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The Morning Risk Report: Prosecutors, Regulators Probe Boeing 737 MAX Production Issues
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Boeing 737 MAX 9 airliners at the company's factory in Renton, Wash., last week. PHOTO: JASON REDMOND/AGENCE FRANCE-PRESSE/GETTY IMAGES
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Good morning. Boeing faces criminal and civil scrutiny into years of widespread quality-control lapses on its 737 MAX assembly line, according to people familiar with the details, potentially exposing the plane maker to greater legal liability than previously anticipated by industry and government officials.
The inquiries build on a federal grand-jury investigation into hazardously designed flight-control systems, these people said. As part of the expanded probes, Justice Department prosecutors and federal air-safety regulators have been scrutinizing potentially significant safety problems stemming from 737 MAX production missteps, these people said.
[Continued below...]
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The grand jury probe has focused largely on what certain Boeing employees told Federal Aviation Administration officials about the dangers of a faulty stall-prevention feature before it led to two fatal MAX crashes in less than five months and prompted the March 2019 grounding of the global fleet, according to people familiar with the matter.
But simultaneously, the people familiar with the inquiries said, DOJ prosecutors and FAA investigators also have been examining factory problems that raise red flags about the Chicago plane maker’s compliance with mandatory production rules and safeguards. Boeing found debris mistakenly left behind by workers in fuel tanks or other interior spaces of approximately half of the MAX aircraft it inspected starting last November, according to a company spokesman. Another person briefed on the details said most of the undelivered planes have been inspected.
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From Risk & Compliance Journal
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SEC Charges Company Over Statements About Medical Masks
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As the novel coronavirus took hold in the U.S. in late February, and as hospitals began to run short of the protective gear necessary to combat the virus, a Florida company issued a press release saying it could guarantee the delivery of millions of sought-after medical masks. The only problem: it wasn’t true, according to regulators.
The U.S. Securities and Exchange Commission charged Praxsyn Corp. and its chief executive Tuesday with making false and misleading statements about its ability to acquire and supply large quantities of N95 or similar masks.
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A man wearing a bandanna as a face mask roller-bladed past the U.S. Capitol building in Washington, D.C., earlier this month. PHOTO: BILL CLARK/ZUMA PRESS
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Senate Majority Leader Mitch McConnell told Republican lawmakers on a private call that he wants to shield companies from liability over pandemic-related suits and doesn’t support including an infrastructure package in a coronavirus relief bill, according to people familiar with the call, despite President Trump’s push for infrastructure investment.
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Some retail tenants are aiming to rewrite their leases to include pandemic escape clauses and other additional forms of relief, setting up a showdown with landlords who oppose these measures.
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New York City prosecutors have declined trials for dozens of criminal cases in which arrests were made since the coronavirus struck, citing court closures and public health concerns associated with incarceration.
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An investment unit of BlackRock has agreed to increase its stake in U.S. cybersecurity company Cofense, a vote of confidence in a business that was at the center of a spat between U.S. national security officials and a private-equity firm last year. The company ran into trouble in 2018 after agreeing to sell a stake in itself to private-equity firm Pamplona Capital Management and BlackRock, in a deal that at the time valued Cofense at around $400 million.
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It will fall to the SBA to ensure businesses fulfill their obligations under the loan program. An employee wore a face mask in a lower Manhattan restaurant Monday. PHOTO: JEENAH MOON/GETTY IMAGES
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The Small Business Administration’s $670 billion aid package for coronavirus fallout lacks one of its usual bulwarks against fraud and improper spending, which could strain efforts to ensure the money is spent appropriately.
The SBA normally counts on lenders to audit the small-business loans it backs. But to ensure the new Paycheck Protection Program loans reached recipients quickly, Congress largely absolved the banks of the time-consuming responsibility of checking for fraud or egregious errors, so long as borrowers provided necessary documentation.
Meanwhile, Treasury Secretary Steven Mnuchin is seeking an apology to American taxpayers from large companies that sought coronavirus hardship funds intended for small businesses.
Mr. Mnuchin on Tuesday rebuked companies that may have inappropriately tapped the roughly $660 billion in loans available through the Paycheck Protection Program and warned that they could face criminal liability if the money isn’t returned.
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The Securities and Exchange Commission is investigating Luckin Coffee’s disclosure that some of its employees cooked its books last year, according to people familiar with the matter.
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The company said it would complete its ordinary audit of 2019 results with its main auditor, E&Y in Germany, as soon as possible given the restrictions related to the coronavirus pandemic and the completion of the special audit by KPMG.
Wirecard has faced questions over aspects of its accounting for several years from hedge funds that bet against the company’s shares as well as from the media. Allegations of falsified transactions in its Singapore division led to an investigation by the Singaporean police’s financial arm, the Commercial Affairs Division, which has yet to complete its probe.
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Healthcare workers watched Tuesday as the U.S. Navy Blue Angels and U.S. Air Force Thunderbirds flew over the New York City region, part of the ‘America Strong’ tour of U.S. cities to honor first responders and essential workers during the coronavirus outbreak. PHOTO: LUCAS JACKSON/REUTERS
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California joined growing ranks of U.S. states and countries around the world preparing to ease coronavirus-containment measures, with many planning gradual rollbacks to help reduce the potential for new waves of infections.
New York will have measures in place that will signal another outbreak of the disease and the need to curb activity once again, as the state prepares to let businesses reopen with the easing of the coronavirus pandemic, Gov. Andrew Cuomo said Tuesday.
Simon Property Group, the largest U.S. shopping mall owner, is planning to reopen 49 malls and outlet centers in states loosening stay-at-home restrictions, according to a person familiar with the matter.
Meanwhile, European governments are moving closer to reopening the continent by introducing rules and guidelines that amount to a sweeping reconfiguration of everyday life, from subway seating to classroom size.
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The coronavirus pandemic has prompted a record souring of consumers’ views on the U.S. economy in April surveys, but people remain hopeful the gloom will be short term. The widespread cessation of global business activity, meanwhile, is damping results even for companies that have products and services in intense demand.
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A rally in corporate debt is enabling riskier companies to raise much-needed cash while fueling debate over whether investors have grown overly optimistic about the economy. From April 13 through Friday, companies such as Ford, AMC Entertainment Holdings and SeaWorld Entertainment issued a combined $28 billion of speculative-grade bonds, the fourth-largest two-week total on record, according to LCD, a unit of S&P Global Market Intelligence.
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President Trump on Tuesday hinted at action involving meat-processing plants. PHOTO: MANDEL NGAN/AGENCE FRANCE-PRESSE/GETTY IMAGES
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President Trump signed an executive order on Tuesday paving the way for meat-processing plants to remain open during the coronavirus pandemic, as hundreds of workers have fallen ill and concerns mount about food-supply shortages.
The move is expected to relieve pressure on meatpackers and farmers, who have struggled with food-supply upheavals following pressure from local and state officials to close plants. It is likely to draw fire from unions and worker advocates, who have said such closures are a necessary step to stem the virus’s spread through communities.
The president invoked the Defense Production Act, a Korean War-era law, to keep the facilities open, designating the plants as critical infrastructure under the law. The administration is also planning to take steps to improve safety for employees at the facilities, administration officials said
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Major U.S. manufacturers said some closed plants may never reopen and new product introductions could be delayed, after the coronavirus pandemic slashed demand for everything from motorcycles to industrial paint.
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Self-employed workers and independent contractors have been among the hardest hit in a coronavirus pandemic that ground the economy to a halt. They were also among the last to know how to get help.
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Roughly half of all U.S. workers stand to earn more in unemployment benefits than they did at their jobs before the coronavirus pandemic shut down swaths of the U.S. economy, a result of government relief that employers say is complicating plans to reopen businesses.
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Mark Zuckerberg speaks about social media and democracy during a February conference in Munich. PHOTO: PHILIPP GUELLAND/EPA/SHUTTERSTOCK
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In recent months, Facebook announced the departure of two directors, and added a longtime friend of Mark Zuckerberg’s to the board. The moves were the culmination of the chief executive’s campaign over the past two years to consolidate decision-making at the company he co-founded 16 years ago. The 35-year-old tycoon also jumped into action steering Facebook into a high-profile campaign in the coronavirus response, while putting himself in the spotlight interviewing prominent health officials and politicians.
The result is a Facebook CEO and chairman more actively and visibly in charge than he has been in years. It is far from certain that Mr. Zuckerberg’s repositioning of Facebook, and his role at the top, will lead to a lasting turnaround in its reputation following more than three years of controversy over the spread of misinformation, loose oversight of user data and the company’s competitive practices.
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Deutsche Lufthansa is balking at a request by the German government for two board seats at the carrier in exchange for what is shaping up to be one of the world’s biggest airline bailouts so far in the new coronavirus pandemic, according to people familiar with the situation.
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PHOTO: JUSTIN SULLIVAN/GETTY
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Universal Pictures’ plan to experiment with the theatrical distribution model has sparked all-out war with the world’s largest movie-theater chain.
AMC Entertainment Holdings Chief Executive Adam Aron said his chain would refuse to book any of the Comcast-owned studio’s movies in his theaters following a Wall Street Journal report on the studio’s plan to release forthcoming titles in theaters and on digital platforms.
In an open letter Tuesday evening addressed to Universal Chairman Donna Langley, Mr. Aron accused the studio of reneging on years of conversations between the studio and theater chain about preserving the exhibitors’ right to an exclusive engagement.
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