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Starbucks Baristas Are Receiving Sensitivity Lessons During the Current Wall Street Crisis

Starbucks Baristas Are Receiving Sensitivity Lessons During the Current Wall Street Crisis


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‘We know your stocks are falling at an alarming rate, but here’s some extra whipped cream to brighten your day.’

Starbucks CEO Howard Schultz is at it again, carrying on his initiative to promote sensitivity in his stores.It started out with the short-lived Race Together campaign. Now, baristas are being urged to show some sensitivity in the light of the recent financial crisis.

Over the past few days, the Chicken Littles of the finance world have had their worst fears confirmed as the sky (and stocks) fell, and continue to do poorly. Wall Street is in a tizzy, and in a memo, Schultz is asking baristas to “be very sensitive to the pressures our customers may be feeling, and do everything we can to individually and collectively exceed their expectations.”

He then went on to predict that some customers may become testy when ordering their morning lattes, saying, “today’s financial market volatility, combined with great political uncertainty both at home and abroad, will undoubtedly have an effect on consumer confidence and perhaps even our customers’ attitudes and behavior.”

Perhaps the reason for negative customer attitudes has more to do with the late arrival of the iconic pumpkin spice latte this year.


Starbucks Baristas Are Receiving Sensitivity Lessons During the Current Wall Street Crisis - Recipes

METLIFE WINS BATTLE TO REMOVE ‘TOO BIG TO FAIL’ LABEL | Opponents of the Dodd-Frank Act can rejoice. A judge in Washington overturned MetLife’s designation as “too big to fail” on Wednesday,
Victoria Finkle reports in DealBook.

The ruling, by Judge Rosemary M. Collyer of the Federal District Court for the District of Columbia, has raised questions about how regulators decide which institutions are too big to fail.

The judge upheld arguments that regulators failed to adequately assess the insurance company’s vulnerability to extreme financial distress and the potential economic impact of the designation.

The Treasury Department maintained that it had 𠇌onducted a rigorous analysis of MetLife,” but did not say whether it would appeal the ruling.

Some fear that the judge’s decision could prevent regulators from taking the necessary steps to stop another situation like American International Group’s near-collapse in 2008.

On the other hand House Republicans who have criticized the oversight council for a lack of transparency in deciding which institutions are systemically important will be emboldened.

The ruling was certainly a win for Eugene Scalia, the son of the late U.S. Supreme Court Justice Antonin Scalia, The Wall Street Journal reports.

As well as taking on MetLife’s designation, Mr. Scalia has been chipping away at the Dodd-Frank Act since its implementation. Relying on a 1990s-era federal law requiring financial regulators to do a cost-benefit analysis of new rules, Mr. Scalia has successfully argued against parts of the law that fail to meet that standard. He has won against the Securities and Exchange Commission and the Commodity Futures Trading Commission.

The idea that MetLife could shed its designation is shocking to Stephen J. Lubben. If the Financial Stability Oversight Council can’t designate MetLife, who can it designate? Mr. Lubben asks in the In Debt column.

MetLife has an enormous bond portfolio, a large derivatives book, substantial real estate holdings and significant connections with other systemically important financial institutions. It is plausible that it would create problems if MetLife were to fail.

The court didn’t buy it and we don’t know exactly why since the opinion is sealed. But we should expect an appeal. The losing party will want the full circuit to hear the case.

CAN STARWOOD MAKE A DEAL WITH ANBANG? | Starwood Hotel & Resorts faces a tricky issue,
Steven Davidoff Solomon writes in Deal Professor. Any deal it negotiates with the secretive Anbang Insurance Group may not be worth the paper it is printed on. And that is because Anbang is based in China.

If the consortium it leads won the bidding contest for Starwood and failed to honor the terms, Starwood would have to sue Anbang to enforce the deal.

If Starwood won a lawsuit in the United States, it would have to enforce the judgment in China, where Anbang and its assets are.

China is notorious for its weak rule of law and it is unclear whether a Chinese court would actually enforce a United States judgment against Anbang.

As with any deal involving a company outside the United States, it is no use having a great claim unless you have the pocket to get the money from, Mr. Davidoff Solomon writes.

Arbitration is a possible option and many agreements with Chinese companies contain arbitration provisions, but there is a common belief that Chinese courts will not enforce these awards.

Starwood’s lawyers will seek collateral from Anbang — mainly American assets. But Anbang’s assets in the United States are limited. The Waldorf Astoria and Strategic Hotels are not enough — Anbang most likely borrowed heavily to buy them.

The lawyers will also look for a deposit or letter of credit. It is also possible to get commitment from Anbang’s owners, though the problem is that they are unknown and are also likely to be abroad.

They may seek to have a termination fee put in escrow as Smithfield did when it was acquired by Shanghui International Holdings. And they should fight hard to get a “super escrow” of multiple billions because of the regulatory issues and risks to the deal.

How Starwood deals with these issues is very likely to be the template for how American acquisition targets deal with Chinese issues going forward.

ON THE AGENDA | Mary Jo White, the chairwoman of the Securities and Exchange Commission, will give a speech on protecting investments in pre-I.P.O. issuers at Stanford Law School at 8:45 p.m.

𠆏INTECH’ BOOM SAID TO THREATEN BANK JOBS | Up to 30 percent of employees in the banking industry could lose their jobs to new technologies over the next decade,
Nathaniel Popper reports in DealBook.

A report by Citigroup said that the number of employees at American banks would drop to 1.8 million in the year 2025, down from 2.6 million last year. An even sharper drop is predicted for European banks.

The jobs would be lost to start-ups cutting into different parts of the financial industry.

The projection comes after Antony Jenkins, the former chief executive of Barclays, said that banking was facing a series of “Uber moments,” in which the jobs in the industry could halve.

Banks are already being forced by volatile market conditions and new regulations to make cuts.

The Citigroup report noted that the banking sector had attracted record investment over the last five years and that new technologies had taken off the fastest in Asia, particularly China.

New financial technologies have been slower to gain traction in the United States. But “given the growth in fintech investment, this isn’t likely to continue for long,” wrote Kathleen Boyle, the managing editor of Citigroup GPS, in the report’s introduction.

Mergers & Acquisitions »

State Street to Buy G.E.’s Asset Management Business | The deal is the latest sale as General Electric retreats from finance and refocuses on its industrial roots.
NYT »

Dalian Wanda Group Seeks to Delist Its Commercial Property Arm | The potential privatization of Dalian Wanda Commercial Properties comes just 15 months after it raised $3.7 billion in a Hong Kong initial public offering.
NYT »

Foxconn’s Deal to Buy Sharp Is a Test for Japanese Reform | Instead of taking the easy route, Sharp is going to the bidder with the most capabilities, and incentives, to make it profitable and productive, Rob Cox writes in Breakingviews.
Breakingviews »  |  To Woo Apple, Foxconn Bets $3.5 Billion on Sharp 6:00 AM

Tata Steel Plans to Sell British Plants, Threatening 15,000 Jobs | Profits at the Indian-owned Tata Steel have been squeezed by cheap Chinese imports, and the company suggested that it would consider closing its plants if no buyer came forward.
NYT »

Allianz Said to Be Selling $5 Billion Life Insurance Portfolio in Italy | Allianz, which is Italy’s fourth biggest life and health insurer, is facing pressures from low interest rates and has decided to sell Italian life policies that pay a 2 percent minimum interest rate, Reuters reports, citing people familiar with the matter.
reuters

INVESTMENT BANKING »

Chinese Investment Bank Defaults on 𠆍im Sum’ Bond | A unit of Guosen Securities, China’s eighth-largest investment bank, has defaulted on a Hong Kong-traded renminbi bond, the first debt breach by a state-owned enterprise in China’s offshore market in nearly two decades, according to a document seen by the Financial Times.
the financial times

HEDGE FUNDS »

Citadel Securities Bolsters Electronic Trading | Citadel Securities, the market making arm of the hedge fund, has hired a senior banker as part of its efforts to use electronic trading to break open traditionally dealer-dominated markets.
the financial times

I.P.O./OFFERINGS »

A.I.G. Mortgage Unit Files for I.P.O. | American International Group’s mortgage insurer, United Guaranty, filed for an offering of $100 million, a placeholder figure that is used to calculate fees and will probably change.
bloomberg news

VENTURE CAPITAL »

Expa Labs Will Nurture Tech Start-Ups a Few at a Time | The incubator Expa Labs will take a smaller-scale approach to helping start-ups grow from idea to prototype to marketable product.
NYT »

What Happened When Venture Capitalists Took Over the Golden State Warriors | After racking up a historic N.B.A. season, the team’s owners — most of them from Silicon Valley — think their management style deserves some of the credit. Are they right?
Feature »

Fidelity Marks Down Start-Ups Including Dropbox and Zenefits | Fidelity Investments took an ax to the valuations of its private technology shares in February, cutting bellwether software start-ups like Dropbox, Cloudera and Zenefits by as much as 38 percent compared with the prior month.
the wall street journal

LEGAL/REGULATORY »

Cravath Law Firm Discloses a Data Attack | The disclosure by Cravath Swaine & Moore, which reported a “limited breach” of its computer network last summer, is rare for a big law firm.
NYT »

Supreme Court Rules Against Freezing Assets Not Tied to Crimes | The government may not freeze assets needed to pay criminal defense lawyers if the assets are not linked to a crime, the court ruled in a 5-to-3 decision.
NYT »

General Motors Ignition Switch Is Cleared in Trial Over a Crash | The case is one of six so-called bellwether trials being conducted to resolve legal claims against G.M., which recalled nearly 30 million vehicles after a scandal.
NYT »

Contractors and Temps Accounted for All of the Growth in Employment in the Last Decade | One result is that employers have succeeded at shifting much of the burden of providing social insurance onto workers.
The Upshot »

S.E.C. Bans Venture Capitalist for Theft | A San Francisco biotechnology venture capitalist agreed to pay nearly $5.8 million to settle accusations from the Securities and Exchange Commission that he stole investor money to pay for vacations in St. Bart’s and Paris, Tiffany jewelry, private jets and other expenses.
reuters

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Morning Agenda: Foxconn Strikes Deal for Sharp

FOXCONN STRIKES DEAL FOR SHARP | Foxconn is grappling with rising labor costs in China and a slowdown in the global smartphone market, but it managed to forestall its weakening relationship with Apple by striking a deal to acquire the screen maker Sharp of Japan for $3.5 billion,
Paul Mozur reports in DealBook.

Foxconn said it would take over 66 percent of Sharp, with a total investment of 389 billion yen, or about $3.5 billion. Foxconn is buying 򥊉 billion worth of common Sharp shares and an additional ꖙ.99 billion worth of nonvoting preferred shares.

The total investment is well below the $5.5 billion that Foxconn was expected to pay last month before it balked over the discovery that a new owner could be liable for close to $3 billion in potential liabilities.

The deal comes after weeks of public negotiations and high-profile setbacks, and should make Foxconn a more attractive partner for Apple, which uses Sharp screens in its iPhones.

Analysts are still skeptical — they say Foxconn gets an ailing business that will take a considerable amount of money to turn around, even if it does get a bigger chunk of the global supply chain.

The deal is a return to form for Foxconn in its emphasis on scale. Even as it has tried to maintain its enormous scale, it has also been trying to climb up the value chain to find more profitable streams of revenue.

EXPLAINING VALEANT | Commentators and analysts have drawn lessons from the mess surrounding Valeant, but few of them are convincing,
Steven Davidoff Solomon writes in Deal Professor.

Some contend that Valeant is like Enron, a house of cards waiting to be brought down by an inevitable accounting scandal. But Valeant is a real operating business and there is no indication of outright fraud.

Others have cautioned about the McKinsey-driven ethos — J. Michael Pearson was a McKinsey consultant for 23 years. But McKinsey has also been at the forefront of arguments about long-term shareholder value.

Warnings about Valeant’s decision to cut research and development are based on a nonsensical notion that R&D can never be bad. There has been an uproar about predatory pricing, but there is no transparency around Valeant’s pricing and its products still sell.

Hedge funds like ValueAct have also been blamed. This explains the business strategy, but it does not help us understand what went wrong. Shareholders get their share of the blame too for chasing returns, but this has nothing to do with Valeant’s business.

So what is the Deal Professor’s theory? If Wall Street built Valeant, it is now running away from it, Mr. Davidoff Solomon writes. The velocity of the turnaround created views of the company that are not tethered to reality.

It does not make sense for a company with earnings before interest, taxes, depreciation and amortization, or Ebitda, of about $5 billion a year to be worth only $9 billion. Allergan, with Ebitda of $7 billion a year and $40 billion of debt, is worth $110 billion.

This crisis has crushed Valeant’s previous business model, but it still has billions of dollars in earnings. The intrinsic worth of that business remains the same and the flight by Wall Street shut down its old growth model, but not its business. Wall Street always thinks the worst when things go bad and sometimes it creates a self-fulfilling frenzy.

LOUIS BACON’S CHARITY SAYS IT WAS VICTIM OF FRAUD | The Moore Charitable Foundation said it was the victim of fraud by the 39-year-old Wall Street executive Andrew Caspersen,
Matthew Goldstein and Alexandra Stevenson report in DealBook.

The trust, founded by the hedge fund billionaire Louis M. Bacon, said that it was “lied to by Andrew Caspersen, a managing director at investment bank PJT Partners, regarding a potential investment related to the publicly announced restructuring of a private equity fund.”

The foundation put $25 million into Mr. Caspersen’s scheme and said that it detected “irregularities in a proposed follow-on deal” before notifying PJT Partners’ general council. PJT contacted the United States attorney’s office in Manhattan.

The authorities said Mr. Caspersen had lost much of the $25 million in 𠇊ggressive options trading” and, as a condition of his bond, a magistrate judge ordered him to get a mental health evaluation and alcohol testing and treatment.

ON THE AGENDA | Jacob J. Lew, the Treasury secretary, will discuss the use of sanctions at the Carnegie Endowment for International Peace at 8:45 a.m. The Securities and Exchange Commission will consider whether to adopt new swaps rules in a meeting at 10 a.m. Charles L. Evans, the president of the Federal Reserve Bank of Chicago, will speak at the Forecasters Club of New York Luncheon at 1 p.m.

SPOTIFY EXPECTED TO SIGN $1 BILLION FINANCING DEAL | Spotify is about to close a $1 billion deal that would double the amount of financing it has raised since it was founded a decade ago,
Leslie Picker and Ben Sisario report in DealBook.

People briefed on the matter said the money comes in the form of convertible debt, which allows investors in the music-streaming company to change their securities into equity at a future date.

The convertible debt allows Spotify to obtain funds without needing to change its valuation. It had an equity value of $8.4 billion last year.

The terms of the debt may put pressure on the company to go public sooner. Investors have the ability to convert to equity at a discount to an initial public offering price — the discount increases if Spotify waits longer than a year to go public. The coupon payment on the debt would also rise over time.

Funds associated with the private equity firm TPG and the investment firm Dragoneer put in $750 million, while the rest came from institutional investors.

TPG and Dragoneer are permitted to cash out their shares as soon as 90 days after an I.P.O., instead of the 180 days employees and other shareholders get, according to The Wall Street Journal, which earlier reported the deal.

DEAL NOTES

Lester C. Thurow, Economist Who Seized the Spotlight, Is Dead at 77 | A prolific writer and popular public speaker, Mr. Thurow sounded an early alarm about the growing income gap between rich and poor Americans.
NYT »

Mergers & Acquisitions »

Starwood Bidder Is a Reclusive Chinese Insurer With Opaque Backing | Anbang, which is in a bidding war for Starwood Hotels, is controlled by a murky group of interconnected companies and led by a reclusive chairman.
NYT »  |  Breakingviews: Starwood’s Takeover Offer From Anbang is Risky, but Worth It 2:23 PM

Starwood’s Takeover Offer From Anbang Is Risky, but Worth It | Heavy interest from rival hoteliers means Starwood can afford to take the Anbang Insurance Group’s offer, which is $4.64 more per share than its deal with Marriott, Jeffrey Goldfarb writes in Breakingviews.
Breakingviews »  |  Starwood Bidder Is an Ambitious Chinese Insurer With Opaque Backing 11:52 AM

Metro Group of Germany to Split Into 2 Companies | The announcement came after Metro agreed in June to sell Galeria Kaufhof, the leading department store chain in Germany and Belgium, to the Hudson’s Bay Company.
NYT »

Norfolk Southern Steps Up Fight Against Canadian Pacific Merger | In a letter to employees, Norfolk Southern’s chief executive, Jim Squires, said that the company is making good progress on its restructuring plans and that employees should vote against merger talks.
the wall street journal

INVESTMENT BANKING »

Swedbank to Replace Chairman After He Lost Investor Support | The departure of Anders Sundstrom as chairman of the Swedish lender followed the ouster of Michael Wolf, its chief executive, in February.
NYT »

Doubts Raised Over Controls at HSBC | The monitor overseeing HSBC’s compliance with a landmark anti-money-laundering settlement has uncovered potential lapses including loans to companies that exported miniskirts to Iran and candy to Syria, The Wall Street Journal reports, citing a person familiar with the findings.
the wall street journal

UniCredit Said to Be in Talks Over Popolare di Vicenza Capital Raising | UniCredit, Italy’s largest bank by assets, is in talks with the government in Rome about seeking support for a 2 billion euro capital raising at the mutual bank Popolare di Vicenza, a deal seen as a crucial test of investor confidence in Italy’s lenders, The Financial Times reports, citing people with direct knowledge of the matter.
the financial times

PRIVATE EQUITY »

Chinese Textile Maker to Buy Owner of Sandro and Claudie Pierlot | Kohlberg Kravis Roberts plans to sell SMCP to China’s Shandong Ruyi in a deal that values the French fashion group at 1.3 billion euros, including debt, The Financial Times reports, citing people familiar with the matter.
the financial times

HEDGE FUNDS »

The Fall of China’s Hedge-Fund King | Xu Xiang was a legend in the country’s booming stock market — until the bubble he helped to create took him down with it.
Feature »

VENTURE CAPITAL »

Robo-Adviser Betterment Gets $100 Million in Venture Capital | The investment, which Betterment says it will use to increase product development and expand its business, pushes the firm’s valuation to $700 million.
NYT »

LEGAL/REGULATORY »

Janet Yellen Says Fed Still Plans to Raise Interest Rates but Carefully | In remarks to the Economic Club of New York, the Federal Reserve chairwoman said she expected the domestic economy to improve this year.
NYT »

Latest Plan to Rescue Puerto Rico Is Met With Disdain on Island | The plan calls for putting Puerto Rico’s finances under a presidentially appointed oversight board — a bitter pill to many on the island.
NYT »

Prosecutor in Bear Stearns Case to Leave U.S. Attorney’s Office | James G. McGovern, the head of the criminal division at the United States attorney’s office in Brooklyn, said he would join the law firm Hogan Lovells as a partner.
NYT »

Bank of England to Raise Bank Capital Buffer as Safeguard | The buffer is intended to ensure that British banks can provide lending and other essential banking services during times of financial stress.
NYT »

F.T.C. Sues Volkswagen Over �ptive’ Diesel Car Ads | The Federal Trade Commission accused VW of selling or leasing more than 550,000 diesel vehicles using a campaign that said they met emissions standards.
NYT »

Hackers Breach Law Firms | Hackers broke into the computer networks at some of the country’s most prestigious law firms, and federal investigators are exploring whether they stole confidential information for the purpose of insider trading, The Wall Street Journal reports, citing people familiar with the matter.
the wall street journal

Simmering for Decades, Anger About Trade Boils Over in � Election | Bashing trade deals has proved a winning strategy for Donald Trump, but economists mostly agree they have benefited American households significantly.
NYT »

Edison International Starts Energy Consultancy | The company will help large businesses take advantage of evolving technologies, markets and incentives in energy efficiency, renewables and storage.
NYT »

Australia to End ASX Clearing Monopoly | Canberra is ending the Australian Securities Exchange monopoly on equity clearing and relaxing ownership restrictions in a decision that removes a potential hurdle to the ASX’s participation in overseas mergers.
the financial times

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What We’re Reading

Get recommendations from New York Times reporters and editors, highlighting great stories from around the web. What We’re Reading emails are sent twice a week.

New Republic

Aiding and Abetting

After yet another Islamic State attack in Europe, Joshua Hersh studies one of the more important, but neglected, aspects of militant networks. That is a gray area that involves petty criminals who share an “indifference to the law and those who might enforce it. They are radical, one might say, but not necessarily radicalized.” Why is this so important? Mr. Hersh — who followed his father, Seymour Hersh, into journalism — notes that old-fashioned, solid police work may help cripple terrorist networks better than high-wire air raids over the Levant. — Diaa Hadid

Her Basketball Game

This is a Q. and A. with a sophisticated basketball fan who is also a very famous pornography actress with connections to many players, apparently. — Jason Stallman

New Republic

The Madding Crowd

This is by no means the first “I went to a Trump rally” story. But it is the first by Patricia Lockwood, the talented poet and humorist. (Side note: She wrote my favorite tweet of all time: &#[email protected] so is Paris any good or not.”) It’s odd and funny in the ways you𠆝 expect, but also poignant in parts and insightful about Trump’s appeal. “It is a practiced seduction,” she writes, “it has worked before. We ignore it at our peril.” — Dan Saltzstein

Politico

Gosh Darn It

At first glance the idea seems outlandish enough to require a “this is not a joke” warning label. And it isn’t. Building its argument on his skills as both a senator and a satirist, as well as his credibility with progressive Democrats across the country, this essay makes a detailed case for Al Franken as Hillary Clinton’s smartest choice for running mate, especially in a projected race against Donald Trump. — Patrick J. Lyons

MyNorthwest.com

A Silver Trail

Lewis and Clark gave out silver medallions — President Thomas Jefferson’s image on one side, a crossed peace pipe and hatchet on the other — to some American Indians they met, and those medals, through the tumult of the American frontier, mostly got lost. This story talks about the ones that have turned up, in places like Antiques Roadshow or a road-building project. The cool and gripping thing here is the idea that these little pieces of the past had their own long journey, echoing and reflecting the epic Corps of Discovery exploration that defined the early days of the West and that still resonates powerfully today from the Dakotas to the mouth of the Columbia River. — Kirk Johnson

Vanity Fair

The Venue of Laughs

The Comedy Cellar is claustrophobically cramped, darkly lit and resolutely un-renovated, which is to say, it’s a perfect room for stand-up. But its acoustics and atmosphere are only part of the reason it’s the premiere comedy club in the country right now. The rest of the explanation is its storied history of singularly great nightly lineups, which is explored in this lively new oral history in Vanity Fair, which includes reflections from everyone from Jon Stewart and Marc Maron to Cellar regulars like Jim Norton and Colin Quinn. — Jason Zinoman

Morning Agenda: Private Equity Executive Accused of Faking Investments

PRIVATE EQUITY EXECUTIVE ACCUSED OF FAKING INVESTMENTS | Federal prosecutors working for Preet Bharara, the United States attorney for Manhattan, have charged Andrew Caspersen, a former Blackstone Group managing principal, with securities and wire fraud in what was labeled a 𠇋razen” scheme to defraud investors of up to $95 million,

Alexandra Stevenson and Matthew Goldstein report in DealBook. The Securities and Exchange Commission filed parallel civil charges.

Mr. Caspersen was a partner at the Park Hill Group, which specializes in raising money for private equity firms and hedge funds, and was still trying to persuade institutional investors to give him money up until last week.

The authorities accused Mr. Caspersen of using a fraudulent investment vehicle and fake emails to dupe an unidentified hedge fund foundation to sink $25 million into the scheme last fall.

According to authorities, Mr. Caspersen had set up a shell company with a similar name to a legitimate vehicle at Park Hill and began raising money for it. He did not tell prospective investors that the shell company was controlled entirely by him, making up email accounts, inventing employees and creating a fake domain name. The scheme began to fall apart when the hedge fund asked for its $25 million plus interest to be returned. It has not yet received the money.

The authorities said he blew through most of the money he raised 𠇊s a result of aggressive options trading” in his personal brokerage account.

Park Hill, which was part of the Blackstone Group and is now part of PJT Partners, has fired Mr. Caspersen and said it was cooperating with the authorities.

The case has raised questions about the internal controls in place at Park Hill — the authorities say Mr. Caspersen’s scheme went on for months. It also raises questions about how much research and checking institutional investors do and how much they are relying on personal connections and trust.

STARWOOD BIDDING WAR ESCALATES | The consortium led by Anbang Insurance has increased its bid for Starwood Hotels to $14 billion, raising the stakes in the most prominent bidding war so far this year,
Michael J. de la Merced reports in DealBook.
Starwood declared that this was “reasonably likely to lead to a ‘superior offer.’ ”

Starwood said that the Anbang group had offered $81 a share on Saturday, and then the current $82.75 after talks between the two sides began.

Marriott International is sticking to its $13.5 billion offer for now. It argued that its proposal was solid while Anbang’s offer may not be able to close.

Analysts have said that Marriott would be hard-pressed to raise its offer to win the battle, since raising the cash portion of its offer could threaten its investment-grade rating. Adding more stock as consideration could harm its earnings per share.

ON THE AGENDA | The chairwoman of the Securities and Exchange Commission, Mary Jo White, will speak at the Mutual Fund Director Forum’s 2016 Policy Conference at 9 a.m. Janet L. Yellen, the chairwoman of the Federal Reserve, will speak at The Economic Club of New York at 11:30 a.m.

VALUEACT PAYS A PRICE FOR SUPPORTING VALEANT | William A. Ackman receives a lot of criticism for investing in Valeant, but ValueAct has had more influence over Valeant’s activities and its role has gone largely unquestioned,
Andrew Ross Sorkin writes in DealBook.

ValueAct, founded by Jeffrey Ubben, has been invested in Valeant since 2006 and has held at least one seat on its board since 2007. It installed J. Michael Pearson as chief executive, oversaw the change in compensation policies and supported the company’s strategy of cutting research and development while increasing the price of its drugs.

It is hard to see how ValueAct could have been unaware of Valeant’s more aggressive strategies, unless it intended to claim that it was duped by management, a claim it has not made yet.

When Mason Morfit, ValueAct’s representative, stepped down from the board, Mr. Pearson said he continued to “value his vision and guidance.” Mr. Morfit also helped establish a compensation plan for Valeant executives that governance experts say may have led to the practices at Valeant that are now under scrutiny. Mr. Pearson’s compensation plan, tied directly to the stock price, may have led to a culture that was too aggressive.

Valeant’s admission that it had wrongly booked $58 million of revenue has given way to the possibility of bigger problems at the company. Its confession has given credibility to critics who have produced analyses suggesting that its books could be flawed in other ways, Peter Eavis reports in DealBook.

And the issue of accounting is likely to remain at the heart of the debate over Valeant because it was so central to its strategy.

Valeant has been accused of channel-stuffing — trying to bolster revenue artificially by granting unsustainable or improper inducements to wholesalers and customers to get them to take its products. Channel-stuffing companies may also book revenue by transferring goods to an entity that is not totally separate.

There were also concerns about spring-loading — when one company acquires another and, between the announcement of the deal and the actual merger, finds a way to book a higher level of costs and lower revenue at the company being acquired.

With the number of inquiries and lawsuits it is facing, the question may well devolve into whether Valeant can survive everything being thrown at it,
Peter J. Henning writes in White Collar Watch.

Valeant has sought to portray itself as cooperative with regulators by pointing the finger at the former chief financial officer, Howard B. Schiller. But Mr. Schiller has refused to step down from the board, giving him a front-row seat to observe how the company responds to investigations. He will also be a key player in the investigation of the company’s accounting.

Valeant must also foot the bills for Mr. Schiller’s lawyers related to any inquiry or face even more litigation if it decides not to do so.


Starbucks Baristas Are Receiving Sensitivity Lessons During the Current Wall Street Crisis - Recipes

METLIFE WINS BATTLE TO REMOVE ‘TOO BIG TO FAIL’ LABEL | Opponents of the Dodd-Frank Act can rejoice. A judge in Washington overturned MetLife’s designation as “too big to fail” on Wednesday,
Victoria Finkle reports in DealBook.

The ruling, by Judge Rosemary M. Collyer of the Federal District Court for the District of Columbia, has raised questions about how regulators decide which institutions are too big to fail.

The judge upheld arguments that regulators failed to adequately assess the insurance company’s vulnerability to extreme financial distress and the potential economic impact of the designation.

The Treasury Department maintained that it had 𠇌onducted a rigorous analysis of MetLife,” but did not say whether it would appeal the ruling.

Some fear that the judge’s decision could prevent regulators from taking the necessary steps to stop another situation like American International Group’s near-collapse in 2008.

On the other hand House Republicans who have criticized the oversight council for a lack of transparency in deciding which institutions are systemically important will be emboldened.

The ruling was certainly a win for Eugene Scalia, the son of the late U.S. Supreme Court Justice Antonin Scalia, The Wall Street Journal reports.

As well as taking on MetLife’s designation, Mr. Scalia has been chipping away at the Dodd-Frank Act since its implementation. Relying on a 1990s-era federal law requiring financial regulators to do a cost-benefit analysis of new rules, Mr. Scalia has successfully argued against parts of the law that fail to meet that standard. He has won against the Securities and Exchange Commission and the Commodity Futures Trading Commission.

The idea that MetLife could shed its designation is shocking to Stephen J. Lubben. If the Financial Stability Oversight Council can’t designate MetLife, who can it designate? Mr. Lubben asks in the In Debt column.

MetLife has an enormous bond portfolio, a large derivatives book, substantial real estate holdings and significant connections with other systemically important financial institutions. It is plausible that it would create problems if MetLife were to fail.

The court didn’t buy it and we don’t know exactly why since the opinion is sealed. But we should expect an appeal. The losing party will want the full circuit to hear the case.

CAN STARWOOD MAKE A DEAL WITH ANBANG? | Starwood Hotel & Resorts faces a tricky issue,
Steven Davidoff Solomon writes in Deal Professor. Any deal it negotiates with the secretive Anbang Insurance Group may not be worth the paper it is printed on. And that is because Anbang is based in China.

If the consortium it leads won the bidding contest for Starwood and failed to honor the terms, Starwood would have to sue Anbang to enforce the deal.

If Starwood won a lawsuit in the United States, it would have to enforce the judgment in China, where Anbang and its assets are.

China is notorious for its weak rule of law and it is unclear whether a Chinese court would actually enforce a United States judgment against Anbang.

As with any deal involving a company outside the United States, it is no use having a great claim unless you have the pocket to get the money from, Mr. Davidoff Solomon writes.

Arbitration is a possible option and many agreements with Chinese companies contain arbitration provisions, but there is a common belief that Chinese courts will not enforce these awards.

Starwood’s lawyers will seek collateral from Anbang — mainly American assets. But Anbang’s assets in the United States are limited. The Waldorf Astoria and Strategic Hotels are not enough — Anbang most likely borrowed heavily to buy them.

The lawyers will also look for a deposit or letter of credit. It is also possible to get commitment from Anbang’s owners, though the problem is that they are unknown and are also likely to be abroad.

They may seek to have a termination fee put in escrow as Smithfield did when it was acquired by Shanghui International Holdings. And they should fight hard to get a “super escrow” of multiple billions because of the regulatory issues and risks to the deal.

How Starwood deals with these issues is very likely to be the template for how American acquisition targets deal with Chinese issues going forward.

ON THE AGENDA | Mary Jo White, the chairwoman of the Securities and Exchange Commission, will give a speech on protecting investments in pre-I.P.O. issuers at Stanford Law School at 8:45 p.m.

𠆏INTECH’ BOOM SAID TO THREATEN BANK JOBS | Up to 30 percent of employees in the banking industry could lose their jobs to new technologies over the next decade,
Nathaniel Popper reports in DealBook.

A report by Citigroup said that the number of employees at American banks would drop to 1.8 million in the year 2025, down from 2.6 million last year. An even sharper drop is predicted for European banks.

The jobs would be lost to start-ups cutting into different parts of the financial industry.

The projection comes after Antony Jenkins, the former chief executive of Barclays, said that banking was facing a series of “Uber moments,” in which the jobs in the industry could halve.

Banks are already being forced by volatile market conditions and new regulations to make cuts.

The Citigroup report noted that the banking sector had attracted record investment over the last five years and that new technologies had taken off the fastest in Asia, particularly China.

New financial technologies have been slower to gain traction in the United States. But “given the growth in fintech investment, this isn’t likely to continue for long,” wrote Kathleen Boyle, the managing editor of Citigroup GPS, in the report’s introduction.

Mergers & Acquisitions »

State Street to Buy G.E.’s Asset Management Business | The deal is the latest sale as General Electric retreats from finance and refocuses on its industrial roots.
NYT »

Dalian Wanda Group Seeks to Delist Its Commercial Property Arm | The potential privatization of Dalian Wanda Commercial Properties comes just 15 months after it raised $3.7 billion in a Hong Kong initial public offering.
NYT »

Foxconn’s Deal to Buy Sharp Is a Test for Japanese Reform | Instead of taking the easy route, Sharp is going to the bidder with the most capabilities, and incentives, to make it profitable and productive, Rob Cox writes in Breakingviews.
Breakingviews »  |  To Woo Apple, Foxconn Bets $3.5 Billion on Sharp 6:00 AM

Tata Steel Plans to Sell British Plants, Threatening 15,000 Jobs | Profits at the Indian-owned Tata Steel have been squeezed by cheap Chinese imports, and the company suggested that it would consider closing its plants if no buyer came forward.
NYT »

Allianz Said to Be Selling $5 Billion Life Insurance Portfolio in Italy | Allianz, which is Italy’s fourth biggest life and health insurer, is facing pressures from low interest rates and has decided to sell Italian life policies that pay a 2 percent minimum interest rate, Reuters reports, citing people familiar with the matter.
reuters

INVESTMENT BANKING »

Chinese Investment Bank Defaults on 𠆍im Sum’ Bond | A unit of Guosen Securities, China’s eighth-largest investment bank, has defaulted on a Hong Kong-traded renminbi bond, the first debt breach by a state-owned enterprise in China’s offshore market in nearly two decades, according to a document seen by the Financial Times.
the financial times

HEDGE FUNDS »

Citadel Securities Bolsters Electronic Trading | Citadel Securities, the market making arm of the hedge fund, has hired a senior banker as part of its efforts to use electronic trading to break open traditionally dealer-dominated markets.
the financial times

I.P.O./OFFERINGS »

A.I.G. Mortgage Unit Files for I.P.O. | American International Group’s mortgage insurer, United Guaranty, filed for an offering of $100 million, a placeholder figure that is used to calculate fees and will probably change.
bloomberg news

VENTURE CAPITAL »

Expa Labs Will Nurture Tech Start-Ups a Few at a Time | The incubator Expa Labs will take a smaller-scale approach to helping start-ups grow from idea to prototype to marketable product.
NYT »

What Happened When Venture Capitalists Took Over the Golden State Warriors | After racking up a historic N.B.A. season, the team’s owners — most of them from Silicon Valley — think their management style deserves some of the credit. Are they right?
Feature »

Fidelity Marks Down Start-Ups Including Dropbox and Zenefits | Fidelity Investments took an ax to the valuations of its private technology shares in February, cutting bellwether software start-ups like Dropbox, Cloudera and Zenefits by as much as 38 percent compared with the prior month.
the wall street journal

LEGAL/REGULATORY »

Cravath Law Firm Discloses a Data Attack | The disclosure by Cravath Swaine & Moore, which reported a “limited breach” of its computer network last summer, is rare for a big law firm.
NYT »

Supreme Court Rules Against Freezing Assets Not Tied to Crimes | The government may not freeze assets needed to pay criminal defense lawyers if the assets are not linked to a crime, the court ruled in a 5-to-3 decision.
NYT »

General Motors Ignition Switch Is Cleared in Trial Over a Crash | The case is one of six so-called bellwether trials being conducted to resolve legal claims against G.M., which recalled nearly 30 million vehicles after a scandal.
NYT »

Contractors and Temps Accounted for All of the Growth in Employment in the Last Decade | One result is that employers have succeeded at shifting much of the burden of providing social insurance onto workers.
The Upshot »

S.E.C. Bans Venture Capitalist for Theft | A San Francisco biotechnology venture capitalist agreed to pay nearly $5.8 million to settle accusations from the Securities and Exchange Commission that he stole investor money to pay for vacations in St. Bart’s and Paris, Tiffany jewelry, private jets and other expenses.
reuters

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Morning Agenda: Foxconn Strikes Deal for Sharp

FOXCONN STRIKES DEAL FOR SHARP | Foxconn is grappling with rising labor costs in China and a slowdown in the global smartphone market, but it managed to forestall its weakening relationship with Apple by striking a deal to acquire the screen maker Sharp of Japan for $3.5 billion,
Paul Mozur reports in DealBook.

Foxconn said it would take over 66 percent of Sharp, with a total investment of 389 billion yen, or about $3.5 billion. Foxconn is buying 򥊉 billion worth of common Sharp shares and an additional ꖙ.99 billion worth of nonvoting preferred shares.

The total investment is well below the $5.5 billion that Foxconn was expected to pay last month before it balked over the discovery that a new owner could be liable for close to $3 billion in potential liabilities.

The deal comes after weeks of public negotiations and high-profile setbacks, and should make Foxconn a more attractive partner for Apple, which uses Sharp screens in its iPhones.

Analysts are still skeptical — they say Foxconn gets an ailing business that will take a considerable amount of money to turn around, even if it does get a bigger chunk of the global supply chain.

The deal is a return to form for Foxconn in its emphasis on scale. Even as it has tried to maintain its enormous scale, it has also been trying to climb up the value chain to find more profitable streams of revenue.

EXPLAINING VALEANT | Commentators and analysts have drawn lessons from the mess surrounding Valeant, but few of them are convincing,
Steven Davidoff Solomon writes in Deal Professor.

Some contend that Valeant is like Enron, a house of cards waiting to be brought down by an inevitable accounting scandal. But Valeant is a real operating business and there is no indication of outright fraud.

Others have cautioned about the McKinsey-driven ethos — J. Michael Pearson was a McKinsey consultant for 23 years. But McKinsey has also been at the forefront of arguments about long-term shareholder value.

Warnings about Valeant’s decision to cut research and development are based on a nonsensical notion that R&D can never be bad. There has been an uproar about predatory pricing, but there is no transparency around Valeant’s pricing and its products still sell.

Hedge funds like ValueAct have also been blamed. This explains the business strategy, but it does not help us understand what went wrong. Shareholders get their share of the blame too for chasing returns, but this has nothing to do with Valeant’s business.

So what is the Deal Professor’s theory? If Wall Street built Valeant, it is now running away from it, Mr. Davidoff Solomon writes. The velocity of the turnaround created views of the company that are not tethered to reality.

It does not make sense for a company with earnings before interest, taxes, depreciation and amortization, or Ebitda, of about $5 billion a year to be worth only $9 billion. Allergan, with Ebitda of $7 billion a year and $40 billion of debt, is worth $110 billion.

This crisis has crushed Valeant’s previous business model, but it still has billions of dollars in earnings. The intrinsic worth of that business remains the same and the flight by Wall Street shut down its old growth model, but not its business. Wall Street always thinks the worst when things go bad and sometimes it creates a self-fulfilling frenzy.

LOUIS BACON’S CHARITY SAYS IT WAS VICTIM OF FRAUD | The Moore Charitable Foundation said it was the victim of fraud by the 39-year-old Wall Street executive Andrew Caspersen,
Matthew Goldstein and Alexandra Stevenson report in DealBook.

The trust, founded by the hedge fund billionaire Louis M. Bacon, said that it was “lied to by Andrew Caspersen, a managing director at investment bank PJT Partners, regarding a potential investment related to the publicly announced restructuring of a private equity fund.”

The foundation put $25 million into Mr. Caspersen’s scheme and said that it detected “irregularities in a proposed follow-on deal” before notifying PJT Partners’ general council. PJT contacted the United States attorney’s office in Manhattan.

The authorities said Mr. Caspersen had lost much of the $25 million in 𠇊ggressive options trading” and, as a condition of his bond, a magistrate judge ordered him to get a mental health evaluation and alcohol testing and treatment.

ON THE AGENDA | Jacob J. Lew, the Treasury secretary, will discuss the use of sanctions at the Carnegie Endowment for International Peace at 8:45 a.m. The Securities and Exchange Commission will consider whether to adopt new swaps rules in a meeting at 10 a.m. Charles L. Evans, the president of the Federal Reserve Bank of Chicago, will speak at the Forecasters Club of New York Luncheon at 1 p.m.

SPOTIFY EXPECTED TO SIGN $1 BILLION FINANCING DEAL | Spotify is about to close a $1 billion deal that would double the amount of financing it has raised since it was founded a decade ago,
Leslie Picker and Ben Sisario report in DealBook.

People briefed on the matter said the money comes in the form of convertible debt, which allows investors in the music-streaming company to change their securities into equity at a future date.

The convertible debt allows Spotify to obtain funds without needing to change its valuation. It had an equity value of $8.4 billion last year.

The terms of the debt may put pressure on the company to go public sooner. Investors have the ability to convert to equity at a discount to an initial public offering price — the discount increases if Spotify waits longer than a year to go public. The coupon payment on the debt would also rise over time.

Funds associated with the private equity firm TPG and the investment firm Dragoneer put in $750 million, while the rest came from institutional investors.

TPG and Dragoneer are permitted to cash out their shares as soon as 90 days after an I.P.O., instead of the 180 days employees and other shareholders get, according to The Wall Street Journal, which earlier reported the deal.

DEAL NOTES

Lester C. Thurow, Economist Who Seized the Spotlight, Is Dead at 77 | A prolific writer and popular public speaker, Mr. Thurow sounded an early alarm about the growing income gap between rich and poor Americans.
NYT »

Mergers & Acquisitions »

Starwood Bidder Is a Reclusive Chinese Insurer With Opaque Backing | Anbang, which is in a bidding war for Starwood Hotels, is controlled by a murky group of interconnected companies and led by a reclusive chairman.
NYT »  |  Breakingviews: Starwood’s Takeover Offer From Anbang is Risky, but Worth It 2:23 PM

Starwood’s Takeover Offer From Anbang Is Risky, but Worth It | Heavy interest from rival hoteliers means Starwood can afford to take the Anbang Insurance Group’s offer, which is $4.64 more per share than its deal with Marriott, Jeffrey Goldfarb writes in Breakingviews.
Breakingviews »  |  Starwood Bidder Is an Ambitious Chinese Insurer With Opaque Backing 11:52 AM

Metro Group of Germany to Split Into 2 Companies | The announcement came after Metro agreed in June to sell Galeria Kaufhof, the leading department store chain in Germany and Belgium, to the Hudson’s Bay Company.
NYT »

Norfolk Southern Steps Up Fight Against Canadian Pacific Merger | In a letter to employees, Norfolk Southern’s chief executive, Jim Squires, said that the company is making good progress on its restructuring plans and that employees should vote against merger talks.
the wall street journal

INVESTMENT BANKING »

Swedbank to Replace Chairman After He Lost Investor Support | The departure of Anders Sundstrom as chairman of the Swedish lender followed the ouster of Michael Wolf, its chief executive, in February.
NYT »

Doubts Raised Over Controls at HSBC | The monitor overseeing HSBC’s compliance with a landmark anti-money-laundering settlement has uncovered potential lapses including loans to companies that exported miniskirts to Iran and candy to Syria, The Wall Street Journal reports, citing a person familiar with the findings.
the wall street journal

UniCredit Said to Be in Talks Over Popolare di Vicenza Capital Raising | UniCredit, Italy’s largest bank by assets, is in talks with the government in Rome about seeking support for a 2 billion euro capital raising at the mutual bank Popolare di Vicenza, a deal seen as a crucial test of investor confidence in Italy’s lenders, The Financial Times reports, citing people with direct knowledge of the matter.
the financial times

PRIVATE EQUITY »

Chinese Textile Maker to Buy Owner of Sandro and Claudie Pierlot | Kohlberg Kravis Roberts plans to sell SMCP to China’s Shandong Ruyi in a deal that values the French fashion group at 1.3 billion euros, including debt, The Financial Times reports, citing people familiar with the matter.
the financial times

HEDGE FUNDS »

The Fall of China’s Hedge-Fund King | Xu Xiang was a legend in the country’s booming stock market — until the bubble he helped to create took him down with it.
Feature »

VENTURE CAPITAL »

Robo-Adviser Betterment Gets $100 Million in Venture Capital | The investment, which Betterment says it will use to increase product development and expand its business, pushes the firm’s valuation to $700 million.
NYT »

LEGAL/REGULATORY »

Janet Yellen Says Fed Still Plans to Raise Interest Rates but Carefully | In remarks to the Economic Club of New York, the Federal Reserve chairwoman said she expected the domestic economy to improve this year.
NYT »

Latest Plan to Rescue Puerto Rico Is Met With Disdain on Island | The plan calls for putting Puerto Rico’s finances under a presidentially appointed oversight board — a bitter pill to many on the island.
NYT »

Prosecutor in Bear Stearns Case to Leave U.S. Attorney’s Office | James G. McGovern, the head of the criminal division at the United States attorney’s office in Brooklyn, said he would join the law firm Hogan Lovells as a partner.
NYT »

Bank of England to Raise Bank Capital Buffer as Safeguard | The buffer is intended to ensure that British banks can provide lending and other essential banking services during times of financial stress.
NYT »

F.T.C. Sues Volkswagen Over �ptive’ Diesel Car Ads | The Federal Trade Commission accused VW of selling or leasing more than 550,000 diesel vehicles using a campaign that said they met emissions standards.
NYT »

Hackers Breach Law Firms | Hackers broke into the computer networks at some of the country’s most prestigious law firms, and federal investigators are exploring whether they stole confidential information for the purpose of insider trading, The Wall Street Journal reports, citing people familiar with the matter.
the wall street journal

Simmering for Decades, Anger About Trade Boils Over in � Election | Bashing trade deals has proved a winning strategy for Donald Trump, but economists mostly agree they have benefited American households significantly.
NYT »

Edison International Starts Energy Consultancy | The company will help large businesses take advantage of evolving technologies, markets and incentives in energy efficiency, renewables and storage.
NYT »

Australia to End ASX Clearing Monopoly | Canberra is ending the Australian Securities Exchange monopoly on equity clearing and relaxing ownership restrictions in a decision that removes a potential hurdle to the ASX’s participation in overseas mergers.
the financial times

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What We’re Reading

Get recommendations from New York Times reporters and editors, highlighting great stories from around the web. What We’re Reading emails are sent twice a week.

New Republic

Aiding and Abetting

After yet another Islamic State attack in Europe, Joshua Hersh studies one of the more important, but neglected, aspects of militant networks. That is a gray area that involves petty criminals who share an “indifference to the law and those who might enforce it. They are radical, one might say, but not necessarily radicalized.” Why is this so important? Mr. Hersh — who followed his father, Seymour Hersh, into journalism — notes that old-fashioned, solid police work may help cripple terrorist networks better than high-wire air raids over the Levant. — Diaa Hadid

Her Basketball Game

This is a Q. and A. with a sophisticated basketball fan who is also a very famous pornography actress with connections to many players, apparently. — Jason Stallman

New Republic

The Madding Crowd

This is by no means the first “I went to a Trump rally” story. But it is the first by Patricia Lockwood, the talented poet and humorist. (Side note: She wrote my favorite tweet of all time: &#[email protected] so is Paris any good or not.”) It’s odd and funny in the ways you𠆝 expect, but also poignant in parts and insightful about Trump’s appeal. “It is a practiced seduction,” she writes, “it has worked before. We ignore it at our peril.” — Dan Saltzstein

Politico

Gosh Darn It

At first glance the idea seems outlandish enough to require a “this is not a joke” warning label. And it isn’t. Building its argument on his skills as both a senator and a satirist, as well as his credibility with progressive Democrats across the country, this essay makes a detailed case for Al Franken as Hillary Clinton’s smartest choice for running mate, especially in a projected race against Donald Trump. — Patrick J. Lyons

MyNorthwest.com

A Silver Trail

Lewis and Clark gave out silver medallions — President Thomas Jefferson’s image on one side, a crossed peace pipe and hatchet on the other — to some American Indians they met, and those medals, through the tumult of the American frontier, mostly got lost. This story talks about the ones that have turned up, in places like Antiques Roadshow or a road-building project. The cool and gripping thing here is the idea that these little pieces of the past had their own long journey, echoing and reflecting the epic Corps of Discovery exploration that defined the early days of the West and that still resonates powerfully today from the Dakotas to the mouth of the Columbia River. — Kirk Johnson

Vanity Fair

The Venue of Laughs

The Comedy Cellar is claustrophobically cramped, darkly lit and resolutely un-renovated, which is to say, it’s a perfect room for stand-up. But its acoustics and atmosphere are only part of the reason it’s the premiere comedy club in the country right now. The rest of the explanation is its storied history of singularly great nightly lineups, which is explored in this lively new oral history in Vanity Fair, which includes reflections from everyone from Jon Stewart and Marc Maron to Cellar regulars like Jim Norton and Colin Quinn. — Jason Zinoman

Morning Agenda: Private Equity Executive Accused of Faking Investments

PRIVATE EQUITY EXECUTIVE ACCUSED OF FAKING INVESTMENTS | Federal prosecutors working for Preet Bharara, the United States attorney for Manhattan, have charged Andrew Caspersen, a former Blackstone Group managing principal, with securities and wire fraud in what was labeled a 𠇋razen” scheme to defraud investors of up to $95 million,

Alexandra Stevenson and Matthew Goldstein report in DealBook. The Securities and Exchange Commission filed parallel civil charges.

Mr. Caspersen was a partner at the Park Hill Group, which specializes in raising money for private equity firms and hedge funds, and was still trying to persuade institutional investors to give him money up until last week.

The authorities accused Mr. Caspersen of using a fraudulent investment vehicle and fake emails to dupe an unidentified hedge fund foundation to sink $25 million into the scheme last fall.

According to authorities, Mr. Caspersen had set up a shell company with a similar name to a legitimate vehicle at Park Hill and began raising money for it. He did not tell prospective investors that the shell company was controlled entirely by him, making up email accounts, inventing employees and creating a fake domain name. The scheme began to fall apart when the hedge fund asked for its $25 million plus interest to be returned. It has not yet received the money.

The authorities said he blew through most of the money he raised 𠇊s a result of aggressive options trading” in his personal brokerage account.

Park Hill, which was part of the Blackstone Group and is now part of PJT Partners, has fired Mr. Caspersen and said it was cooperating with the authorities.

The case has raised questions about the internal controls in place at Park Hill — the authorities say Mr. Caspersen’s scheme went on for months. It also raises questions about how much research and checking institutional investors do and how much they are relying on personal connections and trust.

STARWOOD BIDDING WAR ESCALATES | The consortium led by Anbang Insurance has increased its bid for Starwood Hotels to $14 billion, raising the stakes in the most prominent bidding war so far this year,
Michael J. de la Merced reports in DealBook.
Starwood declared that this was “reasonably likely to lead to a ‘superior offer.’ ”

Starwood said that the Anbang group had offered $81 a share on Saturday, and then the current $82.75 after talks between the two sides began.

Marriott International is sticking to its $13.5 billion offer for now. It argued that its proposal was solid while Anbang’s offer may not be able to close.

Analysts have said that Marriott would be hard-pressed to raise its offer to win the battle, since raising the cash portion of its offer could threaten its investment-grade rating. Adding more stock as consideration could harm its earnings per share.

ON THE AGENDA | The chairwoman of the Securities and Exchange Commission, Mary Jo White, will speak at the Mutual Fund Director Forum’s 2016 Policy Conference at 9 a.m. Janet L. Yellen, the chairwoman of the Federal Reserve, will speak at The Economic Club of New York at 11:30 a.m.

VALUEACT PAYS A PRICE FOR SUPPORTING VALEANT | William A. Ackman receives a lot of criticism for investing in Valeant, but ValueAct has had more influence over Valeant’s activities and its role has gone largely unquestioned,
Andrew Ross Sorkin writes in DealBook.

ValueAct, founded by Jeffrey Ubben, has been invested in Valeant since 2006 and has held at least one seat on its board since 2007. It installed J. Michael Pearson as chief executive, oversaw the change in compensation policies and supported the company’s strategy of cutting research and development while increasing the price of its drugs.

It is hard to see how ValueAct could have been unaware of Valeant’s more aggressive strategies, unless it intended to claim that it was duped by management, a claim it has not made yet.

When Mason Morfit, ValueAct’s representative, stepped down from the board, Mr. Pearson said he continued to “value his vision and guidance.” Mr. Morfit also helped establish a compensation plan for Valeant executives that governance experts say may have led to the practices at Valeant that are now under scrutiny. Mr. Pearson’s compensation plan, tied directly to the stock price, may have led to a culture that was too aggressive.

Valeant’s admission that it had wrongly booked $58 million of revenue has given way to the possibility of bigger problems at the company. Its confession has given credibility to critics who have produced analyses suggesting that its books could be flawed in other ways, Peter Eavis reports in DealBook.

And the issue of accounting is likely to remain at the heart of the debate over Valeant because it was so central to its strategy.

Valeant has been accused of channel-stuffing — trying to bolster revenue artificially by granting unsustainable or improper inducements to wholesalers and customers to get them to take its products. Channel-stuffing companies may also book revenue by transferring goods to an entity that is not totally separate.

There were also concerns about spring-loading — when one company acquires another and, between the announcement of the deal and the actual merger, finds a way to book a higher level of costs and lower revenue at the company being acquired.

With the number of inquiries and lawsuits it is facing, the question may well devolve into whether Valeant can survive everything being thrown at it,
Peter J. Henning writes in White Collar Watch.

Valeant has sought to portray itself as cooperative with regulators by pointing the finger at the former chief financial officer, Howard B. Schiller. But Mr. Schiller has refused to step down from the board, giving him a front-row seat to observe how the company responds to investigations. He will also be a key player in the investigation of the company’s accounting.

Valeant must also foot the bills for Mr. Schiller’s lawyers related to any inquiry or face even more litigation if it decides not to do so.


Starbucks Baristas Are Receiving Sensitivity Lessons During the Current Wall Street Crisis - Recipes

METLIFE WINS BATTLE TO REMOVE ‘TOO BIG TO FAIL’ LABEL | Opponents of the Dodd-Frank Act can rejoice. A judge in Washington overturned MetLife’s designation as “too big to fail” on Wednesday,
Victoria Finkle reports in DealBook.

The ruling, by Judge Rosemary M. Collyer of the Federal District Court for the District of Columbia, has raised questions about how regulators decide which institutions are too big to fail.

The judge upheld arguments that regulators failed to adequately assess the insurance company’s vulnerability to extreme financial distress and the potential economic impact of the designation.

The Treasury Department maintained that it had 𠇌onducted a rigorous analysis of MetLife,” but did not say whether it would appeal the ruling.

Some fear that the judge’s decision could prevent regulators from taking the necessary steps to stop another situation like American International Group’s near-collapse in 2008.

On the other hand House Republicans who have criticized the oversight council for a lack of transparency in deciding which institutions are systemically important will be emboldened.

The ruling was certainly a win for Eugene Scalia, the son of the late U.S. Supreme Court Justice Antonin Scalia, The Wall Street Journal reports.

As well as taking on MetLife’s designation, Mr. Scalia has been chipping away at the Dodd-Frank Act since its implementation. Relying on a 1990s-era federal law requiring financial regulators to do a cost-benefit analysis of new rules, Mr. Scalia has successfully argued against parts of the law that fail to meet that standard. He has won against the Securities and Exchange Commission and the Commodity Futures Trading Commission.

The idea that MetLife could shed its designation is shocking to Stephen J. Lubben. If the Financial Stability Oversight Council can’t designate MetLife, who can it designate? Mr. Lubben asks in the In Debt column.

MetLife has an enormous bond portfolio, a large derivatives book, substantial real estate holdings and significant connections with other systemically important financial institutions. It is plausible that it would create problems if MetLife were to fail.

The court didn’t buy it and we don’t know exactly why since the opinion is sealed. But we should expect an appeal. The losing party will want the full circuit to hear the case.

CAN STARWOOD MAKE A DEAL WITH ANBANG? | Starwood Hotel & Resorts faces a tricky issue,
Steven Davidoff Solomon writes in Deal Professor. Any deal it negotiates with the secretive Anbang Insurance Group may not be worth the paper it is printed on. And that is because Anbang is based in China.

If the consortium it leads won the bidding contest for Starwood and failed to honor the terms, Starwood would have to sue Anbang to enforce the deal.

If Starwood won a lawsuit in the United States, it would have to enforce the judgment in China, where Anbang and its assets are.

China is notorious for its weak rule of law and it is unclear whether a Chinese court would actually enforce a United States judgment against Anbang.

As with any deal involving a company outside the United States, it is no use having a great claim unless you have the pocket to get the money from, Mr. Davidoff Solomon writes.

Arbitration is a possible option and many agreements with Chinese companies contain arbitration provisions, but there is a common belief that Chinese courts will not enforce these awards.

Starwood’s lawyers will seek collateral from Anbang — mainly American assets. But Anbang’s assets in the United States are limited. The Waldorf Astoria and Strategic Hotels are not enough — Anbang most likely borrowed heavily to buy them.

The lawyers will also look for a deposit or letter of credit. It is also possible to get commitment from Anbang’s owners, though the problem is that they are unknown and are also likely to be abroad.

They may seek to have a termination fee put in escrow as Smithfield did when it was acquired by Shanghui International Holdings. And they should fight hard to get a “super escrow” of multiple billions because of the regulatory issues and risks to the deal.

How Starwood deals with these issues is very likely to be the template for how American acquisition targets deal with Chinese issues going forward.

ON THE AGENDA | Mary Jo White, the chairwoman of the Securities and Exchange Commission, will give a speech on protecting investments in pre-I.P.O. issuers at Stanford Law School at 8:45 p.m.

𠆏INTECH’ BOOM SAID TO THREATEN BANK JOBS | Up to 30 percent of employees in the banking industry could lose their jobs to new technologies over the next decade,
Nathaniel Popper reports in DealBook.

A report by Citigroup said that the number of employees at American banks would drop to 1.8 million in the year 2025, down from 2.6 million last year. An even sharper drop is predicted for European banks.

The jobs would be lost to start-ups cutting into different parts of the financial industry.

The projection comes after Antony Jenkins, the former chief executive of Barclays, said that banking was facing a series of “Uber moments,” in which the jobs in the industry could halve.

Banks are already being forced by volatile market conditions and new regulations to make cuts.

The Citigroup report noted that the banking sector had attracted record investment over the last five years and that new technologies had taken off the fastest in Asia, particularly China.

New financial technologies have been slower to gain traction in the United States. But “given the growth in fintech investment, this isn’t likely to continue for long,” wrote Kathleen Boyle, the managing editor of Citigroup GPS, in the report’s introduction.

Mergers & Acquisitions »

State Street to Buy G.E.’s Asset Management Business | The deal is the latest sale as General Electric retreats from finance and refocuses on its industrial roots.
NYT »

Dalian Wanda Group Seeks to Delist Its Commercial Property Arm | The potential privatization of Dalian Wanda Commercial Properties comes just 15 months after it raised $3.7 billion in a Hong Kong initial public offering.
NYT »

Foxconn’s Deal to Buy Sharp Is a Test for Japanese Reform | Instead of taking the easy route, Sharp is going to the bidder with the most capabilities, and incentives, to make it profitable and productive, Rob Cox writes in Breakingviews.
Breakingviews »  |  To Woo Apple, Foxconn Bets $3.5 Billion on Sharp 6:00 AM

Tata Steel Plans to Sell British Plants, Threatening 15,000 Jobs | Profits at the Indian-owned Tata Steel have been squeezed by cheap Chinese imports, and the company suggested that it would consider closing its plants if no buyer came forward.
NYT »

Allianz Said to Be Selling $5 Billion Life Insurance Portfolio in Italy | Allianz, which is Italy’s fourth biggest life and health insurer, is facing pressures from low interest rates and has decided to sell Italian life policies that pay a 2 percent minimum interest rate, Reuters reports, citing people familiar with the matter.
reuters

INVESTMENT BANKING »

Chinese Investment Bank Defaults on 𠆍im Sum’ Bond | A unit of Guosen Securities, China’s eighth-largest investment bank, has defaulted on a Hong Kong-traded renminbi bond, the first debt breach by a state-owned enterprise in China’s offshore market in nearly two decades, according to a document seen by the Financial Times.
the financial times

HEDGE FUNDS »

Citadel Securities Bolsters Electronic Trading | Citadel Securities, the market making arm of the hedge fund, has hired a senior banker as part of its efforts to use electronic trading to break open traditionally dealer-dominated markets.
the financial times

I.P.O./OFFERINGS »

A.I.G. Mortgage Unit Files for I.P.O. | American International Group’s mortgage insurer, United Guaranty, filed for an offering of $100 million, a placeholder figure that is used to calculate fees and will probably change.
bloomberg news

VENTURE CAPITAL »

Expa Labs Will Nurture Tech Start-Ups a Few at a Time | The incubator Expa Labs will take a smaller-scale approach to helping start-ups grow from idea to prototype to marketable product.
NYT »

What Happened When Venture Capitalists Took Over the Golden State Warriors | After racking up a historic N.B.A. season, the team’s owners — most of them from Silicon Valley — think their management style deserves some of the credit. Are they right?
Feature »

Fidelity Marks Down Start-Ups Including Dropbox and Zenefits | Fidelity Investments took an ax to the valuations of its private technology shares in February, cutting bellwether software start-ups like Dropbox, Cloudera and Zenefits by as much as 38 percent compared with the prior month.
the wall street journal

LEGAL/REGULATORY »

Cravath Law Firm Discloses a Data Attack | The disclosure by Cravath Swaine & Moore, which reported a “limited breach” of its computer network last summer, is rare for a big law firm.
NYT »

Supreme Court Rules Against Freezing Assets Not Tied to Crimes | The government may not freeze assets needed to pay criminal defense lawyers if the assets are not linked to a crime, the court ruled in a 5-to-3 decision.
NYT »

General Motors Ignition Switch Is Cleared in Trial Over a Crash | The case is one of six so-called bellwether trials being conducted to resolve legal claims against G.M., which recalled nearly 30 million vehicles after a scandal.
NYT »

Contractors and Temps Accounted for All of the Growth in Employment in the Last Decade | One result is that employers have succeeded at shifting much of the burden of providing social insurance onto workers.
The Upshot »

S.E.C. Bans Venture Capitalist for Theft | A San Francisco biotechnology venture capitalist agreed to pay nearly $5.8 million to settle accusations from the Securities and Exchange Commission that he stole investor money to pay for vacations in St. Bart’s and Paris, Tiffany jewelry, private jets and other expenses.
reuters

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Morning Agenda: Foxconn Strikes Deal for Sharp

FOXCONN STRIKES DEAL FOR SHARP | Foxconn is grappling with rising labor costs in China and a slowdown in the global smartphone market, but it managed to forestall its weakening relationship with Apple by striking a deal to acquire the screen maker Sharp of Japan for $3.5 billion,
Paul Mozur reports in DealBook.

Foxconn said it would take over 66 percent of Sharp, with a total investment of 389 billion yen, or about $3.5 billion. Foxconn is buying 򥊉 billion worth of common Sharp shares and an additional ꖙ.99 billion worth of nonvoting preferred shares.

The total investment is well below the $5.5 billion that Foxconn was expected to pay last month before it balked over the discovery that a new owner could be liable for close to $3 billion in potential liabilities.

The deal comes after weeks of public negotiations and high-profile setbacks, and should make Foxconn a more attractive partner for Apple, which uses Sharp screens in its iPhones.

Analysts are still skeptical — they say Foxconn gets an ailing business that will take a considerable amount of money to turn around, even if it does get a bigger chunk of the global supply chain.

The deal is a return to form for Foxconn in its emphasis on scale. Even as it has tried to maintain its enormous scale, it has also been trying to climb up the value chain to find more profitable streams of revenue.

EXPLAINING VALEANT | Commentators and analysts have drawn lessons from the mess surrounding Valeant, but few of them are convincing,
Steven Davidoff Solomon writes in Deal Professor.

Some contend that Valeant is like Enron, a house of cards waiting to be brought down by an inevitable accounting scandal. But Valeant is a real operating business and there is no indication of outright fraud.

Others have cautioned about the McKinsey-driven ethos — J. Michael Pearson was a McKinsey consultant for 23 years. But McKinsey has also been at the forefront of arguments about long-term shareholder value.

Warnings about Valeant’s decision to cut research and development are based on a nonsensical notion that R&D can never be bad. There has been an uproar about predatory pricing, but there is no transparency around Valeant’s pricing and its products still sell.

Hedge funds like ValueAct have also been blamed. This explains the business strategy, but it does not help us understand what went wrong. Shareholders get their share of the blame too for chasing returns, but this has nothing to do with Valeant’s business.

So what is the Deal Professor’s theory? If Wall Street built Valeant, it is now running away from it, Mr. Davidoff Solomon writes. The velocity of the turnaround created views of the company that are not tethered to reality.

It does not make sense for a company with earnings before interest, taxes, depreciation and amortization, or Ebitda, of about $5 billion a year to be worth only $9 billion. Allergan, with Ebitda of $7 billion a year and $40 billion of debt, is worth $110 billion.

This crisis has crushed Valeant’s previous business model, but it still has billions of dollars in earnings. The intrinsic worth of that business remains the same and the flight by Wall Street shut down its old growth model, but not its business. Wall Street always thinks the worst when things go bad and sometimes it creates a self-fulfilling frenzy.

LOUIS BACON’S CHARITY SAYS IT WAS VICTIM OF FRAUD | The Moore Charitable Foundation said it was the victim of fraud by the 39-year-old Wall Street executive Andrew Caspersen,
Matthew Goldstein and Alexandra Stevenson report in DealBook.

The trust, founded by the hedge fund billionaire Louis M. Bacon, said that it was “lied to by Andrew Caspersen, a managing director at investment bank PJT Partners, regarding a potential investment related to the publicly announced restructuring of a private equity fund.”

The foundation put $25 million into Mr. Caspersen’s scheme and said that it detected “irregularities in a proposed follow-on deal” before notifying PJT Partners’ general council. PJT contacted the United States attorney’s office in Manhattan.

The authorities said Mr. Caspersen had lost much of the $25 million in 𠇊ggressive options trading” and, as a condition of his bond, a magistrate judge ordered him to get a mental health evaluation and alcohol testing and treatment.

ON THE AGENDA | Jacob J. Lew, the Treasury secretary, will discuss the use of sanctions at the Carnegie Endowment for International Peace at 8:45 a.m. The Securities and Exchange Commission will consider whether to adopt new swaps rules in a meeting at 10 a.m. Charles L. Evans, the president of the Federal Reserve Bank of Chicago, will speak at the Forecasters Club of New York Luncheon at 1 p.m.

SPOTIFY EXPECTED TO SIGN $1 BILLION FINANCING DEAL | Spotify is about to close a $1 billion deal that would double the amount of financing it has raised since it was founded a decade ago,
Leslie Picker and Ben Sisario report in DealBook.

People briefed on the matter said the money comes in the form of convertible debt, which allows investors in the music-streaming company to change their securities into equity at a future date.

The convertible debt allows Spotify to obtain funds without needing to change its valuation. It had an equity value of $8.4 billion last year.

The terms of the debt may put pressure on the company to go public sooner. Investors have the ability to convert to equity at a discount to an initial public offering price — the discount increases if Spotify waits longer than a year to go public. The coupon payment on the debt would also rise over time.

Funds associated with the private equity firm TPG and the investment firm Dragoneer put in $750 million, while the rest came from institutional investors.

TPG and Dragoneer are permitted to cash out their shares as soon as 90 days after an I.P.O., instead of the 180 days employees and other shareholders get, according to The Wall Street Journal, which earlier reported the deal.

DEAL NOTES

Lester C. Thurow, Economist Who Seized the Spotlight, Is Dead at 77 | A prolific writer and popular public speaker, Mr. Thurow sounded an early alarm about the growing income gap between rich and poor Americans.
NYT »

Mergers & Acquisitions »

Starwood Bidder Is a Reclusive Chinese Insurer With Opaque Backing | Anbang, which is in a bidding war for Starwood Hotels, is controlled by a murky group of interconnected companies and led by a reclusive chairman.
NYT »  |  Breakingviews: Starwood’s Takeover Offer From Anbang is Risky, but Worth It 2:23 PM

Starwood’s Takeover Offer From Anbang Is Risky, but Worth It | Heavy interest from rival hoteliers means Starwood can afford to take the Anbang Insurance Group’s offer, which is $4.64 more per share than its deal with Marriott, Jeffrey Goldfarb writes in Breakingviews.
Breakingviews »  |  Starwood Bidder Is an Ambitious Chinese Insurer With Opaque Backing 11:52 AM

Metro Group of Germany to Split Into 2 Companies | The announcement came after Metro agreed in June to sell Galeria Kaufhof, the leading department store chain in Germany and Belgium, to the Hudson’s Bay Company.
NYT »

Norfolk Southern Steps Up Fight Against Canadian Pacific Merger | In a letter to employees, Norfolk Southern’s chief executive, Jim Squires, said that the company is making good progress on its restructuring plans and that employees should vote against merger talks.
the wall street journal

INVESTMENT BANKING »

Swedbank to Replace Chairman After He Lost Investor Support | The departure of Anders Sundstrom as chairman of the Swedish lender followed the ouster of Michael Wolf, its chief executive, in February.
NYT »

Doubts Raised Over Controls at HSBC | The monitor overseeing HSBC’s compliance with a landmark anti-money-laundering settlement has uncovered potential lapses including loans to companies that exported miniskirts to Iran and candy to Syria, The Wall Street Journal reports, citing a person familiar with the findings.
the wall street journal

UniCredit Said to Be in Talks Over Popolare di Vicenza Capital Raising | UniCredit, Italy’s largest bank by assets, is in talks with the government in Rome about seeking support for a 2 billion euro capital raising at the mutual bank Popolare di Vicenza, a deal seen as a crucial test of investor confidence in Italy’s lenders, The Financial Times reports, citing people with direct knowledge of the matter.
the financial times

PRIVATE EQUITY »

Chinese Textile Maker to Buy Owner of Sandro and Claudie Pierlot | Kohlberg Kravis Roberts plans to sell SMCP to China’s Shandong Ruyi in a deal that values the French fashion group at 1.3 billion euros, including debt, The Financial Times reports, citing people familiar with the matter.
the financial times

HEDGE FUNDS »

The Fall of China’s Hedge-Fund King | Xu Xiang was a legend in the country’s booming stock market — until the bubble he helped to create took him down with it.
Feature »

VENTURE CAPITAL »

Robo-Adviser Betterment Gets $100 Million in Venture Capital | The investment, which Betterment says it will use to increase product development and expand its business, pushes the firm’s valuation to $700 million.
NYT »

LEGAL/REGULATORY »

Janet Yellen Says Fed Still Plans to Raise Interest Rates but Carefully | In remarks to the Economic Club of New York, the Federal Reserve chairwoman said she expected the domestic economy to improve this year.
NYT »

Latest Plan to Rescue Puerto Rico Is Met With Disdain on Island | The plan calls for putting Puerto Rico’s finances under a presidentially appointed oversight board — a bitter pill to many on the island.
NYT »

Prosecutor in Bear Stearns Case to Leave U.S. Attorney’s Office | James G. McGovern, the head of the criminal division at the United States attorney’s office in Brooklyn, said he would join the law firm Hogan Lovells as a partner.
NYT »

Bank of England to Raise Bank Capital Buffer as Safeguard | The buffer is intended to ensure that British banks can provide lending and other essential banking services during times of financial stress.
NYT »

F.T.C. Sues Volkswagen Over �ptive’ Diesel Car Ads | The Federal Trade Commission accused VW of selling or leasing more than 550,000 diesel vehicles using a campaign that said they met emissions standards.
NYT »

Hackers Breach Law Firms | Hackers broke into the computer networks at some of the country’s most prestigious law firms, and federal investigators are exploring whether they stole confidential information for the purpose of insider trading, The Wall Street Journal reports, citing people familiar with the matter.
the wall street journal

Simmering for Decades, Anger About Trade Boils Over in � Election | Bashing trade deals has proved a winning strategy for Donald Trump, but economists mostly agree they have benefited American households significantly.
NYT »

Edison International Starts Energy Consultancy | The company will help large businesses take advantage of evolving technologies, markets and incentives in energy efficiency, renewables and storage.
NYT »

Australia to End ASX Clearing Monopoly | Canberra is ending the Australian Securities Exchange monopoly on equity clearing and relaxing ownership restrictions in a decision that removes a potential hurdle to the ASX’s participation in overseas mergers.
the financial times

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What We’re Reading

Get recommendations from New York Times reporters and editors, highlighting great stories from around the web. What We’re Reading emails are sent twice a week.

New Republic

Aiding and Abetting

After yet another Islamic State attack in Europe, Joshua Hersh studies one of the more important, but neglected, aspects of militant networks. That is a gray area that involves petty criminals who share an “indifference to the law and those who might enforce it. They are radical, one might say, but not necessarily radicalized.” Why is this so important? Mr. Hersh — who followed his father, Seymour Hersh, into journalism — notes that old-fashioned, solid police work may help cripple terrorist networks better than high-wire air raids over the Levant. — Diaa Hadid

Her Basketball Game

This is a Q. and A. with a sophisticated basketball fan who is also a very famous pornography actress with connections to many players, apparently. — Jason Stallman

New Republic

The Madding Crowd

This is by no means the first “I went to a Trump rally” story. But it is the first by Patricia Lockwood, the talented poet and humorist. (Side note: She wrote my favorite tweet of all time: &#[email protected] so is Paris any good or not.”) It’s odd and funny in the ways you𠆝 expect, but also poignant in parts and insightful about Trump’s appeal. “It is a practiced seduction,” she writes, “it has worked before. We ignore it at our peril.” — Dan Saltzstein

Politico

Gosh Darn It

At first glance the idea seems outlandish enough to require a “this is not a joke” warning label. And it isn’t. Building its argument on his skills as both a senator and a satirist, as well as his credibility with progressive Democrats across the country, this essay makes a detailed case for Al Franken as Hillary Clinton’s smartest choice for running mate, especially in a projected race against Donald Trump. — Patrick J. Lyons

MyNorthwest.com

A Silver Trail

Lewis and Clark gave out silver medallions — President Thomas Jefferson’s image on one side, a crossed peace pipe and hatchet on the other — to some American Indians they met, and those medals, through the tumult of the American frontier, mostly got lost. This story talks about the ones that have turned up, in places like Antiques Roadshow or a road-building project. The cool and gripping thing here is the idea that these little pieces of the past had their own long journey, echoing and reflecting the epic Corps of Discovery exploration that defined the early days of the West and that still resonates powerfully today from the Dakotas to the mouth of the Columbia River. — Kirk Johnson

Vanity Fair

The Venue of Laughs

The Comedy Cellar is claustrophobically cramped, darkly lit and resolutely un-renovated, which is to say, it’s a perfect room for stand-up. But its acoustics and atmosphere are only part of the reason it’s the premiere comedy club in the country right now. The rest of the explanation is its storied history of singularly great nightly lineups, which is explored in this lively new oral history in Vanity Fair, which includes reflections from everyone from Jon Stewart and Marc Maron to Cellar regulars like Jim Norton and Colin Quinn. — Jason Zinoman

Morning Agenda: Private Equity Executive Accused of Faking Investments

PRIVATE EQUITY EXECUTIVE ACCUSED OF FAKING INVESTMENTS | Federal prosecutors working for Preet Bharara, the United States attorney for Manhattan, have charged Andrew Caspersen, a former Blackstone Group managing principal, with securities and wire fraud in what was labeled a 𠇋razen” scheme to defraud investors of up to $95 million,

Alexandra Stevenson and Matthew Goldstein report in DealBook. The Securities and Exchange Commission filed parallel civil charges.

Mr. Caspersen was a partner at the Park Hill Group, which specializes in raising money for private equity firms and hedge funds, and was still trying to persuade institutional investors to give him money up until last week.

The authorities accused Mr. Caspersen of using a fraudulent investment vehicle and fake emails to dupe an unidentified hedge fund foundation to sink $25 million into the scheme last fall.

According to authorities, Mr. Caspersen had set up a shell company with a similar name to a legitimate vehicle at Park Hill and began raising money for it. He did not tell prospective investors that the shell company was controlled entirely by him, making up email accounts, inventing employees and creating a fake domain name. The scheme began to fall apart when the hedge fund asked for its $25 million plus interest to be returned. It has not yet received the money.

The authorities said he blew through most of the money he raised 𠇊s a result of aggressive options trading” in his personal brokerage account.

Park Hill, which was part of the Blackstone Group and is now part of PJT Partners, has fired Mr. Caspersen and said it was cooperating with the authorities.

The case has raised questions about the internal controls in place at Park Hill — the authorities say Mr. Caspersen’s scheme went on for months. It also raises questions about how much research and checking institutional investors do and how much they are relying on personal connections and trust.

STARWOOD BIDDING WAR ESCALATES | The consortium led by Anbang Insurance has increased its bid for Starwood Hotels to $14 billion, raising the stakes in the most prominent bidding war so far this year,
Michael J. de la Merced reports in DealBook.
Starwood declared that this was “reasonably likely to lead to a ‘superior offer.’ ”

Starwood said that the Anbang group had offered $81 a share on Saturday, and then the current $82.75 after talks between the two sides began.

Marriott International is sticking to its $13.5 billion offer for now. It argued that its proposal was solid while Anbang’s offer may not be able to close.

Analysts have said that Marriott would be hard-pressed to raise its offer to win the battle, since raising the cash portion of its offer could threaten its investment-grade rating. Adding more stock as consideration could harm its earnings per share.

ON THE AGENDA | The chairwoman of the Securities and Exchange Commission, Mary Jo White, will speak at the Mutual Fund Director Forum’s 2016 Policy Conference at 9 a.m. Janet L. Yellen, the chairwoman of the Federal Reserve, will speak at The Economic Club of New York at 11:30 a.m.

VALUEACT PAYS A PRICE FOR SUPPORTING VALEANT | William A. Ackman receives a lot of criticism for investing in Valeant, but ValueAct has had more influence over Valeant’s activities and its role has gone largely unquestioned,
Andrew Ross Sorkin writes in DealBook.

ValueAct, founded by Jeffrey Ubben, has been invested in Valeant since 2006 and has held at least one seat on its board since 2007. It installed J. Michael Pearson as chief executive, oversaw the change in compensation policies and supported the company’s strategy of cutting research and development while increasing the price of its drugs.

It is hard to see how ValueAct could have been unaware of Valeant’s more aggressive strategies, unless it intended to claim that it was duped by management, a claim it has not made yet.

When Mason Morfit, ValueAct’s representative, stepped down from the board, Mr. Pearson said he continued to “value his vision and guidance.” Mr. Morfit also helped establish a compensation plan for Valeant executives that governance experts say may have led to the practices at Valeant that are now under scrutiny. Mr. Pearson’s compensation plan, tied directly to the stock price, may have led to a culture that was too aggressive.

Valeant’s admission that it had wrongly booked $58 million of revenue has given way to the possibility of bigger problems at the company. Its confession has given credibility to critics who have produced analyses suggesting that its books could be flawed in other ways, Peter Eavis reports in DealBook.

And the issue of accounting is likely to remain at the heart of the debate over Valeant because it was so central to its strategy.

Valeant has been accused of channel-stuffing — trying to bolster revenue artificially by granting unsustainable or improper inducements to wholesalers and customers to get them to take its products. Channel-stuffing companies may also book revenue by transferring goods to an entity that is not totally separate.

There were also concerns about spring-loading — when one company acquires another and, between the announcement of the deal and the actual merger, finds a way to book a higher level of costs and lower revenue at the company being acquired.

With the number of inquiries and lawsuits it is facing, the question may well devolve into whether Valeant can survive everything being thrown at it,
Peter J. Henning writes in White Collar Watch.

Valeant has sought to portray itself as cooperative with regulators by pointing the finger at the former chief financial officer, Howard B. Schiller. But Mr. Schiller has refused to step down from the board, giving him a front-row seat to observe how the company responds to investigations. He will also be a key player in the investigation of the company’s accounting.

Valeant must also foot the bills for Mr. Schiller’s lawyers related to any inquiry or face even more litigation if it decides not to do so.


Starbucks Baristas Are Receiving Sensitivity Lessons During the Current Wall Street Crisis - Recipes

METLIFE WINS BATTLE TO REMOVE ‘TOO BIG TO FAIL’ LABEL | Opponents of the Dodd-Frank Act can rejoice. A judge in Washington overturned MetLife’s designation as “too big to fail” on Wednesday,
Victoria Finkle reports in DealBook.

The ruling, by Judge Rosemary M. Collyer of the Federal District Court for the District of Columbia, has raised questions about how regulators decide which institutions are too big to fail.

The judge upheld arguments that regulators failed to adequately assess the insurance company’s vulnerability to extreme financial distress and the potential economic impact of the designation.

The Treasury Department maintained that it had 𠇌onducted a rigorous analysis of MetLife,” but did not say whether it would appeal the ruling.

Some fear that the judge’s decision could prevent regulators from taking the necessary steps to stop another situation like American International Group’s near-collapse in 2008.

On the other hand House Republicans who have criticized the oversight council for a lack of transparency in deciding which institutions are systemically important will be emboldened.

The ruling was certainly a win for Eugene Scalia, the son of the late U.S. Supreme Court Justice Antonin Scalia, The Wall Street Journal reports.

As well as taking on MetLife’s designation, Mr. Scalia has been chipping away at the Dodd-Frank Act since its implementation. Relying on a 1990s-era federal law requiring financial regulators to do a cost-benefit analysis of new rules, Mr. Scalia has successfully argued against parts of the law that fail to meet that standard. He has won against the Securities and Exchange Commission and the Commodity Futures Trading Commission.

The idea that MetLife could shed its designation is shocking to Stephen J. Lubben. If the Financial Stability Oversight Council can’t designate MetLife, who can it designate? Mr. Lubben asks in the In Debt column.

MetLife has an enormous bond portfolio, a large derivatives book, substantial real estate holdings and significant connections with other systemically important financial institutions. It is plausible that it would create problems if MetLife were to fail.

The court didn’t buy it and we don’t know exactly why since the opinion is sealed. But we should expect an appeal. The losing party will want the full circuit to hear the case.

CAN STARWOOD MAKE A DEAL WITH ANBANG? | Starwood Hotel & Resorts faces a tricky issue,
Steven Davidoff Solomon writes in Deal Professor. Any deal it negotiates with the secretive Anbang Insurance Group may not be worth the paper it is printed on. And that is because Anbang is based in China.

If the consortium it leads won the bidding contest for Starwood and failed to honor the terms, Starwood would have to sue Anbang to enforce the deal.

If Starwood won a lawsuit in the United States, it would have to enforce the judgment in China, where Anbang and its assets are.

China is notorious for its weak rule of law and it is unclear whether a Chinese court would actually enforce a United States judgment against Anbang.

As with any deal involving a company outside the United States, it is no use having a great claim unless you have the pocket to get the money from, Mr. Davidoff Solomon writes.

Arbitration is a possible option and many agreements with Chinese companies contain arbitration provisions, but there is a common belief that Chinese courts will not enforce these awards.

Starwood’s lawyers will seek collateral from Anbang — mainly American assets. But Anbang’s assets in the United States are limited. The Waldorf Astoria and Strategic Hotels are not enough — Anbang most likely borrowed heavily to buy them.

The lawyers will also look for a deposit or letter of credit. It is also possible to get commitment from Anbang’s owners, though the problem is that they are unknown and are also likely to be abroad.

They may seek to have a termination fee put in escrow as Smithfield did when it was acquired by Shanghui International Holdings. And they should fight hard to get a “super escrow” of multiple billions because of the regulatory issues and risks to the deal.

How Starwood deals with these issues is very likely to be the template for how American acquisition targets deal with Chinese issues going forward.

ON THE AGENDA | Mary Jo White, the chairwoman of the Securities and Exchange Commission, will give a speech on protecting investments in pre-I.P.O. issuers at Stanford Law School at 8:45 p.m.

𠆏INTECH’ BOOM SAID TO THREATEN BANK JOBS | Up to 30 percent of employees in the banking industry could lose their jobs to new technologies over the next decade,
Nathaniel Popper reports in DealBook.

A report by Citigroup said that the number of employees at American banks would drop to 1.8 million in the year 2025, down from 2.6 million last year. An even sharper drop is predicted for European banks.

The jobs would be lost to start-ups cutting into different parts of the financial industry.

The projection comes after Antony Jenkins, the former chief executive of Barclays, said that banking was facing a series of “Uber moments,” in which the jobs in the industry could halve.

Banks are already being forced by volatile market conditions and new regulations to make cuts.

The Citigroup report noted that the banking sector had attracted record investment over the last five years and that new technologies had taken off the fastest in Asia, particularly China.

New financial technologies have been slower to gain traction in the United States. But “given the growth in fintech investment, this isn’t likely to continue for long,” wrote Kathleen Boyle, the managing editor of Citigroup GPS, in the report’s introduction.

Mergers & Acquisitions »

State Street to Buy G.E.’s Asset Management Business | The deal is the latest sale as General Electric retreats from finance and refocuses on its industrial roots.
NYT »

Dalian Wanda Group Seeks to Delist Its Commercial Property Arm | The potential privatization of Dalian Wanda Commercial Properties comes just 15 months after it raised $3.7 billion in a Hong Kong initial public offering.
NYT »

Foxconn’s Deal to Buy Sharp Is a Test for Japanese Reform | Instead of taking the easy route, Sharp is going to the bidder with the most capabilities, and incentives, to make it profitable and productive, Rob Cox writes in Breakingviews.
Breakingviews »  |  To Woo Apple, Foxconn Bets $3.5 Billion on Sharp 6:00 AM

Tata Steel Plans to Sell British Plants, Threatening 15,000 Jobs | Profits at the Indian-owned Tata Steel have been squeezed by cheap Chinese imports, and the company suggested that it would consider closing its plants if no buyer came forward.
NYT »

Allianz Said to Be Selling $5 Billion Life Insurance Portfolio in Italy | Allianz, which is Italy’s fourth biggest life and health insurer, is facing pressures from low interest rates and has decided to sell Italian life policies that pay a 2 percent minimum interest rate, Reuters reports, citing people familiar with the matter.
reuters

INVESTMENT BANKING »

Chinese Investment Bank Defaults on 𠆍im Sum’ Bond | A unit of Guosen Securities, China’s eighth-largest investment bank, has defaulted on a Hong Kong-traded renminbi bond, the first debt breach by a state-owned enterprise in China’s offshore market in nearly two decades, according to a document seen by the Financial Times.
the financial times

HEDGE FUNDS »

Citadel Securities Bolsters Electronic Trading | Citadel Securities, the market making arm of the hedge fund, has hired a senior banker as part of its efforts to use electronic trading to break open traditionally dealer-dominated markets.
the financial times

I.P.O./OFFERINGS »

A.I.G. Mortgage Unit Files for I.P.O. | American International Group’s mortgage insurer, United Guaranty, filed for an offering of $100 million, a placeholder figure that is used to calculate fees and will probably change.
bloomberg news

VENTURE CAPITAL »

Expa Labs Will Nurture Tech Start-Ups a Few at a Time | The incubator Expa Labs will take a smaller-scale approach to helping start-ups grow from idea to prototype to marketable product.
NYT »

What Happened When Venture Capitalists Took Over the Golden State Warriors | After racking up a historic N.B.A. season, the team’s owners — most of them from Silicon Valley — think their management style deserves some of the credit. Are they right?
Feature »

Fidelity Marks Down Start-Ups Including Dropbox and Zenefits | Fidelity Investments took an ax to the valuations of its private technology shares in February, cutting bellwether software start-ups like Dropbox, Cloudera and Zenefits by as much as 38 percent compared with the prior month.
the wall street journal

LEGAL/REGULATORY »

Cravath Law Firm Discloses a Data Attack | The disclosure by Cravath Swaine & Moore, which reported a “limited breach” of its computer network last summer, is rare for a big law firm.
NYT »

Supreme Court Rules Against Freezing Assets Not Tied to Crimes | The government may not freeze assets needed to pay criminal defense lawyers if the assets are not linked to a crime, the court ruled in a 5-to-3 decision.
NYT »

General Motors Ignition Switch Is Cleared in Trial Over a Crash | The case is one of six so-called bellwether trials being conducted to resolve legal claims against G.M., which recalled nearly 30 million vehicles after a scandal.
NYT »

Contractors and Temps Accounted for All of the Growth in Employment in the Last Decade | One result is that employers have succeeded at shifting much of the burden of providing social insurance onto workers.
The Upshot »

S.E.C. Bans Venture Capitalist for Theft | A San Francisco biotechnology venture capitalist agreed to pay nearly $5.8 million to settle accusations from the Securities and Exchange Commission that he stole investor money to pay for vacations in St. Bart’s and Paris, Tiffany jewelry, private jets and other expenses.
reuters

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Morning Agenda: Foxconn Strikes Deal for Sharp

FOXCONN STRIKES DEAL FOR SHARP | Foxconn is grappling with rising labor costs in China and a slowdown in the global smartphone market, but it managed to forestall its weakening relationship with Apple by striking a deal to acquire the screen maker Sharp of Japan for $3.5 billion,
Paul Mozur reports in DealBook.

Foxconn said it would take over 66 percent of Sharp, with a total investment of 389 billion yen, or about $3.5 billion. Foxconn is buying 򥊉 billion worth of common Sharp shares and an additional ꖙ.99 billion worth of nonvoting preferred shares.

The total investment is well below the $5.5 billion that Foxconn was expected to pay last month before it balked over the discovery that a new owner could be liable for close to $3 billion in potential liabilities.

The deal comes after weeks of public negotiations and high-profile setbacks, and should make Foxconn a more attractive partner for Apple, which uses Sharp screens in its iPhones.

Analysts are still skeptical — they say Foxconn gets an ailing business that will take a considerable amount of money to turn around, even if it does get a bigger chunk of the global supply chain.

The deal is a return to form for Foxconn in its emphasis on scale. Even as it has tried to maintain its enormous scale, it has also been trying to climb up the value chain to find more profitable streams of revenue.

EXPLAINING VALEANT | Commentators and analysts have drawn lessons from the mess surrounding Valeant, but few of them are convincing,
Steven Davidoff Solomon writes in Deal Professor.

Some contend that Valeant is like Enron, a house of cards waiting to be brought down by an inevitable accounting scandal. But Valeant is a real operating business and there is no indication of outright fraud.

Others have cautioned about the McKinsey-driven ethos — J. Michael Pearson was a McKinsey consultant for 23 years. But McKinsey has also been at the forefront of arguments about long-term shareholder value.

Warnings about Valeant’s decision to cut research and development are based on a nonsensical notion that R&D can never be bad. There has been an uproar about predatory pricing, but there is no transparency around Valeant’s pricing and its products still sell.

Hedge funds like ValueAct have also been blamed. This explains the business strategy, but it does not help us understand what went wrong. Shareholders get their share of the blame too for chasing returns, but this has nothing to do with Valeant’s business.

So what is the Deal Professor’s theory? If Wall Street built Valeant, it is now running away from it, Mr. Davidoff Solomon writes. The velocity of the turnaround created views of the company that are not tethered to reality.

It does not make sense for a company with earnings before interest, taxes, depreciation and amortization, or Ebitda, of about $5 billion a year to be worth only $9 billion. Allergan, with Ebitda of $7 billion a year and $40 billion of debt, is worth $110 billion.

This crisis has crushed Valeant’s previous business model, but it still has billions of dollars in earnings. The intrinsic worth of that business remains the same and the flight by Wall Street shut down its old growth model, but not its business. Wall Street always thinks the worst when things go bad and sometimes it creates a self-fulfilling frenzy.

LOUIS BACON’S CHARITY SAYS IT WAS VICTIM OF FRAUD | The Moore Charitable Foundation said it was the victim of fraud by the 39-year-old Wall Street executive Andrew Caspersen,
Matthew Goldstein and Alexandra Stevenson report in DealBook.

The trust, founded by the hedge fund billionaire Louis M. Bacon, said that it was “lied to by Andrew Caspersen, a managing director at investment bank PJT Partners, regarding a potential investment related to the publicly announced restructuring of a private equity fund.”

The foundation put $25 million into Mr. Caspersen’s scheme and said that it detected “irregularities in a proposed follow-on deal” before notifying PJT Partners’ general council. PJT contacted the United States attorney’s office in Manhattan.

The authorities said Mr. Caspersen had lost much of the $25 million in 𠇊ggressive options trading” and, as a condition of his bond, a magistrate judge ordered him to get a mental health evaluation and alcohol testing and treatment.

ON THE AGENDA | Jacob J. Lew, the Treasury secretary, will discuss the use of sanctions at the Carnegie Endowment for International Peace at 8:45 a.m. The Securities and Exchange Commission will consider whether to adopt new swaps rules in a meeting at 10 a.m. Charles L. Evans, the president of the Federal Reserve Bank of Chicago, will speak at the Forecasters Club of New York Luncheon at 1 p.m.

SPOTIFY EXPECTED TO SIGN $1 BILLION FINANCING DEAL | Spotify is about to close a $1 billion deal that would double the amount of financing it has raised since it was founded a decade ago,
Leslie Picker and Ben Sisario report in DealBook.

People briefed on the matter said the money comes in the form of convertible debt, which allows investors in the music-streaming company to change their securities into equity at a future date.

The convertible debt allows Spotify to obtain funds without needing to change its valuation. It had an equity value of $8.4 billion last year.

The terms of the debt may put pressure on the company to go public sooner. Investors have the ability to convert to equity at a discount to an initial public offering price — the discount increases if Spotify waits longer than a year to go public. The coupon payment on the debt would also rise over time.

Funds associated with the private equity firm TPG and the investment firm Dragoneer put in $750 million, while the rest came from institutional investors.

TPG and Dragoneer are permitted to cash out their shares as soon as 90 days after an I.P.O., instead of the 180 days employees and other shareholders get, according to The Wall Street Journal, which earlier reported the deal.

DEAL NOTES

Lester C. Thurow, Economist Who Seized the Spotlight, Is Dead at 77 | A prolific writer and popular public speaker, Mr. Thurow sounded an early alarm about the growing income gap between rich and poor Americans.
NYT »

Mergers & Acquisitions »

Starwood Bidder Is a Reclusive Chinese Insurer With Opaque Backing | Anbang, which is in a bidding war for Starwood Hotels, is controlled by a murky group of interconnected companies and led by a reclusive chairman.
NYT »  |  Breakingviews: Starwood’s Takeover Offer From Anbang is Risky, but Worth It 2:23 PM

Starwood’s Takeover Offer From Anbang Is Risky, but Worth It | Heavy interest from rival hoteliers means Starwood can afford to take the Anbang Insurance Group’s offer, which is $4.64 more per share than its deal with Marriott, Jeffrey Goldfarb writes in Breakingviews.
Breakingviews »  |  Starwood Bidder Is an Ambitious Chinese Insurer With Opaque Backing 11:52 AM

Metro Group of Germany to Split Into 2 Companies | The announcement came after Metro agreed in June to sell Galeria Kaufhof, the leading department store chain in Germany and Belgium, to the Hudson’s Bay Company.
NYT »

Norfolk Southern Steps Up Fight Against Canadian Pacific Merger | In a letter to employees, Norfolk Southern’s chief executive, Jim Squires, said that the company is making good progress on its restructuring plans and that employees should vote against merger talks.
the wall street journal

INVESTMENT BANKING »

Swedbank to Replace Chairman After He Lost Investor Support | The departure of Anders Sundstrom as chairman of the Swedish lender followed the ouster of Michael Wolf, its chief executive, in February.
NYT »

Doubts Raised Over Controls at HSBC | The monitor overseeing HSBC’s compliance with a landmark anti-money-laundering settlement has uncovered potential lapses including loans to companies that exported miniskirts to Iran and candy to Syria, The Wall Street Journal reports, citing a person familiar with the findings.
the wall street journal

UniCredit Said to Be in Talks Over Popolare di Vicenza Capital Raising | UniCredit, Italy’s largest bank by assets, is in talks with the government in Rome about seeking support for a 2 billion euro capital raising at the mutual bank Popolare di Vicenza, a deal seen as a crucial test of investor confidence in Italy’s lenders, The Financial Times reports, citing people with direct knowledge of the matter.
the financial times

PRIVATE EQUITY »

Chinese Textile Maker to Buy Owner of Sandro and Claudie Pierlot | Kohlberg Kravis Roberts plans to sell SMCP to China’s Shandong Ruyi in a deal that values the French fashion group at 1.3 billion euros, including debt, The Financial Times reports, citing people familiar with the matter.
the financial times

HEDGE FUNDS »

The Fall of China’s Hedge-Fund King | Xu Xiang was a legend in the country’s booming stock market — until the bubble he helped to create took him down with it.
Feature »

VENTURE CAPITAL »

Robo-Adviser Betterment Gets $100 Million in Venture Capital | The investment, which Betterment says it will use to increase product development and expand its business, pushes the firm’s valuation to $700 million.
NYT »

LEGAL/REGULATORY »

Janet Yellen Says Fed Still Plans to Raise Interest Rates but Carefully | In remarks to the Economic Club of New York, the Federal Reserve chairwoman said she expected the domestic economy to improve this year.
NYT »

Latest Plan to Rescue Puerto Rico Is Met With Disdain on Island | The plan calls for putting Puerto Rico’s finances under a presidentially appointed oversight board — a bitter pill to many on the island.
NYT »

Prosecutor in Bear Stearns Case to Leave U.S. Attorney’s Office | James G. McGovern, the head of the criminal division at the United States attorney’s office in Brooklyn, said he would join the law firm Hogan Lovells as a partner.
NYT »

Bank of England to Raise Bank Capital Buffer as Safeguard | The buffer is intended to ensure that British banks can provide lending and other essential banking services during times of financial stress.
NYT »

F.T.C. Sues Volkswagen Over �ptive’ Diesel Car Ads | The Federal Trade Commission accused VW of selling or leasing more than 550,000 diesel vehicles using a campaign that said they met emissions standards.
NYT »

Hackers Breach Law Firms | Hackers broke into the computer networks at some of the country’s most prestigious law firms, and federal investigators are exploring whether they stole confidential information for the purpose of insider trading, The Wall Street Journal reports, citing people familiar with the matter.
the wall street journal

Simmering for Decades, Anger About Trade Boils Over in � Election | Bashing trade deals has proved a winning strategy for Donald Trump, but economists mostly agree they have benefited American households significantly.
NYT »

Edison International Starts Energy Consultancy | The company will help large businesses take advantage of evolving technologies, markets and incentives in energy efficiency, renewables and storage.
NYT »

Australia to End ASX Clearing Monopoly | Canberra is ending the Australian Securities Exchange monopoly on equity clearing and relaxing ownership restrictions in a decision that removes a potential hurdle to the ASX’s participation in overseas mergers.
the financial times

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What We’re Reading

Get recommendations from New York Times reporters and editors, highlighting great stories from around the web. What We’re Reading emails are sent twice a week.

New Republic

Aiding and Abetting

After yet another Islamic State attack in Europe, Joshua Hersh studies one of the more important, but neglected, aspects of militant networks. That is a gray area that involves petty criminals who share an “indifference to the law and those who might enforce it. They are radical, one might say, but not necessarily radicalized.” Why is this so important? Mr. Hersh — who followed his father, Seymour Hersh, into journalism — notes that old-fashioned, solid police work may help cripple terrorist networks better than high-wire air raids over the Levant. — Diaa Hadid

Her Basketball Game

This is a Q. and A. with a sophisticated basketball fan who is also a very famous pornography actress with connections to many players, apparently. — Jason Stallman

New Republic

The Madding Crowd

This is by no means the first “I went to a Trump rally” story. But it is the first by Patricia Lockwood, the talented poet and humorist. (Side note: She wrote my favorite tweet of all time: &#[email protected] so is Paris any good or not.”) It’s odd and funny in the ways you𠆝 expect, but also poignant in parts and insightful about Trump’s appeal. “It is a practiced seduction,” she writes, “it has worked before. We ignore it at our peril.” — Dan Saltzstein

Politico

Gosh Darn It

At first glance the idea seems outlandish enough to require a “this is not a joke” warning label. And it isn’t. Building its argument on his skills as both a senator and a satirist, as well as his credibility with progressive Democrats across the country, this essay makes a detailed case for Al Franken as Hillary Clinton’s smartest choice for running mate, especially in a projected race against Donald Trump. — Patrick J. Lyons

MyNorthwest.com

A Silver Trail

Lewis and Clark gave out silver medallions — President Thomas Jefferson’s image on one side, a crossed peace pipe and hatchet on the other — to some American Indians they met, and those medals, through the tumult of the American frontier, mostly got lost. This story talks about the ones that have turned up, in places like Antiques Roadshow or a road-building project. The cool and gripping thing here is the idea that these little pieces of the past had their own long journey, echoing and reflecting the epic Corps of Discovery exploration that defined the early days of the West and that still resonates powerfully today from the Dakotas to the mouth of the Columbia River. — Kirk Johnson

Vanity Fair

The Venue of Laughs

The Comedy Cellar is claustrophobically cramped, darkly lit and resolutely un-renovated, which is to say, it’s a perfect room for stand-up. But its acoustics and atmosphere are only part of the reason it’s the premiere comedy club in the country right now. The rest of the explanation is its storied history of singularly great nightly lineups, which is explored in this lively new oral history in Vanity Fair, which includes reflections from everyone from Jon Stewart and Marc Maron to Cellar regulars like Jim Norton and Colin Quinn. — Jason Zinoman

Morning Agenda: Private Equity Executive Accused of Faking Investments

PRIVATE EQUITY EXECUTIVE ACCUSED OF FAKING INVESTMENTS | Federal prosecutors working for Preet Bharara, the United States attorney for Manhattan, have charged Andrew Caspersen, a former Blackstone Group managing principal, with securities and wire fraud in what was labeled a 𠇋razen” scheme to defraud investors of up to $95 million,

Alexandra Stevenson and Matthew Goldstein report in DealBook. The Securities and Exchange Commission filed parallel civil charges.

Mr. Caspersen was a partner at the Park Hill Group, which specializes in raising money for private equity firms and hedge funds, and was still trying to persuade institutional investors to give him money up until last week.

The authorities accused Mr. Caspersen of using a fraudulent investment vehicle and fake emails to dupe an unidentified hedge fund foundation to sink $25 million into the scheme last fall.

According to authorities, Mr. Caspersen had set up a shell company with a similar name to a legitimate vehicle at Park Hill and began raising money for it. He did not tell prospective investors that the shell company was controlled entirely by him, making up email accounts, inventing employees and creating a fake domain name. The scheme began to fall apart when the hedge fund asked for its $25 million plus interest to be returned. It has not yet received the money.

The authorities said he blew through most of the money he raised 𠇊s a result of aggressive options trading” in his personal brokerage account.

Park Hill, which was part of the Blackstone Group and is now part of PJT Partners, has fired Mr. Caspersen and said it was cooperating with the authorities.

The case has raised questions about the internal controls in place at Park Hill — the authorities say Mr. Caspersen’s scheme went on for months. It also raises questions about how much research and checking institutional investors do and how much they are relying on personal connections and trust.

STARWOOD BIDDING WAR ESCALATES | The consortium led by Anbang Insurance has increased its bid for Starwood Hotels to $14 billion, raising the stakes in the most prominent bidding war so far this year,
Michael J. de la Merced reports in DealBook.
Starwood declared that this was “reasonably likely to lead to a ‘superior offer.’ ”

Starwood said that the Anbang group had offered $81 a share on Saturday, and then the current $82.75 after talks between the two sides began.

Marriott International is sticking to its $13.5 billion offer for now. It argued that its proposal was solid while Anbang’s offer may not be able to close.

Analysts have said that Marriott would be hard-pressed to raise its offer to win the battle, since raising the cash portion of its offer could threaten its investment-grade rating. Adding more stock as consideration could harm its earnings per share.

ON THE AGENDA | The chairwoman of the Securities and Exchange Commission, Mary Jo White, will speak at the Mutual Fund Director Forum’s 2016 Policy Conference at 9 a.m. Janet L. Yellen, the chairwoman of the Federal Reserve, will speak at The Economic Club of New York at 11:30 a.m.

VALUEACT PAYS A PRICE FOR SUPPORTING VALEANT | William A. Ackman receives a lot of criticism for investing in Valeant, but ValueAct has had more influence over Valeant’s activities and its role has gone largely unquestioned,
Andrew Ross Sorkin writes in DealBook.

ValueAct, founded by Jeffrey Ubben, has been invested in Valeant since 2006 and has held at least one seat on its board since 2007. It installed J. Michael Pearson as chief executive, oversaw the change in compensation policies and supported the company’s strategy of cutting research and development while increasing the price of its drugs.

It is hard to see how ValueAct could have been unaware of Valeant’s more aggressive strategies, unless it intended to claim that it was duped by management, a claim it has not made yet.

When Mason Morfit, ValueAct’s representative, stepped down from the board, Mr. Pearson said he continued to “value his vision and guidance.” Mr. Morfit also helped establish a compensation plan for Valeant executives that governance experts say may have led to the practices at Valeant that are now under scrutiny. Mr. Pearson’s compensation plan, tied directly to the stock price, may have led to a culture that was too aggressive.

Valeant’s admission that it had wrongly booked $58 million of revenue has given way to the possibility of bigger problems at the company. Its confession has given credibility to critics who have produced analyses suggesting that its books could be flawed in other ways, Peter Eavis reports in DealBook.

And the issue of accounting is likely to remain at the heart of the debate over Valeant because it was so central to its strategy.

Valeant has been accused of channel-stuffing — trying to bolster revenue artificially by granting unsustainable or improper inducements to wholesalers and customers to get them to take its products. Channel-stuffing companies may also book revenue by transferring goods to an entity that is not totally separate.

There were also concerns about spring-loading — when one company acquires another and, between the announcement of the deal and the actual merger, finds a way to book a higher level of costs and lower revenue at the company being acquired.

With the number of inquiries and lawsuits it is facing, the question may well devolve into whether Valeant can survive everything being thrown at it,
Peter J. Henning writes in White Collar Watch.

Valeant has sought to portray itself as cooperative with regulators by pointing the finger at the former chief financial officer, Howard B. Schiller. But Mr. Schiller has refused to step down from the board, giving him a front-row seat to observe how the company responds to investigations. He will also be a key player in the investigation of the company’s accounting.

Valeant must also foot the bills for Mr. Schiller’s lawyers related to any inquiry or face even more litigation if it decides not to do so.


Starbucks Baristas Are Receiving Sensitivity Lessons During the Current Wall Street Crisis - Recipes

METLIFE WINS BATTLE TO REMOVE ‘TOO BIG TO FAIL’ LABEL | Opponents of the Dodd-Frank Act can rejoice. A judge in Washington overturned MetLife’s designation as “too big to fail” on Wednesday,
Victoria Finkle reports in DealBook.

The ruling, by Judge Rosemary M. Collyer of the Federal District Court for the District of Columbia, has raised questions about how regulators decide which institutions are too big to fail.

The judge upheld arguments that regulators failed to adequately assess the insurance company’s vulnerability to extreme financial distress and the potential economic impact of the designation.

The Treasury Department maintained that it had 𠇌onducted a rigorous analysis of MetLife,” but did not say whether it would appeal the ruling.

Some fear that the judge’s decision could prevent regulators from taking the necessary steps to stop another situation like American International Group’s near-collapse in 2008.

On the other hand House Republicans who have criticized the oversight council for a lack of transparency in deciding which institutions are systemically important will be emboldened.

The ruling was certainly a win for Eugene Scalia, the son of the late U.S. Supreme Court Justice Antonin Scalia, The Wall Street Journal reports.

As well as taking on MetLife’s designation, Mr. Scalia has been chipping away at the Dodd-Frank Act since its implementation. Relying on a 1990s-era federal law requiring financial regulators to do a cost-benefit analysis of new rules, Mr. Scalia has successfully argued against parts of the law that fail to meet that standard. He has won against the Securities and Exchange Commission and the Commodity Futures Trading Commission.

The idea that MetLife could shed its designation is shocking to Stephen J. Lubben. If the Financial Stability Oversight Council can’t designate MetLife, who can it designate? Mr. Lubben asks in the In Debt column.

MetLife has an enormous bond portfolio, a large derivatives book, substantial real estate holdings and significant connections with other systemically important financial institutions. It is plausible that it would create problems if MetLife were to fail.

The court didn’t buy it and we don’t know exactly why since the opinion is sealed. But we should expect an appeal. The losing party will want the full circuit to hear the case.

CAN STARWOOD MAKE A DEAL WITH ANBANG? | Starwood Hotel & Resorts faces a tricky issue,
Steven Davidoff Solomon writes in Deal Professor. Any deal it negotiates with the secretive Anbang Insurance Group may not be worth the paper it is printed on. And that is because Anbang is based in China.

If the consortium it leads won the bidding contest for Starwood and failed to honor the terms, Starwood would have to sue Anbang to enforce the deal.

If Starwood won a lawsuit in the United States, it would have to enforce the judgment in China, where Anbang and its assets are.

China is notorious for its weak rule of law and it is unclear whether a Chinese court would actually enforce a United States judgment against Anbang.

As with any deal involving a company outside the United States, it is no use having a great claim unless you have the pocket to get the money from, Mr. Davidoff Solomon writes.

Arbitration is a possible option and many agreements with Chinese companies contain arbitration provisions, but there is a common belief that Chinese courts will not enforce these awards.

Starwood’s lawyers will seek collateral from Anbang — mainly American assets. But Anbang’s assets in the United States are limited. The Waldorf Astoria and Strategic Hotels are not enough — Anbang most likely borrowed heavily to buy them.

The lawyers will also look for a deposit or letter of credit. It is also possible to get commitment from Anbang’s owners, though the problem is that they are unknown and are also likely to be abroad.

They may seek to have a termination fee put in escrow as Smithfield did when it was acquired by Shanghui International Holdings. And they should fight hard to get a “super escrow” of multiple billions because of the regulatory issues and risks to the deal.

How Starwood deals with these issues is very likely to be the template for how American acquisition targets deal with Chinese issues going forward.

ON THE AGENDA | Mary Jo White, the chairwoman of the Securities and Exchange Commission, will give a speech on protecting investments in pre-I.P.O. issuers at Stanford Law School at 8:45 p.m.

𠆏INTECH’ BOOM SAID TO THREATEN BANK JOBS | Up to 30 percent of employees in the banking industry could lose their jobs to new technologies over the next decade,
Nathaniel Popper reports in DealBook.

A report by Citigroup said that the number of employees at American banks would drop to 1.8 million in the year 2025, down from 2.6 million last year. An even sharper drop is predicted for European banks.

The jobs would be lost to start-ups cutting into different parts of the financial industry.

The projection comes after Antony Jenkins, the former chief executive of Barclays, said that banking was facing a series of “Uber moments,” in which the jobs in the industry could halve.

Banks are already being forced by volatile market conditions and new regulations to make cuts.

The Citigroup report noted that the banking sector had attracted record investment over the last five years and that new technologies had taken off the fastest in Asia, particularly China.

New financial technologies have been slower to gain traction in the United States. But “given the growth in fintech investment, this isn’t likely to continue for long,” wrote Kathleen Boyle, the managing editor of Citigroup GPS, in the report’s introduction.

Mergers & Acquisitions »

State Street to Buy G.E.’s Asset Management Business | The deal is the latest sale as General Electric retreats from finance and refocuses on its industrial roots.
NYT »

Dalian Wanda Group Seeks to Delist Its Commercial Property Arm | The potential privatization of Dalian Wanda Commercial Properties comes just 15 months after it raised $3.7 billion in a Hong Kong initial public offering.
NYT »

Foxconn’s Deal to Buy Sharp Is a Test for Japanese Reform | Instead of taking the easy route, Sharp is going to the bidder with the most capabilities, and incentives, to make it profitable and productive, Rob Cox writes in Breakingviews.
Breakingviews »  |  To Woo Apple, Foxconn Bets $3.5 Billion on Sharp 6:00 AM

Tata Steel Plans to Sell British Plants, Threatening 15,000 Jobs | Profits at the Indian-owned Tata Steel have been squeezed by cheap Chinese imports, and the company suggested that it would consider closing its plants if no buyer came forward.
NYT »

Allianz Said to Be Selling $5 Billion Life Insurance Portfolio in Italy | Allianz, which is Italy’s fourth biggest life and health insurer, is facing pressures from low interest rates and has decided to sell Italian life policies that pay a 2 percent minimum interest rate, Reuters reports, citing people familiar with the matter.
reuters

INVESTMENT BANKING »

Chinese Investment Bank Defaults on 𠆍im Sum’ Bond | A unit of Guosen Securities, China’s eighth-largest investment bank, has defaulted on a Hong Kong-traded renminbi bond, the first debt breach by a state-owned enterprise in China’s offshore market in nearly two decades, according to a document seen by the Financial Times.
the financial times

HEDGE FUNDS »

Citadel Securities Bolsters Electronic Trading | Citadel Securities, the market making arm of the hedge fund, has hired a senior banker as part of its efforts to use electronic trading to break open traditionally dealer-dominated markets.
the financial times

I.P.O./OFFERINGS »

A.I.G. Mortgage Unit Files for I.P.O. | American International Group’s mortgage insurer, United Guaranty, filed for an offering of $100 million, a placeholder figure that is used to calculate fees and will probably change.
bloomberg news

VENTURE CAPITAL »

Expa Labs Will Nurture Tech Start-Ups a Few at a Time | The incubator Expa Labs will take a smaller-scale approach to helping start-ups grow from idea to prototype to marketable product.
NYT »

What Happened When Venture Capitalists Took Over the Golden State Warriors | After racking up a historic N.B.A. season, the team’s owners — most of them from Silicon Valley — think their management style deserves some of the credit. Are they right?
Feature »

Fidelity Marks Down Start-Ups Including Dropbox and Zenefits | Fidelity Investments took an ax to the valuations of its private technology shares in February, cutting bellwether software start-ups like Dropbox, Cloudera and Zenefits by as much as 38 percent compared with the prior month.
the wall street journal

LEGAL/REGULATORY »

Cravath Law Firm Discloses a Data Attack | The disclosure by Cravath Swaine & Moore, which reported a “limited breach” of its computer network last summer, is rare for a big law firm.
NYT »

Supreme Court Rules Against Freezing Assets Not Tied to Crimes | The government may not freeze assets needed to pay criminal defense lawyers if the assets are not linked to a crime, the court ruled in a 5-to-3 decision.
NYT »

General Motors Ignition Switch Is Cleared in Trial Over a Crash | The case is one of six so-called bellwether trials being conducted to resolve legal claims against G.M., which recalled nearly 30 million vehicles after a scandal.
NYT »

Contractors and Temps Accounted for All of the Growth in Employment in the Last Decade | One result is that employers have succeeded at shifting much of the burden of providing social insurance onto workers.
The Upshot »

S.E.C. Bans Venture Capitalist for Theft | A San Francisco biotechnology venture capitalist agreed to pay nearly $5.8 million to settle accusations from the Securities and Exchange Commission that he stole investor money to pay for vacations in St. Bart’s and Paris, Tiffany jewelry, private jets and other expenses.
reuters

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Morning Agenda: Foxconn Strikes Deal for Sharp

FOXCONN STRIKES DEAL FOR SHARP | Foxconn is grappling with rising labor costs in China and a slowdown in the global smartphone market, but it managed to forestall its weakening relationship with Apple by striking a deal to acquire the screen maker Sharp of Japan for $3.5 billion,
Paul Mozur reports in DealBook.

Foxconn said it would take over 66 percent of Sharp, with a total investment of 389 billion yen, or about $3.5 billion. Foxconn is buying 򥊉 billion worth of common Sharp shares and an additional ꖙ.99 billion worth of nonvoting preferred shares.

The total investment is well below the $5.5 billion that Foxconn was expected to pay last month before it balked over the discovery that a new owner could be liable for close to $3 billion in potential liabilities.

The deal comes after weeks of public negotiations and high-profile setbacks, and should make Foxconn a more attractive partner for Apple, which uses Sharp screens in its iPhones.

Analysts are still skeptical — they say Foxconn gets an ailing business that will take a considerable amount of money to turn around, even if it does get a bigger chunk of the global supply chain.

The deal is a return to form for Foxconn in its emphasis on scale. Even as it has tried to maintain its enormous scale, it has also been trying to climb up the value chain to find more profitable streams of revenue.

EXPLAINING VALEANT | Commentators and analysts have drawn lessons from the mess surrounding Valeant, but few of them are convincing,
Steven Davidoff Solomon writes in Deal Professor.

Some contend that Valeant is like Enron, a house of cards waiting to be brought down by an inevitable accounting scandal. But Valeant is a real operating business and there is no indication of outright fraud.

Others have cautioned about the McKinsey-driven ethos — J. Michael Pearson was a McKinsey consultant for 23 years. But McKinsey has also been at the forefront of arguments about long-term shareholder value.

Warnings about Valeant’s decision to cut research and development are based on a nonsensical notion that R&D can never be bad. There has been an uproar about predatory pricing, but there is no transparency around Valeant’s pricing and its products still sell.

Hedge funds like ValueAct have also been blamed. This explains the business strategy, but it does not help us understand what went wrong. Shareholders get their share of the blame too for chasing returns, but this has nothing to do with Valeant’s business.

So what is the Deal Professor’s theory? If Wall Street built Valeant, it is now running away from it, Mr. Davidoff Solomon writes. The velocity of the turnaround created views of the company that are not tethered to reality.

It does not make sense for a company with earnings before interest, taxes, depreciation and amortization, or Ebitda, of about $5 billion a year to be worth only $9 billion. Allergan, with Ebitda of $7 billion a year and $40 billion of debt, is worth $110 billion.

This crisis has crushed Valeant’s previous business model, but it still has billions of dollars in earnings. The intrinsic worth of that business remains the same and the flight by Wall Street shut down its old growth model, but not its business. Wall Street always thinks the worst when things go bad and sometimes it creates a self-fulfilling frenzy.

LOUIS BACON’S CHARITY SAYS IT WAS VICTIM OF FRAUD | The Moore Charitable Foundation said it was the victim of fraud by the 39-year-old Wall Street executive Andrew Caspersen,
Matthew Goldstein and Alexandra Stevenson report in DealBook.

The trust, founded by the hedge fund billionaire Louis M. Bacon, said that it was “lied to by Andrew Caspersen, a managing director at investment bank PJT Partners, regarding a potential investment related to the publicly announced restructuring of a private equity fund.”

The foundation put $25 million into Mr. Caspersen’s scheme and said that it detected “irregularities in a proposed follow-on deal” before notifying PJT Partners’ general council. PJT contacted the United States attorney’s office in Manhattan.

The authorities said Mr. Caspersen had lost much of the $25 million in 𠇊ggressive options trading” and, as a condition of his bond, a magistrate judge ordered him to get a mental health evaluation and alcohol testing and treatment.

ON THE AGENDA | Jacob J. Lew, the Treasury secretary, will discuss the use of sanctions at the Carnegie Endowment for International Peace at 8:45 a.m. The Securities and Exchange Commission will consider whether to adopt new swaps rules in a meeting at 10 a.m. Charles L. Evans, the president of the Federal Reserve Bank of Chicago, will speak at the Forecasters Club of New York Luncheon at 1 p.m.

SPOTIFY EXPECTED TO SIGN $1 BILLION FINANCING DEAL | Spotify is about to close a $1 billion deal that would double the amount of financing it has raised since it was founded a decade ago,
Leslie Picker and Ben Sisario report in DealBook.

People briefed on the matter said the money comes in the form of convertible debt, which allows investors in the music-streaming company to change their securities into equity at a future date.

The convertible debt allows Spotify to obtain funds without needing to change its valuation. It had an equity value of $8.4 billion last year.

The terms of the debt may put pressure on the company to go public sooner. Investors have the ability to convert to equity at a discount to an initial public offering price — the discount increases if Spotify waits longer than a year to go public. The coupon payment on the debt would also rise over time.

Funds associated with the private equity firm TPG and the investment firm Dragoneer put in $750 million, while the rest came from institutional investors.

TPG and Dragoneer are permitted to cash out their shares as soon as 90 days after an I.P.O., instead of the 180 days employees and other shareholders get, according to The Wall Street Journal, which earlier reported the deal.

DEAL NOTES

Lester C. Thurow, Economist Who Seized the Spotlight, Is Dead at 77 | A prolific writer and popular public speaker, Mr. Thurow sounded an early alarm about the growing income gap between rich and poor Americans.
NYT »

Mergers & Acquisitions »

Starwood Bidder Is a Reclusive Chinese Insurer With Opaque Backing | Anbang, which is in a bidding war for Starwood Hotels, is controlled by a murky group of interconnected companies and led by a reclusive chairman.
NYT »  |  Breakingviews: Starwood’s Takeover Offer From Anbang is Risky, but Worth It 2:23 PM

Starwood’s Takeover Offer From Anbang Is Risky, but Worth It | Heavy interest from rival hoteliers means Starwood can afford to take the Anbang Insurance Group’s offer, which is $4.64 more per share than its deal with Marriott, Jeffrey Goldfarb writes in Breakingviews.
Breakingviews »  |  Starwood Bidder Is an Ambitious Chinese Insurer With Opaque Backing 11:52 AM

Metro Group of Germany to Split Into 2 Companies | The announcement came after Metro agreed in June to sell Galeria Kaufhof, the leading department store chain in Germany and Belgium, to the Hudson’s Bay Company.
NYT »

Norfolk Southern Steps Up Fight Against Canadian Pacific Merger | In a letter to employees, Norfolk Southern’s chief executive, Jim Squires, said that the company is making good progress on its restructuring plans and that employees should vote against merger talks.
the wall street journal

INVESTMENT BANKING »

Swedbank to Replace Chairman After He Lost Investor Support | The departure of Anders Sundstrom as chairman of the Swedish lender followed the ouster of Michael Wolf, its chief executive, in February.
NYT »

Doubts Raised Over Controls at HSBC | The monitor overseeing HSBC’s compliance with a landmark anti-money-laundering settlement has uncovered potential lapses including loans to companies that exported miniskirts to Iran and candy to Syria, The Wall Street Journal reports, citing a person familiar with the findings.
the wall street journal

UniCredit Said to Be in Talks Over Popolare di Vicenza Capital Raising | UniCredit, Italy’s largest bank by assets, is in talks with the government in Rome about seeking support for a 2 billion euro capital raising at the mutual bank Popolare di Vicenza, a deal seen as a crucial test of investor confidence in Italy’s lenders, The Financial Times reports, citing people with direct knowledge of the matter.
the financial times

PRIVATE EQUITY »

Chinese Textile Maker to Buy Owner of Sandro and Claudie Pierlot | Kohlberg Kravis Roberts plans to sell SMCP to China’s Shandong Ruyi in a deal that values the French fashion group at 1.3 billion euros, including debt, The Financial Times reports, citing people familiar with the matter.
the financial times

HEDGE FUNDS »

The Fall of China’s Hedge-Fund King | Xu Xiang was a legend in the country’s booming stock market — until the bubble he helped to create took him down with it.
Feature »

VENTURE CAPITAL »

Robo-Adviser Betterment Gets $100 Million in Venture Capital | The investment, which Betterment says it will use to increase product development and expand its business, pushes the firm’s valuation to $700 million.
NYT »

LEGAL/REGULATORY »

Janet Yellen Says Fed Still Plans to Raise Interest Rates but Carefully | In remarks to the Economic Club of New York, the Federal Reserve chairwoman said she expected the domestic economy to improve this year.
NYT »

Latest Plan to Rescue Puerto Rico Is Met With Disdain on Island | The plan calls for putting Puerto Rico’s finances under a presidentially appointed oversight board — a bitter pill to many on the island.
NYT »

Prosecutor in Bear Stearns Case to Leave U.S. Attorney’s Office | James G. McGovern, the head of the criminal division at the United States attorney’s office in Brooklyn, said he would join the law firm Hogan Lovells as a partner.
NYT »

Bank of England to Raise Bank Capital Buffer as Safeguard | The buffer is intended to ensure that British banks can provide lending and other essential banking services during times of financial stress.
NYT »

F.T.C. Sues Volkswagen Over �ptive’ Diesel Car Ads | The Federal Trade Commission accused VW of selling or leasing more than 550,000 diesel vehicles using a campaign that said they met emissions standards.
NYT »

Hackers Breach Law Firms | Hackers broke into the computer networks at some of the country’s most prestigious law firms, and federal investigators are exploring whether they stole confidential information for the purpose of insider trading, The Wall Street Journal reports, citing people familiar with the matter.
the wall street journal

Simmering for Decades, Anger About Trade Boils Over in � Election | Bashing trade deals has proved a winning strategy for Donald Trump, but economists mostly agree they have benefited American households significantly.
NYT »

Edison International Starts Energy Consultancy | The company will help large businesses take advantage of evolving technologies, markets and incentives in energy efficiency, renewables and storage.
NYT »

Australia to End ASX Clearing Monopoly | Canberra is ending the Australian Securities Exchange monopoly on equity clearing and relaxing ownership restrictions in a decision that removes a potential hurdle to the ASX’s participation in overseas mergers.
the financial times

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What We’re Reading

Get recommendations from New York Times reporters and editors, highlighting great stories from around the web. What We’re Reading emails are sent twice a week.

New Republic

Aiding and Abetting

After yet another Islamic State attack in Europe, Joshua Hersh studies one of the more important, but neglected, aspects of militant networks. That is a gray area that involves petty criminals who share an “indifference to the law and those who might enforce it. They are radical, one might say, but not necessarily radicalized.” Why is this so important? Mr. Hersh — who followed his father, Seymour Hersh, into journalism — notes that old-fashioned, solid police work may help cripple terrorist networks better than high-wire air raids over the Levant. — Diaa Hadid

Her Basketball Game

This is a Q. and A. with a sophisticated basketball fan who is also a very famous pornography actress with connections to many players, apparently. — Jason Stallman

New Republic

The Madding Crowd

This is by no means the first “I went to a Trump rally” story. But it is the first by Patricia Lockwood, the talented poet and humorist. (Side note: She wrote my favorite tweet of all time: &#[email protected] so is Paris any good or not.”) It’s odd and funny in the ways you𠆝 expect, but also poignant in parts and insightful about Trump’s appeal. “It is a practiced seduction,” she writes, “it has worked before. We ignore it at our peril.” — Dan Saltzstein

Politico

Gosh Darn It

At first glance the idea seems outlandish enough to require a “this is not a joke” warning label. And it isn’t. Building its argument on his skills as both a senator and a satirist, as well as his credibility with progressive Democrats across the country, this essay makes a detailed case for Al Franken as Hillary Clinton’s smartest choice for running mate, especially in a projected race against Donald Trump. — Patrick J. Lyons

MyNorthwest.com

A Silver Trail

Lewis and Clark gave out silver medallions — President Thomas Jefferson’s image on one side, a crossed peace pipe and hatchet on the other — to some American Indians they met, and those medals, through the tumult of the American frontier, mostly got lost. This story talks about the ones that have turned up, in places like Antiques Roadshow or a road-building project. The cool and gripping thing here is the idea that these little pieces of the past had their own long journey, echoing and reflecting the epic Corps of Discovery exploration that defined the early days of the West and that still resonates powerfully today from the Dakotas to the mouth of the Columbia River. — Kirk Johnson

Vanity Fair

The Venue of Laughs

The Comedy Cellar is claustrophobically cramped, darkly lit and resolutely un-renovated, which is to say, it’s a perfect room for stand-up. But its acoustics and atmosphere are only part of the reason it’s the premiere comedy club in the country right now. The rest of the explanation is its storied history of singularly great nightly lineups, which is explored in this lively new oral history in Vanity Fair, which includes reflections from everyone from Jon Stewart and Marc Maron to Cellar regulars like Jim Norton and Colin Quinn. — Jason Zinoman

Morning Agenda: Private Equity Executive Accused of Faking Investments

PRIVATE EQUITY EXECUTIVE ACCUSED OF FAKING INVESTMENTS | Federal prosecutors working for Preet Bharara, the United States attorney for Manhattan, have charged Andrew Caspersen, a former Blackstone Group managing principal, with securities and wire fraud in what was labeled a 𠇋razen” scheme to defraud investors of up to $95 million,

Alexandra Stevenson and Matthew Goldstein report in DealBook. The Securities and Exchange Commission filed parallel civil charges.

Mr. Caspersen was a partner at the Park Hill Group, which specializes in raising money for private equity firms and hedge funds, and was still trying to persuade institutional investors to give him money up until last week.

The authorities accused Mr. Caspersen of using a fraudulent investment vehicle and fake emails to dupe an unidentified hedge fund foundation to sink $25 million into the scheme last fall.

According to authorities, Mr. Caspersen had set up a shell company with a similar name to a legitimate vehicle at Park Hill and began raising money for it. He did not tell prospective investors that the shell company was controlled entirely by him, making up email accounts, inventing employees and creating a fake domain name. The scheme began to fall apart when the hedge fund asked for its $25 million plus interest to be returned. It has not yet received the money.

The authorities said he blew through most of the money he raised 𠇊s a result of aggressive options trading” in his personal brokerage account.

Park Hill, which was part of the Blackstone Group and is now part of PJT Partners, has fired Mr. Caspersen and said it was cooperating with the authorities.

The case has raised questions about the internal controls in place at Park Hill — the authorities say Mr. Caspersen’s scheme went on for months. It also raises questions about how much research and checking institutional investors do and how much they are relying on personal connections and trust.

STARWOOD BIDDING WAR ESCALATES | The consortium led by Anbang Insurance has increased its bid for Starwood Hotels to $14 billion, raising the stakes in the most prominent bidding war so far this year,
Michael J. de la Merced reports in DealBook.
Starwood declared that this was “reasonably likely to lead to a ‘superior offer.’ ”

Starwood said that the Anbang group had offered $81 a share on Saturday, and then the current $82.75 after talks between the two sides began.

Marriott International is sticking to its $13.5 billion offer for now. It argued that its proposal was solid while Anbang’s offer may not be able to close.

Analysts have said that Marriott would be hard-pressed to raise its offer to win the battle, since raising the cash portion of its offer could threaten its investment-grade rating. Adding more stock as consideration could harm its earnings per share.

ON THE AGENDA | The chairwoman of the Securities and Exchange Commission, Mary Jo White, will speak at the Mutual Fund Director Forum’s 2016 Policy Conference at 9 a.m. Janet L. Yellen, the chairwoman of the Federal Reserve, will speak at The Economic Club of New York at 11:30 a.m.

VALUEACT PAYS A PRICE FOR SUPPORTING VALEANT | William A. Ackman receives a lot of criticism for investing in Valeant, but ValueAct has had more influence over Valeant’s activities and its role has gone largely unquestioned,
Andrew Ross Sorkin writes in DealBook.

ValueAct, founded by Jeffrey Ubben, has been invested in Valeant since 2006 and has held at least one seat on its board since 2007. It installed J. Michael Pearson as chief executive, oversaw the change in compensation policies and supported the company’s strategy of cutting research and development while increasing the price of its drugs.

It is hard to see how ValueAct could have been unaware of Valeant’s more aggressive strategies, unless it intended to claim that it was duped by management, a claim it has not made yet.

When Mason Morfit, ValueAct’s representative, stepped down from the board, Mr. Pearson said he continued to “value his vision and guidance.” Mr. Morfit also helped establish a compensation plan for Valeant executives that governance experts say may have led to the practices at Valeant that are now under scrutiny. Mr. Pearson’s compensation plan, tied directly to the stock price, may have led to a culture that was too aggressive.

Valeant’s admission that it had wrongly booked $58 million of revenue has given way to the possibility of bigger problems at the company. Its confession has given credibility to critics who have produced analyses suggesting that its books could be flawed in other ways, Peter Eavis reports in DealBook.

And the issue of accounting is likely to remain at the heart of the debate over Valeant because it was so central to its strategy.

Valeant has been accused of channel-stuffing — trying to bolster revenue artificially by granting unsustainable or improper inducements to wholesalers and customers to get them to take its products. Channel-stuffing companies may also book revenue by transferring goods to an entity that is not totally separate.

There were also concerns about spring-loading — when one company acquires another and, between the announcement of the deal and the actual merger, finds a way to book a higher level of costs and lower revenue at the company being acquired.

With the number of inquiries and lawsuits it is facing, the question may well devolve into whether Valeant can survive everything being thrown at it,
Peter J. Henning writes in White Collar Watch.

Valeant has sought to portray itself as cooperative with regulators by pointing the finger at the former chief financial officer, Howard B. Schiller. But Mr. Schiller has refused to step down from the board, giving him a front-row seat to observe how the company responds to investigations. He will also be a key player in the investigation of the company’s accounting.

Valeant must also foot the bills for Mr. Schiller’s lawyers related to any inquiry or face even more litigation if it decides not to do so.


Starbucks Baristas Are Receiving Sensitivity Lessons During the Current Wall Street Crisis - Recipes

METLIFE WINS BATTLE TO REMOVE ‘TOO BIG TO FAIL’ LABEL | Opponents of the Dodd-Frank Act can rejoice. A judge in Washington overturned MetLife’s designation as “too big to fail” on Wednesday,
Victoria Finkle reports in DealBook.

The ruling, by Judge Rosemary M. Collyer of the Federal District Court for the District of Columbia, has raised questions about how regulators decide which institutions are too big to fail.

The judge upheld arguments that regulators failed to adequately assess the insurance company’s vulnerability to extreme financial distress and the potential economic impact of the designation.

The Treasury Department maintained that it had 𠇌onducted a rigorous analysis of MetLife,” but did not say whether it would appeal the ruling.

Some fear that the judge’s decision could prevent regulators from taking the necessary steps to stop another situation like American International Group’s near-collapse in 2008.

On the other hand House Republicans who have criticized the oversight council for a lack of transparency in deciding which institutions are systemically important will be emboldened.

The ruling was certainly a win for Eugene Scalia, the son of the late U.S. Supreme Court Justice Antonin Scalia, The Wall Street Journal reports.

As well as taking on MetLife’s designation, Mr. Scalia has been chipping away at the Dodd-Frank Act since its implementation. Relying on a 1990s-era federal law requiring financial regulators to do a cost-benefit analysis of new rules, Mr. Scalia has successfully argued against parts of the law that fail to meet that standard. He has won against the Securities and Exchange Commission and the Commodity Futures Trading Commission.

The idea that MetLife could shed its designation is shocking to Stephen J. Lubben. If the Financial Stability Oversight Council can’t designate MetLife, who can it designate? Mr. Lubben asks in the In Debt column.

MetLife has an enormous bond portfolio, a large derivatives book, substantial real estate holdings and significant connections with other systemically important financial institutions. It is plausible that it would create problems if MetLife were to fail.

The court didn’t buy it and we don’t know exactly why since the opinion is sealed. But we should expect an appeal. The losing party will want the full circuit to hear the case.

CAN STARWOOD MAKE A DEAL WITH ANBANG? | Starwood Hotel & Resorts faces a tricky issue,
Steven Davidoff Solomon writes in Deal Professor. Any deal it negotiates with the secretive Anbang Insurance Group may not be worth the paper it is printed on. And that is because Anbang is based in China.

If the consortium it leads won the bidding contest for Starwood and failed to honor the terms, Starwood would have to sue Anbang to enforce the deal.

If Starwood won a lawsuit in the United States, it would have to enforce the judgment in China, where Anbang and its assets are.

China is notorious for its weak rule of law and it is unclear whether a Chinese court would actually enforce a United States judgment against Anbang.

As with any deal involving a company outside the United States, it is no use having a great claim unless you have the pocket to get the money from, Mr. Davidoff Solomon writes.

Arbitration is a possible option and many agreements with Chinese companies contain arbitration provisions, but there is a common belief that Chinese courts will not enforce these awards.

Starwood’s lawyers will seek collateral from Anbang — mainly American assets. But Anbang’s assets in the United States are limited. The Waldorf Astoria and Strategic Hotels are not enough — Anbang most likely borrowed heavily to buy them.

The lawyers will also look for a deposit or letter of credit. It is also possible to get commitment from Anbang’s owners, though the problem is that they are unknown and are also likely to be abroad.

They may seek to have a termination fee put in escrow as Smithfield did when it was acquired by Shanghui International Holdings. And they should fight hard to get a “super escrow” of multiple billions because of the regulatory issues and risks to the deal.

How Starwood deals with these issues is very likely to be the template for how American acquisition targets deal with Chinese issues going forward.

ON THE AGENDA | Mary Jo White, the chairwoman of the Securities and Exchange Commission, will give a speech on protecting investments in pre-I.P.O. issuers at Stanford Law School at 8:45 p.m.

𠆏INTECH’ BOOM SAID TO THREATEN BANK JOBS | Up to 30 percent of employees in the banking industry could lose their jobs to new technologies over the next decade,
Nathaniel Popper reports in DealBook.

A report by Citigroup said that the number of employees at American banks would drop to 1.8 million in the year 2025, down from 2.6 million last year. An even sharper drop is predicted for European banks.

The jobs would be lost to start-ups cutting into different parts of the financial industry.

The projection comes after Antony Jenkins, the former chief executive of Barclays, said that banking was facing a series of “Uber moments,” in which the jobs in the industry could halve.

Banks are already being forced by volatile market conditions and new regulations to make cuts.

The Citigroup report noted that the banking sector had attracted record investment over the last five years and that new technologies had taken off the fastest in Asia, particularly China.

New financial technologies have been slower to gain traction in the United States. But “given the growth in fintech investment, this isn’t likely to continue for long,” wrote Kathleen Boyle, the managing editor of Citigroup GPS, in the report’s introduction.

Mergers & Acquisitions »

State Street to Buy G.E.’s Asset Management Business | The deal is the latest sale as General Electric retreats from finance and refocuses on its industrial roots.
NYT »

Dalian Wanda Group Seeks to Delist Its Commercial Property Arm | The potential privatization of Dalian Wanda Commercial Properties comes just 15 months after it raised $3.7 billion in a Hong Kong initial public offering.
NYT »

Foxconn’s Deal to Buy Sharp Is a Test for Japanese Reform | Instead of taking the easy route, Sharp is going to the bidder with the most capabilities, and incentives, to make it profitable and productive, Rob Cox writes in Breakingviews.
Breakingviews »  |  To Woo Apple, Foxconn Bets $3.5 Billion on Sharp 6:00 AM

Tata Steel Plans to Sell British Plants, Threatening 15,000 Jobs | Profits at the Indian-owned Tata Steel have been squeezed by cheap Chinese imports, and the company suggested that it would consider closing its plants if no buyer came forward.
NYT »

Allianz Said to Be Selling $5 Billion Life Insurance Portfolio in Italy | Allianz, which is Italy’s fourth biggest life and health insurer, is facing pressures from low interest rates and has decided to sell Italian life policies that pay a 2 percent minimum interest rate, Reuters reports, citing people familiar with the matter.
reuters

INVESTMENT BANKING »

Chinese Investment Bank Defaults on 𠆍im Sum’ Bond | A unit of Guosen Securities, China’s eighth-largest investment bank, has defaulted on a Hong Kong-traded renminbi bond, the first debt breach by a state-owned enterprise in China’s offshore market in nearly two decades, according to a document seen by the Financial Times.
the financial times

HEDGE FUNDS »

Citadel Securities Bolsters Electronic Trading | Citadel Securities, the market making arm of the hedge fund, has hired a senior banker as part of its efforts to use electronic trading to break open traditionally dealer-dominated markets.
the financial times

I.P.O./OFFERINGS »

A.I.G. Mortgage Unit Files for I.P.O. | American International Group’s mortgage insurer, United Guaranty, filed for an offering of $100 million, a placeholder figure that is used to calculate fees and will probably change.
bloomberg news

VENTURE CAPITAL »

Expa Labs Will Nurture Tech Start-Ups a Few at a Time | The incubator Expa Labs will take a smaller-scale approach to helping start-ups grow from idea to prototype to marketable product.
NYT »

What Happened When Venture Capitalists Took Over the Golden State Warriors | After racking up a historic N.B.A. season, the team’s owners — most of them from Silicon Valley — think their management style deserves some of the credit. Are they right?
Feature »

Fidelity Marks Down Start-Ups Including Dropbox and Zenefits | Fidelity Investments took an ax to the valuations of its private technology shares in February, cutting bellwether software start-ups like Dropbox, Cloudera and Zenefits by as much as 38 percent compared with the prior month.
the wall street journal

LEGAL/REGULATORY »

Cravath Law Firm Discloses a Data Attack | The disclosure by Cravath Swaine & Moore, which reported a “limited breach” of its computer network last summer, is rare for a big law firm.
NYT »

Supreme Court Rules Against Freezing Assets Not Tied to Crimes | The government may not freeze assets needed to pay criminal defense lawyers if the assets are not linked to a crime, the court ruled in a 5-to-3 decision.
NYT »

General Motors Ignition Switch Is Cleared in Trial Over a Crash | The case is one of six so-called bellwether trials being conducted to resolve legal claims against G.M., which recalled nearly 30 million vehicles after a scandal.
NYT »

Contractors and Temps Accounted for All of the Growth in Employment in the Last Decade | One result is that employers have succeeded at shifting much of the burden of providing social insurance onto workers.
The Upshot »

S.E.C. Bans Venture Capitalist for Theft | A San Francisco biotechnology venture capitalist agreed to pay nearly $5.8 million to settle accusations from the Securities and Exchange Commission that he stole investor money to pay for vacations in St. Bart’s and Paris, Tiffany jewelry, private jets and other expenses.
reuters

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Morning Agenda: Foxconn Strikes Deal for Sharp

FOXCONN STRIKES DEAL FOR SHARP | Foxconn is grappling with rising labor costs in China and a slowdown in the global smartphone market, but it managed to forestall its weakening relationship with Apple by striking a deal to acquire the screen maker Sharp of Japan for $3.5 billion,
Paul Mozur reports in DealBook.

Foxconn said it would take over 66 percent of Sharp, with a total investment of 389 billion yen, or about $3.5 billion. Foxconn is buying 򥊉 billion worth of common Sharp shares and an additional ꖙ.99 billion worth of nonvoting preferred shares.

The total investment is well below the $5.5 billion that Foxconn was expected to pay last month before it balked over the discovery that a new owner could be liable for close to $3 billion in potential liabilities.

The deal comes after weeks of public negotiations and high-profile setbacks, and should make Foxconn a more attractive partner for Apple, which uses Sharp screens in its iPhones.

Analysts are still skeptical — they say Foxconn gets an ailing business that will take a considerable amount of money to turn around, even if it does get a bigger chunk of the global supply chain.

The deal is a return to form for Foxconn in its emphasis on scale. Even as it has tried to maintain its enormous scale, it has also been trying to climb up the value chain to find more profitable streams of revenue.

EXPLAINING VALEANT | Commentators and analysts have drawn lessons from the mess surrounding Valeant, but few of them are convincing,
Steven Davidoff Solomon writes in Deal Professor.

Some contend that Valeant is like Enron, a house of cards waiting to be brought down by an inevitable accounting scandal. But Valeant is a real operating business and there is no indication of outright fraud.

Others have cautioned about the McKinsey-driven ethos — J. Michael Pearson was a McKinsey consultant for 23 years. But McKinsey has also been at the forefront of arguments about long-term shareholder value.

Warnings about Valeant’s decision to cut research and development are based on a nonsensical notion that R&D can never be bad. There has been an uproar about predatory pricing, but there is no transparency around Valeant’s pricing and its products still sell.

Hedge funds like ValueAct have also been blamed. This explains the business strategy, but it does not help us understand what went wrong. Shareholders get their share of the blame too for chasing returns, but this has nothing to do with Valeant’s business.

So what is the Deal Professor’s theory? If Wall Street built Valeant, it is now running away from it, Mr. Davidoff Solomon writes. The velocity of the turnaround created views of the company that are not tethered to reality.

It does not make sense for a company with earnings before interest, taxes, depreciation and amortization, or Ebitda, of about $5 billion a year to be worth only $9 billion. Allergan, with Ebitda of $7 billion a year and $40 billion of debt, is worth $110 billion.

This crisis has crushed Valeant’s previous business model, but it still has billions of dollars in earnings. The intrinsic worth of that business remains the same and the flight by Wall Street shut down its old growth model, but not its business. Wall Street always thinks the worst when things go bad and sometimes it creates a self-fulfilling frenzy.

LOUIS BACON’S CHARITY SAYS IT WAS VICTIM OF FRAUD | The Moore Charitable Foundation said it was the victim of fraud by the 39-year-old Wall Street executive Andrew Caspersen,
Matthew Goldstein and Alexandra Stevenson report in DealBook.

The trust, founded by the hedge fund billionaire Louis M. Bacon, said that it was “lied to by Andrew Caspersen, a managing director at investment bank PJT Partners, regarding a potential investment related to the publicly announced restructuring of a private equity fund.”

The foundation put $25 million into Mr. Caspersen’s scheme and said that it detected “irregularities in a proposed follow-on deal” before notifying PJT Partners’ general council. PJT contacted the United States attorney’s office in Manhattan.

The authorities said Mr. Caspersen had lost much of the $25 million in 𠇊ggressive options trading” and, as a condition of his bond, a magistrate judge ordered him to get a mental health evaluation and alcohol testing and treatment.

ON THE AGENDA | Jacob J. Lew, the Treasury secretary, will discuss the use of sanctions at the Carnegie Endowment for International Peace at 8:45 a.m. The Securities and Exchange Commission will consider whether to adopt new swaps rules in a meeting at 10 a.m. Charles L. Evans, the president of the Federal Reserve Bank of Chicago, will speak at the Forecasters Club of New York Luncheon at 1 p.m.

SPOTIFY EXPECTED TO SIGN $1 BILLION FINANCING DEAL | Spotify is about to close a $1 billion deal that would double the amount of financing it has raised since it was founded a decade ago,
Leslie Picker and Ben Sisario report in DealBook.

People briefed on the matter said the money comes in the form of convertible debt, which allows investors in the music-streaming company to change their securities into equity at a future date.

The convertible debt allows Spotify to obtain funds without needing to change its valuation. It had an equity value of $8.4 billion last year.

The terms of the debt may put pressure on the company to go public sooner. Investors have the ability to convert to equity at a discount to an initial public offering price — the discount increases if Spotify waits longer than a year to go public. The coupon payment on the debt would also rise over time.

Funds associated with the private equity firm TPG and the investment firm Dragoneer put in $750 million, while the rest came from institutional investors.

TPG and Dragoneer are permitted to cash out their shares as soon as 90 days after an I.P.O., instead of the 180 days employees and other shareholders get, according to The Wall Street Journal, which earlier reported the deal.

DEAL NOTES

Lester C. Thurow, Economist Who Seized the Spotlight, Is Dead at 77 | A prolific writer and popular public speaker, Mr. Thurow sounded an early alarm about the growing income gap between rich and poor Americans.
NYT »

Mergers & Acquisitions »

Starwood Bidder Is a Reclusive Chinese Insurer With Opaque Backing | Anbang, which is in a bidding war for Starwood Hotels, is controlled by a murky group of interconnected companies and led by a reclusive chairman.
NYT »  |  Breakingviews: Starwood’s Takeover Offer From Anbang is Risky, but Worth It 2:23 PM

Starwood’s Takeover Offer From Anbang Is Risky, but Worth It | Heavy interest from rival hoteliers means Starwood can afford to take the Anbang Insurance Group’s offer, which is $4.64 more per share than its deal with Marriott, Jeffrey Goldfarb writes in Breakingviews.
Breakingviews »  |  Starwood Bidder Is an Ambitious Chinese Insurer With Opaque Backing 11:52 AM

Metro Group of Germany to Split Into 2 Companies | The announcement came after Metro agreed in June to sell Galeria Kaufhof, the leading department store chain in Germany and Belgium, to the Hudson’s Bay Company.
NYT »

Norfolk Southern Steps Up Fight Against Canadian Pacific Merger | In a letter to employees, Norfolk Southern’s chief executive, Jim Squires, said that the company is making good progress on its restructuring plans and that employees should vote against merger talks.
the wall street journal

INVESTMENT BANKING »

Swedbank to Replace Chairman After He Lost Investor Support | The departure of Anders Sundstrom as chairman of the Swedish lender followed the ouster of Michael Wolf, its chief executive, in February.
NYT »

Doubts Raised Over Controls at HSBC | The monitor overseeing HSBC’s compliance with a landmark anti-money-laundering settlement has uncovered potential lapses including loans to companies that exported miniskirts to Iran and candy to Syria, The Wall Street Journal reports, citing a person familiar with the findings.
the wall street journal

UniCredit Said to Be in Talks Over Popolare di Vicenza Capital Raising | UniCredit, Italy’s largest bank by assets, is in talks with the government in Rome about seeking support for a 2 billion euro capital raising at the mutual bank Popolare di Vicenza, a deal seen as a crucial test of investor confidence in Italy’s lenders, The Financial Times reports, citing people with direct knowledge of the matter.
the financial times

PRIVATE EQUITY »

Chinese Textile Maker to Buy Owner of Sandro and Claudie Pierlot | Kohlberg Kravis Roberts plans to sell SMCP to China’s Shandong Ruyi in a deal that values the French fashion group at 1.3 billion euros, including debt, The Financial Times reports, citing people familiar with the matter.
the financial times

HEDGE FUNDS »

The Fall of China’s Hedge-Fund King | Xu Xiang was a legend in the country’s booming stock market — until the bubble he helped to create took him down with it.
Feature »

VENTURE CAPITAL »

Robo-Adviser Betterment Gets $100 Million in Venture Capital | The investment, which Betterment says it will use to increase product development and expand its business, pushes the firm’s valuation to $700 million.
NYT »

LEGAL/REGULATORY »

Janet Yellen Says Fed Still Plans to Raise Interest Rates but Carefully | In remarks to the Economic Club of New York, the Federal Reserve chairwoman said she expected the domestic economy to improve this year.
NYT »

Latest Plan to Rescue Puerto Rico Is Met With Disdain on Island | The plan calls for putting Puerto Rico’s finances under a presidentially appointed oversight board — a bitter pill to many on the island.
NYT »

Prosecutor in Bear Stearns Case to Leave U.S. Attorney’s Office | James G. McGovern, the head of the criminal division at the United States attorney’s office in Brooklyn, said he would join the law firm Hogan Lovells as a partner.
NYT »

Bank of England to Raise Bank Capital Buffer as Safeguard | The buffer is intended to ensure that British banks can provide lending and other essential banking services during times of financial stress.
NYT »

F.T.C. Sues Volkswagen Over �ptive’ Diesel Car Ads | The Federal Trade Commission accused VW of selling or leasing more than 550,000 diesel vehicles using a campaign that said they met emissions standards.
NYT »

Hackers Breach Law Firms | Hackers broke into the computer networks at some of the country’s most prestigious law firms, and federal investigators are exploring whether they stole confidential information for the purpose of insider trading, The Wall Street Journal reports, citing people familiar with the matter.
the wall street journal

Simmering for Decades, Anger About Trade Boils Over in � Election | Bashing trade deals has proved a winning strategy for Donald Trump, but economists mostly agree they have benefited American households significantly.
NYT »

Edison International Starts Energy Consultancy | The company will help large businesses take advantage of evolving technologies, markets and incentives in energy efficiency, renewables and storage.
NYT »

Australia to End ASX Clearing Monopoly | Canberra is ending the Australian Securities Exchange monopoly on equity clearing and relaxing ownership restrictions in a decision that removes a potential hurdle to the ASX’s participation in overseas mergers.
the financial times

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What We’re Reading

Get recommendations from New York Times reporters and editors, highlighting great stories from around the web. What We’re Reading emails are sent twice a week.

New Republic

Aiding and Abetting

After yet another Islamic State attack in Europe, Joshua Hersh studies one of the more important, but neglected, aspects of militant networks. That is a gray area that involves petty criminals who share an “indifference to the law and those who might enforce it. They are radical, one might say, but not necessarily radicalized.” Why is this so important? Mr. Hersh — who followed his father, Seymour Hersh, into journalism — notes that old-fashioned, solid police work may help cripple terrorist networks better than high-wire air raids over the Levant. — Diaa Hadid

Her Basketball Game

This is a Q. and A. with a sophisticated basketball fan who is also a very famous pornography actress with connections to many players, apparently. — Jason Stallman

New Republic

The Madding Crowd

This is by no means the first “I went to a Trump rally” story. But it is the first by Patricia Lockwood, the talented poet and humorist. (Side note: She wrote my favorite tweet of all time: &#[email protected] so is Paris any good or not.”) It’s odd and funny in the ways you𠆝 expect, but also poignant in parts and insightful about Trump’s appeal. “It is a practiced seduction,” she writes, “it has worked before. We ignore it at our peril.” — Dan Saltzstein

Politico

Gosh Darn It

At first glance the idea seems outlandish enough to require a “this is not a joke” warning label. And it isn’t. Building its argument on his skills as both a senator and a satirist, as well as his credibility with progressive Democrats across the country, this essay makes a detailed case for Al Franken as Hillary Clinton’s smartest choice for running mate, especially in a projected race against Donald Trump. — Patrick J. Lyons

MyNorthwest.com

A Silver Trail

Lewis and Clark gave out silver medallions — President Thomas Jefferson’s image on one side, a crossed peace pipe and hatchet on the other — to some American Indians they met, and those medals, through the tumult of the American frontier, mostly got lost. This story talks about the ones that have turned up, in places like Antiques Roadshow or a road-building project. The cool and gripping thing here is the idea that these little pieces of the past had their own long journey, echoing and reflecting the epic Corps of Discovery exploration that defined the early days of the West and that still resonates powerfully today from the Dakotas to the mouth of the Columbia River. — Kirk Johnson

Vanity Fair

The Venue of Laughs

The Comedy Cellar is claustrophobically cramped, darkly lit and resolutely un-renovated, which is to say, it’s a perfect room for stand-up. But its acoustics and atmosphere are only part of the reason it’s the premiere comedy club in the country right now. The rest of the explanation is its storied history of singularly great nightly lineups, which is explored in this lively new oral history in Vanity Fair, which includes reflections from everyone from Jon Stewart and Marc Maron to Cellar regulars like Jim Norton and Colin Quinn. — Jason Zinoman

Morning Agenda: Private Equity Executive Accused of Faking Investments

PRIVATE EQUITY EXECUTIVE ACCUSED OF FAKING INVESTMENTS | Federal prosecutors working for Preet Bharara, the United States attorney for Manhattan, have charged Andrew Caspersen, a former Blackstone Group managing principal, with securities and wire fraud in what was labeled a 𠇋razen” scheme to defraud investors of up to $95 million,

Alexandra Stevenson and Matthew Goldstein report in DealBook. The Securities and Exchange Commission filed parallel civil charges.

Mr. Caspersen was a partner at the Park Hill Group, which specializes in raising money for private equity firms and hedge funds, and was still trying to persuade institutional investors to give him money up until last week.

The authorities accused Mr. Caspersen of using a fraudulent investment vehicle and fake emails to dupe an unidentified hedge fund foundation to sink $25 million into the scheme last fall.

According to authorities, Mr. Caspersen had set up a shell company with a similar name to a legitimate vehicle at Park Hill and began raising money for it. He did not tell prospective investors that the shell company was controlled entirely by him, making up email accounts, inventing employees and creating a fake domain name. The scheme began to fall apart when the hedge fund asked for its $25 million plus interest to be returned. It has not yet received the money.

The authorities said he blew through most of the money he raised 𠇊s a result of aggressive options trading” in his personal brokerage account.

Park Hill, which was part of the Blackstone Group and is now part of PJT Partners, has fired Mr. Caspersen and said it was cooperating with the authorities.

The case has raised questions about the internal controls in place at Park Hill — the authorities say Mr. Caspersen’s scheme went on for months. It also raises questions about how much research and checking institutional investors do and how much they are relying on personal connections and trust.

STARWOOD BIDDING WAR ESCALATES | The consortium led by Anbang Insurance has increased its bid for Starwood Hotels to $14 billion, raising the stakes in the most prominent bidding war so far this year,
Michael J. de la Merced reports in DealBook.
Starwood declared that this was “reasonably likely to lead to a ‘superior offer.’ ”

Starwood said that the Anbang group had offered $81 a share on Saturday, and then the current $82.75 after talks between the two sides began.

Marriott International is sticking to its $13.5 billion offer for now. It argued that its proposal was solid while Anbang’s offer may not be able to close.

Analysts have said that Marriott would be hard-pressed to raise its offer to win the battle, since raising the cash portion of its offer could threaten its investment-grade rating. Adding more stock as consideration could harm its earnings per share.

ON THE AGENDA | The chairwoman of the Securities and Exchange Commission, Mary Jo White, will speak at the Mutual Fund Director Forum’s 2016 Policy Conference at 9 a.m. Janet L. Yellen, the chairwoman of the Federal Reserve, will speak at The Economic Club of New York at 11:30 a.m.

VALUEACT PAYS A PRICE FOR SUPPORTING VALEANT | William A. Ackman receives a lot of criticism for investing in Valeant, but ValueAct has had more influence over Valeant’s activities and its role has gone largely unquestioned,
Andrew Ross Sorkin writes in DealBook.

ValueAct, founded by Jeffrey Ubben, has been invested in Valeant since 2006 and has held at least one seat on its board since 2007. It installed J. Michael Pearson as chief executive, oversaw the change in compensation policies and supported the company’s strategy of cutting research and development while increasing the price of its drugs.

It is hard to see how ValueAct could have been unaware of Valeant’s more aggressive strategies, unless it intended to claim that it was duped by management, a claim it has not made yet.

When Mason Morfit, ValueAct’s representative, stepped down from the board, Mr. Pearson said he continued to “value his vision and guidance.” Mr. Morfit also helped establish a compensation plan for Valeant executives that governance experts say may have led to the practices at Valeant that are now under scrutiny. Mr. Pearson’s compensation plan, tied directly to the stock price, may have led to a culture that was too aggressive.

Valeant’s admission that it had wrongly booked $58 million of revenue has given way to the possibility of bigger problems at the company. Its confession has given credibility to critics who have produced analyses suggesting that its books could be flawed in other ways, Peter Eavis reports in DealBook.

And the issue of accounting is likely to remain at the heart of the debate over Valeant because it was so central to its strategy.

Valeant has been accused of channel-stuffing — trying to bolster revenue artificially by granting unsustainable or improper inducements to wholesalers and customers to get them to take its products. Channel-stuffing companies may also book revenue by transferring goods to an entity that is not totally separate.

There were also concerns about spring-loading — when one company acquires another and, between the announcement of the deal and the actual merger, finds a way to book a higher level of costs and lower revenue at the company being acquired.

With the number of inquiries and lawsuits it is facing, the question may well devolve into whether Valeant can survive everything being thrown at it,
Peter J. Henning writes in White Collar Watch.

Valeant has sought to portray itself as cooperative with regulators by pointing the finger at the former chief financial officer, Howard B. Schiller. But Mr. Schiller has refused to step down from the board, giving him a front-row seat to observe how the company responds to investigations. He will also be a key player in the investigation of the company’s accounting.

Valeant must also foot the bills for Mr. Schiller’s lawyers related to any inquiry or face even more litigation if it decides not to do so.


Starbucks Baristas Are Receiving Sensitivity Lessons During the Current Wall Street Crisis - Recipes

METLIFE WINS BATTLE TO REMOVE ‘TOO BIG TO FAIL’ LABEL | Opponents of the Dodd-Frank Act can rejoice. A judge in Washington overturned MetLife’s designation as “too big to fail” on Wednesday,
Victoria Finkle reports in DealBook.

The ruling, by Judge Rosemary M. Collyer of the Federal District Court for the District of Columbia, has raised questions about how regulators decide which institutions are too big to fail.

The judge upheld arguments that regulators failed to adequately assess the insurance company’s vulnerability to extreme financial distress and the potential economic impact of the designation.

The Treasury Department maintained that it had 𠇌onducted a rigorous analysis of MetLife,” but did not say whether it would appeal the ruling.

Some fear that the judge’s decision could prevent regulators from taking the necessary steps to stop another situation like American International Group’s near-collapse in 2008.

On the other hand House Republicans who have criticized the oversight council for a lack of transparency in deciding which institutions are systemically important will be emboldened.

The ruling was certainly a win for Eugene Scalia, the son of the late U.S. Supreme Court Justice Antonin Scalia, The Wall Street Journal reports.

As well as taking on MetLife’s designation, Mr. Scalia has been chipping away at the Dodd-Frank Act since its implementation. Relying on a 1990s-era federal law requiring financial regulators to do a cost-benefit analysis of new rules, Mr. Scalia has successfully argued against parts of the law that fail to meet that standard. He has won against the Securities and Exchange Commission and the Commodity Futures Trading Commission.

The idea that MetLife could shed its designation is shocking to Stephen J. Lubben. If the Financial Stability Oversight Council can’t designate MetLife, who can it designate? Mr. Lubben asks in the In Debt column.

MetLife has an enormous bond portfolio, a large derivatives book, substantial real estate holdings and significant connections with other systemically important financial institutions. It is plausible that it would create problems if MetLife were to fail.

The court didn’t buy it and we don’t know exactly why since the opinion is sealed. But we should expect an appeal. The losing party will want the full circuit to hear the case.

CAN STARWOOD MAKE A DEAL WITH ANBANG? | Starwood Hotel & Resorts faces a tricky issue,
Steven Davidoff Solomon writes in Deal Professor. Any deal it negotiates with the secretive Anbang Insurance Group may not be worth the paper it is printed on. And that is because Anbang is based in China.

If the consortium it leads won the bidding contest for Starwood and failed to honor the terms, Starwood would have to sue Anbang to enforce the deal.

If Starwood won a lawsuit in the United States, it would have to enforce the judgment in China, where Anbang and its assets are.

China is notorious for its weak rule of law and it is unclear whether a Chinese court would actually enforce a United States judgment against Anbang.

As with any deal involving a company outside the United States, it is no use having a great claim unless you have the pocket to get the money from, Mr. Davidoff Solomon writes.

Arbitration is a possible option and many agreements with Chinese companies contain arbitration provisions, but there is a common belief that Chinese courts will not enforce these awards.

Starwood’s lawyers will seek collateral from Anbang — mainly American assets. But Anbang’s assets in the United States are limited. The Waldorf Astoria and Strategic Hotels are not enough — Anbang most likely borrowed heavily to buy them.

The lawyers will also look for a deposit or letter of credit. It is also possible to get commitment from Anbang’s owners, though the problem is that they are unknown and are also likely to be abroad.

They may seek to have a termination fee put in escrow as Smithfield did when it was acquired by Shanghui International Holdings. And they should fight hard to get a “super escrow” of multiple billions because of the regulatory issues and risks to the deal.

How Starwood deals with these issues is very likely to be the template for how American acquisition targets deal with Chinese issues going forward.

ON THE AGENDA | Mary Jo White, the chairwoman of the Securities and Exchange Commission, will give a speech on protecting investments in pre-I.P.O. issuers at Stanford Law School at 8:45 p.m.

𠆏INTECH’ BOOM SAID TO THREATEN BANK JOBS | Up to 30 percent of employees in the banking industry could lose their jobs to new technologies over the next decade,
Nathaniel Popper reports in DealBook.

A report by Citigroup said that the number of employees at American banks would drop to 1.8 million in the year 2025, down from 2.6 million last year. An even sharper drop is predicted for European banks.

The jobs would be lost to start-ups cutting into different parts of the financial industry.

The projection comes after Antony Jenkins, the former chief executive of Barclays, said that banking was facing a series of “Uber moments,” in which the jobs in the industry could halve.

Banks are already being forced by volatile market conditions and new regulations to make cuts.

The Citigroup report noted that the banking sector had attracted record investment over the last five years and that new technologies had taken off the fastest in Asia, particularly China.

New financial technologies have been slower to gain traction in the United States. But “given the growth in fintech investment, this isn’t likely to continue for long,” wrote Kathleen Boyle, the managing editor of Citigroup GPS, in the report’s introduction.

Mergers & Acquisitions »

State Street to Buy G.E.’s Asset Management Business | The deal is the latest sale as General Electric retreats from finance and refocuses on its industrial roots.
NYT »

Dalian Wanda Group Seeks to Delist Its Commercial Property Arm | The potential privatization of Dalian Wanda Commercial Properties comes just 15 months after it raised $3.7 billion in a Hong Kong initial public offering.
NYT »

Foxconn’s Deal to Buy Sharp Is a Test for Japanese Reform | Instead of taking the easy route, Sharp is going to the bidder with the most capabilities, and incentives, to make it profitable and productive, Rob Cox writes in Breakingviews.
Breakingviews »  |  To Woo Apple, Foxconn Bets $3.5 Billion on Sharp 6:00 AM

Tata Steel Plans to Sell British Plants, Threatening 15,000 Jobs | Profits at the Indian-owned Tata Steel have been squeezed by cheap Chinese imports, and the company suggested that it would consider closing its plants if no buyer came forward.
NYT »

Allianz Said to Be Selling $5 Billion Life Insurance Portfolio in Italy | Allianz, which is Italy’s fourth biggest life and health insurer, is facing pressures from low interest rates and has decided to sell Italian life policies that pay a 2 percent minimum interest rate, Reuters reports, citing people familiar with the matter.
reuters

INVESTMENT BANKING »

Chinese Investment Bank Defaults on 𠆍im Sum’ Bond | A unit of Guosen Securities, China’s eighth-largest investment bank, has defaulted on a Hong Kong-traded renminbi bond, the first debt breach by a state-owned enterprise in China’s offshore market in nearly two decades, according to a document seen by the Financial Times.
the financial times

HEDGE FUNDS »

Citadel Securities Bolsters Electronic Trading | Citadel Securities, the market making arm of the hedge fund, has hired a senior banker as part of its efforts to use electronic trading to break open traditionally dealer-dominated markets.
the financial times

I.P.O./OFFERINGS »

A.I.G. Mortgage Unit Files for I.P.O. | American International Group’s mortgage insurer, United Guaranty, filed for an offering of $100 million, a placeholder figure that is used to calculate fees and will probably change.
bloomberg news

VENTURE CAPITAL »

Expa Labs Will Nurture Tech Start-Ups a Few at a Time | The incubator Expa Labs will take a smaller-scale approach to helping start-ups grow from idea to prototype to marketable product.
NYT »

What Happened When Venture Capitalists Took Over the Golden State Warriors | After racking up a historic N.B.A. season, the team’s owners — most of them from Silicon Valley — think their management style deserves some of the credit. Are they right?
Feature »

Fidelity Marks Down Start-Ups Including Dropbox and Zenefits | Fidelity Investments took an ax to the valuations of its private technology shares in February, cutting bellwether software start-ups like Dropbox, Cloudera and Zenefits by as much as 38 percent compared with the prior month.
the wall street journal

LEGAL/REGULATORY »

Cravath Law Firm Discloses a Data Attack | The disclosure by Cravath Swaine & Moore, which reported a “limited breach” of its computer network last summer, is rare for a big law firm.
NYT »

Supreme Court Rules Against Freezing Assets Not Tied to Crimes | The government may not freeze assets needed to pay criminal defense lawyers if the assets are not linked to a crime, the court ruled in a 5-to-3 decision.
NYT »

General Motors Ignition Switch Is Cleared in Trial Over a Crash | The case is one of six so-called bellwether trials being conducted to resolve legal claims against G.M., which recalled nearly 30 million vehicles after a scandal.
NYT »

Contractors and Temps Accounted for All of the Growth in Employment in the Last Decade | One result is that employers have succeeded at shifting much of the burden of providing social insurance onto workers.
The Upshot »

S.E.C. Bans Venture Capitalist for Theft | A San Francisco biotechnology venture capitalist agreed to pay nearly $5.8 million to settle accusations from the Securities and Exchange Commission that he stole investor money to pay for vacations in St. Bart’s and Paris, Tiffany jewelry, private jets and other expenses.
reuters

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Morning Agenda: Foxconn Strikes Deal for Sharp

FOXCONN STRIKES DEAL FOR SHARP | Foxconn is grappling with rising labor costs in China and a slowdown in the global smartphone market, but it managed to forestall its weakening relationship with Apple by striking a deal to acquire the screen maker Sharp of Japan for $3.5 billion,
Paul Mozur reports in DealBook.

Foxconn said it would take over 66 percent of Sharp, with a total investment of 389 billion yen, or about $3.5 billion. Foxconn is buying 򥊉 billion worth of common Sharp shares and an additional ꖙ.99 billion worth of nonvoting preferred shares.

The total investment is well below the $5.5 billion that Foxconn was expected to pay last month before it balked over the discovery that a new owner could be liable for close to $3 billion in potential liabilities.

The deal comes after weeks of public negotiations and high-profile setbacks, and should make Foxconn a more attractive partner for Apple, which uses Sharp screens in its iPhones.

Analysts are still skeptical — they say Foxconn gets an ailing business that will take a considerable amount of money to turn around, even if it does get a bigger chunk of the global supply chain.

The deal is a return to form for Foxconn in its emphasis on scale. Even as it has tried to maintain its enormous scale, it has also been trying to climb up the value chain to find more profitable streams of revenue.

EXPLAINING VALEANT | Commentators and analysts have drawn lessons from the mess surrounding Valeant, but few of them are convincing,
Steven Davidoff Solomon writes in Deal Professor.

Some contend that Valeant is like Enron, a house of cards waiting to be brought down by an inevitable accounting scandal. But Valeant is a real operating business and there is no indication of outright fraud.

Others have cautioned about the McKinsey-driven ethos — J. Michael Pearson was a McKinsey consultant for 23 years. But McKinsey has also been at the forefront of arguments about long-term shareholder value.

Warnings about Valeant’s decision to cut research and development are based on a nonsensical notion that R&D can never be bad. There has been an uproar about predatory pricing, but there is no transparency around Valeant’s pricing and its products still sell.

Hedge funds like ValueAct have also been blamed. This explains the business strategy, but it does not help us understand what went wrong. Shareholders get their share of the blame too for chasing returns, but this has nothing to do with Valeant’s business.

So what is the Deal Professor’s theory? If Wall Street built Valeant, it is now running away from it, Mr. Davidoff Solomon writes. The velocity of the turnaround created views of the company that are not tethered to reality.

It does not make sense for a company with earnings before interest, taxes, depreciation and amortization, or Ebitda, of about $5 billion a year to be worth only $9 billion. Allergan, with Ebitda of $7 billion a year and $40 billion of debt, is worth $110 billion.

This crisis has crushed Valeant’s previous business model, but it still has billions of dollars in earnings. The intrinsic worth of that business remains the same and the flight by Wall Street shut down its old growth model, but not its business. Wall Street always thinks the worst when things go bad and sometimes it creates a self-fulfilling frenzy.

LOUIS BACON’S CHARITY SAYS IT WAS VICTIM OF FRAUD | The Moore Charitable Foundation said it was the victim of fraud by the 39-year-old Wall Street executive Andrew Caspersen,
Matthew Goldstein and Alexandra Stevenson report in DealBook.

The trust, founded by the hedge fund billionaire Louis M. Bacon, said that it was “lied to by Andrew Caspersen, a managing director at investment bank PJT Partners, regarding a potential investment related to the publicly announced restructuring of a private equity fund.”

The foundation put $25 million into Mr. Caspersen’s scheme and said that it detected “irregularities in a proposed follow-on deal” before notifying PJT Partners’ general council. PJT contacted the United States attorney’s office in Manhattan.

The authorities said Mr. Caspersen had lost much of the $25 million in 𠇊ggressive options trading” and, as a condition of his bond, a magistrate judge ordered him to get a mental health evaluation and alcohol testing and treatment.

ON THE AGENDA | Jacob J. Lew, the Treasury secretary, will discuss the use of sanctions at the Carnegie Endowment for International Peace at 8:45 a.m. The Securities and Exchange Commission will consider whether to adopt new swaps rules in a meeting at 10 a.m. Charles L. Evans, the president of the Federal Reserve Bank of Chicago, will speak at the Forecasters Club of New York Luncheon at 1 p.m.

SPOTIFY EXPECTED TO SIGN $1 BILLION FINANCING DEAL | Spotify is about to close a $1 billion deal that would double the amount of financing it has raised since it was founded a decade ago,
Leslie Picker and Ben Sisario report in DealBook.

People briefed on the matter said the money comes in the form of convertible debt, which allows investors in the music-streaming company to change their securities into equity at a future date.

The convertible debt allows Spotify to obtain funds without needing to change its valuation. It had an equity value of $8.4 billion last year.

The terms of the debt may put pressure on the company to go public sooner. Investors have the ability to convert to equity at a discount to an initial public offering price — the discount increases if Spotify waits longer than a year to go public. The coupon payment on the debt would also rise over time.

Funds associated with the private equity firm TPG and the investment firm Dragoneer put in $750 million, while the rest came from institutional investors.

TPG and Dragoneer are permitted to cash out their shares as soon as 90 days after an I.P.O., instead of the 180 days employees and other shareholders get, according to The Wall Street Journal, which earlier reported the deal.

DEAL NOTES

Lester C. Thurow, Economist Who Seized the Spotlight, Is Dead at 77 | A prolific writer and popular public speaker, Mr. Thurow sounded an early alarm about the growing income gap between rich and poor Americans.
NYT »

Mergers & Acquisitions »

Starwood Bidder Is a Reclusive Chinese Insurer With Opaque Backing | Anbang, which is in a bidding war for Starwood Hotels, is controlled by a murky group of interconnected companies and led by a reclusive chairman.
NYT »  |  Breakingviews: Starwood’s Takeover Offer From Anbang is Risky, but Worth It 2:23 PM

Starwood’s Takeover Offer From Anbang Is Risky, but Worth It | Heavy interest from rival hoteliers means Starwood can afford to take the Anbang Insurance Group’s offer, which is $4.64 more per share than its deal with Marriott, Jeffrey Goldfarb writes in Breakingviews.
Breakingviews »  |  Starwood Bidder Is an Ambitious Chinese Insurer With Opaque Backing 11:52 AM

Metro Group of Germany to Split Into 2 Companies | The announcement came after Metro agreed in June to sell Galeria Kaufhof, the leading department store chain in Germany and Belgium, to the Hudson’s Bay Company.
NYT »

Norfolk Southern Steps Up Fight Against Canadian Pacific Merger | In a letter to employees, Norfolk Southern’s chief executive, Jim Squires, said that the company is making good progress on its restructuring plans and that employees should vote against merger talks.
the wall street journal

INVESTMENT BANKING »

Swedbank to Replace Chairman After He Lost Investor Support | The departure of Anders Sundstrom as chairman of the Swedish lender followed the ouster of Michael Wolf, its chief executive, in February.
NYT »

Doubts Raised Over Controls at HSBC | The monitor overseeing HSBC’s compliance with a landmark anti-money-laundering settlement has uncovered potential lapses including loans to companies that exported miniskirts to Iran and candy to Syria, The Wall Street Journal reports, citing a person familiar with the findings.
the wall street journal

UniCredit Said to Be in Talks Over Popolare di Vicenza Capital Raising | UniCredit, Italy’s largest bank by assets, is in talks with the government in Rome about seeking support for a 2 billion euro capital raising at the mutual bank Popolare di Vicenza, a deal seen as a crucial test of investor confidence in Italy’s lenders, The Financial Times reports, citing people with direct knowledge of the matter.
the financial times

PRIVATE EQUITY »

Chinese Textile Maker to Buy Owner of Sandro and Claudie Pierlot | Kohlberg Kravis Roberts plans to sell SMCP to China’s Shandong Ruyi in a deal that values the French fashion group at 1.3 billion euros, including debt, The Financial Times reports, citing people familiar with the matter.
the financial times

HEDGE FUNDS »

The Fall of China’s Hedge-Fund King | Xu Xiang was a legend in the country’s booming stock market — until the bubble he helped to create took him down with it.
Feature »

VENTURE CAPITAL »

Robo-Adviser Betterment Gets $100 Million in Venture Capital | The investment, which Betterment says it will use to increase product development and expand its business, pushes the firm’s valuation to $700 million.
NYT »

LEGAL/REGULATORY »

Janet Yellen Says Fed Still Plans to Raise Interest Rates but Carefully | In remarks to the Economic Club of New York, the Federal Reserve chairwoman said she expected the domestic economy to improve this year.
NYT »

Latest Plan to Rescue Puerto Rico Is Met With Disdain on Island | The plan calls for putting Puerto Rico’s finances under a presidentially appointed oversight board — a bitter pill to many on the island.
NYT »

Prosecutor in Bear Stearns Case to Leave U.S. Attorney’s Office | James G. McGovern, the head of the criminal division at the United States attorney’s office in Brooklyn, said he would join the law firm Hogan Lovells as a partner.
NYT »

Bank of England to Raise Bank Capital Buffer as Safeguard | The buffer is intended to ensure that British banks can provide lending and other essential banking services during times of financial stress.
NYT »

F.T.C. Sues Volkswagen Over �ptive’ Diesel Car Ads | The Federal Trade Commission accused VW of selling or leasing more than 550,000 diesel vehicles using a campaign that said they met emissions standards.
NYT »

Hackers Breach Law Firms | Hackers broke into the computer networks at some of the country’s most prestigious law firms, and federal investigators are exploring whether they stole confidential information for the purpose of insider trading, The Wall Street Journal reports, citing people familiar with the matter.
the wall street journal

Simmering for Decades, Anger About Trade Boils Over in � Election | Bashing trade deals has proved a winning strategy for Donald Trump, but economists mostly agree they have benefited American households significantly.
NYT »

Edison International Starts Energy Consultancy | The company will help large businesses take advantage of evolving technologies, markets and incentives in energy efficiency, renewables and storage.
NYT »

Australia to End ASX Clearing Monopoly | Canberra is ending the Australian Securities Exchange monopoly on equity clearing and relaxing ownership restrictions in a decision that removes a potential hurdle to the ASX’s participation in overseas mergers.
the financial times

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What We’re Reading

Get recommendations from New York Times reporters and editors, highlighting great stories from around the web. What We’re Reading emails are sent twice a week.

New Republic

Aiding and Abetting

After yet another Islamic State attack in Europe, Joshua Hersh studies one of the more important, but neglected, aspects of militant networks. That is a gray area that involves petty criminals who share an “indifference to the law and those who might enforce it. They are radical, one might say, but not necessarily radicalized.” Why is this so important? Mr. Hersh — who followed his father, Seymour Hersh, into journalism — notes that old-fashioned, solid police work may help cripple terrorist networks better than high-wire air raids over the Levant. — Diaa Hadid

Her Basketball Game

This is a Q. and A. with a sophisticated basketball fan who is also a very famous pornography actress with connections to many players, apparently. — Jason Stallman

New Republic

The Madding Crowd

This is by no means the first “I went to a Trump rally” story. But it is the first by Patricia Lockwood, the talented poet and humorist. (Side note: She wrote my favorite tweet of all time: &#[email protected] so is Paris any good or not.”) It’s odd and funny in the ways you𠆝 expect, but also poignant in parts and insightful about Trump’s appeal. “It is a practiced seduction,” she writes, “it has worked before. We ignore it at our peril.” — Dan Saltzstein

Politico

Gosh Darn It

At first glance the idea seems outlandish enough to require a “this is not a joke” warning label. And it isn’t. Building its argument on his skills as both a senator and a satirist, as well as his credibility with progressive Democrats across the country, this essay makes a detailed case for Al Franken as Hillary Clinton’s smartest choice for running mate, especially in a projected race against Donald Trump. — Patrick J. Lyons

MyNorthwest.com

A Silver Trail

Lewis and Clark gave out silver medallions — President Thomas Jefferson’s image on one side, a crossed peace pipe and hatchet on the other — to some American Indians they met, and those medals, through the tumult of the American frontier, mostly got lost. This story talks about the ones that have turned up, in places like Antiques Roadshow or a road-building project. The cool and gripping thing here is the idea that these little pieces of the past had their own long journey, echoing and reflecting the epic Corps of Discovery exploration that defined the early days of the West and that still resonates powerfully today from the Dakotas to the mouth of the Columbia River. — Kirk Johnson

Vanity Fair

The Venue of Laughs

The Comedy Cellar is claustrophobically cramped, darkly lit and resolutely un-renovated, which is to say, it’s a perfect room for stand-up. But its acoustics and atmosphere are only part of the reason it’s the premiere comedy club in the country right now. The rest of the explanation is its storied history of singularly great nightly lineups, which is explored in this lively new oral history in Vanity Fair, which includes reflections from everyone from Jon Stewart and Marc Maron to Cellar regulars like Jim Norton and Colin Quinn. — Jason Zinoman

Morning Agenda: Private Equity Executive Accused of Faking Investments

PRIVATE EQUITY EXECUTIVE ACCUSED OF FAKING INVESTMENTS | Federal prosecutors working for Preet Bharara, the United States attorney for Manhattan, have charged Andrew Caspersen, a former Blackstone Group managing principal, with securities and wire fraud in what was labeled a 𠇋razen” scheme to defraud investors of up to $95 million,

Alexandra Stevenson and Matthew Goldstein report in DealBook. The Securities and Exchange Commission filed parallel civil charges.

Mr. Caspersen was a partner at the Park Hill Group, which specializes in raising money for private equity firms and hedge funds, and was still trying to persuade institutional investors to give him money up until last week.

The authorities accused Mr. Caspersen of using a fraudulent investment vehicle and fake emails to dupe an unidentified hedge fund foundation to sink $25 million into the scheme last fall.

According to authorities, Mr. Caspersen had set up a shell company with a similar name to a legitimate vehicle at Park Hill and began raising money for it. He did not tell prospective investors that the shell company was controlled entirely by him, making up email accounts, inventing employees and creating a fake domain name. The scheme began to fall apart when the hedge fund asked for its $25 million plus interest to be returned. It has not yet received the money.

The authorities said he blew through most of the money he raised 𠇊s a result of aggressive options trading” in his personal brokerage account.

Park Hill, which was part of the Blackstone Group and is now part of PJT Partners, has fired Mr. Caspersen and said it was cooperating with the authorities.

The case has raised questions about the internal controls in place at Park Hill — the authorities say Mr. Caspersen’s scheme went on for months. It also raises questions about how much research and checking institutional investors do and how much they are relying on personal connections and trust.

STARWOOD BIDDING WAR ESCALATES | The consortium led by Anbang Insurance has increased its bid for Starwood Hotels to $14 billion, raising the stakes in the most prominent bidding war so far this year,
Michael J. de la Merced reports in DealBook.
Starwood declared that this was “reasonably likely to lead to a ‘superior offer.’ ”

Starwood said that the Anbang group had offered $81 a share on Saturday, and then the current $82.75 after talks between the two sides began.

Marriott International is sticking to its $13.5 billion offer for now. It argued that its proposal was solid while Anbang’s offer may not be able to close.

Analysts have said that Marriott would be hard-pressed to raise its offer to win the battle, since raising the cash portion of its offer could threaten its investment-grade rating. Adding more stock as consideration could harm its earnings per share.

ON THE AGENDA | The chairwoman of the Securities and Exchange Commission, Mary Jo White, will speak at the Mutual Fund Director Forum’s 2016 Policy Conference at 9 a.m. Janet L. Yellen, the chairwoman of the Federal Reserve, will speak at The Economic Club of New York at 11:30 a.m.

VALUEACT PAYS A PRICE FOR SUPPORTING VALEANT | William A. Ackman receives a lot of criticism for investing in Valeant, but ValueAct has had more influence over Valeant’s activities and its role has gone largely unquestioned,
Andrew Ross Sorkin writes in DealBook.

ValueAct, founded by Jeffrey Ubben, has been invested in Valeant since 2006 and has held at least one seat on its board since 2007. It installed J. Michael Pearson as chief executive, oversaw the change in compensation policies and supported the company’s strategy of cutting research and development while increasing the price of its drugs.

It is hard to see how ValueAct could have been unaware of Valeant’s more aggressive strategies, unless it intended to claim that it was duped by management, a claim it has not made yet.

When Mason Morfit, ValueAct’s representative, stepped down from the board, Mr. Pearson said he continued to “value his vision and guidance.” Mr. Morfit also helped establish a compensation plan for Valeant executives that governance experts say may have led to the practices at Valeant that are now under scrutiny. Mr. Pearson’s compensation plan, tied directly to the stock price, may have led to a culture that was too aggressive.

Valeant’s admission that it had wrongly booked $58 million of revenue has given way to the possibility of bigger problems at the company. Its confession has given credibility to critics who have produced analyses suggesting that its books could be flawed in other ways, Peter Eavis reports in DealBook.

And the issue of accounting is likely to remain at the heart of the debate over Valeant because it was so central to its strategy.

Valeant has been accused of channel-stuffing — trying to bolster revenue artificially by granting unsustainable or improper inducements to wholesalers and customers to get them to take its products. Channel-stuffing companies may also book revenue by transferring goods to an entity that is not totally separate.

There were also concerns about spring-loading — when one company acquires another and, between the announcement of the deal and the actual merger, finds a way to book a higher level of costs and lower revenue at the company being acquired.

With the number of inquiries and lawsuits it is facing, the question may well devolve into whether Valeant can survive everything being thrown at it,
Peter J. Henning writes in White Collar Watch.

Valeant has sought to portray itself as cooperative with regulators by pointing the finger at the former chief financial officer, Howard B. Schiller. But Mr. Schiller has refused to step down from the board, giving him a front-row seat to observe how the company responds to investigations. He will also be a key player in the investigation of the company’s accounting.

Valeant must also foot the bills for Mr. Schiller’s lawyers related to any inquiry or face even more litigation if it decides not to do so.


Starbucks Baristas Are Receiving Sensitivity Lessons During the Current Wall Street Crisis - Recipes

METLIFE WINS BATTLE TO REMOVE ‘TOO BIG TO FAIL’ LABEL | Opponents of the Dodd-Frank Act can rejoice. A judge in Washington overturned MetLife’s designation as “too big to fail” on Wednesday,
Victoria Finkle reports in DealBook.

The ruling, by Judge Rosemary M. Collyer of the Federal District Court for the District of Columbia, has raised questions about how regulators decide which institutions are too big to fail.

The judge upheld arguments that regulators failed to adequately assess the insurance company’s vulnerability to extreme financial distress and the potential economic impact of the designation.

The Treasury Department maintained that it had 𠇌onducted a rigorous analysis of MetLife,” but did not say whether it would appeal the ruling.

Some fear that the judge’s decision could prevent regulators from taking the necessary steps to stop another situation like American International Group’s near-collapse in 2008.

On the other hand House Republicans who have criticized the oversight council for a lack of transparency in deciding which institutions are systemically important will be emboldened.

The ruling was certainly a win for Eugene Scalia, the son of the late U.S. Supreme Court Justice Antonin Scalia, The Wall Street Journal reports.

As well as taking on MetLife’s designation, Mr. Scalia has been chipping away at the Dodd-Frank Act since its implementation. Relying on a 1990s-era federal law requiring financial regulators to do a cost-benefit analysis of new rules, Mr. Scalia has successfully argued against parts of the law that fail to meet that standard. He has won against the Securities and Exchange Commission and the Commodity Futures Trading Commission.

The idea that MetLife could shed its designation is shocking to Stephen J. Lubben. If the Financial Stability Oversight Council can’t designate MetLife, who can it designate? Mr. Lubben asks in the In Debt column.

MetLife has an enormous bond portfolio, a large derivatives book, substantial real estate holdings and significant connections with other systemically important financial institutions. It is plausible that it would create problems if MetLife were to fail.

The court didn’t buy it and we don’t know exactly why since the opinion is sealed. But we should expect an appeal. The losing party will want the full circuit to hear the case.

CAN STARWOOD MAKE A DEAL WITH ANBANG? | Starwood Hotel & Resorts faces a tricky issue,
Steven Davidoff Solomon writes in Deal Professor. Any deal it negotiates with the secretive Anbang Insurance Group may not be worth the paper it is printed on. And that is because Anbang is based in China.

If the consortium it leads won the bidding contest for Starwood and failed to honor the terms, Starwood would have to sue Anbang to enforce the deal.

If Starwood won a lawsuit in the United States, it would have to enforce the judgment in China, where Anbang and its assets are.

China is notorious for its weak rule of law and it is unclear whether a Chinese court would actually enforce a United States judgment against Anbang.

As with any deal involving a company outside the United States, it is no use having a great claim unless you have the pocket to get the money from, Mr. Davidoff Solomon writes.

Arbitration is a possible option and many agreements with Chinese companies contain arbitration provisions, but there is a common belief that Chinese courts will not enforce these awards.

Starwood’s lawyers will seek collateral from Anbang — mainly American assets. But Anbang’s assets in the United States are limited. The Waldorf Astoria and Strategic Hotels are not enough — Anbang most likely borrowed heavily to buy them.

The lawyers will also look for a deposit or letter of credit. It is also possible to get commitment from Anbang’s owners, though the problem is that they are unknown and are also likely to be abroad.

They may seek to have a termination fee put in escrow as Smithfield did when it was acquired by Shanghui International Holdings. And they should fight hard to get a “super escrow” of multiple billions because of the regulatory issues and risks to the deal.

How Starwood deals with these issues is very likely to be the template for how American acquisition targets deal with Chinese issues going forward.

ON THE AGENDA | Mary Jo White, the chairwoman of the Securities and Exchange Commission, will give a speech on protecting investments in pre-I.P.O. issuers at Stanford Law School at 8:45 p.m.

𠆏INTECH’ BOOM SAID TO THREATEN BANK JOBS | Up to 30 percent of employees in the banking industry could lose their jobs to new technologies over the next decade,
Nathaniel Popper reports in DealBook.

A report by Citigroup said that the number of employees at American banks would drop to 1.8 million in the year 2025, down from 2.6 million last year. An even sharper drop is predicted for European banks.

The jobs would be lost to start-ups cutting into different parts of the financial industry.

The projection comes after Antony Jenkins, the former chief executive of Barclays, said that banking was facing a series of “Uber moments,” in which the jobs in the industry could halve.

Banks are already being forced by volatile market conditions and new regulations to make cuts.

The Citigroup report noted that the banking sector had attracted record investment over the last five years and that new technologies had taken off the fastest in Asia, particularly China.

New financial technologies have been slower to gain traction in the United States. But “given the growth in fintech investment, this isn’t likely to continue for long,” wrote Kathleen Boyle, the managing editor of Citigroup GPS, in the report’s introduction.

Mergers & Acquisitions »

State Street to Buy G.E.’s Asset Management Business | The deal is the latest sale as General Electric retreats from finance and refocuses on its industrial roots.
NYT »

Dalian Wanda Group Seeks to Delist Its Commercial Property Arm | The potential privatization of Dalian Wanda Commercial Properties comes just 15 months after it raised $3.7 billion in a Hong Kong initial public offering.
NYT »

Foxconn’s Deal to Buy Sharp Is a Test for Japanese Reform | Instead of taking the easy route, Sharp is going to the bidder with the most capabilities, and incentives, to make it profitable and productive, Rob Cox writes in Breakingviews.
Breakingviews »  |  To Woo Apple, Foxconn Bets $3.5 Billion on Sharp 6:00 AM

Tata Steel Plans to Sell British Plants, Threatening 15,000 Jobs | Profits at the Indian-owned Tata Steel have been squeezed by cheap Chinese imports, and the company suggested that it would consider closing its plants if no buyer came forward.
NYT »

Allianz Said to Be Selling $5 Billion Life Insurance Portfolio in Italy | Allianz, which is Italy’s fourth biggest life and health insurer, is facing pressures from low interest rates and has decided to sell Italian life policies that pay a 2 percent minimum interest rate, Reuters reports, citing people familiar with the matter.
reuters

INVESTMENT BANKING »

Chinese Investment Bank Defaults on 𠆍im Sum’ Bond | A unit of Guosen Securities, China’s eighth-largest investment bank, has defaulted on a Hong Kong-traded renminbi bond, the first debt breach by a state-owned enterprise in China’s offshore market in nearly two decades, according to a document seen by the Financial Times.
the financial times

HEDGE FUNDS »

Citadel Securities Bolsters Electronic Trading | Citadel Securities, the market making arm of the hedge fund, has hired a senior banker as part of its efforts to use electronic trading to break open traditionally dealer-dominated markets.
the financial times

I.P.O./OFFERINGS »

A.I.G. Mortgage Unit Files for I.P.O. | American International Group’s mortgage insurer, United Guaranty, filed for an offering of $100 million, a placeholder figure that is used to calculate fees and will probably change.
bloomberg news

VENTURE CAPITAL »

Expa Labs Will Nurture Tech Start-Ups a Few at a Time | The incubator Expa Labs will take a smaller-scale approach to helping start-ups grow from idea to prototype to marketable product.
NYT »

What Happened When Venture Capitalists Took Over the Golden State Warriors | After racking up a historic N.B.A. season, the team’s owners — most of them from Silicon Valley — think their management style deserves some of the credit. Are they right?
Feature »

Fidelity Marks Down Start-Ups Including Dropbox and Zenefits | Fidelity Investments took an ax to the valuations of its private technology shares in February, cutting bellwether software start-ups like Dropbox, Cloudera and Zenefits by as much as 38 percent compared with the prior month.
the wall street journal

LEGAL/REGULATORY »

Cravath Law Firm Discloses a Data Attack | The disclosure by Cravath Swaine & Moore, which reported a “limited breach” of its computer network last summer, is rare for a big law firm.
NYT »

Supreme Court Rules Against Freezing Assets Not Tied to Crimes | The government may not freeze assets needed to pay criminal defense lawyers if the assets are not linked to a crime, the court ruled in a 5-to-3 decision.
NYT »

General Motors Ignition Switch Is Cleared in Trial Over a Crash | The case is one of six so-called bellwether trials being conducted to resolve legal claims against G.M., which recalled nearly 30 million vehicles after a scandal.
NYT »

Contractors and Temps Accounted for All of the Growth in Employment in the Last Decade | One result is that employers have succeeded at shifting much of the burden of providing social insurance onto workers.
The Upshot »

S.E.C. Bans Venture Capitalist for Theft | A San Francisco biotechnology venture capitalist agreed to pay nearly $5.8 million to settle accusations from the Securities and Exchange Commission that he stole investor money to pay for vacations in St. Bart’s and Paris, Tiffany jewelry, private jets and other expenses.
reuters

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Morning Agenda: Foxconn Strikes Deal for Sharp

FOXCONN STRIKES DEAL FOR SHARP | Foxconn is grappling with rising labor costs in China and a slowdown in the global smartphone market, but it managed to forestall its weakening relationship with Apple by striking a deal to acquire the screen maker Sharp of Japan for $3.5 billion,
Paul Mozur reports in DealBook.

Foxconn said it would take over 66 percent of Sharp, with a total investment of 389 billion yen, or about $3.5 billion. Foxconn is buying 򥊉 billion worth of common Sharp shares and an additional ꖙ.99 billion worth of nonvoting preferred shares.

The total investment is well below the $5.5 billion that Foxconn was expected to pay last month before it balked over the discovery that a new owner could be liable for close to $3 billion in potential liabilities.

The deal comes after weeks of public negotiations and high-profile setbacks, and should make Foxconn a more attractive partner for Apple, which uses Sharp screens in its iPhones.

Analysts are still skeptical — they say Foxconn gets an ailing business that will take a considerable amount of money to turn around, even if it does get a bigger chunk of the global supply chain.

The deal is a return to form for Foxconn in its emphasis on scale. Even as it has tried to maintain its enormous scale, it has also been trying to climb up the value chain to find more profitable streams of revenue.

EXPLAINING VALEANT | Commentators and analysts have drawn lessons from the mess surrounding Valeant, but few of them are convincing,
Steven Davidoff Solomon writes in Deal Professor.

Some contend that Valeant is like Enron, a house of cards waiting to be brought down by an inevitable accounting scandal. But Valeant is a real operating business and there is no indication of outright fraud.

Others have cautioned about the McKinsey-driven ethos — J. Michael Pearson was a McKinsey consultant for 23 years. But McKinsey has also been at the forefront of arguments about long-term shareholder value.

Warnings about Valeant’s decision to cut research and development are based on a nonsensical notion that R&D can never be bad. There has been an uproar about predatory pricing, but there is no transparency around Valeant’s pricing and its products still sell.

Hedge funds like ValueAct have also been blamed. This explains the business strategy, but it does not help us understand what went wrong. Shareholders get their share of the blame too for chasing returns, but this has nothing to do with Valeant’s business.

So what is the Deal Professor’s theory? If Wall Street built Valeant, it is now running away from it, Mr. Davidoff Solomon writes. The velocity of the turnaround created views of the company that are not tethered to reality.

It does not make sense for a company with earnings before interest, taxes, depreciation and amortization, or Ebitda, of about $5 billion a year to be worth only $9 billion. Allergan, with Ebitda of $7 billion a year and $40 billion of debt, is worth $110 billion.

This crisis has crushed Valeant’s previous business model, but it still has billions of dollars in earnings. The intrinsic worth of that business remains the same and the flight by Wall Street shut down its old growth model, but not its business. Wall Street always thinks the worst when things go bad and sometimes it creates a self-fulfilling frenzy.

LOUIS BACON’S CHARITY SAYS IT WAS VICTIM OF FRAUD | The Moore Charitable Foundation said it was the victim of fraud by the 39-year-old Wall Street executive Andrew Caspersen,
Matthew Goldstein and Alexandra Stevenson report in DealBook.

The trust, founded by the hedge fund billionaire Louis M. Bacon, said that it was “lied to by Andrew Caspersen, a managing director at investment bank PJT Partners, regarding a potential investment related to the publicly announced restructuring of a private equity fund.”

The foundation put $25 million into Mr. Caspersen’s scheme and said that it detected “irregularities in a proposed follow-on deal” before notifying PJT Partners’ general council. PJT contacted the United States attorney’s office in Manhattan.

The authorities said Mr. Caspersen had lost much of the $25 million in 𠇊ggressive options trading” and, as a condition of his bond, a magistrate judge ordered him to get a mental health evaluation and alcohol testing and treatment.

ON THE AGENDA | Jacob J. Lew, the Treasury secretary, will discuss the use of sanctions at the Carnegie Endowment for International Peace at 8:45 a.m. The Securities and Exchange Commission will consider whether to adopt new swaps rules in a meeting at 10 a.m. Charles L. Evans, the president of the Federal Reserve Bank of Chicago, will speak at the Forecasters Club of New York Luncheon at 1 p.m.

SPOTIFY EXPECTED TO SIGN $1 BILLION FINANCING DEAL | Spotify is about to close a $1 billion deal that would double the amount of financing it has raised since it was founded a decade ago,
Leslie Picker and Ben Sisario report in DealBook.

People briefed on the matter said the money comes in the form of convertible debt, which allows investors in the music-streaming company to change their securities into equity at a future date.

The convertible debt allows Spotify to obtain funds without needing to change its valuation. It had an equity value of $8.4 billion last year.

The terms of the debt may put pressure on the company to go public sooner. Investors have the ability to convert to equity at a discount to an initial public offering price — the discount increases if Spotify waits longer than a year to go public. The coupon payment on the debt would also rise over time.

Funds associated with the private equity firm TPG and the investment firm Dragoneer put in $750 million, while the rest came from institutional investors.

TPG and Dragoneer are permitted to cash out their shares as soon as 90 days after an I.P.O., instead of the 180 days employees and other shareholders get, according to The Wall Street Journal, which earlier reported the deal.

DEAL NOTES

Lester C. Thurow, Economist Who Seized the Spotlight, Is Dead at 77 | A prolific writer and popular public speaker, Mr. Thurow sounded an early alarm about the growing income gap between rich and poor Americans.
NYT »

Mergers & Acquisitions »

Starwood Bidder Is a Reclusive Chinese Insurer With Opaque Backing | Anbang, which is in a bidding war for Starwood Hotels, is controlled by a murky group of interconnected companies and led by a reclusive chairman.
NYT »  |  Breakingviews: Starwood’s Takeover Offer From Anbang is Risky, but Worth It 2:23 PM

Starwood’s Takeover Offer From Anbang Is Risky, but Worth It | Heavy interest from rival hoteliers means Starwood can afford to take the Anbang Insurance Group’s offer, which is $4.64 more per share than its deal with Marriott, Jeffrey Goldfarb writes in Breakingviews.
Breakingviews »  |  Starwood Bidder Is an Ambitious Chinese Insurer With Opaque Backing 11:52 AM

Metro Group of Germany to Split Into 2 Companies | The announcement came after Metro agreed in June to sell Galeria Kaufhof, the leading department store chain in Germany and Belgium, to the Hudson’s Bay Company.
NYT »

Norfolk Southern Steps Up Fight Against Canadian Pacific Merger | In a letter to employees, Norfolk Southern’s chief executive, Jim Squires, said that the company is making good progress on its restructuring plans and that employees should vote against merger talks.
the wall street journal

INVESTMENT BANKING »

Swedbank to Replace Chairman After He Lost Investor Support | The departure of Anders Sundstrom as chairman of the Swedish lender followed the ouster of Michael Wolf, its chief executive, in February.
NYT »

Doubts Raised Over Controls at HSBC | The monitor overseeing HSBC’s compliance with a landmark anti-money-laundering settlement has uncovered potential lapses including loans to companies that exported miniskirts to Iran and candy to Syria, The Wall Street Journal reports, citing a person familiar with the findings.
the wall street journal

UniCredit Said to Be in Talks Over Popolare di Vicenza Capital Raising | UniCredit, Italy’s largest bank by assets, is in talks with the government in Rome about seeking support for a 2 billion euro capital raising at the mutual bank Popolare di Vicenza, a deal seen as a crucial test of investor confidence in Italy’s lenders, The Financial Times reports, citing people with direct knowledge of the matter.
the financial times

PRIVATE EQUITY »

Chinese Textile Maker to Buy Owner of Sandro and Claudie Pierlot | Kohlberg Kravis Roberts plans to sell SMCP to China’s Shandong Ruyi in a deal that values the French fashion group at 1.3 billion euros, including debt, The Financial Times reports, citing people familiar with the matter.
the financial times

HEDGE FUNDS »

The Fall of China’s Hedge-Fund King | Xu Xiang was a legend in the country’s booming stock market — until the bubble he helped to create took him down with it.
Feature »

VENTURE CAPITAL »

Robo-Adviser Betterment Gets $100 Million in Venture Capital | The investment, which Betterment says it will use to increase product development and expand its business, pushes the firm’s valuation to $700 million.
NYT »

LEGAL/REGULATORY »

Janet Yellen Says Fed Still Plans to Raise Interest Rates but Carefully | In remarks to the Economic Club of New York, the Federal Reserve chairwoman said she expected the domestic economy to improve this year.
NYT »

Latest Plan to Rescue Puerto Rico Is Met With Disdain on Island | The plan calls for putting Puerto Rico’s finances under a presidentially appointed oversight board — a bitter pill to many on the island.
NYT »

Prosecutor in Bear Stearns Case to Leave U.S. Attorney’s Office | James G. McGovern, the head of the criminal division at the United States attorney’s office in Brooklyn, said he would join the law firm Hogan Lovells as a partner.
NYT »

Bank of England to Raise Bank Capital Buffer as Safeguard | The buffer is intended to ensure that British banks can provide lending and other essential banking services during times of financial stress.
NYT »

F.T.C. Sues Volkswagen Over �ptive’ Diesel Car Ads | The Federal Trade Commission accused VW of selling or leasing more than 550,000 diesel vehicles using a campaign that said they met emissions standards.
NYT »

Hackers Breach Law Firms | Hackers broke into the computer networks at some of the country’s most prestigious law firms, and federal investigators are exploring whether they stole confidential information for the purpose of insider trading, The Wall Street Journal reports, citing people familiar with the matter.
the wall street journal

Simmering for Decades, Anger About Trade Boils Over in � Election | Bashing trade deals has proved a winning strategy for Donald Trump, but economists mostly agree they have benefited American households significantly.
NYT »

Edison International Starts Energy Consultancy | The company will help large businesses take advantage of evolving technologies, markets and incentives in energy efficiency, renewables and storage.
NYT »

Australia to End ASX Clearing Monopoly | Canberra is ending the Australian Securities Exchange monopoly on equity clearing and relaxing ownership restrictions in a decision that removes a potential hurdle to the ASX’s participation in overseas mergers.
the financial times

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What We’re Reading

Get recommendations from New York Times reporters and editors, highlighting great stories from around the web. What We’re Reading emails are sent twice a week.

New Republic

Aiding and Abetting

After yet another Islamic State attack in Europe, Joshua Hersh studies one of the more important, but neglected, aspects of militant networks. That is a gray area that involves petty criminals who share an “indifference to the law and those who might enforce it. They are radical, one might say, but not necessarily radicalized.” Why is this so important? Mr. Hersh — who followed his father, Seymour Hersh, into journalism — notes that old-fashioned, solid police work may help cripple terrorist networks better than high-wire air raids over the Levant. — Diaa Hadid

Her Basketball Game

This is a Q. and A. with a sophisticated basketball fan who is also a very famous pornography actress with connections to many players, apparently. — Jason Stallman

New Republic

The Madding Crowd

This is by no means the first “I went to a Trump rally” story. But it is the first by Patricia Lockwood, the talented poet and humorist. (Side note: She wrote my favorite tweet of all time: &#[email protected] so is Paris any good or not.”) It’s odd and funny in the ways you𠆝 expect, but also poignant in parts and insightful about Trump’s appeal. “It is a practiced seduction,” she writes, “it has worked before. We ignore it at our peril.” — Dan Saltzstein

Politico

Gosh Darn It

At first glance the idea seems outlandish enough to require a “this is not a joke” warning label. And it isn’t. Building its argument on his skills as both a senator and a satirist, as well as his credibility with progressive Democrats across the country, this essay makes a detailed case for Al Franken as Hillary Clinton’s smartest choice for running mate, especially in a projected race against Donald Trump. — Patrick J. Lyons

MyNorthwest.com

A Silver Trail

Lewis and Clark gave out silver medallions — President Thomas Jefferson’s image on one side, a crossed peace pipe and hatchet on the other — to some American Indians they met, and those medals, through the tumult of the American frontier, mostly got lost. This story talks about the ones that have turned up, in places like Antiques Roadshow or a road-building project. The cool and gripping thing here is the idea that these little pieces of the past had their own long journey, echoing and reflecting the epic Corps of Discovery exploration that defined the early days of the West and that still resonates powerfully today from the Dakotas to the mouth of the Columbia River. — Kirk Johnson

Vanity Fair

The Venue of Laughs

The Comedy Cellar is claustrophobically cramped, darkly lit and resolutely un-renovated, which is to say, it’s a perfect room for stand-up. But its acoustics and atmosphere are only part of the reason it’s the premiere comedy club in the country right now. The rest of the explanation is its storied history of singularly great nightly lineups, which is explored in this lively new oral history in Vanity Fair, which includes reflections from everyone from Jon Stewart and Marc Maron to Cellar regulars like Jim Norton and Colin Quinn. — Jason Zinoman

Morning Agenda: Private Equity Executive Accused of Faking Investments

PRIVATE EQUITY EXECUTIVE ACCUSED OF FAKING INVESTMENTS | Federal prosecutors working for Preet Bharara, the United States attorney for Manhattan, have charged Andrew Caspersen, a former Blackstone Group managing principal, with securities and wire fraud in what was labeled a 𠇋razen” scheme to defraud investors of up to $95 million,

Alexandra Stevenson and Matthew Goldstein report in DealBook. The Securities and Exchange Commission filed parallel civil charges.

Mr. Caspersen was a partner at the Park Hill Group, which specializes in raising money for private equity firms and hedge funds, and was still trying to persuade institutional investors to give him money up until last week.

The authorities accused Mr. Caspersen of using a fraudulent investment vehicle and fake emails to dupe an unidentified hedge fund foundation to sink $25 million into the scheme last fall.

According to authorities, Mr. Caspersen had set up a shell company with a similar name to a legitimate vehicle at Park Hill and began raising money for it. He did not tell prospective investors that the shell company was controlled entirely by him, making up email accounts, inventing employees and creating a fake domain name. The scheme began to fall apart when the hedge fund asked for its $25 million plus interest to be returned. It has not yet received the money.

The authorities said he blew through most of the money he raised 𠇊s a result of aggressive options trading” in his personal brokerage account.

Park Hill, which was part of the Blackstone Group and is now part of PJT Partners, has fired Mr. Caspersen and said it was cooperating with the authorities.

The case has raised questions about the internal controls in place at Park Hill — the authorities say Mr. Caspersen’s scheme went on for months. It also raises questions about how much research and checking institutional investors do and how much they are relying on personal connections and trust.

STARWOOD BIDDING WAR ESCALATES | The consortium led by Anbang Insurance has increased its bid for Starwood Hotels to $14 billion, raising the stakes in the most prominent bidding war so far this year,
Michael J. de la Merced reports in DealBook.
Starwood declared that this was “reasonably likely to lead to a ‘superior offer.’ ”

Starwood said that the Anbang group had offered $81 a share on Saturday, and then the current $82.75 after talks between the two sides began.

Marriott International is sticking to its $13.5 billion offer for now. It argued that its proposal was solid while Anbang’s offer may not be able to close.

Analysts have said that Marriott would be hard-pressed to raise its offer to win the battle, since raising the cash portion of its offer could threaten its investment-grade rating. Adding more stock as consideration could harm its earnings per share.

ON THE AGENDA | The chairwoman of the Securities and Exchange Commission, Mary Jo White, will speak at the Mutual Fund Director Forum’s 2016 Policy Conference at 9 a.m. Janet L. Yellen, the chairwoman of the Federal Reserve, will speak at The Economic Club of New York at 11:30 a.m.

VALUEACT PAYS A PRICE FOR SUPPORTING VALEANT | William A. Ackman receives a lot of criticism for investing in Valeant, but ValueAct has had more influence over Valeant’s activities and its role has gone largely unquestioned,
Andrew Ross Sorkin writes in DealBook.

ValueAct, founded by Jeffrey Ubben, has been invested in Valeant since 2006 and has held at least one seat on its board since 2007. It installed J. Michael Pearson as chief executive, oversaw the change in compensation policies and supported the company’s strategy of cutting research and development while increasing the price of its drugs.

It is hard to see how ValueAct could have been unaware of Valeant’s more aggressive strategies, unless it intended to claim that it was duped by management, a claim it has not made yet.

When Mason Morfit, ValueAct’s representative, stepped down from the board, Mr. Pearson said he continued to “value his vision and guidance.” Mr. Morfit also helped establish a compensation plan for Valeant executives that governance experts say may have led to the practices at Valeant that are now under scrutiny. Mr. Pearson’s compensation plan, tied directly to the stock price, may have led to a culture that was too aggressive.

Valeant’s admission that it had wrongly booked $58 million of revenue has given way to the possibility of bigger problems at the company. Its confession has given credibility to critics who have produced analyses suggesting that its books could be flawed in other ways, Peter Eavis reports in DealBook.

And the issue of accounting is likely to remain at the heart of the debate over Valeant because it was so central to its strategy.

Valeant has been accused of channel-stuffing — trying to bolster revenue artificially by granting unsustainable or improper inducements to wholesalers and customers to get them to take its products. Channel-stuffing companies may also book revenue by transferring goods to an entity that is not totally separate.

There were also concerns about spring-loading — when one company acquires another and, between the announcement of the deal and the actual merger, finds a way to book a higher level of costs and lower revenue at the company being acquired.

With the number of inquiries and lawsuits it is facing, the question may well devolve into whether Valeant can survive everything being thrown at it,
Peter J. Henning writes in White Collar Watch.

Valeant has sought to portray itself as cooperative with regulators by pointing the finger at the former chief financial officer, Howard B. Schiller. But Mr. Schiller has refused to step down from the board, giving him a front-row seat to observe how the company responds to investigations. He will also be a key player in the investigation of the company’s accounting.

Valeant must also foot the bills for Mr. Schiller’s lawyers related to any inquiry or face even more litigation if it decides not to do so.


Starbucks Baristas Are Receiving Sensitivity Lessons During the Current Wall Street Crisis - Recipes

METLIFE WINS BATTLE TO REMOVE ‘TOO BIG TO FAIL’ LABEL | Opponents of the Dodd-Frank Act can rejoice. A judge in Washington overturned MetLife’s designation as “too big to fail” on Wednesday,
Victoria Finkle reports in DealBook.

The ruling, by Judge Rosemary M. Collyer of the Federal District Court for the District of Columbia, has raised questions about how regulators decide which institutions are too big to fail.

The judge upheld arguments that regulators failed to adequately assess the insurance company’s vulnerability to extreme financial distress and the potential economic impact of the designation.

The Treasury Department maintained that it had 𠇌onducted a rigorous analysis of MetLife,” but did not say whether it would appeal the ruling.

Some fear that the judge’s decision could prevent regulators from taking the necessary steps to stop another situation like American International Group’s near-collapse in 2008.

On the other hand House Republicans who have criticized the oversight council for a lack of transparency in deciding which institutions are systemically important will be emboldened.

The ruling was certainly a win for Eugene Scalia, the son of the late U.S. Supreme Court Justice Antonin Scalia, The Wall Street Journal reports.

As well as taking on MetLife’s designation, Mr. Scalia has been chipping away at the Dodd-Frank Act since its implementation. Relying on a 1990s-era federal law requiring financial regulators to do a cost-benefit analysis of new rules, Mr. Scalia has successfully argued against parts of the law that fail to meet that standard. He has won against the Securities and Exchange Commission and the Commodity Futures Trading Commission.

The idea that MetLife could shed its designation is shocking to Stephen J. Lubben. If the Financial Stability Oversight Council can’t designate MetLife, who can it designate? Mr. Lubben asks in the In Debt column.

MetLife has an enormous bond portfolio, a large derivatives book, substantial real estate holdings and significant connections with other systemically important financial institutions. It is plausible that it would create problems if MetLife were to fail.

The court didn’t buy it and we don’t know exactly why since the opinion is sealed. But we should expect an appeal. The losing party will want the full circuit to hear the case.

CAN STARWOOD MAKE A DEAL WITH ANBANG? | Starwood Hotel & Resorts faces a tricky issue,
Steven Davidoff Solomon writes in Deal Professor. Any deal it negotiates with the secretive Anbang Insurance Group may not be worth the paper it is printed on. And that is because Anbang is based in China.

If the consortium it leads won the bidding contest for Starwood and failed to honor the terms, Starwood would have to sue Anbang to enforce the deal.

If Starwood won a lawsuit in the United States, it would have to enforce the judgment in China, where Anbang and its assets are.

China is notorious for its weak rule of law and it is unclear whether a Chinese court would actually enforce a United States judgment against Anbang.

As with any deal involving a company outside the United States, it is no use having a great claim unless you have the pocket to get the money from, Mr. Davidoff Solomon writes.

Arbitration is a possible option and many agreements with Chinese companies contain arbitration provisions, but there is a common belief that Chinese courts will not enforce these awards.

Starwood’s lawyers will seek collateral from Anbang — mainly American assets. But Anbang’s assets in the United States are limited. The Waldorf Astoria and Strategic Hotels are not enough — Anbang most likely borrowed heavily to buy them.

The lawyers will also look for a deposit or letter of credit. It is also possible to get commitment from Anbang’s owners, though the problem is that they are unknown and are also likely to be abroad.

They may seek to have a termination fee put in escrow as Smithfield did when it was acquired by Shanghui International Holdings. And they should fight hard to get a “super escrow” of multiple billions because of the regulatory issues and risks to the deal.

How Starwood deals with these issues is very likely to be the template for how American acquisition targets deal with Chinese issues going forward.

ON THE AGENDA | Mary Jo White, the chairwoman of the Securities and Exchange Commission, will give a speech on protecting investments in pre-I.P.O. issuers at Stanford Law School at 8:45 p.m.

𠆏INTECH’ BOOM SAID TO THREATEN BANK JOBS | Up to 30 percent of employees in the banking industry could lose their jobs to new technologies over the next decade,
Nathaniel Popper reports in DealBook.

A report by Citigroup said that the number of employees at American banks would drop to 1.8 million in the year 2025, down from 2.6 million last year. An even sharper drop is predicted for European banks.

The jobs would be lost to start-ups cutting into different parts of the financial industry.

The projection comes after Antony Jenkins, the former chief executive of Barclays, said that banking was facing a series of “Uber moments,” in which the jobs in the industry could halve.

Banks are already being forced by volatile market conditions and new regulations to make cuts.

The Citigroup report noted that the banking sector had attracted record investment over the last five years and that new technologies had taken off the fastest in Asia, particularly China.

New financial technologies have been slower to gain traction in the United States. But “given the growth in fintech investment, this isn’t likely to continue for long,” wrote Kathleen Boyle, the managing editor of Citigroup GPS, in the report’s introduction.

Mergers & Acquisitions »

State Street to Buy G.E.’s Asset Management Business | The deal is the latest sale as General Electric retreats from finance and refocuses on its industrial roots.
NYT »

Dalian Wanda Group Seeks to Delist Its Commercial Property Arm | The potential privatization of Dalian Wanda Commercial Properties comes just 15 months after it raised $3.7 billion in a Hong Kong initial public offering.
NYT »

Foxconn’s Deal to Buy Sharp Is a Test for Japanese Reform | Instead of taking the easy route, Sharp is going to the bidder with the most capabilities, and incentives, to make it profitable and productive, Rob Cox writes in Breakingviews.
Breakingviews »  |  To Woo Apple, Foxconn Bets $3.5 Billion on Sharp 6:00 AM

Tata Steel Plans to Sell British Plants, Threatening 15,000 Jobs | Profits at the Indian-owned Tata Steel have been squeezed by cheap Chinese imports, and the company suggested that it would consider closing its plants if no buyer came forward.
NYT »

Allianz Said to Be Selling $5 Billion Life Insurance Portfolio in Italy | Allianz, which is Italy’s fourth biggest life and health insurer, is facing pressures from low interest rates and has decided to sell Italian life policies that pay a 2 percent minimum interest rate, Reuters reports, citing people familiar with the matter.
reuters

INVESTMENT BANKING »

Chinese Investment Bank Defaults on 𠆍im Sum’ Bond | A unit of Guosen Securities, China’s eighth-largest investment bank, has defaulted on a Hong Kong-traded renminbi bond, the first debt breach by a state-owned enterprise in China’s offshore market in nearly two decades, according to a document seen by the Financial Times.
the financial times

HEDGE FUNDS »

Citadel Securities Bolsters Electronic Trading | Citadel Securities, the market making arm of the hedge fund, has hired a senior banker as part of its efforts to use electronic trading to break open traditionally dealer-dominated markets.
the financial times

I.P.O./OFFERINGS »

A.I.G. Mortgage Unit Files for I.P.O. | American International Group’s mortgage insurer, United Guaranty, filed for an offering of $100 million, a placeholder figure that is used to calculate fees and will probably change.
bloomberg news

VENTURE CAPITAL »

Expa Labs Will Nurture Tech Start-Ups a Few at a Time | The incubator Expa Labs will take a smaller-scale approach to helping start-ups grow from idea to prototype to marketable product.
NYT »

What Happened When Venture Capitalists Took Over the Golden State Warriors | After racking up a historic N.B.A. season, the team’s owners — most of them from Silicon Valley — think their management style deserves some of the credit. Are they right?
Feature »

Fidelity Marks Down Start-Ups Including Dropbox and Zenefits | Fidelity Investments took an ax to the valuations of its private technology shares in February, cutting bellwether software start-ups like Dropbox, Cloudera and Zenefits by as much as 38 percent compared with the prior month.
the wall street journal

LEGAL/REGULATORY »

Cravath Law Firm Discloses a Data Attack | The disclosure by Cravath Swaine & Moore, which reported a “limited breach” of its computer network last summer, is rare for a big law firm.
NYT »

Supreme Court Rules Against Freezing Assets Not Tied to Crimes | The government may not freeze assets needed to pay criminal defense lawyers if the assets are not linked to a crime, the court ruled in a 5-to-3 decision.
NYT »

General Motors Ignition Switch Is Cleared in Trial Over a Crash | The case is one of six so-called bellwether trials being conducted to resolve legal claims against G.M., which recalled nearly 30 million vehicles after a scandal.
NYT »

Contractors and Temps Accounted for All of the Growth in Employment in the Last Decade | One result is that employers have succeeded at shifting much of the burden of providing social insurance onto workers.
The Upshot »

S.E.C. Bans Venture Capitalist for Theft | A San Francisco biotechnology venture capitalist agreed to pay nearly $5.8 million to settle accusations from the Securities and Exchange Commission that he stole investor money to pay for vacations in St. Bart’s and Paris, Tiffany jewelry, private jets and other expenses.
reuters

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Morning Agenda: Foxconn Strikes Deal for Sharp

FOXCONN STRIKES DEAL FOR SHARP | Foxconn is grappling with rising labor costs in China and a slowdown in the global smartphone market, but it managed to forestall its weakening relationship with Apple by striking a deal to acquire the screen maker Sharp of Japan for $3.5 billion,
Paul Mozur reports in DealBook.

Foxconn said it would take over 66 percent of Sharp, with a total investment of 389 billion yen, or about $3.5 billion. Foxconn is buying 򥊉 billion worth of common Sharp shares and an additional ꖙ.99 billion worth of nonvoting preferred shares.

The total investment is well below the $5.5 billion that Foxconn was expected to pay last month before it balked over the discovery that a new owner could be liable for close to $3 billion in potential liabilities.

The deal comes after weeks of public negotiations and high-profile setbacks, and should make Foxconn a more attractive partner for Apple, which uses Sharp screens in its iPhones.

Analysts are still skeptical — they say Foxconn gets an ailing business that will take a considerable amount of money to turn around, even if it does get a bigger chunk of the global supply chain.

The deal is a return to form for Foxconn in its emphasis on scale. Even as it has tried to maintain its enormous scale, it has also been trying to climb up the value chain to find more profitable streams of revenue.

EXPLAINING VALEANT | Commentators and analysts have drawn lessons from the mess surrounding Valeant, but few of them are convincing,
Steven Davidoff Solomon writes in Deal Professor.

Some contend that Valeant is like Enron, a house of cards waiting to be brought down by an inevitable accounting scandal. But Valeant is a real operating business and there is no indication of outright fraud.

Others have cautioned about the McKinsey-driven ethos — J. Michael Pearson was a McKinsey consultant for 23 years. But McKinsey has also been at the forefront of arguments about long-term shareholder value.

Warnings about Valeant’s decision to cut research and development are based on a nonsensical notion that R&D can never be bad. There has been an uproar about predatory pricing, but there is no transparency around Valeant’s pricing and its products still sell.

Hedge funds like ValueAct have also been blamed. This explains the business strategy, but it does not help us understand what went wrong. Shareholders get their share of the blame too for chasing returns, but this has nothing to do with Valeant’s business.

So what is the Deal Professor’s theory? If Wall Street built Valeant, it is now running away from it, Mr. Davidoff Solomon writes. The velocity of the turnaround created views of the company that are not tethered to reality.

It does not make sense for a company with earnings before interest, taxes, depreciation and amortization, or Ebitda, of about $5 billion a year to be worth only $9 billion. Allergan, with Ebitda of $7 billion a year and $40 billion of debt, is worth $110 billion.

This crisis has crushed Valeant’s previous business model, but it still has billions of dollars in earnings. The intrinsic worth of that business remains the same and the flight by Wall Street shut down its old growth model, but not its business. Wall Street always thinks the worst when things go bad and sometimes it creates a self-fulfilling frenzy.

LOUIS BACON’S CHARITY SAYS IT WAS VICTIM OF FRAUD | The Moore Charitable Foundation said it was the victim of fraud by the 39-year-old Wall Street executive Andrew Caspersen,
Matthew Goldstein and Alexandra Stevenson report in DealBook.

The trust, founded by the hedge fund billionaire Louis M. Bacon, said that it was “lied to by Andrew Caspersen, a managing director at investment bank PJT Partners, regarding a potential investment related to the publicly announced restructuring of a private equity fund.”

The foundation put $25 million into Mr. Caspersen’s scheme and said that it detected “irregularities in a proposed follow-on deal” before notifying PJT Partners’ general council. PJT contacted the United States attorney’s office in Manhattan.

The authorities said Mr. Caspersen had lost much of the $25 million in 𠇊ggressive options trading” and, as a condition of his bond, a magistrate judge ordered him to get a mental health evaluation and alcohol testing and treatment.

ON THE AGENDA | Jacob J. Lew, the Treasury secretary, will discuss the use of sanctions at the Carnegie Endowment for International Peace at 8:45 a.m. The Securities and Exchange Commission will consider whether to adopt new swaps rules in a meeting at 10 a.m. Charles L. Evans, the president of the Federal Reserve Bank of Chicago, will speak at the Forecasters Club of New York Luncheon at 1 p.m.

SPOTIFY EXPECTED TO SIGN $1 BILLION FINANCING DEAL | Spotify is about to close a $1 billion deal that would double the amount of financing it has raised since it was founded a decade ago,
Leslie Picker and Ben Sisario report in DealBook.

People briefed on the matter said the money comes in the form of convertible debt, which allows investors in the music-streaming company to change their securities into equity at a future date.

The convertible debt allows Spotify to obtain funds without needing to change its valuation. It had an equity value of $8.4 billion last year.

The terms of the debt may put pressure on the company to go public sooner. Investors have the ability to convert to equity at a discount to an initial public offering price — the discount increases if Spotify waits longer than a year to go public. The coupon payment on the debt would also rise over time.

Funds associated with the private equity firm TPG and the investment firm Dragoneer put in $750 million, while the rest came from institutional investors.

TPG and Dragoneer are permitted to cash out their shares as soon as 90 days after an I.P.O., instead of the 180 days employees and other shareholders get, according to The Wall Street Journal, which earlier reported the deal.

DEAL NOTES

Lester C. Thurow, Economist Who Seized the Spotlight, Is Dead at 77 | A prolific writer and popular public speaker, Mr. Thurow sounded an early alarm about the growing income gap between rich and poor Americans.
NYT »

Mergers & Acquisitions »

Starwood Bidder Is a Reclusive Chinese Insurer With Opaque Backing | Anbang, which is in a bidding war for Starwood Hotels, is controlled by a murky group of interconnected companies and led by a reclusive chairman.
NYT »  |  Breakingviews: Starwood’s Takeover Offer From Anbang is Risky, but Worth It 2:23 PM

Starwood’s Takeover Offer From Anbang Is Risky, but Worth It | Heavy interest from rival hoteliers means Starwood can afford to take the Anbang Insurance Group’s offer, which is $4.64 more per share than its deal with Marriott, Jeffrey Goldfarb writes in Breakingviews.
Breakingviews »  |  Starwood Bidder Is an Ambitious Chinese Insurer With Opaque Backing 11:52 AM

Metro Group of Germany to Split Into 2 Companies | The announcement came after Metro agreed in June to sell Galeria Kaufhof, the leading department store chain in Germany and Belgium, to the Hudson’s Bay Company.
NYT »

Norfolk Southern Steps Up Fight Against Canadian Pacific Merger | In a letter to employees, Norfolk Southern’s chief executive, Jim Squires, said that the company is making good progress on its restructuring plans and that employees should vote against merger talks.
the wall street journal

INVESTMENT BANKING »

Swedbank to Replace Chairman After He Lost Investor Support | The departure of Anders Sundstrom as chairman of the Swedish lender followed the ouster of Michael Wolf, its chief executive, in February.
NYT »

Doubts Raised Over Controls at HSBC | The monitor overseeing HSBC’s compliance with a landmark anti-money-laundering settlement has uncovered potential lapses including loans to companies that exported miniskirts to Iran and candy to Syria, The Wall Street Journal reports, citing a person familiar with the findings.
the wall street journal

UniCredit Said to Be in Talks Over Popolare di Vicenza Capital Raising | UniCredit, Italy’s largest bank by assets, is in talks with the government in Rome about seeking support for a 2 billion euro capital raising at the mutual bank Popolare di Vicenza, a deal seen as a crucial test of investor confidence in Italy’s lenders, The Financial Times reports, citing people with direct knowledge of the matter.
the financial times

PRIVATE EQUITY »

Chinese Textile Maker to Buy Owner of Sandro and Claudie Pierlot | Kohlberg Kravis Roberts plans to sell SMCP to China’s Shandong Ruyi in a deal that values the French fashion group at 1.3 billion euros, including debt, The Financial Times reports, citing people familiar with the matter.
the financial times

HEDGE FUNDS »

The Fall of China’s Hedge-Fund King | Xu Xiang was a legend in the country’s booming stock market — until the bubble he helped to create took him down with it.
Feature »

VENTURE CAPITAL »

Robo-Adviser Betterment Gets $100 Million in Venture Capital | The investment, which Betterment says it will use to increase product development and expand its business, pushes the firm’s valuation to $700 million.
NYT »

LEGAL/REGULATORY »

Janet Yellen Says Fed Still Plans to Raise Interest Rates but Carefully | In remarks to the Economic Club of New York, the Federal Reserve chairwoman said she expected the domestic economy to improve this year.
NYT »

Latest Plan to Rescue Puerto Rico Is Met With Disdain on Island | The plan calls for putting Puerto Rico’s finances under a presidentially appointed oversight board — a bitter pill to many on the island.
NYT »

Prosecutor in Bear Stearns Case to Leave U.S. Attorney’s Office | James G. McGovern, the head of the criminal division at the United States attorney’s office in Brooklyn, said he would join the law firm Hogan Lovells as a partner.
NYT »

Bank of England to Raise Bank Capital Buffer as Safeguard | The buffer is intended to ensure that British banks can provide lending and other essential banking services during times of financial stress.
NYT »

F.T.C. Sues Volkswagen Over �ptive’ Diesel Car Ads | The Federal Trade Commission accused VW of selling or leasing more than 550,000 diesel vehicles using a campaign that said they met emissions standards.
NYT »

Hackers Breach Law Firms | Hackers broke into the computer networks at some of the country’s most prestigious law firms, and federal investigators are exploring whether they stole confidential information for the purpose of insider trading, The Wall Street Journal reports, citing people familiar with the matter.
the wall street journal

Simmering for Decades, Anger About Trade Boils Over in � Election | Bashing trade deals has proved a winning strategy for Donald Trump, but economists mostly agree they have benefited American households significantly.
NYT »

Edison International Starts Energy Consultancy | The company will help large businesses take advantage of evolving technologies, markets and incentives in energy efficiency, renewables and storage.
NYT »

Australia to End ASX Clearing Monopoly | Canberra is ending the Australian Securities Exchange monopoly on equity clearing and relaxing ownership restrictions in a decision that removes a potential hurdle to the ASX’s participation in overseas mergers.
the financial times

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What We’re Reading

Get recommendations from New York Times reporters and editors, highlighting great stories from around the web. What We’re Reading emails are sent twice a week.

New Republic

Aiding and Abetting

After yet another Islamic State attack in Europe, Joshua Hersh studies one of the more important, but neglected, aspects of militant networks. That is a gray area that involves petty criminals who share an “indifference to the law and those who might enforce it. They are radical, one might say, but not necessarily radicalized.” Why is this so important? Mr. Hersh — who followed his father, Seymour Hersh, into journalism — notes that old-fashioned, solid police work may help cripple terrorist networks better than high-wire air raids over the Levant. — Diaa Hadid

Her Basketball Game

This is a Q. and A. with a sophisticated basketball fan who is also a very famous pornography actress with connections to many players, apparently. — Jason Stallman

New Republic

The Madding Crowd

This is by no means the first “I went to a Trump rally” story. But it is the first by Patricia Lockwood, the talented poet and humorist. (Side note: She wrote my favorite tweet of all time: &#[email protected] so is Paris any good or not.”) It’s odd and funny in the ways you𠆝 expect, but also poignant in parts and insightful about Trump’s appeal. “It is a practiced seduction,” she writes, “it has worked before. We ignore it at our peril.” — Dan Saltzstein

Politico

Gosh Darn It

At first glance the idea seems outlandish enough to require a “this is not a joke” warning label. And it isn’t. Building its argument on his skills as both a senator and a satirist, as well as his credibility with progressive Democrats across the country, this essay makes a detailed case for Al Franken as Hillary Clinton’s smartest choice for running mate, especially in a projected race against Donald Trump. — Patrick J. Lyons

MyNorthwest.com

A Silver Trail

Lewis and Clark gave out silver medallions — President Thomas Jefferson’s image on one side, a crossed peace pipe and hatchet on the other — to some American Indians they met, and those medals, through the tumult of the American frontier, mostly got lost. This story talks about the ones that have turned up, in places like Antiques Roadshow or a road-building project. The cool and gripping thing here is the idea that these little pieces of the past had their own long journey, echoing and reflecting the epic Corps of Discovery exploration that defined the early days of the West and that still resonates powerfully today from the Dakotas to the mouth of the Columbia River. — Kirk Johnson

Vanity Fair

The Venue of Laughs

The Comedy Cellar is claustrophobically cramped, darkly lit and resolutely un-renovated, which is to say, it’s a perfect room for stand-up. But its acoustics and atmosphere are only part of the reason it’s the premiere comedy club in the country right now. The rest of the explanation is its storied history of singularly great nightly lineups, which is explored in this lively new oral history in Vanity Fair, which includes reflections from everyone from Jon Stewart and Marc Maron to Cellar regulars like Jim Norton and Colin Quinn. — Jason Zinoman

Morning Agenda: Private Equity Executive Accused of Faking Investments

PRIVATE EQUITY EXECUTIVE ACCUSED OF FAKING INVESTMENTS | Federal prosecutors working for Preet Bharara, the United States attorney for Manhattan, have charged Andrew Caspersen, a former Blackstone Group managing principal, with securities and wire fraud in what was labeled a 𠇋razen” scheme to defraud investors of up to $95 million,

Alexandra Stevenson and Matthew Goldstein report in DealBook. The Securities and Exchange Commission filed parallel civil charges.

Mr. Caspersen was a partner at the Park Hill Group, which specializes in raising money for private equity firms and hedge funds, and was still trying to persuade institutional investors to give him money up until last week.

The authorities accused Mr. Caspersen of using a fraudulent investment vehicle and fake emails to dupe an unidentified hedge fund foundation to sink $25 million into the scheme last fall.

According to authorities, Mr. Caspersen had set up a shell company with a similar name to a legitimate vehicle at Park Hill and began raising money for it. He did not tell prospective investors that the shell company was controlled entirely by him, making up email accounts, inventing employees and creating a fake domain name. The scheme began to fall apart when the hedge fund asked for its $25 million plus interest to be returned. It has not yet received the money.

The authorities said he blew through most of the money he raised 𠇊s a result of aggressive options trading” in his personal brokerage account.

Park Hill, which was part of the Blackstone Group and is now part of PJT Partners, has fired Mr. Caspersen and said it was cooperating with the authorities.

The case has raised questions about the internal controls in place at Park Hill — the authorities say Mr. Caspersen’s scheme went on for months. It also raises questions about how much research and checking institutional investors do and how much they are relying on personal connections and trust.

STARWOOD BIDDING WAR ESCALATES | The consortium led by Anbang Insurance has increased its bid for Starwood Hotels to $14 billion, raising the stakes in the most prominent bidding war so far this year,
Michael J. de la Merced reports in DealBook.
Starwood declared that this was “reasonably likely to lead to a ‘superior offer.’ ”

Starwood said that the Anbang group had offered $81 a share on Saturday, and then the current $82.75 after talks between the two sides began.

Marriott International is sticking to its $13.5 billion offer for now. It argued that its proposal was solid while Anbang’s offer may not be able to close.

Analysts have said that Marriott would be hard-pressed to raise its offer to win the battle, since raising the cash portion of its offer could threaten its investment-grade rating. Adding more stock as consideration could harm its earnings per share.

ON THE AGENDA | The chairwoman of the Securities and Exchange Commission, Mary Jo White, will speak at the Mutual Fund Director Forum’s 2016 Policy Conference at 9 a.m. Janet L. Yellen, the chairwoman of the Federal Reserve, will speak at The Economic Club of New York at 11:30 a.m.

VALUEACT PAYS A PRICE FOR SUPPORTING VALEANT | William A. Ackman receives a lot of criticism for investing in Valeant, but ValueAct has had more influence over Valeant’s activities and its role has gone largely unquestioned,
Andrew Ross Sorkin writes in DealBook.

ValueAct, founded by Jeffrey Ubben, has been invested in Valeant since 2006 and has held at least one seat on its board since 2007. It installed J. Michael Pearson as chief executive, oversaw the change in compensation policies and supported the company’s strategy of cutting research and development while increasing the price of its drugs.

It is hard to see how ValueAct could have been unaware of Valeant’s more aggressive strategies, unless it intended to claim that it was duped by management, a claim it has not made yet.

When Mason Morfit, ValueAct’s representative, stepped down from the board, Mr. Pearson said he continued to “value his vision and guidance.” Mr. Morfit also helped establish a compensation plan for Valeant executives that governance experts say may have led to the practices at Valeant that are now under scrutiny. Mr. Pearson’s compensation plan, tied directly to the stock price, may have led to a culture that was too aggressive.

Valeant’s admission that it had wrongly booked $58 million of revenue has given way to the possibility of bigger problems at the company. Its confession has given credibility to critics who have produced analyses suggesting that its books could be flawed in other ways, Peter Eavis reports in DealBook.

And the issue of accounting is likely to remain at the heart of the debate over Valeant because it was so central to its strategy.

Valeant has been accused of channel-stuffing — trying to bolster revenue artificially by granting unsustainable or improper inducements to wholesalers and customers to get them to take its products. Channel-stuffing companies may also book revenue by transferring goods to an entity that is not totally separate.

There were also concerns about spring-loading — when one company acquires another and, between the announcement of the deal and the actual merger, finds a way to book a higher level of costs and lower revenue at the company being acquired.

With the number of inquiries and lawsuits it is facing, the question may well devolve into whether Valeant can survive everything being thrown at it,
Peter J. Henning writes in White Collar Watch.

Valeant has sought to portray itself as cooperative with regulators by pointing the finger at the former chief financial officer, Howard B. Schiller. But Mr. Schiller has refused to step down from the board, giving him a front-row seat to observe how the company responds to investigations. He will also be a key player in the investigation of the company’s accounting.

Valeant must also foot the bills for Mr. Schiller’s lawyers related to any inquiry or face even more litigation if it decides not to do so.


Starbucks Baristas Are Receiving Sensitivity Lessons During the Current Wall Street Crisis - Recipes

METLIFE WINS BATTLE TO REMOVE ‘TOO BIG TO FAIL’ LABEL | Opponents of the Dodd-Frank Act can rejoice. A judge in Washington overturned MetLife’s designation as “too big to fail” on Wednesday,
Victoria Finkle reports in DealBook.

The ruling, by Judge Rosemary M. Collyer of the Federal District Court for the District of Columbia, has raised questions about how regulators decide which institutions are too big to fail.

The judge upheld arguments that regulators failed to adequately assess the insurance company’s vulnerability to extreme financial distress and the potential economic impact of the designation.

The Treasury Department maintained that it had 𠇌onducted a rigorous analysis of MetLife,” but did not say whether it would appeal the ruling.

Some fear that the judge’s decision could prevent regulators from taking the necessary steps to stop another situation like American International Group’s near-collapse in 2008.

On the other hand House Republicans who have criticized the oversight council for a lack of transparency in deciding which institutions are systemically important will be emboldened.

The ruling was certainly a win for Eugene Scalia, the son of the late U.S. Supreme Court Justice Antonin Scalia, The Wall Street Journal reports.

As well as taking on MetLife’s designation, Mr. Scalia has been chipping away at the Dodd-Frank Act since its implementation. Relying on a 1990s-era federal law requiring financial regulators to do a cost-benefit analysis of new rules, Mr. Scalia has successfully argued against parts of the law that fail to meet that standard. He has won against the Securities and Exchange Commission and the Commodity Futures Trading Commission.

The idea that MetLife could shed its designation is shocking to Stephen J. Lubben. If the Financial Stability Oversight Council can’t designate MetLife, who can it designate? Mr. Lubben asks in the In Debt column.

MetLife has an enormous bond portfolio, a large derivatives book, substantial real estate holdings and significant connections with other systemically important financial institutions. It is plausible that it would create problems if MetLife were to fail.

The court didn’t buy it and we don’t know exactly why since the opinion is sealed. But we should expect an appeal. The losing party will want the full circuit to hear the case.

CAN STARWOOD MAKE A DEAL WITH ANBANG? | Starwood Hotel & Resorts faces a tricky issue,
Steven Davidoff Solomon writes in Deal Professor. Any deal it negotiates with the secretive Anbang Insurance Group may not be worth the paper it is printed on. And that is because Anbang is based in China.

If the consortium it leads won the bidding contest for Starwood and failed to honor the terms, Starwood would have to sue Anbang to enforce the deal.

If Starwood won a lawsuit in the United States, it would have to enforce the judgment in China, where Anbang and its assets are.

China is notorious for its weak rule of law and it is unclear whether a Chinese court would actually enforce a United States judgment against Anbang.

As with any deal involving a company outside the United States, it is no use having a great claim unless you have the pocket to get the money from, Mr. Davidoff Solomon writes.

Arbitration is a possible option and many agreements with Chinese companies contain arbitration provisions, but there is a common belief that Chinese courts will not enforce these awards.

Starwood’s lawyers will seek collateral from Anbang — mainly American assets. But Anbang’s assets in the United States are limited. The Waldorf Astoria and Strategic Hotels are not enough — Anbang most likely borrowed heavily to buy them.

The lawyers will also look for a deposit or letter of credit. It is also possible to get commitment from Anbang’s owners, though the problem is that they are unknown and are also likely to be abroad.

They may seek to have a termination fee put in escrow as Smithfield did when it was acquired by Shanghui International Holdings. And they should fight hard to get a “super escrow” of multiple billions because of the regulatory issues and risks to the deal.

How Starwood deals with these issues is very likely to be the template for how American acquisition targets deal with Chinese issues going forward.

ON THE AGENDA | Mary Jo White, the chairwoman of the Securities and Exchange Commission, will give a speech on protecting investments in pre-I.P.O. issuers at Stanford Law School at 8:45 p.m.

𠆏INTECH’ BOOM SAID TO THREATEN BANK JOBS | Up to 30 percent of employees in the banking industry could lose their jobs to new technologies over the next decade,
Nathaniel Popper reports in DealBook.

A report by Citigroup said that the number of employees at American banks would drop to 1.8 million in the year 2025, down from 2.6 million last year. An even sharper drop is predicted for European banks.

The jobs would be lost to start-ups cutting into different parts of the financial industry.

The projection comes after Antony Jenkins, the former chief executive of Barclays, said that banking was facing a series of “Uber moments,” in which the jobs in the industry could halve.

Banks are already being forced by volatile market conditions and new regulations to make cuts.

The Citigroup report noted that the banking sector had attracted record investment over the last five years and that new technologies had taken off the fastest in Asia, particularly China.

New financial technologies have been slower to gain traction in the United States. But “given the growth in fintech investment, this isn’t likely to continue for long,” wrote Kathleen Boyle, the managing editor of Citigroup GPS, in the report’s introduction.

Mergers & Acquisitions »

State Street to Buy G.E.’s Asset Management Business | The deal is the latest sale as General Electric retreats from finance and refocuses on its industrial roots.
NYT »

Dalian Wanda Group Seeks to Delist Its Commercial Property Arm | The potential privatization of Dalian Wanda Commercial Properties comes just 15 months after it raised $3.7 billion in a Hong Kong initial public offering.
NYT »

Foxconn’s Deal to Buy Sharp Is a Test for Japanese Reform | Instead of taking the easy route, Sharp is going to the bidder with the most capabilities, and incentives, to make it profitable and productive, Rob Cox writes in Breakingviews.
Breakingviews »  |  To Woo Apple, Foxconn Bets $3.5 Billion on Sharp 6:00 AM

Tata Steel Plans to Sell British Plants, Threatening 15,000 Jobs | Profits at the Indian-owned Tata Steel have been squeezed by cheap Chinese imports, and the company suggested that it would consider closing its plants if no buyer came forward.
NYT »

Allianz Said to Be Selling $5 Billion Life Insurance Portfolio in Italy | Allianz, which is Italy’s fourth biggest life and health insurer, is facing pressures from low interest rates and has decided to sell Italian life policies that pay a 2 percent minimum interest rate, Reuters reports, citing people familiar with the matter.
reuters

INVESTMENT BANKING »

Chinese Investment Bank Defaults on 𠆍im Sum’ Bond | A unit of Guosen Securities, China’s eighth-largest investment bank, has defaulted on a Hong Kong-traded renminbi bond, the first debt breach by a state-owned enterprise in China’s offshore market in nearly two decades, according to a document seen by the Financial Times.
the financial times

HEDGE FUNDS »

Citadel Securities Bolsters Electronic Trading | Citadel Securities, the market making arm of the hedge fund, has hired a senior banker as part of its efforts to use electronic trading to break open traditionally dealer-dominated markets.
the financial times

I.P.O./OFFERINGS »

A.I.G. Mortgage Unit Files for I.P.O. | American International Group’s mortgage insurer, United Guaranty, filed for an offering of $100 million, a placeholder figure that is used to calculate fees and will probably change.
bloomberg news

VENTURE CAPITAL »

Expa Labs Will Nurture Tech Start-Ups a Few at a Time | The incubator Expa Labs will take a smaller-scale approach to helping start-ups grow from idea to prototype to marketable product.
NYT »

What Happened When Venture Capitalists Took Over the Golden State Warriors | After racking up a historic N.B.A. season, the team’s owners — most of them from Silicon Valley — think their management style deserves some of the credit. Are they right?
Feature »

Fidelity Marks Down Start-Ups Including Dropbox and Zenefits | Fidelity Investments took an ax to the valuations of its private technology shares in February, cutting bellwether software start-ups like Dropbox, Cloudera and Zenefits by as much as 38 percent compared with the prior month.
the wall street journal

LEGAL/REGULATORY »

Cravath Law Firm Discloses a Data Attack | The disclosure by Cravath Swaine & Moore, which reported a “limited breach” of its computer network last summer, is rare for a big law firm.
NYT »

Supreme Court Rules Against Freezing Assets Not Tied to Crimes | The government may not freeze assets needed to pay criminal defense lawyers if the assets are not linked to a crime, the court ruled in a 5-to-3 decision.
NYT »

General Motors Ignition Switch Is Cleared in Trial Over a Crash | The case is one of six so-called bellwether trials being conducted to resolve legal claims against G.M., which recalled nearly 30 million vehicles after a scandal.
NYT »

Contractors and Temps Accounted for All of the Growth in Employment in the Last Decade | One result is that employers have succeeded at shifting much of the burden of providing social insurance onto workers.
The Upshot »

S.E.C. Bans Venture Capitalist for Theft | A San Francisco biotechnology venture capitalist agreed to pay nearly $5.8 million to settle accusations from the Securities and Exchange Commission that he stole investor money to pay for vacations in St. Bart’s and Paris, Tiffany jewelry, private jets and other expenses.
reuters

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Morning Agenda: Foxconn Strikes Deal for Sharp

FOXCONN STRIKES DEAL FOR SHARP | Foxconn is grappling with rising labor costs in China and a slowdown in the global smartphone market, but it managed to forestall its weakening relationship with Apple by striking a deal to acquire the screen maker Sharp of Japan for $3.5 billion,
Paul Mozur reports in DealBook.

Foxconn said it would take over 66 percent of Sharp, with a total investment of 389 billion yen, or about $3.5 billion. Foxconn is buying 򥊉 billion worth of common Sharp shares and an additional ꖙ.99 billion worth of nonvoting preferred shares.

The total investment is well below the $5.5 billion that Foxconn was expected to pay last month before it balked over the discovery that a new owner could be liable for close to $3 billion in potential liabilities.

The deal comes after weeks of public negotiations and high-profile setbacks, and should make Foxconn a more attractive partner for Apple, which uses Sharp screens in its iPhones.

Analysts are still skeptical — they say Foxconn gets an ailing business that will take a considerable amount of money to turn around, even if it does get a bigger chunk of the global supply chain.

The deal is a return to form for Foxconn in its emphasis on scale. Even as it has tried to maintain its enormous scale, it has also been trying to climb up the value chain to find more profitable streams of revenue.

EXPLAINING VALEANT | Commentators and analysts have drawn lessons from the mess surrounding Valeant, but few of them are convincing,
Steven Davidoff Solomon writes in Deal Professor.

Some contend that Valeant is like Enron, a house of cards waiting to be brought down by an inevitable accounting scandal. But Valeant is a real operating business and there is no indication of outright fraud.

Others have cautioned about the McKinsey-driven ethos — J. Michael Pearson was a McKinsey consultant for 23 years. But McKinsey has also been at the forefront of arguments about long-term shareholder value.

Warnings about Valeant’s decision to cut research and development are based on a nonsensical notion that R&D can never be bad. There has been an uproar about predatory pricing, but there is no transparency around Valeant’s pricing and its products still sell.

Hedge funds like ValueAct have also been blamed. This explains the business strategy, but it does not help us understand what went wrong. Shareholders get their share of the blame too for chasing returns, but this has nothing to do with Valeant’s business.

So what is the Deal Professor’s theory? If Wall Street built Valeant, it is now running away from it, Mr. Davidoff Solomon writes. The velocity of the turnaround created views of the company that are not tethered to reality.

It does not make sense for a company with earnings before interest, taxes, depreciation and amortization, or Ebitda, of about $5 billion a year to be worth only $9 billion. Allergan, with Ebitda of $7 billion a year and $40 billion of debt, is worth $110 billion.

This crisis has crushed Valeant’s previous business model, but it still has billions of dollars in earnings. The intrinsic worth of that business remains the same and the flight by Wall Street shut down its old growth model, but not its business. Wall Street always thinks the worst when things go bad and sometimes it creates a self-fulfilling frenzy.

LOUIS BACON’S CHARITY SAYS IT WAS VICTIM OF FRAUD | The Moore Charitable Foundation said it was the victim of fraud by the 39-year-old Wall Street executive Andrew Caspersen,
Matthew Goldstein and Alexandra Stevenson report in DealBook.

The trust, founded by the hedge fund billionaire Louis M. Bacon, said that it was “lied to by Andrew Caspersen, a managing director at investment bank PJT Partners, regarding a potential investment related to the publicly announced restructuring of a private equity fund.”

The foundation put $25 million into Mr. Caspersen’s scheme and said that it detected “irregularities in a proposed follow-on deal” before notifying PJT Partners’ general council. PJT contacted the United States attorney’s office in Manhattan.

The authorities said Mr. Caspersen had lost much of the $25 million in 𠇊ggressive options trading” and, as a condition of his bond, a magistrate judge ordered him to get a mental health evaluation and alcohol testing and treatment.

ON THE AGENDA | Jacob J. Lew, the Treasury secretary, will discuss the use of sanctions at the Carnegie Endowment for International Peace at 8:45 a.m. The Securities and Exchange Commission will consider whether to adopt new swaps rules in a meeting at 10 a.m. Charles L. Evans, the president of the Federal Reserve Bank of Chicago, will speak at the Forecasters Club of New York Luncheon at 1 p.m.

SPOTIFY EXPECTED TO SIGN $1 BILLION FINANCING DEAL | Spotify is about to close a $1 billion deal that would double the amount of financing it has raised since it was founded a decade ago,
Leslie Picker and Ben Sisario report in DealBook.

People briefed on the matter said the money comes in the form of convertible debt, which allows investors in the music-streaming company to change their securities into equity at a future date.

The convertible debt allows Spotify to obtain funds without needing to change its valuation. It had an equity value of $8.4 billion last year.

The terms of the debt may put pressure on the company to go public sooner. Investors have the ability to convert to equity at a discount to an initial public offering price — the discount increases if Spotify waits longer than a year to go public. The coupon payment on the debt would also rise over time.

Funds associated with the private equity firm TPG and the investment firm Dragoneer put in $750 million, while the rest came from institutional investors.

TPG and Dragoneer are permitted to cash out their shares as soon as 90 days after an I.P.O., instead of the 180 days employees and other shareholders get, according to The Wall Street Journal, which earlier reported the deal.

DEAL NOTES

Lester C. Thurow, Economist Who Seized the Spotlight, Is Dead at 77 | A prolific writer and popular public speaker, Mr. Thurow sounded an early alarm about the growing income gap between rich and poor Americans.
NYT »

Mergers & Acquisitions »

Starwood Bidder Is a Reclusive Chinese Insurer With Opaque Backing | Anbang, which is in a bidding war for Starwood Hotels, is controlled by a murky group of interconnected companies and led by a reclusive chairman.
NYT »  |  Breakingviews: Starwood’s Takeover Offer From Anbang is Risky, but Worth It 2:23 PM

Starwood’s Takeover Offer From Anbang Is Risky, but Worth It | Heavy interest from rival hoteliers means Starwood can afford to take the Anbang Insurance Group’s offer, which is $4.64 more per share than its deal with Marriott, Jeffrey Goldfarb writes in Breakingviews.
Breakingviews »  |  Starwood Bidder Is an Ambitious Chinese Insurer With Opaque Backing 11:52 AM

Metro Group of Germany to Split Into 2 Companies | The announcement came after Metro agreed in June to sell Galeria Kaufhof, the leading department store chain in Germany and Belgium, to the Hudson’s Bay Company.
NYT »

Norfolk Southern Steps Up Fight Against Canadian Pacific Merger | In a letter to employees, Norfolk Southern’s chief executive, Jim Squires, said that the company is making good progress on its restructuring plans and that employees should vote against merger talks.
the wall street journal

INVESTMENT BANKING »

Swedbank to Replace Chairman After He Lost Investor Support | The departure of Anders Sundstrom as chairman of the Swedish lender followed the ouster of Michael Wolf, its chief executive, in February.
NYT »

Doubts Raised Over Controls at HSBC | The monitor overseeing HSBC’s compliance with a landmark anti-money-laundering settlement has uncovered potential lapses including loans to companies that exported miniskirts to Iran and candy to Syria, The Wall Street Journal reports, citing a person familiar with the findings.
the wall street journal

UniCredit Said to Be in Talks Over Popolare di Vicenza Capital Raising | UniCredit, Italy’s largest bank by assets, is in talks with the government in Rome about seeking support for a 2 billion euro capital raising at the mutual bank Popolare di Vicenza, a deal seen as a crucial test of investor confidence in Italy’s lenders, The Financial Times reports, citing people with direct knowledge of the matter.
the financial times

PRIVATE EQUITY »

Chinese Textile Maker to Buy Owner of Sandro and Claudie Pierlot | Kohlberg Kravis Roberts plans to sell SMCP to China’s Shandong Ruyi in a deal that values the French fashion group at 1.3 billion euros, including debt, The Financial Times reports, citing people familiar with the matter.
the financial times

HEDGE FUNDS »

The Fall of China’s Hedge-Fund King | Xu Xiang was a legend in the country’s booming stock market — until the bubble he helped to create took him down with it.
Feature »

VENTURE CAPITAL »

Robo-Adviser Betterment Gets $100 Million in Venture Capital | The investment, which Betterment says it will use to increase product development and expand its business, pushes the firm’s valuation to $700 million.
NYT »

LEGAL/REGULATORY »

Janet Yellen Says Fed Still Plans to Raise Interest Rates but Carefully | In remarks to the Economic Club of New York, the Federal Reserve chairwoman said she expected the domestic economy to improve this year.
NYT »

Latest Plan to Rescue Puerto Rico Is Met With Disdain on Island | The plan calls for putting Puerto Rico’s finances under a presidentially appointed oversight board — a bitter pill to many on the island.
NYT »

Prosecutor in Bear Stearns Case to Leave U.S. Attorney’s Office | James G. McGovern, the head of the criminal division at the United States attorney’s office in Brooklyn, said he would join the law firm Hogan Lovells as a partner.
NYT »

Bank of England to Raise Bank Capital Buffer as Safeguard | The buffer is intended to ensure that British banks can provide lending and other essential banking services during times of financial stress.
NYT »

F.T.C. Sues Volkswagen Over �ptive’ Diesel Car Ads | The Federal Trade Commission accused VW of selling or leasing more than 550,000 diesel vehicles using a campaign that said they met emissions standards.
NYT »

Hackers Breach Law Firms | Hackers broke into the computer networks at some of the country’s most prestigious law firms, and federal investigators are exploring whether they stole confidential information for the purpose of insider trading, The Wall Street Journal reports, citing people familiar with the matter.
the wall street journal

Simmering for Decades, Anger About Trade Boils Over in � Election | Bashing trade deals has proved a winning strategy for Donald Trump, but economists mostly agree they have benefited American households significantly.
NYT »

Edison International Starts Energy Consultancy | The company will help large businesses take advantage of evolving technologies, markets and incentives in energy efficiency, renewables and storage.
NYT »

Australia to End ASX Clearing Monopoly | Canberra is ending the Australian Securities Exchange monopoly on equity clearing and relaxing ownership restrictions in a decision that removes a potential hurdle to the ASX’s participation in overseas mergers.
the financial times

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What We’re Reading

Get recommendations from New York Times reporters and editors, highlighting great stories from around the web. What We’re Reading emails are sent twice a week.

New Republic

Aiding and Abetting

After yet another Islamic State attack in Europe, Joshua Hersh studies one of the more important, but neglected, aspects of militant networks. That is a gray area that involves petty criminals who share an “indifference to the law and those who might enforce it. They are radical, one might say, but not necessarily radicalized.” Why is this so important? Mr. Hersh — who followed his father, Seymour Hersh, into journalism — notes that old-fashioned, solid police work may help cripple terrorist networks better than high-wire air raids over the Levant. — Diaa Hadid

Her Basketball Game

This is a Q. and A. with a sophisticated basketball fan who is also a very famous pornography actress with connections to many players, apparently. — Jason Stallman

New Republic

The Madding Crowd

This is by no means the first “I went to a Trump rally” story. But it is the first by Patricia Lockwood, the talented poet and humorist. (Side note: She wrote my favorite tweet of all time: &#[email protected] so is Paris any good or not.”) It’s odd and funny in the ways you𠆝 expect, but also poignant in parts and insightful about Trump’s appeal. “It is a practiced seduction,” she writes, “it has worked before. We ignore it at our peril.” — Dan Saltzstein

Politico

Gosh Darn It

At first glance the idea seems outlandish enough to require a “this is not a joke” warning label. And it isn’t. Building its argument on his skills as both a senator and a satirist, as well as his credibility with progressive Democrats across the country, this essay makes a detailed case for Al Franken as Hillary Clinton’s smartest choice for running mate, especially in a projected race against Donald Trump. — Patrick J. Lyons

MyNorthwest.com

A Silver Trail

Lewis and Clark gave out silver medallions — President Thomas Jefferson’s image on one side, a crossed peace pipe and hatchet on the other — to some American Indians they met, and those medals, through the tumult of the American frontier, mostly got lost. This story talks about the ones that have turned up, in places like Antiques Roadshow or a road-building project. The cool and gripping thing here is the idea that these little pieces of the past had their own long journey, echoing and reflecting the epic Corps of Discovery exploration that defined the early days of the West and that still resonates powerfully today from the Dakotas to the mouth of the Columbia River. — Kirk Johnson

Vanity Fair

The Venue of Laughs

The Comedy Cellar is claustrophobically cramped, darkly lit and resolutely un-renovated, which is to say, it’s a perfect room for stand-up. But its acoustics and atmosphere are only part of the reason it’s the premiere comedy club in the country right now. The rest of the explanation is its storied history of singularly great nightly lineups, which is explored in this lively new oral history in Vanity Fair, which includes reflections from everyone from Jon Stewart and Marc Maron to Cellar regulars like Jim Norton and Colin Quinn. — Jason Zinoman

Morning Agenda: Private Equity Executive Accused of Faking Investments

PRIVATE EQUITY EXECUTIVE ACCUSED OF FAKING INVESTMENTS | Federal prosecutors working for Preet Bharara, the United States attorney for Manhattan, have charged Andrew Caspersen, a former Blackstone Group managing principal, with securities and wire fraud in what was labeled a 𠇋razen” scheme to defraud investors of up to $95 million,

Alexandra Stevenson and Matthew Goldstein report in DealBook. The Securities and Exchange Commission filed parallel civil charges.

Mr. Caspersen was a partner at the Park Hill Group, which specializes in raising money for private equity firms and hedge funds, and was still trying to persuade institutional investors to give him money up until last week.

The authorities accused Mr. Caspersen of using a fraudulent investment vehicle and fake emails to dupe an unidentified hedge fund foundation to sink $25 million into the scheme last fall.

According to authorities, Mr. Caspersen had set up a shell company with a similar name to a legitimate vehicle at Park Hill and began raising money for it. He did not tell prospective investors that the shell company was controlled entirely by him, making up email accounts, inventing employees and creating a fake domain name. The scheme began to fall apart when the hedge fund asked for its $25 million plus interest to be returned. It has not yet received the money.

The authorities said he blew through most of the money he raised 𠇊s a result of aggressive options trading” in his personal brokerage account.

Park Hill, which was part of the Blackstone Group and is now part of PJT Partners, has fired Mr. Caspersen and said it was cooperating with the authorities.

The case has raised questions about the internal controls in place at Park Hill — the authorities say Mr. Caspersen’s scheme went on for months. It also raises questions about how much research and checking institutional investors do and how much they are relying on personal connections and trust.

STARWOOD BIDDING WAR ESCALATES | The consortium led by Anbang Insurance has increased its bid for Starwood Hotels to $14 billion, raising the stakes in the most prominent bidding war so far this year,
Michael J. de la Merced reports in DealBook.
Starwood declared that this was “reasonably likely to lead to a ‘superior offer.’ ”

Starwood said that the Anbang group had offered $81 a share on Saturday, and then the current $82.75 after talks between the two sides began.

Marriott International is sticking to its $13.5 billion offer for now. It argued that its proposal was solid while Anbang’s offer may not be able to close.

Analysts have said that Marriott would be hard-pressed to raise its offer to win the battle, since raising the cash portion of its offer could threaten its investment-grade rating. Adding more stock as consideration could harm its earnings per share.

ON THE AGENDA | The chairwoman of the Securities and Exchange Commission, Mary Jo White, will speak at the Mutual Fund Director Forum’s 2016 Policy Conference at 9 a.m. Janet L. Yellen, the chairwoman of the Federal Reserve, will speak at The Economic Club of New York at 11:30 a.m.

VALUEACT PAYS A PRICE FOR SUPPORTING VALEANT | William A. Ackman receives a lot of criticism for investing in Valeant, but ValueAct has had more influence over Valeant’s activities and its role has gone largely unquestioned,
Andrew Ross Sorkin writes in DealBook.

ValueAct, founded by Jeffrey Ubben, has been invested in Valeant since 2006 and has held at least one seat on its board since 2007. It installed J. Michael Pearson as chief executive, oversaw the change in compensation policies and supported the company’s strategy of cutting research and development while increasing the price of its drugs.

It is hard to see how ValueAct could have been unaware of Valeant’s more aggressive strategies, unless it intended to claim that it was duped by management, a claim it has not made yet.

When Mason Morfit, ValueAct’s representative, stepped down from the board, Mr. Pearson said he continued to “value his vision and guidance.” Mr. Morfit also helped establish a compensation plan for Valeant executives that governance experts say may have led to the practices at Valeant that are now under scrutiny. Mr. Pearson’s compensation plan, tied directly to the stock price, may have led to a culture that was too aggressive.

Valeant’s admission that it had wrongly booked $58 million of revenue has given way to the possibility of bigger problems at the company. Its confession has given credibility to critics who have produced analyses suggesting that its books could be flawed in other ways, Peter Eavis reports in DealBook.

And the issue of accounting is likely to remain at the heart of the debate over Valeant because it was so central to its strategy.

Valeant has been accused of channel-stuffing — trying to bolster revenue artificially by granting unsustainable or improper inducements to wholesalers and customers to get them to take its products. Channel-stuffing companies may also book revenue by transferring goods to an entity that is not totally separate.

There were also concerns about spring-loading — when one company acquires another and, between the announcement of the deal and the actual merger, finds a way to book a higher level of costs and lower revenue at the company being acquired.

With the number of inquiries and lawsuits it is facing, the question may well devolve into whether Valeant can survive everything being thrown at it,
Peter J. Henning writes in White Collar Watch.

Valeant has sought to portray itself as cooperative with regulators by pointing the finger at the former chief financial officer, Howard B. Schiller. But Mr. Schiller has refused to step down from the board, giving him a front-row seat to observe how the company responds to investigations. He will also be a key player in the investigation of the company’s accounting.

Valeant must also foot the bills for Mr. Schiller’s lawyers related to any inquiry or face even more litigation if it decides not to do so.