Wealth Matters: Advisers Caution Against Hasty Decisions in Advance of Tax Changes

WITH all the ominous talk of tax increases and a “fiscal cliff” if President Obama and Congressional leaders can’t agree on a plan to avert automatic tax increases on Dec. 31, some investors may be tempted to act soon to take advantage of the current tax rates.

But financial advisers say that in their rush to doing something this year, investors may end up with regrets.

“Any time you make a decision purely for tax reasons, it has a way of coming back and biting you,” said Mag Black-Scott, chief executive of Beverly Hills Wealth Management. “Could you be at a 43 percent tax on dividends instead of 15 percent? The straight answer is yes, of course you could. But what if that doesn’t happen? What if they increase just slightly?”

Various proposals are on the table, but the taxes the wealthy say they worry most about are an increase in the capital gains rate to 20 percent from 15 percent, which would affect investments like stocks and second homes; an increase in the 15 percent tax on dividends; and a limitation on deductions, which would effectively increase the tax bill. For the truly wealthy, there is also the question of what will happen to estate and gift taxes.

In addition, the health care law sets a 3.8 percent Medicare tax on investment income for individuals with more than $200,000 in annual income (and couples with more than $250,000). Taking taxes on capital gains as an example, Ms. Black-Scott, who started her career at Morgan Stanley in the late 1970s, said people needed to remember that the rates were 28 percent when Ronald Reagan was president. “If they go from 15 to 20 percent, is it really that bad?” she asked. “You need to say, ‘Do I like the stock?’ If you do, why would you get rid of it?”

Here is a look at some of the top areas where short-term decisions based solely on taxes could end up hindering long-term investment goals.

APPRECIATED STOCK Many people have large holdings in a single stock, often the result of working for a company for many years. And the stock may have appreciated significantly over that time. But if they are selling now solely for tax reasons, advisers say they shouldn’t. The stock may continue to do well and more than compensate for increased capital gains.

But there is an upside to an increase in the capital gains rate: wealthier clients may finally be pushed to diversify their holdings. “If you have 75 percent of your wealth in one stock, then it’s a really appropriate time to think about this,” said Timothy R. Lee, managing director of Monument Wealth Management. If the increased tax rate “is a motivating factor for some people, O.K. Letting go of that control and the pride that goes with it is a really difficult decision.”

Selling stock now may also make sense when it is in the form of stock options set to expire early next year. “Do you want to take the risk the price will drop in January?” asked Melissa Labant, director of the tax team at the American Institute of Certified Public Accountants. “What if we have a fiscal cliff or a change in the markets? If you’re comfortable, do it now.”

Some investors may also fear that higher taxes will drive all stocks down. Patrick S. Boyle, investment strategist at Bessemer Trust, said there was no historical link between tax increases and stock market performance.

In the most recent three tax increases, he says, “the market has actually gone up in the six months before and after.” He added: “It’s not that tax rates aren’t important. They are. It’s just that there are so many other things going on that are more important than tax policy.”

MUNICIPAL BONDS Bonds sold to finance state and local government projects are tax-free now and will be tax-free next year. That is no reason to load up on them.

Tax-free municipal bonds have always been attractive to people in higher-income tax brackets. Now, advisers fear that individuals just above the $200,000 threshold, people who say they do not feel wealthy but will probably be paying higher taxes on their income and investments, will try to offset that increase by moving more of their investments into municipal bonds.

Beth Gamel, a certified public accountant and executive vice president at Pillar Financial Advisers, imagined a case where people in higher tax brackets, thinking they were acting rationally, sold stocks this year to take advantage of the lower capital gains rates and then, to avoid higher taxes next year, put all or some of that money into municipal bonds. Maybe they outsmart the tax man, but they do so at risk to their retirement.

“It will be very difficult for them to reach their long-term goals,” she said, “because the yield on muni bonds is lower than stocks over time.”

Or as Will Braman, chief investment officer of Ballentine Partners, said of this trade-off: “It’s not about minimizing the taxes but maximizing the after-tax returns.”

He suggested that people use their deductions to reduce what is owed from taxable securities.

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Stars honor Veloso as Latin Grammys person of year

LAS VEGAS (AP) — Juanes, Juan Luis Guerra, Nelly Furtado and Natalie Cole are among the artists who celebrated Brazilian musician Caetano Veloso at a ceremony honoring him as the Latin Recording Academy's Person of the Year.

Veloso's influence as a composer and activist also was the subject of a video featuring Sting and Spanish filmmaker Pedro Almodovar that was shown at the tribute Wednesday at the MGM Garden Arena in Las Vegas.

Veloso said in the video that he never decided to become a musician, but fate and the circumstances of life in Brazil moved him in that direction.

Considered among the most influential Brazilian artists of modern times, the 70-year-old entertainer has recorded more than 40 albums, and won eight Latin Grammys and two Grammy Awards. With his eponymous 1968 album, Veloso launched a new style of music, tropicalia, that saw his Brazilian musical roots mixed with other contemporary styles, including blues, psychedelic rock and the sounds of the Beatles.

The movement comprised a new generation of artists, including Gilberto Gil, Gal Costa and Maria Bethania, who openly expressed political opinion in their music.

In accepting the honor, Veloso said, "It's too much."

The Latin Grammy Awards are scheduled to be presented Thursday at the Mandalay Bay Events Center in Las Vegas. The show will be broadcast live on Univision.

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Online:

www.latingrammy.com

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Hospital Death in Ireland Renews Fight Over Abortion

DUBLIN — The death of a woman who was reportedly denied a potentially lifesaving abortion even while she was having a miscarriage has revived debate over Ireland’s almost total ban on abortions.

The woman, Savita Halappanavar, 31, a dentist who lived near Galway, was 17 weeks pregnant when she sought treatment at University Hospital Galway on Oct. 21, complaining of severe back pain.

Dr. Halappanavar was informed by senior hospital physicians that she was having a miscarriage and that her fetus had no chance of survival. However, despite repeated pleas for an abortion, she was told that it would be illegal while the fetus’s heart was still beating, her husband, Praveen Halappanavar, said.

It was not until Oct. 24 that the heartbeat ceased and the remains of the fetus were surgically removed. But Dr. Halappanavar contracted a bacterial blood disease, septicemia. She was admitted to intensive care but never recovered, dying on Oct. 28.

Mr. Halappanavar, in an interview with The Irish Times from his home in India, said his wife was told after one request, “This is a Catholic country.”

Two investigations into the case have been announced, and politicians have been quick to express their condolences and to call for legal clarity. Kathleen Lynch, a junior health minister, said medical professionals needed guidelines to deal with such circumstances.

In a statement, the hospital said it would cooperate fully with any inquest but that it had not started its own review because it wanted to consult the woman’s family first.

Mr. Halappanavar told the newspaper that he still could not believe his wife was dead. “I was with her those four days in intensive care,” he said. “They kept telling me: ‘She’s young. She’ll get over it.’ But things never changed; they only got worse. She was so full of life. She loved kids.

“It was all in their hands, and they just let her go. How can you let a young woman go to save a baby who will die anyway?”

But Mr. Halappanavar said he saw no use in being angry. “I’ve lost her,” he said. “I am talking about this because it shouldn’t happen to anyone else.”

Medical professionals were less forgiving. During a miscarriage, the cervix is opened, exposing the woman to infection, and the longer the miscarriage persists, the greater the risk, said a prominent medical commentator here, Dr. Muiris Houston. While Dr. Halappanavar’s death was “on the rare end of the spectrum,” and the facts surrounding the case are not all known, Dr. Houston said, she “undoubtedly needed to go to theater,” meaning to surgery.

“If she had gone to theater earlier she might still have died, but perhaps not,” he said. “Medicine is now increasingly driven by guidelines, and the question must be, ‘Did the hospital have protocols in place when a woman presented with such a condition?’ ”

The legal issues are, if anything, more clouded. In 1992, the Irish Supreme Court ruled that abortion was permissible in cases where there was a “real and substantial risk” to the life of a pregnant woman — including the possibility of suicide. But 20 years later, the Irish government has still not passed a law to this effect.

In 2010, the European Court of Human Rights found that Ireland was in violation of the European Convention on Human Rights by failing to provide an accessible and effective procedure to ascertain whether a woman qualified for a legal abortion.

In response, the current coalition government commissioned a report from an expert group on the issue. It was initially expected in July, but was then postponed until September — a deadline also missed. Given the divisiveness of the abortion issue in Ireland, which has prompted two bitterly fought referendums, successive governments have avoided passing any legislation.

The report was eventually delivered Tuesday night, hours before news broke of Dr. Halappanavar’s death. The government warned people not to link the two, but inevitably the death has led to calls for urgent reform.

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BP to Admit Crimes and Pay $4.5 Billion in Gulf Settlement

BP, the British oil company, said Thursday that it would pay $4.5 billion in fines and other payments to the government and plead guilty to 14 criminal charges in connection with the giant oil spill in the Gulf of Mexico two years ago.

US Coast Guard, via Associated Press

The explosion on the Deepwater Horizon drilling rig in the Gulf of Mexico that was connected to a well owned by BP killed 11 workers and spilled millions of barrels of oil.

The payments include $4 billion related to the criminal charges and $525 million to securities regulators, the company said in a statement. As part of the settlement, BP agreed to plead guilty to 11 felony counts of misconduct or neglect related to the deaths of 11 people in the Deepwater Horizon accident in April 2010, which released millions of barrels of oil into the gulf over the course of the next few months.

A law enforcement official familiar with the case said that two BP employees would also be charged with manslaughter in the case. United States Attorney General Eric Holder was scheduled to hold a news conference in New Orleans at 2 p.m. E.S.T. on Thursday to discuss the government’s actions in the case.

“All of us at BP deeply regret the tragic loss of life caused by the Deepwater Horizon accident as well as the impact of the spill on the Gulf coast region,” Robert Dudley, BP’s chief executive, said in a statement. “From the outset, we stepped up by responding to the spill, paying legitimate claims and funding restoration efforts in the Gulf. We apologize for our role in the accident, and as today’s resolution with the U.S. government further reflects, we have accepted responsibility for our actions.”

While the settlement dispels one dark cloud that has hovered over BP since the spill, others remain. BP is still subject to other claims, including billions of dollars in federal civil claims and claims for damages to natural resources.

In particular, BP noted that the settlement does not resolve what is potentially the largest penalty related to the spill: fines under the Clean Water Act. The potential fine for the spill under the act is $1,100 to $4,300 a barrel spilled. That means the fine could be as much as $21 billion.

In addition to the 11 felonies related to the men killed in the accident, the company agreed to plead guilty to one misdemeanor violation of the Clean Water Act and one misdemeanor violation of the Migratory Bird Treaty Act.

BP also acknowledged that it had provided inaccurate information to the public early on about the rate at which oil was gushing from the well.

The company agreed to plead guilty to one felony count of obstruction of Congress over its statements on that issue. It also agreed to pay a civil penalty of $525 million to the Securities and Exchange Commission, spread over three years, to resolve the agency’s claims that the company made misleading filings to investors about the flow rate.

As part of its resolution of criminal claims with the Department of Justice, BP will pay about $4 billion, spread over five years. That amount includes $1.256 billion in criminal fines, $2.394 billion to the National Fish & Wildlife Foundation and $350 million to the National Academy of Sciences.

The criminal fine is one of the largest ever levied by the United States against a corporation, roughly equal to the $1.3 billion fine paid by Pfizer in 2009 for illegally marketing an arthritis drug.BP has repeatedly said it would like to reach a settlement with all claimants if the terms were reasonable. The unresolved issue of the claims has been weighing on BP’s share price.

On Thursday, BP’s American shares were trading at about $40 at midday, roughly unchanged on the day and down about 34 percent since the accident.

“It’s one less thing to be negative on BP about and a minor step in the right direction toward the rehabilitation of BP,” Iain Armstrong, an equity analyst at the investment manager Brewin Dolphin, in London, said. But he added that there were still concerns about remaining claims and that “lawyers might yet have their day at court.”

As part of Thursday’s agreements, BP said it was increasing its reserve for all costs and claims related to the spill to about $42 billion.

Brian Gilvary, BP’s chief financial officer, said in a conference call with analysts that the board weighed the balance between the settlement struck with the government and the prospect of a much wider criminal indictment that would have involved more people in the company. “A criminal indictment would have been a huge distraction,” he said.

Stanley Reed reported from London and Clifford Krauss from Houston. Julia Werdigier contributed reporting from London, John Schwartz from New York and Charlie Savage from Washington.

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Israelis Kill Hamas Military Commander in Gaza

Reuters

Palestinians extinguished a fire after an Israeli airstrike on a car carrying Ahmed al-Jabari, who ran Hamas's military wing, on Wednesday in Gaza City.

GAZA — The Israeli military carried out multiple airstrikes in Gaza on Wednesday and blew up a car carrying the commander of the Hamas military wing, making him the most senior official of the group to be killed by the Israelis since their invasion of Gaza four years ago. Hamas announced that Israel would “pay a high price” for the attack, which also deeply angered Egypt’s new government.

The death of the commander, Ahmed al-Jabari, 52, who was on Israel’s most-wanted list of Palestinian militants, was confirmed by Hamas officials. The Israeli military said it had ordered the airstrikes as part of a response to days of rocket fire launched from Gaza into Israeli territory.

Mr. Jabari’s death signaled a further escalation in the renewed hostility between Israel and Hamas, the militant organization regarded by Israel as a terrorist group sworn to Israel’s destruction, and came amid rising tensions between Israel and all of its Arab neighbors. Israeli officials declared a heightened state of alert in the country, anticipating a new round of rocket fire from Gaza.

The Israeli attacks especially threatened to further complicate Israel’s fragile relations with Egypt, where the Islamist-led government of President Mohamed Morsi, reversing a policy of fallen predecessor Hosni Mubarak, had established closer ties with Hamas and had been acting as a mediator to restore calm between Israel and Gaza-based militant groups.

In a sign of rising anti-Israel hostility in Egypt, Mr. Morsi’s Freedom and Justice Party issued a statement saying: “The wanton aggression against Gaza proves that Israel has yet to realize that Egypt has changed and that the Egyptian people who revolted against oppression/ injustice will not accept assaulting Gaza.”

Hamas said in a statement that it considered the Israeli attacks to be the basis for a “declaration of war” against Israel. A spokesman for Hamas, Fawzi Barhoum, said the Israelis had “committed a dangerous crime and broke all redlines,” and that “the Israeli occupation will regret and pay a high price.”

Military officials in Israel, which announced responsibility for the death of Mr. Jabari, later said in a statement that their forces had carried out additional airstrikes in Gaza targeting what they described as “a significant number of long-range rocket sites” owned by Hamas that had stored rockets capable of reaching 25 miles into Israel. The statement said the airstrikes had dealt a “significant blow to the terror organization’s underground rocket-launching capabilities.”

Yisrael Katz, a minister from Israel’s governing Likud Party, issued a statement saying that the operation had sent a message to the Hamas political leaders in Gaza “that the head of the snake must be smashed. Israel will continue to kill and target anyone who is involved in the rocket attacks.”Hamas and medical officials in Gaza said both Mr. Jabari and a companion were killed by the airstrike on his car in Gaza City. Israeli news media said the companion was Mr. Jabari’s son, but there was no immediate confirmation.

The Israel Defense Forces said in a statement that Mr. Jabari had been targeted because he “served in the upper echelon of the Hamas command and was directly responsible for executing terror attacks against the state of Israel in the past number of years.”

The statement said the purpose of the attack was to “severely impair the command and control chain of the Hamas leadership as well as its terrorist infrastructure.”

The statement did not specify how the Israelis knew Mr. Jabari was in the car but said the operation had been “implemented on the basis of concrete intelligence and using advanced capabilities.”

A video released by the Israeli Defense Forces and posted on YouTube showed an aerial view of the attack on what it identified as Mr. Jabari’s car on a Gaza street as it was targeted and instantly blown up in a pinpoint bombing. News photographs of the aftermath showed the car’s blackened hulk surrounded by a large crowd.

Hamas has controlled Gaza since 2007, a year after the Israelis withdrew from the territory captured in the 1967 Arab-Israeli war. But Israeli forces went back into Gaza in the winter of 2008-09 in response to what they called a terrorist campaign by Palestinian militants there to launch rockets into Israel. The three-week military campaign killed as many as 1,400 Palestinians, including hundreds of civilians, and was widely condemned internationally.

Fares Akram reported from Gaza, and Isabel Kershner from Jerusalem. Rick Gladstone contributed reporting from New York, and Mayy El Sheikh from Cairo.

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Bon Jovi daughter recovering after heroin OD in NY

HAMILTON, N.Y. (AP) — Authorities say Jon Bon Jovi's 19-year-old daughter is hospitalized after overdosing on heroin in a dorm at her upstate New York college.

Town of Kirkland police say an ambulance was sent to Hamilton College early Wednesday morning after a report that a female had apparently overdosed on heroin.

Investigator Peter Cania (KAYN'-yah) says Stephanie Bongiovi, of Red Bank, N.J., is recovering at a hospital he declined to name.

Police say Bongiovi and 21-year-old Ian Grant, also of Red Bank, were charged with drug possession. Both were issued tickets and ordered to appear in court at a later date. Police didn't know if they have lawyers.

The musician's representative isn't commenting.

Bon Jovi is scheduled to perform at a benefit concert for Hamilton in Times Square on Dec. 5.

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F.D.A. Asking for More Control Over Drug Compounding

WASHINGTON — The commissioner of the federal Food and Drug Administration will recommend changes in the regulatory landscape for compounding pharmacies, placing those that produce drugs on a large scale in a new category that would give the agency greater powers to police them.

The commissioner, Dr. Margaret Hamburg, will tell the House Committee on Energy and Commerce during a hearing on Wednesday that compounding in its traditional form — mixing medicine for individual patients — should be preserved, but that pharmacies that have in effect turned into mini-drug companies should be placed under the agency’s oversight, according to her written testimony posted by the committee.

Pharmacy compounding has come under a spotlight in recent months since the New England Compounding Center in Framingham, Mass., produced thousands of vials of pain medicine contaminated with fungus that caused a national meningitis outbreak, sickening more than 400 people and killing 32. Dr. Hamburg’s testimony was her first substantive comment on regulatory problems in the compounding industry since the outbreak, and outlines the changes that the Obama administration will seek.

Among the changes proposed by Dr. Hamburg are requiring larger compounders to register with the F.D.A. and abide by its so-called good manufacturing practice, which requires drug producers to report any problems with their products to the agency. She is also recommending new labeling requirements that would make the origin and the risks of a compounded drug clear. She is also requesting that some products, including drugs with complex dosage forms, be banned for compounders.

“In light of growing evidence of threats to the public health, the administration urges Congress to strengthen federal standards for nontraditional compounding,” Dr. Hamburg stated in the written testimony. “Such legislation should appropriately balance legitimate compounding that meets a genuine medical need with the reality that compounded drugs pose greater risks than those that are evaluated by F.D.A.”

Large-scale pharmacy compounding has greatly expanded since the early 1990s, lifted by tectonic shifts in the health care industry, including a widespread turn toward outsourcing. The practice fills shortage gaps in the health care system and provides lower-cost drugs. But pharmacies are primarily regulated by states, a situation that federal regulators argue is risky.

The F.D.A. had dealings with the New England Compounding Center in the past, including an inspection in 2002 after reports of problems and a warning letter in 2006. The agency argued that the actions failed to head off the current disaster, in part, because the company took great pains to avoid F.D.A. oversight.

“Throughout this time, N.E.C.C. has repeatedly disputed F.D.A.’s jurisdiction over its facility,” Dr. Hamburg said in the written testimony.

Barry J. Cadden, the chief pharmacist at the company and one of its principal owners, was subpoenaed by the House committee. To every question posed by committee members on Wednesday, he replied: “On advice of counsel, I respectfully decline to answer on the basis of my constitutional rights and privileges, including the Fifth Amendment to the U.S. Constitution.”

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Samuel Adams Brewer Counsels Small Businesses

Gretchen Ertl for The New York Times

Jim Koch, who started brewing Samuel Adams Boston Lager at his house in 1984, and Carlene O'Garro, who runs a cake business, participate in a program in which big businesses help small ones.

Carlene O’Garro’s cake business was barely a month old when she arrived at the Samuel Adams brewery in South Boston recently to meet with business counselors, but she brought with her an agenda that hinted at outsize ambitions.

Ms. O’Garro bakes nondairy cheesecakes that she was selling at a handful of grocery stores, including two Whole Foods outlets, in the Boston area. She hoped to learn how to expand the business and distribute the cakes nationally. “I know Jim is all over the place,” she said, “and I want to be like that.”

Jim is Jim Koch, the founder of the Boston Beer Company and one of 36 advisers who spent an evening last August “speed coaching” fledgling food, beverage and hospitality businesses. In 20-minute sessions, some 95 bakers, brewers and restaurant owners peppered the coaches — Boston Beer employees and consultants who included lawyers, accountants and small-business counselors — with questions about both basic day-to-day issues and more strategic concerns.

Speed coaching is one element of “Brewing the American Dream,” a program Boston Beer established with a microlender, Accion, to help small businesses. Mr. Koch, who started brewing Samuel Adams Boston Lager at his house in 1984, remains central to these efforts even as he presides over a company with a market capitalization of $1.4 billion and annual revenue of more than $500 million. He said he had not forgotten his early days, when he struggled to find capital, get his beer into distribution networks and expand.

In six sessions that August evening, Mr. Koch spoke with perhaps a dozen entrepreneurs and then stayed another hour to visit with six or eight more. This year, Boston Beer and Accion are staging 12 speed-coaching events in 11 cities, and Mr. Koch expects to attend about half of them.

Big businesses reaching out to help smaller businesses has come into vogue since the recession. In 2009, Goldman Sachs introduced its 10,000 Small Businesses campaign. Starbucks raises money from customer donations to finance small-business loans. American Express encourages consumers to shop locally on “Small Business Saturday” after Thanksgiving. The New York Stock Exchange links small vendors with large corporations and finances loans through Accion. And several corporations have run contests — Wal-Mart, Chase Bank and Staples have furnished winning small companies with opportunities for retail distribution, capital and office equipment.

It is the latest example of what is known in corporate circles as cause marketing — hitching a brand to a social issue. “How you improve the American economy and create jobs is on everybody’s minds these days,” said David Hessekiel, founder and president of Cause Marketing Forum. “Companies know that it’s on the minds of their consumers, and they want to be seen as part of the solution, not as the enemy.”

That has been a particular concern for chains like Wal-Mart and Starbucks, given their longstanding reputations for forcing local competitors to close. Helping small businesses, Mr. Hessekiel said, “helps them deal with an old issue.”

The Boston Beer program actually predates the recent economic crisis. The seeds of the idea, Mr. Koch said, came to him in 2007 as he walked to his car after he and his employees had volunteered to paint a nearby community center. “I should have felt really good, and I didn’t — I felt a little depressed,” he said. “What I realized is, I’d just taken about $10,000 worth of management time and talent, and turned it into about $1,000 worth of painting. And it was pretty bad painting, too.”

Mr. Koch retooled his company’s philanthropy to take advantage of its resources, particularly its employees’ expertise. The company has committed $1.4 million to finance loans, which are handled by Accion. The loans are small, typically $5,000 to $7,000, with terms of 18 months to two years and interest rates that vary regionally. (In New England, the rate is around 13 percent, typical for microloans.) Perhaps as important as the money is the tutoring by Mr. Koch and his employees. Most microloan programs provide borrowers with rudimentary counseling, but Boston Beer is unusually “high touch,” said Shaolee Sen, vice president for strategy and development at the Accion U.S. Network.

Ms. O’Garro was one of the program’s original clients — she has had two loans, totaling $4,000 — and though she’s repaid that debt and though the muffin business it helped finance has been dormant since 2010, she continues to derive benefits from the program with her cheesecake business, Delectable Desires. She learned how to price her cakes from an employee in Boston Beer’s finance department, Mike Cramer, who went to Whole Foods and scoped out the competition. “He actually made a spreadsheet for me of how much the high-end and low-end desserts cost,” she said.

Another borrower, Sandy Russo of Lulu’s Sweet Shoppe in Boston, said that when she had questions, she sometimes called Mr. Koch’s executive assistant. Last summer, when Lulu’s opened a second location, Boston Beer’s lawyers reviewed the lease and its public relations staff wrote the news release.

Of course, it’s one thing to provide that kind of support to a handful of companies. The question facing Accion and Boston Beer is whether the program can remain as intensive as it expands nationally. “We’re really struggling with that right now,” Ms. Sen said. “The portfolio has been so small up until this point that they really are passionate about their clients.”

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Top U.S. Commander in Afghanistan Is Linked to Petraeus Scandal

PERTH, Australia — Gen. John Allen, the top American and NATO commander in Afghanistan, has become ensnared in the scandal over an extramarital affair acknowledged by David H. Petreaus, a former general. General Allen is being investigated for what a senior defense official said early Tuesday was “inappropriate communication” with Jill Kelley, the woman in Tampa, Fla., who was seen by General Petreaus’s former lover as a rival for his attentions. 

In a statement released to reporters on his plane en route to Australia early Tuesday, Defense Secretary Leon E. Panetta said that the F.B.I. on Sunday had referred “a matter involving” General Allen to the Pentagon.

Mr. Panetta turned the matter over to the Pentagon’s inspector general to conduct an investigation into what a defense official said were 20,000 to 30,000 pages of documents, many of them e-mails between General Allen and Ms. Kelley.

A senior law enforcement official in Washington said on Tuesday that F.B.I. investigators looking into Ms. Kelley’s complaint about anonymous e-mails she had received examined all of her e-mails as a routine step.

“When you get involved in a cybercase like this, you have to look at everything,” the official said, suggesting that Ms. Kelley may not have considered that possibility when she filed the complaint. “The real question is why someone decided to open this can of worms.”

The official would not describe the content of the e-mails between General Allen and Ms. Kelley or say specifically why F.B.I. officials decided to pass them on to the Defense Department. “Generally, the nature of the e-mails warranted providing them to D.O.D.,” he said.

Under military law, adultery can be a crime.

The defense official on Mr. Panetta’s plane said that General Allen, who is also married, told Pentagon officials he had done nothing wrong. Neither he nor Ms. Kelley could be reached for comment early Tuesday. Mr. Panetta’s statement praised General Allen for his leadership in Afghanistan and said that “he is entitled to due process in this matter.”

But the Pentagon inspector general’s investigation opens up what could be a widening scandal into two of the most prominent generals of their generation: Mr. Petraeus, who was the top commander in Iraq and Afghanistan before he retired from the military and became director of the C.I.A., only to resign on Friday because of the affair, and General Allen, who also served in Iraq and now commands 68,000 American troops in Afghanistan.

Although General Allen will remain the commander in Afghanistan, Mr. Panetta said that he had asked President Obama to delay the general’s nomination to be the commander of American forces in Europe and the supreme allied commander of NATO, two positions he was to move into after what was expected to be easy confirmation by the Senate. Mr. Panetta said in his statement that Mr. Obama agreed with his request.

Gen. Joseph A. Dunford, the assistant commandant of the Marine Corps who was nominated last month by Mr. Obama to succeed General Allen in Afghanistan, will proceed as planned with his confirmation hearing. In his statement, Mr. Panetta urged the Senate to act promptly on his nomination.

The National Security Council spokesman, Tommy Vietor, said in a statement on Tuesday that Mr. Obama also believes that the Senate should swiftly confirm General Dunford.

The defense official said that the e-mails between Ms. Kelley and General Allen spanned the years 2010 to 2012. The official could not explain why there were so many pages of e-mails and did not specify their content. The official said he could not explain how the e-mails between Ms. Kelley and General Allen were related to the e-mails between Mr. Petraeus and Ms. Broadwell and e-mails between Ms. Broadwell and Ms. Kelley.

In what is known so far, Ms. Kelley went to the F.B.I. last summer after she was disturbed by harassing e-mails. The F.B.I. began an investigation and learned that the e-mails were from Ms. Broadwell. In the course of looking into Ms. Broadwell’s e-mails, the F.B.I. discovered e-mails between Ms. Broadwell and Mr. Petraeus that indicated they were having an extramarital affair. Ms. Broadwell, officials say, saw Ms. Kelley as a rival for her affections with Mr. Petraeus.

The defense official said he did not know how General Allen and Ms. Kelley knew each other. General Allen has been in Afghanistan as the top American commander since July 2011, although before that he lived in Tampa as the deputy commander for Central Command, which oversees American military operations in the Middle East.

The defense official said that the Pentagon had received the 20,000 to 30,000 pages of documents from the F.B.I. and was currently reviewing them.

The defense official said that at 5 p.m. Washington time on Sunday Mr. Panetta was informed by the Pentagon’s general counsel that the F.B.I. had the thousands of pages of e-mails between General Allen and Ms. Kelley. Mr. Panetta was at the time on his plane en route from San Francisco to Honolulu, his first stop on a weeklong trip to the Pacific and Asia. Mr. Panetta notified the White House and then the leaders of the Senate and House armed services committees.

General Allen is now in Washington for what was to be his confirmation hearing as commander in Europe. That hearing, the official said, will now be delayed.

After arriving in Perth Mr. Panetta and Secretary of State Hillary Rodham Clinton met with Prime Minister Julia Gillard of Australia for a United States-Australian security and diplomatic conference. Asked by a reporter while pausing for photos with Mrs. Clinton and Ms. Gillard if General Allen could remain an effective commander while under investigation, Mr. Panetta said nothing.

Gen. Martin E. Dempsey, the chairman of the Joint Chiefs of Staff, was also in Perth for the defense meetings and had no comment on the investigation of General Allen. "I do know him well and I can’t say," General Dempsey said of General Allen late on Tuesday after returning from an official dinner with the Australian officials, Mrs. Clinton and Mr. Panetta.

Scott Shane contributed reporting from Washington.

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At Mao-style conclave, China embraces Twitter age

BEIJING (AP) — During China’s last party congress, the cadres in charge of the world’s most populous nation didn’t know a hashtag from a hyperlink. But five years on, there’s a new message from Beijing: The political transition will be microblogged.

Party officials have this fall embraced social media with unprecedented enthusiasm, hoping it can help guide public opinion and stir up excitement about the staid and scripted party meeting taking place this week in Beijing that kicks off a transition to a new, younger set of top leaders.

Dozens of the more than 2,000 party delegates, among them Chairman Mao‘s grandson, are using social media to wax rhapsodic about China’s rise and Party General Secretary Hu Jintao’s live 90-minute reading of highlights from this year’s party work report. Typical posts include pictures of grinning delegates on Tiananmen Square and mobile snapshots of poinsettia arrangements and chandeliers from inside the Great Hall of the People, where the congress is meeting.

Guo Mingyi, a miner from the frigid northeast who was making his debut as a party delegate, tweeted: “On this land with great affections, how can I not sing, how can I not tear up, I love this piece of land, the people and the great Chinese Communist Party!”

State media also are posting microblog interviews with officials and shooting out updates about the congress schedule via Twitter-like accounts.

But apart from being a tool to deliver Beijing’s approved policy messages to the mobile phones of ordinary Chinese, the Internet is a two-way street that’s also being used by the public to poke fun at and critique the propaganda. Online commentators have compared the gushy crying and clapping of some delegates over Hu’s speech to North Korean style mass hysteria.

Responding to state media report about how a female delegate, Li Jian, cried five times at Hu’s work report, a Sina microblog user writing under the name ‘Buying Soysauce’ wrote: “I sobbed uncontrollably too, at the thought that these people were my compatriots.”

Wang Keqin, the assistant to the editor in chief of Beijing’s Economic Observer magazine, wrote about the tears of another delegate, He Guiqin: “It’s back to North Korea overnight!”

Other critics have dredged up old headlines from 1987 about the scourge of bribe-seeking and posted them online to highlight how little party rhetoric, and party problems, have changed despite major social change over the last three decades.

The clash of ideas underscores just how important the Internet has become in China’s campaign to guide public opinion — a major shift from just a few years ago.

At the last party conclave in October 2007, Twitter was a little over a year old and hashtags had only just been introduced. China’s leading homegrown Twitter-like microblog service, Sina Weibo, was still two years from launch.

But as elsewhere, China’s Internet population has exploded over the last five years, jumping from 170 million to more than 500 million today. Social media has boomed with it and now plays a huge part in everyday Chinese life, particularly for urban residents who use it to find restaurants, jobs and mates.

Beijing’s initial reaction to social media was to block and censor, to limit conversations by banning access to Twitter and Facebook and to limit mention of anything considered sensitive or destabilizing with keyword filters. Though authorities still use those tactics, the government is increasingly proactive and working to wrest control of the online conversation by flooding the zone with its own content.

David Bandurski, a researcher with the China Media Project at Hong Kong University, says Chinese officials have learned that simply banning or blocking reports is no longer effective in the porous Internet sphere and that stifling information can backfire by fanning more interest in scandals and crises and sparking online rumors.

“You can’t just stuff the genie back into the bottle,” said Bandurski. “You have also to channel public opinion … officially, they are seeing social media as the best way to send out their authoritative information and kind of drive the agenda.”

But the government remains yoked to its party-ese, which can seem hopelessly out of date in the Twitter age.

A dispatch on the trend by the official Xinhua News Agency gives a hint to the flavor of Beijing’s rhetoric.

“The Internet has been unprecedentedly embedded into the ongoing National Congress of the Communist Party of China,” the news agency trumpeted over the weekend. “Not only can contents on the Internet be found in the congress report, but online media practitioners are attending the congress in person.”

On Saturday, Chairman Mao’s grandson Mao Xinyu tweeted this to his 105,943 followers on Renmin Weibo, the microblog of the official party paper, the People’s Daily: “Mao Zedong thought will always be the guiding ideology of the party.”

It got 155 retweets, a mediocre showing in China‘s lively web sphere.

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Follow Alexa Olesen on Twitter: http://twitter.com/alobeijing

Social Media News Headlines – Yahoo! News

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