A Kraken crackdown
The S.E.C.’s decision to charge the crypto exchange Kraken with securities violations over a popular way for the industry to make money sent more chills down the spines of executives across the sector. At 7:40 a.m. Eastern, the price of Bitcoin traded at $21,757, down nearly 3.9 percent in the past 24 hours.
Crypto companies — and skeptics of the agency’s approach to regulation — now worry what new limits the agency will seek to impose on the industry.
The S.E.C. focused on staking, in which users pledge certain crypto holdings, like Ethereum, to companies in exchange for hefty returns. (Those borrowed holdings in turn are used to validate crypto transactions.) Companies like Kraken pool customers’ assets, making it easier for ordinary users to stake their holdings and earn money.
But the S.E.C. accused Kraken of selling unregistered investment contracts, since staking customers are promised regular returns and payouts. That deprives investors of necessary disclosures, the agency said. “Are they lending, borrowing or trading with them?” the agency’s chairman, Gary Gensler, said of staking service providers in a video presentation on the S.E.C.’s website. “Where do the rewards come from? Are you getting your fair share?”
Kraken agreed to shut down its U.S. staking program and pay $30 million to settle the charges — though it neither admitted to nor denied the allegations, and will keep in place its international staking services.
The move could lead to a wider clampdown. Speculation about a possible S.E.C. ruling against Kraken had coursed through the crypto industry for days, leading Brian Armstrong, the C.E.O. of the Coinbase exchange, to defend the practice on Wednesday: “I believe it would be a terrible path for the U.S.” if the S.E.C. banned staking for retail investors, he tweeted.
Shares in Coinbase, which also offers a staking service, fell 14 percent on Thursday. But the company told DealBook that its offering is different from Kraken’s — while noting that it generated just 3 percent of revenue last year — and suggested that it would fight any potential legal action. “We’re willing to stand up for the rule of law,” Paul Grewal, its chief legal officer, said.
Not everyone at the S.E.C. agreed with its move. “We have known about crypto staking programs for a long time,” Hester Peirce, a Republican commissioner, wrote in a dissent. She argued that the agency should have provided guidance for such programs instead of cracking down on them.
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In other crypto news, a federal judge ordered lawyers for Sam Bankman-Fried to work with prosecutors on a plan to stop the FTX founder from deleting text messages he sends while awaiting trial for fraud.
HERE’S WHAT’S HAPPENING
Japan is reportedly set to name a new central bank chief. The yen rose against the dollar on Friday after reports that Kazuo Ueda, an academic and monetary policy expert, would succeed Haruhiko Kuroda as governor of the Bank of Japan. But analysts cautioned that it was unclear what Ueda’s appointment would mean for Japan’s ultra-loose monetary policy.
Britain barely avoids a recession. Its economy stayed flat last quarter, technically avoiding two quarters of negative growth. But while other countries like the U.S. are proving unexpectedly resilient, the I.M.F. still predicts that Britain — whose economy is the worst-performing among the Group of 20 nations — will fall into recession this year.
SpaceX restricts Ukraine’s access to its Starlink network for military uses. The president of Elon Musk’s space company, Gwynne Shotwell, said this week that it had limited Kyiv’s ability to use the satellite-based internet service to plan attacks on Russian forces. It is widely speculated that Ukraine has used Starlink to help plan drone strikes.
Adani Group reportedly turns to an elite Wall Street law firm for help. The Indian conglomerate has hired Wachtell, Lipton, Rosen & Katz, one of corporate America’s top defenders against activist investors, to provide counsel, according to The Financial Times. Adani companies’ shares have plunged after criticism from the U.S.-based short seller Hindenburg Research.
‘Toodle-oo’ at Disney
The news on Thursday that the activist investor Nelson Peltz had called off his board fight at Disney after Bob Iger, the entertainment giant’s C.E.O., unveiled a sweeping overhaul prompted celebration within the company. (One Disney executive texted a Times reporter “Toodle-oo” with a screen grab of a CNBC headline announcing the news.)
But Mr. Peltz walking away represents a win for both sides — and still leaves Mr. Iger with enormous challenges in his second tour of duty heading Disney.
Peltz achieved a major goal: making money. In ending his fight, he noted that Mr. Iger’s plan — including cutting billions in costs, promising to restore Disney’s dividend and more — addressed most of his demands.
Perhaps more important, Mr. Peltz pocketed a sizable profit. Trian Partners, his investment firm, bought about $1 billion in Disney shares at an average of roughly $90 each; the company’s stock closed Thursday at $110.36.
Mr. Iger will now turn to the rest of his long to-do list. He demonstrated a clear and decisive vision of the new Disney — but it’s one that requires difficult steps to execute. The company will shed 7,000 jobs, about 4 percent of its work force, to help save some $5.5 billion in expenses.
He must also rethink streaming. The flagship Disney+ service will refocus on profitability instead of subscriber growth, and spend less on content. Mr. Iger suggested that Disney may end up selling its majority stake in Hulu instead of buying out Comcast’s stake in the platform.
And Mr. Iger still has a thorn in his side: Ike Perlmutter, the chairman of Marvel and a top Disney shareholder who urged the board to make Mr. Peltz a director. (On Thursday, Mr. Iger said he had prevented Mr. Perlmutter from firing Kevin Feige, the man behind the Marvel Cinematic Universe, in 2015.)
That’s a lot for Mr. Iger to fix, in what he has pledged will be only a two-year term as C.E.O. (He said on CNBC that the board is already working to find his successor — obviously hoping to avoid a repeat of Bob Chapek’s disastrous tenure.) “That’s what my contract says,” he told CNBC about his intention not to stick around. “That was the agreement with the board.”
Adidas’s Kanye West hangover
Bjorn Gulden has been C.E.O. at Adidas for just six weeks, and he’s already warning that year one will be a mess.
Adidas shares fell more than 10 percent this morning, wiping more than 2.5 billion euros, or about $2.67 billion, in market value off the stock, after the German sportswear giant issued its fourth profit warning in the past six months and said it expected big losses in 2023.
The biggest culprit: The company’s messy split last year with the musician Kanye West could knock about 1.2 billion euros off full-year sales, and 500 million euros off its operating profit — an even greater loss than it had calculated just four months ago. Adidas in October severed its relationship with West, who is now known as Ye, after he went on an antisemitic rant. An immediate priority for Gulden (who was poached from crosstown rival Puma) is figuring out how to sell the mountain of unsold inventory from West’s Yeezy line.
The news rattled Wall Street. “There is a lot of work to be done across corporate culture, product, lower sell-through rate, excess inventory and digesting Yeezy exit, all of which can be done, but will take time,” wrote Piral Dadhania, an equity analyst at RBC Capital Markets, in an investor note. He cut Adidas’s share price target to 110 euros, implying a further 21 percent drop from this morning.
Adidas faces numerous headwinds. The company had been losing market share to Nike and other rivals; its expensive pullout from Russia and prolonged weakness in China have weighed on sales. Its clothing partnership with Beyoncé is also reportedly underperforming: Sales of the singer’s Ivy Park line are well off the company’s internal projections, according to The Wall Street Journal.
Mr. Gulden announced a strategic review that will cost 200 million euros. “I am convinced that over time we will make Adidas shine again. But we need some time,” he said.
E.S.G. investing bans face red state backlash
Some officials in red states are beginning to push back on E.S.G. investment bans, as the debate grows more tense in capital cities where much of the big-money decisions are made.
The latest: Frankfort, Ky. Public pension officials said they will oppose the state treasurer’s demands to pull funds from the asset manager BlackRock, one of the 11 financial giants that Kentucky has blacklisted for what it calls the boycotting of energy companies through its environmental, social and governance investing guidelines.
David Eager, the executive director of the Kentucky public pensions authority, which manages a $21.6 billion pension fund on behalf of state and local government employees, told DealBook that its members’ retirement portfolio comes before politics. “Taking into account non-investment-based factors and acting on political desires isn’t in their best interest,” Mr. Eager said.
This position flips the common Republican script that so-called “woke” investing amounts to a political position that fails to prioritize the investors’ returns. But those in charge of managing the states’ pension funds are turning the anti-E.S.G. argument upside down, saying if an investment is financially sound, they have a fiduciary duty to stick with it.
Meanwhile, in Indiana … A bill to ban E.S.G. investment considerations in the management of public pensions faces a rewrite after a new analysis forecast about $6.7 billion in reduced returns over a decade. Similarly, in North Dakota, a Republican supermajority in the House overwhelmingly voted against a boycott of financial institutions similar to Kentucky’s because it was deemed too vague.
Even Florida, an epicenter of the anti-E.S.G. movement under Gov. Ron DeSantis, has softened its stance somewhat. The state will keep doing business with BlackRock as long as investment decisions steer well clear of political, social or ideological considerations.
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