The government wants SAC Capital's billions

Steven Cohen's hedge fund SAC Capital was indicted for criminal insider trading.

NEW YORK (CNNMoney)

The U.S. Attorney for Southern District of New York's filing Thursday of civil and criminal charges against Cohen's hedge fund opens the door for the government to seek significant penalties.

"A criminal conviction would forever taint SAC and Steven Cohen, but ultimately the big financial penalties could come from the civil case," said John Coffee, a professor of securities law at Columbia University.

So far Cohen has escaped criminal charges and, as of now, faces no possibility of jail time.

The real penalty now could be a financial blow to the hedge fund manager, whose personal fortune is estimated at roughly $9 billion.

SAC Capital at its height had $15 billion in assets under management. This year, as the government's investigation expanded, up to $5 billion has been withdrawn from the firm, according to published reports. The majority of the firm's money comes from Cohen.

Several securities lawyers said the scope of the government's civil indictment indicate that prosecutors might try to go after all of the firm's assets.

Related: SAC indictment depicts culture of law-breaking

The government gets to that demand by painting a picture of rampant insider trading at a fund where "hundreds of millions of illegal profits" from insider trading were "commingled" with legitimate profits. The government is seeking not just the illegal profits but even legal profits that may have been generated from that money.

The 40-page civil indictment outlines how these profits infiltrate every level of the firm.

"I don't know how easy it will be to prove, but it may be frightening enough to get SAC to seek a settlement," said Coffee.

On Friday, SAC Capital's lawyers pleaded not guilty to the federal criminal charges against the hedge fund. SAC Capital said Thursday that it plans to continue to operate as it works through these matters.

Both SAC and Cohen face fines from several different lawsuits, but the civil penalties sought by the U.S. Attorney's Office are expected to be steepest. The government said the actual figure will be determined at trial, and U.S. Attorney Preet Bharara declined to comment on possible penalties during a news conference Thursday.

Related: Not guilty plea entered by SAC Capital

The government can also seek penalties from its criminal case, but the maximum penalty for each count of securities fraud is $25 million. SAC has been indicted on four counts of securities fraud.

The hedge fund was also indicted on a charge of wire fraud. In that case, the government can seek twice the gains or losses generated from illegal trades.

The indictment only specifies profits from one set of trades in the pharmaceutical companies Elan (ELN) and Wyeth in 2008 and 2009. The profit from those trades was approximately $275 million.

In a separate case against Cohen, the SEC is seeking financial penalties for what it says is a failure to supervise employees engaged in insider trading. Coffee estimates that any penalties from the SEC case would be smaller than those possible in the U.S. Attorney's case.

The SEC has already extracted one penalty from SAC. In March, the firm paid $615 million to the agency to settle insider trading charges.

Bharara has said that the government wants to extract meaningful penalties so this case and other insider trading cases can have a deterrent effect.

First Published: July 26, 2013: 4:27 PM ET

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JPMorgan to exit commodities businesses

NEW YORK (CNNMoney)

The announcement comes as the bank reportedly nears a settlement with the U.S. government over the manipulation of electricity markets in California.

JPMorgan (JPM, Fortune 500)said it "is pursuing strategic alternatives for its physical commodities business...including, but not limited to: a sale, spin off or strategic partnership."

The move will not affect the bank's trading activities, such as the buying or selling of futures contracts.

Earlier this week, the Senate held a hearing on bank ownership of physical commodities, during which several witnesses said involvement from the big banks is dangerous for the financial system and may be driving up prices for consumers.

The hearing followed a story in the New York Times on Sunday alleging Goldman Sachs (GS, Fortune 500) was stockpiling aluminum in Detroit, leading to higher prices for aluminum products like soda cans and cars.

People familiar with JPMorgan's involvement in California's electricity markets say the bank would bid to deliver electricity to a utility on a future day, and then raise the price, ensuring the power would not get bought.

Consumers would then have to compensate the bank for the cost of making the bid, under California's "make whole provision," which requires ratepayers to cover certain costs incurred by energy sellers.

It's not clear how JPMorgan made money on this arrangement, or if it was technically legal.

The government agency charged with policing electricity markets -- the Federal Energy Regulatory Commission -- and JPMorgan have declined to comment on the case.

Barclays and Deutsche Bank (DB) have also been recently fined by the government for improper electricity trading.

First Published: July 26, 2013: 5:51 PM ET

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Starbucks sees big growth in China

Starbucks is opening more stores in inland Chinese cities, such as this one in Chengdu, Sichuan Province in Southwest China.

NEW YORK (CNNMoney)

According to its latest quarterly report, Starbucks (SBUX, Fortune 500) saw a 30% year-over-year jump in revenues from its Asia-Pacific region, lifted by outstanding sales in China.

"The very strong sales volumes prove that the coffee concept can succeed in traditional tea-drinking countries," said R J Hottovy, director of consumer equity research at Morningstar, Inc. "It's resonating very well with [inland] cities."

Starbucks' solid sales growth in the region was driven by the 500 new stores it opened in China last year, and its Chinese expansion plans aren't slowing down.

The Seattle-based coffee giant said it plans to open its thousandth store in China by the end the year. In addition to already being in major cities like Beijing and Shanghai, the company says its stores will have penetrated lesser-known cities. By 2014, Starbucks said China will surpass Canada to become the second largest market, after the United States.

Related: Starbucks' caffeine-fueled expansion

In the last five years, overall retail coffee sales in China climbed by 10%, beating growth in Hong Kong, Japan and the 3% global average, according to data from research company Euromonitor International.

Starbucks said its marketing strategy in China is similar to that of its Western markets. It continues to focus on its core food and beverage products while also offering other locally oriented choices.

"The demographics they are targeting are younger and more affluent groups," Hottovy said.

Starbucks opened its first store in Taipei in 1998, followed by its first mainland China store in Beijing in 1999. But the coffee shop market is beginning to heat up. "Increasing competition will be the most pressing issue as more Western coffee brands enter the Chinese market," he said.

In 2012, an average Chinese person consumed about two cups of coffee per year. That's a far cry from the global average of 134 cups a year, according to Euromonitor. Coffee has less than 1% of the Chinese hot-drink market share. By contrast, tea makes up 54% of the market.

"It's still too early to say that coffee is going to replace tea, or that the Chinese flavor profile is changing," said Dana LaMendola, analyst of hot drinks at Euromonitor.

First Published: July 26, 2013: 6:24 PM ET

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New $444 million hockey arena is still a go in Detroit

A Detroit Red Wings game at Joe Louis Arena, the team's current home.

NEW YORK (CNNMoney)

Advocates of the arena say it's the kind of economic development needed to attract both people and private investment dollars into downtown Detroit. It's an argument that has convinced Michigan Gov. Rick Snyder and Kevyn Orr, the emergency manager he appointed to oversee the city's finances, to stick with the plan. Orr said Detroit's bankruptcy filing won't halt the arena plans.

"I know there's a lot of emotional concern about should we be spending the money," said Orr. "But frankly that's part of the economic development. We need jobs. If it is as productive as it's supposed to be, that's going to be a boon to the city."

But critics say the project won't have enough economic impact to justify the cost, and that it's the wrong spending priority for a city facing dire economic conditions.

Detroit city services are already stretched extremely thin. On average, police take about an hour to respond to calls for help, and 40% of street lights are shut off to save money.

"If you want people to live in the city, and not just visit to go to games, you have to invest in schools, in having the police to respond to calls," said Gretchen Whitmer, the Democratic leader in the state senate. "There are so many investments that should trump a sports stadium."

Additionally, Orr wants to make deep cuts to both the pensions and health care coverage promised to city employees and retirees.

The state legislature approved the taxpayer funding for the arena in December. The controversial vote split Detroit's own legislative delegation. Whitmer argues that the matter should be reconsidered given the city's worsening finances.

"If the vote was held today, since the bankruptcy, I wouldn't put my money on it passing," she said.

Related: Why Obama won't bailout Detroit

The arena will be paid for with a $450 million bond issue that will be repaid over the next 30 years. Taxpayers will be paying almost two-thirds of the cost of the arena -- $283 million -- and private developers will cover the rest. Including interest, it's projected that there will be a total of $444 million in taxpayer funds spent on the project.

Additionally, the developer has committed to spending another $200 million to build retail, office, residential and hotel space as part of the project. The construction is expected to create about 8,000 construction jobs with work due to start next year.

Most of the tax money going into the project would otherwise be going into Detroit schools, which are also under state control due to their dire finances. But the lost money is slated to be made up for by the state government according to Michigan's school-funding formula.

"The schools won't lose a dollar," said Robert Rossbach, spokesman for the Detroit Economic Growth Corp., the non-profit agency overseeing the project. "It was designed to have minimal impact on city of Detroit operations."

Mark Rosentraub, a University of Michigan professor and an expert on the economic impact of sports teams, did a study for the arena developers, and estimates that it would create more than $1 billion of direct spending in Detroit during the next 30 years. He said many stadium and arena projects have minimal impact on local economies because they're already thriving or because of poor location.

But he argues that this one -- in a depressed city next to football and baseball stadiums -- will encourage a lot of private investment in restaurants, bars and other entertainment venues.

Related: Detroit entrepreneurs make case for their bankrupt city

The Joe Louis Arena where the Red Wings now play is antiquated by modern arena standards, and is relatively isolated from the downtown area where the new arena is to be built.

"The problem behind the financial issues of Detroit has been a flight of capital to the suburban areas," he said. "We have to bring foot traffic and investment back to Detroit. This is exactly what it needs."

Typically, a team threatens to move out of a city in order to get government officials to agree to a publicly financed new home, but the Red Wings have not made that threat.

Andrew Zimbalist, a Smith College economics professor and a sports business expert, said the Red Wings are one of the few profitable teams in the National Hockey League, and there is no chance they would want to leave Detroit, even for the suburbs.

-- CNN's Poppy Harlow contributed to this story

First Published: July 26, 2013: 9:16 AM ET

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Tech shares lead broad decline

Click for more market data.

NEW YORK (CNNMoney)

The Dow Jones industrial average, the S&P 500 and the Nasdaq were all down between 0.3% and 0.5% in early trading.

Tech shares have been the biggest drivers this week, boosted by strong earnings from Apple (AAPL, Fortune 500) and Facebook (FB), but weak results from Amazon (AMZN, Fortune 500) and Zynga (ZNGA) could put pressure on the sector Friday.

Amazon shares were lower after the online retailer posted a surprise loss. And Zynga's stock sank after the online gaming company issued a weak outlook for the third quarter and said it's not going to pursue online gambling in the United States.

Expedia (EXPE) was the biggest drag on both the Nasdaq and S&P 500 Friday. Shares of the online travel company plunged 24% on a worse-than-expected earnings report.

Click here for more on stocks, bonds, commodities and currencies

Shares of Activision Blizzard (ATVI) surged more than 21% after the maker of games like World of Warcraft and Call of Duty said it was striking out on its own, through an $8.2 billion deal.

Starbucks (SBUX, Fortune 500) shares rose after the coffee merchant delivered better-than-expected quarterly earnings and sales.

Related: Fear & Greed Index, still greedy

Halliburton (HAL, Fortune 500) stock rose nearly 4% after the Justice Department said the oilfield services firm would plead guilty to destroying computer test results that had been sought as evidence in the Deepwater Horizon disaster.

Tesla Motors (TSLA) shares gained after Deutsche Ban (DB)k upgraded the electric car maker.

In economic news, the University of Michigan and Thomson Reuters said a key measure of consumer sentiment rose to 85.1 in July, the highest level in six years.

Related: What's next for SAC?

European markets were also mixed in afternoon trading, though shares of Pearson (PSO) and LVMH (LVMHF) rose after the companies posting better-than-expected earnings.

In Asia, Japan's benchmark Nikkei index fell by 3% as the yen strengthened. Japan's inflation turned positive for the first time in a year, a sign that Abenomics is taking hold.

The performance on Chinese indexes was more muted. Hong Kong's Hang Seng index rose by 0.2% and the Shanghai Composite index declined by 0.5%.

First Published: July 26, 2013: 9:49 AM ET

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Helium soars

Mining helium in Montana with a rig owned by Bo Sears and Weil Resources Group

(Fortune)

The price of crude helium set by the federal government has skyrocketed in the past three years, jumping from $64.75 to $84 per 1,000 cubic feet, as supplies of the element have tightened amid increasing demand, primarily in Asia. The price crunch could get much worse as the Bureau of Land Management -- which supplies about 30% of the global supply of helium -- prepares to shut down the federal helium reserve outside Amarillo, Texas.

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Dollar coin advocates renew push to replace dollar bill

The Sacagawea Golden Dollar was put into circulation in 2000 but never caught on in a big way.

NEW YORK (CNNMoney)

The switch, which has been discussed for years, could save taxpayers $13.8 billion over 30 years, according to a report released this week by Aaron Klein, a former deputy assistant secretary of Treasury.

On the one hand, it costs only 5 cents to produce a $1 bill and 18 cents to produce a $1 coin, the report states. But the lifespan of a $1 bill is much shorter -- 4.8 years compared to 30 years.

Klein prepared the report for the Dollar Coin Alliance, a group of small businesses, mass transit agencies and others who support transitioning to the one dollar coin.

Bill Christian, director of government affairs for Council for Citizens Against Government Waste, said the report is just the latest evidence that it's time to make the switch. "Once again, the result is clear: eliminate the $1 bill and save billions."

Related: Dollar headed for 'multi-year rally'

The nonpartisan Government Accountability Office has said that replacing the $1 bill with a $1 coin would save hundreds of millions of dollars annually. The United States is one of the few western nations still using paper dollars.

"Over the last 48 years, Australia, Canada, France, Japan, the Netherlands, New Zealand, Norway, Russia, Spain, and the United Kingdom, among others, have replaced lower-denomination notes with coins," according to the GAO report.

Last month, a bipartisan group of senators including Democrats Tom Harkin and Mark Udall and Republicans John McCain and Tom Coburn reintroduced the Currency Optimization, Innovation, and National Savings Act -- or COINS Act.

Related: It's official: Jack Lew's new signature

The bill aims to "improve the circulation of $1 coins, to remove barrier to the circulation of such coins, and for other purposes."

"With our nation's debt now standing at $16.8 trillion, Congress must look at every area of the federal government, big or small, to save money," McCain said this week. "And this simple bipartisan bill will do just that -- save money."

The idea of moving away from dollar bills is not new, but dollar coins have not gained wide public acceptance apart from collectors.

The Susan B. Anthony dollar, introduced in 1979, was discontinued in 1999 although some remain in circulation. The Sacagawea Golden Dollar was put into circulation in 2000 but never caught on in a big way.

One of the main complaints about dollar coins is they are heavy and cumbersome. The conversion would also add costs, the GAO report noted.

Cash-intensive businesses would have to modify vending machines, cash register drawers and night depository equipment to accept $1 coins. Over the longer term, some businesses would have to buy coin counting and coin wrapping machines. Others would bear higher transportation and storage costs because of the heavier and bulkier coins.

The lack of public acceptance of the $1 coin is in part because the $1 bill remains in circulation, according to the GAO. Canada and Britain found that once paper notes were taken out of circulation, public resistance dissipated within a few years.

First Published: July 26, 2013: 5:43 AM ET

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4 questions to ask a money manager

NEW YORK (CNNMoney)

Asking a few important questions of a prospective money manager is a great first step, one that can mean the difference between meeting or falling short of your financial goals.

Indeed, a money manager can play an incredibly important role. Not only do some serve as financial planners, helping you to save for certain goals -- such as your kid's college or retirement -- but their main goal is to make investment decisions that directly affect your ability to meet those goals.

Related: Finding financial planning professionals

That's why it's so important that you find a person who is the right fit for you. In fact, most experts recommend that you interview several managers before making a commitment. Here are some important questions to ask:

How will you go about investing my money?

While some money managers will focus on your particular goals and circumstances, others may use the same basic market strategy or philosophy for all of their clients, said Eleanor Blayney, a consumer advocate at the CFP Board, a nonprofit organization that sets standards for certified financial planners. So it's important to find out whether your stock market investments will be tailored to your particular savings targets and time horizons.

"The distinction is: 'Are my financial circumstances taken into account or are you managing money by a specific overall objective?'," she said.

How do you get paid?

It's essential you understand how much money the arrangement with your money manager will cost you.

Money managers are typically paid through client fees, which are usually based on a percentage of your total managed assets. Even a 1% management fee, which is pretty standard, can add up to thousands of dollars of year.

Related: How much does your money manager cost you?

There may be other fees as well though, so it's a good idea to ask for a copy of their ADV form, which should disclose all fee details. Investors should be wary of any manager who does not freely provide the form when requested. It can also be viewed in the SEC's Investment Adviser Public Disclosure database.

In addition to fees, the form will also contain information about any disciplinary actions or conflicts of interest.

What are your other clients like?

You don't want to be someone's smallest or biggest client in terms of available assets, Blayney said. Instead, an ideal money manager will have experience helping people with similar financial circumstances and goals.

How will you add value?

Few money managers consistently outperform much cheaper index funds, especially once fees are taken into account.

If you're paying a money manager, you're likely looking for someone who is going to do more than you feel you could do on your own. So be sure to ask them: How will they do that? How will they help you manage risk? Will they change your investments if your goals are in jeopardy?

"I think it's important to understand at what point do they have a sell discipline, as well as a buy discipline," Blayney said.

The right answer will match your own level of risk tolerance, she said.

Asking about past performance is also important, but beware of anyone claiming to be able to beat the market year after year. If it sounds too good to be true, it probably is.

First Published: July 26, 2013: 6:17 AM ET

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Zynga drops U.S. online gambling plans

Click on chart for more information on Zynga shares.

NEW YORK (CNNMoney)

Chief Operations Officer David Ko told investors on a conference call late Thursday that Zynga would continue its online gambling efforts in the United Kingdom, but that it was"making the focus choice" not to pursue it for the United States.

The company, which is best known for the online social media game FarmVille, announced in December that it had filed an application for a gaming license in Nevada. It also has been offering online gambling in the U.K. since April.

Shares had been up 50% since the announcement of the Nevada license application through Thursday's close. But the stock plunged 19% in premarket trading Friday.

Related: Online gambling toes a confusing legal line

Problems in getting its U.S. online gambling started have not been the only ones for Zynga.

It announced in June that it would lay off 18% of its workforce as part of an effort to stabilize finances. In July, CEO and founder Mark Pincus stepped down.

The company reported a second-quarter loss Thursday that was wider than the loss in the first quarter. It also warned of more losses in the current quarter.

"As we looked at the social gaming, free-to-play opportunity which continues to grow, we're not executing against that," said Ko on the call with investors. "And so, we really just centered around focus."

First Published: July 26, 2013: 7:21 AM ET

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GM narrows European loss, improves profit at home

General Motors reported strong earnings in North America and smaller losses in Europe.

NEW YORK (CNNMoney)

GM said Thursday it earned $1.2 billion, or 75 cents a share, in the quarter, down from $1.5 billion it earned a year earlier. But excluding special items, the drop in earnings was not as bad as forecast by analysts surveyed by Thomson Reuters, and shares of GM (GM, Fortune 500) rose in premarket trading.

Revenue rose $1.1 billion to $38.2 billion, as the number of vehicles sold worldwide rose 4% to 2.5 million. Sales volume was flat in China, now the largest market for car sales, and down in Europe, but increased 7% in North America.

Related: J.D. Power ranks GM tops in quality for first time

Earnings in North America rose 4% to just under $2 billion on the improved sales, and the company also hired 6% more North American workers from a year earlier, primarily white collar jobs such as engineers. It also trimmed prior-year losses in Europe by 72%, taking losses down to $110 million. But earnings in the international unit that includes China and Asia tumbled 64% to $228 million.

The results were similar to those reported Wednesday by rival Ford Motor (F, Fortune 500), which also beat forecasts and raised its earnings guidance on reduced losses in Europe and strong North American results.

First Published: July 25, 2013: 8:15 AM ET

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