Hedge fund manager alleges Herbalife is 'pyramid scheme'

Herbalife Ltd. is girding for a fight against a Wall Street money man who's betting $1 billion that the company is nothing more than what he called a "pyramid scheme."

The Los Angeles maker of nutritional products rushed to defend itself Thursday against a hedge fund manager's accusation.

Hedge fund titan Bill Ackman accused Herbalife of paying its sales staff far more money to recruit new distributors than to actually sell its products.

That results in the roughly 2.6 million distributors at the bottom of the sales pyramid making little or no income, while a handful at the top hauls in millions, he said.

"This is the best-managed pyramid scheme in the history of the world," Ackman said.

The company denied the allegation and accused Ackman of trying to manipulate the stock. Herbalife shares slumped 10% on Thursday and are off 21% in the two days since Ackman announced that the company is in his sights.

"Today's presentation was a malicious attack on our business model based largely on outdated, distorted and inaccurate information," Herbalife said in a statement. "We are not an illegal pyramid scheme."

Herbalife, which bills itself as a so-called multilevel marketer, has beaten back similar accusations in the past. But the company has rarely faced a nemesis such as Ackman.

The 46-year-old billionaire has fashioned a career on high-stakes gambits in controversial companies. His fund firm, Pershing Square Capital Management, manages $12 billion.

Showdowns between companies and skeptical investors historically play out behind closed doors, especially in the normally sleepy pre-holiday period.

But in a measure of the aggressive tactics favored by an emerging breed of activist investors, Ackman launched a public blitzkrieg Thursday. He gave a flashy multimedia presentation to a packed conference room in New York that was streamed live on the Internet.

"I've never seen anything quite like it," said Timothy Ramey, an analyst at D.A. Davidson & Co. "I've never seen an investor spend 31/2 hours of time at a major venue being webcast and then make TV appearances to make his point. It's the largest orchestrated bull or bear case that I've ever seen."

The brawl has potential repercussions for both sides.

Ackman claimed to have spent one year doing intensive research on Herbalife's operations, an unusually extended period given Wall Street's thirst for immediate results.

Earlier this year, Ackman began betting that Herbalife's stock would fall sharply.

His fund is "shorting" more than 20 million shares of the company. In a short sale, an investor borrows stock and sells it immediately, hoping to later buy the shares at a reduced price and return them to their actual owner.

Ackman promised to donate all profit from his Herbalife bet to charity, and portrayed his public diatribe as intended for the public good.

"I'm very fortunate to have the means to pursue this," he said. "I am independently wealthy. When I believe in something, I can say what I want and do what is right."

For Herbalife, the fight threatens to damage its credibility among investors who have always been sensitive to claims that its business is illegitimate.

Herbalife, which was founded in 1980, sells a line of diet powders, bars, drinks and vitamins through a network of independent distributors in more than 80 countries. The company reported sales of $3.5 billion in 2011.

Its chief executive, Michael O. Johnson, was the highest paid executive in the United States last year, hauling in more than $89 million in salary, exercised stock options and other compensation, according to GMI Ratings, a corporate governance firm.

The company has fought criticism of its business model throughout its existence.

In 2008, for example, self-proclaimed fraud buster Barry Minkow shorted Herbalife's stock and then accused the company of a host of misdeeds. The company survived those accusations and Minkow ultimately went to prison on unrelated charges.

This was the second time this year that investors punished Herbalife because of questions about its business practices. Herbalife shares fell 20% in May after hedge fund operator David Einhorn asked pointed questions during an earnings call.

"We operate at the highest ethical and quality standards, and our management and our board are constantly reviewing our business practices and products," Herbalife said. "We also hire independent, outside experts to ensure our operations are in full compliance with laws and regulations."

Ackman and Herbalife engaged in a bitter and bizarre war of words, with Johnson saying the United States will "be better when Bill Ackman is gone."

Ackman interpreted the statement as a threat and said he has hired a security firm to protect him.

stuart.pfeifer@latimes.com

walter.hamilton@latimes.com

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Family, fans say goodbye to Jenni Rivera

Jenni Rivera was remembered in death the same way she was celebrated in life: on an illuminated stage, with thousands of fans chanting her name.

The singer, who was killed in a plane crash earlier this month, was honored Wednesday with what her family called a "celestial graduation," a musical memorial that packed the Gibson Amphitheatre with 6,100 people and drew hundreds more outside.

The more than two-hour farewell could have been mistaken for a concert, if not for the crowd's tears and the ruby-red casket on stage. In front of it was a cluster of white roses, the type of flower Rivera's family asked fans to bring. Behind it was a single microphone, left unused.

Family members — clad head-to-toe in white — praised Rivera as a "perfectly imperfect" mother and a guerrera, Spanish for "female warrior." Her father, Pedro Rivera, a noted singer of the Mexican ballads known as corridos, said goodbye by performing a song he wrote about her, "La Diva de la Banda."

Rivera's 11-year-old son, Johnny Lopez, addressed the sea of mourners in a white suit and red bow tie. His father died a few years ago.

"Mama, I've been crying so much these last few days. I miss you so much," he said, his voice breaking. "I hope you're taking care of my dad and I hope he's taking care of you, too."

He added: "I want to thank everyone for loving my mom."

Rivera, a Long Beach native, first gained fame via her banda music, a Mexican regional style heavy on machismo and brass instruments. A rare woman in the genre, Rivera often sang — in Spanish and English — about her chaotic personal life: three husbands, five children and struggles with her weight and domestic violence.

Rivera sold more than 20 million albums and, in recent years, had started to expand her business empire. She had a weekly radio program, clothing and cosmetics lines and a hand in several reality shows, including "I Love Jenni."

She and six others were killed Dec. 9 when a private jet that had departed Monterrey, Mexico, nose-dived 28,000 feet in 30 seconds and smashed into mountainous terrain. Rivera was 43.

"My sister, Jenni, died in a plane accident, but it was not an accident," Pedro Rivera Jr., a pastor and Rivera's brother, told the crowd in Spanish. "God has a purpose for all of us and God let us borrow her for 43 years and enjoy her."

It was clear how deeply Rivera had touched her legion of fans.

At the memorial, several well-known Latino singers performed, including Ana Gabriel, Olga Tanon and Joan Sebastian.

Outside, her fan base arrived early, blasting her music from cars decorated with tributes: "Jenni, we love you" and "We are going to miss you." They wore Jenni Rivera T-shirts and Jenni Rivera pins and waved handmade posters. One woman said Rivera was now performing "in a concert with God."

Lidia Farrias and her husband, Jose, drove three hours from Santa Maria. They didn't have tickets — the event sold out within minutes — so they shivered outside, eyes fixed on two jumbo screens streaming the memorial. Farrias said Rivera's frank lyrics had encouraged her to be a stronger woman.

"Whenever I listened to her songs, I felt like I could tackle anything," she said.

Denise Montalvo, 15, had left San Diego at 1 a.m. with her mother, aunt and two family friends. She admired Rivera for striving to obtain a better life, just like Denise's family. The teenager said Rivera wanted her funeral to be a celebration, reflecting her song "Cuando Muere una Dama" — "When a Lady Dies."

"We're trying not to be sad," she said.

That was hard for fans, particularly as the memorial wound down. One by one, each of Rivera's family members placed a white rose on her casket. Some whispered to it. Some kissed it. Then they walked away.

ruben.vives@latimes.com

adolfo.flores@latimes.com

Times staff writer Ashley Powers contributed to this report.

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Miss USA Olivia Culpo is crowned Miss Universe

LAS VEGAS (AP) — A 20-year-old Boston University sophomore and a self-described "cellist-nerd" brought the Miss Universe crown back to the United States for the first time in more than a decade when she won the televised contest Wednesday.

Olivia Culpo beat out 88 other beauty queens from six continents at the Planet Hollywood casino on the Las Vegas Strip to take the title from outgoing champion Leila Lopes of Angola.

Culpo wore a tight navy blue mini-dress with a sequined bodice as she walked on stage for the competition's opening number. Later in the night, she strutted in a purple and blue bikini, and donned a wintery red velvet gown with a plunging neckline.

Culpo's coronation ends a long losing spell for the U.S. in the competition co-owned by Donald Trump and NBC. An American had not won the Miss Universe title since Brook Lee won in 1997.

No one seemed more surprised than Culpo's family, who "looked at her like she had three heads" when told them she was entering the Miss Rhode Island contest last year, her father Peter recalled.

"We didn't know a thing about pageants," he said.

She won that contest in a rented $20 dress with a hole in it and then began working out, dieting, and studying current events on flashcards to compete for the Miss USA crown.

Culpo was good enough during preliminary Miss Universe contests to be chosen as one of 16 semifinalists who moved on to compete in the main show. Her bid lasted through swimsuit, evening wear, and interview competitions that saw cuts after each round.

She won over the judges even after tripping slightly during the evening gown competition. Telecasters pointed it out but also noted her poised recovery.

Moments before she won, Culpo was asked whether she had she had ever done something she regretted.

"I'd like to start off by saying that every experience no matter what it is, good or bad, you'll learn from it. That's just life," she said. "But something I've done I've regretted is probably picking on my siblings growing up, because you appreciate them so much more as you grow older."

One of those siblings, 17-year-old Gus, was cheering from the front row with his sister's glittering Miss Rhode Island sash wrapped around his shoulders

Miss Philippines, Janine Tugonon, came in second, while Miss Venezuela, Irene Sofia Esser Quintero, placed third. All the contestants spent the past two weeks in Sin City, where they posed in hardhats at a hotel groundbreaking, took a painting lesson, and pranked hotel guests by hiding in their rooms.

After the show, Culpo appeared wearing a white gold crown atop her long brown hair and told a group of reporters she hoped to bring the country some good news in the wake of the deadly school shooting in Connecticut.

"It's such an honor to be representing the USA in an international beauty contest in spite of all the tragedy that's happened in this country lately," she said. "I really hope that this this will raise everybody's spirits a little."

The daughter of two professional musicians, Culpo grew up in Cranston and spent her summers at band camp. She has played the cello alongside world-renowned classical musician Yo-Yo Ma, and followed in her parents' footsteps with performances at Carnegie Hall in New York City.

Her father called her the "nerdiest" of her siblings, and her brother recalled that she was "really chubby and sort of weird when she was younger."

They speculated that the same single-mindedness that helped her master the cello in second grade propelled her rapid rise through the beauty pageant ranks.

With her promotion, Miss Maryland Nana Meriwether becomes the new Miss USA.

The Miss Universe pageant was back in Las Vegas this year after being held in Sao Paulo in 2011. It aired live on NBC and was streamed to more than 100 countries.

The panel of 10 judges included singer Cee Lo Green, "Iron Chef" star Masaharu Morimoto and Pablo Sandoval of the San Francisco Giants.

Asked on the red carpet whether he found playing in the World Series or judging the beauty pageant to be more difficult, Sandoval said both were hard.

As Miss Universe, Culpo will receive an undisclosed salary, a wardrobe fit for a queen, a limitless supply of beauty products, and a luxury apartment in New York City.

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Europe Proposes New Tobacco Rules

BRUSSELS — Health warnings should cover 75 percent of cigarette packs but governments should also have leeway to require plain packaging, the European Commission said Wednesday.

Yves Logghe/Associated Press

European Commissioner for Health and Consumer Policy Tonio Borg held up a mock package of cigarettes during a news conference on proposals to revise the Tobacco Products Directive, at the European Commission headquarters in Brussels on Wednesday.

The commission’s proposal would also ban cigarettes containing large quantities of flavorings including menthol and vanilla, restrict the sale of slimmer cigarettes and maintain a ban in most of the European Union on a form of chewing tobacco called snus.

The proposals still are less strict than in Australia, where a prohibition on logos and colorful designs went into effect this month. But the proposed ban on slim and super-slim cigarettes that are marketed to young women “is a positive development and a world first,” said the Smoke Free Partnership, a European organization that promotes tobacco control and research.

Tonio Borg, the E.,U. commissioner for health and consumer policy, said the overall goal of the so-called Tobacco Products Directive was to make smoking less attractive and to discourage young people from tobacco consumption.

“Consumers must not be cheated,” Mr. Borg said. “Tobacco products should look and taste like tobacco products, and this proposal ensures that attractive packaging and flavorings are not used as a marketing strategy.”

But Unitab, a European association of tobacco growers, said regulators had declared “total war” on their industry. The increased restrictions on branding would make price the deciding factor in tobacco sales; that in turn would favor suppliers from countries with lower production costs and put thousands of jobs in Europe at risk, the association said.

Written health warnings already must cover about 40 percent of a cigarette pack in the Union, although some countries also use pictorial warnings. In the future, Mr. Borg would like pictorial warnings to be mandatory, and for the warnings to cover three-quarters of the front and back of each pack of cigarettes, and half of each side.

E.U. officials conceded that the entire top and bottom sides of cigarette packs sold in Europe still could be used for branding under Mr. Borg’s proposals. Member states could opt to require plain packaging, however.

The directive also would require that smokeless electronic cigarettes providing more than a certain amount of nicotine should be available only in outlets like pharmacies. National or Europe-wide “test panels” would determine what quantities of flavoring like menthol should be banned, they said.

Much of the interest in the legislation in recent months had focused on apparent attempts to influence its wording.

Mr. Borg’s predecessor, John Dalli, resigned in October after the commission concluded that he had probably known about an attempt by a lobbyist to solicit a multimillion-dollar payoff in exchange for easing the ban on snus. The product can be sold only in Sweden, where some people consider it a safer alternative to smoking.

Mr. Dalli denied the allegations and said he was forced to resign under pressure from José Manuel Barroso, the president of the commission. Mr. Dalli also said his ouster had jeopardized chances for the revised directive to be passed before the current term of the European Parliament, which must approve the legislation, expires in 2014.

Mr. Borg suggested Wednesday that the law still could be adopted before the Parliament’s term expires, and go into force in 2015 or 2016.

But the Smoke Free Partnership warned that lobbying still could water down the proposals on labeling and packaging, as well as the ban on flavors and slim cigarettes. Governments and members of the European Parliament “are likely to face attempts by the tobacco industry to further block, weaken and delay this important legislation,” said Florence Berteletti Kemp, the director of the partnership.

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UBS to pay $1.5 billion to settle Libor charges

UBS has agreed to pay a fine of $1.5 billion to authorities and plead guilty to a felony count of wire fraud, the most recent developments in a far-reaching probe into how banks manipulated interest rates leading up to the financial crisis.

Two former traders were also charged with conspiracy in a complaint unsealed Wednesday, the first people charged criminally in the Libor scandal.

"We cannot and we will not tolerate misconduct on Wall Street of the kind admitted to by UBS today and by Barclays last June," said Assistant Atty. Gen. Lanny Breuer, head of the criminal division. In June, Barclays was the first bank to settle with authorities, paying $450 million.

The fine was one of the biggest leveled against a financial institution by American and British authorities, just short of the $1.9-billion fine HSBC agreed to pay last week over money laundering allegations.

The charges relate to the ways traders leaned on banks to manipulate the London interbank offered rate, or Libor, to benefit their own trading positions.

Officials said that from 2006 through 2009 UBS traders placed bets on the movement of Libor and manipulated the rate, which is used as a benchmark to set interest rates for many mortgages, credit cards and other consumer lending instruments. The traders profited by knowing which way the Libor would move.

In coming months, the probe probably will expand to include other banks that help determine the Libor, analysts say. But it's the criminal charges that turned some heads on Wall Street on Wednesday.

The plea agreement on wire fraud charges by a UBS subsidiary in Japan, which included a $100-million fine, marks the first time since 2005 that a major financial institution has pleaded guilty to criminal charges, the Justice Department said.

"For a bank to admit to criminality is kind of mind-blowing," said Peter Shapiro, managing director of Swap Financial Group in South Orange, N.J. "Obviously, they didn't do that easily — that was something that must have been a big priority of enforcement agencies."

Enforcement agencies have been feeling some pressure to level blame on financial institutions in the wake of the financial crisis, Shapiro said. No senior financial executives have served jail time for their roles in the financial crisis.

"Both the regulators and enforcement agencies feel somewhat beleaguered by the repeated assertions that they failed to deliver enough heads on a plate as a response to the financial crisis," he said.

U.S. officials also announced criminal charges against two former senior traders for UBS in connection with the scandal. Tom Alexander William Hayes, 33, of Britain, was charged with conspiracy and wire fraud, and Roger Darin, 41, of Switzerland, was charged with conspiracy. Both remain abroad, but the Justice Department will try to extradite them.

"The motivation here was nothing short of sheer greed, and the scheme was nothing short of a shell game, a Wall Street version of three-card monte," said Kevin Perkins, associate director of the FBI, which helped investigate the case.

More criminal charges at other banks could follow, said Anthony Sabino, professor of law at the Tobin College of Business at St. John's University.

"Once you start to round up some accused bad guys, that leads to more people being rounded up," he said. "This is a vast conspiracy among a multitude of banks, which therefore implicates a multitude of individuals."

Much of the activity took place at UBS Japan Securities Co., where Hayes was a senior trader. The Justice Department released internal UBS messages in which Hayes and others talked about their alleged manipulation.

In one from November 2006, Hayes told a UBS employee who submitted rate information for the Libor that he and Darin "skew the Libors a bit" and then said he needed the six-month rate to stay high for three days.

UBS traders were often colorful and emphatic in their pleadings, according to documents released by Britain's Financial Services Authority. One wrote, "I need you to keep it as low as possible.... If you do that, I'll pay you, you know, $50,000, $100,000, whatever you want."

The UBS fine was larger than that leveled on Barclays earlier in the year because UBS' misconduct was "considerably more serious than Barclays' because it was more widespread within the firm," the Financial Services Authority said. At least 45 individuals at UBS were involved in or aware of the rate-fixing practice.

UBS said that it had fully cooperated with authorities and that the interest-rate manipulations were the isolated actions of certain employees.

"Their misconduct does not reflect the values of UBS nor the high ethical standards to which we hold every employee," UBS CEO Sergio Ermotti said in a statement.

Analysts say that there's still potential for significant civil suits against UBS and other banks, which could be more damaging than the fines levied against them. Keefe, Bruyette & Woods, an equity research firm, estimated in July that potential industry damages could reach $35 billion.

Those estimates were validated Wednesday when the Inspector General for the Federal Housing Finance Agency estimated that government-owned Fannie Mae and Freddie Mac may have lost a combined $3 billion because of reduced interest payments on securities and other holdings. Officials at FHFA, which regulates Fannie and Freddie, have not confirmed the estimate but are evaluating potential issues involved with the Libor manipulation.

There are barriers to further lawsuits — the burden of proof will be high, analysts at Keefe, Bruyette & Woods said. To move forward with civil suits, plaintiffs would have to prove that traders were conspiring, said John C. Coffee, a Columbia Law School expert in corporate fraud.

"But that said, the size of the potential liability is mushrooming," he said.

Times reporter E. Scott Reckard contributed to this report. Semuels reported from Los Angeles and Puzzanghera from Washington.

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Panel faults security failures in Benghazi attacks

WASHINGTON — The State Department was guilty of "systematic failures" in security that made the deadly Sept. 11 terrorist attacks on the U.S. mission in Libya possible, a high-level investigative panel concluded in an unflinching examination made public late Tuesday.

The panel faulted the department for ignoring requests from U.S. diplomats in Tripoli for security assistance and for relying on ill-prepared local militias and inadequate equipment to protect the mission in Benghazi. It found that two key bureaus failed to properly coordinate their security planning, and it pointed to a failure in leadership by officials at several levels.

"Systematic failures and leadership and management deficiencies at senior levels within two bureaus of the State Department resulted in a … security posture that was inadequate for Benghazi and grossly inadequate to deal with the attack that took place," the report says.

The attacks by dozens of Islamist militants killed Ambassador J. Christopher Stevens and three other Americans and set off a broad reexamination of how the U.S. government protects its thousands of diplomats in dangerous parts of the world. The incident has also become the focus of a months-long battle between the Obama administration and Republican critics, who contend officials have sought to cover up their lapses.

United Nations Ambassador Susan Rice was among those caught up in the political fray, eventually withdrawing her name from consideration as secretary of State after fierce criticism of her comments on television talk shows regarding the Benghazi attacks.

According to the report, which is likely to represent the government's lasting judgment on the attacks, the assault was the calculated effort of militants and not a "spontaneous" reaction of an outraged crowd, the first explanation offered by U.S. officials.

Yet the five-member independent panel said that, despite the lapses, no officials had failed to carry out their duties in a way that required disciplinary action.

It also determined that there had been "no immediate, specific intelligence" on the threat against the mission.

The report prepared for lawmakers includes classified sections.

Secretary of State Hillary Rodham Clinton said in a letter to congressional committees that she has accepted "every one" of the Accountability Review Board's 29 recommendations, several of which remain classified.

She praised the board, saying that it had offered "a clear-eyed look at serious, systematic challenges that we have already begun to fix."

To begin remedying the problems, officials are planning to reallocate $1.3 billion that was to be spent in Iraq to add hundreds of Marine guards and diplomatic security personnel, and to bolster security infrastructure in dangerous locations.

The board, which was convened in September, was led by retired Ambassador Thomas Pickering and former Joint Chiefs of Staff Chairman Adm. Michael G. Mullen. The two will meet Wednesday in closed session with the Senate and House foreign affairs committees to discuss the findings.

On Thursday, the committees will convene again in public session to discuss the report with Clinton's deputies, William J. Burns and Thomas Nides. Clinton had agreed to appear before the committees Thursday, but asked to be excused last weekend after suffering a mild concussion in a fall. She has told the committees she would answer their questions in January.

The report criticizes officials for waiting to react to specific threats rather than anticipating the dangers that U.S. officials could face in a deteriorating security environment.

More than a year after the end of the end of a revolution that brought down Libyan leader Moammar Kadafi, the nation is still overrun by rival armed groups and lacks a central authority that can guarantee security for foreign missions, as it is required to do under international agreements.

Accountability Review Boards are set up under federal law to examine failures and assign blame. This one found shortcomings in the bureaucratic system, in personnel and equipment.

The report details how the Libyan militias that were supposed to protect the compound were not capable of carrying out the assignment. It deems the mission's fire-safety equipment and physical protections inadequate, and adds that the security arrangements were weakened by the relative inexperience and rapid turnover of personnel, despite their courage.

It also cites "diminished institutional knowledge, continuity and mission capacity."

The report says the mission security shortcomings were made clear by Stevens' trip to Benghazi. Stevens, one of the most respected U.S. diplomats in the region, believed that he faced no special threat in his visit to Benghazi, even though the general level of risk had been on the rise for much of the year.

And the security officials assigned to protect him were not even aware of the specifics of his plans to travel outside the compound during his visit, the panel said.

The investigative panel found that although officials in the U.S. Embassy in Tripoli had sought more security staffing in Benghazi, they had generally not done enough to try to improve security at the lightly protected Benghazi mission.

It said their faith in a local militia and contract security personnel was "misplaced," noting that some militia members had stopped accompanying the mission vehicles to protest their salary and hours.

Among State Department personnel, "there appeared to be very real confusion over who, ultimately, was responsible and empowered to make decisions based on both policy and security considerations," the report says.

The report says certain senior officials in the State Department's Diplomatic Security and Near East Affairs bureaus, whom it didn't identify, "demonstrated a lack of proactive leadership and management ability" in their responses. "However, the board did not find a reasonable cause to determine that any individual employee breached his or her duty," it adds.

The report calls for a strengthening of security and for the department to "urgently review the proper balance between acceptable risk and expected outcomes in high risk, high threat areas."

paul.richter@latimes.com

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Cassadee Pope wins Season 3 of 'The Voice'

NEW YORK (AP) — Cassadee Pope, who was country singer Blake Shelton's protege on the third season of NBC's "The Voice," has won the show's competition.

The 23-year-old singer is stepping out into a solo career after performing with a band called Hey Monday. Her victory over Scottish native Terry McDermott and long-bearded Nicholas David was announced at the end of a two-hour show Tuesday.

"The Voice" has grown into a hit for NBC and was the key factor in the network's surprising success this fall.

The show's status was affirmed by the stream of hitmakers who performed on the finale. They included Rihanna, Bruno Mars, the Killers, Smokey Robinson and Peter Frampton.

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Instagram draws ire over new user rules

SAN FRANCISCO — When it comes to policy changes, Instagram could have used a filter of its own.

Its usually devoted users threatened to delete their accounts en masse Tuesday if the popular photo-sharing app did not roll back new terms of service that appeared to give the company ownership of their images. Instagram users — about 100 million now — snap the photos on their smartphones, apply digital filters to enhance the photos and then instantly share them with friends.

"Dear @Instagram, why did you think we'd just be OK with your new terms? They are NOT COOL. Signed, The Entire Internet," Jason Pollock, a Los Angeles filmmaker and social media consultant, wrote on Twitter.

Instagram founder Kevin Systrom tried to calm the uproar and reassure users in a blog post Tuesday afternoon.

"Instagram does not claim any ownership rights over your photos," he wrote. "We respect that your photos are your photos. Period."

Instagram's new terms of service announced Monday included a clause stating that Instagram had the right to turn images into advertisements without any approval from or compensation for users starting Jan. 16. — part of Facebook's drive to make money from the service it bought this year for $715 million in cash and stock.

That angered amateur and professional photographers alike — even Facebook Chief Executive Mark Zuckerberg's wedding photographer.

"Pro or not if a company wants to use your photos for advertising they need to TELL you and PAY you," Noah Kalina said on Twitter.

The effort to make money from Instagram users struck a nerve. According to the Pew Research Center's Internet & American Life Project, nearly half of Internet users post photos and videos online that they have created themselves.

Kurt Opsahl, a senior staff attorney with the Electronic Frontier Foundation, said Instagram quickly realized it had "overplayed its hand." But its mea culpa blog post still contains plenty of loopholes, he said.

"They say they don't have any plans to put your photos in an advertisement, but nevertheless that is the permission they were seeking," Opsahl said. "We will have to see what the language of the terms of service looks like after they revise it."

Jeff Lawrence, a 29-year-old DJ, graphic designer and photographer from Seattle, said he'll decide if he's dumping Instagram after he sees what the company plans to do in black and white.

"Thankfully we are all Internet savvy enough to know that people can say one thing and do another," said Lawrence, an avid Instagram user. "I am going to wait and see if Instagram takes this criticism to heart and changes the terms of service."

The backlash underscored the rising tensions between users of free social media services and the companies that are trying to profit from them. More users are asking for more control over how these companies handle their information.

Clayton Cubitt, 40, a photographer and filmmaker from Brooklyn, N.Y., quickly dubbed the new terms of service a "suicide note" from Instagram.

He urged his fellow Instagram users to revolt against the current policies at social media companies that he described as "you have a free place to post content and in exchange the company sucks the soul out of your life."

"They look at users as a herd to milk," Cubitt said.

His rants may have angered Zuckerberg, but Zuckerberg's sister Arielle Zuckerberg publicly "liked" Cubitt's Instagram snapshot of the most controversial part of Instagram's terms of service.

It's unclear if the Instagram backlash will cause lasting damage to the service.

Hacker collective Anonymous had urged its more than 780,000 Twitter followers to ditch Instagram with the hashtag #BoycottInstagram and posted screen shots from followers who had. The servers of Instaport.me, which helps users download their photos from Instagram, were overloaded Tuesday as Instagram users deleted their accounts and switched to other options such as Hipstamatic and Twitter's new photo service that has filters similar to Instagram. Yahoo said it has seen "strong interest" in its new Flickr app for iPhones.

Many Instagram users said they would give Instagram the benefit of the doubt — for now.

"I am going to rage about it, and get people to rage about it, until we change their policy," Pollock, 31, said in an interview. "There is just something so personal and beautiful about Instagram. Hopefully they don't completely ruin it."

jessica.guynn@latimes.com

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Adam Lanza's family had kept a watchful eye on him

STAMFORD, Conn. — When the parents of Adam Lanza divorced, the settlement left Nancy Lanza with $24,150 a month in alimony payments and able to live a comfortable life and care for her troubled son.

Nancy Lanza, 52, was her son's first victim Friday, shot to death in the spacious homethey shared, authorities said. Adam, 20, then took his mother's car to Sandy Hook Elementary School, where he shot his way into the building and opened fire, killing 20 children and six adults before turning a gun on himself.

New details emerged Monday about how Adam Lanza's family and the staff at his high school kept a watchful eye over the reserved boy, who seemed to spend much of his time in solitude after finishing high school.

PHOTOS: Sandy Hook shootings

Friends of the family said he suffered from Asperger's syndrome, a form of autism. As early as age 10, Adam Lanza was taking medication, according to his former baby sitter, Ryan Kraft, now an aerospace engineer in Hermosa Beach.

"I know there was something administered. I'm not sure what," he said. There were never any signs that Lanza was dangerous, he said. "There were no red flags that would say something like this would happen."

Nancy Lanza cautioned Kraft to never let him out of his sight, even briefly. "The instructions were to always supervise him visually," he said.

FULL COVERAGE: Sandy Hook shootings

That echoed recollections from others who said Nancy Lanza was a constant presence in her son's life. "She truly cared for both of her sons deeply," said Amanda d'Ambrose, 23, whose brother befriended Adam Lanza in high school. "I just want the world to know what a beautiful soul that she is."

John Wlasuk, who played Babe Ruth baseball with Lanza as a youth, said the boy's mother was "always at the games, always really involved with her kids."

Wlasuk said he sometimes went to the Lanza house with his father, a plumber, who told him of the room in the basement where Lanza spent a lot of time playing video games. As Wlasuk's father described it, the room had posters of military weaponry, and Lanza would be playing violent video games such as "Call of Duty."

"I wouldn't say it was a shrine to the military or anything, a couple of posters with a bed and a desk and a computer," he said.

Richard Novia, who formerly advised the Newtown High Schooltechclub that was one of Lanza's few social outlets, said Lanza had been placed in a special program for students who were considered at risk of being bullied — though he had no recollection of Lanza being harassed.

Novia said he was told that Lanza had a medical condition that hindered his ability to feel pain, so that if he cut himself or stubbed his toe, he might not even know he was hurt and could continue to harm himself.

When Lanza was in elementary school, his mother fretted about his schooling.

"She was concerned mainly that Adam wasn't fitting in well in his classroom," said Wendy Wipprecht, whose son had also been diagnosed with a form of autism. She said Nancy Lanza considered moving her son to a private Catholic school, orhomeschooling him, but did not join sessions of any of the local autism parents' support groups that Wipprecht attended.

"She may have decided that there wasn't a support group that would fit," Wipprecht said. "Who knows. She may have been overwhelmed."

There is no mention of Adam Lanza's emotional troubles or any domestic strife in his parents' divorce papers. Last week, Ryan Lanza told investigators that the divorce could have had an effect on his younger brother.

Peter and Nancy Lanza married in 1981 in New Hampshire. She sued her husband for divorce in 2008, citing irreconcilable differences.

In their 2009 settlement, Nancy and Peter Lanza agreed to joint custody of Adam, then 17, who would live with his mother but have regular visits from his father. In addition to the alimony, Peter Lanza would cover the children's medical insurance.

Court records show that Nancy Lanza was due to receive $289,800 in alimony in 2012, or $24,150 each month. Peter Lanza, an executive at General Electric who was earning an annual salary of about $445,000 in 2009, also would pay for both their sons' college and graduate school educations and for a car for Adam.

The street where Nancy Lanza and her son lived was reopened by police Monday. The borders of the grassy, tree-lined hill it sits on are still cordoned off with yellow police tape.

shashank.bengali@latimes.com

molly-hennessy-fiske@latimes.com

kim.murphy@latimes.com

Bengali and Hennessy-Fiske reported from Newtown, Conn., and Murphy from Seattle.

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Judge rejects Apple injunction bid vs. Samsung

(Reuters) – A U.S. judge on Monday denied Apple Inc‘s request for a permanent injunction against Samsung Electronics‘ smartphones, depriving the iPhone maker of key leverage in the mobile patent wars.

Apple had been awarded $ 1.05 billion in damages in August after a U.S. jury found Samsung had copied critical features of the iPhone and iPad. The Samsung products run on the Android operating system, developed by Google.

Apple and Samsung are going toe-to-toe in a patents dispute that mirrors the struggle for industry supremacy between the two companies, which control more than half of worldwide smartphone sales.

For most of the year, Apple had been successful in its U.S. litigation campaign against Samsung. Apple convinced U.S. District Judge Lucy Koh in San Jose, California to impose two pretrial sales bans against Samsung — one against the Galaxy Tab 10.1, and the other against the Galaxy Nexus phone.

Apple then sought to keep up the pressure after its sweeping jury win. It asked Koh to impose a permanent sales ban against 26 mostly older Samsung phones, though any injunction could potentially have been extended to Samsung’s newer Galaxy products.

Yet the jury exonerated Samsung on the patent used to ban Galaxy Tab 10.1 sales, and Koh rescinded that injunction. Then, in October, a federal appeals court reversed Koh’s ban against the Nexus phone.

In her order late on Monday, Koh cited that appellate ruling as binding legal precedent, ruling that Apple had not presented enough evidence that its patented features drove consumer demand for the entire iPhone.

“The phones at issue in this case contain a broad range of features, only a small fraction of which are covered by Apple’s patents,” Koh wrote.

“Though Apple does have some interest in retaining certain features as exclusive to Apple,” she continued, “it does not follow that entire products must be forever banned from the market because they incorporate, among their myriad features, a few narrow protected functions.”

An Apple spokeswoman declined to comment on Koh’s ruling, and a Samsung representative could not immediately be reached.

In a separate order on Monday, Koh rejected a bid by Samsung for a new trial based on an allegation that the jury foreman was improperly biased in favor of Apple.

The case in U.S. District Court, Northern District of California is Apple Inc. vs. Samsung Electronics Co Ltd et al, 11-1846.

(Reporting by Dan Levine in Oakland, California; Editing by Ron Popeski)

Wireless News Headlines – Yahoo! News

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