Of the 18 banks that challenged MBIA’s restructuring in 2009, only two – Bank of America and Société Générale – remain. On Monday, unless there’s a last-minute settlement this weekend, they will finally go to trial in New York State Supreme Court to argue that New York state insurance regulators should not have approved MBIA’s split, which stripped $5 billion in capital from MBIA’s crippled structured-finance insurance business.
I was planning to write a sober analysis of a new copyright infringement complaint filed in Manhattan by the adult entertainment (read: naked pics of beautiful women) site Perfect 10. I figured I would examine whether the recent 2nd Circuit Court of Appeals ruling in Viacom’s case against YouTube and Google would help Perfect 10’s claims that the hipster blog site Tumblr consistently refused to take down unauthorized uploads of Perfect 10 photos, even after receiving infringement notices. Then I got a call from Perfect 10 CEO Norman Zada, responding to a message I left with his lawyers at Cowan, DeBaets, Abrahams & Sheppard. Zada convinced me that a straight story wouldn’t adequately capture Perfect 10’s copyright campaign.
From the beginning of the criminal prosecution of Rajat Gupta, it was clear that the government didn’t have the sort of evidence usually at the heart of insider-trading cases. Gupta didn’t profit directly from the tips he allegedly passed to Raj Rajaratnam, who has since been convicted of insider trading. In fact, as his lawyer, Gary Naftalis of Kramer Levin Naftalis & Frankel has said repeatedly, Gupta lost millions in his investment with Galleon, Rajaratnam’s hedge fund. That evidentiary gap has left space for Naftalis to argue that the government unfairly targeted his client because of Gupta’s high profile as a former head of McKinsey and director at Goldman Sachs. It also puts pressure on prosecutors to link Gupta directly to Rajaratnam’s tainted trades, since nothing else shows he was part of the conspiracy.
In an ideal world, the value of a shareholder securities claim rests entirely on its merits. And now that you’ve stopped snickering, let’s talk about the real world, where two disputed settlements test the de facto assumption that securities claims are worth what a company’s directors and officers insurance carriers are willing to pay to resolve them.
Sometimes it seems as though Chancellor Leo Strine of Delaware Chancery Court is more excited about analyzing the exercise of corporate power than he is about the fine points of Delaware law. It’s not that Strine isn’t committed to the business litigation regime for which he is cheerleader-in-chief. But in some recent major rulings, including his 2010 decision upholding Barnes & Noble’s poison pill, his award of about $3 billion to Southern Peru Copper shareholders last October, and his ruminations on Kinder Morgan’s acquisition of El Paso Corp in March, Strine lets loose the rhetorical reins when he discusses power: who has it, who wants it, and how it influences corporate dealmaking.
For Microsoft, the last two weeks have brought bad news in its patent war with Motorola Mobility. On Apr. 24, an administrative law judge at the U.S. International Trade Commission issued an initial determination that Microsoft’s Xbox infringes four Motorola patents – rejecting Microsoft’s defense that three of the patents were essential to standard wireless device technology and that Motorola had breached an agreement to license the IP on reasonable terms. Then, on Wednesday, a judge in Mannheim, Germany ruled that the Xbox and certain versions of Windows infringe Motorola patents. He ordered the products removed from sale in Germany.
If you haven’t already, read Jesse Eisinger’s piece for ProPublica and the New York Times on the Securities and Exchange Commission’s case against the upstart credit-rating agency Egan-Jones. The SEC sued Egan-Jones – which challenged the traditional business model for rating agencies by charging users, not issuers, to opine on the riskiness of securities – for exaggerating its bona fides in a 2008 filing. Eisinger questioned the wisdom of sending Egan-Jones “to the guillotine” while letting bigger players, with business models that are susceptible to corruption, off the hook for their patently ridiculous ratings of toxic mortgage-backed securities. “This is your S.E.C., folks,” Eisinger wrote. “It courageously assails tiny firms, and at the pace of a three-toed sloth. And when it goes after its prey, it’s because it has found a box unchecked, rather than any kind of deep, systemic rot.”
It takes serious economics chops to be a big-time antitrust lawyer. If you want proof, read through the amended complaints filed in federal court in Manhattan this week in the consolidated litigation over the London Interbank Offered Rate, or LIBOR. Three different sets of plaintiffs contend that banks around the world colluded to misreport interbank borrowing rates, which are averaged to produce the LIBOR every day. In turn, LIBOR rates (which are currently determined for 10 currencies) are used as the primary benchmark for short-term interest rates worldwide. As Susman Godfrey and Hausfeld noted in their 103-page amended complaint on behalf of a class of investors in LIBOR-based swaps, options, and CDOs, “LIBOR thus affects the pricing of trillions of dollars’ worth of financial transactions.”
On Apr. 5, Greg Mortenson, the author of the blockbuster bestseller Three Cups of Tea, agreed to pay $1 million to resolve the Montana attorney general’s claims that he misused money from the charity he founded to establish schools in Pakistan and Afghanistan. Mortenson had attracted tens of millions of dollars for the charity through his memoir, Three Cups, and its sequel, Stones into Schools, before a 60 Minutes report in April 2011 cast doubt on some key points in Mortenson’s story and asserted he was diverting money from the charity to fund personal travel. A yearlong investigation by the Montana AG found the charity spent nearly $10 million to promote or buy his books.
Thanks to Monday’s joint announcement of Microsoft’s $300 million investment in a new Barnes & Noble’s digital and college textbook subsidiary, we will never know who actually won the patent showdown between the software and bookselling giants. An administrative law judge at the U.S. International Trade Commission last week put off an initial determination in Microsoft’s patent infringement case against B&N, which was tried in February. Now that the two are partners in the e-book business, the patent litigation will end without a ruling on the merits from the ITC or from the U.S. district judge overseeing Microsoft’s parallel infringement suit in Seattle federal court.