Under New Chief, a Feistier S.E.C. Emerges

First the Securities and Exchange Commission rejected a settlement with a high-flying hedge fund manager, Philip A. Falcone. Then it charged another billionaire trader, Steven A. Cohen. By late Friday afternoon, it had accused one of the nation’s largest cities, Miami, of securities fraud.

It was a busy 24 hours for the S.E.C., the federal regulator once blamed for missing the warning signs of the financial crisis and the vast Ponzi scheme orchestrated by Bernard L. Madoff.

The flurry of moves appeared to signal that the agency was striking a harder line with Wall Street under its new chairwoman, Mary Jo White. While it is still early in her tenure, and the agency faces lingering criticism for its close ties to Wall Street, Ms. White has taken several steps to crack down on financial fraud.

“They’re now demonstrating an aggressiveness that is highly unusual,” said Thomas A. Sporkin, who spent nearly 20 years in the S.E.C’s enforcement unit until last year, when he moved to the law firm Buckley Sandler. “It’s rare to see a day like today.”

When Ms. White was nominated in January, some politicians and consumer groups expressed concerns about her close ties to Wall Street. A former federal prosecutor turned defense lawyer, Ms. White has repeatedly spun through the revolving door connecting government and private practice. During her confirmation, several questioned whether Ms. White, who spent the last decade representing big banks like JPMorgan Chase and UBS, could have conflicts of interest.

Her recent actions have started to assuage some concerns. Already, Ms. White has moved to address a central criticism of the agency: that it allows defendants to neither “admit nor deny” wrongdoing when reaching settlements. The leaders of the S.E.C. enforcement unit detailed the policy shift in a memo last month, saying there might be cases that “justify requiring the defendant’s admission of allegations in our complaint or other acknowledgment of the alleged misconduct as part of any settlement.”

“It’s welcome news for the American people desperate for a tougher S.E.C.,” said Dennis M. Kelleher, who runs Better Markets, an advocacy group critical of Wall Street. He said, however, that the agency still had a high bar to prove it could be a tough enforcer. “Two hedge fund cases are good, but not good enough,” he said.

A preliminary settlement with Mr. Falcone had been collapsing for weeks, people close to the agency said, as Ms. White and the agency’s other commissioners questioned whether it was too lax. On Thursday, the agency’s commissioners rejected the settlement.

Late on Thursday, the S.E.C. notified Mr. Falcone and his hedge fund, Harbinger Capital Partners, that the agency had rejected “the previously disclosed agreement in principle,” according to a public filing his company made on Friday. The charges stemmed from accusations that Mr. Falcone had manipulated the market, used hedge fund assets to pay his own taxes and secretly favored select customers at the expense of others.

The S.E.C.’s rejection of the settlement â€" a move that will prompt the agency to either negotiate a tougher penalty or take Mr. Falcone to trial â€" suggested that its preliminary deal did not match the gravity of the crime. The deal, announced in May by Mr. Falcone, came with an $18 million penalty from the S.E.C., a rounding error to a hedge fund billionaire. Mr. Falcone was set to personally pay $4 million of the penalty, according to people briefed on the matter, while the fund’s management company would have paid the rest.

While the deal also included at least a two-year ban from raising new capital, that punishment came with a number of caveats. And in a moral victory for Mr. Falcone, the deal also omitted a common provision barring defendants from committing future violations with fraudulent intent, raising concerns that the S.E.C.’s results fell short of its ambitions.

Wall Street watchdogs were also concerned that Mr. Cohen would escape scrutiny. Regulators have spent nearly a decade investigating his hedge fund, SAC Capital Advisors, and even brought charges against several employees. But Mr. Cohen was not accused of wrongdoing. That changed on Friday, when the S.E.C. accused him of “failing to supervise” employees and preventing them from committing insider trading.

The action, filed as an administrative proceeding at the agency rather than as a lawsuit in federal court, delivers a serious blow to Mr. Cohen. The agency is seeking to bar him from overseeing outside investor funds, a death knell to a hedge fund manager.

It is unusual for the S.E.C. to pursue a case against someone of Mr. Cohen’s stature without formally accusing him of insider trading or fraud. The charge of failing to properly supervise is similar to what other regulators have done in a lawsuit against Jon S. Corzine, who led MF Global during the brokerage firm’s collapse two years ago.

In its charging document on Friday, the S.E.C. says Mr. Cohen failed to halt two of his portfolio managers from trading on confidential information. The two SAC employees, who both face criminal charges, were swept up in a broad federal investigation into insider trading.

One of the portfolio managers, Mathew Martoma, is accused of improperly acting on data about a clinical drug trial in 2008. The other, Michael S. Steinberg, is accused of trading on confidential information about Dell’s financial performance that same year.

Both men have denied the charges and face separate trials that begin in November. An SAC spokesman said that the S.E.C.’s action had no merit. “Steve Cohen acted appropriately at all times and will fight this charge vigorously,” the spokesman said.

The case against Miami came just hours after the action against Mr. Cohen was announced. The S.E.C. accused the city of giving misleading information about its finances to investors in 2009 in an effort to make its municipal bonds more attractive.

The agency also said the city broke a cease-and-desist order it signed in 2003 after facing similar charges. George Canellos, co-director of the S.E.C.’s enforcement unit, said in a statement that the city’s conduct was “all the more appalling and unacceptable” because of the earlier problems.

A lawyer for Miami, Ivan Harris, said the city would fight the charges in court.

Detroit Gap Reveals Industry Dispute on Pension Math

Until mid-June, there was one ray of hope in Detroit’s gathering storm: For all the city’s problems, its pension fund was in pretty good shape. If the city went under, its thousands of retired clerks, police officers, bus drivers and other workers would still be safe.

Then came bad news. Seemingly out of nowhere, a $3.5 billion hole appeared in Detroit’s pension system, courtesy of calculations by a firm hired by the city’s emergency manager.

Retirees were shaken. Pension trustees said it must be a trick. The holders of some of Detroit’s bonds realized in shock that if the city filed for bankruptcy â€" as it finally did on Thursday â€" their claims would have even more competition for whatever small pot of money is available.

But Detroit’s pension revelation is nothing new to many people who run pension plans for a living, the math-and-statistics whizzes known as actuaries. For several years, little noticed in the rest of the world, their staid profession has been fighting over how to calculate the value, in today’s dollars, of pensions that will be paid in the future.

It may sound arcane, but the stakes for the country run into the trillions of dollars. Depending on which side ultimately wins the argument, every state, city, county and school district may find out that, like Detroit, it has promised more to its retirees than it ever intended or disclosed. That does not mean all those places will declare bankruptcy, but many have more than likely promised their workers more than they can reasonably expect to deliver.

The problem has nothing to do with the usual padding and pay-to-play scandals that can plague pension funds. Rather, it is the possibility that a fundamental error has for decades been ingrained into actuarial standards of practice so that certain calculations are always done incorrectly. Over time, this mistake, if that is what it is, has worked its way into generally accepted accounting principles, been overlooked by outside auditors and even affected state and municipal credit ratings, although the ratings firms have lately been trying to correct for it.

Since the 1990s, the error has been making pensions look cheaper than they truly are, so if a city really has gone beyond its means, no one can see it.

“When the taxpayers find out, they’re going to be absolutely furious,” said Jeremy Gold, an actuary and economist who for years has called on his profession to correct what he calls “the biases embedded in present actuarial principles.” In 2000, well before the current flurry of pension-related municipal bankruptcies, he wrote his doctoral dissertation on how and why conventional pension calculations run afoul of modern economic principles.

Mr. Gold made his prediction about taxpayer fury in an interview a number of years ago in which he also explained why he had chosen his topic. He said he hoped to help put a stop to the errors he saw his colleagues making before pension problems that were already starting to brew then boiled over and a furious public heaped blame, scorn and legal liability on the profession.

When a lender calculates the value of a mortgage, or a trader sets the price of a bond, each looks at the payments scheduled in the future and translates them into today’s dollars, using a commonplace calculation called discounting. By extension, it might seem that an actuary calculating a city’s pension obligations would look at the scheduled future payments to retirees and discount them to today’s dollars.

But that is not what happens. To calculate a city’s pension liabilities, an actuary instead projects all the contributions the city will probably have to make to the pension fund over time. Many assumptions go into this projection, including an assumption that returns on the investments made by the pension fund will cover most of the plan’s costs. The greater the average annual investment returns, the less the city will presumably have to contribute. Pension plan trustees set the rate of return, usually between 7 percent and 8 percent.

In addition, actuaries “smooth” the numbers, to keep big swings in the financial markets from making the pension contributions gyrate year to year. These methods, actuarial watchdogs say, build a strong bias into the numbers. Not only can they make unsustainable pension plans look fine, they say, but they distort the all-important instructions actuaries give their clients every year on how much money to set aside to pay all benefits in the future.

If the critics are right about that, it means even the cities that diligently follow their actuaries’ instructions, contributing the required amounts each year, are falling behind, and they don’t even know it.

These critics advocate discounting pension liabilities based on a low-risk rate of return, akin to one for a very safe bond.

In the years since his doctoral research, Mr. Gold and like-minded actuaries and economists have been presenting their ideas in professional forums and in scholarly papers crammed with equations and letters of the Greek alphabet. They have won converts, but so far no changes in the actuarial standards. Their theoretical arguments tend to fly over the head of the typical taxpayer.

Year after year there has been consistent resistance from the trustees of public pensions, the actuarial firms that advise them and the unions that represent public workers. The unions suspect hidden agendas, like cutting their benefits. The actuaries say they comply fully with all actuarial standards of practice and pronouncements of the Governmental Accounting Standards Board. When state and local governments go looking for a new pension actuary, they sometimes post ads saying that candidates who favor new ways of calculating liabilities need not apply.

A few years ago, with the debate still raging and cities staggering through the recession, one top professional body, the Society of Actuaries, gathered expert opinion and realized that public pension plans had come to pose the single largest reputational risk to the profession. A Public Plans Reputational Risk Task Force was convened. It held some meetings, but last year, the matter was shifted to a new body, something called the Blue Ribbon Panel, which was composed not of actuaries but public policy figures from a number of disciplines. Panelists include Richard Ravitch, a former lieutenant governor of New York; Bradley Belt, a former executive director of the Pension Benefit Guaranty Corporation; and Robert North, the actuary who shepherds New York City’s five big public pension plans.

This project has drawn fire from a large number of public pension officials. They recently wrote the Society of Actuaries a joint letter, urging it to reconstitute the Blue Ribbon Panel by adding more people “who can provide insight” into the many benefits of the current method, and expressed great concern about switching to a new one that could cause confusion and volatility. Of possible interest to the bondholders and taxpayers of Detroit, they also said that as fiduciaries they were required to “put the interest of all plan participants and beneficiaries above their own interests or those of any third parties.”

Much of the theoretical argument for retaining current methods is based on the belief that states and cities, unlike companies, cannot go out of business. That means public pension systems have an infinite investment horizon and can pull out of down markets if given enough time.

As Detroit has shown, that time can run out.

Monica Davey contributed reporting.

S.E.C. Accuses Miami of Misleading Bond Investors

The city of Miami is being accused of breaking its probation for violating securities laws.

The Securities and Exchange Commission filed charges on Friday afternoon, accusing the city of giving misleading information about its finances to investors in 2009 in an effort to makes its municipal bonds more attractive.

The agency also said that the city had broken a cease-and-desist order it signed in 2003 after facing similar charges. George Canellos, the co-head of the S.E.C.’s enforcement division, said in a statement that the city’s conduct was “all the more appalling and unacceptable,” because of the earlier problems.

It is the first time a municipality has been accused of violating a cease-and-desist order. The S.E.C. has faced criticism for not levying harsher penalties on repeat offenders.

A lawyer for Miami, Ivan Harris, said that the city would fight the charges in court.

“The city made detailed disclosures about these transactions, complied with accounting rules, received clean audits and its bond prices have remained stable throughout this time period,” Mr. Harris said. “How the S.E.C. concludes that fraud occurred is a mystery.”

Miami is the latest municipality to face charges that it misled investors in marketing municipal bonds. The S.E.C. said that before selling $153.5 million of municipal bonds in 2009, Miami tried to make its finances look better by transferring $37.5 million to its general fund from its capital improvement fund. The city later reversed the transfers and ran into trouble with funding, leading credit ratings agencies to downgrade the city’s bonds.

The S.E.C. also charged Miami’s former budget director. His lawyer did not return calls seeking comment.

S.E.C. Accuses Miami of Misleading Bond Investors

The city of Miami is being accused of breaking its probation for violating securities laws.

The Securities and Exchange Commission filed charges on Friday afternoon, accusing the city of giving misleading information about its finances to investors in 2009 in an effort to makes its municipal bonds more attractive.

The agency also said that the city had broken a cease-and-desist order it signed in 2003 after facing similar charges. George Canellos, the co-head of the S.E.C.’s enforcement division, said in a statement that the city’s conduct was “all the more appalling and unacceptable,” because of the earlier problems.

It is the first time a municipality has been accused of violating a cease-and-desist order. The S.E.C. has faced criticism for not levying harsher penalties on repeat offenders.

A lawyer for Miami, Ivan Harris, said that the city would fight the charges in court.

“The city made detailed disclosures about these transactions, complied with accounting rules, received clean audits and its bond prices have remained stable throughout this time period,” Mr. Harris said. “How the S.E.C. concludes that fraud occurred is a mystery.”

Miami is the latest municipality to face charges that it misled investors in marketing municipal bonds. The S.E.C. said that before selling $153.5 million of municipal bonds in 2009, Miami tried to make its finances look better by transferring $37.5 million to its general fund from its capital improvement fund. The city later reversed the transfers and ran into trouble with funding, leading credit ratings agencies to downgrade the city’s bonds.

The S.E.C. also charged Miami’s former budget director. His lawyer did not return calls seeking comment.

The Things Traders Say, the SAC Edition

Watch what you say in instant messages.

That is one of the lessons to be drawn from the case filed by federal regulators on Friday against Steven A. Cohen, who say that the billionaire hedge fund manager failed to supervise employees accused of insider trading.

Some of the most detailed pieces of evidence in the order, which was filed by the Securities and Exchange Commission, concern instant messages and e-mails sent between Mr. Cohen and employees at his firm. A number of messages are quoted in the filing, complete with Web shorthand that lends a sense of urgency.

It’s clear from the S.E.C.’s order that instant messaging was a common form of communication within Mr. Cohen’s firm, SAC Capital Advisors, allowing analysts to relay information quickly without uttering a word.

Indeed, the SAC office is “weirdly quiet,” The New York Times wrote in December. “The telephones never ring; instead, they flash.”

But what was said in that silence has now come back to haunt Mr. Cohen, with regulators seeking to bar him from overseeing investor funds.

Several of the instant messages concern trading in securities of the drug companies Elan and Wyeth. In one instance, according to the S.E.C.’s order, one analyst raised a question about what was known by Mathew Martoma, then a portfolio manager at the firm.

“[I] don’t know if [Hedge Fund Manager A] or mat [Martoma] will answer, but do you think they know something or do they have a very strong feeling,” the analyst said in an instant message.

Mr. Cohen then replied, according to the filing: “[T]ough one … i think mat is the closest to it.”

Later, the order shows, Mr. Cohen said by instant message that it “seems like mat has a lot of good relationships in this arena.”

Instant messages also convey the urgency with which Mr. Martoma apparently encouraged Mr. Cohen to sell Elan â€" and the precise moment when the communication occurred.

At 1:22:34 p.m. on July 22, 2008, Mr. Martoma was on his instant messaging service. After urging a trader to sell Elan securities, he sent Mr. Cohen an instant message that read, according to the order, “would do more today if possible.”

Mr. Cohen responded 16 seconds later. Then, the filing shows, Mr. Martoma wrote: “my sense is today - thurs are best days so if possible to do more, would do so [.]” Mr. Cohen subsequently sold more.

Federal prosecutors have since accused Mr. Martoma of making more than $276 million in a combination of illegal profits and avoided losses trading in the shares of the pharmaceutical companies. Prosecutors have built their case against Mr. Martoma by securing the cooperation of Dr. Sidney Gilman, a neurology professor who is said to have leaked to him the confidential data about the drug being jointly developed by Elan and Wyeth.

A spokesman for the hedge fund said in a statement that the S.E.C.’s case filed on Friday “has no merit,” adding that Mr. Cohen “acted appropriately at all times and will fight this charge vigorously.”

Week in Review: Big Banks Are Losing Allies in Washington

U.S. accuses Steven Cohen of failing to prevent SAC insider trading. | Big banks, flooded in profits, fear flurry of new safeguards. | JPMorgan executive may escape penalty. | Dell buys time to seek support for sale to its founder. | S.E.C. tries to use trader’s Goldman colleague to bolster case. | On Wall St., a culture of greed won’t let go, says Andrew Ross Sorkin.

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

Dell Buys Time to Seek Support for Sale to Its Founder | Michael S. Dell and Silver Lake got six more days to win support for their $24.4 billion proposal to buy Dell Inc., but the fight to gain additional shareholder support remains tough. DealBook »

• Support Weakens for Dell Founder’s Offer | Shareholders representing roughly 30 percent of the computer company’s shares were arrayed against the proposed $24.4 billion leveraged buyout. DealBook »

Deal Professor: When an Executive Turns Buyout Adviser, Alarm Bells Go Off | In its bid to buy Gardner Denver, Kohlberg Kravis Roberts hired the company’s former chief, Barry Pennypacker, to provide advice, raising questions of fairness, says Steven M. Davidoff. DealBook »

Loblaw, Canada’s Largest Grocer, Is Buying Its Biggest Pharmacy Chain | The Loblaw Companies announced that it would buy Shoppers Drug Mart for $11.9 billion, in a move that would expand the food sections at the pharmacy giant’s stores. DealBook »

2 JPMorgan Directors Resign | David Cote and Ellen Futter, who had received lackluster support from shareholders, resigned, in the latest change in the aftermath of a multibillion-dollar trading loss last year. DealBook »

Big Banks, Flooded in Profits, Fear Flurry of New Safeguards | Wall Street’s big banks have reported giant profits, but they are still opposing aspects of the Dodd-Frank financial reform law and do not like a proposal to set aside more capital to cover future losses. DealBook »

Morgan Stanley Announces a Buyback, and Its Shares Rise | The firm’s shares rose more than 4 percent after it announced strong second-quarter gains and the Fed’s approval to repurchase $500 million worth of its stock. DealBook »

BlackRock’s Earnings Increase 32 Percent | The giant money manager rose to fame as a bond manager, but it appears to have skated around the recent turmoil in the bond market. DealBook »

Bank of America Reports 63% Gain in Net Income | While revenue rose in the bank’s second-quarter financial report, it received a lift from much lower expenses. DealBook »

Goldman, Its Profit Doubling, Sees Hope for U.S. Recovery but Doubts for Global Growth | The bank posted net income of $1.93 billion, or $3.70 a share, well ahead of analysts’ expectations. DealBook »

DealBook Column: On Wall St., a Culture of Greed Won’t Let Go | A report on ethical conduct surveyed 250 industry insiders, a quarter of whom said they would engage in insider trading to make $10 million if there were no repercussions, says Andrew Ross Sorkin. DealBook »

Ex-Chief of I.M.F. Joins Bank in Russia | Dominique Strauss-Kahn, a French political leader whose career foundered after a series of sex scandals, is joining the board of the Russian Regional Development Bank. DealBook »

Growth in Emerging Markets Lifts Citigroup Profit by 42%, Topping Expectations | The bank’s second-quarter results were strengthened by growth in emerging markets, especially in Asia and Latin America. DealBook »

S.E.C. Files Civil Case Against Steven Cohen of SAC | Federal regulators filed civil charges against Steven A. Cohen on Friday, accusing him of “failing to supervise” employees who face insider trading charges. DealBook »

S.E.C. Rejects Its Own Deal With Hedge Fund Manager | The regulator overruled its own enforcement division’s decision to settle a civil case with the high-flying money manager Philip A. Falcone and his flagship hedge fund, a rare reversal that signals a broader crackdown by the agency. DealBook »

JPMorgan Executive May Escape Penalty | A JPMorgan executive who investigators said lied under oath in an inquiry into energy market manipulation is not expected to face civil charges. DealBook »

• A Fresh Tactic by JPMorgan: A Push to Settle | The Wall Street giant whose reputation in Washington has eroded in a matter of months is now moving to avert a showdown over accusations that it manipulated energy prices. DealBook »

S.E.C. Tries to Use Trader’s Goldman Colleague to Bolster Case | The S.E.C. used Jonathan Egol’s appearance as an opportunity to introduce e-mails and documents that could damage Fabrice Tourre’s defense. DealBook »

• At Trial, S.E.C. Battles Against Its Own Witness | A former hedge fund executive’s testimony is the opposite of what the S.E.C. had expected. DealBook »
• Top Witness for the S.E.C. Turns Testy on the Stand | Parrying questions from the lead S.E.C. lawyer, Paolo Pellegrini, formerly of Paulson & Company, sighed, “I am upset about this conversation.” DealBook »
• Arsenal of Legal Firepower Masses Around Tourre Trial | The civil case against Mr. Tourre put a spotlight on Sean Coffey and a tightknit network of other legal players. DealBook »
• Jury Is Seated at Trader’s Trial, Then Is Showered With Jargon | The civil trial of former Goldman Sachs trader Fabrice P. Tourre in Federal District Court in Manhattan over a failed investment product began Monday. DealBook »
• For Trader, a Global Education Before a Trial | After leaving Goldman Sachs, Mr. Tourre spent time in Africa as a volunteer. Now he is going on trial for charges related to the mortgage crisis. DealBook »

The Trade: Heartening Moves Toward Progress in Bank Regulation | A look at promising proposals to strengthen capital ratios and regulate the derivatives market, says Jesse Eisinger. DealBook »

‘Mo Money Mo Problems’ | Sixteen years after its release, Notorious B.I.G.’s posthumous hit could be the anthem for big banks flush with profits while fearing new regulations. YouTube »

Week in Review: Big Banks Are Losing Allies in Washington

U.S. accuses Steven Cohen of failing to prevent SAC insider trading. | Big banks, flooded in profits, fear flurry of new safeguards. | JPMorgan executive may escape penalty. | Dell buys time to seek support for sale to its founder. | S.E.C. tries to use trader’s Goldman colleague to bolster case. | On Wall St., a culture of greed won’t let go, says Andrew Ross Sorkin.

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

Dell Buys Time to Seek Support for Sale to Its Founder | Michael S. Dell and Silver Lake got six more days to win support for their $24.4 billion proposal to buy Dell Inc., but the fight to gain additional shareholder support remains tough. DealBook »

• Support Weakens for Dell Founder’s Offer | Shareholders representing roughly 30 percent of the computer company’s shares were arrayed against the proposed $24.4 billion leveraged buyout. DealBook »

Deal Professor: When an Executive Turns Buyout Adviser, Alarm Bells Go Off | In its bid to buy Gardner Denver, Kohlberg Kravis Roberts hired the company’s former chief, Barry Pennypacker, to provide advice, raising questions of fairness, says Steven M. Davidoff. DealBook »

Loblaw, Canada’s Largest Grocer, Is Buying Its Biggest Pharmacy Chain | The Loblaw Companies announced that it would buy Shoppers Drug Mart for $11.9 billion, in a move that would expand the food sections at the pharmacy giant’s stores. DealBook »

2 JPMorgan Directors Resign | David Cote and Ellen Futter, who had received lackluster support from shareholders, resigned, in the latest change in the aftermath of a multibillion-dollar trading loss last year. DealBook »

Big Banks, Flooded in Profits, Fear Flurry of New Safeguards | Wall Street’s big banks have reported giant profits, but they are still opposing aspects of the Dodd-Frank financial reform law and do not like a proposal to set aside more capital to cover future losses. DealBook »

Morgan Stanley Announces a Buyback, and Its Shares Rise | The firm’s shares rose more than 4 percent after it announced strong second-quarter gains and the Fed’s approval to repurchase $500 million worth of its stock. DealBook »

BlackRock’s Earnings Increase 32 Percent | The giant money manager rose to fame as a bond manager, but it appears to have skated around the recent turmoil in the bond market. DealBook »

Bank of America Reports 63% Gain in Net Income | While revenue rose in the bank’s second-quarter financial report, it received a lift from much lower expenses. DealBook »

Goldman, Its Profit Doubling, Sees Hope for U.S. Recovery but Doubts for Global Growth | The bank posted net income of $1.93 billion, or $3.70 a share, well ahead of analysts’ expectations. DealBook »

DealBook Column: On Wall St., a Culture of Greed Won’t Let Go | A report on ethical conduct surveyed 250 industry insiders, a quarter of whom said they would engage in insider trading to make $10 million if there were no repercussions, says Andrew Ross Sorkin. DealBook »

Ex-Chief of I.M.F. Joins Bank in Russia | Dominique Strauss-Kahn, a French political leader whose career foundered after a series of sex scandals, is joining the board of the Russian Regional Development Bank. DealBook »

Growth in Emerging Markets Lifts Citigroup Profit by 42%, Topping Expectations | The bank’s second-quarter results were strengthened by growth in emerging markets, especially in Asia and Latin America. DealBook »

S.E.C. Files Civil Case Against Steven Cohen of SAC | Federal regulators filed civil charges against Steven A. Cohen on Friday, accusing him of “failing to supervise” employees who face insider trading charges. DealBook »

S.E.C. Rejects Its Own Deal With Hedge Fund Manager | The regulator overruled its own enforcement division’s decision to settle a civil case with the high-flying money manager Philip A. Falcone and his flagship hedge fund, a rare reversal that signals a broader crackdown by the agency. DealBook »

JPMorgan Executive May Escape Penalty | A JPMorgan executive who investigators said lied under oath in an inquiry into energy market manipulation is not expected to face civil charges. DealBook »

• A Fresh Tactic by JPMorgan: A Push to Settle | The Wall Street giant whose reputation in Washington has eroded in a matter of months is now moving to avert a showdown over accusations that it manipulated energy prices. DealBook »

S.E.C. Tries to Use Trader’s Goldman Colleague to Bolster Case | The S.E.C. used Jonathan Egol’s appearance as an opportunity to introduce e-mails and documents that could damage Fabrice Tourre’s defense. DealBook »

• At Trial, S.E.C. Battles Against Its Own Witness | A former hedge fund executive’s testimony is the opposite of what the S.E.C. had expected. DealBook »
• Top Witness for the S.E.C. Turns Testy on the Stand | Parrying questions from the lead S.E.C. lawyer, Paolo Pellegrini, formerly of Paulson & Company, sighed, “I am upset about this conversation.” DealBook »
• Arsenal of Legal Firepower Masses Around Tourre Trial | The civil case against Mr. Tourre put a spotlight on Sean Coffey and a tightknit network of other legal players. DealBook »
• Jury Is Seated at Trader’s Trial, Then Is Showered With Jargon | The civil trial of former Goldman Sachs trader Fabrice P. Tourre in Federal District Court in Manhattan over a failed investment product began Monday. DealBook »
• For Trader, a Global Education Before a Trial | After leaving Goldman Sachs, Mr. Tourre spent time in Africa as a volunteer. Now he is going on trial for charges related to the mortgage crisis. DealBook »

The Trade: Heartening Moves Toward Progress in Bank Regulation | A look at promising proposals to strengthen capital ratios and regulate the derivatives market, says Jesse Eisinger. DealBook »

‘Mo Money Mo Problems’ | Sixteen years after its release, Notorious B.I.G.’s posthumous hit could be the anthem for big banks flush with profits while fearing new regulations. YouTube »

S.E.C. Files Civil Case Against Steven Cohen of SAC

Federal regulators filed civil charges against Steven A. Cohen on Friday, accusing him of “failing to supervise” employees who face insider trading charges.

The civil action delivers a serious blow to Mr. Cohen, the billionaire owner of SAC Capital Advisors. Yet it stops short of accusing him of fraud, instead focusing on a breakdown in controls at the fund, once one of Wall Street’s best performers.

“Hedge fund managers are responsible for exercising appropriate supervision over their employees to ensure that their firms comply with the securities laws,” Andrew J. Ceresney, co-head of the S.E.C.’s enforcement division, said in a statement “After learning about red flags indicating potential insider trading by his employees, Steven Cohen allegedly failed to follow up to prevent violations of the law.”

The action comes several months after SAC agreed to settle charges with the S.E.C., paying a record $615 million.

Federal prosecutors and the F.B.I. continue to investigate the fund.

In a statement, a spokesman for SAC argued that the S.E.C.’s case “has no merit,” adding that Mr. Cohen “acted appropriately at all times and will fight this charge vigorously.”

2 JPMorgan Directors Resign

Two directors at JPMorgan Chase who have received lackluster support from shareholders resigned on Friday, the latest change in the aftermath of a multibillion-dollar trading loss last year.

The two board members, David Cote and Ellen Futter, were narrowly re-elected at the bank’s annual meeting in May.

Mr. Cote, who is the chairman and chief executive of Honeywell International, resigned after five years with the bank. Ms. Futter, the president of the American Museum of Natural History, departs comes after 16 years, JPMorgan said in a news release on Friday.

Both Mr. Cote and Ms. Futter, members of the bank’s risk committee, were buffeted by criticism in the wake of trading losses last year that emerged from JPMorgan’s London office. Some investors said that the board’s risk committee lacked the financial prowess to safeguard against the kind of trading losses that hit the nation’s largest bank.

The trading debacle was also widely viewed as a black eye on the leadership of Jamie Dimon, the bank’s charismatic chairman and chief executive. A proposal to split Mr. Dimon’s two roles, however, was ultimately defeated by a wide margin.

To voice their dissatisfaction, a small but vocal group of shareholders agitated against some of the board members’ re-election.

Shortly before the annual meeting in Tampa, Ms. Futter had planned to resign, according to people familiar with the matter. Those plans changed, though, when Mr. Dimon called to urge her to stay.

She was ultimately re-elected with the lowest amount of support, only 53.1 percent of the vote. Mr. Cote was reelected with 59.3 percent of the vote.

“I want to thank Ellen and Dave for their dedicated service to our firm,” Mr. Dimon said in a statement. “We have learned a great deal from both of them and will miss having them as members of our board.”

S.E.C. Rejects Its Own Deal With Hedge Fund Manager

The Securities and Exchange Commission overruled its own enforcement division’s decision to settle a civil case with the high-flying money manager Philip A. Falcone and his flagship hedge fund, a rare reversal that signals a broader crackdown by the agency.

The S.E.C. notified Mr. Falcone’s parent company, the Harbinger Group, “late in the afternoon” on Thursday that the agency’s five commissioners had rejected “the previously disclosed agreement in principle,” according to a public filing the company made on Friday. The charges stemmed from allegations that Mr. Falcone manipulated the market, used hedge fund assets to pay his own taxes and secretly favored select customers at the expense of others.

The S.E.C.’s rejection of the settlement â€" a move that will prompt the agency to either enforce a tougher penalty or take Mr. Falcone to trial- suggested that its preliminary deal did not match the gravity of the crime. The deal, announced by Mr. Falcone in May, came with an $18 million penalty from the S.E.C., a rounding error to a hedge fund billionaire. Mr. Falcone was set to personally pay $4 million of the penalty, according to people briefed on the matter, while the fund’s management company would have paid the rest.

While the deal also included at least a two-year ban from raising new capital, a potential death knell to a hedge fund manager, that punishment came with a number of caveats. And in a a moral victory for Mr. Falcone, the deal also omitted a common provision that prohibits defendants from committing future violations with fraudulent intent.

When Mr. Falcone announced the deal, it raised concerns that the S.E.C.’s results fall short of its ambitions. It also reignited criticism of an agency that failed to thwart the financial crisis and Bernard L. Madoff’s Ponzi scheme.

But the rejection of Mr. Falcone’s deal could assuage such concerns and demonstrate a marked shift under its new chairwoman, Mary Jo White, a former federal prosecutor who has vowed to take a hard line against financial fraud.

Already, Ms. White has moved to address a central criticism of the agency: that it allows defendants to neither “admit nor deny” wrongdoing. In a departure from a longtime practice, Ms. White recently announced that the agency would in some cases force Wall Street firms to admit to their crimes.

The leaders of the S.E.C. enforcement unit detailed the policy shift in a memo, saying there might be cases that “justify requiring the defendant’s admission of allegations in our complaint or other acknowledgment of the alleged misconduct as part of any settlement,” noting that such cases arise “particularly when the defendant engaged in egregious intentional misconduct.”

A spokesman for the S.E.C. did not respond to a request for comment. Mr. Falcone’s spokesman declined to discuss the case.

For Mr. Falcone, the agency’s shift will prolong a painful chapter in his long Wall Street career.

It was not long ago that Mr. Falcone, who rose from rural Minnesota to the Harvard hockey team, was seen as one of the shrewdest investors on Wall Street. His prophetic bet against the subprime mortgage market made Mr. Falcone a fortune, success that cemented Mr. Falcone status in Manhattan’s social elite.

Mr. Falcone and his wife, Lisa Maria, soon became fodder for New York tabloids drawn to his rising star power. Their flashy taste for fashion and real estate â€" to say nothing of a charitable streak that included a $10 million gift to the High Line in Manhattan â€" reinforced the fascination swirling around him.

S.E.C. Rejects Its Own Deal With Hedge Fund Manager

The Securities and Exchange Commission overruled its own enforcement division’s decision to settle a civil case with the high-flying money manager Philip A. Falcone and his flagship hedge fund, a rare reversal that signals a broader crackdown by the agency.

The S.E.C. notified Mr. Falcone’s parent company, the Harbinger Group, “late in the afternoon” on Thursday that the agency’s five commissioners had rejected “the previously disclosed agreement in principle,” according to a public filing the company made on Friday. The charges stemmed from allegations that Mr. Falcone manipulated the market, used hedge fund assets to pay his own taxes and secretly favored select customers at the expense of others.

The S.E.C.’s rejection of the settlement â€" a move that will prompt the agency to either enforce a tougher penalty or take Mr. Falcone to trial- suggested that its preliminary deal did not match the gravity of the crime. The deal, announced by Mr. Falcone in May, came with an $18 million penalty from the S.E.C., a rounding error to a hedge fund billionaire. Mr. Falcone was set to personally pay $4 million of the penalty, according to people briefed on the matter, while the fund’s management company would have paid the rest.

While the deal also included at least a two-year ban from raising new capital, a potential death knell to a hedge fund manager, that punishment came with a number of caveats. And in a a moral victory for Mr. Falcone, the deal also omitted a common provision that prohibits defendants from committing future violations with fraudulent intent.

When Mr. Falcone announced the deal, it raised concerns that the S.E.C.’s results fall short of its ambitions. It also reignited criticism of an agency that failed to thwart the financial crisis and Bernard L. Madoff’s Ponzi scheme.

But the rejection of Mr. Falcone’s deal could assuage such concerns and demonstrate a marked shift under its new chairwoman, Mary Jo White, a former federal prosecutor who has vowed to take a hard line against financial fraud.

Already, Ms. White has moved to address a central criticism of the agency: that it allows defendants to neither “admit nor deny” wrongdoing. In a departure from a longtime practice, Ms. White recently announced that the agency would in some cases force Wall Street firms to admit to their crimes.

The leaders of the S.E.C. enforcement unit detailed the policy shift in a memo, saying there might be cases that “justify requiring the defendant’s admission of allegations in our complaint or other acknowledgment of the alleged misconduct as part of any settlement,” noting that such cases arise “particularly when the defendant engaged in egregious intentional misconduct.”

A spokesman for the S.E.C. did not respond to a request for comment. Mr. Falcone’s spokesman declined to discuss the case.

For Mr. Falcone, the agency’s shift will prolong a painful chapter in his long Wall Street career.

It was not long ago that Mr. Falcone, who rose from rural Minnesota to the Harvard hockey team, was seen as one of the shrewdest investors on Wall Street. His prophetic bet against the subprime mortgage market made Mr. Falcone a fortune, success that cemented Mr. Falcone status in Manhattan’s social elite.

Mr. Falcone and his wife, Lisa Maria, soon became fodder for New York tabloids drawn to his rising star power. Their flashy taste for fashion and real estate â€" to say nothing of a charitable streak that included a $10 million gift to the High Line in Manhattan â€" reinforced the fascination swirling around him.

2 JPMorgan Directors Resign

Two directors at JPMorgan Chase who have received lackluster support from shareholders resigned on Friday, the latest change in the aftermath of a multibillion-dollar trading loss last year.

The two board members, David Cote and Ellen Futter, were narrowly re-elected at the bank’s annual meeting in May.

Mr. Cote, who is the chairman and chief executive of Honeywell International, resigned after five years with the bank. Ms. Futter, the president of the American Museum of Natural History, departs comes after 16 years, JPMorgan said in a news release on Friday.

Both Mr. Cote and Ms. Futter, members of the bank’s risk committee, were buffeted by criticism in the wake of trading losses last year that emerged from JPMorgan’s London office. Some investors said that the board’s risk committee lacked the financial prowess to safeguard against the kind of trading losses that hit the nation’s largest bank.

The trading debacle was also widely viewed as a black eye on the leadership of Jamie Dimon, the bank’s charismatic chairman and chief executive. A proposal to split Mr. Dimon’s two roles, however, was ultimately defeated by a wide margin.

To voice their dissatisfaction, a small but vocal group of shareholders agitated against some of the board members’ re-election.

Shortly before the annual meeting in Tampa, Ms. Futter had planned to resign, according to people familiar with the matter. Those plans changed, though, when Mr. Dimon called to urge her to stay.

She was ultimately re-elected with the lowest amount of support, only 53.1 percent of the vote. Mr. Cote was reelected with 59.3 percent of the vote.

“I want to thank Ellen and Dave for their dedicated service to our firm,” Mr. Dimon said in a statement. “We have learned a great deal from both of them and will miss having them as members of our board.”

How Interval Training Can Make You Incredibly Efficient at Work

As a runner, I’ve spent most of my adult life training aerobically, meaning I run for extended periods of time - 30 to 60 minutes - at a pace I find challenging but perfectly tolerable.

But over the last several months, I’ve more often been running anaerobically - in short intervals of 30 and 60 seconds at much higher speeds, with same 30 to 60 seconds of rest between each one. I invest as few as 7 to 10 minutes in my interval workout, and it rarely goes beyond 15.

The reason I’ve shifted is the growing evidence that short, intense workouts are a more efficient way to train. Over the last several months, the New York Times columnist Gretchen Reynolds has reported on several studies suggesting that high intensity interval workouts as short as four minutes can produce cardiovascular health benefits as great as those from far longer aerobic workouts. I’m a sucker for doing less.

Why should you care if you’re not a runner, and this is a column about the workplace? The answer is I’ve long since learned that what’s true for us physically usually turns out to be equally true mentally and emotionally.

Most of us feel deeply challenged by how to get more done, more efficiently, in a world of relentlessly rising demand. The default answer is to put in more time. But just as that may be counterproductive in workouts, so it is at work.

I wrote about this at length in February, in an article called “Relax, You’ll Be More Productive.” I mentioned the power of working throughout the day in mental intervals, which are focused periods no longer than 90 minutes at a time, followed by a break. I argued that by doing so, it’s possible to get far more accomplished in shorter periods of time.

But here’s the trade-off: Just as running high intensity intervals is demanding, uncomfortable, and nearly unbearable toward the end of each one, focusing single-mindedly on a challenging task in successive intervals is mentally taxing and, at times, exhausting.

The point is that high efficiency requires a much higher tolerance for frequent, short-term discomfort. Most of us instinctively avoid pain of any kind - much less regularly â€" which helps explain why the majority of us aren’t really great at anything. It is also why we interrupt challenging work so frequently to check our e-mail or check out Facebook or Twitter.

So what’s the trick to overcoming our resistance to pushing ourselves really hard, even for short periods?

The answer is fierce prioritization in the form of rituals. Set up highly specific behaviors you do over and over at precise times so they become automatic as quickly as possible and no longer require conscious intention. As the authors Roy Baumeister, Charles Duhigg and others have written, the more we have to think consciously about doing something, the more rapidly we deplete our severely limited reservoir of will and discipline.

My favorite ritual, for example, is to do the most important thing first every morning, for 90 minutes, and then take a break. I’m in the middle of that interval right now, and at the end of it, I’ll have breakfast. It’s how I prioritize my most important and challenging work at a time of day when I have the most energy to do it, and the fewest distractions.

Prioritizing itself turns out to require time. Part of my evening ritual is to take five to 30 minutes before I leave my office every day to sort through what I’ve done that day, and decide what makes most sense to begin with the next day.

If I try to do that the next morning, I learned long ago that I get distracted by competing possibilities, and end up simply responding to whatever feels most urgent. Likewise, if I don’t get to my highest and most challenging priority first thing in the morning, by the time I do, at the end of the day, I’m usually too tired to do it.

It’s about breaking up your current marathon into short, doable intervals. Tolerate finite periods of focused discomfort so you get more done and you have more time left to savor the rest of your life.

When you’re working, really work. When you’re renewing, truly renew.

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

Ways to Muscle Out Competing Deal Offers

The $1.19 billion AT&T acquisition of Leap Wireless International is an illustration in how far bidders and acquisition targets can go these days to protect against competing offers.

In AT&T’s merger agreement with Leap Wireless, two provisions in particular make it harder than normal for a competing bid to succeed.

The first is a so-called force-the-vote clause. Merger agreements typically allow a target company’s board to terminate a deal to accept a superior competing bid. But Delaware law permits the two parties in a merger deal to agree that a shareholder vote must be held even if a competing bid emerges.

Even though such a clause is legal, only in 9.6 percent of public acquisition agreements since 2010 have contained a force-the-vote clause, according to FactSet Mergermetrics.

The reason is simple expediency. If a higher bid emerges, it is unlikely that the target company’s shareholders will vote to approve the original deal. Requiring a shareholder vote is thus only delaying the inevitable no vote.

In this case, though, AT&T and Leap have paired a force-the-vote provision with a voting agreement, making it a more powerful. MHR Fund Management, an investment fund headed by Mark H. Rachesky that holds about 30 percent of Leap’s shares, has irrevocably agreed to vote in favor of AT&T’s bid. When I say irrevocably, I mean it. MHR’s voting agreement does not give the fund an out if a higher bid comes along.

So even if a competing bidder comes along, AT&T can force a shareholder vote to be held - and it has already locked up about MHR’s vote.

Still, this does not mean that it is a done deal. If another bidder comes along, it could still sway the rest of Leap’s shareholders, or at least enough of them to prevent Leap from exceeding the t50 percent mark needed to complete the deal with AT&T.

The deal protection provisions thus have two functions. First, the clauses deter marginally better bids. Second, they extend the time period for any competing acquisition to be agreed upon and completed, perhaps providing a second deterrent.

If a competing bid is made and ultimately accepted, however, Leap has to pay AT&T a termination fee of $46.3 million, or 3.9 percent of transaction value. According to FactSet Mergermetrics, in the last 12 months, the average termination fee was 3.36 percent of transaction value. Though not a big difference from the average, the higher percentage offers additional protection.

The merger agreement also limits the Leap board’s ability to change its recommendation if an “intervening event” occurs - that is, if something unexpected happens that makes the AT&T bid no longer in the best interests of stockholders. The key here is that the event must be wholly unexpected.

The example practitioners use for what constitutes an intervening event is something like the target company discovering a gold mine under its headquarters, thereby suddenly making the current bid woefully underpriced. But how often are gold mines actually discovered under a company’s headquarters?

While the gold mine example is extreme, this type of clause has never been invoked in the history of takeovers. It is also probably meaningless in this case. The effect of the protection provisions is in some ways a prediction by AT&T and Leap about the likelihood of a competing bid. One possibility is that AT&T, worried about the competitive consolidation and furious rate of bidding for companies in the wireless market, demanded these deal protections.

Leap may have shopped itself, and its board may be fairly confident that another bidder was not out there. The directors could therefore agree to these stronger deal protections, safe in the knowledge that, though stronger than normal, they might not matter much.

In other words, the deal protections here may be appropriate given the state of the market. The fact that MHR, which is a pretty sophisticated investor, also agreed to these protections supports this hypothesis.

That’s the rub about deal protections. Over the last several years, they have become ever stronger and more intricate, a phenomenon known as lockup creep. But whether this is being driven by target companies or bidders - and whether the trend signals a fuller shopping of the company - can be difficult to determine, even when the negotiations are disclosed.

As for the legality of these deal protections, they are unlikely to be struck down by the Delaware courts. In fact, the protections here show how the law has changed in Delaware in the last decade.

The reason is the long slow death of Omnicare. What is Omnicare, you may ask?

In 2003, NCS Healthcare negotiated to sell itself to Genesis Health Ventures in a locked-up deal. A majority of the NCS stockholders irrevocably agreed to vote in favor of the Genesis acquisition, even if the NCS board later changed its recommendation because of another competing bidder. Since the agreement also contained a force-the-vote provision, this meant that the Genesis acquisition was a fait accompli.

These arrangements were challenged by Omnicare, a competing bidder, which offered significantly more money for NCS. In Omnicare v. NCS, the Delaware Supreme Court delivered a 3-to-2 split decision to strike down the voting agreement. The court ruled that such an agreement made the deal certain, and therefore breached the board’s fiduciary duties.

The Omnicare decision was quite controversial, criticized by practitioners and academics alike. At some point, an auction to sell a company must end, and in this instance, NCS had thoroughly canvassed the market and would have faced bankruptcy without the Genesis deal.

But the Omnicare decision was slowly whittled away by the lower Delaware courts. In Miami v. WCI Steel Inc., then-Vice Chancellor Stephen P. Lamb held that the ruling in Omnicare was not implicated when a merger was then approved by the stockholders of WCI by written consent the very same day that the board also approved the deal. Today, it is generally thought that the Omnicare ruling is dead, and that if the Delaware Supreme Court again took up the matter, it would overturn its own decision.

All of this is relevant when reviewing the deal AT&T reached with Leap Wireless. Given the state of Omnicare, this type of lockup - a force-the-vote provision coupled with a voting agreement for less than a majority of a target company’s shares - is undoubtedly acceptable. In the wake of the death of Omnicare and the reduced court scrutiny it brought for deal protections, practitioners have felt much freer to push the bounds - negotiating more aggressive deal protections. Expect to see deals like this again and again in the future.

But are these protections being negotiated simply because the parties can? Or are they being used because the target company believes these lockups provide an incentive for the first bidder to pay up and no other bids are out there? The matter could be put to the test in the AT&T-Leap deal if a second bidder emerges and attempts to overcome these deal protections.

Vivendi Rejected SoftBank Bid for Universal Music

Vivendi, the French media and telecommunications conglomerate, rejected an $8.5 billion cash bid from SoftBank for the Universal Music Group earlier this year, according to a person briefed on the offer.

NetApp Adds Directors Amid Push for Changes

NetApp Inc. quietly announced last week that it planned to add two directors to its board. But their qualifications may hint that the decision to appoint them did not just come out of thin air.

In its preliminary proxy filing, NetApp, the computer storage provider, disclosed that it will seat Kathryn M. Hill and Tor R. Braham as its newest directors, with investors voting on them at the company’s annual meeting on Sept. 13.

Both have been involved in the technology sector for a long time. But according to people briefed on the matter, they were also suggested by Elliott Management, the activist hedge fund that has taken a stake of just less than 5 percent in NetApp and is pushing for strategic changes at the company.

Elliott, which has managed to shake up several technology companies in recent years, had discussed adding Ms. Hill and Mr. Braham with the company for a number of weeks, one of these people said. Mr. Braham was the suggestion of Elliott’s point person on technology investments, Jesse Cohn; Ms. Hill arose out of discussions between the two sides.

What makes both nominees interesting are their backgrounds. Ms. Hill was most recently a senior vice president of development strategy and operations at Cisco Systems, which is considered a natural potential buyer of NetApp.

And Mr. Braham is a longtime technology mergers banker who previously worked at Deutsche Bank and at Credit Suisse, where he worked with the deal maker Frank Quattrone.

“We applaud NetApp’s smart, forward-thinking decision to strengthen its board as it plans for success in the future,” Mr. Cohn of Elliott said in a statement. “Both Tor and Kathy will add tremendously to the board’s dialogue as it seeks to ensure continued success and value-creation for NetApp’s stockholders.”

A possible goal of adding the two directors is to help steer the company’s board into considering a sale, an idea that Elliott has supported. It has had success agitating for the sales of Novell and BMC Software. The hedge fund has pushed for several changes at NetApp to lift its stock price.

The company has already taken steps to return money to shareholders. In May, it rolled out a $3 billion stock buyback plan and a new quarterly cash dividend.

It remains to be seen whether NetApp will take that next step. For its part, the company said of its newest directors: “All candidates underwent a comprehensive review process and NetApp is confident in the two new nominees to bring a fresh perspective to our existing board with their relevant experience and deep industry knowledge.”

The company added that its board and management would continue working to improve the company’s long-term shareholder value and “will continue to take actions that we believe will enable us to achieve this objective.”

NetApp Adds Directors Amid Push for Changes

NetApp Inc. quietly announced last week that it planned to add two directors to its board. But their qualifications may hint that the decision to appoint them did not just come out of thin air.

In its preliminary proxy filing, NetApp, the computer storage provider, disclosed that it will seat Kathryn M. Hill and Tor R. Braham as its newest directors, with investors voting on them at the company’s annual meeting on Sept. 13.

Both have been involved in the technology sector for a long time. But according to people briefed on the matter, they were also suggested by Elliott Management, the activist hedge fund that has taken a stake of just less than 5 percent in NetApp and is pushing for strategic changes at the company.

Elliott, which has managed to shake up several technology companies in recent years, had discussed adding Ms. Hill and Mr. Braham with the company for a number of weeks, one of these people said. Mr. Braham was the suggestion of Elliott’s point person on technology investments, Jesse Cohn; Ms. Hill arose out of discussions between the two sides.

What makes both nominees interesting are their backgrounds. Ms. Hill was most recently a senior vice president of development strategy and operations at Cisco Systems, which is considered a natural potential buyer of NetApp.

And Mr. Braham is a longtime technology mergers banker who previously worked at Deutsche Bank and at Credit Suisse, where he worked with the deal maker Frank Quattrone.

“We applaud NetApp’s smart, forward-thinking decision to strengthen its board as it plans for success in the future,” Mr. Cohn of Elliott said in a statement. “Both Tor and Kathy will add tremendously to the board’s dialogue as it seeks to ensure continued success and value-creation for NetApp’s stockholders.”

A possible goal of adding the two directors is to help steer the company’s board into considering a sale, an idea that Elliott has supported. It has had success agitating for the sales of Novell and BMC Software. The hedge fund has pushed for several changes at NetApp to lift its stock price.

The company has already taken steps to return money to shareholders. In May, it rolled out a $3 billion stock buyback plan and a new quarterly cash dividend.

It remains to be seen whether NetApp will take that next step. For its part, the company said of its newest directors: “All candidates underwent a comprehensive review process and NetApp is confident in the two new nominees to bring a fresh perspective to our existing board with their relevant experience and deep industry knowledge.”

The company added that its board and management would continue working to improve the company’s long-term shareholder value and “will continue to take actions that we believe will enable us to achieve this objective.”

Finra Scrutinizes High-Speed Trading Firms

Regulators are taking a closer look at whether high-frequency trading firms might represent a threat to the stability of financial markets.

The Financial Industry Regulatory Authority, an industry-financed regulator, sent letters to 10 high-speed trading firms this week, asking them for more information about their trading programs and the steps they have in place to avert “market disruptions.”

The letter comes as regulators around the world are grappling with the role that high-speed trading firms have come to play over the last decade as they have grown to account for a majority of all trading in American stocks. These firms, which use high-speed computers and infrastructure to take advantage of small discrepancies in trading prices, have also taken an increasing role in trading in other markets.

The letter sent out this week is focused primarily on the steps the firms take to test their programs, or algorithms, before they begin trading with them, and the preparations they take to deal with unexpected trading problems. Regulators have been focused on these issues since one trading firm, Knight Capital, lost nearly $500 million, and nearly went bankrupt, after its trading programs went haywire last August.

The letter also asks about efforts to monitor market “manipulation.” Earlier this year, Finra said in an annual report that it was concerned about high-speed trading strategies that are “used for manipulative purposes.”

A version of this article appeared in print on 07/19/2013, on page B7 of the NewYork edition with the headline: Trading Inquiry.

Pressure Is on PepsiCo to Respond to Peltz\'s Overtures

The investor Nelson Peltz just put an end to PepsiCo's delay game. He went public on Wednesday with a $60 billion-plus plan to join Pepsi's salty nibbles with the sweet treats of Mondelez International, or alternatively, to carve up Pepsi, a company with a market value of more than $130 billion.

Both ideas are Activism 101. Mr. Peltz, however, makes a sensible enough case that it puts the onus on Pepsi's chief, Indra Nooyi, to make a strong defense.

The pressure has been building at Pepsi. Analysts have been arguing the merits of a breakup for a while. Earlier this year, Mr. Peltz, who leads Trian Fund Management, disclosed his stakes in both companies, which led to speculation he might try to push them together as he did when he urged Kraft to take over Cadbury. Pepsi meekly dismissed the idea and plodded ahead with its “Power of One” campaign showcasing the synergies of soda and chips.

While the health merits of combining Pepsi's Doritos and Mondelez's Oreos may be indefensible, the financial logic is compelling. Mr. Peltz first takes aim at Pepsi's lagging shareholder returns under Ms. Nooyi against rivals, including Coca-Cola and Hershey, and its comparatively low investment in advertising as a percentage of sales. Buying Mondelez and then spinning off Pepsi's beverages, he argues, would be the best way to turn things around.

Even ignoring Mr. Peltz's case for $3 billion in revenue synergies, if 8 percent of Mondelez's sales could be hacked out in the form of cost savings it would amount to some $3 billion a year alone.

Citigroup analysts in March saw great value in a Pepsi-Mondelez deal assuming no synergies at all. Mr. Peltz also imagines an all-stock transaction with a 16 percent premium, giving shareholders of both companies the ability to share in any upside.

Other, less-ambitious ideas would forget Mondelez and simply spin out all or parts of Pepsi's drinks arm. These would be weaker options to Mr. Peltz's mind but would still create at least twice as much value for Pepsi investors as sitting still. Though the analysis may resemble a Wall Street pitch book, Mr. Peltz also brings with him a calling card of success upending the food industry - including Wendy's, Heinz and Kraft.

Pepsi has said it will provide a review of its North American beverages business next year. At this stage, it'll have to serve up heartier fare.

Jeffrey Goldfarb is an assistant editor at Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.

Apache to Sell Gulf of Mexico Shelf Unit for $3.75 Billion

The Apache Corporation agreed to sell its business in the Gulf of Mexico's shelf to a portfolio company owned by the private equity firm Riverstone Holdings for about $3.75 billion.

The buyer, Riverstone's Fieldwood Energy, is buying a business with 239 millions of barrels of oil equivalent in reserves at the end of last year, more than half of which is oil and 75 percent of which is already developed.

The deal is the biggest sale on record by Apache, which has spent $15 billion in acquisitions over the last three years alone, according to Standard & Poor's Capital IQ. In a statement, the company said that the deal is meant to help rebalance its portfolio, though it will also offload about $1.5 billion worth of asset retirement obligations.

Apache will retain a 50 percent stake in all exploration blocks in the assets, and it will work with the buyer, Fieldwood Energy, in developing deep-water sites in the holdings.

“At the end of this process, we expect Apache to have the right mix of assets to generate strong returns, drive more predictable production growth, and create shareholder value,” G. Steven Farris, Apache's chairman and chief executive, said in a statement.

The deal is one of the biggest takeovers associated with Riverstone alone, according to Capital IQ, although the firm has partnered with others on some of the biggest energy-related private equity firms in history.

“We have had a long-standing and strong relationship with Apache's executive management and have been great admirers of their entire organization and their Gulf of Mexico operations for many years,” Pierre F. Lapeyre Jr. and David M. Leuschen, Riverstone's co-founders, said in a statement.

Apache was advised by Goldman Sachs and the law firm Bracewell & Giuliani.

Fieldwood is receiving financing from Citigroup, JPMorgan Chase, Deutsche Bank, Bank of America Merrill Lynch and Goldman. It received legal counsel from Vinson & Elkins a nd Simpson Thacher & Bartlett.

A version of this article appeared in print on 07/19/2013, on page B7 of the NewYork edition with the headline: Apache's Sale.

Bank in Madoff Case Settles With Some Plaintiffs and Gets Favorable Jury Ruling

6:19 p.m. | Updated

Westport National Bank and its parent company, Connecticut Community Bank, were not liable for the losses of investors in Bernard Madoff's vast Ponzi scheme in its role as a custodial bank, a jury found on Wednesday. Separately, the bank agreed to pay $7.5 million to 240 investors in a related case, a lawyer for the bank said.

A federal jury in Hartford had finished hearing eight days of evidence last month in a case before Judge Vanessa L. Bryant of the United States District Court for the District of Connecticut. The case had consolidated three similar lawsuits against the bank. Two of those cases settled before the jury began its deliberations.

After the other cases settled, the jury did evaluate the bank's custodial duties in a case brought by two Florida investors, but sent a mixed message.

After 14 hours of deliberation, the jury said that the bank was not a fiduciary, and thus owed no fiduciary duty to two elderly Florida investors, Audrey Short and Faye Albert.

The jury ruled that the bank breached its custodian agreements when it calculated its fees based on the Madoff firm's reports instead of on the actual assets it held. It also said that the two plaintiffs had proved that the bank breached its agreements when it failed to issue accurate annual statements and failed to audit or verify the existence and value of the assets.

But the six jurors determined that neither plaintiff had proved that she suffered any economic loss as a result of the actions.

“They found we failed to maintain accurate records, but they found that nothing the bank did caused any harm,” Tracy A. Miner, one of the bank's lawyers, said in a telephone interview. Ms. Miner said that the bank's liabilities involving the accounts that were settled could have reached $70 million to $80 million.

Steve Gard, a lawyer for Mrs. Short and Mrs. Albert, said that he planned to file a motion within two weeks asking for a judgment in the investors' favor because the jurors findings “are inconsistent.”

Mr. Gard said that the jurors determined that his clients had not suffered a loss as a result of the bank's inadequate recordkeeping before getting a chance to hear all the evidence.

During the trial, the bank stressed that its contracts with the plaintiffs only obligated it to perform ministerial duties. Lawyers for the bank also made much of the fact that financial regulators, including the Securities and Exchange Commission, had not been able to catch Mr. Madoff, so it would be unrealistic to expect a small Connecticut bank to be able to do so.

For their part, the plaintiffs emphasized that there were cautious investors who stayed away from Mr. Madoff's firm because of the lack of transparency in his operation.

The case had been watched for its implications on the duties of custodial banks. Investors sometimes assume that a custodian actually takes custody of their assets, but the bank's obligations can vary widely depending upon how its contract is worded.

Custodial relationships become problematic “when there is ambiguity about the bank's duties and the customer expects more than the bank thought it had agreed to” said Kathy Bazoian Phelps, a Los Angeles-based lawyer and co-author of “The Ponzi Book: A Legal Resource for Unraveling Ponzi Schemes.”

The interpretation of contractual obligations was “exactly where the trouble lies” in the Connecticut Community Bank case, she said.

Disputes over the obligations of custodians will only get more frequent and more heated, said Edward Siedle, a former S.E.C. lawyer who investigates pension fund abuses.

Investors are increasingly setting up so-called self-directed I.R.A.'s that invest in hedge funds and real estate, Mr. Siedle said. Each of those accounts must be kept with a custodian, which may have no obligation to do more than keep records that it never verifies.

“The risks are getting greater than ever,” he said.

A version of this article appeared in print on 07/19/2013, on page B7 of the NewYork edition with the headline: Madoff Case.

JPMorgan Executive May Escape Penalty

Even as the nation's top energy regulator is poised to extract a record settlement from JPMorgan Chase over accusations that it manipulated power markets, the agency is expected to spare a top bank lieutenant who federal investigators initially contended made “false and misleading statements under oath,” according to people briefed on the matter.

Blythe Masters, a seminal Wall Street figure who is known for developing exotic financial instruments, emerged this spring at the center of an investigation by the Federal Energy Regulatory Commission into accusations of illegal trading in the California and Michigan electricity markets.

The regulator found that JPMorgan designed trading “schemes” that converted “money-losing power plants into powerful profit centers,” a commission document said.

While the commission and JPMorgan are negotiating a settlement for about $500 million, the people briefed on the matter said, Ms. Masters is not expected to face a separate action. The move signals a pivot for the agency, which has been increasingly flexing its enforcement muscle, according to the people briefed on the matter, who spoke on the condition they not be named.

Months earlier, investigators planned to recommend that the regulator find Ms. Masters, who holds a powerful position within JPMorgan as the head of its commodities business, “individually liable.” But as the investigation progressed, these people said, top energy regulatory officials have been leaning toward not pursuing any civil charges against Ms. Masters.

The decision - which could change, according to the people briefed on the matter - would mean that Ms. Masters would escape the agency's sweeping crackdown against big banks. After gaining enforcement authority because of a change in 2005 that allowed it to impose fines of $1 million a day for each violation, the energy regulator has taken a tougher stance with Wall Street.

Still, the regulator's claims against JPMorgan, which came to light this spring in a confidential commission document reviewed by The New York Times, have turned a harsh spotlight on Ms. Masters. In the 70-page document, sent to JPMorgan in March, the regulator's enforcement staff said it intended to recommend that the commission pursue a civil case against JPMorgan in connection with the trading in California and Michigan. Since the regulator's findings surfaced, JPMorgan has defended Ms. Masters and the traders, disputing that “Blythe Masters or any employee lied or acted inappropriately in this matter.”

As JPMorgan began to negotiate a settlement with the regulator in recent weeks, Ms. Masters, too, vociferously defended the trading activity, asserting that the bank did nothing wrong, according to three people briefed on the matter. That position, the people said, has been echoed throughout JPMorgan.

Within Wall Street, Ms. Masters is widely considered a pioneer for her use of credit derivatives, the complex financial products that played a central role in the 2008 financial crisis. Rising through the ranks of JPMorgan - she was the youngest managing director at 28 - Ms. Masters became one of the most powerful executives on Wall Street, propelled by a vision that the products could radically remake the banking industry.

Ms. Masters formed close ties with Jamie Dimon, the bank's chief executive, who has moved to shore up support for her, according to people close to the bank. The two were bound by their belief that the commodities business was critical to JPMorgan's growth.

In her role as commodities chief, according to the March document, Ms. Masters oversaw traders in Houston who were in a vexing position: selling electricity from power plants in California and Michigan was a losing endeavor. The rights to sell the energy, which JPMorgan inherited after its 2008 takeover of Bear Stearns, relied on “inefficient,” antiquated technology. Simply put, the document said, it was an “unprofitable asset.” Particularly troubling, the document said, was a string of Southern California power plants that were built in the 1950s and 1960s, ultimately making them “less efficient than most of their competitors” because they siphoned more fuel for the energy they produced.

Known for her “highly detail-oriented” style, Ms. Masters “kept close tabs on the California and Michigan power plants,” asking that she be directly briefed by her employees about “many of the bidding schemes under investigation,” agency investigators found in the March document. From September 2010 to June 2011, those traders devised eight separate “schemes” to sell energy at prices “calculated to falsely appear attractive” to state energy authorities.

As the bidding was under way, the investigators found, Ms. Masters received regular PowerPoint presentations and e-mails that referred to the strategies. In one January 2011 PowerPoint reviewed by Ms. Masters, the strategy, which promised to transform the plants losing money into profitable operations, appeared 51 times, according to the March regulatory document.

JPMorgan has argued that its trading was legal. In an earlier statement, a bank spokeswoman said the “bidding strategies were in full compliance with applicable rules.”

But the energy investigators disagreed, the document shows. Duped by the manipulation, the investigators said, authorities in California and Michigan gave roughly $83 million in “excessive” payments to JPMorgan.

When JPMorgan traders worked to systemically “cover up” the strategy, investigators initially found, Ms. Masters aided the obfuscation. Ms. Masters “personally participated in JPMorgan's efforts to block” the state authorities “from understanding the reasons behind JPMorgan's bidding schemes,” the document said.

After California authorities began to raise objections to the bank's trading strategy, the investigators found, JPMorgan worked to cloak the trading from authorities by excluding critical profit and loss statements.

In April 2011, Ms. Masters initiated a conference call with top JPMorgan executives to brief them on “a reputational risk we are running in California,” according to the document.

The investigators also cited an April 2011 e-mail in which Ms. Masters, overriding the bank's compliance department, ordered a “rewrite” of an internal document that questioned whether JPMorgan ran afoul of the law. The revised wording, referring to the commission, said that “JPMorgan does not believe that it violated FERC's policies.”

One of the central disputes between the regulator and Ms. Masters was the extent to which she knew about the bidding strategies. Initially, the regulators took aim at Ms. Masters, whom they described as highly intelligent. While Ms. Masters “saw many presentations” about the strategies, she “falsely testified that she did not understand how the scheme made money, beyond a generic understanding that it was designed to maximize all sources of revenue,” investigators found.

JPMorgan's response to the March document, which exceeded 100 pages, could ultimately modulate the regulator's decision.

A version of this article appeared in print on 07/19/2013, on page B1 of the NewYork edition with the headline: JPMorgan Executive May Escape Penalty.

Big Banks, Flooded in Profits, Fear Flurry of New Safeguards

The nation's six largest banks reported $23 billion in profits in the second quarter, but they could end up victims of their own success.

In recent weeks, the Treasury Department, senior regulators and members of Congress have stepped up efforts intended to make the largest banks safer. The banks have warned that more regulation could undermine their ability to compete and curtail the amount of money they have to lend, but the strong earnings that came out over the last week could undercut their argument.

The most pressing concern for banks is a relatively tough new rule that regulators proposed last week that could force banks to build up more capital, the financial buffer they maintain to absorb losses. But the banks did not demonstrate any difficulty in meeting the proposed rules, and the banks now appear to have fewer allies in Washington than at any time since the financial crisis.

This was highlighted on Wednesday when the Treasury secretary, Jacob J. Lew, effectively issued an ultimatum to Wall Street, calling for the swift adoption of rules introduced through the Dodd-Frank financial overhaul law, which Congress passed in 2010. Mr. Lew also said that he might be open to stricter measures if enough had not been done to remove the threat that big banks can pose to the wider economy.

“If we get to the end of this year, and cannot, with an honest, straight face, say that we've ended ‘too big to fail,' we're going to have to look at other options because the policy of Dodd-Frank and the policy of the administration is to end ‘too big to fail,' ” Mr. Lew said.

“This is maybe the strongest admission I've heard from the administration that we must act further to end ‘too big to fail,' ” Senator David Vitter, Republican of Louisiana, said in a statement. Along with Senator Sherrod Brown, Democrat of Ohio, Senator Vitter introduced a bill earlier this year that would sharply increase capital levels at the biggest banks. In Congress on Thursday, Ben S. Bernanke, the Federal Reserve< /a> chairman, echoed Mr. Lew's remarks. He said that if the measures already planned did not remove the risks posed by large banks, “additional steps would be appropriate.”

Still, some analysts remain skeptical that the Fed and the Treasury would really lend their weight to the sort of aggressive measures some lawmakers are contemplating. The recent comments may be an attempt to gain some political benefit from looking tough on the banks. And the remarks may be aimed at reducing any momentum that the more draconian pieces of bank legislation are gaining in the Senate.

“I wonder how much of this is a serious policy change and how much is positioning by the administration to take on a more populist mode going into 2014,” Nolan McCarty, a professor of politics and public affairs at Princeton University, said. “It's a little bit surprising that, three years after Dodd-Frank and five years after the financial crisis, people are concerned not enough has been done.”

Still, the stronger words from government officials could shift the balance of power away from the banking industry.

“I sense a sea change in this,” Sheila C. Bair, a former chairwoman of the Federal Deposit Insurance Corporation, a primary bank regulator, said. “It's not moving with the banks, it's moving against them.”

The resurgence in bank profits appears to have been an important factor in persuading regulators to do more. The earnings revival did not take place just at the banks that emerged from the crisis in a position of relative strength, like JPMorgan Chase and Wells Fargo. This week, both Bank of America and Citigroup, which faltered badly after the finan cial crisis, reported healthy profits. The stocks of both banks have nearly doubled over the last 12 months, highlighting that investors' faith in the behemoths is also returning.

“The regulators are doing this because they can,” Michael Mayo, a banking analyst at CLSA, said. “And they can at this time of relative stability.”

The six largest banks now dominate the industry, accounting for more than half the sector's assets. Since the crisis, this has helped them make profit from mortgages and credit card loans, as well as Wall Street activities, like trading securities and underwriting deals. Their second-quarter profits were up 40 percent compared with those in the period a year earlier. Over the last 12 months, their combined profits were more than $70 billion. Over that period, Morgan Stanley, Goldman Sachs and JPMorgan's investment bank, all big presences on Wall Street, paid compensation of $41 billion.

Regulations planned or put in place in the crisis may also have helped banks by making them more resilient to shocks. The banks have less risky assets on their balance sheets, which helped them get through the recent rout in the bond market without big losses.

“You had major dislocations in currencies, commodities and interest rates and so far the industry has passed with flying colors,” Mr. Mayo said.

Still, Mr. Mayo and others question how healthy the banks are. While profits are up, and trading profits are buoyant, the pace of lending is not picking up. “Loans are down year to date. That's the issue at the moment,” he said. “This is not the stuff robust recoveries are made of.”

The industry contends that, with economic growth still relatively weak, more regulation of banks would be wrong.

“You have to be cautious about what layering on additional things can do to our prospects for economic growth, job creation and credit availability, in light of this economic fragility,” said Robert S. Nichols, president of the Financial Services Forum, an industry group that represents large banks. “We have to have more robust growth to get Americans back to work.”

While banks have made big profits under stiffer rules since the crisis, some analysts warn that adding more to the overhaul could really start to hurt.

“We've reached a point now where we have a balance,” John R. Dearie, who oversees policy at the Financial Services Forum, said. “We have a fortress balance sheet banking system. Our concern is that we don't overdo it.”

Still, some banking experts think the banks are bluffing when they say more regulation could hamper lending. “They can't see that it is in their long-term interests to have a credible regulatory process,” Ms. Bair said.

A version of this article appeared in print on 07/19/2013, on page A1 of the NewYork edition with the headline: Big Banks, Flooded in Profits, Fear Flurry of New Safeguards.