Morning Agenda: Yahoo’s Hacking, Princeling Problem, Test for the Justice Dept.


The announcement of the breach at Yahoo comes as Verizon Communications moves forward with its $4.8 billion acquisition of the company.

Mike Blake/Reuters

Yahoo had no shortage of issues when it was trying to sell itself. But now that it has finally sealed a deal, the theft of data on 500 million users has thrown another wrench in the works.

As well as compromising the digital identities of so many users — including their bank accounts and medical information — the hacking also has far-reaching implications for its acquisition by Verizon and how investors conduct their due diligence in the future.

Verizon said it had only limited information and understanding of the breach. It is unclear whether the company carried out security tests before agreeing to buy Yahoo.

It is not legally required but, as one security company notes, it can affect a valuation — such intrusions can lead to lawsuits and stolen intellectual property. The theft has also raised questions about a possible breach of contract.

How will Verizon respond?

Fortune magazine examined whether Verizon could argue that Yahoo had broken its agreement — it seems that will hinge on what Yahoo knew and when. The Wall Street Journal reports that such a move is rare because courts have resisted it.

“It has to be a substantial event,” one lawyer told The Journal. “It can’t just be a hiccup.”

JPMorgan’s Princeling Problem

JPMorgan’s efforts to hire the children of China’s ruling elite seem to keep coming back to bite it.

The bank is preparing to settle with federal prosecutors and the Securities and Exchange Commission after being the subject of a federal bribery investigation.

But it is now also facing scrutiny from the Federal Reserve and the Office of the Comptroller of the Currency, two agencies that were not previously known to be involved.

The Fed is seeking a $62 million fine, while the Office of the Comptroller of the Currency will seek to mete out its own punishment, according to people briefed on the investigations. The two regulators are focusing on a breakdown in controls and practices that allowed the improper hiring to take place, rather than the bribery aspect.

JPMorgan is expected to pay federal prosecutors and the S.E.C. about $200 million.

Test Case for the Justice Department

One of the most effective ways to combat corporate misconduct is by seeking accountability from the individuals who perpetrated the wrongdoing, according to the Justice Department.

Well, now it has a chance to prove that with Wells Fargo.

One of the factors it takes into account when pursuing charges is “the pervasiveness of wrongdoing within the corporation.” Wells Fargo fired 5,300 employees for creating sham accounts.

In fact, James B. Stewart writes in Common Sense that he could not find a single Justice Department guideline that cut in Wells Fargo’s favor.

“It’s mind-boggling,” says Brandon L. Garrett, a law professor at the University of Virginia and author of “Too Big to Jail.” “Fines aren’t working. We’re not going to see deterrence until we see some high-level individual cases.”

Quotation of the Day

“The phrase ‘cross-selling’ is all about profitability, not about meeting client needs.”

John G. Taft, chairman of DelaneyTaft L.L.C. and a former chief executive of the Royal Bank of Canada’s wealth management unit in the United States. He argues that treating a bank like a shop and calling employees sales people distracts from the aim of being a client-focused adviser.

Coming Up

• Federal Reserve presidents will discuss the role of the Fed within communities at the Federal Reserve Bank of Philadelphia’s conference.

• Treasury Secretary Jacob J. Lew will participate in the Freedman’s Bank Forum in Washington.

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23 September 2016 | 10:02 am – Source:


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