Banks Sued on Claims of Fixing Price of Gold

Frustrated traders and offbeat activists have complained for years in whispers and in online screeds that the price of gold has been subject to collusion. On Monday, these accusations of manipulation found a more august arena for expression: the federal courts.

At a 40-minute hearing, lawyers for more than 20 plaintiffs gathered in Federal District Court in Manhattan to coordinate their linked lawsuits against the five banks that make up what is known as the London gold fix. The suits, filed by hedge funds, private citizens and public investors like the Alaska Electrical Pension Fund, contend that the banks have used their privileged positions as market makers to rig the price of gold to their benefit.

The lawsuits â€" the first of which was filed in March â€" question the integrity of the gold fix, which dates to 1919, when a handful of bankers began to meet in the wood-paneled offices of N. M. Rothschild & Sons in London. The purpose of the fix is to set a benchmark price for gold, which is subsequently used by dealers, central banks and mining firms to buy and sell the precious metal and its various derivatives.

These days, the fix takes place by phone twice a day â€" at 10:30 a.m. London time and again at 3 p.m. â€" and generally lasts 10 minutes to an hour.

According to one of the suits, “The ‘great flaw’ of the gold fixing process is that the member banks trade on the information exchanged during the call to manipulate the price of gold and gold derivatives before publication of the gold fix to the wider market.”

Each of the banks â€" Barclays, Scotiabank, Deutsche Bank, HSBC and Société Générale â€" denied, or declined to comment, on the accusations of collusion, which â€" at least traditionally â€" have been dismissed as a conspiracy theory. Nonetheless, concerns that the gold fix may be rigged have escalated of late in part because of investigations into the setting of the London interbank offered rate, or Libor, and suspicions about manipulation of global foreign exchange rates.

“A lot of conspiracy theories have turned out to be conspiracy fact,” said Kevin Maher, a former gold trader from New York, who filed the first suit against the banks. (The case is Maher v. Bank of Nova Scotia, 14-cv-01459.) “We now know that Libor was manipulated and that a bad odor is coming out of the Forex market. So why not gold?”

Mr. Maher, who started trading gold in 1993, said he filed his suit reluctantly and only after he became convinced that official regulators were unwilling or unable to investigate the fix. “I didn’t feel like there was any oversight, either from the government or from self-regulating entities,” he said in an interview last month. “A lawsuit seemed to be the only means to rectify the problem.”

Over the last few weeks, so many plaintiffs have joined Mr. Maher with copycat complaints that a hearing was held to consolidate the cases and to appoint a lead lawyer. The fourth-floor courtroom was so full of lawyers that it took nearly 15 minutes for all of them to introduce themselves. “I want to do this in an organized way to figure out who’s who,” said Valerie E. Caproni, the presiding judge. “Not,” she added, “that I’ll remember.”

The lawsuits â€" and there are still more being filed â€" center on two main aspects of the gold fix: the fact that it is unregulated and that member banks can trade gold, and gold derivatives, during the call.

“The gold fix is by its very nature not transparent and therefore vulnerable to conspiratorial and manipulative behavior,” one of the suits maintains. The suit claims: “The lack of prohibition against trading during the calls allows defendants to gain an unfair trading advantage because pricing information exchanged during the calls provides them with insight into the immediate future direction of gold and gold derivative prices.”

As proof that collusion exists, the suits point to a handful of academic studies â€" some of them unpublished â€" that describe what one of the studies calls “significant spikes in trading volume during, but not after, the fixing period, when defendants are free to share information with each other and their clients.” Because the fix is private and not monitored, it enables its participants “to coordinate with their respective trading desks,” one suit said, and “to disseminate information” about the price of gold “while the process is occurring.”

The price-setting of gold has drawn some regulatory scrutiny, particularly in Britain and Germany.

The Financial Conduct Authority of Britain began looking at other benchmark rates, including for gold and silver, as part of its investigation into the rigging of Libor, a person briefed on the matter said.

The Federal Financial Supervisory Authority of Germany, or BaFin, has acknowledged that it is looking at the trading of precious metals as part of its inquiry into potential manipulation of the currency markets.

More than 20 traders have been suspended or fired as part of internal investigations into potential manipulation of currency markets. But no suspensions have emerged related to precious metals trading.

In the United States, the Commodity Futures Trading Commission routinely reviews the prices of commodities, but has not opened a formal investigation into gold, a person close to the agency said.

Deutsche Bank has announced that it will no longer participate in the fix as of May 13, though it still remains a defendant in the consolidated cases. Judge Caproni is considering whether to split the plaintiffs into two groups â€" one for those that trade physical gold and another for those that trade gold futures â€" but her decision will not come until at least the end of May.

Berkshire’s Radical Strategy: Trust

OMAHA â€" “By the standards of the rest of the world we overtrust. So far it has worked very well for us. Some would see it as weakness.”

That was Charlie Munger, vice chairman of Berkshire Hathaway and Warren Buffett’s best friend, speaking during the weekend at the company’s annual meeting, known as “Woodstock for Capitalists.”

Mr. Munger, 90, was ruminating on the state of corporate governance, offering a counternarrative to the distrustful culture of most businesses: Instead of filling your ranks with lawyers and compliance people, he argued, hire people that you actually trust and let them do their job.

Here’s a little-known fact: Berkshire Hathaway, the fifth-largest company in the United States with some $162.5 billion in revenue and 300,000 employees worldwide, has no general counsel that oversees the holding company’s dozens of units. There is no human resources department, either.

If that sounds like a corporate utopia, that’s probably because it is. To some people in this day and age â€" given the daily onslaught of headlines about scandal and fraud in corporate America â€" that also may sound almost like corporate negligence.

Mr. Munger’s thought experiment about trust is being studied at the Rock Center for Corporate Governance at Stanford University. A professor wrote a paper last month about his contention, examining its suitability to corporate structures.

As Pollyannaish as Mr. Munger may sound, his view has a profound counterintuitive truth to it: Behavioral scientists and psychologists have long contended that “trust” is, to some degree, one of the most powerful forces within organizations.

Mr. Munger and Mr. Buffett argue that with the right basic controls, finding trustworthy managers and giving them an enormous amount of leeway creates more value than if they are forced to constantly look over their shoulders at human resources departments and lawyers monitoring their every move.

It may seem irresponsibly idyllic, but Mr. Buffett, 83, has always followed a sometimes unusual â€" if not counterintuitive â€" approach. “We are very disciplined in some ways, and by ordinary business standards we’re sloppy in other ways,” he conceded.

And Mr. Munger and Mr. Buffett say they readily accept the risk of such a permeable system. “We will have a problem of some sort at some time,” Mr. Buffett said to his faithful audience. He added, “300,00 people are not all going to behave properly all the time.”

Mr. Munger also acknowledged that he knew that when there was a problem, shareholders and other critics would wag their fingers and question why there were not more controls.

But he added that he believed that trust in his managers, without the safety net of lawyers and compliance officers, outweighed whatever risk they might help mitigate. More to the point, the increasing reliance on peering over the shoulder does not appear to have stemmed bad behavior, judging by the steady stream of scandals.

“A lot of people think if you just had more process and more compliance â€" checks and double- checks and so forth â€" you could create a better result in the world. Well, Berkshire has had practically no process. We had hardly any internal auditing until they forced it on us. We just try to operate in a seamless web of deserved trust and be careful whom we trust,” Mr. Munger said at Westco Financial’s annual meeting in 2007, distilling his vision.

A widely circulated study by two professors at the University of Zurich supports Mr. Munger’s thesis: “Conventional wisdom suggests more monitoring and sanctioning of management. We argue that these efforts will create a governance structure for crooks,” wrote the professors, Margit Osterloh and Bruno S. Frey. “Instead of solving the problem, they make it worse. Selfish extrinsic motivation is reinforced.”

Of course, Berkshire is a special breed of company, almost a throwback to a bygone era. Its board and shareholders have given Mr. Buffett an enormous reservoir of trust. (Critics might say too much trust.) That trust is imbued in its culture. Many of the controls and processes that most companies have adopted simply don’t exist at Berkshire. (It is worth noting that many of Berkshire’s portfolio companies have their own general counsels and human resources departments.)

And so when Mr. Buffett was asked over the weekend how he felt about an accounting error at Bank of America that overstated its capital and forced it to suspend a stock buyback and a dividend increase, it wasn’t a surprise to hear him say, “That error that they made doesn’t bother me.” Many analysts and investors said the mistake raised questions about controls at the company, in which Mr. Buffett is a large investor. He said, “You do the best you can.”

Why was Mr. Buffett so blasé about the error? Well, he trusts the bank’s management. Others part ways with him on this.

So is Berkshire’s approach scalable? Yes and no.

“A trust-based system can be more efficient than a compliance-based system, but only if self-interested behavior among employees and executives is low,” David F. Larcker, a professor of accounting at Stanford, and Brian Tayan, a researcher at the university, wrote. “The risk is that the board makes an incorrect assessment of an executive’s ability and integrity and selects the wrong C.E.O.”

That puts a lot of emphasis on selecting the right people â€" and mistakes do get made.

But Mr. Munger doesn’t suggest that businesses trust people blindly. Some basic controls are needed.

In a lecture he gave at Stanford in the late 1990s, he said: “A very significant fraction of the people in the world will steal if (a) it’s very easy to do and (b) there’s practically no chance of being caught. And once they start stealing, the consistency principle â€" which is a big part of human psychology â€" will combine with operant conditioning to make stealing habitual.”

Not all industries may be equal when it comes to trust either. The financial industry, for example, has a long reputation for complexity and bad behavior. “You’re never going to have perfect behavior in a miasma of easy money,” Mr. Munger told the crowd over the weekend.

Berkshire has not been problem-free. Two years ago, Mr. Buffett fired one of his top managers, David Sokol, over trading in the stock of Lubrizol ahead of Berkshire buying the company. (The Securities and Exchange Commission investigated Mr. Sokol but closed the case without bringing charges.) Mr. Buffett was also stung when one of his portfolio companies, General Re, a reinsurance company, was accused of participating in sham transactions with American International Group. The company settled with the government for $92.2 million.

Mr. Munger, in a previous annual meeting, contended that the best way to hold managers accountable is to make them eat their own cooking. Mr. Munger pointed to the late Columbia University philosophy professor, Charles Frankel, who believed “that systems are responsible in proportion to the degree in which the people making the decisions are living with the results of those decisions.” Mr. Munger cited the Romans, “where, if you build a bridge, you stood under the arch when the scaffolding was removed.”

Almost six years after the financial crisis, there is still little supply of trust to go around. But by Mr. Munger’s thinking, maybe there should be.

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

A Truce at Sotheby’s After a Costly and Avoidable Battle

Really, Sotheby’s?

Did you really have to spend well over $10 million to fight off Daniel S. Loeb’s Third Point only to cave at the last minute to give Mr. Loeb almost everything he demanded?

Have we really learned nothing about how activism works these days?

For the past few years, Sotheby’s has done reasonably well, but it was also clearly lagging in some measures. Sotheby’s, founded in 1744, has only one real global competitor â€" Christie’s â€" and so seemed well placed to ride the boom in ultra-wealthy individuals. The number of people in this class â€" those with $30 million or more in investable assets â€" has reached a high, according to a presentation prepared by Third Point. They control more than $16 trillion in wealth, the firm said.

That’s a fair bit of cash, and you would think these people would be spending their excess billions on art, but Sotheby’s has not been able to lure these customers. Art sales at the auction house are relatively up in recent years but still below where they were in 2007.

Sotheby’s stock price is up about 70 percent since 2008, but revenue still hasn’t approached 2007 levels. Meanwhile, Sotheby’s expenses rose to $597 million in 2013, from a low of $395 million in 2009. More than $100 million of this added expense was because of increased employee costs, according to Bloomberg L.P. On top of this, the firm’s chief executive, William F. Ruprecht, was paid $6 million last year, a rather high figure for a company with a $3 billion market capitalization.

In a world where hedge fund activists are everywhere, it was only a matter of time before Sotheby’s would be on the defensive.

And in April 2013, Mr. Loeb and Third Point arrived. Third Point eventually took a 9.6 percent stake, while other hedge funds like Marcato Capital Management entered the picture. Mr. Loeb’s arguments for change at Sotheby’s varied over time, but they essentially boiled down to the complaint that Sotheby’s was spending too much and not seizing opportunities to expand its business.

What happened next was a year of dancing. Sotheby’s did what companies usually do in these situations: The art house announced some changes to corporate governance and some shareholder-friendly moves â€" in its case, a $450 million share buyback.

Mr. Loeb was not satisfied. Although he was twice offered a board seat, he turned it down. It is here that the competing narratives take place: Sotheby’s says it always wanted to compromise, but Mr. Loeb stated at the time that one seat was not enough to effect change.

Things became heated when Third Point nominated three directors and Sotheby’s responded by adopting a poison pill, limiting Mr. Loeb’s stake to less than 10 percent.

What happened next was more wasted money and time as the parties litigated the validity of the poison pill. Sotheby’s knew that it had the upper hand and Delaware law was on its side. But for Mr. Loeb, winning the litigation wasn’t as important as deposing the Sotheby’s directors in the hope that he could find some ammunition for his fight. In other words, Sotheby’s overreached with the poison pill and gave Mr. Loeb an opening to inflict damage.

Mr. Loeb came up a winner in the litigation tactic that Sotheby’s handed him. Mr. Loeb lost the case, but in the hearing before a court in Delaware, emails sent among the Sotheby’s directors came out with some damning stuff. Steven B. Dodge, the lead independent director, stated that the board “is too comfortable, too chummy and not doing its job” to another director. Another email stated that at least in part Mr. Loeb was “right on the merits.”

In truth, these words led to more public-relations problems than anything else and yet another lesson that people need to be careful about what they write in an email. The emails were perhaps the tipping point, but didn’t change the truth that Sotheby’s was most likely going to lose the election.

Sotheby’s two largest shareholders (and four of the top 10) were hedge funds, according to Capital IQ. Institutional Shareholder Services, the proxy advisory firm, came out in support of two of Mr. Loeb’s nominees. And institutional shareholders have a tendency to support dissidents when there are identifiable weaknesses in a company (although others would say they are just following the herd).

In these situations, the rule is to compromise and give the hedge funds the seats.

According to FactSet’s corporate governance database, SharkRepellent, there were a record 16 campaigns in the first two months of 2014 in which an activist was granted a board seat. Last year, 80 percent of activists were granted a seat before a proxy campaign was even completed. And 60 percent of proxy contests that went the distance were won by activists. According to SharkRepellent, even Carl C. Icahn has stated that he is “surprised” that he is being offered board seats so often to forestall a campaign.

This not only means that compromise is the preferred route, but it is becoming the case before a proxy contest gains traction.

Last week, Abercrombie & Fitch settled a board contest with Engaged Capital, an activist investor that held only 0.6 percent of the company. According to Capital IQ, Engaged was not even one of the top 25 holders of Abercrombie stock.

Faced with a challenge, the Abercrombie board recognized that it had let its chief, Michael Jeffries, treat the company as his playground. When the results failed to follow and an activist came in, the board rushed to reorganize. At Abercrombie, seven of 12 directors have left since January. The activist has placed four new directors, though Craig R. Stapleton, the chairman who presided over Abercrombie’s shortcomings, remains as a director for now.

As Abercrombie did with a less-threatening adversary, the Sotheby’s board could have spent its time more fruitfully just by seeing whether its directors would work. Instead, Sotheby’s handed Mr. Loeb a public victory, possibly by aggressively adopting the pill. Sotheby’s also knew those emails would come out and could have simply taken steps to avert the trial, even after adopting the pill.

So the question is, what happens next at Sotheby’s?

Mr. Loeb has elected his three directors, but two of the independent nominees that Sotheby’s named during the fight, Jessica Bibliowicz and Kevin C. Conroy, are being kept on as a face-saving move for Sotheby’s. This makes for an unwieldy 15-person board. Sotheby’s poison pill â€" which cost millions to litigate â€" will also be terminated, but Mr. Loeb is limited to a 15 percent stake in the company.

Sotheby’s will try to move forward, but the issue of credibility will remain with so many directors staying on.

Sotheby’s statements on Monday were about reconciliation. “We welcome our newest directors to the board,” said Mr. Ruprecht, the firm’s chief, adding that Sotheby’s “will benefit from five fresh voices and viewpoints.”

One still has to wonder whether the board can shake up the company’s performance, given the board’s inability to recognize what just happened. Faced with these dynamics, boards may not want to be so obstinate in the face of the obvious flaws.

A Central Banker of a Different Color

On Saturday afternoon in Louisville, Ky., a Central Banker was under scrutiny. Investors with deep pockets were watching his every move, weighing odds on how he would perform under pressure.

But this was not a surprise meeting of the world’s financial leaders. Central Banker was the No. 9 horse in the ninth race at Churchill Downs.

Before California Chrome pulled away from the field to win the 140th Kentucky Derby, the 4-year-old Central Banker held off a furious charge by Shakin It Up to win the $400,000 Churchill Downs Stakes, an undercard race for slightly older horses. The victory, at 10-to-1 odds, was Central Banker’s fourth in 12 starts and brought his earnings total to more than $500,000.

Born in 2010, Central Banker is owned by Klaravich Stables, which was started by Seth Klarman, who runs the Baupost Group, a Boston-based hedge fund with about $30 billion in assets under management, and William H. Lawrence, the chief executive of the alternative investment adviser Meridian Capital Partners.

Mr. Klarman, who is also a minority owner of the Boston Red Sox, and Mr. Lawrence often give names to their horses that invoke the financial markets. Recently, they have named horses High Inflation, Volatile Markets, Carried Interest and Derivativecontract. Financial Modeling, a 3-year-old, finished fourth on Sunday in a race at Belmont Park in New York.

Mr. Klarman declined to comment on how he chooses names for his horses. Mr. Lawrence could not be immediately reached for comment.

The Jockey Club, which maintains the registry for thoroughbred horses in the United States, Canada and Puerto Rico, has strict rules governing eligible names. According to its rulebook, a foal’s name must be submitted by Feb. 1 of its 2-year-old year. Names cannot consist of more than 18 letters nor be made up entirely of numbers (numbers above 30 may be used if they are spelled out). Names cannot be in poor taste nor have clearly commercial, artistic or creative significance.

Central Banker’s name may have raised eyebrows on Saturday, but it is far from the first racehorse whose name has suggested financial ties. Spend a Buck won the Kentucky Derby in 1985. According to the website Horse Racing Nation, other racehorses have had names like Credit Swap, Street Trader and Sorry No Refunds.

Less Air in Latest Internet Bubble

The latest mini-me Internet bubble is a mere shadow of the excesses that came crashing to an end in 2000. Sure, even though the run-up may have paused, the feverish signs are unmistakable. Dozens of companies are in line to go public, hubris is rampant, oddball valuation metrics abound, and revenue-free start-ups are still worth fortunes. Even nerd culture has somehow become hip. The latest boom is as absurd as the last, but it’s far smaller.

This year’s first quarter saw 64 companies go to market in the United States. That’s on track to beat the frenetic pace last year, when 222 companies raised $55 billion in initial public offerings, according to Renaissance Capital. Both those numbers were the highest since 2000.

For some, selling out to existing giants is as attractive or more so than going public. Facebook just seized messaging service WhatsApp and virtual reality startup Oculus VR for $16 billion and $2 billion, respectively. The social network didn’t even really try to justify the price tags in financial terms. And it doesn’t have to, not just because investors are inclined to believe in founder Mark Zuckerberg’s vision but because he has complete control thanks to super-voting stock.

A focus on tech prophecy, rather than profits, seems to have infected those living outside Silicon Valley too. Investors, underwriters and tech gurus are speaking in a specialized dialect of belief, peppered with ideas and phrases like MGABPPU, Hyperloop, AI singularity and super unicorns.

It’s an appealing world. The proportion of Harvard Business School graduates going into technology more than doubled over the past five years to 18 percent. There’s ready funding for their dreams. Venture capital financing in the first quarter totaled $15.6 billion globally - the highest figure since 2008, according to Preqin.

There’s an international flavor, too. Silicon Valley has always attracted ambitious engineers from around the globe. Many have returned home, fertilizing local tech clusters. A Russian venture capital firm, Digital Sky Technologies, is a big backer of private U.S. tech firms. Swedish game companies with headquarters in London go public in New York. And Alibaba - just one exemplar of the China’s own internet boom - has chosen the relatively flexible corporate governance of the United States for its expected $100 billion-plus I.P.O.

Yet for all the hype, this bubble pales beside its predecessor 14 years ago. The tech-heavy Nasdaq 100 Index may have reached levels last seen in 1999, but adjusted for inflation and the recent high in March was still about 40 percent below its 2000 peak. In contrast, the Russell 2000 index of small-capitalization companies, adjusted for inflation, is 40 percent higher now than when the Nasdaq last topped out. Tech valuations may be surging, but the sector is not even close to recovering the heft lost following the last dot-com implosion.

Six of the 10 biggest companies in the S.&P, 500 Index were technology firms then, versus three now. In 1999, Microsoft traded at about 80 times historic earnings and Cisco Systems at around 180 times. Today’s giants Apple and Google are valued at a relatively sober 13 and 26 times earnings, respectively. They aren’t outliers: the Nasdaq overall trades at about 20 times earnings.

One big difference is that there were actually two bubbles in the late 1990s.

The dot-com froth attracted more attention, but it was a sideshow to the far bigger telecommunications bubble. Companies like WorldCom and GlobalCrossing went on an investment rampage, crisscrossing America with dark fiber and spending $100 billion on spectrum auctions in Europe. Companies in the sector borrowed about $2 trillion dollars globally in the five years ending in 2001 according to Thomson Reuters data.

Companies selling the gear needed for all the expected connectivity cashed in. Combined, Cisco, Juniper Networks, Lucent Technologies, JDS Uniphase and Nortel Networks were worth more than $1 trillion at the height of the boom. Once debt-laden reality intruded, the top five equipment makers lost 90 percent of their market value in fifteen months.

Fast forward to the present day, and of course valuations could crack. With start-ups valued on revenue multiples or website visitors, it’s safe to assume some of them won’t stand the test of time. But the hottest sectors of the market, like social networking, software as a service and companies led by entrepreneur Elon Musk are relatively small. Cisco’s market capitalization in 2000 was greater than the combined value today of Amazon, Facebook, Twitter, LinkedIn, Salesforce, Workday, Splunk, ServiceNow, NetSuite, Tesla and SolarCity.

Moreover, this round isn’t centered on expensive internet infrastructure. It’s about making use of data. That’s a far cheaper exercise, and giants like Google and Facebook have balance sheets chock full of cash, not overflowing with debt. Not only is the scale smaller, but there’s no danger of a leverage hangover. A breather in the tech stock surge might or might not herald a broader downturn. Even if it does, this time it won’t be the tech sector that causes serious damage.

Robert Cyran is a columnist for Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com. And Breakingviews’ new e-book, “Tech Mania 2.014,” can be downloaded here.

Deutsche Bank Hires Consumer M.&A. Adviser

Deutsche Bank announced Monday that it had hired Jeff Rose as a managing director of its global consumer and retail mergers and acquisitions group, and the new head of its consumer and retail investment banking coverage in the Americas.

Mr. Rose leaves behind his position as a managing director in the M.&A. group focused on consumer and retail at Bank of America Merrill Lynch, where he had worked since 1997.

“The consumer and retail sector is a key area of focus,” Paul Stefanick, who runs Deutsche bank’s global investment banking coverage and advisory, said in a statement announcing the hire. “Adding a seasoned banker like Jeff, who has a proven track record and vast experience, underscores our commitment to providing our clients in this important sector with the most comprehensive global coverage.”

Mr. Rose served in an advisory position on a number of high-profile transactions during his tie with Bank of America, including the $23 billion sale of Heinz to Berkshire Hathaway and 3G Capital last year. Mr. Rose also advised on ConAgra Food’s $5 billion purchase of Ralcorp in 2012.

With $130 billion in deals, Deutsche ranks ninth for its advisory work on mergers and acquisitions activity this year, behind Goldman Sachs, Morgan Stanley and Bank of America Merrill Lynch, according to the latest data from Thomson Reuters.

Mr. Rose, who will be based out of New York, will report to Deutsche’s co-heads of consumer and retail investment banking coverage, Keith Wargo and Scott Bell, and the co-heads of M.&A. Americas, James Ratigan and Anthony Whittemore.

Financial Data Company Markit Files for I.P.O.

Markit, a financial data company, has been a behind-the-scenes player on Wall Street since its founding roughly a decade ago. Now, it is preparing to make its public market debut.

The company, which is based in London, filed paperwork on Monday for an initial public offering in the United States. It said it would aim to raise up to $750 million in the I.P.O., though that number may change.

An offering would represent a major step in the rapid growth of Markit, which opened its doors in 2003. The company reported $947.9 million in revenue for 2013, 10 percent higher than the previous year. It is also profitable, recording earnings of $139.4 million last year.

The company is backed by some of Wall Street’s biggest names. Goldman Sachs, JPMorgan Chase, Deutsche Bank and Bank of America are all shareholders, according to the prospectus. The size of their stakes was not disclosed.

Markit’s largest business is in providing financial information, comprising almost half of the company’s revenue, the prospectus said. The company competes with the likes of Thomson Reuters and Bloomberg L.P.

Its investors also include the private equity firm General Atlantic, which bought a stake in 2010. Singapore’s sovereign wealth fund, known as Temasek, invested in Markit last year, valuing the company at around $5 billion, according to news reports at the time.

But Markit also helps financial firms with back-office tasks, providing software and trade processing services. According to an article in The Economist last year, Markit employees refer to themselves as “plumbers in suits.”

The company says it has more than 3,000 institutional customers, including banks, hedge funds and central banks.

Because its revenue is less than $1 billion, Markit qualifies as an “emerging growth company” under the JOBS Act, allowing it to skip certain reporting requirements, the company said.

The underwriters of the offering include Bank of America Merrill Lynch, Barclays, Citigroup and Credit Suisse.

Ackman Urges Allergan Board to Begin Deal Talks With Valeant

Two weeks after unveiling an audacious partnership with Valeant Pharmaceuticals to take over the maker of Botox, the hedge fund billionaire William A. Ackman is getting to work.

Mr. Ackman sent a letter to the board of Allergan on Monday, urging the company to begin acquisition talks with Valeant. And he warned Allergan not to try other alternatives, including a deal with another drug maker, if they don’t generate as much value for shareholders.

Mr. Ackman’s move is the most significant since he unveiled a 9.7 percent stake in Allergan in late April.

“As Allergan’s largest shareholder, we are supportive of Allergan making the best possible deal with Valeant or identifying a superior transaction with another company,” he wrote in his letter. “Given the short list of potential acquirers and Valeant’s willingness to negotiate quickly, we believe Allergan can explore its strategic alternatives and determine a course of action within a matter of weeks.”

Mr. Ackman argued that at the moment, Allergan is in a good position to negotiate with Valeant because it can try to fetch potentially higher offers from other drug companies. But he cautioned that the list of potential buyers â€" those willing to pay an appropriate price and able to avoid antitrust risk â€" was relatively small.

“Unless Allergan were to identify such a transaction in the very near future, the odds of such a deal are likely to decrease over time, and the market and Valeant will likely learn of the lack of interest from alternative companies,” the activist investor wrote.

“Valeant management has publicly acknowledged it understands this dynamic and has even suggested it would consider reducing its offer if Allergan does not engage and no alternative suitor emerges.”

Mr. Ackman also addressed rumors that Allergan was considering buying a drug maker based in another country and then moving its legal domicile overseas in what is known as an “inversion.” He wrote that he considered such a move less likely to create more value than Valeant’s takeover proposal.

Shares in Allergan were down 0.5 percent in afternoon trading on Monday, at $169.02.

Seeking Guilty Pleas From Corporations While Limiting the Fallout

When it comes to bringing criminal charges against corporations, prosecutors have been gun-shy, fearing the dreaded “Arthur Andersen effect.”

The effect, named for the accounting firm that went out of business in 2002 after its conviction for obstruction of justice, has prosecutors concerned that demanding a guilty plea from a large company could cause it to be dissolved, leading to job losses and disruption in the market.

Now that the Justice Department is said to be poised to bring criminal charges against two international banks, the issue is back in the spotlight.

DealBook has reported that the two banks, BNP Paribas and Credit Suisse, are the focus of the latest effort by federal prosecutors to show that the mantra of “too big to jail” no longer applies to Wall Street.

When you look past the headline, however, the crucial issue for prosecutors is not whether the banks engaged in criminal conduct - that almost seems to be a given. Rather, the government seems to be looking for a way to limit the fallout from a conviction while still achieving an admission of guilt.

For individuals, any criminal conviction comes with collateral consequences - among them the cost of paying a lawyer, the potential loss of a job and the stigma that attends being labeled a criminal. Those convicted often have to live with that fallout. As Sammy Davis Jr. intoned in theme song of the otherwise forgettable 1970s cop show “Baretta”: “Don’t do the crime if you can’t do the time.”

Corporate crime has usually elicited a different response. A company can be convicted based on the conduct of a single employee, so otherwise innocent staff members, along with customers and stakeholders, could be harmed by a conviction. Arthur Andersen had 85,000 employees and thousands of clients worldwide. They were all affected by the misconduct of a few employees and partners in the Houston office who destroyed documents related to Arthur Andersen’s audit work for the Enron Corporation.

The Supreme Court ultimately held that the trial judge’s instructions to the jury failed to require the necessary proof that Arthur Andersen knew its actions were wrong. It is important to note that the court’s decision did not find that Arthur Andersen was not guilty of any misconduct.

Preet Bharara, the United States attorney in Manhattan, signaled a different approach in a speech in March when he said that “after Arthur Andersen, the pendulum has swung too far and needs to swing back a bit.” He rejected the notion that some banks were “too big to jail,” so “you can expect that before too long a significant financial institution will be charged with a felony or be made to plead guilty to a felony, where the conduct warrants it.”

Since the demise of Arthur Andersen, prosecutors have used deferred-prosecution agreements, like the one JPMorgan Chase entered into over its failure to detect Bernard L. Madoff’s huge Ponzi scheme. Although companies admit to misconduct, there is no criminal conviction entered against them, allowing them to avoid most of the consequences of a finding of guilt.

Even with a more aggressive stance requiring a guilty plea, the Justice Department appears to be trying to minimize the collateral consequences of a conviction. As DealBook has reported, prosecutors have met with federal and state regulators to gauge whether they would revoke licenses that allow BNP Paribas and Credit Suisse to operate in the United States if the parent companies enter guilty pleas.

The problem is that not every possible effect of a conviction can be assessed in advance, so pushing for a guilty plea from the two banks necessarily entails hazards that could cause the banks substantial - albeit unintended - damage.

BNP Paribas, for example, owns Bank of the West and First Hawaiian Bank, which have branches in 20 states and over $75 billion in deposits from four million customers. A criminal conviction of the parent company could affect whether some depositors, including local governments and pension funds, might have to stop doing business with BNP as a result of local laws or investment guidelines that restrict dealings with firms convicted of a crime. And regulators in states where the subsidiary banks have branches may not view a conviction favorably, perhaps putting licenses at risk.

Resistance may also be building at the regulatory agencies to limiting the collateral consequences of a conviction. Kara M. Stein, one of five commissioners at the Securities and Exchange Commission, dissented from a decision to overturn the automatic exclusion of Royal Bank of Scotland from the agency’s “well-known seasoned issuer” program that makes it easier and less costly for established companies to issue securities. A foreign subsidiary of R.B.S. pleaded guilty to charges arising from manipulation of the London interbank offered rate, or Libor, which triggered the exclusion.

Ms. Stein pointed out that the S.E.C. had granted 30 exemptions from the automatic exclusion since 2010, with some firms receiving several waivers in that period. She warned that it appeared the agency “may have enshrined a new policy - that some firms are just too big to bar.”

The Justice Department is currently examining two foreign banks, so the effect of a criminal conviction would not be as great in the United States as in their home countries. It is not clear whether prosecutors would be willing to take the same hard line with a giant American bank that has thousands of employees and customers across the United States. Those banks might well be “too big to jail” because the domestic consequences of a conviction could be so great.

There is also the question of how much weight to give the possible consequences when deciding whether to charge a bank with a crime. Attorney General Eric H. Holder Jr. was criticized for his statement last year at a congressional hearing that “I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them.”

The Justice Department cannot, and should not, ignore the effects of a decision to pursue charges, whether the case involves an individual or a corporation. Yet there is the nagging feeling that prosecutors are trying to have it both ways in deciding whether to file charges against banks by taking steps to ensure they do not cause too much collateral damage.

In the end, the issue is whether the misconduct is serious enough to warrant criminal prosecution, and, if so, then perhaps the government should let the chips fall where they may.

France Says It Opposes G.E.’s Bit for Alstom Unit

PARIS â€" The French government said Monday that it would oppose General Electric’s friendly $13.5 billion offer for a large portion of Alstom, the country’s largest industrial conglomerate, saying the deal should be reconfigured on a more equitable footing.

Alstom announced last week that its board had unanimously endorsed General Electric’s offer for its power generation and transmission businesses, but the government, concerned about having a national industrial champion disappear into the vastness of the American colossus, has balked.

‘‘While it is natural that G.E. would be interested in Alstom’s energy business,’’ France’s economy minister, Arnaud Montebourg, said in a letter to Jeffrey R. Immelt, the G.E. chairman and chief executive, ‘‘the government would like to examine with you the means of achieving a balanced partnership, rejecting a pure and simple acquisition, which would lead to Alstom’s disappearing and being broken up.’’

The government’s legal means for stopping a deal would appear to be limited, though it could refuse to approve such an investment on national security grounds. While the government does not hold Alstom shares, the company is considered important enough to have received a 2.2 billion-euro bailout in 2005. And Mr. Montebourg noted in the letter Monday that the government was Alstom’s most important customer.

Alstom’s energy units, which make turbines for nuclear, coal and gas power plants, as well as the grid infrastructure to deliver electricity, contribute about three-quarters of its 20 billion euros, or about $30 billion, in the company’s annual sales.

The letter, sent by Mr. Montebourg on behalf of President François Hollande and obtained by The New York Times, continued: ‘‘As it stands, we unfortunately cannot support the proposals you have made,’’ adding, ‘‘based solely on the acquisition of Alstom’s activities in the energy domain.’’

In the letter, Mr. Montebourg reiterated Alstom’s importance to the country’s nuclear industry, saying it justified a close examination of any foreign investments, as ‘‘France must maintain its technological sovereignty.’’

The company has been suffering from sagging demand for big energy projects in Europe and from competition from fast-growing Asian rivals, including in the nuclear industry, where interest has faltered since the Fukushima disaster.

G.E.’s plan would leave Alstom with only its transportation business, which makes TGV trains and other rail equipment and infrastructure.

Mr. Montebourg, who was surprised to learn of the advanced Alstom-G.E. negotiations by a news report less than two weeks ago, has suggested that Siemens, the giant German conglomerate, would make a better partner for Alstom.

Siemens, which fears the invasion of its European turf by G.E., said last week that it planned to make a bid, the broad outlines of which would be a transfer of Siemens’s transportation business to Alstom in exchange for the energy businesses sought by G.E.

Mr. Montebourg, in the letter Monday, expressed concern about the ‘‘separation and isolation’’ of the transport business, calling on General Electric to transfer its own transport businesses, including its freight train and signaling business, valued at $3.9 billion, ‘‘to assure a certain global future’’ for Alstom.

A G.E. spokesman said he did not know about the letter and could not immediately comment. Alstom did not immediately respond to a request for comment.

Patrick Kron, Alstom’s chairman and chief executive, has said that Alstom would consider both offers.

Mr. Montebourg also called on Mr. Immelt to lay out G.E.’s commitment to maintaining and creating jobs in France, and that they ‘‘are not ephemeral.’’

I.S.S. Supports Dissident Slate for GrafTech Board

Nathan Milikowsky, a former board member of the steel company GrafTech, has won support from Institutional Shareholder Services, a leading proxy advisory firm, in his effort to regain influence on the board.

I.S.S. said shareholders should vote for Mr. Milikowsky and his two other nominees at GrafTech’s annual meeting on May 15, dismissing the company’s assertion that Mr. Milikowsky was unfit for service.

Mr. Milikowsky, the largest individual shareholder of GrafTech, was ousted from the board after management accused him of leaking material nonpublic information to a hedge fund. That touched off a convoluted war of words that is now coming to a head.

I.S.S. said the current GrafTech board and management had underperformed.

“There is evidence that poor execution and poor operating performance has extracted a huge economic toll on shareholders,” I.S.S. said in its recommendation. “GrafTech has meaningfully underperformed its peers in both the near and longer terms. The relative underperformance has been persistent and most striking beginning in 2008 and sharpening in 2011.”

What is more, I.S.S. said the current board needed to be refreshed.

“The targeted directors have been on the board for extended periods, and as such may bear some responsibility for the company’s history of poor operating and share price performance,” I.S.S. said. “Additionally, it does appear that the board’s recent corporate governance changes â€" in particular, its willingness to refresh the skills, experience, and average tenure of directors and to separate the roles of the C.E.O./chairman â€" are reactive rather than heartfelt and largely driven by the involvement of the dissident. In aggregate, there is compelling reason for shareholders to support significant change at the board level.”

I.S.S. did not directly weigh in on whether Mr. Milikowsky leaked material nonpublic information to a hedge fund, thus violating his duties as a director, as GrafTech contends. But it said at this point the company needed his expertise, especially because, as the largest shareholder, he was still motivated to increase the company’s value.

“Weighed against the significant strengths even the board concedes Milikowsky would bring as a director of this troubled company, the flimsy support” for GrafTech’s accusations offered to shareholders “seems particularly inadequate to the board’s conclusions,” I.S.S. said. “Certainly, as the company’s largest shareholder, Milikowsky’s interest in the success of the company appears well aligned with shareholders.”

GrafTech issued a strong statement of disagreement on Monday.

“I.S.S.’s conclusion not to recommend the election of GrafTech’s seven highly qualified and experienced director nominees demonstrates a complete disregard for both the results of an independent investigation and for its own standards of ethical conduct and corporate governance,” GrafTech said in its statement. “Moreover, it is clear that I.S.S. does not fully grasp the long-term negative impact that the Milikowsky Group’s market-share focused commodity pricing strategy would have on GrafTech’s margins and how severely it could erode stockholder value.”

Glass Lewis, another proxy advisory firm, earlier declined to support Mr. Milikowsky’s slate. But headed into next week’s meeting, the I.S.S. recommendation could be a pivotal moment in one of the few remaining proxy fights roiling corporate America this year.

“We are gratified that an objective and well-respected proxy advisory firm has carefully reviewed this contest and recommends that GrafTech shareholders elect all three of our nominees to GrafTech’s seven-member Board,” Mr. Milikowsky said in a statement. “We are prepared to work collaboratively with our fellow directors to drive shareholder value and address the acute problems that have led to the company’s severe and prolonged underperformance.”

I.S.S. Supports Dissident Slate for GrafTech Board

Nathan Milikowsky, a former board member of the steel company GrafTech, has won support from Institutional Shareholder Services, a leading proxy advisory firm, in his effort to regain influence on the board.

I.S.S. said shareholders should vote for Mr. Milikowsky and his two other nominees at GrafTech’s annual meeting on May 15, dismissing the company’s assertion that Mr. Milikowsky was unfit for service.

Mr. Milikowsky, the largest individual shareholder of GrafTech, was ousted from the board after management accused him of leaking material nonpublic information to a hedge fund. That touched off a convoluted war of words that is now coming to a head.

I.S.S. said the current GrafTech board and management had underperformed.

“There is evidence that poor execution and poor operating performance has extracted a huge economic toll on shareholders,” I.S.S. said in its recommendation. “GrafTech has meaningfully underperformed its peers in both the near and longer terms. The relative underperformance has been persistent and most striking beginning in 2008 and sharpening in 2011.”

What is more, I.S.S. said the current board needed to be refreshed.

“The targeted directors have been on the board for extended periods, and as such may bear some responsibility for the company’s history of poor operating and share price performance,” I.S.S. said. “Additionally, it does appear that the board’s recent corporate governance changes â€" in particular, its willingness to refresh the skills, experience, and average tenure of directors and to separate the roles of the C.E.O./chairman â€" are reactive rather than heartfelt and largely driven by the involvement of the dissident. In aggregate, there is compelling reason for shareholders to support significant change at the board level.”

I.S.S. did not directly weigh in on whether Mr. Milikowsky leaked material nonpublic information to a hedge fund, thus violating his duties as a director, as GrafTech contends. But it said at this point the company needed his expertise, especially because, as the largest shareholder, he was still motivated to increase the company’s value.

“Weighed against the significant strengths even the board concedes Milikowsky would bring as a director of this troubled company, the flimsy support” for GrafTech’s accusations offered to shareholders “seems particularly inadequate to the board’s conclusions,” I.S.S. said. “Certainly, as the company’s largest shareholder, Milikowsky’s interest in the success of the company appears well aligned with shareholders.”

GrafTech issued a strong statement of disagreement on Monday.

“I.S.S.’s conclusion not to recommend the election of GrafTech’s seven highly qualified and experienced director nominees demonstrates a complete disregard for both the results of an independent investigation and for its own standards of ethical conduct and corporate governance,” GrafTech said in its statement. “Moreover, it is clear that I.S.S. does not fully grasp the long-term negative impact that the Milikowsky Group’s market-share focused commodity pricing strategy would have on GrafTech’s margins and how severely it could erode stockholder value.”

Glass Lewis, another proxy advisory firm, earlier declined to support Mr. Milikowsky’s slate. But headed into next week’s meeting, the I.S.S. recommendation could be a pivotal moment in one of the few remaining proxy fights roiling corporate America this year.

“We are gratified that an objective and well-respected proxy advisory firm has carefully reviewed this contest and recommends that GrafTech shareholders elect all three of our nominees to GrafTech’s seven-member Board,” Mr. Milikowsky said in a statement. “We are prepared to work collaboratively with our fellow directors to drive shareholder value and address the acute problems that have led to the company’s severe and prolonged underperformance.”

Live Blog: Investors Gather for Sohn Conference

The Ira Sohn Investment Conference brings together prominent hedge fund managers to share their investment ideas in a venue that helps raise funds for a charity that focuses on the treatment of pediatric cancers. In past years, some of the investor presentations have moved markets, including the jarring critique of Lehman Brothers that David Einhorn of Greenlight Capital promoted at the 2008 conference. Often times, the investment cases don’t succeed. Some of the speeches are leaden, numbers-heavy treatises, while others are merely a chance for certain investors complain about all that is wrong in the world.

Monday’s conference includes Mr. Einhorn, William A. Ackman of Pershing Square, Jeffrey Gundlach of DoubleLine and Paul Tudor Jones, one of the first people to make a fortune as a hedge fund manager. DealBook’s Peter Eavis and Alexandra are reporting from the conference. DealBook is covering the Sohn conference live.

12:55 P.M. Time Constraints

Conference organizers, trying to strictly enforce the time limits, play the “Jaws” score over Mr. Shumway’s presentation to force him off the stage as he was finishing up a bullish case for Moody’s, the ratings company.

â€" Peter Eavis

12:53 P>M. The ‘Hammered Index’

Chris Shumway of Shumway Capital presents the “Hammered Index” made up of the worst-performing stocks so far this year, including growth companies like Amazon. They had high valuations that the market was going to find it hard to support once doubts crept in. The biggest concern is China, Mr. Shumway said.
The issue in China is simple: Credit growth is not sustainable. He recommends shorting the Chinese yuan through a financial instrument called forwards.

Mr. Shumway’s thesis is that a cheaper currency is a way for the Chinese government to bolster growth without creating more problems in the banking sector.

â€" Peter Eavis

Sotheby’s and Loeb End Fight Over Board

Sotheby’s said on Monday that it had ended its fight with the hedge fund mogul Daniel S. Loeb, agreeing to add his three director nominees to its board.

The last-minute settlement - reached a day before investors were scheduled to vote on the board - represents a clear win for Mr. Loeb, the veteran activist investor who has waged a monthslong fight against Sotheby’s in a bid to shake up the 270-year-old auction house.

The fight had become one of the biggest and most intense battles between a company and an activist this year, with each side hurling insults at the other.

Under the terms of their agreement, Sotheby’s will expand its board by three, to 15, to take on the activist’s full slate of nominees: Mr. Loeb himself, the restructuring expert Harry Wilson and the former investment banker Olivier Reza.

And Mr. Loeb’s firm, Third Point, will be allowed to raise its stake to 15 percent from its current level of 10 percent. The hedge fund had sued Sotheby’s in Delaware’s Court of Chancery, arguing that a “poison pill” defense plan that limited him to a 10 percent stake while letting mutual funds acquire up to a 20 percent stake was unfair.

Late on Friday, the vice chancellor overseeing the case declined to overturn the poison pill.

The company will effectively push back its annual meeting to sometime later in the month.

“We welcome our newest directors to the board and look forward to working with them, confident that we share the common goal of delivering the greatest value to Sotheby’s clients and shareholders,” William F. Ruprecht, Sotheby’s chairman and chief executive, said in a statement. “This agreement ensures that our focus is on the business and that we will benefit from five fresh voices and viewpoints.”

Mr. Loeb added, “As of today, we see ourselves not as the Third Point nominees but as Sotheby’s directors, and we expect to work collaboratively with our fellow board members to enhance long-term value on behalf of all shareholders.”

Barclays Confirms Its Head of Mergers Is Leaving

Barclays on Monday confirmed that its global head of mergers, Paul G. Parker, is leaving, becoming the latest high-profile departure from the British bank.

The move was announced in a short internal notice. A spokesman for the bank declined to comment.

Mr. Parker is the latest in a string of senior executives who will be leaving Barclays, as it prepares to shrink the size and costs of its investment bank. Last week, three other bankers â€" Hugh McGee III, the head of the firm’s Americas unit; Ros Stephenson, the global chairman of its investment bank; and Robert Morrice, the head of its Asia Pacific arm â€" also disclosed their impending departures.

Barclays has been moving to scale back its investment banking, reflecting tougher new regulations and fallout from a rates-fixing scandal that led to the departure of Robert E. Diamond as chief executive. The bank is expected to reveal its outlines for its newly reorganized investment bank this week.

Word of Mr. Parker’s impending departure began to spread on Friday, after Ms. Stephenson and Mr. Morrice announced their own exit plans.

A longtime deal maker, Mr. Parker had kept busy even until late last week. Among the assignments on his plate are Valeant’s $45.6 billion takeover bid for the maker of Botox and Comcast‘s $45 billion deal for Time Warner Cable.

He joined Barclays in 2008, when the firm took over the American banking operations of Lehman Brothers, where he served as co-head of mergers and acquisitions â€" and helped arrange the transaction.

Zendesk Sets Price Range for I.P.O.

Zendesk, a cloud-based customer support start-up, said in a filing on Monday that the price range of its proposed initial offering would be $8 to $10 a share.

At the midpoint of that range, the company would be valued at about $632 million. The company, which is based in San Francisco, is selling 11 million shares in the offering (or 11,111,111 to be precise). It plans to list on the New York Stock Exchange under the ticker symbol ZEN.

Sendesk, founded in 2007, had a loss of $22.6 million on revenue of $72 million last year. The company says it has 42,000 customer accounts.

Its venture capital backers include Charles River Ventures, Benchmark Capital Partners and Matrix Partners.

Goldman Sachs, Morgan Stanley and Credit Suisse are the lead underwriters for the offering.

Zendesk Sets Price Range for I.P.O.

Zendesk, a cloud-based customer support start-up, said in a filing on Monday that the price range of its proposed initial offering would be $8 to $10 a share.

At the midpoint of that range, the company would be valued at about $632 million. The company, which is based in San Francisco, is selling 11 million shares in the offering (or 11,111,111 to be precise). It plans to list on the New York Stock Exchange under the ticker symbol ZEN.

Sendesk, founded in 2007, had a loss of $22.6 million on revenue of $72 million last year. The company says it has 42,000 customer accounts.

Its venture capital backers include Charles River Ventures, Benchmark Capital Partners and Matrix Partners.

Goldman Sachs, Morgan Stanley and Credit Suisse are the lead underwriters for the offering.

A Q.&A. With the Author of a Buffett-Praised Book on 3G Capital

Warren E. Buffett speaks about virtually anything at Berkshire Hathaway‘s annual meeting in Omaha, and this past weekend proved no different. But surprisingly, he took a fair amount of time to praise some of his newest business partners.

Several times during a Q.&A. with investors, he talked up 3G Capital, the Brazilian-founded investment firm with whom he partnered to buy H. J. Heinz for $23 billion last year. And he said he would like to work with them on another big deal.

To learn more, the Berkshire chief recommended that investors read “Dream On,” a book about 3G written by Cristiane Correa, a Brazilian reporter who had followed the firm as it arranged ever-bigger acquisitions: Famously, its brewery rolled up numerous South American competitors, then Interbrew and finally, in 2008, Anheuser Busch for $52 billion.

Though “Dream On” was published last year in Portuguese (an edition that sold 200,000 copies in Brazil), it became available in an English-language version only last month. Primarily available via a Kindle version, the book was sold in the exhibition hall of the Berkshire meeting. And Mr. Buffett’s recommendation apparently carries great weight: Ms. Correa said that she had sold all 300 copies of the book on sale at the meeting.

“I nearly died,” she told DealBook. I wasn’t expecting that at all.”

She spoke to DealBook about 3G Capital, its business approach and why one of its founders, the billionaire Jorge Paulo Lemann, gets along so well with the Oracle of Omaha. Here’s a transcript of the conversation, which has been condensed and edited for clarity.

How did the book come about?

I’m a business journalist who worked at Exame magazine, one of the largest business publications in Brazil. While I was working there, I wrote about many of the companies in which Lemann had invested.

In 2007, I talked to the for the first time about writing a book. They are very low-key and said no. I tried for four years and failed. Then I decided to go by myself and started writing a book without their cooperation. They didn’t put themselves in the way, but they didn’t cooperate either.

What are the main principles of the 3G way?

Meritocracy is one. It’s very common in America but not in Brazil. They are looking for the best people â€" that’s what people say all the time, but they really do.

Cost-cutting, that’s very important. No expense is too little that it can’t be cut.

Have they always had those principles?

They always had those principles. Some companies change their culture over the years. They never have.

It goes back to the ’70s at Garantia, where cost-cutting was not that important. But when they went to retail, they used Sam Walton and Walmart as an example.

They’re a really sophisticated machine.

Has their growth surprised you?

“They have said they would love to be number one in the world, as a brewery. They had been building it for 20 years.

They first started to consolidate Brazilian market, then buying regional breweries in South America and then Interbrew. When the Anheuser-Busch deal happened, everyone was surprised, but if you had been following them, it made sense.

I think the Heinz deal was more of a surprise. It was not a sector in which they were investing. But the partnership with Buffett put them on a whole other level.

Were you surprised by how much praise Buffett lavished upon them?

He is sort of in love with them. I talked to him two years ago, and he was impressed by how they had done the Anheuser-Busch deal. He didn’t realize they couldn’t find as much room for improvement as they did.

They have gotten closer and closer. He really likes what they’re doing.

What common threads are there between the two?

There aren’t that many things in common between 3G and Berkshire, but there are between Lemann and Buffett. Both are very modest, simple guys. They love what they do and are not in it for the money.

They’re both very rich and they just want to do big things. They also have a management style that is very similar. They trust in people and they let their teams work.

Mr. Lemann is 74 years old. Is he going to retire anytime soon?

I think he’ll do it as long as he can.

3G has a big team, and the companies it owns nowadays operate without Jorge Paulo Lemann. The C.E.O. of Heinz has been working with Lemann for 15 years. Carlos Brito [the chief executive of Anheuser-Busch InBev] has been with them almost 30 years. They operate the companies as Lemann would.

Lemann’s also letting his children occupy some place on the boards of those companies. He’s preparing companies for time that he won’t be around. But I don’t think he has plans to voluntarily stop working.

What’s next for 3G?

There’s been a lot of talk about Coke or Pepsi â€" in Brazil at least. The Heinz deal, no one expected that. I think they can come up with something no one’s thinking of.

They’re going to do another big deal. I would bet on that, that something big’s going to happen.

Saturday With Buffett in Omaha

Tens of thousands of investors flocked to Omaha, Neb., this weekend, but it was not for the steak. Instead, as they do every spring, these investors were attending Berkshire Hathaway’s annual meeting with the hopes of asking a question of its chief executive, Warren E. Buffett, DealBook’s Michael J. de la Merced writes.

As is usually the case, the meeting on Saturday was “light and buoyant,” Mr. de la Merced writes. The closest thing to controversy was Mr. Buffett’s abstention from voting over a proposal by Coke to bolster stock-option grants to top management, a notable move given Mr. Buffett’s longstanding opposition to such plans. Mr. Buffett said that he had found the plan excessive, but, when asked why he did not raise the issue publicly, he said that he had no desire to go to war with Coke.

Mr. Buffett also delivered an unusual view on corporate pay disclosures. When asked whether companies should disclose the compensation of more executives beyond what is legally required, he argued that revealing that information would not necessarily lead to lower compensation packages, Mr. de la Merced writes. Mr. Buffett did not drop any hints about who would be Berkshire’s next chief executive. He did, however, say that he was looking for a significant acquisition that would bolster Berkshire’s earnings power, perhaps through the conglomerate’s energy arm.

For those who could not make the event, Saturday’s live blog of the meeting is available here.

WALL STREET’S CHANGE OF HEART  |  Wall Street banks have long opposed a rule that would require them to push some of their derivatives trading into less-protected entities. But in recent weeks, they have started to eagerly embrace the changes the hated rule demands, Peter Eavis writes in DealBook. The banks’ turnabout, however, is not because they have suddenly come to believe in the rule.

The regulation in question is called the swaps push-out rule, part of the Dodd-Frank Act. Banks make huge amounts of money from trading in derivatives â€" financial contracts that can be used to bet on things like interest rates. Swaps are a type of derivative. Until now, banks have been able to do nearly all of their derivatives trading in their traditional bank subsidiaries, which benefit from deposit insurance and other forms of federal support. These subsidiaries usually have higher credit ratings, which enable the banks to get better terms in the derivatives bets they make with their trading partner and bolstering the banks’ profits.

Dodd-Frank’s swaps push-out rule seeks to reduce those effective government subsidies on Wall Street trading. It requires certain types of derivatives to be pushed out of insured banks into another part of the bank that does not benefit from federal backing. This is exactly what the banks had been opposing, but in recent days, they have started to shift substantial amounts of derivatives trades into offshore affiliates that the parent banks do not guarantee. Why the about-face? In short, Mr. Eavis writes, banks “are trying to avoid other derivatives regulations that are unrelated to the push-out rule.”

SOTHEBY’S POISON PILL UPHELD  |  Donald F. Parsons, a vice chancellor of Delaware’s Court of Chancery, has blocked efforts by the hedge fund magnate Daniel S. Loeb to overturn a crucial corporate defense at the auction house Sotheby’s, Michael J. de la Merced and Alexandra Stevenson write in DealBook. In the ruling on Friday, the judge decided that he would not overturn a so-called poison pill plan that limits Mr. Loeb to no more than 10 percent of Sotheby’s shares while letting passive investors holds as much as 20 percent.

Companies have used poison pill defenses for decades, but the auction house’s version ignited debate within the corporate governance community because it specifically discriminated against activist investors. Mr. Loeb’s hedge fund, Third Point, had contended that Sotheby’s poison pill unfairly impeded his ability to wage his campaign, but the judge ruled that Mr. Loeb’s argument was flawed. For one, Vice Chancellor Parsons noted that Mr. Loeb had roughly 10 times the number of shares that Sotheby’s board now owns. Sotheby’s annual shareholder meeting is on Tuesday.

ON THE AGENDA  |  The purchasing managers’ index for services is out at 9:45 a.m. The ISM nonmanufacturing index is released at 10 a.m. Pfizer reports first-quarter earnings before the bell. Bill Gates, the chairman of Microsoft, is on CNBC at 8:20 a.m. The activist investor William A. Ackman is on CNBC at 3:30 p.m. Warren E. Buffett, Bill Gates and Charlie Munger are on Fox Business Network at 9:30 a.m. Happy Cinco de Mayo.

THAT’S HORSE RACING  |  A horse named Central Banker held on to win the Churchill Downs Stakes in Louisville, Ky., on Saturday. California Chrome won the Kentucky Derby, the first leg of horse racing’s Triple Crown.

HEDGE FUND ASKED S.E.C. TO DELAY DISCLOSURES  |  Last November, in a previously undisclosed letter to the Securities and Exchange Commission, the billionaire hedge fund manager David Einhorn asked for a seven-day delay in disclosing that his fund, Greenlight Capital, was amassing a stake of 47 million shares in Micron Technology, Matthew Goldstein writes in DealBook. Mr. Einhorn’s firm said it needed to keep its buying secret â€' and kept out of a regular quarterly report that most money managers file with the agency â€' to prevent a surge in Micron shares.

Mr. Einhorn’s request “illustrates the zealous approach some managers in the $2.7 trillion hedge fund industry take when it comes to keeping their trading positions out of the public eye,” Mr. Goldstein writes. But the move also reflects the risk that can come with being a prominent money manager like Mr. Einhorn, who has not been shy about seeking press coverage when it suits his interest.

The S.E.C. rarely grants requests by investment managers for confidential treatment, Mr. Goldstein adds, but because it can take weeks, or even months, for a request to be reviewed, “a manager gets the benefit of the doubt to keep a position secret simply by asking regulators to consider it.”

 

Mergers & Acquisitions »

China’s Baosteel Leads $1.3 Billion Bid for Australian Miner  |  Baosteel, a state-owned company, has teamed up with Aurizon Holdings, Australia’s largest rail freight operator, in bidding for Aquila, which is developing a giant iron ore mine in Western Australia’s mineral-rich Pilbara region. DealBook »

Bodice-Ripper in New Hands  |  News Corporation announced on Friday that it was buying the romance-novel publisher Harlequin Enterprises for roughly $415 million, The New York Times writes. NEW YORK TIMES

Pfizer Has Yet to Make a Compelling Bid to AstraZeneca’s Shareholders  |  Pfizer’s latest offer for its rival seems cheap to shareholders who view AstraZeneca’s turnaround as well advanced, Neil Unmack writes in Reuters Breakingviews. DealBook »

No Regrets for the Founder of Tumblr After Yahoo Sale  |  While conceding he was “terrified” going into the deal, David Karp, the founder and chief executive of Tumblr, says he is happy with the autonomy the microblogging service has under its new owner, The New York Times reports. NEW YORK TIMES

Rattner: End Corporate Taxation  |  Corporate takeovers and mergers have risen to their highest level since 2007, “fueled in part by American companies’ fleeing the United States to save tax dollars,” Steven Rattner, a Wall Street executive, writes in a New York Times Op-Ed. “These days, tax avoidance feels like a full-fledged business strategy, with American citizens as the losers,” he adds. NEW YORK TIMES

INVESTMENT BANKING »

A $4 Billion Wet Blanket on Bank of America’s Party  |  An accounting error has cast a shadow over Bank of America’s comeback â€' and shareholders may well want some answers at the annual meeting, Gretchen Morgenson writes in the Fair Game column. NEW YORK TIMES

More Departures Expected From Barclays  |  Three more executives of Barclays â€" its global head of mergers, its chairman of investment banking and its Asia-Pacific head â€" are expected to leave, the latest in a series of exits by prominent executives from the British bank. DealBook »

Loans That Avoid Banks? Maybe Not  |  Peer-to-peer finance has a new swarm of lenders: some of the same kinds of big institutions it once shunned, The New York Times writes. NEW YORK TIMES

PRIVATE EQUITY »

Thoma Bravo Raises $3.65 Billion Fund for Buyouts  |  The fund is the largest ever raised by Thoma Bravo, and the demand may reflect investor appetite for mature technology companies, which are the private equity firm’s specialty. DealBook »

Private Equity Shows Interest in L.A. Clippers  |  The Los Angeles Clippers are said to be attracting interest from private equity investors, The Wall Street Journal reports. WALL STREET JOURNAL

HEDGE FUNDS »

Former SAC Trader Asks for Shorter Sentence  |  Michael S. Steinberg, a former trader at the hedge fund SAC Capital Advisors found guilty last year of insider trading, has asked for a two-year sentence, a much shorter term than what was recommended by probation officials, Reuters writes. REUTERS

Rush for Deals Before Top Art Goes to Auction  |  As the spring art auction season begins â€' even before the auctioneer steps to the podium â€' outside collectors or investors have locked in guaranteed multimillion dollar prices for blue-chip names, The New York Times writes. NEW YORK TIMES

British Hedge Funds Are Betting Against Bookmakers  |  Some of Britain’s biggest hedge funds, including Odey Asset Management, Bluecrest and Marshall Wace, have taken substantial short positions in Ladbrokes and William Hill, Britain’s two largest bookmakers, The Financial Times writes. FINANCIAL TIMES

I.P.O./OFFERINGS »

Ares Management Slumps in Trading Debut  |  Shares of Ares Management opened on Friday at $18.15 on the New York Stock Exchange, 4.5 percent below the I.P.O. price. DealBook »

Tech I.P.O.s Go From Frenzy to Fizzle  |  It is not completely clear what drove the change in investor attitude toward technology stocks and initial public offerings, Quartz writes. QUARTZ

VENTURE CAPITAL »

Prosper, a Peer-to-Peer Lender, Raises $70 Million  |  Prosper plans to announce on Monday that it has raised $70 million in a new fund-raising round, one led by the investment firm Francisco Partners. DealBook »

Billions May Not Be Required for Angel Investing  |  A new book argues that more people can and should become angel investors, but that they must expect plenty of failures along with the rare big win, Paul Sullivan writes in the Wealth Matters column. NEW YORK TIMES

Airbnb’s Chief Rarely Uses His Desk  |  Brian Chesky, a co-founder and the chief executive of Airbnb, says he rarely uses his desk in his company’s offices in a former warehouse. “I think of my desk as a notebook computer or a tablet that is walking with me,” he told The New York Times. NEW YORK TIMES

LEGAL/REGULATORY »

Mixed Verdict in Apple-Samsung Patent Fight  |  The dispute between technology rivals ended with an award of nearly $120 million in damages to Apple and $158,000 to Samsung, The New York Times reports. NEW YORK TIMES

Apple’s Jobs Defied Convention, and Perhaps the Law  |  Steve Jobs’s conduct is a reminder that the difference between genius and potentially criminal behavior can be a fine line, James B. Stewart writes in the Common Sense column. NEW YORK TIMES

Jump in Payrolls Is Seen as a Sign of New Optimism …  |  After a slowdown at the start of the year, the American economy picked up in April in tandem with the warming weather, expanding payrolls by 288,000, as the jobless rate fell to 6.3 percent, Nelson D. Schwartz writes in The New York Times. NEW YORK TIMES

… But Tepid Wage Growth Is a Potent Sign of a Far-From-Healthy Economy  |  A new paper argues that the slow pace of wage growth is the clearest indicator that the recovery is still far from robust, Binyamin Appelbaum writes in The Upshot. NEW YORK TIMES UPSHOT

Portugal Chooses Clean Exit From Bailout  |  With promising signs of growth and falling unemployment, Portugal’s prime minister, Pedro Passos Coelho, announced an end to his country’s three-year, $108 billion bailout, The New York Times writes. NEW YORK TIMES