More Crooked Crypto Tales

Plus: Paul Singer wants to go to the movies. ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

March 28, 2023

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TOGETHER WITH

Good morning.

Uber might have come out ahead in the ridesharing wars, but the founders of Lyft somehow managed to outlast their rival’s notorious counterparts as lead executives of their own creation. Now they, too, are handing over the steering wheel.

Lyft founders Logan Green and John Zimmer are stepping down as CEO and President, respectively, giving way to the new chief executive, David Risher. The move comes a decade after Green and Zimmer created the rideshare firm that put fuzzy purple mustaches on its cars, and almost four years to the day since Lyft IPO’d on March 29, 2019. The stock price has fallen almost 88% since then and Lyft has fallen behind the competition, ushering in the age of Risher, who is — you guessed it — a super-driven former Amazon exec.

Morning Brief

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Crypto returns to the regulatory spotlight.

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Uber Eats is fed up with menu clones.

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Cineworld could sell European and Israeli businesses.

Cryptocurrency

CFTC Sues Binance Over Regulatory Violations

We’ve spent so much time nervously scrutinizing banks lately we’ve almost forgotten about the other financial services industry slowly unraveling under the weight of its own harebrained decision-making.

The cryptocurrency crisis hasn’t gone away. Some four months after the revelation that FTX was a Madoff-on-steroids-sized super-scam, American regulators accused fellow major crypto exchange Binance on Monday of shirking rules and problematic business practices.

Comply and Demand

You’ve got to hand it to cryptopreneurs, who have managed to draw the ire of just about every government regulator. In 2021, the IRS began investigating Binance, the world’s largest crypto exchange, for facilitating money laundering and other illicit activities. The SEC, for its part, has probed whether Binance sells or offers unregistered securities. And now, finally, the Commodity Futures Trading Commission has joined the party, formally accusing the company and CEO Changpeng Zhao of routinely violating derivatives rules and failing to even register with the agency.

In its complaint, the CFTC accused Binance of taking a “calculated, phased approach to increase its United States presence,” alleging that the exchange violated US laws that require futures contracts and other derivatives be traded on regulated platforms. At times, the complaint reads like a parody of a company trying to work around the rules:

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To skirt US regulations, the CFTC alleges that Binance encouraged US customers to employ VPNs to make it appear, digitally at least, that they were operating outside of US borders. That might have prompted Binance’s Money Laundering Reporting Officer (a real job title) to write in a November 2020 company chat “I HAZ NO CONFIDENCE IN OUR GEOFENCING.”

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The agency also alleges that Binance employed Signal, the secure messaging app with end-to-end encryption, to communicate with its high-profile clientele, and also intentionally destroyed documents and records. When asked by the MLRO if there should be concern over Russian customers moving money on the platform to buy weapons, former compliance officer Samuel Lim chatted back, “Like come on. They are here for crime.”

“The defendants’ own emails and chats reflect that Binance’s compliance efforts have been a sham and Binance deliberately chose — over and over — to place profits over following the law,” Gretchen Lowe, the CFTC’s Enforcement Division’s chief council, said in a statement. Documents from August 2020 showed Binance earned $63 million in derivatives transaction fees that month, with many customers identified as American.

Bit Happens: It’s tough timing for the dwindling ranks of crypto true believers, who presumably would be riding high amid the old world’s unfurling banking crisis. But not so. Bitcoin, still down some 60% since its November 2021 sugar high, traded at a 10-day low Monday following the CFTC’s allegations against Binance. Hey Matt Damon, should we buy the dip?

– Brian Boyle

Food Delivery

Uber Eats Cracks Down on Virtual Brands

Uber can’t stand the heat and wants them out of the kitchen.

Uber Eats is purging thousands of virtual brands from its app and bringing in new, stricter rules for online-only brands, the company told The Wall Street Journal. Uber’s Head of Dark Kitchens (also a real job title) John Mullenholz told the WSJ that the company is toughening up because the app has become a “Wild West, anything goes kind of situation.”

Attack of the Menu Clones

Dark kitchens (sometimes called ghost kitchens) came into their own as a business model during the early pandemic when restaurants were forced into delivery-only and takeout leaped into action to satisfy society’s existentially urgent need for comfort food. Dark kitchens, which operate out of rented spaces rather than actual restaurant buildings, are banking on the permanence of that trend.

Theoretically, virtual brands operate out of brick-and-mortar restaurants and offer exclusive delivery-only items. Some major restaurant chains including IHOP and Denny’s use this model. In reality, the Venn diagram of dark kitchens and virtual brands does overlap, and now there’s just too many of them. Mullenholz said the app has a problem with lots of virtual brands offering identical menus:

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Mullenholz said users are “effectively seeing 12 versions of the same menu,” adding: “It’s fair to say that kind of erodes consumer confidence.”

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Besides removing thousands of virtual restaurants, Uber’s solution is to demand a degree of originality from menus; more than 50% of a virtual restaurant’s menu will have to differ from its parent brand or other brands using the same kitchen.

It’s kind of like the takeout version of cracking down on bots, as some brands appear to be creating multiple virtual restaurants as a way of gaming Uber Eats’ search results. To give you an idea of scale, Uber Eats told the WSJ it found 20 brands replicating the menu of a single restaurant in San Francisco.

Ghost of CEO Past: The future of the dark kitchen business is crucial to Uber founder and ex-CEO Travis Kalanick, who heads up CloudKitchens. The company sets up restaurateurs in rented warehouse spaces with kitchens, but an Insider report from September 2022 painted a grim picture of the service, with entrepreneurs describing unsanitary conditions and a lack of communications from CloudKitchens. “They absolutely do not care — they don’t respond to emails,” one chef said. Ghosted indeed.

– Isobel Asher Hamilton

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Media

CVC and Elliott Want a Piece of Cineworld

(Photo Credit; Krists Luhaers/Unsplash)

It’s never the best sign when activist investor Paul Singer is knocking on your door.

Private equity firm CVC Capital Partners and Singer’s hedge fund Elliott Management both made offers to buy parts of the failing movie theater business, Cineworld – the second largest theater chain on the planet – according to Sky News.

Franchise Fatigue

“The death of cinema” has been in the cultural zeitgeist ever since Netflix became the first streaming success story, forever changing how people watch movies and TV. But while streaming was a perpetual snag for Cineworld, COVID was a backbreaker for the England-based company. Only a few years prior it had bought US-based Regal Cinemas, acquiring its 560 theaters and taking on $4 billion in debt. At the time, the purchase could be argued as a healthy expansion, but that was before the pandemic.

In September of last year, Cineworld filed for Chapter 11 bankruptcy with the goal of securing an all-cash sale for everything it owned to pay off its creditors and shareholders. That included roughly 750 locations across the UK, the US, Israel, and central and eastern Europe. Unfortunately, the wholesale, all-cash offers never came, and Cineworld’s final bid deadline is only a few weeks away:

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CVC and Elliott are interested only in the Cinema City and Yes Planet locations in Europe and Israel, respectively. Cineworld’s US and UK locations make up the bulk of its debt and lease liabilities of $8.8 billion.

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Both groups have made recent leaps into the leisure and entertainment sectors in the past few years. CVC owns pieces of the Six Nations rugby tournament and Away Resorts, and Elliott owns Barnes & Noble.

A source close to the bankruptcy process told the Financial Times, “It’s not a stupid idea to think of selling off part of the business to reduce the amount of new capital required” when the “company emerges from bankruptcy in the coming months.”

Movie Meme Magic: While things may look grim for Cineworld, AMC has had a unique journey thanks to Wall Street experts on Reddit. In January 2021, AMC achieved meme stock status. By the end of the year, it had raised $2 billion through stock sales. And while things have cooled down considerably since then, it meant that AMC survived the pandemic without having to file for bankruptcy. So maybe Martin Scorcese and Christopher Nolan’s dreams will come true someday and we’ll all go back to regularly watching movies in movie theaters.

– Griffin Kelly

Extra Upside

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Not-so-Magic Kingdom: Disney begins laying off 7,000 employees.

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Captain’s Log: William Shatner doesn’t want to pay for his blue checkmark.

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Bank Shot: First Citizens Bank is buying much of whatever’s left of Silicon Valley Bank.

Just For Fun

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Beach day.

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