Chinese Conglomerate Plans $1.8 Billion Reverse Takeover in Hong Kong

HONG KONG â€" Cofco, a sprawling, state-owned Chinese conglomerate kicked off on Tuesday a reverse takeover bid worth 14.2 billion Hong Kong dollars ($1.8 billion) that would result in a Hong Kong listing for its commercial property business in mainland China.

Cofco, whose varied operations include slaughtering livestock, managing hotels and selling life insurance, said it would inject the assets of 12 property projects in cities across China â€" including hotels, offices, apartments and shopping malls â€" into the Hong Kong Parkview Group, one of its subsidiaries listed in Hong Kong.

In exchange, Parkview â€" currently a tiny holding company for a single office investment in Hong Kong â€" would issue new shares â€" as many as 19 times the number of shares it currently has outstanding.

Reverse takeovers involve injecting privately held assets into a target company that is already listed, usually in exchange for new shares that give the seller of the assets a controlling stake in the listed company. They are a popular option among Chinese property developers, who often struggle to secure bank funding and whose boom-and-bust earnings cycles can make an outright initial public offering more difficult. In Hong Kong, reverse takeovers are vetted by the stock exchange as if they were initial public offerings.

The complex deal calls for Parkview to be renamed Cofco Land. Cofco would end up holding 75 percent of Cofco Land after the reverse takeover, while public shareholders who did not buy into the new share sale would find their current 30 percent stake in Parkview reduced to 2 percent of Cofco Land.

Cofco’s asset injection is the second part of a two-step transaction. In July of 2012, the Chinese company paid 362 million Hong Kong dollars ($47 million) to acquire control of the listed company from a local family, but at the time Cofco did not change the company’s course of business.

The new shares to be issued by Parkview would be priced at 2 dollars apiece, a 50 percent discount on the 4 dollars at which the stock traded before the announcement.

In explaining the pricing, the directors of Parkview â€" in which Cofco currently has a 69 percent indirect stake â€" took the unusual position that their company’s stock had been overvalued in recent trading.

The recent trading levels ‘‘cannot be taken as the true value of the shares because there appeared to be a lack of correlation between the current trading price of the shares and the underlying business operations or financial performance of the company,’’ the directors said in Tuesday’s statement.

Shares in Parkview had soared in two trading sessions before being suspended Sept. 17, rising 23 percent to 4 dollars apiece.

‘‘The recent increase in the share price may have been underpinned by the expectation of potential asset injection by Cofco Group,’’ the directors said in the company’s statement.

HSBC is the financial adviser and sole sponsor of the reverse takeover.

JPMorgan’s Legal Hurdles Expected to Multiply

JPMorgan Chase paid $1 billion to resolve an array of government investigations last week. But its biggest battles with federal authorities may still lie ahead.

The nation’s largest bank is bracing for a lawsuit from federal prosecutors in California who suspect that the bank sold shoddy mortgage securities to investors in the run-up to the financial crisis, according to people briefed on the matter.

The case, expected as soon as Tuesday, could foreshadow other actions stemming from the bank’s crisis-era mortgage business. Federal prosecutors in Philadelphia, the people briefed on the matter said, are also investigating JPMorgan’s sale of mortgage securities.

Underscoring the breadth of the scrutiny, the people said, JPMorgan and the Department of Housing and Urban Development briefly discussed the possibility of striking a wide-ranging settlement to conclude many of the looming mortgage investigations from federal authorities and state attorneys general. But the housing agency floated a price tag of about $20 billion for the settlement, the people said, effectively derailing settlement talks with JPMorgan lawyers, who were stunned by the size of the proposed penalty and expected to pay a fraction of that sum.

The looming legal threats are not isolated to the bank’s mortgage business. After JPMorgan recently resisted a settlement with the nation’s commodities trading regulator, the people briefed on the matter said, the agency began drafting a lawsuit connected to the bank’s multibillion-dollar “London whale” trading loss last year. The agency, which argued that the London trading position was so large that it manipulated the market for financial contracts known as derivatives, sought an approximately $100 million fine and an acknowledgment of wrongdoing from the bank.

JPMorgan initially refused to make such an admission â€" disputing the accusations and fearing the admission could set a precedent that would threaten some of the bank’s current trading businesses. But late Friday, the bank quietly approached the trading regulator to reopen settlement talks, the people briefed on the matter said.

JPMorgan declined to comment on the talks with the Commodity Futures Trading Commission. Reuters earlier reported the timing of the lawsuit from the California prosecutors.

The wrangling over the mortgage cases and the trading loss investigation illustrate JPMorgan’s legal quandary. If it settles with authorities, the bank must accept steep fines or concede embarrassing admissions. But if it adopts a more hardball approach, the bank can anger government authorities, prompting years of litigation.

Even a conciliatory stance does not always placate the government. Just days after JPMorgan paid $410 million to the nation’s energy regulator to resolve claims the bank devised “manipulative schemes” to transform “money-losing power plants into powerful profit centers,” federal prosecutors in Manhattan opened an investigation into the same activity.

The difficult legal choices being weighed by the bank â€" should it settle or should it fight â€" coincide with an unusual wave of scrutiny for JPMorgan, which is now facing investigations from at least seven federal agencies, several state regulators and two foreign nations. The investigations span across the bank. Its mortgage business, debt collection practices and its hiring of the children of well-connected Chinese officials are all under fire in Washington.

And the threats of litigation from the commodities regulator, the Commodity Futures Trading Commission, come on top of $920 million in fines JPMorgan paid last week to four other regulators investigating the London trading loss. (In another settlement announced last week, JPMorgan agreed to pay $80 million to regulators over accusations that it charged credit card customers for identity theft products they never received.)

The settlements over the trading loss in London â€" reached with the Securities and Exchange Commission, the Office of the Comptroller of the Currency, the Federal Reserve and the Financial Conduct Authority in London â€" laid bare a pattern of “deficiencies” in JPMorgan’s oversight.

The “severe breakdowns,” the regulators said, allowed a group of traders in London to amass the risky derivatives bet with little oversight. When the bet spun out of control, the government said, the traders deliberately “inflated the value” of their positions to mask their losses.

No executive was charged in the cases. But the traders, who deny wrongdoing, face both civil and criminal charges. And under the settlement deal with the S.E.C., JPMorgan took the unusual step of acknowledging that it had violated federal securities laws.

“We have accepted responsibility and acknowledged our mistakes from the start, and we have learned from them and worked to fix them,” Jamie Dimon, the bank’s chief executive, said in a statement last week. “Since these losses occurred, we have made numerous changes that have made us a stronger, smarter, better company.”

But JPMorgan is reluctant to make a habit of conceding defeat, people close to the bank say, particularly when it does not believe that any wrongdoing occurred. The onslaught of investigations has fueled some resentment within JPMorgan, where executives and board members are questioning whether the bank has become something of a punching bag for the government.

The bank initially drew a line with the Commodity Futures Trading Commission. That appeared to soften on Friday, when the bank sought to resume settlement talks with the agency.

In the mortgage cases, though, the bank is continuing to fight. That decision stems in part from a belief at JPMorgan, the people close to the bank said, that the government is punishing it for practices that did not occur under its watch.

The bank, for example, faces investigations into the mortgage business it inherited from Washington Mutual, a troubled lender it purchased amid the crisis.

And Eric T. Schneiderman, the New York attorney general, sued JPMorgan last October, accusing Bear Stearns and its lending unit, EMC Mortgage, of defrauding investors who purchased mortgage securities packaged by the companies from 2005 through 2007. JPMorgan, through a deal backstopped by the government, took over Bear Stearns in 2008.

Shortly after Mr. Schneiderman filed the lawsuit, Mr. Dimon called the action “unfair” during a talk at an event in Washington for the Council on Foreign Relations. JPMorgan, the bank chief said, was being penalized for purchasing Bear Stearns in 2008 as “a favor” to the Federal Reserve.

The $22 billion settlement pitched by the Department of Housing and Urban Development, and summarily rejected by JPMorgan, would have settled both the Washington Mutual investigations and the New York case, the people briefed on the matter said. It is unclear whether it would have put to rest the mortgage investigation by prosecutors in California.

In that case, led by the civil division of the United States attorney’s office for the Eastern District of California, prosecutors found that JPMorgan flouted federal laws with its sale of subprime mortgage securities from 2005 to 2007. The prosecutors, according to JPMorgan’s quarterly regulatory filing in August, had “preliminarily concluded” that the bank “violated certain federal securities laws.”

The bank also disclosed that it faces a “parallel” criminal inquiry from the same United States attorney’s office.

As JPMorgan Settles Up, Shareholders Are Hit Anew

Last week, JPMorgan Chase agreed to pay $920 million to settle civil allegations brought by the Securities and Exchange Commission and other regulators in connection with a multibillion-dollar trading loss that’s come to be known as the London Whale case.

At first glance, it sounded like a lot of money and, frankly, it sounded as if the S.E.C. had a strong case and had exacted quite a settlement.

But look closer and scrutinize the S.E.C.’s 15-page description of its findings. Then think about this: When the S.E.C. says that JPMorgan is “paying” a record fine, where is the money actually coming from?

The answer: shareholders. The same shareholders who were ostensibly the victims of the scandal that already cost them $6 billion. The victims, if you want to call them that, become victimized twice.

“It is perversely inappropriate. You are adding injury to injury. All we’re doing is punishing the shareholders more,” said John C. Coffee Jr., a professor of securities law at Columbia Law School. “This is a case where the victims are the shareholders.”

If you’re wondering why the S.E.C. sought to settle with “the firm” â€" in truth, JPMorgan’s shareholders, who don’t have say in the matter â€" rather than bring cases against the individuals who were responsible for the admitted failures of “the firm,” Mr. Coffee has a skeptical, if not necessarily cynical, theory that bears repeating: “You could have tried to sue some individuals for negligence, but I don’t think those cases they would have easily won.”

Instead, he said, the S.E.C. pursued what he described as “the path of least resistance” by suing the firm itself.

“It is much easier for the S.E.C. to settle for very high penalties which are borne by the shareholders,” he said. “The S.E.C. often desperately needs a victory. This way you can get a victory that you can celebrate.”

But on the merits of the case, the settlement, Mr. Coffee said, begins to look a lot like bribery â€" to some degree, on both sides. Without a strong case against any individuals, the S.E.C. looks as if it held the firm for ransom. And on the other side, the firm’s senior management appears to have bribed the S.E.C., using shareholder money, not to bring cases against individuals.

“It’s a form of self-dealing,” Mr. Coffee said.

He said a chief reason the S.E.C. doesn’t often bring cases against senior individuals is that they are unlikely to settle. Most don’t believe they are guilty and the penalties are too steep, so the agency would be forced to try the case before judge or jury. For a senior manager, “those cases are career-ending,” Mr. Coffee said, “so there’s no chance of settlements.”

This is not a new problem for the S.E.C. It has declined to bring civil cases against many top figures of the financial crisis.

Indeed, the commission’s strategy of suing and then settling cases with banks rather than individuals has become such a sore point that it agreed to its settlement with JPMorgan in front of an administrative judge, who can breezily accept the settlement.

“They are so scared of the Rakoff decision,” Mr. Coffee said.

Mr. Coffee is referring to a decision by Judge Jed S. Rakoff of Federal District Court in Manhattan, who rejected a $33 million settlement that Bank of America had reached with the government over its purchase of Merrill Lynch.

Judge Rakoff had this to say at the time: “The notion that Bank of America shareholders, having been lied to blatantly in connection with the multibillion-dollar purchase of a huge, nearly bankrupt company, need to lose another $33 million of their money in order to ‘better assess the quality and performance of management’ is absurd.”

In the case of the settlement with JPMorgan, the settlement was so perfectly worded to avoid suggesting any wrongdoing that could lead to follow-on suits from investors that “I would infer that they couldn’t have settled this case if you made it about misleading statements,” Mr. Coffee said.

He then declared that there is a reality to litigation and settlements within the government. “The S.E.C. alleges not the facts that it can prove, but the facts that it can settle on.”

Mr. Coffee is not in the camp that JPMorgan’s management was criminally complicit in the scandal. “This is more of a blunder than a crime. Making a poor investment is not a crime,” he said, though, he added, “The cover-up can be.”

Much of the S.E.C.’s case was based on how the firm reacted to learning about the problem trades, rather than the trades themselves. For example, the S.E.C. faulted JPMorgan for not raising red flags with the board’s audit committee for several weeks as senior management tried to understand the extent of the problem.

“Frankly, I’m a little amused,” Mr. Coffee said. “The key sin is they didn’t go to the audit committee. It may be bad corporate governance, but it has nothing to do with the proximate cause of the problem.”

He said the only way he could see additional criminal charges being brought, beyond the indictments of two low-level executives, Javier Martin-Artajo and Julien Grout, would be if they flipped on superiors. But he said he suspected that was unlikely.

In the case of Jamie Dimon, the firm’s chief executive, who originally dismissed concerns about the trades as a “tempest in a teapot,” Mr. Coffee said that while he might make a juicy target for the media, “I don’t think they can go after Jamie Dimon for the ‘tempest in a teapot’ comment. That was a statement of opinion, not fact.” Mr. Coffee said that there was no evidence that Mr. Dimon knowingly misled investors about what he knew.

Ultimately, Mr. Coffee came up with a simple metaphor to describe the case against JPMorgan and the penalty being paid up by shareholders: “This is a case about imposing a fine on someone who suffered a burglary for not taking adequate steps to avoid the burglary.”

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

Arguments Begin in a Bitter Family Brawl Over a Media Mogul’s Estate

Robert B. Cohen, the founder of the Hudson Media empire, whose last wishes are at the center of nasty legal battle here, was either a gravely ill old man unable to speak in his final years, or an opinionated octogenarian who enjoyed attending family bar mitzvahs. Those were the clashing portraits presented in state court on Monday of the man, who died in 2012, leaving behind a fortune that is now the subject of a bitter fight that has drawn in some of the ultrawealthy of New York society.

Samantha Perelman, Mr. Cohen’s 23-year-old granddaughter and the daughter of the billionaire financier Ronald O. Perelman, is suing her uncle James Cohen in New Jersey Superior Court, arguing that he unduly influenced her grandfather, siphoning hundreds of millions of dollars out of his estate and sharply reducing her inheritance.

On Monday, Judge Estela M. De La Cruz heard opening arguments in the emotionally charged case, and the war of words quickly turned ugly. Lawyers for James Cohen, who now runs Hudson Media, portrayed Ms. Perelman as an insensitive rich girl who paid little attention to her grandfather. One of them, Benjamin Clarke, said Ms. Perelman last saw her grandfather in June 2008 when he attended her high school graduation, and had no idea of her grandfather’s mental capacity. In a statement, Ms. Perelman said subsequent attempts to see her grandfather were stymied by the Cohen family. She says she is still close to her grandmother.

The elder Mr. Cohen, Mr. Clarke said, may have been in a physically weakened state during his final years, but the 86-year-old man’s estate planning, dating back years, will show he always intended to leave his business to his son. Mr. Clarke added that Mr. Cohen had carefully outlined what was to be left to Claudia Cohen, Samantha’s mother, who died in 2007.

While the bequests to Ms. Cohen were substantial â€" cash, homes and a 30.6-karat diamond ring, for instance â€" they total a small percentage of the value of Hudson Media, a big wholesaler of newspapers and magazines, which James now controls.

“Robert Cohen did not respond well to pressure,” Mr. Clarke told the court. “Robert Cohen told you what to do.”

The nonjury trial is the latest chapter in the litigation between the Cohen family and Ms. Perelman and her father. Claudia Cohen, a former columnist for The New York Post’s Page Six, was married to Mr. Perelman for almost 10 years. Samantha Perelman was the couple’s only child.

In court documents, Ms. Perelman estimates that her share of the estate would have been valued at roughly $700 million when her grandfather died last year, if not for her uncle’s actions.

Now Ms. Perelman is arguing that the court should validate a 2004 will that she says would have left her mother, and ultimately her, with significantly more than her grandfather’s subsequent wills provided. The 2004 will said that in the event of her mother’s death, Samantha was to inherit her mother’s share of the estate.

The battle has drawn in Mr. Perelman, the financier, who was executor of Ms. Cohen’s will. He first sued Robert Cohen in 2008, arguing that Robert had made an oral promise to Claudia to leave half his fortune to her. He lost, and now Samantha is leading the legal charge, arguing that her uncle manipulated her grandfather into leaving him the bulk of his fortune.

Paul Rowe, a lawyer for Ms. Perelman, said Robert Cohen for years could not dress himself, had to eat through a tube and by 2005 was able to speak only a few words.

“Was Robert Cohen susceptible to undue influence?” Mr. Rowe asked. The evidence, he said, will show “overwhelmingly” that he was.

At the heart of this case is a payment of more than $600 million that went to James Cohen after the sale of Hudson Media’s retail operations. Ms. Perelman has argued that part of this payment should have gone to her grandfather, and would go to her if the 2004 will were upheld. Mr. Clarke said, however, that the transfer was simply part of Robert’s estate planning, reflecting “the passing of the family torch from one generation to another.”

But Mr. Rowe said evidence in this case, which is expected to run for several weeks, would show James Cohen had a heavy hand in his father’s estate planning, resulting not only in the improper transfer of the cash, but also in “substantial bequests” being stripped from Samantha.

In the morning, Susan Hess, the wife of the oil scion John Hess and a close friend of Claudia’s, sat next to Ms. Perelman in court. Ms. Perelman, who is a student at Columbia University, left the trial after the morning session to attend classes.

The afternoon session was dominated by the testimony of Juan Espinal, a Hudson Media employee who for years was the driver of Robert Cohen and his wife, Harriet, and now chauffeurs James Cohen.

The two sides wrestled with the witness, each hoping Mr. Espinal would help their case. During questioning from Ms. Perelman’s lawyer, Mr. Espinal testified that in Mr. Cohen’s final years it was hard for him to speak or move without assistance. Still, on cross-examination, Mr. Espinal testified that several times a year he took Mr. Cohen to various horse racing tracks, and that his boss appeared able to read the program, although Mr. Espinal had to hold the program up close to Mr. Cohen’s head.

Judge De La Cruz, who proved early on to be a strong presence in the courtroom, had her hands full refereeing the lawyers on Monday. “If I am going to go through this with 40 witnesses I am going to age significantly,” she said at one point as the lawyers sparred during the examination of Mr. Espinal.

Arguments Begin in a Bitter Family Brawl Over a Media Mogul’s Estate

Robert B. Cohen, the founder of the Hudson Media empire, whose last wishes are at the center of nasty legal battle here, was either a gravely ill old man unable to speak in his final years, or an opinionated octogenarian who enjoyed attending family bar mitzvahs. Those were the clashing portraits presented in state court on Monday of the man, who died in 2012, leaving behind a fortune that is now the subject of a bitter fight that has drawn in some of the ultrawealthy of New York society.

Samantha Perelman, Mr. Cohen’s 23-year-old granddaughter and the daughter of the billionaire financier Ronald O. Perelman, is suing her uncle James Cohen in New Jersey Superior Court, arguing that he unduly influenced her grandfather, siphoning hundreds of millions of dollars out of his estate and sharply reducing her inheritance.

On Monday, Judge Estela M. De La Cruz heard opening arguments in the emotionally charged case, and the war of words quickly turned ugly. Lawyers for James Cohen, who now runs Hudson Media, portrayed Ms. Perelman as an insensitive rich girl who paid little attention to her grandfather. One of them, Benjamin Clarke, said Ms. Perelman last saw her grandfather in June 2008 when he attended her high school graduation, and had no idea of her grandfather’s mental capacity. In a statement, Ms. Perelman said subsequent attempts to see her grandfather were stymied by the Cohen family. She says she is still close to her grandmother.

The elder Mr. Cohen, Mr. Clarke said, may have been in a physically weakened state during his final years, but the 86-year-old man’s estate planning, dating back years, will show he always intended to leave his business to his son. Mr. Clarke added that Mr. Cohen had carefully outlined what was to be left to Claudia Cohen, Samantha’s mother, who died in 2007.

While the bequests to Ms. Cohen were substantial â€" cash, homes and a 30.6-karat diamond ring, for instance â€" they total a small percentage of the value of Hudson Media, a big wholesaler of newspapers and magazines, which James now controls.

“Robert Cohen did not respond well to pressure,” Mr. Clarke told the court. “Robert Cohen told you what to do.”

The nonjury trial is the latest chapter in the litigation between the Cohen family and Ms. Perelman and her father. Claudia Cohen, a former columnist for The New York Post’s Page Six, was married to Mr. Perelman for almost 10 years. Samantha Perelman was the couple’s only child.

In court documents, Ms. Perelman estimates that her share of the estate would have been valued at roughly $700 million when her grandfather died last year, if not for her uncle’s actions.

Now Ms. Perelman is arguing that the court should validate a 2004 will that she says would have left her mother, and ultimately her, with significantly more than her grandfather’s subsequent wills provided. The 2004 will said that in the event of her mother’s death, Samantha was to inherit her mother’s share of the estate.

The battle has drawn in Mr. Perelman, the financier, who was executor of Ms. Cohen’s will. He first sued Robert Cohen in 2008, arguing that Robert had made an oral promise to Claudia to leave half his fortune to her. He lost, and now Samantha is leading the legal charge, arguing that her uncle manipulated her grandfather into leaving him the bulk of his fortune.

Paul Rowe, a lawyer for Ms. Perelman, said Robert Cohen for years could not dress himself, had to eat through a tube and by 2005 was able to speak only a few words.

“Was Robert Cohen susceptible to undue influence?” Mr. Rowe asked. The evidence, he said, will show “overwhelmingly” that he was.

At the heart of this case is a payment of more than $600 million that went to James Cohen after the sale of Hudson Media’s retail operations. Ms. Perelman has argued that part of this payment should have gone to her grandfather, and would go to her if the 2004 will were upheld. Mr. Clarke said, however, that the transfer was simply part of Robert’s estate planning, reflecting “the passing of the family torch from one generation to another.”

But Mr. Rowe said evidence in this case, which is expected to run for several weeks, would show James Cohen had a heavy hand in his father’s estate planning, resulting not only in the improper transfer of the cash, but also in “substantial bequests” being stripped from Samantha.

In the morning, Susan Hess, the wife of the oil scion John Hess and a close friend of Claudia’s, sat next to Ms. Perelman in court. Ms. Perelman, who is a student at Columbia University, left the trial after the morning session to attend classes.

The afternoon session was dominated by the testimony of Juan Espinal, a Hudson Media employee who for years was the driver of Robert Cohen and his wife, Harriet, and now chauffeurs James Cohen.

The two sides wrestled with the witness, each hoping Mr. Espinal would help their case. During questioning from Ms. Perelman’s lawyer, Mr. Espinal testified that in Mr. Cohen’s final years it was hard for him to speak or move without assistance. Still, on cross-examination, Mr. Espinal testified that several times a year he took Mr. Cohen to various horse racing tracks, and that his boss appeared able to read the program, although Mr. Espinal had to hold the program up close to Mr. Cohen’s head.

Judge De La Cruz, who proved early on to be a strong presence in the courtroom, had her hands full refereeing the lawyers on Monday. “If I am going to go through this with 40 witnesses I am going to age significantly,” she said at one point as the lawyers sparred during the examination of Mr. Espinal.

Detroit’s Casino-Tax Dollars Become Big Issue in Bankruptcy Case

Detroit had a bit of rare good fortune as it hurtled toward bankruptcy last summer â€" a couple of banks were willing to let it out of some expensive financial contracts, called interest-rate swaps, without paying in full the usual steep termination fees.

But since then, an insurance company has been seeking to block the deal, lining up allies among Detroit’s other creditors. The insurer, Syncora Guarantee, contends that Detroit’s good deal was struck at its expense, improperly stripping it of cash that Detroit now wants to use to tide itself over as goes through the biggest Chapter 9 municipal bankruptcy case in American history.

Syncora says the city already pledged the money to it as collateral on a complex borrowing package that Syncora insured. It wants the judge in the case to block Detroit’s settlement with the other participants in the swap transaction, UBS and Merrill Lynch â€" the only out-of-court settlement the city managed to reach with its creditors before filing for bankruptcy on July 18.

Syncora’s objections have been receiving support from some of Detroit’s other bond insurers and investors that bought the securities that Syncora insured. A hearing on the evidence that was scheduled to begin on Tuesday in federal bankruptcy court was postponed Monday afternoon after the city’s emergency manager, Kevyn Orr, said it would be worthwhile to continue seeking an out-of-court solution in mediation. Judge Steven W. Rhodes, who is handling the case, has strongly urged Detroit’s thousands of creditors, including Syncora, to try to settle out of court lest the case drag on forever, destroying any hope of recovery.

The court battle also shows the difficulty of following through with the complex municipal borrowing deals that came into vogue about a decade ago, involving both securities, like bonds, and derivatives, like interest-rate swaps.

“If they don’t reach a resolution then we get a court decision,” said James E. Spiotto, an authority on municipal bankruptcy with the law firm of Chapman & Cutler in Chicago. After New York City’s brush with bankruptcy in 1975, Mr. Spiotto worked on amendments to the municipal bankruptcy code that dealt with the types of pledges that would remain in force even after a bankrupt city stopped paying its other debts. But cases have been so rare since then that the courts have had almost no chance to interpret those amendments.

The cash that the city and Syncora are fighting over comes from an unlikely source: gambling. Like many states and cities looking for additional cash in recent years, Detroit approved casino operations in its downtown and levied a tax on the take. As the city’s population plunged and its tax base declined, the casino-tax dollars became one of its most reliable revenue sources, paying about $180 million annually in recent years.

The fight over that money raises a fundamental question of whether and how a bankrupt American city, already mired in debt, can still borrow one more time to finance its day-to-day operations even as it seeks relief from creditors under court supervision. Bankrupt companies do this routinely under Chapter 11, using a tool called debtor-in-possession financing. They attract lenders by offering to pledge business assets as collateral, showing that the loans will be repaid in full, even if their restructurings fail.

Cities, by contrast, are loath to declare bankruptcy in the first place, even more so to pledge away their prized parks or public buildings. The few cities and counties that have declared Chapter 9 bankruptcy have generally used other methods to keep going while in court, and legal experts say they have not yet seen debtor-in-possession financing used in municipal bankruptcy. Detroit may be the first, depending on the outcome of the casino-tax dispute.

Both the city and Michigan’s governor, Rick Snyder, who approved the bankruptcy, have drawn heavy fire from the municipal bond industry, including underwriter banks, for the big losses now being proposed, as much as 90 cents on the dollar. But Detroit has already asked prospective debtor-in-possession lenders to submit confidential bids to help it raise $350 million â€" and thanks to the possible casino-tax revenue as collateral, it has been getting offers.

The city has declined to identify the bidders.

Syncora has said in court documents that Detroit has no business offering the casino taxes to anyone else, because the city already pledged the money to it. It is also suing UBS and Merrill Lynch in New York State, making similar arguments.

Part of Detroit’s troubles stem from the complex borrowing packages it is struggling to exit. Financial advisers to local governments, especially troubled ones, recommended pairing new borrowing with interest-rate swaps to reduce their borrowing costs. The packages allowed such governments to issue variable-rate debt, which had a lower initial rate than fixed, with the swaps hedging them in case interest rates rose. That made mounting debts seem more affordable. And to further reassure investors in the municipal bond markets, the complex deals could be wrapped in a bond insurance policy.

That’s what Detroit did in 2005, and again in 2006, when it borrowed cash to put into its pension funds for municipal workers. It used two bond insurers, Syncora and Financial Guaranty Insurance, to insure the debt-plus-swaps transaction. Of the total $1.44 billion in pension-related debt, Syncora insured swaps that were intended to hedge about $800 million.

The deals have turned out to be the bane of cities, counties and school districts, however. Even though local officials entered into them in hopes of lowering their borrowing costs, the deals tended to break down during the financial turmoil of 2008, leaving the variable-rate debt unhedged and the cities paying more than they ever expected in interest and swap payments. Usually, the only escape from their swap counterparties was to buy out the contracts, with termination fees that could easily cost millions of dollars.

That’s roughly what happened in Detroit in 2009. Its swap contracts contained a provision allowing UBS and Merrill Lynch to terminate them unilaterally if the city’s credit fell below investment grade, which it did 2009. But termination at that point would have required Detroit to come up with $400 million in cash â€" an amount that would have bankrupted the city immediately if it had been forced to pay it. Instead, Detroit was permitted to restructure the debt, and the two banks agreed not to terminate the swaps, sparing Detroit the big fees, at least for the time being.

Syncora had also by then lost its investment-grade rating, but its position as an insurer of the deal was strengthened because Detroit pledged to make good with its casino revenue if something went wrong. But Detroit’s prospects just kept getting worse. With a Chapter 9 petition looking ever more likely this summer, it finally terminated the contracts. The terms call for Detroit to get out of the swaps for as little as 75 percent of their true termination cost â€" about $250 million, instead of $344 million at current interest rates. But the deal cannot go through without bankruptcy court approval. If Detroit’s debtor-in-possession financing eventually comes through, the city would use the first $250 million or so to pay UBS and Merrill Lynch.

Detroit says it has legal authority to terminate the swaps and pledge the casino money to its debtor-in-possession lenders because Syncora was not part of the 2009 restructuring. Syncora says that without the swaps, it has a greater exposure on the related debt, which is already in default, and that it has a rightful claim to the casino money.“Bankruptcy is, unfortunately, the land of broken promises,” Mr. Spiotto said.

Brazilian Banks Fill a Void Left by the Global Giants

SÃO PAULO, Brazil â€" The erratic performance in Latin American markets in recent months is leading some global banks to shy away from volatile regions and rethink their strategies.

But for investment bankers based here, their home market is a growth market. As Wall Street-based firms retrench, local Latin American bankers are ready to jump in to fill the void.

Roberto Sallouti, chief operating officer of BTG Pactual, said the current trend was similar to what happened during the 2008-9 financial crisis, when many global banks pulled back from Latin America and left space for local firms to grow.

“The other guys are still there,” Mr. Sallouti said, “but we are eating into their market share.”

While the Latin American economies are not as robust as they once were, the region generated over $1.6 billion in investment banking fees last year, according to Freeman Consulting Services, an investment banking advisory firm based in New York.

The devaluation of local currencies relative to the dollar means that it is now cheaper for foreigners to invest in the region, which has rich natural resources and a growing middle class. “For the deals to come through,” Jean-Marc Etlin, chief executive of Itaú BBA’s investment banking division, said, “all you need is a bit of stability.”

Just a few years ago, American and Western European banks dominated in investment fees, garnering around 77 to 79 percent of the market share from 2002 to 2006, according to Freeman Consulting. In 2007, their share fell to 66 percent, and last year it was 60 percent.

Already, there have been noticeable signs that Wall Street’s presence is less pronounced. Goldman Sachs acknowledged in August that it was reducing its Brazil staff and subletting one of the four floors in its São Paulo office, though a spokeswoman said the firm was still highly engaged in Latin America and was expanding operations in Chile and Mexico.

Barclays and Raymond James have also acknowledged scaling back operations in Brazil. Earlier this year Brazilian newspapers reported cutbacks at Deutsche Bank’s and Morgan Stanley’s investment banking units, although these two banks declined to confirm these cuts.

Eric Wasserstrom, managing director of equity research at SunTrust Robinson Humphrey in New York, said stricter regulatory requirements in their home countries and, for some banks, a lack of capital, is obliging many European and American firms to exit some emerging markets to concentrate on others. “They used to have the capital to do it all. Today they have to be more selective,” Mr. Wasserstrom said.

That is not to say that locally based investment banks are having a flood of new business. Many companies still prefer the global banks, which have offices and relationships all over the world.

Brazilian investment banks have tried to counteract that by opening offices in London, New York and several Asian capitals. But their network outside Latin America still “does not compare” with that of the global banks, said Andre Riva Gargiulo, senior Brazilian banking analyst at the São Paulo office of Grupo Bursátil Mexicano, a Mexican brokerage firm.

Therefore, many companies prefer a global bank as lead underwriter for bigger offerings, but go to local banks for smaller deals or those that target investors in Latin America, he said.

Despite this handicap, two banks, Itaú BBA and BTG Pactual, are making inroads in displacing global banks when competing for stock listings, merger advice or bond offerings.

So far this year, BTG Pactual has had the largest share of stock market offerings in Latin America, $2.96 billion, followed closely by Credit Suisse with $2.91 billion and Itaú BBA with $2.89 billion, according to data from Dealogic. Citigroup and JPMorgan Chase were fourth and fifth in the rankings. Ten years ago, there was not a single Latin American investment bank in Dealogic’s top five for the region.

Although most of their business comes from Brazil, their home country, BTG Pactual and Itaú BBA are increasingly winning business elsewhere. Brazilian investment banks’ share of fees in Chile from stock and bond issuance rose from zero in 2009 to 24 percent so far this year, according to Freeman Consulting. In Colombia, the Brazilians’ share rose from zero to 10 percent over the same period.

With other major Brazilian investment banks like BB Investimentos and Bradesco BBI focused on their home market for now, this international business is going almost entirely to BTG Pactual and Itaú BBA. Itaú BBA helped structure a $850 million bond issue in April from the Peruvian pipeline company TGP alongside global banks including Citigroup and Morgan Stanley.

When the Mexican real estate investment trust Fibra Shop held an initial public offering in July that raised $437 million, the two international underwriters were Bank of America Merrill Lynch and BTG Pactual, which was also the international coordinator. A Fibra Shop spokesman said the firm chose BTG because it wanted to attract foreign investors not only in the United States, but also in South America, especially Brazil and Chile.

The two rival Brazilian firms, which face each other across a boulevard in Brazil’s financial capital, São Paulo, have been fiercely competing for this business.

BTG Pactual is growing through acquisitions. Last year, the bank spent $600 million to buy Celfin Capital, a Chilean investment bank and brokerage firm that is also active in Peru and Colombia, and another $52 million to buy the Colombian brokerage firm Bolsa y Renta.

Itaú BBA, which has a growing commercial banking operation in South America, is seeking investment banking clients among its corporate lending customers.

And since 2012, both Itaú BBA and BTG have lured senior Latin American investment bankers away from firms like Morgan Stanley and Merrill Lynch.

Although the two banks’ paths are different, the goal is the same: to become regional powerhouses. Mr. Etlin said strengthening Itaú BBA’s Latin American operations was a logical choice, despite the current volatility of the region’s markets.

“We don’t have the option or the luxury of looking at the whole world and deciding where to put our efforts,” Mr. Etlin said. “This is it for us.”

While Brazil is Latin America’s largest economy, the nation alone is not going to provide enough growth opportunities. Brazil’s economy grew only 0.9 percent last year, and forecasts say it will struggle to rise 2.5 percent this year and next. Recent street protests and erratic government policies have also sapped investor interest in the country.

Brazilian firms are expanding elsewhere in part because their home market “is growing slowly and is extremely competitive,” said Jõao Augusto Salles, financial sector analyst with the investment consulting firm Lopes Filho in Rio de Janeiro.

The economies of Chile, Colombia and Peru are all projected to grow more than 4 percent this year, and their governments trumpet pro-business philosophies. Both Itaú BBA and BTG Pactual also say Mexico is attractive despite slow growth there this year.

Mr. Sallouti of BTG Pactual said that the expansion in the region was “an inevitable trend.” But he cautioned that Latin America, whose governments often protect local markets, still had a long way to go to achieve a unified financial system.

New Offer for BlackBerry Gives Buffett’s Favorite Banker Another Assignment

Fairfax Financial Holdings’ $4.7 billion offer to take BlackBerry Inc. private has once again thrust Byron D. Trott into the spotlight.

Mr. Trott’s firm, BDT & Company, is one of the primary advisers to Fairfax and its unnamed partners, giving the merchant bank yet another prominent role in a year full of them. The firm is working with Bank of America Merrill Lynch and BMO Capital Markets.

If a deal is completed, it would be another feather in the cap of Mr. Trott, whose work has been praised by none other than Warren E. Buffett. Since striking off from Goldman Sachs over four years ago, the banker and his firm have kept busy with a number of deals.

This year alone, BDT has worked on deals like Molex‘s $7.2 billion sale to Koch Industries and Joh. A. Benckiser’s $9.8 billion takeover of D.E. Master Blenders 1753.

It also advised Coty in its ill-fated $10.7 billion hostile bid for Avon Products Inc. and Alberto Culver in its $3.7 billion sale to Unilever.

The presence of BDT as an adviser to Fairfax raises interesting questions about who might be involved in the deal. Fairfax hasn’t disclosed who else is in the consortium, but it’s worth noting that Mr. Trott’s firm has established itself as an adviser to wealthy families. It’s also worth noting that the main BDT banker on the potential transaction is Don McLellan, who formerly led mergers and acquisitions at Motorola and so has experience with the cellular handset industry.

For a Better Way to Prosecute Corporations, Look Overseas

Brandon L. Garrett is a professor at University of Virginia School of Law. David Zaring is an assistant professor of legal studies at the Wharton School of the University of Pennsylvania.

The favored new tool of the corporate prosecutor, the deferred prosecution agreement, is being actively exported to other countries. In these agreements, prosecutors allow large corporations to avoid a criminal prosecution entirely by agreeing to pay a fine and adopt reforms. Five years after the financial crisis, many doubt whether prosecutors have taken business crime seriously enough, and some of the blame is laid on lenient deferred prosecution agreements.

We can learn some lessons about how to better hold corporations accountable for crimes, though, from the way these types of prosecution agreements are now being used across the globe. After passing detailed legislation approving their use, the British government has circulated plans for a potentially more rigorous deferred prosecution agreement program.

One American prosecutor declared that trying to evade taxes via Swiss bank accounts is now “beyond foolish,” given the series of such agreements concluded with Swiss banks that, essentially, require them to give up their clients. But at least one American court has promised to subject international deals to greater judicial scrutiny.

The deferred prosecution agreement has thus become an example of the way that American law can reach beyond the country’s borders. Prosecutions of foreign corporations have become far more important. Indeed, on average, federal prosecutions of foreign companies involve far larger fines than prosecutions of similar domestic ones.

Britain’s adoption of such agreements shows how American criminal law can spread overseas: British companies found themselves on the receiving end of American prosecutions, until Britain decided it was better to collaborate with and copy the actions of prosecutors in the United States.

The use of deferred prosecution agreements to solve the problem of tax evasion through Swiss banks has illustrated their potential. The government required Swiss banks to turn over information about American clients, through such deals, and has also created a possibility of voluntary disclosure program.

This sort of amnesty for banks is something new - and combined with the threat of prosecution, it really does seem to be bringing down the wall of banking privacy - even when Swiss privacy law seemed to be in direct conflict with United States criminal law. The prosecutions made offshore banking less attractive, and hopefully we will soon enter into a world where there is nowhere for Americans interested in tax evasion to go.

But although American prosecutors are proselytizing the deferred prosecution agreement approach around the globe, the remedies imposed in these corporate prosecutions are new and untested.

These agreements are a form of regulation â€" except it is a single company or entity rather than an entire industry that is ordered to adopt structural reforms. Regulatory programs are supposed to receive consultation and careful judicial review, but deferred prosecution agreements usually do not.

The larger picture is similar. The deferred prosecution agreement has not been endorsed by Congress, or vetted by an agency. Moreover, the agreements - settling a case before it can be filed - are designed to avoid even the deferential judicial review that occurs if a company enters a plea deal before a judge.

Britain’s impending adoption of the agreements, on the other hand, exemplifies the cautious embrace offered by good administrative law.

Britain’s proposed program comes with a code governing its use, and a requirement that a court conclude that the agreement is both “in the interests of justice” and “fair, reasonable, and proportionate.” Moreover, the proposal itself has been opened for comment from the public.

We wish deferred prosecution agreements had been similarly vetted in the United States. Instead, American prosecutors have used agreements in cases of great public importance without any meaningful oversight. But one federal judge’s hesitant approval of a deferred prosecution agreement with HSBC over extensive money-laundering has recently suggested that here, too, good governance values may be imposed.

The fear in America is that prosecutors have been “captured” by the industries they regulate. Senator Jeff Merkley, Democrat from Oregon, called it a “‘too big to jail’ approach.” Over the last decade, more of the truly important corporate prosecutions have been settled through deferred prosecution agreements, or agreements like them.

Over 250 of these deals have been entered in federal court since 2001. Well over half (61 percent) of the companies receiving such agreements from 2001-2012 were public corporations or subsidiaries. Almost one-third were Fortune 500 or Global 500 companies.

The average fine for such agreements was almost $17 million, although many such companies receive no fine at all. The agreements typically include requirements that the company adopt compliance reforms; about two-thirds do so, although often in vague terms calling for “effective compliance” or “appropriate due diligence.”

If this prosecution agreement results in structural reforms, then it can be a success. But most of these agreements last just two to three years, most do not involve independent monitors, many describe the required compliance in vague terms, and none of the work done to implement these agreements is made public. In contrast, when a company is convicted, the fines may be much larger, and a judge can supervise the company using probation.

The judge in the HSBC case explained he is not supposed to sit there like a “potted plant” while an important corporate prosecution lingers on his docket. He observed that, given a judge’s supervisory power over the integrity of judicial proceedings, a deferred prosecution agreement that “so transgresses the bounds of lawfulness or propriety” should not be approved. And while he ultimately did approve the HSBC deal, he insisted on supervising its implementation, and receiving quarterly reports on its progress.

There may be a particularly good reason to exercise this sort of authority when the parties come to court with a deferred prosecution agreement. These agreements are the heirs to the sort of institutional reform litigation that played an important role in the civil rights era (and that lasted, in important ways, long beyond it).

Back then, trial courts would supervise - often for decades - prison systems, school districts, and mental health facilities. The Supreme Court lost patience with the length of these cases, which turned courts into mini-regulators in their own right.

The action in lengthy consent agreements between the government and wrongdoers has moved to the deferred prosecution agreement. But until recently, it looked as if these deals only empowered prosecutors, rather than judges, without requiring much in the way of corresponding accountability.

Judges can certainly require too much of regulators, who have traditionally enjoyed a great deal of discretion in deciding whom and how to prosecute. But deferred prosecution agreements are different. Apart from the sufficiency of fines, there are questions about how highly paid experts who oversee agreements are selected, whether they are doing good work and whether agreements really reform firms. The public should know far more about what goes on.

In a world where such agreements are proliferating, some judicial oversight is better than none.

A Deal for BlackBerry That’s Not Yet a Deal

Looking at the BlackBerry announcement, I couldn’t help but think of that René Magritte painting of a pipe with a statement in French that this is not a pipe. For BlackBerry, this is not a deal, or at least not yet.

What was announced on Monday was instead a “letter of intent” between Blackberry and Fairfax Financial Holdings, a financial company that owns about 10 percent of BlackBerry’s common shares. Under the letter of intent, Fairfax is offering to pay $9 per share.

But a letter of intent is not a binding deal, and a lot of things need to happen before the company is actually acquired for $9 a share.

We don’t yet have the full text of the letter of intent, but in a best-case scenario, the letter obligates Fairfax to make efforts to secure financing and acquire BlackBerry. But Fairfax’s obligations to actually go through with a deal will be subject to a number of conditions, including that Fairfax is satisfied with its due diligence or investigation of BlackBerry’s finances and that it negotiate a definitive agreement. Most important, any deal will need financing before Fairfax will be required to acquire BlackBerry.

It is quite unusual to announce any acquisition like this, let alone without financing. Most targets would require a commitment letter from banks that make financing more certain. Absent that, the target’s board would ask for at least a letter from the banks that states that the buyers were “highly confident” that financing would be obtained. These letters, invented by Michael Milken back in the 1980s for Drexel Burnham Lambert are the realm of bidders who are unsure about financing. But at least the banks give some level of commitment in a highly confident level even if they can later back out.

In this case, the best Fairfax could do was say that it was “seeking” financing from Bank of America Merrill Lynch and BMO Capital Markets. So am I.

Additionally, given Fairfax’s 10 percent stake in BlackBerry and the company’s perilous state, any lender would probably require much more equity before financing this transaction. So Fairfax is going to have to find a partner.

In this light, the best that can be made of this letter of intent is that it is a Hail Mary pass, aimed in part at putting a temporary floor on BlackBerry’s share price and perhaps kick starting some type of auction. If BlackBerry were more sure of itself, it would have certainly waited until financing could have been lined up.

As evidence of this, the letter of intent contains an unusual feature. BlackBerry has agreed to pay a fee to Fairfax of 30 cents a share if it enters into a transaction with another party. By my calculations, this is roughly $150 million. Fairfax and BlackBerry said they would seek to sign an agreement by Nov. 4. So $150 million is not a bad payday for running around for a month or two and trying to persuade a bank to rescue BlackBerry.

And there is also a go-shop in the letter. BlackBerry will be allowed to solicit other offers, though, presumably, it has already been doing this. It will gain some advantage, perhaps, by now being able to promote a price as it tries to entice someone.

But that is all BlackBerry has right now: a hope that financing will come through and that Fairfax will remain committed to this process. Alternatively, perhaps another bidder will come in. As Barbara Stymiest, the chairwoman of BlackBerry’s board of directors, stated. “The Special Committee is seeking the best available outcome for the Company’s constituents, including for shareholders.”

But Blackberry is taking a terrible risk here since the Fairfax deal has a real risk of collapsing and leaving BlackBerry’s committee and its shareholders with nothing. The board probably felt it had no choice.

In other words, this is a “deal” that still has more time to bake before it becomes a deal.

Breaking Bad: The Gray Matter of Charity

On “Breaking Bad” on Sunday night, Charlie Rose referred to a column by Andrew Ross Sorkin in The New York Times. Here is an excerpt from that fictional column:

It may be charitable to describe Elliott and Gretchen Schwartz as philanthropists.

Last week, the founders of Gray Matter Technologies gave a $28 million grant to create a drug abuse treatment center throughout the Southwest. The family, which is said to be worth more than $1 billion â€" Gray Matter’s market value is $2.16 billion â€" was heralded by advocates of drug control and treatment throughout the country. In Washington, the White House’s Office of National Drug Control Policy said in a statement that the Schwartzes are among “the next generation of great American philanthropists tackling one of the biggest epidemics confronting our country: illicit drugs.”

Maybe it is cynical to suggest, but the timing and backstory of the grant is raising red flags among some investors on Wall Street and prompting some to ask: Is the donation a publicity stunt meant to mask troubling news about the company?

Little known except to a small cadre of industry insiders, the Schwartzes have been scrambling in recent weeks to keep a long-running secret from being revealed. Gray Matter’s stock has sunk over the last week as speculation has mounted that the company could be tied to a drug kingpin in Albuquerque who has made national headlines: Walter White, the former chemistry teacher turned international methamphetamine dealer known as “Heisenberg.”

According to people close to the company, Mr. White was a co-founder of Gray Matter and was a former college sweetheart of Mrs. Schwartz. The company’s name - Gray Matter - was a mix of the Schwartz name, which is German for “black” and Mr. White’s name, hence “gray.”

It remains unclear whether the Securities and Exchange Commission will investigate, but given the prominent nature of Mr. White and Gray Matter, which until now was considered a high-flier on Wall Street, it would be surprising if an inquiry were not opened. Mr. Schwartz, who won a Nobel prize for his scientific research, has parlayed that success into the celebrity spotlight, hobnobbing with A-listers. He was recently given as a gift a Stratocaster guitar autographed by Eric Clapton.

While Mr. White is said to have had a falling out with the Schwartzes, people briefed on the matter said, the two families had been in contact recently. A person close to both families said Mr. White and his wife were seen at the Schwartzes’ estate for Mr. Schwartz’s birthday party. Mrs. Schwartz was also seen at the White’s home. The Schwartzes are said to have offered to rehire Mr. White, who declined the opportunity, these people said. Mr. White had sold his shares years before the company went public to the Schwartzes for $5,000.

A spokesman for Gray Matter said, “We don’t comment on rumors and speculation.”

Mr. White could not be reached for comment.

Yes, this is a fictional parody, in case there is any doubt!

BlackBerry Reaches $4.7 Billion Takeover Deal

BlackBerry said on Monday that it had reached an agreement to sell the company for $9 a share to a group led by Fairfax Financial Holdings.

The proposed deal values the faltering smartphone maker at about $4.7 billion.

“We believe this transaction will open an exciting new private chapter for BlackBerry, its customers, carriers and employees. We can deliver immediate value to shareholders, while we continue the execution of a long-term strategy in a private company with a focus on delivering superior and secure enterprise solutions to BlackBerry customers around the world,” Fairfax’s chief executive, Prem Watsa, said in a statement.

Mr. Watsa stepped down from BlackBerry’s board last month to avoid criticism over a potential conflict of interest as he sought to find a future path for the beleaguered company. Fairfax is its largest shareholder, with a 10 per cent stake.

Fade to BlackBerry

The dawn of the new millennium brought a gadget like no other. More than a cellphone, the BlackBerry offered users something novel in the blossoming age of e-mail: liberation from the desk. This made it the device of choice for a rich and mobile class, eventually spawning an aspirational market beyond Wall Street. Fittingly, BlackBerry’s demise is occurring with the device as little more than a mark of white-collar servitude.

On Friday, the company said it would stop selling products to consumers and take a nearly $1 billion write-down on inventory, including four new models. The Canadian company, once a soaring symbol of technological enterprise and innovation in a country lacking many others, will slash 4,500 workers, 40 percent of its total, and half its operating expenses.

The electronic gizmo started life in the hands of mostly senior executives with sophisticated IT departments capable of supporting its complicated architecture. The BlackBerry made its debut, as a product and public company, in 1999 amid a boom in investment banking, whose practitioners became early adopters. From there, it spread to the corporate world.

As these seemingly privileged workers whizzed through priority airport gates, their attentions riveted to the small rectangle they twiddled with their thumbs, the masses took notice. Sales took off. The valuation of its maker, formerly known as Research In Motion, reached $70 billion in 2007; it is now just over $4 billion. At its peak, the contraption accounted for more than half the market for phones of its kind.

There were early hints of trouble, though. Occasional, nationwide service outages exposed BlackBerry’s limitations. At the same time, they demonstrated the increasing dependency of its utility and extraordinary potential. Apple’s rollout of the iPhone starting in 2007 helped complete the transformation of a onetime corporate tool into a full-blown consumer product.

Devotees of BlackBerry’s tactile keyboard will linger here and there. And it will be a few years before corporate techies dismantle decade-old networks and operating systems reliant upon this once-indispensable apparatus. That, however, only underscores the full scope of BlackBerry’s arc. It is no longer a symbol of elite status, but rather one of professional indenture.

Rob Cox is editor of Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.

On JPMorgan and What Makes a Criminal Case

The “London Whale” case presents an interesting contrast in how the government pursues corporate wrongdoing. While two lower-level employees of JP Morgan Chase were formally indicted last week for their role in the credit derivatives trading that caused over $6 billion in losses, the bank itself faced only civil charges that it settled by paying $920 million. No higher level individuals were accused of violations.

The easy explanation, of course, is that the wealthy and powerful avoid their comeuppance while those less fortunate face the wrath of prosecutors. This is a common refrain when the law is enforced against some but not others who appear to be in the same situation, whether it be mom-and-pop stores accused of food stamp fraud or drug laws used primarily against those in the inner city.

The fact is that prosecutors and the police have enormous discretion over who and what to charge, with a decision not to charge a crime virtually unreviewable by the courts. The American criminal justice system puts enormous faith in those who decide how the criminal law is enforced because prosecutors do not have to disclose what went into their decision not to pursue charges.

Last Monday, a federal grand jury in New York returned an indictment of Javier Martin-Artajo and Julien Grout, who worked in JPMorgan’s chief investment office in London and were responsible for valuing the credit derivatives the bank bought that resulted in over $6 billion in losses. The two are charged with conspiracy, false entries in the banks records, false statements to the Securities and Exchange Commission, wire fraud and securities fraud.

Mr. Grout’s attorney asserted his client was only a junior trading assistant who is being made a scapegoat for the trading losses, DealBook reported. The lawyer said, “As the facts in this case are revealed, it will become clear that our client is innocent of any wrongdoing, and we look forward to his vindication.”

JPMorgan’s settlement with the S.E.C. and three other regulators focused less on how the securities were valued to cover up the losses and more on management’s failures in overseeing the investment office and properly responding to reports of serious problems there. The S.E.C. went so far as to require the bank to admit violations that George S. Canellos, the co-director of its enforcement division, described as “egregious breakdowns in controls and governance” that “put its millions of shareholders at risk and resulted in inaccurate public filings.”

Both the criminal charges and administrative order involve the same provision of federal law that requires a company to properly record transactions in its financial records and maintain adequate internal controls.

The S.E.C., which has also charged Mr. Martin-Artajo and Mr. Grout in a separate case, identified the failures of what it called “senior management” in reporting problems with the London Whale trading to the audit committee of the bank’s board of directors. That group included the bank’s chief executive, Jamie Dimon, along with the chief financial officer and three other executives.

Yet none was singled out in the administrative order for violations of the securities laws. Mr. Canellos stated, though, that “our investigation is continuing as to individuals.” That is a statement often heard, but whether there is any actual follow up is something rarely seen after a case against a company has been resolved.

When misconduct is described as “egregious,” it is a bit surprising that no individual is identified as being responsible. But the S.E.C.’s use of the term “senior management” shows the problem with pursuing a case against corporate executives in a large organization in which responsibility is diffuse.

Just like the Three Musketeers’ motto of “One for all and all for one,” when everyone is responsible, then it is unlikely that any one individual can be shown to have violated the law. Each has a measure of plausible deniability, and proving anyone acted with the requisite intent is difficult if no individual is willing to admit to a violation and cooperate in the case.

Overcoming the hurdle of proving intent is shown in the case against Mr. Martin-Artajo and Mr. Grout. Prosecutors have not charged a third trader, Bruno Iskil, who actually earned the “London Whale” nickname because of the huge size of his wagers in credit derivatives. They are relying on him to cooperate and prove that his co-workers knowingly masked the size of the losses.

Even though JPMorgan admitted to violations for how it dealt with the reports of improper valuations, it also could have been charged with a crime for the conduct of Mr. Martin-Artejo and Mr. Grout. Corporate criminal liability is quite broad because a company is responsible for any violations by employees when working on its behalf.

While the bank is still being investigated by the Justice Department, I think it is unlikely that charges will be filed against it unless new evidence of misconduct emerges. The typical resolution of a corporate criminal investigation these days is a deferred prosecution agreement in which a company admits to violations and pays a hefty fine. The S.E.C. and other regulators largely secured that outcome in the recent settlements so a criminal case would not add significantly to the punishment of JPMorgan, even if it had to pay a few more millions of dollars.

So what standard makes a case criminal rather than civil, or when individuals should be accused of misconduct or allowed to avoid charges? The answer is left up to the prosecutor, who decides whether there is enough evidence and the best use of available resources.

There is no realistic prospect of judicial review of a decision not to file charges. In Inmates of Attica Correctional Facility v. Rockefeller, a case arising from the Attica prison riot in 1971 in which federal prosecutors did not file civil rights charges for the death of inmates, the United States Court of Appeals for the Second Circuit found that “the manifold imponderables which enter into the prosecutor’s decision to prosecute or not to prosecute make the choice not readily amenable to judicial supervision.” That means there is no recourse if the prosecutor decides not to pursue a case, unless another office steps in and decides to file charges on its own.

The lack of transparency over a decision not to file charges benefits those who were investigated. If prosecutors had to explain why charges were not filed, such a statement could cause significant harm to a person’s reputation with no readily available means to rebut any claimed misconduct.

Yet it remains disquieting when the same actions result in criminal charges for some but only a civil case for others, and no individuals are held responsible for misconduct at a company. In the end, we are left to trust that prosecutors have made good decisions.

Sorkin on New Mexico Pharmaceutical Company’s Donation

In Sunday's nights episode of AMC's 'Breaking Bad,' Charlie Rose, portraying himself, interviewed the characters of Elliott and Gretchen Schwartz about their charity's $28 million grant for drug and treatment centers throughout the Southwest. Mr. Rose said that "Andrew Ross Sorkin of The New York Times wrote a column suggesting that the grant was a kind of publicity maneuver to shore up the stock price of Gray Matter Technologies because of your association with Walter White." Read more »

US Airways and American Extend Merger Deadline

US Airways and American Airlines have extended their merger agreement as they fight a government lawsuit seeking to block the deal.

Law Opens Financing of Start-Ups to Crowds

Monica Almeida/The New York Times

Todd DiPaola, far right, and his brother are starting a Web site, ForeFund Capital, as a platform for real estate investment. He expressed enthusiasm about the JOBS Act.

Entrepreneurs looking to the crowd to finance their big ideas just got a little extra help from the government.

On Monday, federal legislation goes into effect to allow “emerging growth” companies â€" essentially, small start-ups â€" to ask for equity investments publicly, such as through social media sites or elsewhere on the Internet, without having to register the shares for public trading. Business owners will now be able to raise up to $1 million a year this way.

The legislation is part of the 2012 “Jumpstart Our Business Start-ups Act,” or JOBS Act, meant to encourage the growth of new businesses. Entrepreneurs say it will address a central problem they face: that raising significant capital often depends on having personal connections to investors. Under prior rules, this had to be done privately until a business was ready to enter the public markets.

“How many entrepreneurs are there across the U.S., even in the Midwest, who have these great ideas but no way to tap into that capital?” said Todd Dipaola, an entrepreneur in Venice, Calif. His start-up, ForeFund Capital, is a would-be platform to let real estate entrepreneurs raise money from potential investors.

But others, including noted tech investors like Fred Wilson and Rick Webb, are less optimistic. They warn that by deregulating the raising of equity investment â€" at least in part â€" the legislation has the potential to unleash a cascade of abuses by luring investors to what may be risky and untenable business ventures. And some critics have questioned whether it will even help entrepreneurs, because if a company raises more than $500,000 it will have to produce audited financial records â€" a significant expense for a young business.

The JOBS Act has stirred up criticism for its revisions to other laws, including changes that allow hedge funds to advertise to the public for the first time. In addition, Twitter’s paradoxical post this month that it had filed secretive plans to go public was possible under the JOBS Act because the definition of the law deems Twitter, which has hundreds of employees and 200 million users, small enough to file an I.P.O. without publicly disclosing details about the business.

The original laws regulating how equity investments are raised date to the 1930s, and were put in place to “prevent the snake oil salesman from bankrupting the trusting and unassuming grandma,” said Ajay K. Agrawal, a professor of entrepreneurship at the University of Toronto. With the new measures, he said, it will be a tough challenge to make sure any boomlet of crowdfunding ventures does not result in fraud and ordinary people being cheated.

Mr. Dipaola of ForeFund, and his partner, who is his brother, Neil Dipaola, said they planned to mitigate risk by doing background checks on the people they let post on their site to check for any fraudulent or criminal histories.

The new law does include safeguards. There is the $1 million limit on how much entrepreneurs can raise each year, and they can take money only from so-called accredited investors: people with a personal net worth of more than $1 million or who make more than $200,000 in annual income.

Eventually, however, another revision is expected to be approved that will lower the restrictions around the definition of an accredited investor, meaning more of the public will have a chance of investing their own money into companies that they believe could be as big and successful as Facebook or Twitter.

Although it is not yet known when that will happen, Mr. Agrawal said it could lead to “the wild west” in crowdfunding.

Most people are familiar with the idea of crowdfunding through sites like Kickstarter and Indiegogo, which have made headlines for helping average Joes and Janes drum up attention for their ideas and raise thousands, sometimes millions, to finance them. But financing through those sites differs from what the new JOBS Act provision allows, in that the sites solicit donations, not equity investments.

Occasionally, the people who pledge money to back projects listed on these sites get a “reward,” or a tangible memento in return for their contributions. For example, people who gave $99 to support the Pebble smartwatch project on Kickstarter were promised a device fresh off the assembly line.

A version of this article appears in print on September 23, 2013, on page B1 of the New York edition with the headline: Law Opens Financing Of Start-Ups To Crowds.

Morning Agenda: BlackBerry’s Prospects Are Muddied

BLACKBERRY CO-FOUNDER IS SAID TO CONSIDER BID FOR COMPANY  |  Mike Lazaridis, the co-founder of BlackBerry who stepped down as co-chief executive last year, has contacted private equity firms about a possible bid for the troubled company, David Gelles and Michael J. de la Merced report in DealBook. He has separately approached the Blackstone Group and the Carlyle Group about making an offer, according to people familiar with the matter, who cautioned that the talks were preliminary and might not lead to any bids.

BlackBerry’s prospects were muddied further on Friday when the company announced quarterly revenue far below analysts’ expectations and said it would lay off 4,500 employees, or nearly 40 percent of its already reduced work force, Ian Austen reports in The New York Times. The company’s shares listed in the United States fell 17.1 percent, to $8.73.

“This is a recognition that they lost the handset war,” James H. Gellert, chairman and chief executive of Rapid Ratings, an investment risk evaluation firm, told The Times. “It’s certainly a waving of the big, white towel.”

Just two months ago, BlackBerry added a corporate jet to its fleet, according to The Wall Street Journal.

AT JPMORGAN, TRYING TO FOLLOW THE RULES WASN’T ENOUGH  |  Stephen M. Cutler was known as a tough and, at times, feared regulator when he was the Securities and Exchange Commission’s chief of enforcement from 2001 to 2005, calling for more corporate accountability. But times have changed, James B. Stewart writes in the Common Sense column in The New York Times. “As general counsel of JPMorgan Chase & Company, Mr. Cutler is now on the receiving end of the lectures, which last week came from George S. Canellos, a successor to Mr. Cutler and currently the co-chief of enforcement at the S.E.C.” On Thursday, the S.E.C. and other regulators announced that JPMorgan had agreed to admit wrongdoing and pay nearly $1 billion in fines over its large trading loss in London last year.

A lawyer whose company was an S.E.C. target during Mr. Cutler’s tenure said, “I have to admit to a certain amount of schadenfreude,” adding: “At the time, he did a lot of grandstanding about lawyers being gatekeepers and the moral compass for the organization and how we should have prevented all this. He sounded great on the soapbox. Now I’ve been following JPMorgan and it’s pretty ironic.”

How did JPMorgan become a piñata for government regulators, just a few years after avoiding the missteps that brought low so many other firms in the financial crisis? Joe Nocera, a columnist for The Times, suggests a few possible reasons. “On one level, JPMorgan raises the broad question of whether any of the big, sprawling, systemically important banks can truly be managed. But there are also issues that are particular to JPMorgan,” Mr. Nocera writes. “The fact that the London Whale trades were being marked differently by two areas of the bank suggests that something was seriously awry.”

ON THE AGENDA  | 
Dennis P. Lockhart, president of the Federal Reserve Bank of Atlanta, speaks at the Metropolitan Club in New York at 9:20 a.m. William C. Dudley, president of the Federal Reserve Bank of New York Fed, speaks at Fordham University’s graduate school of business at 9:30 a.m. The financier Steven L. Rattner is on CNBC at 7 a.m.

OPENING A LID COMPANIES WOULD PREFER STAY SHUT  |  “Vivendi and Activision Blizzard have been tripped up on their new deal by their old one, creating a possible “wreck,” as one participant representing Activision put it, Steven M. Davidoff writes in the Deal Professor column. Last week, “Vice Chancellor J. Travis Laster of Delaware Chancery Court ruled that the two could not complete a sale by Vivendi of most of its stake in Activision Blizzard.” Mr. Davidoff writes: “The judge halted the sale because he found that it violated a provision in Activision’s certificate of incorporation.”

“The word ‘wreck,’ which was the comment made by one of Activision’s lawyers at the hearing on this matter, was probably apt,” Mr. Davidoff continues. “The transaction was scheduled to close last week, but now the parties will have to delay closing for several months to hold a shareholder vote.” On Friday afternoon, Activision filed an appeal.

Mergers & Acquisitions »

Inter Milan Is Said to Near a Sale of a Big Stake  |  The Italian soccer club Inter Milan says it is about to sell a stake to the Indonesian businessman Erick Thohir, who also owns part of the Philadelphia 76ers and the United States soccer team D.C. United. DealBook »

Vodafone Wins Approval for Takeover of German Cable Operator  |  The approval by the European antitrust authorities was the last hurdle in Vodafone’s $10.4 billion acquisition of Kabel Deutschland. DealBook »

Hedge Fund Drops Opposition to Smithfield Deal  |  Starboard Value, the activist hedge fund that was seeking to block Smithfield Foods’ $4.7 billion sale to a Chinese meat processor, dropped its fight on Friday, saying that it could not formalize an alternative takeover bid. DealBook »

Small Ad Agencies Feed Off Merger of Big Fish  |  “The smaller fry are extolling what they consider to be the benefits of being small, like nimbleness, and the drawbacks of being big, like high overhead,” Stuart Elliott writes in the Advertising column in The New York Times. NEW YORK TIMES

Chinese Magnate to Build $8 Billion Film Park  |  The Chinese property developer Wang Jianlin, the founder of Dalian Wanda Group, unveiled a 50 billion renminbi ($8.17 billion) “motion picture city” in Qingdao, China. REUTERS

INVESTMENT BANKING »

Citigroup Said to Experience Decline in Trading Revenue  |  The Financial Times reports: “Citigroup has suffered a significant decline in trading revenues that threatens to depress its earnings, according to people familiar with conversations between investors and the bank in recent days.” FINANCIAL TIMES

Academic Study Casts Doubt on the Value of Investment Advice  |  The Financial Times writes: “Pension funds and other large investors are throwing away billions of dollars a year on worthless advice from investment consultants, according to academic research.” FINANCIAL TIMES

Buffett’s Lessons in Patriotism and Compassion  |  “I’ve been dialing for dollars,” Warren E. Buffett said at a recent event at Georgetown University, speaking about his effort to persuade other billionaires to give away the majority of their net worth. If the billionaires resist, Mr. Buffett said, he tells them: “If I’m talking to some 70-year-old, I say, ‘Do you really think your decision-making ability is going to be better when you’re 95 with some blonde on your lap, or now?’” NEW YORK TIMES

A Night for Swiss Pride, Minus Tax Talk  |  At a party at the Swiss Embassy on Wednesday night in Washington, discussion about bank secrecy took a back seat to a celebration of other Swiss pursuits, with Kübler absinthe and Davidoff cigars. DealBook »

PRIVATE EQUITY »

Dell-Led Trio to Donate Magnum Photo Archive to University of Texas  |  The collection, whose value is estimated at about $200 million, had already been in display at the school’s Harry Ransom Center. The donation will formally cede ownership of the prints to the university. DealBook »

J.C. Flowers Is Said to Consider Bid for Lloyds Unit  |  The private equity firm J.C. Flowers has approached the Lloyds Banking Group about a possible bid for the TSB business that recently split off, The Telegraph reports. TELEGRAPH

HEDGE FUNDS »

Hedge Funds Make Use of Government Information Requests  |  The Wall Street Journal reports: “Finance professionals have been pulling every lever they can these days to extract information from the government. Many have discovered that the biggest lever of all is the one available to everyone â€" the Freedom of Information Act â€" conceived by advocates of open government to shine light on how officials make decisions.” WALL STREET JOURNAL

I.P.O./OFFERINGS »

Rocket Fuel and FireEye More Than Double on First Day  |  The successful initial public offerings of Rocket Fuel, an advertising technology company, and FireEye, a cybersecurity services provider, point to a resurgence of technology I.P.O.’s by year end. DealBook »

A Coy Tweet From Twitter Starts a Debate  |  In an effective P.R. strategy, Twitter “has managed to spread the news of its initial public offering of stock without revealing much about its plans or its finances,” Jeff Sommer writes in the Strategies column in The New York Times. NEW YORK TIMES

VENTURE CAPITAL »

Under New Law, Start-Ups Can Ask for Money Publicly  |  Legislation goes into effect on Monday that allows small start-ups to ask for equity investments publicly, without having to register the shares for public trading. NEW YORK TIMES

LEGAL/REGULATORY »

Merkel Is Re-elected in Germany  |  The New York Times reports: “Chancellor Angela Merkel scored a stunning personal triumph Sunday in the national elections in Germany, becoming the only major leader to be re-elected twice since the financial crisis of 2008 and winning a strong popular endorsement for her mix of austerity and solidarity in managing troubled Europe.” NEW YORK TIMES

New York Life Suspends Chief Executive of Its Lending Unit  |  New York Life is said to have suspended Madison Capital’s chief executive, Trevor J. Clark, and another one of its senior executives, Christopher G. Williams, over violations in company policies. DealBook »

S.E.C. Charges Former Akamai Executive in Galleon Insider Trading Case  |  Federal securities regulators on Friday identified the employee inside Akamai Technologies who was the source of a tip to the hedge fund manager Raj Rajaratnam of the Galleon Group. DealBook »

A Better Comparison on C.E.O. Pay  |  The Securities and Exchange Commission is moving to require companies to publish a comparison of their chief executives’ pay to the media compensation of other company employees. But “a far more meaningful comparison for regulators is the peer groups public companies choose to use as benchmarks when setting their pay packages,” Gretchen Morgenson writes in the Fair Game column in The New York Times. NEW YORK TIMES

Differing Strategies for Confronting Economic Stress  |  The New York Times reports: “Indonesia and India, the two emerging markets hardest hit in recent weeks by falling currencies and other financial troubles, took opposite tracks on Friday as both countries struggled to balance growth with the threat of inflation.” NEW YORK TIMES