Hiring the Well-Connected Isn’t Always a Scandal

When is a new hire on Wall Street scrutinized over possible bribery?

Over the weekend, The New York Times reported that the Securities and Exchange Commission had opened an investigation into whether JPMorgan Chase had hired the children of powerful Chinese officials to help the bank win business.

The investigation is sending shudders through Wall Street. If JPMorgan Chase is found to have violated the Foreign Corrupt Practices Act by hiring the children of the elite, then the entire financial services industry is probably in a heap of trouble. Virtually every firm has sought to hire the best-connected executives in China and, more often than not, they are the “princelings,” the offspring of the ruling elite.

Under the Foreign Corrupt Practices Act, a company is not allowed to provide a personal benefit to a decision maker in return for business. But hiring the sons and daughters of powerful executives and politicians is hardly just the province of banks doing business in China: it has been a time-tested practice here in the United States.

“This has been happening for thousands of years,” said Michael J. Driscoll, a former senior trader at Bear Stearns who now teaches at Adelphi University. “I have two sons myself, and one is an intern at a major firm. This goes on all the time.”

Several companies have explicit policies against cronyism, with good reason. Hiring a family member simply for a relationship can be troubling and may not necessarily serve a company’s interests.

But by and large, financial firms in particular commonly hire people who have certain connections, whether though family or a business relationship. The thinking is that the new hire â€" and his or her last name â€" might “help open doors,” Mr. Driscoll said. But, like many people I interviewed on this topic, he did not see a legal issue with such hires. “I don’t think there is a quid pro quo,” such that the hiring of children is explicitly generating business from the parent. At best, he said, “It gets you in the room.”

He added: “It’s like chicken soup. It can’t hurt.”

Pick a big-name chief executive, and a quick LinkedIn search will often reveal a relative working for some other company that wants to do business with the parent’s company.

When Jeff Kindler was the chairman and chief executive of Pfizer, his son, Joshua, worked at Morgan Stanley. All three sons of Martin Sorrell, the chief executive of the advertising giant WPP, have worked at one time or another at Goldman Sachs, which, yes, has done business with WPP.

Does this make the sons of Mr. Kindler or Mr. Sorrell unqualified? Not at all. They are all quite bright and well educated. One of Mr. Sorrell’s sons went on to become a partner at Goldman Sachs. Do these hires constitute bribes? Hardly.

Stephen Schwarzman’s son Teddy was an intern at Goldman Sachs and went on to be an analyst at Citigroup. He then became a lawyer at Skadden, Arps, Slate, Meagher & Flom, before leaving to pursue a successful career in the movie industry. Did Goldman, Skadden or Citigroup hire Teddy because of his father? Did they expect to get business from Blackstone? Maybe.

But more likely they thought he was a qualified recruit who, given his upbringing, had a golden Rolodex. His résumé certainly fit the mold of the firm’s other eager new hires: he earned his bachelor’s at the University of Pennsylvania, then graduated, cum laude, from the Duke University School of Law. (Some, I’m sure, will suggest his father helped get him into those schools.)

The same goes for the prime example of this issue in the United States: Chelsea Clinton. Ms. Clinton worked at the consulting firm McKinsey & Company after college and later at Avenue Capital, a hedge fund founded by a big Clinton fund-raiser, Marc Lasry. But Ms. Clinton, a Stanford graduate who is considered intelligent by virtually everyone who has spent time with her, had as genuine a claim on those jobs as anyone else graduating the year she did.

Did it matter who her parents were? Of course it helped. She’s since gone on to become a director of IAC/InterActiveCorp, Barry Diller’s Internet company, and a contributor to NBC News, roles that critics have also complained about. (Full disclosure: I host CNBC’s Squawk Box, which is part of NBC News.)

And then there is Robert Rubin’s son Jamie, who worked at the Federal Communications Commission and at Allen & Company, the boutique bank, while his father was part of the Clinton administration. I’ve known Jamie for years and he, too, probably would have landed prominent posts even without his name. In some cases, some of these children will tell you that they try to work harder than others at their jobs, just to prove that they earned the position.

In 1971, Bear Stearns was debating whether to adopt an anti-nepotism policy, and Alan C. Greenberg, now its former chief, was told by one of his colleagues that the firm might lose out on some good hires. He replied: “I’m sure you’re right about that. And if we don’t do it, we’re going to hire 100 percent of the dummies.”

In Washington, the line between lobbying and bribery is not clear-cut. Until 2008, R. Hunter Biden, son of then-Senator Joseph R. Biden Jr., lobbied Congress regularly. The Washington Post reported last year that “56 relatives of lawmakers have been paid to influence Congress” since 2007.

While the House and Senate passed rules to limit some lobbying, the House left enough wiggle room for parents and children of lawmakers to still lobby.

There is a conversation to be had about how unseemly this might appear. Mr. Driscoll said, “All of this doesn’t read well,” and he’s right. It looks bad.

But, in truth, it is the way of the world. It is a hard to fault a business for hiring someone who has better contacts than someone else.

If the hiring is indeed part of an expected quid pro quo, that’s a different story. And if the princeling in China is being put on the payroll to ostensibly do work, but in fact, is spending his days at the beach not working, that’s a big problem too â€" and starts to look much more like a bribe.

But given that many of the children of the elite have some of the best educations and thriving networks of contacts, it is hard to see how businesses are supposed to not seek them out, let alone turn them away. As hard to defend as the phrase may be, it is a reality of life, “It’s not what you know, but whom you know.”

Andrew Ross Sorkin is the editor-at-large of DealBook. Twitter: @andrewrsorkin

Former Enron Prosecutor Expected to Be Named to Justice Dept. Post

The Justice Department is expected to name Leslie R. Caldwell, the former lead prosecutor in the Enron case, as the next head of its criminal division, according to people briefed on the decision.

Ms. Caldwell, now a defense lawyer at the firm Morgan Lewis, served as first director of the government’s Enron Task Force, running the criminal investigation of the collapsed energy giant from 2002 to 2004. She took on that role after stints as a federal prosecutor in Manhattan and San Francisco.

In returning to government service, Ms. Caldwell will assume a post vacated this year by Lanny Breuer, who led the Justice Department’s response to corporate misconduct during the financial crisis, bringing big corporate bribery and public corruption cases. He also came under criticism for a dearth of prosecutions of Wall Street executives.

Mr. Breuer returned earlier this year to Covington & Burling, where he previously spent two decades before serving in the Obama administration. Since March, Mythili Raman has served as acting head of the criminal division.

A number of lawyers were considered for the position, including Mark F. Pomerantz, a partner at Paul, Weiss, Rifkind, Wharton & Garrison who, as a federal prosecutor earlier in his career, served as the head of the criminal division for the United States attorney in Manhattan; and Anne Milgram, the former New Jersey attorney general.

Ms. Caldwell is on vacation and did not respond to an e-mail seeking comment. The Wall Street Journal earlier reported the news of Ms. Caldwell’s pending appointment.

A Pittsburgh native, Ms. Caldwell graduated from Penn State and received her law degree from George Washington University.

Former C.E.O. of Willis Group Joins K.K.R. as Senior Adviser

Kohlberg Kravis Roberts said on Monday that it had hired a former chairman and chief executive of the Willis Group as a senior adviser, adding another veteran corporate boss to its roster of outside experts.

The first assignment for the executive, Joseph J. Plumeri, is joining the board of First Data, the credit-card processor that K.K.R. took over six years ago.

The hiring of Mr. Plumeri is the latest addition to K.K.R.’s senior adviser ranks, composed of high-profile current and former executives who can serve as mentors and consultants for the investment firm’s portfolio companies. They can also help bring in new business, drawing on their presumably deep networks of contacts.

Among those already serving as senior advisers are John J. Mack, the former chairman and chief executive of Morgan Stanley, and Arun Sarin, a former chief of the Vodafone Group. Another is Ford M. Fraker, a former United States ambassador to Saudi Arabia.

Mr. Plumeri isn’t a stranger to either K.K.R. or First Data. The private equity giant had previously invested in Willis, an insurance brokerage firm.

And he previously worked at Citigroup and its predecessor firms, serving alongside First Data’s current chief, Frank Bisignano.

“Joe Plumeri is a leader known to be a catalyst for positive change,” Henry R. Kravis, K.K.R.’s co-founder and co-chief executive, said in a statement. “He will be an asset to K.K.R. as a senior adviser and I look forward to working with him again both at the firm and on the First Data board.”

Former C.E.O. of Willis Group Joins K.K.R. as Senior Adviser

Kohlberg Kravis Roberts said on Monday that it had hired a former chairman and chief executive of the Willis Group as a senior adviser, adding another veteran corporate boss to its roster of outside experts.

The first assignment for the executive, Joseph J. Plumeri, is joining the board of First Data, the credit-card processor that K.K.R. took over six years ago.

The hiring of Mr. Plumeri is the latest addition to K.K.R.’s senior adviser ranks, composed of high-profile current and former executives who can serve as mentors and consultants for the investment firm’s portfolio companies. They can also help bring in new business, drawing on their presumably deep networks of contacts.

Among those already serving as senior advisers are John J. Mack, the former chairman and chief executive of Morgan Stanley, and Arun Sarin, a former chief of the Vodafone Group. Another is Ford M. Fraker, a former United States ambassador to Saudi Arabia.

Mr. Plumeri isn’t a stranger to either K.K.R. or First Data. The private equity giant had previously invested in Willis, an insurance brokerage firm.

And he previously worked at Citigroup and its predecessor firms, serving alongside First Data’s current chief, Frank Bisignano.

“Joe Plumeri is a leader known to be a catalyst for positive change,” Henry R. Kravis, K.K.R.’s co-founder and co-chief executive, said in a statement. “He will be an asset to K.K.R. as a senior adviser and I look forward to working with him again both at the firm and on the First Data board.”

Oversight Board Faults Broker-Dealer Audits

Auditors performed complete and correct audits of at least three brokerage firms last year, the Public Company Accounting Oversight Board said Monday.

That amounted to only 5 percent of the 60 audits reviewed by the board, but it may still be a sign of progress. During the previous year â€" the first in which the board reviewed such audits â€" none of the 23 audits examined were found to be acceptable.

If this were baseball, the combined industry would be batting .036 for the two years combined.

“The nature and extent of audit deficiencies and independence findings included in this report are troubling,” said Robert Maday, the deputy director of the board’s division of registration and inspections. “We encourage registered public accounting firms to take action and conduct audits with due professional care, including professional skepticism.”

The audit problems do not necessarily mean that many of the brokerage firms’ financial statements were wrong. Instead, they indicate that the auditing firms either had conflicts of interest that prevented them from doing an independent audit or that those audits failed to do the work needed to qualify as acceptable.

In most â€" 37 of the 60 audits reviewed in 2012 â€" the auditors failed to do enough work to assess the “risk of material misstatement due to fraud,” the board reported. In some cases, auditors made no effort to verify entire revenue streams received by the firms.

There were also a substantial number of audits with deficiencies in the review of related party transactions â€" including one case in which the board said the auditor had evidence that such a transaction had been accounted for incorrectly “to avoid an adverse effect on net capital.” Net capital rules, issued by the Securities and Exchange Commission, determine how much capital a brokerage firm needs to protect its customers.

In 22 of the audits, the audit firm was not independent of the brokerage firm, as required by audit rules. In some cases, the auditor had helped to prepare the financial statements and was therefore reviewing its own work.

The statistics indicate that many firms auditing brokerage firms may know little about the industry and may not have made the effort to keep up with all the rules pertaining to broker-dealers. The board report said that 783 accounting firms in the country audit at least one broker-dealer â€" and that 83 percent of those firms audit fewer than six brokerage firms.

“This may cause some firms to reassess their strategy of doing broker-dealer audits,” said Jay D. Hanson, a member of the accounting oversight board, and decide that they should not do such audits.

Audit firms in the United States were generally subject to little oversight until 2002, when the Sarbanes-Oxley law established the accounting oversight board and said every accounting firm that audits public companies would have to be registered with, and inspected by, the board.

But firms that audited broker-dealers were not subject to the regulation unless they also audited public companies. That changed after the Bernard L. Madoff Ponzi scheme, which was able to go on for years in part because Mr. Madoff’s auditor, a small firm that was not subject to inspection by the oversight board, failed to spot the fraud.

In 2010, the Dodd-Frank financial overhaul law stated that auditors of brokerage firms should also be subject to inspection but left open the question of whether auditors of small, and relatively simple, brokerage firms should be inspected. The board said it hoped to propose rules covering that in 2014. Under those rules, some of the audit firms might be exempt from the inspections.

The 2012 round of inspection covered in the new report looked at the work of 43 audit firms. Of those, 24 did not audit public companies, and only nine of them audited more than 100 public companies. The board said that all of the 43 firms had at least one audit that was not adequate but did not say which types of audit firms conducted the three audits the board’s inspectors deemed acceptable.

Hedge Fund Manager to Admit to Wrongdoing in Revised Deal With S.E.C.

The hedge fund manager Phil Falcone has agreed to admit wrongdoing and to be banned from the securities industry for at least five years in a settlement that points to a more aggressive stance by the Securities and Exchange Commission under its new chairwoman, Mary Jo White.

The deal, which includes $18 million penalty, comes after the commission had overruled its own enforcement staff last month to reject an earlier settlement.

InJune 2012, federal regulators had accused Mr. Falcone of manipulating the market by improperly using $113 million in fund assets to pay his own taxes and to favor some customer redemption requests secretly over others, among other things. His actions, “read like the final exam in a graduate school course in how to operate a hedge fund unlawfully,” according to federal regulators.

Earlier this year the billionaire hedge fund manager announced that he had “reached an agreement in principle” with the regulator to pay the $18 million fine. It included a two-year ban for Mr. Falcone from raising new capital.

The terms of the settlement announced on Monday are much more severe than the earlier deal.

“Falcone and Harbinger engaged in serious misconduct that harmed investors, and their admissions leave no doubt that they violated the federal securities laws,” said Andrew Ceresney, co-director of the S.E.C.’s Division of Enforcement.

“Falcone must now pay a heavy price for his misconduct by surrendering millions of dollars and being barred from the hedge fund industry,” he added.

Mr. Falcone will be required to pay more than $11.5 million of his own money in disgorgement and penalty fines, while his Harbinger entities will have to pay $6.5 million.

For Mr. Falcone, who is currently engaged in two battles over LightSquared, a broadband company in bankruptcy he is fighting to maintain control over, the settlement appeared to be a positive turn of events.

He struck a more upbeat note than the regulator saying he was, “pleased that we were able to reach a settlement to resolve these matters with the S.E.C.”

“I believe putting these issues behind me now is the best course of action for me and our investors,” he said. “It will allow me to continue to focus on my permanent capital vehicles and maximizing the value of LightSquared for all stakeholders. I remain committed to managing Harbinger Capital’s portfolio of investments for the benefit of our investors.”

The settlement, which must be approved by the United States District Court in Manhattan, reflects a new push by the agency’s head, Ms. White, a former federal prosecutor and Wall Street defense lawyer. The agency has been criticized for allowing Wall Street firms to pay fines and settle allegations without admitting any wrongdoing.

In some cases, she said in a June interview with James B. Stewart of The New York Times, “in the interest of public accountability, you need admissions.”

“Defendants are going to have to own up to their conduct on the public record,” she added.

The S.E.C. is also said to pressing to obtain an admission of wrongdoing from JPMorgan Chase in a settlement over a multibillion-dollar trading loss last at a bank unit in London.

A Trophy Owner Also Familiar With Turmoil

Jeff Bezos’s purchase of The Washington Post raises the possibility that he acquired the paper as a trophy to celebrate his success as the founder and chief executive of Amazon.com. The acquisition comes after the purchase of The Boston Globe by John W. Henry, the owner of the Boston Red Sox and a trading firm billionaire. The purchases are part of a broader trend toward private ownership of media companies.

A classic economic study by Harold Demsetz and Kenneth Lehn finds that concentrated ownership might be explained by the “amenity potential” of certain companies, including mass media and sports teams. John Henry’s holdings nicely illustrate both. As the authors explain, winning the World Series or “believing that one is systematically influencing public opinion” may provide consumption benefits to the owners even if profits are diminished.

The study raises another possibility, however. Concentrated ownership works better in highly volatile environments, where rapid change and external forces make it difficult for public shareholders to monitor and judge the performance of managers. In such “high agency cost” environments, it may be more efficient for a single owner or a dominant shareholder to keep an eye on how managers are dealing with rapid change and disruptive innovation. “The noisier a firm’s environment, the greater the payoff to owners in maintaining tighter control,” the paper explains. “Hence, noisier environments should give rise to more concentrated ownership structures.”

Mr. Bezos has proven highly talented at managing in disruptive, innovative environments. While Amazon is a publicly traded company, Mr. Bezos remains the dominant shareholder, consistent with what the Demsetz and Lehn study predicts. Perhaps the right to control The Washington Post is worth more when Mr. Bezos owns the company. Not because it’s a trophy, or to save the world, but simply because an experienced and talented captain gets to steer the boat through the rough seas ahead.

The Demsetz and Lehn study, published in the Journal of Political Economy (1985), is available here.

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

Banks Not Tough Enough on Themselves in Stress Tests, Fed Says

Most large banks appear to have been sailing through the annual “health checkups” they have had to undergo since the financial crisis.

But on Monday the Federal Reserve, a prominent bank regulator, described some significant shortcomings in the banks’ responses to the so-called stress tests.

Despite severity of the recent housing bust, the Fed said some banks weren’t taking under account the possibility of falling house prices when valuing certain mortgage-related assets for the tests.

In other cases, banks assumed they would be strong enough to take business away from competitors in stressed times.

The Fed’s findings are part of its efforts to improve the stress tests, which aim to ensure banks have the financial strength to withstand shocks in the economy and markets.

The tests have created tension between the Fed and the banks. One reason is that the tests can determine how much a bank is allowed to pay out in dividends or spend on stock buybacks.

In March, the Fed announced that two out of 18 banks had effectively failed the latest tests. One was BB&T, a regional bank based in Winston-Salem, N.C. The other was Ally Financial, a consumer lender that has struggled to right itself since the financial crisis and still has not fully repaid its bailout money to the government. Also in March, JPMorgan Chase and Goldman Sachs passed the latest tests, the Fed said their responses contained weaknesses, and the banks were required to resubmit their plans by the end of September.

In its review released Monday, the Fed appeared most concerned that banks were applying the tests too generally. In other words, such banks didn’t pay enough attention to the risks that were particular to their assets and operations. Banks excluded material that was relevant to the bank’s “idiosyncratic vulnerabilities,” the Fed said.

Under the tests, the banks have to assume difficult possibilities and then calculate the losses they would suffer under such conditions. The banks then subtract those losses from capital, the financial buffer they maintain to absorb capital. If the assumed losses cause capital would fall below a regulatory threshold, the banks effectively fail the test.

As part of the stress tests, banks have to carefully lay out capital plans to show regulators that they would have the strength to operate through tough times.

But, again, some banks acted too formulaically, the Fed said.

The banks that showed weak responses based their capital plans solely on hitting regulatory requirements, rather than the unique risks, the Fed said.

One upshot of this is that banks may have to hold capital well above regulatory minimums to be considered properly capitalized in the Fed’s eyes.

By making its expectations clearer, the Fed could sacrifice some of the unpredictability that could keep the banks on their toes when they apply the tests.

Perhaps anticipating that, the central bank warned that “designing an internal capital planning process that simply seeks to mirror the Federal Reserve’s stress testing is a weak practice.”

The Fed’s review also contained hints that some banks still operate with some of the same hubris that got them into trouble during the crisis.

For instance, some banks “assumed that they would be viewed as strong compared to their competitors in a stress scenario and would therefore experience increased market share.”

In the last crisis, Bank of America acquired two large firms during the crisis that then burdened the bank with hefty losses.

JPMorgan’s big acquisitions during the crisis caused less damage to its bottom line, and recently its chief executive, Jamie Dimon, promised, “We will be a port of safety in the next storm.”

BB&T, which fell short in the last test, said in a recent securities filing that it had resubmitted its capital plan in June, adding that regulators have 75 days to review it. Ally did not respond to requests for comment.

The Fed also said Monday that 12 more banks will included in the next stress tests, whose results will appear early next year. That group will not include the large nonbank financial firms, like American International Group, that regulators recently designated “systemically important.” Ultimately, though, such firms will be subject to stress tests.

Moody’s U-Turn on Hybrid Bonds

Moody’s is exposing the shaky foundations underpinning the hottest product in European corporate finance.

The ratings agency has decreed that “hybrid” debt is still debt, even if it resembles equity. This may sound like a statement of the obvious. But companies and investors need to digest it.

Hybrid debt ranks below senior debt but above equity in a company’s capital structure. Unlike senior debt, the issuer has freedom to suspend coupon payments and defer repayment of principal. That makes hybrids a bit like equity, whose dividends are variable and which never needs to be repaid. Investors like hybrids’ high yields, and companies prefer them to equity because coupons, unlike dividends, are tax-deductible. Sales are at a record 29 billion euros this year.

Moody’s previously treated 50 percent of hybrid debt as equity when assessing companies’ overall leverage. Earlier this month it said it would treat hybrids as 100 percent debt if a company’s credit rating falls below junk. That means hybrids could act as an accelerant when a company’s creditworthiness is deteriorating.

It’s an unpopular decision - but logical. When a firm is struggling, the risk of its assets eventually having to be liquidated to pay creditors increases. Hybrid debtholders would then have a claim up to the value of their debt plus any deferred coupons. If they were equity investors, that would not apply.

There aren’t many junk-rated hybrids out there. Still, the change has caused pain to issuers and investors. Brickmaker Wienerberger saw its rating fall a notch after Moody’s policy statement pushed its debt up to 6.5 times last year’s earnings before intrerest, taxes, depreciation and amortization, or Ebitda. Telecom Italia’s 7.8 percent hybrid, sold in March, would look like expensive debt if it was junked, giving the company cause to redeem it and refinance. Junk-rated ArcelorMittal’s debt jumped by $3 billion. Its hybrid fell 5 percentage points on concerns the steelmaker may now redeem it below its recent market price.

This comes as a rise in risk-free rates threatens to diminish the attractions of hybrids. It’s another reason for companies to issue either debt or equity, or a mix of each, but not something pretending to be the best of both.

Neil Unmack is a columnist at Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.

End of the Options Backdating Era

Before the clamor about the lack of prosecutions from the financial crisis and the current crackdown on insider trading, the practice of backdating stock options came to light seven years ago and prompted a flurry of prosecutions. The practice is now long forgotten, but it looks as if the last of those cases has finally concluded, and as the Grateful Dead put it so well, “What a long, strange trip it’s been.”

Last week, the former chief executive of Vitesse Semiconductor, Louis Tomasetta, and its former chief financial officer, Eugene Hovanec, pleaded guilty to conspiracy to obstruct an investigation into the company’s options awards to cover up that they had been backdated. This came after two trials in which jurors could not reach a verdict on charges of conspiracy to commit securities fraud related to the backdating and inflation of the company’s revenue.

For those whose memories have faded, options backdating became known publicly in March 2006 when a Wall Street Journal article questioned whether executives selected an earlier date for the price at which options could be exercised, effectively giving them a lower price and making them more valuable. At the UnitedHealth Group, one of the companies mentioned in the article, its former chief executive paid a $468 million civil penalty and restitution to the company for mispriced options.

A number of companies â€" particularly those in the technology industry, which gave out stock options like candy on Halloween â€" began internal investigations into their awards. Because publicly traded corporations must properly report the value of options on their financial statements, any backdating could result in a misstatement that can be the basis for a charge of securities fraud.

The prevalence of options backdating led to a near feeding frenzy among different United States attorney’s offices throughout the country who were fighting for cases. Charges were eventually filed in a number of different jurisdictions against executives responsible for approving the practices, usually accompanied by a parallel civil enforcement action by the Securities and Exchange Commission. But a few tied in with backdating were never accused of wrongdoing, like Steven P. Jobs at Apple.

The United States attorney in San Francisco went so far as to set up a “Stock Options Task Force” to look at Silicon Valley companies. That office obtained the most notable conviction from this era involving the former Brocade Communications chief executive, Gregory Reyes. But even that was not an easy case. The conviction after his first trial was reversed on appeal.

Not to be left behind, the Southern District of New York in Manhattan, which frequently pursues prominent securities cases, brought the charges against Dr. Tomasetta and Mr. Hovanec in December 2010.

One significant problem that prosecutors in New York faced was that Vitesse Semiconductor is based in Southern California, and almost no conduct related to the charges took place in New York. After the first trial ended in April 2012, Paul A. Crotty, a judge for the Federal District Court for the Southern District of New York, dismissed six of the seven charges in the case because no part of the securities fraud took place in the district, so venue was improper there.

The guilty plea Dr. Tomasetta and Mr. Hovanec entered does not involve actual options backdating but instead their efforts to create a paper trail at the company to make it appear that the options were properly backdated. And the information lists the location of the crime as “the Central District of California and elsewhere,” showing that Manhattan may not have been the best place to pursue the case.

Compared to the Justice Department’s recent run of successes in insider trading cases, the options backdating prosecutions were a mixed bag in singling out senior corporate executives. The cases show that prosecutors can be susceptible to jumping on a bandwagon when it appears that corporate misconduct took place.

Among the chief executives convicted, in addition to Mr. Reyes, were James Treacy of Monster Worldwide and Bruce Karatz of KB Home. Mr. Treacy received a two-year prison term, and Mr. Karatz was sentenced to eight months of home confinement after the district judge rejected the government’s request for more than six years imprisonment. And much like the Vitesse Semiconductor executives, Mr. Karatz was convicted only on charges related to covering up the transactions. He was acquitted on 16 counts related to the actual backdating.

Other cases were more problematic for the Justice Department. The prosecution of former Broadcom executives collapsed, and the case was dismissed after charges of prosecutorial misconduct by an assistant United States attorney. A jury acquitted the former general counsel at McAffe, after which the S.E.C. dropped its parallel case.

In a civil enforcement action against a director of Engineered Support Systems, a district judge dismissed the S.E.C.’s case without requiring the defense to offer any evidence, noting that the government’s own experts did not agree as to what was required for the issuing of stock options.

The guilty pleas by Dr. Tomasetta and Mr. Hovanec are perhaps a fitting close to the options backdating era, admitting to the cover-up in exchange for a government recommendation that they receive probation for the violations. It was a practice that seemed to fit the old kindergarten excuse that “everyone else was doing it, so I didn’t really think it was wrong.”

The conduct usually had a minimal effect on shareholders, centering mainly on disclosure about an obscure part of a company’s financial statements. And the trials showed how difficult it was to prosecute senior executives for corporate misconduct that involves arcane accounting issues.

As we say goodbye to the options backdating cases, you can almost hear those final words of the Grateful Dead â€" it’s time to “get back truckin’ home.”

Re/Max Files to Go Public, as Housing Market Continues Upswing

Another big player in the housing market is planning on taking advantage of a recovery.

Re/Max Holdings, one of the country’s biggest real estate brokerages, filed to go public on Monday, following its rival Realogy Holdings onto the public markets.

The preliminary prospectus gave few details about the offering, other than a pro forma fund-raising target of $100 million. But it shed more light on Re/Max, which has stayed private since its founding 40 years ago.

Its decision to go public throws a spotlight on how an upswing in the housing market has benefited real estate companies. Realogy, which runs Century 21 and Coldwell Banker, reported $1.5 billion in revenue for its second quarter, its best showing since 2007.

And Zillow, fresh off a strong quarter, announced a deal to buy StreetEasy.com for $50 million in a bid to gain a strong position in the burgeoning New York City market.

In its preliminary prospectus, Re/Max disclosed that it posted two consecutive annual profits, earning $33.3 million last year. For the first six months of 2013, the company earned $15 million, up 8.7 percent from the same time last year.

And as of June 30, it employed 91,809 agents, its highest number in three years.

Re/Max plans on using two classes of stock, with the company selling Class A shares in its I.P.O. Its current owners, including co-founders Dave and Gail Liniger and the investment firm Weston Presidio, will own Class B shares that effectively will hold twice the voting power of publicly traded shares for five years after the brokerage goes public.

It plans to list on the New York Stock Exchange under the ticker symbol “RMAX.”

Re/Max’s offering is being led by Morgan Stanley, Bank of America Merrill Lynch and JPMorgan Chase.

How Judge’s Ruling Ends Legal Threat to Dell Buyout

Carl C. Icahn once threatened “years of litigation” over the Dell buyout. Unfortunately for him, a Delaware court appeared to disagree at a hearing on Friday, leaving the investor to make a last stand at Dell’s Sept. 12 shareholder meeting.

The Friday hearing was ostensibly a procedural one, held to decide whether to expedite Mr. Icahn’s lawsuit against the Dell board. The suit brought by the Icahn funds claimed that the Dell directors had breached their fiduciary duties in renegotiating the buyout deal with Michael S. Dell and Silver Lake Partners, and in particular resetting the record date for the shareholder meeting to vote on the transaction.

Mr. Icahn also made a second claim that Dell’s annual meeting should be ordered held at the same time as the vote on the merger. This would give him a chance to get the merger voted down while simultaneously seeking to replace the Dell board.

The hearing was by all accounts one of the more well-attended scheduling conferences ever in Delaware. And as is often the case with judicial hearings, it had a surprise or two. While the initial reports that Mr. Icahn lost are on the whole correct, a nuance or two will affect both this Dell deal and future buyouts.

The first surprise was that the judge in the matter, Chancellor Leo E. Strine Jr., decided to turn the scheduling hearing into a more substantive one on the merits.

The judge refused to expedite claims that Mr. Icahn has made about the buyout process and the deal Dell has cut with Mr. Dell and Silver Lake. In finding that Mr. Icahn had stated no “colorable claim” that the board had breached its fiduciary duties, it is clear the judge believe that - based on the facts known - the board has done a good job, or at least that it is not his place to second-guess the board’s decisions. In this regards, the judge stated that “I’m not a special committee member, and under our law, deference is due to independent directors.”

The Dell board has also been criticized by Mr. Icahn and others for changing the record date for the shareholder vote and lowering the threshold of approval for the deal in exchange for Mr. Dell’s latest price increase.

But Chancellor Strine offered a defense of the board, stating, “I’m not sure what other leverage they really had.” In particular, the judge said the change in the record date was justified because of the turnover of almost 25 percent of Dell’s shares after the old date was set, and because of the numerous revised proposals made by Mr. Icahn himself, which also affected the composition of the shareholder base.

The judge’s statements are a vindication for the Dell board and the so-called superprocedures put in place that, the board argued, empowered and protected shareholders. These procedures have put a shine on the board’s independence, and the Delaware courts focus on things like independence and good faith.

In light of the judge’s apparent view that these standards have been met, he clearly did not want to meddle with this deal. In fact he went out of his way to state that the Delaware courts did not want to drag this matter out any further.

Chancellor Strine’s findings are so complete that they justify the superprocedures this board has put in place, even when it stepped back from them slightly in this most recent iteration. And again, Chancellor Strine found the board’s action wholly justified because the consideration was increased. (Deal Professor: How Dell Tried to Avoid Potential Buyout Pitfalls)

His view was no surprise in light of his prior endorsement of these procedures. It is also effectively a death knell for attempts by Mr. Icahn and other shareholders to challenge the buyout on the basis that the board failed in its decision-making.

The court effectively stymied Mr. Icahn’s attempt to have Dell’s annual meeting held on the same date as the vote on the merger. His claim is based on a Delaware statute that requires that an annual meeting be held within 13 months of the prior meeting. If this 13th-month period elapses, Delaware courts may order that the meeting be held.

I had previously written that Mr. Icahn had a claim here, since other courts had held the 13-month requirement to be “virtually absolute.”

The Delaware court also agreed. Chancellor Strine handed Mr. Icahn a victory here, ordering that there be expedited proceedings on the meeting claim.

Prior courts, he noted, had ordered these meetings to be held within 30 to 90 days after the 13-month period.

The Dell meeting is set for Oct. 17, so the judge stated that it was already in this time frame, adding that he was not inclined to order that it be held sooner. This was particularly true since “under the relevant federal securities standards, it does not seem at all possible to have a compliant meeting on the time frame that the Icahn group suggests.”

Thus, Chancellor Strine stated that while he was expediting this claim and certainly not ruling on it right now, if he did rule he would probably just order that the meeting be held on Oct. 17 anyway. Then he set a briefing schedule that would not result in a hearing until late August or early September.

Essentially, he left it to the parties to negotiate an order that implemented his desired ruling. And that was that.

As Brian Quinn at the M&A Law Prof blog noted in speculating about what the court would do at this hearing, sometimes Delaware hands out Pyrrhic victories. He was right about that, to Mr. Icahn’s detriment.

For the Dell buyout, this is truly an end to the litigation threat. Unless new facts emerge, the judge in the matter appears quite ready to see this go to a vote. Not only that, to the extent a litigation threat hung over this deal to push the Dell board to do something, it is clear that this threat is gone.

The fact that the judge made these rulings at a scheduling hearing shows his eagerness to get the Delaware courts out of the way of this buyout going to a vote. Boiling this down, you can think what you will of the sale process, but the Delaware courts are unlikely to give you solace if you are a Dell shareholder.

And given the judge’s statements, it is hard to see a path to victory for shareholders who exercise dissenters’ rights. While a dissenters’ rights procedure focuses on whether a fair price is paid, it is hard to see how a Delaware court would award more than the buyout price given the firm endorsement of the procedures used in this case.

This essentially leaves everything with the shareholder vote. Mr. Icahn, Southeast Asset Management and the other buyout opponents will have to fight this battle based on the new rules the Dell board has negotiated. The tide is against them though the vote is still likely to be a nail-biter.

But don’t worry about Mr. Icahn â€" he is already in the black on this trade. As he often does, Mr. Icahn will win even if he loses on Sept. 12.

Trading Ban for Chinese Firm

Chinese regulators have banned Everbright Securities from proprietary trading for three months, Bloomberg News reports.

Statoil Sells North Sea Assets to Austrian Rival

LONDON â€" Statoil, the state-controlled Norwegian oil company, said on Monday that it would sell a package of North Sea assets to OMV, a smaller Austrian producer, for $2.65 billion.

Statoil is reducing its stake in two fields that it operates in Norwegian waters, Gudrun and Gullfaks, to 51 percent from 75 percent and 70 percent respectively.

The company is also selling its 30 percent stake in Rosebank, a big discovery in British waters being developed by a group led by Chevron, and a nearly 6 percent stake in Schiehallion, another British field now being redeveloped by BP.

“We regard this deal very positively” for Statoil, said Peter Hutton, an analyst at RBC Capital Markets in London.

Mr. Hutton noted that the transaction allows Statoil to raise money from the Norwegian fields without ceding operating control. More important, it saves $7 billion in capital costs on Schiehallion and Rosebank, a deepwater discovery west of the Shetland Islands that is likely to be one of Europe’s most expensive projects in the coming years.

Statoil is selling the equivalent of about 2 percent of its production in 2014, Mr. Hutton estimated. It will be able to use the money on more promising projects, like Johan Sverup, a Norwegian field.

Investors are becoming increasingly concerned about rising capital costs at the large oil companies. In their second-quarter results, Exxon Mobil, Royal Dutch Shell and Chevron all reported increases in capital expenditures while production and earnings fell.

The sales also show the influence of BP’s divestment program. Excluding its business in Russia, BP has raised about $38 billion since 2010 by selling about 400,000 barrels a day of production, according to RBC. Despite being under pressure after the Gulf of Mexico disaster, BP received substantially more than analysts expected from the sales.

Other oil companies have learned from BP’s experience that they can raise cash by pruning assets without losing their best properties. Shell, for instance, said on Aug. 1 that it would explore selling assets in North America as well as Nigeria, where its operations have been hit hard by sabotage.

The transaction will probably have a greater impact on OMV, a medium-size company that is trying to build up its output. OMV is adding about 13 percent to its production, now about 300,000 barrels a day, and around 17 percent to its reserves. OMV also gains options to participate in 11 exploration licenses.

“The transaction will provide a huge boost to OMV’s strategy,” the company’s chief executive, Gerhard Roiss, said in a statement.

CVC Capital Buys Online Payment Company

LONDON - The European private equity firm CVC Capital Parters agreed on Monday to buy the Skrill Group, the British online payment company, for 600 million euros, or $801 million.

The announcement is the third deal in the last week for CVC Capital, which is in talks to buy some of Campbell Soup’s European operations and also acquired a British extended warranty company for $1.2 billion last week.

Under the terms of the latest deal, CVC Capital will buy Skrill, which generated revenue of 200 million euros last year, from Investcorp, which is based in Bahrain.

Skrill, founded in 2001, serves about 35 million account holders worldwide and was acquired by Investcorp in 2007 for around 100 million euros. The online payment company reported a pretax profit of 50 million euros in 2011, according to a company statement.

The acquisition highlights the mixed fortunes of Europe’s private equity sector. Some of the industry’s largest players continue to struggle under debts acquired before the financial crisis began, while others have benefited from less competition for assets.

Last week, CVC announced that it was in discussions to buy a number of brands in France, Germany, Sweden and Belgium from the Campbell Soup Company.

It also agreed to acquire Domestic and General, an extended warranty company, from rival private equity player Advent International for $1.2 billion.

Credit Suisse, Jefferies International and Royal Bank of Scotland provided financing for the deal for Skrill, according to a statement from CVC Capital.

Jefferies International and the law firm Clifford Chance advised CVC Capital, while Barclays and the law firms SJ Berwin, Travers Smith, Freshfields Bruckhaus Deringer advised Skrill.

CVC Capital Buys Online Payment Company

LONDON - The European private equity firm CVC Capital Parters agreed on Monday to buy the Skrill Group, the British online payment company, for 600 million euros, or $801 million.

The announcement is the third deal in the last week for CVC Capital, which is in talks to buy some of Campbell Soup’s European operations and also acquired a British extended warranty company for $1.2 billion last week.

Under the terms of the latest deal, CVC Capital will buy Skrill, which generated revenue of 200 million euros last year, from Investcorp, which is based in Bahrain.

Skrill, founded in 2001, serves about 35 million account holders worldwide and was acquired by Investcorp in 2007 for around 100 million euros. The online payment company reported a pretax profit of 50 million euros in 2011, according to a company statement.

The acquisition highlights the mixed fortunes of Europe’s private equity sector. Some of the industry’s largest players continue to struggle under debts acquired before the financial crisis began, while others have benefited from less competition for assets.

Last week, CVC announced that it was in discussions to buy a number of brands in France, Germany, Sweden and Belgium from the Campbell Soup Company.

It also agreed to acquire Domestic and General, an extended warranty company, from rival private equity player Advent International for $1.2 billion.

Credit Suisse, Jefferies International and Royal Bank of Scotland provided financing for the deal for Skrill, according to a statement from CVC Capital.

Jefferies International and the law firm Clifford Chance advised CVC Capital, while Barclays and the law firms SJ Berwin, Travers Smith, Freshfields Bruckhaus Deringer advised Skrill.

Morning Agenda: JPMorgan Faces Bribery Inquiry Over China

Federal authorities have opened a bribery investigation into whether JPMorgan Chase hired the children of Chinese officials to help the bank win business, Jessica Silver-Greenberg, Ben Protess and David Barboza report in DealBook.

In one example, the bank hired the son of Tang Shuangning, a former Chinese banking regulator who is now chairman of the China Everbright Group, a state-controlled financial conglomerate, according to a confidential United States government document reviewed by The New York Times, as well as public records, DealBook reports. After the chairman’s son started at the bank, JPMorgan secured multiple coveted assignments from the Chinese conglomerate, records show.

The focus of the civil investigation by the Securities and Exchange Commission’s antibribery unit has not been previously reported, though JPMorgan made an oblique reference to the inquiry in its quarterly filing this month, stating that the S.E.C. had sought information about JPMorgan’s “employment of certain former employees in Hong Kong and its business relationships with certain clients.” The government document and public records do not definitively link JPMorgan’s hiring practices to its ability to win business, and the bank has not been accused of any wrongdoing.

“Yet the S.E.C.’s request outlined in the confidential document hints at a broader hiring strategy at JPMorgan’s Chinese offices,” DealBook writes. “Authorities suspect that JPMorgan routinely hired young associates who hailed from well-connected Chinese families that ultimately offered the bank business.”

PUBLIC FUNDS DODGING WALL STREET  | A number of the world’s biggest pension and sovereign wealth funds are moving to reduce their reliance on the Wall Street firms that used to manage almost all their money, Nathaniel Popper reports in DealBook. A group that is part of that push, the Institutional Investors Roundtable, has kept a low public profile since it began in 2011, but it attracted 27 funds managing public money to its latest meeting.

“The efforts to change the way public money is managed are motivated, in no small part, by the big fees and lackluster performance that many hedge funds and private equity firms have delivered to their biggest clients in recent years,” Mr. Popper writes. “Investment managers like Leo de Bever, at the Canadian province of Alberta’s $70 billion fund, have found they can often manage their own money at a lower cost without losing out on returns.”

Though the moves are not yet threatening to eat into the overall profits of the big hedge funds and private equity firms, they “point to a mistrust of Wall Street’s ability to deliver the kind of outsize returns it has long promised.”

SAC LOOKS TO CUT BACK  | 
SAC Capital Advisors, a hedge fund that typically heads into the end of the year in a position of strength, is preparing to become leaner with virtually no outside investors, Alexandra Stevenson and Peter Lattman report in DealBook. With a regularly scheduled deadline of midnight on Friday for investors to ask for their money, the hedge fund was expecting to lose virtually all its outside capital.

Already this year, investors had asked for $5 billion of the $6 billion in outside capital from the $15 billion that the fund had at the start of the year, DealBook reports. “The Blackstone Group, the influential hedge fund investor that once had more than $500 million with SAC, has pulled its entire investment from the firm, according to people briefed on the matter, speaking only on the condition of anonymity.”

ON THE AGENDA  |  President Obama is scheduled to meet with the heads of the Securities and Exchange Commission, the Commodity Futures Trading Commission, the Consumer Financial Protection Bureau and other regulatory agencies on Monday afternoon to discuss the implementation of the Dodd-Frank regulatory overhaul. Urban Outfitters reports earnings after the market closes.

ALIBABA SEEN BUYING E-COMMERCE STAKE  | The latest deal by Alibaba, the Chinese e-commerce giant that is preparing for an initial public offering, may raise some eyebrows, DealBook’s Michael J. de la Merced writes. “Alibaba has agreed to pay about $75 million for a minority stake in ShopRunner, a retail shipping service run by Scott Thompson, who briefly, and controversially, served as Yahoo’s chief executive, a person briefed on the matter said on Saturday.”

Mergers & Acquisitions »

Atlas Copco of Sweden to Buy Edwards Group  |  The Swedish engineering company Atlas Copco agreed on Monday to buy the British industrial company Edwards Group for up to $1.2 billion. DealBook »

To Cover New York, Zillow Buys a Rival Site  |  The real estate Web site Zillow will acquire StreetEasy, a much smaller site, for about $50 million to patch what it described as a “glaring hole” in its coverage. DealBook »

Bezos, Master of the Unexpected  |  It is increasingly hard to dispute that Jeffrey P. Bezos, the founder of Amazon, who recently bought The Washington Post, “is the natural heir of Steve Jobs as the entrepreneur with the most effect on the way people live now,” The New York Times writes. NEW YORK TIMES

Baidu Deal Could Reduce App Piracy in China  |  The New York Times reports: “The biggest Internet takeover to date in China has already sharpened a rivalry among the country’s digital powerhouses, but the deal could also bring more order to China’s messy world of mobile apps.” NEW YORK TIMES

Judge’s Ruling Removes Hurdles to a Dell Takeover Bid  |  Chancellor Leo E. Strine of Delaware’s Court of Chancery also defended the work by a special committee of Dell’s board, saying that its actions benefited shareholders. DealBook »

Mayer, Yahoo’s C.E.O., Goes Chic  |  A Marissa Mayer profile in the September issue of Vogue, titled “Mogul, Mother, Lightning Rod,” draws attention to her fashion choices. DealBook »

INVESTMENT BANKING »

Mayor Bloomberg Puts Wall Street First  |  “No mayor in New York’s history has done more to consolidate the city’s identity with Wall Street,” Ginia Bellafante writes in the Big City column in The New York Times. NEW YORK TIMES

Goldman Seeks to Attract Banks to Bond Platform  |  “Goldman Sachs has been trying to recruit other banks to its electronic bond trading platform, in a move which highlights some of the tentative industry efforts under way to boost liquidity” in the corporate bond market, The Financial Times reports. FINANCIAL TIMES

Bank of America May Merge Merrill Lynch With Parent  |  The move would simplify Bank of America’s organization and reduce costs but would not be noticeable to most outsiders. DealBook »

Fund Set Up for UBS Bailout Repays Loan  |  The move clears the way for UBS to buy back a portfolio of distressed assets that were moved off the UBS books during the financial crisis. DealBook »

PRIVATE EQUITY »

Blackstone Said to Be in Talks for Stake in British Insurer  |  The Blackstone Group is in talks to buy a minority stake in Rothesay Life, Goldman Sachs’s pension insurance business in Britain, The Financial Times reports, citing unidentified people familiar with the matter. FINANCIAL TIMES

Brazilian Fund, Under Fire, Has a Defender  |  An investor in GP Investments, one of Latin America’s largest private equity funds, has attacked its compensation policies, but another says that criticism is misguided. DealBook »

A Private Equity Tycoon From an Earlier Era  |  David Bonderman, the co-founder of the Texas Pacific Group, “is seen by many as emblematic of a bygone era in the industry, with his intuitive and informal style,” The Financial Times reports. “Yet TPG may need Mr. Bonderman’s charisma now more than ever.” FINANCIAL TIMES

HEDGE FUNDS »

An Often Overlooked Division of Sony  |  The activist investor Daniel S. Loeb has sharply criticized Sony’s entertainment division, but the company’s television unit is quietly producing ambitious work, The New York Times writes. “It hasn’t always gotten the recognition it deserves,” said Michael Lynton, the chief executive of Sony Entertainment. NEW YORK TIMES

Departures From Brevan Howard  |  Two credit traders left the London-based hedge fund Brevan Howard Asset Management in recent weeks, “as the firm scales back after its biggest hedge fund had the worst monthly loss since 2008 in June,” Bloomberg News reports, citing two unidentified people familiar with the matter. BLOOMBERG NEWS

I.P.O./OFFERINGS »

Alibaba Said to Discuss Ownership Structure With Exchange  |  The Wall Street Journal reports: “Alibaba Group Holding Ltd. is in talks with the Hong Kong Stock Exchange to come up with an ownership structure that would allow the Chinese e-commerce company to list its shares while enabling founder Jack Ma and his management team to maintain control, people familiar with the talks said.” WALL STREET JOURNAL

VENTURE CAPITAL »

Replicating a Shopping Mall Experience Online  |  A category of e-commerce known loosely as social shopping has attracted venture capitalists and caught the attention of giants like Amazon and eBay, The New York Times reports. NEW YORK TIMES

LEGAL/REGULATORY »

Detroit Awaits Challenge to Bankruptcy Eligibility  |  “Unions, creditors and retirees are expected to file formal objections to Detroit’s eligibility for bankruptcy protection before a Monday deadline, the opening of a legal fight over whether the largest municipal bankruptcy in the nation’s history should proceed,” The New York Times reports. NEW YORK TIMES

One Airline Merger Too Many  |  James B. Stewart, a columnist for The New York Times, writes: “Shareholders and employees of American Airlines and US Airways may well be wondering: why us?” NEW YORK TIMES

For Airlines, Deregulation Led to Consolidation  |  “Deregulation worked all too well at first, and then it didn’t work well at all. The natural tendency of companies to seek monopoly power took over, and nobody tried to stop it until now, when it is really too late,” Joe Nocera writes in his columnist for The New York Times. NEW YORK TIMES

The Problem With Leeway in Valuing Securities  |  The case against two former JPMorgan Chase traders offers larger lessons for investors and regulators, Gretchen Morgenson writes in her column for The New York Times. NEW YORK TIMES

Atlas Copco of Sweden to Buy Edwards Group for $1.2 Billion

LONDON - The Swedish engineering company Atlas Copco agreed on Monday to buy the British industrial company Edwards Group for up to $1.2 billion.

Under the terms of the deal, Atlas Copco said it had offered investors in Edwards up to $10.50 a share, depending on the British company’s financial performance this year.

The deal represents a 24 percent premium on Edwards’s closing share price on Friday, and will add the British company’s product range of vacuums used in industrial processes to Atlas Copco’s existing offerings of construction and mining equipment.

“It is a great fit for Atlas Copco,” the company’s chief executive, Ronnie Leten, said in a statement on Monday.

The deal for Edwards, whose investors include the private equity firms Unitas Capital and CCMP Capital Advisors, is one of the few bright spots in Europe’s sluggish mergers and acquisitions market.

Despite a recent increase in takeovers, including Vodafone’s $10 billion offering for the German cable operator Kabel Deutschland, the combined value of deals across the Continent is still down more than 40 percent, to $259 billion, compared to same period last year, according to the data provider Thomson Reuters.

That contrasts to a 20 percent increase in the combined value of deals in the United States over the same period.

Atlas Copco, which was founded in 1873 and employs almost 40,000 people around the world, said it would seek to combine Edwards’ vacuums with its own product range of drilling equipment and air compressors for the mining and construction industries. The Swedish engineering giant has faced difficulties in its mining division, as global demand for commodities has remained volatile because of the financial crisis.

Edwards’ investors will initially receive $9.25 for each of their shares of the company, which is listed on the Nasdaq stock exchange. They will receive an additional $1.25 a share depending on Edwards’ financial performance for the rest of the year. In total, the deal is worth $1.6 billion, including debt.

The takeover is expected to close during the first quarter of next year.