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Inside the Collapse of Silicon Valley Bank

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Inside the Collapse of Silicon Valley Bank

Gregory Becker, the chief government of Silicon Valley Financial institution, leaned again in his chair at a know-how convention final week in San Francisco’s luxurious Palace Lodge, and delivered a bullish message.

Within the assured, nearly bombastic, fashion that was his signature, Mr. Becker instructed the viewers of traders, Wall Road analysts and know-how executives that Tuesday afternoon that the way forward for the tech business was glowing — and so was Silicon Valley Financial institution’s place inside it.

What he didn’t say was that, roughly every week earlier, the score company Moody’s had referred to as to inform Mr. Becker that his financial institution’s monetary well being was in jeopardy, and its bonds have been in peril of being downgraded to junk. Realizing the financial institution wanted to boost money, Mr. Becker had been scrambling since then to sort things.

That cellphone name set off a frantic scramble inside Silicon Valley Financial institution. Simply someday after Mr. Becker projected confidence on the convention, the financial institution introduced a $1.8 billion loss and a unexpectedly put collectively plan to boost $2.25 billion in contemporary capital. The information spooked the financial institution’s depositors and traders a lot that on Thursday, its inventory plummeted roughly 60 p.c and shoppers pulled out roughly $40 billion of their cash.

By Friday, Silicon Valley Financial institution was useless.

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The financial institution’s failure despatched the shares of greater than a dozen small and midsize banks reeling on Monday, however they rebounded on Tuesday. However the rebound stays small in comparison with the size of the losses inflicted in latest days.

The Federal Deposit Insurance coverage Company, which took over the financial institution, has since been making an attempt to public sale off all or elements of it. On Sunday evening, the federal authorities stated all prospects could be made complete.

The story of Silicon Valley Financial institution is certainly one of ambition and administration errors, of a chief government who talked a lot about innovation and the longer term that he and his lieutenants didn’t pay sufficient consideration to the mundane however enormously vital work of managing threat and guaranteeing monetary prudence. When the financial institution was caught flat-footed in a quickly altering financial surroundings, it waited until the final minute to attempt to avert its destiny.

“This isn’t greed, essentially, on the financial institution stage,” stated Danny Moses, an investor at Moses Ventures identified for his position in predicting the 2008 monetary disaster within the ebook and film “The Huge Brief.”

“It’s simply dangerous threat administration,” Mr. Moses added. “It was full and utter dangerous threat administration on the a part of SVB.”

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Mr. Becker couldn’t be reached for remark. Former representatives of Silicon Valley Financial institution directed queries to the F.D.I.C., which declined to remark.

Silicon Valley Financial institution started in 1983 as a small group financial institution catering to fledgling tech firms. All through the Eighties and Nineteen Nineties, its fortunes and dimension grew together with the tech sector.

After an ill-fated foray into actual property lending within the early Nineteen Nineties, the financial institution returned to its roots, pitching its providers to fast-growing however sometimes unprofitable firms in the course of the web growth. The financial institution additionally made a facet guess on California wineries.

Mr. Becker, who grew up on a farm in Indiana, joined the agency in 1993 shortly after graduating from Indiana College. He labored one yr at one other California financial institution within the early Nineteen Nineties however in any other case spent his profession at Silicon Valley Financial institution.

By 2011, when Mr. Becker was named chief government, the financial institution had expanded to dozens of cities in America and world wide. He noticed a chance to woo start-ups and enterprise capitalists with new choices.

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“When Greg took over as C.E.O., he had a definitive imaginative and prescient for what he needed Silicon Valley Financial institution to be,” stated Timothy Coffey, a financial institution analyst at Janney Montgomery Scott. “He needed to be the center and soul of what we ended up calling the innovation economic system.”

In that, Mr. Coffey stated, he succeeded: “Nothing occurred contained in the Valley that didn’t contain Silicon Valley Financial institution.”

A agency’s founders may hold its money on the financial institution or get a line of credit score, make investments their private wealth, borrow in opposition to their personal inventory and even take out a mortgage for his or her first dwelling there. Silicon Valley usually labored with start-ups that later turned tech giants, engendering loyalty from many founders and enterprise capital traders.

SVB’s bankers have been omnipresent at tech joyful hours and conferences, they usually usually hosted networking occasions and dinners the place shoppers may schmooze. They discovered in regards to the varied tech companies, from synthetic intelligence to local weather, and even helped founders with recruiting.

Based mostly in Santa Clara, Calif., the financial institution had at the very least 5 workplaces within the Valley space, with an aesthetic that one particular person described as “half stainless-steel tech vibe, half V.C. resort vibe.” Wine fridges dotted the workplaces. Guests to the workplace on Sand Hill Street in Menlo Park, the center of the Silicon Valley ecosystem, usually remarked on the show of wines from the vineyards the financial institution had financed.

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From his earliest days as chief government, Mr. Becker stored a good grip on the agency, stated Adam Dean, a former president of SVB Asset Administration who left greater than a decade in the past. “It was the church of Greg.”

Mr. Becker positioned himself as a champion of innovation. In official bios, he described himself “an advocate for entrepreneurs, their traders and corporates within the innovation sector internationally.” He cultivated friendships with enterprise capitalists.

“Greg was all the time searching 5 to 10 years,” stated Mr. Coffey of Janney Montgomery Scott. “He was extra of a V.C. than he was a banker.”

For 1000’s of founders and their enterprise capital backers, SVB turned the financial institution of selection. That was mirrored in its swelling deposits: By the top of 2021, the financial institution held $189.2 billion in deposits up from $102 billion in 2020 and $49 billion in 2018. Its inventory worth roughly tripled from 2018 to 2021.

Flush with money to take a position, Mr. Becker started to construct an funding banking enterprise to advise firms on mergers and preliminary public choices, offers that herald large charges. The financial institution supplied giant pay packages to bankers from larger rivals. It purchased a Boston financial institution for $900 million to handle cash for rich shoppers on the East Coast.

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Regardless of its progress in deposits, the financial institution struggled to search out methods to make cash off them. Banks sometimes make investments buyer deposits in quite a lot of property that they’ll earn a return on, together with a mixture of long-term and short-term bonds issued by the federal government — a largely secure guess.

However SVB determined that authorities debt that got here due over 10 to 30 years — and supplied larger rates of interest on the time — was a greater guess than shorter-duration bonds, which paid much less curiosity, in keeping with analysts. So it made an outsize guess on long-dated bonds, a scarcity of range that elevated its threat.

As of Dec. 31, SVB categorised most of its debt portfolio, or roughly $95 billion, as “held to maturity.” Due to a quirk in banking regulation, the financial institution didn’t should account for fluctuations within the worth of these bonds on its stability sheet.

On common, banks with at the very least $1 billion in property categorised solely 6 p.c of their debt on this class on the finish 2022. However Silicon Valley Financial institution put 75 p.c of its debt as held to maturity, in keeping with a analysis report by Janney Montgomery Scott.

By classifying most of its debt this fashion, SVB was in a position to masks its brewing troubles longer than it in any other case would have been. However as rates of interest rose, traders recalculated the place to place their cash. Enterprise capital investing slowed down. Begin-ups started to withdraw extra money from their accounts.

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The financial institution’s conundrum: If it continued to provide shoppers their a reimbursement, SVB could be stretched for money. But when it offered these long-term bonds, it could have to take action at a loss. As a result of newer bonds have been paying extra curiosity, patrons would buy long-term debt at a reduction from their worth when SVB purchased them.

The issues weren’t instantly seen to analysts as a result of losses on debt portfolios are thought-about paper losses — till they’re really offered at a loss.

It didn’t assist that the financial institution’s chief threat officer, Laura Izurieta, started discussing her retirement in early 2022. She formally left in April however stayed on to concentrate on “sure transition-related duties” till Oct. 1, in keeping with a submitting. On Dec. 27, the financial institution appointed Kim Olson as its new chief threat officer.

At the same time as threat administration appeared to take a again seat, Mr. Becker continued to specific his pleasure over the innovation economic system. “The market remains to be so strong,” he instructed analysts on a convention name early final yr. “There’s a lot potential. There’s a lot dry powder that we stay nonetheless very optimistic.” He dismissed considerations of a downturn.

By summer time, the temper of the economic system had soured. Firms have been halting plans to go public or conserving their money. As Silicon Valley Financial institution welcomed its 2022 class of interns in New York, a deliberate multimillion-dollar renovation of its Midtown Manhattan workplace was on pause, a former worker stated. The air-conditioning was defective. Paint was chipping. And mice have been working throughout the flooring.

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In late February, Mr. Becker sat onstage at midnight theater of the Academy Museum of Movement Footage in Los Angeles, the place SVB was co-sponsoring a convention. Requested by a reporter in regards to the financial institution’s tanking bond portfolio, Mr. Becker stated it had “zero intention” of promoting its underwater securities.

That plan would quickly change.

Shortly after Moody’s warned Mr. Becker of a doubtlessly steep downgrade early within the week of Feb. 27, the financial institution reached out to Goldman Sachs, frantic that there might be a run on the financial institution if it didn’t shore up its funds, an individual with data of the deal stated. It wanted to promote a few of its debt and lift new cash from inventory market traders.

Days after the Moody’s name, the financial institution stated in a March 3 submitting that it could be capable of “maintain total wholesome shopper fund ranges, regardless of stability sheet pressures from declining deposits, elevated shopper money burn and total market surroundings challenges.”

Final Wednesday, the financial institution issued a information launch after the market closed, saying it had offered $21 billion of its debt at a lack of $1.8 billion and was seeking to increase $2.25 billion in new fairness. The funding agency Common Atlantic stated it could purchase $500 million of the financial institution’s inventory.

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That afternoon, and on Thursday, Goldman bankers began pitching traders on shopping for SVB shares. The announcement had spooked traders, who nervous that the financial institution was in deeper hassle than it was letting on. When the markets opened on Thursday, the financial institution’s shares fell steeply.

Silicon Valley woke as much as a blizzard of textual content messages, cellphone calls and Twitter posts in regards to the financial institution’s mounting woes. Shoppers of the financial institution rushed to drag deposits. On Thursday alone, they withdrew $42 billion.

Late morning Pacific time, Mr. Becker bought on a webinar with tons of of traders and legal professionals. The financial institution had loads of liquidity, he stated, however he ended the decision with one caveat: If individuals started telling each other that SVB was in hassle, it could pose a problem, in keeping with individuals briefed on the decision.

When David Selinger, the chief government of the safety agency Deep Sentinel, who had been a Silicon Valley Financial institution buyer for twenty years, noticed that line in a transcript that his lawyer had despatched him, he immediately instructed members of his board that they wanted to drag all their cash from the financial institution.

“It’s like in these phrases he created a prisoner’s dilemma for us,” Mr. Selinger stated. “As a lot love and want we’ve got for SVB, worry got here first.” However by Thursday afternoon, banking regulators together with the F.D.I.C. have been warning SVB that the financial institution may not survive, two individuals briefed on the negotiations stated. The financial institution’s monetary advisers raced to discover a potential purchaser, however none got here ahead.

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On Friday morning, buying and selling in its inventory was halted. By that afternoon, the regulator had seized the financial institution. Mr. Becker’s practically 30-year tenure at Silicon Valley Financial institution was over.

Erin Griffith contributed reporting.

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Column: Examining Trump's lies about what he did with Obamacare and COVID

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Column: Examining Trump's lies about what he did with Obamacare and COVID

My favorite Lily Tomlin line is this one: “No matter how cynical you become, it’s never enough to keep up.”

I love it more today than ever, because it applies so perfectly to how we must respond to the campaign claims of Donald Trump and JD Vance. Especially Trump’s assertions about his role — heroic, in his vision — in “saving” the Affordable Care Act and fighting the COVID pandemic.

I’ve written before about the firehouse of fabrication and grift emanating from the Trump campaign like a political miasma. On these topics, he has moved beyond his habit of merely concocting a false reality about, say, immigration and crime to deliberately concocting a false reality about himself.

Donald Trump could have destroyed [Obamacare]. Instead, he worked in a bipartisan way to ensure that Americans had access to affordable care.

— JD Vance, flagrantly lying about Trump’s management of the Affordable Care Act

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To start by summarizing: Trump did everything in his power to destroy the Affordable Care Act, starting on the very first day of his term in 2017. On COVID, he did everything in his power to make America defenseless against the spreading pandemic.

Let’s take them in order.

Here’s what Trump said about the Affordable Care Act during his Sept. 10 debate with Kamala Harris: “I had a choice to make when I was president, do I save it and make it as good as it can be? Never going to be great. Or do I let it rot? … And I saved it. I did the right thing.”

This was the prelude to his head-scratching assertion that he has “concepts of a plan” to reform healthcare in the U.S. I examined what that might mean in a recent column, in which I explained that it would turn the U.S. healthcare system to the deadly dark ages when people with preexisting medical conditions would be either denied coverage or charged monstrous markups.

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During his own debate Tuesday with Tim Walz, Vance made himself an accomplice to Trump’s crime against truth .

Here’s Vance’s version of the Trumpian fantasy:

“Donald Trump has said that if we allow states to experiment a little bit on how to cover both the chronically ill, but the non-chronically ill … He actually implemented some of these regulations when he was president of the United States. And I think you can make a really good argument that it salvaged Obamacare. … Donald Trump could have destroyed the program. Instead, he worked in a bipartisan way to ensure that Americans had access to affordable care.”

Here’s what Trump actually did to the Affordable Care Act during his presidency. He had made repealing the ACA a core promise of his 2016 presidential campaign, stating on his website, “On day one of the Trump Administration, we will ask Congress to immediately deliver a full repeal of Obamacare.” (Thanks are due to the indispensable Jonathan Cohn of Huffpost for excavating the quote.)

Trump drove down Obamacare enrollment every year he was in office; when Biden removed Trump’s obstacles, enrollment soared.

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(KFF / Kevin Drum)

On Inauguration Day, Trump issued an executive order instructing the entire executive branch to find ways to “waive, defer, grant exemptions from, or delay the implementation of any provision or requirement” of the ACA.

During his presidency, he never abandoned the Republican dream of repealing Obamacare, even after July 28, 2017, when the late Sen. John McCain (R-Ariz.) strode to the Senate well and delivered a thumbs-down coup de grace to a GOP repeal bill.

Trump never ceased slandering the ACA as a “disaster.” He returned to the theme during last month’s debate: “Obamacare was lousy healthcare,” he said. “Always was. It’s not very good today.” As president, he threatened to make it “implode,” and used every tool he could get his fingers on to do so.

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Just after taking office, he abruptly canceled the customary last-minute advertising blitz to encourage enrollments in Obamacare plans before open enrollment ended on Jan. 31. The last minute surge in enrollments, which had occurred every previous year, vanished. The drop-off was particularly devastating because it was concentrated among the healthiest potential enrollees — those who often wait until the last minute to sign up and whose premiums generally subsidize older, less healthy patients.

In September 2017 he slashed the advertising budget for the upcoming open enrollment period for individual insurance policies by a stunning 90%, to $10 million from the previous year’s $100 million. He also cut funds for nonprofit groups that employ “navigators,” those who help people in the individual market understand their options and sign up, by roughly 40%, to $36.8 million from $62.5 million.

The impact these policies had on enrollment was dire. In the three years before Trump took office, ACA marketplace plans experienced annual enrollment increases, to 12.7 million enrollees in 2016 from 8 million in 2014. During every year of the Trump administration, enrollment declined, falling to 11.4 million in 2020.

Every year since Joseph Biden took office, enrollment has increased, reaching a record 21.3 million this year — an 86% increase over Trump’s last year.

As for Vance’s fatuous claim that Trump “worked in a bipartisan way to ensure that Americans had access to affordable care,” you have the right to ask what Vance has been smoking.

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The only bipartisanship on the ACA during the Trump years, Cohn observes, were the actions of GOP senators such as McCain and Lisa Murkowski of Alaska to cooperate with Democrats to stave off their fellow Republicans’ anti-ACA vandalism.

Now onto Trump’s fantasy vision of his role in fighting the COVID pandemic. Speaking in a low-energy, exhausted monotone at a speech Tuesday in Milwaukee and reading at times from a binder, he praised himself for instituting Operation Warp Speed, which funded COVID vaccine development in record time and got them rolled out in January 2021.

“We did a great job with the pandemic. Never got the credit we deserved,” he said. He then veered into blaming China for the pandemic, a familiar topic. He said bluntly that the pandemic was “caused by the Wuhan lab. I said that from the beginning, came from Wuhan. And the Wuhan lab, it wasn’t from bats in a cave that was 2,000 miles away. … It’s really the China virus.”

As for the rest of his COVID performance, he said this: “We did a great job with the ventilators, the masks and the gowns and everything. … When we got here the cupboards, our cupboards, I used to say our cupboards were bare. … No president put anything in for a pandemic.” Then he segued into praising himself for a big tax cut, and COVID was forgotten.

A few points about this spiel:

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Trump is correct that Operation Warp Speed was a significant achievement. But he didn’t continue to support it by advocating for its product, the COVID vaccine. Instead, he has thrown in his lot with fanatical anti-vaccine agitators such as Robert F. Kennedy. He has repeated an anti-vax mantra, promising, “I will not give one penny to any school that has a vaccine mandate or a mask mandate.” This is a formula for exposing children to vaccine-preventable diseases such as measles and even polio.

Trump’s reference to the Wuhan Institute of Virology as the source of SARS-CoV-2, the virus that causes COVID, underscores how closely the so-called lab-leak theory of COVID’s origins is tied to right-wing partisan politics. The theory originated with Trump acolytes at the State Department, who saw the accusation as a convenient weapon in Trump’s economic war with China.

To this day, not a speck of evidence has been produced to validate this claim; scientists versed in the relevant disciplines of virology and epidemiology say the evidence overwhelmingly supports the hypothesis that the virus reached humans via the wildlife trade, and that its journey may well have started with bats thousands of miles from Wuhan, China.

Trump is lying when he says his predecessors in the White House left him without resources. The truth is that Trump himself hobbled pandemic response from the start.

In 2016, in the wake of the Ebola epidemic in Africa, President Obama had established the the Directorate for Global Health Security and Biodefense at the National Security Council “to prepare for and, if possible, prevent the next outbreak from becoming an epidemic or pandemic,” in the words of its senior director, Beth Campbell. Trump dissolved it in 2018.

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During the pandemic, Trump cut off funding for the World Health Organization. He eliminated a $200-million pandemic early-warning program training scientists in China and elsewhere to detect and respond to such threats. He sidelined the White House Office of Science and Technology Policy, which had been established under Franklin D. Roosevelt.

Due to these steps, the U.S. was fated to sleepwalk into the pandemic. The COVID death toll in the U.S. stands at more than 1.2 million, and its reported death rate from COVID of 341.1 per 100,000 population is the highest in the developed world.

Ventilators, masks and gowns? Trump placed the procurement of this essential personal protective equipment in the hands of his son-in-law, Jared Kushner, who handled the task incompetently. Kushner turned away urgent appeals from state and local officials for those supplies.

“The notion of the federal stockpile was it’s supposed to be our stockpile, it’s not supposed to be states’ stockpiles that they then use,” Kushner said at a briefing.

Following his remarks, the website of the government’s national strategic stockpile of medicines and supplies was changed from asserting that its purpose was to “support” the emergency efforts of state, local and tribal authorities by ensuring that “the right medicines and supplies get to those who need them most.” The new language redefined the stockpile’s role as “to supplement state and local supplies … as a short-term stopgap.”

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Supplies of ventilators, masks and gowns remained scarce through the first months of the pandemic. A procurement official at a Massachusetts hospital system told me of having had to cut a deal with a shadowy broker offering 250,000 Chinese-made masks at an inflated price, completing the transaction for $1 million at a darkened warehouse five hours from home.

Trump made anti-science incompetence and disregard for the welfare of Americans part of our history. The same thing, or worse, looms on the horizon in a second Trump term.

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Albertsons to pay $3.9 million over allegations it overcharged, lied about weight of groceries

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Albertsons to pay .9 million over allegations it overcharged, lied about weight of groceries

Grocery titan Albertsons will pay $3.9 million to resolve a civil law enforcement complaint alleging that it ripped off customers at hundreds of its Vons, Safeway and Albertsons stores in California, authorities said Thursday.

According to the complaint, groceries sold by Albertsons Cos. — including produce, meats, baked goods and other items — had less product in the package than indicated on the label. The company also is accused of charging customers prices higher than its lowest advertised price.

“False advertising preys on consumers, who are already facing rising costs, and unfairly disadvantages companies that play by the rules,” L.A. County Dist. Atty. George Gascón said. “This kind of corporate conduct is especially egregious when it comes to essential groceries, as Californians rely on accurate advertised prices to budget food for their families.”

The case was filed in Marin County Superior Court in partnership with the consumer protection units of the district attorney’s offices of Los Angeles, Marin, Alameda, Sonoma, Riverside, San Diego and Ventura counties.

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The settlement will be divided among the seven counties and used to support future enforcement of consumer protection laws, according to the Marin County district attorney’s office. None of the money will be paid back to consumers.

The fine comes just over a year after the same company was ordered to pay $3.5 million for selling expired over-the-counter drug products. The company is also currently fighting a federal antitrust lawsuit that seeks to block its planned merger with grocery giant Kroger Inc.

Albertsons Cos. operates 589 Albertsons, Safeway and Vons stores in California. The company did not admit wrongdoing. It cooperated with the investigation and has taken steps to correct the violations, according to the L.A. County district atttorney’s office.

In a statement on the settlement, the company said it takes the matter seriously and is committed to ensuring its customers can shop with confidence.

“We have taken steps to ensure our price accuracy guarantee is more visible to customers by posting signage at multiple locations at the front of our stores,” the company stated. “We have conducted additional comprehensive training for associates to reinforce the importance of price accuracy and customer transparency. Additionally, we have enhanced price tracking systems to better ensure real-time accuracy at stores.”

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Prosecutors in the lawsuit alleged that the company failed to implement a price accuracy policy ordered by a court in 2014.

The policy requires that customers who are overcharged for an item either receive the item for free or receive a $5 gift card, depending on which option is worth more. It is designed to encourage customers to immediately report false advertising.

Under the judgment reached Thursday, the grocery giant must implement this policy and ensure staff are properly trained to place accurate weight labels on products.

The serial overcharging was discovered through inspections by Marin County’s Department of Agriculture, Division of Weights and Measures and its counterparts across the state.

“We could not have achieved this result without the outstanding work of our Weights and Measures inspectors as well as vigilant consumers,” said Deputy Dist. Atty. Andres Perez, who prosecuted the case for Marin County.

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For the next three years, Albertsons Cos. is required to hire an independent auditor to ensure it is complying with the terms of the judgment.

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Disney faces class action lawsuit over employee data breach

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Disney faces class action lawsuit over employee data breach

Walt Disney Co. has been hit with a class action lawsuit accusing the Burbank-based entertainment giant of negligence, breach of implied contract and other misconduct in connection with a massive data breach that occurred earlier this year.

Plaintiff Scott Margel submitted the complaint on Thursday in Los Angeles County Superior Court against Disney and Disney California Adventure. The 32-page document also accuses the company of violating privacy laws by not doing enough to prevent or notify victims of the extent of the leak.

The class members, estimated to number in the thousands, are described in the complaint as individuals who gave “highly sensitive personal information” to Disney in connection with their employment at the company — information that was allegedly compromised in the breach.

Representatives of Disney did not immediately respond Friday to The Times’ request for comment.

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The lawsuit cites an article published in September by the Wall Street Journal, which reported that a hacking group known as NullBulge publicly released data spanning more than 18,800 spreadsheets, 13,000 PDFs and 44 million internal messages sent via the workplace communication platform Slack.

According to the Journal, the compromised Slack messages contained sensitive information belonging to Disney cruise employees, including passport numbers, visa details, birthplaces and physical addresses; at least one spreadsheet listed the names, addresses and phone numbers of some Disney Cruise Line passengers. The publication later reported that Disney planned to stop using Slack after the breach.

The plaintiff and class members “remain, even today, in the dark regarding which particular data was stolen, the particular malware used, and what steps are being taken, if any, to secure their [personal information] going forward,” the complaint reads.

The plaintiff and class members “are, thus, left to speculate as to where their [data] ended up, who has used it and for what potentially nefarious purposes.”

In July, NullBulge said that it had leaked roughly 1.2 terabytes of Disney data in rebuke of the company’s treatment of artists, “approach to AI” and “pretty blatant disregard for the consumer.” The self-proclaimed hacktivists told CNN that they were able to penetrate Disney’s system thanks to “a man with Slack access who had cookies.”

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A Disney spokesperson said in a statement at the time that the company was “investigating this matter.”

Margel is demanding that Disney take steps to reinforce its security system and educate class members about the risks associated with the breach. The plaintiff is also seeking unspecified damages and a jury trial.

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