October 20, 2017

N.S.A. Leaks Revive Push in Russia to Control Net

But now the Russians are using his very presence here — on Friday Mr. Snowden said he intended to remain in Russia for some time while seeking asylum elsewhere — to push for tighter controls over the Internet.

Two members of Russia’s Parliament have cited Mr. Snowden’s leaks about N.S.A. spying as arguments to compel global Internet companies like Google and Microsoft to comply more closely with Russian rules on personal data storage.

These rules, rights groups say, might help safeguard personal data but also would open a back door for Russian law enforcement into services like Gmail.

“We need to quickly put these huge transnational companies like Google, Microsoft and Facebook under national controls,” Ruslan Gattarov, a member of the upper chamber of the Russian Parliament, or Federation Council, said in an interview. “This is the lesson Snowden taught us.”

In the United States, the documents leaked by Mr. Snowden highlighted the increasingly close ties between the N.S.A. and the biggest high-tech companies. His documents revealed how Microsoft, Facebook, Google and other companies have cooperated with the agency.

If anything, requests by law enforcement agencies in Russia, with its long history of people bugging, informing and spying on one another, poses an even more stark quandary for companies like Google and Facebook.

American information technology companies operating in Russia routinely face demands from law enforcement to reveal user data, and have less recourse than in the United States to resist in the courts.

The Russian reaction may surprise Mr. Snowden most of all. In an interview with The Guardian, he said he unveiled details of N.S.A. surveillance because “I don’t want to live in a world where there is no privacy and therefore no room for intellectual exploration and creativity.”

In a series of leaks to The Guardian, The Washington Post and other newspapers, Mr. Snowden provided documents showing the N.S.A. collected logs of Americans’ phone calls and intercepted foreigners’ Internet communications, with help from American companies, through a program called Prism.

The Russians, who with only minimal success, had for years sought to make these companies provide law enforcement access to data within Russia, reacted angrily. Mr. Gattarov formed an ad hoc committee in response to Mr. Snowden’s leaks.

Ostensibly with the goal of safeguarding Russian citizens’ private lives and letters from spying, the committee revived a long-simmering Russian initiative to transfer control of Internet technical standards and domain name assignments from two nongovernmental groups that control them today to an arm of the United Nations, the International Telecommunications Union.

The committee also recommended that Russia require foreign companies to comply with its law on personal data, which can require using encryption programs that are licensed by the Federal Security Service, the successor agency to the K.G.B.

Sergei Zheleznyak, a deputy speaker of the Russian Parliament in President Vladimir V. Putin’s United Russia party, has suggested legislation requiring e-mail and social networking companies retain the data of Russian clients on servers inside Russia, where they would be subject to domestic law enforcement search warrants.

The Russian Senate is also proposing the creation of a United Nations agency to monitor collection and use of personal data, akin to the International Atomic Energy Agency, which oversees nuclear materials, to keep tabs on firms like Facebook and Google that harvest personal data.

Many independent advocates for Internet freedom have for years, however, characterized the Russian policy proposals as deeply worrying, for their potential to hamper free communication across borders and expose political dissidents inside authoritarian states to persecution.

Article source: http://www.nytimes.com/2013/07/15/business/global/nsa-leaks-stir-plans-in-russia-to-control-net.html?partner=rss&emc=rss

DealBook: Once Bailed Out, Commerzbank Again Raises Doubts

8:41 p.m. | Updated

FRANKFURT — The cloud of dread hanging over European banks darkened after reports that Commerzbank could be on the verge of another government bailout.

Like many of the region’s financial firms, Commerzbank — the second-largest German lender behind Deutsche Bank — is under pressure from regulators to increase its capital buffer. This month, the European Banking Authority said the firm had to raise an additional 5.3 billion euros, or $6.9 billion, by the middle of 2012.

But analysts and others are worried that Commerzbank will not be able to come up with the funds, which amount to roughly 80 percent of the firm’s market value. In the current turmoil, investors are loath to risk more money on the sector.

With a substantial sum to raise, speculation has swirled that Commerzbank was in advance talks with the German Finance Ministry about a rescue plan.

“The banking system is extremely fragile,” Nicolas Véron, a senior fellow at Bruegel, a research institute in Brussels. “Whether it will result in spectacular events like collapses or nationalizations is difficult to say. I would not rule anything out.”

Commerzbank has denied the reports, saying it is determined to avoid taking more government aid. The firm, based in Frankfurt, is already 25 percent owned by the German government as a result of a rescue in 2009.

Although the German Finance Ministry issued a statement that played down prospects for a bailout of Commerzbank, the government stopped short of a denial.

“As a shareholder of Commerzbank, the government is in regular contact,” the ministry said. “However, this does not go beyond an exchange of information.”

The situation illustrates the quandary facing European financial firms and policymakers.

As the sovereign debt crisis drags on, regulators are pressing banks to increase their capital cushion, part of a broader effort to restore faith in the financial markets. But industry executives complain that the only way to increase their reserves is to sell assets at rock-bottom prices and curtail lending, amplifying an economic slowdown already under way in the euro zone.

“If the capitalization level of large banks is too low you have to repair that — whether you like it or not — to restore market confidence,” said Harald A. Benink, a professor of banking and finance at Tilburg University in the Netherlands. But he added, “It is difficult for banks to go to markets in this environment. The governments will have to step in.”

Banks have to raise a hefty amount.

Last week, the European Banking Authority said that institutions should raise 115 billion euros in new capital by the end of June. Banco Santander in Madrid needs 15.3 billion euros; UniCredit has to come up with 8 billion euros.

While Germany has one of the strongest economies in Europe, its banking system remains especially vulnerable. Of the 13 big German banks examined by the banking authority last week, six needed additional capital. Deutsche Bank must raise 3.2 billion euros.

The industry’s options are limited.

A number of European banks have announced plans to sell assets to maintain a sizable capital cushion. According to the advisory firm Deloitte, the region’s firms currently hold $2.2 trillion in noncore and nonperforming assets, much of which could be offloaded. Even before the banking authority published the new requirements, Commerzbank had said it would temporarily halt some international lending and sell core assets.

But suitors are largely sitting on the sidelines, fearful that asset prices will continue to fall. Moody’s Investors Service this week warned that the banks could have a hard time finding buyers.

Investors are also largely unwilling to plow more money into the European banks. Many have watched the value of their holdings erode since the start of the sovereign debt crisis.

In recent weeks, some financial firms have been shuffling their bonds in a bid to bolster reserves. Commerzbank has offered to buy $800 million of hybrid securities at a discount — a complex move that will allow it to increase its capital levels without raising additional funds.

But such maneuvers have done little to ease investors’ fears.

On a day when the main European stock indexes were mixed, Commerzbank shares fell almost 4 percent Tuesday. The stock has plunged around 75 percent since March.

Jack Ewing reported from Frankfurt and Liz Alderman from Paris. Raphael Minder contributed reporting from Madrid.

Article source: http://feeds.nytimes.com/click.phdo?i=dd87f0bd67747773f280bcec93d09130

DealBook: Yahoo’s Alibaba Quandary

Jack Ma, Alibaba's chief executiveJason Lee/Reuters Jack Ma, Alibaba’s chief executive, could hold up a sale of Yahoo.

As Yahoo explores its future, one of the board’s top considerations is what to do about the company’s 43 percent stake in Alibaba, the Chinese Internet giant.

The stake, Yahoo’s crown jewel asset, is worth billions of dollars and provides the company a foothold into China. The problem is that Yahoo has an agreement that gives Alibaba’s shareholders the option to repurchase the stake through a right of first refusal. Alibaba’s chief executive, Jack Ma, desperately wants to acquire Yahoo’s shares and will no doubt try to exercise this right.

That means Yahoo’s options are even more limited than people think.

A right of first refusal is a mechanism that parties agree to in order to control who owns the shares in their company. If one group wants to sell its stake, the other shareholders can then exercise their right of first refusal and purchase that stake.

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Rights of first refusal can be quite valuable. They not only ensure that shareholders can control who owns the company, but they can also be a thorn in the side of a shareholder who wishes to sell. The reason is that third parties will refuse to bid for the shares knowing that any bid might be wasted because the other shareholders will exercise the right of first refusal.

In Alibaba’s case, it’s a likely scenario. If that happens, suitors will need to pay a high price to ensure Alibaba’s shareholders do not bid — or suitors may not make a bid. As such, Yahoo could be in a position where the only possible buyer is Alibaba. Alibaba shareholders know this too, and they could use it to their advantage by making a low-ball bid.

The right of first refusal clearly applies to any effort by Yahoo to sell its Alibaba shares. However, a close reading of the stockholders agreement shows that the right of first refusal may also be triggered if there is a sale of Yahoo itself. If Yahoo is sold, a bidder for the entire company may not be able to count on receiving one of Yahoo’s major assets. In addition, even if the bidder was willing to sell the Alibaba shares, the price mechanism here may mean that the bidder would receive less for these shares than it otherwise might.

The language in the stockholders agreement states that if Yahoo wants to “transfer” any shares, it is subject to the right of first refusal. The issue comes about because “transfer” in the agreement is defined as “any sale, transfer, assignment, gift, disposition of, creation of any encumbrance over or other transfer, whether directly or indirectly, of the legal or beneficial ownership or economic benefits of all or a portion of the equity securities.” Alibaba will claim that the sale of Yahoo itself is an indirect transfer of the Alibaba shares, triggering the right of first refusal.

The argument is not a certain winner. First, the parties could have specifically stated this in the agreement, but they did not. This is yet another example of lawyers drafting vague language possibly by mistake.

Second, the mechanics of the right of first refusal require that the original shareholder first get an offer from a third party. This establishes a price that the other Alibaba shareholders can pay if they exercise the right of first refusal.

In a full sale of Yahoo, there is no price set for the Alibaba shares, only for all of Yahoo itself. Yahoo could also argue that “indirect” in this case refers only to the actual shares and is inserted to cover futures and other derivatives.

Alibaba could counter that the language about indirect transfers was meant to include an entire sale. This argument is buttressed by the fact that the clause talks about transferring the economic benefits of ownership, which is what would happen in a full Yahoo sale.

In addition, it appears the agreement was drafted to ensure that Alibaba shareholders retained control of the corporate ownership. Finally, to determine the price of the Alibaba shares, you can simply do a valuation analysis that attributes part of the full sale price to the stake.

But Alibaba may not need to win this argument. The stockholders agreement requires that if there is any dispute, it is subject to confidential arbitration in Singapore before three arbitrators. This process could not only send teams of lawyers to Singapore as proceedings drag on for perhaps years, the outcome would be uncertain.

And remember that the Chinese regulatory authorities can likely block any transfer. Mr. Ma may no doubt have some influence there, too. Finally, any purchase of Yahoo or its Alibaba stake will want to be in the good graces of Mr. Ma, something that he is unlikely to bestow if he loses out on purchasing this stake.

Alibaba can thus simply invoke the right of first refusal and hold up any full sale of Yahoo or force a third party to deal with Alibaba. While a bidder could proceed and decide to litigate the matter, this may make financing for the acquisition much more difficult. It also may not be a risk that an acquirer is willing to bear or will factor in the price it is willing to pay for Yahoo.

The right of first refusal is likely yet another reason why Yahoo is reportedly focused on selling only a minority interest in itself rather than a full sale or a sale of the Alibaba stake. A sale of the Alibaba stake may not yield the best price, while a sale of Yahoo itself has murky consequences.


Steven M. Davidoff, writing as The Deal Professor, is a commentator for DealBook on the world of mergers and acquisitions.

Article source: http://feeds.nytimes.com/click.phdo?i=f36fbe563c468fc65d67305b45d0ece9

Prescriptions Blog: The Quandary Posed by a New Down Syndrome Test

A new test was introduced Monday that can determine if a fetus has Down syndrome using a sample of the mother’s blood. The test, and others like it, are expected to reach the market in the coming year and might eventually reduce the need for invasive tests that carry a slight risk of inducing miscarriages.

But some advocates for those with Down syndrome fear the new tests, which can be conducted as early as the 10th week of pregnancy, will lead to more abortions and reduce the population of those with Down syndrome. And they lament what they say is the perception that lives with Down syndrome are not worth living.

Dr. Brian G. Skotko, a specialist in the Down syndrome program at Children’s Hospital Boston, said that the number of babies born annually with Down syndrome in the United States declined 11 percent from 1989 to 2006. This was during a period when the number of such births would have been expected to increase by 42 percent because more women were putting off child-bearing until they were older, when the risk of an affected pregnancy increased.

The reason is that most women who find they are carrying a fetus with Down syndrome, which causes mild to moderate mental retardation, terminate the pregnancy.

Yet most women deemed at a higher-than-usual risk of an affected pregnancy do not get the invasive tests – amniocentesis or chorionic villus sampling – that can diagnose Down syndrome in the fetus.

Marcy Graham, a spokeswoman for Sequenom, the company that introduced the new test Monday, said there were an estimated 750,000 high-risk pregnancies a year in the United States, but only 200,000 invasive tests.

One reason women forgo testing is that many are willing to have a baby with Down syndrome. But there are others who avoid the invasive tests because they have a slight risk – often cited as one in 200 but probably lower – of inducing a miscarriage.

“This is an absolutely every-day occurrence for me that I talk to someone who is 37 years old and doesn’t want a Down syndrome baby but doesn’t want to go through an invasive procedure,’’ said Dr. Stephen A. Brown, associate professor of obstetrics and gynecology at the University of Vermont.

The new tests should eliminate that miscarriage risk, leading to a big upsurge in testing and Down syndrome diagnoses, and possibly more abortions.

“Will we slowly start to see babies born with Down syndrome disappear?’’ asked Dr. Skotko, who has a sister with the condition.

He and some colleagues recently published the results of a survey in which nearly 99 percent of people with Down syndrome said they were happy with their lives.

Parents of such children also said they were happy. About 79 percent of parents said their outlook on life was more positive because of their child.

There is also an upsurge in efforts to develop drugs to improve the learning ability of those with Down syndrome. One of the drug researchers, Alberto Costa, who has a daughter with the condition, told The New York Times Magazine:

“It’s like we’re in a race against the people who are promoting those early screening methods. These tests are going to be quite accessible. At that point, one would expect a precipitous drop in the rate of birth of children with Down syndrome. If we’re not quick enough to offer alternatives, this field might collapse.’’

See related article on the issue.

What do you think will be the results of new tests?

Article source: http://feeds.nytimes.com/click.phdo?i=45e9c7f6f55aadf457e02ae6396c1638

High & Low Finance: A Regulator, a Lawmaker and a Quandary

Had the small investors not been frozen out, the remaining shareholders, including the executives and directors who made the decision to eliminate the small investors, would have received only pennies per share less in the eventual merger, which was approved by the remaining shareholders in late June.

The S.E.C., in keeping with its normal policy, declined to comment on whether it had looked into the company, DEI Holdings, but there has been no indication that it is doing so.

Just starting an investigation could pose substantial political risks for the agency. The founder of the company, who remained a director and substantial shareholder even after he stepped down from management, is Representative Darrell E. Issa, a California Republican who is chairman of the House Committee on Oversight and Government Reform and has been a harsh critic of the S.E.C.

He has cited his experience as a director in criticizing what he sees as burdensome S.E.C. regulations. He says he thinks rules should be changed to make it easier for companies to raise money from American investors — particularly relatively wealthy ones — without having to comply with S.E.C. disclosure rules.

“As a member of the board of a small public company, I am well aware of the cost and difficulties of being public,” he told Mary Schapiro, the S.E.C. chairwoman, at a hearing of his committee in May, several months after the company froze out small shareholders and more than two years after the company deregistered its shares and stopped being subject to S.E.C. rules.

Neither Representative Issa nor James E. Minarik, the chairman and chief executive of the company, which makes electronic equipment for autos, responded to requests for interviews.

The tale of DEI Holdings as a public company was an unfortunate one for nearly everyone involved, but most particularly for individual investors who invested in it. It is a story that involves the way current rules allow companies to raise money from investors who believe they have the protection of American securities law, and then to withdraw much of that protection.

The company went public in December 2005 in an offering that was relatively small — it raised $150 million — but nonetheless had a prominent list of underwriters. Goldman Sachs was the lead underwriter, with J. P. Morgan Securities, CIBC World Markets, Wachovia and Citigroup also listed on the cover of the prospectus.

A large part of the money went to selling shareholders, including Representative Issa’s family foundation, which received $3.8 million, and most of the rest went to pay off debts. None of the offering proceeds were to be invested in company operations.

In 2005, Goldman served as a lead underwriter of 20 American initial offerings. DEI, then known as Directed Electronics, sought less money than any of the other 19, although one of the other issues raised less after Goldman cut both the size of the offering and the price in response to weak investor demand.

DEI was priced at $16, in the middle of the indicated range, when the company filed to go public, but the underwriters did not do a good job of estimating investor interest. The price fell 12.5 percent, to $14, in the first day of trading. It was the worst first-day performance of any Goldman I.P.O. that year.

The stock held its own for more than a year, but by late 2007 was trading below $2. Goldman, which had never had a buy recommendation on DEI, stopped writing research on it on Dec. 13 of that year.

Early in 2009, facing the loss of its Nasdaq listing because of its low share price, DEI chose to not only leave Nasdaq but also to “go dark,” as Wall Street jargon refers to a decision by a company to withdraw its S.E.C. registration. It could do that under a rule allowing such an action by a company with fewer than 300 shareholders of record. DEI said it had 284.

The phrase “shareholders of record” is a term of art in securities law. Shares held by a brokerage firm are all counted as being held by the same owner, even if they are actually owned by dozens or thousands of investors.

Article source: http://feeds.nytimes.com/click.phdo?i=a66cc2064715602d525d846de4bbdef7

Utility Shelves Ambitious Plan to Limit Carbon

American Electric Power has decided to table plans to build a full-scale carbon-capture plant at Mountaineer, a 31-year-old coal-fired plant in West Virginia, where the company has successfully captured and buried carbon dioxide in a small pilot program for two years.

The technology had been heralded as the quickest solution to help the coal industry weather tougher federal limits on greenhouse gas emissions. But Congressional inaction on climate change diminished the incentives that had spurred A.E.P. to take the leap.

Company officials, who plan an announcement on Thursday, said they were dropping the larger, $668 million project because they did not believe state regulators would let the company recover its costs by charging customers, thus leaving it no compelling regulatory or business reason to continue the program.

The federal Department of Energy had pledged to cover half the cost, but A.E.P. said it was unwilling to spend the remainder in a political climate that had changed strikingly since it began the project.

“We are placing the project on hold until economic and policy conditions create a viable path forward,” said Michael G. Morris, chairman of American Electric Power, based in Columbus, Ohio, one of the largest operators of coal-fired generating plants in the United States. He said his company and other coal-burning utilities were caught in a quandary: they need to develop carbon-capture technology to meet any future greenhouse-gas emissions rules, but they cannot afford the projects without federal standards that will require them to act and will persuade the states to allow reimbursement.

The decision could set back for years efforts to learn how best to capture carbon emissions that result from burning fossil fuels and then inject them deep under-ground to keep them from accumulating in the atmosphere and heating the planet. The procedure, formally known as carbon capture and sequestration or C.C.S., offers the best current technology for taming greenhouse-gas emissions from traditional fuels burned at existing plants.

The abandonment of the A.E.P. plant comes in response to a string of reversals for federal climate change policy. President Obama spent his first year in office pushing a goal of an 80 percent reduction in climate-altering emissions by 2050, a target that could be met only with widespread adoption of carbon-capture and storage at coal plants around the country. The administration’s stimulus package provided billions of dollars to speed development of the technology; the climate change bill passed by the House in 2009 would have provided tens of billions of dollars in additional incentives for what industry calls “clean coal.”

But all such efforts collapsed last year with the Republican takeover of the House and the continuing softness in the economy, which killed any appetite for far-reaching environmental measures.

A senior Obama administration official said that the A.E.P. decision was a direct result of the political stalemate.

“This is what happens when you don’t get a climate bill,” the official said, insisting on anonymity to discuss a corporate decision that had not yet been publicly announced.

At the Energy Department, Charles McConnell, the acting assistant secretary of energy for fossil energy, said no carbon legislation was near and unless there was a place to sell the carbon dioxide, utilities would have great difficulties in justifying the expense. “You could have the debate all day long about whether people are enlightened about whether carbon dioxide should be sequestered,” he said. But, he added, “it’s not a situation that is going to promote investment.”

His department has pledged more than $3 billion to other industrial plants to encourage the capture of carbon dioxide for sale to oil drillers, who use it to more easily get crude out of wells.

The West Virginia project was one of the most advanced and successful in the world. “While the coal industry’s commitment and ability to develop this technology on a large scale was always uncertain, the continued pollution from old-style, coal-fired power plants will certainly be damaging to the environment without the installation of carbon capture and other pollution control updates,” said Representative Edward J. Markey, Democrat of Massachusetts, co-author of the House climate bill. “A.E.P., the American coal industry and the Republicans who blocked help for this technology have done our economy and energy workers a disservice by likely ceding the development of carbon-capture technology to countries like China.”

A.E.P., which serves five million customers in 11 states, operated a pilot-scale capture plant at its Mountaineer generating station in New Haven, W.Va., on the Ohio River, from 2009 until May of this year. But the company plans to announce on Thursday that it will complete early engineering studies and then will suspend the project indefinitely.

Public service commissions of both West Virginia and Virginia turned down the company’s request for full reimbursement for the pilot plant. West Virginia said earlier this year that the cost should have been shared among all the states where A.E.P. does business; Virginia hinted last July that it should have been paid for by all utilities around the United States, since a successful project would benefit all of them.

Five years ago, when global warming ranked higher on the national political agenda, the consensus was that this decade would be one of research and demonstration in new technologies. A comprehensive 2007 study by the Massachusetts Institute of Technology concluded that global coal use was inevitable and that the ensuing few years should be used to quickly find ways to burn the cheap, abundant fuel cleanly. But with the demise of the Mountaineer project, the United States, the largest historic emitter of global warming gases, now appears to have made little progress solving the problem.

Robert H. Socolow, an engineering professor at Princeton and the co-director of the Carbon Mitigation Initiative there, said he was encouraged that some chemical factories and other industries were working on carbon capture without government incentives.

Mr. Socolow, the co-author of an influential 2004 paper that identified carbon capture as one of the critical technologies needed to slow global warming, said that there was a trap ahead. “Lull yourself into believing that there is no climate problem, or that there is lots of time to fix it, and the policy driver dissolves,” he said in an e-mail. He added that for companies like A.E.P., “business wants to be ahead of the curve, but not a lap ahead.”

Article source: http://www.nytimes.com/2011/07/14/business/energy-environment/utility-shelves-plan-to-capture-carbon-dioxide.html?partner=rss&emc=rss