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Authorities Plans to Arrest 2 Former JPMorgan Employees in London Whale Case
Government authorities are planning to arrest two former JPMorgan Chase employees suspected of masking the size of a multibillion-dollar trading loss, a dramatic turn in a case that tarnished the reputation of the nation’s biggest bank and spotlighted the perils of Wall Street risk-taking.
The arrests are expected to take place in London as soon as next week, according to people briefed on the matter. The action, the people said, would come on the heels of a federal grand jury voting to indict the employees on criminal fraud charges.
The employees â€" Javier Martin-Artajo, a manager who oversaw the trading strategy from London, and Julien Grout, a low-level trader responsible for recording the value of the soured bets â€" could ultimately be extradicted under an agreement with British authorities.
Representatives for the F.B.I. and the United States Attorney’s office in Manhattan declined to comment.
The losses at the heart of the case stemmed from outsize wagers made by the traders at JPMorgan’s chief investment office in London. The losses, which JPMorgan initially disclosed last May, have since reached more than $6 billion.
After more than a year of gathering evidence about the bet, a blunder that set off a cascade of scrutiny across two continents, federal prosecutors and the F.B.I. in Manhattan have concluded that the two employees lowballed losses as the trades spiraled out of control. Poring over internal e-mails and phone recordings that shine a light on how the traders valued their bets, authorities came to believe that Mr. Martin-Artajo directed Mr. Grout to falsify records and obscure more than $400 million in losses from their bosses in New York, say the people briefed on the matter, who spoke on the condition of anonymity.
The charges hinge on the cooperation of another JPMorgan trader, Bruno Iksil, who was nicknamed the London Whale because of his role in the unusually large bet. Despite initially personifying the the trade - the blowup is referred to colloquially as “the London Whale†- some investigators concluded that he was unfairly blamed.
After giving multiple interviews to authorities, first at a meeting in Brussels and then New York, Mr. Iksil secured a cooperation agreement from the government. It is unclear, however, whether he will face separate charges.
The government, lawyers note, will face challenges in the courtroom. For one, Wall Street cases are unusually difficult to prove to jurors who must grapple with financial jargon and complex fact patterns.
That hurdle is particularly high in this case, which centers on the vagaries of rules that even seasoned Wall Street employees struggle to interpret. Under the rules, traders have leeway to value their losses on derivatives contracts because actual prices may not be readily available, presenting a challenge to prosecutors who must prove that employees intentionally cloaked the losses.
While authorities are not pursuing charges against JPMorgan’s top executives, according to the people briefed on the matter, the bank is nonetheless bracing for civil charges from regulators. The Securities and Exchange Commission, which is expected to cite the bank for lax controls that allowed the traders to undervalue the value of the bets, could strike a settlement with the bank as soon as this fall. The Financial Conduct Authority, a British regulator, also plans to fine the bank in the coming months, one person said.
In an unusually aggressive move, the S.E.C. is seeking to extract an admission of wrongdoing from the nation’s biggest bank. If JPMorgan concedes to that demand, such an admission would reverse a longtime practice at the S.E.C., which allowed defendants for decades to “neither admit nor deny wrongdoing.†A pact could come as soon as this fall, according to people briefed on the case, who added that the agency had not threatened to charge JPMorgan executives.
Last July, the bank restated its first-quarter 2012 earnings downward by $459 million, conceding errors in the valuations.
“We questioned the integrity of those trader marks,†Douglas Braunstein, then the bank’s chief financial officer, said at the time.
Ackman Steps Up Fight at Penney’s Board and Calls for New Chairman
The hedge fund manager William A. Ackman stepped up his fight against fellow directors of J.C. Penney on Friday, publicly calling for the replacement of the struggling retailer’s chairman and reiterating a demand for a new chief executive.
In a letter to the board, Mr. Ackman laid out a litany of complaints about the conduct of both the company’s chairman, Thomas Engibous, and its interim chief executive, Myron Ullman. The missive came after a letter to the board sent on Thursday requesting that a new chief executive be selected in the next 30 to 45 days.
Mr. Ackman’s unusual airing of Penney’s internal workings suggests yet another round of turmoil for the company, which has struggled amid leadership changes and disastrous business strategies.
In addition to being a board member, Mr. Ackman is Penney’s biggest investor. His hedge fund, Pershing Square Capital Management, owns nearly 18 percent of the company’s shares.
In Friday’s letter, Mr. Ackman called on Mr. Engibous to be succeeded by Allen Questrom, a former Penney chief executive and longtime retailing executive. Mr. Questrom told CNBC on Thursday that he would do so only if he were comfortable with the board’s choice of new chief executive and would not come as part of a hostile bid.
Mr. Ackman also complained bitterly about Mr. Ullman, another former Penney chief who was brought back this spring to stabilize the company after the disastrous tenure of Ron Johnson, the former head of Apple‘s retail operations. Though the return was described as temporary, Mr. Ackman contended that the interim leader has begun to act more like a permanent one, making a number of firings and hirings outside the normal managerial processes.
Mr. Ullman, who goes by Mike, also told analysts that he was the Penney board’s long-term choice for chief executive, according to Mr. Ackman’s letter. Describing what he sees as Mr. Ullman’s improper new attitude, Mr. Ackman wrote, “When Mike was asked about succession during the last board meeting, he said that he did not know of any other executive who could run the company.â€
Mr. Ackman also complained about recent behavior by Mr. Engibous, including reportedly cutting off discussions about the search process for a new chief. He also implied that the chairman was too close to Mr. Ullman, noting that the two men once split the use of a Gulfstream V private jet.
“I am concerned that personal relationships and potentially other business dealings outside of J.C. Penney are clouding certain board members’ judgment,†Mr. Ackman wrote.
Late on Thursday, Mr. Engibous responded to the first of Mr. Ackman’s publicly disclosed letters, noting in a statement that the board had formed a search committee three weeks ago to find Mr. Ullman’s successor. He also took a swipe at his fellow board member, noting that Mr. Johnson had been hired at the behest of Mr. Ackman.
“The board of directors strongly disagrees with Mr. Ackman and is extremely disappointed that his letter was released to the media at the same time that it was sent to the board,†Mr. Engibous said. “His latest actions are disruptive and counterproductive at an important stage in the company’s recovery.â€
Bill Ackman's Second Letter to J.C. Penney Board
Falcone Adds Defendants in Effort to Keep LightSquared
The hedge fund billionaire Philip A. Falcone is in a litigious mood.
Just three days after suing the satellite television mogul Charles W. Ergen and another hedge fund in a last-ditch attempt to maintain control of LightSquared, the bankrupt wireless broadband company he owns, Mr. Falcone has turned his focus on the GPS industry.
On Friday, Mr. Falcone’s hedge fund, Harbinger Capital, and its subsidiaries sued Deere & Company, Garmin International and Trimble Navigation, along with two GPS industry lobby groups, accusing them of preventing LightSquared from operating a key 4G network.
The case, filed in the Federal District Court for the Southern District of New York, is littered with technical jargon and is the latest in a series of lawsuits that has given Mr. Falcone a reputation as a tycoon itching for a fight as he struggles to maintain control of LightSquared.
During a pretrial meeting on Thursday for Harbinger’s complaint against Mr. Ergen, which was filed in bankruptcy court, Judge Shelley C. Chapman said she was “struggling with parsing this through†as a row of lawyers representing a long list of plaintiffs stood before her.
In that case, Mr. Falcone contends that Mr. Ergen, the chairman of both Dish and EchoStar, and the hedge fund Sound Point surreptitiously acquired LightSquared’s debt to try to seize control of the company. The suit was prompted in part by a $2.2 billion bid for LightSquared’s assets from L-Band Acquisition, a subsidiary of Dish, which is named as a defendant.
While the lawsuit on Friday is not directly related, the outcome will help determine LightSquared’s fate. The company has been trying to build a broadband network to compete with the likes of AT&T and Verizon, but its plans were thwarted in February 2012 when the Federal Communications Commission rejected a license it needed to begin operating the network.
The suit turns on the contention that Deere, Garmin and Trimble Navigation did not disclose problems with their own GPS equipment and instead blamed LightSquared for interfering with their GPS systems during a crucial testing period.
LightSquared has been battling the GPS industry, which argues that LightSquared’s network transmitters would interfere with other GPS equipment using the same band of spectrum. It is not the first time that LightSquared has publicly lashed out at the GPS industry. Last year, before the F.C.C. blocked the operating license, LightSquared executives accused the industry of manipulating key tests that produced negative results.
The lawsuit against Deere, Garmin and Trimble Navigation contends that lobbying from the GPS industry and the resulting F.C.C. decision to deny LightSquared a license helped to precipitate LightSquared’s bankruptcy in May 2012. The two GPS industry groups named in the lawsuit are the Coalition to Save our GPS and the United States GPS Industry Council.
Mr. Falcone and Harbinger say they have poured billions of dollars into testing and building the network and are seeking damages of at least $1.9 billion.
No stranger to controversy, Mr. Falcone is also battling the Securities and Exchange Commission on civil accusations that he took a loan from Harbinger Capital to pay a tax bill. Earlier this year Mr. Falcone said he had reached a settlement with the S.E.C. to pay an $18 million fine. The S.E.C. last month overruled the decision, adding another later of uncertainty to Mr. Falcone’s future business activities.
Representatives for Deere, Garmin, Trimble Navigation and the two lobbying groups could not be immediately reached for comment.
Morning Agenda: S.E.C.’s New Tack in JPMorgan Inquiry
S.E.C. SAID TO PRESS JPMORGAN FOR ADMISSION OF WRONGDOING Â |Â
The Securities and Exchange Commission is seeking to level civil charges against JPMorgan Chase and extract a rare admission of wrongdoing, as an investigation into last year’s multibillion-dollar trading loss enters its final stage, Ben Protess and Jessica Silver-Greenberg report in DealBook. If JPMorgan concedes to some wrongdoing, such an admission would set an important precedent for the S.E.C., which for decades allowed defendants to “neither admit nor deny wrongdoing.†An agreement could come as soon as this fall, people briefed on the case said, adding that the agency had not threatened to charge JPMorgan executives.
The S.E.C. has scrutinized the bank over whether traders at JPMorgan’s chief investment office in London falsified records to hide losses from executives in New York. The S.E.C., the people said, could cite the bank for lax controls. “The inquiries have heated up in recent months, the people said, as government authorities secured the cooperation of a former JPMorgan trader, Bruno Iksil, who came to personify the botched trade.†At the same time, a parallel criminal investigation is also ramping up.
SAC TO KEEP MANAGING MONEY UNDER INDICTMENT  | SAC Capital Advisors and federal prosecutors agreed on Thursday to a protective order that requires the firm to keep most of its money in its fund while operating under a criminal indictment, a person briefed on the case tells DealBook’s Peter Lattman. “The order serves a dual purpose, preserving the government’s interest in any money that it might seize from SAC in a forfeiture action, while also allowing the firm to continue running its money management business.â€
“Under the terms of the agreement, SAC must maintain at least 85 percent of its assets owned by the firm and its various entities. The firm had about $14 billion under management as of July 1. If assets fall below the 85 percent threshold, SAC has to replenish them in order to maintain that level, this person said.†The protective order must be approved by a judge.
AMERICA MOVIL BIDS FOR KPN  | América Móvil, the Latin American phone giant owned by Carlos Slim Helú, offered on Friday to buy the remaining 70 percent stake in the Dutch cellphone operator KPN that it did not already own for 7.2 billion euros, or $9.6 billion, DealBook’s Mark Scott reports. América Móvil said it was offering 2.40 euros a share, a 20 percent premium on KPN’s closing share price on Thursday. Shares in the Dutch operator rose 16.2 percent, to 2.32 euros, in morning trading in Amsterdam on Friday.
The move to acquire KPN may challenge the plans of the Spanish telecommunications company Telefónica, which reached an agreement in July to buy E-Plus, a German mobile phone operator, from KPN in a cash-and-stock deal worth 8.1 billion euros. “By pursuing a full takeover of KPN, which would value the Dutch company at around 10.3 billion euros, analysts said América Móvil could move to block the E-Plus deal,†Mr. Scott writes.
ON THE AGENDA Â |Â Brookfield Asset Management reports earnings before the market opens. Allen Questrom, a former chief of J.C. Penney, is on CNBC at 7 a.m.
ACKMAN PRODS J.C. PENNEY OVER C.E.O. SEARCH Â |Â Shares of J.C. Penney rose more than 6 percent on Thursday after William A. Ackman wrote to his fellow board members urging them to speed up a search for a permanent chief executive. The hedge fund manager suggested the directors could find a new leader within 30 to 45 days, according to the letter, which was posted by CNBC.
“The correspondence highlights yet the latest headache bedeviling Penney, which brought back yet another blast from the past â€" a former chief executive, Myron Ullman â€" after firing Ron Johnson as chief executive in April,†DealBook’s Michael J. de la Merced writes. Mr. Ackman said in the letter that Allen Questrom, a retail veteran who turned around Penney once before, had indicated a willingness to return if the board chooses an acceptable chief executive.
But the emergence of the letter did not sit well with Penney’s current chairman, Thomas Engibous, who said in a statement released on Thursday that the board stood by Mr. Ullman. “The board of directors strongly disagrees with Mr. Ackman and is extremely disappointed that his letter was released to the media at the same time that it was sent to the board,†Mr. Engibous said.
Mergers & Acquisitions »
Buffett Settles for Smaller Prey  | Though Warren E. Buffett is known for blockbuster deals, he has increasingly favored smaller, “bolt-on†acquisitions, The Wall Street Journal writes. But he hasn’t called off the hunt for “elephants.†He told the newspaper: “A big deal still is what causes my heart to beat faster.â€
WALL STREET JOURNAL
DealBook »
What Yahoo Got for Its Big Tumblr Deal  | Tumblr had just $16.6 million in cash, $74 million in tangible assets and $182.4 million in “customer contracts and related relationships†when it sold itself to Yahoo, according to a regulatory filing.
DealBook »
Icahn Heads to Court With a Point About Dell  | Carl Icahn is challenging the Dell board’s postponement of the annual meeting to elect directors to Oct. 17, contending that it is an undue delay under Delaware law, Steven M. Davidoff writes in the Deal Professor column.
DealBook »
INVESTMENT BANKING »
Wall Street’s Go-To Public Relations Team  | The public relations firm Sard Verbinnen has honed an “ability to influence a major news event without leaving fingerprints,†Bloomberg Businessweek writes.
BLOOMBERG BUSINESSWEEK
Pimco Urges Investors to Stay  | “We are confident that we know how to win this evolving bond war,†Bill Gross, co-chief investment officer of Pimco, wrote in a note posted online that came after client redemptions in recent months.
BLOOMBERG NEWS
Citigroup Names Operating Chief in Asia  | Michael Borch, currently Citigroup’s chief of industrials investment banking for Asia, is set to take over as chief operating officer for corporate and investment banking in the Asia-Pacific region, The Wall Street Journal reports.
WALL STREET JOURNAL
PRIVATE EQUITY »
BlackBerry Said to Warm to Idea of Going Private  | The chief executive of BlackBerry and the company’s board are “increasingly coming around to the idea that taking BlackBerry private would give them breathing room to fix its problems out of the public eye, the sources said,†Reuters reports.
REUTERS
Apollo Shows Strong Gains as Investments Rise in Value  | The buyout firm said on Thursday that its earnings for the second quarter jumped nearly tenfold, to $197.8 million, from the period a year earlier, as its core private equity portfolio performed well and it cashed out of a number of investments.
DealBook »
HEDGE FUNDS »
Soros Fund Said to Be Withdrawing Money From Pershing Square  | Soros Fund Management has asked to withdraw the money, which is less than $250 million, that is has invested with Pershing Square Capital Management, Reuters reports, citing an unidentified person close to the matter.
REUTERS
I.P.O./OFFERINGS »
A Twitter Hire Adds to Speculation About I.P.O.  | Twitter has hired a stock administration analyst who formerly handled stock grants to meet the “I.P.O. deadline†at Zynga, according to her LinkedIn profile, USA Today reports.
USA TODAY
VENTURE CAPITAL »
Echoes of Steve Jobs in Elon Musk  | Tesla Motors has exceeded Wall Street analysts’ estimates for two consecutive quarters â€" that’s an auspicious start even if the most recent quarterly profit relied on a number of one-offs, Antony Currie of Reuters Breakingviews writes.
REUTERS BREAKINGVIEWS
LEGAL/REGULATORY »
A Professed Whistle-Blower of the Banking Industry  | Hervé Falciani “is in high demand these days, having cast himself as a crusader against the murky world of Swiss banking and money laundering. Once dismissed by many European authorities, he and other whistle-blowers are now being courted as the region’s governments struggle to fill their coffers and to stem a populist uprising against tax evasion and corruption,†The New York Times writes.
NEW YORK TIMES
New Embarrassment for British Regulator  | The Serious Fraud Office admitted on Thursday that it had lost thousands of documents linked to an investigation into the British aerospace giant BAE Systems.
DealBook »
When Agencies Are Independent in Name Only  | “There is some evidence that the president generally gets to choose the chairmen of independent commissions, but the other majority members are picked on Capitol Hill,†Floyd Norris, a columnist for The New York Times, writes. “The result has been that chairmen of commissions can find it difficult to accomplish anything.â€
NEW YORK TIMES
Morning Agenda: S.E.C.’s New Tack in JPMorgan Inquiry
S.E.C. SAID TO PRESS JPMORGAN FOR ADMISSION OF WRONGDOING Â |Â
The Securities and Exchange Commission is seeking to level civil charges against JPMorgan Chase and extract a rare admission of wrongdoing, as an investigation into last year’s multibillion-dollar trading loss enters its final stage, Ben Protess and Jessica Silver-Greenberg report in DealBook. If JPMorgan concedes to some wrongdoing, such an admission would set an important precedent for the S.E.C., which for decades allowed defendants to “neither admit nor deny wrongdoing.†An agreement could come as soon as this fall, people briefed on the case said, adding that the agency had not threatened to charge JPMorgan executives.
The S.E.C. has scrutinized the bank over whether traders at JPMorgan’s chief investment office in London falsified records to hide losses from executives in New York. The S.E.C., the people said, could cite the bank for lax controls. “The inquiries have heated up in recent months, the people said, as government authorities secured the cooperation of a former JPMorgan trader, Bruno Iksil, who came to personify the botched trade.†At the same time, a parallel criminal investigation is also ramping up.
SAC TO KEEP MANAGING MONEY UNDER INDICTMENT  | SAC Capital Advisors and federal prosecutors agreed on Thursday to a protective order that requires the firm to keep most of its money in its fund while operating under a criminal indictment, a person briefed on the case tells DealBook’s Peter Lattman. “The order serves a dual purpose, preserving the government’s interest in any money that it might seize from SAC in a forfeiture action, while also allowing the firm to continue running its money management business.â€
“Under the terms of the agreement, SAC must maintain at least 85 percent of its assets owned by the firm and its various entities. The firm had about $14 billion under management as of July 1. If assets fall below the 85 percent threshold, SAC has to replenish them in order to maintain that level, this person said.†The protective order must be approved by a judge.
AMERICA MOVIL BIDS FOR KPN  | América Móvil, the Latin American phone giant owned by Carlos Slim Helú, offered on Friday to buy the remaining 70 percent stake in the Dutch cellphone operator KPN that it did not already own for 7.2 billion euros, or $9.6 billion, DealBook’s Mark Scott reports. América Móvil said it was offering 2.40 euros a share, a 20 percent premium on KPN’s closing share price on Thursday. Shares in the Dutch operator rose 16.2 percent, to 2.32 euros, in morning trading in Amsterdam on Friday.
The move to acquire KPN may challenge the plans of the Spanish telecommunications company Telefónica, which reached an agreement in July to buy E-Plus, a German mobile phone operator, from KPN in a cash-and-stock deal worth 8.1 billion euros. “By pursuing a full takeover of KPN, which would value the Dutch company at around 10.3 billion euros, analysts said América Móvil could move to block the E-Plus deal,†Mr. Scott writes.
ON THE AGENDA Â |Â Brookfield Asset Management reports earnings before the market opens. Allen Questrom, a former chief of J.C. Penney, is on CNBC at 7 a.m.
ACKMAN PRODS J.C. PENNEY OVER C.E.O. SEARCH Â |Â Shares of J.C. Penney rose more than 6 percent on Thursday after William A. Ackman wrote to his fellow board members urging them to speed up a search for a permanent chief executive. The hedge fund manager suggested the directors could find a new leader within 30 to 45 days, according to the letter, which was posted by CNBC.
“The correspondence highlights yet the latest headache bedeviling Penney, which brought back yet another blast from the past â€" a former chief executive, Myron Ullman â€" after firing Ron Johnson as chief executive in April,†DealBook’s Michael J. de la Merced writes. Mr. Ackman said in the letter that Allen Questrom, a retail veteran who turned around Penney once before, had indicated a willingness to return if the board chooses an acceptable chief executive.
But the emergence of the letter did not sit well with Penney’s current chairman, Thomas Engibous, who said in a statement released on Thursday that the board stood by Mr. Ullman. “The board of directors strongly disagrees with Mr. Ackman and is extremely disappointed that his letter was released to the media at the same time that it was sent to the board,†Mr. Engibous said.
Mergers & Acquisitions »
Buffett Settles for Smaller Prey  | Though Warren E. Buffett is known for blockbuster deals, he has increasingly favored smaller, “bolt-on†acquisitions, The Wall Street Journal writes. But he hasn’t called off the hunt for “elephants.†He told the newspaper: “A big deal still is what causes my heart to beat faster.â€
WALL STREET JOURNAL
DealBook »
What Yahoo Got for Its Big Tumblr Deal  | Tumblr had just $16.6 million in cash, $74 million in tangible assets and $182.4 million in “customer contracts and related relationships†when it sold itself to Yahoo, according to a regulatory filing.
DealBook »
Icahn Heads to Court With a Point About Dell  | Carl Icahn is challenging the Dell board’s postponement of the annual meeting to elect directors to Oct. 17, contending that it is an undue delay under Delaware law, Steven M. Davidoff writes in the Deal Professor column.
DealBook »
INVESTMENT BANKING »
Wall Street’s Go-To Public Relations Team  | The public relations firm Sard Verbinnen has honed an “ability to influence a major news event without leaving fingerprints,†Bloomberg Businessweek writes.
BLOOMBERG BUSINESSWEEK
Pimco Urges Investors to Stay  | “We are confident that we know how to win this evolving bond war,†Bill Gross, co-chief investment officer of Pimco, wrote in a note posted online that came after client redemptions in recent months.
BLOOMBERG NEWS
Citigroup Names Operating Chief in Asia  | Michael Borch, currently Citigroup’s chief of industrials investment banking for Asia, is set to take over as chief operating officer for corporate and investment banking in the Asia-Pacific region, The Wall Street Journal reports.
WALL STREET JOURNAL
PRIVATE EQUITY »
BlackBerry Said to Warm to Idea of Going Private  | The chief executive of BlackBerry and the company’s board are “increasingly coming around to the idea that taking BlackBerry private would give them breathing room to fix its problems out of the public eye, the sources said,†Reuters reports.
REUTERS
Apollo Shows Strong Gains as Investments Rise in Value  | The buyout firm said on Thursday that its earnings for the second quarter jumped nearly tenfold, to $197.8 million, from the period a year earlier, as its core private equity portfolio performed well and it cashed out of a number of investments.
DealBook »
HEDGE FUNDS »
Soros Fund Said to Be Withdrawing Money From Pershing Square  | Soros Fund Management has asked to withdraw the money, which is less than $250 million, that is has invested with Pershing Square Capital Management, Reuters reports, citing an unidentified person close to the matter.
REUTERS
I.P.O./OFFERINGS »
A Twitter Hire Adds to Speculation About I.P.O.  | Twitter has hired a stock administration analyst who formerly handled stock grants to meet the “I.P.O. deadline†at Zynga, according to her LinkedIn profile, USA Today reports.
USA TODAY
VENTURE CAPITAL »
Echoes of Steve Jobs in Elon Musk  | Tesla Motors has exceeded Wall Street analysts’ estimates for two consecutive quarters â€" that’s an auspicious start even if the most recent quarterly profit relied on a number of one-offs, Antony Currie of Reuters Breakingviews writes.
REUTERS BREAKINGVIEWS
LEGAL/REGULATORY »
A Professed Whistle-Blower of the Banking Industry  | Hervé Falciani “is in high demand these days, having cast himself as a crusader against the murky world of Swiss banking and money laundering. Once dismissed by many European authorities, he and other whistle-blowers are now being courted as the region’s governments struggle to fill their coffers and to stem a populist uprising against tax evasion and corruption,†The New York Times writes.
NEW YORK TIMES
New Embarrassment for British Regulator  | The Serious Fraud Office admitted on Thursday that it had lost thousands of documents linked to an investigation into the British aerospace giant BAE Systems.
DealBook »
When Agencies Are Independent in Name Only  | “There is some evidence that the president generally gets to choose the chairmen of independent commissions, but the other majority members are picked on Capitol Hill,†Floyd Norris, a columnist for The New York Times, writes. “The result has been that chairmen of commissions can find it difficult to accomplish anything.â€
NEW YORK TIMES
SAC to Keep Managing Money While Facing Indictment
Federal prosecutors and the investment firm SAC Capital Advisors
agreed on Thursday to a protective order that requires the firm to
keep most of its money in its fund while operating under a criminal
indictment, according to a person briefed on the case.
The order serves a dual purpose, preserving the government’s interest
in any money that it might seize from SAC in a forfeiture action, while
also allowing the firm to continue running its money management
business.
Under the terms of the agreement, SAC must maintain at least 85
percent of its assets owned the firm and its various entities. The
firm had about $14 billion under management as of July 1. If assets
fall below the 85 percent threshold, SAC has to replenish them in order to
maintain that level, this person said.
Judge Richard J. Sullivan of Federal District Court in Manhattan must
approve the protective order, which, though expected, was intensely
negotiated by SAC’s legal team and government lawyers over the past two
weeks.
Federal prosecutors, after a lengthy investigation, brought a criminal case
against SAC on July 25, charging the firm with carrying out a vast insider
trading conspiracy. Though not named in the indictment, Steven A. Cohen, the
billionaire owner of SAC, was accused of fostering an unethical culture
that, prosecutors said, was “a veritable magnet for market cheaters.â€
A spokesman for SAC said that the firm has never encouraged, promoted or
tolerated insider trading. Mr. Cohen has said he behaved appropriately at
all times. The Wall Street Journal online earlier reported on the terms of the
protective order.
Alongside the criminal charges, prosecutors filed a civil
forfeiture complaint in Federal District Court in Manhattan that said
the firm commingled illegal insider-trading profits with the rest of
its money, tainting all of its funds. The complaint seeks “any and
all†of SAC’s assets, meaning that it believes it could, theoretically,
pursue all of the firm’s money.
Prosecutors, however, are expected to demand that SAC forfeit money
that tied to any illicit trading, a sum that could reach several billion
dollars, a person briefed on the case said. Still, the protective order
gives the government the flexibility to pursue a larger amount if new
insider trading activity surfaced while the case wends its way through the
courts.
Preet Bharara, the United States attorney in Manhattan who brought the
charges, did not seek to freeze SAC’s assets when bringing the
indictment. He and his team of prosecutors wanted to avoid hurting
SAC’s investors and trading partners, said people briefed on the case.
There was also some concern that freezing the firm’s assets -
including borrowed money, SAC has about $50 billion invested â€" could
disrupt the financial markets.
Indicting a company is an unusual and aggressive step for the
government. In the case of SAC, however, the government believed that the
action was justified because of vast misconduct at the firm and a
shoddy compliance regime.
Ten former SAC employees have either been charged or implicated with illegal
trading while at the fund; of those, five of have admitted guilt. The
indictment said that Mr. Cohen hired a portfolio manager despite warnings
about his engaging in insider trading at another hedge fund, and overruling
objections from his lawyers.
Last Tuesday, Mr. Bharara appeared on “CBS This Morning†to discuss the
case. “The scope and the pervasiveness of the insider trading that went on
at this particular place is unprecedented in the history of hedge funds,â€
Mr. Bharara said.
Even without the security of a protective order being struck with the
government, banks have continued to trade with SAC since the
indictment. And at least one top Wall Street executive has issued a
public statement of support for the firm.
“They’re an important client to us, they have been an important client
to us,†said Gary Cohn, president of Goldman Sachs, in an interview on
CNBC last month. “We continue to trade with them, and they’re a great
counterparty.â€
At the start of 2013, SAC had about $15 billion under management, with
about $9 billion of that amount belonging to Mr. Cohen and his
employees. In recent months, amid the intensifying government
investigation, outside investors have asked to withdraw about $5
billion from the fund. That money is being returned in installments
every three months, an SAC policy that protects the fund from being
forced to sell its positions at unfavorable prices.
Also on Thursday, an administrative law judge in Washington approved a
request by federal prosecutors to delay the civil case brought last month
against Mr. Cohen by the Securities and Exchange Commission pending the
outcome of the criminal proceedings against SAC and two former employees of
the fund. It is common for S.E.C. actions to be halted until the criminal
prosecution is resolved.
The S.E.C.’s lawsuit accuses Mr. Cohen of failing to supervise the
two former employees, Michael S. Steinberg and Mathew Martoma. Both Mr.
Steinberg and Mr. Martoma have pleaded not guilty and have trials schedule
to begin in November.
America Movil Offers $9.6 Billion for Dutch Cellphone Operator KPN
LONDON - Despite Europe’s economic woes, Carlos Slim Helú is still looking for deals.
América Móvil, the Latin American phone giant owned by Mr. Slim, offered on Friday to buy the remaining 70 percent stake in the Dutch cellphone operator KPN that it did not already own for 7.2 billion euros, or $9.6 billion.
The deal would represent Mr. Slim’s largest deal outside Latin America and follows a flurry of other takeovers in the European telecommunications and cable sector, one of the few areas of activity in the Continent’s moribund mergers and acquisitions market.
América Móvil said it was offering shareholders in KPN, the former Dutch mobile phone monopoly, 2.40 euros a share for their stakes in the company, a 20 percent premium on KPN’s closing share price on Thursday.
Shares in the Dutch operator rose 16.2 percent, to 2.32 euros, in morning trading in Amsterdam on Friday.
The proposed takeover of KPN has been more than a year in the making.
Mr. Slim first moved to buy a holding in KPN last year, when the América Móvil bid up to 8 euros a share for a stake worth around 3 billion euros. After initially trying to block the Latin American phone giant’s plans, KPN eventually agreed to work with América Móvil, which now owns just less than 30 percent in the Dutch company.
“Slim paid a silly price for his first stakes in KPN,†said Stuart Gordon, an analyst at Berenberg in London. “It clearly wasn’t one of his better investments.â€
Yet in sign that a potential takeover deal was in the works, América Móvil, which is being advised by Deutsche Bank, announced at the end of last month that it had ended a so-called standstill pact that had limited its holding in KPN to less than 30 percent.
The move to acquire KPN also may scupper the plans of one of its European rivals. On July 23, the Spanish telecommunications company Telefónica reached an agreement to buy E-Plus, a German mobile phone operator, from KPN in a cash-and-stock deal worth 8.1 billion euros.
By pursuing a full takeover of KPN, which would value the Dutch company at around 10.3 billion euros, analysts said América Móvil may move to block the E-Plus deal. Telefónica also could increase its offer to E-Plus to woo KPN’s shareholders, or potential bid for the entire Dutch company to gain control of its German unit, which the Spanish company plans to combine with its own German operations.
The Latin American telecoms giants said on Friday said it planned to decide about whether or not to support the proposed sale of the German subsidiary when KPN’s shareholders meet to vote on the proposed deal. América Móvil said it would put its own offer to investors starting in September.
“América Móvil is carefully evaluating the merits of the proposed transaction and will make a final determination in relation to the exercise of its voting rights at the upcoming extraordinary general meeting of KPN,†the Latin American phone giant said in reference to the Telefónica bid for E-Plus.
In a brief statement, KPN said that it had been informed about América Móvil’s offer. KPN said it would examine the offer before recommending a course of action to shareholders, and the Dutch company added that it still would continue to pursue the potential sale of E-Plus to Telefónica.
“Telefónica could still come back with a higher bid or a full offer for KPN,†said Mr. Gordon of Berenberg. “When Telefónica makes a move like this, it doesn’t like to lose.â€
Mr. Slim owns a minority stake in The New York Times Company.
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