Privacy and crypto will likely lead tech policy under split Congress as hope for passing ambitious antitrust reforms dwindles

Published

1 year ago

December 27, 2022

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After what started as a hopeful year for tech policy, the 117th Congress is about to close out its term with many key efforts tabled.

Despite bipartisan support for antitrust reform targeting digital tech giants, a digital privacy framework and new guardrails for kids on the internet, lawmakers headed home without passing the hallmark bills of those issues. And the Senate has yet to vote to confirm the final nominee to fill out the Federal Communications Commission, leaving that agency incomplete for the entirety of the Biden administration so far.

Congress did pass the CHIPS and Science Act, which incentivizes domestic semiconductor manufacturing after shortages highlighted the risks of overseas production. It also included in the year-end spending package a bill that will raise funds for the antitrust agencies by raising merger filing fees on large deals, as well as a measure banning TikTok on government devices in light of national security concerns due to its ownership by a Chinese company.

And even when it comes to many of the bills that remain in limbo, progress this year shows significant headway. That’s the case with privacy legislation, where a bill proposed this year gained bipartisan support, passing out of a House committee with a near-unanimous vote. Still, it lacks the backing of the Senate Commerce Committee’s Democratic chair, Maria Cantwell of Washington, which is seen as critical to passing the legislation.

“Any privacy legislation has to be bipartisan,” said Craig Albright, vice president of U.S. government relations for enterprise software industry group BSA. “Senator Cantwell has to be part of the process. There’s no going around her, she will be one of the key leaders. But I think if the House can demonstrate continued progress, I think that that will create more of an environment for the Senate to be able to act.”

Albright added that the House committee leaders who championed the bill, Energy and Commerce Chair Frank Pallone, D-N.J., and Ranking Member Cathy McMorris Rodgers, R-Wash., expected to become chair next year under Republican House control, proved with the panel vote “that substantively, you can come up with a bill that has broad bipartisan support.”

“I think that puts this next Congress in a stronger starting position than we’ve had before,” Albright said.

Lawmakers face a tougher landscape next year if they hope to pick up where they left off on tech reform. With Democratic control of the Senate and Republican control of the House in 2023, policy watchers stress that bipartisanship will be essential to make bills into law.

While that might dash hopes for most antitrust reforms, which though bipartisan are not generally supported by Republicans expected to lead the House and key committees, it could mean there’s still a chance for legislation on digital privacy, where both parties have stressed urgency despite years of failing to compromise on areas of disagreement.

Still, lawmakers who led aggressive antitrust proposals and other tech reforms have signaled they’ll continue to fight for those measures next year.

“This is clearly the beginning of this fight and not the end,” Sen. Amy Klobuchar, D-Minn., whose bill barring online platforms from favoring their own services on their marketplaces failed to make it into year-end must-pass bills, said in a statement following the release of the spending package text. “I will continue to work across the aisle to protect consumers and strengthen competition.”

Sens. Richard Blumenthal, D-Conn., and Marsha Blackburn, R-Tenn., said in a statement that while their Kids Online Safety Act, setting new guardrails for sites likely to be accessed by kids, and Open App Markets Act, imposing new regulations on app stores run by Apple and Google, did not make it into the spending bill, they are “resolved to reintroduce and pass this legislation in the next Congress.” The pair blamed the bills’ failure to advance on intense lobbying efforts by the tech industry against them.

A survey of congressional staffers by Punchbowl News found that while a majority of Capitol Hill respondents expect a less productive session in terms of passing meaningful legislation, the tech agenda is high up on the expected list of priorities. Punchbowl said that 56% of respondents anticipated action on bills targeting Big Tech, a percentage that was second only to those who expect to see action targeting inflation.

Tech regulation is Democrats’ top priority, according to Punchbowl, with 59% of respondents choosing it as one of their chief issues. Among lobbyists and business executives surveyed by Punchbowl, 55% predicted lawmakers could crack down on a major tech company, with TikTok coming out as the most likely target, followed by Facebook parent Meta.

And while it’s unlikely to result in new laws, House Republicans have signaled they’ll use their majority to focus on tech issues that have taken a backseat while Democrats held the gavels in both chambers. Rep. Jim Jordan, R-Ohio, who’s expected to lead the House Judiciary Committee, signaled he’ll likely use that power to focus on tech companies’ relationships with Democratic politicians and allegations of bias and censorship by social media platforms.

Earlier this month he wrote to the CEOs of Apple, Amazon, Google, Meta and Microsoft, demanding information about what he called “the nature and extent of your companies’ collusion with the Biden Administration.” He said the letters should serve as a formal request to preserve records related to the request.

Lawmakers are also likely to spend more time looking at crypto regulation, after the downfall of exchange FTX alleged fraud of its founder Sam Bankman-Fried thrust the industry into the limelight before Congress. Legislators have already considered some legislation targeting the industry, and incoming House Financial Services Chair Patrick McHenry, R-N.C., has indicated that making a clearer regulatory framework for crypto is a priority.

One of the key questions lawmakers have wrestled with is who should be the agency in charge of overseeing the industry. That question has so far gone unanswered, with many industry players advocating for the Commodity Futures Trading Commission while some consumer advocates preferring the Securities and Exchange Commission, which is larger and better resourced. One prominent bipartisan bill in the Senate would put the CFTC in charge.

Just like in 2022, next year’s tech policy agenda will be subject to the whims of Congress, and could be especially susceptible if the country sees some level of economic downturn as many experts expect.

“Everybody has their desire to regulate tech. But I can’t help but wonder what that desire looks like, depending on the economic outlook of the United States in Q1 of 2023,” said James Czerniawski, senior policy analyst for technology and innovation at the Koch-backed advocacy group Americans for Prosperity, pointing to high interest rates and job cuts in the tech sector. “If we were to go and enter into a recession at some point in early next year, which isn’t out of the realm of possibility, that might go and rejigger priorities from Congress to more immediate things.”

Czerniawski said the push for regulation in tech seems to be based on an “assumption that tech is this thing that’s just immovable and going to be around for the test of time with these companies’ names attached to it. And, if anything, I think that the past year and change has shown that that’s not necessarily true.”

“I think that it’s pretty easy to beat up on Big Tech when they’re so successful and they’re pulling in record profits,” said Tom Romanoff, director of the technology project at the Bipartisan Policy Center think tank, which has received funding Amazon and Meta, according to recent donor disclosures. “It becomes a different equation when constituents and districts are upset because they got laid off in one of these very high paying jobs. And so I think if there is an economic downturn, the focus will shift to the economy.”

Romanoff added that certain global dynamics could also shift the focus away from increased tech regulation, such as if tensions escalate between China and Taiwan, where a large portion of semiconductors are currently produced. He said an event like that could cause a shift from an “internal focus of what these large companies mean for U.S. democracy, to kind of a national defense strategy — what does it mean in wartime to regulate an industry that is very much critical to any wartime industry.”

Still, Albright of BSA sees focus on the tech sector in Congress remaining high as concerns that have existed in the past are not going away.

“I think the economy will go up and down,” he said. “But the importance of tech policy issues will still be strong.”

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Technology

OpenAI dissolves team focused on long-term AI risks, less than one year after announcing it

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11 hours ago

May 17, 2024

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OpenAI dissolves team focused on long-term AI risks, less than one year after announcing it

OpenAI has disbanded its team focused on the long-term risks of artificial intelligence just one year after the company announced the group, a source familiar with the situation confirmed to CNBC on Friday.

The person, who spoke on condition of anonymity, said that some of the team members are being re-assigned to multiple other teams within the company.

The news comes days after both team leaders, OpenAI co-founder Ilya Sutskever and Jan Leike, announced their departures from the Microsoft-backed startup. Leike on Friday wrote that OpenAI’s “safety culture and processes have taken a backseat to shiny products.”

The news was first reported by Wired.

OpenAI’s Superalignment team, announced last year, has focused on “scientific and technical breakthroughs to steer and control AI systems much smarter than us.” At the time, OpenAI said it would commit 20% of its computing power to the initiative over four years.

Sutskever and Leike on Tuesday announced their departures on X, hours apart, but on Friday, Leike shared more details about why he left the startup.

“I joined because I thought OpenAI would be the best place in the world to do this research,” Leike wrote on X. “However, I have been disagreeing with OpenAI leadership about the company’s core priorities for quite some time, until we finally reached a breaking point.”

Leike wrote that he believes much more of the company’s bandwidth should be focused on security, monitoring, preparedness, safety and societal impact.

“These problems are quite hard to get right, and I am concerned we aren’t on a trajectory to get there,” he wrote. “Over the past few months my team has been sailing against the wind. Sometimes we were struggling for compute and it was getting harder and harder to get this crucial research done.”

Leike added that OpenAI must become a “safety-first AGI company.”

“Building smarter-than-human machines is an inherently dangerous endeavor,” he wrote. “OpenAI is shouldering an enormous responsibility on behalf of all of humanity. But over the past years, safety culture and processes have taken a backseat to shiny products.”

Leike did not immediately respond to a request for comment, and OpenAI did not immediately provide a comment.

The high-profile departures come months after OpenAI went through a leadership crisis involving co-founder and CEO Sam Altman.

In November, OpenAI’s board ousted Altman, claiming in a statement that Altman had not been “consistently candid in his communications with the board.”

The issue seemed to grow more complex each following day, with The Wall Street Journal and other media outlets reporting that Sutskever trained his focus on ensuring that artificial intelligence would not harm humans, while others, including Altman, were instead more eager to push ahead with delivering new technology.

Altman’s ouster prompted resignations – or threats of resignations – including an open letter signed by virtually all of OpenAI’s employees, and uproar from investors, including Microsoft. Within a week, Altman was back at the company, and board members Helen Toner, Tasha McCauley and Ilya Sutskever, who had voted to oust Altman, were out. Sutskever stayed on staff at the time but no longer in his capacity as a board member. Adam D’Angelo, who had also voted to oust Altman, remained on the board.

When Altman was asked about Sutskever’s status on a Zoom call with reporters in March, he said there were no updates to share. “I love Ilya… I hope we work together for the rest of our careers, my career, whatever,” Altman said. “Nothing to announce today.”

On Tuesday, Altman shared his thoughts on Sutskever’s departure.

“This is very sad to me; Ilya is easily one of the greatest minds of our generation, a guiding light of our field, and a dear friend,” Altman wrote on X. “His brilliance and vision are well known; his warmth and compassion are less well known but no less important.” Altman said research director Jakub Pachocki, who has been at OpenAI since 2017, will replace Sutskever as chief scientist.

News of Sutskever’s and Leike’s departures, and the dissolution of the superalignment team, come days after OpenAI launched a new AI model and desktop version of ChatGPT, along with an updated user interface, the company’s latest effort to expand the use of its popular chatbot.

The update brings the GPT-4 model to everyone, including OpenAI’s free users, technology chief Mira Murati said Monday in a livestreamed event. She added that the new model, GPT-4o, is “much faster,” with improved capabilities in text, video and audio.

OpenAI said it eventually plans to allow users to video chat with ChatGPT. “This is the first time that we are really making a huge step forward when it comes to the ease of use,” Murati said.

Technology

BlackRock funds are ‘crushing shareholder rights,’ says activist Boaz Weinstein

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12 hours ago

May 17, 2024

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BlackRock funds are ‘crushing shareholder rights,' says activist Boaz Weinstein

Boaz Weinstein, founder and chief investment officer of Saba Capital Management, during the Bloomberg Invest event in New York, US, on Wednesday, June 7, 2023.

Jeenah Moon | Bloomberg | Getty Images

Boaz Weinstein, the hedge fund investor on the winning side of JPMorgan Chase’s $6.2 billion, “London Whale” trading loss in 2011, is now taking on index fund giant BlackRock.

On Friday, Weinstein‘s Saba Capital detailed in a presentation seen by CNBC its plans to push for change at 10 closed-end BlackRock funds that trade at a significant discount to the value of their underlying assets compared to their peers. Saba says the underperformance is a direct result of BlackRock’s management.

The hedge fund wants board control at three BlackRock funds and a minority slate at seven others. It also seeks to oust BlackRock as the manager of six of those ten funds.

“In the last three years, nine of the ten funds that we’re even talking about have lost money for investors,” Weinstein said on CNBC’s “Squawk Box” earlier this week.

At the heart of Saba’s “Hey BlackRock” campaign is an argument around governance. Saba says in its presentation that BlackRock runs those closed-end funds the “exact opposite” way it expects companies to run themselves.

BlackRock “is talking out of both sides of its mouth” by doing this, Saba says. That’s cost retail investors $1.4 billion in discounts, by Saba’s math, on top of the management fees it charges.

BlackRock, Saba says in the deck, “considers itself a leader in governance, but is crushing shareholder rights.” At certain BlackRock funds, for example, if an investor doesn’t submit their vote in a shareholder meeting, their shares will automatically go to support BlackRock. Saba is suing to change that.

A BlackRock spokesperson called that assertion “very misleading” and said those funds “simply require that most shareholders vote affirmatively in favor.”

The index fund manager’s rebuttal, “Defend Your Fund,” describes Saba as an activist hedge fund seeking to “enrich itself.”

The problem and the solution

Closed-end funds have a finite number of shares. Investors who want to sell their positions have to find an interested buyer, which means they may not be able to sell at a price that reflects the value of a fund’s holdings.

In open-ended funds, by contrast, an investor can redeem its shares with the manager in exchange for cash. That’s how many index funds are structured, like those that track the S&P 500.

Saba says it has a solution. BlackRock should buy back shares from investors at the price they’re worth, not where they currently trade.

“Investors who want to come out come out, and those who want to stay will stay for a hundred years, if they want,” Weinstein told CNBC earlier this week.

Weinstein, who founded Saba in 2009, made a fortune two years later, when he noticed that a relatively obscure credit derivatives index was behaving abnormally. Saba began buying up the underlying derivatives that, unbeknownst to him, were being sold by JPMorgan’s Bruno Iksil. For a time, Saba took tremendous losses on the position, until Iksil’s bet turned sour on him, costing JPMorgan billions and netting Saba huge profits.

Saba said in its investor deck that the changes at BlackRock could take the form of a tender offer or a restructuring. The presentation noted that BlackRock previously cast its shares in support of a tender at another closed-end fund where an activist was pushing for similar change.

At the worst-performing funds relative to their peer group, Saba is seeking shareholder approval to fire the manager. In total, BlackRock wants new management at six funds, including the BlackRock California Municipal Income Trust (BFZ), the BlackRock Innovation and Growth Term Trust (BIGZ) and the BlackRock Health Sciences Term Trust (BMEZ).

“BlackRock is failing as a manager by delivering subpar performance compared to relevant benchmarks and worst-in-class corporate governance,” the deck says.

If Saba were to win shareholder approval to fire BlackRock as manager at the six funds, the newly constituted boards would then run a review process over at least six months. Saba says that in addition to offering liquidity to investors, its board nominees would push for reduced fees and for other unspecified governance fixes.

A BlackRock spokesperson told CNBC that the firm has historically taken steps to improve returns at closed-end funds when necessary.

“BlackRock’s closed-end funds welcome constructive engagement with thoughtful shareholders who act in good faith with the shared goal of enhancing long-term value for all,” the spokesperson said.

Weinstein said Saba has run similar campaigns at roughly 60 closed-end funds in the past decade but has only taken over a fund’s management twice. The hedge fund sued BlackRock last year to remove that so-called “vote-stripping provision” at certain funds and filed another lawsuit earlier this year.

BlackRock has pitched shareholders via mailings and advertisements. “Your dependable, income-paying investment,” BlackRock has told investors, is under threat from Saba.

Saba plans to host a webinar for shareholders on Monday but says BlackRock has refused to provide the shareholder list for several of the funds. The BlackRock spokesperson said that it has “always acted in accordance with all applicable laws” when providing shareholder information, and that it “never blocked Saba’s access to shareholders.”

“What we want is for shareholders, which we are the largest of but not in any way the majority, to make that $1.4 billion, which can be done at the press of a button,” Weinstein told CNBC earlier this week.

WATCH: CNBC’s full interview with Saba Capital’s Boaz Weinstein

Technology

As Tesla layoffs continue, here are 600 jobs the company cut in California

Published

16 hours ago

May 17, 2024

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As Tesla layoffs continue, here are 600 jobs the company cut in California

As part of Tesla’s massive restructuring, the electric-vehicle maker notified the California Employment Development Department this week that it’s cutting approximately 600 more employees at its manufacturing facilities and engineering offices between Fremont and Palo Alto.

The latest round of layoffs eliminated roles across the board — from entry-level positions to directors — and hit an array of departments, impacting factory workers, software developers and robotics engineers.

The cuts were reported in a Worker Adjustment and Retraining Notification, or WARN, Act filing that CNBC obtained through a public records request.

Facing both weakening demand for Tesla electric vehicles and increased competition, the company has been slashing its headcount since at least January. CEO Elon Musk told employees in a memo in April that the company would cut more than 10% of its global workforce, which totaled 140,473 employees at the end of 2023.

Previous filings revealed that Tesla would cut more than 6,300 jobs across California; Austin, Texas; and Buffalo, New York.

Musk said on Tesla’s quarterly earnings call on April 23 that the company had built up a 25% to 30% “inefficiency” over the past several years, implying the layoffs underway could impact tens of thousands more employees than the 10% number would suggest.

According to the WARN filing, the 378 job cuts in Fremont, home to Tesla’s first U.S. manufacturing plant, included people involved in staffing and running vehicle assembly. There were 65 cuts at the company’s Kato Rd. battery development center.

Tesla didn’t respond to a request for comment.

Among the highest-level roles eliminated in Fremont were an environmental health and safety director and a user experience design director.

In Palo Alto, home to the company’s engineering headquarters, 233 more employees, including two directors of technical programs, lost their jobs.

Tesla has also terminated a majority of employees involved in designing and improving apps made for customers and employees, according to two former employees directly familiar with the matter. The WARN filing shows that to be the case, with many cut from the team at Tesla’s Hanover Street location in Palo Alto.

Tesla faces reduced demand for cars it makes in Fremont, including its older Model S and X vehicles and Model 3 sedan. Total deliveries dropped in the first quarter from a year earlier, and Tesla reported its steepest year-over-year revenue decline since 2012.

An onslaught of competition, especially in China, has continued to pressure Tesla’s sales in the second quarter. Xiaomi and Nio have each launched new EV models, which undercut the price of Tesla’s most popular vehicles.

Tesla’s stock price has tumbled about 30% so far this year, while the S&P 500 is up 11%.

Musk has been trying to convince investors not to focus on vehicle sales and instead to back Tesla’s potential to finally deliver self-driving software, a robotaxi, and a “sentient” humanoid robot. Musk and Tesla have long promised customers self-driving software that would turn their existing EVs into robotaxis, but the company’s systems still require constant human supervision.

Other recent job cuts at Tesla included the team responsible for building out the Supercharger, or electric-vehicle fast-charging network, in the U.S.

Tesla disclosed plans in its annual filing for 2023 to grow and optimize its charging infrastructure “to ensure cost effectiveness and customer satisfaction.” Tesla said in the filing that it needed to expand its “network in order to ensure adequate availability to meet customer demands,” after other auto companies announced plans to adopt the North American Charging Standard.

Since cutting most of its Supercharger team, Tesla has reportedly started to rehire at least some members, a move reminiscent of the job cuts Musk made at Twitter after he bought the company and later rebranded it as X. Musk told CNBC’s David Faber last year that he wanted to rehire some of those he let go.

Read the latest WARN filing in California here: