Carlyle Said to Take Lead in Bidding for Getty Images

6:18 p.m. | Updated

The Carlyle Group has taken the lead in the bidding for Getty Images, a photo-images service, two people briefed on the matter said on Tuesday.

Carlyle has been competing with other private equity firms, including CVC Capital Partners, to buy Getty from Hellman & Friedman. It isn't clear when a deal would be signed, though a sale may be worth at least $3.3 billion, these people said.

Hellman & Friedman purchased Getty in early 2008 for about $2.4 billion, taking control of one of the biggest providers of high-quality images. The company's stock price had tumbled by about 73 percent over the two years before the leveraged buyout, hurt by lower-cost rivals.

News of Carlyle's position in the bidding was reported earlier by Bloomberg News.

Wells Fargo Settles Mortgage Investments Case for $6.5 Million

Wells Fargo on Tuesday settled accusations by federal authorities that it sold toxic mortgage investments without researching the products or disclosing the risks to customers.

The action, the latest mortgage-crisis case against a big bank, yielded a modest $6.5 million settlement. Wells Fargo turned a $16 billion profit last year.

The S.E.C. has spent nearly four years building cases against the nation's biggest banks for their role in the mortgage mess. The agency has filed civil actions against Goldman Sachs, JPMorgan Chase and Citigroup.

But in recent months, the agency has struggled to bring big cases as it pursued a second round of investigations focused on the banks' failure to disclose the dangers of mortgage securities. The Wells Fargo case comes just days after Goldman Sachs revealed that the S.E.C. closed an investigation into a 2006 mortgage deal without pursuing charges.

In an order against Wells Fargo and one of its former brokers, the Securities and Exchange Commission charged that the bank failed to study or even understand the complexity of the high-risk investments it sold. In the lead up to the bursting of the housing bubble, the S.E.C. said, Wells Fargo sold so-called commercial paper to nonprofit groups, local governments and other investors with “generally conservative investment objectives.”

“Broker-dealers must do their homework before recommending complex investments to their customers,” Elaine C. Greenberg, head of the agency's Municipal Securities and Public Pensions Unit, said in a statement. The $6.5 million penalty, the S.E.C. said, will go into a fund for aggrieved investors.

As part of the settlement, Wells Fargo is neither admitting or denying the allegations. A bank spokeswoman said that “these issues occurred more than five years ago and pertain to a part of the firm that was completely revamped after the merger with Wachovia.” She added that the bank was “pl eased to put this matter behind us.”

The Wells Fargo case involved investments sold from January to August 2007, as the subprime mortgage crisis was brewing. Several investors, according to the S.E.C., “suffered substantial losses” after three of the deals defaulted later that year.

“Municipalities and other nonprofit institutions were harmed because Wells Fargo abdicated its fundamental responsibility as a broker to have a reasonable basis for its investment recommendations to customers,” Ms. Greenberg said.

The S.E.C. hammered the bank for not informing investors about the “the nature and volatility of the underlying assets.” The lack of transparency, in part, stemmed from the bank's own ignorance.

Wells Fargo and its brokers, the S.E.C. said in the statement, “failed to understand the true nature, risks, and volatility” of the deal it pushed on investors. Rather than reviewing memos outlining the risks, the bank relied almost ent irely on the credit ratings of the securities.

The action also took on Shawn McMurtry, a former vice president and broker at the bank, over his role in selling the deals. Under the settlement, Mr. McMurtry agreed to a $25,000 fine and six-month suspension from the securities industry.

HCA Creates a Windfall for Private Equity

During the Great Recession, when many hospitals across the country were nearly brought to their knees by growing numbers of uninsured patients, one hospital system not only survived - it thrived.

In fact, profits at the health care industry giant , which controls 163 hospitals from New Hampshire to California, have soared, far outpacing those of most of its competitors.

The big winners have been three firms - including Bain Capital, co-founded by Mitt Romney, the Republican presidential candidate - that bought HCA in late 2006.

HCA's robust profit growth has raised the value of the firms' holdings to nearly three and a half times their initial investment in the $33 billion deal. The financial performance has been so impressive that HCA has become a model for the industry. Its success inspired 35 buyouts of hospitals or chains of facilities in the last two and a half years by private equity firms eager to repeat that windfall.

HCA's emergence as a powerful leader in the hospital industry is all the more remarkable because only a decade ago the company was badly shaken by a wide-ranging fraud investigation that it eventually settled for more than $1.7 billion.

Among the secrets to HCA's success: It figured out how to get more revenue from private insurance companies, patients and Medicare by billing much more aggressively for its services than ever before; it found ways to reduce emergency room overcrowding and expenses; and it experimented with ways to reduce the cost of medical staff, a move that sometimes led to conflicts with doctors and nurses over concerns about patient care.

In late 2008, for instance, HCA changed the billing codes it assigned to sick and injured patients who came into the emergency rooms. Almost overnight, the numbers of patients who HCA said needed more care, which would be paid for at significantly higher levels by Medicare, surged.

HCA, which had lagged the industry for those high-paying categories, jumped ahead of its competitors and was reimbursed accordingly. The change, which HCA's executives said better reflected the service being provided, increased operating earnings by nearly $100 million in the first quarter of 2009.

To some, HCA successfully pushed the envelope in its interpretation of existing Medicare rules. “If HCA can do it, why can't we?” asked a hospital consulting firm, the Advisory Board Company, in a presentation to its clients.

In one instance, HCA executives said a private insurer, which it declined to name, questioned the new billing system, forcing it to return some of the money it had collected.

The hospital giant also adopted a policy meant to address an issue that bedevils hospitals nationwide - reducing costs and overcrowding in its emergency rooms. For years, the hospital emergency room has been used by the uninsured as a de facto doctor's office - a place for even the most minor of ailments. But emergency care is expensive and has become increasingly burdensome to hospitals in the last decade because of the rising number of uninsured patients.

HCA decided not to treat patients who came in with nonurgent conditions, like a cold or or even a sprained wrist, unless those patients paid in advance. In a recent statement, HCA said that of the six million patients treated in its emergency rooms last year, 80,000, or about 1.3 percent, “ chose to seek alternative care options.”

“Many E.R.'s in America, particularly in densely populated urban areas where most HCA-affiliated facilities are located, have adopted a variety of systems to determine whether a patient in fact needs emergency care,” the statement said. “About half our hospitals have done so. Typically, our affiliated hospitals have two caregivers - usually a triage nurse and a physician - make that determination. It should be noted that other non-HCA affiliated hospitals are using similar processes to address E.R. issues.”

As HCA's profits and influence grew, strains arose with doctors and nurses over whether the chain's pursuit of profit may have, at times, come at the expense of patient care.

HCA had put in place a flexible staffing system that allowed it to estimate the number of patients it would have each day in its hospitals and alter the number of nurses it needed accordingly.

Several nurses interviewed said they were concerned that the system sometimes had led to inadequate staffing in important areas like critical care. In one measure of adequate staffing - the prevalence of bedsores in patients bedridden for long periods of time - HCA clearly struggled. Some of its hospitals fended off lawsuits over the problem in recent years, and were admonished by regulators over staffing issues more than once.

Many doctors interviewed at various HCA facilities said they had felt increased pressure to focus on profits under the private equity ownership. “Their profits are going through the roof, but, unfortunately, it's occurring at the expense of patients,” said Dr. Abraham Awwad, a kidney specialist in St. Petersburg, Fla., whose complaints over the safety of the programs at two HCA-owned hospitals prompted state investigations.

This article has been revised to reflect the following correction:

Correction: August 14, 2012

An earlier version of this article imprecisely referred to the state of Mitt Romney's candidacy. He is the presumptive Republican presidential nominee; he is not yet the nominee.

Standard Chartered Settles Charges

New York's top banking regulator reached a settlement on Tuesday with over charges that the British bank laundered hundreds of billions of dollars in tainted money with Iran and deliberately lied to regulators.

The bank agreed to pay $340 million to the Department of Financial Services, which is led by Benjamin M. Lawsky. “The parties have agreed that the conduct at issue involved transactions of at least $250 billion,” Mr. Lawsky said in a statement.

Tuesday's cease fire between the state regulator and Standard Chartered marks a big win for the department, which was formed last year.

As part of the settlement, the bank will install a monitor for at least two years to vet the bank's money laundering controls. In addition, the bank agreed to put in permanent officials who will audit the bank's internal procedures to prevent offshore money laundering.

Last week, the New York state regulator charged that Standard Chartered laundered $250 billion in tainted money for Iranian clients through its New York branch.

The bank's admission that it processed $250 billion in tainted money is slightly misleading, according to federal regulators briefed on the matter.

Standard Chartered has maintained that “99.9 percent” of the transactions under scrutiny, or all but about $14 million, complied with federal law and involved legitimate Iranian banks and corporations - not entities that had anything to do with supporting terrorist activities or the development of a nuclear weapon.

The bank's defense of its transactions still has traction with other authorities, including the Justice Department and the Manhattan District's attorney's office.

But Mr. Lawsky, according to the people briefed on the matter, has largely based his case on claims that the bank violated state law by masking the identities of its Iranian clients and thwarting American efforts to detect money laundering.

His order against Standard Chartered charged that the bank violated a panoply of state laws by failing to “maintain or make available at its New York branch office true and accurate books, accounts and records” of transactions including the “Iranian U-turn transactions.”

The order also claims that the bank falsified records “with the intent to deceive the superintendent and examiners, supervisors and lawyers of the department and representatives of other U.S. regulatory agencies.”

A hearing scheduled for Wednesday was canceled.

Mr. Lawsky stunned other federal authorities, particularly officials at the Federal Reserve and the Justice Department, who were also looking into the bank's activities, according to several people close to the case.

The agencies involved, including the Treasury Department, were debating just how expansive the suspected wrongdoing was at Standard Chartered when Mr. Lawsky leapfrogged ahead of them last week, according to the people close to the case. Some federal authorities still believe that the amount is much smaller, perhaps in the millions of dollars.

In its initial response to the accusations last week, the bank said that it “strongly rejects the position and portrayal of facts” by the agency.

The Federal Bureau of Investigation said that it had an open investigation into money laundering at Standard Chartered.

Beyond the dealings with Iran, the banking regulator said it had discovered evidence that Standard Chartered operated “similar schemes” to do business with other countries under United States sanctions, including Myanmar (formerly Burma), Libya and Sudan.

The “apparent fraudulent and deceptive conduct” by Standard Chartered happened from 2001 to 2010, the order said, and was particularly “egregious,” because some of the transactions were being processed even as the bank was under formal oversight by New York banking regulators from 2004 to 2007.

Is That It for Financial Crisis Cases?

Last week turned out to be a good one for Goldman Sachs. The Justice Department closed a criminal investigation of the firm and its chief executive, Lloyd C. Blankfein, and the firm disclosed that the Securities and Exchange Commission had decided not to pursue a civil fraud case related to a subprime mortgage deal.

When the story of the financial crisis is finally written, this may turn out to be the denouement of the government's investigations of Wall Street for potential wrongdoing that contributed to the financial crisis in 2008.

The criminal investigation was prompted by a referral from the Senate's Permanent Subcommittee on Investigations, based on its 635-page report on the financial crisis that included details on Goldman's transactions in mortgage-backed securities. The report highlighted potential conflicts of interest in how Goldman dealt with its clients and questioned whether Mr. Blankfein testified truthfully at an April 2010 subcommittee hearing when he said that the firm did not have a “massive short” position to bet on a decline the housing market.

In announcing the closing of the investigation, the Justice Department said that “based on the law and evidence as they exist at this time, there is not a viable basis to bring a criminal prosecution.”

Senator Carl Levin, Democrat of Michigan and chairman of the Senate subcommittee, expressed his displeasure at that outcome, noting that “whether the decision by the Department of Justice is the product of weak laws or weak enforcement, Goldman Sachs's actions were deceptive and immoral.”

Whether it can ever be shown that a Wall Street trade is immoral, proving fraud requires more than just showing some measure of deception. Prosecutors also need evidence of intent, which can be hard to come by when a complex security is sold to sophisticated investors.

Investment banks like Goldman load their disclosure documents with plenty of gener ic disclaimers that can support a defense that no one sought to mislead buyers. It may not be so much a matter of weak laws as the requirement to show beyond a reasonable doubt that a defendant had the intent to commit a crime, a significant barrier to successfully prosecuting any fraud case.

And proving a perjury case is even more difficult because it must be shown that the defendant intentionally lied, not just that the testimony was incomplete or inaccurate. Whether Goldman's position was “massive” or not looks to be a matter of degree, making it almost impossible to prove perjury.

The S.E.C.'s decision was a bit more surprising because the enforcement division told Goldman in February that it planned to recommend civil charges against the firm related to its sale of a $1.3 billion mortgage-backed security. Goldman had already settled allegations in 2010 about how it structured a collateralized debt obligation known as Abacus, so even if the S.E.C. had pur sued another case, it was unlikely to contain any major new revelations about systemic misconduct.

Goldman is not completely out of the woods because it still faces a number of lawsuits over its mortgage operation, but the two greatest threats from government investigations are now behind it.

It does not look as if any other criminal cases against other banks are likely to emerge from the financial crisis now that four years have gone by. The Justice Department has already passed on cases against executives from firms like Countrywide Financial and the American International Group, and nothing else seems to be drawing the attention of prosecutors at this point.

At one time it looked as though the S.E.C. would pursue charges against executives from Lehman Brothers based on a report by a bankruptcy trustee claiming that the firm had misled investors by using accounting tricks to hide the amount of leverage on its books. But even that investigation appears to be winding down without any charges.

The S.E.C. may be wary of pursuing charges against individual defendants after an adverse jury verdict in a securities fraud lawsuit related to Citigroup's sale of a C.D.O. The S.E.C. accused Brian H. Stoker, a director in Citigroup's C.D.O. group, of negligently making misstatements in the offering documents that hid the bank's bet that it would decline in value.

As a lower-level employee, he offered the “Where's Waldo?” defense, claiming that he should not be the only one held responsible for misconduct by a huge institution. The loss in Mr. Stoker's case may cause the S.E.C. to think long and hard about whether it can successfully prove individuals committed fraud in transactions conducted by Wall Street banks.

Without evidence showing significant involvement by senior executives and the prospect of the Waldo defense shielding other employees, the S.E.C. may be left with bringing cases only against firms, which ar e often happy to pay a fine to dispose of the matter â€" usually without admitting or denying liability.

So is the end of the Goldman investigation a matter of “weak laws or weak enforcement,” as Mr. Levin has asserted? We will never know what evidence the Justice Department gathered in its investigation, so it is hard to assess whether the decision not to pursue a criminal case was the result of prosecutorial reticence.

On the issue of the laws that can be applied, it would be possible to add inadequate disclosure of risks or a breach of a fiduciary duty to the list of securities crimes. But it is unclear whether Congress would be willing to enact laws to make it easier to pursue criminal prosecutions based on questionable ethics.

New laws would not make it any more likely that senior executives could be pursued unless they included liability as a “responsible corporate officer” for the conduct of underlings without having to prove an executive's knowledge or recklessness.

Wall Street would be sure to put up quite a fight if expansive criminal prohibitions were introduced that made it easier to prosecute senior managers for the violations of lower-level employees. The pushback in Congress against the Dodd-Frank Act's regulation of the financial sector shows that there may not be much appetite for additional government involvement in the financial sector.

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

Manchester United Trades Up on 2nd Day

Say what you will about Manchester United, but at least there is this: it's no Facebook.

Shares of the English soccer club rose on their second day of trading on Monday, climbing as much as 9 percent above their offer price. At midmorning, the stock was still up about 3.6 percent, at $14.51 a share.

It is a welcome bit of relief for Manchester United, which priced its long-awaited initial public offering last week at $14, below its expected range of $16 to $20 a share. And its stock repeatedly bumped up against its offer price on Friday afternoon, as Facebook's did on its first day of trading on May 18.

In fairness to the social network, Manchester United did not have to contend with technical errors that affected the trading of Facebook's shares.

The team, which raised about $232.4 million from its I.P.O., is hoping to buck the trend of sports franchises like the Boston Celtics and Cleveland Indians that have performed terribly in the stock market s.

Business Day Live: Olympics Clean-Up

As it seeks to reinvent Motorola, Google cuts jobs. | Britain cleans up and tallies its tab after the Olympics.

Google to Buy Frommer\'s From Wiley Publishing

August 13, 2012, 12:15 pm

By CLAIRE CAIN MILLER

8:56 p.m. | Updated SAN FRANCISCO - Google made another foray into producing original content Monday when it announced its plans to buy the Frommer's brand of travel guides from John Wiley & Sons to augment its local and travel search results.

Google will pay about $23 million for the brand, according to a person close to the deal who was not authorized to speak publicly about the terms. The companies declined to comment on the purchase price. It is a small acquisition for Google, but important for several of Google's up-and-coming businesses.

The deal shows how crucial a business local search and reviews are for Google. It is also the latest evidence th at Google is trying to transform itself into a media company - making its mission not just to show the most relevant links from around the Web, but to produce that information as well.

“In certain key areas now, they've seen the value of having content and how important it is to consumers,” said Greg Sterling, founder of Sterling Market Intelligence, who studies local online media. “Frommer's is even more content-rich” than previous acquisitions by Google, he said.

Google has long insisted that it would not create content but simply be a conduit for it. In a 2010 interview, Eric E. Schmidt, who was Google's chief executive then but is now chairman, said the company was “careful to define a line where we don't cross into content” and wanted to remain a “neutral platform for content and applications.”

But Google started chipping away at that line as early as 2008, when it started Knol, a Wikipedia competitor it has since closed. Google's YouTu be division has acquired and financed producers of original video content, and last year Google bought Zagat, which publishes restaurant reviews.

Google is not the only technology company trying to expand its reach in this way. Yahoo, AOL, Amazon.com, Apple and Netflix have all shown signs of wanting to become media companies to varying degrees.

But Google is walking a tricky line, which antitrust regulators are watching closely. When it produces its own content, it competes with other Web sites instead of being just a neutral organizer of information. Search for what to do in Hawaii, for instance, and Google could show results from Frommer's ahead of TripAdvisor links.

“Google is perceived as this competitor that has the potential to favor its own search results,” Mr. Sterling said. “That remains very much to be seen, but that's the narrative they continue to play into.”

Google has said repeatedly that it does not favor its own services in pr oducing search results, but the issue is one of the central ones being investigated by the Federal Trade Commission in an antitrust review of Google.

“Our goal with local search is to help people find the local information they need - as quickly and easily as possible,” Google said in a statement Monday. “At times, we think the best result is to direct a user to some other site or product, and each day we send millions of customer referrals through our search products.”

With the acquisition, Google is also becoming a competitor to publishers, said Hugh McGuire, founder of PressBooks.com, an e-book production tool.

“Publishers should be worried about it,” Mr. McGuire said. “What's happening is that we're going to start seeing a lot more business models around books that are incorporating the Internet, and publishers aren't very keen on embracing that.”

Local search, for things like restaurants or hotels nea rby, is one of Google's growing areas of focus. In this area, it competes with Web sites like Yelp, TripAdvisor and Citysearch; these searches are a fruitful source of advertising dollars.

Local advertising revenue over all is expected to grow to $150 billion in 2016, from $132 billion last year, with the fastest growth occurring online and on mobile devices, according to BIA/Kelsey, a local-media research and advisory firm. Travel advertisers will spend $3.16 billion online this year, an increase of 23 percent over last year, according to eMarketer.

To take advantage of this ad spending, Google has been building local search and travel search engines. Though the content from Frommer's could eventually be used in Google travel search - which is built on flight search technology from ITA Software, the company that Google bought last year - it will now be used for Google's local search.

Google plans to incorporate Frommer's travel content - which includes gui des and reviews in books, a Web site and mobile apps - into its local reviews. Frommer's employees who remain at Google will work on the team that manages Zagat local listings and reviews.

“The Frommer's team and the quality and scope of their content will be a great addition to the Zagat team,” Google said. “We can't wait to start working with them on our goal to provide a review for every relevant place in the world.”

Google has been trying to bolster its local listings for several years. After failing to acquire Yelp and struggling to build its own local review service, last year it bought Zagat, the publisher of the slim red restaurant guidebooks, for $151 million.

In May it unveiled a local review service, Google Plus Local, with business information and reviews from Zagat and Google users that show up in search, maps, Google Plus and mobile apps.

Google did not say whether it would maintain the Frommer's brand or continue to publish prin t Frommer's books. But it still uses the Zagat brand and publishes Zagat books. While Frommer's has mobile apps, travel is one of the few areas in which print books are still essential because people often do not have cellphone data access when traveling abroad.

Google also declined to comment on what will happen with companies that have worked with Frommer's to show its reviews, including Kayak and The New York Times, which licenses destination-related content from Frommer's for its Web site on an annual basis.

Julie Bosman and Evelyn M. Rusli contributed reporting from New York.

This post has been revised to reflect the following correction:

Correction: August 14, 2012

An earlier version of this post incorrectly stated revenue figures in a forecast for local advertising. Local advertising revenue over all is expected to grow to $150 billion in 2016, from $132 billion last year, not local advertising on the Internet.

A version of this art icle appeared in print on 08/14/2012, on page B1 of the NewYork edition with the headline: Google Says It Will Buy Frommer's For Content.

Pfizer Animal Health Unit Files for I.P.O.

Pfizer‘s animal health unit on Monday filed to sell a 20 percent stake to the public in an initial public offering.

The drug giant had announced in June that it would spin off its animal health business in an I.P.O. The standalone company will be called Zoetis. It discovers, makes and markets animal vaccines and other treatments.

Zoetis has about $4.2 billion in annual revenue and accounts for roughly 11 percent of Pfizer's business. Several analysts have valued Zoetis at $15 billion or more.

The filing does not give a price range for the Class A shares that will be sold to the public. The Class B shares, which gives the holder 10 votes per share, will be held by Pfizer.

A spinoff would follow other streamlining moves by Pfizer's chief executive, Ian Read, to focus on its core pharmaceutical businesses. The company sold its infant nutrition unit to Nestle for $11.9 billion in April and its capsule business, Capsugel, to Kohlberg Kravis Roberts & Company last year for $2.4 billion.

Zoetis (pronounced “zoe-EH-tis”) sells more than 300 product lines of animal health medicines and vaccines to livestock producers and veterinarians in some 70 countries across North America, Europe, Africa, Asia, Australia and Latin America. The company said in its filing that emerging markets like India and China accounted for 27 percent of its revenue last year.

Juan Ramón Alaix, who became president of Pfizer's animal health care business in 2006, will remain as chief executive of Zoetis.

JPMorgan Chase, Bank of America Merrill Lynch and Morgan Stanley will act as the joint book-running managers for the I.P.O., which is expected to take place next year.

For Deal Makers, Incubator Offers an Alternative to Wall St.

Incubators have long existed for technology start-ups. But the needs of investment bankers are not quite the same as those of tech entrepreneurs who started a business in a garage and spent all night programming code.

Jolyne Caruso, experienced on Wall Street, took a page from the tech playbook to help seasoned financiers run their own firms. In 2010, she created the Alberleen Group, an incubator for investment bankers who have experience in their sectors and entrepreneurial attitudes but lack capital, investor contacts or support in areas like regulatory compliance.

As the economy remains lackluster and Wall Street keeps shedding jobs, Ms. Caruso is offering an alternative to the large firms and the more prominent boutique investment banks.

Just as Wall Street has learned from the tech industry to be more nimble, the Alberleen Group's team members say they set themselves apart from other banks by providing more creative, customized services. In addition , the incubator has been able to attract clients who are often disenchanted with the higher fees, diminished service and potential for conflicts of interest at the big banks, she said.

“The big investment banks continue to be tough places to work - between regulations, the lack of capital to fund deals and the broken compensation model,” Ms. Caruso said, adding that the “misery factor” remains high even four years after the financial crisis.

Though some Wall Street bankers have started boutique investment banks, not everyone has the investment capital or backing to do so. But because of the support of the Alberleen Group, which is affiliated with a registered broker-dealer, its banking teams can offer clients the gamut of investment banking services including bond financing, and advice on mergers and acquisitions or initial public offerings.

Ms. Caruso's connections, cultivated during 30 years on Wall Street, provide an entree for the bankers, who f ocus on energy, real estate and middle-market deals. The Alberleen Group's advisory board members, who include E. Stanley O'Neal, the former chief executive of Merrill Lynch, are all investors in the company, giving them a stake in the success of its banking teams.

Not every banker thrives in such an entrepreneurial setting. Two bankers on the real estate team left after failing to generate revenue in Year 2.

Ms. Caruso said bankers who do well in the incubator setting must have an innate entrepreneurial flair in addition to extensive industry experience. Those who sit back and wait for work to find them will not last long. “They need to be scrappy,” said Ms. Caruso, who spent nine years at JPMorgan, where she was managing director and chairman of JPMorgan Securities.

At the age of 32, she was brought in from Bear Stearns, where she had worked in equity sales, and was among the first outside hires to help build the bank's institutional equities division .

She later co-founded and was president of Andor Capital Management, a $7 billion hedge fund, where she put in place functions like accounting and marketing and Securities and Exchange Commission registration requirements. And her work at Lehman Brothers, where she was global head of absolute return strategies and a member of the firm's management committee, built on her experience (she left two years before Lehman's collapse).

Before starting the Alberleen Group, she handled direct deals for investors. But while raising money for a solar energy transaction, she recognized that she lacked experience in the energy industry. She sought assistance from Steven Casey and his partner E. Scott Medla, bankers at CIT Energy. She had worked with Mr. Casey on previous deals, and he told Ms. Caruso he planned to leave CIT, which was in bankruptcy.

“It was clear that if I wanted to do what I wanted to do, I had to move on,” said Mr. Casey, who yearned for less bure aucracy and more control over his business.

It was then that Ms. Caruso realized that many bankers shared Mr. Casey's frustrations. Together with Adam Goodfriend, the Alberleen Group's chief investment officer, she began work on a business plan for the incubator, which to her knowledge is the only such program for investment banking.

Mr. Casey and Mr. Medla were Ms. Caruso's first recruits. They now lead the Alberleen Group's five-person energy team and recently closed on a $180 million financing program in which two utility companies will supply equity capital for the construction of solar energy projects nationwide.

Unlike bankers at boutique investment banks, those who join the Alberleen Group work for themselves, not as salaried employees. The Alberleen Group sets the teams up as limited liability companies and provides them with one year of working capital.

During the start-up years, teams reside in the Alberleen Group's Midtown Manhattan offices , and receive management advice, deal distribution and capital-raising services and broker-dealer support.

In exchange, the Alberleen Group typically takes one-third of each team's revenue, which should generally be about $5 million to $10 million annually. In Years 2 through 5, the teams are expected to be self-sufficient with the revenue they generate.

At the end of the five years, the teams can either strike out on their own or become Alberleen Group partners with equity in the company while retaining their partnership in their investment banking team.

“At the end of the day, you take your company with you,” Ms. Caruso said.

Another banking team leader noted that a smaller organization comes with trade-offs.

“The Alberleen Group has no enormous balance sheet to offer clients,” said Blake Murphy, managing partner with TAG Access Partners, the incubator's team that works on midsize deals, whom Ms. Caruso has known since her days at Bear Stearns. The team compensates in other ways, he said; for example, by finding investors who bring industry experience in addition to capital.

Still, the Alberleen Group is outgunned by the Wall Street names. “This is not an incubator that's going to compete for a $50 billion M.& A. deal,” said David Stowell, clinical professor of finance at Kellogg School of Management at Northwestern University. Another issue, he said, is whether the incubator will “be able to fill out its platform with a broad enough group of teams to create referrals and synergies.”

Ms. Caruso says she wants eventually to have 10 to 15 teams, including ones specializing in media/telecommunications and health care, as well as a presence in London and Asia. This summer, the Alberleen Group is raising a merchant banking fund that will enable it to co-invest in clients' deals, she said.

Follow Adriana Gardella on Twitter @adrianagardella

A version of this article appeared in print on 08/14/2012, on page B5 of the NewYork edition with the headline: For Deal Makers, Incubator Offers an Alternative to Wall St..

Groupon Falls in After-Hours Trading on Earnings Report

Shares of , the daily-deals Internet company, fell sharply on Tuesday as second-quarter revenue came in below expectations and investors focused on slower growth.

The plunge brought Groupon shares down about 25 percent, to $5.60, in afternoon trading. At that price, the stock is down more than 70 percent from its offering price when the company went public last November.

Andrew Mason, Groupon's chief executive, put a positive spin on his company's prospects. “It was a solid quarter,” he said in a conference call with Wall Street analysts, adding that the weak economy in Europe had affected Groupon's business there.

Groupon said its net income was $28.4 million, or 4 cents a share, as compared with a year-earlier net loss of $107.4 million. Revenue climbed 45 percent, to $568.3 million. The profit was slightly above the expectations of Wall Street analysts, but the revenue number fell short. Analysts had expected 3 cents a share and revenue of $573 million, according to a survey by Thomson Reuters.

Groupon also said revenue in the current quarter would be $580 million to $620 million, an increase of 35 to 44 percent from a year earlier, but just 2 to 9 percent higher than the second quarter.

Apart from the revenue forecast, investors were concerned about the way Groupon records the revenue it gets from its merchandise sales, known as Groupon Goods. Groupon records not just its share of the payments from buyers but the total amount paid.

In the conference call, Jason Child, Groupon's chief financial officer, said that if the company booked only its share of sales, it would give too much information to competitors about its business costs. If just Groupon's share was counted, he said, revenue growth in the second quarter would have been 30 percent, not 45 percent.

“If you strip out the Goods business, they were down 7 percent from the last quarter,” said Ken Sena, an analyst with Evercore Equities. “It shows there is a softness in the deals side,” which should be the more profitable part of Groupon's business, he said.

Groupon, based in Chicago, was an early leader in the business of offering discounts on things like restaurant meals and local tourism over the Internet, profiting as a middleman on the deals. It grew to $500 million in revenue in just three years, faster than eBay or Amazon, and now offers more than 1,000 deals each day in more than 48 countries.

Its fast rise has for months been in an equally stunning retreat, which began with concerns about Groupon's ability to lock in repeat transactions with merchants and consumers. With the after-hours trading Monday, Groupon's market capitalization of about $4 billion was $2 billion less than Google's buyout offer for the company in November 2010.

The collapse of the stock, along with similar performances by both Facebook and the online games company Zynga, has led to questions about whether these new fast-growing consumer Web businesses were overpromoted. Zynga, which closed Monday at $2.93, is down 69 percent from its initial offering last December. Facebook, which had its debut as a public stock last May at $38 a share, closed Monday at $21.60, down 43 percent from its offering.

While none of these companies have lived up to investors' highest hopes, Groupon's decline has many specifics. Some small businesses have said that they are not getting the expected repeat traffic from their Groupon offerings, giving them a net loss on the deals. Coupon buyers often fail to exercise their impulse purchases and become less inclined to purchase more.

Groupon has also faced increased competition from both Amazon.com and Google, which started its own deals business after it was rebuffed by Groupon. Both Amazon and Google are proficient in using lots of data and statistical projection to target offers.

Groupon has over the last several months hired executives from Dell, Sprint and Amazon to address its marketing problems, and has opened an office in Seattle, where Amazon is based. Those efforts are most likely too recent to have had much impact on the second-quarter performance.

Mr. Sena, the analyst, said the earnings indicated that Groupon was moving toward a greater dependence on selling discounted merchandise rather than the more profitable coupons. “I see a company making a change in its business out of necessity more than opportunity,” he said.

Powerful Bank Regulator to Retire

A senior Wall Street regulator will step down next month as her agency undergoes a makeover, ending a nearly two-decade career as one of the banking industry's most powerful and yet polarizing watchdogs.

Julie Williams, the chief counsel of the Office of the Comptroller of the Currency, announced on Monday that she would leave the agency on Sept. 30. Ms. Williams, who also twice served as acting comptroller, said she would officially retire at the end of the year.

Working behind the scenes in Washington, Ms. Williams was intrinsically linked to the agency. A skilled lawyer with a mastery of esoteric financial minutiae, Ms. Williams positioned herself as the go-to adviser. In recent months, she has led the agency's effort to write new rules for Wall Street and played a role in dissecting the multibillion-dollar trading loss at JPMorgan Chase.

“In her 19 years at the O.C.C., her contributions to the agency and her role in the world of financial services regulation have been extraordinary,” Thomas J. Curry, the comptroller of the currency, said in a statement.

Her policies, however, drew the ire of some Congressional Democrats, who depicted Ms. Williams as a sympathetic regulator with a light touch. She fought to temper crucial aspects of the Dodd-Frank regulatory overhaul law, according to people briefed on the matter, and beat back efforts to afford state regulators greater authority over banks.

In recent years, some lawmakers sought to curb the significant power she wielded over the state of financial regulation. In an early version of the Dodd-Frank law, passed in response to the 2008 credit crisis, lawmakers stripped her O.C.C. position of its civil service status, which protects government employees from being fired. The wording was removed from the final version of the law.

On Monday, Representative Barney Frank, the co-author of the law that bears his name, cheered her departure. “It's the best news financial reform has had in a while,” said Mr. Frank, a Massachusetts Democrat, while praising Ms. Williams as a “woman of integrity and ability.”

Through a spokesman, Ms. Williams declined to comment.

Her departure coincides with a recent overhaul of the agency, the national banking regulator long criticized as too cozy with the industry it oversees. Mr. Curry, a former director of the Federal Deposit Insurance Corporation, who is known for taking a critical eye to Wall Street, took over in April. He then hired Paul Nash, a senior F.D.I.C. official, as his chief of staff.

Some had expected Ms. Williams to depart soon after Mr. Curry's arrival, viewing her as incompatible with his more aggressive approach to policing the banks. But at recent Congressional hearings, Ms. Williams remained his right-hand woman, seated directly behind Mr. Curry.

In July, Mr. Curry convened a gathering of his top deputies, including Ms. Williams, to chart the a gency's future course, a person briefed on the matter said. In the weeks that followed, Ms. Williams and Mr. Curry mutually agreed to part ways, the person said.

Some people at the agency expect her to land a job in the financial industry, though Ms. Williams has yet to publicly identify her next step. A move to the private sector would end nearly 30 years of regulatory work. Before joining the O.C.C. in 1993, she worked at two now-extinct financial regulators: the Federal Home Loan Bank Board and the Office of Thrift Supervision.

People close to the O.C.C. note that, despite her status as a lighting rod, Ms. Williams commanded respect from the banking industry's supporters and foes alike. “She's a brilliant lawyer and a legend at the agency,” said one official, who spoke on the condition of anonymity.

In an internal e-mail on Monday provided to The New York Times, Mr. Curry hailed her long regulatory career.

“Julie has been a vigorous enforcer and defender of the laws the OCC is charged with administering,” he wrote. “It's always hard to see a member of the O.C.C. family leave, and doubly so when it's someone who has contributed as much to the O.C.C. as Julie Williams.”

Peregrine Chief Is Indicted in Brokerage Fraud Case

A month after confessing to stealing from clients and defrauding banks, Russell R. Wasendorf Sr., the chief executive of the collapsed brokerage firm Peregrine Financial Group, was indicted on Monday by a federal grand jury.

The move is the latest development in what prosecutors say was a long-ranging fraud for a prominent figure in the futures industry, which largely consists of money management firms that trade contracts in commodities, currencies and interest rates.

The grand jury, convened in Federal District Court in Cedar Rapids, Iowa, indicted Mr. Wasendorf on charges of making false statements to regulators.

“On 31 occasions between about February 2010 and June 2012, Wasendorf caused false reports to be submitted to the United States Commodity Futures Trading Commission,” Stephanie M. Rose, the United States attorney in Cedar Rapids, said in a statement.

Mr. Wasendorf faces a maximum prison term of 155 years and fines of about $7.75 mill ion, prosecutors said. An arraignment date has not been set.

His lawyer, Jane Kelly, a federal public defender in Iowa, did not immediately return a call seeking comment.

Last month, local police in Cedar Falls, Iowa, where Peregrine was based, found Mr. Wasendorf unconscious in his car in the company parking lot after a suicide attempt. He had left a note admitting to embezzling more than $100 million from his clients by falsifying bank statements and lying to regulators. Regulators found a customer fund shortfall of at least $200 million.

Since his arrest on July 13, Mr. Wasendorf, 64, has been held in a county jail. No other Peregrine executives has been charged in the case. Mr. Wasendorf's son, Russell R. Wasendorf Jr., the company's No. 2 executive, has been subpoenaed to testify before the grand jury.

A version of this article appeared in print on 08/14/2012, on page B4 of the NewYork edition with the headline: Peregrine Chief Is Indicted In Broker age Fraud Case.

Everything Wall St. Should Know About Ryan

He could be mistaken for a Wall Street banker. Or perhaps a hedge fund manager. Or even a managing director at a private equity firm, like Bain Capital.

Paul Ryan, with his clean-cut Brooks Brothers looks and wonky obsession with spreadsheets, could be just the archetype of a Wall Streeter.

Mitt Romney's new running mate even trades stocks in his spare time. He's a fan of the nation's blue chips: among the stocks he owns are Apple, Exxon Mobil, General Electric, I.B.M., Procter & Gamble, Wells Fargo, Google, McDonald's, Nike and Berkshire Hathaway, according to his latest disclosure filing.

Mr. Ryan is a disciple of Ayn Rand and Milton Friedman, two figures long associated with free markets.

And he has the support of some powerful backers in finance: his top donors include employees of Wells Fargo, UBS, Goldman Sachs and Bank of America. For his 2012 Congressional race, he raised about $179,000 from securities professionals (not a large sum, but ce rtainly the single largest sector that donated money to his campaign).

One of the biggest contributors to his political action committee is from Paul Singer's hedge fund, Elliott Management. And Dan Senor, recently an investment adviser to Elliott Management, was just named Mr. Romney's new adviser. But what does Mr. Ryan think about Wall Street? His views may surprise you.

Mr. Ryan, who voted in 1999 to repeal parts of the Glass-Steagall Act, allowing commercial and investment banks to merge, now appears to be in the same change-of-heart camp as Sandy Weill, the former chief executive of Citigroup, who recently declared that the banks should be broken up.

“We should make sure you can't get too big where you're going to become too big to fail and trigger a bailout,” Mr. Ryan said during a meeting with constituents in May in Wisconsin. “If you're a bank and you want to operate like some nonbank entity like a hedge fund, then don't be a bank. Don't let banks use their customers' money to do anything other than traditional banking.”

With a view like that, Mr. Ryan faces a challenge winning the support of the likes of Jamie Dimon, the chairman of JPMorgan Chase and a vocal supporter of the big bank model. (Mr. Dimon, a onetime supporter of President Obama, had recently been hinting he could vote for Mr. Romney, regularly calling himself “barely a Democrat.”)

Mr. Ryan is also an ardent critic of the Dodd-Frank Act, the postcrisis Wall Street legislation. But, oddly enough, the provision he dislikes the most is the one that has the greatest support of the industry: a tool known as resolution authority, which gives the government the authority to dismantle a failing bank without wreaking havoc on the rest of the system. It was a provision that was supported by the former Republican Treasury Secretary Henry M. Paulson Jr. “We would have loved to have something like this for Lehman Brothers. There's no doubt a bout it,” Mr. Paulson told me two years ago. The provision was also supported almost universally by Wall Street as a way to end the “too big to fail” problem.

Mr. Ryan's 2013 budget proposal sought to remove the resolution authority provision saying, “While the authors of the Dodd-Frank Act went to great lengths to denounce bailouts, this law only sustains them.”

It is worth noting that Mr. Ryan voted in favor of the bank bailout in 2008, known as TARP or Troubled Asset Relief Program. Ahead of the vote, he encouraged his colleagues in the House to vote in favor of it to avoid “this Wall Street problem infecting Main Street.”

He added: “This bill offends my principles, but I'm going to vote for this bill in order to preserve my principles, in order to preserve this free enterprise system. We're in this moment and if we fail to do the right thing, heaven help us.”

While Mr. Ryan may appear to be a friend of business, he doesn't agree with the industry's biggest talking point these days, the Simpson-Bowles deficit reduction plan. He was a member of the commission and voted it down, arguing that it did not go far enough in overhauling health care entitlements.

He later criticized President Obama for not supporting it. That prompted Gene Sperling, director of the National Economic Council under President Obama, to retort on CNN:

“Paul Ryan, talking about walking away from a balanced plan like Bowles-Simpson is, I don't know, somewhere between laughable and a new definition for chutzpah.”

Oddly enough, Erskine Bowles, a Democrat, praised Mr. Ryan's proposed budget in a speech in 2011, saying, “I always thought that I was O.K. with arithmetic, but this guy can run circles around me.”

Mr. Ryan also bucked the conventional Wall Street wisdom on how to deal with the debt ceiling. Many investment managers are wringing their hands about the uncertainty that the debate over the “fi scal cliff” is creating for markets. Last year, three months before the debt ceiling debate reached a peak, Mr. Ryan said that he was prepared to let the government default on its debt for at least several days if it would force Democrats to accept deeper cuts.

“They all say, ‘Whatever you do, make sure you get real spending cuts,' ” Mr. Ryan told CNBC about the way investors, including the hedge fund manager Stanley Druckenmiller, wanted him to vote. “Because you want to make sure that the bondholder has the confidence that the government's going to be able to pay them. You're putting the government in a better position to pay them.”

James Pethokoukis, a columnist for the American Enterprise Institute, which has traditionally supported Mr. Ryan, sent this Twitter message in April. “I hear what G.O.P. support there was for Obama/Bowles/Simpson debt panel plan is collapsing thanks to Ryan Plan.”

So while financiers may cheer Mr. Ryan's pro-m arket policies, they may want to reassess just what those policies mean for their businesses.

A version of this article appeared in print on 08/14/2012, on page B1 of the NewYork edition with the headline: Everything Wall St. Should Know About Ryan.

Heineken Faces Challenge Over Asian Brewer

LONDON â€" Heineken's expansion into Asia is not going smoothly.

The Dutch brewer's efforts to secure a controlling stake in Asia Pacific Breweries has taken a hit after Thai Beverage increased its stake in Fraser & Neave, the Singapore-based conglomerate that had agreed to sell its rights in the Asian brewer to Heineken for around $4.1 billion.

By increasing its position in Fraser & Neave to 26.2 percent, Thai Beverage becomes the company's largest shareholder, putting the brewer in a strong position to dictate whether Fraser & Neave shareholders support Heineken's takeover offer.

Kindest Place, a separate company controlled by the son-in-law of Thai Beverage's chairman, also has bought an 8.6 percent stake in Asia Pacific Breweries. Earlier this month, the company had offered to buy Fraser & Neave's 7.3 percent direct stake in the Asian brewer.

The jockeying may force Heineken, which plans to use Asia Pacific Breweries' market share across the reg ion to bolster its own operations in Asia, to increase its offer for the 40 percent stake in the Asian brewer that Fraser & Neave owns through a joint venture with Heineken.

Analysts say Heineken may have to raise its $40-a-share offer to around $44 to secure control of Asia Pacific Breweries without having Thai Beverage as a vocal minority owner.

“We think that Heineken would prefer not to have Thai Bev as an ongoing minority within A.P.B., which could continue to restrict how that company is managed,” Nomura analysts said in a note to investors.

Thai Beverage's stake is not Heineken's only potential problem. The Japanese brewer Kirin also owns a 15 percent share of Fraser & Neave, and may look to acquire the company's soft drinks business.

Fraser & Neave shareholders are expected to vote on Heineken's takeover offer by early September. If approved, the deal will by the end of the year.

The efforts to control Asia Pacific Breweries come as brewers are turning to emerging markets because of a slowdown in Western economies.

Earlier this year, Anheuser-Busch InBev, whose beer brands include Budweiser and Stella Artois, agreed to buy the half of the Mexican brewer Grupo Modelo that it did not already own for $20.1 billion.

SABMiller also bought Foster's Group, the biggest beer company in Australia, for $10.15 billion late last year.

Safety-Kleen Files for an I.P.O.

Safety-Kleen, which shelved an initial public offering in October 2008 at the height of the financial crisis, filed on Tuesday to go public.

The company, which is a re-refiner of used oil and a provider of parts-cleaning services, said in its filing that it planned to raise $400 million in the offering, although that it is a figure used to calculate the registration fee.

Founded in 1963, Safety-Kleen was a publicly traded company when it was acquired in 1998 by Laidlaw of Canada, which merged its landfill and waste incinerator business into it. Amid questions about its accounting practices, the Safety-Kleen unit filed for bankruptcy protection in 2000. As a result of Safety-Kleen's emergence from bankruptcy in 2003, JPMorgan Chase became a major shareholder. The bank intends to reduce its holding in the offering, the filing says.

The other major owners of the company are Highland Capital Management, Contrarian Capital Mangement and GSC Acquisition Hold ings.

Safety-Kleen, based in Plano, Tex., said it had revenue of $1.3 billion and net income of $135.5 million last year. It is seeking to list its shares on the New York Stock Exchange under the ticker “SK.”

Credit Suisse and Morgan Stanley are the lead underwriters for the I.P.O.

Unimpressed by Micron\'s Offer, Elpida Bondholders Offer Alternative

Bondholders of Elpida Memory, the Japanese chipmaker, are not giving up without a fight.

On Tuesday, the group - Linden Advisors, LIM Advisors, Owl Creek Asset Management and Taconic Capital Advisors - reiterated its opposition to Micron Technology‘s $2.5 billion offer for Elpida. The group provided an alternative plan, which includes a loan of 30 billion yen, or $380 million, to the company to help during the restructuring period. The proposal, submitted to a Tokyo district court, values Elpida at no less than 300 billion yen, or $3.8 billion.

Last month, Micron offered to buy the chipmaker for 60 billion yen in cash. Under the deal, Micron agreed to pay an additional 140 billion yen, or $1.78 billion, in future annual payments to help cover the company's debt. Separately, Micron also offered to pay 26.1 billion yen to the Powerchip Technology Corporation for a 24 percent stake in the Rexchip Electronics Corporation, a chipmaker that Elpida and Powerchip jointly own. While the transaction is seen as a potentially savvy one for Micron, which will be able to significantly expand its manufacturing capacity with Elpida's plants, the bankrupt company's bondholders have viewed the deal with skepticism.

“The agreement under which Micron will acquire Elpida, one of the largest and most technologically advanced chip makers in the world, for a cash consideration of ¥60 billion or less is totally inadequate, grossly unfair to creditors and other stakeholders and must not be allowed,” the group said in a statement. “Micron has been awarded Elipda at a bargain basement price in a closed process that has lacked transparency, meaningful competitive bidding, and any involvement of creditors.”

Specifically, the bondholders are leery of Micron's promise to pay 140 billion yen in future payments (which are based on fees Micron expects to pay Elpida for services). Describing this offer as “vague and confusing,” the bon dholders said in Tuesday's statement said. The bondholders collectively owned $293 billion of bonds issued by Elpida as of the end of July, according to a filing in United States Bankruptcy Court in Delaware.

Micron does not adequately guarantee that these payments will ever be made and has instead implied in filings that it is uncertain if Elpida will generate enough cash to cover these payments. The group also said that the Micron deal did not properly value Elpida's intellectual property, its manufacturing plant in Hiroshima and the company's stake in Rexchip.

According to the bondholders, their alternative plan will allow suitors to buy pieces or all of the company in a less-rushed manner. To help Elpida, the bondholders are offering a loan of 30 billion yen.

Amid Insider Trading Inquiry, Tiger Asia Calls It Quits

Tiger Asia, a spinoff of Tiger Management, the hedge fund founded by Julian Robertson, told investors in a letter that the fund would be returning their money in the coming weeks as a result of a “prolonged legal situation.”

That situation is a three-year insider trading investigation by the Hong Kong authorities into allegations of trading improprieties at the hedge fund, which was founded by Bill Hwang. The Securities and Exchange Commission has also been investigating the fund.

“As you are aware, the firm has been the subject of government investigations of alleged trading based upon confidential information and engaging in certain manipulative trades in late 2008/early 2009 in Asian markets,” Mr. Hwang wrote in his letter to investors. “We continue to work to resolve these matters in the U.S. and overseas and look forward to putting them behind us.”

Mr. Hwang is the latest investor to throw in the towel as a hedge fund manager because of a government investigation. His fund has dwindled to about $1.2 billion from about $3 billion in 2010. Though he has not been formally charged with any wrongdoing in the United States, Mr. Hwang has decided to no longer manage outside capital.

He is not the first hedge fund manager to make that decision. David Ganek decided to shutter Level Global Investors, which was raided by the Federal Bureau of Investigation last February. Mr. Ganek said at the time that with the government scrutiny, he did not feel he could comfortably make investment decisions for the long term. Later, Mr. Ganek's co-founder, Anthony Chiasson, was charged with insider trading.

Mr. Hwang held on to his operation for several years, despite the allegations made by the Securities and Futures Commission of Hong Kong. Regulators there have accused Mr. Hwang of obtaining inside information during 2008 and 2009 about placements of shares in the China Construction Bank Corporation and Bank of China, tips that regulators say earned him $5 million.

The regulator sought to bar Tiger Asia from trading on Hong Kong exchanges altogether, the first time it had ever tried to exclude an entity from trading on its exchanges. That litigation is still pending.

The investigation spread to the S.E.C., which subpoenaed the fund in 2010. While Mr. Hwang has denied the allegations, those claims did little to quell investors or end the investigation.

Mr. Hwang founded Tiger Asia, which is based in New York, in 2001 after working for Mr. Robertson at Tiger Management. He focused his trading on Asia, and like his mentor typically bought and sold stocks. Since its inception, the firm has returned about 16 percent a year for its investors, handily beating the indexes during the same period.

In the letter, Mr. Hwang said Tiger Asia would continue as a family office with most employees remaining at the firm.

“It is my hope that someday I will again have the pr ivilege to manage your capital,” he wrote in the letter.

In Silicon Valley, Finding the Next Big Thing in the Ordinary

Square's tie-up with Starbucks may be this year's most important venture capital deal.

The deal not only has the potential to change the way people pay for coffee and everything else, it also shows how small innovation applied to everyday tasks may be the next new thing for venture capital. Call it the rise of the ordinary innovators.

Under the deal announced last week, Square, the mobile payments device start-up, will process debit and credit card transactions for the coffee shop chain, whose customers will be able to use Square's payment mobile phone app at participating stores. As part of the deal, Starbucks will invest $25 million in Square and Starbucks's chief executive, Howard Schultz, will join the Square board.

It may sound boring, but the mobile payment sector is hot. Start-ups like Square, Revel Systems and LevelUp are competing with big names like PayPal, Google and Facebook as well as old-line companies like NCR in a rush to help eliminate ca sh. The basic idea is that you use your mobile device to pay for everything. Merchants can get in the game, too, as Square has shown. Square products allow an iPad or mobile phone to be used as a cash register.

Many of these companies aim to process all transactions, but Square's business model is built on a basic premise: pushing payment devices to businesses that have had difficulty using credit cards.

Square followed the Apple model and designed a simple square-shaped dongle (hence the name) that fits in a mobile phone and turns it into a credit card processor. Put another dongle in an iPad and, voilá! A cash register.

Not surprisingly, the food trucks and taxis of the world love this product. But the ease of use and Square's flat fee of 2.75 percent of the total charge have hastened the product's spread to other merchants, like my local yogurt shop. Square was begun in October 2010 and is already projected to have $6 billion in gross revenue on an annu alized basis.

In response to the Starbucks deal, Aaron Levie, the chief executive of the online file storage firm Box, wrote on Twitter that “Square just dropped a bomb on the retail payments industry, in one of those Godfather-dead-horse-in-your-bed epic move moments.”

The “Godfather” analogy may not be quite right, but it is fair to call this deal a game changer. Its partnership with Starbucks has the potential to put Square in the leadership position in the mobile payments game. To the extent that mobile payment becomes widely used, it will revolutionize the way we spend money.

And while it may be revolutionary, Square is really just an example of what Silicon Valley is increasingly about: process and networking at its finest. Square was co-founded by Jack Dorsey, who also founded Twitter. It has marquee Silicon Valley investors, including Khosla Ventures, Sequoia Capital and Kleiner Perkins Caufield & Byers, and besides Mr. Shultz of Starbucks, its board includes Lawrence H. Summers, the former Treasury secretary.

On the process side, Square shows how these venture capital networks can be used to transform the ordinary. Its idea was not particularly new, but Square designed a simple but usable device, patented some of the underlying technology, leveraged other technology like the iPad and added some marketing.

With the Starbucks partnership, Square is also showing the opportunity for old-line companies to capitalize on their large customer bases.

This is really no different from what Thomas Edison did more than a hundred years ago. Edison would pinpoint areas where innovation was possible and percolating, then piece together pre-existing inventions and ideas to push technology forward with a usable device. The light bulb is a perfect example, a device based on previous designs for something everyone was pursuing. Edison just managed to put it all together and take the credit.

That is what Sq uare accomplished. It linked existing ideas and products with innovation in design and usage to create a new technology.

In such a world, it is not just your idea that matters, but being at the center of the innovation network. The founders of Square had their own good idea, but it was one that incrementally built on existing ones. It also merely tweaked an ordinary habit - how you pay for things. The difference is that Mr. Dorsey knows the people to finance it, the designers to make it better and the firms to market it. He also kept things simple with the idea of returning to the time when there was only cash and it was easy to use and spend.

With a widely known board member like Mr. Summers, who can add credibility with large merchants, and the assistance of the best venture capital firms, who can do the same while helping in technology, experience and networking, Mr. Dorsey has the pedigree to link up with Starbucks.

Square's success shows that venture c apital has the potential to turn the ordinary into multibillion-dollar businesses. This is nothing new, but it may reflect the future as the best venture capital firms move further afield from the Internet, the old V.C. stamping ground.

The future of venture capital and Silicon Valley may be more like Edison's laboratory, looking for the innovation in ordinary tasks and doing so based on leveraging pre-existing ideas and products.

This is a world where the haves are likely to continue their extraordinary run, armed with the tools to succeed. Innovation will come from the princelings of the Silicon Valley hierarchy, as successful entrepreneurs will already have the resources to make these breakthroughs.

As for Square, it is seeking a $3.25 billion valuation. The mobile payments space is competitive, and there are many barriers for Square, including the fact that the credit card companies consume most of Square's profits. Square's success is uncertain, but th e Starbucks alliance is likely to be only the first for it and other mobile payment operators.

The bigger lesson is likely to be the more lasting. Silicon Valley's future may not lie in being enchanted about the newest social networking start-up. It's more likely to be in the simple and ordinary. It's about spotting the everyday problems and providing solutions that leverage on venture capital's networking and operational skills, not to mention its knack for spotting someone else's good idea.

In this situation, Silicon Valley will become less about the dreamers and more about the marketers, the connected and the everyday.

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