Trial to Begin for Former UBS Trader Accused of Hiding Huge Loss

LONDON - UBS will face the harsh glare of the spotlight again on Friday, as opening arguments begin in the trial of a former trader accused of hiding a multibillion-dollar loss at the investment bank.

Kweku M. Adoboli, 32, the former trader, faces charges of false accounting and fraud in connection with a $2.3 billion loss at the bank. He has pleaded not guilty.

“As uncomfortable as the entire trial will be for UBS, it will show us what the consequences are when misconduct occurs or when individuals do not take their responsibilities seriously,” the bank's chief executive, Sergio P. Ermotti, said in an internal memo made public by the firm.

UBS, which has struggled to regain its footing since the financial crisis, has been plagued by a number of scandals in recent years.

In 2009, the investment bank, based in Switzerland, agreed to pay $780 million to settle a tax fraud case with American authorities. Three former UBS executives were convicted e arlier this year for rigging bids in the municipal bond market.

The bank has also been ensnared by a global investigation into rate manipulation. UBS, which is one of more than a dozen institutions under investigation, struck an immunity deal with authorities.

The case against Mr. Adoboli has only added to the questions about the bank's oversight and risk management.

After the financial crisis, UBS, which had been hobbled by bad real estate bets, vowed to overhaul its internal controls. But the bank disclosed two years later that it had “discovered unauthorized speculative trading,” and Mr. Adoboli was arrested. According to the charges, his activities spanned more than three years, starting in 2008.

UBS subsequently conducted an internal investigation into the loss. The review showed that the firm's risk controls had raised red flags about unusual trading activity, but that managers had failed to adequately follow up. “We have to be straight wi th ourselves,” Mr. Ermotti, the chief executive, said in 2011. “In no circumstances should something like this ever occur.”

The UBS trading scandal echoes past cases.

In 2010, Jérôme Kerviel, a trader at the Paris-based bank Société Générale, was convicted of generating more than $6 billion in losses. He is appealing the matter. Another trader, Nicholas W. Leeson of Barings Bank, racked up $1 billion in losses, prompting the failure of the British institution in 1995. Mr. Leeson pleaded guilty and served four years in prison.

Mr. Adoboli started his finance career at UBS. He joined the bank as an investment adviser trainee in London shortly after graduating from Nottingham University in 2003, and eventually worked his way up to the Delta One desk, a plain-vanilla version of derivatives trading. Traders in this group create investments that track specific financial assets like a basket of company stocks.

At a hearing in September, a lawyer for Mr. Adoboli said his client was “sorry beyond words for what had happened.” A few months later, Mr. Adoboli fired his lawyers at Kingsley Napley, the firm that had previously represented Mr. Leeson. Mr. Adoboli is now represented by Bark & Company, another law firm in London.

If convicted, he could face up to 10 years in prison. The trial is expected to last up to eight weeks. Both current and former UBS employees could be called as witnesses, though the firm has not been accused of any wrongdoing.

Legal restrictions in Britain limit the information that can be reported about the case to avoid biasing the proceedings. UBS and a lawyer for Mr. Adoboli declined to comment.

When the trading scandal erupted last year, it reverberated through the upper ranks of UBS. The chief executive, Oswald J. Grübel, whom UBS had recruited to oversee its turnaround, promptly resigned. The co-chiefs of global equities, the division where the loss occurred, also left the firm.

The firm's profit also suffered. After disclosing the trading losses, UBS reported that quarterly earnings dropped 39 percent to $1.2 billion.

The blowup has worsened the bank's financial woes. Like other European banks, UBS is dealing with the sluggish economy and the sovereign debt crisis in Europe.

With investment banking operations slumping, institutions have moved swiftly to lay off staff and revamp their strategies. UBS has announced 3,500 job cuts, with about half expected in the investment banking division. It has also shifted its focus toward wealth management.

“The banks are slowly realizing there are parts of their businesses that just don't make money,” said Pete Hahn, a fellow at Cass Business School in London. “A fundamental rethink is under way.”

The Cost of Adapters Adds Up

September 13, 2012, 4:15 pm

In my post about the new iPhone 5, I grumbled about the new power/sync connector, which doesn't fit any of the millions of existing cords, docks, speakers and accessories. Unless, that is, you buy an insanely overpriced $30 plug adapter or a $40 cable adapter from Apple.

Thursday's e-mail brought this softly snarky note from a reader:

Dear David- I feel so sad for you. How can I send you a check for $30 to help you out?

My softly snarky reply:

Well, let's see. I have a charger in my car that will require the $40 adapter. The alarm clock next to my bed, where I charge the phone each night, will require the $30 adapter. I also have a charging cable in the kitchen ($3 0) and at my desk ($30), and I keep an emergency spare in my laptop bag ($30).
I'll look forward to your check for $160!

The Cost of Adapters Adds Up

September 13, 2012, 4:15 pm

In my post about the new iPhone 5, I grumbled about the new power/sync connector, which doesn't fit any of the millions of existing cords, docks, speakers and accessories. Unless, that is, you buy an insanely overpriced $30 plug adapter or a $40 cable adapter from Apple.

Thursday's e-mail brought this softly snarky note from a reader:

Dear David- I feel so sad for you. How can I send you a check for $30 to help you out?

My softly snarky reply:

Well, let's see. I have a charger in my car that will require the $40 adapter. The alarm clock next to my bed, where I charge the phone each night, will require the $30 adapter. I also have a charging cable in the kitchen ($3 0) and at my desk ($30), and I keep an emergency spare in my laptop bag ($30).
I'll look forward to your check for $160!

4 Years After Lehman\'s Demise, Regulators Debate Overhaul

Four years after Wall Street teetered on the brink of collapse, regulators are struggling to rein in foreign risk taking that imperils American banks.

On Thursday, a member of the Commodity Futures Trading Commission, which regulates the $700 trillion derivatives business, outlined the risks that remain. In a speech to the International Swaps and Derivatives Association, a financial industry trade group, Mark Wetjen highlighted “the very real danger that risks undertaken abroad can seriously impact the health of financial institutions, and the broader economy, here at home.”

Although the agency has imposed checks on derivatives trading in the United States, just how to crack down on foreign trading is still being debated.

In June, the C.F.T.C. took a first step, introducing a plan to oversee Wall Street banks that ship derivatives trading overseas. The agency's draft proposal, stemming from the Dodd-Frank financial regulatory law, would apply new deri vatives rules to American banks that have foreign units and foreign banks that conduct significant trading in the United States.

Mr. Wetjen, a Democratic commissioner at the C.F.T.C., highlighted his agency's new plan to rein in overseas derivatives trading. But in the speech, delivered on the eve of the four-year anniversary of Lehman Brothers' demise, he also sounded a note of skepticism on certain details.

“I continue to have concerns, however, about the clarity, scope, and workability of the proposals in certain areas,” he said.

Gary Gensler, the agency's Democratic chairman and the architect of the plan, has cited the recent multibillion-dollar trading loss at JPMorgan Chase as a “stark reminder” of how overseas trading can reverberate in the United States.

But his plan is far from a done deal. The agency has spent weeks hashing out internal disputes, and a final decision is not expected until later this year.

Mr. Wetjen is playing a crucial role in the negotiations. A former aide to Senate Majority Leader Harry Reid, he is the newest member of the five-person commission leadership. Mr. Wetjen has sided with his fellow Democrats on every Dodd-Frank rule while positioning himself as a more independent voice from Mr. Gensler.

When the agency was readying the cross-border proposal in June, Mr. Wetjen pushed for more flexibility. He also suggested that the financial industry have additional time to comply.

He reiterated some concerns on Thursday, saying the agency may not have provided sufficient “clarity” about the timing and scope of the plan. “The commission must do better,” he said.

Mr. Wetjen, who has called for the C.F.T.C. to complete the plan as “interpretive guidance” rather than a formal rulemaking, also advocated so-called substituted compliance. Under such a plan, banks based overseas can seek an exemption if they face similar rules from foreign regulators.

â €œIn light of the commission's limited resources, efficient regulation through deference to comparable regulation just makes sense,” he said.

Despite his concerns, Mr. Wetjen underscored his support for the the broader regulatory overhaul, noting that his speech came nearly four years to the day that firms like American International Group nearly collapsed. Foreign derivatives contracts written by the giant insurance company, which ultimately received a $182 billion federal lifeline, brought American firms to their knees.

“Regulation will not prevent every risk from materializing at a financial firm in any given jurisdiction,” he said, while adding that “we must do what we can to prevent such risks from damaging our economy.”

A Warning on Bank Complexity, From Someone Who Would Know

It's still the talk of Wall Street: Are big banks too complex? And what should be done, if so?

On Thursday, one former Wall Street executive put the issue in vivid terms as she raised concerns about the complexity of financial behemoths.

“It makes you weep blood out of your eyes,” said Sallie L. Krawcheck, who ran Bank of America's wealth management division before a management reshuffling last year.

“If you look at the job of the board, if you look at the job of investors, it's the concern about complexity,” she said, speaking from the stage at the Bloomberg Markets 50 Summit in Manhattan.

The debate about big banks received renewed attention this summer when Sanford I. Weill, the deal maker who built the modern Citigroup, said on CNBC that huge financial institutions should be split up. Ms. Krawcheck on Thursday did not endorse any one strategy to resolve banks' complexity, but she said the proposal to break up banks and the regulation kno wn as the Volcker Rule were two possible “means to an end.” Altering executive compensation, she said, might also help.

Ms. Krawcheck said the comments of Mr. Weill, who once worked to repeal the Glass-Steagall law that had separated commercial banks from investment banks, were not far from her mind.

“When my old friend Sandy Weill said Glass-Steagall should be reinstated, I was on vacation,” said Ms. Krawcheck, who has emerged this year as a critic of the financial industry and regulation. “I think my iPhone exploded with phone calls and messages. I think it's a great and fascinating debate.”

Several prominent executives have weighed in on the issue recently, with Jamie Dimon, the head of JPMorgan Chase, saying on Tuesday “there are huge benefits to size.”

Ruth Porat, Morgan Stanley's chief financial officer, spoke at the Bloomberg Markets conference on Thursday, arguing that the banking industry was in the process of becoming less co mplex and more transparent. New rules for derivatives, she said, were one source of that change.

“You'll see more simplification,” Ms. Porat said. But she added, “I don't expect you'll see a real breakup of the banks.”

Ms. Porat was asked whether she saw evidence that banks had become too complex.

“It's tough to generalize,” she said. “My concern is when the products themselves become too complex to understand, one begins to have a problem.”

Carlyle Buys Controlling Stake in Brazilian Furniture Retailer

SAO PAULO, Brazil â€" The Carlyle Group said Thursday that it had acquired a 60 percent stake in Tok & Stok, a Brazilian furniture company, in a move that positions it to take advantage of the country's consumer retail market.

It is the second such deal Carlyle announced in this sector in the last two weeks. Earlier this month, Carlyle said it had acquired a 25 percent stake in the Brazilian equipment rental company Grupo Orguel.

The amount Carlyle paid for Tok & Stok was not disclosed, but a source with knowledge of the deal told DealBook that it was 700 million reais, or $347 million. The person spoke on the condition of anonymity because the terms were private. The news of the deal was earlier reported by the Brazilian newspaper Valor Economico.

Regis and Ghislaine Dubrule, the French couple who founded Tok & Stok, will retain 40 percent control. Ms. Dubrule will become chief executive, taking over for her husband.

The deal is subject to approv al by Brazilian regulatory authorities but is expected to close in the fourth quarter of this year.

Tok & Stok, founded in 1979 and based in Baruari, in Sao Paulo State, said it generated about 1 billion reais, or $495 million, in sales last year.

It has 35 stores in Brazil and 3,300 employees. Most stores are in the country's southeast region, so the company needs to increase its presence in Brazil's north, a major source of the country's emerging middle class.

Various Brazilian investment firms had approached Tok & Stok about sales over the last 12 years, according to a second source, a Brazilian investor with direct knowledge of the talks. But the owners had held out until now.

The investor added that, “I like this deal and the space and think the company will either I.P.O. or get sold to Ikea.”

Carlyle will finance the acquisition through its South America Buyout fund and the Fundo Brasil de Internacionalizacao de Empresas, a local fund advised by Carlyle and Banco do Brasil.

The two deals this month show that Carlyle is focused on a growing sector, said Cate Ambrose, head of the New York-based Latin American Private Equity and Venture Capital Association. “Carlyle is focused on domestic consumption and bidding aggressively to get these opportunities,” she said. “It's a direct reflection that retailing is a really big opportunity in Brazil.”

In a recent Latin American Private Equity Survey, conducted by Ms. Ambrose's group and Coller Capital, about 70 percent of local and foreign funds interviewed said the most attractive sector for private equity investment in Latin America over the next three years would be consumer retail.

Google Glass and the Future of Technology

September 13, 2012, 1:38 pm

New gadgets - I mean whole new gadget categories - don't come along very often. The iPhone was one recent example. You could argue that the iPad was another. But if there's anything at all as different and bold on the horizon, surely it's Google Glass.

That, of course, is Google's prototype of a device you wear on your face. Google doesn't like the term “glasses,” because there aren't any lenses. (The Glass team, part of Google's experimental labs, also doesn't like terms like “augmented reality” or “wearable computer,” which both have certain baggage.)

Instead, Glass looks like only the headband of a pair of glasses - the part that hooks on your ears and lies along your eyebrow line - with a small, t ransparent block positioned above and to the right of your right eye. That, of course, is a screen, and the Google Glass is actually a fairly full-blown computer. Or maybe like a smartphone that you never have to take out of your pocket.

This idea got a lot of people excited when Nick Bilton of The New York Times broke the story of the glasses in February. Google first demonstrated it April in a video. In May, at Google's I/O conference, Glass got some more play as attendees watched a live video feed from the Glass as a sky diver leapt from a plane and parachuted onto the roof of the conference building. But so far, very few non-Googlers have been allowed to try them on.

Last week, I got a chance to put one on. I'm hosting a PBS series called “Nova ScienceNow” (it premieres Oct. 10), and one of the episodes is about the future of tech. Of course, projecting what's yet to come in consumer tech is nearly impossible, but Google Glass seemed like a perfect exampl e of a breakthrough on the verge. So last week the Nova crew and I met with Babak Parviz, head of the Glass project, to discuss and try out the prototypes.

Now, Google emphasized - and so do I - that Google Glass is still at a very, very early stage. Lots of factors still haven't been finalized, including what Glass will do, what the interface will look like, how it will work, and so on. Google doesn't want to get the public excited about some feature that may not materialize in the final version. (At the moment, Google is planning to offer the prototypes to developers next year - for $1,500 - in anticipation of selling Glass to the public in, perhaps, 2014.)

When you actually handle these things, you can't believe how little they weigh. Less than a pair of sunglasses, in my estimation. Glass is an absolutely astonishing feat of miniaturization and integration.

Inside the right earpiece - that is, the horizontal support that goes over your ear - Google has packed memory, a processor, a camera, speaker and microphone, Bluetooth and Wi-Fi antennas, accelerometer, gyroscope, compass and a battery. All inside the earpiece.

Google has said that eventually, Glass will have a cellular radio, so it can get online; at this point, it hooks up wirelessly with your phone for an online connection.
And the mind-blowing thing is, this slim thing is the prototype. It's only going to get smaller in future generations. “This is the bulkiest version of Glass we'll ever make,” Babak told me.

The biggest triumph - and to me, the biggest surprise - is that the tiny screen is completely invisible when you're talking or driving or reading. You just forget about it completely. There's nothing at all between your eyes and whatever, or whomever, you're looking at.

And yet when you do focus on the screen, shifting your gaze up and to the right, that tiny half-inch display is surprisingly immersive. It's as though you're looking at a big laptop screen or something.

(Even though I usually need reading glasses for close-up material, this very close-up display seemed to float far enough away that I didn't need them. Because, yeah - wearing glasses under Glass might look weird.)

The hardware breakthrough, in other words, is there. Google is proceeding carefully to make sure it gets the rest of it as right as possible on the first try.

But the potential is already amazing. Mr. Pariz stressed that Glass is designed for two primary purposes - sharing and instant access to information - hands-free, without having to pull anything out of your pocket.

You can control the software by swiping a finger on that right earpiece in different directions; it's a touchpad. Your swipes could guide you through simple menus. In various presentations, Google has proposed icons for things like taking a picture, recording video, making a phone call, navigating on Google Maps, checking your calendar a nd so on. A tap selects the option you want.

In recent demonstrations, Google has also shown that you can use speech recognition to control Glass. You say “O.K., Glass” to call up the menu.

To illustrate how Glass might change the game for sharing your life with others, I tried a demo in which a photo appeared - a jungly scene with a wooden footbridge just in front of me. The theme from “Jurassic Park” played crisply in my right ear. (Cute, real cute.)

But as I looked left, right, up or down, my view changed accordingly, as though I were wearing one of those old virtual-reality headsets. The tracking of my head angle and the response to the immersive photo was incredibly crisp and accurate. By swiping my finger on the touchpad, I could change to other scenes.

Now, there's a lot of road between today's prototype and the day when Google Glass will be on everyone's faces. Google will have to nail down the design - and hammer down the price. Issue s of privacy and distraction will have to be ironed out (although I'm not nearly as worried about distraction as I was before I tried them on). Glasses wearers may have to wait until Glass can be incorporated into actual glasses.

We may be waiting, too, for that one overwhelmingly compelling feature, something that you can't do with your phone (beyond making it hands-free). We've seen that the masses can't even be bothered to put on special glasses to watch 3-D TV; it may take some unimagined killer app to convince them to wear Google Glass headsets all day.

But already, a few things are clear. The speed and power, the tiny size and weight, the clarity and effectiveness of the audio and video, are beyond anything I could have imagined. The company is expending a lot of effort on design - hardware and software - which is absolutely the right approach for something as personal as a wearable gadget. And even in this early prototype, you already sense that Google is sweating over the clarity and simplicity of the experience - also a smart approach.

In short, it's much too soon to predict Google Glass's success or failure. But it's easy to see that it has potential no other machine has ever had before - and that Google is shepherding its development in exactly the right way.

Business Day Live: Food Fight

California referendum has national implications for food labels. | Standard Chartered prepares to settle in money laundering case. | Controversy over movie about Nina Simone.

Taking the Preferences Out of Preferred Stock

You have to marvel at the lengths to which the radio station operator Emmis Communications has gone to strip its preferred stock of voting rights and accrued dividends worth millions. And deal watchers will salivate over the clever legal structures devised by Emmis's lawyers.

In short, it's a deal for everyone - except Emmis's preferred shareholders.

It all started in October 1999, when Emmis Communications issued a publicly traded preferred stock with a yield of 6.25 percent. The preferred stock was issued at a price of $50 a share, raising $144 million.

As is common with preferred stock, it had a number of special rights. In order to protect the preferred shareholders, the stock dividend, which is paid on the $50 a share initial price, accrues yearly, even if it is unpaid. And if the preferred dividend is not paid, holders of the preferred stock are entitled to elect two directors.

Most significant, if Emmis Communications is taken private by mana gement, the holders of the preferred stock redeem the shares at $50 a share plus the accrued dividend.

Because of the unpaid dividends, the redemption price of the preferred stock had grown to $62.12 a share as of April 15, for a total of $178.6 million.

Emmis's current market capitalization is less than $100 million, and it has only about $5 million in cash on its balance sheet. Emmis cannot afford to pay a dividend, nor can it afford to redeem the preferred stock. Instead, it sits there, a big liability.

The preferred stock has also posed a significant problem for Emmis's chief executive, Jeffrey H. Smulyan, who controls 59.7 percent of Emmis's common stock. Mr. Smulyan has twice attempted to acquire the company.

The first time, in 2006, Mr. Smulyan could not obtain the consent of an independent committee of directors to an offer at $15.25 a share that would have bought out the preferred stock at $50 a share.

By 2010, Emmis was not doing as well. Mr. Smulyan made a second offer to buy the common at $2.40 a share and the preferred stock with notes he valued at $30 a share. This bid died when the preferred shareholders refused to accept changes to the terms of the preferred stock.

With Emmis's current financial situation, Mr. Smulyan cannot take over the company without dealing with the preferred shareholders. Perhaps more important, the company itself is severely restricted from raising additional capital because of the big liability to preferred shareholders.

Enter some very aggressive and creative lawyers. This trick has four steps.

Step 1: In November 2011, Emmis obtained new capital, entering into an agreement to borrow $35 million from the Zell Credit Opportunities Master Fund. Sam Zell is known as an aggressive deal maker, as the terms demonstrate. Emmis is paying an interest rate of 22.95 percent and the notes automatically mature in 2016 requiring that Emmis pay the Zell fund $65 millio n.

Step 2: With money in hand, Emmis entered into total return swaps and voting agreements with respect to about 61 percent of the preferred stock at a purchase price of $15.25 to $15.75 a share. The total return swaps were agreements to purchase the economic interest of the shares from holders of preferred stock. This left the holders with nothing but the preferred share and the vote.

Emmis then separately entered into a voting agreement with respect to the shares, leaving owners of the preferred stock holding valueless “zombie” shares with almost no rights.

This maneuver is possible because of a quirky Indiana law that can be read to allow a company to vote its own shares so long as they are still outstanding, but not if they are actually purchased and owned by the company. By entering into derivatives in the form of total return swaps, Emmis could claim that the shares were still outstanding and could be voted by Emmis.

Step 3: Emmis still nee ded to acquire a supermajority interest in the preferred shares, so it established an employee retention plan and issued 400,000 shares of preferred stock to the new trust. Emmis again claimed that it could vote these shares since Indiana law “does not limit the power of a corporation to vote any shares, including its own shares, held by it in or for an employee benefit plan or in any other fiduciary capacity.”

Emmis now had the votes to amend the terms of the preferred shares, which otherwise required two-thirds of the preferred shares.

Not surprising, the remaining preferred shareholders sued, including the hedge funds Corre Opportunities Fund and Zazove Associates, claiming this violated Indiana state law and federal securities laws.

But in an opinion issued on Aug. 31, a federal court in Indiana declined to enjoin the shareholder vote since, among other things, it found that the loophole used by Emmis was valid and the stock was outstanding for voti ng purposes under the Indiana statute.

Step 4: On Sept. 4, Emmis voted its preferred shares to amend the terms of the preferred stock. The result was to gut those shares: the accrued dividend was eliminated and made noncumulative.

In addition, the right of preferred shareholders to appoint two directors was eliminated, as was the right to force a redemption if the company went private or to separately vote on an acquisition. In the wake of these machinations, the preferred stock declined in value to about $9 a share from $20.

Emmis's maneuvers provide a lesson in the quirks of state law. Emmis got away with this because it was incorporated in Indiana.

Delaware, for example, prohibits a company from voting its own shares, in part to prevent this type of action. In addition, since the terms governing the preferred stock did not specify that Emmis could take these steps, Delaware would probably impose a higher standard. Consequently, the directors would have a fiduciary duty to act in good faith toward preferred shareholders.

A Delaware court probably would have called a foul on Emmis. But while the Indiana court did not address this issue, the tone of its opinion seemed to be that it would not adopt the Delaware approach.

I spoke with Mr. Smulyan, who was very forthright about the steps the company took. He stated to me that the situation “all started with the preferred shareholders, who were mostly hedge funds wanting to be bought out at $50 per share.”

“We checked our rights and felt comfortable under Indiana law that we could undertake this transaction,” he continued. “The preferred shareholders felt they had holdup value and we felt they didn't. This is Indiana. They always looked at it from a Delaware perspective.”

For preferred shareholders everywhere, the lesson is clear: your rights may not be as certain as you think, and clever lawyers can often find a way to circumvent a cont ractual right. Expect the terms of preferred shares issued in the future to have protections against maneuvers like the ones Emmis employed.

A second lesson is that trying to hold up a company with legal rights when its finances don't make sense can often be a losing position.

As for Emmis, Mr. Smulyan has denied under oath that he has any intention of taking the company private, but even Emmis acknowledges that such a move would now be easier.

It may be that Mr. Smulyan will change his mind and proceed. If so, he will be able to pay a much lower price for the preferred stock. In addition, and perhaps what is more significant, the company's capital structure is much improved, which Mr. Smulyan asserts “saved them from bankruptcy.”

And Emmis's maneuvering has been so aggressive and clever that Mr. Smulyan and the company can choose to leave the preferred shares outstanding, bereft of the ability to influence Emmis or require it to pay a dividend.

It's quite a feat.

Corre Opportunities Fund Lp Et Al v Emmis Communications Corporation Et Al

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

David Swensen of Yale Said to Have Cancer

Chief Investment Officer David Swensen has been diagnosed with cancer, according to students in his economics seminar.

Swensen, who is responsible for managing the University's roughly $19 billion endowment, did not attend this Monday's session of “Investment Analysis,” which he teaches with Investments Office Senior Director Dean Takahashi, five students in the course said. At that meeting, Takahashi informed the class that Swensen has been diagnosed with cancer and will be absent from the course for about one month due to medical reasons, those students said. None of them knew the type of cancer with which Swensen has been diagnosed, or any other information about his prognosis.

Neither Swensen nor Takahashi could be reached for comment Wednesday night. University spokesman Tom Conroy declined to comment on whether Swensen has been diagnosed with cancer, and whether he will be able to continue his responsibilities as chief investment officer over the next month. University President Richard Levin also declined to comment.

Swensen arrived at Yale in 1985 after spending six years on Wall Street, and is widely credited with redefining the model for institutional investing - pioneering a nontraditional investment strategy that favors illiquid, alternative assets and takes a long-term view. The strategy, often termed the “Yale Model,” propelled the University to investment returns of near or above 20 percent between 2004 and 2007, and has been adopted by many of Yale's peers.

“What David has figured out extremely well is what are the integral parts of a very sound investment process,” Anthony Knerr '60 GRD '64, the founder and director of a consulting firm for nonprofits, told the News in 2009. “Wouldn't it be terrific if every American college had a David Swensen? But alas, that's not the case.”

Yale's endowment has grown dramatically during Swensen's 27-year tenure, from just over $1 billion when he arrived to $19.4 billion as of June 30, 2011. The endowment lost almost a quarter of its value in fiscal year 2009, following the onset of the nationwide economic recession, but has since rebounded and returned 21.9 percent in fiscal year 2011.

Debra Zumwalt, vice president and general counsel at Stanford University, said she does not think that high-level university administrators are required to disclose serious health conditions. The issue is less relevant in higher education than in the corporate world, where executives are in charge of publicly traded companies, she said.

Swensen earned a Ph.D. in economics from Yale in 1980.

Tapley Stephenson contributed reporting.

Bertelsmann Sees \'Major Acquisitions\' Ahead

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Treasury Backs Plan for Standard Chartered Settlement

Lawyers within the Treasury Department have recommended a preliminary settlement with , clearing the path for the British bank to pay a penalty to state and federal prosecutors and to move beyond claims that it flouted laws governing international money transfers.

The lawyers approved a potential prepayment amount this week, a crucial step to a final agreement, though it will be much smaller than the $340 million the bank had to pay to New York State's top banking regulator in a related case, according to three officials with direct knowledge of the settlement talks.

The differing penalties stem from determinations by federal authorities and Manhattan prosecutors that the bank's suspected wrongdoing was much less extensive than the state banking regulator's claims that Standard Chartered had schemed with Iran to hide from regulators 60,000 transactions worth $250 billion over a decade.

Prosecutors and Treasury officials will also assess a smaller penalty because the bank came forward voluntarily with information about its transactions and compliance with United States sanctions, according to the law enforcement officials.

Treasury officials plan to meet in the coming days with officials from the Justice Department and the Manhattan district attorney's office, who also have been investigating the bank, before delivering the joint settlement to the bank, according to the federal officials.

Standard Chartered has maintained that “99.9 percent” of the transactions were permitted under a loophole in United States law that allowed foreign banks to transfer money through their American subsidiaries for Iranian clients.

The law enforcement officials, who would not speak publicly because the settlement was not final, would not divulge the amount of the proposed penalty or the amount of transactions they believe violated the law.

A well-synchronized settlement is particularly important to the three agencies because they want to combat the perception that American authorities are riven by divisions as they investigate banks suspected of money transfer violations, according to law enforcement officials.

Their unified front in the effort to crack down on illegal flows of money around the globe was undercut, the prosecutors said, when the New York Department of Financial Services, led by a former prosecutor, Benjamin M. Lawsky, moved alone last month against Standard Chartered.

Part of the reason the bank settled so quickly was that Mr. Lawsky, in threatening to revoke Standard Chartered's valuable state banking license, had taken aim at how the bank supposedly violated state law by masking the identities of its Iranian clients, lying to regulators and thwarting American efforts to detect money laundering.

Adding to the urge to settle quickly with Mr. Lawsky was the trove of inflammatory internal bank e-mails that Mr. Lawsky released as part of his order, according to people close to the bank.

Executives at the bank, which saw its stock battered after Mr. Lawsky's action against it, had hoped that they could settle with all the federal and state agencies when they hashed out a settlement with Mr. Lawsky, according to people close to the bank.

At the time, though, federal officials, including the Justice Department were still deciding the extent of the wrongdoing at the bank, according to law enforcement officials briefed on the matter.

In a regulatory filing when Mr. Lawsky announced his settlement Aug. 14, the bank said that “a formal agreement containing the detailed terms of the settlement is expected to be concluded shortly.” But Standard Chartered is still working on the details with Mr. Lawsky's office, according to a person with knowledge of the talks.

A global settlement against Standard Chartered, expected as early as the end of the month, will be the latest in a spate of sanctions violations cases.

Since January 2009, the Justice Department, Treasury and other government entities have brought charges against five foreign banks, contending that they moved billions of dollars through their American subsidiaries on behalf of Iran, Cuba, North Korea and other sanctioned nations.

The latest case was against ING Bank, which reached a $619 million settlement in June over accusations that it had illegally moved billions of dollars into the United States for Cuba and Iran. In 2010, Barclays settled with federal and state authorities over similar violations for $298 million, the smallest amount so far.

TOP STORIES

Investors Wary Over Giant Aerospace Deal  |  Shares of the European aerospace giants EADS and BAE Systems tumbled on Thursday as investors reacted negatively to the announced merger talks between the two companies.

A leading shareholder in EADS, which is the parent of Airbus, also said that it would have to review the consequences of the potential merger before making a decision about the deal. If completed, the deal would create an industry giant with a combined market value of almost $50 billion.

Shares in EADS fell nearly 8 percent as of midday in Paris, while stock in BAE Systems, which is listed in London, dropped 6.6 percent.
DealBook '

Treasury Backs Preliminary Standard Chartered Settlement  |  Treasury Department lawyers have recommended a preliminary settlement with Standard Chartered that would allow the British bank to pay a penalty to state and federal prosecutors and move beyond accusations that it disobeyed laws governing money transfers, reports Jessica Silver-Greenberg in The New York Times.

A potential prepayment amount that the lawyers approved this week will be smaller than the $340 million the bank had to pay to New York State's banking regulator in a related case, three officials with direct knowledge of the settlement talks told The Times.

The Times notes that the smaller penalty is due to determinations by federal authorities and Manhattan prosecutors that the bank's suspected wrongdoing wa s far less extensive than what the state regulator claimed. It is also smaller because the bank came forward voluntarily with information, law enforcement officials said.
NEW YORK TIMES

DEAL NOTES

What to Look for From the Fed  |  The Wall Street Journal's Jon Hilsenrath outlines four issues that Federal Reserve policy-makers face, as they prepare to announce on Thursday a plan to get the economy going.
WALL STREET JOURNAL

Former Banker Promises Inside Peek at Goldman  |  Coming less than a year after an explosive opinion article, Greg Smith's memoir, “Why I Left Goldman Sachs,” promises to be a tell-all of his 12-year career at the Wall Street bank.
DealBook '

Obama Becomes More Dependant on Big-Money Donors  |  Among Mr. Obama's biggest “bundlers” are Jay Snyder, a principle at HBJ Investments in New York, who has raised at least $560,000, and Azita Raji, a retired investment banker who has raised over $3 million for the president, more than anyone else over the last two years, The New York Times reports.
NEW YORK TIMES

Mergers & Acquisitions '

Thai Billionaire Makes $7.3 Billion Offer for Fraser & Neave  |  The Thai billionaire Charoen Sirivadhanabhakdi's all-cash bid may scuttle Heineken's plan to buy Asia Pacific Breweries, a business it jointly owns with Fraser & Neave.
DealBook '

Dole in Talks to Sell 2 Businesses to Itochu of Japan  |  Dole Food is in advanced talks to sell its packaged foods and Asian fresh fruit businesses to Itochu, a Japanese trading house.
DealBook '

Abercrombie Hires Goldman  |  Abercrombie & Fitch has retained Goldman Sachs as an adviser as the troubled clothier assesses potential responses to moves by one of its investors, the activist hedge fund Relational Investors, a person briefed on the matter said on Wednesday.
DealBook '

Chesapeake Energy to Sell Assets for $6.9 Billion  |  The Chesapeake Energy Corporation said on Wednesday that it had agreed to a series of asset sales as part of an effort to reduce its considerable debt burden.
DealBook '

TheStreet to Buy The Deal for $5.8 Million  |  TheStreet has agreed to acquire The Deal, publisher of a longtime bible of the mergers industry, from the investment firm that manages money for the estate of the late Bruce Wasserstein and other investors.
DealBook '

INVESTMENT BANKING '

European Banks Still Tied to Iran  |  The Wall Street Journal reports: “At least several European banks tha t vowed to stop doing business with Iran have kept handling billions of euros in transactions for Iranian entities and foreign companies with operations there, a review of regulatory filings and other documents by The Wall Street Journal shows.”
WALL STREET JOURNAL

JPMorgan Reshuffles Its Operations Again  |  In an internal memo circulated on Wednesday, the bank said it would break its corporate and investment banking division into two units.
DealBook '

Nomura Americas Executive Said to Leave  |  Ciaran O'Kelly, who was hired from Bank of America to run Nomura's equities operations in New York, is leaving the Japanese bank, Bloomberg News reports.
DealBook '

Investors Hungry for European Corporate Bonds  |  With borrowing costs low and with cash on hand, investors have the appetite and the ability to buy potentially as much as 60 billion euros ($77.13 billion) of new European corporate bonds over the next three months, The Wall Street Journal writes.
WALL STREET JOURNAL

Goldman Analyst Headed to David Yurman  |  Adrianne Shapira, a retail industry analyst at Goldman Sachs, is headed to the jewelry company David Yurman to be its chief financial officer.
DealBook '

Goldman Lawyer Joins Kirkland & Ellis  |  Michael C. Keats left his job as a managing director in Goldman Sachs's legal department to become a litigat ion partner at Kirkland & Ellis this week, Bloomberg News reports.
BLOOMBERG NEWS

Legg Mason Issues Stock to Interim Chief  |  Legg Mason said a $3 million package of shares awarded to Joseph Sullivan, the interim chief executive, was part of a retention arrangement, Reuters reports.
REUTERS

PRIVATE EQUITY '

Buyout Firms Circle an Auction Company  |  Firms including K.K.R., Apollo Global Management and Clayton Dubilier & Rice are considering buying KAR Auction Services, a company that handles vehicle auctions, in a potentially $4 billion deal, Reuters reports, citing unidentified people familiar with the matter.
REUTERS

< /div>

Tax Inquiry Said to Have Stemmed From Whistle-Blower  |  The investigation by Eric T. Schneiderman, New York's attorney general, into private equity tax practices is founded on information provided by a whistle-blower, The Wall Street Journal reports, citing an unidentified person familiar with the matter.
WALL STREET JOURNAL

Management Shake-Up at Sam Zell's Firm  |  Gary Garrabrant, the chief executive and co-founder of Equity International, has left the real estate firm for undisclosed reasons, and Sam Zell, the firm's co-founder and chairman, has stepped in as interim chief executive, The Wall Street Journal reports.
WALL STREET JOURNAL

Wilbur Ross Says Shipping Is H eating Up  |  Mr. Ross, whose firm has recently invested in the sector, said this week that private equity, for the “first time,” was “seriously interested in shipping,” Bloomberg News reports.
BLOOMBERG NEWS

HEDGE FUNDS '

Ray Dalio Predicts Gloom for Southern Europe  |  Mr. Dalio, who runs Bridgewater Associates, compared Europe to Latin America and Japan when he spoke at the Council on Foreign Relations on Wednesday, saying southern Europe would enter a “lost decade,” The Wall Street Journal reports.
WALL STREET JOURNAL

Moore Capital Said to Cut Jobs  |  Moore Capital Management, which announced plans this year to return some capital to investors, shed 10 to 15 investment jobs this week, Bloomberg News reports, citing three unidentified people with knowledge of the matter.
BLOOMBERG NEWS

Jana Partners Unloads Barnes & Noble Stake  |  The activist hedge fund led by Barry Rosenstein sold the remainder of its Barnes & Noble position in August, after building a 12 percent stake, Forbes reports, citing regulatory filings.
FORBES

Hedge Fund Manager Backs a Stadium in Seattle  |  Chris Hansen, the founder of Valiant Capital, is guaranteeing five years of debt payments on a $490 million arena being built in Seattle, AR Magazine reports. After the deal was struck, Mr. Hansen wrote a note on the Web site for the arena offering to “bu y you all a beer.”
AR MAGAZINE

Judge Dismisses Insurer's Case Against Hedge Funds  |  A federal judge in New Jersey threw out a six-year-old lawsuit in which Fairfax Financial Holdings claimed hedge funds spread false rumors to drive down its stock price, Reuters reports.

REUTERS

I.P.O./OFFERINGS '

Underwriters Allow Some Lockups to Expire Early  |  Increasingly, underwriters are allowing a company's early investors to sell their stock before the planned end of the lockup period, The Wall Street Journal reports. In some cases, offering documents include language making an early release possible.
WALL STREET JOURNAL

Facebook Sued by University Over Patents  |  A company that was founded to help the University of California commercialize patent technology has accused Facebook, along with Wal-Mart and the Walt Disney Company, of infringing on patents, Reuters reports.
REUTERS

Tribal Dispute Delays a New Zealand I.P.O.  |  The Maori tribes of New Zealand have claimed rights over water resources, pushing back a roughly $1.5 billion I.P.O. of Mighty River Power to next year, The Wall Street Journal reports.
WALL STREET JOURNAL

VENTURE CAPITAL '

Investor Criticizes a Start-Up Incubator  |  The b illionaire investor Vinod Khosla, who acts as a mentor to start-ups, singled out Y Combinator, the well-known incubator, saying it can produce companies with “so much hype that they get valuations that no one who will help the team are going to pay,” TechCrunch reports.
TECHCRUNCH

Tech Entrepreneurs Turn to Health Care  |  A number of Silicon Valley start-ups see opportunities in providing services to the health care industry, The Financial Times writes. In tech parlance, it's an industry that could use some disruption.
FINANCIAL TIMES

Apple Retires a Social Music Service  |  As it unveiled the new iPhone on Wednesday, Apple also announced that it would shut down Ping, its social music service, at the end of the mon th.
ALLTHINGSD

LEGAL/REGULATORY '

Lawmakers Delay Plans to Increase Oversight of Regulators  |  Lawmakers postponed plans to advance a bill that could curb the influence of Wall Street regulators, a move that came as some federal officials mounted opposition to the effort.
DealBook '

Europe's Central Bank May Become Top Enforcer  |  The European Central Bank is already the Continent's lender of last resort, but under a plan presented on Wednesday by the European Commission, it would also become the top banking regulator for the euro zone, The New York Times reports.
NEW YORK TIMES

British Banker Barred Over Role in Financial Crisis  |  Peter Cummings, former head of corporate lending at HBOS, was barred from working in Britain's financial services sector and fined $805,000 for aggressive lending practices that eventually led to major losses at the British bank.
DealBook '

Civil Cases Said to Be Likely in MF Global Investigation  |  Reuters reports: “Prosecutors investigating the collapse of failed commodities brokerage MF Global are close to wrapping up their criminal probe and are unlikely to file criminal charges, a move that could pave the way for regulators to bring civil cases, according to people familiar with the investigation.”
REUTERS

Why A.I.G. May Not Be Able to Avoid the Vol cker Rule  |  Robert H. Benmosche, A.I.G.'s chief executive, told CNBC that the insurance company was planning to sell a small bank it owned in an effort to shield the insurer from curbs on proprietary trading. But it is not as simple as that.
DealBook '

Madoff Employee Expected to Plead Guilty  |  Irwin Lipkin, one of the longest-serving employees of Bernard L. Madoff, is appearing in Manhattan federal court on Thursday. Prosecutors told a judge Mr. Lipkin would plead guilty to criminal charges, Reuters reports.
REUTERS

Sometimes, It Takes a Thief to Catch One  |  In spite of the $104 million whistle-blower award given to a convicted criminal this week, White Collar Watch notes that there isn't a perverse incentive to violate the law.
DealBook '

Investors Wary Over Giant Aerospace Deal

LONDON â€" Shares of the European aerospace giants EADS and BAE Systems tumbled on Thursday as investors reacted negatively to the announced merger talks between the two companies.

A leading shareholder in EADS, which is the parent of Airbus, also said that it would have to review the consequences of the potential merger before making a decision about the deal. If completed, the deal would create an industry giant with a combined market value of almost $50 billion.

Shares in EADS fell nearly 8 percent as of midday in Paris, while stock in BAE Systems, which is listed in London, dropped 6.6 percent.

Europe's two largest aerospace companies announced on Wednesday that they were in talks about a potential merger at a difficult time for the industry.

In the wake of the global economic slowdown, many countries are pulling back on their military spending. Sales of passenger airlines have improved recently, but have remained sluggish during the recent fina ncial market volatility.

Any potential merger also would have to navigate a minefield of regulatory approval, including in the United States and Europe, before a deal could be completed.

Despite the potential cost savings for combining each company's operations, investors, which include the French and Spanish governments, reacted coolly to the discussions.

The French conglomerate Lagardère, which owns a 7.5 percent stake in EADS, said on Thursday that it had not decided whether to support the deal.

“The Lagardère group intends to ensure that all consequences associated with the proposed EADS-BAE Systems merger are taken into consideration in determining the terms and conditions of the proposed transaction before it consents to the deal,” it said in a statement.

The combined companies would have annual sales of more than $90 billion and employee around 220,000 people worldwide.

Under British law, EADS and BAE have until Oct. 10 to dec ide whether to pursue the merger.

Thai Billionaire in $7.3 Billion Bid For Fraser & Neave

The Thai billionaire Charoen Sirivadhanabhakdi initiated a $7.3 billion takeover bid on Thursday for the 70 percent stake of the Singaporean conglomerate Fraser & Neave that he does not already own.

The all-cash offer, which represents a 4.3 percent premium on the Singaporean company's closing stock price on Wednesday, could scuttle plans by the Dutch brewer Heineken to buy Fraser & Neave's beer unit, whose brands include Tiger Beer.

Heineken and Thai Beverage, which is controlled by Mr. Charoen, have been battling for control of Asia Pacific Breweries, the beer business jointly owned by the Dutch company and Fraser & Neave.

Last month, Heineken moved a step closer to gaining control of Asia Pacific Breweries after it sweetened its offer, to around $4.3 billion, to buy the rights in the beer maker currently held by Fraser & Neave.

The Singaporean conglomerate has recommended the offer to its shareholders, which will vote at the end of the month o n the deal.

By attempting a multibillion-dollar takeover of Fraser & Neave, Mr. Charoen, who already controls a 30 percent stake in the company, may be able to overturn the deal. Under Singaporean law, a potential bidder must make an offer for a company if its stake totals 30 percent.

Through TCC Assets, an investment vehicle controlled by Mr. Charoen, the Thai billionaire on Thursday offered $7.22 for each share in Fraser & Neave, which also operates a large global property portfolio. The deal values the company at around $10.2 billion. The all-cash offer is supported by loans from two Singaporean banks and Morgan Stanley.

“We believe the offer represents an opportunity for F&N shareholders to realise the value of their investment in cash and to make a complete exit,” Thai Beverage's chief executive, Thapana Sirivadhanabhakdi, the son of Mr. Charoen, said in a statement.

For months, Mr. Charoen has been positioning himself to decide the fate of Asia Pacific Breweries. In August, Thai Beverage, which is owned by Mr. Charoen, increased its stake to 26.2 percent, making it the company's largest shareholder and allowing Mr. Charoen to dictate whether Fraser & Neave shareholders support Heineken's takeover. Thai Beverage has subsequently increased its holding to 29 percent.

Kindest Place, a separate company controlled by the son-in-law of Mr. Charoen, also bought an 8.6 percent direct stake in Asia Pacific Breweries.

The Japanese brewer Kirin is the second-largest shareholder in Fraser & Neave, with a 15 percent stake in the company.

Heineken said it would review the $7.3 billion offer for the Singaporean conglomerate. A spokesman declined to comment on whether the Dutch brewer would increase its offer.

By the close of trading in Singapore, shares in Fraser & Neave had risen 4.8 percent. In morning trading in Amsterdam, stock in Heineken had fallen less than 1 percent.

The ongoing battl e for Asia Pacific Breweries comes as many of the world's beer companies are turning to emerging markets in search of new growth.

With fast-expanding middle classes and ongoing economic growth despite the global slowdown, developing countries offer new sources of revenue compared with Western countries, which continue to struggle from the European debt crisis and volatility in the financial markets.

Earlier this year, Anheuser-Busch InBev, whose 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 $10.2 billion late last year.