DealBook: Invasive Tactic in Foreclosures Draws Scrutiny

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DealBook: Hiring in China By JPMorgan Under Scrutiny

Mine Deal Puts New Scrutiny on China’s State Industries

The Zhongshe mine and two others, in Shanxi Province in northern China, are at the center of unusually public accusations of mismanagement and corruption afflicting one of the nation’s flagship state conglomerates, China Resources. Critics say that the $1.6 billion purchase was vastly overpriced and illegal and that large sums may have been squandered or, as some are claiming, improperly diverted.

Leaked documents about the deal, and a court case in Hong Kong, have shed an unusually harsh light on the usually secretive workings of a major state-owned company. The disputed deal raises a stark question: Are China’s economy and resources held hostage by privileged state corporations and their executives, who can use influence and gain access to easy credit in ways that undermine long-term growth?

The dispute has become a chief exhibit in a debate in China about the wisdom of investing so much of the nation’s money in state-owned companies, especially when China’s economy has slowed. For the Communist Party leadership, the case distills concerns about the grip that state-owned conglomerates exert.

The problems for China Resources began in 2010, when its affiliates as well as a partner state company agreed to pay 9.9 billion renminbi ($1.6 billion) for the three coal mines and related assets, according to documents submitted to a Hong Kong court. The seller was a businessman, Zhang Xinming, a man with a reputation as a swashbuckling gambler, who also gained a 20 percent stake in the new joint venture.

The deal appeared to give China Resources a foothold in the coal industry here in Shanxi, the hub of China’s coal industry for more than a century and close to the energy-hungry cities and factories on the coast. But the company’s monthly business operations statements show that since the mines changed hands in 2010, the mines have not produced any coal.

“Legally speaking, this was a totally abnormal transaction,” said Chen Ruojian, a lawyer with the Duan & Duan law firm in Beijing. Mr. Chen is helping to represent the minority shareholders in Hong Kong, where the subsidiary behind the deal, China Resources Power Holdings, is listed on the stock exchange.

“It’s impossible to understand why they’d do this — pay so much for mines with expired exploration licenses,” he said. “State-owned companies have all sorts of problems, but we think it’s rare to have something as stark as China Resources.”

Political unease over the case grew after two Chinese journalists made accusations of corruption about the deal, and one singled out Song Lin, the chairman of the parent conglomerate, China Resources.

The Web site of People’s Daily, the Communist Party’s newspaper, has reported that the party’s discipline unit has received an accusation of corruption against Mr. Song and other senior executives at China Resources and is processing the complaint. Mr. Song has not been detained or charged with any wrongdoing, judging from the reports on the company’s Web site of his various public appearances. China Resources has denied wrongdoing and has hinted it might take legal action against Chinese journalists who have raised corruption accusations.

China Resources “is a major global player,” said David Zweig, a specialist in Chinese natural resource companies at the Hong Kong University of Science and Technology. If the claims about the coal mines are proved true, he added, “it would show that these companies can be ripped off or tricked. It doesn’t bode well for the globalization or professionalization of these companies.”

China Resources traces its roots to the days of Mao Zedong’s revolution, when it was established in 1938 in Hong Kong to raise money and buy military supplies to support Communist forces.

By 2012 it was China’s 18th-largest state-owned industrial company by sales, with revenue of $52 billion. Its wide-ranging products include medicine and beer, coal and real estate. Its chairman, Mr. Song, holds the same government rank as a vice minister.

The controversy over the coal deal has made China Resources a lightning rod for criticism of all state-owned enterprises, which produce about two-fifths of the nation’s economic output.

Keith Bradsher reported from Zhongshe, China, and Chris Buckley from Hong Kong.

Under Scrutiny, Goldman Offers to Speed Metal Delivery

Under scrutiny for the long waits that have cost manufacturers — and ultimately consumers — many millions of dollars, Goldman said on Wednesday that its warehouse unit, Metro International Trade Services, would give customers who store aluminum at the warehouses immediate access to their metal.

Through Metro International, Goldman stores vast amounts of aluminum in and around Detroit. An investigation by The New York Times found that Metro routinely shuffled tons of the metal from one warehouse to another, a tactic that profited Goldman but pushed up the price of aluminum across much of the nation.

Goldman also said on Wednesday it would suggest ways to improve the metal storage system, whose rules are dictated by the London Metal Exchange.

Regulators at the Commodity Futures Trading Commission are examining practices at warehouse operations controlled by financial firms and trading houses such as Glencore Xstrata, the Noble Group and Goldman. These operations store aluminum for companies like Coca-Cola and MillerCoors, as well as for speculators.

Congress has taken an interest in the issue as well. Earlier this month, the Senate Banking Committee convened hearings on Wall Street’s push into the physical commodities markets and whether its involvement had raised prices. The Senate Permanent Subcommittee on Investigations, led by Carl Levin, a Michigan Democrat, has also been privately questioning big banks like Goldman, JPMorgan Chase and Morgan Stanley on their commodities businesses.

In Congressional testimony on Tuesday, Mary Jo White, the chairwoman of the Securities and Exchange Commission, said she had asked the agency’s staff to examine the issue.

Goldman said its offer to speed up delivery of metal was open only to industrial customers of its Metro warehouses. If a customer wants immediate delivery of its metal, Goldman said it would go into the open market and buy the amount requested, then swap it to the customer. Goldman said it would pay the difference between the market cost and the higher price that includes the storage premium. Goldman said none of its customers had taken up its offer yet.

Goldman also said that it supported recent efforts at the London exchange to increase the amount of metal allotted for delivery from its large warehouses, like those owned by Metro.

Last week, in the face of rising regulatory concerns about the big banks’ commodities operations, JPMorgan said it was looking to sell its physical commodities businesses, which include sprawling storage and transportation facilities. But Goldman does not appear to be following suit.

In a television interview on Wednesday, Gary D. Cohn, Goldman’s president, said the bank had no immediate plans to sell Metro International. Under the terms of the regulatory exemption provided to Goldman when it bought Metro, the bank has until 2020 to sell it.

DealBook: Google’s Effort to Skirt Regulation May Invite More Scrutiny

Harry Campbell

Google’s motto is “don’t be evil.” But its recent acquisition of Waze, reportedly for $1 billion in cash, shows that just because you’re not evil, it doesn’t mean you can’t be aggressive in pushing the boundaries of the law.

The question now is whether the United States government pushes back and forces Google to give back its new toy.

Waze is yet another one of those blockbuster deals for a technology company with little or no revenue that makes you jealous. Five-year-old Waze has just 110 employees, so Google appears to be paying almost $10 million per employee. As for profits, Waze’s chief executive, Noam Bardin, has said, “This is Silicon Valley. We don’t talk about those things here.” Right.

Google is paying top dollar for Waze because it is at the intersection of two hot fields: map search and social media. Users download Waze’s app to their phone and then supply information about locations, routes and traffic, making the maps more intelligent. And Waze has the usual phenomenal growth in users, with 50 million worldwide. This is a field where there is believed to be oodles of money to be made in related advertising.

From this vantage point, the deal has a number of “must” business justifications for Google. Google is the top dog, dominating the “turn-by-turn” market for mobile maps on smartphones, and Waze makes Google a bigger dog.

Perhaps more important, buying Waze keeps the technology out of the hands of Facebook, which had reportedly bid about $1 billion for the company, and Microsoft and Apple, which also reportedly bid $400 million for the company earlier this year.

A billion dollars not only cements Google’s lead in map search, it does so in a big way. Google has paid large sums to have cars drive around the world to give its maps information content. But Waze is doing the same thing on the cheap by having its own users do the work.

Both types of systems are difficult and hard to build, meaning new entrants are unlikely to come. Just witness the difficulties Apple faced with the controversy over the accuracy of its own map app. If Apple can’t do this easily with its built-in user base of some 400 million iPhone users, not many others can.

So one might think that there would be significant antitrust issues with the acquisition. Google, already the dominant player, is buying what looks like a rising competitor, and it is doing so in a way that deprives other big players an easier way to compete.

It’s here where Google is pushing as hard as it can on the law.

Normally, to acquire a company in the United States, a buyer is required to supply the Justice Department or the Federal Trade Commission with what is known as a Hart-Scott-Rodino filing. This notifies the agencies of the transaction so either can review it for compliance with the antitrust laws.

The filing also prompts a waiting period during which the government can delay the acquisition to begin an in-depth investigation to determine if there is an antitrust problem. This is one reason that public takeovers are completed months after they are announced: the companies involved are waiting to clear antitrust review in the United States or another country.

This is the normal process. Yet Google’s only announcement of the deal appears to say that the companies signed and closed the deal that day, leaving Google the proud owner of Waze.

According to a person close to Google, the company skipped the Hart-Scott-Rodino filing by relying on an exemption. This filing is not required if the acquisition is of a foreign company that has sales and assets in the United States of less than $70.9 million. Waze is an Israeli company with headquarters in Silicon Valley, so it comes under this test.

Waze probably doesn’t have $50 million in revenue worldwide, yet the test also looks at assets. Given that Waze is worth $1 billion, it is hard to see that the value of its intellectual property in the United States business doesn’t meet the test. And the F.T.C. has previously indicated that companies should include this type of intellectual property in informal guidance.

Nonetheless, Google appears to have taken this aggressive position and is forgoing any antitrust review, instead plunging ahead with the acquisition.

So why did Google do this?

A representative from Google declined to comment.

Google may be playing hardball with the government here. Psychologically, it may be harder for the government to undo something that is done. And once Google acquires this company, it will become harder to force it to undo any integration it may have done with its own services. (For now, Google has said it will keep Waze separate.)

Not only that, but the Waze owners may have wanted to sell precisely on this basis, avoiding this huge possibility that the United States government would reject the deal, a risk that Google may have been willing to take with Facebook and Apple hovering.

But given the publicity over the acquisition, the government will almost certainly step in to review. Consumer groups are circling, and the Consumer Watchdog Group has written the government to ask for an in-depth review. That group has noted that Google’s purchase of Doubleclick and AdMob led it to a 93 percent market share in mobile advertising.

As with previous deals, the government can force Google to sell Waze, or put other restrictions in place, if there is a problem.

The standard was set forth in a piece of legislation passed a century ago: Will the acquisition “substantially lessen competition”? In part, this will come from how the market is defined — if it is just maps, well, you have to include companies like Rand McNally.

If it is turn-by-turn maps on smartphones, then according to Berg Insight, Telenav has a 33 percent market share while Google and Waze’s combined North American market share would be 28 percent. But Telenav’s business is stagnant and Google’s grew 30 percent last year, while Waze’s business grew 100 percent, according to Berg.

It may all come down to how easy it would be for another company to replicate what Waze is doing — it built an enormous user base that made it worth a billion dollars.

Even if Google can show that this deal does not decrease competition, the acquisition can be unwound if Waze is found to meet Justice Department guidelines as a “firm that plays a disruptive role in the market to the benefit of customers.” André Malm, a senior analyst at Berg, told me, “There is nothing like Waze.” He noted that the company was shaking up the market, so the authorities will pursue this line of investigation.

Either way, the comments of Mr. Bardin are not going to help, but they do serve as a reminder to other start-up chiefs looking to sell to their competitor not to say they that are the only game in town.

At the least, this all means that the Waze acquisition is likely to get a thorough review by the government. The battle will now begin. That Google will keep Waze without restrictions is no certainty. But the government faces a challenge. If it does decide to try to unwind this acquisition, Google is going to push the bounds of the law as hard as it can. The future of map search is at stake, and Google may not be evil, but this is business.

This post has been revised to reflect the following correction:

Correction: June 19, 2013

An earlier version of this column misstated the threshold that would require a buyer of a foreign company to supply the Justice Department or the Federal Trade Commission with what is known as a Hart-Scott-Rodino filing, which notifies the agencies of the transaction so either can review it for compliance with antitrust laws. It is $70.9 million in sales and assets in the United States for the foreign company, not $60.9 million.

DealBook: Ex-Partner at KPMG Under Scrutiny in Insider Trading

Scout Tufankjian for The New York TimesA Herbalife distributor in New York.

2:07 p.m. | Updated

Federal authorities in Los Angeles are investigating a former senior executive at KPMG on suspicion of leaking secret information to a stock trader, according to people with direct knowledge of the inquiry.

Scott I. London, the partner in charge of the audit practice for KPMG in Southern California, was fired by his employer because of the suspected passing of confidential data to an unnamed individual, a person briefed on the matter said.

The case involves alleged tips about confidential data related to Herbalife, the seller of nutritional supplements, and Skechers USA, the footwear maker, according to these people. On Tuesday morning, both Herbalife and Skechers announced that KPMG had resigned as their auditor.

Both the United States attorney’s office in Los Angeles and the Securities and Exchange Commission’s outpost there are investigating the case, people briefed on the matter said.

Skechers added that, according to KPMG, the former partner in question – Mr. London — was cooperating with authorities.

Skechers paid $50 million last year to resolve claims of false advertising.

Mr. London, 50, could not immediately be reached for comment. He worked at KPMG for 29 years, according to a profile on LinkedIn. A resident of Agoura Hills, California, Mr. London serves as chairman of the L.A. Sports Council and sits on the board of directors of the Los Angeles Area Chamber of Commerce.

The news of possible insider trading emerged in an unusual fashion late on Monday, when KPMG announced on its Web site that it had fired a senior partner in its Los Angeles office because of the suspected passing of confidential information to an unnamed individual “who then used that information in stock trades involving several West Coast companies.”

The firm said it had to resign as auditor from several companies “after concluding today that the firm’s independence has been impacted” because of the partner’s behavior. It added that the partner acted “with deliberate disregard for KPMG’s longstanding culture of professionalism and integrity.”

A government action against the former KPMG partner would add to the recent push by prosecutors and securities regulators to root out insider trading, a campaign that has yielded about 180 civil actions and more than 75 criminal prosecutions.

The news added to a swirl of publicity surrounding Herbalife, a supplement seller that has been in the middle of a well-publicized battle involving several hedge fund managers. William A. Ackman of Pershing Square Capital Management has said that he believes Herbalife is a “pyramid scheme,” and he has a $1 billion bet in the place that the price of the stock will drop. On the other side of the trade is the activist investor Carl C. Icahn, who owns a large position in Herbalife shares.

Herbalife, based in Los Angeles, said that KPMG had informed the company on Monday afternoon it was resigning as auditor because its independence had been impaired.

In its announcement, Herbalife said it believed its financial accounts for its last three fiscal years remained accurate. But KPMG, citing concerns about its independence, withdrew its audits for those years. KPMG also said that its resignation was in no way related to Herbalife’s “financial statements, its accounting practices, the integrity of Herbalife’s management or for any other reason.”

It is unclear when Herbalife will hire a new auditor, though any such firm would probably take a fresh look at the company’s financial records.

David Weinberg, the chief financial officer of Skechers, said in a statement that he believed none of the company’s audited filings misstated its results or financial condition. Still, KPMG was withdrawing its audit reports for the company’s last two fiscal years.

The emergence of a possible insider trading case involving KPMG emerged in an unusual fashion late on Monday, when the firm announced on its Web site that it had fired a senior partner in its Los Angeles office. 

The news is an embarrassment to KPMG, which came under scrutiny last decade for its role in marketing tax shelters. Two former KPMG partners are serving prison terms for selling fraudulent tax shelter schemes to clients.

Tim Connolly, a KPMG spokesman, did not immediately respond to a request for comment.

In the statement issued Monday evening, KPMG said the firm’s “22,000 partners and employees unequivocally condemn this individual’s rogue actions.” The firm did not name the companies whose confidential information was disclosed as part of the scheme.

Skechers, too, has been in the cross hairs of regulators. Last year, it agreed to pay $50 million to resolve federal and state accusations that it misled the public with false advertising related to its “toning shoes.” The company claimed in its ads, including one featuring Kim Kardashian, that the sneakers would help consumers tone muscles and lose weight.

As LPL Financial Expands, Scrutiny of Its Practices Intensifies

The company, LPL Financial, has 13,300 brokers, 6,500 offices, 4.3 million customers — and a growing list of problems with regulators.

At a time when many big-name brokerage firms are losing market share, LPL executives in San Diego have guided the company out of obscurity to become the nation’s fourth-largest brokerage firm — after Wells Fargo, Morgan Stanley and Merrill Lynch — and the largest in much of rural America, where it specializes.

Now, as investors weigh whether to jump aboard the stock market’s record-breaking rally, LPL is one of the biggest firms trying to connect them with stocks, bonds and other products. But the low-cost model that has aided LPL’s explosive growth has brought with it shortcomings that point to the difficulties regulators face in overseeing far-flung financial advisers.

As LPL has expanded, state and federal authorities have censured the company and its brokers with unusual frequency. LPL brokers have been penalized for selling complex investments to unsophisticated investors, for speculative trading in customer accounts, and, in a few cases, for outright stealing from clients.

“LPL is on our radar screen more than any other firm,” said Lynne Egan, who oversees securities regulation in Montana. Last fall, Ms. Egan brought a case against LPL, accusing it of failing to supervise a broker. She said her office is preparing to bring another case against the company, involving multiple brokers.

In the last year and a half, state regulators in Illinois, Massachusetts, Montana, Oregon and Pennsylvania have penalized LPL for failing to oversee its brokers properly. Brokers at the company have faced the most common industry reprimand more frequently than brokers at its large competitors since the beginning of 2012, according to a review of data from the Financial Industry Regulatory Authority, or Finra, the industry’s self-regulator.

Executives for the firm declined to comment for this article, but a spokeswoman, Betsy Weinberger, said in a statement that LPL had taken “steps to enhance our overall platform, including investing in our compliance process and oversight capabilities to support our growth. We remain steadfast in our commitment to serving investors and doing the right thing.”

Ms. Weinberger said the company increased its risk and compliance budget 5 percent last year and 11 percent this year.

LPL was created in 1989 through a merger of two older brokerage firms, Linsco, of Boston, and Private Ledger, of San Diego. It grew to national prominence after 2005, when two large private investment firms, TPG Capital and Hellman & Friedman, bought LPL and financed a number of acquisitions from California to New York. LPL went public in 2010, and its stock has been up slightly since then.

LPL’s rapid growth, and the problems that came with it, reflect forces that are changing the way millions of ordinary Americans interact with Wall Street. Since the financial crisis hit in 2008, prominent firms like Merrill, which long catered to individual investors, have lost brokers and customers.

Many investors have turned instead to independent brokerage firms like LPL. Unlike employees of the industry giants, LPL brokers are essentially contractors. They get LPL e-mail addresses and come under LPL compliance but pay for office space and staff.

For LPL and its brokers, it is a lucrative arrangement. With overhead costs relatively low, the company can pass a large percentage of commissions and fees — upward of 80 percent — back to its brokers. LPL has said that such a model is also an advantage for investors because the company does not have its own investment products, like the mutual funds created by the big banks, that it wants to push onto its customers.

But analysts say that the high commissions leave LPL less money for compliance and can attract brokers interested in skirting the rules. Brad Hintz, an analyst at Sanford C. Bernstein, said that LPL’s management had done a good job expanding the company and improving its compliance technology, allowing brokers with high standards to do well. But he said the scattered nature of its offices was an Achilles’ heel that exposed the company to lawsuits and regulatory risks.

“If the Indians run off the reservations, you have no one guarding the borders,” he said.

This article has been revised to reflect the following correction:

Correction: March 22, 2013

An earlier version of a chart with this article misstated a metric in determining the frequency of regulatory actions. It is the number of regulatory actions per 10,000 advisers, not per 1,000 advisers.

Qualified Private Activity Bonds Come Under New Scrutiny

But this valuable perk — the ability to finance a variety of business projects cheaply with bonds that are exempt from federal taxes — has not only endured, it has grown, in what amounts to a stealth subsidy for private enterprise.

A winery in North Carolina, a golf resort in Puerto Rico and a Corvette museum in Kentucky, as well as the Barclays Center in Brooklyn and the offices of both the Goldman Sachs Group and Bank of America Tower in New York — all of these projects, and many more, have been built using the tax-exempt bonds that are more conventionally used by cities and states to pay for roads, bridges and schools.

In all, more than $65 billion of these bonds have been issued by state and local governments on behalf of corporations since 2003, according to an analysis of Bloomberg bond data by The New York Times. During that period, the single biggest beneficiary of such securities was the Chevron Corporation, which last year reported a profit of $26 billion.

At a time when Washington is rent by the politics of taxes and deficits, select companies are enjoying a tax break normally reserved for public works. This style of financing, called “qualified private activity bonds,” saves businesses money, because they can borrow at relatively low interest rates. But those savings come at the expense of American taxpayers, because the interest paid to bondholders is exempt from taxes. What is more, the projects are often structured so companies can avoid paying state sales taxes on new equipment and, at times, avoid local property taxes.

Budget analysts say these bonds amount to a government subsidy, in the form of forgone tax revenue. While it is difficult to calculate the precise dollar amount of the subsidy, given the number and variety of these bonds, experts say the annual cost to federal taxpayers could run into the billions.

“The federal government doesn’t cut a check for this, but it costs the government in terms of lower tax revenue,” said Lisa Washburn, a managing director at Municipal Market Advisors, an independent municipal research firm in Concord, Mass., that assisted The Times with its analysis. “If these companies were to issue taxable bonds instead, then the federal government would receive tax revenues on them.”

Ms. Washburn added that the gain to companies, and bond buyers, can be big and long-lasting.

Chevron used most of its federally tax-free borrowings to expand a refinery in Pascagoula, Miss. Archer Daniels Midland, the agribusiness giant, used about $180 million in tax-exempt bonds to improve its grain-processing facilities in Indiana and Iowa. Alcoa raised $250 million to renovate an aluminum plant in Iowa.

Such financing arrangements are now worrying some state and local officials. Many are concerned that the budget battles in Washington will mean less federal money for them, and that the federal government might try to limit the scope of their own tax-free financing.

Some of the subsidized business projects are almost indistinguishable from public works. American Airlines, for instance, another big user of tax-exempt bonds over the last decade, used $1.3 billion of these securities to finance a new terminal at Kennedy International Airport. That terminal is owned by the City of New York; American is the builder, the borrower and a tenant.

As political controversy over the federal deficit has mounted, some fiscal experts have taken aim at this sort of tax-exempt borrowing. The team at the Bipartisan Policy Center led by Alice M. Rivlin, a former member of the Federal Reserve, and Pete V. Domenici, the former Republican senator, has called for ending it. A spokeswoman for the center said that such a change could bring in $50 billion for the federal government over 10 years.

The Obama administration would take a different approach, capping the value of the tax break that wealthy bond buyers enjoy, whether they buy private activity bonds or conventional municipal bonds. Some of the bonds in The Times’s analysis are subject to the alternative minimum tax, but taxpayers who incur the A.M.T. typically don’t buy those bonds.

It was Ms. Rivlin who, as founding director of the Congressional Budget Office, issued one of the first major reports on private activity bonds, which the report said were invented by local officials in Mississippi eager to attract business during the Great Depression. In a 1981 report, Ms. Rivlin found that the bonds were in much wider use than previously understood. Companies were using the federal subsidy to build Kmarts, McDonald’s restaurants, private golf courses and tennis clubs — even a topless bar and an adult bookstore in Philadelphia.

Business Briefing | Legal/regulatory: S.E.C. Increases Scrutiny of Chesapeake Energy

The connections from preschool to reading proficiency to high school completion — a requirement in today’s economy — is clear.

The sequester isn’t as bad as it looks — and Republicans aren’t as dumb as they look, writes Joe Scarborough.

With Iran, agreeing to meet again keeps alive the slim chance of a diplomatic solution.

Tech Giants, Learning the Ways of Washington, Brace for More Scrutiny

In 2012, among other victories, the industry staved off calls for federal consumer privacy legislation and successfully pushed for a revamp of an obscure law that had placed strict privacy protections on Americans’ video rental records. It also helped achieve a stalemate on a proposed global effort to let Web users limit behavioral tracking online, using Do Not Track browser settings.

But this year is likely to put that issue in the spotlight again, and bring intense negotiations between industry and consumer rights groups over whether and how to allow consumers to limit tracking.

Congress is likely to revisit online security legislation — meant to safeguard critical infrastructure from attack — that failed last year. And a looming question for Web giants will be who takes the reins of the Federal Trade Commission, the industry’s main regulator, this year. David C. Vladeck, the director of the commission’s Bureau of Consumer Protection, has resigned, and there have been suggestions that the chairman of the commission itself, Jon Leibowitz, will step down.

The agency is investigating Google over possible antitrust violations and will subject Facebook to audits of its privacy policy for the next 20 years. Its next steps could serve as a bellwether of how aggressively the commission will take on Web companies in the second Obama administration.

“Now that the election is over, Silicon Valley companies each are thinking through their strategy for the second Obama administration,” said Peter Swire, a law professor at Ohio State University and a former White House privacy official. “The F.T.C. will have a new Democratic chairman. A priority for tech companies will be to discern the new chair’s own priorities.”

In early 2012, an unusual burst of lobbying by tech companies helped defeat antipiracy bills, which had been backed by the entertainment industry. Silicon Valley giants like Facebook and Google feared that the bills would force them to police the Internet.

At the end of the year, Silicon Valley also got its way when the Obama administration stood up against a proposed global treaty that would have given government authorities greater control over the Web.

The key to the industry’s successes in 2012 was simple: it expanded its footprint in Washington just as Washington began to pay closer attention to how technology companies affect consumers. “Privacy and security became top-tier important policy issues in Washington in 2012,” said David A. Hoffman, director of security policy and global privacy officer at Intel.

“Industry has realized it is important to be engaged,” he continued, “to make sure government stakeholders are fully informed and educated about the role that new technology plays and to make sure any action taken doesn’t unnecessarily burden the innovation economy while still protecting individual trust in new technology.”

At the end of 2012, tech companies were on track to have spent record amounts on lobbying for the year. In the first three quarters, they spent close to $100 million, which meant that they were likely to surpass the $127 million they spent on lobbying in 2011, according to an analysis by the Center for Responsive Politics, a Washington-based nonpartisan group that tracks corporate spending. Even the venture capital firm Andreessen Horowitz hired a lobbyist in Washington: Adrian Fenty, a former mayor of the city.

Technology executives and investors also made generous contributions in the 2012 presidential race, luring both President Obama and Mitt Romney to Northern California for fund-raisers and nudging them to speak out on issues like immigration overhaul and lower tax rates.

In a blog post in November, the center said Silicon Valley’s lobbying expenditures have ballooned in recent years, even as spending by other industries has fallen.

This article has been revised to reflect the following correction:

Correction: January 2, 2013

An earlier version of this article referred imprecisely to the federal agency headed by Jon Leibowitz. He is chairman of the Federal Trade Commission, not of its Bureau of Consumer Protection.

Scrutiny for Home Appraisers as Market Struggles

But then came an unpleasant surprise. An appraiser for the buyer’s bank said the house was worth only $195,000. That limited the amount that the bank would lend, forcing the buyer to come up with more cash or negotiate a lower price.

“There was just no way I was selling that house for less than $200,000,” Mr. Olson said. His broker, Brett Barry of Homesmart, advised him that there was little chance of changing the appraiser’s mind. Mr. Olson said, “The part that blows me away — the appraisal can be such an arbitrary, personal decision and there is no appeals process.”

Adding to his indignation, a similar house two doors away was appraised at and sold for $225,000.

Appraisals are generally ordered by banks so they can verify the value of collateral before granting a mortgage. Before the housing crash, when home values seemed only to rise, appraisals were almost an afterthought. But now, with banks far more cautious about lending, a low appraisal can torpedo a deal.

The problem is so widespread that this week the National Association of Realtors blamed faulty appraisals for holding back the housing recovery, saying its members had reported that more than a third of all deals were canceled, delayed or renegotiated to a lower price because of a low appraisal. Several real estate agents said they were starting to include appraisal contingencies in their contracts, spelling out how much a buyer would be willing to pay in cash if the appraisal fell short.

Appraisers use previous sales of comparable houses to help value a home. If prices are just starting to climb, and sales take two or three months to close, there can be a lag before the change in prices is observed.

The Realtors report said appraisers were improperly using foreclosures and neglected properties as comparable homes, failing to account for market conditions like scarce inventory and bidding wars, and working in areas where they lack local expertise. The report faulted banks for using inexperienced appraisers, and for creating unrealistic requirements, like six comparable sales instead of three, at a time of few sales.

“It’s holding sellers off the market,” said Jed Smith, the managing director of quantitative research for the Realtors group. “Sales volume could probably be an additional 10 to 15 percent higher if we had normal lending practices and if we had normal appraisal practices.” That in turn, he said, would create more jobs.

Appraisers and real estate brokers agreed that a ban, imposed since the housing crash, on loan originators’ handpicking appraisers had led to the use of appraisal management companies that take a healthy cut of the consumer’s fee and hire inexperienced, low-cost appraisers.

But appraisers took issue with the complaints and pointed out that unlike real estate agents, they have no bias or incentive to help complete a deal.

“Appraisers don’t set the market, they reflect what’s happening in the market,” said Ken Chitester, a spokesman for the Appraisal Institute, a professional association. “So don’t shoot the messenger. Blaming the appraiser for a bad housing market is like blaming the weatherman because you don’t like the weather.”

Mr. Olson and his buyer compromised on a price of $205,000, less than initially offered and therefore, some might say, less than the house was worth.

But any transaction involving a mortgage is limited by the appraisal — an assessment that is part science and part art and is based on a variety of factors like location and square footage.

Though Mr. Olson’s house was in good condition, the house nearby that sold for more had at least $30,000 worth of upgrades, said Craig Young, the broker who represented the seller. But Mr. Young said appraisals could still be unpredictable, pointing out that a home across the street sold for even more, $239,000.

Firms Beef Up Tax Practices in Silicon Valley as IRS Increases Scrutiny of IP Assets

If there was any doubt about the value of patents to high-tech companies, Apple Inc.'s recent $1 billion victory over Samsung Electronics erased it.

Now the Internal Revenue Service wants a share of the action. The agency is beefing up staff, both nationally and in the San Francisco Bay Area, to look more closely than ever at how high-tech companies price intellectual property transactions involving their overseas subsidiaries.

And it's cracking down on tech companies in Silicon Valley that it suspects are dodging taxes on the profits their IP generates. Companies, however, aren't opening their wallets. They're fighting back, creating a lot more work for both tax planners and litigators. Tax lawyers say they're trying to help clients stay out of tax trouble, advising them to either work with the IRS before there's a dispute, or make sure they have their facts ready when the tax man arrives.

The IRS has made no secret of the fact that it's increasingly focused on what's called transfer pricing, or how a multinational company allocates income and expenses among itself and its foreign subsidiaries for tax purposes. Companies have long used transfer pricing to shift assets to countries with lower corporate tax rates, such as Ireland.

"There's been a substantial increase in controversy work, not just in Silicon Valley, but nationwide," said Kenneth Clark, who chairs Fenwick & West's tax litigation group and successfully defended Xilinx Inc. in one of the biggest transfer pricing cases in recent years. "We're not only seeing more cases, but also a greater degree of intensity in questioning by the IRS. From the taxpayers' perspective, that can mean a tremendous amount of additional work."

Now in addition to manufactured goods, the IRS is homing in on the transfer pricing of what it calls "intangible" intellectual property. Taxing an intangible asset like a patent, however, is no easy task, lawyers said.

There's much room for subjective interpretation about issues such as a patent's actual market value, and who generates more profit from the patent: the parent company in the U.S. where the idea was patented, or the factory in a foreign country that actually makes the products that the parent company sells?

"You end up having a battle over who is adding value," said John Ryan, a partner at Bingham McCutchen in Palo Alto who focuses on tax planning and audit defense. "And reasonable minds differ."

Several IP-heavy tech companies in Silicon Valley recently disclosed transfer pricing disputes with the IRS in their Securities and Exchange Commission filings, including Hewlett-Packard Co., Adobe Systems Inc., Cadence Design Systems Inc., Juniper Networks Inc. and Yahoo Inc., and the potential liabilities are substantial.

Last year, the IRS told Juniper Networks that it owes nearly $900 million in additional taxes based on cost-sharing arrangements related to the licensing of "intangibles," after auditing the company's 2004 to 2006 tax returns. The Sunnyvale, Calif.-based maker of network infrastructure equipment is fighting the tax bill and said in a recent SEC filing that the IRS' position is "inconsistent with applicable tax laws, judicial precedent and existing Treasury regulations."