SAC Trader Had ‘Secret Pipeline’ of Information, Prosecutors Say

Michael S. Steinberg is “successful, steady, serious,” said a lawyer for the most senior employee at SAC Capital Advisors to be charged with insider trading. And unlike the hard-charging billionaires that rule Wall Street’s top hedge funds, Mr. Steinberg was a history and philosophy major who started at SAC as a low-level clerk, the lawyer said.

Federal prosecutors, however, view the trader through a darker lens. Mr. Steinberg, they said, tapped into a corrupt insider trading conspiracy to make “big money” for himself. He also, they say, pushed a lower-level employee at SAC to provide “edgy” and illegal information about technology companies.

Those dueling portrayals of Mr. Steinberg, a 41-year-old trader who was among SAC’s earliest employees, emerged on Wednesday from opening arguments in his criminal insider trading trial at Federal District Court in Lower Manhattan. Mr. Steinberg is the first SAC employee to stand trial in the government’s decade-long investigation of the hedge fund, which is run by the billionaire stock picker Steven A. Cohen.

Mr. Steinberg’s trial, which strikes at the heart of that investigation, is unfolding two weeks after SAC agreed to pay $1.2 billion and plead guilty to five counts of insider trading violations. The authorities indicted the fund in July, pointing to a “systematic” insider trading scheme that spanned several employees and more than a decade.

The trial, the authorities contend, will illuminate the culture at SAC that opened it to such scrutiny. Of the eight SAC employees charged criminally, six have pleaded guilty to securities fraud.

Mr. Steinberg is accused of trading the stocks of technology companies like Dell and Nvidia after receiving confidential information about their earnings. He received this through Jon Horvath, an SAC employee who was plugged into a network of analysts that shared and traded notes on the companies. The original sources of the information, employees at Dell and Nvidia, have not been accused of any wrongdoing.

Mr. Steinberg’s lawyer, Barry H. Berke, and the assistant United States attorney, Antonia M. Apps, delivered opening arguments to a jury of nine women and three men that included two accountants and a former Postal Service worker.

Ms. Apps outlined the evidence the government would present: emails, phone records and trading records between Mr. Steinberg, Mr. Horvath and other analysts. This evidence would provide a “unique window” into the world of insider trading and the “secret pipeline” that Mr. Steinberg had into certain companies, she said.

“The defendant wanted” inside information, Ms. Apps said, “and the defendant got” it.

For his part, Mr. Berke explained to the jury the world of hedge funds, likening it to mutual funds, investments that many of the jurors had earlier disclosed that they owned. He also sought to distance Mr. Steinberg from the sharp-elbowed world of Wall Street, emphasizing how SAC managed millions of dollars on behalf of pension funds and universities.

The case, Mr. Berke said, hinges on Mr. Horvath.

The government presented Mr. Horvath as an employee who aimed to please Mr. Steinberg and who worked hard to provide him with the research and information he needed to make fruitful trades.

Under pressure to provide “edgy proprietary information” of the kind that would satisfy Mr. Steinberg, the prosecutor said, Mr. Horvath turned to a circle of friends and analysts that shared information.

As evidence, the government will reference an email from August 2008 in which Mr. Horvarth told Mr. Steinberg that he had “a 2ndhand read from someone” at Dell, adding, “Please keep to yourself as obviously not well known.”

Mr. Steinberg replied: “Yes normally we would never divulge data like this, so please be discreet.”

Mr. Berke sought to undermine Mr. Horvath’s significance, saying that he was “recreating history” in a desperate attempt to strike a deal with the government.

The opening remarks came late in the afternoon on the second day of jury selection. The pool of jury candidates included Occupy Wall Street participants. Two others disclosed that they had been investigated by the Securities and Exchange Commission. They were all dismissed.

“I know there are strong views about Wall Street,” Mr. Berke said as he wrapped up his opening remarks just after 5 p.m.

Mr. Berke urged the jurors to consider one question: Whether the government could prove beyond a reasonable doubt that Mr. Steinberg was guilty. Referring to Mr. Steinberg’s family in the gallery, Mr. Berke reminded members of the jury that they were holding the fate of one man in their hands.

Ex-U.S. Attorney to Join Davis Polk Law Firm in Washington

Neil H. MacBride, the former United States attorney in Alexandria, Va., will join Davis Polk & Wardwell as a partner, the firm will announce on Thursday.

In the latest example of a government prosecutor jumping to a high-paying law firm, Mr. MacBride will start in Davis Polk’s white-collar criminal defense practice early next year after four years in one of the country’s most prominent federal prosecutor’s offices. During his tenure, Mr. MacBride oversaw many newsworthy cases, including the criminal charges against Edward J. Snowden, who leaked classified documents from the National Security Agency, and the high-seas piracy convictions of 26 Somali pirates.

The managing partner of Davis Polk, Thomas J. Reid, said in an interview that Mr. MacBride’s hiring reflected the firm’s continued push to increase its presence in Washington at a time of stepped-up regulatory and criminal enforcement.

“We have been looking for a senior ex-prosecutor, and Neil is a great fit both professionally and personally,” Mr. Reid said. “Neil can provide the best risk advice to our clients on both regulatory and white-collar matters.”

Several other senior government lawyers left recently for lucrative partnerships at the country’s largest law firms.

Never before has white-collar criminal defense work been so profitable. Internal corporate investigations, foreign bribery cases and defending executives from accusations of financial wrongdoing have flourished after the financial crisis. Mr. Reid said his firm could hardly keep up.

“The biggest headache I have right now is staffing the burgeoning caseload we have in New York, D.C. and Asia,” he said.

At Davis Polk, which has more than 900 lawyers, Mr. MacBride will be based in the Washington office, which already has a battery of former senior government officials. Most recently, the firm hired Jon Leibowitz, a former chairman of the Federal Trade Commission. Other partners in Washington include Annette L. Nazareth, a former S.E.C. commissioner, and Linda Chatman Thomsen, a former S.E.C. enforcement chief.

Before his appointment as United States attorney, Mr. MacBride, 48, served in a variety of government posts, including chief counsel for Senator Joseph R. Biden Jr. from 2001 to 2005. Mr. MacBride also did a stint as general counsel of the Business Software Alliance, a technology industry trade group. He left his prosecutor’s job in September.

Mr. MacBride said he had chosen Davis Polk partly because of its culture. While most large law firms lavish multimillion-dollar salaries on their top producers, Davis Polk pays its partners in a narrow range.

“Lock-step compensation fosters a real camaraderie and esprit de corps that I found compelling,” Mr. MacBride said.

Despite the firm’s egalitarian compensation plan, Mr. MacBride will get a considerable pay raise. As United States attorney, he earned $155,000 a year; the average Davis Polk partner earned about $2.5 million last year, according to American Lawyer magazine.

Mr. MacBride won’t start his new job until April. Until then, he plans to spend time at home in Northern Virginia with his wife and three school-age children. “I plan to become reacquainted with my family and do my best Mrs. Doubtfire impression,” he said.

E.C.B. Nominates New Banking Regulator

FRANKFURT â€" The governing council of the European Central Bank on Wednesday nominated Danièle Nouy as head of the new central bank regulator for the euro zone. With the move, the council fills one of the most prominent job openings in Europe while answering criticism that it has no women in senior leadership positions.

If approved, Ms. Nouy would head the new so-called Single Supervisor. The new entity, which will be a part of the E.C.B., is designed to address one of the major flaws in the design of the euro zone: the lack of a unified banking system with common regulations and a central overseer.

Ms. Nouy, born in 1950, is a veteran bank regulator who has spent her entire career at the Bank of France, the French central bank, where she is secretary general of the Prudential Supervision and Resolution Authority. She had been considered a top contender for the E.C.B. job because of her experience and because the E.C.B. is looking to promote women to top posts. Ms. Nouy has been a member of as well as a senior official at the Basel Committee on Banking Supervision, the body that establishes global standards for bank regulation.

All 23 members of the E.C.B. governing council, which nominated Ms. Nouy after a meeting in Frankfurt Wednesday, are men. Her appointment as Europe’s highest-ranking bank supervisor must still be approved by the European Parliament.

The failure of European political leaders to clean up the banking system is a reason that the euro zone economy remains stagnant. Many banks have trouble raising money on the open market because of doubts about their health. As a result they are short of funds to lend to consumers and businesses, creating a severe credit crunch in countries like Italy.

The E.C.B. is embarking on a thorough review of the largest banks in the euro zone to determine which have serious problems and to force them to take corrective measures. The review is supposed to be completed in a year, even though the E.C.B. has only begun to hire staff for the new supervisor. The Single Supervisor is scheduled to legally acquire authority over banks at the end of next year.

Five years after the collapse of Lehman Brothers, many European banks remain undercapitalized and burdened with bad loans in part because national supervisors have lacked the will or the expertise to get them to address their problems.

Ms. Nouy’s nomination is likely to please Germany, which has generally been in harmony with France on bank regulation issues. But the two countries have faced criticism for being overly protective of their banks and opposing regulations that would curtail banks’ use of borrowed money to do business.

Where Does JPMorgan’s $13 Billion Go?

They were some of the biggest losers in the 2008 financial crisis: Fannie Mae and Freddie Mac, federal taxpayers, state pension funds, credit unions and, of course, homeowners.

But they saw their fortunes turn somewhat on Tuesday, when ending up on the receiving end of JPMorgan Chase’s record $13 billion settlement. The deal, the largest payout a single company ever made in a government settlement, centered on the bank’s sale of troubled mortgage securities to investors in the run up to the crisis.

Of the $13 billion, the only fine in the case came from federal prosecutors in Sacramento, who extracted a $2 billion penalty. In case you missed their press conference, this was kind of a big deal, representing “the largest recovery ever in a case handled” by the office.

No, prosecutors cannot pocket the cash to purchase a life-size gold statue of Jamie Dimon. Instead, JPMorgan must wire the $2 billion to the Justice Department, which will then deposit the funds into a pot of money at the United States Treasury.

The next chunk of cash, roughly $7 billion, will flow to a range of government authorities, some more obscure than others.

The biggest winner is the Federal Housing Finance Agency, which took control of Fannie Mae and Freddie Mac when the companies collapsed in 2008. JPMorgan agreed to make a “lump sum payment” of $4 billion “payable to Freddie Mac and Fannie Mae, divided between them,” according to the settlement agreement.

The National Credit Union Administration, the federal agency that regulates credit unions, said it will collect a $1.4 billion share of the $7 billion pie “for losses incurred by corporate credit unions as a result of the purchases of the faulty securities.” The payout will allow the agency “to greatly reduce the assessments that all credit unions have to pay.”

The Federal Deposit Insurance Corporation will collect $515 million, which it will distribute to the receiverships for six failed banks, including Colonial Bank, which was at the center of a huge fraud scheme.

State authorities also received a cut, albeit a smaller one, of the $7 billion sum. New York’s Attorney General, Eric T. Schneiderman, will use its $613 million to expand homeowner assistance programs. Lisa Madigan, the Illinois attorney general, will allocate her $101 million to state pension funds that suffered losses from soured mortgage securities, including the Illinois Teachers Retirement System. Attorneys general in California ($299 million), Massachusetts ($34 million) and Delaware ($20 million) also took home a share of the settlement.

That leaves $4 billion in the overall $13 billion deal. The Justice Department, which led negotiations with the bank, earmarked the final sum to help struggling homeowners in hard hit areas like Detroit. Half that sum, or $2 billion, will go toward reducing the balance of mortgages and halting the collection of mortgage payments.

The remaining $2 billion in homeowner relief, according to the Justice Department, will focus on reducing interest rates on existing loans, offering new loans to low-income home buyers and demolishing abandoned homes to curb urban blight.

The total $13 billion payout might seem steep. Of course, it does not include the small fortune JPMorgan spent on the legal services of Sullivan & Cromwell and Debevoise & Plimpton.

AMOUNT WHERE THE MONEY GOES HOW IS WILL BE USED

$7 billion *	State and federal agencies	$4 billion for the Federal Housing Finance Agency goes to Fannie Mae and Freddie Mac. This deal was announced in October.
		$1.4 billion for National Credit Union Association to reduce assessments for credit unions.
		$515 million for Federal Deposit Insurance Corporation
		$613 million to New York attorney general
		$299 million to California attorney general
		$101 million to Illinois attorny general for state pension funds.
		$100 million to New York attorney general for expanding homeowner assistance programs.
		$20 million to Delaware attorney general
		$34 million to Massachusetts attorney general. The office has not decided how to disperse the money.
$4 billion **	Consumer relief	$2 billion credit for JPMorgan to reduce the balance of mortgages in foreclosure-racked areas like Detroit and certain neighborhoods in New York.
		Up to $500 million credit for JPMorgan briefly halting the collection of mortgage payments.
		Credit for JPMorgan to reduce interest rates on existing loans, offer new loans to low-income home buyers and keep those loans on its books.
		Credit for JPMorgan to demolish abandoned homes and other efforts focused on curbing urban blight.
$2 billion	Justice Department	$2 billion fine goes to United States Treasury. Federal prosecutors in Sacramento led an inquiry into JPMorgan’s mortgage practices.
* JPMorgan says this part of the settlement is tax deductable, but that decision may rest with the I.R.S. ** JPMorgan will have to hire an independent monitor to oversee the distribution over four years. Sources: Justice Department, states’ attorneys general

The True Accountability in the JPMorgan Settlement

The watchword in the Justice Department’s $13 billion settlement with JPMorgan Chase over the sale of questionable mortgage-backed securities is “accountability.” References to accountability appear 11 times in the news release detailing the resolution of federal and state cases against the bank over how it packaged faulty mortgages and sold them to investors.

Attorney General Eric H. Holder Jr. said that “the passage of time is no shield from accountability,” while Tony West, the associate attorney general, stated that “we are demanding accountability” through the settlement. New York’s attorney general, Eric T. Schneiderman, added, “We’ve won a major victory today in the fight to hold those who caused the financial crisis accountable.”

The question is, accountable to whom, and for what? The case does not involve a criminal charge against JPMorgan that would typically be resolved through a deferred prosecution agreement requiring a company to affirm that its conduct was illegal. Thus, the bank asserted in a presentation to investors that it “did not admit to any violations of the law.”

Under the settlement agreement, JPMorgan “acknowledges” a statement of facts that details shoddy practices used in approving mortgages that were then put into securities that lost much of their value when the housing market collapsed. But an acknowledgment is not an admission, the type of legal hairsplitting the bank can use to claim it did not violate the law in other lawsuits related to its conduct in this area.

The settlement is intended to resolve a range of civil claims against the bank. There is a $2 billion civil penalty for violations of the mail and wire fraud statutes under the Financial Institution Reform, Recovery and Enforcement Act, a provision that allows the Justice Department to pursue cases involving banks up to 10 years after the violation. While a significant amount, the penalty is hardly a deterrent to future misconduct.

The $13 billion also includes an earlier settlement to pay $4 billion related to claims filed on behalf of Fannie Mae and Freddie Mac by the Federal Housing Finance Agency, which oversees the companies. Those two had their own problems with misleading disclosure to investors about their holdings of questionable mortgages, and each entered into nonprosecution agreements with the Securities and Exchange Commission in December 2011 to resolve investigations.It is hard to view Fannie Mae and Freddie Mac as victims when they also contributed to the collapse of the housing market.

Nearly $2 billion of the settlement goes to the National Credit Union Administration and the Federal Deposit Insurance Corporation to compensate them for losses suffered by failed banks and credit unions that the two regulators had to take over. And more than $1 billion goes to five states that filed civil claims against JPMorgan for violations of their laws in the sales of mortgage securities.

Those payments can be justified as a penalty for wrongdoing and compensation for investors so that the bank is being held accountable for transgressions. But the fact is that buyers of the securities peddled by JPMorgan and two financial institutions it acquired in 2008, Bear Stearns and Washington Mutual, were sophisticated buyers, not mom-and-pop investors.

The real accountability in the settlement is a separate provision requiring JPMorgan to help those harmed by the collapse of the mortgage market: homeowners struggling to pay mortgages that often exceed the value of their home. The sales of mortgage securities helped fuel the housing bubble, and its collapse caused harm to many who had nothing to do with subprime mortgages and those without proper income documentation, the “liar loans.”

The agreement requires the bank to provide $4 billion in relief by reducing the principal balance and interest rate on qualifying mortgages, with extra credit given for modifications on properties in what are termed “hardest hit areas,” like Detroit. JPMorgan will also receive credit for lending in low- and moderate-income areas, and for taking actions to relieve blight, like paying the cost of demolishing houses and donating land to local municipalities and nonprofit organizations.

Rather than just relying on JPMorgan to undertake these measures on its own, the settlement agreement requires the appointment of an outside monitor to report on the bank’s progress each quarter. If its various efforts to provide relief to consumers do not result in the full $4 billion in benefits, then the bank will be required to donate the shortfall to NeighborWorks America, a nonprofit organization. So rather than only promising to do good, the bank has to actually follow through or pay the difference.

No one should be misled into concluding that JPMorgan will be paying out of its pocket all the money that this part of the settlement requires. Reducing the principal owed on a mortgage or its interest rate affects the value of the loan but does not require an immediate expenditure in most cases. Moreover, the program can actually benefit the bank because keeping a borrower in a house who continues to pay the mortgage, even at a reduced rate, is superior to foreclosing on the property and suffering a far greater loss in most instances.

Those to whom JPMorgan will provide assistance would not have a basis to pursue a claim against the bank for its misconduct. So they would not ordinarily be part of the settlement of a case or receive any direct benefit from it.

While criminal fines and civil penalties make for big headlines, they often have little real effect on the company or victims of its violation, being treated as little more than a traffic ticket. The Justice Department took a creative approach to resolving the case that allows for a measure of accountability to those who suffered from JPMorgan’s mortgage practices, at least indirectly but no less importantly than investors in the mortgage securities.

The settlement with JPMorgan will be a template for resolving cases with other banks over sales of mortgage securities. That means the emphasis will be less on imposing big fines and more on finding ways to funnel assistance to those hit the hardest by the collapse of the housing market.

Broadcasters’ Fight Against Aereo Doesn’t Serve Their Interests

The latest TV industry technophobia is just as repetitive as a 1980s rerun. American broadcasters, including Walt Disney-owned ABC, have garnered support in their Supreme Court bid to shut down the online video start-up Aereo. The arguments echo those used 30 years ago when networks tried to block the VCR, after which business boomed. For a creative profession, media firms sure can lack imagination.

So far, courts have favored Aereo, saying its method of using thousands of separate dime-size antennas to stream free-to-air programming to customers over the Internet doesn’t violate copyright law.

In a brief that backs the appeal from broadcasters to the nation’s top court, the National Football League and Major League Baseball threatened to move games to pay-TV channels that are beyond Aereo’s reach, essentially heralding a doomsday scenario where stations “will become less attractive mediums for distributing copyrighted content.” The Supreme Court must, they say, “prevent the unraveling of a marketplace” by the use of “technological chicanery.”

Universal Studios and Disney trotted out similar arguments in 1982 when they said that Sony’s Betamax home videocassette recorder violated copyright law. If the new technology cost them revenue, they told the Supreme Court, “the economic incentive to risk enormous sums to produce high-quality television programming will be substantially undermined.”

The unsuccessful claim turned out to be sillier than the average sitcom. Over the last 30 years, advertisers have more than tripled the amount they spend annually on American television to $64 billion, according to ZenithOptimedia. That’s twice the rate of economic growth in the United States over the same period.

Fees paid by cable and satellite operators to carry free-to-air networks have since become an important source of revenue for TV companies, and Aereo’s model could endanger a portion of that income.

Even if broadcasters manage to stifle one upstart, however, they can’t hope to sue their way past all Internet-driven disruption. Many of them, for instance, realized belatedly that Netflix is a valuable customer, even as they grapple clumsily with their own jointly held online portal, Hulu.

Too often, though, content producers seem to fear technological shifts that ultimately help them grow, in the process missing out on early benefits. At least one mogul has come around. Barry Diller was part of the Hollywood establishment during the Betamax case, running Paramount Pictures, the studio behind TV hits “Taxi” and “Cheers.”

He is now a big backer of Aereo. Today’s media chieftains need not take so long to learn there’s less value in beating ‘em than in joining ‘em.

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

Wall Street Could Benefit From Tax Proposal

Changes to the tax code always create winners and losers. An ambitious plan to revise the system for taxing multinational corporations, released on Tuesday by the Senate Finance Committee chairman, Max Baucus, would hit technology companies and large pharmaceutical companies especially hard. Companies like Pfizer, Apple, Hewlett-Packard and Microsoft have become masters at reducing their tax liability in the United States by shifting income overseas.

These companies often hoard cash in offshore subsidiaries, and in the past they have successfully lobbied for a tax holiday to repatriate cash at lower tax rates. The Baucus proposal would, among many changes, end this practice of tax deferral and impose a minimum tax of about 20 percent on overseas profits â€" whether those profits are repatriated to the United States or not.

The plan is designed to be revenue neutral in the long term, but that doesn’t mean that it is distributionally neutral. The more games that businesses have played to shift income overseas, the more they have to lose under the Baucus plan. The winners are everyone else. In a revenue neutral plan, technology and pharmaceutical companies’ losses are someone else’s gain.

Support for the plan should come from companies who have clean hands and pay a lot of tax under the current system. The Baucus plan is designed to slot into the broader tax overhaul effort from both tax-writing committees that would lower the corporate rate to 28 percent or lower, from 35 percent.

Lowering the corporate tax rate may not be possible without these fixes to the international system that prevent erosion of the tax base. Goldman Sachs, JPMorgan Chase and other financial services firms that tend to have high effective tax rates would benefit from the Baucus plan and the broader effort to lower rates.

The Baucus plan is an important step toward legislation that deserves attention. Unlike a plan proposed by the House Ways and Means chairman, Dave Camp, two years ago, the Baucus plan would retain efforts to tax American-based companies on a worldwide basis, rather than shift to a “territorial” system that would exempt most foreign profits from United States tax. How we resolve this fundamental difference between the two plans will set the direction of international tax policy for a long time.

Wall Street and others who stand to benefit from a more sensible international tax system will have to provide support to the Baucus effort if it is to gain any momentum. And yet there is little incentive for anyone to stick his neck out right now. No one expects tax legislation to get a vote anytime soon, as both parties are busy preparing for coming budget negotiations.

Victor Fleischer is a professor of law at the University of San Diego, where he teaches classes on corporate tax, tax policy, and venture capital and serves as the director of research for the Graduate Tax Program. His research focuses on how tax affects the structuring of venture capital, private equity, and corporate transactions. Twitter: @vicfleischer

Men’s Wearhouse Investor Continues to Push for Deal With Jos. A. Bank

One of the biggest investors in Men’s Wearhouse made clear on Wednesday that it sees no better future for the retailer than a merger with its smaller rival, Jos. A. Bank.

The shareholder, Eminence Capital, unveiled a presentation trumpeting the benefits of a merger of the two men’s suit retailers as it presses for a special meeting of its fellow investors. Eminence, which owns a 9.8 percent stake, plans to call for votes on amendments to the company’s bylaws that would make it easier to remove directors.

The presentation turns up the heat on Men’s Wearhouse less than a week after Jos. A. Bank said that it had withdrawn a $2.3 billion takeover bid for the company. Men’s Wearhouse has steadfastly rebuffed the approaches from its rival for weeks, calling the bid opportunistic and too low and refusing to begin talks.

Eminence agreed that the offer of $48 a share was insufficient. But much of its 20-page presentation promoted the benefits of merging the two retailers and accused Men’s Wearhouse of extreme defenses that do not serve shareholders.

“Men’s Wearhouse’s board erected defensive measures that we believe are against the best interests of shareholders,” the hedge fund wrote.

Eminence pointed out that Jos. A. Bank has left open the possibility of both reopening merger talks and raising its offer if it were allowed to begin due diligence.

According to an analysis by the hedge fund and its bankers at Moelis & Company, a combined retailer could command a total market value of nearly $4.9 billion, thanks to a host of savings that range from procuring garments to backend operations to marketing. A merger would create a powerhouse in men’s suits, drawing on both Jos. A. Bank’s e-commerce operations and stronger business practices and Men’s Wearhouse’s strength in tuxedo rentals and its higher-end Joseph Abboud brand.

The result would be a “must-own” company in the retail industry, Eminence argued in its presentation.

By contrast, Men’s Wearhouse’s standalone plan is highly risky, the hedge fund contended. That plan promises at least 4 percent growth in same-store sales over the next three years and margins of about 35 percent, both of which are significantly higher than what the company has been able to achieve in recent years.

“The strategic plan is not new and therefore was reflected in the unaffected share price,” Eminence wrote.

A representative for Men’s Wearhouse was not immediately available for comment.

Shares in the company were down slightly at $46.63.

In Obama’s Pick to Lead a Financial Regulator, an Enigma

President Obama has nominated Timothy G. Massad to head the Commodity Futures Trading Commission. If you thought, “who?” â€" well, that may be the point.

It’s difficult to escape the suspicion that his nomination is an effort to send a once-obscure agency back to obscurity.

In choosing a cautious lawyer like Mr. Massad, an assistant secretary at the Treasury Department, the Obama administration seems to be tacitly renouncing the era of the outgoing head of the agency, Gary S. Gensler. Having spent much of his career at Goldman Sachs, Mr. Gensler was viewed with suspicion on his appointment. Yet he turned out to have been a spine-stiffener among regulators who mostly went invertebrate as the banks sought to undermine financial regulatory reform.

Now he is leaving â€" some think he would have stayed had he been reappointed â€" before he has finished his work. It will be up to the Mysterious Mr. Massad to carry on.

Mr. Gensler was a reformed investment banker, which may have been the key to his success. But lawyers run Washington, and this transition would restore the trading commission to the hands of one.

So what kind of lawyer is Mr. Massad? (Through a Treasury spokesman, he declined to be interviewed. A call to his home was not returned.)

He was a loyal soldier in Timothy F. Geithner’s administration. Before that, he was a white-shoe corporate lawyer with banks as clients. He worked on the first standards for derivatives for the industry trade group.

Yet he also spent his early years working for both the A.F.L.-C.I.O. and Ralph Nader. (Those gigs are expurgated from his Treasury biography, which shows how little Establishment Washington values such experience.)

Perhaps most important, especially for confirmation hearings in this hyperpartisan era, he is a phantom. Even friends of his whom I spoke with don’t know his views on regulation of derivatives, the signature issue facing the trading commission as it puts Dodd-Frank rules into effect.

In July last year, Mr. Massad led a team of Treasury officials in a meeting about a proposal to seize foreclosed properties by eminent domain. Unsurprisingly, the banks are fighting the idea.

At the meeting, according to two attendees, Mr. Massad asked pointed questions about what the impact of such a proposal would be â€" on the banks.

An attendee, Robert C. Hockett, a Cornell law professor who has spearheaded the idea, recalled Mr. Massad as smart, engaged and “not gratuitously skeptical” of the idea. “He was clearly concerned with, as was his duty, the potential impact on the balance sheets of larger commercial banking institutions,” Professor Hockett said.

Professor Hockett thought Mr. Massad was merely examining all sides of the issue. Mr. Massad had concerns about whether people’s access to mortgage credit might be curtailed. But another attendee took a dimmer view: “It was as though I were talking to the banks,” this person said.

Has Mr. Massad so conditioned himself as a lawyer to see all sides that he has little ability to form views of his own?

Or, worse, has he internalized the views of the banks?

This was the congenital problem with Mr. Geithner’s Treasury. It was so concerned about doing anything that might harm fragile banks after the crisis that it blocked tougher regulations and hindered the government’s ability to help people victimized by the recession and by the banks, which continued to hurt homeowners through their mortgage-servicing divisions. Mr. Massad was intimately involved with the disastrous home mortgage modification program, which the Treasury never got working properly to help people in need.

This orientation toward the banks has persisted in Jacob J. Lew’s Treasury. In a discussion over derivatives regulations last summer, Mr. Gensler himself told Mr. Lew that talking to him felt like negotiating with adversarial banks, according to a Bloomberg News account of how banks weakened the regulations on the complex financial instruments.

This is a crucial issue. The banks’ potential exposure to derivatives is poorly disclosed, poorly understood and could lay waste to the economy. The Dodd-Frank Act brought the formerly unregulated instruments, which were central to the financial crisis, under the regulatory umbrella. The legislation is intended to bring most derivative transactions through clearinghouses to make them safer.

Will they indeed be safer? And will the banks find loopholes?

That’s up to the regulators, chiefly the Commodity Futures Trading Commission, which is underfunded, understaffed and perennially under attack. The biggest potential dodge is whether the overseas derivatives operations of American banks will be tightly regulated. Over the summer, the agency compromised, saying it would allow regulation by sovereign entities, as long as their rules are comparable to our own. Mr. Gensler’s successor will need to make sure that policy is enforced rigorously.

Mr. Massad is generally even-keeled, say people who have worked with him. But he can play the bulldog role. And he seems to have done so with Neil Barofsky, the special inspector general for the Troubled Asset Relief Program, better known as the bank bailout. Mr. Massad first worked on TARP and then headed it up.

Mr. Barofsky apparently drove the Treasury nuts with his prominent and much-needed monitoring of TARP. For his part, Mr. Barofsky thought that the Treasury was needlessly antagonistic.

In his 2012 book “Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street” (Free Press),” he accuses Mr. Massad, then TARP’s chief counsel, of “apparent dissembling” to him about a change the Treasury was making to the terms of the deal with the insurer American International Group.

Mr. Massad would go on to inherit TARP, whose investments, to the administration’s great pride, made money.

So there’s little reason for enthusiasm with this pick. But just as Mr. Gensler surprised his critics, Mr. Massad might do so as well.

Susan Ochs, who served with Mr. Massad in the Treasury and is now a senior fellow at the Aspen Institute, recalls him as a zealous advocate for the taxpayer in negotiations with the banks. He pushed Bank of America to increase a payment to the government that the bank was resisting.

“He knows the industry well enough when to call them out when they are taking advantage and pushes back pretty hard,” she said.

If the public gets that side of this mystery man, we may be in good hands.

British Regulators Said to Be Reviewing Gold Benchmarks

LONDON - Regulators in Britain are reviewing whether global benchmarks tied to gold trading were improperly influenced as part of a wide-ranging investigation of potential manipulation of the $5 trillion-a-day currency market, according to a person familiar with the investigation.

The review by Britain’s Financial Conduct Authority is in a preliminary stage and it is unclear whether it will ultimately result in any allegations of wrongdoing, said the person, who wasn’t authorized to discuss the investigation publicly.

The inquiry by the FCA is the latest avenue being explored by regulators as they focus on whether traders manipulated a variety of financial benchmarks.

The FCA declined comment Wednesday.

Those benchmarks, often referred to in the industry as the “fix,” provide a window into spot trading prices at different periods during the day and are often used by fund managers to help determine the value of their portfolios or, in the case of gold, to help set the price of jewelry and other products that include gold.

The benchmark price for gold in London is set twice a day and dates back to 1919, according to the London Bullion Market Association. Barclays, Societe Generale, Deutsche Bank, Scotiabank and HSBC are the member firms that help set the daily benchmarks for gold in London.

Bloomberg News reported the FCA inquiry into gold benchmarks on Wednesday.

The commodities inquiry follows authorities in Europe and Hong Kong who have opened a series of investigations into the foreign exchange market in recent months. The Justice Department in Washington and the Commodity Futures Trading Commission also are scrutinizing trading.

Nine of the largest banks in currency trading have publicly disclosed that they have received inquiries from regulators. As many as 15 banks are under scrutiny, people familiar with the investigation have said.

Twelve traders have been placed on leave pending the outcome of the investigation and several banks are considering limiting the use of chat rooms, which is an area of focus for regulators exploring potential collusion in the market. None of the traders has been formally accused of wrongdoing.

Despite its size, the foreign exchange market is largely unregulated and dominated by banks that control access to information about currency prices. Deutsche Bank, Citigroup, Barclays and UBS account for about half of all trading.

The vast majority of currency trading is conducted out of London, which is still reeling from a long-running investigation into alleged manipulations of the London interbank offered rate, a global benchmark interest rate known as Libor.

Five financial companies, including Barclays, Royal Bank of Scotland and UBS, have paid more than $3 billion in the Libor scandal in total. Several of those banks are now under scrutiny in the currency investigation.

Devon Clinches Deal for GeoSouthern Assets

Devon Energy reached a deal to buy GeoSouthern Energy’s holdings in southern Texas for $6 billion, the two companies announced on Wednesday, in the biggest takeover in the oil and gas industry this year.

The transaction â€" Devon’s biggest purchase in recent years â€" will give the independent driller operations that currently produce 53,000 barrels of oil equivalent a day and 82,000 acres in the Eagle Ford shale formation.

After a banner year for big takeovers last year, energy companies rapidly slowed their merger activity in 2013 as they focused on streamlining their operations.

But buying GeoSouthern’s holdings will bolster Devon’s position in one of the most popular fields in recent years. The smaller oil company was one of the first in the region, and has spent much of its time in recent years focusing on the Black Hawk field.

Devon pointed out that companies with big holdings in oil-rich shale fields like the Eagle Ford or the Bakken enjoy higher trading multiples than peers that are more concentrated in areas more laden with natural gas, which remains extremely cheap.

GeoSouthern’s assets have been largely explored and are ready to be fully developed, with Devon estimating their growth over the next several years at about 25 percent. By 2015, the holdings are expected to generate at least $800 million in annual free cash flow.

“We have considered many acquisition opportunities over the past few years, but none have met our stringent criteria,” John Richels, Devon’s chief executive, said in a statement. “Our patience and disciplined approach have culminated in this outstanding opportunity.”

Shares of Devon were up 2.8 percent in early morning trading on Wednesday, at $64.54.

Devon will pay for the deal with existing cash and credit lines. The takeover is expected to close in the first three months of next year.

One of GeoSouthern’s investors is the Blackstone Group, which helped the company secure $1 billion in financing to develop its holdings in Black Hawk. Blackstone is expected to exit its investment through Wednesday’s sale.

Devon was advised by Morgan Stanley, Goldman Sachs and the law firm Skadden, Arps, Slate, Meagher & Flom. GeoSouthern was advised by Jefferies & Company and the law firm Simpson Thacher & Bartlett.

Morning Agenda: A Glimpse Into JPMorgan’s Mortgage Machine

JPMORGAN SETTLEMENT OFFERS LOOK INTO MORTGAGE MACHINE  |  The record $13 billion settlement between JPMorgan Chase and the Justice Department on Tuesday wraps up a series of state and federal investigations that offer a rare glimpse into Wall Street’s mortgage machine before the financial crisis, Jessica Silver-Greenberg and Ben Protess report in DealBook.

At the heart of the civil settlement is a statement of facts negotiated with the government that provides details into how JPMorgan assembled mortgage securities sold from 2005 through 2008. While the bank did not admit violating the law, its approval of the statement was a critical concession made in order to strike a deal. The statement shows, for example, that as JPMorgan packaged the residential mortgages into complex securities, the bank promised to alert investors to any flaws that might raise questions about the loans. And yet, investors were kept in the dark, the government’s statement found.

The deal with JPMorgan, eclipsing other Wall Street settlements, is the largest sum a single company has ever paid to the government. The negotiations that led to the deal underscore a broader strategy shift at the Justice Department, where prosecutors are seeking to hit Wall Street where it hurts most: the bottom line, Mr. Protess and Ms. Silver-Greenberg report. Justice Department officials have signaled to the nation’s biggest banks that the billion-dollar mark is now a floor rather than a ceiling.

When Jamie Dimon, JPMorgan’s chief executive, sought a face-to-face meeting with Tony West, a top Justice Department official with close ties to President Obama, Mr. West agreed to a meeting only if the bank came with a more generous offer than the $3 billion it had proposed to settle a narrow window of cases, Mr. Protess and Ms. Silver-Greenberg report. “We don’t want you to waste your time and we don’t want to waste the attorney general’s time,” Mr. West told the bank chief, according to people in the room. Mr. Dimon agreed to raise his offer.

AS TRIAL BEGINS, ONE INSIDER STANDS OUT  | 
From his cubicle at Dell’s headquarters in Round Rock, Tex., Rob Ray shared insights about the computer maker that led to criminal insider trading charges against eight individuals, as well as an indictment of SAC Capital Advisors, the hedge fund run by Steven A. Cohen. Yet the authorities have not accused Mr. Ray of any wrongdoing, Peter Lattman and Ben Protess report in DealBook. “Mr. Ray, whose given name is Chandradip, is not cooperating with the government. Today, he works at Pepsico in investor relations, the same job he had at Dell.”

“The disparate fates â€" prosecutors have charged the traders who profited from Mr. Ray’s information, but not Mr. Ray himself â€" signify a rare and curious loose end in the government’s otherwise unyielding insider trading crackdown. An examination of Mr. Ray’s role in the investigation, based on a review of court documents and public records as well as interviews with people involved in the matter, raises questions about the prosecution’s strategy in the Dell case and in the broader inquiry.”

The questions loom as the criminal trial of the former SAC trader Michael S. Steinberg began Tuesday in Federal District Court in Manhattan. Mr. Steinberg, SAC’s most senior employee to be charged with insider trading, is one of the eight individuals charged on the Dell trades; the others have either pleaded guilty or have been convicted at trial. Dressed conservatively in a slightly wrinkled gray suit, white shirt and blue tie, the 41-year-old Mr. Steinberg appeared confident as he stood at the defense table on Tuesday, as jury selection began, DealBook’s Alexandra Stevenson reports.

A MUNICIPAL BANKRUPTCY MAY CREATE A TEMPLATE  |  “Jefferson County, Ala., which just became the first municipality to tap the public bond markets while bankrupt, will go to court on Wednesday to seek approval for its plan to exit bankruptcy by the end of this year,” Mary Williams Walsh reports in DealBook. “But there is a catch: Even if Jefferson County does emerge from bankruptcy soon, it will not fully sever its ties to the Federal Bankruptcy Court in Birmingham for 40 more years.

“The county’s unusual exit plan, which could offer a possible template for other bankrupt municipalities, calls for the court to retain jurisdiction for the life of $1.8 billion in sewer-revenue debt that it sold over the last few days. If the county falters at some point, even decades from now, the bankruptcy court is supposed to have the power to enforce rate increases to produce the cash needed to pay back the $1.8 billion on schedule, with interest.”

ON THE AGENDA  |  The Consumer Price Index for October is released at 8:30 a.m. Data on retail sales in October is out at 8:30 a.m. Data on existing home sales in October is released at 10 a.m. The Federal Reserve’s policy making committee releases minutes of its recent meeting at 2 p.m.
J.C. Penney and Lowe’s report earnings before the market opens, while Green Mountain Coffee Roasters reports earnings this evening. Michael S. Dell is on CNBC at 7 a.m. Henry Kravis and George Roberts, co-founders of K.K.R., are on Bloomberg TV at 10 a.m.

DEVON SAID TO BE NEAR $6 BILLION DEAL  | 
“Devon Energy is near a deal to buy GeoSouthern Energy, a privately held oil and gas driller, for about $6 billion, people briefed on the matter said on Tuesday,” DealBook’s Michael J. de la Merced reports. “A deal could be announced as soon as this week, one of these people said. The deal, if completed, comes as companies are seeking to shore up their positions in shale formations rich in oil. But the industry has had few mega deals this year, with energy companies instead focusing on selling off nonessential assets.”

Mergers & Acquisitions »

Yahoo Plans to Return More Cash to Shareholders  |  Yahoo increased its share buyback plan by $5 billion and also said it would sell $1 billion in convertible debt maturing in 2018.
BLOOMBERG NEWS

Jostens Agrees to Buy Rival in Commemorative Paraphernalia  |  American Achievement, which sells its products under brands like Balfour, ArtCarved and Keepsake, is being sold by the private equity firm Fenway Partners.
DealBook »

Nokia Shareholders Vote to Sell Cellphone Unit to Microsoft  |  Shareholders took a major step on Tuesday to reshape Nokia, voting overwhelmingly in favor of selling the Finnish company’s handset business for $7.2 billion, reports Mark Scott for The New York Times.
DealBook »

Emotion at Final Shareholder Meeting for Microsoft’s Chief  |  Steven A. Ballmer, the departing chief executive of Microsoft, kept his composure during a speech at the company‘s annual shareholder meeting on Tuesday. But the usually stoic chairman, Bill Gates, choked up.
NEW YORK TIMES BITS

An Odd Spinoff by Royal DSM  |  The benefits of a $2.6 billion tie-up with a private equity firm are hard to fathom, Neil Unmack of Reuters Breakingviews writes.
REUTERS BREAKINGVIEWS

Deutsche Telekom Is Said to Be Near Sale of Scout24 Stake  |  Reuters reports: “Deutsche Telekom is close to selling a 70 percent stake in its classified advertising business, Scout24, to private equity firm Hellman & Friedman for 1.4 billion euros ($1.89 billion), two people familiar with the talks said on Wednesday.”
REUTERS

New Mountain Is Said to Seek Buyer for Inmar  |  Reuters reports: “Private equity firm New Mountain Capital LLC is exploring a sale of Inmar Inc., a provider of coupon processing and logistics services to companies, seeking more than $600 million, according to three people familiar with the matter.”
REUTERS

INVESTMENT BANKING »

Your New Landlord From Wall Street â€" or Australia  |  An investment fund from Australia has purchased more than 538 homes, townhouses and brownstones from Jersey City to Queens and Brooklyn â€" a microcosm of a much bigger trend sweeping the country, Julie Creswell reports in The New York Times.
NEW YORK TIMES

In New Push, Obama Reaches Out to Chief Executives  |  “After years of a fractured relationship and fitful efforts to mend ties, Obama has had no fewer than five meetings and a conference call with C.E.O.’s since the start of October, according to an administration official,” Bloomberg News reports. “Among the C.E.O.’s who have met with him are Lloyd Blankfein of Goldman Sachs and Stephen Schwarzman of Blackstone Group.”
BLOOMBERG NEWS

Nobel Laureates Sparring on Financial Markets  |  “Robert Shiller and Eugene Fama, sharing a stage for the first time since it was announced last month that they would share the 2013 Nobel Memorial Prize in Economic Science, sparred with languorous familiarity Tuesday about the efficiency of financial markets,” the Economix blog writes.
NEW YORK TIMES ECONOMIX

PRIVATE EQUITY »

Roark Capital to Buy CKE Restaurants From Apollo  |  The private equity firm Roark Capital Group has agreed to buy the restaurant company CKE, the parent of the Hardees and Carl’s Jr. chains, from Apollo Global Management. Reuters reports that the deal values CKE between $1.65 billion to $1.75 billion.
REUTERS

HEDGE FUNDS »

At Man Group, Floor Space Shrinks Along With Assets  |  The Financial Times reports: “Man Group employees are feeling the squeeze at the struggling hedge fund, with staff at its London headquarters being shunted into just one-and-a-half floors of the nine-story building it opened to great fanfare in 2011.”
FINANCIAL TIMES

One Hedge Fund Is Looking Forward to Stricter Rules  |  Reuters reports: “Colin Teichholtz, co-head of fixed income trading at $14 billion Pine River Capital Management, said the hedge fund firm will benefit from new Wall Street regulations as investment banks pull out of markets it likes to trade in.”
REUTERS

I.P.O./OFFERINGS »

After Fires, Safety Agency Opens Inquiry Into Tesla Sedan  |  “A federal safety investigation of the Tesla Motors electric Model S sedan announced on Tuesday comes at a critical juncture for the car and the company,” The New York Times reports. “For the first time, regulators are examining whether the design of the high-end vehicle and its advanced lithium-ion battery pack are defective and the cause of two battery fires.”
NEW YORK TIMES

GlaxoSmithKline Completes Sale of Aspen Pharmacare Shares  |  The sale of shares in the South African drug maker Aspen raised gross proceeds of $694 million.
REUTERS

VENTURE CAPITAL »

Draper, Veteran Venture Capitalist, Is Said to Be Leaving Firm  |  Timothy Draper “will no longer be an investment partner with Draper Fisher Jurvetson, the Silicon Valley venture capital firm he founded in 1985,” Fortune’s Dan Primack reports. Mr. Draper is going to focus on Draper University, his new entrepreneurship education program.
FORTUNE

LEGAL/REGULATORY »

Baucus Corporate Tax Proposal Takes Aim at Merger ‘Inversions’  |  A proposed overhaul of the corporate tax code, put forward by Senator Max Baucus, Democrat of Montana, includes a number of provisions that would make mergers intended to seek tax relief abroad less attractive.
DealBook »

S.E.C. Official Charged With Making False Statements  |  Steven Gilchrist, a compliance examiner in the New York office of the Securities and Exchange Commission, was charged by federal prosecutors with making false statements about stock holdings that he wasn’t allowed to own under ethics rules.
DealBook »

Trader in Apple Stock Sentenced to 30 Months in Prison  |  A former trader at Rochdale Securities was sentenced to two and a half years in prison on Tuesday for an unauthorized purchase of about $1 billion in Apple stock, Reuters reports.
REUTERS

Bernanke Says Economy Is Gaining Strength  |  The New York Times writes: “A few months of scrambled economic data have not altered the Federal Reserve’s basic view that the American economy is gaining strength, nor its intention to start pulling back soon from its stimulus campaign, the Fed’s chairman, Ben S. Bernanke, said Tuesday evening.”
NEW YORK TIMES

Cooperating Witness a Key in SAC Insider Trading Case

The Justice Department has had a perfect record in winning insider trading cases since it began its most recent campaign in 2009. Now, it will put that record to the test as the trial of Michael S. Steinberg, a former portfolio manager at SAC Capital Advisors, begins this week. The case will highlight the crucial issue in most white-collar crime prosecutions: What did the defendant know about the illegal nature of the transactions?

The government’s proof hinges largely on the testimony of a cooperating witness that Mr. Steinberg understood he received tainted information from a source who should not have been revealing it. In this case, the star witness will be Jon Horvath, a former SAC analyst who pleaded guilty in 2012 to insider trading charges.

Mr. Steinberg is accused of being a “tippee” in the parlance of insider trading, which means he received confidential information from someone who improperly disclosed it. Mr. Horvath admitted he got tips about negative earnings announcements from sources inside Dell and Nvidia, a graphics chip maker, that he forwarded to Mr. Steinberg.

At Mr. Steinberg’s direction, SAC then bet that the two companies’ stock would fall once the information became public.

Proving that a tippee violated the law requires the government to jump through more hoops than in cases in which the insider personally trades on the information. The leading case on this issue is Dirks v. SEC, in which the Supreme Court laid out a three-part test for liability.

Under the Court’s analysis, the government must prove (1) an insider breached a fiduciary duty by disclosing confidential information (2) in exchange for a benefit that (3) the tippee knows, or at least should know, was provided improperly. It is this third step that will be at issue because Mr. Steinberg denies knowing there was any impropriety in what Mr. Horvath told him about the impending announcements at Dell and Nvidia.

The Justice Department has won cases against tippees that relied primarily on the testimony of cooperating witnesses. In December 2012, two hedge fund managers, Anthony Chiasson and Todd Newman, were convicted of trading in Dell and Nvidia after receiving the same confidential information that Mr. Horvath passed along.

An interesting twist in Mr. Steinberg’s case is that others at SAC, including the firm’s founder and owner, Steven A. Cohen, had communications with Mr. Horvath and sold Dell shares but were not charged. The defense wants to raise questions about whether Mr. Steinberg should have known the information was passed along improperly if someone else who received it was not accused of insider trading.

The government filed a motion to block the defense from offering SAC trading records for Gabriel Plotkin, another SAC portfolio manager, whose fund sold a block of its Dell shares after he received an email from Mr. Horvath indicating that the company’s earnings announcement would be negative. Mr. Plotkin has not been accused of any wrongdoing and is not expected to testify. Prosecutors argue that Mr. Plotkin’s trading is irrelevant to what Mr. Steinberg knew about the source of information provided by Mr. Horvath.

In the email to Mr. Plotkin, which was also sent to Mr. Steinberg, Mr. Horvath said that he had a “2nd hand read from someone at the company” about issues with Dell’s revenue. Mr. Plotkin replied that he had gotten similar negative views before “so we will have to see.” He then directed the sale of 300,000 shares, but continued to maintain a substantial investment in the company.

The email is equivocal about whether that Mr. Horvath was passing along information obtained improperly from a corporate insider, which is necessary to show Mr. Steinberg’s knowledge. An earlier email to Mr. Steinberg asked him to “keep the DELL stuff especially on the down low” after Mr. Horvath received the confidential information and the two men spoke by telephone. The emails and telephone call are potentially incriminating because they can show that Mr. Steinberg was aware the information was confidential, but they are not conclusive evidence that he knew Mr. Horvath obtained it improperly.

The issue is whether Mr. Plotkin’s receipt of the same information and his subsequent trading might undermine Mr. Horvath’s credibility on whether a recipient should have known the information was disclosed in a breach of a fiduciary duty. Mr. Steinberg’s attorney argued in a filing that the trading records can show to a jury “the lengths” to which Mr. Horvath “was prepared to go (i.e., to lie) in order to persuade the government that the ‘2nd hand read’ email was so obviously referring to illegal inside information that it caused Mr. Plotkin to reverse his long position.” In other words, if Mr. Plotkin has not been charged for insider trading after receiving the Dell information, what makes Mr. Steinberg different?

How much about his source Mr. Horvath was willing to share with Mr. Steinberg will be crucial to proving knowledge. The emails can help to back up Mr. Horvath’s claim that he had information he should not have received. But sharing the same information with another portfolio manager who questioned its strength could be a basis for the defense to raise a reasonable doubt with the jury about what Mr. Steinberg should have known about it.

Any case that turns on the credibility of a witness who made a deal with the government entails some risk that the jury will find that the person was only saying what the prosecution wanted to hear. In insider trading cases, that is especially true when equivocal email messages indicate that something is afoot, but do not clearly establish the tippee’s knowledge about the impropriety of the information.

The potential for jury bias because of publicity surrounding SAC’s recent plea agreement to settle criminal charges related to the same trading has been raised again by the defense, which fears that Mr. Steinberg will be tainted by the firm’s admission. Judge Richard J. Sullivan of the Federal District Court in Lower Manhattan rejected a request to delay the trial for three months to allow the news about SAC to dissipate. He did agree to individually question potential jurors exposed to publicity regarding insider trading cases to ensure there is no bias against the defendant.

The Justice Department’s string of victories will be tested in Mr. Steinberg’s case because there is no way to know how Mr. Horvath will come across to the jury. That makes the issue of potential bias so important. The defense will make much of the decision to cooperate, trying to portray Mr. Horvath as a liar out to save his own skin by pointing the finger at Mr. Steinberg.

In $13 Billion Settlement, JPMorgan May Have Gotten a Good Deal

JPMorgan Chase on Tuesday agreed to a mortgage settlement that will cost the bank $13 billion, a large number that will bolster the government’s claims that justice was done.

But a closer look at the mortgages involved suggests that JPMorgan may actually have secured a good deal for itself.

The government’s legal onslaught centered on billions of dollars of subprime and Alt-A mortgages â€" loans that often required little documentation â€" that were made in the years leading up to the 2008 financial crisis. JPMorgan made some of the loans itself. The other loans were originated or sold into the markets by Washington Mutual and Bear Stearns, two firms that JPMorgan bought in 2008, assuming many of their future costs, including mortgage liabilities.

The Justice Department’s main allegation is that many of these loans should never have been packaged into the mortgage bonds that were sold to investors. The mortgages, the government contends, often fell short of the standards that JPMorgan and the other two firms legally agreed to when selling the bonds to investors.

“No firm, no matter how profitable, is above the law, and the passage of time is no shield from accountability,” Attorney General Eric H. Holder Jr. said in a statement on the settlement on Tuesday.

Separate from the government-led settlement, JPMorgan reached an agreement to pay $4.5 billion to a group of investment firms that bought its mortgage-backed bonds.

The only way to assess the toughness of these settlements is to know the extent of the underlying abuses. And according to some mortgage specialists, the settlement payouts may not be adequate.

“Yes, these are big numbers for newspaper headlines,” said Jeffrey Lewis, a senior portfolio manager at TIG Securitized Asset Fund. “But relative to the losses, they could have been bigger.”

One way to determine whether JPMorgan has gotten off lightly is to calculate the settlement payments as a percentage of the subprime and Alt-A mortgages that the bank sold. From 2004 through 2007, JPMorgan, along with Washington Mutual and Bear Stearns, sold around $1 trillion of mortgages, according to Inside Mortgage Finance, an industry publication. So far, JPMorgan has paid or set aside about $25 billion to meet claims that the loans should not have been sold. In other words, that sum is 2.5 percent of the total, though that figure could increase as the bank strikes other settlements.

Some mortgage market experts contend that the 2.5 percent is too low given the suspected quantity of loans that should never have been sold to investors.

Since the crisis, many attempts have been made to assess how many of the subprime and Alt-A mortgages inside the bonds were of too low a standard. The results are staggering.

These analyses focus on crucial features of the loans that often determine the likelihood of default. One important indicator is whether borrowers were taking out the loans to buy properties they were not going to live in. Mortgage firms like Bear Stearns were supposed to properly assess owner occupancy, but often they failed to do so. Defaults on second home mortgages were particularly high.

“The most egregious mistake was allowing borrowers to lie about their occupancy,” Guy Cecala, publisher of Inside Mortgage Finance, said

Occupancy was a focus of one of the lawsuits that was wrapped into the government settlement. The suit, brought by Federal Housing Finance Agency, alleged that, in one bond deal, 15 percent of the loans were for a second home, five times the level stated in the deal’s prospectus. Most of those loans probably defaulted, which means the ultimate loss rate on the bond was probably far higher than 2.5 percent.

Other lawsuits allege that far worse abuses occurred. Some plaintiffs even assert that practically all the loans should never have been included in some bonds issued in 2006 and 2007. For instance, in litigation against Bear Stearns, private investors, after doing analyses of the underlying mortgages, have asserted that 80 to 100 percent of the loans did meet minimum standards, according to a survey of court filings by Nomura bank.

These numbers may be exaggerated, given that they come from plaintiffs trying to maximize their chances of legal success. Still, Paul Nikodem, a mortgage-backed securities analyst at Nomura, said that the surveys might have some validity. “There is evidence of multiple breaches within loans,” he said.

The relative size of JPMorgan’s payouts also seems to depend on who is suing the bank. The bank, for example, agreed to pay the Federal Housing Finance Agency $4 billion. That is 12 percent of the $33 billion of bonds identified in the agency’s lawsuit â€" a high payout rate for a set of securities that, according to bond analysts, probably had low losses compared with subprime securities identified elsewhere in the $13 billion settlement.

All these numbers are a reminder that banks fell over themselves to lend to people who didn’t actually qualify for the loans. Some people took advantage of this and cynically obtained houses they couldn’t afford. Many were less calculating and ended up victims of foreclosure. The settlement sets aside $4 billion in mortgage relief for struggling borrowers. Advocates for struggling homeowners contend that this relief needs to be directed primarily at writing down the value of mortgages, since that action is likely to do the most to ease debt burdens. “If this settlement is to have teeth to help homeowners, 100 percent of it has to go to principal reduction,” said Bruce Marks, chief executive of Neighborhood Assistance Corporation of America.