On October 26^th Facebook removed 82 “Pages, Groups and accounts” that originated primarily in Iran. These Pages, Groups and accounts represented an organized effort to spread disinformation in the United States as a means of influencing public opinion and US midterm election results. While this particular network was seemingly minor, Facebook revealed that about 1 million accounts followed these Pages, 25,000 accounts joined one of the Groups, and 28,000 accounts followed one of the Instagram accounts. These figures indicate that these efforts may have affected a far wider swath of the American population than the limited number of Pages and Groups would suggest.

This coordinated effort is only the latest instance of the social media behemoth’s war on the weaponization by foreign agents seeking to subvert or undermine the US democratic process. Facebook similarly deleted 652 accounts, Pages and Groups originating primarily in Iran and Russia in late August of this year for similar reasons. Such policing is largely conducted by Facebook’s new misinformation “war room.” The “war room,” led by Facebook head of cyber security Nathaniel Gleicher, seeks to root out such “false content.”

Facebook’s new unit aims to counteract the use of its platform to “sow discord” through circulating false information and disruptive or divisive content. Facebook’s “war room” also seeks to make political advertising more transparent and to eliminate fake or “spam” accounts. All of Facebook’s efforts serve a role in preventing the use of Facebook as a weapon designed to achieve dubious political objectives through propaganda and misinformation. Further, Facebook’s “war room” personnel work in conjunction with the FBI, Homeland Security and the Associated Press to curb abuses arising from domestic and foreign attempts to influence public opinion and action.

The impetus of Facebook’s “war room” is largely a response to the particular revelations following the 2016 presidential elections. One revelation was the large-scale Russian influence in the campaign which lasted at least two years prior to the election. These efforts have since been linked to Russian Intelligence. In conjunction with the indictments carried out by the Department of Justice following Russian attempts to commit election fraud, Facebook revealed that Russian backed companies with ties to the Kremlin used more than $100,000 to develop false or misleading advertising. The purpose of the ads was to tamper with US election results, cause chaos and disseminate Russian propaganda.

In a press release in September 2017, Facebook’s CEO Mark Zuckerberg also revealed that the Kremlin-linked Internet Research Agency (IRA) had influence over American campaigns. Such influence included a number of designs to harm Secretary Clinton’s candidacythrough fake  or “troll” accounts, fictional news and purposely misleading advertisements. This media was  estimated to have been viewed by 150 million Americans. Further, although it is difficult to determine the impact this media had on the 2016 election results, it is clear that this information manipulation was far from immaterial.

The consequences of misinformation are readily apparent from the deaths and mob lynching in India. These actions were sparked by fake stories propagated through WhatsApp, a Facebook subsidiary. Further, consequences were also unveiled in Myanmar. There, an explosion of hate speech on WhatsApp resulted in violence and genocide. In addition, the continued presence of unsubstantiated rumors and innuendo has caused similar harms in Sri Lanka.

Although Zuckerberg has pledged to do better, seeking to head off influence campaigns before they gain traction, many critics feel that Facebook’s recent efforts remain ineffectual. Critics are primarily concerned that other actors have adopted Russia’s strategy of using Facebook and its subsidiaries to spread misinformation and false news stories. The most recent account of this was in Brazil and the UK. During the UK’s exit from the European union, anonymous and factually dubious information was presented through a Facebook based ad campaign. The ads, which have reached up to 11 million British citizens, have continued to be released through this last October and appear to operate with the primary objective of sewing conflict and cementing divisions during a politically precarious time for the UK.

Facebook has already suffered a notable decline in its stock price over the past year due to the unauthorized release of user’s personal data to Cambridge Analytica. This scandal left many analysts and shareholder’s disillusioned with Facebook’s apparent disregard for transparency in its own practices. Further, this scandal caused many investors to question Facebook’s dedication to protecting its users’ privacy and well-being, let alone its dedication to insuring greater transparency. The breach of trust has left many critics asking if Facebook is truly doing everything in its power to root out pernicious false information and political manipulation through suspect ad campaigns and news stories.

Facebook Removes Iranian Based Accounts for Spreading Falsehoods in Misinformation Campaign

Last week, federal prosecutors brought charges against two parties believed to be at the helm of a massive fraud scheme involving Goldman Sachs and 1MDB, a Malaysian sovereign-wealth fund. Prosecutors alleged that the charged parties, one a Goldman Sachs banker and the other a Malaysian businessman/financier, embezzled billions from the fund – the former helping the latter steal funds for lavish, personal use via a bribe and money laundering scheme that began not long after the financial crisis. The same day, federal prosecutors announced that the former head of Goldman’s Southeast Asia banking division, Tim Leissner, plead guilty to his participation in the scheme. Overall, the scheme netted $600 million in fees for Goldman over three bond offerings, facilitated by bribes and pushbacks from the Goldman Sachs bankers and payed out to the private bank accounts of various co-conspirators.

Malaysia’s former Prime Minister and the fund’s overseer, Najib Razak, lost his reelection as a result of the scandal surrounding its misappropriation. When authorities raided his home, they discovered $266 million worth of luxury items, tens of millions of which took the form of jewelry the former Prime Minister purchased for his wife. Tim Leissner, the Senior Goldman banker who plead guilty, has forfeited nearly $44 million he earned from his role in the scheme as part of his plea deal. The starkest and perhaps strangest beneficiary of the scheme, however, was the aforementioned Malaysian businessman/financier and alleged mastermind behind the scheme, Jho Low.

Leissner had on multiple occasions attempted to engage in other business dealings with Jho Low through his capacity as a partner at Goldman Sachs. His efforts, however, were repeatedly rebuffed by Goldman’s compliance group, which harbored serious doubts and concerns about Low, the source of his wealth, and his spending habits. Low was a renowned partier and used the money he stole from the fund to support his over the top lifestyle, purchasing high end real-estate, fine art, gifts for Hollywood celebrities, and, perhaps ironically, poured some of that money into the production of Martin Scorsese’s 2013 The Wolf of Wall Street, a film about, ironically, financial fraud.

Although Goldman Sachs has presented the scandal as a consequence of the actions of rogue players who do not represent the interests or practices of the firm, it may nonetheless damage the image of transparency and responsibility that Goldman has been pursuing since the financial crisis. The apparent intimate relationship between Leissner and Jho Low as well as concerns about a prevailing corporate culture that encourages bankers to prioritize deal-making over honest business practices may warrant further consideration and investigation on the firm’s part, especially as the scandal continues to unfold and additional parties and infractions come to light.

Goldman Sachs – 1MDB Fraud Scandal is a Potential Optical Setback for a Firm Striving to Improve its Post 2008 Image

The U.S. Supreme Court recently indicated that it will be taking an even more pro-business stance regarding arbitration. The Court heard arguments in two cases involving company agreements to determine whether these disputes must be handled through an arbitrator rather than a judge.

The first case, Henry Schein, Inc. v. Archer & White Sales, Inc., focuses on a Texas dental equipment distributor and seeks to clarify whether a particular dispute should be decided in arbitration, rather than at court. Currently, if both parties agreed to give the arbitrator discretion, the arbitrator decides whether the particular dispute is sufficiently related to the contract in dispute to warrant arbitration proceedings. However, citing the U.S. Court of Appeals for the Fifth Circuit, a “court will not send a case to an arbitrator to decide the question ofarbitrability” even if both parties have agreed so long as the court finds the claims “wholly groundless.” Yet, in this case, the plaintiff agreed to arbitrate claims for damages but not in the actions seeking injunctive relief. Ultimately, this is controversial since such an exception is neither covered by the Federal Arbitration Act (FAA) or the Court’s existing cases.

The second case, Lamps Plus Inc. v. Varela, regards an employee, Frank Varela, suing Lamps Plus for negligence, breach of contract, and invasion of privacy. Arising from a phishing scam on the company in 2016, Varela’s personal information was accessed, and he is now seeking a class action complaint on behalf of current and former employees. The issue here is whether the FAA precludes state-law interpretations of arbitration to allow aggregated arbitrations, such as a class action when the agreement is silent on the issue. As a result, the largest issue that has divided the Court is whether the contract’s language arguably allows aggregated arbitration.

Outside these two cases, a larger debate is ongoing. Companies prefer to arbitrate claims because it is cost effective, efficient, and carries less risk than arguing in court, which may establish an unfavorable precedent. Nevertheless, critics argue that arbitration forces individuals to fight alone and prevents them from raising public support for issues such as sexual assault, which was recently highlighted by the #MeToo movement.

Volkswagen, still recoiling from their 2015 emission scandal, faces yet another costly lawsuit. U.S. semiconductor supplier Broadcom recently filed a claim against Volkswagen for $1 billion. Broadcom’s lawsuit concerns Volkswagen’s integration of various patents into its navigation and entertainment system. Toyota and Panasonic were also hit with patent infringement lawsuits from Broadcom earlier this year.

Patent issues are not new to the auto industry and have occurred since George Seldon sued Henry Ford in 1903. However, in an age where cars can speak and drive themselves, the growing number of IP lawsuits demanding royalties threatens to raise transaction costs and impede innovation.

We’ve seen it happen before. Enforcing exclusive IP rights in the biomedical sphere led to widespread patent fragmentation. Research and development costs skyrocketed as companies were required to purchase countless licenses for basic yet requisite technology. Increased operating costs and subsequent litigation led to unaffordable products and substandard down-stream research.

However, carmakers face a more significant challenge because outside industries invent the technologies they need. Thus, the informal patent sharing system that emerged in biomedical subgroups will not materialize to provide relief in the auto industry.

Nevertheless, Volkswagen attempted to address this issue. They retained talent and provided funds to make Audi, one of their brands, a leading development center. But their efforts were not enough. In the race to make energy efficient and develop autonomous vehicles, Volkswagen spent an unsustainable $13.1 billion on research and development in 2017. Consequently, CEO Herbert Diess intends to develop a 10-year plan to slash research costs by partnering with rival companies.

An increase in IP litigation, stringent environmental regulations, and consumer pressure require other car companies to follow suit. Further, the auto-industry’s growing dependence on large-scale tech licensing necessitates industry collaboration. Without this shift, carmakers will not be able to endure nor avoid the patent prosecution and subsequent settlements that historically inhibit affordable innovation.

Volkswagen Pumps the Breaks on Rising Research and Development Costs

When the Snapchat (SNAP) app launched in 2011, it quickly became known amongst teenagers and young adults for its revolutionary new way of instantly sharing photos, videos, and disappearing messages. Now, the company is scrambling to keep users engaged with its social media platform following a disastrous application redesign in February. Analysts say that the redesign contributed to an “exodus” of 3 million daily users in the second quarter of 2018. Further, the redesign was so disliked it even led to a petition with hundreds of thousands of signatures to bring back the previous design. In addition, influencer Kylie Jenner tweeted her disappointment in the app redesign. This tweet has been widely linked to a $1.3 billion drop in Snapchat’s stock. Although Snapchat quickly modified some aspects of the app, it has yet to completely reboot the design to the previous levels of user satisfaction. Moreover, Snapchat’s struggles continue. In October, Snapchat’s stock was being traded at all-time lows.

To compound Snapchat’s recent troubles, the company faces increasing competition from Instagram, a social media platform owned by Facebook, which in the past two years has begun offering similar features. Some argue that “Instagram Stories” are a “clone” of “Snapchat Stories,” and that other Snapchat features are also being copied. In fact, Instagram Stories have not only successfully captured the company’s consumers who are frustrated with Snapchat’s redesign, but also appear to be more than twice as popular as Snapchat Stories. As such, daily users of Instagram Stories have risen to over 400 million after only two years with the feature.

In an attempt to combat these obstacles and regain users, Snapchat is continuing to implement new updates for the app. One of these updates, which was introduced in October, includes a television lineup available in the app. These “Snap Originals” include five-minute episodes of shows and docuseries in genres including drama, horror, and comedy. In the hopes of gaining traction with its target audience, mostly people 25 and under, the company is partnering with social media “stars” and television writers from shows such as Riverdale and Friday Night Lights. Another update that will distinguish Snap Originals is the integration of Snapchat’s augmented reality technology into the shows themselves. This means that Snapchat viewers can virtually “interact” with the content in a variety of ways, such as going to the beach with a reality TV star or even walking around a crime scene in a show.

Snapchat’s recent move to provide users with innovative and interactive television content is likely aimed at addressing its biggest obstacle: “capturing consumers’ attention.” This is especially true for users that currently use Instagram’s features that are similar to Snapchat’s features. Despite events of the past year, Snapchat CEO Evan Spiegel is optimistic about the company’s future, with the goal of “achieving full-year profitability in 2019.” In all, the outcome of Snapchat’s recent efforts to regain users will foreshadow whether Snapchat will be able to reach its goals.

Snapchat Rallies After a Disastrous 2018, Reveals Original TV Content

The Enforcement Division of the SEC issued its annual report of fiscal 2018 on November 2. According to the report, the total amount of disgorgement and penalties ordered over 821 enforcement actions reached $3.945 billion in fiscal 2018, which is a slight increase as compared with last year’s figure of $3.789 billion.

Among the total 821 SEC enforcement actions, 490 were “stand alone” actions while the remaining were “follow on” proceedings and delinquent filings. The 490 standalone enforcement actions cover mainly securities offerings and investment advisory issues, as well as issuer reporting, accounting and auditing.

SEC chairman Jay Clayton praised the effectiveness of the Enforcement Division’s efforts to “deter bad conduct and remedy harm to investors.”

A single case involving a bribery in Petroleo Brasileiro S.A., a Brazilian state-controlled energy company accounts for a relatively high percentage in the total amount of penalties and disgorgement. The oil company was fined $933 million in disgorgement and prejudgment and $853 million in penalty for “misleading U.S. investors by filing false financial statements.”

In the report, the guiding principle of the Enforcement Division is “individual accountability,” with 72% of all standalone actions concerning the misconduct of individuals. The rationale behind the focus is that individuals such as CEOs and directors often control the institution’s actions. More violations can be prevented by imposing individual liability for the institutional violation and fraud. One of the most high-profile case was the settlement between the SEC, Tesla and the company’s CEO over a securities fraud charge based on Elon Musk’s misleading tweets. Pursuant to the settlement, Elon Mush cannot act as Tesla’s Chairman for at least in three years. Tesla must establish “controls and procedures to oversee Musk’s communications.”

Cyber-related misconduct was also highlighted in the annual report. Twenty standalone enforcement actions involving cyber-related misconduct were brought in fiscal 2019 and more than 225 investigations are in progress. Despite the absence of rules specifically targeted at digital assets and ICOs, the SEC is showing assertiveness in regulating fraud and registration violations. Considering crypto-assets are a market innovation, the SEC is trying to find a balance between protecting retail investors and without stifling innovation.

Increase of Penalties and Disgorgement Ordered in SEC Enforcement Actions

Epic Games, the developer of the hottest online game, Fortnite, recently announced that it raised $1.25 billion in the company’s latest round of investment. Epic Games’ newest investors include the KKR private equity firm, Iconiq Capital, and the aXiomatic group.

Fortnite is an online, “battle-royale” style game in which 100 players fight for survival on a deserted island. Fortnite is free to play, but players can purchase in-game currency to access outfits and special character interactions like dances. Fortnite has reportedly raked in over $1 billion in revenue from these in-game transactions alone.

Viewership of Fortnite content on Twitch.tv, through which people broadcast themselves playing video games, averages almost 140,000 concurrent viewers. Fortnite streamers like Tyler “Ninja” Blevins have thereby rapidly transformed into online celebrities.

The recent success of online video games has facilitated the growth of competitive gaming, or “esports.” The 2017 League of Legends World Championship boasted 80 million unique viewers, surpassing both the NBA Finals and the Super Bowl of that year. Fortnite has yet to establish a robust competitive scene. However, Epic Games has pledged $100 million in prize money to Fortnite competitions over the next two years.

While Fortnite’s success has been astonishing, its future may not be all buds and roses. Fortnite’s Twitch viewership peaked in July and has been steadily dropping. Some analysts speculate that Fortnite’s popularity has hit a ceiling. Although Epic Games plans to move into the 3D technology market, investing in any video game company comes with the risk that its blockbuster title will turn out to be a withering fad. Epic Games’ newest investors could be buying into a generational phenomenon or a disappointing flop.

Epic Games

College athletics have a long history of bribery incidents, so much so that these acts have become institutionalized into the college recruitment process. This large scale issue has recently gained significant notoriety, beginning with the FBI arrest of many high profile basketball coaches and sports executives. On October 24^th,James Gatto, former head of global sports marketing for basketball at Adidas, was convicted of conspiracy to commit wire fraud by a jury in the Southern District of New York. The court found that he participated in bribing families with funds to lure students to certain universities that were sponsored by Adidas. These bribes were committed with hopes of elevating the notoriety of these institutions and, subsequently, the Adidas brand.

The case is intertwined with many long-standing critiques of the NCAA and raises the potential effects on basketball recruitment and college athletics at large.

Specifically, the judge in James Gatto’s case did not allow the defense to include in their arguments the NCAA’s rules regarding the lack of payment to amateur athletes. This is not a new issue, but it is a crucial aspect that provides a greater perspective to the interrelationship between bribes and financial need. The NCAA has been able to exploit the labor of teenagers and young adults for immense amounts of financial profit. However, players should have the ability to use their abilities and notoriety to make money despite their amateur status. By restricting the nature if its relationship with student athletes, the NCAA is ultimately perpetuating its own monopoly. This is particularly unjust because in many cases highly recruited basketball players come from lower socioeconomic households, which heightens their desire for financial stability. If these athletes had the autonomy over their abilities within collegiate athletics, they could accumulate income.

Additionally, in recent years, greater attention has been paid to the athlete recruiting process, which has translated to stricter regulations. Although there has been an increase in scrutiny, it seems as though universities have found a loophole: an institution can have a third party, such as James Gatto, do the bribery work on its behalf without suffering legal ramifications. This scenario causes us to question whether a university is actually a victim simply because it provided a scholarship to an athlete who is ineligible to play because he or she accepted a bribe. Or, are universities allowing third parties to present incentives on their behalf to attract the best talent?

Following these arrests, many wonder what the state of college basketball will be because of the increase in the monitoring of the recruitment process. Many think that nothing will change, but there is a potential to see a shift in the power dynamics of college basketball due to the possible surge of new powerhouses given the potential decline of bribes.

Exploitation Bribery and Basketball

European governments grow increasingly concerned that major tech companies are not paying enough taxes to the countries they operate in. Critics argue that because revenue for tech companies is recorded based on where those services are created rather than where they are consumed, tech companies like Amazon, Facebook, and Google benefit from the European market without paying European taxes. For example, in 2017, Amazon earned £1.98B in revenue and £72.37M in profit in the U.K., but only paid £1.7 million in taxes, a 2.35% tax rate.

In response, recently the U.K. announced a 2% tax on digital services starting April 2020. Under the new provision, tech companies will be taxed if they have global revenues of at least £500M and are profitable. The U.K. was not the first to explore a digital services tax. The European Commission and the Organization for Economic Co-operation and Development (OECD) have been working on a uniform and long-term solution. They proposed a two pronged approach, first an interim digital service tax, and second, a long-term solution of taxes based on significant digital presence in a country. However, progress has been slow so the U.K. decided to act first.

Opponents of these new taxes argue that it will result in double taxation of revenue, a slowdown of international trade and development, and hurt smaller firms. They further argue that these digital service taxes come at a bad time with increasing global trade tensions and protectionist policies. Because mostly large U.S. tech companies will be affected by the U.K. tax, the U.S. government might interpret these new taxes as tariffs on American companies, which could spark retaliation. In addition, the more a U.S. company’s profit is taxed in Europe, the smaller the taxable base in the U.S is. Ironically, these higher taxes may help U.S. tech companies establish stronger market positions in Europe by increasing the barrier to entry for competitors.

In a digital economy where borders are not a significant barrier for tech companies to operate and scale, technology is pushing governments to change what and how they tax. Therefore, it is important to revamp old assumptions such as where revenue is recognized and where a sale occurs to create effective taxation structures without driving away beneficial tech services.

U.K. Chancellor Announces New Digital Service Tax

The world’s most valuable company is once again facing allegations of exploiting Chinese laborers. According to a report published by a labor rights group, one of Apple’s suppliers illegally forced high school students to assemble Apple Watches at a factory in China.

According to the report, students aged sixteen to nineteen in the city of Chongqing were placed in mandatory school internships at the watch factory run by Quanta Computer. Further, the students were forced to work excessive and overnight shifts, with only one day off per week. In addition, the school threatened students that they would not graduate on time if they refused to work in the factory, even if the work did not relate to their major.

This is not the first time that Apple has come under fire for illegal labor practices. In 2017, students were discovered working more than eleven hours a day as part of a “voluntary” school internship program at an iPhone X plant in Shenzen run by Foxconn. In 2014, a report revealed that another supplier factory in Suqian was guilty of workplace violations including excessive hours, locked exits, and inadequate ventilation. Moreover, Apple faced global scrutiny after a spate of suicides by young workers at Foxconn in 2010.

Since the 2017 Foxconn scandal, Apple has required its suppliers to limit student interns at factories to no more than 10% of their total workforce. It enlisted the Fair Labor Association in 2012 to conduct regular audits of its suppliers. Unfortunately, these latest allegations suggest that Apple is still profiting from the exploitation of young Chinese workers.

Apple’s humanist brand has made it an icon of Silicon Valley. However, under that sleek surface, Apple has a rotten core assembled in China.

Exploiting Chinese Laborers- Apple’s Rotten Core