TheChek News Flow

Who says investors don’t care about Google’s antitrust woes? The stock dropped as much as 3.9% on Wednesday in the wake of reports that the government might seek “a breakup” of the company as the penalty for last week’s antitrust verdict, most likely through the forced divestiture of Android or Chrome.

Those reports shouldn’t have been surprising: in a report last Friday, we cited antitrust lawyers predicting that the government would almost certainly ask the court to impose what are called “structural remedies” against Google, such as selling Android, rather than just “behavioral” changes affecting Google’s partnerships with Apple. Here’s a question, though: Are the folks at the Justice Department working on the Google case talking to their colleagues who are working on the antitrust lawsuit against Apple?

In the Apple case, the government claims the iPhone maker has used various tactics to make it harder for people to switch away from its hugely popular phone. But Apple’s rival in the mobile market is Android, which powers phones from Samsung, Motorola and many others—including Google’s own Pixel. So if the government wants to rein in Apple, shouldn’t it be doing everything it can to support Android?

In that context, it's worth remembering that Google is responsible for making Android a powerful rival to Apple. The latest example came on Tuesday, when Google unveiled a range of artificial intelligence–driven updates for Android phones, such as an overhauled AI assistant. Those changes should keep Android on a par with Apple, which plans to roll out its own set of AI features soon. For more details, see our AI Agenda commentary today.

Forcing Google to sell Android, then, risks weakening the software platform, making it even less of a robust competitor to Apple. That’s not necessarily a pre-ordained outcome, of course. We don’t know enough about how a spinoff of Android would work to be sure what would happen. Plenty of government-instigated breakups have led to the growth of successful companies (think AT&T and the creation of the Baby Bells in the 1980s). Maybe freedom from Google’s bureaucracy would allow Android to work more nimbly.

Still, there’s no guarantee Android would prosper as a stand-alone company. And if it didn’t, the winner would be Apple. (And if you don’t believe me, Ben Thompson makes a cogent argument in Stratechery today that Google’s value to Android argues against separating the two.)

Of course, in the Google case what really matters is what Judge Amit Mehta, who heard the case, decides (in addition to whatever an appeals court rules in years to come). On that front, we shouldn’t rule out the possibility that the court will agree with the government.

In his decision, Mehta approvingly quoted former Google executive Sridhar Ramaswamy as saying the existing search ad ecosystem is “exceptionally resistant to change.” That implies the judge might decide a drastic change is required. Let’s hope the government has thought through what it is asking for.

Schmidt’s Work-Life Balance

Former Google CEO Eric Schmidt made waves this week when he suggested at a talk at Stanford University that Google had fallen behind in the AI race because it cared too much about “work-life balance,” allowing its workers to go home early or to work from home. “The reason startups work is because the people work like hell,” Schmidt reportedly said. (He later retreated from the remarks, the Wall Street Journal reported tonight).

Eric Schmidt certainly knows the pitfalls of a poor work-life balance. As The Information has chronicled in two exposés—here and here—he likes to mix romance with business investments in ways that have caused quite a few complications. Whether that makes him a good spokesperson on this issue, though, is debatable.

Danish company says market for e-fuels is developing more slowly than expected

Ørsted, the offshore wind developer blighted by a botched expansion in the US, has scrapped plans for a plant in Sweden to develop greener fuels just over a year after starting construction.

The Danish company said on Thursday it would no longer build the plant in Örnsköldsvik, saying that the market for so-called e-fuels in Europe was developing more slowly than expected.

The decision left Ørsted with an impairment charge of DKr3.2bn ($470mn) in the first half, which also included the costs of a delay to an offshore wind farm in the US and other factors.

Ørsted had previously described the proposed plant in Örnsköldsvik as “the largest e-methanol project under construction in Europe” and intended to open it next year. 

The abandonment of the project came as Ørsted’s results showed signs that the company was beginning to recover from a bruising period in which an overly aggressive expansion in the US left it with significant impairment charges on projects and triggered a dividend cut.

Mads Nipper, chief executive, said he was “pleased” with the company’s half-year results, with operations performing well and higher earnings from offshore wind farms.

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Dozens of financial groups to pay nearly $400mn in SEC texting probe

Companies that self-reported violations are facing smaller fines than those which did not disclose the conduct

Twenty-six Wall Street companies have agreed to pay $393mn to the Securities and Exchange Commission to settle the latest round of charges over employee texting and messaging on platforms such as WhatsApp about business matters.

Ameriprise, Edward Jones, LPL Financial and Raymond James are among the financial groups settling with the SEC, with each of those four paying $50mn in penalties, the regulator announced on Wednesday. The fines range as high as $50mn a company and as low as $400,000, the regulator said, noting that the groups which self-reported violations will pay “significantly lower” penalties than they otherwise would have.

The fines underscore how far the agency’s probe has expanded from its initial target of big investment banks to broker-dealers and investment advisers. Industry advocates protested the inquiry’s expanding parameters, saying the SEC was overstepping its bounds because the record-keeping rules are slightly different for money managers.

Gurbir Grewal, who heads the SEC’s enforcement division, said: “We remain committed to ensuring compliance with the books and records requirements of the federal securities laws, which are essential to investor protection and well-functioning markets.”

Other fines include $45mn for RBC Capital Markets, $40mn for BNY Mellon Securities and Pershing, and $30mn for TD Securities and two affiliates, the SEC said.

The regulator’s orders repeatedly say investigators found “pervasive off-channel communications at various seniority levels” of the groups agreeing to settlements. In the case of Piper Sandler, which agreed to pay a $14mn penalty to the SEC, a department head sent “numerous” messages in 2021 with at least 20 colleagues and at least nine “external contacts in the securities industry” relating to brokerage business matters, the SEC said.

Broker-dealers and advisers are required to preserve certain employee communications relating to business matters to ensure compliance with securities laws, namely anti-fraud measures and standards of financial responsibility, the SEC noted. The regulator said the rules are necessary to protect investors, and that failure to comply can undermine investigations.

The settlements and fines reflect the latest fallout from the SEC’s sprawling industry-wide probe since JPMorgan Chase agreed to pay $200mn to the SEC and Commodity Futures Trading Commission in late 2021. The SEC has levied roughly $2bn in financial penalties against dozens of companies through record-keeping investigations since late 2021.

“We are strongly concerned that the SEC is attempting to exceed its authority under the Advisers Act and engaging in rulemaking by enforcement through its current sweep regarding off-channel communications,” the Investment Company Institute, which represents the interests of US asset managers, said in a previous letter to the SEC.

English council claims Dubai-based businessman misused £150mn

Thurrock Council accuses Liam Kavanagh of diverting funds to buy a yacht, a Bombardier jet and a 232-acre country estate

Thurrock Council has accused Dubai-based businessman Liam Kavanagh of misusing about £150mn of funds it invested into solar farm-backed bonds and spending some of the money to buy luxury property, a jet and a yacht.

The local authority in south-east England, which was made bankrupt in 2022 largely as a result of its dealings with Kavanagh, made the claims in High Court papers made public for the first time this week.

Thurrock has issued a claim against Kavanagh and his company Rockfire Capital in relation to nearly £400mn it invested in bonds backed by British solar farms in deals with the businessman between 2017 and 2020.

The council initially invested almost £270mn and claimed it put in further money on the basis of “fraudulent misrepresentations” by Kavanagh and Rockfire.

The authority, which racked up huge debts to fund the investments, also claimed Kavanagh used some of the money to make purchases largely “for his personal benefit”.

The court documents accused him of diverting funds to spend £13.7mn on a yacht, £9.1mn on a Bombardier jet and £20.75mn on a 232-acre country estate in Hampshire.

The council alleged Kavanagh deliberately caused “completely unrealistic” electricity pricing assumptions to be provided to a third-party valuer, Association for Public Service Excellence, which led to the assets being overvalued.

“We are not responsible for the investment decisions of others neither do we undertake DD on others behalf behalf [sic] . . . power prices go up and down valuation goes up and down,” Kavanagh wrote to a colleague in January 2020 after another employee raised doubts about the pricing assumptions.

Kavanagh’s email, cited in the court filings, added the deal with the council was a “very long term play”, and that it would not be a problem for the council to “accommodate drops in income”, including due to prices or “breakdowns whatever [sic] the sun doesn’t shine”.

He added: “These funds along with the existing will be used to create a new family investment office and create wealth for years to come this has always been my plan.”

In a written statement passed to the Financial Times by lawyers for Kavanagh, he argued Thurrock’s claim had not been validly served and that he “strenuously” denied the allegations.

Kavanagh added he asked the High Court to throw out the claim on the basis that the court did not have jurisdiction, and that he would put forward “a full defence” if the court did allow the claim to proceed.

APSE, which is not accused of any wrongdoing, said it “acted with the utmost integrity” and was “awaiting the outcome of due legal process.”

Rockfire Capital’s liquidators did not respond to a request for comment.

Thurrock Council issued its claim against Kavanagh and Rockfire Capital in March but court papers only became publicly available earlier this month. The council has sought damages.

In July, a High Court judge ordered that Kavanagh should be served papers through a legal firm in the United Arab Emirates. 

Thurrock is one of the most heavily indebted councils per capita in the UK and had to declare itself effectively insolvent in December 2022 after accumulating about £1.4bn in debt.

The council was led by the Conservatives throughout its dealings with Kavanagh. In May, Labour won control of the authority.

Thurrock’s budget deficit for the 2022-23 year was forecast at £470mn, more than three times annual spending.

The council is just one of a series of local authorities that have run into trouble after making commercial investments to offset cuts in central funding during the years of austerity that followed the 2008 financial crisis.

The UK’s accounting watchdog has since launched an investigation into an unnamed accountant in relation to Thurrock Council’s investments.

John Kent, Labour leader of Thurrock Council, said: “We have an obligation to Thurrock’s residents to make sure that we leave no stone unturned and vigorously pursue all available legal avenues to recover as much money as possible to help Thurrock Council get back on a firm financial footing.”

Thurrock’s dealings with Kavanagh were laid bare a year ago following an investigation by London-based non-profit Bureau of Investigative Journalism.