WhatSequester?WashingtonBooms AsaNew GildedAgeTakesRoot
1
YELLOW VOL. CCLXI NO. 127 ******** SATURDAY/SUNDAY, JUNE 1 - 2, 2013 HHHH $2.00 WSJ.com Companies using virtual cur- rencies said they welcome the regulatory push because it helps legitimize the practice and build trust with users and investors. But new rules could also make the systems more cumbersome, taking away some advantages, currency experts say. Bitcoin can sometimes be cheaper to use than regular currencies, for in- stance, because there are fewer “transaction fees” that can take a bite out of regular credit-card transactions. “There is definitely a lot of scrambling that is going on in the industry,” says Carol Van Cleef, a lawyer at Patton Boggs LLP in Washington who repre- sents clients in bitcoin ventures. The four-year-old bitcoin pay- ment system is among the most popular of the new methods. The price of a bitcoin on the Tokyo- Please turn to the next page State banking regulators are scrutinizing companies that let people buy and sell virtual cur- rencies such as bitcoin, and some are looking at requiring costly licenses, according to peo- ple familiar with the efforts. It is the latest sign that the freewheeling world of virtual currencies is about to get less free. Just this week, prosecutors claimed to have exposed a $6 billion money-laundering ring that allegedly relied on them. “Virtual” currencies can be used just like dollars among peo- ple who agree to accept them. One big difference is that they aren’t backed by a government. Instead, bitcoin enthusiasts say, the currency derives its value from its limited supply and the support of the people using it. In the past three months, the Treasury Department, prosecu- tors and now state regulators have taken aim at virtual-cur- rency exchanges, telling them they must follow traditional rules aimed at thwarting money- laundering. The lightly regulated currencies have caught the at- tention of people who allegedly use some of them to mask prof- its from illegal activities. At the same time the Internal Revenue Service was targeting tea- party groups, the tax agency took the unusual step of trying to im- pose gift taxes on donors to a prominent conservative advocacy group formed in 2007 to build sup- port for President George W. Bush’s Iraq troop surge. The probe of the group, Free- dom’s Watch, began in the unit led by Lois Lerner, the IRS offi- cial already under scrutiny for her role in the more recent tar- geting of conservative groups. While the IRS confirmed the existence of the gift-tax initiative in 2011, the identity of the group involved—as well as the affilia- tion of individual donors—re- mained a mystery. Former officials of Freedom’s Watch say they believe all five of the IRS audits involved donors to their group, based on conversa- tions with IRS agents and donors at the time of the audits in 2011. The IRS declined to comment, citing taxpayer confidentiality. The gift-tax probe, after it be- came public in 2011, prompted an outcry from Congress and was quickly halted. The now-defunct Freedom’s Watch, which operated with a budget of about $56 million dur- ing its roughly two-year exis- tence, spent about $10.7 million on issue ads in 2008, including television ads during special elections for House races in Lou- isiana and Mississippi. Such groups, which are orga- nized under section 501(c)(4) of the tax code, are allowed to en- gage in some political-campaign activity, as long as that isn’t their primary focus. They also Please turn to page A4 BY JOHN D. MCKINNON AND DIONNE SEARCEY Donors To GOP Group Drew IRS Scrutiny Audits Sought to Impose Gift Tax Meet the Contestants: Crowded Field for Iran’s Presidential Race FIRST DEBATE: From left to right, Saeed Jalili, Gholam Ali Haddad Adel, Mohammad Bagher Qalibaf, Ali Akbar Velayati, Mohammad Gharazi, Mohammad Reza Aref, Hasan Rowhani and Mohsen Rezaei pose for a group photo after their televised presidential debate in Tehran. A7 Islamic Republic of Iran Broadcasting/Associated Press WEEKEND A MESSAGE FOR THE CLASS OF 2013 REVIEW Best In Shower OFF DUTY n U.S. stocks slid late Friday, a weak finish to an- other strong month. The Dow slid 208.96 points, or 1.4%, but rose 1.9% for May. B1 n U.S. consumers pulled back on spending in April despite mounting evidence suggesting that they are be- coming more upbeat. A5 n A U.S. inflation gauge fell in April to its lowest level on record, which could take pressure off the Fed to wind down its bond buying. A2 n China signaled a possible softening on a key point of contention with the U.S. over a proposed Asia-Pacific free- trade agreement. A6 n India’s Sun Pharmaceuti- cal Industries is in talks to acquire Sweden’s Meda, a potential deal that could be valued at $5 billion. B3 n State banking regulators could require companies that allow customers to buy and sell virtual currencies to obtain pricey licenses. A1 n GM’s revamp of its 2014 Chevrolet Malibu shows the auto industry’s new resolve to quickly respond to model changes that fall flat. B3 What’s News i i i Business & Finance World-Wide i i i CONTENTS Books........................ C5-10 Cooking...................... D4-6 Corporate News.... B1-3 Heard on Street....... B14 Icons ............................... C14 In the Markets.......... B4 Opinion................... A11-13 Sports............................ A14 Stock Listings........... B11 Style & Fashion..... D1-3 Travel ........................... D7,8 Weather Watch...... B14 Wknd Investor.... B7-10 s Copyright 2013 Dow Jones & Company. All Rights Reserved > Inside NOONAN A13 IRS Scandal Can Damage Us Most n The IRS focused on con- servative group’s donors. The agency tried to levy gift taxes on donations to the ad- vocacy group Freedom’s Watch. The probe began in the unit led by Lois Lerner, who is under scrutiny for her role in the targeting of tea-party groups. While the IRS confirmed the gift-tax initiative’s existence in 2011, the identity of the group in- volved was a mystery. A1 Freedom’s Watch was cre- ated in 2007 to build sup- port for President Bush’s troop surge in Iraq. n Iranian presidential can- didates addressed the coun- try’s economic woes in their first televised debate. A7 n Hagel used his first visit to Asia as defense secretary to press U.S. concerns about China’s role in “disruptive” cyberespionage. A6 n Medicare’s trustees said spending is growing more slowly and its finances are on a stronger footing than believed a year ago. A5 n A blurred sonar image taken by a robot roving the Pacific floor might show the long-sought wreckage of an aircraft flown by Earhart. A3 BY ROBIN SIDEL AND ANDREW R. JOHNSON ‘Virtual’ Currencies Draw State Scrutiny It Ain’t Rocket Science, but Sock-Making Comes Close i i i The Best of Them Cost $25, Last Forever and Don’t Smell Like Feet NORTHFIELD, Vt.—Designing the world’s best sock takes more than just sweat. Just ask Ric Cabot, a third- generation mill owner from here, who says he is out to sew “the world’s most uncompromising outdoor performance sock.” His Darn Tough Vermont line, a me- rino wool item, has 1,441 stitches per square inch, which he be- lieves to be a record. The result, he says, is unique form-fitting softness. “It’s what I call the math of the sock,” Mr. Cabot adds. “Be- fore me, nobody was talking about stitches per inch.” Darn Tough socks can with- stand 30,000 “rubs” from a ma- chine—seven times more than the next-best brand, and will hold up for life, he says. He tests his claims by wearing Darn Toughs for three weeks at a time without a single wash, simulat- ing the beating a pair can take from potential fungus buildup or the unrelenting sweat of a long hike. He does have competitors. The race to knit the ultimate high-performance sock is ad- vancing at a blistering pace. A decade ago, fewer than 10 com- panies made socks de- signed to reduce bun- ions, blisters and bad smells. Now more than 100 companies— mostly in the U.S.— are competing to get a foot in the door of the lucrative market for $25-a-pair socks. They are investing millions of dollars to keep the feet of hikers, skiers, runners and other active Americans safe and dry. A pair of feet has 250,000 sweat glands and can produce “moisture,” as the industry calls it, of up to 30 gallons a year. So these high-end sock makers are bat- tling over the respec- tive merits of merino wool and synthetic blends, creating ven- tilation slots to re- lease heat and adding “wicking rings” to push away moisture from the foot. Many are unafraid to step on the toes of rivals—or point out Please turn to page A10 BY TIMOTHY W. MARTIN POTOMAC, Md.—On a bright spring morning, Debbie Driesman and her inte- rior decorator surveyed progress on Norton Manor, the 40,000 square-foot house she’s building with her husband, information-technology entrepreneur Frank Islam. To make way for the French chateau-style manse, the family bought two houses on adjacent 4-acre lots and invited the local fire department to de- stroy them. For practice. The manor, in suburban Washington, features a reflecting pool (just as the Capi- tol does), east and west wings (like the White House) and is configured for easy Se- cret Service coverage when VIP guests at- tend the couple’s Democratic Party fund- raisers. Decorator Skip Sroka scoured the globe for Norton Manor’s marble fireplaces, hand-loomed carpets and several tons of gilded and Venetian chandeliers. The gar- dens are modeled, in part, after those of Henry VIII’s Hampton Court palace. “If there’s something he can’t have that he wants, you have to find a way,” Ms. Driesman says of her exacting hus- band. “You can’t just tell him ‘no.’ ” The sprawling compound is a product of Washington’s Gilded Age—a time of lush business profits initially fueled by govern- ment outsourcing and war. Some demogra- phers predicted the boom here would ebb as federal spending shrank amid troop withdrawals from the Middle East and ef- forts to trim the deficit. Instead, the region has shown surpris- ing resilience, thanks to an economy that has steadily broadened beyond the gov- ernment. More than a generation of heavy federal spending, it turns out, has provided the seed money for a Washing- ton economy that now operates glob- ally—less tied to the vicissitudes of the capital’s political rhythms. The new moneyed brain trust is being led by professionals in defense, intelli- gence and data—many of whom excelled initially due to government ties. They’ve propelled the D.C. region as a leader in the cybersecurity and data sectors, as well as in more-specialized arenas includ- ing educational products and health-care data management. In the first decade of the 21st Century, Please turn to page A10 What Sequester? Washington Booms As a New Gilded Age Takes Root BY ELIZABETH WILLIAMSON Ric Cabot calls his ‘Darn Tough Vermont’ socks ‘uncompromising.’ Darn Tough Vermont The four-year-old bitcoin payment system is among the most popular of the new methods. Lincoln Financial Group is the marketing name for Lincoln National Corporation and insurance company affiliates, including The Lincoln National Life Insurance Company, Fort Wayne, IN, and in New York, Lincoln Life & Annuity Company of New York, Syracuse, NY. Variable products distributed by broker/dealer-affiliates. Lincoln Financial Distributors, Inc., Radnor, PA. Securities and investment advisory services offered through other affiliates. © 2013 Lincoln National Corporation. LCN # 1304-2079588 life income retirement group benefits advice Calling all Chief Life Officers. Take charge today at lincolnfinancial.com/clo You’re the boss of your life. C M Y K Composite Composite MAGENTA CYAN BLACK P2JW152000-8-A00100-10FEEB7178F CL,CX,DL,DM,DX,EE,EU,FL,HO,KC,MW,NC,NE,NY,PH,PN,RM,SA,SL,SW,TU,WB,WE BG,BM,BP,CC,CH,CK,CP,DN,DR,FW,HL,HW,KS,LG,LK,MI,ML,NM,PA,PI,PV,TD,TS,UT,WO P2JW152000-8-A00100-10FEEB7178F
Transcript of WhatSequester?WashingtonBooms AsaNew GildedAgeTakesRoot
YELLOW
VOL. CCLXI NO. 127 * * * * * * * *
SATURDAY/SUNDAY, JUNE 1 - 2, 2013
HHHH $2 .00
WSJ.com
Companies using virtual cur-rencies said they welcome theregulatory push because it helpslegitimize the practice and buildtrust with users and investors.But new rules could also makethe systems more cumbersome,taking away some advantages,currency experts say. Bitcoin cansometimes be cheaper to use
than regular currencies, for in-stance, because there are fewer“transaction fees” that can takea bite out of regular credit-cardtransactions.
“There is definitely a lot ofscrambling that is going on inthe industry,” says Carol VanCleef, a lawyer at Patton BoggsLLP in Washington who repre-sents clients in bitcoin ventures.
The four-year-old bitcoin pay-ment system is among the mostpopular of the new methods. Theprice of a bitcoin on the Tokyo-
Pleaseturntothenextpage
State banking regulators arescrutinizing companies that letpeople buy and sell virtual cur-rencies such as bitcoin, andsome are looking at requiringcostly licenses, according to peo-ple familiar with the efforts.
It is the latest sign that thefreewheeling world of virtualcurrencies is about to get lessfree. Just this week, prosecutorsclaimed to have exposed a $6billion money-laundering ringthat allegedly relied on them.
“Virtual” currencies can beused just like dollars among peo-ple who agree to accept them.One big difference is that theyaren’t backed by a government.Instead, bitcoin enthusiasts say,the currency derives its valuefrom its limited supply and thesupport of the people using it.
In the past three months, theTreasury Department, prosecu-tors and now state regulatorshave taken aim at virtual-cur-rency exchanges, telling themthey must follow traditionalrules aimed at thwarting money-laundering. The lightly regulatedcurrencies have caught the at-tention of people who allegedlyuse some of them to mask prof-its from illegal activities.
At the same time the InternalRevenue Servicewas targeting tea-party groups, the tax agency tookthe unusual step of trying to im-pose gift taxes on donors to aprominent conservative advocacygroup formed in 2007 to build sup-port for President George W.Bush’s Iraq troop surge.
The probe of the group, Free-dom’s Watch, began in the unitled by Lois Lerner, the IRS offi-cial already under scrutiny forher role in the more recent tar-geting of conservative groups.
While the IRS confirmed theexistence of the gift-tax initiativein 2011, the identity of the groupinvolved—as well as the affilia-tion of individual donors—re-mained a mystery.
Former officials of Freedom’sWatch say they believe all five ofthe IRS audits involved donors totheir group, based on conversa-tions with IRS agents and donorsat the time of the audits in 2011.
The IRS declined to comment,citing taxpayer confidentiality.
The gift-tax probe, after it be-came public in 2011, prompted anoutcry from Congress and wasquickly halted.
The now-defunct Freedom’sWatch, which operated with abudget of about $56 million dur-ing its roughly two-year exis-tence, spent about $10.7 millionon issue ads in 2008, includingtelevision ads during specialelections for House races in Lou-isiana and Mississippi.
Such groups, which are orga-nized under section 501(c)(4) ofthe tax code, are allowed to en-gage in some political-campaignactivity, as long as that isn’ttheir primary focus. They also
PleaseturntopageA4
BY JOHN D. MCKINNONAND DIONNE SEARCEY
DonorsTo GOPGroupDrew IRSScrutinyAudits Sought toImpose Gift Tax
Meet the Contestants: Crowded Field for Iran’s Presidential Race
FIRST DEBATE: From left to right, Saeed Jalili, Gholam Ali Haddad Adel, Mohammad Bagher Qalibaf, Ali Akbar Velayati, Mohammad Gharazi,Mohammad Reza Aref, Hasan Rowhani and Mohsen Rezaei pose for a group photo after their televised presidential debate in Tehran. A7
IslamicRe
publicof
Iran
Broadcasting
/AssociatedPress
WEEKEND
A MESSAGE FORTHE CLASS OF 2013
REVIEW
BestInShower
OFF DUTY
n U.S. stocks slid lateFriday, a weak finish to an-other strong month. The Dowslid 208.96 points, or 1.4%,but rose 1.9% for May. B1n U.S. consumers pulledback on spending in Aprildespite mounting evidencesuggesting that they are be-coming more upbeat. A5n A U.S. inflation gauge fellin April to its lowest level onrecord, which could takepressure off the Fed to winddown its bond buying. A2n China signaled a possiblesoftening on a key point ofcontention with the U.S. overa proposed Asia-Pacific free-trade agreement. A6n India’s Sun Pharmaceuti-cal Industries is in talks toacquire Sweden’s Meda, apotential deal that could bevalued at $5 billion. B3n State banking regulatorscould require companiesthat allow customers to buyand sell virtual currencies toobtain pricey licenses. A1n GM’s revamp of its 2014Chevrolet Malibu shows theauto industry’s new resolveto quickly respond to modelchanges that fall flat. B3
What’sNews
i i i
Business&Finance
World-Wide
i i i
CONTENTSBooks........................ C5-10Cooking...................... D4-6Corporate News.... B1-3Heard on Street.......B14Icons............................... C14In the Markets.......... B4
Opinion................... A11-13Sports............................ A14Stock Listings........... B11Style & Fashion..... D1-3Travel ........................... D7,8Weather Watch...... B14Wknd Investor.... B7-10
s Copyright 2013 Dow Jones & Company.All Rights Reserved
>
InsideNOONAN A13
IRS ScandalCan DamageUs Most
n The IRS focused on con-servative group’s donors.The agency tried to levy gifttaxes on donations to the ad-vocacy group Freedom’sWatch. The probe began inthe unit led by Lois Lerner,who is under scrutiny forher role in the targeting oftea-party groups. While theIRS confirmed the gift-taxinitiative’s existence in 2011,the identity of the group in-volved was a mystery. A1Freedom’s Watch was cre-ated in 2007 to build sup-port for President Bush’stroop surge in Iraq.n Iranian presidential can-didates addressed the coun-try’s economic woes in theirfirst televised debate. A7n Hagel used his first visitto Asia as defense secretaryto press U.S. concerns aboutChina’s role in “disruptive”cyberespionage. A6nMedicare’s trustees saidspending is growing moreslowly and its finances areon a stronger footing thanbelieved a year ago. A5n A blurred sonar imagetaken by a robot roving thePacific floor might show thelong-sought wreckage of anaircraft flown by Earhart. A3
BY ROBIN SIDELAND ANDREW R. JOHNSON
‘Virtual’ CurrenciesDraw State Scrutiny
It Ain’t Rocket Science, but Sock-Making Comes Closei i i
The Best of Them Cost $25, Last Forever and Don’t Smell Like Feet
NORTHFIELD, Vt.—Designingthe world’s best sock takes morethan just sweat.
Just ask Ric Cabot, a third-generation mill owner from here,who says he is out to sew “theworld’s most uncompromisingoutdoor performance sock.” HisDarn Tough Vermont line, a me-rino wool item, has 1,441 stitchesper square inch, which he be-lieves to be a record. The result,he says, is unique form-fittingsoftness.
“It’s what I call the math ofthe sock,” Mr. Cabot adds. “Be-fore me, nobody was talkingabout stitches per inch.”
Darn Tough socks can with-stand 30,000 “rubs” from a ma-chine—seven times more thanthe next-best brand, and willhold up for life, he says. He testshis claims by wearing DarnToughs for three weeks at a timewithout a single wash, simulat-ing the beating a pair can takefrom potential fungus buildup orthe unrelenting sweat of a longhike.
He does have competitors.The race to knit the ultimate
high-performance sock is ad-vancing at a blistering pace. Adecade ago, fewer than 10 com-
panies made socks de-signed to reduce bun-ions, blisters and badsmells. Now morethan 100 companies—mostly in the U.S.—are competing to get afoot in the door of thelucrative market for$25-a-pair socks.
They are investing millions ofdollars to keep the feet of hikers,skiers, runners and other activeAmericans safe and dry. A pairof feet has 250,000 sweat glandsand can produce “moisture,” as
the industry calls it,of up to 30 gallons ayear.
So these high-endsock makers are bat-tling over the respec-tive merits of merinowool and syntheticblends, creating ven-tilation slots to re-
lease heat and adding “wickingrings” to push away moisturefrom the foot.
Many are unafraid to step onthe toes of rivals—or point out
PleaseturntopageA10
BY TIMOTHY W. MARTIN
POTOMAC, Md.—On a bright springmorning, Debbie Driesman and her inte-rior decorator surveyed progress onNorton Manor, the 40,000 square-foothouse she’s building with her husband,information-technology entrepreneurFrank Islam. To make way for the Frenchchateau-style manse, the family boughttwo houses on adjacent 4-acre lots andinvited the local fire department to de-stroy them. For practice.
The manor, in suburban Washington,features a reflecting pool (just as the Capi-tol does), east and west wings (like theWhite House) and is configured for easy Se-cret Service coverage when VIP guests at-tend the couple’s Democratic Party fund-
raisers. Decorator Skip Sroka scoured theglobe for NortonManor’s marble fireplaces,hand-loomed carpets and several tons ofgilded and Venetian chandeliers. The gar-dens are modeled, in part, after those ofHenry VIII’s Hampton Court palace.
“If there’s something he can’t havethat he wants, you have to find a way,”Ms. Driesman says of her exacting hus-band. “You can’t just tell him ‘no.’ ”
The sprawling compound is a product ofWashington’s Gilded Age—a time of lushbusiness profits initially fueled by govern-ment outsourcing andwar. Some demogra-phers predicted the boom here would ebbas federal spending shrank amid troopwithdrawals from the Middle East and ef-forts to trim the deficit.
Instead, the region has shown surpris-
ing resilience, thanks to an economy thathas steadily broadened beyond the gov-ernment. More than a generation ofheavy federal spending, it turns out, hasprovided the seed money for a Washing-ton economy that now operates glob-ally—less tied to the vicissitudes of thecapital’s political rhythms.
The new moneyed brain trust is beingled by professionals in defense, intelli-gence and data—many of whom excelledinitially due to government ties. They’vepropelled the D.C. region as a leader inthe cybersecurity and data sectors, aswell as in more-specialized arenas includ-ing educational products and health-caredata management.
In the first decade of the 21st Century,PleaseturntopageA10
WhatSequester?WashingtonBoomsAs aNewGilded Age Takes Root
BY ELIZABETH WILLIAMSON
Ric Cabot calls his ‘Darn Tough Vermont’ socks ‘uncompromising.’
DarnToug
hVe
rmon
t
The four-year-oldbitcoin paymentsystem is among themost popular of thenew methods.
Lincoln Financial Group is the marketing name for Lincoln National Corporation and insurance company affiliates, including The Lincoln National Life Insurance Company, Fort Wayne, IN, and in New York, Lincoln Life & Annuity Company of New York, Syracuse,NY. Variable products distributed by broker/dealer-affiliates. Lincoln Financial Distributors, Inc., Radnor, PA. Securities and investment advisory services offered through other affiliates.© 2013 Lincoln National Corporation. LCN # 1304-2079588
life
income
retirement
group benefits
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Calling allChief Life Officers.
Take charge today at lincolnfinancial.com/clo
You’re the boss of your life.
CM Y K CompositeCompositeMAGENTA CYAN BLACK
P2JW152000-8-A00100-10FEEB7178F CL,CX,DL,DM,DX,EE,EU,FL,HO,KC,MW,NC,NE,NY,PH,PN,RM,SA,SL,SW,TU,WB,WEBG,BM,BP,CC,CH,CK,CP,DN,DR,FW,HL,HW,KS,LG,LK,MI,ML,NM,PA,PI,PV,TD,TS,UT,WO
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