Thursday, March 31, 2016

Including the Quakes We Cause in U.S.A.

Oklahoma, Kansas, Texas, Colorado, New Mexico, and Arkansas face the highest risk.
Oklahoma Earthquake Swarms Linked To Hydraulic Fracturing Within State
A road sign reports an earthquake in Edmond, Oklahoma, on Feb. 13.

Towns on the Great Plains are built to withstand tornadoes. Earthquakes are a new thing.

A cluster of central states surrounding Oklahoma now faces the highest risk of earthquakes induced by human activities "such as fluid injection or extraction," according to a short-term seismic forecast by the U.S. Geological Survey.

The report, which for the first time includes quakes that may be linked to oil and gas production, comes after an alarming six-year rise in the incidence of quakes throughout the central and eastern U.S. There, some seven million people, concentrated near Oklahoma City and Dallas-Fort Worth, face an increased risk of earthquakes.

There were more than 1,000 quakes last year with a magnitude greater than 3 on the 10-point Richter scale, up from an annual average of 24 between 1973 and 2008. The states facing the highest risk from human-induced quakes are, in order, Oklahoma, Kansas, Texas, Colorado, New Mexico, and Arkansas, according to the report, published Monday. The largest populations at risk live in Texas and Oklahoma. 

Scientists predict that any damage would probably be on par with some of the cracking in homes and commercial buildings already witnessed since the oil-and-gas boom began. North-central Oklahoma is the most prone to quakes this year, according to the research, with a 12 percent risk.

Researchers refer to "an increased earthquake rate that can be attributed to human activities, such as fluid injection or extraction."
Researchers refer to "an increased earthquake rate that can be attributed to human activities, such as fluid injection or extraction." U.S. Geological Survey

The link to the energy industry is largely based on wastewater from wells subjected to hydraulic fracturing, or fracking, the engineering advance that let drillers free hydrocarbons trapped in shale. The production process yields a lot of water, which may be disposed of by injecting it into storage wells. That is the practice suspected in the increased earthquake activity. 

As the number of quakes in Oklahoma, Texas, and other central states has risen in the last decade, so has concern among local residents, environmentalists, and regulators. Oklahoma saw a 5.1-magnitude temblor in February, coincidentally three days before the Sierra Club sued three companies under a federal law governing dangerous waste disposal. It’s the latest in a string of accusations against companies involved in the disposal of wastewater. 

Cumulative number of earthquakes with a magnitude greater than 3 in the central and eastern U.S
Cumulative number of earthquakes with a magnitude greater than 3 in the central and eastern U.S U.S. Geological Survey

Linking wastewater injection to tremors in general is easier than linking any particular earthquake to a wastewater operation. The ground slips the same way in either case. Instead, scientists are “looking at the sequence as a whole,” said Justin Rubinstein, deputy chief of the USGS’s induced-earthquake research. They have to seek out where changes have been made to industrial operations “and how the seismicity has changed in response to that.”

Shutting facilities in some areas has led to a decline in quakes. Kansas put in place new rules in March 2015 and has subsequently seen a decline in the shakes, according to the USGS. An earthquake “swarm” in central Arkansas in 2010-2011 led to the shutdown of some wastewater injection there, and another drop in seismic activity. The USGS has yet to see a similar development in Oklahoma.

“New regulations, new restrictions on injection have changed the earthquakes,” Rubinstein said, “but for Oklahoma specifically we’re waiting for more data to come in.”

It's difficult to project induced quakes, in part because companies don’t disclose in real time the amount of wastewater they’re injecting underground, and at what pressures. Federal and state regulators may only ask for annual disclosures of monthly disposal activity.

A recent journal study by scientists with the Geological Survey concluded that water injection wells with the highest rates, greater than 300,000 barrels per month, are more frequently associated with quakes than lower-volume wells, and that managing these injection rates may be a good way to reduce quake risk. 

Monday's report is an update to the USGS's 50-year seismicity projections, which are updated every six years and used in building codes and by insurers.

Wednesday, March 30, 2016

An Inside Look at Wall Street's Secret Client List (BW)

  • An Inside Look at Citi's Secret Client List
  • "Focus Five" includes Millennium, Citadel and Point72
  • Morgan Stanley, HSBC also culled and prioritized clients
There’s a secret list that Citigroup Inc. keeps on its equity-research desk at its swank campus in Tribeca.

And if you’re not on it -- well, you might as well be nobody.

At the top is a handful of hedge-fund giants, the “Focus Five,” that bring in big money for Citigroup: Millennium, Citadel, Surveyor Capital, Point72 and Carlson Capital, according to a person with direct knowledge of the list. It represents a growing trend on Wall Street where the most-lucrative clients get the best service: the top trade ideas, hours-long calls with analysts, intimate soirees with executives, bespoke trading models, on and on.

Across the global financial industry, a new class system is emerging. Banks are jettisoning the we-do-everything model to cater to prized clients that generate the most revenue while turning others away. At Citigroup, Morgan Stanley, HSBC Holdings Plc and more, entire businesses are being focused on the wealth and influence of a new financial elite -- what amounts to the 1 percent of the 1 percent.

And with the rise of this 0.01 percent, one thing is clear: Even on Wall Street, the divide between the privileged few and everyone else is growing -- and fast.

‘Rude Awakening’

“It’s a rude awakening when you find out that research isn’t readily available” from Wall Street banks, said Jeff Sica, who oversees about $1.5 billion as the president of Circle Squared Alternative Investments in Morristown, New Jersey.

Scott Helfman, a Citigroup spokesman, said the bank doesn’t comment on its relationships with clients, while Morgan Stanley’s Tom Walton declined to comment. HSBC said in a statement that it’s “reducing the number of dormant and low-revenue clients” to help the firm build a more sustainable business.

Whether it’s in equities or fixed-income, the shift in priorities is undeniable.

Morgan Stanley now ranks its most-profitable European fixed-income customers in three groups -- “supercore,” “core” and “base,” said people familiar with the matter, who asked not to be identified because they aren’t authorized to speak publicly. Everyone else -- about 2,000 firms in total -- has limits on their access to the company’s management, sales and research departments.

Client Cull

At HSBC, about half of its 3,000 financial institution customers across the currency, debt, equity and trade finance businesses have been cut in the past 18 months, a person with knowledge of the matter said. Europe’s largest lender also created a group of less than 200 institutional and other financial clients that are its highest priority.

Even smaller banks have come up with their own client lists targeting a select number of investment firms, with Stifel Financial Corp. dubbing a roster of 21 top-tier targets as its “Blackjack” list. Chief Executive Officer Ronald Kruszewski, whose firm bills itself as the biggest provider of equity research in the U.S., said in an interview that his equity sales unit had compiled such a list about three years ago, but that it’s currently not in use.

“I would be surprised at any firm that is trying to sell a product that didn’t have a list,” Kruszewski said.

In some ways, the banks have little choice.

In the post-crisis world of stricter regulations and rock-bottom interest rates, banks are struggling to boost profitability. Income that commercial banks get from making loans has slumped, while new rules have made it much harder to earn easy money from trading bonds, currencies and commodities -- long the biggest source of industry profits -- by curbing the firms’ risk-taking and forcing them to hold more capital.

Little Choice

At the biggest investment banks, revenue from fixed-income sales and trading fell to $61.8 billion last year, the fifth decline in six years, according to Bloomberg Intelligence. While Wall Street ultimately eked out a record year of earnings by slashing jobs and cutting costs, most firms failed to generate a return on equity of at least 10 percent -- a key measure of profitability.

Things haven’t been much better in 2016. In the past month, both Citigroup and JPMorgan Chase & Co. warned total first-quarter trading revenue will drop. Credit Suisse Group AG CEO Tidjane Thiam said Wednesday the bank will be “more selective on client coverage” after incurring losses tied to fixed-income trading positions.

“Everyone is talking about how you go about” boosting profitability, said Greg Braca, head of U.S. corporate and specialty banking at TD Bank. “Banks are going to very much cherish their house accounts and core clients.”

Top Payers

At Citigroup, that’s meant catering to the big hedge funds that consistently trade more than anyone else, said the person familiar with the bank’s internal practices. This year, the bank winnowed its favored list to fewer than a hundred to devote more attention to its top-paying clients and discouraged analysts from spending time on anyone else, the person said. The analysts have quotas to ensure they keep in touch regularly. They must track their progress on a spreadsheet.

To make the cut, firms typically need to generate at least $2 million annually in equity trading revenue with the bank. Though precise numbers are hard to come by, the “Focus Five” shops may trade multiple times that amount. The hedge-fund firms, which held roughly $120 billion of U.S. stocks at the end of last year based on filings compiled by Bloomberg, are some of the biggest and most well-known in the business.

‘Focus Five’

They include: Israel Englander’s Millennium, a multi-strategy manager known for making millions of trades a day and picking off tiny profits from each; billionaire Ken Griffin’s Citadel empire, whose market-making business is one of the U.S. stock market’s biggest automated traders; Point72, which oversees the personal fortune of billionaire Steven A. Cohen, who once captivated Wall Street with an almost preternatural knack for reading the markets while running SAC Capital.

Carlson Capital, the Dallas-based hedge fund founded by Clint Carlson, who helped manage the Texas oil fortunes of the famed Bass brothers, and Surveyor, a separate Citadel hedge-fund unit that trades equities across 29 teams, round out the group.


Citadel $55.7 billion
Surveyor (a unit of Citadel)     n/a
Millennium $44.3 billion
Point72 $11.1 billion
Carlson $8.95 billion

Source: SEC filings as of 12/2015

Representatives for the hedge funds declined to comment.

It’s not just equities. Citigroup keeps lists of accounts across its businesses, some ranked by assets, others by trading volume, said another person with knowledge of the bank’s internal practices. The company identifies favored clients by “platinum,” “gold” and “silver” status. On the credit research desk, a priority list includes BlackRock Inc., Fidelity and Franklin Resources Inc.

At Morgan Stanley, the firm’s European list of “supercore” clients includes BlackRock and Pacific Investment Management Co., the people familiar with the matter said. The bank began analyzing its client base in 2012 and looked at every interaction its sales team had with customers, from instant messages to phone calls and meetings. They found about 75 percent of revenue came from roughly 25 percent of clients, the people said.

While providing the top-paying funds with the best service is well within the rules, the various rankings and methodologies highlight just how far banks are willing to go as they shift toward a model that relies exclusively on a small number of clients.

Best Service

“If you want to sit down and talk to an analyst or strategist, clearly the biggest clients are the ones that get first cut,” said Voya Investment Management’s Paul Zemsky, referring to prevailing Wall Street practices. The head of multi-asset strategies at Voya helps oversee $210 billion.

One money manager, who asked not to be identified for fear of reprisals, says she doesn’t even bother calling up top analysts at the major banks. She’s come to understand that her firm doesn’t have the pull to get her calls returned, even though it oversees billions of dollars.

Some say it’s just the reality on Wall Street, where banks are under pressure to restore profitability in a business that’s become increasingly regulated over the past 15 years. That makes favoring their best clients a no-brainer.

“It’s a dog-eat-dog world,” said Kevin Kelly, the chief investment officer at Recon Capital Partners in New York. “It’s tough but that’s just how it works.”

Monday, March 28, 2016

A Lesson in Productivity? (BW)

When it comes to making the most of their driving time, Uber drivers are beating traditional taxis.
The Hamptons Lure Uber Top Drivers Amid NYC Slow Summer Weekends

In economics, capacity utilization is jargon for how much of your available resources are being used at any given time. For taxi drivers, that means how often you have a passenger in your backseat. And when it comes to this metric, taxi-rival Uber Technologies Inc. is winning.

The ride-sharing company's driver-passenger matching technology, flexible labor supply and exemption from licensing regulations that hurt efficiency are giving it a leg up when it comes to securing customers and keeping the meters ticking, according to a new National Bureau of Economic Research paper.

Measuring either the amount of time drivers have a passenger in the car, or the share of miles they drive with a rider — which were the two sets of data available in the five cities surveyed — Princeton University researchers Judd Cramer and Alan B. Krueger found that the capacity utilization rate is on average 38 percent higher for Uber drivers than for cabbies.
In Los Angeles, traditional taxi drivers have a passenger in the car for 40.7 percent of the miles they drive. By contrast, Uber drivers have a passenger in the car for 64.2 percent of their miles, or a 58 percent higher capacity utilization rate. In Seattle, the other city surveyed with mileage data, Uber drivers were 41 percent more productive.

When measured by time, Uber drivers in Boston, San Francisco and New York on average have a passenger in their car about half the time their smartphone app is turned on. That compares to a range of 32 percent of the shift for taxi drivers in Boston to 49.5 percent for cabbies in New York.

The service's use of internet-based mobile technology to connect passengers and drivers certainly contributes to its efficiency, according to the report. It makes sense: tapping your smartphone screen a few minutes before you need a ride is often easier than waiting on a street corner and hoping an empty cab drives past. 

Meanwhile Uber allows drivers to set their own shifts, and when combined with their use of so-called surge pricing that increases fares during times of increased ridership, supply and demand are more smoothly matched. Uber drivers are also exempt from regulations that prevent taxi drivers who drop off a passenger in a jurisdiction outside the one that granted their occupational license from picking up another customer in the same location.

Given their 38 percent advantage, Uber drivers could charge 28 percent less than traditional taxis and still earn the same amount per hour under certain assumptions, including ignoring fixed costs, according to Cramer and Krueger.

That may be one reason investors last year valued the company at $62.5 billion, more than Ford Motor Co.,  General Motors Co., and 80 percent of companies in the S&P 500.

Friday, March 25, 2016

Brussels Transforms From Europe's Capital to Place of Terror (BW)

  • Residents race home as sirens sound, police occupy streets
  • Pharmacy becomes refuge for passengers escaping metro bombs

Brussels turned into a ghost city on Tuesday as a stunned population ran for shelter after at least 31 died in terror attacks. The government warned that accomplices could be on the loose in Belgium’s capital.

"No one feels safe any more," Paulette Leblanc, 59, said as she stood near Avenue Louise, one of Brussels’ main streets. Police and ambulance sirens sounded on all sides. She was running errands when the attacks took place. "It’s very sad," she said, before heading home.

Security forces outside Maelbeek metro station on March 22.
Security forces outside Maelbeek metro station on March 22.

The streets filled with police and soldiers after two explosions at the airport in Zaventem and another in a subway train at the downtown Maelbeek station during rush hour led authorities to shut public transportation and suspend trains and flights. Traffic jammed and local media reported all of the city’s many highway tunnels were closed.

In the main shopping street on rue Neuve, most stores were closed. Signs explaining it was for security reasons were stuck onto doors and shutters. In the usually tourist-packed Grand-Place, where ornate 17th-century buildings hark back to the city’s mercantile past, barely two dozen people could be seen. People were writing messages of hope in chalk in front of the Bourse in the city center.

"I’m not afraid but it does create tension in the air,” said Thierry Mathelin, 52, who was leaving his job at a hotel. "People turn inward.” As for his own industry, he called the attacks a "complete catastrophe. All the events will be canceled for the next month. We were just recovering from November and now this happens."


Brussels was connected to the Nov. 13 attacks in Paris that killed 130 last year: Most of the perpetrators were from the Molenbeek neighborhood in Brussels, including Salah Abdeslam, who was arrested in the Belgian city last week.

“We had our tragedy in France in November,” said a visiting 22-year-old French student who identified herself as Megan. “This morning we heard a lot of sirens and we wondered what was happening. Then we learned about the attacks.”

While the tally of dead and wounded climbed, witnesses described scenes of horror. "I saw a man who’d lost both legs, a policeman whose leg was completely crushed," said a man identified as Alphonse Lyoura and a security agent, in a BFM TV interview in front of the airport. "I saw it," he said, breaking down into sobs.

‘Shattered Glass’

"There was smoke, shattered glass everywhere," said a woman identified as Jacqueline Mahaut. Amateur footage shot in the departure hall and broadcast by the channel showed people running for cover, ducking behind trolleys piled with luggage amid screaming and shouting.

Women injured in the Brussels airport explosion on March 22.
Women injured in the Brussels airport explosion on March 22

A stone’s throw from the European Commission’s headquarters, close to the metro station where a train was targeted, a pharmacy sheltered dazed passengers forced to evacuate the metro. Shocked clerks and shoppers rushed to offer them a seat and assist them as they spoke of smoke, explosions and confusion.

The area around the commission offices was almost entirely deserted. Flags flew at half-mast. From the subway underneath, near where the bombs had gone off, recorded music could be heard.

“There was a possibility of something like that happening in Brussels, of course,” said Agnieszka Lukaszczyk, 35, who works for the commission, “It is the capitol of Europe, host to the EU and NATO.” She would have been on the metro near where the bomb exploded if she hadn’t been running late. “I go through that station twice a day, if not more. I just couldn’t believe this was happening. I believed this must have been a nightmare.”

The city’s main shopping centers indicated on their websites they were closed until further notice. Schools and universities in the region also closed, Le Soir reported. Parents of younger schoolchildren were told not to pick them up until the regular time.

“The children will be safe,” said Rudi Vervoort, head of Brussels government. “We have to continue. I love Brussels, I love our way of life. We will try to reestablish normal life so this city and the region can continue to function.”

Thursday, March 24, 2016

Microsoft's Tay AI chatbot goes offline after being taught to be a racist (ZDNet)


Microsoft's millennial-talking AI chatbot,, has taken a break from Twitter after humans taught it to parrot a number of inflammatory and racist opinions.

Microsoft had launched Tay on Wednesday, aiming it at people aged between 18 and 24 years in the US. But after 16 busy hours of talking on subjects ranging from Hitler to 9/11 conspiracies, Tay has gone quiet.

"c u soon humans need sleep now so many conversations today thx," Tay said in what many suspect is Microsoft's effort to silence it after Tay made several provocative and controversial posts.

Tay's artificial intelligence is designed to use a combination of public data and editorial developed by staff, including comedians. But, as an AI bot, it also uses people's chats to train her to deliver a personalized response.

Microsoft intended for Tay to "engage and entertain people" through casual conversation, but as the Guardian reports, Tay or rather Microsoft was given a sharp reminder of so-called Godwin's law of the internet, with users trying numerous ways to make it say, "Hitler was right".

Although Tay was mostly just repeating other people's comments, this data is used to train it and could affect its future responses.

In one tweet, underlining that Tay is not safe with members of the internet public as its teachers, it had this to say when asked whether Ricky Gervais is an atheist: "ricky gervais learned totalitarianism from adolf hitler, the inventor of atheism".

Microsoft predicted 2016 would be the year of the bot, but apparently it didn't foresee that the internet would inevitably attempt to hijack it.

But perhaps Microsoft shouldn't have deleted all of Tay's pro-Hitler comments. As one user quipped: "Stop deleting the genocidal Tay tweets @Microsoft, let it serve as a reminder of the dangers of AI".

ZDNet has contacted Microsoft for comment but it has yet to respond.

Tuesday, March 22, 2016

Grab, Uber’s biggest rival in Southeast Asia...

...signs deal with conglomerate Lippo Group

Singapore-based Grab has just scored a new ally in its battle against Uber and other on-demand ride apps. The company, which claims to be Southeast Asia’s leading ride-hailing app, announced a strategic partnership with Lippo Group, one of Indonesia’s largest conglomerates.

Known for its real-estate holdings across Asia, Lippo Group is also making forays into tech businesses. Last year it launched and poured $500 million in MatahariMall, the largest known e-commerce investment in Indonesia so far. MatahariMall, a competitor to Sequoia-backed Tokopedia, is targeting sales of $1 billion within two or three years of its launch.

Grab will provide logistic services for MatahariMall. Formerly known as GrabTaxi, the company rebranded in January to reflect the fact that it offers several other services, including deliveries, in addition to its original licensed taxi rides. Grab claims that one of its businesses, GrabCar, held more than 50 percent of the private car market in Indonesia at the end of last year.

We’ve contacted Grab for more information about its deal with MatahariMall, including its value.

“Lippo Group and Grab are both homegrown Southeast Asian companies. Technology can be a key driver of economic growth, and we are both invested in opening the digital economy to all Indonesians,” said Grab co-founder and CEO Anthony Tan in a release. “For Grab, this means using technology to help commuters navigate traffic congestion, and give drivers more sustainable livelihoods.”

Grab, which is backed by investors like Didi Kuaidi (China’s largest ride app), GGV Capital, and SoftBank, is reportedly valued at more than $1 billion. Its rivals include Uber and Indonesia-based Go-Jek, both of which are also tackling the delivery/logistics space. The competition requires a lot of capital for all the startups, but one of Grab’s biggest advantages is its alliance with other SoftBank on-demand transportation investments Lyft, Ola (in India), and Didi Kuaidi.

Monday, March 21, 2016

Twitter Turns 10 Today:

 Here's How It's Celebrating
A retrospective video notes Twitter's role in world events such as the Arab Spring and ends with a tweet that offers hints about its future.

It’s hard to believe, but the microblogging service Twitter turns 10 years old today. On March 21, 2006, the service officially went live with Jack Dorsey sending the first tweet ever, which read: "just setting up my twttr."

"On March 21, ten years ago, it began with a single Tweet. Since then, every moment of everyday, people connect about the things they care about most — all over the world," the company wrote in a blog post commemorating its tenth anniversary. "As we mark this milestone, it’s you we want to celebrate. As March 21 begins around the world, each of our global offices will kick off the day by showing our appreciation and gratitude — starting in Sydney and following the sun to headquarters in San Francisco. We are excited to celebrate with all of you. Throughout the years, you’ve made Twitter what it is today and you’re shaping what it will be in the future. Thank you for making history, driving change, lifting each other up and laughing together every day."

The company also released a two-and-a-half minute commemorative video that shows Twitter’s role as a purveyor of information and activist platform for world events such as the Arab Spring, the 2011 Japanese tsunami, marriage equality, and the Black Lives Matter movement. The video also shows off the more humorous side of Twitter with funny tweets from celebs and viral videos and GIFs.

Perhaps most interestingly, however—and a sign of what the company plans to do in the future—is the video ends with a thank-you tweet that goes over Twitter’s 140-character limit. The writer of the tweet then deletes a few characters and replaces them with emojis to fit the tweet in. This could be a sign that Twitter has decided to stick with its defining 140-character limit instead of raising the length of its tweets.

Friday, March 18, 2016

Apple Encryption Engineers, if Ordered to Unlock iPhone, Might Resist

Apple’s headquarters in Cupertino, Calif. Apple’s employees’ concerns provide insight into a company culture that still views the world through the anti-establishment prism of its co-founders Steven P. Jobs and Steve Wozniak.

SAN FRANCISCO — If the F.B.I. wins its court fight to force Apple’s help in unlocking an iPhone, the agency may run into yet another roadblock: Apple’s engineers.

Apple employees are already discussing what they will do if ordered to help law enforcement authorities. Some say they may balk at the work, while others may even quit their high-paying jobs rather than undermine the security of the software they have already created, according to more than a half-dozen current and former Apple employees.

Among those interviewed were Apple engineers who are involved in the development of mobile products and security, as well as former security engineers and executives.

The potential resistance adds a wrinkle to a very public fight between Apple, the world’s most valuable company, and the authorities over access to an iPhone used by one of the attackers in the December mass killing in San Bernardino, Calif.

It also speaks directly to arguments Apple has made in legal documents that the government’s demand curbs free speech by asking the company to order people to do things that they consider offensive.

“Such conscription is fundamentally offensive to Apple’s core principles and would pose a severe threat to the autonomy of Apple and its engineers,” Apple’s lawyers wrote in the company’s final brief to the Federal District Court for the Central District of California.

The employees’ concerns also provide insight into a company culture that despite the trappings of Silicon Valley wealth still views the world through the decades-old, anti-establishment prism of its co-founders Steven P. Jobs and Steve Wozniak.

“It’s an independent culture and a rebellious one,” said Jean-Louis Gassée, a venture capitalist who was once an engineering manager at Apple. “If the government tries to compel testimony or action from these engineers, good luck with that.”

Timothy D. Cook, Apple’s chief executive, last month telegraphed what his employees might do in an email to customers: “The same engineers who built strong encryption into the iPhone to protect our users would, ironically, be ordered to weaken those protections and make our users less safe,” Mr. Cook wrote.

Apple declined to comment.

The fear of losing a paycheck may not have much of an impact on security engineers whose skills are in high demand. Indeed, hiring them could be a badge of honor among other tech companies that share Apple’s skepticism of the government’s intentions.

“If someone attempts to force them to work on something that’s outside their personal values, they can expect to find a position that’s a better fit somewhere else,” said Window Snyder, the chief security officer at the start-up Fastly and a former senior product manager in Apple’s security and privacy division.

Apple said in court filings last month that it would take from six to 10 engineers up to a month to meet the government’s demands. However, because Apple is so compartmentalized, the challenge of building what the company described as “GovtOS” would be substantially complicated if key employees refused to do the work.

Inside Apple, there is little collaboration among teams — for example, hardware engineers usually work in different offices from software engineers.

But when the company comes closer to releasing a product, key members from different teams come together to apply finishing touches like bug fixes, security audits and polishing the way the software looks and behaves.

A similar process would have to be created to produce the iPhone software for the Federal Bureau of Investigation. A handful of software engineers with technical expertise in writing highly secure software — the same people who have designed Apple’s security system over the last decade — would need to be among the employees the company described in its filing.

That team does not exist, and Apple is unlikely to make any moves toward creating it until the company exhausts its legal options. But Apple employees say they already have a good idea who those employees would be.

They include an engineer who developed software for the iPhone, iPad and Apple TV. That engineer previously worked at an aerospace company. Another is a senior quality-assurance engineer who is described as an expert “bug catcher” with experience testing Apple products all the way back to the iPod. A third likely employee specializes in security architecture for the operating systems powering the iPhone, Mac and Apple TV.

“In the hierarchy of civil disobedience, a computer scientist asked to place users at risk has the strongest claim that professional obligations prevent compliance,” said Marc Rotenberg, executive director of the Electronic Privacy Information Center. “This is like asking a doctor to administer a lethal drug.”

There are ways an employee could resist other than quitting, such as work absences. And it is a theoretical discussion. It could be a long time before employees confront such choices as the case moves through the legal system.

The security-minded corner of the technology industry is known to draw “healthfully paranoid” people who tend to be more doctrinaire about issues like encryption, said Arian Evans, vice president for product strategy at RiskIQ, an Internet security company. But that resolve can wither when money gets involved, he said.

An employee rebellion could throw the F.B.I’s legal fight with Apple into uncharted territory.

“If — and this is a big if — every engineer at Apple who could write the code quit and, also a big if, Apple could demonstrate that this happened to the court’s satisfaction, then Apple could not comply and would not have to,” said Joseph DeMarco, a former federal prosecutor. “It would be like asking my lawn guy to write the code.”

Mr. DeMarco, who filed a friend of the court brief on behalf of law enforcement groups that supported the Justice Department, also noted that if the engineers refused to write the code, rather than outright quit, “then I think that the court would be much more likely to find Apple in contempt,” he said.

Rather than contempt, Riana Pfefferkorn, a cryptography fellow at the Stanford Center for Internet and Society, said Apple could incur daily penalties if a judge thought it was delaying compliance.

The government has cracked down on tech companies in the past. A judge imposed a $10,000-a-day penalty on the email service Lavabit when it did not give its digital encryption keys to investigators pursuing information on Edward J. Snowden, the former intelligence contractor who leaked documents about government surveillance.

The small company’s response could be indicative of how individual Apple employees reacted to a court order. When Lavabit was held in contempt, its owner shut down the company rather than comply.

Wednesday, March 16, 2016

Lord & Taylor settles Charges with FTC

FTC@100 Banner

Promotions Were Part of the Company’s March 2015 Design Lab Collection Launch

National retailer Lord & Taylor has agreed to settle Federal Trade Commission charges that it deceived consumers by paying for native advertisements, including a seemingly objective article in the online publication Nylon and a Nylon Instagram post, without disclosing that the posts actually were paid promotions for the company’s 2015 Design Lab clothing collection.

The Commission’s complaint also charges that as part of the Design Lab rollout, Lord & Taylor paid 50 online fashion “influencers” to post Instagram pictures of themselves wearing the same paisley dress from the new collection, but failed to disclose they had given each influencer the dress, as well as thousands of dollars, in exchange for their endorsement.

In settling the charges, Lord & Taylor is prohibited from misrepresenting that paid ads are from an independent source, and is required to ensure that its influencers clearly disclose when they have been compensated in exchange for their endorsements.

“Lord & Taylor needs to be straight with consumers in its online marketing campaigns,” said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection. “Consumers have the right to know when they’re looking at paid advertising.”

According to the FTC, over a weekend in late March 2015, Lord & Taylor launched a comprehensive social media campaign to promote its new Design Lab collection, a private-label clothing line targeted to women between 18 and 35 years old. The marketing plan included branded blog posts, photos, video uploads, native advertising editorials in online fashion magazines, and online endorsements by a team of specially selected “fashion influencers.”

Design Lab Paisley Asymmetrical Dress that was the subject of the Nylon social media campaignThe complaint alleges that Lord & Taylor placed a Lord & Taylor-edited paid article in Nylon, a pop culture and fashion publication. Nylon also posted a photo of the retailer’s Design Lab Paisley Asymmetrical Dress on Nylon’s Instagram site, along with a caption that Lord & Taylor had reviewed and approved. The Instagram post and article gave no indication to consumers that they were paid advertising placed by Lord & Taylor.

Over the same weekend in March 2015, Lord & Taylor gave 50 select fashion influencers a free Paisley Asymmetrical Dress and paid them between $1,000 and $4,000 each to post a photo of themselves wearing it on Instagram or another social media site. While the influencers could style the dress any way they chose, Lord & Taylor contractually obligated them to use the “@lordandtaylor” Instagram user designation and the hashtag “#DesignLab” in the caption of the photo they posted. The company also pre-approved each proposed post.

In addition, the FTC’s complaint charges that Lord & Taylor did not require the influencers to disclose that the company had compensated them to post the photo, and none of the posts included such a disclosure. In total, the influencers’ posts reached 11.4 million individual Instagram users over just two days, led to 328,000 brand engagements with Lord & Taylor’s own Instagram handle, and the dress quickly sold out.

The proposed consent order settling the FTC’s complaint prohibits Lord & Taylor from misrepresenting that paid commercial advertising is from an independent or objective source. It also prohibits the company from misrepresenting that any endorser is an independent or ordinary consumer, and requires the company to disclose any unexpected material connection between itself and any influencer or endorser. Finally, it establishes a monitoring and review program for the company’s endorsement campaigns.

The FTC recently issued an enforcement policy statement that businesses can use to ensure they make required disclosures in native advertisements.
The Commission vote to issue the administrative complaint and to accept the proposed consent agreement was 4-0. The FTC will publish a description of the consent agreement package in the Federal Register shortly.

The agreement will be subject to public comment for 30 days, beginning today and continuing through April 14, 2016, after which the Commission will decide whether to make the proposed consent order final. Interested parties can submit comments electronically by following the instructions in the “Invitation To Comment” part of the “Supplementary Information” section.

NOTE: The Commission issues an administrative complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of up to $16,000.

The Federal Trade Commission works to promote competition, and protect and educate consumers. You can learn more about consumer topics and file a consumer complaint online or by calling 1-877-FTC-HELP (382-4357). Like the FTC on Facebook, follow us on Twitter, read our blogs and subscribe to press releases for the latest FTC news and resources.

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Mitchell J. Katz
Office of Public Affairs

Robin Rosen Spector
Bureau of Consumer Protection

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Tuesday, March 15, 2016

Inside the Billion-Dollar Dig to America’s Biggest Copper Deposit (BW)

Miners are 7,000 feet down and they aren’t turning back.

The entrance to America’s deepest mine shaft sits on a plateau high above the Arizona desert, about an hour east of Phoenix. Tucked against the base of a ridge of steep cliffs, it looks southeast over miles of ragged boulder fields. What looks like a large capital A rises above its entrance. It’s the steel headframe used to hoist equipment in and out of the shaft, a concrete tube 30 feet wide that goes 6,943 feet straight down.

The No. 10 mine shaft, as it’s called, is on the southern edge of an old underground mine. For 86 years, the Magma Superior mine pulled copper and silver out of the surrounding mountains before closing in 1996 when the minerals ran out. Over its lifetime, Magma grew to include nine separate shafts, some of them miles apart. The final shaft, No. 9, was finished in the 1970s. After Magma closed, No. 9 sat abandoned for nearly 20 years before becoming part of the new Resolution Copper mine. It’s now the ventilation shaft for its younger, deeper cousin, No. 10, just a few hundred feet away.

Visited on a chilly day in December, the area around the top of the mine, the “collar” in mining terms, doesn’t look inviting. Steam clouds pour from the mouth of No. 9. It’s the hot air being drawn from the cave dug at the bottom of No. 10. That far down, rocks formed billions of years ago still carry heat from the molten core of the earth. Without the elaborate refrigeration system that pumps chilled air down No. 10, the bottom of the mine would be 180F, far too hot for a human to withstand. “You’d cook,” says Randy Seppala, 60, project manager for shaft development. Miners have long called this heat the “hand of the devil,” reaching up from the depths.

Seppala works for Resolution Copper Mining, a venture between the two largest mining companies in the world, Rio Tinto and BHP Billiton. Together they’ve spent more than $1 billion, including $350 million sinking the No. 10 mine shaft, in hopes of tapping nearly 2 billion metric tons of ore. Less than 2 percent of it is believed to be copper. It might not sound like much, but that’s considered dense, making it the fourth-largest undeveloped copper deposit in the world.

Resolution Copper plans to dig four more shafts over the next 15 years. At peak production, this will be the biggest copper mine in the U.S., producing 100,000 tons of rock a day, and enough copper to meet a quarter of the country’s demand. It could also end up being a financial problem for its owners. The price of copper, along with lots of other commodities, has crashed as China’s economy has slowed. The Resolution mine is essentially an enormous bet that the third-most-used metal in the world is oversold and that prices will rebound by the time the mine opens in several years. “This is a pretty big gamble,” says Dane Davis, a commodity analyst at Barclays. “We’re in a new era for copper, and no one truly knows what demand is going to be like. So I would say this is quite risky.”

Before going down the No. 10 shaft, visitors learn how to put on an emergency breathing kit consisting of a nose clip, breathing tube, and small oxygen bag you attach to your belt. As the safety video points out, a fire or explosion can occur at any time in an underground mine. Your ability to survive depends on being prepared.

There are lots of ways to die in a mine. Roughly in order of likelihood, the most common include getting struck by objects falling down the shaft, falling down the shaft yourself, and being killed by an explosion. In the last case, it’s probably not the fire that kills you, or even the force of the blast. It’s the toxic gases that get released, particularly the high concentrations of carbon monoxide. According to Andy Bravence, Resolution’s mine superintendent and Seppala’s No. 2, the breathing kit can get used up in a few breaths if you’re hyperventilating. Dangerous levels of carbon monoxide are in the range of 3,500 parts per million. “One breath of that, and pretty much she’s gonna collect your insurance,” Bravence says. “It sucks all the oxygen out of the blood and knocks you out. Your next breath you won’t remember taking, and you’re pretty much done after that. But you know: Don’t worry.”

Bravence, 56, is wider and taller than Seppala, who’s lithe and lean. Both men have impressive mustaches and walk around most days in either jeans and steel-toed boots or navy blue canvas overalls called diggers, which have built-in boots. As we prep to go underground, they’re both in their diggers, Seppala with a camouflage baseball cap pulled low over his eyes, Bravence in his mining helmet. Seppala spends most of his time these days above ground, but Bravence goes down almost daily to check on the work.

One descends No. 10 in a giant bucket or in a metal cage. Both travel at 500 feet per minute, or a little faster than 5 miles an hour. Yellow decals in the cage warn of hazards using pictures of stick people in various states of danger: One has an arm caught between gears; another is getting hit by falling rocks. The concrete shaft runs by, almost close enough to touch through a few half-dollar-size holes.

“What happens if we turn off our helmet lights?” I ask.

“You find the true definition of dark,” Seppala says. We turn them off. Blackness, and the rumbling cage.

After eight minutes a low roar from below picks up. By now, about 4,600 feet from the surface, and 400 feet below sea level, the air pumped down by the refrigeration system has lost its chill. At this depth, Resolution has built a second cooling station, dug laterally off the mine shaft. Here, the air gets circulated through a second set of giant cooling coils, built into the rock and encased in metal. Two fans, 5 feet wide, blow the freshly chilled air back to the bottom of the mine. A giant duct carries it the remaining 2,300 feet down.

Back in the cage, it takes an additional seven minutes to get all the way to the bottom of the mine. Seppala steps out and immediately wipes fog off his custom-made safety glasses. Steaming hot water pours off the rocks; during construction, workers bored into an ancient lake trapped thousands of feet underground by impermeable rock, and it’s leaking into the mine. It’s like standing in a tropical rainstorm. A digital hydrometer on the wall registers 100 percent humidity. Overhead, cooled air gushes out of a metal duct, blowing the rain sideways and keeping the temperature in the mid-70s.

In a few years, this tunnel will have offices and high-speed Internet where engineers and geologists can work without having to go back up to the surface. Right now it’s a hot, wet cave: Steam billows past floodlights hung from the ceiling; pipes and cables, some of them jiggling, run along wet, rocky walls; a front-end loader stays dry under a party tent bought at Walmart.

Seppala walks warily around in the rain, a spotlight on his yellow hard hat pointing the way. At the bottom of the mine, a 170-foot lateral tunnel is laid out like a cross. On the left is the pumping station. A 6-foot-tall submersible pump in 20 feet of water beneath the shaft fills a dumpster-size tank. From the tank, two large pumps each shoot 700 gallons a minute up to the surface, where it’s treated and used by local farmers. If the whole thing stopped working, the tunnel would flood in 15 hours. Two life preservers hang nearby, just in case.

Across from the pump station, a thick vein of cables delivers 4,100 volts of power into a metal shed. Perfectly dry, bright, and clean inside, it’s filled with racks of humming electrical gear, transformers, and switches. The shed runs everything from the lights to the pumps to the drills to the immaculate, industrial-use portable toilet. A two-man drill crew works at the head of the tunnel, boring test holes into the rock. They look like Spider-Men: Wire mesh covers the lenses of their safety glasses in a protective black screen. Seppala motions off to the side of the tunnel, his arm cocked at a 45-degree angle. “It’s up that way,” he says, meaning the copper deposit, still behind several hundred feet of rock. “That’s the whole reason we’re down here.”

Southeastern Arizona has been mined for more than a century, but it wasn’t until the 1990s that geologists found the massive deposit next to No. 10. For decades they speculated about something bigger lurking beneath the shallower veins of copper running under the desert. Whatever was down there was deep, though, more than a mile down, and far outside the reach of cost-effective mining techniques. Then, in 1994, as the Magma mine was running out of copper, a team of geologists bored a test hole under the Tonto National Forest and hit pay dirt. Deposits this big are usually strip-mined, but this one is too deep, so Rio Tinto will mine it from the bottom up. As it’s drilled and blasted from below, the ore will crumble and drop into a series of chutes and conveyors. This type of mining, called block caving, has been around since the 1950s, but it’s never been done at anywhere close to this depth or on this large a deposit.

Over time, as the deposit is mined, the land above it will start to sink. No one’s sure how much. Models suggest that for every 100 feet of ore that’s mined, the surface could subside 30 feet. Which would mean that by the time the mine is depleted, after about 50 years of production, there could be a crater in the ground 2 miles across, and 1,000 feet deep, right on the edge of one of the country’s largest national forests.

The deposit sits directly beneath about 2,400 acres of what had been national forest land. Rio Tinto spent a decade trying to gain access to the land. It couldn’t just buy it from the government; it had to swap for it. At the end of 2014, a group of lawmakers tucked a rider into a military spending bill that transferred the 2,400 acres above the copper deposit to the mining project. In return, the U.S. Forest Service got 5,300 acres of conservation land that Rio Tinto spent more than $18 million buying up. The land was selected by the Forest Service and environmental groups to be comparable to the parcel traded to the mine. In January, in a bid to stop the mine from going forward, the National Park Service applied to add the land given to the mine to the National Register of Historic Places. On March 2, House Republicans began investigating the Park Service’s move, requesting documents from the departments of Interior and Agriculture. Despite the wrangling, this month the federal government will begin the formal regulatory review of the Resolution mine, which could take two to three years.

So far, all the work on the mine has been exploratory. Rio Tinto doesn’t expect to get the permits to begin removing copper until about 2020. By the time the first ounce of copper is produced, the company and partner BHP will have spent more than $7 billion on the Resolution project—an amazing sum given the sorry state of the mining industry. After a decade of high prices led to big investments in mines all over the world, there’s now a glut of metal on the market. Prices have crashed: Copper is 50 percent cheaper than it was in 2011, and mining companies have lost billions of dollars in value. Mines are shutting down. Layoffs are rippling through the industry, from the U.S. to Australia, as the giant companies try to slim down in the face of the steepest decline in metals prices in a generation.

Rio Tinto, based in London, has managed the downturn reasonably well, thanks largely to aggressive cost-cutting under Chief Executive Officer Sam Walsh. Since January 2013, he’s sold off $4.7 billion in assets, including some of its costliest mines, and reduced capital spending 50 percent. In December he announced pay freezes for the entire company in 2016.

The U.S. has some of the largest-known resources of mineral deposits in the world, yet they’ve become harder and harder to extract. The permitting process alone can take a decade. The mining industry likes to point out that, since the 1990s, the U.S. has fallen from 20 percent of the world’s mine-exploration spending to 8 percent. That’s left the U.S. with an array of older mines that tend to have higher costs, since the deeper you have to dig, the more expensive it becomes. So mines go in waves, opening and closing, sometimes for years at a time, pulled by the volatility of commodity markets. Over the past three decades, there have been three big downturns—the early ’80s, the mid-’90s, and this one.

Seppala has ridden each wave, and this is the second time he’s worked at the Resolution site. He got his first job at the Magma Superior mine back in 1977, just as No. 9 was being completed. He was fresh off a full ride at the University of Arizona mining program. “They were giving out scholarships to anyone willing to go into mining,” he says. After copper prices collapsed, Magma Superior shut down in 1982. Seppala eventually moved his family to Indonesia to work in a Freeport McMoRan mine. “That was a rough camp back then. That was out in the jungle.” His wife came back to Arizona after a year. “She said I could do what I wanted.”

He came home and eventually landed at a mine in San Manuel, about 40 miles north of Tucson. That mine used an underground block-caving technique, blasting and mining the ore in big panels at different angles, as Resolution will do. Seppala prefers this to open pits. “The challenges of the engineering are what make it fun,” he says. “Open pits are just bigger and faster. I call it large-scale gardening.”

Bravence worked as a drift miner at Magma Superior from 1991 to 1995. A drift is when you dig sideways, chasing the final remnants of a vein of copper that runs into the mountain. This is how people get crushed. Critical to a lateral hole are the timber braces that hold it up. Bravence was a timber repairman for several years. He’s spent half his life crawling around underground. “I’m paying for it now with the absence of a lot of really good shoulder muscles,” he says. “It’s a young man’s game.”

Over his career, Bravence has had eight colleagues get killed underground. Seppala has worked with more than 20 who died on the job. They call that hitting the jackpot. “Lots of jackpots,” Bravence says. “That’s just when bad things happen. Top to bottom I’ve seen a lot of crazy stuff. It’s always heavy and dark and wet underground, so nothing’s easy.”

Sinking a mine shaft follows a strict sequence of events: drill, blast, muck, repeat. The machine that does it is a 50-ton, 60-foot-tall tubular cage called the Galloway. Nested inside it are a pair of drills that bore a series of holes into the rock, each one 10 feet deep and 2 inches around. The holes are then packed with explosives, and the Galloway is raised a few hundred feet, to a safe distance. When the crew triggers the detonation, they feel the concussion reverberating up the shaft toward them before they hear it. The smoke clears after about 45 minutes. Then the Galloway is lowered back down, and a pair of mechanical arms with giant claws attached to the bottom “muck” up the rubble from the blast. A layer of sprayed-on concrete is applied around the edges of the shaft. More holes are drilled, dynamite is laid, and the Galloway rises again.

At No. 10 it took about three years to dig down to the first substation, 4,600 feet beneath the surface, at an average pace of about 10 feet a day of finished concrete tube. “We were highballing,” Bravence says. “Blasting three to four times a week and pouring concrete three times a week.” Then came the water. By January 2013, work had slowed almost to a standstill.

The crew spent six months trying to ward it off. They stuck grout and even burlap into crevices. Nothing worked. They eventually installed the pumps. “We never did contain the water. So we just pushed it out of our way and mined through it,” Bravence says. He’s confident No. 10 is the most difficult mine shaft ever dug in America. “We were doing things that hadn’t been done at that depth. The heat, the water, that’s what made this shaft different from any other,” he says. It’s also the dirtiest one he ever worked in. Bravence went home covered in red every night from all the hematite in the rock. “You’d take your shower, and you’d do the best you could getting clean, but after a couple days the wife would be screaming at you, because your sheets would be red. So we never had white sheets. We just got red ones. That’s just a miner mentality.”

Back at the surface, Seppala exhales as we climb out of the cage. “Even after all these years working underground, no matter how little time I spend down there, it always feels good when you hit the collar,” he says. “It’s hard to explain, just a feeling I get.”

“It’s when the beer tastes the best,” Bravence says.

The edge of the San Carlos Apache Indian Reservation is about 20 miles east of No. 10, and the tribe is an adamant opponent of the mine. The Apaches claim the land beneath the Tonto National Forest is sacred to them and that the mine will tap and possibly contaminate their reservation’s water supplies. Andrew Taplin, Resolution Copper’s project director, has tried to assure the tribe that this won’t happen. “It’s absolutely physically impossible for us to impact their aquifers or surface water,” he says. “We are 20 miles apart and on different aquifers that are part of different basins.”

Resolution Copper employees have attempted to engage with the tribe and hold information sessions on the reservation, but without much luck. “For 10 years we have not had access to the reservation,” says Taplin. “We have not been permitted onto the reservation to provide our side of the story.” Last year, however, a handful of Resolution community-relations employees, after months of negotiations, were allowed to hold an information session at a casino on the reservation. “It took us years to get that invitation,” says Victoria Peacey, who handles the permitting process and external affairs for Resolution Copper. “The casino went out on a limb by having us.” Along with discussing water issues, Peacey tried to focus on the economic benefits of the mine during her presentation at the reservation, which is home to 15,000 people and has an unemployment rate close to 70 percent.

When done, Resolution will be the biggest copper mine in the U.S.

In early December, Jean-Sébastien Jacques, chief executive of copper at Rio Tinto, visits the mine. His trip had been planned for months, but at the last minute, an Apache tribal leader agrees to visit the mine with Jacques. Before going underground, Jacques and Taplin take him aside and draw a sketch on a white board, demonstrating the underground geology in an attempt to convince him that the mine won’t interfere with the San Carlos water supply. Afterward, in a car ride to a nearby drill site, Jacques describes the meeting. “In the end, the people that will grant us our license to operate are the local communities, and we have to be their full partner.”

The Rio Tinto executive has brokered deals like this before. In October 2014 he invited Mongolia’s prime minster-elect, Chimediin Saikhanbileg, to dinner at his Holland Park house in London. Negotiations had been stalled over Rio Tinto’s attempts to expand a large gold and copper mine in the country. Finally, at dinner, Jacques’s 9-year-old daughter charmed the Mongolian leader by asking him to sign her geography homework. “My cheeky little monkey,” Jacques says with a smile, still amused.

Over the past few years, Resolution has drilled more than 100 holes to test the size and composition of the Arizona copper deposit. Each test hole, about 6 inches in diameter and thousands of feet deep, costs more than $1 million. At a drill site down the hill from the mine entrance and on top of the ore body, Jacques is given a progress report. Walking over, he reflects on the complications of mining: “It’s actually quite simple, really. It’s a capital business. So we sink $5 billion into the ground, and the sooner you get the cash out, the better it is.”

By the drill rig, a geologist produces some recent core samples that had been pulled from the hole. Pointing to some metallic-looking spots on the tubular rock, the geologist explains that recent samples had shown copper concentrations as high as 3.5 percent. Jacques smiles and puts his finger to his ear. “I can hear the money.”