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2. Banks face new scrutiny on energy commodities

Now that their proposal to buy Dell, the ailing computer company, has veered off track a bit, you have to wonder about the state of their relationship. It's perhaps an ominous sign that a dispute between the two parties has spilled out into public. It's perhaps even more ominous that the dispute involves the break-up fee, which didn't generate much controversy when they seemed to have the upper hand in the deal sweepstakes.

As shareholders prepare for a vote on the $13.65 a share proposal this week, Michael Dell and Silver Lake "are said to disagree about the payout of breakup fees should the buyout fail," according to Bloomberg.

"Silver Lake considers itself entitled to a $450 million fee if an alternative proposal from billionaire Carl Icahn succeeds within a year, said a person familiar with the situation. Dell and his board hold that Silver Lake would only get reimbursed expenses, said two other people who also asked not to be identified because the matter is private."

What would entitle the private equity giant to a payment?

The founder and the Silver Lake "would get the $450 million only if the company is sold to a higher bidder and Icahn's proposal doesn't represent a superior takeover bid, according to the two people familiar with the company's position. Silver Lake would also be entitled to the fee if the board changed its recommendation, according to the March 29 merger proxy filing with the U.S. Securities and Exchange Commission."

At this point, it's hard to conclude definitively that the two sides are somehow at loggerheads. But the tension must be thick as the definitive vote approaches. This one will go down to the wire.

For more:
- here's the article

Read more about: Leveraged Buyout, Dell
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By Jim Kim

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3. Evidence reflects tough culture at SAC Capital

Investment banks have been taking their lumps for their influence in commodities markets for several years now. In one striking example, critics have accused Goldman Sachs of making hundreds of millions of dollars via the food commodities markets, at the expense of needy people around the world.

In the words of a Guardian columnist: "their core business is virtually starving people at the same time. In 2012, the US investment bank made an estimated $400m from speculating on food. The World Bank estimated in 2010 that 44 million people were pushed into poverty because of high food prices, and that speculation is one of the main causes."

That's some tough rhetoric.

The issue has cropped up again in the energy market. The same dynamic is at work. Investment banks' influence in physical commodities markets, as speculators and market makers, has angered non-speculative buyers, notably big corporate user that traditionally used the markets to hedge.

The issue has heated up to the point that regulators are taking a close look. According to the Financial Times, "Senior officials at the Federal Reserve have in recent weeks discussed with bank executives the question of whether to bar banks from owning physical commodity assets." The big issue would appear to be energy stocks, not so much metals.

This would be yet another blow to big banks. JPMorgan Chase has been under pressure for its market tactics. It may soon settle charges that it fixed prices in several markets. Recall that the bank paid $1.6 billion three years ago to buy the oil, metals and coal divisions of RBS Sempra Commodities. Several banks have moved aggressively into this arena.

For more:
- here's the article

Read more about: Energy Commodities
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By Jim Kim

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4. Case against Cohen may yet be difficult

So what's it like to work at SAC Capital?

The place has never had a reputation as a warm and fuzzy place for financial professionals to put down long-term roots. It wasn't exactly one big Norman Rockwell-ian family, where everyone looked out for everyone. When people speak of working there, the terms that crop tends toward "pressure-packed," "competitive," "watch your back," and so on.

The guy who seems to have benefited most from the firm's hub and spokes set-up was the main hub himself, Steven Cohen, who had unique access to all information that filtered in from the disparate, segregated analysts, traders and managers. This not only gave him a certain plausible deniability, but also a route by which he could play employees off one another.

A great example comes from DealBreaker, which offers some choice morsels from the complaint, showing in particular how other drug analysts at the firm tried to deprecate former analyst and current accused insider trader Mathew Martoma's advice.

The excerpt:

"The Analysts exchanged a number of emails and instant messages with Cohen about whether Martoma's advice on Elan and Wyeth was sound. On March 28, 2008, one of the Analysts told Cohen in an instant message that he did not think anyone could yet know the Phase II Trial data, because the trial was not over yet. Cohen responded by saying he would follow Martoma's and Hedge Fund Manager A's advice, because 'they are closer to it than you.' Later in the same message, the Analyst asked Cohen: '[I] don't know if [Hedge Fund Manager A] or mat [Martoma] will answer, but do you think they know something or do they have a very strong feeling.' Cohen replied: '[T]ough one . . . i think mat [Martoma] is the closest to it.' The Analyst responded: '[T]he question that I would ask is if it[']s possible to know the data yet – i could be wrong, but i don't think it is yet.' "

In the end, the anti-Martoma analysts sought their own sources, which the analysts used to trash Martoma's sources. In the end, Martoma was right. But the victory has been obviously costly, as the prosecution think it was all based on illegal inside information. Martoma was said to have fainted when confronted by investigators. This will all play out at what should be a fascinating trial.

For more:
- here's the article

Read more about: SAC Capital, Steven Cohen
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By Jim Kim

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5. SEC aims for Miami in bond case

We've suggested before that building cases on email evidence has never been shown to be a sure-fire winning tactic for prosecutors. In fact, it would appear to be a dicey proposition. Which is perhaps why the SEC has chosen to charge Steven Cohen via an administrative case only.

"The standard of proof is substantially lower here than with an insider trading charge, which would require showing knowledge or recklessness," one expert was quoted by DealBook. "A failure-to-supervise case requires only a showing of negligence, that Mr. Cohen was essentially careless in his oversight of the firm."

That would seem to be an obvious point on the surface. In 2008, when the trades at issue took place, the entire company had a compliance department of just 10. And "in the past, Mr. Cohen, who owns 100 percent of SAC, has acknowledged a lack of familiarity with the firm's compliance and ethics policies on insider trading. In a deposition he gave in 2011 connected with a lawsuit unrelated to the S.E.C.'s case, Mr. Cohen said, 'I've read the compliance manual, but I don't remember exactly what it says.' He also called the rules on what constituted inside information 'very vague.'"

Perhaps the most damning "evidence" in this regard is that so many of his minions were embroiled in insider trading cases. No less than four former employees have pleaded guilty. Five others have been implicated, with two huge trials upcoming.

Proving that Cohen failed in his supervision, however, may not be so easy in a formal legal proceeding. But it will be interesting. What's most intriguing is who exactly will testify for the government. Does it have a former compliance employee in the truck? You get the sense that it took the route that would give it the greatest chance of winning, if only a minor administrative victory.

For more:
- here's the article

Read more about: SAC Capital, Steven Cohen
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By Jim Kim

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