Morgan Stanley Reaches $1.25 Billion Mortgage Settlement

Morgan Stanley has agreed to pay $1.25 billion to the Federal Housing Finance Agency to settle claims that it sold shoddy mortgage securities to Fannie Mae and Freddie Mac that resulted in big losses for the government-backed entities.

In a securities filing late Tuesday, Morgan Stanley said that it had reached the agreement “in principle” with the agency, which is the federal conservator for Fannie and Freddie.

The settlement is the latest agreement between a Wall Street firm and the agency, which sued 17 banks in 2011 seeking compensation for losses that were borne by taxpayers.

According to a lawsuit filed by the agency, Morgan Stanley sold $10.58 billion in mortgage-backed securities to Fannie and Freddie, while presenting “a false picture” of the riskiness of the loans.

The housing finance agency said the underwriting of the mortgage loans did not meet the standards stated in the securities offering documents.

If the Morgan Stanley settlement becomes final, it would be the third-largest monetary payment by a Wall Street firm to settle a Federal Housing Finance Agency lawsuit. The largest settlement thus far - for $4 billion - was paid by JPMorgan Chase. Deutsche Bank agreed to pay $1.92 billion, in the second-largest settlement. The agency still has pending mortgage securities cases against about a dozen other firms.

The payouts won by the housing finance agency are proportionately larger than the penalties that other entities have obtained when suing the banks over mortgages. Morgan Stanley’s $1.25 billion penalty is equivalent to more than 10 percent of the original value of the bonds that the Wall Street firm sold to Fannie Mae and Freddie Mac.

The housing finance agency has collected a similar payout rate on its other settlements. Mortgage litigation brought by private bond investors has sometimes secured payments that amount to around 2 percent of the original bonds’ value.

The latest agreement shows how the costs of the financial crisis are far from over for Wall Street. In the fourth quarter, Morgan Stanley set aside an unusually large $1.2 billion for litigation costs. The charge forced the bank’s institutional securities unit, which houses mortgage lending and trading operations, to report a $1.1 billion pretax loss.

On Tuesday, Morgan Stanley said those litigation costs had increased further because of the latest settlement. Morgan Stanley disclosed that it had set aside an additional $150 million in legal reserves, sapping even more money from its fourth-quarter earnings.

Morgan Stanley’s settlement follows the approval by a New York State Supreme Court judge on Friday of an $8.5 billion settlement between Bank of America and a group of investors that purchased mortgage securities that went sour during the credit crisis. That ruling, however, excluded some of the investors’ claims, leaving Bank of America open to potentially more legal costs in that case. Bank of America has not yet resolved the lawsuit brought by the Federal Housing Finance Agency.

Banks are not entirely forthcoming about their total litigation reserves, making it difficult for investors to gauge the full impact of legal costs.

The federal lawsuit against Morgan Stanley involved mortgage-backed securities issued near the top of the credit boom, from Sept. 12, 2005, to Sept. 27, 2007.

Peter Eavis contributed reporting.

Michael Kors Is Now a Billionaire

A high-flying stock price has made Michael Kors rich. Just how rich? On Tuesday, the clothing designer became a billionaire.

Mr. Kors, who owns about 2 percent of Michael Kors Holdings, saw his estimated net worth cross the billion-dollar mark on Tuesday as the company’s stock price rose more than 17 percent. He joins a small club of billionaires of the fashion world, including Tory Burch and Sara Blakely, the creator of Spanx, according to Forbes.

The stock took off after an earnings report on Tuesday that blew past Wall Street’s expectations. The company said profit rose 77 percent in the recent quarter, and it added that it had increased its profit forecast for the coming year.

The stake owned by Mr. Kors rose in value to about $390 million, according to Bloomberg data. He also holds cash and other assets worth about $650 million, the data shows.

Or to put it another way, Mr. Kors’s net worth rose by about $34 million on Tuesday.

The calculation of his cash and other assets does not include his New York apartment or collection of luxury cars, according to Bloomberg.

A 54-year-old dropout of the Fashion Institute of Technology, Mr. Kors benefited tremendously from the initial public offering of his company in December 2011. With the shares on an upward trajectory, Mr. Kors has sold an estimated $715 million of stock.

Wall Street has been so good to Mr. Kors, a native of Long Island, that other brand-name fashion designers have begun to follow in his footsteps, Peter Lattman reported in DealBook last year.

The billionaire status of Mr. Kors was reported earlier by Bloomberg News. A spokeswoman for Michael Kors Holdings declined to comment.

S.&P. Lowers Puerto Rico Debt to Junk Status

Standard & Poor’s lowered its ratings on Puerto Rico to junk on Tuesday, questioning its ability to raise money to finance a possible fiscal 2015 operating deficit.

The agency cut its rating one notch, to BB+ from BBB-, the highest junk-level rating. S.&P. said it was also keeping Puerto Rico on watch for downgrade, meaning more reductions were possible.

“In our view, Puerto Rico has limited liquidity without access to the debt market,” S.&P. said in a statement, “for sizable amounts of debt, and may also need further market access to finance a potential fiscal 2015 operating deficit, notwithstanding current efforts to close the deficit.

S.&P. is the first agency to lower Puerto Rico to junk status, but its rivals, Moody’s Investors Service and Fitch Ratings, have said they are considering lowering their ratings on the commonwealth, which would also move it into junk territory.

The downgrade could have painful consequences. About $1 billion of debt repayments will be accelerated and additional collateral will have to be posted for interest rate swaps.

Officials in Puerto Rico have insisted that there is ample liquidity to last through the end of the government’s fiscal year, June 30, without additional borrowing. They say they have made progress on increasing tax revenue and cutting pension liabilities.

S.&P. appeared to give that some credence.

“That the rating is not lower is due to the progress the current administration has made in reducing operating deficits, and what we view as recent success with reform of the public employee and teacher pension systems, which had been elusive in recent years,” it said in its statement.

In Yearlong Clash Over Herbalife, Innuendo Trumps Clarity

William A. Ackman, the founder of the hedge fund Pershing Square Capital Management, announced his “big short” on Herbalife more than a year ago, and most are still unsure whether he’s right or wrong. You might think that is a problem, but for some of Herbalife’s investors, the truth doesn’t appear to matter much as they have been profiting from the wild swings in the stock price.

If you follow Wall Street in any way, you know about Herbalife. In December 2012, Mr. Ackman announced to great fanfare at an investment conference that Pershing Square had taken a $1 billion short position, betting that the stock price of the company would fall. Mr. Ackman called the company â€" a distributor of nutrition supplements, herbal teas and other products â€" a pyramid scheme.

This was no ordinary short. Mr. Ackman was not claiming that Herbalife’s business was declining. In a 334-slide presentation, Mr. Ackman claimed that Herbalife’s business model was illegal under federal law.

Mr. Ackman said that Herbalife participants made most of their money by recruiting sales people who bought the product themselves and recruited yet more people.

Mr. Ackman’s charges were electric, and Herbalife’s stock plunged. Herbalife came fighting back. The company heatedly denied the claims, instead asserting that while many of its distributors were consumers, Herbalife was not only legitimate but that “there is genuine and strong demand both inside and outside its network for its products.” According to Herbalife, the company’s distributors earn “income only when sales happen,” which by definition cannot be a pyramid scheme.

It’s now a year later, and we still don’t know who is right.

Instead, Herbalife’s stock has wildly fluctuated based on speculation and whether short-term profits could be made. Traders have wagered tens of millions, with little care of whether Herbalife or Mr. Ackman will prevail.

First came the other hedge funds. Daniel S. Loeb’s Third Point quickly bought and sold less than six months later. George Soros’s fund and Perry Capital also took long positions, in contrast to Mr. Ackman.

Carl C. Icahn also arrived, acquiring 16.5 percent of Herbalife, and acknowledging that it was, in part, driven to get back at Mr. Ackman.

Mr. Icahn and Mr. Ackman have been feuding for years, and it’s unclear whether Mr. Icahn invested to make Mr. Ackman’s life miserable or because he believes in Herbalife. Although Mr. Icahn stated in his public filings that he had done “significant analysis” on Herbalife, his results have not been made public. Such is the fate of billions on Wall Street, but Mr. Icahn has profited so far from his investment.

Since Mr. Icahn stepped in, Herbalife has gone as high as $83.51 a share, from a low of about $25 a share before Mr. Ackman made his bet. The recovery is partly because of Herbalife’s ferocious defense. And when the stock rises, it puts pressure on Mr. Ackman.

Herbalife has changed the way it reports some sales, but otherwise has not given much ground to Pershing Square. The arrival of Mr. Icahn also threw blood in the water, and the hedge funds bought, hoping for a short squeeze. This hasn’t happened, but it has forced Pershing Square to modify its position to limit its losses. It has also probably helped to drive Herbalife’s price up.

It wasn’t just the hedge funds that jumped in. William P. Stiritz, a respected industrialist and chairman and chief executive of Post Holdings, the cereal company, announced that he had personally acquired a $200 million position in Herbalife.

Mr. Stiritz, 79, also seemed to be riding the herd in making his Herbalife bet. Mr. Stiritz stated in a public filing at the time of his initial investment that he “has analyzed the company and concluded that it has a sound business model, a strong distribution system and a positive outlook for long-term growth opportunities.” Mr. Stiritz also intended to offer Herbalife management assistance against “the speculative short position,” implying that he is ready to battle Mr. Ackman.

It’s nice that Mr. Stiritz has done his homework and is offering help, but neither his nor Mr. Icahn’s investment has shined light on Herbalife’s business model.

Without outsiders providing clarity on the company’s prospects, the speculation in Herbalife stock creates extreme volatility as investors trade on rumor and innuendo.

Take the events of the past few weeks. Senator Edward J. Markey of Massachusetts sent out two letters requesting that the Securities and Exchange Commission and the Federal Trade Commission investigate Herbalife’s sale practices. News of this sent Herbalife stock tumbling 14 percent, cutting more than $1 billion in its market value.

A week later, Post Holdings announced that it had hired Timothy Ramey, an analyst at D.A. Davidson, to be director of strategic ventures. Mr. Ramey is one of the most prominent Herbalife bulls on Wall Street.

The hire was a strange one. It was not a direct hire by Mr. Stiritz, who is making the Herbalife investment personally, but rather by the company he leads. Herbalife shares promptly jumped 6 percent, gaining about $360 million in value, on speculation that Post was going to acquire Herbalife. Never mind the fact that Post is a cereal company that has a $1.75 billion stock value, dwarfed by Herbalife’s $6.5 billion market capitalization. A takeover by Post is quite impossible.

And this week, the parade of announcements continued, with Herbalife announcing a stock buyback and debt offering and Pershing Square releasing white papers on possible wrongdoing by associates of Herbalife.

The huge swings in Herbalife’s stock price over such news expose a sad truth about Wall Street. Truth doesn’t sometimes matter very much. Instead, as Herb Greenberg at TheStreet.com has written, where the trade will go in the short term is more important.

But there is a more disturbing issue here. That Wall Street goes on gut is not a new idea. Rather, for all the people on Wall Street searching for information, paying for it and sometimes stealing it through insider trading, Wall Street has yet to find out what is going on with Herbalife.

What we have here is the opposite of a search for truth. No one has shown a great interest in examining the company to find out what is exactly going on.

This apathy extends even to regulators. Various government agencies that have been called into the fight have not announced an investigation, even if it would do nothing more than clear the company.

Some hesitancy may be because of Pershing Square’s initial approach. Mr. Ackman’s presentation seemed all about him and set up his clash with Herbalife as being about a rich titan looking to make more profit. Things were exacerbated by a fight between Mr. Ackman and Mr. Icahn on live television. In this environment, there’s another element to consider: Even the announcement of an investigation would send Herbalife stock down sharply, even if the company were eventually cleared.

Pershing Square should have instead focused on the fundamentals of Herbalife. Does the F.T.C. or S.E.C. really want to be seen as taking the side of a rich hedge fund manager over that of a public company?

Perhaps Pershing Square has realized this, because a change in strategy is going on behind the scenes. Herbalife promotes itself heavily to Hispanics, and Pershing Square has been reaching out to Hispanic groups in search of support for its position. The hedge fund is now hoping is that this outreach will work better than a splashy presentation to persuade regulators to act.

It may be the case, but such an act is going to take time, if it ever happens, leaving Herbalife dangling. For the big players on Wall Street, that may just be fine.

Activist Investor Takes Aim at Helen of Troy

Helen of Troy may not be as famous as its classical namesake. But the consumer company, whose brands include the housewares maker OXO International, may be the subject of a fight all the same.

Sachem Head Capital Management, a $1 billion activist hedge fund led by a protégé of William A. Ackman, sent a public letter to Helen of Troy’s board on Tuesday, demanding that the company explore strategic alternatives including a sale of some of its assets.

The brewing battle is the latest in a growing wave of shareholder activism, as hedge funds increasingly push management teams to return more money to shareholders or explore sales of their companies. Even with relatively small stakes â€" Sachem Head said that it owns only 3.7 percent of Helen of Troy’s shares â€" such investors are able to push for significant changes.

Based in El Paso, Tex., Helen of Troy focuses on making consumer products for brands like Revlon and Dr. Scholl’s. But it also owns OXO, the well-known maker of cooking and storage products.

In its letter, Sachem Head criticized the company for poor corporate governance and for limiting its review of strategic moves to return capital to shareholders. The firm pointed to high compensation plans for Helen of Troy’s former chief executive, Gerald Rubin, and a relative paucity of debt on the company’s balance sheet.

Among the catalysts for the hedge fund’s campaign was the sudden replacement of Mr. Rubin with Julien R. Mininberg, an internal candidate.

“While the market reacted positively to Mr. Rubin’s departure, we believe that with the benefit of the full context, shareholders should share our entirely different view,” Scott Ferguson, the founder of Sachem Head, wrote in the letter. “We believe the circumstances surrounding his hasty resignation are, ironically, yet another example of inadequate board stewardship.”

According to the letter, Helen of Troy could reap substantial benefits from a deal, thanks to its unusual corporate structure. Though the company’s main operations are in Texas, its headquarters are in Bermuda. Sachem Head suggested that the company keep that setup in a merger, allowing the newly enlarged corporation to benefit from the lower taxes that come from being technically headquartered in a low-tax region.

The hedge fund added that it has spoken to what it described as a number of potential suitors for Helen of Troy, contending that at least one had reached out to the board in recent weeks only to be rebuffed.

If Helen of Troy isn’t able to sell itself, Sachem Head said, it should readjust its balance sheet, implying that the consumer goods maker should take on more debt that could go toward dividends or other shareholder payouts.

Shares in Helen of Troy were up nearly 4 percent in midafternoon trading on Tuesday after the activist’s letter was made public.

Regulator Compares Currency Investigation to Libor Case

LONDON â€" Expect more bad news from banks about accusations of manipulation in the huge foreign exchange market.

Allegations that traders colluded to rig prices in the foreign exchange market “are every bit as bad as they have been with Libor,” Martin Wheatley, the chief executive of the Financial Conduct Authority, said at a parliamentary hearing on Tuesday, referring to the investigation into the manipulation of the London interbank offered rate.

He said that he was surprised by the breadth of the investigation, especially because the foreign exchange market is deep and liquid and “based on real trades.” Like the Libor investigation, he said, the authority is looking at allegations of collusion between individuals and firms using chat rooms and phones to rig prices.

His comments do not bode well for banks, which have paid billions of dollars in fines to settle cases related to money laundering, mortgage-backed securities, the sale of unsuitable insurance products and trading bets that went awry.

On Libor alone, they have paid more than $6 billion, according to Bloomberg. At least 10 people have been charged criminally by the Justice Department in the United States and the Serious Fraud Office in Britain, with more charges expected.

More than a dozen foreign exchange traders at some of the world’s largest banks, including Barclays, Citigroup and JPMorgan Chase, have been placed on leave amid questions about whether they colluded to manipulate benchmark currency rates.

This week, the Lloyds Banking Group became the latest bank to suspend an employee. Martin Chantree, a senior currencies trader, was placed on leave as part of its own internal investigation, according to people briefed on the matter.

Mr. Chantree, who has been with the bank for about nine years, has not been accused of wrongdoing. He could not be immediately reached for comment on Tuesday.

“It is group policy not to comment on individual employees,” Lloyds said in a statement.

Asked by a member of the parliamentary committee whether people could have faith in the benchmark-setting process, Mr. Wheatley said “people won’t trust it because of what they have seen.”

He said that he expects the foreign exchange investigation to continue into next year. One lawmaker, who said that Britain appeared to be following the lead of the United States on the Libor investigation, asked what role Britain is taking in the currency case.

“We have the lead position,” Mr. Wheatley said.

Chad Bray contributed reporting.

British Insurer Names R.B.S.’s Former Chief as Its C.E.O.

LONDON - The British insurer RSA Group said on Tuesday that it had tapped the former chief executive of the Royal Bank of Scotland as its top executive two months after the insurer announced a huge hole in its balance sheet.

Stephen Hester, who took the helm at R.B.S. after a government bailout in 2008, will assume the role of chief executive immediately.

He replaces Simon Lee, who stepped down in December after the insurer said for the second time in just over a month that it would have to significantly increase the reserves for its Irish business and again warned that its profit would be lower. Mr. Lee was named RSA’s chief executive in August 2011 after eight years with the insurer.

“I am extremely pleased that Stephen is joining RSA as our new chief executive. He is an exceptional business leader with extensive global financial services expertise,” said Martin Scicluna, RSA’s chairman. “He has an outstanding track record of transforming the performance of businesses, bringing new energy and focus and implementing a challenging agenda to ensure significant value is delivered for customers and shareholders.”

In December, RSA said it would need to strengthen the reserves for its Irish operations by an additional 130 million pounds, or about $211.8 million, primarily because of increased potential for bodily injury claims by customers with automobile and liability policies.

The company said in early November that it would have to add £70 million to its reserves because of irregularities uncovered in its claims and finance operations in Ireland, and that it had suspended three top executives in it Irish business amid an accounting investigation.

“The challenges of recent months have demonstrated that we have not lived up to our stakeholders’ expectations and performed to our true potential,” Mr. Hester said in a statement on Tuesday. “We have an obligation to deliver shareholder value and excellent products and services that provide everyday protection for our customers.”

Mr. Hester will receive an annual salary of £950,000.

He was named the chief executive of R.B.S. in October 2008 and left the bank last September. He was previously chief of the real estate investment trust British Land and chief operating officer of Abbey National, which is now part of the Spanish lender Banco Santander. He spent 19 years at Credit Suisse in New York and London.

After the company said in early November that its operating results would be £70 million lower than market expectations because of the accounting irregularities, Philip Smith, the chief executive of its Irish business, was suspended by the insurer and later resigned. Mr. Smith has said that he is being made a “fall guy.”

Two other executives were dismissed in January following an internal investigation.

In December, RSA said it would inject £135 million of capital into its Irish unit to ensure that the business’s solvency ratio is maintained above 200 percent.

Following a review by PricewaterhouseCoopers, the company said that the issues were isolated to its Irish business.

RSA was created in 1996 by the merger of two of the largest British insurers, Royal Insurance and Sun Alliance. Their combined history dates back more than 300 years, with the Sun Insurance Office being formed in 1710 and later merging with Alliance Assurance in 1959.

The company employs about 23,000 people worldwide and wrote £8.4 billion in net premiums in 2012.

Lenovo Shares Tumble in Wake of Company’s Deal Spree

After taking off for the Chinese New Year holiday, shareholders in Lenovo appear to be having some cold feet about the computer maker’s recent deal spree.

Shares in the company tumbled more than 16 percent in trading on the Hong Kong Stock Exchange on Tuesday, closing at 8.41 Hong Kong dollars, or $1.08.

Tuesday was the stock’s first full day of trading since Lenovo announced it would buy Motorola Mobility from Google for $2.9 billion last week. The deal came a week after Lenovo agreed to acquire IBM’s low-end server business for $2.3 billion.

Shareholders were also reportedly unnerved by speculation over the weekend that Lenovo was in talks to form a joint venture with Sony to buy the Japanese electronics giant’s Vaio personal computer business outside Japan.

A spokesman for Lenovo declined to comment.

The Motorola and IBM transactions are part of Lenovo’s effort to expand its dominance beyond personal computers. Under its chief executive, Yang Yuanqing, the company is focused on a so-called PC-plus strategy of expanding into mobile devices, business equipment and other areas.

But the $5.2 billion in transactions is an expensive outlay of capital. Lenovo is paying for some of the deals in stock, handing out shares to both IBM and Google. It even structured the Motorola deal so that half of the acquisition price would be paid off over time.

Several analysts downgraded Lenovo’s stock in recent research reports, worried that the work of integrating the two acquisitions - and particularly Motorola, which has lost hundreds of millions of dollars for Google - would drag down profitability in the short term.

Signs of Progress in UBS Investment Bank Overhaul

More than a year ago, UBS pledged to overhaul its investment bank after a prominent trading loss and a rate-rigging scandal. Those efforts appeared to be bearing fruit, based on the bank’s latest earnings report released Tuesday.

The Swiss bank said that the fourth-quarter revenue in its investment banking unit rose to $1.9 billion Swiss francs ($2.1 billion), 16 percent higher than the period a year earlier. The division’s profit before taxes was 297 francs ($328 million), compared with a pretax loss of 243 francs a year earlier.

After layoffs and other cuts, the investment bank reduced its personnel expenses by 28 percent for the quarter, helping bolster profitability. Its general and administrative expenses rose by just 4 percent.

In certain areas, however, the investment bank showed weakness. Revenue in its debt capital markets business was down 30 percent from the period a year earlier, and revenue in its currency, rates and credit trading business declined 2 percent. A number of banks struggled with fixed-income businesses the final months of the year, amid uncertainty over interest rates.

The quarterly results also showed UBS’s increased focus on wealth management. Profit before taxes in that division came in at 471 million francs, 18 percent higher than the period a year earlier. In the wealth management unit for the Americas, pretax profit rose 62 percent, to 254 million francs.

Over all, UBS said that its quarterly profit rose to 917 million francs, compared with a loss of 1.9 billion francs in the period a year earlier. The bank was helped by a tax gain of 470 million francs in the fourth quarter of 2013.

In a sign that UBS was looking to leave the scandals of 2012 in the past, the bank significantly increased its bonuses for 2013. It restored bonuses that were harmed by the scandal over manipulation of the London interbank offered rate, or Libor, and sought to make pay more in line with competitors, according to a letter to shareholders.

That led to a 28 percent increase in the 2013 bonus pool, to 3.2 billion francs.

“We finished a transformational year ahead of the majority of our strategic and financial targets,” Axel A. Weber, the chairman of UBS, and Sergio P. Ermotti, the chief executive, said in the letter to shareholders.

At the same time, UBS tweaked its pay to try to ensure that top executives are focused on reducing risk and improving the bank’s financial resilience.

The bank pays a portion of its compensation in the form of so-called deferred contingent capital, bonds that are forfeited if the bank’s capital ratio â€" a measure of its ability to withstand shocks â€" falls below a certain level. In order for members of the executive board to receive this compensation, UBS’s ratio must remain above 10 percent, an increase from 7 percent. The bank said its capital ratio was 12.8 percent.

“A year ago, we said we would further adapt our business to better serve clients, reduce risk, deliver more sustainable performance and enhance shareholder returns,” Mr. Ermotti said in a statement. “I am pleased to report that in 2013 we accomplished all those goals.”

Brisk Business in Big Law Firms Hiring Other Firms’ Partners, Study Finds

The country’s biggest law firms are hiring other firms’ partners at a rapid pace, a new study has found. Lawyers specializing in corporate work are the hottest commodities, an annual tally by the legal journal American Lawyer showed.

As firms jockeyed to expand, corporate lawyers represented 17 percent of the total partner moves for the 12 months ended Sept. 30, 2013, up from 8 percent in the previous 12-month period, according to the figures released on Monday.

Over all, there were 2,522 such moves in the period, slightly below the 2,691 previous total, according to The American Lawyer tabulation. The law firm Baker & McKenzie added the largest number, hiring 68 partners from other firms, followed by Jones Day, which hired 65. Also near the top of the list were Husch Blackwell with 52, K&L Gates with 48 and Reed Smith with 40.

The tide of lawyers moving to new offices is shoring up law firm revenues, but William Henderson, a law professor at Indiana University’s Maurer School of Law, and Christopher Zorn, a law professor at Pennsylvania State University, have found that increasing revenue “through a lateral acquisition strategy dilutes rather than grows the profit pool.”

Mr. Henderson and Mr. Zorn, both law firm management experts, based their analysis on the 13 years of data collected in the surveys, which found that lateral hiring increased about 20 percent over the period.

“Such hiring injects a sense of vitality, but it’s also less difficult than developing a new practice niche,” said Mr. Henderson, who is also director of the Center on the Global Legal Profession at Indiana University. “We don’t have evidence that such hiring is doing a lick of good.”

One reason is that the secrecy of law firm finances makes it impossible to know whether attorneys hired for their clients actually billed the amounts that they promised to bring in, Mr. Henderson said. “Law firms can lose money on some hires because they are typically guaranteed around 18 months of pay without knowing for sure what the lateral’s revenues will be.”

Global law firms are hiring the highest number of lateral partners, he said, largely because it is easier and less expensive to bring aboard lawyers with experience. Five years ago, The American Lawyer data found, New York accounted for the largest percentage of lateral moves. But since then, Washington, D.C., has pulled ahead.

While established corporate lawyers were in the greatest demand, the category of mergers and acquisitions specialists saw little movement. “There are not a lot of deals,” Mr. Henderson said. Another reason is that the corporate lawyer category can also encompass specialists in mergers and acquisitions.

At the same time that the biggest firms were hiring established lawyers, some of them - as well as their counterparts - were also shedding lawyers. That includes firms like Hogan Lovells, which lost 43 partners over the time period, as well as K&L Gates, which lost 39, and DLA Piper, which was down 37.

Lateral hiring continues. Two moves were announced on Monday. The managing partner of DLA Piper’s Washington office, Frank M. Conner III (known as Rusty), left for Covington & Burling, along with his colleague Michael P. Reed, a financial institutions mergers and acquisitions specialist.

Market for Patents Was Softer in 2013, Firms Say

Technology companies have for years been stockpiling patents as an aggressive defense against lawsuits. But patent prices and transfers were down significantly in 2013, according to data from a patent brokerage company and an intellectual property valuation and investment firm.

While the decline could have been be skewed by a spike in patent sales in 2011 and 2012, the trend could also signal that businesses may be anticipating that changes in patent law are on the horizon.

“It’s been in the air for the past few years that maybe software shouldn’t be patentable,” said Jeanne Fromer, a New York University law professor who specializes in intellectual property.

Software patents can be incredibly complicated, and technology companies worried that if they did not have enough, they could open themselves up to litigation. On Friday, Twitter purchased 900 patents from IBM after the computer giant reportedly complained about possible infringement.

“It’s kind of this weird patent arms race that has happened particularly in the software and high-tech areas,” Ms. Fromer said. “They’re just being bought up and sold around as a shield rather than as a technique of innovating.”

Facebook bulked up its own patent arsenal ahead of its initial public offering. In 2012, it bought about 650 patents from Microsoft for roughly $550 million. That deal came less than two weeks after Microsoft had bought those patents, along with about 275 others, from AOL.

Not only can software require multiple patents, but those patents can also be very difficult to decipher, and that only fuels the uncertainty that has driven some patent sales.

“If I gave you a patent to read, you’d be staring at it until the end of time, even if you were an expert,” Ms. Fromer said.

The fear of being sued is not helped by what are known derisively as “patent trolls,” or entities that stockpile patents in order to collect licensing fees by suing companies for infringement.

But changes to patent law may be on the way. The Supreme Court is about to take up the issue of software patents in the case of Alice Corporation Pty. v. CLS Bank International, and advocates for legal changes have called on federal lawmakers to restrict what they see as frivolous litigation.

The average price per patent declined in 2013 by more than a third from the 2012 figure, according to IPOfferings.com, a patent brokerage firm, in data based on public and proprietary records.

The number of transfers of patent ownership, called patent “assignments,” has also been steadily decreasing since 2011, according to data from Ocean Tomo, which describes itself as an intellectual capital merchant bank. The pharmaceutical industry still makes up the largest single group of patents, Ocean Tomo said.

The data from 2011 could be skewed by one of the biggest patent sales in recent memory. That was the year that Nortel, the defunct Canadian telecommunications equipment maker, sold a trove of 6,000 patents to a group of technology giants that included Apple and Microsoft for $4.5 billion. At the time, George A. Riedel, the chief strategy officer of Nortel, called the size and dollar value of the deal “unprecedented.”

“I think that was an extraordinary peak, and we’ve returned to more of an average, and even the average I would say is higher than five years ago,” said Richard Ehrlickman, the president of IPOfferings.com. “The general patent market is absolutely on a growth curve outside that spike and there’s significant demand.”

But a decrease in patent volume could also signal that businesses see shifts coming to the intellectual property landscape.

“It may mean that people are feeling more confident that things are imminently changing in ways that might make them feel that they’re not in so much danger, that they don’t have to buy up patents defensively,” Ms. Fromer said. “It’s hard to read into the tea leaves, but it’s surely possible.”

Calling for an ‘Apology Cease-Fire’

“What does saying ‘sorry’ mean when it’s tossed around with the frequency of a Justin Bieber scandal?” asks Andrew Ross Sorkin in the DealBook column. Almost every day, some prominent figure â€" a chief executive, a politician, an athlete â€" is apologizing for something â€" to say nothing of the average person. Are we in the midst of an apology crisis? To hear Dov Seidman talk about it, the answer is an emphatic yes. And in fact, Mr. Seidman is so sure that our mea culpas have become meaningless that he called for an “apology cease-fire” in front of several dozen chief executives and politicians at the World Economic Forum in Davos, Switzerland.

“‘Sorry’ is in a sorry state,” Mr. Seidman writes in an essay. “The transparent ‘get me out of this mess’ declarations we are witnessing are bereft of credibility. They are motivated by strategic plotting, not soul-searching.” For an apology to mean something, five essential characteristics must be met and internalized, which Mr. Seidman lays out in his essay.

Beginning on Tuesday, Mr. Sorkin and Mr. Seidman are starting “Apology Watch” on the DealBook website (nytimes.com/dealbook). And this is where you, our readers, come in. Help us track new apologies and, more important, follow up on what companies, institutions and individuals have done post-apology, by leaving a comment on the website and on Twitter using the hashtag #ApologyWatch.

CLOSING ARGUMENTS IN FORMER SAC MANAGER’S TRIAL DRAW A CROWD  |  Everyone, it seems, wanted to hear the closing arguments on Monday in the insider trading trial against Mathew Martoma, a former portfolio manager at SAC Capital Advisors. The courtroom was packed, with nearly two dozen spectators forced to stand against the wall, Alexandra Stevenson writes in DealBook.

The prosecutor said Mr. Martoma pursued a “canary in a coal mine” to give him an “illegal sneak preview” of the results of a clinical Alzheimer’s drug trial. To find this canary, the prosecutor said, Mr. Martoma fostered relationships with two doctors involved in the drug trial, giving him an inside look at the trial’s negative results before they were announced publicly. This advance knowledge allowed SAC to avoid losses and make profits totaling $275 million, the prosecutor said. The defense countered by saying that the government’s case against Mr. Martoma was “fatally flawed” and hinged on a doctor with a faulty memory. The jury is expected to begin deliberating on Tuesday.

IN DETROIT, IT’S ‘US VERSUS THEM’  |  Detroit’s bankruptcy has unnerved the city’s creditors, to say nothing of how it has affected the city’s everyday denizens. Now, it seems, the city’s bankruptcy is turning into a battle of Wall Street versus Main Street, at least in the eyes of these creditors, Mary Williams Walsh writes in DealBook. And to bondholders, bond insurers and other financial institutions, this clash only grew worse last week, when the city circulated plans to emerge from bankruptcy and filed a lawsuit on Friday.

In the lawsuit, which seeks to nullify complex financial contracts that once helped finance Detroit’s pension system, the city said the deal was done “at the prompting of investment banks that would profit handsomely from the transaction.” As for the city’s plan to resolve its bankruptcy, banks, bond insurers and other corporate creditors think they are being asked to share a disproportionate amount of pain under the plan. Under the plan, pensioners would receive up to 50 cents on the dollar for their claims, while unsecured creditors, like general-obligation municipal bondholders, would only end up with 20 cents on the dollar.

STOCKS SLUMP, HEARTS SINK  |  Disappointing economic data released on Monday drove Wall Street to its worst day of the year, rekindling fears that the economy was in worse shape than everyone thought. The benchmark Standard & Poor’s 500-stock index ended the day down 2.3 percent. The Dow Jones industrial average closed down 2.1 percent, while the Nasdaq composite index ended down 2.6 percent.

TAKE NOTE, JAMIE DIMON  |  Antony P. Jenkins, the chief executive of Barclays, turned down his bonus for 2013. “It would not be right” to take one, he said.

THE MOST PHOTOGRAPHED WALL STREET TRADER  |  His name is Peter Tuchman, and he has been photographed on the floor of the New York Stock Exchange since 1985. He has great hair.

ON THE AGENDA  |  Two regional Federal Reserve presidents are giving speeches â€" Jeffrey M. Lacker, president of the Richmond Fed, delivers a speech on the economic outlook at 8:30 a.m. and Charles L. Evans, president of the Chicago Fed, takes the podium in Detroit at 12:30 p.m. Factory order figures for December are out at 10 a.m. The House’s Housing and Insurance subcommittee holds a hearing at 10 a.m. on “The Federal Insurance Office’s Report on Modernizing Insurance Regulation.” Andy Dunn, chief executive and co-founder of the apparel company Bonobos, is on Bloomberg TV at 4:15 p.m. Tony Gallippi, the chief executive of BitPay, is on CNBC at 5 p.m. Happy birthday, Facebook, which is celebrating its 10th anniversary.

BERNANKE DOES NOT LIKE FREE TIME  |  To celebrate finishing his tenure at the helm of the Federal Reserve, Ben S. Bernanke took the weekend off. Then, he went back to work â€" on Monday, Mr. Bernanke joined the Brookings Institution as an economic studies fellow.

YELLEN SWORN IN  |  See photos of Monday’s ceremony here.

IT MAY NEVER STOP SNOWING  |  Seriously.

 

Mergers & Acquisitions »

Nestlé Considering Sale of Frozen Food Unit  |  Nestlé, which recently sold its frozen pasta unit to the buyout firm Brynwood Partners, is said to be considering a sale of its Davigel frozen food business for about $400 million, Reuters reports, citing unidentified people familiar with the situation. REUTERS

Lenovo’s Shares Fall on Deal Concerns  |  After a four-day holiday for the Lunar New Year, Lenovo’s shares fell more than 16 percent on Tuesday, as investors speculated that the company might be preparing its third deal in three weeks, The Financial Times reports. FINANCIAL TIMES

Smith & Nephew Pounces on a Wounded Rival  |  Given that this is a friendly deal, shareholders might struggle to extract a sweetener from Smith & Nephew, Quentin Webb of Reuters Breakingviews writes. DealBook »

Tribune Completes $170 Million Purchase of Gracenote  |  The Tribune Company, based in Chicago, announced it had completed its $170 million deal with Sony for Gracenote, which maintains music and video databases, ReCode writes. The purchase was announced in December. RECODE

Liberty Global and Discovery Weighing Formula One Stake  |  Liberty Global and Discovery Communications have approached the private equity firm CVC Capital about purchasing a 49 percent stake in Formula One, Reuters writes. REUTERS

INVESTMENT BANKING »

Tax Gain Bolsters UBS Profit  |  The Swiss bank reported higher than expected earnings of $1 billion for the fourth quarter as a far-reaching overhaul started to pay off. It also benefited from a tax gain. DealBook »

Goldman’s Charitable Foundation Chief to Lead Urban Investment Group  |  Dina H. Powell will be the new head of a group that specializes in “social impact investing” through projects like the Citi Bike program and an anti-recidivism program for the jail at Rikers Island. DealBook »

Bank of America Cuts Bonus Pool for Some Traders  |  Bank of America is said to have cut the bonus pool for interest-rate traders at the bank by at least 15 percent, Bloomberg News reports, citing unidentified people familiar with the situation. BLOOMBERG NEWS

European Banks Look to Expand Internationally  |  European banks are once again targeting acquisitions abroad, The Wall Street Journal reports. The renewed search for deals indicates the growing confidence in the region’s economy after several years of distress. WALL STREET JOURNAL

The Banking Bonus Game  |  While executives at banks continue to be rewarded with large bonus payouts, low performers and junior bankers may not be so lucky, The Financial Times writes. FINANCIAL TIMES

Danish Prime Minister Rebuilds After Goldman Dispute  |  Helle Thorning-Schmidt, the Danish prime minister, is putting together a new cabinet after six ministers quit in protest over her decision to allow Goldman Sachs to buy a stake in the state-owned energy company, Bloomberg News writes. BLOOMBERG NEWS

PRIVATE EQUITY »

Tax Expert Sees Abuse in a Stream of Private Equity Fees  |  A law professor argues that monitoring fees - payments that companies make to their private equity owners in exchange for what regulatory filings call consulting and advisory services - resemble dividends. DealBook »

Warburg Pincus to Invest in Cloud-Based Facilities Manager  |  Warburg Pincus plans to invest up to $100 million in Dude Solutions, a provider of cloud-based software that helps schools, hospitals and government agencies manage building maintenance. DealBook »

Kravis and Gordon Gekko at the Super Bowl  |  Spotted in the stands at MetLife Stadium on Sunday: a prince of Wall Street and an actor who played one in a movie. DealBook »

HEDGE FUNDS »

Hedge Fund Chief Makes a Lonely Bet Against Portugal’s Debt  |  David Salanic, the chief executive of the hedge fund Tortus Capital, says he believes that Portugal will soon default on its private sector bonds â€" in the same way Greece did in 2012. DealBook »

Elliott to Hint at Proxy Fight With Juniper  |  The activist investor Elliott Management plans to suggest that it has assembled a full slate of board nominees that it will put up for election if Juniper Networks does not follow its proposal. DealBook »

Herbalife Increases Share Buyback Plan  |  Herbalife, the nutritional supplements company under attack by the activist hedge fund manager William A. Ackman, has increased its share buyback plan by $500 million. DealBook »

S.E.C. Investigating Illiquid Asset Valuations  |  The Securities and Exchange Commission is looking into how hedge funds and other alternative investment funds value their illiquid assets, The Wall Street Journal reports. WALL STREET JOURNAL

I.P.O./OFFERINGS »

La Quinta Said to Plan Debt Refinancing  |  La Quinta Holdings, a lodging chain owned by the Blackstone Group, is said to be making plans to refinance about $2.1 billion of debt in advance of its initial public offering in March, Bloomberg News reports, citing an unidentified person familiar with the situation. BLOOMBERG NEWS

Lotte Shopping Receives I.P.O. Approval  |  The Lotte Shopping Company, South Korea’s largest shopping mall owner, has gained approval from the Singapore Exchange for a $1 billion initial public offering, The Wall Street Journal writes. WALL STREET JOURNAL

VENTURE CAPITAL »

Jawbone Seeking More Cash  |  Jawbone, a privately held company known for its health-tracking bracelets, is looking to raise several million dollars in new funding, adding to the more than $100 million in debt and equity the company raised last fall, Quartz reports. QUARTZ

DataRank Raises $1.4 Million  |  DataRank, a start-up that helps companies perform analysis on their brands, has raised $1.4 million in seed funding, led by New Road Ventures, TechCrunch writes. TECHCRUNCH

Investment Firm Set to Expand  |  The investment firm 500 Startups has added two venture partners and announced that 28 companies will participate in its eighth 500 Startups Accelerator class, which is aimed at helping start-ups expand their businesses, TechCrunch reports. TECHCRUNCH

LEGAL/REGULATORY »

Hewlett-Packard Discloses Accounting Errors at Company It Bought  |  The errors at Autonomy, the British software maker that Hewlett-Packard acquired in 2011, are leading to a number of big revisions in the acquired company’s previous financial reports. DealBook »

Yahoo Sued Over Buffett’s Billion Dollar N.C.A.A. Bet  |  Quicken Loans, with backing from Warren E. Buffett, announced in mid-January that it would award $1 billion to anyone who picked a perfect N.C.A.A. tournament bracket. Now, a sweepstakes company based in Dallas claims that Yahoo owes it $4.4 million for canceling its own contest, Fortune reports. FORTUNE

British Regulator Warns 2 People of Potential Libor Charges  |  The Financial Conduct Authority, one of Britain’s financial regulators, has issued warnings to two people that it plans to charge them for misconduct related to the rigging of Libor. DealBook »

The Tale of the 401(k)  |  Bloomberg Businessweek tracked down Richard Stanger, one of the primary authors of the section of a 1978 tax law called 401(k), who discusses what is now one of the most recognizable retirement plans. BLOOMBERG BUSINESSWEEK

More Bitcoin Regulation Is Inevitable  |  The question is not whether there will be greater regulation of nongovernment currencies, but how much they will face, Peter J. Henning writes in his White Collar Watch column. DealBook »

Treasury Secretary Urges Debt Ceiling Fix  |  Speaking at the Bipartisan Policy Center on Monday, Treasury Secretary Jacob J. Lew said “time is short” to fix the debt ceiling, which was suspended in October until Feb. 7, The Wall Street Journal reports. WALL STREET JOURNAL

Veteran Banker to Lead Citigroup’s British Business

LONDON â€" James Bardrick, a veteran banker in London, has been named head of Citigroup’s business in Britain.

Mr. Bardrick, who is now Citi’s co-chief of corporate and investment banking for Europe, the Middle East and Africa, will replace Maurice Thompson, who is leaving to pursue interests outside the industry, according to an internal memorandum reviewed by DealBook.

In addition to serving as chief country officer for Britain, Mr. Bardrick will continue to focus on some clients as vice chairman of corporate and investment banking for Europe, the Middle East and Africa. He will also continue to serve as a member of that region’s operating committee.

In his new post, according to the memo, “James will serve the critical role of protecting and leading the Citi franchise in the U.K.”

Mr. Bardrick joined Citi in 1987. He has been co-chief of corporate and investment banking for Europe, the Middle East and Africa alongside Manuel Falcó since 2009.

Mr. Thompson joined Citi as a vice chairman in 2001 and was named country head for Britain in 2012. He previously worked at SG Warburg and Deutsche Bank.

Venture Capital Firm Focused on the Midwest Raises a $250 Million Fund

Mark D. Kvamme, a former partner at the venture capital firm Sequoia Capital, considers himself “a Silicon Valley guy through and through,” having grown up in the region and spent his professional life there.

But these days, he is looking for investments many miles away from California’s Bay Area, in the Midwest.

Mr. Kvamme and another former Sequoia partner, Chris Olsen, have finished raising an inaugural $250 million fund for Drive Capital, their new venture capital firm focused on companies in the Midwest region, according to an announcement on Tuesday. The firm, which Mr. Kvamme and Mr. Olsen founded in 2012, has already backed a handful of companies in fields related to technology, consumers and health care.

If there is one thing that unites their investments, it is location. So far, their portfolio companies include: a start-up in Chicago that collects online retail data; another in Columbus, Ohio, that is creating a health information exchange; one in Ann Arbor, Mich., that makes farm management software; and one in Cincinnati that helps travelers plan road trips.

“We truly believe the best place in America to build your company is in the Midwest,” Mr. Kvamme said.

There are several reasons behind this proclamation. One is the cost of living, which is substantially lower than in Silicon Valley. Another is the “domain knowledge in major industries outside of technology” that exists in the Midwest, said Mr. Olsen, a native of Cincinnati.

A third factor - the rise of cloud computing that allows data to be stored remotely - means that start-ups no longer need to be physically located near skilled technologists, Mr. Kvamme said. More important, he said, is being close to customers.

Their venture capital firm, based in Columbus, is still small, with seven employees. And it is not the first such firm to wake up to the potential of start-ups in the region. A company based in Milwaukee, Capital Midwest Fund, counts the hedge fund manager David Einhorn as a major investor.

Mr. Kvamme made his way to the Midwest in 2011, when Gov. John R. Kasich of Ohio tapped him for a cabinet role. But he did not stay long in the job, becoming the center of a controversy when an advocacy group filed a lawsuit challenging the appointment on the grounds that Mr. Kvamme was a California resident.

Mr. Kasich made him president of JobsOhio, a nonstate entity created by the governor that sought to keep companies and jobs in the state. In the fall of 2012, however, he left to start Drive Capital with Mr. Olsen.

“I started to see all this opportunity in the Midwest and in Ohio and got really excited about the companies,” Mr. Kvamme said. “What was clear to me was they were really lacking Silicon Valley-style venture capital.”

Already, cities in the region look “totally different” than they did when Mr. Olsen was growing up, he said, with the presence of technology incubators and investors.

“All these industries that have historically grown up in the Midwest are being infiltrated with technology,” he said.