SAC Capital Pleads Guilty, Then Judge Calls a Timeout

After spending the better part of a decade fighting a federal insider trading investigation, SAC Capital Advisors must wait a few extra months for closure.

The hedge fund pleaded guilty to insider trading charges at a court hearing on Friday, but the judge overseeing the case declined to give the plea preliminary approval. In a somewhat surprising move, Judge Laura Taylor Swain of Federal District Court in Lower Manhattan said she would take time to study the case and reserve judgment until March.

The show of caution does not necessarily signal trouble ahead for SAC, run by the investor Steven A. Cohen. Legal experts said they expected Judge Swain would ultimately sign off on the deal. But under the terms of the deal, if Judge Swain does balk, SAC can withdraw its guilty plea.

The hourlong hearing came days after federal prosecutors in Manhattan announced a plea deal with SAC. The deal, which would resolve a five-count indictment accusing SAC of permitting a “systematic” insider trading scheme, required the hedge fund to plead guilty to all five counts, pay $1.2 billion to the government and terminate its business of managing money for outside investors.

The case, which began with an inquiry from the Securities and Exchange Commission in 2002, represented a rare show of criminal force against a large corporation. With Friday’s guilty plea, which was entered by the firm’s general counsel, SAC became the first large Wall Street firm in a quarter-century to accept criminal charges.

Peter Nussbaum, the general counsel, noted that SAC was “paying a very steep price” for the actions of former employees. Not only is the fine a record for insider trading cases, but Mr. Nussbaum highlighted the “damage done to our business and the reputations of the good people” who work at SAC.

Still, Mr. Nussbaum said the fund accepted responsibility for the government’s accusations.

“I want to express our deep remorse for the misconduct of each individual who broke the law while employed at SAC,” said Mr. Nussbaum, who was grimacing in pain from a recent appendectomy. “This happened on our watch, and we are responsible for that misconduct.”

The guilty plea has humbled what was once one of Wall Street’s mightiest hedge funds, which at its height had more than 1,000 employees around the globe. It also colored SAC’s investing track record, which amounted to returns of 30 percent annually over the last two decades.

But in a moral victory for SAC, the government has not criminally charged Mr. Cohen, a billionaire collector of art and real estate.

Still, the F.B.I. and prosecutors continue to investigate his trading patterns. He also faces civil charges from the S.E.C., which accused him of failing to reasonably supervise employees charged with insider trading. Six of those employees have pleaded guilty and are cooperating with prosecutors. Two others are fighting the charges and will stand trial in the coming months.

The charges against the employees laid the groundwork for SAC’s indictment in July. Calling SAC a “veritable magnet of market cheaters,” prosecutors outlined the many instances in which SAC employees ran afoul of insider trading rules.

Under the law of corporate liability, the government can attribute the bad acts of employees to a company as long as the employees acted “on behalf of and for the benefit of” the company. Bolstering the indictment, the government referenced a breakdown in controls that allowed the trading to persist.

At the hearing on Friday, prosecutors outlined what would have been their case at trial. Arlo Devlin-Brown, one of the prosecutors overseeing the case, cited SAC’s “institutional indifference” to illegal trading.

With former SAC employees likely to testify at a trial, SAC chose to strike a deal. The result, after weeks of negotiating, was a steep settlement.

The $1.2 billion penalty, which includes a $900 million criminal fine and a $284 million civil forfeiture of profits, eclipses past insider trading cases. It comes on top of the $616 million SAC already agreed to pay the S.E.C. to resolve a related civil case.

Under the terms of the plea deal with the criminal prosecutors, SAC is also subject to a five-year probation and an outside monitor. Although SAC agreed to forgo managing money for outside investors, it told employees this week that it would transform into a so-called family office, managing Mr. Cohen’s roughly $9 billion fortune.

But to fully move on, SAC first needs court approval. The deal cleared one hurdle this week when Judge Richard J. Sullivan signed off on the civil $284 million payout, clearing the way for what he called the “main event,” or Judge Swain’s hearing. Judge Swain, known as a stickler for details, is now expected to rule on the plea deal when she formally sentences SAC in March.

On Friday, her courtroom was packed. At least 10 F.B.I. agents and prosecutors attended the hearing. They included Richard B. Zabel, the deputy United States attorney in Manhattan, and Lorin L. Reisner, the head of the criminal division.

While Preet Bharara, the United States attorney in Manhattan, did not attend the hearing, he alluded to the case at a legal conference earlier in the day. Noting the rarity of indicting a large company, he said that “the pendulum may have swung too far in the direction of not holding institutions accountable.”

For SAC, five lawyers from the law firms Willkie Farr & Gallagher and Paul, Weiss, Rifkind, Wharton & Garrison gathered at the defense table with Mr. Nussbaum. The lawyers included two mustachioed Paul Weiss partners, Theodore V. Wells Jr., and Daniel J. Kramer.

Mr. Nussbaum appeared to be hobbled, unable to stand for long stretches because of the appendectomy. Judge Swain inquired whether Mr. Nussbaum was doing O.K.

“All things considered,” he replied.

Now, Batista’s Shipbuilding Firm to File for Bankruptcy

SÃO PAULO, Brazil - The empire of the Brazilian businessman Eike Batista took another hit Friday, as his shipbuilding firm OSX said it would file for bankruptcy.

OSX’s board of directors released a statement Friday evening that it had decided to apply for court-supervised restructuring. It also said that Ivo Dworschak Filho would replace Marcelo Gomes as chief executive, and that the firm was hiring the consultancy Angra Partners to advise it on its restructuring.

The move comes as Mr. Batista’s firms, once symbols of Brazil’s might, have suffered under the weight of huge debt. All six of his firms have now declared bankruptcy, transferred ownership or sold off key assets.

OSX’s debts were $2.4 billion at the end of the second quarter according to the company’s balance sheet, but the current number may be greater.

Suppliers are claiming OSX owes them far more than the 650 million reais ($280 million) that the company acknowledges. Several, including the Italian engineering firm Techint, are already suing OSX.

Mr. Batista’s flagship firm, the petroleum concern OGX, declared bankruptcy on Oct. 30. Analysts have speculated that OSX was always likely to follow because its biggest client was OGX, which may owe it as much as $2.6 billion from unpaid bills and fines over broken contracts.

Roberto Altenhofen, an analyst with Empiricus Research in São Paulo, said “my base scenario is that OSX ends up in liquidation. It is not operationally viable.”

He said the company was losing money even before making payments on its debt, which it cannot hope to service unless creditors agree to a major haircut.

But creditors may not do that, Mr. Altenhofen said, when they can force OSX to sell its valuable offshore platforms and get all or nearly all of their money back.

Lilyanna Yang, Latam Oil & Gas analyst for UBS, wrote in a research note on Wednesday that the market value of OSX’s assets exceeded its debt by $356 million. But she added that “liquidation value can be eroded quite fast while liabilities can mount.”

OSX was the last of Mr. Batista’s six companies to list shares on the São Paulo stock exchange, and in March 2010 it raised $1.58 billion in what was then the seventh largest I.P.O. in Brazil’s history.

The six companies, whose names all ended in “X,” were supposed to create synergies to develop Brazil’s natural resources and make Mr. Batista the world’s richest man.

The plan was for OGX to find petroleum and gas using equipment OSX supplied, while MMX mined and transported iron, CCX mined coal, MPX generated electricity, and LLX built a giant port to export all the petroleum, iron and coal.

All six companies went public with little or no revenue, just a largely successful plea for investors to trust Mr. Batista, who had already made himself (though not his shareholders) a fortune in the 1980s and ’90s with a gold mining company listed in Toronto and New York, TVX. But none of the companies managed to become profitable in time to service their huge debts.

Mr. Batista’s companies also benefited from the Brazilian government’s since-abandoned ambition to create, with the help of subsidized financing from state-owned banks, private sector “national champions” meant to compete with multinational companies.

Walter de Vitto, petroleum analyst at the São Paulo consultancy Tendências, said OGX and OSX’s problems were specific to these companies and did not reflect Brazil’s energy sector as a whole.

“They made highly risky and highly leveraged bets which they sold to investors as sure things, when they weren’t sure at all.”

The Standouts of Private Equity

The Great Separation has arrived in private equity.

For a long stretch, investors barely distinguished among the publicly traded stocks of Apollo Global Management, the Blackstone Group, the Carlyle Group and K.K.R. There now appears to be a noticeable appreciation for the differences. It should be a welcome change even if it reflects some short-term thinking about a long-term business.

A blowout quarter from Leon Black’s shop, Apollo, helped it stand apart from rivals. Unprecedented harvesting of investments in companies like Sprouts Farmers Market, Realogy Holdings and Berry Plastics delivered earnings that far exceeded what analysts expected. So pronounced has been Apollo’s stock-market rally over the last year, however, that even the impressive news on Thursday wasn’t enough to power its tradeable units further.

It wasn’t long ago that investors failed to distinguish one barbarian from the other. Overlay the stock charts of Apollo, Blackstone and K.K.R. from November 2011 to November 2012 and they practically sit atop one another. Carlyle began trading in May 2012 and soon after the Four Horsemen were unbridled. Over the last year, Apollo’s shares are up 120 percent, Blackstone’s almost 80 percent, K.K.R.’s nearly 60 percent and Carlyle’s about 20 percent.

For one thing, investors have come to appreciate carry, or the investment profits that buyout titans can generate. When Blackstone first went public in 2007, most analyses centered on sum-of-the-parts models that put greater emphasis on the industry’s steady management fees.

That led to unfavorable and generally unsuitable comparisons to more traditional asset managers like T. Rowe Price. The result wound up ascribing little value to carried interest. More attention is now paid to putting a multiple on distributable earnings, or cash flow.

With four sizable firms now trading, and rivals like Oaktree Capital also in the mix, it is getting easier to spot the differences. Blackstone’s real estate portfolio, Apollo’s debt investments, K.K.R.’s balance sheet and Carlyle’s fragmented funds offer an array of strategies and risk profiles.

That all goes some way to explaining the variances in the share movements, with a marked preference for sellers over buyers. Like Apollo, Blackstone is heading for the exits in a big way, with initial public offerings of Hilton Worldwide, Brixmor Property and others.

Of course, the unsurprising implication is a tendency toward immediate gratification. That’s antithetical to private equity, whose fund model demands a time horizon of seven to 10 years. The Great Separation makes the differences between the industry’s two investor masters even more pronounced.

Jeffrey Goldfarb is an assistant editor at Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.

Did Twitter Leave Money on the Table?

Twitter’s stock jumped 73 percent in its first day of trading, adding more than $10 billion to the company’s market capitalization.

If the company had sold its 70 million shares at $45.10, the price of the first trade, instead of at $26, the price of the initial public offering, it would have raised $3.16 billion instead of its more modest $1.82 billion.

That math suggests that, as Dan Primack of Fortune wrote, “Twitter left more than $1.3 billion on the table.”

This is a common assertion when new stocks soar in their first days of trading. It suggests that the bankers managing the offering miscalculated investor demand for shares and that the company somehow lost out. Twitter shares were down more than 3 percent in midday trading on Friday.

But unpacking this claim raises thorny questions about who, exactly, is supposed to benefit from an I.P.O. and what exactly is motivating investors when they seek shares in a new company.

Should a stock offering maximize value for the companies selling shares, for the investors looking to gobble those shares up, or for early employees and funders? And why are investors buying the shares - because they love the company’s fundamentals, or because they sense a good deal?

One school of thought says companies should use I.P.O.’s to raise the maximum amount of cash, regardless of what that does to its short-term share price.

“It’s not in Twitter’s interest to really care about the price they close at today,” David Stewart, co-founder of a start-up called JumpCam, said in an email on Thursday. “What should matter to them is one, how much money they raise via the I.P.O., and two, their long-term valuation.”

Mr. Stewart argues that Twitter and its banker, Goldman Sachs, widely miscalculated demand for the stock, depriving the company of cash in the bank and long-term market value.

There may be some truth to that, but Twitter is clearly satisfied with the amount of cash it raised and now has access to the capital markets should it need to raise more money soon.

As for the investors who bought the stock as part of the offering, they did indeed make out well. Those who were able to secure an allocation of shares recognized an instant 73 percent gain on their investment. Mr. Stewart and those who share his view argue that that’s an irresponsible move, “transferring some value” from Twitter “to pre-I.P.O. speculators.”

But it is also in Twitter’s long-term interest to remain in the good graces of institutional investors that believe in the company and will continue to invest. After all, based on fundamentals alone, it was hard enough to justify valuing Twitter at $13 billion, let alone $30 billion.

As for the early employees, venture investors and those who managed to secure Twitter shares on the secondary market, they also made out well in the debut. Sometimes insiders sell during the I.P.O. Such sellers might therefore favor pushing hard for a high offering price. Such was the case at Facebook, where internal pressure for a lofty valuation contributed to its high offering price.

But no Twitter insiders sold stock as part of the offering, meaning their shares, valued at as little as $17 just a week ago, are now sitting on stock worth more than $40 a share. With the shares still at least 66 percent above the I.P.O. price, Twitter’s insiders must feel rather pleased with how the offering was executed.

The truth is, there’s no way to know how much money Twitter left on the table.

If Twitter had priced its shares more aggressively in recent weeks, the tenor of media coverage might have been more skeptical, investors might have been scared off and demand could have lagged.

By taking a more conservative approach to pricing, Twitter possibly deprived itself of some capital. But it won the good graces of the market, which will help determine its fate going forward.

Without a doubt, Twitter probably could have raised more money for itself by increasing its I.P.O. price. But an I.P.O. is far more than a fund-raising exercise. When a company has publicly traded shares, it has taken the bracing step of putting itself at the mercy of investors. Twitter’s stock is now a public barometer of sentiment toward the company. That is something that had to be considered when pricing its I.P.O.

If the price had been much higher than $26, the stock might have plunged below the offering price on the first day of trading, setting off a swirl of negativity. Facebook’s shares sagged after its I.P.O., complicating management’s efforts to convince investors that it was working on ways to increase advertising revenue.

Twitter still has to prove it can make money. But for now, at least, it has the confidence of the public markets.

Adding Up the Risks in Floating Rate Debt

It’s basic corporate finance that bonds involve two basic risks: interest rate risk and payment risk.

So what happens if a risk-free issuer puts out floating rate debt? We are about to find out, since the Treasury Department announced this week that it would soon start issuing two-year debt that would pay interest at the rate of the most recent 13-week Treasury bill rate, plus a spread set at the time of the initial sale. I think we can assume that the spread will be quite small, perhaps nonexistent.

So buyers essentially gets the same effect as rolling their money into a short-term Treasury bill over a two-year period, without any transaction costs. Or maybe we can see it as a short-term Treasury bill swap, again without transaction costs.

Such an investment would have a real return â€" the return after inflation â€" of zero. As a matter of theory, of course.

In times of crisis, the short-term Treasury bill rate is apt to have a negative real return, so that will show up here, too. And what if there is so much demand for the new floating rate notes that the spread is a negative number? Then, you end up getting negative real return, too.

But that ignores the biggest risk, which, in theory, should not exist at all: payment risk. A sovereign borrower borrowing in its own currency â€" in this case, that currency is also the leading reserve currency â€" should theoretically have no payment risk.

But theory does not account for the risks of irrationality. In particular, the reckless tendencies of Tea Party Republicans, who seem to be willing to do things best done outside the real world. Like landing a 747 on an aircraft carrier. Or defaulting on United States government debt.

That means these new floating rate instruments may give us a new way to measure the actual costs of Washington’s dysfunction. The difference between the return of short-term Treasury bills and the new floating rate notes will be the price of having your investment strapped to a political thrill ride for two years.

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

For Creator of Twitter’s Whale, a ‘Fail’ in Name Only

With its initial public offering on Thursday, Twitter minted a brand new group of billionaires, many of whom were rewarded for their early work with the company.

But one person who brought a sense of levity to the start-up during its darkest hours will not be making anything. That person is Yiying Lu, the artist behind Twitter’s “Fail Whale” - the image of a whale being carried by birds â€" that used to pop up every time Twitter’s website was down, which was a lot of the time in 2008.

Unlike Facebook’s graffiti artist who took shares instead of payment that turned out to be worth more than $200 million, or the masseuse at Google whose stock options made her a multimillionaire, Ms. Lu was not richer after Twitter’s first day of trading.

“I have no stock,” Ms. Lu said. “Yet,” she added after a pause.

Her story is just one of many from people who contribute to the success of a start-up but don’t reap a windfall when it goes public.

Ms. Lu, who was born in Shanghai, moved to New South Wales, Australia, as a teenager and later studied in London at Central Saint Martins College of Arts and Design. She created the whale as a birthday icon she would send to friends who were scattered around the world. It was meant to depict a whale so full of good wishes that it needed a little help from its bird friends.

In 2008, she posted it to iStockphoto.com, a royalty-free service where photographers and artists can post their work and license it for a small fee.

Biz Stone, one of Twitter’s co-founders, went to iStockphoto during Twitter’s early days when the site hit a rough patch with regular shutdowns. He was looking for a cheap image that could be used as a symbol when the Twitter site was down temporarily but would return soon. Ms. Lu’s image struck a chord with him and, as it soon became apparent, with Twitter’s followers.

Ms. Lu only discovered later that Twitter was using her whale image when a fan â€" one of many around the world who had named the Twitter whale ‘Fail Whale’ â€" contacted her to congratulate her. “When it came up I had no idea,” she said, “I didn’t even have a Twitter account.”

Looking back today, Ms. Lu called the chance discovery of her whale by Mr. Stone, serendipity. Even though she was not paid much for the image she would end up reaping enormous benefits.

“I do appreciate the opportunities and I want to tell the positive story,” she said.

Opportunities did begin to arrive. In 2010, when the comedian Conan O’Brien left NBC as host of “The Tonight Show” after a scuffle with management, he needed a fresh image for his new “Conan” show on TBS. His team, familiar with Ms. Lu’s work made famous by an online fan community, commissioned her for the job. She created a Pale Whale â€" depicting Mr. O’Brien riding the original Fail Whale â€" for the show.

Ms. Lu has also received a Shorty Award â€" which was created for Twitter users â€" and in a twist, earlier this year a Twitter engineer commissioned Ms. Lu to create a logo for Twitter’s “capacity service” team of engineers who help to keep the website up. The image is of a bird equipped with cogs and tools.

Even though Ms. Lu said she harbored no bad feelings toward Twitter’s management, which took a long time to acknowledge the artwork was hers, she did feel strongly about the role that art plays for technology companies.

“Tech companies should compensate artists who contribute to their company’s value,” she said, adding, “It’s important to humanize technology.”

Morning Agenda: A Smooth Start for Twitter

TWITTER’S SMOOTH DEBUT  |  Twitter on its first day of trading managed to avoid the missteps that marred Facebook’s debut last year, though the lofty market valuation it achieved adds pressure on the company to turn a profit soon, DealBook’s David Gelles reports.

Twitter’s shares closed at $44.90, 73 percent above the I.P.O. price. Still, that was slightly lower than the opening figure of $45.10 a share. The stock began trading around 10:30 a.m. under the ticker TWTR, rising as high as $50.09 a share before settling around $46 by midafternoon. Despite a smooth start, the company is sure to face continued scrutiny as it works to justify a valuation of $31.7 billion to stock market investors, Mr. Gelles says.

“This is a giant poker game,” said Lawrence E. Leibowitz, chief operating officer of NYSE Euronext, as traders and bankers set the opening price in the minutes before Twitter’s stock began trading. “It will be a bit volatile, but it’s a very exciting deal.”

One of the big winners in the deal is Suhail R. Rizvi, 47, an investor who tends to stay out of the spotlight. He runs a private investment company that is the largest outside investor in Twitter, with a 15.6 percent stake worth $3.8 billion at the end of trading on Thursday, Alexandra Stevenson and Nicole Perlroth report in The New York Times. “Mr. Rizvi’s rise illustrates how a new tech investor class with deep Wall Street connections is carving new paths into the unfamiliar and insular terrain of Silicon Valley.”

Thursday included a number of notable moments, which were chronicled by DealBook in a live blog. Protesters gathered at Twitter headquarters, for example, and the parents of Jack Dorsey, Twitter’s chairman, provided emotional support for the company’s debut.

UBS BUYS BACK TOXIC ASSETS  |  The Swiss bank UBS said on Friday that it had paid $3.76 billion to Switzerland’s central bank to repurchase the remaining value of a portfolio of troubled assets taken off its books during the financial crisis, in the latest sign of strengthening among European banks, DealBook’s Chad Bray reports. As part of a rescue plan five years ago, UBS spun off $38.7 billion in illiquid or distressed assets into a fund backed by the Swiss government and the Swiss National Bank. The fund, known as the StabFund, repaid a $1 billion loan to the Swiss central bank this year, a condition for UBS to be able to repurchase the remaining assets, Mr. Bray writes.

BLACKBERRY’S LATEST INVESTORS  |  Canadian, American and Qatari investors are helping to finance Fairfax Financial Holding’s planned $1 billion investment in the struggling smartphone maker BlackBerry, Ian Austen reports in DealBook.The largest contribution, $300 million, comes from Canso Investment Counsel, a privately held money manager based north of Toronto, according to a securities filing made on Thursday. Other investors include Mackenzie Financial, owned by the Power Corporation of Montreal; Brookfield Asset Management of Toronto; the Markel Corporation, based in Glen Allen, Va.; and Qatar Holding, an investment house started by the Qatar Investment Authority, Mr. Austen reports.

ON THE AGENDA  |  The jobs report for October is released at 8:30 a.m. The Reuters/University of Michigan reading of consumer sentiment for November is released at 9:55 a.m.

A PLUMBER AIMS TO FIX EUROPE’S BANKS  |  Charlie Mullins, the founder and owner of Pimlico Plumbers in London, who made his fortune fixing other people’s plumbing, is now seeking to fix the European banking sector, Julia Werdigier writes in DealBook. His idea is to reduce bankers’ pay and thereby force banks to become more cost-effective and customer-friendly. As for threats that bankers would leave London or Frankfurt and move to the United States or Asia should their compensation be curbed? Those are bluffs that need to be called, he said.

“There are a lot of bankers out there already, and ours aren’t any better or cleverer,” Mr. Mullins said. “It’s plumbers’ common sense.”

DEALBOOK’S COMING CONFERENCE  |  On Nov. 12, The New York Times will host its second annual DealBook conference in Manhattan. Speakers include Preet Bharara, David Bonderman, Ray Dalio, Barry Diller, Laurence D. Fink, Valerie Jarrett, Daniel S. Loeb, Elon Musk, Ruth Porat and David M. Rubenstein, among others. Don’t hesitate to submit questions online.

Mergers & Acquisitions »

IBM Finance Chief to Retire  |  Mark Loughridge, the chief financial officer of IBM, plans to retire at the end of the year after almost a decade on the job, the company said. He will be succeeded by Martin Schroeter, who previously was the company’s head of global finance.
REUTERS

Johnson & Johnson Unit Is Said to Attract Bidders  |  The health care company Danaher is teaming up with the Blackstone Group “to bid for Johnson & Johnson’s diagnostics unit, which makes blood screening equipment and laboratory blood tests and could fetch more than $4 billion, according to people familiar with the matter,” Reuters reports.
REUTERS

Salix to Buy Drug Maker Santarus  |  Salix Pharmaceuticals said Thursday that it would acquire Santarus, a maker of gastrointestinal and other specialty drugs, for $2.6 billion in cash, or $32 a share. The purchase price is about 36 percent higher than Santarus’s closing price on Wednesday.
DealBook »

INVESTMENT BANKING »

White House Names Senior Bank of America Executive to Commerce Post  |  If confirmed by the Senate, Stefan M. Selig would be joining an administration that has had a challenging relationship with Wall Street.
DealBook »

Metal Exchange Changes Rules to Reduce Wait Times  |  The New York Times reports: “Hoping to reduce the warehouse delays that have added billions of dollars to the prices that consumers pay for beverage cans and other aluminum products, the London Metals Exchange has released new regulations meant to reduce the waiting times at storage facilities owned by commodities traders and banks like Goldman Sachs.”
NEW YORK TIMES

Card Act Cleared Up Hidden Costs  |  A study on a 2009 law intended to force down the hidden fees that credit card companies collect from their customers came to a surprising conclusion, Floyd Norris writes in the High & Low Finance column in The New York Times. “The regulation worked.”
NEW YORK TIMES

Goldman Discloses Foreign Exchange Inquiry  |  Goldman Sachs on Thursday became the latest big bank to acknowledge that it was the subject of a series of wide-ranging investigations into the potential manipulation of the $5-trillion-a-day foreign exchange market
DealBook »

Royal Bank of Scotland to Pay $153.7 Million to Settle Mortgage Case  |  The Securities and Exchange Commission concluded that a bank subsidiary failed to investigate the quality of the underlying loans in a mortgage-backed security offering in 2007.
DealBook »

PRIVATE EQUITY »

Warburg Pincus Names General Counsel  |  The private equity firm Warburg Pincus has appointed Robert B. Knauss, a corporate partner at the firm of Munger, Tolles & Olson in Los Angeles, as general counsel and managing director.
DealBook »

HEDGE FUNDS »

Hedge Fund Is Said to Push for Men’s Wearhouse Merger  |  Eminence Capital has acquired about a 9.8 percent stake in Men’s Wearhouse and is said to be planning to push for strategic options like a proposed merger with Jos. A. Bank.
DealBook »

I.P.O./OFFERINGS »

Another Fire Raises Fresh Questions for Tesla  |  A Tesla Model S was destroyed by a fire after its battery was damaged â€" the third one in six weeks.
NEW YORK TIMES

VENTURE CAPITAL »

Path Is Said to Lose Its Head of Business  |  “We’ve heard that Path’s head of business Matt Van Horn gave notice yesterday, in order to co-found his own company with Path iOS developer Nikhil Bhogal,” Alexia Tsotsis of TechCrunch reports.
TECHCRUNCH

LEGAL/REGULATORY »

New York Fed Chief Says Big Banks Lack Respect for Law  |  “There is evidence of deep-seated cultural and ethical failures at many large financial institutions,” William Dudley, the head of the Federal Reserve Bank of New York, said in a speech on Thursday. “Whether this is due to size and complexity, bad incentives, or some other issues is difficult to judge, but it is another critical problem that needs to be addressed.”
HUFFINGTON POST

A Balancing Act for India’s Central Banker  |  The New York Times writes: “Raghuram Rajan, the head of India’s central bank, began his career as an economic theoretician. But a willingness to delve into the mechanics of an economic system may prove to be a bigger asset as he tries to straighten out India’s economy.”
NEW YORK TIMES

In Surprise Move, European Central Bank Cuts Rate  |  “The European Central Bank cut its benchmark interest rate to a record low on Thursday, moving to head off what some economists fear could be a long period of stagnation like the one that has afflicted Japan,” The New York Times writes.
NEW YORK TIMES

Economic Growth Gain Blurs Signs of Weakness  |  “Five years after the global economy was falling at its fastest rate, Western economies are still failing to gain much-needed momentum, despite the efforts of central bankers on both sides of the Atlantic,” The New York Times writes.
NEW YORK TIMES

White House Estimates Price of Government Shutdown  |  “Lost work: 6.6 million days. Back-pay costs: $2 billion. Private-sector jobs lost: 120,000. Those are just some of the costs of the 16-day partial government shutdown that ended last month, the Obama administration said in a detailed report released Thursday,” The New York Times reports.
NEW YORK TIMES

UBS Pays $3.76 Billion to Swiss Central Bank In Buy-back of Toxic Assets

LONDON â€" In the latest sign of a strengthening environment for European banks, the Swiss bank UBS said Friday that it paid $3.76 billion to Switzerland’s central bank to repurchase the remaining value of a portfolio of troubled assets taken off its books during the financial crisis.

As part of its rescue plan five years ago, UBS spun off $38.7 billion in illiquid or distressed loans, securities and derivatives into a fund backed by the Swiss government and the Swiss National Bank. The underlying assets in the fund have been sold over time.

The fund, known as the StabFund, repaid a final $1 billion loan to the Swiss central bank earlier this year, a condition for UBS to be able to repurchase the remaining assets. UBS had announced plans in July to buy back those assets.

The $3.76 billion payment represents the Swiss National Bank’s share of the remaining equity value of the fund as of the end of September. The fund’s equity value was split between the central bank and UBS.

Buying back the fund is another step in a plan by the chief executive of UBS, Sergio P. Ermotti, to transform the bank into a smaller, more profitable firm focused on wealth management and to move past its bailout.

Last month, UBS announced improved profit of 577 million Swiss francs, or about $630 million, in the third quarter, but its results continued to be challenged by charges for litigation and regulatory concerns.

The bank had reported a loss of 2.13 billion francs for the third quarter of 2012, after it booked billions of dollars related to its debt and the restructuring of its investment bank. The bank also cut 10,000 jobs last year as part of an overhaul designed to shift its focus from more risky trading activity in its investment bank.