Even after five years, it is still unclear what exactly JPMorgan Chase bankers knew about Bernard L. Madoff’s huge Ponzi scheme. A newly obtained government document does not provide the answer, but does shed some light on why the mystery remains, Ben Protess and Jessica Silver-Greenberg write in DealBook. The document reveals that JPMorgan and federal regulators fought over access to bank employee interviews, eventually pitting the Justice Department against the Office of the Comptroller of the Currency.
The document shows that, around the time of Mr. Madoff’s arrest in December 2008, JPMorgan’s lawyers interviewed dozens of bank employees who might have crossed paths with Mr. Madoff’s company. Federal regulators at the comptroller’s office sought copies of the lawyers’ interview notes in the hopes that they would provide a glimpse into the bank’s actions, but JPMorgan refused to hand over the notes, citing confidentiality requirements like the attorney-client privilege.
The Treasury Department’s inspector general sided with the regulators, invoking a rare exception to attorney-client privilege and arguing that the lawyers’ interviews were essentially “made for the purpose of getting advice for the commission of a fraud or crime.†A debate ensued over how hard to press JPMorgan to hand over the interview notes, given that the bank was sure to fight and a judge would be free to set a harmful precedent for future cases. The Justice Department rejected the calls for JPMorgan to turn over the interview notes, saying there was no basis to suggest that the interview notes had been made for the purpose of facilitating crime or fraud.
Mr. Protess and Ms. Silver-Greenberg write: “While the ruling applied to the Madoff case alone, it could have broader implications as regulators weigh the costs of future fights and the likelihood of passing muster with the Justice Department. And despite being an exceptional case â€" banks and their regulators typically settle disputes over attorney-client privilege without the Justice Department getting involved â€" the ruling illustrated a persistent tension over the privilege that continues to shape the government’s pursuit of financial fraud.â€
MOELIS & COMPANY FILES FOR AN I.P.O. Â |Â Moelis & Company filed on Tuesday for an initial public offering, highlighting the rise of so-called independent or boutique investment banks. The move would make it one of a handful of such banks to trade on the public markets, Michael J. de la Merced writes in DealBook.
These specialty banks have long extolled their business plans, which focus on advising clients, saying the plans give them an advantage over giants like Goldman Sachs and JPMorgan Chase. And lately, investors have appeared to agree, pushing the shares of other public boutique banks like Lazard and Evercore up by double digits in the last year. By going public, Moelis hopes to tap into this investor interest.
Still, much remains unknown about the offering. The firm provided a fund-raising target of $100 million, but the number was meant only to calculate registration fees, and Moelis could seek significantly more. It did not disclose how many shares it planned to sell.
A NEW FORM OF SHAREHOLDER ACTIVISM Â |Â The latest thing on Wall Street may be appraisal rights, which were in play in the management buyout of Dell as well as that of Dole Foods. So what exactly are appraisal rights? In a way, they are a kind of protection for shareholders: If the company they own stock in is acquired, and they think the price was too low, they can seek a better price in court, Steven M. Davidoff writes in the Deal Professor column.
Appraisal rights are risky and expensive â€" shareholders have to pay their own legal fees â€" but they also have benefits for a hedge fund with a lot of money. For one, shareholders are entitled to statutory interest, which can result in a good return, especially given today’s market.
Mr. Davidoff writes: “Not all shareholders are going to exercise their appraisal rights, but this is the way to make sure that the future management buyouts are not the Doles of the world, paying an underwhelming price. In other words, this may be the way that shareholders finally assert their power. You can thank the hedge funds for that.â€
ON THE AGENDA  | The Mortgage Bankers’ Association purchase applications index is out at 7 a.m. February’s ADP private payroll report is out at 8:15 a.m. The purchasing managers’ index is out at 8:58 a.m. The ISM nonmanufacturing index for February is out at 10 a.m. The Fed’s regular report on economic activity across the country, a report known as the beige book, is out at 2 p.m. The House Financial Institutions and Consumer Credit Committee holds a hearing on data security at 10 a.m. The House Oversight and Investigations Committee holds hearing on the effect of financial regulation on international competitiveness at 2 p.m. Carl C. Icahn is on CNBC at 6 a.m. Peter R. Orszag, the vice chairman of Citigroup, is on CNBC at 6:40 a.m. Prime Minister Benjamin Netanyahu of Israel is on Fox Business Network at 5:45 p.m.
THE END MAY BE NEAR FOR SECURITIES FRAUD CASES  | The Supreme Court will hear arguments on Wednesday that could drive a stake through the heart of securities fraud cases, Steven M. Davidoff writes in a Deal Professor column. In Halliburton v. Erica P. John Fund, a group of shareholders contends that Halliburton (yes, that Halliburton) falsified results and lied to the public about its asbestos liabilities, which ultimately caused share values to plunge. In its argument, Halliburton is asking the Supreme Court to strike down a fundamental tenet in securities fraud litigation, known as “fraud on the market,†arguing that its standad should never have been adopted.
The “fraud on the market†doctrine has its origins in the 1986 Supreme Court case Basic v. Levinson, in which the Supreme Court reasoned, based on the efficient market hypothesis, that all publicly available information about a company was incorporated into its stock price.
FOLLOWING THE WINDING SILK ROAD  | The last few months have not been easy for Bitcoin. One Bitcoin exchange filed for bankruptcy on Friday after it lost more than $450 million in a theft. And before that, a prominent Bitcoin proponent, Charlie Shrem, was arrested on money-laundering charges. Now, Bitcoin’s continuing tale seems to have come full circle, with the latest development involving the website Silk Road, whose shutdown last fall was one of the first indications that everything was not rosy in Bitcoin land.
In a somewhat bizarre twist, a staff member in the electrical engineering department at Lafayette College in eastern Pennsylvania appears to have played a small role in the investigation that resulted in the shutdown of Silk Road, an online marketplace where drugs and weapons could be bought with Bitcoin, Matthew Goldstein writes in DealBook. The staff member owned a company, JTAN.com, that provided Silk Road with a backup server for its website. A search warrant reveals that JTAN potentially provided the authorities with a wealth of information about Silk Road and Ross William Ulbricht, the man authorities say founded the site.
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Facebook in Talks to Buy Drone Maker for $60 Million  | Facebook is in discussions to acquire a manufacturer of high-altitude drones for about $60 million. The purchase would allow Facebook to advance its ambitions of connecting everyone in the world to the Internet, the Bits blog reports. NEW YORK TIMES BITS
Inside Facebook’s Megadeal for WhatsApp  | Forbes provides an inside look at the courtship, secret meetings and other events that led to Facebook’s deal for WhatsApp, which could be worth as much as $19 billion. FORBES
Imerys Revises Offer for Amcol International, Again  | The French group Imerys said it would now pay $45.25 a share in cash for Amcol International, valuing the Illinois company at $1.7 billion, including the assumption of debt. DealBook »
Morgan Stanley Considering Sale of Swiss Private Bank  | Morgan Stanley is exploring a sale of its private bank in Switzerland, which has about $11 billion in assets under management, Reuters reports, citing an unidentified person familiar with the situation. REUTERS
Comcast Extols Its Low-Cost Web Program  | Comcast said on Tuesday that it would extend indefinitely its Internet Essentials program, which allows low-income families to gain access to the Internet, Bloomberg News writes. The announcement came on the same day as top executives began meeting with United States regulators who will review the company’s $45.2 billion bid for Time Warner Cable. BLOOMBERG NEWS
Blockchain to Expand Bitcoin App ZeroBlock  | In a move to build a comprehensive Bitcoin trading platform, Blockchain.info has acquired the trading platform website RTBTC.com, which it plans to combine with its Bitcoin mobile application ZeroBlock, The Wall Street Journal writes. The purchase price was not disclosed. WALL STREET JOURNAL
Apple’s Departing Finance Chief Is Goldman’s Newest Director  | With his newly announced role at Goldman Sachs, Peter Oppenheimer, who plans to retire as Apple’s finance chief in September, deepens the longstanding ties between the investment bank and the technology giant. DealBook »
The Writer Behind @GSElevator Speaks Out  | Remaining anonymous as he posted on Twitter under the handle @GSElevator was simply a “device†that allowed him to paint a broader picture of life on Wall Street, John Lefevre said on Tuesday. DealBook »
Guggenheim Lures a Tech Banker From Evercore  | Eric Mandl, who specialized in cloud computing and big data deals at Evercore, jumped to Guggenheim Securities on Tuesday. DealBook »
JPMorgan Takes Top Spot on List of the Best-Paid Investment Banks  | JPMorgan Chase, Goldman Sachs and Morgan Stanley generated an estimated $3.77 billion in total fees last year, Bloomberg Markets magazine writes. The three banks ranked the highest on a list of the best-paid investment banks. BLOOMBERG MARKETS
Final Rules, and a Warning, on Banker Bonuses in Europe  | The European Commission has adopted final rules for limits on banker bonuses, and a top official warned banks against pushing too far in trying to “circumvent remuneration rules.†DealBook »
Market and Rates Helped Private Equity Chiefs Thrive Last Year  | Lucrative payouts were helped greatly by the combination of low interest rates and high stock prices, which was ideal for selling investments. DealBook »
Football Star’s Private Equity Firm Raising $1 Billion  | The private equity firm HGGC, which was co-founded by Steve Young, the hall-of-fame National Football League quarterback who won three Super Bowls with the San Francisco 49ers, is raising $1 billion for its second fund, Fortune reports. FORTUNE
Private Equity Recruiting Begins Earlier  | Private equity firms and hedge funds have begun this year’s hiring of Wall Street’s most junior bankers, beginning the process earlier than usual, Bloomberg Businessweek writes. BLOOMBERG BUSINESSWEEK
Cevian Capital Increases Its Stake in ThyssenKrupp  | The activist investment firm Cevian Capital has been gradually increasing its position in the troubled German conglomerate ThyssenKrupp. DealBook »
Church of England Increases Exposure to Alternative Assets  | The Church of England is ramping up the exposure of its 6 billion pound endowment to alternative investments like hedge funds and private equity, The Financial Times writes. The move will solidify the church’s position as one of Britain’s largest single investors in these types of assets. FINANCIAL TIMES
Sherborne Raises Stake in Electra Private Equity  | The hedge fund Sherborne of New York has increased its stake in Electra Private Equity to 13.7 percent of the trust’s voting rights, The Financial Times reports. FINANCIAL TIMES
Brit Insurance Joins I.P.O. Flurry Among Private Equity Holdings  | Brit Insurance is the latest company owned by private equity to announce an initial public offering in London. The insurer was taken private by Apollo Global Management and CVC Capital Partners in 2010. DealBook »
ONO Looks to I.P.O. After Takeover Approach Stalls  | An initial public offering of the Spanish cable operator ONO seems increasingly likely after the Vodafone Group’s attempts to buy ONO appear to have been rebuffed, The Wall Street Journal writes, citing unidentified people familiar with the situation. WALL STREET JOURNAL
Bitcoin Bank Flexcoin Shuts Down After Theft  | Flexcoin, a Bitcoin wallet and banking service, announced it was shutting down, saying it had lost 896 Bitcoins, worth about $600,000, in a theft, The Verge writes. THE VERGE
Overstock Passes $1 Million in Sales Made in Bitcoin  | The online retailer Overstock, which started accepting Bitcoin as payment in January, said on Tuesday that purchases made with the virtual currency have topped $1 million, ReCode reports. RECODE
DocuSign Collects $85 Million  | DocuSign, a digital signature software company, has raised $85 million in new funding from institutional investors, valuing the company at $1.6 billion, The Wall Street Journal reports, citing unidentified people familiar with the situation. WALL STREET JOURNAL
ServiceMax Secures $71 Million in Funding Round  | ServiceMax, which has a cloud-based application that helps companies manage industrial services, announced on Tuesday that it had raised $71 million in a Series E funding round, ReCode writes. The new funding brings ServiceMax’s total capital raised to $120 million. RECODE
Bank of England Suspends Employee Amid Currency Manipulation Inquiry  | The central bank said an “extensive review†had found no evidence that staff members colluded to manipulate currency markets, but it suspended an employee as it continued to investigate whether its internal control processes were followed. DealBook »
Japan Said to Be Ready to Impose Bitcoin Rules  | The new guidelines, which ban banks and securities firms from handling Bitcoins, will reportedly treat Bitcoin as a commodity rather than a currency. DealBook »
Bond Market in China May See First Local Default  | A small solar company in Shanghai has said it is unlikely to meet a Friday deadline for an annual interest payment owed to investors. DealBook »
Budget for Trading Commission Called ‘Woefully Insufficient’  | Bart Chilton, a commissioner on the Commodity Futures Trading Commission, said President Obama’s $280 million request for the agency in the next fiscal year was inadequate for the agency’s expanded mission. DealBook »
In Change, Tourre Won’t Be Teaching University of Chicago Course  | The former Goldman Sachs trader Fabrice Tourre had been scheduled to teach an undergraduate course on economic analysis beginning March 31. But a University of Chicago spokesman said on Tuesday that he would no longer be an instructor. DealBook »
Where There’s Smoke, There’s Scrutiny  | While a combination of Reynolds American and Lorillard may make strategic and financial sense, antitrust and other watchdogs could still act as spoilers, Kevin Allison writes for Reuters Breakingviews. DealBook »
