● How to sidestep US tariffs 28 ● The Alzheimer’s drug mess 42 ● Ethereum’s Merge, explained 22

September 19, 2022

TO
CATCH

A
CHINESE
SPY
The game is economic espionage.
The world rarely glimpses its
secrets. And then one burned-out
agent got sloppy 32
 Delivering for Innovators

Delivering with advanced technology and equipment,

so we can reach over 160 million addresses across
the country. And our next-generation trucks will carry
even more packages, so you can keep up with your
customers’ growing demands.

Get started at usps.com/everywhere

 September 19, 2022

◀ Geri Taylor, with

her husband, James,
went through years
of clinical trials for an
experimental drug for
Alzheimer’s disease

1
PHOTOGRAPH BY CHERYLE ST. ONGE FOR BLOOMBERG BUSINESSWEEK

FEATURES 32 The Spy With His Head in the Cloud

A Chinese agent’s iPhone diary reveals secrets of his life—and of his work

42 Alzheimer’s Patients in Limbo

Millions are left with no clear way forward as promising research falls short
 ◼ CONTENTS Bloomberg Businessweek September 19, 2022

◼ IN BRIEF 4 The climbing cost of college ● Better tracking of gun sales ◼ COVER TRAIL
◼ OPINION 6 Now’s the time for the US and allies to step up for Ukraine How the cover
◼ AGENDA 6 Italy votes ● The Fed meets on rates ● RIP, Elizabeth gets made

①
“So this week we’ve
◼ REMARKS 8 The success of trend following may start an investing trend got a wild story about
a Chinese spy—”

BUSINESS 11 ▼ An Arizona copper mine and the future of EVs “Shhhhh. …” [Closes
1 blinds, turns music on
full blast] “You don’t say,
another markets cover!”

“I don’t think anyone

is listening to us.”

“I know, right? Could

the S&P get any lower?
I’m thinking we do a
limbo scene—”

“We don’t need the

subterfuge, boo.
The guy got caught.”

“Oh.” [Turns down

the music] “Can we
photograph him?”

“No, but we do have

all these random
documents he uploaded
to his iCloud—even
his passport.”

“Wait, didn’t you say

he was a spy?”

“I didn’t say he was

2 a good one.”

13 Tesla’s Autopilot heads to trial over a fatal crash

15 A drive to organize Hollywood’s last nonunion creatives

TECHNOLOGY 17 The privacy of location data relies on the brokers who sell it
2 19 Startups take on debt as venture capital dries up
20 Networking tech from Google’s old balloon project lives on

FINANCE 22 Ethereum’s “Merge” will reshape the crypto universe

3 24 The many hats of today’s very busy CFO
26 Gas prices fall, but rising grocery bills keep inflation high

ECONOMICS 28 US tariffs spark a Chinese rush to Mexico

4 31 White-collar jobs will be on the line in the next recession BUSINESS: PHOTOGRAPH BY CASSIDY ARAIZA FOR BLOOMBERG BUSINESSWEEK

◼ PURSUITS 51 Indigenous chefs serve up America’s oldest cuisine

54 Collectors of bronze watches are passionate about patina
56 Ten books for your fall reading list
58 Sotheby’s looks to luxury to expand its business
59 Focal’s $5,000 Utopia headphones offer high-end hi-fi

◼ LAST THING 60 A tough spot for mom and pop dry cleaners

How to Contact Bloomberg Businessweek

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 ◼ IN BRIEF
● The US government
reported on Sept. 12
that inflation cooled only
slightly in August, to an
8.3%
annual pace, down from
8.5% in July and a peak
of 9.1% in June. Analysts
had predicted a steeper
decline, and traders are
now convinced the Fed will
unveil its third jumbo rate
hike on Sept. 21. ▷ 26
● Worldwide, there have
been more than 610 million
Covid-19 infections, almost
6.6m
people have died, and
4 12.7 billion vaccine doses
have been given. Business
is putting the pandemic
behind it: Spending on
corporate travel, which rose
27% in August from July,
is projected to jump 30%
in September in the US,
according to TripActions, a
travel manager.
● “It’s time for
Ye to make the
new industry. No
more companies
standing in
between me and
the audience.”
Rapper and designer Kanye West, who now goes by Ye, said
in an interview with Bloomberg News that Yeezy, his apparel
line, will exit partnerships with Adidas and Gap, following long-
standing disagreements about how they’ve managed the line.
Bloomberg Businessweek By Mark Leydorf and Benedikt Kammel
The S&P 500 had its worst
day in more than two years
on Sept. 13 as investors
reacted to the news.
S&P 500
4100
4000
3900 ● The UK’s twin transitions—at Buckingham Palace (above) and Downing Street—
may be tricky. Prime Minister Liz Truss has to manage high inflation and an energy
9/8 9/9 9/12 9/13 9/14 crisis. King Charles III, meanwhile, faces renewed calls to abolish the monarchy.
● Amex, Visa, ● War in
and Mastercard
said they would Ukraine
implement a new
merchant code
that may better
track firearm ▶ Former CIA Director Leon Panetta, ▶ President Volodymyr Zelenskiy
on Bloomberg TV, said the Kremlin was made a surprise visit on Sept. 14 to
purchases.
BUCKINGHAM PALACE: YUI MOK/GETTY IMAGES. ZELENSKIY: METIN AKTAS/GETTY IMAGES. WEST: GOTHAM/GETTY IMAGES. DATA: COMPILED BY BLOOMBERG
at a pivotal moment. He expressed newly liberated Izyum following the
some fear that President Vladimir Putin, lightning advance in which Ukraine
feeling boxed into a corner, might resort recaptured about 2,300 square miles.
to using battlefield nuclear weapons. Military observers have begun to ask
whether the grinding war may instead
The International Organization for ▶ Ursula von der Leyen, president of become a Russian rout.
Standardization approved the code the European Commission, pledged
for gun and ammunition stores on to work with Ukraine to shore up its ▶ Ukraine says it shot down an Iranian
Sept. 9, following a campaign by war-torn economy. Speaking to the “suicide drone” near Kupiansk during
New York City and state officials, European Parliament on Sept. 14, she the offensive. Experts say sanctions
California’s teachers’ pension fund, said the EU would guarantee Ukraine and losses are forcing Russia to source
and Amalgamated Bank. access to its single market. equipment from North Korea and Iran.
● At 19 of the ● The Netherlands plans
top 20 American
to officially apologize for its
historical role in the slave
universities, trade and set up a fund of
tuition exceeds as much as
$55,000 a year. €200m
for projects that aim to
raise awareness about
the legacy of slavery,
according to people
US News & World Report put out its
familiar with the matter.
annual college rankings on Sept. 11,
just weeks after Joe Biden announced
a plan to forgive as much as $20,000
in student debt for some borrowers.
Activists have applauded the
president’s plan but say lowering the
cost of college is crucial to ending the
$1.7 trillion student debt crisis.
 Malware is increasingly
threatening online security
Google Safe Browsing
technology was built to
risky sites,
protecting over 5 billion
devices every day

As threats from malware increase, Google Safe Browsing makes the

internet safer by showing warnings to users when they attempt to navigate
to dangerous sites or download dangerous files.

Explore how Google is keeping more Americans safe online

than anyone else at safety.google
 ◼ BLOOMBERG OPINION September 19, 2022

expenses and hardships. Yet helping Ukraine capitalize on its

Ukraine Can Win gains is manifestly in their best interests. It could hasten an
end to the war while sending a powerful message to adver-
If the US and Its Allies saries worldwide—not least to China—about the West’s will-
ingness to present a united front to protect its way of life.
Ramp Up Support Of course, Putin isn’t defeated yet. Ukraine has regained
only a fraction of the land Russia occupied, and the Kremlin
has other options, including attacking electricity and water
Russian President Vladimir Putin told a gathering in supplies, initiating cyberwarfare, or accepting the risk of an
Vladivostok on Sept. 7 that his country had “not lost any- air campaign. Russian forces will continue to threaten a disas-
thing and will not lose anything.” He may be less certain of ter at the Zaporizhzhia nuclear plant. And mass mobilization
decisive victory today. may still be in the cards, though it would effectively concede
An offensive by Ukraine’s armed forces has made spectac- that Putin’s “special military operation” has so far failed.
ular progress, retaking more than 6,000 square kilometers However the conflict unfolds, it’s key to remember that any
(2,300 square miles) of lost territory, according to President war ends at the negotiating table. The US and Europe should
Volodymyr Zelenskiy, and reversing gains that took Russia ensure that Ukraine is in a position of strength when it gets
months to achieve. Whatever happens next, there’s no ques- there. <BW> For more commentary, go to bloomberg.com/opinion
tion that the charge has been a major strategic and oper-
ational defeat for the Kremlin. Allied nations must help
Ukraine make the most of it. ◼ AGENDA
Much is changing on the ground. But Ukraine’s victories
in the northeast have stretched the Russian army thin and
forced it back from key command points and supply depots.
More troops will need to be pulled from other regions to
replace exhausted forces, leaving vulnerable spots Ukraine is
6 likely to exploit. The scale of the losses has prompted unusual
dissent even among prominent pro-Kremlin voices. And then
there’s the scramble to replace the huge amounts of weapons
and equipment the retreating forces left behind.
Such battlefield success should provide significant momen-
tum and a much needed morale boost for Ukrainian forces.
Crucially, it’s also demonstrated impressive military leader-
ship, planning, and the ability to employ Western weapons
and supplies to good effect, not only for defensive purposes
but also for offense—whether that’s US long-range rocket
systems taking out ammunition dumps or the use of radar-
targeting missiles to deter Russian air defenses.
▶ A New Direction for Italy?
This is the moment for the West to step up. As a start, If Italy follows the recent trend in Europe and votes in
weapons deliveries need to accelerate. The US on Sept. 8 the hard-right alliance led by Giorgia Meloni’s Brothers
announced an additional $675 million package of hardware, of Italy in the Sept. 25 elections, she’ll become the first
including ammunition for high mobility artillery rocket sys- female prime minister in the country’s history.
tems (Himars), anti-armor mines, howitzers, and more.
Such supplies have proved highly effective. But munitions ▶ The Fed’s decision ▶ Dignitaries from ▶ At the General Debate
on interest rates on around the world attend of the 77th UN General
are being consumed at a staggering rate. Ukraine estimates Sept. 21 leads a central- Queen Elizabeth II’s Assembly, starting on
daily expenditure of artillery rounds per gun at triple that banking blitz. A dozen funeral on Sept. 19. Sept. 20, topics will
institutions, from Brazil The longest-serving include climate change,
recorded by the British army’s artillery during World War I. to Turkey to Indonesia, monarch in the UK’s the war in Ukraine, and
Steady rearmament could well be decisive in this conflict. are also setting rates history will be laid to the aftermath of the
that day or the next. rest at Windsor Castle. coronavirus pandemic.
Next, the allies must continue to hold the line on trade and
financial sanctions and close any enforcement loopholes that
ILLUSTRATION BY JAY DANIEL WRIGHT

remain. Europe has made admirable progress to prepare for ▶ Macau reports its
daily visitor arrival totals
a long winter without Russian energy, and much suffering on Sept. 20. It’s a key
may yet lie ahead. But Ukraine’s striking successes in recent economic indicator in
the gaming enclave,
days should help disgruntled citizens recognize that their sac- which has seen a sharp
rifices aren’t in vain. slump during China’s
Covid-zero lockdowns.
It’s certainly fair for allied countries to worry about these
▶ The CEOs of some ▶ A Soyuz rocket with
of America’s largest two cosmonauts and a
consumer-facing banks NASA astronaut blasts
will testify before the off from Kazakhstan to
US House on Sept. 21 the International Space
at a hearing titled Station on Sept. 21 amid
“Holding Megabanks doubts about Russian
Accountable.” cooperation in space.
 Digital attacks are
being used to censor critical
information online

Project Shield was

built to
journalists, human rights
organizations, and
more from these attacks

Human rights groups, news organizations, and more are at risk of DDoS
attacks designed to suppress the free flow of information. Project Shield
protects these websites from censorship attempts so they can continue
providing vital services and publishing newsworthy information.

Explore how Google is keeping more Americans safe online

than anyone else at safety.google
 ◼ REMARKS
A Playbook for
Uncertain Times
● Almost everything is down for
investors this year. A rare bright spot?
A backwater called trend following
● By Michael P. Regan
It’s easy to spot the trend followers at back-to-school time:
Just look for the kids wearing the coolest sneakers. It’s easy to
spot them in the markets these days, too. Look for fund man-
agers with returns that are so hot they make most other types
of investors look as if they’re sporting a pair of worn-out Keds.
It’s been a banner year for financial trend followers: It’s a
style of investing dedicated to what the markets are actually
doing, rather than what some expert thinks they should do.
The benchmark gauge, Societe Generale SA’s SG Trend Index,
is up 27% so far in 2022, poised for its best year in data since
the start of this century.
That type of performance is hard to stomach for investors
who focus on fundamentals. Traditionalists like to preach the
virtues of deep-dive research or buying and holding a diver-
sified portfolio. This is not that; these strategies trade fre-
ILLUSTRATION BY EVAN WESELMANN
quently in an attempt to catch highs and lows.
Yet there’s no mistaking that trend following is working—
spectacularly—when almost nothing else is. Stocks and fixed
income markets are mired in simultaneous bear markets,
wreaking havoc on traditional strategies including what’s
known as 60/40, a balanced portfolio that invests 60% in
◼ REMARKS Bloomberg Businessweek
stocks and 40% in Treasuries or other safe bonds. And the
economic outlook hasn’t gotten any friendlier to that strat-
egy, given the red-hot global inflation and central banks hell-
bent on taming it.
This new environment for investors, in which bonds can’t
be trusted in their traditional role of protecting portfolios in
turbulent times for stocks, has triggered a heated debate on
Wall Street about building a more safe and reliable vehicle
than 60/40. Everything including commodities and crypto-
currencies has been offered up as a possible contender for
inclusion in that 40% bucket.
So is trend following worthy of consideration, even for the
most traditional and cautious of investors? Well, let’s just say
that if crypto has entered the chat, pretty much everything
is on the table.
The trend-following strategy has been around for decades,
used most notably by hedge funds trading in futures mar-
kets and often using borrowed money, or leverage, to amplify
returns. It’s the dominant strategy for what are known as
commodity trading advisers or managed futures funds. The
implicit dual mandate of managed futures—says Cliff Asness,
a longtime advocate of trend following who’s the co-founder
and chief investment officer at AQR Capital Management
LLC—is to “deliver positive returns on average” and “gener-
ate especially attractive returns during large equity market
drawdowns.” That sounds an awful lot like the role bonds
used to play in a balanced portfolio.
The most simple explanation of trend following is pretty
easy to follow: Just buy the assets that have been going up
recently and sell short those that have been going down.
Implementation is more complicated. Market wizards known
as quants deploy computerized black boxes filled with math
to determine when trends have started or finished.
The trends in a variety of markets have been especially
well-defined and long-lasting this year, with both stocks and
bonds suffering meltdowns, oil and other commodities surg-
ing for much of the year, and the US dollar leaving most other
currencies in the dust.
Of course, playing in the futures markets requires deep
pockets. A single US Treasury note futures contract currently
sells for about $115,000. An E-mini S&P 500 futures contract
will set you back about $198,000, and one oil futures contract—
which represents 1,000 barrels of crude—is about $87,000.
But since the last time managed futures funds proved their
mettle in a bear market for stocks—the SG Trend Index was
up 21% in 2008—several exchange-traded funds and mutual
funds have emerged to offer mere mortals access to a version
of the hedge fund party. Take the AlphaSimplex Managed
Futures Strategy Fund, a mutual fund that’s up 38% in 2022
thanks in large part to following the trend lower in Treasuries
and the trend higher in energy futures, among other trades.
“We do well when things are uncomfortable,” Kathryn
Kaminski, chief research strategist at AlphaSimplex Group
LLC and co-manager of the managed futures fund, told me
on a recent episode of Bloomberg’s What Goes Up podcast.
September 19, 2022
Betting on losses in Treasuries and the higher interest rates
that accompany their price declines, for example, makes
many investors uncomfortable because of that asset class’s
long-term reputation as a haven in times of turbulence. “If I ask
a group of people, ‘How many of you think that rates are going
to go up?’ they’ll all raise their hands. But if you ask them, ‘How
many of you are willing to short bonds or have shorted bonds?’
nobody does.” That highlights how most people are used to the
idea of going long bonds, she says, whereas AlphaSimplex can
take advantage of opportunities in the short run, even when
they’re uncomfortable from an historical perspective.
The surprisingly weak performance of the Japanese yen
vs. the dollar this year is another example of a trend that
likely made fundamental investors uncomfortable, but it’s
been highly lucrative for trend followers, says Andrew Beer,
who co-manages the iM DBi Managed Futures Strategy ETF
from Dynamic Beta Investments LLC. Betting on weakness in
the Japanese currency was one of the most important trades
that’s helped power a 27% gain for that ETF so far in 2022.
The currency trades for more than 140 yen per dollar, hav-
ing weakened from 115 at the start of the year.
“When you talk about the craziest things in the market,”
Beer say, “I think if you’d asked FX strategists earlier this year,
‘The yen is at 115—where could it possibly go?’ the guy who
said 125 would’ve been laughed out of the room.” And then
lo and behold, he adds, the currency went on to get even 9
weaker than that.
Regular investors appear to have taken notice of trend
followers’ status as the go-to place for positive returns during
a rough year for both stocks and bonds. For example, the
Dynamic Beta fund, whose ticker is DBMF, has seen inflows
for 18 straight months—helping its total assets jump more than
2,100%, from less than $31 million to $680.7 million. Smaller
ETFs such as the Simplify Managed Futures Strategy ETF,
the WisdomTree Managed Futures Strategy Fund, and First
Trust Managed Futures Strategy Fund have also seen their
assets grow.
Of course, it’s reasonable for traditional buy-and-hold
investors to be skeptical that trend following is more than a
flash in the pan, especially given it’s meh performance in the
decade between the global financial crisis and the Covid-19
pandemic. If you cherry-pick a starting date for the compar-
ison at the end of the financial crisis bear market in 2009,
the S&P 500 has returned almost 700% while the SG Trend
Index is up about 64%.
Yet the boilerplate on Wall Street that “past performance
does not guarantee future results” is ubiquitous for a reason.
And it’s starting to look as if this global market environment
could produce results that are drastically different from the
market performance in the decade preceding the Covid era,
a period that was famous for containing the longest bull mar-
ket in stocks.
So it’s worth considering whether this year’s standout
performance in trend following could be the start of, well,
a trend. <BW>
 I Live a Life of

In 2018, my in-laws asked me to help take their third-generation pet products business to the next level.
I had administration experience, but I never considered running a company. I needed help to get my
bearings as a business leader.
When I discovered Vistage, I was sold. Having other CEOs in the same room providing honest input
was invaluable. Now, I also have a mentor who helps clarify issues and speakers who present the most
relevant business topics. It has helped us build a leadership team, realign our organization, improve our
budgeting and develop our culture.
Since then, we’ve doubled revenue and nearly doubled headcount. We’ve introduced five product lines
and grew e-commerce by 10x. I’m most proud of our culture of servant leadership, putting others’ needs
before our own.
I’m Landon. I live a life of climb.

Landon Hobson
CEO, Cosmos
Saint Louis, Missouri
Vistage member since 2018

JOIN THE CLIMB

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Vistage is the world’s largest executive coaching and peer advisory organization for
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 Bloomberg Businessweek Bloomberg Businessweek
Month 00, 2022 September 19, 2022

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 ◼ BUSINESS
focused on lithium—a key component in today’s
batteries— copper is also crucial in the shift to
greener transportation. A typical gasoline-powered
car uses roughly 65 pounds of copper for wiring
and electronics, but an EV requires more than
twice that. Goldman Sachs predicts global demand
for copper will start to outstrip supplies by 2025,
pushing prices to twice their current level. “The
transition to net-zero carbon economies starts and
ends with metals,” says Bart Melek, head commod-
ity strategist at Toronto Dominion Bank. “Without
copper, nothing is possible.”
Globally, EVs will account for two-fifths of pas-
senger car sales in 2030, vs. less than 9% last year,
according to BloombergNEF. And China has taken
the lead in getting there, manufacturing 40% of
the world’s electric cars and more than half the
EV batteries last year. Biden has said the US can
overtake China in the energy transition, and he’s
invoked a Cold War-era law providing subsidies to
help speed things along. But given the potential of
alienating key voters, his team has put the brakes
on Resolution and other key projects. “We’re in
a bit of a purgatory right now,” says Andrew Lye,
● A Resolution mine shaft in Arizona
12
an Australian geologist who serves as Rio Tinto’s
manager at Resolution. “How do you preserve cul-
ture but also push supply chain security and make
sure you’re isolated from Russia and China?”
Lye spends a couple of days each week travel-
ing between Arizona and Washington, meeting
with national and regional politicians, and speaking
with community and business groups. A big part of
his job is reassuring locals that the company will
take their needs into account. That’s been compli-
cated by Rio Tinto’s track record: Two years ago,
the company blew up a 40,000-year-old heritage
site in Australia to expand an iron mine, drawing
an angry rebuke from Indigenous groups.
The negligence cost the chief executive officer
and other high-ranking executives their jobs, and
Jakob Stausholm, Rio Tinto’s CEO since last year,
says he’s made community relationships a prior-
ity. To that end, the company has hired locals to
Bloomberg Businessweek September 19, 2022
communicate with people around Resolution. Lye ▼ Copper used in an
electric car
says the representatives have held scores of meetings
in the area, helping Rio Tinto better understand its Wiring
neighbors’ concerns and ensuring that their voices 55.7 lbs
145.3 lbs
are heard. “There’s so much opportunity that the
project can offer,” says Willard Antone III, a mem-
ber of the nearby Gila River Indian Community who
serves as a liaison between the company and locals.
“It’s important to be transparent with the tribes.”
The Forest Service will ultimately make the
decision on the land swap. While members of the
Arizona congressional delegation have backed the
deal, Vermont Senator Bernie Sanders and several
other members of Congress have sought to scuttle
it, citing environmental concerns and the rights of
Native Americans. Two people with knowledge of
the matter say Biden may delay any decision until
after November’s elections.
The administration has opposed some projects
key to the energy transition while backing others. In
January, the US Department of the Interior canceled
leases for Twin Metals, a planned mine in northern
Minnesota with nickel, cobalt, and copper deposits, Lithium-ion battery
50.6
citing inadequate environmental analysis. But it has
supported Thacker Pass, an open pit mine in Nevada
with the largest US lithium deposit. It’s been delayed
while a judge weighs a bid to block it over concerns
that it will consume groundwater needed for cattle
and destroy important Indian religious sites.
The US produces 1.2 million metric tons of cop-
per annually, but the biggest mine—Morenci in
MINE: PHOTOGRAPH BY CASSIDY ARAIZA FOR BLOOMBERG BUSINESSWEEK. TESLA: JOE RAEDLE/GETTY IMAGES. DATA: COPPER ALLIANCE
Arizona—has been operating since 1939. Its pro-
duction last year dropped 10%, to about 400,000
tons, and will likely wind down in the early 2040s.
If Resolution were ever to reach the output Rio
Tinto predicts—about 450,000 tons per year—it
could boost US output by 40% and give American
manufacturers a guaranteed source of the metal
as China scours the globe to feed its industry. But
even if the land swap were approved tomorrow,
the mine wouldn’t reach full production for at least Motor
15.8
a decade, as the project still needs various local
permits and years of construction.
Any delay is just fine with Nosie, who leads a
group called Apache Stronghold, which is working
to ensure the project never gets built. The mining
industry, he says, has a long record of environmen- Cables
14.5
tal devastation, and it never truly protects commu-
nities. “You see the aftermath, the contamination
to the water and to the people,” he says. “This land
is a holy and sacred place, and it’s our identity.”
�Joe Deaux, with Gabrielle Coppola Power electronics 1.8
Other
THE BOTTOM LINE EVs need twice as much copper as gasoline- 7.0
powered cars, and global demand for the metal is predicted to
outstrip supplies by 2025, doubling prices.
◼ BUSINESS
Ten seconds before Jeremy Banner’s Tesla
Model  3 plowed into the underbelly of a
tractor-trailer, he switched on Autopilot. The
crash killed the father of three when the top of
his car was sheared off, so there’s no way to know
exactly what happened that Friday in March three
years ago. But an investigation by the National
Transportation Safety Board found that Banner
probably didn’t see the truck crossing a two-lane
Florida highway on his way to work. Tesla’s driver
assistance feature apparently didn’t see it either.
At least not in time to save the 50-year-old’s life.
A court in Palm Beach County has set a February
date for a jury to hear testimony on who was at
fault, the first of potentially dozens of Autopilot col-
lision trials. Until then, expect the Twittersphere to
light up with passionate arguments over a question
that’s been debated for years: Does the very name
Autopilot lull drivers into a false sense of security
that their cars will drive themselves? The trial offers
“one of those watershed moments when we have
lots of public attention on a verdict, if the jury is
sympathetic to the driver and wants to send a mes-
sage to Tesla,” says Bryant Walker Smith, a law pro-
fessor at the University of South Carolina.  the company of false advertising, saying it misleads
Whatever the verdict, it will add urgency
to calls by legislators and auto safety advo-
cates for regulatory intervention. A crackdown
has been slow to materialize during Tesla’s
eight-year experiment with automated driving,
but the idea has gained steam under the Biden
administration, with the National Highway
Traffic Safety Administration conducting multi-
pronged investigations.
Chief Executive Officer Elon Musk insists Teslas
are the safest cars ever made, but the trial will
feature a parade of technology experts testifying
about the perils of marketing driver assistance in
Bloomberg Businessweek September 19, 2022
● A la
w
a fata suit over
l cras
the EV h say
s
autom exagg maker
ated d e rates its
riving
capab
ilities
ways that lead to overconfidence. “A big part of
the significance of the case is that it actually is
being conducted in a public forum,” says Michael
Brooks, chief counsel at the Center for Auto
Safety, a consumer advocacy group.
Tesla has long insisted it’s clear about the sys-
tem’s limits, citing strong language in its driver man-
uals. And the company’s website says Autopilot
features “require active driver supervision and do 13
not make the vehicle autonomous.” Musk insists
that proper use of Autopilot by attentive drivers has
saved far more lives than have been lost in crashes.
“In investors’ minds, Tesla already has its defense,
and they have always bought it: Humans are bad
drivers,” says Gene Munster, managing partner of
Loup Ventures, an investment firm that follows Tesla
but isn’t connected with the case.
The NHTSA says at least 18 fatalities may
be linked to driver assistance technology. The
agency has investigated almost 200 crashes involv-
ing vehicles using the feature, including some
in which Teslas have rear-ended police cars or
firetrucks parked along roadsides. And California’s
Department of Motor Vehicles in August accused
customers into thinking Autopilot and enhanced
“Full Self-Driving” features are more sophisticated
than they are.
Lake Lytal, a lawyer for Banner’s family, calls the
trial an opportunity “to finally hold Tesla and Elon
Musk accountable for using the public roadways
throughout our country as a testing ground for this
company to try and fix their defective Autopilot sys-
tem, which they know has killed and will continue
to kill its customers.” Tesla and its legal team didn’t
respond to requests for comment. 
Musk is prickly about public criticism of
Autopilot. In 2018 he hung up on Robert
 ◼ BUSINESS Bloomberg Businessweek September 19, 2022

Sumwalt, then chairman of the NTSB, after

Sumwalt took him to task for blog posts blam-
ing the driver of a Model X for a fatal crash. Last
October, when President Joe Biden appointed Duke
University Professor Mary Cummings as a senior
safety adviser to the NHTSA, Musk and thousands
of Tesla fans protested on Twitter because of her
history as a vocal skeptic of Autopilot, circulating
a petition accusing her of bias.
More recently, a furor erupted over a viral
◀ Tesla’s Autopilot didn’t
YouTube video of a Tesla running over a child-size see the truck in time to
crash test dummy while purportedly operating in prevent the crash and
save Banner’s life
Full Self-Driving mode. In response, some Tesla
owners posted videos of their vehicles safely stop-
ping in front of real children, prompting the NHTSA
to issue a “don’t try this at home” warning.
The trial will feature Tesla engineers and out-
side experts. These include Christopher “CJ”
Moore, a former member of the company’s
Autopilot executive team, now working for Apple
Inc. After interviewing Moore last year, California
DMV officials concluded that some of Musk’s
tweets exaggerated Autopilot’s capabilities. One
person the jury probably won’t hear from is Musk.
A judge ruled that the billionaire entrepreneur
14 didn’t have to sit for a deposition, rejecting the
Banners’ argument that Musk has “unique knowl-
edge” of the issues in the case.
Most problematic for Tesla may be what the
proceeding reveals about the technology’s weak-
nesses. The public will get its first glimpse of
troves of data Tesla collects, including granu-
lar information on Autopilot, according to Dana
Taschner, a personal injury attorney who’s rep-
resented victims of crashes attributed to defects.
“Tesla engineers will be on the stand testifying
under oath about data and statistics that are very,
very carefully guarded,” he says.
The trial also has ramifications for companies
such as Apple and Alphabet Inc.’s Waymo, which system did not send a visual or audible warning
are developing self-driving vehicles, and conven- to the driver to put his hands back on the steering CRASH: NATIONAL TRANSPORTATION SAFETY BOARD. ILLUSTRATION BY JOSHUA FOLTZ

tional carmakers such as BMW and Mercedes-Benz
that are investing heavily in cars with automated
driving features. For those manufacturers and
their myriad suppliers, the trial is a cause for con-
cern because of what it says about liability.
The Banner family’s lawsuit has its weak-
nesses, particularly a probe of the accident by the
NTSB that found there was blame to go around.
Investigators said the truck driver had failed to
yield the right of way and faulted Banner for his
“inattention due to over-reliance on automa-
tion.” But in a 2020 report, the agency criticized
Tesla’s technology for insufficiently monitoring
and enforcing driver engagement. “The Autopilot
wheel,” the report said.
The NTSB reached similar conclusions in a 2017
report on a remarkably similar accident in northern
Florida, also involving a fatal crash into a semitruck
that the car’s sensors didn’t detect. Last October,
the agency chastised Tesla for failing to respond to
its 2017 recommendations, including limiting where
Autopilot can be activated and ensuring that driv-
ers pay attention while using the feature.
The NTSB’s findings about what caused Banner’s
crash aren’t allowed as evidence under federal
law. But independent experts could use the report
as a “road map” to reestablish the same conclu-
sions, says Peter Goelz, a former NTSB managing
◼ BUSINESS
director. For Musk, the stakes couldn’t be higher.
He has, after all, said full self-driving technology
is the difference between Tesla being “worth basi-
cally zero” and making it one of the world’s most
valuable corporations. “The technology is so funda-
mental to the appeal of the car,” Goelz says. “I don’t
think Tesla is going to give an inch.” �Malathi
Nayak, with Keith Laing and Dana Hull
THE BOTTOM LINE The NHTSA says it’s looking into almost
200 crashes involving vehicles using Tesla’s driver assistance
technology, and it has found that at least 18 were fatal.
Effects Artists of
The World, Unite!
● Cinematic graphics teams are starting a
unionization drive—long after other trades
For decades, Hollywood has been a stronghold of
the US labor movement, with groups such as the
Producers Guild of America and the Screen Actors
Guild defending the interests of everyone from
directors to stagehands. But one notable crowd has
been left out: the visual effects professionals who
create graphics that have grown to account for as
much as 60% of film budgets. With artists working
18-hour days, getting few health or pension bene-
fits, and facing thousands of dollars in penalties for
quitting before a project is done, Ben Speight aims
to change that. “Folks aren’t just saying, ‘Oh yeah,
the abuse is bad,’ ” says Speight, a veteran organizer
with the International Alliance of Theatrical Stage
Employees. “It’s getting worse, and they’re going
to do something about it.”
The unionization drive comes as studios are
preparing a slew of new content to feed stream-
ing platforms and bolster a post-pandemic return
to theaters. Speight and others in the business
say there’s four times as much visual effects work
in the pipeline as there are artists to complete it.
Informal organizing efforts are under way as art-
ists band together on Slack channels to compare
pay, advise how to get raises, and boost aware-
ness of mandatory benefits. But Speight says he
can formalize those links, aiming to have a union
with more than 1,000 members by next autumn.
Some of the biggest names in the business are
starting to speak up in favor of unionization. During
a Television Critics Association conference in
Bloomberg Businessweek September 19, 2022
August, members of a panel on She-Hulk: Attorney
at Law—a new offering from Marvel, which has
been singled out in online forums for tough condi-
tions and low pay—has stressed the importance of
organizing effects artists. “Everyone on this panel
stands in solidarity with workers,” said executive
producer Jessica Gao.
In the 1980s, when visual effects started to
take off, it was an ill-defined, catch-all rubric that
included everything from painting to pyrotechnics.
As work grew, companies competed more aggres-
sively, driving prices down to unsustainable levels:
The Rhythm and Hues studio won an Oscar for its
graphics in Life of Pi in 2013—weeks after it filed for
bankruptcy. The Visual Effects Society, formed
in 1997, counts 4,000 members, but it focuses on
education and awards rather than employee rights.
The hypercompetitive mindset, as well
as the perception that graphics studios are
interchangeable—a dozen at a time might work on
a single project—has dissuaded artists from union-
izing for fear of being blacklisted by Hollywood
producers, says Joe Pavlo, an Emmy-winning
artist. That fear, in his view, is totally imag-
ined. “Blacklists don’t exist,” says Pavlo,
who helped organize visual 15
effects workers in the UK.
“I’ve never been so in
demand as I have been
since putting my head
above the parapet on
union issues.”
He says studios have
so many projects in the
works that they sim-
ply can’t afford to shun
workers—and that there’s
more than enough money
in the budget for them to
offer salaries and ben-
efits on par with what
other unionized work-
ers on set are getting.
And he’s convinced the
efforts in Hollywood will go a long
way toward improving working conditions. Before
unionization, he recalls, one manager would email
workers late in the evening, chastising them for
not being at their desks. After the group organized,
Pavlo says, “that same manager was going around
at 6 p.m., saying, ‘Leave that until tomorrow. It
can wait.’ ” �Thomas Buckley
THE BOTTOM LINE With studios preparing a slew of new content,
some say there’s four times as much visual effects work in the
pipeline as there are artists to complete it.
 ADVERTISEMENT
BUILDING ON A MILLENNIUM
OF ARAB INNOVATION
The Middle East was once at the forefront of invention. Algebra, universities,
inoculation against disease, coffee, windmills, the arch and even the three-
course meal: all had their genesis in the region. Yet over the past 150 years,
the focus on innovation on a global scale has not been as sharp as it once was.
That’s why, as we prepare to enter the second quarter of the Digital Century,
the Kingdom of Saudi Arabia will reinvigorate that inventive tradition with
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Through a focus on health and wellness, a sustainable environment and the
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of the future, the newly established Research, Development and Innovation
Authority (RDIA) will be a steward for the Kingdom’s work with global partners,
deploying a multibillion-dollar budget over the coming years.
We are determined to help make world-class health care more accessible
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Saudi Arabia is intent on addressing not only domestic but also global health
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A good life isn’t limited to good health. Security of food, water and energy are
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The world’s largest solar-powered desalination plant is located in Al Khafji,
and we continue to invest in innovation to make desalination environmentally
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to achieve and, crucially for food security, easily used for farming.
Saudi Arabia has prospered over the past century thanks in large part to our
oil revenue. We’re now investing that revenue in finding cleaner, greener
sources of energy to power our way into a brighter future. The Kingdom
is building what will be the world’s largest green hydrogen facility, with a
production target of 50 tons per day, aiming to produce 5 million tons of clean
hydrogen by 2030.
Although the innovation and invention timescale can be frustratingly long, the
Kingdom is committed to becoming an innovation superpower in the next two
decades. We expect that by 2040, our total expenditure on innovation will
reach 2.5% of GDP, more than the G20 average.
We can’t do this alone.
At the heart of our commitment is the desire to build globally collaborative
schemes and institutions that will help humanity harness technology to
improve lives. Saudi Arabia will invest in bringing scientific talent from other
nations to work with our brightest minds.
KACST (the King Abdulaziz City for Science and Technology)—the Kingdom’s
leading research and innovation center—is already working with Cambridge
University, Harvard, UC Berkeley and MIT to pool knowledge, resources,
information and ability. As our program expands in capability, so will our world
advance in possibility.
Innovation, investment and people: the Research, Development and
Innovation Authority brings all these together. Building on 1,500 years of our
region’s exceptionally inventive history, the Kingdom of Saudi Arabia will use
the fruits of our prosperity to build a better future for everyone, everywhere.
His Excellency Munir Eldesouki, President of King Abdulaziz City
for Science and Technology (KACST)
 Bloomberg Businessweek September 19, 2022

T
E
C
H
N
O 17

L
The Dangers O
Of the Data Trade G
The FTC joins the push to put new restrictions
Y
on the market for personal smartphone data

The Supreme Court’s June decision to overturn These safeguards are inconsistent at best. Over
Roe v. Wade set off widespread concerns that location the summer, a Bloomberg Businessweek reporter
ILLUSTRATION BY MARIA CHIMISHKYAN

data collected and shared by smartphones could be
used to prosecute people who receive or provide
abortions. There’s scant regulation of the industry
built around the selling and buying of personal data,
which IDC says generates $15 billion annually. That
puts a lot of weight on the privacy protections set
by location-data brokers themselves.
signed up for a free trial on the website of Advan
Research Corp., a New York-based company that
markets “unmatched, global, foot traffic analyt-
ics” to clients in real estate and finance. When
he searched for the term “abortion,” the compa-
ny’s administrators disabled his trial account and Edited by
sent him an email warning that it doesn’t allow Joshua Brustein
 ◼ TECHNOLOGY
users to “obtain information on such sensitive
locations.” But another reporter entered the street
addresses of established abortion providers and
was able to access the data his colleague had been
looking for without an issue. An Advan spokes-
person says that the company blocks sensitive loca-
tions like abortion clinics and jails, but adds that it’s
“technically next to impossible” to have a compre-
hensive, real-time list.
On Aug.  29 the Federal Trade Commission
sued Kochava, an Idaho-based location-data bro-
ker, claiming that someone could identify a mobile
device that had been inside an abortion clinic and
trace it back to a single-family home with just a free
trial of the company’s service. Because Kochava’s
data services also include unique ID  codes for
mobile devices, the FTC warned, its clients can con-
nect location data directly to actual people.
If the suit is successful, Kochava would have to
stop selling geolocation data about sensitive places
such as reproductive health centers and places of
worship, and delete any information it has already
amassed. Kochava general manager Brian Cox said
in a statement that the FTC has a “general mis-
understanding” about the company’s business and
18 that its marketplace has new restrictions on sensi-
tive geographic data.
In addition to the Kochava lawsuit, the FTC is in
the early stages of writing new privacy rules that
would apply to data brokers. “Geolocation is a por-
tal to all sorts of other sensitive information about
your life,” says Alvaro Bedoya, an FTC commis-
sioner who’s prioritized the issue, in his first inter-
view on the topic since joining the agency in May.
“Having an aggressive enforcer that is willing to call
companies out when they’re engaging in conduct
that can harm people will help.”
That brokers’ data could be used to prosecute
those suspected of violating state-level abortion
laws is not the FTC’s only concern. The agency cites
the easy identification of other sensitive locations
in its suit. Using a free trial of a tool offered by the
data broker SafeGraph, Businessweek reporters were
able to easily access data about visits to an addic-
tion recovery center in Charlotte, as well as infor-
mation about which commercial establishments
visitors likely frequented afterward. Reporters were
also able to see roughly how long customers spent
inside a gun store in Plattsburgh, N.Y. SafeGraph,
which declined to comment for this story, told law-
makers in June that the tool provides “an approx-
imate composite of visits to a location rather than
identifying specific devices or persons.”
Smartphone users create large amounts of
data that they have little effective control over,
Bloomberg Businessweek September 19, 2022
◀ Bedoya
in part because of code within apps that records
device activity, which brokers can package and sell.
Analyses provided to Businessweek by app analyt-
ics companies Apptopia and MightySignal show
location-tracking is particularly common in popu-
lar apps for gaming, navigation, weather, and tools
like voice recorders or smart TV remotes.
Developers regularly add such code to their
apps through software development kits, or SDKs.
Some SDKs record data that developers find useful
for analytics or other utilities, says Sean O’Brien of
the Yale Privacy Lab. In other cases, he says, cre-
ators of SDKs pay developers to embed trackers
that funnel user data to brokers. X-Mode, which
supplied an SDK that O’Brien’s research showed
was commonly found on apps catering to Muslim
communities, has offered developers that install it
$30,000 a month for each million daily US users.
ILLUSTRATION BY ARNE BELLSTORF. BEDOYA: SHURAN HUANG/THE WASHINGTON POST/GETTY IMAGES
Another location broker, Quadrant IO, has adver-
tised $15,000 a month for the same number of
users. Spokespeople from both companies say
they’ve discontinued the SDKs and tightened rules
around sensitive data.
SafeGraph and other brokers say their data
doesn’t reveal individuals’ identities. Yet in one
2013 study published in the scientific journal
Nature, researchers were able to identify more
than half the cellphones in a purportedly anony-
mous data set of calls, because of, as they put it,
“the uniqueness of human mobility.”
Since that research, both the amount of data col-
lected and the sophistication with which it can be
analyzed has increased significantly. There’s even a
category of service known as “identity resolution”
that matches data points like travel, credit card, and
web browser histories, further eroding privacy.
◼ TECHNOLOGY Bloomberg Businessweek September 19, 2022

Supporters of abortion rights worry about the some states criminalize behavior that is recognized
possibility of law enforcement agencies using data as a protected right in another,” he says. “We
collected by brokerage services to enforce state- cannot let the commercialization of deeply per-
level bans. (Data brokers could also prove useful to sonal information become an end run around the
private individuals in states like Texas, which has a Fourth Amendment.”
law offering financial incentives for people who help While policymakers have been professing their
identify others violating the state’s abortion law.) concerns about the potential for abuse for years,
Many brokers already have relationships with there’s a sense that privacy-eroding technology
government agencies, including law enforcement, practices are evolving faster than the government’s
according to investigations by the Electronic ability to protect against them. “I don’t know if we
Frontier Foundation (EFF), a digital-rights group. can put the cat back in the bag,” the FTC’s Bedoya
Cynthia Conti-Cook, a former criminal defense acknowledges. “But we wouldn’t be doing our jobs
attorney and a technology fellow at the Ford if we didn’t try.” �Jack Gillum and Brody Ford
Foundation who’s studied the impact of digital sur-
THE BOTTOM LINE With scant legal oversight over the location-
veillance on abortion rights, says emerging technol- data industry, the privacy protections that now exist are largely a
ogies are commonly used in modern policing with matter of trusting data brokers themselves.
few legal limits. Data providers, she says, “are good
at marketing what they do to police departments.”
User data from cellphones is also regularly pack-
aged and sold on marketplaces such as those run
by Oracle and Snowflake. For example, brokers on When the Going Gets Tough,
Amazon Web Services’ marketplace sell everything
from lists of countries to which US residents have Startups Borrow Money
traveled, to locations frequented by veterans, to
the nation’s most engaged cereal eaters. More than
1,000 data products are listed in the marketplace’s ● Venture debt is on the rise as VCs pare investments 19
“Retail, Location & Marketing” category alone.
When pressed by lawmakers in July, Oracle and
Amazon offered assurances that the information
couldn’t be used to track individuals seeking abor-
tion services. In an email, an Amazon spokesperson
added that the company had guardrails in place
to prevent misuse of data and that it reviewed all
data sets for compliance.
SafeGraph, which sells data on most major
marketplaces and counts Goldman Sachs among
its customers, has worked with governments on
Covid-19 tracking. The agencies it has pitched its
services to include state health and law enforce-
ment bodies in jurisdictions where abortion is
now criminalized, according to emails obtained
by Businessweek under public-records laws. One
of them was the Mississippi State Department of
Health—the plaintiff in the case that overturned
Roe. “We license feeds of raw places and foot-traffic
data,” a SafeGraph salesperson wrote to officials
in Missouri, another one of the states it contacted, Venture capitalists have spent years aggressively
last September. The SafeGraph overtures viewed by buying stakes in technology startups, valuing more
Businessweek came before Roe was overturned. than 1,000 of them at $1 billion or more apiece, even
The commercial availability of personal data though many remained far from profitable. The turn
will always come with the potential for abuse, says in the market this year has led venture investors to
Kurt Opsahl, deputy executive director of the EFF. slow their pace of writing checks—and startups to
“The sale of even mundane-seeming data points take on increasing amounts of debt.
about sensitive private activity can become incred- Debt remains a small slice of total venture
ibly harmful in the wrong hands, especially when funding, but its share of the market is increasing.
 ◼ TECHNOLOGY
With interest rates low, venture debt increased
significantly over the past several years, according
to data from PitchBook Data Inc. Volume in the US
hit $17.1 billion in the first six months of 2022, up 7.5%
from the same period in 2021. VC funding is down
8% over the same period, to $147.7 billion.
Startups change their calculations once the
rocket-ship valuations aren’t so easy to come by.
Fractory Ltd., an Estonia-based company offering
on-demand manufacturing, raised an equity round
of about €7.5 million last fall (roughly $9 million at
the time). This summer it raised an additional €4 mil-
lion in debt from Kreos Capital, one of Europe’s big-
gest venture debt providers. Martin Vares, Fractory’s
chief executive officer, says the plan is to use the
funds to help secure a higher valuation during its
next equity round. “When you have your plans set
and you know you can reach them, and all you need
is that little extra bit of cash, then venture debt for a
founder, for a company, is cheaper,” he says. “You’re
not giving away a part of your company.”
Big financial firms are also reacting to the shift-
ing market: Bain Capital, Blackstone, and KKR are
all planning to lend more to startups.
But debt comes with its own costs and risks,
20 and once-buzzy startups such as the tech news site
GigaOm and game console maker Ouya Inc. have
blamed debt as a major source of their failures.
“I’ve never seen venture debt save a company,” says
an investor at one major Silicon Valley-based ven-
ture firm, who declined to speak publicly because
it could be bad for his portfolio companies. “But
I’ve seen it screw them up.”
The Afterlife
Of Google Loon
● The internet balloon project lives on, without Google or balloons
In an earlier period of its history, Google became
famous for pursuing a range of long-shot projects,
such as space elevators and kites that doubled as
wind turbines. Among the most whimsical was
Loon, a plan to use high-flying balloons to beam
superfast internet to areas that more traditional
Bloomberg Businessweek September 19, 2022
Investors, for their part, are more risk-averse ▼ Value of US venture
debt deals
when lending money than when taking equity in
startups. “We tend to focus on high-growth com-
panies with healthy unit economics and where we $30b
can scale over time,” says Ross Ahlgren, a partner
at Kreos.
In the best-case scenario, debt can help stabilize
promising companies that struggle to find venture 15
funding. OneLogin Inc., an identity management
startup, had just five months of cash left and was
struggling to raise money when Brad Brooks joined
as CEO in 2017. He decided to take out a $26 million 0
loan in a deal that he says required OneLogin to hit 2012 2021
financial milestones, which he says prompted more
“rational” conversations at the board level. “Debt is
the invisible adult hand in the room that forces the
harder conversations,” he says. OneLogin regained
its footing and eventually was acquired by a subsid-
iary of Quest Software for an estimated $500 million.
This year’s downturn has the potential to impose
discipline on a range of startups. But some investors
worry that the growing debt market allows them to
continue to skate by. “If some founders are raising
too much debt on top of what we provide rather than
recalibrating their trajectory,” says Mark Buffington,
managing partner of Panoramic Ventures, an
Atlanta-based VC firm, “they are not disciplining
the business and instead pushing much-needed
decisions down the road.” �Abhinav Ramnarayan,
Lizette Chapman, and Ivan Levingston
THE BOTTOM LINE Debt can help discipline free-spending
startups, but investors also worry it can saddle them with financial
obligations that make it harder to reach their potential.
CLOCKWISE FROM TOP: ALAMY. COURTESY ALLYRIA. GETTY IMAGES. DATA: PITCHBOOK
means couldn’t serve. The company shut down
the project last year, but some of its key technol-
ogy is reemerging in what could end up being the
fastest long-distance wireless communication sys-
tem yet created.
Earlier this year, a group of Google research and
◼ TECHNOLOGY
development veterans founded
Aalyria Technologies. The startup
turns software used by the Loon
group into a cloud-based system that
connects satellites, planes, and boats
with high-speed internet. It’s also repur-
posed other Google tech to create a line of
laser-based wireless networking equipment.
At its office-cum-laboratory in Livermore,
Calif., where sculptures of sharks with
laser beams attached to their heads dot
the walls, Aalyria has its two sets of engi-
neers working on what it believes will be
the basis of the networks of the future.
The core of the strategy is to become the main
platform directing new kinds of high-speed con-
nections. Companies such as SpaceX and Amazon.
com Inc. are in the process of putting up tens of
thousands of satellites to beam down the internet
from space to reach planes, cars, boats, and drones.
There’s a potential market for novel kinds of
networks, in the form of the businesses and bil-
lions of consumers in remote locations that lack
high-speed internet and are hard for fiber- optic
cable-based systems to reach. “The heart of the
company is to interconnect everything that exists
today with everything that exists tomorrow,” says
Chris Taylor, Aalyria’s chief executive officer.
The company has its work cut out for it to meet
Taylor’s grandiose ambitions. Google, after all, made
this technology available only because it didn’t see
a clear enough path to commercializing the prod-
ucts. But Aalyria impressed Google enough to get
it to exchange rights to its technology for an equity
stake. J2 Ventures and several individual inves-
tors have also backed Aalyria with an undisclosed
amount of money.
The Aalyria software system was known as
“Minkowski” inside Google and was used to con-
nect the Loon balloons and other aerospace assets.
The wireless networking technology was called
Project Sonora and has never before been dis-
closed to the public.
Aalyria has renamed the Project Sonora technol-
ogy Tightbeam. In networking lingo, it’s a free-space
optical communication system, which means it uses
lasers to transmit data wirelessly. Researchers and
companies have chased this type of technology for
years, but the results have often been underwhelm-
ing. This is largely due to how susceptible they
are to interference. Heat, rain, clouds, and
fog can all disrupt the signals to the point
they become unusable.
A number of the engineers behind
Tightbeam, however, have been working on
Bloomberg Businessweek September 19, 2022
these disruption issues for almost 20 years, and
are now claiming major breakthroughs in over-
coming them. Through a set of novel hardware
and algorithms, the Tightbeam technology ana-
lyzes the effects that, say, rain is having on a signal
and then tries to reverse them and smooth out the
signal. Aalyria says it can send data at speeds as fast
as 1.6 terabits per second over hundreds of miles,
which would be about 1,000 times faster than sim-
ilar technology currently in use.
Aalyria demonstrated its technology by send-
ing a signal from the rooftop of its headquarters
to a mountaintop 20 miles away and back. In
another test, it sent a signal from the ground to a
volleyball-size receiver on an airplane flying about
100 miles away. Taylor says Aalyria can deliver ● Taylor
connections to plane passengers that are hun-
dreds of times faster than current in-flight inter-
net systems.
The Minkowski software has been renamed
Spacetime. The software system had to moni-
tor and, crucially, predict the future position
of Loon’s balloons, to keep their connections
strong. Aalyria looks to use this same soft-
ware to determine, for example, when a
plane is about to lose its connection 21
with a given satellite or ground
station and then direct a new sig-
nal toward the plane without miss-
ing a beat.
The combination of Tightbeam and Spacetime is
somewhat odd, as if Aalyria came up with a vision of
the future based on what was available at a Google
garage sale. Taylor, however, says satellite opera-
tors, airlines, telecommunications companies, and
others might buy the Spacetime software, which is
available now, and may choose to use Tightbeam
to supercharge their networks. Aalyria’s wireless
hardware systems go on sale next year. The startup
already has a contract to demonstrate its technol-
ogy for the US military.
Spacetime has been well-tested within Google,
but the Tightbeam technology hasn’t been proven
in the real world and will face much scrutiny, as
laser-based wireless systems have often failed to
live up to their billing in the past. “I would be
broadly skeptical when someone is saying they
have solved fundamental physics issues,” says
Nathan Kundtz, a physicist and expert in wireless
communications. “This is an area that is lit-
tered with the bodies of dead companies.”
�Ashlee Vance
THE BOTTOM LINE Google has traded the rights to some
of its experimental networking technology for a stake in a
startup trying to commercialize it.
 Bloomberg Businessweek September 19, 2022

F ‘The Merge’
I That’s
N Reshaping
A Crypto
N
22
C
E

ILLUSTRATION BY BRENNA MURPHY. DATA: COMPILED BY BLOOMBERG

● Ethereum will use 99% less energy,

and Ether will more closely resemble
Edited by
Paula Dwyer normal financial instruments
◼ FINANCE
Ethereum is about to get a makeover. The popular
crypto network that runs Ether, the world’s second-
most-valuable digital currency, could morph as
early as Sept. 14 into a configuration that shakes
up the entire crypto universe.
The long-anticipated software change, “the
Merge” to crypto fans worldwide, will lower
Ethereum’s energy use by 99%, silencing crit-
ics who dislike the blockchain for its electricity
consumption—enough to power Finland for a year
by one estimate.
But for investors, the advantage is that Ether
post-Merge will resemble more of a traditional
financial asset that pays interest, like a bond or
a certificate of deposit. That could entice hedge
funds, asset managers, and wealthy individuals
who’ve stayed on the crypto sidelines so far. The
new software will also make possible upgrades
that promise to speed transactions and lower fees,
another hook that could lure investors.
Some enthusiasts even predict the changes,
taken together, could result in Ether leapfrogging
Bitcoin in value. Bitcoin, the most popular token,
has a market value that’s almost twice that of Ether.
But over the last three months, while Bitcoin’s price
declined slightly, Ether’s price has increased by
about 30%, as more investors bought the token in
anticipation of a payoff from the Merge.
All this just from a software update? Enthusiasts
say yes, based on the fundamental shift in the way
Ethereum works and behaves. As first described
in 2014 by Vitalik Buterin at age 20 (now a ripe
28-year-old), Ethereum’s decentralized network
of computers races to solve mathematical puzzles,
competing for the right to order transactions and
add blocks of data to a digital ledger. Owners of
the computers, called miners, make sure the led-
ger can’t be tampered with. In return, miners are
rewarded with Ether. Bitcoin uses a similar system,
called proof of work.
Ethereum’s new process will rely instead on
what’s called proof of stake. It consumes very lit-
tle power, because it doesn’t depend on miners. It
does require entities called validators to put some
skin in the game in the form of Ether coins. Staking,
or putting coins in the pot, gives large Ether owners
the right to add a block of transactions to the led-
ger; they’re rewarded with new Ether when they
do so. All Ether tokens will now pay interest when
placed into staking wallets. The software upgrade
is called the Merge because the existing Ethereum
blockchain will combine with a parallel network
that’s been running for almost two years to test the
proof-of-stake concept.
To acolytes, staked Ether becomes like shares
Bloomberg Businessweek September 19, 2022
of stock that generate dividends or bonds that pay
a yield. Ether’s yield could be relatively attrac-
tive: Owners who stake their coins can get about
4% now, and that’s expected to rise post-Merge. As
much as 80% of all Ether supply—about $170 bil-
lion at current prices—could eventually be staked,
according to ConsenSys, an Ethereum blockchain
technology provider. “I think that Ethereum’s
merge fundamentally changes the asset,” says
Jack Neureuter, research analyst at Fidelity Digital
Assets, a unit of Fidelity Investments Inc. that plans
to offer custody and trading in Ether later this year.
“It fundamentally changes the investment case
around it.”
But there are skeptics. Bitcoin purists believe
the massive rush into staking is a waste. “So long
as security has a cost, that cost has to come from
somewhere,” says Christopher Bendiksen, an ana-
lyst at CoinShares, an asset manager. In proof of
work, it comes from energy and hardware, he
says, while in proof of stake “it comes from hoard-
ing capital.”
Staking Ether is incomparably more risky
than investing in, say, a US Treasury bond, says
Campbell Harvey, professor of finance at Duke
University. Any interest “is paid with a currency 23
that has, like, 90% volatility, and it’s going through ▼ Change since June 14
a major change,” he says. Ether
Still, for existing Ether investors, staked coins Bitcoin
will be similar to putting money to work instead
of stuffing it under a mattress. The yield feature 60%
allows traditional finance professionals who’ve
long struggled with valuing crypto assets to per-
form cash-flow analyses to compare Ether’s per- 30
formance with that of traditional assets. They can
also benchmark staked Ether against other invest-
ments. “It’s not risk-free, but it gets you close,” says 0
Henry Elder, head of decentralized finance at Wave
Financial Group, an investment manager. “This is
something that crypto really struggled with: How -10
do you compare asset managers, how do you com- 6/14/22 9/14/22
pare performance? I think that’s super important,
because when you get to institutional investors,
that’s the language that they speak.”
Ether’s new features could help it overtake
Bitcoin in value—or “flippening” to aficionados. “I
do think Ethereum will flip Bitcoin probably sooner
than people think,” says Jeff Dorman, chief invest-
ment officer at Arca, a crypto financial-services
firm. “Every success story you are seeing on block-
chain is happening on Ethereum.” While Bitcoin
has remained largely unchanged—“fossilized,” as
Fidelity’s Neureuter puts it—the Merge could also
solidify Ethereum’s position as the most import-
ant crypto commercial highway once additional
 ◼ FINANCE Bloomberg Businessweek September 19, 2022

changes make the network faster and cheaper

to use. “At the end of the day, a network is only as
valuable as the number of people using and deriv-
ing value from it,” says David Kroger, digital data
scientist at Cowen Inc.
Staked Ether could also give rise to a slew of
financial instruments. Already, in August, the big-
gest US crypto exchange, operated by Coinbase
Global Inc., announced a derivative token rep-
resenting staked Ether that users will be able to
trade, lend, or borrow. In the future, it may be pos-
sible to take out a loan against staked Ether, with
interest on the loan paid with staking yield. New
types of staked Ether trusts, in which investors can
buy shares in staked tokens, could proliferate. “It
gives more and more people the opportunity to be
stakeholders in Ethereum,” says Paul Veradittakit,
a partner at Pantera Capital, which manages crypto
hedge funds. “It can bring a larger pool of capital
from traditional finance.”
There could be wrinkles, of course. Until
Ethereum undergoes another software upgrade, would view it as a security,” says Dara Tarkowski, ▲ Buterin

likely six months away at least, staked Ether can’t
be withdrawn. Even then, withdrawals will be lim-
ited. So yield lovers could find themselves stuck,
24 at least temporarily. The Securities and Exchange
Commission could also pounce once the coin’s
properties shift. Until now, Ether’s lack of a formal
intermediary has held the regulator at bay. But the
SEC’s current chair, Gary Gensler, who’s repeatedly
called the “vast majority” of crypto coins securi-
ties, may see Ethereum’s changes as an opening.
After all, with staked Ether, people will be invest-
ing actual money, one of the key characteristics of
a security. “I definitely think this is a move that will
make it far more likely that any court or regulator
managing partner at Actuate Law. In August,
Coinbase disclosed that it had received SEC sub-
poenas and requests for documents, some of which
related to its staking program. “I do think
The Merge is also happening during a crypto Ethereum will
market downturn, which has shaved as much flip Bitcoin
as $2 trillion in value since November from the probably
world’s tokens and crimped investor appetite. But sooner than
if crypto’s bull market returns, Ether fans hope people think”
their days as second-class citizens are numbered.
�Olga Kharif and David Pan
THE BOTTOM LINE Ethereum’s new configuration will more
closely resemble a traditional financial asset, which might entice
shy hedge funds and wealth managers into investing in it.

CFOs May Have the Toughest

Job in the C-Suite ● They’re no longer bean counters and
more like strategic advisers

In March 2020, Gina Mastantuono had been chief It’s largely panned out: The Santa Clara, Calif.,
financial officer at software maker ServiceNow Inc. provider of business workflow applications
for about two months. When the pandemic hit, she clinched almost $6 billion in sales last year, 70%
CHET STRANGE/BLOOMBERG

had to make a series of snap decisions, including
advising the chief executive officer to continue with
hiring and expansion plans despite the prospect
of slower revenue growth and shifting most of the
company’s 10,000 employees to remote work.
higher than pre-Covid, and now has more than
19,000 employees. CFOs, says Mastantuono, are
more like strategic advisers these days “and much
less the bean counters of the past.”
The CFO’s job, already one of the most
 ◼ FINANCE
complex in corporate America, has expanded
to become what’s arguably the toughest C-suite
role. As the top financial manager, the CFO keeps
track of cash flows, does strategic planning, over-
sees accounting and taxation, ensures financial
reports are complete and accurate, and interacts
with the capital markets. The burden has increased
in recent years in part because of the pandemic,
says Steve Gallucci, who leads a Deloitte LLP pro-
gram that advises financial executives. “That moves
the degree of difficulty of the role to a place it’s
never been before,” he says.
CFOs are grappling with soaring raw-material and
transportation costs, volatile supply chains, and a
cutthroat labor market. “The job just keeps getting
harder,” says James Stark, a consultant at executive
search firm Egon Zehnder’s CFO practice. “The role
of the chief operating officer has been disappearing
in recent years, so we’re seeing a lot of the responsi-
bilities getting tacked onto the CFO’s job.”
The intense pressure can take a toll, and not
all CFO stories end well. It isn’t clear what drove
Bed Bath & Beyond Inc. CFO Gustavo Arnal’s death
by suicide this month, but he was putting in long
hours dealing with a sinking stock price, a cash-
flow crisis, layoffs, and store closures. Bed Bath &
Beyond declined to comment.
ILLUSTRATION BY JILL SENFT. DATA: DELOITTE CFO SIGNALS SURVEY
Bloomberg Businessweek September 19, 2022
More than half of CFOs who took part in a ▼ CFOs who say their
company’s financial
Deloitte survey in February 2021 said their bosses prospects compared to
demanded more once Covid-19 broke out, and a three months ago are …
quarter said they now have more teams reporting More optimistic
to them. That hasn’t changed in the roughly two More pessimistic
years since the poll was conducted, Gallucci says.
Turnover among S&P 500 CFOs soared in 2021, 80%
according to an analysis by headhunting firm
Russell Reynolds Associates Inc. Many large com-
panies, including Goldman Sachs, Walmart, and
Kimberly-Clark, have installed new finance chiefs 40
since January. Bluebird Bio Inc., a Cambridge,
Mass., company that develops gene therapies for
genetic disorders, has had two in less than a year.
Internal promotions, a slew of retirements, and 0
market volatility leading to higher scrutiny of CFO Q1 ’20 Q2 ’22
performance are likely to ramp up the churn.
The job market for CFOs has been red-hot, says
Barry Toren, who leads the North America finan-
cial officer practice at consulting firm Korn Ferry.
“People are writing pretty big checks right now”
to get the best executives, says Grant Clayton,
who leads Egon Zehnder’s CFO practice in the US.
“Private equity clients pretty consistently tell us
that CFO searches are the most difficult.”
Joshua Chandler, CFO at Auburn Hills, Mich.- 25
based Whisker, which sells pet products, gets
 ◼ FINANCE
about three calls a week trying to lure him
to other jobs. But he says he’s staying put, his
hands full with making sure the company can
meet heightened demand for its self-cleaning lit-
ter boxes, which has been propelled by the rise in
pandemic pet adoptions.
Recently, Whisker’s director of plant manage-
ment in Wisconsin complained that the Deere &
Co. factory down the road was enticing workers
with higher wages. Chandler answered that he had
no problem boosting pay, but in turn he said the
facility had to run 10% more efficiently; he can’t
let profit margins shrink. “You’ve got these neg-
ative economic pressures, and at the same time,
we’re trying to figure out how to double capacity,”
he says. “I need twice as many people.”
In Minneapolis, Branch Basics CFO Greg
Bastian is trying to manage inflation, which ranks
high among financial executives’ concerns these
days. That requires keeping a watchful eye on each
line item of the company’s supply chain so it can
fill growing orders for its plant- and mineral-based
household cleaners. But Branch Basics is a small
company, with only about 20 employees, so it
doesn’t have much leverage with suppliers. Sales
26 are booming, but it’s up to Bastian to protect prof-
itability. Little else matters “if it doesn’t work on
the financial statement or the bank accounts,”
Bastian says.
The pressure of shifting expectations, the
hunt for talent, and external shocks such as the
Russia-Ukraine war are all affecting financial exec-
utives’ outlook. A Deloitte index measuring CFO
optimism toward their own companies sank to
negative territory in the second quarter for the
first time since 2020. CFOs are also the most pes-
simistic they’ve been in almost a decade about
the US economy, according to a survey by Duke
University and the Federal Reserve Banks of
Richmond and Atlanta.
As chaotic as they were, the pandemic’s early
days provided cover to the C-suite, because few
managers were meeting their benchmarks, says
Scott Crossett, CEO at executive search firm
Cameron Smith & Associates. But today’s challeng-
ing economy is putting CFOs to the test, and inves-
tors have become more demanding.
The confluence of obstacles has made the
CFO job more visible than ever, boosting its
status. “This is a great time to be a CFO,” Korn
Ferry’s Toren says. “But there’s nowhere to hide.”
�Daniela Sirtori-Cortina, with Brendan Case
THE BOTTOM LINE As the chief operating officer’s role
disappears at many companies, CFOs are taking on those duties,
adding to the multiple hats they already wear.
Inflation At the Breakfast Table
The US economy is still running hot.
Consumer prices rose in August at an
8.3% annual rate. Gas is no longer the
villain—but check your grocery bill: The
cost to eat at home soared 13.5% from a
year ago, the largest jump since March
1979. �Martine Paris and Michael Hirtzer
Making Bread Costs a Lot More Bread
Year-over-year change in the consumer price index for flour and prepared mixes
20%
10
0
-10
1/1982 1/1990 1/2000 1/2010 8/2022
● WHAT’S HAPPENING
Six months after Russia invaded Ukraine and sent wheat prices
to a record high, the cost of flour and prepared mixes in the US is
surging by the most ever. Bakery products such as bread, muffins,
and cupcakes are at historical highs. Egg prices have shot up
almost 40% from a year ago. Fruit and vegetables rose 9.4%,
and dairy products cost 16.2% more.
● WHAT IT MEANS
The food price spike is worsening
the pain for consumers already
feeling squeezed and could damp holiday shopping. It also puts
a fourth-straight 75 basis-point (0.75 percentage point) hike on
the table when the Federal Reserve meets Sept. 20-21. A minority
PHOTOS: SHUTTERSTOCK (4). DATA: US BUREAU OF LABOR STATISTICS
of investors say it could even push the central bank to deliver a
100 basis-point move.
● WHAT’S THE OUTLOOK
There’s good news on the horizon. Flour lags the
wheat market, where benchmark futures have
retreated below $9 a bushel, down from the March
record of almost $13. Consumers will welcome
any price declines toward yearend, when
holiday baking kicks into high gear.
 A DV E R T I S E M E N T

Where Co�ee
Means a
Better Life

Scott Ford CEO & Co-founder,

Westrock Coffee Company

Westrock Coffee Company—the brand behind the brands—is a leading provider of coffee, tea, flavors, extracts, and
ingredients to the largest retailers and restaurants in the United States. Its agronomy training program is helping coffee
farmers across the world increase their yields while advancing their quality of life and economic well-being, says CEO &
Co-founder Scott Ford. Wells Fargo is advising Westrock Coffee on going public. “As part of the overall transaction, our
Investment Bank partnered with our Commercial Banking Agribusiness, Food and Hospitality team to develop a credit
structure that, combined with the equity raised in the transaction, will fund Westrock’s domestic and international
expansion,” according to Jim Broner, Head of Regional Investment Banking at Wells Fargo.

bloomberg.com/forgingwhatsnext
Wells Fargo Corporate & Investment Banking (CIB) and Wells Fargo Securities (WFS) are the trade names used for the corporate banking, capital markets, and investment
banking services of Wells Fargo & Company and its subsidiaries, including but not limited to Wells Fargo Securities, LLC, member of NYSE, FINRA, NFA, and SIPC, Wells Fargo
Prime Services, LLC, member of FINRA, NFA and SIPC, and Wells Fargo Bank, N.A., member NFA and swap dealer registered with the CFTC and security-based swap dealer
registered with the SEC.  Wells Fargo Securities, LLC and Wells Fargo Prime Services, LLC, are distinct entities from affiliated banks and thrifts. ©2022 Wells Fargo & Company.
 Bloomberg Businessweek September 19, 2022

E What Trump’s
C Tariffs Wrought
O a chair made at Kuka’s factory in Hofusan can travel
● In Mexico, Chinese exporters
across the border duty-free, whereas one shipped
have found a side door into the to the US from China would be hit with a 25% tar-

MARIAN CARRASQUERO/BLOOMBERG. DATA: MEXICAN SECRETARIAT OF ECONOMY

world’s biggest market iff, according to Huang.

N Chinese investment in Mexico jumped from

$154 million in 2016 to $271 million the following
When César Santos was growing up in the 1960s, he year, when Donald Trump took office threatening a
spent his weekends surrounded by horses and cat- trade war. The pandemic’s supply chain snarls and

O tle on his father’s ranch outside Monterrey, Mexico. the angst caused by Chinese President Xi Jinping’s
Today, a red monolith emblazoned with the words tech crackdown have catapulted yet more Chinese
“Hofusan Industrial Park” announces that the companies across the Pacific, with investment in
patch of dusty wasteland has a new purpose. Mexico hitting just under $500 million last year.

M Located in a prime spot between Mexico’s “China’s looking to service the world, and
industrial capital and the US border, Hofusan has not all of it is going to happen from China
become a haven for Chinese companies looking itself because of a lot of these tensions,” says
28 to sidestep US tariffs and shorten supply chains Shannon K. O’Neil, author of the forthcoming

I that have been strained to a breaking point during The Globalization Myth: Why Regions Matter and
the pandemic. The 11 plants and warehouses on
the 850-hectare (2,100-acre) estate are part of the
latest chapter in Chinese capitalism: The coun-

C try dubbed the world’s factory now also exports

white-collar managers to set up and run operations
in places such as Thailand, Vietnam, and Mexico.
Three years ago there was just one building on

S the site. Today, 10 Chinese companies have plants

there and three more are being built, say the
park’s officials, who expect to have 35 businesses
within two years. They predict there will eventu-
ally be 15,000 people working at Hofusan—about
10% of whom would be Chinese managers—and
plan to build restaurants to cater to them as well
as homes to house them. There’s already “more
than $1 billion in investments here,” says Santos,
sheltering in a glass office from the blazing heat
and din of construction.
Among the park’s tenants are electronics com-
pany Hisense, furniture businesses Kuka Home
and Sunon Furniture, auto-parts maker Hangzhou
XZB, and garden equipment manufacturer Skyish.
“If you want to do good business with America,
you must have something close to the market,” says
Simon Huang, country manager for Kuka Home.
Proximity to the world’s biggest consumer mar-
Edited by
ket isn’t Mexico’s only selling point. Thanks to the
Cristina Lindblad country’s free-trade pact with the US and Canada,
◼ ECONOMICS
a columnist for Bloomberg Opinion. “So Chinese
companies setting up in Mexico is part of this pro-
cess of shifts in globalization.”
This isn’t a top-down initiative like Xi’s “Belt and
Road,” which has financed power plants, bridges,
and ports across scores of countries. Yet for the
most part, Chinese policymakers have blessed the
drive by low-margin businesses to offshore produc-
tion as Beijing’s focus shifts to fostering advanced
manufacturing industries such as semiconductors
and new-energy vehicles. In 2015, China’s cabi-
net issued a document encouraging “international
cooperation on production capacity.”
One of the winners from this shift is Santos, a
63-year-old real estate lawyer whose vision of turn-
ing his father’s ranch into an industrial park took
him to Shanghai in 2014. A Chinese investment
fund was looking for a large site a short drive from
the US border. Santos’s property fit the bill, and
he ended up in a joint venture with two Chinese
investors, with the park officially opening in 2016.
(Hofusan is a portmanteau of the three partners’
names: the Holley Group, the Futong Group, and
the Santos family.)
Some of Hofusan’s tenants moved in shortly
after Trump began slapping duties on Chinese
imports in 2018 in a bid to shrink the trade deficit
Bloomberg Businessweek September 19, 2022
and boost manufacturing at home. Although the cost
of materials and labor is generally higher in Mexico
than in China, the gap has been shrinking over the
years, with wages in China growing at a more rapid
clip. Trump’s tariffs—which his successor, Joe Biden,
has kept in place—along with a pandemic-induced ▼ Annual net investment
in Mexico from China
surge in freight rates have also eroded the economic and Hong Kong
advantage of manufacturing in China.
“We’re betting that it will be the same cost as in
China once you include maritime transport,” says $400m
David Martínez Garza, who’s overseeing construc-
tion of Sunon Furniture’s new $80 million factory
on the site. “What’s our advantage? Delivery time,”
he says, noting that goods take about 10 weeks to 200
be made and shipped to US clients from the com-
pany’s headquarters in Hangzhou, vs. four weeks
from northern Mexico.
The Holley Group, which had no presence in 0
Mexico before Hofusan, is scoping out sites for two
1999 2021
or three more parks in other parts of the country.
The company, based in Hangzhou, also runs a
park in Thailand and is working to set up another
in Morocco.
Other Chinese investors are also hunting for loca-
tions in Mexico. A subsidiary of Gezhouba Group,
a construction conglomerate, has said it plans to 29
build an industrial park near the Port of Lázaro
◀ Santos
◀ A factory under
construction at Hofusan
Industrial Park
▼ The park’s entrance
 ◼ ECONOMICS
Cárdenas in the Michoacán state. Contemporary
Amperex Technology, the world’s biggest maker of
batteries for electric vehicles, is considering loca-
tions in Chihuahua and Coahuila for a plant that
could carry a price tag as high as $5 billion.
Mexican President Andrés Manuel López
Obrador, known as AMLO, has been criti-
cized for failing to capitalize on US companies’
desire to lessen their dependence on China.
The Inter-American Development Bank has esti-
mated nearshoring—moving production closer
to customers—could boost Mexico’s exports by
$35.3 billion a year, or a bit over 7%. As recently
as 2021, that scenario looked overly optimistic. The
$31.7 billion of foreign direct investment Mexico
booked last year was the lowest since 2016, exclud-
ing the height of the pandemic in 2020, according
to official data. But the country raked in $19.4 bil-
lion in the first three months of 2022, making it the
second-most successful quarter this century.
Countries in Asia such as Thailand and Vietnam
appear to be taking up a large chunk of manufac-
turing investment that might have once gone to
China. From 2018 to 2021, the two countries’ com-
bined exports to the US climbed in value by $68 bil-
30 lion, or 84%, vs. $38 billion, or 11%, for Mexico.
Some contend Mexico would be reaping bigger
rewards if AMLO hadn’t scared off investors with
his nationalist rhetoric, including plans to increase
state control of the electricity sector. “We could be
catching a 10-foot wave, but instead we are catch-
ing a 3-foot one, which is better than nothing,” says
Jorge Gonzalez Henrichsen, co-chief executive offi-
cer of Nearshore Co., based in Brownsville, Texas,
which helps businesses set up manufacturing facil-
ities in Mexico. Gonzalez says energy issues are a
major hurdle for his clients.
Iván Rivas, economy minister of Nuevo León
state, where Hofusan is located, says AMLO’s
retrenchment on renewable energy “isn’t a
priority that’s come up” in conversations with
Chinese companies.
Unlike other countries in Latin America, Mexico
has a federal government that’s never made much
effort to tempt Chinese companies to its shores, in
part because it’s long viewed them as manufactur-
ing rivals and in part to avoid creating tension with
the US, says Mariana Rangel, a political scientist
at Tecnológico de Monterrey. (Despite the recent
surge, Chinese investment equaled just 3% of the
$14.8 billion that American companies plowed into
Mexico last year.)
But some Mexican states are actively courting
Chinese investment. Nuevo León is building two
“superhighways” to the US border, including one
Bloomberg Businessweek September 19, 2022
to serve Hofusan, Rivas says. The state, like many
of its neighbors on the border, also offers payroll
tax exemptions for companies that meet certain
criteria. “I can tell you that now between 15% to
20% of investment is from China,” he says. “Before
it wasn’t even 5%.”
Chinese companies have faced some oper-
ational challenges in Mexico. The US-Mexico-
Canada Agreement, which replaced Nafta, requires
that a higher proportion of the value of any good
must come from North America to qualify for
tariff-free treatment.
Yet unlike China, Mexico doesn’t boast exten-
sive networks of suppliers across a large number
of industries. Sunon, the furniture maker, says it’s
been unable to procure the kind of upholstery fab-
ric it uses in China, and the Mexican producer of a
chair part can supply only 2,000 a month, instead
of the 10,000 it needs. Gonzalez says one potential ▲ Kuka Home’s factory
at Hofusan
client, a US company, decided to go to Vietnam
over trouble finding suppliers. MARIAN CARRASQUERO/BLOOMBERG. DATA: US BUREAU OF LABOR STATISTICS
Some of the new arrivals have other issues
to contend with. Huang of Kuka Home says his
Mexican workers are more inquisitive than those
at home. “Mexican people always ask why—‘Why
should I do this?’ ‘Why should I do that?’ ” Huang
says. “They want to understand the reason.”
Another difference: Workers in Mexico generally
won’t clock in 16-hour days, like employees in
China are willing to do. “This is not life” for them,
he says. �Max de Haldevang, with Shawn Donnan
and James Mayger
THE BOTTOM LINE Mexico has seen a big jump in investment
from Chinese businesses in recent years that are seeking to move
operations closer to US customers while skirting tariffs.
◼ ECONOMICS
White-Collar Jobs
Are on the Line
● Tech, finance, and real estate are poised to
see the biggest layoffs in a US downturn
Ever since the mass layoffs early in the pandemic,
US businesses have been adding workers at a rapid
clip. Now they’re slowing down, pulling job listings,
and scaling back hiring plans as the Federal Reserve
aggressively raises interest rates to fight inflation.
That’s darkening the outlook across the
economy—but it’s especially problematic for
white-collar industries including business ser-
vices, tech, banking, and real estate, where staff-
ing numbers are far above pre-Covid levels. Layoffs
have already begun, with Netflix, real estate broker
Re/Max Holdings, and social media platform Snap
among those announcing staff reductions.
“The sectors that are probably most vulnerable
are the ones that hired the fastest,” says William
Lee, chief economist at the Milken Institute,
pointing particularly to white-collar industries.
Companies “grabbed as many people as they
could because they thought demand was just so
strong,” he says—and they miscalculated how long
the surge would last.
That outcome would be the polar opposite of
what occurred during the pandemic slump, when
lower-wage workers—especially in service indus-
tries such as retail, restaurants, and hotels—bore
the brunt of layoffs. It’s a prospect more remi-
niscent of the recession in the early 1990s, when
white-collar workers were at greater risk of end-
ing up on the unemployment line than in the past.
Of course, the US may escape a downturn alto-
gether. While one government measure of activ-
ity showed the economy shrank in the first half
of 2022, another pointed to continued growth.
Employers added 315,000 jobs in August, and
openings have rebounded to near record highs,
not what one would expect from an economy
that’s running out of steam.
But about two-thirds of employers see a reces-
sion coming, according to a survey by Principal
Financial Group. The rate of people quitting
jobs, typically a sign of confidence they can find
another one, has hit its lowest level in more than
a year. The growth of new postings has slowed
over the past six months, most markedly for
remote work that’s more likely to be white collar,
Bloomberg Businessweek September 19, 2022
according to the job listings website Indeed. ▼ Change in US
More broadly, companies are lowering their
projected payroll costs for next year, eliminat-
employment by industry,
February 2020 to
August 2022
ing job postings in areas such as accounting and
Professional and
customer support, and aiming to hire fewer peo- business services
ple or space out hiring over a longer time, says 1.0m
Dave Gilbertson, vice president of staffing firm Transportation and
UKG. “There are all these sectors out there that warehousing
are heading into what could be a recession,” he
says. “They’re hedging their bets a little bit in the Retail trade
amount of hiring that they’re going to do.”
Many white-collar employers went well beyond Information
filling staffing gaps that resulted from Covid-19.
That’s why the US workforce—though it’s back in Financial activities
the aggregate to its pre-pandemic size—now has a
very different composition. Leisure and hospital- Construction
ity, for example, employ about 1.2 million fewer
people than in February 2020. But jobs in profes- Manufacturing
sional and business services are up by more than
1 million. Wholesale trade
In some of the latter areas, employers are
switching to temporary staff, and those positions Utilities
are typically the first to go in a downturn, says
Stephanie Miller, director of talent acquisition and Mining and logging
retention at Express Employment Professionals.
She’s noticed an uptick in listings for 30- to 90-day Education and health
31
contracts, while posts for permanent jobs have
leveled off. That’s where companies have room Other services
to “let go the people that aren’t doing as well, so
they’re saving money and preparing for this reces- Government
sion,” says Miller.
Payrolls in professional and business services Leisure and hospitality
-1.2m
declined by about 14,000 from July to August, the
first monthly drop since 2020, according to data
produced by ADP Research Institute in collabora-
tion with the Stanford Digital Economy Lab. The
numbers were also down in financial services
and information.
“I think the question is: Have you overhired in
certain industries?” says Michael Gapen, head of
US economics at Bank of America Corp. “And the
data would say, if you did, it probably is in areas
like professional and business services, more than
leisure and hospitality.”
He acknowledges that there’s a big caveat.
The economy has behaved in unexpected ways
in the past few years. After companies shed mil-
lions of jobs during lockdowns, they struggled
to refill positions fast enough to meet demand
during reopening. “Of course, we don’t know,”
Gapen says. “We’ve never done this before.”
�Katia Dmitrieva and Reade Pickert
THE BOTTOM LINE Employers in white-collar industries where
staffing numbers are far above pre-Covid levels are slowing down
hiring, and some are trimming staff in anticipation of a slowdown.
 Bloomberg Businessweek

The
Spy’s
32

Diary
Xu Yanjun was an intelligence officer
who stole secrets for a living. His
own secrets he uploaded to the cloud

By Jordan Robertson and Drake Bennett

Photographs by Ina Jang
September 19, 2022

33
 Bloomberg Businessweek
n January 2014, Arthur Gau, an aerospace engineer who
I was nearing retirement age, received an email from a
long-lost acquaintance in China. Years before, Gau had
made a series of trips from his home in Phoenix to speak at the
Nanjing University of Aeronautics and Astronautics, or NUAA,
one of China’s most prestigious research institutions. The orig-
inal invitation had come from the head of a lab there study-
ing helicopter design. Increasingly, however, Gau had heard
from someone else, a man who worked at the university in
a vague administrative capacity. Little Zha, as the man called
himself, was the one who made sure Gau never had to pay his
own airfare when he came to give talks. When Gau brought his
mother on a 2003 visit, Zha arranged and paid for them to take
a Yangtze cruise to see the river’s dramatically sculpted middle
reaches before they were flooded by the Three Gorges Dam.
The relationship had ended awkwardly, though, when Zha
offered Gau money to come back to China with information
about specific aviation projects from his employer, the indus-
trial and defense giant Honeywell International Inc. Gau ignored
the request, and the invitations stopped.
Now, in 2014, Little Zha was reaching out again. The two
started corresponding. In early 2016, Gau, whose interests
extended far beyond avionics, said he’d planned a trip to China
to visit some friends in the musical theater world. Zha was there
that spring to meet him at the airport in Beijing. Waiting with
34 him was a colleague Zha was eager for Gau to meet.
Xu Yanjun was on the tall side, at 5 feet 10 inches, with
closely cropped hair, glasses, and a tendency toward blunt-
ness. The three had dinner and met up again before Gau flew
back to the US. Over pastries in Gau’s hotel room, they dis-
cussed Taiwanese politics—Gau grew up there—as well as the
engineer’s evolving responsibilities at Honeywell. Late in the
evening, Xu handed Gau $3,000 in cash. Gau would later testify
that he tried to hand it back, but Xu was insistent. “And then,
you know, back and forth, but I took it eventually.”
The next year, Gau came back to China to give another
lecture—this time a private one in a hotel room to several engi-
neers and officials, including Xu. In preparation, Gau had
emailed over PowerPoint slides containing technical informa-
tion, including algorithms and other sensitive design data for
the aircraft auxiliary power units Honeywell makes. “Because
of the payment, I felt obligated,” he would later tell a judge.
Xu paid him $6,200 more, and two of his associates accom-
panied the visiting engineer on a two-day sightseeing trip to
West Lake, famed for its picturesque gardens, islands, and tem-
ples. Gau was planning his next visit when, in the fall of 2018,
agents from the FBI appeared at his home in Arizona to exe-
cute a search warrant. There would not be another trip. Xu,
the agents explained, was not in Nanjing anymore. He wasn’t
even in China. He was in Ohio, in a county jail awaiting trial.
The issue of Chinese industrial espionage is a fraught one.
In November 2018, Jeff Sessions, then the Trump adminis-
tration’s attorney general, announced a program called the
China Initiative, intended to combat “the deliberate, system-
atic, and calculated threats” from Chinese government-directed
September 19, 2022
intellectual-property theft. The program, however, ended up
targeting largely academics—not for stealing secrets, but for
failing to report affiliations with Chinese research institutions.
In some instances, even those charges proved meritless. In
February, amid concerns over racial profiling and the crimi-
nalization of scientific collaboration, the Biden administration
shut down the China Initiative, though it vowed to continue
pursuing cases involving the country.
Nonetheless, the remit of Chinese intelligence services
does cover industrial secrets as well as military and govern-
ment ones, and their leadership takes that responsibility seri-
ously. Stealing secrets is what rising economic powers have
always done: In the late 18th century, the newly independent
US offered bounties for textile workers to smuggle loom designs
from the great British cotton mills. Those mills had been built
in part to specifications once pilfered from Italian silk spinners.
And that industry, in turn, wouldn’t have existed without silk-
worm eggs spirited out centuries before from China.
The modern Chinese industrial espionage apparatus—in its
organization, scope, and ambition—far eclipses those predeces-
sors. “We consistently see that it’s the Chinese government that
poses the biggest long-term threat to our economic and national
security,” FBI Director Christopher Wray said in a speech in July.
Since the 1990s, prosecutors have charged almost 700 people
with espionage, IP theft, illegally exporting military technol-
ogy, and other crimes linked to China. Two-thirds of the cases
have led to convictions, according to a database kept by Nick
Eftimiades, a former official at the US Department of Defense
and a senior fellow at the Atlantic Council; most of the rest
are pending or involve fugitives. All are part of an intelligence-
gathering apparatus that relies not only on trained spies and
officers of China’s Ministry of State Security but also on ordi-
nary engineers and scientists. This machinery remains largely
opaque to outsiders. Limited to going after the people feeding
information to handlers in China, US authorities have been like
narcotics investigators pursuing low-level buy-and-busts while
the larger criminal infrastructure hums along unscathed.
At least, that was the case until Xu Yanjun’s trial last fall.
His arrest marked the first time an MSS officer was lured out of
China and extradited to the US. And it was more than a symbolic
victory, yielding an extraordinary trove of digital correspon-
dence, official Chinese intelligence documents, even a personal
journal. When Xu was apprehended, he had with him an iPhone
whose contents he’d faithfully backed up to the cloud, a lapse
that allowed FBI investigators to recover all the data from Apple
Inc. Asked about the case, China’s Ministry of Foreign Affairs
responded, “The accusations by the US are completely fabri-
cated. We demand the US handle the case in a fair manner and
ensure the legitimate rights of Chinese citizens.”
Over two and a half weeks from late last October into
November, federal prosecutors in a courtroom in Cincinnati
drew on the wealth of digital material the 41-year-old Xu had
stockpiled to lay out a portrait of him—his training, methods,
and ambitions, his vices and private doubts and grievances.
Translated from the original Mandarin, it’s an unprecedentedly
 Bloomberg Businessweek September 19, 2022

intimate portrait of how China’s economic espionage machine Comac C919. The engine’s low-pressure turbine was assembled
works, and what life is like for its cogs. from steel segments at a plant in Jiangsu’s sprawling Suzhou
Industrial Park, where more than 150 of the Fortune 500 have

O
ne of the pieces of evidence presented at Xu’s trial is operations. Hascoet regularly traveled there to oversee this
a four-page document from October 2015 whose dry process, working closely with a local Safran manufacturing
title reads “Cadre Approval/Removal Appointment engineer named Tian Xi.
Application Form.” In the top right corner of the first page is a Tian, however, was also working with Xu and the MSS. That
photo of a fresh-faced Xu in uniform, his mouth set but his eyes November, Tian and Xu were deep in discussions over hack-
carrying the hint of a smile. Below, in a box marked “Current ing Hascoet’s computer. Xu texted on Nov. 19 asking when
Post,” it reads, “Deputy Division Director at Sixth Bureau of “the Frenchman” would arrive. Then, on Nov. 27: “I’ll bring
Jiangsu Province Ministry of State Security.” the horse to you tonight. Can you take the Frenchman out for
The document is similar in some respects to Standard dinner tonight? I’ll pretend I bump into you at the restaurant
Form 86, a questionnaire American intelligence employees to say hello.” The “horse” was malware known as a Trojan,
are required to complete. But the paperwork of an autocratic which allows a computer to be accessed covertly and remotely
one-party state has an added richness, functioning as not only by a hacker. The handoff at the restaurant doesn’t seem to
a professional and personal biography but also a political one. have happened, but Xu was eventually able to get Tian a USB
Bradley Hull, the FBI special agent who led the investigation of drive with the Trojan on it. On Jan. 25, 2014, after a series of
Xu, was asked at one point in his testimony if he’d ever seen increasingly impatient messages from Xu, Tian texted back,
such a form. “No,” he replied. “No one has.” “The horse is planted this morning.” Xu confirmed that his
Xu was born in 1980 in a small town in Jiangsu, a province malware had evaded Safran’s firewalls and was communicat-
on the Yellow Sea just north of Shanghai. His father was a ing with MSS-controlled servers, handed the operation over to
manager at an agricultural company, and his mother worked colleagues, and headed out on vacation.
at the county finance bureau. Before Communist rule, Jiangsu For Western intelligence agencies, this may have been
had for centuries been a wealthy trading hub. Nanjing, its among the earliest evidence of Xu’s handiwork. When Hascoet
capital city, had served multiple dynasties as an imperial returned to France in February, his computer couldn’t con-
seat. Deng Xiaoping’s economic reforms, whose nect to the Safran website, and the IT department 35
emergence coincided with Xu’s birth, made the found the malware. At the same time, US officials
province once again a gateway to the wider alerted their French counterparts that they’d
world. Multinational technology companies such picked up the digital beacon the malware was
as Hitachi, Philips, and Samsung built manufac- sending out to its remote operators. The General
turing facilities there, bringing with them jobs Directorate for Internal Security, France’s domes-
and money—and proprietary information. It tic intelligence and security arm, started an inves-
was natural for the Jiangsu branch of the MSS to tigation. So did Safran. One employee helping to
develop an industrial focus. carry out the company’s inquest was Gu Gen, a
Xu left home for college, studying electrical senior IT infrastructure manager and information
engineering in Nanjing. He joined the Communist Xu’s mug shot from jail in
Butler County, Ohio
security officer at Safran’s Suzhou offices.
Party and in February 2002 was appointed secre- Unfortunately for the investigation, Gu was
tary of a village youth league committee in Yancheng, a city another one of Xu’s assets. It wasn’t from him, however, that Xu
near his hometown. It was his first step up in the vast civil ser- learned his malware had been discovered. On Feb. 25, a week
vice cadre bureaucracy through which the party runs the coun- and a half after Hascoet’s computer stopped beaconing back
try. The MSS promised a different kind of power, though. The to China, the US cybersecurity company Crowdstrike Holdings
next year he was hired there, returning to Nanjing and find- Inc. published a blog post revealing the hack.
ing a mentor in Zha Rong—Little Zha, who’d been so helpful as Xu’s dismay at the failure of the operation was quickly
an unofficial travel agent for Arthur Gau. The two MSS officers eclipsed by his outrage at the reaction of his superiors. His divi-
developed a specialization in aircraft technology work. Xu mar- sion chief angrily called Xu on the carpet and ordered him to
ried a fellow party member and had one child, a son. have his two sources at Safran contact each other to find out
By late 2013, Xu had ascended to the rank of section chief, what the company knew. Xu was horrified: Doing that would
and the portrait of him begins to fill out with other informa- attract suspicion. “Isn’t it like putting a noose on his own neck?”
tion, some of it extracted from his phone and cloud backup, he wrote to a colleague. “It feels bitterly disappointing to have
BUTLER COUNTY SHERIFF’S OFFICE

some of it gathered in other counterespionage investiga- leaders like that.” To Xu’s relief, Gu reported a few weeks later
tions by the US and its allies. At the time, Xu was target- that the company’s investigation was going nowhere. The sense
ing Frederic Hascoet, a project manager for Safran Aircraft of betrayal, though, lingered.
Engines of France. In partnership with GE Aviation, Safran Meanwhile, Xu and Little Zha continued to collaborate.
was developing an engine called the LEAP for narrowbody In April 2014 an engineer who had information about the
jetliners such as the Airbus A320, the Boeing 737, and China’s Lockheed Martin  F-35 and Northrop Grumman  E-2, two
 “Leadership asks you to get the materials of the US F-22
fighter aircraft. You can’t get it by sitting at home”
American military planes, visited Nanjing from Great Britain.
Xu, posing as an official with an anodyne-sounding nonprofit,
had invited him to participate in an academic exchange. That
night, while Zha was hosting a dinner in the visitor’s honor in
a hotel banquet hall, Xu was upstairs breaking into the visitor’s
room. The plan was to copy the contents of the laptop and por-
table hard drives there, with help from MSS cyber specialists.
It was taking longer than planned.
“Copying the entire thing needs three hours,” Xu texted
from the room.
“It’s too slow,” Zha replied from the dinner. “Speed it up.”
An hour and a half later, Xu had copied what they needed.
“Restoring the scene and the documents will take roughly
20 minutes.” And finally: “Restored, and we have left the scene.”
The banquet could finally end.
Opportunities to play cat burglar seem to have been rare,
however, especially compared with a section chief ’s more
mundane duties. One of Xu’s most time-consuming tasks was
helping run the local MSS recruiting efforts, sending emails to
university officials who helped him disguise intelligence service
job postings as coming from a local industry group. In one, Xu
outlined the application requirements: “under the age of 25,
Party member, male,” with an elite university degree. Résumés
were to be sent to the email address jastxyj@gmail.com. ( JAST is
the Jiangsu Association for Science and Technology, one of Xu’s
36 cover organizations, and XYJ are his romanized initials.) He also
corresponded extensively with specialists and managers at the
Aviation Industry Corp. of China and other state-owned aero-
space companies, discussing exactly what information would
be helpful to them. In the evenings there were alcohol-soaked
work dinners, card games, and late-night visits with co-workers
to massage parlors.
At the end of 2014, Xu’s future at the MSS looked bright.
Despite the Safran incident, his cadre approval form shows
that his annual evaluation improved from “competent” to
“outstanding.” In the spring of 2015 his division chief told him
he was in line for the new deputy division director position,
and on May 22, Xu’s iCalendar records show, the party com-
mittee approved him for the post. Zha, too, was promoted,
remaining Xu’s supervisor.
And yet, as Xu’s responsibilities increased, so did his dis-
enchantment with his job. He complained in his diary when
he languished in a probationary period before his promo-
tion became official. In February 2016, writing to a friend who
worked in a different MSS bureau, he bemoaned his “stupid”
decision, years before, to leave his township government job. “I
was really tricked.” His superiors were autocratic and demand-
ing, he wrote, and stingy with the expense budget. The next day
he messaged an acquaintance at an investment company where
Xu had once referred a colleague for a job. “I’m not as capa-
ble as he is,” he wrote, “or I would have gone a long time ago.”
Xu’s ambition was curdling into something more cynical.
Around this time, as part of a selective MSS professional devel-
opment program, he enrolled in graduate studies in aero-
nautical engineering. The program was at NUAA, where MSS
officers operate freely—the university is one of the Seven
Sons of National Defense, an elite group of public universities
that develop advanced military technologies for the People’s
Liberation Army.
Xu seems to have treated his graduate classes like one
more academic front operation. In an iPhone recording from
December 2016, he’s at a restaurant with a professor from
the college of aerospace engineering, sharing fried meat with
garlic and braised fish with spicy bean sauce. (Xu, his eye on
expenses, suggests they not order too much.) Against his bet-
ter judgment, the professor has agreed to share information
about an upcoming exam; Xu assures him that no one will
find out about their “tutoring” sessions. “For a job like mine,
we have a lot of friends out there who risk their life to work
for us,” he boasts. Still, the professor asks, how is Xu going
to master a complex subject such as fluid mechanics, even
with help? “Ah, fluid mechanics, that will be easier to pass,”
Xu replies. “I know everyone on that floor!”
Gradually the conversation turns to the MSS officer’s
work, which seems to intrigue his dinner companion. “We
are under great pressure,” Xu says, over the din of the restau-
rant kitchen and the click of chopsticks. “The leadership asks
you to get the materials of the US F-22 fighter aircraft. You
can’t get it by sitting at home.”
So you also have to “flip” someone, the professor says, to
“travel outside [China] and take the risk.”
“That’s correct,” Xu confirms.
O
ne of Xu’s collaborators at NUAA was Chen Feng, a vice
dean with a distinctive pompadour who ran the uni-
versity’s International Cooperation & Exchange Office.
Chen’s duties included issuing speaking invitations to nota-
ble foreign technologists, often though not always of Chinese
descent. In March 2017 he sent one to an engineer named
David Zheng at GE Aviation’s complex outside Cincinnati.
“I learned from your online resume that you have accumu-
lated a wealth of engineering experience in well-known com-
panies such as GE Aviation,” it read. The email was a form
letter—the only personalization was the name of Zheng’s
employer, which Chen had discovered on LinkedIn. But still,
Zheng was flattered at the invitation to give his first overseas
talk. And he already had a trip to China planned for his college
reunion and for a family wedding in his hometown in Anhui
province, right next to Jiangsu.
Zheng is a composites expert who worked at GE Aviation
on jet engines. The General Electric Co. industrial conglom-
erate, which once made everything from toasters to televi-
sion shows, is now in large part a fan and turbine company,
and it’s very good at making them. Some are designed to har-
vest wind energy, and others, locomotive-size, run gas power
plants. Still others draw in and compress the air that, when
infused with fuel and ignited, propels airplanes.
In GE Aviation’s most advanced engines—such as the
$45  million GE9X, which powers the latest-generation
Boeing  777—the fan blades and casings are made from
Bloomberg Businessweek September 19, 2022

composites: hardened, resin- infused carbon fibers of
extraordinary lightness and strength. (The LEAP engine devel-
oped with Safran is similarly built.) Lighter engines mean
planes can carry more passengers or more freight and fly far-
ther with less fuel. And, over time, composite blades are less
likely than titanium ones to weaken from the torque of being
spun at thousands of revolutions per minute—and less likely
to break and fly loose as projectiles.
Even within GE Aviation, details about the design and
materials of these engines are inaccessible to most employees.
So are aspects of the modeling and testing methods the com-
pany has developed. Certain safety tests required for Federal
Aviation Administration approval require the destruction of an
entire engine. Others require more macabre sacrifices: proving
that the assemblage can survive bird strikes involves launch-
ing bird carcasses of regulatorily specified sizes into its spin-
ning maw. Competitors such as Rolls-Royce Ltd. and Pratt &
Whitney have been trying for decades to bring engines with
composite fan blades and casings to market. Newer Chinese
manufacturers are also working on the problem.
Over the weeks that followed the initial overture, Zheng and
Chen exchanged emails, in Chinese, about timing and logistics.
Then, in early May, the vice dean’s messages grew more tech-
nical. “Is your work mainly in the design of pod and engine
hood, or in the area of blades?” he asked on May 9. Colleagues
at NUAA, he relayed, had suggested a title for Zheng’s presen-
tation: “Application, Design, and Manufacturing Technologies
of Composite Materials in Aircraft Engines.” The engineer
replied a few days later from Cincinnati to say the sugges-
tions were fine. “However, I am required to sign a technical
agreement with the company that I work for here,” he wrote.
“Therefore, a lot of the work that I have conducted at the com-
pany could not be shared.”
In hindsight there were red flags in the email Zheng received
next. It wasn’t from Chen’s university email
address, but from jastxyj@gmail.com—the The Collector
same address to which Xu routinely invited
Xu Yanjun
MSS job applicants to submit their résumés. ○ Officer at
And though signed by NUAA’s Chen, it seemed the Ministry of
State Security
to have been written by someone who hadn’t
read all the earlier correspondence.
Xu had actually written the email. The
Zheng’s arrival, Chen and Xu joined him for tea in the lobby
of his hotel on the NUAA campus, then took him to lunch. Xu
introduced himself as “Qu Hui” and produced a business card
identifying him as the deputy secretary-general of the Jiangsu
Provincial Association for International Science and Technology
Development. In the afternoon the group returned to cam-
pus, and Zheng gave his presentation to two dozen people he
thought were students and faculty. When questions veered into
specific and technical territory, as they often did, he declined to
answer. Later, at dinner, Xu presented Zheng with two boxes of
tea to go with a $3,500 speaking fee and travel reimbursement.
A little over a week later, Xu, under his alias, messaged Zheng
over WeChat to thank him. Zheng replied that he would love to
come back for another exchange, “as long as it does not involve
any non-public information from the company.”
For Xu this was a promising start, especially considering
that little else seemed to be going well for him. His iCalen-
dar diary entries throughout the spring and summer of 2017
are shot through with grievance. On March 27 he was livid
after Zha rejected a meal receipt and rebuked one of their col-
leagues. “The ingratitude [of a] person like him is shameless,”
Xu wrote. “Will revenge.” A month later, Xu described his rela-
tionship with Zha as having dropped to the “freezing point.”
Zha, he believed, was actively undermining him. On May 4, Xu
reveled in the spectacle of “the big cat fight” between Zha and
another higher-up. “Watching the show!” he wrote. By June 12 37
he’d decided that only further office dysfunction could save
his career. “The more chaotic and disorderly within the divi-
sion,” he wrote, “the better.”
Things were no better outside the office. In early April, right
when he was beginning to cultivate Zheng at GE Aviation, Xu
was also WeChatting a woman with whom he seems to have
had an affair. There had been a quarrel, and Xu wrote that he
wanted to hear her voice and see her in person. “It seems we
The Collaborators The Targets The Investigator
Zha Rong Arthur Gau
○ Officer at ○ Engineer at
the Ministry of Honeywell
State Security
Offered money by
Zha in return for
information from
his employer

GE Aviation engineer had been handed off Tian Xi Frederic Hascoet

from the university official who’d found him ● Engineer ○ Manager at
at Safran Safran
on LinkedIn to the intelligence officer who
Gu Gen Hacked by Xu via
would now handle him. And as handoffs go, ○ IT manager Tian and Gu, Xu’s
it was clumsy: Xu was writing to ask Zheng to at Safran insiders at Safran
respond to an email Zheng had, in fact, just Chen Feng David Zheng Bradley Hull
responded to. But the engineer just assumed ○ Vice dean at ○ Engineer at ○ FBI agent
the Nanjing GE Aviation
that Vice Dean Chen was busy, or maybe University of
Orchestrates
Lured by Chen and investigation and
bad about checking his email. By the time Aeronautics and
Xu to give a talk arrest of Xu
Astronautics
Zheng arrived in Nanjing on June 1, he’d been at NUAA
assured that his talk wouldn’t be expected to Investigated by
GE Aviation, then
touch on anything sensitive. works with Hull to
The trip went smoothly. The morning after investigate Xu
 Bloomberg Businessweek September 19, 2022

are back to when we first fell in love passionately,” he said. obtained? What are the relevant criteria?” It was the starting
But he was afraid she would cut off contact. point for discussions with experts in Nanjing when Zheng came
“Don’t you work for the Ministry of State Security?” she back for a second visit, as he was scheduled to do a few weeks
replied. “Isn’t it easy to find me?” later around the Lunar New Year. Xu also sent instructions for
“Why can’t we have a normal relationship then?” he how Zheng could create and copy a directory of all the files on
pleaded. “Do I have to use special methods?” his GE Aviation computer. A little more than a week later, on
On May 19 a morose Xu took stock. “Agitated,” he began Valentine’s Day, Zheng sent back the results.
the day’s diary entry. “Feeling agitated in the past couple The two were communicating at least every few days,
days. Feeling like I am abandoned by the whole world. Work, and Zheng’s eagerness made him a potential gold mine. It
relationships, and money are not going in the was particularly frustrating, then, when
right direction.” As far as Zha was concerned, Zheng announced that he couldn’t come
“we will be using each other to our own ends. to China after all, not anytime soon. His
I will not help him anymore. It’s whatever boss, he reported, was sending him to
now.” The extramarital romance was a sham- France for work in March. “Since there
bles: “She wouldn’t even return my text mes- are many things that need to be prepared,
sages. Breakup is real.” And he’d lost money he thinks it’s inappropriate to take a two-
in the stock market. “I got myself into this week vacation now,” Zheng wrote. “I am so
financial hole. I did it to myself. Sigh, not sorry about this!” Xu, a man well versed in
going to talk about these anymore. Feeling the thoughtlessness of bosses, understood.
so bad. When is the end??” But perhaps, he suggested, they could meet
That summer and fall brought new indig- Arthur Gau (right) at West Lake somewhere else? Regrettably, he couldn’t
nities. At a dinner in July, Zha “went nuts come to the US, but if Zheng had time on
and said I am poor at management.” A new woman entered his France trip, Xu might be able to meet him there.
the picture, with predictable results: “Heartless,” one entry On Feb. 28 they discussed possibilities over the phone. In
is titled. “Saw me in the rain yesterday morning, didn’t stop France, Zheng would be free on the weekends, and he’d always
38 and she walked away with her umbrella.” Her WeChats were wanted to visit Belgium, the Netherlands, and Germany. Xu
perfunctory. “This morning at breakfast, she did not sit next asked whether Zheng would have his work laptop with him.
to me again.” Zheng confirmed that he would, and he could easily export
It was amid all of this that Zheng reached out from any files of interest. “Is there other information that you guys
Cincinnati to propose a second visit. This time Xu, as might be interested in?” he asked. “I mean, I can look around
“Section Chief Qu,” volunteered to handle the logistics for and prepare.” Xu said that wasn’t necessary. “We really don’t
the GE Aviation engineer’s trip himself. Soon Zheng and Xu need to rush to do everything in one time,” he explained,
were in touch over WeChat, where Qu’s account icon was a “because, if we are going to do business together, this won’t
plump blue cartoon rabbit. Zheng seemed less guarded now. be the last time, right?”
On Jan. 11, 2018, he WeChatted Xu to ask if there was any spe- Xu was wrong about that. As Zheng spoke on the phone, he
cial research he should do in advance of his next talk, to “try was sitting next to Bradley Hull in the FBI agent’s car. Hull was
best to meet the need for the exchange.” listening to and recording the conversation, and he’d scripted
Two weeks later, however, Zheng sent worrisome news. Zheng’s half of it. Months before, the MSS officer had himself
GE had recently announced a major restructuring, and there been handed off.
was talk of layoffs at subsidiaries including GE Aviation. Zheng

T
was concerned about losing his job. If that were to happen, he previous summer, less than a month after Zheng’s
he at least wanted to be of use to Section Chief Qu while he visit to Nanjing in June 2017, Hull had reached out to
still could. “That’s why I am trying my best to collect as much members of a special “insider threat” team at GE to
information as possible,” Zheng explained. Xu encouraged inform them that the FBI was investigating an employee for
his new source to focus on system specifications and design potentially stealing secrets. That employee was Zheng. It’s not
process data. clear how the FBI learned about him, but either his trip or his
The document Zheng sent on Feb. 3 made it clear that correspondence with Xu appears to have set off alarms. GE
he’d understood the request. The title was “GE9X Fan agreed to cooperate, and the company and the bureau began
Containment Case Design Consensus Review,” and it was months of secret collaboration. On Oct. 25, Hull and a small
labeled “CONFIDENTIAL.” Zheng, it appeared, had access to team of agents and prosecutors came to GE Aviation’s head-
US DEPARTMENT OF JUSTICE

high-level secrets about his employer’s marquee product. (The quarters for three days of meetings about the case.
GE9X would the next year earn the title of the world’s most In the early afternoon of Nov. 1, Zheng was called into a large
powerful commercial jet engine.) Two days later, Xu responded auditorium on the GE Aviation campus. There he found two
with a set of technical questions—“How are the allowed values men from the company’s security arm. They spoke with him
for 3D braided structural material and allowed value for design for 10 to 15 minutes, then Hull and another FBI agent walked
39
 Bloomberg Businessweek

in. The agents took Zheng’s phone. When he asked to call his
wife, they handed him one of theirs and asked that he speak
to her on speaker, and in English. A search warrant was simul-
taneously executed at his house, where agents took away elec-
tronic devices and the Qu Hui business card from Xu. In the GE
conference room, Hull and his colleague interviewed Zheng for
seven hours, breaking midway for pizza. When Zheng went to
the bathroom, one of the agents went, too. He was free to leave
at any time, they told him. They didn’t mention that his car had
been removed from the parking lot to be searched.
After the meeting, Zheng retained an attorney and agreed
under a nonprosecution agreement with the US Department
of Justice to cooperate with the investigation. In preparing his
NUAA presentation, Zheng had transferred onto his laptop
five GE Aviation training files that were under export control
protection. He hadn’t shared the files with anyone in China,
but in taking them with him, he’d broken the law. He’d also
violated company policy by not informing GE Aviation of the
talk. For this he would lose his job, and his $130,000 salary,
but for the time being he was placed on unpaid leave. His col-
leagues weren’t told what had happened, in case one of them,
too, was an insider threat. To pay the bills, Zheng began driv-
ing for Uber Eats.
Much of the rest of his time was spent with Special Agent
Hull. An atypical G-man, the Ohio native has an archeology doc-
40 torate in stabilized isotope geochemistry from the University of
Oxford. He came to the FBI in 2008 as a researcher at the lab- a sealed criminal complaint against Xu. It connected him to
oratory division in Quantico, Va., where he looked at how to more than one of his aliases, quoted extensively from his
use isotopes in teeth to identify where corpses had come from. emails and texts, and mentioned photos that had allowed
After a couple of years, though, he got bored. “I realized I was Zheng to confirm Xu’s identity. The strong implication, which
a very educated ditch digger,” he said when asked about it at would go undiscussed at trial, was that investigators had by
Xu’s trial. He applied to be a special agent and started working this point already gained access to Xu’s iCloud account. One
counterintelligence, first in Boston, then back in Ohio. logical route in would have been the Gmail addresses he’d
Hull still had the patience of a lab-bench scientist. As his used for years to recruit both MSS job applicants and sources—
investigation turned toward Zheng’s interlocutors in China, and, it turned out, to register with Apple.
it was painstaking and unhurried. Starting with the Nov. 21 Then, two days before the planned meeting, Zheng
WeChat to NUAA’s Chen Feng reestablishing contact, each WeChatted with one last change: His boss was sending him to
message was written by Hull in consultation with FBI analysts Belgium that weekend, he said, to provide some technical sup-
and linguists. The FBI team also benefited from an unusual port to the Safran branch there. That meant Amsterdam was
degree of cooperation from GE. Companies typically try to out. But could Xu meet in Brussels on April 1, Easter Sunday?
make insider threats go away as quietly and quickly as possi- Xu had little choice but to accede.
ble, even if that means forgoing a real investigation. GE, by Still, he knew he was taking a risk by arranging a source
contrast, was keen to help. The files Zheng sent Xu—the ones meeting far outside the security of China’s borders and on
that so impressed the experts he consulted with—were gen- someone else’s terms. On March 30, preparing for the trip,
uine GE Aviation technical documents, carefully chosen and he exchanged WeChat messages with a username most likely
edited to be highly suggestive but free of actual secrets. belonging to his wife. After a mundane exchange—no, she
By early March of 2018, Xu and Zheng were down to two hadn’t seen his special travel pillow—he wrote, “I put a USB
potential meeting spots: the town of Fontainebleau, outside drive in the eyeglass box in the middle of the bookcase, and it
Paris, and Amsterdam. “Let’s meet at Amsterdam on the contains some encrypted documents. If something happens,
31st,” Xu WeChatted. He even settled on a venue: Lasergamen someone will come to you and tell you the password.” The
Amsterdam, a laser tag facility west of the city center. Zheng response came within a minute: “Oh my God. Don’t scare me
and Hull sent back a screenshot of a hotel reservation in like this.” The next day, March 31, Xu and a colleague, Xu Heng,
Amsterdam and a train ticket from Paris. On March 21 they flew to Amsterdam and took the train to Brussels, two hours
sent another tantalizing document, titled “GE Containment south across the low coastal plain.
Analysis Technical Deep Dive.” On the same day, the FBI filed That evening, Zheng messaged that he’d just arrived in
“Feeling agitated in the past couple days.
Feeling like I am abandoned by the whole world”
Brussels. There was a Le Pain Quotidien near his hotel that
would be perfect, he reported, in the Galeries Royales Saint
Hubert, a collection of stately 19th century shopping arcades
in the city center. The cafe upstairs was quiet. “Okay,” Xu
responded. “I will let you know when I am about to be there.”
Zheng was in Brussels, that much was true, but he hadn’t
just arrived. The hotel room he was writing from was the base
of operations for Hull’s team. The FBI had settled on the city a
while before. Belgium’s extradition treaty with the US is part
of an overarching set of agreements with each European Union
country, some of the strongest and most comprehensive of
their type in the world. The drawn-out discussion of different
European cities had been a ruse, paced to draw Xu further and
further out of his comfort zone.
The next day, April 1, Xu and his colleague arrived at Le Pain
Quotidien more than two hours early; he texted Zheng to say
they were there at 12:43 p.m. A half-hour later, Zheng replied
pretending that he’d just finished up Easter Sunday lunch with
his boss and team. Then at 3:12 p.m. he wrote, falsely, that he’d
arrived at the cafe: “I am here now, are you here?”
In Zheng’s place were officers of the Belgium Federal Police,
who arrested Xu right after he received the message. Xu Heng
was also taken into custody. He was carrying multiple SIM card
readers and brown envelopes containing €7,720 ($7,814) and
$7,000. Because he wasn’t part of the arrest warrant, he was
soon released. The two men had brought along a 1-terabyte
hard drive and some mostly empty memory cards. Xu Yanjun,
who was traveling under his real name, had his passport and
national ID and was carrying two phones. One was a Huawei
Mate S (password: xuyanjun1980) containing, among other
things, a list of questions about fan blades. The second was
the iPhone with which he had so diligently documented his life.
A
t his trial, which began on Oct. 18, 2021, in Cincinnati’s
Potter Stewart U.S. Courthouse, Xu didn’t testify.
He barely spoke. At one point, Stijn Berrevoets, the
Belgian police chief inspector who’d arrested him, stood up
from the stand and identified him. At another point, Zheng did
the same. But otherwise, the real-life Xu sat on the margins of
the proceedings, silently listening to his court-appointed trans-
lator as his innermost thoughts were read out loud in a for-
eign language and parsed in a courtroom 7,000 miles from his
home. He did not respond to letters, in English and Chinese,
sent to him in jail asking him to speak for this story, and ulti-
mately declined through his attorney to comment.
In the indictment, unsealed when Xu was extradited to
the US in 2018, the Justice Department charged him with con-
spiring and attempting to commit economic espionage and
steal trade secrets. “The evidence in this case, nearly all of it,
came from his own words. There’s hardly another case like
this,” Assistant US Attorney Timothy Mangan said in his clos-
ing argument to the jury. “You don’t have to resolve any kind
of he-said, she-said dispute. These are his own statements,
his admissions.” FBI search warrants to Apple and Google had
opened up his iCloud and multiple Gmail accounts, and digital
September 19, 2022
forensics experts at the bureau had mined the contents of the
phones recovered at the arrest. (Investigators were not able
to recover anything, however, from the iPhone Xu Heng had
been carrying. The day after the arrest, someone remotely
accessed the device and wiped it clean.)
At trial, Xu’s attorneys didn’t deny that he was an intelli-
gence officer. “He’s a recruiter,” said Ralph Kohnen, of Taft
Stettinius & Hollister, in his own closing argument. “He’s affil-
iated and works for MSS. Nobody’s ever hidden from that.”
But that doesn’t mean he succeeded in stealing any actual
secrets, or that he was even trying to. The defense was at pains
to underline Xu’s flouting of basic espionage tradecraft. “How
does a man who is a superspy travel under his own identity?”
Kohnen asked the jury. Xu, with his envelopes of cash, his
detailed technical questions, and his malware, may have gone
right up to the line, his lawyers argued, but he didn’t cross it.
“There were no requests for secret information,” Kohnen told
the jury. “There was no ‘ask’ there.” And when Zheng sud-
denly began forking over internal GE documents, it wasn’t up
to Xu to tell him what was or was not OK.
“What’s happened here is Mr. Xu, my client, has become
a pawn,” Kohnen concluded, “a pawn in the tense place
between US industries trying to exploit China and trying to
get along with China, right?”
On Nov. 5, 2021, the federal jury convicted Xu on all counts.
He faces a maximum sentence of 50 years in prison and 41
$5.25 million in fines when he’s sentenced this coming Nov. 15.
His case also brought resolution to the investigations triggered
years before by the Safran hack. Federal prosecutors in San
Diego indicted Xu’s MSS supervisor Zha Rong, along with
Gu Gen and Tian Xi of Safran Aircraft Engines Suzhou, and
seven others connected to the Jiangsu branch of the MSS for a
conspiracy to hack more than a dozen aerospace companies.
The Safran workers were, unsurprisingly, fired. Unless they
leave China, none of those defendants are likely to face trial.
GE and Safran, which both cooperated with federal author-
ities and whose employees testified at Xu’s trial, declined to
comment for this story. Chen Feng, the NUAA administrator
alleged to have collaborated with Xu, did not respond to mes-
sages, nor did the university. Bloomberg Businessweek could not
find contact information for the other alleged MSS conspirators.
In Arizona, Honeywell’s Arthur Gau was also indicted and
pleaded guilty to exporting controlled information without
a license. On March 10, 2022, four months after testifying in
Xu’s trial, and three years after being fired by Honeywell, he
was sentenced to three years’ probation and a $10,000 fine.
Gau’s federal public defender did not respond to messages, and
Honeywell did not respond to requests for comment. The FBI’s
Hull was promoted in early 2020 to supervisory special agent, in
large part because of his work on the case. Zheng found a new
job shortly after GE Aviation let him go, though at his request
the new employer was not named at trial. He’s less interested
in sharing information than he once might have been. He
declined through his attorney to speak for this story. And he
didn’t respond to messages on LinkedIn. <BW> �With Crystal Tse
42

Through years of setbacks with

clinical trials, Geri Taylor and
her husband, James, saw Biogen’s
experimental drug Aduhelm as
her only hope
Bloomberg Businessweek September 19, 2022

By Robert Langreth

43

Photographs by Cheryle St. Onge

While the pharma industry str uggles to figure

out why its Alzheimer’s drugs have repeatedly
fallen short, millions of people living with
the disease have few clear paths forward
 Bloomberg Businessweek
G
eri Taylor ran a large long-term
care facility into her mid-60s,
when she started becoming
forgetful. One time, she was in the mid-
dle of running a staff meeting and lost
her train of thought, couldn’t get it
back, and one of her deputies had to
take over. Another time, she got off at
the wrong Manhattan subway stop and
had no idea why she was there or where
she was going. Incidents like these led
her to retire earlier than she might have,
but she put off seeing a neurologist for
years, until one day she went into the
bathroom and couldn’t recognize her
own face in the mirror. Finally, in 2012,
came the diagnosis she’d feared: mild
cognitive impairment, likely due to
Alzheimer’s disease.
In 2015, Taylor enrolled in a clinical
trial for a drug meant to slow cognitive
decline. Tests confirmed that her brain,
like those of most Alzheimer’s patients,
contained an unusual buildup of a pro-
tein called amyloid. For a large part of
44 the past three decades, amyloid clumps,
called plaques—a hallmark of the
disease—have been the prime target for
most Alzheimer’s researchers. Rid the
brain of enough clumps or prevent their
buildup, the consensus goes, and you
could slow cognitive decline, perhaps
indefinitely. This was the great hope
of the trial Taylor joined for the com-
pound Aduhelm. Made by Biogen Inc.,
Aduhelm was the latest in a long line of
experimental anti-amyloid drugs that
never quite seemed to work. But this
one, the researchers said, was the big-
gest amyloid reducer yet, and it might
open a whole new era of Alzheimer’s
treatment, improving each patient’s
quality of life for years or more.
Taylor’s husband, James, a retired
IBM manager, drove her the two hours
from their Manhattan apartment to
Yale, the nearest trial site, for her
monthly infusions. Even before she
knew she was getting the Aduhelm, not
the placebo, just being in the trial gave
Taylor the kind of hope that was other-
wise in short supply.
Seven years later, doctors can’t agree
on whether the drug helped her or any-
one else. Aduhelm’s two advanced drug
trials yielded contradictory results.
Nonetheless, last year the US Food and
Drug Administration approved Biogen’s
drug for widespread use, drawing a level
of backlash rarely seen in medical cir-
cles. This spring, the federal Centers
for Medicare & Medicaid Services
(CMS) refused to cover Aduhelm under
Medicare unless it was part of a clini-
cal trial, arguing that the drug’s efficacy
hasn’t been adequately demonstrated
and that questions about its safety
remain unanswered. It was the biggest
turn yet in a bizarre saga that has repeat-
edly left Taylor and 6  million other
Alzheimer’s sufferers in limbo, briefly
raising their hopes only to dash them.
“It is very hard to have nothing,”
Taylor says from her 21st-floor apart-
ment on the Upper West Side. “This
at least gave us a chance.” She’s sitting
next to James on a green leather couch,
sometimes holding his hand. She speaks
slowly and hesitantly, in short sentences
using simple words, and appears con-
fused by some questions. Her husband
does most of the talking and sometimes
rephrases questions to help her under-
stand. Taylor received the drug until
this spring through another clinical
trial, but she’s stopped taking it while
she receives treatment for her recently
diagnosed breast cancer. For now, the
A myl o i d i s m o re c o m m o n i n
people with dementia, but it
h a s n’t b e e n c o n cl u s ive ly sh ow n
to b e t h e p r i m a r y c u l p r i t
options for Aduhelm patients like her
are unclear. A year’s supply of the drug
costs $28,200 out of pocket, well beyond
the reach of most people, until further
research can resolve the feds’ concerns.
For Alzheimer’s patients, their fam-
ilies, researchers, and the pharma-
ceutical industry, the bigger question
is whether drugs targeting amyloid
have been a multibillion-dollar dead
September 19, 2022
end. Amyloid plaques definitely have
something to do with the disease, and
other trials are examining whether
amyloid reduction can play a more
marked role in preventing the disease
in at-risk populations. But all we know
for certain after decades of research is
that if removing amyloid helps people
with early Alzheimer’s at all, the bene-
fits are modest, and the evidence that
plaques are responsible for the average
case of Alzheimer’s remains largely cir-
cumstantial. “If these wipe out amyloid
and people are not much better,” says
Mary Sano, who directs the Alzheimer’s
Disease Research Center at Mount
Sinai’s Icahn School of Medicine in New
York City, “what do you do next?”
In 1906 the German psychiatrist Alois
Alzheimer reported finding strange pro-
tein clumps and tangles in the brain of
a 51-year-old woman who died with
dementia. The plaques were found in
the spaces between neurons and were
later shown to consist of sticky frag-
ments of amyloid. The tangles, found
inside neurons, were later shown to
be made up of a second protein called
tau. For decades, scientists thought
Alzheimer’s disease was an exceed-
ingly rare problem found only in rel-
atively young people. In the 1970s,
however, pathology studies showed
that it was common in elderly people
with dementia. Alzheimer’s is thought
to be the most common form of demen-
tia, in which cognitive abilities decline
enough to interfere with daily life. But
all the various types of dementia may
overlap, and dementia caused solely by
Alzheimer’s may be less common than
people assume.
Bloomberg Businessweek September 19, 2022

In the 1980s scientists purified the

amyloid protein in the plaques, allow-
ing molecular biologists to study them
in more detail. In the early ’90s genet-
icists found that patients with certain
rare, early-onset forms of Alzheimer’s
had mutations in a gene responsible
for creating amyloid’s precursor pro-
tein. This strongly hinted that amyloid
could directly cause Alzheimer’s. British
geneticist John Hardy, who found the
first of these genes, popularized the
amyloid cascade hypothesis in a 1992
essay that suggested amyloid buildup
led to a host of other problems, includ-
ing brain cell death and the tau tangles.
The relationship, others pointed out,
wasn’t clearly causal. Amyloid is more
common in people with dementia, but
it hasn’t been conclusively shown to be
the primary culprit. It has been found
in the brains of many cognitively nor-
mal people, and tau buildup correlates
even more closely with neurodegen-
eration. Still, the amyloid hypothesis
found powerful supporters. In the US, 45
Harvard Medical School neurologist
Dennis Selkoe championed the idea
that amyloid was the primary cause
of Alzheimer’s. Selkoe, now 78, leads
a 15-person lab on the 10th floor of a
research building at Brigham & Women’s
Hospital in Boston and has published setback came in June, when a study initial trial clearly showed that the drug
more than 100 papers on amyloid. in Colombia showed that an amyloid- removed large amounts of amyloid
From the beginning, drug trials tar- lowering antibody from Roche Holding from patients’ brains. After Biogen
geting amyloid have been frustrating. AG failed to prevent decline in people announced preliminary results at
One of the first was conducted by Elan with a rare gene mutation that causes an investor conference in December
Corp., which had acquired Selkoe’s early-onset Alzheimer’s. 2014, Geri Taylor’s husband read a
own amyloid-focused biotech com- Selkoe argues that the evidence back- blurb about it in the New York Times
pany. Elan abandoned its trial in 2002 ing amyloid as the culprit is as strong and started calling trial sites to see if
after some patients developed brain as ever and has merely been held back any were still accepting people. Scans
inflammation. The experimental vac- by corporate and scientific missteps, revealed that Geri had amyloid buildup
cine it was testing completely cleared such as insufficient doses. “There are in her brain, which qualified her for
amyloid from the brains of at least five reasonable scientific explanations for the trial. She also had two copies of
patients, but they still died with demen- why the trials failed,” he says. “They an Alzheimer’s-associated gene called
tia, according to independent follow-up were incredibly ill-conceived and ill- APOE4, which meant a higher risk of
studies. Elan also pioneered a second executed.” His lab is still actively design- the disease for her son.
amyloid-removing antibody drug that ing new amyloid antibodies, and he Although some people in her trial
was later developed by Pfizer Inc. and hasn’t wavered in his conviction that were assigned a placebo for the first
Johnson & Johnson; it failed in several the drugs will eventually work. “The year, everyone got various doses of the
large trials. An analysis published in biological evidence keeps getting stron- active drug after that. Taylor eventu-
2021 in the medical journal BMJ com- ger every week,” he says. ally learned she’d received the high-
bined data from 14 trials of anti-amyloid Biogen’s Aduhelm (generic name: est dose of the real drug from the start
drugs and found no clear effect on cog- aducanumab) was supposed to put and never experienced any of the side
nitive functioning. The most recent all the doubts to rest. The company’s effects, which can include headaches,
 Bloomberg Businessweek
dizziness, and brain swelling or brain
bleeding. In the first several years
she was on the drug, her cognition
declined slowly, her husband says, but
those losses added up. Eventually, she
couldn’t remember numbers.
While Taylor’s Phase I trial contin-
ued, Biogen started two Phase III tri-
als to determine whether the drug
slowed cognitive decline, eventually
enrolling more than 3,200  patients
with early Alzheimer’s symptoms. Then
in early 2019, Biogen made a fateful deci-
sion that stunned Alzheimer’s research-
ers. It halted its two big trials before they
were complete, after a preliminary anal-
ysis merging data from both trials indi-
cated the drug was unlikely to work.
Biogen wound down its other
Aduhelm trials, and Taylor had to stop
taking the drug. She first heard the
news from a friend calling to ask about
it and didn’t believe it at first. During
that period, she developed increasing
problems finding her words. “My lan-
46 guage just went out,” she says. “I used
to speak very well.”
A
fter halting the two big trials
based on a joint data analysis,
Biogen decided to look at the
numbers from each trial separately. By
late 2019 one trial was still showing the
drug had failed, but there appeared
to be a small positive effect in the sec-
ond. The company reversed course
again and said it would apply for ap-
proval based on the positive results.
In spring 2020 it began a new trial for
patients who’d taken part in previous
trials, including Taylor.
But Biogen’s early halt to both big
trials threw their contradictory results
further into question. It was like stop-
ping two close baseball games in the
seventh inning, then trying to predict
who would have won if the games had
been completed and also which game
should matter more. Biogen noted that
more patients had received the full dose
of the drug for an extended period in
the trial that worked.
The FDA sidestepped this efficacy
debate last June by approving the drug
based solely on its ability to lower
amyloid concentration, declaring that
this was reasonably likely to deliver
a later benefit. Internally, the accel-
erated approval was thought of as a
compromise—allowing patients to get
the drug while conditioning broader
approval on the completion of a third,
more successful trial, says Yaning
Wang, a former FDA official involved
in the review.
After the approval, all hell broke
loose. Three members of an FDA panel
of advisers who had voted unanimously
against the drug in November  2020
resigned in protest. Many hospital
systems decided not to administer it,
including Selkoe’s Brigham & Women’s
Hospital. The inspector general of the
US Department of Health and Human
Services (HHS) opened a broad investi-
gation of the FDA’s accelerated-approval
procedures, including the events lead-
ing to Aduhelm’s clearance. Before it
decided not to cover the drug, Medicare
raised premiums sharply for 2022
partly to account for the possibility of
Aduhelm-related costs.
Medicare covers virtually all FDA-
approved drugs. Given the contro-
versy, however, the government took
the unusual step of commissioning a
monthslong review of the need to cover
Aduhelm. The Taylors did their best to
help advocacy groups pushing for cov-
erage, including meeting with Medicare
officials over Zoom and rallying in front
of HHS headquarters in Washington.
“We have basically one thing, and to
take that away, it is just wrong,” says
Taylor. It didn’t work; the agency said
the benefits of cognitive improvement
weren’t proven and there were real risks
of serious side effects. “Our foremost
goal is to protect beneficiaries from
potential harm from an intervention
without known benefits in the Medicare
population,” CMS Chief Medical Officer
Lee Fleisher told reporters after the pre-
liminary decision in January.
Medicare’s decision to restrict cov-
erage to people in clinical trials, which
was finalized in April, essentially killed
Aduhelm as a commercial product.
Biogen halted almost all marketing of
the drug, withdrew its application for
September 19, 2022
approval in Europe, and said it would
look for a new chief executive officer.
The company is providing Aduhelm free
to people who started taking it prior to
the Medicare decision, while others
continue to get it through clinical tri-
als. Anyone else who wants it would
likely have to pay cash. Biogen reported
a paltry $2.9 million in Aduhelm sales
through the first six months of this year.
Some researchers who think the
drug amounts to snake oil argue that it
should be taken off the market entirely.
“How many hundreds or thousands
of people do we need to actually put
through a trial to say it doesn’t work?”
asks Rob Howard, a professor of old-
age psychiatry at University College
London. Harvard neuroscience profes-
sor Jie Shen, who’s pursuing other ave-
nues for treatment including genetic
malfunctions, says: “To this day, after
trying so hard, there are no facts linking
amyloid to neurodegeneration.”
The industry’s focus has started to
shift, but there’s no leading candidate
to replace the amyloid hypothesis. “It
was very appealing as a silver bullet—
if we just find a way to get rid of it, we
are done,” says Ralph Nixon, a professor
of psychiatry and cell biology at NYU
Langone Health who’s been studying
other potential causes. “The investment
was so enormous that it crowded out
any other idea.”
Beyond Alzheimer’s, there are
many contributors to dementia. Others
include ministrokes and vascular dam-
age from diabetes and hypertension,
as well as a misfolded protein called
TDP-43 found in the brain of many
elderly people. Emerging as targets
of drug research are the mysterious
immune cells called microglia. Normally
microglia cells help prune nerve cells
and clear debris, including amyloid, but
when they go awry, they may trigger
damaging brain inflammation. Of the
90-plus Alzheimer’s risk genes that have
been discovered, more than half impli-
cate microglia or brain inflammation,
says Rudolph Tanzi, a neurology pro-
fessor at Harvard Medical School and
Massachusetts General Hospital. If the
inflammation is the true culprit, he says,
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 Bloomberg Businessweek
then removing amyloid in someone
already suffering from Alzheimer’s is
like expecting statins to cure someone
whose heart is already failing.
“If you say amyloid doesn’t matter in
this disease, you are hiding your head
in the sand,” Tanzi says. But for people
who are already sick, “just stopping
the cause of it that happened 30 years
ago isn’t going to help.” He’s more opti-
mistic about using anti-amyloid drugs
earlier as a preventative measure, like
statins for bad cholesterol, though he
says safer and more convenient versions
are prerequisites for mass adoption.
Tanzi says his lab has identified
more than 100  possible compounds
that might block brain inflammation.
And numerous startups are now trying
to devise drugs
that counteract
“ I t wa s ve r y ap p e a l i n g a s a s i lve r b u l l e t—
faulty microglia, i f we j u s t f i n d a way to ge t r i d o f i t , we a re
including Alector
Inc., which is d o n e . T h e i nve s t m e n t wa s s o e n o r m o u s t h a t
testing with part-
ner AbbVie Inc.
i t c rowd e d o u t a ny o t h e r i d e a”
48
an antibody drug
that reprograms
microglia, and
Vigil Neuroscience
Inc., which is
working on a pill that could restore
microglia’s healthy function. The Vigil
drug hasn’t yet begun human tests.
T
he most prominent drugs in
late-stage testing target amyloid,
so success in the short term
still mostly relies on the amyloid hy-
pothesis being correct. Over the next
year, results from trials of three more
amyloid-lowering drugs—from Eli Lilly,
Roche, and Eisai—are expected to roll in.
All three are using relatively high doses
of antibodies that scientists believe are
more likely to show an effect. Shortly
after the Medicare decision this spring,
Biogen began a trial that aims to resolve
questions over Aduhelm’s efficacy, but it
won’t yield results for several years.
Eisai Co. is expected to release
its results as early as September. It
invented one of the first drugs to treat
Alzheimer’s symptoms more than two
decades ago, a pill called Aricept, and
has been collaborating with Biogen on
anti-amyloid drugs since 2014. “At some
point we are going to bring forward a
treatment to slow the disease,” says Ivan
Cheung, global Alzheimer’s disease offi-
cer for Eisai. “Until that is done, we are
not going anywhere.” Eisai’s antibody
lecanemab, licensed from Swedish bio-
tech BioArctic AB, targets the removal
of a slightly different form of amyloid
than previous medicines, one that many
researchers suspect is more likely to be
involved in nerve damage.
In Eisai’s Phase II study, lecanemab
failed to meet the primary goal of slow-
ing clear decline after 12 months. But
after 18  months, those receiving the
highest dose had declined at a slower
rate than people on a placebo. It’s this
high dose that the company is testing in
a Phase III trial with 1,800 people. Eisai
says it won’t halt the trial early as Biogen
did. Analysts at Jefferies Group LLC give
the trial a 35% probability of success.
Roche is now testing its drug, which
previously failed to show an effect, at
almost five times the original dose. Eli
Lilly & Co., which plans to complete
its latest trial next year, has had argu-
ably the most promising results so far,
slowing the rate of cognitive decline by
almost one-third over 18 months in a
257-person study of its drug donanemab
published last year. But that’s no silver
bullet, either. “I don’t think amyloid-
reducing drugs are going to stop disease
progression,” said Daniel Skovronsky,
Eli Lilly’s chief scientific and medical
officer, at an investor conference in
May. “I think we’re looking at a class
that probably will have 20% slowing
or something like that, which is a good
start.” In an interview, Skovronsky
September 19, 2022
calls Alzheimer’s the most challenging
disease that Lilly works on and says that
companies are “right on the verge” of
making real progress.
If any of the trials clearly succeed,
insurers including Medicare would
be under tremendous pressure to
cover the drug, even if the efficacy
is modest. If they all fail, backers of
the amyloid hypothesis will have few
arguments left to justify further tests.
In the meantime, Eisai and Lilly are
seeking accelerated FDA approval
for their products, but Medicare has
ruled that it won’t broadly cover anti-
amyloid drugs unless they can show
strong enough evidence of cognitive
benefit to get the FDA’s full—meaning
nonaccelerated—approval.
Most drugs that enter human
testing fail, especially those aimed at
neurological diseases. What’s differ-
ent about Alzheimer’s has been phar-
ma’s tunnel vision. Clear results from
this batch of trials could finally resolve
the amyloid debate enough to start
redirecting resources toward other
potential treatments.
The Taylors are doing their best to
push amyloid drugmakers onward. In
June they flew to Indianapolis to meet
with Lilly’s dementia team. They’ve
also Zoomed with officials at Eisai and
Roche. Geri knows that even if they
work, the other drugs may arrive too
late to be useful for her. She goes on
walks with her husband and generally
tries to stay positive. “You have got to
work with what you have got,” she says.
She hasn’t given up hope of eventually
getting back on Aduhelm or a similar
drug. “My only chance is the one I have
been in.” <BW>
 Owamni co-founder Sean Sherman,
aka the Sioux Chef, is a member of the
Oglala Lakota Sioux Tribe
P
U
R
S
Serving U
America’s I
Oldest T
Cuisine S 51

54
Do you really want your
watch to look like this?

56
The best (and toughest)
books of the season

58
An auction house wants
to raid your closet

59
Hi-fi headphones with
bodacious beryllium

September 19, 2022

Indigenous chefs are gaining national attention—and
Edited by
acclaim—for their takes on heritage-honoring dishes Chris Rovzar

By Anna-Louise Jackson Businessweek.com

 DINING Bloomberg Pursuits September 19, 2022

Want to try the oldest cuisine in America? Expect to wait. At
least that’s the case at Owamni in Minneapolis, where diners
have to book seven weeks ahead. The year-old dining room
was popular even before it was named best new restaurant at
the James Beard Awards in June. It’s the highest-profile eatery
among a growing number that are highlighting ingredients
and dishes from the country’s first inhabitants. Openings of
American Indian-owned restaurants in the past year include:
Cafe Ohlone in Berkeley, Calif.; Indigenous Eats in Spokane,
Wash.; Nātv in Broken Arrow, Okla.; Thirty Nine in Oklahoma
City; and Wahpepah’s Kitchen in Oakland, Calif., which also
nabbed a James Beard nomination for best emerging chef.
Indigenous cuisine can vary widely by region and tribe,
but the plates at these restaurants invariably focus on pro-
teins and plants native to the US, including fish, corn, beans,
squash, wild rice, and berries. Fry bread, a staple at many a
state fair, shows up as both a sweet and savory dish.
At Owamni, the ever-changing menu can feature bison tar-
tare with duck egg, a corn sandwich with elk, sweet potato,
and pepita, plus a section of native corn tacos. Co-founder
Sean Sherman—aka the Sioux Chef—highlights ingredients
rarely seen on American menus, such as toasted crickets. He
sources from Indigenous vendors and features fish and game
from the Minneapolis area. He forgoes foods introduced by
Europeans, such as dairy and wheat. “It’s almost as power-
52 ful to highlight what’s not on our menu as what is,” he says.
The restaurant, on the upper level of a park pavilion by the
ruins of an old mill, has large windows that offer an expansive
view of the Mississippi River. Pennsylvania sedge and other
native plants surround the patio. Sherman named the place
after the Dakota tribe word owamniyomni, which describes
the sacred site of swirling Mississippi waters where a village
used to stand—and the restaurant now does.
Sherman first gained national attention in 2017, when The
Sioux Chef’s Indigenous Kitchen, co-authored with food writer
Beth Dooley, won a James Beard cookbook award. A subse-
quent TED Talk has garnered 2 million views, and the com-
bined publicity helped Indigenous restaurants more broadly.
Even so, he and co-founder Dana Thompson, a descendant
of the Wahpeton-Sisseton and Mdewakanton Dakota tribes,
couldn’t get traditional bank financing for Owamni. They had
to seek alternative lending sources, launching a Kickstarter
campaign and using RSF Social Finance, a company in San
Francisco that runs a fund for impact investing.
The 53-year-old National Center for American Indian
Enterprise Development also aims to ease such funding
challenges through advocacy, consultation and training, and
lending. The 23,000-plus businesses with American Indian
and Alaska Native owners in the US have $7.6 billion in annual
payrolls, according to the latest-available figures from the
Census Bureau, about 2% of them in accommodation and
food services. There’s much room to grow.
The pandemic disproportionately affected American
Indians, and their restaurants—particularly in rural areas—also
suffered. They’ve since bounced back, says Chris James, the
National Center’s president and chief executive officer. The
growing popularity of Indigenous cuisine could make it eas-
ier for other native restaurateurs to access financing. There
are also programs like the Treasury Department’s Community
Development Financial Institutions Fund, James says. It
awards federal and private money to financial institutions
to underwrite loans for businesses in disadvantaged areas.
In the past decade, awareness has grown of food
sovereignty—the idea that native people should be empow-
ered to address hunger and health by cultivating their own
fresh foods. Netflix released a documentary in 2020, Gather,

Straight
From the
Source OWAMANI: ACKERMAN AND GRUBER. REMAINING: COURTESY COMPANIES

Owamni
MINNEAPOLIS
On the latest menu at Sherman’s restaurant,
dishes include Lake Superior trout served
with white bean spread, a seasonal
vegetable salad with toasted crickets,
cedar-braised bison tacos, and wild rice
sorbet. What you won’t find are any dishes
with “colonial ingredients” such as wheat,
dairy, cane sugar, pork, or chicken.
Tocabe
DENVER
The two locations of Tocabe, from co-owners
Matt Chandra and Ben Jacob, draw on
traditional Osage tribal recipes. Plates
include nachos and fry bread with a choice of
toppings. A posu bowl has a base of wild rice
or mixed red quinoa and wheatberry; braised
shredded bison or vegan beans are optional
toppings. Get the wojapi, an American Indian
berry sauce, for dessert.
SECTION Bloomberg Pursuits Month 00, 2022

A seasonal salad at Owamni Thompson

examining the loss of food traditions to colonialism. It follows
members of four tribes focused on food sovereignty.
Whether it’s Gather, the social justice movement, or an
increasing interest in food sourcing that draws them in, James
hopes diners realize that American Indian culture and busi-
nesses are strong, thriving, and diverse. “It’s not just fry bread,”
he says. “Chefs are taking traditional food and adding their own
spin to it and creating something that’s totally new and healthy
and yummy that might’ve had roots thousands of years ago.”
For Sherman and Thompson, success brings responsibility—
including educating people about the lasting effect of coloni-
zation on Indigenous food. “We’re not going to sweep any of
this negative history under the rug,” Thompson says. “There’s
so much beauty and sustainability and an incredible wealth
of knowledge that people have been missing.”
There are still challenges, like staying competitive with
wages; Owamni includes a service fee on bills and has hired a
financial adviser. The restaurant has mostly absorbed higher
prices associated with inflation and hasn’t had to make menu
changes since it already relies on seasonal ingredients.
In May the duo reopened Tatanka, a food truck they’d
operated previously but closed to focus on Owamni. They also
run a Sioux Chef catering business and oversee a nonprofit,
NĀTIFS, or North American Traditional Indigenous Food
Systems. It opened four years ago to train aspiring chefs in 53
practical skills—say, how to butcher a beaver or cook ancient
types of wild corn—as well as the importance of establish-
ing food systems and businesses in their tribal communities.
It’s all part of a mission to create “multiple lifetimes worth
of work” toward revitalizing American Indian cuisine, Sherman
says. “We want to offer real solutions, and that means mak-
ing sure that we’re setting this up for the benefit of others.”

Off the Rez Thirty Nine Restaurant Wahpepah’s Kitchen

SEATTLE
Diners can either keep track of this food
truck, which rotates among the city’s
breweries, or sit down at the matching cafe
at the Burke Museum on the University of
Washington’s campus. Both menus feature
tacos made from fry bread that owners Mark
McConnell and Cecilia Rikard base on a
traditional Blackfeet recipe. Toppings include
chili, BBQ pulled pork, or braised bison.
OKLAHOMA CITY
This eatery inside the First Americans
Museum boasts traditional ingredients of the
state’s 39 tribes. Dishes include hominy stew,
buffalo pastrami Benedict, chimichurri turkey
cutlets, and prickly pear and jalapeño jelly ice
cream. Loretta Barrett Oden, a member of the
Potawatomi and an Emmy-winning chef who
previously hosted the PBS series Seasoned
With Spirit, is a menu consultant.
OAKLAND, CALIF.
Crystal Wahpepah, the first American Indian
chef to compete on Food Network’s Chopped,
opened her restaurant at the end of 2021,
where she serves dishes like braised rabbit
blue corn tamales, sweet potato and salmon
tostadas, and acorn crepes for dessert. A
member of Oklahoma’s Kickapoo Tribe, she
also has a catering business and sells snack
bars made from Indigenous ingredients.
 WATCHES Bloomberg Pursuits
Do You Want
Your Watch to Lose
Its Luster?
For collectors of bronze
timepieces, the answer is yes
By David Graver
It takes education and imagination to
look at a brand-new bronze watch and
envision what it might look like months
or years from now. People more familiar
with chemically inert case materials such
as stainless steel or gold, which continue
to glisten in perpetuity, may be drawn to
the initial untouched beauty of bronze.
The metal has a warm golden-brown
54 glow. But a distinct patina develops
on bronze after oxidation and skin
contact, which, to the uninitiated,
might look dirty or muddy—a
metal that’s been put on mute.
To seasoned collectors, how-
ever, that dullness is the high-
est form of personalization.
Patina is polarizing. There
are online watch forums ded-
icated to removing it (often
with harsh chemicals such as
ammonia or simple kitchen
ingredients including vinegar)
and discussions about accelerat-
ing it (which watch brands advise
against, as it can lead to blotchi-
ness). Those who know what they’re
getting into treasure not only the
reduced sheen but also the process
behind the discoloration.
“I actually like the patinated color
much better than the shiny new
bronze,” says Philip Martin, an avid col-
lector who shares watch images on his
Instagram account, @wookie_wrists.
“When I bought my Tudor Black Bay
Bronze, I almost didn’t get it because
it was so shiny. But I knew it would
change rather quickly, so I gave it a
September 19, 2022
shot. I really like the patina, because
every watch will look a little bit dif-
ferent.” Martin says the act of patina-
tion itself encourages owners to wear
bronze watches rather than let them sit
in a safe oxidizing out of sight.
Swiss luxury watch manufacturer
Tudor, which first introduced a line of
bronze timepieces in 2016, found that
prepping its staff helped attract clients.
“We quickly realized that we needed
to train our sales associates specifically
for this watch, to set consumer expec-
tations,” says Christophe Chevalier, a
spokesperson for Tudor. In addition to
informational sessions for its team, the
brand also populated some boutiques
with displays about how this particu-
lar alloy ages.
Tudor’s two bronze models—the
aforementioned Black Bay Bronze and
the Black Bay Fifty-Eight Bronze, which
incorporates a bronze bracelet—employ
a technical alloy used in the naval indus-
try for parts that spend extended peri-
ods of time underwater. Because
oxidation offers a layer of protec-
tion, this specific alloy was devel-
oped to do so quickly.
For Tudor, this means that its
watches start to patinate in one
week and stabilize within
a month. “What we’ve
seen based on a couple
of years of experience
selling these watches,”
Chevalier says, “is that
people appreciate being able to
witness change quickly.”
Collectors of Tudor’s bronze
pieces tend to already have a num- PHOTOS: THIS PAGE: COURTESY TUDOR. OPPOSITE PAGE: COURTESY WATCHBOX (2)
ber of other watches before they dip
into the material, Chevalier says. “It
might be their third, fourth, or fifth,”
he adds.
Adam Craniotes, the co-founder and
president of the international watch-
collecting community RedBar Group,
owns numerous bronze watches,
including a Rado Captain Cook,
Bremont Broadsword, and Hamilton
Khaki Field. “I like the idea of wabi-sabi,
the Japanese aesthetic that embraces
the imperfections and impermanence
of life,” he says.
WATCHES Bloomberg Pursuits September 19, 2022

For both Martin and Craniotes,

patination is more than personaliza-
tion. It’s an experience they enjoy par-
ticipating in. That said, they’d buy
preowned watches with patina cre-
ated by another wearer: Martin
would if he wanted to buy
a timepiece he couldn’t
acquire any other
way. Because he val-
ues the temporality
of patina, Craniotes
might “reset” it on
a watch with ketch-
up—a process,
though not recom-
mended by brands,
that’s been known
to work, enabling
new patina to set in.
WatchBox, the powerhouse
preowned luxury watch emporium that
continues to open collector’s lounges
around the world, has about 50 bronze Johnston draws parallels between
watches in its inventory, each at vary- the personal nature of watch collecting of extreme patina on the secondary
ing stages of natural patina. A team at and the unique development of patina. market, these watches are destined for 55
WatchBox inspects and cleans watches “We’ve seen an unbelievable range in a very particular buyer.” That partic-
upon arrival but doesn’t tamper with patination throughout the years—from ular buyer understands that patina is
patina. The character remains intact. watches that look like bright and shiny imbued with history and that the chem-
“We’ve seen a surge in bronze gold to pieces that seemingly emerged ical process behind it all creates truly
watches over the last several years, from a shipwreck,” he says. “In cases one-of-a-kind cases. <BW>
extending beyond the original and
highly sought-after Panerai Bronzos
from the early 2010s,” says Armand
Johnston, a senior client adviser at
WatchBox. “When these became desir-
able, it sparked a revolution for the
material that had primarily been
on the periphery.”

Left: a brand-new
Tudor Black Bay
Fifty-Eight Bronze,
available at select
boutiques ($4,625);
above and right: the
same watch with
patina, available
secondhand on
WatchBox ($4,750)
 CRITIC Bloomberg Pursuits
BW
PICK
Fall
Books
To Like a Rolling Stone: A Memoir
Know BY JANN WENNER
Sept. 13, Little, Brown
In 2017 the journalist Joe Hagan published
a biography of Rolling Stone magazine’s
founder, Jann Wenner. The book, which
Get smarter with these Wenner himself initiated, was excellent:
10 books that reckon objective, juicy, and not particularly kind to
its subject, who came off as a self-obsessed
with hard truths social climber whose vanity and profligacy
By James Tarmy led to the decline of the magazine and
his own personal fortune. Unsurprisingly,
Wenner hated it, calling it “tawdry.” Now he’s
published his own, gentler version of events,
heavy on Rolling Stone’s historical import
and lighter on pretty much everything else.
Even so, the memoir proves a worthwhile
56 read: Wenner was at the center of a
baby boomer zeitgeist whose rock ’n’ roll
soundtrack plays on to this day.
Barred: Why the Innocent Can’t
Get Out of Prison
BY DANIEL MEDWED
Sept. 20, Basic Books
The notion that defendants are innocent
until proven guilty is the backbone of the
US justice system. But what about those
found guilty who are innocent? Medwed,
a professor of law and criminal justice at
Northeastern University School of Law,
argues that the law is depressingly rigid:
Overturning a guilty verdict, even in the
face of clear exonerating evidence, is a
long shot. The implications are various
and devastating: When justice isn’t just,
its victims are inevitably those without the
resources to advocate for themselves.
September 19, 2022
Fen, Bog and Swamp: A Short
History of Peatland Destruction
And Its Role in the Climate Crisis
BY ANNIE PROULX
Sept. 27, Scribner
The Pulitzer Prize-winning author of
Brokeback Mountain and The Shipping
News has written a book—really a lengthy,
beautifully executed essay—on climate
change. Before she gets to the subject
matter of the title itself, namely the vast
and largely unsung peat repositories that
absorb and store the Earth’s carbon, Proulx
wields her pen like a knife to slowly carve
out what’s already lost. In searing prose that
merges history and science, the book in the
end is more elegy than call to action. “If your
delight is in contemplating landscapes and
wild places,” Proulx writes, “the sweetness
will be laced with ever-sharpening pain.”
Confidence Man: The Making
Of Donald Trump and the
Breaking of America
BY MAGGIE HABERMAN
Oct. 4, Penguin Press
Haberman skyrocketed to fame in the Trump
years as the New York Times journalist the
then-president couldn’t quit. Despite Trump’s
many public protestations to the contrary,
he, along with his cabinet and progeny, used
Haberman as a public confessor. It was a
relationship that led to a mountain of scoops.
Here, Haberman shares some tidbits and
history that didn’t make it into her initial
stories, compiling her experiences with
Trump into a chronicle of arguably the most
tumultuous presidency in US history.
CRITIC
BW
PICK
Lessons: A Novel
BY IAN McEWAN
Sept. 13, Alfred A. Knopf
Best known for his hit 2001 novel
Atonement (later turned into a Bafta- and
Oscar-winning film starring James McAvoy
and Keira Knightley), McEwan has written
another story whose character is both
caught up in, and in some ways a victim
of, events that appear to be beyond his
control. Roland, the story’s protagonist, is
scarred early in ways he (and, by extension,
the reader) fails to understand until it’s far
too late to fix them. Many small cuts follow,
including when he’s caught flat-footed after
his wife deserts him and their infant son.
“Apart from raising a child, all else in his life
had been and remained formless and he
could not see how to change it,” McEwan
writes in his fluid, intimate prose.
BW
PICK
The Mountain in the Sea
BY RAY NAYLER
Oct. 4, MCD
The more we learn about octopuses—
their uncanny intelligence, their sense
of humor, their utter lack of cognitive or
physiological parallels to humanity—the
clearer it becomes we’re dealing with what’s
effectively an alien species on Earth. In this
superb debut novel, Nayler, an international
adviser to the Office of National Marine
Sanctuaries at the National Oceanic and
Atmospheric Administration, takes a not-so-
fantastical leap and imagines a world where
octopuses develop language and civilization.
The book is a thriller as much as it is a
disquieting work of speculative fiction.
Bloomberg Pursuits
BW
PICK
My Pinup
BY HILTON ALS
Nov. 1, New Directions Publishing
Als, the New Yorker’s Pulitzer Prize-winning
theater critic, has written a quasi memoir
in the guise of writing about the late pop
star Prince. The musical genius behind
Purple Rain, in Als’s telling, owed him. “He
was like a bride who had left me at the altar
of difference to embrace the expected,” he
writes, feeling inextricably linked to Prince,
despite only meeting him in the context of a
backstage interview. “Could my queer heart
ever let any of this go, and forgive him?” The
answer is yes, but in this charming, slim book
(less than 50 pages, almost a pamphlet), Als
uses Prince and his perceived queerness,
along with his subsequent embrace of
religion, as a foil for what it means to be
Black, gay, and a citizen of the world.
Demon Copperhead
BY BARBARA KINGSOLVER
Oct. 18, HarperCollins
Kingsolver, whose 1988 bestseller The
Poisonwood Bible was a finalist for the
Pulitzer Prize, has written a Dickensian
novel set in dirt-poor Virginia coal country.
Its red-headed protagonist, Damon, who
has a drug-addicted mother and a dead
father, suffers through foster care, abuse,
and forced labor, all before turning 13.
The novel is in many ways a story about
the opioid epidemic, but it manages to
avoid the torture-porn genre (think Hanya
Yanagihara’s A Little Life) thanks to
Kingsolver’s humor, intelligence, and lush,
buoyant writing style.
September 19, 2022
Finale: Late Conversations With
Stephen Sondheim
BY D.T. MAX
Nov. 22, HarperCollins
Soon after Sondheim died in 2021 at the age
of 91, Max, a staff writer at the New Yorker,
published an edited and condensed Q&A
with the composer-lyricist that had taken
place over the last few years of his life.
Intended to be the foundation of a never-
written magazine profile, the interviews
were revealing and surprising, giving an
unprecedented glimpse into the mind of a
genius. In response to praise from the first
batch, Max has compiled a much lengthier
transcript, peppering the conversations
with context and insight. “Almost everybody
thinks that an artist is his work,” Sondheim 57
says in the book. “Occasionally they’re right,
but most of the time they’re not.”
The Light We Carry:
Overcoming in Uncertain Times
BY MICHELLE OBAMA
Nov. 15, Crown
A follow-up of sorts to her 2018 memoir
Becoming (which has sold 17 million
copies and counting), the former first lady
and current podcast star, TV producer,
children’s cooking show presenter, and
celebrity speaker is set to release her
next guaranteed bestseller in time for
the holidays. Positioned as a sort of
philosophical self-help book and written in
Obama’s crisp, accessible style, the book
aims to help readers live a life of kindness
and grace, even (or especially) when the
world appears to implode around them.
 COLLECTING Bloomberg Pursuits
Sotheby’s Leans In
To Luxury
The auction house has
58
doubled down on extraordinary
items beyond art and antiques
By James Tarmy
There are a lot more Patek Philippes out there than Picassos.
There are also a lot more cars, diamonds, wine bottles, and
handbags. “You don’t have the same sourcing and supply con-
straints in luxury that you do in fine art,” says Charles Stewart,
chief executive officer of Sotheby’s. “We might be able to sell
10 Van Goghs in a season, but they don’t exist.” The luxury
goods market, in other words, is scalable in a way that art isn’t.
And Stewart, brought to Sotheby’s in 2020 by telecom billion-
aire Patrick Drahi soon after he took the auction house private,
sees an opportunity. “Today, luxury is approximately a quar-
ter of the business,” he says. “In five years, would it surprise
me if the luxury business is twice as large? No, it would not.”
Stewart doesn’t have a magic bullet to achieve this growth,
but he does have a straightforward plan. It entails holding more
luxury auctions, along boosting their size and the range of
objects they sell (care to buy a pair of collectible Nikes?), and
reframing Sotheby’s for a younger generation by shifting it to
a glamorous, all-around marketplace.
To get this message across, the house has ramped up the
ways it blends categories: This summer in Hong Kong, it held
concurrent whisky, jewelry, and handbag auctions, figuring
correctly that buyers for one would be interested in the other.
During Monterey Car Week in Pebble Beach, Calif., where affil-
iate RM Sotheby’s holds a car auction every August, handbags
September 19, 2022
and watches were on sale next to Ferraris. At the house’s New
York flagship, art collectors arriving for an evening sale might
pass jewelry displays on their way to pick up a paddle.
The strategy is paying off. In the first half of 2022, the com-
pany’s total luxury sales were up 20% from the same period
in 2021; 49% of luxury goods bidders were new to Sotheby’s.
The number of auctions in that period rose 20%; the number
of lots sold were up 24%.
“When our parents bought a luxury object, it was on the
wall or in the garage for the rest of their life,” Stewart says.
“Now when people buy a luxury object, they do so know-
ing that they may well resell it in one, three, five, 10 years.”
Sotheby’s name recognition, he argues, makes it a natural fit
for handling the swap.
But a large market isn’t the same thing as an underserved
one, and Stewart isn’t alone in recognizing luxury resale’s
potential. Forget rival Christie’s, whose $980 million in lux-
ury sales last year almost matched Sotheby’s $1 billion. There
are dozens of watch resale sites alone, RealReal Inc. dominates
apparel and handbags, and all such platforms are vying for
market share, even as prices have begun to fall.
“Watch prices are coming down a lot,” says Ashley Helgans,
a vice president for equity research at Jefferies. “It’s an inter-
esting time to come into the market, because there is going
to be a bit of a slowdown. Resale values are so high that peo-
ple are like, ‘At this point I might as well try to buy something
from the actual store.’ ”
Not only will Sotheby’s have to compete for buyers with
these rival platforms, it also has to fight them for consign-
ors. After all, there are a finite number of Rolex Cosmograph
Daytonas or crocodile Hermès handbags in the world, and it’s
unclear there are enough to feed a market that Helgans esti-
mates will grow between 10% and 15% a year through 2030.
“The RealReal’s entire model is ‘Hey, can we go in your
home and source 18-20 pieces at any given time,’ ” says Sean
Dunlop, an equity analyst at Morningstar Inc. “So they’ll
throw huge numbers at you, like $200 billion in clothing that’s
untapped, which could be sold from people’s closets. That’s
not structurally untrue, but the real issue is getting people to
actually bring that to market.”
Stewart brushes these concerns aside. “I think we are a long
way away in our luxury business from being in a place where
we feel truly supply constrained,” he says. And as for the com-
petition? Sotheby’s, he says, “is pretty unique and special”
because it deals with the highest end of the market. “We are
not the place where you are going to buy the same watch that
you can buy from 47 dealers in 10 minutes, or because we are
selling it for $50 less,” he says. “We’re a place where you will
find the extraordinary, the exceptional, the rare.”
ILLUSTRATION BY MELANIE LAMBRICK
In other words, the reputation of being a traditional auc-
tion house, which Stewart aims to transcend, is also what he’s
counting on to fuel growth. “The core of what we sell and how
we sell it and who we’re selling to, I don’t think will change at
all,” he says. “I just think the luxury side of the business will
scale significantly from where we are today.” <BW>
THE ONE Bloomberg Pursuits September 19, 2022

THE COMPETITION • The milled • There may be

• Dan Clark Audio’s aluminum frame, newer, sexier, pricier

Sonic $4,000 Stealth

headphones
convert signal to
carved grille, and
clever headband
make Meze Audio’s
headphones than
the $550 HD 650s
from Sennheiser,

Boom sound waves using

planar magnetic
drivers, which beef
up the bass. Closed
$4,000 Elite pair
attractive, but they
can also reproduce
frequencies up to
but few can match
their reputation
for fidelity and
durability, which
backs keep sound 112,000kHz—bat sets the benchmark
If you’re not sold on high fidelity, from seeping out. sonar territory. for audiophiles. 
you will be after trying
Focal’s new $5,000 headphones
By Matthew Kronsberg
Photograph by Ryan Jenq

The thriving vinyl

market, a recent
swell in CD sales,
and new audiophile-
grade streaming
services have all
helped rekindle
59
interest in sonic
quality. But whatever
your source, the best
auditory experience
bypasses Bluetooth
and requires a wired
set of cans. Focal,
based in Saint-
Étienne, France,
takes a spare-no-
expense approach
with the redesigned,
$4,999 Utopia
headphones. The
most noticeable
changes are the
forged carbon yokes
and honeycomb
grilles on the ear
cups, as well as THE CASE too—but that’s can render a
a new voice coil Put on a pair of because the drivers musical genius’s
for clear, natural Utopias, then at the heart of most fleeting
sound that spans cue up Zeit, these headphones sonic detail with
frequencies from the latest from are made of pure breathtaking
5Hz to 50kHz—more German rockers beryllium, a rare accuracy—whether
than the human ear Rammstein, and element that has it’s a Bach arpeggio,
could ever detect. you’ll experience three times the fretwork by Neil
They weigh in at just what heavy metal rigidity of titanium Young, or armpit
over a pound, but can really sound but less than half fart sounds off the
supple lambskin- like. If you listen the density. In 1983 debut album
covered memory- to Beyoncé’s practical terms, from “Weird Al”
foam ear pads mean Renaissance, you’ll that means the Yankovic. $4,999;
you’ll hardly notice. get heavy metal, M-shaped drivers focal.com
 ◼ LAST THING With Bloomberg Opinion

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Farewell,
Dry Cleaners?
By Justin Fox

The Covid-19 pandemic and subsequent wholesale move to ● BIG CLEAN

APPLE
60 working from home have been tough on dry cleaners and New York County,
professional laundries in the US. So has the 21st century. aka Manhattan,
has the highest
The number of business establishments offering concentration
“dry-cleaning and laundry services, except coin-operated” of laundry and
dry-cleaning
fell to 16,497 in the first quarter of 2022 from 18,756 in the establishments of
last quarter of 2019, according to the US Bureau of Labor any large (more than
1 million people) US
Statistics, an annualized decline of nearly 6%. But it had county, with 29 per
already been falling at a 2% annual pace since 2001. 100,000 residents.
Pima County, Ariz.,
These numbers are from the Quarterly Census of has the lowest,
Employment and Wages, a tabulation of state and fed- with 1.6.

eral unemployment insurance data that serves as the

benchmark for the BLS’s higher-profile monthly nonfarm
payrolls report. Some mom and pop businesses aren’t
covered by unemployment insurance, so these numbers ● COIN-OPS ● US dry-cleaning and laundry establishments,
ARE OK excluding coin-operated laundry
likely understate the true number of dry cleaners, though The number of coin-
the trend is clear. operated shops
in the US has held 25k
More-casual office fashions were a big part of the pre- steady for years and
ILLUSTRATION BY GEORGE WYLESOL. DATA: BUREAU OF LABOR STATISTICS

pandemic decline, as fewer white-collar workers needed even rose a bit over
Q1 2020
the pandemic, to
suits cleaned and shirts pressed. An Environmental
Protection Agency crackdown on dry-cleaning emissions
surely played a role. And so have changing immigration pat-
9,710
in the 2022 first
20

terns. Immigrants from South Korea own many small dry quarter.

cleaners in the US, but that immigration wave subsided long 15

● JOBS BUST
ago—and has now turned into a retirement wave as their off- Payroll employment Q1 2001 Q1 2022
spring have pursued careers other than the family business. in non-coin-op
dry-cleaning and
People are still going to need things dry-cleaned and laundry services
professionally laundered, so the industry won’t go away. was at 86,800 in ● OUT OF POCKET
August, a drop Laundry and dry-cleaning services accounted for
But as it consolidates the prices it charges keep going up, of 28,400 since 0.5% of all US consumer spending in 1959 and
with increases outpacing overall inflation in 8 of the last 10 February 2020 and just 0.07% so far this year, according to the US
125,000 since 2000. Bureau of Economic Analysis.
years. <BW> �Fox is a columnist for Bloomberg Opinion
The Heart of Progress