When Jeffrey Epstein gave The Times columnist James Stewart a tour of his apartment a few years ago, he boasted of his expansive Rolodex of billionaires — and the dirt he had on them. A year and a half after the financier’s death by suicide in a New York jail, the fallout for those in the registered sex offender’s orbit, and increasingly those a step or two removed from it, continues to spread.
For example, the latest management reshuffle at Apollo, as we reported yesterday, can be linked back to Epstein. Tracing all the resignations and reshuffles directly and indirectly tied to the scandal will take a while (we’re working on it), but here’s a tally of some so far:
The Apollo co-founder Leon Black said in January that he would resign as C.E.O. but stay on as chairman, after an internal inquiry found he had paid $158 million to Epstein for tax advice. He unexpectedly quit both posts in March, and later stepped down as chairman of the Museum of Modern Art. Josh Harris, a fellow co-founder who had unsuccessfully pushed Black to quit immediately, said yesterday that he was stepping back from Apollo after failing to become the next C.E.O.; Marc Rowan, Apollo’s third co-founder and Black’s pick as successor, now leads the firm.
When the details of meetings between Epstein and Bill Gates burst into public view in late 2019, the billionaire’s wife, Melinda French Gates, hired divorce lawyers. The couple’s split, announced this month, could upend their numerous investments and philanthropic ventures
Les Wexner announced last February that he would step down as C.E.O. of the Victoria’s Secret parent company L Brands, under pressure from multiple internal investigations about his close ties to Epstein. Earlier this year, he and his wife, Abigail Wexner, said they would not stand for re-election to the L Brands board this month. (The company is now in the process of spinning off Victoria’s Secret.) Mr. Wexner was Epstein’s biggest early client and, a Times investigation found, the original source of the financier’s wealth.
Prince Andrew of Britain gave up his public duties last November, days after a disastrous interview with the BBC centered on his relationship with Epstein. At least 47 charities and nonprofits of which he was a patron have since cut ties to the prince.
Joi Ito resigned as the director of the M.I.T. Media Lab, a prominent research group, in 2019 and as member of several corporate boards (including The New York Times Co.), after acknowledging that he had received $1.7 million in investments from Epstein.
Alexander Acosta resigned as Donald Trump’s labor secretary in 2019, amid criticism of his handling of a 2008 sex crimes case against Epstein when he was a federal prosecutor in Miami.
HERE’S WHAT’S HAPPENING
Morgan Stanley sets up its C.E.O. succession competition. The Wall Street firm gave new roles to four top executives, marking them as candidates to take over from James Gorman: Ted Pick and Andy Saperstein were named co-presidents; Jonathan Pruzan was named C.O.O.; and Dan Simkowitz was named co-head of strategy with Pick.
The U.S. endorses a global minimum tax of at least 15 percent. The proposal, which was lower than some had expected, is closely tied to the Biden administration’s plans to raise the corporate tax rate. Global coordination would discourage multinationals from shifting to tax havens overseas.
Treasury officials said they could capture at least $700 billion in additional revenue. That would involve hiring 5,000 new I.R.S. agents, imposing new rules on reporting crypto transactions and other measures.
U.S. customs officials block a Uniqlo shipment over Chinese forced labor concerns. Agents at the Port of Los Angeles acted under an order prohibiting imports of cotton items produced in the Xinjiang region.
U.S. steel prices are soaring. After years of job losses and mill closures, American steel producers have enjoyed a reversal of fortune: Nucor, for instance, is the year’s top-performing stock in the S&P 500. Credit goes to industry consolidation, a recovering economy and Trump-era tariffs. Unsurprisingly, steel consumers aren’t thrilled about it.
Oprah Winfrey to Blackstone, made its stock market debut yesterday, ending its first trading session with a valuation of about $13 billion. DealBook spoke with Oatly’s C.E.O., Toni Petersson, about the I.P.O. and what’s next for the company.
resignation letter offering both praise of SoftBank’s chief, Masa Son — and unusually pointed criticism of the company’s corporate governance.
Going out vs. staying in, charted
It’s been a while since we checked in on an alternative indicator of pandemic economic activity: the share price ratio of Clorox to Dave & Buster’s.
Wait, what? Nick Mazing, the director of research at the data provider Sentieo, came up with that metric to gauge the openness of the economy. The higher Clorox’s share price rises relative to Dave & Buster’s, the more people appear to be staying home and disinfecting everything than going out to crowded bars. By this measure, conditions have nearly returned to prepandemic levels — indeed, Dave & Buster’s recently lifted its sales forecast, as nearly all of its beer-and-arcade bars have reopened.
packed concert schedule, selling tickets to people who may have already binge-watched all of “Below Deck.” The second, however, suggests that people aren’t as eager to get back to huffing and puffing at the gym as they are content to exercise at home. As restrictions lift and people feel safer in crowds, drinking and dancing appear to be higher priorities.
new book, “Noise: A Flaw in Human Judgment,” the Princeton psychology professor and Nobel laureate Daniel Kahneman, along with co-authors Olivier Sibony and Cass Sunstein, argue that these inconsistencies have enormous and avoidable consequences. Kahneman spoke to DealBook about how to hone judgment and reduce noise.
DealBook: What is “noise” in this context?
Kahneman: It’s unwanted and unpredictable variability in judgments about the same situations. Some decisions and solutions are better than others and there are situations where everyone should be aiming at the same target.
Can you give some examples?
A basic example is the criminal justice system, which is essentially a machine for producing sentences for people convicted of crimes. The punishments should not be too different for the same crime yet sentencing turns out to depend on the judge and their mood and characteristics. Similarly, doctors looking at the same X-ray should not be reaching completely different conclusions.
How do individuals or institutions detect this noise?
You detect noise in a set of measurements and can run an experiment. Present underwriters with the same policy to evaluate and see what they say. You don’t want a price so high that you don’t get the business or one so low that it represents a risk. Noise costs institutions. One underwriter’s decision about one policy will not tell you about variability. But many underwriters’ decisions about the same cases will reveal noise.
An arm of Goldman Sachs has raised $3 billion from clients to invest in later-stage start-ups. (WSJ)
SPACs have raised $100 billion this year through May 19, a record, but new fund listings dropped sharply last month. (Insider)
Politics and policy
President Biden issued an executive order directing government agencies to expand efforts to analyze and mitigate the economic risks tied to climate change. (Axios)
“As Paycheck Protection Program Runs Dry, Desperation Grows” (NYT)
CNN said the prime-time host Chris Cuomo inappropriately advised his brother, Gov. Andrew Cuomo of New York, on how to respond to sexual harassment allegations. (NYT)
Paul Romer was one of the tech industry’s favorite economists; now he is criticizing Silicon Valley giants for being too big. (NYT)
Amazon was recently pushed to ban prominent electronics accessory makers by the F.T.C. over fake-review schemes. (Recode)
Best of the rest
Bill Gates and Warren Buffett got more than 200 billionaires to pledge half their wealth to charity. Some are falling short, but still getting massive tax breaks. (Insider)
FIFA, the global soccer governing body, secretly considered supporting the European Super League, before reconsidering amid public outcry about the now-failed competition. (NYT)
Five questions to ask before you panic about inflation. (NYT)
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Andrew here. Yesterday’s guilty verdict against George Floyd’s murderer, a former Minneapolis police officer, was a symbol of something profound: a demonstrable shift in the way this country, increasingly supported by business, has strived for civil rights.
As we ponder the meaning of this decision, it is worth recalling a moment in 1965, in the middle of that era’s civil rights movement.
A Wall Street bond firm, C.F. Securities, told Alabama that it would “no longer buy or sell bonds issued by the state or any of its political subdivisions.” Gov. George C. Wallace, who objected to desegregation, had said the state shouldn’t pay for the National Guard to protect Martin Luther King Jr. and protesters in the Selma-to-Montgomery march.
The investment firm’s executive vice president, Donald E. Barnes, wrote to the governor that his failure “to protect the citizens of Alabama in their exercise of constitutional rights” amounted to “discouragements to Alabama’s economic future.” He insisted that the move was based on economic risk, but the letter made clear it was about more than that.
paid time off on Juneteenth; the N.B.A. emblazoned the words “Black Lives Matter” on courts; Netflix steered its cash into local banks that serve Black communities; Wall Street banks announced programs worth billions to support Black communities; and just last week, in perhaps the greatest demonstration of the new responsibility business is feeling, 700 companies and executives signed a letter opposing laws that make it harder for people to vote.
“The murder of George Floyd last Memorial Day felt like a turning point for our country. The solidarity and stand against racism since then have been unlike anything I’ve experienced,” Brian Cornell, the C.E.O. of Target, wrote in a note to employees of the Minneapolis-based retailer yesterday. “Like outraged people everywhere, I had an overwhelming hope that today’s verdict would provide real accountability. Anything short of that would have shaken my faith that our country had truly turned a corner.”
You know what? Justice is good for business.
HERE’S WHAT’S HAPPENING
The European Super League has collapsed. Plans to create a closed competition of top soccer clubs fell apart yesterday when six English teams withdrew, bowing to outrage from fans and threats by lawmakers. Shortly after, an official at the Super League said the project had been suspended, ending an effort to upend soccer’s multibillion-dollar economics.
outweigh a small risk of blood clots, but wants a warning added. U.S. regulators will decide whether to end a pause on the vaccine in the coming days.
Goldman Sachs releases worker diversity data. The Wall Street bank disclosed for the first time how many of its senior U.S. executives are Black: 49 out of more than 1,500. Banks agreed last year to publish more information about their work forces; Morgan Stanley has an even smaller share of Black executives than Goldman.
Apple’s new products raise competition concerns. The tech giant unveiled new iPads and iMacs, and a revamped podcast app. But its new AirTags, which attach to items to help find them, was criticized by the C.E.O. of Tile, which makes a similar product. Apple also said it would roll out new iOS privacy features — criticized by Facebook and other app makers — next week.
Understanding the ‘antimonopolist’ Lina Khan
Lina Khan’s nomination to the Federal Trade Commission is one of the clearest signs of progressive influence in the Biden administration. A Columbia University scholar who worked on a major congressional report about Big Tech and antitrust last year, Ms. Khan is a star in the constellation of competition law experts known as “antimonopolists.” Her confirmation hearing with the Senate Commerce Committee is today.
power of internet giants, which could win her some conservative support. Having a “strong” perspective probably isn’t an obstacle to confirmation, Mr. Hoffman said.
“Antimonopoly is more than antitrust,” Ms. Khan wrote in 2018. It shifts away from a “consumer” take on mergers managed by antitrust agencies to a broader approach using “policy levers” across the government and keeps workers, voters, the environment and more in mind.
Big Tech will be a likely focus at the hearing. But this would be a “disservice” to Ms. Khan, according to Mr. Hoffman. “At the F.T.C., a lot of the agenda is reactive,” he said. Companies file merger paperwork and regulators respond, whatever the industry. Ms. Khan has a broad perspective on competition law, Mr. Hoffman said, and today would be “a fair time” to ask what “objective standards” she’d apply.
“You have to have some morals.”
— Ari Emanuel, the outspoken C.E.O. of the entertainment conglomerate Endeavor, speaking in a New Yorker profile about returning an investment from Saudi Arabia after the killing of Jamal Khashoggi. Separately, Endeavor disclosed yesterday that it hopes to be valued at more than $10 billion in an I.P.O.
These ‘Roaring Twenties’ have railroad battles, too
Canadian National Railway yesterday offered to buy Kansas City Southern for $33.7 billion, topping a $29 billion bid last month by its rival Canadian Pacific. They’re jockeying over the chance to create the first railroad connecting major ports from Canada to Mexico. The bidding war reflects bullishness about an industry poised for growth if a post-pandemic boom ushers in this generation’s “Roaring Twenties.”
antitrust concerns made the counterbid “illusory and inferior.” Kansas City Southern said it would evaluate the new bid in accordance with its agreement with its original suitor.
mixed reception from freight shippers, who suffered in the last round of consolidation. And we haven’t yet heard from Senator Amy Klobuchar, who heads the antitrust subcommittee and represents key industrial interests in Minnesota.
Giving Coinbase a run for its (digital) money
The public listing of Coinbase, the largest crypto exchange in the U.S., generated a wave of excitement that competitors aim to ride. Among them is Binance.US, the third-ranked domestic crypto exchange, which yesterday named Brian Brooks — formerly Coinbase’s chief counsel and most recently acting U.S. comptroller of the currency — as C.E.O., beginning in May. “There’s a lot of buzz about my former employer, which is well-deserved,” Mr. Brooks told DealBook about Coinbase. “But it’s in everybody’s best interest if there’s more competition.”
Mr. Brooks’ first task is building trust with regulators. He says “managing reputation” is his biggest concern. Binance has shifted its operations throughout Asia since it was founded in 2017, and some say it played fast and loose with rules. The C.F.T.C. was reportedly investigating the company for allowing U.S.-based customers to trade crypto derivatives, which is banned (the agency declined to comment). Mr. Brooks insists he did “a lot” of due diligence on his new employer and dismisses “loose talk” about the exchange flouting regulations.
Binance’s group C.E.O., CZ Zhao, says he embraces regulation. Hiring Mr. Brooks is one way the company is trying to make the point. Binance also hired Max Baucus, the former Montana senator and ambassador to China, last month, along with other former regulators.
Binance.US sees potential to lead in undeveloped areas of the American crypto landscape, like derivatives and lending. Mr. Brooks said the company can learn from competitors like Coinbase and Kraken — and challenge them. That is, if he can convince regulators to bless its efforts to bring crypto into the financial mainstream, a preoccupation of players across the industry.
JPMorgan wants to end banker burnout, for real this time
Yesterday, JPMorgan Chase’s co-heads of investment banking, Jim Casey and Viswas Raghavan, announced policies aimed at improving working conditions amid record deal volume and banker burnout. The company has attempted similar things before. DealBook spoke with Mr. Casey about the latest plan — and whether this one will stick.
JPMorgan has recently hired 65 analysts and 22 associates, and plans to add another 100 junior bankers and support staff, Mr. Casey said. It’s targeting bankers at rival firms, as well as lawyers and accountants interested in a career switch.
similar efforts to protect junior bankers’ hours in 2016, but “it wasn’t stringently enforced,” Mr. Casey said. Why not? “Laziness.” This time, junior bankers’ hours and feedback will figure in senior manager performance evaluation and compensation.
“It’s not a money problem,” Mr. Casey said, so there won’t be one-time checks or free Pelotons after a rush.Junior bankers will get their share of the record $3 billion in fees JPMorgan earned in the first quarter.
Some things won’t change. Because banking is a client-service job, managers sometimes have limited control over workloads and hours. “You might do 100 deals a year, but that client only does one deal every three years,” Mr. Casey said.
How the bank will measure success: “Ask me what our turnover ratio has gone to and I will tell you,” Mr. Casey said. The goal, he said, is “lower.”
THE SPEED READ
Politics and policy
Senator Bernie Sanders is co-sponsoring a bill that would impose a financial transaction tax on Wall Street to drastically expand tuition-free access to community colleges and trade schools. (CNBC)
Twelve megadonors accounted for nearly $1 of every $13 raised by federal candidates and political groups since 2009, a new study found. (NYT)
Best of the rest
The Sacklers, the family that founded the maker of OxyContin, are worth about $11 billion, according to documents released by a Congressional committee. (WSJ)
“Behind the Mysterious Demise of a $1.7 Billion Mutual Fund.” (WSJ)
Amazon is opening a hair salon in London. It isn’t called Prime Cuts. (WaPo)
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Canadian National Railway on Tuesday offered to buy Kansas City Southern for $33.7 billion, topping a $29 billion bid put forward last month by a rival railroad operator, Canadian Pacific.
The competing offers underline the riches expected to come from trade flows after the United States-Mexico-Canada Agreement was passed into law last year. A merger with either suitor would create a railroad line that stretches from Canada to Mexico. In the already consolidated railroad industry, few lines are left to bid on — let alone deals that will be approved by regulators.
Canadian National said in a letter to Kansas City board that the company had spent “considerable time and resources analyzing a potential combination of our two companies.” It argues its offer represents “an unparalleled opportunity to create a premier railway for the 21st century.”
The offer gives Kansas City Southern a valuation 21 percent higher than Canadian Pacific’s bid, which had been agreed on by the companies’ boards.
track agreements extending to the Gulf of Mexico.
The rival bid is one further challenge to Canadian Pacific’s offer, which was already facing regulatory scrutiny. The U.S. Department of Justice has urged the Surface Transportation Board — which must approve the offer — to examine the deal under tough industry guidelines put in place in 2001 and expressed concern over its use of a voting trust that would it allow it close the deal even before getting regulatory approval.
Canadian Pacific has argued that there should be no regulatory trouble, given the two railroads have no overlap and in some cases create new markets. It said its smaller size compared with other major North American railroads should exempt it from the guidelines.
Canadian Pacific and Kansas City Southern announced plans on Sunday to combine in a $29 billion deal that would create the first railroad network connecting the United States, Mexico and Canada.
It is an effort to capitalize on the trade flows expected to run through the three countries after President Donald J. Trump signed the United States-Mexico-Canada Agreement into law last year. It’s also a bet on the strength of the industrial economy as the United States rebounds from the pandemic.
Canadian Pacific links major ports on the East and West Coasts between the United States and Canada, while Kansas City Southern connects the United States, Mexico and Panama. The two connect on a single point: a joint facility in Kansas City, Mo., where Kansas City Southern is based.
“This deal just has so many longer-term strategic advantages,” Kansas City Southern’s chief executive, Patrick J. Ottensmeyer, said in an interview. “Our board really saw the value in putting these two companies together right now.”
$208 a share offer from the Blackstone Group, a private equity firm, that Kansas City Southern rebuffed last year. Shares of Kansas City are up 12 percent year-to-date, while shares of Canadian Pacific have climbed almost 10 percent.
The boards of both companies have unanimously approved the cash-and-stock deal, which is expected to close by the middle of 2022, subject to customary approvals.
The railroad industry can be viewed as a bellwether of industrial activity; it expects to benefit from a growing U.S. economy as it emerges from the pandemic. The Federal Reserve has signaled optimism for the nation’s economic outlook, and President Biden signed a $1.9 trillion spending bill into law this month.
in his annual letter.
The railroad executives on Sunday highlighted other opportunities they see in the deal. Mr. Creel called the merger a “compelling opportunity to take trucks off the road” at a time when the United States is focused on a transition to a greener economy. It also reduces risks in the global supply chain after a pandemic that highlighted its weaknesses, Mr. Ottensmeyer said.
The deal needs approval from the Surface Transportation Board, a division of the Department of Transportation, which has previously acknowledged concerns that railroad consolidation has led to service issues for shippers. Canadian Pacific’s past efforts to acquire U.S. railroads have failed, in part because of such concerns. That includes talks with CSX Corporation in 2014 and Norfolk Southern in 2016. And the Biden administration has already signaled a tougher stance on antitrust scrutiny.
Because of its size, Kansas City Southern is exempt from guidelines put in place in 2001 to tighten deal scrutiny in the industry. The combined company would still be the smallest of the remaining six largest freight railroads operating in the United States. The two railroads have no overlap, Mr. Creel and Mr. Ottensmeyer said — and, in some cases, the transaction will create new markets.
“There’s zero other deals that represent the uniqueness of this deal,” Mr. Creel said.