Trial to Begin for Ex-SAC Trader Who Cut No Deal

Prosecutors never thought their insider trading case against Mathew Martoma would go to trial.

Certain that he possessed a rich vein of information on his former employer, SAC Capital Advisors, the prosecutors pressed Mr. Martoma for two years to cooperate in the long-running investigation of the hedge fund’s owner, Steven A. Cohen. Mr. Martoma, a 39-year-old trader who, if convicted, is staring at decades in prison away from his wife, Rosemary, and their three young children, appeared to have every incentive to cut a deal against a boss who fired him in 2010.

But when F.B.I. agents first confronted Mr. Martoma on a November 2011 evening on the front lawn of his $1.9 million Boca Raton, Fla., home, telling him they wanted to talk “about insider trading” at SAC, he was so overcome with stress that he briefly fainted. After regaining composure with help from his wife, a pediatrician, Mr. Martoma turned the agents away, saying he would “obtain a lawyer.”

In at least three meetings since, people briefed on the case said, when prosecutors subtly raised the subject of Mr. Martoma striking a cooperation deal, his lawyers insisted he would not play ball. And finally, when prosecutors set a deadline last year for him to cooperate, the people said, the date came and went without Mr. Martoma budging.

Prosecutors had long hoped Mr. Martoma would provide the missing link in their pursuit of Mr. Cohen, an inquiry that has hit one dead end after another.

But now Mr. Martoma is heading to trial. On Tuesday, jury selection will begin in Federal District Court in Lower Manhattan, where prosecutors have built an undefeated record in insider trading trials under the United States attorney in Manhattan, Preet Bharara.

Mr. Martoma’s resistance, the people briefed on the matter say, has baffled officials at the F.B.I., the United States attorney’s office and the Securities and Exchange Commission. Some authorities have grown suspicious about his motives, the people say, noting that Mr. Cohen is paying for Mr. Martoma’s defense.

Richard M. Strassberg, a lawyer for Mr. Martoma, said last week that his client “continues to fight these charges” and will do so at trial.

Coming on the heels of last month’s insider trading conviction of another SAC employee, Michael S. Steinberg, and SAC’s guilty plea in November to insider trading charges, the trial could become yet another embarrassing episode for Mr. Cohen and his hedge fund. The trial, which is expected to last nearly a month, will shed light on Mr. Cohen’s role in the trades at the center of the cases.

A spokesman for Mr. Cohen, 57, declined to comment on the trial.

In the indictment, which accused Mr. Martoma of obtaining secret information from a doctor about clinical trials for an Alzheimer’s drug, prosecutors for the first time cited trades that directly involved Mr. Cohen. Just after Mr. Martoma learned that the trials produced negative results, he spent 20 minutes on the telephone with Mr. Cohen, the fund’s billionaire founder who has long been a focus of the federal government’s investigation. A day later, SAC dumped its shares in the two companies developing the drug, Elan and Wyeth, a move that the authorities say helped Mr. Cohen’s firm avoid losses and generate profits totaling $276 million.

Mr. Bharara called it “the most lucrative insider trading scheme ever charged.”

But his office stopped short of implicating Mr. Cohen, or claiming that Mr. Martoma told his boss about the secret information. In a sworn deposition with the S.E.C., which is also investigating SAC, Mr. Cohen said he sold the drug stocks after Mr. Martoma said he had lost conviction about the investments.

Mr. Cohen, who has not been charged with any criminal wrongdoing, is facing a civil action from the S.E.C. The agency accused Mr. Cohen of failing to supervise employees like Mr. Martoma.

Mr. Martoma’s case â€" which involves one count of conspiracy and two counts of securities fraud, charges that could carry a 45-year prison sentence â€" hinges on the testimony of two doctors involved in the clinical trial. The government’s star witness is Dr. Sidney Gilman, an 81-year-old retired University of Michigan professor who was a paid consultant to Elan.

Over the course of two years, Dr. Gilman formed a relationship with Mr. Martoma, with the doctor serving as something of a mentor. Mr. Martoma, the authorities say, arranged for 42 discussions with Dr. Gilman, who earned $108,000 through a consulting firm for his advice to SAC.

The turning point came on July 17, 2008, prosecutors say, when Dr. Gilman received an email from Elan titled “Confidential, do not distribute.” After receiving the email, which raised “significant questions” about the effectiveness of an Alzheimer’s drug named bapineuzumab, Dr. Gilman had a nearly two-hour phone call with Mr. Martoma. Prosecutors also contend that Mr. Martoma then flew to Ann Arbor, Mich., to meet with Dr. Gilman on July 19, 2008.

The next day, on a Sunday morning, Mr. Martoma emailed Mr. Cohen, telling him “it’s important” that they speak. They chatted by phone shortly thereafter, according to the indictment, and on Monday, SAC “sold virtually all” of its stake in Elan and Wyeth.

The timely trading helped avert a major loss for SAC at the height of the financial crisis. In 2008, SAC’s returns were down 19 percent, the only negative year in the 22-year history of the hedge fund. Mr. Martoma reaped a handsome reward: a $9.3 million bonus.

But in 2010, SAC let Mr. Martoma go, with one executive describing him as a “one-trick pony with Elan.”

To counter the prosecution’s case, Mr. Martoma’s lawyers are likely to question the motives of both doctors. Dr. Gilman did not initially implicate Mr. Martoma, Mr. Strassberg has noted in court filings, denying in late 2011 and early 2012 that he had passed inside information. Dr. Gilman and another doctor, Dr. Joel Ross, a New Jersey physician, later changed their stories, Mr. Strassberg said in a court filing, and received nonprosecution agreements “in exchange for their cooperation.” (Dr. Ross is also expected to testify in the trial.)

Mr. Strassberg might also seek to highlight the fact that prosecutors lack any email evidence that Dr. Gilman forwarded the clinical drug trial information to Mr. Martoma. Prosecutors and regulators initially claimed that Dr. Gilman forwarded a copy of Elan’s presentation to Mr. Martoma, but that accusation was eliminated in a revised indictment.

Marc L. Mukasey, the lawyer for Dr. Gilman, said that when his client “is called to testify, he will do so in accordance with his nonprosecution agreement.”

Although prosecutors have told Mr. Martoma and his lawyer that it is too late to cut a deal, some law enforcement officials are interested in talking to him even if he is convicted. But defense lawyers said that postconviction cooperation often would not earn a defendant the same kind of sentencing leniency.

The lawyers also said that the evidence against Mr. Martoma, which began with a referral from the New York Stock Exchange to the S.E.C. about suspicious trading in shares of Elan and Wyeth, looks more convincing than the case prosecutors presented against Mr. Steinberg. And it took a jury just two days to convict Mr. Steinberg on insider trading charges following a four-week trial.

Mr. Martoma’s wife attended a few days of Mr. Steinberg’s trial, even though the families are not known to be friendly. In the weeks after the trial, court records show, Mr. Martoma was allowed to take family trips to Yellowstone National Park, Atlanta and a wedding in Chicago.

The Martoma trial comes as SAC, which is in the process of returning outside money to investors and converting to a family office that will manage about $9 billion of Mr. Cohen’s money, posted a 20 percent return for 2013, roughly double the industry’s average return.

The trial also coincides with a Jan. 7 broadcast of a “Frontline” documentary program that focuses on the government’s insider trading investigation. The program, produced for PBS, features an interview with the F.B.I. agent B. J. Kang, one of the two agents who approached Mr. Martoma on his lawn two years ago.

In a ruling on Monday, the judge presiding over the trial, Paul G. Gardephe, barred prosecutors from introducing evidence of Mr. Martoma’s fainting spell. But he decided to allow prosecutors to use the word “greed” during the trial, despite concerns raised by Mr. Strassberg that the word could be used as a way to “tap into the anger out there against Wall Street.”

Alexandra Stevenson contributed reporting.

SAC Trader’s Co-Workers Were Deposed

The criminal insider trading case against Mathew Martoma, the former SAC Capital Advisors portfolio manager, was built in part on interviews and depositions by federal authorities with several of his former colleagues at the hedge fund, according to a recent court filing.

The filing in the case reveals that the federal authorities investigating allegations of insider trading by Mr. Martoma in shares of two drug companies in July 2008 interviewed or took testimony from more than a dozen people who once worked with him at SAC, which was founded by Steven A. Cohen.

Jury selection in Mr. Martoma’s trial is set to begin on Tuesday in federal court in Lower Manhattan.

It has been known for a while that United States securities regulators took a deposition on May 3, 2012, from Mr. Cohen as part of the investigation. But the full extent of the government’s interviews with current and former employees of SAC was not previously known.

The court filing by lawyers for Mr. Martoma discloses extensive cooperation between prosecutors and lawyers from the Securities and Exchange Commission during the investigation, which appears to have picked up steam in February 2012.

Federal prosecutors could call several former SAC traders and analysts as witnesses during the trial, which is expected to last as long as four weeks, said lawyers briefed on the matter, who spoke on the condition of anonymity. The filing does not say what the people interviewed said to the authorities.

Mr. Martoma is charged with using inside information to help SAC avoid losses and generate profits totaling $276 million in shares of Elan and Wyeth in July 2008. He faces up to 45 years in prison if convicted. The S.E.C. also filed a civil insider trading lawsuit against Mr. Martoma, who is 39 and lives in Boca Raton, Fla.

Prosecutors have not filed any charges against Mr. Cohen, whose hedge fund pleaded guilty to insider trading violations in November. Mr. Cohen is not expected to be called as a witness during Mr. Martoma’s trial.

But other high-ranking executives who worked with Mr. Martoma were also interviewed by the authorities about the same time that Mr. Cohen sat for his deposition with the S.E.C.

Jason Karp, a former director of research at CR Intrinsic, the division of SAC where Mr. Martoma worked, was interviewed by federal prosecutors and the S.E.C. on May 8, 2012. The interview with Mr. Karp took place about the same time he was beginning to raise money for a hedge fund he started later that year.

A person briefed on the matter but not authorized to discuss the interviews said Mr. Karp told investigators that he was privy to discussions during which some at SAC took issue with Mr. Martoma’s initial support for an experimental Alzheimer’s drug being developed by Elan and Wyeth. The authorities contend that Mr. Martoma, relying on nonpublic information from a doctor who was a consultant on the clinical trial for the drug, recommended that SAC sell a big stake in shares of both companies before the news of the drug trial became public.

Others with SAC who were jointly interviewed by prosecutors and securities regulators include the hedge fund’s head trader, Phillipp Villhauer; its president, Thomas J. Conheeney Jr.; SAC’s director of research, Perry Boyle; and its chief operating officer, Solomon Kumin, who plans to retire soon.

The federal authorities also interviewed then SAC health care analyst, David Munno, and took deposition testimony from two other former SAC health care analysts at the time, William Hoh and Benjamin Slate. Some of those analysts were said not to have shared Mr. Martoma’s early optimism for the experimental Alzheimer’s drug, said people briefed on the matter but not authorized to discuss the case.

Besides Mr. Cohen, the S.E.C. deposed Mr. Villhauer and Chandler Bocklage, a trader at SAC who at one time worked closely with Mr. Cohen.

Never Mind the Résumé. How Hot Is the C.E.O.?

Call it the “C.E.O. beauty premium.”

Two economists say their study shows that investors assign higher share values to companies run by attractive chief executives, that these chiefs are paid more than less appealing counterparts and that the better looking the C.E.O.’s, the better they are at undertaking financially successful deals.

The conclusion of the unusual academic study â€" a sort of corporate version of “Hot or Not” â€" is that shareholders are as easily swayed by the glint in the eye of a chief executive as they are by a company’s actual numbers, at least in the short term.

According to a working paper by Joseph T. Halford and Hung-Chia Hsu at the University of Wisconsin, a good-looking C.E.O.’s appearance had “a positive and significant impact on stock returns surrounding the first day when the C.E.O. is on the job,” worth about 43 basis points in increased stock value compared with a C.E.O. 10 percent less attractive. A one-point increase in attractiveness on a scale of 1 to 10, the study also found, “is related to a $873,000 increase in total wage, controlling for various firm and C.E.O. characteristics.”

If you’re wondering who judges this executive beauty pageant, it is a computer.

Mr. Halford and Mr. Hsu loaded the pictures of 677 chief executives onto a website called anaface.com, which measures what it describes as “neoclassical beauty” by looking at the symmetry of a face â€" “the ratio of nose to ear length, the ratio of eye width compared to inner-ocular distance, the ratio of nose width to face width, the ratio of face width to face height, and the ratio of mouth width to nose width.”

Marissa Mayer, the chief executive of Yahoo, among the top 5 percent of attractive executives, according to the study, scored an 8.45 out of 10 on the Facial Attractiveness Index, or F.A.I. Paul Jacobs, chairman of Qualcomm, scored an 8.19. In comparison, the actress Angelina Jolie scored about 8.5, the economists said. Her significant other, the actor Brad Pitt, scoredan 8.46. (It’s worth noting that the average score was no different between male and female chief executives.)

There is a long list of psychology research demonstrating that appearances matter more than most us would care to admit. As shallow as it may be, better-looking people have been shown in various studies to have higher self-esteem and more charisma, are considered more trustworthy and are better negotiators.

Another study conducted last year about hedge fund managers found that “hedge fund managers whose photographs are rated as more trustworthy are able to attract greater fund flows.” That same study, which relied on a group of people to examine photos of hedge fund managers, found, however, that “managers who are perceived as more trustworthy perform worse and generate lower risk-adjusted returns when compared to those who are perceived as less trustworthy.”

The study by Mr. Halford and Mr. Hsu set out to determine whether, in the context of a stock market that some say is efficient, good looks matter.

They discovered that “attractive C.E.O.’s receive more surpluses for their firms from M.&A. transactions, a finding consistent with the hypothesis that more attractive C.E.O.’s improve shareholder value through superior negotiating prowess.”

They also found that the attractiveness of a chief executive who appears on television has a significant effect on the immediate performance of a company’s stock. “Our findings suggest that factors unrelated to informational content, such as the attractiveness of interviewees on television, matter for stock returns,” the study said.

The researchers conclude that “our findings suggest that more attractive C.E.O.’s have higher compensation because they create more value for shareholders through better negotiating prowess and visibility.”

When I asked Mr. Halford and Mr. Hsu what the lesson of their study should be, they said that they believed that their work confirmed earlier studies that show attractive people were perceived to be better leaders and negotiators, not simply that shareholders found them more attractive.

“We would like to think that what we are finding is the manifestation of these underlying qualities,” they said in an email. “That is, we would hope that the world is not such a shallow place that much weight is placed on looks alone.” They added that the study’s results were still “unclear if it is looks driving the result or if it is the qualities shown to be associated with looks” that drive the stock performance.

That may all be true, but if the study’s conclusion is to be believed â€" a big if that we’ll get to in a moment â€" it would have implications for any business or investor seeking to influence the stock.

For example, does the attractiveness rating of an activist investor sway influence?

Mr. Halford and Mr. Hsu did not run pictures of activist investors through its beauty algorithm on anaface.com. So I did. Carl Icahn, who had quite a good year in 2013, scored a little above a 5. Bill Ackman, another activist investor, scored just above an 8.

When I asked Mr. Halford and Mr. Hsu for a full ranking of the chief executives they scored, or even just the top 5 or 10, they refused to provide the data. “Selecting 5 to 10 C.E.O.’s is not representative of our results nor proper statistical procedure. Of course we can find individual examples and counterexamples where there is positive or negative association between” looks and returns, they said. “Providing scores of select C.E.O.’s opens us up to such criticism even though these examples lack statistical merit.”

They told me the average C.E.O. scored about a 7.3 out of 10.

That surprised me, given that most chief executives aren’t exactly in the same league with Ms. Jolie and Mr. Pitt. (My apologies to C.E.O.’s everywhere.)

All of this got me thinking as I tried to replicate some of the results by using anaface.com myself, that the beauty pageant scores of the chiefs might be a little off. For example, after I entered Mr. Ackman into the system using two different pictures, I received two different scores â€" more than a point apart.

When I raised this issue with the economists, they said that because all the photos were selected at random there should be no bias in the results. While the attractiveness of chief executives may be influential in the short run, let’s hope accomplishment trumps beauty in the long run.

It’s worth noting that the study didn’t take height into account.

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

Prominent Bond Trader Leaves Morgan Stanley

A prominent bond trader who was hired to revitalize Morgan Stanley’s trading business but whose division racked up sizable losses has left the Wall Street firm.

The trader, Glenn Hadden, was head of global rates, an important operation that trades government bonds and other instruments. He left Morgan Stanley on Monday after three years at the firm, according to a company memo. Morgan Stanley’s senior management asked Mr. Hadden, one of the bank’s highest-paid executives, to resign, according to a person briefed on the matter.

“After three years at the firm, Glenn Hadden will be leaving Morgan Stanley to pursue other opportunities,” said a company memo written by Michael Heaney and Robert Rooney, the executives who oversaw Mr. Hadden. “We would like to thank Glenn for his contributions to the Global Rates business and wish him well in his future endeavors.” Mr. Heaney and Mr. Rooney head up Morgan Stanley’s fixed-income business, which generates large amounts of revenue from trading bonds and other instruments.

Mr. Hadden’s departure closes an intriguing chapter in Morgan Stanley’s efforts since the financial crisis to strike the right balance in its fixed-income operations. After bond trading became the source of enormous losses during the crisis, Morgan Stanley immediately dialed back its risk-taking in the division. Not long after that retreat, however, the bank made efforts to reassert itself, in part because fixed income can produce hefty profits when markets aren’t in a state of high stress.

Mr. Hadden’s hiring was meant to play an important part in this rebuilding. Under his leadership, the global rates division increased business with clients and posted some strong financial results, particularly in 2012.

But Mr. Hadden, known for his ability to consume copious amounts of Gatorade at work, also brought controversy and trading losses.

Before joining Morgan Stanley in early 2011, Mr. Hadden worked for many years at Goldman Sachs. In 2009, Goldman put Mr. Hadden on leave after it had concerns about some of his trading. This included trading in Treasury futures that took place in December 2008 and was later found to violate CME Group rules. Last year, the CME Group, which runs exchanges where interest rates and bonds are traded, fined Mr. Hadden $80,000 and suspended him from CME trading for 10 days. Goldman was ordered to pay $850,000.

A disciplinary action of this nature would not normally be enough to lead to the departure of a prominent trader. But Mr. Hadden’s operations also produced losses that most likely weakened his position at the firm.

In 2011, Mr. Hadden’s division was hit by a wager on United States inflation expectations that led to a loss of tens of millions of dollars, according to people briefed on the transactions. After that, Morgan Stanley executives stepped up their supervision of Mr. Hadden’s activities. Even so, in the first half of 2013, his division was hurt by losses that exceeded $200 million.

Like other Wall Street firms, Morgan Stanley is trying to improve its profitability, as measured by a metric called return on equity.

Two fixed-income executives, Jakob Horder and Mitch Nadel, have immediately replaced Mr. Hadden as the co-heads of global rates.

“In their new roles, Jakob and Mitch will focus on aligning the strategy of Global Rates with the other business units in Fixed Income, with an intense focus on return on equity,” Mr. Rooney and Mr. Heaney wrote in their memo.

Susanne Craig contributed reporting.

No Barbarians at the Gate; Instead, a Force for Change

It’s no longer an insult to be called an activist investor.

Once painted as greedy corporate raiders, they would amass large stakes in a company and, through brute force, push for changes in the company’s leadership and business practices. They reveled in their image of attacking the fortress of corporate America. Now, some three decades later, their efforts have become more sophisticated and they are often seen as a good thing, shaking up companies too entrenched in their ways.

The beneficiaries of this new attitude are activist hedge fund managers like David Einhorn and Daniel S. Loeb, who last year rattled the corporate boards of some of America’s biggest and best-known companies. They are beginning the new year with swelling coffers and more public support than ever before.

The industry suffered middling returns compared with the gravity-defying stock market in the United States, but some activist hedge funds outperformed stocks last year. And in a show of support, investors poured an estimated $10 billion to $12 billion of new money â€" a record â€" into the funds’ war chests, bringing their total assets to more than $100 billion, according to data from Hedge Fund Research.

Even Mary Jo White, the Securities and Exchange Commission chairwoman, has taken note of the increasingly important role played by activist investors. “It was not that long ago that the ‘activist’ moniker had a distinctly negative connotation,” Ms. White said in December at a conference on corporate governance in Washington. “But that view of shareholder activists, which has its roots in the raiders of the 1980s takeover battles, is not necessarily the current view and it is certainly not the only view.”

Activist investors, who buy up shares in a company with the intention of gaining enough control to demand changes to its business, are best known for publicly admonishing executives as lazy and overpaid and calling on companies with huge cash piles to share their riches with shareholders.

At a time when companies have borrowed record levels of cash but are doing little with it and regulators are drawing more attention to corporate governance issues like soaring executive pay, the calls from these activist investors resonate.

And investors say they like their performance record. In 2013, activist funds returned around 18 percent to investors, compared with an industrywide average of 9 percent, according to Hedge Fund Research.

A series of prominent campaigns last year helped to make the public case for hedge fund activists. An attempt by Mr. Einhorn of Greenlight Capital to force Apple to return some cash in the form of preferred stock failed in February, but Apple later agreed to return part of its $137 billion cash pile to shareholders through a buyback and a bigger dividend. Carl C. Icahn, the billionaire activist, followed with demands for an even bigger dividend, airing his views through the media and on Twitter.

The most striking success story last year began with a relatively minor assault on Microsoft. In April, when the $12 billion hedge fund ValueAct Capital announced that it had acquired a stake in Microsoft of less than 1 percent and was seeking change at the top, it seemed unlikely to prevail. But by August, Microsoft’s chief executive, Steven A. Ballmer, announced that he was stepping down after 13 years in the job.

“In the wake of the downturn five years ago, companies were able to tell investors, ‘Everything has crashed and we’re all in the same boat together,’ ” said Christopher P. Davis, a partner at Kleinberg Kaplan Wolff & Cohen who represents activist investors. “The problem is that the stock market has rocketed up and the competition has taken advantage of that. Any laggard that is not anywhere near where the market has gone has a difficult time explaining why they are still trailing behind.”

Much of the new money flowing into activist funds is coming from institutional investors like corporate and state pension fund managers and endowment funds, many of which would not have put their money with activist investors before the financial crisis for fear of having their reputation tarnished.

“We think they can go in and make improvements in companies that benefit shareholders in the long run,” said Anne Sheehan, director of corporate governance at the California State Teachers’ Retirement System, which manages $176 billion. The California teachers’ fund, known as Calstrs, first began investing strategically in activist hedge fund managers in late 2008.

Last year, in a first for Calstrs, it joined the hedge fund Relational Investors in leading a proposal to split the Timken Company into separate steel and industrial bearings businesses. Months later, the company agreed.

Less patient than they used to be, institutional investors now weigh in, often to tip the scales in favor of activists.

“It used to be that boards of decent-sized companies were impenetrable,” said William A. Ackman of Pershing Square, an $11 billion hedge fund. “What’s changed is that institutions are prepared to replace directors, including the chairman and chief executive in light of underperformance.”

Pershing Square had a mixed year after Mr. Ackman was forced to retreat from a fight with the board of J. C. Penney, three years after he first invested in the company with the belief that new management could turn around the business. He brought in Ron Johnson, a former Apple executive credited with establishing Apple’s retail strategy, but the decision turned out to be catastrophic.

One of his most successful campaigns this year, though, and Pershing Square’s biggest activist bet yet, underscores how things have changed for activists. In August, three months after Pershing Square took a $2.2 billion stake in the industrial gases group Air Products and Chemicals, John E. McGlade, Air Products’ chief executive and chairman, announced his retirement. The board also ceded two directorships to Pershing Square.

Activist investors, for their part, have become more constructive in their analysis of how companies can improve their businesses. In the days of corporate raiders, investors needed to own a large portion of a company to throw their weight around and make changes in a company.

“The brute force of ownership is not required anymore because the big institutional players listen to both sides and are willing to back the activist fund if they believe in them,” said Gregory P. Taxin, president of the $1.5 billion hedge fund Clinton Group and a co-founder of Glass Lewis & Company, the independent research and proxy advisory firm that provides analysis to institutional investors to help them make informed decisions on corporate governance.

“You can win with persuasion and ideas,” Mr. Taxin added.

But even though activists are more refined in their methods today, many keep a bully tactic or two in their back pocket.

A partner at one activist hedge fund, based in New York, has a mug he likes to use during talks with corporate executives. The mug features the photographs of chairmen his hedge fund has removed in earlier activist campaigns.

If this is not persuasive enough to make the executives pay attention, the hedge fund manager, who spoke on the condition of anonymity, will threaten to take his activist case to the public.

“There’s one line that works,” he said. “ ‘We can make you famous, and not for the reason you want to be famous.’ ”

In Sirius Offer, John Malone Is Up to His Old Tricks

John C. Malone is up to his same old tricks against Sirius XM.

Liberty Media, where he serves as chairman, is offering more than $10 billion to squeeze out the satellite radio company’s minority investors. They would get a derisory 3 percent premium and perhaps better liquidity in return for non-voting Liberty stock with inferior prospects. Sirius shareholders should hit back.

Mr. Malone’s investment in Sirius has had a phenomenal return. In 2009, Liberty Media lent the nearly bankrupt firm $530 million at onerous terms and bought preferred shares convertible into a 40 percent stake in Sirius for a pittance. Liberty then converted and raised its stake by purchasing more shares, taking control early last year.

Liberty’s stake in Sirius is now worth about $12 billion, or almost three-quarters of the total market capitalization of Mr. Malone’s company. Collapsing this structure would give Liberty full access to Sirius’ fulsome cash generation - analysts figure the radio company should generate just under $1.5 billion of earnings before interest, taxes, depreciation and amortization, or Ebitda, this year.

Sirius also has a big chunk of operating losses which appeal to the notoriously tax-averse Mr. Malone. Combined, these two attributes would help the company swing more cable deals - including, perhaps, Liberty increasing its more than 25 percent stake in Charter Communications.

Liberty argues there’s no need for a bigger premium, since it already exerts control. But minority investors who put up a fight in such situations can often wrangle a better deal. Those who don’t tend to be treated poorly - consider how common shareholders got zilch in 2012 when Barry Diller sold his shares in TripAdvisor at a 63 percent premium to  Liberty Interactive in exchange for ceding control of the company to Mr. Malone.

Sirius investors certainly have a case: they’re being offered very little for conceding to being a smaller part of a larger firm and stripped of their voting rights. And the satellite radio company’s stock price is already above Liberty’s bid, suggesting Mr. Malone may have to do more to win them over.

This is, though, probably just one move in a larger game. Charter’s investors, for one, should learn a lesson - once Mr. Malone has a big stake in a firm, other investors need to watch their step.

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

Trial on Detroit Swaps Deal Is Delayed

A trial over how Detroit should end costly financial contracts with two big banks was suspended Monday after more than a foot of snow fell, paralyzing much of the city and closing the federal courthouse there.

Creditors of the city had been scheduled to make their closing arguments on Monday against a plan for Detroit to pay $165 million to exit the contracts, known as interest-rate swaps. The creditors say that termination fee improperly favors the two swap counterparties, Bank of America and UBS.

The storm also stopped the trial just as a group of creditors accused the mediator who negotiated the swap-termination deal of misconduct. The creditors filed an objection last week, contending that the mediator, Gerald Rosen, exceeded the limits of his authority when he publicly praised the $165 million deal and said he would recommend that the bankruptcy court approve it.

The creditors, including both financial institutions and labor groups, complain that the swaps were invalid from the time Detroit signed them, in 2005. They say that if Detroit took legal action against the two banks, instead of paying them to end the contracts, the city could obtain a much better deal.

Detroit’s emergency manager, Kevyn Orr, said in a deposition last week that his legal team had reviewed the prospects for such a lawsuit but decided against it because it would have just a 50-50 chance of success. Mr. Orr said that the city did not have time for protracted and uncertain litigation. It needs to get out of the swaps quickly as a prerequisite for a special new loan to finance its operations in bankruptcy.

If Detroit cannot obtain the new loan, proposed by Barclays Capital, the city has warned that it soon will soon be out of cash and unable to pay its workers.

It was not clear when the trial might resume.

British Regulators Open Investigations Into Co-operative Bank

LONDON - British regulators said on Monday that they were starting formal investigations into Co-operative Bank after recent revelations about its former chairman and continuing questions about a capital shortfall of 1.5 billion pounds last year.

The Financial Conduct Authority and the Prudential Regulation Authority both said on Monday that they were undertaking so-called enforcement investigations that would examine the decisions that led to the bank’s near collapse last year, including the actions of the bank’s senior managers.

To avoid collapse, the bank agreed to a debt restructuring in which it relinquished a 70 percent stake to a group of bondholders. Those included the hedge funds Silver Point Capital and Aurelius Capital Management.

The Mail on Sunday, a British tabloid, reported in November that Paul Flowers, a former chairman of Co-operative Bank and a Methodist minister, was covertly filmed counting out money to buy illegal drugs just days after he appeared before Parliament to answer questions about his leadership at the bank.

Mr. Flowers, who left the bank in June, has apologized for his “stupid and wrong” behavior. He has been suspended by the church and was arrested as part of a police inquiry in November.

“The Prudential Regulation Authority confirms it is undertaking an enforcement investigation in relation to the Co-operative Bank, and as part of that investigation will consider the role of former senior managers,” the regulator said.

After the revelations about Mr. Flowers, Len Wardle, chairman of the Co-operative Group, the bank’s parent company, offered his resignation in November. Mr. Wardle said at the time that those events “raised a number of serious questions” for the bank and the group.

A separate, independent review by the British Treasury is expected to begin after the investigations by the Financial Conduct Authority and the Prudential Regulation Authority.

The Co-operative Group traces its roots to the Rochdale Society of Equitable Pioneers, a cooperative company formed in 1844 that paid a share of its profit back to its members as a dividend.

The group now provides a range of products and services, including operating grocery stores, funeral homes, pharmacies, an insurance company, a banking unit and legal services providers.

Its banking unit, Co-operative Bank, had been held out by British politicians as an alternative to larger lenders after the British government had to bail out several larger rivals five years ago, including the Royal Bank of Scotland.

But it became clear last year that Co-operative Bank had its own issues. The company reported a loss in 2012, mainly because of a large pool of delinquent commercial real estate loans stemming from its 2009 acquisition of Britannia Building Society. In May, Moody’s Investors Service cut its debt rating to junk status over concerns about its reserves for potential loan losses.

The bank then had to turn to its debtholders in June to make up a capital shortfall of £1.5 billion, or about $2.46 billion. The Co-operative Group is its largest shareholder after the restructuring, holding a stake of about 30 percent.

Broad Strokes vs. Pinpoint in Martoma Trial

The trial of Mathew Martoma, a former portfolio manager at SAC Capital Advisors, is the big kahuna for federal prosecutors. While they have won convictions in a number of insider trading trials, this is among the most significant cases because of the dollar amount of the trading, approximately $276 million, and the involvement of Steven A. Cohen, SAC’s founder and owner.

To that end, prosecutors are pulling out all the stops in trying to show that Mr. Martoma misused confidential information about a failed clinical trial of an Alzheimer’s drug to induce Mr. Cohen to quickly sell large positions in the two companies developing it, Elan and Wyeth. Prosecutors have asked Federal District Judge Paul G. Gardephe to admit evidence that Mr. Martoma sought inside information about other drug trials to show that this was a consistent means of gaining an “edge” at SAC.

A favorite tactic of prosecutors in a case built on circumstantial evidence is to introduce other bad acts by a defendant to show the person acted as part of a consistent course of conduct. As a general rule, the government cannot use evidence of other wrongful acts to show the defendant is a bad character and therefore more likely to have committed the crime.

But Federal Rule of Evidence 404(b) contains an important loophole that permits the use of evidence to show a defendant’s “motive, opportunity, intent, preparation, plan, knowledge, identity, absence of mistake, or lack of accident.”

Federal prosecutors want to introduce evidence about how Mr. Martoma sought confidential information about other drug trials. The government plans to call two doctors, Sidney Gilman and Joel Ross, both of whom received nonprosecution agreements, to testify about how they provided other confidential information to Mr. Martoma.

Although the evidence does not relate directly to the trading in Elan and Wyeth, the government wants to paint a picture for the jury of Mr. Martoma as someone who sought out inside information regularly to show that this was part of a broader scheme. Prosecutors do not contend that he broke any laws with the information but argue that it provides context for when he received information from Dr. Gilman that turned out to be worth about $276 million for SAC.

Prosecutors have also asked the court to allow them to call an SAC research analyst to testify about how Mr. Martoma directed him to visit a doctor and obtain confidential information before a presentation about the results of a different drug trial. This took place in 2009, after the trading in Elan and Wyeth, but the government argues that “this is evidence of the defendant’s knowledge, intent and lack of mistake” under Rule 404(b).

Needless to say, Mr. Martoma’s lawyers object strenuously to the request to introduce this evidence, arguing that it is irrelevant to the trading in Elan and Wyeth and unfairly prejudicial to their client.

It is often the case in a criminal trial that the government wants an expansive approach to what the jury should hear in the hope that the sheer mass of evidence can establish guilt. Defense lawyers work to exclude evidence that puts their client in a bad light so that the focus is solely on the particular acts and not the defendant’s character. Rule 404(b) offers little real guidance on what should be admitted because the prohibition on character evidence is subject to such a broad exception that almost anything plausibly connected to a defendant’s motive, plan, intent or knowledge can be admitted.

Mr. Martoma’s lawyers want to present a radically different picture about the use of any information he received about the drug trial. Insider trading requires proof that the trading was made on the basis of confidential information, which means establishing a link between the information and the decision to trade.

Mr. Martoma has filed a motion asking the court to permit the defense to introduce part of a transcript of Mr. Cohen’s testimony in 2012 during an insider trading investigation into SAC by the Securities and Exchange Commission. Mr. Cohen told the S.E.C. investigators that Mr. Martoma told him only that he had become “uncomfortable” with the firm’s positions in Elan and Wyeth. Mr. Cohen then consulted with another portfolio manager, for whom he professed great respect, before deciding to sell the shares.

For the defense, this evidence can plant the seed of reasonable doubt that Mr. Martoma was the moving force behind SAC’s sales of Elan and Wyeth. The government’s strongest circumstantial evidence of that link is a 20-minute phone call on July 20, 2008, between Mr. Martoma and Mr. Cohen, after which SAC sold its positions in Elan and Wyeth at Mr. Cohen’s direction. If the decision to sell was unrelated to any information Mr. Martoma might have received, then there is no insider trading.

The best source of evidence about the content of that conversation and the reason for the subsequent sales is Mr. Cohen, who could provide helpful testimony for the defense. But Mr. Cohen’s lawyer indicated he will not testify at the trial by asserting his Fifth Amendment right against self-incrimination.

This puts Mr. Martoma in a difficult position because courts generally will not grant a witness immunity so that a defendant can call the person to testify. The authority to seek immunity rests almost completely with the Justice Department, and prosecutors have no interest in giving Mr. Cohen immunity because of the potential effect it could have on their continuing investigation of him.

The problem with letting the jury hear Mr. Cohen’s testimony is that it is hearsay, which is an out-of-court statement offered for the truth of the matter asserted. Even though he was placed under oath by the S.E.C., it was not the type of proceeding in which each side had an opportunity to fully question the witness, which is usually required before testimony from another case can be used.

I think the court is unlikely to admit Mr. Cohen’s testimony, or at best will only allow extremely limited use of it, because he will not be in court for the jury to evaluate his credibility.

An intriguing question about Mr. Cohen’s testimony is how little light it sheds on what he discussed with Mr. Martoma for 20 minutes. He stated that he only recalled Mr. Martoma expressing his discomfort with Elan and Wyeth, and reiterated that point when Mr. Cohen pressed further. But beyond that, Mr. Cohen had no recollection of the conversation, which makes one wonder what they talked about for so long.

Most trials involve pretrial sparring over what evidence should be admitted. Judge Gardephe may rule on the motions at a hearing on Monday before jury selection begins, although he could withhold a final decision on whether to allow the evidence until he sees how case develops at trial.

Mr. Cohen will be a Sphinx in this case, a key player who directed the sale of Elan and Wyeth after speaking with Mr. Martoma but not available to testify for either side. Instead, this will be a case built on circumstantial evidence that will require the jury to decide whether a phone call was the basis on which insider trading resulted in $276 million in gains and losses avoided for SAC.

Verso Paper to Buy NewPage Holdings

The Verso Paper Corporation announced on Monday that it would acquire NewPage Holdings, a specialty paper company that emerged from bankruptcy in 2012, in a deal valued at $1.4 billion.

The acquisition, which is subject to regulatory approval, is expected to close in the second half of the year.

The acquisition comes at a challenging time for the paper industry, which must increasingly battle declines in print media as more and more content moves online.

“The combination of Verso and NewPage will create a stronger business that is better positioned to serve our customers and compete in a competitive global marketplace,” David J. Paterson, Verso’s president and chief executive, said in a statement. “We continue to face increased competition from electronic substitution for print and international producers, but as a larger, more efficient organization with a sustainable capital structure, we will be better positioned to compete effectively and deliver solid results despite the industry’s continuing challenges.”

Verso and NewPage expect that efficiencies between the two companies will yield at least $175 million in pretax cost savings, according to the statement.

NewPage, which filed for Chapter 11 bankruptcy in 2011, reported $3.1 billion in net revenue the next year. Verso, which provides paper products to the media and marketing industries, reported revenue of $1.5 billion in 2012.

The companies will operate 11 manufacturing plants in six states after the transaction closes. Robert P. Mundy, Verso’s senior vice president and chief financial officer, said he did not expect layoffs at any of the mills “at this time.”

Mr. Mundy said the companies had identified overlap on the corporate-functions side of the businesses, but added that speculation about layoffs would be premature. The combined company will need only one headquarters, for example. Verso is based in Memphis, while NewPage is based in Miamisburg, Ohio.

Representatives for NewPage did not respond to a request for comment.

NewPage’s shareholders will receive total cash and debt of $900 million. That will consist of $250 million in cash, most of which will be paid as a special dividend before the deal closes, with the rest paid at closing, and $650 million of new Verso first-lien notes to be issued at closing. The shareholders will also receive 20 percent of Verso’s common stock.

Verso will finance the transaction through $750 million in loans, which will be used to pay the cash portion of the deal and to refinance an existing $500 million NewPage loan.

Mr. Paterson will run the combined company, and Verso will appoint one of NewPage’s directors to its own board.

Evercore, Barclays, Credit Suisse and Palisades Capital acted as advisers to Verso, along with the law firms Kirkland & Ellis; Morgan, Lewis & Bockius; and Paul, Weiss, Rifkind, Wharton & Garrison. NewPage was advised by Goldman Sachs and Sullivan & Cromwell.

Verso Paper to Buy NewPage Holdings

The Verso Paper Corporation announced on Monday that it would acquire NewPage Holdings, a specialty paper company that emerged from bankruptcy in 2012, in a deal valued at $1.4 billion.

The acquisition, which is subject to regulatory approval, is expected to close in the second half of the year.

The acquisition comes at a challenging time for the paper industry, which must increasingly battle declines in print media as more and more content moves online.

“The combination of Verso and NewPage will create a stronger business that is better positioned to serve our customers and compete in a competitive global marketplace,” David J. Paterson, Verso’s president and chief executive, said in a statement. “We continue to face increased competition from electronic substitution for print and international producers, but as a larger, more efficient organization with a sustainable capital structure, we will be better positioned to compete effectively and deliver solid results despite the industry’s continuing challenges.”

Verso and NewPage expect that efficiencies between the two companies will yield at least $175 million in pretax cost savings, according to the statement.

NewPage, which filed for Chapter 11 bankruptcy in 2011, reported $3.1 billion in net revenue the next year. Verso, which provides paper products to the media and marketing industries, reported revenue of $1.5 billion in 2012.

The companies will operate 11 manufacturing plants in six states after the transaction closes. Robert P. Mundy, Verso’s senior vice president and chief financial officer, said he did not expect layoffs at any of the mills “at this time.”

Mr. Mundy said the companies had identified overlap on the corporate-functions side of the businesses, but added that speculation about layoffs would be premature. The combined company will need only one headquarters, for example. Verso is based in Memphis, while NewPage is based in Miamisburg, Ohio.

Representatives for NewPage did not respond to a request for comment.

NewPage’s shareholders will receive total cash and debt of $900 million. That will consist of $250 million in cash, most of which will be paid as a special dividend before the deal closes, with the rest paid at closing, and $650 million of new Verso first-lien notes to be issued at closing. The shareholders will also receive 20 percent of Verso’s common stock.

Verso will finance the transaction through $750 million in loans, which will be used to pay the cash portion of the deal and to refinance an existing $500 million NewPage loan.

Mr. Paterson will run the combined company, and Verso will appoint one of NewPage’s directors to its own board.

Evercore, Barclays, Credit Suisse and Palisades Capital acted as advisers to Verso, along with the law firms Kirkland & Ellis; Morgan, Lewis & Bockius; and Paul, Weiss, Rifkind, Wharton & Garrison. NewPage was advised by Goldman Sachs and Sullivan & Cromwell.

JPMorgan Near a Settlement in Madoff Case

JPMorgan Chase is starting the year the same way it ended the last one: by whipping out its wallet, Jessica Silver-Greenberg and Ben Protess report in DealBook. The bank is preparing to reach roughly $2 billion in criminal and civil settlements with federal authorities who claim that it ignored signs of Bernard L. Madoff’s huge Ponzi scheme, bringing its settlement total to nearly $20 billion over the last year. The settlements come on the heels of a record $13 billion deal with the Justice Department in November related to the bank’s questionable mortgage practices leading up to the financial crisis.

The Madoff settlement involves a so-called deferred prosecution agreement, a criminal action “that would essentially suspend an indictment as long as JPMorgan acknowledged the facts of the government’s case and changed its behavior.” It is nearly unheard-of for an American bank. The deal calls for the bank to pay more than $1 billion to the prosecutors in Manhattan and the rest to the Office of the Comptroller of the Currency. Some of the payout will be earmarked for Mr. Madoff’s victims, according to unidentified people briefed on the case.

While no individual executives have been accused of wrongdoing, federal prosecutors are expected to cite JPMorgan for a criminal violation of the Bank Secrecy Act, though prosecutors will only call for a fine and the deferred prosecution agreement, rather than demand the bank plead guilty to the criminal violation as had been considered at one point.

Ms. Silver-Greenberg and Mr. Protess write: “Despite serving as painful reminders of JPMorgan’s ties to Mr. Madoff â€" it was his primary bank for more than two decades â€" the settlements would enable the bank to put another investigation behind it.

“The payouts reflect a new conciliatory stance at JPMorgan. Within the bank, there is growing impatience among executives who worry that the scrutiny distracts from its record profits. And while it continues to haggle over the details of each settlement, people close to the bank say, JPMorgan is keen to regain its credibility and is resigned to pulling out the checkbook to make that happen.”

MEN’S WEARHOUSE STARTS HOSTILE BID FOR JOS. A. BANK  |  Men’s Wearhouse announced a cash bid on Monday, reports Michael J. de la Merced in DealBook, taking a newly increased $1.6 billion offer directly to shareholders of Jos. A. Bank and pushing for two new directors. Men’s Wearhouse raised its offer 4.5 percent, to $57.50 a share, and would start a tender offer for Jos. A. Bank stock through March 28.

Mr. de la Merced writes: “Monday’s moves did not come as a surprise: On Friday, Jos. A. Bank amended its takeover defenses, effectively limiting shareholders to owning no more than 10 percent of its stock.”

COULD BILLION DOLLAR VALUATIONS FOR START-UPS SIGNAL A BUBBLE?  |  Investors are pouring money into start-ups at a rate that is eclipsing the exuberance of the dot-com bubble of more than a decade ago, David Gelles and Claire Cain Miller write in DealBook. Such was the case with Fab, an online retailer selling affordable high design, which was valued at $1 billion last summer, vaulting it into the club of billion-dollar technology start-ups that include Snapchat, Pinterest, Evernote, Spotify and Dropbox. But Fab, like many start-ups, saw its valuation fall after internal struggles.

“The rise and stumbles of Fab demonstrate how swiftly the fortunes of start-ups can change. At the company’s giddy high point, it also illustrated why some billion-dollar-plus valuations have raised concerns of a new dot-com bubble.

“Yet it is more than a speculative frenzy that is driving up the valuations of these companies. A number of changes in the capital markets, the venture capital industry and the public equity markets have conspired to make it easier than ever for unproven start-ups to be valued at $1 billion or more.”

The success of some high valuations in the stock and merger market, including Facebook, Twitter and Instagram, have justified these valuations to venture capitalists. Some, however, find these high valuations unreasonable and caution that they “are a sign that too much money is chasing too few good ideas.”

ON THE AGENDA  |  The ISM nonmanufacturing index for December and data on factory orders in November are out at 10 a.m. The New York Times business reporters David Kocieniewski and Gretchen Morgenson are answering questions this week on challenges posed by Wall Street’s influence over markets and prices. Congress gets back to work. Jon Steinberg, the president and chief operating officer of BuzzFeed, is on CNBC at 11 a.m. The 2014 Consumer Electronics Show kicks off this week in Las Vegas.

WALL STREET REGULATOR ANNOUNCES DEPARTURE  |  George S. Canellos announced on Friday that he was stepping down as co-chief of the Securities and Exchange Commission’s enforcement division, a sign that the agency’s enforcement agenda could be changing, Ben Protess reports in DealBook. Under his watch, the agency took on a host of insider trading cases against some of Wall Street’s most powerful hedge funds, including SAC Capital Advisors and the Galleon Group. But some critics question whether Mr. Canellos and the S.E.C. could have done more to hold Wall Street accountable after the financial crisis. Mr. Canellos closed an investigation into former executives of Lehman Brothers, which set off a heated debate at the S.E.C.

Mr. Canellos and his co-chief, Andrew J. Ceresney, served under Mary Jo White, the chairwoman of the S.E.C., who is not expected to appoint another co-chief, leaving Mr. Ceresney to put his mark on the enforcement division of the agency.

Mergers & Acquisitions »

Liberty Seeks Full Ownership of Sirius XM  |  Liberty Media proposed on Friday to acquire the 48 percent of Sirius XM it does not already own in an all-stock deal valued at more than $10 billion. DealBook »

Jos. A. Bank Amends Its Poison Pill  |  The company reduced the ownership threshold of its shareholder rights plan to 10 percent from 20 percent, matching a similar plan at Men’s Wearhouse. DealBook »

Apple Purchases the Photo App SnappyLabs  |  ReCode writes that Apple has confirmed that it has acquired SnappyLabs after an initial report by TechCrunch. SnappyLabs makes SnappyCam, which allows the iPhone’s camera to take rapid-fire photographs. RECODE

Telefonica Denies Joint Bid for TIM Brasil  |  “Spain’s Telefonica denied on Monday that it was involved in looking at making a joint offer for Telecom Italia’s Brazilian wireless network operator TIM Brasil,” Reuters reports. REUTERS

Activist Investors Spur M.&.A. Deals  |  “In a bleak period for mergers and acquisitions, activist investors have been a rare bright spot,” The Wall Street Journal reports. WALL STREET JOURNAL

INVESTMENT BANKING »

China Issues Rules to Curb Shadow Banking  |  China has drafted regulations to contain risks in its growing shadow banking sector, Reuters reports. REUTERS

More of the Same in 2014 for Stocks and Bonds  |  Two analysts, who accurately predicted the stock surge in 2013, said they would not be surprised if 2014 brought more of the same, James B. Stewart writes in the Common Sense column in The New York Times. NEW YORK TIMES

Goldman Sachs Partner in China Retires  |  Yang Changpo, a Goldman Sachs partner based in Beijing, is retiring after seven years, Bloomberg News reports. BLOOMBERG NEWS

Cantor Fitzgerald’s Lutnick Said to Be Considering Mayoral Run  |  Howard W. Lutnick, the chief executive of Cantor Fitzgerald, could be considering running for mayor on New York in four years, The New York Post’s Page Six reports, citing an unidentified person familiar with the situation. A spokesman told The Post: “It’s too soon. Howard, if he runs, will likely not run for eight years.” NEW YORK POST

U.S. Bank Stocks Attractive Again  |  Bank stocks rose 33 percent in 2013, buoyed by investors heartened by the improving economy, and analysts are predicting a similar trend in 2014, The Wall Street Journal reports. WALL STREET JOURNAL

PRIVATE EQUITY »

Carlyle Group Plans Mutual Funds  |  Attempting to attract retail investors, the private equity firm Carlyle Group has revealed plans to list two mutual funds, Reuters reports. REUTERS

Investor Group Buys LGS Innovation  |  An investor group led by the private equity firm Madison Dearborn Partners purchased LGS Innovation, a public sector subsidiary of Alcatel-Lucent, for $200 million, The Washington Post writes. WASHINGTON POST

Chief Executive of Strauss Coffee Ousted  |  Shareholders decided to terminate Todd Morgan as chief executive of Strauss Coffee, Reuters writes. Strauss Coffee’s parent company, the Strauss Group, is one of Israel’s largest food and beverage companies. REUTERS

Connecticut Firm Acquires Joseph’s Pasta Company  |  Brynwood Partners purchased Joseph’s Pasta Company, which makes frozen pasta and sauces, from the Nestlé Prepared Foods Company for an undisclosed amount, The Boston Globe reports. BOSTON GLOBE

HEDGE FUNDS »

Hedge Funds Slow to Adopt Ads  |  The Financial Times writes: “Hedge funds are reluctant to embrace the smart and sassy approach to advertising of television’s Don Draper, despite a change in United States rules that allow them to market to new investors for the first time.” FINANCIAL TIMES

Hertz Rises on Icahn Purchase  |  Hertz increased 1.9 percent after the activist investor Carl C. Icahn purchased 40 million shares, Bloomberg News reports. BLOOMBERG NEWS

I.P.O./OFFERINGS »

N.Y.S.E. Beats Nasdaq in Internet and Technology I.P.O.’s  |  The New York Stock Exchange secured more initial public offerings of technology and Internet companies in 2013 than the Nasdaq Stock Market for the first time in at least 19 years, The Wall Street Journal reports. WALL STREET JOURNAL

China’s Shanxi Coal Gets Go-Ahead on I.P.O.  |  China’s securities regulator has given approval to the Shanxi Coal Industry Company to start its I.P.O. roadshow, The Wall Street Journal writes. The regulator’s final approval culminates a wait of more than three years for the I.P.O. WALL STREET JOURNAL

I.P.O.’s May Limit Private Equity Buyouts  |  The strength of the I.P.O. market could reduce buyout opportunities for private equity firms, advisers say, Financial News reports. FINANCIAL NEWS

VENTURE CAPITAL »

Ecuadorean Navy Comes Through for Amazon Chief  |  Jeff Bezos, the founder of Amazon, was airlifted by the Ecuadorean Navy after he suffered a kidney stone while visiting the Galápagos Islands on New Year’s Day, the Bits blog reports. When asked for comment, an Amazon spokesman quoted Mr. Bezos as saying: “Galápagos: five stars. Kidney stones: zero stars.” NEW YORK TIMES BITS

Business Insider Is Said to Have Rejected $100 Million Deal  |  The website Business Insider is said to have turned down a buyout offer worth over $100 million, Fox Business News reports, citing an unidentified person familiar with the situation. FOX BUSINESS NEWS

LEGAL/REGULATORY »

European Banks Face Eased Reforms  |  The European Commission will not require big European banks to separate lending operations from trading activities, The Financial Times reports, citing a European Commission draft proposal. The proposal follows the 2012 Liikanen report, which provided a proposal for restructuring banks. FINANCIAL TIMES

Merkel Injured on Ski Trip  |  Chancellor Angela Merkel of Germany injured her pelvis on a cross-country ski trip during her Christmas vacation and will be bed-bound for the next three weeks, The New York Times reports. NEW YORK TIMES

A Roadblock to Brawny Bank Reform  |  Tougher capital rules for the banking industry are still awaiting approval, Gretchen Morgenson writes in the Fair Game column in The New York Times. NEW YORK TIMES

JPMorgan Settles Suit with Pittsburgh Bank  |  JPMorgan Chase has agreed to settle a lawsuit brought in 2009 by the Federal Home Loan Bank of Pittsburgh related to losses on $1.8 billion of mortgage-backed securities the bank bought before the financial crisis, Bloomberg News reports. JPMorgan settled without releasing terms of the deal after a judge ordered the bank to hand over the government’s draft complaint at the center of the $13 billion settlement with regulators in November. BLOOMBERG NEWS

Nestlé to Sell Frozen Pasta Business to Brynwood Partners

LONDON - The food giant Nestlé is selling Joseph’s Pasta, a Massachusetts maker of frozen pastas, to the buyout firm Brynwood Partners.

The deal is the latest sale by the Swiss company, which is trimming its brand offerings as part of an effort to focus on more profitable business lines. Terms of the transaction were not disclosed.

“Joseph’s manufactures delicious and unique products in its state-of-the-art manufacturing facility,” said Henk Hartong, senior managing partner at Brynwood Partners. “We are excited about the opportunity to accelerate innovation and explore new distribution channels.”

Nestlé acquired Joseph’s Pasta in 2006. The company, based in Haverhill, Mass., employs 300 people and makes a variety of frozen pasta, including ravioli, tortellini and manicotti.

Nestlé, the maker of Kit Kat chocolate bars, Nespresso coffee and Purina dog and cat food, has sold several of its brands over the last year as it looks to pare its offerings.

Last year, Nestlé’s chief executive, Paul Bulcke, said the company planned to sell some of its underperforming brands.

In December, Nestlé said it was selling its 10 percent stake in Givaudan, the Swiss flavors and fragrance company.

In November, the company agreed to sell its Jenny Craig brand in North America, Australia, New Zealand and parts of the Pacific to a private equity firm, North Castle Partners, for an undisclosed amount.

The company also sold an Australian ice cream brand in June and two French bottled water brands in July.

The Joseph’s Pasta deal is the latest transaction between Nestlé and Brynwood, which acquired the Bit-O-Honey candy brand last year through one of its portfolio companies, Pearson Candy.

The buyout firm will use its newest fund, which has $400 million in capital, to finance the transaction.

Brynwood’s portfolio also includes Back to Nature Food, which recently acquired the SnackWell healthy cookie brand.

Last month, Brynwood agreed to sell DeMet’s Candy, the maker of Turtles and Flipz, both former Nestlé brands, to Yildiz Holding, the owner of Godiva chocolate, for $221 million.

Carlyle Hires Former F.C.C. Chairman for Buyout Group

The Carlyle Group, an investment firm with longstanding connections in Washington, has hired the former head of the Federal Communications Commission to help run leveraged buyouts.

Julius Genachowski, who was chairman of the F.C.C. until May, joins Carlyle as a managing director and partner in the United States buyout group, the firm said on Monday. Mr. Genachowski, a proponent of a free and open Internet, will work on investments in the technology, media and telecommunications sectors, including in the Internet and mobile.

The former regulator is the latest Beltway insider to join Carlyle’s payroll. Last year, the investment firm, which is based in Washington, hired Barrett Karr, majority staff director of the House Education and Workforce Committee, to lead its United States government affairs.

Still, Carlyle is not the only private equity player to attract a former government official in recent months. Timothy F. Geithner, the former Treasury secretary, is expected to join the private equity firm Warburg Pincus. Kohlberg Kravis Roberts last year hired David H. Petraeus, a retired four-star general, as chairman of the KKR Global Institute.

“I’m grateful to have been part of developments around tech, media and telecom for many years, working with some of the best in the business, and I’m looking forward to joining my new and superbly talented Carlyle colleagues to help find and build businesses,” Mr. Genachowski said in a statement on Monday.

After four years of running the F.C.C., Mr. Genachowski is making a lucrative return to the private sector. Since leaving the agency, he has taught a joint course at Harvard’s business and law schools and served as a senior fellow at the Aspen Institute, a public policy research group in Washington.

At the communications commission, Mr. Genachowski supported rules against discrimination by Internet service providers over what content they carry, an issue that consumers advocates hold dear. He also successfully opposed the merger of AT&T and T-Mobile and began to free up airwaves for sale to mobile phone companies.

The commission under Mr. Genachowski also angered consumer groups, who criticized the decision to approve the purchase of NBC Universal by Comcast. The consumer group Public Knowledge said his tenure was “one of missed opportunities.”

Before working in government, Mr. Genachowski was an investor in technology and telecommunication start-ups, experience that Carlyle cited in its announcement on Monday. Mr. Genachowski is also a friend of President Obama from law school.

“Deep industry specialization is core to our investment strategy and Julius brings a wealth of knowledge and experience to these sectors,” Allan Holt, co-head of Carlyle’s United States buyout group, said in a statement. “His judgment about how these sectors will evolve will be invaluable to us.”

G.E. to Buy Health Care Units From Thermo Fisher Scientific

General Electric said on Monday that it would acquire a gene modulation and magnetic beads business from Thermo Fisher Scientific for about $1.06 billion.

The units will become part of GE Healthcare, and help the industrial conglomerate offer new medicines, vaccines and diagnostics as part of its expanding life sciences business. Last year, the businesses had combined revenue of $250 million.

G.E. is focusing on its health care offerings as it pivots toward high-technology businesses with good growth potential and attractive margins.

“Life Sciences is one of our strongest and fastest-growing business areas, driven by the world’s demand for improved diagnostics and new, safer medicines,” John Dineen, chief executive of GE Healthcare, said in a statement. “This deal makes a good business even better and will help us realize our vision of bringing better health care to more people at lower cost.”

The cell culture business that G.E. is acquiring, called HyClone, is used to manufacture vaccines and drugs that treat diseases including cancer and arthritis. GE Healthcare already has a cell biology business doing related work.

The gene modulation business G.E. is acquiring fits with existing drug discovery work the company does, and the magnetic beads unit will help G.E. in the areas of protein analysis and diagnostics.

The companies expect the deal to close early this year.

YP, a Mobile Ad Firm, Buys a Rival, Sense Networks

YP, the local search and advertising company owned by Cerberus Capital Management and AT&T, said on Monday that it had acquired Sense Networks, a mobile ad company.

Terms of the deal were not disclosed, but the deal will bring Sense Networks and its entire staff on board with YP, which is based in Atlanta.

With more than $1 billion in revenue last year, YP is one of the largest mobile advertising companies in the United States. Acquiring Sense Networks, which mines location and behavioral data, will allow YP to provide more accurately targeted search and display ads.

YP was formed in 2012, when private equity Cerberus bought a majority interest in the yellow pages business, made up of AT&T Advertising Solutions and AT&T Interactive, from AT&T for $950 million.

At the time, AT&T was looking to focus on its higher margin wireless and Internet operations, and the yellow pages business represented a minuscule portion of the company’s revenue.

While the traditional yellow pages phone book business still makes money, the local search business is the faster growing part of YP. Online, YP competes with Google and sites like Yelp and Citysearch for the attention of local advertisers and users.

This is YP’s first acquisition as a stand-alone company. But YP’s chief executive, David Krantz, said more deals were planned.

“We expect to continue to make technology acquisitions and plan to aggressively maintain and build on our mobile advertising leadership,” he said in a statement.

Union Square Advisors and Kilpatrick Townsend & Stockton advised YP.

XPO Logistics to Buy Pacer International for $335 Million

XPO Logistics, which helps companies organize shipping services, said on Monday that it will buy Pacer International, a provider of so-called intermodal transportation, for $335 million.

Men’s Wearhouse Starts Hostile Bid for Jos. A. Bank

Men’s Wearhouse stepped up its efforts to buy Jos. A. Bank early on Monday, taking a newly increased $1.6 billion offer directly to the smaller menswear retailer’s shareholders and pushing for two new directors.

The hostile bid signals a new stage in the takeover battle, one that began last year when Jos. A. Bank was the unwanted bidder.

Men’s Wearhouse announced that it had raised its offer 4.5 percent, to $57.50 a share, and would start a tender offer for Jos. A. Bank stock until March 28.

Just as significant, it disclosed plans to push for the election of two new directors, John D. Bowlin and Arthur E. Reiner, at Jos. A. Bank’s annual meeting this year.

“Although we have made clear our strong preference to work collaboratively with Jos. A. Bank to realize the benefits of this transaction, we are committed to this combination and, accordingly, we are taking our offer directly to shareholders,” Douglas S. Ewert, Men’s Wearhouse’s chief executive, said in a statement.

The steps announced on Monday are an ever-higher level of aggression on the part of Men’s Wearhouse, after it embarked on a reversal of roles in November. The bigger retailer turned the tables on its would-be acquirer in a play on the Pac-Man defense used in the 1980s.

Jos. A. Bank itself never went so far as to run a hostile bid, instead dropping its unsolicited offer after failing to draw enough shareholder support. But investors in both companies have expressed interest in combining the two retailers, creating a juggernaut in men’s suit sales that could better take on the likes of Macy’s and Dillard’s.

Monday’s moves did not come as a surprise: On Friday, Jos. A. Bank amended its takeover defenses, effectively limiting shareholders to owning no more than 10 percent of its stock.

Men’s Wearhouse is being advised by Bank of America Merrill Lynch, JPMorgan Chase, the law firm Willkie Farr & Gallagher and the proxy solicitor MacKenzie Partners.