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Alibaba-SEC Probe

US probes e-commerce giant Alibaba's accounting practices

WASHINGTON (AP) — Chinese e-commerce giant Alibaba wowed investors when it went public in the U.S. in September 2014, and its profits have bucked Wall Street expectations amid the Chinese economy’s slowdown. Yet its unorthodox business structure has raised eyebrows, it’s been suspended from an anti-counterfeiting group, and now U.S. regulators are investigating its accounting practices. Alibaba disclosed in a regulatory filing that the Securities and Exchange Commission has requested documents and information related to the way it adds together earnings from its various divisions, and how it reports transactions with other companies it has a stake in, among other things. “I think it’s a moment of truth for the company,” said Anant Sundaram, a finance professor at Tuck School of Business at Dartmouth College. “If I’m buying into that stock, what am I buying into?” U.S.-traded shares in Alibaba tumbled almost 7 percent in heavy trading Wednesday after news surfaced of the SEC probe. They are down 20 percent in the past year. The company said it is cooperating with the investigation. SEC spokesman Kevin Callahan declined to comment Wednesday. Alibaba is the world’s biggest e-commerce platform, with more than 420 million people buying $485 billion worth of goods last year on its sites. Its digital platforms, including Taobao and Tmall, make up 80 percent of Chinese e-commerce. Disclosure of the SEC probe comes less than two weeks after the company’s membership in the International Anti-Counterfeiting Coalition was suspended. Some U.S. retailers that are members of the group, which lobbies U.S. officials and testifies before Congress, view Alibaba as a huge marketplace for fakes. Michael Kors, Gucci America and Tiffany quit the group in protest after Alibaba was made a member in April. Alibaba Group Holding Ltd. went public in the U.S. in September 2014. Investors, seeking to tap into the rapidly growing Chinese middle class, scrambled to buy shares. The offering raised $25 billion, making it the largest in the history of the New York Stock Exchange. The SEC probe raises the possibility that the stellar results the company has reported may have been too good to be true, experts say. A question is whether Alibaba or its suppliers may have falsified orders to pad sales volumes, suggests Jay Ritter, a finance professor at the University of Florida. Cancelled orders may not have been recorded until Alibaba’s next quarter, to inflate the immediate sales figures, for example. That could ultimately mislead investors about the level of Alibaba’s sales and how fast they’re growing, Ritter said. “It’s mainly a question about the magnitude of this,” he said. “There’s a whole spectrum of possibilities.” S&P Global Market Intelligence quickly downgraded its rating on Alibaba’s stock to “Buy” from “Strong Buy.” “We have related concerns about what could arise and be determined by the SEC,” equity analyst Scott Kessler wrote in a research note. However, he added, S&P believes the company’s stock price already reflects those concerns. Led by self-made billionaire and founder Jack Ma, Alibaba has put a huge footprint on the Chinese economy and made unorthodox moves, such as spinning off its payment service into a company Ma controlled without telling Yahoo, a major investor in Alibaba. To get around Chinese government restrictions on foreign investment in Internet companies, Alibaba deploys an unusual structure that gives foreign investors a stake in profits but keeps management control in China. That arrangement magnifies risks for investors. Chinese executives can confiscate corporate assets without compensating shareholders, and investors might have no grounds to sue. And Ma exercises veto authority over any decision. Alibaba’s e-commerce platforms cater to both Chinese and global consumers. At its heart is Taobao, a Chinese consumer-to-consumer website similar to eBay. Tmall offers merchants official storefronts to consumers in China. As growth has slowed in China with a weakening economy, Alibaba has reached abroad to spur sales, both from U.S. companies selling goods on its platforms in China and Chinese sellers catering to international customers. U.S. investors, worried about the state of the Chinese economy, have been wary of any possible signs of weakness in Alibaba’s performance. The company in January reported better-than-expected results for its third quarter, as mobile shopping continued to grow and Chinese customers snapped up goods during the holidays.

TEC-Hulk Hogan-Gawker-Peter Thiel

A wrestler, a website and maybe a billionaire go to the mat

ST. PETERSBURG, Fla. (AP) — Is Hulk Hogan’s courtroom cage match with Gawker being bankrolled by a high-tech billionaire with a grudge against the news-and-gossip site? Two months after Hogan won a $140 million invasion-of-privacy verdict against Gawker for posting a sex tape of him, news reports say the pro wrestler is secretly backed by Silicon Valley venture capitalist Peter Thiel. Thiel, who co-founded PayPal and was an early investor in Facebook, was outed as gay by a Gawker-owned website in 2007, and the Gawker empire has run a number of stories skewering Facebook. Legal experts say there is nothing illegal — or even unethical — about someone financing a lawsuit. There are entire companies that invest in contingency claims, usually in product liability, personal injury, patent infringement and copyright cases. It is called “litigation financing.” But a billionaire doing it out of what may be spite? That’s a little different, experts say. “As much as this is not at all illegal or unethical, it just smells and feels wrong,” said Scott Greenfield, a New York lawyer who is managing editor of Fault Lines, an online legal magazine. “When a rich guy can basically afford to bring down a media outlet, that has horrible social ramifications, even if the particular outfit is one that everybody hates, like Gawker.” On Wednesday, Hogan and Gawker were back in a Florida court, where Judge Pamela Campbell denied Gawker’s request for a new trial and refused to reduce the damages. Gawker vows to take the case to an appeals court. Swirling in the background of the court proceedings were reports in The New York Times and Forbes that Thiel is footing Hogan’s legal bills against their common enemy, Gawker. The news stories cited unidentified sources. Thiel, whose net worth is estimated by Forbes at $2.7 billion, didn’t immediately respond to interview requests made through email or on the voicemail of a mobile phone number he previously provided to an Associated Press reporter. Hogan’s lawyers wouldn’t comment on the Thiel story but praised the judge for denying a new trial and accused Gawker of refusing to accept responsibility for “their reprehensible behavior and method of doing what they call journalism.” Gawker reacted to the reports by saying: “There are very serious questions about whether Hulk Hogan financially benefited, and this case is far from over.” Thiel has never hidden his contempt for Valleywag, a gossip site that Gawker periodically ran during the past decade to expose the secrets of Silicon Valley moguls, sometimes in salacious fashion. In a 2009 interview, Thiel called Valleywag “the Silicon Valley equivalent of al-Qaida” and said it relies on people who “should be described as terrorists, not as writers or reporters.” The attack spurred speculation that Thiel was still angry about a Valleywag report two years earlier about his sexuality. Others believe Thiel may have been far more upset about Valleywag’s stories mocking Facebook founder Mark Zuckerberg and questioning the social network’s value before it went public in 2012. Those derogatory stories could have eroded the fortune Thiel was building in Facebook, where he remains a board member. During Wednesday’s court proceedings, Gawker’s attorneys asked the judge to allow them to seek evidence from the other side regarding Thiel’s supposed involvement. But the judge said no. Hogan sued Gawker after it posted a 2007 video of him having sex with the wife of his best friend, Tampa radio personality Bubba The Love Sponge Clem. Hogan said Clem betrayed him by secretly videotaping him. Gawker is counting on the verdict to be overturned on appeal and has not said whether it can afford the full $140 million. During the trial, Gawker’s parent company, a collection of websites called Gawker Media, was estimated to be worth $83 million. Earlier this month, Hogan sued Gawker again, saying the website leaked sealed court documents containing a transcript that quoted him making racist remarks. After the National Enquirer published the story, the WWE pro wrestling company severed its ties with Hogan. Gawker denies it leaked the transcript. In legal circles, attorney James Sammataro of Miami said people speculated how Hogan could afford such a large “dream team” of lawyers. Said Miami attorney Richard Wolfe: “It sounds to me that Hulk Hogan made a smart deal by getting the right guy to finance his lawsuit.” This story has been corrected to show that it was Gawker, not Hogan, who requested a new trial. Liedtke reported from San Francisco. Follow Tamara Lush on Twitter at http://twitter.com/tamaralush

Aging Federal Computers

Feds spend billions to run museum-ready computer systems

WASHINGTON (AP) — The government is squandering its technology budget maintaining museum-ready computer systems in critical areas from nuclear weapons to Social Security. They’re still using floppy disks at the Pentagon. In a report released Wednesday, nonpartisan congressional investigators found that about three-fourths of the $80 billion budget goes to keep aging technology running, and the increasing cost is shortchanging modernization. The White House has been pushing to replace workhorse systems that date back more than 50 years in some cases. But the government is expected to spend $7 billion less on modernization in 2017 than in 2010, said the Government Accountability Office. “Clearly, there are billions wasted,” GAO information technology expert David Powner told the House Oversight and Government Reform Committee at a hearing. Although lawmakers of both parties say they are frustrated, it’s unclear whether Congress will act. Part of the problem is finding money to invest in a transition to new systems at agencies across the government. Among the vintage computing platforms highlighted in the report: — The Defense Department’s Strategic Automated Command and Control System, which is used to send and receive emergency action messages to U.S. nuclear forces. The system is running on a 1970s IBM computing platform, and still uses 8-inch floppy disks to store data. “Replacement parts for the system are difficult to find because they are now obsolete,” GAO said. The Pentagon told GAO it is initiating a full replacement and the floppy disks should be gone by the end of next year. The entire upgrade will take longer. — Treasury’s individual and business master files, the authoritative data sources for taxpayer information. The systems are about 56 years old and use an outdated computer language that is difficult to write and maintain. Treasury plans to replace the systems but has no firm dates. — Social Security systems that are used to determine eligibility and estimate benefits, about 31 years old. Some use a programming language called COBOL, dating to the late 1950s and early 1960s. “Most of the employees who developed these systems are ready to retire and the agency will lose their collective knowledge,” the report said. “Training new employees to maintain the older systems takes a lot of time.” Social Security has no plans to replace the entire system but is eliminating and upgrading older and costlier components. It is also rehiring retirees who know the technology. — Medicare’s Appeals System, which is only 11 years old, faces challenges keeping up with a growing number of appeals, as well as questions from congressional offices following up on constituent concerns. The report says the agency has general plans to keep updating the system, depending on the availability of funds. — The Transportation Department’s Hazardous Materials Information System, used to track incidents and keep information regulators rely on. The system is about 41 years old, and vendors no longer support some of its software, which can create security risks. The department plans to complete its modernization program in 2018. GAO says its estimate of at least $80 billion spent on information technology in 2015 is probably low. Not counted were certain Pentagon systems, as well as those run by independent agencies, among them the CIA. Major systems are known as “IT investments” in government jargon. “Legacy federal IT investments are becoming obsolete,” the report concluded. “The federal government runs the risk of continuing to maintain investments that have outlived their effectiveness and are consuming resources that outweigh their benefits.” The White House has been nudging agencies to identify obsolete systems for replacement, but GAO said that clearer, more specific goals and timetables are needed. A starting point could be recent legislation supported by the administration to create a revolving fund of $3 billion for replacing or upgrading older technology. “This is not a partisan issue,” said committee chairman Jason Chaffetz, R-Utah, who supports modernizing the government’s aging systems, but has not committed to any particular legislation. “We all need to come together on this, on both sides of the aisle,” added Chaffetz. “It is a vital part of the infrastructure we need in order to have a fully functional government.” But some Republicans said before they’ll agree, they first want concrete evidence that new systems will save money. That could be a difficult test, since government technology projects have a mixed record. “We seem to be going in a circle,” said Rep. Elijah Cummings, D-Md., the ranking Democrat on the committee. Online: GAO report: http://www.gao.gov/products/GAO-16-468

Congress Puerto Rico

Puerto Rico clears first hurdle with committee vote

WASHINGTON (AP) — A bipartisan deal to help Puerto Rico manage its crippling finances cleared its first hurdle Wednesday with approval from a Republican-led House committee. The bill to create a financial control board and restructure some of the U.S. territory’s $70 billion debt has support from House Republican and Democratic leaders, as well as the Obama administration. But some bondholders, unions and island officials have opposed it. The House Natural Resources Committee approved the legislation 29-10. “We have a constitutional, political and moral imperative to act,” said committee chairman Rob Bishop, the Utah Republican who has led negotiations on the bill. The legislation now moves to the House floor. The legislation won support from Pedro Pierluisi, Puerto Rico’s representative in Congress, who said people on the island fear for their finances and their future. “Accepting a board is personally painful, but it is also the right and necessary thing to do,” said Pierluisi, who is running for governor. The island’s current governor, Alejandro Garcia Padilla, has been less enthusiastic. He said after the vote that the bill contains important elements to address the island’s insolvency issues, grow the economy and ensure continuity of essential services. But he also said the seven-member board would be too powerful and could undermine the territorial government. “Our democratic rights need to be equal to those of other U.S. citizens who live in the United States, and the board’s provisions do not meet that obligation,” Garcia said. Bishop introduced the bill May 18 after weeks of negotiations that involved House Speaker Paul Ryan, House Democratic Leader Nancy Pelosi and Treasury Secretary Jacob Lew. Pelosi has endorsed the legislation, and Lew called it a “fair, but tough bipartisan compromise.” Ryan, R-Wis., has worked to unite his fractured caucus behind the bill, arguing that the legislation would avoid an eventual taxpayer bailout. The Senate hasn’t yet acted. Senate Majority Leader Mitch McConnell, R-Ky., has said the chamber is waiting for the House to move first. Puerto Rico, which has struggled to overcome a lengthy recession, has missed several payments to creditors and faces a $2 billion installment on July 1. Two government agencies have been under a state of emergency, and the economic crisis has forced businesses to close, driven up the employment rate and sparked an exodus of hundreds of thousands of people to the U.S. mainland. Schools lack electricity and some hospitals have said they can’t provide adequate drugs or care. But like U.S. states, Puerto Rico cannot declare bankruptcy. The legislation would allow the control board to oversee negotiations with creditors and the courts over reducing some debt. It would also require the territory to create a fiscal plan. Among other requirements, the plan would have to provide “adequate” funds for public pensions, which the government has underfunded by more than $40 billion. During negotiations, the Obama administration pushed to ensure that pensions are protected in the bill, while creditors worried they would take a back seat to the pension obligations. Bishop says the control board is designed to ensure all are paid. While some bondholders have backed the legislation, others have lobbied forcefully against it. “If passed, this bill will serve as a landmark moment in American municipal finance — the moment when Congress made clear that it will not hesitate to rewrite rules and override contracts so that bondholders are forced to foot the bill for the pension systems that negligent governments have bled dry and refused outright to fund,” the Main Street Bondholders Coalition said in a statement released before the committee vote. Republicans who voted against the bill echoed those concerns and said the legislation could set a precedent for financially ailing states. Rep. Tom McClintock of California, a Republican on the committee, offered an amendment that would have exempted some bonds from the bill. “If Congress is willing to undermine a commonwealth’s constitutionally guaranteed bonds today, there is every reason to believe it would be willing to undermine state guarantees tomorrow,” McClintock said. The amendment was rejected, 27-12. The legislation survived several other attempts to try and derail it, including additional amendments by Republicans that would have explicitly protected certain bondholders and allowed bondholder lawsuits to continue. Most Democrats on the committee supported the bill, though they tried to remove a provision that would allow the governor of Puerto Rico to cut the minimum wage temporarily for some younger workers. Unions have also lobbied against the legislation for that reason. Presidential candidate Bernie Sanders said this week that the board would neglect the needs of ordinary Puerto Ricans. “We must stop treating Puerto Rico like a colony and start treating the American citizens of Puerto Rico with the respect and dignity that they deserve,” he said. Associated Press writer Danica Coto in San Juan, Puerto Rico, contributed to this report.

National Business

Azerbaijan Journalist Freed

Azerbaijan frees investigative journalist Ismayilova

BAKU, Azerbaijan (AP) — A prominent, award-winning Azerbaijani journalist was released on probation Wednesday following a storm of international protests about her imprisonment, which has been widely seen as an attempt to silence a critical voice. Khadija Ismayilova has been praised by human rights and free-speech organizations around the world, who call her conviction and her 7 ½-year prison sentence retribution for her reports on alleged corruption involving President Ilham Aliyev and his family in the oil-rich former Soviet republic. She vowed to continue her reporting as she walked free Wednesday. “I will continue my journalist work with renewed energy,” Ismayilova said. “I feel younger and more energetic, and I will fight until the end.” In September 2015, a court in Azerbaijan convicted Ismayilova, a contributor to U.S. government-funded Radio Free Europe/Radio Liberty, of several financial crimes. On Wednesday, Azerbaijan’s Supreme Court ruled to replace that with a 3 ½-year suspended sentence and ordered her released on probation. The court set a five-year period for her probation. Rights groups have criticized the Azerbaijani government for cracking down on independent media and opposition activists. Several other journalists and rights activists also have been imprisoned in what has been widely seen as an effort by the government to stifle dissent. Ismayilova was convicted on charges of embezzlement, illegal business activity, tax evasion and abuse of power, which international rights groups have denounced as trumped-up. Her lawyer, Fariz Namazli, said the Supreme Court dropped the embezzlement and abuse of power charges but kept the charges of tax evasion and illegal business activity. Ismayilova said she will push for her full acquittal. Under the terms of probation, Ismayilova is required to reside in Baku, the capital, and is forbidden from traveling abroad for five years without official permission. In addition to RFE/RL, a host of media and human rights groups worked to press for Ismayilova’s release since her arrest in December 2014, among them the Vienna-based International Press Institute, the Committee to Protect Journalists in New York, and The Associated Press and the Press Association of the United Kingdom as members of the World News Agencies Council. According to CPJ, Azerbaijan ranks among the 10 most censored countries in the world. “Today’s ruling ordering Khadija Ismayilova freed is cause for celebration, but doesn’t erase the rank injustice of her imprisonment for a year and a half on retaliatory charges,” CPJ Europe and Central Asia Program Coordinator Nina Ognianova said. “We call on Azerbaijani authorities to remove the conditions on her freedom and to release all journalists imprisoned for their work immediately.” Ismayilova won the 2015 PEN/Barbara Goldsmith Freedom to Write Award. “The release on probation of Khadija Ismayilova, an intrepid force exposing corruption in Azerbaijan, is a victory for journalists everywhere who go up against the toughest regimes bent on silencing those who dare challenge them,” said Suzanne Nossel, executive director of PEN American Center. UNESCO, which earlier this year awarded Ismayilova the UNESCO/Guillermo Cano World Press Freedom Prize, welcomed her release as “a major step for freedom of expression, due process and the rule of law in Azerbaijan.”

Clinton Emails

The Latest: Congressional Dems play down Clinton report

WASHINGTON (AP) — The Latest on the State Department audit that faulted Hillary Clinton’s email practices and cybersecurity (all times local): 3 p.m. Congressional Democrats are playing down the State Department audit critical of Hillary Clinton’s use of a private email server. House Minority Leader Nancy Pelosi, D-Calif., said Clinton had acted “in good conscience” and that her email practices were “consistent” with what past secretaries of state had done. The audit did not name any other secretaries who had done so. Rep. Elijah E. Cummings of Maryland, ranking Democrat on the House oversight committee, accused Republicans of attacking Clinton only because she is the front-runner for the Democratic presidential nomination. __ 12:35 p.m. A spokesman for Hillary Clinton says a report by the State Department’s inspector general shows that her email practices were “consistent” with those of past secretaries and senior officials. Clinton spokesman Brian Fallon said in a statement Wednesday that the report shows problems with the State Department’s electronic record-keeping systems “were longstanding” and emphasizes that her use of a private email server “was known to officials within the department during her tenure.” The inspector general’s 78-page analysis, a copy of which was obtained by The Associated Press, cites “longstanding, systemic weaknesses” related to the agency’s communications and says Clinton disregarded various State Department guidelines for avoiding cybersecurity risks. Fallon acknowledged that “steps ought to have been taken” to better maintain official records. __ 11 a.m. State Department spokesman Mark Toner says the agency is “already working” to improve its email and records management system on the heels of an independent audit that faulted the department — and former Secretary of State Hillary Clinton in particular — for lax cybersecurity. Toner says “it is clear that the department could have done a better job preserving emails and records of secretaries of state and their senior staff going back several administrations,” and said the State Department also agrees that compliance with its rules has been “inconsistent across several administrations.” But Toner also said the department had taken a number of steps by early 2015 to improve its cybersecurity. The State Department inspector general on Wednesday said Clinton disregarded various guidelines for avoiding cybersecurity risks. Clinton used a private server set up for her home and used it for work and personal emails, including some that have since been classified. The issue has dogged her as she has sought the Democratic presidential nomination.

CEO Pay Top 10 Women

Female CEOs see pay rise, but numbers remain small

For the second year in a row, female CEOs earned more than their male counterparts and received bigger raises. But only a small sliver of the largest companies are run by women, and experts say gender parity at the top remains way off. The median pay for a female CEO was nearly $18 million last year, up about 13 percent from 2014. By comparison, male CEOs’ median pay was $10.5 million, up just 3 percent from a year earlier, according to an analysis by executive compensation data firm Equilar and The Associated Press. A pay hike doesn’t tell the full story though. The jump is largely due to the small sample size: only 17 of the 341 CEOs analyzed by Equilar and the AP were women. That means any one CEO’s compensation — Yahoo CEO Marissa Mayer’s nearly $36 million package, for example, or Mary Dillon’s 200 percent raise at Ulta — can skew the results. Of the 10 highest paid CEOs on the list, only one was a woman: Yahoo’s Marissa Mayer, whose own position is in jeopardy amid questions about the company’s future. The next highest-paid woman was Indra Nooyi, Chairman and CEO of PepsiCo Inc., who earned $22.2 million. General Dynamics CEO Phebe Novakovic came in third at $20.4 million. The lowest-paid female CEO on the list was Lauralee Martin of HCP, a health care real estate investment trust, whose pay package was valued at $800,000. The only black woman to make the list — Ursula Burns of Xerox — is giving up her CEO role soon to serve as chairman of the document technology company after the business splits in two. Women led companies in a variety of industries including technology, defense and aerospace and retail. While there are few women at the helm, they tended to be in higher paying industries or positions — making up 10 of the top 100 highest paid overall. A recent report by S&P Global Market Intelligence highlights the gulf between words and actions in hiring women as CEOs. “Despite all of the attention placed on increasing the number of female executives at American companies, the needle on the gender gap has hardly moved,” the report’s author, Pavle Sabic, wrote. Sabic looked at the entire Standard & Poor’s 500 index from 2006 to 2015 and found the number of female CEOs rose from 16 to 21 — an increase of one new female CEO every two years. “The gender gap at the CEO level ... is not closing,” he wrote. It’s an issue of both corporate and community culture, says Serena Fong, vice president of governmental affairs at Catalyst, a nonprofit that aims to expand opportunities for women in business. She said there are unconscious biases against women in the workplace that work their way into hiring and development practices. Proponents of equality say female CEOs can help the reputation, recruitment and bottom line of businesses. The data is there to support the hires but change is happening slowly, said Leslie Gaines-Ross, chief reputation strategist at Weber Shandwick, which studied the reputation factor of female CEOs. “We are going to see ... more progress because companies care about their reputations and boards care about their reputations,” Gaines-Ross said. “It’s going to happen, it’s just not going to happen fast enough.” Equilar only looked at companies in the Standard & Poor’s 500 index that filed proxy statements with federal regulators between Jan. 1 and April 30, 2016. To avoid the distortions caused by sign-on bonuses, the sample includes only CEOs in place for at least two years. That methodology means some CEOs, such as Mary Barra of General Motors, were not included. To calculate pay, Equilar adds salary, bonus, perks, stock awards, stock option awards and other compensation. To determine what stock and option awards are worth, Equilar uses the value of an award on the day it is granted. For options, this includes an estimate of what the award could be worth in the future. Their actual value in the future can vary widely from what the company estimates.

CEO Pay

The biggest CEO pay raises and pay cuts of 2015

Here are the three CEOs who got the biggest pay raises last year, and the deepest pay cuts, as calculated by The Associated Press and Equilar, an executive data firm. Top raises: 1. Dara Khosrowshahi, Expedia, $94.6 million, up 881 percent. Stock return last fiscal year: 47 percent. 2. Sandeep Mathrani, General Growth Properties, $39.2 million, up 702 percent. Stock return: -1 percent. 3. Richard Handler, Leucadia, $7.4 million, up 404 percent. Stock return: -21 percent. Handler voluntarily gave up a $2.4 million bonus for 2014. Deepest cuts: 1. Richard Hayne, Urban Outfitters, $44,310, down 92 percent. Stock return: -34 percent. 2. David Zaslav, Discovery Communications, $32.4 million, down 79 percent. Stock return: -23 percent. 3. Hock Tan, Broadcom, $4 million, down 77 percent. Stock return: 45 percent.