When Michael Madigan of Orrick, Herrington & Sutcliffe delivered a closing statement two weeks ago in the criminal trial of his client Greg Godsey, he told the federal jury in Washington, D.C., that the government had “danced with the devil.” In 2007, Madigan said, the Justice Department set up a “little nest out in Manassas, Virginia,” with the express intention of putting together Foreign Corrupt Practices Act cases. But when the FBI first tried to use an informant who appeared right after the Manassas base was established, it couldn’t make out any traditional cases based on his evidence. So according to Madigan, the Justice Department instead engineered a 2009 sting involving alleged bribes to the defense minister of Gabon in exchange for military supply contracts. That operation netted Justice 22 FCPA defendants and countless headlines touting its get-tough policy on foreign corruption.
In last week’s rejection of Chevron’s attempt to use U.S. courts to block enforcement of the Lago Agrio plaintiffs’ $18 billion Ecuadorean judgment, the U.S. Court of Appeals for the Second Circuit was clearly uneasy at the idea of American judges interfering with foreign jurisprudence. So far, the arbitration panel overseeing Chevron’s case against the Republic of Ecuador has had no such qualms. But with Chevron now relying heavily on the arbitration process to protect it from plaintiffs’ attempts to claim oil company assets, the panel’s power over foreign courts is going to become a key issue — and the Ecuadorean plaintiffs are now calling for the U.S. government to support Ecuador’s sovereignty. Chevron, meanwhile, argues that if anyone has caused harm to Ecuador’s constitution, it’s the Republic and the Lago Agrio plaintiffs, not Chevron and the arbitration panel.
I follow mortgage-backed securities litigation closely enough to be disgusted at the greed that fueled the securitization of insufficiently underwritten mortgages issued to homeowners who had no hope of paying them off. Sure, MBS investors and the bond insurers that backed MBS trusts were sophisticated and, to some extent, forewarned about the timebombs lurking in those mortgage pools. But you can’t read the voluminous MBS filings by monolines and investors — including the federal agency that oversees Fannie Mae and Freddie Mac — without wishing that someone be held accountable for sending the housing market on a slide, and dragging down the rest of the economy with it.
If Chevron was still hoping for a ruling from New York’s federal courts that would make it impossible for Ecuadorean plaintiffs to collect their $18 billion judgment against the oil company, Thursday’s long-awaited opinion by the U.S. Court of Appeals for the Second Circuit puts an end to that strategy. The appellate panel’s 30-page opinion — which explains the court’s Sept. 2011 order lifting the worldwide injunction barring enforcement of the Ecuadorean judgment — gives Chevron the chance to argue once again that the Ecuadoreans can’t collect in New York, under the state’s Uniform Foreign Country Money-Judgments Recognition Act. But in no uncertain terms, the Second Circuit advised that even if Chevron eventually persuades a New York judge that the Ecuadoreans procured their judgment through fraud, that judge cannot bar enforcement of the judgment outside of the United States.
Attention everyone who’s suing or planning to sue JPMorgan Chase, Bear Stearns, or Bear’s onetime mortgage unit EMC over mortgage-backed securities gone bad: Those indefatigable bond insurers are busy amassing whistleblower evidence for you. Last Friday, Patterson Belknap Webb & Tyler — which represents the monolines Syncora, Assured Guaranty, and Ambac in fraud and breach-of-contract suits stemming from EMC mortgages — began deposing witnesses from outside companies that evaluated the underlying loans in Bear’s mortgage-backed offerings. (The Nov. 18 amended complaint in Assured’s Manhattan federal court case against EMC and JPMorgan outlines the whistleblower assertions Patterson has come up with.)
I like to think of the U.S. Supreme Court’s 2010 ruling in Morrison v. National Australia Bank as Godzilla, rampaging across the landscape of civil litigation as plaintiffs’ lawyers scramble away in horror. Morrison, as you know, was a securities case, and in the narrowest sense, the ruling simply precluded securities-fraud suits based on foreign-traded shares. But the Court’s warning that U.S. laws shouldn’t be presumed to apply overseas unless the statute’s language specifies it has turned out to be a powerful weapon for foreign defendants in all sorts of civil cases, from antitrust and trade secrets to racketeering and Securities and Exchange Commission enforcement.
On Thursday, the U.S. Court of Appeals for the Second Circuit denied Chevron’s bid to re-impose a worldwide injunction barring Ecuadorean plaintiffs from acting to enforce the $18 billion environmental contamination judgment that an Ecuadorean appellate panel upheld earlier this month. That’s Chevron’s second big rebuff in its U.S. campaign to knock out the Ecuadorean judgment, which the oil company contends was fraudulently obtained. Two weeks ago U.S. District Judge Lewis Kaplan in Manhattan — theretofore a reliable backstop for Chevron — refused the oil company’s motion for an attachment order in its racketeering suit against the Ecuadorean plaintiffs and some of their lawyers and experts.
If you hadn’t heard of the House of Representatives’ Stop Online Piracy Act or the Senate’s corresponding Protect I.P. Act before Wednesday, you surely have now, after Wikipedia, Craigslist, and many other Internet information providers went dark in protest of the pending legislation. SOPA and PIPA, as the bills are known, are being pushed by movie studios, publishers, and other copyright holders who want to curb online piracy by overseas websites. But lots of U.S. Internet companies contend that SOPA and PIPA undermine the safe-harbor provisions of the Digital Millennium Copyright Act, which protects websites that inadvertently publish copyrighted material.
On Wednesday, the Financial Industry Regulatory Authority disclosed a settlement with Citigroup that U.S. Senior Judge Jed Rakoff might find interesting. Citi agreed to pay a $725,000 fine to resolve allegations that it committed thousands of disclosure lapses in research reports issued between January 2007 and March 2010. (A big thanks to my Thomson Reuters colleague Stuart Gittleman of Accelus, who told me about Citi’s FINRA deal.) Among other disclosure problems, Citi failed to note its role as a manager or co-manager of a related public offering in 8 percent of the 80,000 reports it issued annually; it neglected to report investment banking revenue in 330 research reports; and it didn’t disclose its beneficial ownership in about 1,800 companies its analysts covered.
Who will speak for Jed Rakoff?
The Manhattan federal judge is certainly not shy about speaking for himself. In November, as you’ll surely recall, Rakoff blocked a negotiated $285 million settlement between the Securities and Exchange Commission and Citigroup over mortgage-linked securities. To say Rakoff had harsh words for the parties would be the understatement of the year. He railed against the bank and regulators and called the SEC’s practice of allowing companies to settle cases without admitting or denying wrongdoing far outside the public interest. For good measure, the judge also accused the SEC of being out for a “quick headline” and called the settlement amount “pocket change.”