K.K.R. Raises $6 Billion in New Asia Fund

HONG KONG-Kohlberg Kravis Roberts, the U.S. private equity giant, said Wednesday that it had closed a $6 billion Asia-Pacific fund, the biggest such fund dedicated to the region to date.

K.K.R. met its fund-raising goal for its second major Asia-wide fund even as global buyout firms have faced challenges from slumping markets and emerging local competitors in China, a major focus of private equity investment in the region. But deal activity has been rising in other markets, like Southeast Asia, where investors see long-term potential in the growth of consumer demand.

Globally, private equity companies raised $122 billion in new funds in the second quarter of the year, the most since the financial crisis, according to data from Preqin, a research firm. In Asia, the biggest recent private equity fund raising was that of RRJ Capital, based in Hong Kong, which had closed a $3.5 billion Asia fund in the first quarter of the year.

K.K.R. opened its first Asia office in Hong Kong in 2005, raising a $4 billion regional fund in 2007 and a $1 billion China fund in 2010. The company opened a Singapore office last year to focus on Southeast Asia deals, and today employs more than 100 executives in seven offices across Asia.

To date, K.K.R. has invested more than $5.5 billion in 30 companies around Asia. Companies engaged in consumer products account for 38 percent of its current Asia investment portfolio by value, while technology firms account for 14 percent.

The new Asia fund will continue to target rising domestic demand in the region, focusing on companies in the consumer products, retail, health care, education and industrial sectors, K.K.R. said in a statement.

U.S. Vows to Battle Abusive Debt Collectors

Federal regulators are cracking down on questionable debt collection practices by some of the nation’s biggest lenders.

The push comes after revelations that some of the same practices that have haunted the foreclosures of homes â€" like robo-signing and faulty documentation â€" have cropped up in efforts to recoup delinquent credit card debt.

The debt collection practices of banks and lenders have long existed in a kind of regulatory gulf. The primary federal law that governs how companies pursue consumers behind on their bills does not apply to firms that are trying to recoup money that they lent directly to a consumer.

As a result, the lenders â€" from national banks like Capital One to big department stores like Macy’s â€" can hound consumers behind on their bills with repeated calls, even though the practice is restricted by the Fair Debt Collection Practices Act.

But on Wednesday, the Consumer Financial Protection Bureau plans to assert at a hearing that it has the authority to regulate banks’ debt collection practices under the Dodd-Frank financial overhaul law. The act bars the firms from employing “unfair, deceptive or abusive acts.“

“It doesn’t matter who is collecting the debt â€" unfair, deceptive or abusive practices are illegal,” Richard Cordray, the agency’s director, said in a statement early Wednesday.

Another agency, the Federal Trade Commission, on Tuesday won a $3.2 million penalty against Expert Global Solutions, the world’s largest debt collection operation, over accusations that the firm harassed consumers.

Adding to the scrutiny, the Office of the Comptroller of the Currency, a chief bank regulator, is investigating how banks like JPMorgan Chase collect credit card debt, according to several people close to the matter.

The regulator spotted errors in roughly 9 percent of monetary judgments â€" the dollar amount the bank sought from consumers â€" won through collection lawsuits filed from 2009 to 2011, these people close to the matter said. JPMorgan declined to comment, but the bank has been cooperating with regulators to fix problems in its collection lawsuits, according to people briefed on the situation. And in roughly 90 percent of the flawed judgments, the consumers did not pay the full amount, the people said.

JPMorgan also stopped filing new credit card lawsuits in 2011, these people said, because of concerns that some of the underlying documentation was flawed. In courts across the nation, according to judges, JPMorgan has also been dropping pending lawsuits.

As they work through a glut of soured debts, from credit card balances to overdue auto loans, some of the big lenders are going to court to get what they are owed, according to interviews with judges, lawyers for consumers and federal regulators.

While fewer customers are falling behind on their bills as the nation moves farther away from the financial crisis, lenders are still working to reduce the amount of bad loans on their books.

In most instances, consumer advocates say, customers acknowledge that they owe some money. The problems arise, though, when the credit card companies and third-party debt collectors run roughshod over legal procedures that govern how the firms can collect money, according to consumer lawyers.

“It’s a huge problem where creditors and debt buyers are mass producing fraudulent documents,” said Susan Shin, a lawyer at the New Economy Project, which works with community groups in New York.

Some lawsuits, the judges and lawyers say, hinge on erroneous documents, quickly thrown together to make up for critical paperwork that is missing, like payment histories or the original contracts.

For some consumers, the problems begin long before they set foot in a courtroom. Rogerio Normanilson, 56, said that the calls he received from collectors for Macy’s â€" sometimes four times a day â€" caused him crippling stress and aggravated his health issues, including H.I.V. Mr. Normanilson, who fell behind on his payments in January and is currently living in a New York City shelter, said that the calls continued even after he begged for them to cease.

Macy’s would not comment on the individual case, citing its confidentiality policy. Jim Sluzewski, a spokesman for Macy’s, said the company abided “by regulations governing credit and collection activities.”

Since such collection efforts fall into the regulatory void, consumer lawyers say, consumers have little recourse. “These creditors are essentially given free rein,” said Carolyn E. Coffey, a lawyer at MFY Legal Services.

Lenders have been buffeted by these kind of problems before, particularly over the way they pursued struggling homeowners. Last year, five of the nation’s largest banks reached a $26 billion deal with 49 state attorneys general over claims the lenders wrongfully seized homes.

Now regulatory scrutiny is shifting from mortgages to credit cards. The problems in credit card lawsuits often proliferate in the shadows, because unlike in foreclosure cases, borrowers sued over credit card debt rarely show up to defend themselves. As a result, more than 95 percent of lawsuits result in a default judgment, an automatic win for the lender.

The default judgments can be devastating, entitling the lenders to garnish a consumer’s wages or freeze bank accounts. In New York, for example, the judgments are good for 20 years and accrue annual interest of 9 percent.

Sometimes borrowers do not even realize that they have been sued until a lender wins a default judgment, consumer lawyers say. The situation often arises when lenders claim to serve borrowers with notice of a lawsuit, as they are required to do under the law, but do not actually do so.

Dianne Carr, 68, who lives in New York, said she had no idea that Capital One was suing her over stale credit card debt until last year, when she went to a credit counselor and learned of the black mark. By then, it was too late to fight back, she said.

“It feels so bad,” said Ms. Carr.

Capital One declined to comment on the case.

In the Federal Trade Commission’s fine against companies owned by Expert Global Solutions, based in Plano, Tex., the agency secured a $3.2 million civil penalty against the firm for using unfair and deceptive practices and illegal debt-collection techniques.

The F.T.C. said that it was the largest civil penalty ever obtained by the agency against a third-party debt collector.

The companies were accused of violating the F.T.C. Act and the Fair Debt Collection Practices Act by calling consumers several times a day, even after being asked to stop; calling early in the day or late at night; calling consumers’ workplaces; and leaving phone messages that disclosed the debtor’s name and existence of the debt to third parties. In a proposed consent decree filed in United States District Court for the northern district of Texas, the companies agreed, in addition to paying the fine, to investigate claims that the debt information was wrong, to not communicate with third parties about a consumer’s debt and to not otherwise harass consumers while trying to collect debts.

Expert Global Solutions and its subsidiaries, with 32,000 employees, recorded more than $1.2 billion in revenue in 2011, the F.T.C. said. The firm declined to comment on the case. But the agency fine was a tiny fraction of that amount â€" one-quarter of 1 percent of annual revenue.

Like its federal peers, the Federal Trade Commission has been increasing its oversight of debt collection agencies since the financial crisis and recession, said Christopher Koegel, an assistant director for financial practices in the agency’s bureau of consumer protection. The bureau has filed three debt collection cases so far in 2013, after bringing six in 2012, five in 2011 and one in 2010. During that time, the F.T.C. has assessed $56 million in judgments, and the largest civil penalty collected by the agency has grown to $3.2 million in the case on Tuesday, from $2.5 million.

S.E.C. Seeks Validation in Goldman Sachs Trader Case

Three years ago, in the shadow of the financial crisis, some of the biggest banks on Wall Street slipped into the government’s cross hairs.

Now, after striking nine-figure settlements with firms like Goldman Sachs and JPMorgan Chase, the government’s campaign to punish Wall Street over risky investments sold before the crisis will culminate in an unlikely way â€" with the civil trial of a 34-year-old Frenchman, Fabrice P. Tourre.

In a federal courtroom in Lower Manhattan next week, the former midlevel Goldman employee will fight the Securities and Exchange Commission’s claim that he was part of a conspiracy to mislead investors when selling a mortgage security that ultimately failed. Mr. Tourre, a trader stationed in the bowels of Goldman’s mortgage machine when the S.E.C. thrust him into the spotlight, is one of only a handful of employees at big Wall Street firms to land in court over the crisis.

The rarity of the trial underpins its importance. For Mr. Tourre, who is now enrolled in a doctoral economics program at the University of Chicago, an unfavorable verdict could yield a fine, or worse, a ban from the securities industry. A victory in court, however, would offer only belated consolation to Goldman, which is paying for his defense. For the S.E.C., an agency still dogged by its failure to thwart the crisis, the trial is a defining moment that follows one courtroom disappointment after another.

When a jury cleared a midlevel Citigroup employee in a mortgage-bond trial, the S.E.C. took measures to buoy its case against Mr. Tourre. For one, it talked to a private jury consultant, people briefed on the matter said, though it is unclear whether the agency hired the firm. The head of the agency’s trial team is also leading the Goldman case himself, a surprising move.

“Their reputation for trying cases hangs in the balance,” said Thomas A. Sporkin, who was a senior S.E.C. enforcement official until last year when he departed for the law firm Buckley Sandler. “This is their opportunity to show Wall Street that they can prevail against an individual at trial.”

Both sides were in court Tuesday sparring over what the jury should â€" and shouldn’t hear. The judge, Katherine B. Forrest, ruled that the defense can question a crucial S.E.C. witness, a woman who was an executive of a company that helped arrange the mortgage security, about the agency’s eve-of-trial decision to drop an unrelated investigation against her, a reprieve Mr. Tourre’s lawyers have argued might color her testimony.

The S.E.C. also walked away with a major victory: Judge Forrest permitted the agency to argue that Mr. Tourre was part of larger conspiracy at Goldman, a move that will allow evidence beyond Mr. Tourre’s actions.

Yet even if it secures a victory at trial, the S.E.C. will probably face scrutiny all the same, as critics question why the agency chose to make Mr. Tourre the face of the financial crisis. Rather than take aim at a high-flying executive, the agency filed its most prominent crisis-era case against someone barely known on Wall Street, a concern that also hampered the Citigroup case, when the foreman of the jury asked, “Why didn’t they go after the higher-ups rather than a fall guy?”

An S.E.C. spokeswoman declined to comment. But in the past, the agency has defended its actions tied to the crisis, noting that it has sued 66 C.E.O.’s and other senior officers in such cases, including a few executives from Wall Street and major mortgage lenders.

When the S.E.C. filed its case against Goldman and Mr. Tourre in April 2010, the allegations shook the bank. Within months, it agreed to pay a $550 million fine, without admitting or denying guilt, then the largest penalty ever levied on Wall Street.

Mr. Tourre, however, rejected a deal on the eve of Goldman’s settlement, people briefed on the matter said. The deal, the people said, would have required Mr. Tourre to face a lifetime ban from the securities industry and a cash penalty â€" virtually the same punishment he would face if found liable at trial. The agency has not offered to settle since.

At the heart of the agency’s case is the contention that in 2007 Mr. Tourre and Goldman sold investors a mortgage security, known as Abacus, without disclosing a crucial fact: a hedge fund run by the billionaire John A. Paulson helped construct Abacus and then bet against it. The S.E.C. cited Goldman for “misstating and omitting key facts” about Mr. Paulson’s involvement. When the mortgage market soured, a German bank and a handful of other sophisticated investors lost more than $1 billion on the deal.

“The S.E.C. essentially argues that Tourre handed Little Red Riding Hood an invitation to grandmother’s house while concealing the fact that it was written by the Big Bad Wolf,” Judge Forrest explained in a recent ruling.

To win its case, the S.E.C. must show by a preponderance of the evidence that Mr. Tourre “committed a fraudulent act that was material.” The verdict is likely to hinge on whether the S.E.C. can prove what it called two basic acts of “deception” stemming from January 2007, when Mr. Paulson’s hedge fund asked Goldman to create an investment worth betting against.

What led to the first misstep, according to the S.E.C., was Goldman’s decision to use ACA Management to pick the underlying mortgage bonds for the investment. ACA worked closely with Mr. Paulson’s hedge fund in the selection process, the S.E.C. said.

But in a marketing document that Goldman submitted to investors, the bank said the portfolio was “selected by ACA,” with no mention of Mr. Paulson.

Mr. Tourre’s lawyers, however, are expected to note that it was unheard-of for any Wall Street bank to disclose the name of the hedge fund betting against an investment. And e-mails reviewed by The New York Times suggest that the main investor in Abacus, the German bank IKB Deutsche Industriebank, knew the contents of the deal and possibly even removed certain bonds from its makeup. In the two March 2007 e-mails, Goldman employees sent three “replacement” bonds to an IKB executive, saying “hopefully these will work.”

In turn, the S.E.C. is expected to outline a second possible misstep by Mr. Tourre tied to his dealing with ACA. Mr. Tourre, the S.E.C. said, misled ACA into thinking that Mr. Paulson was investing in the bonds rather than betting against it. In a January 2007 e-mail, Mr. Tourre falsely told ACA that one chunk of Abacus was “pre-committed,” meaning that an unnamed investor already agreed to buy it. In a deposition, he later acknowledged that his e-mail “could have been more accurate.”

ACA, the S.E.C. said, interpreted Mr. Toure’s e-mail to mean that Mr. Paulson was the unnamed investor. And when that impression was conveyed to Mr. Tourre in an e-mail, according to the S.E.C., he failed to immediately correct it.

ACA’s chief executive later told the S.E.C. that he “would not have voted to approve” his company’s involvement in Abacus had he known of Mr. Paulson’s strategy.

Yet Mr. Tourre’s lawyers will argue that if ACA did not know of Mr. Paulson’s bet against Abacus, it should have. ACA, the lawyers note, was a sophisticated player and met separately with Mr. Paulson’s team to discuss the Abacus deal. Goldman, the lawyers argue, also sent ACA “a steady stream” of documents correcting Mr. Tourre’s misstatement.

“Fabrice Tourre has done nothing wrong. He is confident that when all the evidence is considered, the jury will soundly reject the S.E.C.’s charge,” his lawyers, Pamela Chepiga and Sean Coffey, said in a statement.

The defense received additional ammunition on Tuesday when Judge Forrest ruled that the S.E.C. could not fully block mention of newspaper articles from 2007 that discussed Mr. Paulson’s penchant for betting against the mortgage market.

The judge has yet to rule on whether to allow the S.E.C. to introduce some of the case’s most colorful e-mails, notably one where Mr. Tourre says a friend had nicknamed him “Fabulous Fab,” and jokes that he sold toxic real estate bonds to widows and orphans.

S.E.C. Seeks Validation in Goldman Sachs Trader Case

Three years ago, in the shadow of the financial crisis, some of the biggest banks on Wall Street slipped into the government’s cross hairs.

Now, after striking nine-figure settlements with firms like Goldman Sachs and JPMorgan Chase, the government’s campaign to punish Wall Street over risky investments sold before the crisis will culminate in an unlikely way â€" with the civil trial of a 34-year-old Frenchman, Fabrice P. Tourre.

In a federal courtroom in Lower Manhattan next week, the former midlevel Goldman employee will fight the Securities and Exchange Commission’s claim that he was part of a conspiracy to mislead investors when selling a mortgage security that ultimately failed. Mr. Tourre, a trader stationed in the bowels of Goldman’s mortgage machine when the S.E.C. thrust him into the spotlight, is one of only a handful of employees at big Wall Street firms to land in court over the crisis.

The rarity of the trial underpins its importance. For Mr. Tourre, who is now enrolled in a doctoral economics program at the University of Chicago, an unfavorable verdict could yield a fine, or worse, a ban from the securities industry. A victory in court, however, would offer only belated consolation to Goldman, which is paying for his defense. For the S.E.C., an agency still dogged by its failure to thwart the crisis, the trial is a defining moment that follows one courtroom disappointment after another.

When a jury cleared a midlevel Citigroup employee in a mortgage-bond trial, the S.E.C. took measures to buoy its case against Mr. Tourre. For one, it talked to a private jury consultant, people briefed on the matter said, though it is unclear whether the agency hired the firm. The head of the agency’s trial team is also leading the Goldman case himself, a surprising move.

“Their reputation for trying cases hangs in the balance,” said Thomas A. Sporkin, who was a senior S.E.C. enforcement official until last year when he departed for the law firm Buckley Sandler. “This is their opportunity to show Wall Street that they can prevail against an individual at trial.”

Both sides were in court Tuesday sparring over what the jury should â€" and shouldn’t hear. The judge, Katherine B. Forrest, ruled that the defense can question a crucial S.E.C. witness, a woman who was an executive of a company that helped arrange the mortgage security, about the agency’s eve-of-trial decision to drop an unrelated investigation against her, a reprieve Mr. Tourre’s lawyers have argued might color her testimony.

The S.E.C. also walked away with a major victory: Judge Forrest permitted the agency to argue that Mr. Tourre was part of larger conspiracy at Goldman, a move that will allow evidence beyond Mr. Tourre’s actions.

Yet even if it secures a victory at trial, the S.E.C. will probably face scrutiny all the same, as critics question why the agency chose to make Mr. Tourre the face of the financial crisis. Rather than take aim at a high-flying executive, the agency filed its most prominent crisis-era case against someone barely known on Wall Street, a concern that also hampered the Citigroup case, when the foreman of the jury asked, “Why didn’t they go after the higher-ups rather than a fall guy?”

An S.E.C. spokeswoman declined to comment. But in the past, the agency has defended its actions tied to the crisis, noting that it has sued 66 C.E.O.’s and other senior officers in such cases, including a few executives from Wall Street and major mortgage lenders.

When the S.E.C. filed its case against Goldman and Mr. Tourre in April 2010, the allegations shook the bank. Within months, it agreed to pay a $550 million fine, without admitting or denying guilt, then the largest penalty ever levied on Wall Street.

Mr. Tourre, however, rejected a deal on the eve of Goldman’s settlement, people briefed on the matter said. The deal, the people said, would have required Mr. Tourre to face a lifetime ban from the securities industry and a cash penalty â€" virtually the same punishment he would face if found liable at trial. The agency has not offered to settle since.

At the heart of the agency’s case is the contention that in 2007 Mr. Tourre and Goldman sold investors a mortgage security, known as Abacus, without disclosing a crucial fact: a hedge fund run by the billionaire John A. Paulson helped construct Abacus and then bet against it. The S.E.C. cited Goldman for “misstating and omitting key facts” about Mr. Paulson’s involvement. When the mortgage market soured, a German bank and a handful of other sophisticated investors lost more than $1 billion on the deal.

“The S.E.C. essentially argues that Tourre handed Little Red Riding Hood an invitation to grandmother’s house while concealing the fact that it was written by the Big Bad Wolf,” Judge Forrest explained in a recent ruling.

To win its case, the S.E.C. must show by a preponderance of the evidence that Mr. Tourre “committed a fraudulent act that was material.” The verdict is likely to hinge on whether the S.E.C. can prove what it called two basic acts of “deception” stemming from January 2007, when Mr. Paulson’s hedge fund asked Goldman to create an investment worth betting against.

What led to the first misstep, according to the S.E.C., was Goldman’s decision to use ACA Management to pick the underlying mortgage bonds for the investment. ACA worked closely with Mr. Paulson’s hedge fund in the selection process, the S.E.C. said.

But in a marketing document that Goldman submitted to investors, the bank said the portfolio was “selected by ACA,” with no mention of Mr. Paulson.

Mr. Tourre’s lawyers, however, are expected to note that it was unheard-of for any Wall Street bank to disclose the name of the hedge fund betting against an investment. And e-mails reviewed by The New York Times suggest that the main investor in Abacus, the German bank IKB Deutsche Industriebank, knew the contents of the deal and possibly even removed certain bonds from its makeup. In the two March 2007 e-mails, Goldman employees sent three “replacement” bonds to an IKB executive, saying “hopefully these will work.”

In turn, the S.E.C. is expected to outline a second possible misstep by Mr. Tourre tied to his dealing with ACA. Mr. Tourre, the S.E.C. said, misled ACA into thinking that Mr. Paulson was investing in the bonds rather than betting against it. In a January 2007 e-mail, Mr. Tourre falsely told ACA that one chunk of Abacus was “pre-committed,” meaning that an unnamed investor already agreed to buy it. In a deposition, he later acknowledged that his e-mail “could have been more accurate.”

ACA, the S.E.C. said, interpreted Mr. Toure’s e-mail to mean that Mr. Paulson was the unnamed investor. And when that impression was conveyed to Mr. Tourre in an e-mail, according to the S.E.C., he failed to immediately correct it.

ACA’s chief executive later told the S.E.C. that he “would not have voted to approve” his company’s involvement in Abacus had he known of Mr. Paulson’s strategy.

Yet Mr. Tourre’s lawyers will argue that if ACA did not know of Mr. Paulson’s bet against Abacus, it should have. ACA, the lawyers note, was a sophisticated player and met separately with Mr. Paulson’s team to discuss the Abacus deal. Goldman, the lawyers argue, also sent ACA “a steady stream” of documents correcting Mr. Tourre’s misstatement.

“Fabrice Tourre has done nothing wrong. He is confident that when all the evidence is considered, the jury will soundly reject the S.E.C.’s charge,” his lawyers, Pamela Chepiga and Sean Coffey, said in a statement.

The defense received additional ammunition on Tuesday when Judge Forrest ruled that the S.E.C. could not fully block mention of newspaper articles from 2007 that discussed Mr. Paulson’s penchant for betting against the mortgage market.

The judge has yet to rule on whether to allow the S.E.C. to introduce some of the case’s most colorful e-mails, notably one where Mr. Tourre says a friend had nicknamed him “Fabulous Fab,” and jokes that he sold toxic real estate bonds to widows and orphans.

Regulators Seek Stiffer Bank Rules on Capital

Confronted with large and complex banks, financial regulators have spent years drafting rules that are just as complicated.

On Tuesday, though, regulators signaled that the byzantine approach was inadequate. In a significant shift, the Federal Deposit Insurance Corporation, along with the Federal Reserve and the Office of the Comptroller of the Currency, proposed stricter banking rules that aim for simplicity.

The agencies’ move is part of their continuing efforts to strengthen the financial system and prevent situations where taxpayer-financed bailouts might be required.

The latest regulations focus squarely on capital, the financial cushion that banks have to hold to absorb potential losses. In theory, a bank with higher levels of capital is more likely to weather shocks and less likely to need government aid in a crisis. The proposed rules would raise a crucial requirement for capital held by the largest banks.

“This will increase the overall financial stability of the system,” said Thomas M. Hoenig, vice chairman of the F.D.I.C. “This is an advantage to the banks over the long run, and to the economy. I am confident of that.”

The agencies’ latest push could meet fierce resistance, however. As outlined, the new capital requirements could be costly for the largest banks, which have 60 days to comment on the rules.

The F.D.I.C. estimated that the country’s eight biggest banks would have to find as much as $89 billion to comply with the proposed rules. An analysis of JPMorgan Chase’s books suggested that it might have to bolster its capital position by $50 billion, a number the bank declined to verify.

The added burden for the big banks unnerves some in the industry.

“This goes a little higher than is necessary,” said Tony Fratto, a partner at Hamilton Place Strategies, a research and public relations firm that has represented banking trade groups. Mr. Fratto said the new rules could weigh on the economy and undermine the global competitiveness of the largest American banks. “It’s our view that there has to be a trade-off with greater restrictions,” Mr. Fratto said.

The regulators are acting at a time when some members of Congress are calling for tougher bank regulation because they believe the sweeping overhauls instituted soon after the financial crisis fell short. Senator Sherrod Brown, Democrat of Ohio, and Senator David Vitter, Republican of Louisiana, introduced a bill earlier this year that demanded capital increases exceeding what the agencies are now proposing.

“The Brown-Vitter bill really galvanized the debate about ‘too big to fail’ and capital ratios,” said Camden R. Fine, president of the Independent Community Bankers of America, an industry group that supports the agencies’ proposed rules. “It really focused the regulators’ attention on these capital issues.”

With their latest move, the regulators hope to make the rules clearer and tougher.

After the crisis, American regulators agreed to impose an international banking overhaul known as Basel III. Officials like Mr. Hoenig have criticized Basel regulations because they rely on a method called risk weighting to set capital. With risk weighting, banks estimate the perceived riskiness of assets. They are then allowed to hold less capital, or even no capital, against assets that appear less risky. A bank may have $1 trillion of assets on its balance sheet, for example, but many of those assets could have low risk weightings. As a result, the bank might be able to reduce its total of risk-weighted assets to $500 billion. It would then calculate its needed capital from that lower figure. With a capital requirement of 7 percent, the bank would need $35 billion in capital.

Critics have questioned the risk weighting process, arguing that it can be inconsistent and complex and leave banks short of capital.

The regulations proposed Tuesday are intended to compensate for the shortcomings of risk weighting. Using a yardstick known as the leverage ratio, the proposed rules would not allow the bank with $1 trillion in assets to discount any of that sum. In fact, the bank would have to increase the asset total it uses to calculate capital to reflect risks not readily apparent on its balance sheet.

The agencies estimate that the new calculations would increase the largest banks’ asset totals by around 43 percent. The $1 trillion bank would, in essence, become a $1.43 trillion bank.

The proposed rules would also effectively require the largest banks to hold capital equivalent to 5 to 6 percent of their new asset totals. The hypothetical $1.43 trillion bank would therefore have to hold more than $70 billion. “Risk weighting is based on a very arcane and complicated series of ratios and formulas that are immediately gamed,” Mr. Hoenig said. “The leverage ratio is a check on that.”

Stock market investors appeared to shrug off the tougher requirements. Shares in the largest banks, which have risen sharply in recent months, were mostly up on Tuesday.

“I am surprised by the market reaction,” said Richard Ramsden, a bank analyst at Goldman Sachs. “It’s a fairly demanding proposal.”

Only two big banks, Wells Fargo and Bank of America, appear to already have sufficient capital to meet the proposed leverage ratio requirements, according to an analysis by Keefe, Bruyette & Woods.

But other big banks may be more strongly affected. JPMorgan Chase, the nation’s largest bank by assets, has two large subsidiaries with federal deposit insurance. Those subsidiaries would have to hold 6 percent capital, according to the proposed rules. In theory, this could push up their combined capital requirement to $177 billion from the $127 billion they hold today.

Regulators may favor such an outcome because JPMorgan, like some other large banks, uses its insured subsidiaries to hold most of its derivatives. Derivatives, financial instruments that can be used to hedge risks or speculate, can be a source of losses and instability when markets are in severe turbulence.

The banks have until the end of 2017 to comply with the higher requirements. In the next two months, they are likely to push back hard. But with the economy strengthening and bank profits at record highs, the banks may not find sympathetic audiences.

Advocates of higher capital say it can increase confidence in the banking sector and promote lending.

Mr. Fratto, of Hamilton Place Strategies, is skeptical of that viewpoint. “Do we want to conduct that experiment at a time when we’ve seen banks shedding assets, exiting businesses and pulling back a bit on lending?” he asked.

These days, regulators have more power to press ahead in the face of any opposition. The Dodd-Frank overhaul passed by Congress in 2010 gave regulators added leeway to toughen rules for large banks. The leverage ratio is only one initiative regulators are pursuing. The Federal Reserve, for example, is going to propose a rule that raises capital requirements for banks that borrow heavily in the markets. But even with the flurry of new rules, Mr. Hoenig says he does not think the banks’ hands will be tied.

“They have plenty of flexibility to lend and invest,” he said.

Lawyers in SAC Case Question Coverage of News Media

Can Michael S. Steinberg get a fair trial?

Lawyers for Mr. Steinberg, a former portfolio manager at the hedge fund SAC Capital Advisors, raised that question in a court filing on Tuesday. They argued that the news media frenzy surrounding the government’s investigation of SAC and its owner, Steven A. Cohen, could unfairly influence the jury pool.

“The coverage has not only been ubiquitous, but its qualitative content has also been inflammatory, thereby heightening the risk that it could interfere with the ability of potential jurors to assess impartially the government’s case against Mr. Steinberg and Mr. Steinberg’s defense,” the filing said.

Federal authorities arrested Mr. Steinberg at his Park Avenue apartment in March and charged him with illegal trading in the shares of the technology companies Dell and Nvidia. His trial is scheduled for Nov. 18. The trial of another indicted former SAC portfolio manager, Mathew Martoma, is set for Nov. 4.

Mr. Martoma and Mr. Steinberg are two of nine former employees at SAC who have been tied to insider trading while at the fund. Mr. Cohen and his Stamford, Conn.-based fund have become a focus of the government’s multiyear inquiry into insider trading on Wall Street.

“For almost a year, stories about alleged insider trading involving Mr. Steinberg, Mr. Cohen, SAC and the legal troubles of others associated with SAC have saturated media outlets,” wrote Barry H. Berke, Mr. Steinberg’s lawyer at Kramer Levin Naftalis & Frankel.

Mr. Steinberg’s lawyers noted that The New York Times, The Wall Street Journal and The New York Post have together run at least 181 articles since September about Mr. Steinberg and/or SAC Capital, with 15 on the front page. The court filing also tabulated social media references.

“Mr. Steinberg and/or SAC Capital were the subject of 531 Tweets, and 3,454 re-Tweets,” the filing said.

Because of the intense and prominent coverage of Mr. Steinberg, his lawyers asked the presiding judge, Richard J. Sullivan, to use a juror questionnaire focused on awareness of the publicity and whether prospective jurors hold an opinion about the case.

They also asked permission to question individual jurors who have been exposed to news media reports of the case, and seek additional measures to protect Mr. Steinberg from juror bias should there be escalating news coverage leading up to his trial.

A spokeswoman for the United States attorney’s office in Manhattan declined to comment. Mr. Cohen has not been charged with any wrongdoing and has told his investors that he behaved appropriately at all times.

Investors Like Even Ho-Hum Mergers

Even mediocre M.&A. deals are getting a thumbs-up from investors. Kroger’s $2.4 billion purchase of rival Harris Teeter looks mildly value-destructive. The value of savings from combining the grocers equals about half the premium being paid. Yet investors added about $500 million to Kroger’s market value. The more puzzling riddle is why so few deals are being done, given the market’s seemingly indiscriminate hunger for them.

Kroger is paying a premium of around 33 percent, or more than $600 million, to snag its upscale rival. In order not to alienate its loyal clients, the company promises to keep most everything the same - it is even keeping the brand name. That, combined with limited overlap, means synergies are small. The company estimates $40 million to $50 million of savings. Taxed and discounted, these are worth only about $300 million or so today.

Moreover, Harris Teeter isn’t cheap. The company should make under $200 million in operating profit this fiscal year. Even with the cost cuts, that’s around a 10 percent return on investment for Kroger. That’s hardly spectacular. Instead, it seems investors are latching onto two things. Harris Teeter’s focus on high-end customers may protect it better than much of Kroger’s business against big-box competition from the likes of Target and Wal-Mart. And second, the company is financing the deal with debt. Given how cheap borrowing is, that gives a low cost of capital hurdle rate.

A better question however, is why investors aren’t receiving more deals to greet warmly. Sure, the total amount of capital of agreed U.S. mergers and takeovers is up 20 percent so far this year to $327 billion, according to Thomson Reuters. But much of this is explained by a few, very large deals, such as SoftBank’s $22 billion purchase of Sprint Nextel.

The total number of deals in the biggest corporate finance market has stagnated. With debt still cheap, and investors quacking for more, it’s probably a matter of time before bankers and company boards throw investors more deals, including a lot more crummy ones, to nibble on.

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

A Label for Activist Investors That No Longer Fits

“Short-term shareholders” is one of those loaded phrases that embattled companies love to call troublesome activist hedge funds.

How real is the label? Well, it may actually be a myth. And a new study shows that so-called short-term hedge funds actually create long-term value.

You’ve heard this tale before: A well-known hedge fund takes an activist stake in the company and agitates for change. The company reflexively responds that the hedge fund is out to destroy the company, bent on immediate gains and “sacrificing the future for a quick buck.” If you need an example, the recent campaign by Elliott Management at the energy company Hess is a good one. After more than a decade of poor returns, Hess’s chief executive, John Hess, still had the temerity to accuse Elliott of pursuing a “short-term agenda” that would “destroy the long-term value of your investment.” Mr. Hess then proceeded to adopt much of the same strategy recommended by Elliott. The parties eventually settled their dispute with Elliott appointing three of its “short-term” director nominees to the Hess board.

The Hess example shows that sometimes labeling shareholders short-termers is more a defensive tactic than real. For example, the takeover lawyer and board advocate Marty Lipton trumpeted the victory of AOL over a proxy contest initiated by Starboard Value, stating that AOL was “able to cut through the cacophony of shortsighted gains promised by activist investors touting short-term strategies.”

The question really is whether this is all rhetoric.

The model of the short-term shareholder is out of the ’80s. This is the corporate raider bent on acquiring a company and then liquidating it for the money, leaving the employees and the community with nothing. While the rhetoric is meant to invoke a Gordon Gekko archetype, this type of activism is as out of date as the clothes on “Miami Vice.”

Instead, what is being labeled short term today is some type of aggressive corporate action that raises the company’s value immediately, but not in the long term. This could be leveraging the company with debt to pay a big dividend to the shareholders, leaving the company struggling thereafter to repay the money. It could also be a proposal to spin off a division or sell the company just when it was about to make billions for shareholders.

These strategies may be risky, but is any of this really short-term conduct that will hurt shareholders in the end? Remember, the activist hedge fund has to exit its investment. If the fund destroys value, then presumably the potential buyers for the hedge funds’ shares will realize this. Labeling this conduct short term may really be a way of saying that there are plenty of fools in the market.

This is why I am skeptical of the label. Granted, investors do stupid things on Wall Street, but after decades of this activity, you might think that these “fools” would realize they are being taken advantage of.

And these hedge funds do hold their shares for a not insignificant period of time. The average activist hedge fund actually holds shares in a company for 20 months, according to one study. Institutional investors, meanwhile, have been found to be active traders, making 7 percent of their buys and sales in less than a one-month period, according to another study. The research indicates that the hedge funds have to be looking to create some long-term value so that other investors will buy the shares.

Instead of short-term versus long-term goals, what instead appears to be going on in these disputes is a disagreement about risk and goals. Activist hedge funds often want to take more risk or push a more aggressive strategies. Boards will claim that they don’t see the need and want to continue the course.

Lost in all of this are regular shareholders. They don’t like excessive risk and prefer to simply sell in these situations. We’re seeing this in the battle over the proposed $24.4 billion buyout of Dell. The proxy advisory firm Institutional Shareholder Services has recommended that its client institutions take Michael S. Dell’s buyout offer because there is too much risk in staying public. I.S.S. is essentially telling its clients to let other investors take the risk. We see this time and again. When risk appears, the institutional shareholders flee while the hedge funds step in.

If this is the case, then the real question behind this rhetoric is whether hedge funds and other shareholders are pushing companies to make bad decisions, decisions that will harm the companies and shareholders in the long term or leave them without the full profits they could gain.

Mr. Lipton raised this question in a scathing post criticizing the recent activism aimed at Apple by David Einhorn’s Greenlight Capital, for being, you guessed it, short term. Mr. Lipton issued a clarion call for research on the effect of activism beyond a 24-month period.

Mr. Lipton’s sometime foil, Lucian A. Bebchuk, a shareholder governance activist at Harvard and columnist for DealBook, took up this challenge.

A recent paper by Mr. Bebchuk, Alon P. Brav and Wei Jiang examine more than 2,000 hedge fund activist events from 1994 to 2007. The authors found that in the short run, hedge fund interventions produced a 6 percent rise in stock prices. Over the longer term, a three-year period, these gains hold and the firms do not underperform. Looking at other measures of returns, like returns on assets, they found similar results. The long-term gains from activism holds even when the hedge funds advocate taking on leverage or other “quick buck” strategies.

Mr. Bebchuk’s paper is only one of several academic studies that have found that hedge fund activism in general does produce superior returns or at best is not destructive of value. April Klein and Emanuel Zur, for example, found that over a one-year period, activist shareholders produced “significantly positive returns.”

These studies in part challenge those who call hedge funds short-term investors and all that label encompasses, instead providing evidence that the idea of short-termism is a myth. It may well be that the risk that the hedge funds are taking is appropriate for these companies. Activist hedge funds are simply focusing on underperforming companies and making improvements.

Still, just because some funds in general do well for companies, it doesn’t mean that all do. The course that the fund is advocating may simply not be right for the company. The Children’s Investment Fund lost billions in its battle to change the railroad company CSX, for example.

In other words, we can borrow an argument from the critics of corporate governance activists (who largely overlap with the hedge fund critics). In that case, the corporate governance critics assert that corporate governance gurus are wrong to argue that one type of governance fits all companies.

Perhaps this is the case when it comes to hedge fund activism. Hedge funds advocate a different path and risk for the company. Sometimes the funds are right and sometimes they get caught up in gimmickry. Greenlight Capital, for example, was arguably a bit silly to advocate for a novel capital structure to unlock Apple’s huge cash horde. But even so, Apple subsequently adopted a larger cash distribution strategy, announcing plans to give out $45 billion in dividends from borrowed money.

Maybe it’s time to drop the rhetoric of short-term versus long-term shareholders. Instead, let’s just call it what it is. A disagreement over what direction and risk the company should take â€" with the hedge funds sometimes being right.

The Unseen Costs of Cutting Law School Faculty

The law school at Seton Hall University has put its untenured faculty on legal notice that their contracts may not be renewed for the 2014-15 academic year. The firings of these seven individuals are not certain, depending on the outcome of other steps the administration will try to bring the budget in balance.

The situation at Seton Hall is representative of many other non-elite law schools. Firing untenured faculty is a shortsighted approach to managing an academic budget. It encroaches on an important principle of academic freedom, namely that a tenure decision should be based on the merit of the case, not the budget of the department.

As a tax scholar who writes about issues that can hit rich people in the pocketbook, I am sometimes reminded why the institution of tenure, for all its flaws, is worth keeping around.

A few years ago, as an untenured faculty member, I wrote a paper that helped lead to a legislative initiative to change the tax treatment of carried interest. (Carried interest is the share of profits that investment fund managers receive in exchange for managing a fund. I argued that because carried interest is mostly a return on labor effort, not investment capital, the fund manager’s income should be characterized as ordinary income, not long-term capital gain.)

The proposal to tax carried interest became a polarizing political issue. Some fund managers took it in stride, acknowledging that they have enjoyed a windfall for a long time. Many others disagreed with me but respected my research, or at least my right to call it as I see it.

Others got personal. A local strip mall developer e-mailed my dean, requesting a meeting to discuss my “integrity” over the issue of taxing carried interest. In another instance, an aggressive (and tipsy) venture capitalist confronted me in a restaurant. He accused me of academic fraud and used some loud and colorful profanity to make his point. (After he left, a professor leaned over from the next table and asked incredulously, “That guy was that mad at you … about a paper?”)

My antagonists are often important donors to the universities that pay my salary. As a result, some friends and journalists have praised my courage in writing about controversial topics.

But the point is that, as a tenured professor, I don’t have to be courageous. And even before I had tenure, the university’s ideals of academic freedom reassured me that no dean would fire me because of my views.

Seton Hall’s decision to allow budget considerations to affect tenure outcomes sets a bad precedent. Law professors, economists and other academics are often called to testify in front of Congress, and academic research is often used to shape legal policy. Academic views are respected precisely because they are free from economic pressures; academics are not beholden to clients. If universities tie tenure decisions to department budgets, deans will be tempted to think about pleasing alumni in determining whom to tenure and whom to let go.

Across the country, law school enrollment has declined as prospective students respond to dismal employment prospects. Seton Hall has slashed its tuition by more than half for well-qualified students, to about $22,000 from $47,000, matching the in-state tuition rate at Rutgers. While reducing class size and lowering tuition is the right response to weak employment prospects, it obviously leaves a hole in the budget.

Neither law schools in particular nor universities in general are well designed to deal with fluctuating revenue. Academic budgets have high fixed costs, largely attributable to the salaries of tenured professors. Budgets have exploded with increases in administrative staff, information technology staff, and health care and pension costs.

During the fat years for legal education â€" a long run from the 1980s until 2008 â€" law schools raised tuition, raised salaries and expanded faculty and staff in a race to improve or maintain rankings in U.S. News and World Report.

Adjustments are needed, and Seton Hall’s decision to focus on untenured faculty might appear to make sense. But the decision is out of step with academic principles, and I believe Seton Hall should rethink its approach.

Hiring faculty is a unique process intended to separate outside influence and budgetary considerations from the assessment of merit. Deans should and do look at the budget to determine whether to create a new faculty “line” in the first place. Once they make that decision, however, professors, not administrators, decide who gets hired and who eventually gets tenure. The decision is based on peer-reviewed academic merit, not the preferences of deans or budget officers (or venture capitalists or real estate developers).

As a legal matter, budget concerns can be relevant to staffing decisions in extreme circumstances. Even tenured faculty can be fired without cause in the event of a severe financial circumstance known as financial exigency. A declaration of financial exigency requires more than the usual tight budget; it requires an imminent financial crisis that threatens the institution as a whole.

In a seminal 1974 case in New Jersey, for example, when Bloomfield College was facing severe liquidity problems, the court required it to consider selling off a golf course before firing faculty. Seton Hall’s law school may be in a tough spot, but there is no reason to think that its problems threaten the survival of the university as a whole. The university may need to subsidize the law school until, over time, the full-time faculty of about 75 professors shrinks by attrition.

It appears that Seton Hall has more wriggle room, legally, to fire its junior faculty than most law schools would. In an unusual arrangement, the junior faculty at Seton Hall sign contracts with the law school and are not protected by the general rules and regulations in the “faculty handbook” of the university. The contract allows the law school to terminate junior faculty, with sufficient notice, in its “sole discretion.”

There are better ways to shrink a law school budget. The size of the tenure-track faculty can shrink by retirement and attrition, not involuntary termination. Post-tenure review (by faculty, not administrators) can ensure that faculty members remain productive. Libraries can be moved online. Clinics can be closed, and adjunct faculty can be better utilized to team-teach practical courses alongside research faculty. The size of the administrative staff can be pared down, especially those who manage programs that might be considered luxuries.

According to its Web site, Seton Hall Law School has five centers, seven clinics and five study abroad programs. I doubt all of these programs are profit centers. Perhaps in the age of austerity, the law school will offer fewer opportunities to travel to Zanzibar, take a safari, or study lakeside in Geneva. Better to kill off a few boondoggles than to fire the junior faculty.

Victor Fleischer is a professor of law at the University of San Diego, where he teaches classes on corporate tax, tax policy, and venture capital and serves as the director of research for the Graduate Tax Program. His research focuses on how tax affects the structuring of venture capital, private equity, and corporate transactions. Twitter: @vicfleischer

In Tourre Case, a Push to Exclude Details

The case against Fabrice Tourre â€" a former Goldman Sachs trader who is accused of misleading clients by selling a mortgage securities investment that, the government claims, was designed to fail â€" is likely to be the most prominent case for the Securities and Exchange Commission stemming from the financial crisis. But if the S.E.C. has its way, the jury may never hear the full account, Andrew Ross Sorkin writes in the DealBook column.

The case, set to begin Monday in a courtroom in downtown Manhattan, rests on whether Mr. Tourre deprived investors of information that the S.E.C. says they needed. The S.E.C. claims that Mr. Tourre deliberately hid the intentions of the billionaire John A. Paulson, who helped choose the assets in the mortgage security and also bet against it. “And so it is a little awkward, in a case that hinges on appropriate disclosure, that the S.E.C., in a bevy of pretrial briefs, appears to be fighting vociferously to exclude troves of evidence from the trial that the defense says is material for the jury to make an informed decision about Mr. Tourre’s innocence or guilt,” Mr. Sorkin writes. “The S.E.C., for example, has sought to block any mention of news reports that Mr. Paulson was betting against the subprime mortgage market.”

“The S.E.C. has also tried to block references to public statements made by current and former regulators, including Ben S. Bernanke, Henry M. Paulson Jr. and Alan Greenspan, that suggested that the subprime lending problems were overblown,” Mr. Sorkin says. In addition, ACA Management, which the S.E.C. has portrayed as a victim of Mr. Tourre’s fraud, “was not considered a victim when the government divided the $550 million Goldman Sachs settlement that had been set up to repay victims. The government excluded ACA completely from the list of investors that were paid from the Goldman settlement. How can ACA be a victim for the purpose of Mr. Tourre’s case, but not be for the purpose of the recompense?”

SCRUTINIZING SALES OF EARLY DATA  |  With the data provider Thomson Reuters moving to suspend an early release of a consumer confidence survey to clients who pay extra, the financial industry is bracing for new scrutiny of services that give trading firms an advance look at market-moving data and news, Nathaniel Popper reports in DealBook. Federal securities regulators have, for the most part, been comfortable with arrangements that give traders first access to data. But the New York attorney general, Eric T. Schneiderman, is potentially in a position to throw them into question, Mr. Popper writes.

The attorney general, armed with broad powers stemming from the Martin Act, has unnerved some on Wall Street. “Where are you going to go with this investigation?” said Chris Malo, the chief financial officer at the high-speed trading firm Sun Trading. “It’s a slippery slope. I don’t know where you draw the lines.” But the inquiry is being cheered by others. “This is a much welcome change,” said Eric Hunsader, the founder of the market data provider Nanex. “Somebody needed to take this up.”

PERELMAN SUES MILKEN, AN OLD FRIEND  |  The billionaire deal maker Ronald O. Perelman, no stranger to litigation, has begun a legal battle against a man who helped put him on the map: Michael R. Milken, DealBook’s Peter Lattman reports. “One of Mr. Perelman’s companies, Harland Clarke Holdings, filed a little-noticed lawsuit last month accusing Mr. Milken of fraud. The case stems from Harland Clarke’s 2011 purchase of GlobalScholar, an education technology company backed by Mr. Milken, the fallen financier and philanthropist.”

“The lawsuit, filed in state court in San Antonio, was said to have surprised Mr. Milken, who had done business with Mr. Perelman for decades and counts him as a friend, according to a person briefed on the matter who is not authorized to discuss the lawsuit publicly. For Mr. Perelman, people close to him said, the lawsuit is nothing personal against Mr. Milken â€" just business.”

ON THE AGENDA  |  A House Financial Services subcommittee holds a hearing at 10 a.m. on how the Consumer Financial Protection Bureau collects and uses data. Another House Financial Services subcommittee has a hearing at 2 p.m. on “constitutional deficiencies and legal uncertainties” in the Dodd-Frank Act. Mario Gabelli is on CNBC at 12 p.m. Rich Riley, chief executive of Shazam Entertainment, is on Bloomberg TV at 1 p.m.

ON WALL STREET, DISMAY AT SPITZER’S RUN  |  Strategy sessions were organized on Monday with the mission of stopping Eliot Spitzer, the former governor and attorney general who has decided to run for the citywide office of comptroller, Michael Barbaro and David W. Chen report in The New York Times. On Wall Street, where Mr. Spitzer once made powerful enemies, executives made little secret of their dismay. Robert T. Zito, the founder of a brand consulting firm and a former executive at the New York Stock Exchange, put it bluntly: “I would love to see his opponent win.”

The Times writes: “Those involved in and briefed about the strategy discussions raised the possibility of organizing a super PAC to counter Mr. Spitzer’s self-financed campaign. Eyes turned to Mr. Spitzer’s most fervent critics on Wall Street, like the billionaire Kenneth G. Langone, a co-founder of Home Depot and a former director of the New York Stock Exchange, who had relished the governor’s downfall. According to a person told of his plans, Mr. Langone was mulling independent campaign expenditures against Mr. Spitzer.”

Mergers & Acquisitions »

LVMH Buying the Luxury Clothier Loro Piana  |  LVMH Moët Hennessy Louis Vuitton, the French luxury goods giant, has agreed to pay about $2.6 billion for an 80 percent stake in Loro Piana. DealBook »

Chief of Barnes & Noble Resigns After Losses on E-Readers  |  The departure of William Lynch Jr., the chief executive of Barnes & Noble, “was part of a series of sweeping changes the company announced as it tries to regain its footing after a failed initiative to build up its Nook division and compete in the increasingly crowded market for e-readers,” The New York Times writes. NEW YORK TIMES

Prospective Buyers Circle Hulu  |  The parties reported to have submitted bids for Hulu included DirecTV and, in a joint bid, the Chernin Group and AT&T, according to Bloomberg News. Time Warner Cable was said to have bid for a stake in the company. Guggenheim Digital Media and K.K.R. have also teamed up on a bid, according to The Wall Street Journal. BLOOMBERG NEWS  |  WALL STREET JOURNAL

Clearwire Shareholders Support Sprint Offer  | 
REUTERS

Big Seal of Approval for Dell Founder’s Buyout Bid  |  Institutional Shareholder Services recommended that Dell investors accept the $24.4 billion offer made by the company’s founder and chief executive, Michael S. Dell. Other such firms, including Glass Lewis & Company, made similar recommendations later in the day. DealBook »

Pondering a Drought in Merger Deals  |  A report from Ernst & Young released on Monday proposes that the deal-making slump may be more than just a passing phase. DealBook »

Why a Cablevision Acquisition May Not Be Likely  |  Investors betting on a takeover of Cablevision “may be turning a blind eye to major obstacles standing in the way,” The Wall Street Journal’s Heard on the Street column writes. WALL STREET JOURNAL

INVESTMENT BANKING »

Spaniards Fight to Recover Savings  |  Many thousands of Spaniards “have seen their life savings virtually wiped out in what critics call a deceptive and possibly fraudulent sales campaign by banks that were threatened by the implosion of Spain’s property market,” The New York Times reports. NEW YORK TIMES

Buffett Gives $2 Billion to Gates Foundation  |  Warren E. Buffett distributed 17.5 million Class B shares of Berkshire Hathaway on Monday to the Bill and Melinda Gates Foundation, a gift valued at about $2 billion, based on Friday’s closing price. DealBook »

Tesla Motors to Replace Oracle in Nasdaq 100 Index  |  The change comes after Oracle applied to leave Nasdaq for the New York Stock Exchange. PRESS RELEASE

Citigroup Adds Two New Directors  |  Gary M. Reiner, former chief information officer for General Electric, and James S. Turley, former chairman and chief executive of the accounting firm Ernst & Young, will join an expanded board. DealBook »

PRIVATE EQUITY »

TPG Capital Said to Bid for MacDon Industries  |  The private equity firm TPG Capital is “one of the final bidders for MacDon Industries Ltd., a manufacturer of agricultural machinery looking to sell itself for around $1 billion, three people familiar with the matter said on Monday,” Reuters reports. REUTERS

HEDGE FUNDS »

Ackman Seeks $1 Billion for Bet on Unidentified Company  |  William A. Ackman of Pershing Square Capital Management is asking for $1 billion to commit to two new funds that will bet on a single United States company that, Mr. Ackman said, he was not able to identify for all the investors, Reuters reports. REUTERS

A Punishing Period for Paulson’s Gold Fund  |  Reuters reports: “Hedge fund manager John Paulson’s gold fund has lost 65 percent of its worth so far this year after the portfolio declined 23 percent last month, two people familiar with the fund said on Monday.” REUTERS

I.P.O./OFFERINGS »

Deutsche Annington Tries Again for I.P.O.  |  The German real estate company Deutsche Annington, which is backed by the private equity firm Terra Firma, has reduced the planned size of an I.P.O. a week after shelving plans to go public, Reuters reports. REUTERS

VENTURE CAPITAL »

Hasbro Invests $112 Million in Game Maker  |  Hasbro has paid $112 million in cash for a 70 percent stake in Backflip Studios, a Colorado company that makes games like Dragonvale and NinJump, TechCrunch reports. TECHCRUNCH

Layoffs at TaskRabbit Amid Restructuring  | 
TECHCRUNCH

LEGAL/REGULATORY »

NYSE Euronext Said to Be Chosen to Run Libor  |  NYSE Euronext won a contract to administer and improve the London interbank offered rate, a person briefed on the decision said on Tuesday. DealBook »

Pension Proposal Aims to Ease Burden on States and Cities  |  A proposal by Senator Orrin Hatch, Republican of Utah, would enable governments to turn their pension plans over to life insurers. DealBook »

Madoff Case Puts Focus on Duties of Custodial Banks  |  A lawsuit brought by investors who lost $60 million in Bernard L. Madoff’s huge Ponzi scheme claims that Westport National Bank failed to protect their money. DealBook »

In Detroit, Problems Are Bigger Than Just Debt  |  “The city is past being a city now; it’s gone,” said Kendrick Benguche, whose family lives on a block with a single streetlight, near a vacant firehouse that sits beside a burned-out home, The New York Times reports. NEW YORK TIMES

Banks May Face 2 Ratios on Capital  |  The Federal Deposit Insurance Corporation is set to vote on a plan that could “set leverage ratios of 5 percent and 6 percent, one for parent companies and another for their U.S.- backed lending units, said a person with knowledge of the plans,” Bloomberg News reports. BLOOMBERG NEWS

Calendar Is Not Biggest Hurdle in SAC Prosecution  |  Prosecutors have only a few weeks before the statute of limitations expires on bringing securities fraud charges against Steven A. Cohen and SAC Capital Advisors, but there are ways to charge a violation based on the 2008 trading that would achieve nearly the same result, Peter J. Henning writes in the White Collar Watch column. White Collar Watch »

Britain Backs New Rules to Jail Bankers Over ‘Reckless Misconduct’  |  The British government has backed a set of recommendations to improve standards in the banking industry, including measures that could have bankers in Britain facing jail time for poor business decisions. DealBook »

India to Provide Additional Capital to State-Run Banks  |  India plans to inject as much as 140 billion rupees ($2.3 billion) in state-run banks by the end of September, Bloomberg News reports. BLOOMBERG NEWS

Kroger to Buy Harris Teeter for $2.4 Billion

The Kroger Company said on Tuesday that it would acquire Harris Teeter Supermarkets Inc. for $2.4 billion as it seeks to expand in the Southeast and mid-Atlantic region.

Kroger agreed to pay $49.38 a share in cash, a premium of about 2 percent to Harris Teeter’s closing price on Monday.

Harris Teeter has 212 stores in North Carolina, Virginia, South Carolina, Maryland, Tennessee, Delaware, Florida, Georgia and the District of Columbia. The company also operates distribution centers for grocery, frozen and perishable foods in North Carolina. Harris Teeter posted $4.5 billion in revenue for the 2012 fiscal year.

Kroger said it would finance the transaction with debt and assume Harris Teeter’s outstanding debt of about $100 million. Harris Teeter will continue to operate its stores as a subsidiary of Kroger and will continue to be led by Harris Teeter’s senior management team. There are no plans to close stores.

“This is a financially and strategically compelling transaction and a unique opportunity for our shareholders and associates,” David B. Dillon, Kroger’s chairman and chief executive, said in a statement. “Harris Teeter is an exceptional company with a great brand, friendly and talented associates, and attractive store formats in vibrant markets run by a first-class management team.”

Thomas W. Dickson, the chairman and chief executive of Harris Teeter, said, “Harris Teeter has a long track record of creating shareholder value and this merger is the culmination of those efforts over many years.”

Bank of America Merrill Lynch advised Kroger and Arnold & Porter served as legal adviser. J.P. Morgan Securities advised Harris Teeter, and McGuireWoods was its legal adviser.

NYSE Euronext to Take Over Libor

LONDON - NYSE Euronext won a contract to administer and improve the embattled London interbank offered rate, or Libor, a person briefed on the decision said on Tuesday.

NYSE Euronext beat other contenders to take over Libor, including the financial news and data organization Bloomberg L.P. and the London Stock Exchange, said this person, who spoke on the condition of anonymity ahead of a public announcement.

The company was picked by an independent committee led by Sarah Hogg, chairwoman of the regulator responsible for financial reporting, after a tender process that started in February. The British Bankers’ Association was in charge of monitoring Libor until a far-reaching rate-rigging scandal that has cost large banks billions of dollars in fines.