TikTok takes its fight to court
TikTok fired the latest attack in its battle with Washington, suing to block a law that could force the company to split from ByteDance, its Chinese owner, or face a ban in the US.
The company argues that the law violates the First Amendment by effectively taking down an app in the US that millions of Americans use to share their views. Another problem: a divestment within 270 days is virtually impossible, report Sapna Maheshwari and David McCabe for The Times.
DealBook spoke with Maheshwari about the lawsuit filed yesterday and what’s coming next.
Do legal experts think TikTok has a chance of winning?
It could go either way.
Alan Rozenshtein, an associate professor at the University of Minnesota Law School, says a victory is possible based on the “very, very substantial First Amendment challenge” it entails. But he emphasized that it is not a certainty.
The government can justify infringing on First Amendment rights in certain cases, especially in matters of national security, and also offered ByteDance the option of selling the app.
How does the lawsuit address the allegation that TikTok is a national security risk?
TikTok has always said it has spent billions on a security plan that has addressed government concerns. But it also shared a small surprise in its filing: The company said it had agreed to offer the U.S. government a kill switch that would shut down the app if it violates the terms of a draft national security agreement.
In a separate case, a Montana federal judge blocked a state ban on the app. Does that tell us anything about what could happen this time?
The judge in the Montana case said the ban most likely violated the First Amendment. He also said it violated a clause that gives Congress the power to regulate trade with other countries, but that’s not relevant here, since Congress passed the bill last month.
TikTok challenged the Montana law and funded a separate lawsuit by creators who use the platform. A second lawsuit from TikTok users is likely to be filed in the coming weeks.
THIS IS WHAT’S HAPPENING
Investigation Finds FDIC Has Toxic, Misogynistic Work Culture. Discrimination, bullying and sexual harassment are rife at the agency, according to a report released yesterday. The findings essentially corroborated the report published by The Wall Street Journal last year and put more pressure on his president, Martin Gruenberg, even though she did not call for his resignation or his ouster.
The NFL is said to be closer to allowing private equity firms to become team owners. They could buy up to 30 percent of an NFL franchise under proposals being discussed, Bloomberg reports. Team owners are expected to present the potential change in ownership guidelines at meetings this month.
Washington revokes some export licenses for chips made in the United States to Huawei. The move means Intel and Qualcomm would be banned from supplying chips that the Chinese telecommunications firm uses in its laptops and mobile phones, The Financial Times reports.
Stormy Daniels reveals explicit details of her relationship with Donald Trump. The porn star testified for nearly five hours yesterday in the hush money case about a date with Trump that is at the center of the case; She is expected to return to the stand tomorrow. But the former president got better news in Florida, where a federal judge indefinitely postponed his classified documents case, handing him a potentially pivotal victory.
Exchange for FTX
The FTX collapse appears to be about to have a happy ending for the failed crypto exchange’s millions of customers: the company said it planned to refund all their money, with interest.
It is a rare moment when a bankrupt company compensates its creditors. But he also raises a question: Was Sam Bankman-Fried, the former FTX leader who was sentenced to 25 years in prison for stealing billions from customers, right when he said he could pay them back?
Creditors have been optimistic that this will happen, since John Ray III, who became CEO of FTX after it filed for Chapter 11 protection, floated the idea this year. Even before that, speculative bets on FTX’s bankruptcy claims (some bought for pennies on the dollar) had become a hot investment.
Yesterday’s news also helped fuel a 37 percent rise in the price of FTX’s crypto token, FTT, amid a broader rally in crypto assets and Bitcoin.
There are some caveats:
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Customers will recover only what they were owed in November 2022, when FTX filed for bankruptcy, plus interest. That means they won’t benefit from the huge jump in cryptocurrency prices since then: a customer owed a Bitcoin, for example, would receive less than $20,000, even though the token now trades above $62,000. Dollars.
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The federal judge overseeing FTX’s Chapter 11 case, John Dorsey, must approve the company’s restructuring plan. That means no payments will be made for months.
Is this vindication for Bankman-Fried? The FTX co-founder has argued that the exchange was always solvent and fully capable of paying its clients. That argument was presented by his lawyers, friends and family to press for a more lenient sentence. From an essay by Ian Ayres and John Donohue, two law school professors and friends of Bankman-Fried’s parents:
The public would view Bankman-Fried very differently if they realized that FTX had sufficient assets to compensate its clients and other creditors from the beginning.
(Bankman-Fried’s allies also blamed Lewis Kaplan, the judge who oversaw the former FTX boss’s criminal trial, for excluding evidence and testimony that Bankman-Fried could compensate clients.)
But critics say it was never a given that creditors would be compensated. What allows the probable payment of customers is a combination of the recovery of cryptocurrency prices; the sharp jump in the value of FTX’s stake in artificial intelligence startup Anthropic, most of which the crypto exchange has sold; the federal government reduces its claims for unpaid taxes; and asset sales and recoveries.
At Bankman-Fried’s sentencing hearing in March, Kaplan said of the victims of the exchange: “The defendant’s assurance that they will be paid in full is misleading. It is logically flawed. “It’s speculative.”
Red states intensify their attack on ESG criteria
The war on climate finance is escalating in red state politics.
The latest salvo involves the State Finance Officers Foundation, a group working with Republican state treasurers to mitigate President Biden’s climate agenda. Their tactics have also had a chilling effect in boardrooms, as the coalition seeks to get companies to backtrack on their climate and social commitments, often threatening to stop doing business with them.
The foundation presents a new lobby and political pressure group, SFOF Action. Their target: ESG, or the environmental, social and governance investing principles that grew to become a trillion-dollar force on Wall Street, only to face a conservative backlash. The foundation is closely linked to Leonard Leo, an activist who led efforts to move the judiciary to the right and is now focused on defeating the ESG movement.
SFOF Action will strengthen anti-ESG candidates and promote legislation that opposes the adoption of such principles. “SFOF Action will fight until ESG as we know it no longer exists,” its executive director, Noah Wall, told DealBook.
State treasurers have become a powerful political force. Of 113 anti-ESG actions since 2018, treasurers drove nearly half, far outpacing governors and most other officials, according to a new report from Pleiades Strategy, which tracks anti-ESG actions.
The moves are signs that the fight over ESG is going local. Since 2021, lawmakers have introduced bills in 39 states targeting ESG issues; 40 of them have passed, in 22 states. That has helped large companies back away from their climate commitments and reduce their businesses in states hostile to the ESG investment movement.
87
— The percentage of respondents in a survey published today by the Littler employment law firm of more than 400 executives concerned with managing divisive political and social beliefs among their employees ahead of the 2024 election.
Geopolitics and Trump 2.0 in Milken
At the Milken Institute Global Conference in Los Angeles this week, attendees are talking about everything from deals to artificial intelligence. However, there is one topic that worries them less: the US elections, DealBook’s Lauren Hirsch reports from the event.
Business tycoons are taking Donald Trump’s possible return in stride. Attendees told DealBook they expected more mergers and acquisitions. and more pro-business government policies if the former president were re-elected. But they don’t expect him to undo President Biden’s big industrial policies, like the CHIPS Act or the Inflation Reduction Act, given the benefits those measures have brought to Republican-led states.
Many said Trump’s advisers would prevent him from taking aggressive steps to consolidate his power, including over the Federal Reserve, and the market is already pricing in a Trump victory in November. (That said, betting markets currently favor Biden.)
They are more concerned about geopolitics:
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The war in Gaza dominated panel discussions, private dinners and side conversations. But in recognition of the heated debate over the issue, some have chosen to call it the “Middle East conflict” to avoid implying support for one side.
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The challenge of doing business in China is another major concern. Attendees see the fight over TikTok as emblematic of the clash between the world’s two largest economies. Few at Milken see an easy solution to the standoff over the video app, such as selling its U.S. operations to avoid a ban.
The important topics haven’t stopped attendees from finding time to have a little fun. One of the most popular entries was a dinner that private equity firm Cerberus held at the home of Republican pollster Frank Luntz, where people toured his replica of the Oval Office.
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Offers
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Private equity firms are reportedly weighing an acquisition of Peloton, the struggling fitness company whose market capitalization has dropped to around $1 billion. (CNBC)
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Silver Lake, the technology-focused investing giant, has raised $20.5 billion for its latest private equity fund, the largest in its history. (FOOT)
Policy
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