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Fair Game: Trying to Pierce a Wall Street Fog

Not much has come out on the case since then, leading some participants in the market to wonder whether this is yet another matter the Justice Department has let slide. A Justice Department spokesman said its investigation was continuing.

Thankfully, though, we may yet learn what actually went on behind the scenes in this trillion-dollar market. Investigators for European regulators are hot on the trail and a handful of pension funds have recently filed two suits against the big banks dominating the swaps arena. These investors contend that they overpaid when they bought and sold the instruments — to the tune of billions each year — because of the banks’ control of the market.

On July 1, the antitrust division of the European Commission announced that its investigators had come to a “preliminary conclusion” that the banks and two entities controlled by them had infringed European antitrust rules. These entities colluded, the commission said, “to prevent exchanges from entering the credit derivatives business between 2006 and 2009.”

Credit default swaps were at the center of the financial crisis. These instruments allow holders of bonds or other debt to hedge their risks in those positions. But the swaps also let speculators bet on a debt issuer’s default. The swaps almost felled the American International Group, the insurance giant, and were embedded in some of the stinkiest mortgage securities ever wrought.

But the market for these swaps has been conducted in the shadows. Trades were made over-the-counter — between private parties and not on an exchange. This meant that participants’ positions were not disclosed to regulators.

Wall Street likes the fog of over-the-counter markets because the profits generated by executing customers’ trades in them are far greater than in more transparent arenas. Think of the way you might shop for a mortgage: if mortgage rates were not publicly available, it would be hard to know whether the rate one banker offered was competitive. Customers that dealt with only one banker on their credit default swaps almost certainly did not get the best prices.

The 13 banks under the microscope on credit default swaps include Bank of America Merrill Lynch, Goldman Sachs, JPMorgan Chase, Morgan Stanley and UBS. Two associated entities controlled by the big banks are also being scrutinized — the International Swaps and Derivatives Association, a lobbying organization, and Markit, a data service provider.

A spokeswoman for the European Commission declined to comment beyond the July 1 announcement of its preliminary conclusions. Now the banks can make their arguments to the commission. If the officials are not persuaded and find enough evidence of antitrust infringements by any of the entities, the commission said, it can impose a fine of up to 10 percent of a bank’s revenue.

The commission began its investigation in April 2011, two years after the Justice Department’s. The European inquiry focused on activities from 2006 to 2009 when two exchanges, the Deutsche Börse and the Chicago Mercantile Exchange, were trying to enter the credit derivatives business.

Both exchanges sought licenses and data from I.S.D.A. and Markit to begin trading futures contracts based on credit default swaps, the commission said. But it said that the banks that control both entities refused to provide licenses for exchange trading, and that several banks tried to shut out the exchanges by choosing another clearing house for trades, ICE Clear Europe, which they owned.

These activities may have delayed the development of exchange trading in these derivatives, the commission said. Investors’ costs are much higher in over-the-counter markets where spreads are wide between the prices they must pay to buy and sell. Trading on an exchange narrows those spreads. According to a 2012 study by Deloitte, for example, spreads between bids and offers on dividend swaps declined by 75 percent after they began trading on the Eurex exchange in 2008.

“There was no question the banks did not want the C.M.E. to make the market more liquid and transparent,” said one person briefed on the banks’ internal discussions who asked for anonymity because he was not authorized to speak publicly. “This was their cash cow, and they didn’t want to give it up.”

None of the banks would comment on either Europe’s investigation or on the recent lawsuits. Steven Kennedy, a spokesman for I.S.D.A., said it was cooperating with the commission. “I.S.D.A. is confident that it has acted properly at all times and has not infringed E.U. competition rules,” he added. He also said the allegations in the lawsuits were meritless.

A spokesman for the Markit Group did not return a phone call seeking comment.

The banks have pushed to keep the market for credit default swaps in the dark. Three years ago, the Dodd-Frank legislation aimed to bring more competition by pushing trading onto exchanges and swap execution facilities. Wall Street tried to beat back regulators’ efforts to write tough rules after the legislation’s lead. They won some and they lost some. For instance, dealers now have to report swap transactions to regulators.

There was a reason for the banks’ pushback: money. The Deloitte study cited a 2010 analysis by Citigroup showing that the big banks’ trading in over-the-counter derivatives generated revenue of $55 billion, or 37 percent of the total at these institutions. Such profits will fall as more swaps trade on swap execution facilities under the new rules.

THE pension fund of the Sheet Metal Workers Local 33 of Cleveland is among the investors who filed the lawsuits against the banks, I.S.D.A. and Markit.

“The antitrust laws are the Magna Carta of free enterprise,” said Christopher M. Burke, a lawyer at Scott & Scott in San Diego who represents the pension fund. “When you have markets that are not competitive, opaque and where market players don’t have access to the same information, the markets are not functioning in a competitive fashion. Those that have the information can take advantage of that fact and extract anticompetitive leverage over those that lack the information.”

Mr. Burke pointed out that a private lawsuit, like the pension fund’s, is one way to shed light on anticompetitive behavior. Another is government action. European antitrust laws, unlike those in the United States, allow authorities to pursue remedies for past behavior. That’s a powerful tool for pulling back the curtain on investor-unfriendly practices.

Fair Game: Trying to Pierce a Wall Street Fog

Not much has come out on the case since then, leading some participants in the market to wonder whether this is yet another matter the Justice Department has let slide. A Justice Department spokesman said its investigation was continuing.

Thankfully, though, we may yet learn what actually went on behind the scenes in this trillion-dollar market. Investigators for European regulators are hot on the trail and a handful of pension funds have recently filed two suits against the big banks dominating the swaps arena. These investors contend that they overpaid when they bought and sold the instruments — to the tune of billions each year — because of the banks’ control of the market.

On July 1, the antitrust division of the European Commission announced that its investigators had come to a “preliminary conclusion” that the banks and two entities controlled by them had infringed European antitrust rules. These entities colluded, the commission said, “to prevent exchanges from entering the credit derivatives business between 2006 and 2009.”

Credit default swaps were at the center of the financial crisis. These instruments allow holders of bonds or other debt to hedge their risks in those positions. But the swaps also let speculators bet on a debt issuer’s default. The swaps almost felled the American International Group, the insurance giant, and were embedded in some of the stinkiest mortgage securities ever wrought.

But the market for these swaps has been conducted in the shadows. Trades were made over-the-counter — between private parties and not on an exchange. This meant that participants’ positions were not disclosed to regulators.

Wall Street likes the fog of over-the-counter markets because the profits generated by executing customers’ trades in them are far greater than in more transparent arenas. Think of the way you might shop for a mortgage: if mortgage rates were not publicly available, it would be hard to know whether the rate one banker offered was competitive. Customers that dealt with only one banker on their credit default swaps almost certainly did not get the best prices.

The 13 banks under the microscope on credit default swaps include Bank of America Merrill Lynch, Goldman Sachs, JPMorgan Chase, Morgan Stanley and UBS. Two associated entities controlled by the big banks are also being scrutinized — the International Swaps and Derivatives Association, a lobbying organization, and Markit, a data service provider.

A spokeswoman for the European Commission declined to comment beyond the July 1 announcement of its preliminary conclusions. Now the banks can make their arguments to the commission. If the officials are not persuaded and find enough evidence of antitrust infringements by any of the entities, the commission said, it can impose a fine of up to 10 percent of a bank’s revenue.

The commission began its investigation in April 2011, two years after the Justice Department’s. The European inquiry focused on activities from 2006 to 2009 when two exchanges, the Deutsche Börse and the Chicago Mercantile Exchange, were trying to enter the credit derivatives business.

Both exchanges sought licenses and data from I.S.D.A. and Markit to begin trading futures contracts based on credit default swaps, the commission said. But it said that the banks that control both entities refused to provide licenses for exchange trading, and that several banks tried to shut out the exchanges by choosing another clearing house for trades, ICE Clear Europe, which they owned.

These activities may have delayed the development of exchange trading in these derivatives, the commission said. Investors’ costs are much higher in over-the-counter markets where spreads are wide between the prices they must pay to buy and sell. Trading on an exchange narrows those spreads. According to a 2012 study by Deloitte, for example, spreads between bids and offers on dividend swaps declined by 75 percent after they began trading on the Eurex exchange in 2008.

“There was no question the banks did not want the C.M.E. to make the market more liquid and transparent,” said one person briefed on the banks’ internal discussions who asked for anonymity because he was not authorized to speak publicly. “This was their cash cow, and they didn’t want to give it up.”

None of the banks would comment on either Europe’s investigation or on the recent lawsuits. Steven Kennedy, a spokesman for I.S.D.A., said it was cooperating with the commission. “I.S.D.A. is confident that it has acted properly at all times and has not infringed E.U. competition rules,” he added. He also said the allegations in the lawsuits were meritless.

A spokesman for the Markit Group did not return a phone call seeking comment.

The banks have pushed to keep the market for credit default swaps in the dark. Three years ago, the Dodd-Frank legislation aimed to bring more competition by pushing trading onto exchanges and swap execution facilities. Wall Street tried to beat back regulators’ efforts to write tough rules after the legislation’s lead. They won some and they lost some. For instance, dealers now have to report swap transactions to regulators.

There was a reason for the banks’ pushback: money. The Deloitte study cited a 2010 analysis by Citigroup showing that the big banks’ trading in over-the-counter derivatives generated revenue of $55 billion, or 37 percent of the total at these institutions. Such profits will fall as more swaps trade on swap execution facilities under the new rules.

THE pension fund of the Sheet Metal Workers Local 33 of Cleveland is among the investors who filed the lawsuits against the banks, I.S.D.A. and Markit.

“The antitrust laws are the Magna Carta of free enterprise,” said Christopher M. Burke, a lawyer at Scott & Scott in San Diego who represents the pension fund. “When you have markets that are not competitive, opaque and where market players don’t have access to the same information, the markets are not functioning in a competitive fashion. Those that have the information can take advantage of that fact and extract anticompetitive leverage over those that lack the information.”

Mr. Burke pointed out that a private lawsuit, like the pension fund’s, is one way to shed light on anticompetitive behavior. Another is government action. European antitrust laws, unlike those in the United States, allow authorities to pursue remedies for past behavior. That’s a powerful tool for pulling back the curtain on investor-unfriendly practices.

Business Briefing | Legal News: Ex-Chief Convicted of Trying to Defraud Bank

If the good guys can’t have guns on planes, only the bad guys will have guns on planes.

A new federal study shows that too many prisons and jails tolerate sexual abuse.

Trying to Be Hip and Edgy, Ads Become Offensive

Some of the biggest names in marketing, including Ford Motor, General Motors, Hyundai Motor, Reebok and PepsiCo, have been forced recently to apologize to consumers who mounted loud public outcries against ads that hinged on subjects like race, rape and suicide.

PepsiCo found itself meeting this week with the Rev. Al Sharpton and the family of Emmet Till — the teenager whose death in Mississippi in 1955 helped energize the civil rights movement — to try to quell multiple controversies involving its Mountain Dew brand.

“It’s like the Wild West,” said Paul Malmstrom, a founding partner of the New York office of the Mother ad agency.

Advertising experts offer a long list of reasons for the increasing frequency of such incidents, but the primary reason they keep happening, they say, is the growing anxiety on Madison Avenue to create ads that will be noticed and break through the clutter.

“It’s the pressure to create ‘viral’ advertising, the urge to get more views online, that leads people to push the envelope,” said Tor Myhren, president and chief creative officer at Grey New York. He added that another contributing factor was the focus on younger consumers. “There’s so much ‘How do we speak to millennials?’ in meetings,” he said.

The toll that those controversies are taking on the ad business is in some instances more than just embarrassment. Two senior creative executives at JWT India, including a managing partner, lost their jobs after the company produced fake ads for the Ford Figo hatchback that showed women bound and gagged in the trunk as celebrities like Paris Hilton and Silvio Berlusconi sat behind the wheel.

JWT apologized, as did Ford, although there was nothing to suggest that the carmaker had either approved or known about the fake ads.

The celebrities in the Ford India ads appeared without consent, but even instances where stars agree to work with a brand can be fraught with risk.

Those celebrities, particularly rappers and actors with images as rebellious rule-breakers and risk-takers, often appeal to marketers’ youthful target audiences and have huge followings on social media. That is what drew Mountain Dew to Lil Wayne, the rapper who signed a multimillion-dollar celebrity endorsement deal with the soft-drink brand last year. The brand severed ties with the artist last week, however, after the Till family took issue with an ad that referred to Till with vulgar lyrics sung by Lil Wayne on a remix of “Karate Chop,” by the rapper Future.

As part of its efforts, the family also brought attention to an offensive Mountain Dew video ad created by the hip-hop producer and rap artist known as Tyler, the Creator. The spot featured a battered white waitress trying to identify her assailant from a lineup that included African-American men and a goat. Mountain Dew dropped the ad on May 1.

On Wednesday at the PepsiCo offices in White Plains, company executives, including Frank Cooper, the chief marketing officer for global consumer engagement for Pepsi, and Till family members gathered for a private meeting with Mr. Sharpton.

In a telephone interview, Mr. Sharpton described the meeting as good and its tone as respectful. He said, “The family explained the pain that they have gone through since the killing” and Pepsi executives “repeated their apology and said they would have nothing to do with Wayne and his tour.”

In a statement, the Till family said: “We look forward to ongoing and meaningful collaborations which bridge the music community, corporations, grass-roots organizations and youth.” A representative from PepsiCo agreed that the meeting had been amicable but declined to provide details.

David Schwab, senior vice president at Octagon First Call, a division of Octagon, the sports and entertainment marketing agency, said that brands used stars “to build awareness and create differentiation.”

“But a celebrity who can be a difference maker can come with a high risk,” Mr. Schwab warned, meaning “there is more pressure on brands to be careful.”

Advertising: Trying to Burnish Its Image, Johnson & Johnson Turns to Emotions

The company’s McNeil Consumer Healthcare unit recalled more than 280 million packages of over the counter medications like Motrin, children’s Tylenol liquid and Benadryl in 2010, and the same year, its DePuy Orthopedics unit recalled two popular artificial hip replacement models.

About 10,000 lawsuits have been filed involving those artificial hip devices and while a Chicago jury this month rejected claims of wrongdoing by Johnson & Johnson in one suit, another lawsuit in March yielded a less favorable outcome when a Los Angeles jury ordered the company to pay more than $8.3 million in damages to a Montana man.

In the midst of that turmoil — and perhaps to distance itself from the bad press of product recalls and pending litigation — the company on Thursday is introducing its first corporate branding campaign in more than 10 years. The company will announce the campaign, called For All You Love, at its annual shareholder meeting in New Brunswick, N.J.

The cornerstone of the campaign, a 60-second black and white video, begins with a shot of a sleeping baby about to get a gentle kiss from its mother. In the background, a softer, almost childlike version of the Guns N’ Roses song, “Sweet Child O’ Mine” plays.

“Love,” says a woman’s voice. “It’s the most powerful thing on the planet.” Happy clips from everyday life — a father bathing with his baby, a grandfather playing piano with his granddaughter and a teacher playing with her students — are seen during the spot, as is the occasional Johnson & Johnson product like Band-Aids and baby shampoo.

“Love is family,” says the voice-over. “Love is the reason you care for the tiny and the fragile.”

The campaign was created by TBWA/Chiat/Day, part of TBWA Worldwide, a division of the Omnicom Group. It is the first time the agency has worked with Johnson & Johnson.

“This is the chance to reassert this very iconic brand to the world,” said Rob Schwartz, the global creative president of TBWA Worldwide. The creative team at the agency was inspired by a company statement produced in 1943 that highlighted its responsibility to its consumers, employees, communities and stockholders. Mr. Schwartz described the statement as “one of the best corporate documents ever.”

Based on that, the agency created a manifesto about love that will appear in print publications, including The New York Times and People magazine on May 10. Television commercials and digital ads will begin appearing on May 6 during shows like “Modern Family” on ABC, “The Voice” on NBC and “American Idol” on Fox, and on Web sites like abcnews.com. The videos feature real people and real relationships, not actors, Mr. Schwartz said. Subsequent videos for the campaign will also focus on the philanthropic work the company supports. The campaign is estimated to cost $20 million to $30 million through the end of the year.

While a Johnson & Johnson spokeswoman declined to comment on the company’s recalls or the lawsuits it faces, Michael Sneed, the company’s vice president for global corporate affairs, said the goal of the campaign was “to continue to reconnect with all of the people who come into contact with J.& J. in their daily lives.”

A campaign focused on love creates a sense of trust with the brand, said Kapil Bawa, a marketing professor at the Zicklin School of Business at Baruch College, part of the City University of New York. “Corporate branding tries to instill a sense of trust in the company and for J.& J., given the kind of products it makes, that trust is very, very critical,” Mr. Bawa said.

Mr. Sneed agreed. “I do think people want to understand what’s behind the brand,” he said. “They want to understand what they value.”

Many brand campaigns of late have included a major emotional hook, including a Procter & Gamble campaign from last summer’s Olympics about mothers and their athlete children and a Dove campaign about a forensic sketch artist drawing women based on their own descriptions. “They are trying to humanize the corporate entity,” Mr. Bawa said. “That’s why emotion is so important.”

Emotion was also present at the ad agency table, Mr. Schwartz said. “The smell of the baby powder, the scent of the shampoo, everybody got very emotional just from our meetings,” he said. “This is a very emotional brand, so we’ve got to deliver a very emotional idea.”

Unboxed: Big Data, Trying to Build Better Workers

In telephone call centers, for example, where hourly workers handle a steady stream of calls under demanding conditions, the communication skills and personal warmth of an employee’s supervisor are often crucial in determining the employee’s tenure and performance. In fact, recent research shows that the quality of the supervisor may be more important than the experience and individual attributes of the workers themselves.

New research calls into question other beliefs. Employers often avoid hiring candidates with a history of job-hopping or those who have been unemployed for a while. The past is prologue, companies assume. There’s one problem, though: the data show that it isn’t so. An applicant’s work history is not a good predictor of future results.

These are some of the startling findings of an emerging field called work-force science. It adds a large dose of data analysis, a k a Big Data, to the field of human resource management, which has traditionally relied heavily on gut feel and established practice to guide hiring, promotion and career planning.

Work-force science, in short, is what happens when Big Data meets H.R.

The new discipline has its champions. “This is absolutely the way forward,” says Peter Cappelli, director of the Center for Human Resources at the Wharton School of the University of Pennsylvania. “Most companies have been flying completely blind.”

Today, every e-mail, instant message, phone call, line of written code and mouse-click leaves a digital signal. These patterns can now be inexpensively collected and mined for insights into how people work and communicate, potentially opening doors to more efficiency and innovation within companies.

Digital technology also makes it possible to conduct and aggregate personality-based assessments, often using online quizzes or games, in far greater detail and numbers than ever before.

In the past, studies of worker behavior were typically based on observing a few hundred people at most. Today, studies can include thousands or hundreds of thousands of workers, an exponential leap ahead.

“The heart of science is measurement,” says Erik Brynjolfsson, director of the Center for Digital Business at the Sloan School of Management at M.I.T. “We’re seeing a revolution in measurement, and it will revolutionize organizational economics and personnel economics.”

The data-gathering technology, to be sure, raises questions about the limits of worker surveillance. “The larger problem here is that all these workplace metrics are being collected when you as a worker are essentially behind a one-way mirror,” says Marc Rotenberg, executive director of the Electronic Privacy Information Center, an advocacy group. “You don’t know what data is being collected and how it is used.”

Companies view work-force data mainly as a valuable asset. Last December, for example, I.B.M. completed its $1.3 billion acquisition of Kenexa, a recruiting, hiring and training company. Kenexa’s corps of more than 100 industrial organizational psychologists and researchers was one attraction, but so was its data: Kenexa surveys and assesses 40 million job applicants, workers and managers a year.

Big companies like I.B.M., Oracle and SAP are pursuing the business opportunity. So is eHarmony, the online matchmaking service. It announced in January that it would retool its algorithm for romance so it could examine employee-employer relationships, and enter the talent search business later this year.

THE penchant for digital measurement and monitoring seems most suited to hourly employment, where jobs often involve routine tasks. But will this technology also be useful in identifying and nurturing successful workers in less-regimented jobs? Many companies think so, and can point to some encouraging evidence.

Tim Geisert, chief marketing officer for I.B.M.’s Kenexa unit, observed that an outgoing personality has traditionally been assumed to be the defining trait of successful sales people. But its research, based on millions of worker surveys and tests, as well as manager assessments, has found that the most important characteristic for sales success is a kind of emotional courage, a persistence to keep going even after initially being told no.

The team of behavioral and data scientists at Knack, a Silicon Valley start-up firm, uses computer games and constant measurement to test emotional intelligence, cognitive skills, working memory and propensity for risk-taking. Early pilot testers include the NYU Langone Medical Center, Bain & Company and a unit of Shell, says Guy Halfteck, Knack’s C.E.O.

They Are Trying To Fire Matt Lauer

Matt Lauer is so yesterday.

TV industry insiders say no amount of NBC executive reshuffling can save the embattled “Today” show — until its longtime co-host throws in the towel.

Lauer has been blamed for the show’s ratings woes, which intensified in June when co-host Ann Curry was suddenly ditched and replaced by Savannah Guthrie.

“This problem is not going to go away until Matt Lauer does,” a prominent former NBC News exec told the Daily News on Tuesday. “He’s great, but fairly or unfairly, his brand is damaged.”

The sentiment comes just as a new production team is poised to take over “Today,” which has fallen into second place this year behind archrival “Good Morning America” in the cutthroat ratings race.

Alexandra Wallace, 46, a TV news veteran with morning show experience and a senior vice president at NBC News, will take charge of the show in the near future. She will appoint a new executive producer to replace Jim Bell, who has been running “Today” since 2005.
Bell was behind the unceremonious ouster of Curry.

Competitors like ABC’s “Good Morning America” and “CBS This Morning” are celebrating the move, claiming that Wallace is no turnaround expert.
“Nothing’s changed here,” an industry competitor said of Wallace, a mother of two young children.

“She was put in charge of (Brian Williams’ prime-time magazine) ‘Rock Center’ just earlier this year, and they’re still rock bottom in prime time.” As a top executive at NBC News, she has also had a hand in the slow-motion “Today” ratings collapse.

“They just keep throwing layers of management on this problem,” another competitor said.

Alexandra Wallace

Wallace and the yet-to-be-named producer will replace Bell.

It was under Bell’s watch that the once top-rated “Today” slipped behind archrival “Good Morning America” after 16 dominant years as the most watched morning show on television.

Bell, a likable former Ivy League football player, is expected to shift his focus entirely to NBC Sports’ prized, multibillion-dollar Olympic coverage.

“It’s about time something was done,” a “Today” source told The News.
A “Today” spokeswoman declined to comment.

Many in the television news industry believe that the show lost its dominant place in morning TV because it became stale under Bell’s watch.

“You look at ‘GMA’ and they’ve got it going. They come across like a family, and the approach is appealing and feels fresh,” a high-ranking TV news insider told The News on condition of anonymity. “They’ve got that morning TV chemistry, which the current regime at ‘Today’ just seems to have let slip away.”

Former co-host Katie Couric recently told The News that she believed another issue with “Today” was that the show had gotten too soft and lost part of its focus on hard news.

A good example of that was how, on this year’s anniversary of 9/11, Bell chose to air a mindless interview with Kim Kardashian’s mom, Kris Jenner — in which she rambled on about her breast implants — rather than air a moment of silence at Ground Zero.

Trying to Keep Your E-Mails Secret When the C.I.A. Chief Couldn’t

In the past, a spymaster might have placed a flower pot with a red flag on his balcony or drawn a mark on page 20 of his mistress’s newspaper. Instead, Mr. Petraeus used Gmail. And he got caught.

Granted, most people don’t have the Federal Bureau of Investigation sifting through their personal e-mails, but privacy experts say people grossly underestimate how transparent their digital communications have become.

“What people don’t realize is that hacking and spying went mainstream a decade ago,” said Dan Kaminsky, an Internet security researcher. “They think hacking is some difficult thing. Meanwhile, everyone is reading everyone else’s e-mails — girlfriends are reading boyfriends’, bosses are reading employees’ — because it’s just so easy to do.”

Face it: no matter what you are trying to hide in your e-mail in-box or text message folder — be it an extramarital affair or company trade secrets — it is possible that someone will find out. If it involves criminal activity or litigation, the odds increase because the government has search and subpoena powers that can be used to get any and all information, whether it is stored on your computer or, as is more likely these days, stored in the cloud. And lawyers for the other side in a lawsuit can get reams of documents in court-sanctioned discovery.

Still determined? Thought so. You certainly are not alone, as there are legitimate reasons that people want to keep private all types of information and communications that are not suspicious (like the contents of your will, for example, or a chronic illness). In that case, here are your best shots at hiding the skeletons in your digital closet.

KNOW YOUR ADVERSARY. Technically speaking, the undoing of Mr. Petraeus was not the extramarital affair, per se, it was that he misunderstood the threat. He and his mistress/biographer, Paula Broadwell, may have thought the threat was their spouses snooping through their e-mails, not the F.B.I. looking through Google’s e-mail servers.

“Understanding the threat is always the most difficult part of security technology,” said Matthew Blaze, an associate professor of computer and information science at the University of Pennsylvania and a security and cryptography specialist. “If they believed the threat to be a government with the ability to get their login records from a service provider, not just their spouse, they might have acted differently.”

To hide their affair from their spouses, the two reportedly limited their digital communications to a shared Gmail account. They did not send e-mails, but saved messages to the draft folder instead, ostensibly to avoid a digital trail. It is unlikely either of their spouses would have seen it.

But neither took necessary steps to hide their computers’ I.P. addresses. According to published accounts of the affair, Ms. Broadwell exposed the subterfuge when she used the same computer to send harassing e-mails to a woman in Florida, Jill Kelley, who sent them to a friend at the F.B.I.

Authorities matched the digital trail from Ms. Kelley’s e-mails — some had been sent via hotel Wi-Fi networks — to hotel guest lists. In crosschecking lists of hotel guests, they arrived at Ms. Broadwell and her computer, which led them to more e-mail accounts, including the one she shared with Mr. Petraeus.

HIDE YOUR LOCATION The two could have masked their I.P. addresses using Tor, a popular privacy tool that allows anonymous Web browsing. They could have also used a virtual private network, which adds a layer of security to public Wi-Fi networks like the one in your hotel room.

By not doing so, Mr. Blaze said, “they made a fairly elementary mistake.” E-mail providers like Google and Yahoo keep login records, which reveal I.P. addresses, for 18 months, during which they can easily be subpoenaed. The Fourth Amendment requires the authorities to get a warrant from a judge to search physical property. Rules governing e-mail searches are far more lax: Under the 1986 Electronic Communications Privacy Act, a warrant is not required for e-mails six months old or older. Even if e-mails are more recent, the federal government needs a search warrant only for “unopened” e-mail, according to the Department of Justice’s manual for electronic searches. The rest requires only a subpoena.

Google reported that United States law enforcement agencies requested data for 16,281 accounts from January to June of this year, and it complied in 90 percent of cases.

GO OFF THE RECORD At bare minimum, choose the “off the record” feature on Google Talk, Google’s instant messaging client, which ensures that nothing typed is saved or searchable in either person’s Gmail account.