Verizon mobile phone customers could share a proposed $100 million class action settlement over monthly fees that people suing the communications company claim were unfairly charged and improperly disclosed. But those who want to claim their share of that money need to act by April 15.
Continue reading this article with a Barron’s subscription.
View Options
NEW YORK — A second trial of FTX founder Sam Bankman-Fried on charges not in the cryptocurrency fraud case presented to a jury that convicted him in November is not necessary, prosecutors told a judge Friday.
Prosecutors told U.S. District Judge Lewis A. Kaplan in a letter that evidence at a second trial would duplicate evidence already shown to a jury. They also said it would ignore the “strong public interest in a prompt resolution” of the case, particularly because victims would not benefit from forfeiture or restitution orders if sentencing is delayed.
They said the judge can consider the evidence that would be used at a second trial when he sentences Bankman-Fried on March 28 for defrauding customers and investors of at least $10 billion.
Bankman-Fried, 31, who has been incarcerated since several weeks before his trial, was convicted in early November of seven counts, including wire fraud, wire fraud conspiracy and three conspiracy charges. He could face decades in prison.
Last spring, prosecutors withdrew some charges they had brought against Bankman-Fried because the charges had not been approved as part of his extradition from the Bahamas in December 2022. They said the charges could be brought at a second trial to occur sometime in 2024.
However, prosecutors at the time said that they would still present evidence to the jury at the 2023 trial about the substance of the charges.
The charges that were temporarily dropped included conspiracy to make unlawful campaign contributions, conspiracy to bribe foreign officials and two other conspiracy counts. He also was charged with securities fraud and commodities fraud.
In their letter to Kaplan, prosecutors noted that they introduced evidence about all of the dropped charges during Bankman-Fried’s monthlong trial.
They said authorities in the Bahamas still have not responded to their request to bring the additional charges at a second trial.
A conviction on the additional charges would not result in a potential for a longer prison sentence for Bankman-Fried, prosecutors said.
“Proceeding with sentencing in March 2024 without the delay that would be caused by a second trial would advance the public’s interest in a timely and just resolution of the case,” prosecutors wrote. “The interest in avoiding delay weighs particularly heavily here, where the judgment will likely include orders of forfeiture and restitution for the victims of the defendant’s crimes.”
Defense lawyers did not immediately respond to requests for comment.
The latest Apple Watches are available again after the company scored a legal victory Wednesday.
“We are thrilled to return the full Apple Watch lineup to customers in time for the new year,” Apple
AAPL,
said in a statement to MarketWatch. “Apple Watch Series 9 and Apple Watch Ultra 2, including the blood-oxygen feature, will become available for purchase again in the United States at Apple Stores starting today and from apple.com tomorrow by 3 p.m. ET.”
A U.S. appeals court earlier Wednesday temporarily blocked a government commission’s import ban on popular Apple Watch models following a patent dispute with medical-technology firm Masimo Corp.
MASI,
The court’s order allows Apple to temporarily resume selling the Apple Watch Series 9 and Apple Watch Ultra 2. Both watches were pulled from Apple’s website last week and off store shelves this week when the ban went into effect. The appeals court is weighing a longer halt on the import and sales ban.
Masimo declined to comment.
On Tuesday, the tech giant filed an emergency request for the U.S. Court of Appeals for the Federal Circuit to halt the ban at least until U.S. Customs and Border Protection decides whether redesigned versions of its watches infringe Masimo’s patents.
The appeals court’s decision will allow the U.S. Customs department to consider Apple’s redesign of the offending Apple Watch models. A fix is expected by Jan. 12. Apple said in the motion Tuesday it could “suffer irreparable harm” if the ban is kept in place while the appeal is ongoing.
Shares of Apple were flat in trading Wednesday.
NEW YORK — The owner of Pornhub, one of the world’s largest adult content websites, has admitted to profiting from sex trafficking and agreed to make payments to women whose videos were posted without their consent, federal prosecutors in New York announced Thursday.
Aylo Holdings, the website’s parent company, reached a deferred prosecution agreement to resolve a charge of engaging in unlawful monetary transactions involving sex trafficking proceeds, according to the office of Breon Peace, U.S. Attorney for the Eastern District of New York.
The deal calls for the Montreal-based company to pay more than $1.8 million to the U.S. government, as well as make separate payments to the individual women harmed by the trafficking. It also requires appointment of an independent monitor for three years, after which the charges will be dismissed.
“It is our hope that this resolution, which includes certain agreed payments to the women whose images were posted on the company’s platforms and an independent monitorship brings some measure of closure to those negatively affected,” Peace said in the statement.
James Smith, head of the FBI’s New York office, said Aylo Holdings “knowingly enriched itself by turning a blind eye” to victims who told the company they had been deceived and coerced into the videos.
Prosecutors said Aylo has agreed to pay victims compensation, but details such as who is eligible and how they can apply will be forthcoming.
The charge stemmed from Aylo’s role in hosting videos and accepting payments from GirlsDoPorn.
Operators of that now-defunct adult film production company were charged and eventually convicted of a range of sex trafficking crimes, including coercing young women into engaging in sexual acts on camera that were then posted on Pornhub and other adult sites without their consent.
Prosecutors say that between 2017 and 2020, Aylo received money that company officials knew or should have known was derived from GirlsDoPorn’s sex trafficking operations.
They also say the company didn’t act swiftly or thoroughly enough to remove all the nonconsensual videos, even after a number of the women appealed directly to the company.
Aylo operates free and paid adult websites where content providers can post and distribute adult videos, with Aylo generating revenue through licensing agreements, advertisements and subscriptions.
According to prosecutors, the company received more than $100,000 from GirlsDoPorn as well as roughly $764,000 in payments from advertisers attributable to the production company.
Aylo Holdings, which was formerly known as MindGeek, said in a statement that it “deeply regrets” hosting content from GirlsDoPorn on its streaming video platforms.
Aylo said GirlsDoPorn provided the company with written consent forms purportedly signed by the women but that it was unaware the forms were obtained through fraud and coercion.
The company also said prosecutors did not find Aylo or its affiliates violated any federal criminal laws prohibiting sex trafficking or the sexual exploitation of minors.
“Aylo is not pleading guilty to any crime, and the Government has agreed to dismiss its charge against the Company after 3 years, subject to the Company’s continued compliance with the Deferred Prosecution Agreement,” the company said.
Thursday’s agreement filed in federal court in Brooklyn comes after the European Union on Wednesday announced that Pornhub and two other major porn sites would be required to verify the ages of their users, expanding the reach of the Digital Services Act designed to keep people safe on the internet.
___
Follow Philip Marcelo at twitter.com/philmarcelo.
NEW YORK — The owner of Pornhub, one of the world’s largest adult content websites, has admitted to profiting from sex trafficking and agreed to make payments to women whose videos were posted without their consent, federal prosecutors in New York announced Thursday.
Aylo Holdings, the website’s parent company, reached a deferred prosecution agreement to resolve a charge of engaging in unlawful monetary transactions involving sex trafficking proceeds, according to the office of Breon Peace, U.S. Attorney for the Eastern District of New York.
The deal calls for the Montreal-based company to pay more than $1.8 million to the U.S. government, as well as make separate payments to the individual women harmed by the trafficking. It also requires appointment of an independent monitor for three years, after which the charges will be dismissed.
“It is our hope that this resolution, which includes certain agreed payments to the women whose images were posted on the company’s platforms and an independent monitorship brings some measure of closure to those negatively affected,” Peace said in the statement.
James Smith, head of the FBI’s New York office, said Aylo Holdings “knowingly enriched itself by turning a blind eye” to victims who told the company they had been deceived and coerced into the videos.
Prosecutors said Aylo has agreed to pay victims compensation, but details such as who is eligible and how they can apply will be forthcoming.
The charge stemmed from Aylo’s role in hosting videos and accepting payments from GirlsDoPorn.
Operators of that now-defunct adult film production company were charged and eventually convicted of a range of sex trafficking crimes, including coercing young women into engaging in sexual acts on camera that were then posted on Pornhub and other adult sites without their consent.
Prosecutors say that between 2017 and 2020, Aylo received money that company officials knew or should have known was derived from GirlsDoPorn’s sex trafficking operations.
They also say the company didn’t act swiftly or thoroughly enough to remove all the nonconsensual videos, even after a number of the women appealed directly to the company.
Aylo operates free and paid adult websites where content providers can post and distribute adult videos, with Aylo generating revenue through licensing agreements, advertisements and subscriptions.
According to prosecutors, the company received more than $100,000 from GirlsDoPorn as well as roughly $764,000 in payments from advertisers attributable to the production company.
Aylo Holdings, which was formerly known as MindGeek, said in a statement that it “deeply regrets” hosting content from GirlsDoPorn on its streaming video platforms.
Aylo said GirlsDoPorn provided the company with written consent forms purportedly signed by the women but that it was unaware the forms were obtained through fraud and coercion.
The company also said prosecutors did not find Aylo or its affiliates violated any federal criminal laws prohibiting sex trafficking or the sexual exploitation of minors.
“Aylo is not pleading guilty to any crime, and the Government has agreed to dismiss its charge against the Company after 3 years, subject to the Company’s continued compliance with the Deferred Prosecution Agreement,” the company said.
Thursday’s agreement filed in federal court in Brooklyn comes after the European Union on Wednesday announced that Pornhub and two other major porn sites would be required to verify the ages of their users, expanding the reach of the Digital Services Act designed to keep people safe on the internet.
___
Follow Philip Marcelo at twitter.com/philmarcelo.
Videogame maker Activision Blizzard has agreed to pay nearly $55 million to settle a California civil-rights lawsuit brought over complaints of sexual harassment, discrimination and pay disparities by women employees that helped trigger the company’s acquisition by Microsoft.
The settlement, announced by the California Civil Rights Department on Friday evening, resolves the lawsuit filed against the “Call of Duty” videogame studio by the agency in 2021 over claims that it “discriminated against women at the company, including by denying promotion opportunities and paying them less than men for doing substantially similar work,” CRD said.
The agreement, subject to court approval, will see Activision pay nearly $46 million into a settlement fund dedicated to compensating women employees and contract workers at the company, plus more than $9 million in attorneys’ fees and costs. Additionally, Activision will take steps “to help ensure fair pay and promotion practices at the company,” including retaining an independent consultant to evaluate its compensation and promotion policies.
Yet the settlement also sees CRD withdraw its initial claims alleging a culture of widespread, systemic workplace sexual harassment at Activision, according to a copy of the agreement provided to MarketWatch. The document notes that the department is filing an amended complaint that removes the sexual-harassment allegations against the company and focuses on the gender-based pay and promotion claims.
CRD made no note of its prior sexual-harassment claims against Activision in its announcement Friday. A spokesperson for the department said the statement “largely speaks for itself with respect to the historic nature of this more than $50 million settlement agreement, which will bring direct relief and compensation to women who were harmed by the company’s discriminatory practices.
Representatives for Activision declined to comment.
The Wall Street Journal first reported the news of the settlement Friday.
The California agency’s complaint was one of several high-profile investigations by both state and federal regulators in recent years into alleged workplace misconduct at Activision and failures by its leadership to respond appropriately.
While Activision repeatedly denied the allegations, they ramped up pressure on the Santa Monica, Calif.-based company and its CEO, Bobby Kotick, and eventually led to a $68.7 billion takeover bid by Microsoft
MSFT,
in January 2022. The acquisition closed this October after receiving approval by U.K. and E.U. antitrust regulators, though the U.S. Federal Trade Commission continues to challenge the deal in court. Kotick is expected to leave the company, which he led for more than three decades, at the end of this year.
The settlement would be the second-largest ever for the California Civil Rights Department, according to the Journal, after its $100 million agreement with another Los Angeles-area videogame developer, Riot Games, to resolve gender-discrimination allegations in 2021. The agency had initially sought a much-larger settlement with Activision, the publication reported, citing how the state had estimated the company’s liability at nearly $1 billion to some 2,500 employees with potential claims.
HONG KONG — A Hong Kong court postponed until Jan. 29 a court hearing scheduled for Monday on troubled Chinese property developer Evergrande’s winding-up petition.
Evergrande is trying to win support from its creditors for a plan to restructure more than $300 billion in debt to stave off liquidation. The company’s lawyer told the court it was requesting an adjournment to “refine” its new debt restructuring plan.
The Hong Kong High Court has postponed the hearing over Evergrande’s potential liquidation several times. Judge Linda Chan had said in October that Monday’s hearing would be the last before a decision is handed down.
Evergrande could be ordered to liquidate if creditors reject its plan.
The company, the world’s most indebted property developer, ran into trouble when Chinese regulators cracked down on excessive borrowing in the real estate sector.
Last month, the company said Chinese police were investigating Evergrande’s chairman, Hui Ka Yan, for unspecified suspected crimes in the latest obstacle to the company’s efforts to resolve its financial woes.
In September, Evergrande abandoned its initial debt restructuring scheme after authorities banned it from issuing new dollar bonds, which was a key part of its plan.
The company first defaulted on its financial obligations in 2021, just over a year after Beijing clamped down on lending to property developers in an effort to cool a property bubble.
Evergrande is one of the biggest developers to have defaulted on its debts. But others including Country Garden, China‘s largest real estate developer, have also run into trouble, their predicaments rippling through financial systems in and outside China.
The fallout from the property crisis has also affected China’s shadow banking industry — institutions which provide financial services similar to banks but which operate outside of banking regulations.
Police are investigating Zhongzhi Enterprise Group, a major shadow bank in China that has lent billions in yuan (dollars) to property developers, after it said it was insolvent with up to $64 billion in liabilities.
Real estate drove China’s economic boom, but developers borrowed heavily as they turned cities into forests of apartment and office towers. That has helped to push total corporate, government and household debt to the equivalent of more than 300% of annual economic output, unusually high for a middle-income country.
To prevent troubles spilling into the economy from the property sector, Chinese regulators reportedly have drafted a list of 50 developers eligible for financing support, among other measures meant to prop up the industry.
Ever since the collapse of crypto currencies last year, the lawsuits have been flying.
But a series of class-action suits targeting celebrity endorsers of crypto exchanges like FTX and Binance have been piling up in federal court in Miami, all filed by the same group of south Florida lawyers.
The latest suit names global soccer superstar Cristiano Ronaldo for allegedly promoting “the mass solicitation of investments in unregistered securities” sold by Binance, the crypto exchange that was hit with a $4 billion fine last week after pleading guilty to violating the bank secrecy act.
The suit was filed in federal court in the southern district of Florida this week and centered around Ronaldo’s role in a global marketing campaign launched in 2022 for a series of Binance NFTs — or non-fungible tokens, a form of blockchain-backed art works that were, for a brief time, wildly popular.
A representative for Ronaldo didn’t immediately respond to a message seeking comment.
The filing against Ronaldo on Monday came alongside similar class action suits naming Major League Baseball, Formula 1 racing, Mercedes Benz and the advertising giants Dentsu and Wasserman, who created much of FTX’s global promotion campaign.
Messages left with representatives for MLB, Formula 1, Mercedes Benz, Dentsu and Wasserman weren’t immediately returned.
Those suits are the latest in a series of similar class action suits starting last year against celebrity endorsers of failed crypto exchanges such as Voyager and FTX, in which customers lost billions of dollars in deposits.
Over the past 18 months, a group of south Florida lawyers led by Adam Moskowitz have brought the suits on behalf of investors who lost money in last year’s crypto collapse, against paid celebrity endorsers including Shaquille O’Neal, Mark Cuban, Tom Brady, Gisele Bundchen, Shohei Ohtani, Larry David, Steph Curry and Naomi Osaka.
“All of these celebrities were paid hundreds of millions of dollars taken directly from customer deposits,” Moskowitz said in a statement. “Some of the most famous and wealthiest groups in the world may now be held responsible for the dramatic $20 billion dollar crypto collapse and biggest financial scandals in U.S. history.”
Moskowitz, who has been joined in the suits by lawyers with the firms Mark Migdal & Hayden and Boies Schiller and Flexner, headed by famed litigator David Boies, is seeking at least $5 billion in damages from those who helped promote the crypto exchanges.
The cases from last year are ongoing and each of the celebrities named have been fighting the suits in court.
Moskowitz, who specializes in class-action lawsuits, says issues revolving around crypto first got his attention more than two years ago, before the entire market crashed, when he came to believe that the special tokens each exchange was minting amounted to an unregistered security.
He first filed a lawsuit against Voyager early last year, before the exchange collapsed and the Securities and Exchange Commission began filing suits against many in the industry accusing them of dealing in unregistered securities.
“Right then what we were doing started to gain traction,” he said.
A series of favorable court rulings have allowed his cases to gain steam, he said, and has allowed to him to take the lead in such actions.
In another class action suit filed earlier this year, Moskowitz and his partners sued a group of YouTube financial influencers for their role in promoting FTX, accusing them of taking cash for uncritically singing the exchange’s praises.
Moskowitz said several of those suits have been settled but that others have continued.
BERLIN—Bayer Chief Executive Bill Anderson said the company would bounce back quickly from a recent spate of bad news, and warned that a breakup of the pharmaceutical and agricultural company was no universal cure for its ailments.
A stream of negative news has rekindled calls from investors for Bayer to unlock value by spinning off its units into separate businesses. But in an interview with The Wall Street Journal this week, Anderson said the company couldn’t be distracted from the tough restructuring to fix the businesses.
Copyright ©2023 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
WASHINGTON — The U.S. government dealt a massive blow to Binance, the world’s largest cryptocurrency exchange, which agreed to pay a roughly $4 billion settlement Tuesday as its founder and CEO Changpeng Zhao pleaded guilty to a felony related to his failure to prevent money laundering on the platform.
Zhao stepped down as the company’s chief executive and Binance admitted to violations of the Bank Secrecy Act and apparent violations of sanctions programs, including its failure to implement reporting programs for suspicious transactions.
“Using new technology to break the law does not make you a disruptor, it makes you a criminal,” said U.S. Attorney General Merrick Garland, who called the settlement one of the largest corporate penalties in the nation’s history.
As part of the settlement agreement, the U.S. Treasury said Binance will be subject to five years of monitoring and “significant compliance undertakings, including to ensure Binance’s complete exit from the United States.” Binance is a Cayman Islands limited liability company.
The cryptocurrency industry has been marred by scandals and market meltdowns.
Zhao was perhaps best known as the chief rival to Sam Bankman-Fried, the 31-year-old founder of the FTX, which was the second-largest crypto exchange before it collapsed last November. Bankman-Fried was convicted earlier this month of fraud for stealing at least $10 billion from customers and investors.
Zhao, meanwhile, pleaded guilty in a federal court in Seattle on Tuesday to one count of failure to maintain an effective anti-money-laundering program.
Magistrate Judge Brian A. Tsuchida questioned Zhao to make sure he understood the plea agreement, saying at one point: “You knew you didn’t have controls in place.”
“Yes, your honor,” he replied.
Binance wrote in a statement that it made “misguided decisions” as it quickly grew to become the world’s biggest crypto exchange, and said the settlement acknowledges its “responsibility for historical, criminal compliance violations.”
U.S. Treasury Secretary Janet Yellen said Binance processed transitions by illicit actors, “supporting activities from child sexual abuse, to illegal narcotics, to terrorism, across more than 100,000 transactions.”
Binance did not file a single suspicious activity report on those transactions, Yellen said, and the company allowed over 1.5 million virtual currency trades that violated U.S. sanctions — including ones involving Hamas’ al-Qassam Brigades, al-Qaeda and other criminals.
The judge set Zhao’s sentencing for Feb. 23, however it’s likely to be delayed. He faces a possible guideline sentence range of up to 18 months.
One of his attorneys, Mark Bartlett, noted that Zhao had been aware of the investigation since December 2020, and surrendered willingly even though the United Arab Emirates — where Zhao lives — has no extradition treaty with the U.S.
“He decided to come here and face the consequences,” Bartlett said. “He’s sitting here. He pled guilty.”
Zhao, who is married and has young children in the UAE, promised he would return to the U.S. for sentencing if allowed to stay there in the meantime.
“I want to take responsibility and close this chapter in my life,” Zhao said. “I want to come back. Otherwise I wouldn’t be here today.”
Zhao previously faced allegations of diverting customer funds, concealing the fact that the company was commingling billions of dollars in investor assets and sending them to a third party that Zhao also owned.
Over the summer, Binance was accused of operating as an unregistered securities exchange and violating a slew of U.S. securities laws in a lawsuit from regulators. That case was similar to practices uncovered after the collapse of FTX.
Zhao and Bankman-Fried were originally friendly competitors in the industry, with Binance investing in FTX when Bankman-Fried launched the exchange in 2019. However, the relationship between the two deteriorated, culminating in Zhao announcing he was selling all of his cryptocurrency investments in FTX in early November 2022. FTX filed for bankruptcy a week later.
At this trial and in later public statements, Bankman-Fried tried cast blame on Binance and Zhao for allegedly orchestrating a run on the bank at FTX.
A jury found Bankman-Fried guilty of wire fraud and several other charges. He is expected to be sentenced in March, where he could face decades in prison.
___
Johnson contributed from Seattle. Associated Press writer Ken Sweet in New York contributed to this story.
WASHINGTON — The U.S. government dealt a massive blow to the world’s largest cryptocurrency exchange Binance as its founder, Changpeng Zhao, pleaded guilty to a felony charge Tuesday related to his failure to prevent money laundering on his platform.
Binance also agreed to a roughly $4 billion settlement with the U.S. over violations of the Bank Secrecy Act and apparent violations of sanctions programs, including failure to put into place a suspicious transaction reporting programs. Zhao announced that he stepped down as the company’s chief executive.
Over the summer, the company was accused of operating as an unregistered securities exchange and violating a slew of U.S. securities laws in a lawsuit from regulators. That case was similar to practices uncovered after the collapse of FTX, the second largest cryptocurrency exchange, last year.
“Binance became the world’s largest cryptocurrency exchange in part because of the crimes it committed — now it is paying one of the largest corporate penalties in U.S. history,” said Attorney General Merrick B. Garland. “The message here should be clear: using new technology to break the law does not make you a disruptor, it makes you a criminal.”
Zhao pleaded guilty to one count of failure to maintain an effective anti-money-laundering program in federal court in Seattle. Binance is a Cayman Islands limited liability company.
Binance said in a statement that it made “misguided decisions” as it quickly grew to become the world’s largest crypto exchange and that the settlement acknowledges its “responsibility for historical, criminal compliance violations.”
“Ever since Binance launched its convertible virtual currency platform, it has knowingly evaded the U.S. laws designed to protect these systems,” Treasury Secretary Janet Yellen said. “Binance was allowing illicit actors to transact freely, supporting activities from child sexual abuse, to illegal narcotics, to terrorism, across more than 100,000 transactions.”
The U.S. Treasury said Binance allowed Hamas’ military wing al-Qassam Brigades, Palestinian Islamic Jihad, al-Qaeda and other criminals to conduct transactions.
“Binance processed these transactions, but it never filed a single suspicious activity report,” Yellen said. “And it also allowed over 1.5 million virtual currency trades that violated U.S. sanctions.”
As part of a settlement agreement, Binance will be subject to five years of monitoring and “significant compliance undertakings, including to ensure Binance’s complete exit from the United States,” according to the U.S. Treasury.
Magistrate Judge Brian A. Tsuchida set Zhao’s sentencing for Feb. 23, however that’s likely to be delayed. He faces a possible guideline sentence range of up to 18 months.
The judge questioned Zhao to make sure he understood the plea agreement, saying at one point: “You knew you didn’t have controls in place.”
“Yes, your honor,” he replied.
One of his attorneys, Mark Bartlett, noted that Zhao had been aware of the investigation since December 2020, and surrendered willingly even though the United Arab Emirates — where Zhao lives — has no extradition treaty with the U.S.
“He decided to come here and face the consequences,” Bartlett said. “He’s sitting here. He pled guilty.”
Zhao, who is married and has young children in the UAE, promised that he would return to the U.S. for sentencing if allowed to stay there in the meantime.
“I want to take responsibility and close this chapter in my life,” Zhao said. “I want to come back. Otherwise I wouldn’t be here today.”
Zhao had previously faced allegations of diverting customer funds, concealing the fact that the company was commingling billions of dollars in investor assets and sending them to a third party that Zhao also owned.
The cryptocurrency industry has been marred by scandals and market meltdowns. Sam Bankman-Fried, the 31-year-old founder of FTX, was convicted earlier this month of fraud for stealing at least $10 billion from customers and investors.
Of his many depictions in the cryptocurrency industry, Zhao was best known as the chief rival to Bankman-Fried.
Zhao and Bankman-Fried were originally friendly competitors in the industry, with Binance investing in FTX when Bankman-Fried launched the exchange in 2019. However, the relationship between the two deteriorated, culminating in Zhao announcing he was selling all of his cryptocurrency investments in FTX in early November 2022. FTX filed for bankruptcy a week later.
At this trial and in later public statements, Bankman-Fried tried cast blame on Binance and Zhao for allegedly orchestrating a run on the bank at FTX.
A jury found Bankman-Fried guilty of wire fraud and several other charge in October. He is expected to be sentenced in March, where he could face decades in prison.
___
Associated Press writers Fatima Hussein in Washington, D.C. and Ken Sweet in New York contributed to this story. Johnson contributed from Seattle.
BARCELONA, Spain — Global pop star Shakira has been summoned Monday to a Barcelona courthouse to attend the first day of her trial for allegedly defrauding Spanish tax officials of millions of euros.
Shakira, 46, faces six counts of failing to pay the Spanish government 14.5 million euros (about $15.8 million) in taxes between 2012 and 2014. The multiple Grammy and Latin Grammy winner has denied any wrongdoing and said she had paid everything she owed.
The case made headlines in 2018. It currently hinges on where Shakira lived during that period. Prosecutors in Barcelona have alleged that the Colombian singer spent more than half of that period in Spain and therefore should have paid taxes on her worldwide income in the country even though her official residence was still in the Bahamas. Tax rates are much lower in the Bahamas than in Spain.
Prosecutors said in July that they would seek a prison sentence of 8 years and two months and a fine of 24 million euros ($26.1 million) for the singer who has won over fans worldwide for her hits in Spanish and English in different musical genres.
Shakira’s public relations firm said that she had already paid all that she owed and an additional 3 million euros (about $3.2 million) in interest.
Shakira turned down a deal offered to her by prosecutors to settle her case in July 2022, saying, via her Spanish public relations firm Llorente y Cuenca, that she “believes in her innocence and chooses to leave the issue in the hands of the law.” The details of that potential deal were not made public.
A three-judge panel, led by magistrate José Manuel del Amo, will preside over the trial. Shakira is supposed to be inside the courtroom by 10:00 a.m.
The trial is initially scheduled to conclude on Dec. 14.
Shakira was named in the “Paradise Papers” leaks that detailed the offshore tax arrangements of numerous high-profile individuals, including musical celebrities like Madonna and U2’s Bono.
The defense team for Shakira, the Barcelona firm Molins Defensa Penal, said in Nov. 2022 that she had not spent more than 60 days a year inside the country during the period in question, adding she would have needed to have spent half the year inside Spain to be considered a fiscal resident. Her defense argued that she was away from Barcelona for long stretches on a world tour in 2011 and then spent a lot of time in the United States as part of a jury for the NBC television music talent show The Voice.
Spanish prosecutors disagree, and the investigating judge Marco Juberías wrote in 2021 on the conclusion of the three-year probe into the charges that he found there existed “sufficient evidence of criminality” for the case to go to trial. Shakira defended her innocence when she was questioned by Juberías in 2019.
She lost an appeal to have the case thrown out last year.
Shakira established her fiscal residency in Spain in 2014 at the same time her oldest child was enrolled in school in Barcelona, according to her defense team, as she was going to spend more time in the country with her family.
In Spain, an investigative judge carries out an initial probe and decides either to throw the case out or send it to trial. A court can waive prison time for first-time offenders if they are sentenced to less than two years behind bars.
In a separate investigation, Spanish state prosecutors charged Shakira in September for her alleged evasion of 6.7 million euros in tax on her 2018 income. They accused her of using an offshore company based in a tax haven to avoid paying the tax.
Spain has cracked down on soccer stars like Lionel Messi and Cristiano Ronaldo over the past decade for not paying their full due in taxes. The former Barcelona and Real Madrid stars were found guilty of evasion but both avoided prison time after their sentences were suspended.
Shakira, whose full name is Shakira Isabel Mebarak Ripoll, has two children, Milan and Sasha, with Barcelona soccer star Gerard Pique. The couple lived together in Barcelona before ending their 11-year relationship last year. Since then, she resided in Miami.
After triumphing at the Latin Grammy Awards gala in Seville on Thursday, Shakira thanked her fans in Spain for “being with me in the good times and the bad.”
A Chinese man wanted for allegedly embezzling millions of yuan (hundreds of thousands of dollars) from his company and then fleeing to Morocco has been extradited back to China, State broadcaster CCTV showed the man being handcuffed and led to a police…
ByThe Associated Press
November 18, 2023, 10:24 AM
BEIJING — A Chinese man wanted for allegedly embezzling millions of yuan (hundreds of thousands of dollars) from his company and then fleeing to Morocco was extradited back to China on Saturday, the Ministry of Public Security said.
The man, a financial executive at the company, used passwords for its bank accounts to transfer money to his personal account, the ministry said in a statement. It didn’t name the company but said that Shanghai police filed a case against the man in February 2020.
Moroccan police arrested him in April of this year and a court approved his extradition in late October. Chinese officials brought him back to Shanghai on Saturday.
State broadcaster CCTV showed the man, identified only by his surname Luo, signing an arrest warrant after getting off the plane and then being handcuffed. Police officers led him from the jetway to the tarmac and to a waiting police car.
The Public Security Ministry said it was the first extradition from Morocco to China since an extradition treaty between the two countries took effect in 2021.
Backpage founder Michael Lacey convicted of one money laundering count; Arizona jury deadlocks on nearly all others
ByThe Associated Press
November 16, 2023, 6:58 PM
PHOENIX — Backpage founder Michael Lacey convicted of one money laundering count; Arizona jury deadlocks on nearly all others.
NEW YORK — NEW YORK (AP) — Donald Trump blamed his accountants. So did the two sons he entrusted to run his company. Now, as they mount their defense in the civil fraud trial threatening the former president’s real estate empire, his lawyers are too.
Trump’s lawyers spent Tuesday digging into outside accounting firm Mazars USA LLP’s role in preparing financial statements at the heart of New York Attorney General Letitia James’ lawsuit, upping the blame with expert testimony from a former federal financial regulator.
Jason Flemmons, testifying as an accounting expert, questioned some of the firm’s practices and raised doubts about earlier testimony from Donald Bender, the retired Mazars partner who spent years working on Trump’s financial statements.
Bender, the first witness called by state lawyers, testified Oct. 3 that he’d asked a Trump Organization executive for all of the company’s property appraisals — not just ones used for the financial statements — and that he was surprised when he learned years later that some hadn’t been turned over.
Flemmons, a former deputy chief accountant at the U.S. Securities and Exchange Commission, said Bender’s claim was “not professionally plausible” because such diligence isn’t required under professional accounting standards.
Compiling financial statements involves a “much lighter touch” than more stringent accounting practices, like audits, and requesting appraisals “would be highly unusual” and “entirely inconsistent” with what’s required, Flemmons testified.
In preparing financial statements, also known as compilations, accountants need only documentation used to determine the value of assets, like Trump’s skyscrapers, golf courses and other properties.
In Trump’s case, Flemmons said, his company determined the numbers and met the requirements by providing justification for them and explaining instances where it used different standards to determine a value, which is permitted. Flemmons, who will return to the stand Wednesday, has not been asked to address the state’s specific claims that Trump executives used a variety of methods — sometimes misclassifying properties — to attain the highest values.
“There would be no obligation or expectation on the part of Mazars or any accountant performing compilation services” to request appraisals that weren’t the basis for values on the statements, said Flemmons, now a senior managing director at Ankura Consulting Group.
A message seeking comment was left for Mazars. The firm cut ties with Trump last year and said his financial statements “should no longer be relied upon” after James raised concerns about their accuracy.
Flemmons testified on the second day of the defense’s case as Trump’s lawyers seek to refute the state’s claims that the 2024 Republican front-runner, his company and top executives manipulated the value of his assets to make him look wealthier and his properties more successful than the actually were.
James, a Democrat, alleges Trump, his company and top executives exaggerated his wealth by billions of dollars on the financial statements by inflating property values. The documents were given to banks, insurers and others to secure loans and make deals. James is seeking more than $300 million in what she says were ill-gotten gains, and she wants the defendants banned from doing business in New York.
Before the trial, Judge Arthur Engoron ruled that Trump and other defendants committed fraud by exaggerating his net worth and the value of assets on his financial statements. The judge imposed a punishment that could strip Trump of some marquee properties, though an appeals court is keeping them in his control for now.
Trump has denied wrongdoing. On the stand Tuesday, Flemmons echoed Trump’s longstanding assertion that disclaimers on the financial statements insulated him from liability for discrepancies or misstatements.
“It’s effectively saying user beware,” Flemmons testified.
Trump has argued that, if anything, his financial statements undervalued how much his properties were worth. On the stand last week, he reiterated his belief that his Mar-a-Lago estate in Florida is worth up to $1.5 billion, more than double the highest value listed for it on his financial statements.
Trump’s lawyers ran with that claim Tuesday, arguing it didn’t matter if he overvalued some of his properties because he significantly undervalued others.
They broached that idea while questioning another expert, real estate developer and Trump friend Steven Witkoff, who claimed Trump’s Doral, Florida, golf resort was severely undervalued on his financial statements.
“Is it your position that if a statement of financial condition lists two properties and I decide that one is overvalued by $300 million and one is undervalued by $300 million it balances out and there’s no misstatement, fraud, whatever you want to call it?” Engoron asked.
He criticized the argument, saying “this seems ridiculous to me,” and shut it down.
Witkoff, who’s hosting a fundraiser for Trump next month, testified that developers value their properties based on their potential — like building condominiums on a golf course or turning an office tower into apartments — rather than their current state.
Donald Trump Jr., a Trump Organization executive vice president, testified Nov. 1 that he signed off on statements as a trustee of his father’s trust, but left the work to outside accountants and the company’s then-finance chief, Allen Weisselberg.
“As a trustee, I have an obligation to listen to those who are expert — who have an expertise of these things,” Trump Jr. said.
His brother, Eric, echoed that sentiment, testifying Nov. 3 that he relied on “one of the biggest accounting firms in the country” for assurance that the financial statements were accurate.
Donald Trump, testifying Nov. 6, said he paid Mazars millions of dollars for its services and said he gave McConney and Weisselberg “total authority” to work with the firm and give it whatever it needed to come up with his financial statements.
“If the accounting firm was unhappy, they would go back and they would say, we need this, we need that,” Trump testified. “They were very insistent on that. Very insistent on that. But they came up with statements in each of those years, so obviously they were satisfied.”
__
Follow Michael Sisak at x.com/mikesisak and send confidential tips by visiting https://www.ap.org/tips
BEIJING — Australian Prime Minister Anthony Albanese is calling for the “full resumption of free and unimpeded trade” with China in a meeting with his counterpart Li Qiang on the first first visit by an Australian leader to China in seven years.
Climate change, food security and transnational crime are areas in which the two nations can cooperate, Albanese said Tuesday. The sides should discuss “ways to shape a regional and global order that is peaceful, stable and prosperous, where countries respect sovereignty and meet their obligations under international law and conventions,” Albanese said.
Geostrategic competition must be handled “through dialogue and through understanding,” he said, in apparent reference to heightened tensions between China and the United States, a key Australian ally.
“”We can grow the relationship while advancing our respective interests, if we wisely navigate when there are differences,” Albanese said.
Li was quoted by the Australian foreign office as acknowledging that people wanted see further improvement in ties. “So, we hope our two sides will continue to work towards the same direction and sustain this positive moment that we enjoy now,” Li was quoted as saying.
Reporters were ushered from the room before their meeting. Their talks are expected to focus on trade as China has eased some but not all of the restrictive steps it took as relations deteriorated.
China and Australia’s relations went into a spiral in recent years as suspicions of Chinese interference in Australian politics increased. China, in turn, was angered by Australia’s call for an inquiry into the origins of the COVID-19 virus and allegations it was seeking to intimidate members of the Chinese-Australian community.
China levied official tariffs and unofficial trade barriers that are estimated to have cost Australian exporters up to 20 billion Australian dollars ($13 billion) a year for commodities such as coal, wine, beef, barley and lobsters.
In the past few months, China and Australia have publicly signaled that resolutions were in sight for the trade issues.
Further, Australian journalist Cheng Lei was released in October after three years in detention under charges of espionage, a case that had come to be a focal point in the tensions.
Even as Albanese has largely sounded upbeat during his visit, Australia is still actively pursuing a security partnership with the United Kingdom and the United States that China views as an attempt to counter its influence in the region.
Going back decades, if you wanted to buy or sell a stock on the open market, you had to pay a 2% commission to buy and a 2% commission to sell. Then the advent of discount brokerage, led by Charles Schwab Corp.
SCHW,
made lower commissions available until eventually, with improved technology and efficiency, the entire industry changed to enable the average investor to avoid commissions completely.
But the internet hasn’t done much to reduce the cost of selling a home in the U.S. Sellers typically pay a 6% commission to a real-estate agent to list and sell a home, with the seller’s agent splitting that commission with the buyer’s agent. But all of that may change because of a verdict this week in a class-action lawsuit in federal court against the National Association of Realtors.
Aarthi Swaminathan covers the case, what may happen next and the implications for home sellers and buyers:
Quentin Fottrell — the Moneyist — works with three readers to answer tricky real-estate questions:
On Wednesday, Federal Reserve Chair Jerome Powell may have bolstered the case that the central bank is finished raising interest rates for this economic cycle. The federal-funds rate was left in its target range of 5.25% to 5.50%.
Jon Gray, the president of Blackstone Group, spoke with MarketWatch Editor in Chief Mark DeCambre and said he expected the Fed to succeed in bringing down inflation without pushing the U.S. economy into a deep recession.
Friday employment numbers: Jobs report shows 150,000 new jobs in October as U.S. labor market cools
FactSet
Normally, longer-term bonds have higher yields than those with short maturities. But the yield curve has been inverted for nearly a year, with 3-month U.S. Treasury bills
BX:TMUBMUSD03M
having higher yields than 10-year Treasury notes
BX:TMUBMUSD10Y.
There has been elevated demand for long-term bonds, as investors have anticipated a recession and a reversal in Federal Reserve interest-rate policy. When interest rates decline, bond prices rise and vice versa.
As you can see on the chart above, the yield curve was narrowing until mid-October. Yields on 10-year Treasury notes were close to 5% on Oct. 19, but they have been falling the past several days as the three-month yield has remained close to 5.5%.
In this week’s ETF Wrap, Christine Idzelis reports on where all the money is flowing in the bond market.
In the Bond Report, Vivien Lou Chen summarizes the action as investors react to the Federal Reserve’s decision not to change its federal-funds-rate target range this week and to other economic news.
For income-seekers looking to avoid income taxes, here’s a deep dive into municipal bonds, with taxable-equivalent yields and a deeper look at those within four high-tax states.
Getty Images
Ford Motor Co.’s
F,
credit rating was upgraded to an investment-grade rating by Standard & Poor’s on Monday. This takes about $67 billion in bonds out of the high-yield, or “junk,” market, as Ciara Linnane reports.
Courtesy Everett Collection
By now you have probably heard the term “Magnificent Seven” used to describe stocks of the tremendous tech-oriented companies that have led this year’s rally for the S&P 500
SPX
: Apple Inc.
AAPL,
Microsoft Corp.
MSFT,
Amazon.com Inc.
AMZN,
Nvidia Corp.
NVDA,
Alphabet Inc.
GOOGL,
GOOG,
Meta Platforms Inc.
META,
and Tesla Inc.
TSLA,
With Tesla’s recent decline, that company is now the ninth-largest holding in the portfolio of the SPDR S&P 500 ETF Trust
SPY,
which tracks the benchmark index. Here are the top 10 companies held by SPY (11 stocks, including two common-share classes for Alphabet), with total returns through Thursday:
| Company | Ticker | % of SPY portfolio | 2023 total return | 2022 total return | Total return since end of 2021 |
| Apple Inc. |
AAPL, |
7.2% | 37% | -26% | 1% |
| Microsoft Corp. |
MSFT, |
7.1% | 46% | -28% | 5% |
| Amazon.com Inc. |
AMZN, |
3.5% | 64% | -50% | -17% |
| Nvidia Corp. |
NVDA, |
3.0% | 198% | -50% | 48% |
| Alphabet Inc. Class A |
GOOGL, |
2.1% | 44% | -39% | -12% |
| Meta Platforms Inc. Class A |
META, |
1.9% | 158% | -64% | -8% |
| Alphabet Inc. Class C |
GOOG, |
1.8% | 45% | -39% | -11% |
| Berkshire Hathaway Inc. Class B |
BRK.B, |
1.8% | 13% | 3% | 17% |
| Tesla Inc. |
TSLA, |
1.7% | 77% | -65% | -38% |
| UnitedHealth Group Inc. |
UNH, |
1.4% | 2% | 7% | 9% |
| Eli Lilly and Company |
LLY, |
1.3% | 60% | 34% | 115% |
| Sources: FactSet, State Street (for SPY holdings) | |||||
Five of these stocks (including the two Alphabet share classes) are still down from the end of 2021. SPY itself has returned 14% this year, following an 18% decline in 2022. It is still down 7% from the end of 2021.
Mark Hulbert makes the case that a decade from now, the Magnificent Seven are unlikely to be among the largest companies in the stock market.
More from Hulbert: These dividend stocks and ETFs have healthy yields that can lift your portfolio
A different market opportunity: India is seeing a multidecade growth surge. Here’s how you can invest in it.
The MarketWatch 50 series is back, with articles and video interviews starting this week, including:
MarketWatch/PayPal
After the market close on Wednesday, PayPal Holdings Inc.
PYPL,
announced quarterly results that came in ahead of analysts’ expectations, and the stock soared 7% on Thursday even though the company lowered its target for improving its operating margin.
In the Ratings Game column, Emily Bary reports on the positive reaction to PayPal’s new CEO, Alex Chriss.
A less enthusiastic earnings reaction: EV-products maker BorgWarner’s stock suffers biggest drop in 15 years after downbeat sales outlook
Mario Tama/Getty Images
Here’s more of the latest corporate financial results and reactions. First the good news:
And now the news that may not be so good:
AP
It might seem that some legal battles never end, but it took only a year from the collapse of FTX for the cryptocurrency exchange’s founder, Sam Bankman-Fried, to be convicted on all seven federal fraud and money-laundering charges brought against him. The charges were connected to the disappearance of $8 billion from FTX customer accounts.
Here’s more reaction and coverage of the virtual-currency industry:
Want more from MarketWatch? Sign up for this and other newsletters to get the latest news and advice on personal finance and investing.
U.S. regulators on Monday sued SolarWinds, a Texas-based technology company whose software was breached in a massive 2020 Russian cyberespionage campaign, for fraud for failing to disclose security deficiencies ahead of the stunning hack.
The company’s top security executive was also named in the complaint filed by the Securities and Exchange Commission seeking unspecified civil penalties, reimbursement of “ill-gotten gains” and the executive’s removal.
Detected in December 2020, the SolarWinds hack penetrated U.S. government agencies including the Justice and Homeland Security departments, and more than 100 private companies and think tanks. It was a rude wake-up call that raised awareness in Washington about the urgency of stepping up efforts to better guard against intrusions.
In the 68-page complaint filed in New York federal court, the SEC says SolarWinds and its then vice president of security, Tim Brown, defrauded investors and customers “through misstatements, omissions and schemes” that concealed both the company’s “poor cybersecurity practices and its heightened — and increasing — cybersecurity risks.”
In a statement, SolarWinds called the SEC charges unfounded and said it is “deeply concerned this action will put our national security at risk.”
Brown performed his responsibilities “with diligence, integrity, and distinction,” his lawyer, Alec Koch, said in a statement. Koch added that “we look forward to defending his reputation and correcting the inaccuracies in the SEC’s complaint.” Brown’s current title at SolarWinds is chief information security officer.
The SEC’s enforcement division director, Gurbir S. Grewal, said in a statement that SolarWinds and Brown ignored “repeated red flags” for years, painting “a false picture of the company’s cyber controls environment, thereby depriving investors of accurate material information.”
The very month that SolarWinds registered for an initial public offering, October 2018, Brown wrote in an internal presentation that the company’s “current state of security leaves us in a very vulnerable state,” the complaint says.
Among the SEC’s damning allegations: An internal SolarWinds presentation shared that year said the company’s network was “not very secure,” meaning it was vulnerable to hacking that could lead to “major reputation and financial loss.” Throughout 2019 and 2020, the SEC alleged, multiple communications among SolarWinds employees, including Brown, “questioned the company’s ability to protect its critical assets from cyberattacks.”
SolarWinds, which is based in Austin, Texas, provides network-monitoring and other technical services to hundreds of thousands of organizations around the world, including most Fortune 500 companies and government agencies in North America, Europe, Asia and the Middle East.
The nearly two-year espionage campaign involved the infection of thousands of customers by seeding malware in the update channel of the company’s network management software. Capitalizing on the supply-chain hack, the Russian cyber operators then stealthily penetrated select targets including at least nine U.S. government agencies and prominent software and telecommunications providers.
In its statement, SolarWinds called the SEC action an “example of the agency’s overreach (that) should alarm all public companies and committed cybersecurity professionals across the country.”
It did not explain how the SEC’s action could put national security at risk, though some in the cybersecurity community have argued that holding corporate information security officers personally responsible for identified vulnerabilities could make them less diligent about uncovering and/or disclosing them — and discourage qualified people from aspiring to such positions.
Under the Biden administration, the SEC has been aggressive about holding publicly traded companies to account for cybersecurity lapses and failures to disclose vulnerabilities. In July, it adopted rules requiring them to disclose within four days all cybersecurity breaches that could affect their bottom lines. Delays would be permitted if immediate disclosure poses serious national-security or public-safety risks.
Victims of the SolarWinds hack whose Microsoft email accounts were violated included the New York federal prosecutors’ office, then-acting Homeland Security Secretary Chad Wolf and members of the department’s cybersecurity staff, whose jobs included hunting threats from foreign countries.
U.S. regulators on Monday sued SolarWinds, a Texas-based technology company whose software was breached in a massive 2020 Russian cyberespionage campaign, for fraud for failing to disclose security deficiencies ahead of the stunning hack.
The company’s top security executive was also named in the complaint filed by the Securities and Exchange Commission seeking unspecified civil penalties, reimbursement of “ill-gotten gains” and the executive’s removal.
Detected in December 2020, the SolarWinds hack penetrated U.S. government agencies including the Justice and Homeland Security departments, and more than 100 private companies and think tanks. It was a rude wake-up call on the perils of neglecting cybersecurity.
In the 68-page complaint filed in New York federal court, the SEC says SolarWinds and its then vice president of security, Tim Brown, defrauded investors and customers “through misstatements, omissions and schemes” that concealed both the company’s “poor cybersecurity practices and its heightened — and increasing — cybersecurity risks.”
In a statement, SolarWinds called the SEC charges unfounded and said it is “deeply concerned this action will put our national security at risk.”
Brown performed his responsibilities “with diligence, integrity, and distinction,” his lawyer, Alec Koch, said in a statement. Koch added that “we look forward to defending his reputation and correcting the inaccuracies in the SEC’s complaint.” Brown’s current title at SolarWinds is chief information security officer.
The SEC’s enforcement division director, Gurbir S. Grewal, said in a statement that SolarWinds and Brown ignored “repeated red flags” for years, painting “a false picture of the company’s cyber controls environment, thereby depriving investors of accurate material information.”
The very month that SolarWinds registered for an initial public offering, October 2018, Brown wrote in an internal presentation that the company’s “current state of security leaves us in a very vulnerable state,” the complaint says.
Among the SEC’s damning allegations: An internal SolarWinds presentation shared that year said the company’s network was “not very secure,” meaning it was vulnerable to hacking that could lead to “major reputation and financial loss. Throughout 2019 and 2020, the SEC alleged, multiple communications among SolarWinds employees, including Brown, “questioned the company’s ability to protect its critical assets from cyberattacks.”
SolarWinds, which is based in Austin, Texas, provides network-monitoring and other technical services to hundreds of thousands of organizations around the world, including most Fortune 500 companies and government agencies in North America, Europe, Asia and the Middle East.
The nearly two-year espionage campaign involved the infection of thousands of customers by seeding malware in the update channel of the company’s network management software. Capitalizing on the supply-chain hack, the Russian cyber operators then stealthily penetrated select targets including about a dozen U.S. government agencies and prominent software and telecommunications providers.
In its statement, SolarWinds called the SEC action an “example of the agency’s overreach (that) should alarm all public companies and committed cybersecurity professionals across the country.”
It did not explain how the SEC’s action could put national security at risk, though some in the cybersecurity community have argued that holding corporate information security officers personally responsible for identified vulnerabilities could make them less diligent about uncovering them — and discourage qualified people from aspiring to such positions.
Under the Biden administration, the SEC has been aggressive about holding publicly traded companies to account for cybersecurity lapses and failures to disclose vulnerabilities. In July, it adopted rules requiring them to disclose within four days all cybersecurity breaches that could affect their bottom lines. Delays would be permitted if immediate disclosure poses serious national-security or public-safety risks.
Victims of the SolarWinds hack whose Microsoft email accounts were violated included the New York federal prosecutors’ office, then-acting Homeland Security Secretary Chad Wolf and members of the department’s cybersecurity staff, whose jobs included hunting threats from foreign countries.
U.S. regulators on Monday sued SolarWinds, a Texas-based technology company whose software was breached in a massive 2020 Russian cyberespionage campaign, for fraud for failing to disclose security deficiencies ahead of the stunning hack.
The company’s top security executive was also named in the complaint filed by the Securities and Exchange Commission seeking unspecified civil penalties, reimbursement of “ill-gotten gains” and the executive’s removal.
Detected in December 2020, the SolarWinds hack penetrated U.S. government agencies including the Justice and Homeland Security departments, and more than 100 private companies and think tanks. It was a rude wake-up call on the perils of neglecting cybersecurity.
In the 68-page complaint filed in New York federal court, the SEC says SolarWinds and its then vice president of security, Tim Brown, defrauded investors and customers “through misstatements, omissions and schemes” that concealed both the company’s “poor cybersecurity practices and its heightened — and increasing — cybersecurity risks.”
In a statement, SolarWinds called the SEC charges unfounded and said it is “deeply concerned this action will put our national security at risk.”
Brown performed his responsibilities “with diligence, integrity, and distinction,” his lawyer, Alec Koch, said in a statement. Koch added that “we look forward to defending his reputation and correcting the inaccuracies in the SEC’s complaint.” Brown’s current title at SolarWinds is chief information security officer.
The SEC’s enforcement division director, Gurbir S. Grewal, said in a statement that SolarWinds and Brown ignored “repeated red flags” for years, painting “a false picture of the company’s cyber controls environment, thereby depriving investors of accurate material information.”
The very month that SolarWinds registered for an initial public offering, October 2018, Brown wrote in an internal presentation that the company’s “current state of security leaves us in a very vulnerable state,” the complaint says.
Among the SEC’s damning allegations: An internal SolarWinds presentation shared that year said the company’s network was “not very secure,” meaning it was vulnerable to hacking that could lead to “major reputation and financial loss. Throughout 2019 and 2020, the SEC alleged, multiple communications among SolarWinds employees, including Brown, “questioned the company’s ability to protect its critical assets from cyberattacks.”
SolarWinds, which is based in Austin, Texas, provides network-monitoring and other technical services to hundreds of thousands of organizations around the world, including most Fortune 500 companies and government agencies in North America, Europe, Asia and the Middle East.
The nearly two-year espionage campaign involved the infection of thousands of customers by seeding malware in the update channel of the company’s network management software. Capitalizing on the supply-chain hack, the Russian cyber operators then stealthily penetrated select targets including about a dozen U.S. government agencies and prominent software and telecommunications providers.
In its statement, SolarWinds called the SEC action an “example of the agency’s overreach (that) should alarm all public companies and committed cybersecurity professionals across the country.”
It did not explain how the SEC’s action could put national security at risk, though some in the cybersecurity community have argued that holding corporate information security officers personally responsible for identified vulnerabilities could make them less diligent about uncovering them — and discourage qualified people from aspiring to such positions.
Under the Biden administration, the SEC has been aggressive about holding publicly traded companies to account for cybersecurity lapses and failures to disclose vulnerabilities. In July, it adopted rules requiring them to disclose within four days all cybersecurity breaches that could affect their bottom lines. Delays would be permitted if immediate disclosure poses serious national-security or public-safety risks.
Victims of the SolarWinds hack whose Microsoft email accounts were violated included the New York federal prosecutors’ office, then-acting Homeland Security Secretary Chad Wolf and members of the department’s cybersecurity staff, whose jobs included hunting threats from foreign countries.