Debevoise & Plimpton Drops Trusts and Estates Practice

The nation’s leading trusts and estates lawyers convened at a Florida resort last month to discuss the latest in estate planning.

Between lectures and workshops, some of the lawyers exchanged whispers about an unsettling piece of gossip: Debevoise & Plimpton, the prominent white-shoe law firm, was eliminating its trusts and estates practice.

Debevoise’s decision surprised members of the trusts and estates bar. If an institution as prestigious and financially sound as Debevoise was abandoning its practice, were they vulnerable too

The news also raised eyebrows across the legal industry because it seemed to run counter to Debevoise’s reputation for a strong partnership culture. At a time when many large law firms have discarded the traditional partnership model and embraced a more bottom-line approach, Debevoise ha been seen as retaining an old-school ethos â€" a genteel law firm known for its camaraderie and decency.

“It saddens me to see a great law firm terminate its estates department,” said William D. Zabel, a partner at Schulte Roth & Zabel and one of the country’s leading trusts and estates lawyers. “Although I don’t know the reasons for this decision, it would seem to be a byproduct of the economics of our society, making the law into more of a business than a profession. That saddens me even more.”

In a statement, Michael W. Blair, Debevoise’s presiding partner, confirmed that it was jettisoning trusts and estates, and that the group’s eight lawyers â€" including Jonathan J. Rikoon, the partner in charge of the practice â€" were trying to find another home.

“Debevoise supports the group in this process and will work to ensure that in this transition the needs of the firm’s clients continue to be served,” he said.

New York-based Debevoise is the latest big ! corporate law firm to discontinue the practice. In 2011, Weil, Gotshal & Manges, a 1,200-lawyer firm, got out of trusts and estates, deciding it did not fit the firm’s business model. Another firm, Gibson Dunn & Crutcher, with 1,100 lawyers, ended its trusts and estates practice about a decade ago.

Corporate law firms once viewed trusts and estates as a small yet important practice that discreetly advised wealthy families. But drafting wills and trusts, and the legal matters that flow from that, is less lucrative than the primary revenue drivers at big law firms: multibillion-dollar corporate transactions and high-stakes litigation.

And there are problems with trusts and estates within a big law firm model. The practice, to use the law firm management parlance, is not as leverageable as other areas. Corporate and litigation partners generate big fees by assigning armies of junior lawyers to megamergers and complex lawsuits. By comparison, trusts and estates work requires far less manpower â€" eaning, far less profit.

Another issue in sustaining these departments is that individual clients bristle at billable rates that now reach more than $1,000 an hour. While big corporations grudgingly pay those rates, wealthy families often resist them.

As a result of these dynamics, firms’ trusts and estates practices have remained small and, in many cases, decreased. At the same time, firms have aggressively built up their corporate and litigation practices across the globe. They have also embraced hot, moneymaking practice areas like patent law and white-collar criminal defense.

There are some counterexamples to this trend, however. In 2011, seven trusts and estates lawyers from Weil, led by Carlyn S. McCaffrey, moved to McDermott Will & Emery, a firm with about 65 lawyers, one of the larger trusts and estates practices. Another firm committed to trusts and estates is Katten, which has more than 50 lawyers in the group.

Joshua S. Rubenstein, the head of Katten’s trusts an! d estates! practice, said that his business went well beyond comforting bereaved spouses and children. A successful practice, he said, includes assignments like advising families in the sale of closely held companies, overseeing trust-related litigation or even assisting in the purchase of a yacht or private jet.

“If done right, a full-service, high-end trusts and estates practice can generate a lot of work for other areas of the firm,” Mr. Rubenstein said.

As large firms have de-emphasized their trusts and estates practices, boutiques have sprouted up. Sanford J. Schlesinger, a former partner at the New York corporate firm Kaye Scholer, left in 2004 along with several colleagues to set up an 11-lawyer shop, Schlesinger Gannon & Lazetera.

Mr. Schlesinger lamented the demise of the practice at big firms, and said he thought they were missing a business opportunity.

“Families are going to pass more wealth in the next 10 years than in the history of humankind, and someone is going to have t shepherd that wealth transfer,” he said. “These firms are making a shortsighted, profit-driven decision without a view of the long-term big picture.”

Debevoise, started in 1931 by two young patrician lawyers, Eli Whitney Debevoise and William E. Stevenson, does not see it that way. Three decades ago, the firm’s trusts and estates practice had six partners, including Barbara Paul Robinson, now retired and a former president of the New York City Bar Association, and Theodore A. Kurz, the former head of the department. Today, there is only one, Mr. Rikoon, 57, who declined to comment for this article.

The firm formed a committee to study its trusts and estates practice, which has advised families like the Lauders (cosmetics) and the Dolans (cable television), according to people with direct knowledge of the group. After concluding that the practice did not have enough business to expand, the committee recommended closing it down. The firm will continue to employ Mr. Rikoon and the s! even othe! r lawyers while they interview elsewhere, these people said.

One factor contributing to Debevoise’s move to discontinue the group, people say, is its unusual lock-step compensation system, which pays partners in a narrow range strictly according to seniority. That means that Mr. Rikoon is paid on par with a star deal maker from the same law school year, while bringing in less business. This created some discord in the partnership ranks. Debevoise’s profits per partner are $2.1 million, according to The American Lawyer magazine.

Debevoise, with 650 lawyers, recently made headlines away from trusts and estates. The firm advised a special committee of Dell’s board on the $24 billion leveraged buyout of the computer company. And President Obama nominated the Debevoise partner Mary Jo White to run the Securities and Exchange Commission.

Stephen J. Friedman, a onetime Debevoise partner who is now president of Pace University, said that he was unaware of the facts involved in his former firm’s decision to close the trusts and estates practice, but noted that organizations are often faced with business realities that require painful choices.

“It’s sometimes necessary to make a decision that’s in the best interest of the firm but can hurt individual partners and associates,” he said. “That’s not a happy experience, but it’s sometimes the right thing to do.”

Corporate Forces Endangered the Twinkie, but May Save It

Snack cake aficionados rejoice, the Twinkie will live.

Its demise nearly came at the hands of corporate America’s machinations. Its survival, however, depends on some of those same machinations. In the end, it was the extreme outcome of a liquidation in bankruptcy that made the 83-year-old brand salvageable.

The history of the cream-filled snack illustrates a number of the forces that have driven American capitalism over the last hundred years. Its first owner, Continental Baking Company, bought companies left and right in the 1920s, including the Taggart Baking Company, maker of Wonder bread, in 1925.

But the Twinkie was an in-house invention. It was created in 1930 by an executive working at Continental Baking who was looking for a product to sell after strawberry season ended, when the factory line for cream-filled strawberry shortcake sat empty. The yellowish, cream-filled Twinkie was a hit and the company quickly expanded.

Continental Baking continued its acquisition spree ad by 1968 it was a motley assortment of baking brands that fed on America’s tastes for sweet and easy food. It was then acquired by Harold Geneen‘s ITT, a conglomerate that sold not only Twinkies but also munitions. There, the brand sat for 16 years until Continental Baking was sold in 1984 for $475 million to Ralston Purina.

By then the baking business had entered a slow growth phase as inflation in baked goods, which had allowed the company continually to raise prices, subsided. Ralston Purina was unable to produce growth in the brands and ended up selling the bakery for about $400 million in 1995 to Interstate Bakeries.

Interstate Bakeries became the largest bakery in the country, but the sentiment around the deal was aptly expressed by a food industry analyst, who said at the time that Ralston Purina’s sale “basically allows them to get rid of a dog.”

Interstate Bakeries was itself a mongrel of many brands put together by serial acquisitions. Unfortunately, Interstate ! turned out to be better at acquiring companies than managing them. The brands had been passed around often and in the traveling it appears management never could get a more coherent vision for the company other than acquiring yet more unhealthy brands and leaving them to languish.

Then, at the turn of the millennium, the company was hit by a double blow: a taste for health and less carbohydrates among consumers and a botched attempt to put an additive in its breads to give them longer shelf life. You can tell that something is wrong with a food company when its strategy to save itself is to make its food last weeks longer.

It was also not the time to lack vision. The company’s historically high labor and food costs could no longer be covered up by rising prices. Consumers demanded ever cheaper snack food prices.

The company entered bankruptcy in 2004. More than four years later, it emerged, now owned by Ripplewood, which put up $130 million to acquire it. It was then that the company rebanded itself as Hostess Brands.

Despite the company’s cost reductions, and its lowering the employee head count by about 10,000, that was still not enough. The company had more than $800 million in debt coming out of bankruptcy, which was actually over $150 million more than it started with. Not to mention that it had spent $170 million on advisers during bankruptcy.

Indeed, people close to Hostess also say that Ripplewood’s plan was yet another merger: to sell the company to the Sara Lee Corporation. But when Sara Lee sold its bakery operations to Grupo Bimbo, there was no Plan B.

The company filed for bankruptcy again in 2012. It lost $341 million in the previous fiscal year, according to Standard & Poor’s Capital IQ. And management, which had gone through six chief executives in a decade, had been unable to execute a turnaround plan.

When the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union drew a line in the sand in November and said it wo! uld rathe! r risk liquidation, it was over.

It was a principled position that the brands would do better with a fresh start and new management. Hostess filed a plan to liquidate the company and fire almost all its 18,000 employees.

The news spread that the Twinkie had finally met its match, along with Wonder bread, the Devil Dog and all the other products. It was then that the mechanisms of corporate America were put in motion to revive Hostess.

Hostess’s investment banks went to work and lined up potential bidders. In fact, they didn’t have to do much, as the announcement of the company’s liquidation and the publicity that followed brought in more than 80 bidders in a few days. It also led to a quick run on Twinkies and other Hostess brands.

The interest came as a surprise to Hostess. Its executives â€" fearing that liquidation would destroy everything â€" had worked hard with the Teamsters union for a plan to save the company, only to be frustrated by the bakers union at the last minute But liquidation has proved to be the Twinkie’s savior.

Instead of trying to work out a compromise by reorganizing in bankruptcy, the company used the bankruptcy process to escape all its past burdensome debts. Freed of 394 union contracts, more than $2 billion in pension liabilities and any need to retain factories, the value of the Twinkie was reduced solely to what people were willing to pay for the brand. News of the Twinkies demise was the best thing that ever could have happened to the company.

Two private equity firms, C. Dean Metropoulos & Company and Apollo Global Management, have agreed to pay $410 million to buy the Hostess business, including Twinkies. And Flowers Foods has agreed to buy Wonder and Hostess’s other bread businesses for $360 million. Even Drake’s will survive; McKee Foods has agreed to pay $27.5 million for the business.

These are so-called stalking horse bids. In bankruptcy there is an open auction of the liquidated business, which in this case is e! xpected t! o occur in bankruptcy court in February and March, when others will bid.

All told, it appears that the sale of Hostess may reap over a billion dollars, almost twice what the creditors initially expected if it had not been liquidated. In other words, the liquidation of Hostess has made the company worth more.

There’s a lesson here. While corporate machinations and passing along brands can damage them, the clean bill of liquidation allowed corporate America to re-evaluate the Twinkie.

Sure, there will be future battles as Hostess’s old unions struggle to have their employees rehired and new management tries to restart the company. And nothing can heal the wounds of the employees who have lost savings and pensions as well as jobs.

But the brands will now come under better management and, we can hope, more capable owners who can turn to reviving these businesses. In other words, while extreme finance was the cause of Hostess’s demise, it may very well now be the Twinkie’s savior./p>

Dell\'s Lonely Club Deal

Dell’s $24 billion leveraged buyout involves essentially a club of one. And Silver Lake Partners, the sole private equity firm included, isn’t even really the charter member.

Michael S. Dell is contributing his 14 percent stake in the PC maker he founded, cash and an investment from his MSD Capital investment arm. Time was not long ago that mega-deals required a team of buyers. For now, they remain more exclusive.

Despite the easy availability of money, Dell represents the largest buyout since 2007, according t Thomson Reuters data. Investors are desperate for higher yielding securities and even Microsoft has agreed to chip in $2 billion to help preserve the ailing personal computer market. With about $4.6 billion of earnings before interest, taxes,depreciation and amortization, or Ebitda, this year, Dell should be able to shoulder the roughly $12 billion debt needed for the deal.

Finding equity these days is the bigger challenge. A multi-billion-dollar injection usually would necessitate at least two and often several more firms. The buyout industry has largely sworn off them after the troubles such club deals caused during the 2005-2007 boom. Too many big-stake owners make it harde! r to agree on strategy, exits become more difficult and investors in L.B.O. firms wind up with overly correlated returns. Plus, the U.S. government is still investigating private equity collusion.

The technology industry, especially a segment in decline, makes Dell an even more difficult buyout target. Silver Lake specializes in such areas, but few other firms are as comfortable in the niche. Obsolescence is hard to model and can make a mockery of the detailed financial assumptions underlying buyouts.

That’s essentially what left Mr. Dell in a class by himself. His stock, wealth and desire to turn around his eponymous company made this special kind of club deal possible. He will account for about three-quarters of the deal’s equity. Few other companies have a structure that would allow for anything on Dell’s scale.

Call it the Groucho Marx principle. As long as private equity firms are unwilling to belong to any club that would have them as members, Dell won’t have much company in the mega-deal society.

Robert Cyran is a columnist for Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.

Financial Models at the Heart of Lawsuit Against S.&P.

The Justice Department’s civil lawsuit against Standard & Poor’s asserts that the firm issued inflated credit ratings contains victims and perpetrators. But there is also a weapon at the heart of the supposed wrongdoing: the computer models S.&P. deployed to help rate securities.

Models are the complex computer programs created to analyze large amounts of data. They often crop up in financial scandals. Enron, the energy trading firm that collapsed in 2001, used them to value its assets. A faulty model led JPMorgan Chase’s derivatives traders to make ill-advised bets that led to $6 billion in losses for the bank.

And, of course, financial models helped stoke the housing bubble. Wall Street packaged trillions of dollars of loans into bonds, attaching overoptimistic credit ratings to them in the process. Models helped create those ratings.

In building and trusting their models, credit raters appear naïve and intellectually lacking. But the Justice Department’s suit takes things a sep further. It contains details that are intended to show that S.&P. employees deliberately used models to produce the inflated ratings that it says were at the heart of the fraud.

The models had their own names, like LEVELS and CDO Evaluator. Like consumer computer software, they had numerical suffixes that changed as they were updated. A version called LEVELS 6.0 plays a particularly interesting role.

S.&P. says the suit is without factual and legal merit. Catherine Mathis, an S.&P. spokeswoman, says the Justice Department had not “shown actual adjustment to the models - or other changes - that were not analytically justified.”

As with all lawsuits, the Justice Department may have presented evidence without important counterbalancing context. One of the Justice Department’s recurring arguments is that S.&P. staff chose not to update computer programs to make them more accurate. The updates, according to prosecutors, would have resulted in harsher ratings, and a potential los! s of business for S.&P.

As early as 2004, S.&P. considered widening the loan pool used by LEVELS in an upgrade that would take it to LEVELS 6.0, from LEVELS 5.6, according to the complaint. In fact, say prosecutors, LEVELS 6.0 never got released, despite press announcements that it was coming.

The Justice Department says LEVELS 5.6 was “slightly updated” three times, but none of the adjustments significantly increased loss projections. In 2006, LEVELS 5.7 was released, and that was meant to be a more realistic version of the model. But the Justice Department says an executive “caused a change to be made” to prevent outputs that could have led to ratings that were lower than Moody’s Investors Service, a rival ratings agency.

Ms. Mathis, the S.&P. spokeswoman, said that the part of the complaint that described the adjustment to LEVELS 5.7 is not accurate. “We are not aware of any changes made to the 5.7 model that were not analytically justified, nor that any changes were made byan individual as opposed to a committee,” she said. In addition, she said the complaint doesn’t contain one of the important reasons that LEVELS 6.0 was not used: It would have predicted that adjustable-rate mortgages were less risky than fixed-rate loans.

The Justice Department’s case also zeroes in on a model used to help rate collateralized debt obligations, the financial vehicles through which investors could buy exposure to pools of securities or derivatives. C.D.O.’s were utterly dependent on ratings and provided a lot of revenue to S.&P. The rating agency had C.D.O. model called E3, but the Justice Department says that it also had a more forgiving submodel called E3 Low that could be used to give certain C.D.O.’s better ratings.

The complaint says S.&P. gave its analysts the following procedure for so-called synthetic C.D.O.’s:

If the transaction passes E3.0, GREAT!! The deal is modeled, rated
and surveilled with E3.0.

If the transaction fai! ls E3, th! en use E3Low.

The Justice Department also says that S.&P. “exempted” so-called cash C.D.O.’s from using E3, and, as the boom was fading, it fed a few of those through E3 Low.

Ms. Mathis says that none of the specific C.D.O.’s listed in the Justice Department’s complaint used E3 or E3 Low.

Financial Models at the Heart of Lawsuit Against S.&P.

The Justice Department’s civil lawsuit against Standard & Poor’s asserts that the firm issued inflated credit ratings contains victims and perpetrators. But there is also a weapon at the heart of the supposed wrongdoing: the computer models S.&P. deployed to help rate securities.

Models are the complex computer programs created to analyze large amounts of data. They often crop up in financial scandals. Enron, the energy trading firm that collapsed in 2001, used them to value its assets. A faulty model led JPMorgan Chase’s derivatives traders to make ill-advised bets that led to $6 billion in losses for the bank.

And, of course, financial models helped stoke the housing bubble. Wall Street packaged trillions of dollars of loans into bonds, attaching overoptimistic credit ratings to them in the process. Models helped create those ratings.

In building and trusting their models, credit raters appear naïve and intellectually lacking. But the Justice Department’s suit takes things a sep further. It contains details that are intended to show that S.&P. employees deliberately used models to produce the inflated ratings that it says were at the heart of the fraud.

The models had their own names, like LEVELS and CDO Evaluator. Like consumer computer software, they had numerical suffixes that changed as they were updated. A version called LEVELS 6.0 plays a particularly interesting role.

S.&P. says the suit is without factual and legal merit. Catherine Mathis, an S.&P. spokeswoman, says the Justice Department had not “shown actual adjustment to the models - or other changes - that were not analytically justified.”

As with all lawsuits, the Justice Department may have presented evidence without important counterbalancing context. One of the Justice Department’s recurring arguments is that S.&P. staff chose not to update computer programs to make them more accurate. The updates, according to prosecutors, would have resulted in harsher ratings, and a potential los! s of business for S.&P.

As early as 2004, S.&P. considered widening the loan pool used by LEVELS in an upgrade that would take it to LEVELS 6.0, from LEVELS 5.6, according to the complaint. In fact, say prosecutors, LEVELS 6.0 never got released, despite press announcements that it was coming.

The Justice Department says LEVELS 5.6 was “slightly updated” three times, but none of the adjustments significantly increased loss projections. In 2006, LEVELS 5.7 was released, and that was meant to be a more realistic version of the model. But the Justice Department says an executive “caused a change to be made” to prevent outputs that could have led to ratings that were lower than Moody’s Investors Service, a rival ratings agency.

Ms. Mathis, the S.&P. spokeswoman, said that the part of the complaint that described the adjustment to LEVELS 5.7 is not accurate. “We are not aware of any changes made to the 5.7 model that were not analytically justified, nor that any changes were made byan individual as opposed to a committee,” she said. In addition, she said the complaint doesn’t contain one of the important reasons that LEVELS 6.0 was not used: It would have predicted that adjustable-rate mortgages were less risky than fixed-rate loans.

The Justice Department’s case also zeroes in on a model used to help rate collateralized debt obligations, the financial vehicles through which investors could buy exposure to pools of securities or derivatives. C.D.O.’s were utterly dependent on ratings and provided a lot of revenue to S.&P. The rating agency had C.D.O. model called E3, but the Justice Department says that it also had a more forgiving submodel called E3 Low that could be used to give certain C.D.O.’s better ratings.

The complaint says S.&P. gave its analysts the following procedure for so-called synthetic C.D.O.’s:

If the transaction passes E3.0, GREAT!! The deal is modeled, rated
and surveilled with E3.0.

If the transaction fai! ls E3, th! en use E3Low.

The Justice Department also says that S.&P. “exempted” so-called cash C.D.O.’s from using E3, and, as the boom was fading, it fed a few of those through E3 Low.

Ms. Mathis says that none of the specific C.D.O.’s listed in the Justice Department’s complaint used E3 or E3 Low.

Dell\'s Lonely Club Deal

Dell’s $24 billion leveraged buyout involves essentially a club of one. And Silver Lake Partners, the sole private equity firm included, isn’t even really the charter member.

Michael S. Dell is contributing his 14 percent stake in the PC maker he founded, cash and an investment from his MSD Capital investment arm. Time was not long ago that mega-deals required a team of buyers. For now, they remain more exclusive.

Despite the easy availability of money, Dell represents the largest buyout since 2007, according t Thomson Reuters data. Investors are desperate for higher yielding securities and even Microsoft has agreed to chip in $2 billion to help preserve the ailing personal computer market. With about $4.6 billion of earnings before interest, taxes,depreciation and amortization, or Ebitda, this year, Dell should be able to shoulder the roughly $12 billion debt needed for the deal.

Finding equity these days is the bigger challenge. A multi-billion-dollar injection usually would necessitate at least two and often several more firms. The buyout industry has largely sworn off them after the troubles such club deals caused during the 2005-2007 boom. Too many big-stake owners make it harde! r to agree on strategy, exits become more difficult and investors in L.B.O. firms wind up with overly correlated returns. Plus, the U.S. government is still investigating private equity collusion.

The technology industry, especially a segment in decline, makes Dell an even more difficult buyout target. Silver Lake specializes in such areas, but few other firms are as comfortable in the niche. Obsolescence is hard to model and can make a mockery of the detailed financial assumptions underlying buyouts.

That’s essentially what left Mr. Dell in a class by himself. His stock, wealth and desire to turn around his eponymous company made this special kind of club deal possible. He will account for about three-quarters of the deal’s equity. Few other companies have a structure that would allow for anything on Dell’s scale.

Call it the Groucho Marx principle. As long as private equity firms are unwilling to belong to any club that would have them as members, Dell won’t have much company in the mega-deal society.

Robert Cyran is a columnist for Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.

Jim O\'Neill, Famed Goldman Economist, to Retire

Jim O’Neill, the economist who a decade ago coined the term BRICs â€" the acronym for the emerging growth economies in Brazil, Russia, India and China â€" plans to retire from Goldman Sachs Group later this year, the firm announced on Tuesday.

Mr. O’Neill, 55, joined Goldman in 1995 as chief currency economist and co-head of global economics research, and became head of global economics, commodities and strategy research in 2001. In 2010, he became chairman of the firm’s asset management division.

Coining the term BRICs in 2001, he “challenged conventional economic thinking about emerging markets and, as a result, has had a significant economic and social impact,” Goldman’s chief executive, Lloyd Blankfein, and president, Gary Cohn, said in a statement announcing the move.

His seminal piece, “Building Better Global Economic BRICs,” dated Nov. 30, 2001, predicted that the weight of BRICs, particularly especially China, would grow as a proportion of world economic output.

It preceded a decade-long outperformance by emerging markets stocks over developed markets. In the 10 years ending December 2012, the Vanguard emerging markets stock index fund had annual returns of 16.2 percent, while the same firm’s developed markets index fund of non-U.S. stocks returned 8.4 percent annually.

The London-based Mr. O’Neill, a frequent face of Goldman on CNBC and conferences, worked at Bank of America and the Swiss Bank Corporation before joining Goldman. In a brief interview, he said he did not have any specific plans, but expected to continue working in some capacity.

His latest research piece on Monday asked the well-timed question “Are Things That Good” on a day when the Dow Jones industrial average fell 129.71 points, its biggest drop in more than a month.

In this week’s piece, Mr. O’Neill cited current concerns including that “some equity valuations are starting to not seem overly cheap,” as well as the threat of currency wars and the risk of rising bond yields.

A Goldman spokeswoman said the firm did not plan to replace Mr. O’Neill as chairman of Goldman Sachs Asset Management, which will continue to be co-led by Tim O’Neill and Eric Lane.

Case Details Internal Tension at S.&P. Amid Subprime Problems

The subprime loans packaged up as complex securities for Standard & Poor’s to rate were already failing at such a fast clip in the fall of 2006 that some analysts at the firm thought they must be seeing typographical errors.

At the time, the nation’s biggest rating agency was making record profits, attaching sterling ratings to mortgage-related securities that were increasingly going bad. Inside the firm’s headquarters in lower Manhattan, tensions were escalating. Some executives pushed to revise the firm’s rating models in hopes of preserving market share and profits, while others expressed deep concerns about the poor performance of the securities, according to court records.

“This market is a wildly spinning top which is going to end badly,” one executive wrote in a confidential memo.

The account, culled from reams of internal e-mails, is part of civil fraudcharges that the Justice Department filed late Monday against S.&P. in federal court in Los Angeles, accusing the firm of inflating ratings of mortgage investments and setting them up for a crash when the financial crisis struck.

The government is seeking $5 billion in penalties against the company to cover losses to investors like state pension funds and federally insured banks and credit unions. The amount would be more than five times what S.&P. made in 2011. S.&P. said it would vigorously defend itself against “these unwarranted claims.”

Sixteen states, including Iowa, Mississippi and Illinois, joined the joined the federal suit, and the New York attorney general said he was taking separate actions. California’s attorney general, Kamala D. Harris, said the state pension funds lost nearly $1 billion on the soured investments. The Securities and Exchange Commission has also been investigating possible wrongdoing at S.& P.

“The action we announce today marks an important st! ep forward in the administration’s ongoing effort to investigate â€" and punish â€" the conduct that is believed to have continued to the worst economic crisis in recent history,” said Attorney General Eric Holder. The Justice Department called its investigation “Alchemy,” after medieval alchemists’ attempts to turn lead into gold.

Standard & Poor’s defended its corporate practices on Tuesday, saying the civil lawsuit filed by the Justice Department was “meritless.”

“Claims that we deliberately kept ratings high when we knew they should be lower are simply not true. S.&P. has always been committed to serving the interests of investors and all market participants by providing independent opinions on creditworthiness based on available information,” the rating agency said in a statement on Tuesday.

The company said that at all times its actions reflected its best judgments abut the investments at the heart of the suit â€" about 40 collateralized debt obligations, or C.D.O.’s, an exotic type of security made up of bundles of residential mortgage-backed securities, which in turn were composed of individual home loans.

“Unfortunately,” the company’s statement said, “S.&P., like everyone else, did not predict the speed and severity of the coming crisis and how credit quality would ultimately be affected.”

McGraw-Hill shares were down 5 percent to $47.51 in early afternoon trading on the New York Stock Exchange, and have lost 19 percent of their value over the past two days.

The case is the first significant federal action against the ratings industry, which during the boom years bestowed high ratings that made many mortgage-related investments appear safer than they actually were.

It was unclear whether the Justice Department was looking at the other two major ratings agencies, Moody’s Investors Service and Fitch. Mr. West said he would ! not discu! ss actions against other rating agencies. In addition to joining the suit against S.&P., James Hood, the attorney general in Mississippi, said his state has also filed lawsuit against Moody’s.

The joint federal-state suit against S.&P. claims that from September 2004 through October 2007, S.&P. “knowingly and with the intent to defraud, devised, participated in, and executed a scheme to defraud investors” in certain mortgage-related securities. S.&P. also falsely represented that its ratings “were objective, independent, uninfluenced by any conflicts of interest,” the suit said.

Settlement talks between S.&P. and the Justice Department broke down in the last two weeks after prosecutors sought a penalty in excess of $1 billion and insisted that the company admit wrongdoing, several people with knowledge of the talks said. That amount would wipe out the profits of McGraw-Hill for an entire year. S.&P. had proposed a settlement of around $100 million, the people said. The government pressd for an admission of guilt to at least one count of fraud, said the people. S.&P. told prosecutors it could not admit guilt without exposing itself to liability in a multitude of civil cases.

On Monday, a spokesman for Moody’s declined to comment. A spokesman for Fitch, Daniel J. Noonan, said the agency could not comment on an action against Standard & Poor’s, but added, “We have no reason to believe Fitch is a target of any such action.”

The securities were created at the height of the housing boom, mainly for investment banks. S.&P. was paid fees of about $13 million for rating them. The firm gave the government more than 20 million pages of e-mails as part of its investigation, the people with knowledge of the process said.

Since the financial crisis in 2008, the ratings agencies’ business practices have been widely criticized and questions have been raised as to whether independent analysis was corrupted by Wall Street’s push for profits.

A Senate investigatio! n made pu! blic in 2010 found that S.& P. and Moody’s used inaccurate rating models from 2004 to 2007 that failed to predict how high-risk mortgages would perform; allowed competitive pressures to affect their ratings; and failed to reassess past ratings after improving their models in 2006.

The companies failed to assign adequate staff to examine exotic investments, and failed to take mortgage fraud, lax underwriting and “unsustainable home price appreciation” into account in their models, the inquiry found.

“Rating agencies continue to create an even bigger monster â€" the C.D.O. market,” one S.&P. employee wrote in an internal e-mail in December 2006. “Let’s hope we are all wealthy and retired by the time this house of cards falters.”

Another S.&P. employee wrote in an instant message the next April, reproduced in the complaint: “We rate every deal. It could be strucured by cows and we would rate it.”

In its statement Tuesday, S.&P. said that “the e-mail that says deals ‘could be structured by cows’ and be rated by S.&P. had nothing to do with R.M.B.S. or C.D.O. ratings or any S.&P. model. The company added that “the analyst had her concerns addressed with the issuer before S.&P. issued any rating.” S.&P. said that there was robust internal debate about how a rapidly deteriorating housing market might affect the C.D.O.’s, “and we applied the collective judgment of our committee-based system in good faith.”

“The e-mail excerpts cherry picked by D.O.J. have been taken out of context, are contradicted by other evidence, and do not reflect our culture, integrity or how we do business,” the credit rating agency said.

The three major ratings agencies are typically paid by the issuers of the securities they rate â€" in this case, the banks that had packaged the mortgage-backed securities and wanted to market them. The investors w! ere not i! nvolved in the process but depended on the rating agencies’ assessments.

In a separate statement on Monday, S.&P. said it had begun stress-testing the mortgage-backed securities as early as 2005, trying to see how they would perform in a severe market downturn. S.&P. said it had also sent out early warning signals, downgrading hundreds of mortgage-backed securities, starting in 2006. Nor was it the only one to have underestimated the coming crisis, it said â€" even the Federal Reserve’s Open Market Committee believed that any problems within the housing sector could be contained.

The Justice Department, the company said, “would be wrong in contending that S.&P. ratings were motivated by commercial considerations and not issued in good faith.”

For many years, the ratings agencies have defended themselves successfully in civil litigation by saying their ratings were independent opinions, protected by the First Amendment, which guarantees the right to free speech. But developments in he wake of the financial crisis have raised questions about the agencies’ independence.

One federal judge, Shira A. Scheindlin, ruled in 2009 that the First Amendment did not apply in a lawsuit over ratings issued by S.&P. and Moody’s, because the mortgage-backed securities had not been offered to the public at large. Judge Scheindlin also agreed with the plaintiffs, who argued the ratings were not opinions, but misrepresentations, possibly the result of fraud or negligence.

The federal-state action is the first time a credit-rating agency has been charged under a 1989 law intended to protect taxpayers from frauds involving federally insured financial institutions, which since the financial crisis has been used against a number of federally insured banks, including Wells Fargo, Bank of America and Citigroup.

The government is taking a novel approach by accusing S.&P. of defrauding a federally insured institution and therefore injuring the taxpayer.

The lawsuit was filed in! Central ! District of California, home to the defunct Western Federal Corporate Credit Union, which was the largest corporate credit union in the country. The credit union collapsed during the 2008 financial crisis after suffering huge losses on mortgage-backed securities rated by S.&P.

The Justice Department said it interviewed about 150 people in the investigation, including former S.&P. executives and analysts.

Case Details Internal Tension at S.&P. Amid Subprime Problems

The subprime loans packaged up as complex securities for Standard & Poor’s to rate were already failing at such a fast clip in the fall of 2006 that some analysts at the firm thought they must be seeing typographical errors.

At the time, the nation’s biggest rating agency was making record profits, attaching sterling ratings to mortgage-related securities that were increasingly going bad. Inside the firm’s headquarters in lower Manhattan, tensions were escalating. Some executives pushed to revise the firm’s rating models in hopes of preserving market share and profits, while others expressed deep concerns about the poor performance of the securities, according to court records.

“This market is a wildly spinning top which is going to end badly,” one executive wrote in a confidential memo.

The account, culled from reams of internal e-mails, is part of civil fraudcharges that the Justice Department filed late Monday against S.&P. in federal court in Los Angeles, accusing the firm of inflating ratings of mortgage investments and setting them up for a crash when the financial crisis struck.

The government is seeking $5 billion in penalties against the company to cover losses to investors like state pension funds and federally insured banks and credit unions. The amount would be more than five times what S.&P. made in 2011. S.&P. said it would vigorously defend itself against “these unwarranted claims.”

Sixteen states, including Iowa, Mississippi and Illinois, joined the joined the federal suit, and the New York attorney general said he was taking separate actions. California’s attorney general, Kamala D. Harris, said the state pension funds lost nearly $1 billion on the soured investments. The Securities and Exchange Commission has also been investigating possible wrongdoing at S.& P.

“The action we announce today marks an important st! ep forward in the administration’s ongoing effort to investigate â€" and punish â€" the conduct that is believed to have continued to the worst economic crisis in recent history,” said Attorney General Eric Holder. The Justice Department called its investigation “Alchemy,” after medieval alchemists’ attempts to turn lead into gold.

Standard & Poor’s defended its corporate practices on Tuesday, saying the civil lawsuit filed by the Justice Department was “meritless.”

“Claims that we deliberately kept ratings high when we knew they should be lower are simply not true. S.&P. has always been committed to serving the interests of investors and all market participants by providing independent opinions on creditworthiness based on available information,” the rating agency said in a statement on Tuesday.

The company said that at all times its actions reflected its best judgments abut the investments at the heart of the suit â€" about 40 collateralized debt obligations, or C.D.O.’s, an exotic type of security made up of bundles of residential mortgage-backed securities, which in turn were composed of individual home loans.

“Unfortunately,” the company’s statement said, “S.&P., like everyone else, did not predict the speed and severity of the coming crisis and how credit quality would ultimately be affected.”

McGraw-Hill shares were down 5 percent to $47.51 in early afternoon trading on the New York Stock Exchange, and have lost 19 percent of their value over the past two days.

The case is the first significant federal action against the ratings industry, which during the boom years bestowed high ratings that made many mortgage-related investments appear safer than they actually were.

It was unclear whether the Justice Department was looking at the other two major ratings agencies, Moody’s Investors Service and Fitch. Mr. West said he would ! not discu! ss actions against other rating agencies. In addition to joining the suit against S.&P., James Hood, the attorney general in Mississippi, said his state has also filed lawsuit against Moody’s.

The joint federal-state suit against S.&P. claims that from September 2004 through October 2007, S.&P. “knowingly and with the intent to defraud, devised, participated in, and executed a scheme to defraud investors” in certain mortgage-related securities. S.&P. also falsely represented that its ratings “were objective, independent, uninfluenced by any conflicts of interest,” the suit said.

Settlement talks between S.&P. and the Justice Department broke down in the last two weeks after prosecutors sought a penalty in excess of $1 billion and insisted that the company admit wrongdoing, several people with knowledge of the talks said. That amount would wipe out the profits of McGraw-Hill for an entire year. S.&P. had proposed a settlement of around $100 million, the people said. The government pressd for an admission of guilt to at least one count of fraud, said the people. S.&P. told prosecutors it could not admit guilt without exposing itself to liability in a multitude of civil cases.

On Monday, a spokesman for Moody’s declined to comment. A spokesman for Fitch, Daniel J. Noonan, said the agency could not comment on an action against Standard & Poor’s, but added, “We have no reason to believe Fitch is a target of any such action.”

The securities were created at the height of the housing boom, mainly for investment banks. S.&P. was paid fees of about $13 million for rating them. The firm gave the government more than 20 million pages of e-mails as part of its investigation, the people with knowledge of the process said.

Since the financial crisis in 2008, the ratings agencies’ business practices have been widely criticized and questions have been raised as to whether independent analysis was corrupted by Wall Street’s push for profits.

A Senate investigatio! n made pu! blic in 2010 found that S.& P. and Moody’s used inaccurate rating models from 2004 to 2007 that failed to predict how high-risk mortgages would perform; allowed competitive pressures to affect their ratings; and failed to reassess past ratings after improving their models in 2006.

The companies failed to assign adequate staff to examine exotic investments, and failed to take mortgage fraud, lax underwriting and “unsustainable home price appreciation” into account in their models, the inquiry found.

“Rating agencies continue to create an even bigger monster â€" the C.D.O. market,” one S.&P. employee wrote in an internal e-mail in December 2006. “Let’s hope we are all wealthy and retired by the time this house of cards falters.”

Another S.&P. employee wrote in an instant message the next April, reproduced in the complaint: “We rate every deal. It could be strucured by cows and we would rate it.”

In its statement Tuesday, S.&P. said that “the e-mail that says deals ‘could be structured by cows’ and be rated by S.&P. had nothing to do with R.M.B.S. or C.D.O. ratings or any S.&P. model. The company added that “the analyst had her concerns addressed with the issuer before S.&P. issued any rating.” S.&P. said that there was robust internal debate about how a rapidly deteriorating housing market might affect the C.D.O.’s, “and we applied the collective judgment of our committee-based system in good faith.”

“The e-mail excerpts cherry picked by D.O.J. have been taken out of context, are contradicted by other evidence, and do not reflect our culture, integrity or how we do business,” the credit rating agency said.

The three major ratings agencies are typically paid by the issuers of the securities they rate â€" in this case, the banks that had packaged the mortgage-backed securities and wanted to market them. The investors w! ere not i! nvolved in the process but depended on the rating agencies’ assessments.

In a separate statement on Monday, S.&P. said it had begun stress-testing the mortgage-backed securities as early as 2005, trying to see how they would perform in a severe market downturn. S.&P. said it had also sent out early warning signals, downgrading hundreds of mortgage-backed securities, starting in 2006. Nor was it the only one to have underestimated the coming crisis, it said â€" even the Federal Reserve’s Open Market Committee believed that any problems within the housing sector could be contained.

The Justice Department, the company said, “would be wrong in contending that S.&P. ratings were motivated by commercial considerations and not issued in good faith.”

For many years, the ratings agencies have defended themselves successfully in civil litigation by saying their ratings were independent opinions, protected by the First Amendment, which guarantees the right to free speech. But developments in he wake of the financial crisis have raised questions about the agencies’ independence.

One federal judge, Shira A. Scheindlin, ruled in 2009 that the First Amendment did not apply in a lawsuit over ratings issued by S.&P. and Moody’s, because the mortgage-backed securities had not been offered to the public at large. Judge Scheindlin also agreed with the plaintiffs, who argued the ratings were not opinions, but misrepresentations, possibly the result of fraud or negligence.

The federal-state action is the first time a credit-rating agency has been charged under a 1989 law intended to protect taxpayers from frauds involving federally insured financial institutions, which since the financial crisis has been used against a number of federally insured banks, including Wells Fargo, Bank of America and Citigroup.

The government is taking a novel approach by accusing S.&P. of defrauding a federally insured institution and therefore injuring the taxpayer.

The lawsuit was filed in! Central ! District of California, home to the defunct Western Federal Corporate Credit Union, which was the largest corporate credit union in the country. The credit union collapsed during the 2008 financial crisis after suffering huge losses on mortgage-backed securities rated by S.&P.

The Justice Department said it interviewed about 150 people in the investigation, including former S.&P. executives and analysts.

Justice Department Faces Uphill Battle in Proving S.& P. Fraud

The Justice Department accused Standard & Poor’s of issuing faulty credit ratings on securities tied to mortgages. The 119-page civil complaint is chock-full of e-mails that paint a picture of shoddy practices and greed as S.& P. purportedly watered down its standards to generate more business.

But whether the company’s practices equate to fraud will be difficult to prove.

The government is bringing charges under a provision of the Financial Institutions Reform, Recovery and Enforcement Act, a statute adopted in 1989 during the savings and loan crisis to make it easier to pursue fraud cases in the banking business. The law allows for a penalty of up to $1 million for each violation of the mail, wire and bank faud statutes for conduct “affecting” a federally insured financial institution.

The statute is designed to help the government recoup money it expended bailing out any failed bank. In this case, the government is suing over the failure of Western Federal Corporate Credit Union and other unnamed financial institutions.

The statute was rarely used until recently, when the Justice Department apparently found it useful for cases arising out of the financial crisis. The United States attorney’s office in Manhattan sued Wells Fargo and Bank of America in October for penalties related to their mortgage operations.

The benefit of using the Financial Institutions Reform! , Recovery and Enforcement Act is that one only needs to meet the lower burden of proof in civil cases of a “preponderance of the evidence” while still being able to use the broad mail and wire fraud statutes. This is in contrast to criminal charges, which require that prosecutors prove guilt beyond a reasonable doubt.

The government probably thinks it has some smoking guns. The complaint claims that S.& P. continued to rate subprime mortgage securities highly as the financial crisis began to hit and the securities looked increasingly shaky.

The Justice Department also contends that S.& P. helped fuel the financial crisis. In the first half of 2007, the company rated a number of large mortgage-backed securities, bestowing top grades on the investments. It then quickly downgraded the securities, which defaulted in months.

Then there is the usual array of inappropriate e-mails and text messages. One riffs on the Talking Heads song “Burning Down the House,” creating new lyrics: “Subprime is boi-ling o-ver. Bringing down the house.” Another e-mail from an analyst in response to a question about how his new job was going reads: “Job’s going great. Aside from the fact that the M.B.S. world is crashing, investors and the media hate us and we’re all running around to save face … no complaints.”

Despite the colorful e-mails, the Justice Department will face an uphill battle, even with the lower burden of proof.

The first problem is that Justice Department will have to demonstrate that S.& P. acted inappropriately. The government will have to prove that ratings were in fact faulty, and published intentionally so as to deceive investors in the securities. In response, S.& P. could simply argue that the company was just as blinded by the financial crisis as anyone else, and that q! uestionab! le e-mails are simply the work of lower-level employees who were not involved in the decision-making.

In other words, S.& P. lacked the intent necessary to prove fraud.

Even if the Justice Department can prove the agency acted to deceive investors, it still has to deal with something lawyers call reliance. In other words, did investors rely on these ratings to make their decisions

S.& P. did not deal directly with any investors, working only with the issuers and receiving payment for its ratings. In fact, most offering documents for these securities specifically told investors not to rely on the ratings. While that does not preclude finding that the company engaged in a fraudulent scheme, it does make it more difficult to show the link between purportedly shoddy ratings and any direct effect on the investors.

Perhaps more important is that S.& P. was not the only company that rated the securities. Typically, a security was also rated by at least one of the other two major rating agecies, Fitch Ratings and Moody’s Investors Service. They have not been accused of any misconduct by the Justice Department, and S.& P. can point to its competitors’ ratings as proof that it did not intend to mislead investors.

In its complaint, the government asserts that S.& P.’s fraudulent scheme “caused” investors to buy the securities, but the ratings by other firms may well have contributed to that decision. By only suing S.& P., the Justice Department will have to show that the company’s ratings played a major role in the investment decision.

Even if a fraud claim is established, S.& P. is sure to raise an old defense: t! he First ! Amendment’s protection for freedom of the press. The credit rating agencies have fought lawsuits accusing them of negligence and fraudulent misrepresentation by arguing that they are financial journalists whose ratings are only opinions on the future prospects of the securities. Under the Supreme Court’s decision in New York Times Co. v. Sullivan, a plaintiff suing a member of the press would have to prove “actual malice.” It is a difficult standard to meet.

Although S.& P. and the other firms have successfully offered this defense to get cases dismissed, federal courts have been less receptive of late. For example, a Federal District Court judge in New Mexico rejected the argument of the three major credit rating agencies that the First Amendment protected their ratings on a mortgage-backed security, finding that the limitd distribution of the information meant that their statements did not receive the full protection afforded by the Constitution.

In another case in August, Judge Shira A. Scheindlin of Federal District Court in Manhattan also refused to dismiss a case against Moody’s and S.& P. on the basis of the First Amendment’s protections. She wrote that “ratings are actionable if (they) both misstated the opinions or beliefs held by the rating agencies and were false or misleading with respect to the underlying subject matter they address.”

By accusing S.& ! P. of fra! ud, the Justice Department may be able to undermine any First Amendment claim by the company. The protections afforded by the Constitution do not extend to statements made as part of a fraudulent scheme. By charging that the ratings were designed to help the company generate new business, the government may block S.& P. from having the complaint dismissed before trial.

But even if the Justice Department can fight off the First Amendment issue, it must prove that S.& P. ratings were the product of intentional fraud and not just stupidity. It also must show that investors actually cared about the ratings. This could be tough, since the ratings agencies were notorious for getting it wrong. After all, Enron carried a triple-A rating just weeks before its collapse.

While one might think disgust with financial institutions and distaste for ratings agecies will carry the day, the government has had a hard time winning fraud cases in court when juries actually look at the facts. It all means that the Justice Department will have its work cut out for it this time.

Dell\'s Record-Breaking Buyout

The $24.4 billion buyout of Dell sets a number of private equity records.

The buyout, led by Dell’s founder and the investment firm Silver Lake, is the biggest backed by private equity since the financial crisis, more than twice the size of the next-largest deal, the Blackstone Group‘s $9.4 billion purchase of shopping mall assets of Centro Properties in 2011, according to data from .

It is the largest technology buyout ever, eclipsing the $17.5 billion deal for Freescale Semiconductor in 2006.

And it is the largest deal for Silver Lake, which teamed up with BC Partners in the $16 billion buyout of Intelsat in 2007.

What follows is a look at the private equity boom, bust and recovery, based on data from Thomson Reuters.

Boom

March 2005: Toys “R” Us for $6.1 billion | K.K.R., Bain Ca! pital and the Vornado Realty Trust agreed to buy the toy retailing giant. Although the company has filed to go public, it remains in limbo.

March 2005: SunGard Data Systems for $10.8 billion | A big group of private equity firms - Silver Lake, Bain Capital, the Blackstone Group, GS Capital Partners, TPG Capital, Providence Equity Partners and K.K.R. â€" agreed to buy SunGard Data Systems, a software and I.T. services company.

May 2005: Neiman Marcus for $5.2 billion | TPG Capital and Warburg Pincus agreed to buy Neiman Marcus, the luxury retail chain. Seven years later, in 2012, the owners were contemplating taking the company public.

September 2005: Hertz for $5.6 billion | Te Carlyle Group, Clayton Dubilier & Rice and the private equity unit of Merrill Lynch agreed to buy Hertz. The rental car company was taken public the following year. Hertz recently bought a rival, the Dollar Thrifty Automotive Group.

November 2005: TDC for $10.6 billion | Apax Partners, the Blackstone Group, Providence Equity Partners, K.K.R. and Permira backed a deal to buy TDC, a big Danish phone company.

January 2006: Albertsons for $17.8 billion | Cerberus Capita! l Managem! ent, Supervalu and CVS reached a deal to buy the supermarket chain. In 2013, Cerberus agreed to buy Albertsons and other grocery store chains from Supervalu.

June 2006: Univision Communications for $13.4 billion | The Saban Capital Group, Providence Equity Partners, TPG Capital, Thomas H. Lee Partners and Madison Dearborn agreed to buy the Spanish-language broadcaster after a hotly contested auction.

July 2006: HCA for $32.1 billion | Bain Capital, K.K.R. and Merrill Lynch’s buyout arm, along with the family of Senator Bill Frist, agreed to buy the hospital chain HCA in what was at that point the largest leveraged buyout ever.

August 2006: Kinder Morgan for $27.5 billion | The Carlyle Group, Riverstone Holdings, GS Capital Partners and A.I.G. backed a deal by Richard D. Kinder for Kinder Morgan. The oil-and-gas pipeline company later went public in February 2011.

September 2006: Freescale Semiconductor for $17.5 billion | TPG Capital, the Blackstone Group, the Carlyle Group and Permira agreed to buy the technology company. After strugg! ling with! a big debt load, Freescale went public in 2011.

October 2006: Caesars Entertainment for $27.6 billion | TPG Capital and Apollo Global Management agreed to buy the casino giant Harrah’s Entertainment, which was later renamed Caesars. After an initial attempt to go public in 2010, Caesars had its I.P.O. in February 2012.

November 2006: Equity Office Properties Trust for $37.7 billion | The Blackstone Group agreed to buy Equity Office Properties Trust, a big owner and manager of office buildings.

February 2007: TXU for $44.4 billion | In a deal that remains the largest buyout ever, K.K.R., TPG Capital, Goldman Sachs, Lehman Brothers, Citigroup and Morgan Stanley agreed to buy the Texas energy giant TXU, which later was renamed Energy Future Holdings. The company has struggled as natural gas prices have fallen, becoming a symbol of the pitfalls of the private equity boom.

April 2007: First Data for $27 billion | K.K.R. agreed to buy First Data, a processor of credit card payments for banks and merchants.

May 2007: Alltel for $27.3 billion | TPG Capital and GS Capital Partners were the buyers of Alltel, in what was the largest leveraged buyout ever in the telecommunications industry.

June 2007: Intelsat for $16 billion | The deal for Intelsat, a provider of satellite services, was Silver Lake’s biggest before the Dell buyout.

July 2007: Hilton Hotels for $26.7 billion | The hotel chain has become a central piece of Blackstone’s real estate business.

Bust

The size of deals fell sharply in 2008, as the credit crisis hit.

The biggest deal of 2008 came in May, when Nordic Capital and Avista Capital agreed to buy the ConvaTec unit of Bristol-Myers Squibb for $4.1 billion.

February 2008: Getty Images for $2 billion | Hellman & Friedman agreed to buy Getty Images, the distributor of pictures and video. The company was sold to the Carlyle Group in 2012.

July 2008: Weather Channel for $3.5 billion | Bain Capital, the Blackstone Group and NBC Universal were the buyers.

September 2009: Skype for $2 billion ! | Silver ! Lake, Index Ventures, Andreessen Horowitz and the Canada Pension Plan Investment Board bought Skype from eBay. The company was later sold to Microsoft for $8.5 billion.

Recovery

Deals began to grow in size as confidence returned after the recession.

May 2010: The Interactive Data Corporation for $3 billion | The deal by Silver Lake and Warburg Pincus seemed to signal a revival in the private equity market.

September 2010: Burger King Holdings for $3.9 billion | The fast-food chain agreed to sell itself to 3G Capital, an investment firm that was backed by wealthy Brazilians. Burger King rejoined the public markets in 2012.

November 2010: Del Monte Foods for $5.3 billion | ..K.R., Vestar Capital Partners and the buyout arm of Centerview Partners agreed to buy Del Monte Foods, a deal that sparked a prominent legal dispute over how it was financed.

March 2011: Centro Properties assets for $9.4 billion | Blackstone was the buyer.

November 2011: Samson Investment for $7.2 billion | K.K.R. teamed up with Itochu, a Japanese conglomerate, and two other buyout firms, Natural Gas Partners and Crestview Partners, to buy Samson, a privately held energy company.

February 2012: Assets of the El Paso Corporation for $7.2 billion | Investors including Apollo Global Management and Riverstone Holdings agreed to buy the exploration and production businesses of the El Paso Corporation.

August 2012: DuPont unit for $4.9 billion | The Carlyle Group agreed to buy DuPont Performance Coatings, in a busy summer for the private equity firm.

Biggest Private Equity-Backed Leveraged Buyouts

DEAL, IN BILLIONSTARGETBUYERANNOUNCED

Source: Thomson Reuters *At time of deal, including assumption of debt, not adjusted for inflation.
$44.3	TXU	Morgan Stanley, Citigroup, Lehman Brothers Holdings, Kohlberg Kravis Roberts, Texas Pacific Group and Goldman Sachs	February 2007
37.7	Equity Office Properties Trust	Blackstone Group	November 2006
32.1	HCA	Bain Capital, Kohlberg Kravis Roberts and Merrill Lynch Global Private	July 2006
30.2	RJR Nabisco	Kohlberg Kravis Roberts	October 1988
30.1	BAA	Grupo Ferrovial SA, Caisse de Depot et Placement and GIC Secial Invest	March 2006
27.6	Harrah’s Entertainment	Texas Pacific Group and Apollo Management	October 2006
27.4	Kinder Morgan	GS Capital Partners, The Carlyle Group and Riverstone Holdings	May 2006
27.2	Alltel	TPG Capital and GS Capital Partners	May 2007
27.0	First Data	Kohlberg Kravis Roberts	April 2007
26.7	Hilton Hotels	Blackstone Group	July 2007

The Things Credit-Rating Analysts Say

A credit-rating analyst with an affinity for the Talking Heads

The Justice Department’s lawsuit against Standard & Poor’s, filed Monday evening, accuses the credit-rating agency of bestowing top ratings on investments that were destined to fail. But the behavior described in the complaint, leading up to the financial crisis, was not without its colorful moments.

By March 2007, the complaint says, S.&P. knew that certain mortgage securities were doing poorly and might have to have their ratings revised. That month, an analyst who had taken a close look at 2006-vintage securities sent an e-mail to some colleagues with the subject line “Burning down the house â€" Talking Heads,” according to the complaint. The e-mail reproduced in the complaint read:

With apologies to David Byrne…here’s my version of “Buring Down the House“.

Watch out
Housing market went softer
Cooling down
Strong market is now much weaker
Subprime is boi-ling o-ver
Bringing down the house

Hold tight
CDO biz â€" has a bother
Hold tight
Leveraged CDOs they were after
Going â€" all the way down, with
Subprime mortgages

Own it
Hey you need a downgrade now
Free-mont
Huge delinquencies hit it now
Two-thousand-and-six-vintage
Bringing down the house.

Minutes later, the complaint says, the analyst sent a follow-up e-mail: “For obvious, professional reasons please do not forward this song. If you are interested, I can sing it in your cube ;-).”

A couple days later, the analyst circulated another e-mail with a video of him performing the first verse of the song in the S.&P.’s offices for an audience of laughing coworkers, the complaint says.

An analyst who received the lyrics and the videotaped performance su! bsequently gave a high rating to a security that defaulted the following year, according to the complaint.

The lawsuit also describes a meeting where David Tesher, a managing director at S.&P., discussed the unraveling housing market. Afterward, two analysts had an instant message conversation reproduced in the complaint:

Analyst 2: that means we will see grumpy analyst sand [sic] grumpy bankers and a grumpy [Managing Director in Global CDO ("Executive K")]

Analyst 1: I’m grympy [sic] anyway

In April, one analyst wrote in an instant message that “we rate every deal,” and “it could be structured by cows and we would rate it,” according to the complaint.

In July, an analyst chose to represent the situation visually, e-mailing employees of two banks a cartoon that depicted asset-backed collateralized debt obligations as a game of Jenga, the complaint says.

One recently hired analyst apparently had a penchant for sarcasm. That July, he respoded to an e-mail from an investment banker asking how his new job was going, saying, according to the complaint:

Job’s going great. Aside from the fact that the MBS world is crashing, investors and the media hate us, and we’re all running around to save face… no complaints.

Later, as part of the same e-mail thread reproduced in the complaint, the analyst added:

You should see how it is here right now. It’s like a [mild expletive] trading floor. “Downgrade, Mortimer, downgrade!!!”

Rivals Don\'t Mean to Rain on Dell\'s Parade, but ...

Dell may be promoting its $24.4 billion leveraged buyout as the next step in its turnaround plan. But some of the computer maker’s rivals couldn’t resist throwing a few jabs at the company all the same.

Here’s what Lenovo had to say on Tuesday:

“While we won’t comment on the specifics, we remain as always confident in our strategy, our ability to deliver compelling and innovative products and our overall position and performance. We believe that the financial actions of some of our traditional competitors will not substantially change our outlook. Our strategy is clear, our financial position is healthy and our business is very strong â€" so we are focused on our products, customers and overall execution rather than distracting financial maneuvers and major strategic shifts. This focus is an advantage for us and a benefit to our customers. Lenovo has the best products, a clear strategy and outstanding momentum. We always face tough competition, and we are well prepared tocontinue to win in the PC+ era by focusing on our own efforts, core strengths and great execution.”

Hewlett-Packard â€" itself in the midst of a difficult turnaround that could take years â€" took a decidedly more pointed tack in its comment, all but declaring its intent to poach customers:

“Dell has a very tough road ahead. The company faces an extended period of uncertainty and transition that will not be good for its customers. And with a significant debt load, Dell’s ability to invest in new products and services will be extremely limited. Leveraged buyouts tend to leave existing customers and innovation at the curb. We believe Dell’s customers will now be eager ! to explore alternatives, and H.P. plans to take full advantage of that opportunity.”

S.&P. Calls Government\'s Suit \'Meritless\'

Standard & Poor’s Ratings Services defended its corporate practices on Tuesday, saying a civil lawsuit filed by the Justice Department that accuses the firm of inflating its ratings of mortgage investments was “meritless.”

The Justice Department filed a suit in federal court in Los Angeles late on Monday, saying the firm knowingly defrauded investors in certain mortgage-related securities by making them appear safer than they actually were. Shares of McGraw-Hill, the parent company of S.&.P, were down more than 5 percent on midday Tuesday.

The Justice Department’s case against S.&P. focuses on certain collateralized debt obligations, or C.D.O.’s, financial instruments consisting of bundles of mortgage bonds. It also took issue with S.&P.’s models for residential mortgage-backed securities.

In its statement, S.&P. said “claims that we deliberately kept ratings high when we knew they should be lower are simply not true.”

“Unfortunately,” the firm added, “S.&P., like everyone else, did not predict the speed and severity of the coming crisis and how credit quality would ultimately be affected.”

S.&P. said there was robust internal debate about the deteriorating housing market and that “20/20 hindsight is no basis to take legal action against the good-faith opinions of professionals.”

The government’s suit references several e-mails written by S.&P. employees, some of them expressing strong concern about the way such securities were being rated. S.&P. says the excerpts were taken out of context and “are contradicted by other evidence, and do not re! flect our culture, integrity or how we do business.”

The firm said that in the last five years, it had brought in new leadership and spent about $400 million to improve its ratings systems.

Reasons to Be Suspicious of Buyouts Led by Management

With the help of the private equity firm Silver Lake and Microsoft, Michael S. Dell, the founder and chief executive, is buying back his computer company.

And that is cause for concern.

Many management-led buyouts have been successful enriching management at shareholder expense. A look at some of the worst ones shows why.

The first issue is price. In such a buyout, a company’s executives have an incentive to pay the lowest price possible, yet they are also supposed to represent the interests o shareholders. That’s a fundamental conflict.

As a result, there is almost always a lingering suspicion that the top executives are timing the buyout to pay a discounted price or are otherwise taking advantage of their unique knowledge to underpay.

There are lots of examples. In 2007, both HCA and Kinder Morgan were taken private by management and a number of private equity firms in huge buyouts. At the time, management teams at both companies were criticized for the timing and the low price paid. In the case of HCA, this was the second time the founding Frist family had taken the company private.

Sure enough, four years later both companies went public, making hundreds of millions for management. More recently, Kenneth Cole used a timely drop in the stock market to complete a $280 million buyout of his own company. Mr. Cole had to raise his bid by only 25 cents a share from the initial price offered.

In those cases, the issue was whether an appropriate price was being paid. In some recent deals, management actually lowered the offer price after announcing a higher one.

Take J. Crew, whose buyout group included the company’s chief executive, Millard Drexler. At the last minute, his bidding group dropped the price it was willing to pay by $2 a share. The J. Crew board still went ahead with the deal, probably because the directors felt they had no choice.

Still, the J. Crew shareholders were treated much better than those of Landrys, which was taken private by its C.E.O., Tilman J. Fertitta, after a two-year ordeal. In 2008, he initially offered $23.50 a share. Then, as Mr. Fertitta’s financing fell apart, he dropped the offer to $21 and susequently to $13.50 a share. He was ultimately pushed into paying $24.50 a share after the hedge fund Pershing Square Capital Management took a significant stake in the company.

At least the Landrys shareholders ended up with a better price when a hedge fund stepped in. This did not happen with CKX, the owner of the “American Idol” franchise.

Robert F.X. Sillerman, CKX’s chief and major stockholder, tried to take the company private for years, initially offering a deal that valued the company at $13.75 a share in 2007. The board let him do this despite not having financing. That deal unraveled. But he came back for more, teaming up with Apollo in 2011 to finally buy his company at $5.50 a share.

Why do boards allow this to happen Directors often feel there is no choice and that if the board says no they will be left not only without a deal but with very unhappy management. And many times other bidders are not willing to jump in because they do not have management on their side! .

T! he sentiment was aptly summarized back in 2007, when Institutional Shareholders Services recommended that its clients vote for the management buyout of OSI Restaurant Partners, the owner of Outback Steakhouse. I.S.S. stated:

We recognize the shortcomings in the process and the conflicts of interest of management and founders … but given the downside of a failed transaction resulting in a loss of premium and likely continued deterioration of fundamentals, support for the transaction is warranted.

In other words, the transaction is preferred because it is the best of bad choices. And at least one study has found that when management preannounces a deal it results in lower premiums presumably because it scares off other bidders.

The J. Crew buyout goes to another issue: process. Management can use its control of a company to manipulate the sale process to its own benefit.

In the buyout ofRJR Nabisco - made famous by “Barbarians at the Gate” - the chief executive of the company, F. Ross Johnson, tried to organize his own buyout without knowledge of his board. He ultimately lost the frenzied bidding for the company in part because the board thought he was trying to to manipulate the directors into selling on the cheap.

Unfortunately, Mr. Johnson’s conduct is not some 1980s relic. In the case of J. Crew, Mr. Drexler planned a buyout with his partners for weeks without telling the board, using company information in the process.

To help prevent these problems, special committees of independent directors are formed to consider a buyout. The directors are supposed to have an independent voice, but sometimes they are unable to stand up to management. Then there are the cases where they try and say no, and clash with management.

In a 2007 buyout attempt of Affiliated Computer Services by Darwin Deason with Cerberus Capital Management, board members heavily criticized the deal. Mr. Deason’s response was to attack the board. Five Affiliated Computer directors resigned in protest and Mr. Deason was faulted for trying to manipulate them. The company was ultimately sold to Xerox for $6.4 billion in a deal in which Mr. Deason pocketed an extra $300 million. Shareholder litigation over that extra payment eventually yielded a $69 million settlement.

Then there is the Bankrate buyout, where the managers simply did not bother with a special committee. Bankrate’s management and two of its directors bought the company pursuant to a sale proces that also came under heavy criticism by Institutional Shareholder Services. The board contacted only one other potential buyer and failed to form a special committee. The directors then negotiated exclusively with the management team.

Again, the buyout group reduced the price offered at the last minute. The takeover only succeeded because interested management owned 26 percent of the shares and voted for the transaction. Only two years later, Bankrate went public again.

Finally, management-led buyouts have come under criticism when management joins with a private equity firm. The reason is that managers can simultaneously cash out some of their stock in the buyout while receiving yet more stock in the newly private company. It is a great opportunity that regular shareholders do not have. One study has found that in the averag! e buyout,! management receives $52.2 million by selling stock, and then reloads with stock in the newly private company, which on average represents 21.9 percent of the new company.

While some management-led buyouts no doubt serve both shareholders and management, there are clear perils. Dell will need to file documents with the Securities and Exchange Commission describing its sale process and negotiations with its buyout group.

These past deals show why Dell shareholders will be scrutinizing these documents very carefully to learn about Mr. Dell’s involvement in the buyout process and whether they are getting a good deal.

The Army Behind the Big Dell Deal

Huge leveraged buyouts don’t happen all by themselves.

The $24.4 billion takeover of Dell by its founder, Michael S. Dell, and the investment firm Silver Lake certainly didn’t. Tuesday’s announcement lists the panoply of investment banks and law firms needed to dispense advice and thread the tricky legal maze in a big management buyout.

Here are the advisers who get to share in the bounty of deal fees and league table credit:

Dell’s special board committeeDellMr. Dell

• Wachtell, Lipton, Rosen & Katz (legal counsel)

Silver Lake

Dell Sets $23.8 Billion Deal to Go Private

Dell is to announce that it has agreed to go private in a $23.8 billion deal led by its founder and the investment firm Silver Lake, in the biggest leveraged buyout since the financial crisis.

Under the terms of the deal, the buyers’ consortium, which also includes Microsoft, will pay about $13.65 a share, people briefed on the matter said. That represents a roughly 25 percent premium to where Dell’s stock traded before word of the negotiations of its sale emerged.

Dell’s board is said to have met Monday night to vote on the deal.

As a newly private company â€" now more firmly under the control of Michael S. Dell, who is contributing his nearly 16 percent stake to the deal â€" the computer maker will seek to revive itself years of decline. The takeover represents Mr. Dell’s most drastic effort yet to turn around the company he founded in a college dormitory room in 1984 and grew into one of the world’s biggest sellers of personal computers.

But the advent of new competition, first from other PC manufacturers and then smartphones and the iPad, severely eroded Dell’s business. Such is the concern about the company’s future that Microsoft agreed to lend some of its considerable financial muscle to shore up one of its most important business partners.

Analysts have expressed concern that even a move away from the unyielding scrutiny of the public markets will let Mr. Dell accomplish what years of previous turnaround efforts have not.

Nevertheless, the transaction would represent a ! watershed moment for the private equity industry, reaching heights unseen over the past five years. It is the biggest leveraged buyout since the Blackstone Group‘s $26 billion takeover of Hilton Hotels in the summer of 2007, and is supported by more than $15 billion of debt financing raised by no less than four banks.

A Deal for Dell

A deal for Dell is almost here. In what would be the biggest buyout since the financial crisis, Dell was close to an agreement to sell itself to a consortium of its founder, Microsoft and the private equity firm Silver Lake for more than $23 billion, people briefed on the matter told DealBook’s Michael J. de la Merced.

The final details were being worked out on Monday, and an agreement could be announced as soon as Tuesday, although the talks could still collapse, the people briefed on the matter said. The investors are expected to pay $13.50 to $13.75 a share, with Michael S. Dell, the founder, contributing his nearly 16 percent stake to the deal, worth about $3.8 billion under the current terms. Silver Lake would likely contribute about $1 billion, and Microsoft is expected to put in about $2 billion in the form of preferred shares or debt, the people added. Dell may also bring home some of its ofshore cash to help finance the deal.

“The question will now turn to whether taking the personal computer maker private will accomplish what years of previous turnaround efforts have not,” Mr. de la Merced writes. “Mr. Dell has sought to move the company into the more lucrative and stable business of providing corporations with software services, spending billions of dollars on acquisitions to lead that transformation. The aim is to refashion Dell into something more like I.B.M. or Oracle. Even so, manufacturing PCs still makes up half of the company’s business.”

LIBERTY GLOBAL IN TALKS TO BUY VIRGIN MEDIA  |  Liberty Global, the cable company owned by the American billionaire John C. Malone, is in talks to buy Virgin Media, the British company said on Tuesday. Shares in Virgin Medi! a rose almost 15 percent in early trading in London on Tuesday. The company’s enterprise value is around $19.4 billion according to data from Thomson Reuters. “The British company, whose primary listing is on Nasdaq, is the second-largest pay-TV provider in Britain after BSkyB, which is partly owned by Rupert Murdoch’s News Corporation. A potential deal for Virgin Media would put Mr. Malone head-to-head with Mr. Murdoch, his longtime rival,” DealBook’s Mark Scott writes.

U.S. ACCUSES S.&P. OF FRAUD  |  The Justice Department on Monday filed civil charges against Standard & Poor’s, the nation’s biggest credit-rating agency, accusing it of inflating the ratings of mortgage investments. “The suit, filed in federal court in Los Angeles, is the first significant federal action against the ratings industry, which during the boom years reaped record profits as it bestowed gilt-edged ratings n complex bundles of home loans that quickly went sour,” Andrew Ross Sorkin and Mary Williams Walsh write in DealBook. More than a dozen state prosecutors are expected to join the federal suit, and New York’s attorney general is readying a separate action.

S.&P. “knowingly and with the intent to defraud, devised, participated in, and executed a scheme to defraud investors” in mortgage-related securities from September 2004 through October 2007, according to the suit filed against the company and its parent, McGraw-Hill Companies. The credit-rating agency also falsely represented that its ratings “were objective, independent, uninfluenced by any conflicts of interest,” the suit claimed. S.&P., for its part, said it had acted in good faith. “A D.O.J. lawsuit would be entirely without factual or legal merit,” the company said, adding that its competitors had given the same ratings to the securities believed to be in question.

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“Settlement talks between S.&P. and the Justice Department broke down in the last two weeks after prosecutors sought a penalty in excess of $1 billion and insisted that the company admit wrongdoing, several people with knowledge of the talks said,” Mr. Sorkin and Ms. Walsh write. “That amount would wipe out the profits of McGraw-Hill for an entire year. S.&P. had proposed a settlement of around $100 million, the people said. S.&P. also sought a deal that would allow it to neither admit nor deny guilt; the government pressed for an admission of guilt to at least one count of fraud, said the people. S.&P. told prosecutors it could not admit guilt without exposing itself to liability in a multitude of civil cases.”

McGraw-Hill’s stock tumbled almost 14 percent on Monday, to close at $50.30 a share.

HERBALIFE’S ELUSIVE SALES DATA  |  The hedge fund manager William A. Ackman has clashed with aother big investor, Daniel S. Loeb, over whether the nutritional supplements company Herbalife is a pyramid scheme. Regulators scrutinizing the company will have an interesting problem, DealBook’s Peter Eavis writes. “The public numbers do not provide a clear picture of who buys Herbalife products â€" and why. So-called direct-sales companies like Herbalife operate in an accounting gray area that allows them to book goods bought by its network of sales representatives as revenue. Most traditional retailers record sales when a customer buys something. The uncertainty has left shares of Herbalife vulnerable to wild swings in recent months.”

Herbalife claims it is a strong company, but it is hard to discern the underlying demand. “The company doesn’t specify how many of those products are eventually sold to customers outside the sales network. Nor does it detail how many products are consumed by members of its network.”

One for! mer sales! woman for Herbalife, Ana Arias, of Scottsdale, Ariz., is considering legal action against the company, estimating she lost $210,000 after three years in the company’s network. “They want to make people believe there is this long line of consumers,” she said. “I realized it was going to go nowhere.”

ON THE AGENDA  |  The Commodity Futures Trading Commission holds a daylong public meeting starting at 9:30 a.m. on proposed rules to protect client funds held by futures commission merchants and derivatives clearing organizations. NYSE Euronext, BP and Sirius XM Radio report earnings on Tuesday morning. Zynga announces results in the evening. The ISM nonmanufacturing survey for January is out at 10 a.m. Apple release its newest version of the iPad.

BRIDGEWATER SAID TO PLAN NEW FUND  |  Bridgewater Associates, the world’s largest hedge fund firm, has told investors it will start a new fund this year, to help make sure another fund does not get too big, The Wall Street Journal reports. The new fund, All Weather Major Markets, was described as a variation of its All Weather strategy, which returned 15.3 percent in 2012, gross of fees, according to the newspaper. The firm also said it had sold a minority equity stake to an outside investor whom it did not identify, the newspaper says. Last year, the Teacher Retirement System of Texas bought a $250 million stake in Bridgewater.

Mergers & Acquisitions Â'

Singapore Exchange Said to Be in Talks for Stake in LCH.Clearnet  |  The Financial Times reports: “SGX, the Singapore exchange, is in discussions about taking a stake in LCH.Clearnet, the transatlantic clearing house, as bourses gear up for sweeping reform of derivatives and equities markets.” FINANCIAL TIMES

Before SoftBank Deal, Sprint Said to Have Talked With 4 Others  |  Reuters reports: “Sprint Nextel Corp, the No. 3 U.S. mobile service provider, said that it talked to four different companies about a potential deal before it announced its agreement to sell 70 percent of its shares to Japan’s SoftBank Corporation for $20 billion.” REUTERS

Wheat Exchange to Close  |  The CME Group “plans to close the storied grain-trading pits at the Kansas City Board of Trade this summer, ending a 157-year run for the wheat-futures exchange,” The Wall Street Journal reports. WALL STREET JOURNAL

Oracle to Buy Acme Packet for $2.1 Billion  |  Oracle’s deal machine has come to life once more, as the enterprise software giant agreed on Monday to buy Acme Packet for $2.1 billion to bolster its communications prod! uct offer! ings. DealBook Â'

Unit of China Resources to Buy Kingway Brewery in $863.2 Million Deal  | 
REUTERS

GlaxoSmithKline Increases Stake in Indian Consumer Arm  | 
REUTERS

INVESTMENT BANKING Â'

UBS Posts $2 Billion Loss Tied to Legal Settlements  |  The Swiss bank cited costs to settle legal matters, including its role in the rate manipulation scandal. DealBook Â'

UBS Said to Tie Bonuses to Capital Requirements  |  The Financial Times reports: “UBS has shaken up its pay scheme, becoming the first big bank to give thousands of senior bankers bonuses in the form of bonds that can be wiped out if the lender fails to meet capital requirements.” FINANCIAL TIMES

Goldman’s Cohn Says Europe Is Still a Concern  |  “No one has solved the European economic issue for me yet,” Gary Cohn, Goldman ! Sachs’s! president, told Bloomberg TV, saying the Continent still faced “fundamental problems.” BLOOMBERG NEWS

Moody’s Warns Jefferies on ‘Excessive’ Pay  |  The credit rating agency said in a note on Monday that it regarded the large compensation packages awarded to top executives as a potentially ominous event for bondholders. DealBook Â'

Fidelity’s Target Date Funds Lag Behind Those of Rivals  |  The New York Times reports: “Fidelity Investments is the giant of ‘target date’ mutual funds, one of the hottest ideas in 401(k) plans For its customers, the payoff has hardly been outsize.” NEW YORK TIMES

Former JPMorgan Banker to Start Advisory Firm  |  Ian Hannam, JPMorgan Chase’s former global chairman of equity capital markets who was fined $708,000 by British authorities last year, is planning to start a new investment and advisory firm. DealBook Â'

PRIVATE EQUITY Â'

Longtime K. K. R Executive Said to Depart  |  “Frederick Goltz, wh! o has bee! n with K..K.R. for 18 years and ran the firm’s mezzanine business, has left the global buyout shop,” peHUB reports. PEHUB

Carlyle’s Investment Ideas, by Podcast  |  In its latest foray into new media, the private equity firm Carlyle Group releases a podcast in which William E. Conway Jr., the co-founder and co-chief executive, discusses the investment outlook for the coming year. DealBook Â'

HEDGE FUNDS Â'

Avenue Caital Prepares New Fund for Europe  |  The hedge fund run by Marc Lasry is in the process of raising a $500 million fund to invest in distressed European assets, signaling the firm’s continued belief in a long-term recovery for the region. DealBook Â'

Swiss Ski Resort Under Pressure From Hedge Fund Investor  |  The Swiss ski resort of Saas-Fee is facing pressure from Edmond Offermann, “a nuclear scientist turned millionaire working for hedge fund Renaissance Technologies,” who has invested $16.4 million to try to revive the ski-lift company, Bloomberg News reports. BLOOMBERG NEWS

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I.P.O./OFFERINGS Â'

Sinopec to Raise $3.1 Billion in Hong Kong  |  The China Petroleum and Chemical Corporation, the oil and refining giant better known as Sinopec, said proceeds from the private placement of new shares would be used to finance business development. DealBook Â'

Moscow Exchange Prices I.P.O.  |  Russia’s largest stock Exchange said it had priced its shares at 55 rubles to 63 rubles, in a listing that would value the company at up to $4.6 billion. DealBook Â'

VENTURE CAPITAL Â'

More Start-Ups Enter the Billion-Dollar Club  |  The New York Times reports: “The number of privately held Silicon Valley start-ups that are worth more than $1 billion shocks even the executives running those companies.” NEW YORK TIMES

Samsung Announces $100 Million Seed Investment Fund  | 
PEHUB

Venture Capital’s Sluggish Performance  |  Investors need to strip the venture capital industry of its mystique and demand greater transparency and a better deal, Robert Cyran of Reuters Breakingviews writes. DealBook Â'

LEGAL/REGULATORY Â'

Barclays Sets Aside an Additional $1.6 Billion for Legal Costs  |  The British bank Barclays has made additional provisions totaling $1.6 billion to cover legal costs related to the inappropriate selling of insurance and interest-rate hedging products. DealBook Â'

Head of Japanese Central Bank Offers to Resign Early  |  The Wall Street Journal reports: “Bank of Japan Gov. Masaaki Shirakawa said he had offered to step down March 19, about three weeks before his term expires on April 8.” WALL STREET JOURNAL

Corporations Could Face More Cases of Criminal Liability  |  Mary Jo White expressed disdain for corporate criminal liability while she was in private practice. But that does not mean companies under investigation can expect an easy ride under her reign, Peter J. Henning writes in the White Collar Watch column. White Collar Watch Â'

A Tangle of Possible Conflicts Among S.E.C. Officials  | 
WALL STREET JOURNAL

Despite Reorganizations, Scant Signs of Change in Airline Industry  |  Major airlines have followed one of two main paths in their reorganization cases. But they never seem to use Chapter 11 to consider a new business model, Stephen J. Lubben writes in his column, In Debt. DealBook Â'

A New Year, but Some Old Issues  |  Those who say China has too many railroads and roads should travel in the country this week, when the annual Spring Festival migration by hundreds of millions of people gets under way, Bill Bishop writes in the China Insider column. DealBook Â'