Xstrata Board Said to Support Glencore’s Revised Offer

The board of Xstrata is expected to back a sweetened takeover bid from Glencore International, a person briefed on the matter said on Sunday, keeping what would be one of the biggest mergers in years back on track.

Xstrata’s board was set to make its announcement by Monday morning, as a regulatory deadline – already extended once – was scheduled to expire. The person briefed on the matter cautioned that some details were still being finalized, and that any agreement could still fall apart.

Should Xstrata’s directors proceed with their recommendation, it would help keep afloat a merger that would create a behemoth in the world of mining and minerals. But questions about the company’s restive shareholders have weighed down talks between the two sides.

First unveiled in February, the proposed transaction would unite Glencore, a giant commodities trading house, with Xstrata, its longtime mining partner. Together, the two would create an international mining c ompany with both significant physical assets and an enormous trading operation with invaluable insights into global demand for minerals.

The talks have drawn in many of London’s top deal makers, generating enormous fees for the bankers involved – if the transaction is approved.

But the talks had been weighed down for months over questions about who would lead the combined company, and how much it would cost to retain key Xstrata executives.

Early in September, Glencore raised its takeover bid, offering 3.05 of its shares for each share in Xstrata. In exchange, however, the commodities trader proposed that its chief executive, Ivan Glasenberg, would take over the unified company six months after the merger was completed. Under the original terms of the deal, Xstrata’s chief, Mick Davis, and his management team were set to retain control.

The changes in the new offer raised the possibility that top mining executives would depart, leaving the combined co mpany without veteran leaders in its core business. Mining is expected to comprise 84 percent of the unified company’s operating profits, based on last year’s earnings.

Glencore and Xstrata have since been negotiating a series of retention bonuses aimed at holding onto key executives, though those payouts – worth more than $200 million – have raised the ire of several major shareholders.

A number of institutional investors, including BlackRock and Legal & General, have been said to oppose the retention payments as too extravagant. That has prompted Xstrata to revise the bonus packages to more closely link them to performance targets, though they remain largely the same size.

Glencore and Xstrata have reportedly been working on ways to revise the shareholder voting procedures to allow investors to express disagreements over the payouts while still approving the deal.

One wild card remains the sovereign wealth fund of Qatar, the second-biggest sharehold er in Xstrata behind only Glencore, which has kept silent on the revised takeover bid. An adviser to Xstrata said previously that the country is less concerned about the payouts than about retaining key company executives.

With its 12 percent stake, Qatar Holding is seen as a key component to winning approval of any deal. The Qatar fund is expected to wait until Xstrata makes its announcement before making its own decision.

Judge Strikes Down Dodd-Frank Trading Rule

Wall Street notched another victory in the battle over regulation on Friday after a federal judge struck down a central piece of the Obama administration’s financial overhaul.

The court decision dealt the latest blow to the Dodd-Frank Act, the regulatory crackdown passed in response to the financial crisis. The decision on Friday, aimed at the Commodity Futures Trading Commission‘s so-called position limits rule, is the second time a Dodd-Frank rule has suffered legal defeat.

The C.F.T.C. adopted the rule last year to place new restrictions on speculative trading, capping the number of derivatives contracts a trader can hold on 28 commodities. The agency aimed to rein in trading blamed for inflated prices at the gas pump and the grocery store.

The future of the rule is uncertain. Under the decision by the federal judge in Washington, the rule was vacated and sent back to the C.F.T.C. for “reconsideration.”

But in a statement on Friday, the ag ency indicated it might appeal the court decision.

“I believe it is critically important that these position limits be established as Congress required,” the agency’s chairman, Gary Gensler, said in a statement on Friday. “I am disappointed by today’s ruling, and we are considering ways to proceed.”

The case stems from a lawsuit that two Wall Street trade groups filed late last year. The Securities Industry and Financial Markets Association and the International Swaps and Derivatives Association complained that the C.F.T.C. erred in writing the rule, saying it would have had the unintended effect of causing wild price swings.

In a joint statement, the groups said they were “pleased with today’s ruling” but are “committed to working with the commission and other regulators to promote safe, efficient markets.”

The ruling is sure to embolden Wall Street as it shifts the attack on Dodd-Frank from piecemeal lobbying to broader legal challe nges. Industry groups are currently challenging another C.F.T.C. rule, while others are weighing lawsuits against the so-called Volcker Rule, a still-uncompleted plan to stop banks from trading with their own money.

Companies have already seen some success. A federal appeals court last summer struck down the Securities and Exchange Commission’s proxy access rule, a Dodd-Frank policy that would have empowered shareholders to oust company directors. The court, which also would hear an appeal to the position limits rule, is friendly turf for Wall Street, tossing out S.E.C. rules six times in seven years.

The Commodity Futures Trading Commission, fearful of legal challenges, delayed its position limits rule on multiple occasions. It also tamed parts of the plan to accommodate concerns from traders.

But the concessions failed to placate Wall Street. The two trade groups point to the fine print of Dodd-Frank, saying the law leaves it to regulators to enforce posi tion limits only “as appropriate.” The groups argue that the law, in essence, required regulators to determine whether limits are necessary and appropriate before creating them.

For its part, the C.F.T.C. argued that Congress gave it no choice but to impose position limits.

While Judge Robert L. Wilkins vacated the rule, it was unclear whether he agreed with Wall Street’s position. In a ruling on Friday, the judge said that the central question in the case is whether Dodd-Frank “clearly and unambiguously” requires the agency to conclude the limits are necessary prior to imposing them. “The answer is yes.”

But the judge appeared to contradict himself elsewhere in the ruling. “Ultimately, however, this court need not choose between the competing interpretations,” he wrote, because the law “is ambiguous as to the precise question at issue.”

Public Citizen, a group that supports position limits, said on Friday that “The winners and l osers from this ruling are clear: Wall Street wins, consumers lose.”

Bart Chilton, a Democratic member of the agency who championed position limits, argued that the rule would protect consumers from speculative commodities trading. The trading, he and the rule’s other supporters say, have sent energy costs and food prices soaring.

The rule would cap the number of derivatives contracts a trader can hold on 28 commodities, including energy products like oil for the first time. Until the agency adopted the plan, the limits covered only nine agricultural commodities, including corn and wheat.

“I will continue to push hard for a position limits rule, as mandated by Congress,” Mr. Chilton said in a statement on Friday. “This is clearly a setback but we can learn from it and continue this critical effort to help make our markets safe and fair.”

Ex-SAC Analyst Pleads Guilty in Insider Trading Conspiracy

The billionaire investor Steven A. Cohen and his firm SAC Capital Advisors are again in the spotlight over insider trading crimes committed by onetime employees.

Jon Horvath, a former technology-industry analyst at SAC, pleaded guilty on Friday to insider trading a month before his scheduled trial. He is the fourth former SAC employee to admit to illegal trading while employed at the fund, which manages $14 billion. SAC has been a focus of federal authorities since the government began its crackdown on insider trading at hedge funds five years ago.

The admission by Mr. Horvath, who entered his guilty plea in Federal District Court in Manhattan, ratchets up pressure on the co-defendants in his case: Anthony Chiasson, who was a co-founder of Level Global Investors, and Todd Newman, a portfolio manager at Diamondback Capital Management.

Federal prosecutors say they were part of a seven-person conspiracy — a “circle of friends” — that earned about $62 million in illegal gains trading on secret tips from executives at publicly traded technology companies. Mr. Horvath, 42, is the fifth person to plead guilty and cooperate with the government. Several of the cooperators are expected to testify against Mr. Chiasson and Mr. Newman at their trial, which is set for Oct. 29.

Mr. Horvath’s guilty plea also puts the focus on another SAC trader. Michael Steinberg, who supervised Mr. Horvath at SAC, emerged as an unindicted co-conspirator in the case last week.

During his court appearance on Friday, Mr. Horvath said that he obtained confidential information about the technology companies Dell and Nvidia and then “provided the information to the portfolio manager I worked for and we executed the trades based on that information.” That portfolio manager is Mr. Steinberg, according to two people with direct knowledge of the matter who requested anonymity because they were not authorized to discuss it publicly.

Mr. Steinberg, 40, is one of Mr. Cohen’s longtime lieutenants, having worked at SAC since 1997. Barry H. Berke, a lawyer representing Mr. Steinberg, declined to comment.

“Until today, Mr. Horvath maintained he had not violated the law and we gave him the benefit of the presumption of innocence,” said Jonathan Gasthalter, an SAC spokesman. “We are disappointed and angered to learn Mr. Horvath admittedly violated the law and SAC’s policies forbidding insider trading. We expect our employees to have integrity, play by the rules and follow the letter and spirit of the law.”

Steven R. Peikin, a lawyer for Mr. Horvath, declined to comment. John A. Nathanson, a lawyer for Mr. Newman, and Gregory Morvillo, a lawyer for Mr. Chiasson, also declined to comment.

Though he has not been charged in the case, Mr. Steinberg is now the fifth employee or former employee of SAC tied to insider trading while at the fund. Last year, two former SAC portfolio managers – Donal d Longueuil and Noah Freeman – admitted to trading on illegal tips about publicly traded technology companies. Mr. Longueuil is serving a 2 1/2-year jail term at a federal prison in Otisville, N.Y.; Mr. Freeman, who is cooperating with prosecutors, has yet to be sentenced.

Jonathan Hollander, a former SAC analyst, paid more than $220,000 to settle civil charges brought by the Securities and Exchange Commission accusing him of trading on confidential information about the takeover the Albertsons grocery-store chain.

A number of Mr. Horvath’s co-conspirators also have deep SAC connections. Mr. Chiasson left SAC to co-found Level Global, which shut down last year. And Mr. Newman’s fund, Diamondback, was started by SAC alumni, including Mr. Cohen’s brother-in-law, Richard Shimel. Diamondback remains in business, and Mr. Shimel has not been charged.

Mr. Cohen and SAC have not been charged with wrongdoing. The Stamford, Conn.-based fund, with about 1,000 employee s, has a 20-year track record that is one of the best investment records in the hedge fund industry. The fund is up about 8 percent year-to-date.

SAC has an unconventional structure. Unlike other hedge fund managers that make all the investment decisions, Mr. Cohen manages less than 10 percent of the fund’s money, distributing the rest to about 140 small teams. It is a high-pressure culture where Mr. Cohen will reward teams that perform well with increased allocations, while underperformers can get cut back or lose their jobs. The more money a team manages, the greater its potential earnings.

His success as a stock picker has made Mr. Cohen, 56, one of the richest people in the country, with a net worth of $8.8 billion, according to Forbes magazine. He has also minted a stable of multimillionaires; in profitable years, top traders at SAC have earned tens of millions of dollars.

Mr. Horvath, who now resides in San Francisco, faces a maximum sentence of 45 ye ars in prison, though he is expected to receive a far more lenient sentence. He is a citizen of Sweden, and could face deportation after serving time.

The charges against Mr. Horvath are part of a sweeping investigation into insider trading at hedge funds by federal authorities in Manhattan. The crackdown has resulted in criminal cases against 72 people. With Friday’s guilty plea, 69 of those cases have resulted in convictions.

A Big Settlement, Flexible Ethics and Special Section on the Law

WEEK IN VERSE The Clash knew what happened when you fought big law.

Bank of America agreed to a $2.43 billion settlement. | A British trade group gave up its Libor power. | Andrew Ross Sorkin questioned the flexible ethics of bankers’ new lobbyist. | A special section explored the intense competitive pressures confronting law firms.

A look back on our reporting of the past week’s highs and lows in finance.

As Time Wanes, Glencore-Xstrata Deal Hinges on Leadership | The $90 billion merger is on shaky ground and William MacNamara reports that “negotiating time is growing short. After getting an extension on the initial deadline, Xstrata has until Monday to decide whether to accept Glencore’s sweetened bid.” DealBook ‘

Standard Chartered’s Next Worry Is a $1 Billion Loan in Indonesia |
The British bank may be at risk of losing money on a loan to a mining company to make an investment that has sinc e soured, Peter Eavis and Mark Scott reported. DealBook ‘

The exposure highlights Standard Chartered’s reliance on often unstable emerging markets for the majority of its income. The bank, based in London, earned around 90 percent of its $2.86 billion net profit from developing countries like China and India in the first half of the year.

DealBook Column: About-Face for Bankers’ New Lobbyist | Andrew Ross Sorkin said that calling the choice of Tim Pawlenty to represent the banking industry is odd would be an understatement, but his appointment is the clearest sign yet of the flexible ethic that makes the revolving door in Washington spin faster. DealBook ‘

“I went to Wall Street and told them to get their snout out of the trough because they are some of the worst offenders when it comes to bailouts and carve-outs and special deals.”

That was Tim Pawlenty, the former Republican governor of Minnesota, just over a year ago while running for president, railing against big banks.

This new lobbyist gives the banks Paw-lenty of opportunity to stall regulation nyti.ms/UD0Otocc: @andrewrsorkin

- Downtown Josh Brown (@ReformedBroker) September 25, 2012

Deal Professor: A Hedge Fund’s Complex Scheme May Cost It Millions | Steven M. Davidoff says that Mason Capital, a New York and London hedge fund with about $8 billion in assets under management, has made a complex bet in Telus, a large Canadian telecommunications company, that looked shrewd at first, but that may now lose tens of millions of dollars. DealBook ‘

Lost in all of this maneuvering are the economic merits of Telus’s share collapse and the fact that nonvoting shares do appear to be getting a significant benefit that may be inappropriate.

Santander’s Mexican Unit Sells U.S. Shares at $12.18 in Dual Listing | The number was within Grupo Financiero Santander México’s expected price range, Michael J. de la Merced reported. “The offering was largely seen as a way to tap into Mexico’s growth prospects as investors hunt for ways to gain greater exposure to international markets.” DealBook ‘

Bank of America to Pay $2.43 Billion to Settle Suit Over Merrill Deal | In 2009, shareholders accused Bank of America of making false and misleading statements about the health of the two companies. In part, the plaintiffs accused Bank of America of hiding a major loss at Merrill Lynch just shortly before shareholders were set to vote on the deal. DealBook ‘

British Authorities Unveil Changes in Libor Oversight | The Financial Services Authority aims to improve the accuracy and reliability of the benchmark, Mark Scott reported. Regulators are stripping a British banking group of its power and making rate manipulation a criminal offense. DealBook ‘

Goldman to Settle Pay-to-Play Charges | The Wall Street bank struck a $12 million settlement with the Securities and Exchange Commission to resolve allegations that Neil M. M. Morrison, who was a vice president at the firm, curried favor with a public official to win lucrative government contracts in Massachusetts, Susanne Craig and Ben Protess reported. DealBook ‘

Geithner Calls for Action on Tougher Rules for Money Market Funds | In a letter to the Financial Stability Oversight Council, the Treasury secretary said the changes to money market funds, which manage $2.6 trillion, were “essential for financial stability,” Mr. Eavis reported. DealBook ‘

An Electric Carmaker Struggles as Its Production Lags | Tesla Motors is turning to investors and taxpayers for extra financial help. Mr. Eavis reported that the moves raised questions about the long-term viability of the company. DealBook ‘

Former Programmer Demands That Goldman Cover His Legal Fees | Sergey Aleynikov, charged a second time with stealing valuable computer code from the investment bank, wants his former employer to pay for the nearly $2.4 million in costs he has racked up defending himself, Mr. de la Merced and Peter Lattman reported. DealBook ‘

Ex-Regulator Has Harsh Words for Bankers and Geithner | Adding to a growing collection of financial crisis histories, Sheila Bair, former head of the Federal Deposit Insurance Corporation, takes aim at some regulatory colleagues, Mr. Protess and Mr. Eavis reported. DealBook ‘

Insider Trading Witness Given Probation for Testifying Against Hedge Fund Titan | Rajiv Goel was one of three crucial government witnesses against Raj Rajaratnam, Mr. Lattman reported. DealBook ‘

DealBook Column: Big Law Steps Into Uncertain Times Mr. Sorkin says that the importance of lawyers has never been greater, yet the legal industry has come under great pressure. One result may be a change in the business model. | DealBook ‘

With Smartphone Deals, Patents Become a New Asset Class | Amid rapid changes in technology, several boutique law firms have emerged that are like investment banks in valuing and selling patents as well as giving strategic advice, reports Steve Lohr. DealBook ‘

As Wall Street Fights Regulation, It Has Backup on the Bench | When Wall Street challenges the Dodd-Frank regulatory overhaul in court, it is finding that it has an ally in the United States Court for Appeals for the District of Columbia, reports Mr. Protess. DealBook ‘

Graphic Graphic: White-Collar World | A small group of “big trouble” lawyers repeatedly show up on the dockets of major corporate scandals across the decades, both as government prosecutors and as defense counsel, reports Mr. Lattman. DealBook ‘

Wall Street Scandals Fill Lawyers’ Pockets | The white-collar bar is thriving with cases like the collapse of MF Global and the manipulation of the London interbank offered rate, reports Azam Ahmed. DealBook ‘

Evolving Global Strategy Gives Law Firm an Edge | By focusing on global deal-making, Freshfields Bruckhaus Deringer, based in London, says it has been able to better compete with the major American firms, reports Mr. Scott. DealBook ‘

Graphic Graphic: Mergers and Acquisitions, Top Financial and Legal Advisers | In the third quarter of 2012, mergers and acquisition activity was $455 billion worldwide. The U.S. share was $195 billion. Goldman Sachs and Freshfields Bruckhaus Deringer were the top financial and legal advisers. DealBook ‘

Essay: A Law Firm Where Money Seemed Secondary | James B. Stewart says that at Cravath, Swaine & Moore, associates were paid based on seniority, with no bonuses and no resentments. DealBook ‘

Deal Professor: The Economics of Law School | Mr. Davidoff says that the trend away from law schools has prompted much discussion about what structural changes may be needed. DealBook ‘

Culture Keeps Firms Together in Trying Times | Faced with risk-taking peers and an uncertain economy, a handful of prestigious law firms like Cravath, Swaine & Moore stick with partnership-driven philosophies that emphasize teamwork, reports Mr. Lattman. DealBook ‘

White Collar Watch: Under Investigation, and Doing the Investigation | Peter J. Henning says that in dealing with corporate misconduct, the government may be leaning too much on the law firms hired by the companies under investigation. DealBook ‘

A Big Settlement, Flexible Ethics and Special Section on the Law

WEEK IN VERSE The Clash knew what happened when you fought big law.

Bank of America agreed to a $2.43 billion settlement. | A British trade group gave up its Libor power. | Andrew Ross Sorkin questioned the flexible ethics of bankers’ new lobbyist. | A special section explored the intense competitive pressures confronting law firms.

A look back on our reporting of the past week’s highs and lows in finance.

As Time Wanes, Glencore-Xstrata Deal Hinges on Leadership | The $90 billion merger is on shaky ground and William MacNamara reports that “negotiating time is growing short. After getting an extension on the initial deadline, Xstrata has until Monday to decide whether to accept Glencore’s sweetened bid.” DealBook ‘

Standard Chartered’s Next Worry Is a $1 Billion Loan in Indonesia |
The British bank may be at risk of losing money on a loan to a mining company to make an investment that has sinc e soured, Peter Eavis and Mark Scott reported. DealBook ‘

The exposure highlights Standard Chartered’s reliance on often unstable emerging markets for the majority of its income. The bank, based in London, earned around 90 percent of its $2.86 billion net profit from developing countries like China and India in the first half of the year.

DealBook Column: About-Face for Bankers’ New Lobbyist | Andrew Ross Sorkin said that calling the choice of Tim Pawlenty to represent the banking industry is odd would be an understatement, but his appointment is the clearest sign yet of the flexible ethic that makes the revolving door in Washington spin faster. DealBook ‘

“I went to Wall Street and told them to get their snout out of the trough because they are some of the worst offenders when it comes to bailouts and carve-outs and special deals.”

That was Tim Pawlenty, the former Republican governor of Minnesota, just over a year ago while running for president, railing against big banks.

This new lobbyist gives the banks Paw-lenty of opportunity to stall regulation nyti.ms/UD0Otocc: @andrewrsorkin

- Downtown Josh Brown (@ReformedBroker) September 25, 2012

Deal Professor: A Hedge Fund’s Complex Scheme May Cost It Millions | Steven M. Davidoff says that Mason Capital, a New York and London hedge fund with about $8 billion in assets under management, has made a complex bet in Telus, a large Canadian telecommunications company, that looked shrewd at first, but that may now lose tens of millions of dollars. DealBook ‘

Lost in all of this maneuvering are the economic merits of Telus’s share collapse and the fact that nonvoting shares do appear to be getting a significant benefit that may be inappropriate.

Santander’s Mexican Unit Sells U.S. Shares at $12.18 in Dual Listing | The number was within Grupo Financiero Santander México’s expected price range, Michael J. de la Merced reported. “The offering was largely seen as a way to tap into Mexico’s growth prospects as investors hunt for ways to gain greater exposure to international markets.” DealBook ‘

Bank of America to Pay $2.43 Billion to Settle Suit Over Merrill Deal | In 2009, shareholders accused Bank of America of making false and misleading statements about the health of the two companies. In part, the plaintiffs accused Bank of America of hiding a major loss at Merrill Lynch just shortly before shareholders were set to vote on the deal. DealBook ‘

British Authorities Unveil Changes in Libor Oversight | The Financial Services Authority aims to improve the accuracy and reliability of the benchmark, Mark Scott reported. Regulators are stripping a British banking group of its power and making rate manipulation a criminal offense. DealBook ‘

Goldman to Settle Pay-to-Play Charges | The Wall Street bank struck a $12 million settlement with the Securities and Exchange Commission to resolve allegations that Neil M. M. Morrison, who was a vice president at the firm, curried favor with a public official to win lucrative government contracts in Massachusetts, Susanne Craig and Ben Protess reported. DealBook ‘

Geithner Calls for Action on Tougher Rules for Money Market Funds | In a letter to the Financial Stability Oversight Council, the Treasury secretary said the changes to money market funds, which manage $2.6 trillion, were “essential for financial stability,” Mr. Eavis reported. DealBook ‘

An Electric Carmaker Struggles as Its Production Lags | Tesla Motors is turning to investors and taxpayers for extra financial help. Mr. Eavis reported that the moves raised questions about the long-term viability of the company. DealBook ‘

Former Programmer Demands That Goldman Cover His Legal Fees | Sergey Aleynikov, charged a second time with stealing valuable computer code from the investment bank, wants his former employer to pay for the nearly $2.4 million in costs he has racked up defending himself, Mr. de la Merced and Peter Lattman reported. DealBook ‘

Ex-Regulator Has Harsh Words for Bankers and Geithner | Adding to a growing collection of financial crisis histories, Sheila Bair, former head of the Federal Deposit Insurance Corporation, takes aim at some regulatory colleagues, Mr. Protess and Mr. Eavis reported. DealBook ‘

Insider Trading Witness Given Probation for Testifying Against Hedge Fund Titan | Rajiv Goel was one of three crucial government witnesses against Raj Rajaratnam, Mr. Lattman reported. DealBook ‘

DealBook Column: Big Law Steps Into Uncertain Times Mr. Sorkin says that the importance of lawyers has never been greater, yet the legal industry has come under great pressure. One result may be a change in the business model. | DealBook ‘

With Smartphone Deals, Patents Become a New Asset Class | Amid rapid changes in technology, several boutique law firms have emerged that are like investment banks in valuing and selling patents as well as giving strategic advice, reports Steve Lohr. DealBook ‘

As Wall Street Fights Regulation, It Has Backup on the Bench | When Wall Street challenges the Dodd-Frank regulatory overhaul in court, it is finding that it has an ally in the United States Court for Appeals for the District of Columbia, reports Mr. Protess. DealBook ‘

Graphic Graphic: White-Collar World | A small group of “big trouble” lawyers repeatedly show up on the dockets of major corporate scandals across the decades, both as government prosecutors and as defense counsel, reports Mr. Lattman. DealBook ‘

Wall Street Scandals Fill Lawyers’ Pockets | The white-collar bar is thriving with cases like the collapse of MF Global and the manipulation of the London interbank offered rate, reports Azam Ahmed. DealBook ‘

Evolving Global Strategy Gives Law Firm an Edge | By focusing on global deal-making, Freshfields Bruckhaus Deringer, based in London, says it has been able to better compete with the major American firms, reports Mr. Scott. DealBook ‘

Graphic Graphic: Mergers and Acquisitions, Top Financial and Legal Advisers | In the third quarter of 2012, mergers and acquisition activity was $455 billion worldwide. The U.S. share was $195 billion. Goldman Sachs and Freshfields Bruckhaus Deringer were the top financial and legal advisers. DealBook ‘

Essay: A Law Firm Where Money Seemed Secondary | James B. Stewart says that at Cravath, Swaine & Moore, associates were paid based on seniority, with no bonuses and no resentments. DealBook ‘

Deal Professor: The Economics of Law School | Mr. Davidoff says that the trend away from law schools has prompted much discussion about what structural changes may be needed. DealBook ‘

Culture Keeps Firms Together in Trying Times | Faced with risk-taking peers and an uncertain economy, a handful of prestigious law firms like Cravath, Swaine & Moore stick with partnership-driven philosophies that emphasize teamwork, reports Mr. Lattman. DealBook ‘

White Collar Watch: Under Investigation, and Doing the Investigation | Peter J. Henning says that in dealing with corporate misconduct, the government may be leaning too much on the law firms hired by the companies under investigation. DealBook ‘

What’s Going On With My Bank?

September 28, 2012, 3:47 pm

By PAUL DOWNS

Wednesday was kind of a busy day, but late in the afternoon I tried to log in to my bank’s Web site to see what checks had posted (I bank with PNC). I couldn’t get in. Web sites don’t load now and then, and I didn’t give it much thought.

Yesterday morning I was discussing the payments we expected to receive this week with my two salesmen, Don and Nate. They are responsible for sending out invoices and keeping track of whether we have been paid with a cash management spreadsheet. Nate had received verbal confirmation of a sale of a conference table on Tuesday and added it to our production queue. We normally require a deposit in hand to do this, but you know how it goes – putting up a sales number is fun, a nd we were convinced the deal was a go. Why not do the client a favor and schedule manufacturing?

I asked Nate whether we had received a deposit from a new customer I’ll call Company T. This client had said it was  sending its deposit through an electronic funds transfer. Nate hadn’t heard whether the deposit, a little more than $9,000, had been sent and suggested I check the bank Web site to see whether the payment had posted. I tried again to log in, and again couldn’t connect. Hmmm. I tried refreshing several times, quitting and restarting the browser, and finally tried using two other browsers. Eventually PNC displayed a page that said the site was experiencing some technical issues and that I should try later. Again, other duties pressed and I set it aside.

At the end of Thursday, Don took a credit card from a client he had been working with – let’s call it Company S. We added the client to our list, but now I had a problem: Wh o gets the first available production time, Company T or Company S? They both wanted their tables as soon as possible, so the first one to commit money would get it. The call from Company S happened late on Thursday, just as I was walking out the door. I figured I would sort it out on Friday morning.

So when I came in on Friday, I tried again to log in, and this time nothing at all came up. This was starting to seem strange. As it happened, I needed some cash, so I hopped in my car to go to the local branch and see what was going on. When I got there, I was told that hackers had taken down the PNC Web site and that a number of major banks had been affected. The teller had no idea when it would be back up. At least I was able to see, on the bank’s own computers, that Company T’s transfer had gone through on Thursday.

Back at the office, I tried again to log in. No luck. I’ve continued to try throughout the day, and even as I wrote this post (early afternoon) I cou ldn’t get in. Now I’m a little worried. My bookkeeper won’t be able to reconcile our payments for the week, and I won’t be able to confirm that my cash management plans are still current. And beyond that: what’s up with PNC?

There hasn’t been much news about this incident (The Times’s Bits blog ran a post), but I was able to find out that a number of major banks had been affected. I have accounts with Chase and Wells Fargo, and I was able to get access to both of them, although it took a while to log in. PNC seems to have been hit harder or not been as nimble in response.

It’s disconcerting, to say the least, to find out how vulnerable my bank is to an outside attack. It’s been a disruption to my business that I didn’t expect, and the longer it goes on, the more worrisome it becomes.

I have planned my business around ready access to up-to-date financial information and rely on it to make sure I’m solvent. This particular week I have some cushion in my acco unts, but I’ve lived through many periods where knowing whether $9,000 had arrived or not would make all the difference in the world – if I were trying to make payroll, for instance, or trying to make sure that critical materials shipped, or trying to avoid penalty payments on a credit card.

Is anyone else having trouble seeing their accounts right now?

Paul Downs founded Paul Downs Cabinetmakers in 1986. It is based outside Philadelphia.

The Cost of Putting the Merrill Lynch Merger Behind It

Bank of America has resolved one of the largest and most embarrassing pieces of litigation related to its merger with Merrill Lynch in 2008. But the settlement comes with a pretty hefty price tag, since the bank has agreed to pay $2.43 billion to end the lawsuit. That monetary award ranks it as one of the largest settlements in a securities class-action case, behind the settlement over the disastrous AOL-Time Warner merger.

The acquisition of Merrill caused Bank of America plenty of headaches by adding toxic mortgage assets to its balance sheet on top of what the bank took on when it bought Countrywide Financial. The bank has also been fighting with Fannie Mae and Freddie Mac over whether it will have to take back bad mortgages packaged into mortgage-backed securities.

The lawsuit that was settled on Friday accused Bank of America of misleading its shareholders in soliciting their votes for the merger by not disclosing the deterioration in Merrill’s financial position. It also faults the bank for approving $5.8 million in bonuses to its executives despite the problems.

The net result was that Bank of America’s shareholders approved the acquisition of Merrill at a higher price than should have been paid. And because damages are calculated in a securities fraud claim based on this measure, the claims had the potential to reach $50 billion – the difference between what Bank of America paid for Merrill and what it was worth at the time of the acquisition.

The $2.43 billion payment comes on top of the $20 million settlement resolving a shareholder derivative action in May, and the $150 million penalty imposed in 2010 in a case filed by the Securities and Exchange Commission over the proxy disclosure.
The S.E.C. settlement originally called for the bank to pay only $33 million, but United States District Court Judge Jed S. Rakoff rejected it because it would have been unfair for shareholders to foot the bill when th ey were on the receiving end of the faulty disclosures in the proxy solicitation.

Bank of America disclosed that the payment for the latest settlement would come from its litigation reserves, including an additional $1.6 billion it is adding this quarter to cover the costs of its litigation. That is a pretty significant hit to its bottom line.

But like all such settlements, it does not come with any admission of liability, and the bank asserted in a statement that it was done “to eliminate the uncertainties, burden and expense of further protracted litigation.” Ultimately, as much as the payment hurts, Bank of America is probably quite happy with the settlement given that it could have potentially faced billions of dollars more in liability in the case.

Investors, however, won’t be the ones to get rich from this payment. Bank of America will be using its own money to pay those who were shareholders at the time of the Merrill merger. In other words, as Judge Rakoff complained about the S.E.C. settlement, the current shareholders will be paying previous ones.

Moreover, up to a third of the settlement amount could go to the plaintiffs’ lawyers. The people who led Bank of America at the time – including the former chief executive Kenneth D. Lewis – will not pay a dime because the company is required to pick up their legal expenses as part of their executive contracts.

Also as part of the latest settlement, the bank agreed to continue until 2015 a number of corporate governance measures that it first put in place as part of its agreement with the S.E.C. in 2010. The cost of these measures will be minimal and not require the commitment any significant resources.

That leaves one last piece of litigation outstanding from the Merrill acquisition: a lawsuit by then New York Attorney General Andrew M. Cuomo for a violation of the Martin Act, the state’s broad securities fraud law. Filed on the same day that the S.E.C. settled its case, it accuses the bank, Mr. Lewis, and the former chief financial officer Joseph L. Price of misleading shareholders about Merrill’s financial condition.

If the New York case goes to trial, it will dredge up a host of issues about what the executives knew about the extent of the problems at Merrill. To defend themselves, Mr. Lewis and Bank of America could try to offer evidence about the role of the federal government in pushing him to complete the deal during the throes of the financial crisis.

Having paid out a total of $2.6 billion so far to settle lawsuits over the Merrill acquisition, Bank of America no doubt wants to put this issue as far behind it as possible. Whether it can reach an agreement with New York Attorney General Eric Schneiderman, who is now in charge of the case, remains to be seen. So far, the state has not shown any interest in backing away from its accusations .
In the meantime, the real losers are Bank of America shareholders who have been asked to pay much more for Merrill than seems justified.

Peter J. Henning, who writes White Collar Watch for DealBook, is a professor at Wayne State University Law School.

Steven M. Davidoff, writing as The Deal Professor, is a commentator for DealBook on the world of mergers and acquisitions.

Ex-Goldman Partner Finds New Digs

Can you imagine if Charles Gwathmey had been able to get his hands on this room?

Earlier this year, former Goldman Sachs partner Jonathan Sobel reluctantly agreed to sell his stunning Charles Gwathmey penthouse at the Verona for $21 million. And no wonder! It appears that Mr. Sobel and his wife Marcia Dunn had their eye on a 15-room duplex at that most glorious of all the glorious Upper East Side buildings: 740 Park Avenue.

Mr.  Sobel and Ms. Dunn have filed documents with the city indicating that they are purchasing the shares for the sprawling four-bedroom C-line spread that spans the fourth and fifth floors. The apartment was most recently listed for $23 million with Sotheby’s brokers Meredyth Smith and Serena Boardman.

It’s a duplex!

Slideshow: Inside the Sobel spread >>

Well, they did need someplace to live after Sotheby’s broker Roger Erikson slipped a note under their Verona door persuading them to sell.

“Gwathmey was a genius, and if you had asked me six months ago if I was going to sell my apartment, I would have said, ‘No way,’ ” Mr. Sobel told The New York Times about his decision to sell his beloved penthouse. “The renovations he did were breathtaking.”

Trading in a masterpiece of modern architecture for the decidedly old world flavor of 740 Park (their new living room is described in the listing as “baronial”) is certainly an interesting choice. Perhaps a financial heavyweight like Mr. Sobel wanted to be in like company, and he will no doubt fit right in at 740 Park.

Even if he does have the misfortune of being one of the 130 executives named in a mortgage crisis suit filed by the Federal Housing Finance Administration (Mr. Sobel headed the mortgage unit until he retired in 2006 to work as a private investor), we’re sure he and Howard Marks will soon be exchanging pleasantries about markets as they pass each other in the lobby. The now notorious Ezra Merkin is also a neighbor, and fallen man John Thain, as well as reigning titans Steve Schwartzman, David Koch and Charles Stevenson.

What’s more, even without the sale of his Gwathmey penthouse, Mr. Sobel has more than enough cash to burn, being among the 221 executives who became filthy rich when the firm went public in 1999. Neither Mr. Sobel nor any of the brokers could be reached for comment.

The four-bedroom apartment is being sold by the estate of Randolph and June Speight-the feared and ferociously respected late co-op board president and his wife, who owned an apartment that was unabashedly upper crust: marble entrance gallery, walnut paneling in the library, fireplaces topped by massive gilded mirrors. For those inclined to swoon over oil paintings and chandeliers and all the accoutrements of blue blooded old New York splendor, have a look, will you?

It’s been a busy summer for the Sobels. Not only did they sell their Verona penthouse, but they also purchased a historic museum building in Southhampton from the Parish Art Museum, to mild outcry-other well-to-do locals complained it was too cheap. This time, it is hard to say. These days, $23 million feels like not much, especially for (what was) such a notable building.

Shouldn’t Mr. Sobel be joining the rest of the Goldman gang in 15 Central Park West, or even showing them all up and buying into One57? Some buildings, 740 Park chief among them, will never lose their allure, no matter what gets built in this town.

kvelsey@observer.com

Follow Kim Velsey via RSS.

Share this:

  • Twitter
  • Facebook
  • Reddit
  • LinkedIn
  • Email
  • Print

See also
Goldman Shrinks an Adage; Long-Term Greedy Can’t Wait Ex-Goldman Trader Stung in Arms Plot, Shocks Colleagues Goldman Goldmine Goldman Rising A Tribeca Break-Up: Goldman, Sachs and Hot-Shot Developer topics: Jonathan Sobel, June Speight, Manhattan Transfers, Marcia Dunn, Meredyth Smith, Randolph Speight, Serena Boardman

A New and Improved Libor, Maybe

A New and Improved Libor, Maybe  |  British regulators finally have a plan for fixing Libor, but it remains to be seen whether it will work.

On Friday, Martin Wheatley, a top regulator in Britain, laid out a proposal for revamping the crucial interest rate at the center of a manipulation scandal. Not too many surprises. The British government plans to be more involved and make rate-rigging a criminal offense. Regulators may also cut the number of rates to 20 from 150, in an effort to make it more accurate.

Mr. Wheatley said in a statement: “Although the current system is broken, it is not beyond repair, and it is up to regulators and market participants to work together towards a lasting and sustainable solution.”

But is the benchmark too broken to fix? The New York Times’s Floyd Norris says the plan sounds overly optimistic: “Libor is, and is likely to remain, a fiction.”

The editors of Bloomberg View, who call the proposals “respectable,” lament that “Wheatley stopped short of one measure that would have greatly improved transparency: requiring banks to report actual borrowing transactions, against which the public could check the veracity of the estimates that banks submit.”

That could be tough with Libor. A Wall Street Journal analysis found that “18 banks on the main U.S.-dollar Libor panel left their daily estimated rates unchanged on average 87% of the time.”

Even Mr. Wheatley admitted on Friday that there could still be problems. “There’s always a possibility for collusion,” he told an audience at Mansion House. “But under the new regulatory structure, people would be taking a high risk.”

Greece Hunts for Cash  |  The Greek government is on an overseas tr easure hunt. The country’s officials are poring over a secret list of about 400 Greeks who have done real estate deals in London since 2009 to determine whether the businessmen, bankers, shipping tycoons and others have dodged taxes by understating their wealth. Landon Thomas Jr. of The New York Times writes: “There is an air of desperation to this Athens fund-raising drive, which includes leasing out empty Greek islands and even putting up for sale the former residence of the Greek consul general in the tony London neighborhood of Holland Park.”

But such strategies won’t fill the coffers. Against the backdrop of violent protests in Athens, the government hammered out a proposal on Thursday to offer to foreign lenders on Monday. The plan includes $15 billion in cuts and at least $2.6 billion in new taxes, The New York Times reports. There’s more austerity for Spain, too. A new budget proposal calls for the government to cut spending by almost 9 percent.

Heineken Nabs Tiger  |  The Dutch brewer Heineken finally claimed victory in its effort to buy Asia Pacific Breweries for $4.6 billion, following a two-month battle with a Thai billionaire. Shareholders of Fraser & Neave, the Singaporean conglomerate that owns Asia Pacific Breweries, voted Friday to approve the sale.

Geithner Pushes for New Rules on Money Funds  |  Treasury Secretary Timothy F. Geithner called for the Financial Stability Oversight Council to push ahead on new rules for the $2.6 trillion market, calling them “essential for financial stability,” reports DealBook’s Peter Eavis. Mr. Geithner is also drawing up his own recommendations, including a proposal to have money market funds hold capital for potential losses. “You can be sure that the firms on the receiving end won’t take this pa ssively,” said Jay G. Baris, a lawyer at Morrison & Foerster, which represents money market funds.

On the Agenda  |  The chief executive of Research in Motion, Thorsten Heins, is appearing on CNBC at 8 a.m., after the company reported a quarterly loss that was smaller than expected. Investors, who are starved for any shred of good news, sent the stock price higher in trading after hours, but analysts said the future remains grim for the BlackBerry maker. The prime minister of Qatar, Sheikh Hamad bin Jassim bin Jaber al-Thani, is on CNBC at 3:40. Qatar’s sovereign wealth fund has been a vocal player in the wrangling over Glencore’s takeover of Xstrata, which faces a Monday deadline to decide on a sweetened offer.

Walgreen’s quarterly earnings are due at 7:30 a.m. The pharmacy chain’s fight with Express Scripts is expected to weigh on the results.

Soros Backs Pro-Obama Super PAC  |  George Soros is departing from an earlier strategy by commiting $1 million to Priorities USA Action, the super PAC supporting President Obama, two people with knowledge of the matter told The New York Times’s Nicholas Confessore. The billionaire’s donations had previously been focused more on research and grass-roots organizing. But Mr. Soros now seems to have gotten over his aversion to the powerful groups focused on advertising, with an additional donation of $500,000 to two super PACs backing Congressional Democrats, Mr. Confessore says.

Gundlach Gets His Art Back  |  “It’s a great day for the art world,” said the bond investor Jeffrey Gundlach, after the police, acting on a tip, recovered the art collection that was stolen from his Santa Monica home. All but one of th e stolen paintings were found in an automobile stereo shop, and the final piece was recovered from someone’s home, according to The Los Angeles Times. Mr. Gundlach’s Porsche, though, is still missing.

Mergers & Acquisitions ‘

Sony Agrees to Acquire Stake in Olympus  |  In a deal worth $640 million, Sony said it would hold an 11.46 percent stake after buying new shares that would be issued by Olympus.
DealBook ‘

Medtronic to Buy Chinese Medical Supplier  |  Medtronic, based in Minneapolis, said it would pay $816 million in cash for China Kanghui, a manufacturer of orthopedic devices.
DealBook ‘

Prudential to Acqui re Life Business from Hartford  |  Following earlier pressure from hedge fund manager John A. Paulson, Hartford Financial Services Group sells its individual life insurance business for $615 million in cash.
DealBook ‘

Brinkmanship Seen in Aerospace Merger Talks  |  An executive at EADS rejected calls to extend the Oct. 10 deadline in the merger talks with BAE, Reuters reports.
REUTERS

Is Pandora a Takeover Target?  |  A move by Apple to get into Internet radio might put Pandora in play, Bloomberg Businessweek writes.
BLOOMBERG BUSINESSWEEK

INVESTMENT BANKING ‘

Standard Chartered’s Next Worry: A $1 Billion Indonesian Loan  |  The British bank, which agreed last month to pay the New York State’s top banking regulator $340 million to settle money-laundering allegations, may be at risk of losing money on a $1 billion loan to an Indonesian mining company.
DealBook ‘

How Warren Buffett Exploits a Market Anomaly  |  A new paper from researchers at New York University and AQR Capital Management identifies some of the ways the famed investor has been so successful over the years, The Economist writes.
ECONOMIST

Macquarie Has a Busy Summer  |  The Australian investment bank ranked first for announced deals in Australia in th e third quarter, according to Dealogic. Goldman Sachs held the top spot for completed deals.
WALL STREET JOURNAL

Singapore Emerges as a Financial Destination  |  Singapore is playing host to an increasing number of conferences, conventions and tradeshows, according to Bloomberg News.
BLOOMBERG NEWS

After Lehman, Callan Bids New York FarewellAfter Lehman, Callan Bids New York Farewell  |  Erin Callan, the former chief financial officer of Lehman Brothers, is looking to sell her house in East Hampton, Long Island, for $3.95 million.
DealBook ‘

PRIVATE EQUITY ‘

Blackstone Invests in Real Estate Finance Company  |  The Blackstone Group is buying an 18.2 percent stake in Capital Trust, a real estate finance company, and is acquiring its investment unit, in a roughly $30 million deal, Reuters reports.
REUTERS

Apax Partners Said to Be Negotiating Sale of Stake in Indian Hospitals  |  The deal could be worth at least $250 million, according to Reuters.
REUTERS

BlackRock Said to Acquire Stake in Moscow Exchange  | 
BLOOMBERG NEWS

HEDGE FUNDS ‘

Nelson Peltz Is Still At It  |  The activist investor “is one of the last corporate raiders” of the 1980s still doing his thing, Bloomberg Businessweek writes.
BLOOMBERG BUSINESSWEEK

Ex-Morgan Stanley Trader Starts Equity Hedge Fund  | 
FINALTERNATIVES

Brencourt Advisors Said to Be Shuttering  |  The Wall Street Journal reports: “William Collins is shutting down his $300 million hedge-fund firm, Brencourt Advisors LLC, and will begin returning clients’ money next month, according to a letter to investors and people familiar with the plans.”
WALL STRE ET JOURNAL

Hedge Funds Add to Bets on Silver  | 
BLOOMBERG NEWS

I.P.O./OFFERINGS ‘

Groupon Said to Be Shaking Up Management  |  Reuters, citing an internal memo, reports that Groupon is “reshuffling senior management roles in an attempt to fix its struggling European business – a shake-up that will also include the departure of its chief of international business.”
REUTERS

NYSE Goes Social  |  The New York Stock Exchange is planning to use Twitter and Facebook to communicate with investors, as a backup when e-mail fails.
WALL STR EET JOURNAL

Summit Midstream Partners Prices I.P.O. Within Range  |  The Dallas-based company, which offers services to energy companies, raised up to $250 million.
REUTERS

Strong Demand for Astro Malaysia I.P.O.  | 
WALL STREET JOURNAL

VENTURE CAPITAL ‘

Norwest Venture Partners to Invest in Indian Start-Up  |  The venture capital firm is investing $22 million for a 10 percent stake in Thyrocare Technologies, a Mumbai-based company that offers medical diagnostics services, Reuters reports.
REUTERS

Chip Maker Turns to Kickstarter  |  Adapteva, a start-up that makes a computer chip, had no luck with venture capitalists, so it’s now trying to raise $3 million on Kickstarter, GigaOm reports.
GIGAOM

LEGAL/REGULATORY ‘

Judge Dismisses Forgery Lawsuit Against Herb Allen  |  A federal judge has dismissed a fraud lawsuit filed this year against Herbert A. Allen Jr., the billionaire chief executive of the investment bank Allen & Company.
DealBook ‘

Lawyer for Ex-Goldman Programmer Criticizes Prosecutors and Firm  |  More than three years after appearing in Federal District Court in Manhattan on corporat e theft charges, the former programmer, Sergey Aleynikov, was in a New York State court to plead not guilty to similar charges.
DealBook ‘

How Bernanke Got His Way  |  The Wall Street Journal’s Jon Hilsenrath describes the Fed chairman’s efforts to build support among his colleagues for the bond-buying plan he announced this month.
WALL STREET JOURNAL

Goldman to Pay $12 Million to Settle S.E.C. ‘Pay to Play’ Case  |  Goldman Sachs settled allegations on Thursday that one of its investment bankers curried favor with a public official to win lucrative government contracts in Massachusetts.
DealBook ‘

Ex-Credit Suisse Executive Plans to Fight Extradition  |  The lawyer for Kareem Serageldin said his client was negotiating a plea deal with United States prosecutors, and that his arrest in London was the result of a “miscommunication,” Bloomberg News reports.
BLOOMBERG NEWS

S.E.C. Raises Concerns About Confidential Information  |  The Securities and Exchange Commission said in a report that the wall between traders and bankers at big financial firms may not be as airtight as thought.
BLOOMBERG NEWS

Washington Mutual’s Appraisal Company Reaches Settlement  |  EAppraiseIT, a unit of CoreLogic, had been accused of inflating home prices under pressure from Washington Mutual. It agreed to pay $7.8 million in a set tlement with the New York attorney general, Reuters reports.
REUTERS