DealBook Briefing: Did the F.T.C. Go Soft on Facebook?

July 23, 2019

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Mark Zuckerberg Geert Vanden Wijngaert/Associated Press

Inside the F.T.C.’s Facebook investigation

The Federal Trade Commission is expected to announce as soon as this week a record-breaking $5 billion fine for Facebook over violations of user privacy, which could also include a requirement for increased oversight. But an investigation by Tony Romm of the WaPo suggests that the punishment has been drastically watered down.

The fine could have been much higher, unidentified sources told Mr. Romm:

• “The agency computed a theoretical maximum fine that reached into the tens of billions of dollars.”

• But Facebook “believed at most it should be paying into the hundreds of millions” and “felt it could easily prevail in court if it had to battle the F.T.C. over how it calculates fines and what qualifies as a violation.”

Holding Mark Zuckerberg directly liable was ruled out, these sources added:

• Democratic members of the commission long hinted at a “belief that corporate leaders should be held personally accountable for their companies’ repeated privacy mishaps.”

• Facebook “steadfastly opposed placing Zuckerberg under order,” according to Mr. Romm, and expressed “willingness to cease settlement talks and send the matter to court” to avoid such a fate.

• The F.T.C. disliked the prospect of a court fight as much as Facebook, since that could put a multibillion-dollar fine at risk and potentially damage the agency’s standing.

And other concessions were made, according to Mr. Romm:

• “Facebook leaders further sought to ward off any restrictions on the way they collect data.”

• Some of his sources “expressed concern that Facebook may not have had to admit guilt as part of the settlement.”

“The experience illustrates the challenges facing a 105-year-old agency hamstrung in the kinds of penalties it can pursue by the nation’s lack of a national consumer privacy law,” Mr. Romm writes.

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Today’s DealBook Briefing was written by Andrew Ross Sorkin in New York, and Michael J. de la Merced and Jamie Condliffe in London.

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House Speaker Nancy Pelosi Joshua Roberts/Reuters

A deal on the federal budget

White House and congressional officials struck an agreement to raise the debt ceiling, averting a fiscal crisis — but adding billions more in debt to an already gaping federal deficit.

What’s in the deal:

• $320 billion in additional spending, including more money for the military and domestic programs

• $77.4 billion in spending cuts — half of what the White House originally demanded

• A suspension of the debt ceiling until July 31, 2021

• A verbal pledge from Democrats that they wouldn’t attach controversial legislation to future spending bills

The agreement was praised by its brokers. House Speaker Nancy Pelosi and the Senate minority leader, Chuck Schumer, said it provided “robust funding for critical domestic priorities.” And President Trump tweeted, “This was a real compromise in order to give another big victory to our Great Military and Vets!”

But it’s not a done deal. Some Republican lawmakers complained that it adds too much to the federal debt, while some House Democrats may be uneasy with giving concessions to the Trump administration.

The bigger point: “With a new bipartisan budget deal that does nothing to cut federal spending, Trump is on track for another $1 trillion deficit this year,” John Bresnahan and Burgess Everett of Politico write. “There’s no reason to believe the following fiscal year will be any different.”

Jes Staley Peter Nicholls/Reuters

Jeffrey Epstein’s deep ties to Barclays’ C.E.O.

The disgraced financier’s links to prominent executives continue to surface. The latest, according to the NYT: Jes Staley, the C.E.O. of Barclays, who was previously an executive at JPMorgan Chase.

How they met: Mr. Epstein was friends with Leon Black, a private equity executive who had retained him as a tax services provider. Mr. Black introduced Mr. Epstein to Mr. Staley, a close friend who at the time was running JPMorgan’s private bank.

Mr. Epstein helped Mr. Staley land a huge deal. It was through Mr. Epstein that the JPMorgan executive met Glenn Dubin, who ran the hedge fund Highbridge Capital. Within a few years, JPMorgan bought Highbridge, improving Mr. Staley’s standing within the bank.

And the two stayed close. Mr. Staley visited Mr. Epstein in a Florida jail after he pleaded guilty to soliciting prostitution from a minor. By that time, Mr. Epstein had funneled dozens of wealthy clients to Mr. Staley’s business.

JPMorgan’s relationship with Mr. Epstein lasted until 2013, when Mr. Staley left the company.

It’s another sign of how Mr. Epstein collected Wall Street names, even though his actual business — touted as a mysterious advisory shop to billionaires — appears to have been small in real life.

More: Peggy Siegal, the publicist who helped open high society to Mr. Epstein, has reportedly lost clients like Netflix over her connections to the financier.

Trump promised ‘timely’ licenses for selling to Huawei

President Trump met with the C.E.O.s of several big tech companies yesterday, mainly to discuss how they could continue selling some of their products to Huawei, Alan Rappeport and Kate Conger of the NYT report.

• Sales of American technology to Huawei have been banned over national security concerns, but, as a way to restart trade negotiations with China, Mr. Trump said last month that some sales could be allowed via special licenses.

• Yesterday, executives from Google, Qualcomm, Cisco, Intel, Micron, Western Digital and Broadcom “requested timely licensing decisions from the Department of Commerce, and the president agreed,” according to the White House.

It’s unclear whether any licenses have been granted. When they are, they’re likely to be for “items, such as older semiconductor technologies, that are freely available on global markets — which Huawei could buy in places like Europe,” Mr. Rappeport and Ms. Conger write.

Some lawmakers are skeptical, arguing that Huawei remains a national security threat that shouldn’t be given any reprieve. Some senators introduced legislation last week that would stop the Trump administration from easing pressure on the company without congressional approval.

Also on yesterday’s agenda: “how to do 5G better and faster,” according to Larry Kudlow, the director of the National Economic Council, who was also in the meetings.

More: Huawei reportedly helped North Korea build its wireless network, potentially in violation of U.S. export controls. The company has laid off 600 workers in the U.S. And Britain has delayed a decision on whether to allow Huawei hardware in its in 5G networks.

Commerce Secretary Wilbur Ross Mike Blake/Reuters

Disarray inside the Commerce Department

As President Trump reportedly weighs replacing Wilbur Ross as commerce secretary, the department is adrift at a crucial time, Daniel Lippman of Politico reports, citing unnamed sources.

• “The 81-year-old Commerce secretary, who has for months endured whispers that he is on the outs, spends much of his time at the White House to try to retain President Donald Trump’s favor,” Mr. Lippman writes.

• “One common complaint: Ross, a successful investor before Trump tapped him as secretary of Commerce, isn’t frequently seen in the building talking to employees or rallying them to do good work.”

• “It’s totally infighting among the politicals,” another unnamed source told Politico. “It’s just everybody fighting everybody.”

• A familiar complaint about Mr. Ross reappears in the Politico article: “Because he tends to fall asleep in meetings, they try not to put him in a position where that could happen, so they’re very careful and conscious about how they schedule certain meetings,” a former outside adviser told Mr. Lippman. (A department official denied the claim.)

• “The disarray inside Commerce is drawing an intervention from chief of staff Mick Mulvaney and other White House officials,” Mr. Lippman writes.

Boeing 737 Max planes parked in Seattle. Gary He/EPA, via Shutterstock

Boeing’s crisis is also America’s

The legions of grounded 737 Max jets aren’t just hurting Boeing’s bottom line. They’re also putting a dent in the U.S. economy, according to the WSJ.

• Companies ranging from G.E. to small component manufacturers have “cited the grounding and halt in deliveries of the jetliner for financial damage or the suspension of profit guidance.”

• The grounding has caused some airlines to delay hiring pilots and opening new flight routes — and even to cut some back.

• And economists have warned that 737 Max production cuts may have weighed on U.S. gross domestic product, which could worsen if deliveries don’t resume soon.

“It has already been a significant part of the slowdown story,” Ward McCarthy, the chief financial economist at the investment bank Jefferies, told the WSJ.

Revolving door

Cheryl Miller was appointed C.E.O. of AutoNation, replacing Carl Liebert after just four months.

Tim Hockey said that he would step down as C.E.O. of TD Ameritrade in February.

Apple has hired Steve MacManus, a former Tesla executive who helped oversee car interiors, as a senior director.

The speed read

Deals

• Apple is reportedly near a deal to buy Intel’s smartphone modem chip business. (WSJ)

• Microsoft has invested $1 billion in OpenAI, the artificial intelligence lab led by Sam Altman. (NYT)

• The electric-scooter company Bird is said to have raised new funding from investors like Sequoia Capital at a $2.5 billion valuation. (NYT)

• The no-fee investing app Robinhood has raised $323 million from investors like DST at a $7 billion valuation. (Business Insider)

• SESAC, a music-licensing company that represents Bob Dylan, Adele and Guns N’ Roses, plans to sell a $560 million bond backed by its music-licensing agreements. (Bloomberg)

Politics and policy

• Ties between Hunter Biden and Ukrainian businesses are a big headache for the presidential campaign of his father, Joe Biden. (WaPo)

• Senator Al Franken regrets resigning after being accused of inappropriately touching or kissing women. (New Yorker)

• The private equity investor Leo Hindery says politicians should rein in his industry. (Fortune)

• Judy Shelton, President Trump’s pick for the Fed board, urged the central bank to cut interest rates by a bigger-than-expected 0.5 percentage point this month. (WaPo)

• “Is Congress rigged in favor of the rich?” (Economist)

Trade

• For the first time, the Trump administration is imposing economic penalties on a Chinese company for violating sanctions on Iranian oil. (NYT)

• Britain called on European allies to join together to protect commercial ships in the Strait of Hormuz after one of its tankers was seized there. (FT)

Tech

• Facebook’s messaging app for children is supposed to restrict young users to chat only with parent-approved contacts. But a flaw allowed some to sidestep that. (Verge)

• Microsoft will pay $25 million to settle U.S. charges that it bribed government officials in Hungary. (Reuters)

• Shares on China’s new counterpart to the Nasdaq, the STAR Market, fell on their second day of trading. (FT)

Best of the rest

• What the Equifax data-breach settlement means for you. (NYT)

• A bank acquired by the metals tycoon Sanjeev Gupta reportedly has extensive ties to his family’s wider business empire. (FT)

• The Chinese businessman Guo Wengui, who has been living in a Manhattan hotel room for four years, has been accused of spying for Beijing. (WSJ)

• Age discrimination is hard to prove. It’s even harder to fix. (NYT)

• “Immigrants and their kids founded 45 percent of U.S. Fortune 500 companies.” (Axios)

• California is wary of more wildfires. So it’s already paying for them. (NYT)

• Globalization isn’t dead. It’s just evolving. (Bloomberg)

Thanks for reading! We’ll see you tomorrow.

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