Steep Penalties Taken in Stride by JPMorgan Chase

To settle a barrage of government legal actions over the last year, JPMorgan Chase has agreed to penalties that now total $20 billion, a sum that could cover the annual education budget of New York City or finance the Yankees’ payroll for 10 years.

It is also a figure that most of the nation’s banks could not withstand if they had to pay it. But since the financial crisis, JPMorgan has become so large and profitable that it has been able to weather the government’s legal blitz, which has touched many parts of the bank’s sprawling operations.

The latest hit to JPMorgan came on Tuesday, when federal prosecutors imposed a $1.7 billion penalty on the bank for failing to report Bernard L. Madoff’s suspicious activities to the authorities.

Yet JPMorgan’s shares are up 28 percent over the last 12 months. Wall Street analysts estimate that it will earn as much as $23 billion in profit this year, more than any other lender. And JPMorgan’s investment bankers, who on average earned $217,000 in 2012, can look forward to another lush payday as bonus season approaches.

“The fines have been manageable in the context of the bank’s earnings capacity,” Jason Goldberg, a bank analyst at Barclays, said. “It makes $25 billion in revenue per quarter and has record capital.”

“JPMorgan failed â€" and failed miserably,” Preet Bharara, the United States attorney in Manhattan, said on Tuesday in announcing the action.

As much as such words might sting at first, the bank’s shareholders and clients show every sign of remaining loyal. JPMorgan’s financial success highlights a deep quandary that regulators have to grapple with as they press the largest banks to clean up their acts. The government’s penalties may seem large on paper â€" JPMorgan’s mortgage settlement with the Justice Department last year cost it a record $13 billion â€" but the largest banks seem capable of earning their way out of serious legal trouble.

“JPMorgan’s shareholders may believe these billions of dollars don’t count because they see them as extraordinary expenses,” said Erik Gordon, a professor at the University of Michigan Law School. “But they keep popping up one after another â€" and the bank could have done something about them.”

One reason that JPMorgan can absorb the $20 billion is that it has steadily set aside reserves over the last few years to finance future legal payouts. Mr. Goldberg, the bank analyst, estimates that, as of last year’s third quarter, JPMorgan had injected $28 billion into its legal reserves since the end of 2009. The legal payouts that have been subtracted from the reserves, including those booked since the third quarter, might have taken the reserve down to about $10 billion. Most analysts expect JPMorgan will be able to cover any remaining settlements, though the bank said on Tuesday that it might have to set aside an extra $400 million for the Madoff settlement.

In theory, regulators have other ways of improving ethics at banks. They can try to hold more individuals personally accountable. Some senior executives have left JPMorgan as a result of recent scandals at the bank, including the so-called London whale incident, in which the bank’s traders lost more than $6 billion on botched derivatives trades. In recent months, the bank has also added two members to its board to improve oversight.

But facts contained in the government’s Madoff action suggest that efforts to hold executives responsible may go only so far.

The action describes how the chief risk officer of JPMorgan’s investment bank allowed the bank to increase its financial exposure to a Madoff entity in 2007 to $250 million. The risk officer had spoken with Mr. Madoff but approved the increase even though Mr. Madoff appeared to make it clear that he would not answer more probing questions about his firm. The government’s action says that the risk officer understood that Mr. Madoff “would not authorize any further direct due diligence of Madoff Securities.” The risk officer, John Hogan, still works at JPMorgan as chairman of risk.

“Our senior people were trying to do the right thing and acted in good faith at all times,” Brian J. Marchiony, a JPMorgan spokesman, said in a statement. The bank also said, “We recognize we could have done a better job pulling together various pieces of information and concerns about Madoff from different parts of the bank over time.”

Still, some banking experts say they think that companies like JPMorgan are so large and complex that it might be almost impossible to keep all employees in line.

“With respect to the big banks, it is not so much a culture problem but a complexity problem,” said Kurt N. Schacht, a managing director at the CFA Institute, an organization that promotes ethics and standards at financial firms. “We think these firms are so large that they are always going to be plagued by rogue operators.”

As a result, breaking up the banks to make them smaller might improve their cultures, some bank specialists contend.

“I think JPMorgan is too big to manage and it should be broken up,” said Paul Miller, a bank analyst at FBR Capital Markets. The London whale incident, he said, showed that some employees at large banks may still try to maximize their compensation at the expense of the firm. “There is too much of an incentive for an individual to cut corners.”

First Witness in Martoma Trial Had Delectable Detour in Waffle Business

When Timothy W. Jandovitz left SAC Capital Advisors after five years of grinding out financial numbers and analyzing companies he decided to try his hand at pork belly and burrata-filled Belgian waffles.

His recipes, however, are not likely to be the expertise he will be sharing this week. Rather, Mr. Jandovitz is on tap to be the first witness called by the prosecution at the insider trading trial of Mathew Martoma, a former hedge fund manager at SAC Capital Advisors, whose trial is set to begin in a federal district court in Lower Manhattan on Wednesday after a 12-person jury is selected.

The questions for Mr. Jandovitz likely will focus on the years he worked with Mr. Martoma at SAC as a health care analyst.

Mr. Martoma is accused of obtaining secret information from a doctor about clinical trials for an Alzheimer’s drug. A day later, SAC dumped its shares in the two companies developing the drug, Elan and Wyeth, a move that the authorities say helped the firm avoid losses and generate profits totaling $276 million.

Still, Mr. Jandovitz did have time to pursue other interests. After leaving SAC in December 2010, Mr. Jandovitz set up Bel 50, a Chicago eatery offering “light, crisp, and airy” waffle sandwiches. (The name is a cross between Belgium and the country’s 50 degrees north latitude).

But it doesn’t appear that world of waffles worked out for Mr. Jandovitz. According to the local Chicago Eater, Bel 50 closed down in May 2013. Chicago Eater cites Mr. Jandovitz in a statement saying: “It was absolutely one of the toughest decisions to make but ultimately it was the best choice for everyone involved.”

The restaurant’s website still has a section for investors to inquire about investment opportunities and says it will be opening additional stores.

Mr. Jandovitz, who graduated from Boston College with an economics degree in 1998, is now back on Wall Street working at Jefferies Strategic Capital as a senior vice president.

Prosecutors are expected to rely heavily on the the testimony of two doctors involved in a 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, who earned $108,000 through a consulting firm for his advice to SAC.

Oscar, a New Health Insurer, Raises $30 Million

Most of the darlings of the past few years have been consumer-focused start-ups, like Instagram and Warby Parker.

But a group of investors, including the venture capitalist Joshua Kushner, are doubling down on a bet on health insurance.

Oscar, a health insurer co-founded by Mr. Kushner, has raised $30 million in new capital from existing investors, the firm plans to disclose this week. The financing was led by the Founders Fund, the venture capital firm co-founded by Peter Thiel. It also includes Mr. Kushner’s firm, Thrive Capital, Khosla Ventures and General Catalyst Partners.

Open for business only since October, the company has grown rapidly. The newest fund-raising round, which follows an initial round of about $35 million, values the insurer at roughly $340 million. Mr. Kushner will remain chairman, while his co-founders, Kevin Nazemi and Mario Schlosser, will run the firm day to day.

It’s an unusual bet that technology can transform one of the stodgiest industries around: health insurance. While Oscar’s fundamental business model doesn’t upend the traditional insurance industry playbook, the three are betting that a service provider can thrive on being friendlier and easier to use.

“Our ethos and mission is to create a good consumer experience,” Mr. Kushner said in an interview. “We wanted to create an experience like having a doctor in the family.”

For now, Oscar only serves New York City and a few other counties in lower New York State. But Mr. Kushner said that the firm is aiming to eventually expand across the country, a process made easier by already being licensed in one state.

Oscar still charges deductibles and monthly payments. But the company focuses on offering other services intended to make life easier for patients, including free generic drugs, free calls to doctors and a handful of free primary care appointments.

The start-up also focuses on design and technology, including a search function that lets patients type in their symptoms in natural language, then being steered to a doctor that suits their needs.

To Mr. Kushner, such services are meant to undercut the idea of insurance companies as faceless middlemen. “People just don’t have a relationship with this kind of entity,” he said. “The existing players don’t care about satisfying the customer.”

The company’s services are currently available only through New York State’s health insurance exchange, though Mr. Kushner said that the technical troubles of healthcare.gov haven’t hurt business.

It’s unclear whether a shinier, friendlier insurer can translate into profits, though Mr. Kushner said Oscar already has thousands of customers and tens of millions of dollars in revenue.

While the company has already raised over $75 million in its short existence, people briefed on the matter said that it isn’t because of a high cash burn. (About $29 million of the insurance provider’s initial fund-raising was set aside for reserves; meanwhile, employees are trying to save money by taking steps like painting the walls of the company’s headquarters themselves.)

Goldman Reshuffles an Investment Banking Group

Goldman Sachs is shaking up its technology, media and telecommunications investment banking group, according to internal memos.

George Lee, who has served as co-head of group since 2008, will become the group’s chairman. He will also serve as chief information officer for the investment banking division, a newly created position.

Anthony Noto, the other co-head of the group, will remain in his role.

Mr. Noto’s new co-head will be Daniel Dees, who is relocating from Hong Kong, where he has been one of Goldman’s most senior bankers in Asia. Mr. Dees will move to San Francisco, where Mr. Lee is based.

Mr. Dees is co-head of of the investment banking division in Asia Pacific excluding Japan, chairman of the financing group in Japan and a member of the investment banking division executive committee and operating committee.

Goldman’s TMT group, as it is known at the firm, has scored a number of prominent assignments recently. Mr. Noto led Twitter’s successful initial public offering last year, and Goldman has been making gains in the technology I.P.O. market, taking share from its chief rival, Morgan Stanley.

As chairman of the TMT group, Mr. Lee will continue to work with some of the bank’s prominent technology clients. As chief information officer for the division, “he will identify and assess the impact of disruptive technology themes across our client base, provoking strategic discussion with clients across all industries and driving commercial opportunities for them and for the firm,” according to an internal memo. Mr. Lee joined Goldman in 1994, became a managing director in 2002, and made partner in 2004.

With Mr. Dee’s departure from Hong Kong, Matthew Westerman will become sole head of the investment banking division in Asia Pacific excluding Japan.

Three memos from Goldman Sachs outlined the changes:

Memo 1

George Lee to Become Chairman of the Global Technology, Media and Telecom Group and Chief Information Officer for the Investment Banking Division

We are pleased to announce that George Lee will become chairman of the Global Technology, Media and Telecom Group (TMT) and chief information officer for the Investment Banking Division.

As a TMT leader, George has been instrumental to the growth of our franchise and client relationships, as well as the recruitment and development of a generation of highly talented bankers. In his role as chairman, he will maintain his coverage responsibilities for some of our most important technology clients and will work with TMT leadership to drive our continued success in these critical sectors.

As chief information officer for the division, George will focus on several important areas. From a client perspective, he will identify and assess the impact of disruptive technology themes across our client base, provoking strategic discussion with clients across all industries and driving commercial opportunities for them and for the firm. Within the division, George will work to define a new technology agenda at the center of IBD’s strategy and drive initiatives to ensure that we are leading the industry in our use of technology and data to serve clients and maximize efficiency. In this role, George will work closely with IBD Technology and will have responsibility for IBD Strats alongside Marty Chavez, the firm’s chief information officer.

George is currently co-head of Global TMT and is a member of the IBD Operating Committee. He joined the firm in 1994 and was named managing director in 2002 and partner in 2004.

Please join us in congratulating George and wishing him continued success.

Richard J. Gnodde
David Solomon
John S. Weinberg

Memo 2

Dan Dees to Become Co-head of the Global Technology, Media and Telecom Group

We are pleased to announce that Dan Dees will be relocating from Hong Kong to San Francisco to become co-head of the Global Technology, Media, and Telecom Group (TMT), alongside Anthony Noto.

The TMT sectors continue to evolve rapidly on a global basis and present significant strategic opportunities for our clients and for the firm. Working together with George Lee as chairman of TMT, Dan and Anthony will bring the leadership, drive and global perspective to ensure that our franchise continues to deliver on this potential.

Dan is currently co-head of IBD in Asia Pacific Ex-Japan, chairman of the Financing Group in Japan, and a member of the IBD Executive Committee and Operating Committee. Prior to this, he was head of the Financing Group in Asia Pacific. Dan joined the firm in 1992 and was named managing director in 2001 and partner in 2004.

Dan has been instrumental in developing our corporate and capital markets franchise over the last 10 years in Asia Pacific. He has been responsible for driving some of our most important client relationships and transactions, and his leadership and judgment have been critical to developing IBD in the region to its current position.

Please join us in congratulating Dan on his new role.

Richard J. Gnodde
David Solomon
John S. Weinberg

Memo 3

IBD Asia Pacific Ex-Japan Leadership Changes

We are pleased to announce a number of leadership changes in IBD Asia Pacific Ex-Japan.

Following Dan Dees’ appointment to co-head of the Global Technology, Media and Telecom Group, Matthew Westerman will become sole head of the Investment Banking Division in Asia Pacific Ex-Japan.

Andrea Vella and Jonathan Penkin will become co-heads of the Financing Group in Asia Pacific Ex-Japan. Their combined leadership will ensure that we deliver the full suite of financing solutions to an increasingly sophisticated client base. In addition, Anthony Miller will relocate from Sydney to Hong Kong to become head of Investment Banking Solutions in Asia Pacific Ex-Japan. Anthony will work closely with members of the Financing Group to further integrate the derivatives product with our broader financing dialogue.

In Asia Pacific in recent years, we have diversified our footprint and local market penetration in a disciplined way across key geographies, products and industries, enabling us to capture leading market shares and participate in many of the region’s most significant transactions. With the strength and breadth of our team and our franchise, we are well positioned to serve our clients and their strategic needs across M&A, equity, debt and corporate solutions. As Dan returns to the US, we want to thank him for his many contributions to the firm in Asia Pacific over the past decade and look forward to his continued involvement in the region in his new position.

Andrea is currently head of Credit Capital Markets in Asia Ex-Japan and the Investment Banking Solutions teams in Asia Pacific. He joined the firm as a partner in 2007 and relocated to Asia in 2010. Andrea is a member of the IBD Operating Committee, the Asia Pacific Diversity Committee, the Asia Pacific Capital Committee, the Asia Pacific Suitability Committee and the Sovereign Risk Committee.

Jonathan is currently head of Equity Capital Markets for Asia Ex-Japan. He joined the firm as a managing director in 2006 and was named partner in 2010. Jonathan is a member of the Asia Standards Committee and the Asia Pacific Commitments Committee.

Anthony is currently head of the Financing Group in Australia and New Zealand. He joined the firm in 2001 and was named managing director in 2005 and partner upon full acquisition of the Australia and New Zealand businesses in 2011. Anthony is a member of the Australia and New Zealand Operating Committee and the Asia Pacific Diversity Committee.

Please join us in wishing Dan, Matthew, Andrea, Jonathan and Anthony continued success in their new and expanded roles.

Mark Schwartz
Richard J. Gnodde
David Solomon
John S. Weinberg
Ken Hitchner

What the JPMorgan Settlement Means

JPMorgan Chase’s latest criminal settlement shows that prosecutors are becoming more creative about getting money to victims of a fraud rather than just putting it into federal coffers.

As part of a deferred-prosecution agreement, JPMorgan will pay $1.7 billion to the Justice Department for not maintaining proper anti-money laundering controls and failing to file a “suspicious activity report” on Bernard L. Madoff’s account. The bank is settling over violations of the Bank Secrecy Act, and prosecutors say the bank failed to see numerous red flags about Mr. Madoff’s extensive Ponzi scheme operated through accounts at the bank.

The bank did notify British authorities just two months before Mr. Madoff was arrested that there were questions about his trading because the consistently good returns were “too good to be true.” However, the bank never made a similar filing in the United States.

JPMorgan played a central role in Mr. Madoff’s scheme, with much of the money from his investors flowing through accounts at the bank, including his primary checking account, which had billions of dollars of activity.

A bank spokesman, Joseph M. Evangelisti, told DealBook that “Madoff’s scheme was an unprecedented and widespread fraud that deceived thousands, including us, and caused many people to suffer substantial losses.”

But unlike many of the investors, JPMorgan had a direct view into the money flowing through Mr. Madoff’s account. The government concluded the bank made no real effort to dig deeper despite an obligation to monitor accounts for suspicious activity. Like the Securities and Exchange Commission and other sophisticated parties duped by Mr. Madoff, the bank failed to press for information that might have exposed the fraud.

Perhaps more troubling, the statement of facts released as part of the settlement points out that in the last months before the Ponzi scheme collapsed, JPMorgan cut back its exposure to Mr. Madoff’s investment business that kept its losses to only $40 million rather than $250 million.

This is not the first time JPMorgan has been accused of aiding Mr. Madoff by not calling attention to suspicious transactions through his account. Irving H. Picard, the trustee overseeing the liquidation of Mr. Madoff’s firm, filed a lawsuit against a number of banks for their role in scheme, including a claim for $19 billion against JPMorgan for not taking steps that would have ended the fraud much earlier.

As I discussed in an earlier post, those claims ran into the legal doctrine of “in pari delicto,” or mutual fault, which prevents one wrongdoer from suing another. As the trustee, Mr. Picard takes over Mr. Madoff’s position in the case, so the banks asserted that he could not recover anything from them because Mr. Madoff was responsible for the fraud.

The Federal District Court in Manhattan dismissed the lawsuits on those grounds, which was affirmed by the United States Court of Appeals for the Second Circuit in June. Mr. Picard asked the Supreme Court to review the dismissal of his lawsuit, which is scheduled to consider whether to hear the appeal on Jan. 10.

JPMorgan is no longer part of that case because it has agreed to pay a total of $543 million to Mr. Picard’s fund to settle a variety of claims related to how it dealt with Mr. Madoff. Even though it had been victorious in the lower courts against the trustee, the bank seemed eager to put this entire affair behind it rather than risk having the Supreme Court side with Mr. Picard and expose it to an even higher judgment. His claims against other banks are still up for review by the Supreme Court.

The deferred-prosecution agreement operates much like Mr. Picard’s claim against JPMorgan, even though a violation of the Bank Secrecy Act has nothing to do with fraud. A provision in the agreement provides that the government will treat the $1.7 billion as the forfeiture of proceeds from Mr. Madoff’s fraud rather than just a criminal fine, and so the government will use the money to pay investors whose money was funneled into Mr. Madoff’s firm.

The Justice Department set up a Madoff Victim Fund last year to return approximately $2.35 billion to investors whose claims were denied by Mr. Picard because they bought into the scheme through the “feeder funds” that place money with Mr. Madoff but were not customers of his firm. JPMorgan’s payment will expand the amount available to those who lost money but who have been shut out of the claims process to this point.

A violation of the Bank Secrecy Act does not usually involve individual victims because the statute only imposes requirements on financial institutions to monitor accounts and provide the government with information. Any criminal fine or civil penalty for a violation usually would go directly to the United States Treasury.

As part of the settlement with JPMorgan, however, the Justice Department filed a civil forfeiture complaint that identifies the $1.7 billion as “proceeds of Madoff’s fraud, and constitute some of the billions of dollars that flowed through Madoff Securities accounts” at the bank. Property that is forfeited can be returned to victims of the crime, like the investors in Mr. Madoff’s firm, because it is the product of criminal activity and not just a penalty for misconduct.

Prosecutors went a step further by including a provision in the deferred prosecution agreement that bars JPMorgan from treating the payment as an ordinary business expense, which would permit the bank to deduct the $1.7 billion from its taxable income. So the taxpayers are not effectively subsidizing the payment to Mr. Madoff’s victims.

In the end, JPMorgan decided that paying more than $2 billion was better than trying to fight claims that it aided the biggest Ponzi scheme in history. The winners in the settlements are Mr. Madoff’s victims, who will never be made whole but are at least a step closer to receiving a measure of compensation, due in part to a creative use of the law by federal prosecutors.

Overhaul of Israel’s Economy Offers Lessons for United States

Americans may talk about income inequality, but Israel has done something about it.

The Israeli parliament, the Knesset, has voted to break up the country’s corporate conglomerates. The move followed mass protests in 2011 over the concentration of wealth in Israel.

The protesters, numbering in the hundreds of thousands, had focused their ire on the “tycoons,” a handful of Israelis whose holding companies control about 30 percent of the economy. Much of the tycoons’ business is done through “pyramids” â€" a family or individual who owns a public company that in turn controls many other public companies.

Take the heavily indebted IDB Holding Corporation. At its peak, the company, headed by Nochi Dankner, was Israel’s largest pyramid. It controlled numerous companies including the airline Israir, one of the country’s largest insurance companies and the Super Sol supermarket chain, while also finding the time to make a huge investment in Las Vegas real estate on the eve of the financial crisis.

A number of journalists at the Israeli newspaper Haaretz led the charge, claiming that Israel’s public shareholders often lost out as the tycoons used them to subsidize their collection of businesses. The tycoons could put down little money but control vast swathes of the Israeli economy. These pyramids also used their size to crowd out competitors and take on excessive debt by lending among their companies. The Israeli economy was viewed by some to be uncompetitive because the concentration of businesses arguably drove up prices and decreased competition. In the small Israeli economy, the pyramids were behemoths that some termed too big to fail.

Added to this witches’ brew was a growing bout of income inequality. In 2008, the Organization for Economic Cooperation and Development reported that the top 10 percent of Israeli income earners made 13 times more than the bottom 10 percent.

In October 2010, the Israeli government formed a committee of 10 government regulators known as the concentration committee to examine the issue of the tycoons’ control of the Israeli economy. The committee was advised by Lucian A. Bebchuk, a Harvard Law professor and occasional contributor to DealBook, who strongly advocated breaking up the more significant pyramids.

Committees are usually where things go to die, but the 2011 protests along with Haaretz’s sustained campaign kept the cause going. The concentration committee’s report was issued in 2012, and it struck directly at the pyramids, aiming to overhaul the Israeli economy. The committee recommended the breakup of the pyramids in the hope that if they were destroyed, prices would come down in the wake of greater competition, helping the average Israeli and addressing income inequality.

The committee also recommended the prohibition of significant cross-holdings between financial and nonfinancial groups. To put this in American terms, this would mean that General Electric, for example, could no longer have its financial unit, which holds more than $500 billion in assets. The result would be that the pyramids could no longer fund themselves, using their access to cheap financing to give themselves an unfair competitive advantage over their rivals.

It also ensured that financial institutions did not bring down entire corporate groups if they imploded.

This was all well and good, but the big question was, what would happen when the bill was introduced into the Knesset? Indeed, a furious battle broke out as the big pyramids hired a slew of lobbyists and law firms to persuade lawmakers to either kill the bill or remove their own pyramid from its strictures. (Sound familiar?) The lobbyists’ attempts to influence legislators got so bad that at one point in a Knesset committee meeting, the lobbyists were asked to identify themselves and leave the room. It even got personal, with one lawyer for the tycoons claiming in an interview with an Israeli paper that Mr. Bebchuk had “hypnotized the committee.”

Then a funny thing happened. In light of the support of Israeli’s regulators and many Israelis, the conservative government of Benjamin Netanyahu supported the legislation. The head of Israel’s central bank at the time, Stanley Fischer (now a leading candidate to be vice chairman of the Federal Reserve in the United States) also supported the final bill.

The case for breaking up the pyramids was also helped by the insolvency of IDB, which was brought down by bad investments, excessive borrowing and overly aggressive financing practices. A few weeks ago, a bankruptcy court removed Mr. Dankner from his controlling position, a move that rocked Israel.

In December, the Knesset passed the bill unanimously.

To be sure, the final bill was not as strict as some wanted. It did not completely separate financial and nonfinancial companies, a change that Mr. Fischer opposed in a speech by comparing such a restriction to recreating the troubled Greek economy. But at the end of the day, a populist movement was able to show it had the votes, and backed by strong economic arguments, the politicians couldn’t fight. The committee’s recommendation to break up the pyramids and separate significant financial and nonfinancial companies became law.

In other words, with a single bill and a few big changes in its corporate law, Israel is looking to overhaul its economy and hopefully reduce income inequality.

The new law sets up an interesting experiment. In the near term, the winners will be the lawyers and investment bankers who will now handle a wave of deal-making as the pyramids break up.

But the real question is whether all it takes is a breakup of a handful companies to make an economy more competitive and reduce income inequality.

And are there any lessons for the United States?

Certainly, in the wake of Bill de Blasio’s election as mayor of New York and recent speeches by President Obama, income inequality is an increasingly prominent issue. A large part of this argument is based on the fact that rich Americans are pulling ahead of their brethren. According to the Congressional Budget Office, the income of the top 1 percent of Americans rose 275 percent from 1979 to 2007, but only 18 percent for the bottom 20 percent.

This disparity has been accompanied by a concentration of the financial system in the hands of a small group of institutions. As of the end of 2013, the five biggest banks in the United States held 44 percent of the financial assets of the banking industry, or $6.46 trillion, according to SNL Financial. In 1990, the five biggest banks held only 9.67 percent.

Inequality may be a problem in the United States, and concentration of assets a problem in the banking sector, but the American economy is very different from Israel’s. In Israel, the economy is more like South Korea’s when its chaebols dominated or West Germany’s in the 1950s when family groups controlled a number of industries. In the United States, businesses are competitive, and outside the financial sector, there is vibrant competition. Even in finance, there are good arguments that a $15 trillion economy needs large banks.

Not only is the economy different, but the political system needed to revamp the economy is not present in the United States. For example, the Occupy Wall Street movement appears to have fizzled.

Still, while we await the outcome of Israel’s great experiment, it is clear that where there is the perception that harm is being done and where there is the will to change, a democracy can overcome even the most powerful corporate lobbyists. In Israel, at least.

Sum of Batista Parts Still Doesn’t Add Up

It’s hard to find a phoenix in the ashes of Eike Batista’s empire. There are real assets buried under the tycoon’s collapsed EBX Group. Even so, the group’s onetime flagship energy explorer will emerge with poor growth prospects. Investors have already priced in big things for the port and electricity arms. And too much depends on a resurgent Brazilian economy.

On its face, Ã"leo e Gás âˆ' formerly known as OGX â€" should fetch more than its $325 million market value. At $6 a barrel of probable reserves, its sole functioning oil field should be worth at least $500 million. Another field, for which OGX paid $270 million, is expected to start production this month. With wells so young, though, disappointments remain a concern. After all, downwardly revised output forecasts from the Tubarao Azul field in 2012 were a big part of Mr. Batista’s downfall.

The new ownership structure also won’t help much. About 90 percent of the Ã"leo e Gás equity will be held by former creditors. They’ll probably be eager to recover their money and get out, leaving an overhang on the stock.

The shipbuilder OSX also has grim post-bankruptcy prospects. It was shortchanged by the OGX insolvency, exchanging the $1.5 billion it was owed for a 7 percent stake in the new Ã"leo e Gás. To be fully repaid, the oil company’s value would need to increase by more than 60-fold.

The more stable pieces of Mr. Batista’s former group, meanwhile, look too expensive. Prumo Logistica, the port company once called LLX, trades on an enterprise value of 15 times projected 2016 earnings before interest, taxes, depreciation and amortization, compared with just six times for rival Santos Brasil Participacoes. Yet Prumo Logisitica has lost important tenants, including the steelmaker Ternium. Finding replacements could be tough given the nation’s weakening prospects. Economists polled by the domestic central bank expect Brazil’s G.D.P. to grow by just 2 percent in 2014.

Similarly, the electric utility Eneva, once MPX, is valued at nearly 10 times 2014 Ebitda, roughly twice its peers. It’s tempting to think there might be investment opportunities in a $2.5 billion collection of companies in solid industries and a trendy country that were worth $60 billion just a few years ago. Even with Mr. Batista’s reduced role, though, there’s no obvious upside.

Christopher Swann is a Reuters Breakingviews columnist in New York. For more independent commentary and analysis, visit breakingviews.com.

Sandvik to Buy Texas Oil Drilling Equipment Company for $740 Million

LONDON â€" The Swedish engineering company Sandvik said on Tuesday that it had reached an agreement to acquire the Texas oil drilling equipment company Varel International Energy Services for about $740 million.

The deal allows Sandvik to enter a new product area: drilling equipment for the oil and gas industry.

The Swedish company already provides specialized equipment for the mining and construction industries, as well as metal-cutting tools and other products used in the aerospace, automotive and chemical industries.

“The acquisition continues to position Sandvik in attractive growth segments where we will deliver solutions that increase customers’ productivity,” said Olof Faxander, Sandvik’s president and chief executive.

The transaction is subject to regulatory approval.

Founded in 1947, Varel, a privately held company, had revenue of about $340 million last year and employs about 1,300 people. It has manufacturing plants in Texas, Mexico, Russia and France.

Varel “will operate as a stand-alone entity within the business area Sandvik Venture and, as a result, we anticipate only positive impact to product delivery and customer support,” said Jim Nixon, Varel’s president and chief executive
.

The Real Belfort Story Missing From ‘Wolf’ Movie

Joel M. Cohen, a former federal prosecutor, is a partner in the New York office of Gibson, Dunn & Crutcher.

Like many others, I saw “The Wolf of Wall Street” over the holidays. For me, the movie raised issues beyond its artistic or entertainment value or the depth of the acting performances by its star-studded cast.

I have a close connection to the crazy story depicted in the movie. This is because I prosecuted Jordan Belfort when I was an assistant United States attorney in Brooklyn.

I, along with Gregory Coleman, an F.B.I. special agent, led the criminal investigation of Mr. Belfort, depicted by Leonardo DiCaprio in the movie, and his cohorts at Stratton Oakmont, a classic, Long Island pump-and-dump boiler room stock brokerage firm that stole hundreds of millions from investors.

Mr. Coleman and I chased down cooperating witnesses and evidence around the world that culminated in the indictment of Mr. Belfort and his real-life partner, Danny Porush (depicted by Jonah Hill in the movie). Within days of being charged and arrested, the two opted to cooperate with our investigation.

Because no one outside a small circle in the Department of Justice knew of their cooperation, we were able to secretly debrief them daily for months, documenting their almost too-outlandish-to-believe accounts of serial criminal fraud, deceit and debauchery. Mr. Belfort was released on bail and Mr. Porush remained in jail for several months, and so neither knew the other was speaking with us, allowing us an unusual opportunity to test their honesty.

They later wore wires for us, surreptitiously recording dozens of former and current business colleagues and friends, with whom they had been engaged in fraud for years, right up to their arrest. Their cooperation proved to be extremely valuable to law enforcement, contributing to dozens of convictions of other significant wrongdoers. They each received substantially reduced prison terms from the court as reward for their assistance in prosecuting others.

Fellow lawyers, friends and family who know of my involvement have been curious to hear my reaction to the film. I had read Mr. Belfort’s two memoirs about his life of crime and his time cooperating with me and Mr. Coleman, which are the basis for the movie. After spending hundreds of hours interrogating Mr. Belfort and others, I was able to judge his accuracy perhaps better than almost anyone. Simply put, he had to tell us the truth, or face up to 25 years in jail.

Yet true to form for Mr. Belfort, when he wrote his books years later, he invented much. No one ever called him the Wolf of Wall Street until he created this name as a title for his books. He aggrandized his importance and reverence for him by others at his firm.

His now-defunct firm, Stratton Oakmont, wasn’t representative of the typical Wall Street brokerage firm. When their days of reckoning came, Mr. Belfort and Mr. Porush didn’t stand up against law enforcement, but rather caved, quickly agreeing to cooperate against virtually everyone close to them.

Although they were required to turn over 50 percent of whatever they earned to their victims, sadly, little has been collected. Victims don’t figure in the Belfort books, though thousands have not been recompensed. Similarly, remorse is merely a convenient word for Mr. Belfort, sandwiched between stories of drug-addled fraud and nasty put-downs of those closest to him. In short, the books were what I expected from Mr. Belfort.

The filmmakers have said that they didn’t want to depict Stratton’s victims because it would detract from their focus on the brutality of the wrongdoers. The details that animate a successful criminal prosecution don’t always make for compelling on-screen storytelling. “It’s just a movie,” many have reminded me, and I watched with this in mind.

And what was my reaction to the movie? For most of its three hours, it met my expectations. It is classic Scorsese: fast-paced, powerful, aggressive storytelling. I knew it would take liberties with some important facts, conflating crucial events into digestible scenes more fitting for a screen narrative, and that the truth about Stratton Oakmont would be muddled in the bargain. I also braced myself for an unjustified, sympathetic depiction of Mr. Belfort. As scheming as Mr. Belfort is depicted on screen, it is hard to truly feel the proper degree of disgust for one charmingly portrayed by Mr. DiCaprio.

At the end of the movie, my reaction shifted. For reasons I don’t understand, the filmmakers and screenwriter opted as their final word to use the real Jordan Belfort to introduce the character played by Mr. DiCaprio. The scene supposedly occurs years later, after the real Jordan Belfort had completed his cooperation, trial testimony and jail term, and began to pitch himself as a paid “motivational speaker.”

The film pans over a rapt crowd of new victims enthralled by the character delivering a snippet of a histrionic speech viewers had seen earlier the movie, when Mr. Belfort used the device to teach his brokers how to rip off innocent investors.

In the film, behind Mr. Belfort and Mr. DiCaprio is a large sign advertising the name of Mr. Belfort’s real motivational speaking company. I suppose the filmmakers’ point is that there perpetually remain audiences for fraudulent scams.
But there are consequences for blurring the lines too much. The real Belfort story still includes thousands of victims who lost hundreds of millions of dollars that they never will be repaid. This began with bogus scripts that Mr. Belfort personally wrote for his legion of brokers to use against them.

When we debriefed him, Mr. Belfort described how he awoke virtually every day thinking of new ways to defraud others. Now, Mr. Belfort sells himself as someone whom others should pay to receive what essentially are variants of the same falsehoods he trained others to use against his victims.

Some might think the movie’s ending is a cute conceit: putting the artist and his muse together on a stage for a final scene. To his victims, it is a beyond an insult. And for anyone who is enticed to pay Mr. Belfort to hear his recordings and speeches, it aids and abets this unrepentant character in possibly duping others yet again. Should it be surprising that following the release of the movie, Belfort is reportedly negotiating to host a reality-TV show?

“The Wolf of Wall Street” creators can possibly justify excluding victims from their story, but not while they literally give the final scene to the real Jordan Belfort. That might be art, but it’s wrong.

House Financial Services Chairman to Seek Volcker Rule Change

When Zions Bank announced last month that it expected to take a big loss because of the Volcker Rule, it set off alarms all over Washington. Regulators scrambled to say they were considering changing the rule, but that was evidently not enough for some legislators.

Representative Jeb Hensarling, a Republican of Texas and chairman of the House Financial Services Committee, is expected to propose a bill that could open up a huge loophole in the rule. The proposed change could allow banks to create and own securities with many types of investments that are barred under the Volcker Rule, which is intended to prohibit speculative trading by banks while allowing them to both make markets for customers and hedge other investments.

Jeff Emerson, an aide to Mr. Hensarling, said on Tuesday that the chairman expected to propose the bill later in the day. A copy of it was provided by another Congressional aide, who declined to be identified because he was not authorized to speak on the issue. It was that aide who raised the possibility of widespread abuse if the legislation were enacted.

Zions, based in Salt Lake City, said it expected to post the loss because it owned a large number of collateralized-debt obligations that contained Trust Preferred Securities, known as TruPS, issued by other banks. The bank said it would have to post the loss, which it estimated at $387 million before taxes, because it would no longer be able use an accounting rule that allowed it to keep losses on those securities off its earnings statement, although they were disclosed in footnotes.

That accounting treatment depended on the bank being able to say it expected to retain the securities until they matured, something it would not be able to do if the Volcker Rule would require the sale of the securities, even if the sales could be delayed for several years.

The proposed legislation, notable for its brevity, provides that nothing in the Volcker Rule “shall be construed to require the divestiture of any collateralized-debt obligations backed by trust-preferred securities issued before December 10, 2013.”

The wording appears to indicate that new collateralized-debt obligations could be created that banks could hold and trade, as long as they contained at least one TruPS security issued before Dec. 10. The vast bulk of the assets in the collateralized-debt obligation could be other securities.

After the Zions announcement, regulators promised on Dec. 27 that they would issue a clarification of the rule by Jan. 15, which they said would be in time to affect year-end financial statements. A banking trade group, the American Bankers Association, also filed a motion in federal court in Washington last month seeking to quickly suspend the provision of the Volcker Rule.

One possibility would be for the regulators to exempt C.D.O.’s held by smaller banks â€" perhaps those with assets of less than $15 billion â€" while still barring larger banks from holding the securities. Such a change would mean community banks faced no threat from the rule, but would not affect Zions, which had $55 billion in assets at the end of September.

The regulators did not say whether any exemption they might consider would include only C.D.O.’s created before a certain date, or bar those with a substantial amount of non-TruPS assets.

Trust preferred securities became popular with bank holding companies in the 1990s because bank regulators allowed them to be treated as capital by the issuing bank, just like common stock, but they were treated as debt securities by the Internal Revenue Service, allowing the issuing bank to deduct interest payments from income on its tax return. The C.D.O.’s were created to allow many small banks to issue such securities, with the buyers reassured by the apparent diversification.

The regulators permitted that treatment because the securities allowed the banks to halt payment of the interest for as long as five years, without penalty, so long as they paid the back interest within that five-year period. If not, they would be in default and could face bankruptcy.

Many banks took advantage of the five-year window during the financial crisis, and it is unclear how many of them will be able to make back payments before the periods end this year and in 2015. The market prices of such securities, and of C.D.O.’s that own them, are depressed because of that prospect.

The copy of the proposed legislation indicated that it would be sponsored by Representative Shelley Moore Capito, a West Virginia Republican, as well as by Mr. Hensarling.

Oracle Agrees to Buy Cloud-Based Service

Oracle announced on Tuesday that it had agreed to purchase Corente, a cloud-based services company, in a move that pushes the once web-shy technology giant further into the Internet age.

Oracle expects the deal to close in the early part of 2014, subject to regulatory approval, according to a presentation on the company’s website. Terms of the acquisition were not disclosed.

It is at least the third major purchase of a cloud-based platform for Oracle, representing a gradual shift in strategy over the past few years. The company has historically generated the bulk of its revenue from selling hardware and installed software, and has hesitated in the past to back a competing business model.

“Oracle customers need networking solutions that span their data centers and global networks,” Edward Screven, Oracle’s chief corporate architect, said in a statement announcing the deal. “By combining Oracle’s technology portfolio with Corente’s industry-leading platform extending software-defined networking to global networks, enterprises will be able to easily and securely deliver applications and cloud services to their globally distributed locations.”

Representatives for Oracle could not be reached for further comment.

Companies have increasingly turned to cloud-based strategies, which allow businesses to streamline multiple operations into a single digital center. Oracle, run by the billionaire Lawrence J. Ellison, started Oracle Public Cloud in 2011, advertising that the subscription-based service gave customers “a high-performance, reliable, elastic and secure infrastructure for their critical business applications.”

Corente, a privately held firm based in New Jersey, provides cloud-based delivery technologies for companies including British Telecom and Illinois Tool Works, an equipment manufacturer, according to the company’s website.

Oracle purchased Taleo, a maker of online human resources software, for $1.9 billion in 2012. The year before, it agreed to buy RightNow Technologies, a maker of Web-based customer service software, for $1.43 billion.

Last year, Oracle purchased more than half-a-dozen technology companies, including Responsys, an enterprise software company, in December.

European Cable Operator Altice Plans $1 Billion I.P.O.

LONDON â€" The European cable and cellphone operator Altice announced on Tuesday that it planned to raise up to 750 million euros, or $1 billion, through an initial public offering on the NYSE Euronext stock exchange in Amsterdam.

Altice, whose operations include cable businesses and mobile assets in several European countries and the Caribbean, is expected to use the money to reduce its 3.5 billion euros of outstanding debt, which the company held as of the end of the third quarter of 2013, the latest figures available.

The listing will take place by early February, and is an effort to take advantage of investors’ growing appetite for the European telecommunications sector.

Over the last 18 months, there has been a round of deals for mobile and cable assets, as European giants like Vodafone and international rivals like América Móvil maneuver to take advantage of an expected push for consolidation.

Altice, an investment vehicle founded by the Israeli-French businessman Patrick Drahi in 2002, has expanded its operations through a decade of acquisitions. That includes the $1.4 billion deal in November for the Dominican Republic mobile and Internet assets of the French telecommunications company Orange.

In an investor presentation on Tuesday, the Luxembourg-based company said it had identified up to 10 new potential opportunities for acquisitions. Altice is expected to use the I.P.O. to reduce its debt levels, which could allow the cable operator to access new capital and potentially bid for new assets.

“This is the right time for Altice to list,” Mr. Drahi, Altice’s executive chairman, said in a statement on Tuesday. As part of the deal, Mr. Drahi is also expected to sell part of his own stake in Altice to ensure that there is a so-called free float of shares of around 25 percent.

The European privately held cable operator said it generated pretax profit of around 1.1 billion euros for the nine months through Sept. 30, and had about 14 million customers in that period, according to Altice’s website.

The company also owns a 40 percent stake in the French cable operator Numericable, which raised around $1 billion through its own initial public offering in early November.

A number of large telecommunications companies are currently looking at potential deals in Europe.

John C. Malone’s Liberty Global is currently negotiating to buy the remaining 70 percent stake in the Dutch cable operator Ziggo it does not own in a deal that could value the firm at around $9 billion. Liberty Global also acquired the British cable company Virgin Media for around $16 billion last year.

Analysts say other acquisitions are likely to follow as cellphone operators look to expand their operations into new sectors like cable and fixed-line offerings. Cable companies are also adding mobile assets to their operations to provide a combination of cellphone, fixed-line, cable and broadband services.

Attention has focused on SFR, the mobile and Internet unit of the French conglomerate Vivendi, which has announced plans to spin off the business. Others European telecommunications firms, including Telecom Italia, have announced plans to sell off assets, partly in a bid to reduce their high debt levels.

Global companies, including the American giant AT&T, are also rumored to be looking for deals in Europe’s telecommunications sector.

Goldman Sachs and Morgan Stanley are coordinating Altice’s I.P.O.

Maersk to Sell Stake in Denmark’s Largest Retailer

LONDON - The Danish shipping conglomerate A.P. Moller-Maersk Group said on Tuesday that it planned to sell most of its stake in Denmark’s largest retailer for about $3 billion.

Maersk said it would sell a 48.7 percent stake in Dansk Supermarked to the Salling companies, its longtime partner in the retailer, and has the option to sell its remaining 19 percent stake in the company in the next five years. Maersk also will sell its 18.7 percent stake in one of the Salling companies, F. Salling Holding, as part of the deal.

The deal is valued at 17 billion Danish kroner, or about $3 billion. Maersk said it plans to book an accounting gain of 14 billion kroner after the transaction.

The sale comes as Maersk has focused in recent years on what it considers its core business lines: shipping, port operations and oil drilling and exploration.

Maersk, the operator of the world’s largest container shipping line, employs about 121,000 people worldwide and posted $59 billion in revenue in 2012.

Dansk Supermarked is the largest operator of retail stores in Denmark under a variety of brands, including Netto and Salling. The company also operates under the Netto brand in Sweden, Germany and Poland.

Maersk first partnered with the company’s founder, Herman Salling, 50 years ago by investing in what became Dansk Supermarked.

“Over the last two years, Dansk Supermarked has undergone a rejuvenation and has a strong future ahead of it,” said Nils S. Anderson, Maersk’s group chief executive. “A new management team is in place with plans to develop the business both here in Denmark and internationally.”

Shares of Maersk rose 4.2 percent, to 62,700 kroner, in morning trading in Copenhagen on Tuesday.