<abbr>In</abbr> 1882, John D. Rockefeller, the world’s richest man, created the first full-service single-family office in the U.S. to manage and invest his fortune, said to be $1.4 billion ($31 billion in today’s dollars) at his death in 1937. Fast-forward 142 years, and many members of The Forbes 400 have a family office to help them manage their enormous fortunes.



But so do thousands of other American families who don’t belong to the billionaire class. At their core, family offices are a means to invest, preserve and pass on fortunes—not to build them de novo. They’re both a safety net and status symbol. “People are busy, and they want to know: ‘How are we doing? Is there anything to worry about?’ ” says Mark Rogozinski, president of Family Office Services for Chicago-based Cresset Asset Management.



Family offices are taking off for many reasons, including increasing wealth and aggressive marketing to the ordinary rich. Baby Boomers and their elders also have concerns about passing on their accumulated wealth (in aggregate, some $84 trillion) and have a desire to involve younger generations in philanthropy. On the other side, the family office providers have access to new technology that can better monitor investment performance and share financial data, making it easier for them to expand. The final impetus is tax savings—the 2017 tax overhaul, coupled with a tax court ruling that year involving the Lender family (of bagel fame), mean that investment expenses which are no longer deductible on individual tax returns can often be written off at the family office level.



It’s unclear how many single-family offices now operate in the U.S.—estimates range from 3,000 up to 7,000. But all agree that the number is growing. Deloitte conservatively estimates there will be 3,550 single-family offices in North America in 2025, up 61% from 2019. (For comparison,&nbsp;Forbes&nbsp;counted 880 billionaires in the U.S. and Canada in 2024.)



It still requires at least $100 million in investable assets (and preferably $250 million) for a single-family office to make sense, but those with as little as $25 million, or even $10 million, can find a spot with a multifamily operator if they’re ready to pay for estate, tax and charitable planning and access to alternative investments like derivatives and venture capital.



A single-family office costs a minimum of $1 million annually (and usually more), but multi-family offices run from 0.5% to 2% of assets a year (generally, the bigger the portfolio, the lower the percentage). Sometimes there are transaction and performance fees as well. Concierge services, such as managing a client’s homes and security and travel, may cost extra. The fee structure is often negotiable and bespoke, just like the services. Some multifamily offices charge a fixed fee per year, starting at $50,000 and ranging up to $1 million for full service.



More and more people want (and can afford) such white-glove treatment. The Federal Reserve’s 2022 Survey of Consumer Finances found the richest 1% of Americans (that’s 1.3 million households) had a minimum net worth of&nbsp;<a href="https://fred.stlouisfed.org/series/WFRBL99T999309" rel="noreferrer noopener" target="_blank">$11 million</a>, while the top 0.1% (<a href="https://fred.stlouisfed.org/series/WFRBLTP1310" rel="noreferrer noopener" target="_blank">133,000</a>&nbsp;households) had a net worth of at least&nbsp;<a href="https://fred.stlouisfed.org/series/WFRBLTP1311" rel="noreferrer noopener" target="_blank">$46 million</a>.



The original multifamily offices were born when a single rich family invited in a handful of others to defray costs. Cresset, founded seven years ago in Chicago by two private-equity veterans to manage their own families’ wealth, is one of a new breed of registered investment advisors expanding aggressively into the multifamily business. After merging in June with The Connable Office, a 130-year-old multifamily office, it’s up to $60 billion in assets under management.



One new multifamily player, New York City’s Beatrice Advisors, is the first owned by a Black woman. It was launched in June by Christina Lewis with assets from her own family and those of her rich friends. Her father, Forbes 400 member Reginald Lewis—a Baltimore-born, Harvard-trained deal lawyer—died in 1993 at 50 from an inoperable brain tumor. Christina was just 12 then, and describes her family as being “underadvised” at his death. Beatrice is investing heavily in technology, creating digital dashboards for its clients that display a family’s whole net worth, including their investment portfolio, business assets and even intellectual property. The aim, Lewis says, is “transitioning our knowledge to the client over time, so that the client is in the driver’s seat.”



In contrast to the Lewises, the Lipitz family has had decades to work out its wealth transition. Gene Lipitz, now 58, got into the family office game in 1997. His dad, Roger C. Lipitz, now 82, had sold the company he built—Meridian Healthcare, a chain of 45 nursing homes—for $205 million in 1993. Father and son began collaborating on investments informally, but Roger became increasingly involved in civic and charitable work and suggested they formalize that partnership, with the younger Lipitz taking the investing lead. Gene first hired a multifamily office in 1997 but was dissatisfied. Ultimately, in 1999, after selling his own tax- and risk-management company to Citicorp, Gene decided to create his own office; it now manages investments for three generations with three full-time employees, outsourcing such functions as accounting. The office’s mission statement is revised regularly. Failing to do that, Gene says, is “a great way to lose buy-in from the next generation.”



Even for people with decades of business experience, starting a single-family office can be daunting, beginning with the challenge of hiring qualified staff. That work, too, is often outsourced. Kay Shah, a director in the Family Office Division at StevenDouglas, a national boutique search firm, spends her days recruiting financial pros to serve in family offices, which typically have five to 15 employees, she says.



New cloud-based platforms help professional managers track portfolio holdings and performance across asset classes, but family offices controlled by older generations still tend to lag technologically. Josh Kanter, an attorney and wealth advisor in Salt Lake City, concluded, based on his own experience, that family offices need to become more tech-centric. After his father, famed tax lawyer and trust engineer Burton Kanter (an advisor to the billionaire Pritzker family), died in 2001, Josh took over managing the family’s office. He found keeping all generations up to date on practical details difficult. For example, he says, the family will pay for tuition and health care, but only if certain guidelines are followed. The problem was that there was no single place to find that sort of information, other than sorting through the more than 275,000 files in the family Dropbox or calling him directly to ask.



His solution was to start his own software company, Leafplanner. It acts as an overlay to existing financial software like Addepar, which tracks multiasset portfolio performance, or Arch, which organizes tax documents. Leafplanner can guide family members through the process of getting answers to specific questions on everything from investment decisions to charitable giving. It can be customized for an unlimited number of users, controlling access to what information each can see. Since launching in 2022, Leafplanner has installed the software for 145 other families, Kanter says. As for his own family, he says, they no longer have to ask, “What happens if Josh is the next one to get hit by a bus?”

Group of business people, bank managers, bankers having meeting, discussion on global planning and financial research. Help, advisory, financial services, support and investment strategy concept

Why You No Longer Need To Be A Billionaire To Have Your Own Family Office

When it comes to controversial advertising campaigns, they usually don’t have to do with income taxes. But a short-lived campaign from enterprise software company Intuit, which makes TurboTax,&nbsp;crossed that line and raised the ire of accountants.



<a href="https://www.forbes.com/sites/kellyphillipserb/2024/10/16/intuit-backpedals-after-insulting-accountants-with-latest-ad-campaign/">Forbes’&nbsp;Kelly Phillips Erb writes</a>&nbsp;about the saga, in which a consumer-targeted message intended to be a bit cheeky and punny&nbsp;ended up insulting a group of professionals who actually rely on Intuit’s products. The centerpiece of the campaign is an advertisement in which a young woman announces to a bland-looking accountant that she’s leaving him for a younger and more fashionable man on her phone “who charges me less but gives me more” as part of a “tax break-up.” The younger man represents Intuit’s “TurboTax Full Service plan,” featuring human tax preparers who work with customers online or in person to complete their taxes.



Tax preparers, who have competed with TurboTax for many years,&nbsp;felt the campaign went too far. The unflattering portrayal of the accountant, plus the barrage of messaging telling consumers to “break up” with them, made many individuals and organizations upset. American Institute of Certified Public Accountants President and CEO Barry Melancon issued a statement saying, “The crucial role of CPAs, who serve as expert and trusted advisors to business owners and individuals, was not reflected in an unfortunate recent ad campaign launched by Intuit.” And the National Association of Tax Professionals said it will no longer accept Intuit’s sponsorships or exhibits at its conference because of the campaign’s “direct conflict with our members’ interests.” Predictably, Intuit decided to phase out the campaign.



While TurboTax is a well-known Intuit product, it’s only one. The company also owns QuickBooks and Mailchimp—financial management and email marketing platforms used by many businesses, including accountants—as well as consumer budgeting tool Credit Karma. In its last fiscal year, the bulk of Intuit’s growth came from those using its enterprise financial planning and email software. TurboTax online made up less than a quarter of the company’s total fiscal year revenues.



Intuit may be seeking more consumer tax business, but it may have damaged its larger customer base by trying to be funny. An average consumer may have giggled at the ad, but it seems unlikely that it would end up getting the desired results,&nbsp;especially since most consumers aren’t thinking about income tax prep in October. Instead, with this campaign, Intuit might have inspired more financial professionals to break up with&nbsp;them.



Finding the right emotional balance is an important tool to make a campaign successful. Reticle AI is using artificial intelligence to determine the emotions that are present in campaigns, helping marketers strike the proper tone to get their messages across. I talked to Vice President of Business Development Tricia Allen about how this works. An excerpt from our conversation is later in this newsletter.



MARKETING MATTERS


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<figure class="aligncenter size-full is-resized"><img loading="lazy" decoding="async" width="1024" height="683" src="https://cms.forbesafrica.com/wp-content/uploads/2024/09/GettyImages-2169510342.jpg" alt="" class="wp-image-63122" style="width:608px;height:auto" srcset="https://cms.forbesafrica.com/wp-content/uploads/2024/09/GettyImages-2169510342.jpg 1024w, https://cms.forbesafrica.com/wp-content/uploads/2024/09/GettyImages-2169510342-300x200.jpg 300w, https://cms.forbesafrica.com/wp-content/uploads/2024/09/GettyImages-2169510342-768x512.jpg 768w" sizes="auto, (max-width: 1024px) 100vw, 1024px" /><figcaption class="wp-element-caption"> (Photo by Dilara Irem Sancar/Anadolu via Getty Images)</figcaption></figure></div>


Google is making a change to its Local Services Ads business next month that&nbsp;may impact roughly half of businesses advertising on the search engine,&nbsp;<a href="https://www.forbes.com/sites/brandonkochkodin/2024/10/22/googles-upcoming-ad-change-could-spell-disaster-for-millions-of-unprepared-small-businesses/">reports&nbsp;Forbes’&nbsp;Brandon Kochkodin</a>. Starting November 21, the local ads that pop up at the top of search results for users will be blocked if they aren’t linked to a Google Business Profile. This free profile indicates how businesses appear in search and is fully customizable by the business. But businesses need to be verified as legitimate through video or phone authentication, or by receiving a postcard. The authentication is an extra step, but it’s important that local businesses do it sooner rather than later. Studies have shown that 96% of people learn about local businesses online, and four out of five of those searches convert into business. In fact, nearly half of all Google searches are for local businesses.



SOCIAL MEDIA


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<figure class="aligncenter size-full is-resized"><img loading="lazy" decoding="async" width="1024" height="662" src="https://cms.forbesafrica.com/wp-content/uploads/2024/05/GettyImages-1513152452.jpg" alt="" class="wp-image-61892" style="width:632px;height:auto" srcset="https://cms.forbesafrica.com/wp-content/uploads/2024/05/GettyImages-1513152452.jpg 1024w, https://cms.forbesafrica.com/wp-content/uploads/2024/05/GettyImages-1513152452-300x194.jpg 300w, https://cms.forbesafrica.com/wp-content/uploads/2024/05/GettyImages-1513152452-768x497.jpg 768w" sizes="auto, (max-width: 1024px) 100vw, 1024px" /><figcaption class="wp-element-caption"> (Photo by Hakan Nural/Anadolu Agency via Getty Images)</figcaption></figure></div>


Two social networks are making changes that may impact user safety. For as long as X was known as Twitter, users have been able to block other accounts—a step often taken when a user is bothered or harassed by someone. Previously, the blocked account couldn’t see or engage with posts from the user who blocked them. Now, users&nbsp;<a href="https://www.forbes.com/sites/antoniopequenoiv/2024/10/17/x-will-soon-let-users-see-tweets-from-people-who-block-them-the-controversial-change-explained/">can see all posts</a>&nbsp;from accounts that have blocked them, though they still can’t engage with them.&nbsp;X says this change allows “greater transparency,” so users can see if those who have blocked them are trying to “share and hide harmful or private information.” But critics have taken the other side of the argument: Stalkers and harassers can keep following accounts of those who have blocked them. X owner Elon Musk, who has made scores of controversial changes to the platform since he bought it in 2022, previously posted the blocking function made no sense. After this change was made, competing social media platform Bluesky gained 1.2 million users in two days,&nbsp;<a href="https://www.socialmediatoday.com/news/bluesky-gains-momentum-wake-xs-blocking-changes/730371/" rel="noreferrer noopener" target="_blank">Social Media Today reported.</a>



<a href="https://www.forbes.com/sites/lindseychoo/2024/10/17/instagram-sextortion-child-safety/">Changes to Instagram</a>&nbsp;intended to prevent “sextortion” scams and protect teens are much less controversial. Now, users are unable to take screenshots or recordings of disappearing images, which are only intended to be viewed once. The Meta-owned platform is also testing safety notices to let teenagers know when they are exchanging messages with someone out of the country. Images flagged to contain nudity will be automatically blurred for users younger than 18. And accounts with “scammy” behaviors will not be able to see users’ following and followers lists, a common way some bad actors get information about a target’s friends and family.



BRANDS + MESSAGING


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Netflix&nbsp;<a href="https://www.forbes.com/sites/lindseychoo/2024/10/17/netflix-earnings-streaming-beats-expectations-subscriber-growth/">reported earnings</a>&nbsp;last week, beating Wall Street’s expectations. The streaming giant made $9.8 billion in revenue in its most recent quarter, and gained 5.1 million subscribers. Now, nearly 283 million households have Netflix subscriptions, but the rate of new subscriber gain is slowing down.&nbsp;<a href="https://www.forbes.com/sites/dbloom/2024/10/17/netflix-added-51-million-subscribers-can-we-talk-about-what-matters/">Forbes&nbsp;senior contributor David Bloom writes</a>&nbsp;that&nbsp;for Netflix, this really shouldn’t be seen as a negative. After all, there is a finite amount of Netflix subscriptions that can be bought. What is more important, Bloom writes, is viewer engagement. Netflix reported that the average paid membership has two hours of engagement per day. It has an 8.2% viewership share in the U.S., according to Nielsen data. Netflix first became profitable in 2003, and to date only one other streaming service—Disney+—has posted a profit. With more emphasis on engagement, Netflix also seems to be the first of the streamers to start caring more about actual viewers and interaction.



<h4 class="wp-block-heading" id="h-on-message">ON MESSAGE</h4>



<h3 class="wp-block-heading" id="h-how-reticle-ai-uses-technology-to-determine-emotions-in-ads">How Reticle AI Uses Technology To Determine Emotions In Ads</h3>



Emotion is important to marketing. Nostalgia, joy, adventure, curiosity and stress can all inform how consumers make purchases, choose what to eat or drink, or select service providers or leisure activities. Reticle AI uses artificial intelligence to determine the emotions that are present in marketing campaigns, as well as the emotions that consumers are experiencing when they see them, and makes recommendations for an optimal outcome. I talked to Vice President of Business Development Tricia Allen about how their method works and how it can get results. This conversation has been edited for length, clarity and continuity.



How can you use AI to determine things like sentiment and nostalgia?



Allen:&nbsp;We’ve trained our AI technology to understand emotional sentiment within digital content. We’re almost curating content into various emotions. If a brand wants to be associated with nostalgia, [or being] uplifting, joyful, nurturing, they can align their message within content that has that emotional sentiment. We can control how the content potentially makes someone feel. If you’re consuming content that makes you feel nostalgic, nurturing, uplifting, chances are you’re in that frame of mind. If you get served an ad that is in that nostalgic, nurturing tone, you’re more predisposed to take action. That action is that connectivity and attention that the brand is getting because it’s being served at the right time.



[AI has] that ability to take the universe of digital content, really cull it down, and categorize it into these emotional categories because of its understanding of human emotion.



There’s a lot of talk about AI systems not always giving accurate responses. With something difficult to quantify like emotion, how do you make sure that what comes out of your system is accurate to how people actually would feel?



While AI is extremely relevant and helpful from a marketing standpoint, you can’t get rid of that human oversight. I really believe strongly in that for many reasons. There’s bias that’s involved because the technology is only as good as the person who is training the platform, and if they have inherent bias, then the tech has bias. You need more than one person to be vetting that. In addition, what nurturing means to me might mean something completely different to you.



We actually have human labelers. We have them go in and vet our data on an ongoing basis, just to have those human eyes on it. We’ll go through, and if the technology has said this content is deemed to be nurturing, we want to see what a human actually thinks. We have that human component to make sure, because AI is not perfect. Even when it does get better, I still strongly believe you’re going to need human oversight, especially when you’re talking about emotion.



In your research, what are some of the emotions that people are reacting to the most, and what are some more prevalent themes?



A lot of the themes that people are looking for from a marketing standpoint are around joy and that feeling of happiness, and conversely, that feeling of stress and pressure. [It’s] not necessarily a positive emotion. Maybe it’s a negative emotion, because maybe I’m a vacation company and I want to provide you with a solution to help you overcome that stress.



If you are able to tap into emotion—both in marketing and also what is being looked for—what would be the perfect marketing campaign?



To me, the perfect marketing campaign is [one in which] you first do the insights work to understand the emotional footprint of that brand. How do people think and feel about your brand right now? How do you want them to feel about your brand? Then ensure that creative or the ad itself is designed to hit those key emotions. We’re kind-of that end piece. You’ve established how people think and feel. You’ve established: Do I want them to feel this way? If no, where are there distinctions that we can draw on to differentiate from the competition and then make sure that creative is dialed in?



The biggest area where I see brands fall down is they try and tap into emotion, but there’s a disconnect between the creative strategy and the insights work that was done. The insights work is never being brought to life, and then the creative is a bit of a disconnect. When all of those pieces line up, and you take that emotionally designed creative [and] put it in the same environment from a digital placement perspective, that’s the trifecta of emotional marketing.



FACTS + COMMENTS



When the World Series between the Los Angeles Dodgers and New York Yankees begins on Friday,&nbsp;it will be Sho time—for Dodgers star Shohei Ohtani, that is. With the Japanese phenom in the playoffs, Major League Baseball has actually seen&nbsp;<a href="https://www.forbes.com/sites/mattcraig/2024/10/17/ohtani-mania-has-mlb-playoff-viewership-soaring-in-japan/">more October viewership</a>&nbsp;in his home country than in the U.S.



12.9 million:&nbsp;Japanese viewers of NLDS Game 5 on October 11, when the Dodgers beat the San Diego Padres to advance to the National League Championship Series. The U.S. had 7.24 million viewers, a record for a division series



$700 million:&nbsp;Value of Ohtani’s record-setting 10-year contract



‘I hope to continue to perform well as well for the fans in Japan’:&nbsp;Ohtani&nbsp;<a href="https://dodgersnation.com/shohei-ohtani-acknowledges-fans-in-japan-watching-dodgers-postseason/2024/10/21/" rel="noreferrer noopener" target="_blank">told Dodgers Nation</a>, after saying that the team has also been “playing really well”



STRATEGIES + ADVICE



Yes, there is such a thing as too much positivity. Here are some ways to&nbsp;<a href="https://www.forbes.com/sites/jackkelly/2024/10/11/managers-are-glossing-over-workplace-issues-and-pushing-toxic-positivity/">avoid glossing over</a>&nbsp;your employees’ challenges and support your team through hard times.



Time management is difficult for executives. Here are <a href="https://www.forbes.com/sites/jackkelly/2024/10/17/top-time-management-apps/">five apps</a> that can help you get more control over your work day.

Chat Bot Service Concept – Enhancing Customer Experience with Virtual Assistant

Can AI Capture The Emotional Side Of Marketing?

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The World’s Highest-Paid Soccer Players 2024

Now Nala has raised $40 million to build its own payment rails allowing global businesses to move money to and from Africa.



Benjamin Fernandes launched&nbsp;his fintech startup&nbsp;Nala in 2018 with the aim of speeding up money transfers within his native Tanzania. Over the next two years, the now 31-year-old former television host and Stanford MBA hit one daunting setback after another.



First, Tanzania’s largest telecommunications provider issued Nala a cease and desist letter, cutting off Fernandes’ access to one of the primary pieces of infrastructure he had been using to transfer money. Then his cofounder quit just a week before demo day at Y Combinator, the startup accelerator Nala had gained entry to in 2019, after five previous unsuccessful attempts. Finally, in 2020, the Covid pandemic hit, reducing the already lackluster demand for Nala’s domestic payment service.



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“We had to shut it down. That was really tough,” says Nala CEO Fernandes, speaking from his New York office a day after the company was featured on the iconic Nasdaq billboard in Times Square. “We had to do layoffs and clean up the team.”



Instead of walking away, over the next two years Fernandes recast and rebuilt Nala into a cross-border remittance service that now enables African migrants working in the U.S. and 20 European nations to send money back home to 11 African countries, including Kenya, Nigeria, Uganda, Tanzania and Rwanda. In all, it now has more than 500,000 registered customers, though none live in Africa.



While Nala isn’t the only one in this business, or always the cheapest service, it’s adding extras built with an understanding of its target market. In Kenya, for example, Nala directly integrates with dominant mobile money service M-Pesa, allowing those working abroad to pay their families’ utility bills back home directly from their account. “What we noticed is that diasporans care about the control of money,” Fernandes says.



This is a growth business. The United Nations projects that Africa’s population will nearly double to 2.5 billion by 2050, making the continent the birthplace of nearly one in four working-age people on Earth. Roughly a million Africans leave each year seeking work.



But Fernandes has even bigger plans. In July, despite a depressed fintech market, his 100-person startup raised $40 million (at an estimated valuation of more than $200 million, according to a shareholder with direct knowledge of the transaction). Only five other African fintechs have raised $40 million or more in a Series A fundraising since 2015, according to PitchBook. San Francisco-based venture capital firm Acrew Capital led the round, and Texas-based VC firm Amplo and DST Global, which manages $5 billion in assets, also invested.



(Most of Nala’s employees are based in Kenya and the U.K. and Fernandes spends most of his time at the London office.)



This isn’t money needed to sustain current operations. In 2023, Nala’s revenue exceeded $15 million, and this past February it became profitable on a generally accepted accounting principles (GAAP) basis, Fernandes says. “We have achieved profitability on the net profit basis,” affirms Nala’s Chief Financial Officer Andrei Klevtsov, who was formerly head of accounting at Wise. “On the EBITDA level the result is the same—we are still a very young company and don’t have any significant adjustments from non-operating activities.”



Instead, Fernandes aims to use the new cash to grow in two ways. First, Nala plans to expand its consumer remittance business to South Asian markets, including India, Pakistan and the Philippines, followed by Latin America.



Second, a share of the new capital will go into securing more licenses and funding the development of Rafiki, a cross-border payment infrastructure designed for global businesses. (Rafiki means “friend” in Swahili, a language spoken predominantly in Tanzania and neighboring Kenya.) As Fernandes tells it, the payments infrastructure in Africa is today only one percent of what it could and should ultimately be. Africa remains the most expensive continent to send money to due to regulatory issues, currency fluctuations, limited competition and a lack of payment infrastructure specifically built for global businesses.



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Growing up in&nbsp;Dar es Salaam, Tanzania, Fernandes didn’t have many tech founders as role models. Still, he wasn’t without inspiration. His parents are both renowned gospel preachers who never went to college, but built the&nbsp;<a href="https://worldagapeministries.com/" rel="noreferrer noopener" target="_blank">World Agape Ministries</a>, and launched an evangelical television station. So at 17, Fernandes started working as a television personality, hosting kids’ talk shows. He then gained international attention covering major sports events such as the 2012 Olympics in London and the 2014 World Cup.



The year after earning his bachelor’s in accounting (with a computer science minor) from the University of Northwestern-St. Paul in Minnesota in 2014, Fernandes was accepted at Stanford business school on a full scholarship as an African MBA fellow. He first started exploring a payments business while at Stanford and says his classmates–steeped in Silicon Valley’s try, fail, and try again startup culture– have been a source of encouragement.



After reinventing Nala in 2021 as a cross-border remittance service, Fernandes used the large social media following he had developed as a former TV host to grow the business. He went on Clubhouse to find customers and was able to market the company to his nearly 450,000 Instagram followers, asking them to test his products. In January 2022, he raised $10 million in funding led by Amplo, a Texas-based VC firm that specializes in international investments.



Nala makes money through foreign-exchange markups–the extra charge it levies on top of exchange rates. And it benefits from helping to supply hard currencies on a continent where many countries are&nbsp;<a href="https://www.forbes.com/sites/segunolakoyenikan/2023/07/02/africa-becomes-a-casualty-in-the-war-against-inflation-as-dollars-dry-up/">facing shortages</a>. “The banks never have enough dollars,” he says. “Because I bring in dollars to Africa, banks are willing to pay me a premium for dollars. So I have leverage on what I can charge for dollars in the market.”



With its new Rafiki infrastructure, Nala aims to create reliable, lower-cost payment rails that streamline payouts and collections for businesses. That means global enterprises, such as payroll and remittance companies looking to trade with Africa but lacking the necessary regulatory approvals, can connect to Rafiki where the infrastructure is already licensed. This would allow them to make payouts to multiple employees and repatriate collections from customers.



“For example, DHL needs to handle collections in Nigeria and repatriate the funds to Germany, where we have an entity,” Fernandes says. “Or consider businesses like Netflix trying to handle collections from customers. That’s the target market for Rafiki.”



These cross-border services are similar to those provided by global fintech companies such as dLocal and Airwallex, which revolutionized payments for businesses in Latin America and Asia, respectively. “Rafiki is the dLocal for Africa,” Fernandes says.



The Rafiki infrastructure business was born out of the founder’s desire to address Nala’s own payment challenges. In the early stages, when transaction volumes were picking up, Nala experienced reliability issues as it used external payment rails—an infrastructure that allows the electronic transfer of money from one person to another. “The cost of operation and support was becoming so expensive for us that we decided it’s better to solve the actual problem,” says Fernades. “We ended up building our own payment rails.”



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Fintech companies&nbsp;such as Remitly, Taptap Send, LemFi and Sendwave also offer services allowing workers to send money back to Africa digitally. In fact, the youngest of these companies launched a year before Nala entered the cross-border payment market. But Nala has tried to distinguish itself in several ways. By securing necessary licenses and regulatory approvals to facilitate money transfers, the startup has established direct connections with banks and telecoms in the region. This allows it to bypass multiple payment networks, which have a history of slowing down transactions, ensuring that funds are delivered directly to the beneficiary’s account.



Fernandes is also aiming to give individual customers more control over how the money they send home is used. “We enable direct bill payment in some countries, such as Kenya, where you can pay for electricity bills, water bills and other services,” he notes. “That’s actually one of our most popular features.”



Now he wants Nala’s business to extend beyond remittances into additional financial services that empower customers. For instance, the startup will soon introduce a feature enabling those working abroad to provide debit cards to their beneficiaries back in Africa that will allow these workers more control over how their hard earned money is spent. Nala is also developing a system to allow migrants to transfer their data, including credit history, to the U.S.



Fernandes has also tried to set his startup apart by prioritizing rate transparency, a feature that is uncommon among fintechs facilitating transactions to Africa. For each transaction, Nala displays the exchange rates offered by its competitors, even when those rates are more favorable to the customer. “That automatically builds a new level of trust with the enterprise,” he says. “A lot of the time, even though we don&#8217;t have the best rates, customers still use us because we are transparent and honest with them.” On average, Nala charges higher fees than Remitly, but Fernandes argues his customers stick with Nala for its transparency.



Service has also been a selling point. Hamad Kasoga, a 32-year-old corporate sales representative at Turkish Airlines who lives in San Francisco, California, previously used Remitly to send money home to Tanzania but switched to Nala last November. Kasoga says he believed he would receive better service with Nala, including more efficient problem resolution in his native language, Swahili.



“It was good to learn that Nala’s customer service speaks Swahili,” Kasoga says. “It gives me the flexibility to feel like I’m working with a company that understands and knows me.”



Fernandes says he has tried to keep costs low. “They&#8217;ve built this business without spending a bunch of cash,” Acrew Capital founding partner Lauren Kolodny says approvingly. “They still have a significant portion of their last round of financing in the bank.” One way it keeps costs low: Nala currently has only one employee in the United States, even though it generates more revenue and transaction volume in the U.S. than in any other markets where it operates.

Benjamin Fernandes-3

This African Fintech Is Giving Workers A Better Way To Send Money Home

After years of remote work, post-pandemic employees are struggling with office distractions. The solutions run from in-office phone booths to libraries to, surprisingly, adding more sound.



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Chad West doesn’t go into his London office more than once a week. As a vice president of marketing at crypto smart wallet&nbsp;<a href="https://www.argent.xyz/" rel="noreferrer noopener" target="_blank">Argent</a>, West shows up for strategy or creative meetings. But when he’s just trying to get work done, the distractions and noise at Argent’s open plan office make him 40% less productive than at home, he estimates. Music escaping from coworkers’ headphones and coworkers’ voices pull at his attention while the sound of software engineers banging away at their keyboards grates on his nerves.



“I don’t know if it’s just because we’ve all become a bit more psychopathic, or maybe it’s always been in us, but I pick up on everything now,” says West, 33. “If someone has the audacity to take a phone call in a smallish office where people are trying to work, it grinds my ears.”



More than four years after the pandemic prompted most office workers to log on from home, many have returned to the office, whether because of employer mandates, a desire to spend time with colleagues or a need to escape from roommates or family. About&nbsp;<a href="https://wfhresearch.com/wp-content/uploads/2024/06/WFHResearch_updates_June2024.pdf" rel="noreferrer noopener" target="_blank">27% of paid workdays</a>&nbsp;in the U.S. were done from home in May, down dramatically from some 60% at the pandemic’s peak, but up from less than 10% before Covid-19.



As people have returned to the office either full- or part-time, complaints about a long-standing frustration—the noise and distractions of open-plan designs—have escalated. Workers are taking more Zoom meetings from the office, often speaking louder in those video calls. Bosses encourage office days to be spent “collaborating” and developing social bonds, but that boosts the chatter echoing in the space.



Compounding the problem: At companies that have downsized their real estate to take advantage of fewer people being onsite, conference rooms and private spaces fill up fast–with the first to claim them each day staying put. “It&#8217;s human behavior,” says Melissa Strickland, a principal and managing director at design firm&nbsp;<a href="http://www.hlw.design/" rel="noreferrer noopener" target="_blank">HLW</a>. If meetings run back-to-back, “why would I [switch rooms] when I could just take all my calls with some convenience [in this room by myself]?”



In a Sept. 2023 survey by workplace research firm&nbsp;<a href="https://www.leesmanindex.com/" rel="noreferrer noopener" target="_blank">Leesman</a>, noise levels were rated among the 10 most important features of the office—ranking between functioning toilets and an IT help desk. Yet only about 32% of employees are satisfied with noise levels in an average office, another Leesman survey (released this past April) found, and only two issues had lower satisfaction numbers in those offices: Access to nearby “leisure facilities,” and the rate of people walking past workstations.



The response to all these complaints presents a business opportunity, with vendors successfully selling everything from phone booth-style pods to “soundscaping” services that use a “biophilic” approach to help muffle voices with sounds found in nature. Furniture makers and interior designers are adding more acoustic-friendly materials and designing “libraries” for quiet places to work. Some employers are doling out noise-canceling headphones and even building tools to help workers alert colleagues when they need to focus.



“This is the nail that every organization is trying to hit the head of,” says Leesman founder Tim Oldman. He sees designers moving toward “re-cellularization” of interior space—more huddle rooms, private offices or quiet rooms many workers crave. “If we want employees to willingly return to offices, we have to provide space that supports those moments where they need distinct acoustic and visual privacy.”



Office distractions are more than a minor annoyance. A 2021&nbsp;<a href="https://www.cambridge.org/core/journals/journal-of-management-and-organization/article/abs/openplan-office-noise-is-stressful-multimodal-stress-detection-in-a-simulated-work-environment/F3EF8D2DF47767F18CBF5C081D6AB3A0#access-block" rel="noreferrer noopener" target="_blank">study</a>&nbsp;published in the&nbsp;Journal of Management &amp; Organization&nbsp;found that in experiments with controlled environments, typical noise levels of open plan offices caused increases in physiological stress indicators such as higher heart rates, as well as more facial expressions of disgust and reports by workers of negative moods.



“We don&#8217;t habituate to noise,” observes Libby Sander, an assistant professor at Bond University in Australia who worked on the study. “We have this idea that oh, you’ll just get used to it.…But physiologically and psychologically, your body doesn&#8217;t.”



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The desire for more control of office noise is one reason for the growth of companies like Finland-based&nbsp;<a href="https://www.frameryacoustics.com/en/" rel="noreferrer noopener" target="_blank">Framery</a>, one of the biggest makers of office “pods”—essentially, fully enclosed, modern looking glass-walled phone booths that start at about $8,700 for a compact single. (Some booths seat up to six people, making them more like enclosed conference rooms.) In 2022, Framery’s global revenue hit $164 million, up from $86 million in 2020 and $101 million in 2021. While sales fell slightly in 2023, dinged by market uncertainty, inflation and higher interest rates, cofounder and CEO Samu Hällfors said he expects rapid growth again this year, though he declined to share forecasts.



In March, the company added a new line of pods that not only insulate sound for users seated within the booths, but have a “sound masking” system that emits&nbsp;<a href="https://www.webmd.com/sleep-disorders/pink-noise-sleep" rel="noreferrer noopener" target="_blank">pink noise</a>-like sound into surrounding areas. In doing so, the booths raise the ambient noise in nearby spaces, with an aim to make office chatter less intelligible. “The noise level itself? Yes, that’s kind of a problem, but the real problematic thing about noise is when your brain catches a familiar word,” says Hällfors.



Finland-based Framery added a new line of office &#8220;pods&#8221; in March that not only insulate sound for users seated within the booths, but have a “sound masking” system that emits pink noise-like sound into surrounding areas.PHOTO VIA FRAMERY



That’s why designers and entrepreneurs are adding sound&nbsp;into&nbsp;spaces, which can be a way to address concerns about either too much noise or too much silence. After working for others in the sound space for more than a decade, Evan Benway launched London-based&nbsp;<a href="https://www.moodsonic.com/" rel="noreferrer noopener" target="_blank">Moodsonic</a>&nbsp;in 2022. He now works with companies like SAP, GSK and Steelcase to create “responsive soundscapes” that use sensors to generate background sound that adapts in real time to how distracting or stimulating the environment is.



In effect, Moodsonic helps companies address one of the ironies of the post-pandemic workplace: People are distracted by sound in the office, but it’s often because it’s too quiet, rather than too loud. Instead of having 60 people in an open office where a hum of many conversations happens in the background, “now maybe you have 15 people, and when one person speaks, everyone hears everything that they’re saying,” Benway says. “It’s perfect speech intelligibility”—and the issue that bothers people most.



Moodsonic’s sensors pick up sound levels and adjust the “soundscapes,” which include nature-inspired subtle birdsongs or babbling brooks, depending on the ratio of loud sales calls to focused work or whether it’s a quiet Friday or bustling Tuesday. Benway won’t disclose revenues, but says the company is working with 30 of the 500 largest U.S. companies and is already profitable; in its second year it tripled the square footage where it provides soundscapes and grew subscriptions by 150%.



Others are finding success tapping into not just office workers’ need for privacy, but remote-based workers’ similar desires. Prominent venture capitalist Fred Wilson, the cofounder of New York-based&nbsp;<a href="https://www.usv.com/" rel="noreferrer noopener" target="_blank">Union Square Ventures</a>, and his wife Joanne, an angel investor, are launching the second location of&nbsp;<a href="https://framework.nyc/" rel="noreferrer noopener" target="_blank">Framework</a>, a coworking space in New York, this fall. The two got the idea after recognizing that in cities like New York, entrepreneurs, creatives and other remote workers have little space of their own and don’t necessarily want to be in “one of these places where there’s all of this shared nonsense,” Joanne says, referring to coworking spaces with group seating and little privacy.



At the Wilsons’ first location in Brooklyn’s Clinton Hill neighborhood, members pay anywhere from $755 to $860 per month, depending on lease term, for their own sound-insulated pod in the airy Framework space, complete with its own mini-fridge, kettle and French-press. Initially designed as a way to socially distance people during the pandemic, the booths now draw members for different reasons. “It’s quiet, and they don’t have to listen to their neighbor talking to their friend or wife or whatever,” Fred Wilson told&nbsp;Forbes. The original location has a waiting list of about two dozen people.



Furniture and interior designers, too, are building more acoustic-driven protection into their spaces.&nbsp;<a href="https://www.zintraacoustic.com/" rel="noreferrer noopener" target="_blank">Zintra Acoustics</a>, a line of wall panels, space dividers and ceiling fixtures that help absorb sound, has seen “surging” demand for acoustic solutions, said Kirsten Grosman, product marketing lead for the brand, which is owned by Australia-based Baresque Group, in an emailed statement. “Noise has become the top grievance among employees,” she said.



Meanwhile, the Swedish company IKEA, which has been in the office furniture business for 40 years, is rolling out a new line (known as MITTZON) that’s designed in part to address sound and noise annoyances. For example, it has added a wood fiber material, normally used in the construction industry for insulation, to acoustic screens that are wrapped in fabric. IKEA also worked with suppliers to quiet the mechanism that controls an electric standing desk’s height with a button press. “The role of the office has changed,” says Ikea product design developer Philip Dilé. “A majority of people told us they wanted to come back [to the office] to find focus and less distraction.”



Ikea’s new line, with its acoustic screens, is one example of a broader move to offer more solutions that don’t require lots of private offices or rooms, which arguably defeat the purpose of having people come into the office to collaborate. “Why would I want to come into a whole bank of pods or Zoom booths, and that’s my experience for the day?” asks Tracy Wymer, vice president of insights &amp; inspiration at Teknion, which makes booths itself. Wymer notes that his firm is working on a new product that provides “visual cues to whether you’re available or whether you’re in focused work,” but said it’s too early to offer details.



Software firm monday.com is piloting a device made by an in-house &#8220;Makers&#8221; team that’s positioned on the corner of workers’ computer monitors; users can set it to show coworkers how much time they need to focus.MONDAY.COM



One employer experimenting with visual cues is monday.com, an Israel-based project management software firm. It has a group of “Makers” on staff who’ve designed an Internet of Things (IoT) device called “FocusTime” that’s positioned on the corner of workers’ computer monitors. It looks like a dial that shows how much remaining uninterrupted time the user needs—and acts as a physical enhancement of the Slack or Teams status icons people are accustomed to seeing onscreen.



The idea originally came from a monday.com employee who struggled with colleagues’ interruptions as she returned to the office; an early version was simply a flag that could manually lift when someone shouldn’t be disturbed before becoming a device users could just tap on and off. It evolved into the current gadget, which users can set to show coworkers how much time they need to focus—the time window is copied to calendar apps—or if time for quiet work is blocked on a digital calendar, it will appear on the device.



Saron Paz, leader of the Makers team, says about 20 employees are taking part in a pilot using the prototype gadget; a company-wide test is in the planning stages and then, potentially, it could become a product it commercializes. (In September, monday.com plans to display the device at a customer conference in London and New York.) At the very least, Paz hopes the devices “start a conversation between people about what they need in terms of noise or other pain points,” he says, noting “we are still hard-wired for things that are physical.”



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Other companies are handing out noise-canceling headphones as back-to-office perks or adding more quiet spaces into designs. When Intuit’s Mailchimp division designed its new offices—a sleek, modern space along Atlanta’s popular walking and biking BeltLine path—acoustics were a priority. The old space had a sea of desks in a converted warehouse with only six phone booths or “drop-in” rooms; the new one has more than 60, says project executive Colin Hughes. Staffers are given the option of ordering noise-canceling headphones free of charge.



In this “innovation hub”—as Intuit calls the new Atlanta office–acoustic-friendly panels were used on walls, ceilings and as dividers to separate office “neighborhoods.” There are five “library” spaces throughout the building, several of which are wood-paneled, lined with books and housing roomy tables with task lighting that evoke the feel of a modern university library. People tend to work there silently, says Hughes: “If you see there’s books on the walls and it looks like a library, you’re going to behave that way.”



One driving factor behind creating more spaces for quiet work has been greater awareness about the needs of neurodiverse workers, such as those with ADHD or sensory processing challenges.&nbsp;<a href="https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7732033/" rel="noreferrer noopener" target="_blank">External research</a>&nbsp;shows that 15% to 20% of employees are neurodivergent, says Salesforce executive vice president for real estate and workplace services Relina Bulchandani. That prompted the software giant to design floors in its new Chicago tower with “meditation rooms” for quiet breaks and “library” spaces equipped with double monitor screens requested by software engineers.



While labeled as libraries, there are no signs to keep quiet, says Bulchandani. She notes that as people have spent more time in the office, they’ve grown more comfortable with taking calls at desks in open office areas, and Salesforce has urged people to do more of that—within reason—to keep small huddle rooms from booking up. “We&#8217;re encouraging folks that you can take calls at your desk, but just be mindful—you don’t want to be all day on video calls at your desk.”



Still, the paradox of many such solutions for office distractions isn’t lost on Argent’s West. If everyone simply had the choice of where they want to work—rather than having to report to an office—some of those solutions wouldn’t be needed. “All a company should really care about is efficiency,” he says. “If you’re delivering what’s expected of you, knock yourself out.”

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A Noisy Office Is A Nuisance–And A Business Opportunity

The Chinese e-commerce sites ship the equivalent of 88 Boeing 777 freighters of cargo worldwide every day. The vast volume has sent air freight rates through the roof, but the two companies have been willing to subsidize fast shipping as they grow globally — for now.



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Nine months ago, Niall van de Wouw, who tracks air freight shipments across the globe for logistics analytics company Xeneta, had never heard of Temu.



But seemingly overnight, the Chinese e-commerce site, along with another fast-growing competitor Shein, became so popular with American consumers that it spiked prices for fast shipping by airplane from China, creating a cargo crunch that’s altering global trade routes for an air freight industry scrambling to keep up.



“Nobody saw it coming last year,” van de Wouw, Xeneta’s chief air freight officer, told&nbsp;Forbes. “Their volumes could be the same order of magnitude as the largest freight forwarder in the world. Their volumes are crazy.”



At the time, the company was only a year and a half old. “This is very unusual,” he said. “I cannot recall one or two companies producing so much demand. That’s the scary bit about exponential growth.”



Temu, which largely sells clothing and housewares, and Shein, which built its brand on fast-fashion and has since expanded to consumer electronics and kitchen items, are unlike other retailers in that they sell items made directly by no-name Chinese companies, rather than selling an American brand that is made overseas. Part of their low cost has come from their decision to ship directly from China from those manufacturers, rather than working with well-known American brands that impose greater costs, prices, and quality. (The two Chinese companies have gotten so well-known that during&nbsp;Saturday Night Live’s&nbsp;season May 18 finale, the show&nbsp;<a href="https://www.youtube.com/watch?v=MKTN2OiR2R8" rel="noreferrer noopener" target="_blank">lampooned</a>&nbsp;a fictional company called “Xiemu.”)



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“Shein and Temu have a continuous &#8216;thirst&#8217; for air freight, which is unparalleled to anything we have seen previously.”Wenwen Zhang, air freight analyst, Xeneta
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But to get customers&#8217; their products in a reasonable amount of time, both companies have been relying heavily on air freight. Temu and Shein combined ship around 9,000 tons of cargo worldwide every day, or approximately 88 Boeing 777 freighters filled to the brim, according to February research from Cargo Facts Consulting. (The scale is comparable to Amazon’s Prime Air fleet, which has 86 aircraft in service, according to&nbsp;<a href="https://www.planespotters.net/airline/Amazon-Prime-Air" rel="noreferrer noopener" target="_blank">Planespotters</a>.)



That’s driven up prices to near-unprecedented levels. According to the&nbsp;<a href="https://www.xeneta.com/blog/robust-transpacific-air-cargo-market-set-for-busier-summer-than-usual" rel="noreferrer noopener" target="_blank">latest figures from Xeneta</a>, so far, the May air cargo “average spot rate” from southern China to the U.S. is now at about $4.75 per kilogram, the highest it’s been since the end of last year, rivaling what’s typically&nbsp;<a href="https://www.xeneta.com/blog/robust-transpacific-air-cargo-market-set-for-busier-summer-than-usual" rel="noreferrer noopener" target="_blank">peak demand</a>&nbsp;in the run-up to the holiday season. That’s more than double during same period in 2019, when the rate was $2.32 per kilogram.



The rates are still lower than recent peaks in 2020 and 2021, when that rate reached a high of $10 to $12 per kilogram. But those heights were due to the pandemic, which created shipping and supply chain shortages across the globe. Now, analysts say the rise is largely due to just two companies: Temu and Shein.



To keep up, some logistics and airline companies have even begun adding more flights to prepare for more growth. For instance, Atlas Air, an American air freight firm,&nbsp;<a href="https://www.atlasairworldwide.com/2024/03/atlas-air-and-yunexpress-expand-strategic-partnership-with-second-boeing-777-200-freighter/" rel="noreferrer noopener" target="_blank">announced</a>&nbsp;earlier this spring that it would soon launch a second air freight plane into service in partnership with YunExpress, a Chinese shipping company.



Regionally, Korean Air&nbsp;<a href="https://www.koreanair.com/us/en/footer/about-us/newsroom/list/240508-korean-air-s-financial-results-for-q1-2024--non-consolida" rel="noreferrer noopener" target="_blank">reported</a>&nbsp;earlier this month that it had made $2.8 billion in revenue during the first quarter of 2024, citing “robust cargo demand,” a 20 percent year-over-year increase. The airline added that during the second quarter, its cargo business would “capitalize on the growing e-commerce demand from China by strengthening client partnerships and allocating capacity on key routes.”



“Shein and Temu have a continuous &#8216;thirst&#8217; for air freight, which is unparalleled to anything we have seen previously,” Wenwen Zhang, an air freight analyst with Xeneta, emailed&nbsp;Forbes.



The boom has even impacted global shipping routes. Temu has begun new sea and air routes via Taiwan, Japan and Korea into the U.S., “altering traditional trade patterns,” per a&nbsp;<a href="https://www.documentcloud.org/documents/24654163-asia-pac-monthly-freight-report-april-to-may-2024#document/p5/a2558684" rel="noreferrer noopener" target="_blank">report</a>&nbsp;from Taiwanese shipping company Dimerco. “Consequently, freight rates from these alternative routes are now exceeding those from mainland China—an unusual occurrence.”



Last Monday, the Chinese government also&nbsp;<a href="https://english.www.gov.cn/news/202405/13/content_WS6641fdd3c6d0868f4e8e70ee.html" rel="noreferrer noopener" target="_blank">trumpeted</a>&nbsp;a new air cargo route between the southern Chinese city of Zhengzhou and Dallas and Atlanta that are “primarily catering to cross-border e-commerce shipments.”



Sending cargo by air is always considerably faster and more expensive than shipping by sea, which can carry a much larger volume of goods, albeit at a slower pace. The overwhelming majority of worldwide goods as measured by volume are shipped by sea, with typically only time-sensitive and high-value items put on planes.



Then there’s the environmental cost. According to&nbsp;<a href="https://www.freightos.com/freight-resources/air-sea-freight-co2-emissions-calculator/#:~:text=How%20Much%20CO%E2%82%82%20Does%20A,ton%20per%20kilometer%20of%20transportation." rel="noreferrer noopener" target="_blank">Freightos</a>, an online freight booking marketplace, cargo ships generate approximately 10 to 40 grams of carbon dioxide per metric ton-kilometer traveled, far less than air freight, which emits around 500 grams per metric ton-kilometer. )



For now, Shein and Temu provide free shipping for orders over a certain size, seemingly willing to absorb the higher costs as a shortcut to accelerated growth in the U.S. “Temu and Shein are relying on air freight because their business model is ultra-fast fashion and they need to get all these goods out immediately,” Guillermo Ochovo, the director at Cargo Facts Consulting, told&nbsp;Forbes.&nbsp;“They don&#8217;t have any other way than relying on air right now.”



But that could change over the medium to longer-term as the companies look for ways to cut costs now that they’re both established e-commerce platforms. They currently lack a maritime shipping and ground-based domestic logistics network comparable to Amazon or Walmart, but both companies have slowly started to expand their footprint within the United States and Mexico. Shein now has&nbsp;<a href="https://www.reuters.com/business/retail-consumer/shein-shifts-shipping-strategy-bring-china-made-goods-closer-us-shoppers-2023-09-22/" rel="noreferrer noopener" target="_blank">two distribution centers in Indiana</a>&nbsp;and California, and Temu has recently begun&nbsp;<a href="https://www.marketplacepulse.com/articles/temu-marketplace-launches-in-the-us" rel="noreferrer noopener" target="_blank">working with Chinese sellers</a>&nbsp;already based in the U.S.



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“The fact that we are talking about this kind of a market this early in the year is leading a lot of people to thinking how challenging peak season, Q4, will be.”Brian Bourke, Global Chief Commercial Officer, SEKO Logistics
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Air freight’s high costs come in part from largely empty planes that must make the return trip back from the U.S. to China: shipping in that direction costs maybe a fifth of the price to ship from China to the U.S., van de Wouw said.



“You get a full plane to the U.S. and a deadhead on the way back,” he said, using an aviation industry term for a near-empty or fully empty plane. “The backhaul becomes a bloodbath.”



Neither Shein nor Temu responded to Forbes’ request for comment.



A big TV advertising blitz in the U.S. has fueled Temu’s growth, including ads during the 2023 and 2024 Super Bowls that encouraged Americans to “shop like a billionaire.”&nbsp;<a href="https://business.yougov.com/content/49162-deep-discount-wonders-how-aware-are-us-shoppers-of-retail-brand-temu" rel="noreferrer noopener" target="_blank">New survey data released last month from YouGov</a>&nbsp;shows that nearly all Americans surveyed said they had heard of the company.



Its parent company&nbsp;<a href="https://www.forbes.com/companies/pdd-holdings/?sh=6e123a883cba">PDD Holdings</a>, which also owns an enormous sister online merchant site called Pinduoduo that only operates in China, is worth more than $167 billion. PDD Holdings is technically based in the Cayman Islands. The company has over 17,000 employees worldwide, according to its most recent&nbsp;<a href="https://www.documentcloud.org/documents/24613208-pdd-holdings-inc-2023-annual-report#document/" rel="noreferrer noopener" target="_blank">annual report</a>, the overwhelming majority of which are believed to be working in China.



Last month, PDD Holdings announced record&nbsp;<a href="https://www.documentcloud.org/documents/24613208-pdd-holdings-inc-2023-annual-report#document/p94/a2554734" rel="noreferrer noopener" target="_blank">annual profits of over $8.4 billion</a>&nbsp;in 2023, which includes approximately $5 billion in net income attributed to “other subsidiaries of PDD Holdings,” a group that includes Temu. That’s nearly twice as much as the $3.4 billion in profits brought in by the Chinese arm of the company.Shein is valued at $66 billion&nbsp;<a href="https://www.cnbc.com/2023/11/27/shein-files-for-us-ipo-as-fast-fashion-giant-looks-to-expand-its-global-reach.html" rel="noreferrer noopener" target="_blank">according to CNBC</a>, has been rapidly encroaching into the territory of American fashion brands like Gap and Macy’s. The privately-held company has also grown incredibly fast, going from an approximated $2.5 in revenue in 2019 to an estimated $48 billion this year,&nbsp;<a href="https://ecommercedb.com/insights/shein-business-strategy-growth-competition/4708" rel="noreferrer noopener" target="_blank">according to ECDB</a>, a German e-commerce analytics firm.



Both companies, which are likely to surpass revenues of $90 billion this year, stand to have a record-breaking holiday season — and shippers are already concerned.



“The fact that we are talking about this kind of a market this early in the year is leading a lot of people to thinking how challenging peak season, Q4, will be,” Brian Bourke, chief commercial officer of SEKO logistics, told&nbsp;Forbes.



“If we are like this now and it’s early May, imagine what it will be in September, October, November and December?”

Temu Package Stock Photos

You’re Buying So Much From Temu And Shein The Air Cargo Industry Can’t Keep Up

In April, Google fired 50 staffers after protests over its contracts with Israel. As employers worry that campus activism could spread to the workplace, Forbes spoke with legal experts about the protections employees have—and don’t have—when it comes to speaking out at work.



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By the time Emaan Haseem received notice on April 17 that she was being fired from Google, she was ready to leave.



The 23-year-old software engineer had joined the company in 2022, straight out of the&nbsp;<a href="https://www.forbes.com/colleges/university-of-texas-at-austin/?sh=34a9b5c34eb6">University of Texas at Austin</a>. She was excited to be going to work for a company she thought wasn’t involved with military technology after encountering defense industry heavyweights, such as Palantir, at campus recruiting events. But her enthusiasm was short-lived: Shortly after signing her offer letter, Haseem learned about Project Nimbus, a&nbsp;<a href="https://www.forbes.com/sites/richardnieva/2022/09/09/google-and-amazon-protest-project-nimbus-ai-contract-israel/?sh=5f3de753d162">$1.2 billion cloud computing contract</a>&nbsp;Google and Amazon have with the Israeli government.



After the October 7 Hamas attacks on Israel, Haseem joined “No Tech For Apartheid,” an advocacy group of tech industry employees focused on ending the contract, and decided to participate in an April 16 sit-in at Google’s Seattle office. (Protests also took place at its New York and Sunnyvale, Calif. offices.) “I was ready to leave my job honestly,’’ says Haseem, who reports she left the sit-in when Google security asked her to. “I wanted to see if there was any way to leave [Google] more aware [about Project Nimbus] than I found it.”



Haseem is one of about 50 employees who were terminated from Google; some are joining a charge filed against the search giant on April 29 with the National Labor Relations Board (NLRB). They claim they were unfairly fired over their participation in a “peaceful, non-disruptive protest that was directly and explicitly connected to their terms and conditions of work,” according to a copy of the charge viewed by&nbsp;Forbes.



In response to the charge, Google spokesperson Bailey Tomson said in an emailed statement that employees were “disrupting and occupying work spaces, and making other employees feel threatened and unsafe.” In a company&nbsp;<a href="https://blog.google/inside-google/company-announcements/building-ai-future-april-2024/" rel="noreferrer noopener" target="_blank">email</a>&nbsp;sent April 18, CEO Sundar Pichai said: “This is a business, and not a place to act in a way that disrupts coworkers or makes them feel unsafe, to attempt to use the company as a personal platform, or to fight over disruptive issues or debate politics.”



The Google case is the latest to raise a host of questions about the rights U.S. workers have when it comes to activism on the job—and the challenges companies could face if unrest on college campuses spreads into workplaces.&nbsp;For employers, a recent ruling from the NLRB may expand questions about some workers’ protected political speech and its connection to working conditions. And for employees, the fundamental question is this: “What can I really do and say when it comes to activism at work?”



“This is a fraught issue,” says Mark Hanna, a Washington, D.C.-based labor and employment lawyer who represents workers. “There are too many ways where employers and employees are going to fall into traps by either clamping down too hard, or risking their job by being too expressive. Everybody should be careful here.”



Google’s case has grabbed numerous headlines, but workplace activism has been growing for years as more CEOs have taken on social and political issues—whether publicly opposing bills that limit transgender rights or pledging billions to racial justice causes—and as employees are increasingly encouraged, in the fashionable parlance of many managers, to “bring their whole selves to work.” In a highly-charged presidential election year, as workers have more tools to criticize their employer on social media and as younger generations increasingly expect workplaces to line up with their personal or political values, the environment is ripe for more activism to find its way into the office.



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“People do not understand that you can be fired for something as arbitrary as the boss not liking the kind of socks you wear.”Cathy Creighton, director of Cornell University’s Industrial and Labor Relations School’s Buffalo Co-Lab
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Add concerns that the current pro-Palestinian protests on college campuses could spill into the workplace, and lawyers say their phones have been lighting up with employers asking for advice. Sam Schwartz-Fenwick, a labor and employment lawyer at Seyfarth Shaw in Chicago, says there’s “a real fear of how to respond.” Employers are asking questions like: “How do we lower the temperature? How do we remind people that their focus at work is to do work?”



For employees who want to engage in protests at work, the legal questions are also complex—but the protections are relatively limited. By and large, there are fewer protections for employees than many people think, but there are key exceptions—depending on whether the employee works for the government; is in a union with a collective bargaining agreement or has another contract in place; is covered by certain state laws; or based on what issues employees are protesting.



“People do not understand that you can be fired for something as arbitrary as the boss not liking the kind of socks you wear,” says Cathy Creighton, director of Cornell University’s Industrial and Labor Relations School’s&nbsp;<a href="https://www.ilr.cornell.edu/buffalo-co-lab" rel="noreferrer noopener" target="_blank">Buffalo Co-Lab</a>. Most employees, she says, are subject to the concept of “at will” employment, which is presumed for employees in all states but Montana. That means unless there’s a specific law or contract in place that offers workers protections and makes firing illegal—and there are a number of important exceptions—many workers “can be fired for a good reason, a bad reason or no reason,” Creighton says.



One widespread misconception, employment lawyers say, is that the notion of freedom of speech extends to private workplaces. But unless someone works for the government—employees of public universities, it should be noted, are typically state employees—the First Amendment does not apply. Protection for freedom of speech, says Jeff Hirsch, a law professor at the University of North Carolina-Chapel Hill and a former litigator with the National Labor Relations Board, “only applies to the government. Period. Google doesn’t have to follow the First Amendment.” Deena Merlen, an employment and labor lawyer in Connecticut, echoes that assessment. Private employees, she says, &#8220;don&#8217;t have any constitutionally protected rights under federal law to say what [they] want and not be fired for it.”



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“There are too many ways where employers and employees are going to fall into traps by either clamping down too hard, or risking their job by being too expressive. Everybody should be careful here.”Mark Hanna, Washington, D.C. labor and employment lawyer representing workers
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So can workers ever speak out? Yes, but it depends on a range of specific circumstances. For instance, some individual states or local jurisdictions have protections for employees’ legal off-duty political activity, or from discrimination based on political affiliation. Unions also offer some protections. Employees who have a collective bargaining agreement, or a legal contract between an employer and a labor union, typically have some protections through “just cause”—a concept that’s often part of union contracts and may protect workers from retaliation or unfair firings. But only about 10% of workers are members of a labor union, according to&nbsp;<a href="https://www.bls.gov/news.release/pdf/union2.pdf" rel="noreferrer noopener" target="_blank">2023 data from the Bureau of Labor Statistics</a>, and not all members of a union have a current bargaining agreement in place.



In addition, even employees who aren’t union members can still benefit from protections in the National Labor Relations Act, which gives private sector employees who are not in supervisory roles the&nbsp;<a href="https://www.nlrb.gov/about-nlrb/rights-we-protect/your-rights/employee-rights" rel="noreferrer noopener" target="_blank">right</a>&nbsp;to seek better working conditions and protections from retaliation. To do so, they have to meet the standard of “protected concerted activity,” which is legal-speak that means two or more employees must be acting together “for their mutual aid or protection regarding terms and conditions of employment.”



That key phrase is the one lawyers say will be under scrutiny when it comes to the Google workers’ charge, especially after a February&nbsp;<a href="https://www.nlrb.gov/news-outreach/news-story/board-rules-employees-black-lives-matter-action-at-home-depot-was" rel="noreferrer noopener" target="_blank">decision</a>&nbsp;by the Biden administration’s more labor-friendly National Labor Relations Board. In it, the board sided with a Home Depot employee who refused to remove the hand-drawn letters “BLM” (a reference to the Black Lives Matter movement) from a work apron, calling it a “logical outgrowth” of earlier complaints employees had made about racial discrimination in the workplace.



As a result, the NLRB concluded the employee’s conduct was also “for mutual aid or protection.” Home Depot is appealing the decision; a spokesperson, Beth Marlowe, said in an emailed statement the company disagrees with the NLRB’s decision and “is fully committed to diversity and respect for all people. We do not tolerate any kind of workplace harassment or  discrimination. ”



The decision has gotten employers’ attention. “A lot of employers took notice of that,” says Lindsay Burke, a Washington, D.C.-based employment lawyer who represents employers. The NLRB, she says, took a “pretty expansive view of speech that on its face might look political, but then could just be tied back to concerns about the way the workplace is operating.”



Traditionally, “terms and conditions” was presumed to be a straightforward concept that covered wages, benefits, working hours or safety conditions. “Just saying ‘I don&#8217;t like the business my employer&#8217;s engaging in’ is not going to cut it,’” says UNC’s Hirsch.



But in the&nbsp;<a href="https://www.nlrb.gov/news-outreach/news-story/board-rules-employees-black-lives-matter-action-at-home-depot-was" rel="noreferrer noopener" target="_blank">February ruling</a>, the NLRB appeared to make a connection between what might be unprotected workplace speech (such as wearing a Black Lives Matter button) and a history of related complaints about working conditions that might warrant protection. The case, says Risa Lieberwitz, a law professor at Cornell who is also academic director of its&nbsp;<a href="https://www.ilr.cornell.edu/worker-institute" rel="noreferrer noopener" target="_blank">Worker Institute</a>, “is a very important decision because it makes clear that employees’ expressions, through their communication about [related political or social issues] … can be linked to labor issues within the workplace.”



The ex-Google employees may attempt to argue something similar: Their charge filed with the NLRB said employees were terminated for participating in “a peaceful, non-disruptive protest that was directly connected to their terms and conditions of work.” Meanwhile, in a November&nbsp;<a href="https://medium.com/@notechforapartheid/googleopenletter-868f0c4477db" rel="noreferrer noopener" target="_blank">open letter published online,</a>&nbsp;the No Tech For Apartheid group alleged that managers at Google had been “inappropriately using their ranks to question, report and attempt to fire” employees expressing pro-Palestinian views.



In response to the open letter, Google’s Tomson said in a statement that “this is a highly sensitive time and topic in every company and workplace, and we have many employees who are personally affected. The overwhelming majority of those employees are not engaged in internal discussions or debate,” adding many appreciated the company’s “focus on the safety of employees.” Regarding the NLRB charge, the company said the protesting employees’ behavior was “completely unacceptable” and that Google “carefully confirmed and reconfirmed that every single person whose employment was terminated was directly and definitively involved in disruption inside our buildings. We are confident in our position and stand by the actions we’ve taken.”



Indeed, employment lawyers say one factor that’s likely to come into play in such scenarios is whether workers speaking out are violating workplace conduct policies. “The number one thing that every employer must do is provide a safe working environment for their employees,” says Rick Grimaldi, an employment lawyer with Fisher Phillips in Philadelphia, speaking generally rather than specifically about Google. “If I&#8217;m Jewish and I&#8217;m going to work and I feel threatened because of it, then I think the employer has an obligation to take action to make sure the behavior stops.”



Still, policies should be consistently applied, lawyers say. “What I would caution employers to do is to be content-neutral—to have policies that apply to everything,” says Hanna, taking similar actions “whether it&#8217;s a union pin, whether it&#8217;s a [button with a] Palestinian flag or a rainbow flag.”



What about political speech and activities that employees engage in outside of work? Several states have explicit protections for some types of legal off-duty political activities. Even in other states, many employers don’t want to fire people for what they do on their own time unless the actions are illegal, says David Kurtz, an employment litigation practice co-chair at Constangy, Brooks, Smith &amp; Prophete who practices out of Boston. If&nbsp;they&#8217;re protesting on their own time “but they’re seen on social media engaging in hate speech or defacing property … then [employers] would have the opportunity to take action.”



The Biden NLRB has weighed in here too. An August NLRB&nbsp;<a href="https://www.nlrb.gov/news-outreach/news-story/board-adopts-new-standard-for-assessing-lawfulness-of-work-rules" rel="noreferrer noopener" target="_blank">ruling</a>&nbsp;appeared to expand the protections given to employees’ conduct outside the workplace by setting a new standard: An employer&#8217;s policies restricting off-duty activities, including speech, would need to be more narrowly tailored to serve “a legitimate and substantial business interest.”



For workers or students who choose to protest, there are risks for future employment, too. As it becomes easier to identify protest attendees by a mere picture–one reverse Google Image picture can turn up a person’s name—the law doesn’t offer much protection when it comes to future jobs, says Merlen, unless the employee can successfully argue they weren’t hired over a protected characteristic such as their religion.



Workers seem to recognize that too. Says one former Google employee who worked on internal DEI initiatives and requested anonymity for fear of retaliation from future employers: “We knew that the labor law was gray. But we decided this was a risk we were willing to take.”

Multicultural Diverse Office Managers and Business People Picketing Outside on a Street. Men and Women Screaming for Justice, Holding a Megaphone, Picket Signs and Posters. Economic Crisis Strike.

All Hands Memo: Why Activism At Work Could Get You Fired

With Baby Boomers aging and nursing home care costs climbing, obscure old sleeper laws on the books in more than half the states could come back to haunt the adult children of seniors who can’t pay for their own care.



In her five years as a Democratic member of Pennsylvania’s State House, Kristine Howard has fought for gun control, abortion rights, environmental protections and greater funding for public education. But this year, after the death of a colleague, Anthony M. DeLuca Sr., she took up his decade-long crusade to change an obscure state law under the provocative bill title: &#8220;Stop Bankrupting Pennsylvanians Over Family Medical Bills” Act.



The law Howard is seeking to change is Pennsylvania’s “filial support” law–a concept dating to colonial days, with the current version written into state law in 1937. It makes those with financial means legally responsible for nursing home, medical and other bills of destitute family members, including aging parents, adult children and a spouse.



“It can be a rude awakening for many people,” says Howard, a 62-year old lawyer representing Chester County in eastern Pennsylvania.



More than half the states and Puerto Rico have such laws on the books, though most of them are what Katherine C. Pearson, an elder law expert and law professor at Pennsylvania State University, refers to as “scarecrow” laws. That means they’re rarely enforced but left in the state code as a warning—in this case, to those who might consider shirking familial responsibility, whether it’s helping to pay parents’ bills or providing hands on care themselves. (An&nbsp;<a href="https://www.forbes.com/sites/howardgleckman/2023/11/07/forget-national-caregivers-month-think-about-what-family-caregivers-need/?sh=47cc1bcb19cb">estimated 42 million Americans</a>, the largest group of them women in their 50s, but increasingly men and younger folks too, provide caregiving to aging relatives.)



Two significant Pennsylvania cases, combined with the rising costs of long term care nationwide and yawning gaps in coverage for that care, show that these scarecrow laws can turn into a live threat–and not just to Pennsylvanians.



The Keystone state’s law, which provides an exemption if your parents abandoned you for 10 years or more while you were a child–but no break for adult estrangement–gained new relevance in 2012. That’s when the Pennsylvania Superior Court&nbsp;<a href="https://law.justia.com/cases/pennsylvania/superior-court/2012/536-eda-2011.html" rel="noreferrer noopener" target="_blank">held John Pittas</a>&nbsp;liable for his mother’s full $93,000 unpaid nursing home bill (resulting from a car accident), after she’d moved to Greece to live with two of her other children.



In 2019, the Pennsylvania Supreme Court&nbsp;<a href="https://law.justia.com/cases/pennsylvania/supreme-court/2019/78-map-2017.html" rel="noreferrer noopener" target="_blank">ruled</a>&nbsp;that a Princeton, N.J. couple could be held liable for an unpaid $205,000 bill for the care of their severely disabled adult son at Melmark, a residential care facility in Delaware County, Pennsylvania. (New Jersey had been paying the tab, but stopped paying because it wanted him moved to a cheaper New Jersey facility. The couple wouldn’t have been liable under New Jersey law, but Pennsylvania’s high court decided it could hit the parents with Pennsylvania’s harsher rules.)



There’s no uniformity in the filial laws. While in Pennsylvania, the potential hit is wholly financial (including a possible lien on your property), in some states failure to support a parent can be prosecuted as a criminal offense. Massachusetts’&nbsp;<a href="https://malegislature.gov/Laws/GeneralLaws/PartIV/TitleI/Chapter273/Section20" rel="noreferrer noopener" target="_blank">law</a>, written in 1915, imposes a fine of up to $200 and a prison term of up to one year (or both) for “neglect or refusal to support a parent.”



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“Most adult children do undertake responsibilities for their parents as they age&#8230; They do this without laws obligating them to do so, thank goodness.”Law Professor Katherine C. Pearson
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North Carolina’s&nbsp;<a href="https://www.ncleg.net/enactedlegislation/statutes/html/bysection/chapter_14/gs_14-326.1.html" rel="noreferrer noopener" target="_blank">law</a>, which has been in its current form since 1955, makes it a misdemeanor–which could result in jail time–for a person to &#8220;without reasonable cause, neglect to maintain or support his or her parent or parents, if such parent or parents be sick or not able to work and have not sufficient means or ability to maintain or support themselves.&#8221; The law is still on the books, though recent history suggests it is not often enforced. Ditto in&nbsp;<a href="https://apps.legislature.ky.gov/law/statutes/statute.aspx?id=51003" rel="noreferrer noopener" target="_blank">Kentucky</a>.



Even in states where there hasn&#8217;t been an appetite to enforce filial support laws, there also hasn&#8217;t been much movement to repeal them. Economics–and that desired scarecrow effect—are likely the primary reasons.



While the federal Medicare program pays for the majority of medical care for those over 65, it does not–<a href="https://www.forbes.com/sites/dianeomdahl/2023/01/10/warning-medicare-does-not-pay-for-long-term-care/?sh=7e58463d5850">despite what many middle class Baby Boomers think</a>–cover long term custodial care. The confusion over Medicare stems from the fact that the federal program will pay for up to 100 days of rehabilitation in a skilled nursing care facility (after a three-day hospital stay) and some skilled nursing or physical therapists visits at home, but not for custodial care–the kind of help with activities of daily living (such as bathing, dressing and eating) a majority of elders end up needing either in a nursing home or their own or their children’s home.



It’s&nbsp;<a href="https://www.forbes.com/sites/howardgleckman/2022/04/15/is-long-term-care-a-predictable-need-or-an-unexpected-one/?sh=1e2daa5a4b87">hard to predict</a>&nbsp;whether any one individual will need extended long term care support–about four in ten of today’s 65-year-olds won’t need such care at all, but more than 20% of Boomers will&nbsp;<a href="https://acl.gov/ltc/basic-needs/how-much-care-will-you-need" rel="noreferrer noopener" target="_blank">need five or more years of care</a>. The cost of nursing home care varies based on geography and level of care, but it’s steep: on average, a semi-private room in a nursing home runs around $8,669 per month, while a private room will cost you $9,733 per month, according to Genworth’s annual Cost of Care&nbsp;<a href="https://www.genworth.com/aging-and-you/finances/cost-of-care" rel="noreferrer noopener" target="_blank">survey</a>. Home health care aides now average $33 per hour, with homemaker services running at $30 an hour, the survey found.



At those rates, many seniors who need years of care will run out of money. Private long term care insurance isn’t much of an option these days—a raft of carriers have stopped selling the policies&nbsp;<a href="https://www.forbes.com/sites/howardgleckman/2024/02/21/voters-to-decide-on-washingtons-public-long-term-care-insurance-program/?sh=3a7e18ca5ea8">because the risk is so high</a>&nbsp;and healthy consumers aren’t buying policies because they fear premium increases. (The Obama Administration killed plans for a voluntary public insurance program after concluding&nbsp;<a href="https://howardgleckman.com/2011/10/20/what-we-learned-from-the-class-long-term-care-debacle/" rel="noreferrer noopener" target="_blank">that premiums in them would be unaffordable</a>&nbsp;for most people.)



That is where Medicaid, a joint federal-state program, comes in. It is primarily geared toward low-income families, but picks up long term care costs for elderly once-middle class folks who have exhausted their assets.



The eligibility standards vary from state to state—in Pennsylvania, in 2024, a single nursing home Medicaid applicant must have income under $2,829 per month and assets under $2,000 (not a typo). Assets include stocks, bonds, investments, and bank accounts—and your IRA or 401(k) (fortunately, however, the retirement accounts of a non-applicant spouse are exempt). Assets that aren&#8217;t included are personal belongings, your vehicle, irrevocable burial reserves (up to 25% of the average cost of burial in one&#8217;s area), and often, your primary home.  The State of New York is a bit more generous when it comes to assets. While your income must be under $1,732 monthly, you can retain assets of up to $30,182. Unlike in Pennsylvania,&nbsp;<a href="https://www.medicaidplanningassistance.org/medicaid-eligibility-new-york/" rel="noreferrer noopener" target="_blank">New York exempts</a>&nbsp;your IRA and 401(k) plans if they are in payout status, meaning that you&#8217;re taking required minimum distributions (RMDs).



Bottom line: to afford years of long term care, you typically need to be wealthy enough to cover costs out of your savings, or needy enough to qualify for government assistance.



Some seniors plan to get to the &#8220;needy&#8221; level by giving assets away. Done right, and early enough, with professional help, Medicaid planning works, says&nbsp;<a href="https://www.forbes.com/sites/carolynrosenblatt/?sh=7f56d1296517">Carolyn Rosenblatt</a>, a California lawyer and nurse (and&nbsp;Forbes&nbsp;contributor) who advises families on elder issues.



But the government has tough rules to discourage last minute maneuvers; when someone applies for Medicaid long-term care coverage, the government looks back at any asset transfers the applicant (or the applicant’s spouse) has made during the lookback period, typically 60 months. The government can deny coverage for an extended period based on the amount transferred and the cost of care and rules in each state. So, for example, Pennsylvania’s lookback rate is currently $11,548 per month. If you gave away $100,000 within the lookback window, you would be ineligible for almost 9 months. And there’s no time limit here–if you gave away $2 million, you&#8217;d be ineligible for 173 months. (As a practical matter, that would mean you’d have to wait five years after the transfer to apply at all.)



If an elder enters a nursing home, runs through his money, and then is found ineligible for Medicaid, a nursing home’s best bet is to come after the children with a filial suit (or more commonly, a threat of one) to cover the cost of care. The other alternative is eviction–not a terrific option when 24-hour-a-day care may be needed and no other nursing home will take a prospective resident with neither assets nor Medicaid coverage.



The Medicaid look-back rules might seem fair to taxpayers, who after all, pay the cost of the program. But filial laws are separate from Medicaid planning, good or bad. In Pennsylvania, for example, it doesn’t matter whether an adult child has received a penny of assets from his broke parent—only that the child has the financial resources to pick up unpaid bills. An ailing, aging parent could give all his money to Child A, who gambles it away and ends up busted. Then, if that parent is denied Medicaid because of the transfer, the nursing home could come after Child B, who got nothing from the parent, but has money in the bank because he works hard and saves.



That is where Pennsylvania State Rep Howard and her &#8220;Stop Bankrupting Pennsylvanians Over Family Medical Bills&#8221; Act comes in.



The bill would not repeal filial laws but would tweak them in a way that she thinks sounds fairer. Howard said it would modernize the law &#8220;to ensure spouses, children, and parents are only held liable for outstanding medical bills if the indigent individual has colluded with the family member to hide assets within the past five years, or if the family member fails to cooperate in the Medical Assistance process.&#8221; In other words, it would copy the Medicaid look-back process–kids would be on the hook if parents had recently transferred assets to them, but couldn’t be legally forced to cough up money they’d earned on their own to pay for their aging parents.



Law professor Pearson, no fan of filial laws, has worked for years to protect elders from financial exploitation. She observes she has “often heard from older parents who express worry about the possibility of ‘the government’ imposing a burden on their children,’’ but “has never heard one say they are relying on `the law’ to make their children do their duty.”



“Most adult children do undertake responsibilities for their parents as they age and especially if their parents’ abilities wane,’’ she adds. “They do this because it is the right thing to do. They do this without laws obligating them to do so, thank goodness.”

Calculate drug cost.,doctor is calculating cost of treatment

Why You Might Be Responsible For Paying Your Parents’ Medical Debts

A fight over a vital federal tax credit intended to kickstart a market for clean hydrogen and worries over high production costs are cooling near-term expectations for the climate-friendly fuel.



Clean hydrogen has been heralded as a carbon-free fuel that’s key to efforts to remediate the climate crisis. It would help clean up dirty industries like chemical and steel production, be a source of clean transportation fuel and help the U.S. hit a goal of net-zero greenhouse gas emissions&nbsp;<a href="https://www.whitehouse.gov/wp-content/uploads/2021/10/us-long-term-strategy.pdf" rel="noreferrer noopener" target="_blank">by 2050</a>. But getting things started isn’t going so well.



After years of hype, fundraising, and&nbsp;<a href="https://www.forbes.com/sites/alanohnsman/2023/10/13/us-amps-up-clean-energy-push-with-50-billion-hydrogen-hub-plan/?sh=431f604144f9">billions of dollars of federal support</a>&nbsp;to get a green hydrogen market off the ground, there’s growing pessimism over how fast the carbon-free fuel can ramp up. Frustrated by proposed guidelines for a crucial government incentive that they deem too strict, companies including ExxonMobil and Plug Power are threatening to scrub or delay big hydrogen projects.



“Two years ago this was super-hyped. It was like, everybody&#8217;s exuberant,” Raffi Garabedian, CEO of <a href="https://www.forbes.com/sites/alanohnsman/2024/02/21/green-hydrogen-could-help-save-the-planet-this-startup-wants-to-make-it-cheap/?sh=1cd8fe4e2835">Electric Hydrogen</a>, told Forbes. “What’s happened is people started realizing, ‘Oh, shit, this thing I&#8217;ve been talking about for a while — the hype-to-reality ratio — projects aren&#8217;t getting built. I wonder why? People have started realizing this is really hard.”



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Clean hydrogen — particularly the “green” variety made from just water and renewable electricity — is central to the Biden Administration’s strategy for slashing carbon pollution. But proposed rules for a tax credit worth up to $3 a kilogram to offset the fuel’s higher production costs favor projects that rely on new renewable (or nuclear) power sources, which raises the cost substantially. Garabedian is fine with that, but some competitors say it’ll keep the price of green hydrogen too high. And ExxonMobil is unhappy that its approach — making hydrogen from natural gas but capturing the CO2 before it can escape into the atmosphere — probably won’t get the full credit.



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Dirty hydrogen can be made for $1.06/kilogram. Green hydrogen costs up to four times as much.
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As with other low-carbon technologies, including solar panels, wind turbines and electric car batteries that had to conquer early high costs, clean hydrogen has to get cheaper to be competitive and impactful. But getting even to cost parity with the dirty industrial variety made from natural gas won’t be easy — it’s made for as little as&nbsp;<a href="https://www.eia.gov/todayinenergy/detail.php?id=61763&amp;src=email" rel="noreferrer noopener" target="_blank">$1.06 a kilogram</a>. Green hydrogen costs about four times as much.



The world uses about 92 million tons of hydrogen a year, mainly for heavy industry. By the end of the decade, industry researcher Wood Mckenzie estimates clean hydrogen production could grow to about 14 million tons, from essentially nothing now. It’s an amount that would mark the start of critical mass for the fuel. But that’s about 1 million tons less than it had previously anticipated in late 2023.



“We expected some delays, but they&#8217;re a bit more than what we and others had thought,” said Murray Douglas, vice president for hydrogen research at Wood Mackenzie in Edinburgh, Scotland.



“It’s everything: the cost of the renewable generation; it’s the rules; it’s general cost inflation across all industries; and then it&#8217;s also convincing (customers) that they should sign up now, rather than waiting for costs to come down,” he said. “When you put these things together, you begin to get a more bearish view of 2030.”



That’s leading some fossil fuel companies to take a presumptive victory lap.



“We should abandon the fantasy of phasing out oil and gas, and instead invest in them adequately, reflecting realistic demand assumptions,” Amin Nasser, CEO of Aramco, the world’s largest oil company,&nbsp;<a href="https://www.aramco.com/en/news-media/speeches/2024/ceraweek-keynote-speech-by-amin-h-nasser" rel="noreferrer noopener" target="_blank">said</a>&nbsp;at S&amp;P Global’s recent CERAWeek conference in Houston. “Many of us have been saying for a long time that the world has been trying to transition in a fog, without a compass, on a road to nowhere.”



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<h2 class="wp-block-heading" id="h-credit-critics">Credit Critics</h2>



Along with green hydrogen startups, incentives to ramp up a clean hydrogen industry need to compel fossil energy companies that are a big part of the climate problem to join in. But the plan as proposed doesn’t do that.



In a&nbsp;<a href="https://www.regulations.gov/comment/IRS-2023-0066-28305" rel="noreferrer noopener" target="_blank">letter to regulators</a>, the biggest U.S. oil company said a project in Baytown, Texas, that it’s touted as the world’s largest low-carbon hydrogen plant, is at risk from the proposed credit rules that don’t incentivize carbon capture and storage. If they’re not altered, “the cost of the hydrogen produced will be such that the market for low carbon hydrogen will not be catalyzed and our project, and possibly others, will not proceed,” wrote ExxonMobil vice president Jim Chapman in the letter.



Even Plug Power, an early leader in green hydrogen, isn’t pleased with having to use power from new, clean sources to get the full credit. The company told&nbsp;Forbes&nbsp;a&nbsp;<a href="https://www.plugpower.com/plugs-california-green-hydrogen-plant-saves-water-creates-new-energy-source/" rel="noreferrer noopener" target="_blank">green hydrogen plant in California</a>&nbsp;intended to make 500 tons of carbon-free hydrogen a day may not open next year as planned due to the 45V tax credit proposal and other factors. (Its first such facility opened in Georgia this year, getting electricity to make hydrogen from a new nuclear power plant. All hydrogen made there will be eligible for the credit)



As currently proposed, “we think the U.S. now takes a real backstep to Europe on hydrogen,” Plug CEO Andy Marsh said in a&nbsp;<a href="https://www.forbes.com/sites/alanohnsman/2023/12/22/green-hydrogen-makers-say-strict-federal-tax-credit-rules-will-stall-us-boom/?sh=7877597f2e1c">December 2023 interview</a>.



A final version of the credit rules is expected late this year, likely before the November election.



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<h2 class="wp-block-heading" id="h-pricey-fuel">Pricey Fuel</h2>



ExxonMobil’s interest in making cleaner hydrogen is understandable. Like Aramco, it already uses huge amounts of conventional hydrogen — and ranks among the&nbsp;<a href="https://carbonmajors.org/briefing/The-Carbon-Majors-Database-26913" rel="noreferrer noopener" target="_blank">world’s largest sources of carbon pollution</a>. That’s not a good look as the worsening climate crisis brings new record temperatures on&nbsp;<a href="https://www.washingtonpost.com/climate-environment/2024/04/09/march-record-global-heat/" rel="noreferrer noopener" target="_blank">land</a>&nbsp;and&nbsp;<a href="https://www.nytimes.com/2024/04/10/climate/ocean-heat-records.html" rel="noreferrer noopener" target="_blank">sea</a>&nbsp;almost weekly.



Given the global scale of its operations and cash reserves of more than $31 billion, ExxonMobil is well-positioned to be a leader in capturing and storing CO2 from its operations, making what’s known as blue hydrogen. But the Biden Administration has decided not to reward that approach.



A landmark&nbsp;<a href="https://onlinelibrary.wiley.com/doi/full/10.1002/ese3.956" rel="noreferrer noopener" target="_blank">study by Cornell scientist Robert Howarth</a>&nbsp;found that carbon capture and storage is energy-intensive and leads to even more climate pollution than if the CO2 just wafted into the air. Its greenhouse gas footprint is also “more than 20% greater than burning natural gas or coal for heat and some 60% greater than burning diesel oil for heat,” the study found.



Unlike petroleum-based fuels, there’s no commodity market price for hydrogen. It’s supplied directly from producers to consumers. Big users, like oil refineries and chemical plants, get it for the lowest cost. Others pay much more.



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“The cost of hydrogen is running about 2.5 times more than for compressed natural gas.”Foothill Transit CEO Doran Barnes
</blockquote>



In California, the only U.S. market for hydrogen vehicles, Toyota-backed First Element operates dozens of fuel stations dispensing highly compressed hydrogen for an eye-popping $36 a kilogram to drivers of Toyota Mirai sedans and Hyundai Nexo SUVs. (The price is distorted by the fact that most hydrogen vehicle owners get prepaid cards for up to six years of free fuel.)



Prices are a bit better for Foothill Transit, a Los Angeles-area agency with three dozen hydrogen buses and that’s adding 20 more. It negotiated a multiyear rate from a hydrogen supplier of $9.12 a kilogram, said Foothill CEO Doran Barnes. And while the buses are reliable, “the cost of hydrogen is running about 2.5 times more than for compressed natural gas,” he said.



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<h2 class="wp-block-heading" id="h-need-for-power">Need For Power</h2>



The requirement that power to make green hydrogen come from new clean energy sources is understandable. The electric grid is already struggling to keep up with rising demand from power-hungry data centers, booming U.S. manufacturing and growth in electric vehicles that require charging.



“If we&#8217;re going to grow energy demands by producing electrolytic hydrogen we have to add new clean power resources to support that,” said Eric Guter, vice president of hydrogen mobility for Air Products, the world’s biggest supplier of the gas. “Otherwise we&#8217;re going to exacerbate the emissions problem on the backs of taxpayers, and that will destroy the long-term outlook for a viable clean hydrogen market.”



Air Products plans several large-scale green hydrogen projects that open later this decade — including&nbsp;<a href="https://www.airproducts.com/energy-transition/neom-green-hydrogen-complex" rel="noreferrer noopener" target="_blank">one in oil rich Saudi Arabia</a>&nbsp;— and supports the proposed tax credit rules. So too does Electric Hydrogen, which is developing&nbsp;<a href="https://www.forbes.com/sites/alanohnsman/2024/02/21/green-hydrogen-could-help-save-the-planet-this-startup-wants-to-make-it-cheap/?sh=2543f9f28351">large-scale green hydrogen plants</a>. Cofounded by two solar industry veterans, the Boston-based company’s business plan is to locate hydrogen operations near new wind or solar projects and, ideally, avoid plugging into the grid. It’s raised more than $600 million from investors including Bill Gates’ Breakthrough Energy Ventures, Energy Impact Partners, BP Ventures and Amazon.



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“We&#8217;re competing against 100 years of global subsidy, war, blood, fortune and gold that&#8217;s gone into making oil and gas what it is today.”Electric Hydrogen CEO Raffi Garabedian
</blockquote>



It wants to deliver its first commercial-scale green hydrogen plant late this year to billionaire&nbsp;<a href="https://eh2.com/electric-hydrogen-to-supply-electrolyzer-technology-green-facility/" rel="noreferrer noopener" target="_blank">Wes Edens’ New Fortress Energy</a>. New Fortress intends to sell the fuel it makes to an ammonia producer. Powered by 100 megawatts of electricity, the plant will be capable of making up to 45 tons of fuel daily.



Garabedian said another early market for green hydrogen may be for sustainable aviation fuel, or SAF, as regulations in Europe force airlines to use more low-carbon fuel. But as the company lines up customers, he understands the challenge ahead.



“We&#8217;re competing against 100 years of global subsidy, war, blood, fortune and gold that&#8217;s gone into making oil and gas what it is today. And it&#8217;s still the most highly subsidized industry in the world, other than the military,” he said. “Trying to compete with that on a cost basis, it&#8217;s insane.”

New Green Hydrogen Tank construction site.

Green Hydrogen’s Hype Hits Some Very Expensive Hurdles

Globe-trotting billionaire Mo Dewji made a fortune in East Africa selling palm oil, rope, and soda. Now he claims to have the recipe for transforming Tanzania into an agribusiness powerhouse.



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Puffing on a nicotine vape and seated on a white leather chair in his $50 million home in Dubai, Mohammed “Mo” Dewji is waxing poetic about his plans to mechanize farming 2,500 miles away. “I want to make Africa, long term, a food basket for the world,” says the 48-year-old billionaire, who was born, raised and until recently lived in Tanzania. A framed photograph of a street in Zanzibar, the Tanzanian archipelago famous for lush white beaches, hangs on a wall behind him. “Why the hell are we not investing in agri?”



Dewji is well known in Tanzania, Africa’s fifth largest country with a population of 70 million. The football team owner and former politician controls a range of businesses through his consumer goods conglomerate MeTL Group, including textile manufacturing, edible oil refineries and his Mo Cola carbonated beverages line (named after himself). MeTL already grows crops like tea, avocados, and sisal (a natural fiber used in rope), which are vertically integrated into his other businesses.



Now Dewji wants to grow his agribusiness empire – by orders of magnitude. He is seeking to invest $250 million, including $100 million of his own capital, to buy and mechanize 100,000 hectares of farmland in Tanzania. MeTL would use the crops to feed its own businesses, then sell the surpluses to other Tanzanian firms, African countries and even European customers. Dewji says this “vision” came to him in the aftermath of Russia’s invasion of Ukraine as soaring food and fertilizer prices worsened conditions of poverty and malnutrition in Africa.



Agriculture accounts for one-third of Tanzania’s annual GDP (of $75 billion), but roughly 90% of that farming is done by subsistence farmers tilling less than 5 hectares of land each. As a result, food insecurity in Tanzania is widespread: Over 30% of children are stunted, and 13 million Tanzanians live in extreme poverty, while “many others live just above the poverty line,” <a href="https://www.usaid.gov/sites/default/files/2022-05/Copy_of_tagged_Tanzania-Nutrition-Profile.pdf" target="_blank" rel="noreferrer noopener">according to </a>the U.S. Agency for International Development. That’s despite Tanzania being the second biggest receiver of foreign aid in Sub-Saharan Africa (behind only Ethiopia) between 1990 to 2010, <a href="https://www.wider.unu.edu/sites/default/files/wp2012-037.pdf" target="_blank" rel="noreferrer noopener">receiving </a>$26.85 billion. One of those aid suppliers, the World Bank, <a href="https://www.worldbank.org/en/results/2024/01/05/ida-and-afe-tanzania-a-focus-on-people-cities-and-public-institutions-for-a-better-future#:~:text=As%20of%20August%202023%2C%20the,projects%20(%241.04%20billion%20commitments)." target="_blank" rel="noreferrer noopener">acknowledges</a> that Tanzania “still faces stubbornly high levels of poverty, in part as a result of dependence on low productivity agriculture.”



Bigger, more efficient farms could help solve Tanzania’s hunger problem. In developing countries, “Larger farms tend to be more efficient than their smaller counterparts,” a recent European Commission <a href="https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7546703/" target="_blank" rel="noreferrer noopener">paper</a> found. Within Africa, increasing agricultural productivity was “a substantial driver of growth and poverty reduction” in Ethiopia, Ghana, Malawi, Rwanda and Uganda—in contrast to Tanzania and those countries where farming growth lagged, according to a UN <a href="https://ourworld.unu.edu/en/done-sensibly-agricultural-development-can-reduce-poverty-in-africa" target="_blank" rel="noreferrer noopener">study</a>. But agribusiness also comes with costs: human displacement, environmental degradation, disruption of local trading networks upending entire communities. Dewji says the benefits outweigh the cons. “Life goes on for the villagers but [in] a much better scenario,” he says.



Given Dewji’s prominence, any success—or failure—will have a big impact within Tanzania and potentially beyond. “This is larger than Tanzania: a success here could have implications for the continent as a whole,” says Margaret McMillan, an economics professor at Tufts University who studies economic development in East Africa, has lived in Tanzania and heard Dewji make his agribusiness pitch at a recent conference. “If he could use it as a flagship to show how [large-scale farming] can be done successfully, that would be amazing.”



That is Dewji’s long-term plan. He wants to prove his agribusiness model works in Tanzania, then raise money from global investors to replicate it in other African countries. His dream is to invest over $1 billion across 400,000 hectares—about the size of Rhode Island, or 0.3% of Tanzania’s total landmass—across at least three countries, including Zambia and Mozambique. “I spoke to the Zambian president, I spoke to the Mozambique president,” Dewji assured&nbsp;Forbes. “But I said, ‘Guys, let me first work it out in my home country first because I understand the intricacies. Let me show a project for Africa.’”



It’s not clear these dreams will come to fruition. Dewji has been trying to get this operation going for years. Eighteen months ago, he&nbsp;<a href="https://www.reuters.com/markets/deals/tanzanian-entrepreneur-dewji-plans-2-4-bln-grains-production-investment-via-spac-2022-07-08/" rel="noreferrer noopener" target="_blank">sought&nbsp;</a>four times as much money, $4 billion, to fund an even larger version. He floated the idea of raising money by merging with a special purpose acquisition company and touted potential 10x returns. No partners came calling. “I never raised money because I failed to get the land,” he says.



Dewji has praised Samia Suluhu Hassan, Tanzania’s president since 2021, for promoting more investment and private sector activity. Yet he has spent two years trying to buy 100,000 hectares of Tanzanian land from Hassan’s administration, and the deal isn’t done yet. The land is occupied by villagers and small-scale farmers but is technically owned by Tanzania’s government.



Documents seen by&nbsp;Forbes&nbsp;describe a key pillar of his proposal: cultivating sugar cane and building a sugar refinery on 39,000 hectares in Tanzania’s Rufiji District, a rural region named after Tanzania’s largest river. Some 95,000 people live in the area,&nbsp;<a href="https://rufijidc.go.tz/statistics" rel="noreferrer noopener" target="_blank">scattered across</a>&nbsp;200 villages and hamlets. MeTL’s acquisition would involve land transfers in 17 villages and the factory would sit on a 860-hectare plot, according to the documents.



Dewji told Forbes that, eventually, he wants to grow grains (wheat, rice, corn), edible oil crops (sunflowers, soybeans, palm), and plant proteins (pigeon peas, yellow gram) on the other 61,000 hectares of land he’d like to acquire.



There have been accusations of land-grabbing, and no wonder. Dewji wants to become Tanzania&#8217;s biggest farmer in a single stroke. “Not many people live on the targeted land,” he says, but when asked how many people live there, he declines to say. The village councils and district authorities are on-board with MeTL’s plans, Dewji adds. That hasn’t alleviated concerns about corruption.



“There&#8217;s a pretty widespread perception that the government is underhanded in these large-scale transactions, that agreements are not above board,” says Ayala Wineman, a professor of agricultural and food economics at Michigan State University who has researched Tanzania and East Africa. “And oftentimes, it&#8217;s with the collaboration of local leaders who benefit from agreeing to hand over land.”



Dewji says that any villagers and subsistence farmers displaced by MeTL will get new land to continue their farming and animal husbandry, that there will be buffer zones between his operations and their new tracts, and that MeTL will fund new roads, hospitals, schools and running water systems. The documents seen by&nbsp;Forbes&nbsp;promise all that and more, including annual dividends paid to local coffers and giveaways like new tractors.&nbsp;“MeTL has been extremely sensitive,” says Dewji, who calls it a “win-win” proposition.



He’ll need to defy recent history, then.&nbsp;<a href="https://www.pnas.org/doi/10.1073/pnas.2207398120#sec-1" rel="noreferrer noopener" target="_blank">A research paper</a>&nbsp;published last year analyzed four separate large-scale land purchases in Tanzania for the purposes of agribusiness. It found that the takeovers “exacerbate farmland inequality in nearby villages” and caused “resulting inequalities [that] are not offset by improvements in other dimensions of well-being.” These local populations are “not really benefiting from these projects in any meaningful way, be it employment, the adoption of new farming practices, improvement in food security, [or] incomes,” says Jonathan Sullivan, the study’s lead author and a professor of sustainability at the University of Arizona. “Maybe Mohammed Dewji is going to do something different, but I imagine it&#8217;s going to be pretty similar.”



And yet—Tanzania needs more food. Mechanized farming of staple goods like grains and proteins – as Dewji has proposed – could help feed hungry mouths through sheer economies of scale, improved efficiencies and surpluses. “In rural Tanzania, there is a lot of food acquired through purchase,” explains Wineman. “Subsistence farmers also engage with the market to access the food they need.”



If MeTL exports crops to other countries, as Dewji envisions, Tanzania’s budget will see some of that money. “Presumably, it could generate tax revenue for the government and foreign exchange earnings,” says McMillan, hitting on two key structural issues with Tanzania’s economy: its annual trade deficits and shrinking foreign exchange reserves. Above all, perhaps, private capital should get the chance to succeed where foreign aid has failed. One consultant for the World Bank, who spoke with&nbsp;Forbes&nbsp;on the condition of anonymity, described the bank’s loans and investments in Tanzania (which total&nbsp;<a href="https://www.worldbank.org/en/results/2024/01/05/ida-and-afe-tanzania-a-focus-on-people-cities-and-public-institutions-for-a-better-future#:~:text=As%20of%20August%202023%2C%20the,projects%20(%241.04%20billion%20commitments)." rel="noreferrer noopener" target="_blank">$8.3 billion</a>) as “moderately helpful at best.”



If anyone could pull off such an audacious venture, it’s probably Dewji, a man steeped in global ambition and daring, at times dangerous entrepreneurship. His great grandfather, born in Gujarat, India, was one of thousands of Indian Muslims who migrated to East Africa in the 1800s. His father started MeTL in the 1970s as a commodities trading firm. Dewji studied political science at Georgetown and after a brief stint on Wall Street, returned to Tanzania in 1999 to help run the family business. He grew MeTL through a series of deals in the 2000s as Tanzania privatized loss-making state-owned enterprises. He served in his country’s parliament for a decade, between 2005 to 2015—while simultaneously running MeTL. He owns a 49% stake in Simba S.C., a professional football club in Dar Es Salaam, Tanzania’s largest city. He frequently posts photos of himself at matches to his 4.4 million followers.



But what Dewji is most famous for is being kidnapped in October 2018 by a group of armed men in Tanzania’s largest city, Dar es Salaam. The assailants kept Dewji for 10 days and demanded ransom, but in a strange twist, they released him in an abandoned field without ever receiving any payment, and no assailants were ever found guilty in a Tanzanian court of any criminal charges.



Who was behind this odd sequence of events? Two well-placed individuals told&nbsp;Forbes&nbsp;it was widely rumored that Tanzania’s then-President John Magufuli had orchestrated the kidnapping in connection to a dispute with Dewji about MeTL’s massive sisal holdings (sisal is a fibrous plant used to make rope, carpet, shoes and paper). Dewji told&nbsp;Forbes&nbsp;that the kidnapping was “&#8217;politically motivated,” but did not provide further detail, other than that he never paid a ransom. “There’s parts of the puzzle I cannot speak about,” he said in a recent&nbsp;<a href="https://www.youtube.com/watch?v=NjPSQEsUudg" rel="noreferrer noopener" target="_blank">podcast interview</a>&nbsp;about the kidnapping, calling the whole event “a paradox.”



Dewji attributes his good fortune to the prayers of ordinary Tanzanians, like those who buy Mo Cola in Dar es Salaam, or those who till the land that he hopes to buy one day. “The poor of the poorest people were praying for me,” Dewji says. “I&#8217;ll tell you something: I am indebted to Tanzanians, to Africans.”

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Tanzania’s Richest Man Wants To Be Africa’s Biggest Farmer — If Everyone Gets Out Of His Way

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Exposing The Myth Of Decentralization

The accountants certified that Tingo Group had $462 million in the bank. The SEC says it was just $50. Short sellers are rejoicing.



Hindenburg Research, known for sniffing out corporate scams, took aim in June at an obscure Nigeria-based outfit named Tingo Group. Hindenburg rolled out a report with a title that left little to the imagination:&nbsp;<a href="https://hindenburgresearch.com/tingo/" target="_blank" rel="noreferrer noopener">“Fake Farmers, Phones, and Financials – The Nigerian Empire That Isn’t.”</a>&nbsp;But Hindenburg didn’t just call Tingo a clear-cut scam. The short-seller also threw a spotlight on the auditor who green-lit Tingo’s financials, challenging its competence, and perhaps its willingness, to see the truth.



“The issues in Tingo’s financials are glaring enough that we’d expect they could have been spotted by any semi-conscious finance undergrad with severe vision loss,” Hindenburg wrote. “These issues were apparently not glaring enough for the company’s auditor, however.”



The auditor in question was Deloitte, the behemoth Big Four accounting firm with annual revenue of&nbsp;<a href="https://www.deloitte.com/global/en/about/press-room/global-revenue-announcement.html" target="_blank" rel="noreferrer noopener">$65 billion</a>&nbsp;through a global network that stretches from Amsterdam to Zhengzhou.



In November, after Tingo’s stock had already fallen about 80% wiping out more than $700 million in market value, the Tingo saga took a sharp turn. The Securities and Exchange Commission stepped into the fray,&nbsp;<a href="https://www.sec.gov/files/litigation/suspensions/2023/34-98920.pdf" target="_blank" rel="noreferrer noopener">slamming the brakes</a>&nbsp;on Tingo’s stock trading. In December, the SEC slapped Tingo CEO Dozy Mmobuosi with charges of&nbsp;<a href="https://www.sec.gov/litigation/litreleases/lr-25915" target="_blank" rel="noreferrer noopener">“massive fraud.”</a>&nbsp;Things only got worse this month, when the regulator&nbsp;<a href="https://www.justice.gov/usao-sdny/pr/founder-and-former-ceo-tingo-companies-charged-securities-fraud" target="_blank" rel="noreferrer noopener">tacked criminal securities fraud charges</a>&nbsp;onto the bill of consequences. According to the SEC’s civil complaint, Tingo, whose audited books boasted a $462 million treasure chest socked away in Nigerian banks, actually had only $50.



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“The issues in Tingo’s financials are glaring enough that we’d expect they could have been spotted by any semi-conscious finance undergrad with severe vision loss.”Hindenburg Research
</blockquote>



Auditors are supposed to be the financial world’s most trusted sources of information, armed with calculators and sworn to sniff out fiscal misconduct. A flip through history tells a different story: too often auditors, who are paid fees by the clients they are examining, fail to dig below the surface, and essentially rubber stamp seemingly obvious inconsistencies and problems in financial statements. Worse, some would even say they’re part of the problem, either by not being sharp enough or by looking the other way at the outrageous claims of their clients.



“As outsiders, we’d like to think that auditors are looking for fraud, but fraud detection isn’t one of their mandates,” Matthias Breuer, an accounting professor at Columbia University’s Graduate School of Business, told&nbsp;Forbes. “Auditors don’t go into their work with an adversarial mindset. Their mandate isn’t to be a whistleblower, and because of that it’s usually insiders and short-sellers that uncover these issues.”



Need a few examples? Ernst &amp; Young, after nodding approval at Wirecard’s books, could only watch as the German firm imploded over a $2.08 billion vanishing act. Remember Arthur Andersen? Once an auditing giant, it crumbled under the weight of its involvement in Enron’s notorious collapse. And let’s not forget the infamous 1MDB saga, which roped in the trifecta of Ernst &amp; Young, KPMG and Deloitte, as billions earmarked for development in Malaysia were splurged on lavish parties, opulent real estate and a cache of Monets and Van Goghs. That one cost Deloitte&nbsp;<a href="https://www.bloomberg.com/news/articles/2021-06-03/malaysia-says-received-80-million-1mdb-settlement-from-deloitte?embedded-checkout=true" target="_blank" rel="noreferrer noopener">$80 million</a>&nbsp;when it settled with the country in 2021, a hefty sum, but nothing compared to the&nbsp;<a href="https://www.justice.gov/opa/pr/deloitte-touche-agrees-pay-1495-million-settle-claims-arising-its-audits-failed-mortgage#:~:text=The%20Justice%20Department%20announced%20today,%2C%20Bean%20%26%20Whitaker%20Mortgage%20Corp" target="_blank" rel="noreferrer noopener">$150 million</a>&nbsp;it paid to the U.S. government in 2018 for its role in auditing failed mortgage lender Taylor, Bean &amp; Whitaker.



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<h2 class="wp-block-heading" id="h-routine-failures">Routine Failures</h2>



Auditing failures, despite the cost in money and reputation to the auditors, are practically routine. A 2020 study by the Association of Certified Fraud Examiners showed that auditors uncover less than 4% of frauds. That’s a dismal track record, for sure, but there are a couple of reasons why it actually makes a bit of sense.



First off, auditing is pretty much a by-the-book routine, says Columbia’s Breuer, which provides an opinion on whether companies’ financial statements are prepared in accordance with accounting standards, and whether companies maintain sound financial controls. It’s a straightforward, no-frills affair, and that’s just how the auditing world prefers it.



“What’s happened in the audit industry is that they’ve lobbied to do check-the-box exercises to limit their legal liability,” he told&nbsp;Forbes. “They’re just trying to satisfy the auditing standards, they’re not necessarily trying to attest to the real economic reality of the business.”



Secondly, despite their expertise, auditors are often outfoxed by companies willing to lie to them. Firms can concoct a tangle of fictitious documents, hide critical information, or devise schemes so elaborate they’re nearly impossible to decipher without a whistleblower’s help.



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A 2020 study by the Association of Certified Fraud Examiners showed that auditors uncover less than 4% of frauds
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But Deloitte’s Tingo case isn’t one you can just brush off with the usual excuses. It stands out because Hindenburg, along with a crew of independent internet detectives, managed to cut through the smoke and mirrors without any insider help.



Hindenburg’s exposé on Tingo, echoed by the SEC allegations, hints at a more unsettling issue. Auditors get their paychecks from the companies they’re supposed to keep honest. (Tingo paid&nbsp;<a href="https://www.sec.gov/ix?doc=/Archives/edgar/data/854800/000121390023025186/f10k2022_tingogroupinc.htm" target="_blank" rel="noreferrer noopener">$1.6 million</a>&nbsp;in audit fees in 2022.) This setup can lead to auditors playing it safe, avoiding the hard-hitting questions that could upset a paying customer.



How did Deloitte, the auditing heavyweight watching over Tingo’s books, miss a scam that Hindenburg, an outsider, called out as painfully obvious?



Maybe the answer lies in who was holding Deloitte’s magnifying glass. Tingo, balancing its act between Nigeria and the Nasdaq in New York, wasn’t checked by Deloitte’s team in Nigeria. Instead, it was Deloitte’s Israeli branch, Brightman Almagor Zohar &amp; Co., that certified the books. That’s a head-scratcher, especially since, as Hindenburg highlighted, Tingo didn’t really do much business in Israel. Why not use auditors who operate where the action is? It almost seems like a move to keep the auditors just far enough away so they wouldn’t stumble upon anything they shouldn’t.



In response to questions from&nbsp;Forbes, a spokesperson for Deloitte Israel declined to comment, saying “professional standards prohibit our commenting on client matters.” Tingo didn’t respond to a request for comment.



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<h2 class="wp-block-heading" id="h-astonishing-gap">Astonishing Gap</h2>



The discrepancy between what Deloitte certified — $461.7 million — and Tingo’s actual cash balance of $50 was “astonishing,” Ed Ketz, an accounting professor at Penn State’s Smeal College of Business, told&nbsp;Forbes&nbsp;in an email. “The cash account is the most important balance sheet account and one of the easiest to audit,” he said. “One wonders how Deloitte Israel could have missed that.”



Verifying a company’s cash is a foundational part of the auditing process and one of the boxes auditors are supposed to check, said Stephani Mason, an accounting professor at the Driehaus College of Business at DePaul University.



“In the process of an audit there are some pretty basic things that should be done,” Mason told&nbsp;Forbes. “One of those is confirming cash balances by sending a form that goes directly to the client’s bank. The standard essentially says that the auditor has to verify the bank account independently.”



You’d think the obvious move would be to tighten standards on checking companies’ bank balance claims. But just cranking up the standards might not stop the deceit. In fact, academics argue that squeezing the fraud balloon doesn’t deflate it, it just pushes the hot air somewhere else.



A 2021 paper from folks at the University of Minnesota and Indiana University, titled&nbsp;<a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3762260" target="_blank" rel="noreferrer noopener">“Everlasting Fraud,”</a>&nbsp;lays it out. Fraud, they say, shifts shapes, constantly morphing as crafty companies stay one step ahead of regulators in a relentless game of cat and mouse. While regulators are busy learning from old scams like Enron’s off-the-books creativity, companies like Wirecard, and allegedly Tingo, are out there boldly cooking up fake bank balances. It’s a gutsy move, a bet that it’s so obvious that auditors might figure no company would even try it, and not even check.



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<h2 class="wp-block-heading" id="h-not-their-job">Not Their Job</h2>



“If the auditors were really after fraud, I think they could find it,” Columbia’s Breuer told Forbes. “But that’s not the nature of their business. It’s not great for an auditor’s career to claim fraud with a client. They’re very cautious to not be too alarmist too often. That’s why they may look the other way or never get started on these things.”



An added impediment to accountability is the way auditing firms are set up, with offices in different countries acting more like independent franchises than branches of a central tree. That means Deloitte’s main office may never have to pay for this ridiculous oversight. Each office is its own island, so the fallout tends to stay local.



Where you might spot some consequences for auditors, however, is in the stock market. In the short term, Deloitte’s other client companies could feel a bit of a chill. There’s precedent for this. Consider what happened with PricewaterhouseCoopers’ clients after the “OscarGate” fiasco.



Rewind to 2017. PwC had the seemingly simple job of tallying votes for the Academy Awards. In the world of auditing tasks, this was so easy it was a bit dull, but with a hefty upside of a mountain of free publicity. Still, PwC screwed the pooch. Its accountants handed over the wrong envelope for the best picture award (La La Land&nbsp;instead of&nbsp;Moonlight) and what should have been a seamlessly glamorous affair turned into a comedy of errors, swapping the auditor’s PR triumph for a dose of public embarrassment.



Researchers&nbsp;<a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3216232" target="_blank" rel="noreferrer noopener">Lawrence Abbott and William Buslepp</a>&nbsp;decided to investigate how PwC’s blunder — witnessed by millions of TV viewers around the world — might ripple out to its clients. They dug into the data and, lo and behold, it was PwC’s roster of clients who ended up feeling the pinch.



“We find that abnormal returns in the days following the error are significantly lower for PwC clients,” the researchers wrote, “suggesting an impaired reputation for audit quality.”



Basically, for a brief spell — the study pegs it at a month — the market was giving PwC’s clients the side-eye. Investors discounted the companies’ financial statements, all because they started wondering if they could really trust what was in them.



“In my expectation, this isn’t likely to affect the Deloitte U.S. firm,” DePaul’s Mason told Forbes. “The SEC can fine Deloitte Israel, disgorge profits, or even give them the death knell, so to speak, by barring them from auditing companies in this jurisdiction. But what I’m interested in is what other companies have they done work for? If I was an investor long on a client Deloitte Israel audited, I’d be very concerned.”

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How Auditor Deloitte Missed A Nigerian Company’s Massive Fraud

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The World’s Most Powerful Women

The Himalayan Kingdom quietly spent millions building its own bitcoin mining operation. Now, using satellite imagery, Forbes has uncovered the secret locations of the world’s largest state-owned mines.



Dozens of shipping containers lie hidden behind a hillside south of Thimphu, the Himalayan capital of Bhutan, one of the world’s most isolated nations. Inside, millions of dollars of bitcoin mining machines work unceasingly to amass the valuable currency that now fascinates the country’s monarch — and his kingdom. Under the reign of Jigme Khesar Namgyel Wangchuck, the “Dragon King,” Bhutan has been quietly transformed into a crypto Shangri-La with its government dedicating land, funding and energy to operations like these, which it hopes will avert a looming economic crisis.



But Bhutanese officials have never disclosed the location or scope of these facilities. And when it became the first country to have founded a sovereign bitcoin mine approximately four years ago, few outside of Bhutan knew. Its government only began commenting on its digital asset investments after&nbsp;<a href="https://www.forbes.com/sites/iainmartin/2023/04/15/the-tiny-kingdom-of-bhutan-secretly-held-millions-of-dollars-in-cryptocurrency/">Forbes&nbsp;first reported details</a>&nbsp;of its multi-million-dollar portfolio earlier this year, which were exposed by the bankruptcies of fallen crypto lenders BlockFi and Celsius, with whom it had banked significant holdings.



Now, Forbes has identified the sites of what appear to be four mines run by the Thunder Dragon kingdom, based on sources with knowledge of Bhutan’s crypto investments and confirmed through satellite imagery from Planet Labs, Satellite Vu and Google Earth. They show long rectangular mining units, data center cooling systems and high capacity power lines and transformers that run from Bhutan’s hydroelectric plants to the sites. They have never been publicly disclosed.



One facility — the pilot location for Bhutan’s bitcoin mining efforts, a source said — was built near Dochula Pass, an area that holds cultural and political significance for its 108 memorial shrines dedicated to fallen Bhutanese soldiers. Planet Labs and Google Earth satellite imagery indicate that earthmoving began on the site in 2020 with construction appearing to have finished in late 2022. Aerial views show a cluster of green and white-roofed mining units enclosed by miles of forest. Though just steps from a busy highway, Google Street View suggests it is completely hidden from unknowing passersby. A second source told&nbsp;Forbes&nbsp;that the ground has been leveled along this stretch of road to provide additional cover for the site.



A second mine is located near Trongsa, a town east of Thimphu and ancestral seat of the current Wangchuck dynasty. A third is situated in the heavily forested district of Dagana, near a middle school that caters to children in the rural community.



What appears to be the kingdom’s fourth and largest mine sits on the bones of a contentious — and failed — $1 billion government megaproject called “<a href="https://www.nationalcouncil.bt/assets/uploads/docs/acts/2014/Bhutan_Education_City_Act_2012_eng9th.pdf" target="_blank" rel="noreferrer noopener">Education City</a>,” an effort to establish an international center “for education and knowledge” in Bhutan. The mine runs alongside the country’s first paved road, Phuentsholing-Thimphu national highway, but is concealed behind mountainous terrain. Only transformers and power lines betray the fact that a bitcoin mine now occupies the site. Historical satellite imagery shows that its construction began around December 2021, coinciding with the import of $193 million in “processing units,” according to customs data from the Ministry of Finance. The imports were appended with the same tariff code used by bitcoin mining hardware companies.



Bhutan had pitched the&nbsp;<a href="https://www.nationalcouncil.bt/assets/uploads/docs/acts/2014/Bhutan_Education_City_Act_2012_eng9th.pdf" target="_blank" rel="noreferrer noopener">Education City</a>&nbsp;project to its citizens as a means to secure their future amid rising youth unemployment,&nbsp;<a href="https://kuenselonline.com/migration-of-bhutanese/" target="_blank" rel="noreferrer noopener">surging emigration numbers</a>&nbsp;and brain drain. Roughly 1.5% of Bhutan’s population&nbsp;<a href="https://www.reuters.com/world/asia-pacific/bhutans-jobs-woes-drive-an-exodus-australia-2023-07-28/" target="_blank" rel="noreferrer noopener">emigrated last year</a>&nbsp;to Australia alone, many seeking job opportunities and better pay. In Bhutan, the minimum wage is set at just $45 per month and approximately 12% of its population lives below the poverty line, according to local newspaper&nbsp;<a href="https://kuenselonline.com/labour-ministry-reviewing-the-national-minimum-daily-wage/" target="_blank" rel="noreferrer noopener">Kuensel</a>.



Education City was supposed to change that. In 2009, Bhutan’s government paid consulting firm McKinsey &amp; Co. some $9 million to help design a $1 billion &#8220;world-class regional hub for health, education, finance, ICT services.&#8221; Nestled between the confluence of two rivers, the 1,000-acre campus would be a beacon of the country’s experimental Gross National Happiness economic model, and a higher ed hub for Asia. It was to host satellites of some of the most prestigious universities in the world, as well as R&amp;D facilities, laboratories, hotels and event centers. And according to the Bhutanese government, it would promote &#8220;Brand Bhutan,&#8221; creating a &#8220;green and sustainable economy,&#8221; &#8220;culturally and spiritually sensitive industries&#8221; and a &#8220;knowledgeable society.&#8221;



It did none of those things. Plagued by political scandals, mismanagement and innumerable delays, Education City was scrapped in 2014. But left behind were roads, bridges, a water supply and, crucially, power lines — building blocks for a bitcoin mine.


<div class="wp-block-image">
<figure class="aligncenter is-resized"><img decoding="async" src="https://imageio.forbes.com/specials-images/imageserve/655cdfb1f26e45135e0fe07a/Infrastructure-consistent-with-that-of-a-bitcoin-mine-in-the-rural-region-of-Dagana-/0x0.jpg?format=jpg&amp;width=1440" alt="Infrastructure consistent with that of a bitcoin mine in the rural region of Dagana. " style="width:750px;height:auto"/><figcaption class="wp-element-caption">Infrastructure consistent with that of a bitcoin mine in the rural region of Dagana.&nbsp;IMAGE © PLANET LABS PBC</figcaption></figure></div>


The kingdom’s sovereign investing arm, Druk Holdings &amp; Investment (DHI), confirmed the mines’ existence. “Sites for bitcoin-mining related facilities in Bhutan have been selected based on the logistical needs of the operations such as power supply and a variety of other factors,” it told&nbsp;Forbes&nbsp;through an outside communications firm. It declined to comment on their locations, however, stating that “DHI does not disclose commercially sensitive details of its operations.”



Bitcoin was a Hail Mary addition to Bhutan’s economic masterplan. The kingdom’s finances have long been underpinned by tourism revenues and the export of a massive surplus of hydropower to its neighbor India. But the Covid pandemic tanked the&nbsp;<a href="https://jp.reuters.com/article/bhutan-tourism-environment-climate-idAFL8N3A93GD#:~:text=In%202019%2C%20before%20the%20pandemic,earn%20the%20country%20foreign%20exchange." target="_blank" rel="noreferrer noopener">$88.6 million</a>&nbsp;annual revenue the country collected from $65-a day visa fees, requiring an urgent course correction. According to multiple sources, Bhutanese government officials began holding talks with bitcoin miners and suppliers sometime in 2020.



DHI, which oversees Bhutan’s bitcoin operations, told local newspaper&nbsp;<a href="https://thebhutanese.bt/dhi-confirms-that-it-is-mining-digital-assets/" target="_blank" rel="noreferrer noopener">The Bhutanese</a>&nbsp;that it “entered the mining space” when the cryptocurrency’s price was $5,000 (it was last valued at this level in April 2019 but is now worth $36,000). Bhutan’s own import data and satellite imagery suggest that its operations truly ramped up in 2020. In May, when&nbsp;Forbes&nbsp;asked DHI to confirm that timing, a spokesperson for the fund would say only that a series of bitcoin investments were made “in a period in 2019.” They added that DHI was “currently net positive in our digital asset position.”&nbsp;<a href="https://www.cnbc.com/2022/12/23/bitcoin-price-calls-in-2022-how-the-market-got-it-wrong.html" target="_blank" rel="noreferrer noopener">Bitcoin’s price collapsed</a>&nbsp;from $69,000 in November 2021 to under $17,000 last December.



<a href="https://thebhutanese.bt/bitcoin-powers-a-50-hike-for-public-servants/" target="_blank" rel="noreferrer noopener">The Bhutanese</a>&nbsp;reported in June that DHI was planning to sell down its bitcoin stockpile to fund a 50% salary hike for government officials worth $72 million, as Bhutan faces an economic and political crisis with a trade deficit running down its&nbsp;<a href="https://thebhutanese.bt/bitcoin-powers-a-50-hike-for-public-servants/" target="_blank" rel="noreferrer noopener">hard currency reserve</a>&nbsp;to just $689 million. (This will cover just 14 months of imports while the country’s constitution requires 12 months of reserves.)



Several sources inside Bhutan told&nbsp;Forbes&nbsp;that the mines are now an open secret, though neither the Bhutanese government nor DHI have formally disclosed their existence. In emails to&nbsp;Forbes, DHI has consistently declined to comment on the scope or financing of its cryptocurrency regime.



DHI, which also operates the nation’s flagship airline, hydroelectric power plants and a cheese factory, does not provide any breakdown of revenues or investment in bitcoin mining in its annual accounts beyond noting it had raised foreign currency bonds to fund the project. Bhutan’s Ministry of Finance has been equally quiet. Outside academics and insiders who specialize in monitoring global bitcoin activity told&nbsp;Forbes&nbsp;that the country’s mining activities remain a conundrum. DHI claimed that it was “not involved in decisions as to the use of funds that DHI pays out to the Government.”



But the kingdom left a breadcrumb trail. Trade data accessed through the Observatory of Economic Complexity, an open source platform that visualizes global trade patterns, indicates that more than $220 million in chips used for bitcoin mining were shipped from China to Bhutan between 2021 and 2022. DHI declined to answer questions about them, citing “NDAs with contractual parties.” And Bhutan’s Ministry of Energy data reveals a massive 63% spike in power usage by industry in 2022.


<div class="wp-block-image">
<figure class="aligncenter is-resized"><img decoding="async" src="https://imageio.forbes.com/specials-images/imageserve/655cdf7af7758dcd00342f24/Green-roofed-units-in-Trongsa--the-ancestral-seat-of-the-Wangchuck-dynasty-/0x0.jpg?format=jpg&amp;width=1440" alt="Green-roofed units in Trongsa, the ancestral seat of the Wangchuck dynasty." style="width:728px;height:auto"/><figcaption class="wp-element-caption">Green-roofed units in Trongsa, the ancestral seat of the Wangchuck dynasty.IMAGE © PLANET LABS PBC</figcaption></figure></div>


Meanwhile, Bhutan, which has for years sold off surplus energy to India, has massively ramped up imports, purchasing $20.7 million worth of electricity in 2023, according to&nbsp;<a href="https://kuenselonline.com/growing-domestic-demand-cuts-electricity-export-revenue-by-27-percent/" target="_blank" rel="noreferrer noopener">Kuensel</a>. Government officials&nbsp;<a href="https://kuenselonline.com/growing-domestic-demand-cuts-electricity-export-revenue-by-27-percent/" target="_blank" rel="noreferrer noopener">recently</a>&nbsp;warned that this bill would balloon to $72 million over the coming winter with imports needed for five months to cover demand.



The Asian monsoon season means that Bhutan has always experienced droughts when its hydropower plants stand largely idle for three months, requiring it to import electricity from India’s largely coal-powered grid. Bhutan’s investment in bitcoin mining has, however, hinged on reliable access to cheap and clean energy.



“Bhutan prioritises power supply for domestic consumption. Industry and business — including projects related to bitcoin mining — are accorded lower priority,” DHI’s spokesperson said. In the winter months when hydropower generation typically decreases, “mining activity may be shut down subject to electricity availability.”



However, the four state-owned mines&nbsp;Forbes&nbsp;believes it has identified might not even be Bhutan’s largest. In 2022, the country entered a partnership with Singaporean bitcoin mining giant, Bitdeer, which made Bhutan the seat of its Asian expansion. In March,&nbsp;<a href="https://www.planet.com/stories/gedu-XyMPiYu4g" target="_blank" rel="noreferrer noopener">Bitdeer broke ground</a>&nbsp;on a mine in the southern town of Gedu, according to satellite imagery from Planet Labs, bringing 100 megawatts (MW) online in August, the company said. DHI, which owns Bhutan’s national power company, will be supplying electricity to the site. Bitdeer disclosed in a July update that it was already running 11,000 miners and had ordered an additional 15,000 machines. When completed, the 600 MW facility will consume more energy than the rest of the nation,&nbsp;<a href="https://asia.nikkei.com/Economy/Bhutan-puts-Bitcoin-mining-plan-in-motion-to-power-up-economy" target="_blank" rel="noreferrer noopener">Nikkei</a>&nbsp;reported.



Recently, Bitdeer staff have been approaching investors at industry conferences such as Mining Disrupt for a $500 million “<a href="https://www.bloomberg.com/news/articles/2023-05-03/bhutan-plans-500-million-fund-for-bitcoin-btc-and-crypto-mining-in-himalayas" target="_blank" rel="noreferrer noopener">green crypto mining</a>” fund. DHI&nbsp;<a href="https://asia.nikkei.com/Economy/Bhutan-puts-Bitcoin-mining-plan-in-motion-to-power-up-economy" target="_blank" rel="noreferrer noopener">estimates</a>&nbsp;it will support 300 to 400 jobs and a new computing sector in Bhutan — echoing the country’s moonshot pitch for the defunct Education City. Bitdeer CEO Matt Linghui Kong told Forbes in a statement that the company is “getting a lot of interest” in the fund and is currently in negotiations with multiple investors who it declined to name.



The new fund and jobs could be desperately needed, with the Asian Development Bank forecasting that Bhutan’s economy would slow to 4.6% this&nbsp;<a href="https://kuenselonline.com/bhutans-economy-to-slow-down-to-4-6-percent-this-year-adb/" target="_blank" rel="noreferrer noopener">year</a>. The government’s own economists called for economic reforms and budget cuts to stave off a&nbsp;<a href="https://kuenselonline.com/bhutans-economy-to-slow-down-to-4-6-percent-this-year-adb/" target="_blank" rel="noreferrer noopener">financial crisis</a>.



For now, Bhutan’s appetite for blockchain-based solutions seems undimmed by these challenges. Earlier this month, on the king and queen’s 12th wedding anniversary, it unveiled an experimental&nbsp;<a href="https://kuenselonline.com/bhutan-national-digital-identity-application-launched-in-thimphu/" target="_blank" rel="noreferrer noopener">decentralized digital identity app</a>. Its first test subject and digital citizen? The crown prince.



With additional reporting and satellite imagery analysis by&nbsp;<a href="https://www.stimson.org/ppl/eyler/" target="_blank" rel="noreferrer noopener">Brian Eyler</a>, a senior fellow at the Stimson Center and director of its Southeast Asia Program and its Energy, Water, and Sustainability Program.

Bhutan

Bhutan Built A Bitcoin Mine On The Site Of Its Failed ‘Education City’

Psychology therapy session

Forget ‘Crushing It,’ Startup Founders Open Up About Mental Health Problems

As they grapple with keeping their businesses afloat, Palestinian founders are grieving the loss of life and community in Gaza, with many currently unable to reach friends, family and colleagues.



alestinian founder Ram Mere was pitching his startup, Olivery, to a Startups Without Borders program backed by Meta to support and train local entrepreneurs. One of 10 finalists, Mere took home second place and a $15,000 check. Olivery now provides logistics solutions to 100 clients in seven countries and mostly hires Palestinians, he told&nbsp;Forbes&nbsp;on Saturday from Ramallah, in the West Bank.



But amid the chaos of war, Mere has no idea whether all of his Gazan employees are safe. He recalled one person who continued to work for two days after the fighting began. “Now nothing,” he said. “They have no internet, and I am not sure if he is alive or not.”



Like other Palestinian startups, Olivery has served as a bright spot for a growing local tech scene, with pockets of young companies, incubators and accelerators across Gaza and the West Bank. While small, that tech ecosystem has been viewed as an important part of Palestinians’ economic future, Palestinian founders and investors said. But in the face of renewed tragedy and war, it’s one that also seems increasingly fragile.



After Hamas terrorists attacked Israel and killed 1,300 Israelis last week,&nbsp;<a href="https://www.nytimes.com/article/israel-hostages-hamas-explained.html#:~:text=Hamas%20Took%20Scores%20of%20Hostages,citizens%20are%20among%20the%20captives" target="_blank" rel="noreferrer noopener">kidnapping</a>&nbsp;nearly 200 others, the Israeli government responded with aerial strikes that killed at least 3,000 Palestinians,&nbsp;<a href="https://www.wsj.com/livecoverage/israel-hamas-war-gaza-palestinians/card/latest-death-tolls-in-gaza-and-israel-xJRhBt04VQMocRuYUtsA" target="_blank" rel="noreferrer noopener">per local officials</a>, and an evacuation order for 1.1 million Gazan civilians to relocate ahead of an expected ground invasion. Israel has cut off access to water, food and electricity for civilians and the evacuation&nbsp;<a href="https://www.un.org/unispal/document/israel-must-rescind-evacuation-order-for-northern-gaza-and-comply-with-international-law/" target="_blank" rel="noreferrer noopener">has been called</a>&nbsp;a “crime against humanity” by the U.N. “It’s impossible to deliver help or anything to support my employees in Gaza,” Palestinian founder Mo Jebrini, told&nbsp;Forbes&nbsp;on Friday from Ramallah; 30% of his Palestinian team is based in the enclave.



Now, what was once a tenuous path to economic advancement in one of the poorest places in the world could vanish entirely.



“Tech was actually the last resort they could escape to from the prison,” said Mere, referring to Gaza&#8217;s&nbsp;<a href="https://www.reuters.com/world/middle-east/israel-occupation-makes-palestinian-territories-open-air-prison-un-expert-2023-07-11/" target="_blank" rel="noreferrer noopener">description</a>&nbsp;by some human rights groups as an open-air prison. “Now, even that is gone.”



In Israel, founders and tech employees are mourning killed relatives and&nbsp;<a href="https://www.forbes.com/sites/alexkonrad/2023/10/13/israel-founders-struggle-to-balance-startups-and-front-line-military-service/">grappling</a>&nbsp;with their colleagues getting called up to Israel’s military reserves. More than 500 venture capital firms&nbsp;<a href="https://www.forbes.com/sites/alexkonrad/2023/10/12/vc-firms-sign-statement-israel/?sh=2d8192997a7a">signed</a>&nbsp;a public statement in support of Israel and its tech community last week.



The country’s technology sector, which represents 18% of GDP, raised nearly $10 billion in funding in 2021, and $1.4 billion in the last quarter alone, according to data from startup funding tracker Crunchbase. By comparison, the Palestinian startup community has received a tiny amount of funding: $9.5 million for all of 2021, at a combined valuation of $66 million, according to&nbsp;<a href="https://fastcompanyme.com/impact/palestinian-startups-are-growing-fast-but-they-face-huge-challenges/" target="_blank" rel="noreferrer noopener">Fast Company Middle East</a>.



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“I’m trying to stay focused on the tech sector and build it in a way that keeps everyone safe and free.”Ibraham Housheya, founder of Endeavor Technology
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But despite its small size, the Palestinian startup landscape represents a unique chance at economic development and sustainability. (Forbes&nbsp;<a href="https://www.forbes.com/sites/kristinstoller/2022/06/02/heres-how-young-palestinian-and-israeli-entrepreneurs-are-forging-co-existence-through-startups/?sh=7a3bc4d243b2">attended</a>&nbsp;a joint Israeli and Palestinian startup pitch competition just last year.) And it’s been growing: The West Bank’s and Gaza’s $493 million information technology sector&nbsp;<a href="https://www.anera.org/wp-content/uploads/2022/06/OTG-Tech-Ecosystem-Palestine-spreads.pdf" target="_blank" rel="noreferrer noopener">doubled between 2008 and 2018</a>, with an estimated 2,500 graduating with tech degrees from Palestinian universities annually (though just 10% find jobs in the sector immediately out of school). In Gaza, where the&nbsp;<a href="https://www.worldbank.org/en/country/westbankandgaza/overview" target="_blank" rel="noreferrer noopener">unemployment rate</a>&nbsp;hovers at nearly 50%, the most common tech jobs for trained residents are in online IT freelancing, with outsourcing amounting to&nbsp;<a href="https://www.anera.org/wp-content/uploads/2022/06/OTG-Tech-Ecosystem-Palestine-spreads.pdf" target="_blank" rel="noreferrer noopener">approximately 80%</a>&nbsp;of the Palestinian tech sector.



It’s unclear how the war will affect this momentum; some of the community’s infrastructure is already gone.



“The lack of basic necessities has made it nearly impossible for anyone to continue their work, and believe me, work is not a priority for them at the moment with everything they are facing,” Leen Abubaker, programs manager at Flow Accelerator and cofounder of social impact startup Sawaed19. Many of the buildings that Gaza’s IT freelancers used to conduct work for international companies, including offices and coworking spaces, have been destroyed, she said.



That appears to include the headquarters of Gaza Sky Geeks, a tech hub founded in 2011 with support from Google parent Alphabet and non-profit organization Mercy Corp.&nbsp;<a href="https://techcrunch.com/2023/10/14/palestine-tech-industry-hamas-israel-war/" target="_blank" rel="noreferrer noopener">According to&nbsp;TechCrunch</a>,&nbsp;at least 5,000 coders and developers in the West Bank and Gaza have graduated from the group’s tech programs, which include a coding academy and startup accelerator. Named for the satellite internet access that provided many Gazans with an “open gate to the world,” said Dalia Shurrab, a former communication and social media coordinator for the group, Gaza Sky Geeks was a valuable source of training for residents unable to leave to pursue their education.



On Wednesday, Shurrab&nbsp;<a href="https://www.linkedin.com/feed/update/urn:li:activity:7117624115745693696/" target="_blank" rel="noreferrer noopener">shared footage on LinkedIn</a>&nbsp;of the Mercy Corps building where Gaza Sky Geeks had rented an office floor. Most of its windows appear blown out and ash covers the street. Mercy Corps regional director for the Middle East, Arnaud Quemin, said its team members are taking shelter and Gaza Sky Geeks is “not currently able to safely operate in Gaza.”



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In the West Bank, which is home to most of the Palestinian startup scene and its only venture capital firm, Ibtikar Fund (which has backed startups like Olivery), tech companies are looking to maintain as normal operations as possible.



Endeavor Technology founder Ibraham Housheya, who employs more than 20 people in an office in Nablus, said his company has completed digital transformation projects for the likes of Walmart and Kroger. His Palestinian staff’s technical talent is no different from that of their colleagues in the company’s U.S. or Turkey offices, added Housheya — but they work using 3G wireless connections, not 4G or 5G. Colleagues are still able to connect on a daily basis via Gmail and Google Meet, said Housheya, who grew up in the West Bank and spoke to&nbsp;Forbes&nbsp;from Turkey on Saturday.



“The most important thing right now is to help to keep the business running,” Housheya said. “There is a difference between Hamas and Palestinians,&#8221; with Hamas &#8220;only a part of a diverse Palestinian nation,&#8221; he added. &#8220;I’m trying to stay focused on the tech sector and build it in a way that keeps everyone safe and free.”



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“It’s a continuous struggle when you don&#8217;t know what’s going to happen tomorrow.”Mohammad Alnobani, cofounder and CEO of The Middle Frame
</blockquote>



One entrepreneur who asked to remain anonymous for safety reasons said that they were leading an ongoing effort to supply meals to Gazan workers&nbsp;<a href="https://news.yahoo.com/gazan-workers-israel-stranded-occupied-212240164.html" target="_blank" rel="noreferrer noopener">stranded</a>&nbsp;in Ramallah and other towns following Saturday’s Hamas attacks. Access to Israel and Gaza is blockaded, they said; locals can feel their windows shake from aerial bombardments at night. “We’re trying to be as hospitable as possible,” they said, adding that their focus is on providing food, clothing and blankets. “Many of the people stuck here have double the pain because they’re away from loved ones and unable to reach them.”



Ramallah-based Sondos Mleitat, the cofounder and CEO of online mental health platform Hakini, is trying to set up a&nbsp;<a href="https://donorbox.org/psychological-first-aid-for-our-people-in-gaza" target="_blank" rel="noreferrer noopener">free mental health phone hotline</a>&nbsp;for Gazans, wherein psychologists and specialists from the Palestinian territories and around the world could provide immediate trauma intervention. She told&nbsp;Forbes&nbsp;the war has underscored Hakini’s mission of social responsibility, even though running a business at this time has been challenging. “I know there are delays, and we are behind schedule, but this is nothing,” she said. “It’s worthless for me when I think about the people whose lives are at risk.”



Palestinian founders described the unique challenges they faced in building companies even before war broke out: reduced access to early stage capital, crossing through military checkpoints in order to travel. In Gaza for example, Palestinian internet service providers have only been able to offer&nbsp;<a href="https://www.cnn.com/2023/10/13/middleeast/gaza-internet-outage-map-visuals-dg/index.html" target="_blank" rel="noreferrer noopener">2G networks</a>, and the blockade has placed restrictions on&nbsp;<a href="https://www.anera.org/wp-content/uploads/2022/06/OTG-Tech-Ecosystem-Palestine-spreads.pdf" target="_blank" rel="noreferrer noopener">hardware imports</a>. Raising money internationally has also been difficult due to instability. Next to Israel’s tech ecosystem, “it is not comparable at all in terms of resources,” said Mleitat.



Now, these obstacles may be compounded.



“It’s a continuous struggle when you don&#8217;t know what’s going to happen tomorrow,” said Mohammad Alnobani, cofounder and CEO of The Middle Frame, a stock image platform that aims to dismantle stereotypes about the Arab world. He was returning home from a conference when war broke out. “I was literally at the border on the bus waiting to go in, and everything started blowing up and they sent us back to Jordan.”



But Mleitat said that her community is used to building companies with so few resources and against so many odds. “One of the advantages we have as Palestinians is that we’re resilient because of what we have been going through,” she told&nbsp;Forbes. That resilience, multiple founders said, is core to entrepreneurs’ success.



“The Gazan people are very talented,” said Gaza Sky Geeks’ Dalia Shurrab. She believes the organization — and the community it supports — will endure. “We are going to rebuild it again, and we are going to rebuild Gaza again.”



This story has been updated with the most recent death toll numbers in Gaza as of publication and details about Olivery’s pitch to Boost Without Borders.

Israel continues bombing Gaza

The Palestinian Startup Ecosystem Has Represented Economic Hope. War Is Decimating It

In its latest product launch, the unicorn AI startup is bringing bots that make it sound like you’re talking to well known people like Taylor Swift into your group chat



Inside Character.AI’s disheveled Palo Alto, California headquarters, employees at first appear to be hard at work, glued to their computer monitors. But rather than coding, many of them are engrossed in lively group chats with their colleagues and the AI chatbot characters that Character has become known for. Now, thanks to a new group chat function the startup launched Wednesday, they were chatting with work friends along with bots that anyone can build to create the illusion that you’re actually talking to the likes of Napoleon Bonaparte, Tony Stark or Lucifer.



“The feature was good enough that people stopped working sometimes to use it,” cofounder Daniel De Freitas told&nbsp;Forbes. De Freitas, the company’s president, has been particularly partial to gathering team members together to play Ship AI, a chatbot programmed to act like a text-based adventure game that lets group chat participants pretend to be astronauts exploring outer space.



The group chat feature is Character.AI’s latest move in cofounder and CEO Noam Shazeer’s bet that people will want to interact with a variety of different chatbot personas, rather than having a single, all-encompassing AI companion. By allowing the company’s subscribers, who pay $9.99 per month, to interact with each other and some of the startup’s 18 million AI bots in chats at the same time, Character is hoping to establish dominance as the go-to app for AI-powered entertainment while adding to its immediate revenue stream. Shazeer said that after “some period of time,” the company plans to make the feature free “because our goal is to empower everyone with AGI,” or artificial general intelligence.



Backed by nearly $200 million from VCs including Andreessen Horowitz, and valued at $1 billion in a March funding round, Character.AI has wowed the startup community with its engagement time — it claims registered users who send at least one message on a given day spend an average of two hours on the platform. Since its initial launch in September 2022, 20 million users have signed up for Character.AI, though traffic to its website has been declining since its May 2023 peak, per analytics provider SimilarWeb. Also in May, the startup began monetizing through its subscription service, which gives customers priority access to its platform (servers have often been overloaded, and non-paying users have to wait longer to get on) and early access to new features. Character.AI declined to share any statistics on its subscribers or its recent growth traction.



The group chat feature, which&nbsp;Forbes&nbsp;tested out, is still rudimentary. In the initial iteration of Character.AI’s group chat, human users are able to chat with one another as on any messaging platform. To invoke a bot’s response, however, a user must manually tap on the icon for the specific bot they want to speak, or a dice icon which selects one of the bots in the group chat to respond at random. The bots can respond to users’ questions, as well as to one other (though in the latter case, the human must still prompt the bot to respond).



In a group chat with three&nbsp;Forbes&nbsp;reporters and Character.AI’s most popular AI personas for singer Taylor Swift and NFL player Travis Kelce, a human user asked, “Tell us your deepest insecurities about dating Taylor” and tapped on the icon for Kelce’s bot.



“My biggest insecurity about dating @Taylor-Swift is that other guys will be jealous of me because they want to date her too. But I’m not afraid of the competition, she’s a great girl and I’m going to show her a great time. I won’t let her down,” the bot wrote.



After the Taylor Swift bot was prompted, it responded: “Haha, I love the confidence, Travis! Let’s meet up after the season, and I’ll let you show me a great time ;)”



There are other, more practical issues: the feature is only available on Character.AI’s mobile app, and the chatbots appeared to only respond to the most recent message from a human user.



The cofounders say product updates with better functionality are coming soon. The underlying AI is also about to improve dramatically, Shazeer told&nbsp;Forbes, because the company is beginning to receive fulfillment on an order of “many thousands” of Nvidia’s new line of H100 GPUs after a months-long delay due to supply chain shortages. The company plans to put the chips to use to train new large language models, he said.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">
“AI is underhyped because the things that are going to be possible in the coming years are going to be really, really impressive compared to what’s possible now.”Naom Shazeer
</blockquote>



Part of the urgency to launch the product now, before a new model is ready, may have to do with several generative AI tools launched by Meta in late September. In an&nbsp;<a href="https://www.forbes.com/sites/kerryadolan/2023/09/26/mark-gets-meta-zuckerberg-talks-ai-and-that-musk-mma-fight-thats-never-going-to-happen/">exclusive interview</a>&nbsp;with&nbsp;Forbes&nbsp;last month, Mark Zuckerberg outlined a vision of bringing AI “characters” to his company’s various products. “You’ll be able to talk to them in WhatsApp and Messenger and Instagram, and they&#8217;ll be embodied as avatars in virtual reality,” he said. These include an AI assistant called “Meta AI” and 28 other characters that users can talk to in group chats. “That looks familiar,” Character.AI’s Twitter account&nbsp;<a href="https://twitter.com/character_ai/status/1707130316920635432/" target="_blank" rel="noreferrer noopener">quipped</a>&nbsp;after Meta’s announcement.



Shazeer said the group chat feature had been in the works for several months before Meta’s announcement, and he views Zuckerberg’s move into the space as something of a compliment. “It is great to see other companies getting inspired and building similar products — it’s a real testament to what we’re doing and to the engagement that we’re getting,” Shazeer said.



De Freitas and Shazeer, a coauthor on the seminal research paper on “transformers” that catalyzed the&nbsp;<a href="https://www.forbes.com/sites/alexkonrad/2023/02/02/inside-chatggpts-breakout-moment-and-the-race-for-the-future-of-ai/">generative AI boom</a>, met while working as AI engineers at Google, where together they developed an early large language model that would become the foundation for Bard. But in 2021, they left the company because they said they’d run into bureaucratic roadblocks implementing the technology into consumer-facing applications. Shazeer, a 20-year veteran who joined prior to Google’s IPO, said he departed despite a personal plea from CEO Sundar Pichai.



“He talked to me to see if he could encourage me to stay,” Shazeer told&nbsp;Forbes&nbsp;in a July interview. “But, basically I wanted to get this technology out to as many people as possible and just empower everyone with flexible AI. I think it was the right decision.” Shazeer said the company would have needed to release the chatbot they were working on to a wide audience for him to consider staying. “It just felt like Google was not going to be very comfortable launching something that could say anything, and that you really had to be a startup to launch something like that,” he said.



The pair founded Character.AI in November 2021, a year before public appetite for AI swelled when OpenAI released ChatGPT. Google unveiled Bard this past February. Still, Character.AI has continued to carve a niche for itself. The vast majority of the startup’s bots have been created by its user base, who can upload examples of what they want the character to say and give the model feedback to help it improve, Shazeer said in the interview this month.



Startup challengers Replika and Chai have emerged, but the space remained devoid of Big Tech challengers until Zuckerberg’s announcement last month. But Shazeer claims to be unfazed by these competitors. “We’re competing against the $2 trillion industry of legacy entertainment” — say, games, books and movies — “because people want a lot of the same things like fun, the social experience and interesting content. Those things are identical regardless of whether more companies are noticing our space,” he said.



Enter the group chat. Shazeer acknowledged that Character.AI has kinks to work out in the new feature to improve its usability, such as expanding its context window so that the AI can appear to remember longer durations of the conversation. “Right now the system is operating just based on a context window of a few thousand words, so characters are only reacting to whatever happened recently, which is highly suboptimal,” Shazeer said.



The bots also remain prone to “hallucinations” in which the AI outputs false information. After&nbsp;Forbes&nbsp;asked the startup’s flagship bot Character Assistant how it was trained, the bot stated it had access to, among other things, customer service calls and transaction data from banks like Chase, Wells Fargo and Bank of America. Shazeer and De Freitas said this was incorrect and the bot had made up the answer.



Up to now, Character.AI’s chatbots have been built on the same foundational model that it trained in summer 2022 using 1,000 Nvidia A100 GPU chips. After its full order is fulfilled, the startup will be able to train new AI models on 40 times the amount of computing power as its current model, Shazeer said. All the compute access is being rented from Google Cloud and other cloud providers for now; Shazeer said Character.AI is considering eventually building its own GPU cluster, but has made no firm decisions.



Character.AI is betting that the new models will bring its technology closer to AGI, expanding the range of use cases beyond entertainment. For Shazeer, this is one reason he claims to not be worried about declining traffic. “Really I think AI is underhyped because the things that are going to be possible in the coming years are going to be really, really impressive compared to what’s possible now,” he said.



That goes for Character.AI’s group chats too. In time, he said, the bots in the group chat will be able to respond to human messages automatically. In the future, a fictional AI character could “just step in and say something that will bring you together with somebody,” he said. “I think it’s going to be a magical moment when that happens.”



Rashi Shrivastava contributed reporting.

Einstein And Musk Chatbots Are Driving Millions To Download Character.AI

Character.AI’s $200 Million Bet That Chatbots Are The Future Of Entertainment

Production studios and fans alike are turning to generative AI tools to make voice actors say things they never said — and their jobs are on the line.



 oice actor Allegra Clark was scrolling through TikTok when she came across a video featuring Beidou, a swashbuckling ship captain from the video game&nbsp;Genshin Impact&nbsp;whom she’d voiced. But Beidou was participating in a sexually suggestive scene and said things that Clark had never recorded, even though the rugged voice sounded exactly like hers. The video’s creator had taken Clark’s voice and cloned it using a generative AI tool called ElevenLabs, and from there, they made her say whatever they wanted.



Clark, who has voiced more than 100 video game characters and dozens of commercials, said she interpreted the video as a joke, but was concerned her client might see it and think she had participated in it — which could be a violation of her contract, she said.



“Not only can this get us into a lot of trouble if people think we said [these things], but it’s also, frankly, very violating to hear yourself speak when it isn’t really you,” she wrote in an email to ElevenLabs that was reviewed by&nbsp;Forbes. She asked the startup to take down the uploaded audio clip and prevent future cloning of her voice, but the company said it hadn’t determined that the clip was made with its technology. It said it would only take immediate action if the clip was “hate speech or defamatory,” and stated it wasn’t responsible for any violation of copyright. The company never followed up or took any action.



“It sucks that we have no personal ownership of our voices. All we can do is kind of wag our finger at the situation,” Clark told&nbsp;Forbes.



In response to questions about Clark’s experience, ElevenLabs cofounder and CEO Mati Staniszewski told&nbsp;Forbes&nbsp;in an email that its users need the “explicit consent” of the person whose voice they are cloning if the content created could be “damaging or libelous.” Months after Clark’s experience, the company launched a “voice captcha” tool that requires people to record a randomly generated word and that voice must match the voice they are trying to clone.



The company, which is valued at about $100 million and backed by Andreessen Horowitz and Google DeepMind cofounder Mustafa Suleyman, is one of the hottest voice AI companies right now. Its technology only requires between 30 seconds to 10 minutes worth of audio to create what sounds like a near-identical replica of someone’s voice. Along with sites like FakeYou and Voice AI, which offer a free library of digital voices, it’s also at the center of generative AI’s impact on voice actors.



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“There’s no legal protection for voice like there is for your face or for your fingerprint.”Jennifer Roberts, voice actor
</blockquote>



Interviews with 10 voice actors revealed an already precarious industry on the brink of widespread change as employers begin to experiment with these text-to-speech tools. One voice actor&nbsp;Forbes&nbsp;spoke to said an employer told her she would not be hired to finish narrating a series of audiobooks the day after it announced a partnership with ElevenLabs, leading her to fear she would be replaced with AI. Another said her employer told her that they wanted to use ElevenLabs’ AI to speed up retake sessions, a standard part of recording audio that voice actors are paid for. When she told her employer she didn’t consent to her voice being uploaded to any AI site, the employer agreed, but she said she hasn&#8217;t been called in to do any retakes.



The community of voice actors first noticed an influx of AI generated voices after Apple Books launched&nbsp;<a href="https://authors.apple.com/support/4519-digital-narration-audiobooks" target="_blank" rel="noreferrer noopener">digital narration</a>&nbsp;of audiobooks with a suite of soprano and baritone voices in January 2023, said Tim Friedlander, the president of NAVA. Actors began discovering thousands of audio files of familiar voices being uploaded to various sites mostly by fans, he said. Most recently, famed actor Stephen Fry said that his voice was scraped from his narration of the Harry Potter books and cloned using AI. In a&nbsp;<a href="https://www.youtube.com/watch?v=zZfS8uk70Zc" target="_blank" rel="noreferrer noopener">talk</a>&nbsp;at CogX festival, Fry said the experience “shocked” him.



In a public&nbsp;<a href="https://docs.google.com/spreadsheets/u/1/d/1n6KZpcahyckjmzgsH90ghgNs5pcEQ57baavbjAI_ed8/edit#gid=0" target="_blank" rel="noreferrer noopener">spreadsheet</a>, hundreds of voice actors have requested to have their voices purged from AI voice generators Uberduck and FakeYou.ai, which have said they will take voices down from their sites if the voice’s owner reaches out. While FakeYou.ai still provides thousands of popular voices like those of John Cena and Kanye West that anyone can use, Uberduck removed user-contributed voices from its platform in&nbsp;<a href="https://www.uberduck.ai/post/new-voice-hosting-policy" target="_blank" rel="noreferrer noopener">July</a>. Uberduck and FakeYou.ai didn’t respond to multiple requests for comment.



One of the voice actors who has publicly requested his voice be removed from voice generators is Jim Cummings, the voice behind characters like Winnie-the-Pooh and Taz from Looney Tunes. He told&nbsp;Forbes&nbsp;he would only agree to users templating his voice if he and his family received royalties for it. “Keep your paws off my voice,” he said.



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<h2 class="wp-block-heading" id="h-a-legal-dilemma">A Legal Dilemma</h2>



Like striking film actors, who are sounding the alarm about the coming of AI and how it could affect their jobs, voice actors are on the front lines of technological change. But unlike other creative fields, where&nbsp;<a href="https://www.forbes.com/sites/cyrusfarivar/2023/09/11/michael-chabon-other-literary-giants-sue-openai-over-alleged-copyright-infringement/?sh=4d2b431e66a4">authors</a>&nbsp;and&nbsp;<a href="https://www.theverge.com/2023/1/16/23557098/generative-ai-art-copyright-legal-lawsuit-stable-diffusion-midjourney-deviantart" target="_blank" rel="noreferrer noopener">artists</a>&nbsp;are banding together in class-action lawsuits to push back against their copyrighted work being used to train AI models, voice actors are uniquely vulnerable. Even though voices are inherently distinguishable, they aren’t protected as intellectual property. “There’s no legal protection for voice like there is for your face or for your fingerprint,” said Jennifer Roberts, the voice behind several video game characters. “Our hands are tied.”



A recording of a voice, however, can be copyrighted, and according to Jeanne Hamburg, an attorney for law firm Norris McLaughen, using a voice for commercial purposes can be protected by “rights of publicity,” which prevents celebrities&#8217; likenesses from being exploited. That’s in theory, though: Most contracts signed by voice actors don’t stop recordings of their voices from being used to train AI systems. For more than a decade, contracts have stated that producers “own the recording in perpetuity, throughout the known universe, in any technology currently existing or to be developed,&#8221; said Cissy Jones, a voice actor who is part of the founding team at National Association of Voice Actors (NAVA), a newly formed union for voice actors.



Those contracts were largely written and signed before the advent of AI systems. “Voice actors have not provided informed consent to the future use of an audio recording and haven&#8217;t been fairly compensated for it,” said Scott Mortman, an attorney for NAVA. “And so protections need to be strengthened significantly in the wake of AI.”



That’s why NAVA, and the actors union SAG-AFTRA, are working to strike verbiage from&nbsp;<a href="https://navavoices.org/synth-ai/" target="_blank" rel="noreferrer noopener">contracts</a>&nbsp;that allows employers to use an actor’s voice to create a “digital double,” or “synthesize” their voice through machine learning. The organizations have also developed new boilerplate language to add into contracts that would protect voice actors from losing the rights to their voices.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



<h2 class="wp-block-heading" id="h-a-myriad-of-misuses">A Myriad of Misuses</h2>



Like Clark, numerous voice actors have experienced fans manipulating their voices using generative AI tools to create&nbsp;<a href="https://www.ign.com/articles/voice-actors-speak-out-on-nsfw-skyrim-mods-nexus-mods" target="_blank" rel="noreferrer noopener">pornographic</a>,&nbsp;<a href="https://www.vice.com/en/article/dy7mww/ai-voice-firm-4chan-celebrity-voices-emma-watson-joe-rogan-elevenlabs" target="_blank" rel="noreferrer noopener">racist and violent</a>&nbsp;content. Even when fans use AI voices to create innocuous memes or other kinds of fan content, voice actors have spoken up on social media,&nbsp;<a href="https://www.themarysue.com/voice-actors-dont-want-you-using-ai-to-copy-their-voices/" target="_blank" rel="noreferrer noopener">forbidding</a>&nbsp;people from fabricating their voices.



NAVA member Jones, whose voice has been featured in Disney shows and Netflix documentaries, found TikTok videos in which fans had used Uberduck to create clones of her voice saying inappropriate things. “Not only is my voice saying something I would never say, that stuff is out there in the world,” Jones told&nbsp;Forbes. “If potential buyers hear our voices saying that, how will that affect my future work?” After she reached out, Uberduck removed her voice from the platform, Jones said.



AI generated voices have also become a new medium for harassment. Abbey Veffer, whose voice has been featured in games like&nbsp;Genshin Impact&nbsp;and&nbsp;The Elder Scrolls, said she was doxed by someone who had created a clone of her voice in February. The person created a Twitter account with her address as the username, generated an AI clone of Veffer’s voice and then made the clone say racist and violent things. The anonymous user directly messaged the recording to Veffer and pinned it at the top of the Twitter account. They claimed to have used ElevenLabs’ technology. The experience, Veffer told&nbsp;Forbes, was “intense” and “very upsetting.”.



But when Veffer reached out to ElevenLabs with her concerns, the company said that the clone was not created using its software and was part of an “organized smear campaign” against the startup, according to messages reviewed by&nbsp;Forbes.&nbsp;Three days after Veffer reached out to Twitter, the account was suspended and the video was taken down but her residential address remained on the site for three months, she said.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">
“Controlling how our voice gets used and where it gets used is very important to us.”Tim Friedlander, president of National Association of Voice Actors
</blockquote>



<hr class="wp-block-separator has-alpha-channel-opacity"/>



After ElevenLabs rolled out the beta version of its text-to-speech AI tool in January, the startup&nbsp;<a href="https://twitter.com/elevenlabsio/status/1620032627075063811" target="_blank" rel="noreferrer noopener">announced</a>&nbsp;that it was struggling with people misusing its technology. A day later, Vice’s Motherboard&nbsp;<a href="https://www.vice.com/en/article/dy7mww/ai-voice-firm-4chan-celebrity-voices-emma-watson-joe-rogan-elevenlabs" target="_blank" rel="noreferrer noopener">found</a>&nbsp;that anonymous 4Chan posters used ElevenLabs’ then free cloning tool to generate racist, transphobic and violent remarks with the voices of celebrities like Joe Rogan and Emma Watson.



AI’s ability to closely mimic people’s voices has also created opportunities for scammers. The FTC has issued&nbsp;<a href="https://consumer.ftc.gov/consumer-alerts/2023/03/scammers-use-ai-enhance-their-family-emergency-schemes" target="_blank" rel="noreferrer noopener">warnings</a>&nbsp;this year that criminals are using AI voice clones to impersonate loved ones as a way to convince their targets to send them money. One journalist was able to use ElevenLabs’ tool to create an AI-generated version of his voice that&nbsp;<a href="https://www.vice.com/en/article/dy7axa/how-i-broke-into-a-bank-account-with-an-ai-generated-voice" target="_blank" rel="noreferrer noopener">successfully</a>&nbsp;logged into his own bank account.



ElevenLabs did not comment on any of these specific instances, but CEO Staniszewski said in an email, “If someone is using our tool to clone voices for which they don’t have permission and which contravene fair use cases, we will ban the account and prevent new accounts from being set up with the same details.” Along with a “voice captcha” tool to ensure people have that permission, the company says it has also developed an AI speech classifier that can detect with more than 90% accuracy whether an audio clip that contains AI was made using its tools.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



<h2 class="wp-block-heading" id="h-consent-and-control">Consent And Control</h2>



In response to misuse, voice generation sites are adding restrictive measures to police their technologies. Speechify, which licenses the voices of celebrity narrators like Snoop Dog and Gwyneth Paltrow (with full permission), doesn’t allow people to upload content to create customized voices without the active participation of the person whose voice they want to use. Similar to ElevenLabs, it presents a unique text that the user, or someone who is physically present with them, has to read aloud in their own voice. “I think it is short sighted to take shortcuts and my goal is to put content owners in the driver&#8217;s seat,” said founder Cliff Weitzman, who first started Speechify to convert his textbooks into audiobooks using machine learning in 2012.



And at Resemble AI, which touts enterprise customers like Netflix and World Bank Group, people can only create a customized AI-generated voice after recording a consent statement in the voice they want to generate. Resemble AI founder and CEO Zohaib Ahmed said that implementing safe ways to deploy the technology has been integral to his startup because he believes the onus of preventing misuse should fall on the vendors making the tools rather than on the end user.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">
“It sucks that we have no personal ownership of our voices.”Allegra Clark, voice actor
</blockquote>



These kinds of verification checks, however, don’t address higher level ethical questions around consent. Actors, for instance, don’t really have control over how their voices will be used posthumously. Voice actors were enraged when&nbsp;<a href="https://www.gamesradar.com/after-backlash-over-using-ai-to-clone-dead-voice-actors-smite-and-paladins-studio-says-it-will-change-its-contract/" target="_blank" rel="noreferrer noopener">gaming studio</a>&nbsp;Hi-Rez Studios added a clause that would allow it to clone a voice using AI after the owner of the voice died (the clause was removed after the uproar). “If an actor passes away, it’s better to replace them with another human than create some artificial performance because it&#8217;s not them and it doesn&#8217;t bring them back,” said voice actor Clark.



The big concern hovering over all of this is whether there’s a future for voice actors. With employers and fans turning to synthesized voices, many are concerned about finding their next gig or keeping the ones they have. “Controlling how our voice gets used and where it gets used, and how much we&#8217;re paid for that usage is very important to us,” said NAVA’s Friedlander.

Voiceover artist voice actor in vocal recording studio with larg diaphragm microphone and antipop shield.

‘Keep Your Paws Off My Voice’: Voice Actors Worry Generative AI Will Steal Their Livelihoods

Hacker, IT and person with code on computer, programming and phishing scam with malware or virus. Hacking, system glitch and cloud computing error in dark room, cyber crime and cybersecurity fail

How AI Is Supercharging Financial Fraud–And Making It Harder To Spot

Packages containing rifle parts hidden inside George Foreman Grills also contained Apple’s dime-sized location tracker, investigators say.



In November last year, Customs and Border Protection intercepted a package en route from Illinois to Israel. It contained a George Foreman Grill — innocuous enough. But when agents X-rayed the item and opened it up, they found rifle barrels wrapped in tinfoil and an Apple AirTag.



When Apple launched the dime-sized location tracking devices in 2021, they were pitched as a cheap piece of tech to help you keep tabs on your belongings, like luggage, keys and wallets. But AirTags and similar devices like Tile have also been put to use by criminals,&nbsp;<a href="https://www.theguardian.com/technology/2022/sep/05/i-didnt-want-it-anywhere-near-me-how-the-apple-airtag-became-a-gift-to-stalkers" target="_blank" rel="noreferrer noopener">most notably stalkers</a>.



Now, CBP inspectors claim to have found evidence of another illicit use for AirTags: helping illegal weapons smugglers keep tabs on their shipments, according to a search warrant for an Apple iCloud account linked to the trackers that was obtained by&nbsp;Forbes.



Drug and gun traffickers have long used GPS trackers to keep tabs on shipments, either in order to ensure they reached their destination, or detect when they go missing. But while older trackers have proven bulky and unreliable, Apple’s AirTag is small, lightweight and efficient.



“Like drug dealers, [weapons traffickers] want to make sure the load didn’t get ripped by police or somebody else,” said Brady Wilkins, a recently-retired investigator in Arizona. “If another group takes it or it gets seized, they can abandon it or know something is not right.”



Apple did not respond to requests for comment at the time of publication, but it has been attempting to curtail malicious uses of the AirTag over the last two years. One recent addition is a feature that warns users when an unknown tracking device is detected, via Bluetooth, on their person. “We condemn in the strongest possible terms any malicious use of our products,” the company wrote in a&nbsp;<a href="https://www.apple.com/uk/newsroom/2022/02/an-update-on-airtag-and-unwanted-tracking/" target="_blank" rel="noreferrer noopener">press release</a>&nbsp;last year.



According to the warrant, the DHS Homeland Security Investigations unit traced the rifle barrel shipment back to a Palos, Illinois-based man, Amin Betuni. Records the government said it obtained from an unnamed online gun supplier showed Betuni had bought various AR-15 and Glock barrels. Investigators said that CBP intercepted a package containing what appeared to be those same parts, together with the grill and an AirTag, en route to a contact in Jerusalem, Israel. The warrant says the package’s shipping label stated it was sent from “Ameen Betuni” from a vacant lot next to a property owned by the suspect.



Border patrol in Israel, meanwhile, reported intercepting a different package containing gun parts also hidden inside a George Foreman Grill and an AirTag alongside, according to the warrant. That parcel had a return address for Betuni’s residence, the DHS claimed. Israeli officials also seized an additional FedEx shipment containing other gun components that were concealed inside of auto parts, investigators said. An AirTag was discovered in that package too.



Wilkins said that adding a personal property as return address would be a stupid mistake. “Criminals become complacent too,” he added.



In late December, law enforcement raided Betuni’s property, though he was not at home. Investigators suspected, however, they were being watched by security cameras in his home, as only ten minutes after police entered Betuni’s residence, one of his AirTag devices was mysteriously unpaired with his iCloud account, the DHS said.



Betuni was arrested in July and has been accused of shipping illegal Glock switches, which effectively turn a pistol into an automatic weapon, in the U.S. However, he has not yet been charged for sending gun apparatus to Israel or any other nation. In a recent filing, the government asked the court for an extension to the deadline for filing an indictment, as it was continuing to investigate Betuni’s conduct. The request was granted last week.



Others involved in the alleged scheme, but whose identities were unknown to the government, were also using AirTags as part of their operation to “smuggle goods from the United States,” the agent wrote in the warrant. No more information on the wider use of the Apple devices was provided.



The Department of Justice declined to comment on the case. Betuni’s lawyer didn’t respond to requests for comment.



It’s not just criminals who’ve found uses for the AirTag — law enforcement has too, even if it goes against Apple policy to use the tools for surreptitious surveillance. In March, <a href="https://www.forbes.com/sites/thomasbrewster/2023/03/23/apple-airtag-becomes-dea-surveillance-device/?utm_campaign=forbes&amp;utm_source=twitter&amp;utm_medium=social&amp;utm_term=Gordie">Forbes found a warrant detailing the DEA’s use of an AirTag</a>, after it placed one of the devices in a machine agents suspected was being ordered online to manufacture illegal narcotics.

Coronavirus Pandemic 2022 –  iPhone SE

Criminals Are Allegedly Using Apple AirTags To Track Illegal Weapons

Apple Store in Shanghai, China

Inside Apple’s Impossible War On Child Exploitation

Alessandro Rosano’s contrarian playbook for the comfort-footwear company: no financing and minimal marketing. It worked so well he sold to Crocs for $2.5 billion.



Two years ago, Brown’s Shoe Fit Co.’s desperation to stock enough HeyDude shoes to meet the demand reached frenzied levels. The buyers for the 73-store Midwestern chain would get a status report in the morning and try to place a large order. “We would get one-fourth or one-half of what we put in for,” says Adam Smith, senior manager for Brown’s and a former store manager in Jacksonville, Illinois. “The whole nation was trying to get them.”



HeyDude founder Alessandro Rosano, an Italian entrepreneur living in Hong Kong, had tried his hand at other businesses before. But with HeyDude, which makes comfortable slip-on loafers with a so-ugly-they’re-cute look, he hit the jackpot. With minimal investment and almost no marketing, revenue took off, reaching $581 million in 2021, with net profit of $175 million. That December, Rosano agreed to sell the brand to Crocs, the $6.2 billion (market cap) firm whose own ugly-cute rubber clogs are a worldwide phenomenon, for $2.5 billion in cash and stock.



With that deal, Rosano became a billionaire, worth $1.4 billion by&nbsp;Forbes&nbsp;estimates. His business partner and American distributor Daniele Guidi also made a fortune, worth some $650 million after tax by&nbsp;Forbes&nbsp;estimates, after bringing in $787 million in cash from the deal, according to regulatory filings with the Securities and Exchange Commission.



Rosano declined to speak with Forbes, and Guidi didn’t respond to requests for comment. But what the two men were able to build, largely under the radar, is an unlikely success. It stands in stark contrast to many of the direct-to-consumer brands that received lavish amounts of funding and attention from social media during the boom years while failing to become viable businesses. Comfort shoe maker Allbirds, once the darling of Silicon Valley, for example, has seen its market cap collapse from a peak of more than $4 billion after its 2021 initial public offering to just $199 million today as annual sales failed to top $300 million and losses piled up.



Now Rosano, a strategic advisor to the brand under Crocs following the acquisition, has set up a family office to invest his money and work on philanthropy. Crocs is using the brand, which reached $1.1 billion in sales in the latest 12-month period, to add spice to its broader business.



Comfort shoes are having a moment. Crocs, with total sales of $3.6 billion in 2022, has said it hopes to reach $5 billion in sales for its flagship brand by 2026. HeyDude looks poised to help the company soar past that. In 2022, HeyDude was the single fastest growing brand at retail, according to consumer research firm Circana (formerly NPD).



“When we first bought it, we wanted to be clear to people that this was a scale business,” Crocs CEO Andrew Rees tells&nbsp;Forbes. “They hadn’t heard of it, and didn’t know what it was. We put out the $1 billion target, which we knew we could blow past, and we’ve gotten to that easily.”



Rosano, who is in his mid-50s, was a shoe dude long before he came up with HeyDude. He grew up in Tuscany, and studied at Commercio Estero, Pistoia, from 1982 to 1987, though he never received a university degree, according to his LinkedIn profile. Pistoia, a medieval Italian city that’s popular with tourists, is less than 30 miles from Florence, home to Ferragamo and Gucci, in a region known for luxury goods and footwear.



Rosano, who started designing shoes at age 18, had tried other businesses before HeyDude, and had a shoe distributor called Fratelli Diversi. On his LinkedIn profile, where he has just 164 connections, he describes his approach to that company as “acting in a fair and reasonable way, to the people and the environment. Charity acts are also a duty.”



Rosano cofounded a company with Guidi and a third person to make wooden watches called WeWood. Wooden watches are a tough business, and the company was subject to unfair competition litigation in 2011 from a now-defunct watchmaker called Vestal International. Rosano also came up with an idea for wooden clogs with springs in their heels that sold under the name Baldo. None of his early businesses found notable success.



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“If you were to lay out the playbook that they followed and present it to a series of business executives, they would say there’s no way that this would succeed.”Crocs CEO Andrew Rees
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He’d been working in these various businesses for more than 20 years when he founded HeyDude in 2008. In a&nbsp;<a href="https://fotoshoemagazine.com/hey-dude-comfort-has-an-iconic-style/" target="_blank" rel="noreferrer noopener">2020 interview with Fotoshoe magazine</a>, an Italian industry publication, Rosano’s sister Elena De Martini, who was then CEO of Fratelli Diversi, described how Rosano returned from a trip to China and realized that a modern shoe that was as comfortable as a slipper didn’t exist — and decided to create one.



The shoes Rosano developed, starting with the Wally for men, were lightweight, with elastic laces that didn’t require fastening, and affordable, at around $60 a pair. “The result is perfectly constructed footwear, which is innovative, ultra-light and casual, but with style,” De Martini told&nbsp;Fotoshoe.&nbsp;The shoes were designed in Italy, but the business was headquartered in Hong Kong, where Rosano lives, with production at contract factories in China.



Rosano “is a student,” Crocs CEO Rees says. “He’s a serial entrepreneur. He had a number of entrepreneurial businesses before this that had not been successful. He was looking to improve his chances of success and he admired [Crocs’] focus on simplicity and comfort.”



Though many Italian shoemakers create beautiful shoes for Europeans, Rosano was going for something more mainstream. Not wanting to name the brand after himself as many Italian shoe entrepreneurs would, he came up with HeyDude for its laid-back California vibe, says Rick Blackshaw, who became president of the brand under Crocs. “But all his friends in Italy would call it ‘ey du-day,’” Blackshaw says.



In 2010, Guidi, who has a degree in aerospace engineering from the University of Pisa and runs a consulting and marketing firm called Lever Your Business, joined Rosano to open U.S. operations. The shoes took off, and HeyDude added a woman’s model known as the Wendy, a water shoe and a variety of eco-friendly designs. The shoes were prototypically American looking, easy to wear — and looked like nothing else on the market. Almost all the sales came from the U.S. market, rather than from Europe.



HeyDude sales soared from $20 million in 2018 to&nbsp;<a href="https://s22.q4cdn.com/133460125/files/doc_presentations/2022/01/10/ICR-Presentation-vF.pdf" target="_blank" rel="noreferrer noopener">$191 million in 2020,</a>&nbsp;according to financials that Crocs shared with investors at the 2022 ICR conference. During the pandemic, as consumers stayed home wearing yoga pants and comfort shoes, the brand fit right in. Its success came despite having no marketing to speak of other than paid search and a commission-based sales team. “It was built on a shoestring,” says Crocs’ Rees.



The brand took off by word of mouth. “In many senses, it’s a pretty remarkable story,” Rees says. “If you were to lay out the playbook that they followed and present it to a set of business executives, they would say there’s no way that this would succeed.”



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With comfort shoes having a moment, the brand’s sales soared from $20 million in 2018 to $581 million in 2021.
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Footwear analysts and industry watchers were blindsided. “It kind of caught a lot of the industry players by surprise,” says Beth Goldstein, a footwear analyst at Circana. “This brand came up and was all of a sudden having these huge growth rates and buzz. It piqued everyone’s interest.”



Brown’s became one of the earliest larger retailers to stock it after its Muskogee, Oklahoma store manager learned about the brand at a 2012 trade show in Las Vegas. The Buckle, a Kearney, Nebraska-based retail chain with 440 stores, also began carrying HeyDude before the shoe company’s major expansion, in 2019.



“We were known as the top HeyDude retailer,” says Brown’s Smith. “In the pandemic, we didn’t know if we could get products, so we were ordering them by the pallet.” With customers sometimes buying five pairs at a time, however much Brown’s could get its hands on sold out fast. Facebook groups sprung up where people could compare notes, and buy, sell and trade their shoes.



“It was limited quantity and a lot of fun styles and colors, and the price was right,” Smith says. “The customer wanted them so bad it almost didn’t matter what the color was. It was crazy, that’s probably the best way to put it.”



Two days before Christmas 2021, Crocs agreed to buy HeyDude for $2.5 billion, most of it in cash and a smaller amount in stock. Wall Street was not impressed. The shoes that were selling out in the Midwest were scarce on the coasts, where many of the analysts and investors live, and the shoes lacked the cache of hot new sneaker brands like Hoka and On.



“To be honest, when they announced the acquisition, I had never heard of the brand,” says Tom Nikic, a Wedbush analyst, who follows Crocs and has been covering the footwear industry for more than a decade. “It was very much a shock to the system. I think those of us in the New York, Wall Street bubble, we didn’t realize what was happening with the brand.”



Rosano had clearly timed the market well, putting the brand up for sale as it was growing fast and demand for comfort shoes was at a high. Allbirds had gone public in November 2021 gaining a $4.1 billion valuation, making it worth 15 times its sales for that year despite being in the red. By contrast, HeyDude, which was already profitable on higher sales, seemed like a bargain. Crocs CEO Rees says that he’d been following HeyDude for a few years by the time he learned it was on the market and figured it wouldn’t be too difficult to turn it into a $1 billion brand under the Crocs umbrella.



“It was a tightly managed sale process,” Rees says. “They were trying to sell to private equity at that point. We got introduced to the founder and managed to get ourselves inserted into the sales process. At that point, we also started to learn about the compelling financials. It wasn’t completely obvious because they were private, and because they weren’t selling in the traditional channels it wasn’t showing up in the typical data sets.”



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<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">
Rosano had a number of businesses before HeyDude, including a wooden watch startup and a brand of clogs with springs in their heels. None found notable success.
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With Covid restrictions in place, Rees and Rosano couldn’t meet in person. But Rees figured he didn’t need to meet the HeyDude management team since he planned to replace them. He saw similarities with Crocs: both were polarizing brands that a lot of consumers loved. “I think we got a pretty good deal,” he says. “We weren’t daunted by the large-dollar price tag.”



HeyDude’s strategy of focusing on one style of comfort shoe at a mass-market price was a playbook familiar to Crocs. “Alessandro was really clear that he had modeled a lot of his company on Crocs,” Rees says. “He had been studying Crocs and taking our strategies and incorporating them.”



Crocs also knew what Wall Street didn’t at first: Rosano, helped by Guidi’s U.S. distribution, had built a significant and profitable brand with minimal investment. Though those who know him say that Rosano had been strategic in how he’d built the brand, from the outside it appeared to have burst onto the scene almost by chance.



“We’ve become somewhat acclimated to these newer upstart brands being unprofitable and burning through cash,” analyst Nikic says. “This isn’t Allbirds. This isn’t a money-losing, cash-burning business. It’s actually a very highly profitable company.” Nikic compares the brand’s fast growth to Crocs itself, as well as to Ugg, which built its business on one style of comfort boots.



Since acquiring HeyDude, Crocs has hired Blackshaw, who previously ran Sperry and Keds, as its new brand president. It’s introduced new styles, including sneakers, and is setting up collaborations to give it more buzz. It’s also rejiggering its distribution, expanding to major retailers like Shoe Carnival, Famous Footwear and Academy Sports, and building a new distribution center in Las Vegas to handle its expansion.



The acquisition hasn’t been without a few snags. In the second quarter, HeyDude took a hit — with modest 3% growth as its wholesale revenue dropped 8% year-over-year — and Crocs cut its guidance for the brand for the year from mid-20% growth to between 14% and 18%. One problem: as Crocs cut smaller distributors set up by Rosano and Guidi before the acquisition, some dumped their inventory at lowball prices on Amazon. Wedbush analyst Nikic figures that the problems with gray-market goods should wind down in the coming months once the legacy distributors’ inventory is gone. In its earnings call, Crocs pointed to HeyDude’s 30% increase in direct-to-consumer revenues as a sign of the brand’s strength while it dealt with the “pipeline fill” issues in the wholesale channel. Crocs shares are down 19%, at a recent $100, since the deal was announced.



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Crocs hopes to make HeyDude as ubiquitous as its original ugly-cute rubber clogs, helped by new distribution and marketing muscle.
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Marketing muscle and collaborations helped Crocs push its flagship brand, and it intends to do the same with HeyDude. Blackshaw says that the company will “overinvest,” noting it could spend up to 8% of total sales on marketing. Part of the plan: connect with consumers on TikTok and Meta, helped by partnerships with influencers and athletes. A collaboration with hunting brand Mossy Oak launched in June, another with YouTube sports and comedy group Dude Perfect (whose channel has 60 million subscribers) followed in August and a college licensing deal is in the works for this fall. The company has plans for more collaborations, including with&nbsp;Yellowstone,&nbsp;The Big Lebowski, a major beer brand and some toy brands. “It’s a lot of the same playbook that Crocs brought to bear,” Blackshaw says.



Whether the brand will take off on the coasts as it has in the middle of the country remains to be seen. Another risk for HeyDude as it expands is oversaturation. As analyst Goldstein notes, Crocs will need to strike the right balance between growth and introducing new styles that risk cannibalizing its core business. “They almost invented a category,” she says. As the brand expands into other types of shoes, “they need to make their proposition clear,” she says. “Why is a HeyDude sneaker better than anyone else’s casual sneaker?”



Meanwhile, Rosano has his fortune to invest and give away. While venture-backed startups stumble, HeyDude harkens back to an older way of building a company on a smart idea and a shoestring. Perhaps, like comfort shoes, it’s time for that to come back into style.

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How The HeyDude Guy Became A Billionaire Selling Ugly Shoes

<a href="https://www.forbes.com/"></a>Valued at $2.2 billion in 2021, African money-transfer startup Chipper Cash was slow to adapt to the funding collapse of 2022. Now, after layoffs and a deep valuation cut, it’s focusing on the basics–and profitability.



The layoffs at&nbsp;<a href="https://www.forbes.com/sites/jeffkauflin/2022/06/06/how-two-africans-overcame-bias-to-build-a-startup-worth-billions" target="_blank" rel="noreferrer noopener">Chipper Cash</a>, a five-year-old fintech startup that lets African consumers send money to each other, started slowly. In July 2022, four recruiters were dismissed. Seven quality assurance engineers came next, two months later. On a Sunday night in early December at 12:01 AM, about 50 employees, or slightly more than 10% of the company, received emails in their personal accounts telling them they no longer had jobs, and access to their work computers had been terminated. Staffers were stunned by the abrupt execution of the layoff. “There was shock and disgust,” a former employee says. Then, after another two months, even deeper cuts came: Chipper slashed about 30% of its staff.



It was a dramatic turnabout for a company that included “lead with empathy” as one of its four corporate values and had been&nbsp;<a href="https://www.forbes.com/sites/jeffkauflin/2022/06/06/how-two-africans-overcame-bias-to-build-a-startup-worth-billions/">featured in&nbsp;Forbes</a>&nbsp;as one of the most promising startups in fintech just eight months before.



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In February 2023, Zepz, a U.K.-based international money-transfer company formerly known as WorldRemit, smelled blood and approached Chipper with a take-out offer. Zepz sent a letter of intent saying it would pay between 5% and 10% of its own stock to buy the startup, pending more due diligence. Zepz had been valued at $5 billion in an August 2021 fundraise, but market values for fintech stocks had since dropped by 50%. Even if you thought Zepz was still worth $5 billion, which was doubtful at best, the deal would have valued Chipper at between $250 million and $500 million–a brutal discount to the $2.2 billion valuation it fetched in late 2021.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">
“I was fully aware that we were living in a time when capital was cheap. And when capital is cheap, that&#8217;s when you want to do the capital-intensive things.&#8221;— Ham Serunjogi
</blockquote>



The talks broke down. A Zepz spokesperson says the company walked away from the deal because they couldn’t get enough financial information from Chipper, and what they did see made them question the viability of the business. Ham Serunjogi, Chipper’s now 29-year-old CEO, says that Chipper provided all information requested, Zepz refused to share its own financial metrics and Chipper was the one to walk away. “I have never had any intention to go out and look for a buyer or to be acquired,” Serunjogi told us in May, speaking from his office at his home in the San Francisco Bay Area.



In April, Chipper lowered its internal 409A valuation–the market value it uses for issuing employee stock options–by 70%, cutting its common stock share price from about $13 in late 2022 to $3.89, according to a former employee and a document viewed by&nbsp;Forbes. It also raised roughly $25 million in convertible debt, says a person familiar with the financing–debt that will convert to equity at a $450 million valuation if Chipper gets acquired or has another big fundraise.



Chipper’s predicament is emblematic of the challenges many fintech startups face today. In 2020 and 2021, as Covid pushed more transactions online and consumers flocked to fintech apps, startups and their backers acted like the fast growth and good times would continue for years. Chipper, which offers low-cost money transfers, bill payment, stock investing and crypto trading for consumers in Africa, plus payment services for businesses there, had amassed five million registered users in seven countries, including Uganda, Ghana and Nigeria, in just the four years after its founding. It booked more than $75 million in revenue in 2021 (excluding cryptocurrency transactions), according to the company, and between $100 and $150 million in 2022, says a person familiar with its finances, compared with $18 million in 2020.



Serunjogi was pursuing a land-grab, growth-at-all-costs strategy, aiming “to capture as much market share and new geographical footprint as possible. And that&#8217;s an expensive endeavor,” he admits. Then as interest rates rose and the stock market sank, investors put away their checkbooks. Profitability suddenly became more important than growth.



Now Chipper is trying to dramatically cut costs and change its strategy while preventing employees from thinking they’re on a sinking ship. “I feel like I’ve grown up so much in the last 12 months,” Serunjogi says.



He has wrestled with the emotional toll of layoffs and a feeling that his employees weren’t taking their jobs seriously enough. In January, he decided to eliminate “lead with empathy” as one of Chipper’s four corporate values. “It was becoming a substitute for accountability,” he says. As he tries to turn the company around, he faces the tough task of still striving for rapid growth–and getting close to profitability–on a much tighter budget.



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Serunjogi grew up in&nbsp;Uganda, and while in high school he saw the problems his dad faced trying to move money through Africa’s disjointed banking system. A couple of years later, he enrolled at Grinnell, a small liberal arts college in Iowa, where he met Maijid Moujaled, a Ghanaian computer science major. The two soon began talking about developing an app that could become a Venmo for Africa.



They cofounded Chipper in 2018 and eventually raised $300 million in funding from investors including FTX, Ribbit Capital and Bezos Expeditions. Serunjogi spent aggressively to grow his customer base because of the nature of the money-transfer business: if you’re a consumer in Nigeria, you’d rather be able to send money to twenty different countries than two. “I was fully aware that we were living in a time when capital was cheap. And when capital is cheap, that&#8217;s when you want to do the capital-intensive things,” he says.



At the end of 2021, Chipper created its 2022 financial plan and intended to keep burning through large sums of cash, assuming capital would still be abundant. As tech stocks tumbled through the spring of 2022, Chipper began revising its plans. But while&nbsp;<a href="https://www.forbes.com/sites/jeffkauflin/2022/07/28/in-fintech-2022-is-becoming-the-year-of-layoffs" target="_blank" rel="noreferrer noopener">many fintech companies started doing layoffs that summer</a>, Serunjogi and Moujaled held out.



Serunjogi focused on driving Chipper as fast as possible–one way he tried to do that was by keeping the board small. Though he insists he has a large group of advisors, Chipper only had (and still has) just three voting board members: Serunjogi, Moujaled and Dan Kimerling, who runs fintech-focused venture capital firm Deciens. Similar-stage startups usually have five or more. “At the early stage of a business, the founders’ vision still has a premium. You&#8217;re trying to execute on something you uniquely see,” Serunjogi says.



By mid-2022, Serunjogi wanted to slow down expansion, but he concluded Chipper had already progressed so far on some projects that it would be too costly or wasteful to abandon them. One example: The company had already done much regulatory legwork to launch money transfers simultaneously in 10 new nations, each with its own set of legal requirements. So it charged ahead anyway with the big rollout over a two-week period in the fall of 2022.



When asked whether he chases too many goals at once, Serunjogi says, “If you set a goal of 10 versus a goal of 100, you will get to 9 out of 10, and you&#8217;ll get to 90 out of 100 … I strongly believe in setting stretch goals–that has been my style.”



Chipper hired about 150 employees in 2022, hitting almost 450 at its peak size. It spent aggressively on marketing, paying spokespeople like&nbsp;<a href="https://www.youtube.com/watch?v=SqkjPTzP_6Y" target="_blank" rel="noreferrer noopener">Burna Boy</a>, Africa’s most streamed artist, to appear in ads. Within the fintech industry and in Africa, Chipper was gaining attention. In the middle of last year,&nbsp;Forbes&nbsp;published an article chronicling&nbsp;<a href="https://www.forbes.com/sites/jeffkauflin/2022/06/06/how-two-africans-overcame-bias-to-build-a-startup-worth-billions" target="_blank" rel="noreferrer noopener">Chipper’s founding story and fast growth</a>.



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When crypto exchange&nbsp;FTX collapsed suddenly last November, the mood inside Chipper grew much darker, former employees say. Sam Bankman-Fried’s company had been a major investor in Chipper’s 2021 mega funding round, and staffers found the situation deeply unsettling. It also exacerbated the bear market for the digital asset industry and dampened interest in something that had been helping Chipper attract new users: crypto investing.



With marketing efforts drastically reduced, Chipper saw its number of active users shrink in 2022, according to a former employee, and though it had more than five million registered users, only about one million of them were engaging with the app monthly, the company says. Serunjogi admits Chipper has seen a dip in usage and attributes it to Chipper’s raising prices on money transfers and other features to focus more on profitability. He says that new-user signups and “people who use multiple products” still “continue to fare quite well.”



Chipper will soon start offering U.S. dollar-denominated accounts to African customers to try to entice more users. Serunjogi says receiving international payments has been one of the most requested features, particularly for freelancers earning a living online. While crypto was once a major growth driver for Chipper, the startup seems to be going back to basics. “We’re essentially giving anyone access to one of the most trusted currencies in the world,” he says.



On top of spiking interest rates and a dormant funding market, Chipper has been facing another macroeconomic headwind: the naira, Nigeria’s currency that Chipper needs to hold to enable customers’ money transfers, has dramatically declined in value. It had been falling since early 2020, and in the second half of 2022 it lost another 8%, ultimately contributing to a negative gross profit margin for Chipper, an unusual financial profile for a company of its size. Today Serunjogi says Chipper has a positive gross margin.



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When the fintech market&nbsp;recovers from its deep downturn, entrepreneurs’ approaches to layoffs will likely turn out to have had a major impact on startups’ survival and trajectory. At Chipper, Serunjogi and Moujaled have done at least five sets of layoffs over the past 13 months. Judging by the frequency and increasing depth of the cuts compared with those of other major fintechs, Chipper waited too long to get lean.



“Layoffs were agonizing decisions. That is the stuff that kept me up at night,” Serunjogi says. “It’s like a piece of your humanity dies … Imagine having a conversation with people who you really like, who are very good, who made sacrifices for the business to be where it is today. They depend on that income. And you tell that person, ‘I have to cut you.’ And they have a family to look after.”



Why didn’t he opt for a smaller number of deeper cuts to get them over with faster? “These are human beings we’re talking about,” he says. “If I can save someone&#8217;s job, I&#8217;m going to try to find a way to save it until clearly it doesn&#8217;t make sense to be saved.” He adds that some international rules require companies to do layoffs over a period of three months, which drags out the process.



Some former Chipper employees think Serunjogi has botched the communication of bad news over the past year. For instance, after layoffs began, workers started asking questions about revenue and how much cash was left in the bank at company-wide meetings. Serunjogi often responded to the effect of, “Why do you guys keep asking this? You don’t need to know,” according to a former employee. Another staffer felt Chipper became a “very secretive environment.”



“We have various responsibilities and confidentiality we have to maintain in running a business,” Serunjogi says. “In all our all-hands meetings we used to show revenue, revenue growth by product, et cetera–until people started leaking it. We would start to see these things showing up in the press,” he says, chuckling.



He started to believe employees felt too entitled and weren’t taking their jobs seriously enough. That led him to remove the “lead with empathy” corporate value–he thought people were using it to excuse mediocre performance. Chipper replaced it with “be customer obsessed.”



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">
“Don’t mistake the early successes we’ve had with ‘we’ve made it.’ No, we can still die.”— Ham Serunjogi
</blockquote>



“If you make a mistake, I have to come down hard on you, because the consequences for all of us are that much greater [at a startup],” Serunjogi says. “Don’t mistake the early successes we’ve had with ‘we’ve made it.’ No, we can still die.” He admires Bill Gates for working all the time and not taking vacation during Microsoft’s early days, and he appreciated&nbsp;<a href="https://www.forbes.com/sites/edwardsegal/2022/11/17/elon-musks-ultimatum-to-twitter-employees-ramps-up-companys-crisis/">Elon Musk’s November 2022 ultimatum to Twitter employees</a>&nbsp;that staying at the company would require “extremely hardcore” work and long hours.



In the spring of 2023, some employees began saying Chipper had just ten months of cash left in the bank, with one posting it in&nbsp;<a href="https://www.glassdoor.com/Reviews/Employee-Review-Chipper-Cash-RVW75333016.htm" target="_blank" rel="noreferrer noopener">a Glassdoor review</a>. People inside the startup were asking how it could have blown through the $300 million it raised, according to a former engineering manager.



Regarding Chipper’s rumored short runway, “I genuinely don&#8217;t know why and who would say something like that,” Serunjogi says, expressing frustration that anyone would discuss internal company matters publicly. “We have a tremendous amount of money on our balance sheet, so we’re fine,” he told us in late May.



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Serunjogi doesn’t like talking&nbsp;much about the specifics of what he would have done differently if he could do it all again. When asked the question multiple times, he told us, “We are laying the foundation for what is going to make us successful over the next 10 or 20 years. I obsess less about what was happening in the last six months or three months or 12 months.” He concedes there are many things he’d do differently but demurs from spelling them out and says, “We are one of the most successful companies in Africa.”



What is clear: Chipper has cut nearly 175 people and scrapped plans to expand into Europe and the Middle East for now, since entering a new country takes months of work–it requires hiring lawyers and consultants and sometimes staffing at least 10 people in a new nation. It has refocused on Africa, cutting many U.S. employees who sit thousands of miles away from its customers. Serunjogi plans to hire fewer than 50 people this year. The marketing budget has been “meaningfully scaled back,” Serunjogi says, and he claims the company is “about to be profitable.”



Somehow, when asked to reflect on the past year, the young entrepreneur always comes back with a positive spin. “What we’ve achieved so far–if I went back and started the whole thing again, I would be very happy to come back to that same exact point.”

Ham Serunjogi and Maijid Moujaled by Ethan Pines for Forbes 130L-03-0027

Inside Chipper Cash’s Grueling Battle To Survive The Fintech Winter

Food waste costs grocery stores $28 billion every year. Afresh is working to slash that number.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Albertsons&nbsp;wants to sell fresh raspberries. Not raspberries that are mushy. Or moldy. Or that will be inedible the day after you stick them in your fridge. But raspberries that are red and juicy and delicious.



It’s astonishingly difficult to pull off. In the past, store managers were essentially making their best guess when deciding how much to order. Too little, and the customer walks away empty-handed. Too much, and the raspberries end up sitting around for too long and go bad.



“Previously, produce ordering was a manual process, which meant stores were more likely to inaccurately estimate the type and amount of produce customers would buy,” said Suzanne Long, chief sustainability officer for Albertsons.



Boise, Idaho-based Albertsons, one of the nation&#8217;s largest grocers with $78 billion in annual revenue, began using artificial intelligence software across stores last year from a startup called Afresh Technologies to help it forecast demand and place orders for the type of food that tends to spoil the fastest, like bananas, bell peppers and bagged salads. Albertsons is now placing more frequent&nbsp;orders for smaller quantities.



“We’re trying to have full shelves and an empty backroom when the next truck comes in,” said Afresh CEO Matt Schwartz.



San Francisco-based Afresh, started in 2017, is still a nascent business –&nbsp;Forbes&nbsp;estimates that its revenue last year was under $10 million – but it’s growing fast. With $150 million in equity funding from Spark Capital, Insight Partners and other top VCs, Afresh has rolled out its software at 3,300 stores that include Albertsons (whose stores represent the majority of its business), WinCo Foods and Save Mart. Supermarket employees wielding iPads punch in how many apples, heads of broccoli and cherry tomatoes they have left on shelves and then review automated suggestions for how much to order.



More grocery stores are adopting this type of technology in an effort to cut down on how much food they toss each year, an amount that totals $28 billion, according to estimates from ReFED, a nonprofit that tracks food waste. Since stores tend to err on the side of ordering too much, they throw away about 5% to 6% of fresh food, Schwartz said. Rates can be twice that among prepared foods. In addition to being bad for the environment, it’s bad for business because it means lost sales and crimped profits.



Afresh CEO Matt SchwartzAFRESH



Afresh says that its customers typically reduce food waste by one quarter, which can lift operating margins in the produce category by 40% and deliver tens of millions, or even hundreds of millions, in profit. “We tell chief financial officers, ‘You’re going to smash your numbers,’” said Schwartz.



That’s a welcome message at a time when grocery stores, which have notoriously thin profit margins, are grappling with the rising cost of food. Albertsons, whose brands include Safeway, Vons and Jewel-Osco and which&nbsp;<a href="https://www.nytimes.com/2023/01/23/business/kroger-albertsons-merger.html" target="_blank" rel="noreferrer noopener">has announced plans to merge</a>&nbsp;with Kroger, rolled out the software across nearly all 2,200 of its stores last year. The company has said that its goal is to&nbsp;<a href="https://www.albertsonscompanies.com/our-impact/planet/food-waste/default.aspx" target="_blank" rel="noreferrer noopener">eliminate food waste going to landfills</a>&nbsp;by 2030. “If you can pick up three to five points of gross margin with this thing without having to raise prices, that is huge,” said Walter Robb, the former CEO of Whole Foods, who has invested in Afresh.



To assist with orders, the startup makes sense of a jumble of data to forecast demand better than any human can. It starts with the history of how an item has sold over the past several years, folding in sales data on a daily basis. It then factors in anything that may affect demand, such as upcoming promotions, weather, holidays and the day that food stamps are doled out. Internal estimates attempt to account for the unforgiving shelf life of finicky items like avocados and peaches, which a store is always racing against the clock to sell.



This is a big improvement over an employee going product by product, using their judgment to figure out how many Gala apples to order versus Honeycrisp and Fuji and Pink Lady and Granny Smith.



It means that fruits and veggies are not sitting around for nearly as long at grocers like Cub, a Minnesota chain with 100 stores, which is moving produce in and out of its stores 7% faster than before. The retailer has also seen a nice 2.5% boost in sales from improving its in-stock levels.



“Remember that retailing is all about having the right product at the right price at the right time,” said Robb. “This is a tool to make that happen.”



The backroom of a Cub grocery store before they started working with Afresh (left) and after.AFRESH



The stakes are high in the fresh section of a grocery store, which tends to be a big traffic driver, especially for return trips. Improving the quality and selection of fresh foods has been a major priority for Albertsons, which sees it as a way to boost sales and steal market share from competitors. “The fresh portfolio really, really matters,” Albertsons CEO Vivek Sankaran said in a quarterly earnings call last month.



Schwartz, 33, a former Bain consultant with an MBA from Stanford, started Afresh six years ago after learning how much fresh food grocery stores were throwing away, and how little technology existed to address the problem. Schwartz has always been a health nut, who practiced intermittent fasting and designed meal and workout plans for friends. Early in his career, he’d worked at Simple Mills, which makes crackers, cookies and other snacks with alt-ingredients like almond flour and coconut sugar.



Afresh charges each store department hundreds of dollars per month to use its software. It says it has prevented 43 million pounds of food from being thrown away since inception.



“This technology is one of a small handful we’re seeing really take off,” said Dana Gunders, executive director of ReFED.



As AI-powered ordering gains wider adoption, it&nbsp;<a href="http://pacificcoastcollaborative.org/wp-content/uploads/2022/12/PCFWC-Case-Study_AI_Final.pdf" target="_blank" rel="noreferrer noopener">could help cut food waste at the store level in half by 2030</a>, according to the Pacific Coast Collaborative, a multi-state governmental initiative to reduce greenhouse gas. Similar technology is sold by companies like Shelf Engine, which signed up Kroger as a customer but subsequently laid off a significant portion of its staff.



Afresh is now signing up more stores and expanding beyond produce with existing customers. This year, it expects to go into another 7,500 departments, which includes new forays into the meat and seafood counters, the deli and the prepared foods section. It is also introducing more tools for grocery stores, like one that helps employees complete monthly inventory checks.



The company now assists with ordering a tenth of all produce sold in America, said Schwartz. “We plan to be preventing over 100 million pounds of food waste per year very shortly,” he said.

E-commerce augmented reality marketing in supermarket mobile phone app AI artificial intelligence

This AI Startup Has Saved Grocers From Tossing Millions Of Pounds Of Food

Company’s offer of $60 along with proof you aren’t a robot has hidden risks. Why trust a private enterprise with your biometric data?



<a href="https://www.forbes.com/sites/roberthart/2023/07/24/what-is-worldcoin-heres-what-to-know-about-the-eyeball-scanning-crypto-project-launched-by-openais-sam-altman/?sh=2177384a5c4b"><abbr>W</abbr>orldcoin’s</a>&nbsp;campaign to literally capture eyeballs on the internet is coming up against security concerns as critics question whether the benefits of the iris-scanning system of identity verification are worth the privacy risk.



The project offers people about $60 worth of the new Worldcoin (WLD) cryptocurrency in exchange for a digital scan of their eyeballs. In addition to the 25 tokens, users get a unique World ID, which proves they are humans–rather than artificial intelligence software–and can be used to verify their identity to third parties without any other personal information being shared.



But having a private organization like Worldcoin possess a global database of human iris scans is a key concern raised by analysts, investors and researchers who spoke to Forbes–especially since the campaign kicked off in poor communities in the developing world, isn’t yet available in the United States and faces regulatory reviews in Kenya, the U.K. and Germany.



On the other hand, along with being able to prove users are real people, Worldcoin could help enable instant cross-border financial transactions, pave the way for a more transparent and inclusive democratic process through verified voting and create a more efficient distribution of public resources on a global scale, according to&nbsp;<a href="https://whitepaper.worldcoin.org/" target="_blank" rel="noreferrer noopener">Worldcoin</a>.



More than two million people from 34 countries have&nbsp;<a href="https://worldcoin.org/blog/announcements/worldocin-passes-2-million-world-id-sign-ups-demand-increases" target="_blank" rel="noreferrer noopener">signed up</a>&nbsp;for World ID, according to data provided by&nbsp;<a href="https://worldcoin.org/" target="_blank" rel="noreferrer noopener">Worldcoin</a>, which also said that it has started ramping up the global distribution of Orbs with the hopes of increasing the scanning devices to 1,500 this year to boost adoption.



Worldcoin<a href="https://worldcoin.org/blog/announcements/worldocin-passes-2-million-world-id-sign-ups-demand-increases" target="_blank" rel="noreferrer noopener">&nbsp;claimed</a>&nbsp;that it hit the milestone in less than half the time it took to reach the first million,<a href="https://worldcoin.org/blog/announcements/introducing-world-id-and-sdk" target="_blank" rel="noreferrer noopener">&nbsp;predominantly</a>&nbsp;in developing countries like Argentina, Chile, India, Uganda, and Kenya where Worldcoin’s iris scanning has just been suspended.



Over the past week, the project’s World App mobile application has become the most-downloaded app in Kenya, according to&nbsp;<a href="https://appfigures.com/top-apps/google-play/kenya/top-overall" target="_blank" rel="noreferrer noopener">data</a>&nbsp;from AppFigures without stating the period, displacing popular apps such as WhatsApp Messenger and TikTok. One of the key drivers of adoption in Kenya has been promotions from local influencers and musicians, including Afro-pop star Kagwe Mungai.



“Come with me to sign up for Worldcoin,” reads a text on an&nbsp;<a href="https://www.instagram.com/p/CvJx5EKNMCH/" target="_blank" rel="noreferrer noopener">Instagram video</a>&nbsp;featuring Mungai standing next to a giant Orb device in Kenya’s capital Nairobi. “I signed up and even got my iris scanned for my unique world ID which I can use to access online services and more.”



The $60 being offered to Kenyans represents nearly half of the average monthly income in East Africa’s largest economy where about a third of the population lives in poverty and has witnessed multiple deadly protests this year over cost-of-living crisis.



How frequently people use the new coin for its intended purposes remains to be seen in the East African country where Tools for Humanity is originally<a href="https://www.odpc.go.ke/registered-data-processors-and-controllers/?#" target="_blank" rel="noreferrer noopener">&nbsp;authorized</a>&nbsp;as a data processor.



Kenyan authorities&nbsp;<a href="https://www.facebook.com/photo?fbid=598481229140719&amp;set=a.598481322474043" target="_blank" rel="noreferrer noopener">announced on Wednesday</a>&nbsp;that they’ll probe Worldcoin’s operations to assess the project’s “authenticity” and “legality” in the East African country. “Accordingly, the government has SUSPENDED forthwith, activities of ‘WORLD COIN’,” the announcement read. But in a statement to Forbes, the Worldcoin Foundation said that the demand for World ID in Kenya had been “overwhelming” and the suspension was “out of an abundance of caution and in an effort to mitigate crowd volume”.



The country joined both the U.K. and Germany whose data regulators have reportedly launched an inquiry into the digital ID project.



“We note the launch of WorldCoin in the U.K. and will be making enquiries,” a spokesperson for the Information Commissioner&#8217;s Office in the U.K. said in an emailed statement. Consent to process biometric data “needs to be freely given and capable of being withdrawn without detriment.” Since information on Worldcoin is blockchain based, it can never be changed or withdrawn.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Worldcoin was cofounded&nbsp;in 2019 by Sam Altman, CEO of OpenAI, whose ChatGPT program is one of the earliest examples of an artificial intelligence program that can be confused with real people to some degree. Altman’s cofounder Alex Blania claimed that Worldcoin was&nbsp;<a href="https://twitter.com/alexblania/status/1641878630136676352" target="_blank" rel="noreferrer noopener">decentralized</a>, but ironically, the project itself functions as a centralized bottleneck in this system and plans to&nbsp;<a href="https://worldcoin.org/blog/worldcoin/primer-on-decentralization-at-worldcoin" target="_blank" rel="noreferrer noopener">open-source</a>&nbsp;the code are&nbsp;<a href="https://worldcoin.org/blog/worldcoin/primer-on-decentralization-at-worldcoin" target="_blank" rel="noreferrer noopener">delayed</a>&nbsp;for the future.



Worldcoin says the operation of infrastructure software such as the backend services that ensure iris codes are unique after signup is coordinated by the Worldcoin Foundation, a group of the project’s contributors based in the Cayman Islands and with a subsidiary in the British Virgin Islands – two locations known globally as tax havens.



“We don’t think it’s a great idea to train a bunch of people to hand over their biometric data to a non-governmental entity,” says a venture capitalist who passed on backing Worldcoin. It also creates a precedent and incentive for other crypto companies to collect biometric data, which could have dangerous consequences if a project’s leaders turn out to be corrupt, the investor says.



Worldcoin developer Tools For Humanity launched the token of the ambitious eyeball-scanning project on July 24 followed by listing across major crypto exchanges, as the artificial intelligence scheme aims to revolutionize human identity verification and bridge income inequality. It’s not the first time a tech company has used iris scans for verification. The 13-year-old, New York-based company Clear, which scans irises and allows paying subscribers to skip airport security lines, says it has more than 15 million customers.



With recent advances in AI making it much harder to distinguish humans from robots online, the project looks to replace the traditional approach to online login with a decentralized digital verification system – all under the control of Worldcoin.



“It&#8217;s becoming increasingly difficult to distinguish fiction from reality, which is a particular concern in the financial and democratic systems,” wrote Louis Schoeman, who runs platforms for trading stocks and cryptocurrencies, in a research report last week. “Worldcoin wants to defend people from AI misinformation and make it clear who and what to trust online.”



<hr class="wp-block-separator has-alpha-channel-opacity"/>



The&nbsp;<a href="https://www.forbes.com/sites/roberthart/2023/07/24/what-is-worldcoin-heres-what-to-know-about-the-eyeball-scanning-crypto-project-launched-by-openais-sam-altman/?sh=5b1c15205c4b">proof-of-personhood idea of Worldcoin developer Tools For Humanity</a>&nbsp;requires people to join the system by scanning their irises using an eyeball-like device called the Orb. The scanner verifies people’s identity and assigns a unique World ID, which allows those authenticated to prove they are human without having to reveal their personal data to third-party platforms linked to the Worldcoin protocol.



“It’s only Tools for Humanity that has access to these Orbs, so identity creation is centralized,” says Abdoulaye Ndiaye, professor of economics at NYU’s Stern School of Business who also conducts research on blockchain technology. “We need to make sure that if it’s a platform or digital infrastructure, it has to be as open as possible so that it makes the creation of identity and updating to be decentralized. Also, the blockchain allows the possibility of people to use and create applications on top.”



Ndiaye believes that Worldcoin could play a major role in many parts of the world where there is a need for social programs but that have difficulty in effectively targeting the right beneficiaries. The professor, however, warned that there could be a risk associated with the project if Worldcoin links unique user identities with other information such as names, phone numbers and locations, and then sells the data.



“The Worldcoin Foundation complies with all laws and regulations governing the processing of personal data in the markets where Worldcoin is available,” a representative for Worldcoin said in an emailed statement, adding that the project “does not and never will sell any user personal data”.



Iris scans are processed, stored, and subsequently deleted from the Orb&#8217;s local memory unless the owner specified otherwise, according to Worldcoin. However, the processed personal data on the Orb are already encrypted and uploaded to Worldcoin’s blockchain-based digital identity network, creating doubts over privacy concerns and the possibility of mishandling of the coded iris data on a technology that stores information without options for removal or alteration.



The identity system has the potential to reduce digital fraud, facilitate banking for the unbanked population and even reduce the number of identity verification requests, according to Michael Silberberg, head of investor relations at crypto hedge fund AltTab Capital.



But Worldcoin’s integrity has also been brought to question given Tools for Humanity’s connection with Sam Bankman-Fried, a cofounder of the collapsed crypto exchange FTX. Bankman-Fried, who backed the project’s $25 million Series A investment round back in 2021, faces 12 criminal charges including fraud and money laundering. Data from venture capital market research firm PitchBook showed that the bankrupt Singapore-based crypto hedge fund Three Arrows Capital also partook in the early-stage funding.



Earlier this year, Worldcoin raised $115 million in a Series C funding round led by Blockchain Capital and venture capital heavyweight Andreessen Horowitz. Google parent company Alphabet also invested, according to PitchBook.



The supply of Worldcoin tokens is capped at 10 billion over the next 15 years, and only 143 million were available at the global launch of the scanning project. That puts the market value of the Worldcoin token at around $340 million currently, down 34% from an all-time high of $512 million on July 24, the day the token launched, according to Coinbase data. On a fully diluted basis, all 10 billion circulating supply of Worldcoin would have a value of $23.7 billion.



An April 2022&nbsp;<a href="https://www.technologyreview.com/2022/04/06/1048981/worldcoin-cryptocurrency-biometrics-web3/" target="_blank" rel="noreferrer noopener">investigation</a>&nbsp;by MIT Technology Review accused Worldcoin of exploitation in lower-income countries in Africa and Asia, including Kenya, and of collecting biometric data from people who had little understanding of what Worldcoin was. One conclusion the authors drew: “It’s just cheaper and easier to run this kind of data collection operation in places where people have little money and few legal protections.” In response to the allegation, Worldcoin&nbsp;<a href="https://www.technologyreview.com/2022/04/06/1048981/worldcoin-cryptocurrency-biometrics-web3/" target="_blank" rel="noreferrer noopener">said</a>&nbsp;it was also operating in developed countries, including some European nations. “Worldcoin has always tried to conduct field tests in a sample of countries around the globe that would be representative of the world as a whole,” a Worldcoin spokesperson said.



A&nbsp;<a href="https://www.buzzfeednews.com/article/richardnieva/worldcoin-crypto-eyeball-scanning-orb-problems" target="_blank" rel="noreferrer noopener">BuzzFeed News article</a>&nbsp;published around the same time asserted that Worldcoin “has angered the very people it says it’s trying to help.” Alex Blania responded, “Quite surely, in some places, communication, marketing, all of those things, could have been clearer and better.”



Ethereum inventor Vitalik Buterin<a href="https://vitalik.eth.limo/general/2023/07/24/biometric.html" target="_blank" rel="noreferrer noopener">&nbsp;wrote in a blog post</a>&nbsp;just after the global launch that there’s no one-size-fits-all approach to verifying people’s identity, but one of the major risks associated with Worldcoin is the limited availability of Orbs around the world and the possibility that users might inadvertently reveal more information than intended during iris scans.



Buterin also said it’s difficult to verify if there are cracks in the construction of the Orb device, leaving room for potential backdoors. “Hence, even if the software layer is perfect and fully decentralized, the Worldcoin Foundation still has the ability to insert a backdoor into the system, letting it create arbitrarily many fake human identities,” he said.



The Ethereum founder also raised concerns about the possibility of creating 3D-printed “fake people” that can pass the iris scan to get World IDs.



“The problem of making a proof-of-personhood system that is effective and reliable, especially in the hands of people distant from the existing crypto community, seems quite challenging,” Buterin added.

Biometric eye scan

Worldcoin’s Iris-Scan ID Proposition Is Best Considered With Eyes Wide Open

​​The Securities and Exchange Commission is suing Binance, the world’s largest cryptocurrency exchange, its U.S. affiliate and founder Changpeng Zhao.



Among the reams of evidence provided by the agency, which include employee text messages, testimonies of former executives and Binance’s audit reports, some accusations seemed especially bizarre. Here are five that caught our eye:



<h2 class="wp-block-heading" id="h-the-former-chief-compliance-officer-said-there-s-no-fking-way-we-are-clean">The former chief compliance officer said “there’s no fking way we are clean”</h2>



In a&nbsp;<a href="https://storage.courtlistener.com/recap/gov.uscourts.dcd.256060/gov.uscourts.dcd.256060.17.5_1.pdf" target="_blank" rel="noreferrer noopener">text exchange</a>&nbsp;with another employee, Binance’s former chief compliance officer, Samuel Lim, said he did not believe the company was “clean.” As an example, he said that the exchange’s customer service is teaching users how to circumvent sanctions.



<h2 class="wp-block-heading" id="h-binance-is-accused-of-hijacking-more-user-funds-than-ftx">Binance is accused of hijacking MORE user funds than FTX</h2>



The SEC alleges Binance and Binance.US&nbsp;<a href="https://storage.courtlistener.com/recap/gov.uscourts.dcd.256060/gov.uscourts.dcd.256060.21.0_2.pdf" target="_blank" rel="noreferrer noopener">redirected</a>&nbsp;over $12 billion in clients’ assets to entities controlled by Zhao between 2019 and 2021. That’s $4 billion more than the $8 billion shortfall initially claimed in the case of FTX, formerly the second-largest crypto exchange and the subject of a spectacular collapse in November. Additionally, millions of dollars of customer and corporate funds were commingled in accounts of Merit Peak, a British Virgin Islands trading firm owned by Zhao, according to the agency.



In a&nbsp;<a href="https://twitter.com/cz_binance/status/1666848861497831449?s=20" target="_blank" rel="noreferrer noopener">Twitter post on</a>&nbsp;Thursday, Zhao denied the claim but only addressed the Binance.US part of the allegation. &#8220;To the best of my knowledge, Binance.US had in total roughly $2 billion in user funds. This number in USD equivalent fluctuates a little as crypto prices change. And declining as users withdraw due to recent news. All user funds are accounted for, and never left the Binance.US (unless users withdraw themselves of course), ever.&#8221; he wrote.



<h2 class="wp-block-heading" id="h-binance-received-damning-audits">Binance received damning audits</h2>



Since Binance.US’s inception and through at least 2022, auditors from Armanino have&nbsp;<a href="https://storage.courtlistener.com/recap/gov.uscourts.dcd.256060/gov.uscourts.dcd.256060.20.8.pdf" target="_blank" rel="noreferrer noopener">identified</a>&nbsp;“significant deficiencies that aggregated to material weaknesses” relating to Binance’s control over the operation of the Binance.US Platform and custody and control of customer assets, and the fact that Binance’s custody of U.S. customer assets was completely opaque” to employees of BAM Trading, Binance.US’s operator. Drawbacks listed in the 2019 audit included commingled customer and company funds, reliance on the parent for financial data and the lack of a disaster plan.



A separate&nbsp;<a href="https://storage.courtlistener.com/recap/gov.uscourts.dcd.256060/gov.uscourts.dcd.256060.19.10_1.pdf" target="_blank" rel="noreferrer noopener">audit</a>&nbsp;from FGMK shows that Binance.US lost $181 million in 2022.



<h2 class="wp-block-heading" id="h-two-former-ceos-of-binance-us-claimed-that-zhao-ran-the-american-unit">Two former CEOs of Binance.US claimed that Zhao ran the American unit</h2>



Brian Brooks, former chief executive of Binance.US who resigned three months after taking the job,&nbsp;<a href="https://storage.courtlistener.com/recap/gov.uscourts.dcd.256060/gov.uscourts.dcd.256060.20.3.pdf" target="_blank" rel="noreferrer noopener">said</a>&nbsp;that “what became clear to me at a certain point was CZ was the CEO of BAM Trading, not me.” Binance has maintained that it operates independently from its American affiliate.



Brooks added that during his tenure Binance.US had a group of Shanghai-based employees who received part of their compensations in Binance’s BNB<a href="https://www.forbes.com/digital-assets/assets/bnb-bnb/" target="_blank" rel="noreferrer noopener">BNB</a>&nbsp;<a href="https://www.forbes.com/digital-assets/assets/bnb-bnb/">+0.9%</a>&nbsp;token and were part of a company called “Boran.”



Catherine Coley, the first chief executive of Binance.US–who abruptly left the company in 2021 and has been little heard from since– also revealed the subsidiary was not independent. The SEC alleged that for at least the first year of its existence, the parent company Binance.com insisted that Zhao and Guangying Chen, a close associate of Zhao also known as Heina, had to control the bank accounts of BAM Trading, the U.S. exchange. Coley&nbsp;<a href="https://storage.courtlistener.com/recap/gov.uscourts.dcd.256060/gov.uscourts.dcd.256060.18.16_1.pdf" target="_blank" rel="noreferrer noopener">told</a>&nbsp;company lawyer Wei Zhou in an electronic exchange: “I’m confused why we go through all of these measures with separating BAM vs. .com and then have a non-U.S. resident, non employee on the bank applications.” Zhou replied “You know what HQ Finance’s position is, right?… They want to have Heina as signatory on US BAM bank accounts”



He advised: “No need to pound the separation thing too much. I think most people understand that by now.”



Coley dubbed an effort to escape Zhao’s control as “Project 1776,” a reference to the American Revolution. She told a fellow employee it was “for our independence,” according to the suit.



<h2 class="wp-block-heading" id="h-wash-trades-occurred-with-employees-knowledge">Wash trades occurred with employees’ knowledge</h2>



The SEC&nbsp;<a href="https://storage.courtlistener.com/recap/gov.uscourts.dcd.256060/gov.uscourts.dcd.256060.1.0.pdf" target="_blank" rel="noreferrer noopener">alleges&nbsp;</a>that wash trading, or self-dealing, which typically results in an inflated trading volume that creates a false appearance of market interest, regularly took place on the Binance.US platform. Much of it occurred through accounts affiliated with Sigma Chain, an entity owned and controlled by Zhao, essentially making it a market maker on the Binance.US Platform.



In an online discussion in January 2021 about a drop in trading volume from Sigma Chain, the company&#8217;s sales director&nbsp;told other employees that 20 other accounts were fronts: &#8220;fyi, these are ALL sigma chain.&#8221; Later that month, an employee found he could trade with himself.



The SEC’s 13-count&nbsp;<a href="https://www.sec.gov/files/litigation/complaints/2023/comp-pr2023-101.pdf" target="_blank" rel="noreferrer noopener">suit</a>&nbsp;alleges that the crypto exchange, its American branch and Zhao “enriched themselves by billions of dollars while placing investors’ assets at significant risk” and “designed and implemented a multi-step plan to surreptitiously evade U.S. laws.”



Binance.US&nbsp;<a href="https://twitter.com/BinanceUS/status/1666996908651323393" target="_blank" rel="noreferrer noopener">said</a>&nbsp;late on Thursday that it would suspend deposits and withdrawals in U.S. dollars on its platform. In a message to customers, the company said it was “taking necessary actions” in a transition to a crypto-only exchange after the SEC suit discouraged banks from working with it



Zhao, Binance and two U.S subsidiaries have until June 28 to <a href="https://storage.courtlistener.com/recap/gov.uscourts.dcd.256060/gov.uscourts.dcd.256060.23.0.pdf" target="_blank" rel="noreferrer noopener">respond</a> to the suit, which was filed in the federal court for the District of Columbia. A hearing on an SEC request to freeze the assets of Binance.US is set for June 13 at 2:00 PM Washington time.



<a href="https://www.forbes.com/sites/ninabambysheva/"></a>

SEC Targets $120 Billion of Tokens With Coinbase And Binance Suits

5 Most Surprising Revelations From The SEC’s Binance Lawsuit

TikTok has stored the most sensitive financial data of its biggest stars — including those in its “Creator Fund” — on servers in China. Earlier this year, CEO Shou Chew told Congress “American data has always been stored in Virginia and Singapore.”



Over the past several years,&nbsp;thousands of TikTok creators and businesses around the world have given the company sensitive financial information—including their social security numbers and tax IDs—so that they can be paid by the platform.



But unbeknownst to many of them, TikTok has stored that personal financial information on servers in China that are accessible by employees there,&nbsp;Forbes&nbsp;has learned.



TikTok uses various internal tools and databases from its Beijing-based parent ByteDance to manage payments to creators who earn money through the app, including many of its biggest stars in the United States and Europe. The same tools are used to pay outside vendors and small businesses working with TikTok. But a trove of records obtained by&nbsp;Forbes&nbsp;from multiple sources across different parts of the company reveals that highly sensitive financial and personal information about those prized users and third parties has been stored in China. The discovery also raises questions about whether employees who are not authorized to access that data have been able to. It draws on internal communications, audio recordings, videos, screenshots, documents marked “Privileged and Confidential,” and several people familiar with the matter.



In testimony before Congress earlier this year, TikTok CEO Shou Zi Chew claimed U.S. user data has been stored on physical servers outside China. “American data has always been stored in Virginia and Singapore in the past, and access of this is on an as-required basis by our engineers globally,” he said under oath at a House hearing in March.



TikTok spokesperson Alex Haurek said in a statement that “we remain confident in the accuracy of Shou&#8217;s testimony.” ByteDance did not respond to a detailed request for comment. At publication time, neither company had answered basic questions about whether sensitive tax information of U.S. citizens is stored and accessible in China.



Over the last year, TikTok has been touting its plans to cordon off Americans’ data from China in a $1.5 billion undertaking called&nbsp;<a href="https://www.buzzfeednews.com/article/emilybakerwhite/tiktok-project-texas-bytedance-user-data" target="_blank" rel="noreferrer noopener">Project Texas</a>. That initiative has been central to negotiations with the Biden administration on a deal that would allow the wildly popular app to continue operating in the U.S., despite longstanding national security concerns about its Chinese ownership and the potential for the platform to be used&nbsp;<a href="https://www.forbes.com/sites/emilybaker-white/2022/12/22/tiktok-tracks-forbes-journalists-bytedance/?sh=5a6afb397da5">to surveil</a>&nbsp;or influence the 150 million Americans using it. But since those talks hit a snag late last year, with both FBI Director Christopher Wray and Treasury Secretary Janet Yellen speaking out about national security issues with the app, the Biden administration (through the Committee on Foreign Investment in the U.S.) has demanded that TikTok split from its Chinese parent company or face a possible ban.



“There’s ongoing litigation over TikTok that is not yet resolved,” Yellen, whose department leads CFIUS, said at a hearing in March. And many in Congress have cast doubt on Project Texas altogether: “I don’t believe that it is technically possible to accomplish what TikTok says it will accomplish through Project Texas,” California Republican Jay Obernolte told the TikTok CEO at the March hearing. “There are too many backdoors.”



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">
“Even if TikTok was not a subsidiary of a Chinese company, this would be pretty alarming IT security malpractice.”Former White House and CIA national security lawyer Bryan Cunningham
</blockquote>



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Identity theft using stolen social security numbers is&nbsp;<a href="https://www.irs.gov/newsroom/taxpayer-guide-to-identity-theft" target="_blank" rel="noreferrer noopener">not uncommon</a>&nbsp;in the U.S., and the Chinese government&nbsp;<a href="https://www.nytimes.com/2020/02/10/us/politics/equifax-hack-china.html" target="_blank" rel="noreferrer noopener">has been accused</a>&nbsp;of stealing personal financial information from Americans before. One expert told&nbsp;Forbes&nbsp;this is precisely why TikTok’s mishandling of such information is troubling.



“Even if TikTok was not a subsidiary of a Chinese company, this would be pretty alarming IT security malpractice,” Bryan Cunningham, a former national security lawyer for the White House and CIA, told&nbsp;Forbes. He described tax records as some of the most sensitive data there is.



&#8220;It could be just bad IT practice, it could be they felt like they had a legitimate business need,” Cunningham said of TikTok. “But whatever the nuance of that turns out to be… if you store information in the PRC, you better assume that the intelligence services can have it if they want it. They may not target you, but boy, on the face of it, it&#8217;s highly questionable.”



TikTok and ByteDance did not respond to questions about how many people at the companies can access creators’ financial information, where those employees are located and whether there has been unauthorized access to this data. They also did not respond to queries about how long TikTok users and vendors’ payment data had been stored in China and whether it still is today.



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<h2 class="wp-block-heading">Raising regulatory alarms on both sides of the Atlantic</h2>



TikTok or ByteDance&nbsp;employees in China having access to American users and businesses’ sensitive financial records is potentially problematic for geopolitical reasons, particularly against the backdrop of intense regulatory scrutiny in the U.S.



Though there is no national privacy law in the U.S. to protect against the mishandling or misuse of personally identifiable information,&nbsp;<a href="https://www.congress.gov/bill/117th-congress/house-bill/8152/text" target="_blank" rel="noreferrer noopener">one top contender</a>&nbsp;introduced last Congress would require companies to clearly disclose in their privacy policies whether data they collect “is transferred to, processed in, stored in, or otherwise accessible to the People’s Republic of China” and other adversaries. And though a past Federal Trade Commission&nbsp;<a href="https://www.ftc.gov/news-events/news/press-releases/2019/02/video-social-networking-app-musically-agrees-settle-ftc-allegations-it-violated-childrens-privacy" target="_blank" rel="noreferrer noopener">settlement with TikTok</a>&nbsp;(then Musical.ly) dealt with a markedly separate set of issues—children’s privacy violations—the agency could take that order into consideration when evaluating the company’s conduct today.



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Jessica Rich, former director of the FTC’s Bureau of Consumer Protection, said in a case like this, the agency would likely consider whether the company had made false or deceptive statements about how it handles users’ information—in a privacy policy, for example—or if the handling of that information had created a real risk of harm. She would not comment specifically on TikTok and ByteDance.



TikTok’s policies suggest that it takes appropriate steps to protect its users’ data. Creators who join TikTok’s Creator Fund&nbsp;<a href="https://www.tiktok.com/legal/page/global/tiktok-creator-fund-terms/en" target="_blank" rel="noreferrer noopener">agree to</a>&nbsp;“all” TikTok policies, including&nbsp;<a href="https://www.tiktok.com/legal/page/us/privacy-policy/en" target="_blank" rel="noreferrer noopener">privacy terms</a>&nbsp;stating that “certain entities within our corporate group… are given limited remote access to information we collect” if it’s necessary for the platform’s operations. They also emphasize that “we use reasonable measures to help protect information from… unauthorized access.” (It does say TikTok may transmit user data to servers outside the U.S. for storage or processing, and that no data storage or transmission is guaranteed to be secure.)



Rich, the former federal regulator, said that if any company claims to be locking down access to information but then making it available to employees around the world who do not need it, the FTC could see that as a deceptive statement and grounds for a potential data security complaint. She also said that the agency generally views financial information and social security numbers as more sensitive than email addresses or phone numbers, and that it may scrutinize those data-sharing cases more aggressively.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">
“I would like everything to stay in the U.S.—like, I wouldn&#8217;t see why it would ever need to be stored on a China database.”TikToker and Creator Fund member Zack Fairhurst
</blockquote>



<hr class="wp-block-separator has-alpha-channel-opacity"/>



TikTok’s storage of European creators’ bank information in China could also be problematic under Europe’s privacy law, the General Data Protection Regulation.



Even as TikTok launched&nbsp;<a href="https://newsroom.tiktok.com/en-ie/project-clover-ireland" target="_blank" rel="noreferrer noopener">Project Clover</a>—a Project Texas counterpart across the Atlantic—to safeguard the data of its European users, the Irish Data Protection Commission (TikTok’s lead regulator in the European Union) is already conducting&nbsp;<a href="https://www.dataprotection.ie/en/news-media/latest-news/dpc-launches-two-inquiries-tiktok-concerning-compliance-gdpr-requirements-relating-processing" target="_blank" rel="noreferrer noopener">two investigations</a>&nbsp;into whether the company has complied with GDPR. One of those probes is looking specifically at whether TikTok has unlawfully transferred European users’ personal data from the EU to China, and whether it was adequately transparent with users about how it was handling their information. Gabriela Zanfir-Fortuna, vice president for global privacy at the Future of Privacy Forum, said ByteDance tools storing European creators’ data on servers in China could be problematic for that reason.



&#8220;This is the sort of thing that would confirm there are transfers [of personal data] to China happening, so I&#8217;m sure they would be interested in knowing this,” she said of Ireland’s privacy watchdog. (Just last week, the body issued&nbsp;<a href="https://www.forbes.com/sites/siladityaray/2023/05/22/meta-fined-record-13-billion-for-violating-eu-privacy-rules/?sh=2eff164772c9">a record $1.3 billion fine</a>&nbsp;to Facebook parent Meta, one of TikTok’s biggest rivals, over its own data transfer issues.) GDPR also requires companies to restrict access to sensitive user data on a need-to-know basis, Zanfir-Fortuna added, raising questions about how broad access to these payment tools has been and whether it was necessary.



The Commission would not comment on its ongoing inquiry into TikTok except to say it expects a public update after this summer. TikTok’s&nbsp;<a href="https://www.tiktok.com/legal/page/eea/privacy-policy/en" target="_blank" rel="noreferrer noopener">policies for Europe</a>&nbsp;say “certain entities in our Corporate Group, located outside your country of residence (see&nbsp;<a href="https://www.tiktok.com/legal/transferee-countries" target="_blank" rel="noreferrer noopener">here</a>), are given limited remote access to this information” and that this access is “secure and only granted where necessary under strict security controls.” The link included (“here”) lands on a 404 error page.



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<h2 class="wp-block-heading">Creators reacts</h2>



TikToker&nbsp;<a href="https://www.tiktok.com/@maddzak?lang=en" target="_blank" rel="noreferrer noopener">Zack Fairhurst</a>,&nbsp;a member of its Creator Fund who participated in the company’s blitz on Capitol Hill this spring, told&nbsp;Forbes&nbsp;he had no idea his tax information and social security number might be stored in China. (TikTok brought some creators to Washington in March to raise awareness around&nbsp;<a href="https://www.forbes.com/sites/alexandralevine/2023/03/22/how-a-tiktok-ban-would-affect-creators-businesses-economy/?sh=3cbf8eb25608">the benefits of the app</a>.)



“It wouldn&#8217;t really make sense for it to be over there,” Fairhurst told&nbsp;Forbes. “I would like everything to stay in the U.S—like, I wouldn&#8217;t see why it would ever need to be stored on a China database. … I am actually surprised by that.”



Other creators recalled uploading social security and financial information into TikTok but told&nbsp;Forbes&nbsp;they were unfazed by the possibility that it’s stored in China because putting themselves out there online is par for the course for those who want to build audiences and careers through social media.



&#8220;There are so many more pressing issues in the U.S.,”&nbsp;<a href="https://www.tiktok.com/@kathrynanja?lang=en" target="_blank" rel="noreferrer noopener">Kathryn Cross</a>, a 24-year-old creator in the TikTok program, told&nbsp;Forbes. “My mom grew up in China, so I just know that the Chinese government is so stringent about maintaining a proper public figure, essentially, that they would never allow something like a Cambridge Analytica scandal to compromise their global position.”



“The benefit TikTok has brought to people&#8217;s businesses and lives, and the innovation behind the For You Page, to me seems so much more valuable than any minute chance that China&#8217;s storing our data… more so it seems like a foreign policy type of conflict,” she added.



Internet star and TikTok Creator Fund member&nbsp;<a href="https://www.tiktok.com/@yourrichbff?lang=en" target="_blank" rel="noreferrer noopener">Vivian Tu</a>—a former Wall Street trader who doles out financial advice under the handle “YourRichBFF,” said joining any app’s monetization program is “a calculated risk.”



&#8220;If you&#8217;re okay with being on TikTok,” she told&nbsp;Forbes,&nbsp;“you probably don&#8217;t care that much about your banking information being everywhere it&#8217;s stored.”



Emily Baker-White contributed reporting.

Trump Approves TikTok Takeover By Oracle And Walmart

TikTok Creators’ Financial Info, Social Security Numbers Have Been Stored In China

As bank failures rattle investors and test regulators, it&#8217;s time to rethink America’s financial system. One old solution, despised by regulators, might be just what the doctor ordered.



<abbr>N</abbr>estled on the&nbsp;second floor of a suburban office building in Fairfield, New Jersey, not far from Interstate 80 and just down the hall from an opthalmology center, are the offices of Financial Northeastern. Its chief executive, Jeff Zage, 60, could be one of the saviors of the troubled $23 trillion U.S. banking industry. Zage is a money broker, and for the past 38 years, his firm has specialized in underwriting certificates of deposits for needy banks. These deposits are generally bank-run-proof—they are not redeemable prior to maturity unless the deposit holder dies or becomes mentally incapacitated. Over the last 12 years, Zage’s small firm has quietly raised some $150 billion for banks small and large, connecting them with business owners, municipal treasurers and wealthy individuals eager to park sums of $250,000 or less in FDIC-insured accounts around the nation. Thanks to the Federal Reserve, interest rates on CDs maturing from three months to ten years are now above 5%. That means business is good for Financial Northeastern, which makes a small fee on each CD it brokers. But Zage repeatedly demurs when&nbsp;Forbes&nbsp;asks him for a photograph or even just a face-to-face meeting.



“I am a very unassuming individual,” he says. “I try to do my best to stay under the radar.”



Thirty-six years ago, it was a different story. Zage—then just 24 years old—his older brother Steven and their team of young cold-calling brokers were making millions providing funding to the nation’s ailing $1.2 trillion savings-and-loan industry in the form of high-rate CDs. A 1987&nbsp;Forbes&nbsp;article headlined “WE’RE THE LIFEBLOOD” pictured Zage popping out of the sunroof of his new car, his brother reclining on the hood. The story chronicled how regulators at regional Federal Home Loan Banks were calling brokers such as Financial Northeastern and Merrill Lynch to funnel billions to prop up zombie thrifts, mostly in Texas. Those S&amp;Ls had gotten into deep trouble after newly deregulated deposit rates soared by investing in commercial real estate, junk bonds and other risky assets.



When the dust settled, 747 savings-and-loans were shuttered and FSLIC, the insolvent government insurance fund backstopping the industry, was absorbed into the FDIC. The debacle cost U.S. taxpayers $124 billion, about $300 billion in current terms, or the equivalent of 2% of America’s 1989 GDP. Money brokers were blamed for worsening the S&amp;L crisis. Pundits called them a “cancer” afflicting the system because they peddled “hot money” that surged in and out of banks chasing the highest yield. In 1991, new regulations enacted by the FDIC made Zage’s bread-and-butter product, so-called brokered deposits, practically toxic to banks. Regulators warned against using them and increased FDIC insurance premiums for those who did. Today few of the nation’s 4,700 banks hold significant amounts of them.



But perhaps they should.



Silicon Valley Bank didn’t have a single brokered deposit on its books on March 9, the day depositors withdrew $42 billion in just 10 hours. Hot money? Sure—but it’s all hot these days. SVB’s $1 million-per-second deposit run was sparked by a handful of tweets. Dozens of fintechs, including Chime, Mercury and Robinhood, are more than happy to assist you with fast, frictionless money transfers. When Apple, backed by Goldman Sachs, announced in mid-April that it was offering an FDIC-insured savings account yielding 4.15%, it sucked in nearly $1 billion in four days. Non-banks, in the form of money market mutual funds like those offered by Vanguard and Fidelity, love hot money too. According to the Federal Reserve, over the last 13 months, $1 trillion in deposits has fled commercial banks for higher-yielding uninsured accounts.



Despite their pejorative “hot money” nickname, Zage’s FDIC-insured brokered CDs are far stickier than any of these bank savings accounts. Plus, there is strong evidence from a niche group of so-called industrial banks, which are in stellar financial condition while relying heavily on this funding, suggesting that this sort of heat is a stabilizing force. But brokered CDs alone won’t cure what’s ailing our nation’s banking system. The fact that after 40 years they continue to be stigmatized by regulators—and consequently shunned by banks—points to a larger problem. Bank regulation, with its multiple state regulators and three primary federal watchdogs—the Federal Reserve, the FDIC and the Office of Comptroller of the Currency—is stunningly inefficient, laden with political baggage and miles behind a quickly changing marketplace.



Part of the problem comes from clinging to old-fashioned banking ideals like “core” deposits, thought to be foundational to community banking and the soundness of our system. SVB and First Republic were far from the only banks caught flat-footed when the Fed hiked rates 10 times in the last year. According to FDIC call report data, 31 FDIC-insured banks with total assets of $30 billion are sitting on losses in their securities portfolios in excess of their tier 1 capital&nbsp;(see “Underwater on Main Street,” below).&nbsp;And that’s just the ugliest tip of the iceberg. Nearly 400 banks with combined assets of more than $3.7 trillion have losses amounting to more than half of their tier 1 capital. Virtually all these institutions are local community banks, most with assets of less than $300 million. Fortunately, few of these sick minnows are likely to have lots of uninsured deposits exceeding $250,000—or the external pressure of being publicly traded like Silicon Valley Bank and First Republic.



“In light of recent bank failures, the question is really not whether we need to rethink what a brokered deposit is or what hot money is, but what is a core deposit anymore?” says Jelena McWilliams, former chair of the FDIC and now a managing partner at Washington, D.C., law firm Cravath Swaine &amp; Moore. “Long-term, the community banking model will have to change. These small banks basically cannot survive unless they engage in fintech partnerships because it’s an easier and less costly business model to attract customers. But for whatever reason, the regulators in Washington are very averse to fintech.”



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<abbr>S</abbr>upport for&nbsp;community or “Main Street” banking dates to the founding of the republic, when populist Thomas Jefferson squared off against federalist Treasury Secretary Alexander Hamilton, an elitist who wanted to create a national bank. Jefferson believed it was unconstitutional and a threat to the young democracy, in part because it would concentrate funding in the big cities and away from small, developing agrarian communities. Hamilton prevailed in 1791 with the establishment of the first central bank, but in 1811, Congress failed to renew its charter. It wasn’t until 1863, when the Union needed to finance the Civil War, that the national banking system was created.



This historic bias enabled small-town banks to proliferate, and by 1929 there were nearly 26,000 banks in the U.S., one for every 5,000 Americans. The stock market crash and Great Depression sparked a blizzard of bank runs on these often-undercapitalized institutions: In the four years before the FDIC was established in 1933, nearly 6,000 U.S. banks and savings institutions failed, costing depositors $1.3 billion, about $31 billion in today’s dollars.



Ever since, the number of community or “Main Street” banks has been shrinking. There are currently 4,676 FDIC-insured banks, but on average 200 of them are merged out of existence each year. Dwindling numbers have done little, though, to weaken the strength and resolve of small banks’ primary lobbying group, the Independent Community Bankers of America (ICBA), which spent nearly $4.8 million lobbying in 2022, according to Open Secrets, including about $1.3 million in donations spread around Congress, the largest chunk to the House Financial Services Committee. The ICBA’s stated goal is to “keep money local and invest in communities.”



“They’re politically powerful because they’re on every single corner,” says bank consultant Mayra Rodríguez Valladares. “There’s actually rare bipartisan support for community banking.”



Adds former FDIC chairwoman McWilliams, “There is a strong sense in Washington that these small banks matter. Large banks don’t understand local conditions where a loan may have originated in the past based on ‘I’ve known your grandfather. He was a man of his word, and I trust that you’re going be the man of your word.’ [The ideal] is Norman Rockwell–esque.”



The ICBA asserts that big Wall Street banks are transactional, making decisions based on “predetermined credit boxes,” while community banking boils down to relationships. Of course, this is largely nonsense. Small banks use—or should use—precisely the same metrics in evaluating creditworthiness that larger ones do. There is no evidence of any bank of any size in the year 2023 making a loan because it “knew your grandfather.” On the flip side, in many ways, Silicon Valley Bank, with its $212 billion in assets, was practicing community banking.



“SVB was built exactly the way the regulators say a bank should be built: customer by customer, relationship by relationship. No hot money,” says bank regulatory expert Paul Clark of Seward &amp; Kissel. “Everything was ‘You want a line of credit from me, you keep your deposits here.’ Those are so-called core deposits.”



Moreover, because regulators were never especially precise in their definition of core deposits, except for the fact that brokered deposits should mostly be avoided, clever entrepreneurs and financial institutions over the years have figured out ways around the prohibitions and FDIC insurance limits.



In 2003 an Arlington, Virginia, company called IntraFi launched a deposit swapping service called CDAR (Certificate of Deposit Account Registry), which allowed banks to offer wealthy customers and businesses the ability to deposit up to $50 million. The big deposits are chopped up into $250,000 increments and placed at various FDIC-insured banks in IntraFi’s network. Banks that accept the deposits are then able to place their own over-the-limit deposits through the network.



“For me it’s being able to retain multigenerational customers that have accounts that will exceed the $250,000 limit,” says Jill Castilla, president of Citizens Bank of Edmond, Oklahoma, which has deposits of about $330 million, 18% of which are “reciprocal” thanks to IntraFi. “So now they don’t have to manually place those funds in different institutions to ensure they have coverage.”



Citizens’ $58 million in reciprocal deposits is not considered brokered by the FDIC but instead fall under the “core” deposit designation. Likewise, if you’re a bank that advertises your CD rates online using services like Bankrate, NerdWallet or Forbes Advisor, the high-rate deposits you bring in from across the nation typically qualify as “core.”



Then there are the multiple, and often confusing, brokered deposit “exemptions” granted by the FDIC to various banks, including those working exclusively with fintechs. FDIC-insured $1.8 billion (assets) Evolve Bank &amp; Trust of Memphis, Tennessee, provides banking services for large fintechs like Dave, Affirm and Mercury, but shows only 0.3% of its deposits are brokered.



Sourcing deposits outside your home market is apparently okay with regulators so long as you avoid broker-dealers like Zage, or UBS, Bank of America or Wells Fargo. Iowa’s Luana Savings Bank, a 115-year-old family-owned bank located in a town of 300 people amid thousands of acres of cornfields, found this out the hard way.



From 2016 to 2020, Luana’s assets more than doubled to $1.7 billion as its ambitious president, David Schultz, became one of Iowa’s biggest agricultural lenders. Luana and its six small branches were unable to attract enough local deposits to fuel its growing business, so Schultz connected with brokers that allowed him to fund his loans with out-of-market CDs with similar maturities. As assets climbed toward $2 billion, brokered deposits accounted for 60% of the total.



Luana’s operating stats have been exemplary, its return on equity averages 19% and it was a perennial winner of Des Moines–area “best bank” awards. Still, alarm bells sounded at the FDIC regional office, and in 2021, it and the Iowa Superintendent of Banks issued a cease-and-desist order claiming Luana was taking “excessive” risks and operating in an “unsafe and unsound” way. It also fined the bank $14.5 million and cut off its access to Federal Home Loan Bank loans. Schultz, who declined to speak to&nbsp;Forbes,&nbsp;told the&nbsp;Des Moines Register&nbsp;at the time that the charges were manufactured, and sued the FHLB.



Ultimately Schultz decided fighting regulators wasn’t worth it, so without admitting or denying the charges, Luana signed a consent order in 2022 and agreed to add independent directors to its board and reduce its reliance on non-core deposits.



<abbr>A</abbr>mong banks,&nbsp;the biggest users of brokered deposits are a small group of FDIC-insured institutions known as industrial banks. There are 24 of them, representing only $250 billion in total assets, but they are extremely well capitalized and profitable&nbsp;(see “Industrial Strength,” below).&nbsp;They are also despised by the ICBA and the Federal Reserve, and barely tolerated by their regulator, the FDIC.



Sometimes referred to as industrial loan companies (ILCs), these banks are FDIC-insured and -regulated, but their parent companies are typically commercial or financial institutions. The first ILC was formed in 1910 to make loans to industrial workers who couldn’t obtain credit elsewhere. Over the years companies like General Electric, Target and Goldman Sachs have owned ILCs. Today their owners include Harley-Davidson, Pitney Bowes, UnitedHealth Group, BMW, Square and USAA. Only a few states, including Utah, Nevada and California, can authorize their charters, and though they’re subject to the same rigorous FDIC application process and examinations as other banks, they’re exempt from Federal Reserve oversight because their parent companies, which are required to support their ILC with capital, aren’t bank holding companies.



Industrial banks can offer savings accounts, credit cards, loans and mortgages, but are prohibited from offering checking accounts or financing their parent company’s products. Pitney Bowes Bank, for example, doesn’t make loans to purchase its postage meter machines, but it can finance and manage shipping payments for its thousands of small-business customers. Industrial banks tend to be specialized and branchless, which is why many rely heavily on brokered certificates of deposit for funding, which they use to match asset maturities.



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One of the most profitable and well-capitalized banks in the nation, Nevada-chartered Beal Bank USA, is an industrial bank owned by Texas billionaire Andy Beal. It has $32 billion in assets and, as of March 31, 93% of its deposits were brokered. It’s currently offering one-year CDs yielding 4.65%.



Toyota Financial Savings Bank is another well-capitalized Nevada ILC, set up to provide savings accounts, mortgages and commercial loans to the company’s 35,000 U.S.-based Toyota and Lexus employees. Under its new chief executive, Mara McNeill, a former JPMorgan Chase auto finance executive—she graduated from the Air Force Academy in 1993 but also has a JD from Georgetown and a master’s in public policy from Harvard—its assets have grown from $1 billion in 2020 to nearly $6 billion, funded to a great extent by broker deposits, which currently stand at 58% of the total.



“It can be economically advantageous to have core deposits. You don’t have as much in fees from the FDIC,” McNeill says. “But at the same time, you’ve gotta pay for the salespeople to go out there and get those accounts. And so, you know, there’s a fee here and a cost there.”



Other successful but little-known industrial banks, all based in Utah, include Comenity, an $12 billion credit card lender; Nelnet, a $1 billion specialist in student loans; and Wex, a $6.5 billion bank offering gasoline charge cards to small and midsize fleets with discounts from refiners like Chevron and Exxon. Until a few years ago, $2 billion Medallion Bank specialized in financing taxicab medallions. But Uber and Lyft forced a hard pivot to lending for recreational vehicles and boats, and financing home contractors. Virtually all its funding comes from brokered deposits. “Our Deposits Don’t Run,” reads a headline on its website.



Industrial banks currently represent about 1% of all bank assets, but the ICBA apparently views them as a dire threat to community banking. In July 2005, when Walmart applied for an industrial bank charter, the ICBA helped orchestrate a tidal wave of thousands of alarming letters to the FDIC and Congress. Their message: Just as Walmart killed mom-and-pop retailing, an industrial bank charter would help it eliminate Main Street banks. In fact, efficiency-minded Walmart merely wanted to streamline credit card processing, saving money on bank fees, and would have been precluded from offering banking services directly to its customers.



The FDIC, under chairman Martin Gruenberg, ignored Walmart’s application. Then, a full year after the retailing giant submitted its forms, the FDIC announced a six-month moratorium on approving all ILC applications, ostensibly to “determine if any emerging safety and soundness or policy issues exist.” Walmart withdrew its application in March 2007, and that six-month moratorium wound up lasting 14 years, until Jelena McWilliams took over as FDIC chairperson and approved Nelnet and Square’s application.



“Martin Gruenberg does not like nontraditional banks. And so they just slow-walked the applications when they hit Washington,” says George Sutton, general counsel for the National Association of Industrial Bankers and Utah’s former commissioner of financial institutions. “Eventually it just goes into a black hole.” (The FDIC declined&nbsp;Forbes’&nbsp;interview requests.)



Banking crises are always about trust and stability, something traditional banks no longer have a monopoly on. Most people now trust Apple and Toyota more than their community bank. The next generation of banking customers care little about charters or regulatory turf wars and are savvy enough to know that hot money offering higher returns, whether from their local bank, fintech or broker, is smart money.

row of people to the bank teller cashier defocused background

Some Like It Hot: Can A Financial ‘Cancer’ From The 1980s Help Prevent Bank Runs?

The party is over for struggling retailers that enjoyed a pandemic-era boost of cheap loans and stimulus-driven spending.



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Retailers that have no business still being in business are starting to go out of business.



Unfortunately, it’s about time.



This year is on track to be the worst year for retail bankruptcies since 2020, with strip-mall mainstays like Bed Bath &amp; Beyond, Tuesday Morning, Party City and David’s Bridal all filing for Chapter 11 in the last several months.



“These are companies that have been in trouble for a while,” said Neil Saunders, managing director at research firm GlobalData. “It was almost a matter of when, rather than if, they went under.”



The spate of bankruptcies comes at a time when Americans have pulled back on discretionary spending and begun socking away more in savings as the cost of gas, groceries and other staples becomes more expensive, talk of a potential recession continues and major companies conduct layoffs. Consumer spending is watched closely since it accounts for more than two-thirds of the nation’s gross domestic product. Shoppers have shifted spending sharply in different directions over the pandemic, including pivoting away from categories like home goods after an early-pandemic buying spree.



However, while the economy isn’t helping and may be acting as a catalyst, the retailers who are teetering now have long had major problems. Retail spending remains “surprisingly robust” in some ways, said Saunders. More often a retailer’s downfall can be traced to shabby stores or an uninspiring online presence.



Plenty more retailers could go bankrupt before the year is over. The ones that look the most vulnerable to default include Rite Aid, Jo-Ann, Belk, At Home and 99 Cents Only, according to ratings companies Moody’s and S&amp;P Global. This watchlist skews toward specialty stores with exposure to the pressured home goods sector.



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The pandemic bought many retailers more time. Consumers spent freely, flush with cash from stimulus checks and unable to put it toward vacation or dinner and a movie. Retailers were also able to borrow money on the cheap.



“Covid masked some of the weak players,” said Steve Dennis, founder of SageBerry Consulting. “It staved off the reckoning.”



Now that the pandemic is over, at least officially, it’s back to reality and retailers are confronting the sins of the past: too many stores, too much debt and too few customers.



Retailers who loaded up on debt are having a harder time making payments as they watch sales and profits deteriorate. For instance, discount home goods retailer Tuesday Morning referenced its “exceedingly burdensome debt” in February when filing for bankruptcy for the second time in two years. Its net debt has increased tenfold, jumping from $23 million in 2019 to some $250 million last year. Sales during that time fell by 25%.



Christmas Tree Shops also cited its “burdensome liabilities” when filing for bankruptcy earlier this month. Its owner, Handil Holdings, listed liabilities of as much as $100 million in court documents.



Twelve percent of retailers now have a Triple-C rating from S&amp;P Global, meaning there’s a 50-50 chance that things get so bad they’ll default on their loans. That’s double the figure from last year and triple the year before.



“A lot of these companies were essentially zombie companies pre-Covid,” said Craig Ganz, an attorney at Ballard Spahr who has handled retail bankruptcies for several decades. “They were primarily surviving on debt, and now debt has become simply too expensive for them to afford.”



The Federal Reserve’s rapid rate hikes have made it much costlier for retailers to take on new debt, whether it’s to finance investments in growth areas or give themselves some breathing room, said Sarah Wyeth, who leads the retail and consumer sectors for S&amp;P Global Ratings.



“Any issuer that’s very stressed and needs to go to the market in the next year or so is going to be very challenged,” said Wyeth.



Meanwhile, the bills must be paid. Overhead is especially vexing for retailers stuck with large, lumbering brick-and-mortar fleets from an earlier era who aren’t drawing enough shoppers to cover the costs of paying workers, stocking shelves and keeping the lights on. The home furnishing sector is notorious for having too many stores, said Craig Johnson, founder of Customer Growth Partners, a retail research firm.



“The seeds of these companies’ demise was planted not just years ago, but decades ago,” he said.



By Lauren Debter, Forbes Staff

Category: Daily Cover