TheChek News Flow

Starting this week, new rules prohibit walking the country’s mountain trails unless accompanied by a licensed guide

Almost 30 years ago I travelled to Nepal’s famous Annapurna region for the first time. Worn out from a research trip to the dusty Tibetan plateau, a visit to the lush southern side of the Himalayas seemed the perfect antidote. In those days you needed a trekking permit from the immigration department but acquiring it was no great chore, more a fun way to experience Nepal’s happy-go-lucky bureaucracy. I took a local bus to Pokhara, then a sleepy lakeside town, and spent a few days walking the rollercoaster paths around the pretty villages of Ghandruk and Chhomrong.

Walking easy, well-maintained paths within sight of the world’s highest mountains was blissful. When I’d had enough for the day, I’d stop at a locally owned lodge, no reservation required and consequently no need for a heavy rucksack stuffed with food and camping equipment. Nepal has long been especially well set up for such trips, with its network of paths that have been used as trading routes for centuries, and frequent tea houses providing food and shelter along the way.

I have a few golden memories: a pre-dawn walk up Poon Hill to see the sun’s first rays light up the summit of Dhaulagiri, the world’s seventh-highest mountain. And languishing in hot springs next to the fast-flowing Modi river, surrounded by trees. If that all sounds free and easy, trust me: it was.

From April 1, however, such easy-going experiences will no longer be allowed. The Nepal Tourism Board (NTB), which these days regulates the trekking industry, announced in early March, just before the start of this year’s spring season, that foreign trekkers like me — or, as Nepali tourism authorities call us, “free independent travellers” — will only be issued with trekking permits if they hire a licensed guide. Independent trekking in popular national parks and conservation areas, including Annapurna, Langtang, Makalu-Barun and Kangchenjunga, will be over.

The NTB’s director Mani R Lamichhane says the two main objectives behind the ban are “to make trekking in Nepal safer and to create more employment opportunities in the country”. The US embassy has long advised against solo trekking after a string of widely reported disappearances, including that of 23-year-old Aubrey Sacco from Colorado, who vanished in 2010 while walking in the Langtang National Park.

The decision may come to be seen as an inflection point in Nepal’s development as a tourist destination. As a climber and trekker, it’s one I mourn. Across the Himalaya, the freedom of the hills is disappearing under red tape. It’s telling that Nepal’s authorities didn’t bother to consult any of the international outdoor bodies that represent those tourists who will foot the bill. On the other hand, as someone who understands the depth of poverty in Nepal, I can appreciate the need to create jobs.

The new rule has been widely welcomed by the industry. “It will create more job opportunities for the locals and also contribute to the overall safety of travellers,” Shiva Dhakal, owner of the award-winning Royal Mountain Travel told me. “It will also help prevent any negative news of weather disasters and decrease the need for search and rescue, which will help position [Nepal] as a safe destination to trek.”

Experienced hikers who like the freedom of travelling unaccompanied and prefer to take responsibility for their own safety may feel the glory days of exploring Nepal are over and will go elsewhere.

Increasingly though, Nepal’s trekking market is dominated by the much larger number of less experienced tourists buying organised trekking packages to popular destinations such as Everest Base Camp — adventures that come with guides as standard. (Ironically, the Everest region, with its strong local government, may still allow independent trekkers; it’s not yet clear.) That process has accelerated with the growth in the Indian and Chinese market.

Yet doubts remain that making guides mandatory will improve safety. Nepal will now need to train a lot more trekking guides. The Nepal Mountaineering Association runs a guide-training programme that a top British training instructor with long experience of working in Nepal described to me as approaching international standards. But the numbers going through this scheme are tiny. The majority of Nepal’s trekking guides take a government course at the Nepal Academy of Hotel Management and Tourism, whose curriculum leaves graduates woefully underprepared for the challenging Himalayan environment.

Nepal’s tourism ministry, which also oversees aviation, already has a shaky safety record. In January, a Yeti Airlines ATR 72-500 crashed on approach to Pokhara airport, killing all 72 on board, the latest in a string of fatal air crashes. The trekking industry will now be under the same scrutiny.

Nepal’s worst trekking disaster occurred in the post-monsoon season of October 2014, when Cyclone Hudhud dumped six feet of snow on the Annapurna region in 24 hours. At least 43 people died, slightly more than half of them Nepali trekking guides and other tourism workers. The true number has never been firmly established. That tragedy exposed the shortcomings of an industry that offers a warm welcome but sometimes only a facsimile of competence. We’ll soon find out how well its lessons were learnt.

Sustained demand for key components likely to lead to shortages, says Global Wind Energy Council

The global wind sector will face a supply chain crunch this decade, as looming bottlenecks for key components and ships are set to squeeze the sector, an industry body has warned.

The Global Wind Energy Council said “spare capacity” in wind energy manufacturing was “likely to disappear by 2026”.

The squeeze will hit the US and Europe particularly hard as they both target an ambitious rollout of domestic renewable energy projects even as much of the wind industry’s supply chain is concentrated in China, the group said.

Companies were already feeling the crunch, with Singaporean shipping group Marco Polo warning of a “big vacuum” of the large vessels required to install offshore turbines.

Growing demand for new wind projects meant that “this problem is now becoming more acute”, said Sean Lee, chief executive of Marco Polo Marine Group.

European wind turbine manufacturers including Vestas and Siemens Gamesa endured a bruising 2022, as a combination of rising input costs, supply chain constraints and the slow permitting process for new projects hit profits and caused delays.

GWEC said 2022 had been the third best year for new wind capacity installations despite the tough conditions, and forecast that 2023 would be the year the world reached 1TW of total installed wind capacity.

However, it warned that policymakers “need to act now to avoid a supply chain bottleneck stalling the deployment of wind energy from 2026”. There was an “urgent need” to increase investment in the global onshore and offshore wind sector supply chains, it added.

Many companies were “not in a position to invest to the degree that they should be because they haven’t made money for the last few years”, said GWEC’s chief executive Ben Backwell.

Attempts by European and US lawmakers to encourage a shift of manufacturing away from China, in key sectors including renewable energy, risked amplifying the shortages, GWEC warned.

Shortages for key components such as wind turbine nacelles, which contain the gearbox, generator, and brake and blades, were likely to emerge, the report added.

Europe’s offshore turbine nacelle assembly capacity would “no longer be able to support growth outside of Europe” from 2026, and by 2030 it would need to double from current levels “to meet European demand alone”, GWEC said.

China accounts for about 60 per cent of total onshore and offshore nacelle production. There are no offshore nacelle assembly facilities in North America, though companies including GE Renewable Energy and Vestas have recently announced US investment plans.

Dealmakers who gathered in New Orleans this week are hopeful that the prolonged deals freeze will thaw this year—and that the tech sector in particular holds plenty of companies ripe for acquisition.

That may be a case of optimism transcending reality. On panels and in coffee chats at the annual Tulane Corporate Law Institute conference, attorneys and bankers in mergers and acquisitions fretted about the prolonged slowdown, which they pin on tight debt markets, falling valuations, antitrust threats—and now a banking crisis. And they can’t wait for things to change.

“I think everybody wants to get busy again,” said Tony Barletta, who runs a financial documents firm, The Nuvo Group, that often does business with companies getting ready to make an acquisition or go public. “I’m kind of looking forward to seeing what’s going to replace the SPAC,” he said, referring to special purpose acquisition companies, which drove an avalanche of merger deals post-pandemic.

Anu Aiyengar, global head of M&A at JPMorgan Chase, opened a presentation by joking that she was glad to come speak at the conference since she doesn’t have much else going on.

Still, she and others argued that deal activity will eventually pick up. One lawyer who works on tech deals said startups’ cash reserves are drying up quickly, while some software firms that relied on Silicon Valley Bank’s lines of credit are suddenly short on cash.

And while disagreements about valuation have been a barrier, Aiyengar said that’s likely to change. Potential sellers that have endured a steep stock slide are getting closer to coming to the table. For now, potential buyers have to offer a price close to the seller’s 52-week high stock price to get them interested. Over time, she said, that deal premium will decrease.

“More CEOs [are] looking forward and saying, ‘I have another six painful earnings calls I have to get on. This may not be such a bad deal,’” she said.

Antitrust hurdles remain a problem. Microsoft’s potential $75 billion acquisition of Activision and Broadcom’s megadeal for VMWare have been under the microscope of regulators. “It’s more about sand in the gears. They just want to slow us down,” said Ethan Klingsberg, head of U.S. corporate and M&A at Freshfields Bruckhaus Deringer, during a panel. “If it’s a headline deal and the right client, they’re going to give us a hard time.”

Lawyers said potential sellers also fear antitrust lawsuits and busted deals, as they distract from other corporate priorities. Sellers also want to know if private equity firms have lined up all the financing they would need to make an offer.

Financing challenges don’t help. While private equity firms are flush with equity capital, some have struggled to raise enough debt to complete leveraged buyouts. Banks are rarely making loans to private equity firms for large deals because they are “sitting on a lot of the leveraged loans that resulted from the commitment they wrote in 2020 and 2021,” said Scott Barshay, chair of the corporate department at law firm Paul, Weiss, Rifkind, Wharton & Garrison LLP, on a panel.

“There’s a struggle now in the [leveraged buyout] market because of the availability of debt, not because of the price of the debt,” he added. “We have to see how the year goes to dig out of that hole.”

Meanwhile, some tech firms are reluctant to officially put themselves up for sale for fear of signaling weakness, Aiyengar said. But that doesn’t mean no tech deals will get done.

“For the majority of conversations we’re having, the largest targeted sector in this is tech,” Aiyengar said in a dealmakers’ panel. Smaller deals, below $1 billion in value, are still getting done, too. “The buyers come from all sectors, and you’re looking for a tech-enabled solution or a supply-chain solution—that’s your motivation,” she said.

Elon Musk offered Twitter employees stock grants at a valuation of roughly $20 billion, said a person familiar with an email Musk sent to staff, less than half what he paid to buy the company. It was a concrete acknowledgment of how much Twitter’s value has dropped since the deal—but it is still well above public market valuation levels for Twitter’s rivals.

To be sure, Musk’s assessment isn’t far off what mutual fund giant Fidelity, one of his backers in the takeover bid, reportedly values Twitter at. Fidelity has cut its internal estimate for its Twitter shares by 60% in recent months, Axios has reported. A $20 billion valuation implies a 55% cut.

It’s possible Musk feels constrained from slashing Twitter’s valuation any lower because the outside investors who backed his bid, which include Andreessen Horowitz and Sequoia, paid for shares at the $44 billion valuation of the takeover. Indeed, if Twitter was valued at the same multiple as its public rivals, its equity would be close to worthless.

It’s also possible Musk and other investors would argue that Twitter deserves a higher multiple because of its potential to grow faster than its public market counterparts. (Platformer earlier reported the $20 billion valuation).

In his email to staff, Musk said that Twitter “can be thought of as an inverse startup,” an apparent reference to the fact that he has slashed Twitter’s staff by 75%, shrinking its workforce to its earlier days as he attempts to transform the company by broadening its revenue to include subscriptions as well as advertising. Twitter’s ad sales have fallen roughly 40% since Musk took over the company, as his changes have unnerved marketers.

Musk said in the email that “like a smart startup, it is important that individual financial incentives align with the company.” While he acknowledged the big drop in Twitter’s valuation from its $44 billion acquisition price, he said “I see a clear, but difficult path” to a valuation of more than $250 billion. That would mean stock granted now would be worth 10 times more in the future, he said.

Musk told employees he is aiming to do “liquidity events,” where employees could sell their equity for cash “every six months, based on a third party valuation.” He said that was modeled closely on how his rocket company SpaceX works, “which I think achieves the public company advantage of having a liquid stock, but without the stock price chaos and lawsuit burdens of a public company.”

Some fashion, jewelry and watch brands are still trading in Russia despite the reputational risk and EU sanctions banning exports of items above €300, introduced after the country’s invasion of Ukraine last year. For them, there is too much to lose by abandoning Russia.

Think of the millions of euros they spent on sparkling boutiques in Moscow and St Petersburg and on training staff; think of the address books of wealthy customers they built up over the years. If the war ended tomorrow, it would be a pity to forgo all that, bearing in mind how difficult and costly it would be to re-enter Russia.

But major brands Chanel, Hermès and Louis Vuitton walked away from Russia, closing down their operations completely. And others have opted for a halfway solution whereby they keep a representative office in Moscow, managing operations in neighboring CIS countries such as Kazakhstan, Armenia and Georgia. This allows them to hold on to well-connected and experienced staff.

Richemont and Audemars Piguet shut down their operations and boutiques right after the outbreak of war in February 2022, expressing their protest against the invasion. Shortly afterwards, Russia’s FSB security forces raided their offices, seizing tens of millions of euros of stock. Customers who left their Cartier or AP watches for repair never got them back. Richemont and AP do not wish to talk about how they handled relations with their clients or whether they were compensated.

Interestingly, LVMH brands, which also shut down boutiques, were not touched by the FSB. Russian authorities may have remembered that LVMH boss and controlling shareholder Bernard Arnault met Russian President Vladimir Putin on a number of occasions over the past 20 years when the French luxury tycoon visited Moscow. Best not to bother his brands, they probably thought.

LVMH’s Bulgari, which was enjoying buoyant business in Russia before the conflict, still has a representative office in Moscow. It employs around 30 people while other staff were relocated to CIS countries, Turkey and Dubai. Bulgari continues to pay the rent for its well-located but empty boutiques on places like Red Square – paradoxically, to save some of the millions of euros it invested in them. “I wonder how long they will be able to continue paying staff and rent if the war goes on for many more years,” one French retail specialist in Moscow told Miss Tweed on condition of anonymity. “They have no cash coming in and money transfers to Russia have become super complicated. So, how can they survive long-term?”

Bulgari’s closed shops include two at Sheremetyevo Airport and five in Moscow, among them the huge flagship on Kutuzovsky Prospekt. It opened in November 2021 and a second floor was unveiled in early February 2022, just days before Russia’s onslaught started. It closed less than one month after its inauguration and Bulgari also shelved plans to open a luxury hotel in the Russian capital which it had just finished.

Other luxury brands also continue to pay rent to preserve their prime real estate spots, though their shops stand empty. However, this may not last forever.

Ulysse Nardin, the luxury watchmaker Kering sold to management last year, has taken a different approach. Its flagship store on Petrovka street in central Moscow re-opened at the end of November. It’s the only Western brand where the lights are on for many blocks around.

Ulysse Nardin has also kept its subsidiary open in Moscow. The brand told Miss Tweed it sold the boutique and stock to the Russian retail operator Conquest last November and the boutique mainly sells old collections. Sales assistants cannot say when they might receive new collections.

“This operator (Conquest) continues to regularly purchase small quantities of stock held locally by the subsidiary,” Ulysse Nardin told Miss Tweed in an email. It stressed the subsidiary only sold items held before the war. It added that having a representative office in Moscow allowed it to repair and service watches and “ensure the continuity” of its operations in Russia. It could import spare parts since most cost less than 300 Swiss francs.

“Obviously, we regret the conflict between Russia and Ukraine and we hope to see, as soon as possible, peace between these countries, where we have many clients and friends,” Ulysse Nardin said.

The brand had built a sizeable business in Russia after opening an office in Moscow in 2006. Before Russia annexed Crimea in 2014 and suffered the ensuing sanctions and drop in the value of the ruble, the country represented more than 30 percent of sales for Ulysse Nardin. In fact, the Swiss brand’s financial difficulties started a few years ago in part because it lost significant business in Russia. Now it’s keen to preserve whatever business it has left there.

We don’t know whether Ulysse Nardin did a deal with its local partner whereby it can repurchase the boutique and stock at a later stage. Some Western companies have secured such deals, selling their company and stock to local operators with an option to buy back in future.

Breitling’s boutiques in St Petersburg and Moscow were also sold to local retailers last year, together with the brand’s after-sales service centres. Breitling said it had transferred staff who had requested a move to subsidiaries in places like Dubai and Miami. It had not shipped anything to Russia since the invasion and the only Breitling watches being sold in Russia now were from old collections.

Most Russians are unaware that luxury brands have sold their boutiques to local partners. All they see is that shops remain open despite the sanctions. For example, Tissot’s boutique shines brightly on Tverskaya Avenue, at the end of the capital’s main artery, a stone’s throw from the Duma, Russia’s parliament. It’s run by multi-brand retailer Bosco but for your average Russian, Swatch Group’s Tissot is still selling watches in Moscow.

“These are not stores owned by the Group but by third parties - i.e. retailers who probably sell their own pre-conflict stocks,” a spokesman for Swatch Group told Miss Tweed in an email. “We closed our own stores at the beginning of last March and suspended all our exports to this country at the same time. Swatch Group has not closed its subsidiary in Russia as we hope – like the whole world - that peace will be restored as soon as possible.”

Bosco, which owns the famous Red Square department store GUM, has taken over several Swatch brands, including Longines. It also runs Italian fashion brand Etro and Kering’s Pomellato jewelry in Russia. As for Omega, its shop on Red Square is closed but the brand is sold actively by third-party retailers and Bosco could soon take it over too, according to local sources.

Italian jeweler Damiani is still open in Moscow, though with reduced hours and selling only remaining stock. “This is a family-owned company,” Damiani CEO Jerome Favier told Miss Tweed. “We wanted to protect our staff and keep paying their salaries. We send nothing there. They just continue to sell existing stock. Of course, it cannot last for long. We really hope the international geopolitical situation will improve.”

Brunello Cucinelli said in an email that their boutique in Moscow was closed. Miss Tweed has heard from local sources that customers can enter through the backdoor. The brand’s other shop in GUM remains open.

LVMH’s Tag Heuer and Richemont’s Montblanc also still have boutiques. Richemont did not reply to Miss Tweed’s emails asking about the status of the Swiss group’s operations in Russia. Local sources say Richemont is closing its subsidiary and winding down its presence, even taking furniture out of its shops. Cartier has luminous decorations in its windows and Van Cleef & Arpels still has paper butterflies and plants on display but these are likely to go soon. Bosco and other local retailers might be interested in these boutiques, the sources say.

Most of the world’s biggest watch and jewelry brands are distributed by Mercury, Russia’s No. 1 luxury retailer and owner of Tsum, Moscow’s equivalent of Printemps in Paris. Mercury also owns many luxury malls throughout Russia. As a specialized wholesaler, it sells Rolex, Patek Philippe, Chopard, Graff, Cartier and many fashion brands. It offers Gucci, Balenciaga, Burberry and Valentino handbags and eyewear. However, its prices are much higher than before and Mercury mainly sells old collections. Some locals say Russia is sliding back into a 1980s-early 1990s time warp, when what was available was mostly Western brands’ old stock, which people bought for a fortune because products were so hard to come by.

Now with the sanctions, Mercury is doing its best to keep a low profile and not upset luxury brands. It just quietly sells the stock it built up before the war. Mercury CEO Alexander Reebok, interviewed by Miss Tweed many times, did not reply to a request for comment this time.

As for the Swiss, Jean-Daniel Pasche, President of the Swiss Watch Industry Federation, declined to comment on individual Swiss brands’ policies or tactics in Russia. He pointed out that Swiss watch exports to Russia had dried up since March last year. They fell to 447,000 Swiss francs in January-February this year against 42.7 million in the same period in 2022. The average price of Swiss watches exported was 80 Swiss francs, below the 300 Swiss francs limit imposed by EU sanctions.

“I think what will happen is that luxury products will be mainly distributed by multi-brand retailers and franchise partners from now on,” said the French retail specialist in Moscow. “It will take a while for those brands that left to come back in full to Russia, with a subsidiary. They will no longer be ready to make the kind of investments they made 10-15 years ago.” That meant retail prices in Russia would stay high, as retailers took high margins, he added.

If you live in Moscow or Volgograd and want to buy an Audemars Piguet, a Patek or a Cartier at a decent price, it’s best to ask what Russians call a “buyer”. These are people who travel to Istanbul, Dubai or Almaty and buy for you, taking a commission. The final price is still lower than what it would be in Russia.

Some are quite crafty and are able to persuade certain sales assistants at the boutiques of luxury watchmakers in Switzerland to give them an in-demand model with the help of a €20,000 handshake. “There is always a way to come to an agreement,” one Russian buyer told Miss Tweed on condition of anonymity. “Of course, we don’t ask Swiss staff. We can only reach such agreements with non-Swiss staff at a café nearby and it’s usually pretty easy.”

Russians have long had an appetite for luxury and buying defitsit (scarce) items through contacts is nothing new. Networking and finding loopholes has often been the Russian way, dating back to Soviet times.

Industry uses civil suit to challenge regulator’s view that crypto assets are securities

WASHINGTON—Crypto has picked an unlikely ally in its battle against oversight by Wall Street’s chief regulator: a former Coinbase Global Inc. employee convicted of insider trading.

Ishan Wahi, a former manager at Coinbase, pleaded guilty this year to giving his brother and a college friend trading tips that generated almost $1.5 million in illicit profits. An Indian immigrant, he could serve more than three years in prison and be deported after doing time.

But Mr. Wahi is still fighting the Securities and Exchange Commission, which sued him because it says some of the Coinbase assets were securities. The outcome of that civil case isn’t likely to change Mr. Wahi’s future, dimmed by his prosecution and likely imprisonment. But it could affect how digital assets are regulated in the U.S.

In a motion seeking early dismissal of the case in Seattle federal court, Mr. Wahi’s lawyers argue the SEC doesn’t have a role because Coinbase’s digital assets aren’t securities. Prosecutors charged him with conspiracy to commit wire fraud, not securities fraud.

Opposing the SEC in lawsuits like the one against Mr. Wahi has become the crypto industry’s best hope for beating back the commission’s campaign to regulate digital assets. The industry hopes federal judges will find that crypto is too different from traditional stocks and bonds to fall under rules written for Wall Street.

Because Coinbase is also a target of an SEC enforcement probe, Mr. Wahi’s prospects are aligned with the company’s, even though it fired him and cooperated with the investigations of his role in the insider trading.

The SEC’s staff last week told Coinbase it is likely to recommend enforcement action against the company over listing assets that regulators believe are securities, among other suspected violations, according to the company. If the SEC does sue Coinbase, the outcome could force the company to stop trading some of the digital assets it offers to its users and potentially alter the growth of the industry.

Regulators’ civil case against Mr. Wahi, already under way, is likely to play out before any broader suit against Coinbase is resolved, and its outcome could set a precedent for what assets the SEC can oversee.

“This goes beyond the impact of the prior enforcement cases where the entire case came down to that early point in the life of a token, when the company exchanges it for money,” said Nick Morgan, a Los Angeles attorney whose nonprofit organization, Investor Choice Advocates Network, represents people fighting what it calls SEC overreach. “The Wahi case has a much larger impact because this by definition involves secondary and not initial transactions.”

Mr. Morgan’s ICAN group is one of several organizations that filed friend-of-the-court briefs supporting Mr. Wahi’s arguments. The Digital Chamber of Commerce and the Blockchain Association, two crypto trade groups, also filed briefs that attacked the SEC’s case. Coinbase has asked the judge to allow the company to submit its views.

An SEC spokesman declined to comment. A Coinbase spokeswoman declined to comment but pointed to recent statements on Twitter by Paul Grewal, the company’s chief legal officer. The SEC could have created “practical, lasting solutions like developing rules or registration options” for the industry, Mr. Grewal wrote, but instead filed a “misguided suit.”

The Jones Day law firm is representing Mr. Wahi against the SEC and filed a motion to dismiss the case in February. Coinbase isn’t paying for Mr. Wahi’s lawyers, according to two people familiar with the matter. A Jones Day spokesman didn’t respond to repeated messages asking who is funding its work.

In their motion, Jones Day lawyers say the SEC’s efforts to police crypto violate the major-questions doctrine recently adopted by the Supreme Court. The standard restricts regulators from writing rules or taking other steps that have vast economic or political significance without what the majority of justices consider explicit direction from Congress.

Jones Day also attacks the SEC’s reliance on a 76-year-old Supreme Court test known as Howey to regulate many crypto projects. The Howey case provided a definition for an “investment contract,” a type of security that can be regulated by the SEC.

“The SEC may not use the phrase ‘investment contract’ as a blank check to cash whenever it seeks to expand its regulatory ambit,” Jones Day and other lawyers for Mr. Wahi wrote in the brief.

At his plea hearing on the wire-fraud charges in February, Mr. Wahi admitted to tipping his brother and Mr. Ramani but said he “relied on the statements of Coinbase and others that these cryptocurrencies are not securities.” He apologized and said he would lose “the entire life that I’ve worked hard to build over the last 17 years,” according to court transcripts.

Mr. Wahi is scheduled to be sentenced in May. His brother, who pleaded guilty to the criminal charges, was sentenced in January to 10 months in prison and ordered to forfeit $892,500 in trading gains.

Supporters of the SEC’s enforcement campaign for crypto say a court shouldn’t view Mr. Wahi as a sympathetic defendant. “It’s just the latest instance of the crypto industry’s scorched-earth litigation tactics against any attempt by the SEC to enforce the law,” said Dennis Kelleher, chief executive of Better Markets, a group that pushes for tighter financial regulation.

Defendants who plead guilty to criminal insider-trading charges typically don’t contest the SEC’s related civil allegations. “The facts admitted in the criminal case are pretty unattractive,” said Mr. Morgan, who previously worked as an SEC enforcement attorney.

Coinbase is also seeking to intervene in Mr. Wahi’s case with a friend-of-the-court brief. The company faces the prospect of an SEC lawsuit alleging it violated laws that require registration as a licensed securities brokerage and exchange, according to a copy of the SEC’s enforcement warning, known as a Wells notice.

“The SEC’s allegations in this case hinge on the agency’s erroneous contention that Coinbase has listed digital assets that are securities,” the company’s lawyers wrote in a filing submitted last week.

Goldman Sachs, JPMorgan Chase and Fidelity benefit from big inflows amid turmoil in financial sector

Goldman Sachs, JPMorgan Chase and Fidelity are the biggest winners from investors pouring cash into US money market funds over the past two weeks, as the collapse of two regional US banks and the rescue deal for Credit Suisse raised concerns about the safety of bank deposits.

More than $286bn has flooded into money market funds so far in March, making it the biggest month of inflows since the depths of the Covid-19 crisis, according to data provider EPFR.

Goldman’s US money funds have taken in nearly $52bn, a 13 per cent increase, since March 9, the day before Silicon Valley Bank was taken over by US authorities. JPMorgan’s funds received nearly $46bn and Fidelity recorded inflows of almost $37bn, according to iMoneyNet data as of Friday morning.

Money market funds typically hold very low-risk assets that are easy to buy and sell, including short-dated US government debt. The yields available on these vehicles are now the best in years as they rise with interest rates, which have been lifted to 15-year highs by the US Federal Reserve in its quest to curb inflation. There were smaller net inflows in January and February, setting the stage for the strongest quarter for US money funds since the outbreak of the coronavirus pandemic three years ago.

The pace of inflows has accelerated in the past fortnight, particularly from large depositors looking for safe havens. While US officials agreed to backstop all of the deposits at SVB and Signature Bank, which failed the same weekend, they have not guaranteed those above $250,000 at other institutions.

“We are seeing shifts into money market funds by every segment of investor,” said Ashish Shah, chief investment officer for public investing at Goldman Sachs Asset Management. “Given the volatility we are seeing in the market, every investor has to ask themselves: does my cash risk profile match [my overall risk profile], and am I sufficiently diversified among the choices?”

The surge in flows this month helped push overall assets in money funds to a record $5.1tn on Wednesday, according to research from Bank of America.

Data from the Investment Company Institute shows the money is flowing specifically into funds that hold US government debt, which are considered the safest destinations. So-called prime funds, which hold bank debt and corporate paper, have had small outflows. The biggest inflows have gone to funds associated with blue-chip Wall Street banks and the largest investment houses.

Federal Reserve data released on Friday showed bank deposits declined in the week through March 15, from $17.6tn to $17.5tn, and deposits at small banks declined from $5.6tn to $5.4tn.

Neel Kashkari, president of the Minneapolis Fed, on Sunday said the stresses in the banking sector brought the US closer to a recession.

“It definitely brings us closer,” Kashkari said on CBS’s Face the Nation. “What’s unclear for us is how much of these banking stresses are leading to a widespread credit crunch.“

Sara Devereux, global head of Vanguard’s fixed-income group, said: “Money market funds have seen remarkable flows in recent weeks, with the largest flows into government money market funds. Part of that is because of a flight to quality after the scare with bank closures, but it’s also because yields for money markets are currently very attractive.”

Her group had almost $12bn of inflows, placing it sixth behind the top three and Charles Schwab and Federated Hermes.

The ICI data shows the bulk of the flows are coming from institutional investors but retail clients are also moving into money funds.

Andrzej Skiba, head of BlueBay US fixed income at RBC Global Asset Management, said: “When you have tremors in the markets with a high degree of uncertainty about major parts of the economy and across the world, not just in the US, the first impulse is to go towards safety.”

Skiba added: “Given the yields on offer, money market funds offer not just a good yield, but also a lot of safety for investors.”

He said much of the inflows are being invested in record issuance from the Federal Home Loan Bank — it is responding to massive demand for liquidity from its member banks who are trying to reassure depositors about their stability.

“We generally see strong demand for money markets, in part due to robust yields on offer, while in part reflecting substantial amount of liquidity the funds provide to both institutional and retail investors alike, even in (or especially amid) volatile markets,” Skiba said.

International money market funds, which are smaller to begin with, are seeing a less pronounced trend. But BlackRock’s international funds have received $16bn in international inflows since March 9, and GSAM received $6bn, according to iMoneyNet.

The final season of HBO’s drama isn’t the only reason the discreet style of the rich is a topic of conversation again. That, plus what else to watch for this week.

HBO’s Succession returns for its fourth and final season on Sunday, and like clockwork, the conversation around “quiet luxury” has gotten very loud.

Broadly speaking, quiet luxury refers to ways of dressing that subtly telegraph status via materials, cut and low-key signifiers rather than loud design flourishes and obvious logos. Brunello Cucinelli, Loro Piana, Zegna and The Row are among the most frequently cited brands in this category, though even many luxury labels known for their wild prints and logos offer a selection of unadorned cardigans, blazers and handbags at high-end prices.

Quiet luxury has “if you know, you know” appeal, and promises more genuine exclusivity than luxury megabrands: few can afford to stock their closet with basics that cost more than $2,000 each. It’s also more popular than ever: Cucinelli sales soared 29.1 percent in 2022, and on the back of an “extraordinary start” to 2023, the company recently raised its sales forecast for the year, predicting 15 percent growth even as the economic outlook deteriorates.

Succession, with its miserable, Cucinelli-obsessed billionaires, has been a cultural touchstone for quiet luxury since its 2018 premiere. The fact that the show frequently uses fashion to highlight its characters’ many flaws hasn’t stopped the cast from becoming understated style icons. Last week, Zegna debuted a sneaker campaign starring Kieran Culkin, who plays the youngest Roy sibling. As one BoF reporter put it, it was the ultimate way to signal “we’re the brand rich people actually wear.”

But the quiet luxury trend has permeated culture far beyond the HBO drama. See the toned-down elegance of so many runway collections in February and the many “classic Hollywood” references on the Oscars’ red (well, champagne) carpet. The concept extends beyond fashion, too: The New York Post recently complained about the “embarrassingly cheap” look of some recent Broadway productions; what is paying $300 to see Jessica Chastain on an empty stage in “A Doll’s House” if not quiet luxury?

It was probably inevitable that fashion would eventually swing back to quiet style after years of logomania. But a key driver here is economic anxiety. It’s natural for the rich to tone down in-your-face opulence when times are tough and for brands to redouble their focus on the high end of the market, where consumers are still spending, as more aspirational shoppers pull back.

Dries Van Noten, Charlotte Tilbury, Byredo… While reinforcing its position in designer fragrances, the Spanish owner of Paco Rabanne and Jean Paul Gaultier has diversified its business with an acquisition spree. CEO Marc Puig unpacks the strategy.

• Designer fragrance specialist Puig has rapidly diversified its portfolio through its recent acquisitions of Charlotte Tilbury, Byredo and others.
• Sales of makeup and skin care now account for more than a quarter of the group’s sales.
• Deal talks with Jacquemus have been shelved. “We were courting but a marriage didn’t materialise,” CEO Marc Puig confirmed.

PARIS — When Puig lost its beauty licences for Valentino and Prada in 2018, the Spanish fragrance-and-fashion group appeared to some observers as a company in crisis.

The closely-held group risked getting squeezed for market share by listed giants like L’Oréal, which had scooped up the licences for both prestigious Italian brands, and LVMH, whose beauty brands including Dior and Fenty have surged, boosted by investment firepower and prime positions in the conglomerate’s own retailers Sephora and DFS. At the same time, a boom in pricier niche perfumes was challenging the dominance of designer fragrances, which has long been Puig’s specialty.

But since shedding its big licences, Puig has enjoyed something of a renaissance: In recent years the group redirected investments to brands it actually owns — accelerating the growth of blockbuster perfumes from Paco Rabanne and Carolina Herrera — as well as embarking on a spate of acquisitions that rapidly diversified its portfolio.

A 2018 deal to acquire Dries Van Noten provided a stronger foothold in fashion, while the 2020 addition of British makeup brand Charlotte Tilbury rapidly boosted its exposure to colour cosmetics. Last year, Puig pulled ahead in a race to acquire fast-growing Byredo, bolstering its exposure to both niche perfumery and retail (a channel where it’s historically treaded lightly). The group also bet on wellness-inspired beauty and the promising Indian market by acquiring skin and hair care brand Kama Ayurveda.

In 2022, Puig’s revenues grew 30 percent on an organic basis to €3.6 billion ($3.9 billion), the group said Thursday, putting it within striking distance of its target for €4 billion in annual sales by 2025. EBITDA, a measure of operating profit, rose 37 percent to €638 million.

In its core business of airport- and department-store grade fragrances (a segment referred to by insiders as “prestige”), Puig surfed a wave of post-pandemic demand and grew faster than rivals: its market share hit a record 10 percent, according to the group’s estimates. On the back of its recent acquisitions, makeup sales jumped 52 percent to €626 million, while skin care sales grew 20 percent to €328 million.

Together, skin care and makeup now make up more than a quarter of sales — marking rapid diversification for a company that was, just a few years ago, considered a pure player in fragrance.

“15 years ago we were still a mid-size player. We needed to focus on a few things and do them the best we can,” chairman and CEO Marc Puig told BoF in an interview ahead of the company’s results announcement. “Now that we have a certain critical mass, we can think about other things.”

The group did not break out sales of clothing and accessories (which are estimated to remain a small fraction of the business) but said the category was growing as fast as the overall company.

Last year, Jean Paul Gaultier relaunched its fashion business with a buzzy collaboration model that included haute couture shows and ready-to-wear capsules signed by big-name guest designers Y/Project’s Glenn Martens and Balmain’s Olivier Rousteing. Paco Rabanne (designed since 2013 by Julien Dossena) and Carolina Herrera (designed by Wes Gordon since 2018) both “consolidated” their positions, while Nina Ricci laid the groundwork for a revamp in 2023 by naming a new artistic director, Harris Reed.

“In fashion, it’s true that we’re careful, yes, and small — but we keep investing. We’re progressively more confident in our ability to run this business,” Mr Puig said. Even if brands like Paco Rabanne, Jean Paul Gaultier and Carolina Herrera have been predominantly perfume brands for decades, the company still sees fashion as “a lighthouse that sets the tone for the rest of the brand to follow,” Mr Puig added.

Looking ahead, the pace of M&A is likely to cool. “There’s always holes or imbalances, but now we have to digest a bit, and take time to help those [recently acquired] brands grow,” Mr Puig said.

Puig’s talks to launch fragrances and beauty for fast-growing Jacquemus, or even acquire the brand, have been shelved. “We were courting, but in the end a marriage didn’t materialise,” Mr Puig confirmed. (BoF confirmed a December report by website Glitz Paris that founder Simon Porte Jacquemus had bought back an undisclosed minority stake the brand sold to Puig in 2019, suggesting a deal is now firmly off the table.)

Still, even if Puig is taking a breather from its acquisition spree, the company is seeking to burnish its corporate image in a bid to make itself a more attractive future acquirer, business partner and employer. The family-controlled group historically kept a low profile in a bid to keep the spotlight on its brands, but this posture has caused market perception to lag company developments. A more differentiated positioning could also help it stand out from giants like L’Oréal and LVMH.

“Most people when you say Puig, they still see this perfume manufacturer, manufacturing often times for third parties,” Puig said. “But 95 percent of our sales are brands that we control, which is already a very different picture from what many people believe.”

Last year the company tapped former Vogue Espagne editor-in-chief Eugenia de la Torriente as its first chief communications officer. It’s started to describe itself as a “home of love brands” and a “powerful ecosystem of founders,” citing the continued involvement of figures like Charlotte Tilbury and Byredo’s Ben Gorham in the group.

While Puig still operates licences for a few brands, such as Comme des Garçons and Christian Louboutin, the group says it is uninterested in pursuing big licensing deals going forward.

“If you do a bad job as a licensee, the brands don’t renew. If you do a good job, you pay for the job you have done!” Puig said, evoking recent deals like Estee Lauder’s move to pay $2.8 billion for control of Tom Ford, where it has already invested heavily in building the brand’s perfume line. “For a family business that does things long term, it’s very tough to justify.”

Data show worrisome trends in real estate, banks and private markets

The sudden collapse of Silicon Valley Bank was driven in part by assets that lost value when interest rates rose from near zero. Higher rates will continue to weigh on banks’ balance sheets. They will also cause problems in other parts of the economy.

Banks lost money on securities sensitive to interest rates such as Treasurys and mortgage-backed securities. Those losses will grow if rates keep going higher. If, as the Federal Reserve hopes, those rates slow the economy to ease inflation, the banks could face other losses. One risk is commercial real estate, where owners of half-empty office buildings might struggle to pay their debts. That would hurt commercial mortgage-backed securities, which are already declining in price.

Fickle depositors pose another risk. Banks enjoyed an influx in deposits during the pandemic as U.S. households accumulated about $2.3 trillion in so-called excess savings in 2020 and 2021, according to the Fed. Businesses, too, stashed cash at banks, in part because it was impossible to earn a safe, decent yield.

But a growing share of the funds deposited with banks exceeded the Federal Deposit Insurance Corp.’s insured limit of $250,000. Nearly $8 trillion of deposits at the end of 2022 were uninsured, up nearly 41% from the end of 2019, according to reports filed with the FDIC that were analyzed by The Wall Street Journal.

Nearly 200 banks would be at risk of failure if half of uninsured depositors pulled their money from the banking system, according to a paper published by economists from the University of Southern California, Northwestern University, Columbia University and Stanford University.

Banks took those deposits and invested in mortgage-backed securities valued at $2.8 trillion at the end of 2022, or about 53% of securitized investments, helping to fuel a pandemic housing boom.

Homeowners gained a collective $1.5 trillion in equity in 2020 from a year earlier as prices surged, according to CoreLogic. Sales of previously owned homes were down 22.6% in February from a year earlier, while the national median existing-home price dropped for the first time in 11 years.

Under accounting rules, banks don’t have to recognize losses on most of their holdings unless they sell them. Unrealized losses on banks’ mortgage-backed securities were $368 billion at the end of 2022, according to FDIC data analyzed by the Journal. Many fear that rising interest rates will force other regional banks to sell their holdings at a loss as well, potentially pushing prices lower. To address that risk, the Fed will offer loans at 100 cents on the dollar to banks that pledge assets such as Treasurys that have lost value.

Commercial real-estate risks are rising

Unrealized losses on commercial real-estate debt securities reached $43 billion last quarter, FDIC data show. Banks held $444 billion of these securities at the end of 2022.

But landlords are under pressure as businesses scale back on space because employees are working remotely. Office-space vacancy rates are expected to keep rising through 2024, according to the commercial real-estate services and research firm CBRE EA.

Landlords also take out loans to purchase properties, and small banks hold $2.3 trillion in commercial real-estate debt, according to Trepp Inc., or roughly 80% of commercial mortgages held by banks.

“The combination of lower operating income generated by office properties and a higher cost of financing, if they persist, would be expected to reduce valuations for these properties over time,” said FDIC Chairman Martin Gruenberg. “This is an area of ongoing supervisory attention.”

At the end of last year, banks held $17.5 trillion in loans and securities, while equity in the banking system was more $2 trillion, FDIC data show. Estimated unrealized losses on total bank credit reached $1.7 trillion, according to a recent paper by New York University Prof. Philipp Schnabl and co-authors.

Risks could lurk elsewhere in the financial system. Private-equity firms often raise funds or borrow cash to buy assets such as companies and real estate. They can offer investors higher returns often by making risky bets that could get more expensive. On the positive side, no one mistakes these investments for insured bank deposits. On the negative side, private equity and private debt are black holes in the financial system.

Private markets’ total assets under management reached $11.7 trillion last June, according to McKinsey. Private-equity firms have raised record amounts of cash in recent years and announced nearly $730 billion in investments, according to Ernst & Young LLP.