IN RE COUNTRYWIDE SECURITIES LITIGATION

Countrywide Financial Corporation, once the nation’s largest mortgage lender, agreed on May 7 to pay $600 million to settle class action allegations that it misled investors about its risky lending practices. Countrywide’s former auditor, KPMG LLP , will pay an additional $24 million. The sum appears to be the largest securities class action settlement related to the subprime-mortgage crisis.

Under the settlement, Countrywide does not admit to any wrongdoing.

The case was filed on behalf of Countrywide shareholders in August 2007 in federal district court in Los Angeles and later consolidated with four other suits. Labaton Sucharow’s Joel Bernstein was appointed lead counsel; Countrywide looked to Goodwin Procter’s Brian Pastuszenski; and KPMG turned to Bingham McCutchen’s Todd Gordinier and Gwyn Quillen.

According to the complaint, Countrywide misled investors by making misstatements about its loan portfolio. Investors allege that the bank stated that it underwrote mainly low-risk loans, while actually it relied heavily on risky subprime mortgages. Those lending practices, investors allege, fueled the company’s subsequent stock plunge in the subprime market collapse.

Negotiations between the three parties began about a year ago, and a settlement was finally hammered out at the beginning of April, following intensive mediation. Boston University School of Law professor Eric Green and Los Angeles federal district court judge A. Howard Matz served as the mediators.

At press time Los Angeles federal district court judge Mariana Pfaelzer had not yet approved the settlement. Countrywide’s former CEO Angelo Mozilo and two other former executives are facing a Securities and Exchange Commission fraud suit alleging that they misled investors and violated insider trading rules. Lawyers for the executives have called the allegations “baseless.”

For Plaintiff New York State Common Retirement fund et al.

In-House: At the New York City Law Department: corporation counsel Michael Cardozo.

Labaton Sucharow: Joel Bernstein, David Goldsmith, Jonathan Plasse, Ira Schochet, and associates John Bockwoldt, Joshua Crowell, Michael Markunas, Craig Martin, and Michael Rogers. (All are in New York.) Labaton was tapped by the pension funds in a beauty contest.

For Defendant Countrywide Financial Corporation (Calabasas, California)

Goodwin Procter: John Farley, Inez Friedman-Boyce, Stuart Glass, Brian Pastuszenski, Alexis Shapiro, Jeffrey Simes, and Lloyd Winawer. (Simes is in New York; Winawer is in Menlo Park, California; and the rest are in Boston.) Countrywide has tapped Goodwin for various litigation matters.

For Defendant KPMG LLP (Montvale, New Jersey)

Bingham McCutchen: Dale Barnes, Jr., Todd Gordinier, Edward Kim, Gwyn Quillen, J. Warren Rissier, and counsel Amy June. (Barnes is in San Francisco; Gordinier is in Los Angeles and Costa Mesa, California; Kim is in Costa Mesa; Quillen is in Santa Monica; Rissier is in Los Angeles; and June is in Palo Alto.) The firm has represented KPMG in previous matters.


U.S. V. RBS

On May 10 the Royal Bank of Scotland Group plc agreed to forfeit $500 million to the United States to end a U.S. Department of Justice investigation into violations of trade with sanctioned countries and other offenses. The violations involved ABN AMRO Bank N.V. , a bank RBS acquired in 2007.

The deferred prosecution agreement, which was negotiated jointly by Sullivan & Cromwell’s Nicolas Bourtin and Samuel Seymour, and by Davis Polk & Wardwell’s Robert Fiske, Jr., and Martine Beamon, brings the total the government has collected from banks this year to date in anti-money-laundering efforts to more than $1 billion.

The agreement resolves charges that the bank violated the Bank Secrecy Act and the International Emergency Economic Powers and Trading with the Enemy acts, and conspired to defraud the U.S. Under the deferred prosecution agreement, ABN AMRO admitted that over $500 million had gone through the bank in violation of either the Bank Secrecy Act or U.S. trade sanctions between 1995 and 2007.

According to the Justice Department—which began its investigation of ABN AMRO in 2004—the bank removed or altered names and references to the sanctioned countries from payment messages. It also flagged payments involving the sanctioned countries so it could amend any problematic text and added instructions to payment manuals on how to process these transactions in order to evade automated filters at U.S. banks. Although ABN AMRO implemented improved controls to prevent these types of transactions in 2005, some transactions involving the sanctioned countries occurred in 2006 and 2007, the department alleged.

In signing the agreement, RBS admitted to conspiracy to defraud the U.S. and failure to establish an adequate anti-money-laundering program. The agreement protects RBS from prosecution as long as it abides by the terms for one year, which require the bank to cooperate with the government, stop its misconduct, and demonstrate its future compliance with the government’s anti-money-laundering practices. (RBS is an investor in ALM Media Properties, LLC.)

For Plaintiff the United States of America

In-House: At the U.S. Department of Justice’s criminal division: assistant U.S. attorneys Denise Cheung and Steven Pelak, trial attorneys Kevin Gerrity and Cynthia Stone, and senior special investigator Laurie Bender.

For Defendant Royal Bank of Scotland Group PLC (Edinburgh)

In-House: Deputy group general counsel and director group legal John Collins, general counsel of business services Helen Short, and associate general counsel for banking and markets Mary-Beth Taylor.

Sullivan & Cromwell: Nicolas Bourtin, H. Rodgin Cohen, Elizabeth Davy, Samuel Seymour, and associate Lindsay Manning. (They are in New York.) The firm was co–lead counsel. It had a long-standing relationship with ABN AMRO and began representing the bank in this investigation in 2004. It previously represented Wachovia Corporation when it faced the same charges.

Davis Polk & Wardwell: Martine Beamon, Robert Fiske, Jr., and associate Ian Rooney. (They are in New York.) The firm was co–lead counsel.


U.S. V. ASTRAZENECA ET AL.

On April 27 AstraZeneca PLC made public an agreement to pay $520 million to settle civil allegations that it illegally marketed the antipsychotic drug Seroquel for off-label use and paid kickbacks to doctors. The settlement had been expected since October, when the company reported in its Securities and Exchange Commission filing that it had set aside the sum in connection with the investigation.

AstraZeneca tapped John Dodds of Morgan, Lewis & Bockius to lead the negotiations.

Prosecutors launched an investigation into AstraZeneca’s marketing practices a few months after James Wetta, a former AstraZeneca employee, filed a qui tam whistle-blower suit in federal district court in Philadelphia in 2004. A second whistle-blower, Stefan Kruszewski, filed a qui tam suit two years later in the same court.

Under the settlement, the federal government will receive about $300 million in civil fines, and state Medicaid programs will divvy up about $218 million. Wetta will get $45 million of the total settlement under the whistle-blower provision, representing about 9 percent of the settlement; Kruszewski will receive an undisclosed portion of Wetta’s cut.

AstraZeneca denies any wrongdoing, but has agreed to enter into a corporate integrity agreement.

The company remains a defendant in more than 25,000 product liability suits that allege patients were not made aware of Seroquel’s risks.

For Plaintiff the United States of America

In-House: At the U.S. attorney’s office in Philadelphia: U.S. attorney Michael Levy, civil division chief Margaret Hutchinson, executive assistant U.S. attorney Virginia Gibson, and assistant U.S. attorney Colin Cherico.

For Qui Tam Plaintiff James Wetta

Duane Morris: Teresa Cavenagh, Mark Lipowicz, and Michael Mustokoff. (They are in Philadelphia.) The firm, along with the other cocounsel, represented Wetta, along with five other whistle-blowers, in a qui tam suit against pharma giant Eli Lilly and Company for the illegal marketing of Zyprexa. Eli Lilly paid $1.4 billion to settle the allegations with the federal government in 2009.

Sheller: Brian McCormick, Jr., and Stephen Sheller. (They are in Philadelphia.) They were cocounsel.

Farmer, Jaffe, Weissing, Edwards, Fistos & Lehrman: Gary Farmer, Jr. (He is in Fort Lauderdale.)

For Qui Tam Plaintiff Stefan Kruszewski

Kenney & McCafferty: Brian Kenney and counsel Meredith Deming. (They are in Plymouth Meeting, Pennsylvania.) The firm was cocounsel. It also represented Kruszewski in his qui tam suit against Pfizer Inc for its marketing of antipsychotic drug Geodon. Pfizer paid a record $2.3 billion to settle criminal and civil allegations with state and federal governments for its off-label promotion of Geodon and other drugs in 2009.

Obermayer Rebmann Maxwell & Hippel: William Leonard. (He is in Philadelphia.) The firm was cocounsel.

For Defendant AstraZeneca PLC (London) et al.

In-House: At AstraZeneca Pharmaceuticals LP: vice president and general counsel Glenn Engelmann.

Morgan, Lewis & Bockius: John Dodds. (He is in Philadelphia.)


VIRNETX V. MICROSOFT

On May 17, without having exhausted all possible appeals on an earlier award, Microsoft Corporation agreed to pay Internet security company VirnetX, Inc., $200 million to resolve a patent dispute.

That’s a stark contrast from Microsoft’s approach in another recent patent dispute, where it has twice appealed a $200 million award to i4i, Inc.

The VirnetX dispute involves two patents in a technology used to secure communication on mobile phone networks. Under the terms of the VirnetX settlement, Microsoft will obtain a license on VirnetX’s patents.

The settlement was the work of VirnetX lead counsel Douglas Cawley of McKool Smith and Microsoft lead counsel Matthew Powers of Weil, Gotshal & Manges, who also handled the i4i case for the company.

VirnetX filed suit in federal district court in Tyler, Texas, in 2007, claiming that Microsoft’s Windows Server 2003, XP, Vista, Live Communications Server, Windows Messenger, Office Communicator, and versions of Office infringed on its virtual private network technology. On March 16 a jury found that Microsoft had willfully infringed the patents and awarded VirnetX $106 million. (VirnetX had sought $242 million.) Shortly after, VirnetX sued Microsoft again, claiming Windows 7 and Windows Server 2008 R2—which had not been released at the time of the first suit—also illegally used its patented technology.

Initially Microsoft vowed to appeal. But it reached settlement three weeks before a scheduled injunction hearing.

For plaintiff VirnetX, Inc. (Scotts Valley, California)

McKool Smith: Douglas Cawley, Rosemary Snider, and associates Bradley Caldwell, Steven Callahan, Jason Cassady, J. Austin Curry, Ramzi Khazen, and Luke McLeroy. (Khazen is in Austin; and the rest are in Dallas.) The firm took over as lead counsel from McDermott Will & Emery last summer. This is the first time it represented VirnetX, but it represented i4i in that company’s earlier successful suit against Microsoft [Big Suits, August 2009].

Parker, Bunt & Ainsworth: Robert Parker. (He is in Tyler, Texas.) The firm was local counsel.

For defendant Microsoft Corporation (Redmond, Washington)

Weil, Gotshal & Manges: Jared Bobrow, Timothy DeMasi, Matthew Powers, Elizabeth Weiswasser, counsel Amber Rovner, associates Daniel Booth, Paul Ehrlich, Robert Gerrity, and Thomas King. (DeMasi and Weiswasser are in New York; Rovner and Booth are in Houston; and the rest are in Silicon Valley.) The firm was lead counsel. It previously advised Microsoft in the i4i, Inc., patent suit.

Findlay Craft: Eric Findlay. (He is in Tyler, Texas.) The firm was local counsel.

Sayles Werbner: Richard Sayles. (He is in Dallas.) The firm was also local counsel.