After SAC Plea, Fellow Funds May Pay

In striking its $1.2 billion settlement with SAC Capital Advisors, the government set a record for insider trading penalties. For the hedge fund industry, the hidden costs of the deal are even bigger.

Tougher regulatory scrutiny since the financial crisis and changes in the law have forced hedge funds to spend millions of dollars a year on new compliance measures to make sure that they are not ensnared in the same net as SAC. This has added to the cost of doing business, which can cut into returns.

“It is getting much more expensive for hedge funds,” said Thomas A. Sporkin, a partner at Buckley Sandler and a former enforcement lawyer at the Securities and Exchange Commission. “What kind of returns are you going to need to make in this business given the compliance and regulatory burdens?”

The history of SAC’s rise as it became one of the biggest and most successful hedge funds and its subsequent fall, punctuated by the settlement on Monday, is part of a larger story of how the industry has evolved since the 1980s, when insider trading charges were treated with the seriousness of a parking ticket. Today, within many of the wood-paneled offices of Wall Street firms, insider trading has been elevated to grand larceny.

Across the industry there is a sense that hedge fund managers are “trading in their motorcycles for regular cars,” as one industry insider put it, as they seek to limit risk and stay clear of regulators.

The regulatory broom sweeping through the hedge fund world is the result of a wider multiyear crackdown on Wall Street that culminated on Monday with a statement from Preet Bharara, the United States attorney for the Southern District of New York, declaring that no firm should consider itself “too big to jail.”

Exhibit A was SAC, which agreed to plead guilty to five counts of insider trading violations and pay the record $1.2 billion penalty. The broader plea deal will also impose a five-year probation on the fund and require it to hire an outside monitor. A plea hearing on the deal has been scheduled for Friday.

The change in the government’s tone was demonstrated in a Manhattan courtroom two years ago when Raj Rajaratnam, the hedge fund billionaire who ran the Galleon Group, received an 11-year prison sentence for insider trading. It was a watershed moment for regulators, who for years had focused on individuals they knew to be engaging in insider trading but could not convict.

“Galleon was really another one of the big moments in time when you look back and say, ‘That took on a more heightened significance,’ ” Mr. Sporkin said.

Prosecutors were already looking into SAC, and from its investigation into the firm and Galleon, the S.E.C. was able to piece together the chain of information flow to other hedge fund managers and firms, helping regulators to connect the dots and emboldening them to pursue more firms.

As regulators delved into new investigations, they began to issue more subpoenas, sometimes to firms that were two or three steps removed from the target fund in the investigation but had important information.

At a recent conference for hedge fund general counsels at the University Club in Manhattan, David A. Chaves, a special agent at the F.B.I., described how his team found a key informant in an insider trading case five years ago. The anecdote illustrated how investigators are keeping hedge fund lawyers up at night.

“We would follow him every day for months,” Mr. Chaves said. “We would work out with him at lunchtime.” The informant ultimately led investigators to discover new links and informants around the world.

“We have a pretty good listening post of what is going on,” Mr. Chaves said.

As regulators were gaining a clearer view of what was going on in hedge funds, the Dodd-Frank financial overhaul law in 2011 forced the funds to provide more information about their businesses. As part of the new rules, hedge funds were required to have a compliance officer. For many firms, whose chief financial officer also served informally as the compliance officer, this meant hiring at least one more employee. It also meant diverting resources to new technology.

Then this year, under the leadership of Mary Jo White, who became chairwoman in April, the S.E.C. took a harder line on hedge funds. In particular, it is pushing defendants to admit guilt, reversing a longstanding policy of letting them “neither admit nor deny” any wrongdoing.

This summer, the S.E.C. extracted its first admission of wrongdoing from the hedge fund billionaire Philip A. Falcone. As part of his $18 million settlement, Mr. Falcone and his hedge fund, Harbinger Capital Partners, admitted to committing “multiple acts of misconduct.” Referring to the case at a conference in September, Ms. White said it was “extremely important that our settlements have teeth and be as strong as they possibly can.”

Steven B. Nadel, a hedge fund lawyer at Seward & Kissel, said, “Mary Jo White seems to be saying that the S.E.C. is going to take a tougher stance with persons who are accused of securities violation.”

For clients, this means spending time and money to ensure they are fully compliant in their practices, Mr. Nadel said. “There is a realization in the industry that the S.E.C. is going to be harsher on people who fail to comply with the rules.”

Compliance costs for large fund managers can run as high as $14 million a year, while midsize managers spend about $6 million, according to a recent study by KPMG.

With regulators hovering nearby, institutional investors have asked for more assurances that their money is safe. This, along with the costs associated with compliance with new rules, has made it harder for new funds to raise money.

But there is perhaps one group that will not bear any significant costs: high-net-worth investors.

“This will not put the fear of God into the individual investor,” said Martin D. Sklar, a lawyer at Kleinberg, Kaplan, Wolff & Cohen. “The S.E.C. and Justice Department have not made any of the investors bear the losses â€" in a way, you are not incentivized to invest away from the crooks.”

Even with new compliance measures in place, many of the industry’s biggest names are still uncertain of what SAC’s settlement with the government will mean.

“It’s pretty hard to feel any sense of relief or have any knowledge of what happens next,” said one longtime hedge fund executive who spoke only on the condition of anonymity because of concerns about breaching client confidentiality.

“I think that most hedge funds had pretty good procedures and have stepped up their compliance in the face of what is going on,” he added. “They know that to be sued for insider trading is the death knell for a firm.”

New York Is Investigating Advisers to Pension Funds

Public pensions in New York State have some of the most reliable funding in the country, but what happens to the money once it is in the pension system can be less clear-cut.

Now, state financial regulators have subpoenaed about 20 companies that help New York’s pension trustees decide how to invest the billions of dollars under their control to determine whether any outside advice is clouded by undisclosed financial incentives or other conflicts of interest.

“The recent financial difficulties in Detroit serve as a stern wake-up call, demonstrating why strong oversight of New York’s public pension funds is so important,” Benjamin M. Lawsky, the New York financial services superintendent, said in letters sent last month to the trustees of the top state and city public plans.

Detroit’s municipal pension fund suffered severe losses on real estate investments, among other problems, and now that the city is bankrupt, investigators are trying to find out exactly what went wrong. In some cases, certain Detroit pension trustees were taken on junkets dressed up as investment site inspections. And in one instance, an investment promoter paid a bribe to win pension money for real estate projects in the Caribbean but then spent the money building an $8.5 million mansion in Georgia.

Mr. Lawsky said in his letter to New York’s pension trustees that he wanted to look at “controls to prevent conflicts of interest, as well as the use of consultants, advisory councils and other similar structures.” Together, the city and state trustees serve as stewards for $350 billion of retirement money.

Public workers and retirees are not the only ones with a stake in New York’s public pension system. If money is wasted, or invested in assets that lose money, the retirees still receive their checks, but local taxpayers must make up the losses.

Representatives of New York pension trustees said they were cooperating with Mr. Lawsky’s inquiry but already had extensive controls in place to make sure the retirement money in their care was invested properly. State Comptroller Thomas P. DiNapoli, the sole trustee of New York’s big state-run pension system, has called that system “one of the most transparent and accountable public pension funds in the country” in a statement on his website.

The latest subpoenas were sent last week to consultants that range from large firms like Wilshire Associates, Callan Associates, Towers Watson and Russell Investments to smaller firms that are not well known outside the world of institutional investing. Some of the firms advise public pension trustees in New York, but others do not. Mr. Lawsky apparently included both types in his investigation to learn more about bidding processes in general. Some of the subpoenaed firms had submitted unsuccessful bids and are now being asked for their records.

Mr. Lawsky’s subpoenas seek information like the consultants’ pitchbooks on various investment proposals, their compensation practices, their relationships with money managers and their methods of tracking investments that do not trade on public markets. One person briefed on the inquiry said the regulators appeared to be trying to learn whether any consultants were being paid by the firms they recommended, including in-kind payments or job offers.

Public pension funds typically have one or more general consultants who advise the trustees and senior staff members on developing an asset allocation policy, which assigns different shares of the total investment portfolio to stocks, bonds, real estate and other types of assets. In recent years, concerns have been raised that general consultants have been encouraging trustees to shift more pension money into aggressive investments in hopes of earning higher annual returns than can be achieved with stocks and bonds. That exposes taxpayers to greater risks because assets that promise the biggest potential rewards are also generally the most volatile.

In banking and insurance, which Mr. Lawsky also regulates, riskier assets are counted at less than their full value, and financial institutions can be downgraded or even forced to take corrective action if their portfolios are too volatile. Those principles have so far not been applied to public pensions, but Mr. Lawsky said in his October letter that he had “decided to take a new approach to pension fund oversight.”

“Where we find areas that need urgent and prompt corrective action, we may propose new regulations to increase accountability and transparency at those funds,” he wrote.

In addition to their general consultants, New York’s pension funds also work with specialized consultants who handle single asset classes. The state retirement system has separate consultants for private equity funds, hedge funds, real estate, fixed income, international stocks and domestic stocks. The more esoteric the investment class, the higher the fees these consultants are paid because nonstandard investments like hedge funds are generally harder to track and measure.

New York State’s private equity consultants received $2.1 million for their work last year, for example. Hedge fund consultants were paid about $1 million, while the consultants working with ordinary United States stocks received just $63,000, even though such securities represent a much larger share of the fund’s total portfolio.

Pension trustee duties are especially sensitive in New York, one of the few remaining states with a pooled system governed by a sole trustee instead of a board. New York’s immediate past sole trustee, Alan G. Hevesi, became the target of a wide-ranging pay-to-play investigation led by Andrew M. Cuomo, the attorney general at the time. Mr. Hevesi was eventually found, in effect, to have sold pension investment contracts to money managers, and served 20 months in a medium-security prison. He was released on parole last December.

That scandal generated calls to replace New York State’s sole trustee with a board, which were unsuccessful. Instead, Mr. Hevesi’s successor as sole trustee, Mr. DiNapoli, instituted a number of reforms and control measures intended to ensure that investments were chosen on the merits instead of secret payments.

Senior officials of the New York State pension fund said they had screened all of their consultants after the scandal and were satisfied that their bidding process was competitive and ethical. They said they did not think their investment consultants charged money managers to be included in their databases. Nor did they permit the pension system’s stock-trading business to be directed to any particular brokerage firms as part of an overall compensation package.

The New York officials said the state fund’s investment staff now reviewed all bids, whether for consulting work or investment contracts. They said a separate group of state employees reviewed the bidders’ proposals for how they wanted to be compensated. They said their outside consultants carried out the initial searches for investment managers, but the fund’s staff reviewed the finalists, doing background checks, site visits and other evaluations.

The offices of the New York State Teachers’ Retirement System and New York City Comptroller John C. Liu were closed for Election Day, and no one could be reached to comment on Mr. Lawsky’s investigation.

MF Global Customers Will Recover All They Lost

Two years after $1.6 billion vanished from their accounts, MF Global’s customers are now all but assured to collect every last penny.

A federal bankruptcy court judge approved a plan on Tuesday that would close the remaining shortfall for some 20,000 customers, many whose lives were derailed when their money disappeared in the firm’s final days.

As MF Global fought for survival in 2011, it improperly transferred customer money to its banks and clearinghouses, violating a cardinal rule of the financial industry. Federal investigators soon swarmed MF Global, a brokerage firm run by Jon S. Corzine, the former New Jersey governor.

James W. Giddens, the trustee unwinding MF Global’s brokerage unit, recovered large swathes of the money and gradually disbursed it to clients. But Mr. Giddens, still facing a roughly $230 million gap, recently petitioned Judge Martin Glenn to free up remaining funds from MF Global Incorporated’s general estate.

Judge Glenn agreed, potentially allowing Mr. Giddens to make customers whole by the end of the year.

The decision hands Mr. Giddens and MF Global clients â€" a hodgepodge of farmers, small-time investors and hedge funds â€" a long-sought victory. It also represents an unlikely bookend to the debacle and a remarkable turnaround from the firm’s bankruptcy filing when such a recovery seemed a long shot.

“In the opening moments of the liquidation proceeding, it seemed inconceivable that we would even consider the possibility of 100 percent return of property owed to former customers of MF Global,” Mr. Giddens said to Judge Glenn before he ruled.

Judge Glenn echoed the observation, noting the sudden turn in fortunes for customers. “At the outset of the case, nobody thought that customers would recover everything they lost,” he said at the hearing.

Some customers adopted a similarly skeptical view. In early 2012, they started to sell their claims to investment firms and big banks like Barclays for roughly 90 percent of face value. The investors wagered that, when the dust settled, Mr. Giddens would deliver the full amount of the claim. The judge’s ruling on Tuesday effectively lent credibility to the strategy.

Customers who traded overseas also had much to gain from the judge’s ruling. Until now, Mr. Giddens’s spokesman said, they have received only 74 percent of what once sat in their accounts.

For MF Global customers who traded in the United States, the ruling was largely symbolic. Mr. Giddens has already returned 98 percent to most of them.

Still, the final payout will provide closure. “It closes the chapter so we can move on,” said Mahesh Desai, a software account executive who was an MF Global customer.

Mr. Desai, who saw his $580,000 nest egg disappear when MF Global toppled, noted that he lost two years’ worth of potential interest in the markets. But praising Mr. Giddens for his efforts, Mr. Desai added, “We got a fair and reasonable outcome.”

It could have been worse. When MF Global failed for myriad reasons â€" a risky bet on European sovereign debt, a one-time charge that depressed its earnings and years of quarterly losses â€" authorities struggled to trace the money.

The authorities came to believe that an employee in MF Global’s Chicago office transferred the customer money, perhaps inadvertently, to banks like JPMorgan Chase.

Mr. Giddens targeted the banks. He also joined a private lawsuit against Mr. Corzine, whom many customers have blamed for failing to prevent the firm’s downfall.

But the banks were slow to cooperate. And even as Mr. Giddens recovered money here and there, he warned Congress last year that “a time-consuming, difficult and uphill battle” lay ahead.

Past cases also suggested that a 100 percent payout was unlikely. A trustee returning money to Bernard L. Madoff’s customers, for example, has recovered about half of the $17.5 billion of lost principal. Of course, unlike MF Global, Mr. Madoff carried out an elaborate Ponzi scheme over many years.

Mr. Giddens became more optimistic this summer. When the Commodity Futures Trading Commission filed civil charges against Mr. Corzine in June, saying he failed to supervise the employee accused of misusing the customer money, Mr. Giddens signaled that a 100 percent payout was in sight.

But until Tuesday’s ruling, he was still short $233 million. Now, with the judge allowing Mr. Giddens to tap the general estate for that sum and with the trustee already sitting on $456 million, Mr. Giddens expects to pay out a total of $689 million to customers in the coming weeks.

Mr. Giddens also said he expected to repay that loan from the estate “through future recoveries,” perhaps from the lawsuit against Mr. Corzine. Unsecured creditors of the estate, like contract employees and other vendors, however, are “likely to sustain very substantial losses.”

Mr. Corzine is fighting the trading commission’s charges and Mr. Giddens’ lawsuit. He also objected to Mr. Giddens’ use of money from the estate to repay customers. Even so, he welcomed the return of customer money on Tuesday.

“Mr. Corzine is very pleased that all customers will receive a full recovery,” a spokesman for Mr. Corzine said. “This is a great outcome, which has been anticipated for many months.”

The spokesman, however, noted that it could have come sooner. And for that delay, he pinned blame partly on the banks.

“It is unfortunate that the complexities of U.S. and U.K. bankruptcy laws, as well as the slow return of funds to the trustee by various financial institutions, kept customers from receiving a full recovery sooner,” he said.

A Vote Goes Against Outsize Executive Pay, But It’s Hardly a Blow

If you’re against high executive pay, don’t cheer because Oracle’s shareholders overwhelmingly rejected Lawrence J. Ellison’s $78.4 million pay package.

The shareholder vote was instead an illustration of how hollow these ballots can be. Deep down, the big mutual funds that own most of corporate America just don’t care about the issue.

Mr. Ellison’s pay has reached dizzying heights. In 2012, the Oracle chief executive was paid $96.2 million, an amount that was reduced this past year to a mere $78.4 million.

However you slice it and dice it, whether against Oracle’s peers or on a purely numerical basis, Mr. Ellison is paid better than almost any C.E.O. on the planet. This past year, though, Oracle’s share price lagged its peers in performance, something it rarely does.

Given the high dollar figure and the one-year lagging performance, the Change to Win coalition seized the opportunity. The union-affiliated group released a public letter arguing for Oracle shareholders to revolt against management’s compensation. The organization based its case on the indisputable fact that “Mr. Ellison’s pay far outstrips that of the highest paid executives at the companies Oracle has identified as peers,” peers that include Google and Microsoft.

The Dodd-Frank Act gave Change to Win an outlet to push this cause. That legislative overhaul requires public companies to hold nonbinding shareholder votes on executive compensation, called “say-on-pay.”

Last week, shareholders sided overwhelmingly with Change to Win, voting against Mr. Ellison’s pay package at Oracle’s annual shareholder meeting. It wasn’t even close, and if you strip out Mr. Ellison’s 25 percent ownership stake from the voting count, it appears that more 80 percent of shareholders that cast votes, voted no. Coincidentally, institutional investors like mutual funds own about 81 percent of Oracle’s outstanding shares, according to Standard & Poor’s Capital IQ, so it appears that these funds turned against Mr. Ellison.

In many ways, he was an easy target. Take the goal of tying pay to performance. The options granted to Mr. Ellison do not contain any requirement that Oracle outperform its peers. Instead, the package rises and falls with Oracle’s worth in the stock market, which depends on many factors. Not only that, but the package is entirely option grants. This means that Mr. Ellison’s pay is more sensitive to stock market movements, something that other companies have tried to get away from by granting instead restricted stock.

Oracle is an outlier. The company has an unusual pay package and is being targeted because of perceived greed more than anything else. It is viewed as poor form for a billionaire chief executive to pay himself these amounts when he also owns 25 percent of the company. After all, Larry Page and Sergey Brin, who co-founded Google, take no significant compensation, nor does Mark Zuckerberg who founded Facebook. While Mr. Ellison’s lifestyle is expensive, he doesn’t need the money, given that he has a $41 billion fortune, according to Forbes.

Oracle’s aggressive defense may have also worked against it in the shareholder vote. In response to Change to Win, the company’s general counsel, Dorian Daley, defended the package by encouraging Change to Win “to actually read our proxy statement.” Mr. Daley then stated that it appeared Change to Win was complaining because Oracle had overpaid Mr. Ellison by approximately $50 million. Mr. Daley defended this amount, saying it was only 0.36 percent of Oracle’s free cash flow, an amount worth it “to ensure the continued services of one of the country’s most successful entrepreneurs and technological visionaries.”

Based on that measure, by my calculations, Apple’s chief executive, Tim Cook, would have received an additional $185 million or so last year; the C.E.O. of Exxon Mobil would have gotten about $200 million more. Who knew these two were underpaid?

I did read Oracle’s proxy and I was also struck by the company’s assertion that the bulk of its incentive compensation goes to its top executives. Oracle paid two other executives more than $40 million each last year alone.

The company declined to comment for this column.

Oracle shareholders may have won this battle, but corporate America is winning the pay war. In three years of say-on-pay votes, high compensation at the nation’s largest corporations is routinely validated. As of August, 99 percent of Fortune 500 firms had their packages approved in say on pay votes, according to Towers Watson.

The median pay package last year for the top 200 chief executives at public companies with at least $1 billion in revenue was $15.1 million â€" up 16 percent from 2011, according to an analysis by Equilar for The New York Times.

For anyone who might see the Oracle vote as a sign of a change in sentiment toward outsize C.E.O. pay, think again.

The evidence is instead that the big institutional shareholders, the ones that voted against Mr. Ellison, either at best don’t care about changing executive compensation or at worst are being hypocritical, acting only when they have to. This is important because it is these institutional investors that own most of the country’s corporate stock.

Start with the Oracle package. While shareholders voted against Mr. Ellison’s pay, they actually had the means to stop it. Oracle’s incentive stock option program was being expanded and shareholder approval was required to do so. Had shareholders voted no on the incentive package, they could have halted the large option grants given to Oracle executives. But that proposal passed, because half of the Oracle shareholders who disapproved of the pay package thought it was perfectly fine to authorize the options that made the package possible. Oracle’s directors who approved this package were also re-elected.

The differing votes show how say-on-pay can merely be symbolic.

If these large institutional shareholders really cared, they would act to change the system, voting “no” on pay packages based on the structure, as well as the high number. Instead, what we are getting is tinkering and one-time gestures.

Institutional investors do not have much incentive to do much more. They control large pools of cash, but are paid to essentially to make or beat the market by a slight amount. Mutual funds appear to have no desire to effect real change, preferring to sell their shares when trouble arises at companies. They may even accept that such high pay packages are justified for the most part â€" after all, corporate America is worth trillions and this is a small price to pay for good performance.

The result is a hollow political exercise for those trying to push down C.E.O. compensation. Come next year, Oracle will no doubt be paying its executives tens of millions, and the rest of corporate America will not be that far behind.

And the biggest shareholders in the land won’t particularly care, even if they occasionally say they do.

The Tax Motive in Endo Health’s Deal

Greed is seeping into the art of mergers and acquisitions. Endo Health Solutions is the latest buyer to receive a warm welcome for a sensible acquisition with notable synergies. Its market value jumped almost as much as the $1.6 billion purchase price for Paladin Labs. But the deal also involves a huge tax dodge and investors aren’t factoring in enough risk.

This is no straightforward takeover. Endo is based in Malvern, Pa., and Paladin in Montreal. Because it is buying a foreign company that will wind up holding more than 20 percent of the combined equity, Endo reckons it can “invert” to a different location altogether. The plan is to create a new holding company based in Ireland that will own both Endo and Paladin. This maneuver should slash Endo’s typical tax rate of over 30 percent to 20 percent, and possibly to as low as 12.5 percent eventually.

The extra money will help the bottom line and give Endo an edge over many peers when pursuing future deals. The 28 percent rise in Endo’s shares suggests investors are counting on additional mergers and acquisitions. Its rival Valeant, where Endo’s chief executive came from, uses a similar strategy. An acquisition binge has led its stock to surge tenfold since 2008.

Endo is pushing boundaries, both literally and figuratively, to attain extra value. It’s paying a 20 percent premium for Paladin, which works out to about $270 million. Endo reckons operational synergies and tax savings combined, after taxes, are at least $75 million a year. Assume half that derives from the tax jurisdiction change and there would still be savings worth $375 million to investors, with Endo’s share more than covering the cost of the premium.

That wasn’t enough, though, just as it wasn’t for the American drug maker Perrigo when it agreed in July to buy Elan for $8.6 billion. Perrigo, too, is reaping tax savings by incorporating the combined company in its quarry’s home base of Dublin. Endo’s move is more audacious given the fact neither company is Irish. With governments facing fiscal constraints and tax avoidance squarely in their crosshairs, acquirers can’t expect their boldness to be overlooked.

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

Proposed Rule Limits Size of Commodities Traders’ Positions

In 1979, Nelson Bunker Hunt and William Hunt famously bought up as much silver as they could in the commodities market. By the time they were done, the brothers had acquired more than a third of the world’s supply of silver, sending the price of the precious metal soaring.

Citing the Hunt brothers’ attempt to corner the market more than three decades ago, the Commodity Futures Trading Commission on Tuesday voted 3 to 1 to limit the size of any trader’s footprint in the commodities market.

It is the second time that the commission has voted on a proposal for so-called “position limit” rules. The commission proposed a rule on Oct. 18, 2011, that was rejected by the United States District Court for the District of Columbia last year, after two Wall Street trade organizations filed a lawsuit contending that the rule would cause prices to swing wildly.

Gary Gensler, the chairman of the commission, said on Tuesday that the new position limits would “help to protect the markets both in times of clear skies, price discovery functions, certainly, as well as when there’s a storm on the horizon.”

Bart Chilton, a member of the commission who has been a strong advocate of the limitations, said of the proposal: “I’m reminded of the old Etta James song, ‘At Last.’ At last we’ve got this rule here.” Mr. Chilton also announced on Tuesday that he would “at last” be leaving the commission, without giving any further details.

The commission’s proposal is part the Dodd-Frank financial overhaul signed into law by President Obama in 2010. While the agency has long had rules in place to limit speculation in the markets, those rules previously applied only in the last days ahead of a futures contract delivery and only to nine agricultural commodities, including corn and wheat.

With the new rules the commission has proposed to apply these limitations more broadly to include derivative contracts for 28 different types of commodities future contracts, including agriculture contracts, energy and metal contracts, irrespective of the delivery date for a contract.

The proposal would allow exemptions for traders with bona fide hedging needs. Traders use the commodity futures markets to hedge against price fluctuations in the physical assets they hold. Equally, farmers will hedge the price of their crops, buying futures contracts to lock in the price of the product at a point in time before it is harvested.

Scott D. O’Malia, a member of the commission and the only Republican, cast the dissenting vote. Mr. O’Malia said he had “serious concerns” about the new proposed rule because it failed to use empirical evidence to justify the position limits, did not give enough flexibility for traders and failed to establish what he referred to as a useful process for traders to seek exemptions.

The new rule is open for public comment for 60 days. The commissioners will then vote on a final version of the rule. The commission received more than 15,000 letters from the public after its original proposal.

“To say the public is interested in these matters would be, I think, an accurate statement,” Mr. Gensler said on Tuesday.

Referring to the Hunt brothers’ speculative buying of silver, Lee Ann Duffy, assistant general counsel for the commission, said the new limitations proposed on Tuesday would have “prevented the Hunt brothers and their cohorts from accumulating such large future positions.”

The commission accused the Hunt Brothers of illegally manipulating silver prices in 1985. The brothers denied wrongdoing. In 1989, Nelson Bunker Hunt agreed to pay a $10 million fine. He was also banned from commodities trading.

Allen Edmonds Changes Private Equity Hands

The private equity firm Brentwood Associates has won the bidding war for the Allen Edmonds Corporation, the high-end men’s shoemaker, ending a sale process that included suitors like Men’s Wearhouse.

Brentwood, based in Los Angeles, bought the company from another private equity firm, Goldner Hawn Johnson & Morrison, for about $180 million, according to a person briefed on the deal who was not authorized to speak publicly. Goldner Hawn, which is based in Minneapolis, purchased Allen Edmonds in 2006 for about $100 million.

“In many ways the Allen Edmonds brand belongs to its customers,” Jack Morrison, managing director of Goldner Hawn, said in a statement on Tuesday announcing the acquisition. “We understood from the beginning that Allen Edmonds’s customers value the brand a great deal, enough to pass it on from generation to generation.”

Steve Moore, a Brentwood partner, said in the statement: “The Allen Edmonds brand fits perfectly with our strategy of investing in category-defining brands with exceptional customer loyalty.”

Men’s Wearhouse, itself a takeover target from Jos. A. Bank, courted Allen Edmonds as recently as late last month.

“We had significant interest in the company, which was very gratifying,” Paul Grangaard, the president and chief executive of Allen Edmonds, said in a phone interview on Tuesday. Mr. Grangaard took up his post in 2008 and recommitted to the company’s strategy of making its products in the United States.

The company will remain committed to that strategy under new ownership, according to the press release, and to its manufacturing operation in Port Washington, Wis. Allen Edmonds has been making shoes in the area since its founding in 1922. Its shoes have been worn by the likes of Ronald Reagan and Bill Clinton.

Mr. Grangaard made assurances that his company’s leadership team would stay in place after the transition. While he expects “significant fine-tuning” from the new owners, Mr. Grangaard said, he does not anticipate important shifts in strategy.

“It’s a little bit like golf,” Mr. Grangaard said. “We’re going to play the game from tee to green the way we play it, but we’re going to work on our short game a little harder.”

The investment bank Robert W. Baird & Company and the law firm Faegre Baker Daniels represented Goldner Hawn, while the Greenberg Traurig law firm represented Brentwood.

In Surprise Exit, Bart Chilton to Depart Futures Commission

Bart Chilton, the outspoken regulator whose colorful commentary on Wall Street positioned him as a fierce critic of the industry he helped oversee, announced on Tuesday that he was leaving his post at the Commodity Futures Trading Commission, a move that startled his colleagues and raised questions about the future of the agency.

Mr. Chilton’s surprise exit from the C.F.T.C., where he has served as the agency’s most liberal commissioner since 2007, coincided with the agency’s decision to propose a rule that he long championed. His announcement came at a meeting in Washington, where the agency was voting on so-called position limits. The proposal would rein in speculative commodities trading, which has been blamed for pinching consumers at the gas pump and the grocery store.

True to his knack for blending arcane financial minutiae with poetic inflections and music lyrics â€" his speeches are sprinkled with references to the likes of Bruce Springsteen to the Beatles â€" Mr. Chilton on Tuesday captured the moment with a song.

“I’m reminded of the old Etta James song, “At Last,” said Mr. Chilton, one of the agency’s three Democratic members. “At last, we’ve got this rule here,” and at last, he would be leaving the C.F.T.C.

Mr. Chilton, whose departure would cap nearly three decades of government service, explained that he recently formalized his decision in a letter to President Obama.

While he did not specify a reason for the departure, a specific departure date or his next role. His second term as a commissioner technically ended in April and formally will conclude in December 2014.

The White House has not yet renominated him, and commissioners rarely serve three terms. Further complicating matters, he already split his time between Washington and his home in Arkansas.

His departure creates an opening at an agency that is already shorthanded. Jill Sommers, a Republican commissioner, recently left. David Meister â€" the enforcement chief who brought actions against JPMorgan Chase and Jon S. Corzine, the former top executive of the bankrupt brokerage firm MF Global â€" departed the agency last week. And Gary Gensler, the agency’s chairman, will exit at the end of the year when his term officially ends.

If Mr. Chilton and Mr. Gensler leave before their replacements are picked, the five-member agency will be down to just two commissioners: one Democrat, Mark Wetjen, and one Republican, Scott O’Malia.

The White House is narrowing potential replacements for Mr. Gensler, according to people briefed on the matter. Timothy G. Massad, a former assistant secretary of the Treasury, is considered a leading candidate for the job.

But it is is unclear who might fill Mr. Chilton’s spot, and whether the White House will pick someone as outspoken as he.

An Indiana native and longtime creature of Capitol Hill, Mr. Chilton worked for three different members of Congress. He later became a senior adviser to then-Senator Tom Daschle when he was the Democratic leader of the Senate.

Mr. Chilton arrived at the trading commission in 2007, when it was regarded as something of a regulatory backwater. But in the wake of the 2008 financial crisis, the agency inherited broad new authority under the Dodd-Frank Act. Under the law, the agency’s reach encompassed the $40 trillion futures business as well as the dark corners of the $300 trillion derivatives market that were at the center of the financial crisis.

Mr. Chilton, an unapologetic supporter of Dodd-Frank, injected a populist tone to the agency’s deliberations. He also nudged his fellow Democratic commissioners to tighten rules the agency was adopting under the 2010 law.

The position limits proposal was one such rule. Dismissing Wall Street’s concerns as “trying to dance on the head of a legal pin,” Mr. Chilton demanded that the agency complete the rule. And when a federal judge struck down he rule last year, Mr. Chilton urged colleagues to propose a new version, leading to the vote on Tuesday.

The agency approved the new proposal in a 3-1 vote, with Mr. O’Malia voting against it. The proposal is now open for public comment.

Mr. Chilton, who embraced his role as the darling of consumer groups and the ire of Wall Street, has typically saved his harshest rebukes for the firms he regulated. When MF Global collapsed in 2009 and more than $1 billion in customer money disappeared, for example, he delcared: “If they do the crime, they shouldn’t just pay a fine; they should do the time.” He likened the search for the missing money to the “magical mystery tour,” a reference to the Beatles album and the movie.

Mr. Chilton at times turned the anger on his own colleagues. He dismissed the agency’s $1.5 million fine of Goldman Sachs last year “puny” and a “slap on the wrist.”

His announcement on Tuesday appeared to catch colleagues off guard.

“I’m surprised by the news and disappointed,” Mr. Wetjen said.

Mr. Gensler, calling Mr. Chilton “a true public servant,” urged him to stay. “I just still want to go at you a little bit longer about whether this is your last meeting,” Mr. Gensler said, adding that “we’ll continue those conversations in private.”

Mr. Chilton, who has written a book on Ponzi schemes and is currently writing another, has signaled grander ambitions. Author. Public speaker. Poet?

Mr. Chilton has waxed poetic on everything from position limits to delays in Dodd-Frank. The latter topic led him to invoke, of all things, Pink Floyd lyrics. (“Can’t keep my eyes from the circling skies/Tongue-tied and twisted; just an earthbound misfit, I.”)

“The message in the metaphor is that we really are boarding, implementing that is, and ready for regulatory takeoff of Dodd-Frank,” he said. “We’ve been waiting around the gate area, eating Cinnabons and watching cable news since July of 2010,” when the law was enacted.

Mr. Chilton’s departure, like many of his acts as a regulator, was unusual. Government officials typically telegraph their departure and land at large law firms or lobbying shops.

But, as one official said on Tuesday, “Bart wouldn’t do anything that would be considered close to conventional.”

The Mets’ Delicate Dance With a Billionaire

When the Mets needed money after their owners were fleeced by Bernard L. Madoff, they turned to Steven A. Cohen, a hedge-fund billionaire. Their first request to him to invest came in 2010. A year later, Cohen emerged again as a possible financial lifeline before the Mets agreed to sell 33 percent of the team for $200 million to David Einhorn, another hedge-fund wizard. But that deal eventually collapsed.

Steven A. Cohen is a minority partner of the Mets, but his company faces a $1.2 billion penalty for insider trading.

Ultimately, Cohen paid $20 million for one of the 12 minority partnerships that Fred Wilpon and Saul Katz, the team’s co-owners, sold last year. Even at that point, Cohen’s company, SAC Capital Advisors, was the focus of a long federal investigation into insider trading, which raised questions about the small pool of investors willing to pay for the Mets’ stakes and the owners’ due diligence of Cohen.

On Monday, SAC agreed to plead guilty to insider trading violations and to pay a record $1.2 billion penalty. Cohen has not been personally charged by the government, but he has been tainted by the conduct of his company.

Now, should Wilpon and Katz â€" or Major League Baseball â€" push Cohen to sell his sliver of the Mets? Fay Vincent, a former baseball commissioner who is a securities lawyer, said of Cohen: “Don’t forget, there’s a big difference between the company being charged criminally and he being charged. At this moment, he hasn’t been nicked.”

But, he added: “Generally speaking, people in these situations come forward and say to the company: ‘What do you want me to do? I don’t want to embarrass you. You’ve got plenty of troubles as it is.’ And many times, the individual will leave.”

That may not be so easy at Citi Field. The limited partners have agreed not to sell their shares for three years â€" or until around March 2015 â€" and to offer them to existing partners first. Given the debt-filled recent history of the Mets, it is unlikely that Wilpon has $20 million lying around to return to Cohen as the team seeks, in the weeks ahead, to sign some free agents with the money now coming off its payroll. Other minority partners, like the comedian Bill Maher, may not be willing to finance Cohen’s exit.

And if his stake were then offered to outside bidders, how many people these days want to invest tens of millions in the Mets?

Cohen certainly did not invest in the Mets in anticipation of any wild profits down the road. Cohen and the other Mets partners are receiving 3 percent annual compound interest if they keep their shares for six years, according to a document circulated to prospective investors.

Major League Baseball has pressed troubled owners to get out before, but only those who actually owned a controlling interest in their teams. Commissioner Bud Selig went to war against Frank McCourt to get him to sell the Los Angeles Dodgers, angered that McCourt had overused debt and diverted team money to finance his and his then-wife’s lavish lifestyle, among other reasons. And baseball pushed Marge Schott out of her position as the managing general partner of the Cincinnati Reds because of a series of ethnic, racial and inflammatory remarks.

Yet baseball approved Jim Crane as the owner of the Houston Astros despite his airfreight company’s legal problems. First, a federal investigation found that Crane’s company engaged in a pattern of racial and sex discrimination, charges that Crane settled by signing a consent decree. (Crane never admitted guilt and his spokesman has called the investigation a “shakedown.”) Second, two of his employees committed crimes that helped the company profit from the Iraq war.

In any case, a majority owner is of more concern to baseball than a minority partner, like Cohen, who has little power over a team’s direction. Cohen’s investment in the Mets, though relatively expensive, was not intended to give him a voice in the front office. And when fans think of the Mets, they think of Gary Cohen, the team broadcaster, not Steve Cohen. “Does this rise to the level where he should be forced to divest himself of ownership?” said Scott Rosner, a sports business professor at the Wharton School at the University of Pennsylvania. “Well, I can tell you if he were a potential buyer, he wouldn’t fly. He wouldn’t survive the due diligence. But he’s an existing owner and he probably has more leeway.”

Prosecutors could still, of course, file charges against Cohen. “If this falls on him,” Rosner said, “it’s a different story.”

Email: sandor@nytimes.com

A version of this article appears in print on November 5, 2013, on page B14 of the New York edition with the headline: The Mets’ Delicate DanceWith a Billionaire.

Telefonica and Vivendi Deals Underscore European Trend

Consolidation continues in Europe’s telecommunications industry, as the big players shed assets they consider secondary to their refocused strategies.

In the latest round of deal-making, the Spanish telecom giant Telefónica agreed on Tuesday to sell a 66 percent stake in its Czech subsidiary for around 2.5 billion euros, or $3.5 billion to the PPF Group, founded by a local billionaire, Petr Kellner. Rumors that the deal was in the works had circulated in recent days.

Also on Tuesday, the French conglomerate Vivendi announced that it was shedding its 53 percent stake in the Moroccan company Maroc Telecom to Emirates Telecommunications, or Etisalat, for €4.2 billion.

The sales come as many of Europe’s largest telecom companies, including Vodafone and Deutsche Telekom, are fighting for users across the Continent. At the same time, European policymakers are trying to cut roaming charges and other fees in an attempt to create a pan-European market for cellphone coverage.

The industry changes have caught many of Europe’s smaller telecommunications companies off guard. Many of the companies do not have the financial resources to invest fully in so-called fourth generation high-speed data connections. And even larger companies like Telefónica continued to be weighed down by debt that has hindered their investment plans, just as Europe’s consumers are increasingly using their cellphones and tablets to access the Internet through mobile data services.

As a result, analysts say more acquisitions and disposals will probably follow, as Europe’s mobile carriers sell unwanted assets and pick up other businesses, like cable operators, that provide new streams of income. International players, including AT&T and the Mexican carrier América Móvil, are also on the hunt for cheap acquisitions across the Continent to take advantage of the flux.

“The European telecoms industry is about the survival of the fittest,” said Adrian Baschnonga, a telecom analyst at the consulting firm Ernst & Young in London. “Everybody is expecting some form of consolidation.”

By selling its stake in its Czech unit, Telefónica will raise much-needed cash to help pay down its outstanding €49 billion euros of debt. The Spanish company has been shedding assets in peripheral markets to focus on its operations in its core regions like Latin America and Germany.
Under the terms of the deal, Telefónica will retain a 4.9 percent stake in the Czech unit.

Earlier this year, Telefónica agreed to buy the German unit of the Dutch carrier KPN for around €8.6 billion. The Spanish company has also increased its stake in its European rival Telecom Italia, which competes with Telefónica across Latin America.

For Vivendi, analysts said the deal to sell its stake in Maroc Telecom was part of the French company’s strategy to refocus its operations around its core businesses like subscription television and music.

Vivendi, which also owns the French telecom firm SFR, is moving to sell most of its stake in the video game maker Activision Blizzard for $8.2 billion. The French company also agreed last month to buy the remaining stake in the French pay-TV channel Canal+ that it did not already own from the French conglomerate Lagardère for €1 billion.

Etisalat, which is acquiring the majority stake in Maroc Telecom from Vivendi, has operations across the Middle East and Africa. Etisalat first made an approach for the stake in the Morroccan operator in July. The deal is expected to close by early next year.

Shares in Telefonica fell more than 1 percent in afternoon trading in Madrid on Tuesday, while Vivendi’s stock price rose less than 1 percent in Paris.

Endo Health to Buy Specialty Drug Maker for $1.6 Billion

Endo Health Solutions, a health care company known for its pain medication, has reached a deal to acquire a Canadian specialty drug company, Paladin Labs, for $1.6 billion in stock and cash.

The acquisition is Endo’s largest since it bought American Medical Systems for $2.9 billion in 2011. Based in Montreal, Paladin offers treatments in the fields of ADHD, pain, urology and allergy, among others.

“The acquisition of Paladin Labs accelerates Endo’s transformation from an integrated health solutions company to a top-tier global specialty health care leader,” Rajiv De Silva, president and chief executive of Endo said in a statement.

The deal has a complicated structure intended to make it tax free. Each share of Endo and Paladin Labs will be acquired by a newly formed Irish holding company, “New Endo.” Paladin shareholders will receive of 1.6331 shares of New Endo stock and 1.16 Canadian dollars in cash for each of their shares. That currently represents a premium of about 20 percent to Paladin’s closing price on Monday.

In addition, Paladin shareholders will also receive one share of Knight Therapeutics, a new Canadian company formed to hold Impavido â€" a treatment for leishmaniasis, a disease spread by the bite of the female sandfly â€" that will split off as part of the transaction.

And Paladin shareholders will receive more cash if Endo’s volume weighted average share price during a certain time falls more than 7 percent.

Endo shareholders will get one share of New Endo for each of their shares. The Malvern, Pa.-based company says it does not expect the transaction to be taxable to U.S. shareholders. The deal is expected to close in the first half next year.

Deutsche Bank, Skadden, Arps, Slate, Meagher & Flom, Torys, KPMG and Houlihan Lokey Financial Advisors advised Endo. Deutsche Bank and RBC Capital Markets have agreed to provide committed financing to Endo as part of this transaction.

Credit Suisse, Davies Ward Phillips & Vineberg and Ernst & Young advised Paladin Labs.