CRIMINAL CAPITALI$M

Department of Justice Is Probing Short Sellers for Trading Abuses

By 

RAKESH SHARMA

 

Published February 07, 2022

The Department of Justice is investigating short-selling firms for evidence of trading abuses. According to a Bloomberg report, the goal is to uncover possible connections and alliances between parties involved in a short sale.1 

The inquiry's scope is broad and includes analysis of recent crashes in the prices of well-known stocks—a list that includes Chinese coffee chain Luckin Coffee Inc. (LKNCY), Banc of California, Inc. (BANC), and GSX Techedu. Thirty short sellers and research firms are being probed in connection with their trades, and the list includes several well-known names. For example, Andrew Left's Citron Research and Gabriel Plotkin's Melvin Capital, both of which famously shorted pandemic winner GameStop Corp. (GME), have received subpoenas, as has Muddy Waters' Carson Block, whose tweet of a report critical of Luckin set off a short squeeze on in its stock.

KEY TAKEAWAYS

• The Department of Justice is investigating short sellers and research firms for evidence of trading abuses.
• The investigation's goal is to uncover alliances and relationships between various parties involved in a short sale.
• Short sellers were famously squeezed by retail investors last year and the latest investigation might have implications for the way that such trades are conducted.
  

The investigation is meant to probe relationships between hedge funds and money managers, who profit from short sales, and research firms, whose reports trigger the downward price movement in a stock. In a December report on the same topic, Bloomberg stated that the Justice Department was hunting for clues in trading that money managers sought to engineer "startling" price drops or engaged in insider trading.2 The investigation began last year and is being led by federal prosecutors in the Justice Department's Los Angeles office.

The news comes after a particularly bruising period for short sellers. They suffered heavy losses at the hands of retail investors in a meme stock frenzy that took hold of the markets in March 2020. Flush with stimulus money and spurred by online discussion groups, mom-and-pop investors pushed up prices of heavily shorted stocks on Wall Street, dealing an expensive blow to bets made by short sellers.

Why Are Short Sellers Being Investigated? 

Short sellers are polarizing figures on Wall Street. In a fashion, they are meant to be truth tellers that profit from exposing company frauds and malpractice. But their tactics can cause market imbalances and magnify the effect of crashes. For example, short sellers are widely blamed for exacerbating effects of the 2008 stock market crash.3 

Their methods came under fresh scrutiny during the pandemic. Institutional Investor published a piece last year detailing the "balance sheet" relationship between hedge funds and short-selling firms that publish research reports. As part of this relationship, the former pays the latter to publish a report (authored by the fund itself) that is critical of the company's business. The report's publication is timed to coincide with a significant company-related market event, such as an options expiry or earnings report, to induce further volatility and maximize profits. Many short sellers act in concert and pile onto the short trade, magnifying its effect and crashing the company's stock price. The research firm that published the original report gets a cut of the overall profits or a fee.4 

Such arrangements have been part of Wall Street's fabric for several years, and some research firms have openly disclosed their relationships with hedge funds. But the pandemic changed the dynamics of such trades. Retail investors inverted the bets made by short sellers, sending meme stocks higher and inflicting massive losses on short sellers. GameStop, a gaming company that has been struggling for years to make the shift from physical stores to online gaming, was the most prominent example.

Buoyed by retail traders, GameStop's stock price skyrocketed by 1,625% in January 2021. Short sellers, often responsible for short squeezes in the market, became the ones being squeezed. Hedge fund Melvin Capital lost a stunning 53% of its value in the same month due to its bet against GameStop.5 Tesla Inc. (TSLA), which became the world’s most valuable car maker during the pandemic, is also among the most-shorted stocks on Wall Street, and its CEO has often railed against the practice in his tweets.6 Some short-selling firms, like Citron Research, have stopped publishing research reports after the pandemic squeeze.7

Is It Illegal? 

There is no clear rule in law books that prohibits balance sheet relationships. But collusion tactics, if proved, might toe the line between insider trading and market manipulation, according to experts.

The Justice Department has not clarified the intent behind its investigation or brought formal charges against any of the parties being investigated. "No one has been accused of wrongdoing and, in many cases, the opening of a probe doesn't lead to anyone facing charges," the Bloomberg report states. "It's very tough to defend yourself when you haven't been accused of anything," Andrew Left, founder of Citron Research, told the publication. Computers were seized from his residence in early 2021. A short seller called the investigation "a fishing expedition," meaning it might net some firms.

ARTICLE SOURCES

Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.

1. Bloomberg. "Vast DoJ Probe Looks at Almost 30 Short-Selling Firms and Allies." Accessed Feb. 7, 2022.

2. Bloomberg. "Hedge Funds Face Expansive Short-Selling Probe." Accessed Feb. 7, 2022.

3. SEC. "Shorting America." Accessed Feb. 7, 2022.

4. Institutional Investor. "The Dark Money Secretly Bankrolling Activist Short-Sellers." Accessed Feb. 7, 2022.

5. Bloomberg. "Coleman Leads $23 Billion Payday." Accessed Feb. 7, 2022.

6. Barrons. "Tesla Founder Elon Musk Trolls Short Sellers on Twitter." Accessed Feb. 7, 2022.

7. Wall Street Journal. "After GameStop Backlash, Citron Research Will Stop Publishing Short-Seller Reports." Accessed Feb. 7, 2022.

8. Institutional Investor. "Short Seller Probe Fails to Silence Activists." Accessed Feb. 7, 2022.

How China’s Communist Officials Became Venture Capitalists

Tom Hancock
Sun, February 6, 2022,




(Bloomberg Markets) -- In early 2020, as the pandemic pushed it to the verge of bankruptcy, China’s highest-­profile rival to Tesla Inc. was shunned by the venture capital funds and foreign investors that had powered its rise. So Nasdaq-listed Nio Inc. turned to China’s newest class of venture capitalists: Communist officials.

The municipal government of Hefei, a city in eastern China, pledged 5 billion yuan ($787 million) to acquire a 17% stake in Nio’s core business. The company moved key executives from Shanghai to the city, which is less than half the size and 300 miles inland, and began producing more vehicles there. The central government and Anhui, Hefei’s province, joined the city, making smaller investments.

It might look like the kind of power grab some observers see as characteristic of President Xi Jinping’s China: an assertive state enforcing an ever-growing list of dictates on innovative private companies that are destined to discourage entrepreneurship. But the story didn’t play out that way. Nio turned its first profit in early 2021 and sold more than 90,000 vehicles by the end of the year. Rather than leveraging its stake to assert control, the Hefei government took advantage of Nio’s booming share price to cash out most of its stake within a year of its purchase—making a return of up to 5.5 times its investment—much like a private investor in London or New York might have done.

“From our investment in Nio, we ruthlessly made money,” Yu Aihua, the top Communist official in the city, said at a televised event in June that saw him seated on a podium dressed in a business suit and purple tie with entrepreneurs including Nio’s founder, William Li, seated below. “Making money for the government is not an embarrassment: It’s making money for the people,” he added.

Hefei has pioneered a shift in Chinese capitalism over recent years in which local governments are increasingly taking minority stakes in private companies. Since the 1950s, Hefei has been a hub of scientific research, but today its shrewd investments have transformed it from a relative backwater to a bustling metropolis of about 5 million people. In terms of economic growth, what Chinese media call the “Hefei model” appears to work. In the decade to 2020, Hefei was China’s fastest-growing city in terms of gross domestic product.

China’s local governments control land sales, receive profits from state-owned companies, and have close ties with state-owned banks. For decades they have supported private companies by offering them cheap land and other subsidies, tax breaks, and loans to encourage investment. That’s helped local officials, largely judged on the basis of economic performance, to win promotion from the ruling Communist Party.

More recently, that model has been updated for an era that depends on technology investment and innovation for growth. As China’s economy slows and Beijing tries to rein in debt, cash-rich local governments and state-owned companies have emerged as “white knights,” rescuing troubled private companies. In many cases, local governments are taking a passive approach to these investments, with a growing number of stakes taken through funds instead of through direct holdings. Today, Hefei invests in dozens of companies that are working on semiconductors, quantum computing, and artificial intelligence. Those industries are at the center of the Communist Party’s plans to double the size of China’s economy by 2035, likely overtaking the U.S. along the way. The Hefei model, and other cities’ efforts to replicate it, will be crucial to determining if that ambition is realized.

Hefei made its first winning bet on BOE Technology Group Co., an electronic display maker founded in 1993. When BOE was in trouble after the 2008 financial crisis, the city canceled plans for its first subway line and instead plowed billions of yuan into the company on the condition it would build a local plant. BOE built a state-of-the-art liquid-crystal display (LCD) screen plant, and by 2011 Hefei owned an 18% stake. The city agreed to vote with management on key decisions, according to company filings.

Over the following years, Hefei continued to invest in BOE, helping it build new plants and extracting profits. The company brought tens of thousands of jobs to Hefei and anchors a display-industry manufacturing cluster that makes products worth more than 100 billion yuan annually, including for foreign companies such as Corning Inc. In 2021, BOE overtook South Korea’s Samsung Electronics Co. as the world’s top manufacturer of LCD screens used in flatscreen TVs, helping end China’s dependence on foreign suppliers.

Academics have only recently been able to quantify how this model is transforming China’s economy. Researchers at the University of Chicago, Tsinghua University in Beijing, and the Chinese University of Hong Kong analyzed every registered company in China—more than 37 million of them. They found that those companies are ultimately owned by 62 million private individuals—­essentially the complete list of China’s capitalists—as well as about 40,000 state agencies from the central government down to cities and even villages. Companies owned by state agencies, most at the local-­government level, have been increasing their partnerships with private companies. The average state stakeholder now invests in companies owned by almost 16 private owners, up from eight a decade ago. Since the average number of owners per company is constant, this indicates each state stakeholder has nearly doubled the number of private companies it invests in over that period, says Chang-Tai Hsieh, a professor at the University of Chicago’s Booth School of Business and a researcher on the project.

As a result, China’s biggest entrepreneurs are more connected with the state. In 2019, of the 7,500 wealthiest individual owners (judged by the size of invested capital in the companies they own), just over half had at least one business that included a state agency among its investors. The trend results in companies that are “not fully state-owned firms but also not really private firms,” Hsieh says. “It’s this murky gray area, which I think is the dominant corporate structure in China today.”

Take China’s six largest electric vehicle startups, which collectively sold more than 435,000 cars in 2021. Five have local governments as minority investors, according to corporate records. The investments are often held by ­companies that are themselves owned by local governments. “Thirty years ago they [state government-owned companies] ­produced stuff that nobody wanted to buy. Now they are more like venture capital firms,” Hsieh says.

For entrepreneurs, forming partnerships with local governments makes it easier to get approvals for new factories, licenses to do business, and financing from the state-­dominated financial system, and it can offer a degree of political protection. Hsieh and his co-authors estimate that such hybrid companies account for the bulk of the growth in China’s economy over the last decade. A key to their success: The founding entrepreneurs remain in charge of important business decisions and respond to the market rather than political dictates.

The U.S. and other Western governments have long been wary of the economic power of China’s “state capitalism,” fueled by giant state-owned companies and an industrial policy driven by subsidies and government mandates. But policymakers need to pay more attention to what’s really propelling China’s growth: private firms with minority government-­linked investments. “The distinction between state-owned and private has been important for policymakers outside China and for analyzing the Chinese economy,” says Meg Rithmire, a professor at Harvard Business School who specializes in comparative political development in Asia and China. “That boundary is eroding.”

Other developing countries have taken strategic stakes in private companies on a large scale to ease economic and social turbulence. Rithmire points to Brazil, following macro­economic shocks in the 1980s, and Malaysia, which in the ’70s began a multidecade project of acquiring business stakes as part of a campaign to boost the economic influence of ethnic Malays in the country. In both cases, she says, the government used the stakes to gain increased influence on business decisions, which led to wasteful investment and ultimately did little to support growth.

As is often the case with venture capital, many government investments flop. These include some of Hefei’s earliest forays, such as a solar panel company and a 2 billion-yuan acquisition of a plasma screen factory from Japan’s Hitachi Ltd., both of which proved uncompetitive. In 2017 the government of Wuhan, the capital of Hubei province, took a 200 million-yuan stake in Wuhan Hongxin Semiconductor Manufacturing Co. The company aimed to generate annual sales of 60 billion yuan once running at full capacity. Last year the project was dissolved without making a single chip.

If one key to successful state investment is avoiding political interference in decision-making, as both Rithmire and Hsieh indicate, then the move by China’s local governments to employ professional fund managers could be an important step. Since 2015, Chinese officials have set up private equity-style “funds of funds” worth 2.14 trillion yuan, according to CVInfo, which provides information on China’s private equity industry.

Their managers invest in smaller funds, pooling cash with state-owned or private companies. Some funds are dedicated to supporting mature companies, and others are responsible for “angel” investment in startups. Typically, the government fund plays the role of limited partner in the lower-level funds, delegating investment decisions to a general partner—often a local state-owned company with industry expertise.

Government officials typically have little day-to-day control over the lower-level funds. “Local governments thought it was a good idea to find professional managers to help them choose companies,” says Liu Jingkun, an analyst at CVInfo.

These funds are major investors in the technology industry. In 2019, when China set up the Star board, modeled on the U.S.’s tech-heavy Nasdaq Stock Market, 14 of the original 25 listed companies reported state-owned minority investors. For example, Advanced Micro-Fabrication Equipment Inc.’s largest shareholder, with a 20% stake, was Shanghai Venture Capital, owned by that city’s government. (Today it owns 15.6%.)

The Hefei government has also shifted to investing through dozens of funds, a single one of which can manage assets as large as 31 billion yuan. Hefei’s early stakes in companies such as BOE were held directly, but its stake in Nio is currently held by a fund.

Government investments can lead to the kind of conflicts of interest typically discouraged at U.S. businesses. Hefei invested in Nio in part to shore up another of its ­holdings: Anhui Jianghuai Automobile Group Holdings Ltd., known as JAC Motors, which had rented a huge production line to the private EV maker.

Such ventures show that local government investments are often less about a bold vision for the future and more about preventing the collapse of large companies and the resulting financial and social instability, says Harvard’s Rithmire. “I caution against seeing strategic coordination in everything Chinese funds and firms do.”

Hefei’s success has inspired officials in cities as far afield as Inner Mongolia. Even Shenzhen, China’s leading tech hub, is taking note: The city’s Guangming District vowed last year to “study and explore” Hefei’s example. Given China’s size, if the model is even a partial success, it could transform the global economy for decades to come.

City-financed investment funds are buying foreign companies, too. In 2016, Beijing Jianguang Asset Management Co., known as JAC Capital, paid $2.75 billion for Dutch chipmaker Nexperia, which produced semiconductors used in mobile phones. Two years later, the fund, which includes Hefei among its investors, sold its stake to Chinese chipmaker Wingtech for $3.6 billion. Hefei has a 4% stake in Wingtech. Wingtech made headlines in the U.K. last year, when one of its subsidiaries bought the troubled Welsh semiconductor manufacturer Newport Wafer Fab for $87 million.

Meanwhile, even after Hefei sold most of its Nio stake, the city’s investment in EV technology continues to pay off. Germany’s Volkswagen AG has acquired 50% of JAC Motors and a 26% stake in battery maker Gotion High-tech Co., as it turns Hefei into one of its main production bases. Erwin Gabardi, chief executive officer of Volkswagen Anhui, praised the region’s “entrepreneurial spirit” and policy support. “This is why Volkswagen chose Hefei,” he says.

Hancock is the senior reporter covering China’s economy for Bloomberg News.

CRIMINAL CAPITALI$M
Credit Suisse faces money laundering charges in Bulgarian cocaine traffickers trial

Brenna Hughes Neghaiwi and Silke Koltrowitz
Sun, February 6, 2022

FILE PHOTO: The logo of Swiss bank Credit Suisse is seen in Zurich
In this article:

ZURICH (Reuters) - Credit Suisse faced charges in a Swiss court on Monday of allowing an alleged Bulgarian cocaine trafficking gang to launder millions of euros, some of it stuffed into suitcases.

In the first criminal trial of a major bank in Switzerland, Swiss prosecutors are seeking around 42.4 million Swiss francs ($45.86 million) in compensation from Credit Suisse.

They say the country's second-biggest bank and one of its former relationship managers did not take all necessary steps to prevent the alleged drug traffickers from hiding and laundering cash between 2004 and 2008.

"Credit Suisse unreservedly rejects as meritless all allegations in this legacy matter raised against it and is convinced that its former employee is innocent," the bank said in a statement to Reuters. It added it would "defend itself vigorously in court".

The case has attracted intense interest in Switzerland, where it is seen as a test for prosecutors taking a potentially tougher stance against the country's banks.

The indictment runs to more than 500 pages, and centres on relationships that Credit Suisse and its ex-employee had with former Bulgarian wrestler Evelin Banev and multiple associates, two of whom are charged in the case. A second indictment in the case charges a former relationship manager at Julius Baer with facilitating money laundering.

A legal representative for the ex-Credit Suisse employee, who cannot be named under Swiss privacy laws, said the case was unjustified and his client denied wrongdoing.

That banker would start testifying on Wednesday or Thursday, a preliminary court schedule showed.

A lawyer for the two alleged gang members, who face charges of multiple counts of misappropriation, fraud and forgery of documents in the Swiss federal court but cannot be named under Swiss privacy laws, declined to comment. A lawyer for the former relationship manager at Julius Baer did not respond to requests for comment.

Banev, who does not face charges in Switzerland, was convicted of drug trafficking in Italy in 2017 and then in Bulgaria in 2018 for money laundering.

He vanished, but was arrested in September in Ukraine.

Bulgarian prosecutors are seeking his extradition to face charges of setting up an organised criminal group for money laundering, while Romania seeks him for setting up a group for drug trafficking, Interpol's red list of wanted persons shows.

Banev's legal representative had no immediate comment.

Julius Baer, which is not facing charges, declined to comment on the case.

CASH IN CASES

The former Credit Suisse employee brought at least one Bulgarian customer, who was an associate of Banev, with her when she joined Credit Suisse in 2004, prosecutors allege in the indictment.

The customer, who was later shot dead as he left a restaurant with his wife in Sofia, Bulgaria in 2005, had begun placing suitcases full of cash in a safe deposit box at Credit Suisse, the indictment says.

Prosecutors allege the gang used a practice known as smurfing, whereby a large sum of money is broken down into smaller amounts that are below the anti-money laundering alert threshold, to launder money, putting millions of euros in small-value bills into safety deposit boxes and later transferring them into accounts.

The defendants said this was standard practice at the time the deposits were made, although Swiss private banks have since adopted much tougher anti-money laundering know-your-client checks after international pressure.

The prosecutors allege the former relationship manager, who left Credit Suisse in 2010 after being detained for two weeks by police in 2009, helped conceal the criminal origins of money for the clients by carrying out more than 146 million Swiss francs in transactions, including 43 million francs in cash.

"Our client is being unfairly accused, because Swiss law requires that a person be implicated in order to condemn a bank," attorneys at law firm MANGEAT LLC, representing the ex-employee, told Reuters. "She is innocent, outraged by the accusations. We will plead for her full and complete acquittal."

Credit Suisse disputes the illegal origin of the money, a source familiar with its thinking told Reuters, saying that Banev and his circle operated legitimate businesses in construction, leasing and hotels.

The Swiss bank, which the indictment says considered Bulgaria as a high-risk country at the time, plans to draw attention to calls made by its compliance department to Swiss prosecutors after Banev was temporarily arrested in Bulgaria in April 2007, the source added.

Credit Suisse is hoping that the court will view that its compliance department's move was a sign of the bank taking its anti-money laundering obligations seriously and of cooperating with prosecutors in the matter.

In June 2007, the prosecutors asked Credit Suisse for information on accounts held by Banev and his associates in response to a request from Bulgaria, the source added.

Noticing a series of withdrawals, the bank's compliance department asked prosecutors whether to freeze the accounts, but was told not to in order to avoid tipping the clients off, according to the source.

By the time prosecutors gave Credit Suisse the go-ahead, much of the money had been withdrawn.

The prosecutors' office declined to comment on Friday, saying the matter was in the hands of the court.

The second indictment filed by federal prosecutors against the former relationship manager at Julius Baer, which is being tried in the same court case, alleges some of the funds were transferred to another Swiss bank.

The former relationship manager, who left a few months after the transfers took place, is charged with facilitating money laundering.

Julius Baer had refused to accept a suitcase filled with cash from the defendants, the indictment says.

($1 = 0.9245 Swiss francs)

(Reporting by Brenna Hughes Neghaiwi and Silke Koltrowitz; Additional reporting by Tsvetelia Tsolova; Editing by Alexander Smith and Barbara Lewis)

MONOPOLY CAPITALI$M

Google hit with $2.4 billion lawsuit in Europe for favoring its own shopping service

Steve Dent
·Associate Editor
Mon, February 7, 2022

Arnd Wiegmann / Reuters

Sweden-based price comparison service PriceRunner has announced that it's suing Google for €2.1 billion ($2.4 billion) after a European court ruled that Google breached EU antitrust laws. Last November, the European Union's General Court upheld a decision to fine Google a record €2.42 billion (US$2.8 billion) for favoring its own comparison shopping services over rivals.

"We are ... seeking compensation for the damage Google has caused us during many years, but are also seeing this lawsuit as a fight for consumers who have suffered tremendously from Google’s infringement of the competition law for the past fourteen years and still today," said PriceRunner CEO Mikael Lindahl.

PriceRunner claimed that Google has a "monopoly-like position" in Europe adding that it believes it has still not complied with the EU Commission's decision and is "abusing it's dominant position." As such, it claimed that traffic and profits are diverted from itself and other shopping services, and that its offers are higher than other services, harming consumers. "Since the violation is still ongoing the amount of damages increases every day, we expect the final damages amount of the lawsuit to be significantly higher," it wrote.

Google lost its first appeal against the EU fine, but it launched another one last month, saying "we feel there are areas that require legal clarification from the European Court of Justice." Engadget has reached out to Google for comment on the PriceRunner lawsuit.

PriceRunner sues Google for 2.1 billion euros, prepares for long fight

Supantha Mukherjee
Mon, February 7, 2022

The logo for Google LLC is seen at the Google Store Chelsea in Manhattan, New York City

By Supantha Mukherjee

STOCKHOLM (Reuters) -Swedish price comparison firm PriceRunner said on Monday it was suing Alphabet-owned Google for about 2.1 billion euros ($2.4 billion), the latest firm to take legal action alleging the search giant manipulated search results.

Google in November lost an appeal against a 2.42 billion-euro fine it received in 2017 which found using its own price comparison shopping service gave the company an unfair advantage over smaller European rivals.

"They are still abusing the market to a very high extent and haven't changed basically anything," PriceRunner Chief Executive Mikael Lindahl told Reuters in an interview.

PriceRunner, which is in the process of being bought by Swedish fintech Klarna, said a lawsuit it filed in Sweden aimed to make Google pay compensation for the profit it had lost in Britain since 2008, as well as in Sweden and Denmark since 2013.

A Google spokesperson said the company would defend the lawsuit in court.

"The changes we made to shopping ads back in 2017 are working successfully ... PriceRunner chose not to use shopping ads on Google, so may not have seen the same successes that others have," the Google spokesperson said.

Lindahl said PriceRunner was prepared to fight for many years, had secured tens of millions of euros in external financing and had steps in place in the event it did not win.

The European Commission's 2017 fine was the result of a seven-year investigation triggered by scores of complaints that Google distorted internet search results to favour its shopping service, harming rivals and consumers.

The Commission found https://ec.europa.eu/commission/presscorner/detail/en/IP_17_1784 

Google systematically gave prominent placement to its own comparison shopping service and demoted rival comparison shopping services in its search results.

"European consumers have been denied real choice in shopping services for many years and this is one step to ensuring this ends now," a Klarna spokesperson said.

Klarna in November agreed to buy PriceRunner from investment firm Creades for 1.06 billion Swedish crowns ($124.36 million).

The deal is expected to close in the first quarter.

Axel Springer's price comparison shopping service Idealo https://www.idealo.de/unternehmen/pressemitteilungen/idealo-suing-google-for-damages-caused-by-its-abuse-of-market-dominance then sued Google in 2019 for 500 million euros.

($1 = 0.8749 euros)

(Reporting by Supantha Mukherjee, European Technology & Telecoms Correspondent, based in Stockholm; editing by Simon Johnson and Jason Neely)

Lack Of Financing Weighs On Mexico’s Oil Industry


Editor OilPrice.com
Sun, February 6, 2022, 

Despite being the second-biggest oil producer in Latin America, Mexico seems unable to effectively develop its oil industry. Challenges and failures have been discussed in the media for years, and it seems that even with President Andres Manuel’s (AMLO) new approach to the country’s energy sector few results have been seen.

There are some challenges to Mexico’s oil and gas industry that have been around for years, with no political administration seeming to be able to resolve them. Some of the main obstacles to developing the country’s oil industry include declining oil reserves, the lack of financing and expertise to develop its deep-water crude reserves, the illegal siphoning of oil products from pipelines by cartels, corruption within governments and national energy companies, and the lack of pipeline infrastructure across the country.

And experts worry that Mexico’s new approach to oil and gas could harm the industry even further. In recent years, Mexico has come to rely on the U.S. for its oil imports despite its domestic huge crude reserves. Due to the lack of refining infrastructure, Mexico produces its crude for export. It is refined in the U.S. and then Mexico imports the finished product back to the country. So when President AMLO came into office in 2018, he vowed to nationalize the energy sector to boost Mexico’s energy security by decreasing the number of private firms participating in the sector and increasing the role of state-owned Petróleos Mexicanos (Pemex). In addition, he’s pledged to stop all crude exports by 2024.

But recent developments suggest AMLO may be moving backward in his energy policies. While AMLO insists his new reforms will improve Mexico’s energy security, many in the industry believe they will actually lead to electricity being dirtier and more expensive, pushing away international investment, and undermining regulatory institutions because of the heavy hand of the government. In fact, AMLO appears to be going back in time, taking many of his ideas from the state-owned energy company-dominated economy of the 1960s and 70s.

This goes almost entirely against the strategy of the previous administration, which welcomed new foreign companies into Mexico’s energy industry. For the first time, private companies were allowed to open their own petrol stations, instead of just Pemex. The idea of monopolizing the country’s energy sector would undo this recent liberalization.

Pemex exports have been steadily declining in recent years, from around 1.9 million bpd in 2004 to 1.02 million bpd last year, a decrease of 46 percent. And this is not Pemex’s only problem. The state-owned oil company has been repeatedly criticized at the international level for its poor safety and environmental standards.

Last year, Pemex fell in two of the Natural Gas Intelligence’s (NGI) key environmental indicators. It also came under fire for increasing the quantity of methane it burns off through gas flaring. In terms of safety, in 2021 Fitch Ratings suggested that PEMEX safety incidents will challenge its production growth target. Fires at its Ku-Maloob-Zaap production fields and at a Oaxacan refinery have also tarnished the firm’s reputation.

If Mexico is to rely on Pemex to develop its national oil and gas industry, while pushing out foreign investors, it has a long way to go. Pemex CEO Octavio Romero announced plans to boost production to 1.51 million bpd in 2022 and 2 million bpd in 2023, reducing the need for imports. The company aims to refine its crude in six refineries. One of these plants is currently under construction in the southeast state of Tabasco. And Pemex, under AMLO’s plan, is expected to take over the Deer Park refinery outside of Houston, at a cost of $1.2 billion to Mexican taxpayers. But the refinery has been reporting losses since 2018, with little hope of revival.

The purchase of the Deer Park refinery is expected to be completed early this year according to the Mexican government. Romero suggested that the cost of the takeover included $596 million for the controlling interest of the refinery, with the rest paying off Pemex’s debt to Royal Dutch Shell.

Meanwhile, reports suggest its 340,000 bpd Dos Bocas construction in Tabasco is way over budget at a projected cost of $12.5 billion, or around 40 percent higher than original estimates. This is mainly due to construction delays and rising materials costs, a challenge that has been felt worldwide during the pandemic. Although many suggest the budget was most likely unrealistic to begin with. The refinery was due to be up and running by late 2022, a target that is unlikely to be met.

With systemic challenges to Mexico’s oil and gas industry that have persisted for decades, any political power attempting to reform the country’s energy sector would face a monumental task. However, AMLO’s nationalist approach to energy seems to be doomed for the outset. Relying on a debt-ridden national oil company that has a poor reputation internationally and has been facing decreasing oil output for years simply isn’t realistic. In addition, poor budgeting and construction projections mean that the refineries needed to support the halting of Mexico’s oil exports are unlikely to be running successfully any time soon.

By Felicity Bradstock for Oilprice.com

USDA to spend $1 billion to promote climate-friendly agriculture

Karl Plume
Mon, February 7, 2022

FILE PHOTO: Soybean field in Ohio

(Reuters) - The U.S. Department of Agriculture will invest $1 billion in pilot projects that promote farming, ranching and forestry practices that cut greenhouse gas emissions or capture and store climate-warming carbon, USDA Secretary Tom Vilsack told Reuters.

The agency is due to announce the Partnerships for Climate-Smart Commodities program later on Monday.

The program will tap funds from the USDA's Commodity Credit Corporation, which provides up to $30 billion annually from the U.S. Treasury to help stabilize agricultural product prices and support farm income.

The investment is the latest Biden administration initiative aimed at combating climate change, with a goal to cut the farm sector's greenhouse gas emissions in half by 2030 and put the United States on a path to net-zero emissions by 2050.

Qualified projects could include initiatives that cut or capture methane emissions on dairy farms or programs which expand the use of farming practices that soak up more climate-warming carbon from the atmosphere and store it in the soil.

Expanding such practices could raise the value of U.S. farm products as food companies and exporters increasingly push to decarbonize their supply chains, Vilsack said.

"We think there is an emerging opportunity here, as consumers demand more sustainably produced food here in the United States and certainly in the export market," he told Reuters in an interview.

Some climate-focused initiatives have struggled to scale up as costs often exceed returns.

"This program ... can essentially reduce the risk to farmers so that they can learn how to do it and see the positive results," Vilsack said.

Funding will be awarded to qualified public and private entities including state and local governments, non-profits, small businesses, tribal governments and organizations, and colleges and universities.

Applications seeking grants from $5 million to $100 million are due by April 8, while those seeking smaller grants are due May 27.

(Reporting by Karl Plume in Chicago; Editing by Marguerita Choy)

Column-Rio's dreadful workplace report may boost cost of energy transition: Russell

Clyde Russell
Sun, February 6, 2022

 A sign adorns the building where mining company Rio Tinto has their office in Perth, Western Australia

LAUNCESTON, Australia (Reuters) - Rio Tinto's decision to go public with a self-damning report into its workplace culture should be a watershed moment for a wider mining industry aiming to be seen as the "good guys", helping to drive the world's energy transition.

It was no doubt a courageous decision by Rio, the world's biggest miner of iron ore and a top copper producer, to release a report that makes extremely uncomfortable reading, unveiling a culture riddled with sexual harassment, bullying and racism.


But the big question for Rio, and its peers such as BHP Group, Anglo American, Glencore and Vale, is what the industry does to tackle the issues, and how will it build a future workforce that sees itself as being proud to part of the solution to climate change.

And the issue for the wider commodities markets is that no matter how the miners respond, the likelihood is that any solution will be costly, eventually feeding into the prices of metals such as copper, lithium and nickel, all vital for the renewable energies needed to reach net-zero carbon emissions.

Rio Tinto Chief Executive Jakob Stausholm called the Feb. 1 report "disturbing," and pledged to implement all 26 recommendations by former Australian sex discrimination commissioner Elizabeth Broderick.

The report showed that nearly half of all employees who responded to the external review of workplace culture had been bullied, while nearly 30% of women and about 7% of men experienced sexual harassment, with 21 women reporting actual or attempted rape and sexual assault.

It is obvious that the short-term implication is going to be an intense focus on improving Rio's workplace culture, especially at remote mine sites such as the Pilbara part of Western Australia state, home to the company's major iron ore mines.

But the longer-term implications are likely to be more profound.

It would be reasonable to assume that the issues raised are not limited to just Rio, and that the mining industry in general suffers the same problems.

This means that the chief executives of Rio's peers and competitors are probably already scrambling to see just how out of order their own houses are, and develop action plans to change their own workplace problems.

The issue is now firmly on the radar screens of investors, with pointed questions likely to flow at shareholder meetings.

How the industry is seen to respond will be vital, and there is little doubt the Rio report is a hammer blow to its image.

This could not have come at a worse time, as mining companies try desperately to attract young people into the industry.

LABOUR THE KEY

A simple internet search for "lack of mining engineering students" throws up a plethora of articles, stretching back several years, but becoming more prevalent in recent times.

One such article by the Australian Broadcasting Corporation from August last year highlighted the steps mining companies are prepared to take, including offering free bar tabs to students at the School of Mines in Western Australia.

One student said he had six job offers and eventually settled for a position paying more than A$110,000 ($78,100) a year for a eight-day on, six-day off roster with a gold mining company.

This starting salary compares to the median annual income of A$83,000 for an Australian with a post-graduate degree in 2020.

In other words, mining companies are have to pay handsomely to get the few students are available.

Yes, they can put more money into scholarships and pay even bigger salaries, but ultimately young graduates are going to go to work for companies with a culture and mission they can identify with.

This is the biggest challenge for mining companies, convincing potential employees that they are employers of choice and an integral part of the march towards global net-zero carbon emissions.

A recent report by the International Energy Agency estimated that meeting the targets of the Paris climate accord will require, over the next two decades, that clean energy's share of metal demand rise to more than 40% for copper and rare earth elements, 60% to 70% for nickel and cobalt, and almost 90% for lithium.

This implies the mining industry is going to have to ramp up its activities considerably in coming years, and it is likely that labour shortages will climb the list of top concerns for chief executives.

The questions for the industry, and for the wider community driving the energy transition, is what will be the cost of attracting workers to mining, how can it be done, and what happens if the industry continues to fall short in creating workplaces of choice?

(The opinions expressed here are those of the author, a columnist for Reuters.)

(Editing by Clarence Fernandez)

Hyundai suffers backlash in India after Pakistani partner tweets on Kashmir


Workers assemble cars inside the Hyundai Motor India Ltd. 

plant at Kancheepuram district in Tamil Nadu

Mon, February 7, 2022
By Aditi Shah

NEW DELHI (Reuters) - South Korea's Hyundai Motor faced calls on Monday for a boycott of its cars from Indians incensed over a tweet from the account of its Pakistan partner that expressed solidarity for the people of the disputed territory of Kashmir.

The row erupted on Sunday, a day after Pakistan marked the annual Kashmir Solidarity Day and the posts on behalf of Hyundai's partner Nishat Group appeared on Twitter, Facebook and Instagram commemorating the sacrifices of Kashmiris struggling for self-determination.


Hundreds of social media users in India, which considers the whole of Kashmir as an integral part of the country, backed calls for a boycott, saying Hyundai must apologise for being insensitive to India's position on the decades-old dispute.

Dozens of Indians posted their intention to cancel orders for Hyundai cars in order to punish the company while urging support for homegrown brands like Tata Motors and Mahindra & Mahindra.

Responding to the furore, Hyundai's India unit said that it has a "zero tolerance policy towards insensitive communication and we strongly condemn any such view".

"The unsolicited social media post linking Hyundai Motor India is offending our unparalleled commitment and service to this great country," @HyundaiIndia said, adding that it stands firmly behind its "strong ethos of respecting nationalism".

Reuters requested comment from Hyundai's headquarters in Seoul and from Nishat Group, Pakistan's largest business conglomerate, but did not receive any immediate response.

Hyundai is India's second-largest car seller after Maruti Suzuki selling close to half a million vehicles in the country last fiscal year and exporting over a million units, making it India's largest car exporter.

Ashwani Mahajan, an official at the economic wing of the powerful Hindu nationalist Rashtriya Swayamsevak Sangh (RSS) group with close ties to Prime Minister Narendra Modi's government said Hyundai should clarify its position on Kashmir.

"While not criticising @HyundaiPakistan Indian arm of @Hyundai_Global is not even saying that Kashmir is an integral part of India. Speaks tons about their commitment to India. Doesn't this call for #BoycottHyundai?", he said.

Indian Twitter user Ashutosh Soni said he has cancelled his booking for Hyundai's Verna sedan which was due to be delivered this month and purchased a car from rival Honda Motor.

"#BoycottHyundai, that's it!", Soni tweeted from his handle @CA_AshutoshSoni on Sunday, along with a photograph of himself taking delivery of a new Honda car.

"Let's make them bankrupt. India is one of the biggest market for cars," filmmaker and social activist, Ashoke Pandit said on Twitter with a screenshot of a fall in Hyundai's share price on Monday.

While Hyundai's share fell 1.25% on Monday, weakening more than Seoul's benchmark index, the main factors behind the drop were concerns over record numbers of COVID-19 cases in South Korea, and ongoing worries that a global chip shortage could hit production and sales.

The trouble over the social media post highlights the risks global companies face amid rising nationalism in the region.

India and Pakistan have twice gone to war over Muslim majority Kashmir and Modi's government has pursued an aggressive policy to combat a militant separatist insurgency that it accuses Pakistan of stoking. Islamabad denies the charge but says it provides moral and diplomatic support to the Kashmiri people.

Twitter users in India have made similar calls in the past, seeking to boycott Chinese goods after a border clash between the two Asian giants which disrupted automobile supply chains and other industries. Amazon.com Inc has also faced social media backlash in India after its overseas website was found selling goods with faces of Hindu gods and other sacred symbols.

(Reporting by Aditi Shah, additional reporting by Syed Raza Hassan in Karachi and Heekyong Yang in Seoul; Editing by Simon Cameron-Moore)

UK
Tech giants targeted in harmful content crackdown

Sat, February 5, 2022

Young woman looking at her phone

Sending "genuinely threatening" or "knowingly false" messages are among new criminal offences being added to proposed online safety laws.

If passed, the government's online safety bill could see social networks fined 10% of their global turnover if they fail to remove harmful content.

The changes mean they will also have to proactively remove harmful content.


The bill also covers revenge porn, human trafficking, extremism and promoting suicide online.

It already stated that websites, such as Facebook and Twitter, that host user-generated content would have to swiftly remove illegal content once it was reported to them.

Now they will also have to put in place proactive measures to stop illegal activity.

The issue has become a talking point recently with the racist abuse of footballers, revenge porn and cyberflashing, and Covid disinformation being highlighted as key safety concerns for social media companies to address.

Culture Secretary Nadine Dorries urged online platforms to start making the changes now before the bill comes into force.

Speaking to BBC Breakfast, she said: "They can start doing what they need to do to remove those harmful algorithms and to remove much of the damage that they do, particularly to young people and to society as a whole."

The minister added the move would "hold the feet to the fire" of social media companies that have "damaged lives" and hold them to account for the first time.


Harmful content could evade new online law - MPs


Facebook is 'making hate worse', whistleblower says


Twitter says Online Safety Bill needs more clarity


I get abuse and threats online - why can't it be stopped?

Judy Thomas, whose daughter Frankie took her own life aged 15 in September 2018, said her school tablet and computer had been used to access distressing material in the hours and months before her death.

She told BBC Radio 4's Today programme: "Back in January, February, March [2018] she'd been accessing, at school, horrendous sites."

Ms Thomas called for mandatory age verification to protect children online and said all websites should be included in the scope of the bill, rather than just larger platforms.

"We need to ensure young people simply cannot access online harms, and that if companies do the wrong thing... that there is a real price to pay," she said.

Ms Thomas added these penalties must not just be financial, as many businesses could "absorb that easily", but the heads of these firms must also be "held to account".

Analysis box by Katie Prescott, Business correspondent

The big technology companies say they welcome the "clarity" that the online safety bill brings and that they recognise the need for regulation.

They have, in many cases, not waited for governments to step in and they have invested in tech such as machine learning in order to identify harmful content at scale.

However, while many say the bill does not go far enough, social media businesses point to free speech issues.

They say they want to ensure that new rules don't stifle people's access to information by causing companies to "over-moderate" by removing too much content, in order to comply with them.

The vast scope of the online safety bill means it will always have its critics.

But experts underline that its introduction will be nothing short of a revolution in how the online world is policed, and mean it will be a very different place for the next generation.

Asked about age verification, Ms Dorries said the government was looking at the idea, but said there was a "downside" to requiring all children to verify their age to access the internet.

"And young people go on to the internet to go shopping, you know, on clothes. Do we need to ensure that they verify their age when they're doing that?", she added.

The government confirmed offences to have been added to the list of priority offences, which must be removed by platforms under the changes, include:


Revenge porn


Hate crimes


Fraud


The sale of illegal drugs or weapons


The promotion or facilitation of suicide


People smuggling


Sexual exploitation

Previously, companies were only forced to take down these posts after they were reported - but will now be required to be proactive in preventing people from seeing them in the first place.

The government said naming these offences also enabled Ofcom - the proposed regulator - to take faster action.

The changes come after three separate parliamentary committee reports warned the bill required strengthening and more clarity for tech firms.
New criminal offences

In addition, three new criminal offences have been added to the bill.

The first is sending "genuinely threatening communications" such as a threat to rape, kill or cause financial harm, or coercive and controlling behaviour and online stalking.

Sending "harmful communications", such as a domestic abuser sending an ex-partner a photograph of their front door to frighten them, is the second. However, offensive content with no intent to cause serious distress would not be illegal.

The final new offence is "knowingly false communications", which would cover messages deliberately sent to inflict harm", such as a hoax bomb threat.

The government said the bill would not prohibit "misinformation", such as a social media post promoting a fake coronavirus cure, as long as those spreading it were unaware what they were saying was false.

If you or someone you know are feeling emotionally distressed, information on where you can go for support is available on BBC Action line here.

Dog pee and poop could be harming the soil in nature reserves, study suggests

Marianne Guenot
Mon, February 7, 2022

A man hikes with his dog at Hocking Hills in Ohio

.Holly Hildreth/Contributor/Getty Images

Dogs relieving themselves in nature are overfertilizing complex environments, a study suggested.


The contamination can knock the environment out of balance, favoring one plant over others.


Dog owners should be educated about this risk to limit the impact on the environment, a study author said.

Dogs relieving themselves in nature may be overfertilizing ecosystems and causing a damaging loss of biodiversity, a new study has found.

The study, published Monday in the peer-reviewed journal Ecological Solutions and Evidence, relied on surveys of pet density over time in four nature reserves around Ghent, Belgium.

Though the findings were made in Belgium, the situation is likely similar in other reserves close to cities in Europe and in the US, Pieter De Frenne, a bioengineer of the University of Ghent and an author on the study, told Insider.

Dog feces and urine are "more than likely" contributing substantial levels of phosphorus and nitrogen — which are potent fertilizers — to the environment, De Frenne said.

The amount of nutrients that could be released in the environment was assessed from an estimate of how often the dogs poop and pee, and how phosphorus and nitrogen-rich the feces and urine are on average.

"When there is an excess of nitrogen available in the soil, only a selection of competitive plants are able to cope," De Frenne said.

These plants then overtake the environment and smother other plants.

"Orchids are a typical example. These are outcompeted and lost from the ecosystem," said De Frenne.

Assuming pet owners don't pick up the feces, dogs could be contributing about 24 lbs (11 kg) of nitrogen and 11 lbs (5 kg) of phosphorus per 2.47 acres (1 hectare) per year to the soil.

That means dogs could be pushing the environments well beyond the "critical load" — the amount of nitrogen that can enter an ecosystem without affecting biodiversity.

"For most of the ecosystems that we worked in, that level is 20 kg per hectare (44 lbs per 2.47 acres) per year," said De Frenne.

Air pollution from agriculture and traffic already contributes another 11 to 55 lbs (5 to 25 kg) of nitrogen per 2.47 acres (1 hectare) a year to soil contamination, the study authors said in a statement accompanying the study.

To reduce the load on environments, park managers could introduce more off-leash dog parks in areas with less sensitive ecosystems, De Frenne said.

Dog owners could also try to encourage their dogs to go before entering the park, or keep them on a leash to avoid spreading the contamination, he said.

"At least pick up the feces, because then you remove 97% of the phosphorus and half of the nitrogen," De Frenne said.