OPIOID

October 9, 2017

AVENGER
THE LAWYER WHO BEAT BIG TOBACCO
IS GOING AFTER BIG PHARMA p40
 October 9, 2017

3
SALVADOR BANYÓ TRESENS

10  Catalans take to the streets in Barcelona on Oct. 3

 CONTENTS Bloomberg Businessweek October 9, 2017

 IN BRIEF
8 ○ Germany has its first gay wedding ○ Maria wipes out Puerto Rico; Trump comments “wipe out” its bonds

 REMARKS  VIEW
13 Only American voters
10 Adiós, España? Or rather: Adéu, Espanya? can stop American gun
massacres
12 Eastern European populists promise more
EU discord

BUSINESS TECHNOLOGY FINANCE

1 2 3
15 Don’t worry, baby 20 Virtual prison visits 24 In the suburbs
boomers. Best Buy are awfully cruel— of Denver,
will take care of Mom and awfully profitable homeowners may
be fracked
17 Adidas introduces the 21 Venture capitalists foot
Speedfactory to keep its the bill for Silicon Valley’s
4 26 What really happened
shoes racing into stores favorite socks
at Equifax

18 India’s utilities find a way to 23 Where Apple hunts

thwart electricity thieves—
by hiring their mothers and
sisters to make them pay
28 A Trump tax break would
for talent
encourage multinationals
to invest profits in the U.S.
(Psst—they already do)

ECONOMICS POLITICS
4 5
40 “Litigation
is a blunt 30 Outside Vancouver, 35 The White House
instrument; the Tsawwassen counsel vs. the
it’s not a Nation is telling a president’s lawyer
surgical tool. Canadian success
36 Unhappiness in Gujarat spells
But it provokes story trouble for Narendra Modi
interest quicker 33 The commodity boom
38 Trump tries killing
than anything has run its course in
Obamacare with a
Australia. What’s next?
I’ve ever seen” thousand cuts

39 Hidden Hand: Mitch

McConnell’s man at
Energy really digs coal
 CONTENTS Bloomberg Businessweek October 9, 2017

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  IN BRIEF

Americas Asia
○ A day after President ○ Canadian grocer Metro ○ Secretary of State ○ King Salman
Trump told Fox News Puerto agreed to buy pharmacy Rex Tillerson deflected
Rico’s debt would be wiped chain Jean Coutu for rumors that he’d called became the first
out, which sent bond prices Trump a “moron” and monarch from
plummeting, his budget
director, Mick Mulvaney,
told CNN not to take the
president’s statement
$3.6b intended to resign—
less than a week after
Tom Price stepped down
as secretary of Health
Saudi Arabia to
visit Moscow.
“word for word.” and Human Services. The oil-rich nation
and Russia are
both keen to cut
petroleum output
to stabilize crude
prices.

○ ○ Warren Buffett’s Berkshire ○ An estimated

Hathaway bought 39 percent

8
of truck stop empire Pilot
Travel Centers. Buffett, who
described the deal as a long
position on the U.S. economy,
700m
people in China—roughly
also arranged to buy an half the population—traveled
additional 41 percent stake for the country’s so-called
in 2023. Golden Week holiday,
which commemorates the
PRICE: JACQUELINE LARMA/AP PHOTO; TILLERSON: WIN MCNAMEE/GETTY; NISSAN: COURTESY NISSAN; WEDDING: STEFFI LOOS/GETTY IMAGES;
MUSEVENI: JIRO MOCHIZUKI/IMAGE OF SPORTS/NEWSCOM/ZUMA PRESS; LAS VEGAS: MATT MCCLAIN/THE WASHINGTON POST/GETTY IMAGES

founding of the People’s

Republic in 1949.

○ Tesla said it had ○ Business

manufactured only
confidence in

260
of its highly anticipated
Japan hit a 10-year
high as economic
stimulus measures
Model 3 sedans in the
quarter ended Sept. 30, spurred growth.
though it had promised 1,500.

A woman visits the site in Las Vegas where more than 500 people were injured The momentum is expected to give
when a gunman rained bullets on an outdoor concert the night of Oct. 1. Prime Minister Shinzo Abe, the
Three days later, police still hadn’t determined a motive. With 59 killed, it architect of the fiscal program, a
was the deadliest mass shooting in modern American history.  13 boost in the Oct. 22 general election.
By Kyle Stock
○ Nissan voluntarily recalled
all 1.2 million passenger cars
sold in Japan in the last three
years after it discovered
final inspections on them
may not have been handled
by authorized technicians.
The program is expected to
cost $222 million.
○ India’s central bank revised
its 2018 growth estimate
downward, to a four-year low
of 6.7 percent.  36
○ Australian
investigators
called for systems
to better track
overseas flights
such as Malaysia
Airlines 370, which
vanished almost
four years ago.
Bloomberg Businessweek
Europe
○ “Boris told me
to do it.”
Serial prankster Simon Brodkin joked as he interrupted U.K. Prime Minister Theresa May to hand her a P45—the form
workers in Britain receive when they leave their jobs—during a disastrous speech to the annual Conservative Party
Conference. Foreign Secretary Boris Johnson has been a thorn in May’s side during Brexit negotiations.
○ Karl Kreile and Bodo
Mende were married in Berlin
on Oct. 1, the first same-
sex ceremony to be legally
recognized by Germany.
○ French lawmakers
pushed forward a sweeping
counterterrorism bill that
would make it easier to seize
and search suspects without
judicial review. Many of the
measures were approved
on a temporary basis
after the Paris attacks in
November 2015.
October 9, 2017
○ The European ○ The British government
began ferrying home 110,000
Union ordered people who were stranded
Luxembourg abroad when Monarch
Airlines ceased operations.
to collect 9
The repatriation effort,
$294 million in involving 34 chartered
planes, will cost almost
unpaid taxes from
Amazon.com.
The demand is part of a larger
$80m
crackdown on sweetheart deals cut
between member states and tech
giants. The EU also promised to take
Ireland to court over its lax taxation
of Apple.
Africa
○ The South African stock ○ Two members of the
market is on pace for another Uganda Parliament were
year of record outflows as unharmed in grenade attacks
investors flee a weakening on their homes. Both oppose
rand and anemic growth. a measure to change age
limits that would allow
60b* President Yoweri Museveni,
now 73, to pu i th
ursue a sixth
0 term in office.
e.
-60
-120
2005 2017
*IN RAND
  REMARKS
10
Anatomy of
○ Barcelona and Madrid survived
the tough times together, but even as
Spain’s economy improves, their union
is disintegrating
○ By Peter Coy
As recently as July, secessionists in Catalonia seemed to be in
retreat. Spain was the fastest-growing of continental Europe’s
big four economies, creating jobs at a rapid clip. A poll that
month by the Catalan government showed that support for
a Bad Marria
independence had fallen to 35 percent, its lowest level since
2012. It appeared that Enric Millo, the Spanish government’s
representative in Catalonia, might have been right when he
predicted in 2012 that once removed from the flame of finan-
cial crisis, “separatism would sink like a soufflé.”
What’s sinking instead is the reputation of Prime Minister
Mariano Rajoy. Acting on his orders, Spanish police used batons
and rubber bullets against those who took part in an Oct. 1 ref-
erendum on independence that Spain’s constitutional court had
declared illegal. Hundreds were injured in the melees.
The Catalan government claimed that despite Madrid’s
attempts at suppression, 2.3 million people voted—about
42 percent of the total electorate—and about 90 percent of
them chose to separate from Spain. The Spanish government
cast doubt on the result, pointing out that the referendum, in
  REMARKS Bloomberg Businessweek
ge
addition to being illegal, lacked certified voter lists and wasn’t
overseen by an official election board. And many of those who
opposed secession heeded Madrid’s reminder that the vote
was illegal. Spain’s King Felipe VI said in a televised address
that separatist leaders showed “unacceptable” disloyalty.
The groundswell of separatist sentiment in Catalonia has
shown Spain and the world that money isn’t everything. A
strengthening economy may have quelled Catalan nationalism
a bit, but the desire many have for independence had deeper
EMILIO MORENATTI/AP PHOTO
sources and never went away. Then Rajoy, playing to his conserva-
tive base, badly miscalculated. He thought a show of force would
keep voters at home. But his attempt to stop the vote just pushed
more Catalans into the separatist camp. “In the longer term,
the divisions in Spain become more entrenched,” says Antonio
Barroso, a political risk analyst at Teneo Intelligence in London.
October 9, 2017
Economics probably did matter in Catalonia, just not in
the way that Spanish optimists were thinking. The reality is
that the region hasn’t fully recovered from the global financial
crisis, which pushed the economy into a double-dip recession
and sent unemployment in the so-called autonomous com-
munity as high as 24 percent. (It’s still more than 13 percent.)
“The financial crisis brought to the fore the fact that so much
of our money is transferred” to the central government, says
Jordi Galí of Barcelona’s Center for Research in International
Economics, known by its initials in the Catalan language, CREI.
“In a context of high growth and prosperity, this may be more
easily forgotten. But during the crisis the Catalan government
had to undertake huge cuts in services: health, education.”
The transfers issue might not have been enough to stir
secessionism all by itself. After all, there’s little call in Connecticut
to break away from the U.S. even though the state gives more
than it gets. The difference is that the northeastern corner of
Spain has its own language, traditions, and aspirations to national
greatness. Its history is a seesaw of autonomy and what some see
as subjugation. Catalans still commemorate the fall of Barcelona
to King Philip V of Spain on Sept. 11, 1714. In 1939 the city fell
to the Nationalist forces of Francisco Franco, who suppressed
Catalan culture during his 36-year rule.
In recent years, independence-minded Catalans have focused
their anger on a 2010 ruling by Spain’s constitutional court that
erased parts of a legislative deal that accorded the region broad
autonomy. In 2012 the Catalan economist Xavier Sala-i-Martin
likened Spain to a possessive husband who reacts wildly when
11
his wife asks for a divorce. “We Catalans have tried to explain
during 30 years that we were uncomfortable and the replies have
been no’s, scorn, indifference, and contempt. And now they’re
surprised!” the Columbia University professor wrote on his blog.
The marriage is far worse now. “People are extremely disap-
pointed, and I would say shocked, by the activities of the Spanish
police,” says Giacomo Ponzetto, an Italian who teaches at CREI in
Barcelona. “It was absurd, unacceptable behavior, and I would
add extremely stupid.” Stupid as in self-defeating, he says. “The
Catalan government was looking for this. It’s very obvious. They
wanted to provoke a response.”
Like it or not, Catalonia has been very much part of Spain—not
least because it’s a fifth of the national economy. It exports more
to the neighboring region of Aragon than to France, and more to
Madrid than to Germany or Italy, says Pankaj Ghemawat, who
teaches at the New York City branch of IESE Business School,
which also has campuses in Madrid and Barcelona.
Many economists think Catalonia would be worse off eco-
nomically on its own. The outcome hinges on whether it would
assume a share of Spain’s national debt, whether it would be
permitted to join the European Union and adopt the euro, and
how much it would cost to replicate services—such as defense—
it gets from Madrid. Further complicating matters, Spain could
throw up legal obstacles to secession. One reason many Catalans
have shied from independence in the past is that they weren’t
ready to take a leap into the unknown.
But the violence that marred the Oct. 1 vote has focused
Catalans’ minds on issues other than euros. “At some point
the economic considerations start to be irrelevant and iden-
tity becomes paramount,” says Ghemawat. On Oct. 1, he says,
“we took a giant step in that direction.”  —With Charles
Penty and Esteban Duarte
  REMARKS Bloomberg Businessweek
For Europe,
More Tensions
Grow in the East
○ Catalonia may only be a beginning.
Another Brexit-like rupture could be
waiting in the wings
○ By John Micklethwait
Some of the great moments of history sneak up on business-
people. Two years ago, Britain looked to be Europe’s most
economically rational country; now its companies seem to be
rolling from one economic earthquake to another, with Brexit
looking increasingly likely to be followed by the election of a
near-Marxist prime minister, Jeremy Corbyn.
12
Looking back, two things stand out. First, there were some
deep underlying “irrational” causes that business ignored,
such as the pent-up anger against immigration and global-
ization. Second, there was a string of short-term political
decisions that proved to be miscalculations. For decades,
for example, attacking the European Union was a “free hit”
for British politicians. If David Cameron had it to do over
again, would he really have made the referendum on whether
to stay in it a simple majority vote (or indeed called a vote
at all)? Does Angela Merkel now regret giving Cameron so
few concessions before the Brexit vote? Would the moderate
Labour members of Parliament who helped Corbyn get on
their party’s leadership ballot in the name of political diver-
sity really do that again?
Now, another rupture may be sneaking up on Europe,
driven by a similar mixture of pent-up anger and short-term
political maneuvering. This one is between the old West
European democratic core of the EU, led by Merkel and
increasingly by Emmanuel Macron, who are keen to inte-
grate the euro zone, and the populist authoritarians of Eastern
Europe, who dislike Brussels. This time the arguments are
ones about political freedom and national sovereignty.
Later this month it looks likely the Czechs will have a new
Trumpian prime minister—Andrej Babis, a populist billionaire
who wants to send Arab immigrants back home and prom-
ises to make the government work as well as his businesses
do. To be fair to Babis, he’s a rather more subtle figure than
the American president (not to mention a more successful
businessman). He is, for instance, careful to emphasize his
respect for the judiciary and, on immigration, he welcomes
newcomers from Ukraine, pointing out that he himself comes
from Slovakia. His main appeal is efficiency (he fumes about
October 9, 2017
his former coalition partners playing with their phones in
cabinet meetings).
However, Babis is plainly opposed to increased European
integration of the sort that Macron wants and is also against
Brussels meddling in Eastern Europe. That means that, what-
ever the subtleties of Babis’s relatively centrist brand of pop-
ulism, he is likely to be bundled in with Viktor Orban of
Hungary and Jaroslaw Kaczynski of Poland as part of Europe’s
authoritarian fringe.
Kaczynski is not the formal leader of Poland, but he runs
the right-wing Law & Justice Party that holds both the presi-
dency and the premiership (which he’s delegated to others). A
fierce critic of Merkel, especially on immigration, he’s at almost
permanent war with the EU, with his battles ranging from
institutional—after Brexit, he called for powers to be returned
from Brussels—to the personal—he tried (unsuccessfully) to stop
his more conciliatory fellow Pole, Donald Tusk, from becom-
ing president of the European Council. For the EU’s part, Frans
Timmermans, a European Commission vice president, is for-
mally investigating Law & Justice’s judicial “reforms,” which
look like an attempt to clear out any unsympathetic judges, and
its interference in the press. At its worst, this could mean trig-
gering Article 7, which would suspend Poland’s voting rights
on the European Council.
Kaczynski once boasted that he would make Warsaw into
Budapest. That reflects how Hungary’s Orban has led the
way. A far more diplomatic figure than Kaczynski, Orban,
who once was an anti-Soviet firebrand, also stands accused
of reining in the judiciary and besmirching his opponents
(including the EU): His government is currently circulating a
publicly funded “national consultation,” a piece of cartoon
propaganda about what it calls the “Soros plan,” whereby
the EU would implement a dastardly scheme of Hungarian-
born financier George Soros to dismantle Hungary’s anti-
migrant border fences and pay migrants to come to Europe.
But Orban has generally been smarter than his Polish disci-
ple about retreating before the EU takes any action. Despite
opposition posters depicting him and his business friends as
gangsters, Orban is expected to easily win Hungary’s elec-
tions next year.
This brings home the basic fact about all three populists:
They’re popular. Businesspeople in the region tend to shrug
off the chances of schism with the EU. Their economies are
doing well, they point out. Yes, few Eastern Europeans are
keen to have Syrian refugees as neighbors, but that is also true
in France and Germany (revealingly, in September’s German
election, it was the eastern regions that voted most fervently
for the anti-EU party, the AfD). Businesspeople tend to stress
that Orban and Babis are pragmatists, that they will stop
before they go too far. Business is also confident that Germany
in particular will not want to sever relations with an area
that is now so completely integrated with its own economy.
Babis, the most businesslike of the three leaders, backs
this view. He fears that if there were a referendum tomorrow,
Czechs would vote to leave, but that is precisely why he would
not consider holding one. It would be mad for a country of
the Czech Republic’s size to even think of leaving the union.
The business view seems logical enough. But it’s also a
little like the pre-Brexit presumption of British business: In
the end, the common man (and woman) would listen to the
 VIEW Bloomberg Businessweek October 9, 2017

voices of economic reason and choose to remain. The problem
was that British voters didn’t think that way. After decades of
being told how useless the EU was—especially on migration—
millions of angry Britons voted to leave. Meanwhile, many of
the EU’s leaders, having put up with British opposition for a
long time, said good riddance.
In Eastern Europe, one reason the odds are still against a
schism is that the Poles, Czechs, and Hungarians have the ever
more disastrous case study of Brexit to look at. Meanwhile,
Western Europe’s leaders are not in a rush to lose more
members. But there is also the chance of short-term poli-
ticking getting in the way—of action creating reaction.
In this case, two personalities are likely to play outsize
roles. One is the new French president. On the campaign
trail, Macron complained about people turning a blind eye
to Poland and Hungary—and said he would seek sanctions
on Poland for infringing EU rules and values while benefiting
economically from membership. There is principle behind
this: The EU was supposed to usher countries toward democ-
racy and, especially in the Trumpian world, sees itself as a
defender of human rights. But politics also plays a role: Few
French voters would shed tears if less money went to Hungary
and it was harder for Polish plumbers to get jobs in Paris.
And now Macron wants to push ahead with efforts to inte-
grate the EU, centering on the euro zone, which will enrage
the eastern countries that are outside the currency union.
The other personality is Kaczynski. Volatile, paranoid
(he recently accused his “scumbag” political opponents of
“murdering” his brother), and obsessed by his country’s
tragic history, the Polish leader makes Boris Johnson seem
rather predictable and easy to handle. Like Orban and Babis,
he’s fiercely opposed to any idea of increasing powers in
Brussels or increasing the gap that separates the inner core
of euro-currency countries. But he’s much worse at cutting
deals with Europe.
What would happen if the EU imposed more punish-
ments? If a Macron-inspired plan for greater integration was
torpedoed by the Poles? The chances are that Europe won’t
undergo another great division. But that was also the prob-
ability when Cameron called his referendum. In Europe at
the moment it is foolish for businesspeople to ignore the
possibilities—and in this case, they’re frightening. 

To read Mohamed El-Erian on what

 VIEW the latest jobs report means and
Megan McArdle on saving smart for
retirement, go to Bloombergview.com

Only the Voters Can
Stop Gun Massacres
○ Until lawmakers—especially Republicans—realize their
jobs are at stake, they will hide from their responsibilities
In the immediate aftermath of a mass
shooting in America, the usual response
is twofold: Mourn the victims and wait
for the facts. It’s getting increasingly hard
to justify the second.
In other realms of public debate, the
facts can be used to guide an analysis
of any proposed policy response. The
problem is that dispassionate analysis
of gun-safety laws, no matter how long
delayed, never penetrates the panic
room in which politicians hide from their
responsibilities. Not until voters force
the issue will elected officials begin to
do their duty in reducing gun violence.
After a deranged young man used his
mother’s readily accessible firearms in
2012 to shoot schoolchildren and educa-
tors in Newtown, Conn., issues such as
proper gun storage and the challenges
of balancing legal gun rights and mental
health risks were frighteningly obvious.
Nothing happened in Congress.
Instead, the gun lobby and the
extremist movement it has long
nurtured went on a legislative rampage
through conservative states—pushing
for guns in churches, in bars, on play-
grounds, and on campus, concealed and
open. Right now, Republicans in the
House of Representatives are focused
on legislation enabling concealed guns
to be carried in places where they are
expressly unwanted and by people with
no training or background check. A vote
on a bill that would have made crime
more convenient by ending regulations
on silencers was postponed.
With each massacre—from a church in
Charleston, S.C., to a club in Orlando—and
with each pointless, preventable shooting
in which a child picks up a loaded firearm
left by a reckless adult, the gun lobby and
its culture warriors issue the same sick
call: to counter the effect of too many
guns with a rash of more guns, and fewer
13
restrictions on using them. In Las Vegas,
one of the National Rifle Association’s
favorite maxims—the only thing that stops
a bad guy with a gun is a good guy with
a gun—was exposed yet again as not just
false but also tragically absurd.
If the gun debate in the U.S. appears
stalled, it’s because argument is cir-
cular in the absence of reason and
facts. Thus a White House spokes-
woman for President Donald Trump,
who previously called himself the NRA’s
“true friend,” said that it’s inappro-
priate to discuss remedies to gun vio-
lence so soon after a mass incidence of
gun violence.
There are legitimate disputes about
the scope of the Second Amendment,
the efficacy of specific gun regulations,
and the right to self-protection. None
of these is debated in Congress, and
few in statehouses, because too many
politicians subscribe to aphorisms and
claptrap in lieu of an honest reckoning
that more guns, and less regulation, is
a recipe for mayhem. This cycle of pre-
ventable violence and pointless debate
will not end until more political leaders
and responsible gun owners acknowl-
edge the obvious: Sensible restrictions
on gun possession and use are both con-
stitutional and necessary. 
 LOOK AHEAD ○ Wal-Mart Stores holds its 2017 ○ Out & Equal’s 2017 Workplace Summit, ○ Citigroup releases
Investment Community Meeting in focusing on best practices in LGBT employment its third-quarter
Bentonville, Ark., on Oct. 9-10 issues, will be held on Oct. 9-12 in Philadelphia earnings on Oct. 12
1

B
U
S
I
N
E
S 15

To Grandmother’s House We Go 

ILLUSTRATION BY INKEE WANG

Best Buy is betting there’ll be big business in helping adult October 9, 2017

children remotely monitor their elderly parents Edited by

James E. Ellis
and David Rocks

Businessweek.com
  BUSINESS
Jane Helgesen had a rough night recently, as nausea
kept the 71-year-old retired nurse scurrying to the
bathroom. A sensor under the bed recorded her
comings and goings, sending alerts to her daugh-
ter, Britt, who lives nearby. Feeling better the next
day, Helgesen used a doorbell camera to welcome
guests, whose images are displayed on her rose-gold
iPhone, which she also uses to unlock the front door
and tweak the thermostat.
The smart gadgets in Helgesen’s three-bedroom
townhouse in the Twin Cities suburb of Woodbury,
Minn., aren’t new. What’s different is that Best Buy
Co., better known for hawking TVs and computers
than for selling geriatric-care products, is wiring
it all together. The electronics retailer, which sells
an entry-level package of gear for $389.96 (installa-
tion costs an extra $199), also provides a monitor-
ing service for $29 a month.
Helgesen’s home is a proving ground for this
fledgling unit, called Assured Living, now open for
business in Denver as well as the Twin Cities area.
If the two test markets work out, Best Buy Chief
Executive Officer Hubert Joly envisions rolling out
a broader business of sensor-based senior services,
sold through health-and-wellness departments in
Best Buy’s more than 1,000 stores. He concedes it’s
a bit of a stretch for the electronics retailer: “We’re
not top of mind” in the geriatric-care market.
16
For now, Best Buy is one of a number of con-
sumer and tech companies jockeying for position
in a race for a likely $50 billion market to remotely
look after grandma. Joly calls it “white space waiting
to be captured.” Google, Microsoft, and Samsung
are all going after the smart-home market with net-
worked gear such as security cameras and thermo-
stats that can be managed by voice controllers or
smartphones. Amazon.com Inc. has already intro-
duced a smart-home installation program in several
West Coast cities. All of these systems could easily
be tailored to keep an eye on the elderly.
Fueling the interest in monitoring aging relatives
remotely are some compelling demographics. By
2020 about 45 million Americans will be caring for
117 million seniors, spending on everything from food
delivery to safety and health monitors. Research by
the AARP and consultants Parks Associates found
that caregivers will spend an average of $509 annu-
ally for each person they tend to by 2021, a 69 percent
increase from 2016. That number is only likely to rise.
Caregivers are typically busy with their own kids
and jobs, so beyond the direct spending lies an addi-
tional $522 billion annually in income lost because of
time spent on elder care, the Rand Corp. estimates.
Three out of four caregivers want to use technology
to make their duties easier, but only 7 percent have
actually done so, according to a 2016 study spon-
sored by AARP and others.
Can Best Buy compete in this unfamiliar
world? “When you think of home health care, you
don’t think of Best Buy,” says John Hopper, chief
Bloomberg Businessweek October 9, 2017
investment officer of Ziegler Link-Age Longevity
Fund LP, which invests in companies targeting
seniors. “They do have to create some bona fides.”
The prospect of a booming geriatric market has
given rise to a slew of venture-backed startups, most
offering some type of tech-enabled service. Nobody
has yet cornered the market and many have faltered.
One example is Lively, a senior home-monitoring
service backed by Maveron, the consumer-focused
venture capital firm co-founded by Starbucks Corp.
Executive Chairman Howard Schultz. The Bay Area
startup, run by veterans of Apple Inc. and EBay
Inc., erred by ramping up too quickly and selling
directly to consumers, rather than through estab-
lished industry partners, according to Laurie Orlov,
founder of industry researcher Aging in Place
Technology Watch. The company fizzled and was
quietly acquired last year by GreatCall, a San Diego-
based maker of senior-friendly devices.
Joly says he’s learned from others’ mistakes.
In Denver, Best Buy has teamed up with insurer
UnitedHealth Group Inc., which layers the personal
touch of wellness coaching from trained dietitians
and exercise physiologists on top of the smart-home
network for $59 a month. That price includes instal-
lation, plus a data-collecting base station, but the
rest of the hardware is sold separately and typi-
cally costs a few hundred dollars per home. It’s not
cheap, but it’s much less than the $3,500 a month
that space in an assisted-living development can run.
“We don’t have enough long-term-care facilities
to take care of people, and 90 percent of seniors
want to stay at home,” says Dr. Rhonda Randall,
chief medical officer of UnitedHealthcare Retiree
Solutions. “But they may be nervous about that.”
To put older consumers at ease, Best Buy is using a
specially trained sales team to advise them and their “We don’t have
caregivers on what to purchase, while installation is
handled by its Geek Squad tech-support crew. One enough long-
early lesson, says AJ McDougall, the general manager term-care
in charge of the program: “We have lots of dementia facilities to
cases, so they got specific training for that.” take care of
“Best Buy’s staff needs to have some inkling
about who these people are,” says Jody Holtzman, people, and
senior vice president for market innovation at the 90 percent of
AARP. “You have to have something that reso- seniors want
nates with the senior as well as the caregiver who to stay
is writing the check.”
Helgesen, for instance, thought at first that she was at home”
“a little young” to need a houseful of gadgets tracking
her daily routine. She even got rid of the sensor in her
favorite living-room chair soon after it was installed
because she didn’t think it was needed. But she likes
the bed sensor’s ability to log her time asleep each
night—six hours and 12 minutes, on average. Daughter
Britt’s concerned reaction to receiving that data: “You
should get more sleep, Mom.”
Meeting the often conflicting needs of seniors
and their children is the biggest challenge, experts
say. “It can’t just be about calming the nerves of the
  BUSINESS
adult caregiver,” says Laura Carstensen, director of
the Stanford Center on Longevity.
As Best Buy proceeds, it could find itself com-
peting against companies that already sell geriatric
products in—you guessed it—Best Buy stores. One
of those is GreatCall, which has offered its senior-
friendly phones and medical-alert devices at Best
Buy for about a decade. GreatCall CEO David Inns
says he welcomes the competition as a sign that
senior care is “finally becoming sexy.” He thinks
the entry of companies with established marketing
Adidas Automates to
Make Shoes Faster
In a production hall as clean as a hospital, pea-size
beads of white plastic pour into what looks like a
minivan-size Adidas shoe box, complete with three
white stripes down the side. That’s fitting, because in
just a few seconds the machine heats and molds the
stuff into soles of Adidas running shoes, with only one
worker needed to wedge in pieces of plastic called
stability bars. This is Adidas AG’s “Speedfactory,”
where the shoemaker aims to prove it can profitably
produce footwear in high-cost, developed economies.
By next fall the facility, as large as half a soccer field,
will employ about 160 people to make 1,500 pairs of
shoes a day, or 500,000 annually.
The plant, halfway between Munich and
Frankfurt, and a twin opening this fall near Atlanta,
will be key to Adidas’s effort to catch industry leader
Nike Inc. It replaces manual stitching and gluing with
molding and bonding done by machines, churning
out running shoes in a day, vs. two or three months
in China and Vietnam, where components are shut-
tled among suppliers that produce individual parts.
“In the history of sneaker making, this is probably
the biggest revolution since manufacturing moved to
Asia,” James Carnes, a 23-year Adidas veteran respon-
sible for company strategy, says as he tours the plant.
“Or maybe since sport shoes were made.”
The factories take a page from fast-fashion pio-
neers Zara and H&M, part of an effort by Adidas to
more quickly get shoes, soccer jerseys, and other
goods from designers’ sketchbooks to store shelves.
Adidas says coupling speed with customization will
COURTESY ADIDAS
allow it to sell more gear at full price and keep cus-
tomers from defecting to rivals. It used a prototype
of the Speedfactory to manufacture a running shoe
called “Futurecraft Made for Germany,” a big hit a
Bloomberg Businessweek October 9, 2017
savvy will help all players. “This market has been
held back because there is a lack of consumer
brands in this space,” Inns says.
That could change as more companies begin tar-
geting customers like Helgesen, who broke her toe
just weeks before she got the smart-home setup.
“I wish I had that smart doorbell working then,” she
sighs. “It’s really made a difference.” —Matthew Boyle
THE BOTTOM LINE By 2020, 45 million Americans will be
caring for 117 million seniors. That’s encouraged Best Buy to offer
a $59 monthly monitoring service using internet-connected gear.
○ A pair of “Speedfactories”
can trim months off the
time from sketch to shelf
year ago, with buyers camping outside stores to get
one of just 500 pairs at €249 ($293) apiece.
Adidas is betting it can repeat the hype with
17
similar city-themed shoes to be made at the two
Speedfactories: London and Paris this fall, and New
York, Los Angeles, Tokyo, and Shanghai next year.
Each version, planned in batches of several thou-
sand pairs, features attributes Adidas says are tai-
lored to the needs of a city’s runners. “AM4LDN
adidas Made For London” will have reflectors and
beefed up waterproofing for jogging in the dark and
rain, the Los Angeles model is designed for hotter ○ The Futurecraft
M.F.G. shoe was made
weather, and the Shanghai variant will be adapted in a prototype of the
for indoor tracks popular there. In each instance, Speedfactory
the shoes are designed to be made by machines,
not by hand, and Adidas gains the added benefit of
keeping the latest trends and ideas in-house rather
than sharing them with suppliers. “Our industry
is extremely competitive, so new things have an
Fancy Footwork
Traditional production of a typical pair of Adidas running shoes takes up to three
months, with components made in multiple countries. The Speedfactory can
make a pair of shoes in a single day.
Heel lining, toe box, top Sole, uppers, liner, Distribution
layer, reinforcement assembly
Store
South Korea
China Germany Wholesale
Vietnam
Online
Taiwan
Production and
assembly of all
key components
  BUSINESS
enormous value,” says Gerd Manz, who oversees
technology innovation at Adidas. “Our goal is to use
this as a launching ground for innovation.”
Adidas’s rivals are pursuing similar strategies,
with Nike investing in a company making electrical
adhesion machines that can assemble the upper part
of a shoe 20 times faster than a human worker can.
New Balance Athletics Inc. and Under Armour Inc.
have started 3D-printing parts of the soles of some
shoes. And Feetz Inc., based in San Diego, says it
can 3D-print custom shoes for buyers who send in
photos of their feet.
Athletics brands today are mostly design
and marketing machines that leave the stitch-
ing and gluing to subcontractors. Adidas hasn’t
owned any big factories since the 1990s, but its
suppliers employ more than 1 million people at
1,000-plus facilities in 63 countries. While the
company is developing the technology used in
the Speedfactories, the plants will be owned and
Rich Returns From
Poor Women
18
Collecting Debts
○ An Indian power company recruits
slum dwellers to collect payments for
electricity from their neighbors
India’s power companies have long struggled with
a problem that’s largely responsible for $10 billion a
year in losses: slum dwellers who steal electric-
ity and then refuse to pay company officials who
come seeking remuneration. Collectors can’t go
into some neighborhoods without being chased by
mobs. Some have been beaten, tied up, urinated
on, even murdered.
Officials at Tata Power Co.’s joint venture with the
Delhi state government have come up with a solu-
tion. They’re hiring women living in the 223 slums
the venture serves in the northern parts of the Indian
capital to press their peers to pay up.
Called Abhas, from the Sanskrit word for light, the
841 women—wives, mothers, and some as young as
20 years old—go around the slums knocking on neigh-
bors’ doors and persuading, coaxing, cajoling, and
nagging them to pay their power bills.
They’ve been so successful that the joint venture,
Tata Power Delhi Distribution Ltd., has seen a
183 percent increase in revenue over five years from
the slums where the project runs, with minimal cost
to the company. The number of active power connec-
tions has risen 40 percent, to 196,000—meaning that
Bloomberg Businessweek October 9, 2017
operated by Germany’s Oechsler AG, an exclusive
Adidas supplier.
The Speedfactories won’t necessarily mean fewer
jobs at Adidas’s suppliers. With the company’s pro-
jected 10 percent to 12 percent annual growth rate
requiring an additional 40 million pairs of shoes
annually through 2020, the contribution of the auto-
mated plants will be negligible. But, if they prove
successful, Adidas may add more or expand capac-
ity to 2.5 million pairs a year at each of the current
factories. It’s also considering offering the technol-
ogy and processes to subcontractors so they can
boost automation as wages rise. “The framework
in Germany today, the social, environmental, legal
requirements, are just what we will also see in our
sourcing countries in a few years,” Manz says. “We’ll
be prepared.” —Richard Weiss
THE BOTTOM LINE As Adidas seeks to catch Nike, it’s shifting
some production from Asia to automated factories that can
quickly produce small-batch designs for specific markets.
56,000 previously freeloading homes have become
active, bill-paying customers.
“This gave us a way to get into these neighbor-
hoods, rife with mafia and political influences,” says
Praveer Sinha, managing director at Tata Power-DDL,
which began operating literacy campaigns for slum
women in 2010 as a way into the communities. “We
thought educated women would give us a much
better buy-in.”
The success of Tata Power-DDL’s initiative has
established it as a model for other electricity suppli-
ers. Rival BSES Delhi, co-owned by the Delhi state
government and Reliance Infrastructure Ltd., hired
40 women earlier this year in a pilot project in a
west Delhi slum. Having resident women distribute
bills and collect payments from neighbors produced
“very encouraging results,” and the program will be
expanded, says BSES spokesman Deepak Shankar. 
The World Bank is trying out similar initiatives in
Jamaica and Kenya and is considering adapting it to
other African nations. So far, Kenya Power & Lighting
Co. has improved connection rates by boosting com-
munity engagement based on the Tata model that
“has provided a lot of learning, which we are incor-
porating,” Sunita Chikkatur Dubey, a Ghana-based ○ Power output lost to
theft and transmission
World Bank consultant, said via email. inefficiencies, 2014
Sanjay Basti, a slum in north Delhi that’s home to
4,000 people just 2 miles from Tata Power-DDL head- Jamaica 27%
quarters, was once notorious for harassing power India 19%
inspectors. Residents would threaten to pull away Kenya 18%
ladders when company officials climbed electricity Brazil 16%
poles to disconnect illegal hookups, says Amarjeet Russia 10%
Kaur, who was an illiterate housewife before she was Indonesia 9%
DATA: WORLD BANK
hired as an Abha in 2013. U.K. 8%
“Residents would ask me: ‘Why did you become a U.S. 6%
company person when you are one of us?’ ” says Kaur, China 5%
39, as she walks through the slum’s serpentine lanes Singapore 2%

filled with low-slung electricity cables connected to
almost all the brightly painted brick dwellings. “Now,
women are in a queue to take up this job. Even the
boys want to become Abhas.”
The female corps, which is expected to number
1,000 by next year, does more than just hand-deliver
electricity bills and collect payments. The Abhas
advise slum dwellers on power conservation and
safe practices: Use LED bulbs, don’t use old motors
to pump underground water or it will spike your elec-
tricity bill, and, most important, don’t use power
cables as clotheslines. The Abhas’ newest mandate
is helping often-illiterate slum residents learn how to
make mobile payments, reducing the need to handle
and safeguard large amounts of cash.
Abhas make about 4,000 rupees ($62) a month on
average, about what some part-time domestic helpers
can make. It includes a base salary plus extra pay
based on securing full bill payment, partial payment,
or new meter installation. The 25 Abha managers can
earn as much as 12,000 rupees a month—the equiv-
alent of what a bus or van driver makes in Delhi.
Rather than trusting outsiders, residents say they
prefer dealing with women from their own commu-
nities, who personally deliver bills when they know
neighbors are home and accept partial payment when
money is tight. If their repeated cajoling doesn’t result
in payment, then power is disconnected. The Abhas
also have the support of community leaders, known
as pradhans, who weigh in if needed.
“Earlier if we weren’t home when the company
official came to deliver the bill, we’d miss paying
and become defaulters,” says Usha, who goes by
one name and lives in a 90-square-foot room with
six other family members. She likes the convenience
PRASHANTH VISHWANATHAN/BLOOMBERG
of dealing with people she knows and laughs off any
questions about feeling nagged. “If we consume elec-
tricity, we’re supposed to pay for it!”
The scarcity of resources in slums ensures an
interdependence among residents, making them
more likely to listen to one of their own, says Purnima
Singh, a psychology professor at the Indian Institute
of Technology Delhi. “The social fabric is much
October 9, 2017
tighter in slum clusters,” says Singh. “An outsider  Abhas in the Sanjay
Basti slum work to
will never match up in having this level of influence.” ensure residents
Tata Power-DDL started zeroing in on slums in hooked into the power
2009, considering them a key hurdle to paring losses. system pay their bills
India’s power companies don’t collect revenue on
about a fifth of the electricity they supply, or about
$10.2 billion annually, because of problems includ-
ing theft, meter tampering, billing issues, and leakage
from faulty equipment, estimates PwC India.
To thaw the hostility Tata Power-DDL officials
encountered trying to boost payments, they set up
19
a special consumer group to promote drug rehabili-
tation, provide medical vans, install drinking water
stations, and launch the women’s literacy program.
Sinha, the Tata Power-DDL managing director, says
the idea to hire women as bill collectors surfaced
in 2012 when those who’d been learning to read
and write started asking how to put their educa-
tion to use.
“These women weren’t allowed to go out and work
by their families,” says Manisha Wadhwa, who heads
the utility’s special consumer group, which runs the
Abha program. “But they could always work in their
own communities, choose their own hours, and still
give us better reach in their neighborhoods.”
It hasn’t all been roses. There are 39 slums that
remain so crime- and gang-ridden that the few Abhas
the company has been able to hire haven’t made
much headway. “People pelt stones and pour hot
water from the roofs” in one of the areas, Wadhwa
says. “We are still trying to befriend them.”
Nonetheless, Tata Power-DDL has come a long
way from the days when its workers had to remove
their badges to avoid being identified when visiting
slums. Now women like Kaur insist on having Tata
Power identity cards, as it gives them status. “We have
learned from this initiative that we can work closely
with communities to improve economic outcomes,”
says Sinha. “We don’t need to do charity.” —Bhuma
Shrivastava, with Rajesh Kumar Singh
THE BOTTOM LINE Power theft by slum dwellers costs India’s
electricity producers billions of dollars annually. Tata Power-DDL
is using local women to persuade residents to pay up.
 LOOK AHEAD ○ Uber’s new CEO, Dara Khosrowshahi, will meet ○ Amsterdam ○ The trial begins between Uber and
with London regulators to try to salvage the hosts World Waymo, the self-driving car division of

2 company’s relationship with the city Summit AI Google parent Alphabet

T You May Hug

E The Screen
C Video visiting puts an extra screen

H between prisoners and their families

N
Once a week for nine months in 2016, Barbara
Hughes drove the 90 minutes from her home in
Springfield, Ill., to visit her son at Tazewell County
jail in Pekin, where he was awaiting trial. But she

O
never got to see him in person. Instead, she had to
enter a room with video phones lining two walls
and sit down at her assigned station.
At Tazewell, inmates’ loved ones are allowed

L
one free 20-minute session a week at the video
phones. The stations are so cramped and narrow
20
that Hughes and her ex-husband couldn’t sit side
by side while they talked to their son. (Hughes

O
declined to give her son’s name or specify his
charges, wanting to protect his future employ-
ment prospects.) “It doesn’t seem real, even though
you’re in the same building,” she says. The moni-
run its video systems for jails, rather than simply
selling them the equipment, but he adds that “we
expect this to grow faster than our normal business.”
He estimates Securus will oversee 2.4 million video

G
tors were so high that Hughes, a petite 5-foot-4, had
to crane her neck to see. And there was always the
ticking clock. “It’s a hurry-up thing,” she says. “You
have to know what you’re going to say, because you
calls this year, two-thirds of them remote, i.e., paid.
Rates vary by jail, from $5 to $12.99 for a 20-minute
call and, in at least one jail, $40 for 40 minutes.
Even on the low end, though, these charges can

Y might get shut off.” She could have video-called

from home as much as she wanted but would have
had to pay $6.95 for 20 minutes.
There are 650 U.S. correctional facilities offer-
ing some form of video viewing. Like Tazewell,
most are county jails, and three-quarters have
eliminated in-person visits, often as a stipulation
of their contract with the company charging for
the video feeds. Tazewell did so in 2014, when it
hired Securus Technologies Inc., a prison phone
company that now controls about a third of the
video market. The business has been lucrative
be unmanageable: More than two-thirds of people
incarcerated in the U.S. reported earning less than
$12,000 before their arrest, and their families tend
to fall into the same income bracket. Smith says
Securus negotiates prices with individual institu-
tions, and the more people who use the service,
the lower the fees. “They like the prices to come
down, and so do we,” he says, “as long as it stimu-
lates additional volume.”
For now, the bulk of Securus’s revenue comes
from traditional phone services to 3,500 correc-
tional facilities, a market historically associated
ILLUSTRATION BY KURT WOERPEL; COURTESY STANCE

enough to attract the attention of the private equity
world. In February, Platinum Equity LLC, the firm
run by Detroit Pistons owner Tom Gores, agreed to
buy Securus for $1.6 billion, more than double the
company’s 2012 valuation. The proposed deal has
October 9, 2017
come under scrutiny from both regulatory com-
Edited by missions and prisoners’ advocates, delaying its
Jillian Goodman and likely approval.
Jeff Muskus
Securus Chief Executive Officer Richard Smith
Businessweek.com says the company is spending a lot to set up and
with price gouging. In 2000 homebound grandma
Martha Wright filed a class action to limit prison
phone rates on the grounds that she couldn’t afford
to communicate with her incarcerated grandson.
Her case became a cause célèbre for prisoner-rights
advocates, many of whom joined the suit and came
to be known collectively as the Wright Petitioners.
The suit was referred to the Federal Com-
munications Commission, which ruled in 2013 to
cap interstate calling rates and in 2015 to extend
 TECHNOLOGY
that cap to in-state calls and prohibit certain fees.
This June a federal court ruled in a countersuit filed
by Securus and four other companies that the FCC
lacked the authority to limit in-state rates. Interstate
caps remain intact.
The Wright Petitioners, represented by attorney
Lee Petro, are now pressing the FCC to deny the
sale of Securus to Platinum Equity, arguing that the
company has continually violated the commission’s
previous rulings. “They’ll still find ways to extract
as much revenue as possible from inmates and their
families,” Petro says. In June he filed a formal peti-
tion protesting the sale, which prevented the FCC
from fast-tracking its approval, something Securus
and Platinum had sought. Securus maintains that
it has complied with all applicable requirements.
The deal faced other holdups from public utili-
ties commissions in states where Securus operates.
While most states simply require notification of a
proposed sale, at least two mandate an in-depth
review. California, where Securus has contracts
with 65 correctional facilities, approved the deal
in August. Alaska, which contracts with Securus for
all 14 of its prisons, won’t issue a final order on the
transaction until mid-December.
While the deal awaits approval, Gores, a favorite
son of Flint, Mich., has had to weather criticism from
prisoners’ family members and advocates. “Securus
charges an average of $15.78 for a 15-minute intra-
state call in Michigan, while other providers charge
substantially less,” Petro says. “To the extent that
Pistons fans will be paying more to speak with their
loved ones than it costs to buy a 12-inch pizza at a
Pistons game, Mr. Gores should think twice about
completing his acquisition of Securus.” Platinum
Equity declined to comment.
Securus may have a better shot at federal clear-
ance than it did last year. FCC Chairman Ajit Pai,
who took office in January, previously represented
Securus as a partner at Jenner & Block. Prisoners’
advocates say Pai’s work history presents a conflict
of interest that should force him to recuse himself
from voting on the company’s acquisition. But
federal agencies, including the FCC, require recusal
from a merger or transaction only if the employee
worked for one of the parties within the past year.
The FCC’s press secretary says Pai has the blessing
of the commission’s ethics office.
At least one FCC commissioner is worried about
the costs of Securus’s video service. In an email,
Obama appointee Mignon Clyburn wrote, “I am
concerned about the serious allegations made by
the Wright Petitioners. Irrespective of whether the
transaction is approved, I hope that the FCC will
investigate these issues.”
The Bristol County House of Correction in
Massachusetts is one of Securus’s newest video
customers. Although the jail previously allowed
only noncontact visits through a Plexiglas divider,
Sheriff Thomas Hodgson says visitors still found
Bloomberg Businessweek October 9, 2017
ways to smuggle in drugs and that switching to “They’ll still
video eliminates that risk. Several states, includ-
find ways to
ing Massachusetts, have introduced bills that would
require correctional facilities to offer in-person extract as
visits. Hodgson plans to testify against such a much revenue
mandate. “Whether you’re looking through the as possible
Plexiglas and talking on the phone or looking
from inmates
through a screen, you’re seeing the exact same
thing,” he says. and their
Hughes disagrees. In October 2016 her son was families”
transferred to a jail that allows in-person visits
through Plexiglas, though he has to remain hand-
cuffed and shackled. They’re not allowed any phys-
ical contact, but still, Hughes says, “I can see his
face, his skin, his hair, his beard. I can see if he’s
doing OK. As a mother, these things are important.”
—Victoria Law
THE BOTTOM LINE Video visiting is lucrative for prison phone
companies, but it’s prohibitively expensive for prisoners’ families
and a poor substitute for in-person contact.
Skeptical Speculators
Swoon for Socks
21
○ Hosiery maker Stance is signing up
Valley VCs and delivering returns
David Hornik, Howard Hartenbaum, and Tripp
Jones, partners at the Silicon Valley venture firm
August Capital, sat around a conference table in
July, showing off their latest investment. In unison,
each one lifted a foot into the air and pulled up his
pant leg to reveal a pair of Stance socks.
“The sock category is massive, and no one had
bothered to think about it for decades,” Hornik says.
“It was a bunch of old companies making the things
they’d always made. You basically had two [options],
black and white, and that’s a huge opportunity for
disruption.”
“Disrupt” isn’t a word usually associated with ○ A pair of Stance
socks featuring Golden
footwear, particularly the comfy, cozy knitted State Warriors star
kind. And yet Stance Inc. has managed to amass Stephen Curry
$110 million in funding from the types of investors
who typically try to move fast and break things.
The pant-leg lift has become almost a tic among
in-the-know VCs.
Stance’s popularity doesn’t stop at the edge
of the Valley. Canadian Prime Minister Justin
Trudeau sported a pair in late September featur-
ing Chewbacca from Star Wars. Drake, the musician,
posted a picture of himself to Instagram wearing
a pair designed by—and showing a likeness of—his
ex-girlfriend Rihanna. The rapper Jay Z, a Stance
  TECHNOLOGY
22
investor, mentioned the brand on his 2013 album,
Magna Carta … Holy Grail. Stance has achieved the
kind of prestige that hipper companies fall over
themselves to achieve.
Veteran entrepreneur Jeff Kearl started the busi-
ness in 2009 in San Clemente, Calif., on the premise
that the hosiery industry was a sleeper behemoth.
“We saw socks as a Trojan horse to build a brand,”
he says, wearing a knee-high pair with black shorts
and a tank top—he’d just been playing basketball—
at Stance’s mural-covered headquarters. “A well-
built brand could have the same sort of value in
terms of returns to investors as an internet or soft-
ware company.”
Kearl had already helped reinvent a moribund
product category—headphones—as a board direc-
tor at Skullcandy Inc., a predecessor to Beats
Electronics LLC. The goal with Stance was to create
socks that would be eye-catching on the street but
Bloomberg Businessweek October 9, 2017
also perform in athletic situations. They’d need to
be densely woven and cushioned in the right spots
for various sports but also come in vivid colors and
bold patterns.
To pull this off, Kearl hired Avi Cohen from
the Israeli contractor Delta-Galil Industries Ltd.,
which makes socks for Nike Inc. and others. Cohen
learned the sock trade from his father, who ran a
small factory in a kibbutz where they lived. Cohen
himself holds three sock-making patents. As Stance’s
chief technology officer, he helped the company
develop some of its signature touches, such as a
sock with a flat seam across the toe to avoid chafing.
Cohen’s staffers toil in a lab they call Sock Hosiery
Research Engineering and Development, or Shred.
One device stretches a sock three times its normal
size to test strength; another bounces it around
against a corkboard to see if it pills. “Our worst night-
mare is for you to have a hole in your sock prema-
turely,” says Randall Sheckler, a former McDonnell
Douglas aircraft engineer who oversees quality
control. Another device takes thermal pictures of
heat dissipating from socks, to make sure Stance’s
cool faster than competitors’. Stance’s specialized  One of the knitting
machines at Stance
knitting machines can turn out simple patterns at a headquarters; Kearl
rate of about one every 90 seconds. More compli- (left) and Cohen
cated designs—particularly those custom-knit for ath-
letes with large feet—require six minutes per sock.
Not everyone shared Kearl’s early confidence in
the sock idea. When he floated it to an old college
buddy who’s a fellow serial entrepreneur, the
friend—Domo Inc. software chief Josh James—first
stared at him silently. Then he agreed to back it with
$200,000, saying he looked forward to the opportu-
nity to tease Kearl relentlessly over his sock ambi-
tions, both men recall.
Pulling together the remaining $109.8 million
took more finesse. Socks are essentially a commodity
market, although a big one: Sales to U.S. adults total
$4.8 billion annually, according to consumer indus-
try analyst NPD Group Inc. Kearl appreciates that
it’s slightly ridiculous to ask people who normally
invest in artificial intelligence and drones to put
their money into a sock company. “We play it up,”
he says, “because we’re hammy like that.” The joke’s
on those who get hung up on the silliness: Much of
the cash they’ve gotten from investors is still in the
PHOTOGRAPHS BY ROZETTE RAGO FOR BLOOMBERG BUSINESSWEEK
bank, Kearl says, meaning that sales revenue is cov-
ering most of the costs of their day-to-day business.
“The hardest thing to do in this category is build
a brand,” says Mood Rowghani of Kleiner Perkins
Caufield & Byers, one of the tech industry’s premier
venture companies. He doesn’t feel the need to keep
his dollars in tech, either. “A lot of the things you
identify as sources of competitive advantage—inno-
vation, design, manufacturing—can bleed over into
areas outside technology.” —Sarah McBride
THE BOTTOM LINE Silicon Valley’s favorite sock brand applies
the disrupter sensibility to a commodity clothing product. The
result is a huge influx of venture capital.
 R&D Apple’s Global Web
Apple Inc.’s network of research labs stretches from the Rocky Mountains
to New Zealand, and many of its facilities are near companies with specialties
the device giant wants to develop. Curiously, a number have lost employees
to Apple since it came to town. —Alex Webb

④ ⑤
③
①
② ⑥

① Denver BlackBerry Ltd.’s QNX division a consortium of German carmakers.

In mid-September, Apple posted a
job listing for a mapping software
engineer here. Back in May, local
media reported the company was
close to securing office space in a
building two blocks from the head-
quarters of Verizon Communications
Inc.’s MapQuest unit.
② Orlando
Advanced Micro Devices Inc., a
major chipmaker, has long had an
R&D lab in this Florida city. A few
years ago, Apple opened its own
facility half a mile away and lured
away at least 32 AMD engineers,
according to a LinkedIn search.
Many of them worked on graph-
ics processing units, which power
images, games, and videos—
expertise that paid off in the form
of the new proprietary GPU in the
iPhone 8.
③ Ottawa
Last year, Apple opened a lab
in Kanata, a suburb of
Canada’s capital, near where
largely develops the operating
systems it sells to many of the
world’s leading carmakers. Some
two dozen former QNX engineers
now develop car operating
systems for Apple.
④ Hertfordshire,
England
Apple was once the biggest cus-
tomer for Imagination Technologies
Group Plc’s graphics chip designs.
In April, less than a year after
Apple opened a research site near
Imagination headquarters north of
London, it announced it would
stop buying from the company.
Apple’s website now lists 16 jobs
related to graphics chips at the
location. An Apple spokeswoman
declined to comment on this or any
other facility.
⑤ Berlin
In early 2016, Apple opened an office
in the German capital, not 2 miles
from the headquarters of digital
mapping company Here, owned by
Today the lab is mostly staffed by 23
former Here engineers, and Apple
has since rolled out improvements to
its Maps app intended to make in-car
navigation easier.
⑥ Longtan, Taiwan
Apple’s display screen-focused lab
building here was formerly occu-
pied by AU Optronics Corp. and
Qualcomm Inc. Engineers from
both companies have joined Apple,
said people familiar with the moves
when the facility opened in 2015.
⑦ Wellington,
New Zealand
Since early last year, Apple has
quietly hired a handful of engineers
from Peter Jackson’s Weta Digital,
the visual effects house behind the
Lord of the Rings movies. They’re
now part of the augmented-
reality team Apple created in
2016 to develop smart glasses
that may supplant the iPhone,
according to a person familiar with
the operation.
 LOOK AHEAD ○ JPMorgan Chase, Citigroup, ○ Stanley Fischer
Bank of America, and Wells Fargo steps down as U.S.
3 report quarterly earnings Fed vice chair
F
I
N
Don’t Fr
○ Suburbanites learn that it’s
hard to keep drillers out of the
A
neighborhood
N
When Bill Young peers out the window of his
$700,000 home in Broomfield, Colo., he drinks in
a panoramic view of the Rocky Mountains. Starting
C
next year, he may also glimpse one of the 99 drilling
rigs that Extraction Oil & Gas Inc. wants to use to
get at the oil beneath his home.
There’s little that Young and his neighbors can
E
do about the horizontal drilling. Residents of the
Wildgrass neighborhood own their patches of para-
24
dise but don’t control what’s under them. An obscure
Colorado law allows whole neighborhoods to be
forced into leasing the minerals beneath their prop-
erties as long as one person in the area consents. The
practice, called forced pooling, has been instrumen-
tal in developing oil and gas resources in Denver’s
rapidly growing suburbs. It’s law in other states, too,
but Colorado’s is the most favorable to drilling.
Now fracking is coming to an upscale suburb, and
the prospect of the Wildgrass homeowners being
made by state law to do something they don’t want
to do has turned many of them into lawyered-up
resisters. “It floors me that a private entity could
take my property,” says Young, an information
security director.
Many states require 51 percent of owners in a drill-
ing area to consent before the others have to join.
Pennsylvania doesn’t allow forced pooling at all in the
Marcellus, one of the most prolific shale gas regions
in the country. Texas, the center of the nation’s oil
production, has strict limits on the practice. Despite
its founding cowboy ethos of rugged individualism,
Colorado has one of the lowest thresholds. “There’s
a tension in oil and gas law between allowing private
property owners to develop their mineral estates on
their own and the state’s desire to ensure that ulti-
mate recovery of oil and gas is maximized,” says Bret
October 9, 2017 Wells, a law professor at the University of Houston.
The rise of horizontal drilling and hydraulic frac-
Edited by turing over the past decade has ushered in a modest
Pat Regnier
oil boom on Colorado’s Front Range by enabling
Businessweek.com companies to wring crude more cheaply from the
○ Shareholders of Procter & Gamble vote on
whether activist investor Nelson Peltz gets a
board seat at the Oct. 10 annual meeting
stubborn shale that runs beneath Denver’s northern
suburbs. From 2010 to 2015, Colorado’s crude output
almost quadrupled. This year the state is pumping
more than 300,000 barrels a day, most of it from the
Wattenberg oil field beneath Wildgrass and beyond.
Colorado’s population is booming, too. As
Denver’s suburbs bloom northward into oil and
gas territory—Wildgrass is about 20 miles north of
Denver, not far from Boulder—housing developments
are erupting where once there were only drilling rigs
and farmland. And because horizontal drilling can
reach as far as 2 miles in all directions from a well,
companies need underground access to more land to
maximize production from each site. The Colorado
Oil & Gas Conservation Commission issues hundreds
of pooling orders every year. “It’s an entirely new
issue,” says David Neslin, former director of the com-
mission, now an attorney at Davis Graham & Stubbs
in Denver. “That’s creating some understandable fric-
tion with local governments and local communities.”
Denver-based Extraction Oil & Gas is at the
epicenter of that friction. Although it has rural
holdings, a substantial amount of its reserves are
in populated areas. So the company, like others in
the region, has put a lot of energy—and cash—into
making its operations more palatable to suburbanites
who fear the prospect of a drilling rig sprouting up
within sight of their kiddie pools. Extraction almost
exclusively uses electric drills, which are quieter than
diesel-powered, and a new generation of hydraulic
fracturing equipment that cuts noise. “It’s incumbent
upon us to learn to live with these communities,” says
Extraction spokesman Brian Cain. “Where we can go
the extra mile to minimize impacts, we wish to do so.”
The company’s latest project involves drilling
99 horizontal wells in Broomfield. That means
leasing mineral rights from Wildgrass residents.
Letters went out to some of them last year offering
a 15 percent royalty and a $500 signing bonus. Some
signed, others demurred, and still others orga-
nized a campaign aimed at blocking the project.
Extraction hasn’t applied for a forced pooling
order, but Young and his neighbors have come to
believe it’s inevitable.
The suburb’s agitation prompted the city to
create a special task force to evaluate Extraction’s
proposal. The company responded by taking
members of the task force on a tour of oil and gas

ack on Me
PHOTOGRAPH BY CHRISTOPHER WURZBACH FOR BLOOMBERG BUSINESSWEEK
 FINANCE
country. It wanted to show how its operations are
less disruptive than traditional drill sites.
Ultimately, the company agreed to more strin-
gent environmental standards than the state
requires. It will move some wells 1,300 feet from
neighborhoods, almost three times farther than the
law mandates. It will reduce the number of wells
per site, monitor air emissions as well as water
and soil quality, and build pipelines to transport
oil immediately off-site instead of storing it in the
city. “I can see Broomfield turning out to be a new
model for how large-scale development gets done,”
says Matt Lepore, director of the state commis-
sion, which will rule on Extraction’s applications
for siting the wells this month.
Such concessions have smoothed the path for
development in many communities. But for some
Wildgrass residents, any leasing is unacceptable. They
say they fear accidents, such as the April pipeline
explosion that killed two people and destroyed a
home in Firestone, 20 miles away. Some simply find
the terms of the initial lease offer laughable.
“The money is so negligible,” says Elizabeth
Lario, a health coach who’s lived in Wildgrass since
2005. And then there are property values: Homes
Bloomberg Businessweek October 9, 2017
in Wildgrass range from $500,000 to more than
$1 million. “The royalties won’t offset the drop in
property value,” says Stephen Uhlhorn, an engineer
who’s lived in Wildgrass for four years. Oil develop-
ment “is now hitting affluent neighborhoods where
people have assets and livelihoods that exceed the
value of any royalty they’re offered.”
The bedrock of Colorado’s oil and gas policy
is a 1951 law that says responsible fossil fuel
development is in the public interest. The state,
○ Barrels of oil pumped
the law says, must protect the public from each day in Colorado
“waste”—industry parlance for oil that’s left
in the ground. While Colorado has some of the 300k
strictest environmental regulations of any oil-
producing state, it gives companies latitude in
choosing where to drill. The Colorado Supreme
25
Court has repeatedly held that the state’s interest
in developing mineral resources preempts any local
law that would curb drilling.
Efforts to change the statute have fizzled. State
Representative Mike Foote, a Democrat whose dis-
trict is adjacent to Broomfield’s, introduced a bill
earlier this year to raise the pooling threshold to
51 percent. It passed the House by a slim margin
but died in a Senate committee in a party-line
 North of Denver,
suburbia meets an oil
and gas field
  FINANCE
vote, with Republicans opposed. “The oil and gas
industry pretty much controls the capital, particu-
larly in the Senate,” Foote says. “Operators can do
whatever they want.” Lepore, the head of the state
oil commission, concedes the pooling threshold is
low compared with other states. “I have no phil-
osophical objection to a 51 percent requirement,”
he says. “There are intelligent changes that could
be made to the forced pooling law.”
Young, the Wildgrass resident, received a lease
The Equifax Job
○ The hack had hallmarks of state-sponsored pros, but the company may have been distracted
In the corridors and break rooms of Equifax Inc.’s
giant Atlanta headquarters, employees used to joke
that their enormously successful credit reporting
company was just one hack away from bankruptcy.
They weren’t being disparaging, just darkly honest:
Founded in the 19th century as a retail credit
26
company, Equifax had over the years morphed into
one of the largest repositories of Americans’ most
sensitive financial data. The health of the company
and the security of its data were one and the same.
Nike Zheng, a Chinese cybersecurity researcher
in a bustling industrial center near Shanghai, prob-
ably knew little about Equifax or the value of the
data pulsing through its servers when he exposed a
flaw in popular software for web applications called
Apache Struts. Information he provided to Apache,
which published a fix for the problem on March 6,
showed how the flaw could be used to steal data
from any company using the software. Equifax was
one of those companies.
Apache’s post caught the attention of the global
hacking community. Within 24 hours the infor-
mation was posted to freebuf.com, a Chinese
security website, and it showed up the same day in
Metasploit, a popular free hacking tool. On March 10,
hackers scanning the internet for computer systems
vulnerable to the attack got a hit on an Equifax
server in Atlanta, according to an internal report
on the investigation seen by Bloomberg.
Before long, hackers had penetrated Equifax.
They may not have immediately grasped the value of
what they’d tapped into, but as the attack escalated
over the following months, that first group—the entry
crew—handed off access to a more sophisticated team
of hackers. They homed in on a staggering bounty:
data including Social Security numbers, birth dates,
home addresses, and other private details of at least
145.5 million Americans. By the time they were done,
Bloomberg Businessweek October 9, 2017
offer last year. Since then he’s been working with a
lawyer to consider his options, and so far he doesn’t
like them. “You couldn’t put a Walmart where
they’re putting these wells—no one would approve
that zoning,” he says. “But for some reason, the
industry is completely exempt from everything.”
—Catherine Traywick
THE BOTTOM LINE In Colorado, whole neighborhoods
may have to lease the minerals under their land if just one
homeowner agrees.
the attackers had penetrated dozens of databases
and created more than 30 separate entry points into
Equifax’s systems. The hackers were finally discov-
ered on July 29, the company says, but they were so
deeply embedded that Equifax was forced to take a
consumer complaint portal offline for 11 days while
the security team found and closed the backdoors
the intruders had set up. “I think
The handoff to more sophisticated hackers is Equifax is
among the evidence that led some investigators going to pay
inside Equifax to suspect a nation-state was behind
the hack. Many of the tools used were Chinese, and
or settle for an
these people say the Equifax breach fits a pattern amount that
of similar intrusions in recent years at giant health has a ‘b’ in it”
insurer Anthem Inc. and the U.S. Office of Personnel
Management; both were ultimately attributed to
hackers working for Chinese intelligence.
Others involved in the investigation aren’t so
sure. They say the evidence is inconclusive at best
or points in other directions. One person briefed on
the probe being conducted by the FBI and U.S. intel-
ligence agencies says there’s evidence that a nation-
state may have played a role, but it doesn’t point to
China. The person declined to name the country
involved because the details are classified. Mandiant
Corp., the security consulting firm Equifax hired to
investigate the breach, said in a report sent to Equifax
clients on Sept. 19 that it didn’t have enough data to
identify either the attackers or their country of origin.
Bloomberg News has reconstructed the chain of
events through interviews with more than a dozen
people familiar with probes being conducted by
Equifax and U.S. law enforcement. One revelation:
Equifax and Mandiant, which had been hired in
March to investigate a different breach, got into
a dispute just as the hackers were gaining a foot-
hold in the company’s network. That rift appears
to have squelched a broader look at weaknesses in ○ Smith
  FINANCE
the company’s security posture. According to an
internal analysis of the attack, the hackers had time
to customize their tools to better exploit Equifax’s
software and to query and analyze dozens of data-
bases to decide which held the most valuable data.
In an emailed statement, an Equifax spokesperson
said: “We have had a professional, highly valuable
relationship with Mandiant. We have no comment
on the Mandiant investigation at this time.”
The breach occurred even though Equifax invested
millions of dollars in sophisticated security measures,
ran an operations center dedicated to spotting hacks,
and deployed expensive anti-intrusion software.
Those efforts appear to have been compromised
by poor implementation and the departure of
key personnel in recent years. But the company’s
challenges may go deeper. One U.S. government
official says leads being pursued by investigators
include the possibility that the hackers had help
from inside the company. “We have no evidence of
malicious inside activity,” the Equifax spokesperson
said. “We understand that law enforcement has an
ongoing investigation.”
The nature of the attack makes it hard to pin on
particular perpetrators, say four people briefed on
the probe. The attackers avoided using tools that
allow investigators to fingerprint known groups. One
tool they did employ, China Chopper, has a Chinese-
language interface, but it’s also in use outside China,
people familiar with the malware say.
The impact of the Equifax breach will echo for
years. Millions of consumers will live with the worry
that the hackers hold the keys to their financial iden-
tity. The federal government has launched several
probes, and the company has been hit with a flurry
of lawsuits. “I think Equifax is going to pay or settle
for an amount that has a ‘b’ in it,” says Erik Gordon,
a University of Michigan business professor.
Richard Smith, Equifax’s chief executive officer,
stepped down on Sept. 26. In a speech at the
University of Georgia in August, before the breach
was disclosed to the public, the former General
Electric Co. executive described the company he took
over in 2005 as a stagnating credit reporting agency
with a “culture of tenure” and “average talent” when
PHOTOGRAPH: ANDREW HARRER/BLOOMBERG; DATA COMPILED BY BLOOMBERG
he arrived. But he saw that Equifax inhabited a lucra-
tive niche in the modern global economy.
In the speech, Smith said the company gets its
data for free (because regular consumers hand
it over to the banks when they apply for credit).
Then, he said, the company crunches the data
with the help of computer scientists and artificial
intelligence and sells it back to the banks that
gave Equifax the data in the first place. “That’s a
pretty unique model,” he said. And one he fully
exploited. Smith acquired two dozen companies
that have given Equifax new ways to package and
sell data, while expanding operations to 25 countries
and 10,000 employees. The company’s stock price
quadrupled under his watch before the breach was
Bloomberg Businessweek October 9, 2017
announced. Last year, Smith’s compensation was
almost $15 million.
By the time he gave the speech on Aug. 17, Smith
knew of the hack. He told the audience the risk of
a breach was “my No. 1 worry” and lingered on the
threats posed by spies and state-sponsored hackers. ○ Equifax stock price
Not long after becoming CEO, he hired Tony Spinelli, $160
a well-regarded cyber expert, to overhaul Equifax’s
security. The new team rehearsed breach scenarios,
with 24-hour crisis management squads taking turns 120
to address each given issue until it was resolved.
Apparently, gaps remained. In congressional
testimony on Oct. 3, Smith said a message to fix the 80
Apache Struts flaw didn’t get to the right person. 1/3/17 10/4/17
After the breach became public in September, Steve
VanWieren, a vice president for data quality who left
Equifax in January 2012 after almost 15 years, wrote
in a post on LinkedIn that “it bothered me how much
access just about any employee had to the person-
ally identifiable attributes. I would see printed credit
files sitting near shredders, and I would hear people
speaking about specific cases,” saying consumers’
personally identifiable information out loud.
Spinelli left in 2013, followed less than a year
later by his top deputy. Many rank and file followed
them out the door, and key positions were filled by
people who weren’t well-known in the cybersecurity
industry. The company continued to invest heavily
27
in state-of-the-art technology and had a dedicated
team to quickly patch vulnerabilities such as the one
identified by Zheng. But one former security leader
says he finally joined the talent exodus because it
felt like he was working with the “B team.”
Lapses in security began to catch up to Equifax
early this year. Since at least Feb. 1 the company
had been aware that identity thieves were abusing
a service that manages payroll data for companies,
according to notices sent to victims. Criminals
were feeding stolen Social Security numbers and
other personal information into login pages for
Equifax Workforce Solutions, the payroll service,
downloading W-2s and other tax forms for dozens of
employees of clients including Northrop Grumman,
Whole Foods Market, and Allegis Global Solutions,
a human resources company. They had free access
to the data for more than a year, filing fraudulent
tax returns and stealing refunds before Equifax
learned of the incidents. (A cybersecurity blog,
krebsonsecurity.com, first reported the thefts in May.)
Equifax hired Mandiant in March to investigate any
security weaknesses related to the thefts, and in noti-
fications mailed to victims throughout the summer,
Equifax eventually said its systems weren’t breached
to acquire the Social Security numbers and other per-
sonal data used in the fraud. However, there are signs
that Smith and others were aware something far more
serious was going on. The investigation in March was
described internally as “a top-secret project” and one
that Smith was overseeing personally, according to
one person with direct knowledge of the matter.
  FINANCE Bloomberg Businessweek October 9, 2017

The relationship with Mandiant broke down Officer Susan Mauldin. Federal investigators are
sometime over the next several weeks—a period that probing suspicious stock sales by other executives
would later turn out to be critical in how the breach not long after Equifax discovered the breach, and
unfolded. Mandiant warned Equifax that it had the board has formed a special committee to review
unpatched systems and security holes that could those share sales. “Equifax takes these matters seri-
indicate major problems, says a person familiar with ously,” the company said on Sept. 28 in its response to
the perspectives of both sides. For its part, Equifax questions posed by Democrats on the House Energy
believed Mandiant had sent an undertrained team and Commerce Committee.
without the expertise it expected from a marquee Meanwhile, lawmakers are talking about boosting
security company. A Mandiant spokesman declined oversight of the credit reporting industry. “What
to comment on the March investigation. member of Congress can vote against tighter
Although the intruders in Equifax’s systems were regulation when every congressional district has
able to evade detection for months, once the hack nearly half its voters affected by this?” says Gordon,
was discovered, on July 29, investigators quickly the Michigan business professor. “The lobbying wins
reconstructed their movements down to the individ- when there is no organized group fighting back, but
ual commands they used. The reconstruction showed you don’t need an organized group when you have
that once the hackers found the vulnerability Zheng 143 million angry people.” —Michael Riley, Jordan
reported, they installed a simple backdoor known as Robertson, and Anita Sharpe
a web shell. It didn’t matter if Equifax fixed the vul-
THE BOTTOM LINE Equifax found itself in a dispute with
nerability after that. The hackers had an invisible a security consultant at a crucial moment—as hackers were
portal into the company’s network. Intruders used breaking into the credit reporting giant’s systems.
special tunneling tools to slide around firewalls, ana-
lyzing and cracking one database after the next.
Besides amassing data on almost half of all
Americans, the hackers sought information on spe-
cific people. It’s not clear exactly why, but there are
at least two possibilities: They were looking for high-
net-worth individuals to defraud, or they wanted the
28
financial details of people with potential intelligence
value, such as government employees. Eventually
the intruders installed more than 30 web shells, each
on a different web address, so they could continue
operating in case some were discovered. Groups
known to exploit web shells most effectively include
teams with links to Chinese intelligence, includ-
ing one nicknamed Shell Crew. Some investigators
within Equifax relatively quickly reached the con-
clusion that they were facing Chinese state hackers,
according to a person briefed on those discussions.
If the Equifax breach was a purely criminal act, one
would expect at least some of the stolen data, espe-
cially the credit card numbers, to have shown up
for sale on the black market. That hasn’t happened.
Banks are typically asked to shut down all stolen
cards if investigators are almost certain who’s behind
a hack. In this case, they still aren’t sure. On Sept. 11,
the FBI asked several major banks to monitor the
credit card accounts of small batches of consumers—
How Offshore Is All That
in one case only 20 people—for suspicious activity.
Investigators were still looking for anything that
Overseas Cash?
could give them insight into the hackers’ identity ○ Companies don’t have to avoid U.S. markets to steer
and motives, according to security experts. It clear of U.S. taxes
probably won’t be known if state hackers—from
China or another country—were involved until U.S.
ILLUSTRATION BY NICHOLE SHINN

intelligence agencies and law enforcement complete
their work. That could take weeks or months.
Equifax is already a changed company. Its stock
is down 20 percent since the breach. Smith’s depar-
ture was preceded by the early retirement of Chief
Information Officer David Webb and Chief Security
Donald Trump and congressional leaders’ latest plan
for tax cuts is missing a lot of important details, but
in a speech on Sept. 27 the president pointed to one
clear objective: to get U.S. multinationals to bring
some of the money they’ve stashed abroad back
to the U.S. so “it can be put to work and work and
 FINANCE
work.” The plan would give companies a lower rate
on built-up earnings—perhaps 10 percent rather than
the current 35 percent—which they’d have to pay
regardless of whether they repatriate money. Right
now the money isn’t taxed unless it’s brought home.
Not that it’s necessarily so far away. While a tax
accountant might label the cash foreign, a lot of it is
already deployed in the U.S. economy. Corporations
have collectively amassed trillions of dollars in
overseas profits, but much of that money has been
invested in securities such as U.S. Treasuries and
corporate bonds. “Just because money is techni-
cally outside the U.S. doesn’t mean it can’t be used
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above nominal rate, advertiser’s
Of course, it’s one thing for giant companies to proof copies, and exchange copies) 0 0
buy bonds. What politicians and voters really hope 3 Paid Distribution Outside the Mails
Including Sales Through Dealers
to see is companies pouring money directly into and Carriers, Street Vendors,
Counter Sales, and Other Paid
building factories and hiring more workers. But Distribution Outside USPS® 162,318 78,388
4 Paid Distribution by Other Classes
taxes on overseas cash don’t seem to be the main of Mail Through the USPS
(e.g., First-Class Mail®) 32 0
barrier to that. “Any firm that wants to invest can C Total Paid and/or Requested
just do it anyway,” says Gary Hufbauer, a tax and Circulation (Sum of 15B)(1), (2),
(3), and (4) 623,045 486,005
trade expert at Washington’s Peterson Institute D Free or Nominal Rate Distribution
(By Mail and Outside the Mail)
for International Economics, because companies
1 Free or Nominal Rate Outside-County
can borrow—currently at very low interest rates. Copies included on PS Form 3541 127,272 111,413
2 Free or Nominal Rate In-County
The government last tried a repatriation deal in Copies Included on PS Form 3541 0 0
2004, hoping a tax break would encourage corpo- 3 Free or Nominal Rate Copies
Mailed at Other Classes Through
rations to turn foreign cash into U.S. investment. the USPS (e.g., First-Class Mail) 4 0
4 Free or Nominal Rate Distribution
It required companies that took the voluntary Outside the Mail (Carriers or other
means) 69,191 29,572
deal to create a reinvestment plan and ruled out E Total Free or Nominal Rate
using the money on share buybacks, dividends, or Distribution (Sum of 15D (1)(2)
(3) and (4) 196,466 140,985
other uses that weren’t seen as helpful in creating F Total Distribution (Sum of 15C
and 15E) 819,512 626,990
jobs. Since companies can move money around G Copies Not Distributed 26,051 23,096
internally, that proved hard to enforce. Academic H Total (Sum of 15F and G) 845,563 650,086

studies found that most of the money ended up I Percent Paid

(15c divided by 15f times 100) 76.0% 77.5%
being paid to shareholders. 16 Electronic Copy Circulation:
A bigger question about repatriation is the A Paid Electronic Copies 96,689 25,486
B Total Paid Print Copies (Line 15c) +
impact on federal revenue. “This one-time tax Paid Electronic Copies (Line 16a) 719,734 511,491
means getting a small percentage of something, C Total Print Distribution (Line 15f) +
Paid Electronic Copies (Line 16a) 916,201 652,476
instead of nothing,” says Michael Faulkender, a pro- D Percent Paid (Both Print &
Electronic Copies) (16b divided by
fessor of finance at the University of Maryland. It 16c x 100) 78.6% 78.4%
also means the government gives up on the higher 17 Publication of Statement of Ownership: Publication
required. Will be printed in the October 9, 2017 issue of
taxes it might have collected had the companies this publication.
18 Signature and Title of Editor, Publisher, Business Manager
not been able to keep the money overseas. Or at or Owner
least in U.S. securities held on their overseas books. Megan Murphy, Editor 9/27/17

—Matt Mossman
THE BOTTOM LINE Apple’s foreign subsidiaries hold hundreds
of billions of dollars in cash and securities, and much of it is
invested in the U.S. bond market.
I certify that all information furnished on this form is true and
complete. I understand that anyone who furnishes false or
misleading information on this form or who omits material
or information requested on the form may be subject to
criminal sanctions (including fines and imprisonment) and/or
civil sanctions (including civil penalties).
 LOOK AHEAD ○ India reports ○ ECB President Mario Draghi and the U.S. ○ On Oct. 13, the U.S. issues a final ruling
trade figures on Fed’s Lael Brainard discuss monetary policy at on whether Canada is unfairly subsidizing
Oct. 10 an Oct. 12 panel in Washington softwood lumber exporters

A First Nation
For the
21st Century
A prosperous indigenous
community near Vancouver has
lots to teach Canada’s marginalized
aboriginal groups
30

October 9, 2017

Edited by
Cristina Lindblad  The Tsawwassen have
profited from their location
Businessweek.com near Canada’s busiest port
 October 9, 2017

The day Tsawwassen Mills opened last October in

suburban Vancouver, shoppers lined up before dawn
to get a first shot at Canada’s biggest new mall in
almost a decade. That weekend, more than 200,000
came through the doors, spending C$150 ($120) on
average. The wait to exit the parking lot stretched
to four hours.
The crowds never went away: Foot traffic hovered
at around half a million people a month through
the summer, according to the developer, Ivanhoe
Cambridge. The mall is just one manifestation of
the economic boom under way in Tsawwassen First
Nation, an aboriginal community about 20 miles
from both downtown Vancouver and the U.S.
border. Nearby, there’s a master-planned residen-
tial development where homes start at C$619,900,
fruit of a partnership with the Aquilini family, one of
Canada’s richest. A little farther down the road, the
Tsawwassen are expanding a logistics center serving
the country’s busiest commercial port.
It’s the kind of success story Prime Minister Justin
Trudeau needs more of. As Canada marks its 150th
birthday this year, the milestone has exposed stark
disparities within its population of 35 million people.
In a country that credits its prosperity to diversity,
some of its most celebrated self-made billionaires
are immigrants from India, Italy, and Taiwan. But
members of Canada’s indigenous groups—who num-
31
bered 1.4 million in the 2011 census—lag on almost
all socioeconomic measures: Their unemployment
rate is double that of the broader population, and
their median wage trails by a third. Only 10 percent
of aboriginal Canadians earn the university degrees
that are a fast track to well-paying jobs.
That has policymakers concerned because the
Inuit, Métis, and other groups collectively called First
Nations are the fastest-growing segment of a popu-
lation that’s graying rapidly. In 2016, Trudeau’s first
year in office, people 65 and over outnumbered chil-
dren for the first time in Canada’s history, a trend
that presages slowing economic growth and balloon-
ing government expenditures. Immigration alone
is unlikely to address a looming labor shortage: An
estimated 2.6 million jobs may go unfilled by 2021
because of the lack of qualified workers, according to
projections by the Canadian Chamber of Commerce.
“Making sure that indigenous Canadians have
the same quality of education, the same kinds of
opportunities, economic and otherwise, is not just
about the future of those indigenous communities—
it’s about the future of Canada,” Trudeau said at an
event organized by Bloomberg News in Toronto in
April. A study by the National Aboriginal Economic
Development Board concluded that the marginaliza-
tion of indigenous peoples costs Canada’s economy
C$27.7 billion each year.
The 430-member Tsawwassen (the name means
“land facing the sea”) provide a model for how
Canada’s indigenous peoples can weave them-
selves into the nation’s economic fabric without
  ECONOMICS
relinquishing their identity. In this pocket of
Canadian suburbia, only 39 percent had a full-time
job a decade ago; today the community is almost
at full employment, according to the office of the
chief. The tax coffers have swelled twentyfold in
the last five years, to C$12 million. The mall and the
logistics center are forecast to create 8,000 perma-
nent jobs, while housing developments will bring in
6,000 residents. “They’ve accomplished what every
First Nation would like,” says Shane Gottfriedson,
the former head of British Columbia’s Assembly of
First Nations, which represents the 203 indigenous
groups in the province. “Success doesn’t happen
by coincidence. They’re talking a new language,
which is business.”
The groundwork was laid almost two decades
ago by the Tsawwassen’s then newly elected
28-year-old chief, Kim Baird. At the time, the com-
munity lacked streetlights, sidewalks, and adequate
water supplies, its development frozen by a legal
and bureaucratic morass.
Officially, the Tsawwassen were governed by
Canada’s Indian Act of 1876, which put decision-
making in the hands of federal government
bureaucrats in Ottawa, 2,500 miles away. In prac-
tice, it blocked the Tsawwassen from the most basic
kind of self-governance, such as expanding the
water pipeline through their community, because
32
the local utility wouldn’t negotiate with them.
Investors shied away, too, put off by uncertainty
surrounding the titling of lands and the process
for permitting development.
To raise funds for a bigger water pipeline, Baird
began negotiating an urban aboriginal treaty with
provincial authorities, which in effect would turn
the community into something akin to a new
municipality. “I had to convince our members to
agree to a 300-page legal document that changed
Bloomberg Businessweek October 9, 2017
their legal rights forevermore,” she says. “I had to
convince them this was something we could accept.
The work it took was mind-boggling.”
Baird went door to door, heavily pregnant with
her second child, to explain to her neighbors what
the treaty would mean. Many Tsawwassen opposed
the negotiations on principle, arguing that it was
galling to redefine ancestral lands that had never
been formally ceded to Canada. Others balked at
the more practical implications of relinquishing the
reservation’s duty-free status and having to pay taxes
on property, income, and sales. Ultimately, more
than 70 percent voted in favor of the pact.
The day the treaty took effect in 2009, the commu-
nity passed almost two dozen laws regulating every-
thing from property sales to traffic. At 9 a.m. a van
full of documents pulled up to the British Columbia
land title office to register the Tsawwassen’s 700 hect-
ares, the largest transaction recorded at the time.
“It made it very clear-cut to investors,” says John
Scott, a senior vice president at Ivanhoe Cambridge,
which manages the Mills complex. “It helped an
awful lot.” Fiscal Realities Economists, a Canadian
consulting firm, has calculated that the lack of a legal
and administrative backbone can raise the cost of
investing in First Nation communities by as much
as six times for businesses.
That helps explain why for years the Tsawwassen
failed to attract businesses while investment raced
into nearby districts—a phenomenon familiar to
aboriginal communities across Canada. When Chris
Hartman first drove to the area in 2008 as he was
being recruited by the Tsawwassen to head their eco-
nomic development corporation, he was stunned to
find such a large tract of land still undeveloped. “I
said, ‘Holy moly!’ ” he says. “You’ve got a greenfield
situation—except that someone has already put in
the infrastructure. You’ve got highways, railways,
roads, and Canada’s busiest superport two kilome-  Former Tsawwassen
chief Kim Baird
ters down the road.”
PREVIOUS SPREAD AND THIS PAGE: PHOTOGRAPHS BY GRANT HARDER FOR BLOOMBERG BUSINESSWEEK
Businesses spend years looking for such sites in
the Vancouver region. Ivanhoe Cambridge searched
for seven before it struck a deal with the Tsawwassen
for the C$600 million mall project in 2014, the prov-
ince’s biggest development deal that year outside
the mining and lumber industries.
Under the leadership of Bryce Williams, a 28-year-
old carver who succeeded Baird as chief in 2012, the
Tsawwassen are chasing new opportunities. “We’re
open to business,” he says. Hartman, a onetime
real estate developer who recently stepped down
as head of the economic development agency and
hasn’t been replaced, believes the Tsawwassen could
be a model for other Canadian indigenous groups,
though he has one caveat: “Their great-great-great-
great-grandparents knew the phrase ‘location, loca-
tion, location.’ ” —Natalie Obiko Pearson
THE BOTTOM LINE Canada’s Tsawwassen negotiated British
Columbia’s first urban aboriginal treaty. The regulatory backbone
has supported a development boom on their ancestral lands.
  ECONOMICS
The Price of Australia’s
Complacency
○ The economy has gone from miracle
to mediocre as political infighting
impedes reforms
After 26 years without a recession, Australia is within
two years of overtaking the Netherlands’ record for
uninterrupted growth. That impressive streak has
been powered by a rapidly growing population
and an economic strategy that one analyst dubbed
“homes and holes”—housing and mining. But it looks
less impressive when other variables are factored in.
Wages are stagnant and household debt hit a record
194 percent of income in June of this year, compared
with 104 percent in the U.S. And productivity gains
from the economic reforms of the 1980s and early
1990s have petered out. That’s visible in the trajec-
tory of gross domestic product growth, which has
dropped to an average of 2.6 percent a year since
2007, from 3.7 percent in the prior decade.
Is Australia poised to become the next victim
of the resource curse that has hobbled onetime
dynamos such as Russia and Brazil, which also rely
heavily on commodity exports? Worryingly, the
country is slipping in global rankings for innovation
and education, which could hamper any effort to
incubate new industries. It dropped to 23 from 19 in
the latest Global Innovation Index, behind China,
France, and Iceland. And Aussie schoolchildren have
fallen behind their peers in Slovenia, South Korea,
and Vietnam in math, reading, and science, according
to the Program for International Student Assessment.
“Now that we don’t have the benefit of the
mining boom, there’s nothing really that replaces it
in terms of driving economic activity,” says Jeremy
Lawson, chief economist at Aberdeen Standard
Investments in Edinburgh and a former Reserve
Bank of Australia economist. “The really big task
of governments over the next 5 to 10 years is to
deal with these big structural issues that Australia
is facing. Potential growth is relatively weak.”
A decade of political infighting has seen the nation
change prime ministers five times since 2007 and
sidelined substantive policy debate. Meanwhile,
attempts at reform have been held hostage by pop-
ulists and single-issue parties who’ve harnessed voter
frustration with mainstream politicians to claim the
ILLUSTRATION BY PATRIK MOLLWING
balance of power in Parliament’s upper house.
The lack of a coherent energy policy has made
electricity prices among the highest in the world,
though Australia boasts some of the largest coal
and gas reserves on the planet. A government-led
A$51 billion ($41 billion) project to build a nation-
wide broadband network has been plagued by cost
Bloomberg Businessweek October 9, 2017
overruns and delays. As a result, Australia trails
Kenya and a string of former Soviet bloc nations in
internet speeds.
Successive administrations have failed to reduce
generous tax breaks that have lured property spec-
ulators while pricing out first-time buyers. “The
intergenerational shift in wealth in Australia is really
penalizing the young,” says Patricia Apps, profes-
“The inter-
sor of public economics at the University of Sydney. generational
“Providing tax breaks for housing investors and shift in wealth
then arguing that the property bubble it generates in Australia
represents increased wealth makes no sense at all.”
There’s a growing consensus that the country
is really
must enact policies to encourage entrepreneurship penalizing
and investment in human capital to diversify the the young”
economy. “The resource base we need to build
on now is the one inside our heads,” said central
bank Governor Philip Lowe during a question-
and-answer session with reporters in September.
“Growth in the future must come from doing
things better and smarter, across the whole range
of service industries.”
33
Tourism and education are bright spots. Australia
welcomed a record 1.2 million Chinese visitors last
year, and the number is expected to keep climbing.
Education now ranks as the third-biggest export,
though government-mandated spending cuts could
dim the attractiveness of Australia’s universities in the
eyes of Chinese and other international applicants.
Prime Minister Malcolm Turnbull’s efforts to
return government budgets to surplus after almost a
decade of deficits are praiseworthy, but an electorate
lulled by good times has been unwilling to submit
to belt-tightening. That could set the country up
for a fall in the event of an outside shock, such as a
major downturn in China, the destination of almost
30 percent of Australia’s exports. “Crisis begets reform
in Australia,” says Aberdeen Standard’s Lawson.
“What tends to happen is you wait for the shock, you
wait for the crisis, and the crisis comes, and you’re
forced to make much more significant adjustments at
the time. So it’s a crisis-reform-growth-complacency
cycle.” —Michael Heath, with Kimberley Painter
THE BOTTOM LINE Australia has gone 26 years without a
recession. But stagnant wages and rising household debt are
signs that its economy is losing dynamism.
 LOOK AHEAD ○ Liberia’s general election on Oct. 10 will
determine the successor to Ellen Johnson
Sirleaf, Africa’s first female president
○ North Korea celebrates ○ Before an Oct. 15 vote, polls suggest
the founding of its com- Austrians will choose 31-year-old
munist party on Oct. 10 Sebastian Kurz to form a government
5
In August, White House lawyer Ty Cobb made a bold
prediction—the cloud cast by the Russia investigation

P
that President Trump hired him to handle would
soon lift. If special counsel Robert Mueller’s probe
into Russian election meddling was still haunting
the White House by Thanksgiving, Cobb would be

O
“embarrassed,” he told Reuters, and “worse” if it
went past the end of the year.
Seven weeks later, meeting that ambitious time-
table looks increasingly difficult. After initial delays,

L
Cobb is finally clearing through a backlog of requests
from Mueller for documents and information, accord-

LEGAL ing to two people familiar with the investigation.

Mueller could make additional document requests

I
and is only now getting around to scheduling inter-
views with White House staffers, which could take
months. Still, Cobb is optimistic. “I’m working duti-
fully to get this concluded as quickly as possible and

T
hopeful that can be by the end of the year,” he says.
An added complication for Cobb is the friction
he’s been having with Trump’s White House counsel,
Donald McGahn, whose priorities have clashed with

I
Cobb’s on several fronts. Tensions have been building
since Cobb joined the White House this summer. He
initially sought to use some lawyers from McGahn’s
staff, yet McGahn balked, says a person familiar

C
with the investigation. Cobb had to build a team
from scratch and was left with the impression that
35
McGahn was being unhelpful. Another person says
McGahn was only trying to protect his attorneys, who

S
could be called as witnesses in the Mueller investiga-
tion and end up in the awkward position of having
to pull documents on themselves, leading to poten-
tial obstruction accusations.
The two eventually resolved their feud over
resources. Cobb now has seven employees, includ-
ing people brought in from the outside, IT workers,

JEOPARDY and several staffers he was able to get from McGahn’s

office with the help of Chief of Staff John Kelly. One
condition of Cobb coming onboard was that he would
report to Trump directly, not to McGahn. Any dis-
agreement between the two over legal strategy, or
which documents to turn over, would be settled
by Trump, according to a person familiar with the
arrangement. So far Trump hasn’t had to weigh in.
While Cobb seeks to have the probe resolved as
quickly as possible, McGahn wants to cooperate with
PHOTO ILLUSTRATION BY 731; PHOTO: DREW ANGERER/GETTY IMAGES

Mueller while ensuring that decisions made now

don’t box in Trump down the road or bind future
presidents, says a person familiar with the investiga-
tion. McGahn’s lawyer, William Burck, says his client
hasn’t tried in any way to block Cobb’s efforts.
In addition, McGahn has emerged as a potential
○ White House counsel Donald key witness in Mueller’s probe. McGahn was Trump’s
chief lawyer during the campaign and has had a front-
McGahn has emerged as a row seat to many of the controversies Mueller is inter- October 9, 2017
key witness in Robert Mueller’s ested in. He was the first person in the White House
to be alerted by the U.S. Department of Justice that Edited by
Russia probe. Can he defend then-national security adviser Michael Flynn could
Matthew Philips

the president and himself? be compromised by the Russians. That meeting was Businessweek.com
  POLITICS
followed by an 18-day period before Flynn’s firing,
a gap that remains unexplained and that Mueller will
likely want to fill in.
McGahn later had a prominent role in the firing of
FBI Director James Comey, advising Trump against
sending a termination letter described by a person
who had seen it as emotional, impolite, and provoca-
tive. McGahn’s recollection of Trump’s thinking at the
time could be grist for determining whether Comey’s
departure was tied to a refusal to drop the Flynn
probe, which could be the basis for an obstruction-
of-justice charge.
McGahn recently hired Burck, who’s also repre-
senting former White House Chief of Staff Reince
Priebus. Mueller has indicated to the White House
that he wants to interview McGahn, though a meeting
has yet to be scheduled, according to a person famil-
iar with the matter.
In other circumstances, McGahn would enjoy two
protections under the law: executive privilege and
attorney-client privilege, which allow his communica-
tions with the president to remain confidential. But as
a result of rulings from the last two big White House
investigations—Watergate and Whitewater—McGahn
is potentially exposed to Mueller’s questioning, espe-
cially if confronted with a subpoena to appear before
a grand jury. “In the face of a grand jury subpoena,
there is no attorney-client privilege for government
36
lawyers,” says Michael Forde, a corporate lawyer in
Chicago who wrote a law review article examining
privilege issues during the Whitewater investigation.
Both the Nixon and Clinton administrations tried
and failed to block government investigators from
reaching into the White House to gather evidence of
wrongdoing. In Watergate, the U.S. Supreme Court
ruled that a subpoena to review White House tapes
of conversations between President Nixon and his
chief advisers, including his White House counsel,
John Dean, prevailed over the importance of keeping
presidential communications confidential. After
Watergate, the White House counsel came to be
seen as representing the Office of the President, not
the person occupying it. Dean is a potential caution-
ary tale for McGahn. He ended up pleading guilty to
obstructing justice, served time in a federal facility,
and was disbarred. “It’s pretty clear that for anyone
on the government payroll, the claim of privilege is
pretty shaky, particularly with grand juries,” says
Dean, 78.
The ability for presidents to speak confiden-
tially with their White House lawyers was curtailed
even more during the Clinton administration as
Independent Counsel Kenneth Starr won a series of
rulings that gave him access to White House aides and
notes. Clinton lost his attempt to shield his deputy
counsel, Bruce Lindsey, from being summoned to
the grand jury to discuss his conversations with the
president about Monica Lewinsky.
Even before the Russia probe, McGahn, a former
head of the Federal Election Commission, was
Bloomberg Businessweek October 9, 2017
presiding over a chaotic operation. “There is one
job for a White House counsel, and that is to impose
discipline,” says Walter Shaub, the former head of
the Office of Government Ethics who resigned in July
out of frustration with what he said was the Trump
administration’s lack of concern for ethics. Shaub
was irritated, for example, when McGahn’s office
submitted paperwork for political nominees to him
that was incomplete or out of date.
McGahn’s best strategy might be to cooper-
ate enough in his interviews with Mueller that he
avoids getting put in front of a grand jury, where
he won’t have access to his attorney. If the White
House chooses to challenge a Mueller subpoena for
McGahn, they’ll likely wind up in court. “Our expe-
rience was once it gets to litigation, the courts are
very focused on letting the investigation go forward,”
says Timothy Armstrong, who worked in the White
○ Cobb
House counsel’s office during the Clinton administra-
tion. McGahn’s ability to navigate all this will define
not only his legacy, but also the future of Trump’s
presidency, says Nicholas Allard, dean of Brooklyn
Law School. “Don McGahn can be a hero, a goat,
or sacrificial lamb,” he says. —Tom Schoenberg and
Shannon Pettypiece, with Greg Farrell
THE BOTTOM LINE White House lawyers are fighting over how
to coordinate their response to special counsel Mueller’s requests
for documents as part of his Russia investigation.
A Slowdown in
Modi’s Backyard
○ His currency policy hurts export-dependent
Gujarat, which he led for 13 years
Indian Prime Minister Narendra Modi vaulted to
national office in 2014 after presiding over more
than a decade of robust economic growth in Gujarat,
India’s westernmost state. During his almost 13 years
as the state’s chief minister, Gujarat’s economy
grew faster than the rest of India, and its per capita
income almost quadrupled. The “Gujarat Model”
became a byword for Modi’s pro-business policies—
and a promise of what he might do for India.
Yet his move last year to ban 86 percent of the
country’s paper currency in a bid to stamp out cor-
ruption is having a particularly harsh effect on the
state’s economy, which is heavily dependent on
export, trade, and manufacturing. A new national
sales tax is hurting, too. “Development has slowed
here,” says Kanti Bhai Yadav, 40, a small-restaurant
  POLITICS
owner who voted for Modi in the past three elections.
Yadav says his situation hasn’t improved since Modi
left for New Delhi. “Maybe it’s because as a prime
minister, he is thinking of the whole country,” he says.
The economy is slowing across India, with
gross domestic product falling to 5.7 percent in the
quarter ended in June from 7.9 percent a year earlier.
That’s fueled criticism of Modi’s national economic
record before an election in Gujarat expected in
December. It’s doubtful the disorganized opposition,
embodied in the Indian National Congress, will be
able to loosen the grip that Modi’s ruling Bharatiya
Janata Party has on the state, but the discontent is a
warning as he builds toward the next national elec-
tion in 2019, with jobs and incomes likely key issues.
With less than three months to go, the BJP is
throwing all its resources into Gujarat to ensure the
FROM LEFT: COURTESY HOGAN LOVELLS; SAM PANTHAKY/AFP/GETTY IMAGES
party doesn’t suffer a defeat after ruling the state
for 19 years. A loss could set off a chain reaction and
sap Modi’s momentum. Like much of India, Gujarat
has seen social unrest. Textile and diamond traders
have held demonstrations against the new goods-
and-services tax. One of the biggest challenges has
come from the large and influential Patel commu-
nity, a caste that accounts for about 15 percent of the
state’s population of 63 million. Members have held
protests demanding they be guaranteed government
jobs and enrollment in universities—benefits enjoyed
by underprivileged castes elsewhere in India.
Since 2015 the Patels have rallied behind a
24-year-old protest leader named Hardik Patel who’s
vowed to unseat the BJP. Some demonstrations have
Bloomberg Businessweek October 9, 2017
swelled to close to 500,000 people, and Modi was “Development
forced to call in troops after numerous deaths at a
has slowed
protest in 2015. “The BJP has been forming the gov-
ernment with support from our community, but here. Maybe
this time we will remove the BJP from power,” Patel it’s because
says. The prime minister’s office didn’t answer calls as a prime
seeking comment.
minister, he
As chief minister of Gujarat, Modi became known
for securing large investment pledges from foreign is thinking
corporations, with many of those coming at the bien- of the whole
nial Vibrant Gujarat summit, an investor event put country”
on by the state government. Gujarat is home to mul-
tinationals including Ford Motor, Honda Motor, and
Bombardier. The chemical, petrochemical, phar-
maceutical, and textile industries are concentrated
37
there. The state is the world’s largest producer  Modi and Abe prior to
the groundbreaking for
of processed diamonds. After Modi left his post, India’s first bullet train
however, deals started to dry up in Gujarat, which
slipped to third in 2016 when ranked on the ease of
doing business in India.
Modi still has a high profile in Gujarat. Billboards
feature him prominently, and he frequently flies in
to highlight projects. In September he and Japanese
Prime Minister Shinzo Abe laid the foundation for a
bullet train to Mumbai being built partly with a loan
from Japan. Also that month Modi dedicated a dam
on Gujarat’s Narmada River. “We are going to the
people with the agenda of development and good
governance,” says Jay Narayan Vyas, a BJP leader and
former state cabinet minister under Modi.
The Congress party, which was booted from
power in 2014, hopes to break the BJP’s hold on
  POLITICS
Gujarat. Rahul Gandhi, the party’s leader and
scion of the Nehru-Gandhi dynasty, recently visited
the state to blame the BJP for the effects of Modi’s
currency swap. The prime minister “is excellent
in marketing but a zero in implementation,” says
Nishit Vyas, a Congress leader in Gandhinagar, the
capital of Gujarat. Vyas accused the prime minis-
ter of marketing projects that never materialize.
“People have realized that a Congress government
is far better than this magician.” Congress is prom-
ising an unemployment allowance and subsidized
housing, he says.
In the village of Dhingda, outside Ahmedabad,
farmer Dinesh Bhai Solanki, 51, says the BJP govern-
ment enacts policies only for the rich. He laughs at
the mention of a bullet train, saying a local train
route was canceled months ago. “We will vote for
the other party,” he says.
While public resentment against the BJP has
grown, Congress lacks the “killer instinct to win
elections,” says Sagar Rabari, a farmer-activist in
Gujarat. Ghanshyam Shah, a political analyst in
Ahmedabad and former professor at New Delhi’s
Jawaharlal Nehru University, is also skeptical that
Congress will be able to capitalize on BJP’s loss of
momentum, saying, “I don’t think Congress is able
to articulate, mobilize, and use this dissatisfaction.”
Plus, the BJP has the ultimate weapon—a sitting
38
prime minister who’s still popular and good on the
stump, especially compared with Congress’s Gandhi,
an erratic campaigner at best, despite his pedigree.
Although “the economy’s not booming,” the party
will win by leaning on Modi, says Yamal Vyas, a state
leader for the BJP. “He’ll be our star campaigner.”
—Bibhudatta Pradhan and Iain Marlow
THE BOTTOM LINE With state elections set for December,
Prime Minister Modi faces grumbling over an economic slowdown
in the heart of his base, Gujarat.
Trump Slows Efforts to
Cut Health-Care Costs
○ Undoing Medicare caps for joint
replacements will cost $90 million
In April 2016 the federal Medicare program began
an experiment to save money on the half-million
hip and knee replacements it pays for each year. In
67 cities, Medicare capped the payments it makes
to hospitals for joint surgeries and the months
of follow-up care they require. By paying a fixed
amount for the operation and recovery, the govern-
ment encouraged doctors and hospitals to reduce
unnecessary care, such as long stays in a rehab
Bloomberg Businessweek October 9, 2017
facility when physical therapy at home would work
just as well.
The program, run out of an office created in
2010 called the Innovation Center, was an import-
ant part of Obamacare’s goal of shifting the health-
care system away from the fee-for-service model
toward one that rewards positive outcomes. The
idea is to lower costs over time by giving hospitals
incentives to be more efficient, which would ulti-
mately boost their bottom lines.
About 800 hospitals were required to partici-
pate during the program’s first year of operation,
which aimed to shave Medicare’s joint replacement
costs by 3 percent. In early August, the Innovation
Center’s director, Patrick Conway, announced he
was leaving to run the BlueCross BlueShield plan in
North Carolina. The next week, the federal Centers
for Medicare and Medicaid Services (CMS), which
houses the Innovation Center, announced a key
change to the hip and joint replacement program.
Now, the new payment arrangement will be optional
for hospitals in half of the cities where it previ-
ously was mandatory. That change will increase ○ Total national health-
care expenditures
Medicare costs by $90 million over the next three ○ Medicare
years, according to the agency. expenditures
The CMS also canceled two other programs
planned to roll out in 2018 that were designed to $5t
cap Medicare payments for cardiac care and rehab.
In September, the CMS announced that it was
seeking a “new direction” for the Innovation Center
and suggested it would take a more free-market 3
approach. “We will move away from the assump-
tion that Washington can engineer a more efficient Projected
health-care system from afar,” CMS Administrator
Seema Verma wrote in a Wall Street Journal op-ed 1
on Sept. 19. While she acknowledged the need to
change the fee-for-service system, Verma didn’t
detail what a new direction would look like, other 2000 2025
than loosening requirements for doctors and hos-
ILLUSTRATION BY: ROB WILSON; DATA: CENTERS FOR MEDICARE & MEDICAID SERVICES OFFICE OF THE ACTUARY
pitals to encourage market competition “that drives
innovation in other industries.”
Although Republicans in Congress failed to
repeal the Affordable Care Act, the Trump admin-
istration is looking for ways to dismantle pieces
of it. President Trump has threatened to suspend
payments that lower insurance premiums and to
cut back on advertising to boost enrollment. The
latest effort to alter the law’s attempts at payment
reform could affect the nation’s fiscal future, as
health spending grows faster than the U.S. economy
and drags on the budgets of employers, govern-
ments, and households.
An early experiment at Baptist Health System
in San Antonio found that capping payments for
joint replacements could lower costs by more than
20 percent, or $5,577 per patient, according to an
evaluation in JAMA Internal Medicine in January.
Most of the savings came from using less expen-
sive implants and shorter stays in rehab. Tom Price,
Trump’s health and human services secretary,
  POLITICS

Hidden Hand Neil Chatterjee

who resigned on Sept. 29 over his use of taxpayer
money for private jet travel, objected while he was
in Congress to the idea of mandatory capped pay-
ments. It’s not clear whether Price’s departure will
change the agency’s approach to the policy.
Concerns about cost, both from the government
and private health plans, are “the overarching force
that’s driving change in the health-care system,”
says Michael Chernew, a health policy professor at
Harvard Medical School. “One way or another, pro-
viders of all types are going to have to figure out how
to survive on lower revenue growth.”
While many in medicine believe the days of fee-
for-service are numbered, the recent moves by the
Trump administration have them recalculating the
timing. Farzad Mostashari, who runs a company
called Aledade Inc. that helps doctors organize
cost-saving networks, says some practices that were
on the fence about joining this summer have decided As an aide to Senate Majority Leader 2017-present ○ Interim
chairman, Federal Energy
to wait. “It’s not the ‘if,’ it’s the ‘when,’ ” he says. Mitch McConnell, Chatterjee helped Regulatory Commission
“What’s the pace of change going to be?” craft the GOP’s strategy for challeng-
Putting mandatory changes on hold may give the ing President Obama’s Clean Power
2009-17 ○ Legislative
government more time to tinker with them, says Amol Plan. Now he’s acting head of the aide, policy adviser,
Navathe, a University of Pennsylvania economist. federal agency that oversees U.S. power Senator McConnell
“We don’t have this licked yet,” he says. “We don’t markets. Chatterjee, a Kentucky native
have the perfect model.” At the same time, it’s not and an avowed fan of coal, has a chance 2002 ○ J.D., University
clear that market-based or voluntary programs can to give the fuel a boost against cheaper of Cincinnati College
deliver the savings that mandatory changes will. “I’m sources of power. of Law
39
an economist, I believe in markets,” Navathe says. But
“to try to stimulate the market to reform itself around
quality has proven very challenging.” ○ On Sept. 29, U.S. Secretary of Energy
The effort by employers and health insurers to
control costs may become harder if Medicare doesn’t Rick Perry directed FERC to rewrite rules
move in the same direction. The program covers on power prices so coal plants can recover
58 million Americans over 65 or with disabilities,
spending $646 billion in 2015. “Without that 800- costs at “a fair rate of return.” The request
pound gorilla,” Navathe says, most health insur- fits with Chatterjee’s assertion that coal be
ers “just don’t have enough market share” to steer
medical providers into new payment structures. “properly compensated” for its reliability,
The march toward payment reform will continue. though critics say that lets the government
A 2015 law will curtail physicians’ Medicare payments
starting in 2019 if they don’t join some kind of new pick winners and losers. ○ If carried out,
payment model, so the CMS will have to give doctors the plan could keep plants from closing
options. “I don’t think the new administration, even
if they wanted to, could have just pulled the rug out by letting prices be set in a way that takes
from under the new payment reforms,” says Rob their operating costs into account. That
Lazerow, managing director of research at Advisory
Board Co., a health-care consultant. would fix their chief problem: Gas, wind,
New payment models may allow the most efficient and solar prices have fallen below what coal
health-care providers to boost their profits while
reducing overall costs. But ultimately someone will plants need to cover costs. ○ Chatterjee
have to take a financial hit. “You can’t have 5,500 hos- has 60 days to modify or adopt the plan.
pitals that all have improved bottom lines, because if
you have that, then value-based care probably hasn’t And there’s reason to act quickly. President
ANDREW HARRER/BLOOMBERG

worked,” says Joshua Weisbrod, a health-care consul- Trump’s official pick to head FERC, Jones
tant at Bain & Co. “It probably hasn’t taken enough
cost out of the system.” —John Tozzi Day lawyer Kevin McIntyre, is awaiting
THE BOTTOM LINE Although the GOP couldn’t kill Obamacare, Senate confirmation. —Catherine Traywick
the Trump administration is undoing key parts of the plan to shift
away from a fee-for-service payment model.
 SMOKE’EM
Bloomberg Businessweek

40

Mike Moore wrote

the legal playbook
that took down
Big Tobacco. Now
he’s going after
the opioid industry
 OUT
October 9, 2017

41

By Esmé E. Deprez
and Paul M. Barrett
Photograph by
Irina Rozovsky
 Bloomberg Businessweek
S
even years ago, Mike Moore stepped from the 2 a.m. dark-
ness into the light of a small home off Lakeland Drive in
Jackson, Miss., to find his nephew close to death. The
250-pound 30-year-old was slumped on the living room
couch, his face pale, breath shallow, and chest wet with
vomit. It was his fiancée who’d called Moore, waking him in
a panic. Now they were both screaming in the man’s ears,
dousing him with ice cubes and water, and pinching him as
his respiratory system began to collapse.
Moore had become familiar with the signs of an overdose
since his nephew, for whom he’s a father figure, filled his first
legal prescriptions in 2006 for Percocet, an opioid painkiller
made by Endo Pharmaceuticals Inc. By 2010, his nephew, who
asked not to be named, was obtaining generic fentanyl on the
street. Another synthetic analog to the opium poppy, fentanyl—
the drug that killed Prince—is as much as 100 times stronger
than morphine. The night of the overdose, Moore’s nephew
had been wearing a fentanyl patch on his arm and sucking on
another. “An ordinary horse would have been dead,” Moore
recalls in his Mississippi drawl.
Rather than waiting for an ambulance, Moore dragged his
nephew to his car and raced toward the hospital. As doctors
revived the unconscious man, the stares of the staff and other
patients were made worse for Moore by recognition. Once his
home state’s highest-profile public official, now he was just one
more American confronting the opioid epidemic.
Moore, who’s 65, served as Mississippi’s attorney general
from 1988 to 2004. In 1994, using an untested and widely
42
derided legal strategy, he became the first state AG to sue
tobacco companies for lying about nicotine addiction and
hold them accountable for sick smokers’ health-care costs. A
Democrat, he marshaled AGs from around the country along
with private plaintiffs’ lawyers who stood to reap massive fees.
He went on to negotiate the largest corporate legal settlement
in U.S. history: a 50-state, $246 billion agreement that funds
smoking cessation and prevention programs to this day. He
even scored a Hollywood credit, playing himself in The Insider,
the 1999 thriller about a tobacco industry whistleblower, star-
ring Al Pacino and Russell Crowe.
Moore, playing himself, with Russell Crowe in The Insider (1999)
After his 16 years as AG, Moore left public service for a
private-sector salary, opening a practice in the Jackson suburb
of Flowood. The Mike Moore Law Firm specializes in complex
disputes between states and companies. This spring he fin-
ished helping oversee negotiations between BP Plc and the
federal government, five states, and 475 municipalities, which
resulted in a $20 billion settlement for damages from the
Deepwater Horizon oil spill.
Moore now lives near Orlando, with his wife, four rescue
October 9, 2017
dogs, and Jade, a capuchin monkey. He’s remained immersed in
anti-tobacco efforts, chairing such nonprofits as the Partnership
for a Healthy Mississippi and the Truth Initiative. But as he’s
watched the tobacco victory pay off in declining smoking rates,
he’s also seen easy access to powerful pain medication spark a
new deadly crisis. He’s convinced this is the moment to work
the same mechanisms on the drug companies that forced the
tobacco industry to heel—and he’s committed himself to making
that happen.
O
n June 20, 1997, a coalition of state AGs stood
behind a podium in the grand ballroom of the
ANA Hotel in Washington to announce the cul-
mination of a four-year effort. They’d filed so
many individual, expensive lawsuits that tobacco companies
were cornered into negotiating a collective settlement instead
of fighting each one separately. The agreement punished the
industry for past misconduct, created a fund to pay for tobacco-
related medical costs, and banned using Joe Camel in adver-
tisements. “We wanted this industry to have to change the way
they do business—and we have done that,” a youthful Moore
said to the roomful of journalists and cameras.
Twenty years later, in mid-July 2017, he was back at the same
hotel, now a Fairmont. In a third-floor meeting room, he and
more than a dozen private attorneys sat around a rectangu-
lar conference table discussing strategies for the legal battle
they’d helped ignite with companies that make, distribute, and
sell opioids.
Aided by the lawyers in the room (and others, including
high-profile and high-profiting alumni of the tobacco wars, such
as Joe Rice and Steve Berman), 10 states and dozens of cities and
counties have sued companies including Purdue Pharma, Endo,
and Johnson & Johnson’s Janssen Pharmaceuticals—beginning in
2014 but mostly in the past few months. (Forty state AGs have
launched preliminary investigations as a way to gauge the via-
bility of litigation.) The suits allege that the companies triggered
the opioid epidemic by minimizing the addiction and overdose
risk of painkillers such as OxyContin, Percocet, and Duragesic.
Opioids don’t just cause problems when they’re misused, the
suits argue: They do so when used as directed, too.
The opioid epidemic cost the U.S. economy $78.5 billion
in 2013, according to the U.S. Centers for Disease Control and
Prevention, a quarter of which was paid by taxpayers through
increased public costs for health care, criminal justice, and
treatment. The industry, the suits contend, should bear the
financial burden of this wreckage.
Paul Hanly Jr., a Manhattan attorney who’s filed on behalf
of almost a dozen cities and counties, opened the discussion
at the Fairmont with lessons from previous suits. P. Rodney
Jackson, a lawyer from West Virginia, got heads nodding with
his recommendation that suits targeting manufacturers should
be amended to add distributors who sell pills to pharmacies.
A retired agent from the Drug Enforcement Administration,
TOUCHSTONE PICTURES/PHOTOFEST
one of several consultants, laid out the fines that distributors
and pharmacies have already paid after failing to follow federal
requirements to report suspiciously large pill orders.
Officially, Moore’s name is listed only on cases filed by
Mississippi, which was the first state to sue, and Ohio. But
this belies his outsize role in convening the like-minded while
envisioning the long-term, big-picture strategy. “We’re trying to
Bloomberg Businessweek
“It’s clear they’re not
going to be part of the
solution unless we
drag them to the table”
build coalitions, because it won’t get done with me and our little
team,” he says, referring to a core group of longtime friends
that includes former Arizona Attorney General Grant Woods,
the first Republican AG to join the anti-tobacco crusade, and
Chip Robertson, a former chief justice of the Supreme Court
of Missouri who helped his state sue tobacco companies.
Just as he did during the tobacco-litigation era, Moore has
been traversing the country to recruit people to his cause. His
trip to Washington was one of more than 50 he estimates he’s
taken in the past six months to meet with hundreds of private
attorneys, about 30 AGs, and professionals in law enforcement
and public health. An alumnus of Ole Miss, where he wore his
hair long and jammed on a synthesizer in a rock band, Moore’s
expertise is in glad-handing and dealmaking. “My talents are not
writing briefs, they are not researching the law,” he says. “I know
people. I know how to deal with people. I treat people fairly.”
Moore and his allies hope to corral at least 25 states to
exert enough pressure, collect enough evidence, and drive
potential damages so high that it will be cheaper for opioid
manufacturers to back down. They’re confident that the epic
scale of the crisis ravaging the country has gotten too big to
dodge. What was once considered a problem only among the
Appalachian poor now touches every demographic. The most
recent data, from 2015, show the opioid death toll exceeded
33,000 that year.
The goal, according to Moore, isn’t to simply win a pile of
money to be allocated haphazardly into government coffers.
One of his regrets from the cigarette windfall is that some of the
money didn’t go where intended. This time, he wants a compre-
hensive, company-funded national program that would make
treatment more widely available—currently just 1 in 10 addicts
has access—as well as expand prevention education and force
a change in doctors’ prescribing habits. Despite having fallen
since its 2010 peak, the number of opioid prescriptions in 2015
was three times what it was in 1999, the CDC says.
“Litigation is a blunt instrument; it’s not a surgical tool,”
Moore says. “But it provokes interest quicker than anything
I’ve ever seen.”
W
hile the government lawsuits filed so far target combina-
tions of drug companies, they consistently single out
Purdue. With its aggressive marketing of OxyContin—
the Kleenex or Google of opioids—Purdue established
the market as we know it and invented many of the practices
the government suits now seek to frame as unlawful.
Tenacious promotion is woven into Purdue’s DNA. In 1952
three brothers, Arthur, Mortimer, and Raymond Sackler, all psy-
chiatrists, bought a little-known laxative maker in New York.
From it they built the modern Purdue, still a family-owned
October 9, 2017
company. During those early years, Arthur Sackler pioneered
now-common pharmaceutical marketing techniques—for
example, sending “detailers,” or specialized salesmen, to pay
calls directly on physicians.
As recently as a quarter-century ago, few doctors prescribed
the opium-derived drugs (and synthetic versions of them) for
chronic pain related to backaches, headaches, or arthritis. This
class of medications was distributed primarily to postoperative
patients and those dying of cancer. That wasn’t much of a
market, though. In the late 1980s a handful of researchers and
pain doctors began to argue that pain was vastly undertreated,
and one company more than any other—Purdue—grabbed the
opportunity. Almost single-handedly, it turned what had been a
niche product into one of the most prescribed classes of drugs.
Outspoken experts such as Dr. Russell Portenoy, a New York-
based pain specialist, argued in journal articles and Purdue-
paid talks to doctors that opioids weren’t inherently addictive
and could safely be prescribed over extended periods. In 1995
the American Pain Society, a Purdue-funded group over which
Portenoy later presided, urged physicians to monitor pain as a
“fifth vital sign,” along with blood pressure, body temperature,
pulse, and respiration. In 1996, Purdue unveiled OxyContin,
which paired oxycodone, an opium derivative, with Continus,
a time-release formula. Approving the pill, the U.S. Food and
Drug Administration accepted Purdue’s contention that because
the drug entered the bloodstream gradually, it wouldn’t cause
the surging highs and subsequent lows that kindle addiction.
Purdue put its full energy into selling OxyContin, according
43
to a U.S. Government Accountability Office report in 2003. The
company doubled the number of detailers devoted to the drug,
from 318 in 1996 to 767 in 2002. Total annual cash bonuses tied
to sales soared from $1 million to $40 million. Purdue directed
its reps to call on primary care physicians, despite their scant
training in the treatment of serious pain. In videos and publi-
cations, it relied on a dubious statistic—that only 1 percent of
patients treated with narcotics would become addicted—even
though the figure came not from a peer-reviewed scientific study,
but from a one-paragraph 1980 letter to the editor in the New
England Journal of Medicine. The company gave away OxyContin-
branded fishing hats, plush toys, and golf balls. Detailers handed
out big-band music CDs titled Swing in the Right Direction with
OxyContin, and 34,000 coupons for a free one-time prescription.
Purdue also embraced a questionable condition called
“pseudoaddiction,” which holds that behaviors normally asso-
ciated with addiction—requesting drugs by name, displaying a
demanding or manipulative manner, or seeking out more than
one doctor to obtain opioids—might be signals that a patient
needs more pain medication, not less. The concept was pro-
moted in a 2007 publication called Responsible Opioid Prescribing,
distributed by the Federation of State Medical Boards and co-
sponsored by Purdue. It had been coined almost two decades
earlier by a pain doctor named J. David Haddox. He became a
Purdue employee in 1999 and remains vice president for health
policy. Purdue declined to make him available for comment, but
company spokesman Robert Josephson contends that the FDA
takes the concept seriously. OxyContin’s FDA-approved label
says “preoccupation … with achieving adequate pain relief can
be appropriate behavior in a patient with poor pain control.”
The tactics worked. OxyContin sales rose from $45 million
in 1996 to more than $1.5 billion in 2002. But the drug’s huge
 Bloomberg Businessweek
success as a treatment for long-term chronic pain—and much
of the marketing that drove it—had no basis in meaningful
science, according to Andrew Kolodny, a physician and co-
director of opioid policy research at the Heller School for Social
Policy and Management at Brandeis University. There was
no controlled, double-blind research—and there’s none still—
that supports the notion that opioids are effective for treating
chronic pain over a period of many months, let alone years.
“For the vast majority of patients, the known, serious, and
too-often-fatal risks far outweigh the unproven and transient
benefits,” the CDC said in 2016.
S
tates have tried to legally challenge opioid marketing
practices, aiming mostly at Purdue, since at least 2001.
But these earlier attempts produced only modest,
piecemeal settlements—including $10 million for West
Virginia in 2004, and $19.5 million for 26 states and
Washington, D.C., in 2007.
In private practice, Moore was involved in a cluster of suits
instigated in 2003 against Purdue by people who claimed they
or loved ones got hooked on prescription opioids despite
obtaining them legally and taking them as directed. In con-
ducting his investigation, Moore visited pain clinics and
interviewed users, doctors, and people who’d advertised
and marketed the company’s drugs. The effort ended in 2007
when claimants, represented by lawyers including Hanly, the
Manhattan attorney, settled for $75 million. Purdue admitted
no wrongdoing, and the court agreed to keep the corporate
44
documents gathered in discovery confidential. The case may
not have done much to waylay Purdue, but it did give Moore
early insight into how opioid litigation could work and helped
him establish connections with attorneys who are now among
the most active filers.
In a federal criminal prosecution, also resolved in 2007,
Purdue and three of its top executives pleaded guilty to “mis-
branding” OxyContin and collectively agreed to pay some
$630 million in civil and criminal penalties. The company spe-
cifically acknowledged that it trained its sales representatives
to mislead physicians about opioid risks. Purdue emphasized
that its plea covered misconduct only from 1995 through 2001.
“We accept responsibility for those past misstatements and
regret that they were made,” the company said.
More than a dozen years of scattershot litigation “accom-
plished absolutely zero” in terms of preventing or stemming
the crisis, says Woods, the former Arizona AG and Moore ally.
“Some lawyers made money. States put some money in coffers.
But the problem is greater today than it’s ever been.” The dif-
ference this time, Woods and his colleagues say, is that such a
large group will pool their resources and evidence.
Most of the current lawsuits target multiple companies based
on the allegation that while Purdue pioneered misleading mar-
keting tactics, its competitors subsequently replicated them as
sales of OxyContin exploded. The complaints charge that Purdue
and its rivals never stopped their alleged campaign of misinfor-
mation carried out by means of industry-funded experts and
pamphlets, online publications, and medical educational pro-
grams. ( Josephson declined to comment on any of Purdue’s
marketing tactics, citing the pending litigation.)
Portenoy, the Purdue-affiliated pain doctor, recanted pub-
licly in 2011, conceding that research he relied on to push his
October 9, 2017
and Purdue’s pro-opioid campaign didn’t prove anything about
the treatment of chronic pain. (He wrote in an email that no
one “anticipated the widespread overdosing and medication
misuse we see today.”) He and other industry-funded physicians,
described as “key opinion leaders,” are named as defendants in
a handful of the current government lawsuits.
Ohio is representative of how lethal and costly the opioid
epidemic has become and how the government lawsuits work.
In 2012 prescriptions reached a peak, 793 million opioid doses,
according to state statistics—enough to medicate every resi-
dent with 68 pills apiece. Half of the state’s foster-care popula-
tion is made up of children with opioid-addicted parents, and
the rate of babies born addicted to opioids grew almost eight-
fold from 2006 to 2015. In 2014, Ohio Attorney General Mike
DeWine, a Republican, began considering litigation. With his
own office lacking manpower and expertise, he invited pitches
from a half-dozen teams of outside lawyers. Moore’s group won
the assignment.
Filed in May in state court, Ohio’s suit accuses drugmakers
of “borrowing a page from Big Tobacco’s playbook” by con-
cealing addiction risks. According to the state, Purdue, Teva
Pharmaceutical Industries, Janssen, Endo, and Allergan invested
millions to change attitudes about opioid prescribing. Janssen
distributed a patient education guide calling opioid addiction
a “myth,” for example, while Endo advertised that an abuse-
deterrent reformulation of one of its most popular opioids,
Opana ER, made it crush-resistant, despite its own studies dis-
proving that claim. From 2001 through 2015, Purdue hosted the
website inthefaceofpain.com, which promoted “the notion that
if a patient’s doctor does not prescribe what, in the patient’s
view, is a sufficient dosage of opioids, he or she should find
another doctor who will.”
Ohio accuses the companies of creating a public nuisance,
violating state laws against unfair sales practices, and committing
Medicaid fraud by spurring unnecessary prescriptions that the
state reimbursed. The conduct dates to at least 1996 and contin-
ues through the present, says Jonathan Blanton, who heads the
AG’s consumer protection unit. The companies, DeWine says,
have reaped unjust profits while devastating communities and
fueling a heroin resurgence. “It’s clear they’re not going to be
part of the solution unless we drag them to the table.”
Like most of the current lawsuits, Ohio’s complaint isn’t spe-
cific about how much money it aims to recoup. But Ronny Gal,
an analyst at Sanford C. Bernstein & Co., views the litigation as a
material threat to companies, with potential aggregate damages
“in the many billions.”
While the evidence marshaled by Ohio and other plain-
tiff governments is compellingly grim, whistleblowers and
smoking-gun documents would help turn these suits into
tobacco-scale winners. Moore predicts that insiders willing to
testify are bound to materialize as plaintiffs’ lawyers continue
“If you ask Big Pharma
right now, Mike Moore
is the devil”
Bloomberg Businessweek
to investigate. Jeffrey Wigand, a star whistleblower (and subject
of The Insider), didn’t emerge until a year after Moore filed suit
D
on behalf of Mississippi in 1994.
enying any wrongdoing, all of the companies say they
want to help resolve the crisis, but not through litiga-
tion, which they call wasteful and unfair. “We firmly
believe the allegations in these lawsuits are both legally
and factually unfounded,” Janssen spokesman William
Foster says in a representative statement. “Janssen has
acted responsibly and in the best interests of patients and
physicians with regard to these medicines.” The only company
willing to discuss the litigation on the record—as opposed to
issuing a boilerplate statement—is Purdue. It declined to make
any executives available for interviews or allow a reporter to
visit its headquarters in Stamford, Conn., but it dispatched
Josephson and an outside lawyer to discuss the cases. Purdue
has the most to lose: More than half of its revenue comes from
opioids, Josephson says. It doesn’t release financial informa-
tion, but Sanford C. Bernstein & Co. estimates that OxyContin
alone generated sales of $1.3 billion in 2016. (Opioid sales overall
totaled $8.6 billion last year, up from $1.1 billion in 1992, accord-
ing to QuintilesIMS Holdings Inc.) Of drugs made by the other
four most commonly named defendants in the government
suits, the next biggest was Johnson & Johnson’s Duragesic (fen-
tanyl), with sales of $288 million. J&J derives 0.4 percent of its
revenue from opioids and could stop making them tomorrow
with barely any impact on its bottom line.
A key defense that Purdue and the other opioid makers
have to deploy involves causation. The companies contend
that between the time a manufacturer sells pills to a whole-
saler and when those pills cause social harm, several other
actors—pharmacies, prescribing doctors (some negligent or
even criminal), drug abusers, and pill traffickers—break the
chain of causation. Suits filed by municipalities against firearm
manufacturers in the late 1990s failed, in part, because some
judges ruled that gunmakers shouldn’t be held liable for the
misuse of their otherwise lawful products. For a pistol to be
misused, another actor—a criminal, a suicide, or a curious
child—has to intervene and pull the trigger. Similarly, when
opioids are misused, blame should rest elsewhere, says Mark
Cheffo, one of Purdue’s outside lawyers.
Purdue and its rivals also argue that the evidence, even if
incriminating, is too old. In the opioid cases, many of the alle-
gations are based on events—such as the publication of suspect
medical literature—that took place 10 years or more in the past,
beyond some states’ statutes of limitations on proving fraud.
Josephson says the company hasn’t received an FDA warning
letter about its marketing since 2003—“14 years!” he adds for
emphasis. He also complains that the suits fail to give Purdue
credit for switching in 2010 to a new “abuse-deterrent” version
of OxyContin that’s more difficult for addicts to crush, break, or
dissolve. On its website, the company calls itself “the new Purdue
Pharma,” which “has learned from the past and is focused on
the future.” It says it’s investing in research and development
for non-opioid pain medication, has widely disseminated the
CDC guidelines for prescribing among doctors and pharmacists,
and joined with the National Sheriffs’ Association in an $850,000
program to provide naloxone kits and training for police officers.
Another defense is that the states and localities should
October 9, 2017
really be suing the makers of generic painkillers. Of the roughly
234 million annual opioid prescriptions, only 4 million, or
1.7 percent, are for Purdue drugs. “We don’t see how you solve
this problem when you don’t have the biggest players involved,”
Josephson says.
While generic medicines cause harm, they generally aren’t
promoted, Moore says. Going after the branded manufacturers
makes sense because they created the environment in which
generics later thrived. Even so, he adds, “When this is all said
and done, all the companies will be sued one way or the other.”
M
oore’s nephew first became acquainted with
opioids at 26, after he woke up from a four-day
medically induced coma following an alterca-
tion with his then-girlfriend that ended with
him being shot in the chest with his own .45. Neither party filed
charges, and his recollection of the night is so hazy he doesn’t
know who pulled the trigger. The gunshot caused extensive
damage to his subclavian artery and surrounding nerves that
would require almost 30 operations.
Doctors administered intravenous morphine while he was
in intensive care; once at home, he received prescriptions for
various combinations of Percocet, Norco, Dilaudid, fentanyl, and
Demerol. About a year and a half later, while working full time as
a manager at a Nissan auto plant in Jackson, he began finishing
a month’s worth of medication after only three weeks, then two
weeks, as his tolerance increased. Soon he was turning to the
black market for Lortabs, hydrocodone, and fentanyl patches.
45
At one point, during an appointment to which Moore accompa-
nied him, a doctor assured him that he suffered from pseudo-
addiction—and needed not fewer opioids, but more.
After seven years, two stints in detox, and dozens of trips to
the hospital following overdoses or suffering from debilitating
withdrawals, he says it was his move to Mississippi’s Gulf Coast
to be closer to family that enabled him to gain some control
over his addiction. He’s now 37. Despite his history, he still has
a prescription for the opioid Opana IR, which he’s convinced
he can use sparingly because his fear of going through with-
drawal again is greater than his desire for the drug.
Moore acknowledges that weak regulation, lax prescrib-
ing practices, and abuse play a role in his nephew’s and the
nation’s addiction problem. “But a huge part of it is because
of the externalities of greedy companies. It wasn’t enough to
make this much money,” he says, holding his hands a foot apart.
“They wanted to make this much money,” he says, widening
his arms as far they’ll go.
“If you ask Big Pharma right now, Mike Moore is the devil,”
says Robertson, the former chief justice of Missouri. “But they
haven’t talked to him. And when they sit down, he’s going to
walk in and say, ‘We’ve got a business problem. Let’s figure
out a business solution.’ ”
Moore is confident that the opioid industry will be driven
to negotiate for the same reasons tobacco companies were: to
end the demonization and obtain financial predictability. “The
vilification of this industry has not even begun yet,” he says.
“In other words: This litigation will vilify them. It won’t make
the companies look like they’re legitimate businesspeople. It’ll
make them look like they took advantage and made billions of
dollars on lots of people who died from their products. And they
can claim misuse and abuse all they want to—it’s too many.” 
 Bloomberg Businessweek

ST U Y V E S A N T H I G H S C H O O L’S G E N I U S A LU M N I D O E V E RY T H

Hostile
Takeover
High
46

B Y V E R N O N S I LV E R

P H OTO G R A P H S BY
GUS P OWELL
 October 9, 2017

I N G W E L L — E XC E P T R A I S E M O N E Y. N OW A WA L L ST R E E T C L I Q U E I S S E I Z I N G C O N T R O L

47
 Bloomberg Businessweek
O
n a Saturday morning in Manhattan later this month,
thousands of nervous eighth graders will parade
quietly down Chambers Street near the Hudson River.
Clutching No. 2 pencils, they’ll flow over a pedestrian bridge
spanning a highway and into a modern 10-story building to
take an exam that will determine the course of their lives. For
many of these children, most of whom are 13 years old, it will
be the continuation of a trajectory that began with their births
in faraway countries or immigrant homes, followed by years
of perfecting a new language and getting grade levels ahead
in math, all so that on this morning they might win admis-
sion to what is arguably the best public secondary school in
the nation: Stuyvesant High School.
Of the approximately 30,000 children who’ll sweat through
the ordeal here and at other test sites in the five boroughs,
97 percent won’t make the grade. For the 800 or so who make
it into the Stuy class of 2022, an entirely new rat race awaits, as
they grub grades, run for student government, write musicals,
and seek cancer cures, all in hopes of winning the next reward:
acceptance to the world’s most elite universities. About a quarter
will get into the Ivy League. Harvard alone, skimming off the
top, will take 20 or more of their classmates, if past numbers
hold, making Stuyvesant one of the biggest single sources of
freshmen at America’s oldest university.
Even then, the tournament of success continues. Fanning out
into the world, Stuy alumni win Nobel Prizes (four so far) and
48 S T U Y V E S A N T H I G H S C H O O L’ S FAC A D E
October 9, 2017
Academy Awards (seven, from James Cagney to Tim Robbins);
run institutions (the University of Chicago) and elect presidents
(David Axelrod); write software (BitTorrent’s Bram Cohen) and
jazz rock (Steely Dan’s Walter Becker); and, increasingly in the
age of hedge funds and Silicon Valley billions, make lots and lots
of money. It stands to reason, then, that the illustrious alumni
of an elite academy have coalesced into a generous donor base,
lavishing funds upon the school that launched their success.
Except they haven’t. While private schools such as Phillips
Exeter Academy can have billion-dollar endowments, and
even some selective public schools sit on amounts in the tens
of millions, the Stuyvesant High School Alumni Association
has, at most, a paltry $2.5 million on hand. Any hopes of
building an endowment have been dashed by decades of
infighting among graduates, shifting allegiances of principals,
and, in one case, an alumni
fundraiser who blew through
$4 million. Until recently,
three separate nonprofit
alumni fundraising groups
“I can’t get my kids in be
competed for donations.
This year, a renegade
group called Concerned Stuyvesant Alumni has been actively
calling on graduates not to give money to the official alumni
association—the SHSAA. One of the dissidents, Beth Knobel,
once the CBS News Moscow bureau chief, has compared
ILLUSTRATIONS BY LEO KU
 Bloomberg Businessweek
elections in Vladimir Putin’s Russia to those held by the alumni
association, where seven candidates, prescreened by a nomi-
nation committee, stood this May for seven open board seats.
What the CSA is up against is the rise of the hedge fund
clique. A group of financiers, who manage many billions of
dollars on Wall Street, has seized control of the SHSAA board
and two separate endowment funds. Some Stuy-watchers
have called it a hostile takeover and accuse the new SHSAA—
led by Soo Kim, class of ’93—of barring critical posts from its
Facebook page and denying assistance for class reunions to
organizers who don’t do as they’re told.
To Kim, who became president of the alumni association
three years ago, these are mere hiccups in a greater mission to
build a $20 million endowment that will fund extracurriculars
and college scholarships in perpetuity. He embraces the Wall
cause I give or because I’m a leader. Nothing can help them other than getting past that test”
Street analogy, describing the Stuyvesant situation as akin to
fixing a troubled company, as he does in his day job as the found-
ing partner of New York-based hedge fund Standard General. “It’s
a turnaround,” he says. If it goes well, it’ll be like the time he took
over Young Broadcasting LLC and transformed a $300 million
enterprise into one he sold for $5 billion.
Except in this case, Kim is dealing with a constituency that
makes Wall Street brawlers seem tame: several decades’ worth
of the smartest teens in all New York, who spent their forma-
tive years in a hypercompetitive school that breeds “prison
yard behavior” (his phrase). “In a deeply un-nurturing envi-
ronment,” he says, “you need to find your gang to survive.”
Compared with turnarounds he’s done in the hedge fund
world, Kim says, “Stuyvesant is way harder.”
Stuyvesant’s brand—a school for the brainy—is so overpowering
that it obscures another basic truth: It’s also a school for the
poor. Almost half the students qualify for free or reduced-price
lunches. Many commute from the city’s peripheral neighbor-
hoods, as did future Attorney General Eric Holder (’69) and
novelist Gary Shteyngart (’91), who both traveled 90 minutes
each way from Queens. At home, Stuyvesant students might
grind through neurobiology and robotics coursework in
crowded apartments, with some sharing bedrooms with their
parents. Paying for basic supplies—let alone travel to a chess or
debate tournament—is often out of reach. That makes building
an endowment an urgent problem for Stuyvesant, which despite
its glitter gets the same per-student funding as any other New
York public school. Kim sees students’ desperation when he
reviews their applications for awards and college scholarships.
“The need,” he says, “would make you f---ing cry.”
But raising money seems to be the one thing Stuyvesant
alumni do poorly. Above the door to the principal’s office,
dwarfing a much smaller PRINCIPAL sign, is a bronze- colored
plaque engraved with the names of contributors to a 2014-15
“Endowment Challenge.” The plaque omits the total raised
in that campaign, which barely surpassed $500,000. I ran the
figure by some adroit New Yorkers involved in fundraising
October 9, 2017
at public and private schools, and they practically spat out
their sauvignon blanc. Parent associations at public elemen-
tary schools in wealthier pockets of Brooklyn and Manhattan
routinely raise that much every year. On the Upper East Side,
half a million would represent an underwhelming one-night
haul at a tony prep school’s spring gala.
One day in July, I pass under the plaque and sit down with
Principal Eric Contreras, a former social studies teacher with
a round face and a daughter who just graduated from Stuy.
It’s still summer break, and his next appointment is with a
mother dressed in a sari who waits in the hallway on a bench.
Contreras describes the competing alumni groups and their
money squabbles as an extension of the independent spirit
he sees among his students.
Stuyvesant’s sports teams, he notes, have no common
mascot—each has its own identity. There’s the Vipers for girls’
fencing, the Hitmen for baseball, and for football, the Peglegs,
after the wooden prosthetic sported by the Dutch governor of
New Amsterdam, Peter Stuyvesant, on whose farm the origi-
nal Stuyvesant High School was built. The school newspaper,
the Spectator, has put Contreras on notice that “we publish
49
without review of the principal.” He points out that Stuyvesant
has two different student publications about China, because
some thought the original one was too pro-mainland. “It’s
a vibrant ectoplasm,” Contreras says. “It’s produced some
great minds, but inevitably it’s produced some great divi-
sions.” He adds: “It creates liabilities when it’s time to build
an endowment.”
Listening to Contreras, I could think of another prime example
of how Stuyvesant’s combative atmosphere makes people
act a little nuts: me. As a sophomore there in 1985, I ran for
Student Union president and lost. Learning that an ally of
my opponent had been caught with his hand literally in the
ballot box, I demanded a re-vote. After a six-month appeal
process that ascended to the level of the New York City Board
of Education, I finally got my way, this time with official voting
machines trucked in by the government. (Half the school
abstained in disgust, and I lost again.)
At Stuyvesant, there was nothing remarkable about any
of this. For his 2007 book A Class Apart, journalist Alec Klein
(’85) spent a year at the school, during which someone stuffed
the voting box with 55 forged ballots—and not clumsy ones,
either, but photocopies of authentic ballots that were discov-
ered only because of a flaw in a counterfeit stamp. The next
year, a documentarian released Frontrunners, about a four-
way contest for the student presidency, which a New York Post
critic praised as “a microcosm of the race for the Oval Office.”
Even administrators can act strangely. A 2012 cheating scandal
culminated in an official city rebuke of the then-principal for
plotting a dramatic sting operation to catch a star pupil in the
act, rather than dealing with the matter straightforwardly.
Stuyvesant is feverish largely because the stakes are so
 Bloomberg Businessweek October 9, 2017

high. It’s hard to overstate the role in upward mobility that the Campaign for Stuyvesant to raise it. Hurwitz paid himself a
the school has played in New York for nearly a century. But $60,000 salary. “I didn’t need the money,” he says. Rather, this
recently, the presumed meritocracy of the entrance exam—in was a labor of love for his alma mater—in fact, he says, it meant
place since 1934—has become controversial, as Stuyvesant has a pay cut. “I made $75,000 at the UJA in the 1980s. The ’80s!”
come to reflect the city’s racial diversity less and less. About At first, the Campaign had office space at the school. That
74 percent of students are Asian, while just 1 percent are black. arrangement lasted until 2003, when a new principal established
The number of African American students at Stuy peaked in a second, competing endowment fund, Friends of Stuyvesant,
1975 at 12 percent, or 303 students, according to state records and evicted Hurwitz. “We went to my house,” Hurwitz says.
compiled by the New York Times. Even during the pre-civil The Campaign for Stuyvesant started chipping in $250 a
rights era, there were more black students than there are today. month for a slice of his rent-controlled, Columbia University-
Mayor Bill de Blasio has floated changes to Stuyvesant’s owned apartment, according to Hurwitz and the group’s
admissions criteria, recommending a “holistic” approach tax filings. The home-office space occupies an alcove off the
rather than a single almight y exam. kitchen, a roughly 10-by-12-foot space with
Opponents to such reform have included two C-shaped desks and a view of a cinder
Naval Ravikant (’91), a seed investor in Uber
Technologies Inc. and Twitter Inc., who
Stuy block wall. Photos and promotional materi-
als from alumni events plaster nearly every
co-founded AngelList, one of Silicon Valley’s
biggest sources of startup funding. Ravikant Standouts free bit of wall space. A bookshelf is filled with
Stuy-related titles, including Klein’s book and
moved to New York from India when he was volumes by Frank McCourt, who taught English
9 years old. “Stuyvesant was my real edu- at Stuyvesant before winning a Pulitzer Prize
J O S H UA L E D E R B E R G
cation. Don’t wreck what works, NYC!” he in 1997 for Angela’s Ashes.
Nobel Prize at age 33 for
tweeted in 2014, in response to a Post article discovering bacteria can mate Despite his exile, Hurwitz kept raising and
headlined: “To Make Elite Schools ‘Fair,’ City and exchange genes, spending money from that home office. For
class of 1941
Will Punish Poor Asians.” the school’s centennial in 2004, he published
Throughout its history, Stuyvesant’s pop- an ambitious color coffee-table book with an
A LV I N P O U S S A I N T
ulation has shifted in waves—from Brooklyn introduction by McCourt. It cost $250,000 to
Associate dean of Harvard Medical
Jews to immigrants from the USSR to today’s School, TV consultant, produce 5,000 copies, and the association
Asians, a group so diverse it should hardly be class of 1952 turned a profit by selling about 3,000 for $75
50
lumped together. The idea that Stuyvesant is or any donation above $250, Hurwitz says.
special because the entrance exam is blind HARVEY PITT From 1999 to 2014, Hurwitz pulled in about
to money or race is part of what drives Kim, Former Securities and Exchange $4.5 million—but there were expenses, such as
Commission Chairman,
who arrived in Queens from South Korea class of 1961 travel to fundraising events and alumni cock-
when he was 5, and his allies on the board of tail parties, he says. Tax forms confirm the
the alumni association. One of them, Anna RONALD GRABE expenditures, which also included accounting
Nikolayevsky (’88), is the founder of Axel Astronaut, fees and employee benefits. The fund, which
Capital Management LLC, a hedge fund, and flew four Space Shuttle missions, had been partly invested in equities, took a
class of 1962
a member of the boards of Lincoln Center for hit in the 2008 financial crisis. In all, it dis-
the Performing Arts and Girls Who Invest. tributed only $142,000 to students and the
WA LT E R B E C K E R
Nikolayevsky emigrated from Moscow when Rock & Roll Hall of Fame,
school. Today, all that’s left is about $330,000,
she was 8, speaking no English, and took the co-founder of Steely Dan, which as part of an ongoing wind-down of the

Stuy test cold when her mother told her to
do so one Saturday morning. “It’s one of the
last true meritocracies,” she says over lunch
at the private Core Club in Midtown, where
the receptionist greets her by name.
Nine years ago, Nikolayevsky gave $100,000
for a Stuyvesant computer lab. It went straight
to the school, bypassing the alumni groups and
endowment drives. Some other donors who
didn’t take that direct route are now wonder-
ing where their money went.
The story of Stuyvesant’s fundraising fumbles
starts in 1999, at a moment when the alumni
association didn’t see itself as a long-term
money manager. The principal at the time,
fearing city budget cuts, decided an endow-
ment was needed. She turned to Neal Hurwitz
the Democratic National Committee,
(’62), a fundraiser for the United Jewish Appeal
Inc., who set a goal of $12 million and founded
class of 1967
L I S A R A N DA L L
Harvard Physics professor, author,
class of 1980
L U CY L I U
Actor, class of 1986
O M A R WA S OW
Founder of BlackPlanet.com,
Princeton professor, filmmaker,
class of 1988
N AVA L R AV I K A N T
Seed investor in Uber and Twitter,
class of 1991
G R AC E M E N G
U.S. Congresswoman, vice chair of
class of 1993
DATA: “A CLASS APART” BY ALEC KLEIN, BLOOMBERG RESEARCH. NOTE: GIRLS FIRST ADMITTED IN 1969
Campaign will be handed to the alumni asso-
ciation, Hurwitz says.
Stuyvesant fundraising has lately taken on
a more professional sheen. Kim got involved
in 2014 and began to consolidate power, per-
suading Hurwitz and the competing fund to
fold their activities into the official alumni
association, which operates out of the school
building. Kim spends his days at his hedge
fund’s offices in the General Motors Building,
the modern landmark on the southeast corner
of Central Park, where the 24th-floor confer-
ence room has a terrific view into the zoo.
The contrast in scenes—from scruffy rent-
controlled apartment to gilded finance suite
in the sky—is rather on-the-nose as an illus-
tration of how New York itself has changed in
recent decades. In any number of ways, the
city has undergone Wall Streetification and
come to disdain thrift. Hurwitz concedes that
Bloomberg Businessweek
A L U M N I A S S O C I AT I O N H E A D K I M
he missed this shift, continuing to court doctors and lawyers
for donations when he should have been wooing a new, super-
wealthy generation of investors. Kim’s focus on finance, he
allows, just might work.
The open secret about school fundraising in America is that
it’s rarely unselfish—something is nearly always for sale. It
can be a public transaction, like naming rights for a new
gym. Or it can be undetectable, like shifting a marginal son
or daughter from the “deny” pile to “admit.” From preschool
to college, admissions staffers are in dialogue with the devel-
opment offices that raise money. Donors are encouraged to
believe that tithing can tip the scales toward something they
want. And so one reason Stuyvesant has less in its coffers is
that with its implacable test-based admissions, it simply has
less to sell. Kim gives money to the university he attended,
Princeton, but contributing to Stuyvesant “is a truer expres-
sion of altruism,” he says. “I can’t get my kids in because I
give or because I’m a leader. Nothing can help them other
than getting them past that test.”
Kim is the picture of a Princeton preppy, with a blue-
and-white checked shirt and a shaggy head of hair, as he
details his plans for Stuyvesant’s alumni organization at
Standard General’s offices. “My goal, ultimately, is to leave
October 9, 2017
an association where I can’t get in,” he says. “Where I don’t
have enough time, I don’t have enough gravitas, I don’t have
enough generosity [to] get on the board.” That may be so, but
in the meantime, Kim is stocking the board with people who
look a lot like himself. One major addition, in 2016, was Boaz
Weinstein (’91), the hedge fund manager famous for betting
against a J.P. Morgan trader, known as the London Whale, who
lost the bank billions in 2012.
Weinstein, the founder of Saba Capital Management LP,
shared Kim’s frustrations with Stuyvesant’s fundraising appa-
ratus. Around the middle of 2010, he recalls, he reached out to
the school about giving money. It took a year for someone to get
back to him, he says. Eventually, in 2012, he gave $1 million—the
school’s biggest-ever gift—to build the Boaz R. Weinstein Library
and support the robotics club and the speech and debate team.
“Given how sentimental so many alums are about their years
at Stuyvesant, it’s amazing how few give to the school and its
needs,” Weinstein says, “compared to the generous donations
that these same people make to their college endowments.”
This year, new board members included Stuart Spodek (’88),
the lead portfolio manager at BlackRock Inc.’s Obsidian Fund,
a hedge fund that’s President Donald Trump’s single biggest
investment outside real estate; Peter Boyce II (’08), a principal
at General Catalyst Partners who’s also chairman of Harvard’s
alumni association for tech entrepreneurs; and Hal Diamond
(’78), formerly a director at S&P Global Ratings. They’ll need
to make peace with organizers of the Concerned Stuyvesant
Alumni and other factions, who have several specific gripes.
51
They range from serious—such as better disclosure about the
disbursement of scholarship funds, including one in memory
of a graduate killed on Sept. 11, 2001—to less so, like being
excluded from Facebook groups. But even the minor squab-
bles matter insofar as they affect how much money eventually
makes its way toward the enrichment of New York City’s bright-
est, neediest teenagers.
Patching things up would be easier if alumni could bond over
pleasant memories of bygone school days, but even the most
grateful grads can have a hard time mustering the warm and
fuzzies for Stuyvesant. As much as the school is a transforma-
tional gift, it’s also an ordeal to be moved beyond. Shteyngart,
the novelist, remembers the tumult well. “The only way to
describe the culture is: competitive,” he says. “People want
to win at all costs, to be acknowledged as the best in their
field. I barely walked out of there standing. It was great to go
to Oberlin and take classes in Ringo Starr studies afterwards.”
The internecine behavior in Stuyvesant’s orbit is so
entrenched that it’s become the subject of academic study.
Sociology professors Syed Ali of Long Island University (’85) and
Margaret Chin of Hunter College (’80), who are writing a book
on the life paths of their fellow alumni, found that Stuyvesant
graduates defy the received wisdom of social science. Most
research into U.S. social mobility has found that parents’
income and education are predictors of how their kids turn out.
At Stuyvesant, however, impoverished grads move up a rung
in a single generation, and it’s not just because they’re smart
kids and would have succeeded anywhere. “There’s some-
thing different going on at Stuyvesant,” Ali says. The secret, he
believes, is a student culture that normalizes extreme achieve-
ment—by any means necessary. “At minimum,” he says, “we
learned how to hustle.” 
 Bloomberg Businessweek
THE BILLION-
DOLLAR WAR
52
Apple doesn’t mind
buying Qualcomm’s
modem chips—
but it’s had it with
paying $10 in patent
fees for every
iPhone it makes
By Max Chafkin and Ian King
Illustration by Jack Sachs
Over an $18 Part
IPhone season, that extravaganza
of novelty and surprise, began in
mid-September with a two-hour-long
presentation at Apple Inc.’s brand-new,
spaceshiplike campus. Amid oohs, ahs,
and an embarrassing number of standing
ovations, Chief Executive Officer Tim Cook
introduced two phones. The iPhone 8, an
updated version of the current model, is
already out in the wild. True Apple devo-
tees are holding out for the iPhone X, the
10th anniversary edition, which will cost
$1,000 and go on sale in early November.
“This really is the future,” Cook said.
The iPhone X—which will boast a full-
screen display and facial recognition
capabilities and is made out of a “special
Apple-designed alloy that’s both durable
October 9, 2017
and more pure,” according to marketing
materials—is almost certain to be a hit.
There will be block-length lines in front
of Apple Stores, moody TV spots, and
ecstatic unboxing videos. By Christmas,
75 million or so people will have bought
new versions of a device that, before
any of this pomp and circumstance, was
already the most successful consumer
product of all time.
But Apple can be as coldly calculat-
ing as it is dazzling. There will be lots of
romantic stories about 10 years’ worth of
iPhones published in the coming weeks.
This is not one of those stories. This is a
story about the power dynamics in one of
the world’s largest industries.
It’s based in part on court documents
 Bloomberg Businessweek
filed as part of a dispute over one of
the most expensive and, arguably, most
important parts of the phone: the wireless
modem. The story starts two summers
ago, at a conference in Idaho, where a
senior Apple executive, probably Cook,
and a senior Samsung Electronics Co.
executive, most likely Vice Chairman Jay
Y. Lee, shared a quiet word.
Samsung is Apple’s biggest rival.
The two companies have spent almost
a decade in a bitter patent infringement
dispute stemming from Apple’s claim
that Samsung copied aspects of the
iPhone. On the other hand, Samsung is
also a top iPhone supplier and an ally in
another contentious patent fight, against
Qualcomm Inc., one of the world’s largest
semiconductor companies.
Most people, save for electrical engi-
neers and Los Angeles Chargers fans
(Qualcomm’s name was on the NFL
team’s old stadium in San Diego before the
54 Chargers moved), don’t know much about
Qualcomm, which has more than tripled
its revenue over the past decade, thanks
in part to an unusual business model. In
addition to selling modems and other
chips, Qualcomm has amassed a portfo-
lio of more than 130,000 patents covering,
among other things, the key technologies
that allow phones to send and receive
data. If you want to sell a phone capable of
connecting to the internet at high speeds,
you need a license from Qualcomm. The
company charges a royalty of as much as
5 percent of the average selling price of
the phone, which can come to more than
$30 per device.
Qualcomm says its pricing scheme is
fair, and, seen from a certain angle, it is.
Thirty bucks, after all, is a small price to
pay for the ability to pull data straight out
of the sky. Cell phone manufacturers refer
to it as “the Qualcomm tax,” and the prac-
tice has been investigated by regulators
in China, Taiwan, South Korea, Japan,
the European Union, and the U.S. A few
phone makers, including Nokia OYJ and
Ericsson AB, have unsuccessfully taken
Qualcomm to court. The rest have simply
tried to negotiate volume discounts.
Apple, the biggest smartphone manu-
facturer by revenue, was well-positioned
to negotiate, and it persuaded Qualcomm
to agree to rebates that brought the price
of Qualcomm’s license down to about $10
per phone, according to analyst estimates.
To get that price, Apple promised not to
challenge Qualcomm’s patents. Crucially,
though the agreement prevented Apple
from encouraging regulators to crack
down on Qualcomm, it allowed Apple to
truthfully answer questions in any inves-
tigation already under way.
At the conference in Idaho, according
to documents Qualcomm filed earlier this
year, Apple saw an opportunity to put
itself in front of investigators. Qualcomm
claims that at the event—almost certainly
the Allen & Co. conference in Sun Valley,
which both Cook and Lee attended—the
Apple executive urged Samsung to pres-
sure South Korean antitrust regulators to
intensify an investigation into Qualcomm
that had been open since 2014. “Get
aggressive,” the Apple executive said,
according to Qualcomm’s filing, adding
that this would be the “best chance” to
get Qualcomm to lower its prices.
Qualcomm’s allegation—that Apple
got Samsung to use its influence with the
Korean government to push regulators to
go after Qualcomm as part of a global con-
spiracy to pressure it to reduce prices—
is explosive, particularly given that Lee
was later convicted of bribing the coun-
try’s former president, Park Geun-hye, in
an anticorruption crackdown in Korea.
The crackdown also led to the resigna-
tion of the vice chairman of the Korea
Fair Trade Commission, which brought
the case against Qualcomm. Apple says
nothing improper happened. “I don’t
know what conversation they are talking
about,” says Bruce Sewell, the company’s
general counsel, in an interview at head-
quarters in Cupertino, Calif. “For Apple
to have said to Samsung, ‘You guys are in
Korea and you should be watching this
case carefully,’ doesn’t seem to me to be
anything beyond simply the kind of con-
versation two CEOs might have.” Samsung
declined to comment on the allegation. A
KFTC official, Yoo Young-wook, says the
agency began the investigation on its own
and that Samsung was “only one of the
companies we enlisted for reference.”
Whatever the impetus, the KFTC did
get aggressive with Qualcomm, fining
the company $850 million at the end of
2016 “for abuse of market dominance”
and announcing that it would order
Qualcomm to change its pricing scheme.
Three weeks later, the U.S. Federal Trade
Commission accused Qualcomm of anti-
competitive tactics. Qualcomm denies
all wrongdoing in both cases. The FTC
complaint, the company says, “seeks
to advance the interests and bargaining
October 9, 2017
power of companies that have generated
billions in profit from sales of products
made possible by the fundamental 3G and
4G cellular technology developed by inno-
vators like Qualcomm.”
Just three days after the FTC filed
its complaint, Apple sued. It’s asking a
California court to order Qualcomm to
pay $1 billion in damages and to offer
technology licenses at a much-reduced
price. Apple also cut off royalty payments
to Qualcomm, a revenue stream of about
$2 billion a year.
Within a matter of weeks, Qualcomm,
which had been valued at more than
$100 billion in December 2016, had lost
a quarter of its market capitalization,
an outcome that Qualcomm executives
say was Apple’s intent all along. “Apple’s
game plan is to squeeze people until they
finally say, ‘OK, the pressure’s too hard.
I’ll just take a deal,’ ” said Derek Aberle,
then Qualcomm’s president and the com-
pany’s chief negotiator, in an interview in
July. Apple, on the other hand, presents
the dispute as a matter of fairness. “It’s
not that we can’t pay,” Sewell says. “It’s
that we shouldn’t have to pay.”
The case, which could go to trial in a
San Diego federal court as early as next
year, could have a profound impact on the
mobile phone business. A Qualcomm win
would hamper Apple’s efforts to cut costs
and preserve margins that have allowed
it to capture most of the profits gener-
ated by smartphone makers worldwide.
If Apple wins and succeeds in ending the
Qualcomm tax, that could marginalize
one of the most powerful American tech-
nology companies and upend the balance
of power in the semiconductor industry.
T
here are two ways of
looking at any new Apple
product. The first, the
way Apple prefers, is to
focus on the exterior.
At launches, executives
linger over the technol-
ogy’s physicalities, enthusing about new
materials, new manufacturing processes,
and the seamless integration of hardware
and software. Apple has always cared
about a phone’s technical capabilities, but
it’s tended not to call attention to those
things as such. “It just works,” co-founder
Steve Jobs liked to say.
The second way of looking at a phone,
the one Qualcomm prefers, is to focus
on what’s inside. Modern smartphones,
Bloomberg Businessweek
thanks in no small part to chipmakers
such as Qualcomm (and Apple, which now
designs its own chips), are computers that
can more or less do everything a desktop
can while producing little heat and using
almost no electricity. They do it all wire-
lessly: A 4G, or fourth-generation, cell
phone can receive and transmit data at
speeds comparable to those of your home
Wi-Fi network, from almost anywhere in
the developed world. Most of us have
gotten so used to this that we’ve stopped
being impressed by it. “You pay roughly
the same per month today as you did
20 years ago, and you get a million times
more data,” says Matt Grob, Qualcomm’s
executive vice president for technology.
“That’s because of the advances in the
craft of digital wireless communications.”
Grob, one of the company’s top engi-
neers, is standing in front of a robotic
arm that has a mannequin’s head where
a hand would normally be. This is at
one of Qualcomm’s several dozen labs
at the San Diego headquarters, part of
a research and development operation
that spends more than $5 billion a year.
“There’s a lot of heads and body parts,”
Grob says matter-of-factly when asked
about the lab’s Frankenstein quality.
He explains that each body part is filled
with a viscous saline solution—“a par-
ticular standardized goop”—designed
to simulate the goop inside a real body.
The idea is to test how the presence of
flesh affects signal strength and to make
sure Qualcomm’s modems adjust for it.
After accounting for all the things that
can mess with the strength of a signal,
wireless companies have to manage spec-
trum. Imagine an enormous radio dial.
In the U.S., the major cell phone carri-
ers each own some spectrum—as do TV
networks, radio broadcasters, the Coast
Guard, and so on. Inside a given block of
spectrum are channels. Carriers get hun-
dreds of channels each, and each phone
needs access to at least one of them. The
trick, if you’re in the wireless business,
is in figuring out how to cram lots of
phones’ data into a single channel, and
to then transmit those signals between
phones and radio towers even when
they’re bouncing off buildings, moving
at highway speeds, or blocked by foliage.
Pre-Qualcomm, cell phone carriers
accomplished this by giving each caller a
narrow time slot—less than a millisecond—
to send a burst of data. Callers had the illu-
sion of a continuous conversation, but,
“Apple’s game
plan is to squeeze
people until they
finally say,
‘I’LL JUST
TAKE A
DEAL’ ”
in fact, everyone was taking turns; your
phone was sending data in little chunks,
which were then reassembled by the
receiver’s phone. This system, which is
still used on older networks, works well,
with minimal lag during calls and down-
load speeds fast enough to allow users to
browse the web slowly or maybe stream
music. But because there are only so many
time slots, it’s inefficient, as if you gave a
dinner party in which only one person
were allowed to talk at a time.
Qualcomm’s big innovation, devel-
oped by co-founder Irwin Jacobs, a former
computer science and engineering pro-
fessor at the University of California at
San Diego, was to have all the conversa-
tions play at the same time, each identi-
fied by an individual code. This system,
based on a protocol known as code divi-
sion multiple access, or CDMA, allowed
five times as much data to be exchanged
on the same amount of spectrum. Your
cell phone listens only for data packets
that are coded to it, in the same way your
brain picks out individual conversations
in a crowded room.
Qualcomm’s CDMA specification
was approved by the wireless industry
in 1993 and was included in the spec for
3G, the high-speed data protocol that
hit the market in 1999. It took almost
October 9, 2017
a decade for 3G to catch on—the first
iPhone lacked the technology—but it ulti-
mately paved the way for the popularity
of smartphones, including Apple’s. Since
then, Qualcomm’s licensing revenue has
almost tripled, from $2.8 billion in 2007
to $7.7 billion last year. About 85 percent
of that was profit.
Visitors to Qualcomm’s headquarters,
situated in a suburban office park a few
miles from Jacobs’s old UCSD lab, are
greeted by a monument to this business:
the Patent Wall. The two-story-high instal-
lation displays hundreds of Qualcomm
filings. Jacobs’s original CDMA patent is
there, blown up and annotated, and his
original CDMA specification has been
printed out and preserved nearby, in
its 685-page glory, behind glass in a sep-
arate corporate museum. Other works
given prominent placement: U.S. Patent
6,724,060 (“Method and apparatus for
conserving power in an integrated elec-
tronic device that includes PDA and a
wireless telephone,” which Qualcomm
claims is a patent for the first smart-
phone); Patent 7,099,663 (“Safe appli-
cation distribution and execution in a
55
wireless environment,” essentially an app
store); and Patent 8,516,607 (“Facilitating
data access control in peer-to-peer overlay
networks,” which means … something).
“I can’t think of a keystroke that you
can do on a phone that probably doesn’t
touch a Qualcomm invention,” says Steve
Mollenkopf, the company’s low-key chief
executive officer, who succeeded Paul
Jacobs, Irwin’s son, in 2014. Mollenkopf
is, like most Qualcomm senior managers,
an electrical engineer by training. In addi-
tion to noting that he’s CEO, Mollenkopf’s
business card has the word “inventor”
stamped at the bottom right-hand corner,
a distinction employees earn if they’ve
been awarded a patent. Mollenkopf has
13. Grob has more than 70.
Inventors in the cell phone busi-
ness strike agreements with indus-
try standards bodies to charge a
price that’s “fair, reasonable, and
nondi sc riminator y ”—“Frand” in
industry-speak—as a condition of their
inclusion in a given wireless standard.
The system provides guaranteed income
to the companies that invent the stan-
dards and makes it relatively easy for
upstarts to build handsets without wor-
rying about getting sued for patent
infringement, as long as they pay
the prescribed royalties. In theory,
 Bloomberg Businessweek
the fairness requirement prevents
a company such as Qualcomm from
squeezing its customers for patents that
are part of the standard.
“Our business is really designed to
allow as many players as possible to go
into the industry,” Mollenkopf says. He
notes that Essential, the new smartphone
company founded by Android creator
Andy Rubin, began selling a handset in
August that more or less matches the
new iPhones feature-for-feature despite
being produced by a company that has
about 100 employees and $300 million in
venture capital. Reviews of the new phone
have been mixed, but that the Essential
handset is even being compared to the
iPhone X is an achievement given that
Apple spent more than $10 billion on R&D
in 2016. “We have democratized access to
mobile connectivity,” Mollenkopf says. “I
mean, anybody can do it.”
“Anybody can do it” is not necessar-
ily good for Apple, though. By offering its
technology for a fee based on the price
of a device, Qualcomm is in effect giving
manufacturers of inexpensive phones a
discount—at a time when iPhone sales
56
have been unchanged and sales of
phones by Chinese upstarts have been
spiking. According to an estimate by tech-
nology consulting company International
Data Corp., Huawei Technologies Co.
increased shipments by 20 percent in
the second quarter of 2017, which puts
it just behind Apple in worldwide market
share. Sales by the fourth- and fifth-place
manufacturers, Oppo Electronics Corp.
and Xiaomi Corp., grew by 22 percent
and 59 percent, respectively. By contrast,
Samsung, the top-selling device maker,
and Apple, No. 2, saw gains of less than
2 percent each.
F
rom the outside, the dif-
ference between a new
iPhone and a device
made by Huawei or
Xiaomi is pretty appar-
ent, but on the inside
all phones look alike.
There’s a battery that takes up much
of the volume, some connectors, and a
small motherboard (a “logic board,” Apple
calls it) that fits around the battery. The
board is home to a dozen anonymous
squares, the chips that make the smart-
phone smart. Somewhere on the board is
the baseband processor, aka the modem,
which turns radio waves sent from cell
“It’s great
to have them as
a customer, but
sometimes it
DOESN’T
END
WELL”
towers into voice and data.
“Here it is,” Apple’s Sewell says, sliding
a fingernail-size square covered with elec-
trodes across a conference room table: a
Qualcomm modem. “That thing sells for
about $18.”
He means the chip itself, before any
royalties. Qualcomm’s business model,
which is either ingenious or diabolical
depending on whom you talk to, is to
allow any chip company to use its tech-
nology royalty-free. Phone manufacturers
can choose to buy chips from Qualcomm
or one of the other five companies that
make modems using Qualcomm’s tech-
nology. Either way, they still have to pay
Qualcomm its 5 percent.
Because Qualcomm spends more on
R&D than any of its peers, its modems
are the most advanced. For years, Apple
considered Qualcomm’s to be the only
modems good enough for the iPhone.
That, Sewell says, is why Apple put up
with Qualcomm’s licensing scheme for
years. If Apple refused to pay the royalty,
Qualcomm could cut off its modem supply,
forcing Apple to rely on inferior chips.
That calculation changed in 2015, when
Apple began working with Intel Corp. to
develop a modem that was used in some
versions of the iPhone 7. “What prompted
October 9, 2017
us to bring the case now as opposed to five
years ago is simple,” Sewell says. “It’s the
availability of a second source.”
Around the same time, Apple began
demanding more drastic concessions from
Qualcomm. Although the specifics of the
negotiation are secret, Sewell, who spoke
to Bloomberg Businessweek in August, two
weeks before the big iPhone launch, was
able to lay out the company’s thinking. As
Apple sees it, a cell phone modem is one
of many components—and of no special
significance. Sewell points out that if your
cellular network is down, it’s possible to
get online using Wi-Fi, which uses a dif-
ferent chip. Moreover, phones aren’t just
phones anymore; they’re also navigational
tools, digital wallets, health monitors,
cameras, and more. All of those func-
tions work with or without cell service.
“Cellular connectivity is important,” he
says, “but it’s not as important as it used
to be.” On another table behind Sewell, an
Apple representative has laid out two ver-
sions of the iPhone 7: One model, which
has 128 gigabytes of memory was sold
by Apple for $750. The other, which has
256 GB, sold for $100 more. How is it fair,
Apple asks, for Qualcomm to charge as
much as $5 more for the technology in the
more expensive phone, given that the two
devices are otherwise identical?
Starting in 2015, Apple argued that it
should pay patent royalties to Qualcomm
based on the price of the modem rather
than the price of the phone, which
would imply a much lower figure. Sewell
says Apple believes it shouldn’t have
to pay more than $4 or so per device,
60 percent less than what it was paying
Qualcomm after rebates, according to
analyst estimates. Qualcomm, not sur-
prisingly, refused.
The negotiation intensified when
Korean regulators began investigating.
In August 2016, the KFTC interviewed
Apple. Qualcomm says Apple’s state-
ment to regulators contained lies, which is
why, the next month, Qualcomm stopped
paying its usual rebates to Apple, effec-
tively raising the company’s per-phone
royalty rate.
In retaliation, in January of this year,
Apple sued, accusing Qualcomm of oper-
ating an “extortion scheme.” Around that
time, Apple informed the five contract
manufacturers that assemble iPhones
in China that it would no longer reim-
burse them for Qualcomm’s royalties.
The manufacturers promptly stopped
 Bloomberg Businessweek
making the payments.
Qualcomm executives see themselves
as victims of a powerful company that’s
attempting to wring a little more profit
margin out of a maturing product line.
In July, Qualcomm sued Apple, claiming
it had infringed on six new Qualcomm
patents related to battery life and graph-
ics processing. It also asked the U.S.
International Trade Commission—the gov-
ernment agency charged with protecting
American companies—for an injunction
that would ban the import of iPhones that
use Intel chips. In August the ITC opened
a formal investigation into Apple’s alleged
infringement and said it would decide on
the matter by September 2018—right in
time for Apple’s next iPhone launch.
The suit appears designed to disrupt
Apple’s supply chain and push the
company to negotiate. “You know,
there’s always a lot of legal rhetoric,”
Mollenkopf says. “It’s not going to be like
that forever.” That is, Mollenkopf expects
Apple to settle soon.
There are, however, signs of strain
within Qualcomm. Shortly after
Mollenkopf spoke with Bloomberg
Businessweek, the company disclosed
that a second major cell phone manufac-
turer, which some analysts say is Huawei,
had stopped paying royalties, sending
Qualcomm’s stock crashing again. Then,
in August, the company announced that
Aberle, its top technology licensing execu-
tive, was leaving the company. Mollenkopf
points out that Qualcomm, which has
more than $38 billion on hand, can afford
a protracted fight. It sounds impressive
until you realize that Apple has almost
seven times that much cash.
T
he iPhone X is, as Cook
says, full of futuris-
tic technology. But one
feature the new phone
will not have, say people
familiar with its compo-
nents, is a state-of-the-
art modem. Because Intel hasn’t yet
been able to match Qualcomm’s top-of-
the-line version, Apple has opted not to
add so-called Gigabit LTE capabilities to
its new device, meaning that the latest
DATA: ESTIMATES BY IHS MARKIT
Samsung and Essential phones, which
use Qualcomm modems, will be faster
than the iPhone in certain markets. That
Apple uses slightly slower modems won’t
hurt iPhone sales yet—its modem can
handle streaming high-definition video
What an iPhone costs
$699
Retail
$499
Materials $236
$219
2007 2017
perfectly well—but it’s a preview of the
possible costs to Apple if it can’t make a
deal with Qualcomm.
Next year, carriers will begin testing
so-called 5G, an even faster standard that’s
widely seen as necessary to the develop-
ment of technologies such as augmented
reality and driverless cars. Qualcomm has
been working on parts of the standard
for a decade, which Mollenkopf says is a
reason the dispute with Apple is coming
to a head now. “This is maybe a little bit
wonky,” he says, “but there’s always a
period of time where the industry is a little
bit stable and there’s a battle for margin.”
Once 5G hits the market, he argues, elec-
tronics companies will have new oppor-
tunities for growth and will be happy to
pay Qualcomm’s fees again.
Apple’s lawyers say that’s self-serving
nonsense, and they’re preparing for
a trial. “There’s no way that this case
settles, absent a complete reinvention of
the licensing model that Qualcomm has
adapted in the industry,” Sewell says.
That would do further damage to
Qualcomm’s market value and stature,
something that wouldn’t be unprece-
dented. Earlier this year, a longtime Apple
supplier of graphics chips, Imagination
Technologies Group Plc, disclosed that
Apple would no longer license the com-
pany’s technology. The move followed
reports that Apple had been hiring engi-
neers from Imagination and investing in
its own development of the chips, known
as GPUs. In a matter of days, Imagination’s
stock fell more than 50 percent, and the
company put itself up for sale.
Could something similar happen to
Qualcomm? Mike Walkley, an analyst
October 9, 2017
who covers Apple and Qualcomm for
Canaccord Genuity Inc., notes that Apple
has been hiring radio engineers in recent
months, a possible prelude to an effort
to develop modems in-house. “Apple’s
become so powerful in the market,” he
says. “It’s great to have them as a cus-
tomer, but sometimes it doesn’t end well.”
Another hint that Apple is aiming
directly at the core of Qualcomm’s busi-
ness came during the introduction of the
iPhone in September. For the first time
at a launch, design chief Jony Ive, who’s
usually brought in to purr about indus-
trial design and pronounce aluminum the
British way, spent time on the iPhone’s
guts, praising the “neural engine” on the
A11 Bionic application processor, which
Apple says is what allows a user to unlock
the device by simply looking at it. When
talking about the company’s new watch,
the Series 3, Apple Chief Operating Officer
Jeff Williams grew emotional describing
the power of the device’s cellular modem,
which allows users to make calls from
their wrist, Inspector Gadget-style. “That’s
just darned close to magical,” Williams
says. “Who would have thought?” He
57
didn’t mention that the watch uses a
Qualcomm modem to help make this
magic possible.
While Apple talks up its new devices,
Qualcomm has tried to make itself less
reliant on licensing fees. It is attempt-
ing to buy NXP Semiconductors NV, a
Dutch company that makes the chips
used for mobile payments in most
phones. Qualcomm has also been trying
to promote itself as much more than a
company that owns some modem patents.
It’s airing ads that promote its inventions
on wonky podcasts and the Washington
metro, among other places. “Qualcomm is
why you love your smartphone, no matter
what phone it is,” an ad says.
Back at headquarters, Grob makes
a similar case, running through dozens
of technologies Qualcomm has devel-
oped that are unrelated to modems or
wireless standards, including cameras,
augmented reality, video compression,
surround sound, and on and on. All
those technologies, he adds, are more
or less worthless without a cellular con-
nection. “What’s the first thing you do
when you land on a flight? You turn
off the airplane mode,” he says with a
grin. “By the way, we invented airplane
mode. That patent’s out in the lobby.” 
—With Sam Kim
 W H ER E TO
S KI

P
U
A skier takes on
Whistler’s steep
terrain

R
S
U
I
T
S

64
NOT YOUR
TYPICAL DRESS
SHIRT

66
ACE GREENBERG
OFF-BROADWAY

67
THE VITAMIX
A3500 BLENDER

68
THE GEARHEAD

WINTER
WHO REVITALIZED
LAMBORGHINI

WONDERLANDS
Some of the world’s best ski resorts are introducing a flurry
of on-mountain improvements and luxurious slopeside Bloomberg
retreats. Here, a guide to the most exciting high-altitude Businessweek
developments of the year, from guaranteed powder pockets October 9, 2017
to epic, daylong runs. By Nikki Ekstein
Edited by
Emma Rosenblum
 Bloomberg Pursuits
S KI
W H ER E TO
60
Dusk falls on Taos
TAOS GETS A
HIGH-END UPGRADE
The Rockies meet Pueblo culture in this crowd-free sliver of
northern New Mexico, which has gotten a $300 million cash
injection courtesy of billionaire conservationist Louis Bacon.
The indie Southwestern vibe and challenging terrain remain.
But now the Blake, an 80-room hotel with American Indian-
inspired details and direct slopeside access, finally provides
a nice place to rest your head. There’s also a new gondola
going straight from a beginner-friendly area into the heart of
town—this, in a destination that has traditionally attracted
adventurers keen on hiking up the slopes before zooming
down. If you’re concerned about the environmental impact
of the ski industry, Taos is your place. The new ownership
has gone to great lengths to turn it into a beacon of energy
efficiency, making it the first B Corp-certified ski resort in
the world.
Who you’ll see: Die-hards in speed suits
Where to ride: The chutes and bowls off the new
Kachina triple chair are reliably full of deep stuff
Cost of a lift ticket: $105 per day
October 9, 2017
MEGEVE ENTERS
A GOLDEN AGE
PREVIOUS PAGE: COURTESY VAIL RESORTS. THIS SPREAD: SIMON GARNIER (MEGEVE); CHRIS KAPELLER
The French resort has always been a bastion of Old World luxury,
a bevy of fur coats and hand-painted, horse-drawn carriages in
the shadow of Mont Blanc. But on the heels of a €300 million
($354 million) investment, the town is getting a 21st century
(LECH); TAOS SKI VALLEY (TAOS); COURTESY MOUNTAIN MODERN (JACKSON HOLE)
update. High-speed gondolas will now connect its disparate
peaks. And the longest toboggan run in the Haute-Savoie has just
opened along with two dedicated “fun zones” for kids and the
largest indoor wellness complex in the Alps—with therapeutic
pools to help you recover from a day on the slopes. December
marks the debut of the 69-room Four Seasons, built in collabo-
ration with Benjamin and Ariane de Rothschild, whose family
helped establish Mègeve as a tony winter playground. The hotel
has big ambitions: It’s imported the general manager from the
Hotel George V in Paris, along with the two-Michelin-starred
restaurant, Le 1920, formerly on the Rothschild estate.
Who you’ll see: Old money and French aristocrats
Where to eat: Le Hibou Blanc, a new brasserie
from St-Tropez’s beloved Sénéquier team
Cost of a lift ticket: €46.50 per day
 S KI Bloomberg Pursuits
W H ER E TO
Der Wolf in Lech
Wide-open pistes in Mègeve
LECH ADDS AN INSANE,
ALL-DAY TRAIL
Given the unpredictability of snowfall in recent winters, the
greater Lech area has a considerable advantage: The western
Austrian resort consistently ranks with the snowiest places in
Europe. And now that a panoramic tram system is connecting
Lech with six neighboring Arlberg peaks, including St. Anton
and Zürs, its contiguous skiable terrain is among the largest
in the world. Skiers up for a challenge can try their hand at
the Run of Fame, a newly minted path that cuts across the
entire mountain valley, linking trails that stretch 53 miles with
a cumulative vertical drop of 11 miles. Start to finish, this can
take an entire day, without leaving time for leisurely meals.
But you’d be wise to stop at the Scandi-chic Der Wolf, one of
three new on-mountain restaurants and the place to go for
hearty beef goulash and stunning Alpine views.
Who you’ll see: European royalty and
legions of intrepid powder chasers
Where to stay: The Almhof Schneider, Lech’s grand
dame and a onetime favorite of Princess Diana
Cost of a lift ticket: €53 per day
October 9, 2017
61
Mountain Modern near Jackson Hole
JACKSON HOLE SEES AN
INFLUX OF COOL HOTELS
This famous Wyoming resort has always made its name on
extremes, whether it’s the steep terrain, six-star hotels, or
record-setting snowfall. None of that’s going away. In fact, more
powder is coming, thanks to increased snowmaking capacities.
But this year the mountain’s appeal will broaden considerably
with the addition of several chic (and affordable) boutique hotels
in town. The Anvil is the leader of the pack, with a dude-ranch-
meets-midcentury look done by Studio Tack of Brooklyn, N.Y.
Then there’s Mountain Modern, a thoroughly reimagined motel
that goes heavy on natural wood grains and flannel throws. It
also has bunk beds for families, which are increasingly being
catered to on the slopes; this season will see significant enhance-
ments to a beginner- and family-friendly ski area, with a large
ski school coming next year.
Who you’ll see: Adrenaline-fueled bros;
if you’re lucky, Harrison Ford
Where to après-ski: The Handle Bar, which serves elk-chili
nachos and 50 types of whiskey on its sprawling patio
Cost of a lift ticket: $111 per day
 S KI
W H ER E TO
WHISTLER
HITS A PEAK
After a recent acquisition by Vail Resorts,
the legendary Canadian spot gears up for its
best season yet. By Natalie Obiko Pearson
Last fall, in a record-setting deal, Vail
Resorts Inc. paid $1 billion to acquire
Whistler Blackcomb, betting it could
improve upon the resort’s already abun-
dant selling points.
“It’s a game changer for our
company. We’ve just added, arguably,
the crown jewel of the ski industry,” says
Pete Sonntag, Whistler’s new chief oper-
ating officer, who previously ran Vail’s
Lake Tahoe operations.
Whistler’s slopes are only two hours
from Vancouver along a dramatic ocean-
side road that cuts through rainforests
and past waterfalls. The twin peaks of
Whistler and Blackcomb would individ-
ually rank among the continent’s biggest
ski resorts by acreage, yet they’re seam-
62
lessly connected by a gondola—the
world’s highest—that whisks visitors
across a glacial valley in 11 exhilarat-
ing minutes. And powder is plenti-
ful. The mountains get an average of
456 inches of snow a year, compared
with Aspen’s 300.
Vail’s strategy pivots on its Epic Pass,
a season ticket (available for $879 until
The town of Whistler
Bloomberg Pursuits
Oct. 8) that offers unlimited access to the
company’s 15 resorts in North America
and Australia and up to six days at
30 partner resorts in Europe. By con-
trast, you’d spend $694 on a one-week
pass at Whistler during peak season.
That should motivate even the most die-
hard Colorado loyalist to branch out to
the Great White North—and ideally get
hooked on its epic terrain.
“People can go to where the snow is
great, have the variety, and not have to
deal with buying different products,”
Sonntag says. “From a business perspec-
tive, it locks in that loyalty and weather-
proofs us for off-weather years.” It’s a
playbook cropping up throughout the
industry: Others, including Mountain
Collective and Aspen Skiing Co., are
bundling smaller ski resorts into con-
venient season passes.
In the next seven years, Vail will invest
C$345 million ($276 million) in capital
improvements at Whistler, on and off the
mountain. This season, Vail’s EpicMix
app will allow skiers to compare lift lines
in real time—minimizing concerns about
October 9, 2017
Whistler’s increasingly large crowds. Vail
is also opening a new après-ski spot at
the renovated Roundhouse Lodge, that
has a heated, open-deck bar with views
across the valley.
And while the company plans to
develop 60 high-end, ski-in-ski-out town
houses and a six-star luxury boutique
hotel in Whistler’s Swiss-inspired village—
both slated to make their debut by about
2022—travelers can now book into the
newly upgraded Alpine Suites at the
Fairmont Pacific Rim, which just com-
pleted a five-year, C$23 million renovation.
Summer business will be an equally
big focus for the ski conglomerate. By the
time the weather warms, Vail will launch
a 425-foot mountaintop suspension
bridge and lookout deck. Longer-term
plans include a 163,000-square-foot
indoor water park that will bring a surf
simulator to Blackcomb’s upper base.
“Whistler Blackcomb is by far the
industry leader in creating a true year-
round resort,” Vail Chief Executive Officer
Robert Katz told investors last year.
Offseason attractions include the Audain
Art Museum. Opened in March 2016,
the luminous 56,000-square-foot glass-
and-timber structure houses one of the
world’s most important collections of
aboriginal masks from the northwest
coast. Also worthwhile is the open-air
Scandinave Spa, nestled among 3 acres
of evergreen thickets, and Araxi, the
award-winning cornerstone of Whistler’s
dining scene.
One thing that hangs in the balance
of all this development is Whistler’s
local spirit. “If what you live for is fresh
tracks and getting that whole mountain
experience, it’s rapidly being eroded,”
says Cathy Zeglinski, a family doctor and
powder hound who says many members
of the community are getting priced
out, replaced by wealthy transients.
“If you’ve ever gone to Vail in the off-
season, it’s a ghost town,” she says. “The
community becomes a bunch of empty
houses where no one actually lives, and
that’s where Whistler is going.”
This could mean that now is the
perfect time to go, with Vail’s improve-
ments starting to hit and the local char-
COURTESY TOURISM WHISTLER
acter still relatively intact. Meanwhile,
Sonntag says he’s aware of the grum-
bling. “We’ve never sold a resort,” he
says. “We’re in for the long haul—and
we need the people that are here to be
engaged to help us create the future.” 
 S KI
W H ER E TO
YOUR OWN PRIVATE MOUNTAIN
“Fresh powder is one of the rarest
commodities in the world,” says Aaron
Brill, co-owner of Silverton Mountain.
There’s a reason you’ve never heard
of the resort. The private ski club in
southeastern Colorado limits access to
80 guests a day—unless someone buys out
the mountain. First tracks after lunch-
time? It’s an advantage that no name-
brand resort can provide: not Aspen,
not Vail, not St. Moritz.
All 1,819 of Silverton’s skiable acres can
be yours for $14,000 per day. For an extra
$900 you get a helicopter and 29,000 acres
of sugary, backwoods pow. Reservations
are available to the public and sell out
months in advance, but guaranteed access
goes to 25 “luminaries,” loyal patrons who
have earned elite status. For that $14,000,
they can bump day-pass holders when
conditions are prime. (Skiers who’ve
already booked on those days get fairly
compensated to come back another day.)
Silverton is among a growing list
of membership-based skiing clubs in
the U.S. For the first time this year,
Vermont’s Hermitage Club allows
members to rent the 194-acre mountain
for a day; it costs $60,000 for you and
your 99 closest friends. And Colorado’s
CIMARRON HERMITAGE
MOUNTAIN CLUB CLUB
Telluride, Colo. Wilmington, Vt.
Peak elevation Peak elevation
ILLUSTRATION BY PING ZHU
11,460 ft. 3,200 ft.
Total membership Total membership
15 families 800 families
Cost of entry Cost of entry
$3.2 million to buy in, plus $85,000 initiation fee,
$50,000 or more per year plus $9,500 per year
Bloomberg Pursuits
By Ross Kenneth Urken
Cimarron Mountain Club, which opened
in September near Telluride, has just
15 memberships, which run a cool
$3.2 million apiece. For that, you get a
35-acre slice of the property where you
can build the ski home of your dreams,
plus unlimited guided or snowcat skiing
on 2,000 untouched acres.
“Private ski resorts are the new
private jet,” says Jack Ezon, president
of Ovation Vacations, a Virtuoso Ltd.
travel agency. “They give luxury travel-
ers a hassle-free, line-free experience, so
they can focus more attention on their
family and travel partners.”
The Yellowstone Club in Big Sky,
Mont., started the trend in 1999. Its
2,200 acres of groomed corduroy—plus
private jet access at the Bozeman airport—
are limited to owners of the 864 proper-
ties on the mountain. (They range from
$3.15 million to $25 million—not includ-
ing the $300,000 sign-up fee, $39,500
annual dues, and sub-association fees.)
“It brought a level of exclusivity defined
by a person’s ability to invest in real
estate,” says Michael Berry, president of
the National Ski Areas Association.
And it’s not all about powder-chasing.
Hans Williamson, general manager of
HOLIMONT PLYMOUTH
SKI AREA NOTCH
Ellicottville, N.Y. Plymouth Notch, Vt.
Peak elevation Peak elevation
2,260 ft. 2,900 ft.  13,487 ft.
Total membership Total membership
1,800 families 350 families
Cost of entry Cost of entry
$17,000 initiation fee, $12,500 initiation fee,
plus $290 per month plus $6,000 per year
October 9, 2017
Yellowstone, says families love not having
to worry about their kids on the slopes as
they might in Aspen, where crowds make
collisions more likely.
Not in the market for a chalet? No
problem. Some resorts offer a happy
medium between membership and
homeownership. Silverton, for instance,
sells standard guided lift tickets for $179
a person—and Brill and his wife, Jen, run
a comparable service in Alaska for avid
heli-skiers. HoliMont in Ellicottville, N.Y.,
is limited to members on weekends but
opens its doors to the public Monday
through Friday. (Go for wide-open runs
and stay for its renowned après-ski parties
with live music and wine-fueled dinners.)
Ultimately, says David Panagrossi,
owner of Plymouth Notch, a private
Vermont ski club, running a members-only
mountain makes financial sense. Sure, the
63
$7.5 billion industry is built around econ-
omies of scale—with dining and rentals
contributing as much to the bottom line
as lift tickets—but snowfall totals are no
longer guaranteed. Membership fees are.
And for those who get only one chance
to shred each season, exclusive access is
priceless. “Time is irreplaceable,” Brill
says. “And money? You can earn more.” 
SILVERTON YELLOWSTONE
MOUNTAIN CLUB
Silverton, Colo. Big Sky, Mont.
Peak elevation Peak elevation
9,860 ft.
Total membership Total membership
25 “luminaries” 864 families
Cost of entry Cost of entry
Buyouts from $14,000 $300,000 initiation fee,
per day plus $39,500 per year
 STYLE Bloomberg Pursuits
Beyond
Basic
Sebastian Dollinger, Season after season, men demand white
creative director of Eton, shirts and blue shirts. Sometimes, for
variety, they’ll choose one that’s both white
is reinventing the boring and blue. Like most top shirt specialists,
work shirt the Swedish company Eton elevates these
By Troy Patterson basics through the quality of its fabrics and
the artfulness of its sewing. But Eton is alone
in employing menswear’s most innovative
shirtmaker as its creative director. His name
is Sebastian Dollinger, and his mission is to
transform commonplace button-ups into
extraordinary creations by pushing their
forms to the limit.
“We always try to reinvent classics,”
Dollinger says on a recent visit from
Sweden to New York, where the 34-year-old
designer is celebrating the redesign of the
company’s Madison Avenue boutique. He’s
explaining how he and Valerio Leone, “our
technical dude,” created one stunner—a
64
solid blue shirt distinguished by its sump-
tuous twill weave. It began as an experi-
ment: Dollinger was curious to see how
“radically huge” they could make a twill,
and he ended up with a business shirt
that’s both audacious in its bold look and
luxurious in its fine feel. “It’s such a niche
thing that nobody will ever remember we
did it,” he says.
He’s being modest. Eton—despite being
headquartered 250 miles from Stockholm
in Ganghester, Sweden—is not easily over-
looked. The company sells a million shirts a
year, ranging in price from $225 for a lustrous
lightweight white poplin number to $315
for Dollinger’s psychedelic short-sleeved
seersucker shirt with a fish-scale print.
With all due respect to Paul Smith, it
was Eton that popularized shirts with con-
trasting inner cuffs and collar. “We sort of
set that entire ball rolling,” Dollinger says.
“Maybe aesthetically I wasn’t proud of it, but
I knew it was gonna be a demon in sales.”
His artistic sense is more gratified by Eton’s
wittier offerings: a blue gingham printed
with a bulldog motif; a surprisingly elegant
zip-up denim shirt; a Hawaiian pattern that
replaces hula girls with “the most badass
women we know.”
“I’m kind of in awe of him,” says one
Dollinger in
London in talented competitor, Chris Olberding,
2013 president of American shirtmaker Gitman
October 9, 2017
and Gitman Vintage. “He has an incredi-
ble amount of creativity, but he’s able to
balance that with an analytic business mind.
Sebastian’s been able to change the percep-
tion of what a shirt can be.”
Inside Eton’s Madison Avenue outpost,
Dollinger’s superfans approach him with
firm handshakes, like business-suited
groupies—which is appropriate: He’s an
actual rock star on the side, building beats
for Highly Sedated, a house-music outfit
that released its first album in July.
A lawyer introduces himself to ask if
Dollinger changed the cutaway collar on a
recent shirt by a half-centimeter. He hadn’t
but relishes the moment later. “It’s hilari-
ous how nerdy they are,” he says. “It’s so
little about brand perception. It’s very
product-oriented, which is supercool.”
Dollinger settled into this menswear
niche at the age of 15, after his father—Jan
Borghardt, Eton’s sales and marketing direc-
tor—got young Sebastian a full-time job in
the stockroom. His rise at the company soon
took him to Harrods in London, where, as
an 18-year-old, he says he increased Eton’s
sales “by 2,000 percent” over five quarters.
Back in Sweden, while working whole-
sale accounts in Stockholm, Dollinger drove
himself to master his subject so he could
parry the taunts of snobbish clients—“tai-
lors in their mid-50s or 60s,” he remem-
bers. “They always tried to frame me, that
I didn’t know anything. They would ask the
most difficult questions. I was just trying to
get into their store. So I made sure I would
know everything about shirts. I basically
spent a year at the weaving mills and at the
finishing plant.”
That immersion first paid off when
Dollinger, recognizing that the company
needed a slim-fit shirt, designed one himself.
He kept submitting designs, and they kept suc-
ceeding. He eventually switched out of sales,
and Chief Executive Officer Hans Davidson
appointed him creative director at age 27.
Design inspirations come from simply
playing with fabrics, Dollinger says. “Just
trying to make a new white. That’s what’s
generally on my mind: How can you make
a new white and blue? The basics are the
trickiest.” 
 STYLE Bloomberg Pursuits October 9, 2017

A poplin floral-print shirt released this year

This $285 textured twill shirt, woven with increased

yarn counts, is a subtle, yet radical, innovation: “We
A blue-and-white-striped shirt goes bananas decided to go with our tallest collar,” Dollinger says Contrasting cuffs and collars have proven popular

65
DOLLINGER: GETTY IMAGES; STRIPED MECHANICAL STRETCH SHIRT: EVAN ORTIZ/BLOOMBERG BUSINESSWEEK; OTHERS: COURTESY ETON

Eton’s superslim-fit, 100-percent-cotton, striped mechanical stretch shirt

 CRITIC Bloomberg Pursuits
66
In the Shadow
Of a Bear
A one-man show by the son of late Bear Stearns
Chairman Ace Greenberg features lessons about
finance and fatherhood. By James Tarmy
In 2013, Alan “Ace” Greenberg was dying. The former chairman
of Bear Stearns Cos. had been diagnosed with cancer, and “I
had a limited amount of time to find out how my dad thought
and operated,” says Ted Greenberg. “So when it looked like
he might not have that much time left, I told him that there
was some stuff I wanted to know.”
He went through his father’s files and archives and, over
the course of multiple discussions, probed his dad about
lingering, decades-old questions. A stand-up comic who for-
merly wrote for Late Night With David Letterman, Greenberg
turned what he learned into a play, Ace. The one-man show
is set in the late 1980s—when, in an act of post-adolescent
rebellion, the younger Greenberg was driving a cab and living
in relative squalor in New York’s East Village. In an Oedipal
turn that clearly hasn’t escaped him, Ace necessitates that
October 9, 2017
Greenberg play both his father and himself, a dichotomy he
pulls off by alternating voice, mannerism, and accent.
Exploring his relationship with his father, who died in
2014, the play is peppered with anecdotes from his family’s
Wall Street milieu. Laced through it, too, are the younger
Greenberg’s fond feelings for and regrets surrounding his dad,
whose own life was defined by a series of connections with
powerful people. “I was always very intrigued by his relation-
ship with the sort of Machiavellian power brokers like [Ivan]
Boesky and Roy Cohn,” Greenberg says.
One of the play’s points of contention, and a source of
that rebellion, is Ace’s loyalty to these morally compromised
friends. Set on the eve of Boesky’s sentencing for insider
trading, the show consistently returns to the disgraced arbi-
trageur’s relationship with the Greenberg family.
Unmentioned in the play is another of Ace’s friends and
clients, Donald Trump, who ended their relationship in 2012
after a perceived slight about Ace not returning his calls at
JPMorgan Chase & Co., where he was working at the time.
“Out of nowhere, Trump yanks all his accounts from Ace
Greenberg in a hissy fit, blaming everyone,” Greenberg says.
It’s a dinner-party-worthy anecdote, but the show attempts
to mine profundity from such gossipy tidbits, too. Amid trap-
pings of wealth, success, and unimpeachable talent, the elder
Greenberg maintains a humble, almost folksy equanimity.
Viewers are taken—by way of flashbacks narrated by an oft-
bitter, occasionally sheepish young Ted—from Ace’s origins in
Oklahoma to his early lessons on Wall Street.
He indisputably left his mark on finance: At Bear Stearns,
which he transformed from a small brokerage into a publicly
traded international behemoth, the elder Greenberg instituted
an anti-nepotism rule, overturning decades of Wall Street’s Ivy
League-leaning insularity. And he changed lives, consistently
giving money to charities large (tens of millions of dollars to
United Jewish Appeal) and small. “There was a woman in
Arkansas whose kids were kicked out of school because she
objected to a crucifix on the facade,” Greenberg says. “So he
paid for her kids’ tuition for three years.”
But as Ace demonstrates in multiple scenes, the qualities
that endear so-called Great Men to the world seldom endear
them to their children. Greenberg says he and his sister “took
the anti-nepotism rule somewhat personally: We were like,
‘God, we’re not even allowed to work for our own dad,’ ” he
says, explaining his hurt feelings. Similarly, there’s a moment
in the play where Greenberg recalls his father’s criticism of
an heir to the Kuhn, Loeb banking fortune who opened a
bookstore on Madison Avenue instead of entering the family
business. “What a waste of human flesh,” his father remarks
offhandedly in the play, inadvertently giving his son an under-
achievement complex for decades.
Ace, then, will have an obvious resonance for a Wall
Street crowd, not simply because Greenberg is a legend, but
because it speaks to the obstacles faced by children of the
ILLUSTRATION BY CYNTHIA KITTLER
very rich. “Will Leon Black come to the show and like it?”
asks Greenberg rhetorically. “Who knows? But will children
of high-powered people, or any kid who feels like it was hard
to find room for themselves around a figure who cast such a
large shadow in so many different directions, like it? That’s
my hope.” Ace runs Oct. 1 through Nov. 5 at the Marjorie S.
Deane Theater in New York. 
 THE ONE
THE CHARACTERISTICS
For four generations, Cleveland-based Vita-Mix
Corp. has produced the blender of choice for
smoothie lovers. The company’s top-of-the-line
product in their Ascent collection, the A3500,
is a countertop brutalist masterpiece—the
base is offered in four finishes, including a new
black brushed stainless steel. Beneath the
sleek exterior is a 1,500-watt motor capable of
producing 2.2 horsepower, spinning blades at
up to 23,000 rpm, or roughly 240 mph. Chunky
switches have been traded out for a touchscreen
interface, and the containers are embedded with
NFC chips that let the blender automatically
customize settings for their dimensions, whether
smoothies or bowls of soup.
Vitamix
A3500
Blender
The original high-end
smoothie maker gets a
high-design upgrade
Photograph by
Hannah Whitaker
PROP STYLIST: HEATHER GREENE
Bloomberg Pursuits
THE COMPETITION
Vita-Mix largely had the lucrative blender
category to itself until the last few years, when
powerful, expensive food processors began
roiling the market. At $620, the A3500 aims
to reassert the company’s dominance with
worthwhile digital innovations and something
approaching high design. Its 17-inch-tall, narrow
jar curbs the splashing that torpedoes lesser
rivals, and the new one-touch function eliminates
the one advantage the $400 Breville Boss
had. The $750 KitchenAid Pro Line is flashier,
heavier, and pricier. Higher on the cost spectrum
is Blendtec Inc.’s $1,035 Tom Dickson Extreme
Blender, which has a compact size better suited
for smaller kitchen counters.
October 9, 2017
THE CASE
There are five preset options for frozen desserts,
smoothies, soups, dips, and spreads. Although a
lushly photographed cookbook is included in the
box, it’s more fun to improvise based on what’s
on hand. Soup takes about five minutes and
45 seconds to make: Press the soup icon, then the
start button, and the blender quickly whizzes up
to full speed. (It’s the friction from that speed that
heats the soup, not any kind of heating element.)
The blender makes quick work of uncooked rice
for horchata, and it turns kale, apples, grapes,
and bananas into a juice-stand-worthy drink.
Even better, the Vitamix has a self-cleaning cycle
that takes the scutwork out of dirty scrubdowns.
Vitamix A3500; vitamix.com
67
 Bloomberg Pursuits October 9, 2017

GAME CHANGER

Maurizio Reggiani
The mechanical wizard driving Lamborghini into the future
By Hannah Elliott

68

AT AGE 14, MAURIZIO REGGIANI featuring the world’s first

disassembled his first motor- single-piece carbon fiber body.
bike, a Bianchi 50cc. His father, “When I took the responsibility
the motorcycle’s owner, was a to launch this car, it was the
mechanic, and they were both biggest challenge of my life,”
obsessed with machines. “I wanted Reggiani says. “Everybody was saying,
to see what principle allowed this ‘Are you crazy? It’s not possible.’ ” For
machine to work. It was like trying to inspiration, he looked to nature, copying
discover a dream,” Reggiani says. That he the shapes and movements of venomous snakes
couldn’t figure out how to put it back together did and sharks. His engineers spent hundreds of hours
nothing to diminish his enthusiasm. in wind tunnels, evaluating the car’s efficiency and wind resis-
Today, Reggiani is the head of research and development tance. The care and attention paid off: The first production run
at Automobili Lamborghini SpA, the ultimate in Italian sports sold out in a matter of months, and Lamborghini’s overall sales
car makers. In his 11 years behind the wheel of the company’s have tripled every year since. Reggiani’s breakthrough body
innovation strategy, he’s helped the brand move beyond its design has become common throughout the Lamborghini lineup.
past glories, pursuing both imaginative design and cutting-edge Gian Paolo Dallara, who develops high-performing Formula
technology. As he puts it, “You must be able to create a mar- One race cars, calls Reggiani “incredibly talented—one of
riage between reality and what the customer expects the best ever. His technologies have improved
from the brand.” Lamborghini and changed car racing for good.”
Reggiani worked in engine design at both b. 1959, San Martino Reggiani is now focused on developing
Spino, Italy
Maserati and Bugatti, where he designed the - Lamborghini’s first modern SUV, the Urus, due late
rocket-fast EB110, before joining Lamborghini in Leads teams of MIT this year. He works “day and night,” he says, testing
1998. By the recession, Lamborghini had become students to develop his prototype in all conditions, doing doughnuts on
ILLUSTRATION BY SAM KERR

supercars for the

a niche brand for overeager, often obnoxious track- “third millennium” frozen lakes in the Arctic Circle and drag racing in the
heads, and global annual production dipped to - desert near the equator. Virtually every other auto-
fewer than 3,000 cars. Once had to panhandle maker, luxury or otherwise, already produces an SUV,
for change at a tollbooth
In 2011, under Reggiani’s leadership, the company while driving a and Lamborghini is among the last to join the pack.
released the $400,000 Lamborghini Aventador, six-figure Lamborghini “It must be able to do everything,” Reggiani says.