[ by Melanie Gretchen ] A lawyer for a group of banks' suing MBIA said during a court hearing that the insurer's CEO and Chairman had illegally traded MBIA stock while in possession of confidential information.  The accusation, which pertained only indirectly to the case at hand, is the latest development in the contentious litigation between a group of banks and the bond insurer. Case At Hand. Robert Giuffra Jr. is representing BofA, UBS, SocGen and Natixis, in a case against MBIA.  The banks are suing the insurer for defrauding them by splitting itself into 2 operations, separating its traditional municipal bond insurance business from its insurance business that had exposure to mortgage-backed securities.  The banks claim that the restructuring, made during the financial crisis, was a sham, making it likely that MBIA would eventually be able to avoid paying out losses from insuring mortgage-backed securities owned by the banks. Insider Trading Accusation. Giuffra accused Joseph Brown Jr. of purchasing company shares before an announcement had been made to the public regarding the company planned restructuring in February 2009.  The purchases, Giuffra claims, were made while in possession of insider information in the months prior to the restructuring. Mr. Giuffra further suggested that Mr. Brown and other MBIA executives had a financial motive to execute the restructuring.  According to securities filings, the CEO made 4 purchases of MBIA stock worth a total of some $1 million from November 2008 to January 2009.  MBIA submitted its restructuring application to the insurance department in December 2008. Returning to the Case at Hand:  Four Banks Remaining. Originally, 18 banks brought lawsuit in New York state court against MBIA.  Fourteen have settled, including Morgan Stanley, which late last year agreed to drop out of the case in exchange for a $1.1 billion payment from MBIA.  Two other cases against MBIA include a federal case that alleges the same claims as the banks lawsuit, for which hedge fund Aurelius Capital Management, which owns mortgage-backed securities insured by MBIA, is the lead plaintiff.  In a 3rd case, the banks are plaintiffs in a state-court action seeking to reverse the New York Insurance Department's approval of MBIA's restructuring. That approval came following a discussion in the fall of 2008 between MBIA executives and the New York State insurance department regarding the planned restructuring - that, according to an affidavit filed by Eric R. Dinallo, the then-insurance superintendent.  In his deposition, he noted that given MBIA's problems at the time, he was open to considering the insurer's restructing proposal. Response to Insider Trading Accusation. Marc Kasowitz, a lawyer for MBIA, called the accusations "false and irresponsible," adding that Mr. Giuffra made the claim only because the news media were present.  He said, "All of Mr. Brown's stock purchases were approved in advance by counsel, fully disclosed, and in full compliance with both securities laws and company policies." Currently, Mr. Brown owns 4.3 million shares, worth about $41 million;  he has not sold a share since rejoining the company as its CEO in February 2008.  Previously, he was a director of the company and the Chairman of the Board of Talegen Holdings. For further details, go to [Dealbook, 3/11/12].