Regulator Warns SAC Capital

The once-reclusive Steven A. Cohen has found himself thrust into the very public role of defending SAC Capital Advisors, his $14 billion hedge fund, against an intensifying government investigation.

Regulators warned SAC that they were preparing to file a civil fraud lawsuit against the hedge fund, after years of investigating insider trading. The warning from the Securities and Exchange Commission, in the form of a so-called Wells notice, stems from a criminal insider trading case brought last week against a former SAC employee, and is “the boldest regulatory shot yet across SAC's bow,” DealBook's Peter Lattman reports.

Clients learned the latest news during a conference call on Wednesday, when Mr. Cohen was in the unusual position of having to shore up investor support. “We take these matters very seriously, and I am confident that I acted appropriately,” said Mr. Cohen, who has not been accused of wrong doing. The case against the former employee, Mathew Martoma, is the first time the government has linked Mr. Cohen to questionable trades.

Mr. Lattman reports: “A person briefed on the investigation said that an additional action against SAC, or even Mr. Cohen, could involve accusations of fraud based on the so-called controlled-liability theory, meaning that it was in ‘control' of Mr. Martoma when he engaged in insider trading.” SAC could survive possible penalties from an S.E.C. lawsuit, Mr. Lattman notes, but “the blow to its reputation could cause some investors to flee and prompt some banks to avoid doing business with it.”

The government has an additional trader in its sights, whom Bloomberg News identifies as Phillipp Villhauer. He has not been accused of wrongdoing, but is featured anonymously in the complaints against SAC filed last week, Bloomberg News reports. As the case unfolds, William D. Cohan of Bloomberg Businessweek is taking a skeptic al stance. He writes: “It's worth asking whether relentlessly hunting insider-trading suspects like Cohen is a wise use of the government's resources - especially considering that the people responsible for the worst financial crisis since the Great Depression continue to get off scot-free.”

 

RACE TO LEAD S.E.C. SHIFTS  |  The field of potential candidates to lead the Securities and Exchange Commission has shifted, as Mary J. Miller, a senior Treasury Department official, has removed her name from consideration, DealBook reports. That makes Sallie L. Krawcheck, a longtime Wall Street executive, a potential front-runner. Ms. Krawcheck has emerged as a consumer advocate since leaving Bank of America last year, but she lacks government experience and may be seen as too close to the financial industry. Simon Johnson, a professor at the M.I.T. Sloan School of Management, raises concerns about Ms. Krawcheck in a post on the Economix blog. The agency's next leader, expected to be named next year, would take over from Elisse B. Walter, who was chosen to succeed Mary L. Schapiro.

 

TOO MANY FRIENDLY FACES IN WASHINGTON?  |  The Office of Financial Research, a wonky agency created by the Dodd-Frank Act to monitor risks to the financial system, “is looking as if it will be a tool of the financial services industry, instead of a check on it,” Jesse Eisinger writes in his column, The Trade. The agency, which has been slow to get off the ground, announced its advisory committee this month. Mr. Eisinger writes: “By my count, 19 of the 30 committee members work directly in financial services or for private sector entities that are dependent on the industry. There are academics, but many of them have lucrative ties to the financial services industry.” Th e Treasury Department, which houses the fledgling agency, takes a different view. “We were looking for people with a range of perspectives who understand keenly the systemic risks in the financial system,” said Neal S. Wolin, the Treasury deputy secretary.

 

ON THE AGENDA  |  Two House Financial Services subcommittees are holding a joint hearing at 10 a.m. on the effect of proposed rules to comply with the international Basel standards on capital. Another House Financial Services subcommittee is conducting a hearing at 2 p.m. called “The Future of Money: Dollars and Sense.” Barnes & Noble and Tiffany & Company report earnings before the opening bell. A revised estimate of gross domestic product in the third quarter is released at 8:30 a.m. Jeff Jordan, a general partner of Andreessen Horowitz, is on CNBC at 1:30 p.m. Janice Fukakusa, the chief financial officer and chi ef administrative officer of the Royal Bank of Canada, is on Bloomberg TV at 2:10 p.m. Antoine Drean, the chief executive of Palico, an online marketplace for private equity, is on Bloomberg TV at 5:10 p.m.

 

C.E.O.'S DESCEND ON WHITE HOUSE  |  President Obama has had a complicated relationship with the business world, to say the least. But chief executives who met with Mr. Obama on Wednesday came away sounding supportive of the president's approach to the fiscal negotiations in Washington. Lloyd C. Blankfein of Goldman Sachs said on CNBC that the president's plan was “very credible.” He added, “I would say that an agreement was reachable.” Mr. Blankfein and others said that tax increases would probably be part of a deal to avoid the so-called fiscal cliff.

Another financial chief, Larry Fink of BlackRock, has also been active in Washington as he considers his nex t job. Mr. Fink “has made little secret of his wish to join a second-term Obama administration as Treasury secretary,” succeeding Timothy F. Geithner, The Financial Times writes. Mr. Fink and Mr. Geithner are friends, according to the newspaper, which reports: “In wishful moments, Mr. Fink may hope that some day, after he has left the Treasury, Mr. Geithner would consider joining BlackRock. But Mr. Fink appreciates that any conversation with Mr. Geithner about this while he is in his current position would be inappropriate.”

 

 

 

Mergers & Acquisitions '

Siemens to Buy Rail Business for $2.9 Billion  |  Siemens, Germany's largest diversified industrial group, has agreed to buy the rail signaling business of the British company Invensys for $2.9 billion. DealBook '

 

Two Firms Make Offers For Knight  |  Two firms have offered to buy the Knight Capital Group, a financial services firm that had a $440 million trading loss in August because of a technology error. DealBook '

 

United's Integration With Continental Is Still Troubled  |  Two years after merging with Continental Airlines, United still deals with “myriad problems” in combining the airlines, leading to “hobbled operations, angry passengers and soured relations with employees,” The New York Times reports. NEW YORK TIMES

 

Vivendi Said to Field Offers for Brazilian Unit  |  Reuters re ports that Vivendi “is examining four nonbinding offers above 6 billion euros ($7.75 billion) for its Brazilian broadband company GVT SA, according to a source familiar with the situation.” REUTERS

 

NCR to Buy Retalix for $650 Million  |  NCR agreed on Wednesday to buy Retalix, a maker of software for cash registers and other retail sales equipment, for about $650 million. DealBook '

 

INVESTMENT BANKING '

Spanish Banks Accept Cuts in Order to Receive Funds  |  The New York Times reports: “The European Commission on Wednesday approved a payment of 37 billion euros, or $48 billion, from the euro zone bailout fund to four Spanish banks on the condition that they lay off thousands of employees and close offices. The most significant cuts will be made by Bankia.” NEW YORK TIMES

 

Wells Fargo Says Regulators Have Dropped Mortgage Investigation  |  The bank said in a filing that the Securities and Exchange Commission had closed an investigation into the sale of certain mortgage-backed securities, Reuters reports. REUTERS

 

Wells Fargo Names Ex-Partner of PricewaterhouseCoopers to Board  | 
REUTERS

 

Citigroup's Chairman Acquires $1 Million of Stock  | 
BLOOMBERG NEWS

 

< p>Goldman's Blankfein Exercises Stock Options  | 
REUTERS

 

PRIVATE EQUITY '

Aston Martin in Talks to Secure Financing  |  Bloomberg News reports: “Aston Martin, the British luxury-car maker controlled by Investment Dar Co., is in ‘advanced' talks to sell new shares to investors to boost funding for future development.” BLOOMBERG NEWS

 

Buyout Firms Circle Gardner Denver  |  Advent International, K.K.R. and a partnership of TPG Capital and Onex are in a second round of bidding for Gardner Denver, a machinery maker that is also being pursued by a rival, Reuters reports. REUTERS

 

HEDGE FUNDS '

Argentina Wins More Time to Pay Bondholders  |  The beleaguered government of Argentina secured more time to pay holders of defaulted bonds, after a United States court had ruled the government would have to make the payments when it paid other bondholders this month, Bloomberg News reports. The latest development is considered a setback for Elliott Management and other hedge funds. BLOOMBERG NEWS

 

Activist Fund Buys Into Timken  |  Relational Investors has built up a stake of almost 6 percent in Timken, a company that makes bearings and transmission parts, and plans to push for a breakup, The Wall Street Journal reports. WALL STREET JOURNAL

 

I.P.O./OFFERINGS '

Old Mutual Expected to Take U.S. Unit Public  |  Analysts expect the British insurer Old Mutual to plan an I.P.O. for its United States money management unit, Reuters reports. REUTERS

 

VENTURE CAPITAL '

Political Gulf Between Wall Street and Silicon Valley  |  “Since Democrats had the support of 80 percent or 90 percent of the best and brightest minds in the information technology field, it shouldn't be surprising that Mr. Obama's information technology infrastructure was viewed as state-of-the-art exemplary,” Nate Silver writes in the FiveThirtyEight blog. NEW YORK TIMES

 

Genealogy Site Attracts $25 Million  |  MyHeritage, a genealogy company based in Israel, raised $25 million and also acquired a rival, Geni.com, TechCrunch reports. TECHCRUNCH

 

LEGAL/REGULATORY '

Regulators Approve Rule on Derivatives  |  The Commodity Futures Trading Commission said it had voted to complete the final determinations for a rule requiring big firms to guarantee certain derivatives trades at clearinghouses, Bloomberg News reports. BLOOMBERG NEWS

 

Volcker Rule Expected to Be Completed Next Year  |  Regulators had aimed to finish the Volcker Rule by the end of this year, but officials are now indicating that the regulation probably will not be completed until the first quarter of 2013, according to CNBC. CNBC

 

Fed Expected to Continue Buying Bonds In 2013  |  The Wall Street Journal reports: “Three months after launching an aggressive push to restart the lumbering U.S. economy, Federal Reserve officials are nearing a decision to continue those efforts into 2013 as the U.S. faces threats from the fiscal cliff at home and fragile economies elsewhere in the world.” WALL STREET JOURNAL

 

Former Baseball Star Charged With Securities Fraud  |  Reuters reports: “Former Baltimore Orioles third baseman Doug DeCinces has been indicted by a federal grand jury for insider trading, the Justice Departme nt said on Wednesday.” REUTERS

 

Conservative Lawmaker to Lead House Financial Panel  |  Jeb Hensarling, a Texas Republican who supports abolishing Fannie Mae and Freddie Mac, was named the next chairman of the House Financial Services Committee. WALL STREET JOURNAL

 

In Defense of a Law School Education  |  Law schools have been a target of criticism recently, taking fire for high tuition and a bleak outlook for jobs. But Lawrence E. Mitchell, the dean of Case Western Reserve University's law school, writes in an Op-Ed essay in The New York Times: “The hysteria has masked some important realities and created an environment in which some of the brightest potential lawyers are, largely irrationally, forgoing the possibility of a rich, rewarding and, yes, profitable, career.” NEW YORK TIMES

 

Greece Agrees to Borrow to Buy Back Debt  |  The New York Times reports: “With Greece's coffers nearly empty, the government said Wednesday that it would have to borrow 10 billion to 14 billion euros to pay for a debt buyback that its international creditors have demanded in exchange for releasing more bailout money to the troubled country.” NEW YORK TIMES

 

H.P. Shareholders Sue Audit Firms Over Autonomy Deal  |  Deloitte and KPMG were named in a new lawsuit. REUTERS

 

Jerry Finkelstein, New York Power Broker, Dies at 96  |  Jerry Finkelstein, who made a fortune in business, real estate and newspapers, including The New York Law Journal and The Hill, and for many years was a self-styled Democratic power broker in New York, died on Wednesday at his home in Manhattan, Robert D. McFadden reports in The New York Times. DealBook '

 

Bondholders of AMR Push for New Board  |  Reuters reports: “A group of some of bankrupt American Airlines' most significant bondholders said it will not support a stand-alone restructuring unless a new board is brought in, a move that may increase hurdles for Chief Executive Tom Horton and his team.” REUTERS

 

SNC-Lavalin the Focus of Fraud Case in Canada  |  The New York Times report s: “SNC-Lavalin, a Canadian engineering firm already under investigation in three countries for its dealings in Libya, became the focus of domestic corruption allegations on Wednesday after the arrest of its former chief executive.” NEW YORK TIMES