Barclays Bank Plc. has agreed to pay $10.9 million to settle charges of illegal insider trading in bond securities using information gleaned from bankruptcy creditor committees.

The SEC filed suit against Barclays in New York, alleging that Barclays and Steven Landzberg, the former head proprietary trader for Barclays U.S. distressed debt desk, illegally traded millions of dollars of bond securities in 2002 and 2003 based on material, nonpublic information received through their membership on bankruptcy creditor committees.

As part of the settlement, neither Barclays nor Landzberg admit or deny the allegations.

Barclays will pay a civil penalty of $6 million and a disgorgement of $4 million. In addition, Barclays will pay prejudgment interest of almost $1 million. Landzberg will pay a civil penalty of $750,000.

In addition, Landzberg will be permanently prohibited from participating in any creditor committees in any federal bankruptcy court proceeding involving an issuer of securities.

The SEC complaint alleges that Landzberg obtained nonpublic information as Barclays’ representative on six different official creditors committees. Further, Barclays allegedly made illegal trades in notes or securities issued by bankrupt companies Conseco, Inc., Galey & Lord, Inc., Pueblo Xtra International, Inc., Desa International, Inc., Archibald Candy Corp. and Air 2 US.

The SEC complaint charged that “Barclays’ Compliance Department failed to impose informational barriers or otherwise enforce policies or procedures to prevent Landzberg from trading such securities on the basis of material nonpublic information [that he obtained by sitting as a member on Creditors Committees].”

For further information, please visit Reuters news service at: http://www.reuters.com/article/businessNews/idUSN3041446920070530?feedType=RSS&rpc=23

Ray

The bankruptcy section head at Chicago-based McDermott Will & Emery found himself at the center of a major dispute after he told the U.S. Bankruptcy Judge in Miami that she was "a few french fries short of a Happy Meal." Since making the comment, he has lost his sizable client and has been order to appear before the Court to determine why he should not be barred from practice in that Court.
The local Miami bankruptcy bar has raised their voices in support of the Judge, saying that she is a good fair judge and that the "out of town lawyers" have a superior and arrogant attitude which is reflective in the attorney's comments to the Judge. "In interviews, South Florida bankruptcy lawyers praised her judicial abilities and her decision to hold Smith accountable for his words. The lawyers said Smith's comment showed disrespect for the judge and the district.
"People come to the Miami and Fort Lauderdale courts, and they think that it's a second-class court system when they come from New York or Chicago or places like that," said Charles M. Tatelbaum, national chairman of the bankruptcy litigation and secured transaction practice at Adorno & Yoss in Fort Lauderdale, Fla. "I am pleased because it would have been a lot easier for her to simply ignore it and do nothing, and this is the kind of person she is because she is going to say, 'I am not going to stand for that.'"

Here is a link to the entire article (a free subscription may be necessary to view the article):

http://www.nylawyer.com/display.php/file=/news/07/05/053107c

Mike

This issue was recently addressed by the 5th Circuit Court of Appeals in SEC v. Res. Dev. Int'l LLC, 2007 U.S. App. LEXIS 11603 (5th Cir. 2007).

The 5th Circuit Court of Appeals found that the district court did not err in holding that several members of a Ponzi scheme, after having its assets frozen by the SEC, were guilty of fraudulent transfers, but the appellate court vacated the lower courts ruling that its judgment could not be discharged in Bankruptcy. The district court reached its decision on fraudulent transfer pursuant to state law, however the appellate court ruled that the district court’s dischargeability determination was premature, as the Defendant’s had not yet even filed for Bankruptcy.

Benjamin Cook’s (“Cook”) assets were frozen after the SEC brought a lawsuit against him and various other members of a Ponzi scheme (“The Dennel Program”). Anthony Martella, the sole shareholder of M&M Engraving Co. and business associate to Cook in the Dennel Program, agreed to pay Cook’s legal fees, $60,000, through his company’s account. Cook promised to immediately reimburse Martella’s company, M&M Engraving and Manufacturing Co. (“M&M”). Soon thereafter, M&M received a wire transfer for $60,000, the exact amount of Cook’s legal fees, from International Educational Research Foundation (“IERC”), an entity whose assets were tied to “the Dennel Program.” Warfield, the court appointed receiver charged with protecting the remainder of the Dennel Program’s assets, sued Martella and M&M for the fraudulent transfer it received from IERC, holding them joint and severally liable.

Under Tex. Bus. & Com. Code Ann. § 24.005(a)(1), the district court found this to be a fraudulent transfer and awarded joint-and-several recovery from Martella and M&M in the amount of $60,000 plus pre-judgment interests and costs. The basis of the joint-and-several liability determination was formed by the district court’s finding that M&M corporation was Martella’s alter ego, since inter alia he was its only shareholder. The district court also declared that this judgment could not be discharged in a future bankruptcy, which the defendants will likely face.

The 5th Circuit Court of Appeals upheld the district court’s state law fraudulent transfer ruling and additionally found that Martella’s and M&M’s wire transfer was fraudulent under Tex. Bus. & Com. Code Ann. § 24.005(a)(2). Although, the appellate court upheld the district court’s determination that Martella and M&M are to be joint and severally liable, it did so not on the basis of alter-ego (the first ground used to pierce the corporate veil), but on the basis that the corporation was used for an illegal purpose (the second ground used to pierce the corporate veil). However, because of the fact that the Defendants had not yet filed for bankruptcy nor sought to have the judgment set aside in bankruptcy, the 5th Circuit Court of Appeals vacated the district court’s determination that the judgment against the defendants may not be discharged in a future bankruptcy.

Hunter

Carrington Capital Management received approval from U.S. Bankruptcy Judge Kevin J. Carey to buy New Century Financial for $184 million. This price is $50 million more than Carrington originally offered. New Century Financial is a subprime lender who at its peak employed about 6400. The sale of the company will allow 500 employees to retain their jobs.

“New Century bankruptcy lawyer Suzzanne Uhland of O’Melveny & Myers said the company will net about $150 million.

Approval came after Carrington, a Greenwich, Conn.-based hedge fund, convinced Wells Fargo Bank and Deutsche Bank units that it qualified to run the business.

New Century’s loan servicers collect and process mortgage payments on billions of dollars’ worth of home loans to consumers with bad credit.

Most of those loans are in securitization, or bundled loan, deals, in which major institutions have invested.”

The complete article can be found at:

http://www.forbes.com/feeds/ap/2007/05/21/ap3743848.html

Pam

This issue was recently addressed by the 10th Circuit Court of Appeals in Gillman v. Ford (In re Ford), 2007 U.S. App. LEXIS 11559 (10th Cir. 2007).

The Bankruptcy Appellate Panel of the 10th Circuit Court of Appeals affirmed the bankruptcy court’s denial of Ford’s (“Debtor”) exemption. This 10th Circuit Panel concluded that, under the preponderance of evidence standard of review, there was sufficient evidence supporting the court’s finding of bad faith in the Debtor’s concealment of her personal injury settlement. Therefore, the bankruptcy court did not abuse its discretion in denying the exemption for the Debtor.

After an auto accident, the Debtor filed a claim for personal injury damages in February of 2004. Soon thereafter, in May of 2007, the Debtor and her Husband filed a Chapter 7 voluntary petition for relief. In the schedules listing her assets and debts, filed with her petition for bankruptcy, she failed to disclose her damages in her pending personal injury case. Under, 11 U.S.C. § 521(a)(1), any claim with potential value must be must be disclosed in a bankruptcy proceeding, even if contingent. The Debtor’s bankruptcy case was closed in August 2004, while her personal injury claim was still pending. After being awarded a $50,000 settlement in her personal injury suit, the Debtor reopened her bankruptcy proceedings in order to file amended schedules listing her personal injury settlement and seeking an exemption for the proceeds under Utah Code Ann. § 78-23-5. The bankruptcy Trustee objected to this exemption, claiming that the Debtor had intentionally concealed her settlement in bad faith and disclosed the settlement only after she realized she would not have access to the settlement proceeds unless she disclosed the suit.

After holding an evidentiary hearing on the Trustee’s objection, the bankruptcy court found that the Debtor, a paralegal, acted in bad faith, with her non-disclosure, by intentionally concealing the personal injury proceeds to prevent scrutiny in her bankruptcy case, and she only disclosed this asset when she learned that the settlement proceeds could not be disbursed without reopening that bankruptcy case.

Thus, the Debtor could not exempt the proceeds from the non-disclosed personal injury suit.

Hunter