DealBook: Dell Goes Private in $24 Billion Buyout, Largest Since 2007

9:22 p.m. | Updated

For Dell, a $24.4 billion deal to take itself private is a bold move out of Wall Street’s harsh spotlight as it tries to remake itself in a world where personal computers are no longer the big business in technology.

Yet the buyout — which was announced on Tuesday and would be the biggest by far since the days of the recession — is a huge gamble. It will saddle Dell with $15 billion of new debt, and it does nothing to divert the forces reshaping the technology industry and undercutting the company’s business.

Fifteen years ago, Dell made enormous profits from selling customized PCs directly to customers. Six years ago, it was the world’s leading maker of personal computers. Today, it is in third place, behind Hewlett-Packard and Lenovo, and falling.

Dell’s share of an already contracting market for PCs slipped to just 10.7 percent last year, from 16.6 percent six years earlier.

No-name rivals from Taiwan and China grind earnings to razor-thin margins. Android smartphones and iPads, not Windows laptops and desktops, are the best-selling and most moneymaking devices.

And while a shift to cloud computing has increased demand for data centers — an opportunity for Dell to sell servers — big customers like Google and Facebook build their own equipment cheaply. The rise of cloud services has also prompted many companies to forgo buying additional machines, instead relying on rented time and applications running on faraway computer networks.

Dell’s share of the market for servers, slipped about one percentage point, to 22.2 percent of 9.5 million servers sold in 2011. The greater problem in this segment is the pressure on profit margins. Shaw Wu, an analyst with Sterne Agee, estimates operating margins on servers, once about 15 percent, are now “in the high single digits, compared with the mid-single digits for PCs.” It is likely that servers will soon have PC-like margins, he said.

Michael S. Dell is betting his stake in the company and some $700 million of his fortune that he can meet those challenges and turn around a business he started in 1984 in his dormitory room at the University of Texas.

“Dell’s transformation is well under way, but we recognize it will still take more time, investment and patience,” Mr. Dell wrote in a memo to employees on Tuesday. “I believe that we are better served with partners who will provide long-term support to help Dell innovate and accelerate the company’s transformation strategy.”

Mr. Dell’s investment means he will maintain control of the company if its shareholders approve the deal. The private equity firm Silver Lake, one of the most prominent investors in technology companies, is contributing about $1 billion in cash.

And Microsoft, seeking to shore up one of its most important business partners, has agreed to lend Dell $2 billion. Microsoft itself is under pressure, with longtime suppliers flirting with rivals to its Windows operating system.

“Microsoft is committed to the long term success of the entire PC ecosystem and invests heavily in a variety of ways to build that ecosystem for the future,” the software giant said in a statement.

Despite taking on an additional $15 billion in debt, Mr. Dell and Silver Lake argue that the company will survive, thanks to the cash that the PC business still generates.

A. M. Sacconaghi, an analyst with Bernstein Research, estimated that the amount of debt Dell will pay is less than what it has spent in stock dividends and share repurchases. “This debt load is manageable,” he said, “as long as the cash flow from PCs holds up.”

People involved in the transaction said that the buyers had prepared for potential further declines in the PC business, but intend on at least maintaining the company’s position. Dell’s cash from operations has held steady for four of the last five years, coming in at $5.5 billion for the most recent fiscal year.

The size of the transaction evoked the frothy deal-making days before the financial crisis. Dell would be the biggest buyout since the Blackstone Group’s $26 billion takeover of Hilton Hotels in the summer of 2007. Yet few expect a resurgence in giant leveraged buyouts. While the continued availability of cheap financing makes such deals possible, financiers caution that Dell represents a special case because of the founder’s big equity stake.

The deal is the biggest test yet for Mr. Dell, 47, who has a fortune estimated at $16 billion. After a three-year absence, he returned as chief executive of the company in 2007, vowing to restore his creation. His strategy has focused on moving into the business of data centers and corporate software services, marked by numerous acquisitions that have cost billions of dollars.

So far, that has yielded little. Dell’s shares have fallen 31 percent over the last five years, closing on Tuesday at $13.42 — below the buyout’s offer price of $13.65.

But that strategy will largely remain in place if the management buyout is completed. The company will cut its PC offerings further and buy more companies involved in corporate computing for small and medium-size businesses, said Brian T. Gladden, Dell’s chief financial officer.

Though Mr. Dell has bemoaned his company’s dismal stock performance for years, his plan to take it private began in earnest only last year. The billionaire maintains a home in Hawaii near the residences of two prominent private equity executives, Egon Durban of Silver Lake and George R. Roberts of Kohlberg Kravis Roberts, and began floating the idea of a deal with them, people briefed on the matter said.

By August, Mr. Dell formally approached the board with a proposal to take the company private, prompting directors to form a special committee to study alternatives to a deal, these people said. One priority was keeping the process devoid of conflicts of interest to head off potential legal challenges, including the hiring of JPMorgan Chase to provide advice and Evercore Partners to solicit other suitors.

The committee considered ways to keep the company public, including borrowing money to buy back shares, but concluded that the management buyout was the most attractive option.

Mr. Dell had aligned himself with Silver Lake, which he let handle virtually all of the board negotiations, these people said. Mr. Durban used his close ties with Steven Ballmer, the chief executive of Microsoft and to whom he had sold the video chatting service Skype for $8.5 billion, to bring in Microsoft as a partner.

Microsoft was wary of getting involved, fearing fracturing relationships with other partners, according to a person briefed on its deliberations. The software company insisted on providing a loan instead of taking equity in the newly private Dell. Silver Lake also hired four banks to arrange the $15 billion in financing.

By the time word of the deal talks leaked last month, the two sides had the outline of a final proposal. But Dell’s special board committee, led by Alex J. Mandl, battled with the buyers on price until Monday night, pressing for the highest possible bid.

Hamstringing them was a lack of other potential buyers. The committee’s advisers had unsuccessfully approached both K.K.R. and TPG Capital, another big investment firm, hoping to flush out another offer. And despite the talk last month, no strategic buyer emerged as a rival.

Secrecy was important. Mr. Dell was known in talks as “Mr. Denali” — a nickname he liked so much he referred to himself by it regularly — while the PC maker was “Osprey” and Silver Lake was “Salamander.”

Nick Wingfield and Andrew Ross Sorkin contributed reporting.

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Scientists identify remains as those of King Richard III

LONDON -- More than 500 years after his death in battle, scientists announced Monday that they had definitively identified a skeleton unearthed in central England last summer as that of Richard III, the medieval king portrayed by William Shakespeare as a homicidal tyrant who killed his two young nephews in order to ascend the throne.

DNA from the bones, found beneath the ruins of an old church, matches that of a living descendant of the monarch's sister, researchers said.

"Rarely have the conclusions of academic research been so eagerly awaited," Richard Buckley, the lead archaeologist on the excavation, told a phalanx of reporters Monday morning. "Beyond reasonable doubt, the individual exhumed ... is indeed Richard III, the last Plantagenet king of England."

PHOTOS: Remains of King Richard III

The dramatic announcement capped a brief hunt for Richard's remains, the progress of which has been closely charted by international media and whose success has been barely short of miraculous.

Working from old maps of Leicester, about 100 miles northwest of London, archaeologists from the local university had less than a month to dig in a small municipal parking lot -- one of the few spaces not built over in the crowded city center. The team stumbled on the ruins of the medieval priory where records say Richard was buried, then found the bones a few days later last September.

"It was an extraordinary discovery that stunned all of us," Buckley said.

The nearly intact skeleton bore obvious traces of trauma to the skull and of scoliosis, a curvature of the spine that matched contemporary descriptions of Richard's appearance. The feet were missing, almost certainly the result of later disturbance, and the hands were crossed at the wrist, which suggests that they may have been tied.

Scientists at the University of Leicester, which pioneered the practice of DNA fingerprinting, were able to extract samples from the bones and compare them to a man descended from Richard III's sister Anne. The match through the maternal line was virtually perfect.

"The DNA evidence points to these being the remains of Richard III," said Turi King, the project’s geneticist.

Richard reigned from 1483 to 1485, and occupies a unique place in England's long line of colorful rulers. He was the last English king to be killed in combat, at the Battle of Bosworth Field, by his successor, Henry VII. His death ended the Plantagenet dynasty and ushered in the long era of the Tudors, including Henry VIII and Elizabeth I.

Jo Appleby, an osteologist at the university, said the skeleton belonged to an adult male in his late 20s to late 30s; Richard III was 32 when he died. The man would have stood 5-foot-8 at full height, but the curved spine would have made him appear shorter.

The skull was riddled with wounds strongly indicative of death in battle, including two blows from bladed weapons, either of which would have been fatal, Appleby said.

Richard III is one of England's most controversial monarchs, reviled by some as a bloodthirsty despot who stopped at nothing to gain power, but revered by others who insist that he has been unfairly maligned. His supporters note that the repugnant portrait of Richard in today's popular imagination is based almost entirely on accounts from the time of the usurping Tudors, especially Shakespeare's indelible characterization of him as a "deform'd, unfinish'd" man without scruples.

Fans say Richard III was an enlightened, capable ruler whose important social reforms included the presumption of innocence for defendants and the granting of bail, which remain pillars of the legal system in Britain and the U.S.

However, what happened to Richard's two nephews, who were his rivals for the throne and who were locked up in the Tower of London as young boys, never to be seen again, remains a mystery.

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Navy's Next-Gen Binoculars Will Recognize Your Face

Take a close look, because the next generation of military binoculars could be doing more than just letting sailors and soldiers see from far away. The Navy now wants binoculars that can scan and recognize your face from 650 feet away.

That’s according to a Jan. 16 contract announcement from the Navy’s Space and Naval Warfare Systems Command, which is seeking a “Wireless 3D Binocular Face Recognition System.” During a testing period of 15 months, the plan is to improve “stand-off identification of uncooperative subjects” during daylight, using binoculars equipped with scanners that can read your mug from “100 to 200 meters” away, or about 328 to 650 feet. After scanning your mug, the binoculars then transmit the data to a database over a wireless network, where the data is then analyzed to determine a person’s identity. The no-bid contract, for an unspecified amount of money, went to California biometrics firm StereoVision Imaging.

“High level, it’s a surveillance and identification system,” Greg Steinthal, StereoVision’s president, tells Danger Room. “It’s using the ubiquitous binocular for real-time identification. The data point here is that this is to be used to add objectivity to an operation that’s highly subjective. So this is not intended for kinetic action to go arrest or detain someone. It’s more a tool to put other eyes on him or her.”

It helps that the technology — at least in a more limited form — already exists. StereoVision has developed a face-recognizing binocular system called 3DMobileID, with a maximum distance of around 328 feet, or 100 meters. “You have an unfair advantage,” the company touts in one promotional video, showing images of a human face being scanned at a distance, before the background is stripped out for a blue screen and then matched up to a database.

Depending on how well the binoculars work — and there’s reason to be cautious — it could give the Navy the ability to take advanced facial recognition into a much more portable and long-distance version than many current systems. Facebook uses the technology to match faces when users upload new photos. Google has its own version as well for its its Picasa photo service, and Apple has been researching face recognition as a way to unlock smartphones. (There are apps for iOS that do this, too.)

But the ranges on most systems also tend to max out at a few feet. For the military, that can be dangerous. Close-range biometric scanners (iris scanners are currently used by soldiers in Afghanistan) can pose a danger to the operator, as a person walking up to have their features scanned from a few inches away could be preparing to detonate an explosive vest. And what if a person happens to be on the move, or is bobbing and weaving through a crowd? That can render the scanners ineffective. Once upon a time, many face scanners also depended on the relatively crude practice of scanning 2-D images of the human face, which are an imprecise method when there are varying lighting conditions.

But the key to solving many of these problems could be a simple upgrade: StereoVision’s system scans in 3-D. When the system first scans you, it creates a 3-D model of your face instead of a 2-D image. That allows the system to isolate your face from a crowd, sharpen the image — which boosts the range — and then compares the image to a database. A filter also adjusts for varying degrees of light by smoothing out light across the face into a uniform pattern.

Now for the flaws in the system. The binoculars are not intended to work at night, and have difficulty scanning faces in twilight. When the binoculars can’t draw an image, it gives off a an audible beep to the operator, which is helpful. Otherwise, the process takes “about five to 10 seconds,” says Steinthal.

It’s also less effective when a subject is on the move. “[It] depends on how fast the target is walking,” Steinthal says. “We’re at walking, one-and-half meters per second. Somebody running? We’re not going to be able to do that right now.”

The concept of binoculars that scan and identify is also — perhaps unnervingly — not limited to the military. For one, StereoVision’s binoculars were developed in part with a $409,226 contract from the National Institute of Justice, and face scanners are a popular research topic for the FBI more broadly.

The FBI is spending $1 billion on a program called Next Generation Identification based around developing face scanners and combining the technology with other biometrics like the iris, voice, and fingerprints. A static face recognition system has also been installed at Toucumen International Airport in Panama City that can scan travelers’ faces and match them to criminal databases maintained by the FBI and Interpol. The Los Angeles County Sheriff’s Department and the San Diego Police Department have also tested out the binoculars, according to Steinthal, and are intended there for gang enforcement units and even to track “celebrity stalkers” in the L.A. area. Maybe if the FBI wants its special agents to also have some pretty far-out binoculars too, it should take a peek.

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Ed Koch remembered as quintessential New York City mayor

NEW YORK (Reuters) – Former New York City Mayor Ed Koch was memorialized on Monday as an in-your-face, wisecracking leader who helped transform the city from a symbol of urban decay to the vital, glittering metropolis it is today.

As Koch’s casket was led out of Temple Emanu-El, a soaring Fifth Ave. synagogue opposite Central Park, an organ played Frank Sinatra’s “New York, New York” while mourners including former U.S. President Bill Clinton and a who’s who of New York politics stood and applauded.

Koch died on Friday at the age of 88 in Manhattan — the only place other than heaven he could imagine living, as he was known to say.

“I come today with the love and condolences of 8.4 million New Yorkers who really are grieving with you at this moment,” said the city’s current mayor, Michael Bloomberg.

Speakers joked about the famously attention-loving Koch’s obsession with stage-managing his passing. His grave-stone, complete with an epitaph and a bench bearing Koch’s name, has been ready since 2008, and his friends said he had been planning the funeral for years.

“We started talking about his death in the ’80s,” said his former chief of staff Diane Coffey.

As mayor from 1978 to 1989, Koch, with his trademark phrase “How’m I Doin?”, was a natural showman and tireless promoter of both himself and the city. He helped repair the city’s finances as it teetered on the edge of bankruptcy, and later led a building renaissance that would see 200,000 units of affordable housing erected or rehabilitated in some of the city’s most crime-infested areas.

He could also be a divisive figure. His determination to shut Sydenham, a poorly-performing Harlem hospital that was one of the only city hospitals employing black doctors, angered black New Yorkers. And AIDS activists said he was too slow to react to the epidemic that ravaged the city’s gay population in the 1980s.

Tall, nearly bald and speaking with a high-pitched voice, Koch was an unmistakable presence. He was famously argumentative, and rarely walked away from verbal jousting.

His friend James Gill remembered Koch’s response to someone who had written a letter criticizing the former mayor.

“You are entitled to your opinion of me and I am entitled to my opinion of you,” Koch replied. “My opinion of you is that you are a fool.”

His nephews and grand-nephew and grand-niece remembered Koch, who never married, as devoted “Uncle Eddie” – eager to hear what they thought of his appearances on talk shows but also happy join his 11-year-old grand-niece for a manicure.

Clinton read from a stack of letters Koch had sent him over the years and said Koch had “a big brain, but he had an even bigger heart.”

Koch remained relevant in politics long after 1989, when he lost the Democratic nomination to David Dinkins for what would have been a record fourth term as mayor. But when asked if he would run for office again, he liked to say, “The people threw me out and the people must be punished.”

His endorsement was coveted by candidates decades after he left office. And his unwavering and loud support of Israel made Koch “one of the most influential and important American Zionists,” said former Ambassador Ido Aharoni.

At Monday’s memorial, Bloomberg noted the synagogue Koch had chosen for the funeral stood just a few blocks from the midtown bridge that had been renamed to honor him. Last year, the city released a video of Koch standing at the bridge’s entrance ramp, calling out to approaching cars: “Welcome to my bridge! Welcome to my bridge!”

“No mayor, I think, has ever embodied the spirit of New York City like he did. And I don’t think anyone ever will,” Bloomberg said. “Tough and loud, brash and irreverent, full of humor and chutzpah – he was our city’s quintessential mayor.”

(Reporting By Edith Honan; Editing by Paul Thomasch and Alden Bentley)

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Well: Expressing the Inexpressible

When Kyle Potvin learned she had breast cancer at the age of 41, she tracked the details of her illness and treatment in a journal. But when it came to grappling with issues of mortality, fear and hope, she found that her best outlet was poetry.

How I feared chemo, afraid
It would change me.
It did.
Something dissolved inside me.
Tears began a slow drip;
I cried at the news story
Of a lost boy found in the woods …
At the surprising beauty
Of a bright leaf falling
Like the last strand of hair from my head

Ms. Potvin, now 47 and living in Derry, N.H., recently published “Sound Travels on Water” (Finishing Line Press), a collection of poems about her experience with cancer. And she has organized the Prickly Pear Poetry Project, a series of workshops for cancer patients.

“The creative process can be really healing,” Ms. Potvin said in an interview. “Loss, mortality and even hopefulness were on my mind, and I found that through writing poetry I was able to express some of those concepts in a way that helped me process what I was thinking.”

In April, the National Association for Poetry Therapy, whose members include both medical doctors and therapists, is to hold a conference in Chicago with sessions on using poetry to manage pain and to help adolescents cope with bullying. And this spring, Tasora Books will publish “The Cancer Poetry Project 2,” an anthology of poems written by patients and their loved ones.

Dr. Rafael Campo, an associate professor of medicine at Harvard, says he uses poetry in his practice, offering therapy groups and including poems with the medical forms and educational materials he gives his patients.

“It’s always striking to me how they want to talk about the poems the next time we meet and not the other stuff I give them,” he said. “It’s such a visceral mode of expression. When our bodies betray us in such a profound way, it can be all the more powerful for patients to really use the rhythms of poetry to make sense of what is happening in their bodies.”

On return visits, Dr. Campo’s patients often begin by discussing a poem he gave them — for example, “At the Cancer Clinic,” by Ted Kooser, from his collection “Delights & Shadows” (Copper Canyon Press, 2004), about a nurse holding the door for a slow-moving patient.

How patient she is in the crisp white sails
of her clothes. The sick woman
peers from under her funny knit cap
to watch each foot swing scuffing forward
and take its turn under her weight.
There is no restlessness or impatience
or anger anywhere in sight. Grace
fills the clean mold of this moment
and all the shuffling magazines grow still.

In Ms. Potvin’s case, poems related to her illness were often spurred by mundane moments, like seeing a neighbor out for a nightly walk. Here is “Tumor”:

My neighbor walks
For miles each night.
A mantra drives her, I imagine
As my boys’ chant did
The summer of my own illness:
“Push, Mommy, push.”
Urging me to wind my sore feet
Winch-like on a rented bike
To inch us home.
I couldn’t stop;
Couldn’t leave us
Miles from the end.

Karin Miller, 48, of Minneapolis, turned to poetry 15 years ago when her husband developed testicular cancer at the same time she was pregnant with their first child.

Her husband has since recovered, and Ms. Miller has reviewed thousands of poems by cancer patients and their loved ones to create the “Cancer Poetry Project” anthologies. One poem is “Hymn to a Lost Breast,” by Bonnie Maurer.

Oh let it fly
let it fling
let it flip like a pancake in the air
let it sing: what is the song
of one breast flapping?

Another is “Barn Wish” by Kim Knedler Hewett.

I sit where you can’t see me
Listening to the rustle of papers and pills in the other room,
Wondering if you can hear them.
Let’s go back to the barn, I whisper.
Let’s turn on the TV and watch the Bengals lose.
Let’s eat Bill’s Doughnuts and drink Pepsi.
Anything but this.

Ms. Miller has asked many of her poets to explain why they find poetry healing. “They say it’s the thing that lets them get to the core of how they are feeling,” she said. “It’s the simplicity of poetry, the bare bones of it, that helps them deal with their fears.”

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Have you written a poem about cancer? Please share them with us in the comments section below.

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DealBook: Suit to Accuse S.&P. of Fraud in Mortgage Bond Ratings

The Justice Department plans to file civil fraud charges against the nation’s largest credit-ratings agency, Standard & Poor’s, accusing the firm of inflating the ratings of mortgage investments and setting them up for a crash when the financial crisis struck.

The suit, expected to be filed as early as this week, would be the first significant federal action against the ratings industry, which during the boom years reaped record profits as it bestowed gilt-edged ratings on complex bundles of home loans that quickly went sour. The high ratings made many investments appear safer than they actually were, and are now seen as having contributed to a crisis that brought the financial system and the broader economy to its knees.

More than a dozen state prosecutors are expected to join the federal suit, and the New York attorney general is preparing a separate action. The Securities and Exchange Commission has also been investigating possible wrongdoing at S.& P.

Settlement talks between S.& P. and the Justice Department broke down in the last two weeks after prosecutors sought a penalty in excess of $1 billion and insisted that the company admit wrongdoing, several people with knowledge of the talks said. That amount would wipe out the profits of S.& P.’s parent, the McGraw-Hill Companies, for an entire year. In one session with the government, S.& P. had proposed a settlement of around $100 million, the people said.

S.& P., which was first contacted by federal enforcement officials three years ago, said in a statement Monday that it had acted in good faith when it issued the ratings.

“A D.O.J. lawsuit would be entirely without factual or legal merit,” it said, adding that its competitors had given exactly the same ratings to all the securities it believed to be in question.

It was unclear whether state and federal authorities were targeting the other two major ratings agencies, Moody’s and Fitch.

A spokesman for Moody’s Investors Service declined to comment. A spokesman for Fitch, Daniel J. Noonan, said the agency could not comment on an action that appeared to focus on Standard & Poor’s, but added, “we have no reason to believe Fitch is a target of any such action.” During the settlement talks, S.& P. sought a deal that would allow it to neither admit nor deny guilt; the government pressed for an admission of guilt to at least one count of fraud, said the people who did not want to be named because the suit had not been filed. The company told prosecutors it could not admit guilt without exposing itself to liability in a multitude of civil cases.

The case is said to focus on about 30 collateralized debt obligations, or C.D.O.’s, an exotic type of security made up of bundles of mortgage bonds, which in turn were composed of individual home loans. According to S.& P., the mortgage securities were created in 2007, at the height of the housing boom. S.& P. was paid fees of about $13 million for rating them.

Prosecutors, according to the people briefed on the discussions, have uncovered troves of e-mails written by S.& P. employees, which the government considers damaging. Portions of those e-mails are likely to be disclosed in the government’s complaint, these people said. The firm gave the government more than 20 million pages of e-mails as part of its investigation, the people with knowledge of the process said.

Since the financial crisis in 2008, the ratings agencies’ business practices have been widely criticized and questions have been raised as to whether independent analysis was corrupted by Wall Street’s push for profits.

A Senate investigation made public in 2010 found that S.& P. and Moody’s used inaccurate rating models from 2004 to 2007 that failed to predict how high-risk residential mortgages would perform; allowed competitive pressures to affect their ratings; and failed to reassess past ratings after improving their models in 2006.

The companies failed to assign adequate staff to examine new and exotic investments, and neglected to take mortgage fraud, lax underwriting and “unsustainable home price appreciation” into account in their models, the inquiry found.

“Rating agencies continue to create an even bigger monster — the C.D.O. market,” one S.& P. employee wrote in an internal e-mail in December 2006. “Let’s hope we are all wealthy and retired by the time this house of card falters.”

Another S.& P. employee wrote in an instant message the following April, according to the Senate report: “We rate every deal. It could be structured by cows and we would rate it.”

The three major ratings agencies are typically paid by the issuers of the securities they rate — in this case, the banks that had packaged the mortgage-backed securities and wanted to market them. The investors who would buy the securities were not involved in the process but depended on the rating agencies’ assessments.

Although the three agencies tend to track each other, each has its own statistical methods for assessing the likelihood of a bond default. That has led to speculation that S.& P. analysts knew their method yielded unrealistic ratings, but issued the ratings anyway.

In its statement on Monday, S.& P. said it had begun stress-testing the mortgage-backed securities it rated as early as 2005, trying to see how they would perform in a severe market downturn. S.& P. said it had also sent out early warning signals, downgrading hundreds of mortgage-backed securities, starting in 2006. Nor was it the only one to have underestimated the coming crisis, it said — even the Federal Reserve’s open market committee had believed at the time that any problems within the housing sector could be contained.

The Justice Department, the company said, “would be wrong in contending that S.& P. ratings were motivated by commercial considerations and not issued in good faith.”

The federal action will mark the first time a credit-rating agency has been charged under a 1989 law, intended to protect taxpayers from frauds involving federally insured financial institutions, which since the financial crisis has been used against a number of federally insured banks, including Wells Fargo, Bank of America and Citigroup.

The government is taking a novel approach in this instance by accusing S.& P. of defrauding a federally insured institution and therefore injuring the taxpayer. The government is expected to cite the demise of Wescorp, a federally insured credit union in Los Angeles that went bankrupt after investing in mortgage securities rated by S.& P. Wescorp will be showcased as an example of the contended fraud, and as a way to bring the case in California, people with knowledge of the proceedings said.

By bringing a civil suit, as opposed to a criminal case, the Justice Department’s burden of proof will be less, perhaps lowering the bar for a successful prosecution.

Michael J. de la Merced contributed reporting.

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Greuel is in good position in mayor's race

Wendy Greuel's success in winning support of key city employee unions has enabled her to jump ahead of rivals in TV advertising in the Los Angeles mayor's race and left her chief opponent, Eric Garcetti, scrambling to slow her momentum.

With voting by mail beginning today, Greuel, the city controller, holds an enviable spot: For nearly a week, she has had the airwaves to herself. In a city where many voters know little or nothing about the eight people vying to succeed Mayor Antonio Villaraigosa, first impressions will matter.

Early advertising is a luxury Greuel can afford thanks largely to an independent group of big-money donors preparing to spend heavily on her behalf before the March 5 primary.

The donors include Hollywood movie producers Norman Lear and Judd Apatow, but so far most of the group's cash is coming from the Department of Water and Power employees' union. The group is not bound by the strict donation and spending caps that constrain candidates' campaign committees.

Greuel also has won the backing of the city's police and firefighter unions, two of the most coveted endorsements in a mayoral contest.

"The firefighters are the single most valuable source of borrowed credibility that any politician can ever dream of, and the police are almost as good," said Dan Schnur, director of USC's Jesse M. Unruh Institute of Politics.

Still, the race is very fluid, and Garcetti, a city councilman from Silver Lake, remains well positioned to win a spot in the May 21 runoff.

He is half Mexican and half Jewish, key assets in an election with large Latino and Jewish voting blocs up for grabs. Garcetti has raised slightly more money than Greuel. And in recent days he won the support of the 35,000-member United Teachers Los Angeles, which helped get Villaraigosa elected, and the Sierra Club, which has an extensive grassroots following.

But the surest sign of Garcetti's concern about Greuel's strength was his decision last week to go on the attack.

After months of unbroken civility between the two in mayoral forums that even supporters found dull, Garcetti lashed out at Greuel's ad, calling it a "flim-flam." The ad says she exposed $160 million in waste and fraud at City Hall and would root it out, using the savings for "job creation, better schools and faster emergency response."

Garcetti summoned news cameras to his Studio City campaign headquarters, where he told reporters the $160 million "simply doesn't exist."

"The centerpiece of her campaign is fraudulent," said Bill Carrick, Garcetti's top campaign advisor. "That is a huge problem."

Garcetti's team ties labor's tilt toward Greuel to Garcetti's support for laying off city workers and scaling back their health and retirement benefits after the recession caused a sharp drop in tax collections.

Tactically, Garcetti has decided to hold back on early advertising, so he'll have money to respond to attack ads he expects Greuel or her backers to air in the final run-up to the primary.

Greuel, whose effort to cast herself as a tough fiscal watchdog is aimed largely at locking down her San Fernando Valley base, answered Garcetti's attack by accusing him of turning a blind eye to the waste revealed by her audits. John Shallman, her chief strategist, took Garcetti's attacks as a good sign.

"When someone makes the decision to go negative, it's not because they're winning," he said. "It's because they're losing."

If the Greuel-Garcetti fight intensifies, the candidate best situated to benefit is Councilwoman Jan Perry.

"Her cause would be helped if you had Garcetti and Greuel going after each other with ball-peen hammers," said Garry South, an L.A. campaign consultant unaligned in the mayoral race.

Rancor between Garcetti and Greuel has yet to reach that level, he said, but independent groups like the one led by the DWP workers' union "tend to get out the meat cleaver" in their advertising.

"I think either of the other candidates would be making a big mistake to assume there's no way Jan Perry might finish second place in the primary and end up in the runoff," South said.

Having raised $1.5 million, less than half that of her top two opponents, Perry can afford little TV advertising. But she has plenty to wage an expansive mail campaign. Over the last few weeks, she has sent mailers introducing herself to thousands of carefully targeted voters. The lone African American in the race, Perry, who is Jewish, has combined biography, stressing her family's role in fighting for civil rights when she was growing up in Ohio, with pledges of fiscal restraint. Her slogan — "Tough enough to make Los Angeles work again" — plays off a winning campaign theme of former Mayor Richard Riordan, a Republican.

The wild cards in the contest continue to be Emanuel Pleitez and Kevin James. Pleitez, 30, a former personal assistant to Villaraigosa and onetime Goldman Sachs financial analyst, has raised his profile in recent weeks as debate sponsors have invited him to participate. He has raised too little money to advertise widely in a city with 1.8 million voters, limiting the reach of his message, which emphasizes improving city services in the most underserved neighborhoods. But in a close contest, Pleitez, who lives in El Sereno, could affect the result, particularly if he draws a respectable share of the expanding Latino vote.

James, the sole Republican in the field, has spent heavily on high-priced consultants and had just $49,000 cash on hand as of Jan. 19 — a fraction of Pleitez's $320,000, according to the most recent campaign finance reports. An entertainment lawyer and former radio talk-show host, James, who is gay, is counting on news coverage of the race to amplify his vows to clean up what he portrays as a corrupt City Hall.

James' hope of squeezing into a two-way runoff also rests heavily on the help of an independent committee formed by Republican ad man Fred Davis. So far, the committee, bankrolled largely by a Texas billionaire, has collected $700,000, well short of Greuel's $3.5 million and Garcetti's $3.6 million.

Now that voters can begin casting ballots, the top contenders face mounting pressure to draw sharper contrasts with their rivals. For Perry, Garcetti and Greuel, the similar records they built while serving together on the City Council make that task paramount.

"They need to be differentiating themselves in some fashion," said Parke Skelton, who was a top campaign strategist for Villaraigosa. "The risk is that you don't give anyone a reason to vote for you."

michael.finnegan@latimes.com

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Wired Science Space Photo of the Day: Wheatley Crater on Venus

Magellan radar image of Wheatley crater on Venus. This 72 km diameter crater shows a radar bright ejecta pattern and a generally flat floor with some rough raised areas and faulting. The crater is located in Asteria Regio at 16.6N,267E.

Image: NASA/GSFC [high-resolution]

Caption: NASA

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Keys sings national anthem on piano at Super Bowl

Alicia Keys performed a lounge-y, piano-tinged — and live — version of the national anthem ahead of the Super Bowl on Sunday.

The Grammy-winning singer played the piano as she sang “The Star Spangled Banner” in a long red dress with her eyes shut. Her publicist said the performance was live, days after halftime performer Beyonce admitted singing along to a prerecorded track at the Inauguration.

Keys’ version was soft and featured additional lyrics: She added “living in the home” before belting “home of the brave” as she finished the song.

Before Keys hit the field, Jennifer Hudson performed “America the Beautiful” with the 26-member Sandy Hook Elementary School chorus, a performance that had some players on the sideline on the verge of tears.

The students wore green ribbons on their shirts in honor of the 20 first-graders and six adults who were killed in a Dec. 14 shooting rampage at the school in Newton, Conn.

The students began the song softly before Hudson, whose mother, brother and 7-year-old nephew were shot to death five years ago, jumped in with her gospel-flavored vocals. She stood still in black and white as the students moved to the left and right, singing background.

Keys and Hudson warmed up the field for Beyonce, who is set to perform at the half-time show.

___

Follow Mesfin Fekadu on Twitter at http://twitter.com/MusicMesfin

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Phys Ed: Helmets for Ski and Snowboard Safety

Phys Ed

Gretchen Reynolds on the science of fitness.

Recently, researchers from the department of sport science at the University of Innsbruck in Austria stood on the slopes at a local ski resort and trained a radar gun on a group of about 500 skiers and snowboarders, each of whom had completed a lengthy personality questionnaire about whether he or she tended to be cautious or a risk taker.

The researchers had asked their volunteers to wear their normal ski gear and schuss or ride down the slopes at their preferred speed. Although they hadn’t informed the volunteers, their primary aim was to determine whether wearing a helmet increased people’s willingness to take risks, in which case helmets could actually decrease safety on the slopes.

What they found was reassuring.

To many of us who hit the slopes with, in my case, literal regularity — I’m an ungainly novice snowboarder — the value of wearing a helmet can seem self-evident. It protects your head from severe injury. During the Big Air finals at the Winter X Games in Aspen, Colo., this past weekend, for instance, Halldor Helgason, a 23-year-old Icelandic snowboarder, over-rotated on a triple back flip, landed headfirst on the snow and was briefly knocked unconscious. But like the other competitors he was wearing a helmet, and didn’t fracture his skull.

Indeed, studies have concluded that helmets reduce the risk of a serious head injury by as much as 60 percent. But a surprising number of safety experts and snowsport enthusiasts remain unconvinced that helmets reduce overall injury risk.

Why? A telling 2009 survey of ski patrollers from across the country found that 77 percent did not wear helmets because they worried that the headgear could reduce their peripheral vision, hearing and response times, making them slower and clumsier. In addition, many worried that if they wore helmets, less-adept skiers and snowboarders might do likewise, feel invulnerable and engage in riskier behavior on the slopes.

In the past several years, a number of researchers have tried to resolve these concerns, for or against helmets. And in almost all instances, helmets have proved their value.

In the Innsbruck speed experiment, the researchers found that people whom the questionnaires showed to be risk takers skied and rode faster than those who were by nature cautious. No surprise.

But wearing a helmet did not increase people’s speed, as would be expected if the headgear encouraged risk taking. Cautious people were slower than risk-takers, whether they wore helmets or not; and risk-takers were fast, whether their heads were protected or bare.

Interestingly, the skiers and riders who were the most likely, in general, to wear a helmet were the most expert, the men and women with the most talent and hours on the slopes. Experience seemed to have taught them the value of a helmet.

Off the slopes, other new studies have brought skiers and snowboarders into the lab to test their reaction times and vision with and without helmets. Peripheral vision and response times are a serious safety concern in a sport where skiers and riders rapidly converge from multiple directions.

But when researchers asked snowboarders and skiers to wear caps, helmets, goggles or various combinations of each for a 2011 study and then had them sit before a computer screen and press a button when certain images popped up, they found that volunteers’ peripheral vision and reaction times were virtually unchanged when they wore a helmet, compared with wearing a hat. Goggles slightly reduced peripheral vision and increased response times. But helmets had no significant effect.

Even when researchers added music, testing snowboarders and skiers wearing Bluetooth-audio equipped helmets, response times did not increase significantly from when they wore wool caps.

So why do up to 40 percent of skiers and snowboarders still avoid helmets?

“The biggest reason, I think, is that many people never expect to fall,” said Dr. Adil H. Haider, a trauma surgeon and associate professor of surgery at Johns Hopkins University in Baltimore and co-author of a major new review of studies related to winter helmet use. “That attitude is especially common in people, like me, who are comfortable on blue runs but maybe not on blacks, and even more so in beginners.”

But a study published last spring detailing snowboarding injuries over the course of 18 seasons at a Vermont ski resort found that the riders at greatest risk of hurting themselves were female beginners. I sympathize.

The take-away from the growing body of science about ski helmets is in fact unequivocal, Dr. Haider said. “Helmets are safe. They don’t seem to increase risk taking. And they protect against serious, even fatal head injuries.”

The Eastern Association for the Surgery of Trauma, of which Dr. Haider is a member, has issued a recommendation that “all recreational skiers and snowboarders should wear safety helmets,” making them the first medical group to go on record advocating universal helmet use.

Perhaps even more persuasive, Dr. Haider has given helmets to all of his family members and colleagues who ski or ride. “As a trauma surgeon, I know how difficult it is to fix a brain,” he said. “So everyone I care about wears a helmet.”

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