GSV Capital, Placing Bets on Start-Ups, Falters

Few investors have ridden the recent Internet boomlet like GSV Capital Corporation.

After GSV announced in June 2011 that it was buying a stake in the privately held Facebook, the closed-end mutual fund surged 42 percent that day. Capitalizing on the euphoria, GSV sold another $247 million of its shares, using the money to expand its portfolio of hot start-ups like Groupon and Zynga.

Now, GSV is feeling the Facebook blues.

When the public offering of the social network flopped, GSV fell hard, and it still has not recovered. Shares of GSV, which were sold for an average of $15.35, are trading at $8.54.

“We probably benefited from our stake in Facebook more than we deserved on the way up,” said GSV's chief executive, Michael T. Moe, “and were certainly punished more than we deserved on the way down.”

GSV, short for Global Silicon Valley, is the largest of several closed-end mutual funds that offer ordinary investors a chance to own stake s in privately held companies, at least indirectly. Closed-end funds like GSV typically sell a set number of shares, and their managers invest the proceeds. In essence, such portfolios operate like mini venture capital funds, taking stakes in start-ups and betting they will turn a profit if the companies are sold or go public.

“I think GSV was really innovative in creating a kind of publicly traded venture capital fund,” says Jason Jones, founder of HighStep Capital, which also invests in private companies.

But the shares of closed-end funds trade on investor demand - and can go significantly higher or lower than the value of the underlying portfolios. The entire category has been hit by Facebook's troubles, with GSV trading at a 38 percent discount to its so-called net asset value.

Mr. Moe, 49, has previously experienced the wild ups and downs of popular stocks.

A backup quarterback at the University of Minnesota, he started out as a stockbroker at the Minneapolis-based Dain Bosworth, where he wrote a stock-market newsletter called “Mike Moe's Market Minutes.” After meeting the chief executive of Starbucks, Howard Schultz, on a visit to Seattle in 1992, he began covering the coffee chain after its initial public offering.

“I left believing I had just met the next Ray Kroc,” Mr. Moe wrote in his 2006 book, “Finding the Next Starbucks,” referring to the executive who built the McDonald's empire.

After stints at two other brokerage firms, Mr. Moe became the director of global growth research in San Francisco at Merrill Lynch in 1998. There he ran a group of a dozen analysts at a time when mere business models “were going public at billion-dollar valuations,” he said.

Shortly after the dot-com bubble burst, he founded a banking boutique now called ThinkEquity. At the time, he expected the I.P.O. market to shrug off the weakness and recover in a couple of years. Instead, it went into a d ecade-long slump.

“Market timing is not my best skill,” Mr. Moe said. In 2007, he sold ThinkEquity.

The next year, he started a new firm to provide research on private companies, NeXt Up Research. He later expanded into asset management, eventually changing the name to GSV. Within two months of starting his own fund, he bought the shares in Facebook through SecondMarket, a marketplace for private shares.

GSV soon raised additional funds from investors and put the money into start-ups in education, cloud computing, Internet commerce, social media and clean technology. Along with Groupon and Zynga, he bought Twitter, Gilt Groupe and Spotify Technology. The goal is finding “the fastest-growing companies in the world,” he said.

But Mr. Moe has paid a high price, picking up several start-ups at high values on the private market. He bought Facebook at $29.92 a share. That stock is now trading at $19.10. He purchased Groupon in August 2011 for $26.61 a share, well above its eventual public offering price of $20. It currently sells at $4.31.

Max Wolff, who tracks pre-I.P.O. stocks at GreenCrest Capital Management, said GSV sometimes bought “popular names to please investors.” “This is such a sentiment-sensitive space, the stocks don't trade on fundamentals,” Mr. Wolff said, adding: “If there's a loss of faith, they fall without a net.”

GSV's peers have similarly struggled. Firsthand Technology Value Fund, which owns stakes in Facebook and solar-power businesses like SolarCity and Intevac, is off 65 percent from its peak in April. “We paid too much” for Facebook, said Firsthand's chief executive, Kevin Landis.

Two other funds with similar strategies have sidestepped the bulk of the pain. Harris & Harris Group owns 32 companies in micro-scale technology. Keating Capital, with $75 million in assets, owns pieces of 20 venture-backed companies. But neither Harris nor Keating owns Facebook, Gr oupon or Zynga, so shares in those companies have not fallen as steeply.

GSV is now dealing with the fallout.

In a conference call in August, Mr. Moe was confronted by one investor who said, “the recent public positions have been a disaster,” according to a transcript on Seeking Alpha, a stock market news Web site. While Mr. Moe expressed similar disappointment, he emphasized the companies' fundamentals. Collectively, he said, their revenue was growing by more than 100 percent.

“We have been around this for quite some time, and we are going to be wrong from time to time,” Mr. Moe said in the call. “But we are focused on the batting average.”

In the same call, Mr. Moe remained enthusiastic - if not hyperbolic - about the group's prospects. Many of GSV's 40 holdings are in “game-changing companies” with the potential to drive outsize growth, he told the investors. Twitter, the largest, “continues to just be a rocket ship in terms of gr owth, and we think value creation,” he said. The data analysis provider Palantir Technologies helps the Central Intelligence Agency “track terrorists and bad guys all over the world.” The flash memory maker Violin Memory “is experiencing hyper-growth,” he wrote in an e-mail.

But Mr. Moe was a bit more muted in recent interviews. While he says he still believes in giving public investors access to private company stocks, he recognizes the cloud over GSV. “We unfortunately have a social media segment that got tainted. I completely get why our stock is where it is. It's going to be a show-me situation for a while.”

Acknowledging some regrets, Mr. Moe said he was angriest about overpaying for Groupon, saying, “Yeah, I blew Groupon.” He said that he also did not anticipate what he called a “deceleration” in Facebook's growth rate, and that it was “kind of infuriating” that some of its early investors were allowed to exit before others. GSV of ten must hold its shares until six months after a public offering.

But the downturn in pre-I.P.O. shares has a silver lining, Mr. Moe said. Since the Facebook public offering, he has been able to put money to work “at better prices.” He recently bought shares of Spotify at a valuation of about $3 billion, roughly 25 percent below the target in its latest round of financing.

The I.P.O. market is also showing signs of life, he said, with the strong debuts of Palo Alto Networks and Kayak Software. And he still has faith in Facebook. Whatever its current stock price, at least it is a “real company” with revenue and profits, Mr. Moe said. “It's not being valued off eyeballs and fairy dust.”

Freeh Calls for Peace in Fight Over MF Global Money

An MF Global trustee on Wednesday called for a “global settlement' in the scramble to recover money from the bankrupt brokerage firm, a bid for peace amid a bitter fight over limited resources and missing customer cash.

Louis J. Freeh, the trustee of MF Global's holding company, complained in a court filing that a nearly year-long legal battle was taking too long and draining precious resources. Mr. Freeh, a former director of the federal Bureau of Investigation, said he seeks to settle with both the trustee for MF Global's brokerage arm, James W. Giddens, and an overseas administrator tending to the firm's British unit.

It is unclear, however, if a truce is realistic. Negotiations involving the British administrator could complicate the already-tense dynamic. Mr. Giddens is currently locked in a legal dispute with the administrator over $700 million trapped in London.

Mr. Freeh and Mr. Giddens have also spent months feuding. The dispute only escalat ed on Wednesday when Mr. Freeh used the court filing to criticize Mr. Giddens for recently joining a lawsuit against MF Global's top executives.

The battle stems from the divergent missions of the two trustees. Mr. Freeh, as the advocate for creditors like banks and other companies, is pursuing more than $2 billion in claims against the brokerage unit. But Mr. Giddens is tasked with recovering cash for the brokerage firm's customers, who saw more than $1 billion of their money disappear when MF Global blew up last October.

At the time, as the firm faced mounting pressure surrounding its big bets on European debt, MF Global employees tapped customer accounts to meet the firm's needs. The money belonged to thousands of ranchers, farmers and other MF Global clients. The misuse of client funds, a major breach of federal law, prompted a wide-ranging federal investigation that remains open.

With the pool of assets dwindling, the fight to recover funds for clients and creditors alike has grown more contentious. In recent weeks, Mr. Freeh and Mr. Giddens have feuded over what money belongs to which trustee and whether the farmers and other clients will ever be made whole. Mr. Freeh has predicted that customers will recover 100 percent of their funds. Mr. Giddens has a more modest forecast that they will recoup in the “90 percent range.”

As the feuding drags on, Mr. Freeh on Wednesday said it was time to change course.

“The most efficient and economical use of the resources of the various estates is a cooperative approach,” he wrote in the filing. “The estates need to focus their efforts on a global resolution of all inter-estate claims and potential causes of action - rather than creating inter-estate litigation - in order to maximize recoveries for customers and general estate creditors alike, worldwide.”

In a statement on Wednesday, a spokesman for Mr. Giddens said the two trustees “are cooperating to the greatest extent possible,” while noting that “their different roles in the proceedings” put them at odds. The spokesman, Kent Jarrell, added that “the trustee will continue” to cooperate.

But even as the trustees opened the door to a settlement, Mr. Freeh criticized Mr. Giddens for recently suing Jon S. Corzine and other top MF Global executives. Mr. Corzine, a former New Jersey governor, was MF Global's chief executive. In the filing on Wednesday, Mr. Freeh formally objected to Mr. Giddens joining a lawsuit filed by the firm's customers.

He accused Mr. Giddens of “attempting to assign claims that belong to and benefit the general estate to representatives of the customers.” Mr. Freeh is also considering legal action against some executives, which could be complicated by Mr. Giddens's lawsuit. Some people close to Mr. Freeh would have preferred that Mr. Giddens join their case rather than teaming up with the customers.

But Mr. Jarrell argued that Mr. Freeh has “some inherent conflicts in opposing” Mr. Giddens's actions. Some of the executives named as defendants in the case, including the chief financial officer, are currently employed by Mr. Freeh.

ING to Sell Its Canadian Unit to Scotiabank for $3.1 Billion

The ING Group said on Wednesday that it would sell its Canadian unit to Scotiabank for about $3.1 billion in cash, as the Dutch bank continues to sell off assets to pay for its government bailout.

The transaction comes a year after ING agreed to sell its ING Direct online banking unit in the United States to Capital One Financial for about $9 billion, in one of the largest banking deals since the financial crisis.

ING said earlier this year that its primary goals remained bolstering its Tier 1 capital ratio and repaying the rescue of 10 billion euros that it received from the Dutch government in 2008.

Wednesday's deal will give Scotiabank control of one of Canada's 10 biggest banks: The ING unit has $30 billion in deposits and 1.8 million customers. The ING business also has what it describes as a strong home loan portfolio, with 59 percent of the mortgages insured. And for uninsured mortgages, the loans cover about half the price of the purchased propert y.

Yet the business' low-margin model deterred some would-be buyers from bidding for the unit.

In a nod to the ING unit's strong consumer brand awareness, Scotiabank said that it would keep the division's ING Direct name.

“Scotiabank is committed to preserving what ING Direct's customers have come to love about it,” Anatol von Hahn, Scotiabank's group head of Canadian banking, said in a statement. “ING Direct will continue to operate separately and customers will be able to interact the way they do now using their existing account numbers and passwords, served by the same familiar team.”

Scotiabank said that it would stay within its Tier 1 capital ratio of 7 percent to 7.5 percent through the first quarter of next year.

The Canadian bank will finance the deal in part by issuing 29 million shares at $52 each, raising about $1.5 billion in new equity. That stock sale could be expanded up to $1.7 billion if demand proves strong enough.

< p>Shares in Scotiabank fell 2.6 percent in after-hours trading, to $52.75. They have risen about 1 percent over the last 12 months.

The deal is expected to close by December, pending regulatory approval.

Scotiabank advised itself, while ING was advised by JPMorgan Chase.

Ian Austen contributed reporting.

French Banks Prepare to Pull Out of Greece

PARIS - France's biggest banks are preparing to pull out of Greece in the coming weeks, the latest large international business to abandon the country as it grapples with a debilitating recession and nagging questions about its future in the euro zone.

Société Générale said Wednesday that it was in advanced discussions to sell its 99.1 percent stake in Geniki Bank, one of Greece's biggest financial institutions, to Piraeus Bank of Greece. On Tuesday, Crédit Agricole, another large French lender, said it expected to sign a deal to sell its troubled Greek arm, Emporiki Bank, to another Greek bank in a matter of weeks.

The French banks had embarked on a strategy of expanding in Greece and other Southern European countries when times were good, moving to take advantage of buoyant housing markets and rapid economic growth. When a deterioration in Greece's finances helped ignite the European debt crisis three years ago, Société Générale and Crédit Agricole wound up being among the most exposed of any European banks to Greece.

Their earnings were hit last year when a swath of Greek government bonds they had invested in turned toxic as the crisis deepened. At the same time, losses mounted at their Greek operations as the country's economy plunged, triggering a surge of defaults on loans to consumers and businesses. Fears that Greece could exit the euro had also raised uncertainty for the banks, leading them to follow in the footsteps of other large international companies like Carrefour, the big French supermarket chain that two months ago sold off all of its Greek operations.

Prime Minister Antonis Samaras of Greece has been on a charm offensive in European capitals recently to reinforce the message that Greece wants to stay in the euro zone, despite renewed calls from some German politicians for it to leave and a resurgence in bets by investors that a Greek exit from the currency union may at some point be inevitab le.

To show that his government means business, Mr. Samaras is scrambling to get politicians in his coalition government to agree quickly to 11.5 billion euros, or $14.4 billion, worth of new austerity measures for 2013 and 2014 in order to secure a loan installment of 31.5 billion euros, which is needed to keep Greece's economy afloat.

Greece's so-called troika of lenders - the International Monetary Fund, the European Central Bank and the European Commission - are set to issue a crucial assessment in mid-October of how far off track the country is in sticking to its promises to reduce a mountain of debt and a high deficit.

Even if the report were positive, Greece's real economy is still struggling: The government estimates growth will contract by a staggering 7 percent this year, worse than the 4.8 percent contraction forecast earlier this year by the I.M.F.

With such prospects, Société Générale and Crédit Agricole determined that it would be b etter to cut their losses.

Société Générale bought Geniki Bank in 2004. It had been bleeding money for the last several years, with losses of 796 million euros in 2011 and 411 million euros in 2010. Emporiki Bank has been a drag on Crédit Agricole's earnings almost since the French bank acquired it in 2006. In the first nine months of 2011, Emporiki posted a loss of 954 million euros, and Crédit Agricole has pumped about 2 billion euros into the bank in the last two years to increase its capital.

The Greek banking sector is grappling with large loan losses as thousands of businesses go belly up each month and consumers, racked by salary cuts and tax increases required under the terms of Greece's international bailout, are left unable to repay their debts.

Greek banks also took a huge hit after they agreed, with banks outside the country, to take a 50 percent loss on their vast holdings of Greek government debt. Recently, the E.C.B. has refused to len d directly to Greek banks because the quality of the collateral they have to offer has become extremely poor. The banks must instead borrow money from the Greek central bank, at a higher interest rate than what the E.C.B. would charge, adding to their burden.

Two Views of This Summer\'s Deal-Making

Looked at in one way, this summer was a dire time for deal-making. But from another perspective, it's been a great one.

The dollar value of mergers announced this summer - specifically, between June 1 and today - reached $191.9 billion, according to Standard & Poor's Capital IQ. That's the lowest volume of summertime deals since the financial markets began trembling in the summer of 2007, surpassing only the $149 billion worth of transactions announced in 2009.

But take a look at the market in a different light. Roughly 3,400 takeovers were announced during that same period this year, the second-highest number since the summer of 2007.

So what gives? Several mergers specialists, a surprisingly large number of whom were still in the office during the last week of August, say that confidence in corporate boardrooms and corner offices is rising. These bankers and lawyers cite many of the same refrains, including enormous amounts of cash on companies' balanc e sheets and an acute need for growth, as primary drivers for mergers getting done.

And they say that their pipelines of works-in-progress is still full.

But the preferred transaction isn't a transformational deal so much as a “bolt-on” one, a takeover that adds to an existing division instead of bringing in an entirely business line. Many of these mergers have tended to be rewarded by acquirer's shareholders, as in cases as disparate as Aetna‘s takeover of Coventry Health Care and National Oilwell Varco‘s purchase of Robbins & Myers.

More ambitious acquisitions have tended to draw investor fury. Daikin Industries' shares dropped 3.5 percent on Wednesday after it announced a takeover of an American rival, Goodman Global, that analysts said could tax the Japanese air-conditioner maker's finances.

In the words of one deal maker, “This is the new normal.”

Below are the volumes and number of deals announced between June 1 and August 29 f or each year since 2007.

YearDollar amount, in billionsNumber of deals

Source: Capital IQ
2007	$359.6	2,989
2008	$321.9	2,739
2009	$149	2,369
2010	$192.7	3,220
2011	$284.1	3,587
2012	$191.9	3,400

Citigroup in $590 Million Settlement of Subprime Lawsuit

Citigroup said on Wednesday that it had agreed to pay $590 million to settle a class action brought by shareholders who contended that they had been misled about the bank's exposure to subprime mortgage debt on the eve of the financial crisis.

The shareholder lawsuit, originally filed in November 2007, alleged that former officers and directors of Citigroup had “concealed the company's failure to write down impaired securities containing subprime debt” at a time when the collapse in the mortgage market made it apparent that banks including Citi would be adversely impacted. In late 2007, Citigroup wrote-down billions of dollars on collateralized debt obligations tied to subprime debt, and reported a fourth-quarter loss of $9.83 billion that year.

In a statement on Wednesday, Citigroup, which denied the allegations, said: “Citi will be pleased to put this matter behind us. This settlement is a significant step toward resolving our exposure to claims aris ing from the period of the financial crisis.”

It added, “Citi is fundamentally a different company today than at the beginning of the financial crisis.”

The proposed settlement, which needs to be approved by Judge Sidney H. Stein of the Federal District Court in Manhattan, covers investors who bought Citi shares from Feb. 26, 2007 through April 18, 2008. Shares of Citigroup traded as high as $55 in the summer of 2007. By Feb. 27, its stock price had tumbled by more than half.

In a court filing on Wednesday, the plaintiffs' lawyers from the law firm Kirby McInerney, wrote:

Although plaintiffs believe that the defendants knowingly or recklessly misrepresented Citigroup's C.D.O. exposure and valuation, defendants have raised a host of factual and legal challenges increasing the uncertainty of a favorable outcome absent settlement. Securities fraud litigations like this action are notoriously complex and difficult to prove: rarely is there concrete direct evidence of fraudulent intent.

For Citigroup, as well as other Wall Street firms, the business of slicing apart and packaging mortgages and other loans into complex securities had been a lucrative and fast-growing business before the financial crisis. The bank underwrote some $70 billion in C.D.O.'s from 2004 to 2008.

In a separate case involving C.D.O.'s, the bank had agreed with the Securities and Exchange Commission to pay $285 million over allegations that Citi had misled investors in a C.D.O.'s by not disclosing that it was helping select the mortgage securities that underpinned the investment and that it was betting against it. That settlement was initially rejected by a federal judge, but an appeals court found that the judge may have overstepped his authority.

Hedge Funds Rules Allow Secretive Enclave to Open Up

The tight-lipped world of hedge funds is getting a license to shill.

A new proposal outlined on Wednesday by the Securities and Exchange Commission would remove a long-time restriction banning hedge funds from marketing themselves in public. That would represent a big change. Currently, hedge funds must go through an onerous process before they can solicit potential buyers. It is also the latest data point in the evolution of the industry, which has seen its assets quadruple to more than $2 trillion since 2000.

Unlike their mutual fund brethren, hedge funds have long been prohibited from advertising in public forums like newspapers or televisions. Openly releasing information as basic as performance and assets was prohibited, the idea being that such complicated and risky investment opportunities should be pitched only to those who were deemed financially fit. (In this case, people with at least $1 million in liquid assets, a $200,000 annual income as an indivi dual or a $300,000 annual income as a couple).

The move does not change the need for individuals to be accredited to invest with hedge funds. It merely allows hedge funds to pitch their services to a wider swathe of people. The S.E.C. said that firm's advertising their services must take “reasonable steps to verify that the purchasers of the securities are accredited investors,” but declined to specify what those reasonable steps are.

“I believe that the proposed rules fulfill Congress's clear directive that issuers be given the ability to communicate freely to attract the capital they need, while obligating them to take steps to ensure that this ability is not used to sell securities to those who are not qualified to participate in such offerings,” said Mary L Schapiro, the agency's chairperson, said in a statement.

But that was roughly where the revelations stopped â€" several specifics remain unanswered. For instance, the commission did not weigh in on what sort of content hedge funds can use to market themselves â€" a shortcoming that some worry could allow misleading ads aimed at vulnerable investors. The commission was also mum on what sort of advertising will be allowed â€" can a hedge fund rent the Goodyear blimp, or will newspapers be the upper limit of public exposure? Finally, few details emerged about how the proposal will mesh with similar restrictions at other regulatory bodies or with current state laws.

“There are no substantial proposals to address this increased vulnerability,” Commissioner Luis A. Aguilar said during a hearing on Wednesday.

Ultimately, the proposal will take months winding through the regulatory process before it becomes finalized. It could change during that period, when the public will be allowed to submit comments.

Removing the restriction is part of a Congressional bill, called the Jump-start Our Business Start-ups Act, or JOBS Act. One provision of the bill reverses parts of the Securities Act of 1933, which prevented firms from pitching certain private offerings.

While industry insiders were quick to note the shortcomings of the proposal, some are more sanguine about its impact. The largest, most credible hedge funds already have large asset bases and gold-plated client rosters of pensions and endowments. There is little incentive for those firms to market more widely, some say. The impact is expected to be more broadly felt by smaller funds, which struggle to get the attention of the well-known players in the highly competitive industry.

S.E.C.'s fact sheet on eliminating the prohibition on advertising in certain offerings

Hedge Funds Rules Allow Secretive Enclave to Open Up

The tight-lipped world of hedge funds is getting a license to shill.

A new proposal outlined on Wednesday by the Securities and Exchange Commission would remove a long-time restriction banning hedge funds from marketing themselves in public. That would represent a big change. Currently, hedge funds must go through an onerous process before they can solicit potential buyers. It is also the latest data point in the evolution of the industry, which has seen its assets quadruple to more than $2 trillion since 2000.

Unlike their mutual fund brethren, hedge funds have long been prohibited from advertising in public forums like newspapers or televisions. Openly releasing information as basic as performance and assets was prohibited, the idea being that such complicated and risky investment opportunities should be pitched only to those who were deemed financially fit. (In this case, people with at least $1 million in liquid assets, a $200,000 annual income as an indivi dual or a $300,000 annual income as a couple).

The move does not change the need for individuals to be accredited to invest with hedge funds. It merely allows hedge funds to pitch their services to a wider swathe of people. The S.E.C. said that firm's advertising their services must take “reasonable steps to verify that the purchasers of the securities are accredited investors,” but declined to specify what those reasonable steps are.

“I believe that the proposed rules fulfill Congress's clear directive that issuers be given the ability to communicate freely to attract the capital they need, while obligating them to take steps to ensure that this ability is not used to sell securities to those who are not qualified to participate in such offerings,” said Mary L Schapiro, the agency's chairperson, said in a statement.

But that was roughly where the revelations stopped â€" several specifics remain unanswered. For instance, the commission did not weigh in on what sort of content hedge funds can use to market themselves â€" a shortcoming that some worry could allow misleading ads aimed at vulnerable investors. The commission was also mum on what sort of advertising will be allowed â€" can a hedge fund rent the Goodyear blimp, or will newspapers be the upper limit of public exposure? Finally, few details emerged about how the proposal will mesh with similar restrictions at other regulatory bodies or with current state laws.

“There are no substantial proposals to address this increased vulnerability,” Commissioner Luis A. Aguilar said during a hearing on Wednesday.

Ultimately, the proposal will take months winding through the regulatory process before it becomes finalized. It could change during that period, when the public will be allowed to submit comments.

Removing the restriction is part of a Congressional bill, called the Jump-start Our Business Start-ups Act, or JOBS Act. One provision of the bill reverses parts of the Securities Act of 1933, which prevented firms from pitching certain private offerings.

While industry insiders were quick to note the shortcomings of the proposal, some are more sanguine about its impact. The largest, most credible hedge funds already have large asset bases and gold-plated client rosters of pensions and endowments. There is little incentive for those firms to market more widely, some say. The impact is expected to be more broadly felt by smaller funds, which struggle to get the attention of the well-known players in the highly competitive industry.

S.E.C.'s fact sheet on eliminating the prohibition on advertising in certain offerings

Yelp Surges After Lockup Expires

While early investors in Yelp got their first chance to sell shares in the online reviews site on Wednesday, it appears they are holding on to their stakes for now.

When a so-called lockup period expires, a stock typically falls, as investors sell their shares. In the case of Yelp, the stock is surging. Shares were up nearly 25 percent to more than $22 on Wednesday.

“It's refreshing to see insiders with discipline,” said Michael Pachter, a Wedbush Securities analyst.

Yelp stands out from its peers in this regard. Shares of both Groupon and Facebook slid sharply after the expiration of their lockups. Peter Thiel, the first outside investor in Facebook, spooked investors, when he sold an additional 20 million shares at roughly $20, or nearly half the original offering price.

Many analysts were expecting the same fate for Yelp. Since mid-August, shares of the online reviews site have been hammered, dragged down in part by concerns that early inves tors would dump shares once the lockup period expired.

Despite the recent strength in its stock, Yelp still faces the same challenges of other young Internet companies. While Yelp is one of the most popular reviews sites on the Web, it is also struggling to convert more local businesses into paying users. Vendors have the option to spend money to serve advertisements and to manage their business pages. Consumers can access Yelp's reviews for free.

Revenue rose 67 percent in the last quarter to $32.7 million, but Yelp recorded a net loss of 3 cents per share.

Wednesday's stock action seems to indicate that Yelp's biggest investors are holding on - at least for now. The company's five largest shareholders, Bessemer Ventures, Elevation Partners, Benchmark Capital, Max Levchin, and Jeremy Stoppelman, the company's chief executive, collectively own more than 80 percent of the company's stock. A Yelp spokeswoman declined to comment on Tuesday.

“That's som ething we didn't see with Facebook,” said Mr. Pachter. “Facebook clearly didn't have any control over Peter Thiel.”

New York Fed Receives Reprieve on Libor Request

Congress has eased demands that the Federal Reserve Bank of New York turn over thousands of documents that detail interest rate manipulation at big banks, whittling down the request and granting the regulator additional time.

The reprieve will afford the New York Fed an additional month to comply with the sprawling inquiry, according to people briefed on the matter. Before the delay, the agency was under pressure to meet a Sept. 1 deadline.

The original document request came in July, when the oversight panel of the House Financial Services Committee sought volumes of records about the London interbank offered rate, or Libor, a key interest rate that affects the cost of trillions of dollars in mortgages and other loans. In a letter at the time, the subcommittee asked the New York Fed to detail its correspondence with employees from the banks that help set the benchmark, which is at the center of a multiyear rate-rigging scheme. The subcommittee, led by Represent ative Randy Neugebauer, also ordered the Wall Street regulator to turn over its internal Libor-related documents and any communication with other government authorities.

In addition to the one-month extension, the subcommittee is now narrowing the scope of its request. Lawmakers are planning to seek communication among government authorities and documents circulated internally at the New York Fed, a person briefed on the matter said. By steering clear of emails from bankers, the inquiry could avoid complicating a wide-ranging criminal investigation.

The New York Fed this summer already produced reams of transcripts from phone calls its officials had Barclays. Barclays was the first to settle accusations that it tried to manipulate Libor for its own benefit. It struck a $450 million settlement with the Justice Department as well as regulators in the United States and Britain.

Regulators and criminal authorities around the world are investigating more than a dozen other big banks, including HSBC and Deutsche Bank, for their role in gaming the interest rate, a measure of how much banks charge each other for loans. Banks are suspected of reporting bogus rates during the financial crisis to boost profits and to shore up their image.

The scandal has consumed the banking industry and called into question the New York Fed's oversight powers. In the case of Barclays, the New York Fed learned in 2008 that the British bank was submitting false rates.

“We know that we're not posting um, an honest” rate, a Barclays employee told a New York Fed official in April 2008, according to transcripts the regulator released to Congress in July. During the crisis, when high borrowing costs were a sign of poor health, banks were artificially depressing the rates to project a stronger image.

But rather than pushing for a civil or criminal crackdown, the New York Fed advocated policy changes to the rate-setting process. The British organization that oversees the rate adopted some of the changes. With the crisis in full swing, the New York Fed moved on to more pressing concerns.

That approach has drawn sharp scrutiny from the subcommittee.

“As you know, the role of government is to ensure that our markets are run with the highest standards of honesty, integrity and transparency,” Mr. Neugebauer, a Texas Republican, wrote in a July 23 letter to the New York Fed. “Therefore, any admission of market manipulation - regardless of the degree - should be swiftly and vigorously investigated.”

Renesas Shares Leap on Reports of a Pending K.K.R. Investment

Reports that Kohlberg Kravis Roberts may ride in to help bolster Renesas Electronics have given shares in the Japanese chip maker a big boost.

Renesas' stock price vaulted 35 percent on Wednesday to 308 yen after Nikkei and others said that K.K.R. was preparing to invest about 100 billion yen, or $1.3 billion, in the company. According to Reuters and Bloomberg News, the firm would buy newly issued shares in the semiconductor maker.

Such an investment would give K.K.R. control of Renesas and represent the private equity firm's biggest-ever investment in Japan.

And it would help support Renesas during its efforts to revive its ailing fortunes, driven by falling prices for chips that it makes for the likes of Apple. The company is in the middle of a turnaround campaign that includes laying off 12 percent of its work force, as well as a renewed focus on microcontroller chips that are used in cars.

The company was created in 2010 through the merger of NE C Electronics and Renesas Technology, creating one of the world's five biggest semiconductor companies. But it has struggled to compete against the likes of Samsung Electronics.

Business Day Live: Bracing for the Storm in Energy Prices

What Hurricane Isaac might mean for energy prices. | Second-quarter growth revised upward. | How new media are dominating convention coverage.

In Exit, Dynegy Shareholders Look to Eke Out Something

Dynegy's controlling shareholders, led by Carl C. Icahn, entered Chapter 11 with a roar, but they are about to leave rather meekly.

Still, they may have covered their tails. Maybe.

Dynegy's original Chapter 11 plan was all about saving the shareholders. Before its bankruptcy, the company engaged in a series of transactions that moved value from a Dynegy unit upstream to the parent company, which was not part of the original bankruptcy filing. The goal was to reorder the normal priorities of bankruptcy, and thus save a position for the shareholders after a series of failed attempts to solve Dynegy's problems out of court.

But then a court-appointed examiner found it all to be a fraudulent transfer. While the existing research on the topic shows that examiners can be quite expensive, this may be an example where the process worked out well.

Next Wednesday, the federal bankruptcy court in Poughkeepsie. N.Y., will begin hearings to consider confi rmation of the revised Dynegy plan. While we started out with a “save the shareholders plan,” the current plan calls for creditors to own 99 percent of the company when all is said and done.

That's more like it.

But before concluding that the shareholders wasted their time, keep in mind that they are getting to keep 1 percent of the company, with warrants to potentially acquire more. And most important, if the plan as currently drafted is approved, the shareholders, directors and management would be released from all liability in connection with their pre-bankruptcy activities.

In an odd twist, it is another group of shareholders (along with the United States government) that are objecting to the releases in the plan. These shareholders are the lead plaintiffs in a pending class action, whose class comprises those who bought Dynegy shares after the fraudulent transfer, but before it was revealed as such by the examiner.

There may have been some willful blindness here â€" the fraudulent transfer issue was being litigated in state court before the bankruptcy case â€" yet this group may have a point.

Specially, the question of giving non-debtors releases in plans is largely a matter of case law. The bankruptcy code specifically talks about such releases only in the context of asbestos cases, and even that provision essentially codifies case law that was developed during the path-breaking Johns Manville bankruptcy case.

But what case law there is suggests that bankruptcy courts should not be too casual about granting what amounts to a limited bankruptcy discharge to parties that have not themselves filed for bankruptcy.

It will be interesting to see how the bankruptcy court approaches this issue next Wednesday. But if it were to grant the release, I think you can count on an appeal.

If the bankruptcy court takes out the releases, then the controlling shareholders spent a lot of money on pro fessional fees to get 1 percent of the company, plus warrants. They probably could have gotten that deal in 2011.

Lead Plaintiff's Objection to Dynegy Chapter 11 Plan

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

Marc Lasry Said to Lower Bid for Variety Magazine

Billionaire Marc Lasry's bid to buy Hollywood trade Variety has hit a snag, sources say. The New York hedge-funder's Avenue Capital emerged this month as the front-runner to snap up the showbiz “bible” for between $30 million and $40 million. But sources tell Page Six that when Avenue's bean counters recently ran Variety's numbers on the deal, they wound up lowering their bid. “Everyone's been balking at the price,” a Hollywood insider familiar with the sale told us, adding, “another problem is that [any new buyer] will then have to put money into it immediately, to bring Variety into the modern age.” Meanwhile, we hear that supermarket magnate Ron Burkle, an investor in Relativity Media, walked away from bidding, while racing heir Jay Penske was still circling through his company, PMC. The 107-year-old entertainment publication's been on the block since March through its parent, Reed Elsevier. Avenue's deal to buy Variety was expected to be announced up to two weeks ago. Reps for both Avenue Capital and Variety declined to comment.

Bloomberg via Getty Images

Marc Lasry

Daikin Shares Drop After Goodman Deal Is Announced

Daikin Industries may have finally gotten its wish by buying Goodman Global from the private equity firm Hellman & Friedman. But its shareholders don't seem as enthusiastic.

Shares of the Japanese air-conditioner maker tumbled 3.5 percent on Wednesday, to 2,073 yen, after the $3.7 billion deal was announced.

While Daikin had considered buying its smaller American rival last year, reportedly for as much as $4 billion, it was forced to call off its pursuit after the Japanese market upheaval following the Fukushima nuclear power disaster. But the company said that it wouldn't rule out making another run at Goodman.

Daikin said in its announcement that the deal would allow the it to expand its North American presence, as well as import Goodman's low-cost manufacturing techniques into its own processes.

“Daikin will gain the position of a very competitive North American manufacturer with industry leading energy-saving products and solutions ranging fro m residential to large building systems,” Noriyuki Inoue, the company's chairman and chief executive, said in a statement.

The Japanese company said that it would pay for the takeover through a combination of its $1.5 billion in cash on hand, bank loans and bonds, as well as by drawing from a corporate loan fund set up by the country's finance ministry.

But the deal still appeared richly valued to some analysts. Moody's Investor Service said on Wednesday that it may cut Daikin's credit rating, citing the burden that the takeover will put on the company's balance sheet.

“I'm a little worried about the size of the deal,” Shoichi Arisawa, an analyst at Iwai Cosmo Securities, told Bloomberg News. “It may be a little too big for Daikin, especially in an uncertain time like this.”

Daikin was advised by Bank of America Merrill Lynch and GCA Savvian. Hellman & Friedman was advised by JPMorgan Chase, Barclays and the law firm Simpson Thacher & Bartle tt.

WellPoint Deal-Making Chief Steps Down Amid Investor Pressure

WellPoint chief executive Angela F. Braly, who orchestrated several sizable deals in recent months, abruptly resigned on Tuesday, amid mounting pressure from shareholders.

Under the guidance of Ms. Braly, WellPoint has been one of the industry's most active deal makers.

In a bid to expand WellPoint's business, Ms. Braly, who assumed the top spot in 2007, has pursued several big transactions in the past year, including the $800 million purchase of CareMore and the more recent takeover of 1-800-Contacts. In July, Ms. Braly also signed her largest transaction to date, the $4.9 billion acquisition of Amerigroup, as WellPoint looked to take advantage of the expansion of the healthcare coverage under President Obama.

But it wasn't enough to appease shareholders, who have been frustrated by the health insurer's sagging stock price and weak financial performance. In the most recent quarter, the insurance company's profits fell about 8 percent to $643.6 million, f rom the year ago period. Sales also came in a below analyst expectations.

Even as the company shakes up its management, the board remains committed to its deal-making efforts.

“Our Board continues to believe that time will prove the wisdom of potentially transformative actions taken under Angela's leadership, from the sale of the pharmacy benefit management business to Express Scripts to the recent and proposed acquisitions of CareMore, 1-800-CONTACTS and Amerigroup,” said Jackie M. Ward, the board's lead director, said in a statement. “But now is the right time for a leadership change.”

WellPoint said the company's general counsel, John Cannon, will serve as interim C.E.O., while the board's search committee vets internal and external candidates. The company also named Ms. Ward to the role of non-executive chair. On Tuesday, the company said Mr. Cannon would now “lead our most important initiative, which is the completion of the Amerigroup transa ction.”

Morning Take-Out

TOP STORIES

Humanitarian Effort in Congo Puts Wall St. Regulator in Unintended Role  |  War in the Democratic Republic of Congo has been deadly, with millions murdered. So the United States government has taken its most significant step to try to halt the horror: send in the Securities and Exchange Commission. Not surprisingly, having your capital markets regulator engage in foreign policy may not be the best solution to ending a war, the Deal Professor writes.

The problem arises from the noble attempt to stop the sale of conflict minerals, the focus of those who are pushing for a nonmilitary way to curb the fighting in Congo. Co nflict minerals include coltan, cassiterite, gold and wolframite, and while you may not be familiar with some of these, they are widely used in electronics. Your cellphone may very well contain them.

Humanitarian groups say these minerals are being mined by combatants in Congo and neighboring countries and sold to pay for military activities that lead to abuses of human rights. Activists from the Enough Project, a nonprofit group that seeks to end crimes against humanity, have been working to stop the trade in these minerals, seeking to deprive the Congo war of financing.

So where does the S.E.C. come in? The Dodd-Frank Act was intended to overhaul financial regulation, but it was also turned into an aircraft carrier as legislators dumped in almost every financial reform proposal ever dreamed of. The 1,500-some-odd provisions of the Dodd-Frank Act not only enhance the regulation of banks, they also require shareholder advisory votes on executive compensation and require the S.E.C. to explore ending the arbitration of investor claims.
DealBook '

DEAL NOTES

European Central Bank Affirms Commitment to the Euro  |  In an essay published in Die Zeit on Wednesday, Mario Draghi, the president of the European Central Bank, writes that tackling the Continent's crisis may require measures “beyond standard monetary policy tools.” He continues: “Those who want to go back to the past misunderstand the significance of the euro. Those who claim only a full federation can be sustainable set the bar too high.”
EUROPEAN CENTRAL BANK

Spanish Region Asks for Emergency Support  |  Catalonia, a region that accounts for almost a fifth of the economic output of Spain, asked the national government for 5 billion euros ($6.3 billion) in emergency financing, saying it had been shut out of the debt markets, The New York Times reports.
NEW YORK TIMES

A Test for Europe's Central Banker  |  Mario Draghi steered Europe through August by challenging traders who were betting against the euro. But the European Central Bank president faces a bigger test in September, when he will be under pressure to provide specific details of a plan to support the Continent's weaker countries by buying their bonds, The New York Times reports.
NEW YORK TIMES

Occupy Wall Street Plans an Anniversary Demonstration  |  Almost a year after it started, the Occupy movement is facing â €œmore fatigue than fresh thinking,” Bloomberg News writes. But those involved in the movement are planning a demonstration to mark the first anniversary on Sept. 17, with tentative plans to make citizens' arrests of bankers, according to Bloomberg News.
BLOOMBERG NEWS

Mergers & Acquisitions '

Progress Shareholders Agree to $6 Billion Buyout  |  Shareholders of the Progress Energy Resources Corporation, a Canadian energy giant, have signed off on a takeover by the Malaysian state oil firm Petronas, valuing the company at about $6 billion including debt, Reuters reports.
REUTERS

Daikin of Japan Said to Buy Goodman for $3.7 Billion  |  The deal helps the air-con ditioner maker clinch its long quest to buy its American rival.
DealBook '

Clayton, Dubilier & Rice to Buy David's Bridal  |  In the latest retail buyout for the private equity industry, Clayton, Dubilier & Rice has agreed to buy David's Bridal, the bridal gown retailer, in a deal that values the company at $1.05 billion.
DealBook '

Societe Generale in Talks to Sell Greek Unit  |  Societe Generale said on Wednesday that it was discussing a potential sale of Geniki Bank, its Greek unit, to Piraeus Bank, a Greek lender, with talks at an “advanced stage,” Reuters reports.
REUTERS

Credit Agricole Eyes an Exit From Greece  |  The French bank Credit Agricole said on Tuesday it could reach a deal to sell its Greek unit within weeks and was considering three offers, The Wall Street Journal reports.
WALL STREET JOURNAL

ING Said to Consider Separate Sale of Hong Kong Unit  |  ING, which had planned to sell its Asian divisions as a group, is now considering a separate sale of its Hong Kong insurance business, valued at about $1 billion, Reuters reports, citing unidentified people.
REUTERS

INVESTMENT BANKING '

Appraisal Period of Morgan Stanley Smith Barney Is Extended  |  Morgan Stanley and Citigroup have agreed to give a third party more time to appraise the value of their brokerage joint venture and settle a dispute between the two financial firms.
DealBook '

Spanish Banks Experience a Fall in Deposits  |  Private sector deposits at Spanish banks fell by almost 5 percent in July, the biggest monthly drop since the data began in 1997, according to the European Central Bank, Reuters reports. The Spanish government attributed the withdrawals to seasonal factors.
REUTERS

Knight Capital Ponders Its Next Move  |  Knight appointed three new directors this week from the firms involved in bailing it out after its trading problems this month. Now the brokerage firm is contemplating its strategy going forward, The Wall Street Journal reports.
WALL STREET J OURNAL

Fidelity Investments Promotes Chairman's Daughter  |  Abigail P. Johnson, the daughter of Edward C. Johnson III, the chairman and chief executive of Fidelity Investments, has been tapped to run the mutual fund company's core businesses, Reuters reports.
REUTERS

Citigroup Hires a Barclays Executive for Asia  |  Alex Schrantz, who joined Barclays last year after 19 years at Goldman Sachs, is headed to Citigroup to run its corporate finance division for the Asia-Pacific region, Reuters reports. He will be based in Hong Kong.
REUTERS

Morgan Stanley's Head of Private Capital Markets to Depart  |  David Barrett, who ran a division at Morgan Stanley that raised money for hedge funds and other firms in exchange for fees, is leaving after 22 years and is considering jobs at several hedge funds, Bloomberg News reports, citing two unidentified people with knowledge of the matter.
BLOOMBERG NEWS

PRIVATE EQUITY '

K.K.R. in Talks to Invest in Japanese Chip Maker  |  K.K.R. is in talks to invest about 100 billion yen ($1.3 billion) in Renesas Electronics in exchange for more than 50 percent of the Japanese chip maker, which recently forecast an annual loss, Reuters reports, citing unidentified people. The deal would be K.K.R.'s largest in Japan.
REUTERS

Private Equity Taxes, Bain Capital Edition  |  Dan Primack writes in Fortune that Bain Capital executives pay taxes at capital gains rates on their management fees when deals generate profit. He argues: “Management fees are a fee for service. As such, they should be taxed as ordinary income.”
FORTUNE

Number of Buyout Deals Rises in Asia  |  According to a new report from McKinsey, the number of private equity deals in the Asia-Pacific region more than doubled last year, while the value of deals rose by only 40 percent, Barron's writes.
BARRONS

Basketball Star Gets Into Private Equity  |  The former N.B.A. player Yao Ming has bought the Chongqing Yufu Assets Management Group, taking his place among a club of celebrity investors that includes the si nger Bono and the former quarterback Steve Young, The Wall Street Journal reports.
WALL STREET JOURNAL

HEDGE FUNDS '

Paulson Seeks to Reassure Bank of America Investors  |  On a conference call on Tuesday, John A. Paulson told Bank of America financial advisers and their clients that withdrawal requests from his hedge fund were not unusually high this year, but acknowledged that his flagship fund had posted disappointing returns, The Wall Street Journal reports, citing unidentified people on the call.
WALL STREET JOURNAL

Bridgewater Clashes With City Over Building Project  |  The giant hedge fund Bridgewater Associates, which received financial incentives from t he state of Connecticut to build a new waterfront headquarters, raised the ire of residents and officials in the city of Stamford when the construction resulted in the demolition of a historic boat yard, The New York Post reports.
NEW YORK POST

Hedge Funds Turn a Wary Eye to Madison Avenue  |  With regulators expected to propose loosened restrictions on hedge funds' ability to market themselves, some firms are reaching out to advertising experts with questions, The Wall Street Journal reports.
WALL STREET JOURNAL

Fresh Charges for ‘Criminal Club' Traders  |  The government filed new securities fraud charges against a co-founder of Level Global Investors and two former employees of Diamondback Capital Management, who e arlier had been accused of being part of a “criminal club” to trade Dell shares, Bloomberg News reports.
BLOOMBERG NEWS

I.P.O./OFFERINGS '

Britain May Revise I.P.O. Rules to Attract More Deals  |  Britain may draw inspiration from the JOBS Act passed in the United States. The government there is considering cutting the minimum stake that companies are required to sell when they go public, in an effort to encourage more companies to list in London, Bloomberg News reports.
BLOOMBERG NEWS

Zynga's Creative Chief Heads for the Exit  |  Mike Verdu, who was Zynga's chief creative officer for three years, is the latest high-level executive to leave the social games company recently. He plans to start his own mobile games company, which will be backed by Zynga, Reuters reports.
REUTERS

Security Company Aims to Raise $175 Million  |  LifeLock, a company backed by Kleiner Perkins and Bessemer Venture Partners that offers theft and fraud protection services, has tapped Goldman Sachs, Bank of America Merrill Lynch and Deutsche Bank Securities to underwrite its United States offering.
REUTERS

Using Facebook to Share Company News  |  Two chief executives of prominent tech companies, Rob Glaser of RealNetworks and Reed Hastings of Netflix, have recently taken to Facebook to share news about the company, the Bits blog writes. Mr. Glaser on Tuesday posted a message to his employees discussi ng the emotional impact of layoffs.
NEW YORK TIMES BITS

VENTURE CAPITAL '

Manhattan's Tech Firms Seek Cheaper Rents  |  Some young tech companies in New York have found office space north of the unofficial boundary of Silicon Alley, as rents rise downtown and start-ups become more cost-conscious, The New York Times reports.
NEW YORK TIMES

Digital Music Service Quietly Builds Up an Audience  |  A service called Muve Music has signed up 600,000 users since its introduction in January 2011, putting it in a league with Rhapsody and Spotify, The New York Times reports. It caters to customers who may not own a computer and use a phone for everything.
NEW YORK TIMES

Flipboard Expands Into Video  |  Flipboard, the app that allows people to aggregate content into a magazine-like format, began a push into video on Wednesday. The move shows Flipboard “beginning to mature and diversify,” Paid Content writes.
PAID CONTENT

LEGAL/REGULATORY '

S.E.C. Charges 8 With Insider Trading in Sanofi Deal  |  Federal securities regulators charged eight people in Georgia with insider trading on Tuesday, saying they bought stock in a company ahead of a merger announcement after one of them learned about a pending acquisition by Sanofi-Aventis.
DealBook '

S.E.C. Investigates Residential Capital for Potential Mortgage Fraud  |  The Securities and Exchange Commission has disclosed that is investigating Residential Capital, the home lending arm of Ally Financial that is now in bankruptcy, for potential instances of mortgage fraud.
DealBook '

Judge Rejects Residential Capital's Bonus Plan  |  A federal bankruptcy judge said that a plan by Residential Capital to pay as much as $7 million to 17 senior executives was primarily retentive, rather than linking the pay to job performance, Reuters reports.
REUTERS

Wall Street Granted Another Brief Reprieve  |  The Commodity Futures Trading Commission approved rule changes on Monday aimed at bring ing clarity to derivatives trading, one of the foggiest corners of Wall Street. But buried in the 254-page document, the agency also granted an extension for several other rules.
DealBook '

Pepper Hamilton to Acquire Louis Freeh's Firms  |  The deal highlights the growing business of internal investigations into possible wrongdoing at corporations and other institutions, an increasingly lucrative area for law firms.
DealBook '

Barclays Said to Face Possible Fraud Investigation Into Qatar Payments  |  Bloomberg News reports that B ritish fraud prosecutors “may open a criminal probe as soon as this week into payments Barclays made in 2008 to Qatar's sovereign wealth fund as the bank sought to raise money, according to two people familiar with the case.”
BLOOMBERG NEWS

HSBC's Rising Legal Liability  |  HSBC's legal headaches may not go away anytime soon, and when they do, the resolutions could be costly, Peter J. Henning writes in the White Collar Watch column. The bank is involved in some of the largest American government inquiries in the banking industry.
DealBook '

Mortgage Company Agrees to Settle Bias Case  |  GFI Mortgage Bankers agreed to pay more than $3.5 million to resolve allegations by federal prosecutors that it overcharged nonwhite borrowers, with nearly all of the settlement money going to 600 black and Hispanic borrowers, The New York Times reports.
NEW YORK TIMES