U.S. v. BAE Systems

BAE Systems plc, Europe’s largest defense contractor, agreed on February 5 to pay nearly $450 million in fines to settle long-standing corruption investigations by the U.S. Department of Justice and the U.K. Serious Fraud Office.

Prosecutors accused BAE of making hundreds of millions of dollars in payments to third parties to secure defense contracts abroad despite its statements to the U.S. government that it had implemented antibribery measures.

As part of the agreement with Justice, filed concurrently with a criminal indictment in federal district court in Washington, D.C., BAE pleaded guilty to a single charge of conspiring to make false statements to the U.S. government in connection with regulatory filings. The company, which was suspected of using a worldwide network of more than 200 agents to bribe officials on four continents, will pay a $400 million fine under the Foreign Corrupt Practices Act. (By comparison, facing similar allegations, Siemens AG paid $800 million in 2008, while Halliburton Company and KBR, Inc., paid $579 million in early 2009.)

BAE, which tapped Lawrence Byrne at Linklaters and Arnondo Chakrabarti and Jonathan Hitchin at Allen & Overy to respond to the dual investigations, will also pay a $30 million penalty to the British Serious Fraud Office and plead guilty to one charge of breach of duty to keep accounting records.

In its sentencing memo, the Justice Department said that it began investigating BAE in 2005, focusing on suspicious payments in Saudi Arabia, the Czech Republic, and Hungary. Among other claims, it alleged that BAE paid commissions to agents knowing that they would pass the money on to officials who could influence the outcome of deals in BAE’s favor.

BAE said in its statement that the company accepted full responsibility for its past shortcomings.

The agreement with U.K. authorities relates to BAE’s sale of a radar system to Tanzania in 1999. The company said in a statement that it made commission payments to a marketing adviser for which it failed to keep accurate records. The office said that it had no plans to prosecute any individuals.

For plaintiff United States of America

In-House: At the U.S. Department of Justice: acting chief of the criminal division–fraud section Paul Pelletier, deputy chief Mark Mendelsohn, chief of the counterespionage section–national security division John Dion, senior litigation counsel Nathaniel Edmonds, and trial attorney Patrick Murphy.

For defendant BAE Systems plc (Farnborough, United Kingdom)

Linklaters: Lawrence Byrne, Lance Croffoot-Suede, Satindar Dogra, John Turnbull, and asso­ciates Martin Bloor and Sterling Darling. (Dogra and Turnbull are in London; the rest are in New York.) The firm advised BAE on the U.S. settlement.

Allen & Overy: Arnondo Chakrabarti and Jonathan Hitchin. (They are in London.) The firm advised BAE on the U.K. investigation into a defense contract with Saudi Arabia.

—Tosin Sulaiman

Cordis v. Boston Scientific

It’s been an expensive several months for medical device giant Bo ston Scientific Corporation. In a record-breaking infringement settlement on February 1, the company agreed to pay rival Johnson & Johnson $1.7 billion to settle three disputes over heart stent patents. Just six mont hs ago, it agreed to pay J&J $716 million to resolve more than a dozen suits involving older stents. (Stents are wire mesh tubes used to prop open arteries after they have been cleared of blockages.)

The company said in a statement that it had settled with J&J subsidiary Cordis Corporation to avoid the uncertainties of three upcoming jury damages trials.

John Desmarais of Kirkland & Ellis, the company’s longtime patent litigation counsel, led settlement talks for Boston Scientific. For the negotiations, J&J turned to longtime patent litigation counsel Patterson Belknap Webb & Tyler’s Gregory Diskant.

February’s settlement ends three disputes filed in federal district court in Wilmington in 2003. In the first, J&J claimed that three Boston Scientific stents infringed J&J patents. In the second, Boston Scientific alleged patent infringement by three J&J stents. In 2005 juries found that the companies had infringed each other’s patents in both disputes; the verdicts were upheld on appeal in 2009. Jury trials on damages for both were scheduled for February.

In the third dispute, which was slated to go to trial next September, J&J claimed that another Boston Scientific stent infringed one of its patents. That trial has also been canceled.

The settlement does not apply to all disputes between the two companies over heart stents, including suits Cordis filed over Boston Scientific’s Promus drug-coated stent.

For plaintiff Cordis Corporation (Bridgewater, New Jersey)

Patterson Belknap Webb & Tyler: Michael Buchanan, Gregory Diskant, Eugene Gelernter, Scott Howard, counsel Kathleen Crotty, and associates Joseph Abraham, Leonard Braman, Diana Breaux, Jason Gould, Christopher Jackson, Kevin Malek, Irena Royzman, Claudio Simpkins, and Catherine Williams. (All are in New York.) The firm has represented J&J since the 1980s.

For defendant Boston Scientific Corporation (Natick, Massachusetts)

Kirkland & Ellis: Robert Appleby, Paul Bondor, Jeanne Heffernan, Young Park, and counsel John Desmarais. (All are in New York.) The company is a longtime firm client.


SEC v. State Street

In one of the la rgest such settlements by the Securities and Exchange Commission, State Street Bank & Trust Company agreed February 4 to pay $313 million to settle allegations that it misled investors about their exposure to subprime mortgage–linked investments in one of its funds. Investors subsequently lost hundreds of millions of dollars after the subprime market melted down in mid-2007.

State Street tapped regular outside counsel Robert Jones of Ropes & Gray to handle the investigation response, which began in late 2007. The bank neither confirmed nor denied the allegations, but agreed to hire an independent consultant to review its compliance and disclosure policies for its pooled investment strategies.

According to the SEC’s complaint, in 2002 State Street created the so-called Limited Duration Bond Fund as an alternative to a money market fund, touting it as almost as safe as cash. But by 2007, the complaint alleged, the fund was almost completely invested in subprime mortgage–backed securities and derivatives. The company disclosed that fact to some investors, but indicated to others that the fund was diversified, according to the SEC.

Under the terms of the settlement, the money will be distributed to roughly 270 investors, including nonprofits, religious institutions, and pension funds. State Street will also pay an additional $10 million fine to the Massachusetts secretary of state’s office and another of the same amount to the state attorney general’s office.

The SEC settlement follows settlements last year in related securities and ERISA class actions. State Street paid out a total of $350 million to settle those suits.

For Plaintiff the Securities and Exchange Commission

In-House: Senior trial counsel Deena Bernstein and senior enforcement counsel Robert Baker.

For Defendant State Street Bank & Trust Company (Boston)

Ropes & Gray: Robert Jones, R. Daniel O’Connor, and asso­ciates Daniel Maher, Jr., Daniel McCaugh­ey, and Lila Palmer. (All are in Boston.) State Street is a longtime firm client; the firm handled the bank’s response to the investigation.

Wilmer Cutler Pickering Hale and Dorr: James Anderson and William McLucas. (They are in Washington, D.C.) The firm was cocounsel. McLucas was a longtime director of the SEC’s division of enforcement.

—Irene Plagianos

Valassis v. News America et al.

On January 30, News Corporation agreed to pay $500 million to a market services company, Valassis Communications, Inc., to resolve allegations of bare-knuckle business practices by its little-known subsidiary, News America Incorporated.

Miller, Canfield, Paddock and Stone’s Gregory Curtner and A. Michael Palizzi and solo practitioner David Mendelson steered the case for Valassis; News America turned to Richard Stone of Hogan & Hartson.

Livonia, Michigan–based Valassis, a coupon publisher, sued its rival News America in 2006 in federal district court in Detroit for $1.5 billion in damages, claiming the unit unlawfully interfered with its business and violated state and federal antitrust statutes. Valassis alleged in its complaint that News America established a monopoly of the in-store advertising and promotions market by forcing its consumer goods clients to buy coupon deals that bundled in-store and newspaper insert advertisements. Clients who didn’t purchase newspaper inserts would face higher prices for in-store coupon distribution, according to the complaint.

The suit was split into three cases at News America’s request; in the first suit, which went to trial last July, News America argued that it had not interfered with Valassis’s business but had only provided tough but fair competition. But the jury awarded $300 million to Valassis.

That award has been rolled into the current settlement. The settlement also resolves the two remaining disputes. One of those, filed in federal district court in Detroit, was three days away from trial when the settlement was announced.

The settlement also establishes a ten-year shared mail distribution agreement between the two companies.

For plaintiff Valassis Communications, Inc. (Livonia, Michigan)

In-House: General counsel, senior vice president, and secretary Todd Wiseley.

Miller, Canfield, Paddock and Stone: Gregory Curtner, Kimberly Kefalas, A. Michael Palizzi, Carl von Ende, Robert Wierenga, counsel Thomas O’Brien, and associates Dari Bargy, Marcy Rosen, Kimberly Scott, and Suzanne Wahl. (Palizzi, von Ende, and Rosen are in Detroit; Bargy is in Kalamazoo, Michigan; and the rest are in Ann Arbor, Michigan.) The firm, which frequently represents Valassis in litigation matters, was co–lead counsel.

Law Offices of David Mendelson: David Mendelson. (He is in Birmingham, Michigan.) The firm, Valassis’s regular litigation counsel, was co–lead counsel.

Plunkett Cooney: Anthony Rusciano. (He is in Bloomfield Hills, Michigan.) Rusciano assisted at trial.

The Baskin Law Firm: Henry Baskin. (He is in Birmingham, Michigan.) Baskin assisted at trial.

Hyman Lippitt: Julie Kosovec. (She is in Birmingham, Michigan.) Kosovec assisted at trial.

For defendant News America Incorporated (New York)

Hogan & Hartson: Kenneth Klein, Julie Shepard, and Richard Stone. (All are in Los Angeles.) The firm was cocounsel; it has advised News Corporation in the past.

Constantine Cannon: Jeffrey Shinder. (He is in New York.)The firm was cocounsel.

Honigman Miller Schwartz and Cohn: David Ettinger and Lara Phillip. (They are in Detroit.) The firm was local counsel. —Claire Zillman

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