THURSDAY, DECEMBER 30, 2010


KLMNO U


DOW11,585.38 UP $9.84, 0.1%


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NASDAQ 2666.93 UP $4.05, 0.2%


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S&P 500 1259.78 UP $1.27, 0.1%


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GOLD $1,413.10 UP $7.90, 0.6%


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CRUDE OIL $91.12 DOWN$0.37, 0.4%


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EZ SU ECONOMY & BUSINESS


10-YEAR TREASURY UP $10.30 PER $1,000, 3.35% YIELD


Regulators see chance to cash in


OFFICIALS JOIN PRIVATE SECTOR


Wall Street hiring financial rules experts


BY ZACHARY A. GOLDFARB The president’s recently de-


parted budget director is joining Citigroup. The New York Federal Reserve


Bank’s derivatives expert is join- ing Goldman Sachs. And numerous investigators


fromthe JusticeDepartment and the Securities and Exchange Commission are joining Wall Street’s top law firms. The vast overhaul of financial


regulations and the renewed in- tensity of investigations into white-collar crime has been a boon for regulators, prosecutors and financial policymakers look- ing to cash in on their govern- ment experience and contacts. In recent months, prominent


officials from the White House, Justice Department, SEC, bank- ing regulators and other agen- cies, both federal and state, have been walking through the pro- verbial revolving door to join Goldman, Citi, other financial companies and top law firms in Washington and New York. Lawyers making the move,


who often were in the private sector before joining the govern- ment, can reasonably expect their income to go fromless than $200,000 to $400,000 or more, legal recruiters say. Government agencies have


conflict-of-interest rules that place limits on what former offi- cials can do on their new jobs. But the number of people pass-


ing through the revolving door invariably raises questions about how the promise of a lucrative job affects the thinking of offi- cials while they are in public service. “They’re building relation-


ships with the people on the other side of the table,” said Stavros Gadinis, an assistant law professor at the University of California at Berkeley who has studied the relationship between financial regulators and firms. “If you’re an SEC official prose- cuting a case against Goldman and at the end of the table you have the general counsel ofGold- man, you might be thinking that in a fewyears youwillwant to be able to call the general counsel and ask for a job.” On the other side of that


argument, Gadinis said, finan- cial regulatorswho showthey are aggressive and good at their jobs will also be looked upon favor- ably by companies. The conflict of interest rules


vary but follow a similar pattern. Officials can’t work on specific cases they worked on while in government. And they’re not al- lowed to appear before their former employer for one to two years, depending on the issue.


Orszag joins Citigroup One of the high-profile moves


in recentmonths involves former budget director Peter Orszag, who was a key member of Presi- dentObama’s economic team.He is joining Citi as a vice chairman of global banking. There, he will be among a team of top bankers who nurture the firm’s relations withmajor clients. A statement from a Citi


spokeswoman noted that his role “will not involve contact with U.S. federal government offi- cials.” Goldman has hired Theo Lub-


ke, a long-time Federal Reserve Bank of New York official who led efforts to overhaul the mas- sive derivatives market. Gold- man is a major player in that market and was the subject of intense controversy in 2009 when it came to light that the firm had received billions of dollars from American Interna- tional Group on derivatives con- tracts. AIG was bailed out by the Fed and Treasury. At Goldman, Lubke will be in


the securities division as chief regulatory reformofficer.Hewill be working with top executives to manage implementation of the Dodd-Frank regulatory re- formlaw. Goldman also has hired David


Markovitz, a lawyer who previ- ously was a senior investigator for New York Attorney General Andrew Cuomo. Cuomo launched a number of high-pro- fileWall Street probes. A Goldman spokesman said


Lubke and Markovitz would not be available to comment. Kevin Puvalowski, who was


the deputy special inspector gen- eral for the Troubled Assets Re- lief Program, has joined the SheppardMullin lawfirminNew York. TARP was the $700 billion bailout programfor the financial sector. “I worked with and got to


know folks at Justice, at the Fed, at the Treasury, at the [Federal Deposit Insurance Corp.] and all sorts of federal agencies,” said Puvalowski, a former federal prosecutor. “That can be of assis- tance in my white-collar defense practice. I know the players, whether it’s my former col- leagues in the Southern District of New York or other agencies. They trust you. You have a name and phone number to call.” Driving such hires are several trends, said lawyers who are


making the move and legal re- cruiters. The newDodd-Frank lawover-


hauling financial regulation re- quires agencies such as the SEC and the Commodity Futures Trading Commission to put in place hundreds of new rules governing how Wall Street oper- ates. According to legal recruiter Michael Lord, new hires have been concentrated in commodi- ties, derivatives and securities fraud.


Impact of Dodd-Frank Moreover, federal prosecutors,


the SEC and others have pressed investigations into financial wrongdoing with a renewed in- tensity. Major banks, including Goldman and Citi, have agreed to hundreds ofmillions of dollars in settlements. Many more probes are under way as prosecutors and regulators try to show they are holding accountable execu- tives whose potentially illegal actions may have contributed to the financial crisis. Elizabeth Papez, a Winston &


Strawn lawyer who was a Justice Department official and recently wrapped up a clerkship for Su- preme Court Justice Clarence Thomas, noted that companies must deal with new rules as a result of Dodd-Frank, the new health-care law, increased en- forcement of foreign bribery laws and changes to the rules governing business dealings with the government. Daniel Gallagher, a lawyer at


WilmerHale and former top SEC official, said it is hard to grasp from the outside how seriously SEC staff and the five commis- sioners evaluate rules, interpre- tations and issues facing individ- ual companies. “You can’t really understand it unless you’re in the fire,” he said. goldfarbz@washpost.com


He’s found his D.C. ‘sweet spot’ Focused entrepreneur adding to his collection of ‘lifestyle’ businesses downtown


BY THOMAS HEATH O


ne would think a 9 percent- plus unemployment rate, a wheezing housing market


and a wobbly economy would give an entrepreneur pause, but Washington’s David von Storch is charging ahead with a $15 mil- lion “lifestyle destination” open- ing on U Street in the next few months. By next summer, his 22-year-


old holding company, Urban Ad- ventures, will include five Vida fitness centers, three Bang hair salons, three Aura spas and 901, a high-end $4 million restaurant opening on Ninth Street across from the D.C. Convention Center. Those businesses, which em-


ploy 2,000, generated $30 million in sales in 2010, and von Storch said he can increase that to $40 million in 2011.The company is very profitable, with the fitness centers alone generating $3 mil- lion in 2010, according to von Storch. “We have gas,” von Storch says


of his growing conglomerate, which was built on his Capital City Brewing Co. restaurant chainlet. “What we said was go- ing to happen is happening.” Von Storch’s conglomerate is mining a downtown District cor- ridor that starts around Union Station, slices through the Veri- zon Center district and ends at the surging U Street neighbor- hood. The arc is inhabited by thou-


sands of urban professionals in von Storch’s “sweet spot.” “This part of town does very


well,” said von Storch,whois after the 25-to-49 age group. “It’s the demographic we know — college educated, higher income of $80,000 and above — and a demographic that is very knowl- edgeable, loyalanddemanding. If we can be successful in that space, we can be successful in D.C.” The goal is simple: to feed,


fluff, coif and exercise thousands of downtown Washingtonians each day. On the surface, von Storch’s


strategy appears to be going against better business judgment — selling nonessential, high-end services amid one of the worst national economic downturns ever. His new “lifestyle complex” at


1612UStreet is hardly low-end. It will include a private rooftop club


XIAOMEI CHEN/THE WASHINGTON POST In a dragging economy, David von Storch has continued to expand the lifestyle services he offers inD.C.


with a 60-foot pool, resort caban- as, a communal fire pit, an out- door waterfall,a sun deck and a membership lounge with full food and beverage service. There are even plans for a 65-foot, programmable, illuminated inte- rior color wall. But his lenders are confident. “He is an extremely good risk


in what are considered higher- risk business — food and gymna- siums,” said Matt Agresti, von Storch’s banker at Bank of Ameri- ca Merrill Lynch. “David has just gone against all of that perceived notion of failure and being a high-risk borrower.” Von Storch isn’t alone in shap-


ing D.C. lifestyles. Entrepreneur Anthony Lanier has cobbled an ambitious empire, including a nightclub and an Austrian res- taurant, serving high-end Georgetown. On a smaller scale, Chuck Rendelman is building a chain of self-serve yogurt stores called Fro-Zen-Yo, and restaura- teur Bo Blair (Smith Point, Surf- side, Jetties) on New Year’s Eve is re-launching his private club, the Rookery, as a New Orleans bistro called Bayou that will be open to the public. Von Storch’s Urban Adven- tures focuses on spas, gyms and


hair salons. It is also based on a deep familiarity with the neigh- borhoods where his customers— and potential customers—dwell. “He is the only borrower who


doesn’t just research the loca- tions where he puts his restau- rants, salons and fitness centers,” Agresti said. “He researches the locations by foot . . . walking the neighborhoods.” Von Storch’s financial strategy


is simple and financially conser- vative. He keeps debt to a mini- mum, funding expansion out of cash from operations. The new U Street location is in


a building he already owns. He borrowed $10 million against the building at around 4 percent interest, which is keeping the costs manageable.He is investing another $3 million to $5 million in cash from his businesses to fund the expansion, which will include a spa, fitness center, salon and restaurant under one roof. “We have a very low-risk pro-


file,” von Storch said. “In terms of leverage, Bang Salon has virtually no bank debt. Vida has no bank debt. Capital City Brewing has no bank debt and no leases. The only financing is on the building and a $2.57 million loan for 901.” Herb Miller, a longtime Wash-


ington area developer, said von Storch appears to have great loca- tions, but “the key is whether he can continue to provide high-lev- el customer service. That’s the challenge if he is going to be a great local operator.” The constant expansion makes


some partners nervous.Hair styl- ist Nikki Esoldo, who is a partner with von Storch in Bang salons, said she worries Bang could over- expand and devalue the brand. “Every salon we open, I’m a


nervous wreck,” said Esoldo, who has been von Storch’s business partner for nearly a decade. “We keep reinvesting and reinvesting. I would be fine with where we are now. When there are too many salons, people think of you as a chain. I don’t want to be known as a chain.” Yet von Storch tries to ensure


that every business he owns gen- erates a profit of at least 5 percent on sales. When a Capital City Brewing Co. location in Bethesda wasn’t keeping up with expecta- tions, he closed it. “As painful as it is to close a


store not performing, the minute you close it other opps open up,” he said. “The sooner I get out, the better off I am.”


heatht@washpost.com Faster Forward Excerpt from voices.washingtonpost.com/fasterforward


Latest iPad 2 rumors focus on connectivity More rumors about the iPad 2: The TaiwaneseWeb site Digitimes,


which tracks industry trends, is reporting that the iPad 2 will come in three versions, allowing it to connect to WiFi; UMTS and WiFi; or CDMA and WiFi. UMTS, or universal mobile telecommunications system, is whatAT&T and T-Mobile use for 3G.CDMA, or code division multiple access, is what Sprint and Verizon use. The information was attributed to an unnamed source who said


Apple made its decision to allow more connectivity because 60 to 65 percent of current iPad shipments are 3G models, indicating that users prefer to have the option of connecting to the Internet all the time. The source also told Digitimes that Apple is working to reducesmudgesand glare on the iPad 2’s screen, to better compete with the Kindle. Finally, Digitimes reported that the iPad would likely start mass


production in late January, which, according to CNET, puts the tablet on track for a March or April release. That’s a bit later than previous rumors indicating a February launch.


—Hayley Tsukayama


CURRENCIES $1 = 81.67 YEN; EURO = $1.322


DIGEST LEGAL


Tech giants face revised patent lawsuit Interval Licensing, a Seattle


firm owned by billionaire Micro- soft co-founder Paul Allen, has filed an amended lawsuit against Facebook, Google and nine other companies, claiming they in- fringed on patentedWeb technol- ogy. Interval Licensing owns the


rights to information systems, computer science and communi- cations technology developed by IntervalResearch,whichAllenco- founded in the 1990s. Interval Research no longer exists. The filing is a revision of the


lawsuit Interval Licensing filed in August against Facebook,Google,


RETAIL


Google’s video site YouTube,AOL, Apple, Yahoo,Netflix, eBay,Office Depot,OfficeMax and Staples. U.S. District Judge Marsha


Pechman in Seattle dismissed the original suit because it did not name the infringing products. In- terval’s new suit, filed Tuesday in Seattle, is chock-full of examples of the four patents in question. Two of the patents relate to the wayWeb sites suggest additional, related content. Interval is asking for damages


and, going forward, either royal- tiesorabanonthecompanies’use of the technology.


—Associated Press


A11


STAN HONDA/AGENCE FRANCE-PRESSE VIA GETTY IMAGES In a post-blizzardNewYork, retailersmay get more good news. $1 billion blizzard


Snowstormdelays a big chunk of retail spending inNortheast The blizzard that swept through the Northeast on Sunday and


Mondaydelayed$1billioninretail spending,accordingtoresearchfirm ShopperTrak,butwon’tderail aholiday shopping seasonexpectedtobe the best since 2007. Theeffectwon’tbeasbadas lastyear’spre-Christmas snowstormthat


similarly paralyzed parts of the East Coast. That cost retailers an estimated$2billion,accordingtotheweather researchfirmPlanalytics. About $10 billion in retail sales usually occurs on the two days after


Christmas, ShopperTrak says. Bad weather likely delayed about 10 percent of that. The storm’s effectsweren’t enoughto change ShopperTrak’s estimate


fora4percentgainover lastyear inrevenuefor theNov. 1-Dec.31holiday season. Retailers will still see much of the spending when shoppers return to stores as streets are cleared and transportation restored. This year’s stormcost retailers 11.2percentof their foot trafficSunday and 13.9 percentMonday, ShopperTrak estimates.


—Associated Press CONTRACTING


Lockheed, Austalwin Littoral Shipwork The Navy awarded contracts


for the construction of asmany as 10 Littoral Combat Ships to each of two teams, one ledbyLockheed Martin and one led byAustal. The LockheedMartin team re-


ceived a $491 million contract that couldbeworthasmuchas$4 billion when all options are exer- cised, theNavy saidWednesday in a statement. Austal won a $465 million contract that could reach asmuch$3.78billionif alloptions are exercised. Congress approved the Navy’s


plans last week to buy ships from both of two teams under a dual- design approach, rather than choosing just one supplier as an- nounced in September. The bids


submitted averaged $440million per ship, including construction and potential changes, Navy offi- cials told lawmakers two weeks ago. Lockheed, based in Bethesda,


and Marinette Marine are work- ing together on one model, while the other is being developed by the U.S. subsidiary of Australia’s Austal and General Dynamics. General Dynamics, based in Falls Church, is providing combat sys- tems for theAustal vessel. Littoral Combat Ships are de-


signed to operate closer to coast- lines thanexistingsurfacevessels, such as destroyers, in missions such as clearing mines, hunting submarines and providing hu- manitarian relief. The Navy proj- ects that itwill buy 55 ships under the program.


—BloombergNews


MICHELLE SINGLETARY The Color of Money


Michelle Singletary is away. TheColor ofMoneywill resumewhenshe returns.


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