TheChek News Flow

The Mouse House is getting crowded with activist investors.

San Francisco–based ValueAct Capital is the latest activist to take a stake in Walt Disney, believing the shares are undervalued. The size of ValueAct’s stake is unknown but it was revealed as another activist fund, Nelson Peltz’s Trian Fund Management, is preparing to seek several seats on Disney’s board.

The presence of two major activists could well ratchet up the pressure on Disney as it tries to win back investor support. (Peltz is also voting shares held by former Marvel executive Isaac “Ike” Perlmutter.)

Earlier this month, Disney announced an additional $2 billion in cost cuts and plans to reinstate its dividend. Shares are up 8% this year, trading around $94 apiece, helped by activist interest, but Disney’s stock is still down more than 50% from its all-time high in March 2021.

ValueAct argues that Disney’s theme parks and consumer-products businesses alone are worth $80 a share, but it hasn’t yet revealed any plans for the media and entertainment giant. The hedge fund, launched by Jeff Ubben, who left in 2020, has been depicted as a “friendly activist,” often easily gaining at least one seat on the boards of companies it targets. ValueAct isn’t working with Trian, according to a source familiar with the matter.

News of ValueAct’s stake was first reported by CNBC. ValueAct didn’t immediately respond to a request to comment. Disney declined to comment on ValueAct’s stake. ValueAct’s presence likely won’t change Trian’s tactics.

OpenAI’s ouster of CEO Sam Altman on Friday followed internal arguments among employees about whether the company was developing artificial intelligence safely enough, according to people with knowledge of the situation.

Such disagreements were high on the minds of some employees during an impromptu all-hands meeting following the firing. Ilya Sutskever, a co-founder and board member at OpenAI who was responsible for limiting societal harms from its AI, took a spate of questions.

At least two employees asked Sutskever—who has been responsible for OpenAI’s biggest research breakthroughs—whether the firing amounted to a “coup” or “hostile takeover,” according to a transcript of the meeting. To some employees, the question implied that Sutskever may have felt Altman was moving too quickly to commercialize the software—which had become a billion-dollar business—at the expense of potential safety concerns.

• At OpenAI, divisions persisted over AI ‘safety’

• Co-founder Ilya Sutskever led an AI safety team

• Sutskever took pointed questions from staff on Friday

“You can call it this way,” Sutskever said about the coup allegation. “And I can understand why you chose this word, but I disagree with this. This was the board doing its duty to the mission of the nonprofit, which is to make sure that OpenAI builds AGI that benefits all of humanity.” AGI stands for artificial general intelligence, a term that refers to software that can reason the way humans do. (Another person said Sutskever may have misinterpreted a question related to a potential hostile takeover of OpenAI by other parties.)

When Sutskever was asked whether “these backroom removals are a good way to govern the most important company in the world?” he answered: “I mean, fair, I agree that there is a not ideal element to it. 100%.”

Fallout from the firing was swift. By Friday night, three senior OpenAI researchers had quit, The Information reported. Two of those people signaled their support of Greg Brockman, an Altman ally who was ousted as chairman of the board on Friday and shortly after resigned from his role as president.

Altman didn’t participate in the vote to oust him, the company told staff. After this story published, Brockman posted a timeline of the board moves over a span of about 30 minutes. Around noon, Sutskever fired Altman during a video call with the rest of the board except Brockman; minutes later, in a separate video call, Sutskever told Brockman he was being removed from the board but could keep his position. The board then posted a blog about the leadership changes. Brockman later resigned.

While the six-member board that fired Altman didn’t explain the reasons for the move, other than saying Altman “was not consistently candid in his communications with the board,” safety was a big theme in the company’s internal damage control following the firing.

For instance, in a memo to employees on Friday, Interim CEO Mira Murati, who has been overseeing many of the company’s teams, referenced “our mission and ability to develop safe and beneficial AGI together.” She said the company had three pillars: “maximally advancing our research plan, our safety and alignment work—particularly our ability to scientifically predict capabilities and risks, and sharing our technology with the world in ways that are beneficial to all.”

Altman co-founded OpenAI as a non-profit in 2015 with Sutskever, Tesla CEO Elon Musk and others to act as a counterweight to Google and other for-profit companies that had pioneered AI and recruited the world’s best AI researchers. The OpenAI co-founders were concerned that a for-profit motive would come at the expense of society’s safety. And that was a big part of their pitch in recruiting employees over the years.

But in 2019, when Altman became CEO of OpenAI, he helped form a for-profit entity governed by the OpenAI non-profit so that it could raise money from outside investors like Microsoft in order to have enough servers to train the best AI. His solution for limiting the power of for-profit greed: a theoretical cap on the profits the company could generate for its principals and investors.

Division with Anthropic Founders

Still, concerns about AI safety divided the startup’s leaders. In late 2020, a group of employees split off from OpenAI to launch their own startup, Anthropic, because of differences about the company’s commercial strategy and the pace at which it released its technology. In order to ensure the startup’s AI development wouldn’t be influenced by financial incentives, Anthropic formed an independent, five-person group that can hire and fire the company’s board.

For years, AI practitioners have raised concerns that more powerful models could be misused in the wrong hands, like developing biological weapons, generating convincing deepfakes or hacking into critical infrastructure. Some also believe that the systems could eventually become autonomous and go rogue at the expense of humans. Proponents of “AI alignment,” which refers to techniques to prevent those harms, have generally advocated for more guardrails on how the technology is used, including limiting the number of people who can access it.

As OpenAI developed groundbreaking artificial intelligence that can automate writing and software coding and generate realistic images from scratch, some employees at the company have discussed the potential harms of such AI—especially if it learned how to improve itself.

The company this summer established a team, co-led by Sutskever and “alignment” researcher Jan Leike, to work on technical solutions to prevent its AI systems from running rogue. In a blog post, OpenAI said it would dedicate a fifth of its computing resources to solving threats from “superintelligence,” which Sutskever and Leike wrote “could lead to the disempowerment of humanity or even human extinction.”

Sutskever has frequently spoken about the dangers of AI. In a 2019 documentary, “iHuman,” the researcher mused, “The future is going to be good for the AIs regardless; it would be nice if it would be good for humans as well.” More recently in a July interview, Sutskever said that he was most concerned about the dangers of powerful AGI years into the future, but hoped for a future where AI technology could help humans police itself, perhaps an example of this “superintelligence alignment.”

Sutskever has many followers within the company. Former employees describe him as a well-respected and hands-on leader who’s crucial for guiding the startup’s frontier tech. OpenAI Chairman and President Greg Brockman, another key leader who turned Sutskever's research breakthroughs into usable AI, unexpectedly resigned on Friday after Sutskever and other board directors voted out Altman.

The blog post announcing Altman’s firing on Friday concluded by stating the board’s responsibility was to preserve the company’s charter, which says the board must avoid “enabling AI or AGI that harm humanity or unduly concentrate power,” and doing “the research required to make AGI safe.” It also said the board’s “primary fiduciary duty is to humanity.”

Three senior researchers at OpenAI resigned Friday night as the artificial intelligence developer suffered fallout from the firing of CEO Sam Altman and sudden resignation of President Greg Brockman, according to several people with knowledge of the situation.

Jakub Pachocki, the company’s director of research; Aleksander Madry, head of a team evaluating potential risks from AI, and Szymon Sidor, a seven-year researcher at the startup, told associates they had resigned, these people said. The departures are a sign of immense disappointment among some employees after the Altman ouster and underscore long-simmering divisions at the ChatGPT creator about AI 'safety' practices.

The departure of the senior researchers will add to the challenges facing Ilya Sutskever, OpenAI's chief scientist, and Interim CEO Mira Murati as they try to reassure staff, investors and customers bewildered by Friday's events. Altman and Brockman, who had both been directors on the board of the OpenAI nonprofit that oversees the for-profit arm, on Friday night said they were blindsided earlier that day by the four other directors.

Those directors, including Sutskever, removed Altman entirely and kicked Brockman off the board but not from his operating role at the company. Brockman resigned hours later.

In OpenAI’s early days, Pachocki and Sidor worked closely with Brockman on an AI system that could play the videogame Dota 2. That became one of the company’s first successes. More recently, they played key roles in developing GPT-4, which OpenAI essentially leveraged into a billion-dollar business. In a post on X, formerly known as Twitter, shortly after GPT-4’s release, Altman singled out Pachocki for his contributions.

Madry joined OpenAI in May 2023 as its head of preparedness, leading a team focused on evaluating risks from powerful AI systems, including cybersecurity and biological threats. He is also a professor at the Massachusetts Institute of Technology. OpenAI announced its plans for the team in a blog post less than a month ago, on Oct. 26.

What price privacy? End-to-end encrypted (E2EE) messaging app Signal has put out an interesting overview of the costs required to develop and maintain its pro-privacy systems which shield user data from tracking by default.

The blog post, penned by Signal president Meredith Whittaker and developer Joshua Lund, reveals it’s currently spends around $14 million per year on infrastructure to run the private messaging service; and a further $19 million per year on staff costs — making a total of circa $33 million to keep the lights on and its “many millions” of users’ messages safe from unintended eyes.

It also projects the cost of running its service will rise to around $50 million by 2025.

The post doesn’t break out a figure for active users for the service. But it’s likely to be in the tens of millions. (A Business of Apps‘ estimate suggested Signal had around 40 million monthly active users in 2021; while App Annie data we reported on at the start of that year suggested it had around 20 million users at the end of 2020 — prior to a surge in usage driven by an exodus of WhatsApp users concerned about changes to the Meta-owned messaging app’s privacy policy.)

Per the post, just 50 full-time staff keep the messaging service running, while also conducting research to keep pushing the envelop on privacy protection and — in the case of Whittaker at least — having what looks like a full-time job in and of itself in public policy advocacy that’s seen her shuttling around the world in recent months to defend privacy rights and try to fend off government incursions targeting E2EE.

The post conveys a clear message: Going against the tech industry grain by keeping users safe from surveillance is an expensive — but vital — enterprise.

Signal is a nonprofit so it’s not a money-making kind of enterprise. But of course it still needs to have enough funds coming in to cover costs. And, clearly, costs are rising as usage increases. Which means it needs to be proactive about finding ways to increase revenue that don’t compromise its fundamentally pro-user stance.

As the blog post details, Signal goes much further in safeguarding user privacy than even the mainstream messaging apps that have implemented its E2EE protocol (such as Meta-owned WhatsApp). “To take one example, profile pictures and profile names are always end-to-end encrypted in Signal,” it writes. “This means that Signal does not have access to your profile name or chosen profile photo. This approach is unique in the industry. In fact, it has been more than six years since we first announced this additional layer of protection, and as far as we know none of our competitors have yet adopted it.

“Other messengers can easily see your profile photo, profile name, and other sensitive information that Signal cannot access. Our choice here reflects our staunch commitment to privacy but it also means that it took Signal more effort to implement support for profile photos. Instead of a weekend project for a single engineer, our teams were required to develop new approaches and concepts within the codebase (like profile keys), which they worked to roll out across multiple platforms after an extended testing period.”

Disclosing how much it (already) spends annually on essential stuff like storage ($1.3 million), servers ($2.9 million), registration fees ($6 million), bandwidth ($2.8 million), other infrastructure needs like disaster recovery ($700,000), as well as the aforementioned $19 million on staff (covering wages, taxes and related HR costs), looks intended to (gently) jolt the audience — and, hopefully, get a few more users reaching into their wallets to chip in and help ensure a gold-standard private messaging choice.

“To put it bluntly, as a nonprofit we don’t have investors or profit-minded board members knocking during hard times, urging us to ‘sacrifice a little privacy’ in the name of hitting growth and monetary targets. This is important in an industry where ‘free’ consumer tech is almost always underwritten by monetizing surveillance and invading privacy,” it warns.

“Instead of monetizing surveillance, we’re supported by donations, including a generous initial loan from Brian Acton. Our goal is to move as close as possible to becoming fully supported by small donors, relying on a large number of modest contributions from people who care about Signal. We believe this is the safest form of funding in terms of sustainability: Ensuring that we remain accountable to the people who use Signal, avoiding any single point of funding failure, and rejecting the widespread practice of monetizing surveillance.”

As the post also details, even alternative tech tools like Signal must pay into the coffers of industry giants who own and operate essential app infrastructure like cloud computing as well as, typically, also being in the data capture and surveillance business.

Mike Rothenberg, a former VC known for hosting lavish parties, was convicted today on 21 counts for defrauding investors

This year will be remembered for a lot of things. Among them could be the growing number of stars in the startup world who were later convicted for defrauding investors.

Roughly six months after Theranos founder Elizabeth Holmes headed to jail for four counts of wire fraud, and just two weeks after Sam Bankman-Fried was found guilty on seven counts of fraud and conspiracy for his role in the collapse of his crypto exchange, another former high-flier in the startup world, Mike Rothenberg, was today convicted on 21 counts, including bank fraud, false statements, four counts of money laundering, and 15 counts of wire fraud.

The verdict, delivered by a jury in Northern California, bookends a 10-year-long journey for Rothenberg, who burst onto the Bay Area scene in 2013 at age 27 with a $5 million fund and enough charm to persuade TechCrunch that his one-man firm was special enough to merit coverage.

The Austin native was a compelling subject. A self-described former math Olympian who attended Stanford before getting an MBA from Harvard Business School, Rothenberg reportedly started both a tutoring business and a real estate fund while still an undergrad. He also logged time at Bain & Co., seemingly setting himself up for a traditional career in finance or venture capital. Instead of trodding that well-worn path — he was reportedly offered at least one role at a hedge fund — Rothenberg earned kudos for striking out on his own instead, and he leaned heavily into a narrative about himself as a relentless hustler who could relate to the founders he wanted to fund.

Rothenberg also found increasingly inventive ways to attract widespread attention to his relatively small shop, many of them centered on organizing expensive parties for founders. Indeed, one of these gatherings – an “annual” event held two years in a row at the ballpark where the San Francisco Giants play – inspired an episode of the HBO show “Silicon Valley.”

It also raised questions, including in a story by Bloomberg that dubbed him “the Valley’s party animal” while also observing that it wasn’t “entirely clear” how Rothenberg was funding it all. (TechCrunch was later told by sources that after the Bloomberg piece was published, Rothenberg sent two employees to SFO, purchasing them airline tickets so they could buy up its newsstand copies and keep them out of view.)

He never recovered. In 2018, he was formerly charged by the SEC for overcharging investors to fund personal projects; Rothenberg settled in 2019 with the agency, which sought tens of millions of dollars in disgorgement penalties (these were later backed up by a federal court ruling).

While still facing that mountain of civil penalties, Rothenberg was charged with fraud six months later by the DOJ, which would later lead to today’s outcome.

What comes next could be worse. While Rothenberg won’t be sentenced until March 1 of next year, in its 2019 press release about its action against Rothenberg, the DOJ noted that each of its wire fraud charges carries “maximum statutory penalties of up to 20 years in prison, not more than three years supervised release, and a $250,000 fine.” It added that “two bank fraud charges” and “two false statement to a bank charges each carry a maximum of 30 years in prison, not more than five years supervised release, and a $1,000,000 fine.” The money laundering charges, it continued, “carry a penalty of imprisonment of not more than ten years, not more than three years of supervised release, and a fine of not more than twice the amount of the criminally derived property involved in the transaction at issue.”

The deal would value the Premier League football club at about $5.4bn

Sir Jim Ratcliffe is closing in on a roughly $33-per-share deal with the Glazer family that would see the British tycoon buy about 25 per cent of Manchester United.

If agreed, the deal would value the Premier League club at about $5.4bn and implies an enterprise value of more than $6bn including debt based on the existing number of shares in issue. It would mark the most significant ownership change for the 20-times English football champions since the club’s initial public offering in 2012.

Under the terms of the deal being discussed, the Ineos founder is set to buy roughly 25 per cent of United’s A and B shares, according to people familiar with the discussions. The pricing was first reported by Sky News.

There is a desire to get the deal agreed by the end of next week and before the US Thanksgiving holiday on November 23, according to people familiar with the matter. However, they cautioned that negotiations are ongoing, meaning the timeline could change. 

Next week will mark one year since the Glazers, who have controlled United since a £790mn leveraged buyout in 2005, said they would consider a sale or an injection of capital from outside investors. 

The American family, who also own the Tampa Bay Buccaneers NFL franchise, are controversial among United fans because of their use of debt to fund the 2005 acquisition, putting the liabilities on the club’s balance sheet.

The current sale process has cast uncertainty over United, which earlier this week said that Richard Arnold had decided to step down as chief executive and would be replaced by general counsel Patrick Stewart until a permanent replacement is identified.

Ratcliffe’s flexibility and willingness to consider a range of proposals have been key to establishing him as the favourite to strike a deal. 

The Ineos founder saw off competition from Qatar’s Sheikh Jassim bin Hamad al-Thani, who dropped his takeover bid last month and withdrew from the process.

Ratcliffe had originally intended to buy majority control but has had to reformulate his bid due to pushback from minority shareholders, who warned of legal consequences if they were left out of the deal.

The Glazers own more than 110mn B shares, each of which carries 10 times the voting rights of one A share. The club’s 54mn A shares have traded on the New York Stock Exchange since an IPO in 2012. Typically, B shares convert into A shares when the Glazers sell.

However, one of the people said the goal is for Ratcliffe to hold B shares because of the appeal of the voting rights.

Ratcliffe and Ineos could increase their stake at a later stage but there is no precise timeline for doing so, the person said.

United and Ineos declined to comment. United shares rose by more than 8.5 per cent in pre-market trading on Friday, hitting $20, valuing the club at more than $3bn.

Ratcliffe is also poised to invest an additional sum in the region of $300mn in addition to buying existing equity, according to the people familiar with the situation.

The money, which can be used for a variety of purposes, signals Ineos’s intent to improve United’s infrastructure, including the club’s Old Trafford stadium. 

Rebuilding Old Trafford from the ground up could cost an estimated $1.5bn to $2bn, but other options, such as redeveloping the existing ground, would be less capital intensive.

It is unclear what the deal’s implications would be for United’s revolving credit facility. This has provided liquidity, including funds for transfers, to the club in the wake of the pandemic, which temporarily hit revenues and hit the balance sheet.

A deal would also test whether Ratcliffe and the Glazers are able to turn around the club’s performances on the pitch. United have not won the Premier League title since 2013, when Sir Alex Ferguson — the most successful manager in the club’s history — stepped down.

The “Borat” star lashed out during a virtual discussion Wednesday with executives from the social media site which has since been flooded by people even praising late al-Qaeda mass murderer Osama bin Laden.

He was joined by fellow celebs Deborah Messing and Amy Schumer as well as more than a dozen Jewish content creators, according to a recording of the meeting obtained by The New York Times.

“What is happening at TikTok is it is creating the biggest antisemitic movement since the Nazis,” Cohen told execs at the site, where he does not appear to have an account.

“If you think back to Oct. 7, the reason why Hamas were able to behead young people and rape women was they were fed images when they were small kids that led them to hate,” he continued, the Times said.

Actor Sacha Baron Cohen delivers remarks at the 60th Anniversary Of The March On Washington.

The British star told the TikTok execs they could simply “flip a switch” to fix antisemitism on the platform, which the meeting was told included people saying “Hitler was right” and “I hope you end up like Anne Frank.”

“Shame on you,” he told the execs, led by TikTok’s head of operations, Adam Presser, and global head of user operations, Seth Melnick, the Times report said.

The virtual showdown came after many of the same group sent an open letter to TikTok decrying Jewish users being bombarded with such hate.

“Simply put, TikTok lacks critical safety features to protect Jewish content creators and the broader Jewish TikTok community, leaving us in digital and physical danger,” said the letter also signed by Messing and Schumer.

“Sadly, rampant antisemitism is a common problem that TikTok has failed to address for far too long.”