Nominee for \'Sheriff\' Has Worn Banks\' Hat

“You don’t want to mess with Mary Jo.”

That’s what President Obama said about his pick to run the Securities and Exchange Commission, Mary Jo White. The nomination of Ms. White, a former prosecutor who took on the terrorists behind the bombing of the World Trade Center in 1993 and the Mafia boss John Gotti, was meant to signal that the S.E.C. would be getting tough on Wall Street. CBS called her “Wall Street’s new sheriff.” The Wall Sreet Journal said she would be “putting a tougher face on an agency still tainted by embarrassing enforcement missteps in the run-up to the financial crisis.” The New York Times said her appointment represented a “renewed resolve to hold Wall Street accountable.”

Hold on.

While Ms. White is a decorated prosecutor, she has spent the last decade vigorously defending â€" and billing by the hour â€" Wall Street’s biggest banks, as a rainmaking partner at the white-shoe law firm Debevoise & Plimpton. The average partner at the firm was paid $2.1 million a year, according to American Lawyer; but she was no average partner, very likely being paid at least double that. Her husband, John W. White, is a corporate partner at Cravath, Swaine & Moore. He counts JPMorgan Chase, Credit Suisse and UBS as clients. The average partner at Cravath makes $3.1 million. He, too, was a former official at the S.E.C. â€" he left Cravath to run the corporate division of the S.E.C. starting in 2006 just in time for the run-up to the financial crisis. He left in November 2008, a month after the bank bailouts, to return to Cravath.

It seems Mr. and Ms. White have made a fine art of the revolving door between government and private practice.

So how conflicted is Ms. White Let’s count the ways.

They are well documented: she was JPMorgan Chase’s go-to lawyer for many of the cases brought against it relating to the financial crisis. She was arm-in-arm with Kenneth D. Lewis, Bank of America’s former chief executive, keeping him out of trouble when the New York attorney general accused Mr. Lewis of defrauding investors by not disclosing the losses at Merrill Lynch before completing Bank of America’s acquisition of the firm. (And empirically, Mr. Lewis did keep crucial information about the deal from investors.)

This is what she had to say about Mr. Lewis, in a court filing submitted on his behalf: “Some have looked to assign blame for every aspect of the financial crisis, even where there is no evidence! of misco! nduct. This case is a product of that dynamic and does not withstand either legal or factual scrutiny.” It was a refrain she often made about her clients related to the financial crisis.

And then there was Senator Bill Frist, the Republican from Tennessee, whom she successfully represented when the S.E.C. and the Justice Department started an investigation into whether he was involved in insider trading in shares of HCA, the hospital chain. She persuaded them to shut down the investigation.

She also worked with Siemens, the German industrial giant, when it pleaded guilty to charges of bribery, paying a record $1.6 billion penalty.

And then, of course, there was John Mack. She worked for the board o Morgan Stanley during a now well-publicized 2005 investigation into insider trading that ended soon after she made a phone call to the S.E.C. Using her connections at the top of the agency, she dialed up Linda Thomsen, then the commission’s head of enforcement, to find out whether Mr. Mack, who was being considered for Morgan Stanley’s chief executive position, was being implicated. He ultimately wasn’t. As the Huffington Post pointed out in a recent article about Ms. White, Robert Hanson, an S.E.C. supervisor, later testifi! ed, “It! is a little out of the ordinary for Mary Jo White to contact Linda Thomsen directly, but that White is very prestigious and it isn’t uncommon for someone prominent to have someone intervene on their behalf.”

All of Ms. White’s previous engagements create not only an “optics” problem, but a practical, on-the-job problem. She will most likely need to recuse herself from just about anything related to her previous work.

“I will not for a period of two years from the date of my appointment participate in any particular matter involving specific parties that is directly and substantially related to my former employer or former clients, including regulations and contracts,” is the language in an ethics pledge that she will have to agree to follow.

Some appointees, including Mary L. Schapiro, the former hairwoman of the S.E.C., recused themselves from any involvement in work that was related to a previous employer even after the two-year moratorium. Gary Gensler, the chairman of the Commodity Futures Trading Commission, recused himself from the investigation into MF Global because of his previous employment at Goldman Sachs, where Jon Corzine was the firm’s head, even though it had been years since the two had worked together.

And then there is the issue of Mr. White’s husband, who will have a continuing role at Cravath, one of the most pre-eminent firms in the country, whose clients include some of the nation’s largest corporations.

“This president has adopted the toughest ethics rules of any administration in history,” said Amy Brundage, a White House spokeswoman, “and this nominee is no exception. As S.E.C. chair, Mary Jo White will be in complete compliance with all ethics rules.”

None of these conflicts gets at another potential problem for Ms. White. The job of chairwoman of S.E.C. isn’t simply about enforcement; she has a deputy for that. The biggest challenge anyone who takes the job will hav to confront over the next several years will be executing and enforcing provisions of Dodd-Frank and working to regulate electronic trading â€" something that even the most sophisticated financial professionals, let alone a lawyer, often have a tough time understanding. She has zero experience in this area.

Of course, there can always be a value to inviting a onetime rival onto the team.

“I believe she is one of those people who will understand that her public role will be very, very different than her role as a defense lawyer,” Dennis M. Kelleher of Better Markets, a watchdog group, told me. “I don’t think she’s going to be like so many others who don’t get that they have a very different role when they hold high public office.

“No question, she’s said some things that are controversial and questionable,” Mr. Kelleher said. “Moreover, I hope and expect that she will be asked publicly about them in the confirmation process and that she will have convincing answe! rs.”

Of course, if she is confirmed, we must all hope that she can put her previous client relationships behind her and work for her new client â€" us.

Ex-Trader for Jefferies Is Charged With Fraud

Federal prosecutors charged a former senior trader at the Jefferies Group on Monday with defrauding his clients â€" and the government â€" while selling them mortgage-backed securities after the financial crisis.

Jesse C. Litvak, the former Jefferies trader, is accused of generating more than $2 million in revenue for Jefferies by overcharging his customers through deceitful conduct. Those who are said to have been his victims include some of the world’s largest investment firms, including Soros Fund Management, Magnetar Capital, BlackRock and Wellington Management.

The government was also a victim in this case, prosecutors said, because Mr. Litvak’s clients were managing money that was pat of the Treasury Asset Relief Program, or TARP, the $700 billion bailout fund. As part of a public-private investment program, the Treasury picked nine private firms to invest in toxic mortgage-backed securities and help remove them from the clogged balance sheets of the large banks.

While the alleged violations â€" cheating brokerage clients by misrepresenting the prices of securities â€" might typically prompt the loss of a job or civil lawsuits, such conduct rarely, if ever, rises to the level of a federal criminal prosecution.

The case demonstrates the aggressive prosecutorial stance of the special inspector general for TARP, or Sigtarp, which led the investigation. The office, now led by Christy Romero, has been responsible for criminal cases filed against 121 individuals.

“! Illegally profiting from a federal program designed to assist our nation in recovering from one of our worst economic crises is reprehensible,” said David B. Fein, the United States attorney in Connecticut, whose office brought the charges. The Securities and Exchange Commission filed a parallel civil action in the case.

Federal agents arrested Mr. Litvak, 38, early Monday morning at his apartment on the Upper East Side of Manhattan. He made an appearance in Federal District Court in Bridgeport, Conn., and was released on $1 million bail. Mr. Litvak, who worked at RBS Greenwich Capital earlier in his career, joined Jefferies in 2008 and was fired in December 2011.

“Jesse Litvak did not cheat anyone out of a dime,” said Patrick J. Smith, Mr. Litvak’s lawyer a DLA Piper, in a statement. “In fact, most of these trades turned out to be hugely profitable. Jesse looks forward to the trial in this case so that his name can be cleared and he can get on with his career.”

While the market for mortgage-backed securities is complex and opaque, the charges against Mr. Litvak are rather simple. Prosecutors said that he deceived his customers about the prices of the securities that he sold to them. The indictment said that Mr. Litvak deployed the scheme in part to increase the size of his year-end bonus.

In some cases, they said, Mr. Litvak would lie about the price at which his firm had bought a security so he could resell it to another customer at a higher price and earn more money for the firm. In other instances, the government said, he created a fake seller to give the impression that he was arranging a trade between two customers, when in fact he was selling the security out of his firm’s inventory at a high price.

“The kind of false cl! aims made! by Litvak were unfit for a used-car lot, let alone a marketplace for mortgage-backed securities,” said George S. Canellos, the S.E.C.’s deputy director of enforcement.

Mr. Smith, the lawyer for Mr. Litvak, said that the trades were transactions between sophisticated market participants and that the profits that Jefferies earned on each trade were well within industry norms for the mortgage-backed securities market.

Mr. Litvak wants Jefferies to pay his legal fees related to the government’s investigation, and he has filed papers in the Delaware Court of Chancery demanding compensation from the bank. Jefferies has refused to reimburse him, arguing that it fired Mr. Litvak for cause. Richard Khaleel, a spokesman for Jefferies, declined to comment.

The case first showed up on the government’s radar after one of Mr. Litvak’s customers, AllianceBernstein, complained to Jefferies that the bank had overcharged it for mortgage-backed securities, according to people briefed on the case. According to records from the Financial Industry Regulatory Authority, or Finra, Jefferies settled the case with AllianceBernstein for $2.2 million.

Court papers depict Mr. Litvak as an exuberant salesman, frequently communicating with instant messages and peppering his communications with slang. When Mr. Litvak reported to a client, Wellington Management, about a sham purchase, he wrote “winner winner chicken dinner.” Another time, the complaint said, Mr. Litvak gave a customer a false report on the price of a security that he sold to a hedge fund, York Capital Management. “We are doneski gorgeous!” he wrote.

Hostess Names McKee as Lead Bidder for Drake\'s Brand

Hostess Brands forged ahead with its dismantling plan on Monday, officially picking the maker of Little Debbie snacks as the lead bidder for its Drake’s brand.

Little Debbie’s parent, McKee Foods, has agreed to pay $27.5 million for the Drake’s brand, giving it the rights to sugary treats like Ring Dings, Yodels and Devil Dogs. As the “stalking horse” bidder, the company will set the floor price for a court-supervised auction scheduled for March 15.

The pact doesn’t include the Drake’s factory in Wayne, N.J. The fate of that facility, which a banker for Hostess said was the only kosher bakery plant in the country, is unclear, though the company is expected to continue trying to find a buyer. Hostess said in November that it would liquidates and sell off its assets.

Separately, Hostess said that it has picked United States bakery as the stalking-horse bidder for four of its bread products, including Sweetheart and Eddy’s. Those are separate from the longer list of brands tat Flowers Foods is in the pole position to buy.

To date, Hostess hasn’t named a lead bidder for its crown jewels: snack brands like Twinkies. A number of parties have expressed interest, people briefed on the matter have said previously, including the owner of Pabst Blue Ribbon; Apollo Global Management; and Grupo Bimbo of Mexico.

When Corruption Helps the Bottom Line

Michael S. Pagano is the Robert J. and Mary Ellen Darretta Endowed Chair in Finance at the Villanova School of Business.

Most investors would agree that less corruption and more transparency in financial markets are good things. But in a contrarian way, a high degree of corruption in foreign markets can actually be beneficial. And that may provide an interesting counterargument to recent enforcement actions.

The fact that large-scale corruption exists is not in dispute; in many foreign markets it is clearly “caveat emptor.” Actions by the Justice Department and the Securities and Exchange Commission under the Foreign Corrupt Practices Act in the United States are making front-page headlines almost on a weekly basis in recent years.

The Justice Departmentand the S.E.C. recently released guidance on the corrupt practices act, a law that has become problematic for many global companies. And many other countries around the world are also following suit with newly empowered regulatory agencies. In April 2011, Britain passed the Bribery Act, a major compliance regulation, to go after corruption.

Under this backdrop, Professors Pankaj K. Jain of the University of Memphis, Emre Kuvvet of Texas A&M and I set out to analyze just what effects corruption had on investment, cost of capital and market liquidity for institutional investors. We examined corruption and its effect on financial markets at the national level using data from 49 countries.

Our finding that investing conditions are extremely favorable in Denmark, one of the most transparent countries, makes logical sense.

What is surprising is that the most corrupt countries like Venezuela (which is at the very bottom of our list at No. 49) are actually better for investors than moderately corrupt countries like Morocco or Mexico.

This finding points to a “perverse level playing field” where potential investors in these extremely corrupt countries know who is in charge and can thereby succeed and prosper. But in moderately corrupt countries, it is unclear who is in charge and how to play the game.

Corruption is a result of several factors, including the increased pressure on investors and companies to compete for lucrative international business opportunities. As noted in a 2011 working paper, the benefits obtained by bribing officials or engaging in corrupt behavior can be quite tempting; it is estimated that the average return is 10 to 11 times the original bribe amount for 166 prominent cases in 20 countries.

We used several tools to help us quantify some of the effects of corruption on stock prices. Some of those included the corruption perceptions index data from Transparency International; data from Ancerno that gives company transaction costs for foreign stocks traded by more than 700 institutions in the home markets of 49 countries; and I.M.F. data on foreign portfolio investment flows in all 49 countries.

Based on these data, it was clear that corruption in the 49 cou! ntries th! at were studied directly affected their financial markets. Corruption directly affected stock liquidity (making it hard to quickly buy or sell a particular stock or bond), the cost of buying and selling stocks and the trading costs of stocks.

Corruption also affects the amount of foreign investment in a country as a percentage of gross domestic product, and the cost of financing corporate operations within a certain country. We discovered that, on average, corruption can reduce foreign equity investments by 70 percent, raise trading costs by 0.8 percentage points (that is, 80 basis points) and increase the cost of capital by up to 8.63 percentage points.

The presence of corruption also makes it hard for outsiders to value a security properly. Higher levels of corruption typically lead to greater investor uncertainty â€" and a wider gulf between what insiders and outsiders know about the value of a market’s stocks and bonds.

An answer to the problem, however, may lie in investing in educaion rather than in regulation. Our study also found that corruption was inversely related to the level of education in a country. So, more education typically relates to less corruption, and a country that wants to reduce corruption over the long run should promote and invest in education.

In the meantime, what is an investor to do Because of the “perverse level playing field” that makes moderately corrupt countries unattractive, large investors looking at foreign markets might prefer to invest in the most corrupt nations (as well as the most transparent).

There are corporate costs to engaging in corruption, however. Our study also examined 27 publicly traded companies that ran afoul of the Foreign Corrupt Practices Act, including I.B.M., Chevron and Siemens.

We discovered that after each company was fined, its average trading costs and cost of capital were higher. These higher costs translate into a lower stock price for those firms that have been penalized under anticorruption laws.

So should investors ask for more regulatory enforcement of corrupt foreign exchanges Of course, but the incentives for doing what is morally right and for what actually might make a profit may not be so clearly aligned.

Maybe government’s role in promoting education might be another, more effective way to realign these incentives so that the world can be more transparent and less corrupt in the long run.

Italian Bank\'s Murky Scandal

The Monte dei Paschi di Siena story is not just an Italian affair. Revelations that complex financial transactions used by the country’s third largest bank had the effect of hiding losses are causing a political storm in Italy.

With a general election only weeks away, Silvio Berlusconi looks like being the main winner from the political spat. The former prime minister’s camp has attacked Pierluigi Bersani’s Democratic Party, which is leading in the opinion polls, for being close to Monte dei Paschi . It has also criticized Mario Monti, the current prime minister, who agreed to increase the bank’s bailout to 3.9 billion euros.

The scanda won’t be enough to get Mr. Berlusconi back as prime minister. But it could prevent a Bersani-Monti coalition from running the country with a solid majority in both houses of parliament. If so, fears about Italian political risk could return to haunt the markets.

The still-murky story has also put Mario Draghi under the spotlight because the European Central Bank president ran the Bank of Italy when M.P.S. was getting into such a mess. Giulio Tremonti, who was finance minister in Mr. Berlusconi’s last government, tweeted that it was “stupefying” that Mr. Draghi had failed to discover or prevent the complex transactions.

The Italian central bank’s defense is that, while some of its supervisors knew about the transactions, it did not know that they were linked to other loss-making operations because key documents were hidden from it. What’s more, even though it was worried about M.P.S.’s weak risk management, it didn’t have the power to fire bank directors, despite Mr. Draghi requesting the last Berlusconi government for such authority. Its moral suasion did, though, eventually help remove the old M.P.S. management last year.

The Sienese bank’s troubles began in November 2007 when it bought Antonveneta, another Italian bank, from Santander of Spain for 9 billion euros. This was a crazy price. The subprime crisis had already burst into the open and the price-tag was 60 percent more than what Santander had itself paid only a few months earlier when it helped carve up ABN Amro, the Dutch banking group, with the Royal Bank of Scotland and Fortis of Belgium. Italian prosecutors are now investigating why M.P.S. paid so much.

Some people think the Bank of Italy should have stopped M.P.S. buying Antonveneta. But its defense is that it didn’t have the power to say a deal was overpriced. All it could do was insist on the bank raising more capital, which it did.

Even so, the Antonveneta deal left M.P.S. with a weak balance sheet just as the financial crisis was about to go into overdrive. That’s when two other investments â€" which have set off the current turmoil â€" went bad: one nicknamed Santorini and the other called Alexandria.

The original Santorini deal was done with Deutsche Bank in 2002 to warehouse M.P.S.’s shares in yet another ! Italian b! ank, San Paolo di Torino. That transaction allowed M.P.S. not to report losses on the stake provided it didn’t fall below a certain level. However, in 2008, the value of the stake plummeted meaning that M.P.S. was staring at a loss of about 360 million euros. That was unfortunate given that its balance sheet was already stretched after the Antonveneta deal.

M.P.S. engaged in two more transactions with Deutsche Bank that had the effect of mitigating its Santorini loss. One was structured so it was likely to generate a profit for M.P.S.; the other so it was likely to generate a profit for the German bank. M.P.S. rapidly unwound the first transaction, helping it counter the loss on the original Santorini deal. But it hung onto the second investment and didn’t report any immediate loss from that.

Deutsche Bank’s defense for being involved in the transaction is that it asked for and received representations from M.P.S’s senior management that its auditors and regulators had been informed of te transaction’s details.

The Alexandria transaction was somewhat similar. In this case, M.P.S.’s original bet was on risky credit derivatives called C.D.O. squareds, which, by 2009, were threatening it with a loss of about 220 million euros.

That’s when M.P.S. embarked on another series of side-deals - this time with Nomura. One transaction involved the Japanese investment bank buying the C.D.O. squareds from M.P.S. at above their market price, with the result that the Italian bank avoided booking a loss. The other was structured so Nomura would make a profit, but MPS didn’t acknowledge the countervailing losses upfront.

Nomura says the deal was approved by the Italian bank’s board and its then-chairman, Giuseppe Mussari, as well as being reviewed by the bank’s auditors, KPMG. The Italian bank denies that its board approved it. KPMG says it never received the Alexandria documentation. Mr. Mussari denies any wrongdoing.

These complex transactions only came to light ! when an e! xchange of letters from Nomura to M.P.S. was found in a hidden safe by the Italian bank’s new management last October. It immediately told the Bank of Italy and the judicial authorities. Snippets of what happened have started to seep out into the press in the last two weeks - forcing M.P.S. to acknowledge that it was sitting on mega-losses and prompting the political storm.

But the full facts have not come out. Until they do, it will be impossible to know for sure whether the Bank of Italy, Deutsche Bank and Nomura could have been more vigorous in pursuing hints that things weren’t quite right or were well and truly hoodwinked by M.P.S.

Hugo Dixon is co-founder of Breakingviews and editor-at-large at Reuters News. For more independent commentary and analysis, visit breakingviews.com.

Buffett Said to Have Expressed Interest in Buying NYSE Euronext

Warren E. Buffett has built one of the world’s great fortunes looking for companies undervalued by the markets. For a short while, it appears, he considered the New York Stock Exchange‘s parent one of those potential deal targets.

Mr. Buffett’s Berkshire Hathaway made an “indicative proposal” to buy NYSE Eronext in late November, people briefed on the matter told DealBook on Monday. But the initial expression of interest sputtered out fairly quickly, freeing the markets operator to pursue its $8.2 billion sale to the IntercontinentalExchange.

In a proxy statement to investors on Monday, NYSE Euronext said that it had instructed its investment bankers to hold talks with potential alternative bidders to ICE. The filing makes mention only of a Company A, a “large industrial and financial holding company” that the bankers at Perella Weinberg Partners thought might be interested in the exchange.

But the people briefed on the matter confirmed that Company A was in fact Berkshire. One of these people said that NYSE Euronext’s board believed that the exchange fit Mr. Buffett’s deal criteria, including a big brand name and a! steady stream of cash generation.

According to the proxy, Company A offered up its proposal on Nov. 28, with a deal value lower than what ICE was offering. There were other conditions attached: Any takeover offer was subject to due diligence of unspecified length, and NYSE Euronext would first need to sell its European derivatives business, known as Liffe, for a minimum sales price set by the potential buyer.

By that point, NYSE Euronext’s board had already discussed a number of possible corporate moves, including selling or spinning off Liffe. The directors hoped that such a transaction could have raised about $5 billion, one of these people said. A high-enough price could have made a deal more palatable to Berkshire.

But by Dec. 12 and 13, Company A still hadn’t updated its offer, which remained lower than what ICE was proposing. One of the people briefed on the matter said that the preliminary bid never topped $30 a share.

By contrast, ICE’s offer was worth about $33.12 on Dec. 20, the day it was announced. Moreover, that bid had already been in the works for months, and the board opted to go with the sure proposal, this person added.

News of Berkshire’s identity was reported earlier by CNBC’s David Faber.

How Mary Jo White\'s Connections Could Complicate Her S.E.C. Job

The nomination of Mary Jo White as chairwoman of the Securities and Exchange Commission has been hailed as a signal that a tough regulator will be patrolling Wall Street. But there are also questions being raised about whether her work as a leading white-collar defense lawyer over the last decade might hamper her effectiveness.

As DealBook noted, Ms. White represented top Wall Street banks and other major companies in private practice at Debevoise & Plimpton. Recent clients included JPMorgan Chase on financial crisis cases, News Corporation over its cellphone-hacking problems, and a former Bank of America chief executive, Kenneth D. Lewis, in a civil fraud suit by the New York attorney general over the firm’s acquisition of Merrill Lynch. No doubt she had other clients who have not been revealed because their cases are not yet - or never became - public.

As the S.E.C. chairwoman, Ms. White would have a hand in every decision of importance. But the conflict-of-interest rules could force Ms. White to recuse herself from some matters. If that happens, it could raise the prospect of a 2-2 split along party lines among the other commissioners. Currently, it’s a highly polarized group, so her recusal could effectively freeze the S.E.C. from moving on an issue.

Making things more complicated, her husband, John J. White, is a partner at Cravath Swaine & Moore, a leading corporate law firm. According to his biography on the firm’s Web site, Mr. White represents a number of public companies and is deeply involved in accounting issues, a topic the S.E.C. deals with regularly. Under the law, his interests are considered to be hers.

Describing the federal conflict-of-interest rules as a minefield is probably an understatement. Like most ethics codes, they are broadly written so that most anything could plausibly come within their proscriptions. That means a claim of bias can be asserted by opponents of Ms. White who might be seeking an advantage on an issue by trying to keep her out of a decision. Those claims can be difficult to rebut and often prove to be a distraction.

The primary prohibition in the conflict-of-interest rules is a bar on involvement in a decision that will impact the government employee’s personal or close family financial interests. This would prevent Ms. White from participating in any proceeding in which her husband represented a party with a stake in the outcome. As experienced lawyers, it should not be too difficult for them to avoid this problem, although she will have to be careful to consider Cravath’s role in any matter.

Of greater concern is whether Ms. White’s impartiality co! uld be qu! estioned because of her prior representation of a client. Under a policy adopted by President Obama on his first day in office in 2009, all appointees must agree to an ethics pledge that includes the following prohibition: “I will not for a period of 2 years from the date of my appointment participate in any particular matter involving specific parties that is directly and substantially related to my former employer or former clients, including regulations and contracts.”

The crucial term is “any particular matter,” which covers any investigation or enforcement action involving one of Ms. White’s former clients. Thus, for two years she will need to recuse herself from the decision of whether to pursue a case even if she had did not have any direct involvement in the specific matte..

Knocking Ms. White off enforcement cases may not have much of an effect in most situations. The agency’s commissioners do not get involved in dealing with a case until the investigation is nearly complete; the director of the enforcement division has the authority to authorize the issuance of subpoenas to compel records and testimony.

Most enforcement matters, particularly insider trading cases, do not generate much controversy. There have been cases that divided the commissioners, however, so her recusal could have an impact. For example, it was reported that the decision to sue Goldman Sachs for fraud in April 2010 over the sale of a synthetic credit derivative obligation was by a 3-2 vote alon! g politic! al party lines.

On the regulatory side, Ms. White will be dealing with a range of controversial issues of great importance to Wall Street, like the implementation of the Volker Rule and potential limits on high-frequency trading. This is the type of rule-making that has divided the S.E.C. commissioners in the past, and close votes occur regularly.

Ms. White’s former clients, like JPMorgan Chase, will have a significant interest in those rules, so her involvement may trigger questions about whether she should be participating in the decision. Her recusal could have a significant impact on how the rules are shaped, and whether they can even be adopted.

Unlike dealing with enforcement cases, her prior work for financial firms will not necessarily keep her from participating in rule-making about a subject involving a former client. The federal conflict-of-interest rules provide that rule-making by an agency is a matter of general pplicability, and therefore is not “any particular matter involving specific parties” that would trigger the two-year ban under the President’s ethics pledge.

Nevertheless, Ms. White will have to be careful because a rule also provides that a government employee should avoid situations in which there will be even an appearance of impropriety arising from a business or personal relationship. She can obtain clearance to deal with an issue from the S.E.C.’s Office of the Ethics Counsel, which can provide a measure of protection from criticism.

The problem with ethics issues is that they can arise at any time, and often the person does not recognize the issue until it is too late. Ms. White brings a wealth of experience to her new job, in part deftly navigating the revolving door between Wall Street and Washington. But in this new role, she’ll have to walk a fine! line, mo! re cautiously than even before.

Hess Weighs Sale of Terminal Network

The Hess Corporation said on Monday that it planned to sell its network of terminals, as the oil company begins to focus on finding and producing new sources of petroleum.

Hess, which has hired Goldman Sachs to lead the sales process, also said that it will close its refinery in Port Reading, N.J.

Separately, the company said that it received a letter on Friday from Elliott Management, which told the company that it is seeking to buy a major stake â€" potentially more than $800 million worth of shares â€" and is considering nominating board candidates. Hess said that the hedge fun had not spoken up before sending the letter to the company’s board.

Hess is the latest oil concern to limit itself to exploration and production, as a way to sharpen focus and improve growth. Rivals ranging from ConocoPhillips to Marathon Oil have spun off their slower-growing refining businesses, leaving them with more capital to invest in finding new sources of oil and natural gas.

Shares of Hess have risen about 6.6 percent over the past 12 months. They rose an additional 6.6 percent in premarket trading on Monday, to $62.66.

The 19-terminal network that Hess is selling, which stretches along the East Coast, has about 28 million barrels of storage capacity. The oil compa! ny will also include a storage terminal in St. Lucia, which can hold about 10 million barrels.

The network became nonessential after Hess closed its Hovensa refinery last year and began to rely on third parties to obtain refined products for its retail and energy marketing businesses.

By selling off the terminals, Hess is hoping to free up about $1 billion of working capital.

“By closing the Port Reading refinery and selling our terminal network, Hess will complete its transformation from an integrated oil and gas company to one that is predominantly an exploration and production company and be able to redeploy substantial additional capital to fund its future growth opportunities,” John Hess, the company’s chairman and chief executive, said in a statement.

Iceland Wins Major Case Over Failed Bank

More than four years after its banking system collapsed, Iceland won a landmark court case Monday over its refusal to cover the losses of British and Dutch depositors who lost money in Icesave, a failed Icelandic bank.

In a judgment issued in Luxembourg, the court of the European Free Trade Association, or EFTA, cleared Iceland of complaints that it violated rules governing the protection of depositors drawn up by the European Union. While Iceland is not a member of the Union, it is bound by most of its rules as a member of EFTA.

The case has attracted widespread attention because it touches on issues of cross-border banking that have been at the center of the European Union’s efforts to ensure the future stability of its financial system.

The court ruling Monday represents a significant victory fr Iceland. Unlike Ireland, which also suffered a catastrophic bank failure, Iceland declined to use taxpayer money to bail out foreign bondholders and depositors. This set off a bitter dispute with Britain, which used anti-terrorism rules to take control of assets held in Britain by Icesave’s parent, Landsbanki.

The Icelandic government tried twice to settle the Icesave debts. But the country’s voters, asked to approve settlement plans in two separate referendums, rejected the proposals. Foreign holders of bonds issued by Landsbanki and two other failed Icelandic banks lost some $85 billion.

“It is a considerable satisfaction that Iceland’s defense has won the day in the Icesave case,” the Icelandic government said in a statement issued by the Foreign Ministry in Reykjavik. The ruling in Luxembourg, it added, “brings to a close an important stage in a long saga” and “Icesave is now no longer a stumbling block to Iceland economic recovery.”

Iceland’s economy! is improving. Fitch recently raised its rating on the nation’s bonds, noting that its ‘‘unorthodox crisis policy response has succeeded in preserving sovereign creditworthiness.’’

Still, the Icesave saga has left an acrimonious legacy.

In a recent interview with British television, Iceland’s president, Olafur Ragnar Grimsson, denounced Britain’s “eternal shame’” for invoking the terrorism laws. ‘”We were there together with Al Qaeda and the Taliban on that list,” he said. “We have not forgotten that in Iceland.”

Icesave collapsed in October 2008 along with its parent bank and the rest of the banking sector. Caughtin the wreckage were some 350,000 people in Britain and the Netherlands who, lured by unusually high interest rates, had put their money into Icesave accounts.

The Icelandic government guaranteed the deposits of Icelanders who had money in failed banks. But it declined to cover the losses of foreigners with on-line accounts operated by Icesave, a move that prompted complaints of illegal discrimination to the court in Luxembourg.

The case against Iceland, which was bought by the Surveillance Authority of the European Free Trade Association, revolved around interpretation of a European Union directive requiring that deposits in the region’s banks be covered equally by deposit guarantee schemes. Britain and the Netherlands supported the case.

But the court ruled that the directive on guaranteeing bank deposits did not oblige the Icelandic authorities to ensure payment to depositors in Britain and the Netherlands ‘‘in a systemic crisis of the magnitude experienced in Iceland.! ’’ Ic! eland argued that all Icesave depositors will eventually get their money back but that the government, confronted in 2008 with a total breakdown of the financial system, did not have the means to offer immediate payment to all claims.

The court also cleared Iceland of complaints that it violated non-discrimination rules when it protected domestic depositors by moving their accounts to solvent new banks but reneged on protecting foreign depositors. The government statement issued Monday assured depositors that ‘‘Icesave claims will be paid out in full’’ by the estate of Landsbanki.

SAC\'s Efforts to Retain Clients and Staff Members

Steven A. Cohen of SAC Capital Advisors does not appear concerned about the ongoing insider trading investigation, with plans to show up at a hedge fund conference in Florida on Monday after making the rounds in Davos, Switzerland, last week. But beneath the calm exterior, employees and lawyers of SAC are working hard to contain the fallout from the Justice Department’s inquiry into the firm, DealBook’s Peter Lattman reports.

The question looming over Mr. Cohen’s fund is whether clients will stick around or pull their money. A prominent departure came last week, when a Citigroup unit that manages money for wealthy families disclosed it was withdrawing $187 million. Though the withdrawal represents a small fraction of SAC’s $14 billion in assets, “the Citigroup decision stung, say people close to SAC’s business because of the longstanding and lucrative relationship between the bank and the fund,” Mr. Lattman reports. “Another concern, said these people, is that the move could influence other large SAC investors currently weighing whether to keep their money at the fund.” Investors have a deadline of Feb. 15 to ask for their money back.

The firm is also worried about the effect on employees. This month, SAC told its portfolio managers that it would increase year-end bonuses by three percentage points in an effort to prevent them from leaving. “This has always been a stressful place to work,” said an SAC employee who requested anonymity because he was unauthorized to speak publicly about the fund. “Now it’s just more stressful.”

SMALL INVESTORS WARM TO STOCKS  |  After fleeing equities after the financial crisis, individual investors are now pouring money into stock mutual funds! and pushing the market close to its highest nominal level ever. On Friday, the Standard & Poor’s 500 broke 1,500 to finish at 1,502.96 points. The optimism of the last few weeks â€" fueled by a sense that crises are dissipating â€" is a significant change from recent years. But some market experts warn that the current rally may be driven by an investing public that fears missing out, Nathaniel Popper writes in The New York Times. “Americans’ latest stock-market romance is young, and it could easily fade before it becomes something more serious. Some market watchers warn that given the big run-up in prices, the market is already ripe for at least a brief correction.”

TWITTER COMMANDS $9 BILLION VALUATION  |  Twitter continues to grow up. BlackRock, the huge asset manager, is buying an $8 million stake in Twitter that values the company at more than $9 billion, according to Reuters. That is an increase over Twitter’s reported $8.4 billion valuation in 2011. In the current deal, early Twitter employees will be able to sell their holdings, and the company itself will not raise money, according to The Financial Times.

ON THE AGENDA  |  The American Securitization Forum conference in Las Vegas this week discusses the challenges facing the securitization industry. Thomas Curry, the comptroller of the currency, delivers the conference’s keynote address at 11:20 a.m. Caterpillar rep! orted earnings on Monday morning, and Yahoo announces results on Monday evening. Data on pending home sales for December is released at 10 a.m.

AT DAVOS, BANKERS FRET OVER THE FUTURE  |  One question seemed to dominate the Wall Street executives who gathered for the World Economic Forum in Davos: Is the financial industry experiencing a brain drain Reuters writes: “The issue, executives say, is not pay, but how much scope there is to innovate and build businesses, which is why more bankers and traders are leaving the big Wall Street firms for Silicon Valley, joining private investment partnerships like hedge funds and private equity funds or going into energy and other industries.”

Still, the uncertainty didn’t dampen the mood too much. Parties have not completely died out in Davos, as evidenced by a bash on Friday thrown by Sean Parker, a founder of Napster and former president of Facebook. The likes of Lloyd C. Blankfein, Marissa Mayer and Daniel S. Loeb gathered near taxidermy animals with lasers coming from their eyes. Andrew Ross Sorkin singled out the performance by John Legend as particularly memorable.

FROM BLOOMBERG TO JOHNS HOPKINS, A $1.1 BILLION THANK-YOU  |  Michael R. Bloomberg, the New York City mayor, made a $! 350 milli! on gift to Johns Hopkins University on Sunday, bringing the sum of his donations over the past four decades to $1.1 billion, Michael Barbarbo reports in The New York Times. “That figure, kept quiet even as it transformed every corner of the university, makes Mr. Bloomberg the most generous living donor to any education institution in the United States, according to university officials and philanthropic tallies.” Mr. Bloomberg, who graduated in 1964, explained his fidelity to the university in personal terms. “Let’s be serious â€" they took a chance on me,” he said.

/div>
 

Mergers & Acquisitions Â'

US Airways and AMR Said to Approah a Pact  |  Reuters writes: “US Airways Group Inc. and American Airlines parent AMR Corp. are in the final stages of negotiating a merger, with the final price and management structure still to be resolved, four people familiar with the matter said.” REUTERS

Alcohol Giants Scout for Deals in Asia  |  Reuters reports: “The biggest global alcohol companies are sizing up buyout and tie-up opportunities in China, India, South Korea and Vietnam, keen to profit from a $258 billion Asian market that is growing twice as fast as the rest of the world.” REUTERS

Nexen and C! nooc Post! pone Deal’s Closing  |  The companies said they had agreed to extend the closing of Cnooc’s takeover of Nexen by 30 days, to March 2, Reuters reports. REUTERS

As Fraser & Neave Nears a Takeover, Chairman May Leave  | 
REUTERS

INVESTMENT BANKING Â'

Trust in Banking Is Slow to Recover Where Crisis Raged  |  The New York Times columnist Floyd Norris writes: “In countries whose financial systems id not blow up during the worldwide recession, trust has remained high. But in some European countries where the banks were generally viewed as having caused the crisis, trust plunged and has not recovered.” NEW YORK TIMES

Amid a Shake-Up, JPMorgan’s Risk Officer Takes a Leave  |  JPMorgan Chase’s chief risk officer is taking a temporary sabbatical, the latest move in an extensive reshuffling of JPMorgan’s executive suite after a botched credit bet that has cost the bank more than $6 billion. DealBook Â'

Bank of America Said to Shift Derivatives t! o Britain!  |  Bank of America has started moving more than $50 billion of derivatives into its British subsidiary from its Dublin-based operation, a move that will let the bank “benefit from tax breaks” stemming from accumulated losses, The Financial Times reports. FINANCIAL TIMES

On Wall Street, Putting Shareholders Second  |  If the financial crisis made anything clear, Antony Currie of Reuters Breakingviews writes, it is that banks should be forced to defend their business models and corporate governance â€" regularly. DealBook Â'

On Lookout in Davos for Next Growth Storyin Emerging Markets  |  An economic renaissance in Mexico, Chile, Colombia, Panama and Peru has become the focus in Latin America, and sub-Saharan Africa has also flashed signs of promise. DealBook Â'

Citigroup Aims for Top Spot in Ranking of Foreign-Exchange Firms  |  Bernie Sinniah, Citigroup’s head of foreign-exchange sales, appears as a comic book superhero in a campaign by the firm to try to win the top spot in a ranking by Euromoney magazine, The Wall Street Journal reports. WALL STREET JOURNAL

PRIVATE EQUITY Â'

How Bright Horizons Took Care of Bain Capital Over the Years  |  Bright Horizons’ successful initial public offering on Friday was the latest chapter in the day care center chain’s long and lucrative relationship with Bain Capital. DealBook Â'

Terra Firma Said to Plan Fund-Raising  |  Terra Firma, the private equity firm run by Guy Hands, is “pressing ahead” with with plans to raise a roughly $4 billion fund to focus on renewable energy infrastructure assets, according to The Financial Times. FINANCIAL TIMES

Blackstone Said to Seek $450 Million to Refinance Hotel Debt  | 
BLOOMBERG NEWS

HEDGE FUNDS Â'

Bridgewater’s Dalio Predicts a Broad Investment Shift  |  Bloomberg News reports: “Ray Dalio, founder of Bridgewater Associates, the world’s biggest hedge fund, said 2013 will be a ‘game changer’ for the economy as investors reallocate money after risks such as Europe’s sovereign debt crisis receded.” BLOOMB! ERG NEWS

A Hedge Fund Dogfight, Live, Mesmerizes Wall Street  |  Years of bad blood between two hedge fund magnates spilled publicly onto CNBC’s airwaves, as Carl C. Icahn derided his younger counterpart as a “crybaby,” and William A. Ackman declared the veteran investor a “bully.” DealBook Â'

I.P.O./OFFERINGS Â'

Goldman Sachs to Sell $1 Billion Stake in Chinese Bank  |  Goldman Sachs is selling a $1 billion stake in Industrial and Commercial Bank of China, the largest Chinese bank. DealBook Â'

Zoetis, Unit of Pfizer, Aims for $2.2 Billion I.P.O. This Week  | 
WALL STREET JOURNAL

Quintiles Transnational Said to Hold Talks With Banks Over I.P.O.  |  The Quintiles Transnational Corporation, which is backed by Bain Capital and TPG Capital, held talks last week to appoint banks for an I.P.O., Reuters reports, citing unidentified people familiar with the matter. REUTERS

VENTURE CAPITAL Â'

Silicon Valley Lobbies Against European Privacy Proposals  |  The New York Times reports: “Silicon Valley technology companies and the United States government are pushing hard against Europe’s effort to enact sweeping privacy protection for digital data.” NEW YORK TIMES

LEGAL/REGULATORY Â'

Court Decision Casts Doubt on Appointment of Consumer Watchdog  |  A ruling by a federal appeals court on Friday called into question nearly two centuries of presidential “recess” appointments, including that of Richard Cordray as director of theConsumer Financial Protection Bureau, The New York Times reports. NEW YORK TIMES

At the Top of Mary Jo White’s To-Do List  |  President Obama’s nominee to lead the Securities and Exchange Commission, Mary Jo White, should focus on scrapping the agency’s practice of allowing companies and individuals to settle cases against them without admitting or denying the findings, The New York Times columnist Gretchen Morgenson writes. NEW YORK TIMES

Inside the Fed, Debate Over When to Slow Asset Buying  |  The ! debate wi! thin the Federal Reserve “is once again shifting from whether the Fed should do more to stimulate the economy to when it should start doing less,” The New York Times reports. NEW YORK TIMES

Trade Official Says U.S. Wants Deal With Europe  |  Ron Kirk, the United States trade representative, says President Obama is committed to an agreement to smooth trade with the European Union, but only if it can overcome objections from farm groups and win Congressional approval. DealBook Â'

Global Rule Maker Defends Regulatory Efforts From Criticism  | Stefan Ingves, the chairman of the Basel Committee on Banking Supervision, answered criticism on Tuesday that global rule makers had gone soft on banks, arguing that lenders need more time to adjust to new regulations. DealBook Â'

A Technical Debate With Broader Implications for Deal-Making  |  The emerging issue of “don’t ask/don’t waive” standstills is a debate that only a Delaware deals lawyer could love. But it has the potential to change the way that public companies are sold, Steven M. Davidoff writes in the Deal Professor column. DealBook Â'

!

Goldman Sachs to Sell $1 Billion Stake in I.C.B.C.

Goldman Sachs is selling a $1 billion stake in Industrial and Commercial Bank of China, the largest Chinese bank.

The share sale, which was begun on Monday, is the second time in less than a year that Goldman has reduced its holdings in the lender after acquiring its stake before the Chinese bank’s initial public offering in 2006.

Goldman has been selling off its shares as part of a broader effort to reduce its exposure to Industrial and Commercial Bank of China, which has benefited from an almost 50 percent rise in its share price over the six months.

Under the terms of the deal, Goldman will sell Hong Kong-listed shares in the Chinese bank at 5.77 Hong Kong dollars (74 cents) each, according to a person with direct knowledge of the deal who spoke on the condition of anonymity because he was not authorized to speak publicly. The exact number of shares has yet to be confirmed, the person added.

The share sale represents around a 3 percent discount to the bank’s closing share prce on Monday.

In April, Goldman also sold $2.5 billion of shares in the bank to the Singaporean sovereign wealth fund Temasek Holdings and other institutional shareholders.

Its investment in the world’s largest bank by market value has proved successful for Goldman. After initially investing around $2.6 billion, Goldman Sachs has raised more than $4.5 billion by progressively selling down its stake in the Chinese bank.