Alison Frankel

BP’s friends at the Supreme Court: new faces, old arguments

Alison Frankel
Sep 8, 2014 21:43 UTC

It must have been a lot of fun for the lawyers at King & Spalding to write the first couple of sentences in a new amicus brief at the U.S. Supreme Court, supporting BP’s petition for review of two rulings by the 5th U.S. Circuit Court of Appeals. King & Spalding’s client is the British government, which, like BP, believes that the 5th Circuit was wrong to uphold the oil company’s 2012 class action settlement because the deal supposedly permits recoveries even to businesses with no injuries attributable to the 2010 Deepwater Horizon oil spill. By now, that’s a well-worn argument, after BP’s two ultimately unsuccessful appeals at the 5th Circuit and its failed request for an emergency stay from the Supreme Court. But when you represent the Queen of England’s government, here’s how you get to introduce yourself:

“Her Britannic Majesty’s Government of the United Kingdom of Great Britain and Northern Ireland respectfully submits the following brief in this important matter,” the brief begins. “Although Her Majesty’s Government takes no position on any points of interpretation of United States law, it notes that the combination of rulings now before this court has produced an untenable and exceptionally important result.” Soon thereafter, the UK brief cites the 1765 edition of Blackstone’s Commentaries on the Law of England for “the proposition that plaintiffs must prove all of the elements of their claims,” which, according to the brief, is fundamental to “our nations’ shared legal tradition.”

Drafting that paragraph had to be a kick for the American lawyers representing Britain. And I’m sure BP was gratified that The Financial Times gave the UK government’s amicus brief big play on Sunday. Even the class action lawyers who have fought to preserve their multibillion-dollar settlement with BP told me in an email statement that it took “gumption” for BP to persuade “the Queen of England to say that centuries-old English law would frown on BP paying damages.”

The real question, though, is whether the British government’s brief – or any of the other four amicus briefs filed last week in support of BP’s petition for certiorari – will help persuade the Supreme Court to review the case. BP is facing long odds against it. As I’ve reported, the entire court considered BP’s request for an emergency stay last summer, after the 5th Circuit said that payments to class members could resume. Among the four factors the court took into account were whether the oil company was reasonably likely to be granted cert and whether it had a “fair prospect” of winning if it were. A majority of the justices denied BP’s motion. We don’t know precisely how many, but it takes five votes to grant a stay and BP didn’t get them.

Only four justices have to vote to grant cert, so the stay denial didn’t end BP’s prospects for Supreme Court review. But by my read, BP’s cert petition, filed at the beginning of August, and the new briefs by its amici don’t assert arguments that the justices haven’t already seen from the oil company in its stay motion. I doubt, in other words, that the new briefs are going to change any justice’s mind – which means that BP had better hope that one (or more) of the justices who voted against the stay already believes its contention that the case raises constitutional issues on standing and class actions that have divided the federal circuits.

New ISDAfix rate-rigging antitrust case isn’t just Libor redux

Alison Frankel
Sep 5, 2014 20:29 UTC

Daniel Brockett of Quinn Emanuel Urquhart & Sullivan knows as well as anyone what happened last year in the litigation over an alleged conspiracy to manipulate the London Interbank Offered Rate. You remember: In a true shocker of a decision, U.S. District Judge Naomi Reice Buchwald, who is presiding over Libor litigation consolidated in federal court in Manhattan, ruled that the alleged Libor rate-rigging didn’t give investors a cause of action for antitrust violations because the supposed conspiracy among Libor panel banks was not anticompetitive. For Brockett, who had been advising clients to bring Libor suits under securities and contract law, Buchwald’s ruling was an opportunity to push his alternative theory of how to recover for Libor manipulation.

So when I saw Brockett’s name at the top of an antitrust class action complaint filed Thursday in federal court in Manhattan – accusing 13 global banks of colluding to manipulate a different interest rate benchmark, the U.S. dollar ISDAfix – I suspected that the allegations would have been drafted with Buchwald’s Libor reasoning in mind. And so they were, according to Brockett and co-counsel from Robbins Geller Rudman & Dowd. In interviews Friday, Brockett and Patrick Coughlin and David Mitchell of Robbins Geller told me why they believe their ISDAfix antitrust allegations can withstand the judicial analysis that killed off (at least for now) Libor antitrust allegations.

The key difference between their case and the dismissed Libor claims, according to the plaintiffs’ lawyers, is that they accuse the banks involved in setting the ISDAfix benchmark of engaging in transactions in order to manipulate the rate. Libor rates were determined by averaging the rates reported by banks on the rate-setting panel. The ISDAfix benchmark – a daily measure of the fixed rate for interest rate swaps that affects the price of trillions of dollars of derivatives – is a reference rate that, like Libor, relies on submissions from panel banks. But when the markets operator ICAP calculated the rate during the time period at issue in the suit, it also took into account the average trading rate of interest rate swaps at 11 o’clock every morning. According to the complaint, the banks involved in the ISDAfix-setting process conspired with each other and ICAP to manipulate the trading rate through (among other things) engaging in high-volume, coordinated buying or selling just before ICAP’s daily 11 a.m. assessment. The complaint claims that bankers called such rate-rigging “banging the close.”

Target’s bid to ditch $18 bln case by credit and debit card issuers

Alison Frankel
Sep 4, 2014 21:09 UTC

When hackers from Eastern Europe stole financial information from more than 100 million Target customers last fall, the data breach caused a huge headache for banks that issued the compromised credit and debit cards. In the midst of the holiday shopping season, card issuers had to notify clients about the breach, cancel accounts that had been hacked, reissue cards and reimburse customers for fraudulent transactions. The issuing banks have estimated that each card they replaced cost them between $15 and $50. In all, they have alleged in a class-action complaint against Target, their damages from the data breach fiasco may add up to more than $18 billion.

Target says those losses aren’t its responsibility. In a brief filed Tuesday in federal court in St. Paul, Minnesota, the retailer’s lawyers at Ropes & Gray and Faegre Baker Daniels argue that Target has no legal duty to the banks that were forced to replace hacked credit and debit cards because it has no direct relationship with the issuers and owes them no special care.

Every retail business and payment card issuer ought to be paying attention to Target’s arguments. There have been only a handful of rulings in the past few years on merchants’ liability to payment card issuers, and they’ve all been in small actions by individual banks – nothing remotely approaching the scale of the Target class action. All but one of the previous decisions (at least according to Target’s brief) have gone against payment card issuers, concluding that merchants don’t have a duty to credit card issuers. But if U.S. District Judge Paul Magnuson, who’s overseeing the consolidated Target data breach litigation, eventually disagrees and finds that bank issuers can sue retailers for the cost of dealing with data breaches, that will drastically increase merchants’ exposure in data breach litigation.

Can U.S. terror-financing litigation curtail terrorism?

Alison Frankel
Sep 3, 2014 23:46 UTC

I’ve spent the past two days in a federal courtroom in downtown Brooklyn, listening to the former head of Israel’s Palestinian Affairs Department, Arieh Spitzen, make a convincing case that Jordan’s Arab Bank processed tens of millions of dollars to Hamas leaders and Hamas-controlled organizations during the second Palestinian Intifada, when Hamas was engaged in a campaign of bombings that killed more than 600 Israeli and foreign civilians. Spitzen was the final witness for nearly 300 American victims of Hamas terrorism operations between 2000 and 2004, and his expert testimony weaved together the strands of their case into a neat bundle. According to Spitzen, Arab Bank transferred more than $4 million into accounts held by 18 prominent and publicly known Hamas officials; processed more than $32 million from Hamas’ worldwide fundraising operations to Hamas-controlled groups fronted by charities; and facilitated another $35 million in payments to Palestinians injured or imprisoned in the Intifada or to families of those who died in the uprising.

Arab Bank will still have a chance during its cross-examination to raise doubts about Spitzen, who has been paid more than $700,000 for his work on behalf of the American plaintiffs. The bank will also, of course, call its own witnesses, who are expected to testify that Arab Bank conducted nothing more than routine banking operations, appropriately terminating relationships with account holders once people or organizations were designated as international terrorists. Arab Bank has long argued that it and other global financial institutions must be permitted to rely on these international designations or else no legitimate bank will operate in terror-ridden parts of the world. “It is the government who decides who should be designated as a criminal and put on the lists,” the bank’s lead trial lawyer, Shand Stevens of DLA Piper, said during opening arguments in August. “That is the way banking works.”

In the abstract, that’s a compelling argument, but through Spitzen’s testimony, lawyers for Hamas’ American victims brought specificity to claims that Arab Bank knew or should have known that it was financing terror. Spitzen, who served with a joint military and Defense Ministry group called the Coordinator of Government Activities in the (Palestinian) Territories, told jurors about dozens of Hamas leaders who either held accounts at the bank or headed supposed charities with Arab Bank accounts. Jurors saw slides with the Hamas operatives’ names, photographs and prison histories. They heard about Israel’s raids on some of the charities, which turned up not only evidence of links between Hamas and the purportedly humanitarian groups but also “martyr files” on suicide bombers whose survivors received wire transfers at Arab Bank branches from the Saudi Committee for the Support of the Intifada Al Quds. (The bank has said that it just processed payments to the families as per the instructions it received from a correspondent bank in Saudi Arabia and that “martyrs” is a term describing all of the more than 3,000 Palestinians who died in the second Intifada, not necessarily suicide bombers.)

Justice Department to federal judges: Get off my lawn

Alison Frankel
Aug 29, 2014 20:38 UTC

Have you heard the old joke about the difference between God and a federal court judge? The punchline is that God doesn’t think he’s a judge – implying, of course, that federal judges have a perhaps inflated perception of their omnipotence.

The Justice Department is doing its best to prick that bubble, at least when it comes to judicial oversight for its deals with corporate defendants. None of the government’s megabillion-dollar settlements with banks for their alleged mortgage securitization crimes, for instance, has been subject to review by a federal judge, since all of the deals have been struck before Justice actually filed cases. (Better Markets has been sounding an alarm on these settlements since February, when it sued Justice over JPMorgan Chase’s $13 billion deal.) Formal non-prosecution agreements, which also permit Justice and corporate defendants to sidestep federal judges, have been on the rise for more than a decade. Gibson, Dunn & Crutcher‘s midyear corporate crime report, issued in July, said Justice has struck five non-prosecution agreements – including one settlement, with SunTrust Mortgage, that introduced a whole new category of non-prosecution deals, the “restitution and remediation agreement” – so far in 2014. (Sue Reisinger at Corporate Counsel had a good piece Friday on this latest avenue of evasion for corporate defendants.)

Deferred prosecution agreements, which the Justice Department has deployed more frequently than non-prosecution agreements, do involve judicial oversight, thanks to the Speedy Trial Act of 1974. The act, which requires the federal government to try criminal defendants expeditiously, entails judicial approval for agreements that toll time limits. Historically, such deals involved individual defendants, and judges reviewed them to be sure that prosecutors and defendants weren’t colluding to delay trials.

Arab Bank official: Bank knew it was processing payments to ‘martyrs’

Alison Frankel
Aug 28, 2014 22:17 UTC

Arab Bank was aware that it was processing wire transfers from a Saudi Arabian charity to the families of “martyrs” of the second Palestinian Intifada against Israel, according to deposition testimony from the bank’s global head of operations, played Thursday for jurors in a terrorism finance trial against the bank in federal district court in Brooklyn. Lawyers for nearly 300 American victims of Hamas attacks on Israel between 2000 and 2004 also aired deposition testimony in which they confronted three executives from Arab Bank’s Palestinian operations with evidence the bank was apprised that at least three of those “martyrs” killed themselves in civilian bombings.

The three officials said that they always followed the bank’s policies and procedures for transferring money from correspondent banks. But a former Arab Bank compliance executive from the London branch said in a deposition also played Thursday for the jury in Brooklyn that if he had seen the materials sent to those officials – including charts listing the cause of death of three of the men whose families were slated to receive wire transfers as “martyr operations” – he would not have processed the transfers.

“If this had arrived in London, which one never did in my experience, we would have immediately commissioned probably a multiple suspicious activity report, because this is something which we were most unused to dealing with,” testified former Arab Bank compliance official David Blackmore.

The audacious theory in Elan investors’ insider trading suit vs. SAC

Alison Frankel
Aug 15, 2014 21:26 UTC

Everyone knows that the hedge fund SAC Capital, now known as Point72, made a bundle when it ditched shares of the pharmaceutical companies Wyeth and Elan based on inside information that their jointly developed Alzheimer’s drug, bapineuzumab (better known as bapi), was a bust. SAC supposedly realized $555 million in profits and avoided losses because trader Mathew Martoma got early word about disappointing bapi test results from a doctor involved in the clinical trials. Both SAC and Martoma have, of course, been held to account for the trades: Martoma was convicted at trial and SAC pled guilty. In all, the hedge fund has forked over nearly $2 billion to the government because it illegally traded on inside information about the bapi trials.

Two days after the rest of the world heard about the discouraging bapi clinical trial results – in other words, after SAC had sold off its stake in Wyeth and Elan – Elan revealed even more bad news. Two patients had contracted a rare and frequently fatal brain disease after taking Elan’s major product, the multiple sclerosis drug Tysabri. Shares of the Ireland-based company, which had already taken a beating after the bapi disclosure, fell another 50 percent on the Tysabri news.

SAC didn’t trade on inside information about Tysabri, and the drop in Elan’s share price after the Tysabri disclosure had nothing to do with SAC’s inside information about bapi. Yet according to a decision Thursday by U.S. District Judge Victor Marrero of Manhattan, the hedge fund may still be liable for an additional $107 million it avoided losing because it had already sold its stake in Elan before the Tysabri news broke. Marrero ruled that holders of Elan American Depository Receipts can proceed with class action claims that SAC must disgorge the losses it avoided incurring in Elan’s Tysabri-related stock drop because it had illegally sold its Elan shares based on inside information about an entirely unrelated drug trial.

Arab Bank terror trial claim: ‘It wasn’t routine banking’

Alison Frankel
Aug 14, 2014 23:35 UTC

According to Arab Bank, the world’s primary defense against terrorist financing is computer software. As Arab Bank lawyer Shand Stephens of DLA Piper told a Brooklyn federal jury Thursday morning, banks run programs that instantaneously monitor transactions to make sure money transfers don’t involve people and organizations on international terrorist lists. “It is the government who decides who should be designated as a criminal and put on the lists,” Stephens said during opening statements in the much anticipated trial of civil terror financing claims against the Jordan-based bank. “That is the way banking works.”

Except when it doesn’t. Stephens told jurors about four Arab Bank transactions that put money in the hands of officially designated terrorists during the time of the second Palestinian Intifada against Israel from 2000 to 2004. In two of those transactions – one of them a $60,000 transfer to an Arab Bank account held by the founder of Hamas – Arab Bank’s compliance software failed to detect variations in the spelling of the names of U.S.-designated terrorists. The other two transactions, both transfers to an ostensible charity deemed to be a front for Hamas, were “by mistake,” Stephens said.

He told jurors that these were only four transactions out of the millions Arab Bank processed during the four years at issue in the case. He also said that screening software is better now than it used to be. But there’s still something unsettling about Arab Bank’s depiction of how the international financial system fulfills its obligation to choke off funding for terror operations. The U.S. Treasury’s Office of Foreign Assets Control has 10,000 names on its terrorist list, which runs to 545 pages, according to Stephens. And apparently, a tiny variation in the spelling of any of those names can result in the transfer of tens of thousands of dollars to a militant as notorious as the founder of Hamas.

Climate scientist faces broad array of foes in suit vs. National Review

Alison Frankel
Aug 13, 2014 20:58 UTC

Penn State meteorology professor Michael Mann sounds like a pretty sympathetic character in the brief his lawyers filed last April at the District of Columbia Court of Appeals. Mann, who is widely credited with developing groundbreaking evidence of global warming, asked the appeals court to reject ongoing efforts by National Review and the Competitive Enterprise Institute to dismiss his libel and defamation case under the District of Columbia’s anti-SLAPP (Strategic Lawsuits Against Public Participation) law.

The defendants hadn’t just expressed their disagreement with his work on climate change, Mann said. They’d accused him of scientific fraud – “a statement of fact subject to objective verification and thus not protected ‘opinion,’” – Mann’s brief said. And they’d done so, according to Mann, even though the right-leaning magazine and think tank were well aware that he has been cleared in academic and regulatory inquiries about some troubling emails stolen from the Climate Research Unit at the University of East Anglia in the United Kingdom that appeared to raise questions about the integrity of his research.

Mann’s brief urged the D.C. appeals court to let his case move ahead. “This litigation has been pending over a year and a half, and, of course, no discovery has yet taken place,” wrote his lawyers at Williams Lopatto and Cozen O’Connor. “Defendants continue to play their malicious game of defaming Dr. Mann, aptly described by the Superior Court as a ‘witch hunt,’ and have succeeded in raising hundreds of thousands of dollars through their pledge to continue their harassment of this distinguished scientist.”

Can E&Y escape from Lehman Repo 105 litigation for less than $120 mln?

Alison Frankel
Aug 12, 2014 20:14 UTC

The big revelation in Anton Valukas‘s report on Lehman Brothers’ failure in March 2010 was the bank’s use of an accounting trick called Repo 105, in which Lehman used the cash it received from short-term sales of highly liquid securities to pay down its liabilities. Valukas’s examiner’s report said Lehman was apparently using Repo 105 transactions at the end of every quarter to make it seem as though the bank was less leveraged than it actually was. He advised that the Lehman estate had, at least, a “colorable claim” against Lehman’s auditor, Ernst & Young.

The Valukas report touched off a feeding frenzy against Ernst & Young. Lehman investors sued the auditor, as a class and in individual cases by such large investors as the California Public Employees Retirement Systems, which, by itself, blamed Ernst & Young for nearly $1 billion in Lehman losses. The New York State attorney general sued under the state’s powerful Martin Act. And the Lehman estate eventually brought a malpractice and breach-of-contract case against its former auditor, asking in an arbitration proceeding for the disgorgement of about $160 million in fees it paid to Ernst & Young, as well as unspecified damages from the auditor’s supposed failure to warn Lehman against the Repo 105 deals.

But it’s beginning to look like Repo 105 won’t be a catastrophe for Ernst & Young. In fact, the auditor may end up walking away from its disastrous Lehman engagement for less than $120 million. That’s a lot of money, of course, and there’s still a chance that Ernst & Young will have to pay back some of those tens of millions in Lehman fees. Nevertheless, Ernst & Young and its lawyers at Latham & Watkins have to be feeling like they’ve escaped a shark tank with minor wounds.