Even Among Corporate Raiders, Elon Musk Is a Pirate

The history of mergers and acquisitions is filled with ruthless corporate raiders, bruising wars of words and people trying to stiff each other.

T. Boone Pickens, the oil tycoon who rampaged through the 1980s, took small stakes in energy companies, attacked management and forced sales of the firms. Carl Icahn, the activist investor, amassed shares of companies and threatened to oust their boards if they did not agree to a deal. And Robert Campeau, the Canadian real estate investor known for engineering buyouts, was unafraid to take legal action against companies that sought to deflect his advances.

Yet even with all those cutthroat tactics, the world of deal making has never seen a buyer like Elon Musk.

In the weeks since Mr. Musk, the world’s richest man, struck a $44 billion agreement to buy the social media service Twitter, he has upended the deals landscape. Usually, when two sides agree to negotiate an acquisition, they spend weeks poring over financials and hammering out details. The action takes place mostly behind closed doors, inside boardrooms and at prestigious law firms and investment banks.

But Mr. Musk waived due diligence to get the Twitter deal done, according to legal filings. Since then, he has publicly criticized Twitter’s service — on Twitter, naturally — attacked some of its top executives and unleashed tweets taunting the company’s board. And with memes and a poop emoji, he has appeared to try to renegotiate the deal’s price downward on social media.

In essence, Mr. Musk, 50, has turned what was largely a friendly deal into a hostile takeover after the fact. His actions have left Twitter, regulators, bankers and lawyers flummoxed over what he might do next and whether the blockbuster deal will be completed. And Mr. Musk has made past corporate raiders look positively quaint by comparison.

“Elon Musk plays in his own gray area — you could almost say in his own rules,” said Robert Wolf, the former chairman of the Americas for the Swiss bank UBS. “This is certainly a new way” of doing deals, he said.

Mr. Musk did not respond to a request for comment.

On Thursday, Twitter executives said at a company meeting that Mr. Musk’s purchase was moving forward and that they would not renegotiate, according to two attendees who spoke on the condition of anonymity. Earlier this week, the company’s board also declared, “We intend to close the transaction and enforce the merger agreement.”

Twitter’s board has contended that it has the legal upper hand with the deal. In addition to a $1 billion breakup fee, the agreement with Mr. Musk includes a “specific performance clause,” which gives Twitter the right to sue him and force him to complete or pay for the deal, so long as the debt financing he has corralled remains intact.

“He signed a binding agreement,” Edward Rock, a professor of corporate governance at the New York University School of Law, said of Mr. Musk. “If these agreements aren’t enforceable, that’s kind of a problem for every other deal out there.”

Twitter did not respond to a request for comment.

Mr. Musk has already pushed some legal boundaries. The Federal Trade Commission is looking into whether the billionaire violated disclosure requirements by failing to notify the agency that he had amassed a sizable stake in Twitter earlier this year, said a person with knowledge of the inquiry. Investors typically must notify antitrust regulators of large share purchases to give government officials 30 days to review the transaction for competition violations.

The F.T.C. declined to comment. The Information, a tech news site, previously reported on the F.T.C.’s interest in Mr. Musk.

The archetype of the mercenary corporate buyer has existed for decades. Jay Gould, a robber baron of the late 19th century who helped build the U.S. railroad network system, funded deals partly with wealth accumulated through his Wall Street gambles. He consolidated dying railroads and was known for planting rumors in the press.

Mr. Gould, wrote one of his biographers, Edward Renehan Jr., was a “maestro of margins” who was “capable of creating capital out of thin air and gaining control of companies by using just a few dollars reflected in a hall of financial mirrors: fun houses of convertible bonds, proxies and leveraged cash.”

That same decade, Mr. Campeau used buyouts to build a retail empire that included Bloomingdale’s and Abraham & Straus, which eventually buckled under the debt he loaded onto them. A new kind of hostile raider also appeared — private equity firms — which deployed take-no-prisoners takeover tactics that were memorably chronicled in “Barbarians at the Gate,” a 1989 book about the private equity firm KKR and its acquisition of RJR Nabisco.

In recent years, deals that fell apart or got renegotiated have not been uncommon. After Sallie Mae, the student lending giant, sold itself in 2007 to a consortium of financial firms for $25 billion, a credit crisis unfolded and new legislation threatened its finances. The buyers tried recutting the deal, insults flew, and the effort collapsed.

That same year, a $6.5 billion deal by Apollo Global Management — combining a chemical company it owned, Hexion, with a rival, Huntsman — cratered when Huntsman’s earnings plunged and each side sued. In 2016, the telecom giant Verizon slashed its $4.5 billion price for Yahoo’s internet business after Yahoo disclosed it had suffered an enormous security breach.

Yet in many of those deals, actual “material adverse changes”— whether a financial crisis or a security breach — were behind a change in price or the end of an acquisition. That’s not so now with Twitter and Mr. Musk, where no obvious factor has surfaced for trying to alter the contours of the agreement. (Mr. Musk, who has seized on the issue of the number of bots on Twitter, has said he doubts the veracity of the company’s public filings.)

Mr. Musk seems free to do as he pleases with deals partly because of his extraordinary personal wealth, with a net worth that stands at around $210 billion and that lets him ignore a deal’s economics. And unlike a private equity firm, he does not buy multiple public companies a year, making it less important to present himself as a consistent closer.

While Mr. Musk is accountable to shareholders at other companies he runs — including the publicly traded carmaker Tesla — those shareholders generally invest in his endeavors because he is an inventor, not because he is a deal maker.

Ann Lipton, a professor of corporate governance at Tulane Law School, said much of what keeps the mergers and acquisitions world within boundaries is “reputational sanctions.” But Mr. Musk, she noted, “does not care about reputational sanctions.”

And that leaves just about everyone guessing.

Mike Isaac and Cecilia Kang contributed reporting.




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Livestreams of Mass Shootings: From Buffalo to New Zealand

Many of the sites tried taking down the videos as they were uploaded but were overwhelmed. Facebook said it removed 1.5 million videos in the 24 hours after the incident, though many managed to evade detection. On Reddit, a post featuring the video was viewed more than one million times before it was removed. Google said the speed at which the video was shared was faster than after any tragedy it had previously seen, according to the New Zealand government report.

Over the next few days, some people began discussing ways to evade the platforms’ automated systems to keep the Christchurch video online. On Telegram on March 16, 2019, people who were part of a group related to white supremacy batted around ways to manipulate the video so it would not be removed, according to discussions viewed by The Times.

“Just change the opening,” one user wrote. “Speed it up by 2x and the [expletive] can’t find it.”

Within days, some clips of the shooting were posted to 4chan, a fringe online message board. In July 2019, a 24-second clip of the killings also appeared on Rumble, according to The Times’s review.

In the ensuing months, New Zealand’s government identified more than 800 variations of the original video. Officials asked Facebook, Twitter, Reddit and other sites to dedicate more resources to removing them, according to the government report.

New copies or links to the video were uploaded online whenever the Christchurch shooting came up in the news, or on anniversaries of the event. In March 2020, about a year after the shooting, nearly a dozen tweets linking to variations of the video appeared on Twitter. More videos appeared when the gunman was sentenced to life in prison in August 2020.

Other groups jumped in to pressure the tech companies to erase the video. Tech Against Terrorism, a United Nations-supported initiative that develops tech to detect extremist content, sent 59 alerts about Christchurch content to tech companies and file hosting services from December 2020 to November 2021, said Adam Hadley, the founder and director of the group. That represented about 51 percent of the right-wing terrorist content the group was trying to remove online, he said.




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Chinese Hackers Tried to Steal Russian Defense Data, Report Says

Under China’s authoritarian leader, Xi Jinping, Beijing has refined its approach to cyberspying, transforming over the past decade into a far more sophisticated actor. China’s premier spy agency, borrowing a page from Russia, has recruited beyond its ranks, pulling from the country’s growing pool of tech workers. The strategy has made its attacks more scattershot and unpredictable, but analysts say it has also helped strengthen the country’s efforts, enabling spies to run stealthy attacks that target intellectual property as well as political and military intelligence around the world.

Mr. Xi has made improving China’s scientific and technical capabilities a priority in the coming years, with ambitions of becoming a global leader in high-tech fields such as robotics, medical equipment and aviation. The campaign targeting Russian defense research institutes “might serve as more evidence of the use of espionage in a systematic and long-term effort to achieve Chinese strategic objectives in technological superiority and military power,” Check Point’s report said.

More recently, hackers based in China, like their counterparts elsewhere, have taken advantage of the war in Ukraine to break into the computer systems of organizations across Europe. Hackers have preyed upon heightened anxiety about the invasion, tricking their victims into downloading documents that falsely claim to contain information about the war or pose as aid organizations raising money for charity.

Many of the attacks originating from China appear to be focused on gathering information and intellectual property, rather than on causing chaos or disruption that could sway the conflict in favor of Ukraine or Russia, security researchers said.

In late March, Chinese hackers began going after Ukrainian organizations, according to security researchers and an announcement from Ukraine’s cybersecurity agency. A hacking team known as Scarab sent a document to Ukrainian organizations that offered instructions on how to film evidence of Russian war crimes but also contained malware that could extract information from infected computer systems, researchers at the security firm SentinelOne said.

Also in March, another hacking team affiliated with China, which security researchers have called Mustang Panda, created documents that purported to be European Union reports on conditions at the borders of Ukraine and Belarus, and emailed them to potential targets in Europe. But the documents contained malware, and victims who were tricked into opening them inadvertently allowed the hackers to infiltrate their networks, researchers at Google and the security firm Cisco Talos said.

The Mustang Panda hacking group had previously attacked organizations in India, Taiwan and Myanmar, but when the war started, it turned its focus to the European Union and Russia. In March, the hackers also pursued agencies in Russia, emailing them a document that appeared to contain information about the placement of border guards in Russia, Cisco Talos researchers said.


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Facebook Has Been Monetizing Searches for the Buffalo Shooting Video

People searching on Facebook for footage of Saturday’s racist shooting rampage in Buffalo, N.Y., may have come across posts with footage of the attack or links to websites promising the gunman’s full video. Interspersed between those posts, they may have also seen a variety of ads.

The social network has sometimes served ads next to posts offering clips of the video, which a gunman live streamed on the video platform Twitch as he killed 10 people. For the past six days, recordings of that livestream have circulated across the internet including on Facebook, Twitter and fringe and extremist message boards and sites, despite some companies’ efforts to remove the content.

The pace at which an 18-year-old gunman’s ephemeral livestream morphed into a rapidly proliferating, permanent recording shows the challenges large tech platforms face in policing their sites for violent content.

Facebook and its parent company, Meta, rely on a combination of artificial intelligence, user reports and human moderators to track and remove shooting videos like the Buffalo one. But in some search results, Facebook is surfacing the violent video or links to websites hosting the clip next to ads.

It is not clear how many times ads have appeared next to posts with the videos. Searches for terms associated with footage of the shooting have been accompanied by ads for a horror film, clothing companies and video streaming services in tests run by The New York Times and the Tech Transparency Project, an industry watchdog group. In some cases, Facebook recommended certain search terms about the Buffalo gunman video noting that they were “popular now” on the platform.

In one search, the platform surfaced an ad for a video game company two posts below a clip of the shooting uploaded to Facebook that was described as “very graphic….Buffalo Shooter.” The Times is not disclosing the exact terms or phrases used to search on Facebook.

Augustine Fou, a cybersecurity and ad fraud researcher, said that large tech platforms have the ability to demonetize searches around tragic events. “It’s that easy technically,” he said. “If you choose to do it, one person could easily demonetize these terms.”

“Our aim is to protect people using our services from seeing this horrific content even as bad actors are dead-set on calling attention to it,” Andy Stone, a Meta spokesman, said in a statement. He did not address the Facebook ads.

Facebook also has the ability to monitor searches on its platform. Searches for terms like “ISIS” and “massacre” lead to graphic content warnings that users must click through before viewing the results.

While searches for similar terms about the Buffalo video on Google did not result in any ads, Mr. Fou said there was an inherent difference between the search platform and Facebook. On Google, advertisers can pick which keywords they want to show their ads against, he said. Facebook, on the other hand, places ads in a user’s news feed or search results that it believes are relevant to that user based on Facebook interests and web activity.

Michael Aciman, a Google spokesman, said that the company had designated the Buffalo shooting as a “sensitive event,” which means that ads cannot be served against searches related to it. “We don’t allow ads to run against related keywords,” he said.

Facebook has come under fire in the past for ads appearing next to right-wing extremist content. Following the Jan. 6, 2021, riot at the U.S. Capitol, BuzzFeed News found that the platform was surfacing ads for military gear and gun accessories next to posts about the insurrection.

Following that report, the company temporarily halted ads for gun accessories and military gear through the presidential inauguration that month.


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WhatsApp Adds Commercial Services as Meta Seeks More Revenue

More than eight years after agreeing to buy one of the world’s largest messaging apps, the company formerly known as Facebook has decided to start making money from it.

WhatsApp, the popular messaging service owned by Meta, the parent company of Facebook, said on Thursday that it was opening up commercial services to those who want to use the messaging app to power their businesses. It was WhatsApp’s largest step toward making money from the service, which is used by more than a billion people globally.

The new initiative lets business owners access the WhatsApp Cloud Application Programming Interface, a way to build a custom dashboard on top of the WhatsApp software so they can chat with customers and offer customer services more easily.

“This is an important step to help more businesses connect with people and help more people message the businesses that they want to support — big and small,” Mark Zuckerberg, Meta’s chief executive, said at an event announcing the new service.

WhatsApp plans to charge users based on how many conversations they have with customers per day, ranging from a fraction of a cent to more than 10 cents a conversation, depending on the region. It also plans to offer a free tier with limited services for small businesses.

The move is Meta’s strongest signal that it wants to begin making meaningful revenue from WhatsApp, especially as it faces business challenges on several fronts. Facebook acquired WhatsApp in 2014 for $22 billion, the company’s most expensive acquisition. For years, WhatsApp was free to use while costing Meta hundreds of millions of dollars to operate and support.

Now making more money has become paramount. Meta’s advertising business has been hurt by Apple’s changes to the iPhone operating system, and the company lost tens of millions of users in Russia after being banned in the country. The war in Ukraine has also upset some of Meta’s advertising operations.

In addition, Meta is navigating a tricky transition to become a “metaverse” company that provides people with immersive digital experiences. In February, a quarter of the company’s market value was wiped out — more than $230 billion — after a dismal earnings report.

WhatsApp has historically been hesitant to make money from its service. The company’s founders swore off advertisements on the app, and after dabbling with the notion of charging each user $1 annually to use the service, Facebook executives nixed the idea as too anemic and difficult to scale.

By 2018, WhatsApp founders were headed out the door. Mr. Zuckerberg announced a plan to stitch together all the messaging services on the apps he owns — WhatsApp, Messenger and Instagram. The company made changes that allowed Facebook to glean more insights about how people use WhatsApp. WhatsApp maintains none of those changes were used for ad-tracking purposes.

Simultaneously, WhatsApp’s reach continued to spread globally, embraced by millions of users in Brazil and South America, as well as across the Middle East and much of the European Union.

Many of them included small and medium-size businesses that used WhatsApp for free to speak with customers. But the experience, WhatsApp has said, was clunky and sometimes difficult to navigate, and wasn’t designed with business services in mind.

WhatsApp’s new product is supposed to answer to such issues, and can let those businesses more easily communicate with their customers using the app. Cloud hosting services will be provided for free to businesses that use the Cloud API.

Mr. Zuckerberg said that more than one billion users connect with businesses across Meta’s messaging services every week, and that the new product would make things easier for businesses and customers.

“Today, most of us use our feeds to discover interesting content and stay up to date,” Mr. Zuckerberg said at the event. “But for deeper levels of interaction, messaging has become the center of our digital lives.”


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WhatsApp introduces commercial services as Meta, its parent, seeks fresh revenue.

More than eight years after agreeing to buy one of the world’s largest messaging apps, the company formerly known as Facebook has decided to start making money from it.

WhatsApp, the popular messaging service owned by Meta, the parent company of Facebook, said on Thursday that it was opening up commercial services to those who want to use the messaging app to power their businesses. It was WhatsApp’s largest step toward making money from the service, which is used by more than a billion people globally.

The new initiative lets business owners access the WhatsApp Cloud Application Programming Interface, a way to build a custom dashboard on top of the WhatsApp software so they can chat with customers and offer customer services more easily.

“This is an important step to help more businesses connect with people and help more people message the businesses that they want to support — big and small,” Mark Zuckerberg, Meta’s chief executive, said at an event announcing the new service.

WhatsApp plans to charge users based on how many conversations they have with customers per day, ranging from a fraction of a cent to more than 10 cents a conversation, depending on the region. It also plans to offer a free tier with limited services for small businesses.

The move is Meta’s strongest signal that it wants to begin making meaningful revenue from WhatsApp, especially as it faces business challenges on several fronts. Facebook acquired WhatsApp in 2014 for $22 billion, the company’s most expensive acquisition. For years, WhatsApp was free to use while costing Meta hundreds of millions of dollars to operate and support.

Now making more money has become paramount. Meta’s advertising business has been hurt by Apple’s changes to the iPhone operating system, and the company lost tens of millions of users in Russia after being banned in the country. The war in Ukraine has also upset some of Meta’s advertising operations.

In addition, Meta is navigating a tricky transition to become a “metaverse” company that provides people with immersive digital experiences. In February, a quarter of the company’s market value was wiped out — more than $230 billion — after a dismal earnings report.

WhatsApp has historically been hesitant to make money from its service. The company’s founders swore off advertisements on the app, and after dabbling with the notion of charging each user $1 annually to use the service, Facebook executives nixed the idea as too anemic and difficult to scale.

By 2018, WhatsApp founders were headed out the door. Mr. Zuckerberg announced a plan to stitch together all the messaging services on the apps he owns — WhatsApp, Messenger and Instagram. The company made changes that allowed Facebook to glean more insights about how people use WhatsApp. WhatsApp maintains none of those changes were used for ad-tracking purposes.

Simultaneously, WhatsApp’s reach continued to spread globally, embraced by millions of users in Brazil and South America, as well as across the Middle East and much of the European Union.

Many of them included small and medium-size businesses that used WhatsApp for free to speak with customers. But the experience, WhatsApp has said, was clunky and sometimes difficult to navigate, and wasn’t designed with business services in mind.

WhatsApp’s new product is supposed to answer to such issues, and can let those businesses more easily communicate with their customers using the app. Cloud hosting storage will also be provided to businesses that pay for the Cloud API.

Mr. Zuckerberg said that WhatsApp’s more than one billion users connect with businesses across the messaging service every week, and that the new product would make things easier for businesses and customers.

“Today, most of us use our feeds to discover interesting content and stay up to date,” Mr. Zuckerberg said at the event. “But for deeper levels of interaction, messaging has become the center of our digital lives.”


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Seeking Pills, Young People Head to Social Media, With Deadly Results

Now, when Snapchat users search for “fenta,” “xanax” or other drug language, the results are blocked. They are redirected to an in-app video channel with content from nonprofit groups and the C.D.C. that addresses “fentapills” — the dangers of purported OxyContin, Percocet, Xanax and Adderall.

According to Facebook’s latest community standards report, it took action on four million drug-related exchanges worldwide in the fourth quarter of 2021. Instagram took action on 1.2 million, figures which represent alerts from both users and pre-emptive detection technology.

On Instagram, one recent search for Percocet did set off an automatic warning and an offer of help. But it also yielded numerous results, including an account that posted photos of the pills and contact information, with phone numbers on the encrypted messaging apps Wickr and WhatsApp.

And when companies remove dealers from their platforms, many sellers simply leapfrog to another.

“We detect about 10,000 new drug-related accounts a month,” said Dr. Mackey, whose software company detects illicit online drug trafficking for private and public organizations.

Most drug seekers will not baldly search for a drug by name, he said. They may use a hashtag with a celebrity associated with it. Enterprising dealers troll comments for customers, inserting themselves in online exchanges among seekers of pain relief.

During the pandemic, drug use has surged as mental health among young adults and teenagers has deteriorated, studies show. Young people tend to eschew heroin, not only because of its addictive properties but also because of a skittishness about syringes, say experts in adolescent behavior. Pills, with the false imprimatur of medical authority, appear safer. Moreover, to their generation, prescription medications — for anxiety, depression and focus — have become normalized.


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DHS Suspends Its New Disinformation Board, Following Criticism

The Department of Homeland Security announced on Wednesday that it was suspending the work of an internal advisory board intended to combat disinformation after what the department described as a deliberate disinformation campaign.

The creation of the panel, called the Disinformation Governance Board, set off a firestorm of criticism when it was announced last month. While the criticism came from across the political spectrum, including civil liberty groups, the fiercest denunciations came from the right. Republican leaders and commentators talked about it as an Orwellian Ministry of Truth that would police people’s speech.

That was never the board’s mandate, a department spokesman said in a written statement. Instead, it was meant to coordinate the department’s various agencies in the fight against malicious disinformation by foreign adversaries, drug or human traffickers or other international crime groups.

Only weeks after its inception, however, its fate is now in doubt. Nina Jankowicz, an authority on disinformation who was chosen in the spring to lead the board, submitted her resignation on Wednesday after facing vitriolic and highly personal harassment and abuse online.

“False attacks have become a significant distraction from the department’s vitally important work to combat disinformation that threatens the safety and security of the American people,” the department’s statement said.

The department’s secretary, Alejandro N. Mayorkas, has asked a bipartisan pair of former officials to review the issue of fighting disinformation: Michael Chertoff, who served as the department’s secretary under President George W. Bush, and Jamie S. Gorelick, deputy attorney general under President Bill Clinton.

Mr. Mayorkas asked them to prepare recommendations within 75 days and said the board would not convene during that period. “Its work will be paused,” the statement said, confirming the suspension, which was reported earlier in The Washington Post.

Ms. Jankowicz’s departure, coupled with the board’s troubled rollout, makes it unlikely that it will resume operating in anything like its current form.

“We’ve killed the Ministry of Truth!” one of the board’s many Republican critics, Representative Matt Gaetz of Florida, wrote on Twitter.

Angelo Carusone, president of Media Matters for America, the left-leaning watchdog group, said that the opposition to the board consolidated quickly and fiercely, suggesting an organized and motivated effort. He noted that fighting disinformation has long been part of the government’s efforts, going back to campaigns by the Soviet Union in the Cold War.

The current political climate, however, has made the very subject a lightning rod that, he said, officials should have anticipated better. Instead, they seemed caught off guard by the response.

“I think it’s a disservice to all of us that we lose this function, especially in the wake of what we just saw in Buffalo, because that is a consequence of this information landscape,” Mr. Carusone said, referring to the racist mass shooting there. “It is a tinderbox.”

As the board’s director, Ms. Jankowicz, 33, bore the brunt of the attacks, a subject she knows well. Her most recent book, called “How to Be a Woman Online,” chronicles abuses she and other women face from trolls and other malign actors on the internet.

In a resignation letter submitted on Wednesday, she said that she joined the department this year to help address the impact of disinformation.

“It is deeply disappointing,” she wrote, “that mischaracterizations of the Board became a distraction from the Department’s vital work, and indeed, along with recent events globally and nationally, embodies why it is necessary.”


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Sustainability Index Drops Tesla, Prompting Insult from Musk

“You can’t have a racial equity lawsuit and be considered a top E.S.G. name,” she added.

Passive index funds, which collectively direct about a third of all the assets invested in the stock market, are required to match their portfolios to the index they track. Getting included in or removed from an index can impact a company’s stock price. General Electric’s shares, for instance, fell 3 percent shortly after it was announced in mid-2018 that the company, an original member of the Dow Jones industrial average, was being removed from that index.

But the drop in Tesla’s share price of more than 30 percent since the end of March was more likely the result of concern about Mr. Musk’s offer to buy Twitter and a broader shift in how investors view technology stocks.

S&P reported that there were $65 billion in assets invested in funds tied to the index at the end of December 2020, the most recently available figure. That’s far smaller than the $13 trillion that is in funds tied to the more widely followed S&P 500 index, of which Tesla remains a member. That $65 billion is also small compared to Tesla’s overall market value of nearly $750 billion. And only a portion of the holdings of those E.S.G. funds are in Tesla.

What’s more, of the $65 billion tied to the E.S.G. index, only $11 billion of that money is invested in passive index funds, which would be required to sell their Tesla stakes. The rest of the money is in funds that benchmark their performance against the S&P 500 E.S.G. index. Many of those funds are actively managed by portfolio managers. Those funds aren’t required to sell their Tesla holdings, but they might do so in order to not deviate too far from the index that they are compared to by investors.

“Tesla is just simply not an open-and-shut E.S.G. case,” said Jon Hale, who directs sustainability research at mutual fund tracking firm Morningstar. “While it’s clear the company’s product is beneficial to the environment, Tesla is now a big company and it also has an impact on employees and customers, and those issues concern E.S.G. investors.”

Several other prominent companies were also dropped from the index in April when S&P determined they no longer met the criteria for membership. They included Chevron, Delta Air Lines, Home Depot and News Corp.

Even if ejections do not impact the value of a company’s shares, they could have an impact on a company’s actions. “Elon Musk and Tesla may be the exception,” Mr. Hale said. “But the flip side of that is very few companies want to be E.S.G. laggards in the current environment.”


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How a Trash-Talking Crypto Bro Caused a $40 Billion Crash

Do Kwon, a trash-talking entrepreneur from South Korea, called the cryptocurrency he created in 2018 “my greatest invention.” In countless tweets and interviews, he trumpeted the world-changing potential of the currency, Luna, rallying a band of investors and supporters he proudly referred to as “Lunatics.”

Mr. Kwon’s company, Terraform Labs, raised more than $200 million from investment firms such as Lightspeed Venture Partners and Galaxy Digital to fund crypto projects built with the currency, even as critics questioned its technological underpinnings. Luna’s total value ballooned to more than $40 billion, creating a frenzy of excitement that swept up day traders and start-up founders, as well as wealthy investors.

Mr. Kwon dismissed concerns with a taunt: “I don’t debate the poor.”

But last week, Luna and another currency that Mr. Kwon developed, TerraUSD, suffered a spectacular collapse. Their meltdowns had a domino effect on the rest of the cryptocurrency market, tanking the price of Bitcoin and accelerating the loss of $300 billion in value across the crypto economy. This week, the price of Luna remained close to zero, while TerraUSD continued to slide.

The downfall of Luna and TerraUSD offers a case study in crypto hype and who is left holding the bag when it all comes crashing down. Mr. Kwon’s rise was enabled by respected financiers who were willing to back highly speculative financial products. Some of those investors sold their Luna and TerraUSD coins early, reaping substantial profits, while retail traders now grapple with devastating losses.

Pantera Capital, a hedge fund that invested in Mr. Kwon’s efforts, made a profit of about 100 times its initial investment, after selling roughly 80 percent of its holdings of Luna over the last year, said Paul Veradittakit, an investor at the firm.

Pantera turned $1.7 million into around $170 million. The recent crash was “unfortunate,” Mr. Veradittakit said. “A lot of retail investors have lost money. I’m sure a lot of institutional investors have, too.”

Mr. Kwon did not respond to messages. Most of his other investors declined to comment.

Kathleen Breitman, a founder of the crypto platform Tezos, said the rise and fall of Luna and TerraUSD were driven by the irresponsible behavior of the institutions backing Mr. Kwon. “You’ve seen a bunch of people trying to trade in their reputations to make quick bucks,” she said. Now, she said, “they’re trying to console people who are seeing their life savings slip out from underneath them. There’s no defense for that.”

Mr. Kwon, a 30-year-old graduate of Stanford University, founded Terraform Labs in 2018 after stints as a software engineer at Microsoft and Apple. (He had a partner, Daniel Shin, who later left the company.) His company claimed it was creating a “modern financial system” in which users could conduct complicated transactions without relying on banks or other middlemen.

Mr. Shin and Mr. Kwon began marketing the Luna currency in 2018. In 2020, Terraform started offering TerraUSD, which is known as a stablecoin, a type of cryptocurrency designed to serve as a reliable means of exchange. Stablecoins are typically pegged to a stable asset like the U.S. dollar and are not supposed to fluctuate in value like other cryptocurrencies. Traders often use stablecoins to buy and sell other riskier assets.

But TerraUSD was risky even by the standards of experimental crypto technology. Unlike the popular stablecoin Tether, it was not backed by cash, treasuries or other traditional assets. Instead, it derived its supposed stability from algorithms that linked its value to Luna. Mr. Kwon used the two related coins as the basis for more elaborate borrowing and lending projects in the murky world of decentralized finance, or DeFi.

From the beginning, crypto experts were skeptical that an algorithm would keep Mr. Kwon’s twin cryptocurrencies stable. In 2018, a white paper outlining the stablecoin proposal reached the desk of Cyrus Younessi, an analyst for the crypto investment firm Scalar Capital. Mr. Younessi sent a note to his boss, explaining that the project could enter a “death spiral” in which a crash in Luna’s price would bring the stablecoin down with it.

“I was like, ‘This is crazy,’” he said in an interview. “This obviously doesn’t work.”

As Luna caught on, the naysayers grew louder. Charles Cascarilla, a founder of Paxos, a blockchain company that offers a competing stablecoin, cast doubt on Luna’s underlying technology in an interview last year. (Mr. Kwon responded by taunting him on Twitter: “Wtf is Paxos.”) Kevin Zhou, a hedge fund manager, repeatedly predicted that the two currencies would crash.

But venture investment came pouring in anyway to fund projects built on Luna’s underlying technology, like services for people to exchange cryptocurrencies or borrow and lend TerraUSD. Investors including Arrington Capital and Coinbase Ventures shoveled in more than $200 million between 2018 and 2021, according to PitchBook, which tracks funding.

In April, Luna’s price rose to a peak of $116 from less than $1 in early 2021, minting a generation of crypto millionaires. A community of retail traders formed around the coin, hailing Mr. Kwon as a cult hero. Mike Novogratz, chief executive of Galaxy Digital, which invested in Terraform Labs, announced his support by getting a Luna-themed tattoo.

Mr. Kwon, who operates out of South Korea and Singapore, gloated on social media. In April, he announced that he had named his newborn daughter Luna, tweeting, “My dearest creation named after my greatest invention.”

“It’s the cult of personality — the bombastic, arrogant, Do Kwon attitude — that sucks people in,” said Brad Nickel, who hosts the cryptocurrency podcast “Mission: DeFi.”

Earlier this year, a nonprofit that Mr. Kwon also runs sold $1 billion of Luna to investors, using the proceeds to buy a stockpile of Bitcoin — a reserve designed to keep the price of TerraUSD stable if the markets ever dipped.

Around the same time, some of the venture capital firms that had backed Mr. Kwon started to have concerns. Hack VC, a venture firm focused on crypto, sold its Luna tokens in December, partly because “we felt the market was due for a broader pullback,” said Ed Roman, a managing director at the firm.

Martin Baumann, a founder of the Hong Kong-based venture firm CMCC Global, said his company sold its holdings in March, at about $100 per coin. “We had gotten increasing concerns,” he said in an email, “both from tech side as well as regulatory side.” (CMCC and Hack VC declined to comment on their profits.)

Even Mr. Kwon alluded to the possibility of a crypto collapse, publicly joking that some crypto ventures might ultimately go under. He said he found it “entertaining” to watch companies crumble.

Last week, falling crypto prices and challenging economic trends combined to create a panic in the markets. The price of Luna fell to nearly zero. As critics had predicted, the price of TerraUSD crashed in tandem, dropping from its $1 peg to as low as 11 cents this week. In a matter of days, the crypto ecosystem Mr. Kwon had built was essentially worthless.

“I am heartbroken about the pain my invention has brought on all of you,” he tweeted last week.

Some of Mr. Kwon’s major investors have lost money. Changpeng Zhao, chief executive of the crypto exchange Binance, which invested in Terraform Labs, said his firm had bought $3 million of Luna, which grew to a peak value of $1.6 billion. But Binance never sold its tokens. Its Luna holdings are currently worth less than $3,000.

That loss is still only a drop in the bucket for a company as large as Binance, whose U.S. arm is valued at $4.5 billion.

“Most of the V.C.s have the analysts they need to assess these things,” Mr. Nickel said. “They may have figured they could cash out on the backs of retail.”

Much of the pain of the collapse has instead been felt by regular traders. On a Reddit forum for Luna evangelists, users shared lists of suicide hotlines, as people who had poured their savings into Luna or TerraUSD expressed despair.

The crash has also devastated the enthusiasts who were building start-ups that used the crypto infrastructure developed by Mr. Kwon.

Neel Somani, 24, quit his job as a quantitative researcher at Citadel, a hedge fund, in February to work on a project that connected Luna’s underlying blockchain to Ethereum, another crypto system.

In April, Mr. Somani joined Terra Hacker House, a monthlong program in a Chicago office sponsored by Terraform Labs and its investors, designed to incubate projects built on Mr. Kwon’s technology. Within a few weeks, Mr. Somani lined up $10 million in commitments for venture funding that valued his project, Terranova, at $65 million. He was close to hiring three employees, he said, and had 40 customers excited about the idea.

After Luna and TerraUSD tumbled, Mr. Somani and his fellow hackers initially thought Mr. Kwon and his partners could turn things around. But by last Tuesday, Mr. Somani realized it was over, and felt relieved he hadn’t yet accepted the funding. He lost around $20,000 of Luna, he said, which didn’t bother him since he has made money on other risky stock and crypto bets.

Over the last week, the desks at the hacker house have emptied. A Telegram group called Rebuilding Terra, with nearly 200 members, has been actively discussing how to salvage projects and funds.

Mr. Somani is sanguine. “For those of us who are crypto builders, the feast and famine mentality comes really naturally, and that’s maybe what attracted us to the community,” he said.

On Thursday, he plans to pitch his now-obsolete technology at the hacker house’s demo day. Most other groups have left the program, he said, so he expects less competition for a $50,000 first-place prize.

“It’s in U.S. dollars,” he said. “I asked.”

Kirsten Noyes contributed research.




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