Scoop: Benchmark Capital sues Travis Kalanick for fraud - Axios
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Scoop: Benchmark Capital sues Travis Kalanick for fraud

Lazaro Gamio / Axios

The battle between Benchmark Capital and Travis Kalanick just went nuclear, with the venture capital firm suing the former Uber CEO for fraud, breach of contract and breach of fiduciary duty. The complaint was filed earlier today in Delaware Chancery Court.

Key graph, per the suit: "Kalanick, the former CEO of Uber, to entrench himself on Uber's Board of Directors and increase his power over Uber for his own selfish ends. Kalanick's overarching objective is to pack Uber's Board with loyal allies in an effort to insulate his prior conduct from scrutiny and clear the path for his eventual return as CEO—all to the detriment of Uber's stockholders, employees, driver-partners, and customers."

Why it matters: If Benchmark's suit is successful, Kalanick would be kicked off Uber's board of directors -- thus eliminating any faint hopes of him returning to the company in a substantial role.

What to know: Benchmark was an early investor in Uber, and has a seat on its board of directors. It also helped spearhead the move to have Kalanick resign in June, and tensions between the two have contributed, in part, to the slow pace of finding a replacement. Oh, and venture capital firms don't usually sue fellow board members of their single most valuable investment.

Complaint: The suit revolves around the June 2016 decision to expand the size of Uber's board of voting directors from eight to 11, with Kalanick having the sole right to designate those seats. Kalanick would later name himself to one of those seats following his resignation, since his prior board seat was reserved for the company's CEO. The other two seats remain unfilled. Benchmark argues that it never would have granted Kalanick those three extra seats had it known about his "gross mismanagement and other misconduct at Uber" — which Benchmark claims included "pervasive gender discrimination and sexual harassment," and the existence of confidential findings (a.k.a. The Stroz Report) that recently-acquired self-driving startup Otto had "allegedly harbored trade secrets stolen from a competitor." Benchmark argues that this alleged nondisclosure of material information invalidates Benchmark's vote to enlarge the board.

Moreover, Benchmark alleges that Kalanick pledged in writing -- as part of his resignation agreement -- that the two empty board seats would be independent and subject to approval by the entire board (something Benchmark says was the reason it didn't sue for fraud at the time). But, according to the complaint, Kalanick has not been willing to codify those changes via an amended voting agreement.

What Benchmark wants: An invalidation of the June 2016 stockholder vote and related actions, which would effectively eliminate the three board seats. And, in so doing, remove Kalanick from Uber's board of directors. It also is asking the court for a preliminary injunction against Kalanick's ongoing involvement in Uber board matters which, if granted, would remove him from the CEO search process.

Stakes: Per the complaint, Kalanick currently holds around a 10% equity stake in Uber, which most recently was valued at around $70 billion. Benchmark holds approximately 13 percent.

Comment from Kalanick spox: "The lawsuit is completely without merit and riddled with lies and false allegations. This is continued evidence of Benchmark acting in its own best interests contrary to the interests of Uber, its employees and its other shareholders. Benchmark's lawsuit is a transparent attempt to deprive Travis Kalanick of his rights as a founder and shareholder and to silence his voice regarding the management of the company he helped create. Travis will continue to act in the interests of Uber and all of its stakeholders and is confident that these entirely baseless claims will be rejected."

More: Axios was unable to reach Benchmark (Update: It declined comment). Uber, which is named as a "nominal defendant" (which is just a statutory requirement, it isn't an actual defendant in the case) declined comment. It also is worth noting that, earlier today, Uber's first employee and original CEO, Ryan Graves, said he would step down as VP of operation but maintain his board seat.

Read the entire complaint:

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AT&T reportedly in advanced talks with DOJ for Time Warner deal

Alan Diaz / AP

Justice Department officials are in discussions with AT&T about potential merger conditions, the WSJ reports, a positive sign for its $85 million bid for Time Warner.

Conditions: Despite Trump's early criticism of the tie-up, antitrust experts have anticipated the DoJ would approve the deal — with conditions — since the companies do not directly compete. Still, content providers have raised concerns with the DoJ that the deal will allow AT&T to favor its own programming over others and would consolidate media power. As Bloomberg reported last month, a possible condition would be pledging not to give its own programming an unfair advantage over rivals.

Data: The WSJ also reports that DoJ officials have asked about making AT&T's large amounts of customer data available to competitors at a reasonable price. This data is a major asset as telecom providers try to get a bigger piece of the online advertising market.

Top job still vacant: DoJ's review of the merger has continued despite the fact that the top antitrust enforcer post remains unfilled. Trump's pick for the job, Makan Delrahim, is still waiting on Senate confirmation. His confirmation is not necessary for staff to come to a conclusion on the deal, antitrust experts say.

AT&T has said it expects the deal to close by the end of the year.

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Trump again pushes debunked claim on WWI-era general

President Trump tweeted a fictional claim about WWI-era General John Pershing Thursday afternoon, telling his followers to "study it." This is one of several times Trump has cited the debunked claim about Pershing.

The fictional story he's referring to: Pershing, around the time of the Philippine-American War, killed 49 Muslims with bullets dipped in pigs' blood, and spared the 50th person so that he would take the last bullet to his people and tell them what happened.

Why? Trump has referenced this story repeatedly at rallies both during his campaign and his presidency as a way to give credence to his claim that the U.S. should "go much further" than waterboarding suspected terrorists.

Timing: The tweet came hours after a terrorist attack in Barcelona left at least 13 people dead and more than 50 injured.

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Cleveland Clinic pulls gala from Mar-a-Lago

Evan Vucci / AP

Cleveland Clinic is pulling its 2018 Florida fundraising gala from Mar-a-Lago, President Trump's Palm Beach club, according to the Plain Dealer. Cleveland Clinic's CEO, Toby Cosgrove, was a member of Trump's Strategic and Policy Council, which made the decision to disband minutes before Trump dissolved both of his business advisory councils with a tweet.

The statement: "After careful consideration, Cleveland Clinic has decided that it will not hold a Florida fundraiser at Mar-a-Lago in 2018 ... We thank the staff of Mar-a-Lago for their service over the years."

Why it matters: It's another rejection for Trump from the business community following his controversial remarks on Charlottesville. Go deeper with Mike Allen's list of who else Trump has alienated.

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Journalist on other end of Bannon interview: "I was stunned"

Robert Kuttner, co-editor of left-wing publication American Prospect (Peter Stevenson / The Washington Post)

Robert Kuttner, co-editor of left-wing publication American Prospect, opened up Thursday to The Washington Post about his unexpected interview with Steve Bannon Tuesday, saying he "was stunned."

  • "He was astonishingly dismissive of his boss' view of saber rattling... and he was quite cavalier in saying things that were quite at odds with the presumed administration line."
  • "The most astonishing thing of all... [is that Bannon first claimed the interview] was a misunderstanding, [saying] 'I didn't realize this was on the record', now he's saying [he] did this deliberately to help the president out by diverting attention from all the stuff that's going on in the aftermath of Charlottesville."
  • "I think you can attribute this to hubris in the sense that, if you're so full of yourself, your judgment starts faltering... this was like a stream of consciousness."

Go deeper: Axios' Jonathan Swan on the Bannon surprise

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Bitcoin is creating a third cryptocurrency

Mark Lennihan / AP

Just a few weeks after bitcoin announced that it was splitting into two separate entities, the initial version of bitcoin and it's new "bitcoin cash," the network is adding a third version, per Motherboard.

  • Bitcoin first split in two as a result of the initial network's failure to keep up with the market's rapid transaction growth.
  • With the introduction of bitcoin cash (#2), the currency could offer a transaction capacity eight times the size of the original bitcoin, which developers hoped would ease some of the currency's current back-log issues (and so far bitcoin cash has done just that).
  • But now, a different group of bitcoin developers are urging for a third option, one that will combine the best of the two currencies; essentially a new bitcoin blockchain with its own set of rules.

Potential problems: Three separate currencies could spur a debate over which currency is understood as the "true bitcoin." And juggling three cryptocurrencies could also lead to one dying out.

The idea for the new version dates back to May, when Bitmain, the largest bitcoin infrastructure company in the world, and bitcoin developer Jeff Garzik, got together and signed the "New York Agreement," under which they agreed to adhere to a certain block size increase (two megabytes) alongside segregated witnesses. They call it the Segwit2x, and it's expected to be launched at some point in November.

A breakdown of the three cryptocurrencies, as featured in Motherboard:

Bitcoin
  • One megabyte blocks
  • Segregated witnesses
Bitcoin Cash
  • Eight megabyte blocks
  • No segregated witnesses
Segwit2x/New York Agreement
  • Two megabyte blocks
  • Segregated witnesses
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CMS reaches EpiPen Medicaid agreement

(Andrew Harnik / AP)

The Centers for Medicare and Medicaid Services announced today that it has struck a deal with Mylan to reclassify the EpiPen, which will save the Medicaid program hundreds of millions of dollars.

Context: Part of last year's controversy over the price of EpiPens included the device's classification under the Medicaid program. It was classified as a generic rather than a brand name drug, meaning it paid less in rebates to the program.

The agreement: Mylan will reclassify the EpiPen as a brand name drug, which will recalculate the amount it pays to the program in rebates starting retroactively in April 2017.

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Facebook updates video ad-buying options

Noah Berger / AP

Facebook will now let advertisers buy in-stream video ads separate from the News Feed, meaning they can buy in-stream video ads (mid-roll and pre-roll) on Facebook's Audience Network or on Facebook without having to buy News Feed ads. Facebook's Audience Network is a collection of third party apps and sites, like Vice and LittleThings, that have partnered with Facebook to run ads from Facebook advertisers on their properties.

Why it matters: It gives advertisers a lot more flexibility and control on where they can buy video ads, which makes ad campaigns easier to customize to reach certain marketing objectives. This essentially allows advertisers to tell more complex, customizable messages through video.

A good thing to know: Facebook only lets mid-roll ads (ads that show up in the middle of a video) on the Facebook News Feed — not pre-roll, because Facebook is built for video discovery, and people are less likely to engage/discover new videos if there's a pre-roll ad (an ad before the video starts). But off-platform, where people are committed to longer videos and would be wiling to watch an ad to get to their content, pre-roll ads make sense. (You can buy pre-roll or mid-roll ads off of Facebook with this new update.)

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Facebook cracks down on spammy videos

Facebook is cracking down on spammy and misleading videos by down-ranking videos with fake play buttons or ones with static images in the News Feed. The crackdown will officially roll out in the next few weeks.

Why it matters: Those tactics are annoying and misleading for consumers, (you think you're watching a real video but you're not), and they're typically used by scammers trying to game the system by driving traffic to a low-quality, spammy web pages. Facebook product manager Greg Mara says that good publishers won't see any major change, but they may see a small bump as a result of Facebook weeding out spammy content.

How it works:

  • When Facebook catches a video link with fake play buttons or a long static image instead of an actual video, they'll be pulling them further down in the feed using a technique called "motion scoring."
  • Facebook built a proprietary system using machine learning to identify what these fake/misleading videos look like so they can automatically down-rank them in the feed.
  • According Mara, Facebook won't notify spammy publishers when they're being targeted, so as to avoid giving them information to be able to game the system even further.

Why don't they just remove these posts? The reason Facebook would remove posts is if they violate community standards. These posts don't necessarily violate standards, but they distrust the consumer experience. "We see category of publishers on Facebook not interested in building a category of readers and will do whatever tactic get them to a low-quality web experience," says Mara. Facebook's hoping the new motion scoring technique will solve for that.

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With strong earnings, Walmart continues its battle with Amazon

Walmart reported earnings and sales that beat expectations for the second quarter this year, with e-commerce sales growing for U.S. stores 60%, CNBC reports. Revenue was at $123.36 billion compared to an estimated $122.84 billion. Earnings were at $1.08 a share.

Why it matters: Walmart is largely avoiding the struggles hitting the rest of the industry — its size and scale enable it to compete on price with Amazon.

Data: Money.net; Chart: Andrew Witherspoon / Axios

Context: E-commerce sales were up 63% last quarter, compared to 29% growth the prior quarter following Walmart's acquisition of internet retailer Jet. Plus, as CNBC's Lauren Thomas writes, "These days, Walmart and Amazon.com are neck and neck on pricing."

What to watch: Walmart's retail rival, Target, had a report recently that topped expectations in digital sales growth.

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Trump publicly defends “beautiful” Confederate statues

In a series of three tweets over 14 minutes this morning, President Trump doubled down on his controversial rhetoric from his Tuesday press conference, calling the removal of Confederate statues a contributing factor to "the history and culture of our great country being ripped apart."