Risk Channel delivers the latest, most relevant and useful business intelligence to key decision makers and influencers, each weekday morning.
North American Edition
24th January 2023
U.S. corporate fraud may be greater than thought, study suggests
A study, led by Alexander Dyck, a finance professor at the University of Toronto, suggests U.S. corporate fraud, “like an iceberg,” may be greater than thought. The research found that only about a third of frauds in public companies are ever identified, and that fraudulent activity is more common than previously assumed. About 40% of companies are committing accounting violations and 10% are committing securities fraud, destroying 1.6% of equity value each year — equivalent to about $830bn in 2021. “Fraud is indeed like an iceberg, with significant undetected fraud beneath the surface,” the study says. Reuters notes that the Securities and Exchange Commission (SEC) has stepped up its enforcement of fraudulent activity. In the agency's 2022 report on enforcement actions, the regulator filed 760 enforcement actions and recovered a record $6.4bn in penalties and disgorgement, a 9% increase over the prior year, and included 462 new, or “stand alone,” enforcement actions, a 6.5% increase over fiscal year 2021. “The SEC’s stand-alone enforcement actions in fiscal year 2022 ran the gamut of conduct, from ‘first-of-their-kind’ actions to cases charging traditional securities law violations,” the agency said.
Microsoft loses lawsuits against IRS over tax audit records
Microsoft has lost its bid in Seattle federal court to force the IRS to release tens of thousands of records tied to an audit that the agency is conducting of the technology company. U.S. District Judge Ricardo Martinez in a pair of opinions ruled against Microsoft, after concluding in one lawsuit that the IRS was properly shielding 49,400 pages from disclosure under the federal Freedom of Information Act and in the other lawsuit that Microsoft was not entitled to additional records pertaining to the firm's audit-related contracts with law firms Quinn Emanuel Urquhart & Sullivan and Boies Schiller Flexner. "The court agrees with the IRS that they were reasonable and adequate under the circumstances of this case," Martinez wrote. "Microsoft has failed to introduce evidence of bad faith or to otherwise demonstrate that the IRS's actions were unreasonable." U.S. Justice Department lawyers in court filings called the IRS audit of Microsoft "one of the largest in the service's history." The IRS has released 91,900 pages in full, 13,000 pages in part. Among the withheld documents, the IRS said releasing more than 7,000 pages would interfere with enforcement proceedings. In the law firm contracts lawsuit, the IRS released more than 337,000 and withheld 38,200 pages. The agency also held back documents based on various legal privileges, including "deliberative process," which can shield communication from agency officials about steps they are considering.
Conference Board's leading indicators index falls for 10th straight month
A gauge of future U.S. economic activity tumbled for a 10th straight month in December with a widespread weakening outlook for manufacturing, home building and both job and financial markets. The Conference Board's Leading Economic Index slid 1.0% in December following a downwardly revised decline of 1.1% in November. The decline exceeded all 22 forecasts in a poll of economists by Reuters, which had a median expectation of a decline of 0.7%. Seven of the index’s 10 components declined in December. “There was widespread weakness among leading indicators in December, indicating deteriorating conditions for labor markets, manufacturing, housing construction, and financial markets in the months ahead,” Ataman Ozyildirim, the Conference Board’s senior director of economics, said in a statement. “Overall economic activity is likely to turn negative in the coming quarters before picking up again in the final quarter of 2023."
Goldman Sachs to cut asset management investments
Goldman Sachs is looking to significantly reduce the $59bn of alternative investments that weighed on the bank's earnings. The bank intends to divest its positions over the next few years and replace some of those funds with outside capital, Julian Salisbury, chief investment officer of asset and wealth management at Goldman Sachs, said. "I would expect to see a meaningful decline from the current levels," Salisbury added. "It's not going to zero because we will continue to invest in and alongside funds, as opposed to individual deals on the balance sheet."
Spotify cuts 6% of its workforce
Swedish music-streaming giant Spotify is to cut 6% of its about 10,000 employees, citing a need to improve efficiency.  “Like many other leaders, I hoped to sustain the strong tailwinds from the pandemic and believed that our broad global business and lower risk to the impact of a slowdown in ads would insulate us,” Spotify CEO Daniel Ek wrote on the company's blog, adding “In hindsight, I was too ambitious in investing ahead of our revenue growth. And for this reason . . .  we are reducing our employee base by about 6% across the company.” Ek said in the note to employees that he takes “full accountability for the moves that got us here today.” The company also said its chief content and advertising business officer, Dawn Ostroff, would depart as part of a broader reorganisation. Spotify has never posted a full-year net profit, despite its popularity in the online music market.
Deutsche Bank slashes investment banker bonuses but rewards traders
Deutsche Bank is cutting the bonus pool for its investment banking division by just under 10%, according to reports. Following a slump in deal-making, bankers working on M&A origination and advisory will face around a 40% drop in their bonuses, while traders in the bank’s fixed income and currencies business will see their bonuses rise significantly. The significant reduction in the advisory bonus pool is in line with Goldman Sachs but more substantial than JPMorgan Chase, Citigroup and Bank of America, which the FT has reported are set to cut their investment banking bonus pools by about 30%.
Leadership teams fatigued by climate, diversity
A new survey by search firm Russell Reynolds Associates reveals that the chief executives of global corporations are losing confidence in the ability of their leadership teams to tackle issues including digital technology, climate change and diversity. The research also shows other C-suite executives are losing trust in those who report to them. Tom Handcock, managing director of Russell Reynolds’ Center for Leadership Insights, attributed the declining confidence in leadership to fatigue, economic challenges, and increased complexity in managing a diverse set of stakeholders. “The gap between talk and real impact on issues like digital, ESG, DE&I and succession planning is becoming increasingly clear for many organizations,” the survey said, referring to environment, social and governance (ESG) and diversity, equity and inclusion (DE&I).
Bloomberg to pay $5m to settle SEC charges
Bloomberg Finance LP has been fined $5m by the U.S. Securities and Exchange Commission (SEC) for "misleading" disclosures relating to its paid subscription service. Bloomberg failed to disclose to customers of its BVAL service that its daily price valuations for fixed-income securities could be based on a single data input from at least 2016 to October 2022, the SEC said in a statement. That practice did not adhere to methodologies the firm had previously disclosed, the agency said.
Guitar Center is moving to the cloud
Guitar Center, the largest retailer of musical instruments in the U.S., is moving from its data centers to Oracle’s cloud platform to support growing online and in-store demand for instruments and services including repairs and lessons. Most of the Westlake Village, Calif.-based company’s data and applications have now been shifted to Oracle’s cloud and Exadata database service. The Wall Street Journal says the move comes as consumers cut back on spending during the holiday season, which some analysts say has put greater pressure on retailers to use cloud technologies to keep shoppers engaged. “Retailers don’t want to be in the business of running data centers,” said Greg Pavlik, a senior vice president and chief technology officer for Oracle Cloud Platform.  “The biggest driver for why the cloud is appealing for retailers, in general, is this ability to basically be able to burst on demand,” Mr. Pavlik said, referring to the cloud’s capability to increase and decrease computing usage as required to account for seasonality.
M&M’s pulls ‘spokescandies’ amid right-wing outrage
Mars Wrigley said on Monday that it is replacing its M&M's "spokescandies" with actress Maya Rudolph after facing right-wing criticism over its mascot makeover. The spokescandies are a team of cartoon M&M's mascots that have represented the brand in commercials and other marketing materials since 1960. Early last year, the candy brand updated the cartoons and its marketing, rebranding each mascot with a new backstory, clothing and personality to be more inclusive. The rebrand caught the eye of conservatives, including Fox News host Tucker Carlson, at the time of the update and again in recent weeks, with some claiming the makeovers were indicative of a liberal agenda. “In the last year, we’ve made some changes to our beloved spokescandies. We weren’t sure if anyone would even notice. And we definitely didn’t think it would break the internet,” M&M's said in a statement Monday on Twitter. “Now we get it — even a candy’s shoes can be polarizing . . . Therefore, we have decided to take an indefinite pause on the spokescandies.”
Redundancies often leave companies worse off
Writing for Bloomberg, Sarah Green Carmichael considers how job cuts often leave companies worse off, alienating customers and sapping the morale of those employees who are left to pick up the slack. An organization which finds that it is slightly overstaffed should consider what to do with that capacity rather than letting go people they have worked hard to hire, say management experts. “The research has been incredibly consistent that layoffs are not good,” warns Angie Kamath, dean of the New York University School of Professional Studies.
California lawmaker joins other blue states in attempt to tax the wealthiest
California Assemblymember Alex Lee has put forward a plan that would impose new taxes on California’s “extremely wealthy,” at a rate of 1.5% on those worth more than $1bn starting next year, and at 1% for those worth more than $50m starting in 2026. The Democratic lawmaker says his plan would affect 0.1% of California households, and generate an additional $21.6bn in state revenue. On top of a person's annual income, the bill targets "worldwide wealth," or holdings such as stocks and hedge fund interest, farm assets, and arts and collectibles. The bill was announced as a joint effort alongside officials promoting similar wealth taxes targeting capital gains and “unrealized gains” in Connecticut, Hawaii, Illinois, Maryland, New York and Washington. The announcement was organized by the State Innovation Exchange, a progressive nonprofit, and the State Revenue Alliance, which works with labor groups to call for taxing rich people. “States are leaning into their power. They’re reminding us that states are the laboratories of democracy,” said Charles Khan, who serves on the advisory committee for the State Revenue Alliance. In California, similar wealth taxes in the past have faltered, with Democratic Gov. Gavin Newsom showing no signs of supporting them. California Taxpayers Assn. President Robert Gutierrez, also an opponent, said the state should not jeopardize losing its top earners at a time of economic uncertainty. He also questioned the fairness and practicality of a first-of-its-kind tax on assets and total wealth.
Puerto Rico officials to crack down abusers of its tax credit system
Puerto Rico is to start cracking down on those who abuse the U.S. territory’s tax credit system. Treasury Secretary Francisco Parés said the creation of a new centralized system to administer tax credits related to investments would generate an additional $130m a year for the government and lead to lower tax breaks for residents on the island of 3.2m people. The crackdown was announced a week after Puerto Rico’s governor increased from $38m to $100m the annual limit of tax credits for film projects developed on the island. Parés said current incentives will expire in upcoming years and then fall under the new system, which launches Wednesday. Under the old system, the island’s Treasury Department, its Department of Economic Development, Department of Housing and its Tourism Company were responsible for overseeing tax credits. Now, the responsibility will fall solely with treasury officials.
Less than half of Americans are satisfied with healthcare quality
For the first time in two decades, less than half of Americans are satisfied with U.S. healthcare quality, according to a new Gallup poll. According to the poll, released on January 19th, around 48% of Americans think healthcare is either “excellent” or “good,” while 31% say it’s “only fair.” The remaining 21% of the population says the system is “poor.” Compared to 2021, the “excellent” and “good” percentages dropped by 2%. In the early 2010s, the percentage was as high as 62%. The poll questioned Americans about their own and national healthcare coverage. The disparity in ratings were even greater: while 66% of Americans rate their own coverage as “excellent” or “good,” only 32% of Americans consider healthcare coverage nationwide to be “excellent” or “good.”

Risk Channel delivers the latest, most relevant and useful business intelligence to key decision makers and influencers, each weekday morning.

Content is selected to an exacting brief from hundreds of influential media sources and summarised by experienced journalists into an easy-to-read digest email.

Risk Channel enhances the performance and decision-making capabilities of individuals and teams by delivering the most useful news and knowledge in a cost-effective way, while promoting a sponsor's brand to the risk and leadership communities.

If you would like to sponsor a Risk Channel special report, reaching thousands of influential professionals, companies, business leaders and decision makers through our US and/or UK & Europe editions, please get in touch with us via email sales team


This e-mail has been sent to [[EMAIL_TO]]

Click here to unsubscribe