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Bank of America Corp., the biggest U.S. lender, asked a federal judge to throw out a lawsuit brought by foreclosed homeowners who accuse it of racketeering.
Dwayne Ransom Davis and Melisa Davis sued last month in Indianapolis, claiming Bank of America “routinely” submitted perjured affidavits to support foreclosures. They lost their Knightstown, Indiana, home last year.
The Charlotte, North Carolina-based bank, in papers filed Nov. 10 with U.S. District Judge Jane Magnus-Stinson, said the Davises were improperly using a federal court to attack a state court proceeding and hadn’t shown they were injured.
“While plaintiffs claim they do not seek to overturn the judgment in the foreclosure action, it is clear they are trying to do precisely that,” in violation of federal law, Bank of America told the court.
The Davises didn’t ask the court to reverse their September 2009 foreclosure. They said in their complaint that the use of “robo-signers”, or people who sign affidavits attesting to facts underlying foreclosures without actual knowledge of them, constitutes racketeering.
They seek class-action, or group, status for anyone whose home was taken under such circumstances since October 2006, and compensatory damages, which would be tripled under U.S. racketeering laws.
The case is Davis v. Countrywide Home Loans Inc., 10cv1303, U.S. District Court, Southern District of Indiana (Indianapolis).
Merrill Banker Indicted With 18 in Brazil Says He’s Scapegoat
Just before dawn on a cool June morning, six submachine- gun-wielding federal agents charged into Alexandre Caiado’s Sao Paulo apartment. After arresting him, they hustled Caiado into a pickup truck for a 30-block drive to Merrill Lynch & Co.’s office, where he had been working as a private banker for two years, Bloomberg News’ Alexander Ragir and Michael Smith report.
As the agents scoured Caiado’s desktop computer, Mary Livingston, a lawyer for Merrill, sat down alone with Caiado. “She gave me very specific instructions,” says Caiado, recalling the scene in 2006. “I wasn’t supposed to say what I really did.”
Prosecutors charged Caiado with arranging illegal fund transfers for Merrill clients -- part of what has become a four- year investigation into bankers helping clients secretly move undeclared money abroad to evade Brazilian income taxes, Bloomberg Markets magazine reports in its December issue.
Caiado’s work at Merrill was part of a pattern in which bankers helped clients move undeclared money in and out of Brazil in ways that couldn’t be tracked by tax authorities, says Deltan Dallagnol, a prosecutor handling Caiado’s case.
Livingston, the lawyer who was with Caiado on the day he was arrested, says Merrill sent her and two or three other lawyers to the office to help Caiado. She says she talked to him as police were searching for records. She declined to confirm or deny that she told Caiado to not tell police what he really did.
“I’m not responding to that,” she says. Asked if she disputes Caiado’s account, she says, “I am not going to dignify his story with an explanation.” He has no credibility because he’s suing Merrill, she says.
Merrill spokesman Bill Halldin says the firm is fighting the lawsuit.
“We are vigorously defending ourselves in that matter,” Halldin says. No Merrill officer or director in Brazil has ever been charged with a crime, he says.
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Trials/Appeals
Milan’s Banks Failed to Shop Around, Prosecution Witness Says
The four banks on trial for fraud for misselling derivatives to the City of Milan failed to shop around for competing quotes that would have made the cost of the swaps more transparent, a prosecution witness said.
Gianluca Fusai, a finance professor at the University of East Piedmont, told a court in Milan on Nov. 10 that the banks, which had been hired to arrange a bond sale and subsequently proposed swaps to adjust the interest payments on the bonds, acted as consultants to the city. As such, the securities firms should have found the best swap prices for the client, he said.
The lenders “didn’t examine the cost of doing the swaps with other banks,” Fusai said. A range of bids for the derivatives would have brought transparency, he said after more than 10 hours of questioning over three hearings since Oct. 27.
Deutsche Bank AG, Depfa Bank Plc, JPMorgan Chase & Co. and UBS AG are accused of misleading Milan and earning 101 million euros ($139 million) in hidden fees from the transactions. The banks first sold interest-rate swaps to the city on 1.7 billion euros of bonds. The banks deny the allegations.
Italian municipalities are required to sell repayment bonds or create a payment plan if they sell a so-called bullet bond which is repaid at maturity.
Fusai said that Milan should have considered the option of selling repayment bonds, which wouldn’t have required a swap. Local governments including the regions of Lazio, Sicily and Sardinia have successfully sold the bonds, some with durations of as long as 30 years, he said. Instead, Milan sold a bullet bond with an amortizing swap arranged by the banks, he said.
Fusai said the banks charged Milan 52 million euros at the start of the swap. He said that so-called implicit cost marked the difference between the city’s and the banks’ credit risks. He didn’t account for the cost the banks faced in arranging the transactions in his calculation, he said.
Milan is making money on the transactions and has received about 30 million euros by swapping the fixed rate on its borrowings for a variable rate with Deutsche Bank, the bank’s lawyer said at a hearing on Nov. 3. The city has a mark-to- market gain on the contract at current prices, said the lawyer.
“This is a partial picture,” said Fusai. “It doesn’t reflect the risks assumed.” The city is receiving money today and has pushed back its borrowings, Fusai said. “We’re not interested in the mark-to-market at a generic date but when the contract is agreed.”
Officials for Deutsche Bank declined to comment. Officials for JPMorgan, UBS and Depfa couldn’t immediately comment.
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Verdicts/Settlement
Ex-Morgan Stanley Oil Chief Denied $30 Million in Finra Ruling
Morgan Stanley’s former oil-trading chief, Olav Refvik, lost a demand for $30 million after accusing the firm of “wrongful termination” and other mistreatment, according to a ruling by industry arbitrators.
Refvik, who left the firm in 2008, had also levied claims including breach of implied contract, unjust enrichment and improper forfeiture of vested stock and options, according to the Oct. 27 ruling released by the Financial Industry Regulatory Authority. The ruling doesn’t provide details on the allegations or the rationale for the arbitrators’ decision.
Refvik left the bank and the board of TransMontaigne Partners LP, an oil transportation and storage company owned by Morgan Stanley, the unit said in October 2008, about three months after the bank gave his responsibilities to a colleague. He filed a claim in March 2009, the ruling shows.
“We’re obviously very pleased with the ruling,” said Mark Lake, a spokesman for New York-based Morgan Stanley, declining to elaborate on the dispute. The bank is the sixth-largest in the U.S. by assets.
Refvik didn’t return phone calls and e-mails seeking comment. He retired from Morgan Stanley after 18 years at the firm, according to his biography on the website of Arrowhawk Capital Partners, a Darien, Connecticut-based hedge-fund manager that he helped found. He joined Noble Group Ltd. this year as global head of oil and oil-products trading, energy-news website SparkSpread reported in September.
Calls also weren’t returned from two lawyers listed by Finra as representing him, Jeffrey Liddle and Christine Palmieri of New York-based Liddle & Robinson LLP.
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WestLB Loses Trial Over Valuation Claim Against Nomura
A Nomura Holdings Inc. unit doesn’t owe WestLB AG the $22.3 million the German lender bailed out during the financial crisis was seeking at trial, a London court ruled.
While Nomura International Plc “acted irrationally” in valuing securities in an investment fund after the collapse of Lehman Brothers Holdings Inc., WestLB failed to prove that valuation resulted in it losing any money it wouldn’t have otherwise, Judge Nigel Teare ruled yesterday.
WestLB “failed to prove on the balance of probabilities that the shares had a value in excess of the defendants’ fee and so has failed to prove that it has suffered any damage,” Teare said in his judgment. The value of the securities determined by Nomura isn’t binding, he said. The judge denied WestLB permission to appeal.
WestLB claimed at a trial in the High Court in London that Nomura International last year used a “fraudulent” bidding procedure to determine the value of shares in an investment fund after missing a deadline to deliver notes that were linked to the shares rather than pay their cash value.
Nomura “acted irrationally in limiting its investigation of value to a dealer poll,” yet it didn’t act “dishonestly,” Teare said in the judgment.
The head of the trading desk in Nomura International’s structured credit group conducted a dealer poll in February by sending bid requests on the securities to banks including Goldman Sachs Group Inc., Credit Suisse Group AG, Standard Chartered Plc, JPMorgan Chase & Co. and Deutsche Bank AG, according to the judgment. None of the dealers were interested, so the Tokyo-based lender concluded the shares were worthless.
“We are surprised and disappointed at the judge’s ruling and are considering an appeal,” West LB said in an e-mailed statement. The German lender would have to apply directly to the Court of Appeal in London to challenge the ruling.
WestLB, based in Dusseldorf, had claimed Nomura should have used the $22.3 million cash value of the notes established by the fund’s manager, Mauritian International Trust Co., or Mitco. Nomura said that valuation wasn’t reliable because it didn’t outline its methodology or the fund’s underlying assets.
“Nomura is satisfied with today’s decision,” the bank said in an e-mailed statement. “We have always maintained that WestLB’s claim was without foundation. We now consider the matter concluded.”
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On The Docket
British Court to Consider BAE Radar Deal in Tanzania Nov. 23
A U.K. court will start considering on Nov. 23 whether to approve a “plea agreement” under which BAE Systems Plc will pay as much as 30 million pounds ($48.4 million) in compensation to Tanzania.
The date was given in an e-mailed statement Nov. 10 from the British High Commission in Dar es Salaam, Tanzania’s commercial capital.
Europe’s biggest defence contractor reached the deal this year with the U.K. Serious Fraud Office to end a five-year probe into whether it enticed Tanzanian officials to buy a radar system with payments. The proposed settlement package needs court approval.
Alstom Gets Eurostar Trial Date for October 2011
Alstom SA said the High Court of London set October 2011 as a date for a trial to judge on the fairness of a tender in which Eurostar Group Ltd. picked high-speed trains made by German rival Siemens AG.
In a preliminary hearing Nov. 10, the court ordered Eurostar to disclose the documents relating to the evaluations of the offers, Alstom also said in a statement yesterday.
To contact the reporter on this story: Elizabeth Amon in Brooklyn, New York, at eamon2@bloomberg.net.
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