Witness in Tourre Case Describes Difficulty in Knowing Deal’s Friends From Foes

A transaction named Abacus 2007-AC1 became one of the most infamous trades of the financial crisis, netting more than $1 billion for Paulson & Company, a hedge fund that successfully wagered that the housing market would crash.

According to a crucial witness who took the stand on Tuesday at the trial of a former Goldman Sachs trader, the trade would never have happened had ACA Management, a firm that helped assemble it, been told that Paulson & Company was betting the trade would fail. The witness, Laura Schwartz, was testifying at the trial of Fabrice P. Tourre, who has been accused of participating in a scheme to defraud investors in connection to the trade and who is now on trial in Manhattan.

Ms. Schwartz was a senior executive at ACA and the main contact between her firm and Goldman, where Paulson & Company was a client eager to create a new security to capitalize on the housing market.

She is one of most important â€" and controversial â€" witnesses to take the stand in this trial, which on Wednesday will enter its eighth day. The civil case was brought in 2010 by the Securities and Exchange Commission, which also sued Goldman. Goldman settled its case in 2010, paying $550 million without admitting or denying guilt. That has left Mr. Tourre as the sole employee to battle the charges that ACA was misled about Paulson & Company’s role in the transaction.

The lawsuit is among the biggest cases the S.E.C. has brought stemming from behavior during the financial crisis, and Mr. Tourre, 34, has steadfastly denied wrongdoing. If the jury finds he did defraud investors, he faces a possible bar from the securities industry and financial fines.

Ms. Schwartz was a convincing, well-spoken witness as Matthew T. Martens, a lawyer for the S.E.C., questioned her about the deal, which started to come together in January 2007. She frequently looked at the jury when answering questions, explaining that ACA got involved in the transaction after receiving an e-mail from a Goldman managing director, Gail Kreitman.

Soon after receiving Ms. Kreitman’s e-mail, Ms. Schwartz sent out a meeting notice to various people, including Mr. Tourre and officials from Paulson & Company. The subject field read “Meet With Paulson, Potential Equity Investor.” This note set the tone for Mr. Martens’s questioning, as he presented Ms. Schwartz with countless ACA documents and e-mails, all referring to the hedge fund as an “equity” investor. Ms. Schwartz explained that she understood that the firm was betting the deal would succeed, or rise in value. In fact, Paulson & Company had taken a short position, in hopes of profiting if the security lost value.

“I believed Paulson was the equity investor in the transaction,” she said, repeating this refrain multiple times to the jury. She added that no one from Goldman Sachs, including Mr. Tourre, ever corrected e-mails to the firm from ACA that stated Paulson & Company was taking an equity position. In addition to arranging the trade, ACA was an investor, betting the security would rise in value.

Ms. Schwartz’s testimony contradicted testimony from a former Paulson & Company executive, Paolo Pellegrini, who told jurors last week that he made it clear to ACA that his company was betting the housing market would fall precipitously, and that the security would fall in value.

The trade in question, Abacus 2007-AC1, is what is known on Wall Street as a collateralized debt obligation, or C.D.O. Such instruments typically compile a package of mortgage-backed bonds into one deal for investors to buy. Abacus was a synthetic C.D.O., which, rather than selling securities with the actual bonds, is arranged through an insurance contract that is linked to the bonds’ performance.

The complexity of the security, as well as the way Wall Street does business, could make it hard for the jury to understand exactly what happened. In fact, the presiding judge, Katherine B. Forrest, tried to emphasize to both sides the need for clarity before the trial began.

Ms. Schwartz was far from a perfect witness for the S.E.C. A week before Mr. Tourre’s trial began, the court was notified that the S.E.C. had decided not to bring a case against Ms. Schwartz; the jury heard about this reprieve on Tuesday and may conclude that it colored her testimony.

Sean Coffey, a lawyer for Mr. Tourre, cross-examined Ms. Schwartz, and her demeanor was decidedly less friendly as he peppered her with questions.

Mr. Coffey stressed to the jury that in a synthetic C.D.O., one investor bets the trade will fail while another bets it will succeed. So, even if Paulson & Company was a long, or bullish, investor, a short investor was still needed to complete the trade.

Ms. Schwartz testified that she assumed Paulson & Company was wagering the trade would succeed and that she did not know who was on its other side.

Mr. Coffey was also quick to zero in on how ACA carefully analyzed each component that went into the Abacus trade, so it should not have mattered if the portfolio had been picked by Paulson & Company or by Joe, a court clerk for Judge Forrest.

“How about if you had found it on the floor?” he asked. Ms. Schwartz said that in each case, ACA would have done its own analysis of the various components of the C.D.O.

On Wall Street, the long investor is typically called the “transaction sponsor,” a term often used to describe Paulson & Company in documents. At least one witness, however, has said that the term could in certain circumstances describe a short investor, and on cross-examination Ms. Schwartz said she did not know if it meant long or short, a point that may bolster Mr. Tourre’s case.

Ms. Schwartz will be followed on the stand by Mr. Tourre. It is expected that he will testify all day Thursday as well.

Case Against SAC Leader Hinges on E-Mail Habits

If you thought your e-mail in-box was flooded, try sitting at Steven A. Cohen’s desk.

To locate an incoming message, Mr. Cohen, a hedge fund billionaire, would have to look at the only one of his seven computer screens that displays e-mail, a monitor that happened to be “to the far left” of the others, his lawyers argue in a new document responding to a recent civil charge against him. Then he would have to “minimize one or two computer programs” to call up his Microsoft Outlook window, which was “reduced” so that Mr. Cohen could see, at most, only five messages at once.

Finally, with a scroll of the mouse and a “double click,” he could read an e-mail.
While the setup â€" installed at Mr. Cohen’s summer home in the Hamptons in 2008 â€" might seem trivial, the e-mail habits of the hedge fund tycoon are at the heart of the government’s case.

The Securities and Exchange Commission filed a civil action last week that accused Mr. Cohen, the owner of SAC Capital Advisors, of failing to supervise employees suspected of insider trading. Those employees, Mathew Martoma and Michael S. Steinberg, were previously charged with criminal wrongdoing.

In its order, the S.E.C. cited a 2008 e-mail forwarded to Mr. Cohen in which an SAC analyst explicitly stated that he had a “2nd hand read from someone at” the computer maker Dell, a source who provided financial information about the company before its earnings announcement. Minutes after receiving the e-mail, Mr. Cohen sold his entire position in Dell, the S.E.C. said.

In the 46-page document responding to the S.E.C.’s charges, Mr. Cohen’s lawyers said there was an innocent explanation for his not reacting to the suspicious e-mail: he did not read it.

“Cohen has no memory of having seen it and no witness will testify that they discussed it with him,” the lawyers said in the document, circulated internally at SAC and reviewed by The New York Times and referenced earlier in The Wall Street Journal.

Mr. Cohen, the lawyers argued, received an average of 1,000 e-mails each day in 2008. At the time, he apparently opened only 11 percent of the e-mails, though the lawyers did not disclose how they arrived at that figure.

The document, people briefed on the matter said, was adapted from the lawyers’ response to the S.E.C.’s so-called Wells notice that warned of potential charges. It also outlines the arguments SAC will most likely present in an attempt to persuade the Justice Department not to bring a criminal indictment of the fund, which remains a possibility.

While the document makes a strong case that Mr. Cohen was not knowingly trading on inside information, it is unclear whether it will rebut the S.E.C.’s claims that he did not prevent employees from doing so. The S.E.C. must show that Mr. Cohen did not “reasonably” supervise them.

Mr. Cohen has not been accused of any criminal wrongdoing. Mr. Martoma, 39, and Mr. Steinberg, 40, have each pleaded not guilty to criminal insider trading charges and face separate trials in November.

Mr. Cohen’s civil case will play out before an administrative law judge at the S.E.C. rather than in a federal court. On Tuesday, Chief Judge Brenda P. Murray was assigned to the case, and a hearing was scheduled for Aug. 26.

The Dell e-mails are expected to play a central role in the case.

Even if he was a vigilant e-mail consumer, the lawyers say, Mr. Cohen could argue that the 2008 dispatch did not identify the source of the information about Dell, suggesting that it could have “lawfully” come from an authorized person at the company. The source, the lawyers note, did in fact turn out to be someone from the investor relations department, who has not been accused of any wrongdoing. The lawyers also note that the information in the e-mail “turned out to be wrong.”

Still, SAC made profits and avoided losses of $1.7 million. And once Dell released its earnings, Mr. Cohen sent an e-mail to Mr. Steinberg that said, “Nice job on Dell.”

Mr. Cohen sold his stake in Dell, the lawyers argue, with “good reason.” Mr. Cohen, they said, took the position based on the recommendation of a portfolio manager at SAC, whom people briefed on the matter identified as Gabe Plotkin. Minutes after Mr. Plotkin started selling, so did Mr. Cohen. Although Mr. Plotkin has not been accused of any wrongdoing, the S.E.C. said in a court filing that he once possessed inside information.

“Steve has no emotion in this stuff,” Mr. Plotkin said in a deposition. “Stocks mean nothing to him. They’re just ideas, they’re not even his ideas, and he buys stuff, sells stuff.”

Yahoo’s Share Buyback Is Legal, but Timing Is Suspect

Is Yahoo damaged goods now that it has been abandoned by one of its biggest investors, Daniel Loeb and his hedge fund, Third Point?

It certainly seems so from investor reaction to the news that Yahoo has agreed to buy 40 million shares back from Third Point at $1.16 billion.

Yahoo’s stock declined 4.3 percent on Monday to close at $27.86 a share in the disclosure’s wake (it was down 1.8 percent more on Tuesday).

The share repurchase has the whiff of greenmail, with Business Insider’s Henry Blodget going as far as to call it “insider trading.” Greenmail is yet another relic of the 1980s that we’d rather forget, along with big hair. Back then, companies would repurchase the stock of corporate raiders at a premium simply to make them go away. Greenmail was quite controversial and some states banned the practice, though Delaware, where Yahoo and many other corporations are organized, did not. To see what exactly has happened to Yahoo under Mr. Loeb’s watchful eye, let’s look at a little history. Mr. Loeb disclosed his investment in Yahoo in 2011, calling th company “undervalued.”

He also sought to shake up the board and the management, which might have come from “The Gang That Couldn’t Shoot Straight.” Before Mr. Loeb stepped in, Yahoo had unsuccessfully held talks to sell itself to Microsoft for $45 billion, was struggling to attract talent and had a leadership that was viewed as bumbling. This was a problem, because Yahoo’s business model was also in decline.

At the time, Mr. Loeb demanded a shake-up of the board, stating that “we have distilled an all-star team of potential director candidates, who would be indispensable in working with the reconstituted board.”

What unfolded was in some ways a typical activist play, with the Yahoo board aiding in its own slide. The board initially resisted Mr. Loeb and, over his protests, hired Scott Thompson as the chief executive. When Mr. Loeb helped unearth the fact that Mr. Thompson had falsified part of his résumé, the game was over.

In the wake of Mr. Thompson’s departure, Mr. Loeb and two other directors designated by him were appointed to the Yahoo board. These were Harry J. Wilson, the chairman and chief executive of the Maeva Group, a turnaround and restructuring firm; and Michael J. Wolf, a consultant and former president and chief operating officer of MTV Networks. Max Levchin, an investor and former vice president for engineering at Google, was also appointed later in consultation with Third Point.

These were good directors, and they were part of needed change at Yahoo. The biggest change took place when Yahoo wooed Marissa Mayer away from Google to be its chief executive, a leadership change that Mr. Loeb took credit for.

Ms. Mayer is only about a year into her tenure, but she has started to reboot the business. The results are still uncertain, but she has certainly brought an enhanced image â€" while also spending over $1 billion to buy Tumblr as well as make 16 other acquisitions.

But Yahoo by all accounts still has a lot of work to do. As Carlos Kirjner, an analyst at Bernstein Research, said last July, “It is unrealistic to expect a turnaround of such a challenged business in 12 months.”

Yet, a year later, Mr. Loeb is ready to get out, and making a nice profit along the way.

Mr. Loeb, Mr. Wilson and Mr. Wolf have all announced their resignation from Yahoo’s board, a move that was in accord with the settlement that Yahoo had arranged with Mr. Loeb in May 2012. These directors agreed to resign once Third Point’s stake fell below 2 percent (which is what happened this week with the share repurchase). Yahoo could have asked for these directors to stay on, but either the company didn’t want them or the directors didn’t want to stay.

A spokesman for Third Point declined to comment.

These directors are leaving when Yahoo’s hard work is still left to be finished. It appears that Mr. Loeb and his cohorts are departing Yahoo midvoyage.

Not only that, but the sale is arguably suspect in terms of its timing. Right now, Yahoo’s valuation is floating on two pontoons. The first and biggest driver of Yahoo’s share gains over the last few years has been its stake in the Chinese Internet giant Alibaba Group. Yahoo still owns 24 percent of Alibaba, which is planning an I.P.O. that could value it at more than $100 billion. Analysts estimate that up to two-thirds of Yahoo’s approximate $30 billion market cap may simply be this stake.

Alibaba has driven up Yahoo’s share price over the last two years, as Yahoo’s main business still struggles, even under Ms. Mayer. Yahoo’s revenue in the quarter was down 7 percent from the previous year, and the company lowered its forecast, with ad revenue in particular declining 12 percent in this quarter compared with last year. To be honest, the rest of the premium in Yahoo’s stock is mostly based on the hope that Ms. Mayer can deliver.

In this light, Mr. Loeb’s departure is being viewed as riding the wave of hype over Yahoo. He is gaining from the unexpected Alibaba rise but not the restructuring he advocated, leaving just before things get hard and the wave crashes.

Mr. Loeb’s exit raises the question of whether he was out to create true value or merely stir the pot to get a quick hit and $600 million in profit so far from Yahoo. Mr. Loeb’s promise at the beginning was to provide “all-star directors,” not all-star directors for about a year. Sure, he still owns 2 percent of the company, but he is no longer required to report his holding and can quickly sell down this position whenever he wants.

Had Mr. Loeb sold directly in the market rather than via a corporate stock buyback, he would have been unlikely to get the same price. In addition, the volume would have meant that trading costs would have whittled away at some of his profit.

Yahoo’s move to buy back his stock is not illegal and certainly not insider trading, because Mr. Loeb was selling back to the company, which was aware of any such information.

However, it may be unfair to other shareholders. Yahoo could have asked for a discount, as Mr. Blodget suggested. It also was probably not greenmail in the truest sense because Yahoo didn’t really want Mr. Loeb to go away and the purchase wasn’t at a premium to the current share price. Still, the repurchase was arguably beneficial to Third Point.

In response to a request for comment, a Yahoo spokesman justified the repurchase by stating, “Yahoo already had a stock repurchase plan in place” and the Third Point purchase allowed Yahoo to “fulfill a substantial part of that commitment more quickly.”

At the end of the day though, I can’t really blame Third Point and Mr. Loeb. Third Point never explicitly promised to stick around for any period of time, nor did Yahoo seek such an agreement. And Third Point leaves the company in much better shape than when it arrived.

Perhaps the biggest lesson here is for other companies and shareholders. Just because an activist investor offers up directors and their services doesn’t mean they will stick around. If companies are truly looking for investors to stay for the long term, they should bargain upfront.

But Yahoo failed to secure such a commitment. It will instead continue to lick its wounds and fix itself up without the help of Mr. Loeb’s counsel.

Senate Panel Examines Banks’ Involvement in Commodities

Several witnesses warned of significant risks to the nation’s financial system and to taxpayers if big banks continue to own commodities units that store and ship vast quantities of metals and oil, Edward Wyatt reported for The New York Times. Read more »

Cities Need to Weigh Costs of Private Partnerships

Donald Cohen is the executive director of In the Public Interest, a resource center on privatization and contracting.

DealBook recently published a piece by Kent Rowey that makes a troubling argument for selling public services and infrastructure to Wall Street banks and other corporations. Under the guise of making recommendations for Detroit, Mr. Rowey tried to sell the idea that auctioning off our most vital services and assets to for-profit companies is a simple win-win solution for strapped governments.

It sounds simple, but the real track record of public-private partnerships is fraught with problems.

Mr. Rowey holds up the example of Chicago’s 36,000 parking meters that were sold in a 75-year lease to an investor group backed by Morgan Stanley as a success. In fact, Chicago taxpayers, investors and mayors across the country will tell you that not only was it an unmitigated disaster, it is also Exhibit A in the folly of blindly giving up taxpayer control of services.

An after-the-fact investigation by the city’s inspector general concluded that the decision to enter the lease contract lacked “meaningful public review” and neglected the city’s long-term interests to solve a short-term budget crisis. Specifically, it found that “the city was paid, conservatively, $974 million less for this 75-year lease than the city would have received from 75 years of parking-meter revenue.” That’s nearly $1 billion that could have been used for better police and fire protection, longer library hours and many other services that would benefit the public good rather than private profits. By Dec. 31, 2009, Chicago had only $180 million left from the $1.15 billion parking meter deal, forcing the city to consider alternative sources of revenue rather than relying on long-term reserve funds generated by the parking meter lease.

Parking rates increased to as much as $8 for two hours. The initial contract required seven-day-a-week paid parking. The city was able to negotiate out of that requirement but in exchange had to extend paid parking until 10 p.m. Downtown business owners have blamed the increase in rates for a decrease in economic activity.

Taxpayers are further harmed by the contract’s fine print, which says that they must reimburse Morgan Stanley and its Qatar-based business partner for any time the space is used for anything other than parking â€" including parades and festivals. The city is prevented from performing routine road maintenance that would occupy a parking space on all but a few days a year without paying a penalty.

Perhaps most egregious, Chicago cannot build parking lots for the entire duration of the contract because they might compete with the outsourced parking meters.

In fact, the “noncompete” and “compensation” clauses mean the city won’t be able to make, for 75 years, fundamental economic development, land use or environmental policy decisions â€" anything that would affect the revenue of the parking company. Roderick Sawyer, alderman for Chicago’s Sixth Ward, has called this parking privatization scheme “outrageous for taxpayers, undemocratic, and un-American.”

Public-private partnership deals across the country are riddled with similar problems. In the suburbs of Denver, a 99-year contract prevents affected municipalities from making improvements to nearby roads that might compete with the privatized road and interfere with the corporate profits.

Mr. Rowey contends that infrastructure assets are “relatively straightforward to value” and represent a reliable, steady source of revenue. Not so.

In 2010, San Diego County’s privatized South Bay Expressway filed for bankruptcy, three years after it opened late and over budget. The for-profit company running the toll road blames the recession for its low traffic, but drivers have publicly blamed the company’s steep toll increases.

A privatized toll road in Texas wasn’t meeting the project revenue targets. Fewer drivers were using the costly road. In an attempt to compensate for the shortfall, the state approved a speed limit of 85 miles an hour for a 41-mile stretch between Austin and San Antonio. Similarly, Virginia officials had hoped that privatized express lanes on the 495 Beltway would generate badly needed cash for the state. Once again, traffic patterns failed to match rosy projections and the project is losing money. Last month, the state increased the speed limit to 65 miles an hour, hoping to lure more drivers and generate more revenue.

A 2009 report in the American Journal of Public Health studied traffic fatalities in the United States from 1995 to 2005 and found that more than 12,500 deaths could be attributed to increases in speed limits on all kinds of roads. These perverse incentives cause government to change speed limits simply to generate profits for infrastructure investors. Those are public decisions that should be driven by public goals, not private profit.

Cities, counties and states should enact common sense reforms that ensure taxpayers get their money’s worth when one of those entities enters a public-private partnership. Public agencies should require that an independent audit show an actual taxpayer savings before outsourcing a service or asset (a similar law to this has operated with great success in Massachusetts since 1993). They should also outlaw fine-print “noncompete” and “compensation” clauses that prevent public officials from making decisions to advance the public good.

There is no doubt that we need to rebuild and retool American infrastructure for the 21st century. It is essential for our economic competitiveness, our efforts to stem the effects of climate change and to create a better quality of life for us all. And doing so will create thousands of jobs for middle-class American families. But it is equally as important that cities and states fully consider the costs and benefits of attracting private investment in public infrastructure and ensure that public goals and the public interest remain in full control.

Cities Need to Weigh Costs of Private Partnerships

Donald Cohen is the executive director of In the Public Interest, a resource center on privatization and contracting.

DealBook recently published a piece by Kent Rowey that makes a troubling argument for selling public services and infrastructure to Wall Street banks and other corporations. Under the guise of making recommendations for Detroit, Mr. Rowey tried to sell the idea that auctioning off our most vital services and assets to for-profit companies is a simple win-win solution for strapped governments.

It sounds simple, but the real track record of public-private partnerships is fraught with problems.

Mr. Rowey holds up the example of Chicago’s 36,000 parking meters that were sold in a 75-year lease to an investor group backed by Morgan Stanley as a success. In fact, Chicago taxpayers, investors and mayors across the country will tell you that not only was it an unmitigated disaster, it is also Exhibit A in the folly of blindly giving up taxpayer control of services.

An after-the-fact investigation by the city’s inspector general concluded that the decision to enter the lease contract lacked “meaningful public review” and neglected the city’s long-term interests to solve a short-term budget crisis. Specifically, it found that “the city was paid, conservatively, $974 million less for this 75-year lease than the city would have received from 75 years of parking-meter revenue.” That’s nearly $1 billion that could have been used for better police and fire protection, longer library hours and many other services that would benefit the public good rather than private profits. By Dec. 31, 2009, Chicago had only $180 million left from the $1.15 billion parking meter deal, forcing the city to consider alternative sources of revenue rather than relying on long-term reserve funds generated by the parking meter lease.

Parking rates increased to as much as $8 for two hours. The initial contract required seven-day-a-week paid parking. The city was able to negotiate out of that requirement but in exchange had to extend paid parking until 10 p.m. Downtown business owners have blamed the increase in rates for a decrease in economic activity.

Taxpayers are further harmed by the contract’s fine print, which says that they must reimburse Morgan Stanley and its Qatar-based business partner for any time the space is used for anything other than parking â€" including parades and festivals. The city is prevented from performing routine road maintenance that would occupy a parking space on all but a few days a year without paying a penalty.

Perhaps most egregious, Chicago cannot build parking lots for the entire duration of the contract because they might compete with the outsourced parking meters.

In fact, the “noncompete” and “compensation” clauses mean the city won’t be able to make, for 75 years, fundamental economic development, land use or environmental policy decisions â€" anything that would affect the revenue of the parking company. Roderick Sawyer, alderman for Chicago’s Sixth Ward, has called this parking privatization scheme “outrageous for taxpayers, undemocratic, and un-American.”

Public-private partnership deals across the country are riddled with similar problems. In the suburbs of Denver, a 99-year contract prevents affected municipalities from making improvements to nearby roads that might compete with the privatized road and interfere with the corporate profits.

Mr. Rowey contends that infrastructure assets are “relatively straightforward to value” and represent a reliable, steady source of revenue. Not so.

In 2010, San Diego County’s privatized South Bay Expressway filed for bankruptcy, three years after it opened late and over budget. The for-profit company running the toll road blames the recession for its low traffic, but drivers have publicly blamed the company’s steep toll increases.

A privatized toll road in Texas wasn’t meeting the project revenue targets. Fewer drivers were using the costly road. In an attempt to compensate for the shortfall, the state approved a speed limit of 85 miles an hour for a 41-mile stretch between Austin and San Antonio. Similarly, Virginia officials had hoped that privatized express lanes on the 495 Beltway would generate badly needed cash for the state. Once again, traffic patterns failed to match rosy projections and the project is losing money. Last month, the state increased the speed limit to 65 miles an hour, hoping to lure more drivers and generate more revenue.

A 2009 report in the American Journal of Public Health studied traffic fatalities in the United States from 1995 to 2005 and found that more than 12,500 deaths could be attributed to increases in speed limits on all kinds of roads. These perverse incentives cause government to change speed limits simply to generate profits for infrastructure investors. Those are public decisions that should be driven by public goals, not private profit.

Cities, counties and states should enact common sense reforms that ensure taxpayers get their money’s worth when one of those entities enters a public-private partnership. Public agencies should require that an independent audit show an actual taxpayer savings before outsourcing a service or asset (a similar law to this has operated with great success in Massachusetts since 1993). They should also outlaw fine-print “noncompete” and “compensation” clauses that prevent public officials from making decisions to advance the public good.

There is no doubt that we need to rebuild and retool American infrastructure for the 21st century. It is essential for our economic competitiveness, our efforts to stem the effects of climate change and to create a better quality of life for us all. And doing so will create thousands of jobs for middle-class American families. But it is equally as important that cities and states fully consider the costs and benefits of attracting private investment in public infrastructure and ensure that public goals and the public interest remain in full control.

S.E.C. Says Texas Man Operated Bitcoin Ponzi Scheme

Regulators have cracked down on an alleged Ponzi scheme involving the virtual currency bitcoin as they issue a more general warning about the dangers of such scams for investors.

A Texas man, Trendon T. Shavers, was sued by the Securities and Exchange Commission on Tuesday and accused of running a fund that collected bitcoins from investors, promising them 7 percent weekly returns. Mr. Shaver ended up selling some of the bitcoins and using the proceeds for his “rent, car-related expenses, utilities, retail purchases, casinos, and meals,” according to the complaint.

Investors have been willing to pay significant real money for bitcoin since the currency was created by anonymous computer programmers in 2009. As the value of the digital coins has skyrocketed, so has attention from regulators around the world, who have worried about the potential for fraud and money laundering.

In an investor alert released Tuesday, the S.E.C. warned that “We are concerned that the rising use of virtual currencies in the global marketplace may entice fraudsters to lure investors into Ponzi and other schemes in which these currencies are used to facilitate fraudulent, or simply fabricated, investments or transactions.”

In the complaint, the agency said that Mr. Shavers, using the online name “pirateat40,” began advertising the Bitcoin Savings and Trust in 2011 on online forums in 2011. Mr. Shavers promised to make money trading the coins online and deliver the profits to his investors. He ended up collecting more than 700,000 bitcoins, according to the complaint. Those would have been worth about $4.5 million using the conversion rate in 2012, and over $65 million at today’s rate.

The S.E.C. is asking a federal court in Texas to freeze Mr. Shaver’s assets while the case moves ahead.

Mr. Shaver could not be reached for a comment.

KPN’s $10.7 Billion Retreat From Germany

KPN has engineered a fully valued retreat from Germany. The Dutch telecommunications company is selling its E-Plus mobile unit to Telefónica Deutschland, the local unit of the Spanish telecommunications giant. KPN reckons the cash and shares transaction values the business at 8.1 billion euros ($10.7 billion) or 9 times 2013 earnings before interest, taxes, depreciation and amortization, or Ebitda. The exact number is open to debate. But the price is rich by sector standards and gives KPN a good chunk of the hefty synergies.

This two-stage deal will first see Telefónica Deutschland buy E-Plus for cash and stock. KPN will then re-sell some of the shares it receives to the group’s Spanish parent. KPN will be left with 5 billion euros in cash and a 17.6 percent stake in Telefónica Deutschland, which KPN says is worth 3.1 billion euros.

Cost savings, largely from cutting capital and network spending, carry an impressive net present value of 4.5 billion euros. Less-certain revenue synergies could add another 500 million euros to 1 billion euros.

KPN’s cash proceeds effectively match analysts’ fair-value estimates for E-Plus, of 5 billion euros. So the overall price implies KPN receives a 3.1 billion euro premium: equivalent to nearly 70 percent of cost synergies, or 56 percent of cost and revenue synergies combined.

The 8.1 billion euro value may be slightly overcooked. That is because KPN uses the price at which it resells Telefónica Deutschland shares to value its remaining equity stake. In reality, the holding’s worth depends on how the market values Telefónica Deutschland, which is and will remain separately listed in Frankfurt. For KPN’s stake to be worth 3.1 billion euros, the German group’s trading multiple would need to expand from 5.5 to 6.5 times Ebitda, Breakingviews calculations suggest, using pro-forma 2013 estimates.

Those doubts aside, the deal makes sense. It is also heartening for investors in Europe’s fragmented, cutthroat and heavily regulated telecommunications industry. They have watched valuations collapse and dividends evaporate. Consolidation is an obvious solution. But companies have been busy firefighting. And the European Union is keen to ensure markets remain competitive. If this deal is permitted, it will show a more pragmatic stance from Brussels

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

Hedge Fund Drama, Appearing on Your Screen

It was a locker room diss between billionaires. But it took place on the computer screens of traders across Wall Street.

A longstanding dispute over the nutritional supplements company Herbalife â€" which helped a business channel put reality television to shame earlier this year â€" erupted in a racy taunt on Tuesday.

The aggressor was the hedge fund manager Daniel S. Loeb â€" or his profile on the Bloomberg data terminal, at least.

First, the background. Mr. Loeb took a position in Herbalife in January, betting the company’s stock would rise, that put him squarely in opposition to William A. Ackman, the hedge fund manager who announced a bet against Herbalife in December. Mr. Ackman claims the company is an illegal pyramid scheme, an assertion the company disputes.

With Herbalife shares rising about 80 percent so far this year, maintaining a short-selling position like Mr. Ackman’s has required a strong stomach. Mr. Loeb, on the other hand, has already sold his shares.

But the stock’s ascent has been a source of satisfaction for a third investor, Carl C. Icahn, who holds a large Herbalife position. That also puts Mr. Icahn at odds with Mr. Ackman, an old foe.

Given that charged history, it must have been highly amusing to many on Wall Street to see this banner displayed across Mr. Loeb’s instant messaging page on the Bloomberg terminal on Tuesday morning, using the ticker symbol for Herbalife:

“New HLF Product: The Herbalife Enema administered by Uncle Carl.”

Herbalife’s stock was up more than 2 percent at midday on Tuesday, approaching $61 a share.

DealBook managed to photograph the message, which was noticed earlier by Stephanie Ruhle of Bloomberg TV, before it disappeared from the profile of Mr. Loeb, who runs Third Point.

A spokeswoman for Third Point said she was not aware of the message. A spokeswoman for Pershing Square Capital Management, Mr. Ackman’s firm, did not immediately have a response.

The message was replaced by another later in the morning: “Always take the high rode.”

Before long, the misspelling was revised to “road.”

Hedge Fund Drama, Appearing on Your Screen

It was a locker room diss between billionaires. But it took place on the computer screens of traders across Wall Street.

A longstanding dispute over the nutritional supplements company Herbalife â€" which helped a business channel put reality television to shame earlier this year â€" erupted in a racy taunt on Tuesday.

The aggressor was the hedge fund manager Daniel S. Loeb â€" or his profile on the Bloomberg data terminal, at least.

First, the background. Mr. Loeb took a position in Herbalife in January, betting the company’s stock would rise, that put him squarely in opposition to William A. Ackman, the hedge fund manager who announced a bet against Herbalife in December. Mr. Ackman claims the company is an illegal pyramid scheme, an assertion the company disputes.

With Herbalife shares rising about 80 percent so far this year, maintaining a short-selling position like Mr. Ackman’s has required a strong stomach. Mr. Loeb, on the other hand, has already sold his shares.

But the stock’s ascent has been a source of satisfaction for a third investor, Carl C. Icahn, who holds a large Herbalife position. That also puts Mr. Icahn at odds with Mr. Ackman, an old foe.

Given that charged history, it must have been highly amusing to many on Wall Street to see this banner displayed across Mr. Loeb’s instant messaging page on the Bloomberg terminal on Tuesday morning, using the ticker symbol for Herbalife:

“New HLF Product: The Herbalife Enema administered by Uncle Carl.”

Herbalife’s stock was up more than 2 percent at midday on Tuesday, approaching $61 a share.

DealBook managed to photograph the message, which was noticed earlier by Stephanie Ruhle of Bloomberg TV, before it disappeared from the profile of Mr. Loeb, who runs Third Point.

A spokeswoman for Third Point said she was not aware of the message. A spokeswoman for Pershing Square Capital Management, Mr. Ackman’s firm, did not immediately have a response.

The message was replaced by another later in the morning: “Always take the high rode.”

Before long, the misspelling was revised to “road.”

Ryanair Says It’s Open to Selling Stake in Aer Lingus

LONDON - Ryanair, the European budget airline, said Tuesday that it would be open to selling its stake in Aer Lingus amid pressure from competition regulators, a step that would end a controversial investment that started in 2006.

Ryanair said it would sell its 29 percent stake in Aer Lingus to any European company that makes a successful bid for more than half of the airline. The decision comes ahead of a final report by the Competition Commission in Britain, set to be published in August, which is likely to criticize Ryanair’s Aer Lingus holding.

But some analysts said Ryanair’s announcement might be no more than another gimmick in its battle with competition authorities over its investment in Aer Lingus and several failed attempts to buy the rest of the airline.

“We would be surprised if another E.U. airline takes the bait,” analysts at Investec wrote in a note to investors. “It is a bold move as it assumes that no other airline will take the bait and get involved in this complicated, drawn-out merger and acquisition battle.”

The step is the latest in a long saga that started when Ryanair built its stake in Aer Lingus in 2006. During the last six years, Ryanair has made three unsolicited offers for Aer Lingus, which is also 25 percent owned by the Irish government. Aer Lingus is attractive for Ryanair because of its valuable takeoff and landing slots at airports like Heathrow in London.

The European Commission blocked Ryanair’s latest bid for Aer Lingus, worth nearly 700 million euros ($922 million), in February after a six-month review. An offer by Ryanair to sell some routes between Ireland, Britain and continental Europe was not enough to dispel competition concerns by the European regulators.

Ryanair is continuing to appeal the commission’s decision at the European Court of Justice, but that process could drag on for years. In the meantime, the Irish government has been putting off a sale of its holding, fearing the shares could be snapped up by Ryanair.

Ryanair said Tuesday that its pledge to sell its Aer Lingus stake to any successful bidder for most of Aer Lingus was a remedy that “unconditionally removes any ability by Ryanair to block any future takeover of Aer Lingus by another E.U. airline.”

The Competition Commission in Britain said in May that Ryanair’s minority stake reduced competition because it kept other European airlines from buying Aer Lingus. Ryanair said on Tuesday that the agency’s concerns were “unfounded and invented” and its conclusions “manifestly false.” A spokeswoman for the competition regulator said it was considering Ryanair’s announcement and would take it into consideration but was rejecting the airline’s criticism.

Ryanair, based in Dublin, accused senior executives at the competition commission of “inventing new and fantastical ‘concerns’ in order to justify their apparently premeditated and biased ‘thinking’ that Ryanair should be forced to sell down this 6.5 year old minority stake.”

The airline, Europe’s largest airline by number of passengers, said it had decided to sell the stake to show that the commission’s concerns were unfounded and that it was possible for another airline to buy Aer Lingus. A spokesman for Aer Lingus declined to comment. Ryanair’s shares fell 3 percent in London on Tuesday while shares in Aer Lingus were little changed .

Nicola Clark contributed reporting from Paris.

Ryanair Says It’s Open to Selling Stake in Aer Lingus

LONDON - Ryanair, the European budget airline, said Tuesday that it would be open to selling its stake in Aer Lingus amid pressure from competition regulators, a step that would end a controversial investment that started in 2006.

Ryanair said it would sell its 29 percent stake in Aer Lingus to any European company that makes a successful bid for more than half of the airline. The decision comes ahead of a final report by the Competition Commission in Britain, set to be published in August, which is likely to criticize Ryanair’s Aer Lingus holding.

But some analysts said Ryanair’s announcement might be no more than another gimmick in its battle with competition authorities over its investment in Aer Lingus and several failed attempts to buy the rest of the airline.

“We would be surprised if another E.U. airline takes the bait,” analysts at Investec wrote in a note to investors. “It is a bold move as it assumes that no other airline will take the bait and get involved in this complicated, drawn-out merger and acquisition battle.”

The step is the latest in a long saga that started when Ryanair built its stake in Aer Lingus in 2006. During the last six years, Ryanair has made three unsolicited offers for Aer Lingus, which is also 25 percent owned by the Irish government. Aer Lingus is attractive for Ryanair because of its valuable takeoff and landing slots at airports like Heathrow in London.

The European Commission blocked Ryanair’s latest bid for Aer Lingus, worth nearly 700 million euros ($922 million), in February after a six-month review. An offer by Ryanair to sell some routes between Ireland, Britain and continental Europe was not enough to dispel competition concerns by the European regulators.

Ryanair is continuing to appeal the commission’s decision at the European Court of Justice, but that process could drag on for years. In the meantime, the Irish government has been putting off a sale of its holding, fearing the shares could be snapped up by Ryanair.

Ryanair said Tuesday that its pledge to sell its Aer Lingus stake to any successful bidder for most of Aer Lingus was a remedy that “unconditionally removes any ability by Ryanair to block any future takeover of Aer Lingus by another E.U. airline.”

The Competition Commission in Britain said in May that Ryanair’s minority stake reduced competition because it kept other European airlines from buying Aer Lingus. Ryanair said on Tuesday that the agency’s concerns were “unfounded and invented” and its conclusions “manifestly false.” A spokeswoman for the competition regulator said it was considering Ryanair’s announcement and would take it into consideration but was rejecting the airline’s criticism.

Ryanair, based in Dublin, accused senior executives at the competition commission of “inventing new and fantastical ‘concerns’ in order to justify their apparently premeditated and biased ‘thinking’ that Ryanair should be forced to sell down this 6.5 year old minority stake.”

The airline, Europe’s largest airline by number of passengers, said it had decided to sell the stake to show that the commission’s concerns were unfounded and that it was possible for another airline to buy Aer Lingus. A spokesman for Aer Lingus declined to comment. Ryanair’s shares fell 3 percent in London on Tuesday while shares in Aer Lingus were little changed .

Nicola Clark contributed reporting from Paris.

Intersection: Keeping Cool on Wall St.

Jose Deharo skips the suit on most days, but pays special attention to fit and tailoring when dressing for his broadcast job on Wall Street.

Cisco to Buy Sourcefire, a Cybersecurity Company, for $2.7 Billion

Cisco Systems agreed on Tuesday to buy Sourcefire, a provider of cybersecurity services, for about $2.7 billion in cash, in a reflection of the growing fervor for companies that can help guard against computer-based attacks.

Under the terms of the deal, Cisco will pay $76 a share in cash, nearly 30 percent higher than Sourcefire’s closing price on Monday. The offer includes retention-based incentives for the target company’s executives.

The deal is Cisco’s biggest since its $5 billion acquisition of NDS Limited last year.

Founded in 2001, Sourcefire has grown into a major cybersecurity provider â€" one that has rejected multiple takeover bids through the years. Last year, the company reported $5 million in profit on top of $223.1 million in revenue.

In a statement, Cisco said that adding Sourcefire will give it a portfolio of next-generation security offerings.

“‘Buy’ has always been a key part of our build-buy-partner innovation strategy,” Hilton Romanski, a Cisco vice president for corporate development, said. “Sourcefire aligns well with Cisco’s future vision for security and supports the key pillars of our security strategy.”

The deal is expected to close in the second half of the year, pending approval by regulators and other closing conditions. It is expected to slightly dilute Cisco’s earnings for its 2014 fiscal year.

Shares in Sourcefire leaped over 29 percent in premarket trading to $76.40, over the deal price, in a potential sign that investors may be expecting a bidding war. Shares in Cisco dipped slightly, to $25.66.

Morning Agenda: Khuzami’s New Job

KHUZAMI SWITCHES SIDES  |  Six months after leaving his post as Wall Street’s top federal enforcer, Robert S. Khuzami has accepted a job that pays more than $5 million a year at Kirkland & Ellis, one of the nation’s biggest corporate law firms, DealBook’s Ben Protess and Peter Lattman report. “In doing so, he is following the quintessential Washington script: an influential government insider becoming a paid advocate for industries he once policed.”

Mr. Khuzami, the former enforcement chief at the Securities and Exchange Commission, was wooed by financial giants like Visa and Bridgewater, and by white-shoe law firms like WilmerHale, before deciding to join Kirkland as a partner. Though Mr. Khuzami will represent some of the same corporations that the S.E.C. oversees, he argues that defense work is essential to the justice system.

“It’s both aggressive enforcement and vigorous defense that are critical to justice and fairness,” Mr. Khuzami, who will start in Kirkland’s Washington office around Labor Day, said in an interview.

TELEFONICA TO BUY E-PLUS OF GERMANY  |  The Spanish telecommunications giant Telefónica agreed on Tuesday to buy Germany’s smallest mobile operator, E-Plus, from its Dutch rival KPN in a cash and stock deal worth an implied 8.1 billion euros ($10.7 billion), amid signs of accelerating consolidation in Europe’s phone sector. The deal, subject to approval from European antitrust officials and the boards of both companies, would reduce the number of network operators in Germany and create a rival to T-Mobile Germany and Vodafone Germany, which together dominate the market, Kevin J. O’Brien reports in DealBook. Telefónica plans to combine E-Plus with O2 Germany, which it already owns.

U.S. EXAMINES BANKS’ STORAGE OF COMMODITIES  |  The Commodity Futures Trading Commission has begun an examination of warehouse operations controlled by Goldman Sachs, Glencore Xstrata, the Noble Group and others, as the commission scrutinizes a tactic that has inflated the price of aluminum, Gretchen Morgenson and David Kocieniewski report in The New York Times. The operations were the subject of a Times article over the weekend.

The trading commission has told the firms to retain internal documents and e-mails related to the business, people who reviewed the requests and spoke on the condition of anonymity told The Times. On Tuesday, a Senate Banking subcommittee holds a hearing on how Wall Street has extended its reach beyond banking and into global commodities markets. “The overarching question is whether banks should control the storage and shipment of commodities, and whether such activities could pose a risk to the nation’s financial system,” Ms. Morgenson and Mr. Kocieniewski write.

ON THE AGENDA  |  DuPont, in which the activist investor Nelson Peltz is said to be invested, reported a 13 percent decline in net income in the second quarter and said it was exploring a possible sale or spinoff of its performance chemicals unit. Apple and AT&T report earnings after the market closes. Julian Robertson of Tiger Management is on Bloomberg TV at 7 a.m. Wilbur Ross is on CNBC starting at 7 a.m.

AT SAC, A TOWERING FINE FOR NAUGHT  |  When Steven A. Cohen’s firm, SAC Capital Advisors, agreed four months ago to pay $616 million to the Securities and Exchange Commission, it sounded like a payoff. But the settlement, to resolve civil accusations that the hedge fund was involved in insider trading without admitting or denying guilt, did not work, Andrew Ross Sorkin writes in the DealBook column. The S.E.C. returned with a new civil action against Mr. Cohen individually on Friday, seeking to bar him from the industry. That raises a baffling question within the legal community, Mr. Sorkin writes: Why did Mr. Cohen pay so much to settle a case that now appears far from settled?

Mr. Sorkin writes: “Within Mr. Cohen’s legal camp, which includes Paul, Weiss and Willkie Farr, the new civil action came as a surprise, according to people involved in the case. His legal team had thought that by settling with the S.E.C. in March for such a large sum it would be unlikely that the agency would come back for more, despite assertions by the S.E.C. that it reserved the right to pursue additional charges against Mr. Cohen.”

Mergers & Acquisitions »

PacWest Bancorp to Buy CapitalSource  |  The bank holding company PacWest Bancorp is paying about $2.29 billion in cash and stock for CapitalSource, a commercial bank, to expand in Southern California, Reuters reports. REUTERS

Vivendi Says It Is in Talks to Sell Stake in Maroc  |  Vivendi said it was discussing a sale of its majority stake in Maroc Telecom to Etisalat for 4.2 billion euros ($5.54 billion) in cash, Reuters reports. REUTERS

Dell’s Buyout Fate Still Hinges Mostly on Icahn  |  Just two days from Dell’s new deadline for counting votes on its founder’s proposed buyout, the company’s fate appears to rest firmly in the hands of the activist investor Carl C. Icahn and his ally, Southeastern Asset Management, as well as the mutual-fund manager T. Rowe Price. DealBook »

Chevron to Spend $770 Million on Development Projects  | 
NEW YORK TIMES

Japanese Companies Go Shopping in Southeast Asia  |  So far this year, Japanese companies have announced $8.2 billion of acquisitions in Southeast Asia, according to Dealogic, The Wall Street Journal reports. WALL STREET JOURNAL

INVESTMENT BANKING »

Deutsche Bank Hints It Will Take Steps to Reduce Risks  |  If Deutsche Bank does announce a plan to reduce its assets, it would probably do so on July 30, when it discloses second-quarter earnings. DealBook »

Deutsche Bank Hires Former UBS Banker in Thailand  |  Phumchai Kambhato, previously the head of investment banking for Thailand at UBS, is joining Deutsche Bank as head of corporate banking and securities and head of corporate finance for Thailand, The Wall Street Journal reports. WALL STREET JOURNAL

UBS Reaches Settlement on Mortgage Securities  |  The big Swiss bank UBS said it had reached an agreement in principle with the Federal Finance Housing Agency to settle claims related to mortgage-backed securities issued between 2004 and 2007. DealBook »

Singapore Gains Clout in Wealth Management  |  The Financial Times reports: “Singapore’s position as one of the world’s fastest-growing wealth management hubs was highlighted on Tuesday when it said assets under management rose more than a fifth over the past year.” FINANCIAL TIMES

R.B.S. Sued by Former Employee Over Bonus  |  A former head of emerging market rates for the Royal Bank of Scotland claims his bonus was wrongfully forfeited, Bloomberg News reports. BLOOMBERG NEWS

PRIVATE EQUITY »

K.K.R. Invests in Indonesia Consumer Market  |  The private equity firm K.K.R. agreed on Monday to buy a 9.5 percent stake in Tiga Pilar Sejahtera, a snack food company listed in Jakarta, The Financial Times reports. FINANCIAL TIMES

HEDGE FUNDS »

Activist Investor to Step Down From Yahoo Board  |  Daniel S. Loeb, whose campaign to change Yahoo culminated in the appointment last year of Marissa Mayer as the company’s chief executive, is resigning from the board. DealBook »

Loeb Wins and Shareholders Lose Out at Yahoo  |  Yahoo’s repurchase of a large chunk of Daniel S. Loeb’s stake sucks up most of the cash the company reserved for buybacks, Robert Cyran of Reuters Breakingviews writes. It also heralds the departure of three Third Point-approved directors, robbing Yahoo of some much-needed advisers. REUTERS BREAKINGVIEWS

Hedge Funds Act as Lenders When Banks Won’t  | 
WALL STREET JOURNAL

Oil Trader Prepares to Start New Commodities Firm  | 
ABSOLUTE RETURN

I.P.O./OFFERINGS »

Thai Billionaire Plans $2.3 Billion Infrastructure Fund I.P.O.  |  The True Corporation, a 3G and broadband network operator in Thailand controlled by the billionaire Dhanin Chearavanont, said it planned to use proceeds from the proposed spinoff of telecommunications assets to reduce debt. DealBook »

Extended Stay America Aims to Go Public  |  Extended Stay, a hotel chain owned by three investment firms, filed on Monday for an initial public offering. The I.P.O. would be the latest deal to test investors’ willingness to bet on a recovery in real estate. DealBook »

Netflix Reports Strong Quarter, but Investors Hit Pause  |  The New York Times reports: “Netflix’s subscriber gains â€" an improvement over last year’s performance during what is traditionally its weakest quarter of the year â€" and overall profits were well within projections, but some investors, hoping for more, sent the stock down about 8 percent in after-hours trading before rebounding somewhat. That result alludes to one of the challenges Netflix faces: maintaining the enthusiasm of both investors and subscribers to its video-streaming services.” NEW YORK TIMES

VENTURE CAPITAL »

Start-Up Raises $15.4 Million for Autism Test  |  A Massachusetts company called SynapDx raised a round of financing led by Google Ventures to develop a blood test for autism, TechCrunch reports. TECHCRUNCH

LEGAL/REGULATORY »

That Dell E-Mail? Cohen Didn’t Read It, Lawyers Say  |  In a report that responds point-by-point to the Securities and Exchange Commission’s civil action, lawyers for Steven A. Cohen claim he “did not even read” an e-mail about Dell at the center of the case, The Wall Street Journal reports. WALL STREET JOURNAL

Tourre Lawyers Focus on Reliability of Federal Witness  |  Lawyers for the former Goldman Sachs trader Fabrice Tourre tried to cast doubt on the witness, Gail Kreitman, over differences between statements made in 2009 and while on the stand. DealBook »

New Powers Invoked to Curb a High-Speed Trading Feint  |  Three regulatory agencies set penalties on Panther Energy Trading for a practice known as “spoofing,” in which bogus orders are used to draw in other traders and manipulate markets. DealBook »

Detroit Blazes a Path It Never Wanted  |  Unlike other municipal debtors that have overextended themselves or made poor financial choices, Detroit is in much deeper trouble, Stephen J. Lubben writes in the In Debt column. Its trip through bankruptcy will be in uncharted territory. DealBook »

Signs That a Financial Overhaul May Be in the Works in China  |  Beijing is taking incremental, but symbolic, steps toward financial reform, Bill Bishop writes in the China Insider column. DealBook »

Telefónica to Buy Germany’s E-Plus From KPN

BERLIN-Telefónica, the Spanish telecommunications giant, on Tuesday agreed to buy Germany’s smallest mobile operator, E-Plus, from its Dutch rival KPN in a cash and stock deal worth at least 5 billion euros, or $6.5 billion, amid signs of accelerating consolidation in Europe’s telecom sector.

The transaction, which will require approval from European antitrust officials, as well as the boards of both companies, would reduce the number of network operators in Germany to three from four and would create a sizable rival to T-Mobile Germany and Vodafone Germany, which together have more than half of the market.

Telefónica, based in Madrid, plans to combine E-Plus with O2 Germany, the country’s third-largest network operator, which it already owns.

In a statement, KPN said it agreed to sell E-Plus, which has 23.9 million customers and recorded 3.4 billion euros in sales last year, to Telefónica for 3.7 billion euros in cash. KPN will also initially receive a 24.9 percent stake in the company, Telefónica Deutschland, which owns the combined operator. As a final condition of the deal, Telefónica said it would buy a 7.3 percent stake in Telefónica Deutschland from KPN for 1.3 billion euros.

Telefónica said it planned to fund the initial 3.7 billion-euro cash payment to KPN by selling new shares of stock in Telefónica Deutschland to existing shareholders in a rights issue. When the transaction concludes, Telefónica said, it would hold 65 percent, and KPN 17.6 percent, in Telefónica Deutschland, with the rest of shares widely held.

KPN said its resulting stake in Telefónica Deutschland, plus the cash payments, made the total transaction worth 8.1 billion euros.

“The combination of E-Plus and Telefónica Deutschland will establish a mobile operator with attractive synergy and growth potential in Europe’s largest economy,’’ KPN’s chief executive, Eelco Blok, said in a statement.

The purchase would create a mobile operator with 43 million customers, a 38 percent market share and more than 8 billion euros in annual revenue. The fusion would probably accelerate the plans by both companies to build out fast mobile broadband in Germany using Long Term Evolution, or LTE, technology.

Telefónica said the combination of O2 Germany with E-Plus would generate savings through combined distribution, customer service and network services of 5 billion euros to 5.5 billion euros, after deducting for “integration costs,’’ which the Spanish company did not specify.

“Creating a leading, sustainable and innovative digital telco focusing on mobile data and LTE development in Germany is a natural strategic step for Telefónica,’’ the Spanish company said in a statement.

The proposed acquisition is the second in Europe in less than a year to reshuffle a national telecom sector.

In January, European regulators approved the sale of Orange Austria to 3 Austria, a unit of the Hong Kong-based Hutchison Whampoa, in a 1.3 billion-euro deal that reduced the number of operators in that country to three from four.

As part of the Austrian fusion, the European antitrust regulator, Joaquín Almunia, required 3 Austria to reserve almost a third of the newly combined network for virtual network resellers for a decade. Analysts expect that Telefónica may be required to make similar concessions to guarantee competition in Germany.

The transaction in Austria and the proposed sale of E-Plus to Telefónica are the latest signs of what may be a revival of merger and acquisition activity in Europe’s telecom sector, which had slowed over the past several years amid the global economic slowdown and the financial difficulties of Southern Europe.

The volume of mergers and acquisitions in the sector had fallen to 16.3 billion euros by mid-December of last year, less than half the 35.4 billion euros in 2010 and down 59 percent from a peak of 39.7 billion euros in 2007 before the financial crisis took hold, according to Mergermarket, a research company.

Thai Billionaire Plans $2.3 Billion Infrastructure Fund I.P.O.

HONG KONG-True Corporation, the Thai telecommunications company controlled by the billionaire Dhanin Chearavanont, said Tuesday that it would spin off 3G and broadband networks into an infrastructure fund in an initial public offering worth at least 70 billion baht â€" a potential record for a Thai company.

True, which operates fixed-line and mobile communications networks and a pay television business in Thailand, said it planned to use the proceeds from the $2.26 billion I.P.O. to pay down debt.

The planned spinoff is part of a flurry of deal making by Mr. Dhanin and his company, Charoen Pokphand Group, or CP Group. In April, another one of his companies said it would buy the discount retailer Siam Makro for more than $6 billion. In February, CP Group completed the $9.4 billion purchase of a 15.6 percent stake in Ping An Insurance Group of China from HSBC Holdings, which it had announced in December.

By spinning off assets into an I.P.O., True, which is 63.3 percent owned by CP Group, is seeking to capitalize on a 70 percent increase in its share price so far this year. The company is also hoping that investors in Asia retain their appetite for infrastructure funds.

In April, a fund controlled by BTS Group, the operator of the SkyTrain urban rail system in Bangkok, raised a record 62.53 billion baht, or $2.13 billion, which at the time ranked as the largest I.P.O. anywhere by a Thai company. Units in that fund were trading at 10.80 baht apiece Tuesday, or 10 percent below the listing price three months ago.

The spinoff of some network assets should help ease concerns among analysts over the pile of debt that True has racked up in its efforts to build out and maintain its telecommunications network in Thailand. The company had net debt of 94.8 billion baht at the end of 2012, equal to 5.5 times its earnings before interest, tax, depreciation and amortization.

True’s proposal would package 13,000 telecommunications towers; 45,000 kilometers, or 28,000 miles, of fiber-optic cable networks; and the revenue from its sprawling 3G networks into a standalone infrastructure fund. True in turn would lease back some of those assets for a maximum of 15 years in a deal worth no more than 55 billion baht, according to its filings with the Bangkok stock exchange.

True would also buy a stake of at most 33.3 percent in the fund’s I.P.O.

The proposed spinoff is subject to approval in a shareholders’ vote scheduled for Sept. 12 and also needs the approval of the stock exchange.

Shares in True rose 5.7 percent after Tuesday’s announcement to close at 9.25 baht apiece.