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A Citigroup document from December viewed by Reuters indicates the bank breached a U.S. Federal Reserve rule to limit intercompany transactions, leading to errors in its internal liquidity reporting. The Regulation W rule requires banks to restrict transactions such as loans to the affiliates they control. It is meant to protect depositors whose money is insured up to $250,000 by the government. Reuters notes that the rule breach comes as Citi seeks to remedy separate problems in its risk management and internal controls. Authorities described the company’s risk practices as "unsafe and unsound" in 2020, and criticized the bank for how it measured counterparty risks in 2023. This year, regulators have been critical of Citi’s resolution planning, and the bank was most recently punished with $136m in penalties for insufficient progress on compliance.

 

Reuters

Starbucks’ revenue fell 1% to $9.1bn in the third quarter ended June, with customer traffic weakening in the U.S. and China. Same-store sales were 3% down, fueled by a 5% decline in transactions. Net income dropped to $1.05bn, or 93 cents per share, from $1.14bn a year earlier. Excluding items, per-share earnings were 93 cents. Analysts surveyed by LSEG expected sales of $9.24bn and adjusted per-share earnings of 93 cents. U.S. comparable revenue was down 2%, and fell 14% in China. In other Starbucks news, its app suffered an outage on Tuesday, leaving customers unable to place a mobile order. Issues were reported across major cities including New York, Boston, Washington, Chicago and Dallas, according to digital issue monitoring platform DownDetector. The outage, which was rectified later in the day, took place at the same time that Microsoft reported its Azure cloud computing servers were down. It is unclear if the two outages were connected. 

 

CNN

CNBC

Washington Post

Wall Street Journal

Exports of semiconductor manufacturing equipment from U.S. allies including Japan, the Netherlands and South Korea will be excluded from planned Biden administration rules that will expand U.S. powers to stop shipments to Chinese chipmakers, limiting the impact of the rule, say sources. As such, major chip equipment manufacturers such as ASML will not be affected. The rule is an expansion of what is known as the Foreign Direct Product rule. It would bar about half a dozen key Chinese semiconductor fabrication plants from receiving exports from many countries, said one of the sources.

 

Reuters

The U.K.'s Competition and Markets Authority (CMA) has initiated a preliminary investigation into the partnership between Google and AI start-up Anthropic. The competition watchdog is looking into whether the partnership has resulted in a relevant merger situation, which could prompt a formal investigation. The CMA is also investigating a potential merger between Amazon and Anthropic, following Amazon's $4bn investment in the start-up. The regulator is concerned about the concentration of power in the hands of big tech companies and is monitoring arrangements that may hinder competition.

 

The Guardian

The Independent

Intel plans to eliminate thousands of jobs in a cost-cutting effort to rebound from an earnings slump and market share losses. The workforce reduction may be announced this week. Chief executive officer Pat Gelsinger is spending heavily on research and development to improve Intel's technology and return to prominence in the semiconductor industry. Other chipmakers have caught up and taken market share, while Nvidia has sprinted ahead in the development of semiconductors for AI-related tasks. Intel is also facing uneven demand for chips in its main business. Intel has previously reduced its workforce and slowed spending in other areas to save costs. Analysts project that Intel will report flat second-quarter revenue, with modest growth expected in the second half of the year. The company aims to increase total sales by 3% to $55.7bn for the full year, marking the first annual revenue increase since 2021. "Intel is betting that it can improve its technology," observed one expert.

 

Reuters

America’s gross national debt topped $35tn for the first time on Monday, according to the Treasury Department. The milestone comes just months after the U.S. eclipsed the $34tn threshold in early January 2024, while the $33tn mark was reached in September 2023. The Treasury said it borrowed $234bn in the three months to the end of June, less than it anticipated, adding that it expects to borrow $740bn over the three months to the end of September. "This news is incredibly sobering – and incredibly unsurprising for anyone who has been following our fiscal trajectory," Maya MacGuineas, president of the nonpartisan Committee for a Responsible Federal Budget, said in a statement. "Just last month the Congressional Budget Office warned Americans that debt held by the public is on its way to a new record share of the economy in three years. The deficit will be nearly $2tn this year and nearly $3tn in ten years."

 

Fox News

New York Times

The Conference Board's consumer conference index increased to 100.3 this month, from a downwardly revised 97.8 in June, and above the 99.5 expected by economists polled by the Wall Street Journal. The expectations index jumped to 78.2 in July from 72.8 in June, although it remains below 80, which is the threshold which usually signals a recession ahead. The present situations index, meanwhile, slipped from 135.3 to 133.6. "Compared to last month, consumers were somewhat less pessimistic about the future. Expectations for future income improved slightly, but consumers remained generally negative about business and employment conditions ahead", said Dana Peterson, chief economist at the Conference Board. "Meanwhile, consumers were a bit less positive about current labor and business conditions. Potentially, smaller monthly job additions are weighing on consumers' assessment of current job availability."

 

Market Watch

Reuters

RTT News

The Securities and Exchange Commission's motion for summary judgment against Movie Studio Inc. should largely be denied, according to a federal magistrate judge in Florida. The judge stated that the SEC failed to adequately support its fraud allegation and didn't establish that Movie Studio's CEO acted as a broker in selling unregistered securities. However, the judge recommended granting summary judgment on the claim that Movie Studio violated the SEC's rule against selling unregistered securities. Movie Studio is a vertically integrated motion picture production company that has been accused of securities law violations, including selling unregistered securities, fraud, and misrepresentation. The SEC alleged that the company and its CEO illegally sold $1.2m in stock to investors and misappropriated investor funds. The case is ongoing and has seen two motions to dismiss denied and a failed mediation.

 

Bloomberg Law

A Washington state judge has ruled in favor of Amazon in a workplace safety case, dismissing four serious safety violations that the e-commerce giant had been charged with. The judge stated that Amazon presented evidence of having a robust safety and health program and effectively communicated safety policies to its employees. The case stemmed from allegations by state labor regulators that Amazon had created an unsafe working environment, putting warehouse staff at risk of injury. The state argued that Amazon's warehouses failed to comply with ergonomic science rules, but the judge found that the state's argument was not convincing. Former Occupational Safety and Health Administration director Debbie Berkowitz expressed disappointment with the decision and stated that Amazon fails to take responsibility for the injuries caused by the jobs. The federal Occupational Safety and Health Administration (OSHA) is also investigating alleged ergonomic injuries at Amazon.

 

Washingtonpost.com

New York is the sixth most popular arbitration seat globally and the top choice in the U.S., according to the 2023 Dispute Resolution Statistics from the International Chamber of Commerce (ICC). Law.com looks at recent case law from the New York courts that grappled with important issues in the arbitral process and helped the city retain its stature as a leading arbitral centre. London and Paris remain the world's most popular arbitration venues: they have been chosen in more than 20% of the arbitrations commenced under the ICC Rules since 2019. The two cities are home to well-established institutions, with the ICC headquartered in Paris, and the London Court of International Arbitration (LCIA) in London. 

 

Law.com

Ransomware litigation has seen a surge as cybercriminals target businesses of all sizes. The Ransomware-as-a-Service business model has made it easier for criminals to carry out attacks, resulting in a rise in lawsuits. CDK Global, a major industry software vendor, recently fell victim to a ransomware attack, causing operations at thousands of car dealerships to come to a halt. The attack led to multiple lawsuits being filed against CDK, with claims of compromised personal information and financial losses. The attack bears similarities to the high-profile attack on Change Healthcare earlier this year, which also resulted in numerous lawsuits. The increase in ransomware attacks has led to a record-breaking number of complaints being filed in federal court, indicating a growing trend in litigation. As these attacks become more common, defendants will find it harder to argue that they were unforeseeable, making negligence claims easier for plaintiffs. Higher cybersecurity standards may be necessary to defend against breach of duty allegations.

 

Bloomberg Law

The IRS has provided five new red flags for incorrect Employee Retention Credit (ERC) claims. These warning signs come from common issues that IRS compliance teams have seen while analyzing and processing ERC claims. The new red flags include essential businesses claiming the ERC without a decline in gross receipts, businesses unable to support how a government order suspended their operations, businesses reporting family members' wages as qualified wages, businesses using wages already used for Paycheck Protection Program loan forgiveness, and large employers claiming wages for employees who provided services. Since the IRS paused processing new claims, it has processed 28,000 claims worth $2.2bn and disallowed over 14,000 claims worth over $1bn. The IRS is denying tens of thousands of ERC claims that show signs of being erroneous and scrutinizing hundreds of thousands more. It is also beginning additional processing of low-risk claims while reviewing eligibility for other periods. 

 

Tax Notes

To mark National Whistleblower Appreciation Day yesterday, the IRS Whistleblower Office highlighted the important role whistleblowers play in tax administration. Since 2007, the IRS has paid over $1.2bn in awards based on the successful collection of $7bn from non-compliant taxpayers. The IRS says it appreciates the valuable contributions of whistleblowers and is committed to improving the whistleblower program. The IRS Whistleblower Office was established in 2007 to administer claims from whistleblowers. National Whistleblower Appreciation Day is recognized annually on July 30 - the first whistleblower law was passed on this day in 1778.

 

Tax Notes