DealBook: McClendon, Under Fire, to Retire at Chesapeake Energy

9:15 p.m. | Updated

HOUSTON — Aubrey K. McClendon, Chesapeake Energy’s daring and innovative co-founder, will step down as chief executive on April 1 after months of scrutiny over how he mixed his personal finances and those of the corporation.

Mr. McClendon’s retirement, announced by the company on Tuesday, comes as the national boom in natural gas drilling, which he helped set in motion, is fading, diminishing Chesapeake’s prospects.

Over the past decade, Mr. McClendon aggressively explored for gas and outbid competitors in one shale field after another. Not only did his small Oklahoma company become the nation’s second biggest gas producer after Exxon Mobil, but Mr. McClendon also assembled a trophy room of assets that included a piece of the Oklahoma Thunder basketball team, a winery and a $12 million collection of antique maps.

In the end, a downturn in natural gas prices, caused in large part by the industry’s exuberant drilling, dealt a huge blow to the company’s balance sheet and to Mr. McClendon’s personal fortune.

Mr. McClendon borrowed heavily — more than $800 million — to finance his participation in an unusual compensation plan that allowed him to invest alongside his company in every well it drilled, sharing both in profits and expenses. Last year, the Securities and Exchange Commission opened an inquiry into Mr. McClendon’s finances, and a shareholder rebellion led to his removal as chairman in June and a reshuffling of the board.

Chesapeake, which borrowed extensively to finance its expansion spree, has been forced to unload $12 billion in valuable oil and gas fields over the last year as it tried to pay off its crushing debts. Last September, the company still had $19 billion in debt, according to Philip Weiss, a senior oil company analyst at Argus.

“He really built this company from nothing and made it into something meaningful,” Mr. Weiss said, “but in the end, I think it’s the right thing for the company and its shareholders” for him to leave. “The company needs a financial guy to bring spending under control.”

Investors appeared to agree, sending Chesapeake’s shares up more than 10 percent in after-hours trading.

The roots of Mr. McClendon’s sudden departure lay partly in a shake-up of Chesapeake’s board last summer, in which the company replaced more than half of its directors. Four of those board members were nominated by two major investors, Southeastern Asset Management and the investor Carl C. Icahn; an independent chairman was also appointed.

In recent weeks, Chesapeake’s board concluded that the company’s stock was suffering from Mr. McClendon’s presence, according to a person briefed on the matter. Shares in the company have fallen 14 percent over the last 12 months.

“Aubrey and the board have agreed that the time has come for the company to select a new leader,” Chesapeake’s chairman, Archie W. Dunham, said in a statement.

The company said the board’s review of Mr. McClendon’s financial dealings “to date has not revealed improper conduct.”

Mr. McClendon, 53, agreed to retire from the company on April 1 and will continue serving as chief executive until a successor is appointed.

“I am extremely proud of what we have built over the last quarter of a century,” he said in a statement. “While I have certain philosophical differences with the new board, I look forward to working collaboratively with the company and the board to provide a smooth transition.”

When gas prices were still high four years ago, Chesapeake’s stock price soared, and Mr. McClendon had a net worth of more than $1 billion. He bought homes in Hawaii, Colorado and Bermuda.

But as the price of gas fell by more than two-thirds over the last few years, Chesapeake lost more than two-thirds of its value as well.

Pressure on Mr. McClendon began last April after news reports revealed that he had obtained personal loans using minority stakes in company-owned wells as collateral. Reuters reported that he had personally borrowed more than $1 billion from EIG Global Energy Partners, a firm that also invested in Chesapeake, raising questions over conflict of interest.

Mr. McClendon was a larger-than-life figure in an industry filled with them. His dealings stretched across the globe as he negotiated partnerships with the Norwegian oil company Statoil, China’s CNOOC and France’s Total, shepherding the foreign oil giants into joint ventures in shale fields around the country.

“It’s an end of an era,” said Fadel Gheit, a senior oil analyst at Oppenheimer. “He was a maverick in the true sense of the word, and he represented both the good and the bad in corporate America. He was the risk-taker, a true visionary, but obviously there were excesses.”

Mr. Icahn, now one of the company’s largest shareholders, was generous in his praise.

“Aubrey has every right to be proud of the company he has built, the world-class team of people at Chesapeake and the collection of assets he has assembled, which in my opinion are the best portfolio of energy assets in the country,” he said.

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The New Old Age Blog: For Some Caregivers, the Trauma Lingers

Recently, I spoke at length to a physician who seems to have suffered a form of post-traumatic stress after her mother’s final illness.

There is little research on this topic, which suggests that it is overlooked or discounted. But several experts acknowledge that psychological trauma of this sort does exist.

Barry Jacobs, a clinical psychologist and author of “The Emotional Survival Guide for Caregivers” (The Guilford Press, 2006), often sees caregivers who struggle with intrusive thoughts and memories months and even years after a loved one has died.

“Many people find themselves unable to stop thinking about the suffering they witnessed, which is so powerfully seared into their brains that they cannot push it away,” Dr. Jacobs said.

Flashbacks are a symptom of post-traumatic stress disorder, along with feelings of numbness, anxiety, guilt, dread, depression, irritability, apathy, tension and more. Though one symptom or several do not prove that such a condition exists — that’s up to an expert to determine — these issues are a “very common problem for caregivers,” Dr. Jacobs said.

Dolores Gallagher-Thompson, a professor of psychiatry at the Stanford University School of Medicine who treats many caregivers, said there was little evidence that caregiving on its own caused post-traumatic stress. But if someone is vulnerable for another reason — perhaps a tragedy experienced earlier in life — this kind of response might be activated.

“When something happens that the individual perceives and reacts to as a tremendous stressor, that can intensify and bring back to the forefront of consciousness memories that were traumatic,” Dr. Gallagher-Thompson said. “It’s more an exacerbation of an already existing vulnerability.”

Dr. Judy Stone, the physician who was willing to share her mother’s end-of-life experience and her powerful reaction to it, fits that definition in spades.

Both of Dr. Stone’s Hungarian parents were Holocaust survivors: her mother, Magdus, called Maggie by family and friends, had been sent to Auschwitz; her father, Miki, to Dachau. The two married before World War II, after Maggie left her small village, moved to the city and became a corset maker in Miki’s shop.

Death cast a long shadow over the family. During the war, Maggie’s first baby died of exposure while she was confined for a time to the Debrecen ghetto. After the war, the family moved to the United States, where they worked to recover a sense of normalcy and Miki worked as a maker of orthopedic appliances. Then he died suddenly of a heart attack at the age of 50.

“None of us recovered from that,” said Dr. Stone, who traces her interest in medicine and her lifelong interest in fighting for social justice to her parents and trips she made with her father to visit his clients.

Decades passed, as Dr. Stone operated an infectious disease practice in Cumberland, Md., and raised her own family.

In her old age, Maggie, who her daughter describes as “tough, stubborn, strong,” developed macular degeneration, bad arthritis and emphysema — a result of a smoking habit she started just after the war and never gave up. Still, she lived alone, accepting no help until she reached the age of 92.

Then, in late 2007, respiratory failure set in, causing the old woman to be admitted to the hospital, then rehabilitation, then assisted living, then another hospital. Maggie had made her preferences absolutely clear to her daughter, who had medical power of attorney: doctors were to pursue every intervention needed to keep her alive.

Yet one doctor sent her from a rehabilitation center to the hospital during respiratory crisis with instructions that she was not to be resuscitated — despite her express wishes. Fortunately, the hospital called Dr. Stone and the order was reversed.

“You have to be ever vigilant,” Dr. Stone said when asked what advice she would give to families. “You can’t assume that anything, be it a D.N.R. or allergies or medication orders, have been communicated correctly.”

Other mistakes were made in various settings: There were times that Dr. Stone’s mother had not received necessary oxygen, was without an inhaler she needed for respiratory distress, was denied water or ice chips to moisten her mouth, or received an antibiotic that can cause hallucinations in older people, despite Dr. Stone’s request that this not happen. “People didn’t listen,” she said. “The lack of communication was horrible.”

It was a daily fight to protect her mother and make sure she got what she needed, and “frankly, if I hadn’t been a doctor, I think I would have been thrown out of there,” she said.

In the end, when it became clear that death was inevitable, Maggie finally agreed to be taken off a respirator. But rather than immediately arrange for palliative measures, doctors arranged for a brief trial to see if she could breathe on her own.

“They didn’t give her enough morphine to suppress her agony,” Dr. Stone recalled.

Five years have passed since her mother died, and “I still have nightmares about her being tortured,” the doctor said. “I’ve never been able to overcome the feeling that I failed her — I let her down. It wasn’t her dying that is so upsetting, it was how she died and the unnecessary suffering at the end.”

Dr. Stone had specialized in treating infectious diseases and often saw patients who were critically ill in intensive care. But after her mother died, “I just could not do it,” she said. “I couldn’t see people die. I couldn’t step foot in the I.C.U. for a long, long time.”

Today, she works part time seeing patients with infectious diseases on an as-needed basis in various places — a job she calls “rent a doc” — and blogs for Scientific American about medical ethics. “I tilt at windmills,” she said, describing her current occupations.

Most important to her is trying to change problems in the health system that failed her mother and failed her as well. But Dr. Stone has a sense of despair about that: it is too big an issue, too hard to tackle.

I’m grateful to her for sharing her story so that other caregivers who may have experienced overwhelming emotional reactions that feel like post-traumatic stress realize they are not alone.

It is important to note that both Dr. Jacobs and Dr. Gallagher-Thompson report successfully treating caregivers beset by overwhelming stress. It is hard work and it takes time, but they say recovery is possible. I’ll give a sense of treatment options they and others recommend in another post.

Read More..

The New Old Age Blog: For Some Caregivers, the Trauma Lingers

Recently, I spoke at length to a physician who seems to have suffered a form of post-traumatic stress after her mother’s final illness.

There is little research on this topic, which suggests that it is overlooked or discounted. But several experts acknowledge that psychological trauma of this sort does exist.

Barry Jacobs, a clinical psychologist and author of “The Emotional Survival Guide for Caregivers” (The Guilford Press, 2006), often sees caregivers who struggle with intrusive thoughts and memories months and even years after a loved one has died.

“Many people find themselves unable to stop thinking about the suffering they witnessed, which is so powerfully seared into their brains that they cannot push it away,” Dr. Jacobs said.

Flashbacks are a symptom of post-traumatic stress disorder, along with feelings of numbness, anxiety, guilt, dread, depression, irritability, apathy, tension and more. Though one symptom or several do not prove that such a condition exists — that’s up to an expert to determine — these issues are a “very common problem for caregivers,” Dr. Jacobs said.

Dolores Gallagher-Thompson, a professor of psychiatry at the Stanford University School of Medicine who treats many caregivers, said there was little evidence that caregiving on its own caused post-traumatic stress. But if someone is vulnerable for another reason — perhaps a tragedy experienced earlier in life — this kind of response might be activated.

“When something happens that the individual perceives and reacts to as a tremendous stressor, that can intensify and bring back to the forefront of consciousness memories that were traumatic,” Dr. Gallagher-Thompson said. “It’s more an exacerbation of an already existing vulnerability.”

Dr. Judy Stone, the physician who was willing to share her mother’s end-of-life experience and her powerful reaction to it, fits that definition in spades.

Both of Dr. Stone’s Hungarian parents were Holocaust survivors: her mother, Magdus, called Maggie by family and friends, had been sent to Auschwitz; her father, Miki, to Dachau. The two married before World War II, after Maggie left her small village, moved to the city and became a corset maker in Miki’s shop.

Death cast a long shadow over the family. During the war, Maggie’s first baby died of exposure while she was confined for a time to the Debrecen ghetto. After the war, the family moved to the United States, where they worked to recover a sense of normalcy and Miki worked as a maker of orthopedic appliances. Then he died suddenly of a heart attack at the age of 50.

“None of us recovered from that,” said Dr. Stone, who traces her interest in medicine and her lifelong interest in fighting for social justice to her parents and trips she made with her father to visit his clients.

Decades passed, as Dr. Stone operated an infectious disease practice in Cumberland, Md., and raised her own family.

In her old age, Maggie, who her daughter describes as “tough, stubborn, strong,” developed macular degeneration, bad arthritis and emphysema — a result of a smoking habit she started just after the war and never gave up. Still, she lived alone, accepting no help until she reached the age of 92.

Then, in late 2007, respiratory failure set in, causing the old woman to be admitted to the hospital, then rehabilitation, then assisted living, then another hospital. Maggie had made her preferences absolutely clear to her daughter, who had medical power of attorney: doctors were to pursue every intervention needed to keep her alive.

Yet one doctor sent her from a rehabilitation center to the hospital during respiratory crisis with instructions that she was not to be resuscitated — despite her express wishes. Fortunately, the hospital called Dr. Stone and the order was reversed.

“You have to be ever vigilant,” Dr. Stone said when asked what advice she would give to families. “You can’t assume that anything, be it a D.N.R. or allergies or medication orders, have been communicated correctly.”

Other mistakes were made in various settings: There were times that Dr. Stone’s mother had not received necessary oxygen, was without an inhaler she needed for respiratory distress, was denied water or ice chips to moisten her mouth, or received an antibiotic that can cause hallucinations in older people, despite Dr. Stone’s request that this not happen. “People didn’t listen,” she said. “The lack of communication was horrible.”

It was a daily fight to protect her mother and make sure she got what she needed, and “frankly, if I hadn’t been a doctor, I think I would have been thrown out of there,” she said.

In the end, when it became clear that death was inevitable, Maggie finally agreed to be taken off a respirator. But rather than immediately arrange for palliative measures, doctors arranged for a brief trial to see if she could breathe on her own.

“They didn’t give her enough morphine to suppress her agony,” Dr. Stone recalled.

Five years have passed since her mother died, and “I still have nightmares about her being tortured,” the doctor said. “I’ve never been able to overcome the feeling that I failed her — I let her down. It wasn’t her dying that is so upsetting, it was how she died and the unnecessary suffering at the end.”

Dr. Stone had specialized in treating infectious diseases and often saw patients who were critically ill in intensive care. But after her mother died, “I just could not do it,” she said. “I couldn’t see people die. I couldn’t step foot in the I.C.U. for a long, long time.”

Today, she works part time seeing patients with infectious diseases on an as-needed basis in various places — a job she calls “rent a doc” — and blogs for Scientific American about medical ethics. “I tilt at windmills,” she said, describing her current occupations.

Most important to her is trying to change problems in the health system that failed her mother and failed her as well. But Dr. Stone has a sense of despair about that: it is too big an issue, too hard to tackle.

I’m grateful to her for sharing her story so that other caregivers who may have experienced overwhelming emotional reactions that feel like post-traumatic stress realize they are not alone.

It is important to note that both Dr. Jacobs and Dr. Gallagher-Thompson report successfully treating caregivers beset by overwhelming stress. It is hard work and it takes time, but they say recovery is possible. I’ll give a sense of treatment options they and others recommend in another post.

Read More..

BlackBerry 10’s Debut Is a Critical Day for Research in Motion

OTTAWA — Research in Motion’s introduction on Wednesday of a new BlackBerry phone will be the most important event in the company’s history since 1996, when its founders showed investors a small block of wood and promised that a wireless e-mail device shaped like that would change business forever.

Now with just 4.6 percent of the global market for smartphones in 2012, according to IDC, RIM long ago exchanged dominance for survival mode. On Wednesday, the company will introduce a new line of smartphones called the BlackBerry 10 and an operating system of the same name that Thorsten Heins, the president and chief executive of RIM, says will restore the company to glory.

But Frank Mersch, who became one of RIM’s earliest investors after seeing the block of wood, is far less excited by what he sees this time around.

“You’re in a very, very competitive market and you’re not the leader,” Mr. Mersch, now the chairman and a vice president at Front Street Capital in Toronto, said of RIM. “You have to ask: ‘At the end of the day are we really going to win?’ I personally think the jury’s out on that.”

The main elements of the new phones and their operating system are already well known. Mr. Heins and other executives at RIM have been demonstrating the units for months to a variety of audiences. App developers received prototype versions as far back as last spring.

While analysts and app developers may be divided about the future of RIM, there is a consensus that BlackBerry 10, which arrives more than year behind schedule, was worth the wait.

Initially RIM will release two variations of the BlackBerry 10, one a touch-screen model that resembles many other phones now on the market. The other model is a hybrid with a keyboard similar to those now found on current BlackBerrys as well as a small touch screen.

The real revolution, though, may be in the software that manages a person’s business and personal information. It is clearly designed with an eye toward retaining and, more important, luring back, corporate users.

Corporate and government information technology managers will be able to segregate business-related apps and data on BlackBerry 10 handsets from users’ personal material through a system known as BlackBerry Balance. It will enable an I.T. manager to, among other things, remotely wipe corporate data from fired employees’ phones while leaving the newly jobless workers’ personal photos, e-mails, music and apps untouched. The system can also block users from forwarding or copying information from the work side of the phone.

Messages generated by e-mail, Twitter, Facebook, instant messaging and LinkedIn accounts are automatically consolidated into a single in-box that RIM calls BlackBerry Hub.

Charles Golvin, an analyst with Forrester Research, called the new phones “beautiful” and described the operating system as “a giant leap forward” from RIM’s current operating system. Ray Sharma, who followed RIM’s glory years as a financial analyst but who now runs XMG Studio, a mobile games developer in Toronto, has been similarly impressed.

But both men are among many analysts who question the ability of BlackBerry 10, whatever its merits, to revive RIM’s fallen fortunes.

“If it’s good, it will help inspire the upgrade cycle,” Mr. Sharma said. “But it has to be great in order to inspire touch-screen users to come back. If it’s good, not great, I will be concerned.”

Mr. Golvin was more blunt. “They’ll need to prove themselves in the face of a simultaneous onslaught of marketing from Microsoft, not to mention the continued push from Apple plus Google and its Android partners,” he wrote. “This is a gargantuan challenge for a company of RIM’s size.”

In the year since he took over from the founders, Jim Balsillie and Mike Lazaridis, Mr. Heins has certainly remade RIM. He cut 5,000 jobs in a program to reduce operating costs by about $1 billion a year. Along the way, he also replaced RIM’s senior management and straightened out its balance sheet. While unprofitable, RIM remains debt-free and holds $2.9 billion in cash.

With BlackBerry 10, RIM not only started over with its operating system, it also rebuilt the company through acquisitions. Its core operating system comes from QNX Software Systems, the design of the user interface is largely the work of the Astonishing Tribe in Sweden while other main components, like the touch-screen technology, came from smaller companies that are now part of RIM.

Integrating all of those acquisitions, analysts and former RIM employees say, added to the delays that plagued BlackBerry 10.

Now that the new phones are finally here, Mr. Heins is counting on RIM’s remaining base of 79 million users globally to eagerly upgrade. But where those customers reside may be as important in their numbers in determining the success of that plan.

In the United States, which leads the world in setting smartphone trends, about 11 million BlackBerry users switched to other phones between 2009 and the middle of last year, according to an analysis by Horace Dediu on Asymco, a wireless industry blog he founded.

Until the final months of 2012, RIM continued to increase its subscriber base through sales of low-cost handsets to less developed countries like Nigeria and Indonesia. Although BlackBerry 10 will be made available worldwide, the initial phones will be too expensive for a majority of BlackBerry fans in those regions.

RIM may also have confused its loyalists, particularly in North America and Europe, in the run-up to the BlackBerry 10 debut. Many of those users stuck with BlackBerrys because of their physical keyboards. But public demonstrations for BlackBerry 10 were centered on the touch-screen-only version and its virtual keyboard.

While some corporations have remained loyal to BlackBerry, RIM not only has to sell them on the new handsets, it also must persuade them to upgrade server software to accommodate the new operating system, a costly and time-consuming process. Companies whose employees continue to use older BlackBerrys will have to run two separate BlackBerry servers.

Mr. Heins’s pitch to those corporations is that the BlackBerry 10 server software will also allow them to manage and control data on employees’ Android phones and iPhones. But any corporation or organization that allows those phones to connect with its systems long ago installed mobile device management software from other companies, including Good Technology and SAP. RIM is likely to find that the competition in device management software is as severe as it is in the handset business.

This article has been revised to reflect the following correction:

Correction: January 30, 2013

An earlier version of this story incorrectly stated that Frank Mersh is the chairman and a vice president at First Street Capital in Toronto. Mr. Mersh is the chairman and a vice president at Front Street Capital in Toronto.

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Myanmar Police Used Phosphorus on Protesters, Lawyers Say

BANGKOK — A group of lawyers investigating a violent crackdown in Myanmar that left Buddhist monks and villagers with serious burns has concluded that police used white phosphorus, a munition normally reserved for warfare, to disperse protesters.

The suppression in November of a protest outside a controversial copper mine in central Myanmar shocked the Burmese public after images of critically injured monks circulated across the country. It also gave rise to fears that the civilian government of President Thein Sein, which came to power in 2011, was using the same repressive methods as the military governments that preceded it.

Burmese attorneys together with an American human rights lawyer gathered evidence at the site of the protest, including a metal canister that protesters said was fired by the police. The canister was brought to a private laboratory in Bangkok, where a technician determined that residue inside it contained high levels of phosphorus. Access to the canister and a copy of the laboratory report were provided to a reporter.

“We are confident that they used a munition that contained phosphorus,” said U Thein Than Oo, the head of the legal committee of the Upper Burma Lawyers Network, which helped conduct the investigation. “They wanted to warn the entire population not to protest. They wanted to intimidate the people.”

White Phosphorus has many uses in war – as a smoke screen or incendiary weapon - but is rarely if ever used by police forces.

Reached on Wednesday, Zaw Htay, a director in the office of President Thein Sein, declined to comment on what kind of weapon was used. “I can’t say. I can’t answer,” he said.

John Hart, a senior researcher at the Chemical Weapons Program of the Stockholm International Peace Research Institute, said by e-mail that although white phosphorus is not considered a chemical weapon under a 1993 international convention, it is banned from uses that “cause death or other harm through the toxic properties of the chemical.”

One of the monks injured at the protest, U Tikhanyana, 64, has burns over 40 percent of his body and was flown to Bangkok by the government because Myanmar does not have the facilities to treat such a serious case.

Two months after the crackdown Mr. Tikhanyana remains in intensive care. In an interview on Wednesday in his hospital room, Mr. Tikhanyana described the moment that the police came to disperse the crowds in the pre-dawn hours of Nov. 29.

“I saw a fireball beside me and I started to burn,” he said. “I was rolling on the ground to try to put it out.”

Dr. Chatchai Pruksapong, a burn specialist treating Mr. Tikhanyana, said it appeared that the monk was seared with something “severely flammable.”

Mr. Tikhanyana’s wounds are similar to those he sees with soldiers injured by bomb blasts in Thailand’s southern insurgency.

“Tear gas would definitely not cause this kind of deep wound,” Dr. Chatchai said.

Myanmar government officials were initially quoted in the local news media as saying that police had thrown “smoke bombs” at protesters.

The canister found at the protest site appeared to have “smoke” stenciled on it and looks similar in appearance to smoke hand grenades once manufactured by the United States, said a security expert and former colonel in a European army who wanted to remain anonymous because he has dealings in Myanmar. Such smoke grenades emit burning particles within a radius of about 17 meters, he said.

Roger Normand, the American human rights lawyer who helped investigate the crackdown, said a report from the lawyers would be released “in the next few days.”

Mr. Normand arranged to have the canister brought to the Bangkok laboratory, which is run by ALS, an Australian company that specializes in testing samples for their chemical content.

In an interview, Mr. Normand said it was “unheard of” for “highly volatile and dangerous weapons” to be used by police. “This raises serious questions about who in the military chain of command could have given the order to use these weapons.”

The report prepared by Mr. Normand and the Burmese lawyers has been submitted to Daw Aung San Suu Kyi, the Nobel laureate and opposition leader, who was appointed by the government soon after the crackdown to lead a separate, official commission of inquiry. The precise mandate of the commission is unclear, as is the timing of the release of the commission’s findings.

The government initially announced the commission would report its work on Dec. 31 but that was delayed by a month. It may be further delayed because Ms. Aung San Suu Kyi is currently on a five-day visit to South Korea.

The controversy over the copper mine centers on the government’s attempt to relocate villagers in order to expand the mine, which is co-owned by a Chinese company and the Burmese military. The government ordered the dispersal of protesters after several months of intermittent demonstrations. The controversy received widespread coverage in the Myanmar media partly because land rights have become a major issue as the country opens up to the world.

But it is a measure of the villagers’ resolve that even after the violent crackdown they say they are refusing to back down. Aye Net, a villager who has helped lead the protest movement, said by telephone Wednesday that villagers were calling for “justice for all those wounded in the crackdown.”

“And we still want the total abolition of the project,” she said.

Wai Moe in Yangon and Poypiti Amatatham in Bangkok contributed reporting.

Wai Moe contributed reporting from Yangon and Poypiti Amatatham from Bangkok.

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DealBook: Former Jefferies Trader Is Charged With Fraud

Federal prosecutors charged a former senior trader at the Jefferies Group on Monday with defrauding his clients — and the government — while selling them mortgage-backed securities after the financial crisis.

Jesse C. Litvak, the former Jefferies trader, is accused of generating more than $2 million in revenue for Jefferies by overcharging his customers through deceitful conduct. Those who are said to have been his victims include some of the world’s largest investment firms, including Soros Fund Management, Magnetar Capital, BlackRock and Wellington Management.

The government was also a victim in this case, prosecutors said, because Mr. Litvak’s clients were managing money that was part of the Treasury Asset Relief Program, or TARP, the $700 billion bailout fund. As part of a public-private investment program, the Treasury picked nine private firms to invest in toxic mortgage-backed securities and help remove them from the clogged balance sheets of the large banks.

While the alleged violations — cheating brokerage clients by misrepresenting the prices of securities — might typically prompt the loss of a job or civil lawsuits, such conduct rarely, if ever, rises to the level of a federal criminal prosecution.

The case demonstrates the aggressive prosecutorial stance of the special inspector general for TARP, or Sigtarp, which led the investigation. The office, now led by Christy Romero, has been responsible for criminal cases filed against 121 individuals.

“Illegally profiting from a federal program designed to assist our nation in recovering from one of our worst economic crises is reprehensible,” said David B. Fein, the United States attorney in Connecticut, whose office brought the charges. The Securities and Exchange Commission filed a parallel civil action in the case.

Federal agents arrested Mr. Litvak, 38, early Monday morning at his apartment on the Upper East Side of Manhattan. He made an appearance in Federal District Court in Bridgeport, Conn., and was released on $1 million bail. Mr. Litvak, who worked at RBS Greenwich Capital earlier in his career, joined Jefferies in 2008 and was fired in December 2011.

“Jesse Litvak did not cheat anyone out of a dime,” said Patrick J. Smith, Mr. Litvak’s lawyer at DLA Piper, in a statement. “In fact, most of these trades turned out to be hugely profitable. Jesse looks forward to the trial in this case so that his name can be cleared and he can get on with his career.”

While the market for mortgage-backed securities is complex and opaque, the charges against Mr. Litvak are rather simple. Prosecutors said that he deceived his customers about the prices of the securities that he sold to them. The indictment said that Mr. Litvak deployed the scheme in part to increase the size of his year-end bonus.

In some cases, they said, Mr. Litvak would lie about the price at which his firm had bought a security so he could resell it to another customer at a higher price and earn more money for the firm. In other instances, the government said, he created a fake seller to give the impression that he was arranging a trade between two customers, when in fact he was selling the security out of his firm’s inventory at a high price.

“The kind of false claims made by Litvak were unfit for a used-car lot, let alone a marketplace for mortgage-backed securities,” said George S. Canellos, the S.E.C.’s deputy director of enforcement.

Mr. Smith, the lawyer for Mr. Litvak, said that the trades were transactions between sophisticated market participants and that the profits that Jefferies earned on each trade were well within industry norms for the mortgage-backed securities market.

Mr. Litvak wants Jefferies to pay his legal fees related to the government’s investigation, and he has filed papers in the Delaware Court of Chancery demanding compensation from the bank. Jefferies has refused to reimburse him, arguing that it fired Mr. Litvak for cause. Richard Khaleel, a spokesman for Jefferies, declined to comment.

The case first showed up on the government’s radar after one of Mr. Litvak’s customers, AllianceBernstein, complained to Jefferies that the bank had overcharged it for mortgage-backed securities, according to people briefed on the case. According to records from the Financial Industry Regulatory Authority, or Finra, Jefferies settled the case with AllianceBernstein for $2.2 million.

Court papers depict Mr. Litvak as an exuberant salesman, frequently communicating with instant messages and peppering his communications with slang. When Mr. Litvak reported to a client, Wellington Management, about a sham purchase, he wrote “winner winner chicken dinner.” Another time, the complaint said, Mr. Litvak gave a customer a false report on the price of a security that he sold to a hedge fund, York Capital Management. “We are doneski gorgeous!” he wrote.

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Rescuer Appears for New York Downtown Hospital

Manhattan’s only remaining hospital south of 14th Street, New York Downtown, has found a white knight willing to take over its debt and return it to good health, hospital officials said Monday.

NewYork-Presbyterian Hospital, one of New York City’s largest academic medical centers, has proposed to take over New York Downtown in a “certificate of need” filed with the State Health Department. The three-page proposal argues that though New York Downtown is projected to have a significant operating loss in 2013, it is vital to Lower Manhattan, including Wall Street, Chinatown and the Lower East Side, especially since the closing of St. Vincent’s Hospital after it declared bankruptcy in 2010.

The rescue proposal, which would need the Health Department’s approval, comes at a precarious time for hospitals in the city. Long Island College Hospital, just across the river in Cobble Hill, Brooklyn, has been threatened with closing after a failed merger with SUNY Downstate Medical Center, and several other Brooklyn hospitals are considering mergers to stem losses.

New York Downtown has been affiliated with the NewYork-Presbyterian health care system while maintaining separate operations.

“We are looking forward to having them become a sixth campus so the people in that community can continue to have a community hospital that continues to serve them,” Myrna Manners, a spokeswoman for NewYork-Presbyterian, said.

Fred Winters, a spokesman for New York Downtown, declined to comment.

Presbyterian’s proposal emphasized that it would acquire New York Downtown’s debt at no cost to the state, a critical point at a time when the state has shown little interest in bailing out failing hospitals.

The proposal said that if New York Downtown were to close, it would leave more than 300,000 residents of Lower Manhattan, including the financial district, Greenwich Village, SoHo, the Lower East Side and Chinatown, without a community hospital. In addition, it said, 750,000 people work and visit in the area every day, a number that is expected to grow with the construction of 1 World Trade Center and related buildings.

The proposal argues that New York Downtown is essential partly because of its long history of responding to disasters in the city. One of its predecessors was founded as a direct result of the 1920 terrorist bombing outside the J. P. Morgan Building, and the hospital has responded to the 1975 bombing of Fraunces Tavern, the 1993 and 2001 attacks on the World Trade Center, and, this month, the crash of a commuter ferry from New Jersey.

Like other fragile hospitals in the city, New York Downtown has shrunk, going to 180 beds, down from the 254 beds it was certified for in 2006, partly because the more affluent residents of Lower Manhattan often go to bigger hospitals for elective care.

The proposal says that half of the emergency department patients at New York Downtown either are on Medicaid, the program for the poor, or are uninsured.

NewYork-Presbyterian would absorb the cost of the hospital’s maternity and neonatal intensive care units, which have been expanding because of demand, but have been operating at a deficit of more than $1 million a year, the proposal said.

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Rescuer Appears for New York Downtown Hospital

Manhattan’s only remaining hospital south of 14th Street, New York Downtown, has found a white knight willing to take over its debt and return it to good health, hospital officials said Monday.

NewYork-Presbyterian Hospital, one of New York City’s largest academic medical centers, has proposed to take over New York Downtown in a “certificate of need” filed with the State Health Department. The three-page proposal argues that though New York Downtown is projected to have a significant operating loss in 2013, it is vital to Lower Manhattan, including Wall Street, Chinatown and the Lower East Side, especially since the closing of St. Vincent’s Hospital after it declared bankruptcy in 2010.

The rescue proposal, which would need the Health Department’s approval, comes at a precarious time for hospitals in the city. Long Island College Hospital, just across the river in Cobble Hill, Brooklyn, has been threatened with closing after a failed merger with SUNY Downstate Medical Center, and several other Brooklyn hospitals are considering mergers to stem losses.

New York Downtown has been affiliated with the NewYork-Presbyterian health care system while maintaining separate operations.

“We are looking forward to having them become a sixth campus so the people in that community can continue to have a community hospital that continues to serve them,” Myrna Manners, a spokeswoman for NewYork-Presbyterian, said.

Fred Winters, a spokesman for New York Downtown, declined to comment.

Presbyterian’s proposal emphasized that it would acquire New York Downtown’s debt at no cost to the state, a critical point at a time when the state has shown little interest in bailing out failing hospitals.

The proposal said that if New York Downtown were to close, it would leave more than 300,000 residents of Lower Manhattan, including the financial district, Greenwich Village, SoHo, the Lower East Side and Chinatown, without a community hospital. In addition, it said, 750,000 people work and visit in the area every day, a number that is expected to grow with the construction of 1 World Trade Center and related buildings.

The proposal argues that New York Downtown is essential partly because of its long history of responding to disasters in the city. One of its predecessors was founded as a direct result of the 1920 terrorist bombing outside the J. P. Morgan Building, and the hospital has responded to the 1975 bombing of Fraunces Tavern, the 1993 and 2001 attacks on the World Trade Center, and, this month, the crash of a commuter ferry from New Jersey.

Like other fragile hospitals in the city, New York Downtown has shrunk, going to 180 beds, down from the 254 beds it was certified for in 2006, partly because the more affluent residents of Lower Manhattan often go to bigger hospitals for elective care.

The proposal says that half of the emergency department patients at New York Downtown either are on Medicaid, the program for the poor, or are uninsured.

NewYork-Presbyterian would absorb the cost of the hospital’s maternity and neonatal intensive care units, which have been expanding because of demand, but have been operating at a deficit of more than $1 million a year, the proposal said.

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Dispute With Antigua and Barbuda Threatens U.S. Copyrights

WASHINGTON — A long-simmering trade conflict between the United States and Antigua and Barbuda appears to be boiling over.

Antigua and Barbuda, which has a $1 billion economy, is planning on getting legal retribution from the United States’ $15 trillion economy over its refusal to let Americans gamble at online sites based in the Caribbean nation — perhaps by offering downloads of American intellectual property, like Hollywood films, network television shows or hit pop songs. On Monday, the World Trade Organization gave its go-ahead for Antigua and Barbuda’s tentative plan.

“The economy of Antigua and Barbuda has been devastated by the United States government’s long campaign to prevent American consumers from gambling,” Harold Lovell, Antigua’s finance minister, said in a statement. “These aggressive efforts to shut down the remote gaming industry in Antigua have resulted in the loss of thousands of good-paying jobs and seizure by the Americans of billions of dollars belonging to gaming operators and their customers.”

The conflict’s roots are a decade old. The World Trade Organization said that the United States had violated its trade agreements by preventing Americans from betting at sites based in Antigua and Barbuda. Because Washington is unwilling to make the betting legal, the countries have been locked in a dispute over what constitutes fair trade practices and fair compensation.

The online gambling industry was at one point the second-largest employer in the Caribbean country, its government has said, and economists estimated its worth at $3.4 billion. Gambling employment has dropped to fewer than 500 people from more than 4,000 as a result of the United States’ trade policy, it said.

On Monday, a dispute settlement body in Geneva gave Antigua and Barbuda the nod to, in essence, violate American intellectual property rights to make up its losses, calculated at $21 million a year.

It remains murky just how the Antigua and Barbuda government might go about it. But trade watchers suggested it might set up a site where viewers could pay a pittance to watch a film or television show with an American copyright. The United States might not be able to shut the site down under international law.

“We are disappointed with Antigua and Barbuda’s decision to abandon constructive settlement discussions,” Nkenge Harmon, a spokeswoman for the United States trade representative, said in an e-mail. “As recently as Friday, our two countries held high-level discussions on possible settlement options that would have brought real benefits to Antigua’s businesses and people.”

The Obama administration said that the proposed plan might further hurt trade relations between the two countries.

“If Antigua does proceed with the unprecedented plan for its government to authorize the theft of intellectual property, it would only serve to hurt Antigua’s own interests,” Ms. Harmon said. “Government-authorized piracy would undermine chances for a settlement. It also would serve as a major impediment to foreign investment in the Antiguan economy, particularly in high-tech industries.”

Trade experts said that Antigua and Barbuda’s plan for retribution seemed designed to provoke American filmmakers and recording artists into pushing for Congress to allow foreign Internet gambling sites to serve American customers.

They also noted that it was the United States that had pushed for the unusual “cross-retaliation” mechanism at the W.T.O., where trade violations that hurt one industry could be countered with trade actions against a completely different industry.

“The irony is rich, rich, rich,” said Lori Wallach, the director of Global Trade Watch at Public Citizen, a Washington-based consumer advocacy group.

“The practical question is, Is there a majority in the House and Senate to vote to revoke the ban, and would Congress do it because the W.T.O. told them?” she said, saying it was unclear how the two countries would proceed.

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The Female Factor: Chinese Courts Turn a Blind Eye to Abuse

BEIJING — Before they married in 2009, Tan Yong admitted to Li Yan that he had beaten his three previous wives. He promised to change.

The promises didn’t last, said Li Dehuai, Ms. Li’s brother. Soon after the wedding, Mr. Tan began abusing his wife.

“He stubbed out cigarettes on her face and legs. He would take her hair and hit her head against the wall. He locked her on the balcony for hours in the winter,” said Mr. Li, speaking by telephone from Chongqing in southwestern China. The abuse went on for more than a year.

Today, Mr. Tan is dead, beaten to death by Ms. Li with the barrel of his air gun during an argument in November 2010, and Mr. Li is trying to save his sister’s life as she sits in a jail in Sichuan Province awaiting execution for murder. The case has caused an outcry among Chinese legal experts and feminists, who say it underscores the severe sentences often imposed on women who fight back, injuring or killing abusive husbands.

“Li Yan’s case tells people that extreme tragedy will happen if an abused woman cannot get effective help from the neighborhood committee, the women’s federation, the police,” said Feng Yuan, of the Anti-Domestic Violence Network, based in Beijing.

“When power cannot deliver justice, abused women will find their own way of achieving justice, sadly and wrongly,” Ms. Feng said.

Chinese law requires that a history of domestic abuse be considered in such cases. Ms. Li’s was especially gruesome: After killing her husband (which she confessed to early, asking a neighbor to call the police), she cut him up and boiled some of the parts. If that is hard to excuse, consider this, said Ms. Feng: She wasn’t in her right mind.

“There’s something called abused women’s syndrome, and she had it. A woman like that may lose her reason and lose control,” said Ms. Feng, one of hundreds of people petitioning the courts to retry Ms. Li, this time taking the abuse into proper consideration. This was not done the first time, making Ms. Li’s case a miscarriage of justice, they say.

Others who have joined the appeal include lawyers, deputies to the National People’s Congress and Amnesty International, which last week issued an urgent action call for the Chinese authorities not to execute Ms. Li. The sentence could be carried out any day now, activists say, probably before the Lunar New Year’s Eve on Feb. 9.

Women’s jails are filled with women who have injured or killed abusive husbands, according to the Anti-Domestic Violence Network, citing studies by local women’s federations and scholars. They account for 60 percent of inmates in one jail in Anshan, in Liaoning Province, and 80 percent of women serving heavy sentences in a jail in Fuzhou, in Fujian Province.

In a study by Xing Hongmei of China Women’s University, of 121 female inmates in a Sichuan jail who were serving time for attacking or killing abusive partners, 71 were originally sentenced to life in prison or to death (sometimes commuted, delayed or overturned on appeal), and 28 more were sentenced to at least 10 years. This means more than 80 percent received the heaviest possible sentences for murder or bodily harm, the study said.

For months before she killed Mr. Tan, Ms. Li sought help from the authorities in Anyue County, in Sichuan Province, where they lived, her brother said.

“She telephoned the police in, I think, May 2010, after a beating, but they said it was an affair between married people and hung up,” he said.

She went to her neighborhood committee. “They told her to go to the women’s association. The women’s association told her to go to the police. The police told her to go to the neighborhood committee,” and so it continued, he said. “She was sent from place to place and didn’t know what to do.”

Officials at the local justice department whom she asked about divorce told her that unless Mr. Tan agreed, she could be left destitute. She was better off tolerating the abuse, they advised.

There was some documentation of the abuse, including police photographs of injuries and a medical report after hospital treatment, said Mr. Li. But both the Sichuan court that sentenced her and the Supreme Court in Beijing, which reviews all death sentences — Mr. Li and activists say it upheld his sister’s sentence last week — failed to take this into account when sentencing her, Mr. Li said.

“We all hoped the court would recognize the torture she’d suffered in those years,” he said. “But it didn’t.”

“I know what my sister did was wrong, but since this happened, I have studied many cases of domestic abuse, and I know her situation is not uncommon,” he said.

He has not yet been able to tell their mother, or Ms. Li’s 18-year-old daughter from a previous marriage, that Ms. Li faces imminent execution.

“I think my niece knows, somehow,” he said. “But my mother couldn’t take it.”

Their father, who died last year, had worked in the same silk factory as Ms. Li and Mr. Tan, and had disliked the man from the start, Mr. Li said.

“He was so depressed at her situation,” he said. “I think he died of grief.”

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