DealBook Briefing: Jay-Z Has 99 Problems. The S.E.C. Is One.


• Mr. Icahn and Mr. Deason say the board had demanded “unprecedented” legal protections.

What’s next: Fujifilm will want Xerox to continue pursuing their deal. Mr. Icahn and Mr. Deason will keep fighting the board — and also Fujifilm, as “an aider and abettor” of what they argue to be breaches of fiduciary duty.

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Steven Mnuchin in Beijing.

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Andy Wong/Associated Press

What have the Beijing trade talks achieved so far?

Not much in terms of solid plans. The U.S. delegation reiterated demands like a $200 billion cut in the trade deficit with China, which Beijing deemed “unfair.”

We’ve written before about the splits in the U.S. delegation between free-traders like Treasury Secretary Steven Mnuchin and hard-liners like the U.S. trade representative, Robert Lighthizer. But China’s negotiators face their own problem: They’re superqualified on economics, less so on trade law.

A sign that relations haven’t completely frozen over: Beijing approved Qualcomm’s plans for a Chinese joint venture on smartphone chips. (Still no word on the NXP takeover.) And UBS is seeking control of its Chinese joint venture.

Elsewhere in trade: A congressional race in Boeing’s home district is suddenly a tossup. How tariffs are reshaping the solar industry, including by spurring M.&A.

The political flyaround

• Rudy Giuliani’s disclosures might have been aimed at solving a legal problem for President Trump, but they may have created several others. (More explanation here.) Mr. Giuliani also contradicted some of the president’s accounts of James Comey’s firing. White House staffers were blindsided.

• How Fox News, normally a safe space for Mr. Trump, became a source of problems for him. (NYT)

• Scott Pruitt didn’t just buy an Oklahoma house from a lobbyist; he bought it in partnership with another lobbyist. (NYT)

• The Justice Department updated its sexual harassment guidelines. Critics worry about how they’ll be applied. (NYT)

• There has been an uptick in scam PACs ostensibly supporting causes like police and cancer victims. (Politico)

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Cristina Chen-Oster, right, with a fellow plaintiff against Goldman Sachs, Shanna Orlich.

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Richard Perry/The New York Times

Is #MeToo finally changing Wall Street?

After 13 years and dozens of lawyers, a lawsuit alleging gender discrimination at Goldman Sachs has won class action status. One of the plaintiffs, Cristina Chen-Oster, spoke to Bloomberg Businessweek:

Goldman’s ferocious defense and the long arc of the case so far might seem like a warning to women considering new battles. Chen-Oster takes a sunnier view. She laughs when she recounts how a friend at a different financial firm went to compliance training that, she said, boiled down to: Do whatever it takes to avoid another Chen-Oster vs. Goldman Sachs. “It’s having a positive impact,” she says.

Elsewhere in banking: How James Gorman’s take-it-or-leave-it approach helped Morgan Stanley. A judge upheld a conviction against a former Goldman Sachs programmer for stealing its high-frequency trading code. HSBC’s C.E.O. is preparing a new strategy as the firm plans a $2 billion stock buyback. Why it’s hard to show when a trading strategy turns criminal.

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Gene J. Puskar/Associated Press

Why Lyft has never caught up to Uber

When its bigger rival kept hitting problems last year, Lyft wasn’t fast or aggressive enough to blow up the Death Star of its industry. “We couldn’t get out of our own way from a product and engineering perspective,” a former Lyft manager told The Information. Travis Kalanick once deemed one of Lyft’s C.E.O.s “lame sauce.”

An example, from Amir Efrati of The Information:

Lyft developed a cheaper shared-ride service called Lyft Line before Uber, but allowed Uber to get ahead with announcing its own, not-yet-developed version, called UberPool. Lyft worked on “upfront pricing” — telling riders the price of a ride before they book — for months before Uber beat it to the punch.

Elsewhere in tech: Facebook has fired several employees for abusing access to user data. Its staffers get a “Sauron alert” when their profiles a viewed by a colleague, something not available to the public. The tale of the Great Bitcoin Heist. Twitter urged users to change their passwords after a glitch caused some to be stored in an unencrypted format. Lawmakers want the tech industry to move faster on improving employee diversity.

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Warren Buffett

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Rick Wilking/Reuters

The deals flyaround

• Berkshire Hathaway bought 75 million shares in Apple — “an unbelievable company,” in Warren Buffett’s estimation — in the first quarter. (CNBC)

• Jim Stewart asks if Amazon and Netflix should change how antitrust regulators look at the Time Warner deal and other mergers. Jennifer Saba of Breakingviews thinks T-Mobile’s justification for its Sprint acquisition, building out a 5G network, makes sense.

• Xiaomi’s forthcoming Hong Kong I.P.O. shows Chinese companies choosing to list closer to home. (NYT)

• BP has reportedly hired Morgan Stanley to consider buying some of BHP Billiton’s assets. (Bloomberg)

• Bayer sold its remaining stake in Covestro, a maker of polymers, for $2.6 billion to help pay for its Monsanto deal. (Bloomberg)

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How crime (sometimes) pays

In this weekend’s NYT Magazine, read up on true financial crime tales:

• How hackers tried to steal nearly $1 billion from Bangladesh’s central bank using the financial world’s wire transfer system.

• The opioid maker Insys said its doctor payments were part of a speakers’ program; prosecutors called them kickbacks.

• Why thieves love baby formula.

Revolving door

• Silver Lake has hired A.J. Murphy, Bank of America Merrill Lynch’s head of global capital markets — a rare arrival from outside at the managing director level, the firm told Michael.

Thomas Piquemal, Deutsche Bank’s global head of M.&A., has gone to Fimalac, the investment vehicle for the French mogul Marc Ladreit de Lacharrière, as deputy C.E.O. (FT)

• Société Générale has extended the contract of its C.E.O., Frédéric Oudéa, and named four deputy C.E.O.s: Séverin Cabannes, Diony Lebot, Philippe Aymerich and Philippe Heim. (FT)

• JPMorgan Chase has hired Manuela Veloso, head of Carnegie Mellon’s machine-learning department, as its first head of A.I. research. (WSJ)

The speed read

• The former Volkswagen chief executive Martin Winterkorn was charged with conspiracy over the diesel emissions scandal. (NYT)

• Is Warren Buffett a job creator? It depends where you look. (Bloomberg)

• Prominent Theranos investors including Education Secretary Betsy DeVos have disclosed losses of $600 million in a lawsuit. (WSJ)

• Nike’s C.E.O., Mark Parker, apologized to employees after recent turmoil over misconduct, unnamed sources said. (WSJ)

• The fast-food industry has a problem: not enough teenagers. (NYT)

• Chuck Plunkett, the Denver Post editorial page editor who called the paper’s owners “vulture capitalists,” resigned. (NYT)

• The family dispute behind a lawsuit to prevent Sotheby’s auctioning a piece by Jean-Michel Basquiat. (NYT)

• Remington Outdoor said that a bankruptcy judge had approved its reorganization plan, which will transfer ownership to creditors including JPMorgan Chase. (NYT)

• James Avery, a self-taught jeweler who built a Southern empire, died on Monday. (NYT)

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S.E.C. Seeks to Require Brokers to Put Their Clients First


The S.E.C.’s proposal includes three parts. First, it would require brokers to put their customers’ interests first when making investment recommendations. Second, it would require registered brokers and registered investment advisers to provide a brief summary of their relationship with clients. And last, it would reaffirm and clarify the existing rules of conduct for investment advisers, who are held to a higher standard than brokers.

Consumer advocates said they had yet to go through the details of the roughly 1,000-page proposal, but they were worried that the rule did not make it clear what the best interest standard meant, and that it could potentially confuse consumers.

“If you don’t define that best interest requires the broker to recommend the best available investment option — based on reasonable assumptions and a careful assessment of the needs of the investor and the characteristics of the investor — it shouldn’t be called a best interest standard,” said Barbara Roper, director of investor protection at the Consumer Federation of America. “It is a step in that direction, but not a true best interest standard.”

The proposed rules would also restrict certain brokers from calling themselves advisers, so that investors are not misled into believing a broker is a registered investment adviser, which must act as a fiduciary, an even higher standard.

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Kara Stein, an S.E.C. commissioner, strongly criticized the proposal and was the sole vote against it.

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Ron Sachs/Consolidated News Photo, via Associated Press

It might seem that requiring financial professionals to put customers first would gain universal support, but the battle to get such rules passed has been long and arduous. The financial services and insurance industries have aggressively opposed such rules, arguing that they curtail investor choice and increase compliance costs.

Under the Obama administration, the Labor Department passed consumer protections, drafted over six years, that required financial professionals, including brokers and insurance agents, to act in their customers’ best interests, but only when handling their tax-advantaged retirement money. It took partial effect in June last year, but its full execution was delayed by the Trump administration.

In March, a federal appeals court panel ruled that the Labor Department, which oversees retirement accounts, had overstepped its authority and struck down the requirement. Its fate depends on whether the Trump administration appeals the decision — something it must do by the end of this month — or whether the full appellate court decides to hear the case, consumer advocates said.

Before the Labor Department rule was proposed, brokers had to ensure only that their recommendations were suitable, which is a lower standard.

Hester M. Peirce, an S.E.C. commissioner who voted in favor of the proposal, said at the meeting on Wednesday that the proposed best interest standard was actually an enhanced version of the status quo. It would be better to acknowledge that the agency is offering “a suitability-plus standard,” she said.

Based on their reading of the proposal thus far, advocates said, the rule is not as strict as the Labor Department’s and relies too much on disclosure. At a minimum, brokers would be required to disclose and “mitigate” conflicts, but the rule would not require them to broadly eliminate them.

“The standard of conduct the agency has articulated appears ambiguous at best,” Marcus Stanley, policy director at Americans for Financial Reform, said in a statement. “It doesn’t simply ban the sales quotas and other compensation practices that lead brokers to put their clients into high-fee, lower-yielding investments.”

Over the years, it has become more difficult for consumers to understand where the loyalties of their advisers lie, especially as product-pushing brokers have started to rebrand themselves as full-fledged financial advisers. Under that guise, many investors assume that the brokers are acting in their best interest, much as a doctor or lawyer might.

Kenneth E. Bentsen Jr., president and chief executive of the Securities Industry and Financial Markets Association, a trade group whose members include large Wall Street firms, said in a statement that the organization was pleased that the S.E.C. had initiated the process to create “a heightened best interest standard” and would share its views during the comment process.

The American Council of Life Insurers said that it was also encouraged by the proposal, and that it would support “reasonable and appropriately tailored rules that require all sales professionals to act in consumers’ best interest.”

What form that should take, however, will be the subject of debate in the months ahead.

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Common Sense: Shkreli vs. Holmes: 2 Frauds, 2 Divergent Outcomes. Were They Fair?


Forbes put her on the cover of its 2015 survey of the 400 richest Americans and estimated her net worth at $4.5 billion.

Last week, the Securities and Exchange Commission accused Ms. Holmes and the company’s former president of masterminding a “massive fraud” at Theranos. The complaint describes an elaborate edifice of false statements through which the two “deceived investors” into believing Theranos’s unique technology could perform comprehensive tests on a single drop of blood.

Among the more brazen falsehoods peddled to potential investors: that Theranos technology was used by the Defense Department in Afghanistan and on medevac helicopters, and that the company’s revenue in 2014 was $108 million and was “on track” to generate $1 billion in 2015.

In fact, Theranos technology was “never deployed” on the battlefield in Afghanistan, “or on medevac helicopters,” the S.E.C. said. Theranos’s revenue in 2014 was barely $100,000, “nowhere near” $100 million, the agency said, and the $1 billion projection was a fantasy that “had no basis” in reality.

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Benjamin Brafman defended Mr. Shkreli. “I’ve never had a client who did more to hurt his own standing with the court than Martin Shkreli,” Mr. Brafman said of his client’s behavior.

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Justin Lane/EPA, via Shutterstock

Ms. Holmes settled the S.E.C.’s charges without admitting or denying them. She is barred from being an officer or director of any public company for 10 years and agreed to pay a fine of $500,000. Though she lost voting control of Theranos, a private company, she remains chairman and chief executive.

She could still face criminal charges. It’s unusual, though not unprecedented, for the S.E.C. to settle a case while a criminal investigation is underway. (The United States attorney’s office in San Francisco has declined to comment on whether it is investigating potential criminal charges; in a note to outside partners in 2016, the company said that the Justice Department had requested documents and that an investigation was active.)

Still, the relatively lenient treatment she’s gotten so far, compared with Mr. Shkreli’s seven-year prison term, provokes the question: Is this fair?

“I don’t have any connection to the case, but from reading the S.E.C.’s complaint, the allegations are of a nature that prosecutors would typically pursue to determine if criminal charges can be brought,” said Antonia M. Apps, a former federal prosecutor and partner at Milbank, Tweed, Hadley & McCloy who teaches a course on white-collar crime at Harvard Law School. “It’s outright fraud.”

John C. Coffee Jr., a professor at Columbia Law School who teaches classes on white-collar crime, agreed that “it appears a lot of people were defrauded.” But he said he would not be surprised to see a plea bargain or even a deferred prosecution agreement, in which Ms. Holmes could avoid a prison term, especially if she cooperates with prosecutors.

“Typically you get more sympathy from the criminal justice system if you’re an attractive young woman than a brash, arrogant young male,” he said.

Mr. Coffee and other lawyers I spoke to cautioned that, because she settled the S.E.C.’s charges, the public hasn’t heard her defense. When more facts emerge, her case may be more complex than it now appears. But on the face of the S.E.C.’s complaint, Mr. Shkreli’s crimes pale in comparison.

At the heart of both cases are lies: At Mr. Shkreli’s sentencing, federal Judge Kiyo A. Matsumoto referred to Mr. Shkreli’s “egregious multitude of lies,” and the same might be said of Ms. Holmes. But the financial consequences of her deceptions were in another league.

Judge Matsumoto said it didn’t matter that Mr. Shkreli later repaid the investors he defrauded, or that some of his investors made millions. Still, the magnitude of the fraud was just over $10 million.

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Elizabeth Holmes, founder of Theranos, settled federal fraud charges brought by the Securities and Exchange Commission without admitting or denying them.

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Jeff Chiu/Associated Press

Theranos’s was far greater. According to the S.E.C. complaint, from 2013 to 2015 Theranos used false claims to raise more than $700 million from investors. By late last year, Theranos was “on the verge of bankruptcy,” the S.E.C. said.

Mr. Shkreli’s victims were mostly wealthy individuals, presumably sophisticated investors. Many of Ms. Holmes’ victims were, too; they included the media magnate Rupert Murdoch and Larry Ellison, the billionaire co-founder of Oracle. But she also attracted venture capital funds whose investors included pension funds and endowments, affecting thousands of ordinary Americans.

In comparison to Mr. Shkreli’s fraud, the Holmes allegations “are really a different order of magnitude,” Ms. Apps said.

But the reactions of Ms. Holmes and Mr. Shkreli to the charges are also wildly divergent — a factor that may ultimately determine whether Ms. Holmes is charged, and, if convicted, whether she ends up in prison.

Both Ms. Holmes and Mr. Shkreli courted celebrity and seemed to revel in media attention. But in Mr. Shkreli’s case, that impulse seemed only to intensify once he was charged.

Mr. Shkreli repeatedly defied Mr. Brafman’s admonitions to keep quiet and avoid the limelight. He smirked through his trial, taunted prosecutors as the “junior varsity,” called the case a “witch hunt” and was suspended by Twitter after he threatened to have sex with a freelance journalist who covered him. His bail was revoked and he was imprisoned after he offered a $5,000 bounty in a Facebook post for a strand of Hillary Clinton’s hair — a “solicitation to assault,” Judge Matsumoto ruled.

In theory, Mr. Shkreli’s well-publicized bizarre antics, both in and out of court, should have had no bearing on his guilt or sentence. As Mr. Brafman put it in his opening statement, Mr. Shkreli shouldn’t be found guilty for being “odd,” “weird,” or having a “dysfunctional personality.” But prosecutors cited his behavior to assert in closing arguments that he “had no respect for the law.” At his sentencing, Judge Matsumoto suggested his actions called into question whether his purported remorse was genuine.

“I’ve never had a client who did more to hurt his own standing with the court than Martin Shkreli,” Mr. Brafman said. His behavior and comments “probably added several years to his sentence.”

So far, Ms. Holmes has followed the traditional route of the contrite potential defendant: She has maintained a low profile and said nothing to provoke the government or prosecutors.

After the S.E.C. settlement, Ms. Holmes made no comment. In keeping with that strategy, John Dwyer, the Palo Alto, Calif., lawyer representing her, declined to comment for this column. Theranos issued a statement stressing that she had “cooperated with the S.E.C. throughout its investigation” and said its independent directors were “pleased to be bringing this matter to a close.”

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