Considering the Fairness of JPMorgan’s Deal

Some on Wall Street have portrayed JPMorgan Chase as a victim of government zealotry.

The bank is close to striking a $13 billion settlement over mortgage practices â€" the largest sum a corporation has ever paid to resolve government investigations. Adding to the sense of injustice, the bank’s defenders say that JPMorgan is paying for the sins of two firms that it bought in the depths of the financial crisis, Bear Stearns and Washington Mutual.

But as details emerge, Wall Street’s fears of a largely punitive settlement may not add up.

While the overall sum is large, the money will flow to different parties. The largest sum, more than $6 billion, will serve as compensation for investors like pension funds that suffered losses from mortgage securities sold by JPMorgan, Bear Stearns and Washington Mutual, people briefed on the settlement talks said.

Another $4 billion will take the form of relief for struggling homeowners in cities like Detroit. The payout will serve as penance for the bank’s general mortgage practices, and does not stem from any particular mortgage securities or institution, according to one of the people briefed on the talks.

The remaining $2 billion to $3 billion will represent the only fine in the case, according to the people briefed on the talks. That fine, from federal prosecutors in Sacramento, involves a civil investigation into mortgage securities that JPMorgan itself sold in the run-up to the financial crisis. Despite the concerns that JPMorgan was being unfairly taken to task for the practices of Bear Stearns and Washington Mutual, investigations into the two firms are not expected to lead to any fines. Justice Department lawyers, one person said, decided against allocating fines to those firms because doing so might appear punitive. The government encouraged and helped arrange the two takeovers.

The people, who spoke on the condition of anonymity, cautioned that the settlement talks were ongoing and the numbers could shift somewhat.

Mortgage securities sold by Bear Stearns and Washington Mutual are a major contributor to the more than $6 billion of compensation to the investors. Some $4 billion of that is to settle a lawsuit from a federal housing regulator that accused JPMorgan, Washington Mutual and Bear Stearns of selling shoddy mortgage securities to Fannie Mae and Freddie Mac, the government-controlled mortgage finance companies.

The remaining chunk of the compensation is expected to resolve a range of investigations from state and federal authorities: a credit union association, the offices of the New York and California attorneys general, federal prosecutors in Pennsylvania and the Justice Department’s own civil division.

Those cases, the people said, focused almost entirely on either Washington Mutual or Bear Stearns. The sum of each payout is unclear. Yet in the case from the New York attorney general, Eric T. Schneiderman, JPMorgan is expected to pay more than $500 million, two people briefed on the matter said. The agencies will pass on the compensation to investors in their states.

In some ways, the compensation element of the deal allows JPMorgan to resolve actions that it might have been expected to settle in any case. The bank appears to be catching up with Bank of America, which also bought two large entities laden with problematic mortgages in 2008: Countrywide Financial and Merrill Lynch. Bank of America has taken more than $40 billion of expenses relating to mortgage securities. JPMorgan said earlier this month that, since 210, it had set aside $28 billion for litigation expenses.

Still, the claims that JPMorgan has been unfairly treated may persist. Many of the mortgage securities targeted in the settlement came from Washington Mutual and Bear Stearns before JPMorgan acquired the firms in 2008.

People in power during the crisis say that those two acquisitions were a great help to the government.

“Bear Stearns would have gone down if JPMorgan hadn’t acquired it,” Henry M. Paulson Jr., the former Treasury secretary, said earlier this month on CNBC. “If that had happened, it would have been a real disaster,” said Mr. Paulson, who helped oversee both deals.

Despite JPMorgan’s financial strength, analysts are starting to believe that high cost of the settlement could dent the bank’s performance.

“Where would the bank’s stock be trading if it were not for this stuff?” asked Richard Ramsden, a banking analyst with Goldman Sachs. “I can pretty much guarantee you it would be quite a bit higher.”

But in 2008, JPMorgan executives did not seem too worried about the Bear Stearns and Washington Mutual deals. In retrospect, the bank appears to have pursued the two firms in a way that left it vulnerable to litigation.

Little suggests that JPMorgan bought Bear Stearns and Washington Mutual against its will. It was avidly watching both in 2008, hoping to snatch them up at low prices. Mr. Paulson appeared to acknowledge JPMorgan’s benefit from the acquisitions in the interview earlier this month. “I’m not saying these things weren’t in JPMorgan’s interest,” he said. “I assume they were.”

And when JPMorgan actually did the deals, the bank told its shareholders that it had looked closely at both firms. “We believe the amended terms are fair to all sides and reflect the value and risks of the Bear Stearns franchise,” Jamie Dimon, the chief executive of JPMorgan, said in 2008.

After the Washington Mutual deal later that year, Mr. Dimon said, “Our eyes are not closed on this one.”

The big question is whether Bear Stearns and Washington Mutual have produced profits to offset the proportion of the litigation expenses that stem from both entities. JPMorgan stopped saying how much it expected each entity to make soon after it bought them. But if JPMorgan’s early profit estimates are used, Bear Stearns and Washington Mutual may have contributed $16 billion in net income since the end of 2008.

JPMorgan also used acquisition accounting in such a way that would have softened the future blow from both deals. For instance, at the time of the deal, JPMorgan estimated the future losses embedded in Washington Mutual’s operations and assets. It then wrote down Washington Mutual’s assets by more than $30 billion to reflect the perceived losses. The exercise was advantageous: it meant JPMorgan itself would not have to bear the losses after it had subsumed Washington Mutual.

While the accounting move benefited JPMorgan, its legal liabilities were another matter. In corporate America, it is common for companies to assume the legal liabilities of any entities they acquire. Acquirers can write deal terms in such a way that certain legal risks are removed. It appears JPMorgan did not take adequate steps to do this.

Still, the government’s actions could make strong banks wary of buying weak ones, holding back the healing of the financial system, according to some banking specialists.

“At this point in the cycle, consolidation would be very healthy â€" and it’s not happening,” said Jason Goldberg, a bank analyst with Barclays.

Economic Theory, via YouTube and Cartoon

Forget Econ 101. Take a look at the lessons in Dalio 101.

Ray Dalio, the 64-year-old founder of Bridgewater Associates, the largest hedge fund in the world with some $150 billion under management, has quietly begun teaching his investment secrets on YouTube.

Mr. Dalio, who is said to be worth some $13 billion, was one of the few investors to see the financial crisis of 2008 developing, and perhaps just as important, the rebound. He’s made his money by predicting big macroeconomic cycles. His economic theories, up until now, have been known only to a small group of investors and those willing to pay his firm 2 percent management fees and 20 percent of the investment profits.

Mr. Dalio’s plain-spoken 30-minute video is an oddly entertaining animated cartoon filled with provocative theories about the way the economy runs. He dispenses with the way economists have long taught economics in school, and instead explains the economy as if it were a “machine” that he believes is much easier to understand and predict.

The average Main Street investor has probably never heard of him. It also may seem counterintuitive that a money manager who sells his clients on his foresight would want to preach to the masses. But he told me that he decided to make the video to demystify economic cycles because he believes most investors, regulators and politicians are focused on the wrong issues.

Mr. Dalio says he believes that the traditional approach to economics is too academic and impractical. It is one of the reasons he, and others, believe that the Federal Reserve and many other institutions missed the signs of the financial crisis.

Just as there is monetarism and Keynesianism, Mr. Dalio’s approach may be a more practical way to think about the economic cause-and-effect relationships. There are refreshingly basic explanations for neophytes in his video, titled “How the Economic Machine Works,” that even the most sophisticated investors will appreciate.

“Think of borrowing as simply a way of pulling spending forward,” he says, explaining that to buy something you can’t afford today, “you essentially need to borrow from your future self. In doing so you create a time in the future that you need to spend less than you make in order to pay it back.”

This is how he explains austerity: “When borrowers stop taking on new debts, and start paying down old debts, you might expect the debt burden to decrease. But the opposite happens. Because spending is cut â€" and one man’s spending is another man’s income â€" it causes incomes to fall.”

Mr. Dalio’s effort is attracting attention with both students of economics and the financial cognoscenti. Already, more than 300,000 people have viewed the video since it went up last month. Henry M. Paulson Jr., the former Treasury secretary, has been sending the link to friends.

Paul A. Volcker, the former Fed chairman, a fan of the cartoon, described it as “unconventional but it casts strong light on how the economy actually works, with its history of repetitive and ultimately destructive excesses in credit creation. The analysis points the way to practical ways central banks and governments can ease the pain of defaults and deleveraging.”

Mr. Dalio has been compared to George Soros and has become something of a philosopher king in recent years â€" though it is worth noting that his firm’s returns in the last year have been a bit lackluster.

Mr. Dalio has always believed he can see more clearly than others. His approach to running his firm, for example, is based on 210 rules he devised in a handbook for his firm, called Principles. (Among them: “Ask yourself whether you have earned the right to have an opinion.”) As a result of his unconventional management style, his firm has been likened to a cult, a description that irks him because he believes it undervalues the success of the approach.

Unlike traditional economists â€" Mr. Dalio isn’t one â€" he does not focus on the much-watched statistics that most economists depend on. He also doesn’t focus on basic theories like supply and demand nor does he believe that monetary policy makers can control inflation simply by controlling the money supply. He derides the MV=PQ formula that is a central principle of economics. (A quick economics lesson, by way of TheStreet.com: “M is the money supply; V is velocity â€" the number of times per year the average dollar is spent; P is prices of goods and services; and Q is quantity of goods and services. The equation suggests that if V is constant and M is increasing, there must be an increase in either Q or P.”)

That theory, developed by the esteemed Milton Friedman, leads to the wrong conclusions, he says.

Mr. Dalio said in an e-mail that his template indicates the formula “is misleading because there really isn’t much ‘velocity’ of money happening as most of what we call velocity is credit growth, which is very different and has different reasons for happening. Velocity is made out to be some vague force that drives the rate that money goes around, and it’s not that at all. I believe that we should agree that spending comes from either money (with a bit of velocity) or credit and we should understand how each is made up and spent to make nominal G.D.P. (gross domestic product).”

If that sounds a bit confusing, that’s because it is. But his video is more straightforward.

For example, he says that there are only two types of economic cycles, but investors always seem to miss them. “One takes about 5 to 10 years and the other takes about 75 to 100 years. While most people feel the swings, they typically don’t see them as cycles because they see them too up close â€" day by day, week by week,” he says in his video.

So where are we now in the economic cycle? He doesn’t exactly say. But based on his theories, we are probably in the back half of a long deleveraging, which Mr. Dalio says he doesn’t believe has to be a bad thing.

“The key is to avoid printing too much money and causing unacceptably high inflation, the way Germany did during its deleveraging in the 1920s,” he says. “If policy makers achieve the right balance, a deleveraging isn’t so dramatic. Growth is slow but debt burdens go down. That’s a beautiful deleveraging,” he continues. “It takes roughly a decade or more for debt burdens to fall and economic activity to get back to normal â€" hence the term ‘lost decade.’ ”

So if you studied his lesson, you can estimate that it will be 2018, or at least 10 years after the crisis, before you can begin to proclaim all clear.

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

Hong Kong Tycoon Still Has Options for Supermarket Chain

Li Ka-shing’s sale of the Hong Kong supermarket chain ParknShop has flopped, but he still has other options.

Mr. Li’s holding company, Hutchison Whampoa, shelved a potential sale of chain, after seeking an ambitious valuation of over $3 billion. But there are other ways to raise money. ParknShop might be more palatable if Mr. Li can bundle it up with more attractive assets from his group.

ParknShop should have had a strong appeal for buyers, with its strong grip on the Hong Kong market and a 7 percent margin on earnings before interest, taxes, depreciation and amortization.

It had around 40 percent share of the city’s supermarket sector in the first half, according to Nielsen Homescan. There’s even room for steady growth if consumers continue to turn away from the city’s open-air wet markets.

The failure to seal a deal with any one of four bidders, who included Thailand’s CP Group and state-controlled China Resources Enterprise suggests price expectations were too high. A valuation of $3 billion to $4 billion for ParknShop implied a rich multiple of 17 to 22 times trailing Ebitda.

Singapore’s Dairy Farm, which owns the rival chain Wellcome, trades on 20 times but with pan-Asian operations and higher margins. Global rivals Tesco and Carrefour trade around 6 times trailing Ebitda.

Mr. Li’s next move could be to repackage ParknShop with other bits of his retail empire, A.S. Watson, most of which has higher margins than the Hong Kong chain. If A.S. Watson could attract the same 12 times trailing earnings multiple as the American chain Walgreen, it would be worth at least $19.7 billion - even without a premium for faster growth from Asian markets. Hutchison Whampoa could in theory float just a 25 percent stake of the retail business and raise more than it would have got from selling the whole of ParknShop, without giving up control.

Hong Kong’s best-known mogul built his empire by buying fast-growth businesses at the bottom and selling low-growth businesses at the top. Perhaps buyers have grown wise to his tactics, particularly when it looks like he is selling out in the market he knows best. If he wants to raise cash, Mr. Li may have to spruce up his offering.

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

22 Under Investigation in Libor Case in Britain

LONDON â€" British prosecutors have identified 22 individuals at various banks as potential co-conspirators in a wide-ranging inquiry into the manipulation of a global benchmark interest rate.

The individuals were notified last week by Britain’s Serious Fraud Office that they were being investigated, prosecutors and lawyers for some of the potential co-conspirators said at a court hearing in London on Monday.

The Serious Fraud Office notified the individuals that they had been named in court papers related to criminal cases brought this year against Tom A.W. Hayes, a former Citigroup and UBS trader, and two other former brokers at RP Martin Holdings in London and that the co-conspirators’ names might be released in court as early as Monday.

None of the individuals identified as co-conspirators has been charged criminally and some have yet to be interviewed by the regulator despite volunteering to do so, their lawyers said.

A lawyer for at least one potential co-conspirator said his client only learned about the investigation after receiving the letter last week. Some of those identified as co-conspirators could also face charges in the United States, their lawyers said.

Last week, a High Court justice, Jeremy Cooke, issued a restraining order prohibiting The Wall Street Journal and others from reporting the names of potential co-conspirators after the newspaper posted an article on its Web site on Thursday evening.

British law allows judges to restrict what the media can report about a case if it might prejudice a defendant or potential jurors before a trial.

On Monday, the judge lifted the injunction against The Journal, saying he didn’t believe that any of the co-conspirators would be harmed at this stage because any action against them by the Serious Fraud Office would be some time off.

But Justice Cooke didn’t make the names available publicly and agreed to allow the names to be removed from indictments by prosecutors in the cases against Mr. Hayes and the other two brokers.

The judge also cautioned The Journal against reporting the names again if they were obtained improperly.

On Monday, Mr. Hayes, as well as the two former RP Martin brokers, Terry J. Farr and James A. Gilmour, had been expected to enter not guilty pleas to charges in the matter. That has now been put off until December, at the earliest. A trial of Mr. Hayes is now expected in January 2015.

Mr. Hayes was the first person to be charged criminally in the British inquiry into the rigging of the London Interbank Offered Rate, or Libor,. He is separately facing criminal charges in the United States.

British prosecutors have said in court papers that Mr. Farr and Mr. Gilmour conspired with employees at a number of banks, including Mr. Hayes. All three men remain free on bail.

The British lenders Barclays and the Royal Bank of Scotland and the Swiss bank UBS have agreed to pay a combined $2.5 billion in fines related to Libor. Last month, British and American authorities fined the British financial firm ICAP a combined $87 million for its role in the Libor manipulation.

The authorities claimed that ICAP employees altered the financial figures used to compile Libor in exchange for promises of meals, cash and a Ferrari. ICAP has said that 10 employees caught up in the investigation have left the firm, including three brokers facing criminal charges.

Citigroup, Deutsche Bank of Germany and other banks also remain under investigation by American and British authorities in the matter.

Julia Werdigier and Mark Scott contributed to this story.

A Top Goldman Sachs Executive to Leave the Firm

J. Michael Evans, a Goldman Sachs vice chairman, is retiring, the firm said on Monday.

Mr. Evans’s name has at times been floated as a possible candidate to succeed Lloyd C. Blankfein as head of the influential Wall Street firm. But in a memo sent to Goldman employees on Monday, Mr. Blankfein, Goldman’s chief executive, and Gary D. Cohn, his second-in-command, announced that Mr. Evans, 56, had decided to retire and would leave at the end of the year.

“Michael has played a number of leadership roles in building important businesses and growing our client franchise across divisions and regions,” Mr. Blankfein and Mr. Cohn wrote.

Mr. Evans, who joined Goldman in 1993, has run a number of big divisions at the bank, most recently global head of growth markets.

But he is best known outside the bank for his leadership role on Goldman’s Business Standard’s Committee, a group formed after the financial crisis as part of a push by the bank to be more transparent after criticism that it put its own interests ahead of those of clients.

Over the years, it has been suggested that Mr. Evans, a Canadian and one-time Olympic-level rower, might succeed Mr. Blankfein as chief executive. His name, however, has come up less in recent years, leading to speculation inside the bank that he might move on.

Below is the memo from Mr. Blankfein and Mr. Cohn:

After more than 20 years of outstanding service, J. Michael Evans, a vice chairman of Goldman Sachs and global head of Growth Markets, has decided to retire at the end of the year.

Michael has made many significant contributions to the firm. Over the last three years, as co-chair of the firm’s Business Standards Committee, he helped oversee the most extensive review of the firm’s business standards and practices in its 144-year history. The committee’s work resulted in significant changes in how the firm addresses important issues related to clients, reputational risk and accountability.

Michael has played a number of leadership roles in building important businesses and growing our client franchise across divisions and regions. He joined Goldman Sachs in 1993 in the Investment Banking Division in London and was named partner in 1994.

As global head of Equity Capital Markets, he was at the center of many privatizations in Europe and Asia Pacific in the 1990s and went on to play an integral role in the success of the firm’s initial public offering in May 1999.

In 2001, Michael became co-head of the Equities Division, working in both New York and London. Two years later, he became global co-head of the Securities Division, where he helped cement our position as a leading market maker and underwriter to investors and companies globally.

In 2004, Michael relocated to Hong Kong as chairman of Goldman Sachs Asia Pacific, a position he held for seven years. There, he helped shape our strategy and footprint, deepen our leadership bench and develop important client relationships. He also was directly involved in the establishment of the firm’s domestic business in China, including the important strategic relationship with ICBC, China’s largest commercial bank.

Michael was named a vice chairman of Goldman Sachs in 2008. In 2011, he was named global head of Growth Markets, responsible for driving our strategy, resource allocation and many client relationships across the firm in these important markets.

Outside of the firm, Michael is chairman of the board of Right to Play USA and a board member of City Harvest. He is also a trustee of the Asia Society and a member of the Advisory Council for the Bendheim Center for Finance at Princeton University.

Michael’s commitment to the firm, his focus on our clients and his deep, global market knowledge have left an extraordinary record of contribution. We are pleased that Michael will become a senior director upon his retirement and that we will continue to benefit from his advice and counsel. Please join us in thanking Michael for his dedication to our business and our people, and in wishing him the best for the future.

The Man Who’ll Do Triage on Europe’s Banks

Benjamin Kilb for The New York Times

"You have to supervise what banks do," said Ignazio Angeloni, a top official at the European Central Bank.

FRANKFURT â€" All Ignazio Angeloni has to do is figure out Europe’s banking system.

Mr. Angeloni, 59, heads the European Central Bank’s financial stability division, giving him a lead role in a task about to begin: examining the books of the 130 or so largest banks in the 17 members of the European Union who use the euro. It will be financial triage aimed at determining which banks are sound and which are not.

Good luck with that.

Over the last few years, the world’s financial institutions have become black boxes, so opaquely complex that they are little understood by regulators or their own executives. Lehman Brothers vanished in a puff of financial wizardry gone wrong. JPMorgan Chase was humbled when it lost control of its own traders in London. And European regulators gave the French-Belgian banking giant Dexia a clean bill of health in 2011 after a supposed “stress test,” only to see it collapse subsequently.

This week, Mr. Angeloni and other central bankers are expected to announce new details of the review process. The undertaking, at the behest of the European Union, is meant to place the big banks of Europe more directly under the supervision of the European Central Bank, instead of the current patchwork of national regulators.

At stake is the world’s confidence in Europe’s banking system. If the effort fails, it could undermine Europe’s fragile economic recovery and the credibility of the European unity project.

“You have to supervise what banks do,” Mr. Angeloni said, during a recent interview at the central bank’s headquarters here. “You cannot leave them alone, because if you do, they can become dangerous.”

The banks of Europe, of course, are particularly treacherous. The ones in Greece were crippled by their government’s toxic debt. Those in Cyprus were “bailed in” by their own depositors. Spain’s have sucked in billions of euros in aid to make up for bad loans. And several banks across Europe have become wards of the state.

So can anyone really make sense of it all?

“Nothing will be perfect, right?” Mr. Angeloni said. “There will be mistakes, there will be things that are not uncovered fully. The goal is to make as much progress as possible.”

James Chappell, a banking analyst at Berenberg, called the banking review exercise “incredibly important.”

“Ultimately, for a banking union you need to have a credible supervisor, and investors want to have trust in banks’ balance sheets, and that’s what’s been lacking and continues to lack now,” Mr. Chappell said. “What the market has to believe is that the process has been credible.”

From the window of Mr. Angeloni’s downtown office, the future headquarters of the European Central Bank can be seen rising on Frankfurt’s horizon. The grand skyscraper, bracketed by cranes, is a testament to the central bank’s growing role as a world power.

The unwieldiness of some banks is a symptom of technological advances that have led to nano-speed trading and the use of complex computer algorithms that guide investment decisions, Mr. Angeloni said. While he expressed doubts about the usefulness of splitting the investment and retail arms of banks, as many on both sides of the Atlantic have advocated, he still suggested that some banks had grown too complex for their own good, or for society’s. Perhaps ominously for the banks, the silver-colored cuff links on his monogrammed shirt were shaped like bears.

“The C.E.O.’s, they look superhuman, but, in fact, very often they don’t know what’s going on, and they don’t understand because it is very, very complicated,” Mr. Angeloni said.

“The algorithms that govern the movements of asset prices are very difficult to understand for any C.E.O.,” he added. “In the end, the C.E.O., the people at the top, have to concentrate on the politics, right? If you are in that mind frame, it’s very difficult to concentrate on the nitty-gritty technical details. So there is a growing gap between the people who work at the bottom and understand the little things, and the people on the top.”

A version of this article appears in print on October 21, 2013, on page B1 of the New York edition with the headline: The Man Who’ll Do Triage on Europe’s Banks.

Potential Silver Lining for S.E.C. in the Cuban Case

No one likes to lose, so the Securities and Exchange Commission is surely smarting from a jury’s decision absolving Mark Cuban, the billionaire owner of the Dallas Mavericks, of insider trading charges. Although the case garnered headlines, it is unlikely to have much impact on other investigations, and even has a potential silver lining for the S.E.C.

The case revolved around whether Mr. Cuban agreed not to trade on information about an impending transaction at Mamma.Com, an Internet search engine company in which he held a 6.3 percent stake. After speaking with the company’s chief executive, Guy Fauré, about the company’s decision to sell shares that would hurt its price, he unloaded his stock and avoided about $750,000 in losses.

The case boiled down to a “he said, he said” situation because Mr. Fauré claimed that Mr. Cuban agreed to keep the information confidential and not trade on it, but Mr. Cuban vehemently denied that was true. As just an investor in the company, Mr. Cuban was not a classic insider who has an obligation to keep corporate information confidential. So proving there was an agreement was the crux of the S.E.C.’s case.

The case had a number of peculiarities that make it hard to see it as much of a harbinger for how the S.E.C. will pursue insider trading in the future.

Unlike recent cases in which the government amassed evidence from wiretaps and confidential informers, the charges here revolved around the recollections of two men about an eight-minute telephone conversation for which there was no transcript or even another witness to what was said. That made proving insider trading turn almost entirely on the credibility of Mr. Fauré, who was a problematic witness.

Jurors no doubt wanted to see a telling moment when the crucial witness recounts damning words of the defendant, as usually portrayed in television courtroom dramas. Unfortunately, the S.E.C. could only present Mr. Fauré’s testimony by a video recording because he refused to come to the United States from Canada for the trial. In the closing statement, Mr. Cuban’s lawyer made much of Mr. Fauré’s absence, telling the jury that he “didn’t want to look you in the eye.”

Mr. Cuban, on the other hand, is a practiced hand at dealing with the media and quite well regarded in Dallas, where the trial took place. He came across well to the jury, telling them that he did not recall the crucial conversation but that he would not have made any agreement to refrain from selling his stake in the company.

By pursuing the case in Texas, the S.E.C.’s lawsuit was reminiscent of a 1984 case filed in Oklahoma against Barry L. Switzer, then the University of Oklahoma’s head football coach. He was found not to have engaged in insider trading on information he said he inadvertently received about an impending merger.

Both trials took place where the teams of these popular sports figures play, so one lesson may be for the S.E.C. to avoid filing such lawsuits in places in which the defendants may have the home field advantage.

Bringing a case that depends largely on a single witness who would not even show up in the courtroom to testify raises the issue of why the S.E.C. filed the lawsuit in the first place. In one of my first columns for the DealBook back in 2009 when the case was filed, I asked, “Is this where we want the cop on the beat spending time?”

Mr. Cuban is certainly a well-known figure, and law enforcement agencies will pursue cases that garner headlines to show the public that no one is above the law. Also, bringing charges when the evidence is less than overwhelming is certainly not a misuse of agency resources.

But in this instance, I wonder whether the S.E.C. may have boxed itself in by notifying Mr. Cuban that it planned to file the charges and then felt compelled to follow through. Much as a parent who threatens a child with a punishment, the S.E.C. may have seen this as a test case to send a message about how it was policing the markets, even though the evidence was shaky at best.

To prove insider trading, the S.E.C. must show that a defendant breached a “duty of trust and confidence” when trading on confidential information. That usually means the person had a close relationship with the source, like being an employee or outside adviser. Mr. Cuban’s role as a shareholder would not normally fall within the definition. Instead, the S.E.C. advanced the theory that Mr. Cuban’s purported agreement not to sell his shares was enough to establish the requisite duty.

In 2000, the S.E.C. adopted Rule 10b5-2 to expand the scope of the relationships that could lead to liability for insider trading. One provision of the rule provides that the requisite duty arises “whenever a person agrees to maintain information in confidence.” That was the basis on which the S.E.C. pursued its case, which made Mr. Cuban’s conversation with Mr. Fauré the focal point.

Judge Sidney A. Fitzwater of Federal District Court initially dismissed the charges because he found that Mr. Cuban never agreed to refrain from trading on the information. He also concluded that the portion of Rule 10b5-2 that applies to any person who agrees to keep information confidential was beyond the S.E.C.’s authority to adopt.

The United States Court of Appeals for the Fifth Circuit reversed Judge Fitzwater’s ruling and reinstated the charges, allowing the case to proceed to trial. The appeals court found the S.E.C. had enough in its complaint to proceed with the case against Mr. Cuban and overturned the finding that Rule 10b5-2 exceeded the agency’s authority.

By just getting the case to trial, the S.E.C. achieved something of a victory. The appeals court preserved Rule 10b5-2, and found that an agreement not to trade can be the basis for insider trading liability, even with just the bare allegations outlined in the complaint.

The jury verdict may cause the S.E.C. to proceed more cautiously when it has equivocal evidence to show a breach of the duty of trust and confidence, especially when it faces a defendant likely to go to trial. But that is not an issue that comes up often in insider trading cases, most of which involve a person with a close relationship to the source.

The S.E.C. lost the battle with Mr. Cuban, but preserved its ability to pursue cases that do not fit the usual paradigm of a corporate insider trading or tipping. So the real lesson may be to proceed cautiously when the case depends on a single witness. But the scope of insider trading liability remains quite broad based on an agreement to keep information confidential.

U.S. Exchanges Set to Compete for Alibaba I.P.O.

The two big stock exchanges in the United States are ready to fight for the right to host the initial public offering of the Alibaba Group, the Chinese Internet giant.

Both the New York Stock Exchange and the Nasdaq stock market have confirmed to Alibaba that they would accept what the company calls a partnership governance structure, in which a group of its founders and top executives would nominate a majority of board members, a spokesman for the Chinese concern said on Monday.

The announcement signals that Nasdaq is still in the race to land the offering, which is expected to value Alibaba at more than $75 billion. It would be the biggest I.P.O. since Facebook‘s market debut last year.

That may come as some consolation for Nasdaq, which lost the competition for Twitter‘s initial offering. Investors and deal makers have speculated that several technical problems - including glitches that hampered Facebook’s offering and system issues that led to a so-called “flash freeze” earlier this year - would affect the exchange’s ability to compete for big-ticket deals.

The Alibaba spokesman said the company still had not hired underwriters, selected a listing exchange or set a timetable on the offering. But people briefed on the matter have previously suggested that an I.P.O. would probably come next year.

The confirmations from both N.Y.S.E. and Nasdaq are unsurprising. Alibaba has been planning to list in the United States after its preferred platform, the Hong Kong stock exchange, refused to accept the partnership structure, which critics have said disenfranchises common shareholders.

Alibaba executives, including the co-founder Joe Tsai, in a blog post last month, have said that the model is meant to preserve the company’s corporate culture and does not create a de facto dual class system. The company has brought out a number of supportive statements from allies like Yahoo and SoftBank as well.

For Star Athlete I.P.O., a Stumble on the Field

The “road show” for the Arian Foster initial public offering has gotten off to a disappointing start.

On Thursday, a new company, Fantex, announced the first-ever athlete I.P.O., selling shares tied to the earnings of Mr. Foster, a star running back for the Houston Texans.

Three days later, on Sunday, Mr. Foster had one of the worst outings in his five years in the National Football League. He carried the ball just four times for 11 yards before leaving the Texans game in the first half with a pulled hamstring.

The chance of injury was one of the many risks Fantex disclosed in the Foster I.P.O. Fantex is selling about $10 million worth of stock to pay Mr. Foster for a 20 percent interest in his future income, which includes the value of his playing contracts, corporate endorsements and appearance fees. Shareholders will own interests in a tracking stock whose performance is intended to be linked to Mr. Foster’s future economic success.

Investors have the next couple of weeks to place orders. Unlike a traditional I.P.O., this offering has no road show where the company and its bankers meet with potential investors to promote the deal. Instead, marketing materials are limited to the Fantex Web site and a lengthy prospectus with 37 pages of risk factors detailing what might go wrong with the investment.

Fantex, based in San Francisco, has registered the I.P.O. with the Securities and Exchange Commission, and shares are going to trade on a trading platform operated by Fantex. The Foster offering is the
company’s first, but it hopes to issue more for additional football players as well as for other professional athletes and entertainers.

The company is focusing on small investors, with an investment minimum of just $10.

Making its debut with Mr. Foster, especially given the timing of the deal, had some people scratching their heads. Mr. Foster has led all running backs in touchdowns in two of the last three seasons, while racking up well over 1,000 yards each year - stats that placed him firmly in the game’s top tier of players, and made him a favorite in fans’ N.F.L. fantasy leagues.

But coming into this year, there was some uncertainty surrounding Mr. Foster, who had sustained a heavy workload and was showing signs of wear and tear with both calf and back ailments. Running backs historically have a high risk of injury.

Mr. Foster’s production trailed off somewhat through the first six weeks of this season, with just one rushing touchdown, though he led the A.F.C. in rushing with 531 yards. But on Sunday, in the Texans loss to the Kansas City Chiefs, Mr. Foster left the game during the first quarter with an aggravated hamstring and did not return.

After the game, Mr. Foster told reporters the injury did not seem severe. The Texans have a bye week on Sunday, which should give it time to heal.

Still, it seems that Mr. Foster’s latest health concern was exactly the type of bad news Fantex had hoped to avoid. The company planned to roll out the Foster I.P.O. at the beginning of the N.F.L. season to eliminate the possibility of an injury or slump, but it was slowed down by the regulatory approval process, according to people briefed on the deal.

It is unclear how the Fantex offering is proceeding since it began accepting orders last week. But on Sunday night, Buck French, a co-founder and the chief executive of Fantex, showed little concern about the setback.

“We are investing and working to build Arian’s brand for the long term,” Mr. French said. “His injury today has no bearing on that fact.”

Madame Tussaud’s and an Energy Company Seek to Go Public

The parent of Madame Tussaud’s and a clean energy business backed by the financier Guy Hands each said on Monday that they plan to go public on the London Stock Exchange, as their private equity owners seek to begin cashing out of their investments.

With stock markets showing strong gains this year, private equity firms have been rushing to take advantage of rising valuations for their companies through initial public offerings.

Even the British government sought to join in by selling off a piece of the Royal Mail last week. The stock sale was enormously oversubscribed. (Still, the government has been criticized for setting the price of the I.P.O. too low, letting the share price rise more than 50 percent since trading began.)

Merlin Entertainments, whose properties include Madame Tussaud’s and Legoland, plans to raise £200 million, or $322.8 million, in the offering. The company’s owners â€" the Blackstone Group, CVC Capital and the investment vehicle of the Kristiansen family, which created Lego â€" also plan to sell some of their holdings.

The theme park operator reported £346 million in earnings before interest, taxes, depreciation and amortization last year, up 13 percent from the same time a year ago.

Goldman Sachs and Barclays will serve as joint global coordinators for the offering, while Lazard is serving as financial adviser.

And Infinis, the company owned by Mr. Hands’ Terra Firma private equity firm, said that it planned to sell its shares next month.

The company focuses on several sources of renewable energy, including wind power, hydroelectric power and gas from landfills. It reported £34.3 million in earnings before interest, taxes, depreciation and amortization, or Ebitda, and £56.7 million for the second quarter this year.

Barclays, Deutsche Bank and RBC will serve as joint global coordinators, while Gleacher Shacklock and Climate Change Capital are serving as financial advisers.

Madame Tussaud’s and an Energy Company Seek to Go Public

The parent of Madame Tussaud’s and a clean energy business backed by the financier Guy Hands each said on Monday that they plan to go public on the London Stock Exchange, as their private equity owners seek to begin cashing out of their investments.

With stock markets showing strong gains this year, private equity firms have been rushing to take advantage of rising valuations for their companies through initial public offerings.

Even the British government sought to join in by selling off a piece of the Royal Mail last week. The stock sale was enormously oversubscribed. (Still, the government has been criticized for setting the price of the I.P.O. too low, letting the share price rise more than 50 percent since trading began.)

Merlin Entertainments, whose properties include Madame Tussaud’s and Legoland, plans to raise £200 million, or $322.8 million, in the offering. The company’s owners â€" the Blackstone Group, CVC Capital and the investment vehicle of the Kristiansen family, which created Lego â€" also plan to sell some of their holdings.

The theme park operator reported £346 million in earnings before interest, taxes, depreciation and amortization last year, up 13 percent from the same time a year ago.

Goldman Sachs and Barclays will serve as joint global coordinators for the offering, while Lazard is serving as financial adviser.

And Infinis, the company owned by Mr. Hands’ Terra Firma private equity firm, said that it planned to sell its shares next month.

The company focuses on several sources of renewable energy, including wind power, hydroelectric power and gas from landfills. It reported £34.3 million in earnings before interest, taxes, depreciation and amortization, or Ebitda, and £56.7 million for the second quarter this year.

Barclays, Deutsche Bank and RBC will serve as joint global coordinators, while Gleacher Shacklock and Climate Change Capital are serving as financial advisers.

Morning Agenda: A Crucial Call From JPMorgan’s Chief

In late September, four hours before the Justice Department planned to hold a news conference to announce civil charges against JPMorgan Chase over its sale of troubled mortgage securities, Jamie Dimon, the bank’s chief executive, personally called one of Attorney General Eric H. Holder Jr.’s top lieutenants to reopen settlement talks, Ben Protess and Jessica Silver-Greenberg report in DealBook. The call scuttled the news conference and set in motion weeks of negotiations that have led to a tentative $13 billion deal, people briefed on the talks said.

“An account of the negotiations, based on interviews with these people, pulls back a curtain on the private wrangling to illuminate how the bank and the government managed to negotiate what would be a record deal,” DealBook writes. “It also sheds new light on the hands-on role that Mr. Dimon and Mr. Holder played in the talks. And it highlights how Mr. Dimon has so far maintained the support of the bank’s board when other Wall Street chiefs were derailed by the financial crisis.”

The deal â€" which could still fall apart over questions like how much wrongdoing JPMorgan would admit â€" would be a record for the Justice Department, representing the largest amount a single corporation has ever paid to settle. It might also embolden the Justice Department and set a precedent for the agency’s investigations of Wall Street. For JPMorgan, once known as Washington’s favorite bank, the deal would cap a stunning reversal of fortune.

Mr. Dimon is inextricably linked to the settlement, assuming the role of chief negotiator with the government. Despite the mounting legal problems, Mr. Dimon appears solidly ensconced in his job atop JPMorgan, Ms. Silver-Greenberg and Mr. Protess report in DealBook. On Sunday, several JPMorgan executives reiterated that the bank’s board remains firmly behind Mr. Dimon, who is both chairman and chief executive. “The board has not flinched in their support for him,” said a person close to JPMorgan.

While such confidence might seem bewildering, JPMorgan’s legal travails have not truly threatened the bank financially â€" a crucial metric in the eyes of the board and top executives. Even as its legal troubles have worsened, the bank’s share price has gained roughly 23 percent so far this year. “By the logic of Wall Street, putting the bank’s legal problems aside is seen as a victory for Mr. Dimon, even though those problems arose on his watch,” DealBook writes.

WEALTH FUND WARNS ABOUT HIGH-SPEED TRADING  |  Norway’s sovereign wealth fund, one of the largest single investors in the world, is preparing to speak out on a sensitive issue: the increasing computerization of the stock markets and the costs that has imposed on big long-term investors, Nathaniel Popper reports in DealBook. While Wall Street firms and exchanges have long said that the speed and competition have made trading cheaper for everyone, the top trader at the Norwegian fund, Oyvind G. Schanke, said not enough was heard from long-term investors like the fund, which holds $110 billion in United States stocks.

“The U.S. market has gone through a lot of changes and has become quite complicated â€" and this complexity of the market creates a lot of challenges for a large investor like us,” said Mr. Schanke, the global head of stock trading for the fund, Norges Bank Investment Management. Compared with five years ago, he said, “We don’t see any evidence that it is cheaper for us to trade.”

ON THE AGENDA  | Data on existing home sales in September is released at 10 a.m. McDonald’s reports earnings before the market opens, while Netflix announces results this evening. Stephen M. Case, an AOL co-founder, is on Bloomberg TV at 8 a.m.

DOING TRIAGE ON EUROPE’S BANKS  |  “All Ignazio Angeloni has to do is figure out Europe’s banking system,” Danny Hakim writes in The New York Times.

“Mr. Angeloni, 59, heads the European Central Bank’s financial stability division, giving him a lead role in a task about to begin: examining the books of the 130 or so largest banks in the 17 members of the European Union who use the euro. It will be financial triage aimed at determining which banks are sound and which are not. Good luck with that.”

Mergers & Acquisitions »

Office Supply Merger Expected to Receive F.T.C. Approval  |  The planned merger between Office Depot and Office Max “is on track to receive antitrust clearance from the Federal Trade Commission after a lengthy government review, according to people familiar with the matter,” The Wall Street Journal reports. WALL STREET JOURNAL

AT&T in $4.85 Billion Tower Deal With Crown Castle  |  Under the terms of the deal, Crown Castle will buy the rights to run cellphone 9,100 towers for an average lease of 28 years, with the right to acquire the towers outright from AT&T in the future for about $4.2 billion. Crown Castle will also buy about 600 towers outright. DealBook »

Douglas of Germany in Talks to Buy French Perfume Chain  |  The German retailer Douglas said it was in exclusive talks to buy Nocibe of France, “part of plans by Douglas to expand its perfumeries business,” Reuters writes. REUTERS

Chinese Billionaire May Privatize Hong Kong Developer  |  Zhang Zhirong, a Chinese industrialist who was involved in an insider trading case in the United States last year, may make a takeover bid for Glorious Property Holdings, a Hong Kong developer in which he owns a majority stake. DealBook »

INVESTMENT BANKING »

Regulator Said to Seek $6 Billion From Bank of America  |  The Federal Housing Finance Agency, negotiating a deal over mortgages, is seeking a penalty of more than $6 billion from Bank of America, The Financial Times reports, citing unidentified people familiar with the matter. FINANCIAL TIMES

Morgan Stanley, Under Gorman, Returns to Basics and Profit  |  The Wall Street bank’s positive results capped off a week of disappointing bank earnings and lifted Morgan Stanley’s share price 2.6 percent higher by the end of trading. DealBook » | Earnings and China Data Push Shares Higher

Interview With a Nobel Winner in Economics  |  Robert J. Shiller, an economist at Yale, who learned last week that he had won the Nobel along with two others, tells The New York Times: “I’m just naturally skeptical of people who look impressive.” NEW YORK TIMES

A Former Fed Chairman Reflects on Bubbles  |  Alan Greenspan spends part of his new book, “The Map and the Territory,” discussing the irrational behavior of market participants. But the “rest of this book is instead devoted to a discursive tour of recent economic history, punctuated by conservative policy prescriptions,” Binyamin Appelbaum writes in The New York Times. NEW YORK TIMES

If You Feel Compelled to Do Something, Don’t  |  Taking the time to reflect gives us the opportunity to make a more considered choice about how to act, Tony Schwartz writes in the Life@Work column. DealBook »

PRIVATE EQUITY »

British Firm Said to Consider Bid for Unit of G4S  |  Charterhouse Capital Partners, a British private equity firm, is considering making a roughly $1.6 billion offer for the cash solutions business of G4S, the world’s biggest provider of security services, Bloomberg News reports, citing three unidentified people familiar with the matter. BLOOMBERG NEWS

K.K.R. to Buy European Debt Investment Firm  |  K.K.R. is wagering that new global banking rules will allow alternative lenders to step up and provide financing to companies. DealBook »

HEDGE FUNDS »

Pension Funds Pay Millions and Lag Behind the Market  |  “Fans of alternative investments argue that they can generate higher returns. But the increased risks, higher fees and lack of transparency associated with such investments make them problematic,” Gretchen Morgenson writes in the Fair Game column in The New York Times. NEW YORK TIMES

I.P.O./OFFERINGS »

Hutchison Whampoa Said to Consider I.P.O. of Unit  |  The Hong Kong conglomerate Hutchison Whampoa “is considering a plan for an initial public offering of stock of its A.S. Watson & Company unit, a retailer with 11,093 stores,” The Wall Street Journal reports. WALL STREET JOURNAL

Putting a Price on Twitter  |  Twitter is not profitable, while Facebook was when it went public. But Twitter’s revenue is growing faster, Robert Cyran and Richard Beales of Reuters Breakingviews write. REUTERS BREAKINGVIEWS

VENTURE CAPITAL »

Tech Wealth Meets the News Business  |  “Silicon Valley and its various power brokers â€" some who had roles in putting the news business in harm’s way to begin with â€" are suddenly investing significant sums of money in preserving news capacity and quality,” David Carr writes in the Media Equation column in The New York Times. NEW YORK TIMES

Silicon Valley in the Kitchen  |  “I’m using the same kinds of thinking that I used in technology start-ups while I build this food business, too,” Megan Miller, a co-founder of Chirp Farms, a start-up that makes food from insects, tells Nick Bilton in the Disruptions column on the Bits blog. NEW YORK TIMES BITS

LEGAL/REGULATORY »

Case Against Madoff Sons Is Dismissed in London  |  A British judge has concluded that neither Andrew nor Mark Madoff had any knowledge of their father’s Ponzi scheme. He also had some harsh words for the trustee seeking to recover money for victims of the fraud. DealBook »

Israel Names Head of Central Bank  |  Karnit Flug, who had been acting chief of the Bank of Israel since her predecessor stepped down in June, would be the first woman to head the central bank, Reuters reports. REUTERS

Adviser in ‘Big Short’ Faces S.E.C. Action  |  The Securities and Exchange Commission accused Wing F. Chau, an investment adviser who appears in the book “The Big Short” by Michael Lewis, and his New Jersey firm of misleading investors in a collateralized debt obligation and breaching their fiduciary duties. DealBook »

Lobbying the European Union  |  “As the European Union has emerged as a regulatory superpower affecting 28 countries that collectively form the world’s largest economy, its policies have become ever more important to corporations operating across borders,” The New York Times writes. “In turn, the influence business in Brussels has become ever larger and more competitive, rivaled only by Washington’s.” NEW YORK TIMES

Drunken Driving Arrest for Former Refco Finance Officer  |  Robert C. Trosten, the former financial chief, pleaded guilty to fraud in the Refco case and has been cooperating with prosecutors. Cooperation agreements typically require that defendants not commit any further crimes. DealBook »

HSBC to Appeal $2.46 Billion Judgment  |  The HSBC Group said on Friday that it would appeal a $2.46 billion judgment in a long-running securities fraud lawsuit in the United States related to a consumer loan and credit card business that the British bank acquired more than a decade ago. DealBook »

Chinese Billionaire May Privatize Hong Kong Developer

HONG KONG-Zhang Zhirong, a mainland Chinese billionaire who was involved in an insider trading case in the United States last year, may make a privatization bid for his property development company in Hong Kong.

Mr. Zhang, who is the largest shareholder in the shipbuilder China Rongsheng Heavy Industries, is expected to make a buyout offer to independent shareholders of Glorious Property, a Chinese developer in which he already owns a 68 percent stake, the company said Monday in a Hong Kong stock exchange announcement.

A privatization bid would be an opportunistic play by Mr. Zhang.

Despite the strong rebound in Chinese housing prices and sales volumes in recent months, shares in Glorious have slumped and were down 15 percent so far this year before being suspended from trading on Monday. The company’s stock is now more than 70 percent below the price at which it sold shares in its 2009 initial public offering, leaving Glorious valued at 9.7 billion Hong Kong dollars, or $1.2 billion.

The 32 percent stake that Mr. Zhang does not already own is worth about 3.1 billion Hong Kong dollars at the current share price.

A successful privatization of Glorious would be a bright spot on what has been a challenging year for Mr. Zhang.

Rongsheng has been hit hard by falling prices in the global shipbuilding industry. In July, laid-off workers temporarily blockaded its plant in Nantong, just north of Shanghai, and Rongsheng announced that it had been delaying payments to suppliers and staff because of a cash crunch. Mr. Zhang had to lend the company 200 million renminbi, or about $33 million, of his personal money to help it make payments.

In October of 2012, Well Advantage, a Hong Kong firm controlled by Mr. Zhang, agreed to pay $14 million to settle insider trading charges brought by the U.S. Securities and Exchange Commission. The S.E.C. had alleged that Well Advantage relied on confidential inside information to buy shares in Nexen, an oil company based in Calgary, Alberta, just before Cnooc, the Chinese offshore oil producer, launched a $15.1 billion takeover bid for the Canadian company.

Mr. Zhang was not personally named in the suit, but the S.E.C. identified him as the owner of Well Advantage. The firm neither admitted to nor denied the S.E.C.’s charges, but the $14 million settlement included disgorgement of $7 million in illegal trading profits and a $7 million penalty.

Weeks after the settlement was officially lodged with a court in the U.S. District Court for the Southern District of New York, Mr. Zhang resigned as a director of both Glorious and Rongsheng, citing personal reasons.