Business
The ‘Lasting Damage’ of Pirro’s Investigation of the Federal Reserve and Powell
The Justice Department’s criminal investigation of the Federal Reserve and its chair, Jerome H. Powell, appears to be over. But the ramifications for the central bank are likely to prove much longer lasting.
Nine months after President Trump made a hasty visit to the Fed’s Washington headquarters and promised to “take a look” at a costly renovation, the administration has concluded its inquiry with seemingly nothing to show. Far from the criminal charges that they once pursued, prosecutors left in their wake a dark cloud over the institution and the person Mr. Trump has chosen to next lead the central bank.
The about-face has removed, for now, the immediate threat of a further escalation against the Fed. It has also potentially cleared a path for Mr. Trump’s nominee for Fed chair, Kevin M. Warsh, to succeed Mr. Powell, whose term ends on May 15.
What will be far harder to recoup is confidence in the Fed’s ability to operate independently from a White House that has shown little restraint in its efforts to bully the central bank into slashing interest rates.
Even as Jeanine Pirro, the U.S. attorney for the District of Columbia, announced that the investigation was shutting down, she warned that she would “not hesitate” to reopen the inquiry if warranted. Ms. Pirro added that she had asked the Fed’s inspector general to take over the investigation, even though the internal watchdog had been looking into the matter since July.
Karoline Leavitt, the White House press secretary, said on Friday that the investigation “still continues” and was simply being taken up “under a different authority.”
Kathryn Judge, a Columbia Law School professor who was a Supreme Court law clerk for Justice Stephen G. Breyer, said she feared “lasting damage” from the investigation into Mr. Powell — not only for the Fed but for policymakers across government.
Until now, she said, officials did not have to worry about repercussions from “taking a strong stance on policy issues in ways that are inconsistent with the president’s agenda.” But that was the sort of pressure that Mr. Powell faced as Mr. Trump sought to force rates down.
Although the Fed cut rates last year, it did not deliver the kind of relief that Mr. Trump wanted. Since January, it has also turned cautious on subsequent reductions, a sentiment that has only grown amid the war in Iran, which has caused an acute energy shock.
“The Fed, so far, has proved resilient in ways that have proved quite helpful for the broader economy,” Ms. Judge said. She added that the country “cannot take for granted” that the Fed “will continue to prove resilient as it takes hit after hit from this administration.”
Since returning to the White House for a second term, Mr. Trump has been consistent in his desire to have more sway over the Fed, which has long set rates free from political meddling. That ability is critical, given the powerful role the central bank plays guiding the economy and ensuring low, stable inflation and a healthy labor market.
For a time, the president’s attacks had largely played out in news conferences and on social media. At one point, he flirted with firing Mr. Powell, but never took that step.
Yet Mr. Trump’s decision in August to try to oust Lisa D. Cook from the Fed’s Board of Governors over unsubstantiated allegations of mortgage fraud was a serious escalation, one now in the hands of the Supreme Court. The investigation by the Justice Department, which specifically targeted Mr. Powell and became public in January, crossed yet another threshold, quickly touching off widespread outrage.
In a rare video, Mr. Powell called out the administration for trying to leverage legal threats to coerce the Fed into lowering rates and warned about the institution’s ability to carry out its duties independently. Democrats and Republicans on Capitol Hill echoed those concerns, with many demanding that Mr. Trump back off.
Mr. Trump’s actions proved especially unpalatable to Senator Thom Tillis of North Carolina, a Republican on the Senate Banking Committee. Mr. Tillis coupled his criticism with a threat to block any future nominee to the Fed until the investigation into Mr. Powell was resolved. Republicans have a slim 13-to-11 majority on the Banking Committee, giving Mr. Tillis the ability to throw a wrench into confirming Mr. Trump’s pick.
The investigation, therefore, created an immediate problem for Mr. Trump. In his quest to oust Mr. Powell, his administration had essentially complicated the very work to replace the chair with Mr. Warsh.
Since clinching the nomination, Mr. Warsh has faced intense scrutiny about how he would lead the Fed if confirmed by the Senate and whether he would defend its independence. At his confirmation hearing on Tuesday, Mr. Warsh had to repeatedly dispel doubts that he would operate as Mr. Trump’s “sock puppet,” given the president’s insistence during the selection process that he would choose only someone who supported lower rates.
Mr. Tillis had made it clear that he backed Mr. Warsh and would vote for him to be confirmed if prosecutors dropped what he called the “bogus” charges. As of late Friday, Mr. Tillis had not indicated if Ms. Pirro’s announcement — with its caveat that she could reopen the case — was sufficient.
Mr. Powell has said he will remain chair until the Senate confirms his replacement. A bigger question is whether he will serve out his term as governor, which runs through January 2028. That would give him a vote at every policy meeting while denying Mr. Trump a vacancy to fill with someone he believes will cut rates.
Mr. Powell previously said he would not leave the Fed “until the investigation is well and truly over, with transparency and finality,” but Ms. Pirro’s announcement on Friday may have fallen short of that threshold.
Peter Conti-Brown, an expert on Fed governance at the University of Pennsylvania, said Mr. Powell’s insistence on a clear, certain end to the investigation was about “not just about protecting himself but about protecting the Federal Reserve.”
“If this becomes a tried-and-true path to bully a central banker out of office, then we will see its invocation again,” said Mr. Conti-Brown, who added that the investigation had already proved damaging in other ways.
“I think it’s shaken to the core central bankers’ willingness to experiment,” he explained. He added that continued pressure would leave Fed policymakers inclined toward “fighting whatever comes their way using the tools that strike them not as best suited” but rather as “least controversial.”
On July 9, the Trump administration delivered a gift to Cadiz Inc., a politically well-connected firm that has been trying for decades to win approval for a scheme to pump water out of the Mojave Desert and market it to water agencies across the Southland.
The administration approved the company’s application to convert an abandoned 220-mile oil and gas pipeline crossing the desert to carry water instead. Susan Kennedy, the chief executive of Cadiz, called the approval “a pivotal milestone” that would enable the project to move into its construction stage.
Here’s betting that Kennedy’s statement was somewhat premature. The project still faces significant opposition from environmentalists, local Indian tribes and the state of California. It has been declared ready to go — and declared dead, too — so often that it could serve as a character in a zombie movie or streaming series.
I haven’t seen anything to persuade me that there’s not going to be any environmental damage.
— Ileene Anderson, Center for Biological Diversity
Indeed, this is the second time that Trump has greenlighted this project. He did so during his first term, but his decision was overturned during the Biden administration; Trump’s most recent approval overturned that action — but there’s no promising that the next president, whoever that is, won’t overturn this one.
I’ve been covering the Cadiz project for nearly 25 years, starting in 2002; I take credit for helping to put the kibosh on a proposal for the Metropolitan Water District, which supplies water to 13 million Southern California residents, to partner with Cadiz.
In fact, there’s reason to wonder whether Cadiz itself still wants to do the project, even though in the past it described it as its potential corporate lifeblood.
Last year Cadiz reported that nearly 90% of its revenue stemmed from the sale of water filtration equipment manufactured by ATEC, a Hollister firm it acquired in 2022. That segment is its only profitable operation, though the $2.5 million in operating income the unit produced in 2025 was swamped by losses in its other operations — mostly the sale of fruits and vegetables grown on its desert tract — producing an overall loss of $25.6 million. The company has never reported a profit.
Kennedy told me this week that she now sees the water treatment business as “the future of our company — an enormous market opportunity.” She said “demand for filtration is skyrocketing,” with cleansed stormwater “the biggest source of new water supply.” Cadiz has doubled its manufacturing capacity for the equipment, and “we expect to double again.” The company has also signed an agreement to produce hydrogen at its desert site by installing a solar array for power.
Meanwhile, Cadiz is taking steps to hive off the infrastructure it has planned to use for its water project, mostly two unused pipelines, into a special purpose subsidiary. These entities are typically aimed at insulating the parent company from the risks and liabilities of a speculative investment.
In this case, Kennedy told me, the idea is to open the water project more broadly to outside investors.
In practice, that means that the pipelines Cadiz proposes to use to transport desert waters to urban, industrial and agricultural users would fall into the hands of private equity firms, which haven’t been known as a class for their devotion to the public interest. Cadiz would end up with a minority stake in the pipelines, Kennedy says.
Transporting water out of the desert faces so many headwinds that it may make more sense to divest the business and shift over into less controversial enterprises, like filtering poisonous minerals out of reclaimed stormwater and producing hydrogen.
It’s worth reacquainting ourselves with the company’s discreditable history. The Cadiz project was the brainchild of British-born Keith Brackpool, who had a checkered record as an investment promoter. As I wrote in 2002, he pleaded guilty in London in 1983 to criminal charges that included dealing in securities without a license.
Brackpool’s pitch was that by stockpiling water from the Colorado River under the Cadiz sands in years when a surplus was available and delivering it during droughts, the company could assuage the supply crisis confronting Southern California.
I wrote years ago that the project boasted “a sort of shimmering authenticity” — if one didn’t look too closely. Yes, the state faces a long-term water shortage. But the problem is that there’s no surplus water in the Colorado available for California. Cadiz has never made a conclusive case that it could withdraw as much water from its desert tract as it proposed without draining its underground aquifer to a dangerous level or causing its contamination with carcinogenic minerals.
After he started pitching the project in the mid-1990s it began to look as though the company’s principal asset was political juice. Former Rep. Tony Coelho, an important Democratic Party fundraiser, served on the Cadiz board. Cadiz and Brackpool were leading campaign contributors to former Gov. Gray Davis, who was thought to be the source of pressure on the Metropolitan Water District to make a deal with Cadiz. Brackpool hobnobbed with former Los Angeles Mayor Antonio Villaraigosa, who received campaign contributions from him and Cadiz. (Brackpool is no longer associated with Cadiz.)
Kennedy herself had been associated with Cadiz since before she became chief of staff to former Gov. Arnold Schwarzenegger in 2005. Before her appointment, and while she was serving on the state Public Utilities Commission, the firm paid her $120,000 in consulting fees. In 2009, Schwarzenegger endorsed the water scheme as “a path-breaking, new, sustainable groundwater conservation and storage project.”
For years, Cadiz shares traded as a sort of plaything for water investors hoping for a big score over the horizon — what craps players call “betting on the come.” In this case the bet is on the distant prospect that government approvals would eventually make the project real.
For these players, the investments tended to be cheap compared to the potential gains. The largest shareholder of Cadiz, with a 35% stake, is Netherlands-based Heerema International Services, a global industrial infrastructure company. Its holding is worth about $115 million at the current stock price — peanuts for a company that collects revenue of about $5 billion a year.
Then there’s Trump. In March 2017, his Interior Department reversed two Obama administration rulings that had blocked Cadiz’s ability to use a 43-mile pipeline to carry water from the desert to Southern California users. Biden’s Interior Department canceled those rulings. The July 9 action applies to a separate 220-mile pipeline.
In its recent ruling, the Interior Department’s Bureau of Land Management stated that the pipeline conversion would have “no significant impact … on the quality of the human environment” and therefore no environmental impact statement was even needed.
Environmental groups and other plaintiffs who have been fighting the project are “looking at all our options” for legal challenge, says Ileene Anderson, a senior scientist at the Center for Biological Diversity, a plaintiff in lawsuits challenging the project. “I haven’t seen anything to persuade me that there’s not going to be any environmental damage,” she says.
When I spoke with Kennedy in January 2024, a few weeks after she took over as Cadiz CEO, she acknowledged that the company’s name had become a “poison pill.” Her plan was to “change the company so people think about it differently.”
At that time, this amounted to refocusing its water supply program on serving users in San Bernardino County rather than urban users throughout Southern California. The idea was to counteract what she called a “political” claim that its goal was to drain the desert to “fill swimming pools in L.A.”
Kennedy didn’t mention ATEC then, but she talks about it today with unalloyed enthusiasm. Indeed, she asserted that the water filtration and hydrogen production businesses together could use as much of the company’s available water as it would pipe miles across the desert.
Kennedy is correct to maintain that government, which once built Hoover Dam, the Central Valley Project and Glen Canyon Dam as crucial pieces of our water infrastructure, “has gotten out of the business.”
But it’s wrong to say that it’s because government can’t afford such projects. Ceding them to private equity is a choice. Given Americans’ dependence on water as a life-giving commodity, do we really want to establish private firms as toll-takers on the water highway, permitted to charge what they wish to maximize their profits? Cadiz may be beating a path to that future, but it may not be a happy journey.
Hollywood’s fascination with YouTube creators is going to the next level.
Los Angeles-based investment firm Content Partners and media entrepreneur Ed Simpson announced Tuesday that they are launching a new company, Wonderloom Media, that will acquire YouTube-creator led businesses.
Wonderloom’s first acquisition is YouTube true-crime channel Dr. Insanity, which has more than 5 million subscribers and more than 1.3 billion total views.
Content Partners owns or licenses more than 800 films and more than 3,000 hours of television content. The company co-owns the “CSI” franchise.
“This is a kind of next step evolution in the type of IP we will be acquiring,” Alphonse Lordo, a partner at Content Partners, said in an interview.
The effort comes as the film industry continues to struggle to bring more people into movie theaters and has had recent success with the YouTube creator-led films “Obsession” and “Backrooms.” As studios and TV networks have shed jobs over the years, more entertainment workers are applying their expertise at major YouTube creator-led businesses, which have continued to grow their audiences.
YouTube’s audience has shifted from smartphones to TVs, on which many U.S. consumers watch YouTube videos with their families. That in turn has attracted streamers such as Netflix to partner with YouTube creators to bring their content to the same platform that has high-budget television shows and movies.
Simpson, a former TV producer who will be Wonderloom’s chief executive, said Dr. Insanity was the “perfect first acquisition” because it had a loyal audience, proven storytelling and meaningful room to expand. “True crime is an incredibly sticky genre of programming that works just as well as it does on YouTube, as it does on Netflix and linear and cable channels,” he said in an interview.
Financial terms of the deal were not disclosed.
Wonderloom, based in L.A., also will assist entrepreneurs who started YouTube channels grow their businesses.
The new company also is eyeing possible acquisitions in food, travel and general entertainment programming, added Simpson, a former chief strategy officer at Wheelhouse, a production firm behind “America’s Sweethearts: Dallas Cowboy Cheerleaders.”
“This is about building the next generation studio, so we think of this as the beginnings of Paramount, of Warner Bros., of those great studios,” Simpson said. “We see this space following in that very same pattern right now.”
Other Hollywood companies also are getting into the creator business acquisition space. Last month, Century City-based Creative Artists Agency said it was partnering with Integrated Media Co. to form a $250-million holding company called Compound Creative Holdings that will acquire and operate a portfolio of creator economy businesses.
Netflix is going bite-sized. In a pivot toward the short-form content dominating TikTok and YouTube, the streaming giant announced it will start hosting three- to 20-minute videos from top digital publishers right on its homepage starting Aug. 3.
The streamer said U.S. customers will see “fan-favorite videos” from brands run by digital publishers, including BuzzFeed Studios, Condé Nast, Hearst Magazines, PMX (a subdivision of Penske Media), People Inc. and Tastemade. The videos will cover a variety of topics, including gardening tips, travel and celebrity profiles.
The rollout comes as Netflix competes for audience time from YouTube and social media platforms such as TikTok that have viral videos that can occupy users for hours. By bringing series such as BuzzFeed Celeb’s “30 Questions,” on which celebrities provide answers, or Vanity Fair’s “Lie Detector,” on which celebrities are hooked up to polygraph machines, Netflix users can learn more information about the people they already watch on the streamer, but in shorter videos.
“Members don’t just want to watch a show or film and move on. They want to keep exploring the stories and personalities they love long after the final credits roll,” said John Derderian, a Netflix vice president overseeing the initiative. “These partnerships help us deepen fandom and create more ways for members to carry those stories with them throughout their day.”
Netflix said it will offer licensed archival and ongoing series, including Harper’s Bazaar’s “Burning Questions,” Billboard’s “24 Hrs With” and People’s “My Life in Pictures” that provide an inside look at celebrities.
The videos from digital publishers will also be available to Netflix customers in Canada, the United Kingdom, Ireland, Australia and New Zealand on Aug. 3.
The Los Gatos, Calif., streamer over time has been expanding its library of content, adding games, live programming such as boxing matches and football games, alongside movies and TV shows.
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