DealBook: Despite Improving Profits, Morgan Stanley's Path Is Uncertain

8:40 p.m. | Updated

Morgan Stanley has taken aggressive action to bolster profit. Over the last year, the Wall Street bank has cut thousands of employees, sold costly assets and retooled major businesses.

Those efforts worked. In the fourth quarter, Morgan Stanley reported earnings of $481 million, in contrast to a loss of $275 million in 2011. Profit was equally strong for the year.

But the path to future growth is less clear. While the financial firm can find other ways to cut costs, its core operations face significant challenges, from both internal and external forces. Reflecting those issues, revenue was flat last year, excluding charges related to its debt.

“They are doing everything they can to boost returns,” said Glenn Schorr, an analyst at the Japanese bank Nomura. “But given the environment and the state of their franchise, they can only do so much.”

Investors are assessing the progress versus the prospects.

After Morgan Stanley beat analysts’ expectations, the bank’s shares increased nearly 8 percent, to close at $22.38 on Friday. Morgan Stanley’s stock is up nearly 50 percent since early 2012.

“The company has been steadily chipping away at areas of investor concern, and has shown evidence of that progress,” Roger Freeman, a Barclays analyst, wrote in a note to investors.

Still, investors don’t value the investment bank as highly as some of its peers.

Morgan Stanley is trading at approximately 70 percent of its book value, a crucial financial measure that refers to the liquidation value of a company’s assets if it were forced to sell everything. Goldman, in contrast, is trading at book value.

More than four years after the financial crisis, Morgan Stanley has emerged as a much stronger, albeit smaller, bank.

After getting badly bruised during the crisis, Morgan Stanley, under the leadership of James P. Gorman, the chief executive, has moved to remake itself. He has diversified operations, emphasizing less risky businesses like wealth management.

That group was a particular bright spot. In the latest quarter, wealth management, with its 16,780 financial advisers, posted decent revenue growth. Pretax profit margin rose to 17 percent, up from 7 percent a year ago. That trumped the firm’s internal goals of 15 percent.

Investment banking, too, showed signs of strength. The group posted revenue of $1.23 billion in the fourth quarter, up 26 percent from the previous year.

The bank has also cut expenses significantly to help drive profitability. In 2012, Morgan Stanley reduced its head count by 7 percent, to 57,061 employees. It laid off 1,600 people this month.

The firm has also been bringing its pay levels down modestly. The firm’s compensation ratio, excluding certain charges, came in at roughly 51 percent, down from 57 percent a year ago.

Such efforts will most likely continue. On Friday, the bank said it might cut expenses by as much as $1.6 billion over the next two years.

Mr. Gorman called this quarter “pivotal,” on Friday. “I am confident we are on the path to increasing shareholder value that will be evident regardless of the macro environment,” he said in a statement.

Even so, the latest results underscored the growing gap between the bank and its rivals.

Revenue was flat for the quarter at Morgan Stanley, while it increased by 19 percent at Goldman Sachs during the same period. Excluding charges related to its debt, Morgan Stanley’s return on equity, a measure of profitability, was 5 percent. That compares with 10.7 percent at Goldman. To simply cover its debt expenses and other capital costs, Morgan Stanley needs to achieve a return on equity closer to 10 percent.

The firm’s problem child is the fixed income department.

Fourth-quarter revenue from fixed income sales and trading, headed by Ken deRegt, was $811 million, excluding the charges related to the firm’s debt. This was well below analysts’ forecasts. The bank was hurt by poor results in commodities trading, Mr. Gorman said in an interview on CNBC. He said it was a “terrible quarter,” citing factors like Hurricane Sandy, adding that it was one of the worst for the commodities business since 1995.

Despite its successes, Morgan Stanley faces a tough road.

The bank, which has had its credit rating cut deeper than its rivals, is also adjusting to a new regulatory environment. It now has to put up more capital against its operations, forcing the bank to leave certain businesses, reducing profitability.

Morgan Stanley is also trying to build market share in less-capital-intensive businesses like interest rates trading. But it is a highly competitive area, with lower margins.

“They have made some clear progress, but still have their work cut out for them in fixed income,” said Mr. Schorr of Nomura.

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Well: The Fallout of a Chance Medical Finding

An incidental finding — I was convinced of it. My patient had undergone a CT scan of the abdomen at another hospital because of stomach pains and “incidentally noted” was a 2-centimeter mass in her adrenal gland. She brought in the report for me to see, nervous that she might have cancer.

I reassured her that it was exceedingly unlikely that she had cancer. Benign masses in the adrenal gland are nearly as common as birthmarks. They almost never cause symptoms and we stumble across them only because we do so many scans for other reasons. They’ve even earned their own appellation: incidentalomas, and that’s what I was sure she had.

Of course a tiny fraction — 1 to 2 percent — of these adrenal masses can wreak havoc by churning out an excess of adrenal hormones or by being cancerous. Luckily, the mass on my patient’s scan possessed all the reassuring characteristics of benignity: it was small, low-attenuating, well circumscribed, with smooth borders. And she had no symptoms to suggest adrenal hyperactivity or cancer. It was most likely a benign adrenal adenoma that would never cause her harm.

Nevertheless, once the incidentaloma had been given life, so to speak, it was no longer incidental. We were now obliged to run some highly complicated — and expensive — lab tests. I winced as I ordered urinary metanephrines to test the adrenaline-producing capacity of the adrenal. The computer warned me with exclamation points and asterisks that this was a “greater-than-$100-send-out test.” Explaining how to correctly collect a 24-hour urine sample was its own involved discussion. Then I had to explain the even more complicated logistics of the overnight dexamethasone-suppression test to evaluate the cortisol-producing capacity of the adrenal.

After that, I considered the follow-up CT scans, recommended at six months, one year and two years, to ensure that the mass wasn’t growing. What about all that radiation? One group of endocrinologists estimated that the chance of uncovering a malignant cancer in patients like mine was roughly equal to the chance of causing a fatal cancer from the radiation of these follow-up CT scans. And might these CT scans pick up other incidental findings, opening yet more Pandora’s boxes of medical evaluation?

And what about the issue of skyrocketing medical costs? The evaluation of this incidentaloma was going to cost more than a thousand dollars. Tens of millions of CT scans are done every year in the United States. It doesn’t take many back-of-the-envelope calculations to see how quickly the costs of incidental findings, and their subsequent evaluations, add up. How much should the societal obligation weigh into the decisions for my patient?

My thoughts flitted back to the doctor who had ordered this CT in the first place. Perhaps if the doctor had had more time to spend on the history and physical, the CT would not have been necessary. From my 15 years with this patient, I knew that her symptoms could be voluminous in quantity and quality. This wasn’t to say that something serious couldn’t squeak in, but over the years I have learned that it takes immense perseverance and patience to tease out the significance of each symptom. Otherwise we’d be doing a CT every week for her.

But I could understand how a doctor in a busy ER on a weekend might have been overwhelmed by the plethora of symptoms and simply ordered a CT “to be on the safe side.” I wished that doctor had tried to call me before ordering the scan, but what’s done was done. The fallout of that decision was now in my lap.

By now we had run well over our allotted time and my patient was utterly overwhelmed by the complex testing procedures and schedules. The adrenal mass was an incidental finding, after all, but it had completely steamrolled our visit. My patient’s diabetes, obesity, depression, arthritis and elevated cholesterol all ended up with the short end of the clinical stick — an outcome that surely is not incidental to her health.

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Danielle Ofri is an associate professor of medicine at New York University School of Medicine and editor in chief of the Bellevue Literary Review. Her most recent book is “Medicine in Translation: Journeys With My Patients.”

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The Lede Blog: Analysis of Armstrong’s Interview With Winfrey

The Lede rounded up online reaction to Lance Armstrong’s interview with Oprah Winfrey on Thursday night in real-time, with additional fact-checking and context provided by Juliet Macur, Sarah Lyall, Brian Stelter, David Carr and Robert Mackey. The second part of the interview is scheduled to be broadcast at 9 p.m. Eastern Time on Friday and will be streamed live on the Oprah Winfrey Network’s Web site.

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Ex-Red Sox pitcher Schilling puts bloody sock up for auction after video game company collapse

PROVIDENCE, R.I. – Former Boston Red Sox pitcher Curt Schilling — whose video game company underwent a spectacular collapse into bankruptcy last year — is selling the blood-stained sock he wore during the 2004 World Series.

Chris Ivy, director of sports for Texas-based Heritage Auctions, says online bidding begins around Feb. 4. Live bidding will take place Feb. 23.

The sock previously had been on loan to the National Baseball Hall of Fame and Museum. It has been at Heritage’s Dallas headquarters for several weeks and will be displayed at the auction house’s Manhattan office before it is sold, according to Ivy.

He said the sock is expected to fetch at least $ 100,000, though he described that as a conservative estimate.

“I do expect the bidding to be very spirited,” Ivy said.

Schilling’s company, 38 Studios, was lured to Providence, R.I., from Massachusetts with a $ 75 million loan guarantee in 2010. In May, it laid off all its employees and it filed for bankruptcy in June. The state is now likely responsible for some $ 100 million related to the deal, including interest.

Schilling also had personally guaranteed loans to the company and listed the sock as bank collateral in a September filing with the Massachusetts secretary of state’s office.

Messages left for his publicist were not immediately returned.

The bloody sock is one of two that sent Schilling into the annals of baseball lore in 2004.

The other was from Game 6 of the American League Championship Series, when Schilling pitched against the New York Yankees with an injured ankle. That sock is said to have been discarded in the trash at Yankees Stadium.

The one being sold is from the second game of the World Series, which the Red Sox won that year for the first time in 86 years.

Schilling has said he invested as much as $ 50 million in 38 Studios and has lost all his baseball earnings. He told WEEI-AM in Boston last year that possibly having to sell the sock was part of “having to pay for your mistakes.”

“I’m obligated to try and make amends and, unfortunately, this is one of the byproducts of that,” he told the station.

Brad Horn, a spokesman for the hall of fame in Cooperstown, N.Y., said the loaned sock was returned in December under the terms of the hall’s agreement with Schilling. The hall had had it since 2004.

The Feb. 23 live bidding will be held at the Fletcher-Sinclair mansion in New York City, now home to the Ukrainian Institute of America. The auction will feature other “five- and six-figure items,” including a jersey and cap worn by New York Yankees great Lou Gehrig, Ivy said.

Heritage last May auctioned off the so-called “Bill Buckner ball,” which rolled through the legs of the Red Sox first baseman in the 1986 World Series. Ivy said that item, like Schilling’s sock, was listed at the time as being expected to bring in “$ 100,000-plus,” but it was sold to an anonymous bidder for $ 418,000.

Gaming News Headlines – Yahoo! News

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Armstrong admits doping: 'I'm a flawed character'

CHICAGO (AP) — He did it. He finally admitted it. Lance Armstrong doped.

He was light on the details and didn't name names. He mused that he might not have been caught if not for his comeback in 2009. And he was certain his "fate was sealed" when longtime friend, training partner and trusted lieutenant George Hincapie, who was along for the ride on all seven of Armstrong's Tour de France wins from 1999-2005, was forced to give him up to anti-doping authorities.

But right from the start and more than two dozen times during the first of a two-part interview Thursday night with Oprah Winfrey on her OWN network, the disgraced former cycling champion acknowledged what he had lied about repeatedly for years, and what had been one of the worst-kept secrets for the better part of a week: He was the ringleader of an elaborate doping scheme on a U.S. Postal Service team that swept him to the top of the podium at the Tour de France time after time.

"I'm a flawed character," he said.

Did it feel wrong?

"No," Armstrong replied. "Scary."

"Did you feel bad about it?" Winfrey pressed him.

"No," he said. "Even scarier."

"Did you feel in any way that you were cheating?"

"No," Armstrong paused. "Scariest."

"I went and looked up the definition of cheat," he added a moment later. "And the definition is to gain an advantage on a rival or foe. I didn't view it that way. I viewed it as a level playing field."

Wearing a blue blazer and open-neck shirt, Armstrong was direct and matter-of-fact, neither pained nor defensive. He looked straight ahead. There were no tears and very few laughs.

He dodged few questions and refused to implicate anyone else, even as he said it was humanly impossible to win seven straight Tours without doping.

"I'm not comfortable talking about other people," Armstrong said. "I don't want to accuse anybody."

Whether his televised confession will help or hurt Armstrong's bruised reputation and his already-tenuous defense in at least two pending lawsuits, and possibly a third, remains to be seen. Either way, a story that seemed too good to be true — cancer survivor returns to win one of sport's most grueling events seven times in a row — was revealed to be just that.

"This story was so perfect for so long. It's this myth, this perfect story, and it wasn't true," he said.

Winfrey got right to the point when the interview began, asking for yes-or-no answers to five questions.

Did Armstrong take banned substances? "Yes."

Was one of those EPO? "Yes."

Did he do blood doping and use transfusions? "Yes."

Did he use testosterone, cortisone and human growth hormone? "Yes."

Did he take banned substances or blood dope in all his Tour wins? "Yes."

Along the way, Armstrong cast aside teammates who questioned his tactics, yet swore he raced clean and tried to silence anyone who said otherwise. Ruthless and rich enough to settle any score, no place seemed beyond his reach — courtrooms, the court of public opinion, even along the roads of his sport's most prestigious race.

That relentless pursuit was one of the things that Armstrong said he regretted most.

"I deserve this," he said twice.

"It's a major flaw, and it's a guy who expected to get whatever he wanted and to control every outcome. And it's inexcusable. And when I say there are people who will hear this and never forgive me, I understand that. I do. ...

"That defiance, that attitude, that arrogance, you cannot deny it."

Armstrong said he started doping in mid-1990s but didn't when he finished third in his comeback attempt.

Anti-doping officials have said nothing short of a confession under oath — "not talking to a talk-show host," is how World Anti-Doping Agency director general David Howman put it — could prompt a reconsideration of Armstrong's lifetime ban from sanctioned events.

He's also had discussions with officials at the U.S. Anti-Doping Agency, whose 1,000-page report in October included testimony from nearly a dozen former teammates and led to stripping Armstrong of his Tour titles. Shortly after, he lost nearly all his endorsements and was forced to walk away from the Livestrong cancer charity he founded in 1997.

Armstrong could provide information that might get his ban reduced to eight years. By then, he would be 49. He returned to triathlons, where he began his professional career as a teenager, after retiring from cycling in 2011, and has told people he's desperate to get back.

Initial reaction from anti-doping officials ranged from hostile to cool.

WADA president John Fahey derided Armstrong's defense that he doped to create "a level playing field" as "a convenient way of justifying what he did — a fraud."

"He was wrong, he cheated and there was no excuse for what he did," Fahey said by telephone in Australia.

If Armstrong "was looking for redemption," Fahey added, "he didn't succeed in getting that."

USADA chief Travis Tygart, who pursued the case against Armstrong when others had stopped, said the cyclist's confession was just a start.

"Tonight, Lance Armstrong finally acknowledged that his cycling career was built on a powerful combination of doping and deceit," Tygart said. "His admission that he doped throughout his career is a small step in the right direction. But if he is sincere in his desire to correct his past mistakes, he will testify under oath about the full extent of his doping activities."

Livestrong issued a statement that said the charity was "disappointed by the news that Lance Armstrong misled people during and after his cycling career, including us."

"Earlier this week, Lance apologized to our staff and we accepted his apology in order to move on and chart a strong, independent course," it said.

The interview revealed very few details about Armstrong's performance-enhancing regimen that would surprise anti-doping officials.

What he called "my cocktail" contained the steroid testosterone and the blood-booster erythropoetein, or EPO, "but not a lot," Armstrong said. That was on top of blood-doping, which involved removing his own blood and weeks later re-injecting it into his system.

All of it was designed to build strength and endurance, but it became so routine that Armstrong described it as "like saying we have to have air in our tires or water in our bottles."

"That was, in my view, part of the job," he said.

Armstrong was evasive, or begged off entirely, when Winfrey tried to connect his use to others who aided or abetted the performance-enhancing scheme on the USPS team

When she asked him about Italian doctor Michele Ferrari, who was implicated in doping-related scrapes and has also been banned from cycling for life, Armstrong relied, "It's hard to talk about some of these things and not mention names. There are people in this story, they're good people and we've all made mistakes ... they're not monsters, not toxic and not evil, and I viewed Michele Ferrari as a good man and smart man and still do."

But that's nearly all Armstrong would say about the physician that some reports have suggested educated the cyclist about doping and looked after other aspects of his training program.

He was almost as reluctant to discuss claims by former teammates Tyler Hamilton and Floyd Landis that Armstrong told them, separately, that he tested positive during the 2001 Tour de Suisse and conspired with officials of the International Cycling Union officials to cover it up — in exchange for a donation.

"That story wasn't true. There was no positive test, no paying off of the labs. There was no secret meeting with the lab director," he said.

Winfrey pressed him again, asking if the money he donated wasn't part of a tit-for-tat agreement, "Why make it?"

"Because they asked me to," Armstrong began.

"This is impossible for me to answer and have anybody believe it," he said. "It was not in exchange for any cover-up. ... I have every incentive here to tell you 'yes.'"

Finally, he summed up the entire episode this way: "I was retired. ... They needed money."

The closest Armstrong came to contrition was when Winfrey asked him about his apologies in recent days, notably to former teammate Frankie Andreu, who struggled to find work in cycling after Armstrong dropped him from the USPS team, as well as his wife, Betsy. Armstrong said she was jealous of his success, and invented stories about his doping as part of a long-running vendetta.

"Have you made peace?" Winfrey asked.

"No," Armstrong replied, "because they've been hurt too badly, and a 40-minute (phone) conversation isn't enough."

He also called London Sunday Times reporter David Walsh as well as Emma O'Reilly, who worked as a masseuse for the USPS team and later provided considerable material for a critical book Walsh wrote about Armstrong and his role in cycling's doping culture.

Armstrong subsequently sued for libel in Britain and won a $500,000 judgment against the newspaper, which is now suing to get the money back. Armstrong was, if anything, even more vicious in the way he went after O'Reilly. He intimated she was let go from the Postal team because she seemed more interested in personal relationships than professional ones.

"What do you want to say about Emma O'Reilly?" Winfrey asked.

"She, she's one of these people that I have to apologize to. She's one of these people that got run over, got bullied."

"You sued her?"

"To be honest, Oprah, we sued so many people I don't even," Armstrong said, then paused, "I'm sure we did."

___

AP Sports Writers Jim Vertuno in Austin, Texas, Eddie Pells in Denver and Dennis Passa in Sydney contributed to this report.

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Media Decoder Blog: Tribune Company Names Peter Liguori as Chief After Ending Bankruptcy

Peter Liguori, a longtime television executive, was named the new chief executive of the Tribune Company on Thursday, two and a half weeks after the newspaper and television station owner emerged from a wrenching four-year bankruptcy process.

Mr. Liguori’s appointment had been expected for more than a month.

Analysts expect Tribune to sell some of its newspaper assets and rely more heavily on its television stations and Web sites as it restructures itself in the months ahead.

Tribune’s newspaper holdings include The Chicago Tribune, The Los Angeles Times and The Baltimore Sun. In an interview with The Los Angeles Times on Thursday, Mr. Liguori acknowledged that there were potential buyers for some of the newspapers and that “it is my fiduciary responsibility to hear them out and see if in fact their interest is real and their commitment is concomitant with the value of these newspapers.” But he also emphasized an internal goal to maximize revenue from the newspapers.

In an e-mail message to employees, Mr. Liguori brought up the television stations first, saying, “We must find efficient ways to create our own fresh programming.” When he brought up the newspapers, he said, “We must accelerate our digital offerings and get paid for them.”

Mr. Liguori is best known for his time at News Corporation, where he ran the popular cable channel FX and then became the chairman of entertainment for Fox Broadcasting. In 2009, he joined Discovery Communications as chief operating officer.

Eddy W. Hartenstein, Tribune’s previous chief executive, will remain the publisher of The Los Angeles Times and will be a special adviser to Mr. Liguori’s office, Tribune said Thursday.

The company also said Bruce Karsh, the president of the private equity firm Oaktree Capital Management, had been elected the chairman of Tribune’s new board. Oaktree owns nearly a quarter of Tribune. Mr. Karsh said in a statement: “The company is well-positioned across its markets and now has a strong balance sheet, significant liquidity and low debt, so there is a lot of opportunity ahead.”

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This post has been revised to reflect the following correction:

Correction: January 18, 2013

Because of an editing error, an earlier version of this article misstated when The Los Angeles Times interview with Peter Liguori occurred. It was Thursday, not last week.

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Some With Autism Diagnosis Can Recover, Study Finds

Doctors have long believed that disabling autistic disorders last a lifetime, but a new study has found that some children who exhibit signature symptoms of the disorder recover completely.

The study, posted online on Wednesday by the Journal of Child Psychology and Psychiatry, is the largest to date of such extraordinary cases and is likely to alter the way that scientists and parents think and talk about autism, experts said.

Researchers on Wednesday cautioned against false hope. The findings suggest that the so-called autism spectrum contains a small but significant group who make big improvements in behavioral therapy for unknown, perhaps biological reasons, but that most children show much smaller gains. Doctors have no way to predict which children will do well.

Researchers have long known that between 1 and 20 percent of children given an autism diagnosis no longer qualify for one a few years or more later. They have suspected that in most cases the diagnosis was mistaken; the rate of autism diagnosis has ballooned over the past two decades, and some research suggests that it has been loosely applied.

The new study should put some of that skepticism to rest.

“This is the first solid science to address this question of possible recovery, and I think it has big implications,” said Sally Ozonoff of the MIND Institute at the University of California, Davis, who was not involved in the research. “I know many of us as would rather have had our tooth pulled than use the word ‘recover,’ it was so unscientific. Now we can use it, though I think we need to stress that it’s rare.”

She and other experts said the findings strongly supported the value of early diagnosis and treatment.

In the study, a team led by Deborah Fein of the University of Connecticut at Storrs recruited 34 people who had been diagnosed before the age of 5 and no longer had any symptoms. They ranged in age from 8 to 21 years old and early in their development were in the higher-than-average range of the autism spectrum. The team conducted extensive testing of its own, including interviews with parents in some cases, to gauge current social and communication skills.

The debate over whether recovery is possible has simmered for decades and peaked in 1987, when the pioneering autism researcher O. Ivar Lovaas reported that 47 percent of children with the diagnosis showed full recovery after undergoing a therapy he had devised. This therapy, a behavioral approach in which increments of learned skills garner small rewards, is the basis for the most effective approach used today; still, many were skeptical and questioned his definition of recovery.

Dr. Fein and her team used standardized, widely used measures and found no differences between the group of 34 formerly diagnosed people and a group of 34 matched control subjects who had never had a diagnosis.

“They no longer qualified for the diagnosis,” said Dr. Fein, whose co-authors include researchers from Queens University in Kingston, Ontario; Children’s Hospital of Philadelphia; the Institute of Living in Hartford; and the Child Mind Institute in New York. “I want to stress to parents that it’s a minority of kids who are able to do this, and no one should think they somehow missed the boat if they don’t get this outcome.”

On measures of social and communication skills, the recovered group scored significantly better than 44 peers who had a diagnosis of high-functioning autism or Asperger’s syndrome.

Dr. Fein emphasized the importance of behavioral therapy. “These people did not just grow out of their autism,” she said. “I have been treating children for 40 years and never seen improvements like this unless therapists and parents put in years of work.”

The team plans further research to learn more about those who are able to recover. No one knows which ingredients or therapies are most effective, if any, or if there are patterns of behavior or biological markers that predict such success.

“Some children who do well become quite independent as adults but have significant anxiety and depression and are sometimes suicidal,” said Dr. Fred Volkmar, the director of the Child Study Center at the Yale University School of Medicine. There are no studies of this group, he said.

That, because of the new study, is about to change.

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World Briefing | Middle East: Jordan: Fire Kills Family at Camp for Syrian Refugees

A fire caused by a kerosene heater that flipped over in a center for refugees who had fled the Syrian civil war killed seven members of a family, a civil defense spokesman said Wednesday. The center is a temporary shelter for refugees before they are moved to a camp called Zaatari, which has been battered by a flash flood.

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Commentary: Background Checks? Yes, but Leave Video Games Alone

COMMENTARY | I have mixed feelings toward the White House‘s gun violence response. I agree that background checks should be required before people are allowed to buy a firearm and that an assault weapon ban should be reinstated into law. While limiting the number of bullets in a weapon’s magazine will decrease the number of deaths in a mass shooting, the public does not need high-capacity magazines. Therefore any weapon using high-capacity magazines should be banned from public use, not just capping the magazines to 10 bullets.

But violent video games and other media images and scenes real-life violence? These media do not kill people. The shooters kill the people. Those who are mentally unstable may not understand that violent video games are not real life and should not be duplicated in real life. As long as gamers understand the difference between video games and real life, that shouldn’t be touched.

– Edmond, Okla.

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Story of Te'o girlfriend death apparently a hoax

SOUTH BEND, Ind. (AP) — The wrenching story of Notre Dame football star Manti Te'o's girlfriend dying of leukemia — a loss he said inspired him to play his best all the way to the BCS championship — was dismissed by the school as a hoax perpetrated against the linebacker.

Notre Dame said Wednesday night it believes Te'o was duped into an online relationship with a woman whose "death" was then faked by the perpetrators of the hoax.

The school made the statement following a lengthy story by Deadspin.com, saying it could find no record that Lennay Kekua ever existed.

"This is incredibly embarrassing to talk about, but over an extended period of time, I developed an emotional relationship with a woman I met online," Te'o said in a statement. "We maintained what I thought to be an authentic relationship by communicating frequently online and on the phone, and I grew to care deeply about her. "

However, he stopped short of saying he had ever met her in person or correcting reports that said he had, though he did on numerous occasions talk about how special the relationship was to him.

"To realize that I was the victim of what was apparently someone's sick joke and constant lies was, and is, painful and humiliating," he said.

"In retrospect, I obviously should have been much more cautious. If anything good comes of this, I hope it is that others will be far more guarded when they engage with people online than I was."

Notre Dame athletic director Jack Swarbrick said at a news conference that Te'o told coaches on Dec. 26 he had received a call while at an awards ceremony earlier in the month from Kekua's phone number.

"When he answered it, it was a person whose voice sounded like the same person he had talked to, who told him that she was, in fact, not dead. Manti was very unnerved by that, as you might imagine," Swarbrick said.

Swarbrick said the school hired investigators and their report indicated those behind the hoax were in contact with each other, discussing what they were doing.

The investigators "were able to discover online chatter among the perpetrators that was certainly the ultimate proof of this, the joy they were taking," Swarbrick said. "The casualness among themselves they were talking about what they accomplished."

Swarbrick said for Te'o "the pain was real."

"The grief was real. The affection was real," he said. "That's the nature of this sad, cruel game."

Swarbrick said Notre Dame did not take the matter to the police, saying that the school left it up to Te'o and his family to do so. He added that Notre Dame did not plan to release the findings of its investigation.

"We had no idea of motive, and that was really significant to us. ... Was somebody trying to create an NCAA violation at the core of this? Was there somebody trying to impact the outcome of football games by manipulating the emotions of a key player? Was there an extortion request coming? When you match the lack of sort of detail we lacked until we got some help investigating it with the risk involved, it was clear to me until we knew more we had to just to continue to work to try to gather the facts," Swarbrick said.

The Deadspin report changed all that.

Friends and relatives of Ronaiah Tuiasosopo, a high school classmate of Te'o, told Deadspin they believe he created Kekua. She does not have a death certificate, Deadspin reported. Stanford, where she reportedly went to school, has no record of anybody by that name, the website said. Attempts by The Associated Press to reach Tuiasosopo by telephone were unsuccessful.

Deadspin said a record search produced no obituary or funeral announcement. There is no record of her birth in the news.

There are a few Twitter and Instagram accounts registered to Lennay Kekua, but the website reported photographs identified as Kekua online and in TV news reports are pictures from the social-media accounts of a 22-year-old California woman who is not named Lennay Kekua, the website reported.

Still, Swarbrick said, "Nothing about what I have learned has shaken my faith in Manti Te'o one iota."

Te'o talked freely about their relationship after her supposed death and how much she meant to him.

In a story that appeared in The South Bend Tribune on Oct. 12, Manti's father, Brian, recounted an anecdote about how his son and Kekua met after Notre Dame had played at Stanford in 2009. Brian Te'o also told the newspaper that Kekua had visited Hawaii and met with his son. Brian Te'o told the AP in an interview in October that he and his wife had never met Manti's girlfriend but they had hoped to at the Wake Forest game in November. The father said he believed the relationship was just beginning to get serious when she died.

The Tribune released a statement saying: "At the Tribune, we are as stunned by these revelations as everyone else. Indeed, this season we reported the story of this fake girlfriend and her death as details were given to us by Te'o, members of his family and his coaches at Notre Dame."

The week before Notre Dame played Michigan State on Sept. 15, coach Brian Kelly told reporters when asked that Te'o's grandmother and a friend had died. Te'o didn't miss the game. He said Kekua had told him not to miss a game if she died. Te'o turned in one of his best performances of the season in the 20-3 victory in East Lansing, and his playing through heartache became a prominent theme during the Irish's undefeated regular season.

"My family and my girlfriend's family have received so much love and support from the Notre Dame family," he said after that game. "Michigan State fans showed some love. And it goes to show that people understand that football is just a game, and it's a game that we play, and we have fun doing it. But at the end of the day, what matters is the people who are around you, and family. I appreciate all the love and support that everybody's given my family and my girlfriend's family."

He was asked again about his girlfriend on Jan. 3 prior to the BCS title game, saying: "This team is very special to me, and the guys on it have always been there for me, through the good times and the bad times. I rarely have a quiet time to myself because I always have somebody calling me, asking, 'Do you want to go to the movies?' Coach is always calling me asking me, 'Are you OK? Do you need anything?'"

Te'o was a Heisman Trophy finalist, finishing second in the voting, and led Notre Dame to its first appearance in the BCS championship. His widely reported story was among the most heartwarming of the season.

"It further pains me that the grief I felt and the sympathies expressed to me at the time of my grandmother's death in September were in any way deepened by what I believed to be another significant loss in my life," Te'o said in his statement.

"I am enormously grateful for the support of my family, friends and Notre Dame fans throughout this year. To think that I shared with them my happiness about my relationship and details that I thought to be true about her just makes me sick. I hope that people can understand how trying and confusing this whole experience has been."

Te'o and the Irish lost the title game to Alabama, 42-14 on Jan. 7. He has graduated and was set to begin preparing for the NFL combine and draft at the IMG Academy in Bradenton, Fla., this week.

"Fortunately, I have many wonderful things in my life," he said in his statement, "and I'm looking forward to putting this painful experience behind me as I focus on preparing for the NFL Draft."

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