TORONTO–(BUSINESS WIRE)–DREAM IMPACT TRUST (TSX: MPCT.UN) (“Dream Impact”, “we”, “our” or the “Trust”) today reported its financial results for the three and nine months ended September 30, 2022 (“third quarter”).
For the second consecutive year, the Trust is pleased to achieve a five-star rating from GRESB, the Global Real Estate Sustainability Benchmark, which is recognition of its placement in the top 20% global benchmark with an overall score of 88/100. The Trust’s score can be attributed to excellent performance in Leadership, Policies, Reporting, Targets and, Data Monitoring and Review. Annual participation in the GRESB assessment provides the Trust with the opportunity for a third-party assessment of our continued progress towards achieving the Trust’s impact/ESG related goals. Further details on specific ESG metrics will be disclosed as part of our 2021 Sustainability Update report, which will be published in November.
“We are pleased with the Trust’s steady progress to create a more resilient portfolio,” said Michael Cooper, Portfolio Manager. “As we add an additional 210 multi-family units to our recurring income segment in the quarter, and construction continues on our 1,863-unit rental buildings in the West Don Lands, we believe we are well positioned to weather ongoing market disruptions by investing in high-quality assets, and contributing meaningfully to important societal issues. While our pace of external acquisitions may slow in the near term, with the largest portfolio of net-zero development and our extensive residential pipeline, we have tremendous internal growth.”
Selected financial and operating metrics for the three and nine months ended September 30, 2022, are summarized below:
Three months ended September 30,
Nine months ended September 30,
2022
2021
2022
2021
Condensed consolidated results of operations
Net income (loss)
$
337
$
2,154
$
1,309
$
(5,509)
Net income (loss) per unit(1)
0.01
0.03
0.02
(0.08)
Distributions declared and paid per unit
0.10
0.10
0.30
0.30
Units outstanding – end of period
66,094,687
64,939,362
66,094,687
64,939,362
Units outstanding – weighted average
65,982,734
65,066,259
65,637,245
64,934,850
During the three months ended September 30, 2022, the Trust reported net income of $0.3 million compared to net income of $2.2 million in the prior year. The change in earnings was primarily driven by timing of fair value adjustments on our income properties and developments, upon milestone achievements, as well as higher interest expense. This was partially offset by the impact of foreign exchange fluctuations on the Trust’s investment in the U.S. hotel.
As at September 30, 2022, the Trust had $9.0 million of cash-on-hand, which included unused proceeds from the Trust’s convertible debenture issuance. The Trust’s debt-to-asset value(1) as at September 30, 2022 was 27.3%, an increase relative to 25.7% as of June 30, 2022, primarily due to draws on the credit facility. For similar reasons, the Trust’s debt-to-total asset value, inclusive of project-level debt(1) and assets within our development segment, including equity accounted investments, was 60.0% as at September 30, 2022, compared to 57.4% as at June 30, 2022. This includes long-term government debt at low interest rates and high leverage, providing financial benefits that help us pay for the social benefits we provide, including our affordable housing and sustainability programs within our communities. As at September 30, 2022, the Trust had drawn $24.8 million on its $50.0 million credit facility.
As part of the Trust’s ongoing risk management practices, the Trust monitors the impact of macroeconomic factors on the business. This includes assessing the impact of cost escalations on operations and construction projects, and the impact of rising interest rates on our portfolio. We continue to monitor our capital allocation on an ongoing basis, pursue refinancing opportunities which mitigate interest rate risk, and tender a significant portion of development costs prior to construction commencement which helps contain inflationary risk.
Recurring Income
In the third quarter, the Trust’s recurring income segment generated net income of $1.2 million, consistent with prior year, although the composition of earnings differed in each period due to transaction costs, fair value adjustments and occupancy rates across the portfolio.
Throughout the period, we have continued to see strong leasing momentum across our multi-family rental buildings, ending the quarter with in-place and committed residential occupancy at 93.5% as of September 30, 2022, up from 82.5% as of June 30, 2022. Notably, Aalto Suites, a 162-unit multi-family rental building at Zibi, ended the quarter with in-place and committed occupancy at 74.7%, up from 34.6% at June 30, 2022. Aalto Suites has 95% of its units designated as affordable and we anticipate achieving stabilization for the asset in early 2023.
In the third quarter, the Trust acquired a 50% interest in 70 Park, a 210-unit multi-family rental building adjacent to the Port Credit GO station and in close proximity to the Trust’s Brightwater development. The gross purchase price for the site was $105.5 million (at 100%), of which approximately $25 million was allocated to land slated for redevelopment on the site. Inclusive of 70 Park, the Trust’s multi-family rental portfolio is comprised of nearly 1,600 units of which 25% are considered affordable.
Based on the Trust’s current development pipeline, we have an additional 2,826 residential units and 153,000 square feet (“sf”) of commercial and retail (at 100%) with an estimated value on completion of $508.5 million that will be completed and contribute to recurring income over the next three years. For further details, refer to the “Three-Year Recurring Income” table in Section 2.1, “Recurring Income”, in the Trust’s MD&A for the three and nine months ended September 30, 2022.
Development
In the third quarter, the development segment generated net income of $2.9 million compared to $4.2 million in the prior period. The decrease relative to prior year was driven by fair value gains recognized in 2021 within the Trust’s equity accounted investments, partially offset by higher foreign exchange gains on the Trust’s investment in the U.S. hotel this year.
In the period, we completed the acquisition of the Berkeley land assembly, which comprises five income properties adjacent to the Trust’s commercial asset, 49 Ontario, located in downtown Toronto. Inclusive of one property purchased in 2021, the Berkeley land assembly was purchased for $16.9 million, including transaction costs. The Trust has submitted a rezoning application for over 800,000 sf for this site and expects rezoning to be achieved by 2023. As of September 30, 2022, 49 Ontario was carried at $95.0 million per the Trust’s financial statements.
Other(2)
In the third quarter, the Other segment generated a net loss of $3.8 million compared to $3.3 million in the prior year. The increase was primarily driven by interest expense on the Trust’s convertible debentures and credit facility. Partially offsetting this was a deferred compensation recovery and decrease in the asset management fee as a result of fluctuations in the Trust’s share price.
Cash Generated from Operating Activities
Cash generated in operating activities for the three months ended September 30, 2022 was $1.5 million compared to cash generated of $4.3 million in the prior year, a decrease driven by proceeds received from a legacy development in the prior year and timing of deposits made on the Trust’s acquisitions.
Footnotes
(1)
For the Trust’s definition of the following specified financial measures: debt-to-asset value, debt-to-total asset value, inclusive of project-level debt, net income (loss) per unit, please refer to the cautionary statements under the heading “Specified Financial Measures and Other Measures” in this press release and the Specified Financial Measures and Other Disclosures section of the Trust’s MD&A.
(2)
Includes other Trust amounts not specifically related to the segments.
Conference Call
Senior management will host a conference call on Thursday November 3 at 2:00 pm (ET). To access the call, please dial 1-866-455-3403 in Canada or 647-484-8332 elsewhere and use passcode 24662328#. To access the conference call via webcast, please go to the Trust’s website at www.dreamimpacttrust.ca and click on Calendar of Events in the News and Events section. A taped replay of the conference call and the webcast will be available for 90 days.
About Dream Impact
Dream Impact is an open-ended trust dedicated to impact investing. Dream Impact’s underlying portfolio is comprised of exceptional real estate assets reported under two operating segments: development and investment holdings, and recurring income, that would not be otherwise available in a public and fully transparent vehicle, managed by an experienced team with a successful track record in these areas. The objectives of Dream Impact are to create positive and lasting impacts for our stakeholders through our three impact verticals: environmental sustainability and resilience, attainable and affordable housing, and inclusive communities; while generating attractive returns for investors. For more information, please visit: www.dreamimpacttrust.ca.
Specified Financial Measures and Other Measures
The Trust’s condensed consolidated financial statements are prepared in accordance with International Financial Reporting Standards (“IFRS”). In this press release, as a complement to results provided in accordance with IFRS, the Trust discloses and discusses certain specified financial measures, including debt-to-asset value, debt-to-total asset value inclusive of project-level debt, and net income (loss) per unit, as well as other measures discussed elsewhere in this release. These specified financial measures are not defined by IFRS, do not have a standardized meaning and may not be comparable with similar measures presented by other issuers. The Trust has presented such specified financial measures as management believes they are relevant measures of our underlying operating performance and debt management. Specified financial measures should not be considered as alternatives to unitholders’ equity, net income, total comprehensive income or cash flows generated from operating activities, or comparable metrics determined in accordance with IFRS as indicators of the Trust’s performance, liquidity, cash flow and profitability. For a full description of these measures and, where applicable, a reconciliation to the most directly comparable measure calculated in accordance with IFRS, please refer to Section 6, “Specified Financial Measures and Other Disclosures” in the Trust’s MD&A for the three and nine months ended September 30, 2022.
“Debt-to-asset value” represents the total debt payable for the Trust divided by the total asset value of the Trust as at the applicable reporting date. This non-GAAP ratio is an important measure in evaluating the amount of debt leverage; however, it is not defined by IFRS, does not have a standardized meaning, and may not be comparable with similar measures presented by other issuers.
As at
September 30, 2022
December 31, 2021
Total debt
$
203,585
$
133,150
Unamortized discount on host instrument of convertible debentures
1,152
809
Conversion feature
(345)
(357)
Unamortized balance of deferred financing costs
3,023
1,300
Total debt payable
$
207,415
$
134,902
Total assets
760,203
701,702
Debt-to-asset value
27.3%
19.2%
“Debt-to-total asset value, inclusive of project-level debt” represents the Trust’s total debt payable plus the debt payable within our development and investment holdings, and equity accounted investments, divided by the total asset value of the Trust plus the debt payable within our development and investment holdings, and equity accounted investments, as at the applicable reporting date. This specified financial measure is an important measure in evaluating the amount of debt leverage inclusive of project-level debt within our development and investment holdings, and equity accounted investments; however, it is not defined by IFRS, does not have a standardized meaning, and may not be comparable with similar measures presented by other issuers.
September 30, 2022
December 31, 2021
Debt payable within our development and investment holdings, and equity accounted investments
$
622,683
$
493,217
Total assets
760,203
701,702
Total assets, inclusive of project-level debt
$
1,382,886
$
1,194,919
Debt payable within our development and investment holdings, and equity accounted investments
$
622,683
$
493,217
Total debt payable
207,415
134,902
Total debt, inclusive of project-level debt
$
830,098
$
628,119
Debt-to-total asset value, inclusive of project-level debt and assets within our development segment, including equity
accounted investments
60.0%
52.6%
“Net income (loss) per unit” represents net income (loss) of the Trust divided by the weighted average number of units outstanding during the period.
Three months ended September 30,
Nine months ended September 30,
2022
2021
2022
2021
Net income (loss)
$
337
$
2,154
$
1,309
$
(5,509)
Units outstanding – weighted average
65,982,734
65,066,259
65,637,245
64,934,850
Net income (loss) per unit
$
0.01
$
0.03
$
0.02
$
(0.08)
Forward-Looking Information
This press release may contain forward-looking information within the meaning of applicable securities legislation. Forward-looking information generally can be identified by the use of forward-looking terminology such as “outlook”, “objective”, “may”, “will”, “would”, “could”, “expect”, “intend”, “estimate”, “anticipate”, “believe”, “should”, “plans”, or “continue”, or similar expressions suggesting future outcomes or events. Some of the specific forward-looking information in this press release may include, among other things, statements relating to the Trust’s objectives and strategies to achieve those objectives; the publication and details of the 2021 Sustainability Update Report; the resiliency of the Trust’s portfolio; the belief that the Trust is well positioned to withstand market disruptions by investing in high-quality assets; the expectation that external acquisitions may slow in the near term; the Trust’s internal growth potential; the expectation that long-term government debt at low interest rates will provide certain financial benefits; the Trust’s ongoing monitoring of capital allocation, pursuit of refinancing opportunities to mitigate interest rate risks, and tender significant portions of development costs prior to construction commencement to contain inflationary risk; the Trust’s ability to execute on transactions and successfully navigate markets; expected growth of the Trust’s recurring income segment; our development and redevelopment pipeline; expectations regarding rezoning applications and related square footage and finalization dates, including in respect of the Berkeley land assembly; the Trust’s ability to achieve its impact and sustainability goals, and implementing other sustainability initiatives throughout its projects; and the 2,826 residential units and 153,000 sf of commercial and retail (at 100%) with an estimated value upon completion of $508.5 million which are expected to be completed and contribute to recurring income over the next three years.
Forward-looking information is based on a number of assumptions and is subject to a number of risks and uncertainties, many of which are beyond the Trust’s control, which could cause actual results to differ materially from those that are disclosed in or implied by such forward-looking information. These risks and uncertainties include, but are not limited to: adverse changes in general economic and market conditions; the impact of the novel coronavirus (COVID-19 and variants thereof) pandemic on the Trust; risks associated with unexpected or ongoing geopolitical events, including disputes between nations, terrorism or other acts of violence, and international sanctions; inflation; the disruption of free movement of goods and services across jurisdictions; the risk of adverse global market, economic and political conditions and health crises; risks inherent in the real estate industry; risks relating to investment in development projects; impact investing strategy risk; risks relating to geographic concentration; risks inherent in investments in real estate, mortgages and other loans and development and investment holdings; credit risk and counterparty risk; competition risks; environmental and climate change risks; risks relating to access to capital; interest rate risk; the risk of changes in governmental laws and regulations; tax risks; foreign exchange risk; acquisitions risk; and leasing risks. Our objectives and forward-looking statements are based on certain assumptions with respect to each of our markets, including that the general economy remains stable; the gradual recovery and growth of the general economy continues over 2022; that no unforeseen changes in the legislative and operating framework for our business will occur; that there will be no material change to environmental regulations that may adversely impact our business; that we will meet our future objectives, priorities and growth targets; that we receive the licenses, permits or approvals necessary in connection with our projects; that we will have access to adequate capital to fund our future projects, plans and any potential acquisitions; that we are able to identify high quality investment opportunities and find suitable partners with which to enter into joint ventures or partnerships; that we do not incur any material environmental liabilities; interest rates remain stable; inflation remains relatively low; there will not be a material change in foreign exchange rates; that the impact of the current economic climate and global financial conditions on our operations will remain consistent with our current expectations; our expectations regarding the impact of the COVID-19 pandemic and government measures to contain it; our expectation regarding ongoing remote working arrangements; and competition for and availability of acquisitions remains consistent with the current climate.
All forward-looking information in this press release speaks as of October 31, 2022. The Trust does not undertake to update any such forward-looking information whether as a result of new information, future events or otherwise, except as required by law. Additional information about these assumptions and risks and uncertainties is disclosed in the Trust’s filings with securities regulators filed on the System for Electronic Document Analysis and Retrieval (www.sedar.com), including its latest annual information form and MD&A. These filings are also available at the Trust’s website at www.dreamimpacttrust.ca.
It was Saturday, Oct. 1, and Jim Lewis, who frequently posts on Twitter under the moniker Wall Street Silver, made that assertion to his more than 300,000 followers. “Markets are saying it’s insolvent and probably bust. 2008 moment soon?”
Mr. Lewis was among hundreds of people — many of them amateur investors — who had been speculating about the fate of Credit Suisse, the Swiss bank. It was in the middle of a restructuring and had become an easy target after decades of scandals, failed attempts at reform and management upheavals.
There seemed to be no immediate provocation for Mr. Lewis’s weekend tweet other than a memo that Ulrich Körner, the chief executive of Credit Suisse, had sent employees the day before, reassuring them that the bank was in good financial health.
But the tweet, which has been liked more than 11,000 times and retweeted more than 3,000 times, was one of many that helped ignite a firestorm on social media forums like Twitter and Reddit. The rumor that Credit Suisse was in trouble ricocheted around the world, stumping bank executives and forcing them to call shareholders, trading partners and analysts to reassure them that everything was fine before markets reopened on Monday.
prop up the shares of GameStop, the video game retailer, determined to outsmart hedge funds that had bet the company’s shares would fall.
Our Coverage of the Investment World
The decline of the stock and bond markets this year has been painful, and it remains difficult to predict what is in store for the future.
A Bad Year for Bonds: This has been the most devastating time for bonds since at least 1926 — and maybe in centuries. But much of the damage is already behind us.
Discordant Views: Some investors just don’t see how the Federal Reserve can lower inflation without risking high unemployment. The Fed appears more optimistic.
Weathering the Storm: The rout in the stock and bond markets has been especially rough on people paying for college, retirement or a new home. Here is some advice.
College Savings: As the stock and bond markets wobble, 529 plans are taking a tumble. What’s a family to do? There’s no one-size-fits-all answer, but you have options.
But what started as a spontaneous effort to take down Wall Street has since become an established presence in the market. Millions of amateur investors have embraced trading, including more sophisticated strategies such as shorting. As the Credit Suisse incident shows, their actions highlight a new source of peril for troubled companies.
Founded in Switzerland in 1856 to help finance the expansion of railroads in the tiny European nation, Credit Suisse has two main units — a private wealth management business and an investment bank. However, the bank has often struggled to maintain a pristine reputation.
It has been the repository of funds from businesspeople who are under sanctions, human rights abusers and intelligence officials. The U.S. government has fined it billions of dollars for its role in helping Americans file false tax returns, marketing mortgage-backed securities tied to the 2008 financial crisis and helping customers in Iran, Sudan and elsewhere breach U.S. sanctions.
In the United States, Credit Suisse built its investment banking business through acquisitions, starting with the 1990 purchase of First Boston. But without a core focus, the bank — whose top bosses sit in Switzerland — has often allowed mavericks to pursue new revenue streams and take outsize risks without adequate supervision.
collapsed. Credit Suisse was one of many Wall Street banks that traded with Archegos, the private investment firm of Bill Hwang, a former star money manager. Yet it lost $5.5 billion, far more than its rivals. The bank later admitted that a “fundamental failure of management and controls” had led to the debacle.
surveillance of Credit Suisse executives under his watch. He left the bank in a stable and profitable condition and invested appropriately across its various divisions, his spokesman, Andy Smith, said.
Credit Suisse replaced Mr. Thiam with Thomas Gottstein, a longtime bank executive. When Archegos collapsed, the bank kept Mr. Gottstein on the job, but he started working with a new chairman, António Horta-Osório, who had been appointed a few months earlier to restructure the bank.
resigned after an inquiry into whether he had broken quarantine rules during the pandemic. But he made swift changes in his short tenure. To reduce risk taking, Mr. Horta-Osório said, the bank would close most of its prime brokerage businesses, which involve lending to big trading firms like Archegos. Credit Suisse also lost a big source of revenue as the market for special purpose acquisition companies, or SPACs, cooled.
By July, Credit Suisse had announced its third consecutive quarterly loss. Mr. Gottstein was replaced by Mr. Körner, a veteran of the rival Swiss bank UBS.
Mr. Körner and the chairman, Axel Lehmann, who replaced Mr. Horta-Osório, are expected to unveil a new restructuring plan on Oct. 27 in an effort to convince investors of the bank’s long-term viability and profitability. The stock of Credit Suisse has dipped so much in the past year that its market value — which stood around $12 billion — is comparable to that of a regional U.S. bank, smaller than Fifth Third or Citizens Financial Group.
appeared on Reddit.
Mr. Macleod said he had decided that Credit Suisse was in bad shape after looking at what he deemed the best measure of a bank’s value — the price of its stock relative to its “book value,” or assets minus liabilities. Most Wall Street analysts factor in a broader set of measures.
But “bearing in mind that most followers on Twitter and Reddit are not financial professionals,” he said, “it would have been a wake-up call for them.”
The timing puzzled the bank’s analysts, major investors and risk managers. Credit Suisse had longstanding problems, but no sudden crisis or looming bankruptcy.
Some investors said the Sept. 30 memo sent by Mr. Körner, the bank’s chief executive, reassuring staff that Credit Suisse stood on a “strong capital base and liquidity position” despite recent market gyrations had the opposite effect on stock watchers.
Credit Suisse took the matter seriously. Over the weekend of Oct. 1, bank executives called clients to reassure them that the bank had more than the amount of capital required by regulators. The bigger worry was that talk of a liquidity crisis would become a self-fulfilling prophecy, prompting lenders to pull credit lines and depositors to pull cash, which could drain money from the bank quickly — an extreme and even unlikely scenario given the bank’s strong financial position.
“Banks rely on sentiment,” Mr. Scholtz, the Morningstar analyst, said. “If all depositors want their money back tomorrow, the money isn’t there. It’s the reality of banking. These things can snowball.”
What had snowballed was the volume of trading in Credit Suisse’s stock by small investors, which had roughly doubled from Friday to Monday, according to a gauge of retail activity from Nasdaq Data Link.
Amateur traders who gather on social media can’t trade sophisticated products like credit-default swaps — products that protect against companies’ reneging on their debts. But their speculation drove the price of these swaps past levels reached during the 2008 financial crisis.
Some asset managers said they had discussed the fate of the bank at internal meetings after the meme stock mania that was unleashed in early October. While they saw no immediate risk to Credit Suisse’s solvency, some decided to cut trading with the bank anyway until risks subsided.
In another private message on Twitter, Mr. Lewis declined to speak further about why he had predicted that Credit Suisse would collapse.
“The math and evidence is fairly obvious at this point,” he wrote. “If you disagree, the burden is really on you to support that position.”
“Divestiture is always a bright idea for merging parties, and it’s not always a very good idea for consumers.,” he added.
Albertsons shares fell on Friday, a sign that investors are skeptical that the deal will get past regulators. By late morning, the stock was trading below $27 a share, more than 21 percent below Kroger’s $34.10 a share offer price.
In announcing the deal, Kroger also sought to ease concerns about the impact on consumers by saying that it expects to save about $500 million in costs, which it plans to use to “reduce prices for customers.” Whether it follows through with those plans will likely be a key focus for regulators.
Though cost savings in acquisitions often come from layoffs, the grocers may also point to fact that their workforces are unionized as part of their discussions with regulators. The Biden administration has been a significant proponent of unions. Neither Walmart nor Amazon are unionized on a large scale.
Consumer protection groups raised concerns about the deal following reports of a possible merger on Thursday. The American Economic Liberties Project, a nonprofit that promotes antitrust legislation, criticized it as a “bad deal for consumers, workers and communities.”
“There is no reason to allow two of the biggest supermarket chains in the country to merge — especially with food prices already soaring,” Sarah Miller, the group’s executive, said in a statement on Thursday.
As part of their pitch to regulators, Kroger and Albertsons will likely try to convince them that their scale is needed to compete against big box stores like Aldi, Lidl — two European chains that have been expanding quickly in the United States — and Costco, as well as Amazon.
The agency, though, has not always allowed retailers to use Amazon as a boogeyman to help clear their deals. In 2015, the F.T.C. successfully sued to block a merger between the retailers Office Depot and Staples, even after they had positioned the deal as an effort to take on Amazon and lower prices.
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At a Communist Party congress starting in Beijing on Oct. 16, Xi Jinping is expected to be named to a third five-year term as the country’s top leader, paving the way for him to consolidate power to an extent not seen in decades.
Under Mr. Xi, China has become the world’s dominant manufacturer of everything from cement to solar panels, as well as the main trading partner and dominant lender for most of the developing world. It has built the world’s largest navy, developed some of the world’s most advanced ballistic missiles and constructed air bases on artificial islands strewn across the South China Sea.
in a tailspin. Its property market, which over the last ten years contributed about a quarter of the country’s economic output, is melting down. Foreign investment has faltered. And widespread lockdowns and mass quarantines, part of China’s zero-tolerance approach to Covid-19, have hurt consumer demand and stalled businesses.
At the same time, Mr. Xi has worked to turn China into a more state-led society that often puts national security and ideology before economic growth. He has cracked down on Chinese companies and limited their executives’ power. Some of China’s best-known entrepreneurs have left the country and others, such as Alibaba co-founder Jack Ma, have largely disappeared from public view.
All of this has hurt China’s economy, which was just 0.4 percent larger from April through June than during the same period last year. The growth was far below the government’s initial target for growth of about 5.5 percent this year. For the first year since the 1990s, China’s economic growth is expected to fall below the rest of Asia’s.
at the start of the last party congress, in 2017, lasted more than three hours. But buried in that jargon are likely to be some important messages. Here’s what finance leaders and corporate executives around the world want to know.
Domestic Ideology: ‘Common Prosperity’
One of Mr. Xi’s favorite economic policy initiatives in recent months has a simple, innocuous-sounding name: “common prosperity.” The big question lies in what it means.
Common prosperity, a longtime goal of the Communist Party, has been defined by Mr. Xi as reining in private capital and narrowing China’s huge disparities in wealth. Regulators and tax investigators cracked down last year on tech giants and wealthy celebrities. Beijing demanded that tycoons give back to society. And Mr. Xi has strongly discouraged speculation in housing, pushing instead for government subsidies for the construction of more rental apartments.
A regulatory crackdown on tech companies and after-school education companies contributed to a wave of layoffs that left one in five young Chinese city dwellers unemployed by August. Lending limits on China’s highly inflated housing sector have triggered a nosedive in the number of fresh construction projects being started and a wave of insolvencies among real estate developers. Many Western hedge funds that bet heavily on the real estate developers’ overseas bond issues incurred considerable losses.
The term “common prosperity” was seldom used by top officialslast spring during those setbacks. But Mr. Xi conspicuously revived it during a tour of northeastern China in mid-August. The Politburo subsequently mentioned common prosperity when it announced on Aug. 30 the starting date and agenda for the party congress.
first put forward in May 2020, is a theory of what he calls “dual circulation.” The concept involves relying primarily on domestic demand and innovation to propel the Chinese economy, while maintaining foreign markets and investors as a backup engine for growth.
Mr. Xi has pushed ahead with lavish subsidies to develop Chinese manufacturers, especially of semiconductors. But the slogan has attracted considerable skepticism from foreign investors in China and from foreign governments. They worry that the policy is a recipe for replacing imports with Chinese-made goods.
China’s imports have indeed stagnated this year while its exports have soared, producing the largest trade surpluses the world has ever seen. Those surpluses, not domestic demand, have sustained China’s economic growth this year.
Chinese officials deny that they are trying to discourage imports, and contend that China remains eager to welcome foreign companies and products. When the Politburo scheduled the party congress for Oct. 16, it did not mention dual circulation, so the term might be left aside. If it goes unmentioned, that could be a conciliatory gesture as foreign investment in China is already weakening, mainly because of the country’s draconian pandemic policies.
Pandemic: ‘Covid Zero’
China’s zero-tolerance approach to Covid-19 has prevented a lot of deaths and long-term infections, but at a high and growing cost to the economy. The question now lies in when Mr. Xi will shift to a less restrictive stance toward controlling the virus.
in Tiananmen Square, on the 100th anniversary of the founding of the Chinese Communist Party, when he reiterated China’s claim to Taiwan, a self-ruled island democracy. President Biden has mentioned four times that the United States is prepared to help Taiwan resist aggression. Each time his aides have walked back his comments somewhat, however, emphasizing that the United States retains a policy of “strategic ambiguity” regarding its support for the island.
Even a vague mention by Mr. Xi at the party congress of a timeline for trying to bring Taiwan under the mainland’s political control could damage financial confidence in both Taiwan and the mainland.
New Leaders
The most important task of the ruling elite at the congress is to confirm the party’s leadership.
Particularly important to business is who in the lineup will become the new premier. The premier leads the cabinet but not the military, which is directly under Mr. Xi. The position oversees the finance ministry, commerce ministry and other government agencies that make many crucial decisions affecting banks, insurers and other businesses. Whoever is chosen will not be announced until a separate session of the National People’s Congress next March, but the day after the congress formally ends, members of the new Politburo Standing Committee — the highest body of political power in China — will walk on a stage in order of rank. The order in which the new leadership team walks may make clear who will become premier next year.
a leading hub of entrepreneurship and foreign investment in China. Neither has given many clues about their economic thinking since taking posts in Beijing. Mr. Wang had more of a reputation for pursuing free-market policies while in Guangdong.
Mr. Hu is seen as having a stronger political base than Mr. Wang because he is still young enough, 59, to be a potential successor to Mr. Xi. That political strength could give him the clout to push back a little against Mr. Xi’s recent tendency to lean in favor of greater government and Communist Party control of the private sector.
Precisely because Mr. Hu is young enough to be a possible successor, however, many businesspeople and experts think Mr. Xi is more likely to choose Mr. Wang or a dark horse candidate who poses no potential political threat to him.
In any case, the power of the premier has diminished as Mr. Xi has created a series of Communist Party commissions to draft policies for ministries, including a commission that dictates many financial policies.
What do you think? Let us know: dealbook@nytimes.com.
Elon Musk proposed a deal with Twitter on Monday evening that could bring to an end the acrimonious legal fight between the billionaire and the social media company.
The arrangement would allow Mr. Musk to acquire Twitter at $54.20 per share, the price he agreed to pay for the company in April, two people familiar with the proposal who were not authorized to speak publicly said.
The potential deal comes after months of disputes that have created existential challenges for Twitter, cratering its share price, demoralizing its employees and spooking the advertisers it relies on for revenue.
A deal at the original price would be a victory for Twitter, which struck an agreement with Mr. Musk to buy the company for $44 billion. Mr. Musk declared in July that he no longer intended to complete the acquisition because he believed Twitter’s service was overrun by spam.
Twitter sued Mr. Musk in July to force the completion of the acquisition, and was set for a showdown with the billionaire this month in a Delaware courtroom. The company argued in legal filings that Mr. Musk’s reasons for abandoning the deal were smoke screens, and suggested that he had simply hoped for a lower price after stock market declines had decreased his overall wealth.
Mr. Musk said Twitter had most likely undercounted the amount of spam on its platform, making the company less valuable than he had initially believed. He also cited whistle-blower claims from a former Twitter executive, who said the company had misled regulators about its security practices, as a reason to exit the deal.
Mr. Musk submitted a proposal to Twitter on Monday evening, a person familiar with the conversation said. The parties met in court on Tuesday to discuss the proposal. The offer was reported earlier by Bloomberg.
A deal could allow both sides to avoid a messy public trial, which most likely would have featured testimony from Mr. Musk and senior Twitter executives.
This is a developing story. Check back for updates.
In 2018, senior executives at one of the country’s largest nonprofit hospital chains, Providence, were frustrated. They were spending hundreds of millions of dollars providing free health care to patients. It was eating into their bottom line.
The executives, led by Providence’s chief financial officer at the time, devised a solution: a program called Rev-Up.
Rev-Up provided Providence’s employees with a detailed playbook for wringing money out of patients — even those who were supposed to receive free care because of their low incomes, a New York Times investigation found.
nonprofits like Providence. They enjoy lucrative tax exemptions; Providence avoids more than $1 billion a year in taxes. In exchange, the Internal Revenue Service requires them to provide services, such as free care for the poor, that benefit the communities in which they operate.
But in recent decades, many of the hospitals have become virtually indistinguishable from for-profit companies, adopting an unrelenting focus on the bottom line and straying from their traditional charitable missions.
focused on investments in rich communities at the expense of poorer ones.
And, as Providence illustrates, some hospital systems have not only reduced their emphasis on providing free care to the poor but also developed elaborate systems to convert needy patients into sources of revenue. The result, in the case of Providence, is that thousands of poor patients were saddled with debts that they never should have owed, The Times found.
provide. That was below the average of 2 percent for nonprofit hospitals nationwide, according to an analysis of hospital financial records by Ge Bai, a professor at the Johns Hopkins Bloomberg School of Public Health.
Ten states, however, have adopted their own laws that specify which patients, based on their income and family size, qualify for free or discounted care. Among them is Washington, where Providence is based. All hospitals in the state must provide free care for anyone who makes under 300 percent of the federal poverty level. For a family of four, that threshold is $83,250 a year.
In February, Bob Ferguson, the state’s attorney general, accused Providence of violating state law, in part by using debt collectors to pursue more than 55,000 patient accounts. The suit alleged that Providence wrongly claimed those patients owed a total of more than $73 million.
Providence, which is fighting the lawsuit, has said it will stop using debt collectors to pursue money from low-income patients who should qualify for free care in Washington.
But The Times found that the problems extend beyond Washington. In interviews, patients in California and Oregon who qualified for free care said they had been charged thousands of dollars and then harassed by collection agents. Many saw their credit scores ruined. Others had to cut back on groceries to pay what Providence claimed they owed. In both states, nonprofit hospitals are required by law to provide low-income patients with free or discounted care.
“I felt a little betrayed,” said Bev Kolpin, 57, who had worked as a sonogram technician at a Providence hospital in Oregon. Then she went on unpaid leave to have surgery to remove a cyst. The hospital billed her $8,000 even though she was eligible for discounted care, she said. “I had worked for them and given them so much, and they didn’t give me anything.” (The hospital forgave her debt only after a lawyer contacted Providence on Ms. Kolpin’s behalf.)
was a single room with four beds. The hospital charged patients $1 a day, not including extras like whiskey.
Patients rarely paid in cash, sometimes offering chickens, ducks and blankets in exchange for care.
At the time, hospitals in the United States were set up to do what Providence did — provide inexpensive care to the poor. Wealthier people usually hired doctors to treat them at home.
wrote to the Senate in 2005.
Some hospital executives have embraced the comparison to for-profit companies. Dr. Rod Hochman, Providence’s chief executive, told an industry publication in 2021 that “‘nonprofit health care’ is a misnomer.”
“It is tax-exempt health care,” he said. “It still makes profits.”
Those profits, he added, support the hospital’s mission. “Every dollar we make is going to go right back into Seattle, Portland, Los Angeles, Alaska and Montana.”
Since Dr. Hochman took over in 2013, Providence has become a financial powerhouse. Last year, it earned $1.2 billion in profits through investments. (So far this year, Providence has lost money.)
Providence also owes some of its wealth to its nonprofit status. In 2019, the latest year available, Providence received roughly $1.2 billion in federal, state and local tax breaks, according to the Lown Institute, a think tank that studies health care.
a speech by the Rev. Dr. Martin Luther King Jr.: “If it falls your lot to be a street sweeper, sweep streets like Michelangelo painted pictures.”
Ms. Tizon, the spokeswoman for Providence, said the intent of Rev-Up was “not to target or pressure those in financial distress.” Instead, she said, “it aimed to provide patients with greater pricing transparency.”
“We recognize the tone of the training materials developed by McKinsey was not consistent with our values,” she said, adding that Providence modified the materials “to ensure we are communicating with each patient with compassion and respect.”
But employees who were responsible for collecting money from patients said the aggressive tactics went beyond the scripts provided by McKinsey. In some Providence collection departments, wall-mounted charts shaped like oversize thermometers tracked employees’ progress toward hitting their monthly collection goals, the current and former Providence employees said.
On Halloween at one of Providence’s hospitals, an employee dressed up as a wrestler named Rev-Up Ricky, according to the Washington lawsuit. Another costume featured a giant cardboard dollar sign with “How” printed on top of it, referring to the way the staff was supposed to ask patients how, not whether, they would pay. Ms. Tizon said such costumes were “not the culture we strive for.”
financial assistance policy, his low income qualified him for free care.
In early 2021, Mr. Aguirre said, he received a bill from Providence for $4,394.45. He told Providence that he could not afford to pay.
Providence sent his account to Harris & Harris, a debt collection company. Mr. Aguirre said that Harris & Harris employees had called him repeatedly for weeks and that the ordeal made him wary of going to Providence again.
“I try my best not to go to their emergency room even though my daughters have gotten sick, and I got sick,” Mr. Aguirre said, noting that one of his daughters needed a biopsy and that he had trouble breathing when he had Covid. “I have this big fear in me.”
That is the outcome that hospitals like Providence may be hoping for, said Dean A. Zerbe, who investigated nonprofit hospitals when he worked for the Senate Finance Committee under Senator Charles E. Grassley, Republican of Iowa.
“They just want to make sure that they never come back to that hospital and they tell all their friends never to go back to that hospital,” Mr. Zerbe said.
The Everett Daily Herald, Providence forgave her bill and refunded the payments she had made.
In June, she got another letter from Providence. This one asked her to donate money to the hospital: “No gift is too small to make a meaningful impact.”
Following a Script ‘Like Robots’
In 2019, Vanessa Weller, a single mother who is a manager at a Wendy’s restaurant in Anchorage, went to Providence Alaska Medical Center, the state’s largest hospital.
She was 24 weeks pregnant and experiencing severe abdominal pains. “Let this just be cramps,” she recalled telling herself.
Ms. Weller was in labor. She gave birth via cesarean section to a boy who weighed barely a pound. She named him Isaiah. As she was lying in bed, pain radiating across her abdomen, she said, a hospital employee asked how she would like to pay. She replied that she had applied for Medicaid, which she hoped would cover the bill.
After five days in the hospital, Isaiah died.
Then Ms. Weller got caught up in Providence’s new, revenue-boosting policies.
The phone calls began about a month after she left the hospital. Ms. Weller remembers panicking when Providence employees told her what she owed: $125,000, or about four times her annual salary.
She said she had repeatedly told Providence that she was already stretched thin as a single mother with a toddler. Providence’s representatives asked if she could pay half the amount. On later calls, she said, she was offered a payment plan.
“It was like they were following some script,” she said. “Like robots.”
Later that year, a Providence executive questioned why Ms. Weller had a balance, given her low income, according to emails disclosed in Washington’s litigation with Providence. A colleague replied that her debts previously would have been forgiven but that Providence’s new policy meant that “balances after Medicaid are being excluded from presumptive charity process.”
Ms. Weller said she had to change her phone number to make the calls stop. Her credit score plummeted from a decent 650 to a lousy 400. She has not paid any of her bill.
Susan C. Beachy and Beena Raghavendran contributed research.
Neither Boeing nor former CEO Dennis Muilenburg admitted wrongdoing over two deadly 737 Max crashes, but they offered to settle and pay penalties.
Boeing Co. will pay $200 million to settle charges that the company and its former CEO misled investors about the safety of its 737 Max after two of the airliners crashed, killing 346 people.
The Securities and Exchange Commission said Thursday that it charged the aircraft maker and former CEO Dennis Muilenburg with making significant misleading public statements about the plane and an automated flight-control system that was implicated in the crashes in Indonesia and Ethiopia.
Neither Boeing nor Muilenburg admitted wrongdoing, but they offered to settle and pay penalties, including $1 million to be paid by Muilenburg, who was ousted in December 2019, nine months after the second crash.
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The SEC said Boeing and Muilenburg knew that the flight system, known as MCAS, posed a safety issue but promised the public that the plane was safe. The SEC said they also falsely claimed that there had been no gaps in the process of certifying the plane in the first place.
“Boeing and Muilenburg put profits over people by misleading investors about the safety of the 737 Max all in an effort to rehabilitate Boeing’s image” after the crashes, said Gurbir Grewal, director of the SEC’s enforcement division.
Boeing said it has made “broad and deep changes across our company in response to those accidents” to improve safety and quality.
“Today’s settlement is part of the company’s broader effort to responsibly resolve outstanding legal matters related to the 737 Max accidents in a manner that serves the best interests of our shareholders, employees and other stakeholders,” said the Arlington, Virginia-based company.
A new Max operated by Indonesia’s Lion Air crashed into the Java Sea in October 2018, and another Max flown by Ethiopian Airlines nosedived into the ground near Addis Ababa in March 2019. In each crash, MCAS pushed the nose down after getting faulty readings from a single sensor, and pilots were unable to regain control.
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The crashes led regulators around the world to ground the plane for nearly two years until Boeing made fixes to the flight-control system, which was designed to help prevent aerodynamic stalls when the nose points up too sharply. Neither plane that crashed was in danger of stalling.
The SEC accused Boeing of misleading investors in a press release after the Indonesia crash which said the plane was “as safe as any airplane that has ever flown the skies.” Boeing knew when it made that claim that MCAS would need to be fixed and was already designing changes, the SEC said.
After the crash in Ethiopia, Muilenburg said on a call with investors and Wall Street analysts and during Boeing’s annual shareholder meeting that the company had followed the normal process for getting the plane certified by regulators. But by then Boeing — in response to a subpoena from federal prosecutors — had already found documents indicating that it didn’t disclose key facts about MCAS to the Federal Aviation Administration, the SEC charged.
Boeing reached a separate $2.5 billion settlement with the Justice Department last year. Most of that money went to airlines whose Max jets were grounded.
America’s first commercial railroads were built almost two centuries ago. Freight rail has been a symbol of the nation’s economic might and ingenuity ever since.
In recent years, some of the biggest names on Wall Street have made significant investments in railroads, reaping big stock gains as railroads reported higher profits. But the underlying strategies that strengthened railroads’ bottom lines have caused friction with customers, regulators and particularly workers — giving rise to a contract dispute that threatened a nationwide shutdown of the railway system.
After losing ground to trucking in the mid-20th century, the rail industry managed to recover through decades of consolidation and a push for efficiency. Critics say those same dynamics created a system with thin staffing and minimal competition, making it particularly vulnerable to shocks like the coronavirus pandemic.
Those complaints were at the center of the contract impasse that left tens of thousands of workers prepared to walk off the job last week. A strike could have been economically devastating, paralyzing shipments of grain, chemicals and other cargo.
It was averted with less than a day to go when the Biden administration helped to broker a tentative agreement that addresses some of those issues and will be put to a vote of the rail unions’ members in the coming weeks.
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The decline of the stock and bond markets this year has been painful, and it remains difficult to predict what is in store for the future.
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Weathering the Storm: The rout in the stock and bond markets has been especially rough on people paying for college, retirement or a new home. Here is some advice.
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Enduring Meme Stocks: The frenzy that saw traders congregate on social media and push stock prices for companies like GameStop higher can no longer be explained as simply a pandemic phenomenon.
The freight rail industry says it has worked hard to adapt to rapid changes — including the pandemic and, before that, a decline in demand for coal, a critical source of business.
“The industry has had to continually evolve to grow its other services,” said Ian Jefferies, the president of the Association of American Railroads, an industry group. To make up for the decline in coal, freight shippers have tried to transport more grain, truck trailers, shipping containers and other goods, he said.
according to the Surface Transportation Board, which monitors and regulates rates.
Prices started to increase in the early 2000s, driven by rising costs for labor, fuel, materials and supplies as well as a growing focus on profitability. From 2002 to 2019, long-distance trucking rates increased by 40 percent, according to a Transportation Department report published this year, while rail rates grew by 96 percent, though they are still well below historical levels, adjusted for inflation.
won a proxy battle for Canadian Pacific in 2012 and installed Mr. Harrison to lead the company.
Mr. Harrison brought his approach to Canadian Pacific, then to CSX in 2017, before his death that year. Other freight carriers and Wall Street increasingly took notice, and the practice has spread throughout the industry.
Many freight rail experts say P.S.R. brought necessary reforms to the industry, but they also say some practices, which can differ greatly among carriers, went too far or were poorly executed. Unions say the system has created miserable working conditions.
letter to shareholders.
“I’ll venture a rare prediction,” he wrote in February. “BNSF will be a key asset for Berkshire and our country a century from now.”
Peter S. Goodman and Clifford Krauss contributed reporting.
TikTok recently tried to tamp down concerns from U.S. lawmakers that it poses a national security threat because it is owned by the Chinese internet company ByteDance. The viral video app insisted it had an arm’s-length relationship with ByteDance and that its own executive was in charge.
“TikTok is led by its own global C.E.O., Shou Zi Chew, a Singaporean based in Singapore,” TikTok wrote in a June letter to U.S. lawmakers.
But in fact, Mr. Chew’s decision-making power over TikTok is limited, according to 12 former TikTok and ByteDance employees and executives.
Zhang Yiming, ByteDance’s founder, as well as by a top ByteDance strategy executive and the head of TikTok’s research and development team, said the people, who declined to be identified for fear of reprisals. TikTok’s growth and strategy, which are led by ByteDance teams, report not to Mr. Chew but to ByteDance’s office in Beijing, they said.
increasingly questioned TikTok’s data practices, reigniting a debate over how the United States should treat business relationships with foreign companies.
On Wednesday, TikTok’s chief operating officer testified in Congress and downplayed the app’s China connections. On Thursday, President Biden signed an executive order to sharpen the federal government’s powers to block Chinese investment in tech in the United States and to limit its access to private data on citizens.
a March interview with the billionaire investor David Rubenstein, whose firm, the Carlyle Group, has a stake in the Chinese giant. Mr. Chew added that he had become familiar with TikTok as a “creator” and amassed “185,000 followers.” (He appeared to be referring to a corporate account that posted videos of him while he was an executive at Xiaomi, one of China’s largest phone manufacturers.)
Jinri Toutiao. The two built a rapport, and an investment vehicle associated with Mr. Milner led a $10 million financing in Mr. Zhang’s company that same year, three people with knowledge of the deal said.
The news aggregator eventually became ByteDance — now valued at around $360 billion, according to PitchBook — and owns TikTok; its Chinese sister app, Douyin; and various education and enterprise software ventures.
By 2015, Mr. Chew had joined Xiaomi as chief financial officer. He spearheaded the device maker’s 2018 initial public offering, led its international efforts and became an English-speaking face for the brand.
“Shou grew up with both American and Chinese language and culture surrounding him,” said Hugo Barra, a former Google executive who worked with Mr. Chew at Xiaomi. “He is objectively better positioned than anyone I’ve ever met in the China business world to be this incredible dual-edged executive in a Chinese company that wants to become a global powerhouse.”
In March 2021, Mr. Chew announced that he was joining ByteDance as chief financial officer, fueling speculation that the company would go public. (It remains privately held.)
appointed Mr. Chew as chief executive, with Mr. Zhang praising his “deep knowledge of the company and industry.” Late last year, Mr. Chew stepped down from his ByteDance role to focus on TikTok.
Kevin Mayer, a former Disney executive, left after the Trump administration’s effort to sunder the app from its Chinese parent. China was also cracking down on its domestic internet giants, with Mr. Zhang resigning from his official roles at ByteDance last year. Mr. Zhang remains involved in decision making, people with knowledge of ByteDance said.
Mr. Chew moved to establish himself as TikTok’s new head during visits to the app’s Los Angeles office in mid-2021. At a dinner with TikTok executives, he sought to build camaraderie by keeping a Culver City, Calif., restaurant open past closing time, three people with knowledge of the event said. He asked attendees if he should buy the establishment to keep it open longer, they said.
a TikTok NFT project involving the musical artists Lil Nas X and Bella Poarch. He reprimanded TikTok’s global head of marketing on a video call with Beijing-based leaders for ByteDance after some celebrities dropped out of the project, four people familiar with the meeting said. It showed that Mr. Chew answered to higher powers, they said.
Mr. Chew also ended a half-developed TikTok store off Melrose Avenue in Los Angeles, three people familiar with the initiative said. TikTok briefly explored obtaining the naming rights of the Los Angeles stadium formerly known as the Staples Center, they said.
He has also overseen layoffs of American managers, two people familiar with the decisions said, while building up teams related to trust and safety. In its U.S. marketing, the app has shifted its emphasis from a brand that starts trends and conversations toward its utility as a place where people can go to learn.
In May, Mr. Chew flew to Davos, Switzerland, for the World Economic Forum, speaking with European regulators and ministers from Saudi Arabia to discuss digital strategy.
June letter to U.S. lawmakers, he noted that ByteDance employees in China could gain access to the data of Americans when “subject to a series of robust cybersecurity controls.” But he said TikTok was in the process of separating and securing its U.S. user data under an initiative known as Project Texas, which has the app working with the American software giant Oracle.
“We know we’re among the most scrutinized platforms,” Mr. Chew wrote.
Former Twitter security chief Peiter Zatko alleges that the social media platform ignored engineers and led them to “prioritize profit over security.”
A former security chief at Twitter told Congress that the social media platform is plagued by weak cyber defenses, privacy threats and the inability to control millions of fake accounts. Peiter “Mudge” Zatko, a respected cybersecurity expert, appeared before the Senate Judiciary Committee to lay out his allegations Tuesday.
“Twitter’s misleading the public, lawmakers” and regulators, Zatko said as he began his sworn testimony.
“They don’t know what data they have, where it lives and where it came from and so, unsurprisingly, they can’t protect it,” Zatko said. “It doesn’t matter who has keys if there are no locks.”
Zatko said “Twitter leadership ignored its engineers,” in part because “their executive incentives led them to prioritize profit over security.”
His message echoed one brought to Congress against another social media giant last year, but unlike that Facebook whistleblower, Frances Haugen, Zatko hasn’t brought troves of internal documents to back up his claims.
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Zatko was the head of security for the influential platform until he was fired early this year. He filed a whistleblower complaint in July with Congress, the Justice Department, the Federal Trade Commission and the Securities and Exchange Commission. Among his most serious accusations is that Twitter violated the terms of a 2011 FTC settlement by falsely claiming that it had put stronger measures in place to protect the security and privacy of its users.
Sen. Dick Durbin, an Illinois Democrat who heads the Judiciary Committee, said Zatko has detailed flaws “that may pose a direct threat to Twitter’s hundreds of millions of users as well as to American democracy.”
“Twitter is an immensely powerful platform and can’t afford gaping vulnerabilities,” he said.
Unknown to Twitter users, there’s far more personal information disclosed than they — or sometimes even Twitter itself — realize, Zatko testified. He said “basic systemic failures” that were brought forward by company engineers were not addressed.
The FTC has been “a little over its head,” and far behind European counterparts, in policing the sort of privacy violations that have occurred at Twitter, Zatko said.
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Zatko’s claims could also affect Tesla billionaire Elon Musk’s attempt to back out of his $44 billion deal to acquire the social platform. Musk claims that Twitter has long underreported spam bots on its platform and cites that as a reason to nix the deal he struck in April.
Many of Zatko’s claims are uncorroborated and appear to have little documentary support. Twitter has called Zatko’s description of events “a false narrative … riddled with inconsistencies and inaccuracies” and lacking important context.
Among the assertions from Zatko that drew attention from lawmakers Tuesday was that Twitter knowingly allowed the government of India to place its agents on the company payroll, where they had access to highly sensitive data on users. Twitter’s lack of ability to log how employees accessed user accounts made it hard for the company to detect when employees were abusing their access, Zatko said.
Zatko also accuses the company of deception in its handling of automated “spam bots,” or fake accounts. That allegation is at the core of billionaire tycoon Elon Musk’s attempt to back out of his $44 billion deal to buy Twitter. Musk and Twitter are locked in a bitter legal battle, with Twitter having sued Musk to force him to complete the deal. The Delaware judge overseeing the case ruled last week that Musk can include new evidence related to Zatko’s allegations in the high-stakes trial, which is set to start Oct. 17.
Sen. Charles Grassley, the committee’s ranking Republican, said Tuesday that Twitter CEO Parag Agrawal declined to testify at the hearing, citing the ongoing legal proceedings with Musk. But the hearing is “more important than Twitter’s civil litigation in Delaware,” Grassley said. Twitter declined to comment on Grassley’s remarks.
In his complaint, Zatko accused Agrawal as well as other senior executives and board members of numerous violations, including making “false and misleading statements to users and the FTC about the Twitter platform’s security, privacy and integrity.”
Zatko, 51, first gained prominence in the 1990s as a pioneer in the ethical hacking movement and later worked in senior positions at an elite Defense Department research unit and at Google. He joined Twitter in late 2020 at the urging of then-CEO Jack Dorsey.
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