Mideast war tests Musk’s free-speech commitments

Since taking over X, the social network once known as Twitter, Elon Musk has pledged to impose as few restraints on speech as possible.

But the Israel-Gaza war has driven a flood of misinformation and violent images and videos on the platform, testing the company’s commitment to those principles in the face of criticism from advertisers and hate-speech watchdogs. The stakes are growing for Musk after the European Commission’s top digital regulator warned him to clean up the platform or face steep consequences.

The site “has become a war zone with no ethics,” Achiya Schatz, director of FakeReporter, an Israeli organization that monitors disinformation and hate speech, told The Times. X has faced complaints about misleading posts — including photos and videos taken out of context — and violent imagery, much of it seeded by Hamas. Experts say that combating such content has become much harder since X, under Musk’s ownership, has gutted safety and moderation teams.

This material is appearing on other platforms as well, including WhatsApp and TikTok — to the point that child protection groups are urging parents in Israel to remove social media apps from their kids’ phones. But online advocates called out X, as well as the messaging platform Telegram, for not doing as much as other social networks to remove such content.

X has said it’s committed to policing its platform. Over the weekend, the company said that it was removing newly created Hamas-affiliated accounts, as well as monitoring for hateful or violent content. Still, it added that users also bore responsibility for avoiding disturbing material, including by tweaking their settings.

A top European official has warned Musk about the spread of such content. Thierry Breton, a European Union commissioner, gave the X owner 24 hours to respond to allegations that the platform was disseminating illegal content and disinformation.

Musk pushed back, saying that X’s approach was transparent, and he challenged Breton to list the violations. It is “up to you to demonstrate that you walk the talk,” Breton shot back.

Penalties for failure to comply could be severe. Content moderation is a core part of the Digital Services Act, an E.U. law that requires major tech platforms to monitor for and remove those kinds of posts, as well as outline their protocols for doing so. Rule-breakers face a fine of up to six percent of global revenue, or even temporary suspension of their service in the E.U.

And advertisers, already wary of the increasingly chaotic state of X, may find more reason to pull back, threatening a much-needed revenue stream. “I would say it’s never been a more damaging place for brands to show up,” one ad industry executive told The Financial Times.

HERE’S WHAT’S HAPPENING

Lawmakers will vote on Wednesday on a new House speaker. Even after pitches on Tuesday by the two leading candidates, Steve Scalise of Louisiana and Jim Jordan of Ohio, House Republicans appear deadlocked. The House faces pressure to pick a new leader, especially since delays could affect when U.S. aid to Israel will be delivered.

Birkenstock prices its I.P.O. in the middle of its expected range. Shares in the German sandal maker were valued at $46, raising about $1.48 billion and valuing the company at about $9 billion; it will begin trading on Wednesday. The conservative approach to pricing may reflect caution following the choppy post-debut trading performance of Arm and Instacart last month.

LVMH’s stock falls as global demand for luxury goods stalls. Shares in the owner of Dior and Louis Vuitton slid nearly 6 percent on Wednesday after it reported third-quarter results, including a 9 percent rise in sales — compared with a 17 percent rise in the previous quarter. The potential end of the post-pandemic boom in the market for high-end goods also hit shares in LVMH’s rivals, Kering and Richemont.

Caroline Ellison takes the stand

Caroline Ellison, the government’s star witness in the biggest trial of the crypto era, will be back in court on Wednesday for a second day of testimony against Sam Bankman-Fried, her former boss and boyfriend. Bankman-Fried is accused of fraud in the run-up to the collapse of the crypto exchange FTX, and Ellison made a series of damning allegations on Tuesday against the one-time wunderkind of crypto.

Ellison said Bankman-Fried “directed” her to “commit these crimes.” She oversaw the hedge fund Alameda Research for him, and she listed her misdeeds one by one: “fraud, conspiracy to commit fraud and money laundering.” But in four hours of testimony in a packed Manhattan courtroom, Ellison also acknowledged that she, Bankman-Fried and her colleagues were all in on the fraud that led to the downfall of FTX and Alameda.

Bankman-Fried has said that Ellison ignored his instructions, and that she was to blame for Alameda’s demise, which ultimately sank FTX. He has pleaded not guilty.

It was the pair’s first face-to-face encounter since FTX’s bankruptcy last year. The company’s collapse dinged big-name investors like Sequoia Capital, hobbled business partners and sparked a wider sell-off in crypto assets. Ellison and ​​two other former FTX executives — Gary Wang and Nishad Singh — have pleaded guilty and are cooperating with prosecutors.

Here are some of the other big moments from yesterday’s testimony:

• Alameda had been dipping into FTX’s customer funds to back its own investing and loan repayments for years, Ellison said. In one instance, in 2021, she said that Bankman-Fried ordered that $2 billion from customer deposits be used to buy FTX shares that Binance, a rival firm, had sold. “We have to get it done,” she recalled him saying.

• By 2021, Alameda was deep in the red with a net asset value of negative $2.7 billion, she said. The firm had made risky investments, loaded up on hard-to-sell cryptocurrencies and saddled itself with loans that could be recalled at any time. None of this fazed Bankman-Fried, who she said aggressively pursued venture investments. A vivid moment illustrating how he viewed risk: The crypto mogul asserted he’d be willing to wager the fate of the world on a coin flip, she said.

• Ellison testified that she had little power in their relationship. One point that rankled: Bankman-Fried had promoted her to co-C.E.O. of Alameda, but she didn’t get a pay raise and her salary was $200,000, which is what FTX traders were paid. In 2021, she was granted a $20 million bonus.

Anti-E.S.G. sweeping down the plain

Republican resistance to the so-called “woke” environmental, social and governance investing movement continues to gain momentum in red-state capitals. The latest stop: Oklahoma, a fossil-fuel powerhouse.

On Wednesday, lawmakers there are set to review a contentious 2022 law that effectively severs the state’s ties with financial firms deemed to be hostile to energy companies.

Oklahoma has placed Wall Street firms and banks on its blacklist in the past year. They include BlackRock, Wells Fargo, JPMorgan Chase, Bank of America, State Street and Climate First Bank.

But there’s wiggle room to get off it. In August, trustees at the Oklahoma Public Employees Retirement System approved an exception for BlackRock and State Street, which manage more than half of the state’s pension assets, saying that jettisoning them would be too costly.

Todd Russ, the state treasurer and chair of the state’s pension oversight commission, wants that decision overturned. In a previously unreported letter to trustees, he argued that BlackRock and State Street use their marketplace power to support “ideological objectives.” Lawyers are watching the Oklahoma outcome closely as anti-E.S.G. efforts sweep red-state America.

“It’s very contentious,” Scott Meacham, a former Oklahoma treasurer, said of the law. He told DealBook that “political gamesmanship” is costing state taxpayers in unforeseen ways. The law has also created confusion about where local government officials can turn to fund projects in the state.

Meanwhile, the growing furor is forcing Wall Street to rethink its E.S.G. messaging. Larry Fink, BlackRock’s C.E.O. and a vocal champion of E.S.G. efforts, recently said he won’t utter the acronym even if he sees the need for society to invest in sustainable energy.

The view from the board room

DealBook got an exclusive look at PwC’s annual survey of board directors for 2023, a year that has been marked by the prolonged war in Ukraine, the rise of artificial intelligence, the impact of extreme weather events and trade tensions with China.

Here are three findings that caught DealBook’s eye.

There is a growing disconnect between E.S.G. and strategy. The survey found that 54 percent of directors said their corporate strategy was linked to environmental, social and governance concerns, down from 64 percent in 2021. The drop comes amid increasing scrutiny of E.S.G., including pressure from states’ attorneys general and some of the leading candidates for the Republican presidential nomination.

The gender divide on the importance of board diversity is widening. Just 73 percent of male directors believe gender diversity is an important attribute on their board, down from 90 percent in the 2016 survey. By contrast, all the female directors continue to think it is.

The gap is growing as companies themselves are shifting their approach, with businesses that had been rapidly adding more minority and women directors slowing their efforts.

Fewer directors think executives are overpaid. Half of board members think they are, compared to 70 percent in 2017. At the same time, the number of directors who say high executive pay exacerbates income inequality has fallen, with 57 percent saying it does, compared to 66 percent in 2017.

PwC said one reason may be that companies have become more transparent and are doing a better job of connecting performance to pay. The gap between compensation for C.E.O.s and workers remains wide, with increased disclosure shining a light on the disparity.

THE SPEED READ

Deals

Policy

• Representative George Santos, the embattled New York Republican, faces new federal charges, including identity theft and credit card fraud. (NYT)

• Meta’s Oversight Board will review the social media giant’s policies on manipulated content after the company refused to take down a misleadingly edited video of President Biden. (FT)

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