What Might Have Been and the Fall of Lehman

Let’s play a game. It is called “What if … .”

As we observe the five-year anniversary of the financial crisis â€" Lehman Brothers filed for bankruptcy five years ago this coming weekend â€" the most intriguing hypothetical question about those fateful days is what would have happened had the government bailed out Lehman.

It would have changed the course of history, certainly, but maybe not for the better.

The collapse of Lehman has long been considered the domino that led to the tumbling of so many others: Merrill Lynch’s hasty sale to Bank of America; the bailout of the American International Group; the breaking of the buck in the money market; the near collapse of Goldman Sachs and Morgan Stanley that led them to become banking holding companies;and the decision by the government to pursue the $700 billion Troubled Asset Relief Program to bail out the entire banking industry.

The decision not to rescue Lehman has been called a mistake and worse. Christine Lagarde, the French finance minister at the time, called it “horrendous.”

No one suggested Lehman deserved to be saved. But the argument has been made that the crisis might have been less severe if it had been saved, because Lehman’s failure created remarkable uncertainty in the market as investors became confused about the role of the government and whether it was picking winners and losers. The government had bailed out Bear Stearns and then nationalized Fannie Mae and Freddie Mac but left Lehman for dead only to turn around and save A.I.G.

Henry M. Paulson Jr., the Treasury secretary at the time, has suggested that the government didn’t have a choice because it lacked the proper tools to take over Lehman without a willing buyer. The British government pulled the plug on Barclays’s 11th-hour bid, a brilliant decision in retrospect.

Mr. Paulson may be right: he didn’t have the tools. But that didn’t stop the government from finding clever ways to bail out A.I.G. and then pursuing strong-arm tactics â€" like pressing Bank of America to complete its deal for Merrill without disclosing the severity of Merrill’s problems to shareholders â€" that would have been considered unconscionable had the country not been in the midst of a crisis.

Of course, the government was hardly predisposed to participating in a bailout of Lehman, despite assertions that it was prepared to help. The contemporaneous evidence is overwhelming: “looks like Paulson will go to NYC to sort through this Lehman mess … can’t imagine a scenario where we put in gov’t money … we shall see,” Jim Wilkinson, Mr. Paulson’s chief of staff, wrote to a recruiter on Sept. 12.

Two days later, he sent another e-mail to Jes Staley, the head of global asset management at JPMorgan Chase: “No way govt money is coming in … I’m writing the usg coms plan for orderly unwind … also just did a call with the WH and usg is united behind no money. No way in hell Paulson could blink now.”

Had the government stepped in, what would have happened next?

That’s where the hypothetical guessing game begins. But there are some educated assumptions that can be made. The blowback against a bailout of Lehman would have been fierce. It is often forgotten, but the prevailing wisdom the day after Lehman fell was that its collapse was a good thing. The New York Times wrote in an editorial: “It is oddly reassuring that the Treasury Department and Federal Reserve let Lehman Brothers fail.” (The Wall Street Journal came out on the same side.)

It is also worth noting that most of Wall Street was convinced that the failure of Lehman Brothers would not pose a systemic risk. “I think the market can take the lehman unwind, but there needs to be a bid for Merrill early in the week,” Mr. Staley had e-mailed to Mr. Wilkinson over the weekend.

In truth, in the fairy-tale version of bailing out Lehman, the next domino, A.I.G., would have fallen even harder. If the politics of bailing out Lehman were bad, the politics of bailing out A.I.G. would have been worse. And the systemic risk that a failure of A.I.G. posed was orders of magnitude greater than Lehman’s collapse.

Had the Fed stepped in to save A.I.G. at that point anyway, despite the politics, it then becomes increasingly unlikely that the Treasury Department would have been able to muster enough Congressional support to pass TARP. At the very least, the size and scope of it would have been curbed. And remember, even with the stock market and economy in free fall, Congress originally rejected TARP before it reversed itself days later after the markets appeared to be gripped in a death spiral.

As Rahm Emanuel said in 2008: “You never want a serious crisis to go to waste. And what I mean by that, it’s an opportunity to do things you think you could not do before.”

The failure of Lehman may have allowed the government to do more to prop up the economy than it otherwise could. Niall Ferguson, the historian, put it this way a year after the crisis in an opinion article in The Financial Times: “Like the executed British admiral in Voltaire’s famous phrase, Lehman had to die pour encourager les autres â€" to convince the other banks that they needed injections of public capital, and to convince the legislature to approve them.”

Ed Lazear, chief economic adviser to President George W. Bush, told a group of students at the University of Chicago Booth School of Business, however, that thinking about the crisis as a series of dominoes may be the wrong analogy.

“Under the domino theory of contagion, one domino falls and knocks over the other dominoes, and they all topple, and you’ve got a mess on your hands,” he said. “That’s pretty much what we were thinking in saving Bear Stearns. That looked like the way to go. Unfortunately, the model was not dominoes; it was popcorn.

“When you make popcorn, you heat it up in a pan and, as the kernels get hot, they pop. Taking the first kernel to pop out of the pan doesn’t do anything. The other kernels are still getting hot, the heat is on, and they’re going to pop no matter what,” he said.

Of course, if this column had more space, there’s always the question of what would have happened if the government had not bailed out Bear Stearns.

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

Invasive Tactic in Foreclosures Draws Scrutiny

Barry Tatum returned to his home in Chicago in December to find that his front and back doors had been torn from their hinges, leaving his possessions exposed to the frigid winds that whipped through his neighborhood.

Terrified that he had been robbed, Mr. Tatum, who had fallen behind on his Bank of America mortgage, raced inside only to discover an unlikely source of the break-in, he said: a subcontractor for a property management firm hired by the bank. A letter from the subcontractor informed Mr. Tatum that the bank had the right to enter and secure the property, according to a copy reviewed by The New York Times.

“It’s the most depressing thing,” said Mr. Tatum, who ultimately got the management firm, Safeguard Properties, to replace the doors.

Faced with more than 10 million foreclosures that have piled up since the start of the mortgage crisis, the nation’s largest banks are turning behind the scenes to property management firms, with the Ohio-based Safeguard the largest, to help them navigate the wreckage, determine the occupancy of the troubled properties and preserve them until the homes can be resold.

But the firms are coming under fire for using questionable and possibly illegal tactics. The scrutiny threatens to ensnare JPMorgan Chase, Bank of America, Citibank and other lenders that depend on the firms. Legal aid offices in California, Nevada, Florida, Michigan and New York say calls about Safeguard’s aggressive tactics rank among the top complaints.

On Monday, Illinois became the first state to take on the property management firms legally, contending in a lawsuit that Safeguard wrongfully dispossessed hundreds of homeowners in the state. In suing Safeguard, Lisa Madigan, the attorney general, contends that the company broke into homes despite stark evidence that homeowners still lived in them, bullied tenants into leaving even though they had no legal obligation to do so and, in some instances, damaged the very homes they were sent to protect, according to the suit.

“This is a homeowner’s worst nightmare,” Ms. Madigan said in an interview on Friday, noting that her office had received more than 400 complaints about Safeguard.

Diane R. Fusco, a spokeswoman for Safeguard, said that the company had not received the lawsuit.

Safeguard, she said, follows a rigorous system to determine whether a property is vacant before starting any work. “We adhere to the highest standards in the industry and are proud of our record of quality,” she said, adding that the firm takes errors seriously.

“Not only do we work quickly to correct and resolve the issue with the homeowner, we fully investigate the matter to identify and address the root cause,” she said.

Banks have defended the firms, which the lenders say are carefully monitored, arguing that maintaining properties is an important check on vandalism, crime and plummeting property values.

But complaints from homeowners, as well as information included in the Illinois lawsuit, suggest that Safeguard through its subcontractors ignored clear signs of occupancy like “a barking dog inside the home, a car in the driveway” or “a neighbor’s statement that the property is occupied,” the lawsuit said.

Even before the Illinois action on Monday, homeowners across the nation have lodged complaints with state regulators and filed lawsuits of their own, contending that Safeguard tried to forcibly drive them from their homes in a campaign of fear that involved damaging possessions, changing locks and shutting off electricity.

In North Carolina, homeowners said that they had returned to find their houses padlocked and their personal property, including family photographs, destroyed. In Bedford Corners, N.Y., Susan Salzberg Rubin said Safeguard broke into her property multiple times and tampered with the alarm system. In Bethel Park, Pa., Alexandra Hlista said she was forced from her home after multiple break-ins.

As part of the alliance with the banks, the property management firms are dispatched to guard against the problems endemic to vacant properties, like weather damage, mold and vandalism, by winterizing the properties, changing the locks and performing other critical maintenance tasks. In turn, the firms hire lower-paid smaller companies to handle the deluge of work.

Once a homeowner is more than 45 days late on mortgage payments, lenders typically send out the maintenance firms to determine whether the properties have been abandoned. As of June, more than 800,000 properties were in foreclosure or owned by banks, according to RealtyTrac, a real estate data provider. Safeguard alone has had about 14 million work orders this year.

Lawyers for homeowners in foreclosure say the business arrangement â€" in which subcontractors at the end of the chain are typically paid a flat fee for a variety of services â€" contributes to problems because homes declared as vacant, rightfully or not, make the subcontractors more money. In one example outlined in the Illinois suit, Safeguard’s subcontractors took medical supplies.

“There seems to be a financial incentive to find a vacant home even when it might not be because there is more work to be done at that point,” said Adam Taub, a lawyer in Michigan who represents homeowners in cases pending against Safeguard.

Safeguard, Ms. Fusco said, closely monitors its contractors and takes “corrective action if we find that policies have been violated.”

It is a precarious time for big lenders. State and federal authorities are taking aim at banks for failing to police third-party contractors â€" an issue at the heart of a $26 billion settlement last year to resolve claims that banks relied on outside lawyers to churn through mountains of foreclosures without vetting them for accuracy. Ultimately, Ms. Madigan said, the responsibility for oversight falls to the banks, which have “failed to supervise these firms.”

Under the terms of the National Mortgage Settlement, reached between five of the nation’s biggest banks and 49 state attorneys general, mortgage lenders are required to increase oversight of third-party vendors. The lenders said that they diligently monitored Safeguard’s performance â€" an argument that is echoed by Safeguard’s spokeswoman. “Our mortgage servicing clients routinely and thoroughly audit our policies and procedures,” Ms. Fusco said.

In the Illinois lawsuit, Ms. Madigan portrays Safeguard and its subcontractors as something of bullies with a singular mission: get homeowners in foreclosed homes out, and quickly, even before the banks have a legal right to seize the properties. Winning a reprieve, according to interviews with dozens of homeowners, can take a herculean effort.

Mr. Tatum, the homeowner in Chicago, said he called Safeguard over several months to inform the company that his home was occupied. Still, Mr. Tatum received 12 separate notices affixed to his door. The determination, according to copy of the documents reviewed by The Times: the property was vacant. Safeguard declined to comment.

Sometimes Safeguard and its contractors duped struggling homeowners into believing that they no longer had a right to occupy their homes, according to the Illinois suit and interviews with homeowners. To homeowners enmeshed in a grueling foreclosure process, those statements can be debilitating, threatening to sap their remaining desire to fight. Such tactics could violate laws requiring lenders to obtain a court order before evicting homeowners.

For lenders, the process of winning such a court order is mired in delays, aggravated by a flood of older foreclosure cases. In Illinois, the process took 817 days as of the second quarter of this year, up more than 62 percent from the same period two years earlier, according to RealtyTrac. In the 27 states where lenders can foreclose outside the courts, the pace is slowed.

Even some homeowners who never missed a mortgage payment have collided with the property-management firms.

Linda Haddad, 55, bought her home last June in Garden City, Mich., after JPMorgan Chase repossessed the foreclosed home from the previous owner. Ms. Haddad said she was shocked when two months later she got a call from her neighbor.

“He told me an agent from Safeguard was emptying the contents of the place and changing the locks,” Ms. Haddad said.

Frantic, she contacted the Safeguard agent, who, she said, advised her “to straighten it out” with the bank, which had told Safeguard to cease work on the property. By the time she did, though, Ms. Haddad said Safeguard had done tens of thousands of dollars’ worth of damage to her property.

A $250 Million Pledge to a College Evaporates as a Deal Collapses

When tiny Centre College, in Danville, Ky., announced in July that it had received a $250 million donation, the largest outright gift ever made to a liberal arts college, it left out a small detail.

The donor â€" the A. Eugene Brockman Charitable Trust â€" did not yet have the money.

On Monday, the college said that the gift had been withdrawn.

The gift, it turns out, had been contingent upon a “significant capital market event,” Centre said in a statement.

“In retrospect, we might have put a big asterisk on this thing, but no one had any inkling that this would come about,” John Roush, the president of Centre College, said in an interview.

The “significant capital market event” was a scuttled $3.4 billion loan deal involving Reynolds & Reynolds, a large privately held company that provides software and services to car dealers. The Brockman trust has ties to the Texas businessman Robert T. Brockman, the chief executive of Reynolds & Reynolds, who until recently served as chairman of Centre’s board of trustees and attended the college for two years. A Reynolds & Reynolds spokesman, Thomas Schwartz, confirmed that the company canceled the transaction, which would have financed the donation to Centre.

A driving force behind Mr. Brockman’s gift was the red-hot market for corporate loans. In July, Reynolds & Reynolds, seeking to capitalize on record low interest rates and yield-starved investors, initiated the deal to raise $3.4 billion in new loans. The company said it would use the proceeds from the transaction to make a large payout to its owners. Among its biggest shareholders was the Brockman trust.

The credit ratings agency Moody’s took a dim view of the deal, downgrading Reynolds & Reynolds’ credit rating because it would saddle the company, which is valued at about $5 billion, with too much debt.

Nevertheless, investors clamored for Reynolds & Reynolds’s loans and received their allocations about a month ago. But the deal collapsed last week, and investors were told to unwind the trades. Matthew Fuller, a corporate loan analyst at LCD, a division of S & P Capital IQ, said that it was rare to see a loan deal withdrawn weeks after it had begun trading.

“For a deal of this size to launch to strong market conditions, receive significant investor demand and trade openly in the aftermarket for a month, and then be canceled, is highly unusual,” Mr. Fuller said.

Mr. Schwartz, the Reynolds & Reynolds spokesman, confirmed that the company had withdrawn the deal but declined to explain why. He added that the company was confident that it could return to the debt markets at any time. A spokeswoman for Deutsche Bank, which underwrote the loans, declined to comment.

The failed loan offering is the company’s second unsuccessful deal over the last year. In late 2012, Mr. Brockman explored a sale of Reynolds & Reynolds to a private equity firm, but a buyer never materialized, according to a person briefed on those discussions.

Universities recently have been the beneficiaries of extraordinary largess from philanthropists. Last week, the real estate developer Stephen M. Ross unveiled a $200 million gift to the University of Michigan. Earlier this year, Mayor Michael R. Bloomberg of New York announced a $350 million pledge to Johns Hopkins University, and the financier Ronald O. Perelman pledged $100 million to Columbia University.

The Brockman pledge would have been used to create 160 scholarships at Centre â€" 40 a year beginning in the fall of 2014 â€" for students planning to study natural sciences, computational sciences or economics. At $250 million, the gift exceeded the school’s $240 million endowment. With 1,370 students, about half from Kentucky, Centre is perhaps best known outside the state as the host of two vice-presidential debates, in 2000 and 2012.

A. Eugene Brockman, who died in 1986, was connected to the college only through his son, Robert Brockman, a student at Centre for two years before transferring to the University of Florida, where he obtained a business degree.

After stints at the Ford Motor Company and International Business Machines, Mr. Brockman started Universal Computer Systems, a provider of computer systems to auto dealerships. In 2006, Universal Computer Systems acquired Reynolds & Reynolds for about $2.8 billion and merged the two companies under the Reynolds & Reynolds brand.

Mr. Brockman, who lives in Houston, has been a major supporter of Centre, serving as chairman of its board from 2008 until earlier this year. In 2009, the Brockman Trust gave $19.5 million to the college for campus housing. Mr. Brockman also serves as a trustee at Rice University and Baylor College of Medicine.

“It is a disappointing day,” Mr. Roush said of the withdrawn gift. “We had a lot of people who have poured mountains of time into this, and my greatest disappointment is that there are a lot of students out there who won’t be able to get a Centre College education. But our future is still exceedingly bright.”

JPMorgan and Insurer Settle Suit

JPMorgan Chase and a large insurer have agreed to a $300 million settlement to resolve accusations that they forced homeowners into buying overpriced property insurance and entered into kickback arrangements that inflated policy prices.

The class-action lawsuit being settled â€" one of several against large banks over such so-called force-placed insurance policies â€" said the improper practices unjustly enriched JPMorgan and the insurer, Assurant Inc., by more than $1 billion since 2008.

JPMorgan and Assurant did not admit any wrongdoing as part of the settlement, which was in documents filed late on Friday in federal court in Miami.

“The settlement will have no expected impact on our financials,” Amy Bonitatibus, a JPMorgan spokeswoman, said. She said the bank had ended a reinsurance pact with Assurant.

The settlement calls for the bank to stop accepting commissions for force-placed insurance. It is the first settlement nationally to result from several cases against banks in the federal court in Miami that involve force-placed insurance.

Banks have been under increasing regulatory scrutiny over such insurance, which is placed by a bank or other mortgage lender to protect its interests in a property if the homeowner’s insurance lapses.

Mortgage agreements give lenders the right to force-place insurance, but regulators have accused banks and insurance companies of raising the price of policies with improper commission and reinsurance pacts.

Assurant says it places insurance in accordance with the terms of the mortgage and applicable regulations. “The settlement is subject to court approval, and we are unable to offer further comment while the matter is pending,” Assurant said.

Assurant placed about 1.3 million policies for JPMorgan Chase, collecting more than $2.4 billion in force-placed premiums since 2008, court documents said.

In March, it agreed to pay $14 million to settle an inquiry by the New York insurance regulator over arrangements with banks and mortgage servicers. It did not admit or deny wrongdoing.

Seeking Answers From Green Mountain Coffee

Green Mountain Coffee Roasters’ first-ever investor day is Tuesday, and the company is flying high.

The stock price of the company, which sells coffee machines under the Keurig brand and the little K-Cups that go in them, has soared more than 260 percent in the last year.

Despite persistent questions, most of Wall Street remains resolutely bullish on Green Mountain, which has a market value of $12 billion.

In 2010, the company disclosed it was being investigated by the Securities and Exchange Commission. In 2011, the hedge fund manager David Einhorn, who is betting against Green Mountain’s stock price, delivered a highly critical 110-slide speech at an investor conference, raising questions about the company’s future prospects and, more seriously, its bookkeeping. He followed up a year later with another one.

A class-action lawsuit, which was dismissed, quoted anonymous former employees about suspicious activities. Green Mountain has said it conducted an internal investigation that cleared the company.

Green Mountain operates on a razor/razor blade model â€" selling brewing machines but making its real money on the K-Cups. It used to disclose exactly how many K-Cups it sold but stopped doing so in 2010. Instead, it tells investors the year-over-year percentage growth. Wall Street has dutifully plugged numbers in to estimate the unit sales.

Last year, Green Mountain faced expirations of the patents that covered its brewing system. Wall Street has been monitoring whether Green Mountain will lose market share to new private-label knockoffs. And indeed, a recent Barron’s article suggested that it was losing share faster than expected.

A recent disclosure from the company’s new chief executive, Brian Kelley, has revived the questions about sales, as do on-the-ground accounts I have received from former factory and warehouse workers.

Because Green Mountain’s investor day will give analysts and shareholders unusual access to company executives, it seems like an opportunity to ask them some hard questions.

Here are a few from me.

â–  Just how many K-Cups has Green Mountain sold year-to-date and is it less than the Street understands?

Going by the average of six analysts’ estimates, Green Mountain should have sold roughly 6.9 billion K-Cups over that time period. But that’s “in the neighborhood of 10 percent” too high, says an outside spokesman for Green Mountain, Darren Brandt, of Sloane & Company.

That puts the K-Cup sales volume at around 6.2 billion. The company says it isn’t surprised there is a wide range of Wall Street estimates because it doesn’t disclose the figure. (To be fair, the Canaccord analyst is pretty close, estimating 6.3 billion. The Longbow and Lazard analysts are far too high, with Longbow projecting 7.3 billion, and Lazard 7.7 billion.)

■ How wide is the gap between how many K-Cups the company says it has sold and how many have ended up in customer’s hands? And why?

During the company’s third-quarter earnings conference call on Aug. 7, Mr. Kelley disclosed that IRI, a consumer products data tracker, captures “roughly 55 percent” of the company’s K-Cup sales volume in the United States.

IRI tracks sales at some retailers like Bed Bath & Beyond, but not at others, like Costco. It also doesn’t capture things like direct sales to offices (ProPublica’s Keurig machine gets plenty of use).

Roughly 90 percent of Green Mountain’s K-Cup sales are in the United States, based on company disclosures. Using the company’s math, that would add up to 5.6 billion in K-Cup sales so far this year.

IRI, however, has tracked only about 2.6 billion K-Cup sales for the first nine months of the year, according to an analysis I was furnished with. If, as Mr. Kelley says, that 2.6 billion represents 55 percent of the total, then 100 percent would be about 4.7 billion.

That’s a far cry from 5.6 billion. There seems to be a gap in the United States of about 900 million K-Cups.

What’s going on?

Mr. Brandt said the company declined to give its overall sales volume, but said the IRI number that I was furnished with was too low. He said a company analysis indicated that this portion of Green Mountain’s sales should be about 2.7 billion, not 2.6 billion.

Still, even if we use the company’s figure of 2.7 billion, total sales in the United States would be 4.9 billion, or about 700 million K-Cups short of what the company has said. That’s a lot of extra K-Cups sitting in the channel.

Mr. Brandt said that for companies like Green Mountain it was perfectly ordinary for there to be a difference between sales to its customers and end sales to consumers, as tracked by IRI.

â–  What explains the unusual movements of Green Mountain inventory described by some former company workers and associates?

I spoke to Tim Jackson, 43, who worked for Green Mountain in its Knoxville, Tenn., facility as a material handler and in the shipping department from August 2009 to August 2011.

He acknowledges that he was dismissed for not getting to work reliably. But he said Green Mountain moved its inventory in ways he found strange.

“A lot of things seemed kind of hinky,” he said. “Inventory levels were pushed to extremes and then they transferred them around from one sister company to the next.”

He added: “These are finished products, finished cartons, ready for the shelves. Why transfer the product? Why not sell it straight from here? Why pay for the shipping?”

Sometimes, he said, he would see the same pallet of boxes come back to the Knoxville facility. Mr. Jackson said he had worked in similar facilities at other companies and hadn’t seen that before.

Mr. Jackson said such transfers were “more predominant before inventory audit.”

Frank DeStefano, 32, worked as a production planning manager for M. Block and Sons, which handles Green Mountain’s warehousing and logistics in Bedford, Ill. He worked there about seven months and said that after he started asking questions, he was let go in March 2011.

M. Block did not respond to a request for comment.

Though he worked for M. Block, he said, “I was told by Keurig what to do with everything.”

He echoed Mr. Jackson’s account. “As far as the coffee went,” he said, “it wasn’t moving as quick, always being transferred from one warehouse to another warehouse.”

Mr. DeStefano said that on two occasions, before an audit, Green Mountain filled large orders from QVC, the home shopping channel. “We would shove it all inside trucks and ship a bunch to QVC. After the audit was done, more than half was sent back.”

QVC did not respond to a request for comment.

“They would say just buyer’s remorse,” he said. “That seems kind of strange that half of those would come back.”

A company spokeswoman said that any movements between company units and with third-party logistics companies were not booked as sales and that the company adheres to proper revenue recognition rules.

“These allegations from former employees are unfounded,” a company spokeswoman said in a statement. “The allegations surrounding suspicious sales of brewers to QVC prior to an audit were first raised in a complaint filed in the litigation. As we responded, they are so logistically implausible that one cannot conclude that the source’s statements are reliable.”

The company said it was cleared by an internal investigation. And the United States District Court in Vermont dismissed the class-action suit with prejudice, ruling that there was no evidence that suggested knowledge of the allegations by the top executives.

■ What is happening with the S.E.C.’s investigation of Green Mountain, which the company has said involves its accounting practices?

The company’s latest quarterly filing says the inquiry continues.

The new head of the S.E.C., Mary Jo White, has said publicly that one of her main goals is to put more resources into fighting accounting fraud. Keeping an investigation over a company’s head for years is unfair for everyone involved. Resolving the long investigation into Green Mountain one way or the other would do a great service for the investing public.

Not to mention caffeine lovers.

The Tweet Goes On for Icahn

Carl Icahn won’t get the last tweet on Dell. The uppity billionaire has conceded defeat in his effort to block Michael Dell’s $24 billion buyout of the eponymous PC maker. Mr. Icahn’s logic never computed. His recent Apple bet is a stronger advertisement for his self-promotional parting shot to Dell shareholders.

The alternative future for Dell, as sketched out by Mr. Icahn and Southeastern Asset Management, would have added debt to pay a dividend and left a stub of equity. These shares would have then benefited from a corporate turnaround, or so the argument went, eventually leaving shareholders better off than under the agreed buyout with Mr. Dell and Silver Lake Partners.

The original offer in February provided a 25 percent premium, and with Dell’s core PC business in steep decline the price looked increasingly generous as time passed. Mr. Icahn argued in a valedictory letter on Monday that the buyout undervalues Dell because the price is about 70 percent below the company’s 10-year high of $42.38. The comparison is absurd, especially in such a fast-changing industry.

Although Mr. Icahn legitimately quibbles with a process that eventually squeezed an extra 2 percent from the buyers in return for delaying and altering the shareholder vote, Dell’s board does seem to have tried hard to solicit serious alternative bids. Those efforts came to nothing, another sign the Icahn-Southeastern camp was over-egging its rationale for a higher valuation.

Mr. Icahn’s long-term investing record is strong, so he can be forgiven the occasional misstep. He may walk away with a slim profit on the Dell investment anyway. If, however, Mr. Icahn wants to champion himself - as he did by writing, “If you are incensed by the actions of the Dell board as much as I am, I hope you will choose to follow me on Twitter where from time to time I give my investment insights” - he has better material.

When he tweeted on Aug. 13 that he had bought shares in Apple, the iPad maker’s market value increased by almost 5 percent, or some $20 billion. The company’s shares have since gained an additional 3 percent, for a combined total that surpasses the entire value of Dell. That’s a good reason to follow someone on Twitter.

Richard Beales is assistant editor for Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.

Market Rebound in China Shows Beijing’s Resolve

What a difference a couple of months can make.

China’s interbank squeeze in June led to a sharp drop in the local stock markets, and by early July, it was difficult to find anyone who did not think China’s economy was in deep trouble.

On Monday, the Shanghai stock market had its largest gain since December 2012. The Shanghai composite index is up more than 13 percent from its low on June 27, its lowest point so far in 2013. Trade, inflation and manufacturing data from China over the last couple of weeks have all been generally positive.

It is not clear that the economy’s fundamentals have significantly improved, or that the government has made progress in reining in excessive credit creation and misallocation, but Beijing is doing its best to ensure stable growth. Those predicting a “Lehman-style credit crisis” or a sharp slowdown a couple of months ago appear to have underestimated the central government’s resolve to keep things on track.

We are three weeks from the end of the third quarter, when Chinese banks will again face their usual quarter-end stresses. But another liquidity squeeze is unlikely for at least two reasons.

First, although interbank rates are still higher than they were before June, the central bank has been injecting liquidity and the banks appear to have taken the June lesson to heart. Second, Oct. 1 is the National Day holiday, the 64th anniversary of the founding of the People’s Republic of China. It is hard to imagine that Beijing wants a repeat of anything like the chaos experienced in June right before such a holiday, so banks should get the liquidity they need, one way or another.

Upbeat outlook

The Financial Times published an opinion piece on Monday that was written by Prime Minister Li Keqiang, on the occasion of the opening of the Summer Davos Forum in Dalian later this week. Mr. Li, as expected, offered an upbeat view of the economic situation:

Observers ask whether China’s economic slowdown will lead to a sharp decline - or even a hard landing - and whether our reform programme will be derailed by complex social problems. My answer is that our economy will maintain its sustained and healthy growth and China will stay on the path of reform and opening up. …

Shortly after it took office in March, the new Chinese government made clear its policy was to sustain economic growth, improve people’s wellbeing and promote social equity. We can no longer afford to continue with the old model of high consumption and high investment. Instead, we must take a holistic approach in pursuing steady growth, structural readjustment and further reform.

Mr. Li’s comments also appear to lay down some important markers for significant economic reforms that may come out of the Third Plenum meeting in November. The reforms decided at that conclave will take many months or longer to implement, but there are increasing signs that the leadership is planning relatively bold moves.

One recent reform accomplishment for Mr. Li is the decision to establish a Shanghai free trade zone, for which he apparently “fought strong opposition.” He prevailed, and the plan for the zone was not only discussed at a Politburo meeting in late August but was also called out for its importance to broader reforms in the Chinese-language version of the official Xinhua report on that Politburo meeting.

China’s economy still has a lot of problems, but bearish investors may want to be careful fighting the momentum into the November Plenum.

Strong competition

My most recent column discussed the changing state of the smartphone market in China. Since then, the smartphone maker Xiaomi has hired Hugo Barra, a senior Google Android executive, to run its international business; confirmed a fund-raising at a $10 billion valuation (more than both Nokia and BlackBerry are worth); and introduced new phones and an Internet-enabled TV.

Apple is set to introduce new iPhones at an event in California on Tuesday, and for the first time, it will hold a satellite event in Beijing just hours later. There are reports that the company is finally close to a deal with China Mobile, the dominant mobile operator in China. A China Mobile deal is so strategic that it is hard to imagine that Apple’s chief executive, Timothy D. Cook, will not come to Beijing for the official announcement, so if Mr. Cook is at the Apple event in California on Tuesday, don’t expect a China Mobile announcement on Wednesday.

Apple needs help in China. Analysys International released its estimates of second-quarter phone sales last week, revealing that 77.11 million smartphones were sold in China in the quarter, and Apple had just a 4.6 percent market share.

S&P’s Counterattack on the Government

With the start of the football season, we are sure to hear an analyst trot out the old cliché that the best defense is a good offense. But it certainly applies to the approach McGraw-Hill Companies is taking in defending its Standard & Poor’s unit against the fraud lawsuit filed by the Justice Department. In its defense, the company accuses the government of improperly targeting S&P because it lowered the credit rating on federal debt two years ago.

Putting the government on trial is a tactic used in criminal cases because it can divert a jury’s attention from the defendant’s conduct and taps into a vein of mistrust in how the authorities exercise their power. Judges substantially limit this approach because it can be an unnecessary distraction. So it is questionable how far S&P can get in shifting the focus.

The Justice Department lawsuit claims that S&P engaged in fraud when it gave high ratings to residential mortgage-backed securities and collateralized debt obligations issued before the financial crisis despite knowing that the housing market was deteriorating. The suit also accuses the company of favoring the interests of investment banks with higher than justified ratings so that it could continue to win business from those banks.

The case is brought under the government’s favorite new weapon, the Financial Institution Reform, Recovery and Enforcement Act, which allows for civil penalties for mail and wire fraud violations that affect a financial institution.

S&P sought to dismiss the lawsuit by claiming that its statements about conflicts of interest and the propriety of its ratings constituted what is known as “mere puffery” â€" in other words, they were just like the unreliable statements of a used car salesman. Judge David O. Carter of Federal District Court in California, who is presiding over the case, rejected that argument, saying that this position “is deeply and unavoidably troubling when you take a moment to consider its implications.”

Having lost the preliminary motion to throw out the lawsuit, S&P filed its answer to the government’s complaint last week in which it put forth its own version and offered a first look at its potential defenses. Like most such pleadings, it takes the “kitchen sink” approach, staking out a number of potential positions that may not prove to be useful as the case develops.

The company once again claims that its credit ratings should not have been the basis for any decision to buy a residential mortgage-backed security or collateralized debt obligation. It asserts that “credit ratings are not indicators of investment merit, are not recommendations to buy, sell or hold any security, and should not be relied upon as investment or financial advice.”

Among the 18 defenses offered in its filing is one that argues the case was filed in retaliation for S&P’s downgrade of United States government debt in 2011 from AAA to AA+. The company argues that S&P “was not alone” in failing to “anticipate the full speed, severity, and breadth of the collapse of the housing market and its impact on the economy as whole.” This is a claim of discriminatory prosecution because the one company that poked the government in the eye has been targeted for punishment.

Claims that of being treated unfairly by being singled for punishment usually fall on deaf ears because the government has broad discretion in how it enforces the law. But S&P asserts that lowering its rating of United States debt was an exercise of free speech and that the government lawsuit violates the protection afforded by the First Amendment.

This is a twist on a defense S&P has offered in private lawsuits filed by those who claim to have been misled by its ratings. In some cases, it has successfully defended itself by asserting that the ratings are only opinions protected by the First Amendment and, therefore, it cannot be held liable.

The right to free speech is not a basis to rebut a claim of fraud because the Constitution does not protect false or misleading statements intended to deprive another person of money or property. Instead, S&P is using the First Amendment to argue that the government is trying to punish it for the rating of the federal government’s creditworthiness and that the lawsuit is, therefore, improper.

When the Justice Department filed the case in February 2013, Eric H. Holder Jr., the attorney general, denied that there was any connection between the decision to accuse S&P of violations and the earlier credit downgrade of federal government debt. For conspiracy theorists, the mere denial is enough to show that there is a link between the two.

Unlike a criminal case, in which the discovery rights of defendants are quite limited, this is a civil case. So S&P can try to obtain information from a wide range of government officials to establish its First Amendment retaliation claim.

The roadblock the company will face is a legal doctrine known as the deliberative process privilege, which protects information about how the government reached a policy decision. In a 2001 ruling, the Department of the Interior v. Klamath Water Users Protective Association, the Supreme Court said that “the deliberative process privilege rests on the obvious realization that officials will not communicate candidly among themselves if each remark is a potential item of discovery and front page news.”

But the privilege does not throw up a wall around illegal conduct by government officials. So there may be a basis to seek out information about whether there was a link between the ratings downgrade by S&P and the decision to file the lawsuit.

The question is whether the intent of federal officials in targeting S&P, and not the other credit rating agencies, for the civil penalty lawsuit is even relevant to the civil fraud charges. Just like the sports car driver who claims that other cars on the highway were also speeding but the officer only stopped him, the fact that others who might have violated the law have not been charged is not a justifiable basis to defend a lawsuit.

Taking the depositions of senior government officials is uncommon, but certainly not unknown. A federal judge, for example, authorized Maurice R. Greenberg, the former American International Group chief executive, and his investment company, Starr International, to depose Ben Bernanke, the Federal Reserve chairman, as part of a lawsuit over whether the government’s bailout of A.I.G. violated the Fifth Amendment as an unconstitutional taking.

S&P’s claim of unconstitutional retaliation is sure to lead to a series of motions as the two sides battle over whether â€" and perhaps how much â€" discovery the company can pursue to build its retaliation defense. Putting the government on trial is a means to go on the offense in the case and may increase S&P’s leverage to seek a settlement on more favorable terms.

SunEdison Seeks to Spin Off Chip Unit

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Icahn Calls Off Fight Over Dell’s Sale

After months of fighting and a seemingly inexhaustible stream of sharp-tongued letters, Carl C. Icahn is ending his battle against Dell’s proposed sale to its founder.

In a letter to shareholders on Monday, the billionaire wrote that he could not overcome a series of defeats, including changes to the voting rules that made it easier for Michael S. Dell and the investment firm Silver Lake to prevail in a shareholder vote scheduled for Thursday.

The final blow came last month, when the chancellor of Delaware’s Court of Chancery, Leo E. Strine Jr., ruled that the changes â€" including lowering the percentage of yes votes needed to pass the deal â€" were consistent with the state’s corporate laws.

That doesn’t mean that Mr. Icahn is happy. The investor wrote that he still planned to vote against the deal and seek an appraisal of his holdings by a Delaware court. And he defended his actions, which led to a small bump in Mr. Dell’s price.

“I realize that some stockholders will be disappointed that we do not fight on,” he wrote. “However, over the last decade, mainly through ‘activism’ we have enhanced stockholder value in many companies by billions of dollars.”

Sparing little opportunity to continue needling at his opponents, Mr. Icahn including the following in his letter:

• An allusion to a Barron’s article likening Dell’s postponing of an earlier shareholder vote to a move by President Vladimir V. Putin of Russia.
• The following joke: “‘What’s the difference between Dell and a dictatorship?’ The answer: Most functioning dictatorships only need to postpone the vote once to win.” (Dell postponed a vote on the deal multiple times.)
• The line, “The Dell board, like so many boards in this country, reminds me of Clark Gable’s last words in ‘Gone with the Wind,’ they simply ‘don’t give a damn.’”

But he also congratulated Mr. Dell on his victory, adding, “I intend to call him to wish him good luck (he may need it).”

Mr. Icahn appears to have already moved on to other targets, including Apple. The investor has already garnered attention for several Twitter posts describing his conversations with Timothy D. Cook, the iPad maker’s chief executive, about a stock buyback.

In an apparent sight of how enamored the septuagenarian billionaire is of his Twitter account, he wrote in his closing:

If you are incensed by the actions of the Dell Board as much as I am, I hope you will choose to follow me on Twitter where from time to time I give my investment insights. I also intend to point out what I consider to be unconscionable actions by boards and discuss what remedies shareholders may take to change the situation.

At Goldman, a Paycheck No Longer Equals an Account

Getting a job at Goldman Sachs may be a ticket to great wealth, but it no longer comes with an automatic brokerage account at the Wall Street firm.

For years, employees automatically received an account at Goldman. It came with a bit of cachet, allowing staff members to say their money was managed by Goldman, which has a $10 million minimum for its private wealth clients. The perk also had a practical application for Goldman, making it easier to monitor employee trading.

However, in recent months Goldman has notified several employees, most of whom have assets valued at less than $1 million, that their brokerage accounts are being transferred to Fidelity. Some former employees have also been put on notice that they need to move their assets. Goldman says it will save some money on the move because it won’t be servicing accounts that don’t fit the firm’s high net worth strategy. It also says it will give the people who are moving appropriate tools to manage their money.

“This is entirely consistent with current employees who have similar investment criteria and ensures these current and former employees receive the right tools and services,” a Goldman spokesman, David Wells, said in a statement.

Still, some employees are less than thrilled. “I guess it’s official, by Goldman standards I’m poor,” said one employee who asked not to be identified because of a firm policy against speaking to the media. The employee has assets valued at about $500,000.

The move is reminiscent of moves years ago by Merrill Lynch and other firms, which transferred clients with assets less than $100,000 into call centers, causing an uproar among some customers who felt they were being shortchanged.

Neiman Marcus Is Sold for $6 Billion

The owners of the Neiman Marcus luxury retail chain agreed on Monday to sell it to a group led by Ares Management and a Canadian pension plan in a deal worth $6 billion.

The owners, a group of private equity investors led by TPG and Warburg Pincus, had been searching for a buyer for Neiman ahead of a planned initial public offering later in the year. If they had not found a buyer willing to pay the desired $6 billion, they were prepared to go ahead with the public offering, people briefed on the deal said.

The deal marks the latest transaction in the luxury department store sector. Earlier this year, Hudson Bay, the largest Canadian department store, paid $2.4 billion for Saks, a competitor to Neiman.

Neiman Marcus operates 79 stores across the country, including two Bergdorf Goodman stores in Manhattan, and the Last Call outlet stores. Sales have rebounded in recent years. The company reported $4.3 billion in revenue last year, compared with $3.6 billion in 2009.

“I have great confidence that our customers, associates and vendor partners will share my enthusiasm that our new investors will help us pursue a business dedicated to luxury and fashion, attentive service and innovative marketing,” Karen Katz, the chief executive of Neiman, said in a statement.

Ares, one of Neiman’s new owners, has experience in the consumer sector, with previous investments in General Nutrition Centers, House of Blues and the mattress companies Serta and Simmons. The asset manager, based in Los Angeles, has about $66 billion under management.

“We plan on investing meaningful capital into the business to ensure Neiman’s long-term position as the unparalleled leader in luxury retail,” David Kaplan, co-head of private equity at Ares, said in a statement.

Ares and the Canada Pension Plan Investment Board will hold equal stakes in the company, with Neiman Marcus management retaining a minority stake. The buyers said they expect the deal to close in the fourth quarter.

For TPG and Warburg Pincus, which paid about $5.1 billion for Neiman in 2005, the sale marks a successful exit, especially as spending on luxury goods has faltered in the wake of the recession.

Credit Suisse advised Neiman, and Cleary Gottlieb Steen & Hamilton provided the company with legal advice. RBC Capital Markets and Deutsche Bank advised Ares and the Canada Pension Plan, with Proskauer Rose and Latham & Watkins providing legal advise. All three banks are providing financing for the deal. The law firm Toyrs also provided legal advice to the Canada Pension Plan.

Western Digital to Buy Virident Systems

Western Digital Expands Enterprise Flash Storage Portfolio with Acquisition of Virident

Virident's Server-Side Flash Storage Offerings to Advance HGST's Solid State Drive Capabilities and Solution Value

IRVINE and MILPITAS, Calif. - Sept. 9, 2013 - Western Digital® Corp. (NASDAQ: WDC) and Virident Systems, Inc. announced today that they have entered into a definitive merger agreement under which Virident, a provider of server-side flash storage solutions, will be acquired by HGST, a wholly owned subsidiary of Western Digital. Virident will be acquired for approximately $685 million in cash. This represents approximately $645 million in enterprise value, net of Virident’s estimated cash balance at closing.

Virident is a technology leader in one of the fastest growing segments in enterprise and cloud computing. Virident solutions enable enterprises to tackle performance-intensive datacenter applications with PCIe-based enterprise flash storae solutions for virtualization, database, cloud computing, and webscale applications. Virident’s FlashMAX™ II can be installed in any server and provides the highest capacity in a single low-profile card, enabling organizations to maximize the use of valuable datacenter space, reduce datacenter sprawl and provide uncompromising performance. In addition, the company’s FlashMAX Connect™ is the industry’s first software suite to deliver a shared server-side flash storage tier with enterprise-class reliability.

The pending acquisition extends HGST’s presence in enterprise SSDs, which IDC predicts will grow from $2.5B in revenue in 2012 to $7B in revenue by 20171. The acquisition further enhances the value of HGST solutions through Virident’s intelligent storage software. The integration with HGST will enable Virident to accelerate its go-to-market efforts by leveraging HGST’s strong brand, extensive channel relationships, and global customer reach.

Virident CEO Mi! ke Gustafson will upon closing join HGST as a senior vice president leading the Virident team. Mr. Gustafson, who has more than 20 years of experience in the storage, server, networking systems and IT industries, will report to HGST President Mike Cordano.

“We have established a competitive position in the enterprise SSD space and with our recently announced acquisitions we are increasing our commitment to become an even more significant player in this high growth segment,” said Steve Milligan, president and chief executive officer, Western Digital. “Virident has a proven leadership team and a culture of innovation. Its combination of great people, leading products and advanced technology will enhance our increasingly strategic position in enterprise storage.”

“The Virident acquisition is a continuation of HGST’s strategy to address customers’ rapidly changing storage needs by delivering intelligent storage devices that tightly integrate hardware and software to maxiize solution performance,” said Cordano. “Virident’s server-side flash storage helps datacenter customers solve their most significant data infrastructure challenges, including application performance across diverse workloads, power efficiency, and total cost of ownership. We welcome the Virident team to HGST and look forward to further accelerating their momentum.”

“The Virident vision is centered on leading the flash platform transformation. This includes advancing adoption of server-side flash storage, software and solutions in next-generation datacenters. Bringing technology leadership and substantial business advantage to customers is our mission and drives our team every day,” said Gustafson. “I want to recognize and thank our employees and founders for the combination of vision and execution. We are excited to join HGST and accelerate the growth of our business, partnerships and value.”

RBC Capital Markets has acted as the financial advisor to Western D! igital an! d BofA Merrill Lynch acted as financial advisor to Virident in connection with this transaction.

Closing of the acquisition, which is subject to customary conditions, is expected to occur in the fourth calendar quarter of 2013.

Supplemental Information
Western Digital will be hosting an investment community conference call to discuss today’s announcement that will be broadcast live over the Internet today at 6 a.m. Pacific/9 a.m. Eastern. The live and archived webcast can be accessed online at http://investor.wdc.com. In addition, the investor presentation slides from the conference call as well as a question and answer document related to the Virident acquisition will also be available on the Western Digital website at the same location approximately two hours after the live event. The conference call telephone replay number is 888-562-4474 in the U.S. or +1-402-530-7662 for international callers.

About Western Digital
Western Digital Corporation (NASDAQ: WDC), Irvine, Calif., is a global provider of products and services that empower people to create, manage, experience and preserve digital content. Its subsidiaries design and manufacture storage devices, networking equipment and home entertainment products under the WD®, HGST and G-Technology brands. Visit the Investor section of the company's website (www.westerndigital.com) to access a variety of financial and investor information.

About HGST
HGST (formerly known as Hitachi Global Storage Technologies or Hitachi GST), a Western Digital company (NASDAQ: WDC), develops advanced hard disk drives, enterprise-class solid state drives, innovative external storage solutions and services used to store, preserve and manage the world’s most valued data. Founded by the pioneers of hard drives, HGST provides high-value storage for a broad range of market segments, including Enterprise, Desktop, Mobile Computing, Consumer Electronics and Personal Storage. HGST was established in 2003 and maintains its U.S. headquarters in San Jose, California. For more information, please visit the company’s website at http://www.hgst.com.

About Virident
Virident is a provider of server-side flash storage for the enterprise that delivers unconditional, consistent performance to data-intensive applications. The inherent advantage associated with this technology revolutionizes computing by speeding application response time and optimizing datacenter efficiency for new levels of ROI. Virident is backed by strategic investors Intel®, Cisco® Systems, Seagate and a storage solutions provider, as well as Hercules Technology Growth Capital and venture investors Artiman Ventures, Sequoia Capital, Globespan Capital Partners, and Mitsui Global Investments. For more information, visit http://www.virident.com.

Forward Looking Statements
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements concerning benefits expected from the Virident acquisition, the expected timing of the completion of the transaction and management’s anticipated plans and strategies for the Virident business. These forward-looking statements are based on management’s current expectations and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the forward-looking statements, including failure to consummate or delay in consummating the transaction; the possibility that the expected benefits of the transaction may not materialize as expected; failure to successfully integrate the products, technology, research and development capabilities, infrastructure and employees of HGST and Virident; the impact of continued uncertainty and volatility in global econoic conditions; actions by competitors; business conditions and growth in the various hard drive segments; and other risks and uncertainties listed in Western Digital’s filings with the Securities and Exchange Commission (the “SEC”), including Western Digital’s recent Form 10-K filed with the SEC on August 19, 2013. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof, and neither Western Digital nor Virident undertakes any obligation to update these forward-looking statements to reflect subsequent events or circumstances.

1 Source: Worldwide Solid State Storage 2013-2017 Forecast and Analysis (IDC Doc # 240871, May 2013)  

Western  Digital, WD and the WD logos are registered trademarks in the U.S. and other  countries. HGST trademarks are intended and authorized for use only in  countries and jurisdictions in which HGST has obtained the rights to use,  market and advertise the brand. Virident and the Virident logo are either  registered trademarks or trademarks of Virident in the U.S. and certain other  countries. Other marks may be mentioned herein that belong to other companies.

JPMorgan Chase Picks 2 for Board Seats

JPMorgan Chase said on Monday that its board intended to elect two new directors.

Linda B. Bammann, who was deputy head of risk management at JPMorgan until her retirement in 2005, is expected to be elected to the board on Sept. 16, the bank said. She also served as a director of Freddie Mac after the federal government put it in conservatorship in 2008 until this past July. Ms. Bammann will also join the board’s risk policy committee.

Michael A. Neal, a vice chairman at General Electric, is expected to join the board in January after he retires from G.E. Mr. Neal was chairman and chief executive of GE Capital before retiring in June.

“Linda and Mike are proven leaders and will bring outstanding risk, finance and management experience to our board and to our firm,” Jamie Dimon, chairman and chief executive of JPMorgan, said in a statement.

The two fill vacancies created when David M. Cote and Ellen V. Futter resigned in July. The two directors were narrowly re-elected at the company’s annual meeting in May.

As members of the board’s risk committee, the former directors had faced criticism in the wake of a multibillion-dollar trading loss out of a bank unit in London last year. Some investors questioned whether Mr. Cote, the chairman and chief executive of Honeywell International, and Ms. Futter, the president of the American Museum of Natural History, had the right skills and experience to oversee the bank’s risk management.

Ex-Administration Lawyer Rejoins Skadden, Arps

Boris Bershteyn, a former senior lawyer in the Obama administration, is rejoining Skadden, Arps, Slate, Meagher & Flom, the law firm based in New York.

Mr. Bershteyn held several senior legal and regulatory posts at the White House and its Office of Management and Budget. At Skadden, where he serves as of counsel, he plans to advise clients on regulatory and enforcement actions by government agencies, as well appellate work.

“As clients around the world face an increasingly complex global regulatory environment and high-stakes disputes across jurisdictions,
Boris’ skills and insight will further enhance our capacity to respond,” David M. Zornow, Skadden’s global head of litigation, said in a
statement.

Over the last year, Mr. Bershteyn served as acting head of the Office of Information and Regulatory Affairs, a position previously run by Cass
Sunstein. The federal agency reviewed all significant regulations promulgated by the executive branch, including health care, energy and
financial services. Mr. Bershteyn also oversaw federal information policy matters, including privacy, and led the Obama administration’s initiative
to promote international regulatory cooperation.

Before running the regulatory affairs office, Mr. Bershteyn served as general counsel of the Office of Management and Budget, leading the office’s legal team during the debt ceiling crisis of 2011. He also served as associate White House counsel from 2010 to 2011.

Mr. Bershteyn, who joined the Obama administration from Skadden, has a compelling personal story. Mr. Bershteyn was born in Kiev, Ukraine, and grew up in Northern California. He earned his undergraduate degree from Stanford University and then his law degree from Yale Law School in 2004. He served as a law clerk to Justice David H. Souter on the United States Supreme Court and, before that, to Judge José A. Cabranes on the United States Court of Appeals for the Second Circuit.

He is married to Sofia Yakren, a professor at CUNY School of Law. Ms. Yakren is also an immigrant from the former Soviet Union, born in Riga, Latvia. The two met at Yale Law School.

Koch Industries to Buy Molex for $7.2 Billion

Koch Industries agreed on Monday to buy Molex Inc., a maker of electronic connectors, for $7.2 billion, in one of the biggest-ever acquisitions by the giant privately held conglomerate.

Under the terms of the deal, Koch will pay $38.50 a share. That’s a 31 percent premium to the Friday closing price for Molex’s common stock and a 56 percent premium to its Class A shares.

Members of Molex’s founding Krehbiel family and the management team, representing about 32 percent of the company’s common stock and 94 percent of its Class B shares, agreed to vote their holdings in favor of the deal.

“After 75 years this was a difficult decision, but our board of directors and our family believe that this transaction, which follows a diligent and thorough review process by the board, provides outstanding benefits for all our stakeholders,” Fred Krehbiel, Molex’s chairman, said in a statement. “The transaction is expected to provide substantial opportunities for our worldwide employees, many of whom have spent much of their working lives at Molex and are responsible for the company’s long term success.”

Monday’s acquisition is the second-biggest by Koch, whose controlling brothers have garnered controversy for their political activity. The largest takeover by the conglomerate was its $21 billion deal for Georgia-Pacific.

Based in Lisle, Ill., Molex had 35,983 employees as of June 30. It is expected to operate as an independent subsidiary of its new parent.

The transaction is expected to close by year end.

Molex was advised by William Blair & Company and BDT, the firm run by former Goldman Sachs rainmaker Byron D. Trott, while Goldman itself provided a fairness opinion. It also received legal counsel from the law firm Dentons.

Koch was counseled by the law firm Latham & Watkins.

Morning Agenda: How the S.E.C. Threw in the Towel on Lehman

THE END OF THE BID TO PUNISH LEHMAN EXECUTIVES  |  At a closed-door meeting in early 2011, the Securities and Exchange Commission’s eight-member Lehman Brothers team concluded that suing the bank’s executives would be legally unjustified, Ben Protess and Susanne Craig report in DealBook. “The group, noting that prosecutors and F.B.I. agents had already walked away from a parallel criminal case, reached unanimous agreement to close its most prominent investigation stemming from the financial crisis, according to officials who attended the meeting, which has not been reported previously.”

But Mary L. Schapiro, the S.E.C. chairwoman, disagreed, pushing George S. Canellos, who supervised the Lehman investigation as head of the S.E.C.’s New York office, to explain how Lehman executives could escape without a single civil charge. “I don’t get it,” she said during a tense exchange with Mr. Canellos. “Why is there no case?” she continued, staring at Mr. Canellos, instructing him to continue investigating whether Lehman misled investors. “The world won’t understand.”

“She was right,” DealBook writes. “Five years after Lehman’s collapse hastened a worldwide economic panic, the government faces lingering questions about the decision to spare executives like Richard S. Fuld Jr., who ran Lehman for 14 years until its demise. Not a single senior executive from any Wall Street bank faced criminal charges from the crisis, either. And the government’s deadline for filing most charges will expire this month, the anniversary of Lehman’s collapse.”

NEIMAN MARCUS NEAR DEAL TO BE SOLD FOR $6 BILLION  |  The owners of the Neiman Marcus chain are near a deal to sell the luxury retailer to a group led by Ares Management and the Canadian Pension Plan Investment Board for about $6 billion, DealBook’s Michael J. de la Merced reports. A deal could be announced as soon as this week, a person briefed on the matter said on Sunday, cautioning that the talks could still fall apart.

A deal would end nearly eight years of control by Warburg Pincus and TPG Capital, which have been looking to exit their investment for several months. The two investment firms filed this spring to take Neiman public but also began pursuing an outright sale that would help them end their ties to the company more quickly, Mr. de la Merced reports.

IN VODAFONE DEAL, PAYING THE PRICE FOR WAITING  |  Verizon’s agreement to acquire Vodafone’s stake in Verizon Wireless for $130 billion seems overpriced, James B. Stewart, a columnist for The New York Times, writes. The staggering price tag raises questions: “Why did Verizon wait so long to buy the rest of the wireless company? Why now? And why did it ever put its crown jewel, wireless assets, into a joint venture to begin with?”

“I was advocating that we buy out Vodafone from Day 1,” Dennis Strigl, the former chief executive of Verizon Wireless, told Mr. Stewart. “The whole issue for us was there was never a better time to buy than the year before. We just kept building more value and, therefore, a higher price. I wish we’d bought it in 2001.”

ON THE AGENDA  |  Neal Wolin, deputy secretary of the Treasury Department, is on CNBC starting at 7 a.m. Palo Alto Networks reports earnings after the market closes. Data on consumer credit in July is out at 3 p.m.

HARVARD BUSINESS SCHOOL’S EXPERIMENT IN GENDER EQUITY  |  The members of the Harvard Business School class of 2013 were “unwitting guinea pigs in what would have once sounded like a far-fetched feminist fantasy,” Jodi Kantor reports in The New York Times. “What if Harvard Business School gave itself a gender makeover, changing its curriculum, rules and social rituals to foster female success?”

“The country’s premier business training ground was trying to solve a seemingly intractable problem. Year after year, women who had arrived with the same test scores and grades as men fell behind,” Ms. Kantor reports. “Many Wall Street-hardened women confided that Harvard was worse than any trading floor, with first-year students divided into sections that took all their classes together and often developed the overheated dynamics of reality shows.”

Mergers & Acquisitions »

Glaxo to Sell Drink Brands for $2.1 Billion  |  The British pharmaceutical giant has agreed to sell two soft drink brands, Lucozade and Ribena, to Suntory Beverage and Food of Japan for £1.35 billion, or $2.1 billion.
DealBook »

Swedish Tissue Maker Bids $1.1 Billion for Chinese Peer  |  Sweden’s SCA Group offered on Monday to pay $1.1 billion for all of the shares in the Chinese paper hygiene products company Vinda International that it did not already own.
DealBook »

Concern That Microsoft Is Growing Too Complex to Manage  |  “A list of missed opportunities and disappointing investments at the company in the past decade in areas like smartphones, tablets and Internet search have led to the belief that a more focused, nimble collection of mini-Microsofts could respond more effectively to the never-ending flow of disruptive technologies nibbling at its foundations,” Nick Wingfield writes in The New York Times.
NEW YORK TIMES

Owner of Politico Buys New York News Site  |  Robert Allbritton, the publisher of Politico, has purchased Capital New York, an online news publication in New York, with plans to expand the organization, according to an announcement on Monday.
NEWS RELEASE

U.S. Security Panel Clears a Chinese Takeover of Smithfield Foods  |  The approval came despite deep-seated skepticism by a group of lawmakers, who professed concern about a Chinese company owning the country’s biggest pork producer.
DealBook »

Kering Takes Minority Stake in Altuzarra Fashion Label  |  Kering, the conglomerate that is home to brands including Alexander McQueen and Balenciaga, announced on Friday that it had taken a minority stake in the label started by the French-American designer Joseph Altuzarra.
DealBook »

American Tower Adds Wireless Infrastructure in $3.3 Billion Deal  |  By expanding its holdings, American Tower is hoping to take advantage of the plans by the big wireless carriers to upgrade their networks to feed the consumer demand for cellphones and broadband services.
DealBook »

INVESTMENT BANKING »

Bank of America to Pay $39 Million in Sex Bias Case  |  The settlement comes on the heels of a big payout for a racial discrimination lawsuit.
DealBook »

A Mortgage Market Out of Balance  |  The vast system that provides home loans to millions of Americans has long been a strange place. A surprising development has made it even stranger.
DealBook »

A Mayor Seen as Close to Wall Street Explains Himself  |  In an interview with New York magazine, Mayor Michael R. Bloomberg of New York responded to the assertion that he is “in the tank for Wall Street.”

“The mortgage crisis was not the exclusive creation of the banks,” he told the magazine. “I’m not taking the banks off the hook. But I don’t think that just because you’re a banker you should be vilified.”
NEW YORK

The Power of Stepping Back  |  In the Life@Work column, Tony Schwartz makes a case for giving your brain a break from the phone calls, e-mail, texts, meetings and all the other distractions of a workday.
DealBook »

A Magazine Turns to Film to Recount the Financial Crisis  |  Bloomberg Businessweek is behind a new documentary, “Hank: Five Years From the Brink,” about the former Treasury Secretary Henry Paulson Jr. and his role in fighting the financial meltdown, David Carr, a columnist for The New York Times, writes.
NEW YORK TIMES

PRIVATE EQUITY »

For Dell, the Moment of Truth  |  Shareholders of Dell are set to vote on Thursday on a buyout proposal by the company’s founder, Michael S. Dell. “A change in Dell’s voting rules looks certain to hand control to Mr. Dell and Silver Lake Partners, the private equity firm backing his offer,” The Financial Times writes.
FINANCIAL TIMES

HEDGE FUNDS »

Hedge Fund Partner Helps His Fellow Gamers  |  Jon Finkel, a partner in the hedge fund Landscape Capital, is a founder of Gamers Helping Gamers, a nonprofit organization that offers scholarships to students who play the fantasy trading card game Magic: The Gathering.
NEW YORK TIMES

Perella Weinberg Said to Shut Down Health Care Funds  | 
CNBC

I.P.O./OFFERINGS »

Chinese Dairy Firm Plans $1.3 Billion I.P.O.  |  China Huishan Dairy will test investors’ appetite with its plans for a new share sale in Hong Kong, where the market for I.P.O.s has been weak since June, when several deals were shelved or sharply reduced in size.
DealBook »

Without a Concession in Hong Kong, Alibaba May List in New York  |  Alibaba is prepared to abandon plans for an initial public offering in Hong Kong “if the senior management cannot nominate a majority of board directors, said people close to the company,” The Financial Times reports.
FINANCIAL TIMES

Instagram’s Challenge: Make Money  |  The director of business operations at Instagram, Emily White, who joined the company from Facebook, is “charged with turning a billion-dollar acquisition that has never made a cent into a real business,” The Wall Street Journal writes.
WALL STREET JOURNAL

British Real Estate Web Site Said to Consider I.P.O.  |  Zoopla, a British site that provides real estate information, has hired Credit Suisse to consider opportunities that could include an initial public offering in London, Reuters reports.
REUTERS

VENTURE CAPITAL »

NYSE Euronext to Invest in Start-Up for Private Stock Placements  |  NYSE Euronext is expected to announce on Monday that it has made a minority investment in ACE, a three-year-old start-up that offers companies a centralized platform to privately sell stocks, bonds and other securities.
DealBook »

From the Ashes of Myspace, Start-Ups Rise  |  “Almost every member of Myspace’s founding team has begun a new venture, and several are among the leaders of Los Angeles’s blossoming start-up industry, now known as Silicon Beach,” The New York Times writes.
NEW YORK TIMES

Sequoia Capital Pulls Back From South America  |  The move by the Silicon Valley venture capital firm shows the difficulty it has faced in finding attractive investments in the region, even as start-ups have proliferated in recent years.
DealBook »

Spotify Said to Seek to Raise Money at $5.27 Billion Valuation  |  According to a report in a Swedish newspaper, the streaming music service Spotify is looking to raise money at a valuation that would be significantly higher than its previously estimated valuation of $3 billion, VentureBeat writes.
VENTUREBEAT

LEGAL/REGULATORY »

Barofsky, Bailout Watchdog, Joins Law Firm  |  The New York Times reports: “Neil Barofsky, the former prosecutor who brought transparency and accountability to the federal government’s 2008 bank bailout program as its first special inspector general, has joined Jenner & Block, a law firm based in Chicago, as a partner.”
NEW YORK TIMES

A Call for Higher Capital From a Former British Official  |  John Vickers, the former chairman of the Independent Commission on Banking in Britain, “believes banks’ capital levels should be at least twice as high as the level recommended two years ago by the government-appointed commission he led,” The Financial Times reports.
FINANCIAL TIMES

Soft Jobs Data Not Expected to Affect Fed’s Plans  |  “Despite a disappointing jobs report on Friday that raised fresh questions about the nation’s economic strength, analysts say they still believe the Federal Reserve will start pulling back on its stimulus program in a few weeks,” The New York Times writes.
NEW YORK TIMES

The Loan Behind the Loans  |  “Online lenders who charge borrowers stratospheric interest rates are coming under pressure from state regulators â€" and it’s about time,” Gretchen Morgenson, a columnist for The New York Times writes. “But to get at the root of the problem, the regulators may need to dig much deeper.”
NEW YORK TIMES

New Rules Will Tighten the Spigot on Reverse Mortgages  |  Under new rules, “some people with heavy debt who were hoping a reverse mortgage would solve their financial problems may find that it is no longer a viable option,” Tara Siegel Bernard, a columnist for The New York Times, writes.
NEW YORK TIMES

Fresh Restrictions for Apple on E-Books  |  The New York Times reports: “As punishment for engaging in an e-book price-fixing conspiracy, Apple will be forced to abide by new restrictions on its agreements with publishers and be evaluated by an external ‘compliance officer’ for two years, a federal judge has ruled.”
NEW YORK TIMES