Alison Frankel

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.

Blackmore’s testimony seemed designed to undercut Arab Bank’s primary defense, which is that its Palestinian branches engaged in nothing more than routine banking operations when they paid out about $100 million – about $40 million of it in cash over the counter – from the Saudi Committee for the Support of Intifada Al Quds, in money transfers via the Saudi-based Arab National Bank. Arab Bank’s lawyer, Shand Stephens of DLA Piper, told jurors in opening arguments earlier this month that the bank used standard banking compliance software to make sure that it was not processing payments to globally designated terrorists. (Four transactions in which Arab Bank did put funds in the hands of identified terrorists were “by mistake,” Stephens said in opening arguments.)

In the deposition testimony aired Thursday, Arab Bank officials from its Palestinian operations downplayed any suggestion that the wire transfers from the Saudi Committee were out of the ordinary. “We carried out the instructions of the correspondent bank,” said regional manager Assad Saleh, who audited operations in Ramallah. The Saudi Committee transfers, he said, were “just like any other.”

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.

Israel’s conflicted role in Bank of China terror finance case

Alison Frankel
Aug 11, 2014 22:16 UTC

Last Thursday, U.S. District Judge Shira Scheindlin of Manhattan refused to reconsider her previous decision to block American terror victims suing the Bank of China from deposing a former Israeli counterterrorism agent. The former operative, Uzi Shaya, was expected to testify that Israel counterterrorism experts met with Chinese government officials in April 2005 to warn them that Hamas and Palestine Islamic Jihad were using Bank of China accounts to launder money and finance attacks on civilians in Israel. Bank of China has denied any knowledge of those supposed warnings, and without a live witness to confirm what happened at the 2005 meetings, victims of the attacks will have a much tougher time proving their case against the Chinese bank.

It wasn’t Bank of China that stopped Shaya’s testimony, however. It was Israel.

The Israeli government fought for eight months to squelch the deposition of its former official, even though, according to U.S. and Israeli lawyers for the victims, Israel was prepared to permit Shaya’s testimony as recently as March 2013. The victims’ lawyers claim that the suits against Bank of China would never have been filed had Israel not promised to support the litigation – that, in fact, Israel considered U.S. litigation under the U.S. Anti-Terrorism Act an indispensable element of its national security campaign to choke off terror financing. According to the victims, the Israeli government supplied the specific information about Bank of China transactions that is the backbone of their case.

Arab Bank terror finance trial: How much screening must banks do?

Alison Frankel
Aug 8, 2014 22:21 UTC

Osama Hamdan, the Hamas spokesman who recently refused to retract his claims that Jews kill Christians to bake their blood into matzoh, was an account holder at Arab Bank from 1998 to 2005. His account number was listed on a website associated with Hamas, which the U.S. Treasury Department first designated as a foreign terrorist organization in 1997, and several transfers processed through Hamdan’s account listed Hamas as a beneficiary. During his last two years as an Arab Bank account holder, Hamdan himself was a “specially designated global terrorist,” according to the Treasury Department, which added him and several other Hamas leaders to the rolls in 2003.

Hamas’s founder, Sheikh Ahmed Yassin, was also a customer of Arab Bank. Yassin, whom the U.S. government named a terrorist in 1995, received a $60,000 payment, routed through Arab Bank’s New York operations, in 2001, the same year that the leader of Hamas’s military wing received $110,000 in payments to his Arab Bank account. The bank processed more than $400,000 for yet another prominent Hamas leader, Ismail Haniyeh, who was an Arab Bank account holder from 2000 until 2004, when his account was raided by the Israel Defense Forces. Over the same time period, Hamas claimed credit for sending bombers to blow up restaurants, nightclubs, bus stations and other public sites in Israel.

Is Arab Bank responsible? Should we blame the bank for Hamas’s attacks because it provided banking services to 11 high-ranking members of Hamas and processed so-called “martyr payments” to the families of dozens of suicide bombers?

In new Pershing Square filings, Ackman takes Allergan’s dare

Alison Frankel
Aug 7, 2014 20:04 UTC

If Allergan’s insider trading and disclosure suit against the hostile bidders Valeant and Pershing Square is a bluff, Pershing just called it.

William Ackman’s hedge fund dumped a pile of documents that Allergan complained it had improperly withheld on the Securities and Exchange Commission on Wednesday, including Pershing’s original confidentiality agreements with the Canadian drug company Valeant, as well as the share call option and forward contracts in which the hedge fund acquired its 9.7 percent stake in Allergan.

Pershing and Valeant also filed a brief in federal court in Santa Ana, California, agreeing to expedited discovery so it can dispose quickly of Allergan’s claims. The brief, signed by Kirkland & Ellis for Pershing and Sullivan & Cromwell for Valeant, is actually styled as an opposition to a motion to expedite by Allergan’s lawyers at Latham & Watkins and Wachtell, Lipton, Rosen & Katz. But after accusing Allergan of suing to impede shareholders from calling for a special meeting to oust directors, Pershing and Valeant said they’re raring to defend themselves against Allergan’s accusations.

In Sherlock case, 7th Circuit spurs war on copyright ‘extortionists’

Alison Frankel
Aug 5, 2014 20:37 UTC

Judge Richard Posner of the U.S. 7th Circuit Court of Appeals has confessed to reading the occasional legal thriller, but he’s no fan of the estate of Arthur Conan Doyle, the author who created the indelible detective Sherlock Holmes.

In June, Posner wrote an opinion holding that the Conan Doyle estate can’t interfere with the publication of an anthology of stories by modern authors inspired by Conan Doyle’s characters. All but 10 of Conan Doyle’s 60 Sherlock stories and novels are in the public domain, Posner wrote, and the estate’s attempts to extend its rights over the characters – chiefly by arguing that Sherlock Holmes and his sidekick, John Watson, weren’t fully developed until Conan Doyle wrote the final 10 works protected by copyright – have no basis in the law. On Tuesday, Posner and his 7th Circuit colleagues, Joel Flaum and Daniel Manion, underlined that decision by awarding about $30,700 to Leslie Klinger, the anthologist, for his legal fees in the appeal.

The circumstances of the Sherlock case are interesting enough on their own, but Posner’s fee opinion isn’t just a curiosity. It’s a call to arms against copyright “extortionists.”

Why did Allergan change its mind about Ackman and insider trading?

Alison Frankel
Aug 4, 2014 19:57 UTC

A few days after the Canadian pharmaceutical company Valeant announced that it had teamed up with the activist investor William Ackman to bid for Botox maker Allergan, Wachtell, Lipton, Rosen & Katz wrote a teeth-gnashing client alert about the new threat to corporate targets from the unholy alliance of a strategic bidder with an activist hedge fund. Commentators were already raising questions about whether Ackman and Valeant had engaged in insider trading, because Ackman secretly accumulated Allergan shares based on his knowledge of Valeant’s imminent takeover bid. But in that early memo, Wachtell didn’t claim Valeant and Ackman had broken insider trading rules. Instead, the firm bemoaned Valeant and Ackman’s “conspicuously structured” stratagem that “took express pains to sidestep” the Williams Act’s bar on trading in advance of a tender offer.

Unfortunately for Allergan and future target companies, Wachtell said, “The structure is crafty, and good for Valeant and Pershing Square (as long as no bad facts emerge, such as undisclosed arrangements, that could get them in trouble).”

A prophetic parenthetical? On Friday, Wachtell – now acting as counsel to Allergan, along with Latham & Watkins – filed a complaint in federal court in Los Angeles that accuses Valeant and Ackman of executing an “improper and illicit insider-trading scheme … flouting key provisions of the federal securities laws.” The suit not only claims that Valeant and Ackman didn’t make adequate disclosures to Allergan shareholders – reviving an old takeover defense tactic from the 1980s – but also pushes the novel theory that Ackman violated a provision of the Williams Act prohibiting anyone except an acquirer from trading on material non-public knowledge that the acquirer has taken “a substantial step” toward launching a tender offer.