2 Lawmakers Urge Fed to Change Its Enforcement Procedures

Two prominent members of Congress, troubled by an enforcement action that the Federal Reserve imposed on large banks last year, are pressing for a big change in the way that Fed approves its crackdowns.

Senator Elizabeth Warren of Massachusetts and Representative Elijah E. Cummings of Maryland, both Democrats, are recommending that the Fed’s board of governors formally vote on significant enforcement actions. They made this request in a letter sent on Tuesday to Janet Yellen, the new chairwoman of the Fed.

The Fed’s board, made up of seven officials appointed by the president, rarely votes on supervisory actions. Instead, it usually delegates this authority to the Fed’s in-house staff. Ms. Warren and Mr. Cummings appear to believe that a board vote could increase the oversight of enforcement actions and create more accountability when problems arise with such actions.

Last year, substantial flaws emerged in a $9.3 billion settlement that the Fed and the Office of the Comptroller of the Currency struck with 13 financial firms over allegations that they mishandled foreclosures during the housing bust. A government report later criticized the way that regulators had designed the foreclosure review and the consultants who carried it out.

Ms. Warren and Mr. Cummings cited the foreclosure review in their letter to Ms. Yellen. “The board’s lack of direct involvement in the mortgage servicer enforcement action is particularly noteworthy given certain troubling aspects of the settlement,” they wrote.

“We have received the letter and plan to respond,” Barbara Hagenbaugh, a spokeswoman for the Fed, said in an email.

Ms. Yellen, who testified in the House on Tuesday and is scheduled to testify in the Senate on Thursday, has extensive experience in conducting monetary policy. But her track record as a bank regulator is much shorter, leading to concerns that she will pay less attention to supervising banks. During her confirmation hearing, however, she said that the Fed’s supervisory actions were as important as its monetary policy.

Still, in their letter, Ms. Warren and Mr. Cummings note that the Fed’s board regularly votes on decisions relating to interest rates and monetary stimulus, but almost never votes on supervisory and enforcement decisions. They said that the lack of board votes on regulatory matters suggested that the Fed had not put its supervisory responsibilities on an even footing with monetary policy.

“We respectfully request that the Fed revisit its existing delegation rules and require that the board retain greater authority over the Fed’s enforcement and supervisory activities in the future,” the members of Congress wrote.

In an earlier letter to the Fed, sent last September, Ms. Warren and Mr. Cummings asked for details on how decisions about regulatory actions were made.

In a reply in December, Ben S. Bernanke, the former chairman of the Fed, said that the agency’s staff often consulted with board to decide whether the staff could exercise its delegated authority when approving a regulatory action. But, in his letter, Mr. Bernanke added, “There are no written guidelines or procedures relating to this process.” Ms. Warren and Mr. Cummings seized on that in their letter sent on Tuesday. “Although Fed officials have indicated that there is informal consultation between those with delegated authority and certain board members, the process appears to be ad hoc,” they wrote.

Specifically, the two members of Congress recommended that the board vote on regulatory actions that result in penalties of $1 million or more, or when crackdowns require the removal of a bank officer or the introduction of a new management team at a bank.

Ms. Warren and Mr. Cummings also suggested that each board member be provided with the staff needed to weigh pending enforcement actions. “We believe that increasing the board’s direct role in overseeing enforcement and supervision would strengthen the Fed’s efforts to reduce systemic risk in our financial system,” they wrote.

U.S. Targets Buyers of China-Bound Luxury Cars

Michael A. Downs, a businessman in Fort Lauderdale, Fla., says he is simply looking to profit from the growing demand in China for cars from the likes of Mercedes, BMW and Range Rover.

His three-year-old business recruits people in a dozen or so states to buy new cars from dealerships in the United States. He then sells those vehicles to other companies, which ship them to China. Once in China, the cars, which typically retail for $55,000 to $75,000 in the United States, can be resold for as much as three times those prices. “We’re taking advantage of a legitimate arbitrage situation,” he said.

But to the federal government, businesses like Mr. Downs’s are potentially violating customs laws and deceiving auto manufacturers like Mercedes-Benz and BMW, which try to keep tight control over sales to domestic dealers and to foreign countries.

Last year, federal prosecutors and agents with the Secret Service and the Department of Homeland Security began a broad crackdown on this “gray market” export business, which is estimated by some to be responsible for sending as many as 35,000 new luxury cars a year to China from the United States.

Federal prosecutors in half a dozen states â€" New Hampshire, New Jersey, Ohio, New York, Texas and South Carolina â€" have filed criminal or civil actions seeking to put a halt to the resale of luxury cars to China. Prosecutors have frozen bank accounts containing the proceeds from auto sales and seized hundreds of cars, some waiting to be shipped from cargo ports in Newark, Staten Island and Long Beach, Calif.

The authorities have even ordered cars already on ships headed to China to be returned to port. The seizures are continuing, with federal agents in the last week taking possession of a number of luxury cars in Maryland destined for sale in China, according to people briefed on the investigations. “What we have found is a scam and people looking to make a fast buck,” said United States Attorney John P. Kacavas of New Hampshire, whose office brought the first federal prosecution.

The aggressive crackdown, however, has raised questions about the role of law enforcement in what some contend is a commercial dispute that should be resolved through private litigation.

The domestic divisions of Mercedes-Benz and BMW say the clampdown by federal authorities is a legitimate attempt to regulate trade and to ensure that American consumers who want to own a car for personal use are not deprived of a chance to buy one.

“The BMW Group has been working closely with federal authorities for almost two years to stop illegal exports of our vehicles from the U.S.,” said Kenn Sparks, a spokesman for BMW of North America. “Illegal exports deny legitimate customers here in the U.S. the popular vehicles, which are in high demand.”

Most car manufacturers require dealerships to verify that customers are not buying cars to quickly export them to overseas markets. Dealers can be penalized if a new car sold in the United States is traced to a subsequent buyer overseas.

In many cases brought by federal authorities, the buyers do not say that they intend to ship the newly purchased cars overseas.

Federal authorities are moving forward with illegal export cases at a time when luxury auto manufacturers are pressing to take advantage of the demand for high-end cars in China. On Wednesday, Daimler, the parent company of Mercedes, said it had sold 24,199 cars in China in January, an increase of 44 percent from a year ago.

So far, most of the actions brought have been civil in nature, as the New Hampshire action is the only one in which anyone pleaded guilty to a crime.

But that may change as the New York attorney general, Eric T. Schneiderman, has opened a criminal investigation into activity involving luxury car dealerships in New York and New Jersey, people briefed on the matter said.

Lawyers, including former prosecutors, are divided on whether the federal government’s efforts are best spent going after activity in which the primary victim is a foreign automaker.

“If you can prove some kind of deception, that usually is enough to let you bring the case as a legal matter,” said Aitan D. Goelman, a defense lawyer and former federal prosecutor. “But the more interesting question is, should you, considering scarce prosecutorial resources.”

In most instances, the companies that prosecutors are targeting employ so-called straw buyers, who are paid a few hundred dollars to show up at a dealership with a certified bank check to buy a car and then quickly turn over the vehicle.

Mr. Schneiderman’s office is conducting an undercover investigation focusing on the activities of sales managers working at a number of luxury auto dealerships in New York and New Jersey, said the people briefed on the matter.

The investigation, which could lead to the filing of criminal charges, is examining whether some sales managers took kickbacks to sell luxury cars to people who they knew intended to resell them overseas.

The authorities say that using straw buyers to buy cars is deceptive. The buyers typically indicate that they are buying the cars for themselves. In most cases, prosecutors also say that the companies shipping the cars overseas have created misleading export documents to disguise the fact that the cars were recently purchased. Auto insurance policies taken out for the buyers are quickly canceled once the cars are shipped.

In the New Hampshire case, two California men who not only used straw buyers to buy cars destined for China but also fraudulently obtained drivers’ licenses in New Hampshire as part of their scheme pleaded guilty and were sentenced to three years of probation.

But in Florida, Mr. Downs is fighting back. He has filed a lawsuit in federal court in West Palm Beach, Fla., seeking a declaratory judgment that his business is lawful.

Mr. Downs filed the lawsuit before New York prosecutors froze his company’s bank account, but after Secret Service agents seized a Mercedes-Benz GL350 and a Land Rover Range Rover that two people working for him had bought in North Carolina.

“I am creating jobs and income for people,” said Mr. Downs, who said he was not aware of the investigation by authorities in New York when he filed his lawsuit. “We would like this to come to a decision, because there is no specific law that says what we do is illegal. We want the acceptance or a judge to reject our business model.”

A decision is still pending in Mr. Downs’s case in Florida.

Court filings show that Mr. Downs is on Mercedes’s prohibited auto exporter purchasing list. He says his company complies with all state and federal laws.

A training video for prospective car buyers on the website for Mr. Downs’s company reminds recruits to be careful what they say to sales people at dealerships.

An introduction to one of the videos states: “The main thing to remember is that you do not want to raise any flags alerting them to the fact that you may be part of an exporting company.”

Scott Winowitz, one of the people in North Carolina who bought a car for Mr. Downs, said he was surprised when several agents from the Secret Service showed up at his home on Sept. 14 to seize the Mercedes he had just bought for $66,537, because he did not think he was doing anything wrong.

“They were telling me you can get arrested and go to jail. I was practically having a panic attack,” he said. “I didn’t know that any of that stuff was illegal. People do exporting and importing every single day.”

Mr. Downs’s company became further ensnared in the federal crackdown in November, when prosecutors in New York sought to freeze $2.38 million in a bank account listed in his company’s name. His lawyer said the company account actually held much less money.

The New York action also seized bank accounts and 47 vehicles suspected of being linked to Efans Trading of Memphis, which had bought cars from Mr. Downs’s company.

Ely Goldin, a lawyer with Fox Rothschild who represents Efans, said the government was doing the bidding of the automobile manufacturers. Disputes, he said, should be resolved through private litigation and not the threat of asset seizures or criminal prosecution.

“It is an open question who are the so-called victims and whether the purchase and sale of cars should be considered a fraudulent scheme,” Mr. Goldin said.

Atlantic Media Executive Heads to Byron Trott’s Firm

Byron D. Trott, the former Goldman Sachs rain-maker known for having the ear of Warren E. Buffett, isn’t known for being a regular presence in the press. But his firm’s newest managing director just happens to be a longtime media executive.

Atlantic Media’s owner, David G. Bradley, announced on Tuesday that the head of his company’s live event business, Elizabeth Baker Keffer, would be joining Mr. Trott’s merchant banking firm, BDT & Company.

“I understand the appeal of both this position and the chance for a second run in her career,” Mr. Bradley wrote in an internal memorandum reviewed by DealBook. “Elizabeth, leaving wholly of her own accord and at a loss to us too big to hide, has my blessing.”

According to the memo, Ms. Keffer began her career as a researcher for what became the Advisory Board Company, then became a sales executive. She eventually became the chief marketing officer and then publisher of The Atlantic magazine before becoming the president of AtlanticLive.

Now she will be joining BDT, which has advised Alberto Culver in its sale to Unilever, the German investment company Joh. A. Benckiser in numerous deals and Fairfax Financial Holdings in its investment in BlackBerry. The firm also has a private equity arm, one that sometimes works in concert with its investment banking operations.

It is not clear what role she will fill at the firm. A spokeswoman for BDT was not immediately available for comment.

Ms. Keffer will remain the president of AtlanticLive through mid-March, according to the memo.

Here’s the full memo from Mr. Bradley:

Colleagues,

The summer of 1984 proved, likely, the most important of my life. For the first time, my then small company, the Advisory Board, began to get traction. But, more significant by far, the summer crop of interns would change my life. One, I married. One stayed with me for 30 years, built, then saved, then built our various companies and, along the way, became family. She has told me, now, that she will be leaving.

Elizabeth Baker Keffer

Elizabeth Baker Keffer, the president of AtlanticLIVE, really more its founder, will be moving to Chicago to become managing director of BDT & Company, a private investment company. I now know the firm. I now know by reputation and in person its founder, Byron Trott. I understand the appeal of both this position and the chance for a second run in her career. Elizabeth, leaving wholly of her own accord and at a loss to us too big to hide, has my blessing. She remains with us through mid-March.

Across the spring, we will be celebrating Elizabeth’s unsurpassed contribution to The Atlantic in parties at the firm and in my home. I need save some of our story together for those occasions. But, I want you to know, from this first announcement, how much Elizabeth has meant to me. As to the pure commerce of building a business, my remaining career is too short for there ever to be Elizabeth’s equal in raising revenues â€" no one in the past. No one for the future.

Elizabeth began as a researcher for the Research Counsel of Washington, the predecessor company to the Advisory Board. With our first membership, in the event for commercial banks, Elizabeth managed all sales and all renewals. As the firm broadened to two names â€" Advisory Board and Corporate Executive Board â€" and to all sectors, Elizabeth led all revenues with a sales force of scores of young professionals. Staying with me for the leap to media, Elizabeth served successively as chief marketing officer across the brands, as publisher of The Atlantic and then founding president of AtlanticLIVE. With James Bennet, Jay Lauf and Justin Smith, Elizabeth is responsible for the return to good fortune of The Atlantic, arguably the most remarkable turn-around in American publishing today.

A Personal Attachment

There is a temptation in professional life to separate our personal friends from our friends in business, thinking without particular reflection that the personal friends are the “real” ones. But, if you work the much greater number of waking hours, it’s not so clear where the deepest affections build. And, in my case, I don’t have better friends in my private world than I do in Elizabeth Keffer in both my worlds. Our children have attended the same primary schools. Our families have traveled together. I’ve written college letters of recommendation. I rode horse back with Elizabeth’s late husband, Jeff. I spoke at Jeff’s memorial service. Elizabeth, uncommonly self-possessed, speaks at all those celebrations that mark the passage of decades in my life.

Scott (Havens) is underway thinking through the leadership and organization structure for AtlanticLIVE in an after-Elizabeth world. This will work out and to great standard. But, as to sheer personal affection, it will take another 30 years for me to attach to the next leader as I have to Elizabeth.

My Advisory Board Clan…

From that summer of 1984, and the few years that followed, there were a dozen of us that stayed together for the early years in media. Then, one by one, they found their own next careers. With Elizabeth’s departure, we are down to one.

Right, Katherine? Katherine?

How I will miss having Elizabeth here every day.

My respect to you all.

Dow Chemical Formally Rebuffs Breakup Proposal

Dow Chemical said on Tuesday that it saw no value in pursuing a significant breakup, dealing a setback to a hedge fund manager who encouraged the company to split its petrochemicals and specialty chemicals businesses.

The hedge fund manager, Daniel S. Loeb, said last month that his firm had taken a large stake in Dow, and he urged the company to hire outside advisers and consider a breakup. If Dow spun off its petrochemicals business, Mr. Loeb said, that would create “the specialty chemicals leader that Dow has aspired to become over much of the past decade.”

Dow was already trying to streamlin its operations, and its chief executive, Andrew N. Liveris, appeared to rebuff Mr. Loeb’s proposal on a conference call later in January. “We’ve actually done the divestment of what might be called the traditional petchem business,” he said, without identifying Mr. Loeb by name.

On Tuesday, the company provided an official response to Mr. Loeb’s idea (although, again, it did not mention Mr. Loeb or his firm, Third Point, by name).

A recent review “found that a breakup of the company in a significant manner (simplistically described as petrochemical and specialty chemical assets) created no productivity or capital allocation improvements, but rather negatively impacted Dow’s value proposition which leverages scale, integration costs and technology benefits across multiple science-based, vertically integrated value chains,” Dow said in a regulatory filing on Tuesday.

“Dow believes that the specific actions it has taken to transition Dow from a commodity-based model into a vertically integrated science company focused on specialty materials, agriculture and specialty plastics is the right strategy to maximize value for all of our shareholders in the short and long term,” the company said.

The statement was filed as an addendum to Dow’s quarterly and full-year earnings report. A representative of Mr. Loeb did not immediately respond to a request for comment.

Online Career Site Receives $7 Million Angel Investment

“Pretend to have self-confidence you don’t yet feel.”

It was April 2013, and Sheryl Sandberg, the chief operating officer of Facebook, was addressing an audience of women at an event hosted by Levo League, an online early career forum that Ms. Sandberg has supported since it was formed two years ago. Ms. Sandberg contributed to the company’s initial $1.25 million seed funding, and a video of her speech was among the first presentations on the site.

On Tuesday, Levo, which aims to help young people in the early stages of their careers through online mentorship, presentations and community-building, announced it had raised $7 million through a new round of angel investment. Caroline Ghosn, Levo’s chief executive and one of its co-founders, declined to say whether Ms. Sandberg participated in the latest funding round. Investors included Lubna Olayan, the chief executive of the Olayan Financing Company of Saudi Arabia, and Veronique Morali, the president of Fimalac Development in France, according to a press release.

The new capital will go toward reaching a larger audience around the world, expanding the site’s mobile offerings and personalizing the individual member experience. Levo did not disclose how many members it has but says it attracts an engaged audience of eight million to its various “office hours videos.”

Those videos feature presentations from prominent executives like Ms. Sandberg, and members can ask questions of the various mentors who make themselves available through the site’s public and private forums. Presenters have included the fashion designer Nanette Lepore and the journalist Soledad O’Brien.

Ms. Ghosn’s 53-minute chat with Warren Buffett drew 7.6 million viewers in May, the site’s record, she said.

Membership is free, and Levo â€" pronounced “LAY-voh,” from the Latin word meaning “to elevate” â€" makes money by charging companies that it helps with recruitment and retention efforts.

Ms. Ghosn said that Levo’s goal was to help young women obtain the skills they need to meet the demands of the work force. That includes content geared toward everything from confidence-building to learning the best way to ask for a raise. While most of Levo’s mentors and presentations are from women, it is not exclusively for women.

“The reason we focused on women first and foremost is because if you look at the research, the largest disconnect between performance and potential exists with Generation Y women,” Ms. Ghosn said.

Ms. Ghosn, a 27-year-old Stanford graduate and the daughter of Carlos Ghosn, the chief executive of Nissan and Renault, said she came up for the idea for Levo after spending nearly three years at the management consulting firm McKinsey & Company in New York.

“I got to experience firsthand the lack of resources available to young talent in their first few years of work,” she said.

She was introduced to another McKinsey alumna, Ms. Sandberg, to pitch her vision for a site that could use technology to help young people advance in the early stages of their careers. Ms. Sandberg, an outspoken advocate for women in the executive suites, was in many ways a natural choice. Her speech for Levo was part of a tour for her 2013 book “Lean In,” which addresses mentorship, leadership and how women advocate for themselves in the workplace.

Ms. Ghosn’s experience approaching Ms. Sandberg mirrored some of Levo’s larger goals.

“I can’t even begin to describe how I felt before picking up the phone,” Ms. Ghosn said. “It was just akin to feeling like you’re about to have the conversation of your life and you need to put everything you can into it.”

S.E.C.’s Review of Stock Trading Will See Some of Its Own Work

There are now at least 58 stock exchanges in the United States, many of them dark pools where the trades can be made anonymously. With institutional investors claiming they are outgunned by high-frequency traders, and individual investors adrift in fragmented markets, it’s no wonder that Mary Jo White, the new head of the Securities and Exchange Commission, is moving to review and overhaul how stocks are traded. The issue is that the S.E.C. may have created the problem it is now hoping to solve.

The world used to be much simpler.

When a share of stock was traded, it was typically traded on either the Nasdaq stock market or the New York Stock Exchange. Before 2007, the New York Stock Exchange executed 79 percent of the trades in stocks listed on its exchange. The Nasdaq, through its own internal networks and affiliates, controlled about 81 percent of its volume.

That changed in 2007, when the S.E.C. stepped in with Regulation NMS. Regulation NMS was well intentioned. Its goal was to make things better for individual investors by requiring that brokers execute trades at the best price available. Trading thus became a mechanical exercise â€" the best price had to be obtained, no matter where quoted or by whom. To ensure that the best price was obtained, the S.E.C. also put in place rules requiring all exchanges to make their quotations and trade executions public.

The idea was simple and compelling, but the problem was that Regulation NMS did not require brokers to obtain the fastest execution or weigh the reliability of an exchange when obtaining the best quote available.

As a result, the rule disrupted the flow of market trading, just as high-frequency trading was arriving. The result was to put traders in control of the markets. The only thing that now mattered was getting the best quote.

This removed brokers from the equation and empowered the traders. After all, if an exchange was going to prosper, it needed liquidity and that came mostly from high-frequency trading. This would give the exchange the best quotes. By 2009, high-frequency trading was estimated to account for 50 to 60 percent of the market volume, meaning that it wasn’t just traders, but high-frequency traders, who were in control. Though people quibble about the definition of high-frequency trading, it involves traders who use algorithms and focus on being as fast as possible. By being the fastest, these traders could execute trades ahead of slower institutional and retail investors.

Markets now focus on drawing in high-frequency traders, and it seems that every entrepreneur has a stock market to peddle.

There are now 13 public stock exchanges â€" the so-called “lit” exchanges. And there are 45 dark pools, which now execute the trades for over 50 percent of long-term investors. What’s the difference between the two, you ask? Lit exchanges publish quotes and then report the execution of the trade. This way everyone gets to see the trades and knows who is trading what. The dark pools allow anonymous trading and the hiding of trades until they happen. Only after the trade occurs does the public know it occurred and at what price.

This fragmentation of the markets was directly a result of the new competition to show the best price. To attract traders, these new markets began to offer them special benefits.

If you are a high-frequency trader, being close to the actual exchange is important. It can give you extra milliseconds to execute a trade before someone farther away can get to the exchange. Exchanges thus began to offer co-location and microwave services, allowing traders to be on site or to send their trades in faster than others. To emphasize how important this time is, Spread Networks spent $300 million to build a high-speed fiber network between New York and Chicago to shave three milliseconds off trading times.

What’s so bad about catering to high-frequency traders? By their very name, high-frequency traders execute trades ahead of everyone else, grabbing the best prices or, in a worst case, offering false bids to lure sale offers. These trades can “take” quotes before ordinary investors can buy, and then turn around and sell for a penny more to the same buyer who lost out. Academic studies have found that the flight to dark pools probably made pricing worse and created higher trading costs.

Even though institutional investors are skilled, they still sometimes lose to high-frequency traders. But retail investors don’t even play. The online brokerages often enter into contracts with these new markets to have them execute their trades, putting retail investors to the mercy of the high-frequency traders. According to S.E.C. reports, for instance, E-Trade sent 23 percent of its market orders to Citadel Securities last quarter, and another 23 percent to KCG Americas, whose parent was at one point the largest high-frequency trading firm. The two firms paid E-Trade for this flow, an average of less than $0.0015 per share. But ask yourself this: Why would someone pay E-Trade to execute an order? Probably because these orders are being fed into the high-frequency trading maw.

George Fischer, vice president of trading, margin lending and cash management at E-Trade, defended the firm’s practices. “From a retail perspective, wholesalers generally offer a better opportunity for price improvement than the exchange environment,” he said. “This is a great time to be a retail investor as we are seeing historically high levels of price improvement.”

But as we’ve seen in the flash crash in 2010, the failed trading in the BATS initial public offering in 2012 and the Nasdaq trading malfunction last August, markets are too complex and, perhaps, too interconnected. There is real systemic risk.

It’s no wonder, then, that the S.E.C. is saying it will re-examine the rules on market structure. The agency did not immediately respond to a request for comment.

The S.E.C. moves slowly, though, and in the meantime the markets are trying to reorder themselves. Some hedge funds have banded together to form the Modern Markets Initiative, an organization that will be an industry representative for the high-frequency traders. The idea is to explain the good that high-frequency trading does by promoting volume and keeping prices equivalent.

The institutions are also fighting back. Last fall, a group of institutional investors and hedge funds founded the IEX Group. IEX aims to end high-frequency traders’ advantage by creating a dark pool with a speed bump. That bump is all of 350 microseconds, but, according to IEX’s executives, it levels the trading field. IEX officials say they are off to a good start, with trading on some days above the American Stock Exchange (now known as the NYSE MKT). High-frequency trading is also welcome on IEX because it now does not have an undue advantage.

But the IEX and Modern Markets Initiative are stopgap measures and don’t address the fragmentation of our markets and the risk that poses.

The S.E.C. review is expected to take about a year, after which it is likely to propose radical changes.
The only problem is that the S.E.C. and its Regulation NMS are partly responsible for destroying the old trading model, while still leaving ordinary investors at a different disadvantage. The question will be whether the S.E.C.’s new proposals are a different recipe for the same meal, doing nothing to settle the war between traders and investors.

L’Oréal’s Deal With Nestlé Puts Zaoui Brothers Back in Spotlight

L’Oréal’s deal to buy back 8 percent of itself from Nestlé has been a long time coming, with a number of big names involved.

Reportedly among them is a Moroccan-born duo that the investment banking world hasn’t heard from in a while: Michael and Yoël Zaoui, the brothers who once were rivals, one at Morgan Stanley and one at Goldman Sachs.

According to a lengthy profile in the French edition of Vanity Fair, the two advised the Bettencourt-Meyers family, which more than a century ago founded the company that became L’Oréal.

Much of the magazine profile explores the legend that has grown around Michael and Yoël, who rose to fame as the heads of the European merger departments at Morgan Stanley and Goldman, respectively. That sometimes meant they found themselves on opposite sides of the negotiating table.

According to Vanity Fair, Michael â€" whom the magazine describes as having the body of Ben Stiller and the voice of Al Pacino â€" acts more instinctively and is versed in the art of war. (Perhaps fittingly, after putting together a leveraged buyout of Colt, the firearm manufacturer’s executives gave Michael Zaoui an engraved .357 Magnum revolver.)

His younger brother is better known for a surgical mastery of the finer points of deal-making.

The skills of each brother were put to the test when Mittal Steel made a surprising bid for Arcelor, with Yoël advising the determined bidder and Michael working for the target. The two held little back, trading blows in what proved to be a long and bruising battle across a number of countries. Yoël’s side proved victorious.

Still, Michael earned praise from his brother’s client. According to the magazine, Lakshmi Mittal eventually told Morgan Stanley’s chief executive, John J. Mack, “Your guy has cost me a lot of money.”

How have the two dealt with sometimes competing head-to-head? At the beginning of their careers, the brothers said that they promised not to oppose a takeover the other was working on. But that pact was broken, first by Alcan’s takeover bid for Pechiney and later by the steel makers’ battle.

They both confided in their mother, Violet, who made sure to keep the confidences of both. When Michael asked whether she had seen his sibling, his mother replied simply, “He’s fine.”

But the brothers also found themselves working together on occasion, such as when they defended the oil company Elf from an unwanted bidder, Total. The two persuaded Elf’s chief executive at the time, Philippe Jaffré, to mount a Pac-Man defense by bidding for Total. Ultimately, Elf agreed to sell itself, a result that the Zaouis say now turned out to be pretty good.

“From the shareholders’ perspective, it was a good deal,” they told the magazine.

Now the two work together in a new firm, Zaoui & Co., with a client list that reportedly includes the fashion house Tom Ford.

“Now, no customer dreads discovering that my brother is in the opposite camp,” Yoël said.

Corvex Adds Zell to Nominees for CommonWealth Board

Corvex Management has stepped up its fight against CommonWealth REIT, a real estate investment concern, by adding a boldface name to its slate of board nominees.

The activist hedge fund and its partner, Related Fund Management, said on Tuesday that they were adding the billionaire Samuel Zell to their list of director candidates. The two investors also nominated David Helfand, a co-president of Mr. Zell’s private investment firm.

“We are fully supportive of Corvex and Related’s efforts to maximize value at CommonWealth for all shareholders,” Mr. Zell said in a statement. “We see an attractive opportunity at CommonWealth uniquely suited to our expertise in leading public real estate companies and in turning around underperforming assets.”

By enlisting the real estate mogul, Corvex and Related are hoping to convince fellow shareholders that they can install a better set of directors than Commonwealth’s current board. The two firms, who together own 9.6 percent of the REIT, have argued that the company needs an overhaul. That should begin with its board, which the funds argue is beholden to the company’s controlling family, the Portnoys.

The activist investors led an effort to unseat Commonwealth’s board last year, but the move was overturned on technicalities.

Goldman Handed Out Cosmetic Mirrors and Nail Files at Women’s Coding Event

Goldman Sachs was the biggest sponsor of a Harvard event last weekend aimed at women interested in computer science. But the Wall Street bank’s conference swag at the event was found off-putting by at least one attendee.

The conference, Women Engineers Code, or WECode, which was organized by an undergraduate student group at Harvard, featured stacks of cosmetic mirrors with the Goldman Sachs logo, a photograph posted to Instagram shows. The Instagram user also said that the bank brought nail files to the event.

“Not sure if this is #sexyfeminism or gender stereotyping,” wrote the Instagram user, who uses the handle yuqz.

In addition to the mirrors and nail files, Goldman Sachs provided T-shirts and key chains to hold headphone cords, according to a person briefed on the matter who was not authorized to speak publicly on the issue. The event’s organizers encouraged Goldman to bring goodies that would appeal to a female audience, this person said.

“We are strong supporters of efforts to recruit and retain women in technology. We apologize if the gifts gave anyone offense,” a Goldman Sachs spokeswoman said in a statement.

An email and Facebook messages to the organizers of the event were not immediately returned on Tuesday.

Goldman did have a major presence at the conference and was its “platinum” sponsor. One of its partners, Marie Louise Kirk, gave a speech on Saturday. For another educational program, the bank teamed with the nonprofit group Girls Who Code.

Google, another sponsor of the conference, also put its name on some swag, a photo on Instagram shows. The item in question? Socks.

Goldman Handed Out Cosmetic Mirrors and Nail Files at Women’s Coding Event

Goldman Sachs was the biggest sponsor of a Harvard event last weekend aimed at women interested in computer science. But the Wall Street bank’s conference swag at the event was found off-putting by at least one attendee.

The conference, Women Engineers Code, or WECode, which was organized by an undergraduate student group at Harvard, featured stacks of cosmetic mirrors with the Goldman Sachs logo, a photograph posted to Instagram shows. The Instagram user also said that the bank brought nail files to the event.

“Not sure if this is #sexyfeminism or gender stereotyping,” wrote the Instagram user, who uses the handle yuqz.

In addition to the mirrors and nail files, Goldman Sachs provided T-shirts and key chains to hold headphone cords, according to a person briefed on the matter who was not authorized to speak publicly on the issue. The event’s organizers encouraged Goldman to bring goodies that would appeal to a female audience, this person said.

“We are strong supporters of efforts to recruit and retain women in technology. We apologize if the gifts gave anyone offense,” a Goldman Sachs spokeswoman said in a statement.

An email and Facebook messages to the organizers of the event were not immediately returned on Tuesday.

Goldman did have a major presence at the conference and was its “platinum” sponsor. One of its partners, Marie Louise Kirk, gave a speech on Saturday. For another educational program, the bank teamed with the nonprofit group Girls Who Code.

Google, another sponsor of the conference, also put its name on some swag, a photo on Instagram shows. The item in question? Socks.

Get Ready for a Long Proxy Fight Over Time Warner Cable

The battle has begun.

Charter Communications has 13 nominees to replace the entire Time Warner Cable board. It’s a bold move, and it highlights that Charter is willing to push Time Warner Cable hard for a deal. Because of the way the company has put forth its defense, however, there may be little room for Time Warner Cable to negotiate with Charter. Get ready for a long, drawn-out proxy contest.

Time Warner Cable’s defense is  that Charter is trying to underpay for the company. But the defense is also based on a legal point. Even if Charter elects all 13 directors, it still does not mean that Time Warner Cable will be sold to Charter.

The reason is that the 13 director nominees are independent and not affiliated with Charter. This is a result of the requirements of Delaware law. Any director on the Time Warner Cable board is obligated to look after the best interests of Time Warner Cable’s shareholders. Once in office these new directors would have to independently evaluate the Charter offer with Time Warner Cable’s interests in mind. To deal with this issue, Charter was effectively required to nominate independent directors. These Charter nominees are independent for Delaware law purposes, but may be more predisposed to favor Charter, who, after all, did nominate them.

Time Warner Cable is relying heavily on this legal nuance to protect it. The Time Warner Cable board has said it was open to a deal at $160 a share, but presumably not below this amount. As I wrote in a previous column, Time Warner Cable appears to be hoping for a repeat of Air Products’ failed hostile offer for Airgas. In that contest, Air Products succeeded in electing three new directors to the Airgas board, who promptly sided with the old Airgas board in determining that Air Products offer was too low. By putting a $160 per share number out, Time Warner Cable’s board is effectively trying to warn off Charter by invoking the same possibility.

But this time is different. Charter is seeking not to influence the old board, but replace it.

Will Charter succeed? The instances of where an entire board has been thrown out are few. Proxy advisory services like Institutional Shareholders Services and Glass Lewis are also prone to recommend against a full takeover of a target’s board, instead preferring to recommend that shareholders elect only a few directors to send a message to the target board to consider the offer in a more friendly light.

Still, Charter probably nominated a full slate instead of only a minority of directors to deal with the Airgas issue. In doing so, Charter is putting the entire question to Time Warner Cable’s shareholders. In other words, Charter is asking Time Warner Cable shareholders to elect an entirely new board if you want a deal to happen, since you know half measures, as in the case of Airgas, may not work.

Of course, as the dynamics of the contest move forward, Charter is almost certainly hoping that if the Time Warner Cable board sees this dynamic unfolding, the board will come to the negotiating table. But Time Warner Cable has been adamant that it is open to a price of $160 per share. After such a statement, it is hard to see the its board going lower.

Time Warner Cable will no doubt fiddle with the meeting date, pushing it back as far as possible in order to gain time. Last year, they held the meeting on May 17, but under Delaware law they have 13 months to hold the next meeting and can probably fight this issue out in court to gain a few more weeks. Other maneuvers are possible, such as trying to find another bidder.

In the absence of another bidder, Time Warner Cable is left arguing that the price here is not high enough, and in any event, the new board would have to honor the old board’s rationale and abide by it.

It seems like a good defense, even though it has locked Time Warner Cable into a stance where it can’t really negotiate with Charter. Unfortunately, there is a flaw here. If Charter succeeds, then these new directors can redo the old board’s analysis. Again Time Warner Cable is hoping that this will be hard to do given its prior work.

Perhaps there is another option. In Carl C. Icahn’s battle for CVR Energy, the CVR board opposed his  offer. They ultimately, however,  allowed the tender offer to proceed, recommending that shareholders not accept the offer, but letting shareholders decide. Mr.Icahn subsequently took control of CVR Energy. If the new board was elected, this may be one way they get around this legal problem.

It all means that Charter is going to push hard for a majority of the Time Warner Cable board to be unseated, while the board has left itself little wriggle room to negotiate. Unless Time Warner Cable can find another bidder or come up with another plan, it appears like this is a proxy contest that may go the distance. This leaves the next step up to Time Warner Cable’s shareholders and whether they find Charter’s offer attractive. But even if Charter elects all of its directors, wins, it still means that the new independent directors of Time Warner Cable will have to decide whether to do a deal.

Goldman Sachs Adds Five to Management Committee

Goldman Sachs has added five executives to the firm’s influential management committee, a group of Goldman insiders that has the ear of the bank’s top brass.

Paul Russo, Michael Daffey and Justin Gmelich from the firm’s securities division will join the committee along with Craig Broderick, the chief risk officer, and Sarah Smith, the firm’s controller and chief accounting officer, according to two separate internal memos on Tuesday. The memos were signed by Lloyd C. Blankfein, Goldman’s chief executive and chairman, and Gary D. Cohn, the president, and confirmed by a Goldman spokesman.

The five additions bring the total number of management committee members to 34, the largest it’s ever been. The committee was briefly made up of 33 members in 2011, and has hovered slightly north of 30 in recent years. Goldman appoints new employees periodically as members leave the firm.

Mr. Russo and Mr. Daffey are global co-chief operating officers of the firm’s equities operations, while Mr. Gmelich serves as the global head of credit trading. Mr. Broderick and Ms. Smith work in what Goldman deems “the federation,” or its non-revenue-producing unit.

“Paul, Michael and Justin are responsible for very significant business and client relationships and will bring valuable perspectives to the Management Committee,” one memo said. In the other memo, Mr. Blankfein and Mr. Cohn said of Ms. Smith and Mr. Broderick: “These appointments reflect the firm’s focus on strong financial controls and risk management.”

Full text of the memos are below:

February 11, 2014
Paul Russo, Michael Daffey and Justin Gmelich Named to Management Committee

We are pleased to announce that Paul Russo, Michael Daffey and Justin Gmelich have been named to the Management Committee.

Paul and Michael are global co-chief operating officers of the firm’s Equities franchise, and Justin serves as global head of Credit Trading. They are members of the firmwide Partnership Committee and the Securities Division Executive Committee.

Paul joined Goldman Sachs in 1990 and held various leadership roles including co-head of the Fixed Income, Currency and Commodities (FICC) Division in Asia Ex-Japan, head of the Equity Derivatives business in Europe, and co-head of European Equity Product Group Trading. He assumed responsibility for Global Equity Derivatives in 2004, and served as head of US Equity Trading and Global Equities One Delta Trading prior to assuming his current role. He serves on several additional committees, including the Firmwide Risk Committee and the Firmwide New Activity Committee. Paul was named managing director in 1998 and partner in 2000.

Since joining Goldman Sachs in 1994, Michael has held a number of sales management roles across businesses and regions. Prior to assuming his current role, he was global head of Equities Sales and head of Fixed Income and Foreign Exchange Sales in EMEA. Michael is also a member of the European Management Committee and the Firmwide Client and Business Standards Committee. He was named managing director in 2000 and partner in 2002.

Prior to assuming his current role, Justin was head of US Credit Trading and Mortgage Trading. He also serves on the Firmwide Risk Committee, GS Bank’s Management Committee and the Global Recruiting Council. Justin joined Goldman Sachs in 1998 and was named managing director in 2002 and partner in 2004.

Paul, Michael and Justin are responsible for very significant business and client relationships and will bring valuable perspectives to the Management Committee. Please join us in congratulating them on their appointments and wishing them continued success.

Lloyd C. Blankfein
Gary D. Cohn

February 11, 2014
Craig Broderick and Sarah Smith Named to Management Committee

We are pleased to announce that Craig Broderick and Sarah Smith have been named to the Management Committee.

Craig is the firm’s chief risk officer, responsible for credit, market and operational risk, and insurance. He is chairman of the Goldman Sachs Bank Risk Committee, as well as a member of various committees including the Firmwide Risk Committee, the Firmwide Capital Committee and the Firmwide Suitability Committee. Previously, Craig was chief credit officer until 2008. Prior to that, he was manager of the European Credit effort based in London from 1986 to 1999. He joined Goldman Sachs in 1985 in the Credit Department in New York and was named managing director in 1998 and partner in 2000.

Sarah has served as controller and chief accounting officer of Goldman Sachs since 2002. She serves on several firmwide committees, including the Risk Committee, the Commitments Committee and the Regulatory Reform Committee. Sarah previously served on the Partnership Committee and the Business Standards Committee. She joined Goldman Sachs in 1996 as a vice president in Finance and was named managing director in 1998 and partner in 2002.

These appointments reflect the firm’s focus on strong financial controls and risk management. Craig’s and Sarah’s combined experience in these areas will bring valuable insight to the Management Committee.

Please join us in congratulating Craig and Sarah and wishing them continued success.

Lloyd C. Blankfein
Gary D. Cohn

Fitch Cuts Puerto Rico’s Debt to Junk

Fitch Ratings lowered Puerto Rico’s debt to junk status on Tuesday, becoming the last of the top three ratings agencies to downgrade the financially struggling island.

Fitch dropped its rating two notches, to BB from BBB-, citing Puerto Rico’s high debt load and pension liabilities and its increasing inability to borrow money on the capital markets. Standard & Poor’s and Moody’s Investors Service cut Puerto Rico’s rating to junk last week.

“Recent downgrades have triggered new liquidity requirements and lowered expectations for the market available for the commonwealth’s debt going forward,” Fitch said in a statement.

Fitch said that the key to stabilizing the commonwealth’s finances would be the performance of the economy, which has been in recession since 2006. But there is not much good news there. Puerto Rico has $70 billion in debt, a 15.4 percent unemployment rate, a soaring cost of living, pervasive crime, crumbling schools and an exodus of professionals and middle-class Puerto Ricans.

Puerto Rico said on Tuesday that it planned to issue general obligation bonds to refinance debt and improve its liquidity but did not detail the timing or amount of debt it plans to sell. Gov. Alejandro Garcia Padilla said on Monday that he had asked the legislature for approval to borrow up to $3.5 billion in new general obligation bonds. He also said he planned to bolster the island’s economy by overhauling its tax system and reducing government spending.

“Puerto Rico’s current management has repeatedly shown its ability and willingness to take quick action to address financial challenges and external market concerns, much of which has required legislative action. However, underlying the need for these measures is the very difficult economic, financial, and market situation that management continues to confront,” Fitch said in a statement.

Mr. Garcia Padilla vowed that the island would not default on its debt. Puerto Rico cannot file for bankruptcy, and some market participants anticipate the federal government will have to come up with a financial rescue, something it has so far been reluctant to consider.

John Mack Calls for an End to ‘Beating Up’ on Wall St. C.E.O.’s

JPMorgan Chase touched off a round of criticism when it disclosed that it would give its chief executive, Jamie Dimon, a big raise for 2013, a year in which the bank paid billions to resolve legal problems. But another Wall Street titan came to Mr. Dimon’s defense on Tuesday.

In an interview on Bloomberg TV, John J. Mack, the former chairman and chief executive of Morgan Stanley, called for an end to the harsh words that have been hurled at Mr. Dimon and Lloyd C. Blankfein, Goldman Sachs’s chief executive, over their pay. (The remarks begin at 5:23.)

He said he would love to see people “stop beating up on Lloyd and Jamie.” He added: “I think that would make a lot of sense, and I’m in favor of that.”

He said a debate over compensation was necessary and “healthy,” but he emphasized that chief executives should be judged according to their companies’ performance.

“As long as shareholders reward performance â€" what these companies have delivered â€" we can argue is it $10 million too much or $1 million too much,” Mr. Mack said.

“The last time I checked,” he said, “this business is still a business that pays people extremely well.”

Brevan Howard Said to Shut Emerging Market Fund After Loss in 2013

Brevan Howard Asset Management, one of the world’s largest hedge funds, with more than $40 billion in assets under management, is closing down its emerging markets fund, according to a person briefed on the fund’s activities.

The $2 billion fund, founded in 2007, lost 15 percent last year as emerging markets like Brazil and Turkey were rattled by tightening United States monetary policy. The HFRI emerging market index returned 5.6 percent last year and emerging market hedge funds attracted $6.4 billion in new money, according to Hedge Fund Research.

As a result of the closure, Geraldine Sundstrom, the fund’s manager and a prominent investor in London, will leave Brevan Howard, said the person briefed on the fund.

The hedge fund declined to comment.

As Europe’s largest hedge fund, Brevan Howard is closely watched. Its flagship Master Fund started trading in 2003, and it has never incurred a loss.

But its 2013 returns were lackluster. Alan Howard, co-founder the firm, apologized to investors in his year-end letter, calling Brevan Howard’s 2.6 percent return “somewhat disappointing.” HFR indexes for global macro were down 0.22 percent and 0.75 percent for the same period. Though it is not an equity fund, its returns paled in comparison to almost 30 percent return of the Standard & Poor’s 500-stock index.

Interest rate trading, one of the firm’s main focuses, proved a tough slog with the federal government’s decision to pare its purchases of fixed-income assets, helping bring the year’s returns down significantly, the year-end letter said. The Master Fund had been up 13 percent through the end of May, according to The Wall Street Journal.

The firm’s reputation as a solid risk manager has made it a darling among pension funds and institutional investors. It has had blowout years, such as in 2008 when it returned 20.32 percent against the S.&P. 500’s 38.5 percent plunge. The $4.4 billion BH Credit Catalysts gained 13.9 percent last year and BH Asia, a $2.4 billion fund, posted an 11.6 percent return.

The firm has suffered from significant turnover in the past year, with traders departing from divisions including structured products and currencies. It has also had some prominent hires, including Gerhard Seebacher, who joined Brevan Howard in New York last month as co-head of global debt trading, after 18 years at Bank of America Merrill Lynch, and Vincent Craignou, the former global head of foreign exchange and metal derivatives at HSBC, who joined the company as senior trader. Two of the firm’s former partners, Klaus Oestergaard and James Vernon, have rejoined.

The firm disclosed in a filing that it paid the partners in its British unit as much as 60.4 million pounds, or $99 million, for the year through March, Bloomberg reported. The highest paid partner received £39.4 million, down from £78.9 million a year earlier. The British unit, which is based on the island of Jersey, earned £127 million in fees for its work managing the funds.

Alibaba’s Online Land Grab

Alibaba’s purchase of AutoNavi is a land grab, in two senses.

The Chinese e-commerce group has offered a premium price to buy the 72 percent of AutoNavi, a mapping company listed in the United States, it doesn’t already own, valuing the whole thing at $1.6 billion. There’s a compelling competitive reason for Alibaba to get deeper into online maps, but what’s hard to locate is the financial rationale.

One driver of the deal is keeping up with the Joneses. Baidu, China’s leading search engine and a rival of Alibaba’s, is also the country’s dominant online mapper - its map-apps account for 35 percent of total downloads, according to research by T. H. Capital. Tencent, the third member of China’s Internet oligopoly, is far behind, but its chatting app WeChat is rapidly branching into location-based services, posing a potential e-commerce threat.

Buying AutoNavi also plugs into the growing mania for O2O commerce - online-to-offline. The theory is that consumers will increasingly use smartphones to point them to nearby services and shops, or even preorder from restaurants online, all of which benefit from detailed mapping. In Alibaba’s case, there’s also an opportunity to weave in its fast-growing payment and financial service, Alipay.

What doesn’t appear on the plan is strong financial logic. It’s plausible that AutoNavi might be worth more with the backing of a cash-rich Internet giant. Competition is fierce, and AutoNavi’s revenue, which comes partly from making in-car navigation systems, is starting to decline.

But Alibaba is valuing AutoNavi at around five times forecast revenue for 2014 according to Eikon estimates - and a 39 percent premium to AutoNavi’s 10-day average trading price - for a business that analysts estimate will swing from a small operating profit to a $46 million loss this year. Expanding O2O services sounds exciting, but it’s not clear if it will translate into incremental advertising revenue.

China’s Internet continues to grow rapidly, but such concerns are remote. Alibaba is paying for AutoNavi in cash, and the additional $1.2 billion payment is small for a company that is likely to command a market capitalization of more than 100 times that if a long-awaited listing takes place in 2014. As long as grabbing market share is the priority, questions about return on investment can be easily buried.

Robyn Mak is a research assistant and John Foley is China Editor for Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.

Alibaba’s Online Land Grab

Alibaba’s purchase of AutoNavi is a land grab, in two senses.

The Chinese e-commerce group has offered a premium price to buy the 72 percent of AutoNavi, a mapping company listed in the United States, it doesn’t already own, valuing the whole thing at $1.6 billion. There’s a compelling competitive reason for Alibaba to get deeper into online maps, but what’s hard to locate is the financial rationale.

One driver of the deal is keeping up with the Joneses. Baidu, China’s leading search engine and a rival of Alibaba’s, is also the country’s dominant online mapper - its map-apps account for 35 percent of total downloads, according to research by T. H. Capital. Tencent, the third member of China’s Internet oligopoly, is far behind, but its chatting app WeChat is rapidly branching into location-based services, posing a potential e-commerce threat.

Buying AutoNavi also plugs into the growing mania for O2O commerce - online-to-offline. The theory is that consumers will increasingly use smartphones to point them to nearby services and shops, or even preorder from restaurants online, all of which benefit from detailed mapping. In Alibaba’s case, there’s also an opportunity to weave in its fast-growing payment and financial service, Alipay.

What doesn’t appear on the plan is strong financial logic. It’s plausible that AutoNavi might be worth more with the backing of a cash-rich Internet giant. Competition is fierce, and AutoNavi’s revenue, which comes partly from making in-car navigation systems, is starting to decline.

But Alibaba is valuing AutoNavi at around five times forecast revenue for 2014 according to Eikon estimates - and a 39 percent premium to AutoNavi’s 10-day average trading price - for a business that analysts estimate will swing from a small operating profit to a $46 million loss this year. Expanding O2O services sounds exciting, but it’s not clear if it will translate into incremental advertising revenue.

China’s Internet continues to grow rapidly, but such concerns are remote. Alibaba is paying for AutoNavi in cash, and the additional $1.2 billion payment is small for a company that is likely to command a market capitalization of more than 100 times that if a long-awaited listing takes place in 2014. As long as grabbing market share is the priority, questions about return on investment can be easily buried.

Robyn Mak is a research assistant and John Foley is China Editor for Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.

La Quinta’s I.P.O. Filing Continues Blackstone’s Selling Spree

With La Quinta Holdings moving toward an initial public offering, its parent, the Blackstone Group, has shown that it’s still an eager seller.

Private equity firms have been seizing on booming stock markets to cash out of their investments, particularly through I.P.O.’s.

Blackstone has been an active seller. Last year alone, the firm took public a half-dozen portfolio companies:

• Hilton Worldwde, the hotel giant
• SeaWorld Entertainment
• Merlin Entertainments, the owner of Madame Tussauds and the London Eye
• Extended Stay America, another hotel chain
• Pinnacle Foods, the owner of the Birds Eye frozen food brand
• Brixmor, a shopping center operator

On Blackstone’s earnings call with analysts two weeks ago, Stephen A. Schwarzman, the firm’s co-founder and chief executive, said that rising valuations have made buyers wary. But the private equity shop is betting that as markets stabilize, would-be acquirers will be more confident in striking deals.

Here’s more from Mr. Schwarzman’s comments, according to a transcript by Standard & Poor’s Capital IQ (Mr. Schwarzman refers to Hamilton E. James, Blackstone’s president, known as Tony):

We’ll be seeing more strategic exits, although, as Tony mentioned, when we often put companies up for sale, it’s called the dual track. And if the stock market looks better and the strategic buyers don’t show up, that’s fine. We can make plenty of money. So if you’re asking us to predict what’s going to happen, one, it’s a little hard to do. But on the margin, I think we both bet that there’ll be more of a pick-up in M&A activity, and it’ll provide us with options to sell businesses. But we’re … happy either way in that sense because if we take it public and we own the company, and the companies do really well and they continue to grow, we ultimately make a bunch of money for our investors that way, too. So it’s not that we have to go one way or another.

Indeed, Blackstone explored a sale of La Quinta last year, in what Mr. Schwarzman called a dual-track process. But it is betting that an I.P.O. will yield a bigger return.

According to the hotel chain’s prospectus, the company reported $673.4 million in revenue for the first nine months of 2013, up 6.8 percent from the prior year. Its adjusted earnings before interest, taxes, depreciation and amortization â€" which strips out a number of accounting charges â€" rose 6.7 percent during the same period, to $256.2 million.

La Quinta’s prospectus included a placeholder fundraising target of $100 million. It listed JPMorgan Chase and Morgan Stanley as lead underwriters.

A.B.A. Nominates New Jersey Lawyer as President

The American Bar Association, the 400,000-member group that establishes standards for law schools and formulates codes of conduct and ethics for lawyers, has nominated Paulette Brown as its president.

Ms. Brown, 62, is a partner specializing in labor and employment law and commercial litigation at Edwards Wildman Palmer in New Jersey. If her nomination is approved, she would be the first African-American woman to lead the association.

Ms. Brown has been a lawyer for 38 years and has been practicing at Edwards Wildman for eight years. Before that, she worked at the law firm Duane Morris. She practices in both federal and state courts and is a certified mediator for the United States District Court for the District of New Jersey. Earlier in her career, she was in-house counsel for several companies and a former municipal court judge in Plainfield, N.J. She earned her law degree at Seton Hall University School of Law and her bachelor’s degree at Howard University.

Her nomination goes to the association’s House of Delegates for approval in August. She will be presiding over an association whose membership is facing technological, economic and other challenges in the way they operate. Two recent independent surveys of large and regional law firms found that revenues were almost flat last year in contrast to 2012 as firms struggled to attract and retain business during a turbulent economy.

Also, the group is straining to deal with declining enrollments in the more than 200 law schools in the nation, which the association regulates. A recent association task force that studied the situation suggested abolishing tenure for faculty but had few concrete recommendations to make law schools more innovative and affordable.

Ms. Brown, who is the chief diversity officer at her firm, said in a phone interview that she wanted “to cast a wider net to bring more diversity in minorities, the disabled, L.G.B.T., people of color and even generational diversity” to the association.

Its membership ranks are growing, she said, but the association needs “to respect and include lawyers in all practice areas and types, from solo practitioners to members of our largest international law firms, as well as public servants and in-house counsel.”

After her election, she will succeed James R. Silkenat, a partner in the corporate practice of Sullivan & Worcester in New York.

One View of Merrill Lynch’s Fall

In late 2001, Winthrop H. Smith Jr., a senior Merrill Lynch executive and son of one of the firm’s founding partners, walked into the office of his just-appointed boss, E. Stanley O’Neal, ready to accept a new job he was being offered.

Mr. Smith had just been removed from his position as chairman of Merrill Lynch International and head of firm’s brokers outside the United States, and Mr. O’Neal was asking him to serve as a banker to the firm’s biggest clients globally.

It was a nice perch but a bit of a comedown compared with his last job. So before he said yes, Mr. Smith, who has long seen himself as a guardian of the firm’s cultural mores, asked Mr. O’Neal whether he would remain true to Merrill’s principles of teamwork, integrity and client focus.

“As soon as I asked the question, he launched into a diatribe about all that was wrong with ‘Mother Merrill’ and how we had to raise our standards and get rid of all the incompetent people who had been kept around. We’ve got to get rid of nepotism.”

As Mr. Smith would go on to explain in “Catching Lightning in a Bottle,” his self-published and deeply personal history of the rise and fall of Merrill Lynch, he would refuse the job, thus ending a 28-year career at the firm.

If Mr. O’Neal had held true to the principles that were put in place by Mr. Smith’s father and subsequent Merrill leaders, Mr. Smith argues, then the firm would never have become so exposed to the risky mortgages that forced it into a shotgun merger with Bank of America in 2008.

This is the framework that Mr. Smith uses to tell his story, and the flame of his anger for Mr. O’Neal holds true and steady from the beginning of the book to its end â€" a photo collage of all Merrill’s chief executives in which Mr. O’Neal, the first black man to lead a major Wall Street firm, stands starkly apart.

The anecdote is a delicious one, and there are many more in this quite readable book, the result perhaps when a Wall Street insider tells all. But what makes the story especially revealing is what it says about these two men â€" more or less equal in age but polar opposites in every other respect â€" and it highlights the divide between Merrill’s old guard and new that would lead to the end of its century-long run as an independent company.

By alienating Merrill’s leading culture carrier at a time when he was making radical changes throughout the company, Mr. O’Neal helped give voice to all those who opposed his reforms. As for Mr. Smith, who was not overseeing a large profit center at the bank at the time, the idea that he would administer a litmus test to the firm’s next chief executive seems fairly ambitious at best. (At the time of the encounter, Mr. O’Neal was president of Merrill. He would not become chief executive until 2003.)

To be sure, Mr. Smith is not the first person â€" inside the firm and out â€" to point a finger at Mr. O’Neal. Under his reign, thousands of executives, senior and junior, would lose their jobs, and Mr. O’Neal’s headlong plunge into subprime mortgages resulted in the steepest losses in the firm’s history.

Mr. Smith also criticizes Mr. O’Neal for cutting a deal with prosecutors over the firm’s dealings with Enron, a move that resulted in Merrill bankers going to jail on charges that were eventually dropped.

But Mr. Smith’s fervent belief that Merrill, under a different chieftain, would not have joined the race to emulate Goldman Sachs by jumping into all sorts of profitable but high-risk trading areas is open to question.

Indeed, even Mr. O’Neal’s defenders recognize that the mortgage bet was a disaster, although they point out that except for JPMorgan Chase and Goldman Sachs, pretty much every big firm on the street either died or had a near-death experience.

“It is clear that Merrill’s management along with the rest of industry called the mortgage market wrong, and no one has been tougher on themselves than Stan,” said Jason H. Wright, a top adviser to Mr. O’Neal at Merrill.

But Mr. Wright disputes the view that Mr. O’Neal’s move to change the culture of the firm by promoting a new vanguard of leaders resulted in the firm’s demise.

“To the extent that Mother Merrill emphasized a sense of community, Stan was for it,” he said. “But to the extent that emphasized a sense of paternalism and a club of insiders who ran the show â€" that, Stan felt, was in need of updating.”

The book should not be read as an objective history. In fact, the stories that Mr. Smith tells about the firm’s early days and the extraordinary insights and vision that the early partners had in bringing stocks and bonds to Main Street resonate all the more in light of his own familial ties.

But when it comes to Merrill’s implosion, the book could have benefited from some more perspective from those running the show at the time. Indeed, all the criticism of Mr. O’Neal â€" from excessive use of the company helicopter to excessive golf â€" becomes a bit repetitive after awhile.

Reached briefly by phone, Mr. O’Neal declined to comment. Indeed, outside of a single magazine article several years ago, has has said little. Nor does he seen to be doing much these days, outside of serving on the board of Alcoa.

But rumors still abound that he may tell his own story about how the grandson of an Alabama slave ascended one of Wall Street’s highest peaks only to tumble down from it shortly thereafter. If so, it would be a fitting companion to Mr. Smith’s work.

Charter Names Its 13 Nominees for Time Warner Cable Board

Charter Communications on Tuesday said that it would nominate a full slate of directors to the board of Time Warner Cable, the most aggressive move yet in a slow moving takeover battle affecting the cable television industry.

The 13 nominees proposed by Charter are not the biggest names in the American media industry. The list does include Lisa Gersh, former president of Martha Stewart Living Omnimedia; and Marwan Fawaz, a former executive vice president of Motorola Mobility.

However several of the nominees come from backgrounds in the European media business, while others come from careers in consulting and private equity.

Charter, backed by the billionaire John Malone’s Liberty Media, said Time Warner Cable shareholders supported a deal between the two companies, though it made no mention of price.

Charter proposed to acquire Time Warner Cable for $132.50 a share last month. Time Warner Cable then said it would only consider a deal at $160 a share.

“It is clear from our meetings with Time Warner Cable shareholders that there is an overwhelming desire to combine these two companies to increase Time Warner Cable’s competitiveness, grow market share and create shareholder value,” Tom Rutledge, Charter’s chief executive, said in a statement. “Now is the time for the current board and management of Time Warner Cable to respond to their shareholders and work with us to complete a merger to the benefit of shareholders while minimizing their execution and market risks.”

With Time Warner Cable’s annual meeting approaching in the coming months, shareholders will now have to decide if they want to force in a new board that would be more receptive to a deal with Charter.

Time Warner Cable maintains that Charter’s bid undervalues the cable operator.

“It is clear that Charter is nominating a slate of directors for the sole purpose of pressuring our board into accepting the same lowball offer that it previously considered and unanimously rejected,” Rob Marcus, Time Warner Cable’s chief executive, said in a statement. “Our Board remains focused on maximizing shareholder value. We are confident in our strategic plan, which was detailed publicly on January 30, and we are not going to let Charter steal the company.”

Charter is also proposing that Time Warner Cable shareholders amend the company’s bylaws to fix the number of directors at 13 â€" preventing the company from adding more directors if Charter’s nominees are elected - and to repeal any amendments to the bylaws that were adopted by the board without shareholder approval over the last year.

In previous remarks, Charter has indicated it may raise its bid. But for now, it seems content to take its case to shareholders and test their appetite for a deal.

Mallinckrodt to Buy San Diego Biopharmaceutical Firm for $1.3 Billion

LONDON - Mallinckrodt, an Irish specialty pharmaceutical company, said Tuesday that it had reached an agreement to acquire Cadence Pharmaceuticals for about $1.3 billion in cash.

The deal is expected to expand Mallinckrodt’s specialty pharmaceutical offerings and its product reach in hospitals.

Cadence, a San Diego biopharmaceutical company, focuses on products used in hospital, including Ofirmev, an intravenous painkiller and fever reducer. Cadence expects net revenue of $110.5 million for Ofirmev in the 2013 calendar year.

“The acquisition of Cadence Pharmaceuticals is consistent with our goal of becoming a leading global specialty pharmaceuticals company,” said Mark Trudeau, Mallinckrodt’s chief executive and president.

Mallinckrodt has agreed to pay $14 a share for the company as part of a tender offer, representing a 32 percent premium over Cadence’s 30-day volume weighted trading average price.

The deal is expected to close in mid- to late-March after the completion of the tender offer.

Mallinckrodt expects to finance the transaction through a senior secured term loan facility.

Deutsche Bank was the financial adviser to Mallinckrodt, while Lazard and Centerview Partners advised Cadence. The legal advisers were Wachtell, Lipton, Rosen & Katz and Arthur Cox for Mallinckrodt and Latham & Watkins for Cadence.

Examining AOL’s Apology

‘APOLOGY WATCH’: AOL EDITION  |  Last week, Andrew Ross Sorkin and Dov Seidman started “Apology Watch” on DealBook to track apologies and follow up on what companies, institutions and individuals have done post-apology. And then, almost on cue, a highly publicized case study arrived courtesy of Tim Armstrong, the chief executive of AOL, Mr. Sorkin writes in this week’s DealBook column.

Here’s the background: On an internal call last Thursday, Mr. Armstrong described changes to his company’s 401(k), which he said would help save the company money amid rising health care costs. Then, as an example of these costs, Mr. Armstrong said AOL paid “a million dollars each” to two employees who had “distressed babies.” The move has also raised fears about how much bosses know about workers’ personal lives. On Saturday, Mr. Armstrong apologized. “I made a mistake,” he wrote in an email to his staff.

Mr. Sorkin writes: “I’m inclined to believe the apology was authentic. It wasn’t just words but was backed up by action â€" the reversal of the 401(k) match plan, which will most likely cost real money.” He adds, “But on his most recent foot-in-mouth, perhaps the most important issue in evaluating his sincerity was that his apology wasn’t just the public one we read about. He called some of the affected families personally.“

BITCOIN’S LATEST WOES  |  Bitcoin has had some particularly tough challenges in the last week or so. On Monday, the world’s largest Bitcoin exchange, Mt. Gox, appeared near collapse, the result of a flaw in Bitcoin’s software, inciting a sell-off in virtual currency markets. But Mt. Gox’s stumble is only the latest in a string of troubles for the cryptocurrency, Nathaniel Popper writes in DealBook.

Last month, Charles Shrem, a founder of one of the most popular early Bitcoin websites, BitInstant, was arrested and accused of helping people make drug purchases with Bitcoin. And on Thursday, the Russian government announced that it would treat virtual currency transactions as illegal, the same day that officials in the United States charged two men in Florida with using Bitcoins to launder money. Given all this recent turmoil, it’s really no surprise that the virtual currency dropped significantly on Monday, trading at about $650 by evening, down from about $850 at the beginning of last week.

THE S.E.C. IS ON A LOSING STREAK  |  The Securities and Exchange Commission has been on the wrong end of a number of verdicts in recent fraud cases, including the high-profile case against Mark Cuban, the owner of the Dallas Mavericks. In some cases, the S.E.C.’s failures may have been the result of the agency pushing too far in trying to prove fraud. But “now that the agency has said it would be more aggressive in seeking admission of wrongdoing in some cases, the agency will face pressure to figure out how to avoid wasting its resources on losing efforts,” Peter J. Henning writes in the White Collar Watch column.

“Proving fraud is always difficult. And thanks to the oft-mentioned revolving door between the S.E.C. and private law firms, defense lawyers know almost all the tricks for fighting the agency,” Mr. Henning writes, adding, “The S.E.C. will have to strike the right balance in pursuing cases that are worth its effort.”

ON THE AGENDA  |  Janet L. Yellen, the chairwoman of the Federal Reserve, delivers her first testimony on the economy and monetary policy before the House Financial Services Committee at 10 a.m. Ms. Yellen’s prepared remarks will be released at 8:30 a.m. The Job Openings and Labor Turnover Survey (JOLTS) report is released at 10 a.m. Three regional Fed presidents take the podium â€" Charles I. Plosser, the president of the Philadelphia Fed, speaks at 9 a.m., Jeffrey M. Lacker, the president of the Richmond Fed, goes on at 8 p.m. at Stanford University and Richard W. Fisher, the president of the Dallas Fed, takes the mic at 8:10 p.m. Carl C. Icahn is on Fox Business Network at 6 p.m.

YELLEN’S BIG WEEK  |  Janet L. Yellen makes her first public remarks as chairwoman of the Federal Reserve this week. She goes in front of the House Financial Services Committee on Tuesday at 10 a.m. and the Senate Banking Committee on Thursday at 10:30 a.m. and is likely to face questions on tapering the Fed’s bond buying program, as well as the unemployment rate, which is currently at 6.5 percent, the threshold at which the Fed has said since December 2012 it would consider raising short-term interest rates.

“We’re hoping to hear Yellen strike a balance where she recognizes that the recovery is fragile, but not so much that the Fed changes its mind, which would be too premature of a signal to send,” Leo Grohowski, chief investment officer at BNY Mellon Wealth Management, told The New York Times.

Indeed, the question on everyone’s mind is whether recent disappointing economic data will persuade the Fed to slow down or suspend its unwinding of monetary support. “Those expecting Yellen to signal that recent weak economic data could lead the Fed to slow down â€" or even stop â€" its tapering of asset purchases are likely to be disappointed,” writes Politico’s Ben White in a CNBC column.

DON’T WORRY, YOU CAN STILL PLAY FLAPPY BIRD  |  For the price of a Porsche, or even an annual subscription to Capital New York’s daily product suite, Flappy Bird, the impossible mobile game, could still be yours. The game was pulled from mobile app stores on Sunday by its creator, but those willing to shell out thousands of dollars need not fret. As of Tuesday morning, a search for the game on eBay turned up thousands of results for phones with the game preinstalled, some with opening bids over $90,000.

WINTER’S TROUBLES RETURN  |  The winter weather headaches are back this week, with ice forecast for Atlanta and delays wreaking havoc on air travel.

Mergers & Acquisitions »

L’Oréal Says It Will Buy Back 8% of Its Shares From Nestlé  |  L’Oréal, the world’s largest maker of cosmetics, will pay about $8.2 billion to buy back 8 percent of its shares from Nestlé, the companies said Tuesday, The New York Times writes.
NEW YORK TIMES

Continental to Acquire Veyance for $1.9 Billion  |  Continental, a German car parts maker, announced on Monday that it would buy Veyance Technologies, a United States company that provides industrial hoses and belting, from the private equity firm Carlyle Group for $1.9 billion, Reuters reports.
REUTERS

Charter C.E.O. Is Pressing All the Right Buttons on Time Warner Cable  |  Thomas M. Rutledge’s company may propose a full slate of replacement directors and may have enlisted a powerful ally for a bid, says Jeffrey Goldfarb of Reuters Breakingviews.
DealBook »

Former Barclays Chief Looks to Africa  |  Robert E. Diamond Jr., the former chief executive of Barclays, said his investment firm, Atlas Mara Co-Nvest, is looking to acquire African financial services companies that can aid in the management of currency and commodity risks on the continent, Bloomberg News writes.
BLOOMBERG NEWS

Vodafone Bids for Ono  |  Vodafone has offered to purchase the Spanish cable operator Ono from its private equity owners for $9.5 billion, Reuters writes, citing unidentified people familiar with the situation.
REUTERS

INVESTMENT BANKING »

Barclays Announces Up to 12,000 Job Cuts  |  The British lender said it would cut up to 12,000 jobs over the course of 2014 as part of a continued restructuring. The bank posted a fourth-quarter loss of £514 million, or about $843.9 million.
DealBook »

An Investment in the Cellar, With a Nice Bouquet  |  The Bottled Asset Fund, led by an investment banker and a few friends, is part of a new generation of alternative investment vehicles, funds specifically intended for investing in high-end wines â€" not for imbibing but for profit, David Gelles writes in The New York Times.
NEW YORK TIMES

R.B.S. Names New Head of British Retail Bank  |  Les Matheson had been running the business on an interim basis since September and will serve as a member of the bank’s group executive committee.
DealBook »

Goldman Promotes Ashok Varadhan to Co-Head of Securities  |  Ashok Varadhan had most recently served as head of macro trading in the securities division. He will join the co-heads Isabelle Ealet and Pablo Salame in his new role.
DealBook »

Goldman Sachs Partners Exercise 2008 Options  |  Sixty-four Goldman Sachs partners exercised options awarded in 2008, yielding them $77 million in shares last month, Bloomberg News writes.
BLOOMBERG NEWS

UBS Suspends 2 Bankers in China Hiring Investigation  |  UBS has placed two bankers on leave as it investigates its hiring the daughter of the chairman of a Chinese chemicals company that is considering a share sale the bank has sought a role in.
DealBook »

European Banks Are Announcing Earnings Early  |  The Financial Time Lex blog’s Robert Armstrong and Joseph Cotterill discuss why European banks like Barclays and Deutsche Bank are releasing earnings ahead of schedule.
FINANCIAL TIMES

PRIVATE EQUITY »

K.K.R. to Close 2 Mutual Funds  |  The move is a setback for Kohlberg Kravis Roberts, which is trying to attract smaller investors.
DealBook »

Private Equity Deal Makers See Increased Competition  |  Low interest rates, generous bank financing and the fact that private equity is collectively sitting on about $1 trillion in capital have all contributed to a market in which prices can rise to dizzying heights, deal makers say.
DealBook »

New Heinz Owners Make Deep Cuts  |  When Warren E. Buffett’s Berkshire Hathaway and 3G Capital purchased H.J. Heinz last year for $23 billion, its workers were told to expect expansion. Instead, the company’s new owners intend to make significant cuts, The Wall Street Journal reports.
WALL STREET JOURNAL

Private Equity Firm Founder Indicted  |  Lawrence Penn III, the founder of the private equity firm Camelot Acquisitions, was accused by Manhattan prosecutors on Monday of stealing $9.3 million from investors and spending it on jewelry, a luxury car, credit card payments, luxury office space and rent, The New York Post writes. Prosecutors claim Mr. Penn was helped by his friend Michael Ewers, who was arrested on Sunday in San Francisco.
NEW YORK POST

Aeropostale Considers Tapping Private Equity  |  The teen clothing retailer Aeropostale is said to be exploring raising capital from private equity firms, among other options, Reuters reports, citing unidentified people familiar with the situation.
REUTERS

HEDGE FUNDS »

Icahn Ends Call for Apple Stock Buyback  |  The activist investor Carl C. Icahn backed away from his proposal that Apple increase its stock buybacks to $50 billion after running into increasing opposition.
DEALBOOK

As Investor Calls for a Sale, Helen of Troy Unveils a Big Stock Buyback  |  Helen of Troy said on Monday that it plans to buy back nearly 29 percent of its outstanding stock for $550 million. But it isn’t clear whether Sachem Head Capital Management, the hedge fund looking to shake up the consumer products maker, will find it enough.
DealBook »

World’s Most Successful Hedge Isn’t One  |  George Soros’s Quantum Endowment Fund was last year’s most successful hedge fund by dollar gains, but here’s the catch: Mr. Soros closed Quantum to outside investors at the end of 2011 to avoid regulatory scrutiny. The fund tops the list because it used to be a hedge fund, The Financial Times Alphaville writes, but there are other ways to determine the year’s top funds.
FINANCIAL TIMES ALPHAVILLE

I.P.O./OFFERINGS »

Chinese Companies Drawn to U.S. I.P.O. Market  |  Despite a clash over accounting practices between Washington and Beijing, Chinese companies are heading to the United States initial public offering market in their biggest numbers since 2010, Reuters reports.
REUTERS

Virgin America Said to Move Toward an I.P.O.  |  Virgin America, the upstart American airline cofounded by Richard Branson, has selected at least two underwriters in preparation for a potential initial public offering, The Financial Times reports.
FINANCIAL TIMES

Gilt Groupe Likely to Go Public This Year  |  Gilt Groupe, which has considered an initial public offering in the past, is expected to go public this year, likely in the third quarter, ReCode reports. Goldman Sachs will manage the offering.
RECODE

Chinese Pork Producer Enlists Banks for Help With I.P.O.  |  WH Group, the Chinese pork producer that acquired Smithfield Foods last year, has designated roles for 17 banks in its upcoming share sale, which aims to raise more than $6 billion, The Financial Times reports. The deal would be the biggest in Hong Kong since 2010.
FINANCIAL TIMES

VENTURE CAPITAL »

Tech Investor to Entrepreneurs: A Harvard Degree Is a Liability  |  Chamath Palihapitiya, the founder of a venture capital fund, told the elite entrepreneurs of Harvard Business School that they were at a disadvantage when it came to attracting capital.
DealBook »

Recent Acquisitions Bolster Britain’s Technology Start-Ups  |  Google’s purchase of the artificial intelligence company DeepMind last month for 400 million pounds followed by Zynga’s acquisition of NaturalMotion for $500 million has set Britain’s technology start-up industry abuzz, The Financial Times reports.
FINANCIAL TIMES

Shazam Expected to Raise $20 Million  |  Shazam, the music discover app, is close to raising $20 million in new funding at a $500 million valuation, ReCode reports, citing unidentified people familiar with the situation.
RECODE

London’s Venture Capital Scene on the Rise  |  Outside of the United States, London is now the largest source of venture capital funding, The Financial Times writes.
FINANCIAL TIMES

LEGAL/REGULATORY »

Justice Department Sued Over $13 Billion JPMorgan Pact  |  The nonprofit group Better Markets has argued that the Justice Department violated the constitutional principle of separation of powers when it struck a deal with the bank.
DealBook » | 

Court Rejects Apple Appeal in E-Book Case  |  Apple appealed the placement of a monitor to ensure compliance with federal antitrust laws.
DEALBOOK

Regulator Plans to Overhaul Wall Street Arbitration  |  The Financial Industry Regulatory Authority, the United States brokerage industry self-regulator, is expected to introduce a proposal that would prevent Wall Street veterans from acting as arbitrators in many legal disputes between investors and their brokerage firms, Reuters reports, citing an unidentified person familiar with the situation.
REUTERS