between two boys — the chief executives of Macy’s and J. C. Penney — over the most popular girl on the playground.

Ms. Stewart obviously enjoyed the attention and did not seem to sweat the details in answering questions from the witness stand. To her, everything is small stuff, including her role in a contentious contract dispute between the two retail behemoths.

“I’m surprised we are here,” she told me in the hallway during a break in her testimony. “It’s a lot of uproar over a contract.”

Well, yes, and, duh.

As contract fights go, this one is a doozy. Ms. Stewart signed an exclusive deal with Macy’s to sell certain branded housewares in 2007, and then she signed a deal with J. C. Penney in December 2011 to open a series of Martha Stewart stores-within-a-store. Terry Lundgren, Macy’s chief executive, went ballistic, and Ron Johnson, the struggling chief executive of J. C. Penney, didn’t back down, so everybody hired oodles of lawyers and, well, there was Ms. Stewart back in court again.

The legal issues were less fraught than the ones in her criminal trial in 2004, when she ended up being convicted on charges of lying to government investigators about a stock sale. But that conviction hung in the air as she testified, as a near-death experience for the company she founded, Martha Stewart Living Omnimedia.

“It could’ve taken down the brand; it did not,” Ms. Stewart said in her testimony. “But I must tell you that rebuilding is a lot harder than building.”

It was one of a number of on-the-nose statements she made from the witness stand. It is easy to forget that Ms. Stewart, who has aspects worthy of “Saturday Night Live,” altered the way that people live by decoupling class and taste. Part of the reason that she seems embattled — her media empire is shrinking fast — is that she won her corner of the culture war. When you go into Target or Walmart and see a sage green towel that is soft to the touch, it may not carry her brand, but it reflects her hand. Her tasteful touch — in colors, in cooking, in bedding — is now ubiquitous; she just doesn’t get to cash all the checks anymore.

Back when she tilted the culture and brought class to mass, she was chagrined to discover that not everyone was applauding.

“I paid the price for going mass very early on,” she said from the witness stand. “The garden club of Greenwich canceled my speaking engagement.”

But beyond the disregard of the ladies who lunch, Ms. Stewart confronts problems of her own making. She always frames herself and her work beautifully, but it could be argued that she never knew how to size herself correctly. The original sin may have been going public in 1999 with a small, growing enterprise built on a single person’s vision.

Right now, Martha Stewart Living Omnimedia’s stock is $2.63 a share, down from $4.45 a year ago, with a diminutive market capitalization of $176.40 million. The company gets all the scrutiny of a public one, which has been brutal on occasion, but little benefit in terms of capital or operational muscle.

In Ms. Stewart’s world, significant achievement in the domestic arts always requires a bit of suffering, pushing for a kind of perfection that only she can see. But if her recipes can sometimes be complicated and difficult, they pale in comparison to her approach to running a company. She has churned through a number of talented media executives, most recently Lisa Gersh, who left as chief executive at the end of last year after cutting two magazines — Whole Living and Everyday Food — from the company’s publications and laying off 12 percent of the work force.

It is a tough time to be a stand-alone magazine company, which is partly why advertising pages in Martha Stewart Living dropped 29 percent last year. And she is less robust on other platforms: Ms. Stewart is a far less frequent presence on broadcast television and cable, with appearances mostly on public television and in some Web efforts. No one lasts forever on television — just ask Oprah.

The fortunes of Ms. Stewart and the company that bears her name are very closely aligned. She owns 90 percent of the voting stock and 26 million shares. As my colleague James Stewart wrote last year, even as her company struggled from 2009 to 2011, Ms. Stewart received more than $21 million in compensation. Her fans may forgive her excesses, but her shareholders and Wall Street are far less charmed.

Perhaps what the company needs is not more transparency, but less visibility. David Banks, an analyst at RBC Capital Markets, pointed out that another lifestyle brand, albeit a bit spicier one, Playboy, has gone private to very good effect. Martha Stewart Living Omnimedia is in the middle of a large restructuring, shifting from a media company to a merchandising enterprise, a process that will pinch short-term profits while the company plays for the farther shore. Ms. Stewart grabbed more real estate on store shelves partly because her presence on the newsstand is shrinking.

As the tussle in State Supreme Court illustrates, the retail environment clearly remains hungry for strong individual brands that convey quality.

“Why do you think the headlines are pitting me against J. C. Penney’s and Macy’s?” she asked in her testimony. “They’re fighting over something, and it’s not just home. It is our amazing product.”

For better or worse, what the retail chains are really fighting over is not towels and sheets, it’s the woman on the stand.

Charles Koppelman, a former chairman of Martha Stewart Living Omnimedia, was speaking with CNBC last Wednesday and used a familiar Martha-ism to describe the state of play. “If it ends up where she has product at Macy’s and J. C. Penney, that’s a good thing.”

E-mail: carr@nytimes.com;

twitter.com/carr2n

Article source: http://www.nytimes.com/2013/03/11/business/media/martha-stewart-struggles-to-stay-on-top.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Scotland Yard Officer Guilty in Phone Hacking Trial

January 11, 2013 by Leave a Comment

The officer, Detective Chief Inspector April Casburn, 53, was convicted of a single count of misconduct in public office after a three-day trial. The judge, Sir Adrian Fulford, warned Ms. Casburn that she faced “a real possibility” of a prison sentence, to be decided after he reviewed sentencing submissions from prosecuting and defense counsels in the case.

The verdict carried implications for a battery of other trials expected this year and next as prosecutors work their way through police files on more than 90 people who have been arrested in the scandal.

In many of the cases, the individuals — police officers, newspaper executives, editors, reporters and private investigators working for the newspapers — have offered the same defense advanced by Ms. Casburn and her lawyers: that they were acting in the public interest.

The case revolved around Ms. Casburn’s telephone call to the Murdoch-owned News of the World tabloid on Sept. 11, 2010, in which she told a reporter details of a confidential new investigation into allegations that the paper had been involved in a widespread pattern of hacking into the cellphone messages of celebrities.

Ms. Casburn maintained on the witness stand that she was motivated by her anger at a decision by her superiors to assign the new investigation to Scotland Yard’s counterterrorism command, where she headed a unit responsible for investigating terrorist financing. She cited a strongly male bias within the counterterrorism unit, telling the court that there was a “palpable excitement” at the prospect of interviewing celebrities who had said that their phones had been hacked, including the actress Sienna Miller. “I felt very strongly that we shouldn’t be doing hacking,” she said. “Our function was to prevent terrorist attacks.”

The prosecution case, accepted by the jury, was that Ms. Casburn was acting out of personal motives, and had demanded payment in return for the confidential information. After the call, the reporter she spoke with, Tim Wood, wrote an e-mail to his editors, cited in evidence at the court, saying that the officer who called him “wants to sell inside info” on the new police inquiry. Ms. Casburn denied asking for payment.

The investigation Ms. Casburn divulged had been reopened on the basis of a magazine article published in The New York Times, which quoted sources at The News of the World saying that hacking of cellphone messages had been rife. Their accounts contradicted an earlier Scotland Yard finding that the practice had been limited to a single “rogue reporter” and a private investigator, both of whom were sentenced to brief prison terms in 2007 for hacking into the cellphone messages of junior members of the royal family and their aides.

By bringing Ms. Casburn to trial ahead of others who have been charged in the scandal, prosecutors appeared eager to show that Scotland Yard, the pinnacle of policing in Britain, was determined to uproot the wrongdoing in its own ranks exposed by the scandal.

After Ms. Casburn’s conviction, Scotland Yard, formally known as the Metropolitan Police Service, issued a statement saying: “There may be occasions when putting certain information into the public domain — so-called whistle-blowing — can be justified. This was not one of them. Fortunately, this type of behavior is rare, but we hope today’s verdict shows the public can have confidence that the M.P.S. holds itself to account.”

Article source: http://www.nytimes.com/2013/01/11/world/europe/scotland-yard-officer-guilty-in-phone-hacking-trial.html?partner=rss&emc=rss

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DealBook: In Court, Gundlach Denies Using Trade Secrets

August 12, 2011 by Leave a Comment

Jeffrey Gundlach of DoubleLine Capital testified in a Los Angeles court on Thursday.Pool photo by CVNJeffrey Gundlach of DoubleLine Capital testified in a Los Angeles court.

LOS ANGELES — In a courtroom here, Jeffrey E. Gundlach, one of the most prominent bond managers in the country, on Thursday defended himself against claims that he had planned to sabotage his former employer, Trust Company of the West, by using stolen data and client information to start a competing firm.

“I took my responsibility at TCW very seriously, “ he testified. “I loved TCW.”

The trial involving Mr. Gundlach and TCW, as Trust Company of the West is better known, resembled a breakup tale as Mr. Gundlach detailed his falling out with TCW, which fired him in December 2009. Soon afterward, TCW sued Mr. Gundlach, accusing him of breaching his fiduciary duty and stealing trade secrets to start his new firm, DoubleLine Capital. TCW is seeking more than $375 million in damages.

On the witness stand, Mr. Gundlach, dressed in a gray pinstripe suit and a blue tie, told the jury of seven men and five women that although he and his colleagues had once made preparations to leave TCW, including looking at office space and registering a Delaware corporation, he had “mothballed” those plans by the time he was fired in December 2009.

When a TCW lawyer asked him about a DoubleLine logo he helped design as early as July 2008, he played it down as a “doodle.”

“I’m very interested in the artwork of Piet Mondrian,” Mr. Gundlach said. “I was wondering if I could make a convincing Mondrian.”

So far, TCW’s case against Mr. Gundlach has hinged on testimony that he and his lieutenants took confidential and proprietary data for use at the new firm. Also named as co-defendants in TCW’s lawsuit are former employees Cris Santa Ana, Barbara VanEvery and Jeffrey Mayberry, all of whom currently work at DoubleLine.

All three have all testified that they downloaded TCW information to external hard drives, but have said that none of the data was used at DoubleLine. Mr. Santa Ana has testified that Mr. Gundlach told him to download information, a claim Mr. Gundlach disputed on Thursday. After Mr. Gundlach was fired in December 2009, more than 40 of his TCW team members followed him to DoubleLine.

“Anything that was downloaded, we never used at DoubleLine,” Mr. Gundlach said in a taped deposition that was played for the jury.

The trial is notable for occurring at all. Most financial employment disputes are settled quietly, but Mr. Gundlach said in an interview this week that the settlement offers he received from TCW were “worse than losing in court.”

In a countersuit, Mr. Gundlach is seeking more than $500 million, claiming that he was a victim of a conspiracy to oust him from the firm.

For a case involving the sleepy mutual fund world, the testimony has at times been shockingly personal. So far, witnesses called by TCW have testified that Mr. Gundlach was “a cultural cancer” who referred to himself as “the Pope” and “the Godfather.”

In an interview this week, Mr. Gundlach said he did not expect his aggressive personality to be a factor in the trial.

“The fact that they don’t like me doesn’t mean I’ve breached my fiduciary duty,” he said.

Earlier in the day, Richard Villa, TCW’s chief financial officer, told the jury that Mr. Gundlach had been paid more than $40 million in 2009, the year he was fired, and that he had had earned compensation totaling about $240 million for the years from 1991 to 2009.

A rare moment of levity occurred during the court session when, in his taped deposition, Mr. Gundlach was asked by John B. Quinn, a lawyer for TCW, if he knew of any data at TCW, other than a portable alpha trading system, considered proprietary.

After a long pause, Mr. Gundlach responded, “A recipe in the dining room?”

Mr. Gundlach will continue his testimony on Monday.

Article source: http://feeds.nytimes.com/click.phdo?i=ac576ccefb9b3d8edaaecb5ce622d18e

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