Securities Attorney Briefing 19 December 2016

Securities Attorney Tom Krebs


Putin’s Revenge

Twenty years before Vladimir Putin began his ingenious campaign to influence the U.S. presidential election, his predecessor as Russia’s president stood on a dark street near the White House. In his underpants. Looking for a pizza. It was September 1994, and Boris Yeltsin was in Washington for a state visit with his new friend, President Bill Clinton. The Soviet Union had collapsed just three years earlier, and a relationship was blossoming between the U.S. and Russia, one that held the promise of burying decades of hostility. Russia’s abrupt transition from communist dictatorship was chaotic, but a fragile democratic process and nascent capitalism were taking hold. U.S. officials entertained visions of a Western-friendly Russia as a partner in a stable and secure Europe. To that end, Clinton and Yeltsin had built an alliance on the shared goal of preventing a revanchist security state from taking power in Moscow and returning the U.S. and Russia to a Cold War state of hostility. During one early visit to Moscow, Clinton told a young audience to “choose hope over fear” and “find a new definition of Russia’s greatness.” Rarely had an American and a Russian leader been so chummy. Clinton and Yeltsin were buddies, two lovable rascals with big appetites. But something else was different as well: For the first time in decades, Russia was the obvious number two in the relationship. Stripped of its Iron Curtain puppet states, its economy in tatters and its military breaking down, Russia was a shrinking, messy place. And its president was becoming an embarrassment. A presumed alcoholic, Yeltsin would often lose his balance in public, sending aides scurrying to prop him back up. In one slurred telephone conversation with Clinton, the Russian proposed that the men hold a secret meeting on a submarine. But nothing could top that fall night in 1994. While staying at Blair House—the guest residence for visiting foreign dignitaries across Pennsylvania Avenue from the White House—Yeltsin slipped past his security, stumbled down the stairs and stepped onto the street. “Pizza! Pizza!” he blurted at the Secret Service agents who intercepted him. (There are two versions of the story: In one that Clinton himself told to a biographer, Yeltsin is on the street; in another, he’s stopped before he makes it out the door.) More:

How a Putin Fan Overseas Pushed Pro-Trump Propaganda to Americans

The Patriot News Agency website popped up in July, soon after it became clear that Donald J. Trump would win the Republican presidential nomination, bearing a logo of a red, white and blue eagle and the motto “Built by patriots, for patriots.” Tucked away on a corner of the site, next to links for Twitter and YouTube, is a link to another social media platform that most Americans have never heard of: VKontakte, the Russian equivalent of Facebook. It is a clue that Patriot News, like many sites that appeared out of nowhere and pumped out pro-Trump hoaxes tying his opponent Hillary Clinton to Satanism, pedophilia and other conspiracies, is actually run by foreigners based overseas. But while most of those others seem be the work of young, apolitical opportunists cashing in on a conservative appetite for viral nonsense, operators of Patriot News had an explicitly partisan motivation: getting Mr. Trump elected. Patriot News — whose postings were viewed and shared tens of thousands of times in the United States — is among a constellation of websites run out of the United Kingdom that are linked to James Dowson, a far-right political activist who advocated Britain’s exit from the European Union and is a fan of President Vladimir V. Putin of Russia. A vocal proponent of Christian nationalist, anti-immigrant movements in Europe, Mr. Dowson, 52, has spoken at a conference of far-right leaders in Russia and makes no secret of his hope that Mr. Trump will usher in an era of rapprochement with Mr. Putin. More:

BP to Invest $1 Billion in Gas Field Off Coast of Northwest Africa

BP PLC will invest nearly $1 billion in a vast natural gas field off the coast of northwest Africa, a sign that major energy companies continue to scour the world for opportunities to pump more even as they recover from one of the worst oil and gas price crashes in decades. The agreement with exploration company Kosmos Energy Ltd. of Dallas calls for BP to pay more than $900 million in the coming years to help test the viability of the Tortue prospect in waters off Mauritania and Senegal. By some estimates, the field could hold as much as 50 trillion cubic feet of natural gas. That is enough to meet demand in the United Kingdom for about 20 years, according to the U.S. Energy Information Administration. The deal also makes BP the operator of the project, giving the British oil giant another potential growth opportunity in its portfolio as two years of low energy prices and cost-cutting have reduced the number of new drilling frontiers. Funding from BP will be used for further drilling, as well as feasibility studies and development costs that should put BP and Kosmos in a position to make a final investment decision on the project by 2018, according to Kosmos. More:

Digital currency sales take off, but with no regulation questions abound

A small, but rapidly growing number of digital technology start-ups is raising cash by creating and selling their own currencies in offerings that bypass banks or venture capital firms as intermediaries and are outside the reach of financial regulators. Investors are being drawn in on hopes that such “initial coin offerings” will match or exceed the performance of the first digital currency, bitcoin. For the sellers, the appeal of selling their own currencies, or tokens, to raise cash is enormous. There is no paperwork as would be required for a public securities sale. But the lack of regulatory oversight is raising red flags among some market experts and financial technology lawyers, some of whom even question the legality of the tokens. Joe Zhou says he needed just 58 seconds to sell enough tokens to meet the roughly $5.5 million fund-raising target for FirstBlood, the online gaming website he co-founded. “We had expected the sale to run for a month and we even gave the people who participated early-bird discounts because we were not sure how it would go,” Zhou said. The tokens sold by FirstBlood, like those sold by other companies, are the currency required to play games on the platform, for instance, or claim rewards for referrals. For FirstBlood, a distinct advantage to having its own currency was to give gamers complete control over their funds, with no intermediaries such as banks involved, and with encryption features protecting against hacks. The transactions are accounted for using blockchain, a ledger of transactions that first emerged as the software underpinning bitcoin and is maintained by a network of computers on the internet. Blockchain has gained traction on both Wall Street and Main Street, encouraged by the technology’s ability to record and track the movement of assets.

China Says Trump’s Description of Drone Seizure as Theft Is ‘Inaccurate’

BEIJING—China’s Foreign Ministry said Monday that military officials are in touch with the U.S. over the return of an American undersea drone and dismissed President-elect Donald Trump’s criticism of the Chinese navy’s seizure of the device. Hewing to statements issued over the weekend by China’s Defense Ministry, Foreign Ministry spokeswoman Hua Chunying described Thursday’s seizure as an effort by the Chinese navy to “prevent harm” to vessels freely and safely moving in the area. “The Chinese side inspected it, found that it belongs to the U.S., and decided to hand it back,” Ms. Hua told reporters at a regular briefing. She said both countries’ militaries “are in smooth communications, and we believe this incident will be properly handled.” The Pentagon says the U.S. Navy drone was gathering oceanographic data when it was captured in international waters in the South China Sea. That location suggests the incident occurred outside the waters China claims belong to it. As such the seizure marks an escalation of Beijing’s efforts to block U.S. naval surveillance and adds to recent tensions over Taiwan and trade.  Asked if the drone was spying on China, Ms. Hua sidestepped, saying, “We have always opposed long-term survey and reconnaissance by U.S. vessels in waters facing China, as this threatens Chinese sovereignty and security.” In Twitter posts over the weekend, Mr. Trump twice characterized China’s seizure as stealing, saying on Saturday “China steals U.S. Navy research drone,” and on Sunday that “we should tell China that we don’t want the drone they stole back.” Ms. Hua described the president-elect’s characterization of Beijing’s actions as “wholly inaccurate.”


Mnuchin’s Ultra-Long Bond Idea Is an Ultra-Longshot for Treasury

Ultra-long U.S. Treasuries look like an ultra-longshot. That’s the message from traders, strategists and even duration-starved bond investors about the potential for 50- or 100-year U.S. obligations. Steven Mnuchin, President-elect Donald Trump’s pick for Treasury Secretary, said he’d “take a look at everything,” in response to a question about those maturities in a Nov. 30 CNBC interview. The remarks sent 30-year U.S. bonds into a tailspin, even though the Treasury has persistently slapped down the notion. The move sounds reasonable in theory: Long-term interest rates are near record lows, and other countries have issued maturities of 50 or more years, though not necessarily on a regular basis. But for the U.S., that approach carries risk: The predictability of the nation’s debt auctions lures investors and lowers borrowing costs. What’s more, the average maturity of the world’s biggest bond market is already set to reach historic highs.  “Treasury has built up a very good reputation as a predictable, reliable issuer that doesn’t play games with the yield curve — investors like that,” said Aaron Kohli, an interest-rate strategist in New York at BMO Capital Markets, one of the Federal Reserve’s 23 primary dealers. “If you lose that, you issue the 50-year because it’ll make people happy, that’s not something that’s really going to be a strong positive in the long run.” The Treasury says regular issuance has been a “pillar” of its debt management since the 1970s. This month, Daleep Singh, assistant secretary for financial markets, reiterated the importance of that stance at a presentation at Columbia University. “Treasury does not face a one-time issuance decision,” Singh said in prepared remarks. “What would be the effects of an abrupt cancellation of a 50-year bond issuance, or the program itself, on the credibility of Treasury as a regular and predictable issuer?” More:

California Employee Pension Will Consider Cutting Return Assumption

Calpers may be getting a bit more real. The $300 billion California public employees’ pension manager is considering cutting its investment return assumption. The move would squeeze the budgets of public authorities and employees, but secure funding for retirees. If the American government pension bellwether can do it, others will follow. Public pension funds in the United States have long relied on unrealistic investment assumptions, but the financial crisis and lackluster market performance have exposed that game. Calpers took a small step in 2012 by lowering its return assumption by 0.25 percentage point, to 7.5 percent, but the fund generated a return of just 0.61 percent in the 12 months that ended June 30. Annualized returns were 5.1 percent over the last 10 years. Ted Eliopoulos, the chief investment officer, has overhauled the fund’s portfolio since taking over two years ago, slashing the hedge fund allocation and awarding fewer, but bigger, mandates to outside managers. Those moves are not sufficient to close the gap for a retirement system that has only 76 percent of the assets needed to ensure current retirement benefits to its members. The Calpers board will next week consider a plan to reduce the return assumption to as low as 7 percent. The cost to employers would be phased in over five years, with the pension contributions of state and local governments rising by as much as $2 billion a year in the fifth year. For employees, the hit could be another percentage point or more in payroll deductions. More:

How Not to Build a Supermall: $5 Billion, 5 Governors, 3 Developers, and 15 Years

Chris Christie once called American Dream “the ugliest damn building in New Jersey.” Will it ever open? Don Ghermezian wants to pitch us on the American Dream, but he has a few conditions. First, we’re not allowed to record his eight-minute presentation. Second, we can ask him only a few questions, at the end. Third, if they’re about his family, he won’t say much. “This is a $4.8 billion project that will be the center of the universe,” he says, promising we’ll be impressed. If not, “you’ll be the first ever to leave here without thinking, ‘Holy shit. These guys are incredible.’ ” Ghermezian is speaking in the New Jersey Meadowlands offices of Triple Five, a family business that owns North America’s two biggest shopping centers: West Edmonton Mall and Mall of America. Triple Five are the incredible guys in question; Ghermezian is the company’s president. The future center of the universe is across the turnpike, a 91-acre tract of filled-in wetlands now home to a structure Governor Chris Christie, something of an expert on dismal spectacles, called “the ugliest damn building in New Jersey, maybe America.” The first thing Ghermezian means for us to understand is that his family isn’t building a mall. Online shopping is killing malls; American Dream is one of only two in the country being built from the ground up. Its extravagant attractions make it “internet-proof,” says Ghermezian, who is in his 40s and wears a big watch and expensive sneakers. Beyond its 450 shops and restaurants, half of the 3 million-square-foot complex will be devoted to entertainment: a DreamWorks water park, a Nickelodeon theme park, a Legoland, a ski slope, an aquarium, a performing arts space, a movie theater, an ice rink, a miniature golf course, and a kosher food hall, all enclosed in a glass bubble. More:

The Vampire Squid Occupies Trump’s White House

After running against Goldman as a candidate, Donald Trump licks the boots of the world’s largest investment bank. Back on February 19th, during a primary-season speech in Myrtle Beach, South Carolina, Donald Trump directed a two-pronged rhetorical offensive against opponents in both parties. He started with Ted Cruz. Cruz’s campaign, Trump pointed out, had taken loans from the infamous investment bank Goldman Sachs. And he’d failed to properly disclose one of these loans. “I know the guys at Goldman Sachs. They have total, total control over [Cruz],” Trump said. “Just like they have total control over Hillary Clinton.” Trump demonized the bank enough that it almost seemed like genuine animosity existed between candidate and squid. When Goldman announced in September that it was banning employees from donating to Trump’s campaign, it seemed official. In October, Trump was even more specific in pointing the finger at Goldman. Referencing speeches Clinton gave to Goldman, Trump said that “Hillary Clinton meets in secret with international banks to plot the destruction of U.S. sovereignty in order to enrich these global financial powers, her special interest friends and her donors.” Trump’s tales sounded like classic Rothschild/Bilderberg conspiracy lore. They would have been absurd, were it not for the fact that so much of the innuendo around Goldman Sachs often turns out to be true.

The bank has an extraordinary history of placing its executives in high-ranking governmental and quasi-governmental positions, from treasury secretaries to senators to the heads of the World and European Central Banks. Goldman has been implicated in the trafficking of toxic mortgages, a sprawling state corruption case in Malaysia, the manipulation of world commodity prices and a heinous episode involving Greece in which the bank helped to mask the country’s ballooning debt while simultaneously working with JPMorgan Chase to create an index for betting against Greece’s economy. Nonetheless, Trump’s insinuations about a Goldman-Hillary secret conspiracy were so pointed that CEO Lloyd Blankfein was forced to respond. “If there’s some secret international cabal, I’ve been left out of the party again,” he quipped. In his final pitch to voters in the days before the election, Trump used the image of Blankfein in a TV ad to argue that insiders had ruined the lives of ordinary Americans to enrich themselves. Here is the narration you heard when Blankfein’s face came on screen:  “It’s a global power structure that is responsible for the economic decisions that have robbed our working class, stripped our country of its wealth and put that money into the pockets of a handful of large corporations and political entities.” One surprise election result and a mountain of jubilant #draintheswamp hashtags later, Donald Trump has filled his White House with, you guessed it, Goldman veterans. His chief strategist, the unabashed white-supremacist loon Steve Bannon, is a former Goldman banker, as is adviser Anthony Scaramucci. Steve Mnuchin marks the fourth Goldman-pedigreed treasury secretary in the last four presidencies, after Bob Rubin, Lawrence Summers and Hank Paulson. But the real shocker is the recent appointment of Goldman Chief Operating Officer Gary Cohn to the post of director of the National Economic Council. Bannon and Mnuchin were former, past Goldmanites. Cohn, meanwhile, is undoubtedly at least the number-two figure at the world’s most despised bank, if not the outright co-head with Blankfein. He has been at the center of many of its most infamous episodes, including the Greek affair. So much for draining the swamp. More:

The shipping industry is poised for massive upheaval. Can FedEx weather the storm?

MEMPHIS — Between 10 and 11:30 p.m., as most of this city is winding down for the night, the FedEx Express World Hub is revving up for its busiest hours of the day. Some 10,000 workers pour into the campus, ready to begin a mind-bogglingly complex ritual of steering packages to customers’ doorsteps on time. Hundreds of equipment operators zoom around the 880-acre site on warehouse tugs, pulling behind them trains of silver shipping containers shaped like half-igloos. In an earsplitting operation dubbed “the matrix,” package sorters corral boxes into a single-file line for a trip down a tangle of conveyor belts.

On this particular night at FedEx’s largest global facility, workers will sort some 1.3 million express packages. That number only swelled when holiday shopping kicked into high gear. This logistical symphony has been decades in the making, the product of billions of dollars in investment in automated sortation systems and Boeing 767 cargo jets. During the peak hours on this night, air traffic controllers in the Tennessee city will usher in about 150 flights, an average of one every 40 seconds. Analysts say infrastructure such as this makes FedEx and its rival, UPS, extremely difficult to dislodge from their thrones atop the U.S. shipping industry. And yet as dominant as they are, the stalwarts are also vulnerable, facing a fresh wave of potential disruption. More:

House conservatives’ sweeping plan for Trump’s first 100 days, explained

Thursday morning, the House Freedom Caucus, the main group representing the far right of House Republicans, released an ambitious regulatory — or, really, deregulatory — agenda for the Trump administration to pursue. It consists of a detailed, agency-by-agency list of regulations, mostly imposed during President Obama’s administration, that it would like to see repealed or rolled back. The Trump administration likely won’t do 100 percent of what’s on the menu here, but in his Cabinet appointments Trump has largely assembled a team of down-the-line conservatives, so it’s a good look at the direction policy is likely to take. For your reading pleasure, we’re providing a summary of the main highlights, organized by topic rather than by agency, since citizens are probably more interested in what’s going to be changing than in how the bureaucratic boxes line up. To get a flavor for what’s in store, there is one line in the extensive document really worth reading. The Freedom Caucus places each of 228 regulations slated for elimination into a grid, one of whose columns is cost — and in most cases they do, indeed, provide an estimated cost of compliance with the regulation divorced from any discussion of the benefits. When it comes to Rule 211, network neutrality, however, they simply state: “All regulations carry costs, which are inevitably passed on to consumers in one form or another.” It’s not clear exactly where the Freedom Caucus got this idea or why they think it’s true, but as a broad philosophical statement it’s admirably clear and concise. The network neutrality rule’s proponents say that given the lack of competition in wireless broadband markets, requiring infrastructure owners to treat all internet traffic the same is useful in promoting competition among online services and minimizing infrastructure monopolists’ ability to extract monopoly profits. One might or might not agree with that analysis, but from a normal person’s point of view it would at least be a question worth asking. The Freedom Caucus view, by contrast, is that all you really need to know about Network Neutrality regulations — or any other kind of regulation — is that it is a regulation and all regulations, by definition, are costly. It’s simply not possible to imagine a rule that corrects for negative externalities, asymmetrical information, imperfect competition, myopia, or any other problem in a socially beneficial way.  More:

Republicans charge forward with repeal of health care law, but few are eager to follow

WASHINGTON — As they race to repeal large parts of the Affordable Care Act, President-elect Donald Trump and congressional Republicans are leaving behind nearly everyone but their base voters and a handful of conservative activists. Not a single major organization representing patients, physicians, hospitals or others who work in the nation’s health care system backs the GOP’s strategy.

New polls also show far more Americans would like to expand or keep the health care law, rather than repeal it. Even many conservative health policy experts caution that the emerging Republican plan, which calls for a vote in January to roll back insurance coverage followed by a lengthy period to develop a replacement, could be disastrous. Intensifying the political risks for Republicans, a growing number of patient groups are warning that millions of Americans are in danger of losing vital health protections and that Republicans need to agree on a replacement plan before they uproot the current system.

“When people get cancer, they have to know that they are going to have insurance,” said Chris Hansen, president of the American Cancer Society’s advocacy arm. “There have been and are problems with the ACA, but we have to make sure that what is done and the way it is done is not going to leave people who have cancer or who may get cancer … in the lurch.” The American Cancer Society Cancer Action Network last week sent a letter to congressional leaders urging them not to repeal large parts of the health care law without first developing replacement legislation that guarantees patients the same protections. GOP leaders, who have repeatedly promised their core voters that they would repeal the law, oppose any delay in a vote, despite the risk that Republicans may be held responsible for any ensuing turmoil. They are pushing to pass a bill early next year that would repeal many key provisions of the law. That would include the money that has allowed states to expand their Medicaid safety nets and the billions of dollars in federal funds that have provided subsidies to low- and middle-income Americans to help with the cost of insurance premiums. More than 20 million Americans who previously lacked insurance have gained coverage under the law. “We have to bring relief to Obamacare as quickly as possible so that it stops doing damage, not just to the health care system but to the families of America who need affordable health insurance,” House Speaker Paul Ryan, R-Wis., told reporters at the Capitol last week. To minimize disruptions, senior Republicans want to delay when the cuts would take effect. The idea is to buy time to allow the party to develop an alternative — something that GOP lawmakers have been unable to agree on in the six years since the law passed. More:

Senators call for panel to investigate Russian hacking

Four Senators on Sunday called for the creation of a bipartisan investigative panel that would investigate U.S. government allegations that Russia and other foreign countries tried to hack the U.S. elections.

U.S. Senator Charles Schumer of New York, the incoming Senate Minority Leader, said that he and Democrat Jack Reed of Rhode Island, Republicans John McCain of Arizona and Lindsey Graham of South Carolina would be issuing a joint letter about creating the committee.

Longtime Business Lobbyist Laments Loss of ‘Smoke-Filled Rooms’ in Washington

  1. Bruce Josten has been in the middle of the biggest deals in Washington over the past few decades without ever holding office, working on Capitol Hill or serving in the White House. As executive vice president for government affairs at the U.S. Chamber of Commerce, Mr. Josten, 66, was the point man for business interests in a slew of heavy-duty trade, tax and energy negotiations. He was a master at the inside game. After more than 30 years in the Beaux-Arts-style chamber headquarters across Lafayette Square from the White House, Mr. Josten is now in his own transition, retiring after helping turn the chamber into a political powerhouse and watching his specialty — sophisticated legislative give-and-take — become less prized in a polarized capital. Washington, he said, has become an “I win, you lose” town rather than a “how do we get this done” town where those skilled in what he calls the “art of the back room” can have a big effect. “I like to be able to negotiate and go back and forth,” said Mr. Josten, recounting how he would shuttle proposals between congressional players on big bills. “That is what I did. It was a big part of closing a deal to get it out of committee, to get it to an actual floor vote to passage. And that doesn’t happen anymore.” “I actually do miss the smoke-filled rooms of yesteryear,” said Mr. Josten, and not just because he quit smoking after a health scare three years ago. “Because you got a lot done.” More:

Sessions to African-Americans: Fear not

Jeff Sessions took a surprise trip to South Carolina last week at the behest of the Senate’s only black Republican. His allies talk up how Sessions locked arms with Rep. John Lewis (D-Ga.) to mark the 50th anniversary of Bloody Sunday in Selma, Alabama. And the senator, in a lengthy nominee questionnaire delivered this month, practically depicts himself as a civil rights hero. When the Senate takes up President-elect Donald Trump’s choice to be the nation’s next top law enforcement official in January, allegations of racism that have dogged Sessions for three decades running are certain to be his biggest liability. So he and his allies have mounted an aggressive public relations campaign to refashion Sessions’ image. The core message: The charges that sank Sessions’ bid to become a federal judge in 1986 don’t represent who Sessions is now, or even who he was at the time. Delivering it is a lineup of prominent black leaders and others with personal ties to Sessions enlisted by Trump’s transition team.

“He knows all of my brothers and sisters,” said one of the character witnesses, William Huntley, who worked under Sessions in the office of the U.S. Attorney for the Southern District of Alabama. Huntley, now a lawyer in Mobile, Alabama, said in an interview that he’s never encountered racial insensitivity from Sessions in the three decades they’ve known each other. “He came to the hospital when my first child was born,” Huntley said. “He has come to birthday parties at my house.”  Liberal outside groups are unmoved. Alarmed by what they view as a weak legislative record on voting issues, gay rights and immigration policy, Sessions’ opponents are trying to litigate a broader case against him rather than focus solely on the racism questions. “Yes, it happened a long time ago. It’s certainly not irrelevant and it has to be raised,” said Christopher Kang, a former deputy counsel to President Barack Obama who now serves as national director for the National Council of Asian Pacific Americans. But “it has to be examined in the context of his entire career.”

A Majority of Republicans Think Donald Trump Won the Popular Vote, Which He Definitely Did Not

One thing we’ve all learned from this period of change after Election Day is that facts just don’t seem to be facts anymore. The only indisputable fact these days may now be the truth is now infinitely malleable, subject to whatever spin any outlet or public figure wants to put on it. On Election Day, we learned two facts: Donald Trump won the projected electoral college, but was beaten by Hillary Clinton in the popular vote by a margin that has now grown to nearly three million votes. Now, despite the numbers being readily available, even this has come into question among partisans, according to a new poll.

In a poll conducted for The Washington Post, firm Qualtrics surveyed a nationally representative slice of the country between December 6 and 12, asking the question, “In last month’s election, Donald Trump won the majority of votes in the electoral college. Who do you think won the most popular votes?” Of those surveyed, twenty-nine percent believed that Trump won the popular vote. However 52 percent of Republicans who responded to the survey believed he won the popular vote, as well as seven percent of Democrats and 24 percent of Independents. This discrepancy along party lines didn’t show up in other non-partisan questions on the survey, such as what percentage of the population is black or Latino. According to the Post, this can be explained using psychology: we all choose to believe facts that correspond with what we already believe. More:

Trump private security force ‘playing with fire’

GRAND RAPIDS, Michigan — President-elect Donald Trump has continued employing a private security and intelligence team at his victory rallies, and he is expected to keep at least some members of the team after he becomes president, according to people familiar with the plans. The arrangement represents a major break from tradition. All modern presidents and presidents-elect have entrusted their personal security entirely to the Secret Service, and their event security mostly to local law enforcement, according to presidential security experts and Secret Service sources.  But Trump — who puts a premium on loyalty and has demonstrated great interest in having forceful security at his events — has opted to maintain an aggressive and unprecedented private security force, led by Keith Schiller, a retired New York City cop and Navy veteran who started working for Trump in 1999 as a part-time bodyguard, eventually rising to become his head of security. Security officials warn that employing private security personnel heightens risks for the president-elect and his team, as well as for protesters, dozens of whom have alleged racial profiling, undue force or aggression at the hands Trump’s security, with at least 10 joining a trio of lawsuits now pending against Trump, his campaign or its security. “It’s playing with fire,” said Jonathan Wackrow, a former Secret Service agent who worked on President Barack Obama’s protective detail during his 2012 reelection campaign. Having a private security team working events with Secret Service “increases the Service’s liability, it creates greater confusion and it creates greater risk,” Wackrow said. More:

How ‘Saturday Night Live’ managed to turn 2016’s chaos into TV gold

It’s an unusual time for late-night humor. Rarely has the news cycle been so ripe for comedic commentary and the landscape so saturated with options for viewers. “Saturday Night Live” has done well in that arena, airing a midseason finale on Saturday that concluded months of high ratings and critical praise.

SNL’s ability to skewer Donald Trump, book hotly anticipated hosts and attract weeks of hate-tweets from the president-elect himself have all boosted the show’s relevance. The sketch show successfully took advantage of a bizarre political climate that has brought its own record-shattering television ratings and, at times, has felt more like a reality show than the conclusion of a campaign season. Preliminary ratings show that SNL is on track to surpass last year’s numbers. That makes sense given that political humor has long served as the show’s staple material, and its most defining moments — Tina Fey as Sarah Palin, Will Ferrell as George W. Bush — have often come during election years. But this season also contrasts with last year, when “Saturday Night Live” ended up in a maelstrom of controversy for having then-candidate Trump on as host. That 2015 episode brought in record ratings and plenty of blowback, including concerns over whether SNL would break FCC rules on giving political candidates equal time on air. Protesters said the show’s producers and writers helped “normalize” Trump’s behavior during the primaries. More:

Donald Trump’s questionable intelligence: All those false claims about his academic record and derision of others bespeak profound insecurity

Donald Trump says he doesn’t need daily intelligence briefings. “I’m, like, a smart person,” he told Fox News’ Chris Wallace last weekend, explaining why he’ll be the first president since Harry Truman to avoid getting daily updates from intelligence professionals about national security threats.  During and since his campaign, Trump has evoked these two themes. First, he’s skeptical of intelligence. Second, he’s smart.

The first is obviously true. The second is a matter of dispute. Trump frequently boasts about how smart he is. Anyone who feels compelled to tell everyone how smart he is is clearly insecure about his intelligence and accomplishments. In Trump’s case, he has good reason to have doubts.  Trump has the kind of street smarts (what he calls “gut instinct”) characteristic of con artists, but his limited vocabulary, short attention span, ignorance of policy specifics, indifference to scientific evidence and admitted aversion to reading raise questions about his intellectual abilities. In 2004, in an interview with CNN, Trump said, “I went to the Wharton School of Finance. I got very good marks. I was a good student. It’s the best business school in the world, as far as I’m concerned.” Trump has repeated that claim many times since. Each time, it isn’t clear if he’s trying to convince his interviewer or himself. In 2011, in an interview with ABC, Trump said: “Let me tell you, I’m a really smart guy. I was a really good student at the best school in the country,” referring once again to Wharton, the University of Pennsylvania’s business school, where he earned a bachelor’s degree in 1968. “I went to the Wharton School of Finance,” he said during a speech in Phoenix in July of 2015. “I’m, like, a really smart person.”  In an interview on NBC’s “Meet the Press” in August 2015, Trump described Wharton as “probably the hardest there is to get into.” He added, “Some of the great business minds in the world have gone to Wharton.” He also observed: “Look, if I were a liberal Democrat, people would say I’m the super genius of all time. The super genius of all time.” During a CNN-sponsored Republican town hall in Columbia, South Carolina, last February, Trump reminded the audience that he had gone to Wharton and then repeated the same boast: “Look, I went to the best school, I was a good student and all of this stuff. I mean, I’m a smart person.” Trump frequently communicates via Twitter, which is not a good venue for displaying one’s linguistic prowess, but many observers have noted that Trump has a difficult time expressing himself and speaking in complete sentences. A linguistic analysis last year by Politico found that Trump speaks at a fourth-grade level. A study by researchers at Carnegie-Mellon University compared this year’s Republican and Democratic presidential candidates in terms of their vocabulary and grammar. Trump’s scored at a fifth-grade level, the lowest of all the candidates. Some might suspect that this is not an intellectual shortcoming but instead Trump’s calculated way of communicating with a wide audience. But Tony Schwartz, who spent a great deal of time with the developer while ghostwriting his book “The Art of the Deal,” noted that Trump has a very limited vocabulary. It would hardly be surprising if these observations infuriated the vain and insecure Trump. More with links to school records.


Insiders say Bentley has chosen Sessions’ replacement

During a Cabinet meeting last week, Gov. Robert Bentley said that well over one hundred individuals were seeking the US Senate seat, soon to be vacated by Sen. Jeff Sessions. Several present at the meeting believed Bentley slyly tipped his hand as to which individual currently holds the inside track for the appointment. Insiders say the die was cast weeks ago, and the interviews that began last week are a perfunctory charade. Since President-elect Donald Trump tapped Sessions for US Attorney General, a legion of current and former lawmakers have been working contacts to convince Bentley that they deserve the position. Add to those numbers cabinet members, judges and assorted others and the field looks pretty crowded. State Senators Del Marsh, Cam Ward, Trip Pitman, and Arthur Orr are public contenders, as are current and former house members including Perry Hooper, Jr., the entire Alabama Congressional delegation is in the hunt as well as ADECA Chief Jim Byard, Supreme Court Justice Jim Main and Attorney General Luther Strange. Strange and Hooper are the only individual so far to formally declare their candidacy for 2018. Until last week, State Senator Dick Brewbaker was considering a run, but has taken himself out of the race. Of all the names in the hat for the seat, only Strange and Marsh are thought to have the ability to quickly raise money for an actual campaign. Given Strange’s name, ID pollsters believe he is the front-runner in a special or general election. Marsh, a wealthy businessman, could self-finance, which makes him a serious candidate in an election. On Goat Hill, the process is an ongoing guessing game with lots of questions and even more speculation. But those close to the Governor admit that only one question matters in the isolated world of the Bentley administration: That question is… “What does Rebekah want?” Bentley’s alleged lover, Rebekah Caldwell Mason, is reportedly the power behind the throne. According to cabinet members and administration staffers, ADEC’s Byard is Mason’s pick. The former Prattville mayor hasn’t been shy about his aspiration to replace Sessions, and members of his staff have made it known that their boss is the front runner.

At the cabinet meeting, Bentley spoke about the potential candidates he recently interviewed including, Marsh, Ward, and Hooper. During the discussion Bentley jokingly said to Byard, “We’ll get to you, Jim,” which several individuals present felt it was an inside joke between the two men.

South Alabama plant to pay $150,000 in federal race discrimination lawsuit

A federal race discrimination lawsuit against a south Alabama steel manufacturing plant was resolved Friday with a $150,000 consent decree, the U.S. Equal Employment Opportunity Commission announced. In June 2015, EEOC filed a lawsuit accusing Outokumpu Stainless USA, LLC of not promoting workers at its Calvert plant because of their race. The commission said the black workers, Daniel Nickelson, Wallace Dubose, Steven Jones, Victor Oliver and Joshua Burrell, were highly qualified to become Team Leaders, but the company hired white applicants who were less qualified for the job. EEOC filed the lawsuit after first attempting to reach a pre-litigation settlement. The discrimination violates Title VII of the Civil Rights Act of 1964, Marsha Rucker, regional attorney for EEOC’s Birmingham District Office said. “Making employment decisions based on race, such as promoting white candidates over more qualified African-American candidates, strikes at the heart of why Title VII exists,” Rucker said “Although we have come a long way since Title VII was enacted, discrimination still occurs. EEOC will continue to pursue actions against employers who make employment decisions based on race rather than skill and experience.” Also included in the three-year consent decree, the company must implement new polices to prevent discrimination, provide anti-discrimination training to employees and post anti-discrimination notices throughout the plant. More:


How Republics End

Many people are reacting to the rise of Trumpism and nativist movements in Europe by reading history — specifically, the history of the 1930s. And they are right to do so. It takes willful blindness not to see the parallels between the rise of fascism and our current political nightmare. But the ’30s isn’t the only era with lessons to teach us. Lately I’ve been reading a lot about the ancient world. Initially, I have to admit, I was doing it for entertainment and as a refuge from news that gets worse with each passing day. But I couldn’t help noticing the contemporary resonances of some Roman history — specifically, the tale of how the Roman Republic fell. Here’s what I learned: Republican institutions don’t protect against tyranny when powerful people start defying political norms. And tyranny, when it comes, can flourish even while maintaining a republican facade. On the first point: Roman politics involved fierce competition among ambitious men. But for centuries that competition was constrained by some seemingly unbreakable rules. Here’s what Adrian Goldsworthy’s “In the Name of Rome” says: “However important it was for an individual to win fame and add to his and his family’s reputation, this should always be subordinated to the good of the Republic … no disappointed Roman politician sought the aid of a foreign power.” America used to be like that, with prominent senators declaring that we must stop “partisan politics at the water’s edge.” But now we have a president-elect who openly asked Russia to help smear his opponent, and all indications are that the bulk of his party was and is just fine with that. (A new poll shows that Republican approval of Vladimir Putin has surged even though — or, more likely, precisely because — it has become clear that Russian intervention played an important role in the U.S. election.) Winning domestic political struggles is all that matters, the good of the republic be damned. More:

Morning Money

LOOKING AHEAD TO 2017 — Your predictions for the year ahead are beginning to roll-in. Keep them coming to … Here’s Allianz’s Mohamed A. El-Erian on what to expect in 2017: “If left only to domestic drivers, the US economy would likely experience a pickup in both growth and inflation in 2017, together with further job creation and broader and higher wage growth. In the process, the policy stance would pivot from excessive reliance on monetary policy to include greater use of fiscal measures and structural reforms.

“But for these domestic developments to prevail and also lead to genuine financial stability, it also matters what other countries do — particularly, China, Germany and Japan. Absent concurrent pro-growth policy adjustments there, the prospects for better US economic performance and higher Fed interest rates would lead to further dollar strengthening, and this from a level that is already at 2003 highs. Such excessive dollar appreciation would risk undermining growth while increasing the risk of protectionism.”

WHY TRUMP COULD BE IN TROUBLE ON THE ECONOMY — HFE’s Jim O’Sullivan: “According to campaign documents … Trump’s economic plan would ‘create a dynamic booming economy,’ with ‘25 million new jobs over the next decade.’ That implies a 1.5 percent-per-year rate of increase in employment. The plan would also ‘conservatively boost growth to 3.5 percent per year’ … [T]he plan counts on about a 2 percent-per-year rate of increase in productivity for the economy as a whole. …

“Economists have generally scoffed at those projections. We don’t think they are attainable, either. The employment part in particular looks virtually impossible without a surge in immigration, which would be counter to another part of the campaign plan. With the economy at close to full employment, 1.5 percent per year employment growth would require a similar pace for labor force growth, which is not plausible given demographic trends”

WHY YELLEN COULD SLOW HIM DOWN — Pantheon’s Ian Shepherdson argues Fed Chair Janet Yellen is not committed to letting the economy run hot for a while: “Judging by conversations we have had with investors since October, the idea that the Fed will be willing to let inflation overshoot the 2 percent target for a time has become received wisdom in the markets.

“The logic is straightforward; after eight years of core inflation undershooting the target, a period of overshoot is needed keep the medium-term average close to 2 percent. Fed Chair Yellen appeared to endorse this idea in her October 14 speech in Boston. … But Dr. Yellen pushed back, hard, against the idea in her press conference last week, arguing that she was merely raising the question as something which requires research”

ECONOMISTS DOUBT THE FED — FT’s Eric Platt: “The Fed … will wait six months before raising interest rates again, according to a survey of top economists that suggests policymakers will maintain a cautious approach to tightening policy until they see the economic package … Trump has promised.

“Officials will raise the Fed’s key short-term rate just twice in 2017, starting with a move in June, an FT survey of 31 Wall Street economists found. The findings come days after the central bank pushed its official rate higher for only the second time since the financial crisis and rattled bond markets by projecting three further moves next year.” Read more.

ASIA RELIEVED BY DRONE RETURN — Reuters: “Asian shares steadied in early trade on Monday after China agreed to return a U.S. drone it had seized, easing worries about rising diplomatic tensions between the world’s two biggest economic powers. … Financial markets briefly turned ‘risk-off’ in late U.S. trade on Friday following news that a Chinese Navy warship had seized a U.S. underwater drone in international waters in the South China Sea. … The furor appears to have been defused for now after the two countries said on Saturday China will return the drone” Read more.

STOLEN SECRETS? — Bloomberg: “A top U.S. lawmaker said China may be poring over a seized underwater drone to unearth secret information about Navy technology, hours after … Trump suggested Beijing should ‘keep it.’

“‘The Chinese are able to do a thing called reverse-engineering, where they are able to — while they hold this drone, able to find out all of the technical information. And some of it is pretty valuable,’ Senator John McCain of Arizona said Sunday on CNN’s ‘State of the Union.’” Read more.

IS NYC THE NEW CAPITAL? — WP’s By Paul Schwartzman: “The world’s power address du jour is a sheath of soaring black glass on Fifth Avenue, at the entrance to which a cop in combat armor — his fingers on an assault rifle — took a moment the other day to tell a tourist where to find the city’s best pizza. …

“The White House may be the nation’s time-honored symbol of power, but Trump is establishing his 58-story colossus at 725 Fifth Avenue as a stage for his new role, potentially nipping at Washington’s reputation as the center of American authority and the stature of its most famous address, 1600 Pennsylvania Avenue” Read more.

HAPPENING TODAY — Trump should secure victory in the Electoral College on Monday despite all the noise from some Democrats and outside groups looking to flip enough electors to keep the president-elect short of 270.

Worth remembering, when Trump or his surrogates talk about their “historic” or “landslide” win that it was, in fact, no such thing. Trump’s electoral margin ranks 46th in 58 elections. And his 2.5 million popular vote loss (so far) gives him the 3rd worst margin for a victor since 1824, trailed only by Rutherford B. Hayes and John Quincy Adams (who was selected by the House). Read more.

MM REAL TALK — There are two equally maddening political positions popular in the land right now. On the left: Trump’s win shouldn’t count and the Electoral College should reject him. On the Trump-right: The president-elect’s thin electoral margin and popular vote loss don’t matter and he should do whatever he wants. Both are completely bogus. Trump won. Did the Russians help? Probably. Does that kind of suck? Sure. But who knows if it was decisive.

Hillary Clinton had many problems. She lost states she needed to win. Trump’s presidency will be perfectly legitimate. But losing the popular vote matters in terms of approach to governance and conciliation with political opponents. More people dislike Trump’s policies on immigration than embrace them. There is no mandate for rounding up the undocumented en masse and evicting them from the country. Trump so far seems to get this even if some of his ardent supporters do not.

ALSO TODAY: LEW TALKS HAMILTON WITH CHERNOW — At 11:00 a.m. via Treasury, Treasury Secretary Jack Lew “will participate in a moderated conversation with Pulitzer Prize-winning historian and author of Alexander Hamilton Ron Chernow at their alma mater, Forest Hills High School.

“The Secretary and Mr. Chernow will discuss the history and legacy of Alexander Hamilton, how history can influence the arts and currency, the importance of public education, as well as share memories from their time at Forest Hills High School. Following the discussion, students will have the opportunity to ask questions”

HAPPENING THIS WEEK — The Dow is virtually certain to hit the 20K milestone, perhaps as early as Monday, as exuberance over Trump’s fiscal plans and faith that the Fed will go slow continue to dominate.

MONDAY FUNNIES — ICYMI, SNL crushed it with its “Hillary Actually,” skit in which Hillary Clinton (Kate McKinnon) went to an elector’s house and tried to persuade her to not vote for Trump.

TRUMP TEAM TAMPS DOWN RUSSIA TALK — WSJ’s Damian Paletta and Kate O’Keefe: “Fresh signs emerged Sunday that … Trump could embrace the intelligence community’s view that the Russians were behind a computer-hacking operation aimed at influencing the November election. A senior Trump aide said Mr. Trump could accept Russia’s involvement if there is a unified presentation of evidence from the Federal Bureau of Investigation and other agencies.

“This followed weeks of skepticism from the president-elect and his supporters … Speaking on Fox News Sunday, Mr. Trump’s incoming chief of staff, Reince Priebus, said the president-elect ‘would accept the conclusion if these intelligence professionals would get together, put out a report, show the American people that they are actually on the same page.’ His statement follows an intensifying bipartisan push on Capitol Hill to launch a separate investigation into the matter” Read more.

DEUTSCHE PAYS UP — POLITICO’s Patrick Temple-West: “Deutsche Bank has agreed to pay regulators $37 million for committing violations with its stock trading platform, the SEC and the New York Attorney General said Friday.

“From January 2012 to February 2014, Deutsche made misstatements and omissions regarding its ‘dark pool’ trading router. Deutsche admitted its dark pool ranking model was not working as the company had marketed it to customers, regulators said. When the bank discovered a technical problem in 2013, the company did not fully correct it or tell clients about it.” Read more.

BLANKFEIN ON TOP — WSJ’s Liz Hoffman’s: “While Goldman this week underwent its most dramatic management reshuffling in a decade, Lloyd Blankfein remains firmly ensconced as chief executive — and appears likely to stay, having outlasted an impatient deputy and effectively restarted the clock on his new successors-in-waiting.

“The rotation shows that he continues to keep trusted lieutenants close and reflects the board’s support for him, a decade into his tenure.” Read more.

TROUBLE FOR TILLERSON? — POLITICO’s Isaac Arnsdorf and Elana Schor: “ExxonMobil successfully lobbied against a bill that would have made it harder for the next president to lift sanctions against Russia, clearing the way for the oil giant to restart a program worth billions of dollars if Donald Trump eases those restrictions as president.

“The bill, known as the STAND for Ukraine Act, would have converted into law for five years President Barack Obama’s measures punishing Russia for annexing Crimea, making it more difficult for Trump to roll them back. The Senate left town on Monday without acting on the bill, making it easier for Trump to end the sanctions with a stroke of the pen.” Read more.

APPLE APPEALS — Reuters’ Foo Yun Chee: “Apple will launch a legal challenge this week to a record $14 billion EU tax demand, arguing that EU regulators ignored tax experts and corporate law and deliberately picked a method to maximize the penalty, senior executives said.

“Apple plans to tell the court that the Commission erred when it ruled that the head office of Irish-registered units Apple Sales International (ASI) and Apple Operations Europe existed only on paper, with no justification for the billions of euros it posted in untaxed profits.” Read more.

IRAN TALKS TOUGH — WSJ’s Aresu Eqbali and Robert Wall: “Iranian officials publicly hardened their resolve to proceed with a multibillion-dollar deal to buy dozens of Boeing Co. jets, threatening to claw back any lost money if the deal is scuttled after the inauguration of President-elect Donald Trump.

“Iranian Deputy Transport Minister Asghar Fakhrieh-Kashan said that if sanctions are re-imposed invalidating the contracts with Airbus and Boeing ‘we will take back all the prepayments, with interest.’” Read more.

PRIVATBANK NATIONALIZED — FT’s Roman Olearchyk: “Ukraine’s government moved late on Sunday to nationalise PrivatBank, the war-scarred country’s largest and most systemically important commercial bank, amid concerns over the state of its balance sheet.

“The transaction, which placed 100 per cent of the bank into state ownership, was agreed with the outspoken Igor Kolomoisky and Gennady Bogolubov, PrivatBank’s oligarch majority co-owners, the government said. The two control a diversified portfolio of assets spanning oil production, ferroalloys, media and chemicals.” Read more.

UBER DEFIANT — NYT’s Mike Isaac: “The dispute is rooted in Uber’s refusal to seek a permit from the California Department of Motor Vehicles, which would allow it to test autonomous vehicles under certain conditions. Companies like Google, Tesla Motors and Mercedes-Benz have all gotten such permits.

“The motor vehicles department did not immediately respond to requests for comment. But in a letter to Uber on Friday, lawyers in the California attorney general’s office reiterated the state’s position that the company pull the self-cars off the road until it got the permits or face unspecified consequences.” Read more.

MORTGAGE RATES HEAD HIGHER — WSJ’s Annamaria Andriotis: “The era of ultralow mortgage rates is over. The Federal Reserve’s decision to raise the federal-funds target rate by a quarter of a percentage point Wednesday means borrowing is about to get more expensive for consumers.

“Some homeowners also will feel the pain, in particular those who signed up for home-equity lines of credit, adjustable-rate mortgages .. and other variable-rate loans. Interest rates on these loans tend to rise after rate increases, resulting in larger payments for borrowers … Rates on plain-vanilla, 30-year fixed-rate mortgages have surged since Election Day by 0.76 percentage point, bringing them to an average of 4.38 percent on Thursday — their highest rate since April 2014” Read more.

POTUS Events

The Obama’s are spending the holidays in Hawaii.

Floor Action

Next vote: Jan. 3.

Tom Krebs has concentrated his law practice in securities and related financial transactions for decades. Securities attorney daily briefing is a summary of trending issues that may have some impact on securities or securities litigation.

About Thomas Krebs

Securities litigation, regulation and compliance attorney.