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Regulators are warning that multimanager hedge funds, such as Citadel, could pose a threat to Treasury markets due to overcrowded trades. These funds have seen explosive growth and now oversee over $1 trillion in assets. While industry giants like Citadel's Ken Griffin have downplayed the risks, acknowledging that crowded trades could lead to widespread losses, concerns are growing among regulators, investors, and traders. The Securities and Exchange Commission and U.S. Treasury Department have already expressed concerns about the firms' favored basis trade, which could destabilize Treasury markets. Some investors are capping their allocations to these funds, while others are avoiding newer entrants. Smaller hedge funds are looking for ways to profit from the market dislocations caused by their larger competitors. The increased competition, market volatility, and lower returns have prompted market participants to question whether the multimanager hedge fund industry is approaching its peak.

 

Bloomberg

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The president of Microsoft, Brad Smith, has stated that there is no chance of super-intelligent artificial intelligence being developed within the next year. His comments come after the release of AI chatbot ChatGPT by Microsoft-backed OpenAI, which raised concerns about a potential threat to humanity. Recent reports suggested that OpenAI founder Sam Altman was ousted from the company due to disagreements over a dangerous AI discovery, but Smith denied these claims. Altman was initially forced out but was reinstated following public outcry. Smith emphasized that the development of artificial general intelligence, where computers surpass human capabilities, will take years or even decades. However, he stressed the importance of focusing on safety measures now. "It's going to take years, if not many decades, but I still think the time to focus on safety is now," said Smith.

 

Reuters

A Russian national, Vladimir Dunaev, has pleaded guilty to federal charges related to his involvement in a cybercriminal organization. Dunaev, who was extradited from South Korea to the United States, was a member of a group that used a computer banking trojan and ransomware known as "Trickbot." He has admitted to conspiracy to commit computer fraud and identity theft, as well as conspiracy to commit wire fraud and bank fraud. Dunaev could face a maximum sentence of 35 years in prison. This case has also had diplomatic implications, as Russia allowed the U.S. ambassador to visit a detained Wall Street Journal reporter in exchange for access to Dunaev. The visit was described as "on a reciprocal basis" by a Russian foreign ministry spokeswoman.

 

Reuters

Investing in China has become increasingly risky due to geopolitical tensions and the deteriorating relationship between Beijing and Washington. The impact of these tensions on China's economy and financial markets has become evident, leading many global investors to reconsider investing there. The restrictions imposed by the U.S. on investing in Chinese companies and the export restrictions on advanced semiconductor chips have caused unexpected losses for investors. Geopolitical and regulatory risks are now top considerations for buyers of Chinese stocks, bonds, and stakes in private companies. The recent exodus of foreign money from mainland China's stock markets, with over $24bn withdrawn since August, is the largest and most sustained net outflow of foreign funds since 2014. Market strategists predict that most hedge funds and active-fund managers will not return to investing in China until there are significant improvements in the country's growth outlook and U.S.-China relations. The Thrift Savings Plan, which holds the retirement savings of U.S. federal employees, has recently shifted its large international stock fund to exclude China and Hong Kong due to geopolitical concerns. Global investors are closely monitoring the geopolitical risks and regulatory landscape in China before making investment decisions.

 

Wall Street Journal

The Financial Industry Regulatory Authority (Finra) has fined BofA Securities $24m for over 700 instances of spoofing in U.S. Treasury secondary markets. Spoofing involves fraudulent trading that creates the appearance of market activity to induce other participants to trade against executed orders. Finra found that a former supervisor and a former junior trader executed 717 instances of spoofing in a U.S. Treasury security. BofA Securities has settled the matter without admitting or denying the charges. The bank says it has has made significant investments to enhance controls and worked co-operatively with Finra.

 

The Wall Street Journal

PwC affiliates in Hong Kong and China have been fined $7m by the Public Company Accounting Oversight Board (PCAOB). The U.S. accounting watchdog found that more than 1,000 audit staff cheated on internal training exams between 2018 and 2020. Without admitting the allegations, PwC’s Hong Kong firm has agreed to pay a $4m settlement, while PwC China is to pay $3m. PwC said it was “highly regrettable” that staff had shared test answers. The PCAOB has ordered the firm to strengthen its policies to ensure staff act with integrity in internal training.

 

Compliance Week

Financial Times

Reuters

The Wall Street Journal

Brussels is lobbying for an international tax on aeroplane fuel at the UN’s COP28 climate summit in Dubai. “We tax everything alive . . . but not aviation’, said EU climate commissioner Wopke Hoekstra.

 

Financial Times

Law firm Foley & Lardner has rescinded a job offer for an incoming associate, Jinan Chehade, due to public comments she made following the Hamas attack on Israel. Chehade has filed a charge of discrimination with the Equal Employment Opportunity Commission, accusing the firm of illegal retaliation and discrimination. She plans to file a lawsuit in federal court in Chicago. Chehade claims that her advocacy for Palestine was framed as "supporting terrorism" by Foley. The incident adds to a growing list of job offers being revoked by law firms over comments about the Israel-Palestine conflict.

 

Bloomberg Law

VF Corp has laid off around 500 employees as part of its global restructuring efforts. The company, which owns Vans, has been facing challenges in a tough U.S. retail environment and has been experiencing declining sales at its Vans brand. The job cuts were made across all brands, corporate functions, and geographies. VF Corp's stock has lost 40% of its value this year. CEO Bracken Darrell has warned of a large-scale cost reduction program to rebuild the business. The layoffs come after pressure from activist investor firms Legion Partners Asset Management and Engaged Capital. VF Corp had approximately 33,000 employees as of April 1. 

 

Reuters

A government watchdog, the Inspector General for the General Services Administration (GSA), is launching an investigation into the Biden administration's decision to choose a suburban Maryland site for the new FBI headquarters. The decision has been criticized by Director Christopher Wray and Virginia lawmakers, who accused a political appointee of interfering with the siting process. The Maryland location was chosen over a site in Virginia that had been recommended by career GSA and FBI officials. The investigation comes after a heated competition between Virginia and Maryland officials. The GSA has defended its process as fair, but the bipartisan congressional delegation from Virginia has called for a thorough review. The investigation prolongs the ongoing saga of the FBI's headquarters relocation. The selected site is located in majority-Black Prince George's County, with Maryland officials emphasizing economic and racial equity in their bid for the relocation.

 

Wall Street Journal

U.S. retailers are considering implementing "keep it" policies for costly returns, where customers are told to keep items that cost more to ship back than they are worth. According to a survey by returns services firm goTRG, 59% of retailers now offer such policies, compared to 26% last year. The rise in returnless policies is due to retailers adopting technology to reduce excess costs. This year, U.S. shoppers are expected to return $173bn worth of holiday purchases, prompting retailers to revise their policies. Returns drain profits as they require transportation, sorting, and reselling or disposal. Retailers are also offering store credit, charging for returns, and encouraging shoppers to return online purchases to physical stores.

 

Reuters

Software firm SUSE, whose software helps large companies run servers and whose clients include Microsoft and BMW, has tightened its scrutiny of commercial deals by creating a deal desk, aligning itself with other listed companies in the sector. The company's annual report for 2022 highlighted the importance of "commercial governance" as a newly identified risk. "SUSE may enter into high-risk or commercially inappropriate deals if it does not exercise effective control over the Sales organization," the company said in the report, noting that "'Commercial governance' is a newly identified risk this year" and a heatmap in the report ranked the risk as "possible" and its impact on the business as "high". Reuters has said it wasn't able to establish what prompted the warning.The report said that the deal desk should review any deals greater than $500,000. Lawyers for SUSE's former CEO, Melissa Di Donato, stated that the deal desk was created after a joint decision by the executive team and the company's board.

 

U.S. News

TikTok executives, including CEO Shou Chew, have met with influential leaders to discuss the moderation of antisemitic content on the platform. The meeting, attended by tech industry figures, aimed to address concerns about the popularity of pro-Palestine videos on TikTok. The app has faced criticism for violating its own community principles and enabling harassment. The meeting involved presenting data analysis of TikTok content and a letter signed by professionals, including former Meta Platforms Chief Revenue Officer David Fischer. TikTok has previously met with Jewish creators and celebrities to address antisemitic harassment. The tech industry group highlighted the prevalence of pro-Palestine videos from countries like Indonesia, Malaysia, and Pakistan. TikTok responded by stating that there aren't many cross-border videos in the US. TikTok has removed over 1.1 million videos and 933,000 bot comments related to the Israel-Hamas conflict.

 

Bloomberg

A Wells Fargo employee has filed a lawsuit accusing the bank of depriving hundreds of its U.S. branch workers of overtime pay. The proposed class action claims that Wells Fargo improperly classified "senior premier bankers" as exempt from overtime pay. The lawsuit alleges that these bankers often work unpaid overtime due to chronic understaffing. The lawsuit seeks unspecified damages, penalties, and legal costs.

 

Reuters

Sprint Communications has reached a $3.5m settlement in a class action lawsuit over retirement benefits. The settlement comes after workers claimed that the T-Mobile unit had miscalculated pensions for certain married workers, resulting in improper shortchanging of retirement benefits. The settlement is expected to increase monthly payments for over 1,000 Sprint retirees who opted for pension packages with post-death payments for their surviving spouses. The settlement represents about 36% of the total estimated damages for the retirees. The settlement has been hailed as an "excellent result" given the complex nature of the case.

 

Bloomberg Law

The Environmental Protection Agency (EPA) has announced a plan to remove all lead pipes from the country's water systems. The ambitious proposal, costing up to $30bn over the next decade, aims to replace approximately 9 million pipes that deliver water to homes across the U.S. EPA Administrator Michael Regan stated that the proposal aligns with President Biden's goal of replacing every lead pipe in America. Utility companies will be expected to cover most of the cost, with $15bn available from the 2021 infrastructure law to assist them. The EPA's Assistant Administrator for Water, Radhika Fox, highlighted the success of cities like Newark, Benton Harbor, and Green Bay in removing lead from their water systems. The proposal does not require water utilities to pay for the replacement of lead pipes on private property, but access to the $15bn funding is contingent on utilities replacing the entire lead pipe, including the portion on private property. The EPA's plan aims to protect communities, especially those disproportionately affected by lead in drinking water systems. Lead exposure can have severe health consequences, including brain damage and increased risk of heart disease and cancer. The proposal has been welcomed by officials and experts, who see it as a significant step towards safeguarding public health.

 

U.S. News