Apple CEO Tim Cook calls shareholder suit a 'silly sideshow'

SAN FRANCISCO — Apple Inc. Chief Executive Tim Cook criticized a rebellious investor for creating a "silly sideshow" by filing a lawsuit a few weeks before the company's annual shareholder conference.

"Frankly, I find it bizarre that we find ourselves being sued for doing something that's good for shareholders," Cook said. "It's a silly sideshow, honestly. My preference would be that everyone take the money they are spending on this and donate it to a worthy cause."

Cook made his remarks during an interview at a Goldman Sachs technology conference Tuesday. The one-hour appearance covered a variety of subjects, including the shareholder dispute, whether Apple had lost its innovation mojo and the continued expansion of its stores.

If Cook was feeling the pressure of a falling stock price and investor anger, he didn't show it. His remarks displayed an unusual amount of passion and even glibness for a man who carries a more buttoned-down reputation.

For instance, Cook talked about his larger view that Apple's long-term advantage lies in its relentless focus on making "great products" that produced moments of "magic." He said competitors would have a difficult time matching Apple's combined strengths in software, hardware and services.

"Innovation is so deeply embedded in Apple's culture, the boldness, the ambition, a belief that there are not limits, the desire among our people to not just make good products, but to make the very best products in the world," Cook said. "It's as strong as ever. It's in the values and the DNA of the company. I feel fantastic about it. There's not a better place for innovation."

But Cook grew feisty when discussing the challenge issued by David Einhorn of Greenlight Capital Inc. Last week, Einhorn went public with his request that Apple issue a special class of stock to shareholders. Einhorn and other shareholders have been pressing Apple to do more with the $120 billion in cash on its balance sheet.

Einhorn also sued to block a proposition that Apple had placed on its annual proxy ballot that would require a shareholder vote before issuing such a stock.

At first, Cook seemed ready to extend an olive branch of sorts to Einhorn, saying his proposal for a special class of stock might have some merit.

"I think it's creative," he said. "We are going to thoroughly evaluate their current proposal. We welcome all ideas from all our shareholders."

But from there, Cook fired back against some of the criticisms leveled by Einhorn, including his remarks that Apple has a "Depression-era mentality" because it's hoarding cash.

Cook listed several areas in which Apple is investing money, including infrastructure, talent and new products, in addition to announcing last year that it would return $45 billion to shareholders in stock dividends.

"Apple doesn't have a Depression-era mentality," he said. "I don't know how a company with a Depression mind-set would have done all of those things."

Cook said the Cupertino, Calif., company is not going to launch a campaign to get the proposition passed, in part because he believes that its pro-shareholder nature should be self-evident to investors.

"You're not going to see a 'Yes on 2' sign in my yard," Cook said. "It's a distraction. And it's not a seminal issue for Apple."

Apple plans to file its response to Einhorn's lawsuit by the end of Wednesday. And a hearing on the matter is set for next week in District Court in New York.

The annual shareholder meeting is scheduled Feb. 27.

Cook repeated that Apple is continuing to consider whether and how it might return more cash to shareholders.

"It's a privilege to be in a position where we can seriously consider returning additional cash to shareholders," he said.

Cook also used the word "privilege" to describe the kind of issues facing Apple's stores.

He reiterated how crucial the stores remain to Apple. And he discussed the company's expansion plans for its stores by noting that they were becoming so popular that their capacity was being strained by the number of visitors.

"Some of our stores aren't big enough," he said. "It's a privilege to have this kind of issue."

Cook said Apple is shutting down 20 stores and moving them to locations where they can be expanded. In addition, the company will open 30 stores at new locations, mostly outside the U.S., including its first in Turkey. Apple will then have stores in 13 countries.

Last year Apple's 400-plus stores attracted about 120 million people. Cook said the stores' popularity reflected the different philosophy that went into creating them.

"It's a retail experience where you walk in and you realize the store is not here for the purposes of selling; it's here for the purpose of serving," he said.

Apple spends about $1 billion annually on capital expenditures related to retail. Cook said the stores have been essential in terms of introducing people to new products. He said it's hard to imagine Apple's iPad tablet becoming as successful as it has without having a place where customers can see and touch something they had never experienced.

"There's no better place to discover and play and learn about our products than in retail," Cook said.

chris.obrien@latimes.com

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TV commercial actors feeling pinched as they pitch products

In a nearly 30-year television career, Frank Crim has appeared in more than 150 commercials, pitching Honda SUVs, Jack in the Box hamburgers, Allstate insurance, and Capital One credit cards.

The Oklahoma City native has played a plumber, a trash collector, a chef, a cab driver and a demon.

But lately Crim is having to book more jobs to make the same money he did a decade ago.

"I still don't make enough money to buy a house," said Crim, who makes about $60,000 a year and shares an apartment in the San Fernando Valley. "I'm not asking for the moon, just enough to make a livable wage."

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Even as the advertising industry rebounds in the wake of the Great Recession — commercial production reached a record level in Los Angeles last year — middle-class actors hired to pitch products for Ford or Budweiser are having a tougher time making ends meet.

They're being pinched by a variety of forces. Celebrities are taking spots once occupied by lesser-known actors. Lucrative network television residuals — the fees that actors get when their work is rerun — have eroded as advertisers shift spending to cable television shows like "Mad Men" and "Breaking Bad" that pay lower rates.

Many actors feel overexposed and underpaid too when their TV commercials go viral on the Internet.

Those are among the issues confronting negotiators for SAG-AFTRA as they meet in New York this week to begin bargaining on a new three-year contract with advertising agencies. The current contract, which covers about $1 billion in annual earnings for commercial actors, expires March 31.

The negotiation is being closely watched: It is the first since the Screen Actors Guild merged a year ago with its smaller sister union, the American Federation of Television and Radio Artists. SAG-AFTRA leaders face pressure to make good on their vow that a combined union would have more leverage in negotiations to extract improved pay and benefits for their more than 165,000 members, many of whom rely on commercial and voice-over jobs to supplement income from television and film work.

About 50,000 people work under the commercials contract.

Representatives of SAG-AFTRA and a joint policy committee of the American Assn. of Advertising Agencies and the Assn. of National Advertisers declined to comment on the upcoming talks, which begin Thursday.

But the negotiations could be contentious. In 2000 actors staged a six-month strike, mainly over how they were to be paid for commercials shown on network and cable television.

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SAG at that time was dominated by a hard-line group. SAG-AFTRA Co-President Roberta Reardon, who is chairing the negotiating committee, and chief negotiator David White, the union's executive director, are known as moderates who eschew outward confrontations with employers.

That was evident last week when the union sounded a conciliatory tone after the board approved a package of bargaining proposals.

"While there are difficult issues to negotiate ahead, we anticipate a productive dialogue with our bargaining partners and expect a result that is positive for our members," White said.

But the advertisers policy committee has warned members to prepare for a possible strike.

"Consider rescheduling production planned for March 31, 2013, through June 2013 to dates prior to March 31, 2013, to account for any possible impasse and strike," lead negotiator Doug Wood said in a memo in December. "This is of particular concern if you are planning production for the rollout of a new campaign or a planning a celebratory production."

Although SAG-AFTRA officials have declined to publicly discuss their package of proposals, sources close to the confidential negotiations said the union is seeking annual wage increases and higher pay for commercials shown on the Internet, as well as larger health and pension contributions. It's unclear how receptive advertisers will be to the demands, having agreed to $36 million in pay increases over three years in the previous contract negotiation in 2009.

But many veteran commercial actors fear being left behind as advertising migrates to new media.

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18 accused in huge credit card scam were patient, authorities say

NEWARK, N.J. — Many scam artists are looking for ways to get rich quick.

Then there are the 18 people authorities said spent years meticulously creating fake identities, building up their credit scores and credit card limits, and borrowing money they never repaid in what may be one of the nation's largest credit card fraud rings.

The 18 were charged last week in what authorities said was a sprawling international scam in which at least $200 million was stolen using at least 7,000 identities and 25,000 credit cards. The enterprise spanned 28 states and eight countries, authorities said.

The elaborate fraud involved an outlay of patience and meticulous planning rarely seen in such a large credit card fraud case, authorities and industry analysts said.

"What they did was very painstaking, very sophisticated and took a lot of time," said Paul Fishman, the U.S. attorney in Newark, who announced the arrests Tuesday.

The scam started at least as early as 2007, Fishman said. The group created thousands of fake identities, sometimes using real Social Security numbers. One credit card was opened with the identity of a 6-year-old boy; others used Social Security numbers of people who were willing to leave the United States for a fee, Fishman said.

"You have to pull a lot of stuff together. You have to have a phone service and address where you're paying bills," said Avivah Litan, a vice president and analyst at Gartner Research. "They have to do a lot of background work to look like a real person."

The group then opened credit cards with small credit limits. The users purchased everyday items like groceries and paid off the bills so they could increase their credit score. That way, they were able to give the impression that they were a trusted customer, giving them access to a higher credit limit and cash advance checks.

Litan said one of the most impressive aspects of the scam was that the defendants were able to access so much credit during the financial crisis. They probably had to appear to be sterling customers in order to pump up their credit limits so high.

"They did this the last few years when credit was hard to come by," Litan said. "The banks don't give you $50,000 right away."

Authorities allege the defendants added one another and sham businesses as authorized users on credit card accounts, giving more people access to good credit. They received credit card machines with the scam businesses and paid themselves with the cards, Fishman said, and three jewelry stores in Jersey City were allegedly complicit in the scheme.

The defendants then maxed out the cards, buying electronics, jewelry and luxury cars. They also took out loans or cashed the checks and never paid back the money, authorities said.

Authorities did not directly say how the fraud came to light, but a co-conspirator was named in court documents, indicating that someone may have been cooperating.

Al Pascual, senior analyst at Javelin Strategy and Research, said it would be very unlikely for credit bureaus to have caught such a fraud if the cards were initially being used responsibly and paid off. Red flags also would not have been raised if accounts were opened using legitimate Social Security numbers that did not have any prior credit accounts, like a child.

"The activity itself shouldn't have garnered any notice until they stopped paying the bills," Pascual said.

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Boeing 787 Dreamliner takes test flight to assess batteries

SEATTLE — Aerospace giant Boeing Co. sent a 787 Dreamliner passenger jet on a test flight Saturday, the first since the new airliner was grounded three weeks ago because of a battery fire.

The aircraft took off from Boeing Field in Seattle and spent more than two hours flying back and forth over the inland Columbia Plateau. It landed at Boeing Field shortly before 3 p.m. Pacific Time. According to flight-tracking website FlightAware, the aircraft flew 1,131 miles, slightly more than the 919 planned.

The Federal Aviation Administration granted permission for test flights Thursday.

The 787 is the first commercial airliner to rely heavily on lithium-ion batteries, the same kind used in cellphones. Each plane has two of the 63-pound blue power bricks, one near the front to provide power to the cockpit if the engines stop and one near the back to start up the auxiliary power unit, which is essentially a backup generator.

On Jan. 7, a battery on a plane that had recently landed in Boston short-circuited and caught fire. Nine days later, a battery on an All Nippon Airways plane started smoking, leading to an emergency landing in Japan.

Boeing said Saturday's flight was to assess the in-flight performance of the batteries. Data would be used to support continuing investigations of the recent incidents.

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Execs off the hook at S&P

You may have heard last week about a couple of big lawsuits brought by federal and state governments, alleging that the credit rating agency Standard & Poor's concocted a fraudulent scheme that contributed to trillions of dollars in investment losses and the cratering of pretty much the entire world financial system.

Those are serious charges, and the federal government's demand for $5 billion in penalties isn't peanuts. Yet there's something bloodless about the lawsuits, for the simple reason that they don't point the finger at any particular person who was responsible for these dastardly doings.

For example, you won't find the name Harold McGraw III anywhere in the court papers. Who?

McGraw was chairman, chief executive and president of McGraw-Hill, S&P's parent company, in the period at issue, 2004 to 2007. (He's still in place today.) Did he profit from S&P's wrongdoing? Let's assume so: he not only owns 10 million company shares but received $44.5 million in compensation over those years, according to corporate disclosures. Did he know or care about what was happening at S&P? One would hope so because it was by far the most profitable domain in his empire, contributing an average of more than 70% of McGraw-Hill's operating profit.

Harold McGraw's largest business unit engaged in an "egregious" fraud that "goes to the very heart" of the financial crisis, Atty. Gen. Eric H. Holder Jr. said. But prosecutors have made no effort to hold him, or anyone else, directly responsible for what was done at S&P.

These new lawsuits replay the only story uglier than the financial meltdown itself, which is the government's pathetic record at prosecuting the crimes that produced it.

For companies can't do things like manipulate numbers on spreadsheets, lie about their "independent" judgment, and fire employees who try to rectify such errors. Only people can.

In accordance with the government's standard approach to financial crisis justice, no flesh-and-blood people are on the hook in these cases. Only companies, which (more's the pity) can't be put in jail for their wrongdoing. Yet it's only people who can profit from such conniving.

The lawsuits name a few executives here and there, and identify others by initials (presumably they're the ones who cooperated with regulators). But the overall impression is that something happened at S&P, and some individuals were involved, but they were all swept up in some inchoate historical event that requires, nevertheless, that S&P fork over $5 billion. That's what makes reading these legal papers resemble getting through all of "War and Peace" without ever meeting Napoleon.

"We've had the greatest explosion of elite white collar crime in history and the weakest criminal justice response," observes William K. Black, who helped put financial wrongdoers behind bars as a thrift regulator after the savings-and-loan collapse of the 1980s. "There's reason to believe they're not unrelated."

To be fair, the S&P lawsuits — they include the federal case filed in Los Angeles and actions by more than a dozen states, including California — amount to a more aggressive regulatory attack than any mounted thus far. Their target is an indisputably major player in the meltdown.

The $5-billion penalty sought by the U.S. Justice Department would be a pittance compared with the damage done to investors and the general economy by S&P. But as the equivalent of about six years of corporate profits, it would be enough to reduce McGraw-Hill's Manhattan headquarters to a smoking hole in the ground — if you think there's any chance the government can make the claim stick. California Atty. Gen. Kamala Harris seeks redress of at least $1.4 billion in investment losses incurred by the California Public Employees' Retirement System and other state agencies on S&P-rated securities.

The essence of the governments' fraud claim is that S&P held itself out to be an independent and objective appraiser of investment securities, especially the residential mortgage-backed bonds that were hot investment vehicles during the housing bubble. But it wasn't.

To a great extent, the investors who took S&P at its word knew they were acting on faith. The firm, like the other major credit agencies, Moody's and Fitch, were paid for their ratings by the investment banks issuing the securities, a flagrant conflict of interest. S&P charged the bankers up to $750,000 to rate really oddball paper.

The lawsuits allege that as early as 2004, S&P began tailoring its ratings to keep those clients happy by exaggerating the safety of their securities. S&P allegedly allowed issuing bankers to browbeat analysts for better ratings. The firm delayed or suppressed changes in its analytical software that would reveal that huge swaths of the high-rated deals were heading south. It cheaped out on hiring enough analysts to keep up with the mounting need for accurate updates. Analysts emailed each other with complaints about the corrupting of their objectivity, while executives signaled, essentially, that they should put a sock in it.

Nevertheless, McGraw-Hill's annual reports every year from 2004 through 2007 touted S&P's stature as a "provider of independent credit ratings," even though it was then allegedly tailoring its procedures for the issuers' benefit.

When the firm could no longer delay the inevitable, it downgraded hundreds of billions of dollars worth of mortgage securities in a torrent — 9,000 in the second half of 2007, an additional 6,300 in early 2008, including some deals it had graced with AAA ratings only a few months before. Many investors were bound by law to rely on these ratings in choosing securities for their portfolios. The flood of downgrades made a bad market much, much worse.

None of this is news. The role of the rating agencies in the meltdown was documented thoroughly by the Financial Crisis Inquiry Commission, headed by former California Treasurer Phil Angelides, in January 2011 and by a Senate subcommittee under Sen. Carl Levin (D-Mich.) a few months later. Any aficionado of our financial train wreck can repeat many of the emails cited in the lawsuit from memory.

S&P's response to the lawsuits is standard: The firm wasn't cooking its numbers but was relying on "the same ... mortgage data available to the rest of the market," it said last week. Yet S&P held itself out to be experts — if all it was doing was repeating what everybody else knew, than who needed its opinion? Any investment bank could have dragged any nimrods off the street and gotten an opinion for —I'd wager —a lot less than $750,000.

No one should doubt that the federal and state prosecutors poured their souls into these cases. The California lawsuit followed nearly two years of investigation, interrogation and compiling of documents. And there are hints that investigations of Moody's may be continuing.

But the key question sidestepped by the new lawsuits is why no individuals are being brought to book for what were, in every way, the plots and designs of individual people, acting to slake their own greed and ambition. This is another example of what UC Irvine criminologist Henry Pontell calls "the trivialization of criminal fraud."

"This is essentially a criminal fraud case," Pontell told me. "The only difference between civil and criminal cases is that they [the prosecutors] can spend a lot less on civil cases because the burden of proof is lower."

That speaks to the impoverishment of our white collar prosecutorial corps since 9/11, when the best and brightest were diverted to anti-terrorism cases and not replaced. By normalizing major corporate fraud cases as merely matters for civil fines, however, this trend has destroyed the deterrent effect of the justice system.

"Persuasive anecdotal evidence exists that the prospect of criminal penalties is an effective deterrent" to wrongdoing in the corporate suite, Pontell said. "Upper-class businesspersons fear shame and fear incarceration. Paying fines? No problem — that's a cost of doing business. If anything, it's anti-deterrence."

That's true. It's a good bet that after fighting the government to a draw, McGraw-Hill will settle these lawsuits for much less than $5 billion and S&P will retain its plausible deniability in the next meltdown. The deterrent effect will be zero.

What would really deter wrongdoing? It would be an outcome that prompts a CEO of the future to instruct his underlings: "You better be on the straight and narrow, because the last thing in the world I want is to end up in jail like Harold McGraw."

That might work.

Michael Hiltzik's column appears Sundays and Wednesdays. Reach him at mhiltzik@latimes.com, read past columns at latimes.com/hiltzik, check out facebook.com/hiltzik and follow @latimeshiltzik on Twitter.

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South Korea firm aims for the sky in L.A.

Ambitious South Korean enterprises continue to make noise on the global economic stage.

Electronics giant Samsung is giving Apple fits in markets across the globe with its hot-selling smartphones and tablets. Seoul-based Hyundai and Kia have been among the world's fastest-growing automakers in recent years. Portly singer Psy put South Korea on the pop culture map with his monster hit “Gangnam Style,” which has become the most popular video of all time on YouTube with nearly 1.3 billion views.

So it was only natural that South Korea's top airline, Korean Air, on Thursday took the wraps off its design for a dramatic, skyline-changing tower for downtown Los Angeles. The $1-billion skyscraper is to become the tallest building west of the Mississippi River — and a symbol of South Korea's status as an up-and-coming economic powerhouse.

The 73-story hotel and office building will include 900 guest rooms, double-decker elevators and an observation deck that will afford views of the Pacific Ocean. Slated to replace the old Wilshire Grand Hotel at Wilshire Boulevard at Figueroa Street, the new building will be slightly taller than the nearby U.S. Bank Tower, which has held the title of tallest building west of Chicago since 1989.

Originally planned as two smaller towers when it was announced four years ago, the Korean Air plan has morphed into a single tower that will give the Seoul company bragging rights to the highest skyscraper on the West Coast.

Experts said that's in keeping with South Korea's hard-charging business ethos. The skyscraper, currently dubbed the Wilshire Grand, is an outgrowth of a competitive corporate culture that has come to dominate the South Korean economy over the last 30 years, according to UC Riverside Ethnic Studies professor Edward Taehan Chang.

After the nation endured poverty, dictatorship and political unrest during much of the 20th century, attaining superlatives has become part of the country's fabric, Chang said. Corporations strive to dominate their industries, while younger generations take pride in the near universality of South Korea's popular culture.

“They always want to reach for No. 1 status,” Chang said. “The rapid economic growth has been about striving for the top spot.”

Korean Air is already at work dismantling the closed 1950s-era Wilshire Grand Hotel to make way for the glass-clad tower, which is expected to be completed in 2017. Korean Air has provided airline service to Los Angeles for more than 40 years and has owned the Wilshire Grand since 1989.

Korean Air is the flagship company of Hanjin Group, one of South Korea's largest conglomerates. Hanjin has interests in land, sea and air transportation as well as construction, heavy industry, finance and information services. A high-end hotel fits well with Korean Air's operations in Los Angeles: The company makes parts for airplanes, flies the planes here as the busiest Asian carrier at Los Angeles International Airport, runs travel agencies that book the tickets and operates a catering business that serves the food on the planes.

“The new Wilshire Grand is an investment that makes sense, and we are excited to continue our relationship with this great city,” Korean Air Chairman Y.H. Cho said Thursday at the offices of AC Martin Partners, the project's architect.

The sail-shaped skyscraper will light up at night and dwarf many of its neighbors. Most of the building will be devoted to a hotel, though an operator has yet to be named. Arriving guests would be whisked by high-speed elevators to the “sky lobby” on the 70th floor for check-in.

According to the plan, the 71st floor will be a restaurant. The floor above that will house window-washing gear and engineering equipment, clearing the top floor for an infinity swimming pool and observation deck.

Near street level will be about three floors of restaurants and shops, topped by 30 floors of offices for rent. Elevators will be double-decked, carrying two stacked cabs of passengers for additional capacity during peak hours.

Perched at the very top of the building will be a decorative “crown” and a mast-like spire that will have embedded LED lighting that can change colors. The display will be eye-catching and visible for miles, but it will not be used for advertising, said Christopher Martin, chief executive of AC Martin.

“It's not Coke bottles, it's art,” he said.

With the spire reaching to 1,100 feet, the Wilshire Grand would become one of the tallest structures in the country, surpassing the 1,046-foot Chrysler Building in New York, which has 77 stories.

The contemporary design of the Wilshire Grand, with its floor-to-ceiling windows, is intended to set it apart from surrounding granite-clad office towers, said architect David Martin, who is Christopher Martin's cousin.

He hopes the building, which is to include 400,000 square feet of office space, will reflect the city better than the last generation of skyscrapers does. The Wilshire Grand, for instance, will have operable windows in its guest rooms and offices.

“This is about the culture and climate of L.A.,” Martin said. “We are creating a sense of place, only it's 1,000 feet up in the air.”

AC Martin also designed the Figueroa-at-Wilshire high-rise across the street from the Wilshire Grand in 1990. The family firm was the primary architect of Los Angles City Hall in the 1920s.

Work on the new skyscraper will create 11,000 union construction jobs, Korean Air's Cho said, and employ 1,700 workers when it opens in four years. The project has obtained most development approvals from L.A. city officials.

Cho, who lives in Seoul and has a home in Newport Beach, is on the board of trustees at USC, where his children attended college and where he obtained his MBA.

“L.A. is like a second home,” Cho said.

The 936-room Wilshire Grand, built in 1952, was originally a Hotel Statler and later a Hilton. Once one of the city's best hotels, it was most recently a mid-market inn catering to conventioneers and tour groups from overseas before it closed at the end of 2011.

The property is a few blocks north of Staples Center.

roger.vincent@latimes.com

Times staff writer Frank Shyong contributed to this story.

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Pitfalls seen in growth of part-time work

Although the state's unemployment rate is at its lowest level in almost four years and the number of employed Californians is growing, labor experts see a different reality: Full-time work has faded in many industries.

Nubia Calderón Barillas, 32, left a job in retail in May for a housekeeping job at the Holiday Inn LAX that promised better pay and steady work.

But nearly nine months later, the mother of three said, she rarely works more than two days a week. She has asked for more hours, she said, but to no avail, even in an industry that set a new peak employment level last year.

"It's been difficult lately," she said. "I practically didn't work all of December except for the holidays."

California employers picked up the rate of hiring during 2012 — at times at nearly twice the rate of the country as a whole. But a significant portion of those jobs are less than full time, according to federal data released last week.

The number of people involuntarily working part time nationwide has grown to 7.9 million, an 80% increase from 2006, data from the Bureau of Labor Statistics show.

That trend is particularly pronounced in the Golden State, which saw the number of involuntary part-time workers swell to 1.3 million, up 126% from 585,100 in 2006. Only four other states, Nevada and Florida among them, had higher rates of involuntary part-time workers.

Various industries are increasingly relying on part-time workers and other contingent employees, such as temporary workers, to save money, said Michael Bernick, a Milken Institute fellow who studies labor markets.

"As you have more and more costs associated with full-time workers in terms of healthcare or other costs, employers look for alternative ways to reduce costs," Bernick said. "One way is on-demand and part-time work."

The increase isn't limited to industries that typically employ part-time workers, such as leisure and hospitality. Other sectors with strong job growth, such as professional and business services, have also seen a rise in part-time workers as employers aim to keep payroll costs down, Bernick said.

Nationwide, the number of involuntary part-time workers in professional and business services, which includes white-collar occupations such as accountants and lawyers, nearly doubled to 711,000 last year from 367,000 in 2007. A sector-by-sector breakdown is unavailable for California because the sample size of the household survey that the federal data rely on is too small.

Part-time work is common in California's leisure and hospitality sector, which added almost 61,000 jobs since December 2011, accounting for more than a quarter of the state's net jobs created in that time period.

Growth of low-wage industries such as hospitality provides work opportunities for people with limited education, even if the work is only part time, said Jerry Nickelsburg, senior economist at the UCLA Anderson Forecast.

"We shouldn't look with dismay" on the rapid growth of a sector that is so dependent on part-time work, he said. "If that were the only sector we were growing, then that would be worrisome."

Tom Walsh, president of Unite Here Local 11, a union representing hospitality workers in Los Angeles and Orange counties, said in negotiations with employers, his group has pushed for workers' hours to be maximized.

Although full-time work sometimes isn't ensured, Walsh said, employers are urged to give part-time workers as many hours as possible.

"I think it's an example of certain employers being penny wise but pound foolish," he said. "They figure they can save money by having more part-time workers and having low pay. If they don't change that, folks are going to take jobs somewhere else the first chance they get."

The long-term implication of part-time work, economists said, is growing wage disparities and the risk of dampening consumer spending, a major driver of the economy. Part-time workers also are more likely to rely on state aid, such as food stamps, to make ends meet.

Kellie Flowers moved to Los Angeles late last year hoping to find work as an event coordinator or wardrobe stylist.

But full-time work has been elusive, even with a college degree.

The 30-year-old Virginia native managed to land two part-time jobs when she first relocated, one at a Manhattan Beach boutique and the other at a running store.

She earned $10 per hour at both jobs but didn't have benefits or health insurance.

"It was very hard working two jobs," she said. "You definitely don't have any spending money."

Flowers recently started a new job, selling spa packages, on commission. She sells between six to 10 a day, earning $15 for each.

"I'm going to look for other jobs that make me happier. Until then I just need to make money," she said.

Meanwhile, Barillas, the Holiday Inn housekeeper, said she hopes she'll eventually work more hours.

She and her husband are falling behind on utility bills at the one-bedroom Koreatown apartment they share with their three children. She recently applied for food stamps, a decision she said was embarrassing.

"I've always had work," she said. "I used to think people on food stamps just didn't want to work, but now I find myself with the need to ask for help."

ricardo.lopez2@latimes.com

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18 people charged in $200-million credit card fraud

NEWARK, N.J. — Eighteen people were charged in what may be one of the nation's largest credit card fraud rings, a sprawling scam that duped credit-rating agencies and used thousands of fake identities to steal at least $200 million, federal authorities said.

The scammers used fraudulent tactics to improve fake cardholders' credit scores, which they then used to borrow money that was never repaid, investigators said Tuesday.

"In many respects the accused availed themselves of a virtual cafeteria of sophisticated frauds and schemes, whose main menu items were greed and deceit," said David Velazquez, assistant special agent in charge of the FBI's Newark field office.

Paul Fishman, the U.S. attorney in Newark, described an intricate Jersey City-based con that began in 2007 and operated in at least 28 states, Money gotten from the scheme was wired to Pakistan, India, the United Arab Emirates, Canada, Romania, China and Japan.

The group used at least 7,000 fake identities to obtain more than 25,000 credit cards, Fishman said. He said $200 million in documented losses could rise.

Participants set up more than 1,800 mailing addresses, creating fake utility bills and other documents to provide credit card companies with what appeared to be legitimate addresses. Once participants obtained the cards, they started making small charges and paying off the cards to raise their credit limits.

They then sent fake reports to credit-rating agencies, making it appear that cardholders had paid off debts. The result — sterling credit ratings and high credit limits.

Fishman said once the credit limits were raised, members would take out a loan or max out the credit card and not repay the debts.

The group also created at least 80 sham businesses that accepted credit card payments, Fishman said. The group would run the fraudulently obtained credit cards through the machines, keeping the money.

The scheme funded a lavish lifestyle for the accused, including spa treatments, electronics and millions of dollars of gold, Fishman said. In one raid, authorities found $78,000 stashed in an oven.

Three jewelry stores in Jersey City were closed Tuesday and their inventory seized, Fishman said. Thirteen defendants also were arrested Tuesday. The investigation is ongoing, Fishman said.

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Herbalife stock leaves investors feeling queasy

Shares of Los Angeles nutritional products company Herbalife Ltd. went on a wild ride Monday, falling 12% on news of a law enforcement investigation, only to close with a gain for the day after a regulatory agency cast doubt on such a probe.

At least one thing is clear about Herbalife: Its investors are extremely jittery.

The New York Post reported Monday that an unidentified law enforcement agency is investigating Herbalife, which has faced intense scrutiny since billionaire hedge fund manager Bill Ackman accused it in December of operating a pyramid scheme and bet $1 billion that its shares would fall.

The Post based its story on a Federal Trade Commission letter in which the agency said it would not release some complaints about Herbalife because of an ongoing law enforcement investigation. Later in the day, the FTC said it had made a mistake and should have cited a foreign government agency, not law enforcement.

Shares of Herbalife surged after the FTC's clarification, adding 47 cents, or 1.3%, to close at $35.54.

"It's being whipped and driven by these exogenous forces," said Timothy Ramey, a D.A. Davidson & Co. analyst. "Unless you have strongly held beliefs about the company, which some people do in both directions, you're going to get influenced by this kind of stuff."

While retracting its statement about a law-enforcement probe, the FTC released more than 100 complaints it has received about Herbalife, many of them from independent distributors who ended up losing money trying to sell its products. The FTC would not say whether it was investigating.

Herbalife said in a statement that it was unaware of a criminal investigation and considered the FTC complaints insignificant.

"For a direct selling company of our size, we have had a relatively low number of complaints to the FTC," Herbalife said. "However, we take every one of them seriously and stand by our record of doing right by our distributors and all consumers of our products."

Herbalife — which sells diet, nutrition and beauty products in more than 80 countries — reported earnings of $413 million on $3.5 billion in sales in 2011. It is scheduled to release last year's results this month.

Founded in 1980, Herbalife is a so-called multi-level marketer, paying distributors commissions for their own sales as well as for those made by distributors they recruit. The only way for consumers to buy Herbalife is through independent distributors; its products are not sold in stores.

The company employs more than 1,000 people in Southern California. Its headquarters are at L.A. Live, the entertainment and business complex near Staples Center in downtown Los Angeles.

In December, Ackman made a flashy, multimedia presentation to outline his case that Herbalife is an illegal pyramid scheme. He said the company's independent distributors are paid more money for recruiting new salespeople than for selling its products.

Ackman said that 90% of Herbalife distributors make little or no money, while a select few — those at the top of the pyramid — make huge profits. The company's chief executive, Michael O. Johnson, was the highest-paid executive in the United States in 2011, raking in more than $89 million in salary, exercised stock options and other compensation, according to GMI Ratings, a corporate governance firm.

In complaints to the FTC, some distributors said they ended up losing money trying to sell Herbalife products.

"I have been suckered into a pyramid," one Herbalife distributor wrote. "I was basically going to go bankrupt if I continue."

Countering Ackman's huge short position, which pays off if the stock price falls, another billionaire investor, Carl Icahn, took an undisclosed stake in Herbalife, betting essentially that the stock would rise.

The two squared off in a profanity-filled debate broadcast live by CNBC on Jan. 25 with Icahn calling Ackman a "liar," and Icahn countering that Icahn was "not used to someone standing up to him, particularly a little guy like me."

Ramey, the analyst, said he is recommending that investors buy Herbalife shares.

"It's not a pyramid scheme. It doesn't look at all like pyramid schemes look," Ramey said. "Companies that have been judged to be pyramid schemes don't look like real companies and they don't sell real products."

That said, Ramey expects a rough road for Herbalife shares.

"It's easy for me to sleep comfortably at night," he said, "but that doesn't mean it's not going to be volatile on a day-to-day basis."

stuart.pfeifer@latimes.com

Times staff writer Andrew Tangel contributed to this report.

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Canadian firm to build three apartment towers in downtown L.A.

A Canadian developer has started work on a $100-million luxury apartment building in downtown Los Angeles, the first of three high-rise residential complexes it plans to build in the booming neighborhood.

Onni Group of Vancouver is erecting a 32-story tower on a former parking lot at the northeast corner of Olive and 9th streets. The site is next door to a well-known 12-story office building that opened in 1926 as the headquarters of Pacific National Bank.

Onni's building, to be known as 888 Olive, will have 283 units — each with a private balcony — over street-level shops and restaurants. It will have a swimming pool and fitness center, Onni said. Completion is set for early 2015.

The wave of commercial development spreading across downtown appears similar to the transformation of urban Vancouver that took place over the last 15 years, said Apriano Meola, vice president of U.S. operations for Onni.

The company also plans to develop a second residential tower on Olive Street next door to 888 Olive and a third at 12th and Flower streets just west of Staples Center. Onni also bought the Union Lofts, a 10-story office tower turned apartment building at 8th and Hill streets that opened in 1928 as the headquarters of Union Bank.

Onni is one of Canada's largest private developers, having built more than 5,000 residences in the last decade with an additional 4,000 under construction, the company said.

$105-million Westchester complex underway

A big empty lot north of Los Angeles International Airport in Westchester is getting an upgrade: $105 million worth of apartments and shops.

Work has begun on a 260-unit complex near the southwest corner of Manchester Avenue and Rayford Drive called Playa del Oro West, Los Angeles developer Decron Properties Corp. said.

The development is the second phase of a project Decron began in 2002 with the purchase of 13 acres at Manchester and Lincoln Boulevard that included a 12-story hotel previously known as the Furama and before that as the Airport Marina Hotel.

Decron sold the hotel, now known as Custom Hotel, while developing the rest of the parcel. The first phase, completed in 2009, put 405 apartments over shops in five-story buildings with underground parking.

Decron recently secured a $67-million construction loan for the final phase of Playa del Oro, President David J. Nagel said.

"The construction of these additional 260 units completes our vision of replacing an old, tired hotel that no longer served this bedroom community with a dynamic, true mixed-use project," he said.

Upon completion in about 21 months, the total Playa del Oro complex will have 665 apartments and 110,000 square feet of shops. Retail tenants include Ralph's Fresh Fare, LA Fitness and Kinecta Federal Credit Union.

Medical provider to move headquarters

Nonprofit medical provider MemorialCare Health System will move its headquarters from Fountain Valley to Costa Mesa because it has acquired a 15-acre corporate campus near the 405 Freeway.

MemorialCare will consolidate several teams now in other Southern California offices in 180,000 square feet at 1588 South Coast Drive, real estate brokerage Newmark Grubb Knight Frank said.

Terms of the sale by a limited liability corporation were not disclosed, but real estate experts familiar with the Orange County market valued the deal at about $34 million.

The property was previously occupied by Abraxis Bioscience, which was purchased by Celgene Corp. in October 2010, broker Tim Helgeson of Newmark Grubb said. It has been mostly vacant since.

The campus, expected to be occupied in late 2013, will bring together teams from MemorialCare's corporate office, physician support locations and medical groups, including MemorialCare Medical Group, Greater Newport Physicians and Nautilus Healthcare Management Group.

The transaction was the largest headquarters purchase over the last year by an Orange County company, Helgeson said.

roger.vincent@latimes.com

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Deering Banjo in a groove

It all started with the Kingston Trio.

One day in 1963, a San Diego kid and his friends got their hands on an album by the popular folk group. Greg Deering, 12 at the time, recalls studying the musicians on the cover and thinking, "I've got to get a banjo" — not out of love for the twangy instrument but mainly because his pal already had a guitar.

Fifty years later, Greg, his wife, Janet, and daughter Jamie preside over the bestselling banjo-making business in the U.S.

From a small Spring Valley factory, the Deering Banjo Co. is having its best year ever, defying the U.S. skills gap and California's manufacturing doldrums. It has expanded and trained its own workforce and expects to top $4 million in sales for the year ending June 30.

Greg Deering, 62, is the creative force behind the banjo design and the machinery used to build them. Janet Deering, 58, handles operations. Daughter Jamie Deering, 34, might have the most fun job: liaison with the company's big-name roster of professional musician customers.

Over the company's 38-year history, it has developed a loyal following from the likes of Taylor Swift, Keith Urban, the Dixie Chicks, Steve Martin and Mumford & Sons. Artists who play Deering banjos rolled up 13 Grammy nominations this year.

Two of Deering's fans illustrate how the company has managed to ride the banjo's renaissance as an instrument that crosses several musical genres as varied as country, reggae and indie rock.

"It's great working with a family company, an American company that really cares about the artist and making top-quality banjos," said Jeff DaRosa, singer, bassist and banjo player for the Dropkick Murphys, the Boston-based Celtic punk band.

Scotty Morris, lead vocalist of the contemporary swing revival band Big Bad Voodoo Daddy, called Deering Banjo "the quintessential American instrument builder."

"When I call Deering, I talk to a Deering, and I like that almost as much as I love the instruments they build," Morris said.

That kind of reputation combined with specially crafted manufacturing tools and a skilled, veteran workforce has helped the company weather the recession and cheap competition from China. Deering has been able to expand its workforce in a way that other companies have not, growing to 42 workers from 30 a year ago.

Although the nation as a whole has been adding manufacturing jobs, all California has done is reduce the rate of decline, said John Husing, principal of Redlands-based Economics and Politics Inc.

The most recent statistics available show that California ended 2012 with 1.23 million manufacturing jobs, down sharply from nearly 1.9 million in 2000 and marginally below the nearly 1.24 million in December 2011.

If you ask the Deerings what their greatest challenge has been, the answer has been running the business in California, particularly during a run-up in workers' compensation insurance premiums that began under Gov. Gray Davis.

"That nearly put us out of business. We're still paying off some of those debts," Greg Deering said, adding that the company has remained in California mostly because the family considers it home.

"And because we are stubborn. We are so stubborn," Janet Deering said.

Greg Deering credits his father, who worked in the Southern California aerospace industry, for developing his eye for design.

"He started me out on model airplanes when I was 2," Deering said. "He turned me loose on my own, making models when I was 5. At age 7, he bought me my first set of drafting tools."

But it wasn't until he was a student at San Diego State that he realized just what his father had done for him. There was an assignment to cut a board of certain dimensions from a rough block of wood. He was done with the assignment quickly and began working on a banjo. Weeks later, he realized the other students were still working on the block of wood.

"That was when it clicked for me," he said, later adding, "my father was a very intense mentor for me. He was teaching me how to be a craftsman."

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Dow Jones index closes above 14,000

Americans are doing something they haven't done in years — they're buying stocks.

Individual investors are pouring money into the stock market this year. They've been drawn by the powerful rally in share prices and are desperate for better returns than the minuscule yields available from bonds and bank accounts.

This renewed enthusiasm helped the Dow Jones industrial average achieve a milestone Friday, surging above 14,000 points for the first time since the financial crisis struck.

The world's best-known stock index has more than doubled from its crisis-era low and is nearing an even more impressive mark — a new all-time high. After closing at 14,009.79 points on Friday, the Dow is less than 155 points from its October 2007 peak.

"We've come a long way," said Seth Masters, chief investment officer at Bernstein Wealth Management Group in New York. "There was a great financial crisis five years ago and there was a lot of repair that had to happen in the corporate world and for consumers."

The surge in the Dow is part of a broader rebound in stock markets around the world, many of which are up 6% or more this year.

The rally is a measure of the recovery from the debilitating financial crisis that lashed the economy. And the improved optimism among investors stands in sharp contrast to the anxiety that pervaded financial centers and world capitals during the crisis.

Investors at the time feared a cataclysmic meltdown after the historic collapse of Lehman Bros. and the seizing up of capital markets throughout the world. The Federal Reserve took a series of emergency measures, including dramatically lowering interest rates and introducing unprecedented stimulus programs to revive growth.

Now investors are hoping that the gruelingly slow convalescence in the U.S. economy and job market will quicken as the year progresses.

"Investors are perceiving that the economy is doing better — that the worst days are behind us," said Paul Zemsky, chief investment officer of multi-asset strategies at ING Investment Management in New York.

On Friday, the Labor Department reported that the U.S. economy added 157,000 jobs in January. The report pushed stocks higher, sending the Dow up nearly 150 points.

That was fewer jobs than economists predicted, but the report also showed that employment growth was faster than thought in 2012, with 127,000 more jobs added in November and December than the government's previous estimates.

Small investors' renewed interest in stocks has been driven by their search for an alternative to the maddeningly low interest rates on fixed-income investments.

Joe Mills had long invested in stock mutual funds in his 401(k) retirement account. But he was earning next to nothing in a money-market mutual fund, so he bought his very first stock in August 2011.

He now has stakes in four companies, including Apple Inc. and Procter & Gamble.

"I feel like the risk of having zero return [in bonds] over the next 20 years is greater than the risk of selecting some stocks," said Mills, a 44-year-old structural engineer from Beckley, W.Va.

The rush into stocks is a mixed blessing, experts say.

Stocks have offered the best returns historically, and aging baby boomers deeply behind in retirement savings need all the help they can get.

But their renewed interest underscores how many people missed the rally for fear of getting scorched by another bear market.

"People by and large over the last five or six years have been deeply seared by the experience of 2008 and the ups and downs in stocks since then," said Masters of Bernstein Wealth Management. "There has actually been a bull market since March 2009, but they really don't feel at all like they've been in a bull market."

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Hackers target Western news organizations in China

More than 30 journalists and executives at Western news organizations in China, including the New York Times and the Wall Street Journal, have had their computers hacked, according to the news organizations and a security firm that monitors such attacks.

Over the last four months, the hackers managed to infiltrate the Times' computers, the newspaper reported Thursday. It said hackers had penetrated its computers and obtained passwords for reporters and other employees.

The hackers have been blocked and security tightened to prevent another attack, which followed an investigation by the paper into finances of relatives of Wen Jiabao, China's premier.

Mandiant Corp., a security firm brought into the case by the Times, said it found that hackers using techniques associated with the Chinese military stole emails, contacts and files from 30 journalists and executives and maintained a short list of journalists whose accounts have been repeatedly attacked.

That finding, first reported in the New York Times, was part of a December report that was expected to be made public soon, a Mandiant spokeswoman said Thursday.

The Wall Street Journal said that it too had been targeted by Chinese hackers.

Paula Keve, spokeswoman for the Journal's parent company, Dow Jones & Co., said: "Evidence shows that infiltration efforts target the monitoring of the Journal's coverage of China, and are not an attempt to gain commercial advantage or to misappropriate customer information."

Bloomberg News was targeted as well — after it published an article June 29 about the wealth of relatives of Xi Jinping, the current general secretary of the Communist Party and the person expected to become president in March. No computer breach took place.

"Our security was not compromised," Ty Trippet, a spokesman for Bloomberg, said Thursday.

"Newspapers and journalists are high-value targets," said James Lewis, a senior fellow at the Center for Strategic and International studies. "They have really good sources, and they don't publish everything."

But they are just one target in many. Cyber-security experts say the United States has become increasingly vulnerable to foreign hackers who could target the nation's power grid, gas pipelines and other crucial infrastructure.

Those same hackers routinely and aggressively break into a wide range of corporate America's computers, including those of oil and financial companies.

Yet corporations have blocked legislation on Capitol Hill that would require higher standards to protect against breaches, saying it would be too costly and burdensome.

The full extent of how deeply hackers have penetrated into corporate America is not known. Companies are usually reluctant to talk publicly about attacks or to share information with the government.

"We know that every Fortune 500 company has had a problem, and probably every Fortune 1,000 company has had a problem too," Lewis said.

High-profile attacks like the ones that targeted Internet search giant Google Inc. three years ago may make it seem as if computer networks in the U.S. are under rising attack, but Lewis said networks are just under "sustained" attack.

"It's as bad as it can be. What's happening is that people are noticing it. That's a big change," Lewis said. "Four years ago nobody could spell cyber-security. Now everyone's waking up to the fact that the networks we depend on are totally insecure."

Cybersecurity experts said they are optimistic that the U.S. government is developing a cyber arsenal capable of repelling attacks.

Alan Paller, director of research at the SANS Institute, said the Defense Department has a growing ability to defend against sophisticated attacks — to protect crucial infrastructure and the Defense Department itself. It also has developed a "cyber offense," the ability to "project power" and to carry out sophisticated attacks itself, Paller said.

The hackers routed their attacks through computers at U.S. universities, according to the New York Times. Hackers installed malicious software that allowed them to enter the newspaper's computers. The software, known as malware, was "identified by computer security experts as a specific strain associated with computer attacks originating in China," the newspaper said.

Chinese officials denied they were responsible.

"Chinese laws prohibit any action including hacking that damages Internet security," China's Ministry of National Defense told the New York Times. It added: "To accuse the Chinese military of launching cyber attacks without solid proof is unprofessional and baseless."

Eileen M. Murphy, the Times' vice president for corporate communications, said Thursday the newspaper stood by the story.

michael.muskal@latimes.com

jessica.guynn@latimes.com

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Avery Dennison to sell business units for $500 million

Avery Dennison Corp. has agreed to sell two of its businesses for $500 million in cash to CCL Industries Inc., a Canadian maker of specialty packaging, the Pasadena company said.

The proposed sale announced Wednesday comes three months after Minnesota-based 3M abandoned its plans to purchase Avery Dennison's office and consumer products unit. The U.S. Department of Justice had opposed that deal because of antitrust concerns.

Now, Toronto-based CCL has agreed to acquire the unit, which had sales of $730 million in 2012. The division's products include Hi-Liters and Marks-A-Lot markers as well as binders. CCL also agreed to acquire Avery's designed and engineered solutions division, which makes pressure-sensitive labels for packaging and posted 2012 sales of $180 million.

"CCL is one of our largest customers, and we have a long-standing relationship with them," said Avery Dennison Chief Executive Dean A. Scarborough. "We are pleased that they will become the steward of the Avery brand for office products."

Quiz: How much do you know about California's economy?

The transaction, expected to close this year if approved by regulators, would be CCL's largest acquisition.

"This acquisition has the potential to transform our company at many levels," said Geoffrey Martin, chief executive of CCL.

Avery Dennison on Wednesday also reported fourth-quarter net income of $49 million, or 48 cents a share, up from $22.2 million, or 21 cents, a year earlier. Excluding certain items, earnings were 54 cents a share compared with the 48 cents expected by analysts. Sales rose 5.3% to $1.53 billion.

Avery Dennison shares rose $2.30, or 6.4%, to $38.44.

ricardo.lopez2@latimes.com

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Amazon.com sales jump 22% but profit drops 45% in fourth quarter

Amazon.com Inc. saw big sales during the holiday season, reporting Tuesday that fourth-quarter revenue rose 22% to $21.27 billion from a year earlier.

But the Internet retail giant's sales and earnings missed Wall Street's estimates. Profit for the three months that ended Dec. 31 declined 45% to $97 million, or 21 cents a share, compared with $177 million, or 38 cents, in the same quarter of 2011.

Analysts had expected the e-commerce company to post revenue of $22.26 billion and earnings of 27 cents a share.

Nonetheless, Amazon's stock surged in after-hours trading, rising more than 9% on signs the company's operating margins were improving. During regular trading before earnings were released, shares closed down $15.69, or 5.7%, at $260.35.

Operating income was a highlight of the company's quarterly results, increasing 56% to $405 million in the fourth quarter, compared with $260 million a year earlier.

For the current quarter, Amazon expects sales of $15 billion to $16.6 billion, a 14% to 26% growth from the first quarter of 2012.

It was a good Christmas for Amazon's Kindle family. The company said that for the second year in a row, its tablet was the most popular item for customers, with the Kindle Fire HD the "No. 1 bestselling, most gifted and most wished-for product" across the company's merchandise lineup.

"At year-end, Kindle Fire HD, Kindle Fire, Kindle Paperwhite and Kindle held the top four spots on the Amazon worldwide bestseller charts since launch," the company said.

As is typical for Amazon, it did not break out sales figures for its tablets and e-readers.

Jeff Bezos, founder and chief executive of Amazon, said the company had seen huge growth in its electronic book business as consumers shift to digital texts.

"We're now seeing the transition we've been expecting," he said in a statement. "After five years, eBooks is a multibillion-dollar category for us and growing fast — up approximately 70% last year. In contrast, our physical book sales experienced the lowest December growth rate in our 17 years as a book seller, up just 5%. We're excited and very grateful to our customers for their response to Kindle."

Amazon also said its digital media selection grew to more 23 million movies, TV shows, songs, magazines, books, audio books, apps and games in 2012, an increase from 19 million at the end of 2011.

andrea.chang@latimes.com

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At Warner Bros., new CEO's first task is to bring peace to studio

In taking the reins of Warner Bros., one of Kevin Tsujihara's first tasks will be returning calm to a studio that has been racked by divisions and infighting.

Although Warner was Hollywood's No. 1 supplier of television shows, No. 1 in the home video market and No. 2 at the box office last year, the rivalry between Tsujihara and two other executives for the top job created tensions on the studio's Burbank lot and uncertainty among its partners throughout the entertainment industry.

On Monday, as word spread that Tsujihara had been named chief executive, many in Hollywood immediately began asking what his appointment would mean for the two rivals: Television Group President Bruce Rosenblum and Pictures Group President Jeff Robinov.

Experts said that lingering resentments are an unavoidable outcome of the public two-year competition that Jeff Bewkes, CEO of parent company Time Warner Inc., held for the studio's top spot.

"One of the reasons a lot of people don't recommend this process is you end up winning with one executive and losing with the others," said Edward Lawler, a professor at USC's Marshall School of Business. "You can try to keep the people who lose out by changing their titles or giving them more money, but it's not easy to retain them."

Tsujihara said in an interview that he hoped both Rosenblum and Robinov would stay with Warner and expressed an openness to reshaping the studio in a way that could give both more responsibility.

"I think that over the coming weeks we're going to continue conversations about defining their roles and defining the organization in a way that makes sense for the company," he said. "They're both talented executives and both are my friends."

One of the reasons that Tsujihara was selected, according to company insiders, was that Bewkes and Warner Chairman Barry Meyer, who is retiring at year's end after 14 years at the helm, decided that a power-sharing arrangement would be untenable.

"There always has to be a boss," said Bob Daly, former Warner chairman who left the studio in 1999 after nearly two decades on the job.

With his lack of experience in TV and film production, and relatively few relationships with creators in both fields, Tsujihara will need to rely on Robinov and Rosenblum to succeed in his new job.

Although Tsujihara gets along well with Robinov, he has developed a contentious relationship with Rosenblum in recent years, according to numerous people who know both but were not authorized to speak publicly. Tsujihara said such accusations were "overblown."

The TV group produces just over half of Warner's profits, which had led many inside and outside the studio to believe Rosenblum had the inside line for the top job. In a statement, he conceded he was disappointed but said, "Warner Bros. is a unique and special place and I know it will be in good hands with Kevin at the helm."

Some have speculated that when Rosenblum's contract expires in August, he might seek a new position within Time Warner or, more likely, outside the company.

Robinov did not address his own feelings in a statement, saying only that he and Tsujihara "are both good friends and colleagues and I think he's an excellent choice for the job."

But Robinov previously has made no secret of his desire to run a studio and could bolt if he were able to secure such a position elsewhere.

Among the three, Robinov and Rosenblum have clashed the most. If Robinov or Rosenblum would have landed the top job, the other would have been likely to leave.

"By the first of the year, everyone will be rowing in the right direction," Daly predicted. But "any time you take a company that has been so stable and make a major change, there could be other effects."

Executives at Warner learned of the decision Monday. Some allies of the two losing candidates were disappointed after being told the results by Meyer. But the prevailing feeling appeared to be relief that the new CEO has the professional background and personal skills to rise above the long-running fray.

"I think Kevin is a stabilizing choice," said a senior executive who requested anonymity because the person was not authorized to speak publicly. "It gets us away from worrying about the film division vs. the TV division. It allows us to focus on moving forward instead of treading water and stagnating."

Added another: "Kevin is perhaps the most likely to extend olive branches and collaborate."

Tsujihara will also face a number of strategic challenges that the studio has been unable to resolve in part because of the uncertainty over who would be its leader. They include signing new contracts of key executives who report to Robinov and Rosenblum and trying to renew a deal with financing and production partner Legendary Pictures, which expires at the end of this year.

ben.fritz@latimes.com

meg.james@latimes.com

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Rules to simplifying life come up short

Los Angeles-area author Matthew E. May has hit upon an attractive theme in his recent book, "The Law of Subtraction: 6 Simple Rules for Winning in the Age of Excess Everything" published by McGraw-Hill.

Who does not yearn for a guide to simplifying, synthesizing and subtracting some of the clutter, overload and demands of the "Age of Excess Everything"?

He has also cleverly subtracted from his own workload by inviting others, mostly authors and consultants like him, to contribute about a third of the material for his six laws for doing more with less in the form of summaries of their views.

Mind you, it took fellow author Daniel Pink to point out the appeal of the subject. "Subtraction is your meme. It's out there; it's growing," he told May just before he took the stage at a corporate conference, urging him to "own" it. "Best. Advice. Ever," writes May.

This exchange is itself a little guide to what the book is like. Not only is it full of people talking in a slightly artificial, visionary way about common sense objectives, it is also filled with contradictions. "Subtraction is growing" is only the first.

The book does contain good examples of the less-is-more theme, some well-known, some less so. May's opener (illustrating Law No. 1: "What isn't there can often trump what is") is the FedEx logo, featuring an arrow created by the blank space between the E and X. Lindon Leader, its designer, explains how he "didn't overplay it, didn't mention it" when pitching the idea. (He makes up for that here.)

May, who lives in Westlake Village, also provides a brief history of how Lockheed Corp. put a team of design engineers in a circus tent next to a foul-smelling plastics factory to design a jet fighter: the secret Skunk Works became a byword for how to foster innovation. (Law No. 5: "Break is the important part of breakthrough.")

He cites J.K. Rowling, who was inspired for the idea for Harry Potter on a long, boring train journey, in support of Law No. 6. ("Doing something isn't always better than doing nothing.").

My favorite came from contributor Bob Harrison, a retired police chief, who introduced an "unplan" to withdraw officers directing traffic after a July 4 fireworks display and discovered everyone got home more quickly. (Law No. 2: "The simplest rules create the most effective experience.")

But I find every subtractive success story has an additive counterweight, some of which are explicit in May's examples.

It is true that "creativity thrives under intelligent constraints" (Law No. 4), but Michelangelo — ordered to work on a fresco for the Sistine Chapel, not a sculpture, his preferred medium — then "expanded the job's scope," covering the walls as well as the ceiling.

Steve Jobs was a great simplifier, who "handed control to us" as users of Apple devices. But he was also a control freak when it came to designing the same artifacts, supervising fine detail, adding features and forcing his team to work all hours, rather than giving them time for "purposeful daydreaming," as May advocates elsewhere in his book.

"The Artist," the silent, black-and-white film that provides May with the book's coda, was a worthy Oscar winner — but so was 2008's "Slumdog Millionaire," with its cast of thousands and Bollywood-style excess.

May does not avoid these contradictions, but he does not really address them, either. He prefers to list examples of his six laws rather than explore how employers or their staff could reconcile the daily conflict between constraints and freedom, perspiration and inspiration.

In the interests of "owning" his Zen-inspired meme, May subtracts these complexities. Instead he offers tips, such as his invitation to take "long, languid showers" — No. 8 on a list of ways to relax the mind. This point "needs no explanation," May writes, "which is good, because I could find no research on the subject."

For most people at most companies, where the pressure to add customers, revenue and value is intense, it is as difficult to "subtract" as it is for most grown-ups to follow the advice of one of the book's contributors and live out of a suitcase in a near-empty apartment.

It is a pity, given the need to simplify many business processes, that May adds so little to the sum of knowledge about how to do it.

Hill is the management editor of the Financial Times of London, in which this review first appeared.

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Hackers take over sentencing commission website

The hacker-activist group Anonymous says it hijacked the website of the U.S. Sentencing Commission to avenge the death of Aaron Swartz, an Internet activist who committed suicide. The FBI is investigating.

The website of the commission, an independent agency of the judicial branch, was taken over early Saturday and replaced with a message warning that when Swartz killed himself two weeks ago “a line was crossed.”

The hackers say they've infiltrated several government computer systems and copied secret information that they now threaten to make public.

Family and friends of Swartz, who helped create Reddit and RSS, say he killed himself after he was hounded by federal prosecutors. Officials say he helped post millions of court documents for free online and that he illegally downloaded millions of academic articles from an online clearinghouse.

The FBI's Richard McFeely, executive assistant director of the Criminal, Cyber, Response, and Services Branch, said in a statement that “we were aware as soon as it happened and are handling it as a criminal investigation. We are always concerned when someone illegally accesses another person's or government agency's network.”

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Sandy and drought propel U.S. insurance losses

The U.S. share of insurance losses from worldwide catastrophes more than doubled in 2012 as Superstorm Sandy lashed the Northeast and the nation suffered its worst drought since the 1930s.

The U.S. accounted for about 90%, or $65 billion, of $72 billion in global losses, according to the Impact Forecasting unit of Aon, the London insurance broker.

That compares with 40% in 2011, when Japan had higher-than-usual costs because of an earthquake and tsunami.

The location and climate of the U.S. make the country more vulnerable than most developed nations to hurricanes, tornadoes, wildfires and drought. U.S. commercial buildings and homes are more likely to have coverage than property in less wealthy nations facing storm risk, such as Nicaragua and Haiti.

"The United States has typically been the main driver of global loss," said Steve Bowen, senior scientist and meteorologist at Impact Forecasting. Bowen said the U.S. typically accounts for about 64% of global insured losses.

The last time the U.S. incurred more than 90% of losses was in 2005, when the country was pummeled by hurricanes including Katrina, Rita and Wilma, he said.

Sandy cost insurers about $28.2 billion, compared with $78.2 billion for Katrina when adjusted to 2012 dollars, Impact said. Additionally, crop insurance claims climbed to a record, with farmers collecting more than $11.5 billion for damage in 2012, according to a Risk Management Agency report published on the U.S. Department of Agriculture website.

Travelers Cos., the lone insurer in the Dow Jones industrial average, said this week that fourth-quarter profit fell 51% on claims from Sandy.

The KBW Insurance Index of 24 U.S.-listed companies gained 16% in the past 12 months, compared with the 20% rally in the 75-company Bloomberg World Insurance Index.

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Lawmaker questions Disney's plan for wristband data

A congressman from Massachusetts raised questions Thursday about how Walt Disney Co. will use information it collects when it gives parkgoers new wristbands embedded with computer chips.

Edward J. Markey (D-Mass), who co-chairs a congressional panel on privacy, asked Walt Disney Co. Chairman and Chief Executive Robert A. Iger in a letter what information the park will collect with the so-called MagicBand and how it will be used.

"Widespread use of MagicBand bracelets by park guests could dramatically increase the personal data Disney can collect about its guests," he said, adding that he is particularly concerned at the prospects of Disney collecting information about children.

Disney announced recently that it plans to unveil this spring at Walt Disney World in Florida a wristband embedded with radio frequency identification chips. A unique code in each chip lets parkgoers pay to enter the park, check into Disney hotels and buy food and souvenirs, among other things.

Disney officials promoted the wristbands as a way to make visiting the park easier. The wristbands will let Disney use the data to customize future offerings and marketing pitches.

Disney officials say they have no plans yet to introduce the wristbands at Disneyland or Disney California Adventure Park in Anaheim.

In a three-page letter, Markey said he is "deeply concerned that Disney's proposal could potentially have a harmful impact on our children." He asked whether parkgoers will have a chance to opt out of sharing their information and, if not, whether Disney will share the data with other companies.

A spokesman for Markey said his office had not received a response from Disney on Thursday, but in a statement to The Times, the company said participation in the wristband program was optional.

"In addition, guests control whether their personal information is used for promotional purposes, and no data collected is ever used to market to children," the statement said.

If parkgoers agree to release such information it can be used for marketing, Disney officials confirmed.

hugo.martin@latimes.com

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