Five Chinese state-owned companies, under scrutiny in US, will delist from NYSE

Reuters | August 12, 2022 | 

The New York Stock Exchange on Wall Street in New York City. 

(Image by Ken Lund, Flickr).

Five US-listed Chinese state-owned companies whose audits are under scrutiny by the U.S. securities regulator said on Friday they would voluntarily delist from the New York Stock Exchange.


Oil giant Sinopec 600028.SS and China Life Insurance 601628.SS, Aluminium Corporation of China (Chalco) 601600.SS, PetroChina 601857.SS and a separate Sinopec entity, Sinopec Shanghai Petrochemical Co 600688.SS, each said they would apply to delist their American Depository Shares this month. They will keep their listings in Hong Kong and mainland China.

In May, the U.S. Securities and Exchange Commission (SEC) flagged the five companies and many others as failing to meet U.S. auditing standards.The companies did not mention the dispute in their announcements, which come as tensions mounted after U.S. House of Representatives Speaker Nancy Pelosi visited Taiwan.

Beijing and Washington are in talks to resolve a long-running audit dispute which could result in Chinese companies being banned from U.S. exchanges if China does not comply with Washington’s demand for complete access to the books of U.S.-listed Chinese companies.

Beijing bars foreign inspection of audit documents from local accounting firms, citing national security concerns.

“These companies have strictly complied with the rules and regulatory requirements of the U.S. capital market since their listing in the U.S. and made the delisting choice for their own business considerations,” the China Securities Regulatory Commission (CSRC) said in a statement.

It added that it would keep “communication open with relevant overseas regulatory agencies.”

The oversight row, which has been simmering for more than a decade, came to a head in December when the SEC finalized rules to potentially prohibit trading in Chinese companies under the Holding Foreign Companies Accountable Act. It said 273 companies were at risk.

Some of China’s largest companies including Alibaba Group Holdings BABA.N, JD.com Inc 9618.HK, JD.O and Baidu Inc BIDU.O are among them. New York-listed Alibaba said last week it would convert its Hong Kong secondary listing into a dual primary listing which analysts said could ease the way for the Chinese e-commerce giant to switch primary listing venues in the future.

U.S.-listed shares of China Life Insurance LFC.N and oil giant Sinopec SNP.N fell 3.06% and 3.22% respectively on Friday. Aluminium Corporation of China ACH.N dropped 3.03%, while PetroChina PTR.N shed 2.80%. Sinopec Shanghai Petrochemical Co SHI.N shed 3.29%.

Spokespeople for NYSE and the Public Company Accounting Oversight Board (PCAOB), the audit watchdog overseen by the SEC, declined to comment.
Losing patience

It was unclear what if any implications the delistings had for the audit deal negotiations. Last month, Reuters reported that de-listing sensitive companies will not bring China into compliance with U.S. rules because the PCAOB must be able to conduct inspections retrospectively. The agency’s position has not changed, a person with knowledge of the matter said on Friday.

Some market-watchers said the delistings were a bad sign.

“China is sending a message that its patience is wearing thin,” said Kai Zhan, senior counsel at Chinese law firm Yuanda, who specializes in U.S. capital markets.

The companies said their U.S. traded share volume was small compared with those on their other major listing venues. Still, volume for the U.S.-listed shares for the five companies on Friday was well above their 10-day average.

PetroChina said it had never raised follow-on capital from its U.S. listing and its Hong Kong and Shanghai bases “can satisfy the company’s fundraising requirements.”

Global fund managers holding U.S.-listed Chinese stocks are steadily shifting towards their Hong Kong-traded peers, even as they remain hopeful the audit dispute will eventually be resolved.

“These companies are very thinly traded with very small US market cap so it is not a loss for US capital markets,” Brendan Ahern, CIO of KraneShares, which has a New York-listed fund focused on Chinese tech, wrote in an email.

He and some analysts said they believed the delistings could still help pave the way for an audit deal.

“We see this as a positive sign. This is consistent with our view China will decide what companies would be allowed to be US-listed and thus subject to SEC’s audit investigations,” Jefferies analysts wrote.

China Life and Chalco said they would file for delisting on Aug. 22, with it taking effect 10 days later. Sinopec, whose full name is China Petroleum & Chemical Corporation, and PetroChina said their applications would be made on Aug. 29.

China Telecom 0728.HK, China Mobile 0941.HK and China Unicom 0762.HK were delisted from the United States in 2021 after a Trump-era decision to restrict investment in Chinese technology firms. That ruling has been left unchanged by the Biden administration amid continuing tensions.

(Reporting by Samuel Shen in Shanghai, Scott Murdoch in Hong Kong and Medha Singh in BengaluruAdditional reporting by Michelle Price, Echo Wang and Chuck MikolajczakEditing by David Goodman, Alexander Smith, Matthew Lewis and David Gregorio)

Indonesia revokes thousands of mining permits covering over 3 million hectares

Reuters | August 12, 2022 |

Indonesian president Joko Widodo. (Image by Russian Presidential Executive Office, Wikimedia Commons).

Indonesia’s investment minister said more than 2,000 mining permits for various minerals have been revoked amid efforts to tighten the sector’s governance and plan for land redistribution.


The ministry has revoked 2,065 permits covering more than 3.1 million hectares (7.66 million acres) of land across the country, Investment Minister Bahlil Lahadalia told reporters on Friday.


President Joko Widodo in January ordered thousands of mining, plantation and forest-use permits to be revoked due to non-compliance or because they had not been used.

Of the total number of permits that have been revoked, 306 were coal mining permits, 307 were for tin mining, and over 100 were for nickel mining, Bahlil said, adding that dozens of bauxite, copper and gold mining licenses have also been revoked.

The government plans to redistribute the land to other companies, Bahlil said.

“We want new entrepreneurs in these regions, so there will be balance and the economy is not controlled by certain groups,” Bahlil said, adding the government would allow companies a chance to get their permits back in case of errors.

Around 700 companies have logged complaints over wrongfully revoked permits and authorities have started verification processes for the first 200, Bahlil said.

Five subsidiaries of coal miner PT Bayan Resources had filed a lawsuit against Indonesia’s investment ministry over changes to their mining permits, but later withdrew after getting written confirmation from authorities that no change will be made to their mining area sizes and permit durations.

(By Fransiska Nangoy; Editing by Kanupriya Kapoor)

Scientists figure out how to produce extraterrestrial cement

Staff Writer | August 12, 2022 

Cement. (Reference image by Pong Koedpoln, Pxhere).

Researchers at the University of Delaware are exploring ways to use clay-like topsoil materials from the moon or Mars as the basis for extraterrestrial cement, which would be used for buildings, housing, or rocket landing pads.


“If we’re going to live and work on another planet like Mars or the moon, we need to make concrete. But we can’t take bags of concrete with us—we need to use local resources,” Norman Wagner, co-author of the study that explores this idea, said in a media statement.

According to Wagner, succeeding in the creation of ET cement will require a binder to glue the starting materials together through chemistry. One requirement for this construction material is that it must be durable enough for the vertical launch pads needed to protect man-made rockets from swirling rocks, dust and other debris during liftoff or landing. Most conventional construction materials, such as ordinary cement, are not suitable under space conditions.

To overcome these limitations, the UD scientists decided to convert simulated lunar and Martian soils into geopolymer cement, which is considered a good substitute for conventional cement. The research team also created a framework to compare different types of geopolymer cement and their characteristics.

In their paper published in Advances in Space Research, the researchers explain that geopolymers are inorganic polymers formed from aluminosilicate minerals found in common clays everywhere from Newark, Delaware’s White Clay Creek, to Africa. When mixed with a solvent that has a high pH, such as sodium silicate, the clay can be dissolved, freeing the aluminum and silicon inside to react with other materials and form new structures—like cement. Soils on the moon and Mars contain common clays, too.

Simulating moon and Martian soils

These similarities made co-authors Maria Katzarova and Jennifer Mills wonder if it was possible to activate simulated moon and Martian soils to become concrete-like building materials using geopolymer chemistry. Thus, they systematically prepared geopolymer binders from a variety of known simulated soils in the same exact way and compared the materials’ performance, which hadn’t been done before.

The researchers mixed various simulated soils with sodium silicate then cast the geopolymer mixture into ice-cube-like moulds and waited for the reaction to occur.

After seven days, they measured each cube’s size and weight, then crushed it to understand how the material behaves under load. Specifically, they wanted to know if slight differences in chemistry between simulated soils affected the material’s strength.

“When a rocket takes off there’s a lot of weight pushing down on the landing pad and the concrete needs to hold, so the material’s compressive strength becomes an important metric,” Wagner said. “At least on earth, we were able to make materials in little cubes that had the compressive strength necessary to do the job.”

The researchers calculated how much terrestrial material astronauts would need to take with them to build a landing pad on the surface of the moon or Mars. Turns out, the estimated amount is well within the payload range of a rocket, anywhere from hundreds to thousands of kilograms.

Performance under different conditions

The team also subjected the samples to different environments present in space, including vacuum and low and high temperatures.

Under vacuum, some of the material samples did form cement, while others were only partially successful. However, overall, the geopolymer cement’s compressive strength decreased under vacuum, compared to geopolymer cubes cured at room temperature and pressure. This raises new considerations, depending on the material’s purpose.

“There’s going to be a tradeoff between whether we need to cast these materials in a pressurized environment to ensure the reaction forms the strongest material or whether we can get away with forming them under vacuum, the normal environment on the moon or Mars, and achieve something that’s good enough,” Mills said.

Meanwhile, under low temperatures of about -80 degrees Celsius, the geopolymer materials didn’t react at all.

A crushed geopolymer cube made from simulated lunar topsoil, inset shows magnification of lunar topsoil particles which have been activated and reacted to form the geopolymer binder. (Image courtesy of the University of Delaware).

At high temperatures, about 600 degrees Celsius, the researchers found that every moon-like sample got stronger.

This was not surprising, given how the kinetics were hindered at low temperatures. The research team also saw changes in the physical nature of the geopolymer cement under heat.

“The geopolymer bricks became much more brittle when we heated them up, shattering as opposed to becoming compressed or breaking in two,” Mills pointed out. “That could be important if the material is going to be subjected to any type of external pressure.”

Based on their results, the researchers said that chemical composition and particle size may play an important role in material strength. For example, smaller particles increase the available surface area, making them easier to react and potentially leading to greater overall material strength. Another possible factor: the amount of aluminosilicate content in the starting materials, which can be tricky to estimate when added solutions may also contain small concentrations of these materials and contribute to material performance.

The group notes that understanding what affects material strength is important, too, since astronauts will be sourcing our topsoil materials from different places on planets—and maybe even different planets altogether.

These results also can be used on earth to make geopolymer cement that is better for the environment and can be sourced from a wider variety of local materials. Geopolymer cement requires less water than is needed to make traditional cement because the water itself is not consumed in the reaction. Instead, the water can be recovered and reused, a plus in water-limited environments from arid earthly landscapes to outer space.

Glencore cuts off Chinese trader caught up in missing copper scandal

MINING.COM Editor | August 12, 2022 

Copper warehouse. (Stock image)

Global commodity traders including Glencore (LON: GLEN) and IXM have halted shipments to Chinese metals merchant Huludao Ruisheng after nearly half a billion dollars’ worth of copper went “missing” at a storage site in the country’s north.


Thirteen Chinese trading companies —12 of which are state-owned — were financing the storage site in Qinhuangdao, which was found to hold only one-third of the 300,000 tonnes of copper concentrate.

The firms are facing potential losses of as much as 3.3 billion yuan ($490 million) from the missing concentrate and have sent a team to Qinhuangdao to investigate and determine appropriate legal action, the Financial Times reported on Friday.

“It’s not the first time we’ve had the problem with material going missing in China,” Colin Hamilton, managing director of commodities research at BMO Capital Markets wrote. “Onshore financing in China for any foreign bank or trading house will become harder.”

Glencore transferred some of its existing metal stocks from Qinhuangdao to alternatives such as Qingdao in an effort to avoid similar problems, FT reported, citing a trader.

The source added that Western companies’ exposure to Huludao Ruisheng was limited.

Trump used an obscure taxpayer-funded office to attack New York Attorney General Tish James on the morning her office deposed him

Dave Levinthal,Madison Hall
Wed, August 10, 2022

Former President Donald Trump.Pablo Martinez Monsivais/AP

Trump disseminated several videos on Wednesday attacking New York Attorney General Tish James.

The videos were shared from the "Office of Donald J. Trump."

The Office of Donald J. Trump is taxpayer-funded via the Former Presidents Act.

Donald Trump is, of course, no longer president — much as he'd like to be and may again attempt to become.

But this morning, in four email messages emblazoned with the presidential seal, Trump used an obscure, taxpayer-funded office to skewer New York Attorney General Letitia James, whose legal team today is deposing him as part of an investigation into alleged financial wrongdoing by the Trump Organization, his multi-billion-dollar business conglomerate.

"ICYMI: Letitia James' Radical Witch Hunt," read the subject line for four messages from the Office of Donald J. Trump on Wednesday morning, each linking to videos on the social media platform Rumble and showcasing quotes from the attorney general about her desire to take down Trump and questioning the legitimacy of his presidency.

Former President Donald Trump's taxpayer-subsidized office, afforded to him by the Former Presidents Act, distributed four videos on August 10 attacking New York Attorney General Tish James.The Office of Donald J. Trump

Trump then released a lengthy statement from his official office decrying James and explaining why he's invoking his 5th Amendment right against self-incrimination and not answering questions during the deposition.

Good-government advocates decried Trump's use of an official, taxpayer-subsidized office for this purpose.

"By using this office and the presidential seal, Trump is conveying a sort of government endorsement or approval of his attacks. It is unseemly, it is wrong and this is not how taxpayer dollars should be spent," said Jenna Grande, a spokesperson for nonpartisan watchdog organization Citizens for Responsibility and Ethics in Washington.

"It's obviously unseemly for taxpayers to be funding an enterprise that's sending these types of ads," said Saurav Ghosh, director of federal campaign finance reform for the Campaign Legal Center, another nonpartisan watchdog organization.

Ghosh added, however, that he knew of no law that expressly prohibits Trump from using his official office as a bludgeon against political adversaries. Trump is also not subject to any federal government ethics rule because he no longer holds office.

Allan Lichtman, an American University history professor and expert on the US presidency, agreed that Trump's anti-James messaging doesn't appear to violate any law.

"While not illegal, the use of the taxpayers' office for political propaganda is clearly unethical," Lichtman told Insider. "It violates the purpose of the act, which was to provide nonpartisan assistance to former presidents and falsely creates an aura of official sanction for Trump's political messages."

Representatives for Trump and James did not immediately respond to requests for comment.

Trump gets taxpayer-funded perks

Passed in 1958, the Former Presidents Act gives former US presidents lifetime access to a variety of perks, including office space, staff funding, a pension, travel reimbursement, and Secret Service protection.

Currently, Trump is entitled to $150,000 worth of public money per year to pay staff at his official post-presidency office. That figure will drop to $96,000 per year come mid-2023, according to the Former Presidents Act.

Trump is likewise entitled to $1 million per year in travel reimbursements while former First Lady Melania Trump is entitled to a travel reimbursement of $500,000 annually.

The General Services Administration also stands to provide Trump unspecified funding for a "suitable office space, appropriately furnished and equipped." For Trump, that office space is located at his Mar-a-Lago resort in Palm Beach, Florida, which FBI agents searched on Monday.

The same financial benefits Trump receives are also extended to the nation's other living former presidents, including Barack Obama, George W. Bush, Bill Clinton, and Jimmy Carter, per the act.

A 2020 study by the National Taxpayers Union Foundation found that taxpayer-subsidized rent for former presidents' offices can run into the millions of dollars annually.

Currently, only a former president removed from office after being impeached can be stripped of the benefits, although Congress could amend the Former Presidents Act to adjust benefits as it sees fit.

While many former presidents use their post-presidential offices to administer official statements — often non-controversial ones — the offices generally don't wade into highly politicized matters. They're almost never used as vehicles for launching attacks on other public figures.

Trump, who is actively considering another presidential run in 2024, didn't need to use his official office to attack James.

That's because Trump leads a collection of privately-funded federal political committees, including the Save America PAC and Make America Great Again PAC, that he can and does use to make overtly political statements and actions — and raise what's now amounted to tens of millions of dollars in contributions.

But shortly after leaving the White House, Trump's taxpayer-funded office telegraphed that Trump may use his official office differently than past presidents.

The office said it would be "responsible for managing President Trump's correspondence, public statements, appearances, and official activities to advance the interests of the United States and to carry on the agenda of the Trump Administration through advocacy, organizing, and public activism."

It added: "President Trump will always and forever be a champion for the American People."

Shortly after Trump's impeachment trial acquittal on February 13, 2021, his post-presidency office also released a statement foreshadowing a Trump comeback — of one sort or another.

In part, it read: "Our historic, patriotic and beautiful movement to Make America Great Again has only just begun. In the months ahead I have much to share with you, and I look forward to continuing our incredible journey together to achieve American greatness for all of our people. There has never been anything like it!"

White residents-only town booms in 'Rainbow Nation' South Africa

Susan NJANJI
Wed, August 10, 2022


From a distance, Orania looks like any other small town in rural South Africa.

But once inside, the visitor is struck by an obvious difference.

Everyone here is white.

And in a country where menial work in wealthy areas is typically done by black employees, white people here mop supermarket floors, wield leaf blowers and harvest the nuts on pecan farms.

Orania residents are 100-percent white in a country that has declared an end to racial segregation.

The history of this incongruity dates back to 1991, when apartheid was in its death throes.

White Afrikaners -- descendants of 17th-century Dutch colonisers -- bought up 8,000 hectares (19,000 acres) of land on the banks of the Orange River, in the sparsely populated Karoo region.

Using an autonomous status under the post-apartheid constitution, they created a privately-owned town which has so far admitted only white inhabitants.

Today, Orania's population has surged almost 10-fold, reaching around 2,500, and the economy is booming.

Old Cape Dutch-style houses hobnob with modern townhouses, separated by low or no walls, but kempt gardens. Children ride bicycles and adults jog freely on the clean streets.

Small orange-white-and-blue flags -- the South African colours under apartheid -- flutter in the afternoon wind at construction sites.

- 'Not racist' -

Sensitive to accusations of racism, residents insist they are not apartheid-era nostalgics but a community pursuing "freedom with responsibility".

This means, in their view, a community that manages its own affairs, away from the crime, power cuts, dysfunctional local governance and other problems plaguing South Africa today.

"People see Orania and maybe see there are no black workers... and their first idea is 'wow these guys must be racist', that's exactly not the case," said Wynand Boshoff, 52, a pioneer resident.

In rich suburbs elsewhere in South Africa, manual jobs are done almost exclusively by black workers.

But Orania says it has broken with colonial- and apartheid-era labour practices.

"We do our own work, from gardening to cleaning our houses, our own toilets to construction, everything," said spokesman Joost Strydom.

Orania, he said, is the only community that shuns "the system of cheap black labour."

- Autonomy -

Under South Africa's constitution, Orania has the right to self-determination and operates autonomously from central government.

It has its own currency, the ora, pegged one-to-one to the rand.



The town is also seeking energy independence through solar, in a country largely powered by coal and deep into an energy crisis.

Prospective residents are vetted and must have no criminal record.

"It's like going into a marriage," said Strydom, a 28-year-old born in the southeastern province of KwaZulu-Natal.

Would-be residents must "share the values and subscribe" to the town's goals, he said, insisting Orania was not "racist" or a "desperate grasp back to apartheid".

Boshoff said there was nothing stopping any non-white Afrikaners from applying -- only no-one ever did.

"We haven't found anybody," he said.

- Boom -

Orania's population has grown by up to 17 percent annually in recent years, and in 2021 new business creations were up by a quarter, said Strydom. Tourism is one of the main business activities, attracting an average 10,000 visitors annually.

"Suddenly other communities are saying 'how can we learn from you?'," he said.

When AFP journalists were in Orania recently, some traditional royal emissaries from the Xhosa and Tswana ethnic groups were in town on a "diplomatic" visit.

"It was important for me to go... Whether right or wrong, there is a success story in there somewhere," said Gaboilelwe Moroka, 40-year-old chief of the Barolong Boo Seleka, part of Tswana ethnic group in neighbouring Free State province.

"It's unfortunate these things are overly politicised," she said.

Boshoff, the grandson of the architect of apartheid Hendrik Verwoerd, argued that Afrikaners created Orania because they needed a place to call home.

"Every African tribe or clan has a place of its own which they use as a reference point," said Boshoff, who is also a right-wing lawmaker in the national parliament.

Orania has "become part of the South African landscape", he said, after delivering a Sunday morning sermon at a Dutch Reformed church.

- Afrikaner world -

Private towns such as Orania are not unusual, said municipality governance expert Sandile Swana.

"You are going to see more of these," said Swana.

"The only difference with Orania is that they have chosen their own ethnic background and culture" as a pre-condition.

Another Afrikaner-only town, Kleinfontein, lies some 30 kilometres (18 miles) outside the capital of the "Rainbow Nation", Pretoria.

South Africa's first black president, Nelson Mandela, strove relentlessly to reconcile the deeply divided country.

He visited Orania in 1995 and had tea with Verwoerd's widow. A white teaset they drank from is among the memorabilia neatly arranged in an unassuming white house where Betsie Verwoerd spent her last years.

Outside the church, Ranci Pizer, a 58-year-old former government worker who relocated to Orania from Pretoria in December, said she enjoyed having more social interaction with neighbours on the streets.

"It's a community where I can express myself in my own culture," she said.

A short drive up a hill is a collection of statues donated by people who no longer wanted anything to do with Afrikaner history after the fall of apartheid.

"Afrikaner history gets almost criminalised," said Joost.

sn/ub/ri/ah

Why Carlyle's Billionaire Founders Had Enough of Their Chosen Successor



Heather Perlberg and Dawn Lim
Tue, August 9, 2022 

(Bloomberg) -- Inside Carlyle Group, battle lines were forming. On one side: Kewsong Lee, the executive hand-picked to assume the mantle of Carlyle’s co-founders and clear the path for a new generation of leaders. On the other: the very people who hand-picked him.

Growing tensions within the private-equity firm -- between a new CEO eager to assert power and an old guard reluctant to give it up -- reached the breaking point last week. Carlyle’s board members decided they had lost confidence in Lee’s leadership. The CEO, after seeking a larger pay package for his contract set to renew at the end of 2022, abruptly stepped down.

The change was announced Sunday night in a statement devoid of all that drama, saying both sides mutually agreed that “the timing is right” to find a new CEO and that founder William Conway would serve in the interim. But insiders said it was a long time coming.

And so ended one of the earliest attempts by some of the private-equity world’s original titans to find worthy heirs, a process proving difficult across the industry. Carlyle’s founders began prepping years ago, giving control to a pair of co-CEOs, Lee and Glenn Youngkin, who were supposed to work together seamlessly, each with different strengths and styles. But Lee sidelined Youngkin -- who made a successful jump to politics -- and then ended up with little choice but to leave, too. The firm is now starting its hunt anew.

Current and former executives and others close to Carlyle described how the latest drama unfolded over the past several months on the condition they not be named because of concern it could affect their work with the company.

Spokespeople for Carlyle and Lee had no comment.

This year began with Youngkin, 55, becoming governor of Virginia and Lee, 56, tightening his grip on the company they had once run together. But there were frictions between the sole CEO and some Carlyle stalwarts.

For years, Lee focused on consolidating businesses, cutting fat and putting resources in areas where he saw opportunities to grow the fee streams prized by shareholders, such as credit. He wasn’t known to be deferential to Carlyle veterans and welcomed how Zoom democratized internal dynamics. Starting in 2020, for example, he would often ask the same question in investment committee meetings: “Who’s the youngest person in the room? What have we missed?”

Supporters, including many current and former employees, saw him as a shrewd leader with the kind of investing smarts that Carlyle needed to move beyond its roots as a leveraged buyout firm and compete with more diversified peers. For all of their successes, the founders were known for taking chances that didn’t pay off. The firm took stakes in hedge funds like Emerging Sovereign Group and Claren Road Asset Management only to exit them. Lee inherited some of the mess from past missteps and played a large role in cleaning it up.

Decisive and assertive, Lee put his mark on things quickly. Credit is now 38% of its assets, up from 22% in the second quarter of last year, reflecting his drive to diversify revenue. When it was time to make a key decision on an expansion into insurance, emulating some competitors, Lee steered the board’s discussion to get the outcome he wanted. He talked to them about taking a minority stake in Fortitude Re -- his preference -- rather than taking a majority holding with a higher regulatory cost. That deal would eventually help the firm lock in about $48 billion in assets from Fortitude.

Yet some executives at Carlyle were concerned that Lee’s push to shore up balance-sheet capital for growth initiatives would affect the size of dividend payouts. That intensified a debate inside Carlyle over how aggressively the firm should expand beyond its private equity businesses into other areas such as credit.

Eroding Values

Founders Conway, Daniel D’Aniello and David Rubenstein had always sought to foster a tight triumvirate at the top and prided themselves on being collegial and building consensus, people familiar with their style said.

But increasingly, some members of the board -- where the founders still sit -- worried that Lee was eroding Carlyle’s genteel values, risking the alienation of investors and employees. A wave of departures, including Tyler Zachem, Rodney Cohen and Ashley Evans, stirred a debate over whether talent loss was becoming more commonplace. At one point this year, the head of human resources, Bruce Larson, presented data to the board showing that recent attrition wasn’t unusual.

What’s more, Carlyle was falling out of favor with shareholders. By the end of last week, the stock was down 31% this year, worse than at Apollo Global Management Inc., KKR & Co. and Blackstone Inc.

Some of Lee’s attempts to grow the firm were posing new risks. A purchase of collateralized loan obligation assets from CBAM Partners earlier this year made Carlyle a major manager of those bundles of loans, but it exposed the firm to a selloff that ensued.

Fundraising for Carlyle’s flagship strategy went slower than expected. The firm told investors in June that it had so far gathered about $15 billion for its new buyout and growth fund. That’s less than the $17 billion it anticipated collecting by roughly midyear on the way to a $22 billion target. Lee had slashed the team at Carlyle responsible for raising money from the largest institutional investors, such as pensions, sovereign wealth funds and endowments in 2020.

His assertive style worked for dealmaking but it increasingly ruffled the founders, whose roles gradually diminished as he encouraged them to step back. He rebuffed their attempts to help bring in more money and provide advice.

The three founders had all taken on new projects in recent years. Rubenstein, for instance, writes books and hosts a show on Bloomberg Television.

But with departures and the stock slide continuing, the trio of billionaires -- who collectively hold more than 25% of the company -- were increasingly feeling the need to intervene.

In recent months, Lee worked with advisers to sketch out a compensation package for his next contract, seeking to boost his potential payout to a level more commensurate with what rival firms paid their leaders, people with knowledge of the situation said. But the other side wasn’t interested in such a negotiation. After he asked for a package worth as much as $300 million over five years, the three founders never responded, the Financial Times reported.

They’d had enough and Lee resigned.

Still, the strategy will remain the same, according to people close to the firm.

Investors though are concerned. The stock tumbled 7% on Monday and fell as much as 5.2% on Tuesday, as analysts highlighted the uncertainty created by the CEO’s abrupt exit.

“We doubt that there is anything substantively wrong with the company,” Oppenheimer analysts including Chris Kotowski wrote in a note to clients. “It is, in our mind, most likely a case of the empire striking back.”

(Updates with concern about dividends in 11th paragraph, compensation proposal in 20th paragraph.)

An unusual deal gave Virginia Gov. Glenn Youngkin $8.5 million in stock. He paid $0 in tax on it.

Gretchen Morgenson
Thu, August 11, 2022 at 2:43 AM·10 min read

In January 2020, Glenn Youngkin, now the Republican governor of Virginia, got some welcome news. A complex corporate transaction had gone through at the Carlyle Group, the powerful private equity company that Youngkin led as co-chief executive. Under the deal, approved by the Carlyle board and code-named “Project Phoenix,” he began receiving $8.5 million worth of Carlyle stock, tax-free, according to court documents.

The Project Phoenix payout came on top of $54 million in compensation Youngkin had received from Carlyle during the previous two years, regulatory records show. Youngkin retired from Carlyle on Sept. 30, 2020; he won the governor’s election in November 2021.

Youngkin was not alone in receiving the 2020 windfall, according to the court documents. Eight other wealthy Carlyle officials received over $200 million worth of company shares in the deal, tax-free and paid for by the company. David M. Rubenstein, Carlyle’s billionaire founder and co-chairman, received $70.5 million worth.

Now, that transaction is under attack by a Carlyle shareholder in Delaware Chancery Court. The suit, filed last week by the city of Pittsburgh Comprehensive Municipal Pension Trust Fund, says the $344 million deal harmed Carlyle’s stockholders, who received nothing in return when they funded the payday.

Meanwhile, the Carlyle insiders who received the payouts escaped a tax bill that would have exceeded $1 billion, according to the complaint, which accuses Rubenstein, Youngkin and other Carlyle officials of lining their own pockets at the expense of people like police officers and firefighters.

“The kind of impunity that Carlyle’s control group acted with is shocking and unacceptable,” lawyers for the Pittsburgh pension fund said in their complaint.

“The beneficiaries of the city of Pittsburgh Comprehensive Municipal Pension Trust Fund are municipal fire and police personnel serving the city of Pittsburgh. Many are first responders putting their lives on the line every day. They depend on the integrity of the financial markets to provide for their retirement.”

The Carlyle payout exemplifies the private equity industry’s laser focus on avoiding tax bills.

Private equity investors already receive special tax treatment on their earnings, under what is known as the carried interest loophole. Much of their income is taxed at 20%, far below the 37% maximum paid by high-earning salaried workers. Initially, the Inflation Reduction Act of 2022, which just passed the Senate, had narrowed the loophole’s benefits, but the change disappeared at the insistence of Kyrsten Sinema, the holdout Democratic senator from Arizona, according to news reports.

A Sinema spokeswoman told CNBC that she “makes every decision based on one criteria: what’s best for Arizona.”

Carlyle’s 2020 $344 million tax-free payout to its insiders cited in the lawsuit is a new twist on a type of contract known as a tax receivable agreement, or TRA. Companies and their founders typically create such agreements in conjunction with initial public offerings of the companies’ shares.

Under normal circumstances, TRA payouts can be a win-win for both a company and its insiders, market participants say, because both parties get something of value — the insiders get stock, and the company gets a tax benefit when they sell it.

But in a highly unusual move that was unfair to Carlyle’s shareholders, lawyers for the Pittsburgh pension fund say, Carlyle structured its payout as tax-free, generating no tax benefits to the company even as it enriched insiders. The tax-free payout was “an extreme outlier” among such agreements, and it was designed by the Carlyle insiders “to maximize the benefits for themselves in every possible way, to the detriment of the company and the public stockholders,” according to the lawsuit.

Asked to respond to the lawsuit’s allegations, a spokesperson for Youngkin provided this statement: “When Mr. Youngkin was a member of Carlyle’s leadership, the Carlyle board and an independent special committee retained independent experts and advisors to consider and approve a transaction that had significant benefits for the company and its shareholders. The plaintiff’s allegations are baseless and will be vigorously defended against.”

A Carlyle spokeswoman said in a statement: “Carlyle was the first U.S. private equity firm to convert to a one share one vote, best-in-class governance model creating better alignment with public shareholders who now have a greater vote and voice.”

Rubenstein, through a spokesman, declined to comment.

Lawyers representing the Pittsburgh pension declined to comment further on the suit.

Andy Lee, a New York City-based asset manager who is not involved in the suit, expressed concerns to NBC News about the details it outlined.

“If the allegations are true, we would discourage such behavior on the part of management,” said Lee, the chief investment officer of Parallaxes Capital, a financial firm that buys TRAs. “They are supposed to represent the interests of public shareholders.”

$283 million, tax-free, to Leon Black

The $344 million Carlyle payout sprang from two related events, the lawsuit states. The first was a change in Carlyle’s corporate structure, from a publicly traded partnership to a corporation. The second was the buyout of a tax receivable agreement the insiders had previously struck with the company.

Youngkin was one member of an eight-person committee of high-level Carlyle officials working on the TRA deal, the lawsuit says.

If company founders or early investors are subject to a tax receivable agreement, as they sell their holdings over time they pay taxes on the gains. Under tax rules, those payments create a benefit for the company, known as a tax asset, that the company can use to offset what it owes the IRS when it generates profits.

TRAs are becoming increasingly popular among public companies, regulatory documents show. Some 180 companies referred to tax receivable agreements in their Securities and Exchange Commission filings so far this year, according to Sentieo, a provider of a financial analysis and investment research platform. That’s double the 90 companies that mentioned the agreements for all of 2017.

The transactions have received scant attention in the financial press, and few deals have been controversial, because they are disclosed and they deliver a benefit to public shareholders, market participants said.

But a handful of recent TRA transactions involving prosperous private equity firms are coming under scrutiny, Delaware Chancery Court filings show.

In early March 2021, for example, Apollo Global Management, the huge private equity firm co-founded by multibillionaire Leon Black, agreed to buy out tax receivable agreement rights held by a group of the company’s top officials, court documents say. Citing documents received by an Apollo shareholder under a books and records request in Delaware Chancery Court, a filing in the matter last fall says that five Apollo officials received almost $600 million, tax-free, when the company purchased their tax receivable agreement rights under a change in the company’s structure.

Black received $283 million in Apollo stock, tax-free, in that March 2021 deal, and four other Apollo executives and directors — two of them multibillionaires, according to Forbes magazine — shared in another $295 million, the filing says.

Leon Black, chairman and chief executive officer of Apollo Global Management, attends the annual Milken Institute Global Conference in Beverly Hills, Calif., on April 30, 2013. (Patrick T. Fallon / Bloomberg via Getty Images file)

A few weeks after the transaction, Black stepped down from the firm. That January, the company’s law firm had issued a report detailing Black’s long-standing financial relationship with the late Jeffrey Epstein, the financier who died by suicide while awaiting trial on federal sex trafficking charges. It cleared Black of wrongdoing, but he stepped down in March 2021, citing “the relentless public attention” on his Epstein ties.

A spokesman for Black did not respond to an email seeking comment about the TRA deal.

Asked about the Delaware filing, a spokeswoman for Apollo disputed that the payout was made under a TRA. Rather, she said in a statement, it was “to facilitate Apollo’s transition to a single class of common stock, among other corporate governance and structure changes — which benefited all shareholders.”

The company founders “gave up their right to control Apollo and, along with certain other senior Apollo professionals, forfeited a valuable economic asset to which they were legally entitled. In addition, the payments were negotiated solely by a committee of independent directors with independent advisors.”
‘Infected by conflicts of interest’

Tax-free payouts to executives of top private equity firms are notable because the tax code already allows them to pay much lower tax rates on their earnings. The tax treatment has helped propel many top private equity executives to billionaire status in recent years.

Private equity firms use large amounts of debt to buy companies that they hope to sell at a profit in a few years. The firms have taken over large swaths of the U.S. economy, acquiring companies in almost every industry, including health care, fast food, retailers, residential rental properties, nursing homes and pet care.

The firms say they resurrect struggling companies, but academic research shows they can also have a pernicious effect on the companies they buy, including job and benefit cuts, as well as pension depletions.

Three private equity firms benefited in another recent TRA payout, according to a Delaware Chancery Court suit filed in June by an International Brotherhood of Electrical Workers pension plan. Unlike the Carlyle and Apollo deals, the transaction was not tax-free; instead, it was problematic, the lawsuit says, because the payout was far too rich.

The suit is against the board of directors of GoDaddy, a web hosting firm that issued shares to the public in 2015. Early investors in GoDaddy included KKR, Silver Lake Partners and Technology Crossover Ventures, three wealthy private equity firms. None of the firms was named as a defendant.

In July 2020, GoDaddy paid $850 million in a tax receivable agreement generating $201 million to KKR, $212 million to Silver Lake and $92 million to Technology Crossover Ventures, the lawsuit said. The payout was the largest ever by a public company under a tax receivable agreement with pre-IPO owners, the suit noted.

According to the complaint, GoDaddy didn’t have enough cash to make the payment, so it borrowed $750 million for it. Even more troubling, a year before the payout, GoDaddy had valued the TRA at $175 million, based on its independent auditor’s assessment, the lawsuit said.

The pension fund sued GoDaddy’s board, saying the transaction was unfair and that it had been “infected by conflicts of interest.” It alleged the board did not seek approval of the deal from GoDaddy stockholders, for example, and a board committee formed to oversee the transaction decided against hiring a financial adviser to opine on its fairness. On top of that, the board and the special committee “had historical and ongoing financial and professional ties to the founding investors that benefited from the overpayment,” the lawsuit contends.

Representatives of GoDaddy, KKR and Silver Lake Partners declined to comment. Technology Crossover Ventures did not respond to an email seeking comment.

Payments under tax receivable agreements can have significant impacts on companies’ financial results, said Nick Mazing, the director of research at Sentieo. “We have seen examples where the associated TRA liability is a significant percentage of a company’s overall liabilities,” Mazing said, “and where the ongoing TRA payments consume double-digit percent shares of the cash flows generated by operations.”

SEC filings by El Pollo Loco, a restaurant chain, show that for the three years ending in 2019, it made $24.1 million in tax receivable payments. The payments reduced its cash flow from operations by 15% over the period, the filings show.

Given the rise in TRAs and the litigation surrounding them, investors are likely to pay more attention to them, said Jonathan Choi, an associate professor at the University of Minnesota law school and an expert on tax law.

“I think that early on these agreements were drafted without knowing how they would play out,” Choi said. “Going forward, law firms and companies will take more care to specify what will happen in an early termination and be more careful about what was disclosed to shareholders.”

EU, Korea say U.S. plan for EV tax breaks may breach WTO rules

Tesla electric vehicles are shown at a sales and service center in Vista, California

Thu, August 11, 2022 
By John Chalmers and Hyunjoo Jin

BRUSSELS (Reuters) -The European Union and South Korea raised concerns about proposed U.S. tax credits for purchases of electric vehicles, saying they may adversely affect foreign-made vehicles and breach World Trade Organization (WTO) rules.

Under the $430 billion climate and energy bill passed by the U.S. Senate on Sunday, Congress would lift the cap on the existing $7,500 tax credit for electric vehicle purchasers but impose restrictions, including barring vehicles not assembled in North America from receiving the credit.

The ban on tax credits for vehicles assembled outside of North America would take effect as soon as President Joe Biden signs the legislation.


The proposed legislation also includes provisions aimed at preventing use of battery components or critical minerals derived from China.

"We think it's discriminatory, that it is discriminating against foreign producers in relation to U.S. producers," said European Commission spokesperson Miriam Garcia Ferrer. "Of course this would mean that it would be incompatible with the WTO."

Garcia Ferrer told a news briefing the EU agreed with Washington that tax credits are an important incentive to drive demand for EVs and promote the transition to sustainable transport and a reduction in greenhouse gas emissions.

"But we need to ensure that the measures introduced are fair and ... non-discriminatory," she said. "So we continue to urge the United States to remove these discriminatory elements from the bill and ensure that it is fully compliant with the WTO."

South Korea also said on Thursday that it has expressed concerns to the United States that the bill could potentially violate WTO rules and a bilateral free trade deal. South Korea's trade ministry said in a statement that it has asked U.S. trade authorities to ease battery component and final vehicle assembly requirements.

South Korea's trade ministry held a meeting with automaker Hyundai Motor Co and battery makers LG Energy Solution, Samsung SDI and SK. The companies asked Seoul to support them so that the bill would not put them at a competitive disadvantage in the U.S. market, according to the statement.

Hyundai said it is "disappointed that the current legislation severely limits EV access and options for Americans and may dramatically slow the transition to sustainable mobility in this market."

Hyundai, which imports its flagship electric vehicles from Korea, has recently announced U.S. investments of $10 billion including EV manufacturing in Alabama and Georgia.

A group of major automakers said last week that most EV models would be ineligible for tax credits because of requirements for battery parts and critical minerals to be sourced from North America.

The EV tax break is part of the Inflation Reduction Act, which is likely to be passed by the House of Representatives on Friday and then sent to Biden for his signature.

(Reporting by John Chalmers in Brussels and Hyunjoo Jin in San FranciscoAdditional reporting by Joe White in Detroit and David Shepardson in WashingtonEditing by Mark Potter and Matthew Lewis)

This CEO Is Going Viral On LinkedIn For Posting A Selfie While Crying After Laying People Off, And People Have Verrrry Strong Feelings About It

Thu, August 11, 2022 

If you've ever been at a company during layoffs, you likely know from experience that they're no fun for anyone. Getting laid off sucks the most. Being part of a smaller team with the same amount of work after your coworkers have been let go also sucks. And being the one doing all the laying off doesn't look like too much fun either.

Westend61 / Getty Images/Westend61

So recently, Braden Wallake, CEO of the B2B sales and marketing firm HyperSocial, made a post on LinkedIn about his experience with having to let a couple of employees go. The post quickly made him the internet's main character for a day and stirred up a lot of conversation.

LinkedIn / Via linkedin.com

He started the post by saying, "This will be the most vulnerable thing I'll ever share. I've gone back and forth whether to post this or not. We just had to layoff a few of our employees. I've seen a lot of layoffs over the last few weeks on LinkedIn. Most of those are due to the economy, or whatever other reason. Ours? My fault."

Braden Wallake

He went on to discuss what a difficult choice this was and how he loves his employees, writing, "I just want people to see that not every CEO out there is cold-hearted and doesn't care when he/she have to lay people off."

But the part of the post that really got people talking was this selfie:

Braden Wallake / Via linkedin.com

The post has racked up thousands of comments and stirred up a lot of debate. On one side, people saw the post as attention-seeking and performative, lacking in an actual apology, and centering himself instead of focusing on the employees who were just let go. In a word, cringe.

One commenter wrote, "Yikes. I was just laid off — along with many others. If my CEO sent this I'd probably lose my mind. You're crying? I'm crying. We're crying. You still have your job. Imagine if we all posted pictures of US crying? We'd never get hired, because we are forced to be RESILIENT in our industries."

Jackyenjoyphotography / Getty Images

But other commenters were more sympathetic to where Braden is coming from. One wrote, "When I see this post, I see a guy who is literally just trying his best. If you've ever had to lay someone off it really sucks. This guy cares about his employees — he decided to process some of this online. Could he have tagged the employees and said how great they were — sure, but did he expect this post to blow up like this? Probably not."

The post has even made it's way to Twitter, where it's being widely criticized as the epitome of LinkedIn Cringe™️.

Since the post went viral, Braden has been actively responding to questions and gotten permission from a former employee to share their information in the thread in hopes of connecting them with new opportunities.

LinkedIn / Via linkedin.com

Braden told BuzzFeed that he had other business owners in mind when he made the post. "I have the title of CEO but I'm also a small business owner. And I think that a lot of other small business owners, a lot of other CEOs like myself, have had to do something like this and have felt alone in the entire thing. Not all CEOs that are out there are these profit hungry, buying their fourth mansion in Mexico types."

"If I can help one other business owner, one other CEO, to not feel that they're alone in this journey, and they can feel support by seeing somebody else do it. That was the point of the post."

Dimensions / Getty Images

He also said that he was very surprised by how quickly the post blew up and that it was wild to watch. "I just kind of stayed up until way too late, like 3 a.m., just reading and responding to as many posts, as many comments as I could, and just watching it all unfold."

And he acknowledged that, although it was not his intention, he now understands why people reacted so strongly to his crying selfie. "I can see how it could come off as virtue-signaling or pity-me or insincere." But he says that he wouldn't take the post down.

Braden Wallake/LinkedIn / Via linkedin.com

"The comments are one thing. My inbox, on the other hand, the personal direct messages have been incredible. Like the amount of support I'm receiving because people have been there, the amount of encouraging people, the other business owners have felt because they're worried about their company finances or they're worried that they'll have to do what I had to do or have just recently done it or whatever. The amount of positive messages there says way more to me about what the post has done than the necessary public bash."

He also spoke to the pressure on business owners to only share their successes and not talk about their struggles. "The rags to riches story only happens if there were rags. I don't think enough people share the 'rag' moments. It's great to hear about the underdog who won the championship, but what about all the years that they were the underdog and lost? And I think that's the piece that I wish there was more of on social media."

Asiavision / Getty Images

From the POV of a business owner, the post absolutely makes sense. However, sharing this moment on a platform where employees (and the world) can also see it was maaaaybeee not the best choice. And meanwhile on LinkedIn, the debate over Braden's post is still raging on.