JPMorgan Chase Faces Full-Court Press of Federal Investigations

As the nation’s strongest bank, JPMorgan Chase used to be known for carrying special sway with regulators. Now it increasingly finds itself in the cross hairs of federal authorities.

At least two board members are worried about the mounting problems, and some top executives fear that the bank’s relationships in Washington have frayed as JPMorgan becomes a focus of federal investigations.

Timeline: JPMorgan Trading Loss

In a previously undisclosed case, prosecutors are examining whether JPMorgan failed to fully alert authorities to suspicions about Bernard L. Madoff, according to several people with direct knowledge of the matter. And nearly a year after reporting a multibillion-dollar trading loss, JPMorgan is facing a criminal inquiry over whether it lied to investors and regulators about the risky wagers, a case that could accelerate when the Federal Bureau of Investigation and other authorities interview top JPMorgan executives in coming weeks.

All told, at least eight federal agencies are investigating the bank, including the Federal Deposit Insurance Corporation, the Commodity Futures Trading Commission and the Securities and Exchange Commission. Federal prosecutors and the F.B.I. in New York are also examining potential wrongdoing at JPMorgan.

A recent misstep points to the growing friction between JPMorgan and regulators as well as to the concerns within the bank. JPMorgan misstated how the bank may have harmed more than 5,000 homeowners in foreclosure, according to several people briefed on the matter. The bank’s primary regulator, the Office of the Comptroller of the Currency, is expected to collect a cash payment from the bank to remedy the flawed review of loans, these people say.

The bank acknowledges its broad regulatory challenges. “We get it, and we are dealing aggressively with these issues,” said Joe Evangelisti, a JPMorgan spokesman.

The mortgage errors, while by themselves relatively minor, have heightened concerns within JPMorgan because they come on top of the other investigations. The increased scrutiny presents a challenge for the bank and its influential chief executive, Jamie Dimon, who was widely praised for steering JPMorgan through the 2008 financial crisis, leaving it in far better shape than its rivals. Among some executives at the bank, the worry is that the unwanted attention will undercut Mr. Dimon’s authority in Washington.

“Jamie and other executives feel terrible that the bank’s self-inflicted mistakes have put regulators in an awkward position,” Mr. Evangelisti said. He added, “We are wholly to blame for our errors and are fully cooperating with all authorities to make things right.”

Mr. Dimon has already testified before Congress and apologized for the trading losses. In response to last year’s trading blowup, the bank has also worked to rout out the problems, shuffled its top executives, bolstered its risk controls and brought in a new head of compliance.

The bank’s board, which halved Mr. Dimon’s compensation in January, recently reiterated its support for him as both chairman and chief executive. JPMorgan, whose shares have soared in recent months, has recorded record profits for the last three years.

But as JPMorgan seeks to address its legal woes and restore its credibility in Washington, the bungled review of troubled mortgages could present a setback for the bank. The problems stem from January, when JPMorgan and other big banks agreed to a multibillion-dollar settlement over foreclosure abuses. As part of the pact, the bank agreed to comb through each loan file to spot potential errors, a process that the regulators will use to help determine the size of the payouts to homeowners.

While assessing 880,000 mortgages, JPMorgan overstated the potential harm for more than 5,000 loans, the people familiar with the matter said. The mistakes were not deliberate, according to a person with direct knowledge of the review, who also noted that the extent of the problem was small and that other banks were encountering their own issues with the review.

To ensure those errors didn’t cheat homeowners out of relief, JPMorgan offered additional compensation for borrowers, according to one person familiar with the matter. Still, the comptroller, which is growing impatient with JPMorgan’s mistakes, could also fine the bank, another person said.

Tensions between JPMorgan and its primary regulator were highlighted in a recent Senate report that examined the $6.2 billion trading loss. The report, by the Senate Permanent Subcommittee on Investigations, portrayed a somewhat defiant stance by Mr. Dimon, showing how during a brief period in August 2011 the chief executive stopped providing regulators with profit-and-loss reports about the investment bank.

Although the bank says Mr. Dimon was merely concerned about a security breach, the report says he took an adversarial tone with regulators, pushing them to explain why they needed that level of information. Mr. Dimon’s approach seemed to influence other executives, including one employee who once screamed at examiners and called them “stupid.”

Those episodes, combined with the current investigations, are costing the bank some of its influence in Washington, according to government officials who would speak only anonymously. The legal problems also pose a test for Stephen M. Cutler, the bank’s general counsel, who is advocating for the bank to take a respectful approach with regulators.

In April, according to people briefed on the matter, senior executives are expected to meet with investigators who are examining the trading loss. A handful of executives have already met with authorities, but the second round will include Mr. Dimon. While he is not suspected of any wrongdoing, the officials hope Mr. Dimon will help build a case against traders in London suspected of lowballing their losses.

The investigators will also seek information about whether some top bank executives misled investors and regulators about the severity of the losses. Even as losses mounted last year, the bank did not publicly disclose the problem for months. The bank has said that “senior management acted in good faith and never had any intent to mislead anyone.”

But the S.E.C. is also examining such disclosures. And under the Dodd-Frank regulatory law, the F.D.I.C. is investigating the trading loss, according to people briefed on the matter.

The S.E.C., F.D.I.C., Comptroller’s office and F.B.I. all declined to comment.

JPMorgan has separately come under fire for lax controls against money-laundering. In January, the comptroller hit JPMorgan with a cease-and-desist order for failures that threatened to allow tainted money to move through the bank’s vast network.

Mr. Evangelisti, JPMorgan’s spokesman, has said the bank has “been working hard to fully remediate the issues identified.”

Still, federal prosecutors in Manhattan are examining JPMorgan’s actions in the Madoff case, suspecting the bank may have violated a federal law that requires banks to alert authorities to suspicious transactions. The comptroller’s office is investigating similar issues.

“We believe that the personnel who dealt with the Madoff issue acted in good faith in seeking to comply with all anti-money-laundering and regulatory obligations,” Mr. Evangelisti said.

The federal investigation echoes claims in a 2010 lawsuit against the bank brought by Irving H. Picard, the bankruptcy trustee gathering assets for Mr. Madoff’s victims.

The suit cited internal JPMorgan e-mails sent 18 months before Mr. Madoff’s arrest, in which one employee acknowledged that a bank executive “just told me that there is a well-known cloud over the head of Madoff and that his returns are speculated to be part of a Ponzi scheme.”

DLA Piper Warns Employees Against ‘Offensive’ Humor in E-Mails

Beware of what you say in e-mails.

In the wake of a lawsuit of involving the billing practices of DLA Piper, the law firm on Tuesday took the added step of reminding its employees to watch what they say - or in this case, write.

The law firm is involved in a fee dispute involving Adam H. Victor, an energy industry executive, who has accused the law firm of performing superfluous tasks and overstaffing assignments.

Mr. Victor’s suit cited several e-mails from lawyers at the firm. One e-mail involved a lawyer describing how a colleague had “random people working full time on random research projects in standard ‘churn that bill, baby!’ mode,” adding, “That bill shall know no limits.”

DLA Piper contends that the firm’s billing was proper and denies the allegations in Mr. Victor’s suit. It is, nonetheless, warning its employees to guard against “offensive and inexcusable effort at humor.”

Below is a text of the memo obtained by DealBook and signed by Roger Meltzer and Jay Rains, the firm’s co-chairmen for the Americas; and Michael S. Poulos and Anastasia Kelly, co-managing partners for the Americas.

As many of you know, The New York Times published an article today that focuses on inappropriate emails written by three former lawyers of the firm, referencing improper billing practices.

The actions described in this story did not happen. These emails reflect an unfortunate attempt at humor by three former lawyers of the firm, but did not result in overbilling to the client. It is important to emphasize that the client was not overbilled for any service, but instead was billed in an amount consistent with an understanding reached with the client relating to the amount of fees to be incurred in connection with the services rendered by the lawyers involved in the matter. In fact, by virtue of being a plaintiff in a collection proceeding, it was anticipated that DLA Piper’s services and bills would be reviewed in a judicial process and by a trier of fact for reasonableness and accuracy, and we continue to believe that the DLA Piper fees subject to our collection proceeding will be determined to be appropriate and fair. As such, it is unfortunate that the unprofessional behavior of these lawyers by writing those emails has distracted attention away from the fact that a client refused to pa his bills, and is now being exploited by a party in litigation for their own advantage.

We have no doubt that many of you will be engaged in a conversation with existing and/or potential clients about the inappropriate email humor and we believe it important to convey the following points:

- The emails were in fact an offensive and inexcusable effort at humor, but in no way reflect actual excessive billing. Instead, the reality of the matter is that the amount of fees billed by DLA Piper are consistent with the work performed.

- DLA Piper as a firm has always adhered to the highest level of ethics and integrity in all of its work, including billing practices. We take great pride in being recognized repeatedly by clients as providing the highest level of quality and cost-efficient service.

- As you know, our bills and billing practices undergo the most sophisticated reviews and audits by clients who employ such techniques as a standard practice in connection with outside counsel billings.

In closing, while we will make no effort to defend the foolish emails generated by the lawyers involved in this matter, we will defend vigorously the firm’s track record of delivering high-quality legal services at a fair price, including the reasonable fees generated in the matter in question. Thank you for your continued support.

Roger, Jay, Mike and Stasia

The Dell Deal Scorecard

With three suitors now in the mix for Dell Inc., it can be a little tough remembering who’s offering what and who’s working with whom. We’re here to help.

Here’s a breakdown of what each of the bidding groups â€" Michael S. Dell and Silver Lake; the Blackstone Group; and Carl C. Icahn â€" is proposing and who’s helping put the plans together. But it’s also worth noting that they aren’t completely alike: Mr. Dell and Silver Lake plan on taking completely control of Dell, while Blackstone and Mr. Icahn are each contemplating leaving some portion of the company in public shareholders hands.

Michael Dell and Silver Lake

• Offering to pay $13.65 a share for all of Dell.
• Lined up a $2 billion loan from Microsoft.
• Mr. Dell has committed to contributing his roughly 16 percent stake and an additional $750 million.
• Silver Lake is providing $1.4 billion in equity capital.
• The group is being advised (and financed) by a bevy of banks: Bank of America, Barclays, Credit Suisse, the Royal Bank of Canada and now Citigroup as well. Mirosoft was advised by Lazard.
• Mr. Dell is being counseled by Wachtell, Lipton, Rosen & Katz, and Silver Lake by Simpson Thacher & Bartlett.

Blackstone

• Working with Francisco Partners and Insight Venture Partners.
• Proposing paying over $14.25 a share.
• Investors who want to maintain a stake in Dell can do so, though Blackstone hasn’t specified what percentage of the company will remain public.
• Has a “highly confident” letter of financing from Morgan Stanley, though it doesn’t yet have a committed loan and bond package.
• Its deal team is being led by Chinh E. Chu, the co-chair of the firm’s private equity committee, and David Johnson, the former senior vice president of corporate strategy at Dell.
• Has held discussions with “some of Dell’s largest shareholders,” which people briefed on the matter said includes Southeastern Asset Management, the biggest outside investor in the computer company and a vocal critic of Mr. Dell’s offer.
• Working with Morgan Stanley and the law firm Kirkland & Ellis.

Icahn

• Owns 80 million shares, which he values around $1 billion and would contribute toward a deal.
• Would buy about 58.1 percent of Dell, leaving the rest publicly traded.
• Would pay $1 billion from Icahn Enterprises, his main investment vehicle, and would kick in an additional $3 billion from other sources of equity capital.
• Would make use of $7.4 billion of cash on hand at Dell, as well as borrowing $1.7 billion against receivables and $5.2 billion in new debt.
• Working with the Jefferies Group.

Dell and Others

• The special board committee reviewing the three takeover offers is working with JPMorgan Chase, Evercore Partners and the law firm Debevoise & Plimpton.
• The company itself is being advised by Goldman Sachs and Hogan Lovells.
• Southeastern has retained the law firm Greenberg Traurig and the proxy solicitor D.F. King.

In a Faded Wall St. Scandal, Lessons for a Current One

Remember Jacob Alexander Perhaps you should. For as financial crisis prosecutions seem to fizzle out, his tale is a lesson: not only do financial scandals fade quickly from memory, but sometimes corporate executives really do pay for bad choices.

Mr. Alexander, known as Kobi, was the chief executive of Comverse Technology, a high-flying software communications company that was founded in Israel. In 2006, Comverse became enmeshed in the stock options backdating scandal that snared many technology companies in that period.

Federal authorities described Mr. Alexander’s scheme as a brazen one. For about 15 years, they say, Mr. Alexander regularly orchestrated the backdating of options. He was even accused of creating a secret slush fund for options to grant to employees for retention and as bonuses. Perhaps in hindsight, naming the fund “I. M. Fanton” after “The Phantom of the Opera” and then “Fargo” after the Coen brothers movie was not particularly a good idea.

Backdating was also a lucrative endeavor at Comverse. Mr. Alexander alone reportedly earned $138 million from selling backdated options from 1991 to2001. But when the scandal surfaced, the chief executive along with Comverse’s former chief financial officer, David Kreinberg, and Comverse’s general counsel, William F. Sorin, were all charged with violating federal criminal laws as well as the securities laws.

Comverse was not the only bad actor. More than 100 companies would be investigated or accused of some form of backdating.

Still, Mr. Alexander turned out to be unique among the executives who were accused of wrongdoing. Rather than defend himself against the charges, he disappeared, emerging later in Namibia, a country in southern Africa with beautiful desert scenery, two million people and at the time no extradition arrangement with the United States.

And there Mr. Alexander has sat for the last seven years.

It hasn’t been an uneventful period. The government has since had mixed success with the options backdating cases. For all the time and money spent, only about a dozen executives were convicted, and five served prison terms. The longest sentence handed down â€" two years â€" was given to Monster’s former chief operating officer, James J. Treacy.

The rest were really taps on the wrist. The trial of Henry T. Nicholas III, the former co-chief executive of the Broadcom Corporation, was disrupted when a judge found prosecutorial misconduct. Mr. Nicholas was tried again and sentenced to 18 months in prison. Others, like KB Home’s former chief executive, Bruce E. Karatz, received much lighter sentences, if any. Mr. Karatz was sentenced to five years probation despite a government request for six years in prison.

The civil cases were more fruitful for the government. The Securities and Exchange Commission brought about 50 of them, recovering $468 million alone from the former chief executive of the UnitedHealth Group, William W. McGuire.

But everyone has moved on. The options backdating cases are now vague memories. Even Comverse has moved forward. The chief financial officer, Mr. Kreinberg, served only a short period in jail. Comverse’s general counsel, Mr. Sorin, was sentenced to a year and a day in prison. As for Comverse, it was acquired by Verint Systems in 2012.

Mr. Alexander, meanwhile, remains in Namibia.

The years there have not been uneventful for him. His wife filed for divorce, he flew in hundreds of people for his son’s bar mitzvah â€" thus tripling the local Jewish population â€" and he founded a number of charitable causes in Namibia. There is even a Kobi Alexander Enterprise Soup Kitchen in Namibia’s capital city, Windhoek.

And while his legal case has not gone away, Mr. Alexander has gradually been chipping away at it. After he arrived, Namibia’s president added the United States to the list of countries to which Namibia could extradite. Since then, Mr. Alexander has been free on $1.3 million bail and challenging any extradition attempt. The High Court of Namibia heard the case last year, and is still considering it. Whatever their ruling, there will be more appeals and hearings. This case has years to go before he can be sent back to the United States, if ever.

But it appears that he also wants penance. Seven suits were brought against Mr. Alexander by investors, the government and Comverse itself. He has settled all of them, including the S.E.C.’s civil case, for which he paid $53.6 million to the government in fines and disgorgement. The only thing left is the criminal case.

Mr. Alexander declined requests for comment for this column made through his lawyer.

I have to wonder whether he is sitting there wondering whether his quick decision to go to Namibia, of all places, might have been a bit too hasty.

He clearly miscalculated. No doubt, Mr. Alexander saw what happened in the Enron cases and the huge sentences given out, including the 24-year, four-month term handed to Jeffrey K. Skilling, the former Enron chief executive.

But Enron and WorldCom have proved to be special cases. Had Mr. Alexander stayed in the United States, and had he been convicted, he would have been out of prison years ago.

Given the poor memory of corporate America, he would also have probably been fully rehabilitated, maybe even made a partner at a venture capital firm, given that he was one of the fathers of the Israeli technology revolution. Who knows

And there’s a lesson here as we wait for prosecutions over the financial crisis.

The first is that as memories fade, and what at the time seems like a big deal may not be so big with perspective. In retrospect, the options backdating scandal was one that involved hazy allegations of wrongdoing, much of it by people who didn’t realize that what they had done was wrong. And even in the most egregious cases, the judges had a hard time finding harm to shareholders and others. The judge in the KB Home case even scolded prosecutors, calling their sentencing memo “meanspirited and beneath this office.”

Now, the options backdating scandal pales in comparison to the recklessness and greed of the financial crisis. But it does have implications for any criminal cases that come out of the crisis.

When juries and judges heard these kinds of financial cases, they were less likely to focus on the outrage. This was evident in the criminal case the government lost against two Bear Stearns hedge fund managers and the civil case the S.E.C. lost against a Citigroup executive.

In other words, the outrage doesn’t always transfer to the facts on the ground. It is also clear that the government remembers that it didn’t get very far in the options backdating cases and has been much more cautious with the financial crisis cases as a result.

And the short memory of Wall Street is also at work with the financial crisis. Five years on, most of the major figures are in retirement, enjoying their wealth and engaging in other pursuits. They are doing no worse, and even better in many cases, than those involved in the options backdating cases.

Which brings us back to Mr. Alexander. You can’t really feel sorry for him, as what he did was brought on himself. But still, I don’t understand why he remains there. If Mr. Alexander were to return and plead guilty, he would most likely serve only three or four years because he was never technically arrested in the United States, so his flight would not significantly enhance his sentence. And then he could serve his sentence and return to what he does best â€" creating new technologies.

Perhaps it is time for Mr. Alexander to decide to move on and make a better choice. It seems a better option than staying in limbo, even if it is a beautiful place. But again, his case is a lesson in bad decisions and their consequences.

Yahoo’s ‘Acqui-Hiring’ and Its Tax Implications

On Monday, Yahoo announced that it was buying the mobile news reader app Summly for about $30 million. Summly has a staff of five and no revenue. It was also reported Monday that Apple was buying the indoor-GPS company WifiSLAM for $20 million. That start-up, only two years old, has a handful of employees.

This kind of acquisition, known as acqui-hiring, may seem strange to those not involved with the deal. Why buy the company If the founders or engineers are fantastic, why not just poach them from the start-up Why buy the whole company instead of just stripping out its most valuable parts It’s like buying a house because you like the furniture.

Think about the issues this way: If the real value of the start-up is in the assembled team of human capital, and not its technology or assets, why should the start-up’s angel investors and venture capitalists get any payout at all California law makes noncompete agreements difficult to enforce, so there is rarely a legal reason that would prohibit poaching valuable employees.

Acqui-hiring has increased in intensity in Silicon Valley in recent years as Apple, Google, Yahoo, LinkedIn, Twitter, Facebook and other technology companies have snapped up start-ups. Often, the start-up’s product gets shut down, and the engineers start working on new projects for the company that bought them.

John Coyle and Gregg Polsky, law professors at the University of North Carolina, explain the acqui-hiring phenomenon as driven by Silicon Valley social norms. Engineers don’t want to appear disloyal to the start-up or its investors. And the acquisition allows the founders, employees and investors to claim a successful exit, even if the product gets shut down.

The deals are often structured with cash or stock delivered to the target’s founders and investors. In addition, some cash or stock also goes into a compensation pool offered to the engineering team hired by the acquirer. The deal consideration in the compensation pool vests over time, and the engineers become subject to a covenant not to compete, enforceable even in California because it is connected to the sale of a business.

There is a tax angle as well. Suppose Max, a software engineer and founder of a social media start-up, has a choice between leaving his start-up to work for TechGiant and receiving a signing bonus of $1 million or selling his start-up to TechGiant and receiving $1 million, half of which will be attributed to the value of his founders’ stock in the start-up.

The portion of consideration attributed to the sale of his founders’ stock will generate low-taxed capital gains, not ordinary income. Max would save about $100,000 in taxes in this example, depending on his marginal tax rate.

TechGiant might lose out a bit on the other side of that transaction, as it would be trading an immediate ordinary deduction for compensation for an acquisition expense that would likely be amortized over 15 years. As Professors Coyle and Polsky point out, however, in the typical situation, the target stock could be declared worthless in a year or two, generating a full deduction at that point.

Moreover, many Silicon Valley technology companies are mostly tax-indifferent when it comes to employee compensation. Many companies have low effective and marginal tax rates thanks to accumulated net operating losses or creative tax planning strategies related to intangible assets located overseas.

To be clear, tax appears to be a second-order consideration in the acqui-hiring context. The main factor appears to be that Max wants to be able to tell his friends that he successfully sold his start-up to TechGiant. And the venture capitalists, who often have the power to block a sale, at least want their money back so they can claim victory as well.

For further reading, see John Coyle & Gregg Polsky, Acqui-hiring, which will also be published in a forthcoming issue of The Duke Law Journal.

Victor Fleischer is a professor at the University of Colorado Law School, where he teaches partnership tax, tax policy and deals. Twitter: @vicfleischer

Argentina Denied Request for Full-Court Hearing on Debt

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Buffett and Goldman Scratch Each Other’s Backs

Goldman Sachs and Warren E. Buffett have found a way to scratch each other’s backs â€" again.

The mutual assistance started during the crisis when the Sage of Omaha stepped in with a $5 billion rescue investment in 2008 that provided him with a healthy 10 percent yield on Goldman preferred shares. Now, they’re amending terms of warrants granted to Mr. Buffett in the same deal that also works well both ways.

The new agreement simplifies one entitling Mr. Buffett’s Berkshire Hathaway to buy 43.5 million Goldman shares for $115 apiece. Based on the current share price of about $146, that would have left the conglomerate $1.4 billion in the money and as Goldman’s biggest shareholder with about a 9 percent stake.

The revised structure keeps Mr. Buffett in the black, assuming the stock doesn’t tank between now and October. Now, however, he isn’t obligated to shell out $5 billion to buy the stock. Instead, Berkshire will simply receive enough shares to cover the profit.

Without any outlay, Mr. Buffett can brag of an infinite return on the warrants. More practically, by not tying up the cash in Goldman, he can keep it in reserve for another Heinz-like elephantine acquisition target. Following the co-purchase of the ketchup maker, his reserves will dip by almost a third to about $30 billion.

Goldman, meanwhile, escapes some irritating side effects of the investment. It will no longer dilute shareholders as much. Instead of issuing 9 percent of new stock, based on Tuesday’s price it should only need to issue about 2 percent.

It also means that Goldman will suffer a lesser hit to its rate of return. The 43.5 million shares Mr. Buffett was due would have increased the bank’s common equity by 9.3 percent. Applied to expected 2013 earnings, as tallied by Thomson Reuters, the bank’s return on equity would have been primed to drop from 9.4 percent to an even more disappointing 8.6 percent.

There’s one more benefit for the bank led by Lloyd C. Blankfein. It will now have 34 million fewer shares to worry about negotiating with the Federal Reserve for permission to buy back.

For Goldman, Mr. Buffett’s aid keeps on giving.

Antony Currie is an associate editor at Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.

Federal Reserve Faults Citigroup Over Money-Laundering Controls

The Federal Reserve hit Citigroup with an enforcement action on Tuesday over breakdowns in money-laundering controls that threatened to allow tainted money to move through the United States.

The Fed, acting as a banking regulator, took aim at Citi and its subsidiary Banamex USA over failure to monitor cash transactions for potentially suspicious activity. Under the Bank Secrecy Act, financial institutions like banks and check-cashing services must report any cash transaction of more than $10,000 and bring any dubious activity to the attention of regulators.

The federal law also requires banks to have complex controls in place to detect any criminal activity. Porous monitoring, the authorities say, can enable drug dealers and terrorists to launder money through the United States.

Citigroup and the American branch of its Mexican unit did not admit wrongdoing, and no fines were issued Tuesday related to the lapses.

As part of a broad crackdown on the movement of illicit funds through the United States, the Justice Department and the Manhattan district attorney’s office has targeted foreign banks that have branches on American soil. Prosecutors have accused several foreign banks of flouting American law by funneling billions of dollars on behalf of sanctioned nations, like Iran and North Korea.

The Federal Reserve faulted Citigroup for lacking “effective systems of governance and internal controls to adequately oversee the activity.” Under the action, the bank’s board must outline a plan to fortify its monitoring of transactions and to bolster its compliance program, including how to fund a “compliance risk management program that is commensurate with the compliance risk profile of the organization.”

The move by the Federal Reserve builds on a cease-and-desist order brought against the bank by the Office of the Comptroller of the Currency in April. In that order, Citigroup’s primary regulator demanded that the bank improve its anti-money laundering controls. The comptroller accused the bank of violating the Bank Secrecy Act, a federal law that requires banks to rout out tainted cash by filing suspicious-activity reports.

“Citi has made substantial progress” in improving its compliance and addressing money-laundering risks “in a comprehensive manner across products, business lines, and geographies,” a bank spokeswoman said. “Citi continues to take the appropriate steps to address remaining requirements and build a strong and sustainable program.”

In December, HSBC agreed to a record $1.92 billion settlement with authorities to settle accusations that it transferred billions of dollars for nations like Iran and enabled Mexican drug cartels to move money illegally through its American subsidiaries.

For Citi, the action is the first antimoney-laundering action since Michael O’Neill, the bank’s powerful chairman, abruptly deposed Vikram S. Pandit as chief executive last year and replaced him with Michael L. Corbat.

Under Mr. Pandit, Citigroup, which has a vast international footprint, worked to strengthen controls against dubious funds moving through the bank, including by centralizing audit and compliance functions.

Goldman Amends Warrants Deal With Buffett

Goldman Sachs is about to join a rarefied club: the group of banks which count Warren E. Buffett as a big investor.

The firm said on Tuesday that it has changed the terms of warrants issued to Mr. Buffett’s Berkshire Hathaway during the financial crisis, essentially making the billionaire one of the firm’s biggest investors without having to pay additional money.

The warrants previously gave Berkshire the right to buy $5 billion worth of common shares, at an exercise price of $115, at any time before Oct. 1. Now, Mr. Buffett will receive an amount of stock equal to the difference between the stock price and the $115 strike price in cash, multiplied by 43.5 million.

At Monday’s closing price of $146.11, that would mean Mr. Buffett would receive about 9.2 million shares. That would make Berkshire the ninth-biggest shareholder in Goldman, according to data from Bloomberg.

Mr. Buffett is well-known for his caution around big banks, keeping big holdings of common stock only in Wells Fargo and US Bancorp. Preferred shares that he received from Goldman and Bank of America carried a big dividend, making them extremely expensive for the issuers.

But Mr. Buffett has long praised Goldman and its management team, even when the firm faced a lawsuit by the Securities and Exchange Commission over a mortgage investment that the bank put together.

“We intend to hold a significant investment in Goldman Sachs, a firm that I did my first transaction with more than 50 years ago,” Mr. Buffett said in a statement on Tuesday. “I have been privileged to have known and admired Goldman’s executive leadership team since my first meeting with Sidney Weinberg in 1940.”

For his part, Goldman’s chief executive, Lloyd C. Blankfein, said the firm was “pleased that Berkshire Hathaway intends to remain a long-term investor in Goldman Sachs.”

Goldman gave Mr. Buffett the warrants and $5 billion in preferred stock, in the fall of 2008, in part to restore confidence in the health of the firm. In return for the pricey investment, the bank received a seal of approval from one of the most famous investors in the world.

The firm has since repurchased the preferred shares from Mr. Buffett. The warrants have been in the money for nearly the entire life of Berkshire’s investment.

Goldman Amends Warrants Deal With Buffett

Goldman Sachs is about to join a rarefied club: the group of banks which count Warren E. Buffett as a big investor.

The firm said on Tuesday that it has changed the terms of warrants issued to Mr. Buffett’s Berkshire Hathaway during the financial crisis, essentially making the billionaire one of the firm’s biggest investors without having to pay additional money.

The warrants previously gave Berkshire the right to buy $5 billion worth of common shares, at an exercise price of $115, at any time before Oct. 1. Now, Mr. Buffett will receive an amount of stock equal to the difference between the stock price and the $115 strike price in cash, multiplied by 43.5 million.

At Monday’s closing price of $146.11, that would mean Mr. Buffett would receive about 9.2 million shares. That would make Berkshire the ninth-biggest shareholder in Goldman, according to data from Bloomberg.

Mr. Buffett is well-known for his caution around big banks, keeping big holdings of common stock only in Wells Fargo and US Bancorp. Preferred shares that he received from Goldman and Bank of America carried a big dividend, making them extremely expensive for the issuers.

But Mr. Buffett has long praised Goldman and its management team, even when the firm faced a lawsuit by the Securities and Exchange Commission over a mortgage investment that the bank put together.

“We intend to hold a significant investment in Goldman Sachs, a firm that I did my first transaction with more than 50 years ago,” Mr. Buffett said in a statement on Tuesday. “I have been privileged to have known and admired Goldman’s executive leadership team since my first meeting with Sidney Weinberg in 1940.”

For his part, Goldman’s chief executive, Lloyd C. Blankfein, said the firm was “pleased that Berkshire Hathaway intends to remain a long-term investor in Goldman Sachs.”

Goldman gave Mr. Buffett the warrants and $5 billion in preferred stock, in the fall of 2008, in part to restore confidence in the health of the firm. In return for the pricey investment, the bank received a seal of approval from one of the most famous investors in the world.

The firm has since repurchased the preferred shares from Mr. Buffett. The warrants have been in the money for nearly the entire life of Berkshire’s investment.

For Cohen, a Big Art Deal

Steven A. Cohen apparently hasn’t let an insider trading investigation â€" or an elbow â€" put a stop to his dealings in art.

The billionaire hedge fund manager is paying $155 million for Picasso‘s “Le Rêve,” according to The New York Post’s Page Six, which cites an unidentified “source.” The report says the price is believed to be the highest ever paid for an artwork by a United States collector.

Mr. Cohen purchased the Picasso from the casino magnate Stephen A. Wynn, according to The Post, after an earlier deal fell through when Mr. Wynn accidentally damaged the painting with his elbow. For Mr. Cohen, the artwork is a “gift to himself,” and the sale was supposed to be “top-secret,” the newspaper’s “source” said.

Jonathan Gasthalter, a spokesman for Mr. Cohen, declined to comment.

Mr. Cohen, known in the art world for his splashy purchases, has recently been making headlines for other reasons. This month, his hedge fund, SAC Capital Advisors, agreed to pay $616 million to resolve a pair of federal insider-trading lawsuits, the latest chapter in an investigation into suspicious trading. Mr. Cohen has not been accused of any wrongdoing.

There was some concern in art circles about what affect the legal troubles might have on the hedge fund manager’s dealings. He was absent from Art Basel Miami Beach in December, The New York Times reported.

But the billionaire is apparently still willing to pay top dollar for the right piece of art. “Le Rêve” is a work that he has pursued in the past.

In 2006, Mr. Cohen agreed to buy the painting from Mr. Wynn for $139 million, according to reports at the time. But the deal was canceled after Mr. Wynn accidentally tore a hole in the painting with his elbow.

Now, with the painting repaired, Mr. Wynn may be getting an even higher price for the masterpiece, which shows Picasso’s mistress Marie-Thérèse Walter.

“My feeling was, It’s a picture, it’s my picture, we’ll fix it,” Mr. Wynn told The New Yorker in 2006, recalling how the painting was damaged. “Nobody got sick or died. It’s a picture. It took Picasso five hours to paint it.”

Another unidentified “source” told The Post that Mr. Cohen “has wanted that painting for a long time. The timing of the sale is just a coincidence.”

Europe Expands Investigation Into Derivatives Market

BRUSSELS â€" European Union antitrust regulators have expanded their investigation into whether a small network of big banks unfairly controls the derivatives market.

The inquiry, which has already ensnared major international giants like Barclays, JPMorgan Chase and Deutsche Bank, has been broadened to include the International Swaps and Derivatives Association, a trade organization for market participants.

The commission had “found preliminary indications that I.S.D.A. may have been involved in a coordinated effort of investment banks to delay or prevent exchanges from entering the credit derivatives business,” European antitrust regulators said in a statement. “Such behavior, if established, would stifle competition in the internal market in breach of E.U. antitrust rules.”

The commission has the power to levy fines as much as 10 percent of a firm’s global annual sales in such cases, although fines rarely, if ever, go that high.

“I.S.D.A. is aware that it has been made subject to these proceedings,” the association said in a statement sent by e-mail. “I.S.D.A. is confident that it has acted properly at all times and has not infringed E.U. competition rules,” the statement said, adding that the association was co-operating fully with regulatory authorities.

The European investigation, like a similar one undertaken earlier by United States Department of Justice, highlights efforts by regulators to address concerns that large banks may be using unfair methods to control highly lucrative corners of finance.

The investigation, which began in April 2011, focuses on whether 16 banks worked with the Markit Group, a data provider, to create pricing procedures and indices related to a type of derivative known as credit default swaps. Authorities are also looking into whether a deal between nine banks and the Intercontinental Exchange might have been unfair to other players in the market.

The commission is using the full arsenal of European Union competition law to investigate the matter, including a statute prohibiting firms from covertly rigging the market and another prohibiting big firms from bullying smaller ones. The commission said on Tuesday that it suspected the banks of acting “through collusion or an abuse of a possible collective dominance.”

Regulators on both sides of the Atlantic have pursued the investigations because the effects could extend well beyond the world of finance into the wider economy. A number of industries, including airlines, energy companies and food manufacturers, rely on the derivatives market to help manage their risk and protect their profits.

Controversial Media Deal in Taiwan Nears Collapse

The $500 million sale of two of the most liberal publications in Taiwan to largely pro-Beijing investors appeared on the verge of collapse on Tuesday.

The buyers were unlikely to meet a Wednesday deadline to complete the sale of the Taiwan editions of the publications, The Apple Daily newspaper and Next magazine, which are owned by the staunchly anti-Communist Hong Kong media magnate Jimmy Lai, a spokesman for Mr. Lai’s Next Media said Tuesday.

“The deal is off,” said the spokesman, Mark Simon. He said the buyers, who included the son of Tsai Eng-meng, a pro-China Taiwan billionaire, had declined Monday to negotiate to extend a deadline to complete the deal.

“They pulled out,’’ Mr. Simon said.

News of the sale, announced late last year, had caused concerns in democratically governed Taiwan that pro-Beijing businessmen were increasingly taking control of the island’s media industry.

Tens of thousands of opposition protesters took to the streets in January to protest against President Ma Ying-jeou, who has brokered increasingly warm ties with mainland China but who is struggling with low approval ratings at home. Among other things, the protesters demanded that the government prevent the sale of the Next Media publications.

Taiwan’s legislature is considering measures supported by opposition parties that would ban monopoly holdings in the media and cap market share for print and broadcast companies.

In the deal for certain Next Media publications, the buyers looked to expand their industry presence.

The buyer, Mr. Tsai’s son, Tsai Shao-chung, is the president of the Want Want China Times group, which publishes a newspaper and operates Web sites in Taiwan. The elder Mr. Tsai, who heads a food and beverage conglomerate with considerable sales and operations in mainland China, also has stakes in a television channel and several other media operations in Taiwan.

The other members of the buying consortium include Jeffrey Koo Jr., the son of the chairman of Chinatrust Financial, a bank; Wang Wen-yun, the Formosa Plastics chief executive; and Li Shih- tsung, the head of Lung Yen Life Service, a funeral and cemetery company.

In November, the group signed a preliminary agreement with Next Media to pay 16 billion Taiwan dollars, or $534 million, to acquire the publications. Mr. Lai also publishes Hong Kong editions of both The Apple Daily and Next magazine, which were not part of the transaction.

Faced with the vocal public opposition, regulators in Taiwan have been examining the Next Media deal for months. “We’re trying to judge whether the buyer has the potential to abuse monopolistic power,” said Sun Li-chyun, a spokesman for Taiwan’s Fair Trade Commission.

It appeared Tuesday that there was still some small sliver of hope for the deal. Mr. Sun said the commission had been planning to issue a decision early next month on the Next Media transaction. He said that when the commission had checked with lawyers representing both Mr. Lai’s group and the buyers on Tuesday morning, neither party said the sale had been canceled.

Lin Yang reported from Taipei.

In Dell, Shifting Attitude Toward Buyouts

IN DELL OFFERS, SHIFTING ATTITUDE TOWARD BUYOUTS  |  The battle over Dell puts into focus the question of whether management-led buyouts are in shareholders’ best interests, and it reflects a shifting ethos on Wall Street, “one that might be slightly less short-term greedy than that of previous generations,” Andrew Ross Sorkin writes in the DealBook column. “It appears that some shareholders of companies involved in buyouts would prefer to ride a wave of gains alongside the buyout kings rather than cash out immediately.”

The rival proposals from the Blackstone Group and Carl C. Icahn that emerged over the weekend appear designed to give long-term investors a seat at the table. They involve the bidders’ acquiring a majority of shares and leaving a small minority, known as a stub, in the public market. “In some ways, the shift is an ironic about-face for private equity firms, which have long evangelized on the merits of taking companies private that are in need of a turnaround and have spoken derisively about the pressures of the public markets,” Mr. Sorkin writes. The Dell shareholder Southeastern Asset Management said it was “pleased that the alternative proposals submitted to the Dell Special Committee are structured to give shareholders the opportunity to continue to participate in the company’s future prospects.”

Shares of Dell rose 2.6 percent on Monday to $14.51, suggesting investors expect a bid higher than the $13.65 a share offered by Dell’s founder, Michael S. Dell, and the private equity firm Silver Lake. “Mr. Dell, who has publicly committed to explore working with other partners in good faith, could himself reach out to Blackstone as soon as this week, according to a person briefed on the matter. But Mr. Dell still has concerns about Blackstone’s offer,” DealBook’s Michael J. de la Merced writes.

One Wall Street denizen, Leon Cooperman, had choice words for Mr. Dell’s proposal, telling Mr. Sorkin, “He’s not doing this because he thinks his company is overvalued. He wants to make money.”

UGLY SIDE OF LAW FIRM BILLING  |  A collection of internal e-mails at the law firm DLA Piper could reinforce a widespread perception that law firms inflate bills. The correspondence, which emerged in a court filing in a fee dispute between DLA Piper and a client, “provide a window into the thorny issue of law firm billing,” DealBook’s Peter Lattman reports. An example: “I hear we are already 200k over our estimate â€" that’s Team DLA Piper!” wrote Erich P. Eisenegger, a lawyer at the firm. Another DLA Piper lawyer, Christopher Thomson, referred to a third colleague, Vincent J. Roldan, in his reply: “Now Vince has random people working full time on random research projects in standard ‘churn that bill, baby!’ mode.”

The e-mails appear to show that churning, the creation of unnecessary work to pad a client’s bill, remains an insidious problem in the legal profession, said William G. Ross, a law professor at Samford University’s Cumberland School of Law. “Lawyers sometimes conflate their own financial interests with the interests of the client who pays the bills,” Professor Ross said. “Of course, most lawyers are ethical, but the billable hour creates perverse incentives.”

PUERTO RICO’S TAX HAVEN PITCH  |  Puerto Rico is fashioning a new identity for itself as a tax haven. With a campaign to promote tax incentives that took effect last year, the island has attracted a handful of under-the-radar millionaires, Lynnley Browning and Julie Creswell report in DealBook. “Several American executives of mostly smaller financial firms say they have already relocated to the island, and Puerto Rican officials say another 40 persons, mostly from the United States, have applied.”

John A. Paulson, the hedge fund billionaire, was perhaps the most prominent individual to take a look at the island. But he won’t be moving â€" his firm issued a statement saying he had no plans to relocate, after reports that he had scoped out real estate there.

Still, “government officials and real estate brokers in Puerto Rico hope to sell other wealthy mainland Americans on what they hope will become the next Singapore or Ireland as a favored low-tax destination,” DealBook writes. “Puerto Rico is closer and, compared with Ireland, decidedly warmer. And unlike in Switzerland or other havens, in Puerto Rico, Americans do not give up their citizenship.”

ON THE AGENDA  |  The S.&P./Case-Shiller housing price index for January is out at 9 a.m. Data on new home sales for February is out at 10 a.m. Jason Goldberg, chief executive of Fab.com, is on Bloomberg TV at 1 p.m. Barney Harford, chief executive of Orbitz Worldwide, is on CNBC at 4:30 p.m.

HULU IS SAID TO EXPLORE A SALE  |  The board of Hulu, the online video service, “has approached potential buyers to gauge their interest in buying” the company, according to Reuters, which cites three unidentified people close to the company. The report comes as Hulu’s owners, the News Corporation and the Walt Disney Company, are looking at possible options. Reuters continues: “The board sounded out several possible buyers as part of an internal strategic review begun recently, but it has not received a formal offer, one of the sources said on Monday.” The owners have explored selling Hulu previously, but ended up rejecting bids, Reuters notes.

Mergers & Acquisitions »

At 17, Entrepreneur Sells Summly App to Yahoo  |  A high school student named Nick D’Aloisio sold his news-reading app, Summly, to Yahoo on Monday for a price that AllThingsD reported was $30 million. “I’ve still got a year and a half left at my high school,” Mr. D’Aloisio told The New York Times.
NEW YORK TIMES

Buyout Effort Ended, Best Buy Founder Returns to Company  |  Richard Schulze, who explored and then abandoned a possible buyout bid for Best Buy, is returning to the electronics chain he founded as chairman emeritus.
DealBook »

A Shaky Start for New BlackBerry  |  The new Blackberry line “has received tepid marketing support from AT&T” since its debut on Friday, The Wall Street Journal writes.
WALL STREET JOURNAL

Deloitte Said to Be in Talks to Buy Roland Berger of Germany  | 
REUTERS

INVESTMENT BANKING »

Troubles Continue for Italian Bank  |  Monte dei Paschi di Siena, the old Italian bank that received a government bailout, “is poised to report a second straight loss on soaring bad-loan provisions,” Bloomberg News reports.
BLOOMBERG NEWS

Cantor Fitzgerald Puts a Focus on Hurricane Relief  |  The brokerage firm is distributing debit cards to families affected by Hurricane Sandy.
BLOOMBERG NEWS

Qatalyst Hires Morgan Stanley Banker  |  Qatalyst Group, the West Coast boutique advisory firm led by Frank Quattrone, has hired Marcie Vu, formerly of Morgan Stanley, as a partner.
DealBook »

Goldman Doesn’t Have Politics in Its Future  |  Goldman Sachs rejected a shareholder proposal that the firm run for political office, Bloomberg News reports.
BLOOMBERG NEWS

R.B.S. Chief for Middle East and Africa Steps Down  | 
BLOOMBERG NEWS

PRIVATE EQUITY »

Cerberus Plans to Wait Before Listing Japanese Rail Operator  |  Cerberus Capital Management, which owns 32.4 percent of Seibu Holdings, “wants to increase its stake and appoint three new directors before selling shares to the public in two or three years,” according to a lawyer for the firm, Bloomberg News reports. But Seibu opposes that plan.
BLOOMBERG NEWS

HEDGE FUNDS »

Hedge Fund Said to Be Ceasing Payments to Children’s Charity  |  The activist hedge fund known as the Children’s Investment Fund “has stopped giving a portion of its fees to the children’s charity” run by the wife of the fund’s manager, according to Financial News.
FINANCIAL NEWS

I.P.O./OFFERINGS »

Zuckerberg Said to Consider Forming Political Group  |  Mark Zuckerberg, Facebook’s chief executive, “is exploring the formation of a political advocacy group that would focus on topics such as immigration, the economy, education and scientific research funding, according to a person familiar with the matter,” Bloomberg News reports.
BLOOMBERG NEWS

Facebook Looks Beyond Its Walls for Data on Users  |  To shape its ads, Facebook “is no longer relying solely on what Facebook users reveal about themselves. Instead, it is tapping into outside sources of data to learn even more about them â€" and to sell ads that are more finely targeted to them,” The New York Times’s Somini Sengupta writes.
NEW YORK TIMES

Zynga Hires a Finance Executive  |  Atul Bagga, an analyst who worked at Lazard, was hired by Zynga as vice president of finance, AllThingsD reports.
ALLTHINGSD

For I.P.O.’s, a Strong Start to the Year  | 
FINANCIAL TIMES

VENTURE CAPITAL »

Apple Buys Start-Up for Indoor Mapping  |  Apple has acquired WiFiSlam, a start-up for mapping a user’s location indoors, as “indoor maps look like they could become a new battleground between big companies seeking a cartographical edge on their rivals,” the Bits blog writes.
NEW YORK TIMES BITS

Sequoia Capital Hires Newspaper Reporter as Head of Content  | 
ALLTHINGSD

LEGAL/REGULATORY »

Rengan Rajaratnam Pleads Not Guilty to Insider Trading Charges  |  Rengan Rajaratnam pleaded not guilty on Monday to insider trading charges, which come nearly two years after the conviction of his older brother, the fallen hedge fund titan Raj Rajaratnam.
DealBook »

Bankia Stock Value Is Nearly Wiped Out Under Recapitalization Plan  |  Shares in Bankia, the giant Spanish mortgage lender whose collapse last year led to a banking crisis in Spain, slumped 41 percent on Monday after regulators wiped out most of the stock’s value.
DealBook »

Broader Concerns Accompany Deal to Rescue Cyprus  |  The New York Times reports: “Stocks were down broadly in Europe on Monday, after the head of the Eurogroup, Jeroen Dijsselbloem, suggested that the idea of skimming savers’ accounts to bail out banks could be considered a ‘template’ for other countries. The borrowing costs of the financially shaky Spain and Italy surged upward as the markets digested the Cyprus news â€" and the broader implications for the euro currency union.”
NEW YORK TIMES

Cyprus Rescue Deal Addresses Important Principles  |  The bailout deal that Cyprus reached with its euro zone partners makes the best of an extremely bad situation, but there are lingering doubts on capital controls and the effect the debt will have on the economy, Hugo Dixon of Reuters Breakingviews writes.
REUTERS BREAKINGVIEWS

China Dream, Apple Nightmare  |  China’s leadership has been promoting a concept called “the Chinese Dream” that depends on continued economic growth and stable relations with the United States. Apple, meanwhile, finds itself the target of attacks in the official media, Bill Bishop writes in the China Insider column.
DealBook »

Sending a Message for Backpedaling on Settlements  |  Standard Chartered learned the hard way that prosecutors take deferred prosecution agreements quite seriously, when the government forced the chairman to retract his statements on the settlement, Peter J. Henning writes in the White Collar Watch column.
DealBook »