WSJ : OpenAI Co-Founder Who Helped Oust Sam Altman Leaves the Company

OpenAI Co-Founder Who Helped Oust Sam Altman Leaves the Company
Ilya Sutskever, who was the startup’s chief scientist, offers praise for its leaders as he departs

OpenAI’s chief scientist and co-founder, Ilya Sutskever, is leaving the artificial-intelligence company about six months after he voted to fire Chief Executive Sam Altman only to say he regretted the move days later.

Sutskever and the company’s current leaders praised each other in announcing the news on Tuesday, a sign of ongoing leadership reverberations at OpenAI following Altman’s temporary ouster in November. OpenAI has since replaced nearly all its directors and said it would instill stronger governance practices.

Sutskever, a technical visionary highly regarded in the AI field, said in a post on X that he is working on a new project, but didn’t explain why he is leaving now. He expressed confidence that OpenAI will build artificial intelligence that is safe and beneficial. “The company’s trajectory has been nothing short of miraculous,” he said. “It was an honor and a privilege to have worked together, and I will miss everyone dearly.”

“Ilya is easily one of the greatest minds of our generation, a guiding light of our field, and a dear friend,” Altman wrote in a statement announcing that the company and Sutskever would “part ways.” Greg Brockman, OpenAI’s president, described Sutskever as an artist, saying: “His vision and gusto are infectious.”

Left unmentioned by all three was any reference to Sutskever’s role in firing Altman last year just before Thanksgiving.

Sutskever was among the researchers who showed that deep learning could be deployed to solve pattern-recognition problems at a previously unthinkable level. This sparked further advances in the AI field, ultimately leading to tools like ChatGPT.

He later joined OpenAI as a co-founder and board member with Altman, Brockman and others. His presence helped OpenAI recruit many of the world’s best researchers.

At OpenAI, he focused on developing artificial general intelligence or AGI—systems that could achieve broad, humanlike thinking—and ensuring that the technology is aligned with human values. He often urged OpenAI employees to “feel the AGI.”

Jan Leike, another machine-learning researcher who worked closely with Sutskever managing AI risks, is also leaving the company, a person familiar with the matter said.

Last October, Sutskever approached colleagues on the nonprofit board that oversees OpenAI to discuss what he described as Altman’s long-running pattern of pitting employees against one another, The Wall Street Journal reported last year. Among other things, Sutskever was upset that Altman had elevated another AI researcher, Jakub Pachocki.

Sutskever then kick-started a series of discussions that led to the board’s surprise decision to fire Altman, the Journal reported. Sutskever himself delivered the decision to Altman. The board in a statement at the time said Altman had failed to be “consistently candid” and lost their trust without giving specific details.

Within days, Sutskever said he regretted the decision, and Altman was later reinstated.

At the time, OpenAI officials said they hoped Sutskever would return to the company. Sutskever retained a presence on the company’s Slack channel, but he didn’t return to work. Pachocki has been informally overseeing the research division in the past few months.

Altman said Tuesday that Pachocki would officially be OpenAI’s new chief scientist, calling him “easily one of the greatest minds of our generation.”

WSJ : Boeing Violated Criminal Settlement After 737 MAX Crashes, Justice Departm

Boeing Violated Criminal Settlement After 737 MAX Crashes, Justice Department Says
U.S. government could seek to extend a probationary period for the plane maker or prosecute it for earlier misconduct

The Justice Department said Boeing BA 1.30%increase; green up pointing triangle violated a settlement reached three years ago over its employees’ role in two fatal jet crashes, exposing the company to potential criminal prosecution over one of the biggest crises in its history.

Boeing admitted in January 2021 that two employees misled federal air-safety regulators over facets of the 737 MAX, but it entered into a form of corporate probation that allowed it to avert prosecution at the time. Now, prosecutors say the company failed to live up to obligations that it committed to in the $2.5 billion settlement.

In January a fuselage panel blew off an Alaska Airlines 737 MAX, the same type of jet involved in the earlier accidents. The latest accident triggered a new criminal investigation and sparked fresh worries about a safety culture that Boeing was supposed to have fixed.

The company also recently told regulators that its employees might have skipped some inspections on 787 Dreamliner jets and falsified records.

The Tuesday announcement, which the department made in a letter to a federal court in Texas, doesn’t disclose the punishment Boeing might face. The Justice Department could seek to extend probation under the current deferred prosecution agreement. It could also seek a guilty plea from the company.

“For failing to fulfill completely the terms of and obligations under the DPA, Boeing is subject to prosecution by the United States for any federal criminal violation” federal prosecutors know about, the Justice Department said in the letter filed in court Tuesday.

Boeing has until June 13 to challenge the department’s finding, the letter said. The agreement had allowed Boeing to avoid prosecution for one charge of conspiracy to defraud the United States.

Boeing said it believes it has honored the terms of the 2021 agreement and looks forward to responding to the Justice Department.

“We will engage with the department with the utmost transparency, as we have throughout the entire term of the agreement, including in response to their questions following the Alaska Airlines 1282 accident, ” the company said, referring to the flight number.

The sections of the agreement that the Justice Department said Boeing violated required the company to create and maintain a compliance program designed to detect violations of the antifraud laws, according to the department.

The letter didn’t disclose what other illegal conduct Boeing should have detected and prevented or how its compliance programs otherwise fell short.

At a meeting in Washington, D.C., in April, Justice Department officials told relatives of 737 MAX crash victims and their lawyers that information about potential crimes from the Alaska investigation could factor into a determination of whether Boeing breached the 2021 criminal settlement, according to people familiar with the proceeding.

One senior Justice Department official said at the meeting that Boeing’s apparent lack of documentation related to factory work on the Alaska Airlines jet might amount to a breach of the deal’s compliance provisions.

Paul Cassell, a lawyer representing relatives of 737 MAX crash victims, said Tuesday: “This is a positive first step, and for the families, a long time coming. But we need to see further action from DOJ to hold Boeing accountable.”

Prosecutors reached the settlement with Boeing in the last days of the Trump administration. The case focused on then-Boeing employees’ interactions with the Federal Aviation Administration over a flight-control system blamed for sending two 737 MAX jets into fatal nosedives in 2018 and 2019. One of those employees faced prosecution in 2022, but a jury acquitted him.

Prosecutors didn’t blame Boeing or its ex-employees for the crashes but said they had misled the FAA about pilot-training requirements related to the flight-control system. Boeing had aimed to avoid the FAA requiring simulator training for 737 pilots who fly the jets, a potentially expensive prospect for airline customers.

The settlement required Boeing to establish a $500 million fund for the families of crash victims and pay a $244 million fine. The bulk of the total $2.5 billion value of the deal was money Boeing had already set aside to pay its airline customers.

Boeing’s predicament is a stark illustration of how corporate probation deals, a staple of white-collar justice for over two decades, have attracted more scrutiny during the Biden administration. Officials vowed to stop handing them out so frequently, especially if culpable individuals weren’t prosecuted.

The Justice Department under the Biden administration earlier found that two other big companies violated their probation deals. In one case last year, it forced the Swedish telecom company Ericsson to plead guilty and pay a $206 million fine. In another matter, Deutsche Bank agreed to more supervision by an outside compliance monitor after the Justice Department found that the bank violated an earlier settlement on corruption and market-manipulation charges.

A conviction for Boeing could complicate the company’s ability to remain a government contractor, a potential consequence prosecutors would likely consider when determining how to proceed in this case, according to specialists in procurement law. They said, however, that the Arlington, Va.-based aerospace giant, which also makes military aircraft and weapons in addition to commercial aircraft, could potentially remain a U.S. defense contractor even with a felony conviction.

Prosecutors are slated to confer with the family members on May 31 about where the case might go next.

FT : Private equity’s capitulation is delayed, not cancelled

Private equity’s capitulation is delayed, not cancelled
Efforts to delay exits may help firms avoid worst of a crunch, but the day of reckoning still beckons

Private equity employs a lot of clever people. In recent times, they have applied their brainpower to avoid having to sell assets at cut-price valuations. Bloated portfolios and high debt costs have been ratcheting up the pressure on sellers. But a fortuitous opportunity to refinance and extend leveraged loans has given the industry a chance to kick the can further down the road — and hope markets recover in the meantime.

The industry’s latest reprieve comes courtesy of the booming debt market. Investors are keen on high yields. Banks are slugging it out with private credit funds to provide financing. The result is that spreads on US term loans have tightened by almost 100 basis points in the 12 months to March, according to PitchBook LCD data. Activity in the US leveraged loan market has topped $300bn in the first quarter of 2024 — the vast majority are opportunistic swoops to refinance, reprice and extend the maturities of existing debt.


This wave of refinancings buys the industry some breathing room. It follows on from a whole series of wheezes aimed at delaying their day of reckoning. Continuation funds have given firms the opportunity to shuffle assets to a new group of investors and offer the previous lot an exit. Net asset value loans — where a firm raises debt secured on its entire portfolio, rather than on a single company — have provided a way to keep feeding capital to companies that need it.

Buying time is not as dubious a strategy as it might sound. Public market multiples have improved, albeit driven by a small number of stocks. The European initial public offering window has tentatively opened, although mainly for slam-dunk equity stories such as Switzerland’s Galderma. Lower debt costs will improve earnings, and a longer lead time gives the private equity industry time to grow companies into their valuations.

But none of this changes the basic physics of this market. The industry has amassed $3.2tn of assets, says Bain. Holding periods are increasing. And exits in the first quarter of 2024 only amounted to $81bn, down 22 per cent on the first quarter of last year, according to S&P Global Market Intelligence.

The pressure to return money to investors is rising, not least to provide them with capital to recycle back to the industry as it tries to raise new funds. While efforts to delay exits may help firms avoid the worst of a crunch, the day of reckoning still beckons.

>>> US After Hours Summary: ARQT +16.9% spiking on quarterly results; DLO -20.5%

After Hours Summary: ARQT +16.9% spiking on quarterly results; DLO -20.5%, INFN -12.4%, BOOT -7.5% amid sell-offs following earnings

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: ARQT +16.9%, NXT +7.9%, GSM +5.7%, SDRL +4.6%, KYTX +1.9%, NU +1.2%

Companies trading higher in after hours in reaction to news: WOOF +7.8% (appoints new Executive Chairman), KRMD +6.9% (signs Phase III clinical supply agreement), BLNK +3.4% (contract with NY as official EV charging provider), FOUR +3.1% (CEO bought $5.8 mln worth of stock), BGS +3% (several insider buy disclosures), AMK +1.9% (issues April report), STTK +1.3% (to present additional data), IAUX +1.2% (results from drilling at Granite Creek), WAFD +0.8% (increases repurchase authorization), AKAM +0.6% (CEO discloses stock buy of $2.0 mln REAX +0.4% (approves repurchase plan), BMRN +0.4% (to reduce global workforce), NBTX +0.1% (FDA protocol acceptance for new randomized phase 2 Study)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: DLO -20.5%, INFN -12.4%, BOOT -7.5%, PBH -3.7%, DHT -2.6%, NUVB -2.3%, CSWC -0.2%

Companies trading lower in after hours in reaction to news: VSEC -3.2% (stock offering), BHC -1.6% (updates connected to Norwich XIFAXAN), MGY -1.3% (affiliates of EnerVest agreed to sell 12 mln shares), HMC -0.6% (trimming China workforce, according to Nikkei), GVA -0.2% (CFO to retire; names successor), NOC -0.1% (CFO to retire; appoints new CFO, increases dividend)

>>> US Close Dow +0.32% S&P +0.48% Nasdaq +0.75% Russell +1.14%

Closing Stock Market Summary
The stock market ended the session on an upbeat note. The major indices all settled at or near session highs, which marked a fresh all-time closing high for the Nasdaq Composite. The S&P 500 settled within ten points of its all-time high close.

The Russell 2000 continued its recent outperformance, gaining 1.2% today, with some added help from another meme stock rally that saw the likes of GameStop (GME 48.75, +18.30, +60.1%) and AMC Entertainment (AMC 6.85, +1.66, +32.0%) trade up more than 100% at one point before succumbing to some profit-taking activity. The Russell 2000 is the best performing index this month, up 5.7% so far.

The major indices traded in mixed fashion for most of the session, however, as participants digested the April Producer Price Index (PPI). The headline inflation readings were hotter-than-expected, up 0.5% month-over-month for total PPI and core PPI versus an expected 0.3% and 0.2%, respectively, but the sizable downward revisions to last month's readings kept the market response more mixed rather than negative.

Fed Chair Powell called the data "quite mixed" in a moderated discussion at the Foreign Bankers' Association's annual meeting.

The Treasury market faced immediate selling pressure following the release of the PPI report, but price action quickly shifted and the bond market settled with gains in front of the Consumer Price Index tomorrow at 8:30 ET. The 10-yr note yield was at 4.48% before the data, jumped to 4.52% immediately after the release, and settled the session at 4.45%.

Stocks shifted into rally-mode in the afternoon trade, coinciding with shares of Alphabet (GOOG 171.93, +1.03, +0.6%) making a sharp turn higher. This was in response to GOOG introducing new AI features at its developers conference. Other mega cap stocks traded up alongside Alphabet, boosting the broader market.

In other corporate news, Dow component Home Depot (HD 340.50, -0.46, -0.1%) received a negative response to its earnings report that stemmed from disappointing sales activity at the home improvement retailer.

Eight of the 11 S&P 500 sectors settled with gains led by information technology (+0.9%) and real estate (+0.7%). The consumer staples sector was the worst performer, logging a 0.2% gain.

  • S&P 500:+10.0% YTD
  • Nasdaq Composite: +10.0% YTD
  • S&P Midcap 400: +8.6% YTD
  • Dow Jones Industrial Average: +5.0% YTD
  • Russell 2000: +2.9% YTD

Reviewing today's economic data:
  • April NFIB Small Business Optimism 89.7 (consensus 88.9); Prior 88.5
  • April PPI 0.5% (consensus 0.3%); Prior was revised to -0.1% from 0.2%; April Core PPI 0.5% (consensus 0.2%); Prior was revised to -0.1% from 0.2%
    • The key takeaway from the report is that nearly three quarters of the increase in final demand prices was due to a 0.6% increase in the index for final demand services, something that will detract from the Fed's confidence that inflation is on a sustainable path to its 2% target.

Wednesday's economic calendar features:
  • 7:00 ET: Weekly MBA Mortgage Index (prior 2.6%)
  • 8:30 ET: April CPI (consensus 0.4%; prior 0.4%), Core CPI (consensus 0.3%; prior 0.4%), April Retail Sales (consensus 0.4%; prior 0.7%), Retail Sales ex-auto (Briefing.com consensus 0.2%; prior 1.1%), and May Empire State Manufacturing Index (consensus -9.0; prior -14.3)
  • 10:00 ET: March Business Inventories (consensus 0.0%; prior 0.4%) and May NAHB Housing Market Index (consensus 51; prior 51)
  • 10:30 ET: Weekly crude oil inventories (prior -1.36 mln)
  • 16:00 ET: March net long-term TIC flows (prior $71.5 bln)

>>> Baupost Group (Seth Klarman) discloses updated portfolio positions in 13F fi

Baupost Group (Seth Klarman) discloses updated portfolio positions in 13F filing: New GDS SOUN FTRE positions
Highlights from Q1 2024 filing as compared to Q4 2023 (all amounts are approximate):
  • New positions in: GDS (2.6 mln shares), SOUN (1.13 mln), FTRE (0.3 mln), EXP (0.26 mln), WCC (0.21 mln)
  • Increased positions in: CLVT (to 30.6 mln shares from 25.5 mln shares), HLF (to 2.24 mln from 1.68 mln)
  • Maintained positions in: LBTYK (42.31 mln shares)
  • Closed positions in: GTN (from 3.76 mln shares), GTX (from 2.99 mln), TSEM (from 2.71 mln), LLYVA (from 1.9 mln), SSNC (from 1.03 mln), FNCH (from 0.07 mln)
  • Decreased positions in: WBD (to 3.71 mln shares from 25.24 mln shares), LSXMK (to 4.35 mln from 14.85 mln), LSXMA (to 2.68 mln from 8.18 mln), VSAT (to 15.03 mln from 16.17 mln), TBPH (to 6.59 mln from 7.42 mln), FIS (to 5.58 mln from 6.36 mln), CRH (to 2.71 mln from 3.35 mln), J (to 0.51 mln from 0.73 mln)

FT : US sanctions entities involved in Raiffeisen’s aborted Oleg Deripaska deal

US sanctions entities involved in Raiffeisen’s aborted Oleg Deripaska deal
The parties had conducted an ‘attempted sanctions evasion scheme’ connected to the Russian oligarch, Washington says

The US has sanctioned three entities and an individual involved in an asset-swap deal Austria’s Raiffeisen Bank International has recently aborted.

Washington said the sanctioned parties had been involved in an “attempted sanctions evasion scheme” connected to the Russian oligarch Oleg Deripaska. It did not name Raiffeisen.

The Vienna-based lender last week announced it was “walking away” from a planned deal to acquire a 25 per cent stake in the Austrian construction company Strabag once held by Deripaska — in exchange for assets of the bank in Russia — because it had not been able to “obtain the required comfort” from regulators to proceed with the transaction.

Raiffeisen had previously said the deal was compliant with EU and US sanction regimes, and did not involve dealing with Deripaska. The US first sanctioned the Russian businessman in 2018.

The bank had said it was transacting with Russian companies that were not connected to the oligarch and had legitimately acquired his stake in Strabag separately.

The US Treasury on Tuesday placed the three companies in question, and one individual involved with them, Dmitrii Beloglazov, on its sanctions list.

The US state department said: “The United States is today designating one Russian individual and three Russia-based companies involved in an attempted sanctions evasion scheme connected to Russian oligarch Oleg Deripaska.”

The US Treasury said the “opaque and complex supposed divestment could have unfrozen more than $1.5bn worth of shares belonging” to Deripaska.

Raiffeisen declined to comment.

The bank has come under mounting pressure over its business in Russia — and various attempts to try to repatriate assets there. As other western lenders have pulled out of the country, it has continued to grow, becoming a relative safe haven for Russian depositors.

Despite shrinking its Russian loan book, huge spreads between deposits and central bank rates mean Raiffeisen continues to rake in big profits. Its division in the country has, for the past three years, made more money than the rest of all the bank’s other subsidiaries combined. This has led the group to pay more taxes to Russia’s government.

Kremlin-imposed capital controls mean the bank can neither send assets back to Austria, nor sell its Russian business easily. Raiffeisen has explored asset-swap transactions before. In March 2023 the bank weighed a €400mn deal with Russia’s Sberbank, which also failed to come to fruition.

Investors have grown concerned about the possibility of a regulatory crackdown against Raiffeisen, as western governments look to turn the economic screws on Moscow.

The bank’s planned AT1 bond issue was pulled last year amid investor concerns over its Strabag deal.

The lender last month disclosed the European Central Bank had ordered it to speed up efforts to shrink its portfolio in Russia, ordering even deeper cuts to lending there. The requirement would make efforts to try to sell its Russian division almost impossible, Raiffeisen warned.

TechCrunch : Google announces Gemma 2, a 27B-parameter version of its open model

Google announces Gemma 2, a 27B-parameter version of its open model, launching in June

On Tuesday, Google announced a number of new additions to Gemma, its family of open (but not open source) models at its annual Google I/O 2024 developer conference.

The headline-grabbing release here is Gemma 2, the next generation of Google’s Gemma models, which will launch with a 27 billion parameter model in June.

Already available is PaliGemma, a pre-trained Gemma variant that Google describes as “the first vision language model in the Gemma family” for image captioning, image labeling and visual Q&A use cases.

So far, the standard Gemma models, which launched earlier this year, were only available in 2-billion-parameter and 7-billion-parameter versions, making this new 27-billion model quite a step up.

n a briefing ahead of Tuesday’s announcement, Josh Woodward, Google’s VP of Google Labs, noted that the Gemma models have been downloaded more than “millions of times” across the various services where it’s available. He stressed that Google optimized the 27-billion model to run on Nvidia’s next-gen GPUs, a single Google Cloud TPU host and the managed Vertex AI service.

Size doesn’t matter, though, if the model isn’t any good. Google hasn’t shared a lot of data about Gemma 2 yet, so we’ll have to see how it performs once developers get their hands on it. “We’re already seeing some great quality. It’s outperforming models two times bigger than it already,” Woodward said.

FT : Investors shun real estate as higher for longer fears bite

Investors shun real estate as higher for longer fears bite
Global fund managers cut their property allocations to lows not seen since 2009

Global investors have slashed their allocations to real estate to a 15-year low as the sector struggles under the pressure of high interest rates.

A net 28 per cent of managers were underweight the real estate sector in May, down 13 percentage points on the previous month, according to Bank of America’s latest global fund manager survey. 

The commercial property market has undergone a painful shift away from ultra-low interest rates, compounded by uncertainty over the future of offices following the Covid-19 pandemic. Recent concerns that borrowing costs in big economies are set to remain higher for longer have weighed further on the sector.

“A change in interest rate expectations is a contributing factor to this change in sentiment, as fundamentally nothing has changed since March other than the inflation story in the US,” said Oliver Salmon, a director in Savills’ world research team. “Interest rate declines are needed for market sentiment to improve.”

The BofA survey of 245 money managers with $642bn in assets under management suggests allocators are moving away from real estate and into consumer stocks, bonds and cash.

The global commercial real estate sector lost investors 4.1 per cent in 2023, the lowest annual return since 2009, according to MSCI’s Global Annual Property index. 

Some European real estate markets performed even worse last year than during the 2008-09 financial crisis. The office sector has been hit particularly hard, suffering high vacancy rates and uncertain demand as occupiers adjust to new working patterns.

Fewer rate cuts in 2024 would impact refinancing in the sector as costs increase and asset values decline. About $820bn of US commercial property loans are likely to mature this year, according to MSCI, including about $214bn in loans that were extended after maturing last year. 

“In the US, there is concern over a significant refinancing gap,” said Salmon. “The longer that rates stay higher, the more difficult it is to ‘extend and pretend’.”

Many owners are reluctant to sell their properties and crystallise sharp losses, in the hope that the market rebounds in the near future.  

Dealmaking has also slowed down. The global real estate market has seen seven consecutive quarters of falling transaction volumes, with dealmaking dropping 18 per cent year on year in the first quarter of 2024, MSCI’s data shows. 

The BofA survey showed sentiment among fund managers was at its most bullish since November 2021, with 64 per cent of investors saying they did not expect a recession in the next 12 months. Higher inflation is the number one “tail risk”, according to 41 per cent of investors.