DealBook Briefing: It’s Elizabeth Warren vs. Mark Zuckerberg

October 2, 2019

Good Wednesday morning. (Was this email forwarded to you? Sign up here.)

Mark Zuckerberg Brendan Smialowski/Agence France-Presse — Getty Images

Zuckerberg would take Warren to court over a Facebook breakup plan

In leaked audio conversations with Facebook employees, Mark Zuckerberg can be heard saying he would sue Senator Elizabeth Warren if she moved to break up Facebook, Matt Stevens of the NYT reports.

Ms. Warren has said she would split up big tech companies like Facebook, Google and Amazon if she becomes president.

“If she gets elected president, then I would bet that we will have a legal challenge, and I would bet that we will win the legal challenge,” Mr. Zuckerberg said in recordings from a July internal meeting published by The Verge. “Does that still suck for us? Yeah.”

The recordings pit a leading Democrat candidate for president against a tech giant “at a time when Silicon Valley in general and Facebook in particular continue to be scrutinized for their efforts to combat disinformation and prevent election interference in 2020 and beyond,” Mr. Stevens writes.

Both sides appeared eager for a fight:

• Ms. Warren tweeted, “What would really ‘suck’ is if we don’t fix a corrupt system.”

• Mr. Zuckerberg shared The Verge’s article to his Facebook page and said that the recordings were “an unfiltered version of what I’m thinking and telling employees.”

____________________________

Today’s DealBook Briefing was written by Andrew Ross Sorkin, Michael J. de la Merced, Lindsey Underwood and Stephen Grocer.

____________________________

Senator Elizabeth Warren Travis Dove for The New York Times

How Democratic wealth taxes would reshape the U.S. economy

Progressive Democrats like Senators Elizabeth Warren and Bernie Sanders have proposed taxes to shrink the fortunes of the richest Americans. That could upend the U.S. economy — for good and for bad, Alan Rappeport and Tom Kaplan of the NYT write.

What’s on the table so far:

• Ms. Warren has proposed imposing a 2 percent tax on households with a net worth above $50 million and a 3 percent charge on net worth above $1 billion.

• Mr. Sanders would impose a 1 percent tax on net worth from $32 million to $50 million for married couples, and go up to 8 percent on net worth above $10 billion.

They would use the proceeds to finance new social programs like tuition-free college, universal child care and Medicare for all.

But opponents say it could open a Pandora’s box of problems:

• The Republican economist Greg Mankiw said such plans could affect how the superrich give to charity, and could even inspire a wave of divorces for tax purposes.

• It’s unclear how to value assets like art and private businesses for determining wealth, and the impact on stock markets of rich people having to suddenly sell their holdings to pay taxes is unknown.

There’s one problem for opponents: The proposals have caught on with voters. Polls show widespread support for such plans. Proponents favor them as ways to curb economic inequality and say they’re antidotes to President Trump’s policies, which included a $1.5 trillion tax cut that largely benefited rich Americans and corporations.

Yuri Gripas/Reuters

The F.C.C. (mostly) wins in a net neutrality ruling

A federal appeals court upheld the commission’s repeal of strict regulations on internet service providers yesterday. But it also left room for states to impose their own rules for internet access, David McCabe of the NYT writes.

The U.S. Court of Appeals for the District of Columbia ruled that the F.C.C. was within its rights to stop regulating high-speed internet delivery as a utility. “We decline to yet again flick the on-off switch of common-carrier regulation under these circumstances,” the judges wrote in their decision.

But the court also said that the commission had overstepped by broadly blocking state and local governments from creating their own net neutrality rules. That’s good news for California, which approved a law last year that effectively restores Obama-era regulations at a state level.

Expect plenty of legal fighting in the years to come. An F.C.C. official said the commission believed it could still stop states from devising their own regulations.

The trade wars are weighing on the global economy

Businesses around the world have been complaining about deepening trade tensions for months now. But the W.T.O. put a point on the matter yesterday in a new report that suggests things could get worse, Peter Goodman of the NYT writes.

• “World trade in merchandise is now expected to expand by only 1.2 percent during 2019, in what would be the weakest year since 2009,” the W.T.O. estimates, according to Mr. Goodman.

• “The W.T.O. warned that intensifying trade conflicts posed a direct threat to jobs and livelihoods, while discouraging companies from expanding and innovating.”

• “Trade conflicts heighten uncertainty, which is leading some businesses to delay the productivity-enhancing investments that are essential to raising living standards,” the W.T.O.’s director-general, Roberto Azevêdo, said.

• Further bolstering the W.T.O.’s point, the Institute for Supply Management’s manufacturing index showed that American factory activity had slowed in September. It was the second straight month of decline and the lowest reading for the index since June 2009.

• “The warning signs here are clear enough,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, told Mr. Goodman. “The trade war is wreaking havoc.”

More: The maker of Schwinn bikes cited U.S. tariffs on Chinese goods as the reason it canceled its dividend.

Students at Harvard University's campus. Charles Krupa/Associated Press

Harvard scores a win in affirmative action case

A federal judge ruled that the university had not intentionally discriminated against Asian-American applicants. The case was “one of the biggest legal challenges to affirmative action in years,” Anemona Hartocollis of the NYT writes.

• “The lawsuit against the university came from a group hoping to overturn a longstanding Supreme Court precedent that allows race to be considered as one factor among many in admissions, but prohibits universities from using racial quotas.”

• “The group argued that Harvard had favored black and Hispanic applicants at the expense of another minority group — a strategic reversal of past affirmative action lawsuits in which the plaintiff complained that white students had been treated unfairly.”

• “The judge, Allison D. Burroughs, rejected the plaintiff’s argument, and said that the university met the strict constitutional standard for considering race in its admissions process.”

• The decision will almost certainly be appealed and is expected to reach the Supreme Court.

Kate Munsch/Reuters

WeWork may undo its takeover spree

As the company tries to raise cash in the wake of its failed I.P.O., it’s reportedly looking at selling off a variety of acquisitions — including a stake in The Wing, the female-focused co-working start-up, according to Bloomberg.

WeWork acquired a 23 percent stake in The Wing in 2017, and in its I.P.O. prospectus valued the holding at about $58.8 million. WeWork’s chief legal officer, Jen Berrent, sits on The Wing’s board.

WeWork has also reportedly been considering selling off other acquisitions, including the tech start-ups SpaceIQ and Teem, and the meeting organizer Meetup.

Critics see those deliberations as a sign that WeWork had a flawed M.&A. strategy. Under its former C.E.O., Adam Neumann, the company bought a variety of companies, which famously included an indoor wave-pool operator. But even as it spent lots of money, it wasn’t always clear what the business case for many of those deals was.

Raising cash is now increasingly important. In downgrading WeWork’s credit rating by two notches last night, Fitch Ratings said that calling off its I.P.O. means “WeWork does not have sufficient funding to meet its growth plan.”

More: The C.E.O. of International Workplace Group said that the commercial real estate market can survive WeWork’s troubles.

Mark Parker, Nike's chief executive. Jewel Samad

Nike’s C.E.O. was briefed on doping experiments

Officials at the sportswear giant, including its chief executive, Mark Parker, were repeatedly told about the company’s experiments with performance-enhancing drugs, according to emails published by the U.S. Anti-Doping Agency.

The disclosure came after an arbitrator banned Alberto Salazar, a Nike-backed running coach, and Jeffrey S. Brown, one of the company’s doctors, from track and field for four years. The emails were released yesterday as part of the announcement.

The messages show that “Mr. Parker was made aware of Mr. Salazar and Dr. Brown’s ongoing work in what USADA described as ‘orchestrating and facilitating prohibited doping conduct.’ ”

At least one of the pair’s experiments were conducted at Nike’s headquarters, according to the report. Mr. Salazar and Mr. Brown tested whether use of a topical testosterone cream would trigger a positive doping test.

Nike said it found no evidence of wrongdoing by Mr. Salazar. “Nike did not participate in any effort to systematically dope any runners ever,” Mr. Parker wrote in an email to employees. “The very idea makes me sick.”

Revolving door

Robert Mueller rejoined the law firm WilmerHale as a partner, focusing on internal investigations for big corporations.

Juul hired Joe Murillo, the head of regulatory affairs for Altria, as its chief regulatory officer.

Goldman Sachs named Raghav Maliah and Jung Min as its heads of M.&A. for Asia, excluding Japan.

KKR named Stanislas de Joussineau as the head of its global impact team in Europe and Sharon Yang as a senior investor for the division in Asia.

Paul Donovan, a senior economist at UBS who was suspended after making tongue-in-cheek comments about an outbreak of swine fever in China, is returning to work today.

The speed read

Deals

• A who’s who of venture capitalists and entrepreneurs met in San Francisco yesterday to debate the downsides of I.P.O.s and the upsides of direct listings. (Reuters)

• It isn’t just Peloton: Most tech I.P.O.s this year are trading below their debut prices. (Heard on the Street)

• The cost of insuring SoftBank’s debt against default climbed last month, suggesting investors in the Japanese tech giant’s bonds are worried about its outlook. (Bloomberg)

• Tesla is reportedly acquiring DeepScale, a computer vision start-up that could help the carmaker’s effort to create autonomous vehicles. (CNBC)

• The parent company of the online gambling business Paddy Power agreed to buy the owner of Poker Stars for $6 billion. (Bloomberg)

Trump impeachment inquiry

• Secretary of State Mike Pompeo clashed with House Democrats over subpoenas related to President Trump’s interactions with the leader of Ukraine. (NYT)

• But the State Department’s inspector general has requested a meeting with House leaders over the Ukraine issue, potentially complicating Mr. Trump’s efforts to block those subpoenas. (WaPo)

• The Trump administration’s response to the Democratic impeachment inquiry is being complicated by fighting between Attorney General Bill Barr and Rudy Giuliani. (WSJ)

• Senator Chuck Grassley, Republican of Iowa, defended the Ukraine whistle-blower against attacks by Mr. Trump, saying he should be “heard out and protected.” (Politico)

Politics and policy

• Wall Street is underestimating Senator Elizabeth Warren’s chances at winning the Democratic nomination, according to strategists at Raymond James. (CNBC)

• President Trump’s campaign and the R.N.C. raised a combined $125 million in the third quarter. (NYT)

• The Justice Department is facing pressure to decide whether to prosecute the former deputy F.B.I. director Andrew McCabe. (NYT)

• How Republicans plan to avoid disruptions at next year’s convention. (NYT)

Brexit

• Prime Minister Boris Johnson of Britain is expected to send a “final offer” to Brussels today to end the deadlock, in a last-ditch effort to avoid a chaotic no-deal Brexit. (FT)

Tech

• Shares of Uber and Lyft hit record lows yesterday amid skepticism of their business model. (CNBC)

• Facebook’s cryptocurrency-based payments network, Libra, is reportedly losing support from partners. (WSJ)

• Tech advances are threatening 200,000 bank jobs in the U.S., according to a new report by Wells Fargo analysts. (FT)

• How vulnerabilities in the digital tools used by political campaigns are threatening democracy. (New Yorker)

• Sixteen companies, including IBM and News Corporation, are calling for more transparency from tech companies in digital advertising. (NYT)

Best of the rest

• Johnson & Johnson reached a $20.4 million settlement in two Ohio counties and will avoid going to trial over its role in the opioid crisis. (NYT)

• How the Fed is trying to diversify its ranks. (NYT)

• Juul said it will retreat from its effort to overturn San Francisco’s e-cigarette ban. (Bloomberg)

• Americans are taking on longer loans to buy cars. (WSJ)

• And the award for L.A.’s safest driver goes to … (NYT)