Is It Fraud, or Is It ‘Puffery’?
The criminal complaint against Carlos Watson, which was unsealed this week, contains some jaw-dropping accusations, including that Watson, the founder of Ozy Media, lied about its numbers, fabricated documents and asked a colleague to impersonate a YouTube executive on a conference call with Goldman Sachs.
But there is also a less headline-grabbing accusation: When making his case to potential investors, Mr. Watson allegedly named other investors in the deal — even though not everyone on the list had, in fact, committed that money. While clearly unethical — and we’re not defending it — that one part of the criminal complaint doesn’t sound far off from a practice that seems all too common in business. How many times has a real estate agent exaggerated the interest in a property? Or a private equity firm misled a buyer about competition for an asset? The business world calls this “bluffing.” Lawyers call it “puffing.”
Sheel Mohnot, a co-founder of Better Tomorrow Ventures, estimates that once a week someone on his team will say after a pitch meeting, “Yeah, that’s bull.” For better or worse, some over-optimism is expected in business. But where is the line?
“Puffery” is, perhaps surprisingly, defensible. U.S. courts have effectively adopted a “puffery doctrine” that allows companies leeway to make sweeping statements. A U.S. District Court, for example, applied this thinking in a lawsuit against Ford Motor for failures of Firestone tires on its vehicles, ruling that certain broad proclamations — like “safety comes first” — were simple acts of puffery. Vagueness is also a common tool for bankers selling a company; they might, for example, tell a potential buyer that three parties are interested, while not mentioning that the prices that two of those parties are willing to pay are lower than the selling floor.
Lying about verifiable specifics is less defensible. When the bluff gets into details — as it allegedly did with Ozy’s list of purported investors — the legal ground can get shakier. Take Enron, whose former C.E.O. Jeffrey Skilling was charged by U.S. regulators with trying to artificially prop up the company’s stock price and misleading investors about it. One of Skilling’s defenses was that some of his public statements, including claiming that all of Enron’s businesses were “uniquely strong franchises with sustainable high earnings power,” were puffery. But an appeals court noted while affirming his conviction that Skilling knew at the time that a number of Enron’s businesses were in, or facing, severe trouble.
A fib without fraud charges can still be costly. The government failed to successfully prosecute a former bond trader at Jefferies accused of misleading investors about the market. (Of course bond traders exaggerate, the argument went. It’s up to sophisticated investors to do their own calculations.) But AllianceBernstein had already temporarily stopped doing business with Jefferies because of the allegation. “A banker’s reputation is all they have,” said Drew Pascarella, a senior lecturer of finance at Cornell University, who previously worked as an M.&A. adviser. “If someone calls their bluff, no one will hire them again.”
IN CASE YOU MISSED IT
Some FTX Japan users can withdraw their money. The subsidiary of the bankrupt crypto exchange said it began allowing customers to make withdrawals on Tuesday, though customers in the United States are still waiting for access to their assets. Japan’s investor protection laws required the company to segregate customer funds and register with the authorities.
Apple believes a no-prick blood glucose tracking monitor is possible, according to Bloomberg. Such a breakthrough could revolutionize diabetes care, affecting one in 10 Americans and disrupting a multibillion-dollar industry. Apple’s ultimate goal is to make the technology part of the Apple Watch.
Rupert Murdoch has a new home. With an asking price of $30 million, the 6,500-square-foot condo overlooks Central Park. It has seven bedrooms, including one that is being used as a gym, and a 38-foot-long living room with a terrace.
Starbucks is putting olive oil in coffee. Branded Oleato, the new line of beverages debuted this week in Milan. Howard Schultz, the C.E.O., called combining the two classic Italian products a “transformational idea” that he came up with while traveling through Italy last summer.
That story you read this week about the four-day workweek may not turn out how you think
From June to December, 61 companies in Britain agreed to try out a four-day workweek in what was billed as the largest-ever study of the practice. The results, released this week, were lauded as proof of the benefits of shifting the traditional approach to office life. Employees and employers reported that they had benefited, and 92 percent of the companies said they would stick to the arrangement. But not everyone is convinced that such a radical change is here to stay despite the giddy optimism.
What worked? The employees reported, on average, improvements to their mental and physical health, as well as their ability to balance their private and work lives. Company revenue remained about the same, absenteeism and turnover fell, and all but five employers said they would continue the policy.
But that might not be enough to convince bosses. The standard workweek has been shortened before, and smart people have been predicting that further shortening is imminent … for a very long time:
1930: John Maynard Keynes predicts that as technology takes over more work, a 15-hour workweek might be sufficient for humans to feel suitably productive.
1956: Richard Nixon, then the vice president, predicts a four-day workweek in the “not too distant future” for the average American.
1978: Unions push a shorter workweek as a way to combat unemployment (one argument deployed in France, which mandated the 35-hour workweek in 2000). The Washington Post writes, “Ever since the beginning of the 1970s, the four-day workweek has seemed to be just around the corner, but this time it looks for real.”
2014: Larry Page, Google’s co-founder, suggests that the four-day workweek could help mitigate the impact of technology’s taking over more work from humans.
Money (always) talks. Matthew Bidwell, an employment expert at the Wharton School of the University of Pennsylvania, is skeptical that we are any closer to long-term change. “I do believe ultimately we get a bit more done in a five-day week than me doing a four-day week,” he told DealBook. “And sooner or later that shows up in pay. So in the long run, I think the question is going to be: Would people rather work four days a week and be paid less, or would they rather work five days a week and be paid more?”
The only bank C.E.O. to get a raise
Citigroup paid Jane Fraser $24.5 million for last year, a 9 percent increase from the previous year, according to a filing this week. Ms. Fraser, who started the turnaround job in 2021, was the only C.E.O. of a big Wall Street bank to get a raise.
Numbers to consider: The war in Ukraine
Russia’s invasion of Ukraine a year ago upended the global economy, driving up inflation and energy prices, stoking uncertainty and reconfiguring geopolitical relationships and the way business operates — often in surprising ways.
2 percent: The decline in Russia’s G.D.P. in 2022, amid the raft of sanctions imposed on the country by Ukraine’s allies. The economy is forecast to rebound this year.
30 percent: The decline in Ukraine’s G.D.P. in 2022. The country was already suffering from Russia’s 2014 annexation of Crimea and the Covid pandemic before President Vladimir Putin’s invasion added to the severe economic challenges.
14 percent: The drop in natural gas demand in Europe last year, as citizens and industries cut consumption as much as possible to manage reduced imports of Russian gas. Unusually warm weather has helped the continent cope through the winter after worries that energy supplies would dry up.
12 percent: The rise in defense industry stocks since the invasion, as military spending skyrockets. Shares of European defense companies have outperformed their U.S. peers, led by the British firm BAE Systems, whose profits have risen almost 9 percent in the past year.
On our radar: Sharper
Premiering last week on Apple+, the movie “Sharper” follows a team of thieves as they execute an elaborate con to steal billions from a wealthy New Yorker. Its cast includes Julianne Moore, Sebastian Stan and Briana Middleton, and the film has been reviewed as enjoyable, if a bit predictable. “I enjoyed watching the succession of betrayals and double-crosses, even if I could tell where it was going to end long before it did,” the reviewer Brian Tallerico wrote.
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