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North American Edition
22nd February 2024
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Private equity’s private credit push could be a stability risk, bank regulator says
The acting comptroller of the currency, Michael Hsu, has expressed concern over the private equity industry's expansion into private credit, stating that it poses potential threats to financial stability. Hsu highlighted the risks of PE firms originating more loans and engaging in activities typically done by banks, as well as their increased activity in insurance and creative funding structures. He emphasized the lack of consolidated supervision for PE firms, so making it difficult for regulators to assess the risks and interdependencies of their activities. Hsu also raised concerns about digital-payment companies offering banking services, particularly deposit-taking-like activities. He called for increased scrutiny and standardized data to address these vulnerabilities. Hsu praised the U.S. Financial Stability Oversight Council's framework for assessing risks and suggested the establishment of "tripwires" to trigger systemic-risk assessments.
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Jailed FTX founder returns to court amid lawyer conflict
Sam Bankman-Fried, the jailed founder of bankrupt cryptocurrency exchange FTX, is due back in court on Wednesday for the first time since his November fraud conviction. Bankman-Fried in January hired defense lawyer Marc Mukasey to help represent him during his sentencing and likely appeal.  Mukasey also represents Alex Mashinsky, the founder of bankrupt cryptocurrency lender Celsius Networks, on charges of artificially inflating the value of the company's in-house crypto token and earning $42m from selling his holdings. Mashinsky has pleaded not guilty. In a court filing earlier this month, prosecutors in Bankman-Fried's case claimed Mukasey and his partner Torrey Young had potential conflicts of interest because Bankman-Fried's Alameda Research hedge fund used stolen FTX customer funds to repay money it had borrowed from Celsius. "Bankman-Fried may wish to argue at sentencing or in the event of an appeal that Celsius and similar lenders were not defrauded and are not entitled to restitution," prosecutors wrote, observing "Celsius, and potentially Mashinsky, may take a contrary position.” They say Bankman-Fried should be able to continue with Mukasey as long as he understands the possible conflict.
Workday faces claims of AI discrimination in hiring process
Workday is facing renewed claims of using AI tools that discriminate against job applicants. Derek Mobley, who has been turned down for over 100 jobs using Workday's platform, filed a proposed class action lawsuit alleging that the platform discriminates based on race, age, and disability. Mobley claims that by using Workday's platform, employers are essentially handing over their authority to make hiring decisions to the company. Workday has denied wrongdoing and stated that it ensures its products comply with applicable laws. The use of AI in the hiring process by U.S. employers has raised concerns about potential discrimination. The Equal Employment Opportunity Commission has warned employers that they can be held legally liable if they fail to prevent screening software from having a discriminatory impact. The case seeks unspecified compensatory and punitive damages.
Texas cryptocurrency company sues SEC for allegedly overstepping authority
A Texas cryptocurrency company and an industry group have filed a lawsuit against the Securities and Exchange Commission (SEC), claiming that the regulator has exceeded its authority. The company, Lejilex, and the lobbying group, Crypto Freedom Alliance of Texas (CFAT), argue that the SEC has asserted jurisdiction over the industry without a clear statutory mandate. Lejilex plans to run a cryptocurrency platform called Legit.Exchange and wants the court to rule that listing pre-existing tokens will not violate securities laws. CFAT has asked the court to block the SEC from suing its members and argues that the agency's assertion of jurisdiction has made it difficult to convince Texas lawmakers to adopt sensible policies. The lawsuit brings the industry's fight with the SEC under the jurisdiction of the 5th U.S. Circuit Court of Appeals, which is seen as a favorable venue for challenges to the SEC under the Biden administration.
Home Depot violated labor law by barring worker from wearing BLM apron
Home Depot has been found to have violated U.S. labor law by prohibiting a worker from wearing a "BLM" apron in support of the Black Lives Matter movement. The National Labor Relations Board (NLRB) ruled in favor of the worker, Antonio Morales, stating that his refusal to remove the writing from the apron was protected by federal law. Morales had previously raised concerns about racial harassment and discrimination at the store, and the NLRB deemed wearing the BLM apron as a logical response to those complaints. Home Depot has been ordered to reinstate Morales and compensate him for lost pay and benefits. The ruling comes as the labor board is also considering similar cases involving Amazon's Whole Foods and Kroger subsidiaries. The dissenting opinion by the board's only Republican member argued that the apron had no connection to working conditions at the store.
Boeing replaces executive
Boeing has replaced the executive leading its troubled 737 manufacturing business as the aircraft maker attempts to draw a line under the safety scare that grounded nearly 200 of its planes. Ed Clark, who was in charge of both the 737 program and its factory in Renton in Washington state, has left with immediate effect as part of a reshuffle of top jobs at the division. He is being replaced by Katie Ringgold, who has worked at Boeing, including in a quality control job, since 2011. Stan Deal, the head of Boeing Commercial Airplanes, said the company was making "leadership changes as we continue driving Boeing's enhanced focus on ensuring that every aeroplane we deliver meets or exceeds all quality and safety requirements."
Sovereign wealth funds are interested in McDonald's China business
Middle Eastern and Chinese sovereign wealth funds, including Mubadala Investment Co., Qatar Investment Authority, and China Investment Corp., are in talks to invest in McDonald's China business as minority shareholders. The Citic consortium, which owns 52% of the business, is considering transferring its holding to a new investment vehicle, allowing Trustar Capital to reduce its stake. Negotiations are ongoing, but valuation remains a key hurdle. McDonald's China is the company's second-largest market, with plans to expand to over 10,000 restaurants.
IASB sticks with approach to bad debt accounting
The International Accounting Standards Board has decided to stick with its latest approach to bad debt accounting, rejecting complaints about costs. The board voted unanimously against changing the global financial reporting standard introduced in 2018, known as IFRS 9 Financial Instruments, which requires banks to include an estimate of future losses from debt that cannot be repaid. Feedback from a post-implementation review found that the standard is generally working well in practice. The board issued the financial instruments accounting standard after the 2007-08 global financial crisis.
IRS investigates fraudulent ERC claims
The Internal Revenue Service's Criminal Investigation (CI) unit has been investigating fraudulent claims for the Employee Retention Credit (ERC) and educating tax professionals about the potential problems they may face. As of January 31st, IRS CI had initiated 374 investigations involving over $2.95bn of potentially fraudulent ERCs in tax years 2020-2023. CI special agents are hosting educational sessions for tax professionals across the U.S. to ensure they have the latest information and understand ERC eligibility criteria. IRS CI chief Jim Lee stated that these sessions will help tax preparers navigate the complexities of ERC claims and comply with U.S. tax laws. The IRS has also introduced a voluntary disclosure program and withdrawal option for businesses that filed an ERC claim in error. The IRS recently highlighted seven warning signs of a dubious ERC claim and offers an FAQ page on the ERC. Legislation to halt new ERC claims is currently stalled in the Senate.
Tax refunds get bigger as filing season continues
The average tax refund is down more than 20% over last year, according to the latest statistics from the IRS. As of February 9th, the tax agency had processed 25.4m returns out of the 25.5m received since the official start of the tax season on January 29th. Both figures reflect a decline - 4.4% and 11.4%, respectively - from last year. The number of refunds is down 44% from 13.4m to 7.5m, and the total amount refunded fell by over 50% from $26.6bn to $13bn. The average refund amount is also down almost 13% from $1,997 to $1,741. The average refund is expected to increase in the coming weeks as payments are sent to those claiming the Earned Income Tax Credit or Additional Child Tax Credit. People claiming those credits will not receive refunds sooner than February 27th, due to a federal law requiring extra identity checks.
Labor unions set record for strikes in 2023
U.S. labor unions undertook the highest number of strikes in 23 years in 2023, with 33 major work stoppages. It marks the most strikes since 2000, as unions fought for better wages, benefits, and working conditions. The United Auto Workers union and others achieved significant victories, securing record contracts after a targeted six-week strike. A total of 458,900 workers participated in strikes, with the services sector accounting for 86.7% of idled workers. Education and health workers made up the largest portion of strikers, followed by information services workers. Factory workers and government employees also participated in strikes.
Remote workers face layoffs as companies scale back work-from-home options
The cooling white-collar labor market is leading companies to scale back work-from-home options, resulting in layoffs for remote workers, Bloomberg reports. “The perception that it's a lousy job market is persuading people that they better say ‘yes' [to in-office work] because they don't want to hunt for a job in a down market,” observed Peter Cappelli, a professor of management and director of the Center for Human Resources at Wharton. Fully remote staff were more likely to be cut last year, and the share of remote job postings dropped. However, the share of firms requiring full-time, in-office attendance has also declined, and more companies are adopting structured hybrid models. Some employees see the need to be seen in the office as necessary for career advancement or to solidify relationships with new teams. Others miss the community and social interactions.
Anger isn't a catalyst for higher status in the workplace
A study by researchers at the Hebrew University (HU) of Jerusalem and Princeton University in the United States challenges the belief that employees who express anger in the workplace are thought by their bosses to be competent and hold a high status. The study, titled "Anger at Work," conducted four robust studies and found that employers and colleagues view anger as inappropriate, cold, an overreaction, and counter-instrumental for workplace goals. The research also challenges the notion that women's anger is perceived differently from men's anger in the workplace. The findings suggest that anger is not a catalyst for higher status and is regarded more poorly than other emotional expressions, and highlight that anger may not serve or promote an individual's status in the workplace, regardless of gender. “We found that anger isn't a catalyst for higher status in the workplace,” said Dr. Roni Porat, a senior lecturer at HU's political science and international relations departments who conducted the study along with Elizabeth Levy Paluck of Princeton. “Moreover, we found that anger is regarded more poorly than other emotional expressions like sadness. The only instance in which anger is considered positive is when expressed in response to another person's clear wrongdoing. These findings hold for both men and women expressing anger in the workplace.”

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