AP Business Summary for the week of Nov. 13 | Business News
Elon Musk pay package at Tesla challenged in court
Updated
WILMINGTON, Del. (AP) — Testimony began Monday in a Delaware courtroom where a Tesla shareholder is challenging a compensation plan for CEO Elon Musk potentially worth more than $55 billion.
The lawsuit alleges that the performance-based stock option grant was negotiated by a compensation committee and approved in 2018 by Tesla board members who had conflicts of interest due to personal and professional ties to Musk.
The lawsuit, filed in 2018, also alleges that the shareholder vote to approve that compensation was based on an incomplete and misleading proxy statement. Specifically, the plaintiff alleges that proxy wrongly described members of the compensation committee as “independent,” and characterized all the milestones that triggered vesting in the stock options as “stretch” goals meant to be difficult to achieve, even though internal projections indicated that three operational milestones were likely to be achieved within 18 months of the stockholder vote.
“Any action by stockholders based on a materially misleading proxy is a nullity and the grant fails,” according to a brief by the plaintiff’s attorneys.
Attorneys for the defendants countered in their pretrial brief that two institutional proxy advisers noted that the plan would require “significant and perhaps historic achievements” and require growth that “appear stretching by any benchmark.”
The first witness to testify was Ira Ehrenpreis, a prominent venture capitalist and longtime friend of Musk who chaired Tesla’s compensation committee when the grant was formulated.
Under the plan, Musk stood to reap billions if the electric car and solar panel maker hit certain market capitalization and operational milestones. For each of incidence of simultaneously meeting a market cap milestone and an operational milestone, Musk, who already owned about 22% of Tesla when the plan was approved, would get stock equal to 1% of outstanding shares at the time of the grant. His interest in the company would grow to about 28% if the company’s market capitalization grew by $600 billion.
Each milestone in the plan includes expanding Tesla’s market capitalization by $50 billion and meeting an aggressive revenue or pretax profit growth target. Musk stood to receive the full benefit of the pay plan, $55.8 billion, only if Tesla hit a market capitalization of $650 billion and unprecedented revenues and earnings within a decade.
To date, Tesla has achieved all 12 of the market capitalization milestones and 11 of the operational milestones, resulting in the vesting of 11 of the grant’s 12 installments and providing Musk over $52.4B in stock option gains, according to the lawsuit. Since the grant was awarded, Tesla’s market capitalization has increased from $59 billion to more than $690 billion, having briefly hit $1 trillion early this year.
Shares of Tesla Inc. have been battered this year, like all automakers, due to a mix of backed-up supply chains and soaring inflation. Tesla shares have fallen 46% this year, while shares of Ford and GM have fallen around 31%.
However, the Austin, Texas, company earned $5.5 billion in 2021, blowing away the previous year’s profit of $721 million. It also produced a record 936,000 vehicles, nearly double what the company rolled off the assembly line in 2020.
Ehrenpreis testified that much of Tesla’s success has been the result of Musk’s leadership, which he said combined bold vision with “a maniacal focus on execution.”
“He has both a bold vision, but he has been as hard working a CEO as there can be,” Ehrenpreis said.
Under questioning from defense attorney Evan Chesler, Ehrenpreis described the nearly yearlong process under which he and other directors discussed and developed the compensation plan with the help of legal advisers and independent consultants, as well as input from major institutional investors.
Ehrenpreis described the milestones in the plans as “extraordinarily ambitious and difficult.”
According to minutes from a 2017 meeting of the compensation committee, the directors wanted to properly balance the motivation of “stretch” goals for Musk while avoiding “demotivating factors created by seemingly impractical, unrealistic or unachievable goals.”
Ehrenpreis also testified that his friendship with Musk played no role in his vote to approve the plan.
“I felt that it was very important to ensure Elon’s leadership in this next chapter of the company’s life,” he said, adding it was the kind of ambitious plan that drives Musk and would create one of the most valuable companies in the world.
Also testifying Monday was Todd Maron, Tesla’s former general counsel.
Maron testified that Musk never dictated terms of the plan, but that the process was cooperative and collaborative, “not a knock-down, drag-out affair.”
“There would be times when the board wanted something and Elon didn’t,” he said.
In his cross-examination of Maron, plaintiff attorney Jeroen van Kwawegen questioned whether the compensation plan was even needed to keep Musk as the helm, noting that there is no evidence he has ever thought about leaving Tesla.
“I intend to be actively involved with Tesla for the rest of my life,” Musk said in analyst call in May 2017, just weeks after work on the new compensation plan began.
Plaintiff’s attorneys pointed to an email to Maron in July 2017 in which Musk said he wanted to use proceeds from the new compensation plan to help finance his dream of colonizing Mars.
Testimony resumes Tuesday morning.
Binance proposes fund to save crypto from future failures
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NEW YORK (AP) — Cryptocurrency exchange giant Binance is proposing the creation of a rescue fund that would save otherwise healthy crypto companies from failure, aiming to stave off the cascading effects of last week’s implosion of FTX, the world’s third-largest crypto exchange.
Binance founder and CEO Changpeng Zhao posted on Twitter Monday that his company would create “an industry recovery fund, to help projects who are otherwise strong, but in a liquidity crisis.”
Zhao provided no details on the fund’s size or scope, or how the funds would be distributed.
The entire cryptocurrency universe is reeling from the bankruptcy of FTX, which was besieged with withdrawal requests in what has been the cryptocurrency equivalent of a bank run. It’s the latest failure of a cryptocurrency firm this year, as the prices for Bitcoin, Ethereum and other cryptocurrencies have collapsed in value.
The broader effects of FTX’s failure are still too early to determine, but there are other firms now facing withdrawal requests straining their systems. BlockFi and Crypto.com both said they were facing high withdrawal requests after FTX’s failure.
Cryptocurrencies have no government backing, so there’s no equivalent of deposit insurance or government backstop. What Zhao is proposing may be something similar to deposit insurance or a central bank-like entity for cryptocurrencies.
China consumer, factory activity down as virus controls rise
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BEIJING (AP) — Chinese consumer spending contracted in October and factory activity weakened as anti-virus controls following a rise in infections weighed on the economy.
Retail sales sank 0.5% compared with a year ago, down from September’s 2.5% expansion, as millions of people were confined to their homes, government data showed Tuesday. Growth in factory output decelerated to 5% from the previous month’s 6.3%.
The performance was even weaker than expected by forecasters who said activity would cool as Chinese anti-virus controls and interest rate hikes by the U.S. Federal Reserve and other central banks weighed on global activity.
“November is shaping up to be even worse,” said Zichun Huang of Capital Economics in a report.
Chinese economic growth rebounded to 3.9% over a year earlier in the three months ending in September from the first half’s 2.2%, but economists say activity already was cooling. They have cut forecasts of annual growth to as low as 3%, which would be among the weakest in decades.
October imports shrank 0.7% from a year earlier, down from the previous month’s 0.3% expansion as consumer demand fell, according to customs data released earlier. Exports declined 0.3%, a reverse from September’s 5.7% rise.
Business and consumer activity slumped in mid-2021 after the government tightened controls on use of debt by China’s vast real estate industry, a major engine of growth. Housing sales and construction, which employs millions of people, plummeted.
President Xi Jinping’s government has been trying to prop up growth without reviving a rise in corporate and household debt that Beijing worries is dangerously high.
Anti-virus controls were tightened in areas across China following an uptick in infections in mid-October. Apple Inc. warned deliveries of its new iPhone 14 model would be delayed after access to an industrial zone around its biggest factory was suspended due to outbreaks.
Beijing announced last week it would try to reduce the impact of its “zero-COVID” strategy, which aims to isolate every infected person, by shortening the quarantine for travelers arriving from abroad and making other changes.
However, authorities said they are sticking to a goal of trying to keep cases near zero at a time when other countries are relaxing controls and trying to live with the virus.
The new approach is “a bit of a gamble,” Huang wrote. “It could result in greater spread of the virus, eventually triggering a more forceful response.”
National Bureau of Statistics of China (in Chinese): www.stats.gov.cn
Fed’s top financial regulator urges ‘guardrails’ for crypto
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WASHINGTON (AP) — The top U.S. banking regulator at the Federal Reserve is urging Congress to pass legislation that would impose regulation on crypto currencies in the wake of the swift collapse last week of FTX, a leading crypto exchange.
Michael Barr, the Fed’s vice chair for supervision, said in prepared testimony released Monday that “recent events in crypto … have highlighted the risks to investors and consumers associated with new and novel asset classes and activities when not accompanied by strong guardrails.”
Barr, who took office in July, is scheduled to testify before Congress Tuesday for the first time as vice chair. He did not refer specifically to FTX in his written remarks.
Yet his appearance comes after FTX, the third-largest crypto currency exchange, formerly led by Sam Bankman-Fried, filed for bankruptcy Friday. The fall of FTX has rippled throughout the crypto world, with lender BlockFi pausing customer withdrawals.
Barr said “some financial innovations offer opportunities, but as we have recently seen, many innovations also carry risks.” Those include runs on deposits, collapsing asset values, misuse of customer funds, fraud, theft, manipulation, and money laundering, he said.
“These risks, if not well controlled, can harm retail investors and cut against the goals of a safe and fair financial system,” Barr said.
The collapse of FTX occurred outside the banking system, Barr noted, a focus of his oversight.
“But recent events remind us of the potential for systemic risk if interlinkages develop between the crypto system that exists today and the traditional financial system,” he said.
Regarding the banking system overall, most large banks have healthy levels of cash reserves, Barr said, beyond even what is required by regulation.
But with the economy slowing as the Fed rapidly lifts interest rates, banks may come under more stress, he said.
The “economic outlook has weakened,” increasing uncertainty, Barr said. “A weaker economy could put stress on households and businesses and, thus, on the banking system as a whole.”
Wall Street slips, gives back some of last week’s big gains
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NEW YORK (AP) — Stocks fell on Wall Street Monday, giving back some of their huge gains made last week on hopes the worst of the nation’s inflation may finally have passed.
The S&P 500 fell 0.9%, or 35.68 points, to 3,957.25 after drifting between gains and losses several times through the day. The Dow Jones Industrial Average lost 0.6%, or 211.16, to 33,536.70, and the Nasdaq composite fell 1.1%, or 127.11, to 11,196.22.
The losses follow Wall Street’s best week since June, when the S&P 500 surged 5.9% after encouraging data on inflation sparked speculation the Federal Reserve may ease up on its fusillade of interest-rate hikes meant to get prices under control. Such rate hikes have raised worries about a possible recession, while also dragging down prices for stocks, bonds and cryptocurrencies.
Some analysts have called Wall Street’s recent rally overdone, including a 5.5% surge for the S&P 500 on Thursday alone, saying one report does not mean the coast is clear, even if it was encouraging. Some officials at the Federal Reserve have also urged caution, with Fed Governor Christopher Waller saying the better-than-expected reading on inflation for October “was just one data point” and that “everybody should just take a deep breath.”
Such warnings weighed on stocks Monday, as did a rise in Treasury yields. But the market also got a brief boost after Fed Vice Chair Lael Brainard gave comments that investors took as a hint that the steepest of the Fed’s rate hikes may have passed.
“The inflation data was reassuring, preliminarily,” she said. “It will probably be appropriate, soon, to move to a slower pace of rate increases.”
In each of its last four meetings, the Fed has hiked its key overnight rate by a big 0.75 percentage points, which is triple the usual amount. Bets have increased since last week’s inflation report that the Fed’s next move will be an increase of only 0.50 percentage points. While that’s still a big increase relative to history, investors are starving for any indication the Fed may ease up on its rate hikes.
Even before last week’s report on inflation, Fed Chair Jerome Powell already said such a dial down in the size of rate hikes may be imminent. But he also said the Fed nevertheless could still ultimately take rates higher than earlier expected, and that it may hold rates at that high level a while to make sure inflation stays under control.
Fed officials have been reiterating how the Fed’s campaign against high inflation still looks to be a long one.
“Quit paying attention to the pace and start paying attention to where the endpoint is going to be,” Waller said. “Until we get inflation down, that endpoint is still a ways out there.”
On Wall Street, Hasbro fell 9.9% for the largest loss in the S&P 500 index. Analysts in a BofA Global Research report raised concerns the company may be overproducing cards for its “Magic: The Gathering” game, threatening to undercut a lucrative business.
On the winning side was Moderna, which climbed 4.6% after reporting encouraging data on its bivalent vaccine targeting COVID-19.
Bond yields rose. The yield on the 10-year Treasury, which helps set mortgage rates, rose to 3.87% from 3.81% late Thursday. Bond markets were closed Friday for Veterans Day.
Crypto-related stocks kept whipsawing following the implosion last week of FTX, a major crypto trading exchange. Coinbase, another crypto exchange platform, fell 7.4%.
Several economic reports due this week could offer more clues about where inflation is heading.
On Tuesday, the government will issue its October report on prices at the wholesale level. Economists say inflation there likely slowed to 8.3% from September’s 8.5% rate for year-over-year price changes.
On Wednesday, markets will see how resilient U.S. households have been in their spending when the government gives its latest monthly update on sales at retailers.
Economists say retail sales likely grew 0.9% in October from a month earlier, a much stronger showing than September’s flat performance. The data, though, does not take inflation into account and could be a reflection of nothing more than higher prices being charged at the register.
Retailers could offer more color on that, with a long line of them scheduled to say this week how much profit they earned during the summer.
Home Depot and Walmart report earnings on Tuesday. Target reports its results on Wednesday, and Macy’s reports results on Thursday.
AP Business Writers Yuri Kageyama and Matt Ott contributed to this report.
Japan’s economy shrinks as consumers hold back on spending
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TOKYO (AP) — The Japanese economy contracted at an annual rate of 1.2% in the July-September quarter, as consumption declined amid rising prices.
Seasonally adjusted real gross domestic product for the world’s third-largest economy shrank 0.3% on-quarter, according to government Cabinet Office data released Tuesday. The annual rate shows how the economy would have grown if the quarterly rate were to continue for a year.
Japan’s GDP, or the sum of the value of a nation’s products and services, was weaker than analysts had expected, coming after three quarters of moderate growth. Like many nations, Japan has suffered as the coronavirus pandemic slammed industrial production and tourism.
Private consumption grew 0.3% in July-September, slowing down from the 1.2% growth recorded the previous quarter. Private investment grew 1.5%, down from 2.4% growth in the previous quarter.
Another factor is the Japanese yen’s fall against other currencies, especially the U.S. dollar. The Federal Reserve has been tightening the key interest rate, but the Bank of Japan has not.
The differential in interest rates tends to boost the value of the currency of the nation with higher interest rates against the nation with zero or minus rates like Japan’s, according to analysts. The U.S. dollar, trading at about 115 Japanese yen a year ago, now costs about 140 yen.
Although the weak yen has generally tended to work as a boon for Japanese exporters like automaker Toyota Motor Corp. and video game developer Nintendo Co., it also makes imports more expensive. The latest GDP data showed dropping exports.
A weak yen is devastating for imports, especially for Japan, imports almost all its oil, as well as much of its food. The war in Ukraine has also sent such prices higher.
Inflation in Japan at about 3% is moderate compared to the U.S. and some other nations. But it’s still noticeable, with everything from cab fares to packaged snacks going up in prices.
In recent decades, Japan has suffered what’s known as deflation, or a continuing downward spiraling of prices. And so widespread price hikes come as a bit of a shock to consumers when wage growth has been relatively slow.
China’s COVID-19 restrictions are also being closely watched because of their great impact on Japan and the Asian region. Although there have been some easing of restrictions, fears are growing about a next wave of infections bringing back lockdowns and other restrictions.
Japanese production was sorely hit by the restrictions, seen in the shortage of supplies in computer chips and other parts.
Some analysts say the Japanese economy will likely gradually recover, although still at risk from what China’s pandemic measures, as well as larger geopolitical tensions like U.S.-China relations.
But there were also signs of hope. Tourists from abroad have returned, starting from last month after more than two years of tight border limits.
“The yen’s depreciation gives tourists better value for money, making Japan more attractive as a destination,” said Hiroyuki Ueno, senior economist at SuMi Trust.
Yuri Kageyama is on Twitter https://twitter.com/yurikageyama
Frontier, 5 other airlines to refund more than $600 million
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Frontier Airlines and five foreign carriers have agreed to refund more than $600 million combined to travelers whose trips were canceled or significantly delayed since the start of the pandemic, federal officials said Monday.
The U.S. Department of Transportation said it also fined the same airlines more than $7 million for delaying refunds so long that they violated consumer-protection rules.
The largest U.S. airlines, which accounted for the bulk of complaints about refunds, avoided fines, and an official said no other U.S. carriers are being investigated for potential fines.
Consumers flooded the agency with thousands of complaints about their inability to get refunds when the airlines canceled huge numbers of flights after the pandemic hit the U.S. in early 2020. It was by far the leading category of complaints.
“When Americans buy a ticket on an airline, we expect to get to our destination safely, reliably and affordably, and our job at DOT is to hold airlines accountable for these expectations,” Transportation Secretary Pete Buttigieg said.
The department said Frontier Airlines is refunding $222 million and paying a $2.2 million civil penalty.
In a consent order, the government charged that Frontier changed its definition of a significant delay to make refunds less likely, and an online system to process credits went down for a 15-day period in 2020.
Frontier spokeswoman Jennifer de la Cruz said the Denver-based airline issued nearly $100 million in “goodwill refunds,” including to people with non-refundable tickets who canceled on their own and were not entitled to a refund under federal law.
The refunds “demonstrate Frontier’s commitment to treating our customers with fairness and flexibility,” de la Cruz said.
The Transportation Department said TAP Portugal will refund $126.5 million and pay a $1.1 million fine; Air India will pay $121.5 million in refunds and a $1.4 million penalty; Aeromexico will pay $13.6 million and a $900,000 fine; Israel’s El Al will pay $61.9 million and a $900,000 penalty; and Colombia’s Avianca will pay $76.8 million and a $750,000 fine.
“We have more enforcement actions and investigations underway and there may be more news to come by way of fines,” Buttigieg said during a call with reporters.
However, there will be no fines for other U.S. airlines because they responded “shortly after” the Transportation Department reminded them in April 2020 of their obligation to provide quick refunds, said Blane Workie, the assistant general counsel for the Transportation Department’s Office of Aviation Consumer Protection.
“We do not have any pending cases against other U.S. carriers. Our remaining cases are against foreign air carriers,” Workie said on the same call with Buttigieg.
That did not satisfy consumer advocates, who said that the major U.S. airlines also violated rules around refunds — even if they took corrective steps more quickly.
“Frontier was a bad player in all this, and they deserve to be fined, and we’re glad they are paying the refunds they were supposed to pay, but we are very critical of how the DOT just seems to not want to go after the biggest fish, the ones causing the most problems,” said Bill McGee of the American Economic Liberties Project, a non-partisan group that opposes concentrated industrial power.
In 2020, United Airlines had the most refund-related complaints filed with DOT — more than 10,000 — although smaller Frontier had a higher rate of complaints. Air Canada, El Al and TAP Portugal were next, both over 5,000, followed by American Airlines and Frontier, both topping 4,000.
Air Canada agreed last year to pay $4.5 million to settle similar U.S. allegations of slow refunds and was given credit of $2.5 million for refunds. The Transportation Department initially sought $25.5 million in that case.
This story has been updated to correct that five foreign airlines were fined, not four.
Fed Vice Chair Brainard is ‘reassured’ by inflation report
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WASHINGTON (AP) — Federal Reserve Vice Chair Lael Brainard said Monday that she was encouraged by last week’s U.S. inflation report, which pointed to slower price increases, and said the Fed would likely soon reduce the size of its interest rate hikes.
“The inflation data was reassuring, preliminarily,” Brainard said. “It will probably be appropriate, soon, to move to a slower pace of rate increases.”
Brainard’s comments, during a discussion at Bloomberg, were more positive toward the inflation report than were those of several of her Fed colleagues last week. Some central bank officials have sought to temper the stock market’s ebullient response to the better-than-expected inflation report, which suggested that the rampant price spikes of the past 18 months were moderating.
The Fed is considering raising rates in smaller increments after having increased its key short-term rate, which affects many consumer and business loans, by a substantial three-quarters of a point at four straight policy meetings. Yet the central bank doesn’t necessarily want the stock market to jump in response. A major sustained stock rally tends to cause consumers and businesses to spend more and can undercut the Fed’s efforts to cool economic growth and inflation.
On Sunday, Christopher Waller, a member of the Fed’s influential Board of Governors, suggested that “everybody should just take a deep breath” after last week’s inflation report, because it “was just one data point.”
“We’re going to need to see a continued run of this kind of behavior and inflation slowly starting to come down,” Waller said, “before we really start thinking about taking our foot off the brakes.”
On Monday, Brainard pointed approvingly to a decline in goods inflation: The costs of used cars, clothes and furniture all fell from September to October. Those price declines reflected the unsnarling of previously clogged global supply chains, which had caused inflation spikes last year and earlier this year.
The central bank can now take a more deliberative approach, Brainard said, after having raised its key short-term rate to a range of 3.75% to 4%, a level she said will restrict economic growth over time.
The Fed’s vice chair noted that it can take time for rate increases to affect the overall U.S. economy. In the past, Brainard has made that point in explaining that raising rates in smaller increments would give the Fed time to judge how its earlier rate increases were working.
As the Fed’s policies start to restrict growth, Brainard said, the policymakers will start considering the risk that they could go too far and raise rates higher than needed, thereby causing a recession.
“As we get into restrictive territory, or further into restrictive territory, risks become more two sided.” she said. That is, the dual risks would be that inflation could stay too high or that the Fed would slow the economy too sharply.
Thursday’s data showed that consumer prices rose 7.7% in October compared with a year ago — still a painfully high level, but down from a peak of 9.1% in June. And a separate gauge that measures “core prices,” which exclude volatile food and energy, rose just 0.3% from September to October, half the pace of the previous two months.
In her remarks Monday, Brainard underscored that the Fed would continue to raise rates in the coming months.
“What’s really important to emphasize,” Brainard said Monday, “is we’ve done a lot, but we have additional work to do both on raising rates and sustaining restraint to bring inflation down to 2% over time.” That was a reference to the Fed’s annual 2% inflation target.
Speaking at a news conference earlier this month, Chair Jerome Powell signaled that the Fed may scale back its rate hikes to a half-point as soon as its meeting in mid-December. Historically speaking, that would still amount to a sizable increase. In the past, the Fed has most commonly raised or cut rates by just a quarter-point.
The stock market soared after Thursday’s inflation report on hopes that cooling inflation would allow the Federal Reserve to slow its interest rate increases. T he Dow Jones surged 1,200 points, its best day in two years. Stocks added further gains on Friday.
In the wake of the market’s celebratory response to the inflation data, several Fed policymakers sought last week to cool the enthusiasm.
“One month of data does not a victory make, and I think it’s really important to be thoughtful, that this is just one piece of positive information,” said Mary Daly, president of the San Francisco Federal Reserve.
Lorie Logan, president of the Dallas Fed, added Thursday that the inflation figures “were a welcome relief” but made clear that further Fed rate hikes are coming, though possibly at a slower pace.
In her remarks Monday, Brainard pointed to other signs that inflation pressures are cooling. She noted that two gauges of worker pay have shown that wage growth is declining.
“That does suggest … lessening wage pressures,” she said.
Though Powell has said that rapid wage growth is not a principal driver of inflation, pay raises can perpetuate price hikes, particularly in services such as restaurants, hotels and airlines, as companies pass on to customers the cost of higher labor through price increases.
Brainard also said the collapse of the FTX cryto exchange and its effects on other parts of the crypto universe, such as lender BlockFi, show that cypto is “highly concentrated, highly interconnected” and there “need to be strong regulatory guardrails.”
“It is really concerning to see that retail investors are getting hurt by these losses,” she said.
Asian shares fall on jitters over missile landing in Poland
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TOKYO (AP) — Asian shares were mostly lower Wednesday, as investors got jittery over global risks after Poland said a Russian-made missile killed two people there.
Benchmarks fell in morning trading in Tokyo, Sydney, Seoul and Hong Kong, while shares were little changed in Shanghai.
Ukrainian President Volodymr Zelenskyy decried the blast as “a very significant escalation” of the war. Details were unclear, including who fired the missile. The Polish government said it was investigating. President Joe Biden, in Indonesia for the Group of 20 summit, promised “full U.S support for and assistance with Poland’s investigation.”
Japan’s benchmark Nikkei 225 lost 0.2% in morning trading to 27,924.63. Australia’s S&P/ASX 200 slipped 0.3% to 7,121.60. South Korea’s Kospi shed 0.3% to 2,472.97. Hong Kong’s Hang Seng fell nearly 0.2% to 18,308.00, while the Shanghai Composite was little changed, inching up less than 0.1% to 3,135.88.
“Asian equities were defensive on Wednesday, with geopolitical tensions driving price action,” said Anderson Alves at ActivTrades.
“Traders are waiting for further developments on the geopolitical front for direction for risk assets. Any signal of escalation in the volatile situation could see a reaction across markets,” he said.
On Wall Street, stocks finished higher following more signs the nation’s punishingly high inflation may be falling off faster than expected. Stocks momentarily fell on the missile reports, but rebounded.
The S&P 500 climbed 0.9%, or 34.48 points, to 3,991.73. The Dow Jones Industrial Average veered from a gain to a loss, before closing at 33,592.92, up 56.22 points, or 0.2%. The Nasdaq composite led the market with a gain of 1.4%, or 162.19 points, to close at 11,358.41.
When Wall Street opened for trading, the overall mood was ebullience as stocks bounced following the latest data suggesting inflation continues to cool from its summertime peak. A meeting between the presidents of the world’s two largest economies also raised hopes for an easing of U.S.-Chinese tension after analysts called it better than expected.
The S&P 500 touched its highest level in two months, while Treasury yields eased on hopes a slowdown in inflation could mean the Federal Reserve’s bitter, economy-crunching medicine for it could taper as well.
“Inflation is still top of mind and market moving,” said Nate Thooft, senior portfolio manager at Manulife Investment Management. “Anything that potentially swings the inflation story, the market is keen to react.”
Such sharp hourly swings for stocks have almost become the norm on Wall Street this year, as high inflation and interest-rate hikes by the Federal Reserve have heightened fears and triggered knee-jerk reactions. “The market remains adrift looking for a good narrative that will stick but seemingly not finding it,” Thooft said.
Technology stocks continued to lead the way on Wall Street. They’re usually some of the most sensitive to changes in interest rates, as rises in rates hit hardest on stocks seen as the most expensive, most risky or forcing investors to wait the longest for big growth. Chipmaker Nvidia rose 2.3%, and Apple gained 1.2%.
Traders have been paring their bets for how big a hike the Fed will announce at its next policy meeting in December.
The Fed has already hiked its key overnight rate up to a range of 3.75% to 4% from virtually zero earlier this year. It plans more, but the hope for markets is that improvements in inflation data could mean the Fed holds rates at a level that’s not as punishing for Wall Street.
Rate increases can cause a recession because they slow the economy, and they also drag down prices of stocks and other investments.
Bond yields, which have been hovering near multidecade highs, eased. The yield on the two-year Treasury fell to 4.34% from 4.40% late Monday. The yield on the 10-year Treasury, which influences mortgage rates, fell to 3.76% from 3.85%.
Investors will get more updates on inflation’s impact on businesses and consumers this week with corporate earnings from big retailers.
Walmart jumped 6.5% after reporting strong financial results, raising its profit forecast and announcing an opioid settlement. Target reports its results on Wednesday, and Macy’s reports its results on Thursday.
Wall Street will get a broader update on retail sales Wednesday when the government releases its report for October.
Prices for crude oil fell back after jumping the day before. A worsening war in Ukraine could cause spikes in prices for oil, gas and other commodities that the region produces.
In energy trading, benchmark U.S. crude fell 29 cents to $86.63 a barrel. Brent crude, the international standard, fell 28 cents to $93.58 a barrel.
In currency trading, the U.S. dollar edged up to 139.88 Japanese yen from 139.27 yen. The euro cost $1.0382, up from $1.0349.
Yuri Kageyama is on Twitter https://twitter.com/yurikageyama
Size, scope of FTX failure gets clearer as users fear worst
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NEW YORK (AP) — Just days after cryptocurrency’s third-largest exchange collapsed, the public is starting to get an idea of how messy FTX’s bankruptcy case could be. Other crypto firms are failing as a result of FTX’s unraveling, events reminiscent of the domino-like meltdowns of the 2008 financial crisis.
Users remained frustratingly in the dark Tuesday about when they might get their funds back, if at all, directing much of their anger toward FTX’s founder and CEO, Sam Bankman-Fried.
In a court filing, FTX’s lawyers said there were already more than 100,000 claims against the company and estimated that figure could grow to more than 1 million, most of them customers, once the case is complete. The court ordered FTX to provide at least a list of the company’s 50 biggest creditors by Nov. 18.
The lawyers said the company is in contact with the Department of Justice, the Securities and Exchange Commission, the Commodity Futures Trading Commission as well as dozens of other state, federal and international authorities, confirming earlier reports that the U.S. government is probing the possibility that Bankman-Fried and his lieutenants violated U.S. securities law.
FTX filed for bankruptcy protection Friday, sending tsunami-like waves through the cryptocurrency industry, which has seen a fair share of volatility and turmoil this year, including a sharp decline in price for bitcoin and other digital assets. For some, the events are reminiscent of the failures of Wall Street firms during the 2008 financial crisis, particularly now that supposedly healthy firms like FTX are failing.
The Wall Street Journal reported that BlockFi, which had halted withdrawals over the weekend following FTX’s bankruptcy, is now actively considering bankruptcy and plans to lay off its staff. In previous public comments, BlockFi’s management made it clear that FTX’s failure had pushed the company towards being out of business. FTX had provided financial aid to BlockFi this summer, including a $400 million credit facility backed by its own balance sheet.
“We are shocked and dismayed by the news regarding FTX and Alameda,” BlockFi said Saturday, referring to FTX and Bankman-Fried’s hedge fund Alameda Research. “Given the lack of clarity on the status of FTX.com, FTX US and Alameda, we are not able to operate business as usual.”
Another crypto firm, crypto lending firm SALT Blockchain, also appeared to be on the verge of failure. The company Bnk to the Future pulled out of its agreement to buy SALT, citing its exposure to FTX. In tweets, SALT’s CEO Shawn Oren said he is “fully committed still to recover from the damages as victims.”
In a sign of how fearful investors are that the cascading effects could do long-term damage, cryptocurrency exchange Binance proposed the creation of a rescue fund that would save otherwise healthy crypto companies from failure. Binance’s founder and CEO Changpeng Zhao effectively laid out the possibility of a crypto-like central bank or deposit-insurance pool to be a lender of last resort to keep healthy firms from failing.
Meanwhile, FTX’s users bemoaned their losses in Telegram chat groups for traders who used the FTX exchange, writing that they’d lost access to amounts ranging from thousands to millions of dollars.
Some pleaded for information. Others speculated on the likelihood of getting back their funds, while others counseled that they should accept that their investments were gone.
Moderators for one group posted intermittently, saying things like, “No death threats please.” They wrote that they had no information about the whereabouts of Bankman-Fried or what would happen to his companies.
“No news,” posted one moderator.
Many of FTX’s users pointed to Bankman-Fried as responsible, making puns on his name like “Sam Bankrun-Fried” and calling for him to be prosecuted.
On Tuesday, a support account for FTX US was responding on Twitter to posts from people asking about their funds and directing them to send messages to the Twitter account to get assistance.
Mohit Sorout, 30, said he has lost access to 95% of the value of his cryptocurrency holdings when FTX halted its services last week, posting on Twitter, “The pain is f(asterisk)(asterisk)(asterisk)ing real.”
An electrical engineer based between New Delhi and Dubai, he started trading in 2017 and quit his job in 2018 to work full time trading cryptocurrencies. Along with a business partner, he built a custom algorithm, and grew an investment of a couple thousand dollars into a sum many times that size, though he didn’t want to disclose the value of his holdings when he lost access to them.
It’s not clear what will happen to the funds of retail investors like Sorout, which are locked within the FTX ecosystem. His requests to withdraw the funds were not honored last week and now he can’t even log onto the exchange, he said on Monday.
Sorout didn’t intend to keep all of his investments on a single platform, he said, but the tools that FTX had built for traders like himself were very effective and his algorithm worked well there. He also trusted Bankman-Fried in part because of his high profile.
“The problem was the founder, who is donating eight figures in presidential campaigns, he’s meeting with the top bureaucrats, he is sponsoring chess tournaments, he’s out there sponsoring stadiums,” Sorout said. “You don’t really expect such a huge business, especially the CEO of that business, to defraud its customers, you know?”
US wholesale inflation eases to 8%, 4th straight slowdown
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WASHINGTON (AP) — Prices at the wholesale level rose 8% in October from a year ago, the fourth straight decline and the latest sign that inflation pressures in the United States are easing from painfully high levels.
The annual figure is down from 8.4% in September. On a monthly basis, the government said Tuesday that its producer price index, which measures costs before they reach consumers, rose 0.2% in October from September. That was same as in the previous month, which was revised down from an initial reading of 0.4%.
The figures came in lower than economists expected and make it more likely that the Federal Reserve will increase its benchmark interest rate in smaller increments. It has hiked its short-term rate by three-quarters of a point for four meetings in a row, but economists now increasingly foresee an increase of a half-point at its December meeting.
“The improvement in the October inflation data, if it persists, supports the Fed’s expectation of a step down in the pace of increases going forward,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics, a forecasting firm.
Most of the monthly increase reflected higher gas prices at the wholesale level, which rose 5.7% just in October. The cost of new cars fell 1.5%, last month, which could lead to lower prices at the retail level as well.
Excluding the volatile food and energy categories, core producer prices were unchanged in October from September, the lowest reading in nearly two years. Core prices increased 6.7% last month from a year ago, down from a 7.1% annual rate in September.
The cost of services, such as hotels, air travel, and health care, slipped 0.1% in October from September, the first drop since November 2020.
The report follows last week’s better-known consumer price index, which showed that year-over-year inflation cooled to a slower-than-expected 7.7% in October, down from 8.2% in September. And excluding volatile food and energy costs, that report also said that core prices rose just 0.3% in October from the previous month, half the increase of the previous two months.
Those consumer inflation figures sent stock markets soaring because they suggested that the devastating price spikes of the past 18 months might finally be moderating. The cost of used cars, clothing, and furniture fell, a sign that goods prices are reversing their big price leaps of last year, when supply chain blockages sent inflation soaring.
In recent months, delays at major ports have been cleared, the price of ocean shipping has tumbled and more stores are building larger stockpiles. All those trends suggest that goods prices could continue to decline.
After years of construction, Shell ethane cracker starts up
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MONACA, Pa. (AP) — Years in the works, a massive petrochemical refinery in western Pennsylvania fed by the vast natural gas reservoir underneath Appalachia became fully operational Tuesday, oil and gas giant Shell plc said.
The refinery, built on the site of a former zinc smelter along the Ohio River some 30 miles (48 kilometers) northwest of Pittsburgh, will produce 3.5 billion pounds (1.6 billion kilograms) of polyethylene annually when it ramps up to full production by the second half of 2023, Shell said.
The refinery brings in ethane from natural gas wells and chemically “cracks” the liquid fuel by heating it in furnaces to create ethylene, which is used to produce everything from plastics to tires to antifreeze.
Shell, the British multinational oil and gas company headquartered in London, had projected to spend $6 billion on the plant, making it one of the largest — if not the largest — industrial developments in Pennsylvania. It said the final cost figure is proprietary.
The plant’s promoters have promoted it as the key to reindustrializing Pennsylvania, where many towns and cities have suffered from the loss of the steel and coal industries.
Environmental advocacy groups, however, have fought it and predicted that it will generate more plastic pollution, compounds that form smog and planet-warming greenhouse gases. Shell said it is using the best available technologies to try to minimize air pollution.
A leading gas exploration trade association, the Marcellus Shale Coalition, hailed the opening of the refinery, calling it an “historic day for Pennsylvania.”
The natural gas boom in the vast Marcellus Shale gas reservoir beneath Appalachia attracted Shell to the area. In 2012, the state signed off on a tax break of up to $1.65 billion over 25 years to lure it, and later issued air and water permits to Shell, which began construction in 2017.
The plant looks very similar to a gasoline refinery, with miles of pipes and large storage tanks. The core manufacturing and logistics area covers about 385 acres (186 hectares), with an overall site footprint of about 800 acres. It includes its own power generation and water treatment plants.
The plant is the first major polyethylene manufacturing complex in the northeastern United States, according to Shell.
Most ethylene production is on the Gulf Coast in Texas and Louisiana. Shell says the location gives it a competitive advantage, with more than 70% of the U.S. polyethylene market within 700 miles (1,127 kilometers) of Pittsburgh.
Annual U.S. ethane consumption has doubled in the past decade as demand for ethylene has grown. Ethane consumption recently rose above 2 million barrels per day, according to the Energy Information Administration, an arm of the U.S. Department of Energy.
Shell’s plant in western Pennsylvania is estimated to add 96,000 barrels per day of ethane feedstock capacity, the agency said.
Consumer Reports survey: Hybrids are most reliable vehicles
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DETROIT (AP) — Gas-electric hybrids were the most dependable vehicles sold in the U.S. in the past year, while big pickup trucks and fully electric automobiles performed the worst in Consumer Reports’ annual reliability survey.
Hybrids generally are tried-and-true designs with few frills, while automakers are cramming glitchy electronic features into expensive new pickups and EVs, the nonprofit group says.
Hybrid technology has been around for more than two decades, and even though the vehicles switch between electric and gasoline power, they don’t have a lot of the technology or complex multi-speed transmissions that have caused problems with other vehicles, said Jake Fisher, senior director of auto testing.
“Hybrids are very conventionally built vehicles,” Fisher said. “They’re catering to practical buyers who are looking for reliable, efficient, safe vehicles, not the latest technology.”
With high gas prices and skyrocketing new vehicle costs, people are keeping their vehicles longer, so reliability and fuel economy are becoming more important to buyers, the group’s annual survey found. “A hybrid can provide years of trouble-free miles, and they are a good defense against rising fuel prices,” Fisher said.
Reliabilty was extremely or very important to 94% of prospective auto buyers, the survey found, and 80% said the same about fuel economy, Consumer Reports said.
Plug-in hybrids, which can go a relatively short distance on battery power before switching to both gas and electricity, don’t have the same level of reliability as hybrids, Fisher said.
It helps that most hybrids are sold by Toyota and its Lexus luxury brand, the top two brands in Consumer Reports’ rankings, released Tuesday at a meeting of the Automotive Press Association in Detroit.
Germany’s BMW leaped 10 places to take the No. 3 spot, while Mazda and Honda rounded out the top five.
Mercedes-Benz was the least reliable of 24 brands in the survey, followed by Jeep, Volkswagen, GMC and Chevrolet.
Tesla, which makes the top selling electric vehicles sold in the U.S., rose four spots to rank No. 19, although it still has quality problems, Fisher said.
Owners reported few problems with Tesla’s batteries and motors, but the company did have trouble with paint, fit-and-finish, heating and cooling, and suspension systems, Fisher said. Tesla’s Model 3 had average reliability, but the S, Y and X were all below average.
Ford’s Lincoln luxury brand had the most improvement in reliability, rising 14 spots to rank 10th and become the only U.S.-based brand in the top 10. The brand’s SUVs are older models that have been on sale for more years, allowing Ford to work out the bugs, Fisher said.
Full-size pickup trucks, Fisher said, have become luxury vehicles with large touch screens and multi-speed transmissions. They’re popular, so the market is competitive, with buyers seeking the latest in infotainment and other technology, he said. The survey found problems with Ford’s F-150 trailer controller and power liftgates, while Chevrolet’s Silverado had some engine issues, Fisher said.
Only seven of the 17 pickup models in this year’s survey had average or better reliability.
In theory, electric vehicles should be more reliable than internal combustion vehicles, Fisher said. But in addition to Tesla’s problems, EVs from other automakers had charging and battery trouble and electric drive motor issues. Of 11 EVs for which Consumer Reports had adequate survey data, only four had average or better reliability.
Consumer Reports based its rankings on a survey of owners representing more than 300,000 vehicles from the 2000 through 2022 model years, with a few new 2023 models included. The rankings are based on problems with vehicles in the past year.
Tesla board chair testifies in Musk compensation lawsuit
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WILMINGTON, Del. (AP) — The head of Tesla’s board of directors testified Tuesday in a shareholder lawsuit challenging a 2018 compensation plan for CEO Elon Musk potentially worth more than $55 billion that she was less concerned about how much time Musk would commit to the company than in the results he could bring.
“We didn’t talk about time,” Robyn Denholm said when asked about her discussions with Musk about the compensation plan, which didn’t include any requirement on how much time he would devote to the company, as opposed to his other business ventures.
“He was focused on achieving results, not on any quantum of time he would need to spend,” Denholm said. She added that she doesn’t know how many hours Musk — who last month took over Twitter after paying $44 billion for the social media platform — devotes to Tesla.
“I’m not concerned about time,” added Denholm, who was a member of the compensation committee at the electric car and solar panel maker that developed the plan. “I know periods of time where he is sleeping on the factory floor.”
The lawsuit alleges that the performance-based stock option grant was negotiated by the compensation committee and approved by Tesla board members who had conflicts interest due to personal and professional ties to Musk, including investments in his companies. It also alleges the shareholder vote approving the compensation plan was based on a misleading proxy statement.
The lawsuit alleges that the proxy wrongly described members of the compensation committee as “independent,” and characterized all of the milestones that triggered vesting in the stock options as “stretch” goals meant to be difficult to achieve, even though internal projections indicated that three operational milestones were likely to be achieved within 18 months of the stockholder vote.
Attorneys for the defendants have noted that two institutional proxy advising firms that urged shareholders to reject the plan nevertheless noted that it would require “significant and perhaps historic achievements” and require growth that “appear stretching by any benchmark.”
“I thought they, at the time, were quite audacious,” Denholm said of the milestones.
The plan called for Musk to reap billions if Tesla hit certain market capitalization and operational milestones. For each incidence of simultaneously meeting a market cap milestone and an operational milestone, Musk, who owned about 22% of Tesla when the plan was approved, would get stock equal to 1% of outstanding shares at the time of the grant. His interest in the company would grow to about 28% if the company’s market capitalization grew by $600 billion.
Each milestone in the plan includes growing Tesla’s market capitalization by $50 billion and meeting aggressive revenue and pretax profit growth targets. Musk would receive the full benefit of the pay plan, $55.8 billion, only if Tesla hit a market capitalization of $650 billion and unprecedented revenue and earnings within a decade.
To date, Tesla has achieved all 12 of the market capitalization milestones and 11 operational milestones, resulting in the vesting of 11 of the grant’s 12 tranches and providing Musk over $52.4 billion in stock option gains, according to the lawsuit. Since the grant was awarded, Tesla’s market capitalization has increased from $59 billion to more than $613 billion now, having briefly hit $1 trillion early this year. Musk has sold Tesla stock to finance the Twitter purchase, adding downward pressure on the shares.
Shares of Tesla and other automakers have been battered this year, but the Austin, Texas, company earned $5.5 billion in 2021, blowing away the previous year’s profit of $721 million. It also produced a record 936,000 vehicles, nearly double vehicle production in 2020.
Attorneys for the plaintiff have suggested that incentivizing Musk to remain at Tesla’s helm by offering a huge compensation package was unnecessary, because he’s never suggested that he might leave. They’ve also suggested that Musk’s true motive in negotiating the package was to fund his dream to colonize Mars.
Denholm said the primary issue was not how Musk might spend the proceeds of his option grants, but ensuring that he was motivated and committed to Tesla’s success.
“Quite honestly, I don’t know how much it costs to do any interplanetary travel,” she said.
In a November 2017 email to former Tesla General Counsel Todd Maron, Musk expressed optimism that the compensation package would be seen in a favorable light.
“Given that this will all go to causes that at least aspirationally maximize the probability of a good future for humanity, plus all Tesla shareholders will be super happy, I think this will be received well,” he wrote, adding that “it should come across as an ultra bullish view of the future.”
Estee Lauder to buy Tom Ford in a deal valued at $2.8B
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The Estee Lauder Cos. is acquiring luxury powerhouse Tom Ford in a deal valued at $2.8 billion, marking the beauty firm’s biggest acquisition yet.
As part of the deal announced Tuesday, Ermenegildo Zegna Group and Marcolin S.p.A. will enter long-term license agreements for Tom Ford fashion and Tom Ford eyewear, respectively.
While Estee Lauder said the deal values the total enterprise at $2.8 billion, the New York-based beauty company is expected to pay roughly $2.3 billion, after a $250 million payment from Italian eyewear manufacturer Marcolin SpA.
The purchase, subject to regulatory approvals, is slated to close in the first half of 2023.
Under the agreement, Tom Ford, founder and CEO of Tom Ford International, will remain the brand’s creative visionary through the end of 2023. Domenico De Sole, chairman of Tom Ford International, will stay on as a consultant until that same time.
Estee Lauder introduced its Tom Ford Beauty line in 2006. In Estee Lauder’s fiscal year that ended June 30, the brand’s net sales grew nearly 25% compared to the prior year. The beauty company said that in the next few years it expect the beauty line to bring in net sales of $1 billion.
“This strategic acquisition will unlock new opportunities and fortify our growth plans for Tom Ford Beauty,” said Fabrizio Freda, president and CEO of Estee Lauder in a statement. “It will also further help to propel our momentum in the promising category of luxury beauty for the long-term, while reaffirming our commitment to being the leading pure player in global prestige beauty.”
Estee Lauder said it aims to finance the acquisition through a combination of cash, debt and $300 million in deferred payments to sellers that become due beginning in July of 2025.
Trump Org.’s longtime CFO chokes up, says he betrayed trust
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NEW YORK (AP) — Donald Trump’s longtime finance chief choked up on the witness stand Thursday, saying he betrayed the Trump family’s trust by scheming to dodge taxes on $1.7 million in company-paid perks, including a Manhattan apartment and luxury cars.
Allen Weisselberg, a senior adviser and former chief financial officer at the ex-president’s Trump Organization, said he conspired with a subordinate to hide more than a decade’s worth of extras from his taxable income, but that neither Trump nor the family were involved.
The Trump Organization is now on trial, accused of helping Weisselberg and other executives avoid paying income taxes on compensation in addition to their salaries. Prosecutors argue the company is liable because Weisselberg was a “high managerial agent” entrusted to act on its behalf.
“It was my own personal greed that led to this,” said Weisselberg, who pleaded guilty to tax crimes and agreed to testify against the company in exchange for a five-month jail sentence.
Asked if he was embarrassed by what he did, a somber Weisselberg said: “More than you can imagine.”
His emotional testimony came on his second day as the prosecution’s star witness, as a company lawyer reminded him on cross-examination of the faith that the Trump family had put in him for decades.
Weisselberg started working for Trump’s father in 1973 and joined Trump as an executive at his then-fledging Trump Organization in 1986. He wielded immense power as the company, buoyed by Trump’s celebrity, grew from a modest New York City developer into a global golf, hotel and real estate empire.
Weisselberg also recalled helping Trump through the company’s dark times in the early 1990s, including casino bankruptcies and the failure of his Trump Shuttle airline. He reminisced about watching Trump’s three eldest children — Donald Jr., Ivanka and Eric — grow up before his eyes, admitting he was “among the most trusted people they knew.”
The Trump Organization denies wrongdoing. The company could be fined more than $1 million if convicted, but a guilty verdict could also hamper its ability to get loans and make deals and lead to attempts by governments, such as New York City, to cancel contracts with Trump entities.
The Trump Organization continues to employ Weisselberg, paying his usual $640,000 salary even after he went on a leave of absence last month. In court, though, the company’s lawyers have portrayed him as a loyal lieutenant who went rogue and concocted the tax dodge scheme on his own without Trump or the Trump family knowing.
Some of Weisselberg’s testimony appeared to underscore that point. But the 75-year-old executive refuted the defense’s contention that his scheme didn’t help the company’s bottom line too. He also detailed another financial arrangement, involving holiday bonuses, that had saved the company money for years.
Weisselberg testified that he conspired to hide his perks with the company’s senior vice president and controller, Jeffrey McConney, by fudging payroll records to deduct their cost from his salary. The arrangement reduced Weisselberg’s tax liability, while also saving the company money because it didn’t have to give him a hefty raise to cover the cost of the perks and additional income taxes he would have incurred.
“I didn’t do an analysis, but I knew there was a benefit to the company,” Weisselberg said. “I knew in my mind that there was a benefit to the company.”
The company’s chief operating officer, Matthew Calamari Sr., also reduced his salary to deduct the cost of a company-paid apartment and cars for him and his wife, but Weisselberg denied they were in cahoots. He said he had no knowledge of or involvement in what Calamari was doing.
Calamari has not been charged with a crime. McConney, who was granted immunity, testified for the first five days of the trial in state court in Manhattan.
Weisselberg told jurors that Trump signed off on his apartment lease and, until becoming president in 2017, personally paid private school tuition for his two grandchildren.
The company, however, did have a longstanding practice to avoid taxes on the lucrative Christmas bonuses that Trump handed out each year to his company’s executives.
Weisselberg said the company ducked taxes for decades by drawing some bonus checks signed by Trump from subsidiary entities and paying executives as independent contractors, allowing the company to avoid payroll taxes and the subsidiaries to deduct the bonuses as expenses.
Weisselberg said the practice began before he started at the Trump Organization and was only abandoned after a tax lawyer audited the company’s pay practices once Trump became president in 2017.
Trump “always wanted to sign the bonus checks,” Weisselberg said — applying his distinct, seismograph-like signature to a stack of 70 or more made out to key company officials, including Weisselberg and Calamari.
The checks would then be stuffed into Christmas cards, also signed by Trump, who handed them out like Santa Claus to executives around the building.
The Trump Organization switched to paying executive bonuses entirely as taxable employee income once Trump went to the White House.
“We were going through an entire cleanup process at the company. With Mr. Trump now president, we wanted to make sure everything was done properly,” Weisselberg said.
Follow Michael Sisak on Twitter at twitter.com/mikesisak and send confidential tips by visiting https://www.ap.org/tips/.
Key Fed official says he’s open to slowing hikes in December
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WASHINGTON (AP) — Christopher Waller, a key Federal Reserve official, added his voice Wednesday to a rising number of Fed officials who have suggested that the central bank will likely slow the pace of its interest rate hikes beginning in December.
Waller, a member of the Fed’s Board of Governors, said he was open to raising the Fed’s key rate by a half-point next month in light of evidence that inflation may be cooling.
At each of its four most recent policy meetings, the central bank has raised its benchmark rate by an aggressive three-quarters of a point. The cumulative effect has been to make many consumer and business loans costlier and to raise the risk of a recession.
At the same time, Waller stressed that inflation remains painfully high. And he cautioned that there have been occasions in the past when economists thought inflation was falling only to see prices reverse course and accelerate again.
“The data of the past few weeks have made me more comfortable considering stepping down to a (half-point) hike,” Waller said in a speech in Phoenix. “It is important to remember that this would still be a very significant tightening action.”
The Fed has raised its key short-term rate this year at its fastest pace since the early 1980s — to a range between 3.75% and 4%, the highest level in about 15 years.
Those hikes have increased borrowing costs for mortgages, auto loans and credit cards, among other loans. Fed officials intend the higher rates to slow borrowing and spending and cool inflation pressures.
Waller’s remarks followed comments earlier Wednesday from Mary Daly, president of the Federal Reserve Bank of San Francisco. Daly said in an interview with CNBC that the Fed will likely raise its short-term rate at least a full percentage point above its current level.
She also said there has so far been no discussion among Fed officials about whether to pause their rate hikes if inflation continued to moderate.
“Pausing,” Daly said, “is off the table right now — it’s not even part of the discussion.”
Both Waller and Daly took pains, like Chair Jerome Powell at a news conference this month, to emphasize that rates will ultimately go higher even as the Fed raises them in smaller increments.
Waller also underscored his view that the inflation report for October, which showed slower price increases, was just one data point and not necessarily solid evidence that inflation is declining.
“I cannot emphasize enough that one report does not make a trend,” he said. “It is way too early to conclude that inflation is headed sustainably down.”
Waller noted that inflation had shown signs of slowing late last year before heading higher again.
“I will not be head-faked by one report and will continue to watch the data between now and the December (Fed) meeting,” he said.
On Monday, Lael Brainard, the Fed’s vice chair, said a smaller rate increase “will probably be appropriate, soon.”
Market traders now foresee an 85% likelihood of a half-point rate increase at the Fed’s mid-December meeting, according to the CME Group’s tracking of investor expectations.
Some of Waller’s comments about rate hikes Wednesday were harder-line than Brainard’s were. In response to a question, for example, Waller said that the current unemployment rate — at 3.7%, it is near a 53-year low — means the Fed can focus primarily on fighting inflation.
“We are not seeing the typical trade-off between … driving down inflation and causing all these job losses and high unemployment,” he said.
Waller noted that even while the Fed has sharply raised its key short-term rate, employers are still hiring at a healthy clip.
As a result, he said, the Fed should “tackle inflation … the job market is giving this to you. Don’t be cautious, don’t be afraid.”
In her remarks, though, Brainard suggested that the Fed’s key rate is already high enough to restrain the economy. As it moves higher, the central bank should increasingly consider the risk that the economy might tumble into a recession, she said.
Amazon begins mass layoffs among its corporate workforce
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NEW YORK (AP) — Amazon has begun mass layoffs in its corporate ranks, becoming the latest tech company to trim its workforce amid rising fears about the wider economic environment.
On Tuesday, the company notified regional authorities in California that it would lay off about 260 workers at various facilities that employ data scientists, software engineers and other corporate workers. Those job cuts would be effective beginning on Jan. 17.
Amazon would not specify how many more layoffs may be in the works beyond the ones confirmed through California’s Worker Adjustment and Retraining Notification Act, also known as WARN, which requires companies to provide 60 days’ notice if they have 75 or more full-time or part-time workers. Amazon employs more than 1.5 million workers globally, primarily made up of hourly workers.
The online retail giant, like other tech and social media giants, saw sizable profits during the COVID-19 pandemic, as homebound shoppers purchased more items online. But revenue growth slowed as the worst of the pandemic eased and consumers relied less on ecommerce.
The Seattle-based company reported two consecutive losses this year, driven mainly by write-downs of the value of its stock investment in electric vehicle start-up Rivian Automotive. The company returned to profitability during the third quarter, but investors were gloomy about its weaker-than-expected revenue and lackluster projections for the current quarter, which is typically good for retailers due to the holiday shopping season.
In an effort to cut back on costs, Amazon has already been axing some of its projects — including subsidiary fabric.com, Amazon Care, and the cooler-size home delivery robot Scout. Its also been scaling back its physical footprint by delaying — or canceling — plans to occupy some new warehouses across the country. And Amazon Chief Financial Officer Brian Olsavsky has said the company was preparing for what could be a slower growth period and would be careful about hiring in the near future.
Mass layoffs are rare at Amazon, but the company has had rounds of job cuts in 2018 and in 2001 during the dot-com crash. On the warehouse side, the ecommerce giant typically trims its workforce through attrition.
Faced with high costs, the company announced earlier this month it would pause hiring among its corporate workforce, adding to the freeze it put a few weeks earlier on its retail division. But the layoffs weren’t far off. Employees who work in different units, including voice assistant Alexa and cloud gaming platform Amazon Luna, said they were let go on Tuesday, according to LinkedIn posts. Some of them were based in Seattle, where the company has its headquarters.
“As part of our annual operating planning review process, we always look at each of our businesses and what we believe we should change,” Amazon spokesperson Kelly Nantel said in a statement. “As we’ve gone through this, given the current macro-economic environment (as well as several years of rapid hiring), some teams are making adjustments, which in some cases means certain roles are no longer necessary.”
In a note to the devices & services team that Amazon shared on its website, the team’s senior vice president David Limp said the company was consolidating some teams and programs. He said those laid off in the process were notified on Tuesday and the company will work with them to “provide support,” including assistance in finding new roles. If an employee cannot find a new role within the company, Limp said Amazon will provide a severance payment, external job placement support and what he called transitional benefits.
The retail behemoth follows other tech giants that have cut jobs in the past few weeks — a reversal from earlier this year, when tech workers were in high demand. Facebook parent Meta said last week it would lay off 11,000 people, about 13% of its workforce. And Elon Musk, the new Twitter CEO, slashed the company’s workforce in half this month.
Going forward, Wedbush Securities analyst Daniel Ives said he believes Amazon will likely sustain its workforce and investments in profitable areas such as the cloud computing unit AWS, while trimming costs in non-strategic areas like Alexa and other moonshot projects.
“The clock has struck midnight in terms of hyper-growth for Big Tech,” Ives said. “These companies hired at such an eye popping rate, it was not sustainable. Now there’s some painful steps ahead.”
Asian benchmarks mostly decline amid lingering China worries
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TOKYO (AP) — Asian shares mostly declined Thursday amid concerns about the impact of China’s “zero-COVID” strategy mixed with hopes for economic activity and tourism returning to normal.
Benchmarks fell in Tokyo, Seoul, Hong Kong and Shanghai, while gaining in Sydney. Oil prices fell.
Market watchers noted worries about how the Federal Reserve might not ease on its aggressive interest rate hikes, which are aimed at curbing inflation pressures. Much of the market’s prior rally on Wall Street was due to such hopes, including easing inflation.
“Markets are still unconvinced that the U.S. Fed will opt for lower magnitude rate hikes as incoming data sent mixed signals,” said Venkateswara Lavanya at Mizuho Bank.
U.S. retail data has shown improvement, while industrial production has dropped, highlighting the resilience of the service sector, as opposed to weakening external demand.
The Fed has been raising interest rates in an effort to slow the economy and tame the hottest inflation in decades. Wall Street has been worried it could hit the brakes too hard and bring on a recession.
Japan’s benchmark Nikkei 225 shed 0.1% in morning trading to 27,990.62. Australia’s S&P/ASX 200 gained 0.2% to 7,138.20, after government data showed that the employment situation had improved in October from September.
South Korea’s Kospi slipped 0.6% to 2,461.74. Hong Kong’s Hang Seng dropped nearly 0.9% to 18,101.00, while the Shanghai Composite fell 0.5% to 3,105.87.
China is maintaining its “zero-COVID” approach of mass testing many people alongside localized lockdowns and quarantines to eliminate the coronavirus entirely. Such restrictions have caused a supply crunch for some of Asia’s biggest manufacturers, denting economic growth.
Elsewhere, the lifting of pandemic restrictions have fueled hopes of greater consumer spending and tourism revenue.
On Wall Street, retailers and technology companies led a broad slide. The S&P 500 fell 0.8%, wiping out most of its gains from a day earlier. The Dow Jones Industrial Average fell 0.1% and the Nasdaq lost 1.5%.
Discouraging quarterly updates from Target and other retailers put investors in a selling mood, despite a report showing that U.S. retail sales remained strong last month.
Target slumped 13.1% after cutting its forecasts for the holiday season following a surprisingly big drop in its third-quarter profits. The retailer also said its sales slowed sharply in recent weeks.
“I think the market might be saying the broader data that we have is OK, but what Target is saying is a little more forward-looking in terms of what they expect for the holiday season, and that might not be so good,” said Willie Delwiche, investment strategist at All Star Charts.
Other retailers also helped drag the market lower. Advance Auto Parts fell 15.1% after reporting weak financial results. Best Buy slumped 8.6%. Macy’s, which reports its financial results on Thursday, fell 8.1%.
All told, the S&P 500 fell 32.94 points to 3,958.79. The Dow slid 39.09 points to 33,553.83. The tech-heavy Nasdaq dropped 174.75 points to 11,183.66.
Smaller company stocks also lost ground. The Russell 2000 index fell 36.04 points, or 1.9%, to 1,853.17.
The latest government report on retail sales for October shows that consumer spending remains strong, though it’s unclear whether that’s because of more purchases or higher prices.
Strong consumer spending is typically a good sign for the economy, but it could make the Fed’s strategy of cooling the economy more difficult.
“The better-than-expected retail sales results don’t bolster the case that the Fed” can ease up on its campaign to slow the economy with high interest rates, said Tom Hainlin, national investment strategist at U.S. Bank Wealth Management.
He said resilient consumer spending could improve the possibility that the Fed manages to pull off a so-called “soft landing” with its strategy. That would involve taming inflation without throwing the economy into a recession, or at least avoiding a damaging recession.
Bond yields were mixed. The yield on the 10-year Treasury, which influences mortgage rates, fell to 3.69% from 3.78% from late Tuesday. The yield on the two-year Treasury rose to 4.37% from 4.35% from late Tuesday.
Also hanging over market sentiments, especially the energy sector, is the war in Ukraine. Any worsening could cause spikes in prices for oil, gas and other commodities that the region produces.
In energy trading, benchmark U.S. crude lost 67 cents to $84.92 a barrel. U.S. crude oil prices initially rose, before settling 1.5% lower Wednesday. Brent crude, the international standard, fell 62 cents to $92.24 a barrel.
In currency trading, the U.S. dollar inched down to 139.47 Japanese yen from 139.51 yen. The euro cost $1.0389, down from $1.0396.
AP Business Writers Damian J. Troise and Alex Veiga contributed to this report.
Yuri Kageyama is on Twitter https://twitter.com/yurikageyama
Lawsuit accuses largest US meat producers of wage fixing
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DENVER (AP) — Three meat plant workers have filed a federal lawsuit accusing 11 of the United States’ largest beef and pork producers of conspiring to depress wages and benefits.
The lawsuit, filed in federal court in Denver on Friday, seeks class-action status and alleges the producers have worked together since at least 2014 to keep workers’ compensation lower than the market would allow, violating the Sherman Antitrust Act.
It was brought by two meat plant workers from Iowa and one from Georgia but seeks to represent hundreds of thousands of other people who have worked in jobs from slaughtering to production at the companies’ collective 140 plants. Together the plants produce about 80% of the red meat sold to U.S. consumers, according to the lawsuit.
The companies are JBS USA Food Company, Cargill Inc., Hormel Foods Corp., American Foods Group LLC, Triumph Foods LLC, Seaboard Foods LLC, National Beef Packing Co. LLC, Iowa Premium LLC, Smithfield Foods Inc., Agri Beef Co. and Perdue Farms Inc., along with some subsidiaries.
Cargill denied any wrongdoing.
“While we cannot comment with specificity during the pendency of litigation, Cargill sets compensation independently to ensure that it pays fair and competitive wages to employees in each of the company’s plants,” company spokesman Daniel Sullivan said.
Perdue Farms spokesperson Andrea Staub declined to comment, saying the company does not discuss pending lawsuits. Smithfield spokesperson Jim Monroe said the company has not had a chance to review the allegations and had no comment at this time. Representatives of the other companies did not immediately return emails and telephone messages seeking comment Wednesday.
Two consulting companies that allegedly helped the meat producers exchange compensation information are also named as defendants in the lawsuit, which was filed by lawyers from Hagens Berman.
“Our firm has secured $195 million in the poultry processing industry for the same antitrust behavior. The meat industry’s gravy train ends here,” the law firm’s managing partner, Steve Berman, said in an announcement of the lawsuit on Wednesday.
The lawsuit alleges that the meat producers had secret meetings to discuss wages and communicated about them surreptitiously to avoid having any written records of the conversations.
Musk testifies in lawsuit over Tesla compensation package
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WILMINGTON, Del. (AP) — Tesla CEO Elon Musk took the witness stand Wednesday to defend himself in a shareholder lawsuit challenging a compensation package he was awarded by the company’s board of directors that is potentially worth more than $55 billion.
Musk denied that he dictated terms of the compensation package or attended any meetings at which the plan was discussed by the board, its compensation committee, or a working group that helped develop it.
“I was entirely focused on the execution of the company,” he said.
Plaintiff’s attorney Greg Varallo spent much of his cross-examination trying to draw Musk into admitting that he controls Tesla to such an extent that he can sway the board to do his bidding. Among other things, Varallo questioned Musk about his title of “Technoking,” a role that Musk has previously noted comes with “panache” and “great dance moves.”
“I think comedy is legal,” Musk told Varallo, who had questioned whether Musk was “stone-cold sober” when he came up with the title.
Varallo also suggested that one of the reasons that Musk developed a “master plan” for Tesla was to let people know he was in charge. He also noted that Musk makes recommendations regarding compensation for senior executives, and that he unilaterally made the decision to pause Tesla’s policy of accepting bitcoin from vehicle purchasers.
“You’re asking complex questions that can’t be answered ‘yes’ or ‘no’,” Musk said when Varallo asked whether he came up with the vision for Tesla.
Varallo also questioned Musk about how he splits his time among Tesla and his other companies, including SpaceX and Twitter.
Musk said he never intended to be CEO of Tesla, and that he didn’t want to be chief executive of any other companies either, preferring to see himself as an engineer instead. Musk also said he expects an organizational restructuring of Twitter to be completed in the next week or so.
“Are we in the Tesla trial or the Twitter trial?” Musk wondered at one point, casting a quick glance at Chancellor Kathaleen St. Jude McCormick. McCormick also presided over a lawsuit that Twitter filed against Musk earlier this year to force him to carry through with his agreement to acquire the social media giant. McCormick dismissed that suit this week after Musk completed the deal, subsequently declaring himself to be “Chief Twit.”
Musk also downplayed the notion that his friendships with certain Tesla board members, including sometimes vacationing together, mean that they were likely to do his bidding. He said vacation was perhaps too strong a word for such time he spent with directors.
“For me, it was email with a view,” he said.
The Tesla lawsuit alleges that the performance-based stock option grant was negotiated by the compensation committee and approved by Tesla board members who had conflicts interest due to personal and professional ties to Musk, including investments in his companies. It also alleges the shareholder vote approving the compensation plan was based on a misleading proxy statement.
The shareholder plaintiff alleges that the proxy wrongly described members of the compensation committee as “independent,” and characterized all of the milestones that triggered vesting in the stock options as “stretch” goals meant to be difficult to achieve, even though internal projections indicated that three operational milestones were likely to be achieved within 18 months of the stockholder vote.
Attorneys for the defendants have noted that two institutional proxy advising firms that urged shareholders to reject the plan nevertheless noted that it would require “significant and perhaps historic achievements” and require growth that “appear stretching by any benchmark.”
The plan called for Musk to reap billions if Tesla hit certain market capitalization and operational milestones. For each incidence of simultaneously meeting a market cap milestone and an operational milestone, Musk, who owned about 22% of Tesla when the plan was approved, would get stock equal to 1% of outstanding shares at the time of the grant. His interest in the company would grow to about 28% if the company’s market capitalization grew by $600 billion.
Each milestone in the plan includes growing Tesla’s market capitalization by $50 billion and meeting aggressive revenue and pretax profit growth targets. Musk would receive the full benefit of the pay plan, $55.8 billion, only if Tesla hit a market capitalization of $650 billion and unprecedented revenue and earnings within a decade.
To date, Tesla has achieved all 12 of the market capitalization milestones and 11 operational milestones, resulting in the vesting of 11 of the grant’s 12 tranches and providing Musk over $52.4 billion in stock option gains, according to the lawsuit. Since the grant was awarded, Tesla’s market capitalization has increased from $59 billion to more than $613 billion now, having briefly hit $1 trillion early this year. Musk has sold Tesla stock to finance the Twitter purchase, adding downward pressure on the shares.
Shares of Tesla and other automakers have been battered this year, but the Austin, Texas, company earned $5.5 billion in 2021, blowing away the previous year’s profit of $721 million. It also produced a record 936,000 vehicles, nearly double vehicle production in 2020.
Attorneys for the plaintiff have suggested that incentivizing Musk to remain at Tesla’s helm by offering a huge compensation package was unnecessary, because he’s never suggested that he might leave. They’ve also suggested that Musk’s true motive in negotiating the package was to fund his dream to colonize Mars.
In a November 2017 email to former Tesla General Counsel Todd Maron, Musk expressed optimism that the compensation package would be seen in a favorable light.
“Given that this will all go to causes that at least aspirationally maximize the probability of a good future for humanity, plus all Tesla shareholders will be super happy, I think this will be received well,” he wrote, adding that “it should come across as an ultra bullish view of the future.”
While on the stand, Musk also said that he does not want to be the CEO of any company.
“I expect to reduce my time at Twitter and find somebody else to run Twitter over time,” Musk said, according to multiple media reports.
Musk says he expects to find a new Twitter CEO “over time”
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NEW YORK (AP) — Billionaire Elon Musk, who just took over as the chief executive at Twitter after buying the company, said he does not want to be the CEO of any company.
Musk took the witness stand Wednesday in a Delaware court to defend himself in a shareholder lawsuit challenging a compensation package he was awarded by Tesla’s board of directors that is potentially worth more than $55 billion.
While testifying, Musk said “I expect to reduce my time at Twitter and find somebody else to run Twitter over time,” according to multiple media reports.
Overnight, Musk sent an email to the remaining staff at Twitter, saying that it is a software and servers company at its heart and he asked employees to decide by Thursday evening if they want to remain a part of the business.
Musk wrote that employees “will need to be extremely hardcore” to build “a breakthrough Twitter 2.0″ and that long hours at high intensity will be needed for success.
Musk, who also heads Tesla and SpaceX, said Twitter will be much more engineering-driven, with employees who write “great code” comprising the majority of the team.
The billionaire, who completed the $44 billion takeover of the San Francisco company in late October, fired much of its full-time workforce by email early this month and is expected to eliminate an untold number of contract jobs for those responsible for fighting misinformation and other harmful content. A number of engineers also said on Twitter they were fired this week after saying something critical of Musk, either publicly on Twitter or on an internal messaging board for Twitter employees.
Musk has vowed to ease restrictions on what users can say on the platform. While he has been criticized from almost all sides for potentially opening the gates at Twitter to hate and other harmful speech, he has tried to reassure advertisers, which drive most of the social platform’s revenue, that any rule changes will not damage their brands by associating them with harmful content.
Musk has also indicated that he plans to resume Twitter’s premium service — which grants blue-check “verification” labels to anyone willing to pay $8 a month – on November 29. The billionaire said in a tweet that the relaunch would take place later this month in an effort to make sure the service is “rock solid.”
Musk asked workers to click yes on a link provided in the email if they want to be part of the “new Twitter.” He said that employees had until 5 p.m. Eastern on Thursday to reply to the link. Employees who don’t reply by that time will receive three months of severance, according to the email.
“Whatever decision you make, thank you for your efforts to make Twitter successful,” Musk wrote.
AP Technology Reporter Matt O’Brien contributed to this report from Rhode Island. AP Writer Randall Chase contributed from Delaware.
Facebook still banning Trump — for now — despite campaign
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Donald Trump may be running for president, but he still can’t use Facebook.
The social media platform has no plans to reinstate Trump’s account following the former president’s announcement that he will seek a second term in the White House, the company confirmed Wednesday. Trump was kicked off Facebook following the Jan. 6, 2021, attack on the U.S. Capitol.
Trump may not have to wait long to get back on the site, however. His suspension from Facebook is set to be reconsidered in January, two years after it was first imposed.
One change will be immediate: As a candidate, Trump will no longer be subject to Facebook fact checks. That’s because under Facebook rules, comments by elected officials and candidates for office aren’t subject to fact checks on its site. The Associated Press participates in Facebook’s independent fact-checking program.
Throughout his tenure as president, Trump’s use of social media posed a significant challenge to major social media platforms trying to balance the public’s need to hear from their elected leaders with worries about misinformation, harassment and incitement of violence.
Following the Jan. 6 riot, Trump was also kicked off Snapchat, Twitter and Instagram, which is owned by Facebook parent company Meta. Trump’s ability to post videos to his YouTube channel was suspended.
YouTube spokeswoman Ivy Choi said Wednesday the company had no plans to lift the suspension.
Twitter’s new owner, Elon Musk, has said he disagreed with the platform’s decision to bar Trump following the Jan. 6 attack. Musk said no announcement about reinstating banned users will be made until a content moderation council has reviewed the issue
Twitter did not respond to questions about whether Trump’s candidacy will impact the decision. Since his suspension, Trump has started his own social media platform, TruthSocial, and said he has no plans to rejoin Twitter if allowed.
The platforms would be justified if they extend their restrictions on Trump or make them permanent, said Heidi Beirich, founder of the Global Project Against Hate and Extremism and a member of the Real Facebook Oversight Board, a group that has criticized Meta’s response to extremist content and misinformation.
“The big problem is treating candidates as if they’re in a special category and deserve special treatment,” Beirich said. “If you have a set of rules, it should apply to everyone. The decision shouldn’t be a struggle.”
Facebook initially placed a 24-hour suspension on Trump’s account on Jan. 6 after he praised the rioters who stormed the Capitol. Facebook creator and CEO Mark Zuckerberg announced an indefinite suspension on Jan. 7, adding that “the risks of allowing the President to continue to use our service during this period are simply too great.”
The company’s quasi-independent oversight board upheld the ban but directed Facebook to set a time limit. The ban is now set to expire Jan. 7, 2023.
Exec who cleaned up Enron calls FTX mess ‘unprecedented’
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NEW YORK (AP) — The man who had to clean up the mess at Enron says the situation at FTX is even worse, describing what he calls a “complete failure” of corporate control.
The filing by John Ray III, the new CEO of the bankrupt cryptocurrency firm, lays out a damning description of FTX’s operations under its founder Sam Bankman-Fried, from a lack of security controls to business funds being used to buy employees homes and luxuries.
“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here,” Ray said. “From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented.”
Ray was appointed CEO on November 11, after the company was near collapse and its previous management sought legal counsel on what to do next. Bankman-Fried was persuaded to give up control of the company by his lawyers as well as his father, Joseph Bankman, a professor at Stanford Law School, according to Thursday’s filing.
Since his resignation, Bankman-Fried has sought out news outlets for interviews and has been active on Twitter trying to explain himself and the firm’s failure.
In an interview with the online news outlet Vox, Bankman-Fried admitted that his previous calls for regulation of cryptocurrencies were mostly for public relations.
“Regulators, they make everything worse,” Bankman-Fried said, using an expletive for emphasis.
In a terse statement, Ray said that Bankman-Fried’s statements have been “erratic and misleading” and “Bankman-Fried is not employed by the Debtors and does not speak for them.”
Ray noted that many of the companies in the FTX Group, particularly those in Antigua and the Bahamas, didn’t have appropriate corporate governance and many had never held a board meeting. Ray also addressed the use of corporate funds to pay for homes and other items for employees.
“In the Bahamas, I understand that corporate funds of the FTX Group were used to purchase homes and other personal items for employees and advisors. I understand that there does not appear to be documentation for certain of these transactions as loans, and that certain real estate was recorded in the personal name of these employees and advisors on the records of the Bahamas,” he said.
So far, debtors have found and secured “only a fraction” of the group’s digital assets that they hope to recover, with about $740 million of cryptocurrency secured in new cold wallets, which is a way of holding cryptocurrency tokens offline, said Ray.
Ray was named CEO of FTX less than a week ago when the company filed for bankruptcy protection and its CEO and founder Bankman-Fried resigned. The embattled cryptocurrency exchange, short billions of dollars, sought bankruptcy protection after the exchange experienced the crypto equivalent of a bank run.
In its bankruptcy filing, FTX listed more than 130 affiliated companies around the globe. The company valued its assets between $10 billion to $50 billion, with a similar estimate for its liabilities.
Bankman-Fried was recently estimated to be worth $23 billion. His net worth has all but evaporated, according to Forbes and Bloomberg, which closely track the net worth of the world’s richest people.
FTX’s failure goes beyond finance. The company had major sports sponsorships as well, including Formula One racing and a sponsorship deal with Major League Baseball. Miami-Dade County decided Friday to terminate its relationship with FTX, meaning the venue where the Miami Heat play will no longer be known as FTX Arena. Mercedes was planning to remove FTX from its race cars starting last weekend.
Elizabeth Holmes faces judgment day for her Theranos crimes
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SAN JOSE, Calif. (AP) — A federal judge on Friday will decide whether disgraced Theranos CEO Elizabeth Holmes should serve a lengthy prison sentence for duping investors and endangering patients while peddling a bogus blood-testing technology.
Holmes’ sentencing in the same San Jose, California, courtroom where she was convicted on four counts of investor fraud and conspiracy in January marks a climactic moment in a saga that has been dissected in an HBO documentary and an award-winning Hulu TV series about her meteoric rise and mortifying downfall.
U.S. District Judge Edward Davila will take center stage as he weighs the federal government’s recommendation to send Holmes, 38, to federal prison for 15 years. That’s slightly less than the maximum sentence of 20 years she could face, but far longer than her legal team’s attempt to limit her incarceration to no more than 18 months, preferably served in home confinement.
Her lawyers have argued that Holmes deserves more lenient treatment as a well-meaning entrepreneur who is now a devoted mother with another child on the way. Their arguments were supported by more than 130 letters submitted by family, friends and former colleagues praising Holmes.
A probation report also submitted to Davila recommended a nine=year prison sentence for Holmes.
Prosecutors also want Holmes to pay $804 million in restitution. The amount covers most of the nearly $1 billion that Holmes raised from a list of sophisticated investors that included software magnate Larry Ellison, media mogul Rupert Murdoch, and the Walton family behind Walmart.
While wooing investors, Holmes leveraged a high-powered Theranos board that included former U.S. Defense Secretary James Mattis, who testified against her during her trial, and two former U.S. Secretaries of State, Henry Kissinger and the late George Shultz, whose son submitted a statement blasting Holmes for concocting a scheme that played Shultz “for the fool.”
Davila’s judgment – and Holmes’ reporting date for a potential stint in prison — could be affected by the former entrepreneur’s second pregnancy in two years. After giving birth to a son shortly before her trial started last year, Holmes became pregnant at some point while free on bail this year.
Although her lawyers didn’t mention the pregnancy in a 82-page memo submitted to Davila last week, the pregnancy was confirmed in a letter from her current partner, William “Billy” Evans, that urged the judge to be merciful.
In that 12-page letter, which included pictures of Holmes doting on their 1-year-old son, Evans mentioned that Holmes participated in a Golden Gate Bridge swimming event earlier this year while pregnant. He also noted Holmes suffered through a case of COVID in August while pregnant. Evans didn’t disclose Holmes’ due date in his letter.
Duncan Levin, a former federal prosecutor who is now a defense attorney, predicted that Davila’s sentencing decision won’t be swayed by the pregnancy, but expects the judge to allow her to remain free until after the baby is born.
“She will be no more of a flight risk after she is sentenced that she was while awaiting sentencing,” Levin said. “We have to temper our sentences with some measure of humanity.”
The pregnancy makes it more likely Davila will be criticized no matter what sentence he imposes, predicted Amanda Kramer, another former federal prosecutor.
“There is a pretty healthy debate about what kind of sentence is needed to effect general deterrence to send a message to others who are thinking of crossing that line from sharp salesmanship into material misrepresentation,” Kramer said.
Federal prosecutor Robert Leach emphatically declared Holmes deserves a severe punishment for engineering a scam that he described as one of the most egregious white-collar crimes ever committed in Silicon Valley. In a scathing 46-page memo, Leach told the judge he has an opportunity to send a message that curbs the hubris and hyperbole unleashed by the tech boom of the past decade.
Holmes “preyed on hopes of her investors that a young, dynamic entrepreneur had changed healthcare,” Leach wrote. “And through her deceit, she attained spectacular fame, adoration, and billions of dollars of wealth.”
Even though Holmes was acquitted by a jury on four counts of fraud and conspiracy tied to patients who took Theranos blood tests, Leach also asked Davila to factor in the health threats posed by Holmes’ conduct.
Holmes’ lawyer Kevin Downey painted her as a selfless visionary who spent 14 years of her life trying to revolutionize health care with a technology that was supposed to be able to scan for hundreds of diseases and other aliments with just a few drops of blood.
Although evidence submitted during her trial showed the tests produced wildly unreliable results that could have steered patients in the wrong direction, her lawyers asserted Holmes never stopped trying to perfect the technology until Theranos collapsed in 2018. They also pointed out that Holmes never sold any of her Theranos shares — a stake valued at $4.5 billion in 2014 when Holmes was being hailed as the next Steve Jobs on the covers of business magazines.
Defending herself against criminal charges has left Holmes with “substantial debt from which she is unlikely to recover,” Downey wrote, suggesting that she is unlikely ever to pay any restitution that Davila might order as part of her sentence.
“Holmes is not a danger to society,” Downey wrote.
Downey also asked Davila to consider the alleged sexual and emotional abuse Holmes suffered while she was romantically with Ramesh “Sunny” Balwani, who became a Theranos investor, top executive and eventually an accomplice in her crimes. Balwani, 57, is scheduled to be sentenced Dec. 7 after being convicted in a July trial on 12 counts of fraud and conspiracy.
Average long-term US mortgage rates tumble to 6.61%
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WASHINGTON (AP) — The average long-term U.S. mortgage rate tumbled by nearly a half-point this week, but will likely remain a significant barrier for potential homebuyers as Federal Reserve officials have all but promised more rate hikes in the coming months.
Mortgage buyer Freddie Mac reported Thursday that the average on the key 30-year rate fell to 6.61% from 7.08% last week. A year ago the average rate was 3.1%.
The rate for a 15-year mortgage, popular with those refinancing their homes, fell to 5.98% from 6.38% last week. It was 2.39% one year ago.
Late last month, the average long-term U.S. mortgage rate breached 7% for the first time since 2002.
Two weeks ago, the Fed raised its short-term lending rate by another 0.75 percentage points, three times its usual margin, for a fourth time this year as part of its inflation-fighting strategy. Its key rate now stands in a range of 3.75% to 4%.
There had been some hope that the Fed would begin to dial the rate increases down as more evidence comes in that prices may have peaked. However, recent comments by Fed officials have turned knocked down that optimism.
James Bullard, who leads the Federal Reserve Bank of St. Louis, said Thursday that the Fed may have to raise its benchmark interest rate much higher than it has previously projected to get inflation under control.
The Fed’s next two-day rate policy meeting wraps up on Dec. 14.
The Labor Department reported last week that consumer inflation reached 7.7% in October from a year earlier, the smallest year-over-year rise since January. Excluding volatile food and energy prices, “core” inflation rose 6.3% in the past 12 months. On Wednesday, Labor reported that prices at the wholesale level fell for the fourth straight month.
Those figures were all lower than economists had expected, but it remains to be seen whether it’s enough to get the Fed to ease off the jumbo rate hikes.
Three weeks ago, the average long-term U.S. mortgage rate topped 7% for the first time in more than two decades, which combined with sky-high home prices, have crushed homebuyers’ purchasing power by adding hundreds of dollars to monthly mortgage payments.
Sales of existing homes have declined for eight straight months as borrowing costs have become too big of an obstacle for many Americans already paying more for food, gas and other necessities. On top of that, homeowners seeking to upgrade or change locations have held off listing their homes because they don’t want to jump into a higher rate on their next mortgage.
The sagging housing market has prompted real estate companies to dial back their financial outlooks and shrink their workforces. Online real estate broker Redfin is letting go of 862 employees and shutting down its instant-cash-offer subsidiary RedfinNow.
Redfin also laid off 470 employees in June, blaming slowing home sales. Through attrition and layoffs, Redfin has slashed more than a quarter of its workforce on the assumption that the housing downturn will last “at least through 2023,” it said in a regulatory filing.
Another online real estate broker, Compass, has laid off hundreds of workers this year.
While mortgage rates don’t necessarily mirror the Fed’s rate increases, they tend to track the yield on the 10-year Treasury note. The yield is influenced by a variety of factors, including investors’ expectations for future inflation and global demand for U.S. Treasurys.
Western US cities to remove decorative grass amid drought
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SALT LAKE CITY (AP) — A group of 30 agencies that supply water to homes and businesses throughout the western United States has pledged to rip up lots of decorative grass to help keep water in the over-tapped Colorado River.
The agreement signed Tuesday by water agencies in Southern California, Phoenix and Salt Lake City and elsewhere illustrates an accelerating shift in the American West away from well-manicured grass that has long been a totem of suburban life, having taken root alongside streets, around fountains and between office park walkways.
The grass-removal pledge targets turf that people don’t work on, like in front of strip malls, in street medians or at the entrance to neighborhoods. It doesn’t mean cities plan to rip up grass at golf courses, parks or in backyards, though some may pay homeowners to voluntarily replace their lawns with more drought-resistance landscaping.
Beyond reducing ornamental grass by 30%, the agencies say they’ll boost water efficiency, add more water recycling and consider actions like changing how people pay for water to encourage savings.
“Recognizing that a clean, reliable water supply is critical to our communities, we can and must do more to reduce water consumption and increase reuse and recycling within our service areas,” read the memo.
The agreement did not include details about the amount of water the agencies were collectively committing to save, but cities account for about one-fifth of Colorado River water use. The rest goes to agriculture.
“Cities — the 20% — can’t solve the math problem. But we can certainly contribute to solving the problem,” said John Entsminger, the Southern Nevada Water Authority’s General Manager.
The commitments, light on details, could spur agencies to offer payment for property owners to tear out grass and replace it with drought-tolerant desert landscaping.
The commitment to tear out 30% marks the first time water agencies throughout the region have collectively committed to a numerical benchmark targeting one specific kind of water use. It comes as the states scramble to reduce their consumption to meet demands from federal officials who say cuts are needed to maintain river levels and protect public health, food systems and hydropower.
The letter adds additional signatories to an earlier agreement five large water districts reached in August. Water agencies in Albuquerque, Las Vegas and Denver are among those who signed.
Denver Water spokesperson Todd Hartman said the city hoped to replace roughly 75 million square feet (7 million square meters) of non-functional turf but didn’t share how much water that would conserve. He said the agency hopes to roll out programs by 2024.
No matter the savings, the new commitments will amount to far less conservation than is needed to keep water flowing through the Colorado River and prevent its largest reservoirs from shrinking to dangerously low levels.
Phoenix wants its program up and running by the spring; it will be the city’s first time offering payment for people to rip up grass, said Cynthia Campbell, the city’s water resources management adviser. Even without a program, lots of people have removed grass anyway. In the 1970s, about 80% of homes had grass covering most of their property; today, it’s 9%, but that doesn’t include the sprawling suburbs outside of city boundaries, she said.
Like others, she stressed that water savings from cities won’t solve the river’s problems.
“There is no level of municipal conservation in the entire western United States that could make up for the water that’s going to be needed to be” conserved, she said. But, “we are giving till it hurts, as much as we possibly can.”
The letter doesn’t include any commitments from agriculture, which uses about 80% of the allocated water in the seven states that rely on the river — Arizona, California, Colorado, Nevada, New Mexico, Utah and Wyoming.
Lake Powell and Lake Mead, the river’s two main reservoirs, are each about a quarter full.
In June, U.S. Bureau of Reclamation Commissioner Camille Touton warned the states needed to dramatically cut their use, but amid squabbles over who would shoulder what burden, officials failed to answer her call. The bureau has since offered varying levels of payment for water districts to reduce their use, through things like leaving farm fields unplanted or asking urban residents to use less at home.
Proposals for some of that money are due Nov. 21.
The Metropolitan Water District of Southern California, which supplies water for about half of California’s residents, in October urged cities and water agencies in its territory to ban the addition of any new decorative grass in business parks, public spaces and neighborhoods. Its board also urged agencies to stop watering and consider removing such grass that’s already planted.
Southern Nevada has for decades used a mixture of cash incentives and fines to discourage grass watering and limit both functional and non-functional turf. The agreement has little effect on the area because a state law passed last year requires 100% of the non-functional turf be torn out in the Las Vegas area by 2026.
Utah passed a statewide conservation program last year that included $5 million to incentivize turf removal and has targeted decorative grass on public property. Yet some municipalities maintain ordinances passed for aesthetic reasons that prohibit residents from replacing grass with drought-tolerant landscaping.
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Ronayne reported from Sacramento, California. AP writer Thomas Peipert contributed reporting from Denver.
Asia-Pacific leaders seek unity on war, economic ills, virus
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BANGKOK (AP) — Pacific Rim leaders were striving to find common ground on the war in Ukraine and other dire threats to humankind in an annual meeting that began Friday at a heavily guarded venue in Thailand’s capital.
The annual summit of the 21-member Asia-Pacific Economic Cooperation forum is the last of three back-to-back meetings of world leaders in the region.
On Thursday, foreign and commerce ministers were completing their yearlong effort to form a consensus on an array of often-divisive issues.
U.S. Secretary of State Antony Blinken said he saw signs of a “convergence” in views about how to move forward in solving the world’s problems.
Whether that might enable Thailand as host of the meetings to produce a final joint statement remained to be seen: consensus generally is required among the 21 APEC members, including Russia. None of the earlier APEC preparatory meetings this year issued statements due to disagreements over whether to mention the conflict.
But leaders of the Group of 20 did manage a show of unity when China and India, after months of refusing to condemn Russia’s war in Ukraine, did not stand in the way of the release of a statement by the world’s leading economies that harshly criticized Moscow.
“At G-20, we really welcomed that we could have a joint statement,” said Yasuhiro Tsukamoto, a Japanese Foreign Ministry spokesperson.
Asked about the prospects for a show of unity, U.S. Secretary of State Antony Blinken said he did not want to “get ahead” of the talks.
But, “on issue after issue we’re seeing, as I said, a growing convergence among the major countries in the world,” he told reporters after Thursday’s meetings.
The APEC meetings and earlier summits of the Group of 20 major economies on the Indonesian island resort of Bali and the Association of Southeast Asian Nations in Cambodia have brought together leaders who have had little opportunity to meet face-to-face since the pandemic began in 2020.
“It is such a relief for us to be able to go back to the conduct of business in the way that we know is most efficient and most productive,” Philippine President Ferdinand Marcos Jr, told a business conference held ahead of the APEC summit meetings. But he noted, “Dark clouds loom large if we are not to be prepared.”
The war in Ukraine has pushed food and energy prices sharply higher, disrupting supply chains and hindering the world’s recovery from the pandemic.
“The global economy faces mounting downward pressure and growing risks of recession,” Chinese President Xi Jinping said in written remarks distributed to the business conference.
The Chinese economy has slowed sharply under restrictions meant to quash COVID-19 outbreaks. Xi warned against a “new Cold War” and attempts to dismantle supply chains built over decades, and called for strengthened cooperation and progress in achieving APEC’s vision of an open Asia-Pacific economy.
The threat of a coronavirus resurgence remains, with China reporting 23,276 new COVID-19 cases across the country on Thursday despite its costly and stringent “zero-COVID” policy. The southern metropolis of Guangzhou plans to build quarantine facilities with almost 250,000 beds to cope with outbreaks.
Xi stayed close to home throughout the pandemic, making his first trip outside China since it began only in September. But he has had a busy roster of meetings both in Bali and Bangkok, where much of the activity is on the sidelines of the summits.
Xi and Japanese Prime Minister Fumio Kishida met Thursday for what Kishida told reporters was a “candid and detailed discussion.”
“Because we are neighbors, there are various problems between Japan and China,” he said. But he added that “I think our talks today were a good start for us to pursue dialogue toward building constructive and stable Japan-China relations.”
Before the summit, Thai officials said they were hoping to steer APEC toward long-term solutions in various areas, including climate change, economic disruptions and faltering recoveries from the pandemic.
The APEC leaders meet formally in closed-door sessions on Friday and Saturday. For some, it will be at least the third such opportunity for face-to-face talks in the past two weeks. U.S. Vice President Kamala Harris is attending instead of President Joe Biden, who will be hosting his granddaughter’s wedding at the White House.
With both Biden and Russian President Vladimir Putin absent, Xi is the star attendee in Bangkok.
Thailand hoped to have all members agree on a set of targets for meeting the challenges of climate change, promoting sustainable trade and investment and environmental goals,
The wording of any statement on Ukraine would be the “most challenging element of our negotiations,” said Cherdchai Chaivaivid, director-general of Thailand’s Department of International Economic Affairs.
“I am cautiously optimistic that we should be able to reach a good level of consensus. The thing is, are we going to reach consensus on every single issue in the draft or not? That remains to be answered by all senior officials working around the clock during the next few days,” Cherdchai said.
APEC members account for nearly four of every 10 people and almost half of world trade. Much of APEC’s work is technical and incremental, carried out by senior officials and ministers, covering areas such as trade, tourism, forestry, health, food, security, small and medium-size enterprises and women’s empowerment.
Members also include Australia, Brunei, Canada, Chile, China, Hong Kong, Indonesia, Malaysia, Mexico, New Zealand, Papua New Guinea, Peru, Singapore, South Korea, Taiwan, Thailand and Vietnam.
As host, Thailand invited three special guests to the meeting: French President Emmanuel Macron; Crown Prince Mohammed bin Salman, the prime minister of Saudi Arabia; and Cambodian Prime Minister Hun Sen, who was to represent ASEAN but will not attend after getting COVID-19.
The APEC summit venue, at downtown Bangkok’s main convention center, was cordoned off with some streets in the area completely closed to traffic. Rows of riot police stood guard behind barricades at a major intersection nearby, underscoring Thailand’s determination to ensure no disruptions.
In recent years, Bangkok has seen a wave of large-scale protests aimed both at the government and the powerful monarchy, though they have faded under the pressures of the pandemic and targeted arrests of key figures.
A small but noisy group of protesters scuffled briefly with police Thursday demanding to deliver a letter to leaders attending the summit. The demonstrators back various causes including the removal of Prime Minister Prayuth and the abolition of Thailand’s strict anti-royal defamation laws.
Associated Press journalists Grant Peck, Krutika Pathi, Jerry Harmer and Tassanee Vejpongsa contributed to this report. Mari Yamaguchi contributed from Tokyo.
IRS contractor gets more scrutiny in congressional report
Updated
WASHINGTON (AP) — House investigators reported Thursday that a federal contractor that provided identity verification services for the Internal Revenue Service exaggerated the amount of money being lost to pandemic fraud in an apparent attempt to increase demand for its product and that it also overstated its capacity to provide services.
The investigation of ID.me, which uses facial recognition to verify identities in some cases, was launched in April after critics of the software company said it could be a target of cyberthreats and presented privacy concerns. Other advocates were critical of a private company taking on what should be a core government task of verifying people’s identities to receive benefits.
The report found that in 14 states that contracted with ID.me for identity verification services — including California, Texas, and Florida — wait times for ID.me video chats reached an average of more than four hours, though the firm claimed it answered calls in far less time, potentially delaying pandemic relief funds to millions of Americans.
The report said ID.me asserted that there were significantly higher levels of pandemic fraud compared to other assessments that were based on expert analysis in an apparent effort to boost interest in its services.
The committees cited ID.me CEO Blake Hall’s assertion that “America has lost more than $400 billion to fraudulent claims,” though the Department of Labor’s Office of Inspector General has identified $45.7 billion in potential unemployment fraud.
Terry Neal, a spokesperson for ID.me, said “calling ID.me’s estimate too high or baseless is premature and we welcome additional oversight on this important matter.” Neal pointed to statements from officials in five states, including California, that credit ID.me with helping to prevent billions in fraud.
The report was commissioned by the House Select Subcommittee on the Coronavirus Crisis and the Committee on Oversight and Reform after privacy advocates and lawmakers made calls for the company to be investigated.
“It is deeply disappointing that a company that received tens of millions in taxpayer dollars to help Americans obtain these benefits may have hurt their ability to access that critical relief,” said Rep. Jim Clyburn, D-S.C., who chairs the coronavirus crisis subcommittee.
Rep. Carolyn Maloney, D-N.Y, who chairs the oversight committee, said she was “deeply concerned about ID.me providing inaccurate information to federal agencies in order to be awarded millions of dollars in contracts.”
Neal said “we regret the long wait times that individuals endured while we fought to clear fraud out of the system. This situation was short-lived and temporary and caused by historic fraud.”
“Excluding specific episodes, wait times have generally been below 30 minutes as they are today,” Neal said.
Earlier this year, the IRS announced it would suspend its use of ID.me’s facial recognition technology to authenticate people who create online accounts after the practice was criticized by privacy advocates and lawmakers.
ID.me’s website states that the IRS, Social Security Administration, Department of Veterans Affairs and U.S. Patent and Trademark Office still maintain contracts with the federal government, and 14 states still maintain contracts with the firm.
Critics of the company, including the American Civil Liberties Union, have said outsourcing a core government function creates privacy problems.
“ID.me collects a rich stew of highly sensitive personal information about millions of Americans, including biometric data,” the ACLU’s website states, including government documents, social security numbers, military service records, and data from credit card bureaus and banks.
Senators to FTC: Probe Twitter security, take needed action
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WASHINGTON (AP) — Reacting to the tumult and mass layoffs at Twitter under its new owner Elon Musk, a group of Democratic senators on Thursday asked federal regulators to investigate any possible violations by the platform of consumer-protection laws or of its data-security commitments.
The senators also asked Lina Khan, head of the Federal Trade Commission, to take enforcement action if needed against Twitter and company executives for “any breaches or business practices that are unfair or deceptive.”
The FTC said last week it is “tracking recent developments at Twitter with deep concern.”
A key focus is the 2011 consent agreement that Twitter signed with the agency, requiring the San Francisco company to address serious data-security lapses. Twitter paid a $150 million penalty in May, several months before Musk’s takeover, for violating the consent order. An updated version established new procedures requiring the company to implement an enhanced privacy-protection program as well as beefing up information security.
Developments on the ground at Twitter have been chaotic, and experts and Twitter employees are warning of serious security risks flowing from the drastically reduced staff and deepening disorder.
In the latest turn, employees faced a 5 p.m. Eastern deadline Thursday to reply to a Musk email asking them to click “Yes” on a link if they want to be part of the “new Twitter.” Those not replying by that time were to receive three months’ severance, according to his email.
Musk, who completed the $44 billion takeover of the company in late October, fired much of its full-time workforce by email early this month and is expected to eliminate an untold number of contract jobs for those responsible for fighting misinformation and other harmful content.
A number of engineers said on Twitter they were fired after saying something critical of Musk, either publicly on Twitter or on an internal messaging board for Twitter employees.
Musk is fundamentally overhauling the offerings of the influential social platform, and it’s not known whether he is telling the FTC about it, as required under the 2011 agreement.
In recent weeks Musk “has taken alarming steps that have undermined the integrity and safety of the platform, and announced new features despite clear warnings those changes would be abused for fraud, scams and dangerous impersonation,” the seven Democratic senators, led by Sen. Richard Blumenthal of Connecticut, said in a letter to Khan.
“Users are already facing the serious repercussions of this growth-at-all-costs strategy,” they wrote, noting recent incidences of fake accounts impersonating President Joe Biden, lawmakers, athletes, companies and others.
“We are concerned that the actions taken by Mr. Musk and others in Twitter management could already represent a violation of the FTC’s consent decree, which prohibits misrepresentation and requires that Twitter maintain a comprehensive information-security program,” the letter says.
Commenting last week on the developments, the FTC said “No CEO or company is above the law, and companies must follow our consent decrees. Our revised consent order gives us new tools to ensure compliance, and we are prepared to use them.”
The agency would not say whether it is investigating Twitter for potential violations. If it were, it is empowered to demand documents and depose employees.
FTC officials declined to comment on the senators’ request Thursday.
After the FTC’s warning came to light last week, Musk said “Twitter will do whatever it takes to adhere to both the letter and spirit of the FTC consent decree.”
Also signing the letter to FTC Chair Khan were Democratic Sens. Dianne Feinstein of California, Ben Ray Lujan of New Mexico, Elizabeth Warren and Edward Markey of Massachusetts, Cory Booker of New Jersey and Robert Menendez of New Jersey.
Fired SpaceX employees accuse company of violating labor law
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NEW YORK (AP) — Several SpaceX employees who were fired after circulating an open letter calling out CEO Elon Musk’s behavior have filed a complaint accusing the company of violating labor laws.
The complaint, made Wednesday to the National Labor Relations Board, details the aftermath of what allegedly happened inside SpaceX after employees circulated the letter in June, which, among other things, called on executives to condemn Musk’s public behavior on Twitter — including making light of allegations he sexually harassed a flight attendant — and hold everyone accountable for unacceptable conduct.
The letter was sent weeks after a media report surfaced that Musk paid $250,000 to the flight attendant to quash a potential sexual harassment lawsuit against him. The billionaire has denied the allegations.
Employees in their letter urged SpaceX to uniformly enforce its policy against unacceptable behavior and commit to a transparent process for responses to claims of misconduct. A day later, Paige Holland-Thielen and four other employees who participated in organizing the letter were fired, according to the filing, which was made by Holland-Thielen to a regional NLRB office in California. Four additional employees were fired weeks later for their involvement in the letter.
A company spokesperson did not immediately respond to a request for comment.
Musk, who is the CEO of Tesla and SpaceX and is currently running Twitter, prefers to do things his own way even if that means running afoul of rules and regulations. He’s currently in a defiant fight with Civil Rights department, a California regulator that is suing Tesla for rampant racial discrimination.
Some view Musk’s management style as autocratic and demanding, as evidenced by a recent email he sent to Twitter staff giving them until Thursday evening to decide whether they want to remain a part of the business. Musk wrote that employees “will need to be extremely hardcore” to build “a breakthrough Twitter 2.0″ and that long hours at high intensity will be needed for success.
A number of engineers also said on Twitter they were fired last week after saying something critical of Musk, either publicly on Twitter or on an internal messaging board for Twitter employees.
In a statement, Holland-Thielen said as a woman engineer at SpaceX, she experienced “deep cultural problems” and comforted colleagues who had experienced similar issues.
“It was clear that this culture was created from the top level,” she said.
Still, she said part of what she liked about the company was that any person could escalate issues to leadership and be taken seriously.
“We drafted the letter to communicate to the executive staff on their terms and show how their lack of action created tangible barriers to the long term success of the mission,” Holland-Thielen said. “We never imagined that SpaceX would fire us for trying to help the company succeed.”
The firings coincide with Musk’s $44 billion buyout of Twitter. Around the same time, the billionaire used a sexual term to make fun of Microsoft co-founder Bill Gates’ belly and also posted a poop emoji during an online discussion with then-Twitter CEO Parag Agrawal.
After terminating the first set of employees, SpaceX allegedly interrogated dozens of others over the next two months in private meetings, telling them they couldn’t disclose those conversations to anyone else due to attorney-client privilege, according to the complaint. Four additional employees who helped draft or share the letter were fired in July and August, the filing said, adding up to nine terminations in total.
“Management used this ‘ends justifies the means’ philosophy to turn a blind eye to the ongoing mistreatment, harassment, and abuse reported by my colleagues, much of which was directly encouraged and inspired by the words and actions of the CEO,” said Tom Moline, who was also fired from SpaceX after organizing the letter.
Jeffery Pfeffer, a professor who specializes in organizational behavior at Stanford University’s business school, said that the allegations were hardly a surprise given Musk’s leadership style at Twitter. Musk’s success at companies like Tesla and SpaceX have created what he labeled as hubris under the false notion that it was “all about individual genius.”
“Powerful people get to break the rules. They don’t think they are bound by the same conventions as other people,” Pfeffer said, criticizing Musk’s behavior. He said it showed the arrogance of Musk, one of the world’s richest men: “Why would he think he is a mere mortal?”
Groves reported from Sioux Falls, South Dakota.
Elizabeth Holmes gets more than 11 years for Theranos scam
Updated
SAN JOSE, Calif. (AP) — Disgraced Theranos CEO Elizabeth Holmes was sentenced Friday to more than 11 years in prison for duping investors in the failed startup that promised to revolutionize blood testing but instead made her a symbol of Silicon Valley ambition that veered into deceit.
The sentence imposed by U.S. District Judge Edward Davila was shorter than the 15-year penalty requested by federal prosecutors but far tougher than the leniency her legal team sought for the mother of a year-old son with another child on the way.
Holmes, 38, faced a maximum of 20 years in prison. Her legal team requested no more than 18 months, preferably served in home confinement.
“This is a very heavy sentence,” said Rachel Fiset, a defense lawyer who has also been involved in health care cases.
Holmes, who was CEO throughout the company’s turbulent 15-year history, was convicted in January in the scheme, which revolved around the company’s claims to have developed a medical device that could detect a multitude of diseases and conditions from a few drops of blood. But the technology never worked, and the claims were false.
Theranos was dashed “by misrepresentations, hubris and just plain lies,” the judge said.
“This case is so troubling on so many levels,” Davila said. “What was it that caused Ms. Holmes to make the decisions she did? Was there a loss of a moral compass?”
Holmes’ meteoric rise once landed her on the covers of business magazines that hailed her as the next Steve Jobs. And her deception was persuasive enough to draw in a list of sophisticated investors, including software magnate Larry Ellison, media mogul Rupert Murdoch and the Walton family behind Walmart.
She sobbed as she told the judge she accepted responsibility for her actions.
“I regret my failings with every cell of my body,” Holmes said. She promised Davila she would devote the remainder of her life to trying to help others.
Holmes’ attorney, Kevin Downey, indicated she would appeal the sentence. Holmes and her family left the courthouse by a side entrance and managed to evade reporters and photographers.
Before handing down the sentence, Davila reflected on Silicon Valley’s transition from an agricultural hub populated by farmers and ranchers to a “crucible of innovation” brimming with bright-eyed entrepreneurs dreaming of changing the world.
Recalling the humble beginnings of technology pioneer Hewlett-Packard in a small garage in Palo Alto — the same city where Theranos was based — he spoke wistfully of “honest, hard work.”
“That, I would hope, will be the legacy and continuation of this valley,” the judge said.
Amanda Kramer, a former federal prosecutor who is now a defense attorney, described the sentence as “the equivalent of neon, flashing billboard” offering “a reminder the long-term consequences of fraud far outweigh any short-term gains.”
The sentencing in the same San Jose courtroom where Holmes was convicted on four counts of investor fraud and conspiracy marked another climactic moment in a saga that has been dissected in an HBO documentary and an award-winning Hulu series.
Her lawyers argued that Holmes was a well-meaning entrepreneur who is now a devoted mother. Their viewpoints were supported by more than 130 letters submitted by family, friends and former colleagues praising Holmes.
Davila suggested that the letters might have struck a different tone had the writers seen and heard all the evidence shown to the jury.
Prosecutors also wanted Holmes to pay $804 million in restitution — an amount that covers most of the nearly $1 billion that she raised from investors. But the judge left that question for a future hearing that has not been scheduled.
While wooing investors, Holmes leveraged a high-powered Theranos board that included former Defense Secretary James Mattis, who testified against her during her trial, and two former secretaries of state, Henry Kissinger and the late George Shultz, whose son, Alexander submitted a statement blasting Holmes for concocting a scheme that played Shultz “for the fool.”
Alexander Shultz made a brief appearance Friday to lambaste her for terrorizing his son, Tyler, a former Theranos employee turned whistleblower who helped The Wall Street Journal expose the flaws in the company’s blood-testing technology.
Before the first in a series of Journal articles appeared in October 2015, Alexander Shultz said Holmes hired private investigators to follow Tyler. The surveillance made Tyler so fearful that Alexander said his son began sleeping in his bed with a knife.
The judge gave Holmes more than five months of freedom before she must report to prison on April 27 — a window of time that should enable her to give birth to her second child before she is incarcerated. She gave birth to a son shortly before her trial started last year.
If Holmes’ pregnancy had a role in determining her sentence, the decision could prove controversial. A 2019 study found that more than 1,000 pregnant women entered federal or state prisons over a 12-month study period; 753 of them gave birth in custody.
According to a 2016 survey by the Bureau of Justice Statistics, more than half of women entering federal prison — 58% — reported being mothers of minor children.
Kramer said it seemed clear that Davila did not allow the pregnancy to sway his judgement. His sentence “was a lesson about justice being blind, whether you are woman, a mother, a powerful figure, you are still going to be treated equally under the law.”
Federal prosecutor Robert Leach described the Theranos scam as one of the most egregious white-collar crimes ever committed in Silicon Valley. In a scathing 46-page memo, Leach urged the judge to send a message to curb the hubris and hyperbole unleashed by the tech boom of the last 30 years.
Even though Holmes was acquitted on four counts of fraud and conspiracy tied to patients who took Theranos blood tests, Leach also asked the judge to factor in the health threats posed by Holmes’ conduct.
Evidence submitted during her trial showed the tests produced wildly unreliable results that could have steered patients toward the wrong treatments.
Holmes lawyers painted her as a selfless visionary who spent 14 years trying to revolutionize health care. They asserted that Holmes never stopped trying to perfect the technology until Theranos collapsed in 2018.
They also pointed out that Holmes never sold any of her Theranos shares — a stake valued at $4.5 billion in 2014. “Where did all the money go? To building technology,” Downey said.
In court documents, Downey also asked Davila to consider the alleged sexual and emotional abuse Holmes suffered while she was involved romantically with Ramesh “Sunny” Balwani, who became a Theranos investor, top executive and eventually an accomplice in her crimes.
Balwani, 57, is scheduled to be sentenced Dec. 7 after being convicted in a July trial on 12 counts of fraud and conspiracy.
Leak at Pennsylvania gas storage well spewing methane
Updated
A vent at an underground natural gas storage well in Western Pennsylvania has been spewing massive amounts of planet-warming methane into the atmosphere for more than 11 days and attempts to plug the leak have thus far failed.
Owner Equitrans Midstream said the well at its Rager Mountain storage facility, located in a rural area about 1.5 hours east of Pittsburgh, is venting about 100 million cubic feet of natural gas per day, according to initial estimates.
If accurate, that would total 1.1 billion cubic feet in emissions so far, equal to the greenhouse gas emissions from burning 1,080 rail cars of coal.
Pennsylvania environmental regulators issued the company notice of five potential violations of state law. As a precaution, the Federal Aviation Administration has restricted aircraft from within a 1-mile radius of the leaking well.
A written statement provided Friday by Equitrans spokeswoman Natalie Cox said “there are no immediate public safety concerns” and the company has been working with a specialty well services company to plug the leak, which was first reported Nov. 6.
The Rager facility is in Jackson Township, at the heart of the Marcellus Shale formation that has seen a boom in gas production since the introduction of hydraulic fracturing more than a decade ago. Residents living as far as four miles away from the leak told The Associated Press on Friday they could hear the roar of pressurized gas escaping from the well and could smell the fumes.
Tracey Ryan, who homeschools her two young children at her house about three miles away, said the air reeks of sulfur and the noise is so bad she has had trouble sleeping.
“When you’re laying in bed at night, it sounds like a jet plane taking off,” said the 39-year-old mother. ”It’s unreal, the noise that’s coming, and it’s constant. … Everybody just keeps telling us we’re safe. But it doesn’t feel safe if you can hear it and smell it.”
Methane, the primary component of natural gas, is colorless and odorless. But when the gas is processed for transport and sale, producers add a chemical called mercaptan to give it a distinctive “rotten egg” smell that helps make people aware of leaks.
Methane’s earth-warming power is some 83 times stronger over 20 years than the carbon dioxide that comes from car tailpipes and power plant smokestacks. Oil and gas companies are the top industrial emitters of methane, which, once released into the atmosphere, will be disrupting the climate for decades, contributing to more heat waves, hurricanes, wildfires and floods.
The new leak comes as the Environmental Protection Agency on Nov. 11 updated proposed new rules intended to cut methane and other harmful emissions from oil and gas operations.
The Rager facility has 10 storage wells with a total storage capacity of 9 billion cubic feet of natural gas. Equitrans announced Thursday the leak had been stopped when workers flooded the leaking well, but the hiss of venting gas returned early Friday morning.
Cox cautioned the estimate of 100 million cubic feet of natural gas leaking per day is preliminary and the company would be unable to provide an accurate account of the gas lost until an inventory verification study is completed.
The initial estimate would potentially put the Rager leak as smaller but comparable to the daily emissions from the worst uncontrolled gas leaks in U.S. history — a 2018 blowout at an Ohio gas well owned by a subsidiary of ExxonMobil and the 2015 disaster at the Aliso Canyon storage facility in California.
The citations issued against the company by the Pennsylvania Department of Environmental Protection include failures to properly maintain and operate the gas facility, creating a public nuisance and producing a “hazard to public health a safety.” The company was also cited for failing to provide state inspectors “free and unrestricted access.”
Lauren Camarda, spokeswoman for the state environmental agency, said that when members of a state emergency response team first arrived at the site on Nov. 7 they were initially barred from entering and told “access was restricted to critical personnel only.”
Cox said that when the state team arrived, Equitrans’ contractors were still in the process of implementing a safety boundary to avoid introducing a potential ignition source that could ignite the highly flammable methane leaking into the air.
The gas is coming from a vent designed to relieve intense pressures building up in the well and prevent a blowout. Cox said the company is now withdrawing gas from four storage wells to reduce the overall pressure in the field. Efforts to plug the leak were expected to continue through the weekend, including attempts to plug the well with concrete.
Nearby residents said a resolution can’t come soon enough.
Edana Glessner, who runs a wedding venue 3.6 miles from the well site, said the smell was making her nauseous and impacted her business.
“You could hear it during the last wedding we had,” she said. “And it smelled, but everybody was OK with it. We said we’re really sorry.”
Biesecker reported from Washington and Rubinkam from northeastern Pennsylvania.
Twitter risks fraying as engineers exit over Musk upheaval
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Elon Musk’s managerial bomb-throwing at Twitter has so thinned the ranks of software engineers who keep the world’s de-facto public square up and running that industry insiders and programmers who were fired or resigned this week agree: Twitter may soon fray so badly it could actually crash.
Musk ended a very public argument with nearly two dozen coders over his retooling of the microblogging platform earlier this week by ordering them fired. Hundreds of engineers and other workers then quit after he demanded they pledge to “extremely hardcore” work by Thursday evening or resign with severance pay.
The newest departures mean the platform is losing workers just at it gears up for the 2022 FIFA World Cup, which opens Sunday. It’s one of Twitter’s busiest events, when tweet surges heavily stress its systems.
“It does look like he’s going to blow up Twitter,” said Robert Graham, a veteran cybersecurity entrepreneur. “I can’t see how the lights won’t go out at any moment” — although many recently departed Twitter employees predicted a more gradual demise.
Hundreds of employees signaled they were leaving ahead of Thursday’s deadline, posting farewell messages, a salute emoji or other familiar symbols on the company’s internal Slack messaging board, according to employees who still have access. Dozens also took publicly to Twitter to announce their departure.
Earlier in the week, some got so angry at Musk’s perceived recklessness that they took to Twitter to insult the Tesla and Space X CEO. “Kiss my ass, Elon,” one engineer said, adding lipstick marks. She had been fired.
Twitter leadership sent an unsigned email after Thursday’s deadline saying its offices would be closed and employee badge access disabled until Monday. No reason was given, according to two employees who got the email— one who took the severance, one still on payroll. They spoke on condition of anonymity, fearing retribution.
A trusted phalanx of Tesla coders at his side as he ransacked a formerly convivial workspace, Musk didn’t appear bothered.
“The best people are staying, so I’m not super worried,” he tweeted Thursday night. But it soon became clear some crucial programming teams had been thoroughly gutted.
Indicating how strapped he is for programmers, Musk sent all-hands emails Friday summoning “anyone who actually writes software” to his command perch on Twitter’s 10th floor at 2 p.m. — asking that they fly into San Francisco if not local, said the employee who quit Thursday but was still receiving company emails.
After taking over Twitter less than three weeks ago, Musk booted half of the company’s full-time staff of 7,500 and an untold number of contractors responsible for content moderation and other crucial efforts. Then came this week’s ultimatum.
Three engineers who left this week described for The Associated Press why they expect considerable unpleasantness for Twitter’s more than 230 million users now that well over two-thirds of Twitter’s pre-Musk core services engineers are apparently gone. While they don’t anticipate near-term collapse, Twitter could get very rough at the edges — especially if Musk makes major changes without much off-platform testing.
Signs of fraying were evident before Thursday’s mass exit. People reported seeing more spam and scams on their feeds and in their direct messages. Engineers reported dropped tweets. People got strange error messages.
Still, nothing critical has broken. Yet.
“There’s a betting pool for when that happens,” said one of the engineers, all of whom spoke on condition of anonymity for fear of retaliation from Musk that could impact their careers and finances.
Another said that if Twitter has been shutting servers and “high volume suddenly comes in, it might start crashing.”
“World Cup is the biggest event for Twitter. That’s the first thing you learn when you onboard at Twitter,” he said.
With the earlier layoffs of curation employees, Twitter’s trending pages were already suffering. The engineering fireworks began Tuesday when Musk announced on Twitter that he had begun shutting down “microservices” he considered unnecessary “bloatware.”
“Less than 20% are actually needed for Twitter to work!” he tweeted.
That drew objections from engineers who told Musk he had no idea what he was talking about.
“Microservices are how most modern large web services organize their code to allow software engineers to work quickly and efficiently,” said Gergely Orosz, author of the Pragmatic Engineer blog and a former Uber programmer. There are scores of such services and each manages a different feature. Instead of testing the removal of microservices in a simulated real-world environment, Musk’s team has apparently been updating Twitter live on everyone’s computers.
And indeed, one microservice briefly broke — the one people use to verify their identity to Twitter via SMS message when they log in. It’s called two-factor authentication.
“You have hit the limit for SMS codes. Try again in 24 hours,” Twitter advised when a reporter tried to download their microblogging history archive. Luckily, the email verification alternative worked.
One of the newly separated Twitter engineers, who had worked in core services, told the AP that engineering team clusters were down from about 15 people pre-Musk — not including team leaders, who were all laid off — to three or four before Thursday’s resignations.
Then more institutional knowledge that can’t be replaced overnight walked out the door.
“Everything could break,” the programmer said.
It takes six months to train someone to work an on-call rotation for some services, the engineers said. Such rotations require programmers to be available at all hours. But if the person on call is unfamiliar with the code base, failures could cascade as they frantically plow through reference manuals.
“If I stayed I would have been on-call constantly with little support for an indeterminate amount of time on several additional complex systems I had no experience in,” tweeted Peter Clowes, an engineer who took the severance.
“Running even relatively boring systems takes people who know where to go when something breaks,” said Blaine Cook, Twitter’s founding engineer, who left in 2008. It’s dangerous to drastically reduce a programming workforce to a skeleton crew without first bulletproofing the code, he said.
“It’s like saying, ‘These firefighters aren’t doing anything. So, we’ll just fire them all.’”
The engineers also worry Musk will shut down tools involved in content moderation and removing illicit material that people upload to Twitter — or that there simply wouldn’t be enough people on staff to run them properly.
Another concern is hackers. When they’ve breached the system in the past, diminishing damage depends on detecting them quickly and kicking them out.
It’s not clear how Musk’s housecleaning at Twitter has affected its cybersecurity team, which suffered a major PR black eye in August when the highly respected security chief fired by the company earlier this year, Peiter Zatko, filed a whistleblower complaint claiming the platform was a cybersecurity shambles.
“So much of the security infrastructure of a large organization like Twitter is in people’s heads,” said Graham, the cybersecurity veteran. “And when they’re gone, you know, it all goes with them.”
AP Technology Writer Matt O’Brien contributed to this report.
High energy prices lead to coal revival in Czech Republic
Updated
OSTRAVA, Czech Republic (AP) — In this part of northeastern Czech Republic, huge piles of coal are stacked up ready to sell to eager buyers and smoke belches from coal-fired plants that are ramping up instead of winding down.
Ostrava has been working for decades to end its legacy as the most polluted area of the country, transitioning from an industrial working-class stronghold to a modern city with tourist sights. But Russia’s war in Ukraine has triggered an energy crisis in Europe that as paved the way for coal’s comeback, endangering climate goals and threatening health from increased pollution.
Households and businesses are turning to the fuel once considered obsolete as they seek a cheaper option than natural gas, whose prices have surged as Russia slashed supplies to Europe.
Demand for brown coal — the cheapest and most energy inefficient form — used by Czech households jumped by almost 35% in the first nine months of 2022 over a year earlier.
In the same period, production rose more than 20%, the first increase after an almost continuous, decadeslong decline, the Czech Industry and Trade Ministry said.
“We’re worried,” said Zdenka Němečková Crkvenjaš, who is responsible for environment as a member the governing council of the Moravian-Silesian region. “If the prices won’t go down, what might happen is that we’ll be facing an increased pollution.”
The region is part of the Upper Silesian Coal Basin, a large industrialized area straddling the Czech-Polish border with rich deposits of coal and factories producing steel, power and the type of coal used for steel-making that date to the 19th century.
A combination of burning coal for residential heating and industrial plants resulted in “catastrophic” air pollution at the end of the communist era in 1989, said Petr Jančík from Technical University Ostrava, an air pollution expert who cooperated on the Air Tritia project that recently produced an online model of the polluted air on the Czech-Polish-Slovak border.
Coal-fired power is not only disastrous for climate, it’s also a health hazard, releasing heavy particle emissions, nitrogen oxides and mercury, which contaminates fish in lakes and rivers.
A decline of industrial and mining activities and advent of new environmental standards after the Czech Republic joined the European Union in 2004 vastly improved air quality.
But big challenges remain.
Airborne dust emissions — PM10 particles — now meet environmental limits in the region, but concentrations of smaller PM2.5 particles that can reach deep into the lungs and bloodstream still do not hit World Health Organization standards.
A 2021 study of more than 800 European cities by Spain’s Barcelona Institute for Global Health, or ISGlobal, puts the regional capital of Ostrava and the nearby towns of Karviná and Havířov among the top 10 most polluted European cities. It estimated that 529 deaths a year could be avoided in those three cities if air quality guidelines are met.
Burning coal also spews the dangerous substance benzo(a)pyrene, whose levels are still high despite government programs that pay to replace old furnaces with more effective ones that reduce pollution.
Some 50,000 furnaces still need to be replaced in the Ostrava region, said Němečková Crkvenjaš, estimating that figure at 500,000 in a more populated and polluted area across the border in Poland.
“I’m afraid this winter won’t be ideal as far the air pollution is concerned,” she said. “I’ll be delighted if I’m wrong.”
Roman Vank, a board member for coal seller Ridera in Ostrava, said coal sales went up some 30% compared with last year. The cheapest form — brown coal — was most in demand.
Jančík, the scientist, said the impact to air quality is hard to predict right away, especially if it’s another mild winter, and that pollution “might get only slightly worse.”
He said a positive development is that high natural gas and electricity prices force people to acquire solar panels, more effective heating systems and try to become less dependent on sources of energy.
“There are two opposing trends: The first one is that people have been trying to use better and more efficient furnaces, and the second one is they consider using more coal and wood,” Jančík said. “That’s perhaps a result of a shock or worries, and they want to get supplies ready.”
Czech Greenpeace spokesman Lukáš Hrábek expected a negative impact in the near future.
“We see conflicting trends right now. We see higher coal consumption, but at the same time, we see a massive investment in renewable energies, in heat pumps, in insulation,” Hrábek said. “So it’s hard to say what the long-term effect will be, but the short-term effect is quite obvious, the air pollution will be worse because of the higher coal consumption.”
In another sign of coal’s revival, the Czech Republic has reversed plans to completely halt mining near Ostrava to help safeguard power supplies amid the energy crunch.
The state-owned OKD company will extend its mining activities in in the Ostrava region until at least the end of next year, citing “enormous” demand. It will be mostly used for generating power and household heating, with coal-fired power plants producing almost 50% of the country’s electricity.
The decision came after the European Union agreed to ban Russian coal starting in August over the war in Ukraine and as it works to reduce the bloc’s energy ties to Russia.
The Czech government aims to phase out coal in energy production by 2033 and increase its reliance on nuclear power.
Follow AP’s climate and environment coverage at https://apnews.com/hub/climate-and-environment
Barbados spearheads push on climate disaster financing
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SHARM EL-SHEIKH, Egypt (AP) — At the U.N. climate summit in Egypt, leaders of developing nations have repeatedly said it’s not fair to expect them to cover the costs of rebuilding from devastating weather events in a warming world, plus invest in cleaner industry while they also pay much higher interest rates on loans than rich nations.
A plan put forward by Barbados Prime Minister Mia Mottley would overhaul the way much of development lending works. It is also giving voice to developing nations struggling under rising debt from climate damage.
“We were the ones whose blood, sweat, and tears financed the Industrial Revolution,” Mottley said in a scathing address. “Are we now to face double jeopardy by having to pay the cost as a result of those greenhouse gases from the Industrial Revolution?”
Debt has been growing in developing countries, sapping funds for education, health and clean energy. Much of the increase in debt in some Caribbean countries is related to extreme storms, Mottley said in a recent essay. The plan would make it easier for countries in the Caribbean, Latin America, Africa and Asia to get funds to beef up defenses against warming and put off debt payments when disasters strike.
Here’s a look at the Barbados plan, dubbed the Bridgetown Initiative for the island nation’s capital. Advocates say it could be a pathway to unlocking $1 trillion in climate financing.
THE BIG IDEA
The plan calls for special loan clauses that allow for suspending payments when a country is hit by a natural disaster or pandemic. That would immediately free up millions of dollars for governments to spend on relief and rebuilding. Barbados has been a pioneer in such clauses, last month issuing its first sovereign bond with a provision allowing for payments to creditors to be deferred for up to two years if the country experiences a “pre-defined natural disaster.”
The initiative includes a push to expand lending by international development banks such as the World Bank. The bank and its sister institution, the International Monetary Fund, were set up after the Second World War with the aim of financing reconstruction and reducing poverty. The power of rich countries such as the United States and Germany is built into the institutions. But the World Bank in particular has been criticized for being too risk averse in lending. The Barbados plan would change risk ratings, crucially lowering interest rates.
Another idea is setting up a Climate Mitigation Trust backed by $500 billion worth of Special Drawing Rights, dues that member countries pay in to the IMF that can be drawn in times of crisis. Much of it is held by countries that don’t need it, said Avinash Persaud, Mottley’s special envoy for climate. The trust could be used to borrow a further $500 billion from the private sector that could be lent out at low rates for investment in big climate mitigation infrastructure projects. Up to $5 trillion in private financing could be unlocked this way, the plan’s architects say.
Other proposals include a levy on fossil fuel production or an international carbon border tax.
CREDITWORTHY
Mottley’s plan takes aim at a central problem: Poorer nations face much steeper borrowing costs.
When most wealthy countries borrow money, they pay 1 to 4% in interest, while countries in the so-called Global South face rates of 12-14%, Mottley told reporters.
“You begin to see the disparity,” Mottley said. “The system is broken.”
Following World War II, she said, victorious Allied nations agreed to cap Germany’s debt costs so that it could rebuild. Britain refinanced its First World War debt, paying off the last of it only in 2014.
“We are simply saying in the developing world that we also need the space to be able to finance our development in the case of climate,” Mottley said. Wealthy nations account for four fifths of global greenhouse gas emissions.
Hanan Morsy, chief economist at the U.N. Economic Commission for Africa, told The Associated Press that a number of the Bridgetown Initiative’s ideas also have been advanced by African finance ministers. He pointed out another financial inequity: The green bond market which helps finance environmental projects has reached $500 billion, but only one percent reaches Africa.
RICH NATIONS
Mottley first unveiled her idea at the COP26 meeting a year ago in Glasgow, Scotland. Over the summer she and Persaud convened economists, other academics and civil society groups to work on it.
Now, she said, momentum for her ideas is gathering.
French president Emmanuel Macron was the first leader from a rich country to give his backing.
“We need a huge financial shock of concessional financing,” Macron said in a speech at the opening of COP27. “We must change the rules, the rules of our major international banks, the development banks, the IMF and the World Bank,” he said. “We can’t wait for the next COP.”
To support Mottley’s plan, “a group of wise minds at the highest level” has been set up, tasked with drawing up climate financing solutions by spring 2023, when the World Bank and the International Monetary Fund hold their annual meetings, Macron said.
As climate-amped disasters ratchet up the suffering, the staid international system for finance designed for an earlier age may be on the brink of change, driven by those on the front lines.
Germany, the World Bank’s fourth largest shareholder, has been among those pushing for “fundamental reform,” including “climate lending on better terms.” Federal Reserve chief Janet Yellen said multilateral development banks need to “evolve” and move beyond their traditional work of poverty reduction to tackle climate and other complex global challenges.
Wanjohi Kabukuru contributed to this report.
Follow AP’s climate and environment coverage at https://apnews.com/hub/climate-and-environment
Associated Press climate and environmental coverage receives support from several private foundations. See more about AP’s climate initiative here. The AP is solely responsible for all content.
Russian strikes force Ukraine to face hours-long power cuts
Updated
KYIV, Ukraine (AP) — Ukraine’s electricity grid chief warned of hours-long power outages Friday as Russia zeroed in on Ukraine’s energy infrastructure with heavy artillery and missile attacks that have interrupted supplies to as much as 40% of the country’s people at the onset of winter.
Freezing temperatures are putting additional pressure on energy networks, grid operator Ukrenergo said.
“You always need to prepare for the worst. We understand that the enemy wants to destroy our power system in general, to cause long outages,” Ukrenergo’s chief executive Volodymyr Kudrytskyi told Ukrainian state television. “We need to prepare for possible long outages, but at the moment we are introducing schedules that are planned and will do everything to ensure that the outages are not very long.”
The capital of Kyiv is already facing a “huge deficit in electricity,” Mayor Vitali Klitschko told The Associated Press. Some 1.5 million to 2 million people — about half of the city’s population — are periodically plunged into darkness as authorities switch electricity from one district to another.
“It’s a critical situation,” he said.
Klitschko added that Russian President Vladimir Putin’s military planners apparently are hoping “to bring us, everyone, to depression,” to make people feel unsafe and “to think about, ‘Maybe we give up.’” But it won’t work, he said.
“It’s wrong, it’s (a) wrong vision of Putin,” he said. “After every rocket attack, I talk to the people, to simple civilians. They (are) not depressed. They were angry, angry and ready to stay and defend our houses, our families and our future.”
Kudrytskyi added that the power situation at critical facilities such as hospitals and schools has been stabilized.
Those facilities were targeted overnight in the northeastern Kharkiv region, where energy equipment was damaged, according to governor Oleh Syniehubov. Eight people including energy crews and police were injured trying to clear up the debris, he said.
Moscow’s attacks on Ukraine’s energy and power facilities have fueled fears of what the dead of winter will bring. Ukraine’s energy infrastructure had again been targeted Thursday, two days after Russia unleashed a nationwide barrage of more than 100 missiles and drones that knocked out power to 10 million people.
Those attacks have also affected neighboring countries like Moldova, where a half-dozen cities across that country experienced temporary blackouts.
In the past 24 hours, Russian forces unleashed the breadth of their arsenal to attack Ukraine’s southeast, employing drones, rockets, heavy artillery and warplanes that killed at least six civilians and wounded six others, the president’s office said.
In the Zaporizhzhia region, part of which remains under Russian control, artillery pounded 10 towns and villages. The death toll from a Russian rocket attack on a residential building in the city of Vilniansk on Thursday climbed to 10 people, including three children.
In Nikopol, located across the Dnieper River from the Zaporizhzhia Nuclear Power Plant, 40 Russian missiles damaged several high-rise buildings, homes and a power line.
In the wake of its humiliating retreat from the southern city of Kherson, Moscow intensified its assault on the eastern Donetsk region, where Russia’s Defense Ministry said Friday its forces took control of the village of Opytne and repelled a Ukrainian counteroffensive to reclaim the settlements of Solodke, Volodymyrivka and Pavlivka.
The city of Bakhmut, a key target of Moscow’s attempt to seize the whole region of Donetsk, remains the scene of heavy fighting, the regional governor said.
The Russian Defense Ministry also said Ukrainian troops were pushed back from Yahidne in Ukraine’s eastern Kharkiv province, and Kuzemivka in the neighboring Luhansk province. Donetsk and Luhansk were among the four Ukrainian provinces illegally annexed by Moscow in September, together with Kherson and Zaporizhzhia.
At the same time, Moscow is fortifying its defenses in the southern region to thwart further Ukrainian advances. Russian troops have built new trench systems near the border of Crimea, as well as near the Siversky-Donets River between Donetsk and Luhansk Oblasts, according to a British Ministry of Defense report.
Meanwhile, Ukrainian and international investigators were forging ahead on uncovering suspected war crimes committed by Russian forces during the Kharkiv region’s near seven-month occupation. Ukraine’s National Police said Friday that its officers had initiated over 3,000 criminal proceedings against Russian troops.
Reports of torture and other atrocities committed by Russian troops have also emerged from the southern Kherson region, where Ukrainian officials said they have opened more than 430 war crimes cases and are investigating four alleged torture sites.
Alesha Babenko, a 27-year-old from the village of Kyselivka said he was arrested by the Russians in September and locked in a basement, then beaten daily while bound, blindfolded and threatened with electric shocks.
“I thought I was going to die,” he told the AP.
On Friday, Russian officials denounced videos that appeared on social media that purportedly show Ukrainian troops executing Russian soldiers. Russia said the videos were recorded in Ukraine’s eastern Luhansk region, which is almost entirely under Russian control.
“We demand international organizations to condemn this egregious crime, to conduct a thorough investigation of it,” Foreign Ministry spokeswoman Maria Zakharova said. Russia’s human rights council said it had sent the videos to the U.N. High Commissioner for Human Rights, Amnesty International and other international organizations.
Earlier this week, the head of the Matilda Bogner, head of the UN Human Rights Monitoring Mission in Ukraine, Matilda Bogner, said the mission had investigated torture of prisoners on both sides of the conflict.
“We have received credible allegations of summary executions of persons hors de combat and several cases of torture and ill-treatment, reportedly committed by members of the Ukrainian armed forces,” Bogner said.
The recapture of Kyselivka after Russia’s withdrawal last week has sparked hopes in neighboring Mykolaiv province that they will once again have tap water, which was switched off after the village fell into Russian hands. But Mykolaiv administrator Vitali Kim predicted Friday that could take several weeks.
Hungry and cold, Kherson residents lined up Friday for food from a charity, with many saying they had nothing to eat and had no heat or electricity. Residents were further shaken after a missile struck the fourth floor of an apartment building, reminding them that the Russian occupation may be over but not the danger from Russian missiles.
“There was an explosion … it was very scary. We cannot calm down,” said Tatiana Kruvorchko, who lived in the building.
Despite the tremendous hardships across Ukraine, one hopeful sign emerged with the news that the first train from Kyiv to Kherson would be departing Friday night. Ukraine’s state rail network Ukrzaliznytsia said 200 passengers will travel on the train – the first in nine months.
Dubbed the “Train to Victory,” the train’s carriages were painted in eclectic designs by Ukrainian artists and the tickets were sold as part of charity project.
Follow the AP’s coverage of the war at https://apnews.com/hub/russia-ukraine
US bid to kill American-JetBlue partnership goes to judge
Updated
Airline lawyers and the Justice Department delivered starkly contrasting views of an alliance between American Airlines and JetBlue during closing arguments Friday in a case that will test the Biden administration’s aggressive enforcement of antitrust laws.
The partnership lets American and JetBlue coordinate schedules and share revenue on many routes to and from New York and Boston, which the government argued will cost consumers hundreds of millions of dollars a year in higher fares.
“It is a very important case to us … because of those families that need to travel and want affordable tickets and good service,” Justice lawyer Bill Jones said in federal district court in Boston.
Lawyers for the airlines said the partnership has spawned new routes that are good for travelers. They argued that during a monthlong trial, the government failed to show any evidence that the deal has hurt consumers.
“It’s all just an idea,” said Daniel Wall, a lawyer for American.
When attorneys finished their arguments, U.S. District Judge Leo Sorokin said he is still reading material hundreds of pages of material submitted this week by both sides. A decision is likely weeks away.
The government’s case is intuitive — that two big airlines working together instead of competing will reduce choices for consumers and lead to higher fares. The lawsuit, joined by six states and the District of Columbia, is also speculative, however.
The case will come down to the judge’s reading of antitrust law, and his judgment about whether the government presented enough evidence to kill the partnership, which the airlines have been rolling out since early 2021.
Looming over the trial is JetBlue’s proposal to buy Spirit Airlines, the nation’s biggest discount carrier, for $3.8 billion. Spirit Airlines shareholders voted last month to approve the sale despite JetBlue declining Spirit’s request to drop its partnership with American in order to reduce regulatory risk.
The trial featured testimony by current and former airline CEOs and economists who differed wildly on the impact that the alliance will have on competition and ticket prices.
The U.S. Transportation Department approved the alliance 10 days before the end of the Trump administration. Soon after President Joe Biden took office, however, there were rumblings that the Justice Department was taking a closer look, and it sued to kill the deal in September 2021.
The case is a test of the Biden administration’s resolve to take on mergers and other business arrangements that it believes stifle competition and cost consumers more money.
“The Justice Department has a very good case,” said Florian Ederer, an antitrust expert and economics professor at Yale University who has followed the matter. “The NEA does harm competition, it probably harms consumers. (American) has eliminated a disruptive competitor, a maverick.”
The stakes are even higher because the Justice Department is coming off two losses in big antitrust cases this fall. It failed to stop a merger of sugar refiners and couldn’t block a major acquisition in the health insurance industry.
Robert Britton, a former American Airlines executive who teaches marketing at Georgetown University, said the government was acting too hastily — before any harm from the alliance is clear.
“They’re saying, ‘You haven’t done anything wrong so far, but you might in the future, so we’re going to arrest you now,’” Britton said.
American and JetBlue say the alliance is already helping them compete against Delta Air Lines and United Airlines in two critical markets. Their experts testified that by taking on entrenched rivals, the American-JetBlue deal will save consumers up to $635 million a year.
American’s chief commercial officer, Vasu Raja, testified that before the alliance, the company trailed its two big rivals in the Northeast. He said that American flew nonstop to only 31 of the top 50 destinations out of New York. Now it flies to 47 of them and is working on the other three. Raja added that by coordinating their schedules, additional passengers from JetBlue made it possible for American to offer new international routes, such as to Tel Aviv.
Government lawyers tried at several times during the trial to use previous comments by American and JetBlue executives, including times when JetBlue CEO Robin Hayes criticized joint ventures involving other airlines. Hayes testified this deal is different because American and JetBlue still set their own prices.
Executives of rivals Southwest Airlines and Spirit Airlines testified that the partnership has created unfair competition for low-cost carriers that also want to grow in New York and Boston.
Each side called economists to bolster its case. A Georgetown University professor, Nathan Miller, concluded that the partnership will reduce competition and cost consumers nearly $700 million a year in higher prices. An aviation consultant called by the airlines, Darin Lee, tried to poke holes in Miller’s analysis, saying for example that he had largely ignored nearby Newark, New Jersey — dominated by United — in measuring American’s and JetBlue’s concentration in the New York market.
Judge Sorokin was nominated by President Barack Obama in 2013 and confirmed by the Senate 91-0. Sorokin played an active role during the trial, interrupting lawyers to ask questions of the witnesses as he tried to understand idiosyncrasies of the industry, including how airlines set fares.
The judge was careful during the trial not to indicate if he leaned one way or the other. Whenever he rules, his decision is likely to be appealed by the losing side.
New measures for size, as world’s people surpass 8 billion
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PARIS (AP) — What is bigger: A ronna or a quetta?
Scientists meeting outside of Paris on Friday — who have expanded the world’s measuring unit systems for the first time this century as the global population surges past 8 billion — have the answer.
Rapid scientific advances and vast worldwide data storage on the web, in smartphones and in the cloud mean that the very terms used to measure things in weight and size need extending too. And one British scientist led the push Friday to incorporate bold new, tongue-twisting prefixes on the gigantic and even the minuscule scale.
“Most people are familiar with prefixes like milli- as in milligram. But these are prefixes for the biggest and smallest levels ever measured,” Dr Richard Brown, head of Metrology at the U.K.’s National Physical Laboratory who proposed the four new prefixes, told The Associated Press.
“In the last 30 years, the datasphere has increased exponentially, and data scientists have realized they will no longer have words to describe the levels of storage. These terms are upcoming, the future,” he explained.
There’s the gargantuan “ronna” (that’s 27 zeros after the one) and its big brother the “quetta” – (that’s 30 zeros).
Their ant-sized counterparts are the “ronto” (27 zeros after the decimal point), and the “quecto” (with 30 zeros after the decimal point) — representing the smaller numbers needed for quantum science and particle physics.
Brown presented the new prefixes to officials from 64 nations attending the General Conference on Weights and Measures in Versailles, outside of Paris — who approved them on Friday.
The conference, which takes place every four years in France, is the supreme authority of the International Bureau of Weights and Measures. The new terms take effect immediately, marking the first time since 1991 that any new additions have been made.
Brown said the new terms also make it easier to describe things scientists already know about — reeling off a list of the smallest and biggest things discovered by humankind.
Did you know that the mass of an electron is one rontogram? And that a byte of data on a mobile increases the phone’s mass by one quectogram?
Further from home, the planet Jupiter is two just quettagrams in mass. While, incredibly, “the diameter of the entire observable universe is just one ronnameter,” Brown said.
He explained how the new names were not chosen at random: The first letter of the new prefixes had to be one not used in other prefixes and units.
“There were only the letters ‘r’ and ‘q’ that weren’t already taken. Following that, there’s a precedent that they sound similar to Greek letters and that big number prefixes end with an ‘a’ and smaller numbers with an ‘o,’” he added.
“It was high time. (We) need new words as things expand,” Brown said. “In just a few decades, the world has become a very different place.”
With Twitter in chaos, some ways to protect your account
Updated
Twitter is in chaos. Elon Musk, its new owner, has decimated its staff and this week gave those remaining an ultimatum — work grueling hours and be “extremely hardcore ” or leave. Hundreds chose the latter and headed for the door.
There are already signs that the exodus is stressing the system. Some users noticed problems receiving texts to sign in with two-step verification. Test pages are showing up in the wild. Some users are seeing a renewed barrage of spam in direct messages and on their feed, while others complain of receiving new replies to long-deleted tweets and seeing saved tweet drafts disappear. Still, the bird site is chugging along.
Twitter won’t simply shut down overnight. But security experts warn that the drastic job cuts may open the door to bad actors exploiting the platform’s vulnerabilities and compromising user accounts.
While there’s not much you can do about Musk’s on-the-fly teardown of one of the world’s key online information ecosystems, there are steps to protect your account if you, like millions of other Twitter users, are not ready to fly the coop in search for an alternative.
ENABLE MULTI-STEP AUTHENTICATION
If you only use your login and password to sign in to Twitter, it’s important, especially now, to add an extra step to the process so it becomes more difficult for hackers to access your account.
Twitter has three methods to choose from: text message, an authentication app or a security key. Since there have been some glitches with users not receiving text messages to authenticate their accounts, and because it is generally considered a safer option, using the authentication app is probably your best bet.
To do this, you will need to download one of a number of available applications to your device. They are free in the Apple or Android app stores and some examples include Google or Microsoft Authenticator, Authy, Duo Mobile and 1Password.
Once you have the app, open the desktop version of Twitter and click on the icon showing ellipses in a circle. There, you’ll find “Settings and privacy” then “Security and account access” and finally, “Security.” Here, you can select “Authentication app” and follow the instructions to set it up. Twitter will ask you to share your email address to do this, if you have not already.
Once you are all set, you can use the auto-generated numeric codes from your authentication app to add an extra layer of security when logging in to Twitter.
SHUT DOWN THIRD-PARTY ACCESS
Jane Manchun Wong, an independent software and security researcher in Hong Kong who follows Twitter closely, recommends revoking permissions to third-party sites and apps through your Twitter account.
That’s because if there is a potential security problem with Twitter’s API (or Application Programming Interface, which lets third parties access Twitter data to create apps that work with Twitter, for instance) with fewer people working at the company, patching it up will inevitably take longer.
To turn off this feature, start in the “Security and account access” tool and go to “Apps and sessions.” Here, you should find all the third-party apps that have are connected to your Twitter account — including some you may have linked years ago that no longer exist — and you can revoke access to each one.
DOWNLOAD YOUR ARCHIVE
For the nostalgic, for research or for the digital hoarders among us, the idea of losing a decade or more of our tweet history is a catastrophe. Fear not, though. It might take some time, but you can download your Twitter “archive” if you’d like to ensure it’s preserved — just in case.
As with other more complex features, this tool is only available on the desktop version of Twitter, in the “Your account” section of settings. You will have to enter your password again and go through two-factor authentication if you have that set up. When your archive is ready to download, you will get a notification on Twitter. Again, you will have to download it on the desktop version of the site. While normally this process takes about 24 hours, it may take longer now. Some users have also reported having to try more than once.
PRESERVE YOUR FOLLOWERS LIST
While there’s no perfect replacement for Twitter — and of course Twitter is still here! — many users, especially those in journalism, tech and academia, are signing up for Mastodon, a previously little-known platform that launched in 2016. Mastodon is a decentralized social network. That means it’s not owned by a single company or billionaire. Rather, it’s made up of a network of servers, each run independently but able to connect so people on different servers can communicate. Signing on can be complicated — you will need to pick a “server” to join, but regardless of which one you choose, you can still communicate with people on other servers, kind of like how you can email people from your Gmail account even if they are on Outlook or another email server.
Once you’re in, you can go to fedifinder.glitch.me and find your Twitter following or any Twitter lists you might have to see if they also have Mastodon accounts. Many Twitter users are also listing other social networks and content information in their bios or even Twitter display names so people can get in touch with them — just in case.