TOP STORIES -- Dec. 15-20

Regulators, Wall Street Firms Reach Settlement

In a deal designed to restore investors’ trust in Wall Street, the nation’s biggest brokerage firms will pay $1.44 billion to resolve charges that they gave biased stock ratings, and pledged to restructure the way they do business.

But it is unclear how much the settlement -- one of the largest ever won by regulators -- will do to compensate investors for losses punish individual executives and analysts, and bring closure to a year of market scandals.

The firms allegedly misled investors by inflating stock ratings to help their firms win investment banking business.

The settlement negotiated by New York Atty. Gen. Eliot Spitzer, the Securities and Exchange Commission and other regulators calls for 10 firms, including Citigroup, Goldman Sachs and Credit Suisse First Boston, to pay millions in fines, sever the links between research and investment banking, and fund independent stock research for investors that would complement their own analysts’ work.

In agreeing to the fines, the firms would neither admit nor deny charges that they had misled investors.

Also, Jack Grubman, the beleaguered former telecommunications analyst for Salomon Smith Barney, settled with regulators for $15 million and a lifetime ban from the securities industry.

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Boeing’s Spy Satellites Face Overruns, Delays

A new generation of spy satellites being developed by Boeing Co. is under intense scrutiny from Congress, which has raised concerns that the supersecret program faces significant cost overruns and delays, according to Capitol Hill sources.

The potential problems with the nation’s largest intelligence project, most of it under development at Boeing facilities in Seal Beach and El Segundo, could lead Congress to call for a major restructuring of the effort, a source familiar with the discussions said. The project’s cost has been estimated at more than $25 billion over the next two decades.

Still, the overruns, which could hit $600 million to $900 million in 2003 alone, are unlikely to force Congress to cancel the program or to seek another contractor to handle the work, a congressional source said.

In 1999, Boeing beat out Lockheed Martin Co. to develop the spy satellites. . The project, known as Future Imagery Architecture, calls for creating a constellation of satellites equipped with powerful telescopes and radar to gather clear and frequent images of enemy troops in darkness or through cloud cover.

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EPA Issues New Rules on Farm Animal Waste

The Environmental Protection Agency issued new rules on preventing manure from livestock operations from polluting waterways.

Under the new EPA plan, which is less stringent than one proposed earlier by the Clinton administration, the number of U.S. farms that will be required to get special permits for disposing of waste from cows, pigs and chickens will triple.

But most states are likely to find themselves struggling with the red tape generated by the rules. In California, the rules will be overseen by a network of understaffed regional water quality control boards.

Agriculture has become the biggest polluter of U.S. waterways, and these new rules are expected to reduce by 25% the amount of nitrogen and phosphorus -- two of the major pollutants released by the 15,500 largest livestock operations, EPA officials said. Too much of these elements can cause excessive plant growth that kills fish. and ruins waterways for swimmers.

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K2 Set to Buy Rawlings, to Shareholder’s Dismay

Los Angeles-based K2 Inc. said it will buy baseball equipment manufacturer Rawlings Sporting Goods Inc. for $84 million in stock.

The deal, which also includes the assumption of about $40 million in Rawlings debt, would be the first for K2’s new chief executive, Richard Heckmann. He has an aggressive plan to turn the ski and snowboard maker into a major sporting goods company by acquiring other name brands.

Heckmann faces opposition from Rawlings’ biggest shareholder, Daniel Gilbert, who recently made an all-cash bid for the company at $8.50 a share, or about $69.1 million. Gilbert owns 15% of Rawlings’ stock.

Rawlings Chief Executive Stephen O’Hara said the board of the 115-year-old company decided to accept the K2 offer because it agreed with Heckmann’s vision of creating a large, all-season sporting goods firm.

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Murdoch Discusses New Bid for DirecTV

Rupert Murdoch and John Malone are gearing up for a second run at DirecTV, but this time as 50-50 partners, sources said, an unexpected change that reflects their different agendas as they pursue the nation’s leading satellite TV provider.

Top executives of Murdoch’s News Corp. were to discuss a new deal in New York with representatives of General Motors Corp., which owns DirecTV through its El Segundo-based subsidiary, Hughes Electronics Corp. Sources close to the companies said the preliminary meeting would not cover such details as price and structure.

But it was the first since News Corp., with $500 million in financial backing from Malone’s Liberty Media Corp., lost a bidding war for Hughes a year ago to EchoStar Communications Corp. GM put DirecTV back on the auction block after the EchoStar merger was abandoned because of opposition by federal regulators.

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FCC Considers Easing Cable Ownership Cap

The Federal Communications Commission is considering easing the national cable ownership cap to permit a single cable company to control as much as 45% of the national pay-television market, sources said.

The proposed rule, which would replace a fixed 30% national cap that was ruled unconstitutional in 2001, is being drafted by the FCC’s Media Bureau and is expected to be submitted soon to commissioners. A formal FCC vote is not expected until next month.

FCC staffers are leaning toward replacing the fixed 30% cap with a more flexible rule in which mergers that give a cable company 30% to 45% of the market would be judged on a case-by-case basis, sources said. That would mark a shift from other FCC rules that rely on fixed limits.

Experts say the flexible cap, if approved by the commissioners, could provide a hint about how the FCC might approach broadcast ownership rules that are expected to be revamped next year. Critics fear the cap, if approved, would give cable giants too much control over what Americans watch on television and how they connect to the Internet.

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Southland Home Prices Defy Sluggish Economy

An unexpected burst of sales boosted Southern California home prices by 21% in November, the biggest year-over-year increase since the peak of the last housing boom in 1989, according to new figures.

The jump in the overall median price of new and existing houses and condominiums sold, to a record $288,000, showed that Southern California’s housing market is still on a roll despite the gloomy economy and the possibility of a war. Home prices hit new highs in the region’s most-populous counties -- from San Diego to Ventura.

Total sales rose more than 12% to 25,601, according to DataQuick Information Systems, which compiles the sales information from property records. In November, the median price of houses and condominiums sold in Los Angeles County rose 22% from a year earlier, to $281,000. The median price in Orange County surged by almost 19% to $383,000. Even in Riverside County, long considered a haven for affordable housing, the median home price soared almost 19% to $228,000.

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Russian Firm Acquitted in Digital-Piracy Trial

In a blow to anti-piracy efforts, a federal jury acquitted a Russian software company of violating U.S. law by selling a program that picked the locks on Adobe Systems Inc.’s electronic books.

ElcomSoft Co. of Moscow was the first company to be tried on criminal charges under the 1998 Digital Millennium Copyright Act, which makes it illegal to break the locks on digital books, music and movies, even for legal purposes. The San Jose jury rejected all five charges, finding that the company did not intend to violate the law.

Legal analysts said the verdict suggests that prosecutors will have a tough time using the copyright act against technology developers and hackers without solid proof that the defendants knew they were breaking the law.

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Judge Slashes Award in Smoker Case

A Los Angeles judge slashed a record punitive damages verdict against Philip Morris Cos. to $28 million, a hefty sum but a shadow of the $28 billion originally ordered by the jury.

Declaring the jury award to 64-year-old Betty Bullock, a longtime smoker who suffers from lung and liver cancer, “legally excessive,� Superior Court Judge Warren L. Ettinger ruled that $28 million “is a reasonable sum to be awarded against Philip Morris in these circumstances.�

But in his seven-page ruling, Ettinger denied two other motions by Philip Morris: a request to either order a new trial or to discard the jury’s verdict and declare the company not liable. In rejecting the motions, Ettinger said Philip Morris had mounted almost no defense to claims that it had conspired with other cigarette makers to conceal the risks and addictiveness of smoking.

William S. Ohlemeyer, Philip Morris vice president and associate general counsel, said the company will appeal.

Bullock, of Newport Beach, has the option of seeking a new trial solely on punitive damages or consenting to the reduced award by Friday.

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Cable, TV Companies Reach Deal on HDTV

Cable operators and TV manufacturers struck a long-awaited agreement designed to make it easier for consumers to get high-definition television from cable, ensure their ability to record most digital programs and preserve the value of older HDTV sets.

The deal will open the door for cable-ready digital TV sets that could deliver HDTV without a separate set-top box. This kind of plug-and-play simplicity is crucial for digital TV, set manufacturers say, because about two-thirds of U.S. homes rely on cable to deliver their TV signals.

The deal won’t take effect, however, unless the Federal Communications Commission adopts a regulation applying the agreement to all cable and satellite operators.

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For a preview of this week’s business news, please see Monday’s business section.