Connect with us

Published

on

Fmr. Google CEO raises ethics concerns over conflict of interest with AI investments

About four years ago, former Google CEO Eric Schmidt was appointed to the National Security Commission on Artificial Intelligence by the chairman of the House Armed Services Committee.

It was powerful perch. Congress tasked the new group with a broad mandate: to advise the US government on how to advance the development of artificial intelligence (AI), machine learning and other technologies to enhance the national security of the United States.

The mandate was simple: Congress directed the new body to advise on how to enhance American competitiveness on AI against its adversaries, build the AI workforce of the future and develop data and ethical procedures.

In short, the commission, which Schmidt soon took charge of as chairman, was tasked with coming up with recommendations for almost every aspect of a vital and emerging industry. The panel did far more under his leadership. It wrote proposed legislation that later became law and steered billions of dollars of taxpayer funds to industry he helped build — and that he was actively investing in while running the group.

If you’re going to be leading a commission that is steering the direction of government AI and making recommendations for how we should promote this sector and scientific exploration in this area, you really shouldn’t also be dipping your hand in the pot and helping yourself to AI investments.

Walter Shaub

Senior Ethics Fellow, Project on Government Oversight

His credentials, however, were impeccable given his deep experience in Silicon Valley, his experience advising the Defense Department, and a vast personal fortune estimated at about $20 billion dollars.

Five months after his appointment, Schmidt made a little-noticed private investment in an initial seed round of financing for a start-up company called Beacon, which uses AI in the company’s supply chain products for shippers who manage freight logistics, according to CNBC’s review of investment data in database Crunchbase.

There is no indication that Schmidt broke any ethics rules or did anything unlawful while chairing the commission. The commission was, by design, an outside advisory group of industry participants, and its other members included other well-known tech executives including Oracle CEO Safra Catz, Amazon Web Services CEO Andy Jassy and Microsoft Chief Scientific Officer Dr. Eric Horvitz, among others.

‘Conflict of interest’

Schmidt’s investment was just the first of a handful of direct investments he would make in AI start-up companies during his tenure as chairman of the AI commission.

“It’s absolutely a conflict of interest,” said Walter Shaub, a senior ethics fellow at the Project on Government Oversight, and the former director of the U.S. office of Government Ethics.

“That’s technically legal for a variety of reasons, but it’s not the right thing to do,” Shaub said.

Venture capital firms financed, in part, by Schmidt and his private family foundation also made dozens of additional investments in AI companies during Schmidt’s tenure, giving Schmidt an economic stake in the industry even as he developed new regulations and encouraged taxpayer financing for it. Altogether, Schmidt and entities connected to him made more than 50 investments in AI companies while he was chairman of the federal commission on AI. Information on his investments isn’t publicly available.

All that activity meant that, at the same time Schmidt was wielding enormous influence over the future of federal AI policy, he was also potentially positioning himself to profit personally from the most promising young AI companies.

Institutional issues

‘Fifth arm of government’

The nonprofit Project on Government Oversight has called federal advisory committees the “fifth arm of government” and has pushed for changes including additional requirements for posting conflict-of-interest waivers and recusal statements, as well as giving the public more input in nominating committee members. Also in 2010, the House passed a bill that would prohibit the appointment of commission members with conflicts of interest, but the bill died in the Senate.

“It’s always been this way,” Holman said. “When Congress created the Office of Government Ethics to oversee the executive branch, you know, they didn’t really want a strong ethics cop, they just wanted an advisory commission.” Holman said each federal agency selects its own ethics officer, creating a vast system of more than 4,000 officials. But those officers aren’t under the control of the Office of Government Ethics – there’s “no one person in charge,” he said.

Eric Schmidt during a news conference at the main office of Google Korea in Seoul on November 8, 2011.

Jung Yeon-je | Afp | Getty Images

People close to Schmidt say his investments were disclosed in a private filing to the U.S. government at the time. But the public and the news media had no access to that document, which was considered confidential. The investments were not revealed to the public by Schmidt or the commission. His biography on the commission’s website detailed his experiences at Google, his efforts on climate change and his philanthropy, among other details. But it did not mention his active investments in artificial intelligence.

A spokesperson for Schmidt told CNBC that he followed all rules and procedures in his tenure on the commission: “Eric has given full compliance on everything,” the spokesperson said.

But ethics experts say Schmidt simply should not have made private investments while leading a public policy effort on artificial intelligence.

“If you’re going to be leading a commission that is steering the direction of government AI and making recommendations for how we should promote this sector and scientific exploration in this area, you really shouldn’t also be dipping your hand in the pot and helping yourself to AI investments,” said Shaub of the Project on Government Oversight.

He said there were several ways Schmidt could have minimized this conflict of interest: He could have made the public aware of his AI investments, he could have released his entire financial disclosure report, or he could have made the decision not to invest in AI while he was chair of the AI commission.

Public interest

“It’s extremely important to have experts in the government,” Shaub said. “But it’s, I think, even more important to make sure that you have experts who are putting the public’s interests first.”

The AI commission, which Schmidt chaired until it expired in the fall of 2021, was far from a stereotypical Washington blue-ribbon commission issuing white papers that few people actually read.

Instead, the commission delivered reports which contained actual legislative language for Congress to pass into law to finance and develop the artificial intelligence industry. And much of that recommended language was written into vast defense authorization bills. Sections of legislative language passed, word for word, from the commission into federal law.

The commission’s efforts also sent millions of taxpayer dollars to priorities it identified. In just one case, the fiscal year 2023 National Defense Authorization Act included $75 million “for implementing the National Security Commission on Artificial Intelligence recommendations.”

At a commission event in September 2021, Schmidt touted the success of his team’s approach. He said the commission staff “had this interesting idea that not only should we write down what we thought, which we did, but we would have a hundred pages of legislation that they could just pass.” That, Schmidt said, was “an idea that had never occurred to me before but is actually working.”

$200 billion modification

Schmidt said one piece of legislation moving on Capitol Hill was “modified by $200 billion dollars.” That, he said, was “essentially enabled by the work of the staff” of the commission.

At that same event, Schmidt suggested that his staff had wielded similar influence over the classified annexes to national security related bills emanating from Congress. Those documents provide financing and direction to America’s most sensitive intelligence agencies. To protect national security, the details of such annexes are not available to the American public.

“We don’t talk much about our secret work,” Schmidt said at the event. “But there’s an analogous team that worked on the secret stuff that went through the secret process that has had similar impact.”

Asked whether classified language in the annex proposed by the commission was adopted in legislation that passed into law, a person close to Schmidt responded, “due to the classified nature of the NSCAI annex, it is not possible to answer this question publicly. NSCAI provided its analysis and recommendations to Congress, to which members of Congress and their staff reviewed and determined what, if anything, could/should be included in a particular piece of legislation.”

Beyond influencing classified language on Capitol Hill, Schmidt suggested that the key to success in Washington was being able to push the White House to take certain actions. “We said we need leadership from the White House,” Schmidt said at the 2021 event. “If I’ve learned anything from my years of dealing with the government, is the government is not run like a tech company. It’s run top down. So, whether you like it or not, you have to start at the top, you have to get the right words, either they say it, or you write it for them, and you make it happen. Right? And that’s how it really, really works.”

Industry friendly

The commission produced a final report with topline conclusions and recommendations that were friendly to the industry, calling for vastly increased federal spending on AI research and a close working relationship between government and industry.

The final report waived away concerns about too much government intervention in the private sector or too much federal spending.

“This is not a time for abstract criticism of industrial policy or fears of deficit spending to stand in the way of progress,” the commission concluded in its 2021 report. “In 1956, President Dwight Eisenhower, a fiscally conservative Republican, worked with a Democratic Congress to commit $10 billion to build the Interstate Highway System. That is $96 billion in today’s world.”

The commission didn’t go quite that big, though. In the end, it recommended $40 billion in federal spending on AI, and suggested it should be done hand in hand with tech companies.

“The federal government must partner with U.S. companies to preserve American leadership and to support development of diverse AI applications that advance the national interest in the broadest sense,” the commission wrote. “If anything, this report underplays the investments America will need to make.”

The urgency driving all of this, the commission said, is Chinese development of AI technology that rivals the software coming out of American labs: “China’s plans, resources, and progress should concern all Americans.”

China, the commission said, is an AI peer in many areas and a leader in others. “We take seriously China’s ambition to surpass the United States as the world’s AI leader within a decade,” it wrote.

But Schmidt’s critics see another ambition behind the commission’s findings: Steering more federal dollars toward research that can benefit the AI industry.

“If you put a tech billionaire in charge, any framing that you present them, the solution will be, ‘give my investments more money,’ and that’s indeed what we see,” said Jack Poulson, executive director of the nonprofit group Tech Inquiry. Poulson formerly worked as a research scientist at Google, but he resigned in 2018 in protest of what he said was Google bending to the censorship demands of the Chinese government.

Too much power?

To Poulson, Schmidt was simply given too much power over federal AI policy. “I think he had too much influence,” Poulson said. “If we believe in a democracy, we should not have a couple of tech billionaires, or, in his case, one tech billionaire, that is essentially determining US government allocation of hundreds of billions of dollars.”

The federal commission wound down its work on Oct. 1, 2021.

Four days later, on Oct. 5, Schmidt announced a new initiative called the Special Competitive Studies Project. The new entity would continue the work of the congressionally created federal commission, with many of the same goals and much of the same staff. But this would be an independent nonprofit and operate under the financing and control of Schmidt himself, not Congress or the taxpayer. The new project, he said, will “make recommendations to strengthen America’s long-term global competitiveness for a future where artificial intelligence and other emerging technologies reshape our national security, economy, and society.”

The CEO of Schmidt’s latest initiative would be the same person who had served as the executive director of the National Security Commission. More than a dozen staffers from the federal commission followed Schmidt to the new private sector project. Other people from the federal commission came over to Schmidt’s private effort, too: Vice Chair Robert Work, a former deputy secretary of defense, would serve on Schmidt’s board of advisors. Mac Thornberry, the congressman who appointed Schmidt to the federal commission in the first place, was now out of office and would also join Schmidt’s board of advisors.

They set up new office space just down the road from the federal commission’s headquarters in Crystal City, VA, and began to build on their work at the federal commission.

The new Special Competitive Studies Project issued its first report on Sept. 12. The authors wrote, “Our new project is privately funded, but it remains publicly minded and staunchly nonpartisan in believing technology, rivalry, competition and organization remain enduring themes for national focus.”

The report calls for the creation of a new government entity that would be responsible for organizing the government-private sector nexus. That new organization, the report says, could be based on the roles played by the National Economic Council or the National Security Council inside the White House.

It is not clear if the Project will disclose Schmidt’s personal holdings in AI companies. So far, it has not.

Asked if Schmidt’s AI investments will be disclosed by the Project in the future, a person close to Schmidt said, “SCSP is organized as a charitable entity, and has no relationship to any personal investment activities of Dr. Schmidt.” The person also said the project is a not-for-profit research entity that will provide public reports and recommendations. “It openly discloses that it is solely funded by the Eric and Wendy Schmidt Fund for Strategic Innovation.”

In a way, Schmidt’s approach to Washington is the culmination of a decade or more as a power player in Washington. Early on, he professed shock at the degree to which industry influenced policy and legislation in Washington. But since then, his work on AI suggests he has embraced that fact of life in the capital.

Obama donor

Continue Reading

Technology

French fintech Pennylane doubles valuation to $2.2 billion as Alphabet’s venture capital arm takes stake

Published

on

By

French fintech Pennylane doubles valuation to .2 billion as Alphabet's venture capital arm takes stake

Seksan Mongkhonkhamsao | Moment | Getty Images

French accounting software firm Pennylane has doubled its valuation to 2 billion euros ($2.16 billion) in a new 75 million euro funding round.

Pennylane told CNBC that it raised the fresh funds from a host of venture funds, with Sequoia Capital leading the round and Alphabet’s CapitalG, Meritech and DST Global also participating.

Founded in 2020, Pennylane sells what it calls an “all-in-one” accounting platform that’s used by accountants and other financial professionals.

The platform is primarily targeted toward small to medium-sized firms, offering tools for functions spanning expensing, invoicing, cash flow management and financial forecasting.

“We came in tailoring a product that looks a bit like [Intuit’s] QuickBooks or Xero but adapting it to the needs of continental accountants, starting with France,” Pennylane’s CEO and co-founder Arthur Waller told CNBC.

Pennylane currently serves around 4,500 accounting firms and more than 350,000 small and medium-sized enterprises. The startup was previously valued at 1 billion euros in a 2024 investment round.

European expansion

For now, Pennylane only operates in France. However, after the new fundraise, the startup now plans to expand its services across Europe — starting with Germany in the summer.

“It’s going to be a lot of work. It took us approximately five years to have a product mature in France,” Waller said, adding that he hopes to reach product maturity in Germany in a shorter time period of two years.

Pennylane plans to end the year on about 100 million euros of annual recurring revenue — a measure of annual revenue generated from subscriptions that renew each year.

Watch CNBC's full interview with Plaid CEO Zach Perret

“We are going to get breakeven by end of the year,” Waller said, adding that Pennylane runs on lower customer acquisition costs than other fintechs. “75% of our costs are R&D [research and development],” he added.

Pennylane also plans to boost hiring after the new funding round. It is looking to grow to 800 employees by the end of 2025, up from 550 currently.

‘Co-pilot’ for accountants

Like many other fintechs, Pennylane is embracing artificial intelligence. Waller said the startup is using the technology to help clients automate bookkeeping and free up time for other things like advisory services.

“Because we have a modern tech stack, we’re able to embed all kinds of AI, but also GenAI, into the product,” Waller told CNBC. “We’re really trying to build a ‘co-pilot’ for the accountant.”

We are seeing a rebound in fintech valuations, says N26 CEO

He added that new electronic invoicing regulations coming into force across Europe are pushing more and more firms to consider new digital products to serve their accounting needs.

“Every business in France within a year from now will have to chose a product operator to issue and receive invoices,” Waller said, calling e-invoicing a “huge market.”

Luciana Lixandru, a partner at Sequoia who sits on the board of Pennylane, said the reforms represent a “massive market opportunity” as the accounting industry is still catching up in terms of digitization.

“The reality is the market is very fragmented,” Lixandru told CNBC via email. “In each country there are one or two decades-old incumbents, and few options that serve both SMBs and their accountants.”

Continue Reading

Technology

TikTok reportedly stays on App Store after assurance from Attorney General Pam Bondi

Published

on

By

TikTok reportedly stays on App Store after assurance from Attorney General Pam Bondi

In this photo illustration, the logo of TikTok is displayed on a smartphone screen on April 5, 2025 in Shanghai, China. 

Vcg | Visual China Group | Getty Images

Apple will keep ByteDance-owned TikTok on its App Store for at least 75 more days after receiving assurances from Attorney General Pam Bondi, according to a report from Bloomberg News.

This comes after President Donald Trump signed an executive order Friday to extend the TikTok ban deadline for the second time. TikTok will be banned in the U.S. unless China’s ByteDance sells its U.S. operations under a national security law signed by former President Joe Biden in April 2024.

AG Bondi wrote in a letter to Apple that the company should act in accordance with Trump’s deadline extension and that it would not be penalized for hosting the platform, according to unnamed sources cited in the report.

Apple did not respond to a request for comment.

After TikTok went briefly offline for U.S. users in January following the initial ban deadline, it remained unavailable for download in the App Store until Feb. 13. Apple had reinstated TikTok to its app store after receiving a similar letter of assurance from Bondi.

The extension comes days after Trump announced cumulative tariffs of 54% on China. Prior to the additional tariff rollout on April 2, the president said he could reduce duties on the country to help facilitate a deal for ByteDance to sell its U.S. operations of TikTok.

“Maybe I’ll give them a little reduction in tariffs or something to get it done,” Trump said during a press conference in March. “TikTok is big, but every point in tariffs is worth more than TikTok.”

WATCH: TikTok deal reportedly halted after China said it would reject it due to tariffs

TikTok deal reportedly halted after China said it would reject it due to tariffs

Continue Reading

Technology

For bitcoin bulls who self-custody crypto, the global risks are growing

Published

on

By

For bitcoin bulls who self-custody crypto, the global risks are growing

Whether to buy cryptocurrency as a long-term holding may be the biggest decision an investor interested in digital assets has to make, but where to store crypto like bitcoin can become the most consequential.

Following the wildfires earlier this year in California, social media posts began to appear with claims of bitcoin losses, with some users showing metal plates intended to protect seed phrases burnt up and illegible or describing the complexity of recovering crypto keys stored in a safety deposit box in a bank impacted by the fires. While impossible to verify individual claims about fires consuming hard drives, laptops and other storage devices containing so-called hard and cold storage crypto wallets and seed phrases, what is certain is that bitcoin self-custody presents a unique set of security issues. And those risks are growing.

Holders of crypto typically use some form of what can be called a “wallet,” and there are a few main features – whether that wallet is connected to the internet, and how much control is directly embedded in the wallet for trades and transfers. There is also the underlying issue of whether a crypto investor uses a third party for custody at all, or maintains total custody and trading control over their holdings.

The standard third-party platform “hot wallet” – think of an offering from a Coinbase or Blockchain.com – is constantly connected to the internet. Cold storage and “cold wallets,” on the other hand, include hardware devices (like a USB stick) that holds private keys offline, or even just a seed phrase (a master recovery code, a collection of 12 to 24 words used to recover access to a crypto wallet) on paper/metal. Hardware wallets or offline backups of seed phrases can be used to access crypto when connected to the internet through another device.

With third-party custodial options, there are steps to help owners remain vigilant against the threat posed by cybercriminals who can gain access to an internet-connected platform, including the use of two-factor authentication, and strong passwords. The U.S. Marshals Service within the Department of Justice, which is responsible for asset forfeiture from U.S. law enforcement, uses Coinbase Prime to provide custody for its seized digital assets.

Many crypto bulls prefer to self-custody digital assets like bitcoin for some of the same reasons they are interested in cryptocurrencies to begin with: lack of faith in some forms of institutional control. Custodial wallets from crypto brokers trade convenience for the risk of exchange hacks, shutdowns, or fraud, as in the case of the high-profile implosion of FTX. And the wildfires are just one example in a recent string of global events that raise more questions about shifts in the crypto custody debate. There is the ongoing conflict in the Middle East and Russia-Ukraine war, which has led crypto bulls from overseas to re-think their approach to self-custody.

Nick Neuman, co-founder and CEO of self-custody company Casa, said physical risks in the world like a natural disaster are an opportunity to revisit how bitcoin security works, and the common security lapses folded into most peoples’ practices. “Most people secure their bitcoin with one private key. If that key is on a single device or written down on paper as a seed phrase, it’s a single point of failure. If you lose that key, your bitcoin is gone,” he said.

It should be obvious that keeping seed phrases on paper offers the lowest level of protection against fire, yet it is common practice, Neuman said. Slipping these pieces of paper into fireproof bags or safes offer some protection, but not much, and even going the extra steps to have the seed phrases on “indestructible” metal storage plates presents a few failure points. For one, they might prove to be not so indestructible, and second, they may be impossible to locate amid the rubble. 

“Logically, given the location of the fires in California and the stories being shared on X, it’s highly likely bitcoin was lost,” said Neuman. “Some of them are pretty convincing,” he said.

Casa performs annual stress tests on seed phrase backups.

Some self-custody services, like Casa, offer multi-signature setups that reduce the risks of single-point failure. A multi-key crypto “vault” can include mobile phone keys, multiple hardware keys, and a recovery key that a company likes Casa holds on an owner’s behalf.

The multi-sig custody approach allows an owner to hold a majority of keys while a trusted partner holds a minority of keys. John Haar, managing director at Swan Bitcoin, says that in such a setup, the owner would need to lose all the physical devices and all copies of the seed phrases at the same time. As long as the owner can access at least one device or one seed phrase, they would be able to recover their bitcoin. This approach should significantly limit the potential for all of the devices to be lost in an event like a natural disaster, Haar said.

“You can spread these keys across multiple regions or even countries, and you need any three of the five keys to approve a bitcoin transaction,” Neuman said of Casa’s five-key approach.

Jordan Baltazor, chief administrative officer at Fortress Trust, a regulated crypto custodian, says best practices that we use in other areas of personal life should apply to cryptocurrency. For one, diversification of storage approach and weighing of risks. Digital assets are no different, he says, when it comes to backing up personal and sensitive data on the cloud to ensure data against loss or corruption.

Companies including Coinbase and Jack Dorsey’s Block offer products that try to merge some of these ideas, creating a more secure version of a crypto wallet that remains convenient to use. There is Coinbase Vault, which includes enhanced security steps before a user can access crypto holdings for trading. And there is Coinbase Wallet and Block’s Bitkey, which have mobile apps that work like a traditional wallet making moving bitcoin around easy, but with the ability to pair with hardware wallets and added security more commonly associated with cold storage.

Bitkey hardware requires multiple authorizations for transactions for added security, similar to “multi-sig wallets.” Bitkey also offers recovery tools so one of the biggest risks of self-custody — losing codes or phrases needed to recover a cold wallet — is less of an issue.

Solutions like Dorsey’s may help to solve the tension between convenience and security; at minimum, they underline that this tension exists and will likely be something of a roadblock to more widespread crypto adoption. Beyond the risks out there in the form of wildfires, all kinds of natural disasters, and wars, bitcoin self-custody can be vulnerable to the biggest personal risk of all: unexpected death of the bitcoin owner. There is arguably nothing more complicated than inheritance when it comes to unlocking the crypto chain of custody.

Coinbase requires probate court documents and specific will designations before releasing funds from custody, while physical wallets offer little to no support, potentially leaving all that digital value stuck on a private key. Bitkey rolled out its inheritance solution in February for what a Bitkey executive called, “kind of a multibillion-dollar problem waiting to happen.”

“People who have a material investment in bitcoin absolutely need to be thinking differently about how to protect it,” Neuman said. He says that after disasters like the California wildfires, or when exchanges go bust like FTX, the industry does see more crypto holders taking action to move to more secure storage setups. “I suppose it’s human nature to wait until ‘bad things happen’ to spur action to improve your own personal situation,” he said. “But I think people would be better off if they were more proactive. Otherwise, they risk having that ‘bad thing’ happen to them, and then it’s too late,” he said.

Continue Reading

Trending