The Problem With the Fed’s Easy Money Policies

My most recent column incited a robust and welcome discussion. But few of my many critics, including Paul Krugman on his blog and many commenters on DealBook, seem to have engaged with my main point.

My piece was not celebrating hedge fund managers. It was not predicting inflation and imminently rising rates or a debt crisis. Nor was the main point to rehash who got the financial crisis right or not.

Lastly, the main point was not to dwell on the Federal Reserve’s credibility problem, though I think that’s important.

What was my main point? We are four years into the One Percent’s recovery. Now, we are in Round 3 of quantitative easing, the formal term for the Fed injecting hundreds of billions of dollars into the economy by purchasing longer-term assets like Treasury bonds and Fannie Mae and Freddie Mac paper. What’s that giving us? Overvalued stocks. Private equity firms racing to buy up Arizona real estate. Junk bond yields at record lows. Ratings shopping on structured financial products.

These are dangerous signs of prebubble activity.

But, much more important, quantitative easing is not giving us a self-sustaining recovery and job creation. As I put it in the column, hedge fund managers “can read markets, and they can see that the Fed isn’t engineering the hiring, inflation and recovery it would like.” There’s been a breakdown in the connection between wages and productivity. Labor participation is desperately low.

So are we moving from the bust to the bubble and missing the recovery for average people?

And if so, why?

Many people argue that we need more fiscal stimulus. That’s persuasive, but it’s clearly not happening with today’s Washington.

In response to my column, people have said: What else should the Fed do? Things would be far worse if the Fed weren’t buying $85 billion in bonds a month. Look at Europe, whose monetary policy has been almost as big a disaster as its fiscal policy.

But how long do we have to wait? How much more wealthy do the One Percent get to become through speculation â€" how much house flipping do private equity firms get to do â€" before we see some sustained improvement in the rest of the economy?

And could it be that with a heavily indebted populace and a dysfunctional banking system still unable to lend effectively, that this round of quantitative easing is having a counterproductive effect? As evidence that the banking system transmission mechanism isn’t working well, small businesses are having a hard time borrowing, according to a recent New York Fed poll.

One solution is that the Fed needs to have a heavy regulatory hand to limit speculative activities. Perhaps regulators should raise margin requirements for stocks. Put the ratings agencies on notice that they are watching out for any loosening of criteria. Make these efforts public and keep talking about them.

And then, maybe quantitative easing needs to be refocused away from long-term Treasuries and housing. Maybe the Fed could figure out a way to buy student debt or municipal bonds to support infrastructure.

If quantitative easing is necessary, it should support investment, not speculation.

A Toehold for China on Wall Street

Shaolin-style martial arts. A plate-spinning acrobat. Musicians playing the dizi, a Chinese bamboo flute, and the yangqin, a hammered dulcimer.

That was the scene Thursday evening on the 52nd floor of the Trump Building at 40 Wall St. in Lower Manhattan, where the China Investment Federation, a new organization supporting Sino-American deal-making, celebrated the opening of its New York office.

The group, which started last summer in Beijing, aims to help Chinese investors overcome cultural, political and logistical hurdles to doing business in the United States. Sponsored by DKI Capital, a Beijing-based investment firm, the China Investment Federation now has a toehold in the symbolic center of American capitalism.

“We hope this office will be a place for the Chinese millionaire in New York,” Chris Li, the president of DKI, said in a speech on Thursday, comparing the opening of the office to the establishment of the New York Stock Exchange.

With the rise of China as a global power, investors there are looking for opportunities overseas. Increasingly, Chinese and American firms are doing business together, and United States investors are raising more money to do deals in China.

The importance of China to Wall Street underpinned the decision by Stephen A. Schwarzman, head of the Blackstone Group, to create a $300 million scholarship for study in the country.

Still, it can be challenging to navigate the differences between the two countries. Chinese investors are increasingly opting to buy stakes in overseas companies rather than buy them outright, in the face of political opposition, said Dajiang Guo, the chief executive of Citic Securities International USA.

“That’s a business reality we all need to face,” he said at the event on Thursday.

Part of the mission of the China Investment Federation is to bridge these disparate markets. Unlike the United States, China lacks “stratification of capital,” said Jay Riskind, managing director for global projects at DKI Capital. Investments there are “opportunistic,” he said.

“As we plant the flag on Wall Street, we consider this a meaningful moment for realizing the Chinese dream,” Mr. Riskind said.

Thursday’s event attracted a crowd from finance, law and real estate, who took in Chinese-style performances in the office space while enjoying cocktails and hors d’oeuvres. Waiters passed around trays of tea-smoked chicken on wonton crisps with saffron aioli; shredded Peking duck on scallion pancakes with plum hoisin sauce and julienne cucumbers; and filet of beef on rosemary dusted potato with white bean puree.

Richard Huang, secretary general of the China General Chamber of Commerce, was in attendance, as was Khalid Malik, director of the human development report office of the United Nations.

“I’m just stopping by,” said Jeff Huang, managing director for greater China at the IntercontinentalExchange. “I have a dinner appointment on Wall Street.”

The leader of the China Investment Federation, Yang Shengli, has a lavishly appointed office that was open for guests to explore, featuring tables made from Chinese redwood. The furniture, with a combined value estimated at more than $200,000, was shipped from China.

For symbolism, it seemed the China Investment Federation couldn’t do much better than an office on Wall Street inside a building named after the master of showmanship, Donald J. Trump.

“The whole Trump family is very excited to have them in the building,” said Steve Lafiosca, Mr. Trump’s director of commercial properties.

Where the I.R.S. Investigation May Go From Here

If Washington scandals have taught us anything, it is that the most trouble comes from the cover-up, not the conduct.

So it may be with the criminal investigation into how the Internal Revenue Service processed tax-exempt applications from conservative organizations. The critical issue may hinge on what agency officials told Congress rather than the original actions.

Attorney General Eric H. Holder Jr. told the House Judiciary Committee on Wednesday that the investigation would look at whether there were violations of the civil rights laws in how the I.R.S. singled out selected organizations for closer review. He further pointed out that “false-statement violations might have been made, given at least what I know at this point.”

The announcement of a criminal investigation gives the administration grounds to claim that it cannot go into details about any misconduct for fear of prejudicing cases. Whether any charges are ever filed is likely to focus on what was said to Congress rather than a violation of anyone’s civil rights.

The primary criminal statute dealing with civil rights violations, 18 U.S.C. § 242, comes out of the Reconstruction Era after the Civil War and was originally intended to protect the voting rights of former slaves. The statute makes it a crime for anyone acting under “color of law” to willfully subject another person to “the deprivation of any rights, privileges, or immunities secured or protected by the Constitution or laws of the United States.”

The Justice Department has used this provision in cases involving police officers who physically attacked suspects, with one of the most famous prosecutions involving police officers who beat Rodney King.

Whether the statute could be applied to anyone at the I.R.S. for singling out applications for tax-exempt status from conservative organizations is a more difficult question. As Victor Fleischer pointed out in DealBook about a report issued by the Treasury Department inspector general for tax administration, the problem seems to be “one of incompetence, not conspiracy.”

The fact that the I.R.S. applied political criteria in its review could implicate political association and free speech rights under the First Amendment. But what is less clear is whether the exercise of any rights was actually deprived because applications were not denied on the basis of political affiliation. It may be difficult for prosecutors to show a willful violation of a specific right by any individual at the I.R.S., even when the conduct smacks of political favoritism.

A much more likely path to criminal charges lies in what I.R.S. officials told Congress about how these applications were being handled, including any denials that political criteria were used in reviewing applications. This reflects the lesson learned from the Watergate scandal that it’s not the crime, it’s the cover-up that gets people in trouble.

Mr. Holder identified the false-statement statute, 18 U.S.C. § 1001, as one likely area of investigation. In addition, if any I.R.S. official testified falsely under oath before Congress about this issue, then there is also the potential for a perjury charge.

One significant hurdle for the Justice Department in pursuing a false-statement or perjury case is proving that a defendant actually lied, which means showing more than just that the defendant did not make full disclosure of the facts. Courts have interpreted § 1001 and the perjury law similarly as requiring proof that the statement was completely false, so that there is no way it could be construed as literally true even if intended to be misleading.

That means the words used by a witness or in a letter to Congress about how the I.R.S. treated applications from conservative organizations could be subject to varying interpretations, making it difficult for prosecutors to prove falsity. As President Bill Clinton once famously replied when asked whether he committed perjury: “It depends upon what the meaning of the word ‘is’ is.”

A broader statute that could be invoked is 18 U.S.C. § 1505, which makes it a crime to corruptly obstruct or impede any “inquiry or investigation” by Congress. This provision does not require proving a statement was false, but only that the person sought to make it more difficult for Congress to conduct its business. Indeed, the statute covers any “endeavor” to obstruct, meaning that the defendant need not be successful to commit the crime.

This type of charge has been used in a number of highly publicized cases as a means to overcome potential hurdles to proving perjury or false statement. For example, the Justice Department used it in prosecutions arising from the Iran-contra investigation against Oliver North and former Defense Secretary Caspar Weinberger, and more recently against Roger Clemens related to suspected steroids use.

Congress will be conducting several hearings on the matter, starting with the House Ways and Means Committee on Friday, at which the former acting I.R.S. commissioner, Steven Miller, is scheduled to testify. Other agency officials are sure to be grilled on Capitol Hill about their role in dealing with applications from conservative organizations and, perhaps more important, their responses to Congress on this issue.

An interesting question is whether any of these officials will invoke the Fifth Amendment privilege against self-incrimination and refuse to respond to questions. That will be a strong indication that the criminal investigation is focusing on potential false statement and obstruction charges.

Whether to assert the privilege is a difficult choice because of the potential for losing one’s position in the government for not being cooperative in an investigation. And unlike private companies, the government will not pay the legal fees to defend an official from an investigation into potential wrongdoing, so those costs would come out of the person’s own pocket. Given that government positions do not pay anything close to what the private sector does, an investigation could quickly wipe out an official’s financial resources.

Fed Reaches Deal With Bank on Compliance

The Federal Reserve reached an agreement with the Bank of Montreal to bolster its efforts to detect and prevent money laundering at its branch in Chicago.

Rajat Gupta’s Lust for Zeros

As Rajat Gupta’s appeal is scheduled to be heard next week, Anita Raghavan, a DealBook contributor, has examined the circumstances that led to his partnership with Raj Rajaratnam, the billionaire head of the Galleon Group hedge fund.

“The fundamental question behind his case remains a mystery. Why would one of the most revered C.E.O.’s of his generation, who retired with a fortune worth some $100 million, show such bad judgment?” Ms. Raghavan writes in an article to be published Sunday in The New York Times magazine. “The confusion, a management consultant might suggest, may arise from looking at the problem from the wrong angle. What if Gupta, the adviser to presidents and executives, simply got played?”

Mr. Gupta, a former chief of the consulting firm McKinsey & Company and a former Goldman Sachs board member, may have ultimately been influenced by greed. “While Gupta departed McKinsey with a fortune, he was now mingling with a crowd that included Bill Gates, Henry Kravis and Henry M. Paulson Jr., then Goldman’s cief executive, with whom he traveled to Indonesia to see the Komodo dragons. For many of these men, $100 million was not rich; it was simply the price to play,” she writes, in an article adapted from the forthcoming book “The Billionaire’s Apprentice: The Rise of the Indian-American Elite and the Fall of the Galleon Hedge Fund.”

Mr. Rajaratnam, for his part, knew how to exploit his connections and had “assembled a stable of carefully curated industry moles. His favorite targets were South Asians like himself. Despite the stereotype of South Asians as hardworking grinds who eschew the sharp-elbowed politicking of their American peers, Rajaratnam knew they could be every bit as competitive as anyone else on Wall Street.”

A jury ultimately found Mr. Gupta guilty in June 2012 of leaking confidential information about Goldman to Mr. Rajaratnam on three different occasions in 2008. He was also convicted on a conspiracy charge. He remains free on bail pending appeal.

“Whether Gupta’s charge is overturned or not, he will still be remembered as the dignified McKinsey managing director who fell down the money trap and under the spell of a boorish hedge-fund trader, a reality which, in his world, is almost as damning as the crime he stands accused of committing,” Ms. Raghavan writes.

3 Foreign Companies Invest in U.S. Project to Export Liquid Gas

In a sign that the United States shale gas boom is making global waves, two Japanese conglomerates and a big French energy player signed agreements on Friday to invest up to $7 billion in a liquefied natural gas project in Louisiana.

The companies â€" Mitsui and Mitsubishi of Japan, and GDF Suez of France â€" each plan to take a 16.6 percent stake in the gas export plant being developed at Hackberry, La. The complex is being built by Sempra Energy, a company based in San Diego with annual revenue of about $10 billion. The companies agreed last year to help develop the project.

GDF Suez predicts that the plant will begin operations in 2017. The companies’ final decision to make their investment will depend on the project’s receiving necessary permits, GDF Suez said.

International companies, responding to a ravenous global appetite for natural gas, particularly in Japan and Europe, want access to shale gas from the United States, which has emerged as an important new source over the last few years. But because the United States has only recently shifted from being a gas importer to being self-sufficient in the fuel, the government has not yet agreed to allow exports except in a few cases and to the 20 countries with which it has free trade agreements, including Panama and Costa Rica.

Export approval, under consideration for several projects by the Energy Department, will be necessary before the potential of shale gas can be fully realized. On Friday, the department approved a Texas project called Freeport L.N.G. It has also signed off on a facility being built by Cheniere Energy at Sabine Pass in Louisiana that is expected to start exporting in 2015.

But international companies are investing all the same, betting that United States shale gas will eventually be able to go onto the global market.

In a statement, Sempra Energy estimated that the foreign partners would be putting up $6 billion to $7 billion in return for just under half the equity in the project, which is forecast to yield 12 million metric tons of liquefied natural gas annually for 20 years. In return, they will receive all the gas. Sempra will retain a stake of just over 50 percent.

‘‘These agreements represent a major step forward in the development of our L.N.G. export project,’’ Sempra’s president, Mark A. Snell, said in a statement.

For international players, the attractions of United States shale gas are the large potential volumes and the relatively low cost of extracting it.

Other foreign companies that have lined up American supplies include the Korean company Kogas, Sumitomo of Japan and BG Group, the British-based company that is a big player in the liquefied natural gas business.

Natural gas prices in the United States are now about $4 per million British thermal units, the industry’s standard measure. European-traded prices are in the $10 per million B.T.U.’s range, with Asian prices about $15 per million per B.T.U.’s. Long-term contract prices are often higher, and liquefication adds to the cost over plain gas.

Japan’s liquefied natural gas imports have surged after the shutdown of nuclear power in the wake of the Fukushima disaster and were up by 11 percent last year. Japanese imports account for about one-third of the world’s total liquid gas market, according to a recent study by Bernstein research.

Japanese utility executives have said they want to reduce the prices they are paying by tying them to United States supplies.

‘‘It is a win-win situation,’’ said Fadel Gheit, an analyst at Oppenheimer in New York. Such deals will help stabilize global fuel prices over the long term and benefit the United States economy, he said.

A big worry in the industry is whether United States’ exports could contribute to lower prices around the world, eroding profits. ‘‘It will give buyers a choice, something they have never had before,’’ said Jonathan Stern, chairman of the gas program at the Oxford Institute for Energy Studies.

But industry executives think that surging demand, especially from Asia, will easily absorb the exports that the United States government might eventually permit.

United States gas ‘‘won’t have a material effect on long-term pricing,’’ Martin Houston, BG’s chief operating officer, said in a recent presentation on the company’s Web site.

Matthew L. Wald contributed reporting from Washington.

A version of this article appeared in print on 05/18/2013, on page B3 of the NewYork edition with the headline: 3 Foreign Companies Invest in U.S. Project to Export Liquid Gas.

Faced With Overload, a Need to Find Focus

We are thrilled to introduce a new weekend column to DealBook called Life@Work by Tony Schwartz. Tony is one of the world’s top thought leaders on the workplace and getting the most out of people. He is a productivity maven and advises many of the Fortune 500 on how to build the right culture as the founder of the Energy Project. Earlier his year, he wrote a popular article for The New York Times’s Week in Review, “Relax! You’ll Be More Productive.” We’ve followed Tony for many years â€" using some of his tips and tricks ourselves â€" and we’re excited to be able share his insights regularly on DealBook.

- Andrew Ross Sorkin

What’s the first thing you do when you wake up in the morning, before you even brush your teeth? Is it checking the e-mail that’s flooded into your inbox overnight? Does the pull feel increasingly irresistible, even Pavlovian? Do you get so immersed in responding to other people’s agendas that 30 minutes can go by before you even look up?

Here’s a radical proposal: Don’t check your e-mail at all tomorrow morning. Turn it off entirely. Instead, devote a designated period of uninterrupted time to a task that really matters.

For more than a decade, the most significant ritual in my work life has been to take on the most important task of the day as my first activity, for 90 minutes, without interruption, followed by a renewal break. I do so because mornings are when I have the highest energy and the fewest distractions.

I’m doing it right now, but in all honesty, it’s gotten tougher in the last several years. My attention feels under siege, like yours probably does.

For the last 10 years, my colleagues and I have helped companies like Google, Genentech, Coca-Cola, Green Mountain Coffee and Facebook fuel sustainable high performance by better meeting the needs of their employees. Far an away the biggest work challenges most of us now face are cognitive overload and difficulty focusing on one thing at a time.

Whenever I singularly devote the first 90 minutes of my day to the most challenging or important task - they’re often one and the same â€" I get a ton accomplished.

Following a deliberate break - even just a few minutes â€" I feel refreshed and ready to face the rest of the day. When I don’t start that way, my day is never quite as good, and I sometimes head home at night wondering what I actually did while I was so busy working.

Performing at a sustainably high level in a world of relentlessly rising complexity requires that we manage not just our time but also our energy - not just how many hours we work, but when we work, on what and how we feel along the way.
Fail to take control of your days â€" deliberately, consciously and purposefully â€" and you’ll be swept along on a river of urgent but mostly unimportant demands.
It’s all too easy to rationalize that we’re powerless victims in the face of expectation from others, but doing that is itself a poor use of energy. Far better to focus on what we can influence, even if there are times when it’s at the margins.

Small moves, it turns out, can make a significant difference.

When it comes to doing the most important thing first each morning, for example, it’s best to make that choice, along with your other top priorities, the night before.

Plainly, there are going to be times that something gets in your way and it’s beyond your control. If you can reschedule for later, even 30 minutes, or 45, do that. If you can’t, so be it. Tomorrow is another day.

If you’re a night owl and you have more energy later in the day, consider scheduling your most important work then. But weigh the risk carefully, because as your day wears on, the number of pulls on your attention will almost surely have increased.

Either way, it’s better to work highly focused for short periods of time, with breaks in between, than to be partially focused for long periods of time. Think of it as a sprint, rather than a marathon. You can push yourself to your limits for short periods of time, so long as you have a clear stopping point. And after a rest, you can sprint again.

How you’re feeling at any given time profoundly influences how effectively you’re capable of working, but most of us pay too little attention to these inner signals.

Fatigue is the most basic drag on productivity, but negative emotions like frustration, irritability and anxiety are equally pernicious. A simple but powerful way to check in with yourself is to intermittently rate the quantity and quality of your energy â€" say at midmorning, and midafternoon â€" on a scale from 1 to 10.
If you’re a 5 or below on either one, the best thing you can do is take a break.

Even just breathing deeply for as little as one minute - in to a count of three, out to a count of six - can quiet your mind, calm your emotions and clear your bloodstream of the stress hormone cortisol.

Learn to manage your energy more skillfully, and you’ll get more done, in less time, at a higher level of focus. You’ll feel better â€" and better about yourself â€" at the end of the day.

About the Author

Tony Schwartz is the chief executive of the Energy Project and the author, most recently, of “Be Excellent at Anything: The Four Keys to Transforming the Way We Work and Live.” Twitter: @tonyschwartz

Week in Review: How to Lose an Activist Investor in 10 Days

An investor aiming for the top, again. | Hess and hedge fund end proxy fight in compromise. | Big banks get break in rules limiting risks. | Shareholders denied access to Chase vote results. | Jesse Eisinger on why fund managers may be right on the Fed. | In role reversal, Goldman chief advises Jamie Dimon. | Clients fear Bloomberg is becoming their rival. | Uninvited guest gives Japan a jolt. | American investor targets Sony for a breakup. | Andrew Ross Sorkin makes a case for one leader at JPMorgan. | Chase vote may hinge on director.

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

Aiming for the Top, Again | Fred Eckert was once a star investor, but by 2011, he was bankrupt, divorced and had spent two months in a coma. DealBook »

Shareholders Denied Access to Chase Vote Results | In the midst of a closely watched investor vote â€" over whether to separate the roles of chairman and chief executive at JPMorgan Chase â€" the firm providing tabulations of the vote stopped giving voting snapshots to the proposal’s sponsors. DealBook »

• In Role Reversal, Goldman Chief Advises Dimon | It is now Jamie Dimon, not Lloyd Blankfein, who is caught in a harsh public spotlight, seemingly at odds with regulators. DealBook »
• Deal Professor: Dispute at JPMorgan Grows, for All the Wrong Reasons | Steven M. Davidoff says that a proposal to separate the chairman and chief executive positions at JPMorgan Chase has turned into a backdoor referendum on Jamie Dimon. DealBook »
• DealBook Column: Making a Case for One Leader at JPMorgan | Andrew Ross Sorkin says that it may not be popular to say, but the incontrovertible fact remains that JPMorgan Chase has remained one of the best-performing banks on Wall Street under Jamie Dimon. DealBook »
• Chase Vote May Hinge on Director | A vote on whether to split Jamie Dimon’s roles as chief executive and chairman could hinge on whether the board’s lead director is seen as strong enough to stand up to Mr. Dimon. DealBook »

As Larger British Rivals Start to Perk Up, a Heralded Small Bank Stumbles | The Co-operative Bank now has too many risky real estate loans and a buffer against losses that is too thin. Last week, its rating was cut to junk status. DealBook »

Clients Fear Bloomberg Is Becoming Their Rival | Long thought of as a company that serves Wall Street firms, Bloomberg is quietly becoming more like them. DealBook »

Regulatory Pressure Drives Commerzbank to Seek Out New Capital | The German bank will try to raise 2.5 billion euros ($3.2 billion), to protect against future shocks and to help repay a 2009 government bailout. DealBook »

Hess and Hedge Fund End Proxy Fight in Compromise | Hess gave the activist hedge fund Elliott Management three board seats in exchange for the fund’s support of the company’s slate of five directors. DealBook »

• Hedge Fund Rejects Proposal by Hess to End a Proxy Fight | The Hess Corporation offered a concession to an activist investor after the investor’s board nominees waived their rights to a contentious compensation plan. DealBook »

Uninvited Guest Gives Japan a Jolt | How Sony reacts to an American investor’s demands for a breakup could be a test of Japan’s pledge to open up to greater foreign investment. DealBook »

• Sony Meets With an Outspoken Activist Investor, but Courtesy Reigns | Daniel S, Loeb, often caustic dealing with others, had a polite meeting in Tokyo with executives of Sony, where he is trying to engineer a major shake-up. DealBook »
• American Investor Targets Sony for a Breakup | Daniel S. Loeb is said to have plans to press Sony to spin off part of its entertainment arm, including a successful film studio and one of the largest music labels in the world. DealBook »

Ex-BlackRock Manager Said to Be Arrested | Mark Lyttleton, who left BlackRock in London in March, was arrested in the investigation, two people briefed on the matter said. DealBook »

Ex-Hedge Fund Manager Sentenced in Insider Trading Case | Anthony Chiasson, a founder of Level Global Investors, was ordered to pay a $5 million fine and forfeit illegally obtained proceeds of as much as $2 million. DealBook »

Forging Its Own Path, British Hedge Fund Finds Success | Cantab Capital Partners has been turning heads in London and New York with a new fund that aggressively undercuts its competitors on fees. DealBook »

New Accounting Proposal on Leasing Portends Big Change | Proposed changes on reporting leases, backed by the International Accounting Standards Board and the Financial Accounting Standards Board of the United States, are unlikely to satisfy many corporations. DealBook »

Regulators Tighten Rules on Trading of Derivatives | The C.F.T.C. pushed the risky trading into the light of trading platforms, but effectively empowered a handful of select banks to continue controlling the derivative market. DealBook »

• Big Banks Get Break in Rules Limiting Risks | Pressure from big banks led to a compromise that some say could help them maintain their dominance in the market for derivatives contracts. DealBook »

The Trade: Why Fund Managers May Be Right About the Fed | Jesse Eisinger of ProPublica says that what hedge fund investors are expressing should trouble all of us: they have almost no confidence in the Federal Reserve or the economics profession. DealBook »

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‘Before He Cheats’ | Daniel Loeb called for the breakup of Sony. Carrie Underwood has some advice on how to handle an activist investor. YouTube »

SAC Starts to Balk Over Insider Trading Inquiry

9:00 p.m. | Updated The government’s insider trading investigation of the giant hedge fund SAC Capital Advisors entered a more contentious phase this week, with criminal authorities issuing a new round of subpoenas requesting information about the firm’s activities, according to lawyers briefed on the case.

The requests, which numbered more than a dozen, indicate that federal prosecutors and the F.B.I. are intensifying their efforts to build a case against the firm and its executives, including its billionaire founder, Steven A. Cohen, 56.

The government’s newly aggressive posture led to an unusual response from the hedge fund. On Friday, SAC told its investors in a letter that it was no longer fully cooperating with the investigation.

“While we have in the past told you of our cooperation with the government’s investigation, our cooperation is no longer unconditional,” the letter said.

Neither the firm nor Mr. Cohen has been charged with wrongdoing. The hedge fund owner has maintained that he has behaved appropriately at all times.

Still, over the last five years, SAC has been in the cross hairs of the government’s crackdown on illegal trading on Wall Street.

Nine former or current SAC employees have been tied to insider trading while at the fund; four of them have pleaded guilty. Earlier this year, SAC agreed to pay $616 million to settle two civil cases brought against it by the Securities and Exchange Commission, a move seen inside the firm as a major step toward resolving its role in the investigation.

But in recent days, the government signaled that its inquiry into the fund was far from over, if not escalating. The subpoenas asked for numerous trading records related to the buying and selling of specific stocks, as well as other documents, according to the lawyers.

The latest requests were frustrating for Mr. Cohen and his legal team, which led to the decision to take a tougher stand, lawyers briefed on the case said. SAC objected to certain aspects of the subpoenas.

As a result of the new requests, the fund decided that it could no longer provide its investors with updates on the inquiry.

A spokesman for SAC, Jonathan Gasthalter, declined to comment.

“In the past we have tried to be as transparent with you as possible about the state of the investigation, while balancing our desire for transparency with the need to keep the details of a sensitive investigation confidential,” SAC said in the letter sent on Friday to investors.

“During this period, however, the need for confidentiality will limit our ability to share with you details about how the investigation is progressing,” the letter said.

While SAC’s letter highlighted the more aggressive position taken toward the government, the fund also sought to allay its investors’ concerns about the state of the investigation. The firm said it expected that there would be “substantially more clarity” as to the outcome of the investigation in the coming months. It also said that its changed posture toward the inquiry would “not have a financial impact to our funds.”

SAC, which is based in Stamford, Conn., is fighting to keep its clients from withdrawing money from the $15 billion fund. It recently gave its investors an extension to decide whether to withdraw money, pushing back the deadline to June 3 from May 16. Earlier in the year, investors withdrew $1.7 billion from the fund, an amount that equals about 25 percent of the hedge fund’s outside money. (The balance of the fund, which is about $9 billion, consists mostly of Mr. Cohen’s fortune.)

The subpoenas and SAC’s response come as the fund awaits final resolution of the larger of the two civil settlements it struck with the S.E.C. earlier this year. In that case, SAC agreed to pay $602 million to resolve charges related to illegal trading in the pharmaceutical stock Elan and Wyeth. It neither admitted nor denied wrongdoing as part of the settlement.

The settlement requires the approval of the federal judge presiding over the case, Victor Marrero. Last month, he approved the agreement, but conditioned it on a pending decision from a federal appeals court in a case involving Citigroup. Judge Marrero raised concerns with the “neither admit nor deny” language that the regulatory agency includes in many of its settlements, an issue that the appeals court was expected to address in the Citigroup case.

Another concern for the hedge fund involves the two former SAC employees under indictment for insider trading: Mathew Martoma and Michael S. Steinberg. They are fighting the charges, but if either decided to plead guilty and cooperate, they could potentially help the government build its case.

Earlier this month, a judge set Mr. Steinberg’s trial for Nov. 18. Mr. Martoma, who was at the center of the Elan and Wyeth trades, has yet to receive a trial date.

Mr. Cohen directly participated in the questionable Elan and Wyeth trades, which were made in July 2008. Under the five-year statute of limitations for insider trading crimes, the authorities would have to file either criminal charges or a civil case against the hedge fund billionaire related to those trades by mid-July. The government has not said that Mr. Cohen knew any confidential information when he made those trades.

Despite the multitude of distractions, the SAC founder rubbed elbows with celebrities and socialites on Monday night at the Robin Hood Foundation’s annual gala in Manhattan. The benefit, which featured performances by Bono, Sting and Elton John, raised $72 million to fight poverty.

A version of this article appeared in print on 05/18/2013, on page A1 of the National edition with the headline: Hedge Fund Starts to Balk Over Inquiry .

SAC Starts to Balk Over Insider Trading Inquiry

9:00 p.m. | Updated The government’s insider trading investigation of the giant hedge fund SAC Capital Advisors entered a more contentious phase this week, with criminal authorities issuing a new round of subpoenas requesting information about the firm’s activities, according to lawyers briefed on the case.

The requests, which numbered more than a dozen, indicate that federal prosecutors and the F.B.I. are intensifying their efforts to build a case against the firm and its executives, including its billionaire founder, Steven A. Cohen, 56.

The government’s newly aggressive posture led to an unusual response from the hedge fund. On Friday, SAC told its investors in a letter that it was no longer fully cooperating with the investigation.

“While we have in the past told you of our cooperation with the government’s investigation, our cooperation is no longer unconditional,” the letter said.

Neither the firm nor Mr. Cohen has been charged with wrongdoing. The hedge fund owner has maintained that he has behaved appropriately at all times.

Still, over the last five years, SAC has been in the cross hairs of the government’s crackdown on illegal trading on Wall Street.

Nine former or current SAC employees have been tied to insider trading while at the fund; four of them have pleaded guilty. Earlier this year, SAC agreed to pay $616 million to settle two civil cases brought against it by the Securities and Exchange Commission, a move seen inside the firm as a major step toward resolving its role in the investigation.

But in recent days, the government signaled that its inquiry into the fund was far from over, if not escalating. The subpoenas asked for numerous trading records related to the buying and selling of specific stocks, as well as other documents, according to the lawyers.

The latest requests were frustrating for Mr. Cohen and his legal team, which led to the decision to take a tougher stand, lawyers briefed on the case said. SAC objected to certain aspects of the subpoenas.

As a result of the new requests, the fund decided that it could no longer provide its investors with updates on the inquiry.

A spokesman for SAC, Jonathan Gasthalter, declined to comment.

“In the past we have tried to be as transparent with you as possible about the state of the investigation, while balancing our desire for transparency with the need to keep the details of a sensitive investigation confidential,” SAC said in the letter sent on Friday to investors.

“During this period, however, the need for confidentiality will limit our ability to share with you details about how the investigation is progressing,” the letter said.

While SAC’s letter highlighted the more aggressive position taken toward the government, the fund also sought to allay its investors’ concerns about the state of the investigation. The firm said it expected that there would be “substantially more clarity” as to the outcome of the investigation in the coming months. It also said that its changed posture toward the inquiry would “not have a financial impact to our funds.”

SAC, which is based in Stamford, Conn., is fighting to keep its clients from withdrawing money from the $15 billion fund. It recently gave its investors an extension to decide whether to withdraw money, pushing back the deadline to June 3 from May 16. Earlier in the year, investors withdrew $1.7 billion from the fund, an amount that equals about 25 percent of the hedge fund’s outside money. (The balance of the fund, which is about $9 billion, consists mostly of Mr. Cohen’s fortune.)

The subpoenas and SAC’s response come as the fund awaits final resolution of the larger of the two civil settlements it struck with the S.E.C. earlier this year. In that case, SAC agreed to pay $602 million to resolve charges related to illegal trading in the pharmaceutical stock Elan and Wyeth. It neither admitted nor denied wrongdoing as part of the settlement.

The settlement requires the approval of the federal judge presiding over the case, Victor Marrero. Last month, he approved the agreement, but conditioned it on a pending decision from a federal appeals court in a case involving Citigroup. Judge Marrero raised concerns with the “neither admit nor deny” language that the regulatory agency includes in many of its settlements, an issue that the appeals court was expected to address in the Citigroup case.

Another concern for the hedge fund involves the two former SAC employees under indictment for insider trading: Mathew Martoma and Michael S. Steinberg. They are fighting the charges, but if either decided to plead guilty and cooperate, they could potentially help the government build its case.

Earlier this month, a judge set Mr. Steinberg’s trial for Nov. 18. Mr. Martoma, who was at the center of the Elan and Wyeth trades, has yet to receive a trial date.

Mr. Cohen directly participated in the questionable Elan and Wyeth trades, which were made in July 2008. Under the five-year statute of limitations for insider trading crimes, the authorities would have to file either criminal charges or a civil case against the hedge fund billionaire related to those trades by mid-July. The government has not said that Mr. Cohen knew any confidential information when he made those trades.

Despite the multitude of distractions, the SAC founder rubbed elbows with celebrities and socialites on Monday night at the Robin Hood Foundation’s annual gala in Manhattan. The benefit, which featured performances by Bono, Sting and Elton John, raised $72 million to fight poverty.

A version of this article appeared in print on 05/18/2013, on page A1 of the National edition with the headline: Hedge Fund Starts to Balk Over Inquiry .

Week in Review: How to Lose an Activist Investor in 10 Days

An investor aiming for the top, again. | Hess and hedge fund end proxy fight in compromise. | Big banks get break in rules limiting risks. | Shareholders denied access to Chase vote results. | Jesse Eisinger on why fund managers may be right on the Fed. | In role reversal, Goldman chief advises Jamie Dimon. | Clients fear Bloomberg is becoming their rival. | Uninvited guest gives Japan a jolt. | American investor targets Sony for a breakup. | Andrew Ross Sorkin makes a case for one leader at JPMorgan. | Chase vote may hinge on director.

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

Aiming for the Top, Again | Fred Eckert was once a star investor, but by 2011, he was bankrupt, divorced and had spent two months in a coma. DealBook »

Shareholders Denied Access to Chase Vote Results | In the midst of a closely watched investor vote â€" over whether to separate the roles of chairman and chief executive at JPMorgan Chase â€" the firm providing tabulations of the vote stopped giving voting snapshots to the proposal’s sponsors. DealBook »

• In Role Reversal, Goldman Chief Advises Dimon | It is now Jamie Dimon, not Lloyd Blankfein, who is caught in a harsh public spotlight, seemingly at odds with regulators. DealBook »
• Deal Professor: Dispute at JPMorgan Grows, for All the Wrong Reasons | Steven M. Davidoff says that a proposal to separate the chairman and chief executive positions at JPMorgan Chase has turned into a backdoor referendum on Jamie Dimon. DealBook »
• DealBook Column: Making a Case for One Leader at JPMorgan | Andrew Ross Sorkin says that it may not be popular to say, but the incontrovertible fact remains that JPMorgan Chase has remained one of the best-performing banks on Wall Street under Jamie Dimon. DealBook »
• Chase Vote May Hinge on Director | A vote on whether to split Jamie Dimon’s roles as chief executive and chairman could hinge on whether the board’s lead director is seen as strong enough to stand up to Mr. Dimon. DealBook »

As Larger British Rivals Start to Perk Up, a Heralded Small Bank Stumbles | The Co-operative Bank now has too many risky real estate loans and a buffer against losses that is too thin. Last week, its rating was cut to junk status. DealBook »

Clients Fear Bloomberg Is Becoming Their Rival | Long thought of as a company that serves Wall Street firms, Bloomberg is quietly becoming more like them. DealBook »

Regulatory Pressure Drives Commerzbank to Seek Out New Capital | The German bank will try to raise 2.5 billion euros ($3.2 billion), to protect against future shocks and to help repay a 2009 government bailout. DealBook »

Hess and Hedge Fund End Proxy Fight in Compromise | Hess gave the activist hedge fund Elliott Management three board seats in exchange for the fund’s support of the company’s slate of five directors. DealBook »

• Hedge Fund Rejects Proposal by Hess to End a Proxy Fight | The Hess Corporation offered a concession to an activist investor after the investor’s board nominees waived their rights to a contentious compensation plan. DealBook »

Uninvited Guest Gives Japan a Jolt | How Sony reacts to an American investor’s demands for a breakup could be a test of Japan’s pledge to open up to greater foreign investment. DealBook »

• Sony Meets With an Outspoken Activist Investor, but Courtesy Reigns | Daniel S, Loeb, often caustic dealing with others, had a polite meeting in Tokyo with executives of Sony, where he is trying to engineer a major shake-up. DealBook »
• American Investor Targets Sony for a Breakup | Daniel S. Loeb is said to have plans to press Sony to spin off part of its entertainment arm, including a successful film studio and one of the largest music labels in the world. DealBook »

Ex-BlackRock Manager Said to Be Arrested | Mark Lyttleton, who left BlackRock in London in March, was arrested in the investigation, two people briefed on the matter said. DealBook »

Ex-Hedge Fund Manager Sentenced in Insider Trading Case | Anthony Chiasson, a founder of Level Global Investors, was ordered to pay a $5 million fine and forfeit illegally obtained proceeds of as much as $2 million. DealBook »

Forging Its Own Path, British Hedge Fund Finds Success | Cantab Capital Partners has been turning heads in London and New York with a new fund that aggressively undercuts its competitors on fees. DealBook »

New Accounting Proposal on Leasing Portends Big Change | Proposed changes on reporting leases, backed by the International Accounting Standards Board and the Financial Accounting Standards Board of the United States, are unlikely to satisfy many corporations. DealBook »

Regulators Tighten Rules on Trading of Derivatives | The C.F.T.C. pushed the risky trading into the light of trading platforms, but effectively empowered a handful of select banks to continue controlling the derivative market. DealBook »

• Big Banks Get Break in Rules Limiting Risks | Pressure from big banks led to a compromise that some say could help them maintain their dominance in the market for derivatives contracts. DealBook »

The Trade: Why Fund Managers May Be Right About the Fed | Jesse Eisinger of ProPublica says that what hedge fund investors are expressing should trouble all of us: they have almost no confidence in the Federal Reserve or the economics profession. DealBook »

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‘Before He Cheats’ | Daniel Loeb called for the breakup of Sony. Carrie Underwood has some advice on how to handle an activist investor. YouTube »

JPMorgan Chase Vote Tests Stockholders’ Power

Jamie Dimon and the 10 other directors of JPMorgan Chase take the stage in Tampa, Fla., on Tuesday, to face shareholders who can take comfort in a rising stock price and a prospering bank.

But those same shareholders may also deliver a humbling rebuff to Mr. Dimon and the bank’s board.

If shareholders vote to separate the jobs of chairman and chief executive â€" positions that Mr. Dimon has held since 2006 â€" it would signal a shift in the balance of power in corporate America, an inflection point in shareholders’ push for greater say in the boardroom.

Shareholder protests at large companies are usually successful only at those that are troubled or whose stock price has disappointed.

But JPMorgan, even after suffering a multibillion-dollar trading loss that exposed weak risk controls and spurred federal investigations, is minting profits quarter after quarter. And its stock price is up 19 percent this year.

A victory against a bank that prides itself on its “fortress balance sheet” would go a long way toward proving that shareholders can push for changes even at strong companies.

“It’s a fascinating moment in the arc of corporate governance, where shareholders are poised to get a lot of power,” said Charles M. Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware.

Raising the stakes, of course, is the presence of Mr. Dimon, the brash chief executive who successfully piloted JPMorgan through the tumultuous 2008 financial crisis. For better or for worse, Mr. Dimon, 57, has come to epitomize the American banker atop an institution that is too big to fail.

If JPMorgan shareholders reject the proposal â€" which would not require the bank to act in any case â€" it will be a powerful endorsement of Mr. Dimon and his leadership.

In addition, it will help JPMorgan, which has been aggressively working behind the scenes to avert defeat, to move beyond the fallout from the trading loss.

Regardless of the outcome of the fight, it is likely that the JPMorgan board will make some changes, possibly by shaking up its risk committee or giving its lead director greater power.

Last week, shareholder groups sponsoring the split were cut off from crucial preliminary vote tallies by the firm that provides them, causing the sponsors to cry foul.

New York State’s attorney general, Eric T. Schneiderman, late on Friday sent a letter to Stephen M. Cutler, JPMorgan’s general counsel, that raised serious concerns about why the tallies were cut off, according to two people with knowledge of the matter.

After a series of conference calls on Saturday between lawyers for JPMorgan and the attorney general’s office, JPMorgan agreed to direct a firm that provides early tabulations to restart the tallies.

For investors who argue that an independent chairman is a vital counterbalance to a chief executive, defeat of the resolution would be a significant setback.

After receiving the backing of 40 percent of shares for a similar proposal last year, a small group of JPMorgan shareholders was emboldened to introduce a new resolution in February.

Since then, support for splitting the positions has grown, stoked in part by revelations of JPMorgan’s continued regulatory missteps.

A Senate hearing and a 300-page report on the multibillion-dollar trading loss at the bank’s chief investment office in London last year accused the bank of misleading investors and regulators about the botched trades.

In addition to the investigations into the trading losses, there have been inquiries into whether JPMorgan failed to fully alert authorities to suspicions about Bernard L. Madoff and into the bank’s trading practices in two electricity markets.

In January, one of its primary regulators, the Office of the Comptroller of the Currency, took an enforcement action against the bank over weak controls against money laundering, faulting JPMorgan for failing to report suspicious flows of money.

Now, the agency is considering fresh enforcement actions against JPMorgan over the way the bank goes after customers for overdue credit card bills. All told, at least eight federal agencies are investigating the bank.

The regulatory tangle puts Mr. Dimon and JPMorgan, which used to hold special sway in Washington, in a tough position.

Even Mr. Dimon’s contrite tone â€" he apologized in a recent letter to shareholders for letting “our regulators down” and pledging to “do all the work necessary to complete the needed improvements” â€" hasn’t seemed to slow the effort by shareholders supporting the proposal for an independent chairman.

A steady stream of departures from JPMorgan’s upper ranks has also proved to be a boost for the shareholders pushing for a split. The most recent high-level departure came in April, when Frank J. Bisignano, JPMorgan’s co-chief operating officer and an executive hailed within the bank as an operational wizard, left to become chief executive of the First Data Corporation.

Some executives have been driven out by the trading loss, while others have simply departed. The outcome, though, is the same. Mr. Dimon’s inner circle, the group of lieutenants that helped him steer the bank through the financial crisis, has been significantly winnowed down: only three remain from the crisis era.

Even as Mr. Dimon has taken an apologetic tone with regulators, he continues to emphasize JPMorgan’s strength and the qualities of its upper management, according to investors who have met with him in recent weeks.

The board, however, may decide that changes are needed, and move to overhaul its risk policy committee. Led by Lee R. Raymond, a former chief executive of Exxon Mobil who acts as the lead director, the board has so far fended off calls from major investors for such a shake-up.

But those calls gained strength when an influential shareholder advisory firm, Institutional Shareholder Services, or I.S.S., urged shareholders to withhold support for three directors who serve on the risk policy committee â€" David M. Cote, James S. Crown and Ellen V. Futter.

The directors, I.S.S. said in a report released this month, “lack robust industry-specific experience” and the mishaps that have accumulated during the last year have only “demonstrated their unsuitability.”

JPMorgan and Mr. Raymond have vigorously defended the three directors, noting that they had served on the risk committee when the bank navigated through the financial crisis. In a previous statement about the losses in its chief investment office, JPMorgan said: “While the company has acknowledged a number of mistakes relating to its losses in C.I.O., an independent review committee of the board determined that those mistakes were not attributable to the risk committee.”

Still, the recommendation from I.S.S. held particular force, some investors say, because the advisory firm noted in its report that it opposed directors only in “extraordinary circumstances.”

It is also possible the board will move to bolster the powers of Mr. Raymond, as Goldman did with its lead director this year. This will assuage some shareholders seeking a stronger counterbalance to Mr. Dimon and could take some of the air out of any attempts next year to split the roles.

“You have to do something to appease shareholders,” said a person close to the board. “Otherwise there will be more trouble down the road.”

Yahoo Is Said to Have Reached a Deal for Tumblr

Yahoo’s board has agreed to buy the popular blogging service Tumblr for about $1.1 billion in cash, people with knowledge of the agreement said on Sunday, Nick Bilton and Michael J. de la Merced report in The New York Times. It is the biggest acquisition yet under Yahoo’s chief executive, Marissa Mayer. Read more »

Hedge Fund Owner Gets Subpoena to Testify

Steven A. Cohen has received a subpoena to testify before a grand jury in the government’s insider trading investigation into his hedge fund, SAC Capital Advisors, a development that signals a newly aggressive phase in the multiyear inquiry, according to lawyers and executives briefed on the case.

Issued last week, the grand jury subpoena came as part of a broader round of requests from criminal authorities. Other SAC executives were also named in the subpoenas, the lawyers and executives said, and the fund itself received requests for information about its activities.

The subpoenas suggested that federal prosecutors and the F.B.I. are intensifying their efforts to build a case, not only against SAC executives, but also the fund itself. Typically, a grand jury will hear testimony and review evidence before deciding to approve an indictment.

But the fund, which has so far cooperated with the government’s inquiry, appeared to balk at some of these new requests. On Friday, SAC told its investors that it was no longer fully cooperating with the investigation.

“While we have in the past told you of our cooperation with the government’s investigation, our cooperation is no longer unconditional,” said a letter from SAC to its investors.

The curbing of the fund’s cooperation appeared to suggest that Mr. Cohen, rather than testify before the grand jury and be subject to questions from prosecutors on a broad range of topics, would assert his constitutional right against self-incrimination, the lawyers briefed on the case said.

In the past, however, Mr. Cohen has given testimony in the government’s investigation. Last year, he sat for a civil deposition taken by federal securities regulators in an investigation of Mathew Martoma, a former SAC portfolio manager who has been since criminally charged with illegally trading pharmaceutical stocks.

A spokesman for SAC, Jonathan Gasthalter, declined to comment.

A spokesman for the F.B.I. in New York, J. Peter Donald, and a spokeswoman for the United States attorney’s office in Manhattan, Ellen Davis, both declined to comment about the case.

Neither the firm nor Mr. Cohen, a 56-year-old billionaire who owns it, has been charged with wrongdoing. Mr. Cohen has maintained that he has behaved appropriately at all times.

SAC, which is based in Stamford, Conn., manages roughly $15 billion and has one of the best investment track records on Wall Street, posting an average of 30 percent annual net returns to its investors over the last two decades.

Unlike most hedge funds, which are leanly staffed and typically have one person directing most of the investment decisions, SAC is a sprawling operation, with more than 1,000 employees â€" portfolio managers, analysts, traders and support staff â€" in five offices around the world. Despite SAC’s superior performance, the legal toll is mounting. Nine former or current SAC employees have been tied to insider trading while at the firm. Four of those employees have pleaded guilty, and two others, Mr. Martoma and Michael S. Steinberg, are fighting the criminal charges against them.

Even before the new subpoenas it was a delicate time for the hedge fund, which is trying to keep its investors from withdrawing their money. This new front in the case could give investors additional cause for concern.

SAC investors have already asked to withdraw $1.7 billion, more than a quarter of the $6 billion that the fund manages for outside clients. The balance of the fund’s $15 billion belongs to Mr. Cohen and his employees. To grant investors more time to decide whether to stick with the fund, SAC extended the next regularly scheduled deadline for SAC clients to ask for their money back from last week to early June.

SAC and its lawyers believed that it had put the most serious of its legal problems behind it earlier this year when agreeing to pay a record $616 million penalty to resolve two civil insider-trading lawsuits brought by the Securities and Exchange Commission. Those settlements involved the trading that led to charges against Mr. Martoma and Mr. Steinberg.

But the government surprised Mr. Cohen and his firm by opening up this new chapter of the investigation.

Several weeks ago, federal prosecutors brought SAC’s lawyers in for a meeting at their offices in Lower Manhattan. More than a dozen government officials attended the session, led by Richard Zabel, the deputy United States attorney in Manhattan, according to a person briefed on the case. Prosecutors peppered SAC’s lawyers with questions about Mr. Cohen and the firm’s trading practices. Ultimately, the government decided to issue the grand jury subpoena.

By subpoenaing Mr. Cohen, the government indicated that it was pursuing a case against SAC itself. Federal guidelines discourage prosecutors from soliciting grand jury testimony from the target of an investigation, which suggests that Mr. Cohen was being treated as if he were a potential witness against his own fund.

While the authorities have not settled on a strategy, according to the lawyers and executives briefed on the case, they are pursuing an avenue that could possibly lead to an indictment against SAC, accusing it of allowing traders to carry out illicit activity over years.

But charges against companies are exceedingly rare. Enron’s accounting firm, Arthur Andersen, went out of businesses after it was indicted in 2002, taking 28,000 jobs with it. (The firm’s subsequent conviction was overturned by the Supreme Court.) The episode served as a cautionary tale for prosecutors as they pursue indictments against companies, rather than executives.

Federal guidelines require them to weigh such action with “collateral consequences” like job losses and, in the case of big banks, a threat to the economy. An indictment against a hedge fund like SAC, however, would not destabilize the financial system the way that a prosecution of a large bank potentially could.

The government still faces challenges in its case. For one, the move could be interpreted as a last-ditch effort to ensnare Mr. Cohen. Mr. Martoma and Mr. Steinberg have pleaded not guilty and refused to cooperate with the government in helping them build an insider-trading case against Mr. Cohen. And under the five-year statute of limitations for insider trading crimes, the authorities would have to file either criminal charges or a civil case against Mr. Cohen related to most of trades at issue in the Martoma and Steinberg cases by this summer.

By seeking Mr. Cohen’s testimony, federal prosecutors could be trying to get him lie before the grand jury, legal experts say. This way, they could try to charge him with perjury instead of insider trading, which was a similar tack that the government took in its criminal case against the media personality Martha Stewart.

As a result of the new requests, SAC decided that it could no longer provide its investors with updates on the inquiry.

“In the past we have tried to be as transparent with you as possible about the state of the investigation, while balancing our desire for transparency with the need to keep the details of a sensitive investigation confidential,” SAC said in the letter sent on Friday to investors.

“During this period, however,” the letter said, “the need for confidentiality will limit our ability to share with you details about how the investigation is progressing.”

The Tumblr and Instagram Deals: A Tale of the Tape

By agreeing to buy Tumblr for about $1.1 billion, Yahoo has struck the biggest social media deal in years, putting it up against Facebook‘s $1 billion* acquisition of Instagram.

But who got the better deal?

Let’s take a look at what each company acquired through its deal-making.

Instagram

• Founded in 2010
• Roughly 30 million users at the time of the acquisition
• 13 employees
• Approximately zero revenue
• Last pre-deal fundraising round valued company at $500 million
• Investors included Sequoia Capital, Thrive Capital and Greylock Capital

Tumblr

• Founded in 2007
• About 108.4 million blogs
• 175 employees
• About $13 million in revenue in 2012
• Last pre-deal fundraising round valued company at about $800 million
• Investors included Spark Capital, Union Square Ventures and Sequoia Capital

*(Because the offer was in cash and stock, and the value of Facebook shares fell, the deal ended up being worth closer to $700 million.)