A Towering Fine for Naught, as the S.E.C. Tracks Cohen

“We’re willing to pay $600 million because we have a business to run and don’t want this hanging over our heads with litigation that could last for years.”

That’s what Steven A. Cohen’s lawyer told a judge just four months ago to justify why Mr. Cohen had agreed to pay $616 million to the Securities and Exchange Commission to settle civil accusations that his firm was involved in insider trading without admitting or denying guilt.

If that explanation sounded like a payoff â€" “buying off the U.S. government” is the way John Cassidy of The New Yorker put it at the time â€" that’s because, with hindsight, that’s what it was.

But it didn’t work.

The S.E.C., having been shamed by critics for making what seemed like a deferential deal, returned with a new civil action against Mr. Cohen individually on Friday, seeking to bar him from the industry.

The new charges and evidence raise all sorts of questions. But within the legal community, one question is now particularly baffling: Why did Mr. Cohen pay more than half a billion dollars to settle a case that now appears far from settled?

“It’s hard to believe he got bad advice. It’s not like he’s using some street-corner lawyer,” said Jacob S. Frenkel, a former S.E.C. enforcement lawyer who is now a partner at Shulman Rogers Gandal Pordy & Ecker.

Within Mr. Cohen’s legal camp, which includes Paul, Weiss and Willkie Farr, the new civil action came as a surprise, according to people involved in the case. His legal team had thought that by settling with the S.E.C. in March for such a large sum it would be unlikely that the agency would come back for more, despite assertions by the S.E.C. that it reserved the right to pursue additional charges against Mr. Cohen.

At minimum, Mr. Cohen’s lawyers thought they had strong evidence that would help them talk the S.E.C. out of bringing a fraud charge against their client, these people said. In that regard, they succeeded. But they never imagined the S.E.C. would bring an administrative claim of “failure to supervise” against Mr. Cohen, which, to their way of thinking, would be an admission of defeat by the S.E.C. because it would be perceived as a demonstration of weakness, the equivalent of charging Al Capone with tax evasion.

“The S.E.C. created expectations in the settlement by strong inference,” Mr. Frenkel said. “There is an expectation of reasonable closure.”

But Mr. Cohen’s lawyers â€" and perhaps everyone else â€" missed the larger picture: The S.E.C.’s “failure to supervise” case can still have the same effect as a more damning fraud charge because it has the potential to put his firm out of business.

When Mr. Cohen’s $616 million settlement was first presented to Judge Victor Marrero of Federal District Court in Manhattan, he resisted approving it, saying aloud what so many people were thinking at the time, “There is something counterintuitive and incongruous about settling for $600 million if it truly did nothing wrong.”

What Judge Marrero didn’t appreciate â€" and what the public may have missed as well â€" was the math behind why the whopping settlement arguably made sense if it would end the years-long investigation into Mr. Cohen.

The goal of the settlement, and its timing, were clearly aimed at assuaging nervous investors in Mr. Cohen’s fund so that they wouldn’t seek the return of their money. Mr. Cohen managed $15 billion, including about $9 billion of his money and other employees’. The remaining $6 billion comes from outside investors â€" and it is worth big fees to the firm. Mr. Cohen collects a 3 percent “management fee” and takes upward of 50 percent of profits. On $6 billion, if you follow the math, annual management fees collected can total as much as $180 million. If the firm can produce profits of as little as 10 percent, the firm can collect $300 million more. If the firm produces more than 30 percent returns, its historical average, the fees could jump to over $1 billion.

Consequently, a settlement payment of $616 million could pay for itself in a year or two.

That was then. Now, that $616 million settlement appears to be a down payment on a much longer soap opera that could still include a criminal case down the road.

When Mr. Cohen made his original settlement agreement, the S.E.C.’s leadership was in transition, a clear red flag from a tactical perspective. With the addition of Mary Jo White a month after the deal was reached, she pressed to continue the inquiry, and ultimately, the new action.

While the S.E.C. under Ms. White clearly didn’t rescind its previous agreement, the new civil action could have one adverse outcome: it could make the agency’s job more complicated in future investigations.

“This could impact the approach to cooperation,” Mr. Frenkel said. “You have to believe whatever ambiguities existed were intentional on the S.E.C.’s part. It calls into question whether the agency negotiated in good faith.”

Maybe so. But after years of Wall Street executives appearing to outnegotiate the S.E.C., it finally seems as if the agency won a round.

Andrew Ross Sorkin is the editor-at-large of DealBook. Twitter: @andrewrsorkin

A Legal Bane of Wall Street Switches Sides

When he left his role as Wall Street’s top federal enforcer, Robert S. Khuzami began a long courtship with a who’s who of the legal world.

The calls rolled in from financial giants like Visa and Bridgewater, and from white-shoe law firms, like WilmerHale. Some offered outsize paydays, others promised an office not only in New York but also in Washington, where his family lives. They all wanted the benefit of his experience as a terrorism prosecutor and enforcement chief at the Securities and Exchange Commission.

Six months later, lawyers briefed on the matter say, Mr. Khuzami has accepted a job that pays $5 million a year at Kirkland & Ellis, one of the nation’s biggest corporate law firms. In doing so, he is following the quintessential Washington script: an influential government insider becoming a paid advocate for industries he once policed.

As a partner at Kirkland, Mr. Khuzami will represent some of the same corporations that the S.E.C. oversees. Critics say this revolving door â€" common at the S.E.C. â€" undermines the agency’s independence and links it inextricably to Wall Street. Mr. Khuzami, who spent 17 years in the government and has publicly called for lawyers to build public and private experience, called defense work essential to the justice system.

“It’s both aggressive enforcement and vigorous defense that are critical to justice and fairness,” Mr. Khuzami, who will start in Kirkland’s Washington office around Labor Day, said in an interview.

His compensation package, the lawyers briefed on the matter said, is guaranteed for at least two years. Kirkland, known for lavishing its star partners with some of the highest salaries in the industry, also hired one of Mr. Khuzami’s lieutenants at the S.E.C., Kenneth R. Lench. Kirkland is expected to announce the personnel moves on Tuesday.

Some companies and firms offered Mr. Khuzami more money, reflecting law firms’ high demands for former S.E.C. enforcers. As Wall Street faces greater regulation after the financial crisis, the firms are clamoring for marquee names who can navigate the agency.

“To make a white-collar practice work, you have to have an incredibly strong and credentialed lawyer who can generate a material number of matters,” said Peter Zeughauser, a consultant to large firms. Or, put another way, “You want a big name you can trot out before corporate boards.”

Mr. Khuzami’s name has circulated around Wall Street for decades. After putting himself through University of Rochester working as a truck driver and overnight dockworker, Mr. Khuzami went to law school at Boston University and ultimately became a junior lawyer at Cadwalader, Wickersham & Taft in New York, where he handled securities cases and commercial disputes.

The job paved the way for him to join the United States attorney’s office in Manhattan, where he ran a securities task force. During his 11-year tenure at the office, he also prosecuted terrorism cases, including the conviction of Omar Abdel-Rahman, tied to the 1993 bombing of the World Trade Center.

Mr. Khuzami returned to the financial world in 2002, arriving at Deutsche Bank, where he eventually became general counsel for the firm’s American businesses. Mr. Khuzami helped steer the bank through the financial crisis and an investigation into its tax shelters.

When the S.E.C. was reeling from the crisis, the agency turned to Mr. Khuzami to revamp its enforcement unit. He joined at a time when some lawmakers wanted to abolish the agency, making it a curious choice for Mr. Khuzami, who already possessed a coveted job.

“When he went to the S.E.C., this was not a guaranteed happy ending,” said Richard Walker, Mr. Khuzami’s boss at both Deutsche Bank and Cadwalader. But his prospects improved. Mr. Khuzami drew praise for creating units to track complex corners of Wall Street and applying prosecutorial tactics to civil cases. Under Mr. Khuzami, the enforcement division logged a record number of actions, including a case against Goldman Sachs.

When Mr. Khuzami announced his departure from the S.E.C. in January, the offers came pouring in. All told, lawyers say, he fielded more than 20 inquiries. About a dozen were serious. In addition to WilmerHale; Paul, Weiss, Rifkind, Wharton & Garrison; and Cravath, Swain & Moore, he heard from Latham & Watkins; Skadden Arps; Fried Frank; and his alma matter, Cadwalader. Kirkland’s interest came through an independent recruiter.

Visa and Bridgewater, the giant hedge fund, were among the companies that approached Mr. Khuzami for in-house counsel jobs. The fervor grew so great that Fox Business declared it the “biggest bidding war on Wall Street.”

“We started out knowing that everybody and anybody wanted him,” said Mark Filip, who leads Kirkland’s government and regulatory defense group.

But in recent weeks, Mr. Khuzami and Mr. Lench selected Kirkland, annoying some rival firms waiting for a response.

For one, Kirkland offered Mr. Khuzami the chance to settle in Washington. He has reached deals to buy a home there and sell his apartment in Manhattan.

And unlike WilmerHale, where the white-collar practices are overflowing with former government lawyers, Kirkland offered Mr. Khuzami an opportunity to mold his own practice. At Kirkland, he will handle internal investigations, S.E.C. enforcement cases, white-collar criminal matters and crisis management. He will also advise companies on ways to bolster internal controls.

He joins a white-collar defense group that includes Mr. Filip, a former federal judge and United States deputy attorney general who has led BP’s defense in the Justice Department’s investigation stemming from the oil spill in the Gulf of Mexico. Other senior members of the practice are Neil Eggleston, a former senior lawyer in the Clinton White House and Michael Garcia, a former United States attorney.

The revolving door at firms like Kirkland has alarmed some watchdog groups. The Project on Government Oversight, a nonprofit group, released a study this year highlighting a pattern of former S.E.C. officials securing favorable results from the agency.

“It can really help a Wall Street bank to show they’re represented by the former top cop on Wall Street,” said Michael Smallberg, an investigator at the group. “It’s not like you see an equal number of S.E.C. lawyers going to represent shareholders and whistle-blowers.”

Mr. Khuzami, however, has embraced the revolving door, delivering speeches outlining its benefits. Anyone required to shine a light on the darkest corners of Wall Street, he argues, must know how it works.

Mr. Khuzami also points to a study last year, prepared by a group of accounting experts, that found the revolving door actually toughened enforcement results. And as a check on improper influence, Mr. Khuzami will face a one-year “cooling off” period during which he cannot have any contact with the S.E.C. He also is forever banned from appearing before the agency in any case in which he was involved.

“You don’t undertake a historic restructuring of the enforcement division and bring a record number of cases if you’re trying to curry favor with the industry,” he said. “Wherever I go, I’m not expecting favors.”

Mr. Khuzami joins Kirkland at a time when many corporate law firms have bolstered their white-collar defense groups, a response to enhanced government scrutiny on Wall Street. In addition to the Dodd-Frank regulatory overhaul law, banking regulators and the S.E.C. have warned of new enforcement cases.

As such, Kirkland is the latest firm to make a trophy hiring in this area. Patrick Fitzgerald, the former United States attorney in Chicago, joined Skadden, Arps last year. In June, Winston & Strawn, a large firm based in Chicago, hired Gerald Shargel, a noted criminal defense lawyer in New York. And Ballard Spahr, a firm based in Philadelphia, recently expanded into New York by merging with Stillman & Friedman, a prominent white-collar defense boutique.

As these practices grow, and gaggles of government lawyers leave the public sector to join firms, there is a rising concern that, even with the stepped-up demand, there is an oversupply of white-collar criminal defense lawyers. The problem, legal experts say, is that most assignments don’t involve a large team of lawyers billing many hours.

Yet in recent years, amid a challenging environment, Kirkland has performed well. The firm’s revenue increased nearly 11 percent last year, to nearly $2 billion, according to American Lawyer magazine.

One reason for Kirkland’s ascent has been its aggressive recruitment of top talent from rival firms. In recent years, for example, it made a big push in mergers and acquisitions, adding David Fox and Daniel Wolf from Skadden Arps, and Sarkis Jebejian from Cravath.

As for Mr. Khuzami’s pay package, it won’t stand out at Kirkland. A small number of the firm’s top-producing lawyers make about $8 million a year.

Tourre Lawyers Focus on Reliability of Federal Witness

More than six years ago, Gail Kreitman contacted a former colleague to pitch a new debt investment that her employer at the time, Goldman Sachs, was putting together.

Ms. Kreitman’s efforts â€" and her sometimes-conflicting memories of them â€" have since become a big focus at the civil trial of Fabrice P. Tourre, a former Goldman trader whom the government has accused of defrauding investors with that mortgage deal.

On Monday, Ms. Kreitman concluded two days of testimony during the trial, which has become one of the most prominent cases linked to the financial crisis of 2008. The Securities and Exchange Commission is accusing Mr. Tourre of misleading investors about the debt security, which ultimately failed. He has denied any wrongdoing.

For the S.E.C., Ms. Kreitman’s testimony was meant to buttress the argument that Mr. Tourre was not forthcoming about the true origins of the investment: the hedge fund Paulson & Company, which had assembled a complex security tied to home loans and then wagered that it would fail. The investment firm eventually made $1 billion from its bet, while the other investors in the deal lost money.

But the defense aimed to portray Ms. Kreitman as a problematic witness who on the stand was able to recall huge chunks of details about the mortgage deal that she could not remember when first questioned by the S.E.C. under oath four years ago. Some of her testimony at Mr. Tourre’s trial seemed to directly contradict what she said during the earlier testimony.

A lawyer for the S.E.C., Bridget Fitzpatrick, introduced a flurry of e-mails in court on Friday and on Monday detailing months of correspondence between Ms. Kreitman and her colleagues at Goldman and contacts at ACA Management, a financial firm that ultimately helped assemble the mortgage deal. In particular, she corresponded often with Laura Schwartz, a senior executive at ACA, with whom she had worked at Merrill Lynch.

Ms. Kreitman, a former managing director at Goldman, told ACA employees that Paulson & Company was backing the security, when in fact the hedge fund planned on betting that the investment would fail.

When pressed, Ms. Kreitman said that she must have received that information from somewhere â€" she professed a reliance on experts like Mr. Tourre’s trading desk for technical details of transactions â€" and insisted that she would not have lied.

“I would never tell my client anything I did not believe to be true,” she said in court. She later added, “The trading desk really ran point, which is unusual for me.”

But in one of the stranger portions of Monday’s testimony, Mr. Tourre’s team homed in on inconsistencies between what Ms. Kreitman told the S.E.C. in 2009 and what she said in court during the trial. During that earlier testimony, she contended that she had only recently learned of Paulson & Company and its big wager against the housing market through news articles that year.

She also testified that she did not know that Paulson & Company was betting against the mortgage deal that she was helping to sell to ACA.

A number of jurors appeared to perk up during that particular line of questioning, staring intently at Sean Coffey, the lawyer for Mr. Tourre leading the cross-examination.

Ms. Kreitman insisted that she had studied huge numbers of documents since that initial testimony to the S.E.C. in 2009, in order to refresh her memory. “I pretty much lived with those documents,” she said. (She also contended that in the 2009 testimony, she had confused Paulson & Company with its president, John A. Paulson.)

Inside ACA, senior executives were under the impression that Paulson & Company was “long” on the investment, betting it would rise in value.

Alan S. Roseman, the former chief executive of ACA, also testified Monday. He was one of the people at ACA who signed off on the transaction, and jurors were shown internal ACA documents that implied that the big hedge fund had a long interest. In one ACA document, Paulson & Company is referred to as “the hedge fund equity investor,” a term that would indicate the fund had a long interest.

Mr. Roseman, who is married to a senior Goldman Sachs lawyer, said the transaction “would have been stopped in its place” had ACA known that Paulson & Company was only betting against the transaction. That information, he said, was “critical.”

Mr. Roseman told jurors that he found out in April 2010, when the S.E.C. filed its case against Goldman and Mr. Tourre, that Paulson & Company had actually bet against the deal.

“I was pretty surprised,” he said.

Brandon D. O’Neil, a lawyer for Mr. Tourre, cross-examined Mr. Roseman for only a few minutes on Monday. He asked Mr. Roseman if he had talked to anyone at Goldman about the transaction. Mr. Roseman said he had not, relying instead largely on guidance from Ms. Schwartz.

Mr. Roseman is expected to be followed on the stand by Ms. Schwartz of ACA, who is also one of the primary witnesses for the S.E.C.

Production Note

An article was posted on this page inadvertently, before it was ready for publication.

A Towering Fine for Naught, as the S.E.C. Tracks Cohen

“We’re willing to pay $600 million because we have a business to run and don’t want this hanging over our heads with litigation that could last for years.”

That’s what Steven A. Cohen’s lawyer told a judge just four months ago to justify why Mr. Cohen had agreed to pay $616 million to the Securities and Exchange Commission to settle civil accusations that his firm was involved in insider trading without admitting or denying guilt.

If that explanation sounded like a payoff â€" “buying off the U.S. government” is the way John Cassidy of The New Yorker put it at the time â€" that’s because, with hindsight, that’s what it was.

But it didn’t work.

The S.E.C., having been shamed by critics for making what seemed like a deferential deal, returned with a new civil action against Mr. Cohen individually on Friday, seeking to bar him from the industry.

The new charges and evidence raise all sorts of questions. But within the legal community, one question is now particularly baffling: Why did Mr. Cohen pay more than half a billion dollars to settle a case that now appears far from settled?

“It’s hard to believe he got bad advice. It’s not like he’s using some street-corner lawyer,” said Jacob S. Frenkel, a former S.E.C. enforcement lawyer who is now a partner at Shulman Rogers Gandal Pordy & Ecker.

Within Mr. Cohen’s legal camp, which includes Paul, Weiss and WilmerHale, the new civil action came as a surprise, according to people involved in the case. His legal team had thought that by settling with the S.E.C. in March for such a large sum it would be unlikely that the agency would come back for more, despite assertions by the S.E.C. that it reserved the right to pursue additional charges against Mr. Cohen.

At minimum, Mr. Cohen’s lawyers thought they would be able to talk the S.E.C. out of bringing a fraud charge against their client, these people said. In that regard, they succeeded. But they never imagined the S.E.C. would bring an administrative claim of “failure to supervise” against Mr. Cohen, which, to their way of thinking, would be an admission of defeat by the S.E.C. because it would be perceived as a demonstration of weakness, the equivalent of charging Al Capone with tax evasion.

“The S.E.C. created expectations in the settlement by strong inference,” Mr. Frenkel said. “There is an expectation of reasonable closure.”

But Mr. Cohen’s lawyers â€" and perhaps everyone else â€" missed the larger picture: The S.E.C.’s “failure to supervise” case can still have the same effect as a more damning fraud charge because it has the potential to put his firm out of business.

When Mr. Cohen’s $616 million settlement was first presented to Judge Victor Marrero of Federal District Court in Manhattan, he resisted approving it, saying aloud what so many people were thinking at the time, “There is something counterintuitive and incongruous about settling for $600 million if it truly did nothing wrong.”

What Judge Marrero didn’t appreciate â€" and what the public may have missed as well â€" was the math behind why the whopping settlement arguably made sense if it would end the decade-long investigation into Mr. Cohen.

The goal of the settlement, and its timing, were clearly aimed at assuaging nervous investors in Mr. Cohen’s fund so that they wouldn’t seek the return of their money. Mr. Cohen managed $15 billion, including about $8 billion of his own money. The remaining $7 billion comes from outside investors â€" and it is worth big fees to the firm. Mr. Cohen collects a 3 percent “management fee” and takes upward of 50 percent of profits. On $7 billion, if you follow the math, annual management fees collected can total as much as $210 million. If the firm can produce profits of as little as 10 percent, the firm can collect $350 million more. If the firm produces 30 percent returns, its historical average, the fee could jump to more than $1 billion.

Consequently, a settlement payment of $616 million could pay for itself in a year or two.

That was then. Now, that $616 million settlement appears to be a down payment on a much longer soap opera that could still include a criminal case down the road.

When Mr. Cohen made his original settlement agreement, the S.E.C.’s leadership was in transition, a clear red flag from a tactical perspective. With the addition of Mary Jo White a month after the deal was reached, she pressed to continue the investigation, and ultimately, the new action.

While the S.E.C. under Ms. White clearly didn’t rescind its previous agreement, the new civil action could have one adverse outcome: it could make the agency’s job more complicated in future investigations.

“This could impact the approach to cooperation,” Mr. Frenkel said. “You have to believe whatever ambiguities existed were intentional on the S.E.C.’s part. It calls into question whether the agency negotiated in good faith.”

Maybe so. But after years of Wall Street executives appearing to outnegotiate the S.E.C., it finally seems as if the agency won a round.

Andrew Ross Sorkin is the editor-at-large of DealBook. Twitter: @andrewrsorkin

Inquiry Possible Into Storage of Commodities by Big Banks

Companies that shuffle large stores of commodities to benefit from higher prices are being asked to retain documents related to the practice, reports Gretchen Morgenson and David Kocieniewski for The New York Times. Read more »

Loeb Wins and Shareholders Lose Out at Yahoo

Daniel Loeb’s Yahoo exit hurts investors twice over. The Internet company is buying back two-thirds of the hedge fund mogul’s stake, owned by his firm, Third Point, for $1.2 billion. That sucks up most of the cash Yahoo reserved for repurchases. It also heralds the departure of three Third Point-approved directors, robbing Yahoo of some much-needed advisers.

Yahoo has certainly benefited from Mr. Loeb’s involvement. When he first bought shares in the fall of 2011, the company had a dysfunctional board with the co-founder Jerry Yang acting as dictator for life. Nearly all the company’s value was trapped in Asian assets while the company steadily lost market share in search.

Mr. Loeb’s entrance led to a wholesale upending of the board. Only two directors who served in 2011 remain. Mr. Yang, who played a key role in torpedoing a $45 billion offer from Microsoft in 2008, is gone. The company raised $4.3 billion from selling a chunk of its Asian holdings and agreed to use $3.65 billion to buy back stock.

Mr. Loeb played a key role in firing Yahoo’s chief executive at the time, Scott Thompson, and in hiring Marissa Mayer. At the very least, her abilities and presence have excited investors and Silicon Valley. Yahoo’s share price has roughly doubled since Mr. Loeb’s involvement.

And the deal Mr. Loeb has secured looks pretty sweet. Yahoo is buying his shares at July 19’s closing price, guaranteeing liquidity without forcing Third Point to pay a discount, as usually happens when an investor offloads a large chunk of stock. Yahoo fell as much as 4 percent on the news.

The only ones missing out are regular shareholders. Their stock has been shunted to the back of the buyback line. Nor are there any obvious candidates on the board to take on Mr. Loeb’s role either as a restraint on Ms. Mayer’s ambitions or as an advocate for proper capital allocations.

That’s important because it’s still not clear Yahoo can turn its Internet business around without lots of deal-making and spending - last week the company trimmed its 2013 sales outlook, for example. Without proper oversight, that could destroy some of the very value Loeb has just cashed in on.

Robert Cyran is a columnist for Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.

Dell’s Buyout Fate Still Hinges Mostly on Icahn

Just two days out from Dell’s new deadline for counting votes on its founder’s proposed buyout, the company’s fate appears to rest firmly in the hands of the deal’s most vociferous critics: the activist investor Carl C. Icahn and his ally, Southeastern Asset Management, as well as the mutual-fund manager T. Rowe Price, which has opposed the deal.

Chances are slim that the buyout can succeed without yes votes from those three investors, which together hold about 16 percent of the company’s shares, according to an analysis for DealBook by Rotary Gallop, which uses statistical methods to model shareholder voting outcomes.

“If and when the deal passes a shareholder vote it will be because one or all of them voted for it,” said Radhika Dirks, Rotary Gallop’s managing partner.

Together, those three investors cast the swing vote in 83 percent of possible voting situations, Rotary Gallop said. But the buyout’s chance of succeeding is even lower than that number implies â€" just 8.6 percent, thanks to a small number of theoretically possible situations under which the buyout fails regardless of the trio’s vote.

Of course, shifting alliances can improve Dell’s odds â€" a little. Persuading just T. Rowe Price to switch sides, with its 4 percent of Dell shares, would help matters, though the votes of Mr. Icahn and Southeastern remain pivotal, according to the analysis.

Mr. Icahn and his allies have so much power in part because the buyout can succeed only if it garners a majority of votes from shares other than those held by the company’s founder, Michael S. Dell and his allies, under a so-called majority of the minority requirement.

That gives the three investors considerable power despite owning just more than 16 percent of Dell’s shares, more than triple the holdings of the next largest single investor, other than insiders, Rotary Gallops says. (Mr. Dell owned about 14 percent of the company’s shares at the end of 2012.)

In order to approve the buyout without the support of Mr. Icahn, Southeastern and T. Rowe Price, nearly every other share would have to be cast for the deal, Rotary Gallop concluded.

By contrast, if T. Rowe Price votes for the buyout proposal, the deal’s success becomes more possible, though Mr. Icahn and Southeastern remain pivotal. T. Rowe’s support would increase Dell’s chance of winning the buyout vote from just less than 9 percent to 28.5 percent, said Rotary Gallop’s co-founder, Travis Dirks.

Mr. Icahn and company may be able to scuttle the buyout, but that doesn’t translate into the power to force Dell’s board to accept an alternate proposal, like a recent one to buy back 1.1 billion shares at $14 each, while offering shareholders warrants to buy shares at $20 apiece.

That is largely because Mr. Dell and other insiders could vote against on any alternative from Mr. Icahn and Southeastern. Dell insiders have considerable control over the fate of the company â€" more so than about 90 percent of the rest of the Standard & Poor’s 500, according to Rotary Gallop.

Dell representatives could not immediately be reached for comment.

KPN Says It Is Looking for a Buyer of Its German Mobile-Phone Unit

BERLIN â€" The Dutch telecommunications firm KPN may be discussing an estimated 5 billion-euro sale of its German mobile unit to Telefónica of Spain, but neither company would confirm Monday that they were talking.

Telefónica did confirm, however, that it was discussing a possible purchase of a German operator. KPN said it was looking for a buyer of its German unit, E-Plus, the fourth-largest mobile operator in Germany. And analysts said the talks were a continuation of discussions that Telefónica’s German unit, O2, and KPN had held for the past decade about a possible merger.

‘‘Telefónica confirms that negotiations are taking place, not having reached any agreement in this respect yet,’’ the company said in a statement that referred to ‘‘speculation about its possible involvement in a deal’’ but did not refer specifically to E-Plus or KPN.

Telefónica has been looking to combine O2 Germany, the third-largest operator, with E-Plus to create a challenger to rival T-Mobile Germany and Vodafone Germany, which together account for more than half of the German market.

Such a merger would reduce the number of mobile carriers in Germany to three from four, so it could face close antitrust scrutiny.

‘‘A major stumbling block to the deal proceeding is getting regulatory approval,’’ said James Allison, an analyst at IHS Electronics & Media.

KPN, which is based in The Hague, had earlier in the day confirmed that it was in talks to sell E-Plus, but had not identified the potential buyer.

‘‘KPN confirms it is in talks on the sale of its mobile operations in Germany,’’ the Dutch company said in its statement. ‘‘At this stage the outcome is not yet clear.’’

KPN shares in Amsterdam closed 2.5 percent higher on the news Monday.

KPN said last year that it was reviewing options for E-Plus and Base, a carrier it owns in Belgium, but no news followed. With almost 24 million customers in Germany, E-Plus controls about 16 percent of the market. It had sales of ¤3.4 billion, or $4.5 billion, last year.

The talks were first reported earlier in the day by The Financial Times, which said Telefónica and KPN were in advanced discussions in a deal that valued E-Plus at ¤5 billion.

Ward Snijders, a spokesman for KPN, declined to comment on the selling price.

Carlos Winzer, an analyst at Moody’s Investors Service in Madrid, said KPN’s mobile business in Germany could sell for 5 billion to 10 billion euros, based on similar recent sales in Europe. Operators are generally valued at a multiple of 5 to 10 times their earnings before interest, taxes, depreciation and amortization, a measure of pretax profitability.

Mr. Winzer said a sale of E-Plus to Telefónica could reduce the damaging price competition in the German market, which has stymied the growth of both carriers.

Mr. Allison, at IHS, said O2 and KPN had been in on-again, off-again talks for almost a decade on combining their German units, but failed to agree on which company would hold a majority in the merged entity.

The bargaining position of KPN weakened in 2010, Mr. Allison said, when E-Plus bid for but failed to acquire additional spectrum needed to introduce fast mobile services using Long Term Evolution technology, or LTE.

Deutsche Bank Hints It Would Take Steps to Reduce Risks

FRANKFURT â€" Deutsche Bank, Europe’s largest investment bank, indicated Monday that it could shrink its stockpile of financial holdings if needed to meet tougher regulatory requirements, though it declined to comment on reports that it had already decided to do so.

Banks around the world are under increasing pressure from regulators to reduce risk, and Deutsche Bank is considered particularly vulnerable because by some measures, it uses an unusually high proportion of borrowed money to do business.

Deutsche Bank would not comment on reports in The Financial Times and by Reuters that it was planning to cut its total assets â€" the sum of its financial holdings â€" by about 20 percent. Such a step would require it to dispose of tens of billions of euros in derivatives or other investments.

But there is no question that big banks have been losing ground in recent weeks in a debate over how much of other people’s money they are allowed to use to do business. American regulators as well as the Basel Committee on Banking Supervision, which sets global standards for lenders, have proposed rules recently that would further restrict banks’ use of leverage â€" borrowed money â€" and require them to hold a higher percentage of their own wholly owned cash or equity.

It would not be a surprise, as a result, if Deutsche Bank decided pre-emptively to pare back the total volume of its use of borrowed funds as a way of addressing regulators’ concerns. If Deutsche Bank does announce a plan to reduce its assets, it would probably do so on July 30, when it discloses second-quarter earnings.

To increase their ratio of capital to leverage, banks can either raise more money or shrink the total size of their financial holdings, or a combination of both. To increase capital, they must either sell new shares to investors or retain profit rather than paying out the money to shareholders. Executive bonuses may also take a hit. Therefore it may be more attractive for banks to reduce the size of their holdings.

A bank spokesman on Monday referred to a statement this month by Stefan Krause, Deutsche Bank’s chief financial officer, in which he said that the German lender was in a position to cut assets if it had to in the face of increasingly aggressive regulators.

‘‘We’re well prepared,’’ Mr. Krause said in an interview published July 6 by the Börsen Zeitung, a financial newspaper.

In the latest sign that regulators are taking a harder line on banks’ capital buffers, the European Banking Authority issued a statement Monday calling on national regulators in the European Union not to allow slippage in bank capital levels. European banks were required last year to build up their financial buffers, though there are still widespread doubts about the health of the banking system in many countries, including Germany.

In addition, United States regulators are seeking to increase capital requirements for foreign banks operating in America. That rule could have an especially large effect on Deutsche Bank, which has a big presence on Wall Street and is the world’s biggest investment bank not based in the United States.

In the interview with Börsen Zeitung, Mr. Krause said that Deutsche Bank could reduce its exposure to derivatives as one way to shrink total assets. Deutsche Bank’s derivatives portfolio is valued at more than 1 trillion euros, or $1.3 trillion.

What is more, Mr. Krause said, the bank is already in the process of selling 90 billion euros in so-called noncore assets that it does not consider an essential part of its business.

Despite the prospect of smaller dividend payments to investors, shares of Deutsche Bank rose more than 1 percent in Frankfurt trading Monday. Shareholders may welcome a stronger capital base because it makes the bank less prone to failure and better able to absorb losses if there is a crisis.

In April, Deutsche Bank sold 3 billion euros in new shares as a way of increasing capital. But that step was not enough to silence criticism that the bank is among the most highly leveraged big banks in the world.

Banking industry representatives have complained that higher capital requirements will require them to curtail lending. But critics call that a spurious argument and note that European banks, Deutsche Bank included, have been tight-fisted on lending since the financial crisis â€" not because of capital requirements but because lending is less profitable than activities like trading.

For their part, Deutsche Bank executives have argued that the bank is among the best capitalized in the world using a measure preferred by German regulators. But that measure, which allows banks to deploy less capital for investments that are considered less risky, has been falling out of favor.

Among regulators, sentiment has been building for a simpler measure known as a leverage ratio, which supporters say is less prone to manipulation by banks.

Banks in Europe are not required to disclose their leverage ratios, which can vary widely according to how assets are valued. But analysts at Berenberg Bank have calculated that Deutsche Bank’s leverage ratio is 2 percent, meaning that it borrows $50 for every $1 of its own money. That makes Deutsche Bank one of the most leveraged banks in Europe.

Mr. Krause told Börsen Zeitung that the bank’s leverage ratio was over 3 percent, enough to comply with regulations that will take effect in 2019. But many economists would consider even that ratio scandalously low, and there is growing political momentum for higher ratios. Under proposed regulations, for example, the United States’ eight largest domestic banks would be required to maintain leverage ratios of 6 percent.

Signs That a Financial Overhaul May Be in the Works

Beijing announced an important if largely symbolic financial change on Friday. The People’s Bank of China removed the floor on bank lending rates, a move that has been under discussion on and off for decades. The immediate economic impact is likely to be small and possibly mildly stimulative, but it does appear to be a sign that a deeper financial overhaul is in the works.

Removing the ceiling on deposit rates would have a much bigger impact, from hitting bank profits to potentially raising financing costs for some Chinese enterprises to, most important, ending one of the key pillars of financial repression that contributes to China’s stunted consumption.

Changing the deposit rate is much riskier, politically and financially, and we should not be surprised by an incremental approach from the policy makers. Song Guoqing, an academic member of the bank’s monetary policy committee, told the Shanghai Securities News that “no major moves on the deposit rate ceiling should be expected in the near term” given that, among other reasons, China still lacks a deposit insurance program.

The Financial Times reported in its coverage of the bank lending rate move that “the highly symbolic move marked something of a bureaucratic defeat for the central bank, which had hoped to liberalize the ceiling on bank deposit rates at the same time, according to people familiar with the matter.”

The cover story of the July 15 issue of Caixin Magazine discussed the prospects for liberalizing interest rates. The timely article reported, four days before the People’s Bank of China announcement, that:

A source at the research office of the central bank, the government’s official interest rate setter, told Caixin that in the near-term “it’s likely the fluctuation band for borrowing and lending rates can be loosened further” by the government …

Further steps under study could involve lifting the five-year term bank deposit interest rate, which was 4.75 percent in mid-July. Sources said the government is also looking at letting financial institutions for the first time issue certificates of deposit.

These and other steps could ultimately lead to full liberalization for interest rates.

Politics ultimately determine what changes are possible, and there is clearly still resistance to some of the needed changes, though how much is hard to know given the government’s historical preference for incremental reform.

Some observers may argue that any overhaul has come too late to avoid a crash. Paul Krugman, the New York Times columnist, wrote last week in “Hitting China’s Wall” that “the Chinese model is about to hit its Great Wall, and the only question now is just how bad the crash will be. Just the other day we were afraid of the Chinese. Now we’re afraid for them.”

Beijing does not appear to share Mr. Krugman’s concern, at least publicly. The government is trying to project confidence, with several officials in recent days saying that growth remains steady.

Vice Premier Zhang Gaoli said growth was “still within an acceptable range.” Xinhua quoted the finance minister, Lou Jiwei, who was in Moscow for the G-20 finance ministers’ meeting, as saying that “risk of hard landing of China’s economy is not envisaged” by any of the other G-20 participants. In an interview published on Monday, Zhang Liqun, a researcher at the State Council’s Development Research Center, reiterated that China will not have a “hard landing.”

Signs of preparations for more slowing are evident though, as a Xinhua article on Sunday said that growth below 7 percent would “not be tolerated,” while other Chinese new reports held out the possibility of targeted stimulus measures if the country’s G.D.P. growth weakens.

Expert opinion, at least outside of China, appears increasingly convinced that a sharp slowdown in Chinese G.D.P. is inevitable. Michael Pettis argues in Bloomberg opinion article on Monday that “growth will drop to well below 7 percent one way or another,” though he goes on to write that the G.D.P. number should not matter so long as the quality of growth improves.

China’s Internet Muscle

One sector in China that is booming, and contributing to consumption growth, is the Internet. According to the official Internet statistics, China had 591 million Internet users as of June 30, 436 million of whom at least sometimes use a mobile device to access the Internet. China may now have over 200 million smartphone users, more than in the United States. That vast market opportunity is one reason that Baidu is paying $1.9 billion for 91 Wireless, operator of two of China’s largest Android app marketplaces.

Alibaba, China’s largest e-commerce company that also has a growing financial business, is private, but because Yahoo owns a significant stake we get a glimpse of Alibaba’s financial results. According to the recent Yahoo earnings presentation, Alibaba generated revenues of $1.4 billion and earnings of $669 million in the quarter ended March 31. Alibaba is planning an initial public offering, though the timing and location are not publicly known. Hong Kong is probably a more likely venue for the offering than the United States.

Jack Ma, Alibaba’s founder and chairman, generated a firestorm last week with comments he purportedly made to The South China Morning Post about the June 4, 1989, crackdown. He says he was misquoted, and the reporter involved has resigned. Regardless of what he said, investors will likely not care, and Alibaba may end up as the most valuable Chinese Internet company when it finally goes public.

Detroit Blazes a Path It Never Wanted

When cities and other municipalities file for bankruptcy, it is typically a staid affair. At least by bankruptcy standards.

Because of our constitutional structure, a federal bankruptcy judge has limited power in a municipal bankruptcy case. There are no shareholders who can lose control of the case, as in Chapter 11, and no trustee who could be appointed to replace existing management. The elected leadership of the city remains in place; any change must take place through the ballot box or through the oversight of the state government.

But the judge does have the ultimate power to reject a Chapter 9 plan. Thus the municipality can’t be totally unreasonable, or the court will simply tell it to “go away.”

What is the purpose of Chapter 9 then? After all, it might seem that most of what Chapter 9 does could be arranged by agreement, like Greece or any other workout.

Chapter 9’s existence is the result of hard fought battles during the New Deal, when the Supreme Court rejected the first attempt at municipal bankruptcy. The New Dealers refused to give up, given the sorry state of so many municipalities during the Great Depression. There must have been something worth fighting for.

The key is the basic point at the heart of all restructuring statues: muting the power of holdouts. With municipal bankruptcy, the debtor avoids the fate of Argentina and countless other debtors that have attempted to solve their problems out of court.

But because the municipal debtor has to avoid having its case dismissed, and often wants to return to the debt markets sooner rather than later, a subtle dynamic has developed.

The typical municipal bankruptcy case has involved slight losses to creditors. Sure, creditors have experienced losses related to the time value of having their money tied up with the debtor longer than expected, and maybe some bondholders have not received all the return they expected, but in the end the bondholders usually received at least their original investment back.

That might change in a big way with Detroit. Unlike other municipal debtors that have overextended themselves or made poor financial choices, Detroit is in much deeper trouble. In particular, the city has and is undergoing such fundamental changes that a simple delay in repaying its bonds won’t quite do it.

Instead, Detroit needs to fundamentally revamp itself. And doing so means hard choices, and the hard task of making a wide range of constituents face up to this new reality.

All of which is likely to make Detroit something of a trailblazer in Chapter 9 terms. A honor it certainly wished to avoid.

Stephen J. Lubben is the Harvey Washington Wiley Chair in corporate governance and business ethics at Seton Hall Law School and an expert on bankruptcy.

A Long Slog for SAC’s Cohen

In the 1970s, Miller relied on macho sports figures to help the company sell its Lite beer brand to the American public. In bringing administrative charges against the hedge fund billionaire Steven A. Cohen, the Securities and Exchange Commission is pursuing a strategy that might be termed Insider Trading Lite.

Mr. Cohen has long claimed that he was not aware of any violations at his firm, SAC Capital Advisors. So rather than try to prove an insider trading case, the S.E.C. accuses Mr. Cohen of failing to adequately supervise Mathew Martoma and Michael S. Steinberg by not responding when there were “red flags” indicating their trading was based on confidential information. Both have been indicted on securities fraud charges and will face separate trials in November.

The S.E.C.’s case focuses on Mr. Cohen’s role atop SAC, contending that lax oversight shows that he did not fulfill his responsibility as a supervisor to ensure that underlings complied with the law. The claim is based on Section 203 of the Investment Advisers Act, which authorizes charges for failure “reasonably to supervise … another person who commits such a violation, if such other person is subject to his supervision.”

By not charging Mr. Cohen directly with insider trading, the S.E.C. sidestepped the problem of showing that he knew Mr. Martoma and Mr. Steinberg had received confidential information from a tipper who was breaching a duty of trust and confidence by passing the information along. Without the cooperation of those two, the government faced a serious gap in its evidence that probably doomed the effort to prove Mr. Cohen committed securities fraud himself.

Thus, the failure to supervise case lets the S.E.C. use the lucrative trades at SAC, including nearly $275 million in gains and avoided losses linked to Mr. Martoma, without having to show Mr. Cohen intended to engage in insider trading.

The primary issues in the supervision case will be whether Mr. Cohen had supervisory responsibility for the two portfolio managers, and whether he acted “reasonably” in overseeing them. If the S.E.C. can show Mr. Cohen was at least negligent by not taking steps to prevent insider trading at SAC when he had notice of questionable conduct, it could be enough to prove a violation.

The first step will be establishing that Mr. Martoma and Mr. Steinberg actually engaged in insider trading. Unlike the federal prosecutors who have to prove guilt beyond a reasonable doubt, the S.E.C. only has to show by a preponderance of the evidence that the two men traded on confidential information. Even if one or both are acquitted, that would not preclude the S.E.C. from establishing its case against Mr. Cohen because of the lower standard of proof.

The case is certainly not a slam-dunk, however, because the Investment Advisers Act provides a defense to this type of charge. Mr. Cohen can avoid liability if he can establish that SAC had a system in place that “would reasonably be expected to prevent and detect, insofar as practicable, any such violation by such other person,” and that there was no reasonable cause to believe the firm’s procedures were not being complied with by the portfolio managers.

To overcome that defense, the S.E.C. charges emphasize Mr. Cohen’s interactions with his portfolio managers, including indications he received that each might have been using illicit information to trade. There is almost no mention of SAC’s compliance procedures in the charges, nor any discussion of whether there was an effort by Mr. Cohen to double-check the legitimacy of any sources. That type of evidence will be crucial to determining whether he acted reasonably.

Unlike an insider trading case, which can trigger a triple penalty based on the millions of dollars of gains and losses avoided by SAC, the penalty for a failure to supervise is comparatively light. Each violation by an individual can result in a penalty of $5,000, which increases to $50,000 if the S.E.C. can show the conduct was reckless. For a multibillionaire like Mr. Cohen, that is not much of a potential cost.

The greater concern is the possibility that he might be barred from the securities industry for a failure-to-supervise violation. But that penalty would not prevent him from overseeing his own considerable investment portfolio, even if he could no longer manage money for outsiders.

It will be interesting to see whether Mr. Cohen answers questions in the administrative proceeding. DealBook has reported that he asserted his Fifth Amendment privilege against self-incrimination in response to a grand jury subpoena, and he could also refuse to respond in the S.E.C.’s case.

The problem he faces is that asserting the privilege could be considered by the administrative law judge handling the case as evidence that can help establish the failure-to-supervise charges. Unlike a criminal case, in which a defendant’s decision not to testify may not even be mentioned at trial, claiming the Fifth Amendment can be used against the person in a civil or administrative proceeding.

Mr. Cohen’s lawyers have no doubt advised him that it is still possible for criminal charges to be filed against him. The S.E.C. faced a five-year deadline on using Mr. Martoma’s trading as part of an enforcement action if it wanted a penalty. But the Dodd-Frank Act gave the Justice Department the benefit of an extended six-year statute of limitations for securities fraud cases, allowing prosecutors an additional year to gather evidence against him.

Moreover, as I discussed in a recent post, the limitations period is unlikely to be a significant hurdle for prosecutors if there is evidence of a continuing conspiracy that involves trades within the last six years. Conduct outside the statute of limitations can be included in an indictment so long as it is part of a broad criminal agreement.

Another concern for Mr. Cohen may be the potential for a perjury prosecution if he testifies in the S.E.C. case. He has already spoken to the agency during its investigation, which is usually done under oath. The more he testifies, the greater the potential that contradictory statements could lead to scrutiny about whether he was truthful in his responses.

The government has already demonstrated the lengths to which it will go in pursuing Mr. Cohen and SAC. He cannot rule out the possibility that, if prosecutors are unable to show that he engaged in insider trading, they will concentrate on finding another type of violation involving some type of cover-up to use against him.

Activist Investor to Step Down From Yahoo Board

The activist investor Daniel S. Loeb is parting ways with Yahoo.

Mr. Loeb, whose campaign to change Yahoo culminated in the appointment last year of Marissa Mayer as the company’s chief executive, has submitted his resignation from the board, Yahoo said Monday.

Two other directors originally nominated by Mr. Loeb’s firm, Harry J. Wilson and Michael J. Wolf, are also stepping down. The resignations, effective July 31, will leave Yahoo with a seven-member board, the company said.

In addition, Yahoo has agreed to buy 40 million shares of its stock from Mr. Loeb’s firm, Third Point, at a price of $29.11 a share, the closing price on Friday. That will leave Third Point with about 20 million Yahoo shares, or less than 2 percent of the common stock outstanding.

Yahoo’s stock fell more than 4.5 percent in morning trading following the announcement on Monday, dipping below $28 a share.

The hiring of Ms. Mayer from Google last July was considered a coup for Yahoo, an aging technology company in need of a fresh direction. She has overseen a string of acquisitions since then, including the $1.1 billion deal for Tumblr in May.

“Since our board’s rigorous search led us to hire Marissa Mayer as C.E.O., Yahoo’s stock price has nearly doubled, delivering significant value for shareholders,” Mr. Loeb said in a statement.

Ms. Mayer’s appointment came after a hard-fought campaign by Mr. Loeb that led to the ouster of the previous chief executive, Scott Thompson, in May of last year.

Yahoo said Monday that Max Levchin, a co-founder of PayPal, would remain on the board. His appointment in December was supported by both Third Point and the board.

The share repurchase plan announced Monday is part of Yahoo’s previously announced plan to buy $1.9 billion of stock, the company said.

“Daniel Loeb had the vision to see Yahoo for its immense potential â€" the potential to return to greatness as a company and the potential to deliver significant shareholder value,” Ms. Mayer said in a statement. “While there’s still a lot of work ahead, they’ve given us a great foundation.”

High-Speed Trading Firm Is Fined and Barred

Regulators are using new powers to crack down on a high-speed trading firm that they contend was trying to manipulate prices of futures contracts.

The Commodity Futures Trading Commission said on Monday that it had fined Panther Energy Trading $2.4 million for a trading practice known as “spoofing,” in which bogus orders are used to draw in other traders. The firm and its owner were also barred from trading for a year. The agency said it was the first case to be brought using new rules against spoofing contained in the Dodd-Frank financial reform legislation.

A number of different regulatory agencies have been stepping up their scrutiny of the high-speed trading firms that are coming to dominate a growing number of financial markets. On Friday, the Financial Industry Regulatory Authority sent letters to 10 firms asking for information about their systems and controls.

Panther Energy Trading, a New Jersey firm, engaged in the problematic practices for two months in 2011 on the Chicago Mercantile Exchange’s electronic trading platform, according to the order filed by the futures commission. The order said the firm and its owner, Michael Coscia, used computer programs to place orders to buy futures contracts, hoping to give other traders the impression that the price of a contract was heading higher. Panther would sell contracts at that higher price before quickly canceling its buy orders, the commission said. Panther used the strategy in 18 different types of futures contracts, including ones involving oil, natural gas and corn.

“We will use the Dodd-Frank anti-disruptive practices provision against schemes like this one to protect market participants and promote market integrity, particularly in the growing world of electronic trading platforms,” the agency’s enforcement director, David Meister, said in a statement.

Panther and Mr. Coscia are barred from trading for one year. Bart Chilton, a commissioner with the agency who has been critical of high-speed trading, called the one-year penalty inadequate. Mr. Chilton said in a concurring statement that the violation “warrants the imposition of a much more significant trading ban to protect markets and consumers, and to act as a sufficient deterrent to other would-be wrongdoers.”

A person who picked up the phone at Panther said the firm and Mr. Coscia had no comment on the case.

Extended Stay America Aims to Go Public

Less than three years after leaving bankruptcy, Extended Stay America has made plans to sell its shares to the investing public.

Extended Stay, a hotel chain owned by three investment firms, filed on Monday for an initial public offering. The I.P.O. would be the latest deal to test investors’ willingness to bet on a recovery in real estate.

The offering will consist of common stock of Extended Stay America and Class B stock of ESH Hospitality, a real estate investment trust, the filing said. Those two securities will be attached and trade together, according to the company.

The company said in the filing that it would aim to raise up to $100 million in an I.P.O., but that amount could change. It did not specify the number of shares to be sold or the price.

The offering would represent a relatively rapid turnaround for Extended Stay under its three owners - the investment firms Centerbridge Partners and Paulson & Company and the private equity firm Blackstone Group - which bought the company out of bankruptcy for about $3.9 billion in 2010.

It would also be the latest “exit” for a company backed by private equity. With stocks buoyant, private equity firms have held public offerings this year for a range of companies, including HD Supply, Quintiles Transnational and SeaWorld Entertainment.

Founded in 1995, Extended Stay has grown into a giant in the North American hotel business, with 682 hotel properties in the United States and Canada. In addition to its flagship brand, it operates under the names Crossland Economy Studios and Hometown Inn.

The company has had a handful of financial owners in recent years, starting in 2004 with an acquisition by Blackstone. Several years later, at the peak of the commercial real estate market, Blackstone sold Extended Stay for $8 billion to the Lightstone Group, a real estate firm.

But the hotel chain suffered in the economic downturn, hurt as business and leisure travelers cut back on trips, and it filed for bankruptcy protection in 2009. Blackstone returned, with Centerbridge and Paulson, to buy the company in October 2010.

The company plans to use proceeds from an I.P.O. to maintain its majority ownership of the real estate investment trust, which, in turn, plans to reduce its debt. Extended Stay reported $3.6 billion of total debt as of March 31.

The company reported $1 billion of revenue last year, a 7 percent increase from the year earlier. Its adjusted earnings before interest, taxes, depreciation and amortization rose to $434.3 million in 2012 from $409.8 million in 2011.

Deutsche Bank, Goldman Sachs and JPMorgan Chase are handling the offering.

UBS Reaches Settlement on Mortgage Securities

UBS, the Swiss banking giant, said on Monday that it had reached an agreement in principle with a United States regulator to settle claims related to mortgage-backed securities issued between 2004 and 2007.

The Federal Housing Finance Agency sued UBS and 17 other big banks in 2011, accusing them of misrepresenting the quality of mortgage securities they assembled and sold at the height of the housing bubble, and seeking billions of dollars in compensation. UBS was the first, and the agency said it owned $4.5 billion worth of mortgages, with losses totaling $900 million.

While the company did not disclose the amount of the proposed settlement, UBS said in a statement that it was booking about 865 million Swiss francs ($919 million) of pretax charges related to the settlement and a tax agreement between Switzerland and Britain.

UBS is booking about 700 million francs in charges at the business that focuses on its portfolio of noncore and legacy assets, and about 100 million Swiss francs in its wealth management division related to the tax agreement, which requires banks to collect taxes on accounts of British citizens.

The full cost of the settlement will be covered by previous provisions and those taken in the second quarter, UBS said.

The announcement of the proposed settlement came at the same time UBS reported preliminary results for its second quarter. The bank reported that profit rose to about 690 million francs from 425 million francs in the period a year earlier. The company is to report full results on July 30.

Morning Agenda: Cohen of SAC in the Spotlight

CASE PUTS SPOTLIGHT ON COHEN OF SAC  |  Defenders of the billionaire hedge fund manager Steven A. Cohen have argued that the unusual structure of his firm, SAC Capital Advisors, shielded him from any illegal trading by his employees. But in a legal filing on Friday, federal regulators argued that Mr. Cohen was not only aware of suspicious trading activity at SAC but participated in it, DealBook’s Peter Lattman writes. “Faced with red flags of potentially unlawful conduct by employees under his supervision, Cohen allowed his traders to execute the recommended trades and stood by,” the Securities and Exchange Commission said.

The information in the S.E.C. filing could provide ammunition for federal prosecutors and the F.B.I., Mr. Lattman writes. “Among the actions being contemplated by the Justice Department is bringing a broad conspiracy charge against the fund itself, accusing it of multiple acts of insider trading over a period of years.” The case also “adds detail on Mr. Cohen’s role in his firm’s buildup of large stakes in two drug makers, the subject of a separate criminal case, including the first mention of input from a former SAC employee who is now a hedge fund manager.”

An SAC spokesman said Mr. Cohen at all times acted appropriately and would fight the charges.

The filing on Friday represents the first government action brought directly against Mr. Cohen after an inquiry that has persisted for nearly a decade. It includes new and detailed evidence, quoting e-mails and instant message conversations between Mr. Cohen and employees at his firm.

A LUCRATIVE SHUFFLE OF ALUMINUM  |  A maneuver by Goldman Sachs and other financial players adds a fraction of a penny more to the price of a can of soda, beer or juice, ultimately costing consumers billions of dollars when multiplied by the 90 billion aluminum cans consumed in the United States each year, David Kocieniewski writes in The New York Times. The story begins in 27 industrial warehouses in the Detroit area, where a Goldman subsidiary has choreographed an industrial dance to exploit pricing regulations set up by an overseas commodities exchange, Mr. Kocieniewski reports. A fleet of trucks shifts 1,500-pound bars of aluminum among the warehouses, lengthening the storage time and adding many millions a year to the coffers of Goldman, which owns the warehouses and charges rent t store the metal.

“The inflated aluminum pricing is just one way that Wall Street is flexing its financial muscle and capitalizing on loosened federal regulations to sway a variety of commodities markets, according to financial records, regulatory documents and interviews with people involved in the activities,” Mr. Kocieniewski writes. “The maneuvering in markets for oil, wheat, cotton, coffee and more have brought billions in profits to investment banks like Goldman, JPMorgan Chase and Morgan Stanley, while forcing consumers to pay more every time they fill up a gas tank, flick on a light switch, open a beer or buy a cellphone.”

IN JAPAN, ELECTION VICTORY SIGNALS CHANGE  |  The governing Liberal Democrats in Japan secured a landslide victory in parliamentary elections on Sunday, offering Prime Minister Shinzo Abe, a nationalist who promises to revitalize Japan’s deflationary economy, “the chance to be the most transformative leader in a decade,” Martin Fackler writes in The New York Times. “The win comes at a time when many Japanese seem more open than ever to change, after years of failed efforts to end their nation’s economic slump.”

ON THE AGENDA  | 

Hasbro and McDonald’s report earnings Monday morning. Netflix reports earnings after the market closes. Data on sales of existing homes in June comes out at 10 a.m. Barney Frank, the former congressman from Massachusetts, is on CNBC at 4 p.m.

DETROIT GAP REVEALS DISPUTE ON PENSION MATH  |  The bad news came seemingly out of nowhere. In mid-June, a firm hired by Detroit’s emergency manager found a $3.5 billion hole in the city’s pension system. “But Detroit’s pension revelation is nothing new to many people who run pension plans for a living, the math-and-statistics whizzes known as actuaries,” Mary Williams Walsh writes in DealBook. “For several years, little noticed in the rest of the world, their staid profession has been fighting over how to calculate the value, in today’s dollars, of pensions that will be paid in the future.”

TWILIGHT OF BIG LAW  |  White-shoe law firms are facing a crisis that would have been unthinkable a generation ago, Noam Scheiber writes in The New Republic. “Part of the reason the law-firm ecosystem has changed so dramatically in a single generation is greed: The most profitable partners steadily discarded their underachieving colleagues, because they didn’t want to share the spoils. And part of the reason is the brutal recession that began in 2007, prompting corporations to slash every conceivable expense, law firms included. But the biggest problem is that there are simply many, many more high-priced lawyers today than there is high-priced legal work.”

Mergers & Acquisitions »

Ways to Muscle Out Competing Deal Offers  |  AT&T’s $1.19 billion acquisition agreement with Leap Wireless includes provisions intended to protect against competing bids, Steven M. Davidoff writes in the Deal Professor column. But are such protections likely to become commonplace? DealBook »

Hutchison Whampoa May Sell Grocery Chain  |  Hutchison Whampoa, which is controlled by the billionaire Li Ka-shing, confirmed that it was considering selling its ParknShop supermarket chain in Hong Kong, The Wall Street Journal reports. WALL STREET JOURNAL

Allbritton TV Stations Expected to Sell for Up to $1 Billion  |  Bids for the eight television stations are due on Monday, The Wall Street Journal reports. WALL STREET JOURNAL

Buyout Firm Said to Explore Sale of Six3 Systems  |  The buyout firm GTCR “hopes to fetch as much as $1 billion” for Six3 Systems, which provides intelligence services to government agencies, Reuters reports, citing four unidentified people familiar with the matter. REUTERS

INVESTMENT BANKING »

UBS Quarterly Profit Rises  |  UBS reported net income of about 690 million Swiss francs ($734 million) in the second quarter, compared with 524 million francs a year earlier. The bank also said it was close to a settlement over sales of mortgage-backed bonds. BLOOMBERG NEWS

How to Make Banks Safer  |  “On both sides of the Atlantic, much more needs to be done on a fundamental issue - the structure of banking entities,” Michael Barr, a former assistant secretary of the Treasury for financial institutions, and John Vickers, the former chairman of Britain’s Independent Commission on Banking, write in an essay in The Financial Times. FINANCIAL TIMES

2 JPMorgan Directors Resign  |  Two directors at JPMorgan Chase who had received lackluster support from shareholders resigned on Friday, the latest change in the aftermath of a multibillion-dollar trading loss last year. DEALBOOK

An Important Reminder on How Bonds Work  |  A recent bulletin from the Securities and Exchange Commission, titled “Interest Rate Risk,” was a cry for understanding, Jeff Sommer writes in The New York Times. NEW YORK TIMES

How Interval Training Can Make You Incredibly Efficient at Work  |  Just as runners find that short, intense workouts are a good way to train, bursts of single-minded tasks can help us be far more efficient with work, Tony Schwartz writes in the Life@Work column. DealBook »

PRIVATE EQUITY »

CVC Raises Fund for European Buyouts  |  CVC Capital Partners has raised 10.5 billion euros ($13.8 billion) for “the largest fund for European buyouts since the start of the financial crisis,” according to The Financial Times. FINANCIAL TIMES

HEDGE FUNDS »

S.E.C. Rejects Its Own Deal With Hedge Fund Manager  |  The decision to overrule its own enforcement division’s proposed settlement with the high-flying money manager Philip A. Falcone signals a broader crackdown by the agency. DealBook »

NetApp Adds Directors Amid Push for Changes  |  The addition of two directors to the board of NetApp at the urging of the activist hedge fund Elliott Management hints at a possible push for a sale. DealBook »

I.P.O./OFFERINGS »

Facebook’s Bid to Expand in Developing World  |  For more than two years, Facebook has quietly been working on a project to get the social network onto the billions of cheap “feature phones” that are still the norm in developing countries, The New York Times reports. NEW YORK TIMES

VENTURE CAPITAL »

Aereo as Bargaining Chip in a Television Battle  |  “Analysts have theorized that distributors could exploit Aereo, or a service like it, to avoid paying increasingly steep retransmission fees,” Brian Stelter writes in The New York Times. Aereo, a start-up backed by Barry Diller and other venture capitalists, picks up television signals and streams them to Internet-connected devices. NEW YORK TIMES

Upstarts Challenging the Taxi Industry  |  “Companies like Uber are continually confronting the obstacle of entrenched government bureaucracy, resistant unions of taxi drivers and dispatchers, and overlapping and sometimes conflicting systems of state and city regulation,” Nick Bilton writes on the Bits blog of The New York Times. NEW YORK TIMES

LEGAL/REGULATORY »

Files Suggest Chinese Graft Case May Expand  |  Apart from the British pharmaceutical giant GlaxoSmithKline, “at least six other global pharmaceutical companies, including Merck, Novartis, Roche and Sanofi, used the same travel agency to make arrangements for events and conferences,” David Barboza reports in The New York Times. NEW YORK TIMES

Glaxo Says Executives in China May Have Acted Unlawfully  |  “Certain senior executives of GSK China, who know our systems well, appear to have acted outside of our processes and controls which breaches Chinese law,” the head of emerging markets for GlaxoSmithKline, Abbas Hussain, said in a statement, according to Reuters. REUTERS

Under New Chief, a Feistier S.E.C. Emerges  |  A flurry of moves appeared to signal that the Securities and Exchange Commission was striking a harder line with Wall Street under its new chairwoman, Mary Jo White. DealBook »

S.E.C. Accuses Miami of Misleading Bond Investors  |  The Securities and Exchange Commission filed charges on Friday afternoon, accusing Miami of giving misleading information about its finances to investors in 2009 to make its municipal bonds more attractive. DealBook »

An Effort to Pierce a Wall Street Fog  |  Thanks to investigators in Europe, we may learn more about what went on behind the scenes in the trillion-dollar market for credit-default swaps, Gretchen Morgenson writes in The New York Times. NEW YORK TIMES

Former Brokers Appear in Court in Libor Case  |  Two former brokers at RP Martin Holdings made their first court appearance in London on Friday in connection to charges tied to the manipulation of global benchmark interest rates. DealBook »