Hero or Goat? Jamie Dimon Inspires No Consensus

Jamie Dimon should be fired.

That seems to be the conclusion of some in the pundit class about JPMorgan Chase’s chairman and chief executive. Writers, editors and bloggers have made it clear that they want his scalp: “NOW Are We Allowed Talk About Firing Jamie Dimon?” the Huffington Post blared after news that the bank set aside $23 billion to pay legal fees and fines last week. “I have trouble wrapping my head around the positive aspects of paying a multibillion-dollar fine,” an article on TheStreet.com said of the prospect of an $11 billion settlement with the Justice Department.

When I called Dennis Kelleher, president of BetterMarkets, a nonprofit Wall Street watchdog (he was playing golf when I reached him), he put it this way: “By any objective measure, Jamie Dimon should be fired. The compliance failures are egregious and systemic.”

Yet there is an almost bizarre disconnect between the headlines and what the people who matter â€" the investors, analysts, board members and, yes, even regulators â€" are seeking. None of them want him fired.

“Are you crazy?” Marvin C. Schwartz, a managing director at Neuberger Berman and a longtime investor in JPMorgan, asked me when I mentioned the possibility of ousting Mr. Dimon. “Jamie Dimon is one of the best C.E.O.’s of any company in the world,” he said. “It doesn’t mean you can’t have an accident. It’s totally unfair to say he inflicted this upon himself.”

Daniel Loeb, the activist investor who has made a career out of targeting troubled companies and ousting their chief executives, also sided with Mr. Dimon. “In my experience, they are meticulously ethical, and nobody has a more rigorous compliance effort.” He added, “It’s a very large and complex company, and things will happen.” But he said that Mr. Dimon was now “being used as a scapegoat and piñata to satisfy some kind of bloodlust.”

Laban P. Jackson, the head of the audit committee of JPMorgan’s board, said at a conference last week, “He’s the best manager I’ve ever seen, and I’m old.” (Mr. Jackson is 71.) Mr. Jackson acknowledged that Mr. Dimon “has, as we all do, flaws,” but added, “People get to smoking their own dope.”

At an event earlier in the week, Mr. Jackson went so far, somewhat surprisingly, as to accept responsibility for some of the firm’s problems. “We’ve got these things that we actually are guilty of, and we’ve got to fix them,” he said. Then he blurted out, “I don’t know what else we could have done, because we’re not allowed to shoot people.”

Mr. Dimon, however, was not on his list of those to shoot.

So what is Jamie Dimon’s supposed firing offense?

JPMorgan’s legal troubles stem from a series of problems: the multibillion-dollar trading loss from what’s become known as the London Whale, the sale of flawed mortgage-backed securities without fully warning investors of the risks, accusations it manipulated energy markets in California and Michigan and a continuing inquiry into the bank’s hiring of the sons and daughters of political leaders in China.

The largest problem from the perspective of fines is the mortgage-backed securities, which could cost the bank $11 billion or more. But many problems stemmed not from bad behavior at JPMorgan but at Bear Stearns and Washington Mutual, two firms that the government encouraged JPMorgan to acquire in 2008 to help avert a market panic.

In a footnote in a document that JPMorgan released on Friday, the bank estimated that more than 80 percent of the mortgage-backed securities involved in the legal losses were from those acquisitions. Without those acquisitions, JPMorgan would probably have been looking at a fine of $2.2 billion, or perhaps less, since the government has sought an extra-large punitive penalty given the magnitude of the problems.

In an analyst report after JPMorgan’s earnings announcement, Oppenheimer wrote: “We have been asked by reporters whether this damages JPM’s reputation, and our response is, ‘No.’ ” The report went on to say that the government’s action against the bank was more damaging to the government’s reputation, adding that the lesson for Wall Street was that it’s “more trouble than it’s worth to do business” with the government.

In a letter to Mr. Dimon on March 16, 2008, the day that JPMorgan acquired Bear Stearns, the head of enforcement for the Securities and Exchange Commission wrote that while the agency couldn’t guarantee that it wouldn’t seek any penalties if it discovered bad behavior related to Bear Stearns, it would probably be lenient in its consideration of bringing a case. “Among the factors that would necessarily weigh into that analysis would be JPM’s role (or more accurately, lack of a role) in the underlying conduct, JPM’s role as acquirer of BSC, the cooperation of JPM (which you have already indicated would be forthcoming), harm to investors and others and remediation efforts,” the S.E.C. official, Linda Chatman Thomsen, wrote.

It is hard to suggest that the Justice Department, in seeking an $11 billion penalty, is following the spirit of Ms. Thomsen’s letter. (Of course, the letter came from the S.E.C., not the Justice Department.)

Of course, there remains some debate about whether Mr. Dimon was handed a gift by the government when JPMorgan Chase acquired Bear Stearns and Washington Mutual.

But Henry M. Paulson Jr., then the Treasury secretary, told me recently that he had indeed strongly encouraged Mr. Dimon to buy the companies to help the country and that Mr. Dimon had little time to conduct diligence.

Still, none of this persuades Mr. Kelleher to change his position. “The firm’s claim of great compliance is window-dressing,” he said, adding that if he were a director he would push the bank to “occasionally comply with the law, which would be an improvement.”

He dismissed the views of investors and analysts. “Stockholders are the last place you should look,” he said. “Investors are never a good barometer of whether a management is good or not.”

To which Mr. Schwartz, the investor, replied, “That’s a very foolish statement.”

Hero or Goat? Jamie Dimon Inspires No Consensus

Jamie Dimon should be fired.

That seems to be the conclusion of some in the pundit class about JPMorgan Chase’s chairman and chief executive. Writers, editors and bloggers have made it clear that they want his scalp: “NOW Are We Allowed Talk About Firing Jamie Dimon?” the Huffington Post blared after news that the bank set aside $23 billion to pay legal fees and fines last week. “I have trouble wrapping my head around the positive aspects of paying a multibillion-dollar fine,” an article on TheStreet.com said of the prospect of an $11 billion settlement with the Justice Department.

When I called Dennis Kelleher, president of BetterMarkets, a nonprofit Wall Street watchdog (he was playing golf when I reached him), he put it this way: “By any objective measure, Jamie Dimon should be fired. The compliance failures are egregious and systemic.”

Yet there is an almost bizarre disconnect between the headlines and what the people who matter â€" the investors, analysts, board members and, yes, even regulators â€" are seeking. None of them want him fired.

“Are you crazy?” Marvin C. Schwartz, a managing director at Neuberger Berman and a longtime investor in JPMorgan, asked me when I mentioned the possibility of ousting Mr. Dimon. “Jamie Dimon is one of the best C.E.O.’s of any company in the world,” he said. “It doesn’t mean you can’t have an accident. It’s totally unfair to say he inflicted this upon himself.”

Daniel Loeb, the activist investor who has made a career out of targeting troubled companies and ousting their chief executives, also sided with Mr. Dimon. “In my experience, they are meticulously ethical, and nobody has a more rigorous compliance effort.” He added, “It’s a very large and complex company, and things will happen.” But he said that Mr. Dimon was now “being used as a scapegoat and piñata to satisfy some kind of bloodlust.”

Laban P. Jackson, the head of the audit committee of JPMorgan’s board, said at a conference last week, “He’s the best manager I’ve ever seen, and I’m old.” (Mr. Jackson is 71.) Mr. Jackson acknowledged that Mr. Dimon “has, as we all do, flaws,” but added, “People get to smoking their own dope.”

At an event earlier in the week, Mr. Jackson went so far, somewhat surprisingly, as to accept responsibility for some of the firm’s problems. “We’ve got these things that we actually are guilty of, and we’ve got to fix them,” he said. Then he blurted out, “I don’t know what else we could have done, because we’re not allowed to shoot people.”

Mr. Dimon, however, was not on his list of those to shoot.

So what is Jamie Dimon’s supposed firing offense?

JPMorgan’s legal troubles stem from a series of problems: the multibillion-dollar trading loss from what’s become known as the London Whale, the sale of flawed mortgage-backed securities without fully warning investors of the risks, accusations it manipulated energy markets in California and Michigan and a continuing inquiry into the bank’s hiring of the sons and daughters of political leaders in China.

The largest problem from the perspective of fines is the mortgage-backed securities, which could cost the bank $11 billion or more. But many problems stemmed not from bad behavior at JPMorgan but at Bear Stearns and Washington Mutual, two firms that the government encouraged JPMorgan to acquire in 2008 to help avert a market panic.

In a footnote in a document that JPMorgan released on Friday, the bank estimated that more than 80 percent of the mortgage-backed securities involved in the legal losses were from those acquisitions. Without those acquisitions, JPMorgan would probably have been looking at a fine of $2.2 billion, or perhaps less, since the government has sought an extra-large punitive penalty given the magnitude of the problems.

In an analyst report after JPMorgan’s earnings announcement, Oppenheimer wrote: “We have been asked by reporters whether this damages JPM’s reputation, and our response is, ‘No.’ ” The report went on to say that the government’s action against the bank was more damaging to the government’s reputation, adding that the lesson for Wall Street was that it’s “more trouble than it’s worth to do business” with the government.

In a letter to Mr. Dimon on March 16, 2008, the day that JPMorgan acquired Bear Stearns, the head of enforcement for the Securities and Exchange Commission wrote that while the agency couldn’t guarantee that it wouldn’t seek any penalties if it discovered bad behavior related to Bear Stearns, it would probably be lenient in its consideration of bringing a case. “Among the factors that would necessarily weigh into that analysis would be JPM’s role (or more accurately, lack of a role) in the underlying conduct, JPM’s role as acquirer of BSC, the cooperation of JPM (which you have already indicated would be forthcoming), harm to investors and others and remediation efforts,” the S.E.C. official, Linda Chatman Thomsen, wrote.

It is hard to suggest that the Justice Department, in seeking an $11 billion penalty, is following the spirit of Ms. Thomsen’s letter. (Of course, the letter came from the S.E.C., not the Justice Department.)

Of course, there remains some debate about whether Mr. Dimon was handed a gift by the government when JPMorgan Chase acquired Bear Stearns and Washington Mutual.

But Henry M. Paulson Jr., then the Treasury secretary, told me recently that he had indeed strongly encouraged Mr. Dimon to buy the companies to help the country and that Mr. Dimon had little time to conduct diligence.

Still, none of this persuades Mr. Kelleher to change his position. “The firm’s claim of great compliance is window-dressing,” he said, adding that if he were a director he would push the bank to “occasionally comply with the law, which would be an improvement.”

He dismissed the views of investors and analysts. “Stockholders are the last place you should look,” he said. “Investors are never a good barometer of whether a management is good or not.”

To which Mr. Schwartz, the investor, replied, “That’s a very foolish statement.”

Buyout Firms Combing U.S. for Sky-High Sums to Invest

Private-equity funds are in a mad dash for cash.

Across the country, nearly 2,000 private-equity firms are making pitches to state retirement systems, corporate pension funds and wealthy investors in the hope of raising nearly three-quarters of a trillion dollars for their next, new funds â€" more than what was raised over the last two years combined.

The push is part of the life cycle of the private-equity industry, which raises investment pools from large institutions and others that typically last about 10 years. Buyout firms combine the money with borrowed cash to acquire companies over the first five or six years and then sell those companies or take them public â€" at a profit, if all works out â€" before the 10 years are over.

Buyout firms that last raised money during the boom era from 2006 to 2008 need to raise their next funds to maintain certain fees. Funds charge an annual management fee of 1.5 percent to 2 percent of money raised and take 20 percent of profits from their investments.

Pension systems across the country are now wading through the deluge of funds seeking fresh cash. Just last year, officials at the Massachusetts Pension Reserves Investment Management Board, which oversees $53.9 billion in assets, reviewed 179 offering memorandums, met with 85 potential new fund managers and attended 48 annual fund meetings.

Nearly all of the titans have joined in the derby for dollars, including Apollo Global Management, the Carlyle Group and Bain Capital.

For some, raising new, even bigger funds will prove extremely easy. Others, however, will walk away empty-handed or with a much smaller amount than they wanted.

“The consistent top-quartile guys, especially those who also did well in the recession, they’ll raise their money in nine months to a year,” said Lawrence Schloss, a longtime private-equity investor who oversees $145 billion in pension investments for New York City’s teachers, police, firefighters and transit workers. “Others just won’t be able to do that. If they have a plus-or-minus zero rate of return over the last seven years, well, that’s kind of a stinky fund.”

For many private-equity firms, the success of their fund-raising season will depend in large part on how their boom-era funds performed.

Those are the huge buyout funds raised during the golden age of private equity that went on a frenzied acquisition spree between 2005 and 2007. Using vast amounts of borrowed money, they bought big and small companies, often at sky-high prices. That sequence turned out to be a recipe for disaster when the financial crisis erupted in 2008.

Buyout funds that started to invest in 2006, for instance, have been among the industry’s worst performing. The median internal rate of return after fees is 8.2 percent, according to the research firm Preqin, the lowest since it started tracking buyout performance in 1980 and about half the average for the previous five years.

“If your last fund was horrible, that’s going to be a really big issue for you,” said Antoine Dréan, the founder of Triago, which raises money for private-equity firms.

Still, public and private pension funds are increasingly betting on private equity. Plagued by low yields on government bonds worldwide, pension funds and other investors are struggling to meet the long-term returns they need to provide benefits to existing and future retirees.

So they are shifting to riskier assets like private equity, commodities and real estate in the hope that they will bolster overall returns.

But pension investment chiefs are pickier than they were a few years ago during the buyout boom. That is because of the gaping performance gap between good, bad and even mediocre firms. Top-performing funds typically earn 10 percentage points more than the median.

As a result, private-equity funds that have shown steady, strong returns over the years and maneuvered well through the recession are raising new funds at breakneck speeds.

Silver Lake Partners, a technology-focused private-equity firm whose 2007 fund has earned an annual return of 15.5 percent through the end of March, raised a $10.3 billion fund â€" nearly $3 billion more than its initial target â€" in less than a year. Likewise, CVC Capital Partners, whose 2008 fund is returning 8.9 percent while an earlier 2005 fund posts annual gains of 17.4 percent, had investors practically throwing cash at it. CVC not only overshot its $12.2 billion target by $2 billion, but it raised its new fund in less than eight months.

But the comeback award has to go to Leon Black’s Apollo Global Management, whose $10 billion fund in 2006 was, at one point, being written off as its stakes in residential real estate brokerage company Realogy and the gambling company Harrah’s Entertainment (now Caesars Entertainment) were whipsawed by the economic recession. That fund has rebounded with an average annual return of about 10 percent. A 2008 fund is posting annual gains of 28 percent.

Investors, including the Oregon Investment Council, are racing to sign on to Apollo’s latest fund, which has raised $8.4 billion since just the beginning of the year.

“If you invest with the right groups â€" and we try to forge strategic relationships with firms â€" if they do what you hope they will do, when they come back to the market, you’ll re-up with them,” said Jay Fewel, the senior investment officer for the $66 billion Oregon pension fund, which has $15 billion invested in private-equity funds. The pension started investing in private equity in 1980.

But others firms are struggling in the competitive fund-raising environment. They are either taking longer to raise new funds, reducing the amount of money they are seeking and, in a handful of cases, shutting their doors when they discovered investors had closed their checkbooks.

With its 2007 European-focused fund posting returns of about 3.2 percent through the end of March, Apax Partners struggled to raise its latest fund, taking two years to raise $7.5 billion. Things were even tougher for Vestar Capital Partners, whose fifth fund, which started investing in 2005, is posting a 1.26 percent annual return. Vestar hoped to raise $2 billion for its sixth fund but ended fund-raising this spring with only $804 million.

In a statement, Vestar said while it was “highly likely” the firm could have raised more money, it chose to move forward, adding that the $804 million pool “represents ample firepower by any measure.”

The firm many say has a big question mark hovering over it is TPG, the investment group co-founded by David Bonderman.

TPG is not in the market raising a new fund, but some investors say, privately, that when it does, it may face a less friendly audience than it has in the past. Its fifth fund, a $15 billion behemoth that started investing in 2006, is flat. Its sixth fund, a $19 billion pool, had an annual return of 8.6 percent, after fees, at the end of June.

The New York City pension fund is not an investor with TPG, but Mr. Schloss, who was the former global head of CSFB private equity, said he was looking to trim and focus the numbers of private-equity funds that the pension fund invests with.

But he has run out of time. Hired by the city comptroller John Liu in 2010, Mr. Schloss was expected to leave at the end of the year when Mr. Liu leaves office. But last week, Mr. Schloss announced would step down from the pension system this week to join the investment management firm Angelo Gordon as its president in early November. “People like us â€" the big public pension funds â€" probably have too many managers anyway. You don’t need 100 managers,” he says. “You don’t want to re-up with the poor-performing managers and you want to give more money to the good guys.”

From his seventh-floor office across from City Hall, Mr. Schloss and his five-person private-equity team sift through fund documents, pore over performance reports, and meet with management teams and their outside consultants to separate the great from the mediocre.

The consistent, strong performers are an easy decision, he says. Second-quartile funds “have a shot if we were an existing investor,” Mr. Schloss said.

Can the underperformers even get a foot in the door? No, Mr. Schloss said. “We are thinly staffed and have little time to meet with bottom-quartile managers.”

Moncler Files Request to Go Public in Italy

With initial public offerings now in style, Moncler wants to stay on trend.

The cold-weather apparel maker said on Monday that it had applied to go public on the Milan Stock Exchange, becoming the latest fashion company to pursue a stock listing.

A gaggle of fashion labels have gone public in recent years, driven by investors’ desire to tap into luxury retail, a sector that has quickly rebounded since the global financial crisis. Among those that have taken to the stock markets are Michael Kors and the Italian brands Prada and Brunello Cucinelli, while Marc Jacobs stepped down from Louis Vuitton to focus on an I.P.O. for his own label.

French in origin â€" “Moncler” is a shortening of “Monastier de Clermont,” the village in Grenoble where the company was founded â€" the apparel company became famous for its line of quilted jackets. But its fortunes began to lift in 2003, when it was bought out by Remo Ruffini, an Italian entrepreneur who sought to make the brand fashionable around the world.

In recent years, Moncler has added separate collections designed by the likes of Thom Browne and Giambattista Valli to its more traditional lines.

Last year, the company took in sales of 489.2 million euros, or $663.7 million, and 161.5 million euros in earnings before interest, taxes, depreciation and amortization, or Ebitda. It currently runs 122 stores as well.

That success has drawn in other investors, including the investment firms Eurazeo and the Carlyle Group.

Goldman Sachs, Bank of America Merrill Lynch, Mediobanca are serving as global coordinators. JPMorgan Chase, Nomura and UBS will work as joint book runners and BNP Paribas, Equita SIM and HSBC will serve as lead managers.

The company has also retained Claudio Costamagna and Lazard as financial advisers and Latham & Watkins as legal counsel.

Peugeot Shares Fall on Possibility of Deal to Raise Capital

PARIS â€" Shares of PSA Peugeot Citroën tumbled on Monday as investors anticipated that the struggling French automaker was closing in on a deal to raise fresh capital that would dilute the value of its stock.

There has been speculation since early summer that Peugeot, the second-largest European automaker after Volkswagen, was seeking a tie-up with Dongfeng Motor Group, a state-owned Chinese company with which Peugeot jointly assembles vehicles in China. Expectations were heightened by a Reuters report over the weekend that said Peugeot had drafted a plan to raise 3 billion euros, or about $4.1 billion, of new capital.

According to Reuters, which did not identify its sources, Dongfeng and the French government may each inject 1.5 billion euros of capital into Peugeot in return for stakes of 20 to 30 percent each. A separate report last week from China Business News said Dongfeng was prepared to pay about $1.6 billion for 30 percent of Peugeot.

Peugeot’s stock closed 9 percent lower in Paris on Monday as investors wagered that the shares they now held would lose much of their value if diluted by the new capital. Peugeot has a market value of just under 4 billion euros. Even after the decline Monday, the shares are up 104 percent this year because of hopes for a turnaround.

“It’s no mystery that Peugeot is looking for industrial partners,” Finance Minister Pierre Moscovici told France Inter radio on Monday, adding that the company was not facing immediate financial difficulties. Asked about reports that representatives of the French government had accompanied Peugeot executives on a delegation to China to smooth the way for a deal, Mr. Moscovici replied: “We are completely invested in the fate of this company.”

Cécile Damide, a Peugeot spokeswoman, declined to comment on the latest reports. She cited a company statement Monday that said management was “examining industrial and commercial developments with different partners, including the financial implications that would result from them.”

“None of these projects has reached maturity yet,” she added.

Peugeot has been hurt by its heavy reliance on the European market, where sales shrank 5.2 percent in the first eight months of 2013 from the same period last year, reaching the lowest level in decades. The company has been cutting jobs and reducing capacity in Europe to slow its cash burn, but analysts say it needs to grow outside of its home market if it is to achieve the kind of scale it needs to flourish.

If the capital tie-up is realized, Dongfeng, one of China’s largest automakers, would gain access to Peugeot’s technology and European distribution network. The Chinese company has said that it is studying a possible investment in its French partner.

Peugeot directors are to discuss the company’s finances at a board meeting on Oct. 22, a day before the company releases its third-quarter financial results. But building a new shareholding and management structure would be a complex task. A deal of the magnitude that appears to be under discussion would require the Peugeot family, which holds just over 25 percent of the automaker’s shares and about 38 percent of the voting rights, to give up control of the company.

Such a deal would also require the acquiescence of General Motors. The American automaker became Peugeot’s second-largest shareholder in February 2012, paying about 1 billion euros for a 7 percent stake. The two companies have agreed to cooperate on a number of projects intended to cut their costs in Europe. G.M., which is restructuring its own unprofitable European operations, has said it has no interest in increasing its investment in Peugeot.

The involvement of the French government might also raise complications. The state does not own a stake in Peugeot, but it gained a big say in the company’s management last year when it agreed to provide the automaker’s consumer finance unit with 7 billion euros in credit guarantees and appointed Louis Gallois, the former chief executive of European Aeronautic Defense and Space, to a seat on Peugeot’s board.

Bernard Jullien, director of Gerpisa, an automobile research network, said that another concern was that the size of the investment from Dongfeng that has been suggested might not be enough to get Peugeot out of its troubles, because it was roughly equivalent to the amount of cash the French company was expected to burn through this year.

“It’s enough money to remain in place,” he said, adding that a tie-up with Dongfeng might eventually pay off for Peugeot in the form of entry into emerging markets like Malaysia and Indonesia. “But it’s not enough to help it compete with Volkswagen and the others in Europe.”

“I don’t think they have a strategy,” he said of the French company. “What they have is a lot of problems that need to be solved quickly. Then they’ll come up with a strategy.”

Implications for Banks as Madoff Litigation Grinds On

It has been nearly five years since the Ponzi scheme perpetrated by Bernard L. Madoff came to light, and litigation surrounding the case grinds on.

The trustee seeking to recover funds for defrauded investors, Irving H. Picard, asked the Supreme Court to overturn a lower court decision barring him from pursuing banks for their role in helping perpetuate the fraud.

Meanwhile, the prosecution of five former employees of Mr. Madoff’s firm began last week. The criminal trial is likely to expose more tidbits about the operation of the long-running fraud, including lurid details about sexual liaisons among staff members involving perhaps even Mr. Madoff himself. Yet, despite the titillating aspects of the case, it is really more of a footnote to his scheme.

The more important case concerns Mr. Picard’s efforts to recover funds from a number of banks, including JPMorgan Chase, UBS, HSBC and UniCredit. He accused them of aiding in the Madoff scheme by ignoring warning signs about the fraud that allowed it to grow. As time went on, the scheme cost investors about $17 billion, and wiped out billions more, as they were led to believe the money was safely in their accounts.

The trustee’s claim against JPMorgan alone seeks nearly $19 billion, so recovering even a portion of that amount could add significantly to the $9 billion Mr. Picard has already gathered to compensate investors.

As is frequently the case, the issue is not about the banks’ role in the fraud - at least not yet. Rather, it focuses on whether certain arcane legal doctrines will permit the lawsuits to move forward. The banks have been successful in obtaining dismissals of the complaints on the ground that Mr. Picard does not have the authority to pursue claims on behalf of the defrauded investors.

The initial problem Mr. Picard faced is a doctrine called “in pari delicto,” or mutual fault, which prevents a firm from suing others for their role in its own misconduct. The New York Court of Appeals, the state’s highest court, explained in a 2010 decision involving the failed futures firm Refco that this “principle has been wrought in the inmost texture of our common law for at least two centuries.”

As the trustee for Mr. Madoff’s failed securities firm, Mr. Picard took over its claims - in a sense, “stepping into the shoes” of the entity. That also means any defenses that could be asserted against Mr. Madoff also apply, so his wrongdoing is attributed to Mr. Picard for the purpose of deciding any claim. The in pari delicto rule is usually invoked on the ground that a court will not decide a dispute between two thieves about who gets the loot.

The United States Court of Appeals for the Second Circuit leaned heavily on this doctrine in upholding the dismissal of Mr. Picard’s claims against the banks because the losses were equally attributable to Mr. Madoff. It found that the trustee’s legal arguments to avoid the impact of the rule “are resourceful, but they all miss the mark.”

In his petition to the Supreme Court to review the federal appeals court’s decision, Mr. Picard tries to step out of Mr. Madoff’s shoes and into those of the investors who can pursue claims against the banks for their role in the Ponzi scheme. He relies primarily on another legal principle called “subrogation,” which allows one party to take over the claims of another. This is used most often in the insurance area, where the insurer pays off the policy holder and then seeks compensation from anyone who caused the harm.

Mr. Picard argues that a provision of the law under which he was appointed, the Securities Investor Protection Act, gives him the authority to pursue the investor claims. The statute provides that if payments are made to customers of a failed securities firm by the Securities Investor Protection Corporation, then “in addition to all other rights it may have at law or in equity, [the trustee] shall be subrogated to the claims of such customers.”

According to the petition made to the Supreme Court, the appellate court misinterpreted the law by reading it too narrowly to prevent him from suing the banks. He argues that if the lower court’s position is not overturned, then “when third parties collaborate with a broker to defraud its customers - something that is inevitable given a Ponzi scheme’s unquenchable thirst for more investors and more money - there will never be enough funds available to compensate investors’ losses.”

Trying to figure out whether the Supreme Court will decide to review a case is almost always a guessing game. The court reviews a very small number of cases out of the thousands of petitions it receives, so the odds are against Mr. Picard’s case being considered.

Mr. Picard’s brief identifies conflicting decisions by other federal courts about whether a trustee can be subrogated to the claims of investors, which is one ground for the Supreme Court to step in to reconcile differing legal interpretations. But the issues in the case are narrow, so while the dollar figure from Mr. Madoff’s fraud is significant, the legal issues may not come up with enough regularity to necessitate further review.

One indicator of potential interest in the case is whether the Supreme Court seeks out the views of the Securities and Exchange Commission on the issues. The S.E.C. has oversight responsibility of the Securities Investor Protection Corporation, and its views could carry some weight if it agrees with Mr. Picard that the federal appeals court misinterpreted the law.

The banking industry is sure to line up against further review, and will argue vehemently on behalf of the appellate court’s decision that the case should not proceed further. If Mr. Picard is successful in being able to sue the banks, the potential liability of financial firms could be enormous because to succeed, every Ponzi scheme needs a bank account and other accouterments of financial legitimacy.

The banks have been successful so far in blocking lawsuits seeking to hold them responsible for the extensive losses Mr. Madoff inflicted on his investors. If Mr. Picard is able to switch to a new pair of shoes and pursue them, there is a good chance that he can obtain additional settlements on behalf of investors.

SAC’s Cohen Selling Art

As his legal troubles have deepened, the hedge fund billionaire Steven A. Cohen has sold stocks to meet withdrawal requests from investors. Now Mr. Cohen, the owner of SAC Capital Advisors, is also selling significant works of art from his celebrated collection, Peter Lattman and Carol Vogel report in DealBook.

He has put two major paintings by Andy Warhol and an abstract canvas by Gerhard Richter up for sale, according to art experts familiar with his holdings. Sotheby’s will auction the works at next month’s contemporary art auction in New York, DealBook reports. The two Warhols, both painted in 1963, are “Liz #1 (early Colored Liz),” an image of Elizabeth Taylor expected to sell for $20 million to $30 million, and “5 Deaths on Turquoise (Turquoise Disaster),” thought to bring in $7 million to $10 million. “People familiar with Mr. Cohen’s collection said that these paintings were part of a larger group of his works being put up for auction.”

WORLD LEADERS PRESS U.S. ON FISCAL CRISIS  | Leaders at World Bank and International Monetary Fund meetings on Sunday said the United States must raise its debt ceiling and reopen its government or risk “massive disruption the world over,” as Christine Lagarde, the fund’s managing director, put it. The government’s fiscal problems overshadowed the official agendas for the meetings, Annie Lowrey and Nathaniel Popper report in The New York Times. Though the leaders came to Washington to talk about the international recovery, “they found out that the debt ceiling was the issue,” Ms. Lagarde said in an interview on the NBC News program “Meet the Press.”

With only three days remaining before the United States might be unable to pay its bills, Senate Democratic leaders â€" believing they have a political advantage â€" refused on Sunday to sign on to any deal that reopens the government but locks in budget cuts for next year, Jonathan Weisman reports in The Times. “The core of the dispute is about spending, and how long a stopgap measure that would reopen the government should last. Democrats want the across-the-board cuts known as sequestration to last only through mid-November; Republicans want them to last as long as possible.”

JPMORGAN’S LOSS IS LAW FIRMS’ GAIN  | The announcement by JPMorgan Chase on Friday that it had set aside $9.2 billion to cover its mounting legal expenses â€" leading it to report its first quarterly loss under Jamie Dimon â€" underscored how the bank’s legal woes are proving to be a boon for the country’s most sophisticated law firms, Jessica Silver-Greenberg and Peter Lattman report in DealBook. Mr. Dimon, the chief executive, described the legal expenses on Friday as “painful,” but that pain is profit for law firms like Sullivan & Cromwell; Paul, Weiss, Rifkind, Wharton & Garrison; and WilmerHale.

“Even as defense lawyers publicly complain that government regulators are being too aggressive, they privately celebrate the windfall. Law firms in New York and Washington are collectively earning many hundreds of millions of dollars representing JPMorgan in cases ranging from weak controls against money laundering to commodities trading, according to interviews with senior partners at several of top firms,” DealBook writes.

ON THE AGENDA  |  The bond market is closed for Columbus Day. Richard Kovacevich, a former chief of Wells Fargo, is on CNBC at 5 p.m.

3 WIN NOBEL IN ECONOMICS  |  Eugene F. Fama and Lars Peter Hansen, both of the University of Chicago, and Robert J. Shiller of Yale are the recipients of this year’s Nobel in economic science “for their empirical analysis of asset prices,” the Royal Swedish Academy of Sciences announced on Monday. The three have done work in forecasting the prices of assets over periods of several years, but they have come to very different conclusions. “No one saw these guys sharing a prize,” the economist Justin Wolfers said on Twitter.

DE BLASIO MEETS WARY WALL ST.  | Bill de Blasio, the populist insurgent and sudden mayoral front-runner, recently was courting an unlikely constituency: New York City’s plutocratic class, Michael M. Grynbaum and Susanne Craig report in The New York Times. Before an audience of moguls and financiers rattled by his anticorporate rhetoric, Mr. de Blasio, a left-leaning Democrat, tried to reassure them that he was not plotting to go to war with them.

“Wall Street is our hometown industry,” Mr. de Blasio told the group, according to several attendees at the lunch in the glassy headquarters of Viacom near Times Square. The executives, who included Lloyd C. Blankfein, the chief executive of Goldman Sachs, told friends later that Mr. de Blasio’s remarks were somewhat reassuring. But the talk did not erase all their worries, The Times writes.

Mergers & Acquisitions »

Booker’s Start-Up Is Sold  |  Waywire, the video start-up associated with Newark’s mayor, Cory Booker, is being sold to Magnify, a Web video distributor, AllThingsD reports. ALLTHINGSD

Facebook Buys Israeli Mobile Analytics Start-Up  |  Facebook said it had bought Onavo, a start-up based in Tel Aviv, with plans to turn the company’s headquarters into Facebook’s new Israeli office, AllThingsD reports. ALLTHINGSD

TD Bank Said to Consider Bid for R.B.S. Unit  |  Canada’s Toronto-Dominion Bank is considering a bid worth about $12.8 billion for the American retail banking business of the Royal Bank of Scotland, The Sunday Times reported, according to Reuters. REUTERS

Huawei of China Said to Rule Out Big Deals  |  Huawei, a giant maker of telecommunications equipment, is not planning any big takeovers because of the difficulty of integrating them with the company, a deputy chairman, Guo Ping, was quoted as saying in a German paper, according to Reuters. REUTERS

Philadelphia Newspaper’s Owners Feuding  |  At The Philadelphia Inquirer, “the promise of an ownership group with deep pockets and an agenda driven by civic purpose collapsed in an unsightly heap last week,” David Carr writes in the Media Equation column in The New York Times. NEW YORK TIMES

Activision Closes Deal for Most of Vivendi’s Stake  |  A day after the Delaware Supreme Court struck down an injunction, the video game maker Activision Blizzard completed an $8.2 billion transaction with Vivendi. DealBook »

In a Bid for Men’s Wearhouse, a Merger Battle With Modern Strategies  |  While Men’s Wearhouse is currently saying no to a merger with Jos. A. Bank, it may soon find itself pressured by the new shareholder forces in our capital markets, Steven M. Davidoff writes in the Deal Professor column. DealBook »

INVESTMENT BANKING »

Weak Bank Revenues Show the Tough Road Back for the Economy  |  Low interest rates are crimping a major source of bank profits. But higher rates are not necessarily the answer either â€" for the banks or the economy. DealBook »

Wells Fargo Quarterly Earnings Jump 13%  |  The nation’s largest home lender reported record profit on Friday even as a slowdown in the mortgage market muted the bank’s growth. DealBook »

At Citi, Pandit Is Gone but Is Still Serving the Bank’s Shareholders  |  Michael L. Corbat has accelerated some cost cuts and clarified strategy around the edges, but the bank’s broad direction was already in place and is serving shareholders well, Rob Cox and Antony Currie of Reuters Breakingviews write. REUTERS BREAKINGVIEWS

As Deals Disappoint, Banks in Asia Advertise Other Businesses  |  “As investment banking in Asia suffers its worst year since 2009, instead of proclaiming their work on the latest I.P.O. or merger deal, banks are touting their success in grind-it-out businesses like cash management and cross-border transactions,” The Wall Street Journal reports. WALL STREET JOURNAL

Why C.E.O. Compensation Keeps Rising  |  “Relying on peer-group comparisons, the way boards do, mathematically guarantees that pay is going to go up,” Charles Elson, a corporate governance expert, told The New Yorker’s James Surowiecki. “Higher pay becomes a kind of self-fulfilling prophecy.” NEW YORKER

Activity Does Not Always Equal Productivity  |  True productivity means finding the right balance between taking care of what is truly urgent and focusing on what is less pressing but will most likely add the most enduring value, Tony Schwartz writes in the Life@Work column. DealBook »

PRIVATE EQUITY »

Private Equity’s Taste for Frozen Yogurt  |  Private equity firms have invested heavily in frozen yogurt chains since 2007, contributing to the industry’s growth across the country, CNBC reports. CNBC

HEDGE FUNDS »

Hedge Fund Ads? Not So Fast  |  “Hedge funds and private equity groups have not flocked to market their businesses to wealthy individuals, despite the lifting of a longtime ban on advertising to US investors,” The Financial Times reports. FINANCIAL TIMES

I.P.O./OFFERINGS »

Twitter Said to Arrange $1 Billion Credit Line  |  Twitter, as it prepare to go public, is “nearing completion of a $1 billion credit line from its bankers that it can use to help finance its growth,” The Wall Street Journal reports. The company is said to be paying its bankers fees of 3.25 percent, “the lowest percentage paid on a U.S.-listed I.P.O. in more than a year.” WALL STREET JOURNAL

Royal Mail Shares Surge in Debut  |  A 38 percent increase reignites criticism that the government sold a majority of Britain’s main postal service too cheaply. DealBook »

Strong Demand for Royal Mail Stock May Not Translate to Lloyds Shares  |  The Lloyds Banking Group may be tempted to focus its next share sale on retail customers after strong demand for the postal service’s shares. But the differences between the two offerings warrant a different approach, George Hay of Reuters Breakingviews writes. REUTERS BREAKINGVIEWS

Europe’s I.P.O. Market Looks Attractive to Investors  |  “These days, investors seeking the boldest menu of initial public offerings need a taste for the Old World,” The Wall Street Journal’s Heard on the Street column writes. WALL STREET JOURNAL

VENTURE CAPITAL »

Twitter Co-Founder Plots His Next Move  |  Jack Dorsey, a co-founder of Twitter and the chief executive of Square, tells The New Yorker: “Twitter is about moving words. Square is about moving money.” NEW YORKER

LEGAL/REGULATORY »

When the Doctor Prescribes Credit  |  “In dentists’ and doctors’ offices, hearing aid centers and pain clinics, American health care is forging a lucrative alliance with American finance,” Jessica Silver-Greenberg reports in The New York Times. “A growing number of health care professionals are urging patients to pay for treatment not covered by their insurance plans with credit cards and lines of credit that can be arranged quickly in the provider’s office.” NEW YORK TIMES

Are Competing Bankruptcy Plans a Good Thing?  |  As LightSquared’s creditors get prepared to consider which of four reorganization plans to vote for, it bears noting how much Chapter 11 has been changed by the 2005 amendments to the bankruptcy code, Stephen J. Lubben writes in the In Debt column. DealBook »

Yellen on Gender  |  Janet L. Yellen, President Obama’s choice to lead the Federal Reserve, has occasionally been asked about being a female economist in a male-dominated field. NEW YORK TIMES

In Ailing Detroit, Prosperity for Sports Teams  |  “Detroit’s glittering sports teams operate in a different economy than does the rest of the city,” The New York Times writes. NEW YORK TIMES

SAC’s Cohen Selling Art

As his legal troubles have deepened, the hedge fund billionaire Steven A. Cohen has sold stocks to meet withdrawal requests from investors. Now Mr. Cohen, the owner of SAC Capital Advisors, is also selling significant works of art from his celebrated collection, Peter Lattman and Carol Vogel report in DealBook.

He has put two major paintings by Andy Warhol and an abstract canvas by Gerhard Richter up for sale, according to art experts familiar with his holdings. Sotheby’s will auction the works at next month’s contemporary art auction in New York, DealBook reports. The two Warhols, both painted in 1963, are “Liz #1 (early Colored Liz),” an image of Elizabeth Taylor expected to sell for $20 million to $30 million, and “5 Deaths on Turquoise (Turquoise Disaster),” thought to bring in $7 million to $10 million. “People familiar with Mr. Cohen’s collection said that these paintings were part of a larger group of his works being put up for auction.”

WORLD LEADERS PRESS U.S. ON FISCAL CRISIS  | Leaders at World Bank and International Monetary Fund meetings on Sunday said the United States must raise its debt ceiling and reopen its government or risk “massive disruption the world over,” as Christine Lagarde, the fund’s managing director, put it. The government’s fiscal problems overshadowed the official agendas for the meetings, Annie Lowrey and Nathaniel Popper report in The New York Times. Though the leaders came to Washington to talk about the international recovery, “they found out that the debt ceiling was the issue,” Ms. Lagarde said in an interview on the NBC News program “Meet the Press.”

With only three days remaining before the United States might be unable to pay its bills, Senate Democratic leaders â€" believing they have a political advantage â€" refused on Sunday to sign on to any deal that reopens the government but locks in budget cuts for next year, Jonathan Weisman reports in The Times. “The core of the dispute is about spending, and how long a stopgap measure that would reopen the government should last. Democrats want the across-the-board cuts known as sequestration to last only through mid-November; Republicans want them to last as long as possible.”

JPMORGAN’S LOSS IS LAW FIRMS’ GAIN  | The announcement by JPMorgan Chase on Friday that it had set aside $9.2 billion to cover its mounting legal expenses â€" leading it to report its first quarterly loss under Jamie Dimon â€" underscored how the bank’s legal woes are proving to be a boon for the country’s most sophisticated law firms, Jessica Silver-Greenberg and Peter Lattman report in DealBook. Mr. Dimon, the chief executive, described the legal expenses on Friday as “painful,” but that pain is profit for law firms like Sullivan & Cromwell; Paul, Weiss, Rifkind, Wharton & Garrison; and WilmerHale.

“Even as defense lawyers publicly complain that government regulators are being too aggressive, they privately celebrate the windfall. Law firms in New York and Washington are collectively earning many hundreds of millions of dollars representing JPMorgan in cases ranging from weak controls against money laundering to commodities trading, according to interviews with senior partners at several of top firms,” DealBook writes.

ON THE AGENDA  |  The bond market is closed for Columbus Day. Richard Kovacevich, a former chief of Wells Fargo, is on CNBC at 5 p.m.

3 WIN NOBEL IN ECONOMICS  |  Eugene F. Fama and Lars Peter Hansen, both of the University of Chicago, and Robert J. Shiller of Yale are the recipients of this year’s Nobel in economic science “for their empirical analysis of asset prices,” the Royal Swedish Academy of Sciences announced on Monday. The three have done work in forecasting the prices of assets over periods of several years, but they have come to very different conclusions. “No one saw these guys sharing a prize,” the economist Justin Wolfers said on Twitter.

DE BLASIO MEETS WARY WALL ST.  | Bill de Blasio, the populist insurgent and sudden mayoral front-runner, recently was courting an unlikely constituency: New York City’s plutocratic class, Michael M. Grynbaum and Susanne Craig report in The New York Times. Before an audience of moguls and financiers rattled by his anticorporate rhetoric, Mr. de Blasio, a left-leaning Democrat, tried to reassure them that he was not plotting to go to war with them.

“Wall Street is our hometown industry,” Mr. de Blasio told the group, according to several attendees at the lunch in the glassy headquarters of Viacom near Times Square. The executives, who included Lloyd C. Blankfein, the chief executive of Goldman Sachs, told friends later that Mr. de Blasio’s remarks were somewhat reassuring. But the talk did not erase all their worries, The Times writes.

Mergers & Acquisitions »

Booker’s Start-Up Is Sold  |  Waywire, the video start-up associated with Newark’s mayor, Cory Booker, is being sold to Magnify, a Web video distributor, AllThingsD reports. ALLTHINGSD

Facebook Buys Israeli Mobile Analytics Start-Up  |  Facebook said it had bought Onavo, a start-up based in Tel Aviv, with plans to turn the company’s headquarters into Facebook’s new Israeli office, AllThingsD reports. ALLTHINGSD

TD Bank Said to Consider Bid for R.B.S. Unit  |  Canada’s Toronto-Dominion Bank is considering a bid worth about $12.8 billion for the American retail banking business of the Royal Bank of Scotland, The Sunday Times reported, according to Reuters. REUTERS

Huawei of China Said to Rule Out Big Deals  |  Huawei, a giant maker of telecommunications equipment, is not planning any big takeovers because of the difficulty of integrating them with the company, a deputy chairman, Guo Ping, was quoted as saying in a German paper, according to Reuters. REUTERS

Philadelphia Newspaper’s Owners Feuding  |  At The Philadelphia Inquirer, “the promise of an ownership group with deep pockets and an agenda driven by civic purpose collapsed in an unsightly heap last week,” David Carr writes in the Media Equation column in The New York Times. NEW YORK TIMES

Activision Closes Deal for Most of Vivendi’s Stake  |  A day after the Delaware Supreme Court struck down an injunction, the video game maker Activision Blizzard completed an $8.2 billion transaction with Vivendi. DealBook »

In a Bid for Men’s Wearhouse, a Merger Battle With Modern Strategies  |  While Men’s Wearhouse is currently saying no to a merger with Jos. A. Bank, it may soon find itself pressured by the new shareholder forces in our capital markets, Steven M. Davidoff writes in the Deal Professor column. DealBook »

INVESTMENT BANKING »

Weak Bank Revenues Show the Tough Road Back for the Economy  |  Low interest rates are crimping a major source of bank profits. But higher rates are not necessarily the answer either â€" for the banks or the economy. DealBook »

Wells Fargo Quarterly Earnings Jump 13%  |  The nation’s largest home lender reported record profit on Friday even as a slowdown in the mortgage market muted the bank’s growth. DealBook »

At Citi, Pandit Is Gone but Is Still Serving the Bank’s Shareholders  |  Michael L. Corbat has accelerated some cost cuts and clarified strategy around the edges, but the bank’s broad direction was already in place and is serving shareholders well, Rob Cox and Antony Currie of Reuters Breakingviews write. REUTERS BREAKINGVIEWS

As Deals Disappoint, Banks in Asia Advertise Other Businesses  |  “As investment banking in Asia suffers its worst year since 2009, instead of proclaiming their work on the latest I.P.O. or merger deal, banks are touting their success in grind-it-out businesses like cash management and cross-border transactions,” The Wall Street Journal reports. WALL STREET JOURNAL

Why C.E.O. Compensation Keeps Rising  |  “Relying on peer-group comparisons, the way boards do, mathematically guarantees that pay is going to go up,” Charles Elson, a corporate governance expert, told The New Yorker’s James Surowiecki. “Higher pay becomes a kind of self-fulfilling prophecy.” NEW YORKER

Activity Does Not Always Equal Productivity  |  True productivity means finding the right balance between taking care of what is truly urgent and focusing on what is less pressing but will most likely add the most enduring value, Tony Schwartz writes in the Life@Work column. DealBook »

PRIVATE EQUITY »

Private Equity’s Taste for Frozen Yogurt  |  Private equity firms have invested heavily in frozen yogurt chains since 2007, contributing to the industry’s growth across the country, CNBC reports. CNBC

HEDGE FUNDS »

Hedge Fund Ads? Not So Fast  |  “Hedge funds and private equity groups have not flocked to market their businesses to wealthy individuals, despite the lifting of a longtime ban on advertising to US investors,” The Financial Times reports. FINANCIAL TIMES

I.P.O./OFFERINGS »

Twitter Said to Arrange $1 Billion Credit Line  |  Twitter, as it prepare to go public, is “nearing completion of a $1 billion credit line from its bankers that it can use to help finance its growth,” The Wall Street Journal reports. The company is said to be paying its bankers fees of 3.25 percent, “the lowest percentage paid on a U.S.-listed I.P.O. in more than a year.” WALL STREET JOURNAL

Royal Mail Shares Surge in Debut  |  A 38 percent increase reignites criticism that the government sold a majority of Britain’s main postal service too cheaply. DealBook »

Strong Demand for Royal Mail Stock May Not Translate to Lloyds Shares  |  The Lloyds Banking Group may be tempted to focus its next share sale on retail customers after strong demand for the postal service’s shares. But the differences between the two offerings warrant a different approach, George Hay of Reuters Breakingviews writes. REUTERS BREAKINGVIEWS

Europe’s I.P.O. Market Looks Attractive to Investors  |  “These days, investors seeking the boldest menu of initial public offerings need a taste for the Old World,” The Wall Street Journal’s Heard on the Street column writes. WALL STREET JOURNAL

VENTURE CAPITAL »

Twitter Co-Founder Plots His Next Move  |  Jack Dorsey, a co-founder of Twitter and the chief executive of Square, tells The New Yorker: “Twitter is about moving words. Square is about moving money.” NEW YORKER

LEGAL/REGULATORY »

When the Doctor Prescribes Credit  |  “In dentists’ and doctors’ offices, hearing aid centers and pain clinics, American health care is forging a lucrative alliance with American finance,” Jessica Silver-Greenberg reports in The New York Times. “A growing number of health care professionals are urging patients to pay for treatment not covered by their insurance plans with credit cards and lines of credit that can be arranged quickly in the provider’s office.” NEW YORK TIMES

Are Competing Bankruptcy Plans a Good Thing?  |  As LightSquared’s creditors get prepared to consider which of four reorganization plans to vote for, it bears noting how much Chapter 11 has been changed by the 2005 amendments to the bankruptcy code, Stephen J. Lubben writes in the In Debt column. DealBook »

Yellen on Gender  |  Janet L. Yellen, President Obama’s choice to lead the Federal Reserve, has occasionally been asked about being a female economist in a male-dominated field. NEW YORK TIMES

In Ailing Detroit, Prosperity for Sports Teams  |  “Detroit’s glittering sports teams operate in a different economy than does the rest of the city,” The New York Times writes. NEW YORK TIMES

Implications for Banks as Madoff Litigation Grinds On

It has been nearly five years since the Ponzi scheme perpetrated by Bernard L. Madoff came to light, and litigation surrounding the case grinds on.

The trustee seeking to recover funds for defrauded investors, Irving H. Picard, asked the Supreme Court to overturn a lower court decision barring him from pursuing banks for their role in helping perpetuate the fraud.

Meanwhile, the prosecution of five former employees of Mr. Madoff’s firm began last week. The criminal trial is likely to expose more tidbits about the operation of the long-running fraud, including lurid details about sexual liaisons among staff members involving perhaps even Mr. Madoff himself. Yet, despite the titillating aspects of the case, it is really more of a footnote to his scheme.

The more important case concerns Mr. Picard’s efforts to recover funds from a number of banks, including JPMorgan Chase, UBS, HSBC and UniCredit. He accused them of aiding in the Madoff scheme by ignoring warning signs about the fraud that allowed it to grow. As time went on, the scheme cost investors about $17 billion, and wiped out billions more, as they were led to believe the money was safely in their accounts.

The trustee’s claim against JPMorgan alone seeks nearly $19 billion, so recovering even a portion of that amount could add significantly to the $9 billion Mr. Picard has already gathered to compensate investors.

As is frequently the case, the issue is not about the banks’ role in the fraud - at least not yet. Rather, it focuses on whether certain arcane legal doctrines will permit the lawsuits to move forward. The banks have been successful in obtaining dismissals of the complaints on the ground that Mr. Picard does not have the authority to pursue claims on behalf of the defrauded investors.

The initial problem Mr. Picard faced is a doctrine called “in pari delicto,” or mutual fault, which prevents a firm from suing others for their role in its own misconduct. The New York Court of Appeals, the state’s highest court, explained in a 2010 decision involving the failed futures firm Refco that this “principle has been wrought in the inmost texture of our common law for at least two centuries.”

As the trustee for Mr. Madoff’s failed securities firm, Mr. Picard took over its claims - in a sense, “stepping into the shoes” of the entity. That also means any defenses that could be asserted against Mr. Madoff also apply, so his wrongdoing is attributed to Mr. Picard for the purpose of deciding any claim. The in pari delicto rule is usually invoked on the ground that a court will not decide a dispute between two thieves about who gets the loot.

The United States Court of Appeals for the Second Circuit leaned heavily on this doctrine in upholding the dismissal of Mr. Picard’s claims against the banks because the losses were equally attributable to Mr. Madoff. It found that the trustee’s legal arguments to avoid the impact of the rule “are resourceful, but they all miss the mark.”

In his petition to the Supreme Court to review the federal appeals court’s decision, Mr. Picard tries to step out of Mr. Madoff’s shoes and into those of the investors who can pursue claims against the banks for their role in the Ponzi scheme. He relies primarily on another legal principle called “subrogation,” which allows one party to take over the claims of another. This is used most often in the insurance area, where the insurer pays off the policy holder and then seeks compensation from anyone who caused the harm.

Mr. Picard argues that a provision of the law under which he was appointed, the Securities Investor Protection Act, gives him the authority to pursue the investor claims. The statute provides that if payments are made to customers of a failed securities firm by the Securities Investor Protection Corporation, then “in addition to all other rights it may have at law or in equity, [the trustee] shall be subrogated to the claims of such customers.”

According to the petition made to the Supreme Court, the appellate court misinterpreted the law by reading it too narrowly to prevent him from suing the banks. He argues that if the lower court’s position is not overturned, then “when third parties collaborate with a broker to defraud its customers - something that is inevitable given a Ponzi scheme’s unquenchable thirst for more investors and more money - there will never be enough funds available to compensate investors’ losses.”

Trying to figure out whether the Supreme Court will decide to review a case is almost always a guessing game. The court reviews a very small number of cases out of the thousands of petitions it receives, so the odds are against Mr. Picard’s case being considered.

Mr. Picard’s brief identifies conflicting decisions by other federal courts about whether a trustee can be subrogated to the claims of investors, which is one ground for the Supreme Court to step in to reconcile differing legal interpretations. But the issues in the case are narrow, so while the dollar figure from Mr. Madoff’s fraud is significant, the legal issues may not come up with enough regularity to necessitate further review.

One indicator of potential interest in the case is whether the Supreme Court seeks out the views of the Securities and Exchange Commission on the issues. The S.E.C. has oversight responsibility of the Securities Investor Protection Corporation, and its views could carry some weight if it agrees with Mr. Picard that the federal appeals court misinterpreted the law.

The banking industry is sure to line up against further review, and will argue vehemently on behalf of the appellate court’s decision that the case should not proceed further. If Mr. Picard is successful in being able to sue the banks, the potential liability of financial firms could be enormous because to succeed, every Ponzi scheme needs a bank account and other accouterments of financial legitimacy.

The banks have been successful so far in blocking lawsuits seeking to hold them responsible for the extensive losses Mr. Madoff inflicted on his investors. If Mr. Picard is able to switch to a new pair of shoes and pursue them, there is a good chance that he can obtain additional settlements on behalf of investors.

A Way Out of the Cooper Tire-Apollo Tyres Mess

Investors in Cooper Tire and Rubber are being forced to pick lanes. Legal wrangles have put Apollo Tyres’ agreed $2.5 billion offer for Cooper Tire, its American rival in doubt, and tensions at Cooper’s China joint venture have undermined its value. But a negotiated price reduction still looks possible. Cooper shares may be pricing in too much bad news.

Cooper shareholders must choose between four broad outcomes. The least likely is that the deal goes ahead on the agreed terms of $35 a share. Apollo has made it clear that it would like a lower price. Its lenders are also getting cold feet.

If the deal falls apart, Cooper shares might be expected to fall back to their pre-bid price of $24.50. But the wrangle with Apollo has exposed Cooper’s less-than-firm grip on its Chinese joint venture, which contributes around a quarter of its parent’s revenue and earnings. Assume the subsidiary’s value is reduced by 25 percent, and Cooper’s standalone value drops by $100 million, equivalent to $23 a share.

There is room for negotiation between these two extremes. One possibility is that Apollo adjusts Cooper’s value to reflect the reduced value of the Chinese business and then applies the same 40 percent premium as before. In that case, Cooper shareholders would receive around $32 a share.

Apollo might, however, seek to pay a lower premium. Say it offers just 20 percent more than Cooper’s reduced standalone value. Shareholders would then be presented with an offer worth just $28 a share.

Investors are taking a dim view. Take Cooper’s closing share price of $25.81 on Oct. 11. One way of interpreting that number is that investors think there is zero chance of the deal going ahead at the original price, a 60 percent probability of failure, and just a 20 percent possibility of either renegotiation situation proving correct, according to a Breakingviews calculator.

The longer the dispute drags on, the greater the damage to Cooper’s value. But that also makes it more likely that Cooper renegotiates with Apollo - or finds another bidder. Cooper shareholders aren’t attaching much probability to that lane providing an exit from the current mess.

Una Galani is a columnist and Peter Thal Larsen is Asia editor for Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.