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Legal News Report 6/5/15
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The Litigation in Caesars’ Bankruptcy Case is Decadent and Depraved
Jun 3, 2015 | Wall Street Journal
By Joseph Checkler
Casino giant Caesars is back in bankruptcy court this week, this time for a trial over whether the chapter 11 case of its largest operating subsidiary, Caesars Entertainment Operating Co., should halt lawsuits against its non-bankrupt parent, Caesars Entertainment Corp. -
$16.5-million settlement reached in crude oil commodities and antitrust litigation
Jun 5, 2015 | World Oil
DALLAS, Texas -- Two London-based companies and certain employees involved in trading West Texas Intermediate crude oil (WTI) and oil futures have agreed to pay $16.5 million to settle a lawsuit accusing the defendants of artificially manipulating the price of oil in order to reap huge profits. -
SEC files lawsuit over alleged fake offer to buy Avon Products
Jun 4, 2015 | CNBC
By Everett Rosenfeld
The U.S. Securities and Exchange Commission filed a lawsuit over an alleged fake offer to buy Avon Products, Reuters reported, citing a court filing. -
D.C. schools food vendor pays $19 million to settle whistleblower lawsuit
Jun 5, 2015 | The Washington Post
By Michael Alison Chandler
Chartwells, the largest food vendor for the District’s public school system, has agreed to pay $19 million to settle a lawsuit alleging that the North Carolina-based company overcharged the city and mismanaged its school meal programs, with food often arriving to schools late, spoiled or in short supply.
Legal News Report
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The Litigation in Caesars’ Bankruptcy Case is Decadent and Depraved
Jun 3, 2015 | Wall Street Journal
By Joseph Checkler
Casino giant Caesars is back in bankruptcy court this week, this time for a trial over whether the chapter 11 case of its largest operating subsidiary, Caesars EntertainmentCZR -10.61% Operating Co., should halt lawsuits against its non-bankrupt parent, Caesars Entertainment Corp.
Here’s why the trial—for which Judge A. Benjamin Goldgar has set aside three days on his calendar—is important. CEOC’s bankruptcy automatically halts the suits against itself but not against its parent. CEOC says if CEC is on the hook for anything close to the $4 billion-plus it is being sued for, it won’t be able to help CEOC out of chapter 11. The parent’s $1.5 billion contribution is the lynchpin to CEOC’s restructuring plan. Of course, independent examiner Richard Davis could throw the entire case in flux if he determines the pre-bankruptcy transactions that prompted all the lawsuits were improper. But his probe is just beginning, so for now, the halting of the suits is crucial, at least according to Caesars. Here’s a simplified rundown of the litigation, without getting into even more fun stuff about the case, like credit-default swap trading, the effect on the case of the change in venue, etc.
All of the suits are related to prebankruptcy asset shuffling between the parent company, CEC, and operating subsidiary CEOC, that creditors say were improper. Caesars says they were legit.
In August 2014, a trustee for bondholders holding roughly $4 billion in Caesars debt sued Caesars in Delaware Court of Chancery, alleging Caesars shifted valuable assets away from creditors into entities “not liable” for the debt. (The next day, Caesars struck back, suing some of the same creditors in New York Supreme Court, but that’s not important for our purposes right now.) In March, a Delaware judge ruled against Caesars and said the creditors’ suit can go on, making the bankruptcy court decision that much more important. If you want to look it up, it’s Delaware Chancery Court, Case No. 10004. Good luck finding it; Delaware Chancery doesn’t make it easy. We know a guy.
In September 2014, two separate but related creditor groups hit Caesars with New York District Court lawsuits, saying the casino giant worked out a “backroom” deal to aid one group of creditors—the group that supports Caesars’ current restructuring plan—at the expense of others. Those cases are Meehancombs Global Credit Opportunities Master Fund v. Caesars Entertainment Corp., Case No. 14-07091, and Danner v. Caesars Entertainment Corp. and Caesars Entertainment Operating Co., Inc., Case No. 14-07093.
The fourth suit, filed in New York in March by a trustee representing holders of 12.75% second-lien notes due in 2018, accuses Caesars of many things, perhaps most notably shifting its valuable Total Rewards program and the World Series of Poker away from them to the benefit of CEC owners, including private equity firm Apollo Management. The seven-count complaint says CEC embarked “on a calculated campaign to create ‘Good Caesars’ and ‘Bad Caesars.’” That case is BOKF N.A. v. Caesars Entertainment Corporation, Case No. 15-1561.
Oh, and there’s actually a fifth suit over the transactions, filed last November in Delaware Chancery Court, by a trustee for a group of first-lien noteholders owning more than a billion of Caesars note who claim their unit was “looted.” The Delaware judge has already halted that suit, but Caesars says if it becomes active again, it should also be included among the paused cases. That case is UMB Bank v. Caesars Entertainment Corporation, et al., Case No. 10393.
Caesars has said the transactions that prompted the suits were proper, designed to manage and improve CEOC’s debt load and liquidity.
Now we’re caught up. Bankruptcy Beat will be in Chicago to fill you in on what happens.
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$16.5-million settlement reached in crude oil commodities and antitrust litigation
Jun 5, 2015 | World Oil
DALLAS, Texas -- Two London-based companies and certain employees involved in trading West Texas Intermediate crude oil (WTI) and oil futures have agreed to pay $16.5 million to settle a lawsuit accusing the defendants of artificially manipulating the price of oil in order to reap huge profits.
Parnon Energy Inc., Arcadia Petroleum Ltd. and other defendants will pay the $16.5 million into a fund to compensate oil futures traders and others who lost money as a result of the scheme, although the companies continue to deny the plaintiffs' claims.
Warren Burns, co-lead counsel for the plaintiffs and name partner in Dallas' Burns Charest, said, "We believe that this is a very good outcome for those businesses and individuals who were harmed by this market manipulation. This was an extremely hard fought case. Settling now ensures that class members will receive compensation once the court approves the settlement." Attorneys Christopher Lovell and Christopher McGrath of New York's Lovell Stewart Halebian Jacobson LLP also represented the plaintiffs.
The case, which was filed in 2011, is In re: Crude Oil Commodity Futures Litigation, No. 11-cv-3600, in the U.S. District Court for the Southern District of New York.
In early 2008, according to the plaintiffs, the defendant companies held futures positions in WTI when they bought large amounts of the actual crude to artificially drive prices higher. After taking profits, the companies allegedly sold all of their physical WTI, driving down prices so they could profit on the difference in the spread once again, through another market position.
Plaintiffs claimed that the scheme violated both the Sherman Antitrust Act and the Commodity Exchange Act. In 2014, a parallel investigation by the U.S. Commodity Futures Trading Commission ended when the defendant companies agreed to pay a $13-million settlement.
The money from the recent settlement will be placed in a fund, and details for potential claimants will be available on a website that the fund plans to have in operation soon.
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SEC files lawsuit over alleged fake offer to buy Avon Products
Jun 4, 2015 | CNBC
By Everett Rosenfeld
The U.S. Securities and Exchange Commission filed a lawsuit over an alleged fake offer to buy Avon Products, Reuters reported, citing a court filing.
The agency sued PTG Capital Partners, PST Capital Group, Nedko Nedev, Strategic Capital Partners Muster and Strategic Wealth Investment, according to the wire service.Scott Eells | Bloomberg | Getty ImagesAvon Products Inc.
The SEC lawsuit also covers alleged false tender offers for Tower Group International and Rocky Mountain Chocolate Factory.
The agency alleges that the defendants attempted to manipulate those companies through false tender offers and press releases.
PTG, PST and Strategic Capital are all based in Sofia, Bulgaria, according to the charges. Nedev, a 37-year-old trader, is also based in Sofia, the filing said. Strategic Wealth is incorporated in Nevada and "frequently trades in parallel" with Nedev's Strategic Capital account, according to the filing.
Avon's stock was halted three times during trading on May 14 after reports surfaced that the company might be acquired by a company called PTG Capital Partners for $18.75 a share. Avon stock surged on the news, at one point as much as 20 percent, and the volume increased by about 448 percent in one day, according to the court filing.
Quick research showed that there may be no such firm as PTG: The U.K. Companies House does not have a registration for a company called PTG Capital Partners.
CNBC tried to contact the firm, but the number listed on the SEC filing proposing the acquisition is a mobile phone that goes straight to voicemail.
Avon later confirmed it had not received an offer from PTG and has not confirmed the firm's existence.
The regulator said Nedev had along with others taken positions in the stocks before the alleged manipulation, hoping to sell their positions at artificially inflated prices, and that the manipulation made Nedev tens of thousands of dollars.
The Rocky Mountain case stemmed from an alleged bogus tender offer on Dec. 18, 2012 from defendant PST Capital Group Ltd to buy the confectionery retailer for a 27 percent premium, causing its shares to rise 4.6 percent.
Meanwhile, the SEC said the share price of Tower Group rose 32 percent on May 13, 2014 after a fraudulent press release was issued in the name of Euroins Insurance Corp, also from Sofia, to buy that insurance holding company. Tower was later bought by Bermuda-based ACP Re Ltd.
The SEC lawsuit seeks civil penalties and to recoup illegal profits from Nedko and the other defendants.
There is a history of shady takeover bids that have moved stocks in big ways only to be called out as hoaxes soon after. Notable examples include American Airlines and Emulex.
The idea is to drive up the stock price, sell it and turn a quick profit.
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D.C. schools food vendor pays $19 million to settle whistleblower lawsuit
Jun 5, 2015 | The Washington Post
By Michael Alison Chandler
Chartwells, the largest food vendor for the District’s public school system, has agreed to pay $19 million to settle a lawsuit alleging that the North Carolina-based company overcharged the city and mismanaged its school meal programs, with food often arriving to schools late, spoiled or in short supply.
The settlement agreement is the result of a whistleblower lawsuit from a former director of food services for D.C. Public Schools against Chartwells and Thompson Hospitality Services LLC, which led to an investigation and then a complaint from the Office of the Attorney General.
“Chartwells has quite reasonably acknowledged and addressed mistakes it made in administering the contract to provide food and food services to DCPS,” Attorney General Karl A. Racine said in a statement Friday. “It is important to ensure that contractors who receive District funds are held accountable for fulfilling their obligations under the contracts, and today’s settlement does just that.”
The whistleblower lawsuit was brought by Jeffrey Mills, executive director of the Office of Food and Nutritional Services for D.C. Public Schools starting in 2010. Mills was fired from his job in early 2013. Last year, Mills settled a separate lawsuit with the school system for $450,000, after he alleged that he was terminated for raising flags about the school system’s mismanagement of the contract.
“I hope that my lawsuit against Chartwells and the settlement announced today will help improve the food programs for D.C.’s school children, which has always been my goal,” Mills said in a statement issued Friday by Phillips & Cohen, a Washington-based law firm that filed Mills’ whistleblower lawsuit in 2013.
“The issue of private food vendors prioritizing profits over the well-being of students is a national concern,” Mills said. “I urge all school districts using private food vendors to examine their contracts and the performance of those vendors.”
Owen Donnelly, a spokesman for Chartwells, said in an e-mail that the company “denies any wrongdoing and has agreed to resolve the issues so that focus continues to be on nourishing the bodies, minds and spirits of students to pave the way for a lifetime of success and well-being.”
Donnelly said the underlying issues at D.C. Public Schools were primarily related to cost overruns and “related reconciliations.”
“In our seven years at D.C. Public Schools, we have significantly increased the quality of food service while saving the District millions of dollars,” he said.
Chartwells has encountered problems in other parts of the country, including a well-publicized student boycott at a Connecticut high school last fallbecause of the quality of the food the company provided.
In 2012, Chartwells’ parent company, Compass Group USA, paid $18 million to settle allegations by the New York Office of the Attorney General that the company wrongfully retained rebates on food purchases made under contracts with more than three dozen school districts.
D.C. Public Schools signed a contract with Chartwells in 2008 to provide food services that had formerly been provided in-house. In the District, a majority of students are poor, and many rely on the school nutrition program for meals.
The goals of privatizing the service were to save money and to improve the nutritional value of the food. Another contract was signed in 2012, despite concerns.
The school system plans to continue its contract with the company “in light of Chartwells’ acceptance of responsibility,” according to Racine’s statement.
Chartwells agreed to make $14 million in credits and payments to the school system, and also committed $5 million in philanthropic support for the schools, including $4 million to the D.C. Public Education Fund for “innovative programs” and another $1 million to several non-profit organizations that promote literacy, provide mentors, college scholarships and academic enrichment.
The whistleblower — or “qui tam” — provisions of the D.C. False Claims Act allow private citizens to bring lawsuits on behalf of the District and to share in any recovery that is obtained. Mills could receive up to 30 percent, though a final amount has not been set, his lawyers said.
The law requires qui tam lawsuits be kept confidential so the government has time to investigate complaints. The complaints were made public for the first time Friday, when the settlement was announced.
The settlement marks the second-largest that the District has reached so far this year, after it won $21.5 million in a multi-state lawsuit against Standard and Poor’s Financial Services in February, according to Robert Marus, a spokesman for Racine.
Most of the money will return to the District and D.C. Public Schools “to essentially pay the District back . . . for the amount they were overcharged,” Marus said.
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