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(Updates Citigroup in Verdicts section and McCormick & Schmick's Seafood in New Suits. Adds JPMorgan and Lehman in New Suits and Associated Bank in Verdicts.)

Nov. 29 (Bloomberg) -- Citigroup Inc.'s $285 million settlement with the U.S. Securities and Exchange Commission over mortgage-backed securities was rejected by federal judge who said he hadn't been given enough facts to approve it.

U.S. District Judge Jed Rakoff in Manhattan rejected the settlement in an opinion released yesterday and set a trial date. He has criticized the SEC's practice of letting financial institutions such as New York-based Citigroup settle without admitting or denying liability.

Citigroup, the third-biggest U.S. lender, agreed last month to settle a claim by the SEC that it misled investors in a $1 billion CDO linked to subprime residential mortgage securities. Investors lost about $700 million, according to the agency. A trial could establish conclusions that investors could use against Citigroup, as could a new settlement that includes admissions by the bank.

“In any case like this that touches on the transparency of financial markets whose gyrations have so depressed our economy and debilitated our lives, there is an overriding public interest in knowing the truth,” Rakoff wrote in the opinion. The proposed settlement is “neither fair, nor reasonable, nor adequate, nor in the public interest,” he said.

Rakoff yesterday consolidated the case with another SEC suit involving former Citigroup employee Brian Stoker and scheduled the combined case for trial on July 16. The parties may try to reach a revised settlement, which must be approved by Rakoff to take effect.

Danielle Romero-Apsilos, a spokeswoman for Citigroup, said the bank disagreed with Rakoff's ruling.

“The proposed settlement is a fair and reasonable resolution to the SEC's allegation of negligence,” she said in an e-mailed statement. “The settlement fully complies with long-established legal standards. In the event the case is tried, we would present substantial factual and legal defenses to the charges.”

“While we respect the court's ruling, we believe that the proposed $285 million settlement was fair, adequate, reasonable, in the public interest, and reasonably reflects the scope of relief that would be obtained after a successful trial,” Robert Khuzami, director of the SEC's Division of Enforcement, said in a statement. Khuzami didn't say what action the agency will take in response to Rakoff's decision.

The case is U.S. Securities and Exchange Commission v. Citigroup Global Markets Inc., 11-cv-7387, U.S. District Court, Southern District of New York (Manhattan).

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HSBC Amends Rejected Madoff Settlement With Thema Investors

HSBC Holdings Plc amended its settlement with investors in an Irish fund who lost their money in Bernard Madoff's Ponzi scheme after the bank's original offer was rejected by a U.S. judge in September.

The amended settlement, which was to be filed in U.S. District Court in Manhattan yesterday, still offers shareholders in Thema International Fund Plc as much as $62.5 million, while addressing the court's earlier concerns, the London-based lender said yesterday in an e-mailed statement.

“The amended agreement addresses certain issues identified by the New York federal court overseeing the case,” HSBC said in the statement. The amended settlement will still require the court to certify a settlement class, address any new objections and approve it before it takes effect, HSBC said. Details on the settlement weren't immediately available.

The investors sued Thema, which acted as a so-called feeder-fund steering money to Madoff's firm, and other defendants, including London-based HSBC, which acted as Thema's custodian, in January 2009. The plaintiffs are seeking to represent all Thema investors who lost money when Madoff's scheme was exposed in December 2008. They claim HSBC, Europe's largest bank, should have known Madoff was a fraud.

Jezz Farr, a spokesman for HSBC in London, didn't return a phone message and e-mail seeking comment.

Madoff, 73, pleaded guilty in 2009 to orchestrating what has been called the biggest Ponzi scheme in history. He's in a federal prison in North Carolina, serving a 150-year sentence.

U.S. District Judge Richard Berman in Manhattan rejected the original settlement Sept. 7, saying it was “not fair, reasonable or adequate, even at this preliminary stage.”

Among the “obvious deficiencies” Berman identified in denying approval was a provision setting aside $10 million to pay the fees and expenses of the investors' lawyers in pursuing claims against non-settling defendants outside the U.S.

The case is In re Herald, Primeo and Thema Securities Litigation, 09-CV-289, U.S. District Court, Southern District of New York (Manhattan).

Royal Bank of Scotland to Pay $52 Million to Settle Claims

Royal Bank of Scotland Group Plc's RBS Financial Products unit will pay $52 million to settle claims it financed, purchased and bundled unfair residential loans, Massachusetts Attorney General Martha Coakley said.

More than $40.2 million will be used for principal reduction and relief for more than 700 borrowers and more than $8.9 million will be paid to the state, Coakley said yesterday in an e-mailed statement.

“The securitization of subprime loans by investment banks is a major cause of the economic crisis,” Coakley said. “Investment banks profited handsomely from those securitizations at the expense of homeowners.”

The RBS deal, together with previous settlements with Goldman Sachs Group Inc. and Morgan Stanley, brings Massachusetts settlements with investment banks over securitization practices to more than $200 million, according to the statement.

“We are pleased to have resolved this matter with the Massachusetts attorney general,” Mike Geller, an RBS spokesman, said in an e-mailed statement.

The RBS unit was formerly known as Greenwich Capital Financial Products.

Coakley said the loans were unfair and violated state consumer law because they had an introductory “teaser” period of less than three years, an introductory “teaser” rate at least 2 percent below the fully indexed rate, a debt-to-income ratio of more than 50 percent and substantial prepayment penalties.

Associated Bank to Pay $13 Million to Settle Overdraft Suits

An Associated Banc-Corp unit agreed to pay $13 million to settle consumer lawsuits accusing the bank of illegally charging excessive overdraft fees, according to court papers.

Officials of Green Bay, Wisconsin-based Associated Bank NA also agreed to pay the funds to wipe out “all claims that were or could have been brought” over the bank's overdraft policies, lawyers for accountholder Pamela Harris said yesterday in a federal court filing in Miami. Overdraft suits filed across the U.S. have been consolidated in that court for pre-trial proceedings.

The settlement comes almost three weeks after Bank of America Corp., the second-largest U.S. bank by assets, won a judge's approval of a $410 million settlement aimed at resolving similar claims over its overdraft policies.

“Since the settlement has not been approved and the lawsuit is still pending, we cannot comment beyond the statements” in court papers, Autumn Latimore, an Associated Banc-Corp spokeswoman, said in an e-mailed release.

Suits against more than 30 banks have been consolidated before U.S. District Judge James Lawrence King in Miami as part of a so-called multidistrict litigation. King has been overseeing pre-trial exchanges of information in the cases since June 2009. He still must give final approval to the Associated Bank accord.

Consumers contend that banks, including Bank of America, JPMorgan Chase & Co., Wells Fargo & Co. and Associated had policies that allowed them to debit account holders' funds in a way that made it more likely customers would incur overdraft fees.

The consolidated case is In re Checking Account Overdraft Litigation, 09-02036, U.S. District Court, Southern District of Florida (Miami).

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MAN Settles IPIC Ferrostaal Dispute for 350 Million Euros

MAN SE, the truckmaker controlled by Volkswagen AG, ended a dispute with International Petroleum Investment Co. by buying back former unit Ferrostaal, smoothing VW's moves to create Europe's biggest commercial-vehicle tie-up.

MAN will pay Abu Dhabi's IPIC 350 million euros ($465 million) to buy back a 70 percent stake in Ferrostaal and resolve all claims, the Munich-based company said yesterday in a statement. MAN will then sell all of Ferrostaal to Muenchmeyer Petersen & Co. GmbH for as much as 160 million euros.

Ferrostaal, which manages the development of industrial and petrochemical plants, has been under investigation by German prosecutors since 2009 over allegations that it paid bribes to win contracts. VW previously said unresolved investigations at Ferrostaal were holding up efforts to integrate MAN with Swedish rival Scania AB, which Europe's biggest carmaker also controls.

“VW has always sought to minimize potential risks and this settlement is removing outstanding legal qualms,” said Frank Biller, an analyst with Landesbank Baden-Wuerttemberg in Stuttgart, Germany, who recommends buying MAN stock. VW doesn't face any more obstacles regarding joint projects with MAN and Scania, he said.

“We are pleased to have been able to end the talks with IPIC on a conciliatory note with an outcome that is acceptable to everyone,” MAN Chief Financial Officer Frank Lutz said in the statement. “We have set the course for Ferrostaal to make a successful new start.”

Volkswagen spokesman Marco Dalan declined to comment. His counterpart at MAN, Stefan Straub, said the agreement with IPIC has no bearing on VW's plans to bring about closer cooperation between MAN and Scania. The deal won't affect fourth-quarter results at MAN, which made “sufficient” provisions to cover any risks, according to Straub.

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Trials

Rajaratnam Seeks to Remain Free While Appealing Wiretap Use

Raj Rajaratnam, the Galleon Group LLC hedge fund co-founder convicted of directing the biggest insider trading scheme in a generation, said the use of wiretapped calls by the U.S. raises “substantial” issues of law that should allow him to remain free during his appeal.

Rajaratnam, 54, who is scheduled to report to prison on Dec. 5, is seeking to remain free pending the outcome of his appeal, according a letter his lawyers sent yesterday to Catherine O'Hagan Wolfe, clerk of the U.S. Court of Appeals in Manhattan.

‘Raj Rajaratnam respectfully moves this court to stay his surrender date and to grant release pending appeal of his criminal conviction and sentence,'' his lawyers said in court papers. They said the evidence they submitted “establishes the substantiality of Mr. Rajaratnam's appeal.”

Patricia Millett, a lawyer for Rajaratnam, yesterday filed a copy of the March 7, 2008, wiretap application request by FBI special agent B.J. Kang to intercept phones used by Rajaratnam as part of the insider-trading investigation. Millett said in the filing that the court may like to see the document “in anticipation” of a hearing set for Nov. 30.

“This document is of relevance to the upcoming oral argument and may be referenced by counsel during the argument,” Millett said in the letter to the court clerk.

Rajaratnam's lawyers unsuccessfully argued against the use of the telephone intercept evidence at his trial. He was convicted by a jury in May and sentenced to 11 years in prison.

Prosecutors said Rajaratnam made more than $72 million by using illegal tips to trade in stocks of companies including Goldman Sachs Group Inc., Intel Corp., Google Inc., ATI Technologies Inc. and Clearwire Corp.

The case is U.S. v. Rajaratnam, 11-4416, U.S. Court of Appeals for the Second Circuit (Manhattan). The lower-court case is U.S. v. Rajaratnam, 09-01184, U.S. District Court, Southern District of New York (Manhattan).

First American Case at Top Court May Limit Home-Buyer Suits

The U.S. Supreme Court considered putting new limits on consumer lawsuits against title-insurance companies, hearing arguments on a suit that seeks hundreds of millions of dollars from First American Financial Corp.

The suit accuses First American of operating an illegal title-insurance kickback scheme. The question for the high court is whether consumers suffered any injury that would entitle them to go to court.

The one-hour session yesterday suggested that at least some, and perhaps a majority, of the nine justices are skeptical that the Constitution permits the lawsuit in the absence of indications that consumers paid higher fees.

The suit, filed in federal court in California, centers on First American's ownership stake in thousands of title agencies across the country. The company is accused of acquiring those interests in exchange for promises that the agencies would refer customers to a First American unit that sells title insurance.

The case is, First American Financial v. Edwards, 10-708, U.S. Supreme Court (Washington).

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Drugmaker Sales Force Overtime Clash Gets Top Court Review

The U.S. Supreme Court agreed to consider whether drugmakers must pay overtime to as many as 90,000 sales representatives, as the justices heeded calls from both sides for review of what may be a multibillion-dollar case.

The high court yesterday said it will review a lower court's conclusion that salespeople working for a GlaxoSmithKline Plc unit aren't covered by a federal wage-and- hour law.

The suit is one of more than a dozen similar cases that have been filed against drugmakers, including Johnson & Johnson, Bristol-Myers Squibb Co. and units of Novartis AG and Merck & Co. With federal appeals courts divided on the issue, business trade groups joined the Glaxo salespeople in urging review.

“Such suits could potentially lead to billions of dollars in unexpected liability,” the U.S. Chamber of Commerce said in a court filing. “Further, they could force the industry to abandon pay practices that have existed -- virtually unchallenged --since before the Second World War.”

The dispute turns on the exception in the U.S. Fair Labor Standards Act for outside salespeople. Two former Glaxo salesmen, Michael Shane Christopher and Frank Buchanan, contend that exception doesn't apply because drug industry sales representatives don't actually sell the product during their visits to doctors' offices.

The case is Christopher v. SmithKline Beecham, 11-204, U.S. Supreme Court (Washington).

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Consultant Facing Insider-Trading Charges Goes on Trial

A management consultant used tips from a hedge fund employee to profit by betting on shares in companies including Julius Baer Group Ltd. and Swatch Group AG, prosecutors said in a London court yesterday.

Rupinder Sidhu faces 23 insider-trading charges and one count of money laundering in a jury trial that is expected to last three weeks. Sidhu pleaded not guilty in April.

The prosecution claims Sidhu got inside information from a man who worked at a hedge fund about his firm's trading, said Michael Brompton, a lawyer for the prosecution. “This information enabled the defendant to engage in successful spread betting on stocks and shares.”

Sidhu, 40, was charged with trading securities of companies such as Julius Baer, Swatch, Reed Elsevier Plc and Michael Page International Plc, while knowing London hedge fund AKO Capital LLP planned transactions in the same shares, according to the indictment.

Before he traded with inside information, Sidhu, who advised public companies as a management consultant, had incurred losses of 80,000 pounds ($124,100) by October 2008 in a personal account with spread-betting firm IG Index, Brompton said. He told the firm he didn't have sufficient assets to pay the debt and would pay monthly installments of 5,000 pounds from his salary.

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New Suits

JPMorgan Misled Assured Guaranty, New Witnesses Say in Lawsuit

Bond insurer Assured Guaranty Ltd. has come forward with three dozen new witnesses who it says will back a legal claim that it was defrauded by JPMorgan Chase & Co.'s EMC Mortgage unit in a $337 million mortgage-backed securities deal.

Lawyers for Hamilton, Bermuda-based Assured Guaranty filed a new complaint on Nov. 18, unsealed yesterday, in a lawsuit accusing EMC and its parent at the time, Bear Stearns & Co., of misleading the bond insurer. The complaint, which also names JPMorgan as a defendant, includes a new fraud claim and new allegations from insiders at EMC and elsewhere.

“The truth is now coming directly from Bear Stearns' own former employees,” the insurer said in the complaint. “Seven confidential witnesses who were responsible for underwriting at EMC each have affirmed that they faced intense pressure to approve the purchase of high volumes of loans for Bear Stearns' securitizations without adequate review.”

Bear Stearns is a defendant in two other lawsuits in federal court in Manhattan by guarantors of mortgage-backed deals who say they were defrauded by the bank, which collapsed in 2008, according to the complaint. Assured Guaranty said its complaint adds to those suits by citing accounts from insiders and other sources.

Jennifer Zuccarelli, a spokeswoman for New York-based JPMorgan, declined to comment on the new complaint.

The suit focuses on a 2005 transaction known as SACO I Trust 2005-GP1, one of hundreds of securitizations by Bear Stearns from 2004 to early 2007. Assured Guaranty claims EMC knew that thousands of home-equity lines of credit that served as collateral for $337 million in securities it guaranteed were “junk” or otherwise flawed.

The case is Assured Guaranty Corp. v. EMC Mortgage Corp., 10-cv-05367, U.S. District Court, Southern District of New York (Manhattan).

Lehman Claims $1 Billion From AG Financial on Derivatives

Lehman Brothers Holdings Inc.'s U.K. unit sued AG Financial Products Inc. over derivative transactions, saying it is owed more than $1 billion.

AG Financial Products improperly calculated termination payments under derivative deals with Lehman Brothers International (Europe), the Lehman unit said in a complaint filed yesterday in New York State Supreme Court.

“AGFP has acted in bad faith and far outside the bounds of commercial reasonability and market practice in determining the amount payable,” LBIE said.

LBIE said “a proper calculation” shows AG Financial Products owes it more than $1 billion. AG Financial Products claimed it was owed $24.8 million from LBIE, according to the complaint.

AG Financial Products is a unit of Assured Guaranty Ltd., according to Assured's 2010 annual report. Ashweeta Durani, a spokeswoman for Assured, didn't immediately comment on the lawsuit.

The case is Lehman Brothers International (Europe) v. AG Financial Products Inc., 653284-2011, New York State Supreme Court (Manhattan).

McCormick & Schmick's Seafood Sued Over Landry's Buyout

McCormick & Schmick's Seafood Restaurants Inc. was sued by a stockholder who contends the shares are undervalued in a $131.6 million takeover offer by Landry's Inc.

Ray Zahnow contends McCormick directors are duty-bound to get the best price for the stock, and shirked their obligations in agreeing to the $8.75-a-share deal.

“The board has breached their fiduciary duties by agreeing to the proposed transaction for grossly inadequate consideration,” lawyers for Zahnow said in Delaware Chancery Court papers made public yesterday in Wilmington.

McCormick of Portland, Oregon, and Houston-based Landry's announced the tender offer in a statement Nov. 22, saying the McCormick board determined the acquisition was fair and in the best interests of stockholders.

Zahnow asked a judge to stop the transaction and award damages and legal fees.

The company “believes the claims asserted therein are meritless and intends to defend the lawsuit,” Joseph Sala, an outside spokesman for McCormick, said yesterday in an e-mail.

The case is Zahnow v. McCormick & Schmick's, CA7067, Delaware Chancery Court (Wilmington).

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Lawsuits/Pretrial

S&P Loses German Appeals Court Ruling Over Lehman Ratings

Standard & Poor's Financial Services LLC, a unit of McGraw- Hill Cos., lost a German appeals court ruling over whether it can be sued in the country for its ratings of Lehman Brothers Holdings Inc.

The Frankfurt Higher Regional Court overturned a ruling from a lower court that blocked the lawsuits in April, said Ingo Noehre, a spokesman for the appeals court. A German pensioner is seeking compensation for 30,000 euros ($40,000) over losses on Lehman certificates.

“The lower court now has to rehear the issue and cannot deny jurisdiction for the same reasons,” Noehre said. “Whether S&P is liable for damages in the end wasn't at issue in yesterday's ruling and needs to be determined by the lower court.”

Rating companies have come under fire for their alleged failure to foresee the financial crisis and for granting top rankings to mortgage bonds that fell in value after home-loan defaults. Investors brought cases in Germany after a U.S. court ruled the ratings companies can't be held liable because their ratings are protected speech.

Philippa Melaniphy, a spokeswoman for Standard & Poor's in London, declined to immediately comment on the decision.

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--With assistance from Bob Van Voris, David Glovin, David McLaughlin and Patricia Hurtado in New York; Heather Smith in Paris; Greg Stohr in Washington; Thom Weidlich in Brooklyn, New York; Kit Chellel in London; Karin Matussek in Berlin; Phil Milford and Jef Feeley in Wilmington, Delaware; Susannah Nesmith in Miami; and Andreas Cremer in Berlin. Editor: Stephen Farr