Authorities Step Up Their Crypto Crackdown

“Simply a fraud”

The legal clampdown on crypto’s accused villains, fraudsters and fallen stars has stepped into a higher gear, a shift that’s contributing to more volatility in the price of digital assets.

Atop the crypto crime blotter on Friday is the S.E.C.’s decision to charge Singapore-based Terraform Labs and its founder Do Kwon with orchestrating a multibillion dollar fraud. That announcement came as a federal judge in New York signaled that Sam Bankman-Fried, the founder of the bankrupt crypto exchange, FTX, could be facing jail time — and certainly harsher bail terms — unless he cuts back on his internet habits.

The S.E.C. faces a tough task in bringing Terraform’s Kwon to justice. The South Korean native has been on the run since triggering a crypto crash last spring that wiped out investors and took down other companies.

Terra’s collapse “sent shock waves through the crypto markets,” said S.E.C. enforcement chief Gurbir Grewal. The stablecoin’s value was supposed to be tied to other tokens through an elaborate mathematical formula. That proved to be “simply a fraud,” Grewal said, accusing Kwon of deliberately misleading investors. He’s also wanted by authorities in Singapore.

Mr. Bankman-Fried, meanwhile, could lose his coveted internet access — or worse. Now on house arrest at his parents’ California home awaiting trial for fraud and conspiracy charges, Bankman-Fried faces new restrictions. Prosecutors told a judge that current bail conditions failed “to restrain a technologically sophisticated individual… with the will to circumvent detection and monitoring.” They pointed to his use of a virtual private network, or VPN, and an encrypted messaging app.

Mr. Bankman-Fried’s lawyers said the VPN was to watch football games; the judge ordered both sides to propose new limits for him to consider next week. If prosecutors get their way, Mr. Bankman-Fried, an avid gamer, may not keep playing League of Legends. A letter to the court from an “S. Keithley” in Texas suggested, “Why not just revoke his bail and jail him?”

There’s renewed scrutiny on the crypto exchange, Binance. Earlier this week, New York’s Department of Financial Services ordered the cryptocurrency firm, Paxos, to stop issuing a popular, Binance-branded dollar-pegged stablecoin because of “unresolved issues” over its relationship with Binance. Changpeng Zhao, Binance’s founder, is distancing himself, calling the stablecoin a Paxos product.

The price of Bitcoin fell nearly 5 percent to $23,798 at 7 a.m. Eastern on Friday. The law-and-order news, combined with hawkish comments by Fed officials on interest rates, seems to be pouring cold water on a recent Bitcoin rally.

HERE’S WHAT’S HAPPENING

Fox News stars and executives privately dismissed 2020 election fraud claims. Hosts Tucker Carlson, Sean Hannity, Laura Ingraham and others mocked Donald Trump’s advisers who claimed the presidency was stolen, according to a lawsuit filing by Dominion, a voting machine maker, seeking $1.6 billion in damages against Fox. Meanwhile, a Georgia special grand jury investigating election interference by Mr. Trump in 2020 found no evidence of “widespread fraud.”

A top Chinese banker goes missing. Bao Fan, founder of investment bank China Renaissance, has been out of contact for about two days. Shares in the bank plunged on Friday on investor fears that Beijing is planning a new crackdown on the finance sector.

Susan Wojcicki, the longtime YouTube CEO, is stepping down. Ms. Wojcicki, who was one of Google’s first employees, is one of the most prominent female executives in Silicon Valley — and the latest to leave her senior role. She will remain an adviser to Google’s parent company, Alphabet.

Tesla is recalling more than 362,000 cars equipped with “Full Self Driving.” The company’s driver-assistance technology is designed to steer, accelerate and brake the vehicle without human intervention. The National Highway Traffic Safety Administration found it creates “an unreasonable risk to motor vehicle safety.” Tesla shares closed down 5.7 percent on Thursday.

Dodging a bullet?

The Munich Security Conference kicks off on Friday, and high on the agenda for the heads of state, diplomats and business leaders in attendance will be Russia’s invasion of Ukraine and how Vladimir Putin’s “weaponization of energy has ushered in a global energy crisis.”

As the war in Ukraine approaches its one-year anniversary, analysts have been calculating the immense economic toll, and modeling what’s to come.

The feeling in Germany and in surrounding countries is that Europe has dodged a bullet. The reason: a dramatic fall in energy prices, led by natural gas, that began in late summer.

Europe appears to have sufficient natural gas reserves to avert an economic downturn. “In our baseline scenario… the E.U. is set to get through next winter as well,” Salomon Fiedler, an economist at Berenberg Bank, wrote in a research note on Friday.

The upbeat calculation assumes that Europeans will continue to conserve on natural gas (they’ve managed to cut usage by 20 percent since the war began, Mr. Fiedler estimates), that the weather will not plunge to abnormally cold temperatures, and that energy imports from countries outside Russia — think liquid natural gas from the U.S. — will remain at the same brisk level.

Risks to that model: China. If China’s demand for L.N.G. rockets higher, amid a larger reopening of its economy, that could disrupt the global energy market.

Murdoch’s next move?

Ever since Rupert Murdoch abandoned his plans to merge the remnants of his empire into a single business, media observers have been wondering how he could appease shareholders and pull off one last deal before the 91-year-old hangs ’em up. The Times’s Ed Lee walks through one potential scenario.

Some investors have expressed concern that combining Fox, his television business, with News Corp, the newspaper business, would value the latter unfairly. (Mr. Murdoch’s children, who sit on the trust that controls 40 percent of the shareholder vote, were split on the matter.)

Here’s one solution that would be in line with what activists are calling for: Spin off The Wall Street Journal publisher Dow Jones into a separate business, potentially giving News Corp shareholders the value they’re seeking. It would also allow Mr. Murdoch to spin off the real estate listings business (a move suggested by at least one activist), and raise money through a new share offering. The two spinoffs likely could add up to greater than the current sum.

Journal publisher Dow Jones could be worth as much as $8.9 billion — based on the price-earnings multiple of comparable media companies, including The New York Times — if traded separately. News Corp itself is only valued at $11 billion.

Adding a bit of urgency to such a calculation: Fox is currently facing the $1.6 billion Dominion lawsuit related to its Fox News network. A loss in court could be a big blow to the business.

“We seek competition, not conflict, with China. We’re not looking for a new Cold War.”

— President Biden says he plans to speak with President Xi Jinping of China to calm tensions amid the uproar over Chinese aerial spying in North America. Biden also clarified that the three most recent objects shot down were likely research balloons, not spy crafts — and not necessarily related to China.

A class on leading an organized work force

Workers at a Tesla factory in Buffalo started a union campaign this week. If successful, it would establish the company’s first union, a milestone also achieved by workers at Starbucks, Apple, Trader Joe’s and Amazon over the last few years. Executives generally get one piece of management advice about organized labor: avoid it. But that’s no longer a practical education, says Roy Bahat, the head of Bloomberg Beta, an early stage venture capital firm.

DealBook spoke with Mr. Bahat about a new M.B.A. class he’s teaching at the University of California, Berkeley about how to lead an organized work force. The interview has been edited.

What do leaders at companies with an organized work force need to do differently?

If they assume organized labor is going to destroy their business, and they prepare to go to war, then a disastrous outcome for everyone becomes much more likely. Business leaders who are savvy about how to collaborate with the union can make things work much better. We’ve heard about businesses doing things like paying for their negotiating team, and a union’s, to go do a negotiation training program together.

You’ve said a union could make managing easier. What do you mean by that?

Companies usually roll out changes among their work force with a haphazard process. It seems so much easier to sit down with elected representatives of that work force and say, ‘hey, we’d like to innovate by introducing the following new technology. How can we work together to try to roll it out?’ And there are companies where it does function that way. The business leaders who think a union is all bad for them are not being imaginative enough about it.

A lot of business leaders think a union will make change hard or empower an extreme element in their workforces.

It’s not that different than any business relationship: You build up trust. You show that you can be relied upon, you communicate honestly. You try things and see if they work. It’s exactly the same.

THE SPEED READ

Deals

• Bank of America is reportedly preparing to cut jobs in its investment banking unit, as the deals-downturn hits another Wall Street giant. (Bloomberg)

• A consortium of Qatari investors is reportedly preparing a bid of £5 billion ($6 billion) for Manchester United. Gulf-area sovereign wealth funds are also prowling for minority stakes in N.B.A. teams, too. (Bloomberg)

Policy

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