Madoff Case Looms Over JPMorgan

Federal authorities, suspecting that JPMorgan Chase turned a blind eye to Bernard L. Madoff’s huge Ponzi scheme, are preparing to take action in a criminal investigation of the bank, Ben Protess and Jessica Silver-Greenberg report in DealBook. Coming on the heels of a tentative $13 billion settlement over JPMorgan’s mortgage practices, the case poses another major threat to the bank’s reputation.

“Reflecting the magnitude of the investigation, prosecutors and JPMorgan have held preliminary discussions about a so-called deferred prosecution agreement, people briefed on the inquiry said,” according to the DealBook report. “Such an arrangement would suspend criminal charges against JPMorgan in exchange for a fine, certain other concessions and an acknowledgment that the bank will face charges if it fails to behave. Prosecutors may also require JPMorgan, which has repeatedly said that ‘all personnel acted in good faith’ in the Madoff matter, to hire an independent monitor.”

Deferred-prosecution agreements are the Justice Department’s preferred tool for punishing corporate giants, but they are typically used only when misconduct is severe and are nearly unheard-of for a large American bank. “But the government, the people added, has not ruled out a harsher punishment for JPMorgan Chase’s national banking subsidiary. Prosecutors could demand that the unit plead guilty to a criminal violation of the Bank Secrecy Act, a federal law requiring financial institutions to report suspicious activity to the government.”

BANK OF AMERICA FOUND LIABLE IN MORTGAGE CASE  | A jury found Bank of America liable on Wednesday of having sold defective mortgages, a decision that will be seen as a victory for the government in its effort to hold banks accountable for their role in the housing crisis, Landon Thomas Jr. reports in DealBook. The jury also found a top manager at the bank’s Countrywide Financial unit liable, pinning some, if not all, of the responsibility for the bad acts on an individual. Prosecutors had accused Rebecca Mairone, the former Countrywide manager, of having opted for quantity over quality in its mortgage-writing program.

“Federal lawyers claimed that Ms. Mairone, who now works at JPMorgan Chase, led a program nicknamed the ‘hustle,’ derived from the initialism HSSL, or the ‘high-speed swim lane.’ The program linked bonuses to how fast bankers could originate loans, and as a result, the credit quality of the borrower was given short shrift, the government contended. When the loans were sold to mortgage giants like Fannie Mae and Freddie Mac, they failed, generating more than $1 billion in losses,” Mr. Thomas writes. “Prosecutors have asked that Bank of America pay a fine of $848 million, although the judge presiding over the case, Jed S. Rakoff, will determine the penalty.”

MCKESSON IN $8.3 BILLION DEAL WITH GERMAN FIRM  |  The health care services firm McKesson Corporation, based in San Francisco, has agreed to acquire a controlling stake in Celesio of Germany, and it will initiate a tender offer for the remaining shares in a deal valued at $8.3 billion, Chad Bray reports in DealBook. The deal would create one of the world’s biggest pharmaceutical wholesalers and providers of logistics and services in the health care sector, with more than $150 billion in annual revenue.

ON THE AGENDA  | Kohlberg Kravis Roberts, Lazard, Dunkin’ Brands and Ford Motor report earnings before the market opens, while Amazon.com, Microsoft and Freescale Semiconductor report earnings this evening. Data on the international trade gap for August is released at 8:30 a.m. T. Boone Pickens is on CNBC at 2 p.m. and on Bloomberg TV at 4 p.m.

PINTEREST VALUATION JUMPS TO $3.8 BILLION  |  The buzzed about social network Pinterest confirmed on Wednesday that it had raised $225 million in a new round of financing that values the company at $3.8 billion, DealBook’s Michael J. de la Merced reports. The financing round was led by Fidelity, a new investor, and included existing backers Andreessen Horowitz, Bessemer Venture Partners, FirstMark Capital and Valiant Capital Partners.

The deal reflects how quickly the three-year-old social network is growing, at least in terms of its estimated worth. In its previous financing round, in February, Pinterest raised $200 million at a $2.5 billion valuation, according to AllThingsD, which first reported the latest round on Wednesday. Two years ago, the company raised $27 million at a $200 million valuation, according to AllThingsD.

ICAHN’S NEW WEB SITE  |  Carl C. Icahn, already versed in Twitter, is adding a new Web site to his online presence. On Wednesday, he announced the creation of Shareholders’ Square Table, as the site will be known. As some noted on Twitter, Mr. Icahn explained the meaning behind that name in a 2005 interview with The New York Times: “Just maybe shareholders will get a square deal.”

Mergers & Acquisitions »

Former Apple Chief Said to Consider Bid for BlackBerry  |  “John Sculley, the former Apple Inc. C.E.O. who famously clashed with Steve Jobs, is exploring a bid for beleaguered BlackBerry Ltd. with Canadian partners,” The Globe and Mail reports, citing unidentified people. GLOBE AND MAIL

Caterpillar’s Stock Drops, and 2 Big Deals May Be to Blame  |  Caterpillar’s woes in part are related to its bet on the mining sector, a bet that it bolstered in a big way through deal-making. Its third-quarter results reflected continued weakness in mining. DealBook »

As Competition Rises for AT&T, So Does Profit  |  AT&T, facing aggressive moves from T-Mobile US, reported profit of $3.8 billion in the third quarter, up from $3.6 billion in the period a year earlier, The New York Times reports. NEW YORK TIMES

2 Commercial Property Giants to Combine in $7.2 Billion Deal  |  The combination of American Realty Capital Properties and Cole Real Estate Investments would form one of the largest commercial landlords in the country. DealBook »

Branson Recalls an Emotional Deal  |  Richard Branson, the founder of the Virgin Group, said that selling Virgin Records for $1 billion in 1992 was “like selling your children,” Reuters reports. REUTERS

INVESTMENT BANKING »

Credit Suisse Profit Rises but Falls Short of Expectations  |  Credit Suisse posted net income of about $510 million for the three months ended Sept. 30, well short of the expectations of analysts surveyed by Reuters, as revenue in its investment banking division slid 20 percent from the period a year earlier. DealBook »

Santander Profit Rises as It Sets Aside Less to Cover Bad Loans  |  The Spanish lender Santander said profit rose to about $1.5 billion in the third quarter, as the bank continued to benefit from declines in charges for bad loans. DealBook »

A Moot Effort to Burnish the Reputation of Goldman Sachs  |  Since the financial crisis, Lloyd C. Blankfein, the chief executive of Goldman Sachs, has striven to build his name back up, but Goldman’s good name has collapsed, Jesse Eisinger writes in his column, The Trade. The Trade »

Goldman’s Cohn Says Firm Is Committed to Fixed Income  |  Gary D. Cohn, the president and chief operating officer of Goldman Sachs, addressed the firm’s disappointing results in its fixed-income trading department. “We’re very committed, we’re going to redouble or triple our efforts in fixed income. We believe ourselves to be a very powerful, very dominant, top-tier fixed-income shop,” he said on Bloomberg TV. BLOOMBERG NEWS

Cruz’s Wife Is a Study in Contrasts to Him  |  Senator Ted Cruz’s wife, Heidi Nelson Cruz, a managing director at Goldman Sachs, has maintained a low profile, Ashley Parker reports in The New York Times. And yet the fallout from her husband’s role in the Congressional fiscal showdown this month did not spare her. NEW YORK TIMES

Blankfein Offers Advice to N.B.A. Owners  |  Lloyd C. Blankfein, the chairman and chief executive of Goldman Sachs, spoke to National Basketball Association owners on domestic and international issues and how to run a business, Bloomberg News reports. BLOOMBERG NEWS

8 Questions for 3 Buffetts  |  In an interview with Jeffrey Goldfarb of Reuters Breakingviews, Warren E. Buffett, his son Howard Graham Buffett and grandson Howard Warren Buffett discuss the effects of inefficient markets, technology, tax policy and Berkshire Hathaway. REUTERS BREAKINGVIEWS

PRIVATE EQUITY »

Blackstone Emerges as a Giant Landlord  |  The Blackstone Group “has spent $7.5 billion acquiring 40,000 houses in the past two years to create the largest single-family rental business in the U.S.,” Bloomberg News reports. “The private equity firm is now planning to sell bonds backed by lease payments, the latest step in turning a small business into a mature industry.” BLOOMBERG NEWS

HEDGE FUNDS »

Hedge Funds Propose Deal to End Argentina Debt Stalemate  |  “Under the scheme, which illuminates the dog-eat-dog style of the hedge fund world, Argentine exchange bondholders, who hold $28 billion of restructured Argentine debt, would agree to pay so-called holdout creditors, who hold up to $8 billion of defaulted debt, to stop their legal attempts to get Argentina to pay them in full,” The Financial Times reports. FINANCIAL TIMES

Hedge Fund Executive Predicts Doom for Stocks  |  Mark Spitznagel, the founder of Universa Investments, said on CNBC on Wednesday that he thought the stock market was poised for a major sell-off. CNBC

I.P.O./OFFERINGS »

Twitter Discloses Compensation for Board Members  |  In a regulatory filing this week, Twitter set the value of initial stock grants for its five outside board members at up to $16 million each, Footnoted reports. FOOTNOTED

VENTURE CAPITAL »

Funding Circle, British Peer-to-Peer Lender, Expands to U.S.  |  The company has raised $37 million from investors led by Accel Partners and other prominent venture capital firms. Proponents of peer-to-peer lending believe it can distribute credit more efficiently than banks. DealBook »

London’s Tech Industry Looks for a Hit  |  If King.com, the maker of the popular Candy Crush game franchise, has a successful initial public offering, it could help cement London’s reputation as a top start-up community in Europe, Mark Scott writes in The New York Times. NEW YORK TIMES

LEGAL/REGULATORY »

Appeals Court Throws Out Confidential Arbitration in Delaware  |  The Delaware Chancery Court had tried to offer cost-effective options for resolving business disputes, Steven M. Davidoff writes in the Deal Professor column.
DealBook »

Merkel Called Obama Over Suspicions of Cellphone Tap  |  “Washington hastily pledged that the German chancellor, Angela Merkel, leader of Europe’s most powerful economy, was not the target of current surveillance and would not be in the future, while conspicuously saying nothing about the past,” The New York Times reports. NEW YORK TIMES

Glaxo Sales Fall in China Amid Bribery Inquiry  |  The drug maker GlaxoSmithKline reported on Wednesday that sales of its drugs and vaccines in China fell 61 percent in the third quarter, as it faced a continuing bribery investigation in the country. NEW YORK TIMES

Rabobank Nears Settlement on Interest Rate Inquiry  |  The Dutch lender Rabobank said various authorities had almost completed investigations of its role in setting two benchmark interbank rates, Libor and Euribor. DealBook »