Sarkozy Says EU downgrade 'Changes Nothing'

Zynga IPO Outlook July 7 (Bloomberg) -- Michael Yoshikami, chief investment strategist at

July 7 (Bloomberg) -- Michael Yoshikami, chief investment strategist at YCMNet Advisors, Bob Rice, general managing partner at Tangent Capital Partners LLC, Paul Martino, managing director at Bullpen Capital, and Paul Bard, director of research at Renaissance Capital LLC, talk about Zynga Inc.'s plan to raise $1 billion in an initial public offering and the outlook for the company. (Excerpts. Source: Bloomberg)

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Mitt Romney's Tax Savings

Photograph by Rick Friedman/CORBIS

By David J. Lynch, Lisa Lerer and Sabrina Willmer

When Mitt Romney conceded on Jan. 17 that he pays a tax rate of about 15 percent—far less than millions of wage earners whose votes he’s trying to win—he deflected criticism by employing what might be called the Ordinary Rich Guy Defense: Like a lot of people who are wealthy enough not to work, Romney said his income “comes overwhelmingly from investments made in the past.” That’s not quite the whole story. What he left out is that, because of the way he made his money, he is eligible to take advantage of a special tax provision that even some of his richest friends would envy.

Private equity executives such as Romney, who spent 15 years running Bain Capital, arrange to receive much of their compensation in the form of “carried interest.” This enables them to treat what would be work income for most people, taxed at rates up to 35 percent, as capital gains, taxed at just 15 percent. “It’s a method of converting one’s labor into capital gains in a way that’s unusual outside the investment management industry,” says Victor Fleischer, an associate law professor at the University of Colorado at Boulder whose 2007 paper on the topic helped spur calls in Congress to change the law. “Ordinary people wouldn’t be able to do this.”

For months, Romney dodged questions about his effective tax rate. “I paid the taxes required under the law,” he said on Jan. 11. That only increased curiosity. On Jan. 17, Romney conceded his effective rate was “probably” close to 15 percent. Though he retired from Bain in February 1999, Romney negotiated a settlement that has allowed him to continue benefiting from the firm’s lucrative private equity funds and to invest alongside them in so-called co-investment vehicles, both of which generate income taxed at the 15 percent rate. The tax code’s treatment of income from partnerships in private equity, hedge funds, and real estate development means that some of the richest people in the country are taxed as if they made the wages of a bus driver or health aide. Last year three founders of the Washington-based Carlyle Group each earned $275,000 in salary. But they took home $134 million apiece in distributions from their funds, according to a Securities and Exchange Commission filing, making them eligible to pay low rates on much of their compensation.

Private equity firms gather large sums from pension funds, universities, and wealthy individuals, and typically use the money to acquire privately held companies or subpar units of public companies. After improving the companies’ performance, often while working in hands-on management roles or serving on the board of directors, they sell their acquisitions to other investors or take them public. The tax code treats those gains as if the private equity partners were risking their own money—like average Americans who invest in mutual funds—instead of counting it as salary for running or advising the companies they acquire. In most cases, the private equity firms put up only a sliver of the fund’s capital.

In May 2004, Bain circulated a private-placement memorandum to investors for “Bain Capital Fund VIII.” Marked confidential, the document boasted that Bain had completed more than 200 deals as of March 2004. The firm’s first six funds had realized an 82 percent return, according to the document. In all, 274 investors signed on to the fund, including Romney and his wife, Ann, and pension funds for Texas teachers and Pennsylvania state employees.

The VIII fund, registered in the Cayman Islands, shows how special tax provisions allowed Romney to accumulate wealth both while running Bain and in the 13 years since he left the firm. The Romneys received more than $1 million from the fund in 2010, according to his most recent financial-disclosure form. Though Bain put up just 0.1 percent of the $3.5 billion fund’s capital, it drew 30 percent of the profits once investors were repaid their initial investment, better than the industry standard of 20 percent and a reflection of the firm’s stellar track record. The fund’s investment successes included the parent company of Dunkin’ Donuts, which paid investors a $500 million dividend after a successful November 2010 refinancing. A month later, the initial public offering of FleetCor Technologies in Norcross, Ga., brought in an additional $61 million.

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‘Criminal Club’ Charged in $62 Million Trading Scheme on Dell

January 19, 2012, 12:06 PM EST By Patricia Hurtado and Bob Van Voris

Jan. 19 (Bloomberg) -- Seven men, including fund managers and analysts, were charged by the U.S. with forming a “criminal club” of friends and co-workers who reaped almost $62 million from insider trading in Dell Inc. shares.

Manhattan U.S. Attorney Preet Bharara alleged that the scheme included one trade that earned a $53 million illegal windfall for Level Global Investors LP co-founder Anthony Chiasson and his fund. The insider-trading ring, which involved five different hedge funds and investment firms, is the largest identified by the U.S. to date to involve a single stock, federal authorities said.

Chiasson, Todd Newman, a portfolio manager formerly at Diamondback Capital Management LLC, Jon Horvath, a hedge fund analyst in New York, and Danny Kuo, a fund manager for Whittier Trust Co. in South Pasadena, California, were taken into federal custody yesterday, said Janice Fedarcyk, head of the Federal Bureau of Investigation’s New York office.

The charges “paint a stunning portrait of organized corruption on a grand scale,” Bharara said yesterday at a news conference. “It describes a circle of friends who essentially formed a criminal club, whose purpose was profit and whose members regularly bartered lucrative inside information. It was a club where everyone scratched everyone else’s back.”

Galleon Group Scale

The U.S. said the illegal profits earned as a result of the scheme were almost of the same “magnitude of fraud we proved in the Galleon Group insider trading scheme,” Bharara said.

A five-year insider-trading probe by Bharara’s office and the FBI has resulted in charges against 63 people, Fedarcyk said. More than 50 have pleaded guilty or been convicted after trial since 2009, including Galleon Group LLC co-founder Raj Rajaratnam.

Rajaratnam, was found guilty in May and is serving 11 years in prison, the longest ever for insider trading. He made $72 million from his illicit tips, evidence showed. Several other technology company employees and fund managers have been convicted of receiving nonpublic information as a result of the probe.

At yesterday’s press conference, Bharara displayed a flowchart placing Sandeep Goyal, a former Dell employee, at the center of the ring. According to the U.S., an unnamed person in the Dell investor-relations department passed secret earnings information to Goyal, who passed it on to Jesse Tortora of Diamondback.

Circle of Friends

Tortora, Horvath, Kuo and Spyridon “Sam” Adondakis, a Level Global analyst, were friends who shared inside information on public technology companies, including Dell, prosecutors said. The ring traded the information in 2008 and 2009, according to the U.S.

Tortora passed the inside information on Dell to Newman before the computer maker announced its first- and second- quarter 2008 earnings, according to the U.S. Newman made $3.8 million in illegal profits for his hedge fund from trading on the information, according to the U.S. Tortora also passed tips to Kuo, Horvath and Adondakis.

Adondakis passed the Dell information to his colleague Chiasson and others at Level Global, according to the charging documents. They allegedly traded on the tips for $57 million in illegal profits.

Adondakis, Tortora and Goyal pleaded guilty last year to securities fraud and conspiracy charges that were unsealed yesterday, Bharara said. They are cooperating with the government’s investigation, he said.

‘More Disturbing’

Robert Khuzami, the head of enforcement at the U.S. Securities and Exchange Commission, which filed a related suit yesterday against the defendants, said the cases describe actions “far more disturbing” than insider trading committed by someone who obtains one illegal tip.

The actions by the SEC and prosecutors “lay bare an organized network of analysts and fund managers who set up and used a corrupt network to obtain inside information,” Khuzami said. “These cases, along with Galleon and expert networking cases, reflect systemic dishonesty and exposes a deeply-embedded level of corruption.”

Horvath, 42, is an analyst at Connecticut-based hedge fund Sigma Capital Management LLC, said a person with knowledge of the matter who wasn’t authorized to speak because the information wasn’t public. He was arrested by the FBI yesterday at his home in Manhattan, the U.S. said, and released on a $750,000 bond after a court appearance before U.S. Magistrate Judge James Cott in New York.

‘Honesty and Integrity’

“Throughout a more than 10-year career as a respected investment analyst, Jon Horvath has conducted himself with honesty and integrity,” Horvath’s lawyer, Steven Peikin, said after court. “He has done nothing wrong,’” and the charges against him “will be shown to be meritless,” Peikin said.

Chiasson, 38, used inside information to win for his Level Global fund what the U.S. said was a single “enormous bet” of $53 million on Dell earnings, prosecutors claimed.

“This is the largest single trade ever charged in the Southern District in an insider-trading case,” Assistant U.S. Attorney David Leibowitz said yesterday at a bail hearing, referring to the federal jurisdiction that includes Wall Street.

Greg Morvillo, Chiasson’s lawyer, argued that Leibowitz was attributing to his client trades made by others at Level Global.

Chiasson’s Bail

Chiasson, who turned himself in to U.S. authorities yesterday morning, was released on $2.5 million bond to be secured by $1.25 million in cash or property and three co- signers. Morvillo said in court that his client is innocent of the charges.

“He will be here to defend these charges, whether it’s tomorrow, next month or next year,” Morvillo told Cott.

Newman, 47, was released on a $3 million bond after appearing in U.S. District Court in Boston yesterday.

Kuo, 36, who was arrested yesterday in California, was released on $300,000 bond after appearing in federal court in Los Angeles.

Newman of Needham, Massachusetts, Chiasson of New York, Horvath of New York and Kuo of San Marino, California, are each charged with one count of conspiracy to commit securities fraud and one count of securities fraud. They face as long as 25 years in prison if found guilty, prosecutors said.

Goyal is a former junior technology analyst at Neuberger Berman, said Alexander Samuelson, a company spokesman. Goyal left the firm this month. Goyal, who didn’t trade on the information, was paid about $175,000, by Tortora through an intermediary, for the tips, Bharara said. Goyal worked for Dell at its corporate headquarters in Round Rock, Texas, from 2003 until the summer of 2006, prosecutors said.

Justine Harris, a lawyer for Adondakis; Jessica Margolis, who represents Goyal; Alfred Pavlis, who represents Newman; and Ralph Caccia, who represents Tortora, didn’t return phone messages seeking comment yesterday.

FBI Searches

In November 2010, FBI agents from New York and Boston executed search warrants at the offices of Level Global and Diamondback, hedge funds founded by former employees of SAC Capital Advisors LP.

Level Global told clients last February that it was shutting down -- eight years after David Ganek and Chiasson founded the hedge fund -- because of the U.S. probe.

Steven Goldberg, a spokesman for New York-based Level Global, didn’t return a call seeking comment on the arrests.

Diamondback, in a letter to investors yesterday, said it has cooperated with U.S. authorities. It said Newman left the firm after the 2010 search and Tortora resigned in April 2010.

Civil Complaint

The SEC’s civil insider-trading complaint was filed in Manhattan federal court against all seven men, Diamondback Capital and Level Global. In addition to the alleged Dell insider trades, the SEC claims members of the ring traded on inside information about chipmaker Nvidia Corp. Level Global made at least $15.6 million in illegal profits on its Nvidia trades, the agency claimed.

Peter Neiman, of Wilmer Hale, a lawyer for Diamondback Capital, declined to comment on the SEC lawsuit. MaryJeanette Dee, a lawyer for Level Global, didn’t immediately return a voice-mail message left at her office seeking comment on the suit.

During the trial last year of James Fleishman, a former executive at Primary Global Research LLC, witnesses testified that he helped employees of technology companies pass nonpublic information to his expert-networking firm’s fund manager clients. Fleishman was convicted of conspiracy charges related to insider trading.

One witness, Mark Anthony Longoria, a former Advanced Micro Devices Inc. employee, described how he passed secret tips and other information about his company to fund managers, including Adondakis.

Primary Global

Bob Nguyen, a former Primary Global analyst who pleaded guilty and agreed to cooperate with the U.S., testified at Fleishman’s trial that Tortora was a client of Fleishman’s who got nonpublic information about technology companies through the Mountain View, California-based research firm.

Daniel Devore, a former global supply manager of Dell, pleaded guilty and is cooperating with the U.S. insider-trading investigation.

The criminal case is U.S. v. Newman, 12-00124, U.S. District Court, Southern District of New York (Manhattan). The civil case is Securities and Exchange Commission v. Adondakis, 12-00409, U.S. District Court, Southern District of New York (Manhattan).

--With assistance from Saijel Kishan, Katherine Burton and Edmund Lee in New York, Janelle Lawrence in Boston and Edvard Pettersson in Los Angeles. Editors: Andrew Dunn, Peter Blumberg

To contact the reporters on this story: Patricia Hurtado in New York federal court at pathurtado@bloomberg.net; Bob Van Voris in New York federal court at rvanvoris@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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Citigroup Lobbyist Casts Doubt on Obama’s Recess Appointment

January 11, 2012, 10:56 PM EST By Donal Griffin

Jan. 11 (Bloomberg) -- Citigroup Inc.’s lobbyist said President Barack Obama’s decision to make Richard Cordray head of the new financial watchdog agency wasn’t a “recess” appointment and may face a court challenge.

Naming Cordray to run the Consumer Financial Protection Bureau while the Senate held “pro forma” sessions left the White House open to legal action, especially from financial firms facing new rules, Candida Wolff, Citigroup’s executive vice president for global government affairs, said in an interview today.

“I don’t think this was a recess appointment,” said Wolff, who was chief lobbyist for President George W. Bush and now represents the third-biggest U.S. bank by assets. “I struggle with the fact that a session is still a session, and you can have business within that session.” Cordray’s authority to oversee non-banks and non-financial companies “will probably be one area where I can see action,” she said.

Obama had drawn fire for using his power to make appointments while Congress is out of session. Obama installed Cordray, a former Ohio attorney general, as consumer bureau director on Jan. 4, drawing objections from Republicans who opposed the agency’s creation. Senate members met every few days specifically to block recess appointees.

Court Challenges

“Legal challenges to the appointment are likely to come from every quarter -- from individuals to community and labor groups to possibly even Congress,” Wolff said in comments posted on the New York-based bank’s website. “Will the rules, regulations and proposals coming out of the bureau be stuck in limbo for the foreseeable future, and what impact will such uncertainty have on those who must decide how to comply with their rulings?”

Wolff said she’s not aware of any litigation planned by Citigroup or the American Bankers Association, the industry’s Washington lobby. Citigroup supports the goal of more transparency, choice and control for banking customers, according to Molly Millerwise Meiners, a Citigroup spokeswoman. She declined to comment on Cordray’s appointment as a matter of company policy.

“We’re not weighing in on the political arguments,” Wolff said in the interview. “We’re weighing into some of the questions that have to be resolved.”

Citigroup received a $45 billion U.S. bailout during the financial crisis, which has since been repaid.

White House Response

“The Senate has effectively been in recess for weeks, and is expected to remain in recess for weeks,” White House spokesman Eric Schultz said in a statement. Lawyers who advised President Bush also rejected pro-forma sessions, said Schultz, who called them a “sham” designed to keep Obama from doing his job. “Gimmicks do not override the president’s constitutional authority to make appointments to keep the government running,” he said.

Wolff is a lawyer whose career included a stint as deputy staff director for the Senate Republican Policy Committee, according to an April 2011 Citigroup statement when she joined the bank. She wondered on Citigroup’s website whether Cordray’s elevation -- as well as three recess appointments to the National Labor Relations Board -- would further damage relations between Republicans and Obama while setting a precedent for future contentious hires.

“If things weren’t tense before, the political stakes have been upped,” Wolff wrote. “Add to that a hostile election-year environment and even the most non-controversial piece of legislation may not make it in 2012.”

Maurice “Hank” Greenberg, who led bailed-out insurer American International Group Inc. for almost four decades until he was ousted in 2005, called Cordray’s appointment unconstitutional. Greenberg, 86, is chairman and chief executive officer of insurer C.V. Starr & Co.

“The president’s stuck his finger in the eye of Congress,” Greenberg told Betty Liu today on Bloomberg TV’s “In the Loop.” “You need the approval of the Senate for that appointment. It was bypassed. That doesn’t lead for a great relationship.”

--With assistance from Phil Mattingly, Hans Nichols and Kathleen Hunter in Washington and Noah Buhayar in New York. Editors: Rick Green, Steve Dickson

To contact the reporters on this story: Donal Griffin in New York at dgriffin10@bloomberg.net;

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net.

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Business Travelers in Vegas: A Survivor's Guide

By Teddy Wayne

Elvis impersonators. The Hangover, part I. Exotic dancers all somehow named Cinymin. Las Vegas is nothing if not a classy town, and you’re headed there for a three-day convention. Yet what if you’re a happily married guy who prefers eight hours of sleep to five-card stud, Tulsa over Tao Nightclub, stripping paint to strippers? You still need to network and give the impression that you’re a high-roller to your more hedonistic colleagues and boss. Fret not: herewith, a field guide for the reluctant businessperson forced to endure the blinding sights, deafening sounds, and rotting smells of Sin City. All without maxing out your credit card or racking up enough expenses to get you fired.

And remember: Comportment is permitted to be looser here than at other conventions, but keep in mind that what happens in Vegas doesn’t necessarily stay in Vegas in the era of digital cameras and Facebook.

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Balanced Investment Strategy For Portfolio Management

Asia Stocks Fall as World Outlook Damps China Easing Speculation

January 12, 2012, 12:30 AM EST By Jonathan Burgos

Jan. 12 (Bloomberg) -- Asian stocks fell, with a regional benchmark index snapping three days of gains, as weaker Japan trade data added to evidence of a global slowdown, damping speculation that lower inflation in China may result in looser monetary policy.

Sony Corp., Japan’s biggest exporter of consumer electronics, fell 2.5 percent after the nation’s current-account surplus narrowed. QBE Insurance Group Ltd. plunged 13 percent in Sydney after saying 2011 profit dropped as much as 50 percent. Infosys Ltd., India’s second-largest software exporter, tumbled after cutting its sales forecast. Zoomlion Heavy Industry Science & Technology Co., a Chinese construction machinery maker, gained 1.6 percent in Hong Kong.

The MSCI Asia Pacific Index dropped 0.4 percent to 115.9 as of 1:54 p.m. in Tokyo, with three shares falling for every two that rose. The gauge advanced 1.7 percent in the past three days amid bets that China will ease monetary policy. The MSCI Asia Pacific excluding Japan Index was little changed after rising as much as 0.3 percent.

“If inflation keeps coming down, it increases the likelihood that China will deem it appropriate to continue to ease monetary policy,” said Will Seddon, who helps oversee $300 million at White Funds Management in Sydney. “The market has largely digested the possibility of a recession in Europe.”

Regional Indexes

China’s Shanghai Composite Index fell 0.2 percent, reversing gains of as much as 0.8 percent as the nation’s inflation cooled for a fifth straight month in December. Hong Kong’s Hang Seng Index slipped 0.1 percent, after advancing as much as 0.6 percent earlier.

Japan’s Nikkei 225 Stock Average slipped 0.9 percent. Australia’s S&P/ASX 200 Index lost 0.2 percent, with QBE Insurance as the main drag, according data compiled by Bloomberg.

South Korea’s Kospi Index added 0.3 percent and the BSE India Sensitive Index dropped 0.7 percent as Infosys declined.

Futures on the Standard & Poor’s 500 Index slid 0.1 percent today. The gauge was little changed in New York yesterday. The U.S. economic expansion improved last month across most of the country, while hiring was limited and housing remained stagnant, the Federal Reserve said in its Beige Book business survey.

Japanese exporters slid as the nation’s current-account surplus shrank 86 percent from a year earlier as slowing growth in China and Europe and the appreciation of the yen damped demand for Japanese products.

Japan’s Exporters

Sony, the maker of Bravia televisions and PlayStation game consoles, dropped 2.5 percent to 1,316 yen. Toyota Motor Corp., the world’s biggest carmaker by market value, dropped 1.4 percent to 2,589 yen. Canon Inc., the No. 1 camera maker, slipped 1.4 percent to 3,240 yen.

Infosys sank 6.7 percent to 2,636.55 rupees. The company reduced its full-year forecast for sales in dollar terms, citing weaker demand in developed economies including Europe.

The MSCI Asia Pacific Index gained 2.1 percent this year through yesterday, compared with a 2.8 percent advance by the S&P 500 and a 2.2 percent increase by the Stoxx Europe 600 Index. Stocks in the Asian benchmark are valued at 12.2 times estimated earnings on average, compared with 12.3 times for the S&P 500 and 10 times for the Stoxx 600.

QBE Insurance tumbled 13 percent to A$11.30 in Sydney, the biggest decline on the regional benchmark index. The company said 2011 profit fell as much as 50 percent on record natural disaster claims and losses on bond investments.

‘Falling Knife’

“There won’t be too many brave investors stepping in to catch this falling knife,” Peter Esho, Sydney-based chief market analyst at City Index Ltd., a London-based provider of trading services in bonds, stocks and commodities, said in a note. “The number of catastrophes in such a short period of time have finally caught up to hurt the group’s bottom line.”

Chinese construction companies and machinery makers advanced after China’s inflation cooled to a 15-month low and producer-price gains were the smallest in two years in December, leaving the government more room to support growth as a global slowdown hurts exports.

Zoomlion Heavy gained 1.6 percent to HK$9.58 in Hong Kong. China Communications Construction Co., a builder of transport infrastructure, increased 2.2 percent to HK$6.85.

Solar energy producers surged after the China said it plans to start developing 3 gigawatts of solar power capacity in the five years through 2015.

GCL-Poly Energy Holdings Ltd., a Chinese producer of polysilicon used in solar panels, jumped 14 percent to HK$2.50. Trony Solar Holdings Co Ltd., a panel maker, climbed 8.3 percent to HK$1.17.

OCI Co., a South Korean supplier of polysilicon, surged 15 percent to 255,000 won in Seoul, the most on the MSCI Asia Pacific Index. Unit OCI Solar Power said it plans to build 400 megawatts of solar energy projects for CPS Energy in Texas.

--Editors: Nick Gentle, Jim Powell

To contact the reporter on this story: Jonathan Burgos in Singapore at jburgos4@bloomberg.net

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net

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