Politics

TikTok’s C.E.O. Struggles to Make his Case in Washington

All eyes on Shou Chew.Credit…Tasos Katopodis/Getty Images

TikTok’s terrible day in Congress

The C.E.O. of TikTok was grilled for nearly five hours in Congress on Thursday about his company’s ties to China, and his testimony did little to suggest the video platform’s problems are over. The aggressive questioning of Shou Chew has only added fuel to fiery U.S.-China relations and highlighted TikTok’s awkward position as a battleground between Washington and Beijing. The Biden administration wants TikTok’s Chinese owner ByteDance to sell the company or face a ban, but hours before Mr. Chew testified, China said it opposed a sale.

How did Chew fare? It was always going to be tough for Mr. Chew to placate his interrogators, given the level of bipartisan anti-China sentiment in Washington. But many thought his appearance went even worse than expected, despite the company’s monthslong effort to win friends and influence policy ahead of the hearing.

Lawmakers regularly cut him off midsentence and repeatedly asked if TikTok was spying on Americans on behalf of the Chinese government. “ByteDance is not owned or controlled by the Chinese government,” he said, in a response that failed to persuade them.

What did we learn? “The future of TikTok in the U.S. is definitely dimmer and more uncertain today,” Lindsay Gorman, head of technology and geopolitics at the German Marshall Fund think tank and a former tech adviser to the Biden administration, told The Times.

How are investors responding? Mr. Chew tried to allay concerns about Chinese involvement in ByteDance in part by pointing to its big U.S. investors, including BlackRock, KKR and Sequoia Capital. But if they are trying to help, they aren’t talking. BlackRock and KKR declined to comment and Sequoia did not respond to DealBook’s query.

Shares of TikTok’s U.S. competitors, including Snap and Meta, rose during Mr. Chew’s testimony. But the U.S. companies shouldn’t bet on a ban: It’s not clear the Biden administration has the legal authority to impose one, or that it is worth the potential political cost, given the millions of young Americans who use the app.

How did TikTokers respond? Mostly with mockery and disbelief at the lawmakers’ tech knowledge. “You can’t make this up 😂” one user wrote after Buddy Carter, Republican of Georgia, asked Mr. Chew if TikTok uses phone cameras to assess users’ pupil dilation and improve algorithmic recommendations. “DOES HE NOT UNDERSTAND HOW INTERNET ACCESS WORKS?!” another said after Richard Hudson, Republican of North Carolina, asked if TikTok could “access the home Wi-Fi network.”

HERE’S WHAT’S HAPPENING

Deutsche Bank leads a sharp fall in European bank shares. The stock fell as much as 13 percent on Friday morning after the cost of insuring the bank’s debt rose sharply this week. The Stoxx 600 index of European banks was also down sharply despite efforts by policymakers to reassure investors.

Ukraine will need $411 billion to rebuild, the World Bank estimates. That new figure is significantly higher than the $349 billion the institution forecast in September. Meanwhile, President Volodymyr Zelensky of Ukraine urged E.U. leaders to impose more sanctions on Russia and speed up his country’s application to join the bloc.

Chinese authorities arrest employees at an American due diligence firm’s Beijing office. The New York-based Mintz Group said its office was raided and all of its Chinese staff members were detained this week. The arrests were made just days ahead of a gathering of Chinese officials and global executives, including Tim Cook of Apple and the Bridgewater founder Ray Dalio, that is intended to rebuild international investor confidence in the country.

The Bank of England raises rates again to combat inflation. Britain’s central bank increased rates by a quarter point, to 4.25 percent, following similar moves by the European Central Bank and the Fed. The Bank of England said that the nation’s banks were resilient, and indicated it was more worried about persistently rising consumer prices.

Yellen walks back her U-turn

Bank stocks took a roller-coaster ride this week, as investors tried to keep up with Treasury Secretary Janet Yellen’s guidance on what the government would do to shore up the sector. On Wednesday, shares tumbled after Ms. Yellen played down the prospect of a universal guarantee on bank deposits. She moved to clean up those comments yesterday, though it’s uncertain that markets feel Washington’s approach to propping up lenders is any clearer.

Investors pointed to 11 words from Yellen’s prepared remarks for a House hearing. “Certainly, we would be prepared to take additional actions if warranted,” she said in that testimony, on top of existing government tools to stabilize wobbly lenders.

Those comments stand in contrast to what she said the previous day. She told senators that the Biden administration wasn’t considering temporarily expanding government insurance to all U.S. bank deposits without Congressional approval. (Investors had taken heart from reports that the Treasury Department was studying just that.)

And the comments on Wednesday appeared to be a change from what Ms. Yellen said Tuesday at a meeting held by the American Bankers Association: “Similar actions could be warranted if smaller institutions suffer deposit runs that pose the risk of contagion,” she told the gathering.

The lesson remains the same. Investors want to know what the government will do if weakened lenders are battered again. That uncertainty was reflected in how bank stocks traded yesterday: First Republic, which is still searching for a lifeline, fell 6 percent, while PacWest dropped 8.5 percent. The broader KBW bank index closed down 1.7 percent.

  • In other banking news: Banks have stepped up their borrowing from the Fed’s new emergency loan window. Citizens Financial reportedly plans to bid for Silicon Valley Bank’s private banking unit. Senators want the former C.E.O.s of Silicon Valley Bank and Signature Bank to testify before Congress. And Charles Schwab says it could survive even if it lost most of its bank deposits.


Hindenburg Research is taking aim at a service Jack Dorsey wants to turn into a superplatform.Credit…House Energy and Commerce Committee, via YouTube

Jack Dorsey confronts a short seller

Shares in Block, Jack Dorsey’s financial technology company, plunged nearly 15 percent on Thursday after it was attacked by a formidable opponent: Hindenburg Research, the short seller that has already taken on the likes of the Indian conglomerate Adani Group and Nikola, the electric-truck maker.

In a lengthy report published yesterday, Hindenburg accused Block of facilitating fraud through its Cash App, a mobile payments service, and inflating the service’s user numbers — and said it was betting that the company’s shares would fall.

The report strikes at Block’s most prominent service. The company, initially known as Square, rose to fame via its ubiquitous credit card readers and later bought the Afterpay buy-now-pay-later service and the Tidal streaming music platform. But Block wants to turn Cash App into a financial superplatform. “Everything that you need in your financial life, you can find within Cash App,” Mr. Dorsey said in November.

As of year end, Block said Cash App had 51 million active users, and it generated $2.9 billion in gross profit for 2022.

What Hindenburg says: Cash App is rife with fake accounts that artificially inflate its user numbers and is being used for a wide range of crimes, from drug dealing to sex trafficking. (Perhaps in a bid to grab attention, Hindenburg cited several rap lyrics referencing Cash App’s use in drug sales and attempted murders.)

Block is fighting back. The company said it plans to “work with the S.E.C.” and “explore legal action” against Hindenburg over what it called an inaccurate and misleading report. “We have reviewed the full report in the context of our own data and believe it’s designed to deceive and confuse investors,” Block added.

What’s next for Hindenburg? The firm’s founder, Nathan Anderson, told DealBook in October that Hindenburg was close to publishing investigations into four publicly traded companies. He gave few hints about the targets, but said he was focused on businesses vulnerable to rising interest rates. “When you have a rising rate environment and highly levered companies, oftentimes you see more intense efforts at accounting manipulation to try and paper over these problems,” he said. “Those can be really interesting areas for fraud research.”


“We must learn the lessons from the past few days — otherwise Credit Suisse will have fallen in vain.”

Tidjane Thiam, the C.E.O. of Credit Suisse from 2015 to 2020, on how last weekend’s shotgun merger of UBS and his former employer will have a lasting impact on investors and the European banking sector.


Crypto’s most wanted fugitive is arrested

There’s been a major breakthrough in one of the crypto world’s longest-running criminal matters: Do Kwon, the executive wanted in the U.S. and South Korea (and under investigation in Singapore) for the $40 billion collapse of his stablecoin company last year, was arrested yesterday in Montenegro.

Kwon had been on the lam for nearly a year following the market crash of his firm’s twin digital currencies, the TerraUSD stablecoin and Luna.That implosion spooked the crypto market, setting off a brutal slump in digital asset values that wiped out investors and triggered a string of bankruptcies.

Hours after officials in Montenegro announced Mr. Kwon’s arrest, federal prosecutors in the Southern District of New York said they were charging the 31-year-old founder of Terraform Labs with eight counts of fraud and market manipulation. The S.E.C. has also charged him with masterminding “a multibillion-dollar crypto asset securities fraud.”

Police apprehended Mr. Kwon as he tried to pass through airport security with “counterfeit documentation,” Filip Adzic, Montenegro’s interior minister, said on Twitter.

The question is where Kwon will go next. In a congratulatory response to Mr. Adzic, Korea’s national police agency tweeted: “We look forward to your assistance” in extraditing Kwon to Korea.

THE SPEED READ

Deals

  • Tom Brady is taking a stake in the WNBA’s Las Vegas Aces. (Axios)

  • Adidas and Beyoncé reportedly agreed to end the partnership behind the singer’s Ivy Park activewear line. (The Hollywood Reporter)

  • A chatbot start-up founded by ex-Google employees was valued at $1 billion in a new funding round. (NYT)

  • MSCI is set to strip hundreds of mutual funds of ratings tied to environmental, social and corporate governance issues, while thousands more will be downgraded. (FT)

Policy

  • Rural Texas residents object to Elon Musk’s companies’ wastewater disposal plans. (WSJ)

  • A judge ordered the Archegos founder Bill Hwang to face fraud charges in the U.S. (Reuters)

  • King Charles III postponed his trip to France amid strikes and protests. (NYT)

Best of the rest

  • “Culture clash: the challenge of uniting fierce rivals UBS and Credit Suisse” (FT)

  • “The Younger Brother Caught in the Middle of the FTX Investigation” (NYT)

  • The new C.E.O. of Starbucks says he will work a shift a month in the company’s stores. (CNBC)

We’d like your feedback! Please email thoughts and suggestions to [email protected].

Related Articles

Back to top button