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Red Sox Owner’s Purchase of Boston Globe Worries Journalists

August 3, 2013 by

“This was the last circumstance anyone would want,” Ryan said Saturday of Henry’s purchase of The Globe and other media properties from The New York Times Company for $70 million. “It’s nothing anyone would wish. It’s scary, to say the least, for all involved.”

The news that Henry, the principal owner of the Boston Red Sox, was acquiring The Globe, New England’s largest newspaper, resonated most profoundly in its sports department, where this reporter worked for many years.

“We don’t know what the new situation is going to be in terms of hierarchy, but I would hope to be able to continue to cover the Red Sox the way we always have, “ the sports editor, Joe Sullivan, said.

Acknowledging the potential conflict of interest, Sullivan said, “It will be there, hanging in the air.” He said the newspaper might need to include disclaimers when writing about Henry, as it did when The Times had an ownership stake in the team for 10 years. The Times sold its final stake in the group in 2012.

Dan Shaughnessy, The Globe’s lead sports columnist, has written critically about Henry since he became the principal owner of the Red Sox in 2002.

“There’s an inherent conflict of interest which no one can do anything about,” Shaughnessy said. “All we can hope for is that everyone is allowed to do his job professionally and that we are able to keep our independence.”

Shaughnessy and the former Red Sox manager Terry Francona wrote a book, “Francona: The Red Sox Years,” which detailed Francona’s ugly exit from the team after its collapse in September 2011. The book was highly critical of the Red Sox ownership group, and Shaughnessy said it was “not exactly a party-starter” for Henry.

In his Globe column on Saturday, Shaughnessy, tongue-in-cheek, told his readers that “John Henry’s greatness has been vastly underappreciated.”

Henry is the principal owner of the Red Sox and Fenway Park, and his Fenway Sports Group owns 80 percent of the New England Sports Network as well as the English soccer club Liverpool and a Nascar Sprint Cup team. The Miami Heat’s LeBron James is a minority stakeholder in the sports group.

The Red Sox have received mostly positive coverage in The Globe since Henry’s group bought the team. Much of that is because of the team’s success; the Red Sox won the World Series in 2004 (ending an 86-year drought) and again in 2007. But there were occasions when Globe coverage appeared to be a bit over the top, as in July 2007 when the acquisition of Kevin Garnett by the Boston Celtics was paired equally on the front of the Globe sports section with the Red Sox’ acquisition of the over-the-hill reliever Eric Gagne.

The team’s stunning collapse in September 2011 was followed by a Globe investigative piece by Bob Hohler, revealing that pitchers John Lackey, Josh Beckett and Jon Lester had been eating fried chicken and drinking beer in the clubhouse during games. Hohler also wrote that management had concerns that Francona’s deteriorating marriage and his use of painkillers may have affected his performance.

In a radio interview at the time, Henry said of the article, “It’s reprehensible that it was written about in the first place.”

Henry would now be in a position to kill such an article, which concerns Ryan, who retired from The Globe in 2012 but who has a verbal agreement to write up to 40 columns in 2013.

“Anyone in this situation has to look at it with a great deal of trepidation,” Ryan said. “It’s uncomfortable and it puts the Globe sports department, especially the Red Sox writers, in a potentially uncompromising position.”

Gordon Edes covered the Red Sox and baseball for The Globe from 1997 to 2008. He recalled the abuse that Chicago Tribune writers took when their newspaper owned the Chicago Cubs, adding: “But I think this is different. This isn’t the newspaper owning the team. This is the team owning the newspaper.”

Edes, who now covers the Red Sox for ESPNBoston.com, added, “As someone who competes against The Globe, it is going to be very interesting to see how this all plays out. “

Edes said he did not receive preferential treatment from the Red Sox when he was at The Globe and The Times had an ownership stake in the team.

“I wish I did,” he said. “But this is different. If I’m him, I’m going to make sure my newspaper gets the story.”

Among those weighing in on the conflict of interest issue was Dan Kennedy, a journalism professor at Northeastern University. In a blog item that ran on The Huffington Post, Kennedy wrote, “The real issue is not how The Globe covers the Red Sox as a baseball team but rather how it manages the tricky task of reporting on a major business and civic organization that’s run by the paper’s new owner.”

Under Henry’s stewardship, the Red Sox cut a favorable licensing deal with the City of Boston to use the streets surrounding Fenway Park on game days, making “tens of millions of dollars.” The Globe reported on this sweetheart deal earlier this year. Would Henry allow such a piece to run as the newspaper’s owner?

Kevin Paul Dupont, The Globe’s Hall of Fame hockey writer, said he was “among those who want the business to be saved and resurrected, and I hope he’s the guy.”

“We’ve all been looking for someone who has the plan,” he said of Henry. “I hope it’s him.”

Article source: http://www.nytimes.com/2013/08/04/sports/red-sox-owners-purchase-of-boston-globe-leaves-journalists-wondering.html?partner=rss&emc=rss

Filed Under: Media Business Tagged With: , ,

DealBook: Hong Kong Broker Fined for Hyping Undisclosed Trades

April 8, 2013 by Leave a Comment

HONG KONG – A local stockbroker and financial columnist, Sky Cheung, was fined 500,000 Hong Kong dollars ($65,000) on Monday by Hong Kong’s market regulator for profiting on stock trades linked to his column. His broker’s license was also suspended for 30 months.

The Securities and Futures Commission found that on 25 occasions from March 2009 to March 2010, Mr. Cheung bought stocks through an undisclosed account registered in his wife’s name and, shortly afterward, published newspaper columns talking up those stocks.

“Cheung put himself in a conflict-of-interest position by purchasing the stocks shortly before favorable comments were published in his column, and sold them at a profit shortly after publication of the column,” the commission said in a statement. “Cheung’s conduct has cast serious doubt on his ability to carry on the regulated activity competently, honestly and fairly, as well as his reputation, character and reliability.’’

Hong Kong’s financial watchdog has had a number of successes in recent years as it seeks to crack down on market malfeasance, including a prominent criminal conviction of a Morgan Stanley managing director for insider trading. And a push is under way to make the banks that sponsor initial public offerings criminally liable for the accuracy of disclosures made by the companies they are bringing to market.

Mr. Cheung’s missteps were of a more mundane nature. Licensed brokers in Hong Kong are permitted to trade on the side for personal profit, but must disclose this to their employers and have the activity vetted by their senior managers. Mr. Cheung did not declare his activity to his employer at the time, the local brokerage Quam Group. He now works at the Hong Kong unit of Taiwan’s Polaris Securities.

According to the regulator, Mr. Cheung’s tactic was to buy stocks through his wife’s account and then write positively about them in his column, ‘‘Investment Sky,’’ which appears twice a week in the popular Chinese-language newspaper Apple Daily. He would then typically cash out at a profit one to three days after publication.

On several occasions, he would write the columns first, and instruct his assistant to delay publication until after he had time to buy the stocks he was writing about, the regulator said. Other times, Mr. Cheung denied any holdings in the stocks in his column, although they had been purchased through his wife’s account. The regulator said its fine was equal to the profit he made on his undisclosed trades.

In his most recent Apple Daily column on Friday, Mr. Cheung did not single out specific stocks, but waded into a local debate about whether authorities in China and Hong Kong had been over-regulating the market and scaring away investors. He cited the Chinese saying “fish are caught where the waters are muddy,” then turned it around.

“Of course there are no fish when the water is clear,’’ he wrote. ‘‘But if the water is too muddy that will kill a lot of fish.”

This post has been revised to reflect the following correction:

Correction: April 8, 2013

An earlier version of this article misstated when Hong Kong’s market regulator levied the fine. It was Monday, not last week.

Article source: http://dealbook.nytimes.com/2013/04/08/hong-kong-broker-fined-for-hyping-undisclosed-trades/?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

DealBook Column: A $25 Million Question Over a Bid for Dell

April 2, 2013 by Leave a Comment

Dell did not want the bid by Michael Dell, the company founder, to be the only one in play.Ym Yik/European Pressphoto AgencyDell did not want the bid by Michael Dell, the company founder, to be the only one in play.

Is Stephen Schwarzman’s Blackstone Group really bidding for Dell? Or is it part of a bizarre, high-stakes charade?

That’s the question left lingering in the air in the wake of Dell’s 274-page proxy filing made late last week with the Securities and Exchange Commission about the continuing battle for the company.

Mr. Schwarzman’s firm submitted a letter two weeks ago asserting that it planned to pursue a formal bid for Dell worth at least $14.25 a share, more than the $13.65 offer that Dell’s board had already agreed to accept from Michael Dell, the company’s founder, and Silver Lake Partners.

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To avoid the appearance of a conflict of interest given Mr. Dell’s insider status, the company’s board was given 45 days to continue to shop the company in hopes of finding a better offer. And, indeed, the appearance of a conflict of interest for Mr. Dell has become the running narrative. The cover of Barron’s over the weekend featured a cartoon of Mr. Dell running away with a laptop under his arm, suggesting he was trying to steal the company, with the headline: “Not So Fast, Michael.”

But over the last 45 days, virtually no competing bidders emerged, suggesting perhaps that nobody thought Dell was such a steal after all. It wasn’t for lack of trying. Evercore Partners, the investment bank, was offered an incentive payment of $30 million if it could complete a deal for Dell at a higher price. According to Dell’s proxy, Evercore contacted “67 parties, including 19 strategic parties, 18 financial sponsors and 30 other parties.”

Most were not interested. And then Blackstone arrived.

What did Mr. Schwarzman see that all of the other prospective bidders must have missed? That remains a mystery.

But what Mr. Schwarzman did next, thanks to Dell’s disclosure, may go a long way toward explaining what’s truly going on: Blackstone told Dell that it would not even consider bidding for the company unless Dell offered to pay the firm’s expenses, up to a whopping $25 million.

Yes, you read that correctly. Blackstone demanded that Dell pay it to go through the motions of bidding.

Here it is in the proxy: “The Blackstone consortium informed the special committee that it was not willing to proceed with its evaluation of the transaction contemplated” unless “it received an agreement from the company to reimburse the Blackstone consortium’s out-of-pocket expenses in connection with its evaluation of a possible transaction.”

Here’s what’s not in the proxy: Originally, Blackstone did not demand to be reimbursed for just out-of-pocket expenses — for consultants, travel and the like — but also sought to be able to receive payments for the time of its own executives, according to people involved in the process. Just think about it: How much would Mr. Schwarzman bill for his time? $10,000 an hour?

Ultimately, Dell’s special committee agreed to pay Blackstone’s out-of-pocket expenses but not hourly fees or contingency fees for its banking advisers. (By the way, the special committee also agreed to pay Silver Lake the same reimbursement to make the process fair.)

The fact that Blackstone refused to bid unless its costs were covered by Dell — a highly unusual maneuver — just goes to show you how little confidence it has that it expects to submit a winning bid for Dell.

Blackstone also required Dell to indemnify the firm from any lawsuits stemming from its involvement in the auction process, according to Dell’s documents.

For Dell’s special committee, agreeing to these bold demands from Blackstone is probably good business. If the board can keep a second bidder at the table, even if the suitor never makes a firm bid, Dell’s special committee will have insulated itself from criticism that it did not run a competitive process.

The real question is why, despite the $25 million reimbursement guarantee, Blackstone is risking its reputation to even contemplate a deal for Dell.

If Blackstone makes a formal bid — and so far it has not lined up financing — it will most likely be competing against a bid from Mr. Dell. While Blackstone has clearly been invited into the auction process, if Mr. Dell quits or is ousted as a result of a winning bid from Blackstone, the firm will appear to have made a hostile bid. Private equity firms have spent the last 25 years avoiding anything that could make them perceived as hostile because they typically want management teams to want to do business with them.

Last week, two Blackstone partners, Chinh Chu and David Johnson, who recently defected from Dell, met with Mr. Dell at his home. Mr. Dell is said to be open to working with Blackstone if they can agree on strategy, operations and corporate governance.

But by the looks of it, Blackstone and Mr. Dell are coming to the table from entirely different angles. Mr. Dell wants to keep the company intact and reinvest in developing the personal computer, tablet and emerging-market business. Blackstone’s strategy appears to center on selling Dell’s financing arm — it received some interest from GE Capital — and focusing on its services business.

What happens if Mr. Dell comes out with the following statement? “Unfortunately, after holding talks with Blackstone in good faith, I can’t participate in their transaction because of a disagreement over strategy. Their plan is a short-term and shortsighted effort to break up the company and put in peril Dell’s more than 100,000 employees.”

All of sudden, Blackstone would look like a barbarian at the gate in a big and very public nasty battle. (Some would claim Mr. Dell was being selfish, but the damage would be done — to Blackstone.)

Alternatively, is it really possible Blackstone would try to embrace Mr. Dell and make him the chief executive — which they have said they are open to doing? Blackstone has already been canvassing for other candidates. In fact, the firm contacted Mark Hurd of Oracle before ever even discussing the matter with Mr. Dell, which, of course, was a not-so-great way to ingratiate itself with a potential future partner.

And then there’s the ownership stakes. Mr. Dell owns about 15 percent of the equity in Dell. It is almost impossible to believe that Blackstone would put in more equity than Mr. Dell already has in the company. That would leave Blackstone as a smaller equity owner than Mr. Dell himself. Would Blackstone really team up with him and let him have control of the company?

All of these questions have no good answers. But for $25 million in reimbursed expenses, maybe they don’t need them.

Article source: http://dealbook.nytimes.com/2013/04/01/a-25-million-charade-over-a-bid-for-dell/?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Creating Value: When Your Broker Doesn’t Really Represent Your Interests

December 19, 2012 by Leave a Comment
Creating Value

Are you getting the most out of your business?

As I explained in my last post, Holly Hunter’s first try at selling her business didn’t work out. The second time around she decided to hire a seasoned company that specializes in selling small financial services businesses. This broker had great public relations and a history of having sold many businesses.

What Ms. Hunter did not fully understand was that when you sell a business you essentially enter an alternate universe. It can be a confusing and scary place. For one thing, there are different types of brokers, and some of them get paid to represent the buyer and the seller. The was the case with the broker Ms. Hunter hired.

She would soon discover that brokers who represent both parties often don’t really work for either party. And in her case, it ended up looking as if the firm was working mostly in its own interest. This eventually left the buyer and seller with a disaster on their hands.

Another problem that often arises in the selling of a business is that sellers tend to put pressure on themselves to get a deal done. This can lead them to do things they would not ordinarily do. Good brokers understand this and prepare their clients for the process, offering steadying advice as the deal unfolds. But when the broker advises both parties, there is an unavoidable conflict of interest, and that means that one or even both parties may not get the best advice.

After Ms. Hunter listed her business for sale, her broker told her that 60 parties had expressed interest. The broker whittled the group down to 12 potential buyers it considered realistic. If Ms. Hunter’s broker had been working only for her — and not for both parties — it most likely would have set up what is known as a structured auction to sell the business.

The auction process would have narrowed the buyers from 12 to about five, and then the broker would have gone back and forth among the five buyers to produce the best deal for Ms. Hunter. Not only didn’t the broker use this avenue to sell the business, it never informed Ms. Hunter that using a structured auction was an option.

Instead, Ms. Hunter’s broker put together a negotiated deal. The buyer the broker negotiated with agreed to pay Ms. Hunter one third of her purchase price immediately and two thirds as a seller’s note over five years. Ms. Hunter thought this was a good deal, in part because she thought that the entire payment was guaranteed

Ms. Hunter’s buyer was a 40-year-old certified financial planner. Ms. Hunter obtained a personal guarantee from the buyer and his wife, but it wasn’t until more than a year after the sale was complete that she learned that a personal guarantee needs to have assets behind it to have any value. And that was a problem. While Ms. Hunter’s buyer owned a house, he had very little equity in the house.

Before her sale closed, Ms. Hunter hired a lawyer who had a good reputation within her industry but little experience in mergers and acquisitions. She probably would have been better off hiring a lawyer who specialized in helping business owners buy and sell businesses. Ms. Hunter’s lawyer used specimen documents — sample documents that are used as a model — that were provided by her broker. Such documents can save the client time and money, but there is often reason to be wary of them, and they are a long way from best practices in the industry.

The lawyer did recommend that Ms. Hunter get a personal guarantee from the buyer. The broker assured her that, even though the buyer had no real financial assets, she would be covered because he was a certified financial planner and the clients he was buying from her would be plenty of collateral. When you sell your business and provide financing, you essentially become the bank for your buyer. That means you must act like a bank. And no bank — not even one with Small Business Administration backing — would have made a loan based on that collateral.

Three weeks before closing, the waters were muddied even further. The buyer informed Ms. Hunter that he had a new silent partner. This silent partner was a wealthy person who could have offered the security that Ms. Hunter or any bank would require as part of a deal, but he refused to provide his personal guarantee. At this point, Ms. Hunter felt she was too far down the road of selling her business and couldn’t back out. I’ve been in that position, and I know how she felt. Once you are that close to selling, it takes herculean effort to back out.

The deal closed, and for a year everything seemed to go well. Then, disaster struck. An employee left the buyer’s practice — taking staff and clients. Suddenly, there was no business, and Ms. Hunter learned the hard way that there were no assets backing up the personal guarantee she had obtained. She ended up being unable to collect most of what she was owed by the seller.

In my next post, we’ll look at how seemingly minor details in a transaction, if not handled properly,  can make your life miserable.

Do you have any cautions you would like to share about how to hire someone to sell a business? Were you ever involved in a situation like this? How did it turn out?

Josh Patrick is a founder and principal at Stage 2 Planning Partners, where he works with private business owners on creating personal and business value.

Article source: http://boss.blogs.nytimes.com/2012/12/19/does-your-broker-really-represent-your-interests/?partner=rss&emc=rss

Filed Under: Small Business Tagged With: , ,

Anne Sinclair Takes Helm at French Huffington Post

January 23, 2012 by Leave a Comment

PARIS — Anne Sinclair smiled big for the cameras, not as the betrayed wife standing by her man, but as the star journalist she once was and hopes to be again.

The wife of Dominique Strauss-Kahn, Ms. Sinclair returned to public life on Monday before more than 250 journalists in her new role as editorial director for the French version of The Huffington Post news Web site that debuted on Monday.

The news conference represented her first professional appearance since Mr. Strauss-Kahn, the former head of the International Monetary Fund, was charged with sexually assaulting a maid in a New York hotel last May and forced to abandon his quest for the French presidency. The criminal charges were later dismissed.

“She is definitely going to be our public face,” said Arianna Huffington, the founder of the site, in an interview on Sunday.

A former television anchor and the heiress to an art fortune, Ms. Sinclair seemed well-rehearsed and at ease in describing her goals and her role at Le Huffington Post.

She insisted that there would be no conflict of interest in carrying out her duties. “All important news will be treated normally, as it would be treated elsewhere,” she said, adding, “Anything that should be on the front page will be on the front page.”

She denied that her relationship with her husband would affect her work. “I do not mix private and professional life,” she said.

She dodged a question on whether she would support Socialist candidate François Hollande for president of France, and denied that she had played a role in her husband’s plans to run for president on the Socialist ticket. “I wasn’t invested in the candidacy of my husband,” she said. She described herself as “careful.”

Paradoxically, had her husband been the Socialist party’s candidate for president, this job might not have been hers.

Since this is France, where journalists are loath to pry into the personal lives of the rich and powerful, she was not asked questions that might have come up in an American setting: Why do you stay with your husband? Does he suffer from a mental illness and cannot control his impulses, as a former Socialist prime minister, Michel Rocard, said some months ago? Can you elaborate on your claim that your husband’s treatment in the American criminal justice system is comparable to the Dreyfus affair? How are you dealing with allegations that your husband might have been involved in a French prostitution ring now under criminal investigation?

Ms. Huffington, sitting by Ms. Sinclair’s side, defended her as a gifted journalist and a role model for other women.

“Every woman in her private life” has suffered “setbacks, ordeals,” Ms. Huffington said. A woman like Ms. Sinclair, she added, “gives hope and courage to every other woman.”

Le Huffington Post is a joint venture of AOL, the Internet company that owns The Huffington Post; the French daily newspaper Le Monde; and Matthieu Pigasse, a banker who acquired Le Monde in 2010 in partnership with two other investors.

The Web site’s tiny staff of eight will work out of Le Monde’s offices in Paris, and the news conference was held in Le Monde’s auditorium. Ms. Sinclair’s every gesture, every smile, every whisper in Ms. Huffington’s ear was greeted with the clicks of the cameras of dozens of photographers.

Ms. Sinclair delivered. Her makeup was impeccable, her fingernails meticulously manicured, her voice low-pitched and confident, her gaze focused on certain photographers.

“This is a chance for me,” said Ms. Sinclair. “The Huffington Post gave me a chance.”

Ms. Sinclair said she would be working full-time, even more than full-time in her new job, although day-to-day editing responsibility would fall to Paul Ackermann, a former journalist with the newspaper Le Figaro.

Asked why she picked she pick Anne Sinclair, Ms. Huffington reeled off a list of Ms. Sinclair’s experience and qualifications, and then added: “Every woman in her private life — if not her in public life — has been through setbacks, ordeals and problems. When we see a woman enter the arena again, and get engaged with what is happening in the world, it gives hope and courage to every other woman.”

Article source: http://feeds.nytimes.com/click.phdo?i=d30eba6f547ef0869395575037cee322

Filed Under: Business News Tagged With: , ,

Ex-S.E.C. Official Settles Conflict-of-Interest Case

January 14, 2012 by Leave a Comment

WASHINGTON — A former enforcement official for the Securities and Exchange Commission who was accused of blocking or closing at least three investigations into the activities of the Stanford Financial Group, which the authorities claim was a $7 billion Ponzi scheme, has settled civil charges brought by the Justice Department accusing him of violating conflict-of-interest rules by later representing Stanford before the commission.

John M. Bales, the United States attorney for the Eastern District of Texas, announced Friday that the former official, Spencer C. Barasch, who from 1998 to 2005 served as the enforcement director for the S.E.C.’s Fort Worth regional office, had agreed to a civil settlement that would result in payment of a $50,000 fine.

That is the maximum fine for a violation of federal conflict-of-interest rules, but it is much less than the punishment Mr. Barasch would have faced had the Justice Department pursued a criminal case. The civil settlement ends for now any further criminal investigation of Mr. Barasch. A separate civil case involving Mr. Barasch continues at the S.E.C.

Paul Coggins, a lawyer representing Mr. Barasch, said the case was settled “to avoid the expense and uncertainty of protracted litigation.” Mr. Barasch’s actions after leaving the S.E.C. “were expressly permitted by the postemployment statute,” Mr. Coggins said. “At no time has he compromised his honor or ethics, and we vigorously dispute any suggestion to the contrary.” Government officials said at a Congressional hearing last May that Mr. Barasch was the subject of a criminal investigation into his work for Stanford, which was also the subject of much of a 150-page report by the commission’s inspector general issued in March 2010.

That report found that Mr. Barasch frequently discouraged or halted further investigation into Stanford Financial by S.E.C. staff members, and that he subsequently represented the firm in talks with S.E.C. officials about other or continuing investigations.

The S.E.C. is continuing its own attempts to reach a separate civil settlement with Mr. Barasch, people close to the commission said. Such a settlement could include an extended or permanent bar from work before the commission.

H. David Kotz, the S.E.C. inspector general, said in a statement Friday that the Justice Department settlement “sends a strong message that former federal officials cannot abuse the public trust by attempting to profit personally from matters on which they worked as government servants before joining the private sector.”

Mr. Bales said that the case demonstrated that the S.E.C.’s ethics program worked, because commission lawyers had told Mr. Barasch that he was barred from representing Stanford Financial on agency business. “Today’s settlement demonstrates that we will hold those that shirk their professional responsibilities accountable for their conduct,” he said.

According to the Justice Department’s settlement, Mr. Barasch denied any wrongdoing. He said that he lacked the unilateral authority to close or hamper an investigation, and that he received “directives and pressure from his superiors in Washington” to devote his office’s resources to financial and accounting fraud rather to Ponzi schemes.

Mr. Barasch also denied that he had been told he was permanently barred from representing Stanford Financial. In December 2006, he billed the firm about $6,500 for service and expenses.

R. Allen Stanford, the founder of Stanford Financial, is scheduled to go on trial on Jan. 23 in Houston.

He is charged with 21 federal criminal counts of defrauding investors, who were encouraged to buy certificates of deposit at a Stanford bank in Antigua. Instead of being invested, federal officials say, much of the money went to finance Mr. Stanford’s lavish way of living.

Article source: http://feeds.nytimes.com/click.phdo?i=a4c59f3f5b6796eec2287ea98409b54e

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Google’s Competitors Square Off Against Schmidt

September 22, 2011 by Leave a Comment

Those two headline narratives competed for credibility in a three-hour hearing on Wednesday before a Senate antitrust panel, which heard testimony from Google’s chairman, Eric E. Schmidt, and competitors of the search giant.

Google’s story: The company is zealously dedicated to helping people find the most useful information on the Internet, and Google’s prosperity and the economic opportunity it has created for many thousands of American businesses all flow from that high-minded mission.

The rivals’ rebuttal: Google increasingly tilts search results in favor of its own online commerce offerings like travel and shopping as it bundles those services into its industry-dominant search engine, limiting choice and stifling competition.

The Senate hearing has been the most prominent one yet in the debate about Google’s business practices and their effect. Antitrust regulators in the United States and Europe are investigating Google as it steadily expands its business beyond search.

At the start, Senator Herb Kohl, Democrat of Wisconsin and chairman of the Judiciary’s antitrust subcommittee, pointed to the potential conflict of interest. “Is it possible,” he asked, “for Google to be both an unbiased search engine and at the same time own a vast portfolio of Web-based products and services?”

Later, he suggested that the profit motive would naturally tilt search results toward Google services. Not so, Mr. Schmidt replied. “I’m not sure Google is a rational business trying to maximize its own profits,” he said.

He never mentioned Microsoft by name, but his testimony was intended to draw a distinction between his company and the last technology powerhouse that was investigated, sued and found to have violated antitrust laws. That former innovator, Mr. Schmidt said, “lost sight of what matters and Washington stepped in.”

Google, he said, has studied that history. “We get it,” Mr. Schmidt said. “We get the lessons of our predecessors.” Later, circling back to that theme, he said, “One company’s past needn’t be another’s future.”

Mr. Schmidt described the online economy as highly competitive, with users “one click away” from other sources of information. The many rivals include search engines like Microsoft’s Bing, specialized review and listing sites like Yelp, comparison shopping sites like Nextag, online merchants like Amazon and social networks like Facebook. “The Internet is the ultimate level playing field,” he said.

There were a few testy moments. Mike Lee, Republican of Utah, showed a chart with the rankings for Google Product Search in hundreds of shopping searches, compared with the rankings of three comparison shopping sites, Nextag, Pricegrabber and Shopper. The rivals’ rankings varied widely, while Google’s service was consistently ranked third.

Mr. Schmidt first replied that the chart was an “apples to oranges” analogy, because the Google service steers users to specific products and is not a shopping comparison site.

Unconvinced, Mr. Lee said, “You cooked it so you are always No. 3.”

Mr. Schmidt replied, his voice tightening, “Senator, I can assure we haven’t cooked anything.”

Google’s competitors testified in a second panel, after Mr. Schmidt, an arrangement that Google requested and the subcommittee accepted. The competitors described a different world than Mr. Schmidt portrayed, saying Google has immense market power and uses it.

Jeffrey Katz, the chief executive of Nextag, said that Google was “an outstanding partner to us for many years,” but that the relationship has become strained as the search company expanded. Google’s business interests, he said, conflict with its engineering commitment to an open-for-all Internet.

“But what Google engineering giveth, Google marketing taketh away,” Mr. Katz said. “Today, Google doesn’t play fair. Google rigs its results, biasing in favor of Google Shopping and against competitors like us.”

The issue, he said in a separate interview, is subtle and does not affect all Google searches, mainly ones related to buying goods or services. “When you search for ‘running shoes’ or ‘digital camera,’ Google transforms itself from an independent search engine to a commerce site,” Mr. Katz said. “But that is not what happens when you type in a search for, say, ‘kidney dialysis.’” Jeremy Stoppelman, the chief of Yelp, said sites like his have to cooperate with Google because it is the gateway to so many users. About half of Yelp’s visitors come through Google search.

Google, Mr. Stoppelman said, folds the reviews of other sites into its own offerings. “Google forces review Web sites to provide their content for free to benefit Google’s own competing product — not consumers,” he said. “Google then gives its own product preferential treatment.”

Under questioning, both Internet entrepreneurs were asked, given Google’s evolution, would they start their businesses today. They would not, they said. “With Google taking so much of the real estate, I wouldn’t do it today,” Mr. Stoppelman replied.

Mr. Katz said Google should either give competitors in online commerce equal treatment in search results or clearly disclose its conflict of interest.

He punctuated his point by using the same phrasing Mr. Schmidt did when he testified. “Level playing field, level playing field, level playing field,” Mr. Katz said.

Article source: http://feeds.nytimes.com/click.phdo?i=ac5fe1531d394e5758a14ee73a582d61

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S.E.C. Hid Its Lawyer’s Madoff Ties

September 21, 2011 by Leave a Comment

But as a new report made clear on Tuesday, one top official received a pass: David M. Becker, the S.E.C.’s general counsel, who went on to recommend how the scheme’s victims would be compensated, despite his family’s $2 million inheritance from a Madoff account.

Mr. Becker’s actions were referred by H. David Kotz, the inspector general of the S.E.C., to the Justice Department, on the advice of the Office of Government Ethics, which oversees the ethics of the executive branch of government.

The report by Mr. Kotz provides fresh details about the weakness of the agency’s ethics office and reveals that none of its commissioners, except for Mary L. Schapiro, its chairwoman, had been advised of Mr. Becker’s conflict.

It says Ms. Schapiro agreed with a decision to keep Mr. Becker from testifying before Congress, where he would have disclosed his financial interest in the Madoff account.

Mr. Kotz’s inquiry also produced evidence that at least one S.E.C. employee had been barred from working on Madoff-related matters because of a conflict, suggesting there was a double standard at the agency.

The findings are another black eye for an agency that has tried to be more aggressive in recent years after failing to uncover the Madoff fraud. More recently, the S.E.C. has been criticized for routine destruction of some enforcement documents that might have been useful in later investigations.

The agency has also been criticized for its slow pace in writing new financial regulations mandated by the Dodd-Frank law and for the dearth of cases brought against individuals at major financial companies that were involved in the mortgage crisis.

Federal conflict of interest law requires government employees to be disqualified from participating in a matter “if it would have a direct and predictable effect on the employee’s own financial interests.”

Nevertheless, Mr. Becker “participated personally and substantially in particular matters in which he had a personal financial interest,” Mr. Kotz wrote in his report.

Though the referral was made to the Justice Department’s criminal division, it could be handled as a civil matter. A Justice Department spokeswoman declined to comment, other than confirming the referral.

Mr. Becker’s tie to the Madoff situation came from a Madoff account held by his mother, who died in 2004. Her three sons inherited the account and closed it shortly thereafter, with a $1.5 million profit, based on Mr. Madoff’s fraud.

Mr. Madoff carried out an enormous Ponzi scheme for more than a decade, costing investors more than $20 billion in actual losses. He is now serving a 150-year sentence in a prison in North Carolina.

Mr. Becker’s lawyer, William R. Baker III, said in a statement that the report confirmed that Mr. Becker had notified seven senior S.E.C. officials about his late mother’s Madoff account, including Ms. Schapiro and the agency’s designated ethics officer.

“The inspector general concluded that ‘none of these individuals recognized a conflict or took any action to suggest that Becker consider recusing himself from the Madoff liquidation,’ “ wrote Mr. Baker, a lawyer at Latham Watkins who worked at the S.E.C. for 15 years, working alongside Mr. Becker at times. He said the report contained “a number of critical factual and legal errors,” but declined to enumerate them. Mr. Becker left the S.E.C. last February.

Among the actions taken by Mr. Becker that were cited in the report were his efforts to influence the deliberations concerning how Madoff victims would be compensated, which could have had a direct impact on his financial standing. The report cited testimony from a witness who said that by early 2009, Ms. Schapiro indicated that most of the S.E.C. commissioners had agreed on a method that would give investors a claim to only the money they had put into their Madoff accounts. This might have meant the Beckers would be able to keep only around $500,000 of the $2 million withdrawn when the account was closed, Mr. Kotz’s report said.

This article has been revised to reflect the following correction:

Correction: September 20, 2011

An earlier version of this article incorrectly identified Luis A. Aguilar as a Republican. He is a Democrat.

Article source: http://feeds.nytimes.com/click.phdo?i=8c791c2da8cdb0dae4014908420b2c94

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