4 SAC Executives Subpoenaed in Insider Trading Inquiry

Four senior executives of the hedge fund SAC Capital Advisors have received subpoenas to testify before a grand jury as part of the government's intensifying investigation into insider trading at the firm, according to people briefed on the case.

The executives were issued subpoenas last week, along with the one served on Steven A. Cohen, the owner of SAC. The executives are Thomas Conheeney, the firm's president; Solomon Kumin, its chief operating officer; Steven Kessler, chief compliance officer; and Phillip Villhauer, the head of trading.

The fresh round of subpoenas, which also included requests for additional documents and trading records, angered officials at SAC, which had been fully cooperating in the multiyear inquiry. As a result of the government's new set of demands, the fund decided to take a more combative stance, and on May 17 informed its investors that it was no longer fully cooperating with the investigation.

Lawyers have advised Mr. Cohen against testifying before a grand jury and subjecting himself to unlimited questioning on virtually any topic. Instead, he is expected to assert his constitutional right against self-incrimination, lawyers briefed on the case said. Mr. Cohen, who last year gave testimony to federal securities regulators as part of a civil insider trading case, has not been accused of any wrongdoing.

It was unclear whether Mr. Cohen's executive team would also refuse to testify.

“We don't think it is unusual that in this investigation the government would interview our senior executives about how the firm operates,” said Jonathan Gasthalter, an SAC spokesman.

The Wall Street Journal earlier reported the names of the SAC executives.

Prosecutors are pressing their case against SAC after about six years of investigating the firm's trading practices. The investigation has yielded four guilty pleas from former SAC traders; at least five other former employees have been tied to insider trading while at the firm. Earlier this year, SAC agreed to pay a $616 million penalty to resolve two civil insider trading actions brought against the firm related to questionable trading in pharmaceutical and technology stocks.

The government's new requests indicated that prosecutors were stepping up their efforts to build a case against the fund itself. Typically, a grand jury hears testimony and reviews evidence before handing up an indictment.

However, the grand jury subpoenas delivered to Mr. Cohen and the other four executives suggested that they were not targets of the investigation, as Justice Department guidelines discourage prosecutors from seeking testimony from individuals they are seeking to charge.

The requested testimony, however, could relate to potential charges against the firm connected to trades made in July 2008 in the shares of the drug makers Elan and Wyeth. Prosecutors have already criminally charged Mathew Martoma, a former portfolio manager at SAC, with helping the fund gain profits and avoid losses of $276 million by corrupting a doctor into giving him secret data about clinical trials being conducted by the two companies.

Because of the five-year deadline to file securities fraud charges, prosecutors have until mid-July to bring a case against the firm related to those trades.

Mr. Villhauer, the head of trading at SAC, played a major role in executing those trades, as did Mr. Cohen, according to court filings. Neither of them have been charged with any wrongdoing, nor have they been accused of possessing the confidential information when making the trades.

Mr. Conheeney, the president, is one of SAC's longest-serving employees, and along with Mr. Kumin handles much of its day-to-day operations so Mr. Cohen can focus on trading. They have helped drive SAC's growth from a small hedge fund with a few dozen traders based in Stamford, Conn., to a global investment firm with more than 1,000 employees and offices around the world.

As head of SAC's compliance department, Mr. Kessler oversees the firm's internal regulatory regime, which seeks to ensure that the fund complies with federal securities laws and other trading rules. He joined SAC in 2005 from the legal department of Goldman Sachs.

In recent months, Mr. Kessler has been among the SAC executives who have tried to reassure the firm's concerned investors. Already this year, investors have asked for $1.7 billion back from the $15 billion fund. (Mr. Cohen's fortune accounts for roughly $9 billion of the total.) In client presentations and conference calls, Mr. Kessler and his colleagues have emphasized that despite its central role in the government's insider trading investigation, the firm has a strong culture of compliance and some of the hedge fund industry's best practices in this area.

SAC is steeling itself for additional withdrawal requests from its investors before a June 3 deadline.

A version of this article appeared in print on 05/24/2013, on page B3 of the NewYork edition with the headline: 4 SAC Executives Subpoenaed in Insider Trading Inquiry.

Banks\' Lobbyists Help in Drafting Financial Bills

WASHINGTON - Bank lobbyists are not leaving it to lawmakers to draft legislation that softens financial regulations. Instead, the lobbyists are helping to write it themselves.

One bill that sailed through the House Financial Services Committee this month - over the objections of the Treasury Department - was essentially Citigroup's, according to e-mails reviewed by The New York Times. The bill would exempt broad swathes of trades from new regulation.

In a sign of Wall Street's resurgent influence in Washington, Citigroup's recommendations were reflected in more than 70 lines of the House committee's 85-line bill. Two crucial paragraphs, prepared by Citigroup in conjunction with other Wall Street banks, were copied nearly word for word. (Lawmakers changed two words to make them plural.)

The lobbying campaign shows how, three years after Congress passed the most comprehensive overhaul of regulation since the Depression, Wall Street is finding Washington a friendlier place.

The cordial relations now include a growing number of Democrats in both the House and the Senate, whose support the banks need if they want to roll back parts of the 2010 financial overhaul, known as Dodd-Frank.

This legislative push is a second front, with Wall Street's other battle being waged against regulators who are drafting detailed rules allowing them to enforce the law.

And as its lobbying campaign steps up, the financial industry has doubled its already considerable giving to political causes. The lawmakers who this month supported the bills championed by Wall Street received twice as much in contributions from financial institutions compared with those who opposed them, according to an analysis of campaign finance records performed by MapLight, a nonprofit group.

In recent weeks, Wall Street groups also held fund-raisers for lawmakers who co-sponsored the bills. At one dinner Wednesday night, corporate executives and lobbyists paid up to $2,500 to dine in a private room of a Greek restaurant just blocks from the Capitol with Representative Sean Patrick Maloney, Democrat of New York, a co-sponsor of the bill championed by Citigroup.

Industry officials acknowledged that they played a role in drafting the legislation, but argued that the practice was common in Washington. Some of the changes, they say, have gained wide support, including from Ben S. Bernanke, the Federal Reserve chairman. The changes, they added, were in an effort to reach a compromise over the bills, not to undermine Dodd-Frank.

“We will provide input if we see a bill and it is something we have interest in,” said Kenneth E. Bentsen Jr., a former lawmaker turned Wall Street lobbyist, who now serves as president of the Securities Industry and Financial Markets Association, or Sifma.

The close ties hardly surprise Wall Street critics, who have long warned that the banks - whose small armies of lobbyists include dozens of former Capitol Hill aides - possess outsize influence in Washington.

“The huge machinery of Wall Street information and analysis skews the thinking of Congress,” said Jeff Connaughton, who has been both a lobbyist and Congressional staff member.

Lawmakers who supported the industry-backed bills said they did so because the effort was in the public interest. Yet some agreed that the relationship with corporate groups was at times uncomfortable.

“I won't dispute for one second the problems of a system that demands immense amount of fund-raisers by its legislators,” said Representative Jim Himes, a third-term Democrat of Connecticut, who supported the recent industry-backed bills and leads the party's fund-raising effort in the House. A member of the Financial Services Committee and a former banker at Goldman Sachs, he is one of the top recipients of Wall Street donations. “It's appalling, it's disgusting, it's wasteful and it opens the possibility of conflicts of interest and corruption. It's unfortunately the world we live in.”

The passage of the Dodd-Frank Act, which took aim at culprits of the financial crisis like lax mortgage lending and the $700 trillion derivatives market, ushered in a new phase of Wall Street lobbying. Over the last three years, bank lobbyists have blitzed the regulatory agencies writing rules under Dodd-Frank, chipping away at some regulations.

But the industry lobbyists also realized that Congress can play a critical role in the campaign to mute Dodd-Frank.

The House Financial Services Committee has been a natural target. Not only is it controlled by Republicans, who had opposed Dodd-Frank, but freshmen lawmakers are often appointed to the unusually large committee because it is seen as a helpful base from which they can raise campaign funds.

For Wall Street, the committee is a place to push back against Dodd-Frank. When banks and other corporations, for example, feared that regulators would demand new scrutiny of derivatives trades, they appealed to the committee. At the time, regulators were completing Dodd-Frank's overhaul of derivatives, contracts that allow companies to either speculate in the markets or protect against risk. Derivatives had pushed the insurance giant American International Group to the brink of collapse in 2008. The question was whether regulators would exempt certain in-house derivatives trades between affiliates of big banks.

As the House committee was drafting a bill that would force regulators to exempt many such trades, corporate lawyers like Michael Bopp weighed in with their suggested changes, according to e-mails reviewed by The Times. At one point, when a House aide sent a potential compromise to Mr. Bopp, he replied with additional tweaks.

In an interview, Mr. Bopp explained that he drafted the proposal at the request of Congressional aides, who expressed broad support for the change. The proposal, he explained, was a “compromise” that was actually designed to “limit the scope” of the exemption.

“Everyone on the Hill wanted this bill, but they wanted to make sure it wasn't subject to abuse,” said Mr. Bopp, a partner at the law firm Gibson, Dunn who was representing a coalition of nonfinancial corporations that use derivatives to hedge their risk.

Ultimately, the committee inserted every word of Mr. Bopp's suggestion into a 2012 version of the bill that passed the House, save for a slight change in phrasing. A later iteration of the bill, passed by the House committee earlier this month, also included some of the same wording.

And when federal regulators in April released a rule governing such trades, it was significantly less demanding than the industry had feared, a decision that the industry partly attributed to pressure stemming from Capitol Hill.

Citigroup and other major banks used a similar approach on another derivatives bill. Under Dodd-Frank, banks must push some derivatives trading into separate units that are not backed by the government's insurance fund. The goal was to isolate this risky trading.

The provision exempted many derivatives from the requirement, but some Republicans proposed striking the so-called push out provision altogether. After objections were raised about the Republican plan, Citigroup lobbyists sent around the bank's own compromise proposal that simply exempted a wider array of derivatives. That recommendation, put forth in late 2011, was largely part of the bill approved by the House committee on May 7 and is now pending before both the Senate and the House.

Citigroup executives said the change they advocated was good for the financial system, not just the bank.

“This view is shared not just by the industry but from leaders such as Federal Reserve Chairman Ben Bernanke,” said Molly Millerwise Meiners, a Citigroup spokeswoman.

Industry executives said that the changes - which were drafted in consultation with other major industry banks - will make the financial system more secure, as the derivatives trading that takes place inside the bank is subject to much greater scrutiny.

Representative Maxine Waters, the ranking Democrat on the Financial Services Committee, was among the few Democrats opposing the change, echoing the concerns of consumer groups.

“The bill restores the public subsidy to exotic Wall Street activities,” said Marcus Stanley, the policy director of Americans for Financial Reform, a nonprofit group.

But most of the Democrats on the committee, along with 31 Republicans, came to the industry's defense, including the seven freshmen Democrats - most of whom have started to receive donations this year from political action committees of Goldman Sachs, Wells Fargo and other financial institutions, records show.

Six days after the vote, several freshmen Democrats were in New York to meet with bank executives, a tour organized by Representative Joe Crowley, who helps lead the House Democrats' fund-raising committee. The trip was planned before the votes, and was not a fund-raiser, but it gave the lawmakers a chance to meet with Wall Street's elite.

In addition to a tour of Goldman's Lower Manhattan headquarters, and a meeting with Lloyd C. Blankfein, the bank's chief executive, the lawmakers went to JPMorgan's Park Avenue office. There, they chatted with Jamie Dimon, the bank's chief, about Dodd-Frank and immigration reform.

The bank chief also delivered something of a pep talk.

“America has the widest, deepest and most transparent capital markets in the world,” he said. “Washington has been dealt a good hand.”

Eric Lipton reported from Washington, and Ben Protess from New York.

A version of this article appeared in print on 05/24/2013, on page A1 of the NewYork edition with the headline: Banks' lobbyists Help in Drafting Bills on Finance.

S.E.C. Changes Continue as Obama Names 2 Senate Aides for Posts

President Obama continued his shake-up of the Securities and Exchange Commission on Thursday, naming two Senate aides to senior posts at the Wall Street regulatory agency.

The nominees to the five-member agency are Kara M. Stein, a Democrat, and Michael Piwowar, a Republican. If confirmed by the Senate, they will succeed commissioners whose terms are set to expire.

The move comes just months after Mr. Obama named Mary Jo White, a former federal prosecutor turned Wall Street defense lawyer, to be chairwoman of the agency. In recent weeks, Ms. White has started to overhaul the staff, naming co-heads of the agency's enforcement unit, new leaders of other major divisions and her own chief of staff. She also hired a general counsel, Anne K. Small, who rejoined the S.E.C. from the White House.

The transition period has coincided with challenges for the agency, which has fallen far behind its rule-making responsibilities. Nearly three years after Congress passed the Dodd-Frank Act, the overhaul of Wall Street regulation, the S.E.C. has carried out only a small fraction of the changes.

The possible arrival of Ms. Stein and Mr. Piwowar could add to some delays as they settle into the agency. Yet the nominees are hardly strangers to the S.E.C.'s business.

Ms. Stein is an aide to Senator Jack Reed, a Rhode Island Democrat who is a senior member of the Senate Banking Committee, which oversees the S.E.C. Mr. Piwowar is the committee's Republican chief economist.

In a statement late Thursday, the committee chairman, Tim Johnson, expressed support for both nominees. “I look forward to moving both their nominations forward to ensure the commission continues to operate at full strength,” said Mr. Johnson, Democrat of South Dakota.

An Agreement Opens Some Chinese Audit Papers to the U.S.

Accounting regulators in the United States and China announced on Friday in Beijing that they had reached an understanding that could give American fraud investigators access to work papers of Chinese audit firms. Until now, American efforts to see such papers have been rejected.

The memorandum of understanding was signed by the China Securities Regulatory Commission and the Ministry of Finance for China, and by the Public Company Accounting Oversight Board for the United States.

“This agreement with China is an important step toward cross-border enforcement cooperation that is necessary to protect the interests of investors in U.S. capital markets,” said James R. Doty, the chairman of the American group.

Whether the agreement will result in more cooperation remains to be seen, however. China retained the right to reject requests if they violated Chinese law or “essential national interest.”

In addition, the agreement covers only enforcement actions, not routine inspections of audit firms.

In an interview, Mr. Doty called the agreement “the culmination of years of effort” and voiced hope that progress could be made this year on arranging joint inspections of Chinese audit firms by the two countries. He said it could lead to cooperation that would be equal to that now provided by European authorities.

Under the Sarbanes-Oxley Act passed in 2002, accounting firms that are involved in the auditing of companies whose securities are sold to the public in the United States must register with the American board and submit to inspections by it. Many Chinese firms have registered, but no inspections have taken place. In addition, the Securities and Exchange Commission has sought work papers from Chinese audit firms as it investigated a string of frauds but has been turned down because the firms said they would be violating Chinese law if they turned over the papers.

Mr. Doty said that the inspectors from his board had been able to “observe the quality control reviews” of Chinese firms, made by Chinese regulators, but had not been able to observe reviews of actual audits.

Under the new memorandum, he said, if the board is investigating a potential fraud, it will be able to ask for papers from the Chinese audit firm through the Chinese regulators. The securities commission regulates the larger firms, but many smaller ones are regulated by the finance ministry. The regulator would then decide whether to forward them to the American inspectors.

If such papers are supplied to the United States board, they could then be obtained by the S.E.C. But the board cannot investigate other types of violations of securities laws, like insider trading, and therefore could not seek documents related to other investigations.

The American board has the power to revoke the registrations of firms that cannot be inspected, but it has not chosen to do so with overseas auditors and probably would not do so without approval of the Treasury Department. Mr. Doty said that such an action had not been ruled out, however, if additional progress was not made.

A version of this article appeared in print on 05/24/2013, on page B7 of the NewYork edition with the headline: A Deal Opens Some Chinese Audit Papers to the U.S..

P.&G. Chief Is Out

P.&G. CHIEF IS OUT  |  Procter & Gamble, a company that is one of the biggest holdings of the hedge fund manager William A. Ackman, said on Thursday that its chief executive, Robert A. McDonald, had resigned. Mr. McDonald is being succeeded by his predecessor, Alan G. Lafley, The New York Times's Michael J. de la Merced reports.

Mr. Ackman, who is known for publicly challenging management teams, had criticized Mr. McDonald for the company's poor stock performance. Mr. McDonald, 59, who had worked at the company for 33 years and became chief executive and president in 2009, notified the board a few days ago of his decision to retire, a P.& G. spokesman, Paul Fox, said, adding that the decision was not spurred by pressure from company directors. The stock price rose modestly in after-hours trading following the announcement. Mr. Ackman's Pershing Square Capital has 27.9 million shares, worth nearly $2.2 billion as of Thursday.

“As we've said all along, we have confidence in the board of Procter & Gamble to do the right thing for the company and the shareholders,” Mr. Ackman said in a brief telephone interview on Thursday. In a memo to vendors, Mr. McDonald said, according to The Wall Street Journal: “When we get to a point where too much attention becomes a distraction, it's time to change that dynamic.”

4 SAC EXECUTIVES SUBPOENAED  |  “Four senior executives of the hedge fund SAC Capital Advisors have received subpoenas to testify before a grand jury as part of the government's intensifying investigation into insider trading at the firm, according to people briefed on the case,” DealBook's Peter Lattman reports. “The executives were issued subpoenas last week, along with the one served on Steven A. Cohen, the owner of SAC. The executives are Thomas Conheeney, the firm's president; Solomon Kumin, its chief operating officer; Steven Kessler, chief compliance officer; and Phillip Villhauer, the head of trading.”

The round of subpoenas angered SAC, which had been fully cooperating in the inquiry, Mr. Lattman reports. The fund on May 17 informed investors it was no longer fully cooperating with the investigation. “We don't think it is unusual that in this investigation the government would interview our senior executives about how the firm operates,” said Jonathan Gasthalter, an SAC spokesman.

WHEN LOBBYISTS HELP WRITE BILLS  |  In a push to soften financial regulations, bank lobbyists are helping lawmakers draft legislation, Eric Lipton and Ben Protess report in DealBook. “One bill that sailed through the House Financial Services Committee this month - over the objections of the Treasury Department - was essentially Citigroup's, according to e-mails reviewed by The New York Times. The bill would exempt broad swathes of trades from new regulation.”

“In a sign of Wall Street's resurgent influence in Washington, Citigroup's recommendations were reflected in more than 70 lines of the House committee's 85-line bill. Two crucial paragraphs, prepared by Citigroup in conjunction with other Wall Street banks, were copied nearly word for word. (Lawmakers changed two words to make them plural.)”

ON THE AGENDA  |  Data on durable goods orders for April is out at 8:30 a.m. Abercrombie & Fitch reports earnings before the market opens. Thomas Lee, JPMorgan Chase's chief United States equity strategist, is on Bloomberg TV at 9:15 a.m. Richard Branson of the Virgin Group is on CNBC at 10:40 a.m.

CONGRESSIONAL CONCERN OVER SOFTBANK'S BID FOR SPRINT  |  With SoftBank of Japan looking to buy a majority stake in Sprint Nextel, Senator Charles E. Schumer of New York asked government regulators on Thursday to review the Asian company's ties to Chinese telecommunications equipment makers, a sign that Congressional concern over the proposed deal is growing, Mr. de la Merced writes. Mr. Schumer urged the Treasury Department and the Federal Communications Commission to consider the widespread attacks by Chinese hackers. “The protection of our critical infrastructure is a topic of intense legislative scrutiny,” the Democratic senator wrote in the letter, which was reviewed by a reporter for the The New York Times. He asked the two agencies to take a close look “to ensure that our nation's secur ity is not placed at risk.”

Mergers & Acquisitions '

Google, Too, Is Said to Be Looking at Waze  |  Google “is considering buying map-software provider Waze Inc., setting up a possible bidding war with Facebook Inc.,” which also had been reported to be interested in the company, Bloomberg News reports.
BLOOMBERG NEWS

Yet Another Corporate Tax Maneuver  |  While many people were paying attention to Apple, there was a “surreptitious thrust at tax minimization” contained in the news release about the deal by Actavis to acquire Warner Chilcott, Steven Rattner writes in The New York Times.
NEW YORK TIMES

Dish Moves to Arrange Financing for Sprint Bid  |  Dish Network “took one step closer to arranging $9 billion in committed financing” for its proposed $25.5 billion takeover of Sprint Nextel, according to The Wall Street Journal.
WALL STREET JOURNAL

Yahoo's Design Chief Is Leaving  | 
NEW YORK TIMES BITS

Campbell Soup to Buy Plum Organics, Baby Food Maker  | 
REUTERS

Rue21 to Sell Itself to Apax for $1.1 Billion  |  The leveraged buyout caps the resurgence of rue21, a seller of cheap, trendy clothing for teenagers that had filed for bankruptcy in 2002 and re-emerged the next year. In recent years, its stock has surged.
DealBook '

Retailers Attract Private Equity Buyers  |  “While rue21 is an attempt to capture rising sales, other potential private equity deals for department stores, such as Saks Fifth Avenue, would be about squeezing greater efficiency out of more mature businesses,” The Financial Times writes.
FINANCIAL TIMES

INVESTMENT BANKING '

A Rush to Recruit Young Analysts  |  For Wall Street's top young analysts, landing at a prestigious investment bank out of college was the easy part. Now comes the fierce competition to line up a high-paying job at a prominent buyout fund.
DealBook '

At Goldman, an Increased Emphasis on Reputation  |  Goldman Sachs “linked bonuses and promotions to employees' success in protecting the firm's reputation and put new restrictions on some client transactions to avoid a repeat of the damage to its standing in the wake of the financial crisis,” Bloomberg News writes.
BLOOMBERG NEWS

Swiss Banking Secrecy Is Under Pressure  |  The New York Times writes: “Now that Luxembourg and Austria have given ground on bank secrecy rules, the spotlight has turned to Switzerland, a country famous for the anonymity it provides in equal measure to the rich, the famous and those who want to hide their money.”
NEW YORK TIMES

Warm Welcome at Deutsche Bank Meeting, Followed by Rancor  |  The annual Deutsche Bank shareholders meeting began with applause for Anshu Jain, the bank's co-chief executive, but attention quickly turned to the myriad problems that the bank has been trying to shake.
DealBook '

PRIVATE EQUITY '

Icahn Said to Seek Financing for Dell Proposal  |  “Carl Icahn and Southeastern Asset Management Inc have initiated talks with banks and asset managers to line up commitments for as much as $7 billion in bridge loans to back their leveraged recapitalization proposal for Dell,” Reuters reports, citing unidentified “banking sources.”
REUTERS

British Firm 3i Offers to Buy Barclays Fund Business  |  The British private equity firm 3i said it made an offer to buy Barclays' European infrastructure fund business, Bloomberg News reports.
BLOOMBERG NEWS

HEDGE FUNDS '

Remarks About Women Were ‘Off the Cuff,' Jones Says  |  The hedge fund billionaire Paul Tudor Jones offered an explanation of controversial remarks that surfaced in a video published by The Washington Post.
BLOOMBERG NEWS

Goldman Sachs Provides Seed Capital to New Hedge Fund  | 
ABSOLUTE RETURN

I.P.O./OFFERINGS '

Tremor Video Files for I.P.O.  |  The video advertising company Tremor, which competes with Facebook, Hulu and Google, is looking to raise up to $86.3 million in an I.P.O.
REUTERS

VENTURE CAPITAL '

With New Feature, Twitter Lets Brands Reach TV Watchers  |  The new product, Twitter Amplify, uses commentary on Twitter to help brands send messages to selected people who have likely seen their ad on television, The New York Times reports.
NEW YORK TIMES

LEGAL/REGULATORY '

S.E.C. Changes Continue as Obama Names 2 Senate Aides for Posts  |  The nominees, Kara Stein and Michael Piwowar, are familiar with the Wall Street regulatory agency's business through their work.
DealBook '

I.S.S. Settles Investigation Into Leaks of Shareholder Vote Data  |  Institutional Shareholder Services agreed to settle civil charges that it failed to prevent an employee from improperly selling confidential investor vote data.
DealBook '

An Agreement Opens Some Chinese Audit Papers to the U.S.  |  Years in the making, the deal was hailed as a step toward more enforcement cooperation between the two countries.
DealBook '

Regulator Cites Flaws in Ernst & Young's Audit Procedures  |  The Public Company Accounting Oversight Board said the firm found a fraud risk in nine audits in 2009 but did not sufficiently follow up on the risk.
DealBook '

Fed Fears Send a Shudder Through Global Markets  |  “Investors are contemplating a future without support from one of the biggest engines of the global economy in recent years: the Federal Reserve,” The New York Times writes.
NEW YORK TIMES

Apple's Corrosive Tax Strategy  |  “The shameful thing is that we have a tax system that seems to allow multinational companies to choose what they want to pay,” Floyd Norris, a columnist for The New York Times, writes.
NEW YORK TIMES

Ally to Pay Residential Capital $2.1 Billion to Settle Claims  |  Ally Financial agreed on Thursday to pay Residential Capital, its bankrupt mortgage lending unit, $2.1 billion to settle claims filed by the division's creditors.
DealBook '

Morgan Stanley Names New Business Heads in Asia

Morgan Stanley announced a shakeup of its Asia equities capital markets team on Friday.

The Wall Street bank has appointed Jerome Leleu and Mille Cheng as co-heads of its equity capital markets business in Asia. The pair will replace Justin Haik, who is moving to a new role as senior client relationship manager for equities in Asia.

The moves were announced in an internal memo, the contents of which were verified by a Morgan Stanley spokesman.

Mr. Leleu, a 15-year veteran of the bank, has worked in both Asia and Europe and has most recently focused on Southeast Asian equity markets - a region that has outperformed the traditional Asian deal hub of Hong Kong in terms of transaction volume over the last 18 months.

Ms. Cheng is rejoining the bank from Barclays, where she headed the greater China equity capital markets business. Before leaving for Barclays in 2011, she had spent 11 years working on equity deals at Morgan Stanley.

Another 15-year veteran of the firm, Mr. Haik had headed the Asia equities team at Morgan Stanley since 2011. The bank's memo said that, in his new role, he would “provide strategic capital raising advice to our most senior Asian clients, with an additional focus on high-profile, cross-border situations.”

The memo also added that Alex Abagain would become the head of the Asia Pacific equity syndicate business.

Abruptly, P.&G. Chief Ends Career of 33 Years

In a surprise move, Procter & Gamble, the world's biggest consumer products company, said on Thursday that its chief executive had resigned and was being replaced by his predecessor, Alan G. Lafley.

Alan G. Lafley is Procter & Gamble's new chief, a post he once held for about 10 years.

Robert A. McDonald, 59, the company's chief executive and president since 2009, notified the board a few days ago of his decision to retire, said a P.& G. spokesman, Paul Fox.

Procter & Gamble had been under pressure from the prominent hedge fund manager William A. Ackman, who has criticized Mr. McDonald for the company's poor stock performance. Mr. Ackman is known for publicly challenging management teams, having agitated for change at the likes of J. C. Penney and Fortune Brands.

Mr. Fox said he was unaware of any health or personal reasons behind the abrupt decision by Mr. McDonald, who had worked at the company for 33 years. He also said that Mr. McDonald's decision was not spurred by pressure from company directors.

The company said that Mr. Lafley, 65, would immediately replace Mr. McDonald. Mr. Lafley served as chief executive and president from 2000 to 2009.

Mr. Fox said that members of the company's board sought out Mr. Lafley after learning of Mr. McDonald's decision. As part of his return to the company, Mr. Lafley was also elected chairman.

Mr. Ackman has made P.& G. one of his big bets. His 27.9 million shares, worth nearly $2.2 billion as of Thursday, are one of the largest investments that his hedge fund, Pershing Square Capital, has ever made.

He has argued that the company was burdened with bloat, inefficiency and excessive marketing expenses. Mr. McDonald has been one of his chief targets.

In a presentation this month, Mr. Ackman said that Mr. McDonald had been distracted by outside commitments, including seats on other organizations' boards. He called upon Procter to replace Mr. McDonald if the company's fortunes had not materially improved by the end of June.

“As we've said all along, we have confidence in the board of Procter & Gamble to do the right thing for the company and the shareholders,” Mr. Ackman said in a brief telephone interview on Thursday.

Barry Meier contributed reporting.

This article has been revised to reflect the following correction:

Correction: May 24, 2013

An earlier version of this article misstated the tenure of Alan G. Lafley as Procter & Gamble's chief executive and president. He held those positions until 2009, not 2010.

A version of this article appeared in print on May 24, 2013, on page B2 of the New York edition with the headline: Abruptly, P.&G. Chief Ends Career Of 33 Years.

When a Billionaire Speaks Off the Cuff on Motherhood

For a hedge fund manager who carefully manages his public image, Paul Tudor Jones had a minor crisis on his hands.

Mr. Jones, a billionaire and philanthropist of legendary stature in the minds of many Wall Street traders, was forced on Thursday to explain what he meant in remarks that surfaced in a video published by The Washington Post. The video, depicting a University of Virginia symposium in April, shows Mr. Jones trying to explain why there is a scarcity of female traders.

“As soon as that baby's lips touch that girl's bosom, forget it,” Mr. Jones, who has three daughters, says in the video. “Every single investment idea, every desire to understand what's going to make this go up or go down, is going to be overwhelmed by the most beautiful experience, which a man will never share, about a mode of connection between that mother and that baby.”

“I've just seen it happen over and over,” he added. “I'm talking about trading, not managing.” The video was obtained through a Freedom of Information Act request.

His comments went viral online and were widely criticized. In an e-mail sent to news outlets, Mr. Jones said he was speaking “off the cuff” and referring in particular to “global macro traders,” who work across multiple markets.

“Macro trading requires a high degree of skill, focus and repetition,” Mr. Jones said by way of clarification. “Life events, such as birth, divorce, death of a loved one and other emotional highs and lows are obstacles to success in this specific field of finance.” He added that success was possible “as long as a woman or man has the skill, passion, and repetitions to work through the inevitable life events that arise along the way.”

The episode was an uncomfortable turn for Mr. Jones, who earlier this month was called a “modern-day Robin Hood” by CBS News's “60 Minutes” in a report on the financier's charitable foundation.

“My mother told me I was going to be a preacher,” Mr. Jones said in the television special, which cast him in a flattering light.

But his remarks about women seem to have gotten more attention, judging by the response.

Watching the video, there was a “pit in my stomach of how 1950s that is,” Alexandra Lebenthal, chief executive of the financial firm Lebenthal & Company, said on MSNBC's “Morning Joe” on Friday.

“I'm not sure that bonding experience of breastfeeding is all that wonderful,” Ms. Lebenthal added.

Joanna Coles, editor in chief of Cosmopolitan, said on MSNBC: “What you see in this is actually what a lot of men on Wall Street still actually think.”

Mr. Jones's theory is “scientifically unsound,” Simone Foxman said in Quartz. “Women don't produce as much cortisol when in risky situations and therefore - theoretically at least - aren't as likely to be as overwhelmed by negative emotions.”

Barry Ritholtz, the head of Fusion IQ, wrote on his blog: “There is a valid point to be made about emotions in trading, but it gets lost in the sauce here.”

Writing in Business Insider, Linette Lopez argued that Mr. Jones's remarks were not sexist, as others had claimed. The issue is a “social, structural” one about “expectation,” she said.

“His point is that women are expected to get married, expected to have children, and expected to keep a house … still,” Ms. Lopez said. “Because of that, there will not be as many women who choose to live the grueling lifestyle of being a trader and a mother at the same time (and become successful traders while doing it) as there are men who are successful fathers and traders.”

The blog Dealbreaker noted Mr. Jones's “strangely graphic description of breastfeeding.”

I am so disappointed over Paul Tudor Jones' comments on women,but I'm too busy knitting baby booties to articulate my thoughts @BloombergTV

- Stephanie Ruhle (@SRuhle) 24 May 13

This guy really should read the literature on how women are better traders than men: http://t.co/qkl5TBDPbi

- Noah Smith (@Noahpinion) 24 May 13

The Curious Case of the European Vodka Seller

To say that the world of mega Chapter 11 cases is slow right now is an understatement. Once American Airlines leaves Chapter 11, as it is soon expected to do, the number of pending big cases will be … well, can you think of one?

Sure, litigation lingers from the General Motors and Lehman Brothers cases. But that's not really surprising. The big case of the 1970s â€" Penn Central â€" had litigation that lasted into the 1990s. So that's not really restructuring, it's more like litigation about restructuring.

When I find myself poking into the Oreck Chapter 11 case, with its $11 million debtor-in-possession loan, we know things are slow.

Still, there are some interesting developments, perhaps none quite so fascinating as the super-speedy Central European Distribution Corporation prepackaged case.

The debtor, a vodka maker, is essentially an entirely foreign operation, save for a small office in New Jersey. All its operating companies are in Poland, Russia, Ukraine and Hungary.

So, naturally the company filed its Chapter 11 case in Delaware.

How? State of incorporation, of course. All well-advised distressed companies, wherever located around the globe, should make sure that they have a Delaware corporation somewhere in their corporate structure. Preferably as a holding company.

Now before the anti-Delaware crowd gets too hot and bothered, let's remember that Central European Distribution was listed in the United States and had a great big bundle of bond debt issued here, too.

And like all good prepackaged bankruptcies, this case was primarily about sticking it to the investors. Trade creditors and employees went through the process unharmed.

The really interesting parts of the case â€" beyond the fact that it was done in just over a month â€" is that one of the board members who signed a declaration in support of confirmation of the plan and the overall structure of the plan.

The declaration was signed by an independent director of Central European Distribution, Joseph J. Farnan Jr.

Restructuring types will recognize the name as the former federal judge from Delaware who used to oversee the bankruptcy judges, and once withdrew the “reference” â€" a Federal District Court order that automatically places bankruptcy cases before the bankruptcy judges.

He joined the board in February of this year.

Now to the plan itself.

Senior bondholders got some cash and a fistful of new paper. Nothing too interesting there.

The convertible bondholders got a recovery that seems to have confused many in the financial news media. Indeed, I couldn't make heads or tails out of it in any of the articles I have read.

To get to the bottom of this, I took a look at the memorandum submitted by Skadden, Arps, the vodka maker's counsel, in support of confirmation of the plan.

The lawyers explain that holders of the convertible notes

who participate in the RTL Offer will receive total consideration of $55 million, comprised of $25 million in cash and $30 million in secured notes issued by Roust Trading â€" an estimated recovery of 35.4% â€" while holders who do not participate in the RTL Offer will receive their pro rata share of $16.9 million in cash.

They don't define “RTL Offer,” but there is the orthodox footnote that capitalized terms are defined in the plan, so we go over there and find:

“RTL Offer” means the offer by RTL to exchange, subject to certain conditions, Existing 2013 Notes for Cash and securities issued by RTL on the terms described in the term sheet between RTL and certain holders of Existing 2013 Notes, dated March 14, 2013, and included with RTL's beneficial ownership report filed with the United States Securities and Exchange Commission on Form 13D/A filed March 14, 2013.

They aren't making this easy are they? So we head over to the Securities and Exchange Commission Web site to read the term sheet and find a document marked “privileged & confidential” yet filed with the S.E.C.

We also find out that there were about $155.3 million of the convertible bonds not owned by Roust Trading Ltd., the “RTL” of RTL Offer fame. That also tells us that RTL has been doing some shopping: they hold about $100 million of the convertible debt.

Either choice under the plan is giving the convertible noteholders the same amount of cash.

The difference is that the “RTL Offer” gives the old convertible noteholders additional RTL notes, which come complete with a PIK toggle. They are secured by 15 percent of the debtor's new stock, which presumably won't be worth a whole lot if the noteholders ever need to foreclose on it.

Maturity is in 2016, so basically it's a gamble to see if you will get a bit more recovery a few years down the line.

What does RTL get out of this alternative offer? Well, convertible noteholders who take the offer are releasing any claims they might have against RTL rising out of its effective takeover of the debtor.

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

What Gets You Up in the Morning?

In the last several weeks, I had two radically different experiences spending extended time with leaders at two large, global companies. A long, alcohol-fueled dinner with the first group was a pure downer: dull, rote and devoid of positive energy.

The day with the second - a group of young managers at Google - was utterly exhilarating. After eight hours together, discussing what it takes to be an inspiring leader, the conversation was still going strong.

What accounts for the difference?

The Google leaders were considerably younger than their counterparts in the first group, who worked for a financial services company. Also, Google is regularly recognized as a great place to work. But the most powerful difference, I'm convinced, is that the Googlers â€" hundreds of whom I've worked with over the years â€" feel they're contributing to something meaningful and larger than themselves, and the other executives evinced no passion whatsoever for their work.

Purpose is a uniquely powerful source of fuel â€" and satisfaction. That's why we resonate so strongly with exhortations that speak to it.

“He who has a why to live,” Nietzsche famously said, “can bear with almost any how.”

Or as the character Princeton sums it up more lyrically in the musical “Avenue Q”: “Purpose. It's that little flame that lights a fire under your ass. Purpose. It keeps you going like a car with a full tank of gas.”

Purpose is grounded in contribution â€" the sense we're headed in a clear direction, for a good reason. The Greeks call it “Telos” â€" one's ultimate goal, aim or intention.

How clear are you about your own purpose? How enthusiastic are you to get to work in the morning? How intentional are you about making what you do matter?

If you happen to work at an explicitly mission-driven company like Google or Whole Foods or Tom's Shoes, meaning and significance are to some extent built into your job description. Even then, the most powerful sense of purpose comes from defining it in your own terms, regardless of the job you happen to be doing.

The most reliable source of purpose, I'm convinced, is being of service to others â€" giving more than you take, which turns out not just to make most of us feel good, but also good about ourselves. In short, it's a powerful source of energy.

If you're a teacher, a social worker or a nurse, your work is intrinsically of service to others. But there are many ways to be of service. Over the years, I've been inspired by parking lot attendants, shoe shiners, elevator operators, TSA agents and a smiling, upbeat clerk working in a Department of Motor Vehicles.

They'd found a way â€" whatever the intrinsic limitations of their jobs - to add value in the world, and to make meaning, one person at a time.

As Marian Wright Edelman once put it, “We must not, in trying to think about how we can make a big difference, ignore the small daily differences we can make which, over time, add up to the big differences we often cannot foresee.”

Direct service to others is scarcely the only source of purpose. Discovering and furthering human knowledge â€" pursuing excellence and extending the possible - is another.

Think not just of extraordinary medical and scientific breakthroughs over the last century, but also of the amazing advances in technology in the last two or three decades â€" including hundreds of thousands of apps created in the last several years by plucky entrepreneurs supercharged by an animating dream.

Eugene O'Kelly was the chief executive of the accounting firm KPMG until he was diagnosed with a fatal brain tumor at the age of 53 â€" and wrote a book titled “Chasing Daylight” about what he learned during the last year of his life.

Above all, Mr. O'Kelley lamented his failure, and the same failure in countless executives he led, to develop a purpose beyond making money and rising up the corporate ladder year after year. “Why was it so scary to ask … one simple question,” he asked. “Why am I doing what I'm doing?”

In my own case, asking that question led me to shift careers entirely in my late 40s. It was scary and uncertain, but if you're unhappy enough, it increases your risk tolerance. So does the possibility of doing something you love.

I went from being a journalist increasingly running on empty to founding a company that today helps organizations perform better by taking better care of their employees. Over the last 15 years, I can count on one hand the number of days I haven't woken up excited to get to work.

So why are you doing what you're doing? Few of us have ever been encouraged to ask that question. Why not make it the new mantra in your life â€" a question to which you return, over and over, as a compass for making better choices.

Yes, it's an unsettling to question to ask, but the upside is that it has the rare potential to put you on a journey to discovering the life you're truly meant to live.

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

The Security Sideshow in the Fight Over Sprint

SoftBank and Dish Network have pulled out the stops in their $20 billion-plus battle to control Sprint Nextel. But SoftBank has the edge. Dish's claim that Japanese ownership of the American cellphone operator is a risk to national security is half-baked and shows boss Charlie Ergen's desperation.

For sure, telecommunications infrastructure can be a matter of national security â€" all the more so when it carries traffic for the Pentagon and the raft of secretive agencies known by three-letter abbreviations, as Sprint does. Yet while the Chinese might present obvious questions, it's a much less plausible claim that Japanese ownership of American assets is risky. The countries have been close allies for approaching seven decades.

As part of its $20 billion bid for 70 percent of Sprint, SoftBank has also promised to appoint a director to Sprint's board â€" someone vetted by the United States government â€" who will ensure sensitive data is kept out of reach of the Japanese owners.

This sort of arrangement has worked in the past to alleviate any residual concerns. When Singapore's ST Telemedia acquired a majority stake in Global Crossing a decade ago, it signed an agreement with the federal government under which four board members received United States government approval and served as the security committee.

What's more, SoftBank has promised to rip out networking equipment used by Sprint's network partner Clearwire and produced by Huawei, a Chinese manufacturer embodying Congress's cybersecurity concerns. Last year, the House Intelligence Committee said telecom companies should avoid using the firm's equipment because of its close ties to the Chinese government. SoftBank estimates the cost of replacement would be $1 billion.

Dish hasn't yet made a similar promise alongside its $26 billion offer for all of Sprint, which suggests its complaint isn't really about national security, but rather about having the weaker position in an M.&A. fight. Lawmakers and investors alike can afford to ignore the diversion.

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

Bausch & Lomb Said to Be Near $9 Billion Sale to Valeant

8:13 p.m. | Updated

A flurry of mergers in the health care sector appears poised to continue, as Bausch & Lomb is said to be ready to sell itself to Valeant Pharmaceuticals of Canada for about $9 billion.

A deal could be announced as soon as Tuesday, people briefed on the matter said, though they said that talks were continuing and could still collapse.

Bausch & Lomb, which makes contact lens solutions and other eye-care products, has been exploring a sale or a public stock offering for a number of months.

If completed, a sale may signal that the mergers industry is set to revive after months of fits and starts.

Though many advisers expected a steady growth in transactions this year, total deal volume was still down 8 percent from the same time last year, at $796.7 billion, according to Thomson Reuters.

Bankers and lawyers still believe that deal-making will rebound by the end of the year. Companies remain flush with cash and have access to cheap financing. And rising stock indexes have given boards and management teams more confidence in pursuing big transactions.

Despite the overall slump in mergers, health care has proved one of the most reliable sources of new takeovers. Deals worth about $72.4 billion have been announced in the sector so far this year, Thomson Reuters estimates. Just under a third of that was disclosed in the last two months, thanks to deals like Thermo Fisher Scientific's $13.6 billion takeover of Life Technologies.

Much of the deal activity has been prompted by the private equity industry, which has been seeking to strike new acquisitions or cash out existing investments and pay their limited partners.

Deal-making by private equity firms is up 44 percent from the year-ago period, at $133 billion, according to Thomson Reuters data.

Bausch & Lomb's current owner, the private equity firm Warburg Pincus, has looked to clear the decks for its latest fund, which closed earlier this month at $11.2 billion. It and TPG Capital are already weighing a sale or initial public offering of another investment, the luxury retailer Neiman Marcus.

At $9 billion or so, the sale of Bausch & Lomb would be a tidy payday.

Warburg Pincus paid about $4.5 billion for the company in 2007, and reaped a healthy portion of that from a special dividend in March. Bausch & Lomb's board authorized $772 million to be paid to shareholders, primarily Warburg Pincus, and financed the payout by borrowing about $800 million.

At the time of its sale to Warburg Pincus, Bausch & Lomb was trying to move past one of the more difficult periods in its 160-year history. A year earlier, the company issued a recall of a popular contact lens solution because of manufacturing problems.

Since then, the company has rebounded, reporting $3 billion in sales last year. Still based in Rochester, N.Y., it has about 11,200 full-time employees.

Warburg Pincus hired Goldman Sachs late last year to begin pursuing a sale or initial public offering of Bausch & Lomb, with a preliminary price target of about $10 billion, people briefed on the process have said. After running into difficulty meeting that level, the investment firm moved toward an initial offering instead, filing papers in March.

But a sale became a possibility again after Valeant's attempt to buy another drug maker, Actavis, collapsed a month ago. That deal, in which Valeant would have paid over $13 billion in stock, faltered in disagreements on price and other issues.

(Actavis subsequently agreed to buy Warner Chilcott, an Irish specialty drug company, for about $5 billion, after rebuffing approaches from Mylan and Novartis.)

Shares in Valeant began rising on Friday after The Wall Street Journal reported news of the sales talks, and closed up 13 percent, at $84.47.

A takeover of Bausch & Lomb would be the biggest by Valeant, which has aggressively pursued deal-making as a growth strategy.

The company has struck roughly two dozen acquisitions in three years as a way to expand internationally and add to its offerings of specialty products.

Among its most recent transactions are the $2.6 billion purchase of Medicis Pharmaceutical and the $439 million takeover of Obagi Medical Products.

That string of mergers has supported steady sales growth. Valeant reported $3.5 billion in revenue last year, up 40 percent from 2011. The company, which is based in Laval, Quebec, has the resources to continue striking deals, with $413.7 million in cash as of March 31.

Bausch & Lomb would add a major new line of offerings for Valeant, which focuses on neurology, dermatology and generic drugs.

The Canadian drug maker had tried to add eye-care products before, bidding $353 million for ISTA Pharmaceuticals in December 2011 before withdrawing its offer the next month. ISTA sold itself three months later for $500 million - to Bausch & Lomb.

A version of this article appeared in print on 05/25/2013, on page B1 of the NewYork edition with the headline: Takeover Is Expected For Eye-Care Company .

An Ackman Investment Scorecard

With the departure of Robert McDonald as Procter & Gamble's chief executive, William A. Ackman has collected another big-game trophy.

(Around the time the consumer products giant announced that Mr. McDonald would retire, Mr. Ackman was speaking with a class of University of Chicago business school students, with his phone off. When he turned it back on, his voice mail in-box was overflowing with messages.)

But how is his hedge fund, Pershing Square Capital Management, doing over all? DealBook has tallied the progress of some of the activist investor's recent big bets:

Procter & Gamble

Mr. Ackman emerged as a big investor in the consumer products giant last July, with the aim of trying to force the company to trim excess spending and become more efficient. Among the chief targets of the activist investor was Mr. McDonald, whom he criticized as unfocused.

At the time Mr. Ackman made his stake publicly known, Procter & Gamble shares were trading at about $63.70. By Thursday's market close, they were at $78.70, up nearly 24 percent.

Pershing Square owns about 27.9 million shares, making it one of the firm's biggest stock positions.

J. C. Penney

The struggling department store remains one of Mr. Ackman's most prominent positions - and it remains a problematic investment for the hedge fund manager, who sits on its board. In the space of two months alone, the chain has ousted Ron Johnson, the onetime retail wunderkind that Mr. Ackman himself had wooed, and replaced him with a former chief executive.

That leader, Myron Ullman, is now rolling back some of the big changes that Mr. Johnson championed, including a bold move away from extensive price promotions. Meanwhile, Penney's most recent quarterly loss was also bigger than analysts had expected.

When Mr. Ackman first disclosed owning a 16.5 percent stake in J.C. Penney in the fall of 2010, the company's shares closed at $32.49. As of Friday morning, the shares were down 41 percent from then, at $19.17.

But hedge fund still appears to be keeping the faith, believing that the company's shift in strategy and firmer financial standing will eventually lead to a revival.

Herbalife

Mr. Ackman remains firmly committed to taking down Herbalife, attacking it as a pyramid scheme ripe for a legal assault by federal regulators.

But so far, the nutritional supplements company appears to be resisting his efforts, having won supporters like the billionaire Carl C. Icahn eager to hammer the short-seller.

Shares in Herbalife fell nearly 10 percent on Dec. 20, the day Mr. Ackman unveiled his $1 billion bet against the company. But as of midmorning on Friday, they were trading at $47.74, up 42 percent since the day of the hedge fund manager's presentation.

Mr. Ackman has said that he expects the battle to take time, like his nearly decade-long wager against the bond insurance firm MBIA.

Burger King

Mr. Ackman and Pershing took part in the unusual deal that took Burger King public again, roughly 18 months after the fast-food titan went private. The company's stock is doing fairly well, up 24 percent since returning to the public markets last summer.

Beam Inc. and Fortune Brands Home & Security

Beam owes its existence as a standalone public company to Mr. Ackman, who pressed for a breakup of its onetime parent, Fortune Brands. The conglomerate opted in December 2010 to split itself up, selling off its golf business for $1.23 billion and spinning off its home and security products business.

The two successors to Fortune Brands have since traded well in the public markets. Fortune Brands Home & Security is up an astounding 232 percent since it began trading in September 2011. And Beam, the producer of Jim Beam liquor, is up 55 percent since the company became an independent concern on Oct. 4, 2011.

Canadian Pacific Railway

Mr. Ackman waged a sometimes bitter fight against Canadian Pacific, seeking to replace the railway operator's chief and corporate strategy. Last May, the company's chief executive agreed to resign, and several of its board members chose not to seek re-election.

Since then, shares in Canadian Pacific that trade on the New York Stock Exchange have jumped 80 percent, to $132.12. As of March 31, Pershing Square owned a 13.8 percent stake, now worth $3.2 billion.

Week in Review: Wall St. Finding Washington a Friendlier Place

Banks' lobbyists help in drafting bills on finance. | Brazil is luring the millisecond investor. | In a plus for electrics, Tesla repays a big federal loan early. | After a vote, Jamie Dimon moves to mend bank's fences. | Andrew Ross Sorkin asks: didn't Yahoo try a deal like this before? | SAC Capital aims to stem withdrawal requests.

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

Bausch & Lomb Are Near $9 Billion Sale | A transaction between the private equity firm Warburg Pincus and Valeant Pharmaceuticals would be one of the biggest health care deals of the year. DealBook '

Some in Congress Grow More Wary of Selling Sprint to SoftBank of Japan | National security concerns are rooted in SoftBank's relationship with Chinese telecommunications equipment manufacturers. DealBook '

• Trying to Avoid Rejection, Sprint Nextel Raises Its Offer to Buy All of Clearwire | One of the biggest critics of the Sprint offer, the hedge fund Crest Financial, urged shareholders to reject even the sweetened bid as too low. DealBook '

Deal Professor: With His Magic Touch, Buffett May Be Irreplaceable for Berkshire | Steven M. Davidoff says that Warren Buffett is a skilled deal maker, but who will negotiate such favorable deals for Berkshire Hathaway after he is gone? DealBook '

DealBook Column: But Wait. Didn't Yahoo Try a Deal Like This Before? | Andrew Ross Sorkin says that Yahoo's deal for Tumblr raises questions about its ability to make money by selling ads, among other thorny issues. DealBook '

After a Vote, Dimon Moves to Mend Bank's Fences | The chief executive of JPMorgan is reaching out to regulators and bolstering the bank's risk controls. DealBook '

• Strong Lobbying Helps Dimon Thwart a Shareholder Challenge | In a shareholder vote, Jamie Dimon held on firmly to his dual roles in leading JPMorgan Chase. DealBook '
• Stockholder Power Faces Test at Chase | The move to split the jobs of chairman and chief executive comes as the bank is actually prospering. DealBook '

Morgan Stanley's Head of Fixed Income to Retire | The change puts a spotlight back on the unit, which the Wall Street firm has been aggressively shrinking since the financial crisis. DealBook '

Luring the Millisecond Investor | The São Paulo stock exchange is trying to accommodate high-speed traders, even as regulators around the world are skeptical of the sector. DealBook '

Lloyds and RBS Detail Plans to Increase Capital Reserves | The banks said they would retain earnings and sell assets to meet the capital requirement, but would not have to raise additional capital in the financial markets. DealBook '

Brokerage Firm to Pay $7.5 Million Fine to Regulators | LPL Financial will settle accusations that it made misstatements and failed to supervise its brokers' communications properly. DealBook '

With Messaging Program, a Rival for Bloomberg L.P. | Thomson Reuters and Markit, two Bloomberg competitors, are said to be developing a chat network for Wall Street. DealBook '

A Rush to Recruit Young Analysts, Still New to the Job | A careful song and dance, as first-year analysts, and recruiters, seek to fill spots at hedge funds and private equity firms. DealBook '

4 SAC Executives Subpoenaed in Insider Trading Inquiry | The fresh round of subpoenas, which also included requests for additional documents and trading records, angered officials at the hedge fund. DealBook '

• SAC Capital Aims to Stem Withdrawal Requests | The hedge fund's largest outside investor, the Blackstone Group, is preparing a request to withdraw a portion of its money before a June 3 deadline. DealBook '
• Hedge Fund Owner Gets Subpoena to Testify | 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. DealBook '

Fallen Goldman Director Appeals for a New Trial | Lawyers for Rajat Gupta, found guilty last year of leaking boardroom discussions in an insider trading case, challenged the admission of wiretapped conversations in his original trial. DealBook '

In a Plus for Electrics, Tesla Repays a Big Federal Loan Early | Using money it raised last week in the markets, the carmaker is repaying the Energy Department nine years before its $465 million loan was due. DealBook '

Banks' Lobbyists Help in Drafting Bills on Finance | One bill that sailed through the House Financial Services Committee this month was essentially Citigroup's, according to e-mails reviewed by The New York Times. DealBook '

S.E.C. Changes Continue as Obama Names 2 Senate Aides for Posts | The nominees, Kara Stein and Michael Piwowar, are familiar with the Wall Street regulatory agency's business through their work. DealBook '

Fine Settles an Inquiry Into Selling of Vote Data | Institutional Shareholder Services will pay $300,000 to settle and to retain an independent compliance consultant to monitor its practices, according to the S.E.C. DealBook '

Ernst & Young's Audit Procedures Faulted | The Public Company Accounting Oversight Board said the firm found a fraud risk in nine audits in 2009 but did not sufficiently follow up on the risk. DealBook '

A Deal Opens Some Chinese Audit Papers to the U.S. | Years in the making, the deal was hailed as a step toward more enforcement cooperation between the two countries. DealBook '

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“Girl on Fire” by Alicia Keys

‘Girl on Fire' | Would you rather listen to a hedge fund billionaire's remarks on motherhood or Alicia Keys singing about global macro traders? YouTube '

Why Did Citigroup Try to Overturn an Overhaul?

Wall Street's true ambitions are often revealed in mind-numbing minutiae.

The latest example is Citigroup's participation in writing a House of Representatives bill that intends to roll back an arcane part of the Dodd-Frank financial sector overhaul. As The New York Times reported on Friday, Citigroup's recommendations were reflected in more than 70 lines of the House committee's 85-line bill.

The bank's involvement was something of a surprise. Since the financial crisis of 2008, Citigroup has not been a vocal critic of efforts to make the financial system stronger. It supported parts of the overhaul. Citigroup's reluctance to publicly press for changes may also be due to the fact that it received more bailout money than other banks, and performed poorly for a long time after the crisis.

So what stirred Citigroup to get deeply involved in crafting the House bill?

The proposed legislation attempts to soften a part of the Dodd-Frank Act that focuses on the market for derivatives, which are financial instruments that allow financial firms to hedge their risks or speculate. Banks make a lot of money from these instruments, entering into trades with other banks, investment funds and corporations. Even the most commonly traded derivatives, like interest-rate swaps, have much higher profitability than other Wall Street activities, according to bank disclosures.

But the financial crisis revealed the enormous risks in the derivatives market. Derivatives allow financial firms to make big bets without having to put up sufficient money at the outset. The most chilling example of this during the crisis was American International Group, which placed staggering wagers on mortgages that it ultimately could not honor without taxpayer help. Dodd-Frank does a lot to remove such weaknesses.

But the law also attempts to reduce a big perk that the derivatives market has enjoyed for years, and will for the foreseeable future. Most banks locate essentially all their derivatives inside subsidiaries that enjoy indirect taxpayer backing, either through deposit insurance or access to emergency lending from the Federal Reserve. The banks' trading partners like this arrangement because they get to deal with taxpayer-backed entities.

If the clients had to do the same derivatives trade with a bank subsidiary that didn't have government support, they might ask for much better terms, reducing the profits for the bank. The perceived problem with this setup is that a whole range of derivatives activities, some of it speculative and risky, is effectively subsidized.

Some writers of Dodd-Frank wanted certain types of derivatives to be “pushed out” of the bank entities that enjoy government backing. But even then there was strong opposition to such a move.

The result was a pallid push-out. When Dodd-Frank became law, only a few types of derivatives had to be moved out of insured subsidiaries. All existing derivatives, no matter what they were, were allowed to stay inside the safety net. And regulators have effectively told banks they don't have to comply with the push-out until the middle of 2015.

Even so, Dodd-Frank was reviled on Wall Street, and the new House bill would almost completely neuter it.

The bill would allow the few types of derivatives that are slated for the push-out to remain inside taxpayer-supported entities. For instance, derivatives for betting on stocks and commodities would get to remain in the safety net.

The one derivative that the House bill does push out are swaps on securities that are backed with a basket of assets, like mortgages, but even these would be allowed inside taxpayer-protected entities if they met certain conditions.

Those favoring the House bill make arguments that will resonate with regulators.

The push-out rule, they say, could shift derivatives trading into unregulated entities. It could also make it harder for the Federal Reserve to support the financial system during a crisis, since it couldn't lend to entities that deal in the pushed-out swaps.

Such arguments are blunted by the fact that Dodd-Frank pushes out only a few types of derivatives. But those derivatives may be among the most profitable for banks.

Take credit default swaps, which allow financial firms to bet on the creditworthiness of companies, countries and mortgages. The House bill significantly softens the treatment of such derivatives. Under Dodd-Frank, a bank would have to push out credit default swaps that don't trade through a clearinghouse, an entity set up to make sure market participants have the money to back their trades. The new bill effectively allows these “uncleared” swaps to stay inside government-insured banks.

These swaps are likely to have attractive margins that would be depleted if they were pushed out. Uncleared instruments are a big part of the credit default swap market. Only about 10 percent of such swaps are centrally cleared, according to official surveys.

Citigroup has a huge presence in this market. With some $3 trillion of exposure, the bank is one of biggest default swap dealers in the United States. Those swaps right now live inside an entity called Citibank N.A. that enjoys federal deposit insurance. Nearly $2 trillion of those swaps are based on companies or other entities with a junk credit rating.

As it stands, the Dodd-Frank Act would push many of those swaps out.

Perhaps that's why a Citigroup employee is writing legislation that would stop just that.