DealBook Today's Top Headlines - June 22, 2016: Elon Musk Wants to Merge SolarCity With Tesla | Hedge Fund Manager Charged With Insider Trading Is Found Dead | Why Law School Is Still a Solid Investment
Elon Musk, the chairman of SolarCity and chief of Tesla Motors, argued
that it would create a renewable-energy giant, collecting clean
electricity to propel cars. "I think it's an obvious thing to do," he
said on Tuesday.
He said it made sense, as Tesla had begun introducing rechargeable
batteries for home use that can store electricity and smooth
fluctuations in power grids.
But his offer also highlighted the unusual moves that Mr. Musk has made to support the various arms of his empire,
where he is the largest shareholder of each company. He has taken out
loans to buy shares in Tesla and SolarCity, some backed by his personal
stock holdings in both companies - a risky decision that leaves him
exposed to margin calls if their stock prices slide too far. He defended
the practice as low-risk for other shareholders, given the sheer size
of his personal net worth of more than $10 billion.
If an agreement were reached, it would still be some time away. Still,
shareholders in SolarCity pushed the company's stock up 19 percent in
after-hours trading, to $25.26. Shares of Tesla, however, tumbled more
than 13 percent, to $190.59.
Both companies have grown fast and consumed enormous amounts of cash
along the way. But SolarCity has been buffeted by changes in solar
energy regulations - local policies have cut into the savings that solar
providers have promised. Its troubles have left the company with a $2.6 billion in long-term debt and growing losses. Last year, interest payments on its debt equaled nearly a quarter of its sales.
Tesla has had a better run of news, although its shares have also fallen
over the past year. Analysts have also said that Tesla's main business
may be in batteries. It is expanding its $5 billion "Gigafactory" near
It may be able to help SolarCity generate more cash or reduce its cash consumption, but the solar company could be a burden. In theory, a combination of Tesla and SolarCity would have burned through nearly $5 billion of cash last year.
Investors will have to be willing to lend to, or buy the stock of, a
high-growth company consuming a lot of cash if they believe it will
eventually generate healthy cash flows.
Mr. Valvani was discovered by his wife in their brownstone in Brooklyn
Heights, a police official said. He was face down on the bedroom floor
with a cut to his neck and a knife near his body. He had left a note. He
was 44 and is survived by two daughters.
Mr. Valvani was charged last week with insider trading and his death
brought the government's case against him to a shocking end. He was
accused of using confidential information from a former Food and Drug
Administration official to reap $32 million in illegal gains.
Barry H. Berke, a lawyer for Mr. Valvani, said the death was "a horrible tragedy that is difficult to comprehend."
The death is still being investigated and it is not known whether other factors could have affected Mr. Valvani's state of mind.
Legal specialists said on Tuesday
that they did not expect the death to cause prosecutors and Preet
Bharara, the United States attorney for the Southern District of New
York, to back away from the case if they believed wrongdoing had
occurred. "I don't think he's going to lose sleep over it, because it
comes with the territory," Thomas A. Sporkin, a lawyer at BuckleySandler
and a former Securities and Exchange Commission enforcement lawyer,
The news of Mr. Valvani's death on Tuesday stunned those who had worked with him on Wall Street.
In a statement, Visium's founder, Jacob Gottlieb, said: "We mourn the
tragic loss of Sanjay, a devoted father, husband and friend. Our
thoughts are with his family during this difficult time."
ON THE AGENDAThe House Judiciary Committee will hold a hearing to examine the allegations of misconduct against the I.R.S. commissioner John Koskinen at 10 a.m.Thomas J. Donohue, the president of the U.S. Chamber of Commerce will speak about financing America's economic growth at the Nasdaq MarketSite in New York at 10 a.m.Blackberry's annual general meeting starts at 10 a.m.Janet L. Yellen, the chairwoman of the Federal Reserve, will testify before the House Financial Services Committee at 10 a.m.
WHY LAW SCHOOL IS STILL A SOLID INVESTMENTThe rise in associate salaries at big law firms has brought a predictable but undeserved fresh round of law school bashing,
Steven Davidoff Solomon writes in Deal Professor. The increase has highlighted the dichotomy between those at the top and everyone else.
For the lucky few who get jobs at these firms, law school is a good
investment. These young lawyers can earn more than $40,000 in one summer
while they are still in law school and pay back their loans quickly.
Many find that there are private firms willing to refinance their loans
at rock-bottom interest rates.
But only about 17 percent of graduates earn salaries this high and to be in this group, you need to go to a top 10 school or graduate in the higher ranks of the top quartile of law schools.
It is tougher for other law graduates. While 17 percent of
graduates earned a median salary of $160,000 in 2014, about half had a
median starting salary of $40,000 to $65,000.
It is the fate of these graduates that drives the criticism of law
school as a "scam." They dream of big jobs, but are often the lawyers
who become solo practitioners, district attorneys, public defenders and
other lower-paying jobs.
Critics of law schools also focus on the number of law graduates who
secured jobs as lawyers or jobs that preferred a law degree. According
to American Bar Association figures analyzed by the Legal Whiteboard, for the 2015 class, the rate of employment was 70 percent.
The bar passage rate also declined to about 75 percent so many law
graduates could not practice law even if the jobs were there.
This has led to arguments that law school is not worth it for 90 percent
of those who attend, but the criticisms ignore the fact that even
lower-ranked law schools offer more good outcomes than bad.
The number of law firm jobs rose between 2007 and 2014, while law school enrollment dropped. Most law graduates secure employment that pays them more than they would otherwise have earned.
The fact that lawyers do reasonably well over time and better than they
would have done had they not gone to law school is reflected in the low
default rates on law school loans, Mr. Davidoff Solomon writes.
Goodbye, Password. Banks Opt to Scan Fingers and Faces Instead.Frustrated by
thieves stealing personal data from millions of customers, banks are
investing in biometric technology to offer better security.
Jefferies Cautious on Strength of Rebound The investment
bank Jefferies has returned to profitability, but warned about pressure
in some areas, raising questions about the strength of a recovery on
Italian Bailout Fund Prepares to Sell Troubled LenderAtlante,
Italy's new bank rescue fund, is preparing a sale process for Popolare
di Vicenza, Reuters reports, citing people familiar with the matter. It
has considered removing bad loans from the bank's balance sheet.
Oi Bankruptcy Creates Shockwaves in Brazil The bankruptcy
filing of the telecommunications company Oi, the largest in Brazil's
history, is likely to leave Banco do Brasil, Itau Unibanco Holding and
others with steep losses on their holdings of Oi debt and prompt
payments on $14 billion of derivatives contracts that are intended to
pay out in the event of a default.
Asia's Banks Face a Powerful Storm, Consultancy Says Profit growth
may slow to below 4 percent annually from 2016 to 2021, down from about
10 percent in 2011 to 2014, said Joydeep Sengupta, one of the authors of
a McKinsey report.
Unicorns Face Tough Road to Wall Street Soaring
valuations in private fund-raisings, and companies staying private
longer than they have in the past, are sharpening concern about the
potential returns unicorns might offer to pre- and post-initial public
offering investors if they do go public.
Janet Yellen Hints That Fed May Hold Back on Raising Interest RatesMs. Yellen, the
chairwoman of the central bank, told senators that data on the labor
market and the weak pace of investment indicated that domestic demand
Energy Transfer Shares Surge During Merger Trial With WilliamsComments made
by Sam Glasscock III, the vice chancellor of the Delaware Court of the
Chancery, sent hedge funds and investors scrambling to make trades.
Regulators Say Bitcoin Poses 'Financial Stability Risks'The Financial
Stability Oversight Council noted that Bitcoin had experienced
"dramatic" increases in trade delays and some transaction failures in
Judge Allows Lawsuit Claiming Starbucks Underfills LattesTwo people in
California said the company made a "conscious decision" to save money on
milk and underfills the drinks by about 25 percent of the advertised
The Moody's Economic Report That Clinton Is Using to Attack TrumpIf all of
Donald Trump's plans were put into effect, the analysts say, the economy
would go into a recession by the end of his first term.