SAC Is Said To Negotiate Settlement Of Charges

Updated, 9:18 p.m. |
The hedge fund SAC Capital Advisors and federal prosecutors have begun talks to settle criminal insider trading charges against the firm, people briefed on the case said Tuesday.

Settlement discussions are at an early stage, and the two sides are far from any agreement, these people said. The government is seeking a guilty plea from SAC and a financial penalty of as much as $2 billion, they said.

The owner of SAC, the billionaire investor Steven A. Cohen, also faces a civil action filed by regulators that could result in his being barred from the securities industry. Lawyers for Mr. Cohen would probably seek to resolve both cases simultaneously.

Many expected that SAC would not be able to survive the criminal charge, which the United States attorney’s office in Manhattan brought against the firm in July. Yet SAC has withstood the indictment largely because Wall Street banks, like JPMorgan Chase and Goldman Sachs, have continued to trade with the firm and provide financing for its operations.

In trying to reach a settlement, Mr. Cohen wants to save his once-celebrated hedge fund, which has been brought low by a raft of criminal charges against former employees. Though SAC has said it has never encouraged or tolerated insider trading, it would have difficulty exonerating itself at trial, legal specialists have said.

As long as prosecutors can show that SAC traders acted “on behalf of and for the benefit of” the fund when trading illegally, then a jury is permitted to impute liability to SAC itself. Several former traders have pleaded guilty and are expected to testify against the fund.

Talks between SAC and the government will continue as two former SAC portfolio managers prepare for separate criminal trials. On Tuesday, one of those trials, the insider trading case against Mathew Martoma, was delayed for two months. In a hearing at Federal District Court in Manhattan, Judge Paul G. Gardephe postponed the start of Mr. Martoma’s trial to Jan. 6 from Nov. 4.

Richard M. Strassberg, Mr. Martoma’s lawyer, requested the extension because of a conflict with another trial. He is representing Bank of America in a trial that began on Tuesday and could last six weeks.

Federal prosecutors have charged Mr. Martoma with trading on confidential data he received from two doctors about drugs being developed by the pharmaceutical companies Elan and Wyeth. Prosecutors contend that the tips Mr. Martoma received about clinical tests allowed SAC to earn profits and avoid losses totaling $276 million.

The second trial, of the former SAC portfolio manager Michael S. Steinberg, is scheduled for Nov. 18 and no delay is expected. Prosecutors have charged him with being part of a vast insider trading ring that illegally traded the stocks of Dell and Nvidia.

Mr. Martoma and Mr. Steinberg are two of 11 former SAC employees who have been charged with or implicated in illegal trading while at the fund; five of them have admitted guilt.

SAC hoped it had resolved its troubles related to insider trading six months ago. In March, the fund agreed to pay a $616 million penalty to the S.E.C. to resolve two civil actions connected to trading by Mr. Martoma and Mr. Steinberg. Mr. Cohen’s legal team has argued that any additional financial penalty should take into account that this payment, which effectively came out of Mr. Cohen’s pocket, has already been made.

Despite agreeing to that record fine, the authorities continued to press their case. In July, Preet Bharara, the United States attorney in Manhattan, brought criminal charges against SAC, citing the many prosecutions of SAC’s former employees and calling the fund “a magnet for market cheaters.” Also that month, the S.E.C. filed its lawsuit against Mr. Cohen, accusing him of failing to reasonably supervise his employees, including Mr. Martoma and Mr. Steinberg. Mr. Cohen, 57, who has not been charged criminally, has denied the government’s accusations and said that he has acted appropriately at all times.

Though SAC has survived, the government’s cases have severely hobbled the fund, which managed about $15 billion at the beginning of the year.

Virtually all of the firm’s outside investors have asked for their money back, about $6 billion in assets. The roughly $9 billion left in the fund will be mostly Mr. Cohen’s, with a small percentage belonging to his employees.

Amid the early-stage settlement talks, which were earlier reported by Bloomberg Businessweek, a conference was held in the case on Tuesday afternoon at Federal District Court in Manhattan. Neither side gave any hint of discussions about resolving the action. Instead, Martin Klotz, a lawyer for SAC, said that it needed more time to review the enormous amount of trading records and other documents turned over by the government.

The presiding judge in the case, Laura Taylor Swain, scheduled the next status conference for Dec. 20. No trial date has been set. Earlier Tuesday, Mr. Martoma also appeared in court, with his wife and large legal team from the law firm Goodwin Procter.

In addition to postponing the trial date, Judge Gardephe froze the Florida home and other assets of Mr. Martoma. If he is convicted, the government will try to seize his home and more than $4 million in his bank accounts. The judge’s order, which was agreed to by the government and the defense, prohibits Mr. Martoma from transferring his assets while awaiting trial.

After the brief hearing, held in the old federal courthouse building on Foley Square, Mr. Strassberg hustled around the corner to the new federal courthouse building for jury selection in the Bank of America trial. That case, which is being heard before Judge Jed S. Rakoff, is a civil action brought by federal prosecutors related to the bank’s Countrywide unit, which is accused of defrauding the government’s mortgage agencies.

Meanwhile, with the flurry of legal activity downtown, Mr. Bharara, the United States attorney, was on the Upper West Side speaking at a Bloomberg investor conference. Without specifically referring to the SAC case, he discussed the importance of holding institutions â€" not just individuals â€" responsible for wrongdoing. He argued that prosecutors have been too hesitant to go after institutions in the wake of the indictment of the accounting firm Arthur Andersen, which collapsed after being criminally charged in connection to the Enron scandal.

“The pendulum has swung too far back the other way,” Mr. Bharara said. “I think we should be entering a serious era of institutional accountability, not just personal responsibility.”

JPMorgan May Settle With Group of Agencies

JPMorgan Chase, seeking to avert a wave of litigation from the government, is negotiating a multibillion-dollar settlement with state and federal agencies over the bank’s sale of troubled mortgage securities to investors in the run-up to the financial crisis.

During settlement talks this week, proposals emerged that would require JPMorgan to pay anywhere from $3 billion to about $7 billion, people briefed on the negotiations said. The settlement, the people said, might also require JPMorgan to provide some financial relief for struggling homeowners. Although the ultimate amount is still in flux, it is clear that any deal would dwarf the size of other settlements the bank has reached to resolve separate regulatory issues.

The talks, which involve the Justice Department, the Department of Housing and Urban Development and the New York attorney general’s office, continued on Tuesday without resulting in a final deal. The people briefed on the negotiations, who were not authorized to speak publicly, cautioned that terms were shifting and that the talks could fall apart.

Aside from negotiating the size of a financial fine, the people said, the talks are centered on which investigations and pending lawsuits to sweep into the potentially wide-ranging settlement. The pact could resolve investigations led by a specialized group at the Justice Department focused on mortgage securities cases. It could also include lawsuits filed by Eric T. Schneiderman, the New York attorney general, and the Federal Housing Finance Agency. The agency is focused on mortgage securities that JPMorgan sold to Fannie Mae and Freddie Mac, the government-controlled housing finance giants.

The negotiations this week appeared to delay a lawsuit from the United States attorney’s office for the Eastern District of California. The office, the people said, initially planned to sue JPMorgan as soon as Tuesday over accusations that the bank flouted federal laws with its sale of subprime mortgage securities from 2005 to 2007. It is unclear whether the Justice Department will now fold that case into a broader settlement.

The talks in the mortgage investigations reflect the depth of JPMorgan’s legal woes.

All told, the bank faces investigations from at least seven federal agencies, several state regulators and two foreign governments. In addition to the scrutiny of its crisis-era mortgage business, the investigations involve JPMorgan’s debt collection practices and its hiring of the children of Chinese officials.

As it confronts the investigations, JPMorgan faces a strategic dilemma. If it settles with the authorities, the bank must pay large sums to the government. But if it fights, the bank may anger those same authorities, prompting years of costly litigation.

Last week, JPMorgan opted for the conciliatory approach. Taking an initial step toward resolving its regulatory problems, the bank struck a $920 million settlement over a $6 billion trading loss in London last year. The cases, known as the London Whale episode for the outsize nature of the positions, resolved inquiries from four agencies: the Securities and Exchange Commission, the Office of the Comptroller of the Currency, the Federal Reserve and the Financial Conduct Authority in London.

In their orders, the regulators highlighted “severe breakdowns” in internal controls surrounding the losses. The bank, regulators said, failed to prevent a group of traders in London from amassing the risky bet. And when losses mounted, the authorities say, the traders “inflated the value” of their positions to mask their losses.

Although no executive was charged in the cases, JPMorgan took the unusual step of acknowledging that it had violated federal securities laws. The traders, who deny wrongdoing, also face both civil and criminal charges.

“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.

The bank added that “the settlements are a major step in the firm’s ongoing efforts to put these issues behind it.”

Yet the JPMorgan losses still face scrutiny from the Commodity Futures Trading Commission. The agency, which suspects that the trading was so large that it manipulated the market for financial contracts known as derivatives, was not part of last week’s settlement and is continuing to negotiate with the bank.

The wrangling over the mortgage investigation also has persisted. Negotiations have occurred in spurts, with various sums being proposed by both the government and the bank.

The New York Times on Tuesday reported the existence of the mortgage settlement talks, including one discussion in which a roughly $20 billion fine was briefly floated.

But the Department of Housing and Urban Development, which was identified in the article as having suggested that amount, said in a statement on Tuesday that “no one at this agency â€" including the secretary â€" ever floated a $20 billion settlement figure.”

The department’s statement did confirm that it was “involved in multiparty negotiations to reach a settlement.” Representatives of the agency did not return messages on Monday seeking comment.

A Call for New Laws in New York to Fight High-Tech Crime

New York State, after failing to keep pace with technological change and increasingly sophisticated economic crimes, needs to update its laws to help authorities prosecute white-collar wrongdoing, according to a report released on Tuesday by the Manhattan district attorney, Cyrus R. Vance Jr.

In the 112-page report, a white-collar crime task force made a number of proposals, including strengthening the laws against identity theft and the stealing of computer code.

New York’s penal laws have changed little since 1965, Mr. Vance said, leaving laws against electronic crimes outmoded. Mr. Vance and federal prosecutors in Manhattan have made the prosecution of corporate espionage and high-tech theft a top priority.

“The Internet has become our 21st-century crime scene,” Mr. Vance said at the Center for the Administration of Criminal Law at New York University, where he unveiled the report. “Serious computer and related crimes are not today treated according to the gravity and breadth of the harm caused.”

Mr. Vance’s office is prosecuting Sergey Aleynikov, a former programmer at Goldman Sachs accused of stealing secret code from the bank. Mr. Aleynikov, who has denied the accusations, was charged in state court less than six months after a federal appeals court overturned his conviction on federal criminal charges related to the same crime.

Also on Tuesday, Eric T. Schneiderman, the New York attorney general, discussed his office’s actions to prevent high-frequency traders from getting advance looks at potentially market-moving information.

Speaking at the Bloomberg Markets 50 Summit in New York, Mr. Schneiderman criticized the data provider Thomson Reuters for allowing customers to pay it a premium to obtain early the results of the influential University of Michigan consumer confidence survey.

Calling the practice “Insider Trading 2.0,” he said that those types of arrangements were “far more insidious than traditional insider trading.”

The New York State task force focused on more than just insider trading, examining a range of white-collar crime like fraud aimed at the elderly, tax fraud and counterfeiting. It proposed changes to enhance money laundering laws, such as criminalizing the structuring of cash transactions to avoid a reporting requirement.

Formed in October, the task force was led by the District Attorneys Association of the State of New York and co-headed by Daniel R. Alonso, the chief assistant district attorney in Manhattan.

A group of prominent white-collar criminal defense lawyers worked on the report, including David B. Anders of Wachtell Lipton Rosen & Katz, Steven M. Cohen of Zuckerman Spaeder and Karen Patton Seymour of Sullivan & Cromwell. The task force will present the recommendations to the Legislature and Gov. Andrew M. Cuomo.

“These new breeds of white-collar crime have victimized individuals, businesses, and government entities alike,” said the report. “Despite its multifarious forms, all modern white-collar crime in New York shares one feature: it costs our taxpayers dearly.”

William Alden contributed reporting.

Lax Rules Give U.S. Upper Hand in Tussle Over Alibaba I.P.O.

Never mind Twitter; the biggest initial public offering on the horizon is Alibaba.

The company, a Chinese Internet behemoth, appears to be playing a game of global regulatory arbitrage, with suggestions that it may go public in New York if it can’t get its way in Hong Kong.

A core group of 28 Alibaba executives known at the company as partners and led by Jack Ma want a corporate structure â€" as Google, Facebook and other United States companies have â€" that would allow them to keep control of the company after the I.P.O.

The Hong Kong Stock Exchange, however, doesn’t allow dual classes of stock and other types of mechanisms to preserve corporate control. Despite persistent complaints that Washington regulations hamstring companies that want to go public â€" witness the push for last year’s the Jump-Start Our Business Startups Act, or JOBS Act â€" in this case, the United States has become the place to avoid more stringent regulation.

Alibaba still wants to mimic those American technology companies and has proposed a way to circumvent the Hong Kong requirement. According to a spokesman for the Internet company, it has explored with the Hong Kong Stock Exchange “a waiver to permit a listing that allows a group of senior leaders who have formed a partnership inside the company” the right to nominate a simple majority of the board. This person also added that “all other shareholder rights remain intact, including the right to elect or reject the entire board.”

As for an I.P.O., when I asked Alibaba about the subject, the representative stated that “at this time, we have no timetable for an I.P.O., we have not hired underwriters, and we have not selected a location.”

The Hong Kong Stock Exchange has not publicly responded to Alibaba, but this clearly puts the exchange in a pickle. The Alibaba offering is expected to raise as much as $15 billion, creating a public company with a $70 billion market value. The fees for bankers and lawyers will be equally enormous. The I.P.O. will be a must-get for the exchange.

The worry is that if the exchange does not grant a waiver for Mr. Ma’s corporate structure, Alibaba will go to New York.

It’s not an idle threat. When the English soccer team Manchester United was unable to get a waiver from the Hong Kong and then the Singapore exchanges for a dual class structure, it instead went to the New York Stock Exchange.

In a memo to Alibaba’s employees a few weeks ago, Mr. Ma wrote that “we are not concerned about where to go public, but we do care that wherever we end up going public must support this type of open, innovative, responsible culture that values long-term development.”

That sounds as if Alibaba is prepared to go to New York.

As the case of Manchester United illustrated, the United States has become the place where foreign companies come when they don’t want regulation that is too onerous. This is despite the fact that the United States is still criticized as a country too litigious to list.

Over the last decade, culminating in the JOBS Act, the regulations imposed on foreign companies listing in the United States have been substantially reduced. The end result is that these companies do not need to prepare financial statements in accordance with federal accounting rules, file quarterly reports, proxy statements or make the same compensation disclosure that American companies do. In addition, structures like dual-class shares are permitted when they are barred on most other major exchanges.

Deregulation has helped the United States maintain its pre-eminence in the competition for global I.P.O.’s, but perhaps at a price. Take for example Chinese I.P.O.’s generally. The Hong Kong exchange requires companies to have three years of operating results to be judged suitable for listing. As a result, many Chinese companies in recent years came to the United States, where this requirement did not exist. This ended badly as more than a hundred Chinese companies with I.P.O.’s in the United States subsequently collapsed, some amid accusations of fraud. In at least one case, that of ChinaCast Education, the founders simply took the company’s assets when American shareholders gained control of the company’s board.

The strange twist in all this is that much of the deregulation in the United States was a consequence of a faulty assumption that this country was losing I.P.O.’s and changes were needed so we could better compete.

But the United States has always been the leader. Today, Hong Kong has only 88 foreign listings, while the United States had 806 foreign listings last year, up 8 percent from 2007, according to the World Federation of Exchanges. Britain, the closest competitor, had 576 foreign listings last year, down 17 percent from 2007.

Which brings us back to Alibaba. The company is undoubtedly seeking this structure for the same reason that other technology companies have it â€" allowing it to preserve an important founder culture.

This idea is subject to some dispute. Founder-controlled companies may indeed benefit, but some argue that it entrenches companies’ executives, preventing change to occur when it is most needed and stifling the development of future leadership. Studies have also shown that dual-class structures are more likely to benefit the controlling shareholders and that returns for these companies lag. (The New York Times, like other media companies, also has a dual-class structure).

In the case of Alibaba, the company is a complex organization with more than 20 different operating companies and a powerful executive in Mr. Ma. This may mitigate stronger transparency and minority protections for shareholders. In response, Alibaba has strongly emphasized its culture, which is modeled on other partnership cultures like Goldman Sachs. Also to be fair to Alibaba, the structure the company is proposing is not as harsh as a conventional dual-class stock, instead giving some power to shareholders to reject the election of directors, something that Facebook and others have not done.

The bigger issue is that Alibaba’s I.P.O. governance machinations raise the problem, and perhaps the promise, of globalization. You can argue about whether dual-class stock and other governance mechanisms that give control to founders and executives are good or bad, but it is clear that the threat of this competition has been ably used by Washington to water down its own regulation.

And that is now having a global effect as it pushes other countries to re-examine their standards. Again, if you think that this deregulation is a good thing and merely frees up companies, you should be happy. There are probably regulations that were an unnecessary burden.

But one could argue the flip side: that the United is pushing global listings standards down.

It may turn out that Alibaba gets what it wants from the Hong Kong Stock Exchange. Other factors â€" like Chinese government and the location of its business â€" could also push the company to stay in Hong Kong. But the battle for Alibaba’s listing shows that as more big companies go global, the exchanges are going to be increasingly played off one another over which one has the better regulation for companies.

Unfortunately, this may be a race to the bottom â€" with the United States leading the way.

New York Still Investigating Trading on Early Access

The top law enforcer in New York State is not done scrutinizing high-speed trading based on early looks at sensitive data.

Eric T. Schneiderman, New York’s attorney general, said on Tuesday that such trading - which he called “insider trading 2.0” - was still a focus of his office, which reached a settlement with Thomson Reuters over the issue in July.

In that case, Thomson Reuters had allowed a select group of high-frequency trading firms to see a closely watched index of consumer confidence two seconds before it was released to other clients. But the company agreed to end the practice after pressure from the attorney general.

That settlement covers only part of a continuing problem in the markets, Mr. Schneiderman said on Tuesday at the Bloomberg Markets 50 Summit in New York, calling the issue “far more insidious than traditional insider trading.”

“A new generation of market manipulators has emerged,” he said.

“Small but powerful groups within the market are able to use soon-to-be-public information combined with high-frequency trading to distort the markets in ways far worse than Ivan Boesky or Gordon Gekko could have imagined,” he said, referring to a convicted insider trader from the 1980s and a fictional character from the movie “Wall Street.”

It is debatable whether buying early access to market-moving information can be considered fraudulent, Peter J. Henning wrote in the White Collar Watch column in July. “Although it is natural to think that having access to information that influences the markets before others is always wrong, the laws on fraud do not go that far,” he wrote.

Still, Mr. Schneiderman used his broad powers under New York’s Martin Act to put pressure on Thomson Reuters. That antifraud law does not require proof of intentional misconduct.

At Tuesday’s conference - which was sponsored by a main rival of Thomson Reuters - Mr. Schneiderman emphasized that his inquiry into this matter was continuing. He cited concerns about the practice by investment banks of releasing analyst research to select clients.

The point of this inquiry, Mr. Schneiderman said, was to create a level playing field and restore public trust in the markets. “When blinding speed is coupled with early access to data, it gives people the power to suck value out of the markets before it even hits the Street,” he said.

Speaking to an audience of financial professionals, Mr. Schneiderman encouraged Wall Street to call his office hotline with any leads.

“I see little being done from the industry to address this clear and present danger,” he said. “I would urge you to get this on the agenda of any trade association group or at your own firm.”

Prosper Raises $25 Million in New Round, Adding BlackRock as a Backer

The business of peer-to-peer loans is drawing still more high-profile investors.

Prosper Marketplace, one of the biggest companies in the business, disclosed on Tuesday that it has raised $25 million in a new round of financing. The new investment was led by Sequoia Capital and includes BlackRock, the giant money manager, as a new backer.

It comes nine months after Prosper’s last financing round, which raised $20 million.

The latest financing reflects the continued interest from Wall Street and the venture capital community in peer-to-peer lending, in which borrowers can connect with lenders online. The most prominent player in the industry, Lending Club, recently drew in Google as an investor, in a transaction that valued Lending Club at $1.55 billion.

“The space has gotten a lot of recognition and acceptance,” Stephan Vermut, Prosper’s chief executive, told DealBook in a telephone interview. “I think there’s an appreciation of peer-to-peer lending that it is providing true value to borrowers and to lenders.”

To many investors, the attraction of such companies is that they enable an entirely new avenue of finance and threaten to shake up traditional lenders like banks.

“We’ve been intrigued by this market since 2005,” said Pat Grady, a partner at Sequoia. “At a fundamental level, it makes so much sense. There’s so much inefficiency in the traditional bank model.”

Prosper says that the majority of the loans that originated on its platform, about 65 percent, are for debt consolidation, primarily for paying off credit card debt. The bar for borrowing is fairly high: the minimum FICO credit score is about 640, though the average score is about 710. The average loan is about $10,500.

The latest financing round had long been part of Mr. Vermut’s plans to turn around Prosper, which helped create the industry in 2006 but stumbled for a number of years while Lending Club passed it in prominence. Mr. Vermut and his team joined in January with the aim of rebuilding the company over 12 to 18 months.

Part of the plan was an additional round of financing, which the management team sought to finish in the later part of the year. A person briefed on the matter said that a large number of investors pushed to get into the round, with many turned away.

“This financing was not about valuation,” Mr. Vermut said. “Our goal was to work with Sequoia and BlackRock and existing venture capital firms.”

Brian Stern, a managing director at BlackRock and a senior member of BlackRock Alternative Investors, said in an interview that the money management giant had long been interested in the business model and in the broader market of peer-to-peer lending.

Beyond its participation as an equity investor, BlackRock is likely to lend money directly to borrowers as well.

“We’re excited about investing in Prosper and see them as a leader in this emerging category,” he said.

Though Lending Club has made no secret of its plans to go public as soon as next year, Mr. Vermut said that Prosper currently isn’t thinking about following suit. Instead, it is focused on growing and adding more types of consumer loans, potentially including those for individuals who want to borrow to pay for vacations, weddings and other high-ticket uses.

Mr. Grady added that business loans would also make sense, since 10 percent of loans made on Prosper end up financing customers’ ventures.

“We’ll continue to position the company to bring on more borrowers and more lenders,” Mr. Vermut said.

M.&A. Diplomacy in Tech Deal

Applied Materials and Tokyo Electron have showcased M.&.A diplomacy in their $29 billion deal. The U.S.-based producer of semiconductor-making equipment heeded local sensitivities and ceded governance duties in the proposed acquisition of its Japanese rival. At the same time, most of the financial benefits will accrue to its own shareholders. The merger is a delicate inauguration of Abenomics-style corporate reform.

The financial and strategic rationales are clear. Microchip plants are steadily becoming larger and pricier to build and furnish, and manufacturing is increasingly dominated by a handful of specialists, leaving fewer customers for Applied Materials and Tokyo Electron. A combination should help swing pricing power back toward them. They also reckon that together they can make research and development more efficient. Tax efficiencies from incorporating in the Netherlands and $500 million of cost savings also add to the deal’s appeal.

Even so, cross-border transactions are tricky. It’s hard enough to get the so-called cultural aspects right in a domestic deal, let alone one involving two countries where the corporate ethos is so different.

Applied Materials is treading carefully. In the deal announcement, it first noted benefits to customers and employees. And while Tokyo Electron shareholders will end up with barely a one-third stake in the new company, it will appoint half the directors. Its chief executive will be chairman of the new company. What’s more, though the merged entity will be dual-listed, Applied Materials‘ chief executive, Gary Dickerson, will move to Tokyo to run the company.

Meanwhile, owners of the American company will be happy with the financial aspects and reap most of the benefits. Allowing Tokyo Electron to have a disproportionate share of governance means Applied Materials is only paying a small premium of about 6 percent to the Japanese company’s undisturbed share price, a value that is exceeded by the expected synergies.

There are additional reasons to anticipate success. Both companies are already solidly international. The two CEOs have known each other for 30 years. Mr. Dickerson can navigate his way from Akasaka to Akihabara, having been to the Land of the Rising Sun about 100 times by his tally. Ultimately, the deal seems to embody the sort of shakeup envisioned in the policies set out by Japanese Prime Minister Shinzo Abe. If other Western companies can bring themselves to negotiate so tactfully, Applied Materials may have provided a useful M.&A. blueprint.

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

Bharara Acknowledges That Budget Issues Are Straining His Office

When federal prosecutors go after a bank or a hedge fund, they often have to face off against an all-star team of high-priced lawyers. But there may come a day when the government simply cannot work its way around being outgunned, Preet Bharara, the United States attorney in Manhattan, said at a conference in New York on Tuesday.

Mr. Bharara, said that budget constraints have severely limited his ability to hire lawyers.

“I literally do not have hiring authority, as we sit here now. If I lose a prosecutor tomorrow, I don’t get to replace that person,” Mr. Bharara said at the Bloomberg Markets 50 Summit in New York.

His comments came as lawmakers in Washington are wrangling over deals to finance the federal government and to avoid a public default. If no agreement is reached on the former issue, the government might enter a shutdown after a continuing resolution expires on Sept. 30.

Like other federal agencies, the Justice Department â€" whose units include United States attorneys for various regions â€" are required to have contingency plans in case of a shutdown, as Annie Lowrey wrote this week in The New York Times.

Though Mr. Bharara on Tuesday would not comment specifically on current cases like the one against SAC Capital, he spoke in general terms about the challenges his office faces in bringing cases against deep-pocketed Wall Street firms.

“At some point, you will have a situation where, no matter how many resources we are able to bring to bear on something, it’s difficult to go up against an institution that brings armies and armies of lawyers to court,” Mr. Bharara said in the interview at the conference with Bloomberg TV’s Stephanie Ruhle.

In addition, Mr. Bharara hit on some familiar themes, like the importance of holding institutions - and not just individuals - responsible for wrongdoing. His comments on that topic echoed his rhetoric in July when announced the charges against SAC.

But he offered some historical context on Tuesday, arguing that prosecutors had been hesitant to go after institutions in the wake of the collapse of the accounting firm Arthur Andersen, which was brought low after being criminally charged in connection to the Enron scandal.

“The pendulum has swung too far back the other way,” Mr. Bharara said. “I think we should be entering a serious era of institutional accountability, not just personal responsibility.”

Earlier this year, Mr. Bharara’s boss, Attorney General Eric H. Holder Jr., suggested that some financial institutions had become so large that prosecuting them could have a negative impact on the broader economy. (He later clarified his comments, saying that he didn’t mean banks were “too big to jail.”)

Mr. Bharara on Tuesday rejected such arguments, which he characterized as “because we’re so big, to take action against us, the sky is going to fall.”

“It should not be the case,” he said, “that you have immunity from tough actions against you because you’re so large.”

When authorities do go after bad actors, it’s important to require them to admit wrongdoing, Mr. Bharara added. Not doing so, he said, is similar to allowing juvenile offenders to have their records expunged when they get older.

“Individuals have rap sheets. Institutions should also be held accountable based on their past behavior,” he said. “It’s important to have a record.”

Trial Delayed for Former SAC Executive

The insider trading trial of Mathew Martoma, the former SAC Capital Advisors portfolio manager, has been delayed by two months, a federal judge said on Tuesday.

Judge Paul Gardephe of Federal District Court in Manhattan postponed the start date of Mr. Martoma’s trial to Jan. 6 from Nov. 4.

Mr. Martoma’s lawyer, Richard Strassburg, requested the extension because of a conflict with another trial. He is representing Bank of
America in a trial that began on Tuesday and is expect to last as long as six weeks.

Federal prosecutors have charged Mr. Martoma with receiving confidential data from two doctors about drugs being developed by the pharmaceutical companies Elan and Wyeth and trading on it. Prosecutors contends that the tips Mr. Martoma received about clinical tests allowed SAC to earn profits and avoid losses totaling $276 million.

Meanwhile, the trial of another former SAC portfolio manager, Michael S. Steinberg, is scheduled for Nov. 18 and is not expected to be delayed. Eleven former SAC employees have either been charged with or implicated in illegal trading while at the fund; of those, five have admitted guilt.

In July, Preet Bharara, the United States attorney in Manhattan, brought criminal charges against SAC, calling the fund “a magnet for market cheaters.” That followed a civil action brought by the Securities and Exchange Commission against SAC’s owner, Steven A. Cohen, accusing him of failing to reasonably supervise his employees, including Mr. Martoma and Mr. Steinberg. Mr. Cohen has denied the government’s accusations and said that he has acted appropriately at all times.

Also Tuesday, Judge Gardephe froze the Florida home and other assets of Mr. Martoma. Federal prosecutors had argued that Mr. Martoma’s assets, including his home, a roughly $2 million house in Boca Raton, were fruits of his supposed crimes. If convicted, the government will attempt to seize his home and more than $4 million in his bank accounts.

The judge’s order, which was agreed to by the government and the defense, prohibits Mr. Martoma from transferring his assets while he awaits trial. He was in court on Tuesday, accompanied by his wife and a large legal team from Mr. Strasberg’s firm, Goodwin Procter.

After Judge Gardephe set the new Jan. 6 trial date, Mr. Strassburg made another request for an extension, asking to push it back another week, to Jan. 13. Given that the new date was so close to the Christmas and New Year’s holidays, Mr. Strassburg argued, it would be difficult to prepare witnesses.

Judge Gardephe said he would check his calendar to see if he could accommodate the request.

After the brief hearing, held in the old federal courthouse building on Foley Square, Mr. Strassburg hustled around the corner to the new federal courthouse building for jury selection in the Bank of America trial. That case, which is being heard before Judge Jed S. Rakoff, is a civil action brought by federal prosecutors related to its Countrywide unit and accusation that it defrauded the government’s mortgage agencies, Fannie Mae and Freddie Mac.

A Hedge Fund Manager Who Doesn’t Mind a Losing Bet

Meet Mark Spitznagel, the hedge fund manager who can take a loss.

The founder of Universa Investments, which has around $6 billion in assets under management, says the stock market is going to fall by at least 40 percent in one great market “purge.” Until then, he is paying for the option to short the market at just that point, losing money each time he does.

There is no shortage of market bears who take a grim view of the stock market. But Mr. Spitznagel has gained credibility in the investment world by predicting two market routs over the past decade, first in 2000 and then in 2008.

Still, Mr. Spitznagel’s approach is unusual approach for a money manager: To invest with him, you’ve got to believe in a philosophy that is grounded in the Austrian school of economics (which originated in early 20th century Vienna). The Austrians don’t like government to meddle with any part of the economy and when it does, they argue, market distortions abound, creating opportunities for investors who can see them.

When those distortions are present, Austrian investors will position themselves to wait out any artificial effect on the market, ready to take advantage when prices readjust.

Mr. Spitznagel began his career buying and selling bonds in the trading pit at Chicago Board of Trade in the 1980s. Everett Klipp, his boss and mentor at the time, encouraged him to take a “one-tick” loss to step out of a trade, rather than risking a 10-tick loss in hopes of a bigger profit.

“You’ve got to love to lose money, hate to make money,” was Mr. Klipp’s mantra.

In Mr. Spitznagel’s recently published book, “The Dao of Capital,” he applies this approach and his Austrian grounding to Chinese Daoist thought â€" the art of taking a circuitous path to an endpoint. Or, as Mr. Spitznagel says, “Learn to invest in loss.”

It’s a tough sell in an industry where hedge fund performance has routinely underperformed the Standard & Poor’s 500 index in recent years. (So far this month, for example, hedge funds are up 1.4 percent, trailing the 5.7 percent gain on the S&P 500.)

“I don’t claim that everyone is knocking down my door,” Mr. Spitznagel said. “It’s a niche product. It always will be, I’m sure,” Universa has had losses so far this year, although Mr. Spitznagel would not be drawn into discussing how much. According to one person familiar with firm, the funds are down around 2 percent this year.

“The only time it’s not a niche product is during or after a crash but those are very brief moments,” he said. Those moments â€" which in many people’s memories appear as financial Armageddons â€" are what Mr. Spitznagel and his 15 or so investors, including institutional and sovereign wealth funds, patiently wait for.

In the 2008 financial crisis, Universa funds rose by as much as 115 percent as the S&P 500 plummeted. But that crisis is not over, Mr. Spitznagel said, and when the Federal Reserve stops its quantitative easing program of buying Treasuries, the market will have to readjust.

He isn’t alone in this view. Stanley Druckenmiller, a former strategist for George Soros and founder of Duquesne Capital Management, recently told Bloomberg that when the Fed begins to taper its quantitative easing program, he expects the market will go down.

But Mr. Spitznagel goes further. “There needs to be a purge,” he said. “If there isn’t a purge, you don’t get the healthy growth. Capitalism is about loss and it’s about growth.”

It could be a long and career-testing wait for Mr. Spitznagel. Many of his theories come back to how the Fed acts. Since the financial crisis, it has spent over $2 trillion trying to stimulate the economy. The Fed can keep spending as long as inflation stays low, hoping eventually for a strong economic rebound.

But Mr. Spitznagel said that the central bank might find its policies stymied. Despite low interest rates, companies and individuals may grow tired of borrowing, regardless of the Fed’s actions. In that scenario, the economy would suffer and the markets tumble.

Until then, Universa’s investors will just have to patiently wait for the next Armageddon.

The Bankruptcy Question for BlackBerry

So BlackBerry has found itself a buyer.

But the $4.7 billion offer by Fairfax Financial Holdings, the Canadian insurance and investment company, to take the company private does not necessarily resolve the company’s problems. There is no guarantee that Fairfax will close the deal, and while its letter of intent includes a go-shop provision, it is unclear whether a rival suitor will surface.

Blackberry seems to have been in decline for what seems like forever, even though the product that started the erosion, the iPhone, dates only to 2007. The company announced on Friday that it expected to report a quarterly loss of nearly $1 billion and planned to lay off about 4,500 people, or 40 percent of its work force.

A new owner might be able to help. Of course, the new owner might also just want to extract maximum value on the way down. There is another option: It becomes natural to wonder whether BlackBerry might eventually seek to restructure under Chapter 11 or its Canadian counterpart, the Companies Creditors Arrangement Act, known as the C.C.A.A.

It’s a question I’m asked almost every week, but I almost always answer the same way: “no.” Or, at least, not anytime soon. The company has not given any indication that it is considering such a move, either.

The C.C.A.A. is the closest analog to Chapter 11 in Canada, but it differs in a few key respects. For one, the C.C.A.A. requires insolvency before filing. This contrasts with Chapter 11, which does not require insolvency to enter the process, although the debtor must be acting in “good faith.” As described by my Canadian colleagues, the C.C.A.A. is a bit vague about what precisely constitutes insolvency. BlackBerry’s balance sheet shows $13 billion in assets compared with $3.7 billion in liabilities. That sure doesn’t look like insolvency.

In another difference, instead of creditors’ committees, the C.C.A.A. uses a monitor, a single individual who reports to the court. A monitor falls somewhere between a trustee and an examiner in a Chapter 11 proceeding. The monitor plays a key oversight role but is not quite as intrusive as a full-blown trustee.

The challenge BlackBerry faces is downsizing its operations as it customer base shrinks. Companies that fail to adjust to current reality can quickly find themselves insolvent as they try to pay for the infrastructure of an older, grander operation with the revenue of a newly smaller business. While BlackBerry is burning shareholder value like a fire on a drought-stricken hillside, as long as the company shrinks its costs along with its size, it can avoid bankruptcy.

The real question is whether BlackBerry can pull out of a self-reinforcing cycle. If not, at some point the company will become so small it will have all the utility of the telegram system.

Stephen J. Lubben is the Harvey Washington Wiley Chair in corporate governance and business ethics at Seton Hall Law School and an expert on bankruptcy.

Telefónica Eyes Latin American Markets With Telecom Italia Stake

MADRID â€" The Spanish telecommunications giant Telefónica agreed on Tuesday to raise its stake in the struggling Telecom Italia in an attempt to gain greater control of the Italian operator’s assets in key Latin American markets.

It is the latest in a series of telecom deals in Europe as big players aim to expand their holdings.

Telefónica said it would initially increase its stake in Telco, the holding company of Telecom Italia, to 66 percent through a share issue worth 324 million euros, or $437 million. Telefónica currently has a 46 percent stake in the company.

The deal values Telecom Italia’s shares at around 1.09 euros, or almost double their current value. The Italian company’s stock rose 2.7 percent in afternoon trading in Milan on Tuesday.

The new shares do not carry any voting rights, so that Telefónica will maintain its existing voting rights in Telco at 46 percent. The move is intended to avoid making the deal a full- fledged takeover and thus to steer clear of any antitrust opposition.

From early next year, though, Telefónica said the deal calls for it progressively to buy out its partners in Telco, which include the financial giant Mediobanca and the insurance company Generali, to take full control of the holding company. The timing of when Telefónica would complete the full takeover was not disclosed.

By staggering the deal over stages, analysts said, Telefónica is also giving time for antitrust regulators in Brazil and Argentina, two Latin American markets where Telecom Italia has invested, to review the transaction.

The protracted offer could also allow Telecom Italia to divest some of its assets in Latin America, a region where it already competes with Telefónica and América Móvil.

The agreement marks the end of months of speculation surrounding which has been crippled by a large debt burden that has made it difficult for the company to invest in new infrastructure. A number of potential suitors, including the American company AT&T, had been reported to be interested in acquiring a stake in the Italian company.

The Dutch operator KPN is in discussions with América Móvil, the Latin American telecom company that is owned by the Mexican billionaire Carlos Slim Helú, in a proposed $9.7 billion takeover of the 70 percent of the Dutch company that América Móvil does not already own.

Vodafone, which has sold its stake in Verizon Wireless to its American partner Verizon Communications for $130 billion, is also looking for prospective deals, mainly in Europe.

Telefónica said on Tuesday that the agreement with Telco did not change Telefónica’s commitment to reduce its net financial debt to less than 47 billion euros by the end of the year.

Telefónica’s 50 billion euros of debt is one of the world’s largest corporate debt burdens, amassed mainly through a big investment plan and a spate of acquisitions before the financial crisis began.

The debt burden and a downturn in the company’s main markets have hit Telefónica’s earnings. The company reported a 9 percent fall in its second-quarter operating income, to 4.9 billion euros, while its revenue fell 7 percent, to 14.4 billion euros, over the same period.

Telecom Italia has its own debt â€" 29 billion euros â€" causing investors recently to fret over whether the company might be downgraded to junk status if it did not manage to pare back that burden. The weak economy in Italy, where Telecom Italia generates nearly two-thirds of its revenue, has prompted many Italian consumers to reduce their cellphone spending.

Despite its commitment to lower its debt, Telefónica has continued to pursue growth opportunities outside its domestic market in Spain, where it has been weighed down by the lengthy recession and high unemployment.

In a bid to expand its presence in Germany, Europe’s most robust economy, Telefónica recently agreed to buy the German division of KPN for around $11.5 billion.

While Telefónica has operations spread across Europe and Latin America, the Spanish market still represents a third of its operating profit, although the company lost more than 3 million domestic customers last year.

Raphael Minder reported from Madrid and Mark Scott reported from London.

More Legal Woes to Come for JPMorgan

JPMorgan Chase paid $1 billion last week to resolve a number of government investigations, but the bank’s biggest battles with federal authorities may lie ahead, Ben Protess and Jessica Silver-Greenberg report in DealBook.

JPMorgan is bracing for a lawsuit from federal prosecutors in California who suspect the bank sold shoddy mortgage securities to investors before the financial crisis, people briefed on the matter said. The case, expected as soon as Tuesday, could foreshadow more government actions. Federal prosecutors in Philadelphia are also investigating JPMorgan’s sale of mortgage securities, the people briefed on the matter said.

“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,” DealBook reports. “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 fines JPMorgan agreed to pay last week over its $6 billion trading loss in London sound like a lot of money. But that money was actually coming from shareholders â€" the same shareholders who were ostensibly the victims of the scandal that already cost them $6 billion, Andrew Ross Sorkin writes in the DealBook column.

“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.”

The case over the trading loss “presents an interesting contrast in how the government pursues corporate wrongdoing,” Peter J. Henning writes in the White Collar Watch column. While two lower-level employees of JPMorgan were formally indicted last week, the bank itself faced only civil charges and no higher level individuals were accused of violations. “The fact is that prosecutors and the police have enormous discretion over whether to bring charges against someone, with a decision not to charge a crime virtually unreviewable by the courts.”

BLACKBERRY BUYOUT OFFER RAISES QUESTIONS  | BlackBerry said on Monday that it had signed a letter of intent from a group led by Fairfax Financial Holdings, a Canadian insurance and investment company, to pay shareholders $9 a share in cash, pending a variety of conditions, to take the company private, Ian Austen and David Gelles report in DealBook. But the offer does not end the uncertainty surrounding the smartphone maker. The $4.7 billion offer from Fairfax is a powerful symbol of the decline of BlackBerry, which had a stock market value of $83 billion in 2008.

“Any deal is far from done. Fairfax did not identify the other investors in its consortium, which is seeking financing. And while the offer could flush out potential rival offers, it is unclear who might be tempted to come forward, given the company’s uncertain prospects. Investors gave a muted endorsement on Monday, with BlackBerry shares rising 1 percent, to $8.82, but failing to reach the $9 bid price,” DealBook reports.

Steven M. Davidoff was reminded of a surrealist master. “Looking at the BlackBerry announcement, I couldn’t help thinking of that René Magritte painting of a pipe with a statement in French that this is not a pipe,” he writes in the Deal Professor column. “For BlackBerry, this is not a deal, or at least not yet.”

If the deal is completed, it would be a feather in the cap of Byron D. Trott, whose firm, BDT & Company, is one of the primary advisers to Fairfax and its unnamed partners, DealBook’s Michael J. de la Merced reports. Mr. Trott, often called Warren E. Buffett’s favorite banker, struck off from Goldman Sachs over four years ago and has kept busy with a number of deals.

UNION PUSH FOR I.P.O. FORCES CHRYSLER TO FILE  | “Chrysler filed for a public stock offering on Monday, acting only under pressure from its second-largest shareholder, a trust set up to provide medical coverage for 115,000 retired autoworkers and their relatives,” Bill Vlasic reports in DealBook. “Ordinarily, Chrysler’s plan would be cause to celebrate the automaker’s comeback from its government bailout and bankruptcy in 2009. But it is acting only after negotiations stalled between Fiat, which controls Chrysler, and the trust over the purchase of the trust’s minority stake in Chrysler. The offering could be canceled if Fiat and the trust reach a deal.”

ON THE AGENDA  |  The Bloomberg Markets 50 Summit is held at the New-York Historical Society, with a number of prominent speakers. Stephen A. Schwarzman, chief executive of the Blackstone Group, is on Bloomberg TV at 10:30 a.m. James B. Lee Jr., vice chairman of JPMorgan Chase, is on Bloomberg TV at 10:30 a.m. Marc Lasry, the chief executive of Avenue Capital, is on Bloomberg TV at 11:20 a.m. Larry Ellison, the chief executive of Oracle, is on CNBC at 4:10 p.m.

FIGHTING OVER DETROIT’S CASINO-TAX DOLLARS  |  “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,” Mary Williams Walsh reports in DealBook. “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 it goes through the biggest Chapter 9 municipal bankruptcy case in American history.”

Mergers & Acquisitions »

Applied Materials and Tokyo Electron Agree to Merge  |  The agreement on Tuesday between Tokyo Electron, which makes semiconductor production equipment, and Applied Materials, a chip maker based in Santa Clara, Calif., would create a company with a $29 billion market capitalization. REUTERS

Telefonica Said to Gain More Sway Over Telecom Italia  |  Telefónica of Spain has agreed to increase its stake in Telecom Italia, an unidentified person close to the deal said, “ending months of speculation on the future of the debt-laden Italian group and opening the way to asset sales,” Reuters reports. REUTERS

Russia to Sell Stake in Maker of AK-47s to Investors  |  “A Russian government-owned conglomerate announced plans on Monday to sell to two private investors just under half of the company that makes Kalashnikov assault rifles,” The New York Times reports. NEW YORK TIMES

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. DealBook »

Ivanhoe Mines Said to Discuss Deal With Chinese Gold Company  |  The China National Gold Group Corporation, that country’s biggest gold company, has spoken with Ivanhoe Mines “about buying a stake in or assets from” Ivanhoe, The Wall Street Journal reports, citing two unidentified people familiar with the matter. WALL STREET JOURNAL

INVESTMENT BANKING »

In Latin America, Brazilian Banks Fill Void Left by Global Giants  |  As the big international investment banks pull back from Latin America, BTG Pactual and Itaú BBA are expanding there. DealBook »

Citigroup Cuts 1,000 Jobs in Mortgage Business  |  The cuts amount to about 8 percent of Citigroup’s mortgage division, Reuters reports. The bulk of the reductions are coming in Las Vegas. REUTERS

On ‘Breaking Bad,’ a Shout-Out to Sorkin  |  In Sunday night’s episode of AMC’s “Breaking Bad,” Charlie Rose, portraying himself, cites a fictional column by Andrew Ross Sorkin about a $28 million charitable donation that is made after news linking a drug company’s founders to a meth dealer. DealBook »

Breaking Bad: The Gray Matter of Charity  |  The column everyone is talking about: Elliott and Gretchen Schwartz vs. Walter White. DealBook »

PRIVATE EQUITY »

K.K.R. Said to Close In on Jones Group  |  The private equity firm K.K.R., in partnership with Sycamore Partners, is looking “to cut a deal as soon as this week to buy Jones Group, the Seventh Avenue stronghold that owns labels like Stuart Weitzman, Nine West and Anne Klein,” The New York Post reports. NEW YORK POST

Brixmor Property Aims to Raise $750 Million in I.P.O.  |  The Brixmor Property Group, an owner of shopping centers that the Blackstone Group plans to take public, says it intends to raise $750 million in an initial public offering. REUTERS

HEDGE FUNDS »

A Hedge Fund Titan’s Theory of the Economy  |  Ray Dalio, the head of the hedge fund giant Bridgewater Associates, explains his view of credit cycles in a 30-minute instructional video. BRIDGEWATER

Under Fire From Investors, CommonWealth to Change Its Ways  |  The real estate investment trust CommonWealth said on Monday that it was updating its corporate governance structure and compensation model after months of pressure from activist investors. DealBook »

I.P.O./OFFERINGS »

Chinese Conglomerate Plans $1.8 Billion Reverse Takeover in Hong Kong  |  Cofco, a sprawling, state-owned Chinese conglomerate, kicked off on Tuesday a reverse takeover bid worth $1.8 billion that would result in a Hong Kong listing for its commercial property business in mainland China. DealBook »

Moncler’s Chief Expects an I.P.O. in Italy  |  “A listing has always been my first choice,” Remo Ruffini, chief executive of the Italian luxury jacket maker Moncler, told The Wall Street Journal. “It’s just a matter of waiting for the right time to do it.” WALL STREET JOURNAL

VENTURE CAPITAL »

Twitter Signs CBS as an Advertising Partner  |  Furiously adding partners to its Amplify advertising program, Twitter announced on Monday that it had signed CBS, one of its biggest partners yet. NEW YORK TIMES BITS

LEGAL/REGULATORY »

California City Tests a Way to Cut Benefits  |  In San Jose, “the city that bills itself as the capital of Silicon Valley, the economic tidal wave that has swamped Detroit and other cities is lapping at the sea walls,” The New York Times reports. NEW YORK TIMES

Arguments Begin in a Bitter Family Brawl Over a Media Mogul’s Estate  |  Samantha Perelman is suing her uncle James Cohen, the head of the Hudson Media empire, over what she says is her rightful $700 million share in her grandfather Robert Cohen’s fortune. DealBook »

For a Better Way to Prosecute Corporations, Look Overseas  |  American prosecutors have used deferred prosecution agreements in cases of great public importance without any meaningful oversight, Brandon L. Garrett, a professor at University of Virginia School of Law, and David Zaring, an assistant professor of legal studies at the Wharton School of the University of Pennsylvania, write in the Another View column. DealBook »

Former Tribune Investors Achieve a Legal Victory  |  Reuters reports: “Investors who sold Tribune Company stock in a 2007 buyout led by developer Sam Zell won a legal battle on Monday that protects them from being sued twice over that deal, which has been blamed for the media conglomerate’s bankruptcy.” REUTERS

Riverstone Energy Plans $2.4 Billion I.P.O. in London

LONDON - Riverstone Holdings, a U.S. private equity fund, said on Tuesday it was planning an initial public offering of an energy investment company on the London Stock Exchange in late October.

The listing of the new company, to be called Riverstone Energy Ltd., will be priced to raise up to £1.5 billion, or $2.4 billion, the firm said Tuesday.

It will give Riverstone, one of the few large private equity funds that specialize in energy investments, a publicly listed vehicle and will expand its international presence. Riverstone has been largely focused on North American investments, although it does have a European wing that is headed by John Browne, the former chief executive of BP.

Among Riverstone’s investments are Cuadrilla Resources, the British shale gas company that has drawn the ire of environmentalists, and Cobalt International Energyl, a U.S.-based exploration company that has made deepwater discoveries including off Angola. Lord Browne is chairman of Cuadrilla.

Riverstone Energy Ltd. already has commitments of £550 million from cornerstone investors including Hunt Oil, an investment company of the hedge fund manager Louis Bacon, and an investment company set up by the Alaska Permanent Fund, which invests a portion of the state’s mineral royalties.

The company will make investments alongside Riverstone’s most recent, $7.7 billion private equity fund, called Global Energy and Power Fund V. The initial public offering is being marketed to British institutional investors.

Riverstone, which was founded in 2000 by two former Goldman Sachs bankers, Pierre F. Lapeyre and David M. Leuschen, has raised a total of $25 billion. According to the statement Tuesday, Riverstone investments have earned a net overall rate of return of 20 percent since its founding.

The new company’s board will be chaired by Sir Robert Wilson, a former Chairman of BG, a large British oil and gas company. Other board members will include the Riverstone founders, Lord Browne, and James Hackett, a Riverstone partner who was formerly chief excutive of Anadarko Petroleum, the U.S. independent oil company.

Both Lord Browne and Mr. Hackett have also recently joined the advisory board of L1 Energy, an energy investment fund established by Mikhail Fridman and German Khan, the former Russian partners of BP, to invest the proceeds of the sale of their share of TNK-BP, to Rosneft, the state oil company.

Riverstone Energy Plans $2.4 Billion I.P.O. in London

LONDON - Riverstone Holdings, a U.S. private equity fund, said on Tuesday it was planning an initial public offering of an energy investment company on the London Stock Exchange in late October.

The listing of the new company, to be called Riverstone Energy Ltd., will be priced to raise up to £1.5 billion, or $2.4 billion, the firm said Tuesday.

It will give Riverstone, one of the few large private equity funds that specialize in energy investments, a publicly listed vehicle and will expand its international presence. Riverstone has been largely focused on North American investments, although it does have a European wing that is headed by John Browne, the former chief executive of BP.

Among Riverstone’s investments are Cuadrilla Resources, the British shale gas company that has drawn the ire of environmentalists, and Cobalt International Energyl, a U.S.-based exploration company that has made deepwater discoveries including off Angola. Lord Browne is chairman of Cuadrilla.

Riverstone Energy Ltd. already has commitments of £550 million from cornerstone investors including Hunt Oil, an investment company of the hedge fund manager Louis Bacon, and an investment company set up by the Alaska Permanent Fund, which invests a portion of the state’s mineral royalties.

The company will make investments alongside Riverstone’s most recent, $7.7 billion private equity fund, called Global Energy and Power Fund V. The initial public offering is being marketed to British institutional investors.

Riverstone, which was founded in 2000 by two former Goldman Sachs bankers, Pierre F. Lapeyre and David M. Leuschen, has raised a total of $25 billion. According to the statement Tuesday, Riverstone investments have earned a net overall rate of return of 20 percent since its founding.

The new company’s board will be chaired by Sir Robert Wilson, a former Chairman of BG, a large British oil and gas company. Other board members will include the Riverstone founders, Lord Browne, and James Hackett, a Riverstone partner who was formerly chief excutive of Anadarko Petroleum, the U.S. independent oil company.

Both Lord Browne and Mr. Hackett have also recently joined the advisory board of L1 Energy, an energy investment fund established by Mikhail Fridman and German Khan, the former Russian partners of BP, to invest the proceeds of the sale of their share of TNK-BP, to Rosneft, the state oil company.

Applied Materials to Merge With Tokyo Electron

Applied Materials Inc. agreed on Tuesday to merge with Tokyo Electron in an all-stock deal, creating a big new manufacturer of semiconductor and display components with an expected market value of $29 billion.

Behind the merger is the continued rise of smartphones and tablets, creating feverish demand for new processors and displays.

Under the terms of the deal, shareholders of Tokyo Electron will receive 3.25 shares in the newly combined company for each of their existing shares. Investors in Applied Materials will own 1 share of the new company for each share they currently own.

That will leave Applied Materials shareholders with 68 percent of the new company.

The chief executive of Tokyo Electron, Tetsuro Higashi, will serve as chairman, while his counterpart at Applied Materials, Gary Dickerson, will hold the chief executive title. Each company will appoint five members to the new company’s board, and will mutually agree on an 11th director.

The company will begin a $3 billion stock buyback program within a year of the deal’s closing, which is expected by the second half of 2014. Both Applied Materials and Tokyo Electron expect the deal to begin adding to pro forma earnings per share by the end of the first full fiscal year after closing.

The company will take on a new name, as yet undisclosed, and will be incorporated in the Netherlands. It will maintain headquarters in Santa Clara, Calif., and Tokyo and will stay listed on both the Nasdaq stock market and the Tokyo Stock Exchange.

“For five decades, we have each made significant contributions to the semiconductor industry and we have deep respect for the capabilities that the other brings to this combination,” Mr. Dickerson and Mr. Higashi said in a statement. “We share many common values and are confident we will execute together to achieve our strategic and financial goals.”

Applied Materials received financial advice from Goldman Sachs and legal counsel from Weil, Gotshal & Manges; Mori, Hamada & Matsumoto; and De Brauw Blackstone Westbroek. Tokyo Electron was advised by Mitsubishi UFJ Morgan Stanley Securities and the law firms Jones Day and Nishimura & Asahi.