Month: September 2018

US government investigators have lost a case to force Facebook to wiretap calls made over its Messenger app.

A joint federal and state law enforcement effort investigating the MS-13 gang had pushed a district court to hold the social networking giant in contempt of court for refusing to permit real-time listening in on voice calls.

According to sources speaking to Reuters, the judge later ruled in Facebook’s favor — although, because the case remains under seal, it’s not known for what reason.

The case, filed in a Fresno, Calif. district court, centers on alleged gang members accused of murder and other crimes. The government had been pushing to prosecute 16 suspected gang members, but are said to have leaned on Facebook to obtain further evidence.

Reuters said that an affidavit submitted by an FBI agent said that “there is no practical method available by which law enforcement can monitor” calls on Facebook Messenger . Although Facebook-owned WhatsApp uses end-to-end encryption to prevent eavesdroppers, not even the company can listen in — which law enforcement have long claimed that this hinders investigations.

But Facebook Messenger doesn’t end-to-end encrypt voice calls, making real-time listening in on calls possible.

Although phone companies and telcos are required under US law to allow police and federal agencies access to real-time phone calls with a court-signed wiretap order, internet companies like Facebook fall outside the scope of the law.

Privacy advocates saw this case as a way to remove that exemption, accusing the government of trying to backdoor the encrypted app, just two years after the FBI sued Apple over a similar request to break into the encrypted iPhone belonging to San Bernardino shooter Syed Farook.

Neither Facebook nor the FBI responded to a request for comment.

Source: Tech Crunch

Online education is a $160 billion+ industry today, but as it continues to mature, there are some inevitable ebbs and flows. In the latest development, TechCrunch has learned and confirmed that Udacity — the $1 billion startup co-founded by Sebastian Thrun that specialises in “nanodegrees” in tech subects that range from AI and coding through to the how-tos of digital marketing — has quietly cut about five percent of its staff since August across multiple offices globally.

“Back in August, five percent of our global employees were laid off based on carefully considered, strategic business decisions,” a spokesperson told TechCrunch in an emailed statement. “We are supporting our former and current employees through the transition. Our business continues to grow, with offices in India, China, Germany, Brazil, Egypt, and the United Arab Emirates, in addition to Silicon Valley. We continue to hire for key roles.”

The company does not disclose an exact number of employees it has across globally, except to say that it is over 500, meaning that this change is affecting about 25 people — the same number that a source had originally give us.

It’s not clear exactly what is going on at Udacity to prompt the layoffs, either in terms of the existing business or what it may have planned for the future.

Udacity says that it has over 50,000 students enrolled in its six-12-month nanodegree programs, but that is a figure that it has not updated in almost a year, when it emerged that Shernaz Daver, the CMO who was credited for turning around the company, was leaving Udacity.

Overall, Udacity says the number of registered students on the platform is higher than this, now at over 10 million — which also includes one-off free courses as well as partnerships with businesses. Udacity works with companies like Google, Facebook, Amazon and others to develop its curriculum, and it counts Accenture, AT&T, Bank of America, GE and Ford among its customers.

The company made $70 million 2017, but it has not provided guidance on how it is doing this year. (That $70 million figure was first released in February this year, when Udacity’s CEO Vishal Makhijani hinted the company was eyeing up an IPO.)

In terms of funding, Udacity has not raised any money since 2015 — when it closed a $105 million round led by publisher Bertelsmann that catapulted it to a $1 billion valuation. It’s raised $163 million to date, with other investors including Andreessen Horowitz, Ballie Gifford, Charles River Ventures, Cox Enterprises and GV.

A rush of companies have entered the online education space — which has been around in one form or another since the start of the web, and indeed you could argue went hand-in-hand with some of the earliest intentions behind the internet. Offerings run the gamut of what “education” can entail: single courses, full degrees, professional development, casual hobbies, gamefied children’s education, and much more — using videos, mobile technology, VR, AI to tailor courses, curriculums approved by leading academics and educators, and much more to make the learning more sticky and effective.

Udacity has competitors, effectively, from many parts of that spectrum, but some of the more notable include Coursera, Lynda (which is now part of LinkedIn and Microsoft) and Khan Academy.

Since its launch in 2011, Udacity has played a few different roles within that evolution. The company initially started as one of the early providers of “MOOCs” (Massive Open Online Courses): Thrun (pictured above, who co-founded the company with David Stavens and Mike Sokolsky; neither are with the company anymore) left a position as a professor of AI at Stanford to start Udacity when he found that 160,000 students signed up for an open invite he made to take his class for free online.

Higher educational institutions worked closely with Udacity in the early days, although the company appeared to move away from that focus that in 2013 after some hiccups, including San Jose State University suspending a pilot with the startup after pass rates were deemed too low.

Instead it started to work with a number of large tech players like Google (where Thrun is credited with the company’s early work on building self-driving cars) to develop a new set of courses to target older people and those already in the workforce. That pivot appeared to turn the company profitable at one point, as it expanded its sights to further markets like India.

Then, Thrun stepped away as the CEO (he’s now president) and the role was taken on by Makhijani, who had been the COO. Under him, the company appeared to focus a little more: it looked set to build deeper coding experiences with its first acquisition, of CloudLabs; and it spun out its self-driving car program, which was renamed Voyage and is now building its own business. It’s likely that this latest turn is one more step in how Udacity is aiming to position for whatever comes next.

Source: Tech Crunch

Intel interim CEO Bob Swan issued an uncharacteristically frank letter today, highlighting the company’s supply issues. The executive blames the surprising growth of an unexpectedly rebounding PC industry for the shortage. Swan says that rebound is driven by “strong demand for gaming as well as commercial systems.”

It’s a bit of a perfect storm here. Higher demand coupled with the longstanding yield issues for its 10nm architecture have spread things thin for Intel. Though Swan says it’s “making progress” with those chips, with production ramping up in 2019.

“[S]upply is undoubtedly tight,” Swan acknowledged in the letter, “particularly at the entry-level of the PC market.” But he believes that Intel does have enough supply to meet its full-year revenue outlook.

In the short term, Intel plans to prioritize the premium market, including Xeon and Core processors, so it “can serve the high-performance segments of the market.” Beyond that, the company plans to invest $15 billion in capital expenditures this year, including $1 billion going toward the manufacture of 14nm silicon in the U.S., Ireland and Israel.

These issues have left the broader PC industry in a rough spot. On the face of it, a shortage due to increased demand seems like a good problem to have, but ultimately a lack of processors could create a major issue if the market continues to grow, perhaps ultimately reversing some of that success.

Source: Tech Crunch

The securities fraud complaint filed by the U.S. Securities and Exchange Commission against Tesla CEO Elon Musk contains an eye-opening view into the events leading up to the “funding secured” tweet heard round the internet.

And luckily, TechCrunch has read through the document and highlighted the most compelling details, including new insights from the SEC’s investigation.

But first, the nuts and bolts: The SEC filed a complaint Thursday in federal district court alleging that Musk lied when he tweeted on August 7 that he had “funding secured” for a private takeover of the company at $420 per share. Federal securities regulators reportedly served Tesla with a subpoena just a week after the tweet. Investigations can take years before any action is taken, if at all.

In this case, the investigation, which regulators say is continuing, progressed to a complaint within six weeks.

The SEC alleges that Musk violated anti-fraud provisions of the federal securities laws. The commission has asked the court to fine Musk and bar the billionaire entrepreneur from serving as an officer or director of a public company. That’s a big deal, and one Musk will certainly fight.

In a statement sent to TechCrunch, Musk described fraud charges an “unjustified action” that has left him “deeply saddened and disappointed.”

Here are some of the key takeaways and nuggets pulled from the complaint, which includes details of the SEC’s investigation:

The fund’s interest in Tesla

Musk met with representatives of a sovereign investment fund (Saudi Arabia’s sovereign wealth fund) three or four times beginning in January 2017. There was never a formal agreement, but the fund did express a “verbal desire” to make a big investment in Tesla and establish a production facility in the Middle East, according to the complaint. 

After months without contact, Musk met with the fund’s lead representative on July 31. This is when he learns the fund has acquired almost 5 percent of Tesla’s common stock.

According to the complaint, the representative expresses interest in taking Tesla private and asks about establishing a production facility in the Middle East. Musk said he was open to the idea, but did not make a commitment.

The representative did tell Musk that as long as the terms were “reasonable,” the fund would be fine with them. However, the pair never discussed specific deal terms during the meeting or talked about what would or would not be “reasonable.” Nothing was exchanged in writing, and there was no discussion of confidentiality, according to the complaint.

Musk did not communicate with representatives of the fund again about a going-private transaction until August 10, three days after his August 7 statements, the complaint states.

The Saudi sovereign wealth fund agreed in September to invest $1 billion into electric vehicle startup Lucid Motors.

The tweet was not some whim

Some have speculated that Musk’s August 7 tweet was just a silly impulse, particularly because the proposed shared price was a reference to marijuana. But regulators show in the complaint that Musk was talking to the board about an offer to take Tesla private as early as August 2 when he sent to Tesla’s board of directors, chief financial officer and general counsel an email with the subject, “Offer to Take Tesla Private at $420.”

The email laid out his reasons for wanting to take Tesla private, including that being public “[s]ubjects Tesla to constant defamatory attacks by the short-selling community, resulting in great harm to our valuable brand,” according to the complaint.

The $420 share price

According to the complaint, Musk calculated the $420 price per share based on a 20 percent premium over that day’s closing share price because he thought 20 percent was a “standard premium” in going-private transactions.

This calculation resulted in a price of $419. Musk stated that he rounded the price up to $420 because he had recently learned about the number’s significance in marijuana culture and thought his girlfriend “would find it funny, which admittedly is not a great reason to pick a price,” according to the complaint.

A 50-50 chance

Musk’s August 7 tweet indicated that funding had been secured. The complaint lays out a much different account.

Musk thought that there was “a lot of uncertainty” regarding a potential going-private transaction at the time of his August 2 email to Tesla’s board, “but it was worth investigating,” according to the complaint.

He believed at the time that the likelihood of consummation of a transaction was about 50 percent, the complaint says.

Permission granted, request ignored

Musk had a call with the board on August 3, the day after he sent the email. He told the board he wanted to contact existing shareholders to assess their interest in participating in a going-private transaction, the complaint said.

The board authorized him to contact certain investors and report back on those conversations.

Musk never spoke to any shareholders. He had a conversation with a private equity fund representative about the process, according to the complaint. But he didn’t contact any additional potential strategic investors to assess their interest.

He also did not provide the board with a specific proposal, contact existing shareholders to determine if they would remain invested in Tesla as a private company, retain any advisers or determine whether retail investors could remain invested in Tesla as a private company.

Four days after the call he sent the tweet.

An unprecedented transaction structure

During his conversation with a private equity fund partner, who had previous experience with such transactions, Musk said the number of Tesla shareholders needed to be below 300, according to the complaint.

But here’s the problem. Tesla had more than 800 institutional shareholders and many more individual shareholders at the time.

The private equity fund partner said the transaction structure that Musk was contemplating was “unprecedented” in his experience, according to the complaint.

Is it legit?

Musk’s August 7 tweet triggered a maelstrom of calls, emails and texts from the board, executive staff, analysts and press. Confusion was the theme early on.

In one example, Tesla’s head of investor relations, Martin Viecha, sent a text to Musk’s chief of staff (Sam Teller) about 12 minutes after the initial tweet asking “Was this text legit?”

Teller and Viecha would receive more communications from press and shareholders. One reporter emailed Musk asking “Are you just messing around?” The reporter wrote, “Reaching out to see what’s going on with your tweets about taking the company private? Is this just a 420 joke gone awry?”

Source: Tech Crunch

Earlier this year, the FTC settled with PayPal over the company’s handling of privacy disclosures in its peer-to-peer payments app Venmo, but Mozilla doesn’t think the changes Venmo made as a result went far enough. This week, Mozilla says it delivered a petition signed by 25,000 Americans asking Venmo to set transactions shared in its app to private by default, instead of public.

As Mozilla explains, “millions of Venmo users’ spending habits are available for anyone to see. That’s because Venmo transactions are currently public by default — unless users manually update their settings, anyone, anywhere can see whom they’re sending money to, and why.”

Many Venmo users likely feel that it’s not very dangerous to share through Venmo’s feed – a key feature of its popular payments app – that they paid back a friend for part of the dinner, drinks or some concert tickets, for example.

But a Berlin-based researcher, Hang Do Thi Duc, recently studied the risks associated with this sort of over-sharing.

Do Thi Duc analyzed more than 200 million public Venmo transactions made in 2017 by accessing the data through a public API. This allowed her to see the names, dates, and transactions of Venmo users. She found that a lot could actually be gleaned from this data, including users’ drug habits in some cases, as well as their relationships, junk food habits, location, daily routines, personal finances, rent payments, and more.

In other words, while the individual transaction itself may seem harmless, in aggregate these transactions can be very revealing about the person in question.

Mozilla says it, along with Ipsos, also polled 1,009 Americans how they felt about Venmo’s “public by default” nature. 77% said they didn’t think that should be the case, and 92% said they don’t support Venmo’s justifications for making them public. (It thinks sharing is fun, basically.)

Venmo didn’t respond to Mozilla’s petition directly, but tells TechCrunch via a spokesperson that its takes its users’ trust seriously.

“Venmo was designed for sharing experiences with your friends in today’s social world, and the newsfeed has always been a big part of this,” the spokesperson said. “The safety and privacy of Venmo users and their information is always a top priority. Our users trust us with their money and personal information, and we take this responsibility and applicable privacy laws very seriously,” they added.

The company also pointed out it takes several steps to ensure some level of user protection, including not making sensitive transactions public, never publishing dollar amounts, and allowing users to control the publicity of the item, even after the fact.

As part of the FTC settlement, Venmo also had to make other changes, as well.

The company now has to explain to new and existing users how to limit the visibility of transactions through the use of privacy settings.

We recently saw this in the updated Venmo app, in fact.

Users are walked through a tutorial that spells out how you can change settings to make transactions private by default, or any time you choose.

Mozilla’s petition comes at a time when PayPal has been weighing whether or not it should change the default in Venmo from public to private, according to a report from Bloomberg last month.

Thanks to large-scale scandals like Cambridge Analytica and others involving user data being overexposed, timed alongside the rollout of new privacy regulations like Europe’s GDPR, many companies are reviewing their data protection policies.

Venmo’s casual over-sharing now feels like a holdover from an earlier, more naive time on the web, and it wouldn’t be surprising if it decided to later adjust the app’s settings to match where consumer sentiment is headed today.

Source: Tech Crunch

A government watchdog has said that the Internal Revenue Service could do more to prevent tax fraud if it invested more money in ensuring that the identities of taxpayers are properly verified.

From the IRS’s own data, fraudsters scammed the agency out of at least $1.6 billion in tax refunds during the 2016 tax season that belonged to taxpayers. That’s a drop in the ocean to the $383 billion paid out in legitimate tax returns. But the new report by the Government Accountability Office said that the IRS still has a way to go to prevent further fraudulent activity.

“While IRS regularly assesses risks to and monitors its online authentication applications, it has not established equally rigorous internal controls for its telephone, in-person, and correspondence channels, including mechanisms to collect reliable, useful data to monitor authentication outcomes,” said the report. “As a result, IRS may not identify current or emerging threats to the tax system.”

In other words, the IRS can’t always guarantee that it’s you calling up about your tax affairs or logging in to the website.

That’s a problem because around tax season, scammers obtain tax returns or filings — through leaks or breaches — and use that information to impersonate taxpayers. By filing fake tax returns before the legitimate taxpayer does, the scammer can collect the fraudulently obtained return.

These breaches aren’t helping matters, said IRS chief information officer Gina Garza at a House committee hearing on Thursday. Indeed, the IRS had to clean up after its own data breach last year, in which 100,000 taxpayers had their tax information stolen — just two years after a separate IRS breach affected 300,000 taxpayers.

Although the government watchdog said that the IRS has made some steps to improve its taxpayer verification efforts, the agency “does not have clear plans and timelines” to implement guidance provided by the National Institute of Standards and Technology that would properly authenticate taxpayers.

One of the ideas was to notify taxpayers when a tax return had been filed in their name, which would help get ahead of scammers trying to cash in on fraudulent returns. But the watchdog said that the IRS hasn’t found the funding to roll out notifications.

Some of the measures could still take between six months and three years to complete, the report said, leaving millions of taxpayers to defend themselves against the ongoing threat of tax fraud.

The IRS accepted all of GAO’s 11 recommendations. IRS spokesperson Cecilia Barreda declined to comment further.

Source: Tech Crunch

Think Ethereum and other crypto coins are overvalued? Now you can make money when their prices fall via Compound, which is launching its money market protocol for shorting cryptocurrencies today. The Coinbase and Andreessen Horowitz-funded startup today opens its simple web interface allowing users to borrow and short Ethereum, 0x’s ZRX, Brave’s BAT, and Augur’s REP token, or lend them through Compound to earn interest.

Compound’s protocol isn’t just useful for crypto haters, or HODLers who want to generate interest instead of just having their coins gathering dust in a wallet.  “If/when Compound scales, this will lead to some really interesting improvements in market structure, namely, fairer prices” Compound CEO Robert Leshner tells me.

The startup spent the summer completing a security audit by Trail Of Bits and adding 26 hedge fund partners who will trade with Compound, offering liquidity to independent investors looking to be matched with borrowers or lenders. Next, the startup wants to offer a stablecoin on its protocol, bring in big financial institutions to add even more liquidity, and partner with a wallet provider to make signup faster.

Compound users visit its site through a Web3 browser such as MetaMask or Coinbase Wallet and enter their Ethereum price. They can then view the interest rates for borrowing and shorting or lending and earning interest for each of the supported tokens. Compound’s secret sauce is that those interest rates are set algorithmically based on demand, though eventually it wants a community governance body to oversee this process. “It ranges from 5 percent to 45 percent APR depending on how scarce liquidity is . . . in general, we expect supply to outnumber borrowing about 5-1, and borrowing rates to be about 10 percent”.

To make sure no one thinks they’re getting scammed, Compound is also releasing a transparency dashboard users can view to check up on all the assets moving through the protocol and see what Compound is earning. It charges 10 percent of what borrowers pay in interest, with the rest going to the lender. That margin is what attracted the $8.2 seed round for Compound that also included Polychain Capital and Bain Capital Ventures.

It could also make crypto exchanges like Coinbase or Robinhood less attractive to users because leaving their coins there comes with the opportunity cost of not lending them for profit. Meanwhile, shorts could pop the volatile crypto bubble and push prices to more sensible and stable levels. That’s market health is a critical precursor to big banks and traditional investors diving into crypto.

[Disclosure: The author owns small positions in Bitcoin and Ethereum, but has no financial motive for writing this article, did not make trades in the week prior to this article, and doesn not plan to make trades in the 72 hours following publication.]

Source: Tech Crunch