WSJ : Signature Bank Insiders Sold $100 Million in Stock During Crypto Surge

Signature Bank Insiders Sold $100 Million in Stock During Crypto Surge
Sales went largely unnoticed by investors due to securities rules and filing method


Insiders at collapsed Signature Bank SBNY -7.16% sold more than $100 million of shares in the years after the bank pivoted to attract cryptocurrency companies and became a stock-market darling, according to a Wall Street Journal analysis.

Sales over the past three years by the bank’s chairman, its former chief executive officer and his successor accounted for about half of the amount sold, according to the Journal’s analysis of company filings. All three served on the board committee tasked with overseeing the bank’s risk profile over the past year.

The insider transactions at Signature weren’t widely known because of where they were filed and how the transactions were described in the documents.

New York regulators put Signature into receivership on March 12 after having “a crisis of confidence in the management team” during a run on its deposits triggered by the collapses of Silicon Valley Bank-parent SVB Financial Group SIVBQ 8.85% and Silvergate Bank days earlier. SVB and Signature were respectively the second- and third-largest bank failures in U.S. history after Washington Mutual.

Signature Bank didn’t reply to a request for comment. New York Community Bancorp’s Flagstar Bank, which will assume all of Signature Bank’s cash deposits, didn’t comment.

It was a steep and sudden fall for Signature, a nearly 22-year-old bank that was one of a small number of lenders to embrace the cryptocurrency industry. Cash from the sector helped drive up deposits by 68% in 2021 and launch the bank’s shares to a 140% gain that year. Insiders reaped $70 million from stock sales that year, selling twice as many shares as they did in 2020.

The executives sold many of their 2021 shares in the spring at around $220. The stock continued to rise throughout the year, hitting an all-time high of $366 in early 2022.

In a hearing last week, members of the Senate Banking Committee were critical of the bank’s executives, saying they sat by while risks at their banks grew unchecked.

Karen Petrou, managing partner at bank-consulting firm Federal Financial Analytics, said in an interview that someone at the bank should have called for a pause and asked, “‘Do we have the right kind of brakes for this speed? Can we steer the car?”

At Signature, the executives responsible for overseeing the bank’s risk were also champions of its courting of the crypto industry. That strategy focused on an internal payments platform called Signet that was used by crypto companies to manage their cash. Signature didn’t hold or lend cryptocurrency itself.

Chairman Scott Shay called himself a “crypto enthusiast” at a conference in 2022. It was Mr. Shay who had sketched out the initial idea for Signet by hand on a piece of paper that he kept framed in his office.

Mr. Shay also chaired the risk committee of the bank’s board of directors. He sold $5.4 million of stock in 2021, according to the bank’s disclosures. He sold almost none in 2020 or 2022. He also bought $1.5 million of shares over those three years, and around $644,000 in 2023, before the bank’s collapse, the disclosures show.

Joining Mr. Shay on the bank’s risk committee were Joseph DePaolo, the bank’s chief executive, and Eric Howell, its chief operating officer, who joined the board and risk committee last April. Mr. DePaolo sold $13.9 million of shares in 2021, the disclosures show. Mr. Howell sold $14.9 million that year, according to the disclosures. Messrs. DePaolo and Howell sold another $9.2 million shares between them in March of 2022, the disclosures show.

From 2004 to 2019, Mr. DePaolo sold shares most years around the same time, netting about $39 million. Mr. Howell sold about $23 million of stock over the same period.

All three men advocated for doing business with cryptocurrency companies and investors, according to speeches and other statements they made. At a conference in 2021, Mr. DePaolo talked of the bank potentially lending against crypto assets, an idea that was later scrapped.

The three had been at the bank since it launched in 2001 and suffered big losses on their stockholdings when the bank collapsed. On the last business day before it was closed, Mr. Shay’s equity stake was worth $35 million, Mr. DePaolo’s about $15 million and Mr. Howell’s about $3 million, according to company filings and the closing share prices the last day before the bank was seized.

Mr. Howell, Mr. Shay and Mr. DePaolo declined to comment.

The extent of the executives’ sales was hard to determine in part because Signature filed the documents with the Federal Deposit Insurance Corporation, rather than the Securities and Exchange Commission, which is typical for companies of its size.

Most banks of this size are regulated by and file the forms to the SEC.

Signature was one of only two companies in the S&P 500 that didn’t file insider-trading transactions to the SEC. The other was First Republic Bank, which was rescued by a $30 billion deposit by a group of large banks.

Filings with the FDIC typically escape notice from investors and services that track insider trades, according to professors who studied the disclosures. The FDIC website hosting the filings only allows filings to be viewed one at a time.

The bank also appeared to miscategorize some of its FDIC filings as dispositions to the company, meaning the shares were sold to the company, rather than sales on the open market. It isn’t clear why the sales were described this way, but the result was that they weren’t picked up by websites that track insider selling for investors. Investors closely monitor these sites for insights into executives’ views on their companies’ prospects.

Alan L. Dye, an attorney at Hogan Lovells and co-author of a book on disclosure rules for corporate insiders, reviewed a representative sample of Signature’s filings. He said he believed the reports don’t follow the instructions on the forms or the SEC staff’s position on how they should be filled out.

“At a minimum, the information they report, including the footnotes, make it difficult to determine the nature of the transactions,” he said.

Signature’s crypto bet soured in 2022 as some cryptocurrencies imploded and the price of bitcoin crashed. The company’s shares were dragged down with it, falling 64% on the year, while the bank’s deposits shrank by 17%. Signature’s price drop far outpaced the 15% decline in the SPDR S&P Regional Banking ETF over the same period. Signature Bank’s risk committee met four times in 2022, according to a company filing to the FDIC.

In December, Signature announced that it planned to significantly lower its exposure to the crypto industry. The bank had already lost billions of dollars of crypto-related deposits, the bank’s executives had said. In February, the bank announced that Mr. DePaolo would be stepping down as the bank’s president and chief executive officer. Mr. Howell was named as his successor.

Signature didn’t have the balance sheet losses that other struggling banks faced, but about 90% of its deposits weren’t insured by the FDIC, meaning customers had an incentive to flee. The crypto meltdown that began late last year dinged confidence in the lender. The demise of Silvergate Capital Corp., another bank that had bet on crypto, and the seizure of Silicon Valley Bank came before the collapse of Signature.

Signature’s executives continued to back the bank. Silvergate collapsed on March 8. That day and the next, Mr. Howell bought about $960,000 of Signature’s preferred equity.

On Friday March 10, regulators said they were closing SVB. Signature’s customers withdrew $18 billion from the bank—about 20% of the lender’s total deposits. The same day, Mr. Shay bought about $414,000 of shares, according to a filing.

Over the following weekend, withdrawal requests continued to pile up while the bank looked for a buyer or capital infusion. In the early evening of Sunday, March 12, the New York regulators said they were closing the bank and had removed its senior leadership. Equity holders, like the executives, were wiped out.

At the Senate hearing, Martin Gruenberg, chairman of the FDIC board of directors, told the committee that the agency was performing a required investigation into the banks’ directors and officers for their management and conduct that could result in civil monetary penalties, restitution or professional bans. The bank’s executives declined to comment.

FT : Revlon to leave bankruptcy without longtime owner Ron Perelman

Revlon to leave bankruptcy without longtime owner Ron Perelman
Judge approves plan to end cosmetics group’s three-year fight with creditors over errant $900mn payment by Citigroup

Revlon will exit bankruptcy at the end of April after a federal judge on Monday approved its plan to shed $2bn in debt and end nearly 40 years of control by billionaire investor Ron Perelman.

The US cosmetic group’s lenders will take control of Revlon’s new equity. Shareholders, including Perelman, who acquired the company via a 1985 hostile takeover and controlled 85 per cent of the stock, will be wiped out. Perelman’s daughter, Debra, will stay on as chief executive of the company, which also owns Elizabeth Arden, Juicy Couture and Almay, saw its market capitalisation reach as high as $2bn in 2015.

Judge David Jones of the federal bankruptcy court in New York on Monday described the settlement agreement as a “remarkable achievement” adding that creditor recoveries would be “better than anticipated”.

The cosmetics group filed for bankruptcy protection in June 2022 in the middle of a supply chain crunch that was exacerbated by the fallout from a 2020 administrative error in which Citigroup mistakenly wired $900mn of the bank’s own funds to Revlon lenders.

When some of those creditors refused to return $500mn of the money, the resulting legal dispute hampered Revlon’s ability to negotiate for a cash infusion and forced it to seek bankruptcy protection. A federal appeals court eventually ordered the recalcitrant recipients to send the money back to Citigroup.

Under the bankruptcy plan approved by Jones, senior lenders to Revlon will receive 82 per cent of its new equity and the junior lenders the rest. The company’s new equity, which is to be privately held, is to be set at $1.6bn, making its enterprise value, including debt, $3bn.

The group of creditors who were accidentally repaid by Citigroup and forced to return the money will end up with equity worth roughly 20 cents on the dollar of their existing claim, according to court filings.

Another group of creditors led by Angelo Gordon, which loaned Revlon $880mn in May 2020, will receive that money back in full and roughly 60 cents on the dollar for earlier loans that they also provided. That group is leading a $675mn equity raise for the new Revlon that allows them to buy shares at a 30 per cent discount.

One fund participating in the equity raising said it was happy with the outcome because it had acquired the debt cheaply. “We are extremely happy. This is effectively a best-case scenario for us. These are world class brands.”

One of the junior creditors, who did not join in the 2020 financing deal, said Revlon should have been forced into bankruptcy back then. That investor also declined to participate in the discounted equity raising, saying: “Anyone excited to write this cheque is lying. It’s a massive investment for a company with a really uncertain future.”

The bankruptcy case wrapped up within 10 months, but Revlon estimated its lawyer and professional fees would reach $250mn, a figure a lawyer for the creditors committee described to the judge on Tuesday as “astounding”.

The Revlon case has been closely watched by private equity and distressed debt investors for clues as to whether bankruptcy judges would crack down on refinancing deals that pitted existing investors against one another. The Revlon judge declined to intervene, letting the 2020 financing stand.

FT : Glencore/Teck: mining giant needs to go higher to win family backing

Glencore/Teck: mining giant needs to go higher to win family backing
Swiss group will have to sweeten its offer — or at least include a cash component

Some deals are just too good to pass up. Glencore’s bid for Teck is not one of them. The Switzerland-based miner and commodities trader wants to buy the Canadian miner for about $23bn in shares. Teck has rebuffed Glencore’s approach. It has plenty of reasons to hold out for a better offer.

For a start, it prefers its own restructuring plans to Glencore’s. The latter would demerge Teck’s coal assets and spin them out as a separate listed company codenamed CoalCo. It would combine the two company’s metals mining assets, named MetalsCo, for the moment.

On paper this makes some sense. Teck’s two giant copper mines in Chile have some overlap with Glencore’s.

But Teck has its own plan for a split. The Canadian miner hopes its version of MetalsCo would benefit just as much from a higher valuation if separated from coal. Coal is a big money spinner, to which Glencore is famously, if uncomfortably, wedded. But Teck knows shareholders are wary of investing in it.

Teck is controlled by the Keevil family through a dual-share structure, They hold A shares with 100 times the voting power of widely traded B shares, giving them a majority of the votes. That would explain a higher offer premium against a three-month average for the A shares at 43 per cent compared with 20 per cent for the B shares.

Glencore’s approach is opportunistic, offering 7.78 Glencore shares for each B share, the equivalent of where they traded at the start of March. It is also less than Teck’s average trading price over the past 12 months. For each A share, the London-listed miner is promising to exchange 12.73 of its shares.

Working backward from $4.25bn-$5.25bn in capitalised after-tax cost savings stated by Glencore, a deal could generate annual pre-tax savings of about $750mn-$800mn. On these numbers, it appears that the offer ratio would need to improve by at least a tenth for both share classes.

Glencore needs to sweeten its offer — or at least include a cash component if it hopes to win over the Keevil family. The current approach looks like a long shot.

FT : Blackstone fund hit by $4.5bn in withdrawal requests despite property pitch

Blackstone fund hit by $4.5bn in withdrawal requests despite property pitch
March conference on sector opportunities fails to stem efforts to pull money out of Breit

Blackstone clients asked to pull $4.5bn from a closely followed real estate fund in March, even as the firm’s executives were promoting investment opportunities in the sector that they said would arise from US economic turbulence.

Withdrawal requests at the $70bn fund, called Blackstone Real Estate Income Trust, or Breit, rose 15 per cent in March after the collapse of Silicon Valley Bank, to $4.5bn. It was the fifth straight month that the firm has limited redemptions.

The redemptions signal that investor concern remained high even after Blackstone president Jonathan Gray and other top executives convened more than 200 investors on March 8 and March 9 to showcase forecasts of new investment opportunities from the growing financial upheaval. SVB was taken over by regulators on March 10 after announcing big losses on securities sales and a failed equity raise.

At the Spring Place private members club in Manhattan, Blackstone said the unfolding financial crisis could bolster Breit’s earnings because it would constrain bank financing for new real estate construction, crimping supply and providing upward pressure on rents at its properties, according to four people who attended.

Blackstone executives told the group that a big crop of new apartments coming into the market will only crimp profits for a short time. Regional banks, the major financier of US apartments, will cut back on new lending commitments as they feel pressure from deposit outflows and rising interest rates, Blackstone predicted.

“There will be less of an issue in terms of pricing,” especially in multifamily apartments, said attendee Larry Swedroe, a director of research at Buckingham Strategic Wealth.

Nadeem Meghji, head of Blackstone’s real estate business in the Americas, said Breit was going to be “playing offence” using its $12bn in liquid assets, while competitors scale back or sell, the attendees said. He added that the firm expects to announce large deals to build data centres for technology giants aiming to compete in artificial intelligence products.

The pitch failed to stem a tide of outflows. Investors asked to redeem $4.5bn from Breit in March, up from the $3.9bn investors sought to withdraw in February. Blackstone paid out just $666mn of those requests because of the withdrawal cap.

Blackstone launched Breit in 2017 to offer real estate investments to wealthy individuals. The fund’s terms allow clients to redeem 2 per cent of their net assets each month, with a maximum of 5 per cent each calendar quarter.

“We are proud that Breit has generated strong performance across market cycles,” Blackstone said in a notice about the March withdrawal curbs. Redemption requests were 16 per cent below a January high, it noted.

At the Breit event, Blackstone said the restrictions protect investors against a fire sale of property holdings. “They told the same story they have been telling for a long time,” Swedroe said. “It is a feature of the fund that there is limited liquidity.”

Blackstone has paid out $5bn to redeeming investors since November 30. Withdrawals have been highest in Asia, people briefed on the flows told the Financial Times. Non-US investors have roughly halved their exposure to Breit over the past year.

Many investors remain confident in the fund. “This is a way to seek to increase your cash flows longer term and own high-quality assets,” said Patrick Dwyer, a managing director at NewEdge Wealth, a large Breit investor who attended the event.

FT : UK scales back probe into Mikhail Fridman four months after raid in London

UK scales back probe into Mikhail Fridman four months after raid in London
National Crime Agency drops two of three lines of inquiry against sanctioned Russian billionaire after his arrest in December

The UK is no longer investigating two of the three initial allegations against Mikhail Fridman four months after arresting the sanctioned Russian oligarch at his London mansion.

The National Crime Agency, which tasked over 50 officers to raid Fridman’s multimillion home in north London in December, has stopped probing the 58-year-old businessman on suspicion of conspiracy to defraud the Home Office and conspiracy to commit perjury, according to people with knowledge of the decision. The agency is still investigating suspected money laundering offences, they said.

The two sides are also in dispute over the warrant used for the raid, according to one of the people.

A NCA spokesperson confirmed the agency was no longer pursuing the said lines of inquiry against a wealthy 58-year-old Russian individual detained in a raid in London in December, without specifically naming Fridman, whose arrest has been widely reported. The agency declined to comment further on the warrant. Fridman declined to comment for this story.

The reduced scope of the NCA’s investigation into Fridman is a setback to the agency’s new anti-kleptocracy cell, which was set up to target corrupt elites and Kremlin-linked individuals laundering their assets in the UK in the wake of Vladimir Putin’s invasion of Ukraine.

Fridman was on a video call with his business partners when the NCA officers burst into his home to arrest him, according to one person with knowledge of the raid. The allegations dropped by the NCA related to evidence Fridman gave in support of his girlfriend’s UK immigration application, the person added.

The NCA also arrested another person acquainted with the Russian businessman’s girlfriend on suspicion of offences including money laundering and conspiracy to defraud, the agency revealed in its December statement.

A 35-year-old man was also arrested “on suspicion of money laundering and obstruction of an NCA officer after he was seen leaving (the Russian businessman’s) address with a bag found to contain thousands of pounds in cash,” according to the agency’s statement.

Ukraine-born Fridman, who made his fortune in banking, retail, oil, and telecoms in Russia before moving to London in 2015, was one of the UK’s richest men until western sanctions over the war in Ukraine froze his assets and limited his access to funds.

Since then, the oligarch has lived in Athlone House, his mansion in Highgate, north London, mounting a legal challenge against UK and EU sanctions. Fridman, who wants to remain in the UK, believes the claims are an attempt to force him to return to Russia, according to people close to him. Fridman’s spending is limited to an allowance of about £2,000 a month under the sanctions.

His business partners Petr Aven — whose home the NCA raided last May as part of an investigation into possible sanctions evasion — and German Khan have left the country, according to people close to them.

FT : Hedge funds caught off guard again in turmoil

Hedge funds caught off guard again in turmoil
Sharp moves after the implosion of SVB have left many in the red for the year

Hedge funds have hardly been covering themselves in glory during a tumultuous few weeks for markets.

Sharp moves in the US government bond market and in bank stocks, driven by failures in the US regional banking sector and the fall of Credit Suisse, have left numerous funds in the red for the year.

Many managers were found to be sitting in trades that seemed obvious at the time based on the perfectly rational belief that interest rates had to move higher to combat stubbornly high inflation. Unfortunately, this also meant that these trades became crowded, and therefore dangerous if funds all rushed to the door to reverse them.

Most painful were the bets run by macro and computer-driven funds against government bonds. A number of managers had made a fortune last year latching on to the huge sell-off in bonds and saw little reason to change their view.

But when the collapse of SVB sent investors rushing into the safe haven of government debt and sent the US two-year Treasury yield tumbling at its fastest pace since 1987, funds suddenly found themselves in exactly the wrong position — betting against an asset that investors desperately wanted. Managers racing to unwind their bets only exacerbated the price move.

One of the funds hit hard has been Said Haidar’s Haidar Capital, a standout performer last year when its bond bets helped it make nearly 200 per cent. But it lost 32 per cent from the start of March to the middle of the month, according to people familiar with the data. One of these people said this took losses this year to 44 per cent.

And Chris Rokos’s Rokos Capital, which made more than 50 per cent last year, was also caught out, with the US Securities and Exchange Commission raising concerns after the fund faced margin calls — though counterparties contacted by the FT said they were not concerned about its ability to meet such calls.

Computer-driven hedge funds were also hit. Many that try to profit from following market trends were running short positions in bonds prior to the turmoil and had to quickly cut them. Man Group’s AHL Evolution fund lost 11.3 per cent in March to the 28th of the month, while Progressive Capital Partner’s Tulip Trend dropped 26.3 per cent in March to the 24th.

London-based Aspect Capital slashed its bets on bonds from nearly half of its Diversified fund’s budget for risk in bonds in early March to less than 8 per cent by the end of last week, according to investor documents seen by the Financial Times.

Meanwhile, many funds were also hurt by their bets on bank stocks. In a rising rate environment, owning banks — which would benefit from higher net interest income — seems like a logical move.

Hedge funds’ exposure to the sector duly reached a 12-month high in early February, according to a Morgan Stanley client note, while they ran bets against other parts of the market likely to be hit by higher borrowing costs. That left them badly positioned for the ensuing banking sector shakeout.

Hedge funds were “not bearish the right things” in Europe, said Bernard Ahkong, co-chief investment officer at UBS hedge fund unit O’Connor. It was “a higher interest rate playbook”.

Not every manager was on the wrong side of these moves. Mark Dowding, chief investment officer at RBC BlueBay, had closed his bet against government bonds prior to the turmoil and was then able to put on a short bet following the rally. Roy Niederhoffer’s Macro Diversified fund is up 10.3 per cent in March after benefiting from the market volatility and latching on to the bond rally.

Nevertheless, hedge funds on average have now lost 1.7 per cent in March and are down 0.6 per cent this year up until March 28, according to data group HFR. Not a great look when the S&P 500 equity index was up about 3.4 per cent over the same period.

It marks yet another disappointing episode for the hedge fund industry. After a decade of becalmed markets dominated by central bank stimulus, higher interest rates were meant to usher in a new, more favourable era for managers. Their ability to distinguish winning stocks from losing stocks and to predict major macro trends would supposedly once again pay off.

But the transition to higher rates has also meant a series of landmines and violent market moves that have caught many funds off guard, as discovered by managers holding overpriced technology stocks early last year. Trading conditions may slowly be turning more favourable, but there are likely to be plenty of dangers ahead too.

>>> US After Hours Summary: APE +28.1% up on settlement news, BFLY +24.8% up on 510(k) clearance for an AI-enabled tool, OZK +6% up on raised dividend; AMC -22% down on settlement news, ZUO -4.1% down on lowered FCF guidance


After Hours Summary: APE +28.1% up on settlement news, BFLY +24.8% up on 510(k) clearance for an AI-enabled tool, OZK +6% up on raised dividend; AMC -22% down on settlement news, ZUO -4.1% down on lowered FCF guidance

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: None

Companies trading higher in after hours in reaction to news: APE +28.1% (binding settlement term sheet), BFLY +24.8% (receives 510(k) clearance), OZK +6% (increases dividend), PGEN +0.9% (regains exclusive rights to CAR-T targets), RITM +0.7% (expanding into Europe), CNC +0.2% (new chairman), SGEN +0.2% (accelerated approval for PADCEV granted), GPOR +0.1% (names new CFO), MLI +0.1% (manufacturing plant damaged by tornado), MRK +0.1% (KEYTRUDA approved by FDA)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: ZUO -4.1% (guidance)

Companies trading lower in after hours in reaction to news: AMC -22% (binding settlement term sheet), NAPA -5.8% (stock offering), VSTO -5.3% ($50 mln cost reduction), WBX -5.2% (files at-the market equity offering program), GOSS -3.6% (terminating GB5121), MSTR -2.4% (Bitcoin down on possible rumors), RIOT -2.3% (Bitcoin down on possible rumors), LLAP -2.2% (stock offering), MARA -1.4% (publishes bitcoin production update), VTLE -1.1% (stock offering), COIN -1% (Bitcoin down on possible rumors), DBRG -0.5% (files mixed shelf), CSII -0.1% (completes ECLIPSE enrollment), BAC -0.1% (Merrill Lynch charged $9.5 mln by SEC), SPXC -0.1% (acquires TAMCO for $125 mln), MYE -0.1% (appoints new CFO)

>>> Clearview AI scraped 30 billion images from Facebook

Clearview AI scraped 30 billion images from Facebook and gave them to cops: it puts everyone into a 'perpetual police line-up'

* Clearview AI scraped 30 billion photos from Facebook to build its facial recognition database.
* US police have used the database nearly a million times, the company's CEO told the BBC.
* One digital rights advocate told Insider the company is "a total affront to peoples' rights, full stop."

A controversial facial recognition database, used by police departments across the nation, was built in part with 30 billion photos the company scraped from Facebook and other social media users without their permission, the company's CEO recently admitted, creating what critics called a "perpetual police line-up," even for people who haven't done anything wrong.

The company, Clearview AI, boasts of its potential for identifying rioters at the January 6 attack on the Capitol, saving children being abused or exploited, and helping exonerate people wrongfully accused of crimes. But critics point to wrongful arrests fueled by faulty identifications made by facial recognition, including cases in Detroit and New Orleans.

Clearview took photos without users' knowledge, its CEO Hoan Ton-That acknowledged in an interview last month with the BBC. Doing so allowed for the rapid expansion of the company's massive database, which is marketed on its website to law enforcement as a tool "to bring justice to victims."

Ton-That told the BBC that Clearview AI's facial recognition database has been accessed by US police nearly a million times since the company's founding in 2017, though the relationships between law enforcement and Clearview AI remain murky and that number could not be confirmed by Insider.


Representatives for Clearview AI did not immediately respond to Insider's request for comment.

What happens when unauthorized scraping happens
The technology has long drawn criticism for its intrusiveness from privacy advocates and digital platforms alike, with major social media companies including Facebook sending cease-and-desist letters to Clearview in 2020 for violating their user's privacy.

"Clearview AI's actions invade people's privacy which is why we banned their founder from our services and sent them a legal demand to stop accessing any data, photos, or videos from our services," a Meta spokesperson said in an email to Insider, referencing a statement made by the company in April 2020 after it was first revealed that the company was scraping user photos and working with law enforcement.

Since then, the spokesperson told Insider, Meta has "made significant investments in technology" and devotes "substantial team resources to combating unauthorized scraping on Facebook products."


When unauthorized scraping is detected, the company may take action "such as sending cease and desist letters, disabling accounts, filing lawsuits, or requesting assistance from hosting providers" to protect user data, the spokesperson said.

However, even despite internal policies, once a photo has been scraped by Clearview AI, biometric face prints are made and cross-referenced in the database, tying the individuals to their social media profiles and other identifying information forever — and people in the photos have little recourse to try to remove themselves.

Residents of Illinois can opt out of the technology (by providing another photo that Clearview AI claims will only be used to identify which stored photos to remove) after the ACLU sued the company under a statewide privacy law, and succeeded in banning the sale of Clearview AI technology nationwide to private businesses. However, residents of other states do not have the same option and the company is still permitted to partner with law enforcement.

'A perpetual police line-up'
"Clearview is a total affront to peoples' rights, full stop, and police should not be able to use this tool," Caitlin Seeley George, the director of campaigns and operations for Fight for the Future, a nonprofit digital rights advocacy group, said in an email to Insider, adding that "without laws stopping them, police often use Clearview without their department's knowledge or consent, so Clearview boasting about how many searches is the only form of 'transparency' we get into just how widespread use of facial recognition is."


CNN reported Clearview AI last year claimed the company's clients include "more than 3,100 US agencies, including the FBI and Department of Homeland Security." BBC reported Miami Police acknowledged they use the technology for all kinds of crimes, from shoplifting to murder.

The risk of being included in what is functionally a "perpetual police line-up" applies to everyone, including people who think they have nothing to hide, Matthew Guariglia, a senior policy analyst for the international non-profit digital rights group Electronic Frontier Fund, told Insider.

"You don't know what you have to hide," Guariglia told Insider. "Governments come and go and things that weren't illegal become illegal. And suddenly, you could end up being somebody who could be retroactively arrested and prosecuted for something that wasn't illegal when you did it."

"I think the primary example that we're seeing now is abortion," he continued, "in that people who received abortions in a state where it was legal at the time, suddenly have to live in fear of some kind of retroactive prosecution — and suddenly what you didn't think you had to hide you actually do have to hide."


Photos can come from anywhere on the web
Even people who are concerned about the risk of their photos being added to the database may end up included through no fault of their own, both Seeley George and Guariglia said. That people may end up in Clearview's database, despite Facebook's policies against scraping or their own personal security measures, is an indicator that privacy "is a team sport," Guariglia told Insider.

"I think that's one of the nefarious things about it," Guariglia said. "Because you might be very aware of what Clearview does, and so prevent any of your social media profiles from being crawled by Google, to make sure that the picture you post isn't publicly accessible on the open web, and you think 'this might keep me safe.' But the thing about Clearview is it recognizes pictures of you anywhere on the web."

That means, he said, that if you are in the background of a wedding photo, or a friend of yours posts a picture of you together at high school, once Clearview has snapped a picture of your face, it will create a permanent biometric print of your face to be included in the database.

Clearview and law enforcement
Searching Clearview's database is just one of many ways law enforcement can make use of content posted to social media platforms to aid in investigations, including making requests directly to the platform for user data. However, the use of Clearview AI or other facial recognition technologies by law enforcement is not monitored in most states and is not subject to nationwide regulation — though critics like Seeley George and Guariglia argue it should be banned.


Representatives for the FBI, Department of Homeland Security, Los Angeles Police Department, and New York Police Department did not immediately respond to Insider's requests for comment.

"This is part of the opacity of both police departments and Clearview. We have no idea if they have to enter a warrant in order to run a query, which they probably don't; we have no idea if their queries are overseen by a supervisor," Guariglia told Insider, adding that the program is often directly loaded onto officer's phones, often without their department's knowledge or approval.

Following the Illinois lawsuit brought by the ACLU, Clearview said it would end its practice of offering free trial accounts to individual police officers.

Guariglia added: "I think we really need to ask: how strictly are the queries they put through being monitored? You live in fear all the time of a police officer pulling their phone out at a protest, scanning the faces of the crowd, all of a sudden getting their social media profiles, every picture they've ever been in, their identities — and the threat that poses to civil liberties and the vulnerability that opens up to people in terms of retribution or reprisal."

FT : Israel political crisis could cut 2.8% a year from GDP, central bank warns

Israel political crisis could cut 2.8% a year from GDP, central bank warns
Exports, consumption and investment could be hit if row over judicial reforms not resolved, Bank of Israel says

The fallout from the Israeli government’s controversial plan to overhaul the judiciary could knock an average of 2.8 per cent annually off economic output over the next three years, the country’s central bank has warned.

The battle over the plans drawn up by Israeli prime minister Benjamin Netanyahu’s hardline new government — which would significantly weaken the powers of the judiciary — has sparked the biggest wave of protests in a decade, and plunged Israel into its deepest political crisis for years.

After three months of demonstrations and a brief general strike last week that closed banks, shops, ports and Israel’s Ben Gurion international airport, Netanyahu agreed to postpone the reforms to allow time for dialogue.

However, several government officials have said in recent days that if no agreement is reached by the time parliament reconvenes at the end of the month, they will push ahead, raising the prospect of further protests and disruption.

In a forecast released with its decision to raise its benchmark rate from 4.25 per cent to 4.5 per cent on Monday, the Bank of Israel said it had modelled two scenarios “in view of the tremendous uncertainty due to the legislative processes regarding the judicial system and their economic implications”.

In the first, in which the dispute over the overhaul was smoothly resolved, the central bank forecast growth of 2.5 per cent this year and 3.5 per cent in 2024.

But in the second scenario, in which the judicial changes affected Israel’s risk premium, exports, consumption and investment, the hit to GDP would be between 0.8 per cent and 2.8 per cent per year on average over the next three years.

The central bank added that the second scenario was “accompanied by a higher level of uncertainty than the standard forecast, regarding the intensity and persistence of the shocks”, and that this was why it had decided to present the forecast for a single three-year block.

Government officials say the changes — which would give the ruling coalition greater control over the appointment of judges and severely limit the top court’s ability to strike down laws — are needed to rein in an overly activist judiciary.

But critics — who include former and serving security officials, former central bank chiefs, technology sector executives and the political opposition — see the plans as a politically motivated power grab that will undermine checks and balances, pave the way for the evisceration of minority rights, foster corruption and damage the economy.

Israel’s Start-Up Nation Policy Institute think-tank said on Sunday that venture capital investment in the country’s start-ups had dropped to $1.7bn in the first three months of the year, the lowest quarterly figure since 2018 and down from a record first quarter of $6.7bn a year earlier.

The sector’s performance had been shaped by worsening global economic conditions and the battle over Israel’s judicial overhaul, it said. “While it is impossible to separate the two effects — the ongoing global recession and the domestic unrest — the combination severely jeopardises the future of Israel’s high-tech sector.”

The Information : Birth of a Salesman: OpenAI Sheds Its Lab Coat to Seek Big Dea

Birth of a Salesman: OpenAI Sheds Its Lab Coat to Seek Big Deals

THE TAKEAWAY
• OpenAI is building a sales team and aggressively courting customers to use its AI
• OpenAI is leasing servers to customers like Salesforce to run its models at a cost of up to $156,000 per month
• Khan Academy is paying OpenAI over $20,000 per month to test a tool with 1,000 users

OpenAI has for years relied on a small, nimble team, composed primarily of researchers, to develop impressive artificial intelligence models rivaling those from Google and Microsoft. Now the seven-year-old startup is acting more like a traditional enterprise software company by building a sales team and aggressively courting customers to use its AI.

The company’s transformation from research-focused startup to deal closer began last year. Months before its ChatGPT chatbot seized the world’s attention, OpenAI began approaching companies to demonstrate its then-unreleased GPT-4 model, pitching them on paying to use the model in their software, several companies told The Information.

OpenAI’s sales push has brought new revenue as it strives to become profitable. Its models are new, and customers are still learning how much it costs to use them. But in interviews with The Information, a half-dozen OpenAI customers provided an early look at their spending with the startup, which ranged from cents per day to tens of thousands of dollars per month.

“It’s not cheap,” said Khan Academy founder and CEO Sal Khan. The education software nonprofit in March launched a tutoring chatbot powered by OpenAI’s GPT-4 model and is already spending more than $20,000 per month on OpenAI’s tech to offer the tool to 1,000 users. But Khan said the AI-powered technology is worth the cost.

OpenAI is now on pace to generate hundreds of millions of dollars in revenue per year, thanks in part to the launch of a paid version of ChatGPT in February, said a person with direct knowledge. An OpenAI spokesperson declined to comment.

OpenAI customers are charged a fraction of a cent per “token,” a word or part of a word generated by OpenAI’s models. Its newer models like GPT-4 cost more per token, while older, less sophisticated models like GPT-3 are cheaper. That means a small company with a dozen employees using OpenAI’s models all day may spend less than $100 per month on OpenAI, while large enterprises using OpenAI’s models in applications available to thousands of users can pay thousands of dollars monthly. In February, OpenAI sent a letter to prospective customers offering dedicated instances—essentially, a copy of its software on a group of servers set up for a single client—with prices ranging up to $156,000 per month. A copy of the letter was first posted to Twitter by developer Travis Fischer, who said he received it secondhand, and The Information independently verified it.

Hiring Sales Leaders
OpenAI’s sales push began in earnest last June, when it hired former WalkMe Vice President Aliisa Rosenthal as its head of sales. Former Stripe sales leader James Dyett joined in February as head of strategic accounts. To assist the sales team, OpenAI has assigned technical staffers to work with customers using its technology, customers say.
OpenAI first approached Khan Academy last August to pitch using OpenAI’s GPT-4 model in an educational chatbot, Khan said. In the following months, developers at Khan Academy worked almost daily with six engineers and sales staff from OpenAI to build and refine the tool. By the time GPT-4 officially launched in March, Khan Academy was a flagship customer, alongside bigger enterprises like Stripe, Salesforce, Zoom and Morgan Stanley.

Khan Academy, which offers its software for free and relies on donations, is asking users of its OpenAI-powered tool to donate $20 a month to offset its costs. As its users—and costs—increase, Khan said the nonprofit may consider switching to the cheaper GPT-3. “Right now we’re focused on making this experience as magical as possible for users, and once we’ve accomplished that we might look at making it more cost-effective,” he said.

Before OpenAI had built out much of its sales operation, it was approached in late 2021 by Morgan Stanley, which has a team in San Francisco tasked with identifying promising makers of AI software. Morgan Stanley leaders including CEO James Gorman and Andy Saperstein, head of wealth management, met with OpenAI CEO Sam Altman, who demonstrated how an early version of GPT could eloquently answer written questions about Morgan Stanley based on past public statements made by executives. Morgan Stanley executives were impressed, according to Jeff McMillan, the company’s chief analytics and data officer, who attended the meeting.

Over the next year, staffers from the two companies built a tool to train an instance of GPT-4 on roughly 100,000 Morgan Stanley internal market intelligence documents. Roughly 300 Morgan Stanley employees began testing the tool in March. McMillan said OpenAI’s support impressed him, because the company historically focused on research rather than building products for customers.

In the past, he said, OpenAI would have
referred big customers to Microsoft, with which OpenAI has a partnership. “They’re not really equipped to manage customers; they want to be a research firm that develops models, period,” McMillan said, referring to the startup. “That being said, OpenAI has kept to their word. They’ve dedicated resources to us, and if I need anything, I pick up the phone, and they work to solve it.”
McMillan declined to say how much Morgan Stanley is paying OpenAI, citing a contractual agreement not to disclose spending. But he predicted that the cost will prove trivial compared with the hours of labor the GPT-4–powered tool will save for Morgan Stanley employees.

Plug-in Partners
In another prong of its sales strategy, OpenAI has formed partnerships with companies that integrate its software with their products. The company last month announced 11 new plug-ins for ChatGPT, including ones from Expedia, Wolfram Alpha and Instacart, that allow the chatbot to query those companies’ databases to provide more factually accurate information. OpenAI first approached these potential partners less than two months ago, several of the companies said.

The plug-ins, currently available only to paid subscribers of OpenAI’s ChatGPT Plus, help fix one of ChatGPT’s biggest shortcomings—identifying factual information. For instance, users can ask ChatGPT to help them plan their itinerary for a trip, and ChatGPT will pull real-time data from Expedia to supplement its answer. OpenAI didn’t pay the plug-in makers to incorporate their data into ChatGPT. Instead, the partnerships are a form of data exchange, where plug-in makers get insights into the types of queries people post to ChatGPT.

At companies that are paying for OpenAI, leaders say the software’s cost is worth the value it brings to customers. Kraftful, a seed-stage startup offering a GPT-powered tool that summarizes customer feedback for product managers, is spending around $8,000 per month to use OpenAI’s models in its software, founder and CEO Yana Welinder said. She said the costs are rising as Kraftful adds customers, who can use the software to automate the labor-intensive task of summarizing feedback. (Welinder is married to OpenAI Vice President of Product Peter Welinder but said her company doesn’t receive any discounts from OpenAI.)

Another big customer that’s renting a dedicated instance from OpenAI is Salesforce, according to Clara Shih, CEO of Salesforce Service Cloud. The sales software giant announced in March that it would begin using OpenAI’s models in its Einstein GPT suite of sales and marketing software, which helps Salesforce customers generate sales emails, parse data and summarize customer feedback. Einstein GPT also uses Salesforce’s proprietary AI models and other models from AI startups Anthropic and Cohere, both of which Salesforce recently invested in, Shih said.

Salesforce is still assessing how much the new services will cost to run and will use that information to set prices for its customers, Shih said.

OpenAI’s sales push is still in its infancy and isn’t as aggressive as some larger software companies. “I’m sure they’ll get there, but they don’t fully look like an enterprise-oriented company yet, which is fine with us,” said Daniel Marcous, co-founder and chief technology officer of tax software startup April, which uses OpenAI’s models to help complete its users’ tax forms. “They’re not like Databricks, which has a thousand salespeople asking you to try out their new products. It’s more like, ‘We have these great products; you have developers; go play with it and see what works for you.’”

While large companies rack up high OpenAI bills, smaller firms who use its software for internal purposes—like generating website text or summarizing meetings—say the cost is marginal. Ignacio Semerene, co-founder and head of product of Bags, a 14-person startup that helps businesses identify and manage loans, said many staff members had been paying $20 per month to use ChatGPT Plus, OpenAI’s subscription-tier chatbot. The startup recently switched to paying for a single corporate subscription for GPT-4, which lets anyone at the company use the service on a per-token basis. Semerene said the company’s OpenAI costs now rarely exceed $2 per day.

In other cases, OpenAI has offered its models for free. Danish company Be My Eyes, which makes a mobile app to assist vision-impaired people, uses OpenAI’s GPT-4, but “there wasn’t any out-of-pocket [cost] for us,” said Mike Buckley, the company’s chair and CEO. He said OpenAI called him earlier this year to discuss the company’s image-to-text technology and ask if Be My Eyes was interested in being a launch partner.