It's Google’s turn for a data scandal

Good Friday morning and welcome to today's DealBook Briefing. Sundar Pichai of Google, Mary Barra of General Motors, Peter Thiel of Founders Fund and Lachlan Murdoch of Fox will all be speaking at our “Playing for the Long Term” conference on Nov. 1 at Jazz at Lincoln Center in Manhattan. Register to attend. (Want this by email? Sign up here.)

Google might regret this data leak cover-up 

Google will shut down its ill-fated Google Plus social network over a security flaw that exposed the private data of up to 500,000 users. The vulnerability revealed the email address, occupation, gender and age of the users to 438 third-party applications via online programming interfaces.

Google discovered the flaw in March but chose not to disclose details because, the company says, it did not appear anyone had gained access to the data, and its privacy team decided it was not legally necessary.

The company made the call amid Facebook’s Cambridge Analytica scandal, when it saw how bad public blowback over data security could be. (An internal memo seen by the WSJ warned of “immediate regulatory interest” if the company went public.) Sharon Ovide of Bloomberg Opinionargues that the decision was unwise:

If the company had disclosed the Google Plus problem in March, it would have been a big deal but not a crisis. This cover-up, however, makes the Google Plus digital-security problem so much worse.

More Google news: The company will not bid for a $10 billion Pentagon A.I. contract, citing its ethics guidelines. It is poised to appeal a $5 billion fine from the E.U. over its Android operating system. And it avoided a lawsuit over accusations it had illegally tracked 4.4 million iPhone users in Britain.

U.S. start-ups are raising unprecedented mega-rounds

Tech companies now raise money less frequently — but when they do, they raise a lot. Those are the findings from PwC and CB Insights, which report that U.S. start-ups raised $27.5 billion in the third quarter, the highest level in years.

Fifty-five companies raised rounds of $100 million or more, setting a record. And six companies — including Uber and the stationary-bike maker Peloton — raised rounds of at least $500 million.

But the actual number of fund-raising rounds fell to 1,229, the lowest level since 2012, and the number of seed-stage rounds declined, too. That suggests investors are taking fewer wagers and betting on proven blockbusters.

The danger: The next generation of Silicon Valley companies may be less impressive than in the past.

I.M.F. cuts its forecast for global growth 

The world’s economy may be starting to plateau. The International Monetary Fund says that it expects growth of 3.7 percent in 2018 and 2019, down from an estimate of 3.9 percent just three months ago.

The culprits: trade wars and struggling emerging markets. “There are clouds on the horizon,” the I.M.F.’s chief economist, Maurice Obstfeld, said yesterday. “The likelihood of further negative shocks to our growth forecast has risen.”

The U.S. may be hurt as well. While the I.M.F. left its growth prediction for the country unchanged for 2018, it predicted an increase of just 2.5 percent next year — down 0.2 percentage point from its July prediction — as the impact of tariffs imposed by the Trump administration begins to hit.

Coming up 

Google to unveil new products. The tech company is expected to show off a range of new devices, including a third-generation Pixel smartphone, at an event in New York today.

Economic optimism may fall slightly. A gauge of confidence in the U.S. economy for the next six months, as measured by Investor’s Business Daily and TechnoMetrica Market Intelligence, is due today and is expected to slide a little. It would be the second consecutive month the indicator has fallen, from a high in July.

Pension funds fight private equity

Investment giants like KKR and TPG draw much of their financial firepower from state pension funds that invest in them. But as Michael Corkery of the NYT notes, pension funds are increasingly confronting private equity firms over the human impact of investments:

• Minnesota’s pension plan temporarily stopped investing in KKR after Toys “R” Us, which the firm had invested in, denied laid-off workers severance.
• New Jersey’s pension fund pressed private equity firms with mortgage investments in Puerto Rico not to foreclose on residents in the wake of Hurricane Maria.

Investment firms are starting to listen. As Adam Liebtag of the New Jersey State Investment Council told the NYT: “They are following the money.”

A new trick in the tariff war: code-fudging 

Chinese companies are using a simple new tactic to avoid U.S. tariffs: They’re changing the 10-digit HTS codes the U.S. uses to classify imported goods. (There are 18,927 such codes.)

Chinese exporters are openly discussing on online platforms like Yishanghuiyou how they can change these codes, according to Chuin-Wei Yap of the WSJ:

“We want to export a batch of plywood trays,” wrote someone using the name Zhang Liang on a Yishanghuiyou forum in January. “What’s the tariff code for plywood that can make it avoid inspections?”

“Our company can help,” replied another user, suggesting they get in touch. Neither user responded to requests for comment.

The practice is forbidden by the Chinese and U.S. governments. But it’s hard to catch this kind of fraud: Less than 5 percent of imports into the U.S. are physically inspected, and American officials say China doesn’t always cooperate. Nobody said this would be a clean fight.

Revolving door 

• Airbus appointed Guillaume Faury, the head of its plane-making unit, as C.E.O.
• Top 21st Century Fox television executives, including Peter Rice and Dana Walden, will take senior positions at Walt Disney’s TV division.
• Hope Hicks, the former White House communications director, will join the new, slimmer Fox.
• Fannie Mae named Hugh Frater as its interim C.E.O.
• Terence Hahn was ousted as C.E.O. of the chemical maker Axalta for violating unspecified company policies.

The speed read 

Deals

• DealBook exclusive: The public relations firm Kekst is merging with a European counterpart, CNC. The new firm, Kekst CNC, will have 250 P.R. professionals, led by Jeremy Fielding of Kekst and Bernhard Meising of CNC as co-C.E.O.s.
• Nelson Peltz’s Trian Fund Management is said to be considering a takeover bid for Papa John’s. (WSJ)
• Microsoft is investing in Grab, the Singapore ride-hailing company. (Bloomberg)
• Netflix plans to buy a production studio as it makes more TV shows and movies. (Bloomberg)
• Sovereign wealth funds are hiring in-house deal makers to strike bigger investments. (NYT)

Politics and policy

• President Trump says he has no plans to fire Rod Rosenstein, the deputy attorney general. (NYT)
• The author of the Republican tax overhaul now faces voter skepticism. (WSJ)
• So far, President Trump has ignored the U.N.’s new climate change report. (NYT)
• The Trump campaign official Rick Gates wanted an Israeli intelligence company to use online manipulation to defeat Hillary Clinton. (NYT)
• Kanye West will visit the White House. (NYT)
• Democrats and Republicans both say the fight over the nomination of Judge Brett Kavanaugh led to a surge in fund-raising. (Axios)

Trade

• Steel from Finland is now subject to huge tariffs in the U.S. — but it’s worth it for some American customers. (NYT)
• Secretary of State Mike Pompeo traded harsh words with his Chinese counterpart, Wang Yi, over trade. (NYT)
• One indicator of China’s economic health plunged to its lowest-ever level amid the trade fight. (Bloomberg)

Tech

• Facebook unveiled a new video-calling device, Portal, that uses A.I. to follow you with its camera as you move. But it raises serious privacy concerns. (NYT)
• Tesla plans to find a chairman who can stand up to Elon Musk. (Bloomberg)
• Why does Big Tech seem sanguine about federal data privacy regulation? Because state laws might be much tougher. (NPR)
• The latest on Bloomberg’s Chinese chip spying story: Here’s Apple’s letter to Congress denying the claims, and one expert cited in the report told the Bloomberg reporters that their article “didn’t make sense.”

Best of the rest

• The S.E.C. has dusted off a never-used cyber enforcement tool. Companies should worry. (DealBook)
• Marriott has merged its hotel rewards program with Starwood’s, and people aren’t happy. (NYT)
• President Trump plans to allow more ethanol in gasoline, pleasing farmers, but probably angering Big Oil. (WSJ)
• E-commerce’s big headache: endless, expensive returns. (Axios)
• A tax fight revealed that Roman Abramovich’s French holiday home is worth $4,370 per square foot. (Bloomberg)

Thanks for reading! We’ll see you tomorrow.

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