Toyota Motor Corp. (NYSE: TM) recalls 242,000 hybrids because of brake problems. (Reuters)

Samsung Electronics wins a key patent ruling against Apple Inc. (NASDAQ: AAPL) in an ITC case. (Reuters)

Amazon.com Inc. (NASDAQ: AMZN) will offer groceries online. (Reuters)

The Fed’s Richard Fisher says the agency might reevaluate its bond-buying program. (Reuters)

HTC makes management changes as the cellphone firm flounders. (Reuters)

The European Central Bank may not employ policy to add stimulus to the recession-plagued region. (WSJ)

Chrysler rejects a federal recall of 2.7 million Jeeps. (WSJ)

Verizon Wireless will pay $1 billion to give its wireless subscribers more access to NFL games. (WSJ)

German car sales drop 10% last month. (WSJ)

FHA’s projected losses could reach $115 billion over 30 years, if some stress test data is accurate. (WSJ)

Zynga Inc. (NASDAQ: ZNGA) will sell virtual goods on Facebook. (WSJ)

Jefferson County will emerge from Chapter 11 due to negotiations of bond payments. (WSJ)

Pilots who work for JAL and ANA are skeptical of new repairs to the Boeing (NYSE: BA) 787 Dreamliner. (NYT)

Amazon.com expects to bring in $800 million in ad revenue as its sets programs to take business from Facebook Inc. (NASDAQ: FB) and Google Inc. (NASDAQ: GOOG). (FT)

HSBC Holdings PLC (NYSE: HBC) may have ignored foreclosure laws. (FT)

Proxy firm Glass Lewis suggests investors reserve judgment about Softbank’s buyout of Sprint Nextel Corp. (NYSE: S). (Bloomberg)

The European Union sets tariffs for China’s solar product dumping. (Bloomberg)

Bank of America Corp. (NYSE: BAC) will struggle in court to get approval of its $8.5 billion settlement over the sales of mortgage-related securities. (Reuters)

Zynga Inc. (NASDAQ: ZNGA) cuts its staff by a fifth as its struggles with its business model. (Reuters)

Intel Corp. (NASDAQ: INTC) says this year its tablet chip business will begin to take share in the growing part of the industry. (Reuters)

Sprint Nextel Corp. (NYSE: S) attacks efforts for a buyout offer of Clearwire (NASDAQ: CLWR) by Dish Network Corp. (NASDAQ: DISH). (Reuters)

U.S. car sales show that the market may have started to level off. (WSJ)

Mozilla says it will launch a Firefox-powered phone for emerging markets. (WSJ)

PC companies will launch more hybrid desktop-tablet and tablet-phone products to help get back market share from pure tablet models. (WSJ)

The roll-out of 4G networks in Europe is slow. (WSJ)

Large investors begin to buy up much of the inventory in weak housing markets. (NYT)

Social media sites may restrict some portion of user-created content because it could drive advertisers away. (NYT)

Increases in global bond yields hurt results of some of America’s largest institutional investors. (FT)

The United States will begin to regulate more non-bank financial firms like American International Group Inc. (NYSE: AIG). (FT)

Exports begin to pull Spain out of the worst part of its recession. (Bloomberg)

The evidence of Zynga’s disintegration began last year, when revenue rose to only $1.28 billion from $1.14 billion in 2011. That was a pathetic performance, compared to the increase from 2010 to 2011. Zynga’s 2010 revenue was only $597 million. The downturn was much evident in the first quarter, when revenue actually dropped to $264 million from $321 million in 2012. As Zynga’s model deteriorates, annual revenue could drop to less than $900 million this year. And there is reason to worry that its game products could fare poorly enough that the $900 million figure is optimistic.

Zynga did what almost any other awfully struggling company does. It slashed costs in the first quarter to $268 million from $407 million the year before. In the process, because much of the reduction was in R&D and sales, it may have mortgaged its future. However, if it cannot produce new hit products, that mortgaging have been the most intelligent thing it could do. At the same time, it was a sign of capitulation.

The critical question is whether Zynga can replace its failed products with successful ones. The answer to that is no.

By itself, the announcement of the Zynga layoffs was vague. All the company said was the reduction would create $70 million to $80 million in case savings. However, Zynga is not cash poor — yet. It is “idea poor” for certain. Most of Zynga’s corporate announcements over the past year have been about new products. None of the announcements have been about how those products have done, likely because they have been failures.

The reasons for the Zynga layoffs were articulated in a blog post by CEO Mark Pincus. The content of the blog was highlighted by the fact that it said nothing about how Zynga would turn itself around:

These moves, while hard to face today, represent a proactive commitment to our mission of connecting the world through games. Mobile and touch screens are revolutionizing gaming. Our opportunity is to make mobile gaming truly social by offering people new, fun ways to meet, play and connect. By reducing our cost structure today we will offer our teams the runway they need to take risks and develop these breakthrough new social experiences.

The announcement was long on jargon and short on specific plans, because Zynga has none.

It is not unusual for a market to pass a company by, either because of a tectonic shift in that market or a lack of imagination by management. Whichever the case is with Zynga, it has not demonstrated that it can face the challenge of either. That, more than any single thing, means the cost reductions at Zynga are not over.

The U.S. dollar index is trading down 0.92% today, now at 82.6080. The GSCI commodity index is down 1.1% at 615.46. WTI crude oil closed up 1.6%, at $93.45 a barrel. Brent crude trades up 1.7% at $102.11 a barrel. Natural gas is up 0.3% today at about $4.00 per million BTUs. Gold settled up 1.4% today at $1,411.90.

The unofficial closing bells put the DJIA up more than 137 points to 15,252.95 (0.91%), the NASDAQ rose more than 9 points (0.27%) to 3,465.37, and the S&P 500 rose 0.59% or nearly 10 points to 1,640.38.

There were a several analyst upgrades and downgrades today, including:

• HomeAway Inc. (NASDAQ: AWAY) started as ‘sell’ at Monness Crespi & Hardt;
• Best Buy Co. Inc. (NYSE: BBY) raised to ‘buy’ at SunTrust Robinson Humphreys;
• Intel Corp. (NASDAQ: INTC) raised to ‘outperform’ at FBR Capital Markets;
• LinkedIn Corp. (NYSE: LNKD) started as ‘outperform’ at Credit Suisse; and
• Freeport-McMoRan Copper & Gold Inc. (NYSE: FCX) started as ‘overweight’ with a price target of $40 at Barclays.

Earnings reports since markets closed last Friday have resulted in one notable price change today: Cracker Barrel Old Country Store Inc. (NASDAQ: CBRL) is up 5.7% at $94.57 after posting a new 52-week high of $97.13 earlier today.

Before markets open tomorrow morning we are scheduled to hear earnings from SAIC Inc. (NYSE: SAI) and Dollar General Corp. (NYSE: DG).

Some standouts among heavily traded stocks today include:

Merck & Co. Inc. (NYSE: MRK) is up 3.8% at $48.45 after posting a new 52-week high of $49.36 earlier today. The drug company announced good results over the weekend for its melanoma treatment.

Affymax Inc. (NASDAQ: AFFY) is down 14.9% at $1.77. The drug maker today terminated a supply agreement and resolved other disputes related to its recall of anemia drug Omontys.

BlackBerry (NASDAQ: BBRY) is down 2.7% at $13.58. The smartphone maker had no news today, but a recent report on mobile phone operating systems market share leaves little room for the company’s latest BlackBerry 10 platform.

Zynga Inc. (NASDAQ: ZNGA) is down 9.3% at $3.09. The social game maker’s stock was halted this afternoon when it announced a layoff of more than 500 employees.

Stay tuned for Tuesday. Fed Governor Sarah Bloom Raskin, Kansas City Fed President Esther George, and Dallas Fed President Richard Fisher are speaking. We have also noted the following events on the schedule (all times Eastern):

• 8:30 a.m. – International trade data
• 11:30 a.m. – 4-week bill auction

The company will record a charge of $24 to $26 million in its second fiscal quarter and $2 to $5 million in the third quarter. Zynga also estimates a reversal of $15 million in stock-based compensation expenses in the second quarter.

Zynga also updated its outlook, now projecting a net loss of $28.5 to $39 million. The company re-affirmed its second quarter outlook for revenues in the range of $225 to $235 million and an adjusted EPS loss of $0.03 to $0.04 ($0.03 to $0.05 loss on a GAAP basis) and bookings of $180 to $190 million. The consensus estimate calls for an EPS loss of $0.03.

Shares are trading up about 0.3% at $3.41 in a 52-week range of $2.09 to $6.36

The Securities and Exchange Commission has now charged NASDAQ with securities laws violations over its poor systems and decision-making during the initial public offering and secondary market trading of Facebook shares. The SEC release shows that NASDAQ has agreed to settle the SEC’s charges by paying a $10 million penalty and the SEC boasts that this is the largest settlement ever against an exchange.

So what if it is the largest fine or settlement ever? A fine of $10 million is a joke, particularly if you look at the numbers and circumstances below. NASDAQ has a market value for its public stock of over $5.2 billion, but the company’s latest March 30 balance sheet had $674 million in cash and over $1.8 billion in direct long-term debt. Facebook’s market value is $57 billion even with shares down at $23.65. Investors who tried to buy at the IPO price or in the after-market lost literally billions of dollars on an aggregate basis.

The SEC said that NASDAQ’s trading problem caused more than 30,000 Facebook share orders to remain stuck in the trading system for more than two hours when they should have been promptly executed or cancelled. We have heard multiple reports that many of those investors were told the following Monday that they saw shares appear in their account. It was a disaster and a disgrace, and this is one just one more of those things that acts to destroy the public’s already-waning trust against the stock market even more.

The SEC statement noted, “According to the SEC’s order instituting settled administrative proceedings, despite widespread anticipation that the Facebook IPO would be among the largest in history with huge numbers of investors participating, a design limitation in NASDAQ’s system to match IPO buy and sell orders caused disruptions to the Facebook IPO. NASDAQ then made a series of ill-fated decisions that led to the rules violations.”

While some of those orders may have been spread over multiple firms from multiple clients, this still obviously represents thousands and thousands of investors who got screwed here at the IPO. We have been around the game long enough to know that there is no free lunch in the financial markets. Still, this was a screw-job and we are even cleaning that terminology up so that we do not have offensive content.

The SEC also went on to show that several members of NASDAQ’s senior leadership team convened a “Code Blue” conference call and decided not to delay the start of secondary market trading in Facebook. There was an expectation that they had fixed the system limitation by removing a few lines of computer code, but the SEC said that they did not understand the root cause of the problem and this caused violations of several rules. One of those violations was the NASDAQ’s fundamental rule governing the price/time priority for executing trade orders.

The systems problems encountered during the Facebook IPO on May 18, 2012, caused the cross to fall 19 minutes behind the orders received by NASDAQ. Another point to back this up is that the SEC showed that this time discrepancy caused more than 38,000 marketable Facebook orders to not be included in the cross. It said, “Approximately 8,000 of those orders were entered into the market at 11:30 a.m. when continuous trading commenced, and the remaining 30,000 were ‘stuck’ orders.”

Here is the real insult. Today’s SEC report said, “NASDAQ further violated its rules when it assumed a short position in Facebook of more than three million shares in an unauthorized error account. NASDAQ’s rules do not permit it to use an error account for any purpose. NASDAQ subsequently covered that short position for a profit of approximately $10.8 million, also in violation of its rules. NASDAQ further violated its rules in three other ways during the opening of trading after the end of the display-only period for Facebook and following a halt in Zynga Inc. (NASDAQ: ZNGA) trading.”

The SEC’s order also charged NASDAQ’s affiliated third party broker-dealer NASDAQ Execution Services (NES) for failing to maintain sufficient net capital reserves on the day of the Facebook IPO. In what are called “separate incidents unrelated to the Facebook IPO” the SEC additionally charged NASDAQ with violations of Regulation NMS and Regulation SHO based on its failure to appropriately monitor and enforce compliance with price-test restrictions in October 2011 and August 2012.

So NASDAQ ended up with a magical $10.8 million gain. Shareholders collectively lost billions of dollars here. Imagine how eager the users of the next great social media or Internet craze are going to feel about getting to participate in an overly-hyped up IPO. If you want to know what destroys trust and what causes the feeling that the market is rigged against the retail investor, this joke of a $10 million settlement pretty much sums it up.

What is so frustrating about this news is that it fails to take into account the fallout and the collateral damage which took place as a result. Any time you have confusion of this magnitude in a hot IPO suddenly worth billions of dollars, you end up having an army of other shareholders that are basically forced to hit the panic button and sell because they do not know how bad it will get. This collateral damage drove down the price of the post-IPO trading and contributed to billions upon billions of shareholder losses.

Facebook’s IPO was first signaled at $28 to $35 per share. Then the underwriters raised the price range to a better $34 to $38 range. Then the company decided to sell 25% more shares and many Facebook insiders and employees got to cash out early. After pricing at $38.00 for May 18, 2012 trading, the stock went briefly to $45 after opening around $42 or so and closed out at $38.23 on the first day. By June 1, 2012 Facebook was trading at $27 and Facebook spent much of 2012 trading even under $20 per share. Now the stock is close to $24.

You might just assume that with the name 24/7 Wall St. we are mere champions of the cult of finance regardless of what happens. That is far from the case. The public should be outraged about this small settlement. Investors got screwed here, and $10 million just feels like one more insult on top of injury.

Google Inc. (NASDAQ: GOOG) releases a streaming music service. (Reuters)

JANA Partners take large stakes in Groupon Inc. (NASDAQ: GRPN) and Zynga Inc. (NASDAQ: ZNGA). (Reuters)

The European recession is the longest since World War II. (WSJ)

The Department of Homeland Security says Bitcoin is part of an unlicensed money business. (WSJ)

Japan’s gross domestic product rises 3.5% in the first quarter. (WSJ)

J.P. Morgan asks Bloomberg for data obtained by the news service from the trading terminal firm. (WSJ)

Gold plunges below $1,400. (WSJ)

Banks successfully fight regulators on whether they can trade certain types of derivatives. (NYT)

Google’s market cap rises above $300 billion. (FT)

Cisco System Inc.’s (NASDAQ: CSCO) forecast helps fuel confidence in an IT recovery. (FT)

George Soros sells much of his gold holdings before the price drop. (Bloomberg)

China is still the largest holder of U.S. debt, though its reserves of American paper fell 0.1% in March to $1.25 trillion, or 11% of the total.

The U.S. dollar index is trading up 0.29% today, now at 83.8370. The GSCI commodity index is down 0.4% at 627.87. WTI crude oil closed up 0.1%, at $94.30 a barrel following the release of the EIA’s inventory data. Brent crude trades 1.1% at $103.72 a barrel. Natural gas is up 1% today at about $4.06 per million BTUs. Gold settled down 2% today at $1,396.20.

The unofficial closing bells put the DJIA up about 60 points to 15,275.15 (0.39%), the NASDAQ rose about 9 points (0.26%) to 3,471.62, and the S&P 500 rose 0.51% or more than 8 points to 1,658.71.

There were a several analyst upgrades and downgrades today, including:

• Golar LNG Ltd. (NASDAQ: GLNG) cut to ‘sell’ at Goldman Sachs;
• BlackBerry (NASDAQ: BBRY) cut to ‘market perform’ at Bernstein;
• Lowe’s Companies Inc. (NYSE: LOW) reiterated as ‘buy’ and price target raised to $48 at Argus;
• Gap Inc. (NYSE: GPS) raised to ‘buy’ at Citigroup; and
• Charles Schwab Corp. (NYSE: SCHW) cut to ‘underweight’ at Barclays.

Earnings reports since markets closed last night have resulted in some price changes for reporting companies as of the last half hour of trading today:

• Agilent Technologies Inc. (NYSE: A) is up 3.7% at $45.60 after posting a new 52-week high of $46.49 earlier today;
• Primo Water Corp. (NASDAQ: PRMW) is down 7.2% at $1.42;
• Computer Sciences Corp. (NYSE: CSCO) is down 9.9% at $44.61;
• Deere & Co. (NYSE: DE) is down 4.6% at $89.46;
• First Majestic Silver Corp. (NYSE: AG) is down 9.8% at $10.15 after posting a new 52-week low of $10.13 earlier today; and
• Macy’s Inc. (NYSE: M) is up 2.7% at $48.66 after posting a new 52-week high of $48.91 earlier today.

Before markets open tomorrow morning we are scheduled to hear earnings from Cisco Systems Inc. (NASDAQ: CSCO), Dillard’s Inc. (NYSE: DDS), Jack in the Box Inc. (NASDAQ: JACK), Skechers USA Inc. (NYSE: SKX), E Commerce China Dangdang Inc. (NASDAQ: DANG), Kohl’s Corp. (NYSE: KSS), ReneSola Ltd. (NYSE: SOL), and Wal-Mart Stores Inc. (NYSE: WMT).

Some standouts among heavily traded stocks today include:

Bristol-Myers Squibb Co. (NYSE: BMY) is up 5.2% at $44.40, after posting a new 52-week high of $45.59 earlier today. The biopharmaceutical firm gave an upbeat presentation on its plans for new cancer and heart drugs.

Apple Inc. (NASDAQ: AAPL) is down 3.6% at $427.92. The PC and consumer electronics product maker is being sued by the U.S. Justice Department for leading a price-fixing scheme in the book publishing business.

Zynga Inc. (NASDAQ: ZNGA) is up 3.5% at $3.45. The social games producer got a big boost from a purchase of 25 million of the company’s shares by activist investor Jana Partners.

Stay tuned for Thursday. Philadelphia Fed President Charles Plosser, Boston Fed President Eric Rosengren, Dallas Fed President Richard Fisher, Fed Governor Sarah Bloom Raskin, and San Francisco Fed President John Williams are all giving speeches. We have also noted the following events on the schedule (all times Eastern):

• 8:30 a.m. – Consumer price index
• 8:30 a.m. – Housing starts
• 8:30 a.m. – New claims for unemployment benefits
• 10:00 a.m. – Philadelphia Fed survey
• 10:30 a.m. – EIA weekly natural gas storage report
• 4:30 p.m. – Fed balance sheet and money supply

A case in point comes from the share value increases in International Business Machines Corp. (NYSE: IBM) and Hewlett-Packard Co. (NYSE: HPQ). HP shares are higher by 50% this year, compared with 5% for IBM.

The argument most frequently offered for the difference is that IBM was already fully valued and that the shares of HP have been overly battered by bad news. The fallacy of that argument is that the trouble at HP has not gotten better in 2013. If anything, the company is in more trouble. Evidence of this is the increased turmoil over its buyout of Autonomy, the confusion of its board structure and its lack of a way to reverse its fortunes from the death of the PC. One the other hand, growth has slowed at IBM, but its profits and the stability of its operations are remarkable. If a bubble has formed in tech stock prices, HP should be considered as strong evidence.

The case in retail shares is just as compelling, if not more so. Thus far, there is little reason to think that electronics retailer Best Buy Co. Inc. (NYSE: BBY) can be turned around. Same-store sales have stayed in trouble. On the other hand, the company that ruined Best Buy — e-commerce juggernaut Amazon.com Inc. (NASDAQ: AMZN) — posted revenue growth of 22% to $16.1 billion in its most recently reported quarter. It continues to add new products, the most recently rumored a 3D consumer electronics portable. And some analysts believe that Amazon’s enterprise cloud system eventually will be larger than its e-commerce system as measured by sales. But this year Best Buy’s shares are up 120% while Amazon’s are flat. Once again, an argument for the difference is that Best Buy might be turned around and that Amazon has low margins as its spends to expand several of its business. But Best Buy could turn out to be an outright failure, while Amazon is the most admired retail company in the world.

If it takes three examples to make a case, the value of the shares of Zynga Inc. (NASDAQ: ZNGA) and Facebook Inc. (NASDAQ: FB) round out the argument. Zynga’s shares have risen almost 40% this year and Facebook’s are flat. Facebook powerfully made the case that it can continue to grow rapidly and that much of that growth is in mobile. Just last year, the markets were worried that mobile revenue was Facebook’s Achilles heel. In the first quarter, Facebook’s revenue rose almost 40% to $1.5 billion. The social network reported that “mobile advertising revenue represented approximately 30% of advertising revenue for the first quarter of 2013.” Zynga’s revenue fell 30% in its first quarter to $264 million. And its most crucial measure of health fell apart:

Daily active users (DAUs) decreased from 65 million in the first quarter of 2012 to 52 million in the first quarter of 2013, down 21% year-over-year. On a consecutive quarter basis, DAUs were down 8% from 56 million in the fourth quarter of 2012.

Those who believe that Zynga’s share price increase is justified fail to take into account that the company has lost almost all of its promise. Even on a relative basis, the stock trades based on the viability of Zynga, or the odds it might be taken over, both of which are in doubt.

The bull market may press shares of weak companies up more than those of strong ones. The problem is that the weak companies may not have any future at all.

Of course, investors could be gun-shy after the collapses of the share prices of Facebook Inc. (NASDAQ: FB), Groupon Inc. (NASDAQ: GRPN) and Zynga Inc. (NASDAQ: ZNGA). Twitter has not demonstrated that it can bring in a critical mass of advertising, at least not enough for it to be considered a large media company. Analysts estimate that the company could be worth $10 billion currently, which may be much to pricey for Wall Street.

The New York Times says of the new Twitter corporate development chief:

The company has hired Cynthia Gaylor, a managing director at Morgan Stanley, to be its head of corporate development, Alexander Macgillivray, Twitter’s chief lawyer, said in a tweet on Thursday.

Adding:

Over her career, Ms. Gaylor has worked on technology deals including the sale of Zappos to Amazon.com, according to her profile on LinkedIn. More recently, she has advised on financing transactions like initial public offerings.

Among her clients are Facebook, Zynga, Netflix and LinkedIn, the LinkedIn profile says. She joined Morgan Stanley in 2006 after working at Hambrecht & Quist, which became part of JPMorgan Chase.