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Another Day, Another Set of Insider Trading Cases

It has been yet another busy day for insider trading on the federal court docket.

An insurance executive in Denver was charged on Friday by federal prosecutors with trading based on secret information he obtained in advance of a private investment firm acquiring a significant stake in an oil and gas company.

Michael Van Gilder, 45, surrendered to federal agents and is expected to appear in Federal District Court in Denver on Friday afternoon. The Securities and Exchange Commission filed a parallel civil complaint against Mr. Van Gilder on Friday. His lawyer, David Savitz, did not return a telephone call seeking comment.

According to the indictment, Mr. Van Gilder is accused of traded in the stock of Delta Petroleum, a Denver-based company. He was a close, personal friend of a Delta executive and his family-owned firm, Van Gilder Insurance, did business with the energy company.

The government says that he traded on inside tips from the Delta executiv e on multiple occasions. In one instance, in November 2007, Mr. Van Gilder learned from his source that Tracinda, a California-based investment firm controlled by the billionaire financier Kirk Kerkorian, was planning to acquire a 35 percent stake in Delta. After hearing this confidential news, Mr. Van Gilder bought Delta stock and call options, according to the court filing. He also tipped off relatives, sending them e-mails with the subject line “Xmas present,” the complaint says. Prosecutors say that he and those he tipped off made more than $161,000 in illegal profits.

Also Friday, a former employee of Raj Rajaratnam, the former hedge fund manager, agreed to pay $1.75 million to settle a civil lawsuit brought the Securities and Exchange Commission.

Kris Chellam, a former Galleon executive, resolved accusations that he shared confidential information about the financial results of the chipmaker Xilinx to Mr. Rajaratnam in December 2006. Mr. Rajaratnam made nearly $1 million in illegal profits trading in Xilinx shares.

Mr. Chellam, 61, of Saratoga, Calif., was the former chief financial officer of Xilinx. He was contemplating taking a job at Galleon when he tipped Mr. Rajaratnam, the S.E.C. said. He joined the hedge fund in 2007.

Christopher Steskal, a lawyer for Mr. Chellam, didn't immediately return a call seeking comment.

The charges against Mr. Chellam came a day after lawyers for Mr. Rajaratnam, who is serving an 11-year prison term, argued his appeal at the United States Court of Appeals for the Second Circuit in Manhattan.

During Mr. Rajaratnam's trial, prosecutors played a wiretapped conversation during which Mr. Rajaratnam swapped insider tips with Mr. Chellam and then told him to create an “e-mail trail” that would make it appear that Galleon bought the stock on fundamentals rather than an illegal tip.

“You know, so that we just protect ourselves,” Mr. Rajaratnam said. “We just have an e-mail trail.”

“Oh, that's good,” said Mr. Chellam.



Week in Review: Bank Suit Draws Fire Across Political Spectrum

WEEK IN VERSE Want to really clean up Wall Street? You know who you need to call. Happy Halloween from DealBook.

There is an old defense trotted out by journalists that their reporting must be fair if both Republicans and Democrats are upset with them. If that is the case, then government officials can take some pleasure from the bipartisan complaints of their disjointed efforts to clean up the mortgage mess.

On Wednesday, federal prosecutors in New York filed a civil suit seeking $1 billion from Bank of America for a flood of bad loans that began with its Countrywide Financial unit.

On one side, banks complained that the case was another example of a chaotic and redundant pattern of litigation. “The cases have come from a patchwork of federal agencies, state officials and shareholder suits, some of which have been resolved in multibillion-dollar settlements,” Ben Protess reported.

Some on Wall Stre et and Washington also expressed incredulity at the timing of the suit, which came less than two weeks before the presidential election. “Am I jaded enough to think this is just a campaign stunt?” asked one person who commented on DealBook.

The flip side of this anger comes from people upset that the civil cases against big banks do not go far enough. A number of readers complained that a $1 billion fine would not be a strong deterrent for a company that reported $20.66 billion in revenue in its latest quarterly earnings. They argued that nothing short of criminal complaints followed by jail terms for top Wall Street executives would prevent future financial fraud.

“Like a dozen lawyers buried up to their necks in sand… it's a start, but what I really want to see is handcuffs, walks-of-shame and bank execs crying themselves to sleep on striped ticking,” said John Warren of Delray Beach, Fla.

Prosecutors say the lawsuits should send a “clear mess age” that reckless lending will not be tolerated. So far, it appears that is not the message that is being received.

A look back on our reporting of the past week's highs and lows in finance.

Oshkosh Rejects Icahn and Builds Its Defenses | The truck maker rejected Carl Icahn's $3 billion unsolicited takeover bid, deeming it too low, Michael J. de la Merced reported. “It also adopted a poison pill to protect itself against further moves by the billionaire investor.” DealBook '

Deal Professor: Few Winners in Heated Cellphone Wars | Steven M. Davidoff says that American cellphone providers may be ruined by a rush of acquisitions, leaving consumers by the wayside. DealBook '

The rush to complete deals is an investment banker's dream.

But the hunt may lead these companies to not only overpay but acquire companies that are underperforming or otherwise don't fit well. Then they have to find a way to run them profitably.

BP Will Switch Russian Partners Through a Deal With Rosneft | After years of feuding with its longtime Russian partners, the British oil giant has formally filed for divorce and announced plans to move in with someone wealthier and more powerful, Andrew E. Kramer and Stanley Reed reported. DealBook '

China's Bid for Nexen May Survive a Rejection | “The rejection of a major energy industry takeover by Canadian government may not indicate that it is adopting a harder line on mergers involving foreign companies,” Ian Austen reported. DealBook '

K.K.R. Swings to a Profit for 3rd Quarter | The private equity industry has been the beneficiary of steady markets that have supported the value of its por tfolio companies, Mr. de la Merced reported. DealBook '

Farallon Capital's Founder to Step Down This Year | Thomas F. Steyer, who managed a $20 billion investment firm, is part of a group of hedge fund executives who started firms from scratch and are passing the baton to successors, Mr. de la Merced and Peter Lattman reported. DealBook '

Such moves have fueled speculation of a political career for Mr. Steyer, perhaps even a bid for governor of California.

In London, Nimble Start-Ups Offer Alternatives to Stodgy Banks | “As consumers' trust in banks deteriorates because of a series of recent scandals, young companies are pressing their newcomer advantage,” Mark Scott reported. DealBook '

“The whole idea of bank payments is broken,” said Mr. Takeuchi at the start-up's office in a dilapidated building on the outskirts of London's financial district. “There's an opportunity here, and we're looking to grab it .”

Citigroup Pays Fine and Fires Analysts Over Facebook I.P.O. | The bank paid a $2 million fine and fired a prominent employee after authorities accused a junior analyst of improperly leaking to the media unpublished information about YouTube and confidential research on Facebook‘s initial public offering, Mr. Protess reported. DealBook '

Man Claiming Facebook Ownership Arrested on Fraud Charges | Federal prosecutors say that Paul Ceglia filed a sham federal lawsuit claiming to have been promised a 50 percent share of Facebook, and then doctored, fabricated and destroyed evidence to support his allegations, Mr. Lattmn reported. DealBook '

Lawyer Denounces Wiretaps in Appeal of Galleon Case | Patricia A. Millett asked a panel of federal appeals court judges to set aside Raj Rajaratnam's conviction, arguing that the government had used deceptive methods to obtain permission to wiretap his cellphone, Mr. Lattman reported. DealBook '

    Ex-Goldman Director to Serve 2 Years in Insider Case | Rajat K. Gupta is the most prominent figure to face prison in the government's sweeping crackdown on insider trading. The court also ordered Mr. Gupta to pay a $5 million fine. DealBook '
  • Appeal in Insider Trading Case Centers on Wiretap | The request is considered a long shot, but a reversal would have broad implications. DealBook '

As a Benchmark Loses Status, Brazil Seeks Alternatives | “A system that has been in place for decades may soon change and force fund managers to dive into riskier investments in order to meet performance goals,” Dan Horch reported. DealBook '

U.S. Accuses Bank of America of a ‘Brazen' Mortgage Fraud | In a civil suit, federal prosecutors in New York seek to collect at least $1 billion in penalties from the bank, Mr. Protess reported. DealBook '

“They never know who's going to be coming after them next,” said Dan Hurson, a former federal prosecutor who now defends securities cases. “There's no central traffic cop.”

DealBook Column: Casting Dual Roles, at Treasury and the Fed | Andrew Ross Sorkin says Ben Bernanke has told close friends that he probably will not stay on for another term. So here is a field guide to handicapping the next Treasury secretary and Federal Reserve chairman. DealBook '

That would be a one-two punch, with two of the most important jobs in the nation up for grabs. And over the last couple of years, especially at the depth of the financial crisis, the relationship between the two people in those roles has been increasingly important. They are the equivalent of roles in a buddy movie.

Man Claiming Facebook Ownership Arrested on Fraud Charges

In 2010, a New York entrepreneur made an explosive legal claim: An agreement that he had with Facebook's founder Mark Zuckerberg entitled him to a major stake in the social-networking giant.

Mr. Zuckerberg staunchly denied the allegation, and his lawyers insisted that the entrepreneur, Paul Ceglia, was a scam artist.

On Friday, federal authorities sided with Mr. Zuckerberg, arresting Mr. Ceglia and charging him with a multi-billion dollar scheme to defraud Facebook.

Prosecutors say that Mr. Ceglia, 39, of Wellsville, N.Y., filed a sham federal lawsuit claiming to have been promised a 50 percent share of Facebook, and then doctored, fabricated and destroyed evidence to support his allegations.

“Ceglia's alleged conduct not only constitutes a massive fraud attempt, but also an attempted corruption of our legal system through the manufacture of false evidence,” said Preet Bharara, the United States attorney in Manhattan. “Dressing up a fraud as a lawsuit does not immunize you from prosecution.”

Mr. Ceglia is expected to make an appearance in federal court in Buffalo on Friday afternoon. His lawyer, Dean Boland, did not immediately return a telephone call seeking comment.

The improbable claims made by Mr. Ceglia received outsized attention in part because it came at around the same time as the release of “The Social Network,” the Academy Award-winning film that told the tale of Mr. Zuckerberg's legal battle with his Harvard schoolmates, the Winklevoss twins, over the origins of Facebook. Mr. Zuckerberg paid the Winklevosses at least $65 million to settle their case.

Since the lawsuit was first filed, Facebook's lawyers have raised questions about Mr. Ceglia's credibility. In 1997, he pleaded guilty to possessing hallucinogenic mushrooms. And in 2010, the New York State attorney general criminally charged him with defrauding customers in a now-defunct wood-pellet manufacturing business that he had run with his wife.

Questions are now also being raised about the lawyers that represented Mr. Ceglia in his lawsuit.

In his original complaint, filed in 2010, Mr. Ceglia was represented by Paul Argentieri, a sole practitioner in upstate New York. An amended lawsuit was filed in April 2011 by Robert W. Brownlie of DLA Piper, the world's largest law firm, and Dennis C. Vacco, a former New York attorney general now in private practice at Lippes Mathias Wexler Friedman in Buffalo.

In 2011, Mr. Brownlie of DLA Piper declined a request by The New York Times to produce the original documents backing his client's legal claims. “That will come out during the course of litigation,” Mr. Brownlie said. “Anyone who claims this case is fraudulent and brought by a scam artist will come to regret those claims.”

Yet court records indicate that another law firm, Kasowitz Benson Friedman & Torres, had been hired by Mr. Ceglia before DLA Piper and Lippes Mat hias becoming involved. Kasowitz Benson withdrew from the case and put DLA Piper and Lippes Mathias on notice that it had determined that the purported contract was a fraud.

Mr. Brownlie and Mr. Vacco later withdrew from the case. They did not return calls and e-mails seeking comment.

Mr. Ceglia's alleged plot dates back to 2003, when Mr. Zuckerberg was a student at Harvard University. Mr. Ceglia had placed an advertisement on Craigslist looking for a programmer for an Internet business he was trying to get off the ground. Mr. Zuckerberg responded to the ad, and Mr. Ceglia agreed to pay him $1,000 for his work.

Months later, in his college dorm room, Mr. Zuckerberg started a business called Facebook.

Mr. Zuckerberg did not hear from Mr. Ceglia again until 2010, when he was served with a complaint that claimed Mr. Ceglia was entitled to an 84 percent ownership stake in Facebook.

According to the lawsuit, Mr. Zuckerberg had promised him a substant ial interest in either “The Face Book” or “The Page Book.” Attached to the legal papers was a contract that contained language giving Mr. Ceglia an interest in Mr. Zuckerberg's startup. The filing also included e-mail exchanges between Mr. Ceglia and Mr. Zuckerberg that purported to show their collaborating on ideas for the social networking business.

Federal prosecutors say that Mr. Ceglia's claims were entirely false. Government investigators searched Mr. Ceglia's hard drive and discovered the original contract, which had no reference to Facebook.

And Harvard's e-mail servers had no record of the supposed e-mails.

Facebook's lawyers at Gibson, Dunn & Crutcher commended the Justice Department for filing criminal charges and, in statement, indicated that it would pursue possible claims against the lawyers that assisted Mr. Ceglia.

“Ceglia used the federal court system to perpetuate his fraud and will now be held accountable for his criminal scheme,” said Orin Snyder, a partner at Gibson Dunn. “Facebook also intends to hold accountable all of those who assisted Ceglia in this outrageous fraud.”



Business Day Live: Billions in Hidden Riches for Family of China\'s Premier

The Wen family empire. | Random House and Penguin consider merging. | Referendum could enshrine union rights. | Transcript of the 1944 Bretton Woods conference.

Citigroup Pays Fine and Fires Analysts Over Facebook I.P.O.

Citigroup paid a $2 million fine and fired two employees after authorities accused the bank of improperly disclosing confidential information to media outlets about YouTube's earnings and Facebook‘s initial public offering.

William Galvin, the Massachusetts Secretary of the Commonwealth, accused a junior analyst of leaking nonpublic information about Facebook to TechCrunch, a blog focused on the technology world. The information included Citigroup's unpublished revenue estimates for Facebook, as well as “Investment Risks” and “Investment Positives.”

“We are pleased to have this matter resolved,” a Citigroup spokeswoman said in a statement. “We take our internal policies and procedures very seriously and have taken the appropriate actions.”

Citigroup fired the junior analyst in September, according to Mr. Galvin's order. The bank also terminated his boss, according to a person briefed on the matter. The boss did not leak the information b ut was blamed for not thwarting the illegal activity. The leaked information also came from the senior analyst's research.

While Mr. Galvin did not disclose the name of the analysts, referring to them in a legal order as “senior” and “junior,” he did disclose revealing details. The senior analyst, according to public documents and a person briefed on the matter, is Mark Mahaney, a crucial member of the bank's San Francisco-based technology research team.

Mr. Galvin's order separately took aim at Mr. Mahaney for discussing YouTube's earnings with a French magazine reporter without permission from Citigroup. The discussion with Capital Magazine did not appear to violate any securities rules, but rather conflicted with Citigroup's policy that research analysts receive internal approval before talking to reporters.

Mr. Galvin also cited past problems in which Citigroup rebuked Mr. Mahaney for conducting an interview with Bloomberg on a company he did n ot cover. On another occasion this year, Mr. Galvin said, Citigroup cited Mr. Mahaney for not receiving approval before an interview.

Under Mr. Galvin's order, the main legal violations stemmed from the disclosure of Facebook information.

Under securities rules and a non-disclosure agreement with Facebook, Citigroup analysts were banned from “disseminating written research” about the social networking giant until 40 days after the I.P.O. The restriction, which applied to all banks that helped take Facebook public in May, was created to prevent research analysts from improperly promoting companies in a bid to drum up business for bankers.

The rules were reinforced in a landmark 2003 settlement with several banks, including Citigroup. The case, led by former New York Attorney General Eliot Spitzer, built a Chinese wall between Wall Street research analysts and investment bankers.



Pursuing Orient-Express, Indian Hotels Takes a Softer Tone

The hotel arm of India's Tata Group is hoping that a gentler tone may help it win over Orient-Express Hotels.

The Indian Hotels Company sent a letter to its target's board on Friday, offering to “dispel any misunderstandings” about its bid to buy the roughly 93 percent of Orient-Express that it does not already own.

Orient-Express, which owns and runs high-end hotels, cruises and restaurants like the 21 Club in Manhattan, has not offered a formal response to the unsolicited takeover bid yet. A representative wasn't immediately available for comment.

In its letter, Indian Hotels emphasized that its takeover bid of $12.63 a share represented a 40 percent premium to where Orient-Express was trading on the day before the proposal was made public. But that offer was based only on publicly available information, prompting Indian Hotels to seek formal negotiations.

“To the extent you and your advisors wish to discuss value-drivers of which we may not be aware, we would be pleased to engage in a constructive dialogue regarding these issues,” R. K. Kumar Krishna, an Indian Hotels director, wrote in the letter.

Indian Hotels also offered to set up a meeting with Ratan Tata, the chairman of the Tata Group, and Luca Montezemolo, the chairman of Ferrari who is helping provide financing for the offer.

Shares of Orient-Express were down slightly at $11.38 in midmorning trading on Friday.



Oshkosh Rejects Icahn and Builds Its Defenses

The Oshkosh Corporation would like Carl C. Icahn to take a hike.

The truck maker rejected Mr. Icahn's $3 billion unsolicited takeover bid on Friday, deeming it too low. It also adopted a poison pill to protect itself against further moves by the billionaire investor.

The company's board also called on investors not to participate in Mr. Icahn's tender offer of $32.50 a share.

“Our board of directors unanimously concluded that Mr. Icahn's unsolicited, inadequate, highly conditional and opportunistic offer significantly undervalues Oshkosh and is not in the best interests of all Oshkosh shareholders,” Richard M. Donnelly, Oshkosh's chairman, said in a statement.

Mr. Icahn, who owns a roughly 10 percent stake in Oshkosh, has been a persistent critic of the company for some time. He is seeking not only to build his stake above 50 percent, but also seats on the truck maker's board.

The company is asking investors to put their faith in managemen t's own plan to improve its stock price, a strategy that includes spending cuts and divesting itself of lower-margin businesses.

Mr. Icahn has called on Oshkosh to spin off JLG Industries, a construction equipment maker, to improve its value. But the company called such a move “ill-advised” on Friday.

In a letter to shareholders on Friday, Oshkosh added that Mr. Icahn tried last year to force a merger of the company with Navistar International, another truck maker. That transaction would have been disastrous, the Oshkosh board wrote, pointing to a steep plunge in Navistar's stock price this year.

“Where Mr. Icahn has offered flawed, contradictory, self-interested and unproductive proposals, the Oshkosh board and management team have outlined a clear strategy and are delivering upon it,” Mr. Donnelly and Charles Szews, the company's chief executive, wrote.

Shares in Oshkosh were up slightly in early morning trading on Friday, at $29.95.



The New, More Aggressive Face of Chapter 11

Acrimony is on the rise in the American Airlines case. Marathon Asset Management, a hedge fund and bondholder in the case, has asked for the appointment of an examiner â€" that's bankruptcy speak for an independent investigator.

Marathon complains that the airline's parent company, the AMR Corporation, assumed $2.26 billion in debt that its regional carrier American Eagle owed under aircraft-financing arrangements just before bankruptcy. Marathon suggests this may have been a fraudulent transfer.

I'm betting that Marathon does not really care if this was a fraudulent transfer or not. Instead, Marathon is peeved that AMR has shut it out of talks with other bondholders in the case.

We are seeing the new face of Chapter 11. Intra-class fights are on the rise. In such a fight, a creditor looks for leverage wherever it can find it. And it happens that the standards for appointing an examiner to investigate something in a big Chapter 11 case are rather low , at least as the standards appear in the bankruptcy code itself.

Whether this is a good thing is subject to debate. Examiners cost a lot, both because of their direct expenses and because they tend to increase the amount of legal fees the debtor itself incurs.

Sometimes they do a world of good; I have previously argued that Dynegy is such a case. But sometimes examiners investigate something that the parties might have compromised on in the course of negotiating a plan.

In that case, the party requesting an examiner for leverage imposes costs on the entire Chapter 11 proceedings for the sole benefit of its particular trading strategy.

This is just one of many areas where it may be time to consider an update for Chapter 11.

Distressed debt traders were few and far between when the code was drafted in 1978.

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



Wealth and Politics Converge in China

WEALTH AND POLITICS CONVERGE IN CHINA  |  The official story in China is that the prime minister, Wen Jiabao, came from humble roots. But his family has had remarkable business success in the years since he came to power, controlling assets worth at least $2.7 billion, according to an investigation by The New York Times. The records uncovered by The Times provide an “unusually detailed look at how politically connected people have profited from being at the intersection of government and business as state influence and private wealth converge in China's fast-growing economy.” Mr. Wen, The Times report continues, “has broad authority over the major industries where his relatives have made their fortunes.”

In one example, Mr. Wen's relatives made a fortune by investing in Ping An Insurance before its I.P.O. - and after a government bod y that Mr. Wen presides over exempted the company from certain rules. The holdings were worth as much as $2.2 billion in 2007, according to The Times. This world may be unfamiliar to deal makers on Wall Street, but in emerging markets, political connections offer “the quickest path for riches these days,” wrote Steven M. Davidoff in the Deal Professor column earlier this year. (The Chinese government blocked access to The New York Times online after the article about Mr. Wen's family was posted.)

VIKRAM PANDIT'S FINAL DAYS  |  The coup at Citigroup that toppled Vikram S. Pandit was meticulously planned over the last several months, report Jessica Silver-Greenberg and Susanne Craig in The New York Times. The plan's author, Michael E. O'Neill, began private meetings with board members since becoming chairman in April, until Mr. Pandit, the chief executive, “had virtually no allies left,” Ms. Silver-Greenberg and Ms. Craig write. This effort was said to culminate in an encounter early last week, when Mr. O'Neill told Mr. Pandit that “the board has lost confidence in you,” prompting Mr. Pandit to resign immediately. He was replaced with Michael L. Corbat, who, The Times report says, was alerted by Mr. O'Neill a few weeks earlier that he might be asked to take the reins.

XSTRATA'S GAMESMANSHIP  |  Xstrata has set a date of Nov. 20 for shareholders of the mining company to vote on the merger with the trading house Glencore. As advertised, the structure of the vote allows shareholders to approve the merger while also rejecting $200 million in retention payments. But the reality isn't so clear-cut, writes Steven M. Davidoff in the Deal Professor column. Xstrata, Mr. Davidoff writes, has set up “a diabolical game of the prisoner's dilemma.”

ON THE AGENDA  |  The chairwoman of the Securities and Exchange Commission, Mary L. Schapiro, is speaking about the Dodd-Frank law at George Washington University Law School this morning. K.K.R. announces its quarterly results before the opening bell. Moody's, Comcast and Merck also report earnings before the market opens. Peter Orszag, Citigroup's vice chairman of global banking, is on CNBC at 7:30 a.m. Julian Robertson, the founder of Tiger Management, is on Bloomberg TV at 7:30 a.m. Laurence Fink of BlackRock is on CNBC at 8 a.m. The billionaire Kenneth G. Langone is on Bloomberg TV at 4 p.m. An estimate of third-quarter gross domestic product is being released at 8:30 a.m.

WALL STREET'S POLITICAL STREAK  |  With the presidential election around the corner, business leaders are engaging in some political activism. A group of more than 80 chief executives, called Fix the Debt, is pushing an agenda that doesn't fit neatly into either political party, writes Jackie Calmes of The New York Times. Jamie Dimon of JPMorgan Chase, for example, recently hosted a Wall Street lunch with lawmakers to ask how Republicans could be persuaded to drop their opposition to higher taxes. Lloyd C. Blankfein of Goldman Sachs explained that while these executives are “willing to give more revenue,” they “don't want to take on the moral hazard” of giving the government more money without a deal to cut the budget, according to Ms. Calmes.

For another Wall Street leader, Laurence Fink of BlackRock, the so-called fiscal cliff is a pressing concern. Speaking at a conference hosted by The Economist magazine on Thursday, Mr. Fink lamented that there was “not one question” in the presidential debates about the issue. Of course, it's not the only topic that's been absent from the debates. “Remember the euro crisis?” asks Floyd Norris of The New York Times. “In this week's foreign policy debate between President Obama and Mitt Romney, the euro never came up.”

If Mr. Romney is elected, he may have a willing Treasury secretary in Glenn Hubbard, his chief economic adviser. Mr. Hubbard, the dean of Columbia University's business school, “would rather be Treasury secretary than Federal Reserve chairman,” according to Bloomberg News, which cites unidentified people familiar with his thinking.

HEDGE FUND ROYALTY  |  Christopher O'Neill, a partner at the hedge fund Noster Capital, is engaged to be married to Princess Madeleine of Sweden. The pair met in New York.

Mergers & Acquisiti ons '

Random House and Penguin in Merger Talks  |  The two publishers are trying to protect themselves from the increasing clout of Amazon, Apple and Google in the e-book market.
NEW YORK TIMES MEDIA DECODER

Machinery Maker Considers Sale  |  Gardner Denver said it was exploring options that included a possible sale or merger, Reuters reports.
REUTERS

Berkshire Hathaway Wins Bid for ResCap Loans  |  Berkshire Hathaway successfully bid for a 47,000-loan portfolio held by Residential Capital, the bankrupt mortgage lender, paying $1.5 billion.
DealBook '

Next in Line at Berkshire Hathaway?  |  Ted Weschler has been busy since joining Berkshire Hathaway in January, and there's speculation that he might one day take the reins from Warren E. Buffett, Bloomberg Businessweek writes.
BLOOMBERG BUSINESSWEEK

Mayer Strikes First Deal at Yahoo With Acquisition of Stamped  |  Marissa Mayer, Yahoo's chief, announced on Thursday that the Internet company had purchased Stamped, a start-up focused on mobile products.
DealBook '

Chief of Anglo American to Step Down  |  Cynthia Carroll is leaving her post as chief executive of Anglo American, as the mining company has lagged its rivals, The Wall Street Journal reports.
W ALL STREET JOURNAL

INVESTMENT BANKING '

Tallying the Costs of Bank of America's Countrywide Nightmare  |  Countrywide Financial, the subprime lending specialist that Bank of America bought in 2008, continues to drain the bank's resources.
DealBook '

Civil Fraud Charges Possible for Bank of America Employees  |  A federal prosecutor said in court on Thursday that “the government may amend” its new lawsuit against Bank of America to “include individuals, present or former employees” of the bank.
REUTERS

S.&P. Downgrades BNP Paribas  | 
NEW YORK TIMES

As a Benchmark Loses Status, Brazil Seeks Alternatives  |  Traditional investing standards that have been in place for decades in Brazil may soon change, forcing fund managers to dive into riskier investments in order to meet performance goals.
DealBook '

Evercore Profit Falls in Weak M.&A. Climate  |  Evercore Partners said profit slipped 13 percent in the third quarter, as it grappled with a slowdown in its advisory and investment management businesses.
DealBook '

ICICI Bank of India Reports 30% Rise in Profit  | 
ASSOCIATED PRESS

A Bank C.E.O. Without Controversy  |  Jim Rohr of PNC Financial Services “looks more out of central casting for brake-pad salesman than a systemically important Wall Street C.E.O.,” writes Bloomberg Businessweek.
BLOOMBERG BUSINESSWEEK

PRIVATE EQUITY '

Returns Fall for College Endowments  |  According to a preliminary study released on Thursday, college and university endowments lost 0.3 percent on average in the fiscal year ending in June, compared with a gain of 19.2 percent in the previous fiscal year, The New York Times reports. The biggest endowments are often invested in private equity and hedge funds.
NEW YORK TIMES

Private Equity Video Promotes Environmental Impact  |  A new video from the private equity industry's lobbying group highlights an investment by TPG Capital in a ride-sharing company, vRide.
PRIVATE EQUITY GROWTH CAPITAL COUNCIL

Blackstone to Increase Real Estate Investments in Asia  | 
BLOOMBERG NEWS

HEDGE FUNDS '

Man Group Attracts the Interest of a British Rival  |  The London-based hedge fund Odey Asset Management has built up a 5.15 percent stake in Man Group, the publicly traded hedge fund giant that has fallen on difficult times, Reuters reports.
REUTERS

David Einhorn Continues His Take Down of Fed Policy  |  The hedge fund manager says the central bank's loose-money policy is hindering economic growth, an argument he expanded on during a conference in New York on Thursday.
DealBook '

Jana Partners Plans a Drawn-Out Battle  |  Reuters reports: “From Agrium Inc's perspective, a campaign by Jana Partners LLC to break up the Canadian fertilizer company is effectively dead in the water. But the $3.5 billion activist hedge fund believes it is only getting started.”
REUTERS

I.P.O./OFFERINGS '

A Closely Watched Clean Tech I.P.O.  |  Reuters writes: “The last thi ng the downtrodden clean tech industry needs is another start-up going up in flames, so it has a lot riding on the initial public offering of SolarCity.”
REUTERS

Food Company Prices I.P.O. Above Expected Range  |  WhiteWave, a specialty food company splitting off from Dean Foods, priced its I.P.O. at $17 a share to raise $391 million, Dow Jones reports.
WALL STREET JOURNAL

Government to List Japan Post Holdings  |  The Japanese government plans to offer shares of Japan Post Holdings within three years, Reuters reports.
REUTERS

VENTURE CAPITAL '

Andreessen Horowitz Backs an Education Company  |  The venture capital firm led a $15 million investment round in Udacity, which aims to offer university-level education for free, TechCrunch reports.
TECHCRUNCH

LEGAL/REGULATORY '

Lawyer Denounces Wiretaps in Appeal of Galleon Case  |  A lawyer for the former hedge fund manager Raj Rajaratnam argued before appellate judges that the government's request to secretly record Mr. Rajaratnam's conversations was riddled with problems.
DealBook '

Lawmakers Seek Urgency in Volcker Rule  |  While regulators hope to finalize the Volcker Rule by the end of the year, Senators Carl Levin and Jeff Merkley argue in a letter that some agencies should publish the final rule even if all are not yet on board.
DealBook '

Why Did Freddie Mac Oppose Refinancing Mortgages?  |  Jesse Eisinger reports in ProPublica that Freddie Mac “made it harder for millions of Americans to refinance their high-interest-rate mortgages for fear it would cut into company profits.” Mr. Eisinger adds that “two Republican-leaning board members and at least one executive resisted a mass refi policy for an additional reason, according to the interviews: They regarded it as a backdoor economic stimulus.”
PROPUBLICA

The Shift Toward Law School Specialization  |  Instead of just offering the traditional, general legal education, law schools may want to consider ing playing matchmaker, guiding students toward specialties that are likely to endure, including tax or securities law, writes Victor Fleischer in the Standard Deduction column.
DealBook '

New Taxes on Global Reinsurers Would Hurt Response to Natural Disasters  |  A new tax under consideration aimed at reinsurers based outside the United States would be punitive and could reduce aid for natural disasters by billions of dollars, write J. David Cummins, a professor at Temple University's Fox School of Business, and Bradley Kading, the president of the Association of Bermuda Insurers and Reinsurers.
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K.K.R. Swings to a Profit for 3rd Quarter

As the markets have improved, so have the fortunes of private equity firms like Kohlberg Kravis Roberts.

The investment firm said on Friday that it earned $509.9 million in its third quarter, swinging to a profit from a loss the same time last year as the value of its holdings improved. That amounts to 69 cents a share.

And the firm's assets under management grew as well, rising 7.8 percent to $66.3 billion.

Coupled with the Blackstone Group‘s third-quarter results, which also showed a profit after reporting a loss in the year-ago period, K.K.R.'s quarter augurs well for the private equity industry. Such firms have been the beneficiaries of steady markets that have supported the value of their portfolio companies.

The firm's founders and co-chief executives, Henry R. Kravis and George R. Roberts, crowed about the performance, arguing that the results outpaced broader stock indicators.

“We are pleased with the firm's performance for the nin e months through Sept. 30,” they said in a statement. “Our private equity funds appreciated by 20 percent and our balance sheet investments appreciated by 22 percent, outperforming the MSCI World Index by over 600 and 800 basis points, respectively.”

K.K.R.'s profits were reported as economic net income, a pro forma measure that includes unrealized investments and depends in part on how portfolio companies are valued. Using generally accepted accounting principles, the firm earned $127.4 million.

Much of the firm's good news in its core private markets unit came from a rise in fees, including monitoring fees that it charges its portfolio companies. The division reported an 8.5 percent gain in fee-related earnings, at $44.7 million.

Nearly all of K.K.R.'s private equity holdings, including the hospital operator HCA and the pharmacy chain Alliance Boots, were valued at well above the firm's initial costs. Still, some investments, like Energy Future Hold ings, remained well in the red.

And its assets under management grew nearly 10 percent, to $49.8 billion, as the firm added new capital from its 11th North American buyout fund.

Yet some clouds lingered over the business. The firm said that it has raised $6.2 billion for its latest North American fund, which is short of an expected $8 billion goal. K.K.R. is still raising money for the fund, however.

The firm's public markets segment also fared well, nearly doubling its fee-related earnings to $23.3 million. Its assets under management also rose, to $16.5 billion.

And it is adding Prisma Capital Partners, an investor in hedge funds with $8.1 billion worth of assets.

But K.K.R.'s capital markets and principal activities unit reported a halving of fee-related earnings, to $22.7 million. The firm said that the business was hurt by a less-busy quarter.



Citi Chairman Is Said to Have Planned Chief\'s Exit Over Months

Citi Chairman Is Said to Have Planned Chief's Exit Over Months

Vikram Pandit's last day at Citigroup swung from celebratory to devastating in a matter of minutes. Having fielded congratulatory e-mails about the earnings report in the morning that suggested the bank was finally on more solid ground, Mr. Pandit strode into the office of the chairman at day's end on Oct. 15 for what he considered just another of their frequent meetings on his calendar.

Vikram Pandit is said to have been stunned when he was given an ultimatum and told: “The board has lost confidence in you.”

Michael O'Neill is said to have begun building a case to force out Mr. Pandit after Mr. O'Neill became chairman in April.

Instead, Mr. Pandit, the chief executive of Citigroup, was told three news releases were ready. One stated that Mr. Pandit had resigned, effective immediately. Another that he would resign, effective at the end of the year. The third release stated Mr. Pandit had been fired without cause. The choice was his.

The abrupt encounter, described by three people briefed on the conversation, included a terse comment by the chairman, Michael E. O'Neill: “The board has lost confidence in you.”

A stunned Mr. Pandit chose to resign immediately. Even though Mr. Pandit and the board have publicly characterized his exit as his decision, interviews with people close to the board describe how the chairman maneuvered behind the scenes for months ahead of that day to force Mr. Pandit out and replace him with Michael L. Corbat, the board's chosen successor.

Once he became chairman this year, Mr. O'Neill, 66, meticulously built a case for the chief executive's ouster, they say, first meeting privately with less-satisfied board members and then drawing in others until Mr. Pandit had virtually no allies left.

As Mr. Pandit was reeling from his encounter, three board members confronted John Havens, the bank's chief operating officer and a longtime lieutenant.

“Vikram has offered his resignation, and we would like to give you the opportunity to offer yours,” a board member said, following a script prepared by the board's lawyers, according to several people with knowledge of the meeting.

Startled, Mr. Havens briefly challenged the directors, pointing to the solid performance of the institutional clients group, and then relented, saying his resignation would be on Mr. Pandit's desk within five minutes.

The dramatic boardroom coup at the bank's Park Avenue headquarters has rankled some people at Citi, especially senior executives who feel that the action was needlessly ruthless and who spoke only on the condition that they not be identified. They point out that Mr. Pandit successfully steered the once moribund bank through one of its most turbulent chapters, repaid roughly $45 billion in federal lifelines, rebuilt capital and began to focus the sprawling institution.

This week, senior executives at the investment bank convened a group of employees to try to stem any exodus, according to several people briefed on the meeting. Among the employees' questions: why remain at a bank that treated its top executive so harshly?

Now, the new top officials of the bank are circling to retain the support of some crucial executives, including Brian Leach, Citi's chief risk officer and a longtime ally of Mr. Pandit, and James A. Forese, who heads the securities and banking division, according to several people close to the discussions.

Mr. Pandit, Mr. O'Neill, Mr. Havens and Mr. Corbat did not return calls for comment or declined to comment.

The seeds of the turmoil were planted in April when Mr. O'Neill, who had been on the board since 2009, took over as chairman from Richard D. Parsons.

Some executives close to Mr. Pandit immediately identified Mr. O'Neill's ascent as bad news for Mr. Pandit, regardless of how the bank was faring. After all, Mr. O'Neill had vied for the chief executive position before it ultimately went to Mr. Pandit in 2007.

Still, the board transition appeared to go smoothly at first. The handover was marked by a dinner at Citi's headquarters. Together, Mr. Pandit and Mr. O'Neill roasted the departing chairman, considered more of a diplomat than a strategic banker. At one point, Mr. O'Neill gave a lei to Mr. Parsons, in recognition of their shared fondness of Hawaii: Mr. Parsons attended a university there and Mr. O'Neill was chairman and chief executive of the Bank of Hawaii.

A version of this article appeared in print on October 26, 2012, on page A1 of the New York edition with the headline: Citi Chairman Is Said to Have Planned Chief's Exit Over Months.

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